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EU Competition Compliance- Air Cargo Carriers

September 6th, 2011 | Posted by Avocat Duca Diana in Competition Law

Applicable Legislation

•Primary Law: Art.101 and 102 TFEU.
•Secondary Law: Council Regulation 1/2003 applies to all air transport services, including on routes between the EU and third countries. The latter was achieved through the adoption of Council Regulation 411/2004 on 26 February 2004, (Official Journal L 68, 6.3.2004, p. 1-2).

Council Regulation (EC) No 487/2009 of 25 May 2009 on the application of Article 81(3) of the Treaty to certain categories of agreements and concerted practices in the air transport sector (Codified version) (Official Journal L 148, 11.6.2009).

•Commissions’ antitrust regulations specific to air transport have been gradually repealed and no such regulation is in force today. General antitrust regulations are however applicable.
•General notices and communications on antitrust are applicable., but not  to antitrust in the air transport sector.
Article 101 TFEU
•According to Article 1(1) of Regulation 1/2003 agreements which are caught by Article 101(1) and which do not satisfy the conditions of Article 101(3) are prohibited, no prior decision to that effect being required. According to Article 1(2) of the same Regulation agreements which are caught by Article 101(1) but which satisfy the conditions of Article 101(3) are not prohibited, no prior decision to that effect being required. Such agreements are valid and enforceable from the moment that the conditions of Article 81(3) are satisfied and for as long as that remains the case.
Article 101 (3)
•The application of the exception rule of Article 101(3) is subject to four cumulative conditions, two positive and two negative:
•(a) The agreement must contribute to improving the production or distribution of goods or contribute to promoting technical or economic progress,
•(b) Consumers must receive a fair share of the resulting benefits,
•(c) The restrictions must be indispensable to the attainment of these objectives, and finally
•(d) The agreement must not afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question.
Article 102 TFUE
•Article 102 TFUE prohibits abuses of a dominant position. In accordance with the case-law, it is not in itself illegal for an undertaking to be in a dominant position and such a dominant undertaking is entitled to compete on the merits. However, the undertaking concerned has a special responsibility not to allow its conduct to impair genuine undistorted competition on the common market. Article 102 is the legal basis for a crucial component of competition policy and applies to undertakings which hold a dominant position on one or more relevant markets. Such a position may be held by one undertaking (single dominance) or by two or more undertakings (collective dominance).
•Before deciding whether companies have significant market power which would justify government intervention, the test of Small but Significant and Non-transitory Increase in Price (SSNIP) is used to define the relevant market in a consistent way. It is an alternative to ad hoc determination of the relevant market by arguments about product similarity.
•The SSNIP test is crucial in competition law cases accusing abuse of dominance and in approving or blocking mergers. Competition regulating authorities and other actuators of anti-trust law intend to prevent market failure caused by cartel, oligopoly, monopoly, or other forms of market dominance.
Means of Compliance
•fines and periodic penalty payments;
•effective supervision;
•simplify administration.
Competent Authorities
•Article 101 (previously Article 81) of the new EU Treaty prohibits agreements and concerted practices between firms that distort competition within the Single Market. Fines of up to 10% of their worldwide turnover may be imposed on the guilty parties. The prohibition of cartels was already in the 1957 Treaty of Rome and the 10% cap has been introduced in 1962 by the first implementing Regulation for competition enforcement (Regulation No 17).
•All cartel decisions by the Commission may be appealed against before the General Court of the European Union and then before the European Court of Justice. They can, therefore, be closely scrutinised by these two courts, which are empowered to annul decisions in whole or in part and to reduce or increase fines, where this is deemed appropriate.
•The Commission’s leniency policy encourages firms to provide the Commission with insider information on cartels. The first firm to do so is granted total immunity from fines. Other firms that follow suit may be granted a reduction in the amount of the fine. This policy is very effective in uncovering cartels but does not prevent the Commission from conducting investigations on its own initiative. The first leniency notice was adopted in 1996 and has since been revised and further refined in 2002 and 2006.
•Settlement decisions are only foreseen in cartel cases. They are adopted pursuant to Articles 7 and 23 of Regulation (EC) Nº 1/2003, which are the standard legal basis for Commission Decisions acting against violations of Articles 81 and 82 EC. Therefore, settlement decisions establish the existence of an infringement, describing and proving all the relevant parameters thereof, require the termination of the infringement and impose a fine. They constitute a precedent valid to establish recidivism for subsequent similar infringements and preclude the adoption of another decision for the same facts and pursuant to the same legal basis by the Commission or any EU National Competition Authority.
•By introducing a settlement submission, the parties commit to follow the settlement procedure subject to the condition that the Commission Decision ultimately reflects the contents of the settlement submission and it does not impose a fine higher that the maximum fine indicated in it.
•Commitment decisions are adopted on the basis of Article 9 of Regulation (EC) Nº 1/2003. They do not establish an infringement or impose a fine, but bring a suspect behaviour to an end by imposing on companies the commitments offered to meet the Commission concerns. Commitment decisions render the commitments legally binding and conclude that there are no longer grounds for action by the Commission. Therefore, they do not constitute precedents to establish recidivism for subsequent infringements. Commitment decisions are not appropriate in cartel cases.
Fines- Basic Amount
•The maximum fine for each firm is 10 % of its total turnover in the preceding business year (Regulation EC No 1/2003).
•The basic amount is calculated as a percentage of the value of the sales connected with the infringement, multiplied by the number of years the infringement has been taking place.
•The percentage of the value of sales is determined according to the gravity of the infringement (nature, combined market share of all the parties concerned, geographic scope, etc.) and may be as much as 30 %.
•The Commission then adds to this initial calculation a further amount that is applied to all cartel cases and, at the Commission’s discretion, to certain other types of infringement. This will be between 15 and 25 % of the value of annual sales, irrespective of the duration of the infringement.
Adjustments to the basic amount
•The basic amount may be adjusted by the Commission, downwards if it finds that there are mitigating circumstances, or upwards in the event of aggravating circumstances.
•Firms that commit similar infringements again will now be fined more heavily. The Commission will penalise re-offending, taking into account not only its own earlier decisions but also rulings by national authorities. Firms that re-offend could now face a 100 % increase in their fine for each subsequent infringement.
Inability to pay claims by cartel members
•The 2006 Fines Guidelines provide that in, exceptional cases, the Commission may, upon request, take account of an undertaking’s inability to pay. In assessing whether a company would risk going bankrupt as a result of the fine, among other things the Commission assesses a company’s financial situation on the basis of its financial statements from recent years but also including projections for the current and the two following years. The Commission looks at the company’s liquidity, solvency and other financial ratios that are commonly used to assess a company’s solidity or the lack thereof. It also assesses the company’s relations with banks and shareholders. In the recent bathroom fittings case, 10 companies claimed inability to pay. The claims of five companies were found to be justified and fine reductions were granted.

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