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Vice President of the European Commission responsible for Competition Policy
Antitrust enforcement: Challenges old and new
19th International Competition Law Forum, St. Gallen
8 June 2012
Ladies and Gentlemen:
It is a pleasure to return to St. Gallen and I thank Professor Carl Baudenbacher for inviting me to address this forum’s distinguished audience for the second year running.
Over the past twelve months we have talked a lot about the crisis, the tensions it is causing and its consequences.
The times call for urgent action and bold decisions, and I am confident that – once again – Europe will emerge stronger and more united from this crisis. Among other important steps forward – such as a banking union and further integration within the EMU – we need to renew our trust in the potential of the internal market to generate growth.
Antitrust enforcement is not insulated from this reality; in fact, the task of competition enforcers is particularly delicate in this turbulent period for Europe’s economy and society.
And, in the present company, I don’t need to make a case for the crucial role of competition policy for the smooth functioning and the completion of the internal market. Keeping the Single Market open, integrated and fair has never been more important.
I cannot see a better platform on which a dynamic and competitive economy can flourish again in our continent.
Against this background, today I would like to update you on the recent activity of the European Commission in selected areas of antitrust and merger control.
In the course of my presentation, I will share my reflections on the challenges – old and new – that we have been encountering in our work.
But first, let me just mention an important policy development recently adopted in the competition domain. Last month the European Commission launched on my initiative a broad and far-reaching overhaul of State aid policy.
The goal of the State aid Modernisation initiative – as it is called – is quite ambitious; the reform package is designed to turn State aid control into a simpler, stronger and smarter instrument to help EU governments boost growth in times of extraordinary fiscal constraints.
The package includes many policy reforms and its main elements will be gradually introduced between this coming autumn and the end of 2013.
I discussed the initiative in Brussels yesterday before an audience of State aid law experts; as I have no time today to share with you its main elements, I invite you to read the ideas I explained in my speech, available on my page on the website of the European Commission.
Before entering into antitrust territory, I would also like to update you on a topic I touched upon last year; the cooperation agreement on competition between the Swiss Confederation and the EU which, at the time, was still under negotiation.
I am pleased to report that the negotiations with the Commission are now over. On 1st June, the Commission adopted the proposal to conclude the agreement and we have now moved to the stage where the Council and the European Parliament need to give their approval.
Many anticompetitive practices have cross-border effects on the EU and the Swiss markets, and closer cooperation between our authorities will doubtless bring large benefits to both sides.
A notable feature of this ‘second generation’ agreement is that it covers the exchange of evidence obtained by our competition authorities during their investigations. This part is quite innovative and testifies to the level of mutual trust between our authorities.
Ladies and Gentlemen:
I will now turn to our work in different areas of antitrust over the past few months, starting with a look at a sector of our economies that is not present very often in our decisions at EU level: food markets. I will do so on the basis of a report on the activity of the European Competition Network in the sector published last month.
The main goals of our competition enforcement are better understood when we deal with products and services that people buy and use every day, such as food; and citizens are worried about how food prices evolve.
The report helps us better understand how food markets work and identify the problems that hinder their smooth functioning.
Despite the fact that the Commission has not dealt with many cases in this area, given the predominantly national dimension of the relevant markets involved, between 2004 and 2011 competition authorities in Europe carried out over one hundred market-monitoring actions, about 1,300 merger cases, and 180 antitrust cases – half of which were cartels, mostly in food processing and manufacturing.
This means that the European competition authorities have swiftly addressed anticompetitive behaviour at all levels of the food supply chain; many problems were located at the processing and manufacturing stage.
This work has benefited all market actors – from farmers to consumers – and it will continue.
Of course, the evolution of food prices is more often a reflection of market fundamentals than a result of lack of competition. In addition, there are still structural obstacles to tackle.
The report suggests that producers should develop their business models to generate efficiencies; for instance, by setting up cooperatives and pooling some activities. The regulatory barriers that still exist at retail level in some EU countries should also be eliminated.
I welcome these suggestions. They are much better solutions to the sector’s problems than the calls to shelter the industry from competition control – especially to insulate farmers from changing market conditions.
The conclusions of the report will be useful to guide our enforcement work in the food sector and to coordinate the action of competition enforcers across the EU. I also believe that its findings could find a place in the debate over the future of our Common Agricultural Policy.
Even if most cases in this area have a national dimension, this doesn't mean that we are not paying attention to what is going on along the food value chain. As an example I can refer to a merger decision that the Commission took last month.
On May 16, we approved in Phase II the acquisition of ED&F MAN – the world's second largest sugar trader – by Südzucker – Europe's largest sugar producer. We cleared the deal on condition that ED&F sells its biggest and most modern refinery in Italy.
Sugar markets are already fairly concentrated and are characterised by high prices and scarcity across the EU. Our decision will maintain the present level of competition in the Italian market, where our concerns were concentrated.
To continue my review of our antitrust work in established markets, I will now look at our recent record in the fight against cartels.
Last year we took four decisions and imposed a total of €614 million in fines. This is a reduction compared to 2010, when we took seven decisions for €2.9 billion in fines.
However, looking at the cases we have in the pipeline, I expect these figures to pick up again this year and in the more distant future. Over the last year and a half, we have conducted quite a few inspections and received a large number of applications for leniency.
Beyond these numbers, the recent decisions confirmed the growing success of our settlement procedure.
In 2011, we adopted three settlement decisions in cases concerning consumer detergents, refrigeration compressors, and Cathode Ray Tube glass.
Clearly, the settlement system has become a well-established and effective tool that can considerably shorten our proceedings and generate benefits for everyone.
Let me add, however, that settlements are not suitable in all cases and neither of the decisions we have taken so far in 2012 has been a settlement.
In the first decision, a global cartel in freight forwarding was fined €169 million and in the second a European cartel in the mountings for windows market received a fine of €86 million.
In the Mountings case, the fines of nearly all companies would have reached 10% of their total turnover. As a consequence, we reduced the fines to take into account the mono-product nature of the companies and their different degrees of responsibility.
As to the judicial review of our cartel decisions, the Courts are exercising close scrutiny, which reflects the complexity of the cases and the seriousness of the infringements we have to deal with.
I am happy to report that most of our decisions have withstood this review. More importantly, the Courts have confirmed several fundamental points for our practice. For instance, they have confirmed for the first time key elements of our 2006 Fining Guidelines.
The Courts have also upheld the principles we apply in the complex area of parental liability.
In particular, they have affirmed that when a subsidiary that is almost fully owned by another company breaks competition law, we can hold the parent company responsible.
To use more precise language, we can still rely on the presumption that the parent exercised decisive influence over its subsidiary. It is then for the parent to prove otherwise.
I believe that this will have a positive impact on business practices. Parent companies can now be certain that they can be held responsible for the infringements of their subsidiaries if they together form a single economic entity.
As a consequence, they will arguably take better care that the latter stay on the safe side of competition law.
In a few cases, the Courts have also ruled against the Commission. For example, they criticised the Commission for not sufficiently stating its reasons when it rejected the attempts of the parties to rebut the presumption of parental liability.
However, since the time when the decisions the Court criticised were taken, our policy has evolved. Our practice has now come fully in line with the judgments of the Courts.
Overall, the judgments prove once again the importance of judicial review in our system of enforcement.
Our system has evolved over the years to guarantee the highest standards of fairness and impartiality. Among other things, in the past two years we have further improved our process through the adoption of Best Practices in antitrust and an expanded role for the Hearing Officers. The Court has also confirmed that our system is fully in line with the fundamental rights guaranteed at European level.
Let me add one more thing on cartel enforcement.
We are committed to protecting our leniency policy following last year’s Pfleiderer judgment.
This is a matter of common concern for Europe’s public enforcers. Just a few weeks ago, the heads of the agencies associated in the European Competition Network adopted a joint resolution on the protection of leniency material in the context of damage actions.
But we are seeking a more general solution. I intend to propose legislation later this year that will strike the right balance between the protection of leniency programmes and the victims’ rights to obtain compensation.
Ladies and Gentlemen,
I will now turn to the antitrust work that the Commission is carrying out in less established industries.
Addressing the fresh challenges that fast-moving markets pose to us is crucial for competition policy, because we must ensure that they deploy in full their considerable potential for innovation and growth.
I will review our work using examples from the market for search engines, online commerce, and the new systems of payments we have to develop to tap the potential of the digital economy.
My first story has been covered extensively by the media. On May 21, I sent a letter to Google underlining our concerns in its business practices that we identified in our preliminary investigations that started in November 2010.
I want to give the company the opportunity to offer remedy proposals that would avoid lengthy proceedings. By early July, I expect to receive from Google concrete signs of their willingness to explore this route.
In case we engage in negotiations to address our concerns and the proposals we receive turn out to be unsatisfactory, formal proceedings will continue through the adoption of a Statement of Objections.
I strongly believe that users and competitors would greatly benefit from a quick resolution of the case; it is always better to restore competition swiftly in fast-moving markets, provided of course that the companies concerned are ready to seriously address and solve the problems at stake.
To remain in the digital domain, let me share my views on a couple of mergers in the music business that have interesting implications for online commerce.
The digital era and the Internet have brought a revolution in this market. The consumption of digital music continues to rise at the expense of sales in physical formats, although in Europe physical sales still account for the majority of them.
We know that internet users can legally find and consume digital music in different degrees in the various Member States.
The key is finding new services and business models that can fairly remunerate artists and bring music to consumers at competitive prices through legal pathways. To encourage this evolution, digital platforms must offer the widest possible repertoire, including recent chart hits and evergreens from the past.
The size of the catalogue is crucial in this market because if consumers cannot find what they are looking for, they can quickly jump to the next service.
This is where record companies get into the picture; a company with a large and popular catalogue can have significant market power over digital platforms, which would have a keen interest to strike a deal with it.
Competition authorities have the responsibility to monitor these market developments and allow all participants to play their part.
This is the context for the two merger cases I referred to earlier. The first one is the deal that gave control of the music publishing business of the EMI Group to Sony and Mubadala, an investment fund based in the United Arab Emirates.
We cleared the merger last April on condition that the new company created by the merger sold four of its catalogues and the works of 12 contemporary authors. Without these conditions, the new company would have owned – fully or in part – the publishing rights in over half of recent chart hits in the UK and Ireland.
The other case is the proposed acquisition of the recorded music business of EMI by Universal Music Group.
We opened our in-depth investigation last March and we are getting ready to move to the next stage in our proceedings. Ultimately, we will need to make sure that, in this already concentrated market, the company that would emerge from the deal would not be in a position to shape the future landscape in the digital music market to the detriment of users and artists.
Preserving competition and innovation is crucial in other dynamic industries as well, such as the markets for payments.
Open, secure and innovative payment systems are strategically important for the growth of e-commerce and the smooth functioning of the internal market.
We are currently studying how to complete the internal market for cards, internet and mobile payments. In the past couple of months, we have closed a popular public consultation and – together with my colleague Michel Barnier – I have launched a Green Paper to discuss our options in this domain.
I can report that the interest among stakeholders and the general public is very high, and we are preparing to announce the next steps this summer.
Obviously, the landmark judgement recently handed down by the General Court in the MasterCard case has a significant impact on these reflections and on the course of action the Commission will take.
On May 24, the General Court fully confirmed the Commission’s 2007 decision prohibiting the multilateral interchange fees applied by MasterCard.
In particular, the Court confirmed our assessment that collectively agreed interbank fees have restrictive effects and that they lack justification in terms of benefits for merchants and consumers.
We have already opened cases against VISA and the European Payments Council. Now we are considering whether part of the Court’s findings can be translated into rules applying to the whole market.
In the meantime, I expect MasterCard, Visa, domestic payment card schemes and, of course, banks to bring their fees and scheme rules in line with the judgment.
The effects of the MasterCard judgment will be felt in national jurisdictions too. Enforcement procedures are ongoing before a number of national competition authorities and courts across the EU.
Finally, there is the possibility that victims of anticompetitive behaviour go to court to claim compensation for the damages incurred. I understand this is already happening regarding interchange fees.
So, there are many good reasons why payment card schemes and banks should align their practice to the judgment. But the best reason I know is that consumers, retailers and companies in Europe expect the industry to develop transparent and justifiable business models that offer good value for money.
Finally, let me tell you that our commitment to protect openness and innovation in the payments markets is not limited to enforcement of Article 102 of the TFEU.
We are also looking at merger cases, such as the proposed joint venture by Telefónica, Vodafone and Everything Everywhere that was set up to launch new mobile-commerce services in the UK – including the new form of payment called mobile wallet.
We have opened an in-depth review of the deal to make sure that the services developed by the joint venture do not block future competitors from offering their own mobile-wallet services to customers.
We are, of course, in favour of initiatives that bring new services to our consumers – I would say it’s part of our responsibilities – and mobile commerce is quite a promising field.
But for this very same reason we need to be especially vigilant, because it is important to keep this market open and the incentives to innovate high.
Ladies and Gentlemen:
The last topic I would like to discuss today – standards and intellectual property rights – go to the core of the knowledge economy.
A healthy system for the protection of intellectual property creates incentives for researchers and inventors granting them exclusive rights – within certain limits – for the commercial exploitation of their findings.
But the system can be abused, which can be particularly harmful for the economy. This is why we want to prevent the trend we can observe in certain industries toward the strategic use of patents as a means to block competition.
For instance, following the conclusions of the sector enquiry carried out a few years ago in the pharmaceutical sector we have opened four antitrust cases against the companies Servier, Lundbeck, Cephalon, Johnson & Johnson and Novartis.
In all these cases we investigate whether the companies unlawfully extended their market exclusivity beyond the limits granted by their legitimate IPRs with the aim to delay the entry of generic products into the market.
Other indications of a strategic use of patents come from the mobile communications industry, which the media describe as a ‘patent war’. Let’s see why the war broke out in the first place.
Thousands of patents are needed to build a modern smartphone, including some common standards required to exchange information with other devices.
The companies that hold standard-essential patents have a large market power, which they can use to threaten to ban the products of competitors from the market.
In the worst-case scenario, these legal battles can effectively hold up the entire industry to the detriment of users.
This is unacceptable and I am determined to prevent such hold-ups.
The patent wars are keeping us increasingly busy. Back in January, we opened an investigation on Samsung to make sure that its standard-essential patents are made available in fair, reasonable and non-discriminatory terms.
In April we opened two more cases on similar complaints by Apple and Microsoft against Motorola.
As to the latest developments, we have received complaints by the Chinese handset manufacturer Huawei against InterDigital – a US-based company – and by Google, alleging that Nokia and Microsoft use a so-called ‘patent troll company’ to start legal challenges on their behalf.
We are carefully looking into these allegations.
Ladies and Gentlemen:
Let me quickly summarise the main points I have touched upon today before I conclude.
This morning I have explored our work in established markets, such as the food market, and discussed developments in our fight against cartels, including some of the recent judgments by the European Courts.
I have also given you a taste of the fresh challenges that we encounter in the more dynamic industries of the digital age.
Finally, I have reviewed some recent issues in areas that are central to the development of e-commerce and the digital economy.
In all these domains, I have tried to illustrate how the European Commission – in these difficult times for Europe – is dealing with old and new challenges to ensure a level playing field and a healthy competition environment in the internal market.
This is our duty and responsibility, and I can assure you that we will redouble our efforts to keep the EU competition authority ahead of the curve.