Alma Mater Studiorum – Università di Bologna DOTTORATO DI RICERCA IN EUROPEAN DOCTORATE IN LAW AND ECONOMICS Ciclo 27° Settore Concorsuale di afferenza: 12/F1; 12/E1; 12/E3 Settore Scientifico disciplinare: IUS/15; IUS/14; IUS/13; IUS/05
TITOLO TESI THE APPLICATION OF EUROPEAN COMPETITION LAW IN ARBITRATION PROCEEDINGS
Presentata da: Penio Penev GOSPODINOV
PROF. LUIGI ALBERTO FRANZONI
PROF.DR. ROGER J. VAN DEN BERGH
Esame finale anno 2015
The Application of European Competition Law in Arbitration Proceedings Penio Penev Gospodinov European Doctorate in Law & Economics Erasmus University of Rotterdam A thesis submitted for the degree of Doctor of Philosophy Defence date 15 December 2014
This work provides several policy proposals capable to strengthen the private enforcement of EU competition law in arbitration. It focuses on the procedural law aspects that are permeated by legal uncertainty and that have not yet fallen under the scrutiny of the law and economics debate. The policy proposals described herein are based on the functional approach to law and economics and aim to promote a more qualified decision making process by: adjudicators, private parties and lawmakers. The resulting framework of procedural rules would be a cost-effective policy tool that could sustain the European Commission’s effort to guarantee a workable level of competition in the EU internal market. This project aims to answer the following broad research question: which procedural rules can improve the efficiency of antitrust arbitration by decreasing litigation costs for private parties on the one hand, and by increasing private parties’ compliance with competition law on the other hand? Throughout this research project, such broad question has been developed into research sub-questions revolving around several key legal issues. The chosen sub-research questions result from a vacuum in the European enforcement system that leaves several key legal issues in antitrust arbitration unresolved. The legal framework proposed in this research project could prevent such a blurry scenario from impairing the EU private enforcement of competition law in arbitration. Therefore, our attention was triggered by those legal issues whose proposed solutions lead to relevant uncertainties and that are most suitable for a law and economics analysis.
to my wife Irene
I would like to gratefully acknowledge the European Union institutions and the European taxpayers for founding, hence making possible, my Ph.D. work in the last three years.
Competition law is essential for the functioning of the European Union Treaties and for achieving the goals set therein. This statement, embodied in the case-law of the European Court of Justice itself,1 is based on the wording of Article 3 of the Treaty of the European Union (hereinafter Treaty of the European Union (TEU)), namely the very article that states the aims of the European Union, which reads: ‘[The European Union] shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress’.2 Article 3 does not only refer to the existence of a positive correlation between economic growth and the level of competition in a given market. If we read it in light of the Freiburg school of economics’ influence on the European Union cultural and economic background, Article 3 implies that competition is the necessary ground upon which social justice can be pursued. In other words, the European Union is founded on the assumption that a sustainable economic growth in Europe passes necessarily through market integration tied to the concept of workable competition. On these premises the European Union produced, on the one hand, a body of substantive law defining a framework of workable competition that is pursued 1
Case C-126/97, Eco Swiss China Time Ltd v Benetton International NV  I3055, available at this URL address: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri= CELEX:61997J0126:EN:HTML. 2 Article 3(3) of the Treaty on European Union, available at this URL address: http:// eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:12012M/TXT.
by the lawmaker, and on the other hand, a body of procedural law determining to what extent the workable competition objective can be, and is, practically achieved. Leaving aside any discussion about the content of the EU competition policy, that is the substantive part, this research is focused on the latter, namely the procedural one. This decision is based on the assumption that, a legal norm is only as good as the mechanism by which it is enforced. Therefore any attempt to strengthen the EU competition law should not overlook the legal enforcement procedure. The traditional antitrust enforcement systems are both public and private. Private enforcement contributes to pursue effectively and efficiently competition law objectives alongside with public enforcement. In the words of Mario Monti as European Commissioner for Competition, private enforcement has the potential, if coordinated with public enforcement, to significantly contribute to an ideal competition law enforcement model which combines both the pillars, private as well as public, and promotes citizens as the principal guardians of the legal integrity of competition law in Europe.3 Nowadays, however, European competition law is mostly enforced by competition authorities and subject to the review of courts. In fact, it is widely acknowledged that private enforcement of both European and national competition law has been extremely limited in Europe.4 Hence, it is possible to argue that the current European procedural law framework does not provide private parties with the incentives that are necessary to achieve the optimal level of private enforcement. Strengthening the European private enforcement has been at the centre of the debate on competition law for almost ten years.5 However, on the one hand, the 3
Monti, Mario. ‘Private Litigation as a Key Complement to Public Enforcement of Competition Rules and the First Conclusions on the Implementation of the New Merger Regulation.’ speech given in Brussels, 2004. 4 See the Study on the conditions of claims for damages in case of infringement of EC competition rules, available at this URL address: http://ec.europa.eu/competition/antitrust/ actionsdamages/study.html. 5 The debate started with the Commission [2005, 2008, 2011] and has recently resulted in the Directive on damages actions for breach of the EU antitrust rules, proposed by the Commission and available at this URL address: http://ec.europa.eu/competition/antitrust/ actionsdamages/documents.html.
lawmaker’s attention and that of the legal scholars focuses mainly on the private enforcement in front of national courts and through mass litigation, leaving almost untouched the topic of private enforcement through any alternative dispute resolution mechanism, such as arbitration.6 On the other hand, the economic literature focuses either on competition policy or on theories of litigation, but it also completely disregards the market players’ incentives when competition law disputes are solved by arbitrators. The need for a Law and Economics analysis on antitrust arbitration is proven by the number of specialised legal practitioners that are investigating the application of competition law in arbitration.7 Their work shows that in order to apply competition law in arbitration proceedings, legal practitioners need to answer a wide range of open questions emerging from the existing legislative vacuum in this matter. In fact, although competition law is an extremely important set of norms subject to mandatory application, the lawmaker does not provide any guidance on how should they be applied by international arbitral tribunals. The adjudicators of different jurisdictions have tried to fill the legislative gap in the field of antitrust arbitration. Nevertheless, the solutions proposed to most problematic issues are often contrasting and inconsistent among jurisdictions. Such scenario increases the legal uncertainty and leaves room for the strategic behaviour of private parties. It creates cracks and loopholes in the structure of this legal field that, due to the fundamental importance of competition law for the EU legal systems, can be as dangerous as cracks and loopholes in a dike. The risk is to jeopardise the level of enforcement of competition law in the European Union and create adverse effects (i.e. distortions) on the whole functioning of the internal market. 6
Although the EU has recently showed interest in alternative dispute resolution mechanisms, for instance introducing the Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes, available at the URL address: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:165: 0063:0079:EN:PDF. 7 EU and US Antitrust Arbitration. A Handbook for Practitioners, edited by: Gordon Blanke, Philip Landolt, Kluwer Law International, February 2011.
Increasingly wary of the contrasting solutions adopted by adjudicators at the national level, legal scholars have tried to fill the legislative gap and to provide with some degree of legal certainty. Comparative law experts have approached this problem examining dispute resolution systems from different jurisdictions, to identify similarities and differences among possible alternative solutions. Comparativists have proposed legal reforms which result from their attempt to understand and to weight advantages and disadvantages of alternative procedural rules. The challenge faced in these studies is that comparative law does not provide with any weighing tool capable to objectively determine the effects of alternative legal rules on the private parties’ behaviour. Comparative law scholars have mostly ignored the literature on the economic analysis of litigation which provides the needed weighing tools. We focus on what is missing in the current status of the legal literature debate, namely, the use of the economic analysis of law. In this research project, our intent is to use the economic analysis of law to study the effects of the contrasting legal solutions proposed by the legal practitioners to overcome the existing legal vacuum in this field. In fact, Law and Economics makes use of a scientific methodology, consisting of mathematically precise theories (e.g. price theory, game theory, cost-benefit analysis) and empirically sound methods (e.g. statistics and econometrics), to verify the effects of different procedural rules on the private parties’ economic incentives. Law and Economics is used here as a methodological tool that can favour a more qualified decision making. The results of this study cast new insights on the effects of the available competing legal rules upon private parties’ behaviour incentives. The implied assumption is that the use of Law and Economics’ methodology for this study can provide a framework of legal solutions complying with the EU legislator’s demand of an effective private litigation process as well as with a higher degree of compliance with the law. Therefore neither lawmakers nor adjudicators should overlook this type of analysis. The few interdisciplinary works on arbitration produced by Law and Economics scholars try either to adapt the litigation theories to arbitration or to
study under which conditions US private parties insert arbitration clauses in their contractual relationships.8 However, these works do not have a European perspective nor specifically address any issue raised by competition law disputes. The primary motivation for this research is to fill the gap in the interdisciplinary debate about the effectiveness of private enforcement of EU competition law through arbitration.
The methodology adopted in this thesis, for the economic analysis of legal rules, rests on what has been called a functional approach to Law and Economics.9 In this comparative evaluation of alternative legal solutions, we focus on both private parties’ economic incentives and on the concept of methodological individualism. The former implies that the analysis starts from the assumption that individuals’ economic incentives can be used to highlight the parties’ preference of one legal rule above the others. Whereas the idea behind the latter relies on the existence of a theoretical market for legal rules and on the fact that, if allowed, rational players will choose the rules that benefit them the most. Therefore, in light of the functional approach to Law and Economics, observing or hypothesising parties’ preferences should allow us to identify failures in the law. Provided that this methodology cannot be profitably applied unless the private parties reveal their preferences within a “market” of legal rules; the field of international commercial arbitration is particularly suited for the use of such approach. In fact, when opting for arbitration, individuals are free to choose both, which alternative legal systems and even which specific legal rules will regulate their business relationship. The same holds true also for antitrust arbitration, even if the EU competition law is one of the few branches of unified substantive EU law, hence somehow impairing the private parties ability to choose between 8 9
Benson ; Drahozal and Wittrock ; Eisenberg and Miller ; Shavell . Parisi ; Parisi and Luppi ; White .
alternative rules. As a matter of fact, EU Member States have different rules on arbitration and they are also allowed to apply competition law under differently fashioned procedural rules. Thus the EU uniformity on the side of substantive law is accompanied by profound differences on the side of procedural law. As we will see below, these differences, reflected in antitrust arbitration, affect the incentives of private parties and force them to reveal their preferences unlacing the full potential of the functional approach to Law and Economics in the ground of antitrust arbitration. Focusing our attention on the procedural law instead of the substantive one provides another methodological advantage from the viewpoint of Law and Economics. The European Union does not refer to perfect competition but instead to the concept of workable competition, as the level of competition to be pursued in the internal market. This is a second best choice; in fact, the theoretical concept of perfect competition is not the optimal level of competition in a given market. The reason is that perfect competition in the internal market is not achievable in practise. One of the constraints is the limited amount of resources available to competition authorities, which makes it impossible to detect and stop all infringements; but, more importantly, it can be proved that there may be cases of efficient breach of competition law. While these restraints are overlooked by the concept of perfect competition they are included by the concept of workable competition. However, while perfect competition can be easily defined, trying to define what is, or should be, the workable level of competition leads towards an unsettled debate revolving around the policy implications of competition law. On the contrary, shifting our attention on the procedural law side, we leave behind the debate on the EU competition policy goals and focus on the goal of optimal enforcement of competition law. As Miller puts it in his 1997 seminal work entitled ’The legaleconomic analysis of comparative civil procedure’,10 when a legal system defines a set of procedural rules that regulate legal enforcement procedures it faces a trade-off between two costs in litigation: ’the costs of the procedure in question and the costs of error’.11 Summary and cheap procedures increase the risk of fact10 11
Miller . Miller .
finding inaccuracy or erroneous legal analysis. Conversely the cost of these errors can be brought to zero but only at the price of burdensome and costly procedural rules. Therefore an optimal enforcement system can be reached adopting such procedural rules that minimise the sum of these two costs. This also means that cheaper procedural rules that do not raise the cost of legal errors would increase the efficiency of an enforcement system. Moreover, in the private parties’ perspective under a Coasian approach, legal enforcement is not a productive activity but only a transaction cost affecting private parties incentives on their way to obtain what they are entitled to according to the substantive law.12 This implies that a more efficient enforcement system decreases the cost that private parties have to pay in litigation to obtain substantial justice. Thus, the collateral effect of this efficiency increasing cheaper litigation would also be an increase of private parties’ demand for litigation. In other words such an optimal enforcement system could allow to adjudicate worthwhile cases that would not have been otherwise brought to court; hence increasing the deterrence of violations and resulting into a higher degree of compliance with the legal standard set by the substantive law.13 To summarise, the methodology used for this research revolves around the idea of using the functional approach in Law and Economics to determine the optimal procedural rules in antitrust arbitration. The preferred viewpoint is the one of private parties. In fact the functional approach to Law and Economics has the advantage of shifting our attention mainly on the relationship between individual preferences and indirectly on how they affect expected social outcome. The implied assumption, analysed later, is that rational private parties will design an arbitration clause to favour, among possible alternative rules available in arbitration, those that decrease the cost of litigation without increasing the cost of legal errors, facilitating enforcement of competition law. In fact, minimising costs 12
Economists studying litigation theory, adopting the private parties’ viewpoint refer to litigation using the concept of unproductive rent-seeking competition. While adopting the viewpoint of welfare economics one could argue that litigation is a productive activity, since the body of case-law resulting from the litigation activity reduces the uncertainty of a legal system. Nevertheless in light of the methodology used in this research we focus on the private parties’ perspective. 13 As per not so meritorious cases that could also be litigated more often, it will be discussed further.
of enforcement for private parties indirectly provides them with incentives leading towards a higher compliance with the law, which corresponds to the preferable social outcome. In line with the European doctrine on procedural law, the aim is not to make parties litigate more, but to make them comply with the established law. As a concluding remark on the methodology we note that the economic and legal theories used in this thesis refer to legal and economic concepts, discussions and arguments that are developed elsewhere in the specialised literature. We will not define them in detail or address their correctness but only refer to the relevant literature for the convenience of the less expert reader. Moreover we will try to tell whether these elements are widely accepted, or not, and how is the state of the debate.
In light of the methodology discussed above and given the existing legal gap about antitrust arbitration as described in the motivation section above, our research question can be formulated as follows: When applying EU competition law in arbitration, what are the procedural rules that could improve the efficiency of private enforcement and increase the compliance with competition law? The answer to this broad question clearly depends on which of the many controversial issues of antitrust arbitration we choose to study. Within the introduction chapter this broad research question will be segmented in sub-questions that can describe more specifically the problem definition of this work. In essence, the chosen goal to be pursued in this research project is the reduction of private parties’ transaction costs for enforcing EU competition law in arbitration, while also guaranteeing that the social interests embodied in the competition policy are not overlooked. In fact, enhancing the efficiency of private
enforcement will increase the level of deterrence in breaching EU competition law. This goal will be pursued through a comparative evaluation of the alternative procedural rules that can be used to solve key issues in the field. The use of the Law and Economics methodology will guarantee that this research project has a sound theoretical framework and that it could be used for a future empirical legal analysis. Therefore, even if a different goal should be pursued by policy makers, the results of this research will not lose relevance. In fact, this project will highlight the economic effects of different procedural rules on parties’ incentives to breach EU competition law rights or seek their enforcement.
Limitation of This Research
In this thesis we adopt a European viewpoint. Competition law is one of the few areas in which there is a truly uniform European law, since Member States’ legislation is relegated to a secondary role. However, it is true that arbitration is a matter of procedural law, and as such, although somehow homogeneous, it maintains substantial differences throughout Europe. For this reason we will treat only procedural issues that are of a super-national scope and that are based on cross-country uniformity. The efficiency of substantive rules of competition law is not evaluated in this research. The on-going debate in Europe about competition policy and policy goals that should be pursued through competition law is also outside of the scope of this research. We also disregard the debate of private versus public enforcement, since we undertake the vision that both of them, if coordinated, can independently and simultaneously contribute to the creation of an ideal competition law enforcement system. Other important issues that are not included in this research pertain to the debate on whether arbitration is better than litigation as well as all advantages and disadvantages of arbitration in comparison to litigation. This debate is out of the scope of the present work because these are two different mechanisms designed to satisfy the demand of justice of different market players. For example, whereas ordinary litigation can be in absolute terms cheaper than arbitral proceedings, the opportunity cost associated to the length
of court decisions can widely exceed the cost of arbitration procedures for a business party. Therefore, the net result may be in favour of arbitration for economic actors while in favour of court litigation for others. Further research on this topic should be of empirical nature, it should aim to provide more detailed insights into the cost-benefits of enforcing competition law in arbitration. Moreover further research could aim to support a more accurate evaluation of the effects of antitrust arbitration on social welfare, especially in relation to national litigation and public enforcement.
There is a massive amount of data as well as economic theories proving that competition law infringements produce negative effects on society and wealth. At the same time, it is undisputed that European private enforcement of competition law is extremely underdeveloped; hence some corrective actions have been called for by a growing number of scholars, practitioners, institutions and market players. Any corrective action taken with the purpose to strengthen the private enforcement of European competition law should aim for the big catch. This research project points in the right direction for two main reasons. Firstly, the recent debate focuses on mass litigation to improve consumers’ protection. However, in the United States where private enforcement proceedings are nine times more than public ones and where class actions are favoured, statistical data proves that, although competition law exists supposedly for the main benefit of consumers, consumers are not the majority of claimants in private enforcement proceedings. One third of the plaintiffs are defendants’ competitors, more than one third are dealers or distributors and less than 20% are consumers.14 This means that the majority of competition lawsuits pertain to contracts between perpetrator and victim of an anticompetitive conduct. This is most likely a result of the 14
fact that every vertical agreement, R&D agreement, price agreement, JV agreement, merger agreement and many others, potentially include an issue of private enforcement competition law of contractual origin. Secondly, in a global economy all the aforementioned business-to-business contractual relationships, even if they are in absolute numbers less than the business-to-consumer ones, are very likely to involve significant amounts of capitals and to concern multinational corporations. In the last 10 to 15 years, alternative dispute resolution mechanisms allegedly gained the title of exclusive jurisdiction for international contractual transactions of the kind mentioned above, i.e. vertical agreements. If two companies do not have their headquarters in the same country, there is good chance that any dispute that may arise upon the performance of a contractual obligation falls within the scope of an arbitration clause. It is worth reminding that the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (hereinafter 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC)), ratified by more than 140 countries, is one of the United Nations’ most successful international trade law treaties. In light of the above, the topic of this research can be qualified as aiming at the big catch. It is worth recalling that part of the mission of the European Union is to guarantee a level of workable competition in the European internal market, for the achievement of the goals embodied in the European Treaties. As mentioned above, the achievement of this goal passes necessarily through antitrust enforcement which is subject to the limited amount of resources available to competition authorities. Strengthening private enforcement of competition law through private arbitration is a cost-efficient enforcement mechanism for competition authorities, which is even more valuable in years of economic crisis and increasing budgetary constraints.
Arbitration seems to have all the characteristics necessary to provide an efficient competition law enforcement mechanism. However, it will still profit from a higher degree of certainty on side of procedural law. Given the flexibility of the
proceedings and the legislative vacuum on this matter, it is all left into the hands of the academic debate, the literature, the practitioners and the case-law. This research brings together several streams of legal and economic literature, including the literature on litigation theory, game theory, transaction costs, cost-benefit analysis, comparative Law and Economics. Through this work, we attempt to overcome the legislative gap in this field and to build an integrated theoretical framework capable to lead towards the optimal level of private enforcement of competition law through arbitration. The ultimate academic intent is to prove why certain legal rule are preferable to other available rules proposed by legal practitioners; and we aim to justify such choice in light of parties’ incentives to comply with competition law. The integrated framework that will be developed in this research will represent a useful tool to study any other areas of law that are considered a matter of public policy and object of extraterritorial application. For instance the enforcement in arbitration of intellectual property rights, bankruptcy rules or other areas of law could face the same issues faced by competition rules. Namely, as it happened to antitrust law, in the future these legal fields may be declared, by the European Court of Justice, ‘of fundamental importance for the European legal system’.15
Expected or Desired Impact
After the comparative economic analysis of procedural rules applicable to antitrust arbitrations, we will try to suggest a normative framework capable of providing powerful procedural law incentives for the parties. Parties’ incentives due to cost-saving based efficiencies, should increase the effectiveness of the private enforcement of competition law in arbitration. This framework should promote a fully-fledged contribution of arbitration to the private enforcement of competition law. Victims of an anticompetitive conduct could benefit and profit from the significant number of advantages potentially made available by antitrust arbitration. Among the main advantages of this private enforcement mechanism 15
See the Introduction section below for further clarifications this point.
can be enumerated: timely compensation for loss suffered; punctual civil sanctions of nullity in contractual relationships; competition law skilled adjudicators; compensation of legal costs; administrative discretion avoidance; interim relieves; punitive damages; discovery rules; etc. Consequently, the set of rules which will result as outcome of our research could, for instance, strive for being implemented in any contractual arbitration clause. Such antitrust friendly arbitration clauses can be negotiated by private parties either among themselves or with the European Commission. In the latter case the European Commission could promote such clause both when it decides a case under Article 9 of Regulation 1/2003 or when it clears a merger case with behavioural commitments. The framework of legal rules emerging from this research project could also be implemented into the arbitration rules of private and public international arbitration institutions. Provided that the latter aim to guarantee an economically more effective enforcement mechanism for conflicting parties in a vertical agreement. Nevertheless it could also be a reference point for the alignment of contrasting orientations by national courts or international arbitral tribunals. In conclusion, since the policy proposals emerging from this research strive to be an effective way to strengthen private enforcement rules at low political/budgetary costs, the European lawmaker’s future regulatory initiatives could be inspired and take into consideration the results emerging from this work.
Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Problem Definition . . . . . . . . . . . . . . . . . . . . . . . . . .
Limitation of This Research . . . . . . . . . . . . . . . . . . . . .
Social Relevance . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Scientific Relevance . . . . . . . . . . . . . . . . . . . . . . . . . . xiii
Expected or Desired Impact . . . . . . . . . . . . . . . . . . . . . xiv
List of Figures
List of Cases
1 Introduction 1.1
EU Competition Law . . . . . . . . . . . . . . . . . . . . . . . . .
The Central Rules of the European Antitrust Policy . . . .
Article 101 TFEU . . . . . . . . . . . . . . . . .
Vertical Restraints . . . . . . . . . . . . . . . . .
Article 102 TFEU . . . . . . . . . . . . . . . . .
Concentrations and Merger Control . . . . . . . .
Enforcement of Competition Law . . . . . . . . . . . . . .
Public and Private Enforcement . . . . . . . . . .
The Foundation of the EU Private Enforcement .
Private Enforcement in EU National Courts . . .
Private Enforcement in Arbitration . . . . . . . .
International Arbitration . . . . . . . . . . . . . . . . . . . . . . .
The Arbitration Proceedings . . . . . . . . . . . . . . . . .
The Arbitral Tribunal . . . . . . . . . . . . . . .
Jurisdiction and Arbitrability . . . . . . . . . . .
Choice of Law . . . . . . . . . . . . . . . . . . . .
The Arbitration Hearings . . . . . . . . . . . . .
The Arbitral Award . . . . . . . . . . . . . . . .
The Second-look Review of an Arbitral Award . . . . . . .
Annulment of the Award . . . . . . . . . . . . . .
The Recognition and Enforcement of the Award .
Antitrust Arbitration . . . . . . . . . . . . . . . . . . . . . . . . .
Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . .
Merits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 Arbitral Tribunals’ Jurisdictional Issues in the Application of EU Competition Law 37 2.1
The Legal Debate on Antitrust Arbitration Clauses . . . . . . . .
The Objective Arbitrability of Competition Law . . . . . . 188.8.131.52
The American Safety Doctrine Denies Antitrust Arbitrability . . . . . . . . . . . . . . . . . . . .
The Breakthrough Mitsubishi Decision . . . . . .
The Objective Arbitrability of Competition Law in Europe . . . . . . . . . . . . . . . . . . . . . .
The Conflict of Law on the Antitrust Objective Arbitrability . . . . . . . . . . . . . . . . . . . .
The Subjective Arbitrability of Antitrust Disputes . . . . .
The Anticompetitive Arbitration Clause . . . . .
Is Private Enforcement Within the Scope of a General Arbitration Clause? . . . . . . . . . . . .
Antitrust Arbitration Needs a Uniform Choice of Law Rule . . . .
Conflict of Law and Extraterritorial Application of Competition Law . . . . . . . . . . . . . . . . . . . . . . . . . .
The Conflict of Law Issue in Antitrust Arbitration 73
The Extraterritorial Application of Competition Law . . . . . . . . . . . . . . . . . . . . . . . . .
Choice of Law Rules . . . . . . . . . . . . . . . . . . . . .
National Courts’ Approach to Conflict of Law Issues 76
Arbitral Tribunals’ Approach to Conflict of Law Issues . . . . . . . . . . . . . . . . . . . . . . . .
List of Choice of Law Rules in Antitrust Arbitration 79
Conflict of Law Notions Relevant for Antitrust Arbitration
Analysis of the Effect of the Second-look Review on the Suitability of Arbitral Tribunals’ Choice of Law . . . . . .
Second-look Review Doctrine in the US . . . . .
Limited and Extended Second-Look Review in Europe . . . . . . . . . . . . . . . . . . . . . . . . .
New Challenges to the EU Conflict of Law Approach to Antitrust Arbitration . . . . . . . . . . . . . . . . . . . . .
A Hypothetical Russian Example of Public Policy Exception . . . . . . . . . . . . . . . . . . . . . .
Overview of the Russian Approach to Antitrust Arbitration . . . . . . . . . . . . . . . . . . . . .
3 The Jurisdictional Issues of Antitrust Arbitration Under the Lens of Game Theory 97 3.1
Correcting a Less Desirable Outcome Through Competition Law Private Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . 100
An Argument Against Limitations to Antitrust Arbitrability . . . 114
Should Competition Law Opt-in or Opt-out of an Arbitration Clause?123
Not all Arbitration Clauses are Alike . . . . . . . . . . . . . . . . 125
A Possible Solution to the Conflict of Law Issues in Antitrust Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
4 Arbitral Tribunals’ Powers to Apply EU Competition Law 4.1
Cooperation Between Arbitral Tribunals and the European Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 4.1.1
Regulation 1/2003 and the Cooperation Mechanisms With National Courts . . . . . . . . . . . . . . . . . . . . . . . . 150
Arbitral Tribunals and the Cooperation Mechanism of Regulation 1/2003 . . . . . . . . . . . . . . . . . . . . . . . . . 152
Arbitral Tribunals’ Jurisdiction to Request a Preliminary Ruling Under Article 267 TFEU . . . . . . . . . . . . . . . . . . . . . . . 155 4.2.1
The Functioning of Article 267 TFEU . . . . . . . . . . . . 156
Limitations to the Recognition and Enforcement of an Arbitral Award . . . . . . . . . . . . . . . . . . . . . . . . . . 160
The Importance of Preliminary Ruling for Arbitration, When “Public Policy” is at Stake . . . . . . . . . . . . . . . . . . 161
Participation Constraint Analysis . . . . . . . . . . . . . . 162
Description of the Structure of the Problem . . . 163
General Assumptions . . . . . . . . . . . . . . . . 164
Definition of the participation constraint . . . . . 165
Dissipation of Parties’ Effort Analysis . . . . . . . . . . . . 170
5 Arbitral Tribunal’s Duties to Apply EU Competition Law 5.1
Legal Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182 5.1.1
The Background of the Eco Swiss Case . . . . . . . . . . . 182
The Principle of Judicial Passivity vs. Antitrust Rules as Public Policy . . . . . . . . . . . . . . . . . . . . . . . . . 184
How the Adjudicator Addressed the Eco Swiss Case . . . . 185
Flaws in the Eco Swiss Case-law and the Legal Practitioners’ Solutions . . . . . . . . . . . . . . . . . . . . . . . . . 188 184.108.40.206
National Courts’ Duty to Apply Antitrust Rules Ex Officio . . . . . . . . . . . . . . . . . . . . . . 189
Arbitral tribunals’ Duty to Apply Antitrust Rules Ex Officio . . . . . . . . . . . . . . . . . . . . . . 190
Economic Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 194
Background Hypothesis . . . . . . . . . . . . . . . . . . . The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 220.127.116.11 The Standard Model of Litigation . . . . . . . . . 18.104.22.168 The Model With Arbitration . . . . . . . . . . . 22.214.171.124 When Also Arbitral Tribunals Apply Antitrust Rules Ex Officio . . . . . . . . . . . . . . . . . . 126.96.36.199 When Arbitral Tribunals Refuse to Apply Antitrust Rules Ex Officio . . . . . . . . . . . . . .
194 198 199 202 204 206
6 Conclusions 6.1 The Relevance of The Proposed Legal Framework Resulting from Our Law and Economics Analysis . . . . . . . . . . . . . . . . . . 6.2 The Arbitrability of Competition Law Disputes . . . . . . . . . . 6.3 Pro-competitive and Anticompetitive Arbitration Clauses . . . . . 6.4 Cooperation Between Competition Authorities and Arbitral Tribunals in Conflict of Law Scenarios . . . . . . . . . . . . . . . . . 6.5 Limiting the Second-look Review of an Arbitral Award through the CJEU’s Preliminary Rulings in Arbitration . . . . . . . . . . 6.6 Arbitrators’ Duty to Apply Antitrust Rules of Their Own Motion, a Misfire? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
209 210 212 215 217 219
List of Figures 4.1 4.2
Probabilities attached to all possible outcomes of a CJEU preliminary ruling request in arbitration . . . . . . . . . . . . . . . . . . 166 Rent-Seeking Comparison of Alternative Interpretations of Article 267 TFEU . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
LIST OF FIGURES
List of Cases European Union • Case C-26/62, Van Gend en Loos v. Nederlandse Administratie der Belastingen  ECR 1 • Case 6/64, Flaminio Costa v. ENEL,  ECR 585 ´ • Case C-56/64 and C-58/64, Etablissements Consten S.´a.R.L. and GrundigVerkaufs-GmbH v Commission of the European Economic Community  ECR 299 • Case 48/69, Imperial Chemical Industries Ltd v. Commission (Dyestuffs)  ECR 619 • Case 127/73, BRT v. Sabam,  ECR 51, par 16 and 17 and C-282/95 P Guerin Automibiles v. Commission  ECR 1-1503 • Case C-31/80, L’Oreal v. De Nieuwe AMCK  ECR 3775 • Case C-102/81, Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern AG & Co KG  ECR 1095 • Case 89/85, Ahlstrm Osakeyhti v Commission (Wood Pulp)  ECR 5193 • Case C-393/92 Gemeente Almelo et al. v. NV Energiebedrijf IJsselmij  ECR I-1277
0. LIST OF CASES
• Cases C-430/93 and C-431/93 Jeroen van Schijndel and Johannes Nicolaas Cornelis van Veen v. Stichting Pensioenfonds voor Fysiotherapeuten  ECR I-4705 • Case T-102/96 Gencor Ltd v Commission of the European Communities  ECR II 00753 • Case C-126/97, Eco Swiss China Time Ltd v Benetton International NV  I-3055 • Case C-453/99, Courage v. Bernard Crehan  ECR I-6297 • Cases C-295/04 to C-298/04, Vincenzo Manfredi v Lloyd Adriatico Assicurazioni  ECR I-6619 • Case C-8/08, T-Mobile Netherlands BV, and Others v Raad van Bestuur van de Nederlandse Mededingingsautoriteit  ECR I-4529
United States • Prima Pain Corp. V. Flood and Conklin Mfg. Co., 388 U.S. 395 (1967) • American Safety Equipment Corp v. J.P. Maguire and Co., 391 F.2nd 821, 825 (2d Cir. 1968) • The Bremen v. Zapata Off Shore Co., 407 U.S. 1 (1972) and Scherk v. Albero-Culver, 417 U.S. 506 (1974) • Mitsubishi Motors v. Solar Chrysler-Plymouth, 473 U.S. 614, 105 S. Ct. 3346 (1985) • Simula v. Autoliv. 175 F. 3d 716 (9th cir. 1999) • Louis Dreyfus Negoce S.A. v. Blystad Shipping and Trading Inc., 252 F3d 218, 224 (2d Cir. 2001) • Green Tree Financial Corp. v. Bazzle, 539 U.S. 444, 452 (2003)
• JLM Industries, Inc. v. Stolt-Nielsen SA, 387 F3d 163 (2d Cir. 2004) • Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) • Granite Rock v. Intern. Broth. of Teamsters, 130 S. Ct. 2847 (2010) • Rent-A-Center, W., Inc. v. Jackson, 130 S. Ct. 2772 (2010) • Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S. Ct. 1758 (2010) • ATandT Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011)
Others • Belgian Supreme Court, 28 Jun 1979 Audi-NSU v. S.A. Adelin Petit, 1 Pas 1260 • Garden Cottage Foods v. Milk Marketing Board  1 AC 130 (UKHL) • Court of Appeal of Paris in Almira Films vs. Pierrer (1989) • Court of Appeal of Paris, 29 March 1991, Ganz v. Socit Nationale des Chemin de Fers Tunisiens • Court of Appeal of Paris, 19 May 1993, Labinal v Mors • Court of Appeal of Paris, 14 October 1993, Aplix v. Velcro • Cassation Civile, 20 Decembre 1993, Comit populaire de la minicipalit de Khoms El Megreb c. Dalico Contractors, JDI (Clunet) 121  • Dutch Supreme Court (Hoge Raad) 21 Mar. 1997, NJ 1998, 207 • Court of Appeal of Paris, 18 November 2004, Thal´es AirDefence v. GIE Euromissile (2005) • Court of Appeal of Milan, Terrarmata Tensacciai, 2006
0. LIST OF CASES
• Cassation Civile, 7 June 2006 Comproprit maritime Jules Verne v. ABS., JDI (Clunet)  • Premium Nafta Products Limited et al. v. Fili Shipping Company Limited  UKHL 40 • Russian Supreme Commercial Court case A27-4626/2009 OJSC Efirnoe v. LLC Delta Vilmar CIS • Federal Arbitrazh (Commercial) Court of the north-west circumscription case decided on 10 may 2011, case n. A56-68936/2010
Arbitral Awards • ICC Award no. 1397 of 1966 • ICC Award no. 2811 of 1979 • ICC Award no. 7097 of 1993 • ICC Award no. 7673 of 1993 • ICC Award no. 7539 of 1995
Glossary ADR Alternative dispute resolutions. 17 CJEU Court of Justice of the European Union. 10 Commission European Commission. 4 ICAC International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation. 53 ICC International Chamber of Commerce. 51 Modernisation Regulation Council Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty, OJ L 1, 4.1.2003. 9 NYC 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. xiv TEU Treaty of the European Union. iv TFEU Treaty of Functioning of the European Union. 3
Chapter 1 Introduction EU competition law as well as international arbitration are legal fields that have been in-depth analysed by the legal literature.1 This brief overview aims to help the reader who is not familiar with either one of these two topics. This Chapter will firstly introduce the competition law features that will be used and referred to throughout the rest of this work. More specifically, the first Section will be divided in two parts. The first part explains why competition law is so important for our every-day business life and describes what legal rights are embodied in the EU competition rules. The other part defines which mechanisms are used to enforce these competition law rights to prevent and deter a breach of EU competition law. The second Section of this Chapter will focus on international arbitration. In the first part of this Section, the reader will be introduced to the fundamental concepts of this field of law, throughout an overview of the entire proceeding of a theoretical arbitration case. The second part of this Section introduces the procedure of review, recognition and enforcement of an arbitral award in front of national courts.
In general about EU competition law see: Roth et al. , Korah , Korah and O’Sullivan , Faull and Nikpay , Jones and Sufrin , Whish and Bailey , Pedro et al. ; whereas in general about international arbitration see Blackaby et al. .
The Chapter’s final Section is the liaison of the two topics: competition law and international arbitration. When these two fields of law touch and encounter each other, the result is a set of legal issues representing the framework upon which builds this research project. Therefore, the final Section of the Chapter contains an overview of the structure of this work.
EU Competition Law
The fact that competition law has a history which reaches back to the Roman Empire gives a hint of the relevance that competition law has for the progress of society.2 Starting from the most general definition of competition law, ‘it is a field of law that promotes or maintains market competition by regulating anticompetitive conduct by companies’.3 The lawmaker and the case-law have to clarify in details the meaning of the concepts of market, competition, anticompetitive conduct and companies. Filling these general concepts with a specific content is a necessary act for the practical application of competition rules. The interpretation activity performed by these subjects is substantially defined by the competition policy pursued within a specific legal order; and the goals that a competition authority aims to achieve is what shapes its competition policy. In light of the above, an overview of these goals shows the function of competition law and its importance in the present-day world.
The Central Rules of the European Antitrust Policy
In Europe, there is a multitude of goals that have been pursued over time through the EU competition policy, for instance: market integration (necessary to achieve the four fundamental freedoms embodied in the EU Treaties);4 , protection of consumers’ welfare while guaranteeing also production efficiencies;5 as well as 2
Wilberforce et al. , p. 20. Taylor , p. 1. 4 Free movement of goods, persons, services and capitals, within the EU. 5 This goal was pursued through supporting efficient cost-saving practises along the supply chain. 3
the protection of individual economic freedoms.6 Van den Bergh and Camesasca have duly noted that, although today the dominant view on what is the goal of EU competition law revolves around ensuring an efficient allocation of resources and enhancing consumer welfare, some of the current competition rules can be justified only in the light of a different viewpoint.7 In other words, presently, also non-economic goals, such as social equity, play a role in the trade-off of contrasting goals shaping the essence of the EU competition policy.8 From this brief list of the goals that have been and that are still pursued through competition rules, clearly emerges the reason why competition law is so important for our every-day business life. What follows is an overview of the legal protection available against anticompetitive conducts; it aims to clarify how our everyday business activities are, in practise, affected by competition law. Article 101 and Article 102 of the Treaty of Functioning of the European Union (hereinafter Treaty of Functioning of the European Union (TFEU)) along with the Merger Control Regulation are at the cornerstone of the European competition legislation. 188.8.131.52
Article 101 TFEU
Article 101 TFEU defends market players against both horizontal and vertical restraints. Horizontal restraints can derive from agreements, decisions or practises by undertakings that restrict competition between actual or potential competitors who operate at the same level of the supply chain. Most notably, members of a cartel aim to increase products’ prices, fix market shares and impede the marketaccess to new competitors. However, as we will see later, for the purpose of this research it is necessary to focus on vertical restraints. 184.108.40.206
Competition restraints that affect vertical agreements are called vertical restraints. This term can be associated to wide range of business contracts between firms 6
Namely protection of small businesses from being overcome by dominant firms. Van den Bergh and Camesasca , p. 5. 8 Van den Bergh and Camesasca , p. 5. 7
operating at different levels of the production or distribution chain. A nonexhaustive list of these contracts includes: exclusive and selective distribution agreements, franchising, agency, supply agreements, and many others. The European Commission (hereinafter also referred to as the European Commission (Commission)) has emphasised the relevance of a competition law breach in this kind of contracts because almost all products reach the final customers through a distribution channel formed by vertical agreements.9 In fact business practise is pervaded with examples of vertical agreements. Sooner or later, any company is likely to ask (or to be asked by a counterparty) for the inclusion in such vertical agreements of certain competition restrictions (i.e. vertical restrictions).10 Vertical restrictions can assume various forms and few examples would be: price fixing (in which the manufacturer sets a specific retail price for a product), territorial protection (limiting the places where each dealer may sell the goods), quantity fixing (which sets a level of minimum or maximum units that can be sold), customer restrictions (defining the group of buyers to whom goods can be sold).11 In the past, overlooking the importance of economic theories, competition authorities considered vertical restraints dangerous for welfare, competition and consumers. Nowadays, embracing the more recent economic studies, it is widely accepted that restrictions in vertical agreements can be justified in light of allocative efficiencies; hence firms are allowed to use vertical restrictions, under certain circumstances.12 Those clauses, in fact, can solve coordination problems in vertical structures and limit the scope of opportunistic behaviours by firms. However, it has been proved also that ‘they may have ambiguous effects on economic welfare, depending on the context in which they are used.’13 Whether a specific vertical restraint is anticompetitive, or not, depends upon the competition policy pursued by a specific decision maker. For instance, many vertical restraints which will be considered innocuous in the US are forbidden in the EU in light of the 9
Commission , p. 7. and also Korah and O’Sullivan , Part 1, p. 28. Utton , pp. 233-272. 11 Rey and Caballero-Sanz , pp. 3-10. 12 Rey and Caballero-Sanz , pp. 11-21. 13 Van den Bergh and Camesasca , p. 206; although it is out of the scope of this work, in Van den Bergh and Camesasca , p. 206 ff. is possible to find a general explanation of the Law and Economics debate on vertical restraints. 10
EU internal market’s need to contrast territorial segmentation.14 220.127.116.11
Article 102 TFEU
Whereas Article 101 TFEU, described above, provides protection against anticompetitive practises perpetrated by two or more independent firms, Article 102 TFEU prohibits some types of unilateral behaviour by firms holding a dominant position on a determined market. This provision targets conducts considered to be an abuse of a dominant position. Article 102 TFEU is relevant for this research because anticompetitive practises can be perpetrated also through vertical restraints, when dealing with firms that operate at different levels of the production or distribution chain. For instance, through the so-called exclusionary behaviour a dominant firm commonly aims to harm actual or potential competitors operating at the same level of the supply chain by obstructing their access to the upstream or downstream market. This result can be achieved through specific contractual clauses imposed to the upstream or downstream weaker party in vertical agreements. Examples of this type of vertical anticompetitive contractual clause include price discrimination, rebates, tying and bundling, refusals to deal and predatory pricing. However, what has been said above on vertical restraints under Article 101 TFEU, can be valid also for these clauses. They can generate efficiencies and benefit consumers, hence deserving to be allowed under certain circumstances. In practise, it is not easy to assess whether there are, or there are not, positive welfare effects. Such evaluation, both, affects and reflects the goals that a competition policy aims to achieve. What is important to keep in mind is that Article 102 TFEU, the second main rule of EU competition law, protects the internal market from anticompetitive vertical restraints by a firm abusing its dominant position. 18.104.22.168
Concentrations and Merger Control
The third, and last, main branch of EU competition law is called merger control. Unlike the two provisions discussed above, which are included in the Treaty of Functioning of the European Union, this subject matter is addressed by the 14
Regulation 139/2004.15 As we have seen, usually companies interact with business partners, even on a long-term basis, through vertical agreements. No matter how stable such relationship can be, in any case, those agreements are not final. Therefore, when there is a breach of competition law, the agreement can be cancelled and its effects revoked. Conversely, under certain circumstances, vertical agreements may not be suitable to satisfy the needs for the natural evolution and growth of a firm. Since, long-term contracts can be cancelled, the business activity may require a more permanent integration of two companies’ assets and know-how. Such permanent integration is possible through mergers (two merging companies create a new company), acquisitions (a company purchases all the assets of another company) or joint ventures (when two companies pool part of their assets into a new entity). All those activities are defined in the EU competition law as concentrations. On the one hand, a concentration can have positive effects, expanding markets and bring benefits to the economy: new products can be developed or produced more efficiently; production or distribution costs can be reduced; the companies can increase their competitiveness in the market, resulting in a higher-quality goods at better prices for consumers. On the other hand, a concentration may also reduce competition strengthening the merging companies’ power in a market. The anticompetitive effects that can be caused by a concentration are usually divided in two categories: unilateral effects and coordinated effects. The former can be the effect of the reduced number of market players. The two merging companies are not competitors after the concentration and they can jointly exploit their market power. For instance, they can profitably rise the price of one or both of their products harming consumers.16 The latter can be described as the effect of the improved changes and possibilities for the inferior number of market players to coordinate their behaviour producing anticompetitive effects. In both these cases, unlike what happens with vertical agreements, the reduction of competition, due 15
Council Regulation 2004/139/EC of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation), OJ L 24/1 16 Ivaldi et al. , Werden .
to a concentration, has permanent effects. It is extremely difficult to reverse a concentration ex post. Merger control Regulation 139/2004 provides the necessary legal basis to prevent and guarantee ex ante, before a concentration occurs, the risks of negative effects on competition due to a concentration.
Enforcement of Competition Law
The previous Section briefly overviews the reason why competition law is so important for a modern society and how it can affect market players’ everyday business lives. It also introduces the main parts of EU competition law and describes the three main types of anticompetitive conducts contrasted by Articles 101, 102 of the TFEU and by the Merger Regulation. This Section of the introduction deals with mechanisms used to prevent and deter the breach of competition law. There are two instruments which have been used to stop a breach of antitrust law.17 One is public enforcement and the other is private enforcement.18 22.214.171.124
Public and Private Enforcement
Public enforcement means that there is a competition authority which is entitled to investigate, detect, prosecute, and punish any violation of competition law. This means that any natural or legal person found responsible for a breach of competition law can be fined by the authority. This fine has a deterrence function and a quasi-compensation one, due to the harm caused to the state economy. Any individual can inform the competition authority of an alleged or suspected breach of competition law. However, even if the violation and the harm are proven, the competition authority will fine the perpetrator but will not grant damages in favour of the victims of the anticompetitive conduct. Therefore the record fines of hundreds of millions, that we read about in the newspapers’ headlines, benefit the state finances but do not compensate the direct victims 17
These two instruments have been introduced for the first time in the US by the Sherman Act in 1890 (Sherman Antitrust Act, Ch. 647, 26 Stat. 209, codified at 15 U.S.C. §§1-7; Clayton Antitrust Act of 1914, Pub. L. No. 63-212, 38 Stat. 730, enacted October 14, 1914, codified at 15 U.S.C. §1227, 29 U.S.C. §5253.) 18 Jones , p. 14.
of the breach. In most EU Member States, the nature of these fines is that of an administrative law punishment. On the other hand, the private enforcement of competition law is a litigation procedure in which private parties claim rights based on competition law provisions. Commonly, the civil consequences of a violation of competition law are: • an injunction for a party to cease violating the other party’s rights; • to award of damages; and • to invalidate a contract.
Hence, any person who has suffered damages caused by an anticompetitive conduct has the right to sue the offender demanding monetary compensation and bringing the infringement to an end. Since a legal system cannot tolerate any undertaking in breach of a mandatory legal provision, any agreement that infringes competition law is null, void and, therefore, cannot be enforced. As a result, also this procedure of enforcement punishes the actor of the unlawful conduct and deters him, and others, from future transgressions. In practise, private parties can use their competition law based rights as a shield or as a sword.19 The former occurs, typically, in contractual liability cases. The plaintiff claims the specific performance of a contractual clause and alleges that there was a breach of the contract by the defendant, who relies upon a competition law violation to invalidate the specific clause or the whole contract. Conversely, in the latter case, when used as a sword, the plaintiff directly wants to stop an anticompetitive conduct and seeks compensation for the harm caused. Therefore private enforcement does not only contribute to prevent violations of competition law, alongside with public enforcement, if coordinated with it, private enforcement could significantly contribute to an ideal antitrust enforcement model which combines both the pillars to achieve an optimal enforcement mech19
Valentine Korah, ‘In introduction guide to EC competition law and practise’.
anism.20 The citizens could become the guardians of the EU internal market and legal order’s integrity; especially in the context of vertical restraints, due to their privileged viewpoint on harmful effects.21 In the US, both means of enforcement are well developed. As a matter of fact, the private enforcement cases are nine times more than the public enforcement ones.22 Whereas, in Europe, traditionally, public enforcement has been the main instrument used to guarantee compliance with competition law. In the EU legal order, both the European Commission and the National Competition Authorities (hereinafter NCAs) have the function and responsibility to prevent violations of the EU competition law. In respect to private enforcement, some EU Member States have included in their national antitrust legislations this enforcement mechanism. Only recently, the EU legal order itself has, gradually, opened its doors to the private actions for damages based on competition law. First, in 2001, with the ground-breaking Court of Justice decision known as the Courage case.23 Then Regulation 1/2003 was promulgated, the so-called Council Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty, OJ L 1, 4.1.2003 (Modernisation Regulation).24 Most importantly with the Directive of the European Parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union.25 20
Speech by Mario Monti when European Commissioner for Competition matters: Private litigation as a key complement to public enforcement of competition rules and the first conclusions on the implementation of the new Merger Regulation, at the IBA 8th Annual Competition Conference in Fiesole (Italy), on 17 September 2004. 21 Van den Bergh and Camesasca , p. 332. 22 European Commission, ‘The EU gets new competition powers for the 21st century’ (2004) competition policy newsletter - special edition 1. 23 Case C-453/99, Courage v. Bernard Crehan  ECR I-6297, see also the opinion of Mr Advocate General Mischo delivered on 22 March 2001. 24 Council Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty, OJ L 1, 4.1.2003. 25 As of today it has been approved by the European Parliament and soon to be approved also by the Council, all informations available at this url:http://ec.europa.eu/competition/
At this point, it is worth opening a digression about the evolution and foundation of private actions for damages in the European legal system. 126.96.36.199
The Foundation of the EU Private Enforcement
The EU Treaties do not explicitly provide individuals with the right to start private actions to seek damages based on a breach of competition law. Initially, it was not even clear whether the EU competition law provided any rights at all directly to individuals. The existence of a EU law based individual right to damages was declared by the case-law of the Court of Justice of the European Union (hereinafter also referred to simply as the Court of Justice or as the Court of Justice of the European Union (CJEU)). This interpretation of the Treaties is based on several key EU law principles highlighted by the CJEU in its early case-law. Starting form the Van Gend en Loos seminal decision, the CJEU stated that the EC Treaty in its preamble explicitly stated that it referred not only to governments but also to the people of EuropeCase C-26/62, Van Gend en Loos v. Nederlandse Administratie der Belastingen  ECR 1. Regardless of the legislation of a Member State, the EU law is intended to confer upon individuals specific rights which become part of their legal heritage.26 When a EU law provision is qualified as having direct effect, the rights granted therein have direct application in national law, and national courts must protect these rights.27 Finally, the CJEU held that the prohibitions of Articles 101 and 102 TFEU (at that time called Articles 85 and 86 of the Treaty of Rome) tend, by their very nature, to produce this direct effect in relations between individuals.28 Therefore these provisions create direct rights for the individuals concerned, rights which national courts must safeguard. Moreantitrust/actionsdamages/documents.html. 26 Case C-26/62, Van Gend en Loos v. Nederlandse Administratie der Belastingen  ECR 1. 27 Case C-26/62, Van Gend en Loos v. Nederlandse Administratie der Belastingen  ECR 1. 28 Case 127/73, BRT v. Sabam,  ECR 51, par 16 and 17 and C-282/95 P Guerin Automibiles v. Commission  ECR 1-1503.
over the CJEU also clarified that these EU based rights are so important that they even prevail upon national legislation. In fact, when there are national laws which have the effect of limiting or preventing such private actions, the principle of supremacy of the EU law comes into play. This principle held by the CJEU in the Costa v. ENEL case states that the EU Treaties have created their own legal system. This legal system ‘became an integral part of the legal system of the Member States, that have permanently limited their sovereign rights and thus, have created a body of law which binds both their nationals and themselves. The law stemming from the Treaty could not, because of its special and original nature, be overridden by domestic legal provisions, however framed, without the legal basis of the community itself being called into question’.29 The possibility of private enforcement in the EC competition law has been first explicitly pronounced by the CJEU in the Courage v. Crehan case.30 This case was saluted as the major achievement in the direction of effective protection of rights conferred on individuals by EU competition law.31 In the Courage v. Crehan case, the Court of Justice does not even consider as an impediment for compensation the fact that the party suing for damages was actually an undertaking of the contract responsible of restricting or distorting competition. In fact, the CJEU states that a contractual party can rely on the breach of competition law before a national court even to obtain relief from the other contracting party. In other words, just agreeing to an anticompetitive contractual clause that favours the counterparty, does not imply waiving the rights of damages caused by it. Furthermore, in this decision the Court of Justice continues stating that ‘The full effectiveness of article 85 of the Treaty (nowadays called Article 101 TFEU) and, in particular, the practical effect of the prohibition laid down in article 85(1) (now Article 101(1) TFEU) would be put at risk if it were not open to any individual to claim damages for loss caused to him by conduct liable to restrict or distort competition’.32 In practice, this enunciates the existence of a EU right 29
Case 6/64, Flaminio Costa v. ENEL,  ECR 585. Case C-453/99, Courage v. Bernard Crehan  ECR I-6297, see also the opinion of Mr Advocate General Mischo delivered on 22 March 2001. 31 Andreangeli . 32 Case C-453/99, Courage v. Bernard Crehan  ECR I-6297, par 26. 30
to damages and, by implication, of a principle of civil liability of individuals for a breach of the EU law. This apparent breakthrough in the EU legislation just reflects a common sense general legal principle known to civilisation since the Roman empire. Everyone is bound to make good of loss or damage arising as a result of his conduct in breach of a legal duty, in latin neminem laedere principle.33 To summarise the significance of the Courage v. Crehan case, one could say that it was the starting point for the private enforcement of European competition law. Therein the CJEU, gradually building on the ground of the general principles embodied in its case-law, recognised that the EU Treaties’ competition law provisions confer certain rights to individuals which can be enforced in front of national courts. Eventually, private enforcement became formally part of the EU legislation with the adoption of the Regulation 1/2003 on implementation of the rules of competition laid down in Articles 101 and 102 TFEU. This regulation is the so-called Modernisation Regulation, which created a fully-fledged private enforcement system next to the public one. The Regulation 1/2003 is responsible for the decentralisation of the EU antitrust law enforcement.34 Namely, the power to fully apply Article 101 and 102 is not exclusively in the hands of the EU Commission anymore. As a matter of fact, before Regulation 1/2003, the application of the third paragraph of Article 101 was a monopoly of the EU Commission. Even after the Courage case, national judges theoretically entitled to grant damages could not assess whether a conduct was permitted by the third paragraph of Article 101 TFEU. According to Article 101(3) TFEU (which resembles a EU equivalent of the US rule of reason) conducts that are formally in breach of the first paragraph of Article 101 TFEU, can be exempted from the prohibition set by the first paragraph. In order for a conduct in breach of Article 101(1) TFEU to qualify for the exemption, under 33
Eilmansberger . Council Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty, OJ L 1, 4.1.2003. 34
the third paragraph, it has to pass a competition policy trade-off test. The outcome of this test should exempt conducts that are formally anticompetitive but at the same time can substantially contribute to achieve the goals set by the EU competition policy. At the early stage of creation of the European Union, it was believed that the Commission monopoly on this provision was justified in light of the strong link between Article 101(3) and the EU competition policy. Moreover at that time the internal market, the case law and the culture of competition law were not uniformly developed throughout the European Union. In due time those arguments lost their grounds. Now, Article 6 of the Regulation 1/2003 states that national courts shall have the power to apply Articles 101 and 102 (in their entirety). Therefore, it finally suppressed the exemption monopoly held by the EU Commission. Among the reasons for this overturn was the intent to stimulate private parties to have more frequent recourse to national courts in actions for damages.35 Apparently, the EU lawmaker proved to understand the importance of a modern and developed private enforcement mechanism. The national courts were assigned a new role with respect to the EU competition policy. It has been argued that this new decentralised application system was bound to lead to a ‘new rights-based common culture of competition in the Community (now Union), to create a real culture of diffuse competition law enforcement’.36 Moreover, ‘it consolidates the interpretation of the third paragraph of article 81 (now Article 101 TFEU) as a true rule of law and not as a discretionary political tool in the hands of the Commission’.37 In parallel, Regulation 1/2003 lead to a certain “privatisation” of competition policy enforcement. Previously, the EU Commission had to be notified an anticompetitive agreement and decide ex ante whether to exempt it or not. Nowadays, the ex ante notification procedure has been cancelled. Therefore, while national courts assess ex post, after a dispute arises, whether an anticompetitive agreement deserves to be exempted, companies and their legal 35
Wils , pp. 150-154. Wils , pp. 151. 37 Wils , pp. 150. 36
advisers hold the burden and the risk, to fulfil the competition rules, engaging into a rigorous self-assessment on the matter.38 In practise, the vast majority of cases can be solved using the EU Commission case-law and guidelines, satisfying the need of certainty in the legal system. However under Regulation 1/2003, when there are controversial cases, they will be decided by national courts taking a position with respect to the EU competition policy. To conclude this overview of the establishment of private enforcement in Europe, it is appropriate to quote recital 7 of the Regulation 1/2003: ‘National courts have an essential part to play in applying the Community competition rules. When deciding disputes between private individuals, they protect the subjective rights under Community law, for example by awarding damages to the victims of infringements. The role of the national courts here complements that of the competition authorities of the Member States.’39 188.8.131.52
Private Enforcement in EU National Courts
This Chapter started describing why competition law is important, its content and the rights that it grants to individuals. Then it focused on explaining what are the mechanisms that are used to enforce competition law and their historical evolution in the EU legal system. Until here we introduced the CJEU’s case-law and the Regulation 1/2003 enhancing national courts’ powers to enforce the EU competition law. This Section clarifies that these initial, necessary and positive steps towards a modern, developed and effective, private enforcement system in Europe are not sufficient. Notwithstanding this evolution the private enforcement in Europe remains underdeveloped. In 2004, the European Commission sought a better understanding of the existing obstacles to successful actions for damages in the EU Member States. The international law firm Ashurst carried an extensive study on this matter. The study provides an analysis of the legal framework and the national law conditions 38
Craig and De B´ urca , pp. 1005-1008. Recital 7 of the Council Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty, OJ L 1, 4.1.2003. 39
required to claim antitrust damages in most of the current European Member States. It describes the private enforcement across EU Member States as an extremely underdeveloped legal tool. Moreover, the study highlights the profound inconsistencies existing among Member States’ jurisdictions in their approach to this legal field.40 Although, a detailed description of the competition law private enforcement in front of Member States’ jurisdictions is outside of the scope of this work, it is worth providing a general background for readers not familiar with this topic. The heart of the private antitrust enforcement in Europe lies on the relationship between European Union and national law. At the current stage of the European integration, EU law based rights and obligations are in principle enforced before national courts under provisions of national procedural law.41 The Modernisation Regulation, did not result in a harmonisation of procedures, national sanctions nor remedies. However according to Professor van Gerven, there are four EU substantive remedies existing at the cornerstone of the EU private enforcement: a general one, to set aside a national measures that conflict with EU law (in light of the EU law general principles of supremacy, direct effect, effectiveness and equivalence)42 and three specific ones, interim relief, restitution and compensation (for damages).43 Starting with the latter, in order to obtain damages, a private party shall go through the following steps: 1. identify the general or specific substantive and procedural statutory basis for his/her private action claim; 40
Waelbroeck et al. , Ashurst Study, dated 31 August 2004. available at this url:http: //ec.europa.eu/competition/antitrust/actionsdamages/study.html 41 Eilmansberger ; and Wils , pp. 46-47. 42 Craig and De B´ urca , p. 256. As mentioned above, under the principle of supremacy (sometimes referred to as primacy) of EU law, the laws of the EU Member States that conflict with laws of the Union shall be ignored by national courts. According to the principle of equivalence, requirements to successfully claim a right based on breach of EU law should not be stricter than those for infringement of national law. The principle of effectiveness states that national procedures must allow full protection of individual rights based on directly applicable provisions of the EU Treaties. 43 Van Gerven .
2. identify, under the applicable statutory rules, which is the court competent to hear his/her action for a violation of the EU competition law; 3. prove that he/she satisfies the requirements for the standing of natural or legal person in that specific jurisdiction (including territorial jurisdiction); 4. prove a faulty breach of EU competition law; proving the existence of a certain, specific and quantifiable harm and the causation (i.e. the causal link between the harm and the antitrust violation); and 5. oppose any defence raised against the claim, e.g. contributory fault, force majeure, passing-on defence. Although these steps are common to all EU Member States, the so-called Ashurst study highlighted that the requirements underneath each one of these rules can be very different among Member States jurisdictions. For instance, the main inconsistencies in the damages remedy can be of two kinds: (i) how the nature and the measure of damages is determined; or (ii) how fault, causation, and standing shall be proved (i.e. rules of evidence) in order to be entitled to damages. Unfortunately such inconsistencies do not refer only to the damages remedy, the same holds true also for interim reliefs and restitutions. As a result, both the substantive and the procedural conditions for civil antitrust enforcement can be very different among Member States depending on their national rules. In fact, the Ashurst study qualifies inconsistencies and inadequacies in national laws on remedies and procedures, as a source of serious concern for the effectiveness of the competition law private enforcement. Indeed, those differences tend to create variations in enforcement costs of the EU antitrust rules, and thus to produce unequal conditions of competition among EU Member States.44 Some of the solutions proposed to facilitate private enforcement of EU competition law include: • removing limitations to standing; • improving legal certainty, through recourse to expert courts for dealing with difficult competition law matters, as well as increase of cooperation 44
Van Gerven .
with competition authority (acting as amicus curiae); • facilitating rules of evidence, provided that it is difficult to prove the various elements of liability; lowering the standard of proof or even a reversal of the burden of proof could prove crucial; and • reducing the costs