The Commission's workload

A reason for reserving the powers under Article 85 (3) exclusively for the Commission is that, at the time the Treaty first came into effect, competition law in the six member states was in a primitive state^. Italy, Belgium and Luxembourg had no legislation at all. The Netherlands had relied on low tariffs and had only the Economic Competition Act which required registration of some restrictive agreements and horizontal co-operation but exemptions were almost invariably granted.

The only two countries with competition rules of any substance were Germany and France and their laws differed considerably. The French price decree, adopted just after the war, was intended to regulate the black market and to support regulation rather than to ensure free competition. It was more hostile towards vertical distribution agreements than towards horizontal agreements. Refusals to supply or deal were criminal. Germany on the other hand, had an elaborate competition system which prohibited any significant restriction on conduct between competitors, subject at that time to specified exemptions and exceptions. The rules were harsher on horizontal cartels

See for other drawbacks, 5.6.2. below. See 5.6.2. below.

See for a description of the current competition laws of the Member States, 2.3.1. supra.

whilst vertical agreements were treated moderately. Vertical agreements had to be subjected to careful analysis in respects of their effects on the market before condemning them.

All in all, the extent of regulation of competition varied so widely throughout the Community that, in order to provide consistency between member states and to realise the aims of the Treaty, notably, to establish market integration, the Commission decided to keep the powers of appraisal in its own hands®®.

Another reason why the Commission considered exclusive competence necessary was that decisions "which necessarily imply complex evaluations of economic matters and which may have important implications in the whole common market ought to be taken by the competent political body of the Community rather than national courts or competition authorities^."

The drawback was an enormous caseload from the moment Regulation 17 was adopted". Since all behaviour within Article 85 (1) required exemption and thus notification, the result was thousands of notifications and complaints since 1962. By 1965, the Commission had received some 40,000 notifications. Less than a thousand related to horizontal cartels and 31,0000 concerned exclusive distribution agreements alone.

Practice had shown that the granting of formal exemptions was a difficult and time consuming process. Consequently, the Commission has granted only very few exemptions. On average, some four or five have been granted per year" . In a market currently

Korah, EEC Competition Policy - Legal Form and Economic Efficiency, [1986] Vol 39 Current Legal Problems, p 85 at 94.

®- Schroter, Antitrust Analysis under Article 85 (1) and (3), [1987] Fordham Corporate Law Institute, p 664. See 2.3.2., 2.3.3. and 3.1. supra.

See for figures the Commission: First General Report (1968), p 60; Second General Report (1969) p 43 and 44,; First Competition Report (1971), point 48 and Ninth Competition Report

(1979), point 2.

" Jones, Van Der Woude and Lewis, EEC Competition Law Handbook. 1997 Ed. See also the Annual Reports on Competition Law and the European Union's Server on the Internet: http://europa.eu.int. See 6.1. below for the exact figures of the last yea r s .

with some 3 60 million consumers, this number is almost absurd and it has led to years of delay and uncertainty for undertakings awaiting a decision.

5.4.1. The Commission's solution

Soon after the introduction of Regulation 17, it became clear that the workload and the resulting backlog needed reduction urgently. Many of the agreements notified were quite straight forward and of little importance to the development of EC competition law. The Commission began to take measures in the form of block exemptions, short form exemptions and comfort letters to expedite its proceedings and to reduce the number of new notifications. Nowadays, many common agreements are affected by one or more of these devices. It may be useful at this place

to briefly describe each measure.

5. 4.1.1. Block exemptions

Until 1965, the Commission was able to exempt agreements only individually. Regulations 19/65 and 2821/71, however, empowered the Commission to adopt Regulations exempting categories of agreements en block for many types of agreement commonly used in business^*. The block exemptions subsequently adopted enable

The block exemptions adopted under Regulation 19/65, currently in force, are:

Exclusive distribution agreements (Regulation 1983/83, O.J. 1983 L 173, p 1)

Exclusive purchasing agreements (Regulation 1984/83, O.J. 1983 L 173, p 5)

Franchising agreements (Regulation 4087/88, O.J. 1988 L 359, p 46),

Motor vehicle distribution and servicing agreements (Regulation 1475/95, O.J. 1995 L 145, p 25),

Technology transfer agreements (Regulation 240/96, O.J. 1996 L 31, p 2)

Block exemptions adopted pursuant to Regulation 2821/71 and currently in force are :

Specialisation agreements (Regulation 417/85, O.J. 1985 L 53, p 1),

Research and development agreements (Regulation 418/85, O.J. 1985 L 53, p 5). See also 1.2.3. footnote 19 supra.

large numbers of agreements to be exempted under Article 85 (3) without the need to notify^®.

5.4.1.2, Short form exemptions

Short form exemptions were introduced to reduce the backlog of cases, save translation time and costs, and speed up the processing of notifications. They constitute a shortened version of an individual exemption. The adoption of a short form exemption must be preceded by a Notice in the Official Journal, pursuant to Article 19 (3) of Regulation 17, in which the Commission publishes some information about the agreement and the sector concerned, invites comments, and expresses its intention to exempt. If no comments are received, a very short legal appraisal^® is published granting the exemption^”'.

5.4.1.3. Comfort letters

Nowadays, the vast majority of notifications is dealt with by way of comfort letter. These administrative letters inform the parties that the Commission sees no reason to take further action and that it closes the file.

Comfort letters allow for a more speedy and less formalistic Commission procedure than that required for a formal decision such as a negative clearance under Article 85 (1) or an

” Detailed critical and practical explanations of most block exemptions can be found in the monographs of Korah and more descriptive explanations are included in the handbooks on EC competition law such as those from Nhlsh, Kerse, Bellamy and Child, Butterworth's, Goyder, Green and Robertson.

“ This appraisal must take into account the economic context of the agreement or it may be quashed on appeal as in Groupement des Fabricants de Papiers Peints, case 73/74 [1975] E.C.R. 1491, para 27.

See for example BP/Kelloa - Re the application of BP International Ltd and the M.W. Kellogg Companv. 85/560/EEC, O.J. 1985 L 396 p 6, [1986] 2 C.M.L.R. 619.

individual exemption under Article 85 (3)®®. A comfort letter is merely a reflection of the Commission's view (or that of one of its senior officials) as to how the agreement might be treated had the file not been closed but instead a formal decision (in the form of negative clearance or individual exemption) been adopted.

5.4.2. Impact on national courts

What is the impact of block exemptions, short form exemptions and comfort letters on national courts' ability to apply Article 85 and how does it affect the risk of conflicting decisions?

Provided they contain sufficient reasoning to satisfy Article 190 of the Treaty, short form exemptions pose little difficulty because they are decisions and can be enforced by national courts. Very few are issued. Block exemptions and comfort letters, on the other hand, have caused complications.

5.4.2.1. Block exemptions

Block exemptions have direct effect and national courts have the power to enforce agreements complying with their provisions®®. This seems like a substantial enlargement of the national court's jurisdiction to enforce agreements that are within the scope of Article 85 (1). However, the text of block exemptions is often unclear or rigid. Agreements rarely reflect the exact text of block exemptions and often have to contain additional restrictions on conduct for them to be practicable which may or

®® In Guerlain. case 253/78 [1980] E.C.R. 2511, the Community Court held that comfort letters are not legally binding as a negative clearance or an individual exemption.

®® Block exemptions are EC Regulations and thus directly effective EC law. For cases where this issue was discussed before the Community Court, see Roubaix v Roux case 63/75, [1976] 1 C.M.L.R. 538, para 11, De Bloos v Bouyer. case 659/77, [1977] E.C.R. 2359, [1978] 1 C.M.L.R. 511, Hydrotherm v Compact. case 170/83, [1984] E.C.R. 2999, [1985] 3 C.M.L.R. 224. An example of a case in a UK national court is Cutsford v Mansfield Inns L t d .

may not restrict competition. Moreover, the Community Court ruled in Delimitis that block exemptions must be interpreted strictly. This aspect of the Community Court's ruling is discussed in more detail at section 5.5.3.1. below.

5.4.2.2. Comfort letters

In the Perfume cases of 1980®° the Community Court ruled that comfort letters do not bind national courts or have any legal effect upon them (apart from the fact that they end provisional validity of old agreements®^) but that they may be taken into account®^. In principle, it is thus possible, but not obligatory, for national courts to use the comfort letter in reaching their decision^. In most cases, however, the national

®° Procureur de la Republique v Giry and Guerlain, cases 253/78 and 1-3/79, [1980] E.C.R. 2327, [1981] 2 C.M.L.R. 99. SA Lancôme and Cosparf rance Nederland BV v Etos BV and Albert Heiin Supermarkt B V , case 99/79, [1980] E.C.R. 2511, [1981] 2 C.M.L.R. 164. See 5.2.1. supra.

®" See 5.2.1 supra.

®^ Guerlain, see footnote 60 supra at para 13 :

"Such letters, [...] do not have the effect of preventing national courts, [. . .] from reaching a different finding as regards the agreements concerned on the basis of the information before them. Whilst it does not bind the national courts, the opinion transmitted in such letters nevertheless constitutes a factor which the national court may take into account in examining whether the agreement or conduct in question are in accordance with the provisions of Article 85"

The Community Court assessed a comfort letter stating that the agreement did not infringe Article 85 (1) because of the supplier's small share of the market.

®^ This situation has not been changed by the fact that, in response to the judgments in Perfumes, the Commission announced its intention sometimes to publish the essential content of agreements in the Official Journal before issuing comfort letters in order to enhance the declaratory value of such letters. See Notice on procedures concerning applications for negative clearance pursuant to Article 2 of Regulation 17, [1982] O.J. C 343/4 and Notice on procedures concerning notification pursuant to article 4 of Regulation 17, [1983] O.J. C 295/7. The idea of this procedure was that, upon publication of the agreement, third parties would have the possibility to comment which would make