The role of fairness in EU competition policy and enforcement has been the subject of renewed debate. A perception has emerged among commentators that the European Commission’s (EC) enforcement priorities under the current Competition Commissioner, Margrethe Vestager, seem to have become increasingly focused on ‘fairness,’ rather than the more traditional competition objectives of promoting consumer welfare and an efficient allocation of resources.
Is this perception well-founded? And does it represent a new policy trend towards ‘social justice’ objectives or simply a continuation of a policy driver that has underpinned EU competition enforcement for some time?
In this note we look at the evidence against the backdrop of the relevant EU legal framework.
The evidence for ‘fairness’ being at the forefront of EC enforcement is strongest in the area of State aid. The EC launched a series of investigations into multinational tax arrangements in 2013 to determine whether tax rulings granted undue benefits to certain companies.
The EC has already made a number of high-profile decisions requiring Member States to recover aid found to be illegal, including in relation to tax advantages granted by Luxembourg and the Netherlands to Fiat and Starbucks, respectively; Belgium’s excess profits tax scheme, which benefitted some 35 multinationals; and Apple’s tax arrangements with Ireland.
This trend has continued in 2017 with the EC reaching a decision regarding Amazon’s tax arrangements with Luxembourg and ordering €250 million to be recovered; referring Ireland to the Court of Justice of the European Union for failing to recover €13 billion in taxes from Apple, as required by the EC’s 2016 decision; opening two further Luxembourg cases (involving McDonald’s and Engie); and launching an investigation into the United Kingdom’s tax scheme for multinationals.1
Fundamentally, these cases are aimed at ensuring that taxpayers’ money is not misused and removing the distortive effects caused by illegal State aid. But they must also be viewed against the backdrop of the EC’s broader objective of achieving fair taxation in the EU, which includes legislative initiatives to combat tax avoidance. Given this, it’s not surprising that both Commissioner Vestager and the President of the European Commission, Jean-Claude Juncker, have described the recent tax cases in terms of fairness and social justice (“All companies must pay their fair share of tax;” “This is the social side of competition law”).2
In a 2016 speech, Vestager noted, “Cartels are another way for companies to protect their profits at the expense of consumers. So companies that form a cartel mustn’t get away with just a slap on the wrist.”3
Cartels have remained an enforcement priority in 2017 with a number of significant decisions taken, including the re-adoption of the EC’s airfreight decision and a fine of €776 million imposed on air cargo carriers for participation in a price-fixing cartel; and a record fine of €2.9 billion imposed on six truck manufacturers (including an individual fine of €880 million fine for Scania) for colluding on truck pricing and on passing on the costs of new technologies to meet stricter emission rules.
There have also been notable developments in enforcement against anti-competitive conduct, where EU law prohibits a dominant firm from imposing unfair prices or unfair trading conditions.
The EC has launched a formal investigation into concerns that Aspen Pharma has engaged in excessive pricing for five life-saving cancer medicines – the first EC investigation into excessive pricing in this sector.4
In terms of non-price based conduct, Google received a record fine of €2.42 billion for abusing its dominant position as a search engine by giving illegal advantage to its own comparison shopping service. Vestager noted that Google’s conduct “denied European consumers a genuine choice of services and the full benefits of innovation.”
There are ongoing investigations into other aspects of Google’s conduct which also look at the extent to which consumers are being denied the full range of choice and innovation. These include the Android operating system case, where the EC is concerned that Google has stifled choice and innovation in a range of mobile apps and services by pursuing an overall strategy on mobile devices to protect and expand its dominant position in general internet search; and the AdSense case, where the EC is concerned that Google has reduced choice by preventing third-party websites from sourcing search ads from Google’s competitors.
A concern that consumers might be denied the benefits of innovation was also a key driver in the EC’s decision to clear the merger between Dow Chemical and DuPont. The clearance was conditioned on the companies’ agreement to divest assets, including significant parts of DuPont’s pesticides business and almost all of its R&D operations. The latter component of the remedy was designed to solve EC concerns that the merger would reduce innovation competition, with the result that consumers (farmers) would miss out on the benefits of new pesticides that will be less toxic and more efficient. The decision has attracted attention for its analysis of competition in ‘innovation spaces’ rather than the more traditional approach of looking at specific pipeline products.5 Vestager noted, “This is literally a question about our daily bread and the ability for farmers to use different seeds, different pesticides in order to secure their crops.”
As the Director-General for Competition, Johannes Laitenberger, recently noted,6 issues of procedural fairness have also been under scrutiny in 2017, with the EC imposing a fine of €100 million on Facebook for providing misleading information during the review of its WhatsApp merger. The EC also appealed the General Court’s judgment annulling its prohibition decision in UPS/TNT on the grounds that the EC had infringed the parties’ rights of defense by failing to provide the final version of its econometric modelchose by the EC to assess the competitive effects of the proposed merger.
Based on the above snapshot, it’s certainly possible to consider the wide range of enforcement action taken recently and perceive there to be a common thread of ‘fairness’ running through all of these decisions – particularly when a number of the decisions are explicitly couched in such terms when discussed in speeches by Commissioner Vestager and others within the EC hierarchy.
But it’s important to bear in mind that fairness and social justice concepts have been enshrined within EU law and principles for some time. In particular:
The preamble to the 2009 Treaty of Lisbon, or the Treaty on the Functioning of the European Union (TFEU), calls for concerted action to guarantee “fair competition.”
As noted above, Article 102 TFEU which prevents abuse of a dominant position explicitly includes “unfair trading conditions” and “unfair prices” within the prohibition.
Companies accused of anti- competitive agreements or practices prohibited by Article 101(1) TFEU can escape sanction if they can demonstrate that efficiencies are generated and consumers will be allowed “a fair share” of the resulting benefits.
The EU State aid rules prevent Member States from granting companies a selective advantage, so that the same rules apply to everyone–which is self-evidently ‘fair’ within the ordinary meaning of that word.
More fundamentally, following the entry into force of the TFEU, the EU has a social market economy goal among its constitutional objectives.7 It follows that EU competition law is supposed to implement the social market economy concept. In other words the EU isn’t a system of ‘laissez-faire capitalism.’ Rather, it involves market capitalism combined with social objectives, with competition driving wealth gains which are then to be fairly distributed.
Against this backdrop, it’s to be expected that the EC should use ‘fairness’ in describing the aims and outcomes of its work; in the EC’s view, enforcement makes markets fairer which benefits society as a whole.
Before concluding that this necessarily means that there is a fundamental difference of approach between the EU and, say, the U.S. antitrust agencies, it’s worth remembering that a recent speech by Vestager’s counterpart at the U.S. Department of Justice, Renata Hesse, referred at the outset to “the ultimate goal of antitrust, economic fairness” and ended with the following: “Our efforts protect competition, and that helps keep the economy fair.”8