Coordination and cooperation among members of the ECN under Regulation 1/2003

TABLE OF CONTENTS

I. Introduction
1. Preliminary remarks
2. Outline

II. The state of NCAs
1. Overview: NCAs of current 15 Member States
a. Resources
b. Experience
c. Independence
2. Overview: NCAs of Central and Eastern Europe

III. Case allocation
1. Principles of case allocation
a. Affect on trade between Member States
b. Close cooperation
c. Development of a general principle of efficiency
2. Vertical allocation between NCAs and Commission
a. Criteria for Commission’s competence
i. Criterion of 3+
ii. Community interest
iii. Efficiency and exclusive competence
b. Art. 11(6): Take-over clause
3. Horizontal allocation between different NCAs
a. System as envisaged by Regulation
i. Lack of bright-line allocation criteria
α. Step one: first formal investigations
β. Step two: Definition of “well/best placed”
γ. Step three: Conflict settlement
ii. Different scenarios of cooperation or coordination
α. Leader and assistant
β. Virtual teams
iii. Forum-shopping
α. Origin of possible conflict: national procedural autonomy
β. Differing leniency programmes
γ. Differing national sanction systems
b. Remaining problems
4. Mechanisms of cooperation
a. Exchange of Information
i. General provisions
ii. Safeguards
α. Protection of confidentiality
β. Use of information
γ. Imposition of sanctions
b. Stay or closure of proceedings
c. Investigations
5. Solutions
a. Mandatory rules
b. Network-based approach
i. Mutual respect and recognition
ii. Enhanced role of the Advisory Committee
iii. Outlook

IV. Conclusion

BIBLIOGRAPHY

Coordination and cooperation among members of the ECN under Regulation 1/2003

I. Introduction

1. Preliminary remarks

It is now more than a year ago since Regulation 1/2003 was finally adopted^[1] and some five years after the first discussions about a comprehensive reform of the EC competition law had been launched in the context of the Commission’s White Paper on Modernisation^[2]. And only now the dust surrounding this highly contentious ‘political masterstroke’^[3] seems to be settling^[4]. This, however, should not come as a surprise as Art. 35(1)^[5] sets the Member States the ultimate deadline of 1 May 2004 - also the date of entry into force of Regulation 1/2003 – to comply with their respective infrastructural and technical duties. But still there are some practical uncertainties inherent in the application of Regulation 1/2003 which need to be addressed before the European Competition Network (ECN) will start to take up its work. As far as I can see, these uncertainties mainly concern the coordination and cooperation among its members and especially among national competition authorities (NCAs). This paper, therefore, seeks to address the main difficulties which remain even after the Commission has published six notices to accompany Regulation 1/2003, namely the problem of case allocation within the ECN and the problems arising from the system of exchange of information.

2. Outline

In the beginning, I will scrutinize the state of the NCAs of the current and future Member States and examine how well they are prepared to meet the new challenges. Afterwards I will turn to the principal topic of this paper: the question of case allocation.

At the outset, I will explain the general principles underlying both the vertical allocation between NCAs and the Commission and the horizontal allocation between different NCAs. Naturally, this will be followed by a scrutiny of the peculiarities of these two scenarios. I will show that there is no single system of case allocation but it flows from the inherent structure of the ECN itself that it consists of two parts: a provisional case allocation and the final one. By explaining how these two parts work, I will try to demonstrate that the emphasis under Regulation 1/2003 lies with the second, procedural part rather than with a stringent set of criteria. Therefore, I will outline the importance given to the exchange of information as the dominant mechanism of cooperation.

Having criticised this system along the way, I will finally turn to my own proposal, the network-based approach, and try to show how this system of case allocation could work more efficiently and satisfactorily within the given framework. Therefore, I will stress the importance of the principle of mutual respect and recognition and attribute a slightly enhanced role to the Advisory Committee.

II. The state of NCAs

1. Overview: NCAs of current 15 Member States

If the NCAs under Regulation 1/2003 are to take a full part in applying the EC competition rules as required by Art. 3, they will need to be properly resourced and have available to them adequate powers of surveillance, investigation and enforcement.

a. Resources

As Riley has shown, some of the NCAs meet these criteria, particularly the Office of Fair Trading, the Bundeskartellamt and the Autorità garante della Concorrenza e del Mercato^[6]. Some other, mostly smaller authorities as the Irish and Finnish NCAs, however, are so badly resourced – financially as well as regards the number of staff – that they ‘found even participating in the negotiations on what became Regulation 1/2003 a burden’^[7]. These resource weaknesses are all the more alarming as the cooperation within the ECN will further draw on the capabilities of the NCAs.

b. Experience

Furthermore, most of the NCAs have little or no direct experience in the application of EC rules and statistics show that EC law was very rarely invoked in competition cases so far decided by NCAs – even by those who have for a long time been empowered to apply EC law in domestic proceedings^[8]. In addition, it is only since 1990 that all current Member States have had a national competition law at all.

c. Independence

As Maher shows, the extent to which NCAs are independent of their respective governments varies^[9]. This is primarily due to the fact that there are two main models of NCAs in Europe: Some of the EC Member States (Germany, United Kingdom and Italy) have set up “integrated” independent administrative bodies with an overlapping set of functions: investigation, examination and decision-making^[10]. In other Member States, NCAs have to share enforcement competencies with government departments. In the latter case, the NCAs’ dependency in terms of budget and personnel can give rise to indirect ministerial control over priorities^[11]. But even if institutional and political independence is granted by the state, there may be other means of ensuring that an NCA acts in compliance with specific national policy interests.^[12]

Eventually, it is the perceived independence that creates credibility and trustworthiness. Thus, there is an appreciable difference between big, respected, long standing institutions and those small ones which do their work totally unperceived by the public.

2. Overview: NCAs of Central and Eastern Europe

The picture gets even darker when turning to the NCAs in Central and Eastern Europe. Notwithstanding some exceptions like the Hungarian or Polish NCAs^[13] it is the case that on the whole they have fewer resources than their Western counterparts. Not surprisingly, they also have even less experience and knowledge of the application of EC law. But according to Riley, the real danger is ‘a mechanistic, black-letter approach to the application of competition law’^[14]: NCAs in Central and Eastern Europe were born in a market very different to that of Western Europe. In the aftermath of the Soviet occupation, the domestic markets were heavily concentrated, with little modern technology and with only marginal development of consumer markets. Moreover, the state bureaucracy itself had little understanding of market economics and preferred direct control and regulation to market solutions^[15]. Thus, the NCAs had and still have to cope with a much broader range of problems than their Western brethren: highly concentrated markets, high levels of foreign direct investment leading to an equally high level of merger applications and the continuous struggle with the state bureaucracy to balance the functioning of the market economy with the granting of state aid^[16].

Consequently, not only do NCAs of Central and Eastern Europe in general have less experience and resources – membership is sometimes even a part-time job^[17] – but they are also exposed to a higher degree of political pressure on the part of the government departments. Still, Forrester is right in indicating that this is not a reason to condemn decentralisation at all. But it ‘is a reason to be alert during the process of handover to the need fraternally to pursue neutral accurate decisions’^[18].

III. Case allocation

Given these fundamental differences between NCAs within the ECN, there has been wide-spread concern about the functioning of any system of case allocation. As a result, the Commission came forward with an open system based on flexibility^[20]. This system is characterised by the absence of a given set of criteria that would lead to a single and final decision. Rather, Regulation 1/2003 envisages an open process of allocating cases provisionally, giving only rough and implicit criteria that has had to be spelled out by the Draft Commission Notice on cooperation within the Network of Competition Authorities (“the Draft Notice on cooperation”). The main focus of Regulation 1/2003 itself lies on the mechanisms of cooperation for the purpose of re-allocation and assistance, i.e. exchange of information (Art. 12), stay and closure of proceedings (Art. 13) and assistance in investigations (Art. 22). This flexible approach seemed to be the natural reply to the legal uncertainty resulting from the diversity within the ECN as it ‘creates the possibility of testing the impact of different approaches, thus in theory providing a basis for ultimately deciding which approach is preferable’^[21]. Accepting this underlying policy rationale of some kind of benchmarking, what are the principles of this flexible system of case allocation?^[19]

To answer this question, I will first scrutinize the principles for provisional allocation before I turn to the mechanisms on cooperation to determine the criteria for the final allocation.

1. Principles of case allocation

a. Affect on trade between Member States

At first, Art. 3(1) implies that the question of case allocation only arises when trade between Member States is affected. Following Riley, this is ‘the weak point if not the Achilles heel of the uniform application of EC competition law’^[22] under Regulation 1/2003 as some NCAs may try to narrow down the scope of the doctrine of effect.

However, since the Commission has published its Draft Commission Notice on the effect on trade^[23] it seems clear that Art. 3(1) has to be interpreted in the same way as 81(1) and 82 EC. Therefore, the tests developed in the case-law under these Articles will equally apply in the context of Art. 3(1). In a glimpse, the criterion of effect on trade is fulfilled if it is ‘possible to foresee with a sufficient degree of probability on the basis of a set of objective factors of law or fact that the agreement or practice may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States’^[24] so long as these effects are appreciable^[25].

b. Close cooperation

Once this obstacle is overcome, the ECN, according to Art. 11(1), is based on a system of close cooperation. As Böge points out, a trustful cooperation based on equal rights is the precondition for such a system^[26]. Accordingly, the Joint Statement clarifies that this envisages a cooperation between independent actors ‘on the basis of equality, respect and solidarity’^[27]. Thus, the notion of “mutual respect” implies that the members of the ECN accept that their enforcement systems differ but nonetheless mutually recognize the standards of each other’s system as a basis for cooperation^[28] without, however, extending this principle to a formal “principle of mutual recognition”.

c. Development of a general principle of efficiency

The more recent documents of the Commission all stress the importance of an efficient division of work^[29] in the context of the ECN. Thus, Siragusa seems right in identifying a ‘general principle of efficiency’^[30] as a criterion for allocating cases vertically as well as horizontally. Furthermore, this general principle of efficiency seems to be the defining core of the whole Regulation 1/2003, governing decentralisation, streamlining the application of EC competition law, ensuring consistency and reducing the workload of the Commission. This fits well with Monti’s identification of efficiency as one of the three core aims of EC competition law and goes hand in hand with the developments under Art. 81 EC^[31].

2. Vertical allocation between NCAs and Commission

Building on these criteria, the Commission has developed more specific criteria that principally indicate when cases primarily fall within its competence.

a. Criteria for Commission’s competence

i. Criterion of 3+

Most importantly, the Commission will deal with an agreement or practice when it has effect in more than three Member States, i.e. when cross-border markets covering more than three Member States or several national markets are concerned^[32]. As Schaub points out, in those circumstances it is very unlikely that parallel action of NCAs will be efficient and therefore compliant with the general principles of case allocation^[33]. But it has to be seen whether this criterion for the division of work is effective in practice for in a single market there might be very few agreements or practices that do not affect three or more Member States^[34]. Ultimately, this will depend on the Courts’ interpretation of the doctrine of effect on trade between Member States as outlined above. Given the rather broad scope attributed to it so far, it is doubtful whether this criterion really restricts the workload of the Commission. However, the judgment in Carlo Bagnasco^[35] has shown that the ECJ and the Commission gradually seem to realize the problem and move towards a narrower interpretation.

ii. Community interest

The second criterion is equally broad and rather a catch-all provision since it comprises all cases in which the Community interest requires the adoption of a Community decision to develop Community competition policy or to ensure effective enforcement^[36]. Admittedly, in the absence of a mandatory rule of mutual recognition the non-binding nature of NCAs’ decisions is a major hurdle for their effective enforcement throughout the Community^[37]. As long as the notion of Community interest, however, is vague without guidelines being given as to its interpretation, the criterion of Community interest will serve as a tool of the Commission to deal with the more important or more interesting cases.

iii. Efficiency and exclusive competence

Finally, according to the Commission’s own interpretation, its competence is triggered if a case is closely linked to other Community provisions which are more efficiently applied by the Commission or for which the Commission has exclusive competence^[38].

Thus, taking together these three criteria, you can easily see that the Commission has quite a considerable margin of discretion as to when they want to investigate a case.

b. Art. 11(6): Take-over clause

When the facts triggering the Commission’s competence are not clear from the outset but only emerge during the investigations, the Commission can rely on Art. 11(6) to relieve the NCA or NCAs in question of their competence^[39]. This provision is therefore a strong instrument in the hands of the Commission, allowing for the take-over of competence at a very late stage of the process of case allocation.

This has given rise to sharp criticism as it undermines the aim of decentralisation by not showing the trust and respect required by Art. 11(1). According to Forrester, ‘[t]rusting that the Commission will sort out crises, discrepancies and errors is understandable, but we will have achieved only a limping reform if the Commission’s intervention becomes routine, in effect an extra layer of bureaucracy, equivalent to an appellate instance’^[40]. Given the problems of the NCAs sketched above and given the Commission’s role as the guardian of the Treaty, Art. 11(6) must be understood as a compromise between safeguarding efficiency and consistency on the one hand and meaningful transfer of responsibility on the other hand, which ultimately favours the former over the latter.

To encounter this criticism, the Commission set out guidelines in the non-binding Draft Notice on cooperation on how it will use this tool: During the provisional allocation period of two months the Commission is completely free to initiate proceedings after consulting the respective NCA^[41]. Afterwards, however, the Commission will in principle apply Art. 11(6) only when it is either envisaged that NCAs decisions conflict with each other or with consolidated case law, when NCAs unduly draw out proceedings, when there is a perceived need to develop Community competition policy or when the NCAs concerned do not object^[42].

[...]

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^[1] Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ 2003 L1/1.

^[2] White Paper on Modernisation of the Rules Implementing Articles 85 and 86 of the EC Treaty, Commission Programme No. 99/027, 28.04.1999.

^[3] Riley, 2003b: 657.

^[4] Evidence for this can be found in the change of language that has occurred during the last few years as the discussion has got less emotional but rather turns to technical and practical issues.

^[5] Articles without indication of the statute are those of Regulation 1/2003.

^[6] Riley, 2003b: 658.

^[7] Riley, 2003b: 658.

^[8] Cp. Riley, 2003b: 659.

^[9] Maher, 2002: 4.

^[10] Cp. Idot, 2002: 2.

^[11] Cp. Maher, 2002: 6.

^[12] In 2000, the Danish Ministry of Justice submitted to Parliament an interpretative note which stated that when defining the relevant market the NCA should not consider “exclusive design” to belong to a separate market. As Forrester argued, this was done in order to stop the NCA from deeming Bang & Olufson and Montana from having a dominant position on the market for exclusive hifi-equipment and exclusive furniture (Forrester, 2002: 6).

^[13] Cp. Riley, 2003b: 660.

^[14] Riley, 2003b: 660.

^[15] Cp. Riley, 2003b: 661.

^[16] Cp. Riley, 2003b: 661 with further references.

^[17] Forrester, 2002: 6.

^[18] Forrester, 2002: 7.

^[19] There is an interesting change of language regarding case allocation: While it seemed to be a free-standing concept in the beginning, it subsequently turned into a part of the “division of work” within the ECN. This, however, will not change the substantive assessment.

^[20] Cp. Waelbroeck, 2002: 4; Venit, 2003: 563.

^[21] Venit, 2003: 563.

^[22] Riley, 2003b: 664.

^[23] Draft Commission Notice – Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty.

^[24] See e.g. the judgment in Case 319/82 Kerpen & Kerpen, [1983] ECR 4173, Joined Cases 240/82 and others Stichting Sigarettenindustrie, [1985] ECR p. 3831, paragraph 48, and Joined Cases T-25/95 and others, Cimenteries CBR, [2000] ECR II-491, paragraph 3930.

^[25] Case 22/71 Béguelin, [1971] ECR p. 949, paragraph 16; See also Draft Commission Notice – Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty, para. 44 et seqq.

^[26] Böge, 2002a: 7.

^[27] Joint Statement of the Council and the Commission on the Functioning of the Network of Competition Authorities, 15435/02 ADD 1, para. 7.

^[28] Cp. Draft Commission Notice on cooperation within the Network of Competition Authorities, para. 2; Joint Statement of the Council and the Commission on the Functioning of the Network of Competition Authorities, 15435/02 ADD 1, para. 8.

^[29] Cp. Joint Statement of the Council and the Commission on the Functioning of the Network of Competition Authorities, 15435/02 ADD 1, para. 10; Draft Commission Notice on cooperation within the Network of Competition Authorities, para. 3.

^[30] Siragusa, 2002: 8.

^[31] Monti, 2002: 1063 et seqq.

^[32] Draft Commission Notice on cooperation within the Network of Competition Authorities, para. 14.

^[33] Schaub, 2002: 3.

^[34] See Forrester, 2002: 4.

^[35] Case C-215/96 Carlo Bagnasco v BPN [1999] E.C.R. I-135.

^[36] Draft Commission Notice on cooperation within the Network of Competition Authorities, para. 15.

^[37] Cp. Schaub, 2002: 3.

^[38] Draft Commission Notice on cooperation within the Network of Competition Authorities, para. 15.

^[39] Cp. recital 17 of Regulation 1/2003.

^[40] Forrester, 2002: 2.

^[41] Draft Commission Notice on cooperation within the Network of Competition Authorities, para. 54.

^[42] Draft Commission Notice on cooperation within the Network of Competition Authorities, para. 54.