EFFECTIVE REMEDIES? REMEDIES IN COMPETITION CASES – A HOT

8 ASSIGNMENT AGREEMENT THIS AGREEMENT IS EFFECTIVE
BARRIERS TO EFFECTIVE CLIMATE CHANGE ADAPTATION PRODUCTIVITY COMMISSION
GUIDELINES ON CHAIRING MEETINGS EFFECTIVELY EFFECTIVE CHAIRING

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I NSTITUTIONAL EFFECTIVENESS COMMITTEE MEMBERS JEMMA BLAKEJUDD
SUBJECT INTENSIVE LIVESTOCK OPERATIONS EFFECTIVE 12312007 REVISED
(EFFECTIVE WITH THE FRESHMAN CLASS ENTERING 2013 UPDATED

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Effective Remedies?

Remedies in competition cases – a hot topic

The effectiveness of remedies in competition cases is currently the focus of several studies and initiatives. On 22 May 2007, the OECD published a paper setting out the proceedings of a policy roundtable, held by the OECD Competition Committee in June 2006, on remedies and sanctions in abuse of dominance cases¹. The Competition Commission published a report on past merger remedies in January 2007². The European Commission published its own report on merger remedies in October 2005³ and is currently conducting a consultation on draft revised guidelines on remedies in merger control cases⁴.

While the emphasis to date has been on ex post assessment of merger remedies, the focus is shifting to other competition cases. Whilst there has been some assessment of the benefits of decisions by competition authorities in financial and budget terms⁵, assessment of the effectiveness of remedies from a competition law and economics perspective has perhaps been rather more piecemeal to date.

If the purpose of competition policy is to make markets work well for consumers, some systematic assessment of how effective remedies have been in contributing to consumer welfare would appear to be a necessary part of the process. Such ex post review would be likely to inform the choice of ex ante case prioritisation in situations where competition authorities have discretion.

Alternatively, to the extent compensation represents the appropriate remedy, now that follow-on and stand alone damages actions are being facilitated, perhaps the competition authorities can increasingly limit intervention to bringing infringements to an end and leave remedies to the courts.

Effectiveness of remedies – some observations so far

In the merger context, the competition objective of remedies is to maintain effective competition by preventing the creation or strengthening of a dominant market position. In anti-trust cases, the aim of remedies is to restore competition in the relevant market. The Article 81/82 prohibition-based system is designed to eliminate particular practices or agreements which have developed in a particular market. Behavioural or structural remedies can be imposed which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end.⁶

Some studies on effectiveness of remedies are briefly considered below.

The Federal Trade Commission published findings concerning divestiture remedies in 1999⁷. Divestiture packages must include all assets necessary for a purchaser to compete; divestitures of ongoing stand-alone businesses tend to be more successful than divestitures of selected assets; divesting parties tend to look for purchasers that will be weak competitors.

When considering the effectiveness of the types of remedies used in merger cases, the European Commission study of October 2005 found that, overall, joint venture remedies⁸ were the most effective type of remedy while the effectiveness of access remedies⁹ was considered to be weak.¹⁰

In its January 2007 report, the Competition Commission considered the effectiveness of remedies in the merger context. Ongoing monitoring, employee education and continuing awareness of the need for compliance were identified as important factors. Where a remedy depends on action by a third party, this creates a risk that the remedy will not be effective.¹¹ To ensure parties give effect to a proposed remedy, the possibility that it be enforced by order, or, that another more intrusive remedy might be imposed, are useful. In relation to divestitures, it is important to indicate clearly those elements that should be included as part of the remedy.¹² Behavioural remedies are more complicated than structural remedies: they require more work (especially in relation to design), they must remain relevant over time and require ongoing monitoring.¹³

In abuse of dominance cases, the OECD Roundtable drew a number of conclusions. Identifying effective remedies in such cases has generally proven to be difficult. It is, therefore, helpful to spend time early in the investigative process defining the remedial objectives, as well as having a thorough investigation of the relevant industry and how it is likely to evolve.¹⁴ Agencies should also implement a systematic process for evaluating the effectiveness of past remedies as this will further enable them to design more effective remedies.¹⁵

Structural remedies, which require firms to sever links from assets they hold, have the virtue of being able to eliminate market power rapidly while creating or invigorating competitors. They may also require less oversight than other remedies do. On the other hand, some structural remedies may initially be more disruptive to the business of the committing parties than other remedies are, and they sometimes create immediate inefficiencies. In addition, history has shown that structural remedies are not always easy to administer.¹⁶

Behavioural remedies, which oblige a company either to do something or to stop doing something, can be tailored to fit individual cases and market circumstances. Overall, in this context they are considered less controversial than divestitures and have been applied far more frequently in abuse of dominance cases. Nonetheless, behavioural remedies are sometimes criticised because they do not attack concentration and market power directly. They also tend to require ongoing, and occasionally extensive, oversight and intervention by courts and agencies. Furthermore, behavioural remedies are more susceptible to strategic neutralisation, minimisation, or evasion by the committing parties than other measures are.¹⁷

In market investigations, if the Competition Commission concludes that there are one or more features of a market which are adversely affecting competition then it may seek appropriate remedies to address them. These can be structural or behavioural. Paul Geroski observed: "Market inquiries have as their goal the task of ensuring that markets that are not very competitive will be more so in the future than they have been in the past. ... we need to spend more time thinking about remedies. This is, for us, a new responsibility, and it turns out that there has been little systematic examination of the appropriateness and effectiveness of different types of remedies in different circumstances."¹⁸

Remedies in some recent cases are briefly considered below.

The Competition Commission 2000 inquiry into Supermarkets¹⁹ concluded that several practices in respect of suppliers to supermarkets with market power operated against the public interest. The remedy was the Supermarkets Code of Practice. This has long been criticised as ineffective. Could another remedy have achieved a better result? By contrast, the adjudicator system for TV advertising pricing as part of the Carlton/Granada merger clearance has widely been regarded as very effective. Are there learnings from these two cases?

The Microsoft case²⁰ of March 2004 concerned an infringement of Article 82. Microsoft was required to offer a version of its Windows OS without Windows Media Player to PC manufacturers (or when selling directly to end users). Was this remedy effective?

As part of its 2005 settlement of its Coca-Cola investigation²¹, the European Commission agreed a range of commitments, including: preventing Coca-Cola from entering into exclusivity arrangements with shops and pubs, offering customers target or growth rebates or forcing them to take less popular products with its stronger brands; and enabling use of 20% of space in Coca-Cola's coolers for other products. Competition Commissioner Neelie Kroes commented: "This decision will benefit consumers by imposing competition in the markets for carbonated soft drinks in Europe. Thanks to the Commission's decision, consumers will be able to choose from a larger range of fizzy drinks at competitive prices."²² Discuss.

As part of its 2006 settlement of the Independent Schools case²³, the schools agreed to pay £3m to a charitable trust to benefit the pupils who attended the schools during the years to which the fees information sharing related. Are these pupils who need benefiting from the arrangements?

In the lifts and escalators cartels²⁴, the Commission imposed fines of over €990 million. The effects of this cartel may continue for twenty to fifty years as maintenance is often done by the companies that initially installed the equipment. As a result, the companies concerned have distorted these markets for years to come. What remedies could be used to eradicate or limit this distortion?

Alastair Gorrie

Orrick, Herrington & Sutcliffe

12 June 2007

1 DYNAMIC BRAKING EFFECTIVE FROM 200711 REFER TO R13
10 LITTLEKNOWN RARELY DISCUSSED HIGHLY EFFECTIVE PRESENTATION TECHNIQUES BY
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Tags: cases –, recent cases, cases, competition, remedies?, remedies, effective

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