Belgium: The New Commitments Procedure: Compliance without Accepting Guilt

Council Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition in Articles 81 and 82 of the Treaty¹ ("Regulation 1/2003") has revolutionized the enforcement of the EC competition law since its entry into force in May 2004. Regulation 1/2003 introduces major changes in the procedure governing the implementation of art. 81 and 82 of the EC Treaty ("ECT").

The changes rest on three main pillars: the abolition of the notification system seeking exemption under art. 81(3) ECT, the decentralization of the application of the EC competition rules to the National Competition Authorities and the national courts and an increase in the enforcement powers of the European Commission (the "Commission"). This article deals with a new formalised method of ending Commission investigations, which it is hoped will bring legal certainty and a quicker process. Previously, when the Commission investigated a matter it formally by a decision that either there was no infringement by the partners or there was an infringement. The process to reach an infringement decision was lengthy. Investigations were commonly informally ended by the partners abandoning the anti-competitive subject of the investigation. Parties could, more formally, offer undertakings and end the investigation.²

In the context of the new decisional powers under Regulation 1/2003, the Commission has now the right to terminate an infringement procedure accepting the commitments suggested by the parties. Art. 9 Regulation 1/2003 states:

The decision will be adopted for a specific period of time and, the Commission should find that there are no longer grounds for action by the Commission without concluding whether or not there has been or still is an infringement.³

In September 2004, the Commission published a memorandum⁴ (the "Memo") regarding the art. 9 procedure which "provides for a modernized framework for antitrust scrutiny of a company behavior." The Memo intends to highlight the potential use of commitments and to promote the availability of binding commitments under art. 9, noting that this process would bring the infringement procedure formally, effectively and flexibly to an end. In particular, the Memo focuses on the types of cases eligible for commitments decisions, the effects of such decisions and the participation of third parties.

The Commission states that a commitments decision could be adopted when (i) the companies under investigation are willing to offer commitments which remove the Commission’s initial concerns,⁵ (ii) the case is not one where a fine would be appropriate (which according to the Commission excludes hardcore cartel cases) and (iii) "efficiency reasons" justify that the Commission limits itself to making the commitments binding.

The parties can propose commitments to the Commission after the Commission submits its preliminary assessment.⁶ However, there is no indication about the duration of the procedure or reference to any procedural steps to undertake between the first approach to the Commission and the announcement of the final "agreed" commitments. The lack of a formalized process might respond to the aim to preserve the flexibility of this instrument as well as to leave room for negotiation between the parties and the Commission. The absence of specific deadlines, might also respond to the intention to avoid raising barriers to achieving a common ground between the parties.

The Commission can accept behavioral or structural commitments, which may be limited in time. These commitments could be reviewed, modified or even lifted following the companies’ request based on changes of the market reality. Likewise, the Commission could reassess the situation by re-opening the proceedings where (i) there is a material change in any of the facts on which the decision was based, (ii) the undertakings concerned act contrary to the commitments or (iii) the decision was based on incomplete, incorrect or misleading information provided by the parties. Art. 9(2) states that the Commission can act on its own initiative or upon request, presumably, from former or new complainants as well as from other competitors or interested parties.

The decision is binding for the parties to whom it is addressed and the commitments must be respected. Otherwise the Commission would be entitled to impose fines (up to 10% of total turnover) and/or periodic penalty payments, and national courts could enforce them by any means provided for by national law, including the adoption of interim measures.

However, art. 9 decisions will be silent as to whether there is a breach of art. 81 or 82 ECT. The commitments decision is not a prohibition decision, neither does it constitute an exemption decision. The Memo literally indicates that the commitments decision is "a substitute for a prohibition decision." Nevertheless, the Commission affirms that a customer or a competitor seeking private enforcement in national courts will still need to prove the illegality of the former behavior to obtain compensation for damages. However, the decision will not prejudice the powers of the national competition authorities and national courts to make such a finding and decide upon the case. Moreover, the same companies may still face enforcement action before Member States authorities and courts, "provided that the uniform application of the competition rules throughout the EU is not jeopardized." In order to ensure compliance with the principles of legal certainty and the uniform application of the Community competition rules, the Commission has stressed the need to avoid conflicting decisions.⁷

Third parties are involved in the procedure by way of a consultation or "market test" mechanism which takes place before the decision is formally adopted. Following art. 27. (4) Regulation 1/2003, the Commission must publish a summary of the case and of the substance of the commitments offered in the EU Official Journal (the "Notice"). The full text of the commitments in the original language of the case it is also published on the Commission website. Any third parties will be able to submit their observations within one month of the publication of the Notice. To protect any business secrets or confidential information, third parties are requested to submit non-confidential versions of their comments.

The Commission insists on the relevance of the outcome of the market testing for adopting a commitments decision. If the market test reveals any weaknesses of the proposed course of action, the Commission could renegotiate or abandon the settlement option and revert to the prohibition scenario, as appropriate.

The commitments procedure has only been applied twice so far. Both have been long running investigations. The first was the German Bundesliga Rights Case. The second the Coca-Cola Case.⁸ In September 2004 and November 2004 respectively, the Commission published the Notices⁹ summarizing the cases and the main content of the commitments for the market tests. In the Notices the Commission stated that according to the preliminary assessment, the practices have had adverse effects on competitors and customers. In the Coca-Cola Notice, the Commission also expressly mentions that a commitments decision would not conclude whether or not there has been or still is an infringement. Such a declaration was not made in the German Bundesliga Rights Notice. Another very important difference between the two cases is that the Coca-Cola draft commitments decision is the first one to be applied Europewide.

Together with the publication of the German Bundesliga Rights Notice, the former Competition Commissioner, Mr. Mario Monti highlighted the fact that the Commission had been able to "make swift and effective use of a new legal instrument in a difficult area" and affirmed that the procedure increases transparency for all market operators.¹⁰ The question arises, what are the real advantages of the commitments procedure for the parties involved, competitors, consumers or any other third parties?

The Commission highlights, first of all, the fact that a proceeding initiated formally can now be closed formally. This reinforces legal certainty for involved undertakings as well as the transparency of the procedure in the interest of third parties. It is true that in the past companies had given commitments to the Commission in order to avoid a prohibition decision, but there was no legal basis on which the Commission could adopt a decision to that extent and, as a result, the content of these commitments was not publicly available.¹¹ Second, the Commission stresses that the procedure is extremely flexible and that, for the first time, interested parties are able to intervene submitting comments in relation to the measures or commitments, which will now be accessible to the general public.

However, we may consider whether the benefits are over sold. The flexibility and transparency of the procedure which appear to be so positive could be put into question. Thus, it can be asked to what extent the parties can suggest commitments or must comply with measures considered convenient by the Commission. What is the margin of negotiation?

The question of negotiation raises also other issues for the parties. First, formally, in the limited experience available, the Commission has not made any formal statement about the application of the procedure but, for example, it was publicly known that Coca-Cola was "negotiating" with the Commission and the possible "list" of commitments were leaked to the press. It is understandable to think that parties would rather avoid publicity because any failing to "agree" with the Commission might have a very negative impact to their commercial image. Second, there is no indication of how long the procedure takes on average, which could be relevant for parties and also for complainants who could see the procedure delayed without guarantee of a satisfactory outcome. Third, the Commission has not clarified the role of complainants during the "negotiation phase." Are they to be consulted on the intention to adopt an art. 9 decision? Do they have a chance to discuss potential measures with the Commission? What is more, could they oppose or appeal against the Commission’s intention to follow the commitments procedure? If the procedure is flexible enough it is possible that all or many of these interrogations will not be a problem in practice.

What are the effects of a commitments decision? On the one hand, in the event an art. 9 decision is adopted, customers and competitors seeking private enforcement in national courts will still need to prove the illegality of the behavior. However, it might be considered whether the decision could be alleged as evidence of infringement and whether judges at the national level would take this into consideration in a claim for damages. On the other hand, the effects are unclear of the Commission’s decision on procedures pending against the same parties at the national level. Would the national authorities be bound by the commitments and required to close any pending investigation against the parties in relation to identical or very similar kinds of practices? The question is not theoretical. In the Coca-Cola case, the commitments will apply Europewide, ¹² including Spain where the Company is being investigated by the Competition Service ("SDC") since 2000. The Spanish procedure was suspended awaiting a decision of the Commission. Will the SDC close the investigation? Formally, it is not obliged to, but the President of Coca Cola in Spain has recently declared that they trust that the SDC will terminate the case.¹³

The art. 9 procedure is a useful "tool". However, it would be interesting to know if the Commission will really promote the use of the commitments procedure, specially since it has already observed that it will never be obliged to terminate proceedings following an art.9 decision and that the application of the procedure is conditioned to or must be justified by "efficiency reasons" or "enforcement priorities". It can be postulated that art. 9 could be very useful for all concerned to end current long running investigations. For investigations in future, it will be interesting to see the willingness of parties to use this tool. Its interface with private enforcement, and the Commission’s promotion of private enforcement, may well be the key to the commonality or rarity of its use.

Copyright © 2007, Mayer, Brown, Rowe & Maw LLP. and/or Mayer Brown International LLP. This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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