MERGERS

Competition Authorities and Appeals

The main tasks of the (DG = EC) CMA, etc, are:

  • – contest the establishment of cartels
  • – evaluation and approval of mergers
  • – liberalisation of markets and monitoring state interference
  • -preventing unfair competition of enterprises by use of government aid
  • -control of government aid regarding regional development and research programmes
  • – international cooperation

All below are administrative bodies, so their decisions can be appealed to the ordinary courts.

  • the DG Directorate General (Competition) of the EU,
  • the Competition Commission of India (the CCI), and
  • the CMA in the UK.
  • the US Antitrust Division of the Department of Justice (the DoJ): The DoJ has exclusive jurisdiction over American criminal antitrust prosecutions (i.e. cartel prosecutions) and shares jurisdiction with FTC over civil antitrust cases.  Its cases are prosecuted, and can be appealed in the federal courts.
  • the Federal Trade Commission (the FTC): If the FTC carries out an investigation and finds fault it can be appeled to the U.S. Court of Appeals, and the Supreme Court.

EU COURT JURISDICTIONS

EU CL are heard by either :

-by a court: ECJ consists of the court of justice (CJ) and the [CG (general court) = former CFI],

AND/OR

-by admin: the (EC = Competition DirectorateGeneral = DG Competition)

The ecj is in Luxembourg and consists of two courts: the Court of Justice and the General Court, and both hear cases involving EU cl, including:

  1. •appeals brought against decisions of the Ec in relation to Articles 101 and 102 TFEU (infringement decisions, decisions rejecting complaints and procedural decisions taken during investigations)
  2. •appeals brought against decisions of the ec in relation to Articles 107 to 109 TFEU (State aid) (decisions approving or refusing aid and also procedural decisions during investigations)
  3. •appeals brought against decisions of the ec in relation to the EU Merger Regulation (EUMR)
  4. •actions by the ec before the ECJ, against Member States for failing to comply with State aid decisions (eg failure to recoup illegal aid)
  5. •references made to the ECJ from national courts on points of interpretation of EU law which have, for example, arisen in the context of private damages actions in competition claims and the parameters of the requirement of an effective remedy for competition infringements, and
  6. •a claim for non-contractual damages against an EU institution in relation to a competition

THE ‘CONSTITUTIONAL’ PROVISIONS OF THE EU TREATIES

The starting point for any analysis is a Treaty’s ‘constitutional’ provisions—ie the bits at the beginning:

Treaty on European Union

Article 3(1): ‘The Union’s aim is to promote peace, its values and the well-being of its peoples’…eg. having enough food to eat; having clean air to breathe; and producing goods using fewer resources

Article 3(3):‘The Union … shall work for the sustainable development of Europe … and a high level of protection and improvement of the quality of the environment’.

Article 3(5) says:‘it shall contribute to … the sustainable development of the earth’ and to ‘free and fair trade’.

Thus, where there is a conflict between sustainability and economic goals, the proportionality principle should be applied. this is written into Article 101(3).

EU Charter on fundamental rights

Article 37 : ‘A high level of environmental protection and improvement of the quality of the environment must be integrated into the policies of the Union and ensured in accordance with the principle of sustainable development’

The Treaty on the Functioning of the European Union (TFEU)

Article 7 says: ‘The Union shall ensure consistency between its policies and activities taking all of its objectives into account’…. [The importance of this point is emphasized in para 7 of the Parliamentary Report (n 5) which: ‘underlines the fact that competition rules are treaty based and, as enshrined in Article 7 of the TFEU, should be seen in the light of the wider European values underpinning Union legislation regarding social affairs, the social market economy, environmental standards, climate policy and consumer protection; takes the view that the application of EU competition law should address all market distortions, including those created by negative social and environmental externalities’.]

Article 9 says: ‘In defining and implementing its policies and activities, the Union shall take into account … the ‘protection of human health’. (Which is surely capable of taking into account having enough to eat and producing basic foodstuff on a sustainable basis?)

Article 11 says: ‘Environmental protection requirements must be integrated into the definition and interpretation of the Union policies and activities, in particular with a view to promoting sustainable development’ (emphasis added).

Thus, environmental consideration ‘must’ be taken into account when implementing all of the EU’s policies and activities.

ARTICLE 101(1) prohibits anti-competitive agreements –

The ‘Albany’ route (In the Albany case): (ECJ) held that Article 101 does not apply to collective bargaining and that sustainability agreements fall outside Article 101(1) completely. ios, agreements betwen companies that promote sustainability, may not be anti-competitive.

Article 101(3) provides for (eg. sustainability) agreements to be exempted from 101.1 (being regarded as anticompetitive agreements), if all 4 conditions are met. There is no requirement that an agreement must be ‘pro-competitive’ (thus, this proportionality test allows (sustainable) agreements between companies not to be regarded as anti-competitive, even if they are not pro-competitive):

1/The agreement must: ‘contribute to improving the production or distribution of goods or to promoting technical or economic progress’ ….the (OECD) has recognized ‘cost savings, innovation, improved quality and efficiency’ as ‘direct economic benefits’ which are ‘typically recognised in competition law analysis’. most environmental benefits fall under one or more of the above heads…. Thus, environmental (or any other benefits) are competition/economic grounds, and not just PI grounds.

case: CECED (Conseil Europeen de la Construction d’appareils Domestiques) (CECED [1999] L187/47OJ 2000]). In this case, the Commission granted an exemption to an agreement between producers and importers of washing machines (accounting for some 95% of European sales) which involved discontinuing the least energy efficient machines and pursuing joint energy efficient targets and developing more environmentally friendly machines. Despite increasing prices (by up to 19%) and removing competition on one element of competition, the EC accepted that the collective benefits for society (ie a reduction in energy consumption) outweighed these costs.

2/the agreement allows: ‘consumers a fair share of the resulting benefits’. Paragraph 47 of the 2010 Guidelines says that the ‘concept of “consumers” encompasses the customers, potential and/or actual, of the parties to the agreement’. Similarly, paragraph 84 of the Exemption Guidelines: “consumers” encompasses all direct or indirect users.

‘A fair share of the resulting benefits’ does not suggest that consumers must benefit from a lower/fair price…. EC Exemption Guidelines par.102: ‘The benefits to consumers can take the form of qualitative efficiencies, such as new and improved products, that are of sufficient value to compensate for the anticompetitive effects of the agreement, including a price increase”

EC accepts that the environmental qualities of a product are parameters of competition. For example, EC is investigating whether German manufacturers colluded ‘not to improve their products, not to compete on quality’ by ‘denying consumers the opportunity to buy less polluting cars’.

case: CECED: the ‘environmental results for society would adequately allow consumers a fair share of the benefits even if no benefits accrued to individual purchasers’. This is consistent with  par. 85 of EC’s 2004 Exemption Guidelines:  ‘society as a whole benefits where the efficiencies lead either to fewer resources being used to produce, or to the production of more valuable products and thus to a more efficient allocation of resources’.

But par. 43 of EC’s 2004 Exemption Guidelines place a limit on who are regarded as consumers: ‘Negative effects on consumers in one geographic market or product market cannot normally be balanced against and compensated by positive effects in another unrelated geographic or product market’….However, where two markets are related, efficiencies achieved on separate markets can be taken into account, provided that the group of consumers affected by the restriction and benefiting from the efficiency gains, are substantially the same.’….. However,  in the CECED Case, EC seemed to hold that they dont need to be substantially the same, but is sufficient that there is some overlap(between the group of customers affected by the restrictions, and those receiving the benefits),because in CECED, the consumers affected by the restriction of competition were not ‘substantially the same’ as those to whom the ‘collective environmental benefits’ accrued (the reduced pollution from electricity generation) and yet EC held that such ‘environmental results for society would allow consumers a fair share of the benefits, even if no benefits accrued to individual purchasers’.

can future consumers can be taken into account? Happily, the Commission’s 2004 Exemption Guidelines paras 87 and 88: ‘future (climate change) benefits must not discount future (climate change…thus, consumers (in the agreement between cos) should be nearly always deemed to be getting a ‘fair share of the benefits’) costs (which is vastly underestimated: we greatly underestimate the future costs of living in a planet with climate change ) …thus, yes, future consumers are taken into account. this is most welcome, as the need to consider future generations (future ‘consumers’) is central to the very concept of sustainability, whether it is the effect of an agreement on climate change…or other environmental issues such as the need to preserve biodiversity and an ecosystem compatible with sustaining a global food system. Whether consumers outside the EU can also be taken into account is less clear.

3/The restrictions in an agreement should be ‘no more restrictive than necessary’ . This is an expression of the proportionality principle in EU law.  For example, agreements to pass on environmental charges to consumers would almost invariably be considered unlawful even if it could be argued that such pass on might motivate customer conduct consistent with environmental policy goals… The 2010 OECD Report: Agreements may pass on environmental charges in narrowly defined circumstances. eg. wholesalers agreeing to pass on recycling charges for packaging, to the producers responsible for producing the packaging (‘polluter pays’ principle)

4/ The agreement must not eliminate competition in the relevant market

conclusions

-there is no basis for the adoption of a narrow ‘consumer welfare’ test anywhere in the Treaties—and therefore in EU law (or the analogous national competition regimes in Europe)….welfare is about well-being and good health, not about ‘profit’, greed or ‘fortune’…Like the Emperor Nero, we are fiddling while Rome is burning. We are squabbling over technocratic issues while climate change gathers frightening momentum.

-Where a company seeks to internalize a so-called ‘external cost’ (such as pollution of the air or using a more sustainable input) it will incur an extra cost and it may suffer a competitive (or ‘first mover’) disadvantage if it is the first, or only, competitor to do this. Agreement amongst competitors can prevent this, and should not be penalised by CL.

-not all sustainability agreements restrict competition. the EC’s 2001 Horizontal Guidelines said that an environmental agreement is unlikely to restrict competition if:

i. it does not place any individual obligation on the parties, or if parties only commit loosely to contributing to a sector-wide environmental target,

ii. the agreement stipulates environmental performance with no effect on product and production diversity, or

iii. it gives rise to genuine market creation.

Standardization agreements

Para 252 EC’s 2010 Horizontal Guidelines:

standardisation agreements are those that define requirements for current or future (products, production processes, services or methods)

Para 258 EC’s 2010 Horizontal Guidelines:

high market shares do not necessarily lead to that standard been anticompetitive

para 300:

‘Standardisation agreements can give rise to significant efficiency gains’. ‘product/service Standards on, for instance, quality, safety and environment, facilitate consumer choice and lead to increased quality’..

standarisation agreements have a greater chance of complying with Article 101…thus, existing sustainability agreements should take the form of standardization agreements. For example, many of the animal welfare objectives would have been achieved in the ‘Chicken of Tomorrow’ case, if the arrangements had been framed as a standardization agreement.

business should get together to agree standards (enter into standarisation agreements) for sustainable products. these meetings would not be breaking CL…example: the agreement between (Ford, Honda, BMW, and VW) to adhere to higher standards for exhaust pipe emissions…this is a classic case of ‘first mover disadvantage’: ie if any one car maker unilaterally increases its exhaust emission standards it gives itself a cost (and a likely competitive) disadvantage

ADP = Article 102 TFEU

102.b is a ‘shield’ 

where a dominant company (or a set collectively dominant companies) enter into agreement to tackle environmental issues , which might otherwise be considered to be abusive , and there is no way of achieving these objectives in a way that is less restrictive of competition,

Allowing Article 102 to act as a ‘shield’ helps genuine companies (unlike‘green washing’ cos) do the right thing for sustainability.  instances :

i. charging a higher price in order to cover environmental costs or reinvest in environmental protection: ie as a defence to allegations of ‘excessive pricing’;

ii. charging different customers different prices according to the use to which the product is put—eg how environmentally friendly it is (eg the energy efficiency of the downstream production process); ie as a defence to allegations of ‘discriminatory pricing’;

iii. making the purchase of one product from the dominant company conditional on the purchase of another environmentally friendly product (eg sale of a printer conditional on the purchase of recyclable toner cartridges)93: ie as a defence to an allegation of ‘tying’.

iv. Offering exceptionally low prices to generate trial of a new environmentally friendly product: ie as a defence to an allegation of ‘predatory pricing’. v. Refusing to grant access to an essential facility to a user who intends to use the facility for environmentally unfriendly purposes (eg denying access to diesel vehicles—provided this was done on a non-discriminatory basis): ie as a defence to an allegation of ‘refusal to supply’.

102(a) is a sword 

it prohibits (as an abuse) all ‘unfair purchase or selling prices, or other unfair trading conditions’ of a dominant company.

Thus, it can be used to attack non-sustainability practices….and…since the categories of abuse under Article 102 are not fixed, 102.a can be used to attack unfair practices from an economic, political, social, environmental or moral point of view.   eg: low prices paid to producers; exploitation of child labour, environmental depravation, human rights, etc

crucially, CL not only should not harm but can indeed tackle non-sustainable practices such as the depressingly low prices paid by some suppliers, to farmers.  What is ‘fair’ about a price if a farmer cannot afford to feed his/her children, or barely cover his costs of production?…And we should treat the subsequent selling price as predatory

…Also, such low prices (eg for bananas, chocolate, coffee) encourange an excessive use of scarce resources and discourage sustainable land use practices.

national competition regimes (CMA…) have powers to tackle abuses by suppliers

5 ways to include wpis on MERGERS

 i. assessment of the merger under Article 2 of the EUMR;

ii. When considering ‘efficiencies’ under the EUMR;

iii. When considering ‘remedies’;

iv. Under Article 21(4) of the EUMR; and

v. When mergers are reviewed under national competition law

i.  2(1) EUMR + par 76 of the Horizontal Merger Guidelines:

a merger will be cleared if it involves the ‘development of technical and economic progress, to the consumers’ advantage, and does not form an obstacle to competition.

wpis play a bigger part in clearing deals [type 2 errors], than in blocking them [Type 1 Errors]….. cocoo will just seek to clear deals on wpi grounds

ii. when considering [efficiencies = Environmental Factors]:

pars 78–88 of the Horizontal Merger Guidelines, EC sets out the three cumulative conditions: to clear a merger, efficiency claims must:

a. Benefit Consumers:  <>Article 101(3) in the subsection

b. be ‘merger specific’:  efficiencies must be ‘a direct consequence of the notified merger and cannot be achieved by less anti-competitive alternatives’. This is similar to the ‘no more restrictive than necessary’ consideration in Article 101(3)=(the proportionality principle).

c. be ‘verifiable’ :  the efficiencies must be likely to materialise. That said, given that many environmental benefits will take time to materialize (and can be difficult to quantify) …Article 2 of the EUMR,: burden of proof: ‘it is for the merging parties to show to what extent the efficiencies are likely to counteract any adverse effects on competition, and benefit consumers’….. But the overall legal burden of proof still lies with EC.

iii. Remedies: Many mergers are approved subject to the acceptance of remedies….cocoo will insist that these should be wpi remedies

iv. Article 21(4) of the EUMR:

allows member states to protect legitimate interests, other than competition interests. These interests are: Article 21(4) : public security, plurality of the media and prudential rules… or ‘any other public interest’ which has first been communicated to EC by the member state and ‘recognised’ by EC.

There is no express reference to environmental protection, sustainability or climate change here but there are 2 ways in which they might be included:

1. they might fall within one of the current ‘legitimate interests’—most likely ‘public security’ (eg the need to ensure a secure and sustainable supply of energy).

2. A member state could apply to EC to have a sustainability concern ‘recognised’ by the Commission as a legitimate interest.

Article 21(4) also allows a member state to review and ‘prohibit’ a deal that is EC cleared…but a member state cannot ‘approve’ a deal EC blocked.

v. When mergers are reviewed under national CL:

Where a merger does not fall within the EUMR, it may be reviewed under the national merger control rules. Indeed, some (eg Spain) contain express reference to environmental issues

 

 

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