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					BELGRADE INTERNATIONAL ANTITRUST
           CONFERENCE


 “Arbitration as an Alternative Means of
         Private Enforcement in
EU Competition Law and Merger Control”

            Gordon Blanke MCIArb,
           Habib Al Mulla & Co, Dubai


        Yougoslav Theatre of Drama, Belgrade,
                    26 May 2010



                                                3
    Overview – Ordinary EU competition and
         EU commitment arbitrations


• Ordinary EU competition arbitrations (Part I)

• EU commitment arbitrations (Part II)

    Conditional merger clearance decisions under the EU
     Merger Regulation (A)
     (Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of
     concentrations between undertakings [2004] OJ L 24/1)

    Commitment decisions under Article 9 of Council
     Regulation 1/2003 (B)
     (Council Regulation 1/2003 on the implementation of the rules on competition laid
     down in Arts 81 and 82 of the Treaty [now Arts 101/102 TFEU] [2003] OJ L1/1)




                                                                                         4
    Part I – Ordinary EU competition arbitrations


•   Advantages of competition enforcement through arbitration over
    enforcement through the courts:

     Proceedings are private and confidential, avoiding adverse
      publicity
     Arbitrating parties can choose arbitrator (private judge) by
      reference to industry sector expertise and competition law
      experience
     Resultant award (private judgment) is final and binding
      (unappealable on the merits) and enforceable in over 140
      leading industrial nations (including all EU Member States)
      under the New York Convention (on the recognition and
      enforcement of foreign arbitral awards)

                                                                     5
        The scope of the arbitrator’s jurisdiction



•   In theory:

      Enforcement actions under Arts 101/102 TFEU
      Euro-defence in ongoing arbitrations
      Follow-on damages actions on the basis of a Commission’s previous
       finding of a competition infringement


•   In practice:

      Over 50 ICC competition arbitrations from 1964 to date in relation to
       alleged competition infringements (e.g. exclusivity and non-compete
       provisions) in e.g. distribution and licence agreements
      Caveat cartel agreements

                                                                               6
                The arbitrator’s findings



• Declare an anti-competitive agreement null and void ab initio
  under Art. 101(2) TFEU
• Declare that an agreement that complies with the
  requirements of Art.101(3) TFEU is not in breach of Art.101
  TFEU
• Declare that an agreement is block-exempted
• Find abuse of a dominant position under Art. 102 TFEU
• Award compensatory damages and other private law remedies
  (including all those that may be awarded by an alternatively
  competent court, such as extra-compensatory damages and
  injunctions)

                                                                  7
      Part II – EU commitment arbitrations




(A)       Arbitration commitments in
          EU conditional merger clearance decisions

(B)       Arbitration commitments in
          Art. 9 commitment decisions




                                                      8
        Part II (A) - Conditional merger clearance
         decisions under the Merger Regulation

•   Behavioural or structural remedies under Art. 6 and 8 of the Merger
    Regulation

•   “The categorisation of a proposed commitment as behavioural or
    structural is […] immaterial. […] the possibility cannot automatically be
    ruled out that commitments which prima facie are behavioural, for instance not
    to use a trademark for a certain period, or to make part of the production
    capacity of the entity arising from the concentration available to third-party
    competitors, or, more generally, to grant access to essential facilities on non-
    discriminatory terms, may themselves also be capable of preventing the
    emergence or strengthening of a dominant position [a significant impediment
    of effective competition].”
        (T-102/96 Gencor v Commission, Judgment of the General Court of 25 March 1999, [1999] ECR
        II-753)

•   behavioural nature of the remedy, which by definition requires some form of
    medium- to long-term judicial monitoring to ensure its correct
    implementation


                                                                                                    9
         The Commission’s use of arbitration
          commitments in merger control:
                   Statistics (I)

Totals and percentages 1992 - 2009
                                       Phase II
                   Phase I Decisions               Total
                                       Decisions

Article 6 Merger         186
Regulation
Article 8 Merger                          91       277
Regulation
ARBITRATION               37              20        57
COMMITMENTS

       approx. %         20.0            22.0      21.0




                                                           10
              The Commission’s use of arbitration
               commitments in merger control:
                       Statistics (II)

               1992

                      1993

                             1994

                                    1995

                                           1996

                                                  1997

                                                         1998

                                                                1999

                                                                       2000

                                                                              2001

                                                                                     2002

                                                                                            2003

                                                                                                   2004

                                                                                                          2005

                                                                                                                 2006

                                                                                                                        2007

                                                                                                                               2008

                                                                                                                                      2009
Year




No. of
Conditional
Merger         7      2      4      6      3      9      16     23     38     20     15     17     16     18     19     22     24     12
Clearance
Decisions

No. of
Arbitration
Commitments    3      0      0      1      1      2      1      4      8      4      2      4      3      6      4      9      2      3




                                                                                                                                             11
                                                          The Commission’s use of
                                                arbitration commitments in merger control:
                                                               Statistics (III)

                                           40
No. of decisions/arbitration commitments




                                           35                                                                                8
                                           30

                                           25
                                                                                                                                                                                                     2
                                           20                                                                       4
                                                                                                                                      4                                            4        9
                                           15                                                              1                 30                         4        3        6
                                                                                                                                               2
                                                                                                                                                                                                     22       3
                                           10                                                                       19
                                                                                                  2        15                         16                                           15
                                                     3                          1                                                              13       13       13       12                13
                                            5                          0                                                                                                                                      9
                                                                                5        1        7
                                                     4        0
                                                              2        4                 2
                                            0
                                                92

                                                         93

                                                                  94

                                                                           95

                                                                                    96

                                                                                             97

                                                                                                      98

                                                                                                               99

                                                                                                                        00

                                                                                                                                 01

                                                                                                                                          02

                                                                                                                                                   03

                                                                                                                                                            04

                                                                                                                                                                     05

                                                                                                                                                                              06

                                                                                                                                                                                       07

                                                                                                                                                                                                08

                                                                                                                                                                                                         09
                                           19

                                                     19

                                                              19

                                                                       19

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                                                                                                  19

                                                                                                           19

                                                                                                                    20

                                                                                                                             20

                                                                                                                                      20

                                                                                                                                               20

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                                                                                                                                                                 20

                                                                                                                                                                          20

                                                                                                                                                                                   20

                                                                                                                                                                                            20

                                                                                                                                                                                                     20
                                                                                                                              Year

                                                                   No. of conditional merger clearance decisions                                    No. of arbitration commitments
                                                                                                                                                                                                                  7
                                                                                                                                                                                                                      12
              The Commission’s use of
    arbitration commitments in merger control:
                   Statistics (IV)

Totals and percentages 1992 – 2009 as per nature of remedy
package
                     Phase I decisions   Phase II decisions         Total


                      No.      Appr. %    No.      Appr. %    No.       Appr. %


Arbitration
                      37         100       20        100      57            100
commitments

Purely behavioural    19         51        6          30      25            44

Structural             3          8        0           0      3             5

Mixed                 15         41        14         70      29            51


                                                                                  13
                                              The Commission’s use of
                                    arbitration commitments in merger control:
                                                   Statistics (V)


                                      Phase I decisions           Phase II decisions                          Total
                               80
                                                                                     70
% of Arbitration commitments




                               70

                               60
                                      51                                                                              51
                               50                                                                        44
                                                     41
                               40
                                                                  30
                               30

                               20
                                              8
                               10                                                                              5
                                                                            0
                                0
                                                             Nature of Arbitration Commitments


                                                          Purely behavioural    Structural       Mixed

                                                                                                                           14
       The Commission’s use of arbitration in
      access commitments in merger control (I)


•   mainly access problems to some type of essential facilities or key
    technology or infrastructure controlled by the merged entity

    “Nearly all past cases involve remedies providing for the granting of
    access to networks, key technology, film content, or to put it more
    general, the granting of access to important infrastructure or assets.”
    (J. Lübking, “The European Commission’s View of Arbitrating Competition Law Issues” in G. Blanke
    (ed.), Arbitrating Competition Law Issues: A European and a US Perspective, EBLR Special Edition,
    19(1) EBLR (2008))


•   access commitments supported by arbitration have now expressly
    been sanctioned by the European Commission in its revised Notice
    on Remedies
    (Commission Notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under
    Commission Regulation (EC) No 802/2004 (of C267/1, 22 Oct. 2008)



                                                                                                        15
      The Commission’s use of arbitration in
    access commitments in merger control (II):
    Commission’s revised Notice on Remedies


•   “Normally, such monitoring has to be done by the market participants themselves, e.g.
    by those undertakings wishing to benefit from the commitments. Measures allowing
    third parties themselves to enforce the commitments are in particular access to a
    fast dispute resolution mechanism via arbitration proceedings (together with
    trustees) or via arbitration proceedings involving national regulatory
    authorities if existing in the markets concerned. If the Commission can conclude
    that the mechanisms foreseen in the commitments will allow the market participants
    themselves to effectively enforce them in a timely manner, no permanent monitoring of
    the commitments by the Commission is required. In those cases, an intervention by the
    Commission would only be necessary in cases where the parties do not comply with the
    solutions found by those dispute resolution mechanisms. However, the Commission will
    only be able to accept such commitments where the complexity does not lead to a risk of
    their effectiveness from the outset and where the monitoring devices proposed ensure
    that those commitments will be effectively implemented and the enforcement
    mechanism will lead to timely results.”

    (revised Notice on Remedies, para. 66)




                                                                                              16
     The Commission’s use of arbitration in
   access commitments in merger control (II):
Commission’s revised Notice on Remedies (cont’d)

 “[G]iven the long duration of non-divestiture commitments and their frequent complexity, they
 often require a very high monitoring effort and specific monitoring tools in order to allow the
 Commission to conclude that they will effectively be implemented. Therefore, the Commission
 will often require the involvement of a trustee to oversee the implementation of such
 commitments and the establishment of a fast-track arbitration procedure in order to
 provide for a dispute resolution mechanism and to render the commitments
 enforceable by the market participants themselves. In past cases, the Commission has
 often required both the appointment of a trustee and an arbitration clause. In those
 circumstances, the trustee will oversee the implementation of the commitments, but will also
 be able to assist in arbitral proceedings to the effect that they may be finalised in a short
 period of time.”

 (revised Notice on Remedies, para. 130)



                                                                                                   17
        The Commission’s use of arbitration in
      access commitments in merger control (III):
                    Examples
•   access to essential infrastructure (e.g. Comp/M.4745 – DB/EWS,
    Commission decision of 6 Nov. 2007: Driver Training & Maintenance
    Programme)
•   transfer of slots and/or the granting of interlining and/or inter-modal
    agreements in the airline industry (e.g. Comp./M.3280 - Air France/KLM,
    Commission decision of 11 Feb. 2004);
•   the granting of technology licences (e.g. Comp./M.3225 - Alcan/Péchiney (II),
    Commission decision of 29 Sept. 2003); and
•   the provision of inter-operability (information) for the interactive use of
    technical devices from different suppliers (e.g. Comp./M.3083 -
    GE/Instrumentarium, Commission decision of 2 Sept. 2003)


                                                                                    18
What is a unilateral arbitration commitment? (I)

•   erga omnes obligation on part of the merged entity to submit to
    arbitration vis-à-vis third-party beneficiaries of rights flowing from a
    behavioural remedy under the merger clearance decision

•   corresponding right on part of third-party competitor to trigger the
    arbitration commitment to enforce rights it derives from the
    behavioural remedy and to claim:

      compensation for civil law damages caused to it by the incorrect
       or non-performance of the remedy by the merged entity; and/or

      specific performance of the remedy by the merged entity


                                                                               19
What is a unilateral arbitration commitment? (II)



•   arbitration as a private means of enforcement
•   “[I]f there is a potential unlimited number of beneficiaries of access
    commitments [as is often the case], the commitments have to include
    a mechanism for self-enforcement, or to put it differently, it has to be
    left to the market to enforce such commitments. This is exactly what
    should be achieved through the arbitration clause in the
    commitments.”

    (J. Lübking, op. cit. in G. Blanke (ed.), op. cit.)




                                                                               20
    How to trigger an arbitration commitment


•   as per the terms of the Commission’s merger clearance decision

•   as per the Commitment Letter appended to the Commission’s
    merger clearance decision (forming part of the acte communautaire)

•   as per the arbitration clause contained in the agreement concluded
    between the merged entity and the third-party competitor in
    implementation of the behavioural remedy (the “implementation
    agreement”)

•   third-party notification requirement (Comp/M.3998 –
    Axalto/Gemplus, Commission decision of 19 May 2006), incl. posting
    on merged entity’s website
                                                                         21
    How to enforce an arbitration commitment


•   arbitration commitment qualifies as an “obligation” under Art. 19 of the revised
    Notice on Remedies (see also Comp./M.2621 – SEB/Moulinex, Commission decision of
    8 Jan. 2002, at para. 148)

•   breach likely to trigger Commission’s own investigations in the first instance

•   merged entity likely to be fined for its intransigence to date

•   merged entity likely to comply with arbitration commitment as nothing to be gained
    from thwarting the arbitral proceedings

•   Union Courts have approved (Case T-158/00 - ARD v Commission, Judgment of the
    General Court of 30 Sept. 2003; and Case T-177/04 - easyJet Airline Co Ltd v
    European Commission, Judgment of the General Court of 4 July 2006)




                                                                                         22
The concept of the arbitration commitment
                in context

      Commission

                   COMMITMENT DECISION


                     REMEDY PACKAGE
 First Step
                      ARBITRATION
                      COMMITMENT

                                         Merged entity

                     IMPLEMENTATION
  Second               AGREEMENT
   Step
                   ARBITRATION CLAUSE




                       Third-party
                       beneficiary

                                                         23
                   The scope and nature of
                the arbitrator’s jurisdiction (I)


•   confined to adjudicating civil law consequences of the incorrect or non-
    implementation of the behavioural remedy, awarding private law remedies

•   Commission preserves its regulatory function, including the prerogative to
    impose public law sanctions (i.e. fines and/or dismantling of an already
    consumed merger) within the meaning of the Merger Regulation

•   Commission remains responsible for the correct implementation of the
    remedy

•   the arbitrator’s private law mandate complements the public administrative
    functions of the European Commission



                                                                                 24
                  The scope and nature of
               the arbitrator’s jurisdiction (II)

“The Commission, by accepting commitments which include arbitration clauses, does not and, legally,
cannot delegate its powers under the Merger Regulation. Equally, the use of arbitration does not affect
the Commission’s statutory powers concerning the implementation of commitments.
Whereas an arbitration clause included in the commitments does, therefore, not lead to a change of the
Commission’s powers, it is a substantial part of the commitments and establishes a monitoring
mechanism for the commitments submitted by the parties. […] What are the consequences? In a way,
this leads to parallel responsibilities between the Commission and the arbitrator. On the one hand, the
Commission keeps the responsibility for the overall monitoring of the commitment. The ARD judgment of
the Court of First Instance says in this respect that, if the parties do not comply with the arbitral award,
the Commission has to make sure that the arbitral award is enforced. Non-compliance with the arbitral
award would be a violation of the commitments by the merging parties and the Commission could rely
on the provisions of the EC Merger Regulation relating to the enforcement of commitments. On the other
hand, with respect to the arbitration tribunal, the task of the arbitral tribunal is to resolve the dispute
between private parties, thereby indirectly enforcing the commitments. […] the arbitral tribunal is not an
agent of the Commission in this procedure. […] However, it can also not substitute itself for the
Commission and, for instance, change the commitments under the review clause, but its role is limited to
the one assigned to it in the framework of the commitments.
To sum up: From the Commission’s point of view, the consequence of the role of the arbitral tribunal
under the commitments is that its independence in adopting a decision is to be maintained as only this
will lead to a proper enforcement of the commitments. At the same time, there should be close and good
co-operation with the Commission as the Commission remains responsible for the overall enforcement of
the commitments.”
(J. Lübking, op. cit. in G. Blanke (ed.), op. cit.)
                                                                                                               25
       The arbitrator’s findings (I):
where implementation agreement in place

 •   the merged entity is in breach of the implementation agreement, order specific
     performance and make an award for damages accordingly;

 •   the implementation agreement is defective and has not correctly implemented
     the relevant behavioural commitments underlying the commitment decision and
     that the implementation agreement falls short of the pro-competitive effects
     originally intended by the Commission, in which case the parties may be ordered
     to vary the implementation agreement accordingly;

 •   even though correctly implemented, the original behavioural commitments,
     prove, ex post facto, insufficient, and refer the case back to the Commission for a
     review of the deficient remedies in accordance with the Merger Regulation read in
     conjunction with the Remedies Notice; or

 •   the implementation agreement is not deficient, that the merged entity has
     correctly implemented the relevant behavioural commitments, and render an
     exculpatory award in favour of the merged entity accordingly
                                                                                           26
          The arbitrator’s findings (II):
where implementation agreement not yet in place
   •   order the merged entity to propose an appropriate implementation agreement to
       the third-party beneficiary that is in full compliance with the commitment
       decision, if the merged entity has simply refused to enter into any such agreement
       and accordingly to make any draft propositions, and make an award for damages
       for loss caused by the merged entity’s recalcitrance; and/or

   •   resolve any dispute arising from the drafting process, i.e. any differences in
       relation to the necessary terms and conditions of the agreement (provided this is
       not a task attributed to the Monitoring Trustee under the original commitment
       decision); and/or

   •   refer the parties’ differences in relation to the terms and conditions of the
       agreement to the Monitoring Trustee (provided such a trustee has been designated
       under the original commitment decision to oversee the drafting process of the
       requisite agreements that would allow the correct implementation of the
       behavioural remedies in question)
                                                                                            27
                             Why arbitrate?



•   swiftness of the arbitral proceedings and expertise of the tribunal

•   recoverability of private law damages

•   ease of enforceability of resulting final award under the New York Convention

•   costs of the arbitral proceedings borne by the arbitrating parties (cost-efficient self-
    enforcement of third-party competitor’s rights without engaging the resources of the
    European Commission)

•   increase in use of behavioural remedies to obtain clearance of a merger proposal (with
    arbitration commitment meeting a company’s individual needs and best business
    interests)

•   quick, efficient and fair remedy for third-party competitor in form of compensation
    for suffered damage and enforcement of its rights through specific performance of the
    remedy


                                                                                               28
The Commission’s recent practice (I):
        Typical provisions of
  a viable arbitration commitment

  •   the institutional framework applicable to the arbitration proceedings (provided the
      proceedings are not meant to be ad hoc);
  •   a detailed description of the constitution of the arbitral tribunal and a working
      triggering mechanism for the arbitral procedure;
  •   the language and place of the arbitration;
  •   the applicable substantive and procedural law;
  •   the third-party notification requirement/consultation phase to ensure that
      potential third party beneficiaries are aware of the availability and the functioning of
      the arbitration procedure;
  •   a preliminary negotiations phase before the parties finally resort to arbitration;
  •   a sufficiently flexible timeframe (even though fast-track) for the implementation of the
      various procedural steps of the proceedings and the deadline of the final award;
  •   interim relief mechanisms to ensure that the tribunal make a preliminary
      award/order that will provide relief to the suffering party whilst the arbitral
      proceedings are pending;
  •   the arbitrator’s powers more generally; and
  •   the burden of proof and the prima facie evidence rule, whereby if the third party
      beneficiary can prove a prima facie case, the tribunal is bound to make an award in
      favour of the beneficiary provided the merged entity cannot present evidence to the
      contrary.



                                                                                                 29
      The Commission’s recent practice (I):
               Typical provisions of
    a viable arbitration commitment (cont’d)


• the Commission’s involvement/role as amicus curiae in the
  arbitration proceedings:

    receives all written submissions made by the arbitrating
     parties and the Tribunal, including procedural orders,
     interim/final awards, terms of reference, procedural timetable
    entitled to file amicus curiae briefs at any stage during the
     proceedings
    entitled to question the parties, witness and experts at the
     hearing
    gives (binding) interpretations of the commitments upon the
     Tribunal’s/parties’ request

                                                                      30
      The Commission’s recent practice (II):
            Latest cases 2008-2010



•   Comp./M/4835 - Hexion/Huntsman, Commission decision of 30
    June 2008
•   Comp./M.5046 - Friesland Foods/Campina, Commission decision
    of 17 Dec. 2008
•   Comp./M.5335, Lufthansa/SNAH - Commission decision of 22
    June 2009
•   Comp./M.5364, Iberia/Vueling/ Clickair, Commission decision of 9
    Jan. 2009
•   Comp./M.5440, Lufthansa/Austrian Airline, Commission decision
    of 28 Aug. 2009
•   Comp./M.5579 – TLP/Ermewa, Commission decision of 22 Jan.
    2010

                                                                       31
      The Commission’s recent practice (II):
                 Cases 2007



•   Comp./M.4779 – Akzo Nobel/ICI, Commission decision of 13 Dec.
    2007
•   Comp./M.4746 – DB/EWS, Commission decision of 6 Nov. 2007
•   Comp./M.4691 – Schering-Plough/Organon Biosciences,
    Commission decision of 11 Nov. 2007
•   Comp./M.4730 – Yara/Kemira Growhow, Commission decision of
    21 Sept. 2007
•   Comp./M.4504 – SFR/Télé 2 France, Commission decision of 18
    July 2007
•   Comp./M.4494 – Evraz/Highveld, Commission decision of 20 Feb.

    2007

                                                                    32
    The Commission’s recent practice (II):
               Cases 2006



• Comp./M.4314 - Johnson & Johnson/Pfizer Consumer
  Healthcare, Commission decision of 11 Dec. 2006
• Comp./M.4180 - Gaz de France/Suez, Commission decision
  of 14 Nov. 2006
• Comp./M.3998 - Axalto/Gemplus, Commission decision of
  19 May 2006
• Comp./M.3916 - T-Mobile Austria/Tele.ring, Commission
  decision of 26 April 2006




                                                           33
  Part II (B) - Commitment decisions under
        Article 9 of Regulation 1/2003




• Recital 12 of Reg. 1/2003 - termination of infringement of
  Arts. 101 & 102 TFEU by adoption of preferably behavioural
  commitments

• Article 9 of Reg. 1/2003 – commitment decision making the
  commitments offered by the parties binding




                                                               34
    The Commission’s use of arbitration in
           access commitments in
        Art. 9 commitment decisions



• Comp/E-2/39.140 – DaimlerChrysler, Commission decision
  of 13 Sept. 2007
• Comp/E-2/39.142 – Toyota, Commission decision of 13
  Sept. 2007
• Comp/E-2/39.143 – Opel, Commission decision of 13 Sept.
  2007
• Comp/F-1/39.596 – British Airways/American
  Airlines/Iberia, pending




                                                            35
           Conclusion: Lessons to be learnt


•   increasing importance of arbitration as a private enforcement
    mechanism of EU competition claims:

      under Arts 101 and 102 TFEU
      under conditional EU merger clearance decisions and under
       Article 9 commitment decisions

•   important for competition counsel to:

      be aware of the usefulness of arbitration for ensuring (i) swift
       and efficient private enforcement of EU competition claims and
       (ii) the acceptability of less burdensome, behavioural
       commitments to secure clearance of a merger or to avoid a
       finding of infringement under Arts. 101 / 102 TFEU; and to
      garner the requisite know-how for drafting viable arbitration
       commitments for that purpose

                                                                          36