Examination of Witnesses (Questions 333-339)
M Michel Petite and Mr Philip Lowe
10 JANUARY 2007
Q333Chairman: Good afternoon, gentlemen. We
are very grateful to you both for coming, M Petite and Mr Lowe,
directors general respectively of the Commission's Legal Services
and Competition Directorates. You have given evidence before these
committees before. We are public. We are on air. You get a copy
of the transcript which you have an opportunity to revise or add
to as you think may be helpful. I understand, M Petite, that you
would like to make a brief opening statement and I am sure we
would find that very helpful. You have I know been informed about
the area of questioning on which we are particularly interested
to hear from you. You have I think seen the contributions we have
had from our other witnesses, both written and at earlier evidence
sessions. You obviously know perfectly well the subject of our
present inquiry.
M Petite: We are thankful for this meeting because
we feel it is always good to put existing systems to the test.
I would like to go straight to the subject of your inquiry. There
are two points which we wish to make at the outset. One is purely
factual and the second is much broader. Firstly, we think there
is a need to put the record straight. The CBI has identified a
problem which is that in the event of a negative decision by the
Commission the companies "are likely to have to wait for
a year for a judicial review. Faced with that delay the merger
is likely to be abandoned." That is the starting point. We
are talking about mergers and we are talking about negative decisions
which are 19 out of over 3,000 since 1991, but the relevant test
period must be since the fast track procedure was set up by the
Court of First Instance precisely to deal with this delay issue
which the CBI is raising, and that is since 2001. Only three negative
merger decisions have been reviewed by the CFI under this new
so-called fast track procedure. Of those three mergers, one did
survive after ten months of judicial review. That was Tetra/Sidel.
One did not survive. The deal was abandoned after the judicial
review which took also ten months and that was Schneider/Legrand.
In the third and most recent, the Commission's prohibition was
upheld by the CFI in seven months. That was Electricity of Portugal.
Much has been made in the submission of other cases like Sony/Bertelsmann.
However, that was not a negative decision. It was a positive decision
that was appealed by a third party. There indeed the case took
19 months essentially because of procedural and confidentiality
problems specific to that case, but again it was a positive Commission
decision. Reference was also often made to the Airtours
and MCI cases but those were examined before the fast track
procedure was put in place. They were abandoned before the request
for judicial review or even before the adoption of the Commission
decision. Consequently and in a nutshell, we believe the concrete
evidence for the CBI's case to be thin. Nevertheless, I hasten
to say that we also see the relevance and indeed the importance
of improving the fast track procedure as much as is possible.
Some useful suggestions have already been made to you and I suppose
we could return to them. The second, shorter and more general
point is that we are struck, as indeed are some other witnesses,
by the apparent discrepancy and indeed disproportion between the
identified problem and the suggested creation of a new jurisdictional
panel subordinate to the Court of First Instance. We are still
not sure that we understand how the creation of a new jurisdictional
panel relates to the identified problem and how it will actually
solve it. Further, a new jurisdictional panel certainly opens
the way to large scale institutional changes which should be very
carefully considered, not only with the Court of First Instance
but with the Court of Justice as a whole, the other institutions
and ultimately the Member States. We stand ready to comment on
these much larger issues but we find ourselves uncomfortable with
the idea of toying with the delicate balance which underpins the
existing system. It is a system which on the whole seems to work.
Indeed, it is a system which last year was highly valued in a
peer review by the OECD, which was even heralded by a survey by
the Global Competition Review involving practitioners and other
competition agencies, all of them, as the world's number one competition
enforcement system. Compelling reasons would be needed to alter
it before we do it and these we do not see.
Q334 Chairman: That is a very helpful
and also, if I may say so, a very thought provoking opening because,
as I am sure you will have detected from the other evidence we
have heard, most people who have given evidence to this Committee
seem to think that there really is a problem here and that it
cries out for some form of solution on a short term and indeed
a long term basis; but you, as I apprehend, do not really think
there is a problem. No doubt you accept that all systems are capable
of improvement but nothing very dramatic?
M Petite: That is right.
Q335 Chairman: M Petite, you used yourself
some 15 years ago now to be in the department that Mr Lowe is
now in so you have a background in competition. Mr Lowe for his
part, as I apprehend, came into his position just after what various
witnesses have told us was something of a watershed in that particular
department, namely three defeats of the Commission in the CFI
as a result of which they took various steps to improve their
processes and that included I think setting up devil's advocate
panels and appointing a chief economist. Do you think that since
then really you have cracked the problem?
Mr Lowe: You have to distinguish between what
is possible for the Commission to do in its competence and whether
the system of judicial review is effective or not. I will come
to our own processes in a minute but when we made proposals for
reform of the merger regime, which were largely accepted by the
Council of Ministers in the revision of the regulation in 2003,
we also pointed to exactly the same problem which the CBI has
pointed to and said that it remains to be seen whether the fast
track procedure could be further improved. We even discussed the
advantages and disadvantages of the use of judicial panels in
the CFI at the time, in particular, though, with a view to seeing
to what extent other activities of the CFI could be confided in
judicial panels to leave the CFI to do what was its original role
when it was first set up, which was to concentrate on competition
cases. As far as our own system is concerned, the reason why we
are regarded as a regime which is relatively effective worldwide
is that we are subject to legal deadlines in taking our decision.
There is no escape from those. If we do not carry out our activities
within the deadlines the merger is deemed approved. We went further
in the reforms we carried out in order to strengthen the due process
of rights of parties in the process. We also proposed that merging
parties could even refer cases to Brussels when they found they
had multiple filings throughout the Member States, even though
the merger concerned would not have been normally allocated to
us, in order to facilitate the process for business. We also,
as you are well aware I believe, accompanied that with not just
internal reforms to improve the quality of our decisions, but
also we issued horizontal merger guidelines and other guidance
to give firms a very clear predictability as to what is going
on. In terms of speed—and speed is not the only thing; there
is predictability, legal certainty and administrative burden which
are important for business as well—we are constrained to
be speedy. We believe that nevertheless there is scope for improvement
in the present system which is in the hands of the Court but it
is also a question of resources. If you would like me at any stage
to go into the issue of the staff resources at the disposal of
the CFI and of the Commission in this area in the light of the
current trends, I will.
Q336 Chairman: On a point of clarification,
time constraints you say require you to reach your decisions within
specified periods of time and, if you do not, the merger goes
ahead, but how does that work when you can have third parties
challenging decisions to allow mergers to go ahead? Does that
shut out a challenge by, say, some competitor or somebody who
does not want to be taken over?
Mr Lowe: It does not shut out a challenge and
the recent case of IMPALA'S appeal against the authorisation
of the SONY/BMG merger demonstrates that. The question
though is to what extent we link this to a capacity for a third
party to delay an authorised merger. Does it delay the authorised
merger, first of all? The answer is it has for the moment no suspensory
effect on the merger. The merger can be promulgated even if there
is a third party appeal. The only proviso in that is that of course,
if there was harm to that third party demonstrably from the conditions
in which the merger was to be implemented, it would be up to the
third party to make that case to the President of the Court of
First Instance and ask for interim measures to prevent the merger
from going ahead. That situation has not arisen so far.
Q337 Chairman: I apprehend that so far
as our first question is concerned, about whether you agree with
the CBI, you would agree that delay can damage the effectiveness
of the EU competitiveness but you would say that some delay is
inevitable and it is really a question of whether one can, within
the existing framework, reduce it by this, that or the other palliative
measure?
Mr Lowe: There are a number of measures which,
in our view, combine and could build on the success already partially
achieved in the fast track procedure. The Portuguese case which
was recently mentioned, a prohibition case which was challenged
by the Portuguese companies concerned, was actually expedited
by the CFI in seven months, despite the language problems which
are normally associated with these questions, despite the issues
of intervention of third parties in that as well. We attribute
that to very rigorous case management by the judge rapporteur,
a discipline which he places on the case which he also placed
on us in our submissions to meet certain timetables. They measured
the importance of achieving that in relation to the potential
damage to the companies even from a reputational point of view
if they did not get a clear legal certainty on the case as soon
as possible. If that is possible in seven months with the existing
systems of linguistic regime, we believe that the Court—and
certainly the Commission would assist it—could find ways
of reducing it still further. Reducing it to a couple of months
or three months is something which one has to be realistic about
because first of all there are usually, in situations where third
parties are intervening, questions of confidentiality of information
which need to be taken into account. Secondly, most companies
involved in this situation, although they are interested in speed,
are also interested in a fair outcome. In our experience, they
are saying that they would like, as the CBI has said, around six
months but they would not be necessarily interested in sacrificing
one month or two months simply in order to meet an artificial
legal deadline. They would like to see the due process rightfully
respected.
Q338 Chairman: So far as the Commission's
own decision making process is concerned, you have your specified
time limits. You do not suggest that there is room for any significant
acceleration of those processes?
Mr Lowe: As you are probably aware, the first
phase of our investigation following a notification of a merger
has to be completed within 25 working days. There are small additions
if companies propose remedies and want us to clear the operation
within the first phase, which is more or less the phase which
the OFT can clear things in now. If you are to investigate something
diligently in 25 days, you have to be very, very clever indeed.
We as an alternative to that have the possibility, which we do
in a very limited percentage of cases, of going into a second
phase investigation which is broadly equivalent to what the Competition
Commission does in similar situations. In that situation we have
a further approximately four months or 90 working days to come
to a decision. Within that time, we nevertheless have to take
off the time needed to prepare the documents for a final decision
to the College of Commissioners because, contrary to what was
said by at least one witness, second phase, complex investigations
are always decided by the College of Commissioners. Secondly,
these decisions have to be submitted to an Advisory Committee
of experts of national competition authorities, competent authorities
in the Member States. The effective investigation time for a complex
merger is something like two to three months. With the additional
quality control checks which we are obliged to carry out and the
standard of proof which under the case law of the Court of First
Instance we should deliver, not just in terms of argument but
in terms of producing convincing evidence I believe it would be
irresponsible to propose in the next review of the merger regulation
any further reduction of these deadlines, which compared with
any other jurisdiction in the world are faster, which is why international
business likes them. For example, if you get a US second request
in the States, you do not have any specific deadlines put on it.
There is time pressure but there is not the same legal deadline
to reach a decision.
Q339 Chairman: You will of course have
noticed that a number of witnesses have questioned the system
under which the Commission itself reaches the view as to whether
a merger is or is not in the public interest. There has been some
canvassing of the suggestion that actually the Commission should
simply prepare the case and, if it thinks the merger is contrary
to public interest, that could go before some other body. Witnesses
have suggested that the Commission would be unlikely to approve
any change to that effect. What would your response to that be?
Mr Lowe: My colleague has referred to the issues
related to any change in the existing institutional arrangements.
They were reviewed as far as merger control was concerned extensively
in and around 2002 after a Green Paper discussion and public debate
over two years. The consensus reached then, including in the Council
of Ministers, was that there was not a strong case for doing it
but as Michel Petite has emphasised we are continually looking
at the advantages and disadvantages of changes in this balance.
They have to be assessed in relation to the public interest and
ultimately the protection of the competitive process and consumer
welfare and also their impact on the firms who are the subject
of these processes. Here we have to work very carefully. There
are different factors, not just speed but legal certainty and
predictability. If indeed for example a court were to take a final
decision on a prohibition, that would imply the capacity for that
court to investigate the case, to have the powers to investigate.
This is a fundamental change. The US system allows that to happen.
It has the advantage of final decision but has a number of other
features which one could question. For example, our own system
obliges the Commission to justify every competition decision in
a motivated text, which is challenging. In the US, many operations
never reach the stage of the court because they are abandoned
on a threat of court action. We believe there is a balance here
at the moment in the due process and the transparency of our system,
in the discipline it places on us. As to the independence question,
the issue is a wider, much more serious one as to what kind of
institution would be created which would have sufficient independence
to be satisfactory to the European public interest. Here, the
debate has gone on for a number of years on this. Would it for
example be an institution such as the German Cartel Office? Would
it necessarily therefore have to have commissioners appointed
by each Member State in it? Would there be any right of referral
to any political institution of its decisions or would it be totally
independent? Because we are part of the existing system, we must
always be objective about it as far as we can. The existing system
has reached a balance between on the one hand the independence
of the Commission from day to day, political realities in Member
States, which is often criticised by the way; its powers of investigation
but equally its powers to deliver a decision which brings legal
certainty to companies throughout the jurisdiction of Europe within
tight deadlines. If you went for another system with an independent
institution, it seems to us that you also have to try to meet
these kinds of objectives as well. The debate has always been
there. It returns frequently. The Commission is not closed to
that debate but wishes simply to point out the advantages and
disadvantages on each side.
M Petite: On the two issues which were just
raised, I think we are at the heart of the matter. On the first
one, Philip Lowe is absolutely right that on the administrative
side we have really gone to the extreme as to how short a time
there is for a decision to be taken. The real issue raised is
after that, at the Court of First Instance. There, the suggestions
we have heard from previous witnesses and from Philip who just
touched upon it are very interesting. The Court of First Instance
is only in the testing period of its fast track procedure. If
we take the good example of the recent Portuguese case, which
was very firmly managed by the Court, we have seen that for example
they have asked the parties to confine themselves to only a few
pleas. The deal was: either you make two legal pleas or three
and you have a fast track procedure, or you do whatever you wish,
make whichever pleas you wish, but then you take the normal track.
It shows that if you are in a hurry you must confine yourself
to the essential pleas. That was the message which was followed
and accepted by the lawyers on both sides and it did simplify
the proceedings. Then, all the third party interventions were
also removed from the written procedure. It was all done in the
one hearing. No further intervention was allowed after the hearing.
That kind of management of the case was in our view crucial to
a result which was very satisfactory and which indeed was one
of the three first cases which were decided by the Court of First
Instance. I think the Court has some margin. The second, broad
issue is a different matter. The fact that at present the system
is an administrative decision followed by a control of legality
by a court is a choice of the Treaty because it is a choice of
the vast majority of our Member States. To alter this would trigger
a chain reaction of a wide order. For example, Philip Lowe mentioned
that the court would have to have investigatory powers. The appeal
would then have to be on the facts, not only on the law, so the
Court of First Instance would embark on also reviewing facts.
It would be a change of system and so far nobody has seen the
relationship between this change of system and the delay problem.
Chairman: It is fair to say that the main thrust
of the CBI proposal is not for any change in the basic system
and nor for accelerating the Commission's part in all this but
it goes to the review process.
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