knowledge 7 July 2020 | 3 min read

Proposed New Powers for European Commission for Markets with “Structural Competition Problems”

Background

On 2 June 2020, the European Commission (the “Commission”) announced that it would be launching a public consultation and an inception impact assessment on a possible new competition tool (“NCT”). According to the Commission, the purpose of the NCT would be “to deal with structural competition problems across markets which cannot be tackled or addressed in the most effective manner on the basis of the current competition rules”.¹

Why does the Commission want a new competition tool? 

In the EU, the Commission currently uses a variety of well-established methods to target anti-competitive agreements and behaviour under Articles 101 and 102 of the Treaty on the Functioning of the European Union (the “TFEU”) respectively. Additionally, in recent years, the Commission has also been quite active in relation to merger control where it has either prohibited a number of mergers or cleared them only after parties offered substantial commitments to remedy the Commission’s concerns.

Furthermore, the Commission also has the power to investigate certain sectors of the economy, through “sector inquiries”, which display a lack of competition. The Commission previously used sector inquiries for the pharmaceutical industry and e-commerce sector. The results of those sector inquiries subsequently formed the basis for a number of significant antitrust decisions against individual market participants in both sectors.

However, the Commission states that the current rules do not allow it to address certain structural problems identified through its enforcement of existing competition rules. For example, the Commission cites the case of markets with a structural lack of competition. Such a lack of competition might be due to market features such as high concentration, barriers to entry and lack of access to data rather than anti-competitive behaviour by market participants. The Commission considers this to be a gap in its enforcement armoury.

How would a new competition tool apply in practice?

In its initial announcement, Commission stated that a “rigorous market investigation” would first take place in order to identify a structural competition problem. Rights of defence would be “fully respected” during such an investigation. Results of an investigation should then allow the Commission “to impose behavioural and where appropriate, structural remedies”. The Commission added that it would not make any findings of infringement or impose fines on market participants.

Furthermore, the Commission’s initial impact assessment sets out a number of different approaches on the NCT.

At its narrowest, the NCT would target dominant companies in certain sectors of the economy such as digital markets while a broader approach would see the NCT apply to all companies, and not just dominant ones, in all sectors of the economy.²

In addition to the initial impact assessment, the Commission’s consultation on the NCT sheds further light on its vision for the proposed NCT. In particular, the Commission seeks views on possible outputs of the  NCT such as:

1. making non-binding recommendations to companies through codes of conduct and best practices;
2. informing and making recommendations/proposals to sectorial regulators;                          
3. informing and making legislative recommendations;                  
4. imposing remedies on companies to deal with identified and demonstrated structural competition problems.

As regards specific remedies, the consultation gives a range of potential remedies that might be available to the Commission such as:

1. non-structural remedies;                       
2. structural remedies ranging from divestitures to granting access to key infrastructure or inputs;                   
3. hybrid remedies, which would entail different types of obligations and bans.    

In a recent speech, Margrethe Vestager, EU Commissioner for Competition, gave further hints on the Commission’s intentions regarding remedies when she stated that remedies could go as far as requiring the break-up of certain companies in order to protect competition.³

What next?

While the feedback period on the inception impact assessment closed on 30 June 2020, the Commission’s consultation will remain open to stakeholders until 8 September 2020.

In Ireland, the Department of Business, Enterprise and Innovation announced on 5 June 2020 that it is seeking submissions from interested parties on the NCT by 24 July 2020.⁴

On conclusion of the Commission’s consultation period, the Commission intends to introduce a legislative proposal in quarter four of 2020.

Conclusion

If implemented, the NCT would be a substantial addition to the Commission’s enforcement toolbox, however many issues will need to be first addressed.

In particular, the precise test and standard of proof which the Commission will need to satisfy before it can intervene in a particular market will need to be clarified. In addition, careful consideration will need to be given to the NCT’s relationship with Articles 101 and 102 TFEU.

These and many other issues are likely to give rise to significant debate and comment over the coming months.