1. 1 Behavioural Remedies in EC Merger Control – Theory and Practice Dr Ariel Ezrachi, Slaughter and May Lecturer in Competition Law, The University of Oxford Oxford Competition Academy Friday, 8 July 2005 CCLP (S) 07/05

2. 2 Behavioural Remedies in EC Merger Control – Theory and Practice I.Classification & sub classification II.Policy considerations – benefits and drawbacks III.Under subscribing behavioural remedies? IV.Behavioural remedies in EC Merger Control V.Designing, monitoring and enforcing VI.Concluding remarks

3. 3 I. Classification & Sub Classification Classification Traditional classification: –Structural remedies –Behavioural remedies DOJ Policy Guidelines on Merger Remedies UK Competition Commission Guidelines ICN Merger Remedies Review Project Sub Classification ICN Merger Remedies Review Project The International Chamber of Commerce Parker and Balto ‘Categorisation of a proposed commitment as behavioural or structural is … immaterial.’ (Gencor v Commission, Para 319)

4. 4 ICN MERGER REMEDIES REVIEW PROJECT

5. 5 II. Policy Considerations – Drawbacks & Benefits Drawbacks –Disparities of incentives –Information asymmetries – risk of under fixing –Operating costs Monitoring Enforcement –Indirect costs Evading the spirit of the remedy – crawling compliance Distortion of competition Benefits –Facilitates or replaces divestitures –Access rights –New and changing markets –Flexibility & fine tuning

6. 6 III. Under Subscribing Behavioural Remedies? The competition authority –Type I error –Type II error Ex-ante / ex-post regulation Over fixing  favour structural or wide behavioural remedies Disparity of bargaining powers Over fixing is rarely challenged …  Sufficient capacity?

7. 7 IV. Behavioural Remedies in EC Merger Control The Merger Regulation The Notice on Remedies –Structural remedies are preferred –Other remedies may be accepted Termination of existing agreements Remedies facilitating market entry Licensing agreements –‘Commitments that would amount merely to a promise to behave in a certain way, for example a commitment not to abuse a dominant position …, are as such not considered suitable to render the concentration compatible with the common market.’

8. 8 Gencor v Commission (CFI) ‘… where the Commission concludes that the concentration is such as to create or strengthen a dominant position, it is required to prohibit it, even if the undertakings concerned by the proposed concentration pledge themselves vis-à-vis the Commission not to abuse that position.’ (Para 316) The Notice on Remedies – Wide interpretation of Gencor v Commission Tetra Laval/Sidel (Commission) – Wide interpretation of Gencor v Commission … consideration of behavioural commitments, to refrain from acting in a certain manner, is ruled out where the merger appears likely to create or strengthen a dominant position… ARD v Commission (CFI) The issue is ‘not whether the obligations resulting from the commitments allegedly stem from Article 82 EC, but rather whether those commitments are capable of resolving the problems caused by the merger’.

9. 9 Commission v Tetra Laval (ECJ) ‘The situation in the Gencor case was entirely different from that addressed in the contested decision.’ ‘… the Court of First Instance was right to hold, in paragraph 161 of the judgment under appeal, that the fact that Tetra had, in the present case, offered commitments relating to its future conduct was a factor which the Commission had to take into account when assessing the likelihood that the merged entity would act in such a way as to make it possible to create a dominant position on one or more of the relevant markets for PET equipment.’ (para 85) ‘Contrary to what the Commission claims, it is not apparent from that judgment [Gencor v Commission] that the Court of First Instance ruled out consideration of behavioural commitments.’  Type I error?  The position after Tetra  The effect on conglomerate transactions and leveraging theories

10. 10 V. Designing, Monitoring and Enforcing Market access –Bayer/Aventis –BSkyB/KirchPayTV –Newscorp/Telepiu –Daimler Chrysler/DeutscheTelekom –GE/Instrumentarium Long term supply contracts –Astra/Zenca –AGFA Gevaert/DuPont Fire wall –AREVA/Urenco –Mitsui/CVRD/Caemi Fair dealing & Price caps –Piaggio/Aprilia –Bayer/Aventis –Verbund/Energie Allianz –Air France/KLM

11. 11 Designing, Monitoring and Enforcing Increased capacity? Monitoring –Monitoring Trustees –Third parties Enforcement –The Commission –Dispute resolution –Complaints Flexibility –Adjustments –Crown Jewel

12. 12 Dispute Resolution Drawbacks: –Requires a sophisticated, non-dependant third party –Direct and indirect cost for the complainant –loopholes –Public value? –Potential for conflict –Limited use Increased capacity –Fast track –Interventionist approach –Commission can make submission to the arbitrator –Commission provides interpretation in case of doubt –Commission’s powers of enforcement are not affected

13. 13 ‘Crown Jewel’ Alternative remedies may prevent over fixing Nestlé/Ralston Purina (Phase I) 1.Exclusive licensing 2.Divestiture of assets Criticism - Uncertainty may delay integration -… Less than effective relief at the outset or more than is necessary to remedy the competitive problem … (US DOJ Guidelines) - Room for manipulation (US DOJ Guidelines) Confidentiality (Bayer/Aventis (US FTC, European Commission) )

14. 14 VI. Concluding Remarks Suitable for New emerging markets Small national markets Access Lowering barriers to entry Ancillary role Under perform Complex arrangements Blank promises Price caps Fair dealing New entrant  EC Merger Remedies Study  The need to increase Commission’s capacity to monitor and enforce  Policy considerations - minimal intrusion?  Who decides?