(The third part of a general lecture on competition law, state aid and regulation, separated into three posts: Part 1, Part 2, Part 3.)
Competition Enforcement in the Financial Crisis
What should we make of State aid control? Is it a consistent part of a competition law system? Although it is often difficult to enforce, I think the answer is yes. There is already some recognition of its value in the – far too weak – WTO rules on subsidies, but until State aid laws are seen as important parts of domestic competition laws, I do not think that we are going to see significant multilateral enforcement mechanisms (which is a shame). If you want a consistent system of competition law, however, State aid control should be included to control national and sub-national State aid, and not just aid which has cross-border effects. At first sight, the US Commerce Clause would appear to provide a constitutional basis for that here,(“The central rationale for the rule against discrimination is to prohibit state or municipal laws whose object is local economic protectionism, laws that would excite those jealousies and retaliatory measures the Constitution was designed to prevent”; Toomer v. Witsell, 334 U. S. 385, 403–404 (1948)} but I know very little about US constitutional law so more informed minds may differ.)
The present financial crisis has shown the value of the EU’s State aid rules. When he spoke here in September, Professor Jenny gave a number of examples of involvement of the EU competition rules in the financial crisis. The European Commission, as a competition authority, has been deeply involved in state aid issues in relation to the bail out and restructuring of banks; and structural changes (mergers and acquisitions) as well, often with the same banks.
This is complex and ongoing work, but it is worth noting a couple of points where EU and US approaches differ:
– When the Commission has had control over the State aid and merger aspects of the same deals it has been easier to keep the two procedures together and design remedies that are consistent than where State aid and merger control are handled by wholly separate institutions.
– Decisions in the US as to which banks to support and which not to support were largely political; in the EU, there would at least have been some element of legal control over the process;
– And looking at the political level, discussions of “competition” have been heavily integrated into the EU’s response to the financial and economic crisis because of the legal obligation to comply with the State aid rules.
The EU policy response has, I think, been more consistent and co-ordinated because of the existence of the State aid rules.
Competition Law and Sector Specific Regulation
Finally, I want to say a few words on competition law and sector specific regulation, and again, just to return to the point I was making at the start, it is useful to think about the system of law as a whole.
As well as the free movement provisions, the EC Treaty also provides a legal base – Article 95 – to take measures to complete the single market: and where we have regulated sectors – telecommunications or energy for example – the EU regulation is typically based on this provision. That means that whereas the competition rules (81, 82, 86, 87) are Treaty-based or “primary law”, sector regulation is a form of legislation, or “secondary law”. Legally that means that secondary legislation cannot limit the application of the competition rules. The only way to limit the application of the competition rules is to amend the Treaty. (The Treaty already provides limited carve-outs for agriculture, for example.)
Although that seems obvious from first principles of legal interpretation, we now have a number of cases where the European courts have confirmed that the existence of EU or national sector regulation does not prevent the application of the competition rules to the same set of facts. (For the telecoms sector, for example, see Case T-271/03, Deutsche Telekom v Commission, 2008 ECR II-00477)
That contrasts with the US where both the antitrust rules and sector regulation are creatures of legislation and the relationship between them has to be determined on each case as a matter of legislative interpretation. US cases such as Credit Suisse (Credit Suisse Sec. (USA) LLC v. Billing, 127 S.Ct. 2383 (2007)), Trinko (Verizon Communications v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004)) and Linkline (Pac. Bell Tel. Co. v. linkLine Commc’ns, Inc., 129 S.Ct. 1109 (2009)). all limit the application of the competition rules where sector regulation applies (though I find the disapproval of the competition rules in the telecommunications sector troubling, given the express provision in the 1996 Telecommunications Act – “nothing in this Act or the amendments made by this Act shall be construed to modify, impair, or supersede the applicability of any of the antitrust laws” (47 U.S.C. § 601)).
Leaving aside the constitutional difference, is one to the relationship between competition and regulation right and the other wrong? I am a competition lawyer, and I believe that careful application of the competition rules is extremely beneficial to the economy and to society as a whole. So by instinct I do not like to see the competition rules put aside.
The arguments become complex, however, if the sector regulation is pursuing a substantially similar aim as the competition rules. Both the EU and the US have this in the telecommunications sector, for example, where the regulatory environment is designed to encourage the market to be more competitive. (There is, I think, also an element of managing certain market structures which will remain, no matter how competitive the market becomes, but we need not get into that for the moment.) The body charged with this regulation will typically be looking into this sector in far more detail, and in a far more comprehensive manner than a competition authority, or a court in private litigation. You can therefore make a respectable argument for deference – or even forbearance – of the competition rules to the sector regulation, both in terms of procedural efficiency (why have duplicate proceedings?) and the likelihood of getting the right answer (the regulatory body ought to have a more complete understanding of the problems and possible remedies).
That is not the position in the EU, as the cases mentioned above demonstrate, and on balance I think that that is a good thing. Cases tend to be complex, and an antitrust analysis is unlikely to focus solely on exactly the same issue as the sector regulation. The EU’s Telefonica decision,footnote{ Commission Decision of 4 July 2007 relating to a proceeding under Article 82 of the EC Treaty (Case COMP/38.784 — Wanadoo Espana v Telefonica) for example, covered a range of conduct, part of which was regulated and part not. Third parties may have rights under the antitrust rules that they may not have depending on the precise structure of the regulatory regime (rights to complain, rights to be heard, rights to damages). And finally, competition tends to keep people on their toes, and this applies as much to regulators as to companies.
So on balance, I like the EU approach.
But I have to admit that I have some sympathy for the present position in the US, where antitrust steps aside where regulation exists. To come back to Professor Dworkin, that may be the interpretation of law in the US that has the most “integrity”. Why? Because of the treble damages provisions.
Some competition law violations are egregious, and deserve punitive sanctions – cartels are the most obvious example: those engaging in them know what they are doing is wrong, and the only risk assessment is whether they will get caught. Other infringements require complex assessments of economic data: here the risk assessment may be less about whether you will get caught, and more about whether the activity is actually in breach of the law (Is access to a facility essential, so it has to be provided, or just nice to have, in which case access can be refused?). Sometimes these can be borderline cases, though not always: an abuse may be crystal clear to the company involved, even if it requires a complex assessment of evidence by the investigating authority in order to prove it. Some cases are borderline, however, and if a company makes the wrong judgement in a borderline case and breaches the law, then certainly they should be obliged to pay damages to the injured party, in the same way tort liability may only require negligence, not malice; but should they be required to pay treble damages?
And when there is a regulatory regime in place that prohibits the same conduct but provides for a punishment significantly less than treble damages, is it consistent to say that the antitrust rules should apply in parallel providing for a vastly higher penalty? I can certainly see the argument that to have a truly consistent, integrated view of the legal system, that the answer should be no.
In concluding I want to mention two caveats to what I have just said. First, I haven’t made up my mind, and if you had asked me the same question two months ago, I would have given you a different answer. Second, I suspect that for some US judges, the above argument only tells part of the truth, in that some are essentially ill disposed to some aspects of antitrust enforcement, notably section 2, and removing the treble damages provision would make little difference. That is an argument for another day.
(Competition Law, State aid and Regulation: Part 1, Part 2, Part 3. Full text available as a PDF: Competition Law, State aid and Regulation))