The shifting boundaries of competition law in Europe

August 2024  |  SPECIAL REPORT: COMPETITION & ANTITRUST

Financier Worldwide Magazine

August 2024 Issue

Competition law is a vital instrument to ensure fair and efficient markets in Europe and beyond. However, the evolution of competition law in Europe has been marked by various challenges and changes of policy focus over recent decades. From the post-war decartelisation to the recent wave of digital regulation, legislators, competition authorities and courts have had to adapt to changing economic realities and public interests. This article will explore the main developments and trends in European competition law enforcement, the emergence of the new age of regulation and the implications for businesses today.

The evolution of competition law in Europe

Competition law as we know it came to the European continent only after World War II. Prior to that, cartels were not prohibited, but merely subjected to some regulation. According to a 1923 regulation in Germany (similarly in the Netherlands), cartels were only prohibited from abusing their economic power. After 1945, US antitrust law inspired the decartelisation of the German war industry and influenced the competition rules of the European Community for Steel and Coal of 1952. Over the course of the following years, several western European countries introduced their own competition laws (Germany in 1957, France in 1986 and the Netherlands in 1997). The prohibition of anticompetitive agreements and concerted practices between undertakings and of abuses of market dominance became important pillars of the European Economic Community founded in 1957. Backed by the European Court of Justice acting as the “motor of integration”, the competition rules became a powerful tool to promote economic integration and prevent the artificial division of markets along the borders of the EC member states.

The golden age of public enforcement

Although the European Commission (EC) has always enforced community competition law and the court shaped and sharpened the competition rules over the years, the golden age of cartel prosecution commenced only after another legal transplant from across the Atlantic gained traction: the EC’s 1996 leniency notice combined with a dramatic increase in the level of cartel fines. Companies admitting to cartel infringements and contributing to uncovering breaches by other companies could benefit from immunity or a significant reduction of fines. Billions of euros of fines were imposed on companies unlucky enough to have lost the race to the regulator. Often, these races started beyond European borders and hit European companies hard where they had been part of international cartels. For some time, according to a popular joke in the industry, competition lawyers only represented guilty companies, indulged in leniency application filing frenzies, playing up the slightest competitor contacts to make them seem like decade-long cartels. The rationale was simple: better to be the first than sorry. There was nothing to lose.

From the age of leniency applications to the age of follow-on cartel damages litigation

The Court of Justice unconsciously inspired a more balanced approach to leniency filings by promoting the notion that it must be possible for any individual under almost any circumstances to claim damages for harm suffered from competition law infringements. In quite an interventionist fashion, the court removed many of the obstacles set up in the civil codes of the member states to obtaining redress from cartelists. It is now almost impossible for a cartel damage claim to be time-barred. All it took was some time and the introduction of the cartel damages directive of 2014 to arrive at the present situation where every public enforcement cartel case is followed by cartel damages litigation. These claims, researched and led by an evolving plaintiffs’ bar, are sometimes much more life-threatening to companies than the cartel fine itself. Take, for instance, truck producer MAN. As the whistleblower in the truck cartel case, it avoided a fine of several hundreds of millions of euros. However, to this day, eight years after the adoption of the EC’s decision imposing fines on other companies, MAN is – among other truck manufacturers – a defendant in civil litigation for damages that amount to billions of euros all over Europe.

New enforcement tools

Under these circumstances, the board decision on whether to file for leniency is much more complex than it used to be. This is true for all companies involved in an infringement and everyone knows it. Considering all the relevant facts, the legal status quo can justify a path of ending the infringement but not reporting it. This reasoning, in turn, inevitably led to fewer leniency applications and may lead to less public enforcement overall. In addition, the severe financial consequences of cartel infringements – unique to competition law until recently – directed board attention to competition law compliance and efforts were intensified. The ensuing change in business culture might be another reason for fewer reported cartels.

Consequently, competition authorities must look for new ways to investigate competition law infringements. Many have introduced whistleblower hotlines or rely on complaints from market participants or their own market screening. The information gathered by such means is often less accurate and more speculative than it would be in leniency applications by actual cartel members. Consequently, cases are built on less solid ground and end without consequences more often than in the past, if during the investigation it turns out there was actually no or no severe infringement. Thus, companies facing allegations of competition law infringements should consider a full-blown defence, appealing inspection decisions and arguing against their participation in an alleged cartel. In other words, finally, competition lawyers can represent innocent clients again.

New enforcement priorities

Shifting enforcement priorities of the competition authorities shape the enforcement environment and compliance risk management within companies. Authorities seek out coordination between companies to reduce innovation, as illustrated by the EC’s car emissions case against German auto manufacturers, or in labour markets through ‘no poach’ and wage fixing agreements. Competition can also be distorted through the application of new technologies, such as online platforms, allowing for indirect communication, as exemplified by the European Court of Justice’s Eturas case, or by algorithms ‘aligning’ on prices or through indirect communication in the public domain or through semi-public third parties (signalling).

The age of regulation – burdens, risks and opportunities of more regulation

Although there still is the occasional classic cartel case, the competition authorities use much of their creativity to test and expand the boundaries of competition law. But there is more to it. The challenges of securing workable competition evolve with a changing economy. Nowadays, threats to economic freedom originate not only from colluding competitors but also from unilateral conduct of incontestable and dominant online platforms, potentially exploiting users or foreclosing competitors through practices such as self-preferencing, locking in customers, using data or expanding ecosystems. New regulations in the form of amended competition laws and specific regulations such as the EU’s Digital Market Act were introduced in recent years, imposing special duties on designated, very large online companies such as Alphabet (Google), Amazon, Meta, Microsoft, TikTok and the like. These special rules come with extraordinary compliance costs for these companies. On the other hand, the many companies depending on the services offered by the big platforms, in areas such as intermediation services, online advertising or operating systems, obtained tools to defend their own interests, potentially allowing them to optimise their market access by enforcing their rights under the new regulations, if necessary, through the courts.

Companies are faced with more regulation in neighbouring areas, such as unfair competition, data protection and consumer protection, as well. One of the most important features of data protection laws, the looming EU green claims directive and similar laws is the draconian fines of significant fractions of a company’s annual turnover. While some other authorities, for example in the Netherlands and Italy, already have far-reaching competences to enforce consumer protection laws, the German Federal Cartel Office is advocating with the German legislator to be afforded more powers, including the ability to impose severe sanctions. Therefore, companies must adapt their compliance risk management to the new challenges. Competition law compliance is increasingly just one area of concern next to several other, potentially life-threatening, risks.

Finally, M&A transactions are being subjected to more intensive regulatory scrutiny, too. In merger control, theories of decreased innovation in pharmaceutical markets and competitors being foreclosed by network effects in online industries are investigated. Results of the sometimes-lengthy merger control proceedings dealing with big transactions in the EU, the UK and the US are almost impossible to foresee and can differ between jurisdictions. A remedy package working in one jurisdiction might be rejected in another. Still, most cases receive timely clearance. However, there is a general perception that competition authorities around the globe act tougher on some deals. This perception might also have been created by a trend of reviewing transactions on an ad hoc basis, which are not clearly within the notification thresholds. This adds an element of uncertainty to merger control. The EU’s Foreign Subsidies Regulation foresees additional filing requirements for certain transactions and bids in public tenders to assess whether non-EU subsidies distort competition on EU markets. Finally, an increasing number of countries are introducing foreign direct investment control regimes, adding further public interest scrutiny and more politics to M&A transactions.

All this and more is part of a general trend of increasing regulation, certainly in Europe. On the bright side, each new rule is well-intended, aimed at defending entirely acceptable public interests. Nevertheless, this trend also has a dark side for companies and the economy as a whole: added complexity, multiplied risk of non-compliance, skyrocketing compliance costs and potentially reduced competitiveness compared to regions with less regulation. Even so, there is also confidence that the European economy is strong enough and the entrepreneurial spirit cannot be suffocated by all the rules. As is true for both physics and politics, a pendulum can only swing so far before returning to the middle.

 

Alexander Fritzsche is a partner at Gleiss Lutz Hootz Hirsch PartmbB. He can be contacted on +49 (69) 9551 4535 or by email: alexander.fritzsche@gleisslutz.com.

© Financier Worldwide

BY

Alexander Fritzsche

Gleiss Lutz Hootz Hirsch PartmbB

©2001-2024 Financier Worldwide Ltd. All rights reserved. Any statements expressed on this website are understood to be general opinions and should not be relied upon as legal, financial or any other form of professional advice. Opinions expressed do not necessarily represent the views of the authors’ current or previous employers, or clients. The publisher, authors and authors' firms are not responsible for any loss third parties may suffer in connection with information or materials presented on this website, or use of any such information or materials by any third parties.