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At the heart of EU competition policy and enforcement is the European Commission’s

Directorate General for Competition (DG COMP) in Brussels. With a staff of around 900, the bulk of DG COMP activity is investigating and taking action against individual companies and EU states if it believes they are breaching EU competition rules. In that capacity, DG COMP works fairly independently and guards its independence and power carefully.

But DG COMP does not operate in a vacuum. It is part of a much larger organisation and institutional landscape. And it does more than enforce competition rules in individual cases: it also sets the rules.

In both types of activity, there is scope for public policy work but it is in relation to the latter in particular that lobbying can have a real, tangible and far reaching impact.

DG COMP as a competition regulator

Individual competition cases involve a tight and clearly defined group of people: officials in DG COMP, competition lawyers in law firms, economic consultants and of course the parties to the case. Increasingly, in complex, sensitive or highly political cases public policy advisors are added to this group. The reasons are well understood and can be summarised as follows.

First, support from other parts of the Commission or from national competition authorities in the advisory committee can create a favourable environment in which DG COMP decisions are taken. The power in

competition cases is concentrated in DG COMP and to argue otherwise would be naive. And lobbying activity is rarely directed at DG COMP itself. Other policy considerations will never supersede the legal case or competition analysis but the main focus of the public policy team is to exploit the political appeal of a project to non-competition specialists, thereby engaging their support and creating a favourable broader context for the case. Transport, financial services and telecommunications are all sectors where there is an EU legislative framework and therefore a group of officials elsewhere in the Commission who are familiar with the industry. There will be natural allies of a project; an official in Directorate General (DG) Transport for example will be sensitive to how a joint venture might help achieve the EU’s transport objectives. DG Enterprise may also be a useful ally; indeed, a DG COMP official recently recommended always speaking to DG Enterprise because ‘they seem to be receptive to lobbyists’.

Secondly, public policy specialists can help gather intelligence on a case as they have an ear to the ground beyond rue Joseph II in Brussels where DG COMP is located. They are in the European Parliament, attending conferences and seminars with senior Commission officials; all the places where intelligence can easily be gathered without drawing attention to an individual case. Information about what any complainants or third parties are saying can be particularly helpful.

The public policy strategy will be determined by the legal case being put to DG COMP but it will draw

When Lobbying DG COMP Makes Sense: European Competition Officials are Policy-Makers as

well as Regulators

Gail OrtonClifford Chance, Paris

gail.orton@cliffordchance.com

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on the wider policy issues. The messages conveyed need to be consistent with, and supportive of, the competition arguments. That is why some law firms, including Clifford Chance, provide clients with public policy support to complement the competition advice. There are some very practical reasons for engaging the policy team that sits in the same building as the legal team and indeed physical proximity can save time at critical moments.

Rarely competition lawyers themselves, the supporting policy team will:• knowhowtoturnthecompetitionargumentsinto

something that can be shared with non-specialist audiences; and

• beabletoidentifytheelementsofthecasethatwill appeal to these different audiences.

A competition case requires more senior advisors than traditional legislative lobbying. They need people who speak DG COMP’s language, know the key officials and are able to discuss the facts of the case in an assured manner. Typically, the policy team will therefore include senior counsel, often a former EU official, who has an understanding of the process, broader context and the individuals involved in the decision-making.

An interesting question mark relates to the part played by Members of the European Parliament (MEPs). They have no formal role in competition policy or individual cases. And yet, MEPs occasionally take an interest in individual cases, either at their own instigation or because someone else has drawn their attention to a matter (a complainant perhaps). In some instances, MEPs (who regularly travel between Brussels, Strasbourg and their constituencies) may be personally affected by a proposed transaction. For example, German MEP Wolf Klinz asked the Commission in January 2011 about the impact of the merger between Lufthansa and Brussels Airlines on a route he regularly flies between Brussels and Frankfurt. Greek MEP Konstantinos Poupakis was concerned about the impact on flight schedules of the proposed tie-up between Aegean Airlines and Olympic Air.

At other times, MEPs may focus on the link between M&A activity and EU legislation. For example Kay Swinburne, a British MEP with a keen interest in financial services, asked the European Commission (Commission) about the compatibility of a merger between Deutsche Börse and NYSE’s LIFFE with the EU’s competition rules, and how forthcoming EU legislation on financial instruments (MiFID II) might help ‘reduce the significant barriers to new entrants should the merger proceed’.

In addition to answering these formal tabled questions from MEPs, the Competition Commissioner

regularly appears before the Parliament’s Economic and Monetary Affairs Committee to discuss policy developments and be quizzed by MEPs in a Q&A session. At the most recent meeting on 12 July 2011, he was asked about credit rating agencies, competition in the credit card market and more. Monitoring the activities of MEPs is therefore an important part of the policy strategy.

For all these reasons, although the impact of public policy outreach is difficult to measure, in strategically important competition cases it cannot be neglected.

DG COMP as a policy-maker

Another area where lobbying and competition policy overlap is policy-making. In the field of competition policy, DG COMP holds the pen in the drafting process. In other policy areas, it contributes to proposals that come from another part of the Commission. Both situations provide valuable opportunities for lobbyists to have an input into the policy-making process through DG COMP officials who are generally accessible and receptive to receiving information on matters they are working on.

The ordinary legislative procedure (formerly known as ‘co-decision’, where the Parliament and Council jointly adopt new laws) is hardly ever used in competition policy. Most texts are either adopted by the Council alone, for example the Merger Regulation, or take the form of delegated texts (guidelines and block exemptions) which are drafted by DG COMP and adopted by the Commission with perhaps only the chief economist, legal service and DG Enterprise having any real input. No other part of the Commission has anything like as much autonomous power as DG COMP, making it all the more important for companies to ensure their messages are conveyed and taken into account by officials when the texts are drawn up.

An issue that is exciting many in the European competition and public policy spheres in 2011 is damages for breaches of antitrust rules. For several years DG COMP has been considering whether to make it easier for consumers and firms who have suffered damage from an infringement of competition law to recover their losses from the infringer. A separate but related issue is collective redress, which has been the subject of parallel work by different parts of the Commission. When the new team of Commissioners took office in 2010 it made a concerted effort to work in a more coordinated manner. DG COMP, DG Health and Consumers and DG Justice launched a joint consultation in February 2011 on collective redress. It attracted over 300 replies, including from five national competition authorities,

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63 from business (many of them trade associations representing a larger group of companies) and 12 from consumer organisations.

The Commission will decide before the end of the year how to proceed. Once ‘common principles’ on collective redress have been agreed, DG COMP has said it will issue a specific proposal on antitrust damages actions. At this stage, it is unclear what form that will take but it is likely to set some kind of common standards and minimum requirements for national systems of antitrust damages actions. The aim is to ensure that rights are enforceable in a coherent manner across the EU.

Once DG COMP publishes a proposal, this will be adopted by EU Member States, and possibly also the European Parliament, depending on the legal base and legislative procedure to be applied. Indeed, the Parliament is already lobbying DG COMP to ensure it has joint decision-making powers with the Council on any proposal. In 2009, MEPs asked the Commission to refrain ‘from presenting any collective redress mechanism for victims of breaches of the EC competition rules without allowing Parliament to participate in the adoption of such a mechanism in the course of the co-decision procedure’. DG COMP could use Article 81(2) of the Treaty on the Functioning of the EU (judicial co-operation in civil matters) or Article 114 (internal market) which would both apply the ordinary legislative procedure. Equally, it could use the catch-all Article 352 which requires unanimity in the Council but only the consent of Parliament.

Lobbying by stakeholders is well underway. Twelve organisations representing a diverse base including consumers, trade unions, minority shareholders and environmental activists wrote a joint letter in May 2011 urging the Commission to move forward with concrete action in relation to collective redress. Business groups are, unsurprisingly, less enthusiastic. A British business body, the CBI, argued that despite studies by DG Health and Consumers ‘there is no objective evidence […] to justify the requirement for an EU wide judicial collective redress mechanism or the introduction of such a procedure by Member States’. This was echoed by the American Chamber of Commerce to the EU which argued that the lack of evidence on economic detriment to consumers raised serious questions about the need for a new EU law. It also questioned DG COMP’s position on actions for damages, citing a lack of safeguards against the abuses that can occur in collective litigation systems.

Stuck between these opposing views, the debate may well end in stalemate. But given the potential commercial implications, companies should be watching developments carefully.

DG COMP also feeds into policy-making by other DGs, ensuring that regulation takes competition duly into account among other policy interests. It does so routinely as part of the inter-service consultation process (that is, the discussion between the various interested DGs of the Commission) prior to the adoption of legislative proposals, but also in a more proactive manner following its own investigations and inquiries.

Where DG COMP believes that the root of a problem is not in the behaviour of an individual company but due to structural and generalised market failures, it investigates more closely. Competition investigations and sector inquiries can have major regulatory and policy implications (recent examples include energy, financial services and pharmaceuticals). Long dismissed as fishing expeditions, the interconnection between the findings of sector inquiries on the one hand, and the direction of European policy coming out of other parts of the Commission on the other hand make it critical to act upstream. There is a formal opportunity to comment when the Commission issues preliminary reports on inquiries and many companies make significant submissions at that stage. It is not unusual for them to copy the correspondence to other parts of the Commission, ensuring that the lead DG for any future legislative proposals is made aware of potentially worrying avenues being explored by DG COMP.

Some examples demonstrate this:• The inquiry into the pharmaceutical sector

in 2009 led to enforcement action under EU competition rules but also to a revision of the Transparency Directive setting minimum rules for pricing and reimbursement procedures for medicinal products for human use. Austria, Italy and Spain also took up recommendations from the inquiry on improving market access for generic medicines. As if that was not enough, the Report on Competition Policy 2010 claims that the inquiry added momentum to negotiations on the EU-wide patent and specialised patent litigation system, issues that had been stalled for decades. The UK’s CBI certainly emphasised the role of patents in its response to DG COMP’s preliminary report on the inquiry. It argued that the competition officials had failed to reflect or acknowledge the role of patents in R&D and marketing, and did not ‘fully appreciate the commercial reality of patent use’. The letter was addressed to DG COMP but copied also to DG Internal Market which leads on the EU-wide patent.

• TheinvestigationbyDGCOMPintothesecuritiestrading sector looked at access to information or services, standard setting, intellectual property rights (IPRs) and interoperability between

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About the authorGail Orton is a policy advisor in Clifford Chance’s Paris office. She is a key member of the firm’s public policy practice, advising clients on the EU institutional landscape and policy-making procedures. She has worked on a number of groundbreaking merger cases alongside her antitrust colleagues in Brussels and Paris. Gail joined Clifford Chance in 2006 and prior to that, she worked for another international law firm’s public affairs practice in Brussels and spent time at the European Commission’s DG Internal Market. Gail holds an economics degree from the University of Edinburgh and a Masters from the College of Europe in Bruges.

ANTITRUST AND LOBByING

different products or services. The findings fed into work by DG Internal Market on securities trading, clearing and settlement.

• The final report onDGCOMP’s inquiry intoEuropean gas and electricity markets concluded in 2007 that energy markets were too highly concentrated, were characterised by a high degree of vertical integration as well as a lack of cross-border integration, and cross-border competition and transparency. DG COMP received 59 responses to its preliminary report on the inquiry from energy suppliers, energy regulators and individual EU Member States. In order to address the issues uncovered by DG COMP, the Commission’s proposal for a third energy market liberalisation package focused on: - effective unbundling of transmission networks; - strengthening the powers and independence

of regulators; - cooperation between regulators; and - cooperation among transmission system

operators.• The inquir y findings continue to impact

Commission policy, most recently in the November 2010 Communication, Energy 2020 - A strategy for competitive, sustainable and secure energy.

• NewantitrustinvestigationsintothemarketsforCredit Default Swaps (CDS) are underway. DG Internal Market will no doubt watch carefully as part of its overhaul of financial services legislation following the 2008 crisis.

It is not difficult to understand why DG COMP influences the thinking of other parts of the Commission. The Competition Commissioner has a high profile portfolio and it is usually held by a heavyweight who is also a vice president of the Commission, and the opinion of DG COMP weighs heavily in internal Commission debates. The extensive market knowledge acquired through enforcement activities and inquiries puts DG COMP in a strong position to inform regulatory initiatives. It is challenging for other DGs to argue against DG COMP’s proposals and it is therefore key for lobbyists

to understand what DG COMP’s investigative activities have uncovered. A policy seed planted by DG COMP early in the process may be difficult to fight further down the line. And if the lead DG does not take account of DG COMP’s opinion from the outset, DG COMP can raise the issue again during inter-service consultation prior to the adoption of a Commission proposal.

A classic example of policy turf wars is in relation to IPRs. DG COMP makes no secret of the fact that it is a careful balancing act to set up an IPR regime that does not lead to anti-competitive outcomes by creating barriers to innovation or monopoly rights that can be strategically misused to foreclose legitimate competition. The Commission’s May 2011 Communication, A Single Market for Intellectual Property Rights was drafted by DG Internal Market but it is not difficult to detect DG COMP’s voice emphasising repeatedly the need for a policy that ‘stimulates innovation in an environment of undistorted competition’.

In conclusion, there are many good reasons to lobby DG COMP but it is in the latter’s policy-making role that it will have the greatest impact. Similarly, there may be many good reasons to communicate with other DGs even in relation to what appears to be purely an antitrust dossier. Timed correctly, this can feed back to DG COMP at a critical moment in the decision process.