Introduction

On 1 may 2004, at the same moment as the enlargement of the Union from 15 to 25 Member States will take effect, the way of enforcement of European competition rules will change fundamentally. Regulation 1/20032 will replace Regulation 17/1962 as the procedural Regulation governing the implementation of articles 81 and 82 of the EC Treaty. The main purpose of the new regulation is a decentralized, effective and uniform application of European Competition Law in an enlarged and integrated market.


The existing system

Under Regulation 17/1962 national competition authorities ("NCA’s”) and national courts have the power to apply article 81 (1) which prohibits agreements and concerted practices which affect interstate trade and which have the object or effect of restricting competition. However, they lack the authority to apply article 81(3) under which these arrangements under certain conditions (for instance resulting benefits to consumers) may be declared exempted from the prohibition under art. 81 (1) if they meet certain criteria. Therefore up till now the Commission had the monopoly (under art. 81 (3)), to declare a restrictive agreement exempted from the prohibition of art. 81 (1), always subject to an individual notification for exemption or by way of group exemptions.
Because of the system of individual requests for exemptions under art. 81 (3), which also made the applicants harmless from fines, the Commission had so much work load, that it was not able to deal with these requests in a speedy and efficient way. It was moreover prevented from focusing on hard core cross-border cartels.


The new system as from 1 may 2004

Under Regulation 1/2003:

• the dual approach to article 81 EC of the Treaty will disappear;
• article 81 (3) may directly be applied both by national competition authorities and national courts;
• the notification system under article 85 (3) will be abolished.
  

NCA’s and national Courts will have the power to make the analysis of agreements up to its ultimate conclusion. NCA’s and national Courts which currently have the power to apply art. 81 under their national laws have been reluctant from doing so, when the parties had notified their agreement to the Commission and had requested an exemption under art. 81 (3). Under the new regulation, national competition authorities and courts will no longer have to stay their proceedings, until the Commission has given its opinion (either by official decision or by a so called "comfort letter”) on a request for an individual exemption.
The Regulation requires the application of EC competition law by both NCA’s and national courts in all Member States. NCA’s will apply their own procedural law and may take the following decisions:

• order the infringement to be brought to an end;
• order interim measures;
• accept commitments from the infringing parties
• impose fines or other penalties provided for in their national laws.
• grant individual exemptions.

New powers to European Commission

Regulation 1/2003 also assigns the following new powers to European Commission :

• imposing any remedy which is necessary to bring the infringements effectively to an end;
• assessing an infringement of competition law without imposing a fine (provided there is a legitimate interest in doing so);
• adopting decisions ordering interim measures, which power was already acknowledged by the European Court of Justice;
• adopting (in exceptional cases where the public interest of the Community so requires) a decision of a declaratory nature finding that the prohibition under artt. 81 or 82 does not apply, with a view to clarifying the law and ensuring its consistent application throughout the Community. This is particularly appropriate with regard to new types of agreements or practices that have not been settled in existing case-law and administrative practice;
• undertaking such inspections as necessary in order to detect any agreement, decision or concerted practice prohibited by article 81 of the Treaty or any abuse of a dominant position prohibited by article 82 of the Treaty.

Extension of powers of investigation

In order to enforce competition law effectively, the Commission’s powers of investigation will also be extended: in particular it will be empowered to interview any persons who may be in possession of useful information and to record the statements made. The officials of the Commission , subject to the authorization of the national judicial authority, will have access to any premises where business records may be kept, including private homes.


European Competition Network (ECN)

The new decentralized system will be accompanied by the creation of the European Competition Network (ECN) involving the Commission and the NCA’s. This Network will play a key role with regard to case allocation, exchange of information and mutual assistance during investigations. It should promote the coherent application of European competition law introducing on the one hand a vertical cooperation between the Commission and NCA’s and, on the other hand, a horizontal cooperation between NCA’s. For that purpose it was necessary to set up arrangements for information and consultation within the network in order to avoid double procedures and therefore situations of potential conflict. The Commission and the NCA’s shall have the power to provide each other with evidence on any matter of fact or law, including confidential information, but only for the purpose of applying articles 81 and 82 of the Treaty. This is one main feature in the new decentralized regime of enforcement of comp


Relation between Commission and National Competition Authorities

Under the new regulation, cases will be dealt with by:

• a single NCA (eventually with the assistance of NCA’s of other Member States;
  or
  several NCAs acting in parallel;
  or
• the Commission

In most instances the authority that receives a complaint or ex officio starts proceedings will remain in charge of the case. Reallocation of a case would only be possible at the outset of the proceeding where either the NCA considers that it is not well placed to act or where another NCA (or several NCA’s) consider themselves better placed to act.
An NCA can be considered to be well placed to deal with a particular case when the following three conditions will be met :

• a) the agreement which is the object of the proceedings will have substantial direct actual effects on competition within its territory or will be implemented within or will originate from its territory;
• b) the authority will be able to effectively bring the entire infringement to an end;
• c) the authority will be able to provide all that will be necessary to prove the infringement.

Therefore on single NCA will usually be well placed to deal with agreements that substantially affect competition mainly within its territory and where, although more than one NCA would be qualified to deal with the case, its action will be sufficient to bring the entire infringement to an end. Parallel action indeed by two or three NCAs will be appropriate where an agreement will have substantial effects on competition in all of their respective territories and the single action of one NCA would not be sufficient to bring the infringement to an end.
The Commission will be well placed to deal with the agreements or practices that have effects on competition in more then three Member States and moreover where the Community interest will require the adoption of a Community decision in order to develop European competition policy or to ensure effective enforcement of competition rules.
Under art. 11, par. 6 of Regulation 1/2003 the initiation by the Commission of proceedings for the adoption of a decision under the Regulation shall relieve all NCAs of their competence to apply articles 81 and 82 of the EC Treaty. If an NCA is already acting on a case, the Commission shall only initiate proceedings after consulting with that NCA.


Conclusion :

Many questions remain open, particularly regarding the practical application of the new system by the Commission, the national courts and the NCAs. It is, however, clear that under the new system, the companies themselves (and therefore their advisors) will bear greater responsibility than previously for determining whether they comply with European competition rules.


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1. The Consulegis autumn meeting (October 2004) will discuss this reform. Experts (EU Commission, National Competition Authorities and Judges) will be invited as key speakers in order to discuss practical consequences of the new system for Consulegis Members.
   
   
2. Council Regulation (EC) No. 1 / 2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (Text with EEA relevance), Official Journal 2001, 04/01/2003 p. 0001 – 0025.

Marinus Vromans
De Keersmaeker Vromans
Brussels

Tel : +32 2 235 03 00
Fax : +32 2 235 03 03
E-mail : mvromans@dkv-law.be