European Competition Law Annual 2013

Effective and Legitimate Enforcement of Competition Law

Philip Lowe, Mel Marquis, Giorgio Monti, Philip Lowe, Mel Marquis, Giorgio Monti

• Publisher: Hart Publishing
• Year: 2016
• Print ISBN: 9781849467452
• eBook ISBN: 9781509900480
• Edition: 1
• Topic: Derecho
• Subtopic: Derecho de la competencia

This volume contains papers presented at the 18th Annual EU Competition Law and Policy Workshop. The papers examine means of balancing effective (public) competition law enforcement and the requirements of legitimate and accountable exercise of public authority. The authors address the design and performance of various enforcement tools at European and national levels, including sanctions and remedies but also distinctive instruments under Regulation 1/2003 (eg commitment procedures) and under the Treaty on the Functioning of the European Union (Article 106(3) when used as a basis for infringement procedures). From the perspective of legitimacy, reflections focus on the implications of fundamental rights standards and general principles of law for the EU's complex and quasi-federal enforcement architecture. Issues that may sometimes escape judicial scrutiny are also discussed, such as how agencies prioritise their activities, and how investigation responsibilities are distributed within the European Competition Network. Effectiveness and legitimacy are then considered in the context of public enforcement cooperation beyond the EU, where international organisations, regional cooperation and a range of formal and informal modes of governance prevail.

PART I

Effective Enforcement of Competition Law

PHILIP LOWE: Good morning, and a very warm welcome to everyone. On behalf of Giorgio and Mel, many thanks to those who are returning to the Workshop, and a special welcome to those joining us here for the first time. There are some territorial imperatives at play, but in general new blood comes in to every edition of this event, and the new blood provides us with fresh and stimulating input—which is not to overlook the important contributions of the old blood. [Laughter]

We have a title for the Workshop this year, which is very broad in the sense that effective and legitimate enforcement of competition law has many components, many aspects. However, it is certainly crucial to the credibility of every authority and competition law system. So we are going to have a series of sessions today and tomorrow where we will go into depth about what constitutes effective and legitimate enforcement of competition law. In this regard we will consider how competition authorities establish or should establish priorities for enforcement, and we’ll also discuss how authorities can establish conditions that promote compliance with the law. So let us begin. I will now hand the floor over to Giorgio, who is chairing the first session.

1

EFFECTIVE SANCTIONS AND COMPLIANCE

CHAIR:

Giorgio Monti

SPEAKERS:

Simon Bishop

Frédéric Louis

Konrad Ost

Christine Parker

GIORGIO MONTI: Let me add my words of welcome to you as well. We begin with a marathon session. That is to say, we have 10 speakers before the coffee break. The speakers have an injunction to speak for 10 minutes each. The way I will try to enforce this injunction is that when you will have about a minute left you will see a yellow card and when you are done there is a red card. There is a further mechanism for effective enforcement that I have as well but that I will not disclose. Now you will have legitimate expectations and my enforcement will be legitimate and hopefully effective. Speaking first is Christine Parker.

CHRISTINE PARKER: Thank you very much and yes, I am a rookie. Thank you for the opportunity and invitation. What I want to do in my presentation is to draw together the themes of my research, which has been mainly on empirical research on enforcement and compliance in competition law. It is great to be able to do that in the presence of the bright minds that are together here. I will finish my presentation with a couple of comments on the potential translation of my empirical research in what I see as some of the substantive issues that I have read about in the papers. Obviously, I come from Australia, and I am actually not a competition lawyer. I am a socio-legal empirical researcher who has had the opportunity, over the last 15–20 years, to study in depth the enforcement practices of the Australian Competition and Consumer Commission (ACCC) and how businesses respond to them. I think the same issues face every competition law enforcement agency—and, indeed, any business regulation enforcement agency—and I see that in the papers here. One other thing I should point out is that the ACCC is basically a prosecution agency. They don’t generally make decisions except about mergers and certain authorisations, but for most of the offences they are a prosecution-only agency.

My main interest is the crucial question of compliance. As I said, my main research is empirical and the main themes of my research have been that it is too easy to conceptualise business response as something that will happen automatically and to the right degree if we get optimal deterrence right. I think it is provocative—our organisers have asked me to be—to say that it would be better if we got rid of the words ‘deterrence’ and ‘compliance’ and talk about what they really mean, because businesses and individuals respond to and interact with the law in complex and plural ways. The ways they respond include economic calculations about their self-interest, but also judgements about the substantive legitimacy of the law. That is the procedural legitimacy of the enforcement agency and an operator’s own capacity to notice and understand the law in the first place, and then a sort of scanning of the environment to see what other businesses and stakeholders are doing about the law. In my paper I have described what this plural model of compliance and deterrence means.

In practice, what this means is that a competition law agency like the ACCC has to overcome a series of escalating or embedded challenges or negotiations with business and society to make its enforcement both effective and legitimate in achieving the goals it is supposed to pursue. The paper that I’m proposing tells a story of the ACCC’s attempts to overcome each of what I describe as three ‘traps’ of effective enforcement and compliance and business responses to them, and I use my own research to tell that story. The first one, the deterrence trap, occurs where penalties for non-compliance cannot be big enough to deter rational misconduct without being so large that they exceed the capacity of firms to pay.¹ What happened was that the ACCC, under the chairmanship of Professor Allan Fels, overcame that trap by making the process of investigation and sanctioning very painful in other ways than penalties by moralising in the media about cartel misconduct and other types of competition law misconduct while targeting individuals as well as firms. They address the deterrence issue, but the problem with that is that the crucial issue of what we might call optimal deterrence had not been addressed, so the ACCC achieved an apparent enforcement success but without actually addressing the substantive moral issues about what the limits of competition law might be and therefore they appeared to be acting against procedural justice and potentially achieving over-compliance, but really they were probably creating the seeds of their own political illegitimacy. The ACCC has achieved apparent enforcement success, but without gaining the commitment of all businesses to the substantive moral basis for its enforcement activity. The ACCC had not gained acceptance and commitment to its own moral and economic evaluation of what ‘optimal’ deterrence required in terms of the process of enforcement and the substantive goals of competition policy.

This is what I call the compliance trap: businesses criticise and resent the enforcement mechanisms even though they are settling most of their cases. So it appears compliance is improving but perhaps, covertly, the whole system is being undermined. What I argue is that the compliance trap is a symptom of a social polity that is still very ambiguous about the basis for its laws for businesses and whether business misconduct should be treated as a crime, and what should be allowed within which limits. That is where optimal deterrence lies. In that kind of ambiguity a regulatory agency is basically given an impossible task. They appear to be either over-enforcing or going soft.

The ACCC tried to overcome this issue by building up substantive political support for its competition law enforcement by arguing in favour of the criminalisation of cartels in law. That happened and we now in Australia have a criminal cartel offence. Now, therefore, there appears to be a legitimate basis for this very strong moralising approach of anti-cartel enforcement. However, arguably, as our research shows, even cartel criminalisation, with cartel conduct being essentially a per se offence, is just too stark. It does not match business people’s moral or economic sense of what makes sense in the marketplace. I think the law and its enforcement are still in grave danger of falling into what I call the legitimacy trap. This is a situation where there is ambiguity and controversy about whether the law is substantively justified or not, and on what basis. It means that we do not really know whether any criminal prosecutions can ever succeed, or what effect they will have.

Basically, what I am pointing to with my research and the paper is what we might call the elephant in the room. Whenever we talk about the techniques and processes of competition law enforcement we have this unspoken issue of ambiguity about both the substantive rationale for competition law and the procedural nature of the regulatory enforcement task in criminal competition law. We have this continuing ambiguity regarding to what extent competition should be balanced or tempered with other social and political goals, and we also have an ongoing ambiguity whether competition law fulfils simply an administrative regulatory function or whether it is something that should be thought of as amounting to a crime. These debates and ambiguities can be used and abused by businesses and their lawyers as part of their own strategy, to pursue their own economic self-interest, and also as rationalisations and excuses for wrongdoing.

To conclude, I will make two broad comments. One is that I notice a lot of talk in the papers about optimal deterrence, and what I want to suggest is that the discussion about optimal deterrence is really a cipher for ambiguity or indecision about the substantive legitimacy of competition law enforcement. It’s really about not having addressed what the fundamentals are of what we think competition is and how it interacts with social and political goals, and whether it helps make our markets and societies the way we want them to be. It would be interesting to see if we can get rid of the term ‘optimal deterrence’ and talk about something else. The other comment is on procedural legitimacy, which I think is really a cipher for confusion about the nature of the regulatory enforcement task and whether it is criminal or administrative. I’ll end here.

KONRAD OST: As I see that the 10-minute rule is strictly enforced, I will hurry up. Thank you very much for inviting me today. The focus of my paper is about the enforcement of antitrust rules by the national competition authorities. In the dawn of the modernisation process, the Bundeskartellamt (BKA) was rather reluctant to follow the mainstream move towards more harmonisation. Today we find ourselves more on the other side of the table, asking for even more. In my paper I argue that in order to reach an effective enforcement system, national systems need more alignment with the EU system. I have to admit that if the German system worked smoothly there would be less urgency to think about convergence, but effective sanctioning is at stake in Germany on two issues. One regards the addressee of a fine under German law and the other is the German procedural background. From an enforcer’s point of view, these are shortcomings that have to be changed.

The European substantive provisions are of course applied by national competition authorities. The BKA has to enforce Article 101 TFEU against infringing ‘undertakings’ as defined under EU law. The German sanctioning law, however, provides for the imposition of sanctions on legal entities whose representatives commit the infringement. The legal entity is liable for any offence committed by a representative of that specific legal entity. In this logic, the action of a representative of another legal entity (even if it is a member of the same economic unit in European terms) may not be attributed to another legal person (eg the parent company). The result is a certain divergence between the enforcement of the substantive rules on the one side and the sanctioning law on the other. For example, there is no sufficient legal basis in German law to impose fines on parent companies for infringements committed by subsidiaries even though the substantive prohibition, as is clear from the case law, is addressed to the parent companies as part of the undertaking.² We therefore have an important divergence on this issue of parental liability. The other issue is the succession in fines.³ It is possible, through internal restructuring within a group of undertakings, to evade sanctions. So this is more or less a cost–benefit analysis, which puts effective sanctioning at risk. Hence, effective enforcement of Article 101 in Germany is not entirely safeguarded. From the perspective of the national competition authority, there is a breach of EU law if it is not possible to fine the infringer of the EU competition rules effectively. From an undertaking’s point of view it is interesting as well, because the extent of the sanction depends on whether it is the Commission or the BKA that will impose a fine. At least there is a potential here to argue that there is a violation of rule of law principles.

Now a brief look at the procedural side. In Germany, the rights and guarantees in antitrust proceedings are largely the same as in criminal cases. Compared t...

Table of contents

• Cover
• Title
• Contents
• List of Sponsors
• List of Participants
• Table of Cases
• Effective and Legitimate Enforcement of Competition Law: An Overview
• Part I: Effective Enforcement of Competition Law
• Part II: Legitimate Enforcement of Competition Law
• Part III: Effectiveness and Legitimacy in International Enforcement Cooperationl
• Part IV: Issues for Courts and Perspectives on the Judicial Role
• Conclusions
• Selected References
• Copyright Page