[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 17.6.2005

SEC(2005) 805 final

REPORT FROM THE COMMISSION

Report on Competition Policy 2004

TABLE OF CONTENTS

Introduction 9

Introduction by the Director-General for Competition 9

I – Antitrust – Articles 81, 82 and 86 EC 16

A - Legislative and interpretative rules 16

1. Antitrust modernisation: Implementing Regulation 773/2004, guidelines and notices 16

2. Technology transfer block exemption Regulation and guidelines 18

3. Transport block exemption Regulations 20

3.1 Maritime transport 20

3.2 Air transport 21

4. Review of procedural rules: New access to file notice 22

B – Application of Articles 81, 82 and 86 24

1. Abuse of dominant positions (Article 82 EC) 24

1.1 Decisions 24

1.2 Other case developments and rejections of complaints 28

2. Cartels 31

3. Other agreements and concerted practices 37

3.1 Commission decisions 37

3.2 Other case developments 41

3.3 Sector inquiries 43

4. State measures (public undertakings/undertakings with exclusive and special rights) 46

4.1 Decisions 46

4.2 Rejections of complaints 47

C – ECN: Overview of cooperation 48

1. General overview 48

2. Application of EU competition rules by national courts in the EU: Report on the implementation of Article 15 of Regulation 1/2003 49

3. Energy 51

4. Transport 51

5. Financial services 52

D – Selected court cases 53

E - Statistics 58

II – Merger control 61

A – Legislative and interpretative rules 62

1. Recast Merger Regulation, new notices and amended Implementing Regulation 62

1.1. New Merger Regulation: Regulation 139/2004 62

1.2. Revised Implementing Regulation 62

1.3. Revised notice on a simplified procedure 66

1.4. New notice on ancillary restraints 69

1.5. Notice on the assessment of horizontal mergers 70

B – Commission cases 72

1. Decisions taken under Article 8 72

2. Decisions taken under Article 6(1)(b) and 6(2) 80

3. Referrals 90

4. Notifications withdrawn 92

C – Selected court cases 94

D Statistics 98

III – Sector developments 100

A - Liberalised sectors 100

1. Energy 100

2. Electronic communications 101

3. Transport 103

3.1 Air transport 103

3.2 Railways 104

4. Financial services 104

B - Other sectors 106

1. Liberal Professions 106

IV – State aid control 110

A – Legislative and interpretative rules 110

1. Regulations, guidelines and communications 110

1.1. Procedural rules 110

1.2. Research and development 113

1.3. Training aid 114

1.4. Rescue and restructuring 114

2. Shipbuilding 116

3. Agriculture: Policy developments and legislative initiatives in 2004 117

4. Fisheries 120

5. Coal and transport 120

6. Public services/services of general (economic) interest 121

7. Transparency 123

B – Cases 125

1. Liberalised markets 125

2. Rescue and restructuring aid 128

3. Regional aid 137

4. Non-aid decision 141

5. Fiscal aid 142

6. Research and development aid 145

7. Environmental aid 148

8. Enlargement 151

9. Shipbuilding 153

10. Agriculture 155

11. Fisheries 161

12. Coal and transport 161

13. Public broadcasting, broadband, film industry 166

C – Enforcement of state aid decisions 170

1. Introduction 170

2. Individual cases 171

D – Selected court cases 173

E Statistics 176

V – International activities 178

A - Enlargement and Western Balkans 178

B - Neighbourhood policy 179

C – Bilateral cooperation 180

1. Introduction 180

2. Agreements with the US, Canada and Japan 180

3. Cooperation with other countries and regions 183

D – Multilateral cooperation 185

1. International Competition Network 185

2. OECD 187

VI – Outlook for 2005 190

1. Antitrust 190

2. Mergers 190

3. State aid 190

4. International activities 191

Annex – Cases discussed in the Report 192

1. Articles 81, 82 and 86 192

2. Merger control 192

3. State aid 193

Introduction

INTRODUCTION BY THE DIRECTOR GENERAL FOR COMPETITION

Introduction by the Director-General for Competition

In 2004 the work of the Directorate-General for Competition (DG Competition) was affected by major changes: enlargement of the EU to 25 members, the modernization of competition rules, the arrival in November of a new Commission, and the internal reorganization of the DG as a consequence of modernization. These developments are reflected in the general objectives of the Commission’s competition policy for 2005 and subsequent years, which are based on the Commission’s Annual Policy Strategy Strategy (APS) decision for 2005 and the political priorities established by the new Commission. The 2004 Annual Competition Report therefore provides the appropriate occasion to set out for a wider public the direction that the will be taken by the Commission’s work in the competition policy field in the medium term.

The interaction of competition policy and other Commission policies

In its APS 2005 decision, which was welcomed by the European Parliament and the Council, the Commission highlighted an upturn in growth as the central policy objective, striving to improve the competitiveness of the European model while maintaining prosperity, employment, cohesion and environmental protection. The accession of ten new Member States has added a further geographical dimension to the goal of improving economic growth in the internal market. The key objective on the political agenda of the new Commission is to reinvigorate the Lisbon process launched by the European Council in 2000, the overall aim of which is to make the EU the most dynamic and competitive knowledge-based economy in the world. The Commission will take into account the recommendations made by the High Level Group chaired by Mr Wim Kok regarding the attainment of the Lisbon objectives.

In support of the competitiveness framework laid down in APS 2005, the Commission will make progress with its ambitious legislative review process in the competition policy field, with special reference to state aid, and will pursue the modernization of antitrust rules and the substantial merger control reforms started in 2004. In this context, the Commission intends to promote proactive enforcement of competition rules across the EU.

Together with the rigorous application of competition policy, the screening of European legislation in various economic sectors, such as liberalized network industries and financial services, in order to gauge its competitive impact, can have a very positive influence on the competitiveness and growth of the European economy and on the functioning of the internal market, reinforcing the interests and confidence of consumers.

Among the priority policy areas identified in the Kok report as being key to the achievement of the Lisbon objectives, competition policy can make important contributions in three respects:

Promoting the knowledge-based society . Strong competitive pressure provides powerful incentives for companies to continuously engage in innovation and research and development (R&D). By strengthening the incentives for innovation while focusing on those restrictions that can seriously hinder competition, competition policy can contribute to making the EU economies more dynamic and thus help to deliver the Lisbon objectives. In particular, state aid policy may contribute to the knowledge-based society by better targeting the resources available for public support in fields such as research and development, innovation and training.

Fostering the internal market . Twelve years after its completion on paper, the internal market has not yet realized its full potential. One reason is that there is no automatic link between removal of barriers to cross-border trade and effective competition. Both the regulatory framework and its enforcement have to create an environment which actually induces and favours competition, new entry and innovation. Both competition enforcement and advocacy can contribute to better functioning of the internal market, particularly in sectors which are key to the Lisbon agenda, because they concern essential inputs for the European economy. Open and competitive European markets will make European companies more competitive internationally, to the benefit of European consumers and European employment. The very enforcement of competition rules, which is intended to remove the major obstacles to market competition, helps to create sound conditions for growth.

Promoting a favorable business climate . Competition policy can make a significant contribution to creating conditions that are favourable to business. State aid rules play an important role in the efforts to increase the availability of risk capital for start-ups and small and medium-sized enterprises. Also, international competition policy helps develop global coherence and the predictability that business needs. Finally, competition principles can allow screening of new and existing regulatory frameworks in other important policy areas, so as to ensure that regulation does not unnecessarily curb competition. Competition advocacy can thus help shape EU and national regulatory frameworks to promote a regime favorable to competition and competitiveness.

General competition policy objectives

Enforcement priorities: focusing enforcement actions on the most harmful anticompetitive practices for the European economy . The new Antitrust and Merger Regulations will allow DG Competition to better prioritise its enforcement activity, in order to focus on the most harmful practices and mergers in terms of impact on consumer welfare.

In the antitrust field, Regulation No 1/2003 has created a new enforcement system in which the Commission and Member States are all competent to fully apply EU competition rules. To that end, the Commission and the 25 Member States have created a European Competition Network (ECN) in which DG Competition plays a central role. This creates substantial potential for more effective and proactive enforcement of the EU competition rules. However, it will require a better surveillance of markets in order to identify those practices which are likely to create the greatest harm to competition and the consumer. The new Regulation was also the first step in strengthening private enforcement before national courts by giving the latter the power to also apply Article 81(3). Enforcement will continue to concentrate on cartels, abuses of dominant positions, incompatible state aid and enforcement of competition rules in recently liberalised and other regulated sectors of the economy.

In the field of merger control, the new Regulation has enhanced the possibilities for referring cases from Member States to the Commission and vice versa, which should help the Commission to focus its enforcement activities on cases that have a clear cross-border impact. Moreover, the new substantive test of “significant impediment to effective competition” has made it clear that all anticompetitive mergers are covered by the new Regulation.

In the state aid field, DG Competition will focus more particularly on the enforcement of negative decisions and the reimbursement on incompatible state aid. Moreover, improved international cooperation, both bilateral and multilateral, will continue to be crucial to guaranteeing the effectiveness of European competition policy in combating anticompetitive practices with international scope.

Enhancing competitiveness within the EU by helping to shape the regulatory framework. Regulation, at both Community and national level, may unnecessarily and unintentionally hold back competition and curb the potential of the internal market. In certain sectors, such as the liberalised network industries, and in particular in the energy sector, there is a need to promote a regulatory framework creating the conditions for market entry and promoting competition. Competition advocacy and policy screening should therefore be used to influence national and EU legislation in order to ensure that safeguarding competitive markets is given due consideration.

Competition rules on monitoring state aid should be reviewed to ensure that they take more account of the specific market failures affecting the level of EU investment in R&D and access to risk capital, on the one hand, and the persistence of disparities in regional development, on the other. Adaptation of the regulatory regime for monitoring state aid will provide a direct contribution to the Commission’s efforts to favour innovation.

Focusing action on key sectors for the internal market and the Lisbon agenda . Emphasis should be put on removing obstacles to competition in the recently liberalised sectors as well as certain other regulated sectors, notably telecommunications, postal services, energy and transport. These sectors provide essential inputs to many other economic sectors and are of key importance for Europe’s competitiveness. Opening up the possibilities for an increased number of service providers to compete should lead to wider choice, better quality and lower prices for consumers. The evolution of the telecommunications sector in the last ten years is a good example of the benefits of liberalisation.

The recently liberalised sectors are, however, affected by various distortions of competition, ranging from harmful commercial behaviour on the part of the undertakings concerned to inadequate regulation or even state aid. Due consideration should be given to the fact that these sectors may be characterised by public service obligations, as regards the provision of services of general economic interest (SGEI), which must be fulfilled. Nevertheless, the Commission has to ensure that subsidies granted for the functioning of these public services do not exceed what is needed. Moreover, it is necessary to be more explicit in identifying which problems are most appropriately solved through the application of competition law. In this regard it is important to strive for an integrated sectoral regulatory and enforcement policy.

A number of other sectors that are important for the global competitiveness of Europe's economy feature considerable self-regulation or a mix of self-regulation and regulation by the State. This is the case in particular of financial services. Creating an efficient and liquid capital market is one of the key objectives of the Financial Services Action Plan. A number of internal market policy initiatives, culminating in the new Investment Services Directive, were launched during the last Commission’s term of office to remove barriers to cross-border securities trading and facilitate competition between investment firms. Competition policy constitutes an important complement to this liberalisation process. In addition, retail financial services play a major role in the everyday life of European Union citizens. These services must be provided under competitive conditions, which mean that the individual consumer has a larger choice of products and services of a higher quality at the best possible price.

Box 1: The Chief Competition Economist at DG Competition in 2004 The Chief Economist Team (CET) is a separate unit directly reporting to the Director-General. It has 10 members, all of whom have a PhD in industrial economics. The tasks and role of the CET can be described as follows: guidance on methodological issues of economics and econometrics in the application of EU competition rules general guidance in individual competition cases from their early stages detailed guidance in the most important competition cases involving complex economic issues, in particular those requiring sophisticated quantitative analysis; this could include the secondment of a member of the CET to work in the case team contribution to the development of general policy instruments with an economic content. Contribution to cases and guidelines In 2004, the CET was involved in a total of 33 cases (11 mergers, 15 antitrust, and 7 state aid cases). In addition, the CET has made significant contributions to guidelines and general policy issues. Cases are selected in agreement with the Director-General on the basis of the need for more sophisticated economic analysis, in particular quantitative analysis. In such cases, a member of the CET is placed on the case team, having access to all information and participating in all meetings with out side experts and parties. Within the case team the members seconded from the CET have specific and independent status and report directly to the Chief Competition Economist on the line they take. Given the importance of shaping the economic analysis of a case, the CET tends to become involved as early as possible. The CET also attends the oral hearing and participates in the internal review panel debates. The Chief Competition Economist attends the weekly meeting with the Commissioner. In addition, he provides written advice in all cases where he has been involved. Contribution to the development of economic expertise in the DG The Chief Competition Economist contributes to the overall debate on economic issues throughout DG Competition organising training, seminars and discussions. In addition, he maintains and strengthens links with the academic world. He has restructured the Economic Advisory Group for Competition Policy (EAGCP). The EAGCP is a group of leading academics working in the area of industrial economics. An important function of the EAGCP is to provide an independent opinion on broad policy issues. The EAGCP is organised in three subgroups: mergers, antitrust and state aid. |

- Message from the Hearing Officer

The Commission created the post of Hearing Officer in order to entrust the conduct of administrative proceedings in antitrust and merger cases to an independent person experienced in competition matters with the integrity necessary to contribute to objectivity, transparency and efficiency of those proceedings. The Hearing Officers’ mandate sets out a number of mechanisms by which this function is to be performed. This includes, inter alia , the obligation to produce a final report on every draft decision submitted to the college of Commissioners stating whether the right to be heard has been respected. As a result, the two Hearing Officers are formally involved in all cases where a formal procedure is initiated and terminated in this manner. Since May 2004, this has included so-called “commitment decisions” under Article 9 of Regulation No 1/2003, the first of which was the DFB case decided in January 2005. Exceptionally, the Hearing Officers may also be approached before a formal procedure is initiated, for example where confidentiality issues arise in relation to information to be included in a statement of objections, or in relation to the published version of a decision. Taken together, the Hearing Officers were thus formally involved in some 40 cases in the course of 2004. Some key elements of these experiences are set out below.

Ensuring the right to be heard through granting appropriate access to the file

Taking account of the information providers’ legitimate interest in the protection of confidential information, the public interest in the competition rules being respected and the rights of defence of the addressees of a statement of objections, the Hearing Officers have taken a number of decisions by which they have granted or refused parties access to documents in the case file.

Amongst such decisions in 2004 consideration was given to the access rights of parties receiving a so-called “letter of facts” by which they were informed of additional information to be taken into account in the final decision. The Microsoft and Clearstream decisions are examples of cases where, in such circumstances, the parties were granted access to further information.

Ensuring protection of the undertakings’ business secrets and legitimate interest in confidentiality

In case of disagreement between the relevant Commission department and the parties concerned, decisions on the protection of the companies’ business secrets and legitimate interest in confidentiality fall to the Hearing Officers to decide. This interest has to be balanced against the parties’ interests in disclosure or, where the issue concerns the publication of a decision, against the public interest in informing the legal and business community of the outcome of the proceedings.

In the Belgian Architects Association case, the danger of retaliation led the Hearing Officers to refuse access to a document in the file which would have allowed the parties to identify the informant.

In 2004, most decisions of the Hearing Officers on the disclosure of potentially confidential information concerned the lawfulness of publication of the Commission’s final decisions. These decisions helped to establish a number of principles which will be applied in future cases

Firstly, in accordance with the case law, any request for confidentiality is required to substantiate why the disclosure of the supposedly confidential information could seriously harm the company[1]. Secondly, the risk of private litigation induced by the publication of information is not in itself a valid defence. Damages warranted further to a breach of competition law would constitute the rightful and desirable consequences of this anticompetitive behaviour[2]. Thirdly, it is not for the Hearing Officers to decide whether it is indispensable to publish parts of the final decisions to ensure their proper understanding. The relevance of a piece of information for the comprehensive understanding of the decision will only be examined if the passage in question constitutes confidential information.

In addition, in the course of 2004 a procedure to be applied before taking legally binding decisions on the disclosure of confidential information was introduced with a view to avoiding legal disputes wherever possible. The Hearing Officers may in the first place propose a preliminary view. Only if this proposal is contested within a given time period will the Hearing Officers proceed to a binding decision which can be challenged before the Court of First Instance. In many cases, this new practice has helped to avoid so-called “Akzo procedures”. In the course of the latter, the Hearing Officers take a formal and binding decision on behalf of the Commission to disclose potentially confidential information, decision which is subject to review by the Court of First Instance.

Organisation and conduct of oral hearings

Oral hearings provide the parties with the opportunity to supplement their written reply to the Commission’s competition concerns by presenting the main issues orally before a wide audience with the opportunity to respond to questions and engage in direct discussion with relevant Commission departments and representatives from the Member States. It may also be a unique occasion for the complainants or other third parties involved in the procedure to listen to and comment directly on the points addressed. This was indeed the situation in the Microsoft case where, after five years’ investigation and written procedure including three statements of objections, written responses and written observations from numerous third parties, representatives of all parties involved sat together for the first time and for three days presented their own views and commented on others for the benefit of all concerned.

It is the Hearing Officers’ experience that the presentations made in the oral hearing together with the questions raised invariably leads to a better understanding of the issues involved. Therefore, the Hearing Officers’ task of organising and conducting oral hearings in antitrust and merger proceedings is significant in view of their importance in the context of the overall procedure. The organisation itself is carried out in close contact with the parties concerned. In terms of participation, the competition authorities of the Member States and all associated Commission departments are invited. The Hearing Officers established a requirement that the director responsible for investigating the case should attend the oral hearing, a point that was confirmed by the Commissioner.

During the hearing new documents may be admitted by the Hearing Officers, at the request of the relevant Commission department, the parties or third parties concerned. The new legislation introduced in the course of 2004 in both merger and antitrust cases explicitly provides for questions to be asked by all parties concerned under the authority of the Hearing Officers. Although it continues to be used on an experimental basis, this new practice has provided for additional interaction.

In some instances, such as the Choline chloride case, the Hearing Officers accepted that fresh evidence could be admitted to the procedure at the oral hearing. As the final reports published in 2004 illustrate, subsequent to some oral hearings, such as in the Sony/BMG merger case, changes in the approach to cases have taken place.

In addition, oral hearings raise the Hearing Officers’ awareness of the critical aspects of a case and allow them to become more actively engaged in the subsequent stages of the procedure, potentially by making observations on the further progress of the proceeding in accordance with their Mandate.

Acting as advisor to the Commissioner for competition policy

The Hearing Officers’ primary duty is to ensure that the parties’ rights of defence are respected and that due process is achieved for all parties concerned. However, in the framework of their interim report, or more generally when they report to the Commissioner, with special reference to the content of the hearing, the Hearing Officers may make use of their ability to alert the Commissioner on a substantive issue raised by the case where they consider this would enhance the quality of the final decision. In 2004, the Hearing Officers worked towards clearer drafting of final decisions. They made observations in a number of cases, and notably cartel cases, which helped improve the decision-making process and ultimately the quality of the final decisions.

The Hearing Officers also discussed a number of policy issues with the Directorate-General for Competition. Such discussions included, inter alia , the revision of the Commission’s notice on access to the file, adapting the rules on statements under the Commission’s leniency programme to the discovery rules of foreign jurisdictions whilst respecting the right to access to the file, and the Hearing Officers’ role as potential mediators in disputes between DG Competition and companies over whether a document is covered by legal privilege.

I – Antitrust – Articles 81, 82 and 86 EC

A - Legislative and interpretative rules

1. ANTITRUST MODERNISATION: IMPLEMENTING REGULATION 773/2004, GUIDELINES AND NOTICES

1. On 1 May, the new enforcement system for Articles 81 and 82 of the Treaty entered into force and Regulation 17/62 was repealed. In order to complement Regulation 1/2003[3] and following extensive consultations, the Commission adopted the “Modernisation Package” consisting of a new Commission Regulation on details of its antitrust procedures as well as six new Commission notices aimed at providing guidance on a range of aspects that are of particular significance under the new enforcement system. This package consists of the following elements:

Implementing Regulation[4]

2. The Implementing Regulation contains detailed rules regarding, in particular, the initiation of proceedings, oral statements, complaints, hearings of parties, access to the file and the handling of confidential information in antitrust procedures conducted by the Commission.

Network notice[5]

3. This notice establishes the main pillars of cooperation between the Commission and the competition authorities of the Member States within the European Competition Network (ECN). The notice sets out the principles for sharing case work between the members of the network. In this respect the notice follows the joint statement of the Council and the Commission[6] which was issued on the day when Regulation 1/2003 was adopted. Particular arrangements have been found for the interface between exchanges of information between authorities pursuant to Article 11(2) and (3) and Article 12 of Regulation 1/2003 and the operation of leniency programmes. National authorities of the Member States[7] have signed a statement in which they declare that they will abide by the principles set out in the Commission notice.

Notice on cooperation with national courts[8]

4. The notice is intended to serve as a practical tool for national judges who apply Articles 81 and 82 in conformity with Regulation 1/2003. It assembles the relevant case law of the Court of Justice, thus clarifying the procedural context in which national judges are operating. Particular attention is given to the situation in which the national court deals with a case in parallel with or subsequent to the Commission. Furthermore, Regulation 1/2003 establishes an express legal basis for international judges to ask the Commission for an opinion or for information it holds, and provides for the possibility for the Commission, under certain conditions, to submit written and oral observations to the national courts. The notice explains the functioning of those cooperation mechanisms.

Notice on complaints[9]

5. This notice starts by giving general information on the different roles of competition authorities and courts and invites potential complainants to make an informed choice about whether to approach the Commission, a national competition authority or a national court in the light of the guidance given. The largest part of the notice contains explanations on the Commission’s assessment of complaints in the antitrust field and the procedures applicable. The notice also includes an indicative deadline of four months, within which the Commission endeavours to inform complainants whether or not it intends to conduct a full investigation on a complaint.

Notice on guidance letters[10]

6. Regulation 1/2003 pursues the objective that the Commission should refocus its enforcement action on the detection of serious infringements. The abolition of the notification system is a crucial element in this context. However, it also seems reasonable that in a limited number of cases, where a genuinely novel question concerning Article 81 or 82 arises, the Commission may, subject to its other enforcement priorities, provide guidance to undertakings in writing (guidance letter). The notice provides details about this instrument.

Notice on effect on trade[11]

7. The effect on trade concept is a jurisdictional criterion, which determines the reach of Article 81 and 82. It also determines the scope of application of Article 3 of Regulation 1/2003. Against this background, Member States expressed a strong desire for an interpretative notice on this concept. The notice describes the current case law and does not in any way seek to limit the jurisdictional reach of Articles 81 and 82. It also sets out a quantitative threshold which the Commission, in its own proceedings, will consider to be a rebuttable presumption when the aggregate annual Community turnover of the undertakings concerned in the products covered by the agreement does not exceed EUR 40 million and the (aggregate) market share of the parties on any relevant market within the Community affected by the agreement does not exceed 5%.

Guidelines on Article 81(3)[12]

8. The power for the courts and competition authorities of the Member States to apply Article 81(3) is one of the main pillars of the modernisation reform. The notice develops a framework for the application of Article 81(3) and provides guidance on the application of each of the four cumulative conditions contained in this Treaty provision. The notice lists various types of efficiencies that may constitute objective economic benefits within the meaning of the first condition. It also explains the notion of consumers and the requirement that they must receive a fair share of the efficiency gains resulting from the agreement. The anticompetitive aspects of the agreement are analysed under Article 81(1) and the procompetitive elements are analysed and balanced against the anticompetitive elements under Article 81(3).

2. Technology transfer block exemption Regulation and guidelines

9. As part of the fundamental reform of EU antitrust enforcement rules, the Commission adopted on 7 April new rules in the form of a new Commission block exemption regulation, Regulation (EC) No 772/2004 (the TTBER)[13], and a set of guidelines[14] concerning the licensing of patents, know-how and software copyright. As of 1 May 2004 licensing agreements benefit from an improved safe harbour, saving many agreements from individual scrutiny. The new rules facilitate licensing and reduce the regulatory burden for companies, while ensuring effective control of licensing between companies holding a significant degree of market power. The new rules should contribute to the dissemination of technology within the EU and thereby contribute to the Lisbon objectives.

10. The new rules benefited from an extensive consultation exercise[15] in which stakeholders showed keen interest and submitted detailed and high quality input. They replace Regulation 240/96[16], which has been criticised for its narrow scope and its formalistic character. The new rules are firmly aligned on the Commission’s new generation of block exemption regulations and have the following general characteristics:

- The TTBER contains only a black list[17]: anything that is not explicitly excluded from the block exemption is now exempted. This leaves companies more freedom to devise their licensing agreements according to their commercial needs.

- The scope of the new rules covers all types of technology transfer agreements for the production of goods or services: not only patent and know-how licensing, but also designs and software copyright licensing. Where the Commission does not have the powers to adopt a block exemption regulation[18], as in the case of patent pools and copyright licensing in general, the guidelines give clear guidance as to future enforcement policy;

- The new rules clearly distinguish licensing between competitors (which is more likely to harm competition) from licensing between non-competitors. In particular, the applicable hardcore lists differ;

- The TTBER provides the safe harbour only below certain market share thresholds, namely a cumulative 20% for licensing agreements between competitors and 30% each for agreements between non-competitors. Market shares need to be calculated both for the relevant affected product market(s) and the technology market[19];

- A licence agreement cannot benefit from the block exemption if it contains a so-called hardcore restriction of competition;

- Some restrictions do not qualify for the block exemption while the remainder of the agreement can continue to benefit from the block exemption[20].

11. The hardcore list in Article 4 of the TTBER specifies the restraints which mean that the entire agreement cannot benefit from the block exemption and for which individual application of Article 81(3) is also unlikely[21].

12. For licensing between competitors, (a) price fixing, (b) output limitation, (c) allocation of markets or customers, (d) restricting the licensee to exploit his own technology and (e) restricting the parties to carry out R&D (unless indispensable to prevent disclosure of licensed know-how) are hardcore restrictions, while for licensing between non-competitors the hardcore restrictions are (a) vertical price fixing, (b) restriction of the licensee’s passive sales and (c) restriction of the licensee’s active and passive sales inside a selective distribution system. For both licensing between competitors and non-competitors Article 4 contains specific exceptions to the hardcore lists.

13. The guidelines make it clear that there is no presumption of illegality outside the safe harbour of the block exemption provided that the agreement does not contain a hardcore restriction. In particular, there is no presumption that Article 81(1) applies merely because the market share thresholds are exceeded. Individual assessment based on the principles described in the guidelines is required.

14. In order to promote predictability beyond the application of the TTBER and to confine detailed analysis to cases that are likely to present real competition concerns, the Commission has created a second safe harbour within the guidelines. It takes the view that outside the area of hardcore restrictions Article 81 is unlikely to be infringed where there are four or more independently controlled technologies - in addition to the technologies controlled by the parties to the agreement - that may be substitutable for the licensed technology at a comparable cost to the user.

15. The guidelines not only provide a general framework for analysing licence agreements, but also contain specific sections on the application of Article 81 to various types of licensing restraints, in particular royalty obligations, exclusive licensing and sales restrictions, output restrictions, field of use restrictions, captive use restrictions, tying and bundling and non-compete obligations. They also contain a section on the assessment of technology pools[22].

3. Transport block exemption Regulations

3.1 Maritime transport

Review of Council Regulation (EEC) No 4056/86

16. The Commission made considerable progress in its review of Regulation 4056/86, an exercise that was launched in March 2003. Regulation 4056/86 applies the EU competition rules to maritime transport and one of the main issues of the review is whether the conditions for exemption under Article 81(3) of the Treaty for price fixing and capacity regulation by liner shipping conferences is still justified.

17. On the basis of a thorough consultation process (36 submissions were received in response to a consultation paper and a public hearing was held) the Commission discussed on 28 May in an informal meeting with competition and transport authorities from the Member States the outcome of the review process so far. This resulted in the adoption, on 13 October, of a White Paper[23], in which the Commission concluded that there is no conclusive economic evidence that the assumptions on which the block exemption was justified at the time of its adoption in 1986 are, in the present market circumstances and on the basis of the four cumulative conditions of Article 81(3) of the Treaty, still justified. On that basis, the Commission considered proposing to repeal the present block exemption for liner shipping conferences. In its White Paper the Commission however left the door open to possible alternatives to the present liner conference system on routes to and from the EU. Suppliers of liner shipping services, represented by the European Liners Affairs Association (ELAA), have already put forward concrete ideas about such a framework. However, before adopting its position on those ideas, the Commission has invited interested third parties to submit their comments, as well as to provide alternative options.

Modernisation of Commission Regulation (EC) No 823/2000 (consortia)

18. Commission Regulation (EC) No 823/2000 on the application of Article 81(3) of the Treaty to certain categories of agreements, decisions and concerted practices between liner shipping companies (consortia) provides a block exemption in relation to consortium agreements in maritime transport. The objective of a consortium agreement between two or more vessel operating companies which provide international liner shipping services is to bring about cooperation in the joint operation of a maritime transport service so as to improve the productivity and quality of the liner shipping service, and to encourage greater utilisation of the containers and the more efficient use of vessel capacity.

19. Given that this Regulation expires on 25 April 2005, the Commission launched a public consultation[24] in June on the various policy options for future legislation in this area and in particular to seek the views of the industry, Member States and other interested third parties. This consultation took place against the background of the ongoing review of block exemption for agreements between liner conferences contained in Regulation 4056/86. On 23 December, the Commission published a preliminary draft Regulation amending Commission Regulation (EC) 823/2000, inviting interested parties to send their comments[25].

3.2 Air transport

Extension of competition enforcement powers in international air transport - Amendments to Regulations 3975/87 and 3976/87

20. On 26 February, the Council adopted Regulation (EC) No 411/2004[26] amending two existing Regulations in the air transport sector[27] and Regulation (EC) No 1/2003. In essence, Regulation 1/2003 will thus apply also to air transport between the European Community and third countries. Furthermore, the scope of the Council Regulation enabling the Commission to issue block exemption Regulations on certain listed air transport activities (affecting also long-haul routes) is broadened. Until the adoption of this Regulation, the Commission lacked effective enforcement powers in this field of air transport between the EU and third countries, although there was no doubt that the competition rules applied also to these routes[28]. The application of Regulation 1/2003 to all air transport, irrespective of the routes involved, finally brings air transport under the general framework of antitrust enforcement. Regulation 411/2004 entered into force on 1 May, together with the modernisation package.

Review of Council Regulation (EEC) No 1617/93

21. The central element of Commission Regulation (EEC) No 1617/93, which expires on 30 June 2005, is the exemption currently in place for IATA Tariff Conferences in respect of intra-EU routes. This year, the Commission embarked on the revision of Regulation 1617/93 and published a consultation paper on 30 June inviting comments and evidence from governments, industry and consumers on essential issues relating to the assessment under Article 81(3) EC of these Tariff Conferences.

22. A total of 52 responses were received and analysed by the Commission. That analysis showed a need for further in-depth exploration of certain issues. To that end, a discussion paper was prepared with a view to ensuring transparent decision making and enabling public authorities and the industry to submit a final round of comments.

4. Review of procedural rules: New access to file notice

23. Access to the file is an important procedural step and safeguard for the rights of defence in all contentious antitrust and merger cases. When the Commission has issued a statement of objection (SO), access to the file enables the addressees to acquaint themselves with the evidence in the Commission’s file with a view to effectively expressing their views on the conclusions reached by the Commission in the SO[29]. In order to enhance transparency and clarity of the Commission’s procedure in processing requests for access to the file[30], the Commission embarked on a revision of the current access to file notice dating from 1997[31]. Following the experience gained in applying the 1997 notice, the revision takes account of developments both in Commission practice[32] and in recent case law[33]. The review also seeks to ensure that the access to file rules are compatible with the modernised antitrust and merger rules, as well as the current Mandate of the Hearing Officers[34].

24. After discussion with Member States, the Commission published on 21 October a draft notice on the rules for access to the Commission file in antitrust and merger proceedings[35] and launched a public consultation on the draft. Some 20 contributions were submitted in reply to this consultation, mostly by legal practitioners, but also by consumer and trade union associations.

25. The key features of the draft are:

- a distinction between the right to access to the file (of addressees of an SO) and the access to certain documents provided for (for complainants in antitrust proceedings and for other involved parties in merger proceedings)

- a definition of what constitutes the “Commission file” and a clear distinction between accessible and non-accessible documents

- a distinction between antitrust and merger proceedings as to the moment when access to the file is granted

- a description of procedures for treatment of confidential information and for implementing access to the file, as well as of the procedure for resolution of disagreements on confidentiality claims, including the role of the Hearing Officer.

B – APPLICATION OF ARTICLES 81, 82 AND 86

1. ABUSE OF DOMINANT POSITIONS (ARTICLE 82 EC)

1.1 Decisions

CEWAL

26. On 30 April, the Commission adopted a decision imposing a fine of EUR 3.4 million on Compagnie Maritime Belge (“CMB”), a Belgian shipping company. The fine was imposed because of CMB’s role in the abusive behaviour committed by the liner conference Associated Central West Africa Lines (Cewal), of which CMB was a member, at the end of the 1980s[36].

27. A previous decision[37], whereby the Commission had already imposed fines on four Cewal members, including CMB, had been partly annulled by the Court of Justice (ECJ) with respect to the fines[38]. The ECJ considered that the Commission had made a procedural error by failing to indicate clearly in the statement of objections which preceded the decision that it intended to impose fines on the individual members of Cewal.

28. In order not to let the infringements go unpunished (the appeal against the findings of the infringements had been rejected by both the CFI and the ECJ), the Commission adopted a new decision imposing a fine on CMB following a fresh procedure in line with the ECJ’s findings[39].This decision is entirely based on the substantive findings of the original decision.

29. The calculation of the fine is based on an assessment of the impact of the offending conduct by CMB as compared with the involvement of other members of Cewal. A lower fine than in the original decision was imposed, as certain aggravating circumstances prevailing at the time of that decision were no longer taken into account.

Clearstream [40]

30. On 2 June, the Commission adopted a decision finding that Clearstream Banking AG and its parent company Clearstream International SA (“Clearstream”) infringed Article 82 EC by refusing to supply cross-border securities clearing and settlement services[41] to Euroclear Bank SA (“Euroclear Bank”) and by applying discriminatory prices to the detriment of this customer.

31. Clearstream Banking AG is Germany’s only Wertpapiersammelbank (Central Securities Depository[42]). The Commission considered that during the reference period concerned, 1997 to end 2001, Clearstream held a dominant position for providing cross-border clearing and settlement services to intermediaries situated in other Member States.

32. The refusal to supply concerned registered shares[43] issued under German law. While competition law recognises the freedom of companies to freely choose their trading partners, companies in a dominant position have a special responsibility. In the present case, Clearstream’s behaviour qualified as refusal to supply because:

- Clearstream Banking AG is the only final custodian of German securities kept in collective safe custody, which is the only significant form of custody today for securities traded. New entry into this activity is unrealistic for the foreseeable future. Therefore, Clearstream Banking AG can be regarded as an unavoidable trading partner;

- Euroclear Bank could not duplicate the services that it was requesting; and

- Clearstream’s behaviour had the effect of impairing Euroclear Bank’s ability to provide efficient cross-border clearing and settlement services to clients in the single market.

33. Euroclear Bank obtained the services it was seeking in November 2001, more than two years after it requested them. During the entire period Clearstream Banking AG denied Euroclear Bank clearing and settlement services for registered shares. The dilatory behaviour of Clearstream vis-à-vis Euroclear Bank contrasts with the usual period of not more than four months within which other comparable customers were supplied with clearing and settlement services.

34. As regards price discrimination, the Commission found that, between January 1997 and January 2002, Clearstream charged, for equivalent services, a higher per transaction price to Euroclear Bank than to other securities depositories outside Germany. The Commission examined in detail the content of the services and the costs of providing them in order to establish whether the price difference could be justified, and concluded that this was not the case.

35. The Commission decided not to impose fines. Among other things, the Commission took into account the fact that there is no Community case law or jurisprudence dealing with the competition analysis of clearing and settlement. In addition, there is a wide-ranging debate on clearing and settlement within different institutions and fora in order to better define the role of the different protagonists in the industry.

Microsoft

36. On 24 March, the Commission adopted a prohibition decision with fines against Microsoft Corporation (“Microsoft”) in pursuance of Article 82 EC[44]. This decision concluded that Microsoft had abused its dominant position in the PC operating system market[45] in two ways.

(1) Refusal to supply interoperability information

37. Microsoft withheld from competitors in the work group server operating system market information necessary for their products to fully interoperate with Microsoft’s dominant PC operating system, Windows. While Microsoft had previously disclosed this type of interoperability information when it entered the work group server operating system market, it then adopted a policy of refusing to make such disclosure to its competitors, thereby disrupting previous levels of supply. In 1998, Microsoft turned down a formal request by Sun for such interoperability information. On the basis of an extensive market enquiry, the Commission concluded that the information in question was indispensable to compete in the work group server operating system market and that, by withholding it, Microsoft had been able to establish a dominant position, and risked eliminating all remaining competition in that market. The Commission further concluded that Microsoft’s refusal to supply limited technical development, to the detriment of consumers: if competitors had access to the information withheld, they would be able to provide consumers with new and enhanced products without copying Microsoft’s own offering.

(2) Tying of Windows Media Player with Windows

38. Microsoft harmed competition in the streaming media player market by tying with its dominant Windows PC operating system a separate product - its Windows Media Player. This tying practice conferred upon Windows Media Player the same ubiquitous presence as Windows, which artificially induced content providers and software developers to rely on Windows Media technology, and did not allow rival streaming media players to compete on the merits of their own products. The Decision shows that Microsoft has achieved a distinct lead over its competitors since it started its tying strategy in mid-1999.

39. The Commission concluded that Microsoft’s abusive behaviour constituted a very serious infringement of EU competition rules and imposed on Microsoft a fine of EUR 497.196 million[46].

40. In order to put an end to the infringement, the Commission required Microsoft to take the following main remedial actions:

- to disclose the relevant interoperability information and allow its use for the development of compatible work group server operating systems products (“the interoperability remedy”);

- to make available a version of the Windows PC operating system which does not include Windows Media Player (“the untying remedy”). PC manufacturers and consumers can thus obtain Windows with the media player of their choice;

- in addition, Microsoft had to submit a proposal for the establishment of a monitoring mechanism in the form of a monitoring trustee. Microsoft submitted such a proposal.

41. Microsoft submitted an application for annulment of the decision before the Court of First Instance (“CFI”)[47], as well as an application for interim measures seeking the suspension of the interoperability remedy and the untying remedy pending the outcome of its application for annulment[48]. The Commission decided not to seek to enforce these remedies pending the order of the President of the CFI concerning Microsoft’s application for interim measures[49]. On 22 December, the President dismissed Microsoft’s application for interim measure in its entirety[50].

Box 2: Application of EU competition rules to mobile and broadband Internet services In 2004, competition in the electronic communications sector intensified and growth was strong in some market segments[51]. In the enlarged EU of 25 Member States, the sector’s two key drivers of growth were fixed broadband services and mobile services. Growth in the broadband sector overtook growth in the mobile sector. As regards antitrust activities, the Commission focused on these two segments of major importance. In the context of the new regulatory framework for electronic communications, which has been in force since 25 July 2003, competition policy continues to play a prominent role in bringing sector regulation more closely into line with competition law principles. In the context of broadband Internet access services, the Commission’s action regarding a presumed margin squeeze led Deutsche Telekom - the incumbent operator of fixed lines in Germany - to reduce its line sharing fees[52] significantly. In the light of these tariff reductions, the Commission was in a position to close its investigation into the alleged abuse of Deutsche Telekom’s dominant position on the market for the provision of broadband access to its fixed telecommunications network. The Commission accepted Deutsche Telekom's commitments to bring the margin squeeze to an end on a lasting basis from 1 April 2004.[53] As regards mobile communications, the Commission issued two statements of objections on 26 July concerning international roaming in the United Kingdom. The objections relate to the rates that O2 and Vodafone charged other mobile network operators for international roaming at wholesale level. On the basis of its investigation, the Commission considered that both had charged unfair and excessive prices, Vodafone between 1997 and at least September 2003 and O2 between 1998 and at least September 2003[54]. Finally, as far as international mobile roaming services are concerned, the Commission is also looking at the competitive effects resulting from the recent creation of strategic mobile alliances (such as “Freemove” or “Starmap”). |

1.2 Other case developments and rejections of complaints

Interbrew (abuse)[55]

42. On 30 April, the Commission closed the Article 82 investigations that it had started in 1999 on its own initiative into the behaviour of Interbrew NV (now Inbev NV) towards Belgian beer wholesalers, after Interbrew made a number of commitments. Interbrew has in particular undertaken to amend its rebates systems and its partnership and commercial agreements with wholesalers in such a way that rival suppliers are no longer prevented from competing effectively with Interbrew in Belgium.

43. Interbrew first agreed to make its standardised volume rebate system entirely transparent to all wholesalers rather than just providing them with the rebate rate corresponding to the volume range in which their own purchases for the various types of beer fall and the rates corresponding to the volume ranges situated just above and just below that range. Another rebate system, specifically designed for wholesalers who are prepared to sell the various types of Interbrew beer in their own tied retail outlets, will also be amended in such a way that the rebates will no longer increase with the number of the wholesaler’s tied outlets but represent a fixed amount per hectolitre of a particular type of beer, whatever the number of tied outlets.

44. Under Interbrew’s partnership agreements, Interbrew will no longer have access to the wholesalers’ confidential business data and it will no longer have the right to block a competitor’s bid for the purchase of the wholesaler’s business and to make its own bid instead (abolition of the “right of first refusal”). Finally, regarding the commercial agreements by which Interbrew grants wholesalers a number of incentives such as financial support or gadgets mainly in return for promotional activities, Interbrew has accepted to (a) abolish any product exclusivity requirement, (b) make the eligibility criteria fully transparent and (c) make it clear that the same incentives are open to all wholesalers without exception.

Scandlines v Port of Helsingborg[56] and Sundbusserne v Port of Helsingborg[57]

45. On 23 July, the Commission took two decisions[58] rejecting two complaints lodged by ferry operators - Scandlines Sverige AB and Sundbusserne AS - against the Port of Helsingborg in Sweden. These two parallel complaints related to alleged abuses within the meaning of Article 82 EC involving excessive port fees charged by the port of Helsingborg for services provided to ferry operators active on the Helsingborg–Elsinore route between Sweden and Denmark.

46. After extensive investigation, the Commission came to the conclusion that the available evidence was insufficient to demonstrate to the requisite legal standard that the prices at issue were excessive. The decisions point to more general difficulties in applying Article 82 EC to excessive pricing cases, particularly in cases where no useful benchmarks are available. Given that existing case law on this issue is rather limited[59], the decisions may provide useful guidance when determining the economic value of a service and whether a price is excessive/unfair and thus constitutes an abuse of a dominant position within the meaning of Article 82 EC.

KPN mobile termination rates[60]

47. The Commission has informed the defendants that MCI withdrew its complaint on 21 October, and that the Commission does not envisage further action in this case. A statement of objections had been issued on 22 March 2002 alleging that KPN Mobile had refused to supply direct interconnection to independent operators and had engaged in a margin squeeze between its wholesale mobile termination rates and the retail prices for mobile virtual private network (MVPN) services. In deciding not to continue the case ex officio the Commission took into account the fact that action by the Dutch regulator OPTA had in the meantime prompted a reasonable direct interconnection offer by KPN Mobile. The wholesale mobile interconnection rates in the Netherlands had also decreased and the OPTA was in the process of further analysing the markets for termination on individual mobile networks in the Netherlands in the context of the new regulatory framework for electronic communications introduced in the Netherlands in spring 2004. Finally, the Commission had come to the conclusion in its investigation that in the specific context of the MVPN services the existence of a margin squeeze under Article 82 EC could not be properly established.

B2/Telia[61]

48. In November, B2 Bredband AB (B2) withdrew its complaint against TeliaSonera AB, the incumbent telecommunications operator in Sweden. The Commission subsequently closed its case. In December 2003, the Commission had addressed a statement of objections to TeliaSonera, alleging that the company had abused its dominant position by engaging in predatory pricing when it bid for a major contract for the construction and operation of a fibre-optic broadband network for the provision of high-speed Internet access in Malmö. The Commission argued that TeliaSonera’s bid for that contract was intentionally set below cost and did not allow the operator to recover the investments and expenses derived from the provision of infrastructures and services contained in the contract and that by setting such a low price, TeliaSonera prevented the development of alternative infrastructure and the entry of competing service providers. However, additional investigation following the issue of the statement of objections led the Commission to the conclusion that it could not be established with sufficient certainty that TeliaSonera held a dominant position in the relevant markets at the time when the bid was submitted.

2. CARTELS Box 3: Overview of enforcement against hardcore cartels During 2004, the Commission maintained its emphasis on anti-cartel activity established during the previous three years by issuing another 6 decisions against unlawful horizontal agreements, involving some 30 companies. These cases were: copper plumbing tubes, sodium gluconate, French beer, raw tobacco in Spain, hard haberdashery - needles and choline chloride[62]. Fines totalling over EUR 390 million were imposed in these decisions. In the course of the year there were a number of developments in the fight against cartels. Three aspects are in particular worth mentioning, namely developments in the field of leniency, the consequences for anti-cartel enforcement of the introduction of Regulation 1/2003 and the clarification of the rules governing legal privilege. Leniency The leniency notice of 2002[63] continued to be an important enforcement tool. The high number of cases generated by the 2002 leniency notice demonstrates that it is extremely effective, and even more so than the 1996 leniency notice. The majority of cases now reaching decision stage are dealt with under the 2002 notice[64]. Regulation (EC) No 1/2003 The entry into force of Regulation 1/2003 in May[65] notably reinforced the Commission’s powers of investigation. Three key aspects are worth highlighting. First, the Regulation extends the Commission’s powers of search to include premises other than business premises, including the private residences of staff members of an undertaking, on reasonable suspicion that business records are being kept at such premises[66]. Such action can be carried out only with prior authorisation by the national judicial authority of the Member State concerned. Second, the Commission’s search powers are strengthened by its ability to seal business premises for the time necessary to conduct the inspection[67]. Third, the Commission has been granted express powers to interview any natural or legal person, who consents to be interviewed, for the purpose of an investigation[68]. Legal privilege Following an appeal by the Commission, the President of the Court of Justice annulled by order of 27 September[69] the (partial) suspension of the operation of a Commission decision rejecting a claim of legal privilege which had previously been ordered by the President of the Court of First Instance[70] in the case. An envelope containing some of the documents seized in the inspection but which the parties claimed to be covered by legal privilege[71] and which had been retained in the Registry of the Court of First Instance was returned to the Commission. The ECJ noted the Commission’s commitment not to disclose the documents under dispute to third parties until the conclusion of the main proceedings. As the novel approach put forward by the parties in regard to the scope of legal privilege has not been confirmed by the Courts, the Commission continues to handle inspections as before on the basis of the established case law[72], which in the Commission’s view remains valid and appropriate. |

Copper plumbing tubes[73]

49. On 3 September, the Commission adopted a decision finding that the leading European copper plumbing tubes producers, Boliden AB (together with its former subsidiaries Boliden Fabrication AB and Boliden Cuivre & Zinc SA), Halcor SA, HME Nederland BV, IMI plc (together with its (former) subsidiaries IMI Kynoch Ltd. and IMI Yorkshire Copper Tube Ltd.), KM Europa Metal AG (together with its wholly-owned subsidiaries Europa Metalli SpA and Tréfimétaux SA), Mueller Industries, Inc. (together with its subsidiaries WTC Holding Company, Inc., Mueller Europe Ltd., DENO Holding Company, Inc. and DENO Acquisition EURL), Outokumpu Oyj (together with its wholly-owned subsidiary Outokumpu Copper Products Oy) and Wieland Werke AG (together with its subsidiaries Austria Buntmetall AG and Buntmetall Amstetten Ges.m.b.H.), had breached European Community competition rules by colluding to fix prices and share markets in the EEA market for copper plumbing tubes. Following an investigation which started in 2001, the Commission established that the infringement lasted from mid-1988 to early 2001.

50. The relevant product is used primarily for water, oil, gas and heating installations in the construction industry. The main customers for plumbing tubes are distributors, wholesalers and retailers that sell the plumbing tubes to installers and other end consumers. The aggregated market value of plain (EUR 970.1 million) and plastic-coated (EUR 180.9 million) copper plumbing tubes amounts to EUR 1 151 million (EEA in 2000).

51. The total amount of fines imposed on the undertakings in this case was some EUR 222.3 million. With the exception of HME Nederland BV, all the addressees of the decision cooperated with the Commission in its investigation under the 1996 leniency notice. The Commission granted immunity from fines to the Mueller group, a 50% reduction of the fine to Outokumpu, 35% to the KME group and the Wieland group, 15% to Halcor and 10% to the IMI group and the Boliden group for their cooperation. The highest fine was imposed on the companies of the KME group, totalling EUR 67.08 million. The Wieland group received a fine of EUR 27.8411 million, the IMI group EUR 44.98 million, Outokumpu EUR 36.14 million, Boliden EUR 32.6 million, Halcor EUR 9.16 million and HME EUR 4.49 million. Outokumpu and KME were rewarded by a mitigating factor for their cooperation outside the 1996 leniency notice. Outokumpu was the first undertaking to disclose the whole duration of the cartel extending over more than 12 years, KME the first to disclose decisive evidence with respect to cooperation concerning plastic-coated copper plumbing tubes. On the other hand, Outokumpu was penalised by an aggravating factor for a repeat infringement, since it had been an addressee of another Commission decision condemning a cartel in the stainless steel sector in 1990, and received an increase for deterrence.

Sodium gluconate[74]

52. On 29 September, the Commission fined four companies of the Jungbunzlauer Group EUR 19.04 million for their part in fixing the price and sharing the market for sodium gluconate, a chemical mainly used to clean metal and glass.

53. The decision supplements a first decision adopted in 2001[75] which established that six undertakings, including one company of the Jungbunzlauer Group, operated a secret cartel from 1987 until 1995. As to the company of the Jungbunzlauer Group, the decision adopted in 2001 was withdrawn in 2002 on account of a factual mistake in the grounds of the decision regarding its liability for the infringement.

54. The parties to the sodium gluconate cartel accounted for almost the whole of worldwide production. The infringement was very serious and Jungbunzlauer infringed the Community competition rules for seven years. In defining the amount of the fine, the Commission took into account the limited size of the sodium gluconate market. Moreover, Jungbunzlauer received a 20% reduction in its fine because it cooperated with the Commission under the 1996 leniency notice.

French beer[76]

55. On 29 September, the Commission adopted a prohibition decision with fines on the basis of Article 81(1) EC against two brewery groups, Brasseries Kronenbourg and its then parent company, Groupe Danone, on the one hand and Heineken France (formerly Sogebra) and its parent company Heineken NV on the other, for entering into an “armistice” agreement with the aim of balancing the away-from-home[77] sector in France between the two groups and putting an end to an acquisition war regarding drinks wholesalers between the two groups. The agreement was, however, never implemented.

56. Overall, the infringement was considered to be serious. The Commission imposed a fine of EUR 1 million on Heineken France and Heineken NV. A fine of EUR 1.5 million was imposed on Groupe Danone and Brasseries Kronenbourg, the aggravating circumstance of a repeat infringement having been taken into account in determining this fine.

Raw tobacco in Spain[78]

57. On 20 October, the Commission imposed fines totalling EUR 20 million on four Spanish raw tobacco processors (Cetarsa, Agroexpansión, World Wide Tobacco España and Taes) as well as on an Italian processor (Deltafina) for entering into an anticompetitive agreement aimed at fixing the maximum average price they would pay to raw tobacco producers in Spain as well as the quantities of raw tobacco they would buy. The cartel lasted from 1996 to 2001. As of 1998, the processors put in place a sophisticated enforcement and monitoring system. As of 1999, they also agreed between themselves the price ranges for raw tobacco they would then negotiate with the producer representatives for inclusion in the standard cultivation contracts, which provide a framework for the establishment of the final price of raw tobacco at the moment of delivery. The parent companies of Agroexpansión and WWTE were considered jointly and severally liable for their subsidiaries’ behaviour.

58. In the same decision, the Commission also prohibited a cartel involving the associations representing the raw tobacco producers (ASAJA, UPA, COAG and CCAE). The Commission found that they colluded during the same period on the price ranges and minimum prices of raw tobacco they would then collectively negotiate with the processors when discussing the standard cultivation contracts and imposed on them a symbolic fine of EUR 1 000 each to take account of the role played by the national regulatory framework on their behaviour. This circumstance was also taken into account as a mitigating circumstance in determining the processors’ fines.

Hard haberdashery - needles[79]

59. The Commission found in the Decision it adopted on 26 October that three undertakings and their respective subsidiaries, namely William Prym GmbH & Co. KG and Prym Consumer GmbH & Co. KG, Coats Holdings Ltd and J & P Coats Ltd, and Entaco Ltd and Entaco Group Ltd, had entered into a series of written, formally bilateral, agreements between 10 September 1994 and 31 December 1999, amounting in practice to a tripartite agreement under which those undertakings shared or contributed to sharing product markets (for hard haberdashery products) and geographic markets (for needles). In addition, the undertakings participated in bilateral or trilateral meetings between 10 May 1993 and 8 November 2001.

60. The Commission based its decision in particular on the existence of inter-conditional clauses contained in the above-mentioned series of agreements. These clauses were renewed over time.

61. The Commission identified three relevant product markets: (i) the European market for hand sewing and craft needles (including special needles), in which the product and geographic market sharing took place, (ii) the European market in “other sewing and knitting products including pins, knitting pins/knitting needles” and (iii) the European market for other hard haberdashery products including zips and other fasteners, in both of which the product market sharing only took place from 10 September 1994 to 13 March 1997.

62. The infringement was very serious by nature given that it concerned product and geographic market sharing between different markets. The product market sharing agreements intervened at different market levels, i.e. manufacturing and distribution (at both the wholesale and retail levels) as Coats was mainly a distributor of needles but competed at the retail level with Prym and Entaco with its retailer’s needle brand “Milward”.

63. Under the 1996 leniency notice, the Commission granted Entaco full exemption from the fine that would otherwise have been imposed for having informed the Commission of the existence of the market sharing agreements and providing decisive evidence without which they might not have been established. Coats and Prym, jointly and severally liable with their respective subsidiaries, each received a fine of EUR 30 million.

Choline chloride[80]

64. On 9 December, the Commission adopted a decision finding against Akzo Nobel NV, Akzo Nobel Nederland BV, Akzo Nobel Chemicals International BV, Akzo Nobel Chemicals BV and Akzo Nobel Functional Chemicals BV, jointly and severally, Chinook Group Limited Partnership and Chinook Group Limited, jointly and severally, BASF AG, Bioproducts Incorporated, DuCoa LP and UCB SA.

65. These undertakings infringed the European competition rules by participating in a cartel in the choline chloride industry. As far as the EEA is concerned, the choline chloride cartel operated at two different, but closely related levels, the global level and the European level. At the global level, all producers subject to this proceeding participated in anticompetitive activities concerning the EEA between June 1992 and April 1994. These activities included the setting and raising of worldwide prices, the allocation of worldwide markets, the control of distributors and converters and the exchange of commercially sensitive information.

66. The North American producers did not participate in a series of further anticompetitive meetings held strictly among the European producers in order to coordinate their behaviour on the European market. These meetings took place in the period between March 1994 and October 1998. Activities included the setting and raising of prices (both for the EEA as a whole, for particular national markets and for individual customers), the allocation of individual customers among the participating undertakings, the allocation of market shares for each undertaking on the EEA market as a whole, the control of distributors and converters and the exchange of commercially sensitive information.

67. The size of the worldwide market for choline chloride, mainly used in the animal feed industry, was estimated at EUR 183.7 million in 1997, the last full year of the infringement, the EEA accounting for EUR 52.6 million. During the period under investigation, the producers involved in the infringement controlled more than 80% of the world market. The European producers concerned controlled close to 80% of the EEA area.

68. The North American producers ended their participation in the infringement at the end of the global meeting which took place between 14 and 20 April 1994. The first action taken by the Commission to investigate the infringement was on 26 May 1999. As this took place more than five years after the North American producers had ended their participation in the infringement, no fines were imposed on the North American producers, Bioproducts, Chinook and DuCoa.

69. The Commission imposed the following fines on the European producers: EUR 20.99 million jointly and severally on Akzo Nobel NV, Akzo Nobel Nederland BV, Akzo Nobel Chemicals International BV, Akzo Nobel Chemicals BV and Akzo Nobel Functional Chemicals BV, EUR 34.97 million on BASF AG and EUR 10.38 million on UCB SA.

3. Other agreements and concerted practices

3.1 Commission decisions

Air France/Alitalia[81]

70. On 7 April, the Commission approved the alliance between Air France and Alitalia, subject to substantive undertakings from the parties. The conditions imposed in the decision aim to reduce entry barriers and offer new entrants a real chance to establish themselves as credible competitors. The Commission identified seven overlap routes where the combination of the forces of Air France and Alitalia would eliminate or significantly reduce competition. These are Paris-Milan, Paris-Rome, Paris-Venice, Paris-Florence, Paris-Bologna, Paris-Naples and Milan-Lyon, where, prior to the alliance, Air France and Alitalia were the two main competitors. After the companies agreed in particular to surrender a sufficient number of take-off and landing slots at airports and to grant various other remedies to restore effective competition on these routes, the Commission was in a position to clear this transaction[82].

Topps [83]

71. On 26 May, the Commission adopted a decision[84] imposing a fine of EUR 1.59 million on The Topps Company Inc and its European subsidiaries, Topps Europe Ltd, Topps International Ltd, Topps UK Ltd and Topps Italia SRL (“Topps”) for infringing Article 81(1) of the Treaty. The Topps group produces collectible products such as stickers or trading cards featuring soccer players or cartoon characters.

72. The Commission found that Topps entered into a series of agreements and concerted practices with several of its intermediaries in the United Kingdom, Italy, Finland, Germany, France and Spain with the object of restricting parallel imports of Pokémon collectibles. Pokémon is the name for a whole range of characters originally developed for the Nintendo ‘Game Boy’ videogame but also used, under a licence, by Topps to illustrate collectible products like stickers or trading cards. In 2000, there was a huge demand for such Pokémon collectibles while prices between Member States differed significantly. Families in high-price countries like Finland had to pay more than twice as much for the same Pokémon stickers as families in Portugal.

73. Such restrictions on parallel trade have been unequivocally condemned by the Commission and the Community Courts many times in the past. They constitute very serious violations of Article 81(1) EC jeopardising a fundamental principle of the internal market. Through the measures described above, Topps prevented distributors and ultimately consumers from benefiting from the significant price differences existing between Member States.

74. The decision was addressed to all four European Topps subsidiaries which participated in the anticompetitive agreements and concerted practices and to the ultimate US parent company in view of its decisive influence on the conduct of its wholly owned subsidiaries. The decision was not addressed to Topps’s intermediaries because their responsibility for the infringement was less significant. In fixing the amount of the fine, the Commission considered the infringement committed by Topps, in spite of its very serious nature, as serious mainly because the evidence in the Commission file did not show that that the restrictions on parallel imports were applied systematically to all intermediaries.

Box 4: Rights management markets in the EU The development of a strong presence of the diversity of European music and European culture in the new Europe-wide online markets is of vital concern in the overall context of the Lisbon objectives. This means that a new dynamism is needed in marketing European music rights to the users of the rights who can expand European presence in those media while maintaining suitable conditions for the development of local content. As regards the application of competition rules to rights management services, anticompetitive restrictions in the sector, as well as competitive incentives for the efficient provision of such services, require special attention. The Commission has given some guidance in this area in its IFPI decision[85]. Some of the principles reflected in that decision have been proven in the meantime in implementation and are now also applied quite generally when EU-wide licences for webcasting of music are issued by the members of IFPI concerning the rights they hold. As regards the so-called “Santiago agreement”[86] concerning the management of copyright for music via the Internet, the Commission has issued a formal statement of objections[87] to the current agreement, pointing the collective rights management companies involved to the competition concerns raised by this agreement, notably market partitioning due to an economic residence restriction. A communication issued in April sets out the future governance principles the Commission proposes for the sector.[88] From a competition perspective, the following issues are particularly important: The creation of new EU-wide one-stop-shop arrangements that are required for gaining efficiencies for EU-wide and global rights licensing in the new music markets in the European Union should not be hampered by territorial restrictions. Under competition law, the Commission will look favourably at one–stop-shop agreements and the related reciprocal agreements between collective rights management systems. However, the Commission cannot allow past restrictions to be perpetuated where they are no longer indispensable. Rights owners must be able to determine themselves the proper mix between individual rights management and collective management of their music rights. Arrangements must not bundle unnecessarily rights management offerings. Individual administration of rights must be allowed to develop. Bearing the viability of collective management systems in mind, rights owners should have the option of using new digital rights management techniques to manage rights individually. |

- Belgian Architects’ Association[89]

75. On 24 June, the Commission condemned the recommended minimum fee scale operated by the Belgian Architects’ Association.

76. The minimum fee scale was adopted by the National Council of the Belgian Architects’ Association in 1967, and was amended several times thereafter. Its most recent amendment, in June 2002, described it as a “guideline” ( indicatif/leidraad ). The scale laid down the minimum fees due to an architect for services performed in independent practice in Belgium.

77. The Commission considered that the decision adopting the fee scale was an independent act of a prescriptive character for which the Association, acting as an association of undertakings, was wholly responsible. Furthermore, the Commission concluded that the Association intended to coordinate its members’ behaviour in the market through its decisions laying down and amending the scale. The Commission also found that the scale was applied at least to some extent.

78. The evidence indicating that the scale sought to restrict competition included the intentionally rule-making tone of the title and of the recitals in the preamble, the fact that for 18 years the Association drew up and circulated a standard contract in which the only option for determining fees was a reference to the scale, and the fact that the Association went far beyond merely circulating information to its members, to clients and to the courts.

79. Although a decision fixing or recommending minimum fees is by nature a very serious infringement, the Commission classified the infringement overall as serious in the light of the circumstances that the fee scale had probably not been applied universally by all architects and that the geographic scope of the decision was limited to one Member State.

80. In imposing a fine of EUR 100 000, the Commission regarded as a mitigating circumstance the fact that reasonable doubt may have existed on the part of the Association as to whether its fee scale did indeed constitute an infringement before the Commission adopted its CNSD decision in 1993[90]. Furthermore, the Commission’s policy, set out in its Report of 9 February 2004, is to encourage the national regulatory authorities and professional bodies to revise and amend their restrictive rules, and give them the opportunity to do so. The amount of the fine also reflects a gradual approach[91] by the Commission in fining anticompetitive practices in the professions.

Gaz de France[92]

81. On 26 October, the Commission adopted two decisions concerning two contracts concluded by Gaz de France (GDF) in 1997, one with the Italian gas company ENI, the other with the Italian electricity company ENEL. The subject of the contract between GDF and ENI was the transport by GDF over French territory to the Swiss border of natural gas acquired by ENI in northern Europe. The contract contained a clause requiring ENI to market the gas exclusively “downstream of the redelivery point”, that is after leaving France. The GDF-ENEL contract concerned the swap of liquefied natural gas acquired by ENEL in Nigeria and contained a clause requiring ENEL to use the gas in Italy.

82. The Commission concluded that the two clauses restricted the territory in which the parties could use the gas and were designed to partition national markets by preventing consumers of natural gas established in France from obtaining supplies from ENEL and ENI. They therefore constituted a restriction of competition within the meaning of Article 81 EC and a considerable obstacle to the creation of a truly competitive and Europe-wide gas market.

83. These two decisions are all the more important in view of the liberalisation process that has started in the European gas sector in recent years, the benefits of which are only slowly materialising. Territorial restrictions are one of the key elements in a set of practices which perpetuate the partitioning of the European market and contribute to a lack of fluidity in the sector. Taking account of the specificities of the European gas sector and the circumstances of the case, the Commission decided, nevertheless, not to impose fines.

3.2 Other case developments

Premium content for media markets

84. The Commission continues to give high priority to competition over premium content as a driver for innovation in the media markets with a view to contributing to the knowledge-based society. One important set of cases concerns rights for sport events, where the Commission has taken a balanced line: fighting the concentrative and restrictive effects of a marketing policy relying on broad and exclusive deals by a single seller on the one hand while taking into account possible efficiencies associated with the aggregation of content on the other.

85. In the Bundesliga case, which concerns joint marketing of the media exploitation rights in respect of matches in the German first and second national football divisions for men, the Commission considered that the exclusive selling of the commercial broadcasting rights by the league association could restrict competition between the clubs and companies in the first and second divisions.

86. Following notification of a preliminary assessment earlier in 2004, the league association offered commitments which were market-tested[93] in September[94].

87. The Commission also further pursued its procedure with regard to the English Premier League (FAPL)[95] by publishing a communication on the commitments offered by FAPL[96]. The ongoing proceedings concerning the Eurovision system continued with a fact-finding investigation concerning several aspects of the joint purchasing and sharing of sport programmes, including the rights for the 2010/2012 Olympic Games, by public broadcasters – members of EBU. EBU’s proposals and suggestions to ensure that the Eurovision system is compatible with the EU competition rules will need to follow the Courts’ guidance in the case[97].

88. On 26 October, the Commission announced the closure of its investigation[98] into the so-called Most Favoured Nation (MFN[99]) clauses found in the contracts of Hollywood film studios with pay television companies, except with regard to two studios.

89. MFN clauses featured in most of the “Output deals” between the Hollywood film studios and the European pay-TV broadcasters. Output deals are common in the Hollywood film industry, where the studios typically agree to sell to broadcasters their entire film production for a given period of years. The MFN clauses gave the studios the right to enjoy the most favourable terms agreed between a pay-TV company and any one of them.

90. According to the Commission’s preliminary assessment, the cumulative effect of MFN clauses was an alignment of the prices paid to the studios as any increase agreed with one studio triggered a right to a parallel price increase for the other studios. The Commission considers that such a way of setting prices is at odds with the basic principle of price competition.

91. Without admitting a violation of competition law, the studios in regard of which investigations were closed decided to waive the MFN clauses in their existing agreements. Insofar as they do not deviate from this new behaviour, further action is not envisaged against them. The investigation remains open in respect of NPB Universal and Paramount Pictures Corp. Inc., which have not followed suit.

3.3 Sector inquiries

Sector inquiry into the sale of sports rights for use over 3G networks[100]

92. Third generation mobile technology (3G) is now being rapidly deployed around the world, with customer growth at a rate faster than that experienced by GSM at the same point in its development.

93. The Commission stepped up its efforts to prevent anticompetitive behaviour that could hamper the development of this key emerging market.

94. The Commission has identified several types of behaviour by established players that could restrict access to key sports content by new media operators, such as refusals to supply, the bundling of TV rights with new media/UMTS rights, embargoes favouring TV coverage over new types of coverage or the purchase of new media/UMTS rights on an exclusive basis by established players.

95. To fully appraise the specifics of the market, and tackle the existing and potential problems relating to content access for 3G, the Commission initiated on 30 January a sector inquiry into the sale of sports rights for use over 3G networks, jointly with the EFTA Surveillance Authority.

96. The first, exploratory, phase was completed in August. It allowed for information gathering on the status of 3G deployment, including the sale of 3G rights to mobile operators, and provided an overview of the type of restrictions imposed on 3G sports rights. Information requests were addressed to a number of, mostly large, television channels, mobile operators and content owners.

97. The second phase launched in September extends the inquiry to a wider range of players in the market, but also includes follow-up questionnaires to players addressed in the first phase. This phase should provide detailed information on the contracts affecting 3G sports rights provision.

Box 5: Motor vehicle distribution and repair

During 2004, the Commission continued to monitor the implementation of Regulation 1400/2002 and to provide assistance to interested parties as to its interpretation. Over this period, it has been possible to observe some emerging trends. In particular, car prices have on average been rising more slowly than prices for other goods and, at the same time, have shown clear signs of increased convergence across the EU. Consolidation in the dealer networks has continued, but many dealers whose contracts were terminated as a result of network reorganisations have been able to take advantage of the block exemption and remain on the market as authorised repairers. There have also been new investments in improved distribution and repair facilities. It is clear, however, that such developments can provide no more than a preliminary indication as regards the effects of the new block exemption, the market effects of which can only be fully assessed over the longer term.

In line with its duty to monitor the operation of Regulation 1400/2002 on a regular basis, the Commission carried out an in-depth monitoring exercise of the systems put in place by car and truck manufacturers to allow independent operators to access repair-related technical information. Moreover, it continued to monitor car price developments across the EU, issuing two reports in February and July. The latter of these covered the first six months following the entry into force of the new Regulation, and for the first time contains data covering all 25 Member States (see below for details).

Furthermore, over the period covered by this report, the Commission refocused its enforcement activities on certain cases that raise important competition issues. These include problems concerning authorised and independent repairers’ access to OEM’s and competing spare parts, the possible existence of artificial barriers to entry to the authorised repair networks, as well as alleged restrictions on dealers’ ability to sell motor vehicles of competing makes. While these issues are still being examined within the framework of ongoing investigations, the Commission stated its position in a case concerning Porsche’s distribution and servicing agreements, in which it clarified the application of the de minimis rule in the context of the implementation of Regulation 1400/2002 (see below).

The entry into force of Regulation 1/2003 and the resulting empowerment of Member State courts and competition authorities has also provided an opportunity for the competition authorities to make full use of respective knowledge in the motor vehicle sector and to exploit cooperation mechanisms set up within the ambit of the ECN. In this regard, on 19 October, the Commission hosted a workshop at which representatives of national competition authorities met to exchange experiences and to discuss the implementation of Regulation 1400/2002.

Access to technical information

In October, the Commission published a study on access to technical information by independent operators in the car sector. The study, which IKA (University of Aachen) carried out at the Commission’s request, looked at how manufacturers have complied with the Regulation in terms of providing technical information to garages, tool manufacturers and publishers. All these types of operator have an important role to play in ensuring healthy competition in car repair, particularly as advances intechnology are making even the most basic repairs increasingly complex. The study shows that technical information for almost all models launched within the last ten years is available, either via the Internet, on CD/DVD and/or on paper. The quality of information provision is, however, often quite unsatisfactory as the information is difficult to find or may only be available in large, costly packages. The content is also often insufficient, with some manufacturers holding back a great deal of information that is vital, for example, to diagnostic-tool manufacturers. Lastly, publishers of technical information, whose products are greatly valued by independent repairers, have trouble obtaining the information they need.

Positive trends as regards car price differentials

In March and July, the Commission published reports on car price differentials within the European Union. From a competition perspective, the last two issues, based on November and May data respectively, revealed a rather satisfactory trend towards price convergence within the euro area. While July 2003’s issue of the Report showed that for one third of models, price differentials exceeded 20% across the euro area, the proportion fell to nearly one quarter of the models in the latest issue. Moreover, it is worth noting that this convergence is taking place against a general background of relative price stability in the EU. Compared with July 2003, the price index for cars in the EU in July 2004 has increased by only 0.6% compared to 2.3% for headline inflation. For the first time, last July’s issue of the Car Price Report includes prices in the ten new Member States, which do not appear to be very different from those in the EU-15: some models are cheaper in some new Member Sates, but others are not. Compared with July 2003, the price index for cars in July 2004 significantly increased in Poland (+8.4%) and Latvia (+4.1%) but decreased in Estonia (-6.8%), Lithuania (-4.9%) and the Czech Republic (-3.3%).

Porsche distribution and after sales service agreements

On 30 April, the Commission closed proceedings in respect of the new standard importer, dealer and authorised repairer agreements that Porsche had notified. The carmaker agreed to modify these agreements, which are used across the EU and EEA, so as to ensure that they no longer contain any of the “hardcore restrictions” set out in Article 4 of Regulation 1400/2002. In particular, the amended distribution agreements no longer restrict the ability of Porsche dealers to subcontract the provision of after-sales services to any authorised Porsche service centre, while Porsche service centres are no longer obliged to sell new cars.

The Commission decided not to pursue its investigation further as regards other provisions of Porsche’s distribution agreements, since it appeared that Porsche had a share of less than 5% on all national markets in the EU for the sale of high-end sports cars and sport utility vehicles. It is to be recalled that the de minimis notice explains that a supplier that operates a distribution system in a market where almost all operators use the same type of restrictive agreements does not significantly contribute to the cumulative effect if its market share does not exceed 5% and if the agreements do not contain hardcore restrictions.

As regards after-sales agreements, Porsche has accepted that it may not come within the scope of the block exemption if it uses quantitative selective distribution for its network of authorised Porsche service centres, since its network’s share of the market for the repair of Porsche cars is above 30%, and the de minimis notice clearly does not apply. The use of purely qualitative selection opens the network to qualified operators who wish to run an authorised Porsche service centre, and to that end Porsche agreed to make the relevant qualitative criteria available to any interested repairer.

4. STATE MEASURES (PUBLIC UNDERTAKINGS/UNDERTAKINGS WITH EXCLUSIVE AND SPECIAL RIGHTS)

4.1 Decisions

Restrictions on mail preparation[101]

98. On 20 October, the Commission adopted a decision based on Article 86 regarding certain provisions of Germany’s postal regulatory framework which bar commercial mail preparation firms from earning discounts for handing over pre-sorted letters at Deutsche Post AG’s (DPAG) sorting centres. Based on a complaint filed by BdKEP, a German association of postal service providers, the Commission found that the contested provisions of the German Postal Law induce DPAG to abuse its dominant position, thereby infringing Article 82, in two ways. First, the provisions prompt DPAG to extend its market power from the (reserved) market for upstream basic postal services into the (liberalised) market for mail preparation services. Secondly, they induce DPAG to discriminate between, on the one hand, bulk mailers who have access to the downstream sorting centres and the related discounts and, on the other, commercial providers of such services who do not have access to these discounts. This places a major competitive disadvantage on these firms and pr