Burns, Joseph W.

English

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Antitrust under the Treaty of Rome

Southern Methodist University

JOSEPH W. BURNS*Antitrust Under the Treaty of RometIntroductionA comparison of antitrust under the Treaty of Rome with antitrust in theUnited States leads to the conclusion that there are more (and very important)differences than there are similarities. Some of the major differences will bedescribed in summary fashion.'I. Definition of Antitrust LawsIn comparing the so-called antitrust laws of the EEC and the United Statesour terms and the frame of reference must first be defined. The EuropeanEconomic Commission enforces three treaties. We are concerned here only withArticles 85 and 86 of the Treaty of Rome. We are not discussing the othertreaties or the national laws of the member countries.A major difference between the EEC laws and United States laws is that thereis a single statute in the EEC-Articles 85 and 86 of the Treaty of Rome.It is a common practice in discussing the United States antitrust laws to referto the Sherman Act as if there was only one statute to consider. However, infact, the very definition of the term "antitrust laws" has been the subject ofdisagreement. Since the Sherman Act was enacted in 1890, Congress hasenacted more than seventy so-called antitrust statutes. The United StatesSupreme Court has split five to four in defining "antitrust" statutes. Thus, themajority has ruled that Sections 1 and 2 of the Robinson-Patman Act were anti-trust laws, but Section 3 was not.'The statutes mentioned do not comprise all of the antitrust laws, but are*Member of Burns, Van Kirk, Greene & Kafer, New York, New York.tThe text of this paper was presented at the Atlanta meeting of the American Bar Association inAugust, 1976.'For a detailed discussion on this subject, see JAMES A. RAHLS, COMMON MARKET ANDAMERICAN ANTITRUST (McGraw Hill, 1970) and Barry E. Hawk, Antitrust in the EEC-FirstDecade, FORDHAm L. REV., Vol. XLI, Dec. 1972.'Nashville Milk Co. v. Carnation Co., 355 U.S. 373 (1958).International Lawyer, Vol. 11, No. 2370 INTERNATIONAL LAWYERonly the framework for a substantial body of judicial decisions and adminis-trative adjudications. These decisions are not mere interpretations of thestatutes, but are in effect legislation, since the congressional language is vaguelyworded, and it was left to the courts and to the Federal Trade Commission toperfect the legislative intent.One must further consider the great number of exemptions from the antitrustlaws which apply to specified types of agreements or transactions, and to entireindustries or broad categories of activities. For example, exemptions have beengranted in the transportation field, including air, water, and land transporta-tion, in communications, insurance, agriculture, banking, and labor.II. EnforcementIn the United States there are two different systems of enforcement-thecourts and an administrative agency. These have concurrent jurisdiction, andboth may proceed against a company at the same time for the same conduct.There are ninety-six district courts and eleven courts of appeals, so businessoften has to live for years under conflicting court decisions until finally theSupreme Court states what the law is.The method of enforcement of the EEC antitrust laws can be described asan administrative proceeding with judicial review by one court-the High Courtof Justice. The EEC Commission is broadly similar to the Federal Trade Com-mission, except that judicial review maybe had in any one of eleven circuit courtsof appeals, and review by the Supreme Court is not a matter of right. Often theSupreme Court declines to review an FTC decision until conflicts arise betweencircuit courts.Another similarity between the EEC and FTC is that both Commissions havethe power to conduct investigations and hearings, to issue cease and desistorders, and to levy fines.But there is a substantial difference between the two systems relative to theattitude of the respective courts to the Commission subject to their authority.In the United States the Supreme Court almost always affirms FTC decisions.In the EEC the High Court of Justice has not hesitated to overrule the Com-mission. For example, in the early days the Commission adopted the positionthat Article 85(1) prohibited all appreciable restrictions of competition regard-less of their market significance. However, the Court held that restraints mustbe examined in their actual market context and to be prohibited must be shownto have a significant adverse effect on competition in the relevant market.The problem of overlapping or concurrent jurisdiction is present in the EECas in the United States. EEC member states which have antitrust laws mayenforce them so long as the decisions are compatible with EEC decisions orprinciples. However, where national decisions prove incompatible with a Com-mission decision, the national authorities must respect Commission authority.International Lawyer, Vol. II, No. 2Antitrust Under the Treaty of Rome 371Thus there is a measure of overlapping jurisdiction as there is in the UnitedStates, and both the EEC and the national state may impose fines on the sameperson for the same conduct.3 Also similar to United States laws, the EEC mayimpose a penalty even if the conduct would be lawful under national law.A further major difference between the EEC and United States systems is thatenforcement of EEC decisions is entirely civil, and only against corporations.Individuals cannot be fined or sent to jail, as they are under the Sherman Act.Also, there is no EEC provision for private treble damage actions.A major criticism of the Sherman Act is that businessmen are subject topunishment ex post facto, for conduct which was legal at the time of the acts.When the Supreme Court declares a new rule or overrules an old decision, thedecision is applicable to everyone who engaged in such conduct before the newdecision, even though it was lawful at the time. Businessmen are thus subjectto fines, imprisonments and treble damages, retroactively.The method of enforcement by the EEC is to endeavor to obtain compliance,and when it has to make an interpretation of conduct as to which there was norule, it affords everyone an opportunity to comply.MU. Advisory OpinionsAnother complaint which American businessmen have against the UnitedStates antitrust laws is that there is no way a businessman can ascertain inadvance whether or not a proposed course of action is legal or illegal. While theDepartment of Justice and the Federal Trade Commission may confer withUnited States companies, and will often insist on examining, before they becomefinalized, nascent agreements that may have anti-competitive effects, neither hasauthority to render a binding opinion or to approve any agreement or course ofaction in advance.The Treaty of Rome contains an exemption provision which gives the Com-mission the exclusive power to administer it and to grant negative clearances.Under the Commission's procedures, parties to an agreement must notify theCommission in order to obtain such clearance. The Commission may granteither individual or blanket exemptions. Where blanket exemption has beer,granted to a class of agreements, parties to such agreements are not required tonotify the Commission.'IV. Rule of Reason-Sherman Act Section 1Article 85(1) of the Rome Treaty is similar to Section 1 of the Sherman Act'Wilhem v. Bundeskartellamt, 15 Recuieil de la Jurisprudence de la Court 1969-1, CCH COMM.MKT. REP. 8056 (1969).'Regulation 17.International Lawyer, Vol. 11, No. 2372 INTERNATIONAL LAWYERto the extent that both broadly prohibit agreements or concerted practiceswhich restrain trade or competition. A major difference is that Article 85(3)provides specific exemptions if:(a) the agreement contributes to improved production or distribution, orto technical or economic progress;(b) the public receives a "fair share" of the resulting gains;(c) the restriction does not exceed what is "essential" to achieve these bene-fits; and(d) it does not "eliminate competition in respect of a substantial portion ofthe products in question."These exemptions would qualify as a Rule of Reason approach. Years agothe United States courts occasionally spoke of a Rule of Reason but it is nowseldom mentioned. It is difficult to maintain there is a Rule of Reason whenthe United States Supreme Court has ruled that football is subject to the Sher-man Act, but baseball is not. A Circuit Court of Appeals judge once remarkedfacetiously that those Supreme Court decisions seemed to depend upon theshape of the ball and the way it bounces. INor can it be said that the United States antitrust laws protect the consumeror the public interest when the Supreme Court has held illegal an agreementbetween two parties to restrain a third party from gouging the public by charg-ing unreasonably high prices.6V. Monopoly-Sherman Act Section 2Section 2 makes attempts to monopolize and monopolization illegal. Article86 of the Treaty does not attack monopoly or dominant position as such. Itadopts a different philosophy by prohibiting only an abuse of a dominant posi-tion. In consequence there is not likely to be any attempt in the EEC to breakup large firms like I.B.M. and A.T.&T.In determining whether a company occupies a dominant position, the HighCourt has taken a broad view of the relevant product market. It has ruled thatthe market must be clearly defined, and that the Commission must show thatthere has been a substantial elimination of competition.VI. Mergers and AcquisitionsThe Commission at first adopted a legal interpretation that Article 85 as arule does not reach corporate mergers and acquisitions, nor the formation ofjoint venture companies. In general, the Commission indicated that mergers'BURNS, ANTITRUST DILEMMA: WHY CONGRESS SHOULD MODERNIZE THE ANTITRUST LAWS(Central Book Company, Inc., Brooklyn, New York, 1969, page XVIII).'Albrecht v. The Herald Co., 390 U.S. 145 (1968).International Lawyer, Vol. 11, No. 2Antitrust Under the Treaty of Rome 373and joint ventures were to be dealt with only under Article 86 to the extent thatthey involve abuse of a dominant market position. This position appears to havebeen modified, with the commission's statement that it still encourages mergersin high-technology fields in order to improve the competitiveness of Europeanindustry on world markets, while discouraging mergers in the consumer-oriented industries.In the Continental Can case7 the High Court interpreted Article 86 as givingthe Commission the authority to prevent mergers. However, the problems ofdefining the relevant market, then proving a substantial effect on competitionappears to have imposed obstacles of such a character that the Commissionhas not instituted any other proceedings to prevent mergers.In 1974 the Commission proposed a new regulation which would requireprior approval of all mergers or takeovers above a certain size. However, thisregulation has not been approved by the Council of Ministers.In the area of joint ventures, the Commission allowed two competitors toform a joint marketing subsidiary and distinguished such a permanent mergerfrom a temporary agreement not to compete, which would have violated Article85. Applying Article 86 standards it ruled that the two companies together didnot have a dominant position after the merger. In the United States if an agree-ment by two competitors to have a joint marketing agreement would violateSection 1 of the Sherman Act, formation of a joint marketing subsidiary wouldprobably be held a violation of both Section 1 and Section 7 of the Clayton Act.This is an area where there is a definite conflict between United States andEEC law. A United States Court or the FTC might prohibit a merger betweenAmerican and European firms even though it is lawful in Europe.VII. Extraterritorial ScopeA principal difference between the EEC and American law is that the EEChas no "foreign commerce" clause. The extraterritorial scope of the Treatyis limited to conduct occurring outside the Common Market which causes theprohibited internal effects. Conduct inside the Common Market which causesonly external effects cannot be reached.In the Dyestuffs Cartelcase, 8 the High Court upheld the Commission finding ofprice-fixing violations against one British and three Swiss firms which weredomiciled outside the Common Market, but had subsidiaries in the CommonMarket. It held the foreign parents legally responsible for effects inside theCommon Market, rather than the local subsidiaries. Here the basic theory ofjurisdiction is not very different from that used by a United States court in theSwiss Watch case.'2 CCH COMMON MARKET REP. 8173, 8283 (1973).12 CCH COMMON MARKET REP. 8161 (1972).International Lawyer, Vol. 11, No. 2374 INTERNATIONAL LAWYERAn American Webb-Pomerene Association selling to Common Marketbuyers, but not "established" in the Common Market, might violate Article85 despite a Webb-Pomerene exemption under American Law.VIII. Intra-Corporate ConspiracyViolations of Article 85 like Section 1 of the Sherman Act require two ormore persons to an agreement or understanding. In the United States therehas been considerable criticism of what has been described as the "bathtub"conspiracy, or "intracorporate" conspiracy. The United States courts haveruled that a parent corporation and a wholly-owned subsidiary are two persons,and that an agreement between them may violate the Sherman Act, but thatthe same agreement or conduct is legal if the subsidiary is only a division ofthe parent instead of a separate corporation. 9The EEC has specifically rejected this concept. Instead it looks at the wholeenterprise, and if the subsidiary cannot take economic measures independentof the parent, they are considered as a single enterprise.°It is possible that if the EEC followed the United States law in the Dyestuffscase, the foreign parents might not have been held liable for acts of their localsubsidiaries. However, the general approach of the EEC has been toward sub-stance, and not form, and is more realistic.IX. Patents, Trademarks, Know-How, Joint ResearchIn 1962 the Commission stated that Article 85(1) did not prohibit certainrestrictions in unilateral patent licenses of a type which it regards as withinthe scope of the patent grant, including: limitations as to the field, quantity,or territory of use (except that it cannot restrict imports into other states);specifications of standards or restrictions of sources of supply if "indispensablefor a technically proper utilization of the patent"; grant-back of licenses orimprovement patents and know-how, provided the grant-back licenses arenon-exclusive and the licensor is mutually obligated; exclusive license agree-ments; and other provisions. In the United States the policy of the Department ofJustice is quite different. It is constantly attacking field of use restrictions andrestrictions on the source of supply.The Commission encourages joint research and development, rather thandiscouraging it as the United States does. While its policy is aimed at helpingsmall and medium-sized firms, it has been lenient with large firms and granted an'Kiefer-Stewart Co. v. Joseph E. Segram & Sons, 340 U.S. 211 (1951)."Beguelin Import Co. v. G.L. Impore Export Co., 2 CCH CoMoN MARKET REP. 8149 (1971).International Lawyer, Vol. 11, No. 2Antitrust Under the Treaty of Rome 375exemption to the second- and fourth-ranked firms of a textile detergent, wherethe top firm had eighty percent of the market.In the United States the Department of Justice is opposed to joint researchby large firms, and has forced the automobile manufacturers to stop their jointresearch for methods of reducing pollution caused by emissions from auto-mobile engines.X. ConclusionFrom the foregoing, a clearcut conclusion emerges, so far as members of thebar are concerned: Lawyers practising and businesses operating in the ninemember countries of the Common Market have a much easier task in conform-ing to EEC "antitrust laws" than their counterparts in the United States.International Lawyer, Vol. 11, No. 2

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Antitrust under the Treaty of Rome

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