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International Competition Law and Practice - Essay Example

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The paper "International Competition Law and Practice" is a comparative study of Article 101 of the Treaty on the Functioning of the European Union and the United States antitrust law. It analyses both laws in detail and compares them with each other…
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International Competition Law and Practice
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International Competition Law and Practice By Due This paper is a comparative study of Article 101 of the Treaty on the Functioning of the European Union and the United States antitrust law. It analyses both laws in detail and compares them with each other. Further it highlights some key issues that international competition law might have to face. The key feature of this paper is the practice of restricting competition in modern markets. Competition is a very important constituent of a market. It makes the competing firms perform to the best of their ability. At the end, the consumers get a high quality product at a low price. Competition should be healthy and fair. It becomes unfair and subject to scrutiny when some firms attempt to drive their competitors out of the market. This is why there comes the need to regulate the anti-competitive behavior by companies. Competition law achieves this purpose and maintains market competition. Article 101 of the Treaty on the Functioning of the European Union Among the member states of the European Union, there is a set of treaties which are known as Treaties of the European Union. Among these treaties is the Treaty on the functioning of the European Union. Article 101 of this treaty prohibits the formation of cartels and other agreements that have the potential of disrupting free competition in the internal market of European Economic Area. Article 101 of TFEU prohibits all companies from agreements that: a. “directly or indirectly fix purchase or selling prices or any other trading conditions”; b. “limit or control production, markets, technical development, or investment”; c. “share markets or sources of supply”; d. “apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage”; e. “make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.” These limitations are applicable to agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States. In the European case Carbon Gas Technologie,1 several companies joined together in an agreement under which they decided to exploit coal deposits in a much efficient manner. They agreed on using these reserves in a manner that is much less harmful to the environment. Some cases, like KSB/Goulds/Lowara/ITT,2 involve only economic elements but they are allowed as they pass a fair share of the benefits on to the consumer. But in the case of ARA, ARGEV, ARO,3 environmental benefits were not discussed under the criterion of fair share for consumers. As far as environmental benefits are concerned, preventive measures are also regarded as contributions to the protection of environment.4 In 1994, the Commission allowed an agreement between Exxon and Shell under which ethylene was no longer required to be transported between the two companies. It was because the transport of ethylene is harmful for the environment. The case of Philips – Osram5 is another example of cases in which reduction of negative externality is taken into account as they do benefit the consumers directly or indirectly. Hence, public interests are important non-economic aspects which are considered under Article 101(3). United States Antitrust Law United States antitrust law is the US equivalent of competition law. The underlying principles are almost exactly the same as the European competition law. Its main objective is to promote fair competition in the markets and benefits to consumers. The Sherman Antitrust Act, which was passed in 1890, forms the basis of US antitrust law. The Sherman Act has been modified in many ways over the years. It was initially designed to prevent the creation of monopolies and oligopolies in markets. In 1914, Clayton Act was passed which added a list of more prohibited conducts. These conducts include price discrimination and tying agreements. This act was amended by Robinson-Patman Act of 1936 which prohibited price discriminatory acts conducted specifically between similarly situated distributors. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 amended Clayton Act further. It required companies to notify the Government if they planned to perform a significant merger. The Federal Trade Commission Act of 1914 broadens the scope of US antitrust law as it prohibits all "unfair methods of competition" and "unfair or deceptive acts or practices" and augments the Sherman Act. In the context of US antitrust law, Per Se Rule & Rule of Reason are very important to consider. According to the per se rule, some practices are deemed automatically unlawful by the courts because they are obviously detrimental to the existence of a fair competition. In United States v. Trenton Potteries Co6, it was seen that price fixing was deemed illegal per se. It was also seen in Appalachian Coals Inc. v. United States 7 and was reaffirmed in United States v. Socony-Vacuum Oil Co., Inc8. Bid rigging is also strictly forbidden and illegal per se. In Addyston Pipe and Steel Company v. United States,9 intentional overbidding under a formed arrangement among companies was regarded as unlawful and anticompetitive by the court. Sherman Act experienced extraterritorial application in Hartford Fire Insurance Co. v. California10. In Fashion Originators Guild of America v. FTC11, a combination of clothes designers sought to create oligopoly as they agreed not to sell to the shops that also sold replicas of their designs. It was also held illegal per se. Group boycotts were also held illegal per se in Klors, Inc. v. Broadway-Hale Stores, Inc.12 If a particular case cannot be regarded as illegal per se, the courts follow the route of reason to be sure whether there has been an anticompetitive practice. In United States v. Trans-Missouri Freight Association13, the restrictive practice by railroad companies was held unlawful despite the fact that the underlying intention was not to keep prices high, but low. These companies had set up an organisation to fix transport prices. However, the courts found a good form of restraint of trade in Chicago Board of Trade v. United States.14 The Chicago Board of Trade had set up a rule under which trade was restricted for commodity traders after the market’s closing time. This rule did not violate S1 of Sherman Act and was actually pro-competitive. Rule of reason has made the US antitrust law very rich as a number of cases have helped it to develop. In Broadcast Music v. Columbia Broadcasting System,15 a matter arose in which it was debated whether blanket licensing can be counted as price fixing. The court tested the matter under a relaxed rule of reason. It was held that it was not similar to price fixing. Rule of reason may also lead to the declaration of a certain act as illegal per se. This was seen in Arizona v. Maricopa County Medical Society16 when a maximum price agreement for doctors was held unlawful per se under the Sherman Act section 1. In Wilk v. American Medical Association,17 the AMA boycotted chiropractors as they considered chiropractic treatments unscientific. The courts found that there was no sufficient evidence to definitively say that chiropractic treatments are unscientific. Therefore, the boycott was held unlawful. In NCAA v. Board of Regents of the University of Oklahoma,18 NCAA restricted television of games so that more people could come and watch them live. The court held that this practice had ended up in restricting supply which is why it was unlawful. Comparison of the two laws On the surface, the two laws seem to be very similar and it is actually true. Article 101(1) of TFEU prohibits fixing of prices, limiting supply, sharing of markets, and all other acts that distort fair competition. It is directly in line with section 1 of the Sherman Act with also declares all such anti-competitive acts unlawful. Section 2 of the Sherman Act declares all acts that result in monopolization unlawful. Article 101(2) declares all such agreements as “automatically void”. The per se rule in the US antitrust law also has a similar effect. Article 101(3) of TFEU takes a step towards reasonableness as it creates exceptions and allows ‘good’ restrictive practices as legal. The rule of reason in the US antitrust law also has the same effect as it brings flexibility in the law and allows practices that are beneficial or are so harmless that they can be ignored. However, deeper analysis of the two laws reveals that are some differences too. History: One of the central differences is the fact that the US Antitrust Law is much older. The Sherman Act was enacted in 1890 and was not only on paper: it was quite rigorously enforced. In the EU, the modern competition law began to develop mostly after World War II. The European Community highlighted some rules on competition in 1958, and their competition law started to develop. As a result of these rules, Member States like Italy were also induced to introduce laws against restraint of competition for the very first time. Goals: It is important to consider that the two competition laws have different histories and have emerged in different contexts.19 The major goals of the US antitrust law are to protect consumer welfare, maintain fairness, and be hostile towards concentrations of economic power. But it is interesting to note that the EU law can apply on “dominant” market players which have as little as 38% of the market share. In contrast, the US antitrust Law does not interfere unless the market share of a dominant enterprise increases more than 60%. Economic efficiency did not take the centre-stage of the US antitrust law unlike the EU competition law. The centrepiece of the US antitrust law is to promote competition as the US has a history of believing that competition always works out in the best manner. Article 101 of TFEU is applicable on the members of the EU. Its major focus is to tear down the barriers in trade among the EU members. A deeper comparison reveals that the role of economics is much less in the EU competition law than in US antitrust law. Sources: The US antitrust law is very complex as compared to the EU competition law. It is much more litigation oriented. It can be seen in the individual discussions above that guiding principles are laid down in the form of statutes in Article 101 of TFEU. However, statutes have a lesser role in the US antitrust law because they are too general. For instance, the Sherman Act required amendments and certain other acts for support in order to have a comprehensive application. The US antitrust law has developed more through various cases than statutes and acts. Since the underlying principles of the two laws are almost similar, they are likely to bring about similar results. But the enforcement of the two laws is different as it is more lenient in the case of EU. But it is also important to notice that the US Antitrust law has a richer history and a broader experience than the EU competition law. The decisions made under US Antitrust law are a source of guidance for the EU competition law too. The most important innovations in the competition law usually come from the US. For example, the idea that a more economic approach should replace a formal legal approach, and introduction of leniency programmes to fight price-fixing more efficiently, originated from the US. In terms of competition law, the US Antitrust Law can be regarded as the “original parent legal system” for other competition laws around the world. It can be construed that the part “prevention, restriction or distortion of competition within the internal market” in Article 101 of TFEU was inspired from the US antitrust law which prohibits monopolization and all attempts to monopolize. Public debate: The US Antitrust law was the subject of much political debates because it contributed to the decisions made in elections. In its early days, it was seen that the farmers and their associations had a decisive influence on the elections. The US Antitrust law appealed more to general public than the EU competition law because of the availability of criminal sanctions. Today, the US antitrust law has lost much of its appeal to the general public because of issues like gun control, Obamacare etc. but compared to the EU competition law, it still appeals to the general public more. EU competition law continues to be a field of specialized experts. Role of the state: The role of the state is also different in the two competition laws. In Europe, it is inevitable for the state to be involved because for the EU countries, competition law often becomes an international matter. In contrast, the US antitrust law is more of a matter for private actors. In Europe, the states are involved heavily in the matters relating to the banking and insurance sectors, telecommunications, the postal services, the energy sector, and in transport. Therefore, it can easily be expected as quite natural of the states to be involved in matters related to competition law. It has also been seen in Europe that political parties prefer to foster certain “national champions” or at least, they try not to create any hurdles for them. In Germany, for instance, there is an instrument called “Extraordinary Clearance by the Secretary of Economic Affairs” which gives political bodies a right to clear anticompetitive mergers if their prohibition overrides public interest. The merger of E.ON with Ruhrgas AG is a recent example. This has been a merger of the largest energy supplier with the largest gas supplier in Germany. It was promulgated that the improved security of national supply was in the best interest of the public. In the USA, agencies that regulate competition law are independent from the state. This is actually a part of the system of checks and balances. In Germany, independent agencies are acceptable if they are established to pursue only one objective. Agencies that pursue multi-dimensional objectives are not acceptable because multi-dimensional issues often require political balancing. In the US, state may also get involved into issues related to competition but when it does, it usually does not interfere under the disguise of Antitrust Law. Scope: Both competition laws are quite similar in respect of their wide international reach. It is because they inevitably have an impact on international markets due to the extraterritorial application of their competition laws. But the US Antitrust law has probably a better ability to assert itself. USA almost makes up half of the total “world-wide market”. There is no international business on the globe that can afford not being on the US market. Therefore, it is inevitable for almost all international businesses that they are caught by the US Antitrust law. Hence, for instance, if an employee of an Australian company, that does its business worldwide, is found involved in the implementation of a prohibited price-fixing cartel which has an impact on the American markets, he would have to be extradited to the US so that he can serve his sentence. Dealing with Cartels: Both laws deal very stringently with the formation of cartels which can be seen from the discussion above. But again, the difference is in enforcement of these laws. In EU, the businesses that form cartels, and do not qualify for exemption under Article 101(3) of TFEU, are treated with large fines. Article 101 of TFEU cannot impose criminal sanctions upon its infringement. In US, formation of illegal cartels is treated with criminal sanctions as cartel behaviour and price fixing fall in the province of US Department of Justice. Further, the Justice Department has substantial staffs that are devoted to uncovering of tacit formation of cartels. But in Europe, cartels are often revealed through complaint and the EC staff for cartel enforcement is very thin.20 Dominant firm behaviour: Both competition laws focus greatly on putting restrictions on such business behaviour that is designed either to achieve or maintain dominant power. However, there is a difference between the two laws in respect of the interpretation of what constitutes a dominant firm. The US statute is silent on this matter and the case law is somewhat ambiguous. But a study of the leading US cases reveals that firms are regarded as holding monopoly power only if they have a share of two-third or more of a market. Companies that have 30 or 40% of a market are regarded as making an “attempt to monopolize” but the conduct in achieving this share must be anticompetitive and must lack in business justification in order to be considered a violation.21 Also, it must be shown that if this conduct is allowed to continue, it would result in creation of a monopoly.22 In cases like United States v Aluminum Co. of America23 and United States v Griffith,24 it appeared that no dominant behaviour could have been defended in the court unless it was a result of “superior skill, foresight, and industry.” But in later cases like Telex Corp v. IBM,25 the stringent approach got loosened and firms were generally allowed to defend their legally acquired monopoly through aggressive competitive behaviour. But practices like “predatory” pricing, acquisition of direct rivals, refusals to deal solely for the purpose of injuring a competitor, long term lease agreements in which the customer is penalized for switching to a competitor of the monopolist, are conducts that go beyond acceptable behaviour. Interpretation of Article 101 (1d) can be regarded as prohibiting abuse of dominant power in a market. It has already been discussed above that the European competition law focuses more on inefficiency of firms than their “bigness”. This is why they have focussed more on regulating power than its acquisition.26 A dominant firm was defined as one that has the power “to behave to an appreciable extent independently of its competitors, its customers, and ultimately of the consumers” in Hoffman-La Roche v Commission.27 In the presence of significant barriers to entry, a 40% market share can constitute dominance while a 50% or more of market share is presumed to actually have dominance in European markets.28 This level is substantially low than the one determined under the US Antitrust Law. In most respects, the conduct declared as illegal under Article 101 of TFEU would also be illegal under the US Antitrust Law. Also, dominant firms in Europe can escape the violation of Article 101 of TFEU if they provide “objective justification” of their practices. For instance, proof that the conduct was important to serve the market better.29 Vertical Contracts: As discussed above, the US antitrust law declares all pricing arrangements illegal per se. This rule gives fair opportunities to all competitors. In EU, the development of law on vertical restraints has been influenced by the goal of promoting market integration among the member countries. It was seen in Consten and Grundig v Commission30 that firms were forbidden to have airtight territorial restraints at member state borders. But it does not say much about having territorial restraints within borders. This reaffirms that the major objective of Article 101 of TFEU is to increase market integration between member countries. Also, the guidelines by EC on application of this statute do not have much emphasis on the fact that territorial restrictions are imposed “to prevent free riding on the investment of existing distributors.”31 In contrast, the US antitrust paid due heed to this matter by abandoning the per se illegality of vertical limitations and brought it under the light of rule of reason.32 Resale price maintenance: This refers to an agreement between a manufacturer and the retailer that the retailer would not sell the manufacturer’s product above or below a stipulated price. The manufacturer can set a price floor or a price ceiling in this agreement. In the light of competition law, these agreements are regarded as anticompetitive. Article 101 of TFEU clearly disallows resale price maintenance and is completely illegal. In the US, there have been shifts in attitude towards resale price maintenance. In Dr. Miles Medical Co. v. John D. Park and Sons,33 the United States Supreme Court held that a massive minimum resale price maintenance scheme was unreasonable and was a violation of Section 1 of the Sherman Antitrust Act. Resale price maintenance was considered indistinguishable from horizontal price fixing by a cartel. This is why it was held illegal per se. A few exceptions were created to this rule during the Great Depression by passing of fair trade laws. The Miller-Tydings Act and the McGuire Act made sure that these laws were not in conflict with the Sherman Act. However, the Consumer Goods Pricing Act of 1975 repealed both of these Acts after they became highly unpopular after the Second World War. In Albrecht v. Herald Co.,34 the Supreme Court extended the per se rule against minimum resale price maintenance, as established in Dr. Miles, to maximum resale price maintenance too. But in 1997, the Supreme Court overruled Albrecht in State Oil v. Khan.35 From the enactment of Consumer Goods Pricing Act of 1975 to Leegin Creative Leather Products, Inc. v. PSKS, Inc36 in 2008, resale price maintenance was illegal per se under the US antitrust law. In Leegin, the Supreme Court overruled Dr. Miles and held that vertical price restraints such as Minimum Advertised Pricing are not per se unlawful. These are to be decided according to rule of reason. Therefore, this means that resale price maintenance in the United States has been reestablished in most, but not all, commercial situations. Mergers: As discussed above, the US antitrust law deals rigorously against mergers that threaten the existence of competition. Presently, American industries are less concentrated than the EU member countries because of the fear of anti-merger restrictions. In contrast, EU members have not seen mergers as a big threat to fair competition. They have been more concerned with inefficiencies of small businesses as the markets got smaller. EU competition law has actually welcomed the formation of mergers. It does not see concentration as a threat which is why it has never gone for deconcentration. It just looks to regulate mergers so that fair competition is not distorted. It prohibits only those mergers that “create or enhance “dominance” so as to substantially impair effective competition.”37 Also, it was made clear in Nestle/Perrier case by the Commission that oligopolistic dominance was acceptable.38 The US Antitrust Law makes a distinction between prohibited restraints of trade and legitimate cooperation through distinguishing between “per se” cases and “rule of reason” cases. In Europe, the dogmatic approach to make such distinction is different but there is hardly any difference between the results that the two systems achieve. There are some rare instances in which differences do occur. For instance, the merger GE/Honeywell was permitted in the US but was stopped in Brussels. It was because the two laws evaluated a complex set of facts in a different manner. Otherwise, most of the cases end up with similar results under the two laws. Price Predation: Predation is condemned by both competition laws but there is a difference in underlying reasons. Both laws use almost the same criterion in order to access whether a business is pricing its product below a reasonable level. The difference is that EU courts focus on prohibiting elimination of competitors (as was seen in AKZO’s case39) whereas the US courts consider that the consumers might be deprived of the benefit of low pricing if predation is disallowed. However, EU’s stance can be regarded as qualified now as Article 101(3) of TFEU requires that anticompetitive agreements must also provide a fair share of the resulting benefits to consumers. Overall, there are major similarities between the two laws. But they have emerged from different epicentres and had different experiences. Further, the US antitrust law is a law enforced in a sovereign land whereas Article 101 of TFEU is applicable on the members of EU. Since there is a difference in their scope, there are likely to be some differences in their goals and also in their enforcement. But the effect of both laws is almost identical as both of them succeed in achieving fair competition on a large scale and prevent the creation of monopolies and oligopolies through unfair means. References Primary Sources: Addyston Pipe and Steel Company v. United States [1899] 175 U.S. 211 AKZO Chemie BV v Commission Case C-62/86, 1991 ECR I-3359 Albrecht v. Herald Co., [1968] 390 U.S. 145 Appalachian Coals Inc. v. United States [1933] 288 U.S. 344 Arizona v. Maricopa County Medical Society [1982] 457 U.S. 332 Broadcast Music v. Columbia Broadcasting System [1979] 441 U.S. 1 Chicago Board of Trade v. United States [1918] 246 U.S. 231 Commission Decision 91/38/EEC, IV/32.363 – KSB/Goulds/Lowara/ITT, [1991] OJ L 19/25 at paras 26 and 27. Commission Decision 92/96/EEC, IV/33.100 Assurpol, [1992] OJ L 37/16 at para 39. Commission Decision, Carbon Gas Technologie, December 8, 1983, IV/29.955 L376/17. II B, 1. Commission Decision of 16 October 2003, ARA, ARGEV, ARO, OJ 2004 L 75/59, para 268, 269. Commission Decision, Philips – Osram, December 21, 1994, IV/34.252, L378/37 at para 27. Consten and Grundig v Commission [1966] ECR 299 407–8 Consumer Goods Pricing Act 1975 (US) Dr. Miles Medical Co. v. John D. Park and Sons [1911] 220 U.S. 373 Fashion Originators Guild of America v. FTC [1941] 312 U.S. 457 Hartford Fire Insurance Co. v. California [1993] 113 S.Ct. 2891 Hoffman-La Roche v Commission Case, 85/76, 1976, ECR 461, para 38. Leegin Creative Leather Products, Inc. v. PSKS, Inc [2007] 551 U.S. 877 Klors, Inc. v. Broadway-Hale Stores, Inc [1959] 359 U.S. 207 McGuire Act 1952 (US) Miller-Tydings Act 1937 (US) National College Athletics Association v. Board of Regents of the University of Oklahoma [1984] 468 U.S. 85 Sherman Act 1890 (US) State Oil Co. v. Khan, [1997] 522 U.S. 3 Telex Corp v. IBM 367 F. Supp. 258 Theatre Enterprises v. Paramount Distributing, [1954] 346 U.S. 537 Treaty on the Functioning of the European Union Article 101(1) Treaty on the Functioning of the European Union Article 101(3) United States v Aluminum Co. of America [1945] 148 F.2d 416, 2d Cir. United States v Griffith [1948] 334 U.S. 100 United States v. Socony-Vacuum Oil Co., Inc [1940] 310 U.S. 150 United States v. Trans-Missouri Freight Association [1897] 166 U.S. 290 United States v. Trenton Potteries Co [1927] 273 U.S. 392 Wilk v. American Medical Association 895 F.2d 352 (7th Cir. 1990) Secondary Sources: Bermann, G., R. Goebel, W. Davey, and E. Fox. 1993, Supp. 1955. Cases and Materials on European Community Law. Minneapolis: West. Cseres, K. J. (2007), The Controversies of the Consumer Welfare Standard, The Competition Law Review, Volume 3 Issue 2 pp 121-173, March 2007 De Bijl, P., Van Dijk, T. (2012), Mededingingsbeleid en publieke belangen: een economisch perspectief, Markt en Mededinging, September 2012, nr. 4. Eleanor M. Fox, US and EU Competition Law: A Comparison, in Global Competition Policy 339, 340 (Edward M. Graham & J. David Richardson eds., 1997) European Commission (2011), Communication from the Commission, Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, 2011/C 11/01, January, 14, 2011. Gyselen, L. 1989. “Abuse of Monopoly Power within the Meaning of Article 86 of the EC Treaty: Recent Developments.” In B. Hawk, Fordham Corporation Law Institute. (Art) Joliet, R. 1970. Monopolisation and Abuse of Dominant Position: A Comparative Study of American and European Approaches to the Control of Economic Power. Netherlands: Nijhoff Petit, N., (2009), The Guidelines on the Application of Article 81(3) EC: A Critical Review, Working paper, Insitut d’etudes juridiques europeennes, N 4/2009 Turner, D. F. 1975. “The Scope of ‘Attempt to Monopolize’.” Record Association Bar (New York City) 30: 487 Read More
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