New EU Merger Regulation and Reform of EC Antitrust Enforcement
EC Treaty, Articles 81 and 82
By Anniek van Zutven and
Hans Urlus, Greenberg Traurig,
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On May 1, 2004, a revised merger review law1
(“New Merger Regulation”)
and a new Regulation on the implementation of the rules on competition laid
down in Articles 81 and 82 of the EC Treaty (“Regulation 1/2003”)2
effect in the EU. These new regulations will not change the substance of
EC Competition rules, but will profoundly change the way in which they are
|"Articles 81 and 82 of the EC
Treaty will not change the substance of EC Competition rules, but
will profoundly change the way in which they are enforced."
Regulation 1/2003 introduces three major changes to the enforcement of
the Competition rules of the EC Treaty. In addition, Regulation 1/2003 introduces
broader investigatory powers for the European Commission.
Abolition of the Notification System in Favor of Self-Assessment
Regulation 1/2003 establishes a “directly applicable exception” system
whereby agreements, decisions and concerted practices will be lawful or
void depending on whether the fall outside the scope of article 81(1), satisfy
the conditions of article 81(3), or whether they in fact breach article
82. The European Commission has abandoned its monopoly on applying Article
81(3) and with it, the notification system. Article 81(3) will become directly
applicable by National Competition Authorities and national courts, in the
same way as the rest of Articles 81 and 823.
The new system places a burden of complete self reliance upon companies
and their legal advisors to determine whether their arrangements satisfy
the criteria for exemption. With a view to further assist this self-assessment
by undertakings, the Commission already published so-called Commission notices
and guidelines on the block exemption regulations on vertical restraints
in 2000 and on horizontal co-operation agreements in 2001. Furthermore,
the Commission has published guidelines and notices. These documents should
allow companies in most cases to reliably assess their agreements with regard
to Article 81. However, the new system brings huge uncertainties which will
lead to increased care for the way agreements and behavior are arranged.
Where cases give rise to genuine uncertainty because they present novel
or unresolved questions for the application of Articles 81 and 82, individual
companies may seek informal guidance from the Commission. The Commission
may provide guidance on novel questions on the interpretation of Articles
81 and 82 in a written statement (“guidance letter”). However, these guidance
letters are not a substitute for a judgment on a particular case and in
the particular economic context of a case. Furthermore, it is important
to emphasize that the Commission will only take up a request for guidance
when it believes that the Community interest will be furthered.
Decentralization of Enforcement
Regulation 1/2003 requires the application of EC Competition law by all
national competition authorities and national courts. National Competition
Authorities may make the following decisions under regulation 1/2003;
- order an infringement to be brought to an end,
- order interim measures,
- accept commitments from the infringing parties,
- impose fines or other penalties provided for in their national laws.
However, the Commission keeps an important role in the enforcement of
EC Competition law. In particular, it may take up cases on its own initiative,
respond to complaints and has a key consultative role in national competition
authorities proceedings, which will be discussed below.
The national competition authority conducting the case will use its own
national procedural rules, in its own language and embedded within the culture
of that particular authority.
Application of EC Law Over National Law
One of the aims of the modernization of EU Competition law was to make
the competition law uniformly applicable to the competition law regime in
all Member States. In all cases that have an effect on trade between member
states EC Competition law will have to be applied. Where a case falls in
the scope of application of Articles 81 and 82, Member States courts and
competition authorities will not be able to base their decision solely on
national law. As a result of Regulation 1/2003, it is expected that Member
States will further harmonize their owns laws with EC law.
- Co-operation between member states and the Commission
National competition authorities of Member States will have to inform
the Commission about new cases opened and envisaged decisions. If necessary,
the Commission can step in by opening proceedings itself. This will end
the competence of Member States competition authorities to deal with a
case. The Commission and the national competition authorities have set
up the European Competition Network (ECN) which is intended to be a forum
to agree on case allocation, exchange information and assist each other
in their investigations. Any national filing of some interest will be
shared with the other competition authorities, without any information
to the involved or interested parties.
The Commission’s New Enforcement Powers
Regulation 1/2003 reinforces the powers of the Commission in several
- In addition to the powers set out in Regulation 17/1962, Regulation
1/2003 establishes that the Commission is authorized to seal any business
premises, books, or records for a period necessary to conduct the inspection.
If seals are broken, companies may be fined up to one percent of their
total turnover in the preceding year.
- Regulation 1/2003 the Commission may impose a fine of one percent
of the previous annual group turnover in the event of non-compliance with
- Commission officials will be allowed to ask any employee of the undertaking
or association of undertakings for explanations of facts or documents
relating to the matter and purpose of the inspection and to record the
answers during a dawn raid (on-the spot questioning). The potential fines
for failure to respond to the requests and for supplying incorrect or
misleading answers have been increased to a maximum of one percent of the
companies’ turnover in the preceding year.
The Commission can request formal witness statements independent of a
The New Merger Regulation
The main objective of the New Merger Regulation is to ensure uniform
and effective application of EC competition law throughout the Community.
The new regulation, which replaces Regulation 4064/89, significantly increases
the powers of the Commission to review and, if necessary, block transactions
having a Community dimension.
The core features of the New Merger Regulation are:
- revision of the substantive standard to determine whether proposed
mergers pass examination;
- allocation of merger review jurisdiction/one-stop-shopping;
- higher degree of flexibility in the review process; and
- the enhancement of the Commission’s powers of investigation and increased
fines for undertakings.
Ad (i) The New Substantive Test
Regulation 139/2004 introduces a new substantive test, according to which
the Commission may block a transaction which: “would significantly impede
effective competition, in the common market or in a substantial part of
it, in particular as a result of the creation or strengthening of a dominant
This “Significant Impediment Test” replaces the dominance test laid down
in Regulation 4064/894. The new standard incorporates, but is not limited
to the dominance test. The new substantive test will specifically allow
the Commission to take into account so-called unilateral effects, that is,
price increases arising because the transaction eliminates some existing
competitive constraint that had been holding back the price level in the
Adoption of the Significant Impediment Test will bring EC competition
law more in line with standard applied in the United States and Canada.
The former regulation was unable to reach non-collusive oligopolies in which
none of the members in the oligopoly was dominant, due to its dependence
Furthermore, as a result of the modification of the substantive test,
the Commission no longer needs to stretch the boundaries of the collective
dominance test in order to block transactions resulting in price increases
without creating a single dominant position.
Ad (ii) Allocation of Merger Review Jurisdiction / One-Stop-Shopping
The New Merger Regulation also modifies the system for referral of cases
between the Commission and the national competition authorities. The New
Merger Regulation will not change the thresholds set by the current merger
regulation to determine whether a transaction falls within the merger review
jurisdiction of the Commission (and thereby falling out of the scope of
the jurisdiction of member states)5.
From May 1, 2004, companies may request the Commission to review transactions
which do not have a Community dimension, but which are capable of being
reviewed under the national merger control regimes of at least three Member
States. Provided no competent Member State objects to the referral request,
the transaction will be deemed to have a Community dimension, and the Commission
will have exclusive jurisdiction to review such transaction at the exclusion
of the Member States.
The possibility to opt for one-stop-shopping is a major step forward
from the current system, in which sizeable transactions short of the Community
dimension test are often reviewed by four or five different Member State
competition authorities. It is expected that following the enlargement of
the EU and the accession of the new Member States, most of which have relatively
low pre-merger filing thresholds, it will be easy to meet the three country
test in many multi-jurisdictional transactions, which will significantly
lower the burden for companies involved in this type of transaction.
Ad (iii) Flexibility of the Review Process
A higher degree of flexibility will be introduced into the review process.
While retaining the relatively short review periods introduced by Regulation
4064/896, the New Merger Regulation abolishes the one-week rule and does
not impose any specific deadline for parties to file their notification
(Form CO) with the Commission. Subject to complying with the waiting period/suspensory
obligations imposed under the new merger regulation, merging parties will
be free to determine when to file their Form CO.
Under the New Merger Regulation, it will also become possible to notify
a transaction based upon a letter of intent: it suffices to show that the
companies have a “good faith intention to conclude an agreement.” A binding
agreement is not longer required. The current merger regulation requires
the filing of the form CO within one week of the execution of binding agreements
to bring about the transaction, or in the case of public bids, within one
week of announcement of the bid7.
The new merger regulation also offers the notifying parties the possibility
to ask for an extension of the phase II review period with 20 working days.
The phase II period can also be extended by 20 working days by the Commission
with the agreement of the notifying parties. By introducing these modifications,
the Commission hopes to be able to avoid timing problems which have often
occurred in complicated phase II investigations as a result of the time
limit provided for in Regulation 4064/898.
Ad (iv) Enhancement of the Investigative Powers
The fact-finding powers of the Commission in the context of merger proceedings
have been substantially strengthened, and the potential fines - for failure
to respond to information requests (so-called Article 11 letters), and for
supplying incorrect or misleading information in the notification or in
response to an Article 11 letter - have been increased to a maximum of one
percent of the companies’ turnover in the preceding year. This is significantly
higher than the limits prescribed under the current merger regulation for
these types of non-compliance, currently being between EUR 1,000 and EUR
In addition to the above, the new merger regulation will increase the
level of daily penalties that may be imposed by the Commission9. The new
limit of these penalties will amount to five percent of the average daily
group-wide turnover of the delinquent undertakings. This is significantly
higher than the equivalent limits in the current merger regulation that,
depending on the type of non-compliance, range from EUR 25,000 per day to
EUR 100,000 per day.
The Commission can impose fines and daily penalties not only on the merging
parties that fail to comply with their obligations under the new merger
regulation, but also on third parties, such as customers, suppliers or competitors
of merging parties that fail to submit timely, accurate and complete responses
to requests for information sent by the Commission.
The new merger regulation maintains the current merger regulation’s upper
limit of ten percent of the turnover in the previous year for lump sum fines
to punish the most serious non-compliance, such as failure to notify transactions
or to comply with the waiting period obligations or conditions subject to
which the Commission has granted its approval of a transaction.
1 Council Regulation (EC) No 139/2004 of January
20, 2004 on the control of concentrations between undertakings.
2 Council Regulation (EC) No 1/2003 of December
16, 2002 on the implementation of the rules on competition laid down in
Articles 81 and 82 of the Treaty, replacing Regulation 17/1962.
3 Article 81(1) and 82 of the EC Treaty have
direct applicability by virtue of case-law of the Court of Justice of the
4 The current merger regulation embodies a “dominance
test,” which only allows the Commission to prohibit transactions that “create
or strengthen a dominant position as a result of which effective competition
would significantly impeded in all or a substantial part of the European
5 A merger has a community dimension where:
- the combined aggregate worldwide turnover of all the undertakings
concerned is more than EUR 5 billion; and
- the aggregate EC-wide turnover of each of at least two of the undertakings
concerned is more than EUR 250 million.
A concentration that does not meet the thresholds laid down above has
a community dimension if:
- the combined aggregate world wide turnover of all the undertakings
concerned is more than EUR 2.5 billion;
- in each of at least three member states, the combined aggregate turnover
of all undertakings concerned is more than EUR 100 million;
- in each of at least three EC member states included for the purpose
of point; (b) the aggregate turnover of each of at least two of the undertakings
concerned is more than EUR 25 million; and
- the aggregate EC-wide turnover of each of at least two of the undertakings
concerned is more than EUR 100 million.
unless each of the undertakings concerned achieves more than two thirds
of its aggregate EC-wide turnover within one and the same EC member state.
6 The one month review period of Phase I will
be replaced by a 25 working days review period, and the four month review
period of Phase II will become 90 working days instead.
7 In practice, the Commission has often waived
the requirement to file within one week and has allowed merging parties
longer time (sometimes several months) to file their Form CO.
8 A transaction that is not approved within
the fixed time frames will be deemed to be approved by the Commission.
9 Daily penalties may be imposed, among other
reasons, to punish the types of non-compliance punishable by lump sum fines.
In such cases, the daily penalties apply in addition to any lump sum fines
imposed by the Commission.
© 2004 Greenberg Traurig
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