Development of EC Competition Over Its First 50 Years Intervention Reduced

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Valentine Korah, Apr 06, 2007

Article 81 forbids as incompatible with the common market collusion that may affect trade between member states and has the object or effect of restricting competition. Such agreements are automatically void, but may be exempted under Article 81(3). Article 82 forbids, also as incompatible with the common market, the abuse of a dominant position.

The first decisions of the European Commission on competition were adopted in 1964. The six member states were all in Continental Europe where legislation was considered the proper method of changing the law and lawyers were expected to follow its letter. Judges were not expected to mention policy. Articles 81 and 82 were applied formalistically by young officials in the Commission, few of whom had had any experience of practice, or invested in anything more important than a house in Tevuren. Many tended to consider that an agreement would be less anti-competitive if limitations on conduct were removed.

The Court of Justice of the European Communities (ECJ) clearly stated in Soci La Technique Minière v Maschinenbau Ulm GmbH that “the competition in question must be understood within the actual context in which it would occur in the absence of the agreement in dispute:” the counterfactual was “in the absence of the agreement.” This statement, however, was ignored after the judgment of the ECJ three weeks later in Etablissements Consten SA and Grundig Verkaufs GmbH v EEC Commission. Most ancillary restraints were exempted, not cleared. Only in this millenium, as a result of consultation on the technology transfer regulation and more generally in the context of the new implementing regulation, has the counterfactual been perceived as what would have occurred without the agreement. This has been a most important development.

In 1964, the Commission started to adopt decisions on distribution agreements and found that an exclusive territory supported by export bans had the object or effect of restricting competition. By treating the counterfactual as the agreement without the restrictive provisions even if the agreement could not have been concluded without protection from free riders, the Commission perceived many vertical agreements as horizontal. As only it had power to grant an individual exemption, this gave it power to interfere with many agreements, often after bargaining power had changed.

When the Commission came to consider price fixing cartels with national quotas from 1959, it treated them with greater hostility. Increasingly heavy fines were imposed, but it had difficulty in establishing the extent of cartels, so the fines were often reduced by the Court. It was only in 1996 that the Commission adopted its first leniency notice and it is short of resources for preparing a formal decision establishing the infringement that will stand up on appeal to the Court of First Instance.

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