E.C.L.R. 2011, 32(1), 1-8
European Competition Law Review
2011
Playground instead of playpen: the Court of Justice of the European Union's Alrosa judg...
3 downloads
6 Views
E.C.L.R. 2011, 32(1), 1-8
European Competition Law Review
2011
Playground instead of playpen: the Court of Justice of the European Union's Alrosa judgment on art.9 of
Regulation 1/2003
Manuel Kellerbauer
© 2011 Sweet & Maxwell and its Contributors
Subject: Competition law. Other Related Subject: European Union
Keywords: Abuse of dominant position; Anti-competitive practices; Commitments; EU law; Proportional-
ity; Right to be heard
Legislation cited: Regulation 1/2003 on the implementation of the rules on competition laid down in art-
icles 81 and 82 of the Treaty art.7, art.9
Decision 2006/520 relating to a proceeding pursuant to article 82 of the EC Treaty and article 54 of the EEA
Agreement (COMP/E-2/38.381-De Beers)
Treaty on the Functioning of the European Union art.101
Treaty on the Functioning of the European Union art.102
Case cited: European Commission v Alrosa Co Ltd (C-441/07 P) Unreported June 29, 2010 (ECJ)
*1 Introduction
With its landmark ruling of June 29, 2010 Alrosa Co Ltd v Commission of the European Communities
(C-441/07) Unreported June 29, 20101 , the Court of Justice of the European Union (“CJEU”) has clarified
important questions relating to the legality of decisions making commitments binding under art.9 of Regula-
tion 1/2003.2 Setting aside the General Court's (“GC”)3 decision of July 11, 2007.4 The judges dismissed
the action by which Alrosa had applied for annulment of Decision 2006/520 adopted by the European Com-
mission (the “Commission”) on February 22, 2006.5 In doing so, the CJEU decided on the extent to which
the Commission is bound by the principle of proportionality when accepting commitments offered by under-
takings which are being investigated under arts 101 and 1026 of the Treaty on the Functioning of the
European Union (“TFEU”). It also gave guidance on the procedural rights enjoyed by third-party undertak-
ings directly affected in their interests by these “commitment decisions”.
This article first gives a brief overview of the background of the dispute and of the legal issues raised. After
summarising the GC's decision and the Advocate General's opinion, it analyses the CJEU's ruling in Alrosa
and its impact on the scope of application that remains for commitment decisions in the future.
The facts of the case
The bone of contention leading to the Alrosa case was a supply agreement concluded on December 17, 2001
(“the agreement”) between the De Beers group (“De Beers”)7 and Alrosa Co Ltd (“Alrosa”)8 by which Al-
rosa undertook to sell De Beers natural rough diamonds produced in Russia to the value of US $800 million
E.C.L.R. 2011, 32(1), 1-8 Page 1
(Cite as: )
© 2011 Thomson Reuters.
a year, while De Beers undertook to buy those diamonds from Alrosa. The agreement was part of a long-
standing commercial relationship between the two companies. The Commission was concerned about the
agreement because it considered that it was aimed at strengthening De Beers' control over its sightholders in
order ultimately to boost demand for polished diamonds and to increase prices of rough diamonds.9
On March 5, 2002, Alrosa and De Beers notified the agreement to the Commission, seeking to obtain negat-
ive clearance or an exemption under Regulation 17/62, which still applied at the time.10 Both companies de-
clared their willingness to reduce the purchase amount under the agreement, which accounted for around one
half of Alrosa's annual production, to US $700 million in respect of the fourth and fifth years during which
the agreement was in force.
Following the notification, the Commission opened two parallel proceedings, one against Alrosa and De
Beers based on art.101 TFEU (COMP/E-3/38.381--De Beers) and the other one against De Beers only,
based on art.102 TFEU (COMP/E-2/38.381--De Beers). On January 14, 2003, in case COMP/E-3/38.381,
the Commission sent a statement of objections to Alrosa and De Beers, expressing the preliminary opinion
that the agreement was an anti-competitive agreement prohibited by art.101(1) TFEU which could not be ex-
empted under art.101(3) TFEU. In the other proceeding, on the same day, it sent a separate statement of ob-
jections to De Beers, *2 in which it expressed the preliminary view that the agreement could constitute an
abuse of a dominant position prohibited by art.102 TFEU.
On December 14, 2004, Alrosa and De Beers jointly submitted commitments designed to meet the Commis-
sion's concerns.11 These “joint commitments” provided for a progressive reduction in sales of rough dia-
monds by Alrosa to De Beers, the value of which was to go down from US $700 million in 2005 to US $275
million in 2010; subsequently, sales were to be capped at that level.
On June 3, 2005, the Commission published a notice pursuant to art.27(4) in which it gave a summary of the
case, described the joint commitments and invited interested third parties to submit their comments within
one month.12 From the comments submitted by 21 interested third parties, the Commission deduced that the
proposed commitments did not sufficiently address its competitive concerns.13 The Commission informed
Alrosa and De Beers of the results of the market test and invited both companies to submit fresh commit-
ments intended to lead to a complete cessation of their trading relationship with effect from 2009. However,
at that time, the Commission did not accede to Alrosa's request for access to a non-confidential version of
the third parties' comments.
Only De Beers responded to the Commission's invitation. On January 25, 2006, the company offered unilat-
eral commitments proposing progressively to reduce its purchases of rough diamonds from Alrosa; the value
of such purchases was to go down from US $600 million in 2006 to US $400 million in 2008; subsequently
purchases were to be discontinued.14 On January 26, 2006, the Commission sent Alrosa a copy of these uni-
lateral commitments and invited it to submit its observations. At this point in time, the Commission also
provided Alrosa with a copy of the non-confidential versions of the comments received in response to the
market test.
On February 22, 2006, the Commission adopted the Decision in case COMP/E-2/38.381, which rendered De
Beers' unilateral commitments binding and which ended the proceedings based on art.102 TFEU.15 In a let-
ter of the same day, the Commission informed Alrosa that the proceedings in case COMP/E-3/38.381
brought under art.101 TFEU, and involving Alrosa, had been brought to an end as a result of De Beers' uni-
lateral commitments.16
The legal issues at stake
E.C.L.R. 2011, 32(1), 1-8 Page 2
(Cite as: )
© 2011 Thomson Reuters.
The particularities of art. 9 decisions
The Alrosa case relates to an innovative mechanism introduced in Regulation 1/2003 for resolving EU com-
petition law cases brought under arts 101 or 102 TFEU17 : commitment decisions taken pursuant to art.9.
Article 9 codified the existing administrative practice according to which companies could avert prohibition
decisions by offering sufficient commitments18 and provided for additional legal certainty by enabling the
Commission to render these commitments binding and to impose sanctions in case of breaches.19
Article 9 decisions find that there are no longer grounds for action by the Commission without concluding
whether or not there has been or still is an infringement.20 The companies under investigation avoid prohib-
ition decisions based on art.7 that can harm their reputation and that can be used against them as proof of
competition law infringements before national courts.21 Furthermore, they are not liable to fines that the
Commission can impose pursuant to art.23(2) lit.a where it is established that companies intentionally or
negligently infringed arts 101 or 102 TFEU: “According to recital 13 Commitment decisions are not appro-
priate in cases where the Commission intends to impose a fine.” In the light of the preparatory work for Reg-
ulation 1/2003 this statement seems to indicate that where the Commission decides to accept commitments,
it cannot impose a fine.22
*3 For the Commission, commitment decisions can save resources, allow for a speedier solution of competi-
tion cases, and hence achieve faster changes in the competitive landscape than the adversarial disposal of a
case pursuant to art.7.23 Furthermore, the consensual nature of commitment decisions significantly reduces
the risk of an appeal.24 The high number of art.9 decisions adopted since the entry into force of Regulation
1/2003 witnesses that the advantages of commitment decisions have been well perceived on both sides.25
Nevertheless, to date there has been a large degree of uncertainty as regards the procedural and substantial
requirements for the lawfulness of art.9 decisions.
The procedural requirements
As regards the procedural rights enjoyed by undertakings prior to the adoption of decisions as provided for
in arts 7, 8, 23 and 24(2), Regulation 1/2003 generally distinguishes between the right to be heard of
“parties”26 (also called “undertakings concerned”),27 on the one hand, and the right to be heard of com-
plainants and other third parties showing sufficient interest on the other.28 The parties are notified a state-
ment of objections and granted access to file29 on the basis of which they are given the opportunity to com-
ment in writing30 and at a formal oral hearing.31 Interested third parties are informed of the nature and sub-
ject matter of the proceedings.32 However, in principle, they do not enjoy a right to access to file or a right
to an oral hearing.33
Regulations 1/2003 and 773/2004 leave open whether the above rights are also granted to parties and third
parties involved in commitment proceedings.
Pursuant to art.9, the undertakings concerned are sent a “preliminary assessment” in which the Commission
expresses its “concerns” about their potentially anti-competitive practice. This preliminary assessment is not
necessarily identical to a fully fledged statement of objections that companies are entitled to receive prior to
a prohibition decision34 and the issuance of which triggers the right to access to file35 and the right to a
formal oral hearing.36 Furthermore, there is no indication in the Regulations or the case law as to the neces-
sary contents of a preliminary assessment.37
The legislation is unclear about the requirements for ensuring third parties' right to be heard. art.27(4)
merely obliges the Commission to publish “a concise summary of the case and the main content of the com-
mitments” in order to allow interested third parties to submit their observations within a time-limit of at least
one month. However, this market test usually takes place only at a very late stage of the procedure. Further-
E.C.L.R. 2011, 32(1), 1-8 Page 3
(Cite as: )
© 2011 Thomson Reuters.
more, providing their comments does not give third parties a specific status in the procedure. In particular,
art.27(4) does not grant them the right to receive feedback on their statement or to comment again if the
commitments are revised in the *4 light of the market test. This raises the question whether the provisions
allowing third parties showing a sufficient interest to be heard during the proceedings also apply to commit-
ments procedures.38
The substantive requirements
As to the substantive requirements for a decision under art.9, the provision stipulates that the commitments
must meet the concerns expressed by the Commission.39 By contrast, the wording of art.9 does not allow
for conclusions as to whether the Commission may render commitments binding which “overshoot the
mark” in that they go beyond what is objectively required to ensure the respect of competition law. Contrary
to art.7, art.9 makes no reference to the principle of proportionality.40 This begs the question whether the
Commission can render binding “disproportionate” commitments, the contents of which could not have law-
fully been imposed on the addressees in a decision ordering an infringement to be terminated. Already prior
to the Commission Decision in Alrosa, it seemed that the Commission did not always feel bound by the lim-
its of art.7 when agreeing on commitments with the addressee of art.9 decisions.41
The judgment of the General Court in Alrosa (T-170/06)
The above questions were given a first answer in the GC's Alrosa judgment of July 11, 2007, which annulled
the Commission Decision subsequent to a fast-track procedure that took barely more than one year.42 Ac-
cording to the GC, the Commission failed to respect Alrosa's right to be heard during the administrative pro-
ceedings conducted against De Beers. Furthermore, the commitment declared binding by the Commission
breached the principle of proportionality. Although the GC's judgment has been quashed by the CJEU, its
reasoning is still of interest for the potential limits of art.9.
The findings on Alrosa's right to be heard
The GC held that the Commission had erroneously limited Alrosa's role to a third party in the procedure that
the Commission had brought under art.102 TFEU against De Beers and that had resulted in the art.9 De-
cision. According to the GC, Alrosa was entitled to be heard as an “undertaking concerned” for two reasons:
first, Alrosa was De Beers' contracting partner in the context of a long-lasting bilateral trading relationship
that the Commission Decision, which expressly refers to Alrosa, brought to an end.43 Secondly, the Court
considered that the two sets of proceedings, one initiated against Alrosa and De Beers, and the other against
De Beers only, were so closely connected that they had at all times been treated de facto as being a single set
of proceedings by the Commission, Alrosa and De Beers.44 In this respect, the Court referred in particular
to the joint participation and hearing of both companies in both proceedings,45 the fact that the two sets of
proceedings were registered under the same number,46 and the lack of distinction between both proceedings
during the market test of the joint commitments.47
The GC concluded that as an undertaking concerned also in the proceedings relating to art.102 TFEU con-
ducted against De Beers, Alrosa was entitled to be informed of the essential factual elements on the basis of
which the Commission required new commitments, had a right to access to file pursuant to art.27(2) and
should have been given the opportunity to express its views on the matter.48 However, despite Alrosa's
timely request, the company had been provided with a non-confidential version of third parties' comments to
the market test only on January 26, 2006. In the GC's view, this made it impossible for Alrosa to provide an
effective reply and to propose new joint commitments with De Beers.49
*5 The findings on the principle of proportionality
E.C.L.R. 2011, 32(1), 1-8 Page 4
(Cite as: )
© 2011 Thomson Reuters.
The GC considered that the principle of proportionality, as a general principle of EU law, is a criterion for
the lawfulness of decisions taken pursuant to art.9.50 As regards the extent to which this principle applies to
commitment decisions, the Court reasoned that there should be in principle no difference between the pro-
portionality of measures ordered pursuant to art.7 and measures rendered binding pursuant to art.9. The
Court found that:
“[I]t would be contrary to the scheme of Regulation No 1/2003 for it to be possible to take a decision which
would, under art.7(1) of the regulation, fall to be regarded as disproportionate to the infringement that had
been established, by having recourse to the procedure laid down under art.9(1) and adopting a decision in
the form of a commitment that is made binding, on the ground that the infringement does not have to be
formally proved in such a case.”51
The Court also denied the Commission the margin of discretion it enjoys pursuant to the EU Merger Regula-
tion52 with respect to examining the appropriateness and proportionality of commitments proposed by the
parties to a concentration.53 The GC held that the Commission's assessment as to the necessity of De Beer's
commitments had not been carried out on the basis of a complex economic analysis which would justify lim-
ited judicial review.54 The Court pointed to the Commission's own statement, made during the Court pro-
ceedings that the identification of alternative solutions to the commitments that were made binding would
have required a complex economic assessment which art.9 of Regulation 1/2003 is intended to avoid.55
But even presupposing a complex economic assessment, the GC held that the Decision was vitiated by a
manifest error of assessment which would in any event have sufficed for establishing a breach of the prin-
ciple of proportionality.56 According to the Court, the Commission had failed to assess other, less onerous,
solutions than the permanent prohibition of transactions between De Beers, although the determination of
such solutions presented no particular difficulties.57 Furthermore, the Commission could not explain in
what way the joint commitments had not been suitable to address the Commission's competitive concerns.58
The opinion of Advocate General Kokott
In her opinion in Alrosa v Commission (C-441/07), A.G. Kokott proposed that the CJEU should set aside the
GC's judgment and dismiss the action by which Alrosa applied for the annulment of the Commission De-
cision.59 The conclusions she reached clearly contradict the approach adopted by the GC. According to the
Advocate General, the GC had granted Alrosa procedural rights that were not warranted in the proceedings
conducted against De Beers. Furthermore, she considered that the GC had used a too stringent standard
when applying the proportionality principle to art.9.
The findings on Alrosa's right to be heard
The Advocate General took the view that the Commission had rightly denied Alrosa the status of an under-
taking concerned. She considered that the Commission is generally entitled to initiate separate proceedings
during which this role is confined to the company against which the particular procedure is conducted.60
Only where the Commission arbitrarily, i.e. without an objective reason, makes a single factual situation the
subject of two separate sets of proceedings, does it have to grant both companies the procedural rights en-
joyed by a company concerned.61
The Advocate General saw no indications of such a misuse of the Commission's power in the present case. It
was objectively justified to conduct two separate sets of administrative proceedings in view of their different
material legal bases--art.101 TFEU, on the one hand, and art.102 TFEU, on the other.62 With regard to
art.102 *6 TFEU, only De Beers, as the presumed dominant undertaking, could be the addressee of the state-
ment of objections and the Commission's final decision.63 The effects on Alrosa's future business relations
that resulted from the Commission decision could not lead to different conclusions. In view of the fact that
E.C.L.R. 2011, 32(1), 1-8 Page 5
(Cite as: )
© 2011 Thomson Reuters.
the operative part of the Commission Decision was addressed only to De Beers and made binding the com-
pany's voluntary abandonment of purchases from Alrosa, these mere “reflex effects” were not typical of un-
dertakings concerned but of interested third parties.64
The Advocate General observed that because the Commission Decision was an individual measure which
could affect Alrosa adversely, Alrosa had a legitimate interest in the outcome of the proceedings and was
thus entitled to be heard by the Commission on its request.65 However, Alrosa had less extensive rights than
an undertaking concerned and in particular did not enjoy the right to access to file or the right to submit al-
ternative commitments that the GC had found to be breached.66
The findings on the principle of proportionality
Contrary to the GC, the Advocate General highlighted fundamental differences ...