EUROPEAN COMMISSION Brussels, 15.7.2019 SWD(2019) 297 final COMMISSION STAFF WORKING DOCUMENT Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Report on Competition Policy 2018 {COM(2019) 339 final}



TABLE OF CONTENTS I. LEGISLATION AND POLICY DEVELOPMENTS 1. Antitrust and cartels 1.1 Guidance in antitrust and cartel proceedings 1.2 Important judgments by the European Union Courts 1.3 The fight against cartels remains a top priority 1.4 Continuing close cooperation within the European Competition Network and with national courts 2. Merger control 2.1 Recent enforcement trends 2.2 The ongoing evaluation of EU merger control 2.3 Significant judgments by the European Union courts in merger control 3. State aid control 3.1 Uptake of the State Aid Modernisation 3.2 State Aid Modernisation continues 3.3 Monitoring, recovery, evaluation and cooperation with national courts 3.4 Significant judgments by the European Union Courts in the State aid area 4. Developing the international dimension of EU competition policy 5. External Communication 6. The Single Market Programme

II. SECTORAL OVERVIEW 1. Energy & environment 2. Information and Communication Technologies and media 3. Financial services 4. Taxation and State aid 5. Basic industries and manufacturing 6. Agri-food industry 7. Pharmaceutical and health services sector 8. Transport and postal services I.LEGISLATION AND POLICY DEVELOPMENTS Competition policy empowering citizens and businesses for the benefit of all With more than half a billion consumers and 24.5 million companies, the internal market is one of the EU’s greatest achievements and its greatest asset. EU competition policy goes hand in hand with the development of a deeper and fairer internal market. Enforcing EU competition rules makes markets function better for the benefit of consumers - households as well as businesses - and for society as a whole. Competitive markets play an important role supporting the Commission's efforts to achieve a strong and prosperous EU. Moreover, EU competition policy aims at fostering a competition culture both within the EU, for instance by promoting competition-friendly regulation, and worldwide. DG Competition's competition policy actions in 2018 targeted a wide range of sectors in the EU economy, thereby promoting open and efficient markets so that both businesses and citizens can get a fair share of the benefits of economic growth. Moreover, EU competition policy continued to support key political priorities of the Commission, in particular the Deeper and Fairer Internal Market, the Digital Single Market, the Energy Union, the fight against tax evasion, and climate action as set out in the Commission President's Political Guidelines and the Commission Work Programme 2018. The present Staff Working Document is composed of two parts, one presents the main legislative and policy developments in 2018 across the three competition instruments (antitrust, including cartels, mergers and State aid), while specific actions are detailed in the sectoral overview part. 1.Antitrust and cartels Articles 101, 102 and 106 TFEU According to Article 101 TFEU, anti-competitive agreements are prohibited as incompatible with the internal market. Article 101 TFEU prohibits agreements with an anti-competitive object or effects where companies coordinate their behaviour instead of competing independently. However, even if a horizontal or a vertical agreement could be viewed as restrictive it might be allowed under Article 101(3) TFEU if it ultimately fosters competition (for example by promoting technical progress or by improving distribution). Article 102 TFEU prohibits abuse of a dominant position. It is not in itself illegal for an undertaking to be in a dominant position or to acquire such a position. Dominant undertakings, as any other undertaking in the market, are entitled to compete on the merits. However, Article 102 TFEU prohibits the abusive behaviour by dominant undertakings that, for example, directly or indirectly impose unfair purchase- or selling prices or other unfair trading conditions. Finally, Article 106 TFEU prevents Member States from enacting or maintaining in force measures contrary to the Treaty rules regarding public undertakings and undertakings to which Member States grant special or exclusive rights.

Antitrust and cartel decisions 2010-2018 1.1 Guidance in antitrust and cartel proceedings During 2018, the Commission continued streamlining the procedures in competition cases to enhance the timeliness and effectiveness of EU competition rules. Following the established and successful framework for rewarding cooperation by companies investigated in the area of cartels and a first non-cartel cooperation case in 2016, the Commission pursued five antitrust cases on the basis of cooperation in return for reduced fines. In these cases, the investigated firms acknowledged that they had infringed the competition rules before the Commission issued a Statement of Objections. All five companies provided evidence that added significant value to the investigation and complemented evidence already on the Commission's file at the time when the voluntary submissions were made. Moreover, in one of the cases – Guess - the investigated company revealed an infringement of the EU competition rules which was not yet known to the Commission. In addition, all companies waived certain procedural rights, resulting in administrative efficiencies. The individual reductions granted, ranging between 40% and 50%, reflected the timing of the cooperation (both in terms of the acknowledgement of liability and the evidence) as well as the extent to which the evidence strengthened the Commission's case. On 17 December 2018, DG Competition published a fact-sheet setting out the framework for cooperation cases in the antitrust field. On 12 December 2018, updated guidance on confidentiality claims in access to file and the use of voluntary confidentiality rings was published by DG Competition. The guidance explains how companies involved in antitrust investigations should identify business secrets and other confidential information in documents submitted to the Commission. Moreover, the guidelines explain how non-confidential versions of documents should be prepared. In addition, the guidance explains the benefits and the functioning of the confidentiality-ring procedure for access to file in pending antitrust investigations. By means of a confidentiality ring, documents in the Commission's file are made accessible to the addressee(s) of a Statement of Objections in a restricted manner. Similar to a data room, the number of persons having access to and who may use the information is restricted to what is strictly necessary for the rights of defence. The guidance include a template for a non-disclosure agreement between the addressee(s) of a Statement of Objections and the information providers. In 2018, the Commission started a reflection process how competition policy can best serve European consumers in a fast-changing world. To this end, the Commission appointed, Professors Heike Schweitzer, Jacques Crémer and Assistant Professor Yves-Alexandre de Montjoye as Special Advisers on the future challenges of digitisation for competition policy. The Special Advisers’ Report “Competition Policy for the Digital Era” was published on 4 April 2019. In their report, the Special Advisers (i) identify what they see as the main specific features of digital markets; (ii) provide their views on the goals of EU competition law in the digital era; and (iii) discuss the application of competition rules to digital platforms and data, as well as the role of merger control in preserving competition and innovation. On 11 October 2018, DG Competition Director-General Johannes Leitenberger gave a speech which addressed current challenges for competition policy and enforcement, including digital platforms, algorithms and the relevance of data. In October 2018, the Commission launched the review of the Vertical Block Exemption Regulation (VBER) which will expire in May 2022. The review is carried out in line with the Commission’s Better Regulation requirements. The purpose of the evaluation exercise is to allow the Commission to decide whether to let the VBER-rules lapse, prolong their duration or revise them. An evaluation roadmap for stakeholder comments was published on 8 November 2018. Stakeholders will be able to provide further comments at subsequent stages of the review process. In addition to stakeholder contributions, the review will take into account information gathered by the Commission in the E-commerce Sector Inquiry and the experience gained through the 2018 antitrust decisions against four consumer-electronics manufacturers for fixing online resale prices. Moreover, the evaluation will draw on the national competition authorities’ (NCAs) experience from enforcing the EU competition rules in this area. 1.2 Important judgments by the European Union Courts Preliminary rulings Dissemination of misleading information In Hoffmann-La Roche Ltd and Others v Autorità Garante della Concorrenza e del Mercato, the Court of Justice stated that an arrangement between competing undertakings to disseminate misleading information about adverse reactions resulting from the off-label use of a medicine sold by one of the undertakings to reduce the competitive pressure on the other, may constitute a restriction of competition by object within the meaning of Article 101(1) TFEU. The Court of Justice considered that such an arrangement cannot be considered ancillary to the licensing agreement that the two undertakings had concluded several years before the arrangement in question, nor can it be justified under Article 101(3) TFEU. This is the first time that the Court of Justice reviewed the spreading of misleading information ("disparagement") and found it anticompetitive. In the ruling the Court of Justice concluded that, in so far as a pharmaceutical product used on-label is substitutable by another product used off-label (for the same therapeutic indications), they can be included in the same product market. Meaning of competitive disadvantage In MEO, the Court of Justice gave guidance on the interpretation of the concept of competitive disadvantage in Article 102(c) TFEU which precludes dominant undertakings from "applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage". The Court of Justice held that the mere presence of an immediate disadvantage affecting trading partners, who were charged more, compared to their competitors for an equivalent service, does not mean that competition is distorted or is capable of being distorted. Instead, a finding of a competitive disadvantage must be based on an analysis of all the relevant circumstances of the case leading to the conclusion that the behaviour at issue has or is capable of having an effect on the costs, profits or any other relevant interest of one or more of those partners. While this finding does not require proof of actual quantifiable deterioration in the competitive situation, it does require showing that the conduct is capable of affecting that situation. Furthermore, the Court of Justice concluded that the seriousness of a possible competitive disadvantage is not a requirement for finding an infringement of Article 102(c) TFEU given that there is no appreciability (de minimis) threshold for the application of Article 102 TFEU. Actions for damages In Apple Sales International, a preliminary ruling concerning the interpretation of Council Regulation No 44/2001 ("Brussels Regulation"), the Court of Justice concluded that, in the context of an action for damages for an infringement of Article 102 TFEU, brought by a distributor against its supplier, the application of a contractual jurisdiction clause is not excluded on the sole ground that it does not expressly refer to disputes relating to liability incurred as a result of an infringement of competition law. The Court of Justice thus made clear that in Article 102 TFEU cases where an anticompetitive behaviour is related to a contractual relationship, jurisdictional clauses in the agreement governing the commercial relationship between the parties will also affect any related antitrust damages claims. Review of decisions finding an infringement

“Pay for delay” and market definition In eight judgments the General Court confirmed large parts of the Commission’s decisions finding that a number of companies producing generic pharmaceuticals which had concluded anticompetitive “pay-for-delay” agreements. In line with its previous ruling in Lundbeck, the General Court confirmed in Servier that patent settlements involving payments from the originator to the generics producer can constitute pay-for-delay agreements having an anticompetitive object. The General Court therefore upheld the Commission's finding that the agreements concluded by Servier with five generic companies had such an object in breach of Article 101 TFEU. The General Court considered that it was the inducement (that is to say the reverse payment), and not a recognition of the validity of the patent, that led the generics producers to agree to withdraw from the markets. Moreover, the General Court ruled that while in principle, side deals similar to direct payments can induce generics producers to withdraw from competition, not all side deals constitute an anticompetitive inducement. In particular, the General Court was not convinced that the license provided to Krka constituted an inducement for Krka’s withdrawal from a number of markets and therefore rejected the Commission’s finding that the Krka agreement restricted competition by object. Moreover, the General Court found that the Commission decision did not prove that the Krka agreement had restrictive effects under Article 101 TFEU. The General Court took the view that, considering that the agreement had been implemented, the Commission should have assessed actual, and not only potential effects on competition, taking into account also factual developments occurring after the agreement had been concluded. Finally, the General Court annulled the Commission’s finding that Servier had abused its dominant position on the market for perindopril, a medicine used to treat hypertension and heart failure. The General Court held that the Commission failed to show that the relevant product market was limited to the perindopril molecule alone. The General Court found that the Commission had made an incorrect assessment of the therapeutic substitution of perindropil with other medicines in the same therapeutic class. Moreover, the Commission had relied excessively on price-related factors. The General Court therefore concluded that the Commission erred in finding Servier in a dominant position in accordance with Article 102 TFEU.



Cartel participation and single and continuous infringement In Power Cables, the General Court referred to the necessary conditions for holding a cartel participant liable for a single and continuous infringement depending on the form of its participation. The General Court confirmed that even if a participant is unaware of, but could reasonably have foreseen the unlawful conduct planned and was prepared to take the risk, the cartel participant’s potential lack of knowledge of some forms of that conduct does not exempt it from liability. Moreover, the General Court held that when an undertaking has infringed Article 101 TFEU, it cannot escape being penalised on the ground that another cartel participant has not been fined. Constructive refusal to deal and margin squeeze With its rulings in Deutsche Telekom and Slovak Telekom the General Court largely upheld the Commission decision finding that Slovak Telekom, a subsidiary of Deutsche Telekom, had abused its dominant position by refusing access to its local loop and by engaging in margin squeeze practices. The General Court noted that the relevant regulatory framework had imposed on Slovak Telekom an obligation to grant unbundled access to the local loop. Moreover, the General Court acknowledged the need for alternative operators to access the local loop to allow the development of effective competition. Therefore, the General Court concluded that the Commission was not required to demonstrate that access to Slovak Telekom's local loop was indispensable for potential competitors. While largely upholding the Commission's finding of margin squeeze, the General Court held that the Commission had failed to show exclusionary effects for a period of four months when the margins were positive according to the "year-by-year" assessment method. Accordingly, the General Court reduced the amount of the fine. Parental liability In Deutsche Telekom, the General Court upheld Deutsche Telekom's parental liability for the infringement, but found that Deutsche Telekom’s turnover did not reflect the company’s individual conduct in the infringement. Deutsche Telekom’s turnover could therefore not serve as a basis for a calculation of an additional fine to be imposed on the company. The General Court consequently reduced the amount of the fine. In Power Cables, the General Court confirmed the line taken by the Commission and concluded that the fact that an undertaking is a ‘pure financial investor’ does not constitute a legal criterion for the non-imputation of liability for the parent company. Therefore, a financial investor is to be treated like any other parent. In the case in question, the parent company had to assume parental liability based on 100% voting rights, even if its shareholding was as low as 33%. Territorial jurisdiction In Power Cables, the General Court confirmed the Commission's practice as regards territorial jurisdiction. The General Court held that the Commission is entitled to penalise practices implemented outside the EEA, when it is foreseeable that the practices in question will have an immediate and substantial effect in the internal market. Review of investigatory powers - inspections The General Court rendered two rulings on the actions for annulment brought by České dráhy, concerning two Commission inspection decisions. In the first ruling, which partially upheld the Commission inspection decision, the General Court assessed whether the Commission had reasonable grounds to suspect an infringement of the competition rules and whether the inspections powers circumscribed by the inspection decision were restricted to the suspected infringement. The General Court found that the Commission had reasonable grounds to suspect an infringement of Article 102 TFEU by way of predatory pricing on the railway route Praha – Ostrava. However, the General Court concluded that the Commission had no grounds to suspect other types of anticompetitive conduct under Article 102 TFEU on the Praha – Ostrava route or on other routes. The General Court dismissed the other grounds for annulment put forward by České dráhy. In doing so, the General Court confirmed that parallel inspections by the Commission and NCAs, cannot give rise to legitimate expectations that the Commission would refrain from intervening in the case. The General Court also made clear that the fact that the route under investigation was domestic does not preclude the Commission from considering that the potential infringement could have an effect on trade between Member States. In the second ruling, the General Court upheld the second Commission inspection decision addressed to České dráhy. The second inspection decision concerned a suspected infringement of Article 101 TFEU based on documents obtained during the first inspection. The General Court's review focused on whether the underlying evidence for the second inspection decision had been lawfully obtained during the first inspection. The General Court explored whether the documents that served as a basis for the second inspection decision concerning a suspected infringement of Article 101 TFEU were related to possible predatory pricing (the subject-matter of the first inspection under Article 102 TFEU). The General Court confirmed that the indications contained in these documents, albeit imprecise, were related to the costs of České dráhy and therefore relevant for the assessment of an alleged predatory pricing strategy on the Praha-Ostrava route. The documents were therefore found to have been lawfully obtained. The judgment of the General Court in the Bio-ethanol case declared as inadmissible all claims that the Commission had violated, through its methodology for electronic searches during the inspection, the principles of protection of legal and professional communication. Such claims are subject to Court review only in the context of a final Commission decision. It follows that companies cannot use arguments that the inspection was carried out in an unlawful manner to support claims for annulment of the inspection decision itself. Moreover, the General Court stated that any prior letter from the Commission refusing to suspend its investigation based on such claims is not an act that can be challenged in Court before the conclusion of the investigation.

In Power Cables, the General Court reviewed the continued inspection procedure. If the document review has not been concluded at the envisaged end of the on-site inspection, a copy of the dataset still to be searched may be sealed and brought to the Commission’s premises, where the inspection is continued within a reasonable time limit. The General Court found that Article 20(2)(b) of Regulation No 1/2003 does not prescribe that the examination of business records must be carried out exclusively at the inspected company’s premises. However, when examining documents at its own premises, the Commission must offer the same guarantees as those given when the examination takes place at the inspected undertaking’s premises. Finally, the General Court considered that the intermediate step of copying or copy-imaging documents as a part of the forensic IT analysis falls within the scope of the powers provided for in Article 20(2)(b) and (c) of Regulation No 1/2003. Review of fines The judgments of the Court of Justice in the Freight Forwarding cases confirm several policy points crucial for the Commission's decision-making practice, that is to say the leniency regime, the Commission’s discretionary powers in choosing the entities to be addressed and its fining methodology. As regards fining, the Court of Justice affirmed that the cartelised services were international airfreight forwarding and not solely the various components of such services on which the parties colluded. Consequently, the Court of Justice considered that "since the sales falling within the sphere of the infringements at issue were made on that market" the Commission set the fines correctly based on the entire sales value of the overall market for international air freight forwarding services. The judgment of the General Court in the North Sea Shrimps case confirmed the existence and scope of the cartel and the company Stührk's participation in it. However, the General Court reminded the Commission of the fact that it must properly justify and explain the calculation of its fine, in particular when deviating from its own Fining Guidelines, even when it does so in favour of the parties. On this basis, the fine was annulled. In Power Cables, the General Court confirmed the use of Point 18 of the Fining Guidelines to re-distribute the value of sales (in this case the sales within the EEA) amongst all the cartel participants. In this case, the undertakings active in the EEA reserved the EEA for themselves while the Asian undertakings committed to stay out of the EEA. The cartel participants allocated projects between themselves according to the geographic region or customer. In particular, the companies active in the EEA agreed to allocate projects within the EEA. In this case, a direct application of point 13 of the Fining Guidelines (where the Commission uses the value of sales of each undertaking in the EEA) would result in zero sales (and therefore zero fines) for the Asian undertakings, because they had no sales in the EEA. By applying Point 18 of the Fining Guidelines, the sales achieved in the EEA amongst all the cartelists (regardless of activity within the EEA) were re-distributed in proportion with the market shares that the cartelists have in the entire geographic area covered by the infringement. Regarding gravity and mitigating circumstances for the fines set by the Commission, the General Court confirmed the Commission's approach that less active participation in the infringement of an undertaking was correctly taken into account when the Commission assessed the mitigating circumstances. Moreover, the General Court held that the Commission did not have to allocate the internal shares of the overall fine imposed on those held jointly and severally liable. According to the General Court, such an allocation would harm the objective of the joint and several liability mechanisms, the purpose of which is to provide an additional legal device available to the Commission to strengthen both the effectiveness of the recovery of fines imposed and the objective of deterrence pursued generally by competition law. In the Heat stabiliser judgement, the General Court annulled the Commission's decision amending the attribution of joint and several liability, finding an infringement of the equal treatment principle when determining the joint and several liability for the fine. The issue arose on the facts that - at the time of the infringement - three entities were part of the undertaking, one (ACW) directly participating throughout the infringement, one (GEA) being the ultimate parent throughout the infringement and one being intermediate parent for part of the infringement (Chemson). After the infringement, but before the adoption of the decision, GEA sold ACW and Chemson. ACW’s fine was capped due to the application of the 10% ceiling. The General Court found that this fine reduction for one party (ACW) breached the principle of equal treatment, and should have been attributed proportionately between the two other parties (GEA and Chemson). In Orange Polska, the Court of Justice dismissed the appeal by Orange Polska against a General Court judgment which upheld the European Commission's decision fining Telekomunikacja Polska (now Orange Polska) for abusing its dominant position on Polish broadband markets. The Court of Justice ruling confirms that, when imposing a fine for an infringement that has ended, the Commission is not obliged to justify in its decision the existence of a legitimate interest in finding that infringement. The Court of Justice also confirmed that in assessing the gravity of the infringement for the purpose of calculating the fine, the Commission is not required to take into account the actual or likely effects of the infringement committed. Review of commitment decisions In Canal+ the General Court dismissed the application for annulment brought by Canal+ against the Commission decision making binding the commitments offered by Paramount Pictures Ltd (“Paramount”). The commitments addressed the Commission’s concerns that clauses in Paramount’s pay-tv film licensing agreement with Sky UK prevented cross-border passive sales and therefore amounted to absolute territorial protection eliminating all cross-border competition between pay-tv broadcasters. In its commitments, Paramount committed not to enforce and not to honour contractual restrictions on passive sales for a period of five years throughout the EEA. Canal+ challenged the commitment decision as a third party, claiming that the contested clauses are not restrictive of competition and that the Commission decision breaches the principle of proportionality. The General Court examined the legal and economic context of the contested clauses and confirmed the Commission's concerns that the contested clauses amounted to absolute territorial protection and have as their object the elimination of all cross-border competition between pay-tv broadcasters. According to the General Court, this finding applies to the licensed work, whether it is copyright-protected or not. In addition, the General Court noted that the clauses imposed restrictions that went beyond what was indispensable for the improvement of the production and distribution of copyright-protected works. As regards the principle of proportionality, the General Court stated that, where a commitment consists of the non-implementation of a contractual clause, a Commission commitment decision will make binding such a commitment only on the undertakings that offered them, and not on third parties that could see their rights affected by the commitment. Third parties have the possibility to protect their legal rights before national courts. The General Court also confirmed that the Commission was entitled to, without breaching the principle of proportionality, accept Paramount's commitment not to implement the contested clauses in its contract with Sky UK for the United Kingdom and Ireland (countries where the Commission had expressed concerns), but also in license agreements with other broadcasters in the EEA for different national territories. Review of decisions rejecting complaints In Agria Polska, the Court of Justice dismissed an appeal against the General Court's ruling upholding the Commission decision rejecting a complaint due to lack of EU interest. The Court of Justice found that the scope and cost of an investigation sought by a complainant cannot be regarded as decisive criteria for finding EU interest, even where the investigation would cover several Member States. Moreover, the Court of Justice dismissed the argument that the Commission should open an investigation to ensure the effectiveness of the competition rules if the complainant faces procedural or institutional obstacles to bring an action before national courts. The Commission has no obligation to compensate shortcomings in judicial protection at national level by opening an investigation. It is the Member States’ responsibility to ensure effective judicial protection for individual parties, the Court of Justice concluded. In EAEPC, the General Court fully upheld a Commission decision rejecting the complaint of the European Association of Euro-Pharmaceutical Companies (EAEPC) alleging that GlaxoSmithKline (GSK) had violated Article 101 TFEU by applying a dual pricing scheme. GSK had notified the scheme to the Commission in 1998 under the previous authorisation regime of Regulation 17/1962 and EAEPC had filed its original complaint in 1999. Acting on the EAEPC complaint, the Commission adopted in 2001 a decision finding that the dual pricing scheme was a restriction by object and refused to exempt it. In 2006, the General Court annulled the Commission decision because the Commission had incorrectly found that the practice in question restricted competition by object and had failed to carry out an adequate assessment under Article 101(3) TFEU. In 2009, the Court of Justice partially overturned the General Court’s judgment. The Court of Justice upheld the Commission’s conclusion that the practice was a restriction by object but confirmed the General Court’s finding that the Commission had failed to conduct a full examination under Article 101(3) TFEU. Following the Court of Justice judgment, GSK formally withdrew the application for an individual exemption of the practice under Article 101(3) TFEU. However, the EAEPC did not withdraw its complaint against GSK. In 2013, the EAEPC required that the Commission adopt a decision on the complaint. The Commission rejected the complaint for lack of EU interest considering among other things that the conduct at issue took place many years ago, was only in operation for a very short period, did not produce any persisting effects, and that the case could be brought before national authorities. Review of publication decisions EU Courts reaffirmed the Commission’s publication policy in competition cases with two orders rejecting applications for interim measures. In Power Cables, the Vice-President of the Court of Justice issued an order upholding the order by the General Court President, refusing interim measures against the Hearing Officer’s decision to publish a non-confidential version of the Power Cables decision, with minor amendments. The order by the Court of Justice confirms that the Commission has no obligation to wait for a final judgment on the substance of its decision before publishing. The Vice-President of the Court of Justice stated that the applicants’ rights to be heard and to obtain redress in the main case would not be affected by the publication. Finally, the Court of Justice Vice-President concluded that the publication would not infringe the applicants’ rights to an effective remedy in the main case.

The orders of the President of the General Court in Euribor stipulated that the publication of a Commission decision under Article 101 TFEU cannot be stopped because the decision is being challenged in Court. The applicants’ argument that the presumption of innocence would preclude the Commission from publishing a decision with the parties’ names and details of the behaviour found to be anticompetitive, was rejected since the parties can submit an application for annulment of the decision in question. In Power Cables, the Vice President of the Court of Justice confirmed the Order of the President of the General Court which rejected the claim that the information included in the decision should be covered by professional secrecy because of an ongoing appeal against that decision. 1.3 The fight against cartels remains a top priority Cartels are secret agreements between sellers or buyers of the same product or service. They are made with the objective of fixing prices, limiting output or allocating clients and suppliers. Cartels harm the consumers at all levels of the value chain and the economy as a whole. Cartelists charge inflated prices, limit the choice of the consumers and block innovation. Only undistorted competition guarantees that scarce resources are used in the most efficient way. The Commission's action to stop hard core cartels prevents companies from continuing to profit from illegal overcharges and thereby contributes to fair and balanced business relationships. The significant sanctions imposed by the Commission deter companies from entering into cartels or from remaining in cartels, sending a clear signal that operating a cartel will ultimately not pay off. The Commission's strong enforcement record against hard core cartels continued in 2018. As in preceding years, the Commission adopted cartel decisions in important sectors for innovation and investment, such as the electronic components market and the automotive industry. The settlement procedure remains an efficient tool regularly used by the Commission in its fight against cartels as shown by the fact that the procedure accounted for 75% of the decisions adopted this year. The Commission fined eight producers of capacitors - Elna, Hitachi Chemical, Holy Stone, Matsuo, NEC Tokin, Nichicon, Nippon Chemi-Con, Rubycon (Sanyo received immunity) – EUR 254 million for participating in a cartel between 1998 and 2012. Capacitors are electrical components that store energy electrostatically in an electric field and are used in a wide variety of electronic products. As these products included smart phones, appliances in homes and electronic systems in cars the cartel operated at the expense of both manufacturers and consumers. Although the meetings and contacts took place outside the EU, the cartel was implemented on a global scale including in the EEA. This decision, in contrast to the other cartel infringements in 2018, was conducted under the ordinary procedure. Ordinary procedures remain significant because not all investigations may be eligible for settlement discussions. Relevant factors include the number of parties, the proportion of leniency applicants in relation to the total number of parties, the degree of contestation, conflicting positions between the parties and the existence of novel features or aggravating circumstances in the investigated practices. When the right circumstances are not met, as the Capacitors case shows, the Commission will apply the ordinary procedure. The Commission continued its work against cartels in the maritime transport services and the automotive sectors. With regard to the maritime transport sector, it fined four maritime car carriers – CSAV, "K" Line, NYK and WWL-EUKOR (MOL received immunity) - EUR 395 million for taking part in a cartel. For almost 6 years, from October 2006 to September 2012, the five carriers formed a cartel in the market for deep sea transport of new cars, trucks and other large vehicles such as combine harvesters and tractors, on various routes between Europe and other continents. The cartel affected both European car importers and final customers, as imported vehicles were sold within the EEA, and European vehicle manufacturers, as their vehicles were exported outside the EEA. In 2016, some 3.4 million motor vehicles were imported from non-EU countries, while the EU exported more than 6.3 million vehicles to non-EU countries in 2016. Almost half of these vehicles were transported by the carriers that were fined by the Commission. During its investigation, the Commission cooperated with several competition authorities around the world, including in Australia, Canada, Japan and the US. With regard to the automotive sector, two further cartels were sanctioned. The Commission also fined two suppliers of spark plugs (automotive electric devices) - Bosch and NGK - EUR 76 million for participating in a cartel with immunity applicant Denso. The Commission also found two cartels relating to braking systems. The first concerned the supply of hydraulic braking systems and involved TRW (immunity applicant; now ZF TRW), Bosch and Continental. The second cartel concerned the supply of electronic braking systems and involved Bosch and Continental (immunity applicant) with the Commission imposing total fines of EUR 75 million. The Commission remains committed to pursuing all cartels across all sectors where it has sufficient evidence of an infringement detected either through its leniency programme or its ex officio action (more information on the cartel decisions is available in the sectoral overview). The Commission's cartel enforcement was effective, with four decisions imposing fines in excess of EUR 800 million, and customer savings of approximately EUR 1.6 billion (or three euro per EU citizen). Enforcement is expected to remain effective also in the future due to solid enforcement work in 2018. Case name Adoption date Fine imposed

EUR Undertakings concerned Prohibition Procedure Maritime Car Carriers 21/02/2018 395 288 000 4 Settlement Braking systems 21/02/2018 75 426 000 3 Settlement Spark plugs 21/02/2018 76 099 000 3 Settlement Capacitors 21/03/2018 253 935 000 9 Prohibition 1.4 Continuing close cooperation within the European Competition Network and with national courts The NCAs play a key role in applying the EU competition rules alongside the Commission. Action by the NCAs accounts for 85% of public enforcement of the EU antitrust rules. This is a significant contribution to further drive economic growth and to make sure that markets work well, empowering consumers and businesses alike. However, there is room for improvement. The 2014 Commission Communication on Ten Years of Regulation 1/2003 identified a number of areas of action to make enforcement by the NCAs more effective, in particular that they have effective enforcement powers and fining tools, and have adequate resources and are sufficiently independent when enforcing EU competition law. By way of follow-up, the Commission carried out a public consultation between November 2015 and February 2016 and sounded out options for concrete action with both the NCAs and the Member State ministries. In the public consultation, 80% of stakeholders considered that action should be taken to ensure that NCAs have the means and instruments they need. On 22 March 2017, the Commission proposed a Directive to empower NCAs to be more effective enforcers. The co-legislators adopted the Directive on 11 December 2018, and it was published in the Official Journal on 14 January 2019. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 4 February 2021. Empowering NCAs to become more effective enforcers Once transposed by Member States into national law, the Directive to empower NCAs to be more effective enforcers will ensure that all NCAs: • benefit from the guarantees of independence when applying EU competition rules; • have the basic guarantee of the human and financial resources they need to perform their tasks; • have an effective investigative and decision-making toolbox, including to gather digital evidence stored on mobile devices;

• be able to impose deterrent fines, for example companies can no longer escape fines by restructuring; • have effective leniency programmes in place which encourage companies to report cartels throughout the EU; • provide each other with mutual assistance so that, for example companies with assets in other Member States cannot escape from paying fines. The importance of companies' fundamental rights is underlined. Appropriate safeguards will be put in when NCAs exercise their powers, in accordance with the EU Charter of Fundamental Rights and general principles of EU law. Cooperation with national courts Effective overall enforcement of antitrust rules in the EU, for the benefit of for both EU households and businesses, requires interplay between public and private enforcement. In addition to its cooperation with NCAs in the context of the European Competition Network (ECN), the Commission also continued its cooperation with national courts under Article 15 of Regulation 1/2003. The Commission helps national courts to enforce the EU competition rules in an effective and coherent manner by providing case-related information or an opinion on matters of substance or by intervening as amicus curiae in proceedings pending before the national courts. Following approval from the concerned courts, the Commission publishes its opinions and amicus curiae observations on its website. Private enforcement Directive 2014/104/EU on antitrust damages actions (Damages Directive) aims at ensuring that anyone harmed by infringements of the EU competition rules can effectively avail itself of the right to compensation before national courts. The deadline to implement the Damages Directive in Member States' legal systems expired on 27 December 2016. Seven Member States transposed it before the deadline expired. On 18 January 2017, the Commission sent Letters of Formal Notice opening infringement procedures for non-communication of transposing measures by the deadline against 21 Member States. Of those, 18 Member States fully transposed the Directive in 2017 and the respective infringements proceedings were closed. Bulgaria, Greece and Portugal adopted transposing measures in the first half of 2018 The Commission is finalising the completeness checks of their transposing measures before the closure of the respective three infringement proceedings. The Commission is also proceeding to the conformity check of all the 28 national transpositions. In addition, following the publication of a “Study on quantifying passing-on effects in antitrust damages actions” in October 2016, the Commission launched in July 2018 a targeted public consultation on draft guidelines in order to estimate the share of the overcharge passed on to indirect customers. The Commission intends to adopt a final version in 2019. 2.Merger control EU merger control The purpose of EU merger control is to ensure that market structures remain competitive while enabling smooth restructuring of the industry. This applies not only to EU-based companies, but also to any company active on the EU markets. Industry restructuring is an important way of fostering efficient allocation of production assets. However, there are also situations where industry consolidation can give rise to harmful effects on competition, taking into account the merging companies' degree of market power and other market features. EU merger control ensures that changes in the market structure which lead to harmful effects on competition do not occur. EU merger control seeks to maintain open and competitive markets, which is the best way to ensure that businesses and final consumers obtain fair outcomes. It strives to protect all aspects of competition. As a result, merger control helps to preserve market structures, in which companies compete not only on price, but also on other competitive parameters such as innovation. The Commission's merger enforcement practice in 2018, in the agri-chemical, pharmaceutical and oxygen systems sectors, shows that the Commission considers innovation and investments as important aspects of competition. The Commission will continue to assess the effects on innovation in future cases. EU merger control ensures that all firms active in EU markets can compete on fair and equal terms. Proposed transactions which may distort competition are subject to close scrutiny by the Commission. If necessary to protect competition, the Commission can give merging firms the possibility to dispel competition concerns by offering commitments. If sufficient commitments cannot be found or agreed upon, the Commission may prohibit the transaction. In its assessments, the Commission takes into account efficiencies possibly brought about by mergers. Efficiencies may have positive effects on costs and innovation, for example, provided that they are verifiable, merger-specific and likely to be passed on to consumers. As highlighted in previous reports on competition policy, the Commission continuously evaluates the substantive and procedural rules that make up the legal framework for merger control. Such reflections are conducted both internally, based on experience, and by using external input. In this context, the Commission regularly assesses concerns and suggestions for further improvements expressed by stakeholders. It evaluates the need for reform and policy changes in specific areas, and checks that its policies and enforcement practices do not create unduly high compliance costs for merging companies, thereby hampering investment and innovation. 2.1 Recent enforcement trends In 2018, 414 mergers were notified to the Commission, the highest number in the history of EU merger control. This number represents a substantial increase compared with preceding years. The total number of notifications received in 2018 was 9% higher than in 2017 and almost 50% higher than in 2013. Moreover, the Commission received 23 reasoned pre-notification submissions by notifying parties, requesting referral of a proposed merger from the Commission to a national competition authority or vice versa.

Like previous years, most notified mergers did not raise competition concerns and could be processed speedily. The simplified procedure was used in 75% of all notified transactions in 2018, showing the impact of the simplification package adopted by the Commission in December 2013. The proportion of simplified cases in the period 2004-2013 was substantially lower, at 59%. The year 2018 required intensive work by the Commission, due to the large number of notified transactions as well as the complexity of a large number of the cases. An increasing number of notified transactions concerned already concentrated industries, such as the agri-chemical and steel sectors. This development required the Commission to carefully assess the proposed mergers’ potential impact on competition, employing sophisticated quantitative techniques and carrying out comprehensive qualitative investigations. In 2018, the Commission opened in-depth investigations (second phase) in twelve cases. These cases concerned sectors such as telecommunications, steel, industrial gases and, railway transport. The Commission adopted 393 merger decisions in 2018, and intervened in 25 cases, resulting in customer savings of approximately EUR 20 billion (or EUR 39 per EU citizen). The number of interventions was somewhat higher compared to the average of the last seven years, with approximately 20 interventions per year. In 2018, 17 mergers were cleared subject to commitments in the first phase, four were cleared without remedies after second- phase investigations, and six were cleared with remedies after second phase investigations. In two cases, the parties abandoned the transaction during the in-depth investigation. The Commission did not prohibit any transactions in 2018. When reviewing proposed concentrations, the Commission assesses their impact on all aspects of competition. In 2018, the Commission intervened in several proposed concentrations, which, in addition to price, quality and choice concerns, risked impeding innovation. In Bayer/Monsanto and BASF/Bayer divestment business the Commission identified concerns related to innovation. The Commission approved the Bayer/Monsanto transaction after the parties submitted an extensive divestiture package comprising in particular Bayer's global vegetable seed business and broadacre crop seed and trait business (including R&D), its glufosinate business, and its digital agriculture activities. These divestitures addressed all competition concerns identified by the Commission, including those related to innovation. The divestiture businesses were sold to BASF. The acquisitions would allow the company to compete and innovate as actively and effectively against the merged firms, for the benefit of European farmers and consumers. Most remedies accepted by the Commission in 2018 were divestitures of tangible or intangible assets. This is in line with the Commission’s general preference for structural remedies in merger cases. In a few cases in 2018, the Commission accepted non-divestiture remedies, where they were considered to solve the underlying competition concerns. Moreover, in 2018 the Commission continued to make significant efforts to enforce procedural obligations under the EU Merger Regulation. Following the fine of EUR 110 million imposed on Facebook in 2017 for providing misleading information during the review of its acquisition of WhatsApp , the Commission imposed in 2018 a fine of EUR 124.5 million on Altice for implementing its acquisition of the Portuguese telecommunications operator PT Portugal before notification or approval by the Commission (so-called gun jumping). Three other procedural infringement cases were under investigation in 2018; two against General Electric and Merck GmbH (including Sigma-Aldrich) concerning their alleged provision of incorrect and/or misleading information during the Commission's merger review. Moreover, the Comission is pursuing a case against Canon for allegedly implementing a merger before notification and clearance. Merger decisions 2010-2018: 2.2 The ongoing evaluation of EU merger controlselected procedural and jurisdictional aspects of EU mergers In 2016, the Commission launched a public consultation concerning an evaluation of selected procedural and jurisdictional aspects of EU merger control. The evaluation builds upon the results of the public consultation on the 2014 Commission white paper "Towards more effective EU merger control". The evaluation focusses on four topics, namely (i.) possible further simplification of EU merger control, (ii.) the functioning of the jurisdictional thresholds, (iii.) the functioning of the referral system, and (iv.) specific technical aspects. The public consultation was open until mid-February 2017 and attracted wide interest. A summary of the submissions received during the public consultation, together with their non-confidential versions, were published on the Commission's Competition website on 28 July 2017. The Commission is carrying out further research on the topics covered by the evaluation and will reflect on whether further action would be required. 2.3 Significant judgments by the European Union courts in merger control In 2018, the EU Courts adopted five judgments in the field of merger control. In its judgement of 16 May 2018, the General Court partially annulled the Commission decision of 25 July 2016, which rejected Lufthansa’s request for a waiver of the commitments made binding by the Commission in its 2005 decision Lufthansa/Swiss. The General Court annulled the Commission’s decision to reject the request for a waiver for the Zürich-Stockholm route. The General Court considered that the Commission made a manifest error of assessment by failing to take into account and carefully examine all relevant information. The General Court concluded that the Commission has no obligation to review long-term commitments on its own initiative. It is for the parties bound by the commitments to make a waiver request and to provide the necessary evidence. However, the Commission must supplement or refute such evidence by way of an investigation. According the the General Court, the Commission had not adequately investigated the change in competitive conditions that had occurred on this route since the adoption of its decision. However, the General Court dismissed the appeal in relation to the Zürich-Warsaw route. On 31 May 2018, the European Court of Justice issued its preliminary ruling on a question referred to it by a Danish Court concerning the interpreation of Article 7(1) of the Merger Regulation, which prohibits companies from implementing a concentration before the Commission has cleared it. The issue at stake in the national proceedings was whether the termination by KPMG of its cooperation agreement with the KPMG international network prior to the approval of its merger with Ernst & Young by the Danish Competition Authority amounted to gun jumping or not. In its judgment, the Court of Justice concluded that Article 7(1) of the Merger Regulation must be interpreted in such a way that a concentration is considered to be implemented only by a transaction which, in whole or in part, in fact or in law, contributes to the change in control of the target undertaking. The Court of Justice applied this test to the specific circumstances in the Danish proceedings and concluded that the termination of the cooperation agreement does not constitute gun-jumping, even if it had a conditional link with the concentration and was likely to be of ancillary and preparatory nature. On 9 October 2018, the General Court delivered judgements in three cases concerning the implementation of remedies in the case Telefónica Deutschland/ E-Plus that had been cleared conditionally in 2014. Each of the three applicants 1&1 Telecom, Mass Response and Multiconnect claimed that the Commission incorrectly interpreted the scope of Telefónica's obligations under its commitments. The General Court declared the appeals inadmissible.

3.State aid control

State aid control is an integral part of EU competition policy and a necessary safeguard to preserve effective competition and free trade in the single market. The Treaty establishes the principle that State aid which distorts or threatens to distort competition is prohibited in so far as it affects trade between Member States (Article 107(1) TFEU). However, State aid, which contributes to well-defined objectives of common interest without unduly distorting competition between undertakings and trade between Member States, may be considered compatible with the internal market (under Article 107(3) TFEU). The objectives of the Commission's control of State aid are to ensure that aid is growth-enhancing, efficient and effective, and better targeted in times of budgetary constraints that aid does not restrict competition but addresses market failures for the benefit of society as a whole. In addition to this, the Commission acts to prevent and recover State aid which is incompatible with the internal market. 3.1 Uptake of the State Aid Modernisation Since 2014, as part of the State Aid Modernisation (SAM), there has been a surge in State aid granted without prior notification to the Commission, indicating an important reduction in red tape. The 2018 State Aid Scoreboard confirms that modernisation has lead to quicker implementation of public support by Member States. This is possible due to the General Block Exemption Regulation (GBER) , adopted in the context of the State aid reform, which simplifies the aid-granting procedure for Member States by authorising - without prior notification - a wide range of measures fulfilling certain criteria and specific EU objectives in the common interest. For the aid categories covered by the GBER, only cases with the largest potential to distort competition in the single market have to be notified. As shown in the graph below, since 2015 more than 96% of new measures for which expenditure was reported for the first time were covered by the GBER, entailing an increase of some 28 percentage points compared to 2013. Approximately 82% of all measures with reported expenditure (that is to say not only new measures), fell under the block exemption in 2017. Total spending on measures covered by the GBER represented approximately 47% of total State aid expenditure (excluding agricultural aid) in 2017, that is to say an increase of some 13 percentage points compared to 2013. The 2014 GBER introduced new aid categories and to a large extent, the reported increase in expenditure of GBER measures reflects the impact of the new Regulation. In 2017, as compared to 2014, total GBER spending for aid to culture and heritage conservation, for broadband and for local infrastructure has increased dramatically, while it more than doubled for SMEs, including risk finance. Large increases were also recorded for environmental protection and energy savings (+80%), for research, development and innovation (+69%) and for aid to compensate damages caused by natural disasters (+50%). The GBER was further extended in 2017, especially as regards aid to ports and airports. It is therefore to be expected that block-exempted aid as a share of total aid granted by Member States will increase even further in the coming years. The growing share of spending falling under the GBER implies that on average State aid measures registered by the Commission are implemented much more quickly than in the past by Member States. Compared to 2013, the average time to implement State aid measures decreased by 15%. However, notified measures that are still subject to scrutiny tend to cover bigger budgets and spending than in the past, in line with the Commission's approach to be 'big on big things and small on small things'. In 2017, the average annual budget of implemented notified measures was some EUR 230 million, an absolute increase of approximately 126% compared to 2013. State aid enforcement (Commission decisions, monitoring and Member States' Evaluation Plans) 2010-2018 Cooperation with Member States To facilitate the implementation of SAM, the Commission supports Member States in various ways in the framework of a multilateral partnership. The Working Group on SAM implementation (SAM WG) is a forum for Member States to exchange best practices on their systems for State aid control, creating an effective network for the informal discussion of issues concerning the implementation of State aid rules among Member States and with the Commission. Other dedicated working groups or workshops deal with specific aspects of SAM implementation, in particular the requirements for transparency and evaluation (see respective sections infra) or issues related to international subsidy policy and State aid to infrastructure. Once a year, all these working groups report to a High Level Forum, which takes place in Brussels. The High Level Forum provides guidance on the future work of the SAM WG and is also the occasion for the Commission and Member States to discuss State aid policy more generally. The SAM WG met three times in 2018, under the Chairmanship of France, and addressed several policy and compliance topics related to SAM implementation, such as specific aspects of the notion of aid and the interplay between State aid rules and Structural Funds implementation. It reported on the main topics discussed during the past year and on the follow-up to recommendations from past Chairs (Finland, Sweden and the United Kingdom) to the High Level Forum held on 19 June, in Brussels. On this occasion the High Level Forum also endorsed the work plan submitted by the Chair for the period 2018-2019. In 2018, the Commission also continued its bilateral cooperation with Member States. Launched in 2015, the overall objective of this process is to achieve both good State aid policy and effective State aid control at the national level. Tailored to each Member State's specific needs, bilateral cooperations have taken a variety of dimensions, from structured cooperation processes (with Italy, Bulgaria and Romania), to more bespoke informal bilateral interactions (with Belgium, Croatia, Greece, Hungary, the Netherlands, Poland, Portugal, Slovenia and Spain). These various cooperation processes generally deal with horizontal cross-cutting State aid issues, such as country-specific compliance and implementation issues, governance issues and issues concerning State-owned enterprises, as well as cases in problematic sectors. Each Member State also has a dedicated State Aid Country Coordinator at the Commission, who acts as a first entry point for this Member State's horizontal State Aid questions. After several years of operation, work is on-going towards refining the various bilateral cooperation processes with all Member States. Transparency Award Module The transparency provisions currently part of SAM are in force since 1 July 2016 and require Member States to publish information about the beneficiaries of aid awards above EUR 500 000. Member States have six months starting from the date of granting to provide the required aid awards' data, with the exception of awards in the form of fiscal aid for which the information needs to be provided within one year from the date of granting. The Commission services facilitated compliance with this requirement by developing, in cooperation with Member States, the Transparency Award Module (TAM) – an informatics tool for submission and publication of data required under the transparency provisions. The TAM ensures that information submitted by granting authorities is consistent and comparable across Member States. In addition, the associated transparency public search page provides all stakeholders, i.a. citizens, competitors and researchers, with a single entry point allowing them to make comparable extractions and analysis. For these reasons, the Commission pursues efforts to improve the user friendliness and the interoperability capabilities of the tools, to incentivise those Member States already having National State Aid Registries in place to use the TAM as well. At the end of 2018, 25 Member States have joined the TAM and more than 43 000 aid grantings have been published by 25 Member States and Iceland. The Commission services support the implementation of the TAM by facilitating, together with Member States' representatives, the Transparency Steering Group (one meeting in 2018) and by organising dedicated training courses upon request. In addition, the Commission conducted the first compliance checks in early 2018 to verify the completeness and accuracy of the information published by Member States under the transparency requirements through either the TAM or National State Aid Registries. This first round of compliance checks proved to be very effective in improving compliance with the transparency obligations. The scopoe of the compliance checks will be substantially extended in 2019.

Evaluation of aid schemes Evaluation of aid schemes is another requirement introduced by SAM. The aim is to gather the necessary evidence to better identify impacts, both positive and negative, of the aid and to provide input for future policy-making by the Member States and the Commission. Since 1 July 2014, evaluation is required for large GBER schemes in certain aid categories as well as for a selection of notified schemes under the new generation of State aid guidelines. By the end of 2018, the Commission had approved evaluation plans covering 40 State aid schemes. Five additional schemes are currently under analysis, covering a total of 15 Member States. Most of these decisions concerned either large regional aid projects or R&D&I aid schemes under the GBER or notified energy and broadband schemes. These schemes account, in total, for over EUR 50 billion of annual State aid budget. The first evaluation report was submitted in January 2018. The Commission services have continued to accompany the implementation of the evaluation requirement by publishing policy briefs and by organising dedicated workshops with Member States' representatives and evaluation experts. The current priorities of the Commission services are: (i.) to enlarge the scope of the evaluation initiative to additional Member States, including through bilateral contacts; and (ii.) to prepare the ground for a comprehensive assessment of evaluation reports, both intermediate and final, to provide appropriate feedback to Member States and make sure that results are effectively used for better policy-making. Aid for research, development and innovation While one of the headline targets of the Europe 2020 Strategy is for Research, Development and Innovation (R&D&I) investments in the EU to reach 3% of EU GDP, R&D&I spending in the EU has been lagging behind major global competitors, mainly due to lower levels of private investment. To achieve the greatest possible impact with the available budgets R&D&I aid measures should not replace or crowd out private financing. On the contrary, efforts should be directed at encouraging more private investments. The very purpose of R&D&I aid is that it should bring added value where markets and companies do not deliver the investments for promising but highly risky innovative projects. Therefore, the State aid rules for R&D&I help ensure that public funding goes to research projects that would not otherwise be realised due to market failures, that is to say projects that truly go beyond the state of the art and which bring innovative products and services to the market and ultimately to consumers. The rules, using flexible and simple criteria for assessing the compatibility of State aid, facilitate the implementation of support for R&D&I projects by Member States. In 2018, the Commission ensured that aid schemes and individual measures notified or pre-notified under the R&D&I rules were well targeted to projects enabling ground-breaking research and innovation activities. Its State aid control activities covered a variety of sectors including the automated/connected driving, e-mobility, aeronautic, space, microelectronic sectors as well as virtual research infrastructures and innovation clusters. Moreover, in a significant number cases the Commission cooperated with a number of Member States with a view to enabling them to adjust certain envisaged R&D&I measures and bring them in line with the GBER. This way, aid measures could be granted swiftly without having to be notified to the Commission, thereby speeding up public support for R&D&I. It is noteworthy that following the State Aid Modernisation in 2014, 95% of all R&D&I measures (70% in value terms) in the Union are implemented under the GBER. Aid enabling Member States jointly to support important projects of common European interest In June 2014, the Commission adopted a Communication on Important Projects of Common European Interest (IPCEI) , aiming to encourage Member States to support projects that make a clear contribution to economic growth, jobs and the competitiveness of Europe. The IPCEI framework complements other State aid rules such as the General Block Exemption Regulation and the Research, Development and Innovation Framework , which allows supporting innovative projects whilst ensuring that potential competition distortions are limited. The rules thus enable ground-breaking research and innovation and sharing of the results widely, whilst ensuring that the support by taxpayer money truly serves European citizens. In December 2018, the Commission found that an integrated project jointly notified by France , Germany , Italy and the United Kingdom for research and innovation in microelectronics is in line with EU State aid rules and contributes to a common European interest. The Commission has identified micro- and nano-electronics as one of six Key Enabling Technologies deemed to be crucial for future industrial development. This first case in the area of R&D&I of an Important Project of Common European Interest (IPCEI) demonstrates that the instrument can deliver intra-EU R&D&I cooperation and coordination for Key Enabling Technologies, including investment into first industrial deployment. During 2018, in line with the Commission's battery alliance initiative, discussions with a group of Member States and companies for a possible important project of common European interest (IPCEI) in the area of batteries for e-mobility and energy storage have intensified. This is in line with the Commission's policy for a shift from the use of environmentally harmful fossil fuels to alternative fuel technologies. Regional aid Regional aid is an important instrument in the EU toolbox to promote greater economic and social cohesion. The 2014-2020 regional aid framework is in place since July 2014. In 2018, the Commission continued advising Member States' authorities on how to interpret and implement the regional aid provisions of the GBER, thus helping them to make a success of the reforms introduced under SAM to the benefit of both consumers and businesses. In 2018, the Commission adopted a decision under the Regional Aid Guidelines for 2014-2020 approving a regional investment aid for a large investment project to BorsodChem. The investment has the objective to increase the vertical integration of BorsodChem’s existing Hungarian methylene diphenyl diisosyanate (MDI) manufacturing plant in Kazincbarcika by adding a facility for the production of aniline.The Commission found that without the public funding, the project would not have been carried out in Hungary or another EU Member State, as it would be cheaper for the beneficiary to continue importing aniline from existing production plants outside EU. The investment project contributes to the economic development of a disadvantaged region and creates direct jobs. It also leads to the reduction of environmental risks associated with long distance transportation of aniline which is a toxic material. The Commission also adopted a positive decision on regional investment aid to Jaguar Land Rover in Slovakia (car manufacturing). The Commission's formal investigation established that without the investment aid, the project would not have been carried out in Europe. It also showed that the aid was limited to the minimum necessary to trigger the decision by Jaguar Land Rover to carry out the investment in Slovakia. The Commission found that the investment aid contributes to job creation as well as to the economic development and to the competitiveness of a disadvantaged region. Finally, the Commission established, after a careful examination of all facts, that there was no causal link between the aid granted by Slovakia and the closure of activities elsewhere in Europe. Therefore, the positive effects of the project on regional development clearly outweigh any distortion of competition brought about by the State aid. The Commission also found that certain infrastructure measures financed by the Slovak state and carried out to develop the industrial estate where the new Jaguar Land Rover plant is located will not only benefit Jaguar Land Rover, but also all other companies located in the industrial estate and more generally in the Nitra region. These measures should for that reason not qualify as State aid. Finally, the Commission found that the transfer by the Slovak state to Jaguar Land Rover of the land plot, where the car plant is being built, was carried out at market price.

Finally, the Commission adopted two decisions approving evaluation plans relating to regional aid schemes for Hungary ('Investment incentives') and for Greece ('General Entrepreneurship' scheme ). The first decision concerns the evaluation plan of an investment aid scheme intended to address the low level of employment and investment in Central Hungary's “c” areas and in the less developed regions of Hungary ("a" regions). It also aims to facilitate the development of new technical and technological solutions, facilitate the development of exports and increase the competitiveness of products manufactured and services provided in compliance with the GBER. The second Commission decision concerns the evaluation plan of a regional aid scheme aiming to boost the economy and increase of employment in Greece. The aid is directed towards enterprises of all sizes in all regions and to manufacturing and internationally traded services and products allowed by the GBER. Disaster aid (promotion of economic development in areas affected by a natural disaster of an exceptional nature) In 2018, the Commission approved under Article 107(3)(c) TFEU an Italian aid scheme to support investments in regions affected by earthquakes in 2016 and 2017. The notified aid scheme aims at mitigating the economic and social damages in central Italy which have been affected by abnormal seismic activity. The aid takes the form of a tax credit for all companies making initial investments in the area. Support to large companies is limited to aid for setting up a new company, diversifying a company's activity or acquiring the assets of a company that has closed down. The Commission found that the aid scheme contributes in a proportionate manner to the promotion of economic development and recovery in areas affected by a natural disaster of an exceptional nature. Aid to risk finance SMEs across the EU remain heavily dependent on traditional bank lending, which is still limited by banks' refinancing capacity, risk appetite and capital adequacy. The financial crisis has exacerbated the problem with a large number of SMEs still being unable to receive the necessary finance in recent years. Given the pivotal importance of SMEs and midcaps for the whole EU economy, the situation has a significant negative impact on growth and job creation. The current Risk Finance rules aim to offer better incentives for private sector investors - including institutional ones – to increase their funding activities in the critical area of SME and midcaps financing. The rules also mirror other EU initiatives designed to promote wider use of financial instruments in the context of new support programmes such as Horizon 2020 or COSME (the Programme for the Competitiveness of Enterprise and SMEs). The current Risk Finance Guidelines and the corresponding parts of the GBER, provide the framework for seamless support for new ventures from their creation to their development into global players. The aim is to help new ventures to get past the critical stages where private financing is either unavailable or not available in the necessary amount or form. Aid measures encouraging investment and innovation in SMEs In 2018, under the Risk Finance Guidelines, the Commission dealt with notified schemes aimed at encouraging investment in innovative SMEs and midcaps. In particular, it approved the prolongation of an amended scheme in Italy granting fiscal incentives for investments in innovative start-ups. Moreover, the Commission cooperated with a number of Member States with a view to enable them to adjust certain envisaged risk finance measures and bring them in line with the current GBER. This way, aid measures could be granted swiftly without having to be notified to the Commission, thereby speeding up public support to innovative SMEs. In all these cases, the Commission took the view that the measures at issue covered a real gap in the market, and worked together with the Member States on solutions to limit the impact on competition in the single market. In particular, the Commission considered that the risks inherent to the activities of these young firms and innovative companies (that is to say products/technologies not yet proven to be economically viable) and the lack of financial guarantees limited their capacity to access funding and that the aid was necessary to stimulate investment that, if unprompted, would not have been provided by the market. Infrastructure In 2018, the Commission continued providing guidance to the Member States' authorities by using analytical grids on the application of State aid rules to the public financing of infrastructure projects. The applicable provisions were revised in the light of the adoption of the Commission Notice on the notion of State aid in 2016, and the adoption of the revised GBER in 2017. The Comission continued advising Member States' authorities on how to interpret and implement the State aid provisions of the GBER on infrastructure projects, thus helping them to ensure legal certainty regarding the public funding of infrastructure. The Commission also adopted three decisions on State aid for the development of motorways, notably by the approval of an investment plan for Italian motorways, the approval of the prolongation of the existing concession agreement for the Istrian Y motorway in Croatia, and the construction of the southern section of the Central Greece Motorway (E65 concession). Italian motorways plan: The Commission approved under EU State aid rules on services of general economic interest the Italian plans to prolong two motorway concessions and impose a cap on the tolls imposed on users. The Italian motorways plan involves the prolongation of major motorway concessions held by Autostrade per l'Italia (ASPI) and by Società Iniziative Autostradali e Servizi (SIAS). These concessions include a cap on potential toll increases at a sustainable level for motorway users. At the same time, the prolongation of the concessions provide ASPI and SIAS with sufficient revenues to finance significant investments on the concessions concerned. The approved plan is also accompanied by a series of safeguards to avoid that ASPI and SIAS are overcompensated and to limit competition distortions, including: (i) a cap on the amount that ASPI and SIAS could receive at the end of the concession from a sale of the assets; (ii) a mechanism to avoid overcompensation, and (iii) a series of detailed requirements to tender out the majority of infrastructure works downstream in order to limit distortions of competition. The Commission found that the measures will promote growth and unlock investment, while limiting the impact on motorway users. The limited prolongation of concessions and the safeguard measures minimises distortions of competition in line with the State aid rules. Croatian Istrian Y motorway: The Commission approved under EU State aid rules on services of general economic interest the Croatian plan to prolong the existing Istrian Y motorway concession agreement. The positive decision allows new investments to go ahead, while limiting distortions of competition.The Commission found that the Croatian plan to prolong the Istrian Y motorway concession agreement does not overcompensated the concessionaire. It also found that the prolongation of the motorway concession is proportionate to the amount needed to finance the works required for building a second stretch of the carriageway on the north-eastern side of the motorway. The measure promotes growth and unlock investment, while limiting the impact on motorway users, in line with EU State aid rules. Greek E65 motorway concession: The Commission approved approved under Article

107 3(c) TFEU Greek public funding for the construction of the southern section of the Central Greece Motorway (E65) in line with earlier decisions on the same road. The Commission found the support measure necessary and proportionate for the implementation of the project insofar as Greece has demonstrated that (i) the public financing corresponds to the inflation adjusted construction costs and that (ii) the concessionaire will assume the operation and maintenance costs of the project, and any excessive revenues will be returned to the State via a claw-back mechanism. The project will also not receive any cross-subsidies from other concessions Furthermore, the approved project contributes to objectives of common EU interest and in particular to EU transport policy, as it will support the completion of a key Trans-European Road Network and improve transport links for Greek citizens living in the Sterea Ellada region, without causing undue distortions of competition. 3.2 State Aid Modernisation continues State aid modernisation started in 2012, culminating in a comprehensive review of the main State aid guidelines as well as the adoption of the General Block Exemption Regulation in 2014. The General Block Exemption Regulation enables Member States to implement a wide range of State aid measures without prior Commission approval because they are unlikely to distort competition to an extent that is contrary to the common interest. As a result, approximately 95% of State aid measures implemented by Member States are now exempted. In 2017 the Commission extended the scope of this Regulation to ports and airports. Further extension of the scope of the GBER

The efforts to focus and modernise EU State aid rules and improve the Commission's working methods are continuing. In the context of the Multiannual Financial Framework 2021-2027, the Commission has proposed to simplify co-investment involving both EU funding and Member State investment, through a revision of the EU State aid Enabling Regulation, which is the legal basis for adopting the GBER. A revised GBER could also cover national financing combined with the InvestEU Fund, a single set of rules for all financial instruments and budgetary guarantees in the next EU budget. The Commission would have an important role in the selection and evaluation of the supported projects and schemes. Member State funds channelled through InvestEU could in the future be exempted from prior notification to the Commission under State aid rules. Launch of the Fitness check of the 2012 State aid modernisation package, railways guidelines and short term export credit insurance In 2018, the Commision launched in line with Commission's Better Regulation Guidelines, the evaluation of State aid rules, which were adopted as part of the State Aid Modernisation, the railways guidelines and the short term export credit insurance. The evaluation takes the form of a “fitness check” to verify whether the rules have actually worked in the way intended and are fit for purpose. It will provide a basis for decisions, to be taken by the Commission in the future, about whether to further prolong or possibly update the rules. Launch of the review of the Emissions trading scheme State aid guidelines (ETS Guidelines) In line with Commission’s Better Regulation Guidelines, the review of the ETS Guidelines has been launched. Under the ETS Guidelines the Member States can compensate some electro-intensive users, for part of the higher electricity costs resulting from the EU Emissions Trading Scheme. The objective of such compensation is to minimise carbon leakage risk, which materialises when emission costs cause relocation from the EU to third countries without comparable constraints. The existing rules allowing for compensation will be revised to ensure that they are adapted to the new Emissions Trading Scheme for the period 2021-2030. Prolongation of the Export Credit Insurance State aid rules until 2020 On 17 December 2018, the Commisison adopted a Communication prolonging the State aid rules for export credit insurance until 2020. The Export Credit Insurance State aid rules set criteria under which EU governments can provide financial support to buyers of exports from their country, in the form of short-term credit insurance. If there is a viable private market for insuring the risk that sellers will not be paid, public export credit agencies may only provide insurance at market rates. Prolongation of the Regulation on de minimis aid to undertakings providing services of general economic interest (SGEI) until 31 December 2020 On 7 December 2018, the Commission adopted the prolongation of the Commission Regulation on de minimis aid to undertakings providing services of general economic interest until 31 December 2020. The prolongation will reduce the administrative burden and provide legal certainty for compensation measures which do not exceed EUR 500 000 over any period of three fiscal years granted to undertakings providing such a service and therefore shall be deemed not to affect trade between Member States and/or not to distort competition. Revision of the Simplified Procedure Notice and Best Practices Code A new Best Practices Code was adopted in July 2018 and replaces and combines the previous Simplified Procedure Notice and Best Practices Code. The Best Practices Code for State aid control gives guidance on how the Commission, Member States and other stakeholders work together in State aid procedures. This covers, for example, how to ensure that complex State aid cases are handled most effectively, how complaints about State aid are followed up, and monitoring of how Member States implement State aid measures in practice. The Best Practices Code explains how State aid procedures are carried out, and sets out the steps the Commission is taking to increase the speed, transparency and predictability of these procedures. 3.3 Monitoring, recovery, evaluation and cooperation with national courts Increased monitoring of existing State aid to ensure competition on fair and equal terms Over the years, the architecture of State aid control has evolved. Today, a substantial part of aid is granted under block-exempted schemes which are not examined by the Commission before entering into force. Overall, roughly 80% of aid is granted on the basis of previously approved aid schemes or block exemption regulations. In that context, it is essential for the Commission to verify that Member States apply State aid rules for the schemes correctly and that they only grant aid when all required conditions are met. To that end, the Commission introduced in 2006 a regular, ex post, sample-based control of existing aid schemes ("monitoring"). After a modest start covering some 20 schemes and ten Member States in each monitoring cycle, the Commission has considerably stepped up monitoring since 2011. Building on the Court of Auditors recommendations, the Commission has substantially increased the size of the monitoring sample and is monitoring approximately 50 schemes per year. It also extended the scope of its control beyond block-exempted and authorised aid schemes, for example schemes falling under the SGEI Decision. The 2018 cycle covered most Member States and all main types of aid approved as well as block-exempted schemes. Since the reporting of individual aid exceeding EUR 500 000 have to be encoded for the first time by Member States and is subsequently published in the TAM, the Commission verified the reporting for the schemes monitored. The Commission follows up on irregularities and uses the means at its disposal, as appropriate, to address the competition distortions that these may have caused. In some cases, Member States offer to voluntarily redress the problems detected, for example to amend national legislation or to recover the excess aid granted. In other cases, the Commission may need to take formal action. Restoring competition through recovery of State aid granted in breach of the rules To ensure the integrity of the single market, the Commission has the power and the duty to request that Member States recover unlawful and incompatible aid which has unduly distorted competition and trade between Member States. In 2018, further progress was made to ensure that recovery decisions are enforced effectively and immediately. By 31 December 2018, the sum of illegal and incompatible aid recovered from beneficiaries amounted to EUR 26.6 billion. At the same point in time, the outstanding amount pending recovery was EUR 5 billion.

In 2018, the Commission adopted seven new recovery decisions and an amount of EUR 13.3 billion was recovered by the Member States. As of the end of December, the Commission had 43 pending recovery cases. Recovery decisions adopted in 2018 7 Amount recovered in 2018 (EUR billion) 13.3 Pending recovery cases on 31 December 2017 43 As a guardian of the Treaty, the Commission may use all legal means at its disposal to ensure that Member States implement their recovery obligations, including launching infringement procedures. In 2018, the Commission decided to file one infringement action to the European Courts under Article 108(2) TFEU. An in-depth review of the 2007 Commission's recovery notice was initiated in 2018 with the aim to consolidate into the text the case law developments established since. The new notice will also include more information on the infringement procedures, both Articles 108(2) TFEU and 260 TFEU, as well as established new practices in the cooperation between the Commission and the Member State concerned by a recovery decision.



Cooperation with national courts to ensure the effectiveness of State aid rules The Commission continued its cooperation with national courts and tribunals under Article 29 of the Procedural Regulation. This cooperation includes direct case-related assistance to national courts when they apply EU State aid law. The courts and tribunals can ask the Commission to provide case related information, or to provide an opinion on the application of State aid rules. The Commission may also submit amicus curiae observations at its own initiative. In 2018, the Commission responded to two requests for information. In one instance, a district court in the Netherlands enquired on the state of play in an investigation; the other request forwarded by a French administrative appeal court enquired on certain information which the Commission might have in the case file of a closed investigation. The possibility for the Commission to submit amicus curiae observations before national courts on its own initiative was introduced in the 2013 amendment to the Procedural Regulation. In this respect, Article 29 of the Procedural Regulation mirrors Article 15(3) of Regulation 1/2003 in the field of antitrust. In 2018, the Commission intervened in proceedings before the courts in six Member States and in arbitral proceedings where State aid issues were considered. To make its views publicly known, the Commission publishes its opinions and amicus curiae observations, as well as observations to others, on its website. In 2018, the Commission also continued its advocacy efforts. It was actively involved in evaluating the financing of training programmes for national judges and in assessing their needs. The Commission staff also provided training during workshops and conferences. Finally, in 2018 the Commission commissioned a study on the application of the cooperation tools by national courts to analyse in greater depth the State aid rulings of courts in the 28 EU Member States. 3.4 Significant judgments by the European Union Courts in the State aid area In 2018, the EU Courts adopted a number of important judgments in the State aid area. The following overview is based on a selection of court judgments, notably on issues related to the concept of advantage, selectivity, compatibility assessment and on a number of procedural points. Advantage The most relevant judgments as regards advantage are FIH and EDF. In FIH, the Court of Justice overturned the General Court judgement and upheld the Commission 2014 decision. The case concerned two successive State aid measures declared compatible by the Commission (in 2009 and 2014) and the applicability/application of the MEOP to the second one, in its declination as market economy investor test (as argued by the Commission) or market economy creditor test (as held by the General Court). The Court of Justice first confirmed that the Market Economy Operator Principle (“MEOP”) is applicable to the case of FIH. The Court of Justice first noted that in order to apply the MEOP only the benefits and obligations linked to the situation of the State as a private operator, to the exclusion of those linked to its situation as a public authority, are to be taken into account. In this regard, in line with the Land Burgenland case law, the Court of Justice reiterated that by granting aid, a Member State pursues by definition objectives other than that of making profits: the risks resulting from that State aid are not among the factors that a private operator under normal market conditions would have taken into account in its economic calculations. Since the 2009 measures were clearly State aid under Article 107 TFEU, the Court of Justice concluded that the General Court had wrongly required the Commission to assess the economic rationale of the second measure from the point of view of a private creditor rather than a private investor. Another important judgement related to the existence of an advantage and the applicability/application of the MEOP is EDF. In its judgment, the General Court fully upheld the Commission’s decision of 22 July 2015 and, accordingly, the obligation for France to recover approximately EUR 1.37 billion from EDF.

The General Court stated that the applicability of the MEOP test (in its declination as Market Economy Investor Principle, “MEIP”, in this case) ultimately depends on the State having conferred, in its capacity as shareholder and not in its capacity as public authority, an economic advantage to an undertaking belonging to it. It is for the Member State to demonstrate that before or at the same time as conferring the advantage, it took the decision to make an investment in that undertaking in line with what a private investor would have done. In order to establish the economic rationale of its decision, the Member State can submit elements showing that the decision was based on economic evaluations comparable to those that a private investor would have made before implementing the measure at issue for the purposes of determining its future profitability. The elements taken into account must be contemporaneous to the measure and cannot result from ex post studies. The General Court noted that in the case of EDF this had not occurred and upheld the Commission decision. Selectivity In 2018, the EU courts delivered a number of judgements dealing with the selective nature of State measures. The three-step test On selectivity issues, it is worth noting firstly the preliminary ruling in the A-Brauerei case. The case concerns an exemption from the German tax on real property transfers (Grunderwerbsteuergesetz) in certain cases - transfers of properties in the context of transformations within groups - and in particular whether such an exemption constitutes a selective advantage and thus State aid. The Court of Justice confirmed that the selectivity of a fiscal measure has to be assessed using the methodology of the three-step test. The Court of Justice ruled that the tax exemption at stake constitutes a prima facie selective advantage since it differentiates between companies which are in the same situation, in the light of its objective (taxing any change in ownership of real property). However, it also considered that this difference in treatment could be justified (in certain circumstances) by a guiding principle of the tax system, namely the principle to avoid double taxation, thereby potentially escaping the qualification as State aid. Another important judgement on the application of the three-step test is Sanierungklausel, where the Court of Justice overturned the General Court judgements and annulled the Commission's decision of 26 January 2011. In substance, the cases deal with the application of State aid rules to an exception from an exception in the corporate tax system. The German system of loss carry-forward allows companies to offset losses in a given year against taxes on profits in future years, except when there has been a significant change in ownership. The latter rule is aimed at preventing abuses, such as acquiring failed companies for the sole purpose of tax avoidance. A third rule, the so-called "Sanierungsklausel" or reorganisation clause, authorises the loss carry-forward for companies that are illiquid or over-indebted, despite a change in ownership, if the change serves the purpose of restructuring. The Commission's decision (confirmed by the General Court) concluded that this clause was incompatible aid because it departed from the general rule preventing the carry-forward of losses after a significant change in ownership and procured a selective advantage to companies in difficulty. The Court of Justice, however, overturned the General Court's judgements and annulled the decision, taking the view that the Commission had wrongly defined the reference framework. First, the Court of Justice pointed out that the selectivity of a tax rule does not depend on whether it is an exception to a general rule or not. This is only relevant when it leads to treating differently two groups of persons which, in light of the objective of the measure, are in a comparable legal and factual situation. The Court of Justice then held that the prohibition to carry forward losses in case of a significant change in ownership was clearly an exception to the general rule of loss carry-forward. The Court of Justice considered that the General Court erred when it accepted that the Commission, while noting the existence of a more general loss carry-forward rule, determined the reference framework to be the rule governing the forfeiture of losses in case of change of ownership. Because the incorrect definition of the reference system corrupts the entire selectivity analysis, the Court of Justice annulled the decision. Special purpose levies A further important judgement in the field of selectivity (and in particular for the assessment of selectivity of special purpose levies with a parafiscal objective) is the preliminary ruling in ANGED. The case concerns (regional) taxes on large retail operators. The objectives assigned to the retail taxes are environmental protection and town and country planning, that is to say the need to develop urban infrastructure and to take into account the pollution created by customers using private cars to go shopping. The tax