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European Commission

Joaquín Almunia

Vice President of the European Commission responsible for Competition Policy

Higher Duty for Competition Enforcers

International Bar Association Antitrust Conference/Madrid

15 June 2012

Ladies and Gentlemen,

I am grateful to have been given the opportunity to close this conference on antitrust and I would like to send a special word of thank to Cani Fernández and to the Spanish members of the International Bar Association.

It is a real privilege for me to be addressing in my own country an international community of knowledge and practice held together by a common interest in competition law. One can sense in this hall the result of decades of integration at European and – from a competition-enforcement perspective – even at global level.

It is quite common in international competition circles to talk about the growing convergence of approaches across jurisdictions which reflects the growing degree of integration of business and markets across national boundaries.

Unfortunately, one word has been added in the past few years to the list of things we have in common in Europe and around the world. It is the word ‘crisis’, which pops up in every news bulletin and every conversation.

These are indeed turbulent times and I very much hope that Europe will live up to its responsibilities during the next days, weeks and months. I am convinced that, as we have done in the past, Europe will find the unity and the common sense of purpose to overcome its current predicament.

Common goals, integration of business and markets, convergence of approaches, a prolonged crisis… these are the features that define the environment in which national and European competition agencies are carrying out their enforcement work.

In this difficult and extremely fluid period for Europe’s economy and society, competition enforcers have bigger responsibilities on their shoulders. How to take decisions in this context? Should our enforcement be more lenient because of the constraints imposed by the crisis? Should our priorities change?

These questions – and many others – engage all competition authorities since 2008. During this period we have been trying to give a coherent response to all of them, and I think we have found the right policy line.

Today, I would like to discuss with you some aspects of this work. I will review our recent and current activity in cartel enforcement and in the industries that will likely start the recovery when the markets regain confidence in the health of our public accounts and financial institutions.

I will start with our action against cartels. Over the last two years, we took eleven cartel decisions in a variety of sectors ranging from consumer goods, such as detergents, to industrial products, such as Cathode Ray Tube glass.

Our activity slowed down a bit last year – when we imposed fines for a total of €614 million in four decisions – with respect to 2010, when we the had totalled fines for €2.9 billion in seven decisions. But this fact does not imply at all a change in our priorities. I can tell you that we are working on a number of major cases and our output will likely be higher this year. In addition, over the last 18 months we have also carried out several inspections and received many applications for leniency.

In other words, you should not expect a more lenient enforcement in the future. I want to be extremely clear on this point. Our fight against cartels has not been and should not be affected by the crisis. Cartels can do more harm to the economy and to consumer welfare in difficult times than in periods of economic expansion; so our level of vigilance, if anything, should be even greater.

However, we have noticed one difference related to the crisis in our practice; an increase in the number of inability-to-pay requests. We assess each application with great care. Since November 2009, when the new ITP methodology was introduced, we have examined 41 applications and granted a reduction of the fine 13 times.

Another aspect that is worth mentioning in this area is the growing importance of the settlement procedure. Three of the four decisions adopted in 2011 were settlements; namely in the consumer detergents, refrigeration compressors, and Cathode Ray Tube glass cases. I welcome this development, because settlements allow us to carry out our duties with shorter proceedings.

Many companies involved in a cartel prefer to come clean, settle the issue, and quickly resume business – obviously, after reviewing their practices to stay on the safe side of the law.

But this does not mean that settlements are possible in all cases. Indeed, neither of the two decisions we have taken so far in 2012 has been a settlement. In the first case, we imposed a fine of €169 million on a global cartel of freight forwarders; in the second, nine European producers of mountings for windows were fined €86 million.

Let me add that the fines of nearly all of these nine companies would have reached 10% of their total turnover. Given this specific situation, we reduced the fines taking into account the mono-product nature of the companies and their different degrees of involvement in the cartel. This was possible because the fines reached a sufficient level of deterrence even after the reduction.

This shows how I interpret our responsibility to impose fines on cartelists. On the one hand, the fines must be large enough to be a real deterrent against this unacceptable and harmful practice; on the other, we ensure that they remain proportionate.

We know that cartels tend to be set up in mature industries, where the temptation is stronger for companies to protect margins that are not invigorated by expanding demand and new products. But in the field of antitrust the new players of the knowledge economy are not free from temptation. The stories that I will discuss next are from the more dynamic sectors, fast-moving markets, and new business models of the digital economy.

I feel a particular responsibility handling cases in these sectors, because they will be the engines of Europe’s future recovery – hopefully in the near future. In particular, these markets must remain open to newcomers and start-ups, which bring new ideas and new products to the market. In other words, a firm and fair competition enforcement is the best guarantee to preserve the potential of the knowledge economy to boost innovation and growth.

This can be seen clearly in our enforcement work related to standards and intellectual property rights, which cuts across many sectors. After the sector enquiry in the pharmaceutical sector that we concluded in 2009, we have opened four antitrust cases involving several companies including Servier, Lundbeck, Cephalon, Johnson & Johnson and Novartis. Beyond their specificities, these cases have one aspect in common; we need to make sure that the companies have not extended their market exclusivity beyond the limits granted by their legitimate IPRs. The industry needs a good system to protect intellectual property to give companies the right incentives to invest in research and innovation. Abusing the system to delay the entry of generic products into the market betrays its spirit.

The use and misuse of patents is also closely linked to the more specific area of standard-essential patents – which are crucially important in many industries, especially in IT. It is clear that EU-wide standards can make market integration easier; allow companies to market their goods and services across Europe and the world; and ensure the interoperability of many products, such as communication devices.

EU Competition policy identified early the importance of competitive, open, and transparent standardisation – whether it is conducted by private organisations or institutional bodies. This is crucial to ensure that the best technologies are eventually chosen.

In 2010, the fundamental principles that guide our action in this area were set in the Horizontal Guidelines, and we are seeing them at work.

Our first principle is that standards should be set and adopted in an open and transparent manner at all times. This prevents established players from manipulating the process to keep innovate companies and their technologies on the sidelines. A process that arbitrarily keeps some parties outside may unfairly benefit those that are on the inside. This is especially important in those industries where standards are urgently needed – such as for digital and internet services.

One example from our practice is the case we opened in September last year against the European Payments Council concerning its standardisation work in new forms of online payments.

Soon after I opened the case, the EPC put this work on hold. Obviously, we do not want anyone to stop or delay work on standards that promote market integration. However, it is our responsibility to make sure that this work is carried out in a framework that takes on board the legitimate interests of all the participants in this market and of the potential users of these innovative services. I think that we need to have a constructive conversation with stakeholders and with regulators on the best way to achieve this goal.

We can label the second principle the ‘patent ambush’ issue. If a company has – or is developing – patents on the standards that are being set, it must disclose this fact and give access to them on FRAND terms; that is, access on fair, reasonable and non-discriminatory terms.

As to the third principle, we need to clarify what are the implications of FRAND and how FRAND negotiations should be conducted. These questions are the core of a few cases we have opened recently involving companies such as Apple, Samsung, Motorola and Microsoft.

One issue in these cases is the use of court injunctions that can infringe the principle of effective access inherent to FRAND. We need to find good answers soon, because consumers cannot be held hostage to litigation. Both competition authorities and the courts should intervene to ensure that standard-essential patents are not used to block competition.

However, industry too has a role to play in guaranteeing the proper functioning of the standardisation system. I would therefore strongly encourage industry players to come together in the relevant standard-setting organisations and elaborate clear rules on the basis of these guiding principles to prevent the misuse of standard-essential patents.

But the challenges posed to competition enforcers by the new digital industries are not limited to the strategic use of patents. As you know, we have an investigation open on some business practices of Goggle, which may be regarded as abuses of dominance. I will not elaborate on this case today.

Another illustrative case we are working on is that of the software company MathWorks. This investigation revolves around the issue of software interoperability where the Microsoft case set an important precedent and which remains central to our enforcement practice in these markets.

MathWorks produces software which is used for designing and simulating control systems in many innovative industries such as in cruise control and anti-lock braking systems for cars. Allegedly, MathWorks' policy as regards end-user licences does not allow competitors to legally achieve interoperability with its widely used products. If our investigations confirm the allegations, this might amount to an abuse of dominant position.

I will now turn to our enforcement work in energy markets, which is a sector that epitomises the need to complete the Single Market. The EU set for 2014 the creation of a Single European Energy Market; however, this objective is still facing significant challenges; let me explain why.

In the late 1990s Europe’s sclerotic energy markets became a priority for the EU, but by 2005 it was clear that two waves of liberalisation had not delivered. A sector inquiry that DG Competition conducted at the time found that the liberalisation efforts had not fully addressed some of the traditional features in these markets, such as vertically integrated companies, a lack of integration across national borders, and underdeveloped market infrastructures. A third energy package was then approved in 2009 and is now being implemented across Europe. Our antitrust enforcement efforts must support its objectives.

Our main priorities in this domain are keeping prices low, ensuring security of supply, and meeting our environmental targets. These priorities are reflected in a number of antitrust cases that followed our sector inquiry. A notable example was the case against E.On of 2008, which forced the company to sell its high-voltage transmission grids and opened up Germany’s electricity market. Another example is from 2010, when – after our investigations – ENI sold its shares in three international gas pipelines that serve the Italian market. As a result, its competitors can now access the networks through an independent company.

However, there are still significant challenges. Let me mention two of them: the integration of Central and Eastern European markets and the need for significant investments in generation and infrastructure.

In Central and Eastern Europe, gas markets remain largely segmented along national borders, a fact that keeps prices high and cause a lack of security of supply. We are currently looking into the conduct of some companies that may contribute to this state of affairs.

The second challenge is the need for large investments in production capacity and interconnection infrastructure in the coming years. These investments are also important because they would unlock our growth potential, open up new opportunities for business, and create jobs. This would be at the heart of the Connecting Europe Facility, a key initiative of the Commission that would fund €50 billion worth of investment to finance projects in Europe’s energy, transport and digital backbone.

Competition policy can contribute to address these challenges in several ways. To start with, we can use antitrust enforcement to make sure that anti-competitive constraints do not hamper investment decisions. Take for example the case we opened against Siemens and Areva in the nuclear technology market. Earlier this year, the companies offered to reduce the scope and duration of their non-compete agreements and a decision is slated for next week. The case shows our strict approach towards unjustified non-compete clauses, even in a long-term sector such as the nuclear industry.

We are also using State aid control to create the adequate incentives to promote investment in infrastructure. Conversely, we make sure that the public support does not crowd out private investment and that the dominant positions of incumbents in their home markets are not artificially maintained. These priorities are fully consistent with the principles of the State aid modernisation initiative that I launched at the beginning of May. Recent examples of this policy include the cases concerning a liquefied natural gas terminal in Poland, support for natural gas extraction in the Netherlands, and electricity generation from indigenous sources in Spain.

To round up my presentation, I would like to share with you a reflection that we are conducting at the European Commission on merger control.

In its current form, our merger control system is quite successful and efficient; and I understand that the majority of experts and market participants agree with this view. However, no system is perfect. I believe that we can improve this area of competition control along two main lines: on the one hand, we can simplify the process for the least problematic cases; on the other, aspects of our merger-control system itself can be reviewed.

As to the first point, I believe we can further streamline the so-called ‘simplified procedure’ that we already use for unproblematic transactions. We may also review our pre-notification practice; shortening the process and keeping it an informal and flexible tool. The rationale behind these changes is to make our merger-control system as business-friendly as possible and minimise the burden for companies when the transactions would clearly pose no problems. If our current review confirms the usefulness of the changes, they can be introduced in a relatively short time.

In the longer term, the system itself can be improved to address its shortcomings. For instance, at present some deals that lead to non-controlling minority acquisitions escape our scrutiny even though they may cause significant competitive harm. The reflection on this aspect is at an early stage and we will see how to address it. In addition, the interaction between national and EU merger controls is good, but there may be room for improvement in the system of thresholds and referrals that is used both before and after notifications. I also wonder whether national laws should be brought more in line with the EU Merger Regulation, possibly following the pattern used for antitrust rules – articles 101 and 102 – which apply throughout the Union.

Ladies and Gentlemen:

Today I have spoken about enforcing EU competition law in cartels, antitrust and mergers in turbulent times. Everyone in the public service should feel a special responsibility in this juncture. This applies in particular to competition enforcers, because the shortest and smoothest route that can take us out of the economic crisis passes through a more efficient and better integrated Single Market.

I believe we should renew our confidence in the power of the internal market to generate growth and jobs; which is huge and, in some sectors, still largely untapped. And competition policy is the cheapest and most effective way to unleash this potential. This is what our fellow European citizens expect of us and I am determined – together with my colleagues at the European competition authority – not to let them down.

Thank you.

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