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Chapter Two The Cartel Prohibition Pursuant to the European Union (EU) Competition and the German Cartel Laws and the Law Number 5/1999 in:

Dian Parluhutan

The Implementation of Circumstancial Evidence pursuant to the European Union Competition Law, the German Cartel Law and the Indonesian Competition Law, page 11 - 126

1. Edition 2019, ISBN print: 978-3-8288-4127-7, ISBN online: 978-3-8288-7337-7, https://doi.org/10.5771/9783828873377-11

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The Cartel Prohibition Pursuant to the European Union (EU) Competition and the German Cartel Laws and the Law Number 5/1999 The Cartels Prohibition Conceptual Framework According to the Black’s Law Dictionary a cartel is defined as: “A combination of producers or sellers that joint together to control a product’s production or prices or an association of firms with common interests, seeking to prevent extreme or unfair competition, allocate markets or share knowledge.”37 Whereas the EU Commission defines cartel, as follows: “Arrangement(s) between competing firms designed to limit or eliminate competition between them, with the objective of increasing prices and profits of the participating companies and without producing any objective countervailing benefits. In practice, this is generally done by fixing prices, limiting output, sharing markets, allocating customers or territories, bid rigging or a combination of these specific types of restriction. Cartels are harmful to consumers and society as a whole due to the fact that the participating companies charge higher prices (and earn higher profits) than in a competitive market.”38 Chapter Two 2.1 2.1.1 37 B. A. Gardner (ed.)., Black’s Law Dictionary (7th Edition, West Group Publishing, 2000) 205–207. 38 EU Commission, ‘Glossary of terms used in the EU competition policy’ (Commission, 2003) 8–10. cf. Rizkiyana and Iswanto, ‘Eradicating Cartel’ (n 28) 5–7. 11 Moreover, the Organisation of Economic Cooperation and Development (OECD) provides definition of cartels: "A cartel is formal agreement among firms in an olygopolistic industry. Cartel members may agree on such matters as prices, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these”.39 In other words, a cartel practice takes place whenever two or more undertakings agreed thorough written or tacit concords to reduce the internal competition and thus to increase each undertaking economic position through cartel in the relevant market.40 Historically, the term cartel derived from the Latin word ‘charta’ meaning written certified claim or entitlement. Initially in the year of 1883, the term cartel was introduced by Friedrich Kleinwächter in terms of a contract with the written certified claims between the contracting parties which promised not to compete against each other in a respective market.41 The first modern definition of cartels could be found in the United States Antitrust Law, Sherman Act 1980 Section 1, whereas in Germany the term cartel was for a first time stipulated in the Section 1 Kartellverordnung (KartVO 1923) which prescribed none of prohibition. According to Section 4 KartVO 1923, Der deutsche Reichwirtschaftsminister was only authorized to file a petition to the Kartellgericht in order to rescind and to unallow certain cartel practice. For the first time, through the enactment of the GWB in 1957 the cartel prohibition principle was introduced in Germany.42 Furthermore, according to Wollmannn and Herzog, agreements, decisions of association of undertakings or concerted practices, whose aims to restrict or to distort the competitions in market are known as cartels. Accordingly, such collusive practices have been widely subject 39 R. S. Khemani and D. M. Shapiro, ‘Glossary of industrial Organitation Economics and Competition Law’ (OECD, Paris, 1996), 7. 40 K. W. Lange and T. W. Preis (eds.), Einführung in das europäische und deutsche Kartellrecht Einführung (Verlag Recht und Wirtschaft in Deutscher Fachverlag GmbH, 2. Aufl. 2011), 24–25. 41 H. P. Schwintowski, Wettbewerbs-und Kartellrecht (5. Auflage, C. H.Beck, 2012) 2–10. 42 Lange and Preis (eds.), Einführung in das europäische und deutsche Kartellrecht Einführung (n 40), 19–20. Chapter Two The Cartel Prohibition 12 to Per-se Illegal rule.43 The European (EU) Competition Law provides elaboration of cartels agreement in the Article 101 TFEU, in particular hardcore cartels.44 The European Commission has a strong opposition against cartels and considers that detection and deterrence of cartels practice would be a central and primary concern of the EU Competition Law enforcement. This stance had been reflected in following statements of the former Commissioner on Competition Policy: “Fighting cartels is one of the most important areas of activity of any competition authority and a clear priority of the Commission. Cartels are cancers on the open market economy, which forms the very basis of our Community. By destroying competition, they cause serious harm to our economies and consumers. In the long run cartels also undermine the competitiveness of the industry involved, because they eliminate the pressure from competition to innovate and achieve cost efficiency.” In the words of Adam Smith there is a “tendency for competitors to conspire”. This tendency is of course driven by the increased profits that follow from colluding rather than competing. We can only reserve this tendency through effective enforcement that creates effective deterrence. The risk of being uncovered and punished must be higher than the probability of earning extra profits form successful collusion. Cartels differ from most other forms of restrictive agreements and practices by being “naked”. They serve to restrict competition without producing any objective countervailing benefits. In contrast, a joint venture between competitors, for example, while restricting competition may at the same time produce efficiencies such as economies of scale or quicker product innovation or development. In these cases, a proper analysis requires that the positive and negative effects are balanced against one another. This is not so with cartels. In cartels the positive side of the equation is zero. Cartels, therefore, by their very nature eliminate or restrict competition. Companies participating in a cartel produce less and earn higher profits. Society and consumers pay the bill. Resources are misallo- 43 Wollmann and Herzog in F.J. Säcker, et.al (eds) (n 13) 742–747. 44 Emmerich ‘Art. 101 Abs. 1 AEUV’ in U. Immenga und E. J. Mestmäcker, Wettbewerbsrecht Band 1/Teil 1 Kommentar zum Europäischen Kartellrecht (5 Aufl, CH. Beck, 2012) 198–222. 2.1 The Cartels Prohibition 13 cated and consumer welfare is reduced. It is therefore for good reasons that cartels are almost universally condemned. Of all restrictions of competition, cartels contradict most radically the principle of a market economy based on competition, which constitutes the very foundation of the Community.‘45 Moreover, it is clear nowadays, that Competition Authorities worldwide agree, that one of the most important goal of competition law is to uncover (detect), punish, prevent and eradicate the operation of cartels, notably the ‘hardcore cartels’. According to the OECD Recommendation concerning Effective Action Against Hard-Core Cartels, a hardcore cartel is defined as: “an anti-competitive agreement, anti-competitive concerted practice, or anti-competitive arrangement by competitors to: (1) fix prices, (2) make rigged-bids (collusive tender), (3) establish output restrictions or Quota, or (4) share or divide markets by allocating customers, suppliers, territories or lines of commerces.”46 In the Indonesian Competition Law, prohibitions against cartels practices are explicitly regulated in Article 11 of the Law Number 5/1999 and the Competition Law Commission Regulation (Perkom) No. 4/2011.47 45 EU Commission, ‘XXXIst Report on Competition Policy.’ ‹http://ec.europa.eu/com petition/publications/annual_report/2001/competition_policy_en.pdf› accessed on 19th October 2015. See also M. Jephcott, Law of Cartels (Jordans Publishing, 2011), 21–25. 46 A. Jones and B. Sufrin, EU Competition Law: Text, Cases and Materials (5th ed, OUP, 2018), 667–668. 47 Article 11 of the Competition Law Number 5/1999 stipulates: “Undertakings are prohibited from making a ny agreements with their competitors with the intention to influence the price by determining production and/or marketing of goods and/or services that can result in monopolistic practices and/or unfair business competition.” Whereas the Competition Commission (KPPU) Regulation Number 4/2011 provides: “[…] cooperation of a number of competing undertakings to coordinate their activities in order to control the volume of production and the prices of goods and or services to gain a profit above reasonable profit.” Chapter Two The Cartel Prohibition 14 Cartels and The Oligopolistic Interdependence A collusion (collusive agreement) rests on the dynamic interaction between firms or undertakings, that is to say, firms or companies condition their future behavior in the market on the current behaviour of competitors. This type of dynamic interaction allows firms to maintain prices at levels close to monopoly prices and significantly above what unilateral conduct alone would allow.48 Interestingly, several following factors have been established to be of relevance to create a collusion (cartels): First, firms have to reach terms of coordination between them. Second, firms are to monitor compliance to a collusion. Third, firms are able to threaten timely retaliation. Fourth, firms can limit the reactions by outsiders.49 Taking into consideration the market characteristics, cartels can be found frequently in an oligopolistic market.50 According to Silalahi, an oligopolistic market refers to economic circumstances whereby there are merely few business actors having approximately equal market shares on the relevant market.51 Further, OECD defines an oligopolistic market, as follows: 2.1.2 48 H. W. Friederiszick, F. P. Maier-Rigaud, ‘The Role of Economics in Cartel Detection in Europe’ in D Schmidtchen, M. Albert and S. Voigt (eds.), The More Economic Approach in European Competition Law (Mohr Siebeck, 2007), 182–183. 49 ibid. See also S. Bishop and M. Walker, The Economics of EC competition Law: Concepts, Application and Measurement (3rd Ed, Sweet & Maxwell, 2011), 3–306, 5–001, 5–007. 50 Silalahi, ‘Circumstantial Evidences’ (n 14), 3–7. 51 Furthermore, as regards to the oligopolistic market, Sullivan argues that ‘an industry is oligopolistic when so large a share of its total output in the hands of so few relatively large firms that a change in the output of any of these firms will discernibly affect the market price. Theoretically, in the economic and business sphere there are several types of market, which range from a perfectly competitive market to a monopolistic market. Further, from the perspective of market parameter such as ‘workable competition’, the oligopoly market situates between the perfectly competitive market and the monopolistic market. On the one hand, in the monopolistic market, business actors act as the monopolist, possess a maximum market power and a full control to stipulate prices and outputs above the competitive level. On the contrary, in the perfectly competitive market there isa large number of sellers and buyers, who each sell or buy a relatively small quantity of homogenous products, free entry into and exit of the market and perfect information. Consequently, there are no one business actors in this market who possess any market power which can finally lead prices to equal marginal costs. S. Stroux, ‘Economics of 2.1 The Cartels Prohibition 15 “An oligopoly is a market characterised by a small number of firms who realize they are interdependent in their pricing and output policies. The number of firms is small enough to give each firm some market power.”52 Accordingly, two types of an oligopoly market could be identified: on the one hand a symmetric oligopolistic market and, on the other hand, an asymmetric oligopolistic market.53 As far as the characteristic of an oligopolistic market is concerned, the so-called “parametric interdependence” is an important one. This means, each firm in an oligopoly market is aware of existing mutual reactive dependences and considers strategically market reactions of the competitors in order to make a business decision.54 With regard to an oligopolistic market, hitherto there are two school of thoughts for analysing interaction between firms on an oligopoly market.55 In other words, within an oligopolistic market there is a so-called ‘oligopolistic Oligopoly: An Introduction for Lawyer’ (European University Institute Florence Working Paper No 2002/6, Florence) 1. cf. S. Stroux, US and EC Oligopoly Control (Kluwer Law, 2009) 10–12. 52 OECD, Glossary of Statistical Terms (OECD Publisher, 2008), 378–380. 53 According to OECD, a symmetric oligopolistic market is defined as follows: “When all firms are of (roughly) equal size, the oligopoly is said to be symmetric.” Whereas an asymmetric oligopolistic market is “When this is not the case, the oligopoly is asymmetric.” ibid. 54 R. Brütsch, Parallelverhalten im Oligopol als Problem des schweizerischen Wettbewerbsrecht (1.Aufl, Stämpfli Verlag AG, 2003), 9–12. 55 “First, the structuralists. The Structuralist or Harvard school, basing itself on the Structure-Conduct-Performance (SCP) Paradigm, retains that when the Structure of the market is concentrated, the Conduct, namely the way of competing, of the few competitors present in the market is interdependent, which leads to a performance of decreased output and supra-competitive prices, leading to supra-competitive profits. The Structuralists in their studies thus retain that concentration almost inevitably leads to supra-competitive pricing due to the adapation of oligopolists each other’s behavior. However, the adequacy of many studies has, subsequently, been disputed by scholars of the Behaviouralists’ school and the soundness of result of empirical research confirming the link between market structure and profits levels have been questioned. Relying on the fact that each oligopolist is aware of this fact, price-cutting may not occur, and the market as a whole can maintain supra-competitive price without the need for a formal or tacit agreement. This ‘theory of interdependence’, however, gives no explanation on how the supra-competitive pricing is reached. Second, the Behaviouralist. The behaviouralist of Chicago School, in contrast, challenged the Structural school’s view, that supra competitive pricing in oligopolistic market is virtually inevitable, as they blame supra-competitive pricing on be- Chapter Two The Cartel Prohibition 16 interdependence’ phenomenon. Due to the characteristics of an oligopoly market, companies or firms would not compete against one another in terms of price and thus have insignificant incentives to compete in other ways whatsoever. Accordingly, these firms (oligopolists) could gain supra-competitive profits, without even committing an agreement or concerted practice, which are prohibited by the Antitrust law.56 Put differently, market circumstances contribute to interdependent market reactions between business actors in an oligopoly market. Hence, business actors would be able to exercise the market power even without having to enter into an explicit collusive agreement.57 Competition law and economics scholar, Posner, had studied and thus identified this phenomenon as “conscious paralhavioural factors. Their ideas are based on neo-classical price theory and focus exclusively on allocative efficiency. Building upon Stigler’s seminar article ‘Theory of Oligpoly’ of 1964, the Behaviouralist sustain that, in a concentrated market, as in an unconcentrated market, a concencus level of pricing needs to be reached, the adherence thereto monitored, and secret price cutting needs to be prevented by detecting punishing deviations of the consensus-pricing. Stigler suggested that the greatest obstacle to collusion, in absence of entry, would be what he characterised as ‘secret price cutting’. Altough they recognize that concentration is an important and necessary condition for oligopolists to collude, they argue that other factors on the market, such as the existence of countervailing buyer’s and presence of barriers to entry can inhibit collusion from coming into existence. Furthermore, the threat of punishment must be such as to constitute a stabilising factor of collusion. Furthermore, behavioural scholars point out that market structure should not be taken exclusively exogenously determined, but at least partially also influenced endogenously. Large companies should not be condemned per se as they can be the result of superior efficiency. They thus maintain that SCP model of the Sturturalists also works the other way around: market structure is determined by the performance of firms, and should not be attacked because firms have succeded. Stroux, US and EC Oligopoly Control, p.10 – 15. 56 R. Whish and D. Bailey, Competition Law (9th Ed., OUP, 2011), 560–562. 57 The interdependent market reactions on the oligopolistic market can be described as follows: Accordingly, there has been insignificant competition in terms of quality between the business actor and other competitors in a relevant market. Moreover, the business actors largely shall, without explicit communication, coordinate their commercial behaviours to align and to set their prices at supra-competitive levels with the other competitors. Thus, as a rational response, the business actors become reactive to other competitors such as by monitoring the behaviors of other competitors, notably the price reductions to prevent the withdrawal of their consumers. Consequently, whenever a business actor or the market leader increases the prices, other business actors will also increase the prices and vice versa. In the oligopolistic 2.1 The Cartels Prohibition 17 lelism”, “tacit collusion”, or “oligopolistic interdependence”.58 Moreover, it has been argued that game theory supports the oligopolistic interdependence.59 With regard to cartels and the oligopolistic interdependence (conscious parallelism), by considering the market characteristics, cartels can be found frequently in an oligopoly market.60 According to Silalahi, an oligopolistic market refers to economic circumstances whereby there are merely few business actors having approximately equal market shares on the relevant market.61 Further, OECD defines an oligopolistic market as follows: “An oligopoly is a market characterized by a small number of firms who realize they are interdependent in their pricing and output policies. The number of firms is small enough to give each firm some market power.”62 Accordingly, two types of an oligopoly market could be identified: First, a symmetric oligopolistic market. Second, an asymmetric oligopolistic market.”63 market, thus the business actors acknowledge their interdependences and the most efficient commercial action is to set their prices at the profit-maximizing level, which requires necessarily none of previous explicit agreements. Moreover, from the consumers’ perspective whenever they demand for the homogenous product they are not bound to certain suppliers but are freely able to purchase the products from the available business actors in the market. Hence, in the oligopolistic market frequently occurs the ‘consciously parallel conduct’, which not automatically indicates the prohibited collusive practice. According to Bishop, Walkers and Bakers, the concept of ‘market power’ refers to ‘the ability of a firm or group of firms to raise prices, through the restriction of output and maintain them for a significant period of time above the level that would prevail under the competitive conditions and thereby to enjoy increased profits from the action. cf. L.O. Blanco, Market Power in EU Antitrust Law (1st Ed, Hart Publishing, 2011), 20–23. 58 T. Körber, ‘Antitrust Law’ (ZWeR 2003) 373. See also Silalahi, ‘Circumstantial Evidence’ (n 14) 3–7. 59 All firms on an oligopoly market would have to maximize profits: profits are greater in monopolistic markets in which output is suppressed. These firms recognize their interdependence as well as their own interest. cf. Whish and Bailey, (n 56) 567. 60 Silalahi, (n 14) 3–7. 61 ibid. 62 OECD Glossary, (n 52) 378. 63 According to OECD, a symmetric oligopolistic market is “When all firms are of (roughly) equal size, the oligopoly is said to be symmetric.” Whereas an asymmetric oligopolistic market is “When this is not the case, the oligopoly is asymmetric.” ibid. 378–10. Chapter Two The Cartel Prohibition 18 With regard to the oligopolistic market, Sullivan argues, as follows: “an industry is oligopolistic when so large a share of its total output in the hands of so few relatively large firms that a change in the output of any of these firms will discernibly affect the market price.”64 Theoretically, in the economic and business sphere there are several types of markets, which range from a perfectly competitive market to a monopolistic market. Further, from the perspective of a market parameter such as ‘workable competition’, the oligopoly market is situated between the perfectly competitive market and the monopolistic market. On the one hand, in the monopolistic market, business actors act as the monopolist, possess a maximum market power and a full control to stipulate prices and outputs above the competitive level. On the other hand, in the perfectly competitive market there are a large number of sellers and buyers, who each sell or buy a relatively small quantity of homogenous products, but have free entry into and exit of the market and perfect information. Consequently, there are no business actors in this market who possess any market power which can finally lead prices to equal marginal costs.65 As far as the characteristic of an oligopolistic market is concerned, the oligopolistic interdependence is an important one. That is to say, each firm in an oligopoly market is aware of existing mutual reactive dependences and considers strategically market reactions of the competitors in order to make business decisions.66 With regard to an oligopolistic market, up to now there are two school of thoughts for analyzing interaction between firms on an oligopoly market.67 64 L A. Sullivan, Handbook of The Law Of Antitrust. (West Publishing Company. 1977), 331. 65 Stroux, ‘EU US Oligopoly’, (n 51). 66 Brütsch, Parallelverhalten in Oligopol, (n 54) 9–12. 67 “First, the structuralists. The Structuralist or Harvard school, basing itself on the Structure-Conduct-Performance (SCP) Paradigm, retains that when the Structure of the market is concentrated, the Conduct, namely the way of competing, of the few competitors present in the market is interdependent, which leads to a performance of decreased output and supra-competitive prices, leading to supra-competitive profits. The Structuralists in their studies thus retain that concentration almost inevitably leads to supra-competitive pricing due to the adapation of oligopolists each other’s behavior. However, the adequacy of many studies has, subsequently, been disputed by scholars of the Behaviouralists’ schooland the sound- 2.1 The Cartels Prohibition 19 With regard to a firms’ interaction in an oligopolistic market, it is necessarily important to understand the game theory, which serves as background of cartels practice. Neumann and Morgenstern introduced firstly this theory to enlighten dynamic interactions of an oligopolistic interdependence. Principally, game theory refers to efforts to search a combination of the strategies that represent the best strategy for every competitor or market player, who presumably seeks ‘rational’ decisions to maximize profits (“equilibria”).68 In other words, the game theory refers to the firms’ interactions to collude or not to collude in order to achieve and maintain a collusive equilibrium in the market,69 which can be schematised into a matrix, as follows: ness of result of empirical research confirming the link between market structure and profits levels have been questioned. Relying on the fact that each oligopolist is aware of this fact, price-cutting may not occur, and the market as a whole can maintain supra-competitive price without the need for a formal or tacit agreement. This ‘theory of interdependence’, however, gives no explanation on how the supra-competitive pricing is reached. Second, the Behaviouralist. The behaviouralist of Chicago School, in contrast, challenged the Structural school’s view, that supra competitive pricing in oligopolistic market is virtually inevitable, as they blame supra-competitive pricing on behavioural factors. Their ideas are based on neo-classical price theory and focus exclusively on allocative efficiency. Building upon Stigler’s seminar article ‘Theory of Oligpoly’ of 1964, the Behaviouralist sustain that, in a concentrated market, as in an unconcentrated market, a concencus level of pricing needs to be reached, the adherence thereto monitored, and secret price cutting needs to be prevented by detecting punishing deviations of the consensus-pricing. Stigler suggested that the greatest obstacle to collusion, in absence of entry, would be what he characterized as ‘secret price cutting’. Altough they recognize that concentration is an important and necessary condition for oligopolists to collude, they argue that other factors on the market, such as the existence of countervailing buyer’s and presence of barriers to entry can inihibit collusion from coming into existence. Furthermore, the threat of punishment must be such as to constitute a stabilizing factor of collusion. Furthermore, behavioural scholars point out that market structure should not be taken exclusively exogenously determined, but at least partially also influenced endogenously. Large companies should not be condemned per se as they can be the result of superior efficiency. They thus maintain that SCP model of the Stucturalists also works the other way around: market structure is determined by the performance of firms, and should not be attacked because firms have succeded. Stroux, US and EC Oligopoly, (n 51) 10–15. 68 ibid. 69 Jephcott and Martani, ‘Law of Cartels’, (n 45) 10–15. Chapter Two The Cartel Prohibition 20 Currently, the non-cooperative game theory has been generally accepted as an appropriate approach to analyze dynamic interactions of firms in an oligopolistic market, whereby this theory postulates that each firm’s independent choice for a best strategy would result in an equilibria, which is non-cooperatively optimal given the other firms’ similarly calculated optimal strategies in an oligopolistic market.70 Furthermore, it should be bore in mind that within an oligopolistic market there is a so-called “oligopolistic interdependence” phenomena. Due to the characteristics of an oligopoly market, firms would not compete with one another in terms of price and thus have insignificant incentives to compete in other ways whatsoever. Accordingly, these firms (oligopolists) could be able to gain supra-competitive profits without even committing an agreement or concerted practice, which is prohibited by the law.71 In other words, market circumstances contribute to interdependent market reactions between business actors in an oligopoly market. Hence, business actors would be able to exercise the market power even without having to enter into an explicit collu- 70 Stroux, US and EC Oligopoly Control, (n 51) 13. 71 Whish and Bailey, (n 56) 560–561. 2.1 The Cartels Prohibition 21 sive agreement.72 Posner, had studied and thus identified this phenomenon as ‘conscious parallelism’, ‘tacit collusion’ or ‘oligopolistic interdependence’.73 Moreover, it has been argued that game theory supports the oligopolistic interdependence.74 Nevertheless, the theory of an oligopolistic interdependence is subject to theoretical criticisms, which are: (1) the oligopolistic interdependence theory would overstate the interdependence of firms in an oligopoly market; (2) the oligopolistic interdependence exhibits a very simplistic picture of real-life market; (3) the oligopolistic interdependence theory could not explain why in some oligopolistic markets competition is intense. (4) the oligopolistic interdependence theory could not satisfactorily explain why the firms could gain supra-com- 72 The interdependent market reactions on the oligopolistic market can be described as follows: Accordingly, there has been insignificant competition in terms of quality between the business actors and other competitors in a relevant market. Moreover, business actors largely shall, without explicit communication, coordinate their commercial behaviours to align and to set their prices at supra-competitive levels with the other competitors. Thus, as a rational response, the business actors become reactive to other competitors such as by monitoring the behaviours of other competitors, notably the price reductions to prevent the withdrawal of their consumers. Consequently, whenever a business actor or the market leader increases the prices, other business actors will also increase the prices and vice versa. In the oligopolistic market, thus the business actors acknowledge their interdependences and the most efficient commercial action is to set their prices at the profit-maximizing level, which requires necessarily none of the previous explicit agreements. Moreover, from the consumers’ perspective whenever they demand for the homogenous product, they are not bound to certain suppliers but are freely able to purchase the products from the available business actorson the market. Hence, in the oligopolistic market frequently the ‘consciously parallel conduct’ occurs, which not automatically indicates the prohibited collusive practice. According to Bishop, Walkers and Bakers, the concept of ‘market power’ refers to ‘the ability of a firm or group of firms to raise prices, through the restriction of output and maintain them for a significant period of time above the level that would prevail under the competitive conditions and thereby to enjoy increased profits from the action. See Blanco, Market Power (n 57), 20–23. 73 Körber, (n 58). cf. Silalahi, ‘Circumstantial Evidence’ (n 14) 5–7. 74 All firms on an oligopoly market would have to maximize profits: profit is greater in monopolistic markets in which output is suppressed. These firms recognize their interdependence as well as their own interest. cf. Whish and Bailey, Competition Law, (n 56) 564–565. Chapter Two The Cartel Prohibition 22 petitive profits without committing a collusive agreement or concerted practice.75 Hence, it could be inferred that within an oligopolistic market, there would be two possible outcomes of firms’ interaction, notably: collusive agreement or cartels and conscious parallelism. Whilst the former is strictly prohibited and subject to penal sanctions, the latter is permitted.76 Based upon the explanations above, in an oligopolistic market there are four possibilities of the price formations, which are: cutthroat competition, cooperation, price-rigging and price leadership.77 Arguably, there are certain market characteristics, facilitating and stabilizing collusion of firms in an oligopolistic market. According to Shapiro, these market characteristics are often called as ‘topsy-turvy’ principle of collusion: ‘anything […] that makes more competitive behaviour feasible or credible actually promotes collusion’.78 The non-exhaustive list of market characteristics enhancing and/or stabilizing (tacit) collusion encompasses, as follows: (1) number of competitors, (2) market concentration, (3) homogeneity of suppliers, (4) countervailing competitive power,(5) market entry arriers, (6) countervailing buyer’s power, (7) prduct homogeneity, (8) multi-market contacts, (9) demand variation, (10) transaction characteristics, (11) transparency.79 Posner provides, however, a more sophisticated economic approach to detect and to substantiate collusion in a relevant market, which are is: First, involvement of identifying markets in which conditions are propitious for the emergence of collusion. Second, involvement of determining whether there really is collusive pricing in any of those markets. This economic approach is to be employed to achieve the following main goals: On the one hand, to facilitate law enforcers to concentrate their resources in markets where those resources are likely to be employed most productively. On the other hand, to enable ambiguous conduct to 75 ibid. 76 Joined cases 40 to 48, 50, 54 to 56, 111, 113 and 114–73, Coöperatieve Vereniging "Suiker Unie" UA and others v Commission of the European Communities. European Court Reports 1975 -01663. 77 Nörbert Boing, ‹http://www.zum.de/Faecher/kurse/boeing/udb/› accessed 9th February 2015. 78 Stroux, US and EC Oligopoly Control, (n 51) 27–30. 79 ibid. 2.1 The Cartels Prohibition 23 be evaluated.80 Moreover, according to Posner, the following factors could facilitate collusive practices in an oligopolistic market, which are: (1) market concentrated on the selling side, (2) no fringe of small sellers, (3) inelastic demand at competitive price, (4) entry takes a long time, (5) buying side of market unconcentrated, (6) standard product, (7) nondurable product, (8) the principal firms sell at the same level, (9) price competition more important than other forms of competition, (10) high ratio of fixed to variable costs, (11) similar cost structures and production processes, (12) demand static or declining over time, (13) prices can be changed quickly, (14) sealed bidding, (15) market is local, (16) cooperative practices, (17) the industry’s antitrust “record”.81 Cartel Prohibitions pursuant to the European Union (EU) Competition Law Background and Objective The European (EU) Competition Law refers to a set of rules, serving both of the envisaged economic and integration purposes, which systematically are enshrined in the legal instruments: First, treaty laws; whereby these rules are embodied in Title VII, Chapter I of the Treaty on Functioning of European Union (“TFEU”). Second, secondary laws; whereas these rules can be found in Council Regulations and Commission Regulations. Third, case laws (jurisprudences or precedents), whose substances consist of: 1) decisional practice of the Commission; 2) caselaws (jurisprudence) of the European Courts; 3) national case-laws.82 2.2 2.2.1 80 Posner further gives an example: in a market in which conditions are favourable to collusion an exchange of price information may be persuasive evidence of collusive pricing, while in a market in which conditions are unfavourable the same exchange may be no evidence of collusive behaviour at all, may be, in fact, a procompetitive feature of the market. cf. R. Posner, Antitrust Law, (2nd Ed., University of Chicago Press, 2001.), 20–27. 81 ibid. 82 Geradin, Farrar, Petit, EU Competition, (n 33) 25–27. Chapter Two The Cartel Prohibition 24 Principally, with respect to the objectives of the EU Competition laws, the Commission stipulates that: “The objective of Article 101 TFEU is to protect competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources. Competition and market integration serve these ends since the creation and preservation of an open single market promotes an efficient allocation of resources throughout the Community for the benefit of consumers.” Equally important, according to Säcker, the legal policy of the competition law shall prudently take into consideration three main arguments: Firstly, the competition law to establish socio-economic freedoms and fair competitions in the society. Secondly, the employment of efficiency enhancements as justification grounds. Thirdly, the economic limit for applying competition instruments for the prosperity policy.83 With regard to the notion of socio-economic freedoms and fair competition, the provisions of Article 119 TFEU in conjunctions with the Protocol Number 27 of TEU concerning internal market and competition stipulate the envisaged goal of economic freedom and a system of free competition.84 These provisions state that for the purposes set out in Article 3 TFEU, the activities of the Member States and of the EU shall include the adoption of an economic policy based on the internal market and conducted in accordance with the principle of an open market economy with free competition. Furthermore, the principle of open markets with free competition acknowledge the fundamental role of the market and of competition in guaranteeing consumer welfare, encouraging the optimal allocation of resources and granting to economic agents the appropriate incentives to pursue productive efficiencies, qualities and innovations.85 This fundamental principle has thus been concretised in the provisions of Articles 101 until109 of TFEU which 83 Säcker, ‚Die rechtspolitischen Grundlagen des Wettbewerbsrechts‘ in F.J. Säcker, et.al. (eds.) (n 13) 8-21 84 Häde, ‚AEUV Art. 119 [Wirtschafts- und Währungsunion]‘ in C. Calliess and M. Ruffert, EUV/AEUV: DerVerfassungsrecht der EU mit Europäischer Grundrechtcharta (5. Aufl., CH Beck, 2016) 85 A. D. Chirita, The German and Romanian Abuse of Market Dominance in the Light of Article 102 TFEU, (Nomos Verlag, 2001), 33–34. cf. M. Monti, ‘European Competition Policy fort eh 21st Century’, in B. E. Hawk (ed.), International Antitrust Law & Policy (Fordham Competition Law 2000), 257. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 25 prescribe the rules on competition.86 Principally, these provisions aim further to achieve the market integration for the purpose of competition, whereas the competitions are not distorted and economic freedombased competitions exist in the EU. Indeed, these envisaged purposes shall have priority over the other policy objectives, for example the scientific and technological goals in Article 3 (3) TFEU.87 Statutory Element of the Cartel Prohibition of Article 101 TFEU In principle, the statutory elements of cartels prohibition are enshrined in Article 101 (1) TFEU, which stipulates: Article 101 (1) (formerly Art. 81(1) EC; ex Art. 85) 1. The following shall be prohibited as incompatible with the internal market: 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 internal market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. By virtue of the Article 101 TFEU, according to Wollmann and Herzog, agreements, decisions of association of undertakings or concerted practices whose aims are to restrict or to distort the competitions in market are known as “cartels”. Accordingly, such collusive practices have been widely subject to Per-se Illegal rule.88 The example catalogues of Article 101 (1) alphabets (a) until (e) elaborate cartels in practice and 2.2.2 86 Säcker, et.al, Europäisches Wettbewerbsrecht, (n 13) 8–10. 87 Chirita, (n 85) 31–3. 88 Wollmann and Herzog (n 13) 742–745. Chapter Two The Cartel Prohibition 26 thus imply that the enumerated cartels hardly fulfill the legal exemptions of Article 101 (3) TFEU. In addition, practices of cartels could manifest in four typologies of horizontal agreements: (1) an agreement on prices and trade conditions89 (2) an agreement on limitation of production and/or sales,90 (3) 89 The provision of Article 101 (1) TFEU strictly prohibits direct or indirect agreements to fix prices and other trade requirements. Put differently, this provision prohibits every obstruction to the freedom of undertakings pertaining the prices and other trade requirements. These cartels practices include: (1) fixation of prices, price objective, price increase, target price, minimum sale prices, recommended price, price structuring principles; (2) setting the purchase price paid by processors to suppliers; (3) dividing customers in several categories and applying jointly differentiated prices; (4) deciding not to offer discounts, reaching agreements on maximum discounts or reducing the discounts to consumers; (5) adopting mathematical methods for calculating and establishing minimum common sales prices; (6) engaging in dumping prices, selling below published prices; (7) establishing compensation system for balancing revenues resulting from domestic sales and export sales. However, according to Geradine et.al, in this type of cartels, there are additional agreements, which have the function to ensure that the pursued agreement operates as planned. For example, setting up a timetable for pricing announcements, to ensure effective function of the main pursued agreement. Besides, an agreement on regular price reporting obligation is considered as additional agreement. According to the Article 101 TFEU these agreements are illegal. Equally important, this type of cartels practice encompasses an agreement relating to the terms and conditions under which product/ services are supplied. Thus, this agreement eliminates competitions on qualities of the competitors’ products. In the Trans-Atlantic Conference Agreement (TACA) case, the Commission considered the joint service contract between marine shipping and cargo companies has restrictive effects to competition on price and trading terms. See Geradin, Farrar, Petit, EU Competition (n 33) 400. 90 According to Wollmann and Herzog, this cartels practice refers to restriction or controlling over production, sales, technological innovations or investments. Thus, the artificial shortages of products’ supplies on a market have similar detrimental effects to competition just like the direct price fixing. Further, the limitation of production and/or sales can be committed through: First, to limit output directly, at the production level, by means of quotas to each cartel member. Second, to limit output indirectly, at the distribution level, by reducing product supplies to customers. The Courts of Justice of the EU have dealt with such cartel’s practices in the Quinine Cartel case, involving price raising through the output restriction. In the Zinc Phosphate case, the cartelists made initial market share and they were obliged to obey this market share and thus sales quotas were set-up in the European level. Further, a monitoring system was also made between the cartels members to detect deviation form cartels agreement and impose punishment. Moreover, Wolman and Herzog stated that ‘restrictions of production’ encompasses every limitation of service portfolios (range). 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 27 an arrangement to allocate market or supply sources,91 (4) discriminations,92 (5) coupling (Koppelung).93 Equally important, Tobler describes three main normative elements of the cartel prohibition of Article 101 (1) TFEU, encompassing: First, ‘agreements between undertakings, decisions by association of under- Also, this includes information exchange agreement on prices and quantity delivered. Moreover, as to limitation or control of markets, in the BP Kemi case, the Commission was of the opinion that ‘when a major buyer undertakes, for certain period, to purchase all required quantities of a product from the single manufacturer, this will prevent other manufacturers of same product from supplying the large buyer. These cartels have an anticompetitive effect, namely a single branding, to foreclose wholly supplies between large firms. Wollmann and Herzog (n 13) 744–750. 91 This type of cartels, according to Wollmann and Herzog, comprises limitation or controlling over a geographical market, producers, economic (commercial) branches or customer groups. Thereby, these collusive practices cause relevant market partitioning amongst the competitors. Thus, these practices bring anticompetitive effects similar to an artificial monopolization. According to Geradine, et.al, this type of cartels frequently manifest in the form of a reciprocal grant of territorial exclusivities. In the Peroxygen case, the Commission imposed severe fines to European peroxygen manufacturers due to market sharing agreement under ‘domestic market’rule, whereby they agreed not to sell products on each other’s domestic market. Besides, these collusive practices can emerge in the non-geographic market sharing and bidrigging (collusive tendering). However, under the ancillary agreement concept, this practice could be to some extent allowed, subject to the Commission Notice on Ancillary restraint. 92 According to Wollmann and Herzog, this type of cartels refers to the agreement, whereby the parties impose differing trading conditions (requirements) against other undertakings, yet for the equivalent (homogeneous) product. This type of cartels causes discriminative impact to other undertakings in the market. Primarily, the main goal of this collusive agreement is to restrict or hinder competitions either on the upor downstream markets. ibid. Equally important, according to Geradine, this cartels practice include collective boycott strategies, which aim to punish or eliminate a customer, supplier or competitor deemed as undesirable as well as to force unilaterally an undertaking for doing certain desired market conducts. In the case of Belgian Wallpaper, the Commission penalized the Belgian association of wallpaper companies because its members unilaterally stopped supplies to an independent wholesaler rejecting to the uniform pricing policy set up by the association. Geradine, Farrar, Petit (n 33) 406. 93 According to Wollmann and Herzog, collective coupling agreements take place whenever one party to the contract requires the other parties to accept additional commercial enforcements, which have none of correlations both to the contract and to commercial customs. Accordingly, the producing undertakings have to bear burdens because of blockades of sales chain. Besides, the undertakings having market power are able to level-up prices above the competitive price and thus to expel other competitors from relevant markets. Wollmann and Herzog (n 13) 747. Chapter Two The Cartel Prohibition 28 takings and concerted practices’ (three categories of conduct between undertakings). Second, ‘which may affect trade between Member States (inter-state or internal market element). Third, ‘which have as their object or effect the prevention, restriction or distortion of competition’ (competition element).94 Equally important, Säcker and Wolf systematically conclude that the following testing scheme will guide the analysis of the Article 101 (1) TFEU, encompassing: First, the concept of undertakings, second, agreements third, coordination between remaining independent undertakings, fourth, appreciable restrictions of competition and fifth, inter-states clause.95 The Undertaking and Association of Undertakings Whilst the EU Treaties do not provide an exact meaning of undertakings in terms of competition law, the Court of Justice in Höfner stipulated as follows: “[i]n the context of competition law […] the concept of an undertaking, encompasses every entity engaged in an economic activity, regardless of the legal status of the entity or the way in which it is financed.” Nevertheless, the term ‘economic activity’ remained unclear, until the European competition case-laws settled the meaning of economic activity under Article 101 (1) TFEU,96 which are as follows: First, an activity which offers goods and/or services on a market.97 Second, an activity having potential to generate profits. Third, an activity which bears financial risk. Hence, the concept of undertaking in Article 101 TFEU is a functional one, that is to say ‘it focuses on the nature of activity being carried out by the entity concerned rather than its institutional status.98 In other words, the term ‘undertakings’ would be interpreted broadly.99 Subsequently, the Court of Justice in Wouters 2.2.2.1 94 C. Tobler, J. Beglinger, W. Geursen, Essential EU Competition Law in Charts – a field manual (HVG-ORAC 2011) 23–25. 95 F. J. Säcker and M. Wolf, Kartellrecht in Fällen (Valen Jura, 2010) 295–297. 96 K. Arvidsson, ‘Re-Use of PSI and the Undertaking Concept in the EU Competition Law’ (LL. M Thesis Law Faculty Stockholm University, 2014) 21–24. 97 Jones and Surfin, (n 46) 141–169. 98 Whish and Bailey, Competition Law, (n 56) 86. 99 Hengst in Langen and Bunte, Kartellrecht Kommentar: Europäisches Kartellrecht (12. Aufl. Luchterhand Verlag, 2014), 49–50. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 29 case ruled out, that entity which performs tasks for the public interests is not subject to Article 101 (1) TFEU.100 Further, with regard to undertakings, the concept of single economic entity is of main importance. According to this concept, whenever there are two or more undertakings in the market having distinct legal personalities, notably the parent and subsidiary, yet they enjoy no economic independence, belong to the same concern, and form an economic unit within which the subsidiary has no real freedom to determine its course of action on the market, thus they are considered as a single economic entity. Consequently, the agreements between the parent and the subsidiary constitute a truly unilateral behavior of undertaking and thus escape the ambit of cartel prohibition of Article 101(1) TFEU, unless those undertakings hold a dominant position and abuse the position in the market. This stance had been confirmed by the General Court (GC) in the Viho case, stipulating as follows: “Where, as in this case, although having separate legal personality, does not freely determine its conduct on the market but carries out the instructions given to it directly or indirectly by the parent company by which it is wholly uncontrolled, Article [101 (1) TFEU] does not apply to the relationship between the subsidiary and the parent company with which it forms an economic unit.”101 Furthermore, under the EU Competition law the existence of a single economic unit is presumed provided that the parent company owns 100 per cent of the shares or its subsidiary.102 Moreover, in the analysis of Article 101 TFEU the term ‘association of undertakings’ is an important element, whereby this term is conceived as an organisational entity whose members are undertakings, as stipulated in Article 101 (1) TFEU, and thus represents the economic interests of its member.103 Whether the ‘association of undertakings’ strive to reach their own business profits or not, is not relevant in this respect.104 In Wouters v.Alegmenen Raad van de Nederlandse Order van Advocaaten, the ECJ reiterated that an ‘association of 100 Whish and Bailey, (n 56) 84. 101 Geradin, Farrar, Petit, EU Competition Law, (n 33) 27–29. 102 Jones and Sufrin, EU Competition Law, (n 46) 142–144. 103 de Bonett in Schulte and Just, Kartellrecht: GWB, Kartellvergaberecht, EU-Kartellrecht (1.Aufl. Carl Heymanns Verlag, 2012), 408–410. 104 ibid. Chapter Two The Cartel Prohibition 30 undertakings encompasses of undertakings of the same general type and makes itself responsible for representing and defending their common interests vis-à-vis other economic operators, government bodies and the public in general’.105 With regard to the ‘association of undertakings’ the EU Competition law adopts functional approach which ‘seeks to prevent undertakings from being able to evade the rules on competition on account simply of the form in which they coordinate their conduct on the market. To ensure that this principle is effective, Article 101 (1) TFEU covers not only direct methods of coordination conduct between undertakings (agreements and concerted practices) but also institutionalised forms of cooperation, that is to say, situations in which economic operators act through a collective structure or a common body.106 Furthermore, the ECJ asserted that, whether a decision of ‘association of undertakings’ has been endorsed by public authority or generated by association whose members are appointed by the government, namely having a statutory function, does not preclude the application of prohibition rules of Article 101(1) TFEU. Hence, in Wouters v.Alegmenen Raad van de Nederlandse Order van Advocaaten the ECJ affirmed that the Netherland Bar Association, which is governed by public law, in adopting a professional regulation as to prohibition of certain multi-disciplinary partnerships for its members, had indeed practiced economic activity, instead of practicing the powers of public authority.107 In sum, it can be outlined that, irrespective its legal forms, ‘association of undertakings’ comprises: First, a trade association, serving as forum for exchanging commercial and strategic information for the mutual cooperation and benefits of the involved undertakings. Second, agricultural cooperatives, that is established by farmers. Third, a body set up by statute for public function provided it serves the trading interests of its members. Fourth, a professional association, albeit it is regulated by a public law statue.108 105 Jones and Surfin, (n 46) 341 106 ibid. 107 Whish and Bailey, Competition Law, (n 56) 92. cf. Jones and Surfin, (n 46) 146–147. 108 ibid. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 31 The Existence of Agreements (“Concurrence of Wills”) According to Herrmann and Paschke, in the analytical framework of cartels prohibition pursuant to Article 101 (1) TFEU, the concept of “agreements” comprises contracts, decisions of associations of undertakings and concerted practices.109 Moreover, according to Jones and Surfin, in EU competition law, the ECJ has provided a liberal interpretation as to the term ‘agreement’, whereas ‘agreement’ principally refers to the existence of a concurrence of wills between minimally two undertakings’.110 In practice, however, the concurrence of wills emerges in three different forms, which are: agreements, decision by the association of undertakings, and concerted practice.111 In the case of T-Mobile Netherlands and others, the ECJ reiterated that these three forms of collusion are distinguishable from each other merely by their intensity and the forms in which they manifest themselves.112 Further, with regard to these three forms of collusion, the ECJ in the case of Commission v Anic Partecipazoni explicitly stated the aim is to have the prohibitions of that article catch different forms of coordination and collusion between undertakings. Accordingly, a precise characterisation of the nature of the cooperation at issue in the main proceedings is not liable to alter the legal analysis to be carried out under Article [101 TFEU].113 ‘Agreements’ In the EU Competition Law, the term ‘agreement’ refers primarily to parallel conduct, by which two or more undertakings/associations of undertakings take part to voice collective intentions, so that minimally one undertaking/association of undertaking conduct in specific man- 2.2.2.2 2.2.2.2.1 109 Hermann and Paschke in F. J. Säcker et.al, (n 13) 692. 110 Jones and Sufrin, (n 46) 142–143. See also Joined Cases C-2/01 P and C-3/01 P BAI and Commission v Bayer Adalat 2004 I-00023, paras. 18, 97–98. 111 de Bonett (n 103) 772. 112 Jones and Sufrin, (n 46), 4. See also Case C-8/08 T-Mobile Netherlands BV, KPN Mobile NV, Orange Nederland NV and Vodafone Libertel NV v Raad van bestuur van de Nederlandse Mededingingsautoriteit. 2009 I-04529, paras. 23-ff. 113 Jones and Surfin (n 46) 141. See alo Case C-49/92 P. Commission of the European Communities v Anic Partecipazioni SpA. 1999 I-04125. Chapter Two The Cartel Prohibition 32 ner on the market.114 In the case of Bayer AG v. Commission, the GC argued that, the term ‘agreement’ in the context of Article 101 (1) TFEU ‘centres around the existence of concurrence of wills between at least two parties, the form in which it is manifested being unimportant as long as it constitutes the faithful expression of the parties’ intention.’Further, the GC asserted that proof of agreement pursuant to Article 101(1) TFEU must be established upon ‘the existence of the subjective element that characterises the very concept of the agreement, that is to say, a concurrence of wills between economic operators on the implementation of a policy, the pursuit of an objective, or the adoption of a given line of conduct on the market’.115 Further, in the case of Montedipe SpA v. Commission, the CFI stipulated that for the existence of agreement under Article 101(1) TFEU it is sufficient that the undertakings in question should have expressed their joint intention to conduct themselves on the market in a specific way. For example, whenever there are common intentions between the undertakings to achieve price and sales volume targets.116 Conversely, in the event one party to agreement conducts self-imposed restriction on the market, whereas this self-imposed restrictions arenot part of common intentions prescribed in the agreement between undertakings, thus there is no agreement in the sense of Article 101 (1) TFEU.117 In the case of Volkswagen and AC-Treuhand, it has been established, that in application of Article 101(1) TFEU toward the prohibited ‘agreement’, proving the existence of concurrence of wills becomes the primary prerequisite, irrespective the forms and legal qualifications of agreements.118 Consequently, in substantiating the existence of the ‘agreement’ mentioned above, the Commission must base upon the direct or indirect finding of a concurrence of wills between undertakings 114 de Bonett (n 103) 776. 115 Jones and Sufrin, (n 46) 142–143. See also Joined Cases C-2/01 P and C-3/01 P BAI and Commission v Bayer Adalat 2004 I-00023, paras. 18, 97–98. 116 de Bonett (n 103) 777. 117 ibid. 776. See also T-419/03 – Altstoff Recycling Austria AG v European Commission. 2011 II-00975. 118 Lober in Schulte and Just (n 103) Kartellrecht,776–777. See also Case C-74/04 P Commission of the European Communities v Volkswagen AG [2003] ECR II-5141. cf. Case T-99/04 AC-Treuhand AG v Commission of the European Communities 2008 II-01501. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 33 or associations of undertakings, which constitute the faithful expression of the parties’ intention.119 Furthermore, based upon the jurisprudence of EU Competition law pertaining the term ‘agreement’, Article 101 (1) TFEU encompasses not only written and oral agreements, but also implicit consensus, whose substantiation, however, poses profound difficulties.120 In other words, the term ‘agreement’ under Article 101 (1) TFEU reaches a wide scope of ‘concurrences of wills’, irrespective of their status under respective national laws, their intentions to be legally binding or not, their contents which stipulate sanctions or not. In elaborative way, the term ‘agreement’ of Article 101(1) TFEU captures among others, but is not limited to: First, ‘gentlemen’s agreements’,121 second, standard conditions of sale,122 third, trade association rules,123 fourth, agreements entered into to settle disputes,124 fifth, ‘good neighbouring rules’ or ‘certain rules of game which it is in the interests of all of us to follow’,125 sixth, a terminated agreement whose effects remain existing after the termination period126 and seventh, agreements which are endorsed of consented by national law or which take into effect after consultation with the national authorities.127 In other words, these latter ‘agreements’ receive no immunity from prohibition of Article 101(1) TFEU.128 Subsequently, in the case of Industrial and Medical Gases, the Commission avowed that, whether the undertakings or associations of undertakings defended that they never intended to implement or to adhere to the agreement’s terms, did not regrettably, any justification value under prohibition rules of Article 101(1) TFEU.129 119 Jones and Surfin, EU Competition Law, p. 142. See Case C-338/00 P, Volkswagen AG v. Commission [2003] ECR I-9189. 120 de Bonett, in Schulte and Just, Kartellrecht, 77. 121 Hengst in Langen and Bunte, Kartellrecht Kommentar, 77. 122 ibid. 123 Jones and Surfin, (n 46) 142–145. 124 ibid. 125 Hengst in Langen and Bunte, (n 99) 77. 126 ibid. 127 Jones and Surfin (n 46) 142–145. 128 de Bonett, in Schulte and Just, (n 103) 77. 129 Jones and Surfin, (n 46) 143. Chapter Two The Cartel Prohibition 34 Subsequently, in respect of ‘agreements’ prescribed by Article 101(1) TFEU, the ECJ falsified the existing tenet that Article 101(1) TFEU is inapplicable to agreements between undertakings operating at different levels of economy or in separate markets. In the case of Consten and Grundig v. Commission, however, the ECJ has indeed reiterated, that the provision of Article 101(1) frames that a distinction between horizontal and vertical agreements should be drawn.130 With regard to collective bargaining agreements, ensuing the decision of the ECJ in the case of Albany International BV v. Stichting Bedrijfspensioenfonds Textielindustrie, it has been held that Article 101(1) TFEU does not catch collective agreements between workers and employers, whose objective is to improve conditions of work and employment. The ECJ reckons that one of the main purposes of the EU Treaty is to achieve a high level of employment and social protection. In a more elaborative assessment, in the case of Polypropylene, the ECJ has emphasised that cartels’ practice, which consists of a whole complex of arrangements and which are based upon common and detail plan, constitutes a single continuing agreement and thus subject to prohibition of Article 101(1) TFEU.131 Accordingly, in the case of PVC II, it is reiterated that, whenever undertakings had been party to collusive schemes, arrangements and measures within a regular meeting’s framework and the involved undertakings reach sufficient consensus to limit or likely to limit their commercial independency on the market, thus these collusive schemes, arrangements and measures constitute agreement under Article 101(1) TFEU.132 Hence, the existence of a legally binding agreement does not required to be proved. 130 ibid. 150. 131 ibid. 147. 132 Joined cases C-238/99 P, C-244/99 P, C-245/99 P, C-247/99 P, C-250/99 P to C-252/99 P and C-254/99 P. Limburgse Vinyl Maatschappij NV (LVM) (C-238/99 P), DSM NV and DSM Kunststoffen BV (C-244/99 P), Montedison SpA (C-245/99 P), Elf Atochem SA (C-247/99 P), Degussa AG (C-250/99 P), Enichem SpA (C-251/99 P), Wacker-Chemie GmbH and Hoechst AG (C-252/99 P) and Imperial Chemical Industries plc (ICI) (C-254/99 P) v Commission of the European Communities. 2002 I-08375. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 35 Decisions by Association of Undertakings In business practice, the existence of concurrence of wills between undertakings might manifest in decision by association of undertakings as well. In other words, the association of undertakings serves as a medium for undertakings under its auspices, so that they are able to commit cartels practice and coordinate their corporate actions on certain market. In particular, when there is a large number of undertakings engaging in similar business on the market, thus association of undertakings becomes very crucial to establish collusive practices. Article 101 (1) TFEU therefore catches decisions by associations of undertakings in order to prevent the use of association as a vehicle to coordinate and promote collusive practices. In the precedent of the ECJ, decision of undertaking falls under Article 101 (1) TFEU, provided Articles of Association required its members to regard association’s decisions as binding ones. Indeed, even recommendations of association can be subject to prohibition of Article 101(1) TFEU, whenever these recommendations contain specific concurrence of wills of the undertakings to behave specifically on the market. The precedents of EU competition law has broadly interpreted the term’decisions of associations of undertakings’, so that it captures every conduct to conclude a collusive arrangement between undertakings members of the association, which achieved through resolutions of association, recommendations, the operation of certification schemes, or through the association’s article of incorporations. Furthermore, in the case of Certificatie Krannverhuurbedrijf and the Federatie van Nederlandse Krannverhuurbedrijven v. Commission, the ECJ reasserted that the term ‘decision’ of Article 101 (1) TFEU catches certification schemes issued by association, whose objective is to block non-member undertakings to penetrate the domestic market of the association’s members. In other words, Article 101 (1) TFEU prohibits more informal methods of coordinating members’ business actions. Equally important, decisions by the association of undertakings, in the development of EU Competition Law, the Court of Justice and the Commission have applied a so-called non formalist approach towards the decisions taken by the association of undertakings. This means the term agreement of Article 101 (1) TFEU comprises not only all agree- 2.2.2.2.2 Chapter Two The Cartel Prohibition 36 ments within the framework of collective or representative bodies like trade association, but also a circular, a recommendation, or even an email can constitute the decision by the association of undertakings. For instance, in the case of Wouters the Court of Justice ruled out that the recommendation of National Bar Association in Netherlands constitutes the decision by the association of undertakings.133 ‘Concerted Practices’ In the Dyestuffs case, the Court of Justice of the EU explains the meaning of concerted practices as ‘a form of coordination between undertakings’ which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation for the risks of competition.134 Subsequently, in the Suiker Unie case, the Court of Justice of the EU elaborated that, in terms of coordination or cooperation, ‘the working out of an actual plan’ is not required.135 In the case of T-Mobile Netherlands v. Raad van bestuur van de Nederlandse Mededingingsautoriteit, the Court of Justice of EU explained: “Article 101 (1) TFEU strictly precluded any direct or indirect contact between such operators, the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market.136 Accordingly, it can be inferred that the followings are elements of the concerted practices thereof: Firstly, the existence of mental consensus between the undertakings to replace competition with practical cooperation on a market. Secondly, the consensus can be both verbal and non-verbal. Thirdly, the consensus originated either from direct or in- 2.2.2.2.3 133 Hengst, in Langen and Bunte, (n 99) 34–39. See also Geradin, Farrar and Petit, (n 33) 32–35. 134 Case 48–69 Imperial Chemical Industries Ltd. v Commission of the European Communities, ECLI:EU:C:1972:70, paras. 121-et.seq. 135 Joined cases 40 to 48, 50, 54 to 56, 111, 113 and 114–73, Coöperatieve Vereniging "Suiker Unie" UA and others v Commission of the European Communities, European Court Reports 1975 -01663, paras. 173–174. 136 Case C-8/08 T-Mobile Netherlands v. Raad van bestuur van de Nederlandse Mededingingsautoriteit [2009] ECR I-4529, [2009] 5 CMLR 1701, para 26. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 37 direct undertaking’s communications.137 Further, an undertaking’s unilateral measure is not subject to the concerted practices prohibition.138 In addition, the Court of Justice of the EU in the Polypropylene case, exposed that the concerted practices encompass every form of market behaviour coordination, which leads to intended or envisaged collaboration of the undertakings for the purpose of eliminating risks of competition on a market.139 From the praxis of European Competition law, the prohibition of concerted practices serves two function consecutively. Firstly, the concerted practices can be proved by means of a series of ‘indirect (circumstantial) evidences’ before the Court. Subsequently, the concerted practice is merely seen as a part of the complex and continuous anticompetitive practices on a market, which consist of agreements, decisions of undertakings’ association and the concerted practices itself.140 Furthermore, Emmerich asserts, that the concerted practices prohibition serves two consecutive functions. Initially, this prohibition enlarges the application of Article 101 para. 1 TFEU to the whole kind of market coordination of undertakings, having not fulfilling elements of agreements and/or decisions of undertakings’ association. Subsequently, this prohibition would serve as the catchall element, whereby whatsoever form of market conduct coordination between undertakings could be proved.141 With respect to the joint classification of agreements and ‘concerted practices’ the Court of Justice of EU in the PVC case, confirming the Commission’s stance, that “In the context of a complex infringement which involves many producers seeking over a number of years to regulate the market between them the Commission cannot be expected to classify the infringement precisely, for each undertaking and for any given moment, as in any event both those forms of infringement are covered by Article [101] of the Treaty.” 137 Whish and Bailey, (n 56) 115. 138 According to Lettl, this undertaking unilateral measures would be subject to Article 102 TFEU. T. Lettl, Kartellrecht (3. Aufl.CH. Beck, 2016), 36–37. 139 Case T-8/89 DSM NV v the Commission (Polypropylene) [1991] ECR II-1833, para. 158. 140 Emmerich in Immenga and Mestmäcker, Wettbewerbsrecht, (n 44) 188. 141 ibid. 189. Chapter Two The Cartel Prohibition 38 Hence, the notion of agreements, decisions of undertakings association and the concerted practices could be viewed as the continuum of infringements against Article 101 (1) TFEU.142 The distinctive factor of respective violations abovementioned is the evidentiary aspect.143 ‘Conscious Concertation’ The term ‘concertation’ includes every concerted action whatsoever, both of written or oral concertation as well as both of expressly and implied concertation. In the case of Imperial Chemical Industries Ltd. v Commission of the European Communities (“ICI case”), the ECJ in its Judgement asserted the concept of ‘concerted practices’: “Article 85 draws distinction between the concept of “concerted practices” and that of “agreements between undertakings” or of “decisions by association of undertakings”; the object is to bring within the prohibition of that article a form of coordination between undertakings wich, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risk of competition”.144 In conjunction with ‘concertation’, the Court of Justice of the EU in the Suiker Unie case explicitly mandated the undertaking’s independence postulate (Selbständigkeitspostulat), which further reiterated by the ECJ decided in the T-Mobile Netherlands case: “While it is correct to say that this requirement of independence does not deprive economic operators of the right to adapt themselves intelligently to the existing or anticipated conduct of their competitors, it does, none the less, strictly preclude any direct or indirect contact between such operators by which an undertaking may influence the conduct on the market of its actual or potential competitors or disclose to them its decisions or intentions concerning its own conduct on the market where the object or effect of such contact is to create conditions of competition which do not correspond to the normal conditions of the market in question, regard being had to the nature of the products or services offered, the size and number of the undertakings involved and the volume of that market (see, to that effect, SuikerUnie and Others v Commission, paragraph 174; Züchner, paragraph 14; and Deere v Commission, paragraph 87).”145 2.2.2.2.3.1 142 ibid. 143 ibid. 144 Emmerich in Immenga and Mestmäcker, Wettbewerbsrecht, (n 44) 188. 145 Suiker Unie, (n 135) para. 173. Para. 33 of the Judgement. cf. Letl (n 138) 37–39. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 39 Subsequently, the Court’s arguments abovementioned has been confirmed again in the Dole Food case, whereby the concerted practices prohibition does not deprive an undertaking’s right to adapt itself intelligently to the market conducts of competing undertakings.146 Whereas an undertaking had participated in a meeting or a series of meetings, whose intentions was to create cartels on a market, thus this undertaking is to be deemed as the cartels’ participant. Nonetheless, this proposition is refutable, whenever an undertaking can prove that it had explicitly asserted an opposition before other participants against the envisaged cartels, as the Court of Justice vividly accentuated in the Aarlborg Portland Cement case: “any regular participant at a meeting at which an anticompetitive agreement is concluded will be taken to have participated in that agreement, unless it can establish that the undertaking did not have any competitive intention when it attended the meeting, and that the other participants were aware of this. It appears, therefore, that the participants tacitly accept an offer to collude by not publicly distancing themselves further from the agreement. It is no defence that the participant did not put the initiatives into effect and evidence of prices or other behavior not reflecting those discussed at the meeting would not be sufficient to prove that it had not participated in the scheme.”147 Furthermore, the Court of Justice of EU underlines the threshold of an undertaking’s participation in the cartel purposive meetings, as follows: “According to settled case-law, it is sufficient for the Commission to show that the undertaking concerned participated in meetings at which anticompetitive agreements were concluded, without manifestly opposing them, to prove to the requisite standard that the undertaking participated in the cartel. Where participation in such meetings has been established, it is for that undertaking to put forward evidence to establish that its participation in those meetings was without any anti-competitive intention by demonstrating that it had indicated to its competitors that it was participating in those meetings in a spirit that was different from theirs (see 146 Case C-286/13 P Dole Food Company, Inc. and Dole Fresh Fruit Europe v European Commission. para.120. 147 Joined cases C-204/00 P, C-205/00 P, C-211/00 P, C-213/00 P, C-217/00 P and C-219/00 P. Aalborg Portland A/S (C-204/00 P), Irish Cement Ltd (C-205/00 P), Ciments français SA (C-211/00 P), Italcementi – Fabbriche Riunite Cemento SpA (C-213/00 P), Buzzi Unicem SpA (C-217/00 P) and Cementir – Cementerie del Tirreno SpA (C-219/00 P) v Commission of the European Communities.2004 I-00123. paras. 79–80. Chapter Two The Cartel Prohibition 40 Case C-199/92 P Hüls v Commission [1999] ECR I-4287, paragraph 155, and Case C-49/92 P Commission v Anic [1999] ECR I-4125, paragraph 96). The reason underlying that principle of law is that, having participated in the meeting without publicly distancing itself from what was discussed, the undertaking has given the other participants to believe that it subscribed to what was decided there and would comply with it. The principles established in the case-law cited at paragraph 81 of this judgment also apply to participation in the implementation of a single agreement. In order to establish that an undertaking has participated in such an agreement, the Commission must show that the undertaking intended to contribute by its own conduct to the common objectives pursued by all the participants and that it was aware of the actual conduct planned or put into effect by other undertakings in pursuit of the same objectives or that it could reasonably have foreseen it and that it was prepared to take the risk (Commission v Anic, paragraph 87).”148 In similar arguments, Ghezzi and Maggiolino argue: “what neutralizes the evil of solicitation to collude is that rivals take (genuine) public distance from, or manifest their opposition to, the gained information. Since cartels’ likehood is seriously undermined when competitors do not give their rivals reasons to believe that they are intended to subscribe the invitation and comply with it, only rivals’s clear statement that they do not wish to receive strategic date, or that they do not want to particpate in the cartel, or in meetings of a professional asscoiation which served as a veil for unlawful concerted actions, are the quite essential tools to exclude concertation.”149 ‘Subsequent Market Conduct’ Not only the concertation and the causality, concerted practices prerequisites also the subsequent implementing market behaviour or conducts. As it had been asserted in the case Hüls AG v Commission, the ECJ argued that: 2.2.2.2.3.2 148 ibid. paras.81 – 85. See also Van Bael and Bellis, Competition Law of the European Communitie (5th Ed. Kluwer Law International, 2009), 40. 149 Van Bael and Bellis, Competition Law of the European Community, 5th Edition (Wolters Kluwer, Hague,2010), p. 25–33. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 41 “It follows, first, that the concept of a concerted practice, as it results from the actual terms of Article 81(1) EC, implies, besides undertakings' concerting with each other, subsequent conduct on the market, and a relationship of cause and effect between the two.”150 ‘Causality’ In the case Hüls AG v. Commission, the Court of Justice confirmed that: “However, subject to proof to the contrary, which the economic operators concerned must adduce, the presumption must be that the undertakings taking part in the concerted action and remaining active on the market take account of the information exchanged with their competitors for the purposes of determining their conduct on that market. That is all the more true where the undertakings concert together on a regular basis over a long period, as was the case here, according to the findings of the Court of First Instance.”151 In the case of T-Mobile Netherlands, the Court of Justice reiterated: “In the light of the foregoing considerations, the answer to the second question must be that, in examining whether there is a causal connection between the concerted practice and the market conduct of the undertakings participating in the practice – a connection which must exist if it is to be established that there is concerted practice within the meaning of Article 81(1) EC – the national court is required, subject to proof to the contrary, which it is for the undertakings concerned to adduce, to apply the presumption of a causal connection established in the Court’s case-law, according to which, where they remain active on that market, such undertakings are presumed to take account of the information exchanged with their competitors.“ Nevertheless, the causality presumption between the ‘concertation’ and subsequent market conduct is subject to rebuttal. In the T-Mobile Netherlands case, the ECJ argued:152 “Vodafone, T‑Mobile and KPN essentially take the view that it cannot be inferred from Commission v Anic Partecipazioni or Hüls that the presumption of a causal connection is applicable in all cases. In their view, that presumption should be applied only in cases in which the facts and circumstances are the same as those in those cases. In essence, they sub- 2.2.2.2.3.3 150 Case C-199/92 P Hüls AG v Commission of the European Communities, 1999 I-04287, para. 161. cf. Lettl, Kartellrecht, 38. 151 ibid. para. 156. 152 T-Mobile Netherlands (n 136) para.55 cf. Jones and Sufrin (n 46) 550. Chapter Two The Cartel Prohibition 42 mit that it is only where the undertakings concerned meet on a regular basis, in the knowledge that confidential information has been exchanged in the course of previous meetings, that those undertakings can be presumed to have been guided in their market conduct on the basis of the concerted action. Moreover, they consider that it is irrational to take the view that an undertaking should base its market conduct on information exchanged in the course of just one meeting, in particular where, as in the case in the main proceedings, the meeting has a legitimate purposen the other hand, the Netherlands Government and the Commission submit that it is evident from the case‑law, the Commission v AnicPartecipazioni and Hüls, that the presumption of a causal connection is not dependent on the number of meetings which gave rise to the concerted action. They observe that such a presumption is justified if the contact which took place, due being had to its context, content and the frequency with which it occurred, is sufficient to result in coordination of conduct on the market that is capable of preventing, restricting or distorting competition within the meaning of Article 81(1) EC and if, moreover, the undertakings concerned remain active on the market.” The Concerted Practices’ Main Instruments In the praxis of Competition law, the information exchanges have been the primary instrument for the concerted practice. By means of an exchange of information, an undertaking would be capable to eliminate uncertainties as to the reactions and responses of competitors on the market.153 Basically, the information exchange can be found as a general practice in many competitive markets. Accordingly, the Guidelines on Horizontal Cooperation Agreements denotes: “Competitors cannot compete in a statistical vacuum: the more information they have about market conditions, the volume of demand, the level of capacity that exists in an industry and the investment plans of rivals, the easier it is for them to make rational and effective decisions on their production and marketing strategies. Competitors may benefit, without harming their customers, by exchanging information on matters such as methods of accounting, stock control, book-keeping or the draftsmanship of standard-form contracts.”154 Emmerich further explains, that the information exchange serves, at the same time, not only to inform other competitors as to planned and 2.2.2.2.3.4 153 Emmerich in Immenga and Mestmäcker, Wettbewerbsrecht, (n 44) R. 89–90. 154 Slaughter and May, ‘The EU Competition Rules on Horizontal Agreements: A Guide to the Assessment of Horizontal Agreements’, (Guidelines, June 2016), 8–10. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 43 envisaged conducts (behaviour) on the market, but also to obtain exposure as to the future conducts (behaviour) of other competitors on the market.155 In the legal practices, the exchange of information can occur either directly or through third party. The information exchange could pertain actual market data or future market information as well as the relevant to competition data.156 On the market, the information exchanges could take place through several occasions. Firstly, the information is being exchanged directly between competitors, secondly, indirectly through a common focal point, such as a trade association, thirdly, through a third party, such as a market research institution or the retailers or suppliers.157 In the praxis of European Competition law, the Commission distinguishes between two categories of information exchanges: (1) information exchanges, which are neutral to competition; and (2) information exchanges, restricting competitions on the market.158 Whereas the exchanges of information regarding aggregated corporate data according to statistical customs and anonymous is classified under the first category; the information exchanges concerning individualised and strategic data on volumes and prices of a product is to be classified as the latter category.159 155 Emmerich in Immenga, Mestmäcker, (n 44) R. 89–90. 156 C. Sadler, ‚Informationsaustausch zwischen Unternehmen Die Rechtslage in der EU und in Deutschland‘ (Studienvereinigung Kartellrecht, 12. Juni 2015), 3 -5. 157 Commission, ‘Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements’ (Text with EEA relevance) COM 2011/C 11/01, para. 55. 158 ibid. paras. 55–59. cf. Emmerich in Immenga and Mestmäcker, (n 44), 272–273. 159 With regard to the first category: „Exchanges of genuinely aggregated data, where the recognition of individualised ompany level information is sufficiently difficult, are much less likely to lead to restrictive effects n competition than exchanges of company level data. Collection and publication of aggregated market data (such as sales data, data on capacities or data on costs of inputs and components) by a trade organisation or market intelligence firm may benefit suppliers and customers alike by allowing them to get a clearer picture of the economic situation of a sector. Such data collection and publication may allow market participants to make better-informed individual choices in order to adapt efficiently their strategy to the market conditions. More generally, unless it takes place in a tight oligopoly, the exchange of aggregated data is unlikely to give rise to restrictive effects on competition. onversely, the exchange of individualised data facilitates a common understanding on the market and punish- Chapter Two The Cartel Prohibition 44 Hence, the exchange of information can constitute the concerted practices if it reduces strategic uncertainties about the competitors’ conduct on a market, leading to facilitation of cartels.160 The Concerted Practices and the Facilitating Practices In practice, cartels, occurring through collusive agreements and/or the concerted practices, take place due to the following factors, which are: First, the existence of direct or indirect inter-firm contacts and second, the intention or effect of influencing the market conducts of undertakings concerned.161 Furthermore, in the tacit collusion, the following components must be present to establish a cartel: 1. Firms have to reach terms of coordination; 2. They need to monitor compliance; 3. It is important for them to threaten timely retaliation and 4. to limit the reactions by outsiders. 2.2.2.2.3.5 ment strategies by allowing coordinating companies to single out a deviator or entrant. Nevertheless, the possibility cannot be excluded that even the exchange of aggregated data may facilitate a collusive outcome in markets with specific characteristics. Namely, members of a very tight and stable oligopoly exchanging aggregated data who detect a market price below a certain level could automatically assume that someone has deviated from the collusive outcome and take marketwide retaliatory steps. In other words, in order to keep collusion stable, companies may not always need to know who deviated, it may be enough to learn that ‘someone’ deviated. Whereas regarding the second category: The exchange between competitors of strategic data, that is to say, data that reduces strategic uncertainty in the market, is more likely to be caught by Article 101 than exchanges of other types of information. Sharing of strategic data can give rise to restrictive effects on competition because it reduces the parties’ decision-making independence by decreasing their incentives to compete. Strategic information can be related to prices (for example, actual prices, iscounts, increases, reductions or rebates), customer lists, production costs, quantities, turnovers, sales, capacities, qualities, marketing plans, risks, investments, technologies and R&D programmes and their results. Generally, information related to prices and quantities is the most strategic, followed by information about costs and demand. However, if companies compete with regard to R&D it is the technology data that may be the most strategic for competition. The strategic usefulness of data also depends on its aggregation and age, as well as the market context and frequency of the exchange. See COM 2011/C 11/01, paras. 86 and 89. cf. Zimmer in Immenga and Mestmäcker, Wettbewerbsrecht, (n 44) 272–73. 160 Slaughter and May, (n 154) 8–10. 161 Van Bael and Bellis, Competition Law, (n 148) 38–50. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 45 In the oligopolistic market structure, there are the so-called “facilitating practices” (facilitating mechanisms or devices), which could bring two effects: First, the contribution for the prompting factors abovementioned and second, making easier for the formation of cartels.162 On the one hand, according to Page, the facilitating practices refer to mechanisms that enhance rival firms’ ability to closely monitor arrangements on the key terms of a collusion and to detect and thus penalize deviating firms or cheaters.163 These include price reporting systems, preannouncements of price changes, most favoured customers clauses, meeting competition clauses, basing (delivered) point pricing and an industry-wide resale price maintenance.164 Further, the facilitating practices are part of oligopolistic behaviour, which is useful for the competition analysis.165 On the other hand, Hovenkamp adds that the facilitating practices exist whenever “Firms [….] agree among themselves, either explicitly or tacitly, to engage in certain practices that will make collusion easier”.166 Equally important, the OECD defines a facilitating practice as one that “makes it easier for parties to coordinate price or other behaviour in an anticompetitive way”.167 Furthermore, the facilitating practices are divided into two categories: First, the facilitating practices which facilitate agreement on the central provisions of price or output.168 Second, the 162 W. H. Page ‘Facilitating Practices and Concerted Action Under Section 1 of the Sherman Act’ (Antitrust Law and Economics Journal, University of Florida – Levin College of Law, 2008) ‹https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1117 667›, accessed 22.October 2018. 163 ibid. 3–8. 164 ibid. 3–8. 165 ibid. 25. 166 H. Hovenkamp, Federal Antitrust Law Policy: The Law of Competition and Its Practice (West Publishing Company,1994) 171. 167 According to the OECD: These (facilitating practices) agreements can channel competition and thus limit the ways in which firms engage in nonprice or quality competition as a way of cheating on a price agreement. Expressed differently, one mechanism facilitates making an initial agreement on price, and the other tends to protect a price agreement that has already been reached. Regardless of its specific type, any facilitating agreement may produce anticompetitive effects, or efficiencies, or both.” See OECD, ‘Facilitating Practices in Oligopolies’ (OECD Secretariat, 2007) 9–11. 168 This includes for example agreements thatexchange plans on future prices, or take factory downtime. ibid. Chapter Two The Cartel Prohibition 46 facilitating practices that restrict competition on the market collaterally as to non-price parameters.169 In other words, there are facilitating practices that foster an initial collusion on prices as well as the practices which protect a price agreement already achieved.170 Furthermore, according to Hylton the facilitating practices or facilitating mechanisms refer to mechanisms which make collusion more effective by serving one or more of the following functions: First, to establish a methodology for monitoring compliance. Second, to enable parties to enforce compliances and to cover collusion from a public view.171 According to OECD, the facilitating practices can be categorised into two main types, namely: (1) the practices facilitating the formation of price cartels as well as (2) the practices maintaining the prevailment of cartelised prices.172 The plan for data dissemination is the example of facilitating mechanisms. Nevertheless, the data dissemination plan could constitute cartels or concerted practices, provided it is a ‘necessary and sufficient’ element for a price-fixing cartel. It must be bore in mind that the data dissemination plan would not only facilitate cartels but could also facilitate other less harmful or even beneficial results at the end.173 In different perspectives, Grillo explains that the facilitating practices refer to: “a behavioral attitude other than the one that merely guarantees strategic equilibrium co-ordination, which contribute to a number of typical artifices that characterise the organization of actual oligopolies, provided economic analysis supports the theoretical conclusion that such “artifices” can only be normally understood as social mechanisms intended to ease the collusive maximization of the industry joint profits.”174 Nevertheless, the facilitating practices are subject to careful and prudent analysis by the Competition Authorities, whether these practices would 169 ibid. 170 ibid. 171 K. Hylton, Antitrust Law: Economic Theory and Common Law Evolution (Cambridge University Press, 2011) 144. 172 OECD, ‘Facilitaing Practices’ (n 167), 2. 173 ibid. 144. 174 M. Grillo, ‘Collusiong and Facilitating Practices’ (European Journal of Law and Economics, Kluwer Academic Publishing 2002) 151–169. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 47 result in the anticompetitive effects, procompetitive effects or both of them.175 Accordingly, the OECD argued for the following opinions: “The agencies assess facilitating practices in light of their individual purposes and effects. Sometimes facilitating practices may decrease competition, through such mechanisms as reducing the number of bidding variables on which the colluding firms would have to reach agreement, or helping to monitor defections from such an agreement. In other respects, however, the same practices may help to bring about beneficial efficiencies. The reduction in bidding variables may facilitate collusion, but also can help buyers to make head-to-head price comparisons, and in that respect may tend to make a market more competitive rather than less. Similarly, mechanisms to monitor defections may also tend to make prices and bidding more transparent, which under some conditions may induce greater competitive efforts by other firms. Given these complexities, the agencies must attempt to balance the procompetitive and anticompetitive effects of changes to facilitating practices that would be caused by any enforcement actions.” 176 Particularly important, in the US Antitrust law practice, facilitating practices serve as “circumstantial evidence” of a collusive agreement. In other words, the US Competition Authorities can merely: “use the evidence on the facilitating practices (or even on an agreement the content of which is the facilitating practice) to detect the main agreement, in which the undertakings reached a meeting of minds to commit cartel or concerted practices.177” Subsequently, the facilitating practices under the cartel prohibition, could manifest in an adoption of rivals’ practices by an express agreement as well as an adoption of the practices by means of parallel conduct on a market.178 In particular as to the adoption of facilitating practices, that are accompanied by the market parallel conduct, the Competition Authority must pay rigorous analysis in order to judge the existence of an collusive agreement (cartels). As a matter of fact, the Competition Authority cannot immediately infer the existence of cartels because of the existence of facilitating practices and a market parallel conduct. Put differently, the US Court’s evidentiary rule is of opinion that “facilitating practices (devices)” are not necessarily sufficient under the law to 175 OECD, Roundtable on Facilitating Practices in Oligopolies (2007), p. 2 176 ibid., p. 2. 177 M. Grillo (n 174) 159–60. 178 W. Page (n 162) 29. Chapter Two The Cartel Prohibition 48 constitute a “plus factor”.179 Consequently, the Court would not conclude the existence of a collusive agreement only by seeing, at the first snapshot, the presence of parallel pricing that is accompanied by facilitating practices.180 In the US Court’s case decision it is stated that: “facilitating devices” are not necessarily sufficient under the law to constitute a “plus factor”. There are two reasons supporting this argument: First, there could be an independent justification for a firm to adopt practices facilitating coordinated prices. Second, a parallel adoption of the facilitating practices by competing firms will not preclude the possibility that each firm acted independently on the market.181 Hence, the US Antitrust scholar, Page, argues that the analysis of facilitating practices and parallel conduct must take into account the following elements, which are: (1) a definition of an agreement; (2) mutual communication between firms regarding a reliance and an intent to collude.182 Further, the facilitating practices must be accompanied by inter-firm communications and supporting evidences to conclude, based on the nature and substances of communication, that the firms have a concertation of wills to collude on the market.183 In practice of the US Antitrust Law and subsequently in the European Competition Law, the ‘facilitating devices’have been developed. Basically, these are arrangements or practices which can be construed as helping firms in at least one of the 4 steps to stable, successful tacit collusion: defining the possible agreements; focusing upon one; preserving it and providing for credible effective punishment.184 These practices, encompass, among others, as follows: Information Exchanges In practice of European Competition Law and US Antitrust law, the information exchange could occur through several scenarios. First, 2.2.2.2.3.5.1 179 ibid. 180 W. Page (n 162) 30. 181 ibid. 33. 182 ibid. 30 183 ibid. 184 T. Frazer and M. Waterson, Competition Law and Policy: Cases, Materials and Commentary (Prentice Hall Publishing, 1994) 78–80. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 49 direct sharing of data between competing undertakings. Second, by means of a common agency, such as trade associations. Third, through the third party, such as a market research organisation. Fourth, by means of the undertakings’ suppliers or retailers.185 Equally important, by the context, one can distinguish information exchange through agreements, decisions of association of undertakings and concerted practices whereby their main goal is the exchange of information itself. Moreover, information exchange serves only as a part of whole horizontal cooperation agreement, such as the parties in production agreement share certain information on costs or in the Research and Development agreement. Consequently, each of these information exchanges require contextual assessment of the horizontal cooperation agreement.186 Furthermore, the EU Competition Law acknowledges the possible procompetitive and anticompetitive effects of information exchange in the market. From the procompetitive aspect, information exchange may solve problems of information asymmetries, leading to various efficiencies gains. Moreover, undertakings could increase efficiencies by means of benchmarking towards other undertakings’ best practices. In addition, undertakings are able to save costs by reducing their inventories, enabling quicker delivery of perishable products to consumers. Besides, the consumers can reap benefits directly by diminishing costs of search and improving choice.187 From the anticompetitive aspect, information exchange could lead to restriction of competition, whenever the information exchange involves so-called ‘strategic information exchange’. This, however, depends largely both on the market characteristics (such as concentration, transparency, stability, symmetry, complexity) and the types of exchanged information, capable of modifying the market’s circumstances. Most important, information exchange between undertakings could constitute cartels practice, whereby the exchanged information facilitates collusion by means of monitoring the participating 185 ibid. 186 The Commission Guidelines on Horizontal Cooperation Agreement of 2010, para 57. 187 The Commission Guidelines on Horizontal Cooperation Agreement of 2010, para 58. Chapter Two The Cartel Prohibition 50 undertakings; that is to say, whether the undertakings obey the cartels practices terms or not.188 Moreover, communication of information among competitors may constitute an agreement, a concerted practice, or a decision by an association of undertakings with the object of fixing, in particular, prices or quantities. Those types of information exchanges will normally be considered and be penalized as cartels. Information exchange may also facilitate the implementation of a cartel by enabling companies to monitor whether the participants comply with the agreed terms. Those types of exchanges of information will be assessed as part of the cartel. As has been noted, under the prohibition rule of Article 101 (1) TFEU, information exchange could trigger restriction of competitions in the market. As a result, the Commission explicitly indicates two anticompetitive concerns with regard to information exchange, provided the agreements, decisions of association of undertakings concerted practices have been existing before. These concerns comprise: First, the collusive outcome189 and second, the anticompetitive foreclosure.190 As far as the collusive outcome is concerned, the Commission Guidelines on Horizontal cooperation agreement reiterates that information exchange facilitates collusive practices by conducing artificial transparency on the market, whereas these illegal practices could result from three main channels, which are: First through the information exchange, whereas undertakings caneasily reach collusive deals over competition parameters, such as prices and product quantity, even without involving explicit agreement. Also, the information exchange could reduce uncertainties as to the future circumstances in the market by generating the mutually consistent business expectations amongst undertakings. Equally important, the Commission emphasises that the information exchange concerning future conducts will be largely against the prohibition rule of Article 101 (1) TFEU. Second information exchange facilitates anticompetitive practices by increasing the internal stability of collusive outcomes in the market; that is to say, the undertakings are able to monitor and thus punish other 188 The Commission Guidelines on Horizontal Cooperation Agreement of 2010, para 59. 189 The Commission Guidelines on Horizontal Cooperation Agreements, paras. 65–68. 190 The Commission Guidelines on Horizontal Cooeration Agreements, paras. 69–71. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 51 participating undertakings whenever they deviate or disobey the cartels agreement by means of retaliating measures. Third, information exchange facilitates an increase as to the external stability of a collusive outcome on the market. Thus, the colluding undertakings could monitor other undertakings, notably when and where they will enter the market, in order to target the new entry undertakings. At the same time, this restrictive practice relates largely to foreclosure effects in the market. The Commission believes that both of exchanges of present and past information constitute a monitoring mechanism abovementioned. Furthermore, as regards to the anticompetitive foreclosure effect, the Commission hypothesises that information exchange leads to foreclosure effects both to the undertakings engaging in the same relevant market as well as the third parties in a related market.191 With regard to the competition assessment of information exchanges, the EU Competition law prerequisites that comprehensive analysis concerning restrictions of competition either ‘by objects’ or ‘by effects’ must be performed. In the analysis of restriction of competition by object, the Commission will particularly take into account: First, the legal and economic contexts in which the exchange takes place. Second, whether the exchange, by its very nature would lead to restrictions of competition. Moreover, the Commission argues that “Exchanging information on companies’ individualised intentions concerning future conduct regarding prices or quantities is particularly likely to lead to a collusive outcome.” Finally, the Commission concludes that “informa- 191 According to Commission Guidelines on Horizontal Cooperation Agreements, regarding foreclosure effects in the same relevant market. This can occur when the exchange of commercially sensitive information places unaffiliated competitors at a significant competitive disadvantage as compared to the companies affiliated within the exchange system. This type of foreclosure is only possible if the information concerned is very strategic for competition and covers a significant part of the relevant market.” On the other hand, the Commission asserted as to foreclosure effects to third parties:? “This can occur when the exchange of commercially sensitive information places unaffiliated competitors at a significant competitive disadvantage as compared to the companies affiliated within the exchange system. This type of foreclosure is only possible if the information concerned is very strategic for competition and covers a significant part of the relevant market.” The Commission Guidelines on Horizontal Cooperation Agreements, para. 70–71. Chapter Two The Cartel Prohibition 52 tion exchanges between competitors of individualized data regarding intended future prices or quantities should therefore be considered a restriction of competition by object.” Consequently, this kind of information exchange, according to the Commission, will hardly fulfill the legal exemptions pursuant to Article 101 (3) TFEU. Whereas the horizontal agreement contains restriction of competition by objects, the Competition Authorities do not have to conduct analysis over restriction of competition by effect.192 According to the Commission, as to the latter elements: “The likely effects of an information exchange on competition must be analysed on a case-by-case basis as the results of the assessment depend on a combination of various case specific factors. The assessment of restrictive effects on competition compares the likely effects of the information exchange with the competitive situation that would prevail in the absence of that specific information exchange. For an information exchange to have restrictive effects on competition within the meaning of Article 101(1), it must be likely to have an appreciable adverse impact on one (orseveral) of the parameters of competition such as price, output, product quality, product variety or innovation. Whether or not an exchange of information will have restrictive effects on competition depends on both the economic conditions on the relevant markets and the characteristics of information exchanged.”193 Nevertheless, it should be bore in mind, that in conducting analysis over restriction of competition by effects, the Commission suggests that several key market characteristics must be carefully scrutinised.194 Moreover, the market conditions should be analised carefully at first before information exchange takes place. Most important, the market characteristics encompass the following aspects:195 First, transparen- 192 ibid. 193 The Commission Guidelines on Horizontal Cooperation Agreements, para. 75. 194 The Commission Guidelines on Horizontal Cooperation Agreement, paras. 77–85. 195 The Commission Guidelines on Horizontal Cooperation Agreement, para. 77–85. See Geradin, et.al, p.431–2. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 53 cy,196 second, concentration,197 third, complexity,198 fourth, stability,199 fifth, symmetry200 and sixth, possibility of retaliation.201 196 According to the Commission Guidelines on Horizontal Cooperation Agreement, para.77–8: Companies are more likely to achieve a collusive outcome in markets which are sufficiently transparent, concentrated, non-complex, stable and symmetric. In those types of markets companies can reach a common understanding on the terms of coordination and successfully monitor and punish deviations. However, information exchange can also enable companies to achieve a collusive outcome in other market situations where they would not be able to do so in the absence of the information exchange. Information exchange can thereby facilitate a collusive outcome by increasing transparency in the market, reducing market complexity, buffering instability or compensating for asymmetry. In this context, the competitive outcome of an information exchange depends not only on the initial characteristics of the market in which it takes place (such as concentration, transparency, stability, complexity etc.), but also on how the type of the information exchanged may change those characteristics 197 According to the Commission Guidelines on Horizontal Cooperation Agreement, para.79: Tight oligopolies can facilitate a collusive outcome on the market as it is easier for fewer companies to reach a common understanding on the terms of coordination and to monitor deviations. A collusive outcome is also more likely to be sustainable with fewer companies. With more companies coordinating, the gains from deviating are greater because a larger market share can be gained through undercutting. At the same time, gains from the collusive outcome are smaller because, when there are more companies, the share of the rents from the collusive outcome declines. Exchanges of information in tight oligopolies are more likely to cause restrictive effects on competition than in less tight oligopolies and are not likely to cause such restrictive effects on competition in very fragmented markets. However, by increasing transparency, or modifying the market environment in another way towards one more liable to coordination, information exchanges may facilitate coordination and monitoring among more companies than would be possible in its absence. 198 According to the Commission Guidelines on Horizontal Cooperation Agreement, para.80: Companies may find it difficult to achieve a collusive outcome in a complex market environment. However, to some extent, the use of information exchange may simplify such environments. In a complex market environment, more information exchange is normally needed to reach a common understanding on the terms of coordination and to monitor deviations. For example, it is easier to achieve a collusive outcome on a price for a single, homogeneous product, than on numerous prices in a market with many differentiated products. It is nonetheless possible that to circumvent the difficulties involved in achieving a collusive outcome on a large number of prices, companies may exchange information to establish simple pricing rules (for example, pricing points). 199 According to the Commission Guidelines on Horizontal Cooperation Agreement, para.81: Collusive outcomes are more likely where the demand and supply conditions are relatively stable (1). In an unstable environment it may be difficult for Chapter Two The Cartel Prohibition 54 Equally important, in performing legal analysis of restriction of competition by object, the Commission underlines the categorisation or characteristic of information being exchanged in the market. Principally, the Guidelines on Horizontal cooperation agreement acknowla company to know whether its lost sales are due to an overall low level of demand or due to a competitor offering particularly low prices, and therefore it is difficult to sustain a collusive outcome. In this context, volatile demand, substantial internal growth by some companies in the market, or frequent entry by new companies, may indicate that the current situation is not sufficiently stable for coordination to be likely (2). Information exchange in certain situations can serve the purpose of increasing stability in the market, and thereby may enable a collusive outcome in the market. Moreover, in markets where innovation is important, coordination may be more difficult since particularly significant innovations may allow one company to gain a major advantage over its rivals. For a collusive outcome to be sustainable, the reactions of outsiders, such as current and future competitors not participating in the coordination, as well as customers, should not be capable of jeopardising the results expected from the collusive outcome. In this context, the existence of barriers to entry makes it more likely that a collusive outcome on the market is feasible and sustainable. 200 According to the Commission Guidelines on Horizontal Cooperation Agreement, para.82: A collusive outcome is more likely in symmetric market structures. When companies are homogenous in terms of their costs, demand, market shares, product range, capacities etc., they are more likely to reach a common understanding on the terms of coordination because their incentives are more aligned. However, information exchange may in some situations also allow a collusive outcome to occur in more heterogeneous market structures. Information exchange could make companies aware of their differences and help them to design means to accommodate for their heterogeneity in the context of coordination. 201 According to the Commission Guidelines on Horizontal Cooperation Agreement, para. 85: Overall, for a collusive outcome to be sustainable, the threat of a sufficiently credible and prompt retaliation must be likely. Collusive outcomes are not sustainable in markets in which the consequences of deviation are not sufficiently severe to convince coordinating companies that it is in their best interest to adhere to the terms of the collusive outcome. For example, in markets characterised by infrequent, lumpy orders, it may be difficult to establish a sufficiently severe deterrence mechanism, since the gain from deviating at the right time may be large, certain and immediate, whereas the losses from being punished small and uncertain, and only materialise after some time. The credibility of the deterrence mechanism also depends on whether the other coordinating companies have an incentive to retaliate, determined by their short-term losses from triggering a price war versus their potential longterm gain in case they induce a return to a collusive outcome. For example, companies’ ability to retaliate may be reinforced if they are also interrelated by vertical commercial relationships which they can use as a threat of punishment for deviations. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 55 edges 7 characteristics: First, strategic information,202 second, market coverage,203 third, aggregated or individualised information,204 fourth, age of information,205 fifth, frequency of the information exchange,206 sixth, public or non-public information207 and seventh, public or nonpublic exchange of information.208 Price Leadership According to the Organisation for Economic Co-operation and Development (OECD), a price leadership: “refers to a situation where prices and price changes established by a dominant firm, or a firm are accepted by others as the leader, and which other firms in the industry adopt and follow.”209 In Bain’s analysis regarding price leadership ‘in an oligopolistic market any independent price change by a single oligopolist tends to be read as an ‘offer’ by his rivals, and an acceptable reaction to the price change may be interpreted as an acceptance of the offer of the first firm. Thus, negotiation can perhaps take place through a series of public announcements rather than through a meeting of persons, and the meaning of true consensual action becomes vague’.210 According to Markham, there are three categories of a price leadership, which are: First, a dominant price-leadership ‘whereas one dominant competitor, the only firm large enough to significantly affect the market, imposes its prices upon the industry, and the other competitors follow, 2.2.2.2.3.5.2 202 The Commission Guidelines on Horizontal cooperation agreements, para. 86. 203 The Commission Guidelines on Horizontal cooperation agreements, para. 87–88. 204 The Commission Guidelines on Horizontal cooperation agreements, para. 89. 205 The Commission Guidelines on Horizontal cooperation agreements, para. 90. 206 The Commission Guidelines on Horizontal cooperation agreements, para. 91. 207 The Commission Guidelines on Horizontal cooperation agreements, para. 92–93. 208 The Commission Guidelines on Horizontal cooperation agreements, para. 94. 209 However according to Seaton and Waterson “Price leadership occurs when one firm makes a change in a price (or set of prices) that is followed within a predetermined short period by the other (more generally, another) firm making a price change of exactly the same monetary amount in the same direction on the same product(s), and doing so significantly more often than would be expected by chance.” Khemani and Shapiro, Glossary of Industrial Organisation Economics and Competition Law (n 39). Page? 210 Stroux, EC and US Oligopoly, (n 51) 28–29. Chapter Two The Cartel Prohibition 56 as they will have little to gain from diverging from the dominant firm’s prices’.211 Second, a barometric price leadership, whereas an undertaking as the leader is not dominant but is widely accepted as the best performing undertaking which is able to meet the demand and to adapt to evolving market conditions, such as cost increases.212 Third, collusive price leadership, either explicit or tacit one, where the competitors commit themselves to adapt to price increases initiated by one of them, acting as the price leader. Basing Point Pricing This is a pricing system often encountered in industries, such as steel and cement, where transport costs are high relative to production costs and buyers and sellers are spatially dispersed. In one variant, manufacturing plants of each seller are designated as bases, and a ‘base price’ is set at each of them. There is also a standard table of transport charges. Then, a buyer at any given location will be quoted a price at the nearest base plus the standard charge for transporting the product from the base to the buyer’s location.213 Most-Favoured Customer (MFC) Clauses in Buyer Seller Contracts According to Salop, MFC and ‘Meeting Competition’ (MC) clauses in contracts between undertakings could facilitate collusion between buyers and sellers as well as between sellers.214 By definition, OECD explains the most favoured customer clause as: “a provision in a sales contract, under which the seller agrees to give the buyer the benefit of any more favourable contract terms that it may later negotiate with some other purchasers (the name itself is borrowed from international tariff negotiations). Under certain narrow circumstances 2.2.2.2.3.5.3 2.2.2.2.3.5.4 211 ibid. 212 According to Stigler, in the barometric price leadership, the barometric firm commands the adherence of rivals to this price only because, and to the extent that, its price reflects market conditions with tolerable promptness. R J. Deneckere and D Kovenock, ‘Price Leadership’ (Review of Economic Studies, Vol. 59/Nr. 1, OUP, 1992), 143–162. 213 Stroux, (n 51) 28–32. cf. L. Philips, Basing Point Pricing, Competition and Market Integration (European University Institute, 1992), 2–5. 214 Hylton, (n 171), 6–8. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 57 these clauses may tend to deter competitive price-cutting, and so may tend to facilitate the maintenance of cartel prices.”215 In practice, the imposition MFN clause can result either in a benign and pro-competition impact, whereby a MFN clause warrants a buyer that if, when the contract is concluded or within some specified time period later, the seller makes a sale to another buyer at a lower price, then the buyer in question will also receive that lower price.216 Judge Posner argued that this clause “standard devices by which buyers try to bargain for low prices.”217 On the other hand, a MFN clause can lead to an anticompetitive effect whereby it deters the undertakings participating in cartels from cheating. As the OECD describes “a classic problem faced by a cartel is that its members try to cheat on it. Most-favoured-nation clauses can reduce the incentive to cheat, by increasing the cost of cheating. The low price offered on a particular contract would then become, not just a one-time occasion when the cheater could gain some incremental sales volume, but rather an occasion for across-the-board revenue losses as many of the firm’s contract prices are reset.”218 Nevertheless, the assessment of anticompetitive impact is subject to the following factors, for example: (1) the contracts must be routinely used by most undertakings in certain industries as well as by the customers; (2) the clauses that were demanded or objected by the customers are pertinent.219 Governmental Action Encouraging the Facilitating Practices According to OECD, the facilitating practices can be a manifested result of a governmental act or statute. In terms of durability and immunity to many feasible legal challenges, this governmental statute characterises cartels. Whereby these facilitating practices had been originated from the legislative statute and the administrative board, they could take several 2.2.2.2.3.5.5 215 OECD, Roundtable on Facilitating Practices in Oligopolies (2007), 6. 216 ibid. 217 ibid. 218 ibid. 219 ibid. Chapter Two The Cartel Prohibition 58 forms: (1) restrictions on advertising and (2) the authorisation form competing firms to agree on prices.220 Governmental statute encouraging the facilitating practices could result to and be prompted by anticompetitive reasons, such as lobbying of association of industries. Furthermore, the governmental statute facilitating practices are strippedoff from an immunity and thus subject to the antitrust law scrutiny, provided two situations emerge. Accordingly, OECD explains these two situations: “First, if the state agency’s actions were not clearly authorized by the state legislature – since the necessary authority must ultimately come from one of the state’s constitutional branches. Second, if the scheme is not “actively supervised” by some part of the state government, to make the conduct truly the state’s own. It is not yet entirely clear at what point a facilitating practice will create “private market power” for this purpose; nor it is entirely clear whether a state regulatory board, numerically dominated by members of the regulated profession, has enough private characteristics to require active supervision.”221 Appreciable Restrictions of Competition and which have as their object or effect the prevention, restriction or distortion of competition”222 According to Säcker and Molle, within the practices of EU Competition Laws, although some agreements may restrict competition, these agreements could finally bring efficiencies enhancements and thus promote working competition. Accordingly, this occurs whenever a restrictive to competition accord is a part of the larger agreements, which serve only neutral economic purposes. Thus, to determine the procompetitive and anticompetitive effects of agreements abovementioned, the appreacibility or noticeability (Spürbarkeitstest) must take place.223 Equally important, in the context of EU Competition law analysis, this thinking could correlate to the concept of “ancillary restraints”, meaning: restriction on the parties to agreements, which initially appears restrictive to competition, but actually does not consti- 2.2.2.3 220 OECD, Roundtable on Facilitating Practices in Oligopolies (2007) 6. 221 OECD, Roundtable on Facilitating Practices in Oligopolies (2007). 9. 222 Säcker and Molle in F.J. Säcker (n 13) 718–720. 223 ibid. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 59 tute the main goals of the agreements but is directly related to and necessary for the proper implementation of the genuine objectives envisaged by the agreements.224 Although different in nature, the concept of “Ancillary Restraints” corresponds to some extend to the concept of “Rule of Reason” in the US Antitrust laws. By comparison, the “Rule of Reason” refers to a legal approach in the competition law whereas the competition authorities and the courts make attempts to evaluate the pro-competitive effects of a restrictive business practice against the anti-competitive effects thereof for determining whether or not the practice should be prohibited.225 Arguably, the implementation of the “Rule of Reason” has been dogmatically viewed as the balancing consideration effort in the light of the EU Competition laws’ objectives, particularly towards the strict prohibition rule of Article 101 (1) TFEU. Moreover, according to Säcker and Molle, the concept of weighing the pro-competitive and anti-competitive effects of certain agreements under the provisions of Article 101 (1) and (3) TFEU has been derived from the “Rule of Reason” concept in the US Antitrust laws.226 In contrast to the Per se Illegal approach, “the Rule of Reason” concerns 224 Institute of Competition Law, ‘Glossary of Competition Terms’ ‹http://www.conc urrences.com/Droit-de-la-concurrence/Glossaire-des-termes-de/?lang=en› accessed 24 March 2016. 225 Furthermore, according to the OECD: “some market restrictions which prima facie give rise to competition issues may on further examination be found to have valid efficiency-enhancing benefits. For example, a manufacturer may restrict supply of a product in different geographic markets only to existing retailers so that they earn higher profits and have an incentive to advertise the product and provide better service to customers. This may have the effect of expanding the demand for the manufacturer's product more than the increase in quantity demanded at a lower price. The opposite of the rule of reason approach is to declare certain business practices per se illegal, that is, always illegal are per se illegal.” See Khemani and Shapiro (n 39) 77. 226 The US Antitrust laws introduced firstly in 1914 by the Sherman Act 1980 and thus complemented by the Clayton Act. In the same year, the Federal Trade Commission Act was enacted. Further, in 1936 the Clayton Act had been amended by the Robinson Patman Act, whereas the imporvemeents were limited to Article 2 of the Clayton Act. cf. A. F. Lubis and N. N. Sirait (eds), Hukum Persaingan Usaha: Antara Teks and Konteks (Gesellschaft für Technische Zusammenarbeit-GTZ, 2009), 55–80. Chapter Two The Cartel Prohibition 60 chiefly with the effects-based assessment over agreements or corporate conducts in order to determine whether the agreements or corporate actions in question are either to promote or to restrict competitions.227 Originally, the Rule of Reason concept has been introduced by the US Supreme Court in the landmark case of Standard Oil and Co of N.J. v. United States as regards an interpretation of the Sherman Act in the year of 1911. In this case, the main legal considerations of the judges were the wealth maximisations and satisfaction of consumer needs. Further, the judges argued that the main goal of the antitrust law was not to obstruct an efficiently established a joint company, but to prevent and reduce the business practices which eliminate competitions on markets. Thereby, the court must examine the following main factors to decide antitrust cases, namely, to decide whether an agreement will bring economic efficiencies and thus increase productions. Subsequently, whether an agreement will restrict competition and thus limit productions. Principally, the application of the “Rule of Reason” approach requires three-step examinations. Firstly, the existence of Perse illegal, secondly, the existence of intention or object of the parties to restrict competition and thirdly, the subsequent effects of an agreement to competition.228 Afterwards, in the case of Chicago Board of Trade v. United States, the US Supreme Court also imposed the “Rule of Reason” approach. In this case the court examined the economic effects of an agreement and impacts to competition. This examination encompassed: First, detrimental effects to competition from an agreement. Second, the existence of reasonable and legal justifications behind an agreement. Third, if the justifications exist, thus the court review restrictions in an agreement are necessary to achieve the aim of an agreement. Furthermore, the court performs two examinations separately: Firstly, whether an agreement restricts existing competition and secondly, the court will examine the impacts of an agreement in a comprehensive way. In this examination, for example, price deviations could be deemed as a restrictive effect. In this case, the judges applied the reasonableness test 227 ibid. 228 Säcker and Molle, in F.J Säcker et.al (n 13) 718–720. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 61 to evaluate an allegedly anticompetitive agreement. Accordingly, the judge stated: “the legality of an agreement or regulation cannot be determined by so simple a test, as whether it restrains competition. Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality of whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business […]; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual and probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because good intention will save an achieved objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences.”229 However, in the practice of the Antitrust laws, the application of “Rule of Reason” has both: an advantage and a disadvantage. On the one hand, the “Rule of Reason” introduces and utilises economic analysis by considering the efficiencies enhancements to determine accurately whether agreements or conducts in question have substantial effects to the competition. Further, this approach takes into account “economic values, that is, with the maximization of consumer want satisfaction through the most efficient allocation and use resources.”230 On the other hand, the “Rule of Reason” has also several drawbacks. Firstly, it prerequisites the comprehensive and sound knowledge in economics and industrial organisation theories in order to generate court decisions which are of a high quality. This problematic obstacle has hindered the courts in adjudicating the antitrust cases litigations. Secondly, in the application of the “Rule of Reason” before the courts, the applicant with his or her allegations must provide economic experts as well as documentary evidences from other competing firms, which are mostly difficult to obtain, for example in cartel cases.231 Furthermore, according to Säcker and Molle, the application of the “Rule of Reason” based approach in the provisions of Article 101 (1) 229 Lubis and Sirait (n 225), 68. 230 Lubis and Sirait (n 225), 66–70. 231 ibid. 70–72. Chapter Two The Cartel Prohibition 62 and (3) TFEU has impacts to the considerations of a normative relationship between the provisions of Article 101 (1) and (3) TFEU. Accordingly, the following aspects are to be take into account. First, the cartel administrative enforcement proceedings, whereas there are separate evidentiary proceedings under the Articles 101 (1) and (3) TFEU232 and second, the normative interpretations.233 Equally important, as to the practice of the provisions of Article 101 (1) in conjunctions with Article 101 (3) TFEU, the Commission and the Court of Justice of the EU have adjudicated several related cases. First, Reuter/BASF case.234Second, DLG Case. Third, O2 (Germany) GmbH & Co OHG v Commission235 Fourth, Wouters v Algemene Raad van de Nederlandse Orde van Advocaten.236 Initially, the case of Reuter/BASF was primarily concerned with the concept of ancillary restriction developed with regard to the transfer of business in the chemical sector. In this case Dr. Reuter, a chemical expert, assigned his entire business in the chemical sector to the BASF, a competing company in the similar sector, through an assignment 232 Accordingly, Säcker and Molle assert: „Since the modernization of the antitrust proceedings the right above method legal arguments have no more meaning. With the abolition of the exemption monopoly Commission and the completed change from the system of exemptions for legal exception is the material unity of the Art. 101 has been implemented on a procedural level. The European legislator has indicated the fact that he abs the courts and antitrust authorities Dern of the Member States a direct application of Art. 101 (3) TFEU trusts and is prepared to accept the risk of inconsistent application of Community law. This risk is reduced by the adoption of guidelines by the Commission and the co-operation between the Commission and relevant institutions in the Member States in accordance with Art. 11–16 Regulation 1/2003. Decisive 101 para. 3 TFEU on procedural level remains the differentiation between the account-competitive moments under Art. 101 para. 1 and Art. But for the burden of proof under Article 2 of Regulation 1/2003.” Säcker and Molle, in F.J Säcker (n 13) 720–734. 233 Säcker and Molle, in F.J Säcker et.al (n 13) 720–734. 234 76/743/EEC: Commission Decision of 26th July 1976 relating to a proceeding under Article 85 of the EEC Treaty (IV/28.996 – Reuter/BASF). cf. Hawk, EC Competition Law (n 85) 57. 235 Case T 328/03, General Court 2006, O2 (Germany) GmbH & Co. OHG v Commission of the European Communities. 236 Case C 309/99, J. C. J. Wouters, J. W. Savelbergh and Price Waterhouse Belastingadviseurs BV v Algemene Raad van de Nederlandse Orde van Advocaten, intervener: Raad van de Balies van de Europese Gemeenschap, 2002 I-01577. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 63 agreement. This transfer agreement contained the non-competition clause imposed to Dr. Reuter. The Court of Justice was of the opinion that such a non-competition clause is necessary for the BASF and thus compatible with the competition law because technical knowledge constituted an important part of the value of the transferred undertakings. Thus, the court argued if Dr. Reuter competed against the BASF this could jeopardise the business value assigned to the BASF. The court opined that the non-compete clause was excessive in terms of the competition rules. First, the non-compete clause exceeds the period of five years. Second, it unnecessarily penetrates also the independent research and development of the other party.237 Subsequently, in the second case Danks Lanbrugs Grovvareseklab (DLG) v. Gottrup Klim.238 The DLG was a Danish cooperative cooperation distributing farming supplies to its members, such as fertilisers and plant protection products with the lowest prices. However, in 1975 several former members of DLG established a national union of cooperative associations (LAG), engaging in the farming supplies. Thus, DLG changed its Article of Associations (AoA) in 1988 which requires the exclusion of farmers which were members of LAG. Further, DLG prohibited its members from buying farming supplies from other parties beside DLG in order to set up efficient prices for its members. Afterwards, the members of LAG challenged the AoA of DLG by arguing that the AoA was to restrict competition, notably as to the purchasing prohibition.239 In the adjudication proceedings, the Court of Justice found that the DLG Articles of Association do not restrict competition and thus are necessary to achieve the goals of DLG. Equally important, in this case, the Court of Justice applied the concept of ancillary restriction to review the DLG AoA. Thus, the “Anciallary Restraints” concept requires none of weighing of positive and negative effects to competition. The application of them was limited to the determination 237 L. Ritter and W.D. Braun, European Competition Law: A Practitioner Guide (3rd. Ed. Kluwer Law International, 2004) 635. See also Commission, Decision 26th July 1976 relating to a proceeding under Article 85 of the EEC Treaty (IV/28.996 – Reuter/BASF) (76/743/EEC). 238 Case C-250/92. Gøttrup-Klim e.a. Grovvareforeninger v Dansk Landbrugs Grovvareselskab AmbA. See O. Odudu, The Boundaries of EC Competition Law: The Scope of Article 81 (OUP, 2006), 18. 239 A. Ezrachi, EU COmpetion Law (4th Ed. Bloomsbury Publishing PLC, 2014), 109. Chapter Two The Cartel Prohibition 64 whether in a specific context of a main non-restrictive transaction, a particular restriction is necessary and proportional to achieve the aims of main agreement. Accordingly, the Court of Justice in its decision stated as follows: “A cooperative purchasing association is a voluntary association of persons established in order to pursue common commercial objectives. The compatibility of the statutes of such an association with the community rules on competition cannot be assessed in the abstract. It will depend on the particular clauses in the statutes and the economic conditions prevailing on the markets concerned. In a market where product prices vary according to the volume of orders, the activities of cooperative purchasing associations may, depending on the size of their membership, constitute a significant counterweight to the contractual power of large producers and make way for more effective competition. Where some members of two competing cooperative purchasing associations belong to both at the same time, the result is to make each association less capable of pursuing its objectives for the benefit of the rest of its members, especially where the members concerned, as in the case in point, are themselves cooperative associations with a large number of individual members. It follows that such dual membership would jeopardize both the proper functioning of the cooperative and its contractual power in relation to producers. Prohibition of dual membership does not, therefore, necessarily constitute a restriction of competition within the meaning of Article 85(1) of the Treaty and may even have beneficial effects on competition. Nevertheless, a provision in the statutes of a cooperative purchasing association, restricting the opportunity for members to join other types of competing cooperatives and thus discouraging them from obtaining supplies elsewhere, may have adverse effects on competition. So, in order to escape the prohibition laid down in Article 85(1) of the Treaty, the restrictions imposed on members by the statutes of cooperative purchasing associations must be limited to what is necessary to ensure that the cooperative functions properly and maintains its contractual power in relation to producers.” (paras 30–35) Eventually, the Court stipulated: “The answer to the second set of questions referred by the national court must therefore be that a provision in the statutes of a cooperative purchasing association, forbidding its members to participate in other forms of organized cooperation which are in direct competition with it, is not caught by the prohibition in Article 85(1) of the Treaty, so long as the abovementioned provision is restricted to what is necessary to ensure that the cooperative functions properly and maintains its contractual power in relation to producers.”240 240 ibid. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 65 Third, O2 (Germany) GmbH & Co OHG v Commission.241O2 Germany GmbH and T-Mobile Deutschland GmBH (T-Mobile), two operators of digitial mobile telecommunication networks, conclude agreement on an infrastructure sharing agreements in Germany for the 3rd generation (3G) mobile communications. Following the notifications of the agreement, the Commission found no grounds for actions with respect to the site sharing agreement between the parties but raised concerns as to the compatibility of the provisions relating to national roaming between network operators with Article 101 (1) TFEU. In its decision the Commission granted exemption to the provisions for limited periods under Article 101 (3) TFEU. O2 appealed the decision to the General Court, contesting among other things, the finding that the provisions relating to national roaming restricted competition between operators.242 The General Court in examining this case applied the concept of the necessity to establish a counterfactual. This means, in determining whether an agreement has restrictive effects to competition, it is necessary to analyse what the position or circumstance would be in the absence of an agreement. Thus, the court required the careful examination of the counterfactual; whereas the Commission failed to perform the counterfactual analysis. Previously, the Commission issued the decision stating that the agreement between O2 and T-Mobile in Germany had the effect of restricting competition. However, according to the General Court, the Commission was not able to demonstrate what the position of O2 or T-Mobile, would have been if the agreement was absent. Further, the Commission failed to prove whether the agreement between O2 and T-Mobile could have restriction to competition effects in the 3G telecommunication sector in Germany.243 Subsequently, the General Court arguably provides: “In order to assess whether an agreement is compatible with the common market in the light of the prohibition laid down in Article 81(1) EC, it is necessary to examine the economic and legal context in which the agreement was concluded (Case 22/71 Béguelin Import [1971] ECR 949, paragraph 13), its object, its effects, and whether it affects intra-community trade taking into account in particular the economic context in which the 241 V. Korah, Cases and Materials on EC Competition Law (Hart Publishing, 2006), 66. 242 Ezrachi, EU COmpetion Law, 109. 243 Whish and Bailey (n 56). Chapter Two The Cartel Prohibition 66 undertakings operate, the products or services covered by the agreement, and the structure of the market concerned and the actual conditions in which it functions (Case C‑399/93 Oude Littikhuis and Others[1995] ECR I‑4515, paragraph 10).” Moreover, in a case such as this, where it is accepted that the agreement does not have as its object a restriction of competition, the effects of the agreement should be considered and for it to be caught by the prohibition if? it is necessary to find that those factors are present which show that competition has in fact been prevented or restricted or distorted to an appreciable extent. The competition in question must be understood within the actual context in which it would occur in the absence of the agreement in dispute; the interference with competition may in particular be doubted if the agreement seems really necessary for the penetration of a new area by an undertaking (Société minière et technique at 249–250). Such a method of analysis, regarding particular the taking into account of the competition situation that would exist in the absence of the agreement, does not amount to carry out an assessment of the proand anti-competitive effects of the agreement and thus to apply a “Rule of Reason”, which the Community judicature has not deemed to have its place under Article 81(1) EC (Case C‑235/92 P Montecatini v Commission [1999] ECR I‑4539, paragraph 133; M6 and Others vCommission, paragraphs 72 to 77; and Case T‑65/98 Van den Bergh Foods v Commission [2002] ECR II‑4653, paragraphs 106 and 107). In this respect, to submit, as the applicant does, that the Commission failed to carry out a full analysis by not examining what the competitive situation would have been in the absence of the agreement does not mean that an assessment of the positive and negative effects of the agreement from the point of view of competition must be carried out at the stage of Article 81(1) EC. Contrary to the defendant’s interpretation of the applicant’s arguments, the applicant relies only on the method of analysis required by settled case-law (paras. 66–70).244 Fourth, Wouters v Algemene Raad van de Nederlandse Orde van Advocaten245. In this case, the primary concern is the possibility to rely upon non-economic policy considerations by the undertakings to jus- 244 Ezrachi, (n 239) 98–100. 245 ibid.113–15. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 67 tify an otherwise anti-competitive agreement, namely a consumer welfare. The case concerned a dispute between Mr. Wouters and the Dutch Bar on the basis that the Bar’s regulations prohibited its members form practicing in full partnership with accountants. Mr. Wouters argued that the prohibition was incompatible with the Union rules on competition and freedom of establishment. The Dutch court referred the case to the ECJ, asking, whether a regulation which, in order to guarantee the independence and loyalty to the client of members of the Bar who provide legal assistance in conjunction with the members of other liberal professions, adopts universally bindingrules governing the formation of multi-disciplinary partnerships, has the object or effect of retrciting competition within the internal market in the sense Article 81 (1) EC.246 The primary concern of the Court of Justice (ECJ) was the compatibility of Article 4 of the Regulation of the Dutch Bar Association, prohibiting partnerships of lawyers and accountants, with the Article 81 EC. The ECJ had decided in this case, as follows: First, the regulation abovementioned was defined as decision of association of undertakings pursuant to the Article 81 (1) EC. Second, the ECJ mentioned that this regulation restricted competition because its provision prevented multi-discplinary partnerships which were able to provide a wider scope of services. Third, the ECJ deemed that the Regulation affected trades between the Member States, due to its application national-wide in the Netherlands. Nevertheless, the ECJ finally decided that the regulation mentionedabove had not infringed the Article 81 (1) EC, because it is justifiable under the public-interests’ consideration. Thus, the regulation aimed to legitimate goals, notably ‘relating to organization, qualifications, professional ethics, supervision and liability, in order to ensure that the ultimate consumers of legal services and the sound administration of justice are provided with the necessary guarantees in relation to the integrity and experience.’ Further, the Court of Justice argued that the regulation is necessary in order to ascertain that the lawyer’s members to the Bar Association perform independently and responsible to the clients’ interests. In contrast, according to the ECJ, the accountant professions have no similar professional require- 246 ibid. Chapter Two The Cartel Prohibition 68 ments as the lawyers do, that is to say, the accountants have merely a supervisory role.247 Accordingly, the ECJ arguably rendered the following conclusions: “The prohibition at issue in the main proceedings prohibits all contractual arrangements between members of the Bar and accountants which provide in any way for shared decision-making, profit-sharing or for the use of a common name, and this makes any form of effective partnership difficult. By contrast, the Luxembourg Government claimed at the hearing that a prohibition of multi-disciplinary partnerships such as that laid down in the 1993 Regulation had a positive effect on competition. It pointed out that, by forbidding members of the Bar to enter into partnership with accountants, the national rules in issue in the main proceedings made it possible to prevent the legal services offered by members of the Bar from being concentrated in the hands of a few large international firms and, consequently, to maintain a large number of operators on the market. It appears to the Court that the national legislation in issue in the main proceedings has an adverse effect on competition and may affect trade between Member States. As regards the adverse effect on competition, the areas of expertise of members of the Bar and of accountants may be complementary. Since legal services, especially in business law, more and more frequently require recourse to an accountant, a multi-disciplinary partnership of members of the Bar and accountants would make it possible to offer a wider range of services, and indeed to propose new ones. Clients would thus be able to turn to a single structure for a large part of the services necessary for the organisation, management and operation of their business (the ‘one-stop shop’ advantage). Furthermore, a multi-disciplinary partnership of members of the Bar and accountants would be capable of satisfying the needs created by the increasing interpenetration of national markets and the consequent necessity for continuous adaptation to national and international legislation. Nor, finally, is it inconceivable that the economies of scale resulting from such multi-disciplinary partnerships might have positive effects on the cost of services. A prohibition of multi-disciplinary partnerships of members of the Bar and accountants, such as that laid down in the 1993 Regulation, is therefore liable to limit production and technical development within the meaning of Article 85(1)(b) of the Treaty.”248 Fifth, Metropole Television (M6) and others v Commission.249 247 Ezrachi (n 239) 113–115. 248 Ezrachi (n 239) 113–115. 249 ibid. 104–107. Case T 112/99. Metropole Television (M6) and others v Commission [2001] ECR II 2459. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 69 In this prominent case, the European Court (General Court) maintained the dissenting opinion as regards the acceptability of the US based “Rule of Reason” approach in implementing the competition rules of Article 101 (1) TFEU. The court argued that “the existence of such a rule has not, as such, been confirmed by the Community Courts. Quite to the contrary, in various judgements the Court of Justice and the General Court have been at pains to indicate that the existence of the “Rule of reason” in (EU) Competition law is doubtful.”Furthermore, the General Court decided in favour of the European approach as to weighing the pro-competitive and anti-competitive effects under the Article 101(1) TFEU in conjunctions with Article 101 (3) TFEU. Thus, the General Court indicated that the analysis of Article 101 (1) TFEU shall be divided into five phases. Firstly, the Commission (or other persons seeking to demonstrate the same) must establish that the agreement restricts competition (identifying anti-competitive aspects). Secondly, whenever this has been proved, the parties (or undertakings claiming the legal exemptions of Article 101 (3) TFEU) must prove that the agreement will achieve pro-competitive effect. Third, that the agreement will give consumers a fair share of benefits. Fifth, the agreement is indispensable to the attainment of benefits pursued. Fourth, there is no possibilitie as the elimination of competition due to the agreement.250 According to Kaczorowska, the European “Rule of Reason” approach entails two aspects. Firstly, the Commission shall determine at least what would be the state of competition, both of actuall and poetential competitions, in the relevant market if the agreement, with the alleged restrictions, is absent. This is known as “counterfactual standard” or “but for” analytical method. This analytical method requires a three-step analysis, which looks like this: Firstly, the Commission must establish a hypothetical degree of competition in the relevant market if the agreement was absent. Secondly, the Commission shall be able to show a degree of competition caused by the agreement. Thirdly, the Commission shall compare these two competition scenarios. If the degree of competition has been reduced thus an infringement of Article 101 (1) takes place. Put differently, the ”counterfactual standard” re- 250 Jones and Surfin, (n 46) 218. Chapter Two The Cartel Prohibition 70 quires analysis of both the actual and potential competitions on the market. Further, this analytical method prerequisites “the specific factors or conditions that differ between the two must be identified and how these factors or conditions lead (or potentially will lead) to consumers’ losses shall be explained by means of elaborative analysis. Secondly, the European approach, the Court is able to take into account non-economic considerations in assessing the agreement in question under the provision of Article 101 (1) TFEU, whereas this had been exemplified in the Wouters case.251 Television Par Stellite (TPS) was set up as a partnership by 6 major active companies in the television sector. Its aim was to devise, develop and broadcast a range of television programmes, to French speaking television viewers in Europe against payment. The agreement forming the TPS partnership were not notified to the Commission in order to obtain negative clearance and/or exemption. In its decision, the Commission did not object to the creation of TPS. However, the Commission raised concerns with respect to the impact of non-competition, exclusivity and other clauses in the agreement and subsequently granted limited negative clearance and exemption. With reference to the non-competition clause the Commission held that there were no grounds for action in respect of that clause for a period of three years. With regard to an exclusivity clause and the clause relating to special interest channels the Commission held that those provisions could benefit from an exemption under Article 101 (3) TFEU for a period of three years. Furthermore, the applicant challenged the Commission decision and the limited period for which the negative clearance and exemption were granted. Among other things, the applicants argued that the Commsiison failed to apply the “Rule of Reason” when considering the agreement under Article 101 (1) TFEU. Afterwards, the GC issued the decisions as follows: “Article 85 of the Treaty expressly provides, in its third paragraph, for the possibility of exempting agreements that restrict competition where they satisfy a number of conditions, in particular where they are indispensable to the attainment of certain objectives and do not afford undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. It is only in the precise framework of that provision 251 Ezrachi (n 239) 104–111. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 71 that the pro and anti-competitive aspects of a restriction may be weighed (see, to that effect, Case 161/84 Pronuptia [1986] ECR 353, paragraph 24, and Case T-17/93 Matra Hachette v Commission[1994] ECR II-595, paragraph 48, and European Night Services and Others v Commission, cited in paragraph 34 above, paragraph 136). Article 85(3) of the Treaty would lose much of its effectiveness if such an examination had to be carried out already under Article 85(1) of the Treaty. It is true that in a number of judgments the Court of Justice and the Court of First Instance have favoured a more flexible interpretation of the prohibition laid down in Article 85(1) of the Treaty (see, in particular, Société technique minière and Oude Luttikhuis and Others, cited in paragraph 70 above, Nungesser and Eisele vCommission and Coditel and Others, cited in paragraph 68 above, Pronuptia, cited in paragraph 74 above, and European Night Services and Others v Commission, cited in paragraph 34 above, as well as the judgment in Case C-250/92 DLG [1994] ECR I-5641, paragraphs 31 to 35). Those judgments cannot, however, be interpreted as establishing the existence of a rule of reason in Community competition law. They are, rather, part of a broader trend in the case-law acording to which it is not necessary to hold, wholly abstractly and without drawing any distinction, that any agreement restricting the freedom of action of one or more of the parties is necessarily caught by the prohibition laid down in Article 85(1) of the Treaty. In assessing the applicability of Article 85(1) to an agreement, account should be taken of the actual conditions in which it functions, in particular the economic context in which the undertakings operate, the products or services covered by the agreement and the actual structure of the market concerned (see, in particular, European Night Services and Others v Commission, cited in paragraph 34 above, paragraph 136, Oude Luttikhuis, cited in paragraph 70 above, paragraph 10, and VGB and Others v Commission, cited in paragraph 70 above, paragraph 140, as well as the judgment in Case C-234/89 Delimitis [1991] ECR I-935, paragraph 31). That interpretation, while observing the substantive scheme of Article 85 of the Treaty and, in particular, preserving the effectiveness of Article 85(3), makes it possible to prevent the prohibition in Article 85(1) from extending wholly abstractly and without distinction to all agreements whose effect is to restrict the freedom of action of one or more of the parties. It must, however, be emphasised that such an approach does not mean that it is necessary to weigh the pro- and anti-competitive effects of an agreement when determining whether the prohibition laid down in Article 85(1) of the Treaty applies. In the light of the foregoing, it must be held that, contrary to the applicants' submission, in the contested decision the Commission correctly applied Article 85(1) of the Treaty to the exclusivity clause and the clause relating to the special-interest channels inasmuch as it was not obliged to weigh the proand anti-competitive aspects of those agreements outside the specific framework of Article 85(3) of the Treaty. Chapter Two The Cartel Prohibition 72 It did, however, assess the restrictive nature of those clauses in their economic and legal context in accordance with the case-law. Thus, it rightly found that the general-interest channels presented programmes that were attractive for subscribers to a pay-TV company and that the effect of the exclusivity clause was to deny TPS competitors’ access to such programmes (points 102 to 107 of the contested decision). As regards the clause relating to the special-interest channels, the Commission found that it resulted in a limitation of the supply of such channels on that market for a period of 10 years (point 101 of the contested decision). (paras. 74–79).”252 Inter-States Clause Article 101 (1) TFEU requires that the agreement between undertakings may affect the trade between the EU Member States, whereas this provision is applied also by Article 102 TFEU and thus serves to achieve a single market objective. This objective has been confirmed by the Court of Justice in the Hugin case, as follows: “The interpretation and application of the condition relating to effects on trade between Member States contained in Article [101 and 102] of the Treaty must be based on the purpose of that condition which is to define, in the context of the laws governing competition, the boundary between the areas respectively covered by the Community law and the law of the Member States. Thus, Community law covers any agreement or any practice which is capable of constituting a threat to freedom of trade between Member States, in particular by partitioning the national markets or by affecting the structure of competition within the common market. On the other hand, conduct, the effects of which are confined to the territory of a single Member State, is governed by the national legal order.” Furthermore, in accordance with the subsidiary principle in the EU this provision requires a proportional division of responsibilities in the enforcement of the competition regime between the National Competition Authorities (“NCAs”) of the EU Member States and the European Competition Network (“ECN”) of the Commission together with the courts to ensure that the Competition Law Enforcement mechanism prescribed by Regulation 1/2003 is reliable and efficient. Furthermore, the national competition laws and NCAs play an active role, whenever there is an agreement which at first sight deemed to be pure- 2.2.2.3.1 252 Ezrachi, EU Competition Law (n 239) 104–111. 2.2 Cartel Prohibitions pursuant to the European Union (EU) Competition Law 73 ly domestic but can affect the structure of competition within the EU internal market.253 Equally important, according to Säcker and Wolf as to inter-State clause: "Article 101 (1) TFEU still requires an objective predictable suitability for appreciable effect on trade between Member States. Suffice it if the measures in question due to the overall objective (legal and factual) is circumstances capable of directly or indirectly, actually or potentially affects trade between Member States in a manner which may be the attainment of a single market between States adversely. With this feature, the scope of EU competition law is set to extraterritorial operations simultaneously.”254 Cartel Prohibition pursuant to the German Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen-GWB) Objective, Systematic and Juridical Source In a general sphere, the GWB 7th Amendment which tooknto force as of 7th July 2005 and thus be amended by the GWB 8th Amendment, and lately be amended by the 9th GWB in the year of 2017, aims to pursue the following principal objectives:255 First, to protect the competition in the market, both the institution and the process. On the one hand, the internal competition, the economic freedom of business actors in the market shall be preserved by the competition law. On the other hand, the social welfare of the consumers and the public in general as well as a comprehensive equal consumer protection shall be attained by the functional competition law. Second, to ensure an undistorted competition within the EU internal market. In line with the goals of the Treaty on the Functioning of the European Union (TFEU), the provisions of GWB are devised to achieve not only the protection 2.3 2.3.1 253 Geradin, Farrar, Petit, EU Competition (n 33), 25–27. See also N. Khan and C. Kerse, EU Antitrust Procedure (Sweet and Maxwell, 2012) 17–21. 254 Säcker and Wolf (n 95) 297. 255 R. Bechtold, O. Otting, W. Bosch, Kartellgesetz: Gesetz gegen Wettbewerbsbeschränkungen; Kommentar (6 Aufl., CH. Beck, 2010), 31-et.seq. cf. Klees ‘Grundlagen‘ in W. Killian and B. Heussen, Computerrechts-Handbuch (34. Ergz. CH Beck, 2018) R 20–21. Chapter Two The Cartel Prohibition 74 of competition but also the integration of the domestic market into the internal market of the EU by eliminating the distortions to the competition gradually. Since the Treaty of Lisabon, this purpose was stipulated in the Protocol 27 of the TFEU.256 In order to effectively attain the abovementioned purposes, the German cartel law prescribed in the GWB employs three main legislative instruments: Firstly, the cartel prohibition, whereas this provision aims to suppress or at least to regulate any illegal agreement between the undertakings to reduce or even to eliminate the internal competition in the relevant market through price cartel, quota cartel and market zoning cartel.257 Secondly, the prohibition against abuse of the dominant position by an undertaking in the market. This provision is indeed not to prohibit an undertaking with a dominant position in the market to utilise its economic advantages in the market, provided this measure is in accordance with competition law. However, this provision applies in the event the undertaking misuses the dominant position to discriminate other competitors in the relevant market.258 Thirdly, regulation over merger and acquisitions of the undertakings. This provision aims to examine whether a corporate action of two or more undertakings to perform merger and acquisition plan can reasonable cause the restriction of competition in the relevant market. Thus, in applying this provision the structural aspects of the market prior to the merger plan (ex-ante) and after the merger plan (ex-post), for instance the concentration degree of a certain relevant market shall be taken into account.259 However, according to Schmidt, the German cartel law stipulated in the GWB has been principally envisaged to approach three anticompetitive practices, which are: Firstly, the negotiation strategy (Verhandlungsstrategie), which means restraint of negotiation or resolution liberty related to one or several action parameter due to agreements, 256 Säcker, ‚Materialien zum deutschen und europäischen Wettbewerbsrecht‘ (Fachbereich Rechtswissenschaft, Freie Universität Berlin, Berlin, 2012) 20–23. 257 Lober (n 118) 7–12. 258 ibid 27–28. 259 ibid. 5–7. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 75 decisions and/or concerted practices between independent undertakings, either through horizontal or vertical strategies.260 Secondly, the impediment strategy (Behinderungsstrategie), which refers to de facto and written restraint of negotiation or resolution liberty related to one or several action parameters due to obstruction of competitors, by means of agreements or factual market behaviours.261 Thirdly, the concentration strategy (Konzentrationsstrategie), which means a factual restraint of negotiation or resolution liberty related to one or several action parameters due to quantity diminution of competition policy makers either through external or an overly proportional internal undertakings.262 Accordingly, the German cartel law provisions embodied in the GWB could be outlined into six main parts, whereas each sections stipulates elaborative provisions systematically, as follows: First part, which prescribes the intrinsic substances of the cartel law and sets out in Section 1 until Section 47 GWB.263 Second part, which contains the provisions as to the governmental bodies (Kartellbehörden) and the competition cooperation network with other respective institutions particularly the European competition law enforcement institutions (Section 48 until Section 53 GWB).264 Third part, which regulates the proceedings of the cartel law enforcement and which encompasses administrative matters, punitive damages, penalty payment and the civil litigation. This Part has been stipulated in conjunction with the general provisions (Section 90 until Section 95 GWB).265 Fourth part, which stipulates provisions on the public procurement law and which deals with the contracts of public procurement in the public domain (Section 97 until Section 129b GWB).266 Fifth part, which stipulates the legislative scope of application of GWB.267 Sixth part, which prescribes 260 I. Schmidt and J.Haucap, Wettbewerbspolitik und Kartellrecht: Eine interdisziplinäre Einführung Taschenbuch (8.Auflage, Lucius &Lucius, 2005) 120–122. 261 ibid. 262 ibid. 263 Lober in (n 103) 28–30. 264 ibid. 265 Krauß in Langen and Bunte (n 99) 61–63. 266 ibid. 267 ibid. Chapter Two The Cartel Prohibition 76 the transitional provisions and the final provisions of GWB.268 Whereas as regards to the Unfair business competition, the German Act against Unfair Practies (“UWG”) instead of GWB shall be competent to regulate the existence of fair practices within the competition in the market.269 Furthermore, according to Loeweinheim et.al, the provisions of German Cartel Law is an ordinary statutory law in the German legal system. This means, that the German Cartel Law is subject to the provisions of Article 74 para.1 (16) of the Grundgesetz concerning the Matters under concurrent legislative power.270 Thereby, the local Competition Authority has limited legislative competencies in the cartel law sphere. Moreover, the procedural provisions according to the German Administrative Proceeding Law (Verwaltungsverfahrensgesetz – VwVfG), the Act on Regulatory Offences (Ordnungswidrigkeitengesetz – OWiG) and the Civil Proceedings Law (Zivilprozessordnung-ZPO) purport to serve the complementation of the German Cartel Law. In this respect, the intersections of the Cartel Law’s provision with the German Energy and Telecommunication Acts exist. As regards to the German Public Procurement Law (Vergaberecht) the provisions of 127 of GWB are of essentially important.271 268 ibid. 269 Thorsten et.al, Einführung in das europäische und deutsche Kartellrecht. 22. 270 The provision of Article 74 para. 1 (16) of the German Basic Law (Grundgesetz) concerning mattes under concurrent legislative powers, reads as follows: “Concurrent legislative power shall extend to the following matters: “[…] prevention of the abuse of economic power.” 271 The provision of § 127 (1)–(3) GWB prescribes: “The Federal Government may, by an ordinance requiring the approval of the Bundesrat, issue rules: 1. to implement the thresholds of the public procurement directives of the European Union as applicable at that time; 2. to define award procedures to be observed by contracting entities engaged in the fields of drinking water, energy supply or transport, including the selection and examination of the undertakings and the tenders, the conclusion of the contract, as well as other provisions relating to the award procedure; 3. regarding the procedure to be observed in awarding public contracts that are relevant in terms of defence and security, regarding the selection and examination of the undertakings and the tenders, the exclusion from the award procedure, the conclusion of the contract, the discontinuation of the award procedure and other provisions relating to the award procedure, including any defence and security- 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 77 Cartel Prohibition Provisions Introduction The normative legal basis for the Cartel prohibitions is the German Act against Restriction of Competition (Gesetz gegen Wettbewerbsbeschränkungen – GWB), as amended by the 9th Amendment to the GWB entering into force in March 2017. The provisions of § (Sec.) 1 of GWB corresponds to the Article 101 (1) TFEU, which principally prohibits agreements or concerted practices between undertakings that have as their object or effect the prevention, restriction or distortion of the competition. These substantive cartel laws apply both to companies and individuals. Equally important, the provisions of Sec. 1 of GWB stipulate cartel prohibitions, that encompass, not only the horizontal agreements, such as fixing prices or trade terms and conditions; but also, the vertical agreements, like resale price maintenance (RPM). Eventually, the provisions of Sec. 1 GWB will not apply to the competition restrictions in the agricultural or in the water supply sectors as well as to RPM in the magazines and newspaper sector. Hence, illegal cartel practices outside the German jurisdiction are subject to the prohibition rules of the GWB, if they had appreciable anticompetitive effects in Germany.272 Originally, the provision of Sec. 1 GWB prohibits mainly the horizontal agreement. However, since the 7th Amendment of the GWB in 2005 the prohibition rule of Sec. 1 GWB applies to the vertical agreement as well.273 Accordingly, the provisions of Sec. 2 para. 2 GWB in conjunctions to the Vertical Block Exemption Regulation will apply in the pro- 2.3.2 2.3.2.1 related requirements as regards secrecy, general rules on the protection of confidentiality, the security of supply as well as specific rules on the award of sub-contracts;” Act against Restraints of Competition in the version published on 26 June 2013 (Bundesgesetzblatt (Federal Law Gazette) I, 2013, p. 1750, 3245), as last amended by Article 1 of the law of 1 June 2017 (Federal Law Gazette I, p. 1416) ‹http://www.gese tze-im-internet.de/englisch_gwb/englisch_gwb.html#p1118› accessed on 31th October 2018. 272 Bechtold and Siebert, ‘Germany-Cartels and Leniency 2015 in the International Comparative Legal Guides, 2015’ ‹. http://www.iclg.co.uk,› accessed on 8 October 2015. 273 Säcker in F.J. Säcker, et.al. (eds.), Deutsches Wettbewerbsrecht (Band 2). Münchener Kommentar europäisches und deutsches Wettbewerbsrecht (Kartellrecht): Kartellrecht, Missbrauchs- und Fusionskontrolle (CH Beck, 2015), 720–734 Chapter Two The Cartel Prohibition 78 and anti-competitive weighing analysis of the vertical agreement. Per definitionem, the horizontal agreements ‘are those concluded between undertakings operating at the same level of production or distribution. These agreements may reduce competition when they involve price fixing, sharing of markets or other restrictions on business operations. They may also reduce competition when they involve softer forms of cooperation which increase the transparency in the market and thus reduce uncertainty concerning the competitors’ conduct. Accordingly, they may at times yield substantial efficiencies and economic benefits, allowing companies to cope better with changing market realities, when they deal, for example, with research and development, production, purchasing, commercialisation, standardisation and environmental matters’.274 Under the German Cartel laws, the horizontal agreements can manifest in following agreements: (1) price cartel, (2) allocation of customers and territory, (3) agreements on distribution and production and (4) exchange of commercially sensitive information.275 With regard to the horizontal agreement, the prohibition rule of Sec. 1 GWB applies both to formal agreements between undertakings and to decisions of undertakings including concerted practices that have the object or effect of preventing, restraining or distorting competitions. Consequently, the agreements which infringed the prohibition of Sec. 1 GWB are null and void under the German Civil Code under the provision of Sec. 134 BGB.276 However, the other provisions of the GWB provide further certain exemptions towards the cartel prohibition of Sec.1 GWB. In contrast to the legal exemptions of the 7th Amendment of GWB, the 8th Amendment of GWB regulates merely two categories of legal exemptions as stipulated in the provisions of Sec.Sec. 2 and 3 GWB, notably concerning the exempted cartel agreements and small or medium sized enterprises cartels.277 274 Ezrachi, EU Competition (n 239) 137–40. 275 Säcker (n 273) 14–17. 276 Article 134 BGB concerning Statutory prohibition reads: “A legal transaction that violates a statutory prohibition is void, unless the statute leads to a different conclusion.” The German Civil Code (Bürgerliches Gesetzbuch) ‹https://www.gesetze-im-inter net.de/englisch_bgb/index.html› accessed on 19 October 2018. 277 Bundesministerium der Justiz und für Verbraucherschutz (n 271), the provisions of § 2 and § 3 GWB. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 79 As regards the horizontal agreements, according to the Bundeskartellamt, the effective enforcement of cartel prohibition pursuant to the provision of Sec. 1 GWB is of significantly importance because cartel agreements cause significant economic losses. For example, average cartel agreements lead to prices which are 25 per cent higher than the normal market prices. This experience could be shown in the cement cartel case before the Düsseldorf Higher Regional Court (OLG-Düsseldorf), which was successfully uncovered and thus prosecuted by the Bundeskartellamt. In this cartel infringement case, the Bundeskartellamt and the court used the economic evidences by appointing an economic expert to determine the price effect of long-standing illegal cartels in the cement market in Germany.278 Furthermore, in the enforcement framework of German Cartel law towards the horizontal and vertical agreements in accordance with the EU Competition Law, according to Säcker, have caused the abolishment of specific and elaborated exemptions under the previous provisions of GWB.279 However, these abolishments reduced the legal certainties for the undertakings. Thereby, the prevailing legal exemptions according to the provision of Sec. 2 para.1 GWB have been complemented by the EU Block Exemptions Regulations, which are: First, the Regulation Number 1217/2010 on Research and Development Cooperation.280 Second, the Regulation Number 1218/2010 on Specialization Agreement.281 Third, the Regulation Number 316/2014 concerning the application of Article 278 The Federal Cartel Office (Bundeskartellamt) ‘Effective Cartel Prosecution, Benefits for Economy and Consumers’ http://www.bundeskartellamt.de/SharedDocs/Publi kation/EN/Brosch%C3%BCren/Brochure%20-%20Effective%20cartel%20prosecu tion.pdf, accessed 19th October 2015, 13. 279 Säcker in F. J. Säcker et.al (n 273) 31–34. 280 Commission, The Regulation (EU) No. 1217/2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements (14 December 2010). ‹http://eur-lex.euro pa.eu/legal-content/EN/TXT/?uri=CELEX%3A32010R1217,› accessed on 19th October 2015. 281 Commission, The Regulation (EU) No 1218/2010 of 14th December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements, OJ L 335, 18.12.2010. ‹http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=URISERV:cc0013›, accessed on 19th October 2015. Chapter Two The Cartel Prohibition 80 101 (3) TFEU Technology Transfer Agreements (TTBER).282 Fourth, the specific regulations for transportation and insurances sectors.283 By virtue of the Sec. 2 para. 2 of GWB, the EU Block Exemptions rules are applicable to analysis of the vertical agreements in Germany. Moreover, the legal exemptions pursuant to the Sec. 2 para. 1 of GWB have limited scope of application, because of the prior implementation of exemptionary rules under the Horizontal Block Exemption Regulations.284 Previously, the provision of German Cartel Law recognized certain legal exemptions, to compensate small-medium companies for structural disadvantages towards large corporations. These statutory exemptions encompass agreements stipulating:285 First, standards and types cartels; whereas the agreements and decisions in question regulating the uniform application of standard of types only.286 Second, condition cartels; whereas the agreements and decisions whose subject matter is the uniform application of business and trade’s terms and conditions, such as delivery, payments, cash discounts as long as these agreements correlate not to prices or prices‘elements.287 Third, specialisation cartels; whereby the substances of agreements or decisions concern mainly to the rationalisation of economic activities through specialisation, provided the restraints of competition do not lead to the creation or strengthening of a dominant position.288 Fourth, rationalisation cartels, in which the agreements and decisions serving to rationalise economic activities have no specialisation elements. Further, these agreements/decisions should be suitable means to increase efficiencies or productivities of the undertakings substantially as well as to increase the consumers’ satisfaction.289 Fifth, structural crisis cartels. In the event sales volumes significantly 282 Commission, The Regulation (EU) No 316/2014 of 21 March 2014 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements Text with EEA relevance OJ L 93, 28.3.201. 283 Säcker in F.J. Säcker (n 273) 31–32. 284 ibid. 285 Harris, ‘Competition Law outside the US’ (ABA Section of Antitrust Law, Washington DC, 2001) 24–5. 286 ibid. 24–27. 287 ibid. 288 ibid. 289 ibid. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 81 reduce due to structural changes of demands, the agreement and decisions in question may adopt structural cartels comprising production, manufacturing and processing. However, these agreements/decisions must take into account competition circumstances in the related sector.290 Sixth, cartels of small-medium sized enterprise; whereas the agreements or decisions have the subject matter to rationalise economic activities by means of cooperation forms between the small-medium enterprises without jeopardising competitions in the relevant market. Further, these agreements/decisions must aim to improve the competitiveness of the small-medium enterprises.291 Seventh, joint purchase agreements; whereby the agreements/decisions have purpose to improve the competitiveness of small-medium sized enterprises as well as they do not substantially restrict competitions on the market.292 Nowadays, according to Loewenheim et.al, the elaborative legal exemptions abovementioned have been abolished and thus replaced by the provision of Sec. 3 GWB concerning cartels of small or medium-sized enterprises (SMEs). Regardless the legal uncertainties due to application of the legal exemptions, the administrative and judicial practices of the German Cartel law have been consistently taking into considerations the abovementioned legal exemptions in their benefit-risk asssements processes in accordance with the provision of Sec. 2 para.1 GWB.293 Furthermore, as regards to the vertical agreements, the Commission provides that vertical agreements are “agreements or concerted practices entered into between two or more undertakings each of which operates, for the purposes of the agreement or the concerted practice, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services”. Accordingly, as regards to the enforcement framework of vertical agreements, the provision of Sec. 2 para.2 in conjunctions with Sec. 1 GWB shall dominantly apply, instead of the provision of Sec. 1 290 ibid. 291 ibid. 292 ibid. 293 U. Loewenheim, K. M. Meessen A. Riesenkampff, Kartellrecht: Kommentar (C. H. Beck München, 2009), R. 44–45. Chapter Two The Cartel Prohibition 82 para. 1 GWB.294 Logically, this is because of the prior implementation of the safe-harbour rule as well as the existence of hard-core restriction analysis under the EU Vertical Block Exemption Regulation. Thereby, the individual legal exemptions stipulated in the provision of Sec. 2 para. 1 GWB will apply, provided the vertical agreement does not fulfill the rules abovementioned. Consequently, the parties to vertical agreements must prove the four cumulative requirements: First, the contribution to improve the production or distribution of goods or contribute to promoting technical or economic progress. Second, the consumers must receive a fair share of the resulting benefits. Third, vertical restrictions must be indispensable to the attainment of these objectives. Fourth, the vertical agreement must not afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question. In the case an examination of individual exemptions, the undertakings claiming the benefit of Article 101(3) TFEU shall bear the burden of proving that the necessary conditions are fulfilled.295 Equally important as regards to the provisions of German Cartel law, according to Bechtold et.al, the German Government has decided a socalled “far-reaching legislative harmonisation with the cartel prohibitions and the legal exemptions with the European Competition Law”, even for cases which do not affect trades between the Member States. Thereby, the sentences of Sec. 1 and Sec. 2 para.1 GWB have been mirroring the provisions of Articles 101 (1) and 101 (3) TFEU. Further, the provision of Sec. 2 para. 2 GWB renders that both of the Council and Commission Regulations concerning the application of Article 101 (3) to certain agreements, decisions of association of undertakings, and con- 294 According to Ezrachi: „Vertical agreements are agreements entered into between undertakings operating at different levels of production or distribution chains. These agreements differ in their potential anticompetitive effects form horizontal ones. Whereas the latter (the horizontal agreement) may eliminate competition between competing undertakings, the former ones (the vertical agreement) concerns the relationships between upstream operators and downstream distributor or dealers. As a result, vertical agreements often generate positive effects and would raise concerns predominantly when there is some degree of market power at the upstream and/or downstream levels.”, Ezrachi, EU Comeptition Law, 137. 295 Commission, The Regulation (EU) No 330/2010 of 20 April 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices OJ L 102, 23.4.2010. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 83 certed practices (Block Exemption Regulations) are applicable mutatis mutandis to the Sec. 2 para. 2 GWB. Moreover, these Block Exemption Regulations will apply to the agreements, decisions of associations of undertakings and concerted practices which have no appreciable effects to trades between the Member States.296 With regard to the statutory interpretation, according to Berg and Mudrony297, the Legislations Backgrounds of the GWB, the German Cartel laws are oriented towards the provisions of EU Competition laws.298 Accordingly, the Bundesgerichtshof stated that the interpretation and application of the cartel prohibition provisions in the GWB shall refer to the EU Competition laws, such as the European Court case-laws and the Commission legislations.299 Statutory Elements of the Cartel Prohibition Pursuant to the provision of Sec. 1 GWB concerning Prohibition of Agreements Restricting Competition: “Agreements between undertakings, decisions by associations of undertakings and concerted practices, which have as their object or effect the prevention, restriction or distortion of competition, shall be prohibited.” Accordingly, this cartel prohibition provision envisages the elements of the statutory act, which are as follows: Undertakings With regard to the concept of undertakings, the GWB embraces the functional approach in correspondence to the cartels prohibition of Article 101 (1) TFEU, whereas they include “every entity engaged in an economic activity, regardless of the legal status of the entity or the way in 2.3.2.2 2.3.2.2.1 296 Nordemann‚ GWB § 2 Freigestellte Vereinbarungen‘ in U. Loewenheim et.al, Kartellrecht (3. Aufl. CH Beck 2016) 22–27. 297 Berg and Mäsch (eds.) Deutsches und Europäisches Kartellrecht: Kommentar (2. Auflage 2018, Luctherhand 2015)24–27. 298 ibid. 299 ibid. Chapter Two The Cartel Prohibition 84 which it is financed”.300 Hence, the term undertakings encompasses not only private individual business persons, but also freelancers, craftsmen and small-scale traders. However, as regards to private households have been dilemmatic, whether they are subject to the meaning of undertakings, for example whenever they act both as consumer and purchaser of products consecutively. However, the Bundesgerichtshof (BGH) had cleared that private households are undertakings, whenever they are continuously and methodically seeking to reap financially or economically profits.301 In the German cartel law, as regards to the concept of undertaking, two main principles prevail, which are: the Selbständigkeitpostulat and undertaking with public interest trait pursuant to Sec. 130 para.1 GWB. Under the first principle, the ability of an entity to act independently and autonomically in the market becomes the main parameter to determine whether an entity is an undertaking under prohibition of Sec.1 GWB.302 Accordingly, as to the public service interest entity, the provision of Sec. 130 GWB reads:303 Sec. 130 Public Undertakings, Scope of application This Act shall apply also to undertakings which are entirely or partly in public ownership or are managed or operated by public authorities. The provisions of the Parts I to III of this Act shall not be applicable to the German Central Bank [Deutsche Bundesbank] and to the Reconstruction Loan Corporation [Kreditanstalt für Wiederaufbau]. 300 The European Court of Justice in the case of Höfner and Elser v. Macrotron (1991) “An economic activity means undertakings perform as follows: 1) it provides for the supply of goods or services on the market; 2) it could – in principle – be carried on by a private undertaking to make profit; 3) no matter if the body is not in fact profit making/is not set up for an economic purpose.” cf. Herrmann, in Säcker, et.al, Europäisches Wettbewerbsrecht (n 13), 324–327. 301 Lange and Pries (n 40) 77–78. 302 Säcker in Säcker (n 273), 17. 303 Lange and Pries (n 40) 78. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 85 Agreements, Decision of Association of Undertakings, and Concerted Practice Agreements General Meaning The term ‘agreements’ pursuant to the German cartel law had been defined as ‘every concurrence of wills between undertakings regarding their occurrence or market behaviour on the relevant market’. Accordingly, the forms, subject matter and intention of agreements are irrelevant. However, the term ‘agreements’ would not cover a unilateral measure by undertakings.304 Furthermore, as regards to the prime characteristic of the ‘agreements’, the German Court in the case of Kontaktlinsen has stipulated that ‘an existence of subjective element of concurrence of wills between the participating parties’. Accordingly, whenever ‘agreements’ prohibited by the GWB took place, even though the participating undertakings carry out or not implement the ‘agreements’, they are still subject to sanctions stipulated by the GWB.305With regard to the unilateral conduct of undertakings, they could be subject to prohibited ‘agreements’ in the German cartel law, provided the unilateral conduct had been subsequently followed by other undertakings either through explicit or implicit (tacit) approvals in the relevant market.306 Nevertheless, in the case of Kontaktlinsen these implicit or tacit approvals must be successfully proved before the Courts.307 Furthermore, in the German cartel law, as regards to term ‘agreements’, several types could be identified, as follows: First, the legally, enforceable contractual agreement under the law of obligations pursuant to Sec. 145.ff of the Civil Code (Burgerliches Gesetzbuch – BGB)308 Second, the contractual agreement in which actionability for legal action is being exceptionally excluded by the parties.309 Third, a so-called ‘gentlemens’ agreement’, in which there was none of legally 2.3.2.2.2 2.3.2.2.2.1 2.3.2.2.2.2 304 Krauß, in Langen and Bunte (n 99) 84–87. 305 Berg and Mudrony, in Berg and Mäsch (n 297) 33–35. 306 ibid. 307 ibid. 308 Schmidt and Haucap (n 260) 268–269. 309 Compare with the Naturalobligation agreement pursuant to Sec. 762 of the BGB. ibid. Chapter Two The Cartel Prohibition 86 binding obligation, but there are socially-morally obligations or business ones between parties to perform consensus therein.310 Model contract A model contract, drafted unilaterally could be subject to prohibited ‘agreements‘ provided there were subsequent individual agreements which precipitate the realisation or performance of a contract between undertakings.311 General Terms and Conditions The term ‘agreements‘ encompasses also a so-called ‘standard or general terms and conditions‘, which had been previously formulated by an undertaking. Arguably, it could be largely possible that in a conclusion of contracts, the parties come to agreements, which were deviating from these terms and conditions.312 Additionally, whenever the stronger party, in terms of economic or business power, unilaterally force other parties to come to agreements and thus were not able to resist due to economic or business dependency, these could be subject to the prohibited agreements.313 Circular Letter Initially a circular letter is not subject to concept of business ‘agreements‘due to its unilateral formulated characteristic. However, circular letters could be shifted to the prohibited agreements whenever there were mandates to subsequently concretise the performance of continuous agreements between undertaings. Accordingly, a circular letter could be considered as an integral and initial part of sequences toward the prohibited ‘agreements’.314 2.3.2.2.2.3 2.3.2.2.2.4 2.3.2.2.2.5 310 ibid. 311 Krauß, in Langen and Bunte (n 99) 84–87. 312 ibid. 313 ibid. 314 ibid. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 87 Hub and Spoke Cartels (“Sternvertrag”) Nowadays, according to Odudu, the hub and spoke agreements constitute one of the most interesting and challenging competition law questions, whereas undertakings could receive information about their competitors, not directly from their competing undertakings but via the common trading partner. In general, according to Krebs and Becker, the hub and spoke (cartels) agreement refers to practices which have the object or effect to collude on prices and other competition parameters which involves triangle relationships between suppliers, wholesale traders and retail traders. Thereby, there is no collusion on the horizontal level, however the collusive agreement between the undertakings take place indirectly through suppliers. A primary trait of the huband spoke cartels is the disclosure of terms of trade or contracts through suppliers for the other traders, for example the Most Favoured Customer (MFC) clause, information exchanges on prices and advertising strategy. However, there is a difficulty to prove this cartels scenario because this involves a lawfully independent vertical agreement. Under the EU Competition law framework, the hub and spoke cartels are prohibited by the provisions of Article 101 (1) TFEU and Sec. 1 GWB.315 Moreover, according to Sahuguet and Walckiers, in the practice of EU competition law, the Competition Authorities have primarily acknowledged and thus regulated the horizontal and vertical agreements. However, de facto, there has been an increase of cartels agreement involving combination of horizontal and vertical concerted practices, that is to say, the agreements are horizontal in nature, but involve competitors and their suppliers (or retailers), which are known as the hub and spoke (or A-B-C) agreements. In this type of agreement, the spokes are undertaking operating in the same horizontal level, whereas these undertakings exchange information indirectly through the hub, operating at the different level of business activities.316 2.3.2.2.2.6 315 P Krebs, M. Lexikon des Wettbewerbsrechts: Kartellrecht und Lauterkeitsrecht (1. Auflage, CH Beck, 2015) 139. 316 Sahuguet and Walckiers, ‘Hub-and-Spoke Conspiracies: The Vertical Expression of a Horizontal Desire?’ (Journal of European Competition Law & Practice, 2014), ‹http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2502147, accessed on 19 October.2015, 15. Chapter Two The Cartel Prohibition 88 On the one hand, as regards to backgrounds of the hub and spoke collusion, Odudu assumes that three factors play a key role. First, achieving market coordination between undertakings in order to: (a) identify a mutually beneficial strategy, (b) detect deviation from that strategy, (c) apply pressure to prevent deviation from the mutually beneficial strategy.317 Second, achieving market related information disclosure enabling the undertakings to achieve a first element of a coordinated market response-identifying a mutually beneficial strategy.318 Third, achieving a second element of a coordinated market response by means of detecting deviation from the mutually beneficial strategy between undertakings.319 On the other hand, the European Court has a different opinion in viewing the hub and spoke agreements, whereas in the Suiker Unie case, the court argued that information exchange abovementioned could lead to a breach of competition law: “the concept inherent in the provisions of the Treaty relating to competition [requires] that each economic operator must determine independently the policy, which it intends to adopt on the common market including the choice of persons and undertakings to which he makes offers or sells.”320 Accordingly, the Court of Justice further explained that: “any direct or indirect contact between such operators, the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or to contemplate adopting on the market.”321 Whereas the hub and spoke agreements have been the EU and National Competition Authorities’ concern, there has been obscure explanation as to under which conditions this primarily vertical construct modifies to a horizontal collusive agreement.322 Equally important, a 317 Odudu, ‘Hub and Spoke Collusion’, in Lianos and Geradin, “Handbook on European Competition Law: Substantive Aspects”, (Edward Elgar Publishing: 2015) 242. 318 ibid. 242–243. 319 ibid., 242–245. 320 ibid. 242–243. 321 ibid., 242–245. 322 Hainz and Benditz, Indirekter Informationsaustausch in Hub and Spoke-Konstellationen – Der Teufel steckt im Detail‘ EuZW 2012, 686. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 89 main problematical matter for the Competition Authorities is how they are able to reveal the existing horizontal agreement, colluded through a vertical agreement, as well as to disclose collusive surrounding circles of the Spokes.323 Furthermore, from an analytical framework of the Commission Guidelines on Horizontal cooperation agreement concerning the hub and spoke agreement: “data (market information) can be shared indirectly through a common agency (for example, a trade association) or a third party such as a market research organization or through the companies’ suppliers or retailers.”324 However, the indirect information exchanges could lead to the restrictions of competition and thus infringing the cartels prohibition, whereas the Commission is of the opinion: “However, the exchange of market information may also lead to restrictions of competition in particular situations where it is liable to enable undertakings to be aware of market strategies of their competitors. The competitive outcome of information exchange depends on the characteristics of the market in which it takes place (such as concentration, transparency, stability, symmetry, complexity etc.) as well as on the type of information that is exchanged, which may modify the relevant market environment towards one liable to coordination.”325 “Moreover, communication of information among competitors may constitute an agreement, a concerted practice, or a decision by an association of undertakings with the object of fixing, in particular, prices or quantities. Those types of information exchanges will normally be considered and fined as cartels. Information exchange may also facilitate the implementation of a cartel by enabling companies to monitor whether the participants comply with the agreed terms. Those types of exchanges of information will be assessed as part of the cartel.”326 Besides, the Commission indicates in the Guidelines on Vertical restraints that the hub and spoke agreement could constitute an infringement against the Competition law: “[…] agreements may facilitate collusion between distributors when the same supplier serves as a category captain for all or most of the compet- 323 ibid. 324 the Commission, the Horizontal Agreement Guidelines, para 53. 325 The Commission, the Horizontal Agreement Guidelines, para 53. 326 The Commission, the Horizontal Agreement Guidelines, para 59. Chapter Two The Cartel Prohibition 90 ing distributors on a market and provides these distributors with a common point of reference for their marketing decisions.”327 Accordingly, the Commission outlines as follows: “[…] may also facilitate collusion between suppliers through increased opportunities to exchange via retailers sensitive market information, such as for instance information related to future pricing, promotional plans or advertising campaigns.”328 Noteworthy to discuss, that as regards to the hub and spoke agreement, in the US Antitrust law judicatures in the early case of Interstate Circuit, Inc. v United States (1939), the US Supreme Court held: “[…] that owners of two theatre chains in which copyrighted films were first exhibited engaged into illegal agreements in several US cities through identical contracts with eight copyright owners. The contracts for the first run of a movie imposed that distributors would license subsequent runs of films under a number of restrictive conditions, including a minimum admission price. The Court held that theatre chains and distributors entered into anticompetitive agreements, which implied that the costs of Interstate’s rivals were raised.”329 Subsequently, the US Court of Appeals 7th Circuit, in the case of Toys ‘R Us, Inc. v FTC (2000), in its decision as to the hub and spoke collusion committed by a dominant seller of toy and its suppliers argued: “that Toys ‘R Us entered into a series of illegal agreements with its suppliers, to acquire exclusivity on the products from manufacturers in order to limit supply to its competitors. Although the infringement was based on vertical agreements, the conspiracy was essentially a horizontal conspiracy, where suppliers made their participation contingent upon the agreement of their competitors to the same terms.”330 Most importantly, with regard to the concept of hub and spoke agreement, the Decision of the British Court of Appeal provided a guiding principle: “The proposition which, in our view, falls squarely within the Bayer judgment in the ECJ and which is sufficient to dispose of the point in the present appeal can be stated in more restricted terms: if (i) retailer A dis- 327 The Commission, the Horizontal Agreement Guidelines, para 211. 328 The Commission, the Horizontal Agreement Guidelines, para 212. 329 Odudu in Lianos and Gerardine (n 317), 242–243. See United States Supreme Court, Interstate Circuit, Inc. v United States, 306 US 208 (1939) [Interstate Circuit]. 330 ibid. 242–243. See United States Court of Appeals, Toys ‘R Us, Inc. v Federal Trade Commission, No. 98–4107 (2000) [Toys’ R Us]. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 91 closes to supplier B its future pricing intentions in circumstances where A may be taken to intend that B will make use of that information to influence market conditions by passing that information to other retailers (of whom C is or may be one), (ii) B does, in fact, pass that information to C in circumstances where C may be taken to know the circumstances in which the information was disclosed by A to B and (iii) C does, in fact, use the information in determining its own future pricing intentions, then A, B and C are all to be regarded as parties to a concerted practice having as its object the restriction or distortion of competition. The case is all the stronger where there is reciprocity: in the sense that C discloses to supplier B its future pricing intentions in circumstances where C may be taken to intend that B will make use of that information to influence market conditions by passing that information to (among others) A, and B does so.”331 In the judiciary practice in Germany as regards to the hub and spoke agreement, the Bundesgerichtshof (BGH) in the Ruling of 19th June 1975 argued that, as long as the horizontal corporate relationship exists between undertakings, which s a dominant joint venture company, thus a concerted practice or collusion exists.332 However, in other cases the case-laws and the administrative practices indicate a high importance of the indirect evidences to prove cartels violation. Meanwhile, the Oberlandsgerichtshof (OLG) Düsseldorf in the Decision concerning hub and spoke agreement dated 12th June 1990 asserted that to be qualified as hub and spoke agreements, the main purpose of vertical agreement in question rests not in the horizontal agreement. Put differently, the objectives stipulated in the vertical agreements could not be achieved without the horizontal concerted practice existed in advance.333 Also, the Bundeskartellamt (German Federal Cartel Office-FCO) indicates in the Guidance Letter year of 2010 on approach to distinguish legal RRP (recommended resale price) and illegal RPM (Resale Price Maintenance) stipulates that the following practices by undertakings, considered independently, do not restrain competition but may trigger risks, in particular if they accompany generally-prohibited measures, which are: (a) (re-)addressing resale prices during follow-up 331 Odudu in Lianos and Gerardine (n 317), 242–245. See also Argos Ltd. and Littlewoods Ltd. v Office of Fair Trading (OFT); JJB Sports Plc v OFT [2006] EWCA Civ. 1318, para. 141. 332 Hainz and Benditz (n 322) 686. 333 ibid. Chapter Two The Cartel Prohibition 92 contacts, to the extent that the indications given to distributors or retailers go beyond explanations for the original resale price and product positioning strategy; (b) systematic price monitoring in cooperation with distributors or retailers; (c) compilation of price comparison lists or related sensible information in order to disclose them to other retailers; (d) providing calculation or pricing manuals or guidelines to distributors or retailers, and (e) exchanging information on, or complaining about, resale prices observed in the market or involving retailers in monitoring resale prices. Likewise, the Bundeskartellamt emphasises that those practices, in addition to vertical price fixing, have indirect horizontal effects as well, as they may lead to a “hubandspoke” collusion between undertakings, notably retailers and distributors. Accordingly, the Bundeskartellamt explains that the following practices are generally illegal: (a) disclosure by producers to distributors or retailers of conditions or agreements with, or sensible pricing information from competing distributors or retailers; (b) most-favoured treatment clauses aiming at a coordinated retail price level; (c) coordinating assortments, marketing strategies, or sales campaigns, whenever these have the object or indirect effects to prices coordination and other conditions.334 As has been noted, the proper analysis of hub and spoke agreements requires a two-tier legal analysis. Firstly, the relationships between the undertaking generating information (undertaking A) and third-party agent (undertaking B). Secondly, the relationships between the undertaking receiving information (undertaking C) and third-party agent (undertaking B). Accordingly, pertaining the first relationships, namely between spoke A and hub B, there are three constitutive elements to be considered. First, subjective element of infringement of undertaking A. This means undertaking A must know or is supposed to know about the information dissemination which purport to or could lead to a collusive agreement. According to the Court of Justice, as regards to this subjective element in the Commission v Anic Partecipazioni: 334 Odudu, Hub and Spoke Collusion (n 317) 242–49. See also Costin, ‘Information Exchange among Undertakings in EU Competition Law’ (MBL Thesis, Geneva, July 2011) 17. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 93 “On this question the Court must observe, first of all, that, given the nature of the infringements in question and the nature and degree of severity of the ensuing penalties, responsibility for committing those infringements is personal in nature.”335 Further, the Court of Justice asserted: “[…] In doing this, the Commission must establish in particular all the facts enabling the conclusion to be drawn that an undertaking participated in such an infringement and that it was responsible for the various aspects of it.”336 “When, as in the present case, the infringement involves anti-competitive agreements and concerted practices, the Commission must, in particular, show that the undertaking intended to contribute by its own conduct to the common objectives pursued by all the participants and that it was aware of the actual conduct planned or put into effect by other undertakings in pursuit of the same objectives or that it could reasonably have foreseen it and that it was prepared to take the risk.”337 Second, indications or circumstantial evidence. Whereas it has been undeniably difficult to prove the hub and spoke collusion, the Court of Justice explained: “[…] within the prohibition of that article [Article 101 (1) TFEU] a form of coordination between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition.”338 Accordingly, one could observe the indications of hub and spoke collusion whenever the supplying undertakings exchange the information to the retailers with a view to influence the resale prices of products. For example, whenever the retailing undertaking receives any market information, without previously being asked from the supplier; whereas the supplier aims to unilaterally influence market behaviours of the retailing undertakings. Furthermore, from the circumstance’s aspect, private meetings and partially private meetings of the undertakings’ 335 Case C-49/92 P. Commission of the European Communities v Anic Partecipazioni SpA. Judgment of the Court (Sixth Chamber) (n 113). 336 Odudu, Hub and Spoke Collusion (n 317) 242–249. See Anic Partecipazioni (n 113) para. 86. 337 Odudu, Hub and Spoke Collusio (n 317) 242–249 338 ibid.242–249? Chapter Two The Cartel Prohibition 94 representatives, such as managers or directors, constitute valuable indications of hub and spoke collusion. Third, the undertaking A’s legitimate interest to remit information. As regards to the legitimate interest, the Court of Appeal in the JJB Sports PLC v OFT case, stipulated: “As regards A, the position might in our view be different only if it could be shown that retailer A revealed its future pricing intentions to its supplier B for some legitimate purpose not related in any way to competition, and could not reasonably have foreseen that such information would be used by B in a way capable of affecting market conditions. It seems to us that such disclosure by a retailer to a supplier will rarely be legitimate, otherwise resale price maintenance could be reintroduced by the back door.” Equally important, concerning the relationships between the undertaking receiving information (undertaking C) and third-party agent (undertaking B), there are two factors deserving legal considerations. Firstly, the tacit consent between the undertakings. This refers to the existence of a collusive agreement between the undertakings, whereas the Court of Justice in the T-Mobile Netherlands BV and Others argued thereof: “As a preliminary point, the definitions of ‘agreement’, ‘decisions by associations of undertakings’ and ‘concerted practice’ are intended, from a subjective point of view, to catch forms of collusion having the same nature which are distinguishable from each other only by their intensity and the forms in which they manifest themselves.”339 Further, the Court of Justice asserted as to the existence of collusive agreement. “For one thing, subject to proof to the contrary, which it is for the economic operators concerned to adduce, there must be a presumption that the undertakings participating in concerting arrangements and remaining active on the market take account of the information exchanged with their competitors when determining their conduct on that market, particularly when they concert together on a regular basis over a long period, as was the case here, according to the findings of the Court of First Instance.”340 339 Odudu, Hub and Spoke Collusion (n 317) 242–249. Case C-8/08, T-Mobile Netherlands BV and Others v Raad van bestuur van de Nederlandse Mededingingsautoriteit, para. 23 [T-Mobile]. 340 Odudu, Hub and Spoke Collusion (n 317) 242–249. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 95 Nonetheless, in the hub and spoke relationship, the undertakings receiving the market information would have not known the sources of information and thus could not rely upon the validity and accuracy of market information received. Accordingly, the exchanged information would have insignificant effects and thus could not direct or influence themarket behaviours. Moreover, as regards to vagueness of existence of collusive agreement in such relationship, the Court of Appeal commented: “We have set out the relevant passages in the judgments of the CFI and the ECJ in Bayer v Commission (Joined Cases C-2/01 and C-3/01) [2000] ECR II-3383 earlier in this judgment, at paragraphs [23] to [26]. We draw attention, in the present context, to the observation, at paragraph 102 in the judgment of the Court of Justice, that "it is necessary that the manifestation of the wish of one of the contracting parties to achieve an anticompetitive goal constitute an invitation to the other party, whether express or implied, to fulfil that goal jointly". We have expressed our view, in paragraph [91], when discussing the Tribunal' s judgment on liability in the Football Shirts. Appeal, that the Tribunal may have gone too far in paragraph 659 of that judgment, with its suggestion that if a retailer (A) privately discloses to a supplier (B) its future pricing intentions "in circumstance s where it is reasonably foreseeable that B might make use of that information to influence market conditions" and B then passes that pricing information on to a competing retailer (C), that is sufficient basis for concluding, even if A did not in fact foresee what was reasonably foreseeable or C did not appreciate the basis on which A had provided the information, that A, B and C are all to be regarded as parties to a concerted practice having as its object or effect the prevention, restriction or distortion of competition. But it is not necessary to decide whether a proposition in such wide terms could be supported in order to determine the appeal in Toys and Games any more than it is for the other appeal.”341 Secondly, the causality of market behavior. Whereas to establish a causal link between the exchanged information and the undertakings’ market conducts, the Court of Justice in the Anic Partecipazioni SpA v Commission of the European Communities explained that: “For one thing, subject to proof to the contrary, which it is for the economic operators concerned to adduce, there must be a presumption that the undertakings participating in concerting arrangements and remaining active on the market take account of the information exchanged with their competitors when determining their conduct on that market, particularly when they 341 ibid. Chapter Two The Cartel Prohibition 96 concert together on a regular basis over a long period, as was the case here, according to the findings of the Court of First Instance.” “[…] although the concept of a concerted practice presupposes conduct of the participating undertakings on the market, it does not necessarily imply that conduct should produce the concrete effect of restricting, preventing or distorting competition.” Arguably, the causality element would not exist, if the undertakings receiving the information believed its reliability and accuracy. Additionally, the content of information is irrelevant, thus the undertakings would not also alter or follow its market conducts due to the information.342 Equally important, with respect to the legal remedy, it is argued that the employment of provisions of Sec. 1 GWB and Article 101 (1) TFEU in conjunction with Sec. 21 (2) GWB could serve as an appropriate legal remedy to catch and thus to eradicate the hub and spoke collusion. Certainly, provisions of Sec. 21 (2) GWB do not prerequisite the tacit consent of the undertakings or transmission or dissemination of market information (indirect information exchange) between the undertakings. Accordingly, provisions of Sec. 21 (2) GWB concerning Prohibition of Boycott and Other Restrictive Practices stipulate: “Undertakings and associations of undertakings shall not threaten or cause disadvantages, or promise or grant advantages, to other undertakings to induce them to engage in conduct which, under this Act or according to a decision issued by the cartel authority pursuant to this Act, shall not be made the subject matter of a contractual commitment.”343 Decision of Association of Undertakings In the German cartel law, the inclusion of the decisions of association of undertakings, principally to counter the collusive practices which took place not between undertakings, but through third parties and thus are not subject to the prohibition of ‘agreements’ aforementioned. Furthermore, according to the Bundesgerichtshof (BGH), the decisions of association of undertakings are to be existent whenever the associa- 2.3.2.2.2.7 342 Hainz and Benditz, „Indirekter Informationsaustausch (n 322) 686–688. 343 Odudu, Hub and Spoke (n 317) 242–49. cf. Hainz and Benditz, „Indirekter Informationsaustausch (n 322) 686–690. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 97 tion of undertakings consciously express their will to coordinate the conducts or business behaviours of their members into a specific and targeted market collectively.344 Subsequently, according to the German courts, the recommendation of the association of undertakings is subject to the prohibition of Sec. 1 GWB, provided the recommendation either had been legally bound to the articles of association (Satzung) or had been collectively accepted and thus followed by all members of the association.345 In a further analysis, the decisions of association of undertakings subject to the prohibition of Sec.1 of the GWB, could also be a result of decision of another organ of the association, for example a managing committee. According to the Bundesgerichtshof (BGH), whether the decisions had been composed either based on internal rules of association or prevailing commercial national rules, is irrelevant.346 Moreover, the association of undertakings must be responsible for every action or conduct of its organs, regardless, either the decisions had been made in accordance or in contrary to decision-making procedures of the association. In the following precedent, the Bundesgerichtshof has decided that a public service entity could generate the prohibited decisions through other representative organs.347 Concerted Practices In accordance with the principle ofthe European competition law, the concept of concerted practices of the German Cartel law been interpreted parallel with the term concerted practice stipulated in Article 101 (1) TFEU. However, in the jurisprudence of German cartel law, concerted practices take place whenever the actual or potential competing undertakings establish indirect or direct mutual contacts in order to influence the market behaviour of competitors or to bring other undertakings‘ market considerations into parallel action on the relevant market.348 Indeed, the concerted practice could occur indirectly 2.3.2.2.2.8 344 Berg and Mudrony, in Berg and Mäsch (n 297) 34. 345 Krauß, in Langen and Bunte, Kommentar (n 99) 92–95. 346 ibid. 347 ibid. 348 Berg and Mudrony in (n 297). Chapter Two The Cartel Prohibition 98 through a third party.349 Moreover, according to the Bundesgerichtshof (BGH), concerted practices exist whenever undertakings adjust their market behaviours and thus dependent on other undertakings without exercising obligatory measures to other competing undertakings in the relevant market.350 Furthermore, the German Court requires, as regards to concerted practices, an existence of the ‘causal impacts or effects of the practices to the relevant market’.351 However, whenever the undertakings’ parallel behaviours had been a result of an oligopolistic interdependence on the relevant market, thus they could not be considered as concerted practices.352 Accordingly, concerted practices could largely result of initial exchanges of information between undertakings through formal or informal meetings. Although the undertakings only participate in the meetings, they could be subject to cartel law sanctions, provided they accept transmission of the sensitive information concerning future market behaviours.353 Restriction of Competition According to Lange and Pries, ‘the agreements, decisions of association of undertakings and concerted practices have to as their effects and/or objects to distort, restrict and to circumvent competitions on the market’.354 Indeed, this statutory element corresponds to the provisions of Article 101 (1) TFEU. Further, as regards to the restriction of competition concept, the jurisprudence of Bundesgerichtshof provided that whenever an undertaking has an economic freedom de jure, the undertaking could not ex- 2.3.2.2 349 ibid. 350 Thus, through the exogenous indications the jurisprudence of BGH distinguishes between the conscious parallelism and the concerted practice, whereby in the concerted practice not only the exchanges of future market information but also the concrete efforts for collusion take place between the undertakings. Krauß, in Langen and Bunte, Kommentar (n 99) 74–77. 351 ibid. 352 ibid. 353 Lober in Schulte and Just, Kartellrecht (n 103).29–31. 354 Lange and Pries, Einführung (n 40) 79–81. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 99 ercise the economic freedom because its connection with several business disadvantages de facto (BGH Decision 22.4.1980). Moreover, Bundeskartellamt and Bundesgerichtshof are to apply both of economic and legal examinations to determine the existence of restriction of competition. In addition, the methods of interpretation of Article 101 (1) TFEU particularly regarding the hardcore practices catalogue, such as price agreement, discount cartel, quota cartel, zoning cartel, and bundling deal practice must be abided in the application of Sec. 1 GWB.355 Consequently, in the German cartel law enforcement, the Bundeskartellamt and German courts have to provide profoundly convincing evidences, notably indirect evidences, which are able to establish the conclusion that the parallel behaviours are the result of concerted practices, not the other factors in the relevant market.356 Appreciability (Substantial Effect) With regard to appreciability (substantial effect), Lange and Pries are of the opinion that ‘as the unwritten elements of offence, the German cartels prohibition of the GWB prerequisite that the competition restrictions’ impacts to the market conditions are appreciable or rigorous.’ Accordingly, the appreciable or rigorous impacts to the market conditions are to be existent, whenever the restrictions to competitions have minimally ‘a measurable and predictable implications or effects to the relevant market. Conversely, there would be none of appreciable or rigorous impacts, whenever there were only unessential or insignificant encroachments to the business actors or participants within the relevant market.357 Furthermore, with regard to the ‘appreciability’ or ‘substantial effects’ the Bundeskartellamt possesses discretionary capacity as to De Minimis rule, whereas the Bundeskartellamt Notice No.18/2007 on the Non-Prosecution of Cooperation Agreements of Minor Importance (“De Minimis Notice”), notably Sec.1 stipulates, as follows:358 2.3.2.3 355 Lange and Pries, Einführung (n 40) 79–81. 356 Lober in Schulte and Just, Kartellrecht (n 103) 29–31. 357 Lange and Pries (n 40) 79–81. 358 The Federal Cartel Office (Bundeskartellamt) Bekanntmachung Nr. 18/2007 des Bundeskartellamtes über die Nichtverfolgung von Kooperationsabreden mit Chapter Two The Cartel Prohibition 100 “The Bundeskartellamt can oblige undertakings or associations of undertakings to put an end to agreements, decisions and concerted practices which have as their object or effect the prevention, restriction or distortion of competition. It is within the Bundeskartellamt’s discretion to initiate proceedings on the suspicion of such an infringement. The de minimis Notice lays down the discretionary principles establishing when proceedings are generally not initiated (on the grounds of insignificance).” Restriction to the Cartel Prohibition Immanence Theory (Immanenztheorie) In the German Cartel law, the immanence thought (Immanenztheorie) has been applied to confine the application of cartel prohibition provision under Sec. 1 GWB. According to Emmerich, the immanence doctrine refers to the assumption that certain restrictive agreements or clauses may fall outside the cartel prohibition rule if the agrements or clauses in question are deemed inherent or inevitably essential for the operation of a larger agreement, which is neutral and pro-competitive in nature. A primary example are the non-competition clauses in corporate divestiture and partnership agreements. (Unternehmensveraußerung und Gesellschaftsvertrag).359 According to Säcker, the immanence thought refers principally to a concept that in certain qualified agreements or contracts immanent restrictions are permissioned and could be justified.360Although different in concepts, this doctrine, closely corresponds to the “Rule of Reason” approach, that has been embodied in the German Cartel Law.361 Equally important, the previous provisions of GWB had incorporated this immanence theory in the provions of Sec. 2 and Sec. 3 as well as the provisions of Sec. 28, Sec. 30 and Sec. 31. Likewise, in the regional sphere, the provisions of the EU Merger Regulation Number 139/2004 as well as the Commission Notice on restrictions are directly related and 2.3.3 2.3.3.1 geringer wettbewerbsbeschränken der Bedeutung („Bagatellbekanntmachung“), 13. März 2007. cf. Lange and Pries (n 40) 79–81. 359 Emmerich in Immenga and Mestäcker, Kartellrecht (n 44) 260–268. 360 Säcker in Säcker,et.al, (n 273) 20–21. 361 ibid. 18–20. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 101 necessary to concentrations (the Notice on Ancillary Restraint).362 Moreover, the cartel prohibition rule of Sec. 1 GWB does not apply to: First, joint ventures for a limited period and limited purpose (Arbeitsgemeinschaften).363 Second, non-competition clauses between general partners of a partnership, managing directors of close corporations, controlling shareholders of a close corporation, the sellers and buyers of a business (usually for a limited period of time upon to five years), parties to lease agreements whereas the landlord promise not to lease space in same area to competing enterprises, and settlementto resolve dispute between copetitiors.364 Third, intragroup restrictions of competition, such as restrictive agreement between a parent company and its controlled subsidaray office.365 Forth, the arbitration awards.366 Fifth, the environmental protection measures.367 Exempted Sectors of the Application of Sec. 1 GWB The cartel prohibitions in the Sec. 1 GWB is principally applied to whole economic sectors. However, in Germany, there are several economic sectors which are not subject to this principle.368 First, the agriculture sector. According to the Sec. 28 para. 2 GWB the cartels prohibition of Sec. 1 GWB is not applicable to agricultural cultivators and producers, for example for the collective use of institutions for storehouse. However, there are prohibitions on horizontal price fixing and boycott of products in terms of the Sec. 21 (1) GWB. Further, the provision of Sec. 28 GWB relates to this sector exemption. Additionally, the Sec. 40 Forestry Act (Bundeswaldgesetz) regulates on the forestrysector. Second, the price fixing in newspaper, magazines and books pursuant to the Sec. 30 GWB. Third, the press-sector (Presse Grosso), whereas according to the GWB the pure press wholesaler’s agreements are exempted from the cartels prohibition. This provision correlates to 2.3.3.2 362 ibid. 363 ibid. 18–19. 364 ibid. 365 ibid. 366 ibid. 367 ibid. 368 Von Dietze and Janssen, Kartellrecht in der Anwaltlichen Praxis, 5. Auflage, (CH Beck, München, 2015), p. 23–5. Chapter Two The Cartel Prohibition 102 the Article 106 (2) TFEU. Fourth, the telecommunication and postal services. According to the Telekommunikationsgesetz (TKG) and the Postgesetz specific rules apply to these two vital sectors. Due to the amendment of10th February 2012, the Bundesnetzagentur, which is responsible for regulating these two sectors, is obliged to cooperate with the Bundeskartellamt. Fifth, the transportation. This sector subject to particular rules is stipulated in the para. 3b. of the Personenbeförderungsgesetz and Sec. 12 para. 7 and Sec. 14 of the Allgemeines Eisenbahngesetz (AEG). Sixth, the energy. The provisions of the Energiewirtschaftsgesetz (EnWG) shall particulary apply in this sector. For the regulatory over this sector, the Bundesnetzagentur, shall be responsible for the unbundling of concentrations and ensuring fair access to electricity and gas networks. Furthermore, the Bundeskartellamt is responsible for the application of the Article 101 and 102 TFEU concerning electricity trade, supplies and acquisition of electricity and conglomerations in this sector. Seventh, the water supplies sector. Prior to the 8th Amendement of GWB, the provisions of Sec. 131 (6) GWB and Sec.Sec. 103, 103a, 105 GWB. Furthermore, the cartels exemptions are enumerated and regulated in the provisions of Sec. 31 (1) until (3) of GWB. Eighth, state insurance (Gesetzliche Krankenversicherung). Whereas the state insurance companies operate under the principle of solidarity (Solidaritätsprinzip), thus their conducts are not subject to cartels prohibition of Sec. 1 GWB. However, the Bundeskartellamt initiated a procedure against the new legal health insurance company, which had announced to charge a single monthly additional amount. In September 2011, the Hessian Social Court (Hessisches Sozialgericht) ruled that statutory health insurance companies do not constitute a company within the meaning of German and EU antitrust law. Further, Sec. 69 SGB V also regulates on the relations of health insurance to the performance achievement.369 369 P. von Dietze and H. Janssen, Kartellrecht in der anwaltlichen Praxis (5. Aufl. CH. Beck, 2015), 23–25. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 103 Legal Exemptions Provisions pursuant to the provision of Sec. 1 GWB First, the legal exemption principle, whose provisions designed similar to the Article 101 para 3 TFEU and which stipulates as follows:370 Section 2 Exempted Agreements a. Agreements between undertakings, decisions by associations of undetakings or concerted practices, which allowing consumers a fair share of the resulting benefits contribute to improving the production or distribution of goods or to promoting technical or economic progress, which do not: 1. impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives, or 2. afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question shall be exempted from the prohibition of Section 1. (2) For the application of para.1, Regulation of the Council or the Commission of the European Community on the application of Article 81 (3) of the Treaty Establishing the European Community (today Article 101 (3) of the TFEU) to certain categories of agreements, decisions by associations of undertakings and concerted practices (block exemption regulations), shall apply mutatis mutandis. This shall also apply where the agreements, decisions and practices mentioned therein are inappropriate to affect trade between Member States of the European Community. According to Säcker, the legal exemptions in the Sec. 2 GWB reflect the provisions of Article 101 (3) and its derivate regulations concerning exception from the cartel prohibitions in Article 101 (1) in conjucitons with the Sec. 1 GWB. The previous exemptions stipulated in the provisions of Sec. 2 until Sec. 7 GWB (7th Novelle) are deemed merely as the “numerous clausus”. Moreover, the application of exemptions is subject either through application or through registration to the Kartellbehörde. Furthermore, the analytical approach of the legal exemptions follows the EU Competition Law, whereas the agreements in question are, analysed under the Block Exemption Regulations, which provides the Safe Harbor thereof. Subsequently, if the agreements in question do not fall under the EU Block Exemptions Regualitons, thus the agreements in question are subject to individual exemption analy- 2.3.4 370 Säcker, in Säcker, et.al (n 273) 31–39. Chapter Two The Cartel Prohibition 104 sis under the cumulative requrirements of Article 101 (3) TFEU. Equally important, the provision of Sec. 2 para. 2 GWB stipulates that the EU Block Exemption Regulations shall apply mutatis mutandis to the application of the Sec. 1 GWB. This includes as well the agreements in question, which have no appreciable effect on trades between the Member States. Accordingly, the Block Exemptions Reuglautis aim to provide legal certanties to the parties in doing the self-assemetn of the legal exemptions under the Articlc 101 (3) TFEU in conjuctions to the Sec. 2 (1) GWB. According to Säcker, the provisions stipulated in the Block Exemptoins Regulations do not have only a declarative character, but also a constitutive one.371 Equally important, in the German Cartel law framework, the following Block Exemption Regulations shall apply. With regard to the horizontal agreements: First, the Regulation Number 1217/2010 on the Application of Article 101 (3) TFEU to the Research and Development Agrements. Second, the Regulation Number 1218/2010 on the Application of Article 101 (3) TFEU to the Spezialization Agreements.372 Furthermore, as regards to the vertical agreements: First, the Regulation Number 330/2010 on the Application of Article 101 (3) TFEU to the Group of Agremeents and Concerted Practices. Second, the Regulation Number 461/2010 on the Application of Article 101 (3) TFEU to the Group of Agreements and concerted practices in the transportation sector (Kraftsfahrzeugsektor-Kfz). Third, the Regulation Number 267/2010 on the Application of Article 101 (3) TFEU to the Group of Agreement and concerted practices in the insurances sector. Fourth, the Regulation Number 246/2009 in conjunctions with the Regulation Number 906/2009 on the application of Article 101 (3) TFEU to the Group of Agreements and Concerted Practices in the sea-transportation sector. Fifth, the Regulation Number 169/2009 on the application of Article 101 (3) TFEU to the Group of Agreements and Concerted Practices in Railway, Roads and Domestic transportation sectors. Sixth, the Regulation Number 1184/2006 in conjunctions with the Regulation Number 1234/2007 on the application of Article 101 (3) 371 ibid. 372 ibid.9.–10. 2.3 Cartel Prohibition pursuant to the German Act against Restraints of Competition 105 TFEU to the Group of Agreements and Concerted Practices in Agricultural Production sectors.373 Furthermore, if the Block Exemption Regulations abovementioned did not apply to the agreements in question, accordingly the individual legal exemptions which are regulated in the Article 101 (3) TFEU shall apply. Principally there are four cumulative requirements of the legal exemptions. First, the achievement of benefits, which means achieving an improvement in the production or distribution of goods or the promotion of technical or economic progress. Second, through the agreement, consumers must receive a fair share of the resulting benefits. Third, the restrictions in the agreement must be indispensable to the attainment of these objectives. Fourth, the agreement in question must not afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question.374 Second, the cartel exemption for the Small and Medium Companies Enterprises (SMCs) which is the distinct characteristic to the EU Competition laws, whereas Sec.3 GWB stipulates as follows: Cartels of Small or Medium-Sized Enterprises Agreements between competing undertakings and decision by associations of undertakings, whose subject matter is the rationalization of economic activities through cooperation among enterprises, fulfill the conditions of Sec.2(1) if: competition on the market is not significant affected thereby, and 2. the agreement or the decision serves to improve the competitiveness of small or medium-sized enterprises.375 373 Säcker, in Säcker, et.al (n 273) 31–39. 374 ibid. 375 Gesetz gegen Wettbewerbsbeschränkungen, http://www.gesetze-im-internet.de/gw b/, accessed on 2nd January 2019 Chapter Two The Cartel Prohibition 106 Cartels Prohibition pursuant to the Indonesia Competition Law Number 5/1999 Historical Background376 According to Maarif, a former KPPU’s Commissioner, two factors had prompted the adoption of the Law Number 5/1999: First, the massive economic crises took place in the Asian region in 1998, which led to 2.4 2.4.1 376 Pursuant to Article 33 of the 1945 Indonesian Constitution, the economic democracy serves as founding principle of the Indonesian free market-economy. This principle refers to the notion that every participant within economic life refuses to impair its competitors and other economic or business actors through detrimental practices. Further, every participant within the economic life must behave fairly, that is to say, that every participant is prohibited from obtaining profits through anticompetitive practices and jeopardising other competitors through abusive practices on the market. Embarking from German competition scholars’ school of thoughts, the Indonesia Competition Law Number 5/1999 serves four main functions: First, Economic Freedom Function. The term ‘economic freedom’ is not definitively stipulated in the Indonesia 1945 Constitution. However, Article 27 (2) of the Indonesia 1945 Constitution stipulates “Every citizen shall have the right to work and to earn a humane livelihood.” On the other hand, Article 2 (1) of the German Grundgesetz provides that “Jeder hat das Recht auf die freie Entfaltung seiner Persönlichkeit, soweit er nicht die Rechte anderer verletzt und nicht gegen die verfassungsmäßige Ordnung oder das Sittengesetz verstößt.” In general sense, economic freedom refers to conditions, whereby every participant in the economic life is able to effectively generate and to market their goods and/or service products as well as to determine prices of the products on the market. Conceptually, economic freedom can be distinguished into material freedom and a formal one. Moreover, Hoppman differentiates between economic freedom in the exchange process and economic freedom in the parallel process. Second, the supervising function. Through supervising function, the state is responsible to ensure compliances with the juridical framework requirements, that is to say, the state supervises inbuilt institutions and behavioural instruments of all economic participants. In this process, the state regulates conflicts of interests between suppliers and consumers, whereas in the supervision of exchange processes, whereas the state supervises. Third, the navigating function, which consists of (1) coordination and conformation functions “The coordination function of competition is that the demand is coordinated with the production, so that goods and services are offered in the type, quality and quantity that meet the demand.” “The adjustment function of competition then ensures that production adjusts to the changing needs over time.” “An optimal coordination is made possible by a functioning price system, which in effective competition with important information about the scarcity level of the respective goods supplies.” “The coordination and adjustment function of competi- 2.4 Cartels Prohibition pursuant to the Indonesia Competition Law Number 5/1999 107 massive reforms in Indonesia. Second, the public summons concerning reforms of public election, anti-corruption and fair competitions. tion therefore ensures that providers seek to demand what meets their expectations, to cease production as possible to the needs of customers and adapt them so that production is demand compliant. Products that do not attract the interest of users, cannot be sold, further ensures the competition for an acceleration of the coordination process.” (2) The allocation function. “The allocation function is connected to the co-ordination and adjustment function, but also has constant effects. Under the pressure of competition entrepreneurs are always looking for the minimum cost combination of factors and services used by relatively inexpensive substitutieren relatively expensive factor services if this is technically possible.” “But the competition can bring the things to be constantly to strive for the economic use of its factors of production in order to reduce their costs (so-called optimal factor allocation).” “But also the adjustment process ensures the competition for optimal allokaton factors of production, by deducting from a shrinking by a change in the structure of demand market production factors and puts them in the production of goods of the growing market.” (3) The stimulus and selecting functions. “Competition keeps the rival at a market side market participants to constantly ask their worth, because generally preferred are those with the higher performance of the other side of the market. Efficiency on the supply side means: Production requires compliant products, minimum production cost, adequate adjustment flexibility and enforcement of the technical developments ride through an appropriate innovation and imitation ability and willingness to.” “With the incentive function, the selection function of competition is directly linked. The selection in the competitive process based on the criterion of economic performance.” “The incentive and download function supports the one hand effectively the economic policy the primary objective of "increasing the Wohlfahrt" and the socio-political primary objective "social market economy" and the socio-political overall objective "justice" because always the weaker supply and demand are out of the market, thereby creating social problems.” There is something wrong in this quote. Fourth, the apportionment function. “The distribution function of competition is closely related to the allocation function. In the economical production process, the performance of the production factors labor, environment and productive capital are transformed to use acquis.” The ideas that the functional distribution of income is fair, is characterised by different, even divergent principles. A distinction, the principle of the power of justice: (a) The income to the market value of the performance requirements for which they are paid; (b.) the principle of equality: for the same services and the same income is to be paid; (c.) the principle of responsiveness: Who because of its social and economic situation has an objectively higher demand (eg a large family), should also receive a higher income; (d.) the principle of sacrifice justice: Who needs to bring in a higher power among victims than others (eg because of a physical disability), must not be disadvantaged.” cf. Silalahi. Fusionskontrolle in Indonesien gemäß Regierungsverordnung Nr. 27/1998 (n 1), 33–55. See also S.Y. Wahyuningtyas, Unilateral Restraints in the Retail Business: A Comparative Study on Competition Law in Germany and Indonesia (Stämpfli Publisher Bern 2011) 74–77. Chapter Two The Cartel Prohibition 108 During this period, there were widespread public concerns as to pervasive monopolistic and cartel practices mixed with corruptions in Indonesia.377 Moreover, Sirait explains that the Indonesian Competition Law Number 5/1999 is part of the structural adjustment programme, which was prescribed by the Letter of Intent (LoI), signed between the International Monetary Fund (IMF) and the Government of Indonesia (GoI), on 15th January 1998.378 In a further analysis, according to Säcker and Lohse, the LoI prescribed not only the urgency of a competition legislation, but also economic reforms in Indonesia. With regard to the term ‘economic reforms’, the United Nations Conference on Trade and Development (UNCTAD) provides the following explanations: “A common aspiration underlying economic reforms efforts has been that the reduction of governments’ direct involvement or intervention in economic activity would, by providing enterprises with more freedom and stronger incentives, stimulate entrepreneurial activity, business efficiency, productive investment and economic growth as well as enhancing consumer welfare through increased quantitiy and quality of goods at lower prices. Throughout the economy, therefore, productive resources would be allocated in an efficient and flexible manner through thorough the decentralized decisions of market operators rather than by government direction or thorogh rent-seeking activity, and economic growth could improve. However, such aspirations are likely to be fully realized only if enterprises are acting under the spur of competition, so that the consumer dissatisfaction is able to provide a market sanction against poor performance. Thus, the strengthening of competition (in conjunction with measures to stimulate consumer awareness) is a key element in ensuring the success of economics reforms.”379 Prior to the promulgation of the Law Number 5/1999, provisions prohibiting anti-competitive and unfair business practices had been frag- 377 United Nations Conference on Trade and Development (UNCTAD), ‘Voluntary Peer Review on Competition Law: Indonesia’ (UNCTAD Secretariat, 2009) 2. 378 N. N. Sirait, ‘Overview of the Indonesia Competition Law Law Number 5/1999 concerning Prohibition of Monopolistic Practices and Unfair Business Competition’ (Presentation Paper, Law School University Sumatra Utara, 2015) ‹http://ww w.jftc.go.jp/eacpf/05/AOTS/indonesia_ningrum.pdf›, accessed 12th May 2015. 379 Säcker and Lohse in in F.J. Säcker, et.al (eds.), Law Concerning Prohibition of Monopolistic Practices and Unfair Business Competition (n 3) 118–119. 2.4 Cartels Prohibition pursuant to the Indonesia Competition Law Number 5/1999 109 mentarily stipulated in the Indonesia Civil Code (KUH Perdata or Burgerlijk Wetboek-BW) and Indonesia Criminal Code (KUHP).380 Key Provisions of the Law Number 5/1999 Objective of the Law Number 5/1999 Pursuant to Article 3 of the Law Number 5/1999, the Law seeks to attain the following objectives: 1. to guard the public interest and increase national economic efficiency as one method to increase the people’s welfare; 2. to realise a conducive business environment by regulating fair competition so that equal opportunity to do business between small scale, medium scale and large scale; 3. businesses can be guaranteed; 4. to prevent monopolistic practices and unfair competition caused by business actors, and 5. to achieve effectiveness and efficiency in doing business.381 Based upon Article 2 in conjunction with Article 3 of the Law Number 5/1999, the Law Number 5/1999 aims to achieve the following objectives: First, the economic democracy inspired by Article 33 of the 1945 Indonesia Constitution. Thus, this constitutional notion is opposite to the: (1) free fight liberalism; (2) etatism system; (3) system of economic concentration by centralised monopolisation and conglomerates. Second,the achievement and maintenance of following targets: (1) a system of free, fair competition characterised by equal opportunities 2.4.2 2.4.3 380 Article 52 (1) of the Indonesia Competition Law Number 5/1999 explains that the relevant provisions in the Indonesia Civil Code and Indonesia Criminal Code remain prevail, provided these provisions are in line with the Indonesia Competition Law Number 5/1999. See the Law Number 5 Year 1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition. ‹http://eng.k ppu.go.id/newkppu/wp-content/uploads/2016/11/law_5_year_1999_.pdf› accessed 28 December 2018. 381 Article 3 of the Law Number 5 Year 1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition. ‹http://eng.kppu.go.id/newkppu /wp-content/uploads/2016/11/law_5_year_1999_.pdf› accessed 28 September 2019. Chapter Two The Cartel Prohibition 110 for all business actors; (2) a maximum economic freedoms of movement for all business actors; (3) the prosperity for the people and an efficient economic system; (4) optimal providences of goods and services for consumers leading to consumers welfare; (5) driving technological progress leading to the competitiveness of business actors. Third, the attainment of the free and fair competition, whereas UNCTAD defines this goal, as follows: “Exposure to competition is both the most effective way of promoting the ability of firms and industries to perform effectively on national and international markets (including by lowering the costs of intermediate inputs for final producers) and of ensuring that enterprises pass on to the consumer at least some of the benefits obtained from efficiency improvements.”382 Main Concepts in the Law Number 5/1999 Per-se Illegal and Rule of Reason Approach According to Sirait, as regards to Rule of Reason approach: “The rule of reason is a legal approach by competition authorities or courts under which an attempt is made to evaluate the procompetitive features of a restrictive business practice versus its potential anticompetitive effects in order to decide whether or not the practice should be prohibited. Some market restrictions, which prima facie give rise to competition issues, may on further examination be found to have valid efficiencyenhancing benefits.”383 2.4.4 2.4.4.1 382 Säcker and Lohse in F.J. Säcker et.al (eds) Law Concerning (n 3) 118–119. 383 Further, according to Sirait as to the Rule of Reason approach: “The best illustration of how the Commission interpreted broadly the rule of reason approach can be seen in the Temasek case, Decision No: 07/KPPU-L/2007, when the Commission invented and applied a minimalist and maximal approach in interpreting the rule of reason and the Per-se Illegal conduct. The Commission determined that the minimalist approach must fulfill two elements: a business actor controlling relevant market and such control affecting more than 50% of the relevant market. The maximal approach added one more element, that is, the conduct has had a negative impact on the market competition.” Sirait, ‘The Development and Progress of Competition Law in Indonesia’ (The Antitrust Bulletin: Vol. 54, No. 1/Spring 2009) 27. 2.4 Cartels Prohibition pursuant to the Indonesia Competition Law Number 5/1999 111 In contrast, as regards to Per-se Illegal approach, Khemani and Shapiro from the Organisation for Economic Co-operation and Development (OECD) provide, as follows: “Per se Illegal approach declares that every contractual agreement or business conduct is illegal, without further necessity to prove as to the subsequent impacts of the contractual agreement and/or business conducts. Business conducts which are deemed as illegal encompass among others a collusive price fixing and resale price maintenance.384” According to Wahyuningtyas, both the per se prohibitions and Rule of Reason approaches in the Law Number 5/1999 can be known from the clause “[…] could result in monopolistic practices or the occurrence of unfair business competition.” Hence, two statutory elements are important, notably: First, “a requirement to assess the effect of a particular agreement or conduct in the relevant market, which is shown in the term “could result in” or in some provisions “could be suspected to result in”. Second, the benchmark for the harmful effect to the relevant market, which is described as “monopolistic practices” and “the occurrence of unfair (business) competition”.385 Furthermore, the effect assessment requirement refers to the three significant consequences. First, the respective agreement or conduct as such (per se) is not prohibited and becomes prohibited, provided the second part of the clause is fulfilled. Second, even though an effect assessment is required, this approach does not require an actual effect. Thus, a potential effect is sufficient for the prohibition. Put differently, the Competition Authorithy (CA) must necessarily substantiate that a concrete detrimental effect resulted from the agreement or conduct in question.386 Product and Geographical Relevant Market The definition of market and relevant market is of principally importance for analysis in competition law, notably to assess market structure and anti-competitive conduct of an undertaking. According to Article 1 No. 10 of the Law Number 5/1999 a market is defined as follows: 2.4.4.2 384 Khemani and Shapiro, OECD Glossary (n 39) 51. 385 Wahyuningtyas, Unilateral Restraints (n 376) 96–98. 386 ibid. Chapter Two The Cartel Prohibition 112 “[…] An economic institution in which sellers and buyers, either directly or indirectly, can conduct trading transactions of goods and or services.”387 Furthermore, Article 1 Number 11 of the Law Number 5/1999 provides definition of relevant market, which is as follows: “The relevant market shall be the market related to a certain marketing scope or area by business actors for goods and or services of the same or similar type or substitutes for such goods and or services.”388 Accordingly, from the wordings of Article 1 No.11 of the Law Number 5/1999, there are two categories of relevant markets: product markets and geographical markets. In this respect, the KPPU Regulation No.03/2009 concerning the Implementing Guideline of Article 1 No.10 Law Number 5/1999 provides explanations for product and for geographical markets. A product market is defined as products, which compete with a product at hand as well as with products that can substitute a product at hand.389 Thus, analysis of product markets involves two steps, which are: (1) an analysis of characteristic similarities of a product at hand, and (2) an analysis of an interchangeability of a product at hand. Moreover, a product market can be identified from the supply and demand sides. Referring to the demand side: product A has, for example, three similar products: B, C, D. If product A’s price increase impact demand quantities of B and C, but not D; thus B and C deemed as the product market of A. From a supply side: there are the products A, B and C, which are offered on the market and there are X and Y as potential products. If products A, B and C price increases impact under- 387 See Article 1 (10) of the Law Number 5 Year 1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition. ‹http://eng.kppu.go.id/ newkppu/wp-content/uploads/2016/11/law_5_year_1999_.pdf› accessed 28th December 2017. 388 Article 1 (11) of the Law Number 5 year 1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition‹http://eng.kppu.go.id/newk ppu/wp-content/uploads/2016/11/law_5_year_1999_.pdf› accessed 28th December 2017. 389 Products can substitute a product at hand if products are able to restrict or limit the price increases of a product at hand. See Lubis and Sirait (eds), Hukum Persaingan Usaha (n 225) 23–25. 2.4 Cartels Prohibition pursuant to the Indonesia Competition Law Number 5/1999 113 taking to produce X to substitute A, B and C and thus to access a market.390 Based upon the Article 1 No. 11 of the Law Number 5/1999, the term geographical market refers to “a market related marketing range or area. Marketing area describes the area where competition takes place, which covers local, regional, nationwide or international spheres.391 According to Säcker and Fuller, referring to the UNCTAD Model Law, the criteria for defining a geographical market contains following indicators: “transportation costs, degree of inconvenience in obtaining goods or services, choice available to consumers and the functional level at which undertakings operate.”392 Oligopoly Oligopoly is categorised by the Law Number 5/1999 as the prohibited agreement, whereas Article 4 of the Law Number 5/1999 stipulates, as follows: “Business actors shall be prohibited from entering into agreements with other business actors for jointly controlling the production and/or marketing of goods and or services which may potentially cause the occurrence of monopolistic practices and or unfair business competition.” Accordingly, from the wording “[…] which may potentially cause […]” it can be inferred that Oligopoly is subject to the rule of reason approach, instead of the per se illegal one.393 2.4.4.3 390 ibid. 391 ibid. 392 Säcker and Lohse in in F.J. Säcker, et.al (eds.), Law Concerning Prohibition of Monopolistic Practices and Unfair Business Competition (n 3) 118–122. 393 Article 4 of the Law Number 5/1999 has five core elements: i. the existence of an agreement ii. an agreement between undertakings iii. the goal of an agreement is to jointly control the production and/or marketing of goods and/or services; iv. the possibility to potentially cause the occurrence of monopolistic practices and or unfair business competition v. oligopoly presumption prevails if 2 or 3 business actors or a group of business actors control over 75% of the market segment of a certain type of goods or services. Chapter Two The Cartel Prohibition 114 Based upon the provision of Article 4 (1) the Law Number 5/1999, agreements to take control over the production and/or marketing of goods and/or services jointly among or an agreement to establish an oligopoly, if theycan result in monopolistic practices or unfair competition they are prohibited. Thus, according to Article 4(2) the Law Number 5/1999, an oligopoly is presumed whenever two or three undertakings or groups of undertakings control more than 75% of the market share of a certain type of goods or services. Accordingly, Article 13 the Law Number 5/1999 explains market share, as follows: “the percentage of sales or purchase value of certain goods or services controlled by an undertaking in the relevant market in a certain calendar year.”394 Legislative Exemptions in the Law Number 5/1999 Normatively, the Law Number 5/1999 provides the legislative exemptions, which are elaboratively stipulated in the provisions of Article 50 and 51. Hence, these exemptionary provisions are structured into four categories: First, the regulation of natural monopoly subject to the state administration.395 2.4.5 394 Wahyuningtyas, Unilateral Restraints (n 376) 109. 395 Sirait openly criticised this exemption, which is stipulated in Article 51 of the Law Number 5/1999, as follows: Criticism has focused on Article 51, which grants exemptions to enterprises operating in strategic areas reserved exclusively for the State-Owned Companies (Badan Usaha Milik Negara or BUMN). Based on a literal reading of the law, it is still unclear whether the exemption of government monopolies must be stipulated by the law,53 or whether these agencies or companies shall be subject to Law No. 5 do you want to write the law numbers in the same way? of1999. Some business groups such as small- and medium-scale businesses or cooperatives are regulated under other existing laws and so may be exempted. 54 state oned companies have invoked Article 33 of the 1945 Indonesian Constitution: (1) The economy shall be organised as a common endeavour based upon the principles of the family system. (2) Sectors of production, which are important for the country and affect the people’s life shall be under the power of the State. (3) The land, waters and the natural resources shall be controlled by the State and shall be used to the greatest benefit of the people. (4) The organisation of the national economy shall be conducted on the basis of economic democracy upholding the principles of togetherness, efficiency with justice, continuity, safeguarding the environment, selfsufficiency, and keeping a balance in the progress and unity of the national economy. 2.4 Cartels Prohibition pursuant to the Indonesia Competition Law Number 5/1999 115 Second, the exemption for certain activities or actions. Third, the exemption for certain agreements. Fourth, the exemption for particular undertakings.396 Furthermore, Article 50 of the Law Number 5/1999 stipulates that the following agreements or activities, are excluded from the Law Number 5/1999’s application, which are: This article in the Constitution has been broadly translated into discretionary powers granted to the State-Owned Companies under Law No. 19/2003, which determines the structure of the state-owned companies. Article 66 of Law No.19/2003 states that the government grants privileges to State Owned Companies when implementing public utility services. This has been implemented by granting a monopoly to the state-owned companies in operating their businesses. Additionally, Law No. 5 of 1999 states that all state-owned companies are fully exempted. However, critics disagree and argue Competition Law In Indonesia: 31 53 Article 51 states that monopoly or concentration of activities related to the production or marketing of goods or services affecting the livelihood of society at large and branches of production of a strategic nature for the state shall be stipulated in a law and shall be implemented by state-owned companies or institutions formed or appointed by government. Very long sentence! See Sirait, “The Development and Progress of Competition Law in Indonesia”, 42. 396 See the Law No. 5 of 1992 concering Cooperative and Small Medium Businesses: Examples of specific statutory exemptions where monopoly is granted can be found in article 52(1), Law No. 40/2004, on the National Social Security System (Sistem Jaminan Sosial Nasional (SJSN). This article states that the operation of the systems is granted to Perusahaan Perseroan (Persero) Jaminan Sosial Tenaga Kerja (Jamsostek)— the worker’s social security company; Perusahaan Perseroan (Persero) Dana Tabungan dan Asuransi Pegawai Negeri (Taspen)—the civil servant retirement and insurance company; Perusahaan Perseroan (Persero) Asuransi Sosial Angkatan Bersenjata Republik Indonesia (ASABRI)—the social insurance company for military personnel; and Perusahaan Perseroan (Persero) Asuransi Kesehatan Indonesia (ASKES)—the health insurance company, all of which are entirely owned by the government. These companies, however, have been heavily criticised for unsatisfactory performance in providing public services and for competing with other providers and private insurance companies. Presumably, article 51 of Law No. 5 of 1999 will be used as the shield to protect the state monopoly and could discourage more efficient performance of State Owned Companies. 55??? Therefore, the demand for better services has put pressure on the government to privatise these companies as well as to open the relevant markets to competition. The best example of the Commission’s functions to deregulate a sector was its decision to require the Ministry of Transportation to revoke a decree and allow new competitors to enter the airline business. This certainly has provided a benefit to consumers through cheaper prices, better service, and more choice.” where is the beginning of the quote, no quotation marks. Chapter Two The Cartel Prohibition 116 a. actions and/or agreements intended to implement applicable laws and regulations b. agreements related to intellectual property rights, such as licenses, patents, c. trademarks, copyright, industrial product design, integrated electronic circuits, and trade secrets as well as agreements related to franchise; agreements for the stipulation of technical standards of goods and or services which do not inhibit, and or impede competition d. agency agreements which do not stipulate the resupply of goods and or services at a price level lower than the contracted price e. cooperation agreements in the field of research for the upgrading or improvement of the living standard of society at large f. international agreements ratified by the Government of the Republic of Indonesia g. export-oriented agreements and/or actions not disrupting domestic needs and/or supplies h. business actors of the small-scale group i. activities of cooperatives aimed specifically at serving their members. Equally important, as regards the monopolies administered by the State, Article 51 the Law Number 5/1999 provides: “Monopoly and or concentration of activities related to the production and or marketing of goods and or services affecting the livelihood of society at large and branches of production of a strategic nature for the state shall be stipulated in a law and shall be implemented by State-Owned Enterprises and or institutions formed or appointed by the government.“397 397 Article 51 of the Law Number 5 Year 1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition. ‹http://eng.kppu.go.id/newkpp u/wp-content/uploads/2016/11/law_5_year_1999_.pdf› accessed on 28th December 2018. 2.4 Cartels Prohibition pursuant to the Indonesia Competition Law Number 5/1999 117 Cartel Prohibition Provisions in the Law Number 5/1999 Whilst the Law Number 5/1999 does not provide a definition concerning cartels, the KPPU Regulation No.4/2010 defines cartels practice, as follows: “Cooperation between several competing undertakings to coordinate their activities resulting the control of production and prices of certain goods and/or services which leads to an excessive profit.”398 Specifically, Article 11 the Law Number 5/1999 stipulates cartel prohibition provision, as follows: “An undertaking shall be prohibited to make agreements with their business competitors, with the intention of influencing prices by arranging production and/or marketing of a good and/or service, which could result in the occurrence of monopolistic practice and/or unfair business competition.”399 Arguably, in the analysis of the Law Number 5/1999, it is important to distinguish between the ‘restrictive’ and ‘broad’ definitions of cartels prohibition.400 Broad definition of cartels prohibition means that cartels prohibition in the Law Number 5/1999 refers not only to Article Article 11, but also to Article 5 concerning price fixing and Article 9 regarding territorial division.401 Nevertheless, based upon the KPPU Regulation concerning Guideline for Implementation of Article 11 of the Law Number 5/1999, Article 11 does not include other types of cartels, which have been regulated in Article 5 and Article 9. Article 11 2.4.6 398 Article 5 of the Law Number 5 Year 1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition. ‹http://eng.kppu.go.id/newkppu /wp-content/uploads/2016/11/law_5_year_1999_.pdf› accessed on 28th December 2018. 399 Article 11 of the Law Number 5 Year 1999 concerning the Prohibition of Monopolistic Practices and Unfair Business Competition. ‹http://eng.kppu.go.id/newkpp u/wp-content/uploads/2016/11/law_5_year_1999_.pdf› accessed on 28th December 2018. 400 According to the broad definition of a cartel, a cartel comprises agreement on prices, market shares, allocation of customers and allocation of territories. While according to the restrictive one, a cartel is an agreement by a group of undertakings, which compete in a same market, to fix prices for obtaining monopolistic profits. cf. A.M.T. Anggraini, ‘Penggunaan Bukti Ekonomi dalam Kartel (n 33) 4. 401 Silalahi,’Circumstantial Evidence’ (n 14) 5–7. Chapter Two The Cartel Prohibition 118 of the Law Number 5/1999 comprises only a cartel with intention of influencing prices by arranging production and/or marketing of a good and/or service.402 Hence, by referring to the provisions of Article 11 the Law Number 5/1999, a cartel must fulfil the following statutory elements, notably: Fist, the existence of an agreement between undertakings. Second, having intention to influence prices on the market. Third, arranging production and/or marketing of goods and/or services. Fourth, it could resulting in the occurrence of monopolistic practices and/or unfair business competition.403 The existence of an agreement between undertakings By virtue of Article 1 No. 7 the Law Number 5/1999, the term ’agreement’ refers to ” an action of one or more business actors for binding themselves to one or more other business actors under whatever name, either in writing or not.” Indeed, Säcker and Füller argue that agreements are “the joint market strategies of several business actors, whereby the competing business actors agree with one another about the whole market behaviour or even single portions from the whole market behaviour, which cause the business actors act in an un-isolated manner and unindependly in the market. Hence, the term “agreement” has a particular definition in the competition law and thus does not interlink with the term agreement under the civil law concept.404 Equally important, Säcker and Füller emphasise that the term ‘agreement’ in the provisions of Article 1 No.7 the Law Number 5/1999 implies the following concepts: First, concurrence of wills and forming a collective intention, whereas there are at least two parties agreeing on a joint market strategy chiefly through the mutual flows of information, be it ever so rudimentary, irrespective of the causa of the agreement as well as the voluntary or non-voluntary nature of an agreement.405 Second, binding effect, whereas the binding effects of an 2.4.6.1 402 ibid. 403 ibid. 404 Säcker and Lohse in F.J. Säcker, et.al (eds.), Law Concerning Prohibition of Monopolistic Practices and Unfair Business Competition (n 3).79–83. 405 ibid.79–84. 2.4 Cartels Prohibition pursuant to the Indonesia Competition Law Number 5/1999 119 agreement comprise not only the legal binding effect but also economic, moral and social binding effects. Had an agreement anti-competitive effects, thus this agreement can be rescinded and declared null and void by KPPU pursuant to Article 47 (2) the Law Number 5/1999. Moreover, the economic, moral and social binding effects of an agreement in this context are, among others, a below cost pricing policy agreement whereby the participants in such agreements will demand a low price in order not to suffer from competition. Thus, with these economic advantages and disadvantages the business actors shall be indirectly compelled to abide by the agreement’s terms and condition.406 Third, a distinction against “conspiracy”, whereas the term “agreement” under Article 1 No.7 of the Law No.5/1999 has a broad interpretation and comprises also “a gentleman’s agreement”. However, the Law No.5/1999 does not follow the UNCTAD Model Law, whereby the Law Number 5/1999 distinguishes between the terms “agreement” and “concerted practice or actions”. The term “concerted practices”, similar to the competition law legislations in developed countries, has been stipulated in a specific provision, namely in Article 1 No.8 of the Law Number 5/1999.407 Fourth, the written or oral forms of an agreement, whereas an agreed restraint of competition to be in written or not, is irrelevant. This provision is in accordance with the competition law practices in many countries. However, the non-written form of an agreement, for example gentlemen’s agreements expose another profound problem to the Competition authority and to the Court, particularly the evidentiary problem that largely correspond to a similar problem in the concerted action.408 In the analysis of the term agreement in Article 1 No.7 of the Law Number 5/1999 it is important to make differentiation as regards to: First, mere agreement. Second, related or ancillary agreement and third, joint venture agreement.409 406 ibid. 407 ibid. 408 ibid. 409 According to Säcker and Lohse, mere agreements are carried out where the content of an agreement amounts to nothing more than agreeing to arrange production and/or marketing. The most important group of these are quota cartel, identifying market information procedures, pure customer division and market entry barriers, and standard or type cartels. Related agreement, which arises from a collateral clause of complex contract whose main purpose, is neutral in terms of a Chapter Two The Cartel Prohibition 120 As regards the term ‘undertaking’ or ‘business actors’, Article 1 No. 5 the Law Number 5/1999 defines as follows: “Business actor shall be any individual or business entity, incorporated or not incorporated as legal entity, established and domiciled in or conducting activities in the jurisdiction of the Republic of Indonesia, either individually or jointly based on an agreement, conducting various business activities in the economic sector.”410 According to Säcker and Füller, this provision mirrors the international approach of a functional definition, regardless of its natural person or legal entity and which stipulated further by the UNCTAD Model Law Article 2 I (a): “Enterprises mean firms, partnerships, corporations, companies, associations and other juridical persons, irrespective of whether created or controlled by private persons or by the State, which engange in commercial activities, and include the branches, subsidiaries, affiliates or other entities directly or indirectly controlled by them.”411 Hence, the international term of enterprises is similar to business actors in the Law No.5/1999, which encompasses: First, enterprise groups. Second, association of business actors. Third, State Owned Enterprise (SOE). However, it does not include the entities for meeting private needs, for example the final consumer and the employment agreement.412 The term public or state-owned business actor according to Article 16 Sec. 1 the UNCTAD 1994 International Antitrust Code, is defined as follows: competition law. This includes accompanying customer division and accompanying barriers to market entry. Regarding a joint venture agreement, arranging production and marketing might have an effect of a joint venture agreement and arranging production and/or marketing can take place precisely based on a joint venture agreement. ibid. 211. 410 Pasal 5 Undang-undang Nomor 5 Tahun 1999 tentang Larangan Praktik Monopoli dan Persaingan Usaha Tidak Sehat (Law concerning Prohibition of Monopolistic Practices and Unfair Business Competition). cf. Heermann in F.J. Säcker, et.al (eds.), Law Concerning Prohibition of Monopolistic Practices and Unfair Business Competition (n 3) 48–52. 411 ibid. 412 ibid. 2.4 Cartels Prohibition pursuant to the Indonesia Competition Law Number 5/1999 121 “Public business actors, irrespective of their legal status, are subject to application of this Agreement as far as they enganged in economic activities that could be carried out by private business actors”.413 Thus, the key word is the predominant influence by the State by any other means.414 Furthermore, the tems enterprise groups, association of business actors, and meeting private needs and employment agreement are largely similar to the corresponding concepts in the EU and German Competition laws.415 In fact, it is important to note that there are seven types of undertakings in the Indonesia business law system, notably: First, State-Owned Company (“BUMN/BUMD”).416 Second, cooperative (“Kooperasi”).417 Third, limited liability company (“Perseroan Terbatas-PT”).418 Fourth, partnership (“Maatschap”).419 Fifth, firm (“Firma”).420 Sixth, limited partnership (“Commanditaire Venootschap-CV”). Eigth, foundation (“Yayasan”).421 Having intention to influence prices on the market Säcker and Lohse explain that the element “with the intention of influencing price” has no significance alone, because the undertakings’ conduct to arrange productions and/or marketings not only excludes competition between the undertakings participating in cartels, but also leads to price increases of the products of goods and/or services gener- 2.4.6.2 413 ibid. 414 ibid. 415 ibid. 416 The Indonesian Law Number 19/2003 concerning the state-owned company (Badan Usaha Milik Negara/Badan Usaha Milik Daerah) 417 The Indonesian Law Number 25/1992 concerning the cooperative (Kooperasi) 418 The Indonesian Law Number 40/2007 concerning the Limited Liability Company (Perseroan Terbatas-PT). 419 Codification of Civil Law (Kitab Undang-undang Hukum Perdata-Burgerlijk Wetboek), Article 1618. This provision still prevails based upon the Indonesia Constitution, Transition Provisions, Article II. 420 Codification of the Commercial Law (Kitab Undang-undang Hukum Dagang- Wetboek van Koophandel), Article 16 on Firma and Article 19 concerning Commanditaire Venootschap (CV). 421 The Indonesian Law Number 25/2000 on the Foundation (Yayasan). Chapter Two The Cartel Prohibition 122 ated and/or marketed by the undertakings because of the absence of competitive pressures on the market.422 Arranging production and/or marketing of goods and/or services The notion of arranging production and/or marketings of goods and/or services refers to an effort to determine the amount of goods produced or marketed for a cartel as a whole and for all the members, that is to say, either greater or lesser than the undertaking’s production capacity or the demand of goods or services in the market. Whereas to govern the market refers to the undertakings’ effort to determine, for example, certain marketing areas in which the undertakings could sell their goods and/or services.423 Could resulting in the occurrence of monopolistic practice and/or unfair business competition By virtue of Article 1 point 6 the Law Number 5/1999, unfair business practices refer to: ”Competition shall be competition among business actors in conducting activities for the production and or marketing of goods and or services in an unfair or unlawful or anti-competition manner.” Even more, as regards the ‘restriction to the competition’ on the market, Heermann asserts that this concept reflects a fact that the existence of merely potential restraints of competition is sufficient to categorise a specific competitive conduct as a monopolistic practice. Hence, in application of the competition law prohibition provisions are expanded significantly, because the competition law authorities need not to wait until the restrainst of competition have actually taken into effect. Thus, the competition law authorities are able to intervene immediately as of the potential restrictions to competition emerge.424 2.4.6.3 2.4.6.4 422 Säcker and Lohse in Säcker, et.al (eds.), Law Concerning Prohibition of Monopolistic Practices and Unfair Business Competition (n 3) 208–209. 423 ibid. 424 Heermann in Säcker, et.al (eds.), Law Concerning Prohibition of Monopolistic Practices and Unfair Business Competition (n 3) 50–53. 2.4 Cartels Prohibition pursuant to the Indonesia Competition Law Number 5/1999 123 According to Säcker and Lohse, KPPU is supposed to apply the rule of reason approach in implementing the provisions of Article 11 the Law Number 5/1999. This is particulary important to examine whether an agreement in question is necessary to achieve a main goal, which is neutral to the competition law (reasonably ancilliary agreements). Further, this approach is of significant important to value whether an agreement in question is necessary to attain the procompetitive benefits (reasonably necessary agreements). Nevertheless, it must be carefully noticed that the rule of reason approach is not applicable to the following ‘red-light’ cartels, for instance quota cartels, identifiying market information procedures, pure costumer divisions and pure barriers to market entry due to their serious detrimental effects to the competition. In contrast, the rule of reason approach is applicable to the following ‘yellow-light’ cartels, namely standard and type cartel, condition cartel, accompanying customer division, accompanying barriers to market entry and joint venture agreements. In the second place, in the implementation of Article 11 the Law Number 5/1999, KPPU must take into account the legislative exemptions in the provisions of Article 50 the Law Number 5/1999. In the event that KP- PU can prove than an agreement in question had violated the provisions of Article 11 the Law Number 5/1999, consequently the agreement is to be null and void. Accordingly, KPPU is able to impose administrative and penal sanctions to the undertakings involved in cartels.425 Furthermore, in the implementation of Article 11 the Law Number 5/1999, KPPU must take into consideration the de minimis rule, whereas UNCTAD defines: “De minimis exemptions are those which are granted for transactions involving firms with turnover or market share below a certain threshold, which are not considered to affect competition significantly enough to make it necessary for the law to be made applicable to them or to be applied by them.” In the EU, the de minimis bound is to be assumed by a joint market share of cartel members from 5–10 percent.426 425 Säcker and Lohse Säcker, et.al (eds.), Law Concerning Prohibition of Monopolistic Practices and Unfair Business Competition (n 3) 206–210. 426 ibid. Chapter Two The Cartel Prohibition 124 Principally, pursuant to the KPPU Regulation No. 04/2010, cartels on the market can be identified by observing the following characteristics: First, the existence of a conspiracy between undertakings. Second, the involvement of senior executive or official of alleged undertakings in making collusive agreements. Third, the misuse of trade or business association for camouflaging their illicit activities and/or collusions. Fourth, price fixing, which must be followed by allocation of consumers, territories and productions as well as an agreement to decrease quantities of production for effective implementation of price fixing. Fifth, the threat and internal punishment for participating undertakings for deterring deviating conduct from cartels agreement. Sixth, the distribution of information for all members of cartels agreement. Further, the undertakings would involve an internal auditor to verify given information concerning quantities of production and marketing of goods. Subsequently, the auditor distributes the information to all members of cartels agreement.427 427 The KPPU Regulation No. 04/2010 concerning the guidelines of Article 11 of the Law Number 5/1999 on cartels (dated 9th April 2010). 2.4 Cartels Prohibition pursuant to the Indonesia Competition Law Number 5/1999 125

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Abstract

Notwithstanding the two decades that have passed since the implementation of Law Number 5 on the Prohibition of Monopolistic Practices and Unfair Business Competition in 1999, the Indonesian Competition Authority or Komisi Pengawas Persaingan Usaha (“KPPU”) continues to face profound difficulties in uncovering cartel activities and thus in imposing penalties. Therefore, the KPPU strives to use circumstantial (indirect) evidence in its judicial practice to prove cartel transgressions. In German Cartel Law, EU Competition Law and in the US Antitrust practice, the courts also employ indirect (circumstantial) evidence, namely ‘facilitating practices’ and ‘plus-factors’, to substantiate cartel infringements. This book compares the different approaches to implimenting indirect (circumstantial) evidence in the Indonesian Competition Law to the German and European Competition Law, both from a procedural as well as a substantial law perspective.