Prof. Dr. iur. Dr. rer. pol. h.c. Carl Baudenbacher President of the EFTA Court University of St.Gallen HSG ADMINISTRATIVE AND PROSECUTORIAL ENFORCEMENT OF COMPETITION LAW Fifth Annual Conference on Competition Enforcement in the CEE Member States, 21 February 2014 in Bratislava I. Types of Competition Law Enforcement 1. Public enforcement a. Administrative model In an administrative enforcement system in the narrow sense of the word, a public authority conducts the investigation and issues a decision based on its results. The decision may be challenged in court by the firms concerned. I. Types of Competition Law Enforcement 1. Public enforcement a. Administrative model Origin in Fin-de-siècle Austria-Hungary. “The solution of [....] the problem of combating harmful cartels is [....] to not be found either on the basis of private law nor of criminal law, but in an administrative regulation of business associations.” (Adolf Menzel, Die Kartelle und die Rechtsordnung, 1894). I. Types of Competition Law Enforcement 1. Public enforcement b. Prosecutorial model In a prosecutorial system, investigation and prosecution are separated from adjudication. The U.S. is the main example. The DoJ or the FTA conduct the investigations and then prosecute the involved firms before a federal court. But there is the tradition of plea bargaining. In Europe, there are (some sort of) prosecutorial models in Austria and in Sweden. I. Types of Competition Law Enforcement 2. Private enforcement The paradise of private enforcement is the U.S. Over 80 % of the actions are brought by private parties in civil proceedings. There are also special framework conditions, such as the possibility to obtain treble damages (Section 4 Clayton Act), the possibility for attorneys to charge contingency fees, the possibility to bring class actions which are subject to the opt-out principle and the pretrial discovery which facilitates the obtaining of evidence. I. Types of Competition Law Enforcement 3. Criminal enforcement Criminal enforcement is part of U.S. law. There is no criminal enforcement on the European level. What the former Director General of DG Competition, Philip Lowe, stated some years ago is still valid: Europe is culturally not ready for that. In certain EU and EEA Member States (France, Ireland, United Kingdom, Norway), violations of competition law may lead to criminal sanctions. In France, for example, participation in a cartel can be punished by imprisonment up to four years. II. Status Quo: Administrative Enforcement in EU/EEA Law The European Commission acts as an investigator, prosecutor and decision-maker. Decision-making includes the issuance of cease and desist orders and the imposition of fines. The model has been extended to the EEA where the EFTA Surveillance Authority (ESA) has the same position in cases in which it has competence under Article 56 EEA. The same type of enforcement dominates in the European States. II. Status Quo: Administrative Enforcement in EU/EEA Law In the EU, decisions of the Commission may be appealed to the General Court which will hear the case on points of fact and of law and further to the ECJ on points of law. In EFTA, there is a one tier system with the EFTA Court. In most European States, a similar system of judicial review exists. III. Criticism of the Current Enforcement System in EU/EEA Law Critics deplore the lack of independece of the agencies; fines, they say, have almost become taxes. EU from 1995 to 1999: Barely 300 million Euros. EU from 2005 to 2009: Barely 10 billion Euros. Fines may amount to 10 % of the group turnover. Compare: The German Stock Index DAX 30’s return on sales is 3 – 7 %. Former Commissioner Neelie Kroes: We collect more than the U.S. agencies. III. Criticism of the Current Enforcement System in EU/EEA Law The claim was made by cartel lawyers and in-house counsel that such an enforcement model was incompatible with Article 6 ECHR. A switch to a prosecutorial model with a court of law as the decision-maker was deemed to be indispensable. Such calls for action were made in particular in Germany and in the UK. But they seemed to succeed at first in a country which does not have a reputation for being particularly tough on cartels and abuse of dominance – Switzerland. IV. The Swiss Government’s 2012 Draft for a New CartA 1. CartA 1995/2003 The Competition Commission (ComCo) acts as an investigator and as a decision-maker. It consists of 7 “independent” members (university professors of law/of economics) and 5 representatives of associations. All members work part-time. Decisions may be appealed to the Federal Administrative Court (facts and law) and further to the Federal Supreme Court (law). Fines may be imposed upon first infringement since the amendment of the CartA in 2003. IV. The Swiss Government’s 2012 Draft for a New CartA 2. Proposed change of the enforcement system (I) In 2008, a study commissioned by the Government proposed to reduce the number of members of the ComCo and to eliminate the lobbyists (professionalization). In March 2010, the Government concluded that the representatives of associations on the ComCo had to go. However, they refused to leave. The Government then decided to shift from an administrative to a prosecutorial system. IV. The Swiss Government’s 2012 Draft for a New CartA 2. Proposed change of the enforcement system (II) No publicly available analysis was made. The idea had been launched one year before in a paper of the umbrella association of Swiss industry. In antitrust matters a new Competition Authority shall have the competence to investigate. It may ask a newly created Federal Competition Court to take a decision. IV. The Swiss Government’s 2012 Draft for a New CartA 2. Proposed change of the enforcement system (III) The Government advanced two main arguments: (1) Change is required by Article 6(1) ECHR: “Right to a fair trial 1. In the determination of [….] any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.” (2) Change will lead to more effective enforcement. IV. The Swiss Government’s 2012 Draft for a New CartA 3. Role model function for EU/EEA law? Some said that the ultimate goal was not to change the enforcement model in Switzerland, but in the EU. Switzerland has a tradition of being an exporter of law. - Direct democracy - Debt brake - Fat Cat Initiative (curbing excecutive pay excesses) - Prosecutorial model of competition law enforcement? V. Comments on the 2012 Government Draft for a new Swiss CartA 1. Article 6(1) ECHR argument (I) Falsified by ECtHR Menarini (2011): An administrative system of law enforcement is not incompatible with Art. 6 ECHR, as long as the decisions of the competition authority are subject to the review of a judicial body with unlimited jurisdiction and provided that the judicial body does in fact exercise this unlimited jurisdiction (para. 59). In that case, a fine imposed for a violation of (national) competition rules was of a criminal law nature and related to a criminal charge under Article 6(1) of the ECHR. V. Comments on the 2012 Government Draft for a new Swiss CartA 1. Article 6(1) ECHR argument (II) EFTA Court Norway Post, paragraph 100: “Article 6(1) ECHR requires that subsequent control of a criminal sanction imposed by an administrative body must be undertaken by a judicial body that has full jurisdiction. Thus, the Court must be able to quash in all respects, on questions of fact and of law, the challenged decision [….]. Therefore, when imposing fines for infringement of the competition rules, ESA cannot be regarded to have any margin of discretion in the assessment of complex economic matters which goes beyond the leeway that necessarily flows from the limitations inherent in the system of legality review.” V. Comments on the 2012 Government Draft for a new Swiss CartA 1. Article 6(1) ECHR argument (III) In light of this case law, the first argument was varied. Supporters of the prosecutorial model now claim that the system change is necessary for reasons of fairness. That is an empty formula. It means putting cartels and dominant firms in a better position. V. Comments on the 2012 Government Draft for a new Swiss CartA 2. More effective enforcement argument (I) Unproven assertion. No comparative analysis was made in the Government’s dispatch, there is in particular no discussion of the framework conditions of antitrust enforcement in the U.S. Mixed experience of EU Member States (Austria and Sweden) with a prosecutorial enforcement system is not even mentioned. V. Comments on the 2012 Government Draft for a new Swiss CartA 2. More effective enforcement argument (II) Annual Report of the Austrian Federal Competition Authority 2011: The proceedings before the Cartel Court which were triggered by applications of the FCA often drag on for years without there being comprehensible reasons for their excessive length. The report mentions cases brought in 2004, 2007 and 2009 without there being a judgment by the end of 2011. V. Comments on the 2012 Government Draft for a new Swiss CartA 2. More effective enforcement argument (III) The Report of the Swedish Competition Authority for 2011 mentions one single judgment, the abuse case TeliaSonera. The Competition Authority brought the application on 21 December 2004; the Stockholm City Court decided on 2 December 2011. The court proceedings in Sweden took 5 years (plus two years because of a reference to the ECJ). 3. Role model function for EU/EEA law Open question. VI. Latest Developments in Switzerland 1. Federal Supreme Court PubliGroupe In June 2012, the Supreme Court in PubliGroupe adopted the Menarini/Norway Post approach. It made reference to these judgments. VI. Latest Developments in Switzerland 2. State Council On 21 March 2013, the State Council decided to throw out the Federal Competition Court. ComCo shall be downsized to 5 Commissioners. In substance, two new rules were approved: A prohibition of hard core cartel clauses (concerning prices, quota, territory, customers) with the possibility of justification (economic efficiency). A rule obliging sellers of brand-name products to supply Swiss firms or consumers at the prices and conditions applied abroad. VI. Latest Developments in Switzerland 3. Federal Administrative Court GABA (Dec. 2013) (I) a. Facts Licensing agreement between GABA, the Swiss manufacturer of Elmex red toothpaste and its Austrian licensee GEBRO contained a clause banning passive sales from Austria. ComCo imposed a 4,8 mio CHF fine on GABA and of 10’000 CHF on GEBRO. GABA argued that the clause regulated only the production and distribution of Elmex red in Austria, but did not ban sales to Switzerland. VI. Latest Developments in Switzerland 3. Federal Administrative Tribunal GABA (Dec. 2013) (II) b. Territorial application The CartA “applies to practices that have an effect in Switzerland, even if they originate in another country” (Art. 2 CartA). The provision contains no additional requirement such as direct, immediate, substantial, appreciable or foreseeable effect. The Tribunal held that the Swiss market was affected. A special intensity of the effects was deemed to be not necessary for the Act to apply. Effects must be assessed under the substantive rules of the CartA. VI. Latest Developments in Switzerland 3. Federal Administrative Tribunal GABA (Dec. 2013) (III) b. Territorial application The Tribunal referred to the Minn-Chem Inc. v. Agrium Inc. judgment of the U.S. 7th Circuit of 27 June 2012 which found that the notions of „direct“, „substantial“ and „foreseeable“ constituted no jurisdictional prerequisites, but substantive elements. VI. Latest Developments in Switzerland 3. Federal Administrative Tribunal GABA (Dec. 2013) (IV) b. Territorial application Compare Article 1 (2) of the Hungarian C.A.: “[….], this Act shall also apply to market practices of undertakings carried out abroad if they may have effects on the territory of the Republic of Hungary.” Article (3) of the Romanian C.A. “The provisions of this law shall apply to the acts and deeds provided for in par. (1) when committed [….] outside the Romanian territory, when they have effects within the Romanian territory.” VI. Latest Developments in Switzerland 2. Federal Administrative Tribunal GABA (Dec. 2013) (V) b. Territorial application Compare Article 1 (2) of the Polish C.A.: “The Act regulates the rules and measures of counteracting practices restricting competition and practices violating collective consumer interests, as well as anticompetitive concentrations of undertakings and associations thereof, where such practices or concentrations cause or may cause effects in the territory of the Republic of Poland.” VI. Latest Developments in Switzerland 3. Federal Administrative Tribunal GABA (Dec. 2013) (VI) b. Territorial application Compare Art. 2 (4) of the Slovak C.A.: “This Act shall also apply to activities and actions that have taken place abroad, provided that they lead, or may lead, to restriction of competition in the domestic market.” Compare Article 1 (5) of the Czech C.A.: “This Act shall also apply to actions of undertakings, occurred abroad, which distort or may distort competition in the territory of the Czech Republic.” VI. Latest Developments in Switzerland 3. Federal Administrative Tribunal GABA (Dec. 2013) (VII) b. Territorial application Compare Article 2 (1) of the Bulgarian C.A.: “This Act shall apply to: 1. undertakings and associations of undertakings which operate on the territory of the Republic of Bulgaria, or beyond it, should they explicitly or tacitly prevent, restrict, distort, or may prevent, restrict or distort competition in Bulgaria; [….]” VI. Latest Developments in Switzerland 3. Federal Administrative Tribunal GABA (Dec. 2013) (VII) c. Standard of review With regard to the standard of judicial review, the Tribunal sided with ECHR Menarini and EFTA Court Norway Post. It emphasised that it does not only have the competence to review the challenged decision on issues of fact and law, but that is also uses it. VI. Latest Developments in Switzerland 3. Federal Administrative Tribunal GABA (Dec. 2013) (VII) d. Appreciability The Tribunal held that in the case at hand it was sufficient for ComCo to establish qualitative appreciability. Since there was an absolute ban of passive sales from Austria, no market analysis needed to be made in order to assess quantitative appreciability. The existence of interbrand-competition was deemed to be irrelevant. VI. Latest Developments in Switzerland 4. National Council (I) On 28 January 2014, the Ways and Means Committee of the National Council rejected the draft law by 16 to 9 votes. This amounts to a motion that the National Council shall no even treat the proposal. The National Council has scheduled deliberations for March 2014. VI. Latest Developments in Switzerland 4. National Council (II) There is a correlation between the GABA case and this decision. 1) The interpretation of the notion of appreciabilty by the Federal Administrative Tribunal may have anticipated the cartel prohibition. 2) The Tribunal’s construction of the effects doctrine may make the obligation to contract for foreign sellers of brand-name products superfluous. VII. Conclusions regarding the Enforcement Model 1. The concept of legality review in EU/EEA law Art. 263(1) TFEU: “The Court of Justice of the European Union shall review the legality [….] of acts [….] of the Commission [….].” Art. 36 SCA: “The EFTA Court shall have jurisdiction in actions brought [….] against a decision of the EFTA Surveillance Authority [….].” VII. Conclusions regarding the Enforcement Model 2. What is the position of the ECJ on judicial review? (I) The ECJ has so far not held that competition fines are of a criminal nature, but it has taken steps to ensure that the procedural guarantees of the ECHR and of the Charter with regard to criminal proceedings are respected. In the recent Cases KME Germany v Commission and Chalkor v Commission, the ECJ limited itself to relying on Article 47 of the Charter of Fundamental Rights of the European Union, and it did not make reference to the ECHR’s Menarini judgment. The ECJ held that the Commission does have a margin of discretion when it has to make complex economic and technical assessments. VII. Conclusions regarding the Enforcement Model 2. What is the position of the ECJ on judicial review? (II) In Cases KME Germany v Commission and Chalkor v Commission, the ECJ has, however, emphasized that “that does not mean that the Courts of the European Union must refrain from reviewing the Commission’s interpretation of information of an economic nature. Not only must those Courts establish, among other things, whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it” (KME, para 94; Chalkor, para. 54.) VII. Conclusions regarding the Enforcement Model 2. What is the position of the ECJ on judicial review? (III) Commentators have still concluded that the ECJ appears to give the Commission more leeway than the EFTA Court gives the EFTA-Surveillance Authority. In Schindler, the ECJ confirmed its Chalkor and KME approach. But it also noted that the ECtHR held in Menarini that, given that the fine imposed by the Italian Competition Authority was high, the penalty, because of its severity, fell within the criminal sphere. However, the ECJ refrained from taking a position on the matter. VII. Conclusions regarding the Enforcement Model 2. What is the position of the ECJ on judicial review? (IV) Advocates General seem to encourage the ECJ to openly adopt the EFTA Court’s approach. AG Kokott, Opinion of 18 April 2013 in Schindler, fn. 18. AG Wathelet, Opinion of 26 September 2013 in Telefónica v. Commission, fn. 63. AG Mengozzi, Opinion of 30 January 2014 in Mastercard v. Commission, fn. 102 and 105. VII. Conclusions regarding the Enforcement Model 3. Will the criticism of the European competition law enforcement model come to an end? (I) Most probably not. Case law does not answer the question of whether a one-tier competition authority is sufficient or whether a two-tier system with Chinese walls is needed. In reality, both forms of organisation exist. Critics continue to argue that no matter what the European Courts have stated, judicial review is de facto limited. VII. Conclusions regarding the Enforcement Model 3. Will the criticism of the European competition law enforcement model come to an end? (II) “Denk ich an Brüssel in der Nacht, dann bin ich um den Schlaf gebracht.” “Thinking of Brussels at night, just puts all thought of sleep to flight.” (Inhouse-counsel of a major convicted European cartel offender.) VII. Conclusions regarding the Enforcement Model 3. Will the criticism of the European competition law enforcement model come to an end? (III) REIN WESSELING/MARC VAN DER WOUDE: “[T]he crux is not whether the system has the ‘external characteristics’ of a system that complies with the necessary guarantees but rather how the system operates in practice.” Swiss lawyers have, therefore, tried to convince the Parliament to explicitly oblige the Federal Administrative Court to carry out a comprehensive review in the Cartel Act itself. In my view, such an obligation would miss the point. VII. Conclusions regarding the Enforcement Model 4. What does it mean that the Commission and ESA don’t have any margin of discretion in the assessment of complex economic matters which goes beyond the leeway that necessarily flows from the limitations inherent in the system of legality review? (I) Does is mean that when it comes to the review of factfinding, there is a margin of discretion? Probably yes, at least in certain cases. VII. Conclusions regarding the Enforcement Model 4. What does it mean that the Commission and ESA don’t have any margin of discretion in the assessment of complex economic matters which goes beyond the leeway that necessarily flows from the limitations inherent in the system of legality review? (II) “[A]lthough the Court may not replace ESA’s assessment by its own and, accordingly, it does not affect the legality of ESA’s assessment if the Court merely disagrees with the weighing of individual factors in a complex assessment of economic evidence, the Court must nonetheless be convinced that the conclusions drawn by ESA are supported by the facts.” EFTA Court Norway Post, para. 101. VII. Conclusions regarding the Enforcement Model 5. Compare the review of FTA decisions by U.S. courts The legal issues are for the courts to resolve, although in considering them the courts must give some deference to the FTA’s informed judgment that a particular practice is unfair. The FTA’s findings of fact are conclusive if supported by substantial evidence. When we review the FTA’s findings, we may not make our own appraisal of the testimony, picking and choosing for ourselves among uncertain and conflicting inferences. Rather, under the substantial-evidence standard, we uphold the Commission’s findings if supported by such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. U.S. 6th Circuit, RealComp (2011).