Problems with the interpretation of UK/ EU competition law

Based on work by Dr Chris Townley, Kings College London, chris.townley@kcl.ac.uk

Understanding the relevance of environmental and social concerns in EU/UK competition law is the foundation of resolving this problem area.  EU and UK competition law is intertwined here and we must consider them in unison.

The competition authorities need to embrace public policy as relevant in EU/UK competition law so that agreements that go beyond simply enhancing (or having a neutral impact on) consumer welfare can be made.

Public policy and EU/UK competition law

Assume that EU/UK competition law’s main goal is consumer welfare. Imagine an agreement between all EU washing machine manufacturers and importers not to make/ import washing machines below a specific environmental specification. This would raise the purchase price of washing machines in the EU (the cheapest washing machines do the most environmental damage). However, it would reduce environmental harm from washing machine use.

Assuming that the agreement has an impact on both consumer welfare and environmental protection (environmental protection is a proxy for all relevant public policy goals in this briefing), four scenarios are possible:

1) The agreement might improve the environment and consumer welfare (even if the washing machines’ purchase price increases, the cost of electricity used during their lifetime may outweigh this). There is no need to consider environmental benefits here. Agreements are cleared on consumer welfare arguments alone.

2) The agreement might improve the environment and undermine consumer welfare (if the purchase price rises more than lifetime usage savings). These are the agreements that David Cameron promised to tackle and they are the focus of this briefing.

3) The agreement might undermine the environment and improve consumer welfare.[1]

4) The agreement might undermine both the environment (no environmental gains, for example) and consumer welfare. We agree with the OFT that these agreements are not desirable.

Everyone agrees that the agreements in “1” are permissible under EU/UK competition law and that the agreements in “4” are forbidden.

Further guidance is needed though on the “2” agreements and possibly the agreements of type “3”, but these are ignored in this briefing. Type “2” agreements are those which the recent BITC consultation on business and the government’s Big Society vision called problematic. It is these that David Cameron said that he would deal with. [2]

 

What the OFT and the EU Commission presently say about the law…

EU law (Articles 101 and 102 TFEU) – the EU Commission has said “[t]he objective of Article 81 [now Article 101 TFEU] is to protect competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources.”[3] The OFT seems to endorse this view when it applies these provisions, although it is unclear.[4]

UK law (Chapters I and II Competition Act 1998) – are modelled on Articles 101 and 102. The OFT seems to seek a sole consumer welfare goal here too; although, to our knowledge, it has not clearly said so.[5]

 

Key stakeholders’ intentions with respect to public policy goals

EU law (Articles 101 and 102 TFEU)

Both the EU Courts’ judgments and the European Council (where the Member States are represented) confirm public policy’s place.

The EU Courts (and the Commission[6]) regularly take public policy goals into account here. Recent EU Court judgments do too: Meca Medina (2006) – public health outweighed competition; Laurent Piau (2005) raising professional and ethical standards, etc. outweighed competition; Wouters (2002) – administration of justice outweighed competition.[7]

Although, Article 101’s wording seems too narrow, this description of public policy’s relevance is widely accepted in the literature.[8] This is because EU interpretation does not follow a word-focused methodology. We interpret EU Treaty provisions (including Article 101)[9] in the light of the EU Treaties’ goals, including, Article 3(3) EU Treaty:

“…The Union shall establish an internal market. It 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, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance …”

Note the emphasis on balancing ‘economic growth’ with other criteria.

In line with the policy-linking clauses, there are at least 10 of them covering, for example, health and the environment.[10] There is also a general one:

“The Union shall ensure consistency between its policies and activities, taking all of its objectives into account…”

Some competition lawyers dispute the relevance of these provisions, but many EU lawyers agree that they demand public policy’s consideration in competition law. This is supported by the European Council. When they introduced the policy-linking clause on culture (Article 167(4)) the Council said to the Commission:

“…the inclusion in the Treaty of Article 128(4) [now Article 167(4)[11]] has created a new situation, the consequences of which must be clarified with respect to the application of Community competition rules to cross-border fixed book prices…”[12]

The cultural policy-linking clause was intended to inject cultural criteria into the competition rules, amongst others. The Commission was asked to explain how it would do this; it did not reply on a technicality.

Incidentally, the EU Courts have only once explicitly endorsed a sole consumer welfare goal for Article 101 (and never for Article 102). This was in the General Court’s Spanish Glaxo judgment in 2006. The European Court of Justice overturned this on appeal in 2009.[13]

UK law (Chapters I and II Competition Act 1998 (CA98))

The inclusion of public policy was a key issue in the House of Lords debates on the Competition Bill. Lord Simon (the Bill’s proponent in Parliament) said:

“Although the [section 9 CA98] exemption criteria may seem narrow, the Bill requires them to be interpreted in the light of the general principles (Clause 58 [now section 60, CA98] – which essentially says follow the EU law equivalents unless there are any relevant differences). I shall mention that clause frequently. It is the linking clause between EC [now EU] law and our own in our new [Chapter I] prohibition in the Bill.

In practice—this is important—the Commission has taken into account a wide range of countervailing benefits when making decisions under Article 85 [now Article 101 TFEU]. In particular, the Commission has taken into account the public health benefits of agreements when reaching decisions. However, the issue goes wider, as we have discussed, than public health. The Commission has, for example, taken into account environmental benefits of agreements…

It is clear that under the Bill the Director General [now the OFT] and Competition Commission can be expected to do likewise: to form the same judgments against the body of law that I have mentioned which have existed in the interpretation by the Commission under Article 85.”[14]

Lord Simon justified this view of EU law by relying on a report that BIS (then DTI) commissioned Professor Whish to write on the relevance of public policy concerns in Article 101(3) (then Article 85(3) EC):[15]

“As Professor Whish has noted in the study on the breadth of Article 85(3) the exemption criteria are interpreted against the backdrop of the underlying principles and objectives contained in the EC Treaty [now EU Treaties]. Treaty objectives such as those to protect the environment contained in Article 130 [now Articles 11 and 191 TFEU] may be relevant in considering whether an exemption can be granted.”[16]

This is in line with other areas of UK law, for example, section 371(12) Communications Act 2003 allows Ofcom to consider cultural and other considerations when applying Chapters I and II CA98.[17]

What has happened in practice over the last 10 years?

Townley argues that the OFT and the EU Commission have changed the substance of EU and UK competition law by ignoring public policy and selecting a sole consumer welfare goal, and that this was done with little or no public debate on goals. It is also out of line with the EU Courts’ case law and the will of the OFT/ Commission’s political masters (see above).

Many do not think that the OFT/ Commission shift is right in EU law, for the reasons set out above. For example, the Dutch Competition Authority published its Annual Report 2009 which argues that public policy considerations are relevant in EU competition law and that it applies them.[18]

As they have never admitted this shift, the OFT/ Commission have never really explained it. That said, this shift has the widespread support of competition law practitioners and academics. For example, Professor Whish thinks today that it is preferable if UK and EU competition law follows a sole consumer welfare goal.[19] Reasons given in favour of ignoring public policy goals include:

  • Facilitating the 2004 EU competition law procedural reforms. This is not a good reason in law;
  • Many economists think that it more efficient to generate as much wealth as possible for society through solely pursuing economic welfare in competition law. If this causes too much e.g. environmental damage or an unfair distribution of wealth, we can sort this out later through regulation or taxes. This is in conflict with the Big Society aim to reduce regulation and encourage us all to work together towards environmental and social goals. In addition, Parliament may not have the time or resources to legislate;
  • De-politicisation of competition law. If balancing public policy concerns against consumer welfare is a political act, this may be inappropriate for an independent body, like the OFT. However, the EU Courts’ case law creates a duty to consider public policy goals; the UK has a commensurate duty (Article 4(3) EU Treaty) to ensure that the relevant decision-maker (here the OFT) can consider public policy goals.[20]; and
  • Fear of complexity.[22] These are complex decisions, but the economy does not exist independently from society and the environment. The OFT/ Commission can no longer run away from engaging with complexity as Ofcom and other bodies have proven is possible. [23]

It is to be welcomed that, recognising the changing external environment, the OFT hosted a roundtable debate on this subject in May 2010.[21] EU law seems very clear that public policy concerns should be considered in EU competition law. This also seems to have been the intention of the Member States. As regards UK competition law, we have a clear statement from Parliament that they wanted public policy goals to be considered.


ENDNOTES


[1] Yet, EU competition law often protects public policy goals in this way. For example, in Joined Cases 56 and 58/64 Établissements Consten SARL and Grundig-Verkaufs-GmbH v Commission [1966] ECR 299 the EU Court ignored the consumer welfare benefits of the agreement and focused on the fact that it divided up the EU.

[2] See, for example, the Tesco discussion in (Townley, 2007-2008).

[3] Commission Notice, guidelines on the application of Article 81(3) of the Treaty, OJ 2004 C101/97 at [13]. Article 102 has the same goals as Article 101 TFEU.

[4] “…the goal of competition policy is to optimise consumer welfare. This guides all of the OFT’s competition policy actions.” (Fingleton and Nikpay, 2008), 405, 406. These are their personal views, page 385, but Townley assumes that the OFT’s CEO and (then) Head of Policy know the OFT’s goals.

[5] Ibid.

[6] The washing machine example above is an actual case, Commission decision, CECED, OJ 2000 L187/47, that many believe was decided for environmental reasons. In 32% of Commission Article 101(3) decisions from 1993 to 2004, public policy considerations were decisive, (Townley, 2009), 6.

[7] Case C-519/04 P Meca Medina v Commission [2006] ECR I-6991 para 45; Case T–193/02 Laurent Piau v Commission [2005] ECR-II 209, para 102; and Case C-309/99 Wouters and Others v Algemene Raad van de NOvA [2002] ECR I-1577, paras 94-7.

[8] See sources at footnote 4 and other references at (Townley, 2009), 2, fn 7.

[9] For more details please see, (Townley, 2010), 318-26; (Townley, 2009), Chapter 2; (Townley, 2007-2008). More recent paper in (2011) European Competition Law Review, forthcoming.

[10] Article 9 TFEU “In defining and implementing its policies and activities, the Union shall take into account requirements linked to the promotion of a high level of employment, the guarantee of adequate social protection, the fight against social exclusion, and a high level of education, training and protection of human health.” and Article 11 TFEU “Environmental protection requirements must be integrated into the definition and implementation of the Union’s policies and activities, in particular with a view to promoting sustainable development.”

[11] “The Union shall take cultural aspects into account in its action under other provisions of the Treaties, in particular in order to respect and to promote the diversity of its cultures.”

[12] Council Decision, on cross-border fixed book prices in European linguistic areas, OJ 1997 C305/2. Similarly, in relation to the cultural and other aspects of sports, see Council Declaration, on the specific characteristics of sport and its social function in Europe, made at the European Council of Nice on 7-9 December 2000. See other references at (Townley, 2009), 158.

[13] Joined Cases C-501/06 P, etc. GlaxoSmithKline Services v Commission, judgment of 6 October 2009, not yet reported, [61]-[63] and Joined Cases C- 468/06–C- 478/06 Sot Lelos kai Sia EE and Others v GlaxoSmithKline AEVE, judgment of 16 September 2008, not yet reported, paras 64, 65.

[14] Lord Simon, Hansard – HL Deb 13/11/1997 vol 583 cc278-9. For more detail on UK competition law’s goals see (Townley, 2010).

[16] Lord Simon, Hansard – HL Deb 25/11/1997 vol 583 cc946-90.

[17] The new merger provisions, introduced in Part III of the Enterprise Act 2002, are supposed to operate differently. The OFT/ CC consider efficiencies; the Secretary of State may consider specific public policy goals separately, see Part II, Chapter 2 of the Enterprise Act 2002.

[18] NMa, Annual Report (2009): weighing interests, http://www.nmanet.nl/nederlands/home/jaarverslag_2009/files/NMa_Jaarverslag_2009_EN.pdf See also references in (Townley, 2009), 2, fn 7.

[19] See references at ibid, page 2, fn 10.

[20] Ofcom (and the other regulators) manages to balance competing goals in their regulatory and competition law capacities and they are also independent.

[21] http://www.oft.gov.uk/news-and-updates/events/roundtable-article101(3)/ See also Townley’s response in 2011 European Competition Law Review, forthcoming.

[22] “This may not only result in non-enforcement due to an overly complex framework…Therefore this potentially could end up with an incredibly complicated framework requiring the need to look at the effect on inflation, balance of payments, trade, environment, minorities and many other diverse goals.” http://www.oft.gov.uk/shared_oft/events/Article101(3)-synopsis.pdf, page 6.

[23] Many jurisdictions, such as Australia, Canada, the Netherlands, South Africa and Spain balance public policy goals in competition law, we can learn from them. See also (Townley, 2009), chapter 8.

BIBLIOGRAPHY

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FINGLETON, J. & NIKPAY, A. (2008) Stimulating or Chilling Competition. IN HAWK, B. (Ed.) Annual Proceedings of the Fordham Competition Law Institute, International Antitrust Law and Policy. Huntingdon, Juris Publishing, Inc.

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