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The Sources of EC Law
In the same way as English law, EC law also has various different sources, which we can divide into primary, secondary, and tertiary sources.
Primary sources - the treaties
The treaties are the most significant source of EC law and the primary source of law. The most important of these in terms of establishing the legal order of the community is the EEC treaty, which embodies the principles of the community, citizenship and fundamental community policies regarding the movement of goods, people, services and capital, agriculture, transport, employment, health, industry, etc.
Secondary legislation - legislation under article 249
Article 249 EC Treaty: “In order to carry out their task and in accordance with the provisions of this Treaty, the European Parliament acting jointly with the Council, the Council and the Commission shall make regulations and issue directives, take decisions, make recommendations or deliver opinions.” Secondary legislation is a collective term used to describe all the various types of law that the institutions can make. It should be remembered that any such legislation is subordinate to the treaties
and may not in any way conflict with them, since its aim is precisely that to further the objectives which are set forth in the treaties themselves. Secondary legislation may be binding, such as in the form of regulations and directives, or non-legally binding, in the form of recommendations and opinions.
Tertiary sources
Tertiary sources include the case law of the ECJ, which tests the application of EC law in the member states. The ECJ is based on a civil law system, unlike that of the UK. This means there is no strict system of binding precedent, and the court is not bound by its past decisions. Having said that, the court will tend to follow previous decisions unless there is a good reason not to.
Another series of tertiary sources are the general principles of law which have developed in the interpretative practice of the ECJ. The most important of these are:
proportionality. This concept comes from German administrative law and lays down that any measure or action taken must be proportionate to the objective to be achieved. In other words nothing should be done that is more than necessary to achieve the aim. In particular, persons feeling they have been punished overly harshly on the basis of the application of national legislation, may appeal to this principle.
they cannot be achieved satisfactory at a national level, or can be achieved in a more satisfactory way at a community level.
The relationship between EC law and national law - supremacy
Supremacy in simple terms means that in areas where EC law is relevant to the case before a national court, EC law prevails over national legislation.
The supremacy (sometimes referred to as primacy) of EU law is a principle of by which the laws of European Union member states that conflict with laws of the European Union must be ignored by national courts so that the European Union law can take effect. The legal doctrine emerged from the European Court of Justice through a number of decisions.
In Costa v. ENEL. Mr Costa was an Italian citizen opposed to nationalising energy. Because he had shares in a private corporation subsumed by the nationalised company, ENEL, he refused to pay his electricity bill in protest. In the subsequent suit brought to Italian courts by ENEL, he argued that nationalisation infringed EC law on the State distorting the market. The Italian government believed that this was not even an issue that could be complained about by a private individual, since it was a national law decision to make. The Court ruled in favour of the government, because the relevant Treaty rule on an undistorted market was one on which the Commission alone could challenge the Italian government. As an individual, Mr
Costa had no standing to challenge the decision, because that Treaty provision had no direct effect. But on the logically prior issue of Mr Costa's ability to raise a point of EC law against a national government in legal proceeding before the courts in that Member State the ECJ disagreed with the Italian government. It ruled that EC law would not be effective if Mr Costa could not challenge national law on the basis of its alleged incompatibility with EC law.
It follows from all these observations that the law stemming from the treaty, an independent source of law, could not, because of its special and original nature, be overridden by domestic legal provisions, however framed, without being deprived of its character as community law and without the legal basis of the community itself being called into question.
Many countries' highest courts have stated that Community law takes precedence provided that it continues to respect fundamental constitutional principles of the Member State, the ultimate judge of which will be the Member State (more exactly, the court of that Member State), rather than the European Union institutions themselves. This reflects the idea that Member States remain the "Master of the Treaties", and the basis for EU law's effect. In other cases, countries write the precedence of Community law into their constitutions. For example, the Constitution of Ireland contains a clause that, '"No provision of this Constitution invalidates laws enacted, acts done or measures adopted by the State which are
1 the free movement of workers: the free movement of workers is guaranteed under article 39 of the EC Treaty, whose objectives are basically twofold:
to allow for workers to move between member states for purposes of employment. This benefits both individual workers and their employees. Workers benefit because they can move from areas of high unemployment and/or low wages to areas of low unemployment and/or higher wages. This is true for both skilled and unskilled workers and professionals. Employers also benefit because they have a greater choice of potential workers to choose from, allowing them to employ people with better qualifications or experience than they would have if they were restricted to choosing workers from their own state. The idea is that it is much easier now for employment supply and demand to meet.
to prohibit discrimination on grounds of nationality against immigrant workers article 39 prohibits member states and employers from discriminating against workers who have moved under article 39. If employees could freely discriminate against migrant workers, this would obviously represent a huge disincentive to move.
2 the free movement of services Article 43 provides for the freedom of establishment, whereby citizens may set themselves up in another member state, permanently or semi-permanently, on a self-
employed basis, for the purpose of performing a particular activities there. It also gives companies the right to set up a branch or subsidiary in another member state. Article 49, meanwhile establishes the right to provide services, allowing an individual established in one member state to provide their services in another member state, and also allows a company established in one member state to provide the services to anyone in another member state.
3 the free movement of goods Art 28 prohibits quantitative restrictions on imports, and article 29 on exports.
4 the free movement of capital
All of these types of movements essentially involve the same basic principle: the removal of all barriers to movement imposed by national legislation, regulation or administration except those which are objectively necessary in order to protect some essential national interest
COMPETITION LAW
European Union competition law arose out of the desire to ensure that the efforts of government could not be distorted by corporations abusing their market power. Hence under the treaties are provisions to ensure that free competition prevails, rather than cartels and monopolies sharing out markets and fixing prices. Competition law in
Under EU law cartels are banned by Article 101 TFEU. Art. 101 TFEU makes clear who the targets of competition law are in two stages with the term agreement "undertaking". This is used to describe almost anyone "engaged in an economic activity", but excludes both employees, who are by their "very nature the opposite of the independent exercise of an economic or commercial activity", and public services based on "solidarity" for a "social purpose". Undertakings must then have formed an agreement, developed a "concerted practice", or, within an association, taken a decision. Like US antitrust, this just means all the same thing; any kind of dealing or contact, or a "meeting of the minds" between parties. Covered therefore is a whole range of behaviour from a strong handshake, written or verbal agreement to a supplier sending invoices with directions not to export to its retailer who gives "tacit acquiescence" to the conduct. In the language of Article 101(1), prohibited are,
"All agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between member states and which have as their object or effect the prevention, restriction or distortion of competition within the common market."
This includes both horizontal (e.g. between retailers) and vertical (e.g. between retailers and suppliers) agreements, effectively outlawing the operation of cartels within the EU. Article 101 has been
construed very widely to include both informal agreements (gentlemen's agreements) and concerted practices where firms tend to raise or lower prices at the same time without having physically agreed to do so. However, a coincidental increase in prices will not in itself prove a concerted practice, there must also be evidence that the parties involved were aware that their behaviour may prejudice the normal operation of the competition within the common market. This latter subjective requirement of knowledge is not, in principle, necessary in respect of agreements. As far as agreements are concerned the mere anticompetitive effect is sufficient to make it illegal even if the parties were unaware of it or did not intend such effect to take place.
Exemptions to Article 101 behaviour fall into three categories. Firstly, Article 101(3) creates an exemption for practices beneficial to consumers, e.g., by facilitating technological advances, but without restricting all competition in the area. In practice the Commission gave very few official exemptions and a new system for dealing with them is currently under review. Secondly, the Commission agreed to exempt 'Agreements of minor importance' (except those fixing sale prices) from Article 101. This exemption applies to small companies, together holding no more than 10% of the relevant market. In this situation as with Article 102 (see below), market definition is a crucial, but often highly difficult, matter to resolve. Thirdly, the Commission has also introduced a collection of block exemptions for
competitors, customers and ultimately of its consumer." Under EU law, very large market shares raise a presumption that a firm is dominant, which may be rebuttable. If a firm has a dominant position, because it has beyond a 39.7% market share then there is "a special responsibility not to allow its conduct to impair competition on the common market" Same as with collusive conduct, market shares are determined with reference to the particular market in which the firm and product in question is sold. Then although the lists are seldom closed, certain categories of abusive conduct are usually prohibited under the country's legislation. For instance, limiting production at a shipping port by refusing to raise expenditure and update technology could be abusive. Tying one product into the sale of another can be considered abuse too, being restrictive of consumer choice and depriving competitors of outlets. This was the alleged case in Microsoft v. Commission leading to an eventual fine of €497 million for including its Windows Media Player with the Microsoft Windows platform.
Forms of abuse relating directly to pricing include price exploitation. It is difficult to prove at what point a dominant firm's prices become "exploitative" and this category of abuse is rarely found. A more tricky issue is predatory pricing. This is the practice of dropping a product’s price so low that smaller competitors cannot cover their costs and fail. One last category of pricing abuse is price discrimination. An example of this could be offering rebates to
industrial customers who export sugar that your company sells, but not to Irish customers, selling in the same market as you are in.
As stated above market definition is arguably the most important part of any competition case brought under Article 102. However, it is also one of the most complex areas. If the market is defined too widely then it will contain more firms and substitutable products making a finding of a dominant position for one firm unlikely. Likewise if it is defined too narrowly then there will be a presumption that the defendant company will be found to be dominant. In practice, market definition will be left to economists, rather than lawyers to decide.
Mergers and acquisitions
Under the authority of Article 82 TEC, the European Commission became able not only to regulate the behaviour of large firms it claims abuse their dominant positions or market power, but also the possibility of firms gaining the position within the market structure that enables them to behave abusively in the first place. Regulation 139/2004 deals with mergers that have a "Community dimension" and lays out a procedure whereby all "concentrations" (i.e. mergers, acquisitions, takeovers) between undertakings are subject to approval by the European Commission.
A merger or acquisition involves, from a competition law perspective, the concentration of economic power in the hands of fewer than
This usually means that one firm buys out the shares of another. The reasons for oversight of economic concentrations by the state are the same as the reasons to restrict firms who abuse a position of dominance, only that regulation of mergers and acquisitions attempts to deal with the problem before it arises, ex ante prevention of creating dominant firms. In the case of [T- 102/96] Gencor Ltd v. Commission [1999] ECR II-753 the EUCourt of First Instance wrote merger control is there "...to avoid the establishment of market structures which may create or strengthen a dominant position and not need to control directly possible abuses of dominant positions."
What amounts to a substantial lessening of, or significant impediment to competition is usually answered through empirical study. The market shares of the merging companies can be assessed and added, although this kind of analysis only gives rise to presumptions, not conclusions. The Herfindahl-Hirschman Index is used to calculate the "density" of the market, or what concentration exists. Aside from the maths, it is important to consider the product in question and the rate of technical innovation in the market. A further problem of collective dominance, or oligopoly through "economic links" can arise, whereby the new market becomes more conducive to collusion. It is relevant how transparent a market is, because a more concentrated structure could mean firms can coordinate their behaviour more easily, whether firms can deploy deterrents and whether firms are safe from a reaction by their
competitors and consumers. The entry of new firms to the market, and any barriers that they might encounter should be considered.
Certain exceptions exist, by which a firm whose conduct may be prima facie anti-competitive can be sanctioned under the reference to "technical and economic progress" in Art. 2 of the ECMR. Another defence might be that a firm being taken over is about to fail or go insolvent, and taking it over does not diminish the competitive state any more than what would happen anyway. Mergers vertically in the market are rarely of concern, although in AOL/Time Warner the European Commission required that a joint venture with a competitor Bertelsmann be ceased beforehand. The EU authorities have also focussed lately on the effect of conglomerate mergers, where companies acquire a large portfolio of related products, though without necessarily dominant shares in any individual market.
Enforcement
The task of tracking down and punishing those in breach of competition law has been entrusted to the European Commission, which receives its powers under Article 105 TFEU. Under this Article, the European Commission is charged with the duty of ensuring the application of Articles 101 and 102 TFEU and of investigating suspected infringements of these Articles. The European Commission and national competition authorities have wide on-site investigation
to 5% of the average daily turnover may also be levied for every day an undertaking fails to comply with Commission requirements. The gravity and duration of the infringement are to be taken into account in determining the amount of the fine.[50]^ This uncertainty acts as a powerful deterrent and ensures that companies are unable to undertake a cost/benefit analysis before breaching competition law.
The Commission guideline on the method of setting fines imposed pursuant to Article 23 (2) (a) of Regulation 1/2003 uses a two-step methodology:
The Commission first defines a basic amount of the fine for each involved undertaking or association of undertakings; and then
Adjusts the basic amount according to the individual circumstances upwards or downwards.
The basic amount relates, inter alia, to the proportion of the value of the sales depending on the degree of the gravity of the infringement. In this regard, Article 5 of the aforementioned guideline states, that
“In order to achieve these objectives, it is appropriate for the Commission to refer to the value of the sales of goods or services to which the infringement relates as a basis for setting the fine. The duration of the infringement should also play a significant role in the setting of the fine. It necessarily has an impact on the potential consequences of the infringements on the market. It is therefore considered important that the fine should also reflect the number of years during which an undertaking participated in the infringement.”
In a second step, this basic amount may be adjusted on grounds of recidivism or leniency. In the latter case, immunity from fines may be granted to the company who submits evidence first to the European Commission which enables it to carry out an investigation and/or to find an infringement of Article 101 TFEU.
Another negative consequence for the companies involved in cartel cases may be the adverse publicity which may damage the company´s reputation.
Questions of reform have circulated around whether to introduce US style treble damages as added deterrent against competition law violaters. The recent Modernisation Regulation 1/2003 has meant that the European Commission no longer has a monopoly on enforcement, and that private parties may bring suits in national courts. Hence, there has been debate over the legitimacy of private damages actions in traditions that shy from imposing punitive measures in civil actions.
According to the Court of Justice of the European Union, any citizen or business who suffers harm as a result of a breach of the European Union competition rules (Articles 101 and 102 TFEU) should be able to obtain reparation from the party who caused the harm. However, despite this requirement under European law to establish an effective legal framework enabling victims to exercise their right to compensation, victims of European Union competition law infringements to date very often do not obtain reparation for the
