EUROPEAN COMMISSION Brussels, 18.6.2018 SWD(2018) 349 final COMMISSION STAFF WORKING DOCUMENT Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Report on Competition Policy 2017 {COM(2018) 482 final}



TABLE OF CONTENTS I. LEGISLATION AND POLICY DEVELOPMENTS Antitrust and cartels 1. Guidance in antitrust and cartel proceedings 2. Significant judgments by the European Union Courts in antitrust and cartels 5 3. The fight against cartels remains a top priority 15 4. Continuing close cooperation within the European Competition Network (ECN) and with national courts 18 Merger control 20 1. Recent enforcement trends 21 State aid control 25 1. Uptake of the State Aid Modernisation 26 2. State Aid Modernisation continues 33 3. Monitoring, recovery and cooperation with national courts 34 4. Significant judgments by the European Union Courts in the State aid area 37 Developing the international dimension of EU competition policy 43 1. Bilateral relations 43 2. Multilateral cooperation 44 External Communication 45 II. SECTORAL OVERVIEW 47

1. Energy & environment 47 2. Information and Communication Technologies and media 52 5. Basic industries and manufacturing 73 6. Agri-food industry 76 7. Pharmaceutical and health services sector 80 8. Transport and postal services 82 I.LEGISLATION AND POLICY DEVELOPMENTS Competition policy empowering citizens and businesses for the benefit of all The European Union remains the largest economic and trading area in the world, with more than half a billion consumers and 20 million companies forming its strongest lever – the internal market. The on-going process of improving and expanding the functioning of the single market goes hand in hand with competition policy enforcement. The ultimate goal of EU competition policy is making markets function better for the benefit of consumers – both households and businesses – and the society as a whole, as well as fostering a competition culture in the EU and worldwide. This is achieved by giving individuals a wide choice of products at prices they can afford, as well as by encouraging and enabling companies – big or small – to innovate, invest, and compete on equal terms on the market. Equally, enforcement of competition policy contributes towards an open and fair single market in which businesses and individual consumers can directly obtain, or lawfully claim, their fair share of the benefits of growth. Taken together, competition policy actions in the antitrust area, under the merger control and State aid control can make a real difference towards the benefit of European consumers and businesses. By stimulating innovation, preventing abuses from dominant players, helping achieve a connected Digital Single Market, an integrated and climate-friendly Energy Union, supporting competition-friendly regulation, and fostering a global competition culture, competition policy actions contribute to the right conditions for economic growth. The present Staff Working Document is composed of two parts, one presenting the 2017 policy and legislative developments across the three competition instruments (antitrust and cartels, mergers, and State aid), while specific actions are detailed in the sectoral overview part. Antitrust and cartels Articles 101, 102 and 106 TFEU According to Article 101 TFEU, anti-competitive agreements are prohibited as incompatible with the internal market. Article 101 TFEU prohibits agreements with an anti-competitive object or effects where companies coordinate their behaviour instead of competing independently. However, even if a horizontal or a vertical agreement could be viewed as restrictive (for example by combining the production of two competing companies) it might be allowed under Article 101(3) TFEU if it ultimately fosters competition (for example by promoting technical progress or by improving distribution). Article 102 TFEU prohibits abuse of a dominant position. It is not in itself illegal for an undertaking to be in a dominant position or to acquire such a position. Dominant undertakings, as any other undertaking in the market, are entitled to compete on the merits. However, Article 102 TFEU prohibits the abusive behaviour by dominant undertakings that, for example, prevent new entry into the market or squeeze competitors out of the market. Such practices hamper competition and negatively affect incentives for innovation and growth, as well as consumer welfare. Finally, Article 106 TFEU prevents Member States from enacting or maintaining in force measures contrary to the Treaty rules regarding public undertakings and undertakings to which Member States grant special or exclusive rights (privileged undertakings).

1. Guidance in antitrust and cartel proceedings In 2017, the Commission introduced a new whistleblower tool that gives an opportunity to individuals who have knowledge of the existence or functioning of a cartel or other types of antitrust violations to help end such practices. Moreover, the Commission continued to encourage cooperation by parties also in non-cartel antitrust cases and worked on the interaction between competition policy, algorithms and data issues.

To further increase its ability to detect secret cartels and other antitrust violations, the Commission launched a new whistleblower tool to make it easier for individuals to alert the Commission about such infringements while maintaining their anonymity . The new system increases the likelihood of detection and prosecution for undertakings and, as such, stands to further deter businesses from entering or remaining in cartels or carrying out other types of illegal anti-competitive behaviour. For these reasons, it complements and reinforces the effectiveness of the Commission's leniency programme. The new tool protects the anonymity of whistleblowers through a specifically-designed encrypted messaging system that allows for two way communication. The service is run by a specialised external service provider that acts as an intermediary, and which relays only the content of received messages without forwarding any metadata that could be used to identify the individual providing the information. Individuals that are willing to reveal their identity can instead contact the Commission's competition department directly through a dedicated phone number and e-mail address. The Commission continued to encourage cooperation by parties also in non-cartel antitrust cases (as is already the well-established practice in cartel cases through the cartel-specific framework of leniency and settlement). In addition to acknowledging liability for an infringement, companies can further cooperate by voluntarily disclosing (or clarifying) evidence, or by helping in the design and implementation of remedies. As a reward for genuine and meaningful cooperation by parties, the Commission may decide to reduce the fines for an infringement . The possible level of fines reduction depends on the extent and timing of the cooperation in the specific case and the resulting benefits in terms of efficient procedure and effective enforcement. The Commission also continued to actively work on the interaction between competition policy, algorithms, and data issues. In March, Commissioner Vestager set out a number of issues relating to algorithms and automated systems, and how these can reinforce or lead to restrictions of competition : a key message was that companies cannot shield themselves from antitrust liability by arguing that an algorithm was responsible for their pricing, and what is illegal offline is likely to be illegal when carried out through algorithms as well. In June, DG Competition made a written contribution to the OECD roundtable on competition and algorithms . And in October, Director-General Laitenberger delivered a speech that also dealt with the competition implications of data and algorithms . 2. Significant judgments by the European Union Courts in antitrust and cartels Article 101 TFEU Restriction of competition by object In Telefónica , the European Court of Justice confirmed the Commission's decision that an agreement between Telefónica and Portugal Telecom (now PT) not to compete with each other on the Iberian telecommunications markets was contrary to Article 101 TFEU. In its decision, the Commission had found that the relevant clause amounted to a market-sharing agreement with the object of restricting competition and it imposed fines on both Telefónica and PT. The European Cout of Justice confirmed the General Court's finding that the non-compete clause was unlawful under Article 101 TFEU and that the clause constituted a restriction of competition by object. Setting of minimum fees by professional organizations The preliminary ruling in joined cases CHEZ Elektro Bulgaria and FrontEx International concerned the application of Article 101(1) TFEU, read in conjunction with Article 4(3) TEU, in relation to minimum legal fees established by the Bulgarian professional association of lawyers. The European Court of Justice held that national legislation, which does not allow for a lawyer and client to agree on a remuneration below the minimum amount established by the association, and does not authorise courts to order reimbursement of fees in an amount below this minimum level, is capable of restricting competition in the internal market within the meaning of Article 101(1) TFEU. The European Court of Justice, however, also recalled that account must be taken of the overall context and the objectives of the decision of the professional association and it has to be considered whether the consequential effects are inherent in the pursuit of those objectives. Selective distribution and platform bans In Coty , a preliminary ruling concerning a prohibition on a reseller of luxury cosmetics not to sell the contract goods on third party online platforms (Amazon.de in this case), the European Court of Justice clarified that a platform ban neither constitutes a restriction of customers under Article 4 b) nor a restriction of passive sales to end users under Article 4 c) of the Vertical Block Exemption Regulation . The European Court of Justice also confirmed that a selective distribution system for luxury goods, designed primarily to preserve the luxury image of those goods can comply with Article 101(1) TFEU provided that the so-called "Metro criteria" are met (e.g. resellers are chosen on the basis of objective criteria, laid down uniformly for all resellers, not applied in a discriminatory fashion and the criteria do not go beyond what is necessary). In its response to the question of the referring court, the European Court of Justice also held that a contractual clause which prohibits authorised distributors in a selective distribution system for luxury goods to use visible third party platforms for online sales may be compatible with Article 101(1) TFEU insofar as the clause has the objective of preserving the luxury image (which is a legitimate aim), is laid down uniformly, is not applied in a discriminatory fashion and is proportionate in the light of the objective pursued. Competition rules in the agricultural sector In a preliminary ruling in Endives , the European Court of Justice clarified the application of competition rules in the agricultural sector. While recalling that that Article 42 TFEU recognises that the common agricultural policy takes precedence over the objectives of the Treaty in the field of competition and recognising the EU legislature’s power to decide to what extent the rules on competition are to be applied in the agricultural sector, the European Court of Justice also recalled that competition is one of the objectives of the Common Agricultural Policy. The European Court of Justice ruled that price fixing, volume limitations and exchange of commercially sensitive information between producer organisations and associations of producer organisations are prohibited under Article 101 TFEU. Furthermore, the European Court of Justice clarified that under certain conditions Article 101 TFEU may not be applicable to some of these practices when they are carried out within a producer organisation: first, if the producer organisation or association of producer organisations is formally recognised by a Member State; and, second, if these practices are strictly necessary and proportional for carrying out specific objectives assigned to them by EU legislation. Article 102 TFEU Exclusivity rebates In Intel the European Court of Justice set aside the General Court's ruling that had found that Intel's exclusivity rebates were anticompetitive in nature, and referred the case back to the General Court for further examination. The European Court of Justice held that previous case law on exclusivity rebates needed to be clarified. To this effect the European Court of Justice made clear that the presumption of illegality of exclusivity rebates can be rebutted if the dominant undertaking submits, during the administrative procedure, on the basis of supporting evidence, that its conduct was not capable of producing the alleged foreclosure effects. In the latter case the European Court of Justice held that the Commission "is not only required to analyse, first, the extent of the undertaking’s dominant position on the relevant market and, secondly, the share of the market covered by the challenged practice, as well as the conditions and arrangements for granting the rebates in question, their duration and their amount; it is also required to assess the possible existence of a strategy aiming to exclude competitors that are at least as efficient as the dominant undertaking from the market". The European Court of Justice then observed that, while in the particular case at hand the Commission had emphasised that the exclusivity rebates at issue were by their very nature capable of restricting competition, it nevertheless had carried out an in-depth examination of the capability of those rebates to restrict competition, including by conducting an "as efficient competitior" test. As that test played an important role in the Commission’s assessment, the European Court of Justice held that the General Court was required to examine all of Intel’s arguments concerning that test, which the General Court had failed to do. The European Court of Justice therefore referred the case back to the General Court so that it may examine, in the light of the arguments put forward by Intel, whether the rebates at issue were capable of restricting competition. Although the European Court of Justice found no procedural irregularities that affected Intel's right of defence, it stressed that "the Commission is required to record, in a form of its choosing, any interview which it conducts, under Article 19 of Regulation 1/2003, for the purpose of collecting information relating to the subject matter of an investigation". Moreover, the European Court of Justice also rejected Intel’s argument alleging that the Commission lacked territorial jurisdiction to penalise the abuse and confirmed that conduct made outside of Europe falls within the scope of EU antitrust rules, if it has substantial effects on European markets.

Excessive prices On a preliminary ruling in Latvijas Autoru apvienība , the European Court of Justice clarified a number of questions related to the assessment of excessive prices. The questions were referred to it by the Latvian Supreme Court in the context of a review of the legality of rates applied by the national copyright management society to shops and other commercial premises for playing copyrighted music. The European Court of Justice held that for the purposes of examining whether a copyright management organisation applies unfair prices within the meaning of Article 102(a) TFEU, it is appropriate and sufficient to compare its rates with those applicable in neighbouring Member States as well as with those applicable in other Member States adjusted in accordance with the purchasing power parity index, provided that the reference Member States have been selected in accordance with objective, appropriate and verifiable criteria and that the comparisons are made on a consistent basis. The European Court of Justice clarified that the difference between the rates compared must be regarded as appreciable, and thus indicative of an abuse, if that difference is significant and persistent. It is then for the copyright management organisation to show that its prices are fair by reference to objective factors that have an impact on management expenses or the remuneration of right holders. Procedural issues Fines and inability to pay The European Court of Justice handed down judgments on 14 appeals against the General Court's judgments relating to the Commission's cartel decision in the Bathroom Fixtures and Fittings case . This case concerned a long-lasting cartel (1992-2004) in the bathroom fittings and fixtures sector, involving 17 manufacturers that coordinated price increases, both annually and linked to specific events, across six Member States (Germany, Austria, Italy, France, Belgium and the Netherlands). In its 2010 decision, the Commission had imposed fines totalling more than EUR 622 million on the participants. The European Court of Justice dismissed the appeals of the majority of the applicants. In the appeal submitted by Laufen Austria , the European Court of Justice set aside the judgment under appeal in so far as the General Court held that the Commission had not made an error in taking the turnover of the Roca Group into account for the purpose of applying the 10% ceiling in respect of the period for which Laufen Austria was held solely responsible for the infringement. The European Court of Justice observed that the Commission must, for the purpose of calculating the 10% ceiling for the period for which it was held solely liable, take account only of the subsidiary’s own turnover, and must take as a basis the turnover in the business year preceding the year in which the fining decision was adopted. The European Court of Justice referred the case back to the General Court, which reduced the fine for Laufen Austria by EUR 9 511 999, to a final total of EUR 4 788 001 . The inclusion by the Commission of direct EEA sales through transformed products in calculating the fine In LG Electronics Inc. (LGE) and Koninklijke Philips Electronics NV. (television and computer monitor tubes), the European Court of Justice confirmed that, for fine calculation purposes, the "value of sales" in the EEA includes sales of finished products incorporating the cartelised components in the EEA, when those components were first sold intra-group to non-EEA entities. In particular, the Court found that although the concept of the ‘value of sales’ (point 13 of the Fines Guidelines) does not include sales made by the undertaking that do not come within the scope of the infringement, it would be contrary to the objective pursued by Article 23(2) of Regulation No 1/2003 if vertically integrated participants in a cartel could expect to have the value of those goods excluded from the calculation of the fine, solely because they incorporated the goods forming the subject matter of the infringement into products finished outside the EEA . Given that the LPD group (a joint venture between LGE and Philips) intervened in the product market affected by the infringement (TV and computer monitor tubes), while LGE and Philips were active in the market for the transformed goods in which those products were incorporated (TV and computer monitors), the LPD group and its parent companies did form a vertically integrated undertaking within the meaning of the aforementioned judgment. Therefore, the European Court of Justice held that "the Commission was entitled to include direct EEA sales through transformed products by the economic unit formed by the LPD group and its parent companies when calculating the basic amount of the fine imposed on the appellants". Investigative Powers and use of evidence Admissibility of evidence transmitted by a National Authority to the Commission other than the National competition authorities In FSL Holdings (exotic fruit), the European Court of Justice confirmed the findings of the General Court that the European Commission can use in a cartel investigation evidence transmitted by a national authority other than a Member State competition authority. In particular, "the lawfulness of the transmission to the Commission by a prosecutor or the authorities competent in competition matters of information obtained in application of national criminal law is a question governed by national law and second that the Courts of the European Union have no jurisdiction to rule on the lawfulness, as a matter of national law, of a measure adopted by a national authority" . The reason is the general principle of EU law that evidence must be freely adduced. The European Court of Justice also confirmed the findings of the General Court that the rules of Article 12 of Regulation 1/2003 (whose objective is to facilitate the exchange of information within competition authorities) are not applicable in this case. Parental liability The Toshiba case (television and computer monitor tubes) has clarified that the parents of a joint venture may be held liable under EU competition law for anti-competitive activities of that joint venture. The General Court had previously held that the Commission was right to find that both parents of a joint venture exercised joint control as both parents had veto rights "with respect to matters of strategic importance which were essential for the pursuit of the joint venture's activity". The holding of such veto rights is in itself sufficient for it to be considered that the parent exercised decisive control over the joint venture. The question whether such rights were actually exercised is irrelevant. This was confirmed by the European Court of Justice , which stated that, contrary to Toshiba’s assertions, the General Court was not required to determine whether Toshiba had actually influenced the joint venture’s operational management in order to conclude that those two companies formed part of a single economic unit. To sum up, although a "full-function" joint venture under the EU Merger Regulation can be economically autonomous from an operational point of view, this does not mean that it also enjoys full autonomy with regard to the adoption of strategic commercial decisions. Moreover, even if a parent company has only "negative power" (such as veto rights) to block certain decisions of the joint venture and was unable to impose any decisions on it, it can be still considered as having decisive influence over it. The Akzo Nobel NV and others case (heat stabilisers), has clarified the rules concerning the liability of parent companies for the unlawful conduct of their subsidiaries as regards limitation periods. The European Court of Justice has upheld the General Court's judgment, which confirmed that the Commission is not prevented from holding a parent company liable for infringements committed by two of its subsidiaries where the fines imposed on the two subsidiaries have been annulled due to prescription and the limitation period is not exceeded for the parent company. In particular, the European Court of Justice held that: "[…] factors specific to the parent company may justify assessing the parent company’s liability and that of its subsidiary differently, even if the liability of the former is based exclusively on the unlawful conduct of the latter". Cartel settlements The Commission is not bound by the proposals made during settlement proceedings if the undertaking decides not to settle. The parallel "hybrid" procedure is fully confirmed as lawful. "Hybrid" cartel cases are those in which not all cartel participants chose to participate in a settlement procedure. Therefore, in hybrid cases, there are two infringement decisions – a settlement decision, and an ordinary decision for the parties that chose not to settle. In Timab Industries and Compagnie financière et de participations Roullier/CFPR (animal feed), the European Court of Justice upheld the earlier findings of the General Court in the Animal Feed cartel case, in which the General Court fully endorsed the first "hybrid" decision adopted against Timab, a company that opted out of the settlement and was fined under the normal procedure (Timab). The decision against Timab was adopted at the same time as the settlement decision. It was thus a parallel "hybrid" case. The European Court of Justice agreed that, as long as the equal treatment principle is respected, there are no legitimate expectations that the scope of the case or the contemplated fine for the company that opted out of the settlement would remain the same as discussed and disclosed during the settlement procedure. Therefore, the settlement discussions do not necessarily determine the scope and amount of the fine in the ordinary decision.

In particular, the European Court of Justice's review confirmed that the General Court correctly verified the validity of the Commission's analysis. Under that analysis, the Commission was justified in ultimately imposing a higher fine on Timab (CFPR) under the standard administrative procedure than the amount proposed earlier during the settlement procedure. In this respect, the European Court of Justice agreed with the General Court in finding that the Commission had to take into account, during the standard procedure, new information requiring it to review the file, to redefine the duration of the cartel and to adjust the fine by not applying reductions it had proposed during the settlement procedure, thus rejecting any arguments of legitimate expectations and equal treatment. ICAP – restriction by object, facilitation, staggered hybrid procedure The Commission adopted in 2013 a first settlement decision against six banks and one broker, while a decision against the non-settling party, the broker ICAP, was adopted at a later stage in 2015. The judgement of the General Court is a staggered hybrid case and it is important for several reasons. Firstly, the General Court agreed with the Commission's assessment of the cartel infringements in the Japanese yen interest rate derivatives sector as a restriction of competition by object. The banks' manipulation of the interest rate benchmark was recognised as being similar to a "classic" price-fixing agreement despite the particularities of the derivative product and the fact that the manipulation of the benchmark could be either upwards or downwards. Secondly, the conduct of ICAP qualified as cartel facilitation, because ICAP intentionally contributed to the common objective of the cartel and was not a peripheral, outside service provider. The judgement confirms that competition rules apply to both undertakings on the cartelised market and facilitators that are not present on that market. Moreover, the concept of facilitation is not limited to secretarial work, as it was the situation in the previous facilitation case upheld by the European Court of Justice (AC Treuhand) . In particular, ICAP served as a communication channel between cartelists, contacted other banks not participating the infringement, with the aim of influencing their behaviour, and spread misleading information. Finally, the judgment confirms the legality of the staggered hybrid procedure provided that it complies with the presumption of innocence of the non-settling parties. Staggered proceedings take place when the settlement decision, and the ordinary decision against the parties that chose not to settle, are not adopted at the same time. At the same time, the General Court judgement partially annuls the Commission decision. Firstly, the General Court has found that the Commission has not succeeded in proving that ICAP participated as a facilitator in one of the six infringements described in its decision (it is not proven that ICAP was aware of one of the banks' role in that infringement). Moreover, The General Court has found that the duration of ICAP’s participation in four other infringements was shorter than the duration found by the Commission. The General Court has applied a so-called "comprehensive" standard of review which involves a document-by-document assessment of the evidence. Secondly, the General Court has annulled the fines in full because it considered that the Commission failed to provide sufficient reasoning regarding the methodology for calculating the fines. The General Court followed its own case law (Printeos ) in requesting the Commission a detailed reasoning when it imposes a fine, the calculation of which was based on point 37 of the 2006 Fines Guidelines. On this aspect, the Commission has appealed the judgment and submitted that the General Court incorrectly applied the case law of the Court of Justice on the statement of reasons required when imposing fines. Finally, the General Court also held that the Commission has infringed the presumption of ICAP’s innocence when adopting the 2013 settlement decision because ICAP is mentioned as a facilitator in that decision. However, after analysis, the General Court concluded that such breach did not have in this case a direct impact on the legality of the ICAP decision and therefore ICAP's plea for annulment of the decision on that basis was rejected. Commitment decisions In Gasorba v Repsol , the European Court of Justice confirmed in a preliminary ruling that a national court may still review agreements that were the subject of a commitment decision adopted by the Commission. The European Court of Justice found that commitment decisions adopted by the Commission under Article 9(1) of Council Regulation (EC) No 1/2003 do not prevent a national court from finding that an infringement of Article 101 TFEU has been committed and, if necessary, declare the agreements in question void pursuant to Art. 101(2) TFEU. At the same time, the European Court of Justice observed that both the principle of sincere cooperation laid down in Article 4(3) TEU and the objective of applying EU competition law effectively and uniformly require the national court to take into account the preliminary assessment carried out by the Commission and regard it as an indication, if not prima facie evidence, of the anticompetitive nature of the agreement at issue in the light of Article 101(1) TFEU. Publications Issues regarding publication and Confidentiality under the Leniency Program and the scope of powers of the Hearing Officer (especially under Article 8 of the Terms of Reference) In Evonik Degussa (hydrogen peroxide) the European Court of Justice set aside, in part, the General Court's judgment insofar as the General Court held that the Commission’s Hearing Officer was correct to decline competence to answer the objections regarding the breach of the principles of equal treatment and protection of legitimate expectations to the proposed publication of a detailed, non-confidential version of the Commission’s decision. The European Court of Justice, after giving an overview of the scope of the powers of the Hearing Officer (under Article 8 of Decision 2011/695 concerning the Terms of Reference for the Hearing Officer) held that the Hearing Officer has the mandate and competence to review any objection based on a ground, arising from rules or principles of EU law relied on by the interested person in order to claim protection of the confidentiality of the contested information. The European Court of Justice thereafter dismissed the remaining grounds of appeal, with the most notable being the claim that the General Court wrongfully drew a distinction between the publication of documents communicated by applicants for leniency, which would generally be unlawful, and the publication of information from those documents, such as extracts from the statements made by those applicants, which would be lawful. In particular, the European Court of Justice held that "In that regard, it must be pointed out that the publication, in the form of verbatim quotations, of information from the documents provided by an undertaking to the Commission in support of a statement made in order to obtain leniency differs from the publication of verbatim quotations from that statement itself. Whereas the first type of publication should be authorised, subject to compliance with the protection owed, in particular, to business secrets, professional secrecy and other confidential information, the second type of publication is not permitted in any circumstances". Rejection of complaints In Confédération européenne des associations d'horlogers-réparateurs (CEAHR) the General Court upheld the Commission’s decision rejecting a complaint lodged by the European Confederation of Watch and Clock Repairers' Association's ("CEAHR"). CEAHR's complaint, lodged in 2004, alleged that manufacturers of prestige/luxury watches infringed EU competition law by refusing to continue to supply spare parts to independent repairers. The 2008 Commission rejection decision of the complaint was annulled by the General Court for errors of assessment and insufficient motivation of some of the conclusions. After a thorough re-assessment of the case, the Commission again rejected the complaint in 2014. The General Court fully upheld this second rejection decision. The General Court held that the Commission did not err in law by considering that a selective distribution system, and, by analogy, a selective repair system, was in conformity with Article 101 TFEU provided that it was objectively justified, non-discriminatory and proportionate. The General Court then held that the Commission, when exercising its discretion, was correct in considering that if a selective distribution system falls outside the scope of Article 101(1) TFEU, this is an indication that the system is unlikely to have the effect of eliminating all competition within the meaning of the case-law relating to Article 102 TFEU. The General Court also upheld the Commission's position that it is only in certain circumstances that a refusal to supply can constitute an abuse within the meaning of Article 102 TFEU, and that for an abuse to be established there must be a risk of all effective competition being eliminated.

In Agria Polska , the General Court upheld the Commission's decision rejecting a complaint claiming a vexatious administrative and criminal law campaign pursued by major agrochemical complainants allegedly seeking to exclude Agria Polska from markets for the supply of plant protection products. The General Court made clear that the Commission's refusal to pursue a case that could not be pursued by a national competition authority, due to the limitation period under national law, does not deprive Articles 101 and 102 TFEU of their effectiveness. In this context, the General Court recalled that private actions for damages can contribute to the effective enforcement of these provisions in particular when the Commission does not pursue the case. The General Court also pointed out that the fact that the allegedly anticompetitive conduct took place in several Member States had to be treated as merely indicating that an action at EU level could be more effective than various actions at national level. However, such evidence would not, in itself, suffice to justify opening of an investigation by the Commission. The General Court's ruling has been appealed. In Topps , the General Court upheld the Commission decision rejecting a complaint alleging inter alia that the manner in which certain football bodies and associations licensed intellectual property rights, for the purpose of producing collectibles related to major international football tournaments (stickers and trading cards), was in breach of Articles 101 and 102 TFEU. The General Court, while reconfirming that Article 8(1) of Regulation 773/2004 provides for a limited access to file that entitles complainants to receive all the documents on which the Commission bases its provisional assessment of the complaint, stressed that this applies even if the Commission subsequently decides to no longer rely on those documents in the final decision rejecting the complaint. After careful examination of these documents, the General Court found no procedural error on the part of the Commission. The General Court also held that the Commission did not commit a manifest error of assessment in relying solely on the limited likelihood of establishing an infringement of Article 101 and Article 102 and on the disproportionate nature of the investigative measures required, nor had it made an error in the assessment of the low likelihood of finding infringements of the two provisions. In VIMC the General Court upheld a Commission decision rejecting a complaint by Vienna International Medical Clinic GmbH ("VIMC") on the basis of Article 13(1) of Regulation 1/2003. The General Court recalled that for the application of Article 13(1), only two conditions need to be satisfied: that a Member State "is dealing with" the case before it and that the case concerns the "same agreement, decision of an association or practice". The General Court was satisfied with the evidence showing that the Austrian competition authority (Bundeswettbewerbsbehörde, "BWB") was actively dealing with the case, namely, the BWB's confirmation to the Commission that it had started an investigation and was dealing with the case. The fact that the BWB was dealing with the complaint against the same practice was also confirmed by documents showing that the BWB had informed the complainant of the on-going proceedings and had invited the complainant to a meeting. The General Court took the opportunity to recall that national competition authorities and the Commission have parallel powers and that a complainant has no right for its case to be dealt with by the Commission, even if the Commission were particularly well placed to deal with its case.

3. The fight against cartels remains a top priority Cartels are secret agreements between sellers or buyers of the same product or service. They are made with the objective of fixing prices, limiting output or allocating clients and suppliers. Cartels harm the consumers at all levels of the value chain and the economy as a whole. Cartelists charge inflated prices, limit the choice of the consumers and block innovation. Only undistorted competition guarantees that scarce resources are used in the most efficient way. The Commission's action to stop hard core cartels prevents companies from continuing to profit from illegal overcharges and thereby contributes to fair and balanced business relationships. The significant sanctions imposed by the Commission deter companies from entering into cartels or from remaining in cartels, sending a clear signal that operating a cartel will ultimately not pay off. The Commission's cartel enforcement allows the consumers to benefit of an economy that works well for them. The Commission's strong enforcement record against hard core cartels continued in 2017. As in preceding years, the Commission adopted cartel decisions in important sectors for innovation and investment, such as the circular economy and the automotive industry. The settlement procedure remains an efficient tool regularly used by the Commission in its fight against cartels. The car parts investigations The Commission has been conducting a number of investigations in the car parts sector. Since 2013 the Commission adopted 8 cartel decisions covering around 30 different car parts and sanctioned the undertakings involved in these cartels with a total amount of fines of around EUR 1.6 billion. Several other competition authorities have sanctioned a number of cases and /or are in the process of adopting further decisions concerning these cartels. On 8 March, the Commission imposed a total fine of EUR 155 million on six car air conditioning and engine cooling suppliers for taking part in one or more of four cartels concerning supplies of components to car manufacturers in the EEA between 2004 and 2009. All six suppliers (Behr, Calsonic, Denso, Panasonic, Sanden and Valeo) acknowledged their involvement in the cartels and agreed to settle the case. Denso was not fined for three of the cartels as it revealed their existence to the Commission. Panasonic was not fined for one of the cartels as it revealed its existence to the Commission. All other parties co-operated with the Commission under the leniency program and benefitted accordingly from fine reductions. Since all six undertakings agreed to settle the case with the Commission, they benefited from a further reduction of fines by 10%. The Commission fined EUR 27 million three companies which, for more than three years, coordinated prices and other trading conditions for the supply of vehicle lighting systems , across the European Economic Area (EEA). Vehicle lighting systems include parts such as headlamps or daytime running lights. The cartel concerned the supply of these spare parts to manufacturers of passenger and commercial vehicles after the end of mass production of a car model. All three suppliers (Valeo, Automotive Lighting and Hella) acknowledged their involvement in the cartel and agreed to settle the case. Valeo was not fined for the cartel as it revealed its existence to the Commission. Since the 3 companies agreed to settle the case with the Commission, their fines were further reduced by 10%. The Commission imposed a total fine of EUR 34 million for four different infringements on five Occupant Safety Systems suppliers, which for several years coordinated prices or markets and exchanged sensitive information for the supply of seatbelts, airbags and steering wheels to Japanese car manufacturers (Toyota, Suzuki, and Honda) in the European Economic Area (EEA). All companies (Tokai Rika, Takata, Autoliv, Toyoda Gosei, and Marutaka) acknowledged their involvement in the cartels and agreed to settle the case. Consequently, their fines were further reduced by 10%. Tokai Rika and Takata were not fined for one and three infringements respectively, as they revealed their existence to the Commission. These three cases bring the total number of settlement decisions adopted since 2010 to 25. During the same period, around 54% of the total amount of the fines imposed by the Commission was via settlement decisions. The Commission completed its investigation in one "hybrid" case in 14 months after the settlement decision. In "hybrid" cases, decisions are adopted both under the ordinary and under the settlement procedure in the same case. In these cases, all but a limited number of parties (generally one) were willing to settle and the Commission decided to adopt a settlement decision for the ones willing to settle which represented a large majority. For the parties which did not wish to follow the settlement route, the Commission subsequently adopted the decision under the normal procedure. The Commission's investigation against Scania was carried out under the standard cartel procedure after Scania decided not to settle the Trucks cartel case, unlike the other five participants in the cartel. In July 2016, the Commission had reached a settlement decision concerning the trucks cartel with MAN, DAF, Daimler, Iveco and Volvo/Renault. The Commission's investigation revealed that Scania coordinated prices at "gross list" level for medium and heavy trucks in the European Economic Area (EEA), the timing for the introduction of emission technologies for medium and heavy trucks to comply with the increasingly strict European emissions standards and the passing on to customers of the costs for the emissions technologies. The infringement lasted 14 years from 1997 to 2011. The Commission imposed a fine of EUR 880 523 000 to Scania its decision of 27 September . Ordinary procedures remain significant because not all investigations may be suitable for settlement discussions. Relevant factors for screening cases in order to determine whether a settlement procedure seeems appropriate include the number of parties, the proportion of leniency applicants in relation to the total number of parties, the degree of contestation, conflicting positions between the parties and the existence of novel features or aggravating circumstances in the investigated practices. When the right circumstances are not met, the Commission will apply the ordinary procedure. The first cartel case in the circular economy On 8 February, the Commission imposed a total fine of EUR 68 million on four European recycling companies for having participated, between 2009 and 2012, in a cartel to fix the purchase prices of scrap automotive batteries in Belgium, France, Germany, and the Netherlands. The cartel concerned the purchases of scrap lead-acid automotive batteries. The four companies – Campine, Eco-Bat Technologies, Johnson Controls and Recylex – colluded in order to reduce purchase prices of waste batteries or prevent their increase. Johnson Controls benefited from immunity under the Commission’s 2006 Leniency Notice for revealing the existence of the cartel to the Commission. This was the first purchase price-fixing cartel to be sanctioned under the 2006 Guidelines on Fines and also the first European cartel case in a sector of the ‘circular economy’. The Commission re-adopted two decisions annulled by the EU's General Court on procedural grounds in order not to let cartels unsanctioned and maintain deterrence. In 2010, the Commission imposed fines of nearly €800 million on 11 air cargo carriers who participated in a price-fixing cartel, in the airfreight services market covering flights from, to and within the European Economic Area (a 12th cartel member received full immunity from fines). All but one of the 12 air cargo carriers that were the addressees of the 2010 decision challenged the decision before the General Court. In December 2015, the General Court annulled the Commission's decision against the 11 air cargo carriers that appealed, concluding that there had been a procedural error. In the re-adoption decision , the Commission addressed the procedural error identified by the General Court while keeping exactly the same anticompetitive behaviour previously targeted by the Commission. The Commission readopted a cartel settlement decision against the envelopes manufacturer Printeos and imposed a fine of nearly EUR 4,7 million for its participation in a price fixing cartel. Printeos and four other manufacturers agreed to settle the case in December 2014. In December 2016, the General Court annulled the fine against Printeos due to lack of sufficient reasoning concerning discretionary fine reductions. The judgment did not question Printeos' liability for the cartel, which the company had itself acknowledged in the settlement procedure. The re-adoption decision addresses the procedural error identified by the General Court and re-imposes an identical fine on Printeos. The Commission remains committed to pursuing all cartels across all sectors where it has sufficient evidence of an infringement detected through its leniency programme or its ex-officio action (more information on the cartel decisions is available in the sectoral overview). As part of the enhancement of its ex-officio activities, the anonymous whistleblower tool was launched in March . Whistleblowers can contact the Commission by phone, e-mail or on fully anonymous basis through a dedicated online tool. Following the launch, the Commission received information through all three communication channels. The Commission's cartel enforcement record in 2017 remains strong with seven decisions and fines totalling approximately EUR 1,945 billion, coupled with solid work for further enforcement in the years to come.





Case name Adoption date Fine imposed

EUR Undertakings concerned Prohibition Procedure Car battery recycling 08/02/2017 67 609 000 4 Prohibition Thermal systems 08/03/2017 155 575 000 6 Settlement Airfreight (readoption) 17/03/2017 776 465 000 11 Prohibition Envelopes (readoption) 16/06/2017 4 729 000 1 Settlement Lighting Systems 21/06/2017 26 744 000 3 Settlement Trucks (Scania) 27/09/2017 880 523 000 1 Hybrid* Occupant Safety Systems 22/11/2017 34 011 000 5 Settlement * normal procedure part of a hybrid case with a settlement decision in July 2016 Antitrust and cartel output: 4. Continuing close cooperation within the European Competition Network (ECN) and with national courts The national competition authorities (NCAs) play a key role in applying the EU competition rules alongside the Commission. Action by NCAs accounts for 85% of public enforcement of the EU antitrust rules. This is a significant contribution to further drive economic growth and to make sure that markets work well, empowering consumers and businesses alike. However, there is room for improvement. NCAs often lack the means and instruments they need to be truly effective enforcers. If NCAs cannot realise their full potential, this weakens one of the main facets of the single market namely, ensuring that competition is not distorted in Europe. The 2014 Commission Communication on Ten Years of Regulation 1/2003 identified a number of areas of action to make enforcement by the NCAs more effective, in particular that they have effective enforcement powers and fining tools, and have adequate resources and are sufficiently independent when enforcing EU competition law. By way of follow-up, the Commission carried out a public consultation between November 2015 and February 2016 and sounded out options for concrete action with both the NCAs and the Member State ministries. Support for empowering NCAs to become more effective enforcers On 22 March, the Commission adopted a proposal for a Directive to empower NCAs to be more effective enforcers . The proposal follows on from the public consultation launched in November 2015, in which 80% of stakeholders thought that action should be taken to ensure that NCAs have the means and instruments they need . The proposal aims to ensure that the NCAs have the necessary minimum guarantees that they can take decisions independently and have the resources and tools they need to stop and sanction infringements. This includes having effective leniency programmes that encourage companies across Europe to come forward with evidence of illegal cartels. The proposal takes the form of a Directive to ensure due respect of national traditions and specificities. The importance of companies' fundamental rights is underlined: appropriate safeguards must be in place for the exercise of NCAs' powers, in accordance with the EU Charter of Fundamental Rights and general principles of EU law. Cooperation with national courts Effective overall enforcement of antitrust rules in the EU, for the benefit of for both EU households and businesses, requires interplay between public and private enforcement. In addition to its cooperation with NCAs in the context of the European Competition Network (ECN), the Commission also continued its cooperation with national courts (NCs) under Article 15 of Regulation 1/2003. The Commission helps NCs to enforce the EU competition rules in an effective and coherent manner by providing case-related information or an opinion on matters of substance or by intervening as amicus curiae in proceedings pending before the NCs. Following approval from the concerned courts, the Commission publishes its opinions and amicus curiae observations on its website . Private enforcement Directive 2014/104/EU on antitrust damages actions (Damages Directive) aims at ensuring that anyone harmed by infringements of the EU competition rules can effectively avail itself of the right to compensation before national courts. The deadline to implement the Damages Directive in Member States' legal systems expired on 27 December 2016. On 18 January 2017, the Commission sent Letters of Formal Notice opening infringement procedures for non-communication of transposing measures by the deadline against 21 Member States. Of those, 18 Member States fully transposed the Directive in 2017 and the respective infringements proceedings were closed. Bulgaria, Greece and Portugal adopted transposing measures in the first months of 2018 and the completeness of their transposing measures will be assessed before the closure of the infringement proceedings. The Commission will also proceed to the conformity check of all the 28 national transpositions. Merger control EU merger control The purpose of EU merger control is to ensure that market structures remain competitive while enabling smooth restructuring of the industry. This applies not only to EU-based companies, but also to any company active on the EU markets. Industry restructuring is an important way of fostering efficient allocation of production assets. However, there are also situations where industry consolidation can give rise to harmful effects on competition, taking into account the merging companies' degree of market power and other market features. EU merger control ensures that changes in the market structure which lead to harmful effects on competition do not occur. EU merger control seeks to maintain open and competitive markets, which is the best way to ensure that businesses and final consumers obtain fair outcomes. It strives to protect all aspects of competition: as a result, it helps to ensure market structures, in which companies compete not only on price, but also on innovation in order to attract customers. The Commission's merger enforcement practice in 2017, for example, in the agro-chemical and pharmaceutical sectors, shows that the Commission considers innovation and investments as important aspects of competition. The Commission will continue to assess the effects on innovation in the ongoing investigations, where relevant, for example in the proposed acquisition by Bayer of Monsanto.

By protecting all these aspects of competition, EU merger control contributes to the achievement of fairer market structures and a level playing field. Those transactions which may potentially bring discriminatory results by distorting the parameters for competition are subject to close scrutiny by the Commission, which is committed to protect consumers by requesting the necessary commitments to dispel these concerns or, if necessary, by prohibiting the transaction. For example, in 2017 the merger between Deutsche Börse and London Stock Exchange and the acquisition of Cemex Croatia by its rivals HeidelbergCement and Schwenk were ultimately blocked to protect consumers and prevent unfair results. EU merger control also takes into account efficiencies brought about by mergers which bring positive effects on price, innovation and other aspects, provided they are verifiable, merger-specific and likely to be passed on to consumers. As highlighted in previous reports on competition policy, the Commission continuously evaluates the substantive and procedural rules that make up the legal framework in force for merger control. Such reflections are conducted both internally, based on collected experience, and following external input. In this context, the Commission regularly assesses concerns and suggestions for further improvement voiced by stakeholders, evaluates the need for reform and policy changes in specific areas which give rise to new debates, and checks that its policies and enforcement practices do not unduly create red-tape for companies and thereby hamper innovation and investment. 1. Recent enforcement trends In 2017, 380 mergers were notified to the Commission, the second highest number in the history of EU merger control. This continues to represent a substantial increase compared with preceding years: in the period 2010-2016 the average number of notifications was 306 per year . Each year since 2013 there has been a steady upward trend in the number of merger notifications. Among the notifications received in 2017, 28 were reasoned pre-notification submissions by the notifying parties to request the referral of a case from the Commission to a Member State or vice versa. Like in the previous years, most of the notified mergers have not raised any competition concerns and could be notified and processed speedily: around 73% of all notified transactions in 2017 were dealt with under the simplified procedure. This reflects the impact of the simplification package adopted by the Commission in December 2013: the proportion of simplified cases in the period 2004-2013 was significantly lower, amounting to 59%. Nevertheless, 2017 involved intensive work by the Commission both due to the large number of notified transactions and the complexity of a significant number of cases. An increasing number of notified transactions related to industries already characterised by significant concentration. This required the Commission to cast a particularly close look at their potential impact on competition, employing sophisticated quantitative techniques and comprehensive qualitative investigations. In 2017, in seven cases the Commission opened in-depth investigations (second phase). These cases concerned various sectors, including agro-chemicals and seeds, semiconductors, steel, eyewear, cellulose derivatives, titanium dioxide, and commercial vehicles components. The Commission took 375 final decisions in merger cases in 2017 . The number of 24 interventions was somewhat higher compared with the average of the last seven years, which amounted to around 20 interventions per year . In 2017, 18 mergers were cleared subject to commitments in the first phase and two in the second phase. In two cases, the parties abandoned a transaction during the in-depth investigation . Moreover, in two cases the Commission had to adopt prohibition decisions . In enforcing control over mergers, the Commission continued to apply well-established legal and economic principles. To frame its competitive analysis, as an initial step, the Commission traditionally defines relevant markets taking into account all effective alternative sources of supply available to customers. The definition of relevant markets is case-specific and based on market realities. The Commission's approach is in line with the international best practices and well-founded economic principles, as confirmed, for example, by the 2016 independent report of professors B. Lyons and A. Fletcher of the University of East Anglia . In its merger assessments in 2017, the Commission continued to apply those principles. Also, even when some sources of competition, such as imports, did not lead to a widening of the geographic market, the Commission took them into account, where relevant, as part of the substantive assessment . However, the Commission did not artificially expand market definition – while this may allow for the creation of larger European Economic Area players, competition may suffer. And it is the exposure to continuous competition, from within the European Economic Area and abroad, which makes European companies stronger on the European and international arena in the long run. When reviewing proposed concentrations, the Commission assesses their impact on all aspects of competition. In 2017, the Commission had to intervene into several proposed concentrations, which, in addition to price, quality and choice, risked to significantly hinder innovation. Hence, in Dow/ DuPont the Commission identified concerns with respect to, among other areas, the likely negative impact of the merger on innovation in pesticides. The Commission approved this transaction only after the parties offered a comprehensive set of remedies, including the divestiture of the pesticide R&D assets, which should allow a new competitor to emerge and farmers to continue benefiting from innovative and safer products. Similarly, the Commission intervened and acceped a remedy in J&J/ Actellion , where the transaction risked impeding the development of a novel promising drug for the treatment of insomnia, potentially affecting millions of patients. These examples show that the Commission is not only focussing on the impact of mergers on price, but it is also carefully examining dynamic effects on innovation, such as a reduction in new products in the future, which would potentially bring greater harm to consumers. Most of the remedies accepted by the Commission in 2017 to approve the problematic transactions consisted of divestitures of tangible or intangible assets. This is in line with the Commission’s general preference in mergers for structural remedies as best suited to address, in a durable manner, competition concerns arising from a concentration. In a handful of cases in 2017, the Commission accepted non-divestiture remedies , where they were proven to solve effectively the underlying competition concern. Apart from the substantive merger enforcement, 2017 was marked by significant efforts of the Commission to enforce procedural obligations of companies under the EU Merger Regulation . In May, the Commission adopted a decision imposing a fine of EUR 110 million on Facebook for providing misleading information during the review of its acquisition of WhatsApp . In May and July, the Commission also sent four Statements of Objections alleging procedural merger infringements: to Altice and Canon regarding their alleged implementation of notifiable acquisitions before their notification or approval by the Commission (so-called "gun-jumping"), and to Merck GmbH and General Electric concerning their alleged provision of incorrect or misleading information during the Commission's merger review proceedings. These Commission actions are aimed at ensuring that companies respect their procedural obligations under the EU Merger Regulation. The Commission is only able to conduct detailed and accurate assessment of mergers within the strict legal deadlines of the EU Merger Regulation and before any harm to consumers materialises provided that companies submit full and correct information and do not implement their concentrations before receiving final approval from the Commission. Merger decisions: 2. The ongoing evaluation of selected procedural and jurisdictional aspects of EU mergers In October 2016, the Commission launched a public consultation in the context of the evaluation of selected procedural and jurisdictional aspects of EU merger control. This evaluation builds notably upon the results of the 2014 public consultation on the White Paper "Towards more effective EU merger control" . The evaluation focusses on four topics, namely (i) possible further simplification of EU merger control, (ii) the functioning of the jurisdictional thresholds, (iii) the functioning of the referral system, and (iv) specific technical aspects. The public consultation was open until mid-February 2017 and attracted wide interest. The Commission received more than 90 submissions from public and private stakeholders, including national competition authorities, other public bodies, associations, companies, law firms, research institutes and private individuals. A summary of the submissions received during the public consultation, together with their non-confidential versions, were published on the Commission's Competition website on 28 July .

The replies to the public consultation imply that the EU merger control system works well overall and that there is no need for a fundamental overhaul. With respect to simplification, there was a general recognition of significant efforts already undertaken by the Commission at the time of the adoption of the 2013 Simplification Package . Nevertheless, some private stakeholders expressed concerns that a number of burdens still persist when notifying transactions under the simplified procedure. Public stakeholders voiced a more cautious view on furhter simplification, in particular with respect to any legistlative changes to the European Union Merger Regulation. Regarding jurisdictional thresholds, the replies to the consultation concluded that there may be some high-valued transactions that are not subject to EU merger control due to a low turnover realised by the target company. It was submitted that such transactions could occur in the digital sector, but also in other sectors, such as pharmaceuticals and biotechnology. Certain stakeholders expressed support for the introduction of a complementary jurisdictional threshold based on transaction value to close this possible enforcement gap. However, many other stakeholders perceived that there was no significant gap and/or the EU Merger Regulation referral mechanisms combined with national merger review systems in the Member States were sufficient to ensure that cases without EU dimension were reviewed either at national or European Economic Area level. The Commission is currently reflecting - taking into account among other things the replies to the public consultation - whether potential improvements merit proposing any legislative or non-legislative changes to the EU Merger Regulation. The evaluation is however ongoing. 3. Significant judgments by the European Union Courts in mergers In 2017, the EU Courts handed down four judgments in the field of merger control. On 7 March, the General Court annulled the Commission decision of January 2013 prohibiting the acquisition of the Dutch courier delivery company TNT Express by the US-based competitor UPS. The General Court based its annulment on a procedural ground, namely that the Commission had not communicated to UPS the final version of the econometric model used in the contested decision, thus infringing UPS' rights of defence. The Commission takes due process in competition proceedings very seriously. After a careful analysis, it considered however that the General Court erred in assessing several points of law. Therefore, on 16 May the Commission lodged an appeal. It now looks forward for the European Court of Justice to definitively clarify those points. On 7 September, the European Court of Justice issued its preliminary ruling on a question referred to it by the Austrian Supreme Court. In that judgment, the European Court of Justice clarified that a change from sole to joint control over an existing undertaking is a notifiable concentration under the Merger Regulation only if the resulting joint venture will be “full function”, that is performing on a lasting basis all the functions of an autonomous economic entity. This judgment provides a welcome clarification for the assessment of joint ventures / acquisitions of joint control in the future. On 26 October, the General Court annulled the Commission decision of 14 March 2014 clearing the acquisition by the international cable operator Liberty Global of the Dutch cable operator Ziggo subject to commitments. The General Court based its annulment on one procedural ground, namely that the Commission did not explain in its decision the reasons for not raising competition concerns in relation to Premium Pay TV sports channels, thus breaching its duty to state reasons. The General Court's ruling underscores the importance for the Commission to provide sufficient reasoning in its merger decisions. On 26 October, the General Court dismissed the action for annulment brought by Marine Harvest against the Commission decision of 23 July 2014 imposing a fine of EUR 20 million on Marine Harvest for acquiring its rival salmon producer Morpol ASA before receiving a Commission's approval under the EU Merger Regulation . The judgment provides a reminder to companies of their duty not to implement concentrations of EU dimension before notifying and receiving Commission's approval. The General Court also confirmed the Commission's approach when setting the level of the fine. State aid control State aid control is an integral part of EU competition policy and a necessary safeguard to preserve effective competition and free trade in the single market. The Treaty establishes the principle that State aid which distorts or threatens to distort competition is prohibited in so far as it affects trade between Member States (Article 107(1) TFEU). However, State aid, which contributes to well-defined objectives of common interest without unduly distorting competition between undertakings and trade between Member States, may be considered compatible with the internal market (under Article 107(3) TFEU). The objectives of the Commission's control of State aid are to ensure that aid is growth-enhancing, efficient and effective, and better targeted in times of budgetary constraints that aid does not restrict competition but addresses market failures for the benefit of society as a whole. In addition to this, the Commission acts to prevent and recover State aid which is incompatible with the Single market.

1. Uptake of the State Aid Modernisation Since 2014, as part of the State Aid Modernisation (SAM), there has been a surge in State aid granted without prior notification to the Commission, indicating an important reduction in red tape. Based on the 2017 State Aid Scoreboard , this trend has continued to improve. This is possible due to the General Block Exemption Regulation (GBER) adopted in the context of the State aid reform, which simplifies the aid granting procedure for Member States by authorising - without prior notification - a wide range of measures fulfilling certain criteria and specific EU objectives which are in the common interest. For the aid categories covered by the GBER, only cases with the biggest potential to distort competition in the single market will still face ex ante assessment and therefore require a notification. As shown by the graph below , since 2015, more than 97% of new measures, for which expenditure was reported for the first time, were covered by the GBER, which entails an increase of about 25 percentage points compared to 2013. About 80% of all measures for which expenditure was reported (i.e. not only new measures), took the form of block exempted measures in 2016. On average, total spending on GBER measures in the EU represented about 47% of total State aid expenditure (excluding agricultural aid) in 2016, i.e. an increase of about 12 percentage points compared to 2014.

The 2014 GBER introduced new categories of aid and to a large extent, the reported increase in expenditure on GBER measures already reflects the impact of the new Regulation. In 2016, as compared to 2014, total GBER spending for aid to culture and heritage conservation, for broadband and for local infrastructure has increased about fivefold, while it doubled for SMEs, including risk finance. Increases were also recorded for environmental protection and energy savings (+68%), for aid to compensate damages caused by natural disasters (+30%), and for research, development and innovation (+8%). The GBER was further extended in 2017, especially as regards aid to ports and airports (see section 2 below – State aid modernization continues). It is therefore to be expected that the share of block-exempted aid among total aid granted by Member States will increase even further in the coming years. State aid enforcement (Commission decisions, monitoring and Member States' Evaluation Plans) 2007-2017 Partnership with Member States To facilitate the implementation of SAM, the Commission supports Member States in various ways in the framework of a multilateral partnership. The Working Group on SAM implementation (SAM WG) is a forum for Member States to exchange best practices on their systems for State aid control, creating an effective network for the informal discussion of State aid issues among Member States and with the Commission. Other dedicated working groups or workshops deal with specific aspects of SAM implementation, in particular the new requirements for transparency and evaluation (see respective sections below) or issues related to State aid to infrastructure. Once a year, the SAM WG reports to a High Level Forum (HLF) which in turn provides guidance on the future work of the Partnership. The SAM WG met three times in 2017, under the Chair of France, and addressed several policy and compliance issues related to SAM implementation. It reported on the main topics discussed in the Working Group during the past year and on the follow-up to recommendations from past Chairs (Finland, Sweden and the United Kingdom) to the HLF held on 28 June, in Brussels. On this occasion it was agreed to extend the mandate of the Working Group in order to include issues related to the interpretation and implementation of State aid rules, in addition to national practices for complying with these rules. The HLF also endorsed the work plan submitted by the Chair for the period 2017-2018. In 2017, the Commission also continued its bilateral cooperation with Member States. Launched in 2015, the overall objective of this process is to achieve both good State aid policy and effective State aid control at the national level. Three structured cooperation processes are on-going with Italy, Bulgaria and Romania. Based on practical work programmes, these cooperation processes are dealing with governance issues, issues concerning State-owned enterprises, as well as cases in problematic sectors. More tailor-made bilateral cooperation has been developed with nine Member States (Belgium, Croatia, Greece, Hungary, the Netherlands, Poland, Portugal, Slovenia and Spain), with a view to addressing country-specific compliance and implementation issues. Work is on-going towards deepening cooperation with additional Member States Transparency Award Module The transparency provisions currently part of SAM are in force since 1 July 2016 and require Member States to publish information about the beneficiaries of aid awards above EUR 500 000 . Member States have six months starting from the date of granting to provide the required aid awards' data, with the exception of awards in the form of fiscal aid for which the information needs to be provided within one year from the date of granting. The Commission services facilitated compliance with this requirement by developing, in cooperation with Member States, the Transparency Award Module (TAM) – a new informatics tool for submission and publication of data required under the transparency provisions. The TAM ensures that information submitted by granting authorities is consistent and comparable across Member States. In addition, the associated transparency public search page provides all stakeholders, i.a. citizens, competitors and researchers, with a single entry point allowing them to make comparable extractions and analysis. For these reasons, the Commission pursues efforts to improve the user friendliness and the interoperability capabilities of the tools, to incentivise those Member States already having National State Aid Registries in place to use the TAM as well. For example, the Commission has developed a so-called machine-to-machine interface to transfer directly the relevant information to the TAM, in view of reducing administrative burden and promoting the use of information and communication technologies applying the "only once" principle. As of end October 2017, 24 Member States have joined the TAM. Approximately 15000 aid awards have been published by 22 Member States. The Commission services have supported the implementation of this new requirement by facilitating, together with Member States' representatives, the Transparency Steering Group (two meetings in 2017) and by organising dedicated trainings upon request. Evaluation Evaluation of aid schemes is another requirement introduced by SAM. The aim is to gather the necessary evidence to better identify impacts, both positive and negative, of the aid and inform future policy-making by Member States and the Commission. Since 1 July 2014, evaluation is required for large GBER schemes in certain aid categories as well as for a selection of notified schemes under the new generation of State aid guidelines . By the end of December 2017, the Commission had approved evaluation plans covering 37 State aid schemes submitted by 13 Member States . Most of these decisions concerned either large regional or R&D&I aid schemes under the GBER or notified energy and broadband schemes. These schemes account, in total, for about EUR 48 billion of annual State aid budget. The first evaluation report has been submitted in January 2018. The Commission services have continued to accompany the implementation of the evaluation requirement by publishing policy briefs and by organising dedicated workshops with Member States' representatives and evaluation experts. Aid for research, development and innovation While one of the headline targets of the Europe 2020 Strategy is for Research, Development and Innovation (R&D&I) investments in the EU to reach 3 % of EU GDP, R&D&I spending in the EU has been lagging behind major global competitors, mainly due to lower levels of private investment.

The State aid rules for R&D&I help ensure that public funding goes to research projects that would not otherwise be realised due to market failures, i.e. projects that truly go beyond the state of the art and which bring innovative products and services to the market and ultimately to consumers. The rules, using flexible and simple criteria for assessing the compatibility of State aid, facilitate the implementation of support for R&D&I projects by Member States. In 2017, the Commission ensured that aid schemes and individual measures notified under the R&D&I rules were well targeted to projects enabling ground-breaking research and innovation activities. Its State aid control activities covered a variety of sectors including the automated/connected driving, e-mobility, aeronautic, and microelectronic sectors. In one case , the Commission found that public support by France and Germany for jointly developing a new, innovative heavy duty helicopter was compatible with the internal market under the R&D&I Framework as it contributed to a well-defined objective of common interest without unduly distorting competition on the market of the civil helicopters. Moreover, the Commission cooperated with a number of Member States with a view to enabling them to adjust certain envisaged R&D&I measures and bring them in line with the GBER. This way, aid measures could be granted swiftly without having to be notified to the Commission, thereby speeding up public support for R&D&I. The ongoing discussions with a group of Member States on an important project of common European interest (IPCEI) in the area of microelectronics is a good example of the Commission's policy to encourage intra-EU R&D&I cooperation and coordination in the area of Key Enabling Technologies, including first industrial deployment. Aid to risk finance SMEs across the EU remain heavily dependent on traditional bank lending, which is still limited by banks' refinancing capacity, risk appetite and capital adequacy. The financial crisis has exacerbated the problem with a large number of SMEs still being unable to receive the necessary finance in recent years. Given the pivotal importance of SMEs and midcaps for the whole EU economy, the situation has a significant negative impact on growth and job creation. The current Risk Finance rules aim to offer better incentives for private sector investors - including institutional ones – to increase their funding activities in the critical area of SME and midcaps financing. The rules also mirror other EU initiatives designed to promote wider use of financial instruments in the context of new support programmes such as Horizon 2020 or COSME (the Programme for the Competitiveness of Enterprise and SMEs) . The current Risk Finance Guidelines and the corresponding parts of the GBER, provide the framework for seamless support for new ventures from their creation to their development into global players. The aim is to help new ventures to get past the critical stages where private financing is either unavailable or not available in the necessary amount or form.



Aid measures encouraging investment and innovation in SMEs In 2017, under the Risk Finance Guidelines, the Commission dealt with notified schemes aimed at encouraging investment in innovative SMEs and midcaps. In particular, it approved the prolongation of an amended scheme in Italy granting fiscal incentives for investments in innovative start-ups. Moreover, the Commission cooperated with a number of Member States with a view to enable them to adjust certain envisaged risk finance measures and bring them in line with the current GBER. This way, aid measures could be granted swiftly without having to be notified to the Commission, thereby speeding up public support to innovative SMEs. In all these cases, the Commission took the view that the measures at issue covered a real gap in the market, and worked together with the Member States on solutions to limit the impact on competition in the single market. In particular, the Commission considered that the risks inherent to the activities of these young firms and innovative companies (i.e. products/technologies not yet proven to be economically viable) and the lack of financial guarantees limited their capacity to access funding and that the aid was necessary to stimulate investment that, if unprompted, would not have been provided by the market. Regional aid Regional aid is an important instrument in the EU's toolbox to promote greater economic and social cohesion. The 2014-2020 regional aid framework has been in place since July 2014. In 2017, the Commission reviewed the regional aid provisions in the GBER. Three important changes were introduced. A first one relates to operating aid for outermost regions (widening of the sectoral scope of these provisions and a significant increase in the operating aid ceilings applicable to these regions). The second modification concerns operating aid for companies conducting business in very sparsely populated regions. Finally, the Commission modified the anti-relocation provisions by requiring a notification of the investment aid if it involves a transfer of the underlying economic activity from other Member States. In 2017, the Commission continued advising Member States' authorities on how to interpret and implement the regional aid provisions of the GBER, thus helping them to make a success of the reforms introduced under SAM to the benefit of both consumers and businesses. Regional aid cases The Commission also adopted several decisions on notified regional investment aid measures under the Regional aid Guidelines. It approved the Octroi de Mer scheme providing regional operating aid for companies located in the French Outermost regions . It also adopted positive decisions on regional investment aid for two large investment projects, namely aid to Mondi (paper and paper products, Slovakia) and aid to MOL Petrolkémia (petrochemical plant in Hungary) . The Commission initiated a formal investigation procedure in relation to a regional investment aid to Jaguar Land Rover in Slovakia (cars) . In addition, it approved a Polish regional aid scheme targeting the shipbuilding sector and an amendment of the French Regional aid map . Finally, the Commission adopted two decisions approving evaluation plans for Italy on a SME investment aid scheme for purchase of new machinery and equipment and on an aid scheme for large investment projects "Contratti di Sviluppo" .

Infrastructure In 2017, the Commission continued providing guidance to the Member States' authorities by way of so-called "analytical grids" on the application of State aid rules to the public financing of infrastructure projects, which were revised in the light of the adoption of the Commission Notice on the notion of State aid in 2016 and the adoption of the revised GBER in 2017 . In 2017, the Commission adopted several positive decisions on aid for the development of infrastructures having an economic use, notably aid for the development of the Charles De Gaulle Express , aid for the development of a logistics centre in the Port of Pitea , a scheme to provide aid for investment in transhipment facilities for combined transport , aid for the revitalisation of the Hamburg Congress Centre , aid to the construction and operation of the Bratislava national football stadium and aid for the construction of the Ice Hokey Arena in Tampere, Finland .



2. State Aid Modernisation continues Notion of aid: comprehensive clarification including public funding of infrastructure Since 2016, the Commission took several steps to further clarify the notion of State aid with the aim of helping public authorities and companies to identify when public support measures can be granted outside the remit of State aid control and approval by the European Commission , in particular with the adoption of the Notice on the notion of State aid . This Notice gives guidance on all aspects of the definition of the notion of State aid by systematically summarising the case law of the EU Courts and the Commission's decision making practice. Furthermore, the Commission services continue updating the analytical grids on the financing of infrastructure projects originally adopted in 2015. A first part of these updated grids were presented to and discussed with Member States in a dedicated working group on infrastructures in November 2016. A second part was published on the Directorate-General for Competition's website in November 2017. These Commission services documents set out, sector by sector, when, in view of the Commission services, public funding does not involve State aid and when a notification for State aid clearance is needed. The grids also contain references to the most relevant Commission decisions relating to the sector concerned. Together, these different measures further clarify the notion of State aid and, thus, the scope of EU State aid rules, reducing the administrative burden for public authorities and companies, avoiding lengthy procedures, and increasing legal certainty for aid beneficiaries and competitors. Further extension of the scope of the GBER The scope of the General Block Exemption Regulation (GBER) was extended significantly in 2014 compared to the previous GBER, by including provisions for a large variety of aid measures in many different sectors. However, the 2014 GBER did not cover investments in ports and airports, as at the time of its adoption, the Commission considered it did not have sufficient case experience in these areas. Notwithstanding, recital 1 of the 2014 GBER announced that the Commission planned to propose criteria for exempting ports and airports infrastructure provided that sufficient case experience were to be developed. In the years following the entry into force of the 2014 GBER, the Commission adopted numerous State aid decisions in the area of ports and airports. This case practice fully supports the extension of the scope of the GBER to facilitate the grant of aid in unproblematic cases. On the basis of this acquired experience and to fulfil the commitment announced in recital 1 of the 2014 GBER, the Commission in 2016 published two drafts for consultation and held two meetings with the State aid advisory committee of Member States on an extension of the GBER. After revisions of the two drafts on the basis of the numerous replies received by Member States and stakeholders, the extension of the GBER was adopted on 14 June 2017 . It provides a major simplification for unproblematic investments in ports and airports. Member States can implement State aid measures in these areas without the need to notify them before to the Commission, as long as they have checked that they comply with the conditions of the Regulation. The revision also addresses some other technical issues beyond ports and airports. In particular it makes it easier for public authorities to compensate companies for the additional costs they face in the EU's outermost regions. In addition, the extension further increases the maximum amount of aid allowed under the GBER for culture projects (under the rare circumstances that public funding for culture actually constitutes State aid) and for multi-purpose sports arenas. By doing so, the extension of the GBER further contributes to the objectives of the State Aid Modernisation launched by the Commission in 2012, in the sense that it minimises administrative burdens and make it easier for national, regional and local authorities to grant aid that contributes to a more dynamic and competitive internal market. It further focuses the Commission's State aid scrutiny to larger cases, by block exempting additional unproblematic cases. Revision of the Simplified Procedure Notice and Best Practices Code In 2016, the Commission launched a review of the Simplified Procedure Notice and of the Best Practices Code in order to reflect, on the one hand, the amendments brought to the State aid framework within the State Aid Modernisation initiative and, on the other hand, to take account of the experience gained by the Commission with its implementation. In the light of the comments received from the public consultations , the Commission will review these texts with the objective to ensure coherence and consistency in the application of the various instruments of the State aid framework. 3. Monitoring, recovery and cooperation with national courts Increased monitoring of existing State aid to ensure a level playing field

Over the years, the architecture of State aid control has evolved. Today, a substantial part of aid is granted under block-exempted schemes which are not examined by the Commission before entering into force. Overall, roughly 85% of aid is granted on the basis of previously approved aid schemes or Block Exemption Regulations. In that context, it is essential for the Commission to verify that Member States apply State aid rules for the schemes correctly and that they only grant aid when all required conditions are met. To that end, the Commission introduced in 2006 a regular, ex post, sample-based control of existing aid schemes ("monitoring"). After a modest start covering about 20 schemes and ten Member States in each monitoring cycle, the Commission has considerably stepped up monitoring since 2011. Building on the Court of Auditors recommendations , the Commission has substantially increased the size of the monitoring sample in the last three annual cycles to more than 50 schemes per year. It also extended the scope of its control. The 2017 cycle covered most Member States and all main types of aid approved as well as block-exempted schemes. Furthermore, the sample included block-exempted schemes implemented under the new GBER . Also, the Commission continued on targeted monitoring where it examined whether Member States correctly applied the criterion on the incentive effect. The Commission follows up on irregularities and uses the means at its disposal, as appropriate, to address the competition distortions that these may have caused. In some cases, Member States offer to voluntarily redress the problems detected, for example to amend national legislation or to recover the excess aid granted. In other cases, the Commission may need to take formal action. Restoring competition through recovery of State aid granted in breach of the rules To ensure the integrity of the single market, the Commission has the power and the duty to request that Member States recover unlawful and incompatible aid which has unduly distorted competition and trade between Member States. In 2017, further progress was made to ensure that recovery decisions are enforced effectively and immediately. By 31 December, the sum of illegal and incompatible aid recovered from beneficiaries amounted to EUR 13.3 billion . At the same time, the outstanding amount pending recovery was EUR 18.4 billion. In 2017, the Commission adopted six new recovery decisions and EUR 261.4 million was recovered by the Member States. As of the end of December, the Commission had 44 pending recovery cases. Recovery decisions adopted in 2017 6 Amount recovered in 2017 (EUR million) 261.4 Pending recovery cases on 31 December 2017 44 As a guardian of the Treaty, the Commission may use all legal means at its disposal to ensure that Member States implement their recovery obligations, including launching infringement procedures. In 2017, the Commission filed one action to the European Courts under Article 108(2) TFEU for failure to implement recovery in the Apple case . Cooperation with national courts to ensure the effectiveness of State aid rules The Commission continued its cooperation with national courts and tribunals under Article 29 of the Procedural Regulation . This cooperation includes direct case-related assistance to national courts when they apply EU State aid law. The courts and tribunals can ask the Commission to provide case related information, or to provide an opinion on the application of State aid rules. The Commission may also submit amicus curiae observations at its own initiative. In 2017, the Commission responded to one request for information. The request was issued by the Supreme Administrative Court of Finland and enquired on the status of the investigation in a complaint. The Commission's possibility to submit amicus curiae observations on its own initiative before national courts is a novelty brought about by the 2013 amendment to the Procedural Regulation. In that respect, Article 29 of the Procedural Regulation mirrors Article 15(3) of Regulation 1/2003 in the field of antitrust. In 2017, the Commission submitted written observations for six court cases and also made oral observations for two of these cases . All the cases concern the Micula decision. To make its views publicly known, in June 2017 the Commission started to publish its opinions and amicus curiae observations, as well as observations to others, on its website . In 2017, the Commission also continued its advocacy efforts. It was actively involved in evaluating the financing of training programmes for national judges and in assessing their needs. The Commission staff also provided training during workshops and conferences .



4. Significant judgments by the European Union Courts in the State aid area In 2017, the EU Courts adopted a number of important judgments in the State aid area. The following overview is based on a selection of court judgments.

State resources In its preliminary ruling in ENEA , the European Court of Justice confirmed that a national measure placing an obligation on both private and public undertakings to purchase electricity produced by cogeneration does not constitute an intervention by the State or through State resources when the extra costs resulting from that purchase obligation cannot be passed on entirely to end users and are not financed by a compulsory contribution imposed by the State or by a full offset mechanism. In the case at stake, the supply undertakings were not appointed by the State to manage a State resource, but were funding a purchase obligation imposed on them by having recourse to their own financial resources. The ruling further clarifies that the mere fact that the majority of the undertakings having the purchase obligations were public companies could not lead to conclude that State resources were involved if it is not in addition demonstrated that the State exercised dominant influence over public undertakings to direct the use of their resources in order to finance advantages to the benefit of other undertakings. The issue of State resources is also central in the TV2/Danmark judgment , which put an end to the State aid assessment of the public financing of the Danish public broadcaster TV2/Danmark, started in 2003. In 2004, the Commission adopted a decision stating that the aid granted between 1995 and 2002 to TV2 in the form of licence fee resources was compatible, with the exception of an overcompensation for an amount of DKK 628.2 million (approximately EUR 85 million) for which the Commission ordered recovery. Upon annulment by the General Court in 2008 of that decision , the Commission adopted a second decision in 2011 declaring the public financing of TV2 between 1995 and 2002 to constitute in its entirety compatible aid. In 2015, the General Court annulled that second decision in so far as the Commission had found that during 1995 and 1996 the advertising revenues generated by TV2 by broadcasting commercials constituted State resources because they were channelled through a Government-controlled fund. The General Court found that the fact that the revenues were channelled through a public entity would not render the commercial nature of the income a State resource, even if the State had the possibility to fix the amounts to be channelled to TV2. The advertising revenues would keep their character as income generated by commercial activities of TV2. In TV2/Danmark the European Court of Justice set aside the judgment of the General Court. It considered decisive for the question whether TV2’s advertising revenues constituted State resources that the State effectively had control over these funds before they were paid to the beneficiary. In particular, the European Court of Justice considered that the General Court was wrong to hold that resources originating with third parties that are managed by public undertakings can constitute State resources only when they are voluntarily placed at the disposal of the State by their owners or abandoned by their owners and when the State has assumed the management of those resources. The European Court of Justice also differentiated this case from PreussenElektra by stating that the latter case related to private undertakings that had not been appointed by the State to administer a State resource, but were bound by an obligation to purchase by means of their own financial resources. Further, in that case, the funds at issue were at no time under public control. By contrast, the present case concerns public undertakings, namely TV2 Reklame and the TV2 Fund, that were created, owned and appointed by the Danish State to administer the revenue produced by the sale of advertising space of another public undertaking, namely TV2/Danmark, and as a consequence that revenue was under the control and at the disposal of the Danish State. Economic v non-economic activity The preliminary ruling in Congregación de Escuelas Pías related to an exemption of a Catholic school from a municipal real estate tax in Spain granted in respect of work to buildings intended to be used for educational activities that do not have a strictly religious purpose. In its judgment, the European Court of Justice noted that the school was engaged in three types of activities: (i) strictly religious activities, which are non-economic; (ii) educational activities subsidised by the State, which cannot be classified as economic; and (iii) non-compulsory educational activities receiving no financial support from the State, which can be regarded as economic. The European Court of Justice held that the tax exemption may constitute State aid if and to the extent to which the activities carried on in the premises in question are economic activities, a matter which is for the national court to determine. On this basis, the European Court of Justice concluded that the prohibition in Article 107(1) TFEU can only apply to the tax exemption if (i)