SPEECH/04/403

Speech by Mario MONTI

European Commissioner for Competition matters




Private litigation as a key complement to public enforcement of competition rules and the first conclusions on the implementation of the new Merger Regulation

IBA – 8th Annual Competition Conference
Fiesole, 17 September 2004

This is the last time I take part in an IBA Conference as Commissioner for Competition Policy. I would like, first, to thank all of you for the support as well as the constructive criticism that you have been offering us during all these years.

I have been coming to Fiesole regularly to update you about the reforms that the Commission has proposed in the area of competition policy. Looking back at the changes introduced during the mandate in antitrust, merger control and state aid policy, I believe it can be said that we leave to the next Commission a legal and organisational framework that should allow it to conduct a modern and efficient competition policy, to protect even better the interests of the European consumers.

But I do not want to devote today’s speech to a retrospective analysis. There will be other opportunities for such an exercise. Today I would like to look forward. I would like to talk, not about the aspects of the legal framework that we have improved, but about those that still need to be improved. I will focus my intervention, therefore, on the issue of private enforcement of competition law, which is also one of the main topics of this conference.

Given that the recent review of the EC Merger Regulation also figures in the program, I will devote some time to sharing with you our first conclusions regarding the implementation of the new system.

A. Private Enforcement.

It is widely acknowledged that the private enforcement of EC and national competition law has been extremely limited to date. In Europe, competition law is mostly enforced by Competition agencies, subject to review by the courts. It is much less common that the national courts enforce directly the law at the initiative of private parties.

1. Advantages of Private Enforcement

I believe that greater private enforcement of Community competition law would bring clear benefits for the functioning of the internal market and the competitiveness of the European economy:

• The threat of such litigation has a strong deterrent effect and would lead to a higher level of compliance with the competition rules.
• Increased private action would further develop a culture of competition amongst market participants, including consumers, and raise awareness of the competition rules, and
• Private litigants may take action against infringements which the Commission and the national competition authorities would not pursue, or do not have sufficient resources to deal with.

Private actions before national courts should, of course, remain complementary to the public enforcement of EC competition law. The role of the public authorities will continue to be of critical importance in detecting anti-competitive practices such as hard core cartels.

Incidentally, let me simply give you a figure that demonstrates how active we have been in this area of public enforcement: the recent adoption of the decision in the copper plumbing tubes cartel brings to €4.55 billion the total amount of fines imposed by the present Commission for antitrust violations since it took office in October 1999.

Certainly, this policy is having an important deterrent effect, but more private enforcement of the EC competition rules in parallel to public enforcement by the Commission and the National Competition Authorities should lead to even greater compliance with EC competition rules. Greater enforcement of EC competition law would also act as a catalyst unleashing more competition across Europe, thereby helping to achieve the goals of the Lisbon agenda.

Private action would not only be beneficial in optimising the impact of EC competition policy; it also would have a number of significant advantages for private parties:

• The victims of illegal anticompetitive behaviour are compensated for loss suffered.
• National courts may apply civil sanctions of nullity in contractual relationships.
• National courts can order the unsuccessful party to pay the successful party’s legal costs. As you know, company’s legal costs are not recoverable in the case of a complaint to a competition authority.
• It is possible to combine a claim before a national court with national competition law or even entirely separate heads of claim.
• National courts are obliged to hear cases brought before them, while an administration has discretion to pursue other priorities.
• National courts are usually better placed than the Commission to award interim relief.

Even the recent case law of the Community courts underlines the important role that can be played by the private enforcement of Community competition law. The European Court of Justice ruled in Courage v. Crehan that the full effectiveness of Article 81 would be put at risk if it were not open to individuals to claim damages for loss caused by infringement of this provision.

2. Initiatives by the Commission

The Commission has already taken some initiatives to facilitate private enforcement. When drafting its proposal for Regulation 1/2003, the new instrument for the application of Articles 81 and 82, the Commission was all too aware that its ‘monopoly’ to grant exemptions under Article 81(3) represented a major obstacle to more extensive application of the competition rules by national courts.

Regulation 1/2003 eliminates the exemption monopoly of the Commission and, as a result, national judges are able to rule on Articles 81 and 82 in their entirety. In order to further facilitate the application of EC competition law by national courts, Regulation 1/2003 expressly provides for a number of mechanisms by which courts can ask for opinions or information from the Commission.

Although the new enforcement regime established by Regulation 1/2003 strengthens the possibilities for private parties to seek and obtain relief before national courts, a number of obstacles to private enforcement appear to remain.

In order to assist the Commission in its research into potential obstacles to private enforcement a study was commissioned on the conditions for claims for damages in case of infringement of EC competition rules. The final results of the study were recently published on DG COMP’s website.

The study has found that not only is there “total underdevelopment” of actions for damages for breach of EC competition law, but there is also “astonishing diversity” in the approaches taken by the Member States. It identified only twelve successful damages awards for breach of EC competition law since the inauguration of the EC antitrust enforcement system in 1962. The study also established that there has been a similarly limited number of damages awards under national competition law. This compares poorly, for instance, with the US system, where private action accounts for a very important share of competition enforcement.

I will not enter into the details of the study. But I would like to point out that the Commission has already begun to tackle two of the identified obstacles to private litigation, namely the complexity of competition actions and transparency. As to the first one, the Commission has put in place programmes to improve the training of judges in EC competition law, which are being well attended. As to transparency, we have recently created a database of EC competition based actions brought in the Member States. But much more needs to be done.

3. Initiatives by Member States

The importance of the private enforcement of the EC competition rules is also underlined by the initiatives which have been taken, or are under consideration, by a number of Member States in this field.

In the UK, a number of measures have already been taken, in particular the creation of a specialised court, the Competition Appeal Tribunal (“CAT”), which can hear actions for damages where a prior decision of the OFT or the European Commission exists.

In Sweden, “opt in” class actions were introduced in 2003, although these are restricted to parties in a contractual relationship with the infringing party. A Government Committee has recently recommended a number of measures to further support private enforcement, including the extension of class actions to consumer groups and other private individuals affected by an infringement of competition law.

The German Government has recently proposed a reform package which is intended to ensure that German competition law is in accordance with Regulation 1/2003. This so-called 7th amendment of German competition law (“7. GWB-Novelle”) contains a number of measures intended to facilitate private enforcement. This includes the relaxation of the “protective purpose” requirement in German law, which the courts have interpreted as limiting the circle of potential claimants to those directly targeted by the infringer, a requirement which has proved very difficult to fulfil in practice.

Furthermore, we understand that a review is being undertaken in The Netherlands of how the conditions for private enforcement of EC competition law can be further improved.

4. Conclusion

It is no longer for this Commission to make proposals on the question of private enforcement. This is an important issue, where there is no need to rush. On the contrary, I consider that a broad debate with all interested parties will be necessary, where the benefits of private enforcement, that I have highlighted today, will have to be balanced with its costs. Overall, however, I believe that an extended system of private enforcement in Europe, that does not fall into the excesses that we have seen in other legal systems, would be in the interest of our economy and our consumers. I am confident that the new Commission will devote the necessary efforts to this issue.

B. First experiences in the application of new Merger Regulation

It is too early to make a comprehensive inventory of the first experiences of the Commission in applying the new set of EC merger control rules. Too few cases have been scrutinised under the new regime in order to be able to detect any meaningful trends. I will therefore limit myself to reflecting upon the implications of the new rules for the Commission’s merger control activity, taking into account the limited experience to date.

Let me consider in turn each of the three central aspects of the reform: i) the streamlined case referral system, ii) the new substantive test, and iii) the procedural and internal improvements.

1. The streamlined referral system

Regarding the new rules on referrals, as you know, the overall purpose of the reform was to put in place a more rational corrective mechanism of case allocation between the Commission and Member States based on subsidiarity, by ensuring that the authority best-placed to carry out a particular merger investigation should deal with the case. The new system aims in particular at tackling the problem of "multiple filing", i.e. notification to various competition authorities within the EU, while preserving the major advantage of EC merger control, which is the one-stop-shop.

As you know, the Merger Regulation's provisions concerning referral of cases from the Commission to Member States and vice versa have been simplified and rendered more flexible. In particular, the key aspect of the reform is that referrals can now occur before a formal filing has been made in any EU jurisdiction, based on a voluntary request submitted by the merging companies.

What have been our first experiences? Well, the only distinguishing pattern that can be drawn from the first months of life of the new Merger Regulation seems to confirm our expectations, at least in so far as referrals to the Commission are concerned. Indeed, judging from the nine requests we have received so far in such a short time (four months since the application of the new rules, including the summer season) it appears that the new system of pre-filing referral to the Commission is enjoying a significant success.

All nine requests were for cases to be sent to Brussels, and most of them have resulted in transactions coming to us and enjoying the benefits of the one-stop-shop. Businesses appear to recognize the advantage of having their case treated by the Commission - in order to avoid multiple filing requirements, and so as to take advantage of coordinated investigative actions as well as, if need be, of coherent remedies. So far, only two of these referral requests have been vetoed by Member States.

I am also pleased to note that, so far, the new referral system is not being used by businesses as a means of simply forum-shopping, as some could have feared: the great majority of the requests which have been submitted to the Commission under article 4.5 concerned genuinely cross-border cases, with a clear impact on competition beyond the territory of one country. The Commission is generally better placed to deal with such transactions.

As regards referrals of “Community dimension” mergers to Member states at the pre-notification phase (article 4.4 of the new Merger Regulation), no requests have been submitted yet. This is not surprising: it was expected that requests for re-attribution of a community case to a Member state would be more limited in number. We remain confident there is an interest for the parties to a merger to have their case immediately transferred to a national competition agency, in particular when they anticipate a post-filing referral request from a Member state.

2. The review of the substantive test

Turning now to the substantive test, here it is clearly too early to detect any novel tendency in the few cases treated so far by the Commission under the new Regulation. Let me thus focus on what we can reasonably expect from the reform.

My first, intuitive, remark is that the introduction of the new test has re-enforced the effectiveness of our basic merger law, and that it represents an improvement from the perspective of international convergence. It is now clear that the Regulation covers all mergers that "significantly impede effective competition" and that this standard facilitates convergence with jurisdictions, like the US, that have an “SLC” test. The same is true for the new horizontal guidelines setting out the Commission approach to the analysis of the likely competitive impact of merger between competing firms: in substantive terms, our analysis is clearly grounded in sound economics and there is little to distinguish the approach we set out to that of our US counterpart agencies, including the possibility of taking efficiencies into account.

However, this is not to say that we are about to witness radical changes in the criteria relevant for the purpose of the assessment of a merger in the European Union. As I have often said, despite very different wording, the old dominance test and the SLC have already produced broadly convergent outcomes, especially in the EU and US in recent years. Both jurisdictions have been concerned with situations of market power which hinder effective competition and thus lead to loss of consumer welfare.

Moreover, the new test will maintain, by referring to a significant impediment to effective competition, in particular resulting from the creation or the strengthening of a dominant position, the concept of dominance as the main standard for assessing the compatibility of mergers with the common market.

So, don’t expect a shift in enforcement policy or a revolution. Personally, I must confess that I have sometimes felt that the discussion on the test amounted to a largely semantic one. That being said, I am pleased that we were able to clarify this point once and for all.

3. Procedural improvements

Let me say now a few words about the procedural improvements and internal reforms. The new Regulation provides for a number of changes which are aimed at increasing the flexibility of the system while retaining the principle of ex-ante control with clear, legally binding deadlines.

In essence, the possibility to extend the deadlines in second phase should enable both the Commission and the parties to better prepare their case, while allowing for greater consultation of third parties and Member States. Moreover, it will be possible to notify a transaction prior to the conclusion of a binding agreement provided that there is clear intent to enter into an agreement. These more flexible rules should allow companies to better organise their transactions without having to fit their planning around unnecessarily rigid rules, and should again facilitate international cooperation in merger cases, particularly when it comes to synchronising the timing of investigations by different agencies.

And finally, let me mention some internal reforms that have already demonstrated their value. The involvement of the Chief Economist in high profile cases, as well as the systematic appointment of peer review panels for second phase cases, has in my view already let to a marked qualitative improvement in the Commission’s assessment of merger cases – in particular as regards the sophistication of the economic analysis in our decisions. At the same time, these reforms have re-enforced the Commission’s objectivity as a regulator by strengthening the internal checks on the soundness of the investigators' preliminary assessment.

4. Conclusion

To sum up, albeit limited the experience to date in the application of the new merger control system starts to show that our reforms, in particular with regards to referrals and internal procedures, went in the right direction. More time is needed to reach definitive conclusions but I am confident that in some years the merger review will be seen as the ground work to ensure that merger control in the EU reaches the highest standards.