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Media Briefing Note: Judgment in Case C 441/07 P Commission v Alrosa Company Ltd

29 June 2010

LONDON, 29 June 2010 -

In Brief

The European Court of Justice ("Court of Justice") has upheld the European Commission (the "Commission") decision to accept commitments offered by De Beers to cease its diamond purchases from Alrosa.

This overturns the previous General Court judgment which had annulled the Commission's decision.

Had it been established by the Court of Justice that the Commission is required to undertake a full analysis to establish whether the commitments are proportionate to the identified competition concerns, this could risk delays to the concluding of an investigation. This should not detract from the need for the possibility of judicial review of commitments decisions in appropriate cases. 

Suzanne Rab, Counsel in the Antitrust, Competition and Economic Regulation practice at Hogan Lovells, says:

"The judgment of the Court of Justice does highlight the need to take account of the special nature of Article 9 cases when establishing whether commitments are sufficient to resolve competition concerns.  Looking ahead, it may be that the statement by the highest European Court on the Article 9 procedure serves to encourage undertakings to approach the Commission with reasonable and proportionate commitments, which would ultimately satisfy Article 9."

Hogan Lovells’ Antitrust, Competition and Economic Regulation practice are available to provide legal background on the report and its consequences.  Please contact:

 

Suzanne Rab

Counsel in Hogan Lovells' Antitrust, Competition and Economic Regulation (London)

Tel: +44 207 296 2382

suzanne.rab@hoganlovells.com

 

 

Detailed Background

The Commission had investigated concerns that De Beers’ long term purchase relationship with its competitor Alrosa could infringe Article 101 and 102 of the Treaty on the Functioning of the European Union ("TFEU"). 

In March 2002, De Beers and Alrosa had notified the Commission of an agreement under which De Beers, the largest supplier of rough diamonds in the world, agreed to purchase annually, for a period of five years, the equivalent of US$800 million in rough diamonds from the Russian state-owned company Alrosa, the second largest diamond producer in the world.  Both De Beers and Alrosa offered commitments to the Commission in order to avoid an infringement decision and the possibility of a fine.  After two failed joint commitments attempts, De Beers offered a third, individual set of commitments.  The Commission sent a copy of these proposed commitments to Alrosa, inviting it to submit comments.  On 22 February 2006, the Commission adopted a decision under Article 9 of Regulation 1/2003 bringing the proceedings to an end.

Alrosa appealed the decision to the General Court on the following grounds:

·                     the commitments made binding by the Commission were disproportionate as they effectively prohibited De Beers from purchasing Alrosa’s diamonds, and constituted a breach of freedom of contract;

·                     the Commission had breached Alrosa’s right to be heard in the procedure leading to the decision; and

·                     the Commission had breached Article 9 of Regulation 1/2003 as the commitments made binding were only from De Beers, as opposed to both De Beers and Alrosa.

On 11 July 2007 the General Court upheld the appeal annulling the Commission’s decision, following which the Commission lodged an appeal with the Court of Justice.

The judgment of the General Court has raised questions regarding the Commission’s commitments decisional practice.  The Alrosa General Court judgment distinguished commitments decisions from “settlements”, aligning them instead with an Article 7 infringement decision.  Accordingly, the judgment concluded that the Commission is under a duty to fully investigate the competition issues, including the proportionality of the commitments.   

 

The Judgment of the Court of Justice

The judgment of the Court of Justice is of significance in relation to the application of Article 9 where commitments are offered to the Commission to resolve investigations under EU competition law and in relation to the rights of third parties in such proceedings. 

·                     The Court of Justice, in upholding the Commission's decision, states that the Commission's obligation to ensure that proportionality is observed has a different nature depending on whether it is considered in the context of the securing of remedies by the Commission or the acceptance by the Commission of commitments offered by the undertakings concerned.  The Court of Justice states that, where commitments are given by undertakings, compliance with the principle of proportionality requires only that the Commission ascertain that the commitments resolve the problems it has identified.  This recognises, importantly, that undertakings which offer commitments may accept concessions that go beyond what might have been imposed in a full blown infringement procedure.

·                     Of equal importance is the guidance from the Court of Justice regarding the Commission’s ability to make commitments binding which affect third party rights where those rights would not have been affected under an Article 7 infringement decision.   In relation to Alrosa's right to be heard, the Court notes that there were two sets of proceedings under what is now Article 101 and 102 TFEU.  Alrosa could have the status of an undertaking concerned only in the context of the Article 101 proceedings.  In relation to the Article 102 proceedings, only De Beers as the allegedly dominant undertaking could be the addressee of a statement of objections so that in those proceedings, Alrosa's rights were limited to those of an interested third party.  The Court concluded that Alrosa's argument that its right to be heard was not observed did not succeed given its status as an interested third party.  The Court concluded that Alrosa had not established that the individual commitments went manifestly beyond what was necessary to address the issues raised by the Commission.

 

Conclusions and Implications in Practice

The general trend for Article 9 decisions by the Commission over the first five years of experience shows that there is an increasing use of commitments to conclude an investigation and remedy competition concerns.  Commitments under Article 9 provide undertakings with an opportunity to conclude an investigation in the most efficient manner possible but case law has shown that it is not always an undemanding route for the undertaking concerned.  For example, the Microsoft browser case involved several rounds of commitments negotiations before the Commission was satisfied that the commitments were suitable.

The judgment of the Court of Justice in the Alrosa case provides much needed further clarity on the function of commitments and the scope for judicial challenge.  It also implies a broader discretion for the securing of commitments by the Commission. 

The Commission and undertakings concerned will be aware that it is the absence of a detailed formalised procedure under Article 9 which is responsible for the speedier manner with which investigations may be concluded, saving both the Commission and the undertakings concerned time and cost. 

Had it been established by the Court of Justice that the Commission is required to undertake a full analysis analogous to Article 7 cases to establish whether the commitments are proportionate to the identified competition concerns, this could risk delays to the concluding of an investigation.  This might be expected to compromise the value of the commitments procedure for the Commission and for the undertakings concerned.  This should not detract from the need for the possibility of judicial review of commitments decisions in appropriate cases.  However, the judgment of the Court of Justice does highlight the need to take account of the special nature of Article 9 cases when establishing whether commitments are sufficient to resolve competition concerns.  Looking ahead, it may be that the statement by the highest European Court on the Article 9 procedure serves to encourage undertakings to approach the Commission with reasonable and proportionate commitments, which would ultimately satisfy Article 9. 

Hogan Lovells’ Antitrust, Competition and Economic Regulation practice are available to provide legal background on the report and its consequences.  Please contact:

 

Suzanne Rab

Counsel in Hogan Lovells' Antitrust, Competition and Economic Regulation (London)

Tel: +44 207 296 2382

suzanne.rab@hoganlovells.com

 
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