Viewpoints FCA Yearbook 2011

Viewpoints FCA Yearbook 2011

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In addition to the printed version, the FCA’s Yearbook is available as a PDF, which is optimised for tablet computers. You can transmit the PDF to the tablet for example by e-mailing it to yourself and opening it with a PDF reader. The words in blue are links in the electronic version. Editors Layout Photos Translator ISSN / ISSN-L

Päivi Kari and Eine Kuneinen arri Heikkilä H Antti Hovila and Jaanis Kerkis Jaana Aho 1458-1701

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Contents

To the reader.......................................................................................................... 6 Calendar 2010........................................................................................................ 8 Director Martti Virtanen: Growth Initiative working group and competition: major statement................. 11 Senior Research Officer Tom Björkroth: On the economic analysis of competition restraints........................................... 17 Head of Research Sanna Syrjälä and Assistant Director Mika Hermas: Mission of cartel control: increasing the risk of getting caught.......................... 21 Head of Research Jarno Sukanen: Permitted cooperation between competitors....................................................... 26 Head of Research Valtteri Virtanen: Prioritisation of competition restraints cases and first stage investigations..... 31 Head of Research Maarit Taurula: New Competition Act and merger control........................................................... 35 Senior Research Officer Juha Karjanlahti: Excessive pricing from the point of view of competition rules........................... 40 Head of Research Ari Ahonen: Competition Survey 2: Smart regulation – effective markets.............................. 44 Assistant Director Rainer Lindberg: Recent case law of EC courts in competition issues........................................... 48 Research Officer Riikka Pulli: Reforms of EC competition rules in 2010............................................................ 55 Erikoistutkija Jussi Pääkkönen: Cooperation with Regional State Administrative Agencies ................................ 58 FCA contact information 1.6.2011......................................................................... 61

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To the reader In March 2011, the Parliament passed the government proposal for a new Competition Act, and the 1992 Act will slowly become history. The new Act contains much that is old. The prohibitions of restrictive practices will remain as they are and correspond to the prohibitions of restrictive practices in the EC law. The competition rules affecting business operations are the same irrespective of whether the restraint affects trade between the Member States or not, and whether the prohibitions of the Competition Act or TFEU are applicable. The main amendments concern merger control, immunity from fines and some procedural rules. The FCA’s right to prioritise its cases may also prove an important amendment – particularly when the prioritisation rules are read in conjunction with the sections defining the meaning of the Competition Act. Not even small issues are left aside, however, if these have relevance for safeguarding the freedom of business in a manner benefitting customers or consumers. In merger control, the Act means some changes for the positioning of the prohibition threshold, although on the average, the amendment is not expected to lead to a lowering of the prohibition threshold. Previously, it was examined whether a dominant position will arise as a result of a merger and whether it will lead to a significant impediment of competition. The new merger test will only examine the latter question. The new test applied by the Commission from 2004 seems to go directly to the point and is likely to prove more functional than the current test. Immunity from fines has been reformed so as to allow immunity on certain conditions even after the FCA has began inspections. The reform is likely to increase the attractiveness of immunity. Also, the new Act specifies the provisions concerning the possibility to reduce the infringement fine of a company if it cooperates with the FCA in the investigation of the competition restraint. Procedural amendments include provisions on the rights of defence of a business undertaking, which clarify the FCA’s investigative procedure and make it more transparent. Even if the amendment does not contain anything new, it improves the parties’ preconditions to handle the case with the FCA. – The new Competition Act is not groundbreaking or revolutionary; it rather reflects the commonly accepted views on the society’s need to monitor the restrictive conduct and concentration trend of companies.

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As such, the Act is unlikely to function in several decades’ time. The legal developments in the EU may bring about needs to reform it, but national welfare objectives may also be supported in the future by an even sharper Competition Act. There is national leeway even if we adhere to the harmonisation of the major prohibitions with the Union law. This Yearbook, published for the first time both as a so-called tablet publication and a printed book, seeks to provide useful information on the FCA’s activities, the new Competition Act and the meaning of economic competition for welfare. Happy readings! JUHANI JOKINEN DIRECTOR GENERAL

Facts from 2010 The number of open competition restraints cases decreased somewhat last year compared to 2009. The total number of cases remained large, however, which prolongs their handling. In 2010, 364 domestic competition restraints cases, 36 merger cases and 626 international cases became pending. The handling times of requests for action were still longer than the set goals. The FCA succeeded in handling so called letter decisions and other decisions requiring only a small amount of work in less than a month on the average but the final decision may have taken an average of 2-3 years. Compared to the previous years, there is a significant reduction in the number of long pending cases, however. In the end of 2010, there were 168 cases pending at the office, of which only a few had been pending for more than three years. In advocacy, altogether 133 requests for statements and invitations were received. The FCA also participated in the work of 27 working groups preparing legislation and in 58 EU-meetings in all. At the same time, the investigation “Smart regulation – well-functioning markets” published in February 2011 was prepared.

The total costs of the FCA amounted to €5.4m. Twothirds of them were directed to competition control, and the share of advocacy and international issues was one-third. The number of person-years, trainees included, was 70.1 and trainees excluded, 67.9. In the Regional State Administrative Agencies, 5.8 person-years were spent handling competition issues. The working environment of the FCA received an excellent grade of 4.03 on a scale of 1-5 in the VMBaro Survey. In 2009, the figure was 3.94. The FCA’s financial statement including the annual report from 2010 can be seen on the FCA’s web pages. Information on the FCA’s activities and efficiency can be found from the Netra reporting service (www.netra.fi) provided by the State Treasury.

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Calendar 2010 28.1.2010 The European Competition Network, ECN, published the first issue of the ECN Brief news letter directed to the target groups. 29.1.2010 The Market Court imposed on the A-Tec Service Oy (prev. Tecalemit Oy) importing machinery and equipment a fine of €80 000 for a breach of RPM set out in the Competition Act. 15.2.2010 The FCA issued a commitment decision, in which Oy Forcit Ab manufacturing explosives undertook to dispense with a discount system which tied customers to a continued business relation with Forcit. 12.4.2010 The FCA and the Association of Voluntary Health, Social and Welfare Organisations (YTY) arranged a seminar in Helsinki on the topic of ”Third sector as the producer of welfare services: challenges and new opportunities”. 15.4.2010 2010 The Head of FAS (Federal Antimonopoly Service) Mr Igor Artemyev gave a lecture in a seminar arranged by the FCA in Helsinki. 20.4.2010 The European Commission issued a new block exemption for vertical agreements, which sought to simplify the regulation on vertical competition restraints as regards companies which have a limited amount of market power. 29.4.2010 The FCA made a proposal to the Market Court, according to which it should impose on Iittala Group Oy Ab an infringement fine of €4m for RPM violating the Competition Act. 28.5.2010 The FCA issued a commitment decision in which the Veho Group Oy Ab undertook to improve the access of independent repairers to the technical training arranged by it for the Mercedes-Benz motor vehicles. 10.6.2010 The Government brought a proposal before the Parliament on the passing of a new Competition Act (Government proposal 88/2010). 22.6.2010 The FCA closed a case on Gasum Oy concerning the alleged unlawfulness of the pricing system of the company. There was no cause to intervene in the allegedly too low a price level of some longterm delivery contracts as an abuse of dominance. 22.6.2010 FCA closed a case concerning the transmission service and driving shift system of the Helsinki taxis. The arrangement was not intervened in because the competition problems under review were above all connected to the Taxi Traffic Act providing on the activities in the fiel.

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6.7.2010 On the proposal of the FCA, the Market Court imposed on Oulun Puhelin Holding Oyj (i.e. former Oulun Puhelin Oyj), Aina Group Oyj (i.e. former Hämeen Puhelin Oy), Kymen Puhelin Oy and TeliaSonera Finland Oyj a total of €220 000 in fines on the abuse of dominant position in the pricing of subscriber lines. 14.7.2010 Following stage II investigations, the FCA approved a deal in which Alma Media Oyj and some provincial newspapers acquired a controlling interest in Alma Markkinapaikat Oy, to which the electronic housing, car and consumer marketplaces currently held by the Alma Group were first transferred. 20.8.2010 The FCA published on its web pages an article by Director General Juhani Jokinen and Senior Research Officer Tom Björkroth on ”Information on the impact of increased costs on prices – communications or restricting competition?” 27.8.2010 The Supreme Administrative Court rejected the FCA’s appeal on the Fortum decision issued by the Market Court in 2008. The Market Court had held in its decision that the E.ON Finland deal conducted by Fortum in 2006 had not led to the creation of a dominant position or the strengthening thereof in a manner suggested by the FCA in its merger decision. 21.9.2010 The FCA closed a case concerning the alleged restriction of supply in the timber market. The investigations targeted the Central Union of Agricultural Producers and Forest Owners (MTK) and some associations of forest owners but no evidence warranting further investigations was found. 6.10.2010 Following stage II investigations, the FCA approved a merger in whereby HKScan Finland Oy purchased from Järvi-Suomen Portti Osk its meat processing business and the production, sales and marketing business of meat in Mikkeli. 8.10.2010 The FCA closed a case concerning the conditions limiting the use of outside labour included in a collective agreement between Finnish Forest Industries and Finnish Paperworkers’ Union. In its decision, the FCA found that the condition of the collective agreement was such that the FCA did not have jurisdiction over the subject matter. 11.10.2010 The FCA published on its web pages an article by Senior Research Officers Sanna Syrjälä and Tom Björkroth on ”The provisions of the collective agreement on the use of outside labour”.

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21.10.2010 The FCA ordered that Elisa Oyj follow the commitment provided by the company, under which it undertook to change its pricing practice on the switching costs collected from single family dwellings. 28.10.2010 The FCA added on its web pages a so-called “tip us off” link, i.e. an electronic form for sending tip-offs about a competition restraint. The intention of the service is to lower the threshold for contacting the FCA and to facilitate the sending of tip-of. 1.11.2010 The Nordic competition authorities published a common working group report emphasising the importance of effective competition and competition policy in generating economic growth based on sustainable development (Competition Policy and Green Growth. Interactions and challenges). 14.12.2010 The European Commission approved the revised horizontal guidelines and two block exemption regulations, which explain how competitors may cooperate without violating the EU competition rules. (Cf. also the article by Head of Research Jarno Sukanen on page 26.) 16.12.2010 The FCA closed a case concerning the press release on the pricing of forest energy issued by the Central Union of Agricultural Producers and Forest Owners (MTK) in 2005.

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DIRECTOR MARTTI VIRTANEN

Growth Initiative working group and competition: major statement The Growth Initiative working group led by Minister Antti Tanskanen submitted its final report in August 2010. The objective of the initiative was to make policy recommendations to promote economic growth in the context of current global economic developments, environmental factors and the need for social sustainability. The points of departure of the initiative were clear: general welfare and the entire welfare society model may be retained in Finland in the long term only if economic growth remains strong. And the national economy may only grow if labour or its productivity is increased. The final report of the Growth Initiative working group “Finland 2020 – from thought to action” was published in the series of reports (11/2010) by the Prime Minister’s Office. The recommendations relating to competition policy and law included in the final report were very extensive. In addition, under other headings, the working group also proposed recommendations aiming at the creation of markets and competition, and strengthening the workability thereof.

In his work with the FCA, the author Ph.D. (Econ.&Bus. Adm.) Martti Virtanen is particularly involved with strategic planning and development of research activities. In recent years, Dr Virtanen has among other things orientated himself to issues concerning competition neutrality in the state and municipal business.

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The possibilities to significantly increase the work input (employment) are limited as the amount of workforce decreases. Strengthening productivity growth hence holds a key position for economic growth in the future. Only productivity growth can meet the decrease in the amount of workforce and the growth tendencies of public spending resulting from the demographic development. The Growth Initiative working group’s final report begins by providing a brief introduction to issues vital to productivity growth. It then presents the working group’s policy recommendations, divided under the following ten headings: 1) Science and innovation policy, 2) Education policy, 3) Life phase policy, 4) Competition policy, 5) Enterprise policy, 6) Public sector operating policy, 7) Public sector information system policy, 8) Public sector procurement policy and the general availability of publicly collected information, 9) Broadband network and intelligent transport policy and 10) Transport infrastructure policy.

Recommendations related to competition policy The Growth Initiative working group proposed a growing consideration of the competition policy viewpoint in political decision-making; the sharpening of competition law remedies and sanctions; and reinforcing of the operational preconditions of competition authorities. Since the institutional operating environment is of key importance to workable markets and effective competition, the working group found it important to strengthen the role of competition policy in legislative drafting and societal decision-making. The working group proposed that legislative drafting affecting the functioning of the markets always be supplemented with a competitive impact assessment. Although progress has been made on this score in recent years, major shortcomings still remain. (Cf. the article by Head of Research Ari Ahonen on page 44.) The working group also brought up the need to abolish regulation resulting in exclusive rights and privileges, limiting the application of competition parameters by business enterprises and raising barriers to market entry – with special reference to legal monopolies and meanstesting. The working group hence found a growth and productivity-oriented social policy to be systematically anti-monopoly, whether a total or partial right of monopoly be the issue. The working group also paid attention to land use planning, and proposed that a mechanism be created to take competition systematically into account in zoning and land use plans. Land use planning may re-

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sult in the impediment, restriction or distortion of competition, which contradicts the growth and productivity-oriented public policy. For example, in the reform of regulation on large retail outlets (The Act on the Reform of the Land Use and Construction Act, issued 8.4.2011), no visible role was given to competitive impacts. The visibility and significance of competition policy would be further enhanced by the establishment of a specific Competition Council as proposed by the working group. An independent Competition Council consisting of Finnish and foreign experts would monitor developments in the competitive conditions, introduce initiatives aimed at better legislation, evaluate the effectiveness of the competition watchdog, support research activities in its field and promote better understanding of the importance of competition in society. Remedies and sanctions provided by competition legislation The working group found that EU competition legislation should be amended to allow enterprises to be dissolved on competition law grounds if the structure of the relevant market does not allow effective competition and there are no other means available to spur competition. The use of the dissolution powers referred to by the working group could become relevant also when a continuously unsatisfactory competitive situation would not possess the characteristics of a prohibited competition restraint specified in the law. The working group apparently found that the use of such dissolution powers would be much more difficult if based on national law rather than the EU competition rules, due to the presence of the common market. Even the present EU rules enable dissolution by the Commission as a remedy of the last resort to prohibited competition restraints. Sectors of passive or otherwise unsatisfactory competition in which the use of dissolution powers could be relevant are especially likely to exist in small economies and in markets protected from foreign competition. In these situations, the dissolution of enterprises could substantially activate competition for a long way to go. As for competition law-based sanctions, the working group proposed that it be assessed whether personal criminal sanctions could be introduced in severe cases of bidding cartels. There are two topical avenues for strengthening cartel policy: increasing the risk of exposure and sharpening the remedies and sanctions resulting from exposure.

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Finnish Competition Authority’s resources The working group proposed that the FCA’s resources be substantially increased. In the light of the working group’s positions, a growth and productivity-oriented public policy implies an increased use of the market mechanism and systematic reinforcement of the workability of competition, which presupposes a strong operating capacity of competition authorities – both for reactive and proactive action.

Other recommendations related to markets and competition According to the working group, public production and public welfare services, public procurement and public databases are focal issues for a growth and productivity-oriented public policy. Increasing the productivity and lowering the costs thereof does not necessarily presuppose legislative changes; through re-arrangements of the production in its possession, government may carry out reforms which promote competition very quickly. The working group’s recommendations concern both the creation of new markets and the strengthening of competition in the steering of the service structures of the welfare society. Upon realisation, such reform processes also create more room for the expansion of operating models differing from each other as to their ownership and governance in a manner promoting employment and productivity. The working group finds that the private sector, non-profit enterprises and organisations and civic organisations could be utilised more as producers of public services and cooperation partners. With reference to the above, the Growth Initiative working group supported the enactment of the already extensively prepared legislation on government-owned production activities safeguarding competitive neutrality between public and private business, and brought up the need to assess competition neutrality also between third sector organisations and other operational units. Emphasising the significance of competition neutrality is necessary because otherwise the efforts to achieve efficiency and productivity gains through the market mechanism and competition may be seriously jeopardised. To a remarkable degree, efforts to boost productivity concern enhancing and expanding the use of publicly owned capital (such as real estate property and databases). It is typical of today to underutilise such capital, because private actors cannot always use this capital at all, or if they can, an excessively high price is charged for it. The competitive positions

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based on the use of such public capital between public entities controlling the said capital and private actors threaten therefore to be significantly distorted for the benefit of the public entities. The working group hence proposed for example that the private sector and civic organisations should be allowed to use the public sector (e.g. health care and school system) infrastructure to a larger extent than is presently the case when the public sector is not using it itself. In addition, the information in the authorities’ possession, gathered on statutory grounds, should be submitted to the use of citizens, scholars, enterprises and other organisations for free or at a price which only covers the extra or marginal costs resulting from the submission. The development of the knowledge and information-intensive service sectors and the market of information products could hence be supported and new kind of productivity-enhancing models for activity and commodities improving welfare be developed. At the same time, competition neutrality should be secured; an issue the working group paid systematic attention to in other respects as well.

Environmentally sustainable growth Upon examining the possibilities of public policy to boost productivity development, it is necessary to assess the sustainability of environmental impacts as well. Such impacts may sometimes serve as constraints to the growth and productivity-oriented public policy, but ”green growth” may also offer new and quickly expanding operating possibilities – both new markets and products – the use of which may boost economic growth. New products may be geared to environmental protection directly, or they may have been manufactured or they may be used in a manner straining the environment substantially less. According to the Growth Initiative working group, the new “green” technology has a growing market in the future. In this context, the working group stressed the use of price signals and strong economic steering methods to direct and enhance economic growth in an environmentally sustainable direction. Because the price signals do not necessarily perfectly reflect the de facto societal return on innovations relating to environmental protection, the working group also paid attention to the possible need to spur with various forms of subsidies the innovation activities targeting green technology. The joint report by the Nordic competition authorities published last year also states that green growth is still possible, provided that right

The ”Competition Policy and Green Growth. Interactions and challenges” report published by the Nordic competition authorities in autumn 2010 stresses the significance of workable competition and competition policy in the generation of economic growth based on sustainable development.

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kind of incentives are created for it. According to the report, the incentives of enterprises and other economic operators to decrease the harm to the environment and to develop new more environmentally friendly products and production processes hold a key position. Price signals reflecting environmental goals mediated through the market mechanism spur, in competition, actors to engage themselves with conduct supporting sustainable growth. When competition is workable, the price signals are effectively transmitted to the market actors. The more effective the economic incentives of sustainable development, the faster new innovative enterprises will enter the market, and the quicker entirely new markets and market segments will emerge in the economy.

Summary All in all, it may be concluded from the work of the Growth Initiative working group that the core issues of a public policy strategy reinforcing economic growth include the creation and development of the market mechanism and competition – and correspondingly, the combating of legal monopolies and regulation significantly harming competition, concentrations severely restricting competition, and the shortcomings of competition neu-

trality. This position is in line with growing amount of economic literature emphasizing the role of competition as the reinforcer of the productivity development. Cf. the joint publication of the Nordic competition authorities: ”Competition Policy and Financial Crises. Lessons Learned and the Way Forward” (2009), Table 1, s. 43.

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SENIOR RESEARCH OFFICER TOM BJÖRKROTH

On the economic analysis of competition restraints When considering the grounds as to why competition is considered socially desirable, we must return to the 1700s at least when the father of liberalism Adam Smith (1723–1790) recorded his thoughts as to why the baker produces and sells us his bread. Later generations have been able to demonstrate by means of science why the selfishness of economic actors in relation to consumers and other entrepreneurs leads – from both the perspective of division of benefit and the use of resources – to the best possible result in an economic sense. Smith’s thoughts have been further cultivated as a result of the work done by e.g. Leon Walras (1834–1910), Vilfred Pareto (1848–1923), Kenneth Arrow (1921–) and Gerard Debreu (1921–2004) to support the defence of the systems based on free exchange. The above-mentioned is hoped to exemplify that the analysis of the impacts of competition and any restrictions thereto have been at the core of economic analysis from the start. It must be stated at the same time that the division into legal and economic assessment of competition restraints is naturally somewhat artificial, since competition law analysis

The task of the author Dr Pol. Sc. (Econ) Tom Björkroth at the FCA is to support case-handling with the aid of economic analysis. His job description also includes participation in the international cooperation of competition authorities from the economic perspective. Björkroth represents Finland e.g. in the Chief Economists working group at the ECN network.

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rests firmly on the central doctrines of economic theory which have survived well the ravages of time. In the assessment of the application of EC competition law, a division has been drawn between formalistic legal assessment and the assessment of economic impacts. In her recent article, Professor Alison Jones 1 admirably describes the policy definitions of the European Commission and the change of the completion rules in the light of the different modernization phases. Looking back, there is little doubt as to the formalistic case law being dominant so far but the emphasis is not necessarily permanent. Looking forward, it seems obvious that the ’more economic approach’ launched at the end of the 1990s also means that economics will step into the limelight of the overall assessment of competition law. In addition to case law, and so far particularly decisions on mergers and acquisitions, the founding of the position of a Chief Economist at the DGIV in 2003 also reflects this.

Invasion of empirical methods At the time when this is being written, it is clear that the new approach does not only involve a renewed appreciation for the theories of economics; it also means a strong invasion of empirical methods typical of economics. E.g. the Commission publication “Best Practices on submission of economic evidence” from 2010 and the more frequent use of quite sophisticated methods in the competition law assessment of mergers and acquisitions speak of the latter. Many of the most distinguished economists of our continent (Finland included) have already accumulated substantial knowledge in this area, and they are well prepared to draft and present evidence supporting the parties’ claims. It is probably typical of all disciplines that when the size of the profession increases, so does the spectrum of the quality of work. Add the increased importance of economic analysis, and this may have acted as an impulse to the drafting of instructions on the submission of economic evidence. The instructions are not new in themselves, and a clear connection can be seen to the so-called Daubert criteria contained in the Supreme Court decision issued in the United States back in 1993. The judgement in Daubert vs Merrell Dow Pharmaceuticals (509 U.S. 579) prompted the courts to assess scientific evidence at least from the viewpoint of the following four factors: i) has the theory or 1 Cf. Jones, Alison (2010), Left Behind in the Modernisation? – Restriction by Object under Article 101(1), European Competition Journal 6(3), 649–676.

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method been tested before, ii) has peer evaluation been applied to the proposed or used work, iii) are the error margins acceptable and iv) is the method at hand commonly acceptable?

Best Practices on submission of economic evidence by the Commission In 2010, the European Commission published guidance on the best practices on submission of economic evidence. The guidance emphasises three main features which are suitable guidelines for all who seek to apply the economics of the field for analytic purposes: • Firstly, it should be ascertained that the analysis used fulfils certain minimum criteria. These are mostly related to the chosen methodology but also to the approach itself. Those conducting economic analysis have an obligation to lean on fairly established or otherwise theoretically well grounded practices in the choice of approaches and methods. The idea shall not arise, however, that a skilful and logically built argumentation based on the information at hand could not be sufficient. In the end, the premises of tenable argumentation relate to causalities which have been verified by science. The logical use of theory and empiricism is heightened here. It mostly imposes challenges but may also open up some possibilities for so-called eclectic approach and rhetoric drawing from different disciplines. • Secondly, the approaches and methods used should enable possible replication of the information exchange and results. This concerns methodologies exploiting quantitative data, in particular, and this possibility has long been demanded in econometrics. In other words, in order for an analysis to be considered reliable, a critical observer must be able to follow the chain of thought and it shall be further illustrated,

where necessary. This ensures that the methodology and thinking used do not deviate too far or unjustifiably from the main doctrines of economics. • Thirdly, the Commission recommends the efficient use of reliable and relevant evidence. This part of the recommendation should naturally also concern the authorities to avoid the gathering of unnecessary information, which burdens all parties. The data used shall be appropriate for the assessment of the antitrust violation, which is not always so easy to achieve. In this sense, too, economic theory and studies and methodologies which have undergone peer review provide valuable guidance on the choice of material. The temptation and motivation to use data which confirms one’s own views is sometimes great – particularly if substantial financial interests are involved. For this reason, it is unlikely that the differences in opinion will ever be totally done away with. Cf. ”Best Practices for the Submission of Economic Evidence and Data Collection in Cases concerning the Application of articles 101 and 102 TFEU and Merger Cases”.

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Challenges and opportunities

On the presentation of economic analysis to the Court, see OECD (2008), ”Presenting Complex Economic Theories to Judges. OECD Policy Round­ tables”.

The process of economic analysis is made more challenging by the fact that in situations of conflict the Market Court or the Supreme Administrative Court are the bodies who ultimately assess the credibility and excellence of the arguments presented and of the supporting evidence. Complicated economic assessment and evidence should be opened up to the client and court intelligibly in order for the analysis conducted to have a meaning. Additionally, the theoretic models and thought processes used in competitive impact analysis are complex and they constantly evolve. Additional demands are hence imposed on the party assessing the argumentation if and when they wish to base their decisions on the explanatory models and methods. The claim for comprehension and popularisation imposes challenges both for scholars and those applying science, and presupposes active dialogue between the parties. The connection between the judiciary and economic experts offers a good opportunity, however, to integrate academic research as an integral part of the needs of the applied branch of law. Embracing an evolving science requires constant learning and brushing up. Together with the stronger role of economics it poses demands on both the resources of the authorities and of the other parties. One incentive for the application of competition economics and its methodology is the potential for earnings which relate to the justification and quantitative assessment of damages claims resulting from a violation of the Competition Act. The task is not always easy but it may – depending on the angle – emphasise the positive qualities of this dismal science of economics, as it is sometimes called. Summing up, the economic analysis of competition restraints is a growing function, although domestic academic interest toward it has so far been rather modest. Orientating oneself to it requires going through the basic literature of the field and even some more advanced literature in a somewhat new light. In the future, analytical results will not only be derived to pass a study module or for fun but rather in order to verify one’s own or the client’s views and to analyse cases in depth. This requires skills and knowledge management both from the experts holding the critical sword of science, their background organisations and the parties assessing the results of the debate.

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HEAD OF RESEARCH SANNA SYRJÄLÄ AND ASSISTANT DIRECTOR MIKA HERMAS

Mission of cartel control: heightening the risk of exposure A major concern of competition legislation and the FCA is the fight against cartels. It requires efficient intervention in cartels that are detected and increasing the risk of exposure. The recent case law of the Market Court and the Supreme Administrative Court has raised the level of fines up to where it may be assumed to heighten the risk of being caught. The new Competition Act and the possibilities awarded thereby; the FCA’s cooperation with public procurement agencies; and boosting the detection of cartels at the agency all aim toward the same goal. Investigating cartel suspicions is a priority among the FCA’s activities, and the agency conducts at least a preliminary investigation of all cartel suspicions brought to it. If there is enough evidence, the FCA shall use its full powers of investigation. As a rule, all cartel offences are brought before the Market Court irrespective of their economic significance, for the imposition of an infringement fine.

The authors M.Sc.(Econ.) Mika Hermas and LL.M. Sanna Syrjälä are employed at the FCA’s Industries1 Unit; Hermas as an acting Head of Unit and Syrjälä as one of the Heads of Research. Cartel control forms a major part of the duties of both.

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– As a rule, all cartel offences are brought before the Market Court for the imposition of an infringement fine, irrespective of their economic significance, stresses Assistant Director Mika Hermas.

New Act boosts control The new Competition Act approved by the Parliament in the spring contains reforms which boost the FCA’s investigatory powers and which hence have a direct impact on increasing the risk of getting caught. The FCA has high hopes of the reform of the leniency system, in particular. Investigatory powers have also been increased, and a new provision has been added on the summons to be heard. Leniency system The leniency i.e. reduction and immunity from fines system has major significance for the investigation of the most serious competition restraints, particularly naked cartels. Underlying the amendments to the Competition Act was the FCA’s experience that the existing legislation was not sufficiently clear, logical, and predictable for the efficient exposure of cartels. Based on the experiences from the leniency system, the main needs for reform focus on the provisions on the reduction of the infringement fine. Under the existing and the forthcoming Competition Act, a total immunity from fines is only possible for one business undertaking, which is the first one to deliver information on the offence to the FCA. The other business undertakings who deliver information still have the opportunity to a obtain reduction from the fines. Based on the current Act, it has been difficult for the business undertaking who has considered seeking a reduction of the fine to predict the discount granted from the infringement fine. This uncertainty has substantially weakened the incentive of the business undertakings to cooperate with the FCA when they have missed the opportunity for total immunity. Under the new Act, the amount of the reduction shall depend on at what stage the information is given, i.e. the undertaking’s place in line (after the immunity applicant) to submit information containing added value to the agency. The first undertaking to deliver such information receives a reduction of 30-50 per cent, the second undertaking a reduction of 20–30 per cent, and the rest at most 20 per cent. The new system brings a so-called racing element to the seeking of leniency and hence spurs business undertakings to contribute to the detection of a cartel at as early a stage as possible. In the current Act, in which the time of cooperation has not been relevant for the amount of the discount, it has been expedient for business undertakings to wait

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for the completion of the FCA’s investigations prior to commencing real cooperation. Another major amendment is related to the expansion of the preconditions of immunity from fines. The existing law has not provided immunity if the FCA has already performed an inspection in the case. The opportunity for immunity even after an inspection awarded by the new Act spurs the undertaking to assist the investigations even in cases in which the FCA has already been in possession of information on the basis of which an inspection has been conducted. The precondition is hence that the undertaking seeking immunity delivers information to the FCA on the basis of which the offence may be shown. The Act also contains a new provision on the documents that are provided to the FCA for the leniency procedure. According to the provision, the documents may not be used for any other purpose than the handling of a case concerning a competition restraint by the FCA, the Market Court or the Supreme Administrative Court, even if the FCA had submitted the documents to another party of the procedure on the basis of the Act on the Openness of Government Activities. The FCA shall also keep confidential the documents of an applicant of immunity as long as the said Act so allows. This new provision on the documents is important from the point of view of the effectiveness of the leniency system. If the documents delivered by the applicant could be used for some other purpose than the handling of a competition restraint in the case in question, there would be a danger that the business undertakings seeking immunity or reduction from the competition infringement fine would be placed in an inferior position than the other members of a cartel as regards remedies in civil procedures. The incentive for seeking immunity and a reduction of the infringement fine would then be reduced, and the efficiency of the system would be seriously damaged. Inspections of private premises The new Act provides on the right of the officials of the FCA and the Regional State Administrative Agencies to perform inspections in other than the business undertaking’s own premises; for example in the private properties and vehicles of company executives, board members and other personnel. The current Competition Act has contained the same provisions when it comes to the European Commission, but the FCA itself has not previously had the powers for inspection of private premises.

The FCA shall publish new guidelines on the non-imposition and reduction of the competition infringement fine in cartel cases (leniency) and entirely new guidelines on the assessment of amount of the competition infringement fine.

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The right to inspect private premises is important for the efficiency, credibility and deterrent effect of competition control. Without it, the efficiency of inspections could be jeopardized too easily by moving the material on a competition restraint away from the undertaking’s premises. Summons to be heard The powers of investigation are further supplemented by a provision of the new Act, according to which the FCA may summon a person who may for a justified reason be suspected to have been involved in the implementation of a competition restraint. The purpose of the provision is to ensure that the FCA has the opportunity to receive oral accounts in an investigation of a competition restraints case also at other times than during the inspection of a business undertaking’s premises. Electronic inspections Inter-company and internal communications in companies takes place more and more often in electronic form, and the role of electronic recordings in the investigation of competition restraints has therefore been heightened in recent years. The commonly applied inspection methods have up till now been primarily based on the scanning of individual documents and hence taken up much time. Also, it is in the interest of those participating in the offence to hide the existence of material demonstrating a competition restraint, which complicates an inspection and the finding of documents. Methods of investigation have hence been introduced by which electronic materials may be efficiently perused in great numbers and by which hidden or destroyed electronic materials may be retrieved and made visible again. The wordings of the current provisions on inspections have as such already enabled an extensive inspection of electronic materials even with more advanced methods. However, the provisions were still amended as to the wordings to better suit the terminology in the current electronic environment and to befit other legislation.

Significance of tip-offs Tip-offs are important for efficient cartel control, and the FCA receives them over the phone and by e-mail. An electronic form was added on the FCA’s Internet page in autumn 2010 (so-called tip-off link),which enables anybody to easily send the FCA a tip-off about a forbidden competition restraint. The tip-off may also be given anonymously, although

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it is desirable to leave one’s contact information for further clarification of the information provided in the tip-offs. The tip-offs are carefully screened at the FCA and recorded in a socalled tip-off base which facilitates the observation of cumulating tipoffs. Particularly interesting tip-offs are naturally reacted to immediately. The FCA is currently investigating around a dozen tip-offs, and it will focus on the investigation thereof this year. Methods for the follow-up of economic indicators have also been developed at the FCA which enable the detection of market phenomena which may underlie cartel activities or otherwise collusive features. These methods have so far been applied to only a few fields of industry, but the development work continues.

– A tip-off of a cartel or other competition restraint may also be sent anonymously.

Role of public procurement units in cartel control Even though public procurement units have an interest to fight cartels, the legislation on public contracts sets such pressures in many respects that it is challenging to pay enough attention to the cartel angle. In the procurement procedures observed, features may still sometimes be detected which may create favourable grounds for cartel conduct; the object of tender may for example recurrently be a similar product or service entity, or tenders may recurrently be invited from the same geographical area or from the same business undertakings. The detection and combating of cartels is also made more complex by the fact that, as a rule, procurement units – for reasons of resources or otherwise – do not systematically follow the bidding conduct of companies. Often there is also not much time for active cooperation with other public procurement organisations which would promote the detection of cartels. For several years now, the FCA has sought to raise the awareness of public procurement units on the modes of operation of cartels and of means of combating them. The FCA’s representatives have e.g. lectured on the topic in various parts of Finland in events ar-

ranged by procurement units, and organisations otherwise related to procurements, such as internal auditors. Concrete examples have been presented during these events on what kind of observations may cause reason to suspect forbidden cooperation and what kind of evidence has been presented to the court. It has been stressed during these meetings that it is important for the detection of cartels and obtaining of evidence to keep the cartel suspicion confidential, although the Act on Public Contracts and the Act on the Openness of Government Activities impose challenges upon it. The intention of the meetings has also been to give a ”face to a name” i.e. to introduce the FCA officials who conduct cartel investigations and thereby to lower the threshold of public procurement units to contact the agency when necessary. As a result of these meetings, the FCA has received several contacts of suspicious findings, and some of the contacts have also led to further investigations. The detection of evidence has then remained the FCA’s task. The FCA will publish a so-called buyer’s checklist, with the intention to increase the possibilities of the public procurement units for the detection of cartels.

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HEAD OF RESEARCH JARNO SUKANEN

The author LL.M. Jarno Sukanen has been employed at the FCA since 2006. His field of speciality at the Industries2 unit are competition issues relating to electronic communications. In January 2011, he became a temporary Head of Research at the Industries1 unit, where his responsibilities include IPR matters.

Permitted forms of cooperation between competitors Competing undertakings can engage in several forms of cooperation, which may lead to the creation of major economic benefits: the cooperation may help to make cost-savings, increase investments, improve the quality of products and bring new products and innovations faster into the markets. But cooperation between competitors may also lead to the impediment of competition between undertakings, which may use it to eliminate competitive pressure and increase or maintain their market power. This may cause negative impacts in the markets e.g. in the form of a higher price level or a more narrow product variety. This article examines how the permitted cooperation between competitors is defined in EU competition law. As the forms of cooperation vary and there is a great number of them, it is difficult to provide exact answers for every situation. Flexible assessment is hence necessary.

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Legislation Article 101 of the Treaty on the functioning of the European Union (TFEU) prohibits all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition. However, according to 101(3), the prohibition may be declared inapplicable in the case of any agreement or concerted practice which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit. Articles 4 and 5 of the Competition Act (the forthcoming Articles 5 and 6) correspond by content to Article 101 TFEU. In December 2010, the Commission issued revised guidelines on horizontal agreements, and it has also issued separate guidelines on the application of 101(3) TFEU while assessing the efficiency gains from the cooperation. Additionally, the Commission has published separate block exemptions on R&D agreements and especialization agreements. When the criteria for a block exemption regulation are fulfilled, Article 101(1) TFEU shall not be applied to the agreement. Furthermore, according to the De Minimis Notice, Article 101(1) TFEU shall not be applied to agreements between competitors which have only a negligible effect on competition. The FCA also uses the above-mentioned Commission guidelines as a guide to interpretation when assessing the permissibility of cooperation between competitors as well as applies the block exemptions.

Compatibility of cooperation agreements with competition rules At the first stage of assessing the applicability of specific cooperation agreements with competition rules, it is necessary to investigate whether the agreements have as their object a restriction of competition. If this is the case, the conduct is forbidden per se and as a rule does not meet the conditions for exemption under 101(3) TFEU. The Commission guidelines contain several examples of conduct between competitors in which the object has been found to be restriction of competition. Typically it is conduct resulting in agreements on prices, market partitioning, or foreclosure of other competitors. If the conduct composes a cartel, which is considered a serious competition restriction, it is always forbidden.

–It is important that competition authorities, and above all undertakings themselves, can distinguish restrictive cooperation arrangements from those which cause positive (efficiency) gains in the markets.

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As regards efficiency gains, it is important to examine what kind of supplementary assets, know-how or other corresponding benefits the parties bring to the sphere of cooperation. The more the parties’ inputs supplement each other and form cost-savings or boost production e.g. by creating economies-of-scale, the more likely the creation of efficiency gains which make the cooperation permissible.

In cases in which the object of the agreement is not found to be the restriction of competition, the genuine or potential restrictive effects of the conduct shall first be estimated. In the next stage – only necessary if actual or potential restrictive effects are found – these are compared to the efficiency gains obtained through the cooperation. If the efficiency gains or other pro-competitive effects are bigger than the potential restrictive effects and they are also passed on to the consumers – and the efficiency gains cannot be obtained by means restricting competition less – the cooperation is permitted from a competition law viewpoint. The assessment of restrictive effects is always case-specific, and hence detailed guidance cannot be provided on it: each case must be separately assessed on its merits and the assessment criteria shall always be flexibly applied. The point of departure is that a cooperation arrangement between undertakings cannot have restrictive effects if the parties do not have market power, either jointly or separately. For some forms of cooperation, the Commission guidelines contain so-called safe harbour thresholds, which are related to the combined market shares of the parties. If market shares remain below these thresholds, the Commission finds the existence of market power and hence the restrictive effects of the cooperation unlikely, and a more specific analysis is usually not needed. In a detailed analysis of the effects of cooperation, attention is paid to several things including the type of cooperation, the manner of execution of the arrangement, and the specific features of the market under review. The likelihood of restrictive effects shall be assessed in relation to a situation that prevailed prior to the arrangement. In an arrangement which neither of the parties could objectively thinking perform alone, the arrangement cannot have restrictive effects as a rule and it is thus permitted. This may be the case e.g. in joint R&D or production cooperation, which may help launch a brand new product which none of the parties of the arrangement could have managed alone due to lack of resources. Sometimes the cooperation may also be used to avoid multiple investments which are unnecessary from the point of view of economic efficiency. If competition in the end product market remains a genuine possibility after the arrangement, it usually promotes efficiency and benefits consumers, i.e. is permitted.

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As regards the cost-savings achieved, attention is paid to the type of cost the savings are made in: savings in variable costs are more important than savings in fixed costs, because in variable costs, the savings achieved are more likely to be passed on to the prices of the end product. The cooperation should not unnecessarily harmonise the cost structure of the parties to avoid the possibility of coordination of the price level of the markets; such anti-competitive end result would be likely to render the cooperation prohibited. The amount of market power of the parties is also an important factor when the compatibility of the arrangement with competition rules is assessed: the less market power the parties have, the more incentives they have to pass on the efficiency gains to the end users and the more likely it is that the cooperation is compatible with the competition rules.

Guidance on information exchange It is often necessary to assess the compatibility of the cooperation with the competition rules also from another point of view than the main purpose of the cooperation. It often contains at least information exchange between the parties, and the significance thereof as regards the cooperation arrangement should also always be assessed: If the information exchange is limited to only the necessary information as regards the conducting of the cooperation arrangement and the cooperation as such may be justified, it is unlikely that the information exchange would render the cooperation prohibited. The wider the exchange of commercially strategic and sensitive information, the more unlikely its compatibility with the competition rules. The new Commission guidelines contain an entirely new section on information exchange; previously there has not existed similar guidance on information exchange. In this regard, the guidance will be used in the assessment of all forms of cooperation when these contain information exchange.

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Summary Cooperation between competitors may create many efficiency gains which possibly pass on to the consumers as lower prices or a more versatile product selection. The cooperation may help to introduce whole new products or create totally new markets. The cooperation may also have anti-competitive effects if the parties thus find it possible to maintain a higher price level, limit production or even foreclose competing actors. For the above-mentioned reasons, competing undertakings should pay careful attention to the conditions imposed by the competition law when planning

cooperation. But undertakings should also be able to go through with projects which cause beneficial efficiency gains on the market. The above-mentioned Commission guidelines may be used as aid to interpretation. The responsibility for the assessment of compatibility now lies with the undertakings themselves. Dialogue with competition authorities is also possible, although in the present system, the authorities no longer grant exemptions or negative clearances for the arrangements.

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HEAD OF RESEARCH VALTTERI VIRTANEN

Prioritisation of competition restraints cases and initial stage investigations The number of contacts and opened cases arriving at the FCA each year is so large that the agency’s resources are not sufficient for a detailed investigation of them all. The appropriate allocation of these scarce resources to the investigation of cases which are relevant for effective competition, the economy, and public interest is therefore of primary importance. It should also be noted that the prohibitions of restrictive practices require a certain degree of significance as regards the functioning of the markets before the restriction may be considered prohibited in the first place. Hence, several of the cases classified as competition restraints are not necessarily covered by the prohibitions of the Competition Act. Intervention in restrictions which are considered minor could also be considered unnecessary administrative steering which, instead of safeguarding competition, could even have restrictive effects.

The author M.Sc. (Tech.) Valtteri Virtanen is employed at the FCA’s Industries2 Unit, where his responsibilities include competition control in the fields of energy and telecoms. In addition to his own duties, Virtanen has actively participated in the development of the agency’s work processes in recent years.

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Focus on major cases The aim of the Competition Act is the protection of sound and effective economic competition from harmful restrictive practices. Upon application of the Act, special attention shall be paid to the protection of the preconditions of the markets and the freedom of business undertakings to enable customers and consumers to benefit from competition. In the investigation of competition restraints, the FCA focuses on the restraints which have significance for the economy. In practice, this means that the agency shall not conduct a detailed investigation of restraints which are of minor importance and that the agency also prioritises the cases that are investigated. The prioritisation of cases is based on an assessment of the gains that the society, customers and consumers will gain from intervention in a competition restraint, i.e. as a result of the efficiency of the market and increased competition. The issue always involves an overall assessment which includes an appraisal of the harm caused to efficient competition, and the customers and consumers; the consideration of the FCA’s performance targets and strategic key areas; and the comparison of the envisaged end result and the risks related to the gaining thereof.

Assessment criteria The prioritisation of cases is overall assessment, in which the impact of the restraint on the functioning of the market mechanism is examined. The FCA also considers the gravity and importance of the competition restraint in principle – particularly whether a naked competition is involved, for example a hard core cartel. The FCA also pays attention to how extensively the conduct is applied in the economy and what kind of generally restrictive effects intervention in the competition restraint would have on other business undertakings and sectors. The FCA also estimates the gains to be achieved via an intervention and the likelihood of the gains compared to the investigatory costs. If the business undertaking has a right to safeguard its rights somewhere else, this may also have a bearing – for example if the competition restraint may be eliminated more efficiently through measures of another authority having parallel jurisdiction or if the matter can be more effectively settled in civil court. When the need for further measures is assessed, it is also considered whether the restrictive conduct still continues or whether it has been renounced during the proceedings on the case or prior to them.

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Prioritised matters include naked competition restraints in which the arrangement has no other purpose than restricting competition, and competition restraints related to a large volume of operations or ones that are significant in principle. Cases in which the conduct is potentially restrictive and which are also related to economically important activities or otherwise widely applied in the economy are prioritised.

CLASS I CLASS 2 Naked competition restraint Related to large volume of operations and/ or is significant in principle

CLASS 3 Grey area

No naked or otherwise significant competition restraint Small volume of operations Not significant in principle

POTENTIALLY RESTRICTIVE OF COMPETITION ENABLES: Exclusion of operating models which are otherwise economically realistic Anti-competitive coordination

RELATED TO ECONOMICALLY IMPORTANT ACTIVITY LARGE VOLUME SIGNIFICANT EFFECT ON TRADE PARTNERS’ ECONOMY

WIDELY APPLIED PROCEDURE IN THE ECONOMY Has the procedure been widely introduced based on available information? Is the procedure being widely introduced?

Unreasonable or arbitrary conduct WITHOUT MEANING A DIRECT NAKED COMPETITION RESTRAINT

FINAL PRODUCT

INTERMEDIARY INPUT

IMPACT ON : Costs Quality Innovation

PRICE, QUANTITY AND QUALITY IMPACTS ON THE MARKET

GRAPH 1 Prioritisation principles of case-handling (first published in Yearbook 2010)

One major goal is that the FCA is able, in the initial stage of case handling, to eliminate cases which have minor importance in the light of the above criteria. The FCA may also close a long-pending case if it finds out that major changes have taken place e.g. in the competitive conditions and the investigation of the case is no longer necessary after these changes, or if no evidence of forbidden restrictions can be found during the investigations.

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Schedule of first stage investigations The new Competition Act will provide the FCA with better opportunities for an appropriate prioritisation of cases and an efficient use or resources. When the law becomes effective, the FCA will publish guidelines on prioritisation in the handling of competition restraints cases.

The FCA seeks to respond to various inquiries, notifications and so-called citizens’ initiatives and to close cases which will not be investigated within one month. If the matter does not fall within this category, the FCA seeks to make a preliminary investigation in four months, during which a general picture of the nature and gravity of the competition problem will emerge. If the case is found to be of minor importance in the preliminary investigation, the FCA will close the case in six months from the institution of proceedings. Cases which have more importance are handled in the FCA’s steering group which will decide about further measures. A plan of investigation is drawn up, and the parties will be notified of the opening up of a more detailed investigation if this can be done without jeopardising the investigations. With the aid of prioritisation and the scheduling of cases, the effectiveness of competition control will be directed to where it is most relevant. Prioritisation will promote a more topical and faster handling of cases of major importance, and is hence an integral part of effective competition control.

Safeguarding the market process as a main goal Economic competition involves a constantly operating market mechanism which rewards the companies which are able to produce goods or services which customers and consumers value as regards their price, quality, availability or other characteristics. The products produced in de facto or potential competition meet the needs of customers and consumers in the best possible way. At the same time, a minimum amount of costs are incurred to society from directing the economic resources to efficient use.

Supervision of compliance with competition rules involves the protection of the market process against competition restraints concluded by undertakings between themselves and the abuse of dominant position. An essential part of the market process is also the principle of freedom of business but it is protected by means of competition law only when the conduct by a competitor or trading partner clearly has negative effects on the market. The saying goes, ”Competition rules protect competition, not the competitors”.

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HEAD OF RESEARCH MAARIT TAURULA

New Competition Act and merger control The new Competition Act will introduce several changes into Finnish merger control, the most important of which is the change in the substantive test for mergers. The reform will also bring about some procedural changes which have significance for the practical functioning of merger control.

From dominance test to SIEC test On the basis of the so-called dominance test applied in Finland so far, it has been possible to intervene with a merger if, as a result of it, a dominant position has arisen or been strengthened which has significantly impeded competition in the Finnish markets or a substantial part thereof. Intervention in a merger has hence required the creation of a sole or joint dominant position or the strengthening thereof for one or several parties. With the law reform, Finland will be applying a SIEC test conforming to the EC Merger Regulation, on the basis of which a merger may be prohibited or conditions may be attached upon it, if as a result of it, there will be a significant impediment of effective competition in the Finn-

The author LL.M. Maarit Taurula has been employed as Head of Research in the FCA’s Merger Control Unit from May 2010. She has been with the FCA since 2000. She also participated in the preparation of the 2004 law reform.

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ish market or a substantial part thereof. The main difference between the new and the old test is that, with the SIEC test, it is also possible to intervene with mergers causing harmful effects when a dominant position is not necessarily created to anyone. The creation or strengthening of a dominant position is still mentioned as an example in the section of law, however, and as a special instance of a significant impediment of effective competition. The assessment of mergers is based on the SIEC test or similar in the EU, the majority of the Member States and many countries outside the Union, such as the United States. The introduction of the SIEC test will hence lead to the harmonisation of merger assessment between Finland and the rest of the EU. For the cooperation of the competition authorities, the harmonisation is positive because it e.g. eases the referral of merger cases between the Commission and the Member States. It will also be more natural to seek guidance to interpretation in the domestic cases from the merger decisions of the Commission and the EU courts when the assessment is based on the same test in Finland and the EU.

Change of test in practice The main difference between the new and the old test is that, with the SIEC test, it is possible to also intervene with mergers causing harmful effects when a dominant position does not necessarily arise to a single party.

The key criterion according to the SIEC test is the impediment of effective competition, and the creation of a dominant position or the strengthening thereof is only one of its manifestations. However, even in the future, a dominant position will remain the main, but not the sole, criterion whereby the merger may prevent effective competition. The dominance test has enabled only limited intervention with mergers in which the market leader is not involved in the arrangement. The SIEC test will close this potential gap in the field of application of the dominance test, as a merger may cause harmful competitive effects in an oligopolistic market in particular, even if sole or joint dominance could not be detected. In horizontal mergers, the competitive situation which prevailed between the parties prior to the arrangement will be eliminated. If a party had raised prices prior to the deal, it would have lost at least some of its sales to the other party. The merger will remove this competitive pressure. Additionally, the dynamics of competition may change as a result of the deal in relation to other than the interested parties so as that the competitive pressure met by the remaining competitors will decrease: as a result of the price increase implemented by the concentration, some of the demand may shift to competing undertakings which may also find it profitable to increase prices. The lessening of competitive intensity may

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hence lead to significant price increases, although the coordination of the behaviour between the members of the oligopoly and hence a joint dominant position would not be likely. The new test will direct attention more clearly than before to the competitive effects of the merger, and economic analysis is emphasised in the application thereof. A merger can only be intervened with if as a result of it an undertaking may use its market power either individually or jointly with others to the detriment of consumers. The effects-based assessment has also been part of the application of the dominance test but the trend is likely to grow stronger with the new test. With a stronger focus on the competitive effects of the merger and less so on market shares and other structural considerations, it is also possible to better allow for factors balancing the market power of the concentration in the assessment. These include the bargaining power of the buyers and potential competition, i.e. the possibility of entry by other undertakings or the possibility of incumbents to expand operations. The efficiency gains of the merger will also receive attention in an effects-based analysis, albeit it is still the responsibility of the parties to demonstrate the realisation of the efficiency gains and the benefit accruing to the consumers. However, the new substantive test cannot be expected to bring radical changes to the FCA’s merger control. The threshold for intervention will not change decisively, and it is likely that even in the future the creation and strengthening of a dominant position will be the most typical situations in which the merger is seen to substantially impede efficient competition. Market definition and market shares will remain important but not necessarily pivotal parts of the assessment. The investigations will focus on the economic basis of mergers and the likely conduct of the market actors following the merger.

Amendments in merger control procedure The Competition Act will remove the deadline imposed on the notification obligation. Up until now, the parties have been obliged to notify the FCA within a week from the signing of the sales contract or other such measures triggering the notification obligation. In the future, the law does not impose a deadline for making the notification but the merger still cannot be implemented before a final decision has been issued in the case. In practice, the FCA has flexibly applied the deadline even now and granted continuance upon request.

A merger can only be intervened with if as a result of it an undertaking may use its market power either individually or jointly with others to the detriment of consumers.

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In the future, the FCA may also investigate a merger for which a final contract has not been made. The merger may be notified to the FCA immediately when the parties can demonstrate their intent to conclude the merger with sufficient certainty. A letter of intent signed by all the parties, a memorandum of understanding, or the announcement of a public bid all qualify as a demonstration of this. The plan of merger shall be sufficiently concrete for the FCA to start its investigations. The FCA cannot investigate mergers that are not public. In such cases, the deadlines for action will not start to run, even if the notification is otherwise appropriately made. On the basis of the new Act, the FCA may extend the deadlines if the parties or entities part of their Group do not provide relevant information for the investigation of the merger within the deadline imposed by the FCA. The same applies if the information is significantly incomplete or inaccurate. The provision is primarily intended to be applied to cases in which a company deliberately fails to deliver information or delivers them incomplete or inaccurate. Deadlines may usually only be extended when the information is such that those obliged to notify are able to deliver them. For example, in case of a hostile bid this is not always the case. Failures by third parties to deliver information do not result in the extension of the deadlines either. The FCA’s decision to extend deadlines cannot be separately appealed; this must be done when appealing the principal claim. In the future, the notifying parties cannot appeal a merger decision by which the remedies proposed by the notifying parties have been ordered to be followed. By limiting the right of appeal, such instances are avoided in which the notifying parties negotiate the conditions with the FCA and then appeal the conditions to the Market Court demanding at the same time an immediate implementation of the deal and postponement for the conditions until the final decision by the Court. In conditional merger decisions, a favourable decision and the conditions imposed upon it form one entity. A concentration which has been carried out without conditions being implemented will create the competition problems due to which the conditions were imposed in the first place. Attention should be paid to the fact that the FCA cannot impose conditions which the notifying parties have not accepted. If a conclusion is not reached on suitable conditions, the FCA will make a proposal to the Market Court to ban the deal. When a merger case is brought before the Market Court through a proposal for a prohibition, the case shall be handled by the Court in three

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month’s time. It is hence possible for the notifying parties to obtain a quick solution from the court in a situation where they cannot approve the negotiation result on the content of the conditions.

The FCA shall publish revised guidelines on merger control when the Competition Act enters into force.

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SENIOR RESEARCH OFFICER JUHA KARJANLAHTI

Excessive pricing from the point of view of competition rules The tasks of the author M.Sc.(Econ.), M.Sc. (Tech.) Juha Karjanlahti have recently included investigations of the district heating sector and the commitment decisions issued by the FCA on the connection fees of some telecom operators.

Effective economic competition means that consumers have a choice, i.e. that there are genuine options when making decisions about consumption. Consumers may hence select a product from among the options in which the price and the properties best meet with their preferences. When competition is sound, a product which is overpriced in relation to its properties will not sell, and the price level will stay in check. Undertakings also have an incentive for efficient activities, because ineffective undertakings will have to exit the market sooner or later when competition is sound. It is the primary task of the competition authorities to make sure that, by their conduct, undertakings – either individually or together with competitors – do not limit the consumers’ choice or artificially raise the price level. A cartel is an example of a procedure in which undertakings jointly agree about restrictive conduct. In some cases, an undertaking may have such a strong market position alone that by its own measures it will be able to prevent or complicate the actions of its competitors or their entry into the market.

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One of the forms of conduct enabled by a strong market position is excessive pricing which may occur either without the restrictive effects or as means of limiting competition. In the previous case, the undertaking seeks to directly maximise its profits through excessive pricing at the expense of consumers. In this article, excessive pricing refers to this form of conduct. In the latter case, the benefit of the consumers is indirectly influenced by complicating the activities of the competitors through pricing.

Monopoly position and pricing power In some circumstances, there are no proper conditions for the creation of competition. An individual actor may have been granted the sole right to a specific activity based on legislation, or a sector may be involved in which the economies-of-scale are so large that there is only room for one undertaking to operate profitably in that sector. The first one concerns a legal and the second one a natural monopoly. In such a situation, the undertaking may use so-called monopoly pricing, i.e. it can set the price at a level where its profit is maximised at the expense of consumers. Monopoly pricing does not mean that consumers would be ready to pay an excessive price for a product because of its brand or some other characteristic; it means that consumers lack genuine alternatives. Harm may also accrue to consumers when a monopoly does not have sufficient incentives for efficient activities. An undertaking may have sufficient market power for pricing which is detrimental to consumers even if it does not occupy a full monopoly position. A natural monopoly is just the most extreme example of such a situation. The possibility of an undertaking to set its prices is at its biggest in a monopoly position, and it usually gradually decreases when market power diminishes – at the same time that the number of alternative products increases. The capacity to set prices, i.e. pricing power, is determined in different markets on the basis of various factors, but an accompanying factor is usually always a relatively high market share. The existence of options helps at least to a certain extent in holding the prices steady, even if the market position of an undertaking would be nearing a monopoly.

Excess forbidden The purpose of the Competition Act is not price regulation, i.e. imposing a certain price or a level of profitability on undertakings. In the case law on excessive pricing, the threshold for intervention has typically been

It is typical of excessive pricing that the prices have no connection to the costs related to the product, and the differentiation of the prices and the costs does not result from any characteristic of the product particularly valued by the consumer.

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set relatively high: the level of pricing will mostly be intervened with by means of competition law only when it comes to excesses. The capacity for this kind of pricing requires in practice that the pricing power of the undertaking nears the pricing power of a monopoly. Excessive pricing may be best demonstrated if a point of comparison can be found for an allegedly excessive price; if a clear structural problem may be found in the pricing of the undertaking; or if a price increase is involved. It may be difficult to find a point of comparison because the possibilities for excess are at their biggest when there are no competing products. In practice, excessive pricing will usually have to be assessed without the possibility for comparison to the prices of other products.

Problem of the entire sector The FCA’s experience on the application of the provision on excessive pricing of the Competition Act prompts the question whether the provision is, in all situations, an appropriate vehicle to the solving of pricing problems in a market in which the competition mechanism does not work. The question is relevant particularly in sectors which have a large number of regional operators and in sectors in which operators have a legal monopoly or their position has been reinforced by law. In such instances, the creation of special legislation to safeguard the interest of the consumers may have to be considered. The primary means of avoiding and solving pricing problems should always be safeguarding the freedom of choice for consumers by ensuring effective competition and avoiding unnecessary regulation in the market. In some cases, regulation may be an appropriate choice, however, if the benefit of the consumers cannot be safeguarded otherwise. Well planned and efficient regulation may be used to influence a specific sector more deeply than the methods provided by the Competition Act. In addition to pricing, regulation may better allow for other possible objectives such as efficiency or investment incentives.

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At the outset, the application of the Competition Act limits the possibility of the authorities to have an influence because the undertakings themselves are responsible for following the law, and any interventions in abuses always take place after the fact. Regulation can be used beforehand to establish ground rules, and supervision may be of a continuous nature.

Role of interventions in excessive pricing in the FCA’s toolbox The ”toolbox” used by the FCA contains the possibility to directly intervene with excessive pricing particularly when the primary methods of the Competition Act which aim at increasing customer choice do not work. The effect of the primary means of influence has typically decreased in situations in which there is a near monopoly operating in the market and there

are major obstacles to entry – i.e. in situations in which competition functions particularly poorly. The possibility to directly intervene with the price level is an important part of the FCA’s choice of methods on these occasions. It increases significantly the agency’s opportunities to solve the competition problems detected in the market.

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HEAD OF RESEARCH ARI AHONEN

Competition survey 2: Smart regulation – well-functioning markets

The author Ph.D. (Econ.&Bus.Adm.) Ari Ahonen has been employed in various tasks at the FCA since 1999. He currently works at the Advocacy Unit. Ahonen bore the main responsibility for the editing and writing of the Competition survey 2 published in the spring of 2011.

The efficient and sensible use of the scarce resources of the economy is one of the biggest challenges of societal decision-making. Finland is also faced with the need to diversify the range of measures of societal steering. A shift may be detected from steering by means of norms and resources toward more customer and market-oriented steering. However, the traditional steering by means of law-based norms has retained its central position in the regulation of economic activity. Particularly in the context of regulating economic activities, detailed steering by means of norms may unnecessarily increase the costs of undertakings and public administration, reduce the incentives for economic activity and altogether deteriorate the functioning of the markets and hence the entire national economy. Attempts have hence been made to pay more attention to the quality of regulation based on legislation.

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According to the 2010 OECD report Better regulation in Europe: Finland, the public guidance on the principles of better regulation is quite extensive in Finland and also of a high quality. But the OECD still states that there is a distinct gap between the principles of public guidance and practical measures. In addition, OECD points out that the connection between better regulation, effective markets and the economic performance has not been sufficiently understood in Finland. In the circumstances following the international financial crisis, the understanding about the connection between regulation and economic activity and the functioning of the markets has quickly deepened. At the same time, the opportunities for promoting the inevitable cultural change in the administration have increased. The danger in economically difficult times is that straightforward solutions to problems are sought by measures which possibly produce quicker results than the market process in the short term but which produce worse results in the long term.

Benefits shall exceed drawbacks In the survey published by the FCA in February, the subject of better regulation is approached particularly from the point of view of the advocacy task set upon the FCA. Underlying this task is the finding that the restrictive effects of weak regulation may be more significant for the functioning of the markets than competition restraints produced by undertakings. Therefore the tasks of the FCA also include the general promotion of competition and competitive impact analysis. The published survey forms part of this work. During the past ten years, advocacy and the promotion of the efficiency of the markets have gained momentum. The point of departure in advocacy work is not the dismantling of regulation as such but smart regulation which refers to regulation which is correctly dimensioned quantitatively; qualitatively accurate and of a high level; and measurable and has a de facto impact. Smart regulation is regulation which is genuinely necessary and which has benefits which clearly exceed the drawbacks.

Some sectoral examples It is essential for all the above-mentioned basic questions or dimensions of better regulation that there are no ready-made answers and solutions which would work in all situations. The appropriateness or effectiveness

–The restrictive effects of weak regulation may be more significant for the functioning of the markets than competition restraints produced by undertakings.

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of regulation is ultimately always an empirical question, which is determined by the details of execution of the said regulation and the prevailing circumstances of each case. In other words, the details of regulation and the prevailing circumstances frequently ultimately determine the successfulness of specific regulation and the development challenges thereof. Because of this, in addition to general principles, the survey also examines in more detail individual sectoral examples as they have appeared to the FCA in the past few years. The sectoral scrutiny has been limited to fields in which regulation is, in one way or another, a major element of the economic environment and has relevance for topical societal decision-making. The 11 industries have been grouped into four: the network industries, the environment, public undertakings and others. In order of presentation, the sectors are the following: 1) post, 2) broadband market, 3) banks, 4) employee pension scheme, 5) construction, 6) trade, 7) waste management, 8) municipal enterprises, 9) public broadcasting business, 10) taxi traffic and 11) district heating.

Basic questions The survey does not attempt to summarize the related discussion in its entirety but rather to raise the main issues from the point of view of better regulation and effective markets. These include at least the following: 1) Which are the arguments used to defend legislative proposals and how well do these arguments correspond to the grounds proposed in economics for judicial regulation? 2) What kind of regulatory standards is the analysis of the effectiveness and appropriateness of the legislative proposals built on?

3) To what extent the regulatory options available to solve each problem have been charted and how well has the superiority of these options been compared? 4) Have the impacts of the chosen option been analysed and has the regulatory analysis been conducted in the proper way? To summarize, smart regulation presupposes that at least the grounds and goals; scale; methods; and impacts of regulation have been carefully examined and analysed.

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Shortcomings in impact analysis in particular The FCA’s survey reinforces to a large extent the finding of the OECD report in that there is a distinct gap between the public guidance on better regulation and its practical implementation when it comes to all the above-mentioned basic questions. However, the survey pays particular attention to the impact analysis and its apparent shortcomings in Finland. The cornerstone of the impact analysis is the cost-benefit analysis, the purpose of which is to show that the aims of regulation clearly exceed its drawbacks and costs. The impact analysis is not an isolated, ex post performance; instead, it is a way of thinking cutting across the entire legislative and regulatory process, which largely integrates and operationalises the three other above-mentioned elements or dimensions of better regulation. The European Commission has also stated that as part of an inevitable cultural change in the administration, impact assessments have been set as an integral part of the Commission’s own decision-making. According to international experience, this kind of change is not possible unless a so-called watchdog unit, sufficiently competent, is established at a high level in the central administration. The duty of the unit is to be to make sure that the general principles of better regulation will be adhered to and that impact analyses fulfil at least certain minimum qualitative criteria, particularly in major issues. This is more and more necessary both to ensure effective markets and to safeguard an efficient and sensible use of the resources of the national economy.

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ASSISTANT DIRECTOR RAINER LINDBERG

Recent case law of EU courts in competition issues2 Regulatory defence The author M.Soc.Sc., MA Rainer Lindberg has been employed by the FCA in various duties since 1995 and been a member of the agency’s steering group since 2000. He is currently the Head of the International Affairs Unit.

The regulatory defence by an undertaking in a dominant position was one of the main issues in Deutsche Telekom AG v Commission (C280/08P). The Commission had originally found that the pricing of Deutsche Telekom (DT) formed a margin squeeze restricting competition and imposed a €12.6m fine for a violation of 102 TFEU. DT justified its pricing practice e.g. by arguing that the national regulatory authority had participated in the setting of the retail prices. The Court of Justice dismissed DT’s regulatory defence. The main argument was that DT had in effect sufficient discretion in its price setting, and the actions of the national regulatory authority had no bearing in this respect. According to the Court, Articles 101 and 102 TFEU do not apply if the national legislation eliminates any possibility of competitive activity and the restriction of competition is no longer attributable to the 2 This article summarizes the main case law of the EU courts in competition issues during the period April 2010 – April 2011. The purpose of the article is to give a general overview of the case law. The content of the article cannot therefore be used in any legal appraisal as such, and it is recommended that the original judgements of the courts be examined in each case. Insofar as the judgements of the EU General Court have been appealed to the Court of Justice, see the present status. I thank Jaana Boëlius and Minna Heikinsalmi for their valuable remarks.

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autonomous conduct of the undertakings. This principle is narrowly interpreted. If the national legislation does leave open the possibility of competition, Articles 101 and 102 TFEU will apply and the undertakings have a responsibility for complying with them. The Court of Justice confirmed that if for some reason the national legislation only ‘encourages’ to autonomous anti-competitive conduct, the undertakings are responsible for possible violations of Articles 101 or 102 TFEU. In addition, an undertaking in a dominant position has a special responsibility not to limit competition in the internal market. On these grounds, DT could not justify its actions by decisions of the national regulatory authority. DT had discretion to independently decide about its pricing, and it violated Article 102 TFEU.

Margin squeeze The reference for a preliminary ruling by Stockholms tingsrätt (Stockholm District Court) in Konkurrensverket v TeliaSonera Sverige AB (C52/09) concerned the grounds for appraisal of a margin squeeze in the interpretation of Article 102 TFE3. The Court of Justice of the European Union found that when the margin squeeze is assessed as potential abuse, the primary considerations are the prices and costs of an undertaking suspected of abuse. The prices and costs of competitors in the same market shall be considered only secondarily. According to the Court of Justice, finding an abusive margin squeeze – considering the indispensability of the wholesale product, in particular – further requires that the alleged abuse has at least a potentially restrictive effect. TeliaSonera held that a dominant undertaking should remain free to fix their terms of trade, insofar as they do not breach the criteria imposed in the Bronner case for refusal to supply4. The Court held that this is a wrong interpretation of the Bronner judgement, and that there is no need to show a refusal to supply in the finding of every form of abuse. The Court also defined the other assessment criteria of the margin squeeze which concerned the obligation to offer based on special legislation; dominance in the retail market; and possibility for recoupment. After the proceedings by the Court of Justice, the case was referred back to Stockholms tingsrätt for a final decision of the substantive issue. 3 Margin squeeze means that a vertically integrated operator operating on several levels of a supply chain weakens the position of its competitor in the end-product market by charging an excessive price from intermediary or supplementary goods. By using the margin squeeze the undertaking undermines the position of its competitors or prevents their entry into the market by favouring their own business unit. 4 Oscar Bronner (C-7/97)

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Inspection of an undertaking On the basis of the Implementing Regulation of competition rules, the European Commission has the right to make inspections in ‘undertakings or associations of undertakings’.5 In CNOP/CCG v Commission (T-23/09), the basis for the action was that the Commission had not sufficiently made sure whether the target of its investigation is an undertaking or an association of undertakings. According to the applicants, the investigation decision was addressed to a trade organization of pharmacists, not an undertaking or association of undertakings. The General Court of the European Union dismissed the action. Firstly, it held that in its investigation decision the Commission automatically has an obligation to provide the target of the investigation with specific information used to justify the inspection. According to the Court, it is relevant to comprehend that the investigation decision will have to be issued at the start of the investigations. The Commission may not necessarily have specific legal analysis at that point on whether the target of the investigation is an undertaking or association of undertakings. The final legal appraisal of the concept of an undertaking or association of undertakings will be given at a later stage of the investigations. Additionally, in that exact case the Commission had grounds to assume that the target of the investigation would have been an undertaking or association of undertakings.

Breaking of a seal In E.ON Energie v Commission (T-141/08), the General Court upheld the Commission decision which imposed on E.ON Energie a fine of €38m for a breach of a seal during an inspection. The Commission had affixed the seal to be able to isolate part of the premises of the undertaking for the purposes of further inspections the following day. The seal had subsequently been broken. This case led the Court to examine the issue of the burden of proof. The Court held that finding illegality no longer required from the Commission evidence on that the room which had been sealed was actually entered into or that the documents stored therein had been tampered with after finding the breach of the seal. The undertaking itself suspected that the technical properties of the seal (adhesive surfaces) had failed during the night. The Court held that the fine of €38m could not be considered to violate the principle of proportionality. E.ON Energie was or 5 Council Regulation 1/2003, Article 20

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at least it should have been aware of the consequences of breaching the seal and of the gravity of the conduct. The size of the fine itself was 0.14 per cent of the undertaking’s turnover. The nature of the case a precedent and the grounds emphasizing preventativeness also seem to have favoured the amount of the fine.

Legal professional privilege The correspondence between a undertaking and an external legal advisor may be covered by legal professional privilege to which the Commission has no recourse to e.g. during its inspections. In Akzo Nobel Chemicals and Akcros Chemicals v Comission et al. (C-550/07P), the Court of Justice found that the correspondence between the in-house lawyer and the undertaking was not covered by legal professional privilege. The Court held that an in-house lawyer occupies a different position than a lawyer working in an external law firm e.g. because the in-house lawyer is bound to the client by a relationship of employment. The legal professional privilege could not be extended to cover these situations as well.

Definition of cartel The General Court defined the concept of continuous infringement in case IMI and others v Commission (T-18/05). In case Chalkor v Commission (T-21/05), the main issue was limited participation in one branch of a cartel.

Leader of a cartel In Deltafina v Commission (T-29/05), the Commission has imposed a €11.88m fine. The aggravating circumstances included that, according to the Commission, Deltafina had acted as leader of the cartel on the Spanish raw tobacco market. The General Court held that the Commission failed to provide sufficient evidence that the undertaking represented a significant driving force in the cartel or even that its role was more important than that of the other participants to justify the increasing of the fine. The Court hence reduced the fine to €6.12m. The General Court also took a stand to the concept of cartel leader in Areva/Alstom v Commission (T-117/07, T-121/07), in which the Court e.g. made a distinction between the roles of leader in and instigator of the infringement. Instigation is concerned with the ‘establishment or enlargement of a cartel’, and leadership is concerned with its operation. Naturally the one and the same undertaking may have had both these

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roles. The Court held that in order to be characterised as a leader, the undertaking in question must have represented a significant driving force in the cartel or to have borne ‘individual and specific liability’ for the operation of the cartel.

Liabilities in Group relationships The judgement of the Court of Justice in Knauf Gips KG v Commission (C-407/08P) e.g. dealt with the question of when the subsidiary and the parent undertaking form one single economic entity. The case was related to a plasterboard cartel investigated by the Commission. In Alliance One International (T-24/05), a cartel involving Spanish raw tobacco producers, the General Court partially overruled the fines imposed by the Commission because the parent was not liable for the infringement committed by the subsidiary, or jointly or severally liable for the sanctions imposed. Attributing joint and several liability and the calculation method of fines in a situation in which a subsidiary participating in a cartel has had a series of successive parent undertakings while the infringement has lasted was clarified in Trioplast Industries v Commission (T-40/06) and Trioplast Wittenheim v Commission (T-26/06).

Commitments The Commission may close a competition case e.g. by accepting the commitments presented by an undertaking suspected of a competition infringement to eliminate the restrictive effects.6 In 2006, the Commission approved the commitments provided by De Beers. Due to an appeal on the decision, the Court of First Instance held in 2007 that the Commission violated the principle of proportionality and the right to a hearing. The Commission appealed the decision. The General Court finally sided with the Commission in Commission v Alrosa (C-441/07P). In its appeal, the Commission stressed the voluntary nature of the commitments. It held that the undertaking providing commitments voluntarily chooses the way in which it wishes to terminate suspicions of an infringement. The Commission finds that the undertakings must subsequently see that the commitments presented by them may be made binding. In confirming the Commission decision, the General Court held that when the Commission receives commitments from an undertaking to terminate an infringement, the Commission shall mainly examine two 6 Council Regulation 1/2003, Article 9

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things in order to respect the principle of proportionality. The Commission shall make sure that the commitments terminate the suspected infringement and that the undertakings have not possibly presented other, less binding commitments by which the suspicion of a competition restraint could also be eliminated. If these considerations have been secured, the principle of proportionality shall be appropriately considered. The Court also pointed out that undertakings who voluntarily provide commitments also accept that the commitments may even go beyond the measures to which the Commission is empowered to oblige them.

Effectiveness of competition rules The Member States have an obligation to ensure that the EU competition rules are effectively applied in the said state. In VEBIC (C-439/08), the EU Court took a stand to the role of national competition authorities to ensure that the effectiveness of the EU competition rules is realised in the Member States. According to the Court, the effective application of Articles 101 and 102 TFEU presupposes among other things that national competition authorities be given the right to participate as defendants in judicial proceedings concerning their own decisions. National competition authorities themselves shall have the right to assess the necessity of participating in such proceedings as well as the meaning of participation so far as the effectiveness of the competition rules applicable in the European Union is concerned. The Court finds that national competition authorities cannot systematically not to attend without jeopardising the effectiveness of the EC competition law.

Foreclosure of competition Tomra (T-155/06) brought up the question of whether an undertaking in a dominant position could justify foreclosure effects by arguing that the effects of its activities do not cover the entire market and that some of the market is still open for competition. The General Court did not accept this approach and held that the foreclosure by a dominant undertaking of a substantial part of the market cannot be justified by showing that the contestable part of the market is still sufficient to accommodate a limited number of competitors. According to the Court, competitors should be able to compete on the merits for the entire market and not just for a part of it dictated by the dominant undertaking. The Court upheld the Commission decision in which a €24m fine was imposed on

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Tomra for abuse of dominance in the market for machines for the collection of used beverage containers..

After market CEAHR v Commission (T-427/08) concerned the shortcomings of the Commission’s assessment of after markets of luxury/prestige watches. The Commission’s analysis was based on the point of departure that the primary product (watches) and the secondary market thereof (maintenance, repair and spare parts market) were interdependent and formed a single market. The Court held that the Commission had made a ‘manifest’ error of assessment. The Court annulled the Commission’s analysis on the interdependence of the primary and the secondary market above all due to the lack of reasoning and contradictions in the Commission’s market definition. Secondly, the Court did not accept the Commission’s view on the lack of Community interest. The Court held that the case affected at least five Member States and that the Commission and not the national competition authorities and courts was the best placed authority to investigate the matter.

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RESEARCH OFFICER RIIKKA PULLI

Reforms of EU competition rules in 2010 Vertical Block Exemption Regulation The European Commission adopted a new Block Exemption Regulation for vertical agreements (330/2010) in April 2010 and new supplementary guidelines in May 2010. The rules concern agreements between undertakings on different levels of production or distribution. Similarly with the vertical Block Exemption Regulation issued in 1999, the purpose of the new rules is to simplify the procedure as regards undertakings with little market power. The basic principle of the rules is that the undertakings which are exempted may freely decide about the distribution of products, as long as the agreements do not include the most serious competition restraints such as minimum or fixed retail prices. The difference to the former Regulation is that only such agreements are exempt in which the market share of both the supplier and the distributor is at most 30 per cent; the market share threshold of the previous Regulation only concerned the suppliers. The intention is to now

The compiler of the summary LL.B Riikka Pulli has been employed by the FCA as a temporary Research Officer since 2010. She is currently located at the International Affairs unit.

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cover situations in which the buyer may have market power causing negative competition effects (buying power). The Regulation pays particular attention to the development of the Internet and the increasing use of the Internet as a retail channel. The Regulation and the guidelines became effective on 1 June 2010 and they will expire on 31 May 2022. The reform includes a one-year transition period, during which the undertakings shall adjust their previous agreements to comply with the new rules.

Block Exemption Regulation on motor vehicles The European Commission adopted a new Block Exemption Regulation (461/2010) and guidelines on the motor vehicle sector in May 2010. The new rules improve the availability of technical data needed for repairs and ease the use of alternative spare parts, which is expected to increase competition in the service and maintenance market. The Regulation entered into force on 1 June 2010, and will expire on 31 May 2023.

Block Exemption Regulation in the insurance sector In March 2010, the European Commission approved a new Block Exemption Regulation (267/2010) and Notice on the insurance sector. The Regulation is valid for 1 April 2010–31 March 2017. The new Block Exemption Regulation reforms two of the four types of agreements that are exempt: joint compilations, tables and studies, and co-and reinsurance pools.

Horizontal guidelines and Block Exemption Regulations In December 2010, the European Commission approved revised horizontal guidelines and two Block Exemption Regulations on research and development agreements (1217/2010) and specialisation and production agreements (1218/2010). On the basis of the guidelines, it is possible to assess the most common forms of horizontal cooperation such as research and development activities, production, procurement function, marketing, standardisation, standard terms and agreements on information exchange. The Block Exemption Regulations exempt certain categories of research and development agreements, and specialisation and production agreements which do not involve the risk of competition concerns.

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The major reforms are the new chapter on information exchange added into the guidelines and a major reform of the chapter on standardization agreements. The guidelines entered into force on 14 January 2011 and the Block Exemption Regulations on 1 January 2011. The Block Exemption Regulations include a two-year transition period. More on the revised horizontal guidelines on page 27.

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SENIOR RESEARCH OFFICER JUSSI PÄÄKKÖNEN

Cooperation with Regional State Administrative Agencies The author M.Soc.Sc. Jussi Pääkkönen has been employed by the FCA since 1999 and now works at the Industries2 unit where he, in addition to his other duties, acts as a liaison in the cooperation with the Regional State Administrative Agencies.

The Regional State Administrative Agencies which began operations in 2010 participate among their other duties in competition control and advocacy like their predecessors the Regional State Offices. There are seven Regional State Administrative Agencies (incl. the Regional State Administrative Agency of Åland). The FCA concludes annual performance agreements with them in which the goals of the cooperation are agreed. From the viewpoint of social effectiveness, the common performance goals for all Regional State Administrative Agencies in 2010 included improving the functioning of the markets and opening them up for competition. For example the following activities were concluded to improve the functioning of the markets in the Regional State Administrative Agencies: • prevention of competition concerns by influencing the decisionmaking of undertakings and the public sector by guidance and discussions to prevent the creation of restrictive market structures and conduct • intervention in detected cartel tips and other competition restraint suspicions • participation in research, investigative and follow-up tasks relating to effective competition and the FCA’s development projects, and

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communication on competition legislation, and the content and principles of competition policy to both small and medium-sized undertakings. The Regional State Administrative Agencies may conduct competition restraints investigations either on their own initiative, on assignment by the FCA or on the basis of complaints arriving directly to the Agencies. In 2010, the Agencies handled 67 competition cases in all, and closed 54 cases. There were altogether 29 officials handling competition issues at the Regional State Administrative Agencies, of which six were heads of their area of responsibility and seven other heads. In all, 5.8 person-years were spent working on competition issues.

Regional State Administrative Agency for Southern Finland The Regional State Administrative Agency for Southern Finland handled two cases referred by the FCA and six cases which arrived directly in the Agency in 2010. The Agency also issued opinions on the proposal for a reform of the Municipalities Act and the proposal for opening up rail passenger transport for competition.

Regional State Administrative Agency for Southwest Finland In 2010, the advocacy efforts of the Regional State Administrative Agency for Southwest Finland focused on highlighting competition concerns in the activities of official bodies. Special attention was paid to the detection of bidding cartels, in the context of which the Agency gave lectures in the various procurement organisations of the region. The Agency also drafted an report on the service voucher system which examined the competitive scene in the market, the pricing of the services and the development of the pricing. The representatives of the taxi sector learnt about the competition rules on four different occasions.

Regional State Administrative Agency for Western and Central Finland In 2010, the advocacy efforts of the Regional State Administrative Agency for Southwest Finland focused on highlighting competition concerns in the activities of official bodies. Special attention was paid to the detection of bidding cartels, in the context of which the Agency gave lectures in the various procurement organisations of the region. The Agency also drafted an report on the service voucher system which examined the competitive scene in the market, the pricing of the services and the development of the pricing. The representatives of the taxi sector learnt about the competition rules on four different occasions.

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Regional State Administrative Agency for Eastern Finland The Regional State Administrative Agency for eastern Finland issued statements on opening up rail passenger transport for competition and the proposal for a reform of the Municipalities Act. In addition, the competition researcher of the Agency Timo Tiainen wrote about regulation in the taxi sector for the FCA’s Competition Survey 2. The Regional State Administrative Agency for Eastern Finland followed up competition in the taxi sector in another context as well; the target was the direct reimbursement system project of the Finnish Social Insurance Institution Kela and the Finnish Taxi Owners Federation (Suomen Taksiliitto), in particular.

Regional State Administrative Agency for Northern Finland The Regional State Administrative Agency for Northern Finland issued an opinion on the proposal for a reform of the Municipalities Act and handled one complaint on the taxi sector.

Regional State Administrative Agency for Lapland In 2010, the Regional State Administrative Agency for Lapland investigated the opportunities for promoting competition and improving the conditions for small and medium-sized undertakings in conjunction with the federation of Lappish Entrepreneurs (Lapin Yrittäjät ry). The Agency also investigated two cases referred by the FCA and one case that had arrived directly in the Agency.

Goals for 2011 Since 2010, the representatives of the Regional State Administrative Agencies have participated in seminars, training events and researcher meetings arranged by the FCA. Visits have also been made from the FCA to the Agencies. In 2011, cooperation with the Agencies will deepen further. The representatives of the FCA will visit all the Regional State Administrative Agencies to discuss the practical cooperation with the Agencies and the induction of the Agencies in managing competition issues. The Regional State Administrative Agencies will arrange a seminar for the representatives of the regional industry and commerce which is related to competition legislation in the context of the meetings. The FCA will be responsible for the content of proposals shedding light on the new Competition Act. The first visit and seminar was arranged at the end of May in the Regional State Administrative Agency for Southwest Finland in Turku.

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Contact information 1.6.2011 Visiting address: Pitkänsillanranta 3 A, FIN-00530 Helsinki • Postal address: P.O.B. 332, FIN-00531 Helsinki • Tel: (09) 73141 • Fax: (09) 7314 3328 • E-mail: [email protected] (personal e-mail accounts are of the form [email protected], without umlaut) • Internet: http://www.kilpailuvirasto.fi/english

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