White & Case LLP - News - Ian Forrester, Q.C. on Problems with the European Commission’s Competition Decision Making Procedures

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Ian Forrester, Q.C. on Problems with the European Commission’s Competition Decision Making Procedures—and How to Reform Them
October 2009

Fines imposed by the European Commission (Commission) for violations of the European Union (EU) competition rules are the largest in the world. Increasingly, parties are expressing dissatisfaction with the procedures involved in Commission competition proceedings and are seeking reforms to the system. White & Case partner Ian S. Forrester, Q.C. in Brussels is deeply experienced in advising companies, industry associations and private individuals on EU competition law, and has acted on behalf of clients before national competition authorities, the Commission, the European Court of First Instance (CFI) and the European Court of Justice in numerous competition matters. He recently represented Nintendo as lead counsel for White & Case in appeal proceedings before the CFI against a Commission decision fining Nintendo. The CFI reduced the fine by €30 million, one of the largest fine reductions in European competition law history. Also, his team recently received news of success before the European Court of Justice on behalf of GlaxoSmithKline in a long running campaign on parallel trade of importance to the entire pharmaceutical industry.

Q: What is the biggest problem involved with the Commission’s competition law procedures?

A: In a nutshell, the quality of the Commission’s decisions is compromised by the quality of the procedures that precede these decisions. The factual bases for making decisions may be very poor. The case team that investigates a competition matter typically drafts the decision. The case team may “fall in love” intellectually with a complainant. There is no hearing by a decision-maker, only a session at which the case team listens skeptically to arguments which they have already rejected. The person chairing that hearing has no role other than to ensure it is formally fair and dignified. There is no opportunity to argue to those who will decide the quality of the case. The decision makers in the end are 27 politicians—26 of them will never have seen the evidence and never heard the legal arguments.

Q: How do these procedures compare with other competition enforcement entities?

A: The Commission's procedures are inferior to almost anywhere else in developed democracies. While all companies want competition laws vigorously enforced, the rigor with which the Commission examines facts does not approach the importance of the issues or the severity of penalties that can be imposed. Large fines can be imposed which grab headlines. Big players are exposed to the capricious danger of the capture of the Commission’s case team investigating a complaint by the complainant.

Q: Are fines imposed by the Commission proportionate and predictable?

A: No. Commission fines are the largest in the world and have gone up fivefold in the last five years. Conduct has not worsened in that time frame. There is also the sense that fines are capricious. For example, a rogue manager at a relatively local junior level may be engaging in cartel activity unknown within his small affiliate and, certainly not known to management of the group. Nevertheless, the fine is imposed on the company as a whole and may amount to hundreds of millions of Euros.

Q: Are appeals of Commission decisions rigorously examined by the CFI?

A: It varies. The CFI is quite deferential to the Commission. The rigor with which Commission determinations are examined is milder than in other appellate courts, say, for example, in the United States.

Q: Despite the CFI's deference to the Commission, are there any effective fine reduction arguments one can make to the CFI?

A: Yes. The CFI reviews legality, so an appellant must show that there was manifest error or that the matter was outside the Commission’s jurisdiction. One can argue that the fine violated the notion of proportionality; that a public authority should not impose a penalty or burden which is more severe than the identified violation. We used this argument in the Nintendo matter to get the fine reduced by €30 million. Second, one can argue that the Commission’s decision was a violation of the duty of good administration. Third, one can argue that the Commission’s decision violated the principle of legitimate expectations: for example, that the Commission may have issued a policy on how it would treat a given situation and then didn’t follow that policy. Also, one can argue that principles of non-discrimination and equal treatment were violated; for example, that one party found guilty of an infringement on 9 January was fined €10 million, while you were found guilty of infringement on 13 January, but had a €150 million fine imposed on you.

Q: What should the Commission do to improve its procedures?

A: It should take steps to create fairer decision-making procedures, enhance the predictability of its decision-making and reduce the appearance of the absence of impartiality by reducing the risk of “capture” of the case team by a complainant.

Q: How can these improvements be implemented?

A: By separating case team investigators and decision drafters, strengthening the hearing process and taking the decision making out of the hands of the 27 Commissioners who vote in competition matters. When a Commission case team has concluded its investigation, it should be required to test and demonstrate its conclusions before an independent decision maker. During that hearing, parties should be able to question, under the control of the decision maker, the evidence the Commission puts forward, including those upon whose testimony the case team seeks to rely. The independent decision maker could be a civil servant who is not part of the Commission’s investigation of the matter. Or a separate General Service could be set up whose job would be to decide competition cases.

Q: What is the likelihood of some kind of Commission reform occurring?

A: Reform in the next five years is necessary and probable. There is a sense by lawyers that the system is inadequate, a sense by national governments that something is not quite right and an awareness inside the Commission that its procedures are out of step with modern practice. Whether the reform will occur as a result of actions by European courts or a decision by a new Commissioner—that’s up in the air.

Q: What steps can participants in the system take to advance reform?

A: Express anxiety. Encourage shareholders and lawyers to speak up to the Commission with letters and calls to senior politicians. At the same time, anyone speaking up should emphasize that they are not opposed to vigorous enforcement of competition rules.

"Talking" features White & Case lawyers answering questions about emerging legal and business issues. For more information or to schedule an interview with Ian Forrester, contact Francine Minadeo at .

Any information contained in this interview is for educational purposes only. It should not be construed as legal advice.

	In the Media
Lawyers Ian S. Forrester QC, LLD	Ian Forrester, Q.C. on Problems with the European Commission’s Competition Decision Making Procedures—and How to Reform Them October 2009 Fines imposed by the European Commission (Commission) for violations of the European Union (EU) competition rules are the largest in the world. Increasingly, parties are expressing dissatisfaction with the procedures involved in Commission competition proceedings and are seeking reforms to the system. White & Case partner Ian S. Forrester, Q.C. in Brussels is deeply experienced in advising companies, industry associations and private individuals on EU competition law, and has acted on behalf of clients before national competition authorities, the Commission, the European Court of First Instance (CFI) and the European Court of Justice in numerous competition matters. He recently represented Nintendo as lead counsel for White & Case in appeal proceedings before the CFI against a Commission decision fining Nintendo. The CFI reduced the fine by €30 million, one of the largest fine reductions in European competition law history. Also, his team recently received news of success before the European Court of Justice on behalf of GlaxoSmithKline in a long running campaign on parallel trade of importance to the entire pharmaceutical industry. Q: What is the biggest problem involved with the Commission’s competition law procedures? A: In a nutshell, the quality of the Commission’s decisions is compromised by the quality of the procedures that precede these decisions. The factual bases for making decisions may be very poor. The case team that investigates a competition matter typically drafts the decision. The case team may “fall in love” intellectually with a complainant. There is no hearing by a decision-maker, only a session at which the case team listens skeptically to arguments which they have already rejected. The person chairing that hearing has no role other than to ensure it is formally fair and dignified. There is no opportunity to argue to those who will decide the quality of the case. The decision makers in the end are 27 politicians—26 of them will never have seen the evidence and never heard the legal arguments. Q: How do these procedures compare with other competition enforcement entities? A: The Commission's procedures are inferior to almost anywhere else in developed democracies. While all companies want competition laws vigorously enforced, the rigor with which the Commission examines facts does not approach the importance of the issues or the severity of penalties that can be imposed. Large fines can be imposed which grab headlines. Big players are exposed to the capricious danger of the capture of the Commission’s case team investigating a complaint by the complainant. Q: Are fines imposed by the Commission proportionate and predictable? A: No. Commission fines are the largest in the world and have gone up fivefold in the last five years. Conduct has not worsened in that time frame. There is also the sense that fines are capricious. For example, a rogue manager at a relatively local junior level may be engaging in cartel activity unknown within his small affiliate and, certainly not known to management of the group. Nevertheless, the fine is imposed on the company as a whole and may amount to hundreds of millions of Euros. Q: Are appeals of Commission decisions rigorously examined by the CFI? A: It varies. The CFI is quite deferential to the Commission. The rigor with which Commission determinations are examined is milder than in other appellate courts, say, for example, in the United States. Q: Despite the CFI's deference to the Commission, are there any effective fine reduction arguments one can make to the CFI? A: Yes. The CFI reviews legality, so an appellant must show that there was manifest error or that the matter was outside the Commission’s jurisdiction. One can argue that the fine violated the notion of proportionality; that a public authority should not impose a penalty or burden which is more severe than the identified violation. We used this argument in the Nintendo matter to get the fine reduced by €30 million. Second, one can argue that the Commission’s decision was a violation of the duty of good administration. Third, one can argue that the Commission’s decision violated the principle of legitimate expectations: for example, that the Commission may have issued a policy on how it would treat a given situation and then didn’t follow that policy. Also, one can argue that principles of non-discrimination and equal treatment were violated; for example, that one party found guilty of an infringement on 9 January was fined €10 million, while you were found guilty of infringement on 13 January, but had a €150 million fine imposed on you. Q: What should the Commission do to improve its procedures? A: It should take steps to create fairer decision-making procedures, enhance the predictability of its decision-making and reduce the appearance of the absence of impartiality by reducing the risk of “capture” of the case team by a complainant. Q: How can these improvements be implemented? A: By separating case team investigators and decision drafters, strengthening the hearing process and taking the decision making out of the hands of the 27 Commissioners who vote in competition matters. When a Commission case team has concluded its investigation, it should be required to test and demonstrate its conclusions before an independent decision maker. During that hearing, parties should be able to question, under the control of the decision maker, the evidence the Commission puts forward, including those upon whose testimony the case team seeks to rely. The independent decision maker could be a civil servant who is not part of the Commission’s investigation of the matter. Or a separate General Service could be set up whose job would be to decide competition cases. Q: What is the likelihood of some kind of Commission reform occurring? A: Reform in the next five years is necessary and probable. There is a sense by lawyers that the system is inadequate, a sense by national governments that something is not quite right and an awareness inside the Commission that its procedures are out of step with modern practice. Whether the reform will occur as a result of actions by European courts or a decision by a new Commissioner—that’s up in the air. Q: What steps can participants in the system take to advance reform? A: Express anxiety. Encourage shareholders and lawyers to speak up to the Commission with letters and calls to senior politicians. At the same time, anyone speaking up should emphasize that they are not opposed to vigorous enforcement of competition rules. "Talking" features White & Case lawyers answering questions about emerging legal and business issues. For more information or to schedule an interview with Ian Forrester, contact Francine Minadeo at . Any information contained in this interview is for educational purposes only. It should not be construed as legal advice.