UK: Commission Proposals for Modernisation Adopted

The Council of Ministers reached a political agreement yesterday on the Commission’s proposals for reform of EU competition law. The new Regulation will replace the forty year old Regulation 17, which implements Articles 81 and 82 of the EC Treaty, but will not alter the substantive content of Articles 81 and 82.

The new Regulation is based on the Commission’s White Paper on Modernisation of the EU Competition Rules, which was published in April 1999. The proposals for reform were prompted by fears that the current set up will not be able to cope with an enlarged Europe and is in any case not making the best use of the Commission’s limited resources.

The key elements of the new Regulation are the abolition of the notification and exemption system and its replacement with a directly applicable exception rule under Article 81(3), without prior decision by the Commission. This should allow the Commission to focus its activities on the most serious infringements such as price fixing and cartel arrangements.

It will be up to businesses and their legal advisers to take a view on whether their agreements fall within the scope of the competition provisions and if so whether they meet the criteria for exemption. Block exemption Regulations will continue to play an important role. Their historical justification, to reduce the number of notifications, will no longer be relevant but instead their main focus will be to assist businesses with the self-assessment of their agreements.

The Regulation also seeks to regulate the relationship between national law and Community law. Article 3 provides that, where the competition authorities of the Member States or national courts apply national competition law to anti-competitive agreements or behaviour which may affect trade between Member States, they shall also apply Articles 81 or 82 of the EC Treaty. Member States will not be able to prohibit under national law agreements and concerted practices which do not infringe Article 81, or fulfil the conditions of Article 81(3), which should help creating a level-playing field for industrial co-operation across the EU. Member States are, however, not precluded from adopting and applying on their territory stricter national laws which prohibit or sanction unilateral conduct engaged in by undertakings.

For the purpose of applying Articles 81 and 82, the Commission and the national competition authorities shall have the power to provide one another with and use in evidence any matter of fact or of law, including confidential information.

The Commission’s powers of investigation and enforcement are increased and under the new Regulation the Commission will have the power to search private homes of directors, managers and other members of staff and their vehicles, if it has reasonable suspicion that books or other records related to the subject matter of the investigation are being kept there. The exercise of this power will be subject to authorisation by a national court. Fines for breaches of procedural rules will be increased to 1% of the company’s annual turnover (from the current Euro 100 to Euro 5000). Fines for breaches of the substantive rules will remain unchanged, at a maximum of 10% of the company’s annual turnover.

The new Regulation will come into force in May 2004 and notifications made to the Commission under the current Regulation 17 will lapse as from that date.

© Herbert Smith 2002

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