Problems of competition enforcement and redress: EU trends and new solutions Professor Dr Christopher Hodges Head of the CMS Research Programme on Civil Justice Systems Centre for Socio-Legal Studies, University of Oxford Erasmus Professor of the Fundamentals of Private Law Erasmus University, Rotterdam

Issues 1. Damages 2. Enforcement Policy

The Orthodox Approach Competition Enforcement is about Deterrence, achieved by large fines Penalties on individuals? The Public Authority imposes Fines Damages can be delegated to private actors

Design Choices for Enforcement Actors: public or private? Law: public or private Procedures: public or private? Time of control technique: ex ante or ex post? Enforcement policy?

Differing Policies on Enforcement U.S.A. Private enforcement of both public norms and private rights Deterrence Theory Damages = Fines EU Public enforcement of public law: sanctions + fines Deterrence Theory Private enforcement of private rights: damages

Choice of enforcement policy Deterrence: competition Responsive: tit-for-tat Pyramid: escalation Risk-based: prioritisation Restorative Justice Hodges 2 articles 2011

Braithwaite Enforcement Pyramid Removal of Liberty

EU Public Enforcement Theory: Fines + Deterrence A post facto control has to be very large to be effective. How large is enough? Ineffective Fines rise to defeat calculations re fine and leniency DG case investigations have fallen Recidivism? Extent of non-compliance is unknown: important because used in fining Assumption 10-20% cartels detected

Problems with Deterrence 1 1. Deterrence on its own does not deter – unless the sanction, being ex post, is vast 2. Deterrence does not produce compliant behaviour 3. Should deterrence be a goal of regulatory enforcement? 4. Enforcement on companies is aimed at the wrong targets 5. Fines impose significant damage on the wrong targets (employees, shareholders, innovation)

Problems with Deterrence 2 5. Large sanctions are contrary to constitutional/fundamental rights principles of justice, fairness and proportionality 6. Determination of fines is not transparent, consistent or fair 7. Leniency encourages perverse behaviour (infringe, then own up first, and keep illicit gain) 8. This policy does not rectify a balanced market

Gain to cartelists Loss to victims Gain to cartelists Loss to victims

Problems with Deterrence 3 9. Damages cannot be added on after fines: they must be integrated to produce fair and proportionate outcomes 10. Culture: Polarisation not solidarity

A balanced competitive market

A Model for Enforcement and Restitution The priorities are: Restitution of victims Restoration of a competitive market Then consider sanctions based on: Targeting the cause: individuals or company? Action taken against individuals Corporate Best Practice scheme and operation Cooperation: Doing the Right Thing Owning up Paying back Cooperation Recidivism: past and future likelihood Seriousness

Three Pillar Model Regulation ADRPrivate Litigation

A Model for Enforcement and Restitution Credible threats, enlisting self-regulation and the ‘shadow of the law’ to produce swift, cheap solutions Public Pillar: wide enforcement powers, credible threat, targeted at the source of the problem(company, individual), wide restorative powers, so not often necessary to invoke Responsible behaviour: company systems, responsible individuals, effective internal regulation and sanctions, supported by ADR Private law enforcement: make unnecessary, last priority so as to avoid abuse and undermining pillars 1 and 2