Regulation 1/2003: Is It Still Fit For Purpose After 20 Years?

Introduction

Regulations 1/2003 and 773/2004 set out the procedural framework for the application of Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). They are now over 20 years old – pre-dating the digital revolution and the changes in business practices through and following Covid. they have been the subject of evaluation by the European Commission (Commission) to assess how they have worked and whether the Regulations remain fit for purpose. This newsletter focuses on Regulation 1/2003 (Regulation)¹, offering an overview of the results of the Commission's evaluation. It will also explain some of the inadequacies, predict possible revisions and their effect on businesses.

The Regulation 1/2003

Briefly, the Regulation came into effect on May 1, 2004, to modernize the enforcement of European Union (EU) antitrust rules, particularly Articles 101 and 102 TFEU. It introduced direct applicability of the competition rules across the European Economic Area (EEA) and replaced the former centralised enforcement system - where companies had the possibility to notify restrictive agreements to the Commission in view of negative clearance and/or individual exemption - with a decentralised system (including self-assessment) for parallel enforcement, giving National Competition Authorities (NCAs) and courts a more active role alongside the Commission.

The Evaluation

The evaluation of the Regulation was announced by the Commission in March 2022 and was part of a broader review of EU competition law conducted in recent years. This comprehensive review includes the adoption of the new Vertical Block Exemption Regulation and related Guidelines in 2022, the introduction of the new Horizontal Block Exemption Regulations, on R&D and specialisation agreements, and its Guidelines in 2023, and the ongoing review of the Technology Transfer Bock Exemption Regulation and its Guidelines. The evaluation of the Regulation sought evidence to assess the significant changes introduced by it – namely the abolition of notifications and the decentralisation of competition law enforcement – in light of 20 years of experience. We have covered this extensively here regarding horizontal agreements, new R&D block exemptions, and vertical block exemption regulation.

The evaluation exercise focused on:

• the Commission's investigative powers;
• the procedural rights of parties to investigations and of third parties;
• the Commission's decision-making powers;
• the Commission's cooperation with NCAs and national courts;
• the functioning of the European Competition Network (ECN), in a context of growing co-enforcement of EU competition rules with NCAs,

and aimed at an overhaul to modernize procedures in order to shorten investigations, provide greater clarity to companies on the application of antitrust rules and enable more decentralized enforcement.

The Findings

In September 2024, the Commission published the Staff Working Document (SWD) with its findings on the evaluation of the Regulation² as a final step of the evaluation exercise to assess whether the Regulation remains fit for purpose after 20 years. Overall, the Commission found that both Regulations "have performed notably well [...], resulted in an effective, efficient, and uniform application of Articles 101 and 102 TFEU" and "continue to have EU added value and be relevant."

A. In particular, the consultation has shown that:

• the abolition of the notification system has significantly reduced costs for both the Commission and businesses and the transition has been smooth, with businesses and their advisors effectively adapting to self-assessment of their practice;
• the parallel enforcement system created a framework for true co-enforcement of EU competition rules by the Commission, NCAs and national courts and the decentralised enforcement has empowered NCAs and national courts to effectively enforce Articles 101 and 102 TFEU;
• the ECN facilitates coordination and work allocation among competition authorities, and its role has been pivotal to achieving the objective of a uniform and effective application of EU competition rules.

The Commission concluded that generally the rules have also proven to be resilient, given that they still provide a suitable framework for competition law enforcement 20 years after taking effect.

B. However, some criticisms have been raised by stakeholders in the consultation process. For instance, the evaluation found:

• that the relationship between EU and national competition laws is seen as imperfect, as it does not ensure the effective enforcement of available legal instruments, especially when it comes to the integrity of the internal market;
• that the Regulation may now be inconsistent with, or lagging behind, other more recent legislation (such as the ECN+ Directive or the Digital Markets Act)³;
• a need to avoid unnecessary parallel investigations by several authorities pursuing the same conduct, to ensure a coherent enforcement of all available legal instruments; and
• that there is a need for faster investigations.

C. The Commission's primary concerns revolve around the challenges posed by the economy's digitisation and globalisation over the past two decades. The increased complexity and the need for quicker decision-making have raised questions about the effectiveness and efficiency of certain aspects of the Commission's procedures, such as investigation tools and powers that were written for 'paper world' investigations. These concerns include the following:

• the adequacy of the Commission's current investigative tools, such as requests for information (RFIs), inspections, and the power to take statements. For instance, the surge in data has made evidence collection, review, and processing much more complex and burdensome for the Commission and businesses, as records are now often stored digitally in the cloud or on servers, accessible via laptops and mobile phones. The Commission's power to take statements is also limited in this scenario, as it can only interview "person who consents to be interviewed" and cannot impose penalties on the interviewee for false or misleading statements. Additionally, this rarely used power is weaker than the NCAs' and hinders the Commission's ability to conduct ex officio investigations; data inspection could be useful. RFIs by decision are inefficient (taking 40 to 90 days for responses) and may not always comply with proportionality and necessity principles. The Commission acknowledges the need to update RFIs for the digital economy and suggests clarifying data protection rules to prevent delays.
• The Commission's decision-making powers on remedies, interim measures, and certain fines. The substantive legal test for interim measures is overly demanding, requiring the Commission to prove "serious and irreparable damage to competition." Furthermore, there still are discrepancies between NCAs when the test is required locally (some use the same strict test as the Commission and others a less stringent test).
• The procedures for granting access to files and rejecting complaints that will not be further investigated. The system for creating and granting access to a non-confidential version of the Commission's file, designed for smaller investigations, has become burdensome due to the proliferation of data. This increase in data has made file preparation and access more complex and resource-intensive for the Commission, parties, and information providers. Procedures for accessing files and rejecting formal complaints are now too resource-intensive for the Commission and companies.

Possible Future Shape

The primary focus of the Commission's evaluation was to determine whether the Regulation remains aligned with the demands of the digital and globalized era and the goal of strengthening the single market, without the intention of proposing any changes to antitrust procedures.

As mentioned above, the impact of the Regulation on the Commission's activity has in many aspects been as expected, with the Commission making good use of the given increased investigatory and sanctioning powers (i.e. the increased possibility to ask oral questions during inspections and to inspect private homes, the increased penalties for obstruction of investigations, and the higher level of penalty payments for non-compliance). On the other hand, the evaluation highlighted certain failings of the Regulation in keeping pace with the changes resulting from the digital revolution. In fact, digitalisation gave the Commission access to much more data, but this did not necessarily increase the Commission's effectiveness due to the exponential increases in data volumes. Furthermore, the Digital Markets Act (DMA) has enhanced the Commission's procedural powers in ways that sometimes exceed those granted under the Regulation⁴.

Currently, there is no clear timeline for when the Commission will present a new proposal for the revised Regulation, which is not expected to be as transformative as the introduction of the Regulation 20 years ago; however, we anticipate some updates to the Commission's tools. The most likely changes will include:

• streamlining the complaints process⁵, perhaps drawing inspiration from the DMA. According to the DMA, complainants do not have formal status; however, all interested third parties, including complainants, have a specific role in the proceedings (i.e. they can submit information on potential non-compliance, express their views during market investigations and comment on remedies taken by the Commission);
• access to file system⁶, which was conceived to work in an essentially paper-based environment. Here, too, the revision of the Regulation could be inspired by the DMA's system of disclosure of documents under so-called "confidentiality rings," which provides parties to the proceedings with an arguably even higher degree of access than the current EU system (selected counsels in fact receive access to all information provided by third parties, including confidential information). Furthermore, this system is likely to expedite investigations by eliminating the need for case teams and third parties to engage in multiple confidentiality negotiations;
• RFIs⁷, perhaps in combination with data retention orders, as provided for under Article 26(1) DMA, a (preventive) possibility not covered by Article 18 of the Regulation⁸;
• interim measures procedure⁹, for which we do not expect the Commission to significantly lower the threshold for intervention, but we do expect that the process for issuing such measures may be streamlined, e.g. by waiving a written procedure and limiting the right to be heard for the company under investigation.

Moreover, given that the Commission has recognized that the duration of competition law proceedings is a widespread problem, due to their substantive and procedural complexity, we anticipate that the Commission will carefully consider how to address this problem, perhaps drawing inspiration from procedural innovations under the DMA or the Foreign Subsidies Regulation (e.g., preservation orders and confidentiality rings that can expedite certain aspects of investigations), or from the ECN+ Directive, which has introduced some differences between the powers of the Commission and those of NCAs (e.g. the authority to summon company representatives for interviews, the ability to adopt effective remedies, and the power to impose fines for violations of prohibition decisions).

It also remains to be seen how the new Executive Vice-President and Commissioner for the Clean, Just and Competitive Transition, Ms. Ribera, will implement her main priorities, i.e. expediting enforcement and simplifying competition rules, as emphasised during her confirmation hearing before the European Parliament. At the same time, while the Commission's goals of achieving faster decisions and greater efficiencies are desirable, the challenge will be to achieve this without degrading principles of transparency, the fundamental principles of the rule of law, or the rights of the defendant.

Footnotes

1. Council Regulation (EC) No 1/2003of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty.

2. COMMISSION STAFF WORKING DOCUMENT, "EVALUATION of Regulations 1/2003 and 773/2004", SWD (2024) 216, 5 September 2024.

3. For example, under the ECN+ Directive, NCAs now have certain powers that the Commission does not have, such as the power to summon for an interview.

4. For instance, under Article 19 Regulation, the Commission's power to take statements is more limited compared to the broader powers provided by Article 22 DMA. The Regulation does not allow the Commission to impose financial penalties for a company's failure to provide requested explanations in voluntary interviews, whereas Article 30(3)(f) DMA includes this provision. Additionally, Article 26(1) DMA allows the Commission to issue data retention orders alongside requests for information, a preventive measure not available under Article 18 Regulation.

5. Under Regulation, complainants have specific rights in antitrust investigations. If the Commission decides not to pursue a complaint, the complainant can insist on a formal rejection decision and can appeal this decision in the EU Courts. If the appeal is upheld, the Commission usually issues a new rejection decision with corrected grounds rather than continuing the investigation. This process can be lengthy and resource-intensive, potentially diverting resources from investigating new complaints or pursuing other cases.

6. Under Regulation, the right to be heard for parties under investigation relies significantly on access to the non-confidential version of the investigative file. While this system provides substantial access to the Commission's file, it imposes a considerable burden on all parties. The Commission case teams often engage in extensive negotiations with third parties over the confidentiality of documents submitted during investigations; this process can lead to prolonged disputes, with parties under investigation arguing for more disclosure to fully exercise their defense rights, while third parties may assert confidentiality claims. These issues can escalate to the Hearing Officer and sometimes reach the EU Courts.

7. Under Article 18(3) of the Regulation, the Commission has the power to issue RFIs by decision also in the absence of a previous simple RFI.

8. The retention orders oblige companies to preserve and retain documents for possible future use, and should they prove to be successful, they could be implemented more widely in the Commission's work. The Commission's use of 'retention orders' under the DMA could inspire their wider use in antitrust proceedings as the agency mulls reforms to its procedural handbook, This was indicated publicly by Commission officials, see: https://ionanalytics.com/insights/mergermarket/ec-could-see-use-.

9. Under Article 8 of the Regulation, interim measures can only be imposed ex officio and third parties have no legal standing to submit formal complaints in this area. The procedural rules for the adoption of interim measures decisions are essentially modelled on those for the adoption of prohibition decisions and include several steps (the issuance of a statement of objections, the granting of access to file and the possibility for the parties to request an oral hearing); these procedural steps take time and this may not necessarily be in line with the need for speed that is typical of interim measures.

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