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Vice President of the European Commission responsible for Competition Policy
Some highlights from EU competition enforcement
IBA 18th Annual Competition Conference
Florence, 19 September 2014
Ladies and Gentlemen:
I would like to thank Michael Reynolds for his kind invitation to address one more time the expert audience of the International Bar Association’s annual conference in Florence.
As my mandate as member of the European Commission comes to an end in a few weeks, this is my last opportunity to share with you my thinking about some significant areas of our enforcement.
I will use some highlights from our practice since I took up the post in February 2010 to discuss my approach to antitrust and State aid.
I will start with our fight against cartels. I will then give a quick look at how we have dealt with some new challenges in the enforcement of the provisions in article 102 regarding abuse of dominance. Finally, I will recall some of the regulatory initiatives we have taken, including the State aid modernisation strategy and the Directive on private damages in antitrust.
I have said in many occasions that cartels are my top enforcement priority. In fact, they have been a priority for the European Commission since the late 90’s, under Karel van Miert’s tenure, when the first leniency programme, guidelines on fines, and dedicated teams of enforcers were gradually set up.
Over the past five years I encouraged DG Competition to keep up with this tradition and, at the same time, adapt to the new challenges brought by the increasing internationalisation of business and by the expansion of cartels beyond the usual sectors.
I have observed two main trends in our practice: we have more global cartel cases and more cartels are uncovered outside the traditional industrial sectors.
To respond to the first trend, we have strengthened the links that we have with other competition authorities around the world; launched investigations in common; and adapted our investigative tools.
In parallel, we have continued to promote and support the International Competition Network to share our knowledge and experience with authorities in other jurisdictions – including those in emerging countries – as they fight against cartels.
As to the other trend, our practice shows that cartels may also occur in some sectors among the more technologically advanced.
We have had quite a few examples of these cases during these years. One was the DRAM decision in the market for memory chips back in 2010.
More recently – two weeks ago, in fact – we sanctioned a cartel that had been set up some years ago among four producers of the smart card chips that are found everywhere from SIM cards, to passports and bank cards.
We have also been investigating some companies that operate in the market for optical disc drives – this is an ongoing case.
Another industry that has kept our cartel teams busy is finance.
The most prominent decisions in the sector – related to what the press has called the Libor and Euribor scandals – are those we took at the end of last year against financial institutions that had colluded to manipulate benchmark rates.
The case – in which several large banks and a broker accepted a settlement decision – and the €1.7 billion fines we imposed send a clear message: the Commission is determined to fight and punish these practices, which cause widespread damage to our economies and ultimately affect millions of consumers.
However, three banks – JPMorgan, Crédit Agricole and HSBC – and one broker – ICAP – did not accept our findings. As a result, we started standard proceedings against them, and these are progressing as we speak.
These ‘hybrid decisions’ – where not all the parties involved settle the case – must not become the norm, but they have an important function, because they tell companies they cannot hold up the process if the Commission finds it appropriate to follow this route.
But this is not the only means we have to protect settlement proceedings from manipulation.
The smart card chip case I mentioned earlier started off with settlement discussions. When we noticed that the talks were stalling because they were refusing to acknowledge liability for an infringement for which we had good evidence, we went back to the ordinary procedure and the companies eventually lost the benefit of the settlement process, including the settlement discounts.
Since the first settlement decision – the DRAM case – was adopted in 2010, the procedure has been used 13 more times, allowing companies and the Commission to arrive at quicker decisions.
Of course, we still have many cartel cases in the more traditional sectors. The almost 9 billion in fines we imposed since 2010 went to a broad range of markets, including airfreight, detergents, steel abrasives and power cables.
I would like to make special mention here of our work in the automotive industry, because we have many investigations in the sector and because the same buyers –car manufacturers – suffer from the negative consequences of this sort of infringement.
We have already taken two decisions against car-parts producers – the Wire Harnesses case in July 2013 and the Bearings case last March – and there are more in the pipeline.
Moving on to antitrust, we have been active during these years in various sectors that are important for the Single market, such as energy, telecoms, transport, payment services, as well as in the digital economy.
But today I will focus on one specific development of our enforcement over the last years; the interaction between competition enforcement and intellectual property rights.
This development is reflected in the action we have taken in two areas; the pharmaceutical sector and the smartphone industry.
Our work in the pharmaceutical sector address a major concern identified during our 2009 sector inquiry – the use of patent settlements in pay-for-delay deals.
We analysed this practice in detail during our inquiry, which has been followed up by yearly monitoring reports.
These reports show that patent settlements can be a useful and a completely legitimate tool in more than 90% of the cases. Actually there has been an increase in the number of total settlements, and a decrease in the amount of potentially problematic agreements.
As to our cases in the sector, over the past year or so we have imposed fines in three pay-for-delay cases, two of which involved patent settlements. Other investigations, such as the one involving the companies Cephalon and Teva, are ongoing.
The Lundbeck decision of June 2013 sanctioned a series of patent settlements that drove out of the market potential generic competition to Citalopram, a blockbuster antidepressant.
In the Johnson&Johnson/Novartis case of December 2013, payments were made under the pretence of co-promotion agreement to avoid entry in the Netherlands of a potential competitor in relation to Fentanyl, a very strong analgesic. In this case, however, there were no IPRs involved.
Last July, we fined Servier for excluding generic competition to Perindopril, a best-selling hypertension medication, through a technology acquisition and five patent settlements with potential generic competitors.
I strongly support Intellectual property rights, and I believe that patents are vital for innovation. It is totally legitimate for companies to apply for patents and have them enforced, and settle litigations.
However, in some cases patent holders may want to distort the system and exclude rivals thanks to their deep pockets rather than the strength of their patents.
This is why our enforcement work is guided by the search of a good balance between the rewards for past discoveries and the incentives to continue innovating.
At the same time, our action makes sure that prices for medicines are not kept artificially high. In times of spending cuts, it is important to protect patients and public health systems. Just think that generic competition can bring prices down by as much as 90%.
IPRs can also be used in an anti-competitive manner in another area – the so-called smartphone wars.
Here the practices that distort the intellectual property system are not bogus settlements and acquisitions between companies but involve court injunctions and standard-essential patents.
The two antitrust decisions adopted in April against Samsung and Motorola make a core principle clear.
If the owners of a technology that are part of a standard for mobile devices have pledged to license it on FRAND terms to manufacturers that need it, they cannot bring rivals to court when they are willing to license the technology on those very same terms. Our Motorola Decision concluded that this was a breach of the EU antitrust rules.
Again, I believe that these decisions strike the right balance. They protect the interests of patent holders and, at the same time, the interests of the companies that need the patented technology to keep manufacturing their devices.
Holders of standard-essential patents are entitled to a fair remuneration. On the other hand, the companies that use the technology are entitled to do so without the threat of anti-competitive injunctions.
I hope our decisions will help to bring the endless disputes among smartphone manufacturers to an end.
These two smartphone cases are also useful to show the relative merits of commitment and prohibition decisions.
The one involving Motorola was an Article 7 decision without fines, formally finding an infringement. In contrast, Samsung’s was an Article 9 decision where the company pledged, among other things, not to seek injunctions over its standard-essential patents when the situation I described earlier applies.
In my experience, commitments may be useful when they allow the establishment of competitive structures more quickly and when markets need to be opened up.
Conversely, prohibition decisions may be better suited to deter others from adopting the same behaviour than the infringers.
It goes without saying that I have no preference for either procedure. Since every single case is analysed in its own merit, I ended up choosing the one or the other depending on the facts of the case and on the attitude of the companies involved in our investigations.
Since May 2004, when commitments were introduced, the Commission has adopted 22 prohibition decisions if one excludes cartels, and 35 commitment decisions. The commitment decisions were adopted in a variety of sectors, but often in markets that were being liberalised – such as energy – and in fast-moving markets – such as media and IT.
Ladies and Gentlemen:
I will say a few words on two important areas in our enforcement of State aid rules; the control of public support of banks in distress and corporate taxation.
But first, let me recall the comprehensive reform we have carried out in this domain – the State aid modernisation strategy.
The new State aid guidelines and procedures are designed to support Europe-wide efforts to boost growth and create jobs, and to promote what I call ‘good aid’ – that is, measures that improve the quality of public spending – and fairness in the way taxes treat companies operating under similar circumstances.
The new rules will also help us focus on the cases that matter and massively cut red tape for aid measures with negligible impact on the internal market.
The strategy is articulated in ten guidelines covering all key sectors such as research and development and innovation, broadband connections, energy and environment, risk financing of SMEs, regional policy, cinema, aviation, etc.
We also issued five regulations and two notices to make our instruments more efficient, with streamlined rules and faster decisions.
The State aid modernisation strategy was prepared by the reform of the rules for the services of general economic interest, which cover the public financing of public services across Europe, from hospitals to local transport, to utilities.
Now, let me tell you how State aid instruments were used to control the public bailouts of banks in distress.
Special State aid rules were quickly introduced and deployed when the financial crisis precipitated.
At the time, it was vital to make sure that the large sums that had to be used to prevent the meltdown of the financial system would not tear the Single Market apart.
We have been using these special tools since the end of 2008, and I am really proud of the work done.
Many EU countries have made public funds available to banks. In some of them more than half of the banking sector has received government support.
Thanks to State aid control, we have avoided the spill over of systemic risks and have kept a level playing field for Europe’s banks.
As you know, the sums involved have been huge. From 2008 to end 2013, EU governments injected €608 billion into banks in capital and assets relief measures, equivalent to 5.2% of the average GDP of the Union between 2007 and 2013.
These figures do not take into account the repayments of capital injections that some banks have started to do. However, a number of banks have successfully gone through the restructuring phase and have allowed some governments to fully recover their capital – including with a premium.
Other stabilisation tools, such as governments’ guarantees, were also provided to banks.
The States’ outstanding guaranteed liabilities have more than halved since the peak year in 2009, when the outstanding amount of guarantees provided to banks reached €835 billion. Since then, they have decreased progressively to €400 billion at the end of 2013.
As it turned out, State guarantees have been generating revenues for governments with € 38 billion in fees received compared to €3 billion in guarantees actually called upon for the whole period 2008-2013.
The special State aid rules we have implemented were designed to keep the use of taxpayers’ money to a minimum and make sure that the aided institutions would become viable again.
In many cases, this has led to the approval of restructuring plans for the banks. When this was not possible, the banks were orderly resolved.
Since the beginning of the crisis and as of today, 110 banks in the EU have received State aid. This is about 25% of the EU banking system by assets.
The Commission has so far approved restructuring plans for 52 of them and put 33 into orderly wind down. 13 more banks had their viability reviewed without further need for a restructuring plan. We are still assessing the viability and restructuring of 12 banks.
It was indeed critical to assess whether the banks would be able to return to long term viability without further need for aid.
And it was equally critical that non-viable banks would be gradually wound down, leaving room for viable banks to grow and finance the EU economy.
One important aspect of our work in this area is that we have filled a serious gap in the EU architecture. We have acted as a de facto banking resolution authority.
In the last two years, the Commission has prepared a new and comprehensive regulatory regime, within the framework of the Banking Union.
The EU approved major changes with the set-up of a single supervisory mechanism and a single resolution mechanism with a single resolution fund for the euro zone. A common resolution tools box for the whole EU was also adopted.
In parallel, last year we reviewed the special State aid rules for banks based on the experience and good practices gathered over the previous years.
One of the main changes was making sure that bank owners and junior creditors would contribute before spending more taxpayers’ money on bank bail-outs.
Looking forward, I hope the new framework will reduce dramatically the amount of public funds needed to sustain a solvent and resilient banking sector.
However, together with the new regulatory and institutional tool-box, State aid will continue to be enforced, making sure that public funding is minimised through appropriate burden sharing measures; that aided banks are viable; and that competition in the internal market is not distorted.
To turn to another major development in the State aid domain, the Commission has shown its willingness to use all the tools at its disposal to combat corporate tax avoidance.
Under State aid rules, national authorities cannot take selective measures that allow certain companies to pay less in taxes than they should if the tax rules of the country were applied in a fair and non-discriminatory way.
New State aid investigations have been launched before the summer break into certain tax practices in several Member States, following reports that some companies had received significant tax reductions by way of “tax rulings” issued by national tax authorities.
These investigations are part of the broader drive in Europe and other parts of the world aimed to get big corporations to pay their fair share of taxes. I don’t need to add that this is all the more important in a time of tight public budgets.
Ladies and Gentlemen:
I would like to round up my presentation with the changes we have introduced in our policy tools in addition to the State aid reforms I mentioned earlier.
I will start with the new Directive on antitrust damages actions, which has been approved by the European Parliament and the European Council of Ministers and will be formally adopted in the coming weeks.
Much has been written about this new Directive. When it becomes operational, it will empower the victims of antitrust infringements to be compensated for the harm suffered.
The private enforcement of competition law will become more effective in Europe and more equal across its territory, and will better interact with public enforcement.
Small companies and individuals will benefit the most and will be able to better rely on the decisions taken by the Commission and the national competition authorities.
Besides this important piece of legislation, we have continued to update, refine and improve our antitrust procedures.
Soon after I became Commissioner for competition I promoted changes that would make our proceedings more open and transparent with the parties.
Thanks to the new best practices introduced in 2011, the companies involved in our cases have more formal opportunities to contact DG Competition and make their cases at an early stage.
In addition, the role of the Hearing Officers has been strengthened to better protect the procedural rights of the parties.
In our efforts to always keep enforcement ahead of the curve, I’ve also introduced new antitrust guidelines on distribution, standards, exchanges of information and related issues.
More recently, we have updated the rules on research and development agreements. The goal here is making sure that these agreements are used to promote, rather than stifle, innovation.
Finally, we have also simplified the rules we have been using in the EU since 2004 to assess mergers. We have made them more business-friendly and 70% of the deals we review already follow the simplified process.
In the summer, we've launched new ideas to extend our review to deals that imply the acquisition of non-controlling minority shareholdings and to make cooperation with national competition authorities simpler and faster.
The comments we are receiving will help the next Commission decide whether the law should be amended.
Ladies and Gentlemen:
As an overview of my term as Commissioner for Competition, I have presented to you a few highlights that illustrate my understanding of competition policy over the past five years.
I am convinced that our action is more important than usual in these years of recession and difficulties.
As a necessary condition to return to a sustainable growth path, we need to come together and rekindle our confidence in the Single Market. Tearing down the remaining barriers, deepening the internal market in growth-promising sectors, and resisting protectionism are the first orders of business.
I have no doubt that re-launching our process of integration – including through the fair, robust and impartial enforcement of EU competition law – will release our more dynamic and innovative forces from the shackles of this long downturn.
By investing fresh economic and political resources in the Single Market, we will find out that Europe has all it takes to start growing again and create jobs.