Network-Based Governance in EC Law: The Example of EC Competition and EC Communications Law 9781472560636, 9781841132563

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JOBNAME: De Visser PAGE: 5 SESS: 6 OUTPUT: Tue Aug 11 09:26:05 2009

Foreword I am very pleased to have the opportunity to write this Foreword to a book which I am convinced is a truly valuable addition to academic scholarship. It is a piece of work that operates on several levels, all of them intriguing. EC law is largely made at EC level but implemented and enforced at national level. This is its strength and its weakness. This model permits reliance on established national systems rather than requiring the costly invention of European-level enforcement agencies, but any failings in the faithful application of EC law at national level may lie buried, invisible. This book provides two powerful case studies in competition and communications and aims to understand the possibility of ‘network governance’ as a way to bring together those involved in the application of EC rules without imposing heavily hierarchical solutions—to achieve consistency without damaging the virtuous aspects of diversity in Europe. In this vein the book is rich in its exploration of how national agencies, national courts and the Commission operate together in pursuit of consistency. In my view the greatest of this book’s many merits lies in its subtle and skilful blend of, on the one hand, close analysis of detail—pertaining to the institutional features and practical operation of networks—and, on the other, the thematic understanding that faithful enforcement of EC-sourced laws is no technical matter but rather one that connects to the EU’s deeper aspirations to provide a legitimate form of governance. Networks themselves generate intriguing constitutional questions. Preserving their independence may strengthen effective problem-solving but may raise acute anxieties about accountability. So this book is deeply concerned with normative questions of institutional design. The book is based on the PhD thesis submitted by Dr de Visser at the University of Tilburg. I was delighted to be invited to participate as a member of the jury, and after witnessing a brilliant defence on a rainy day in January 2009, I was happy to be party to the unanimous recommendation of the examiners that the qualification be awarded cum laude. I was especially pleased to play a small part in this triumph because Maartje de Visser was a postgraduate student in Oxford in 2003–04. In my seminar class on European Business Regulation she was an extraordinarily positive and constructive influence. I was very pleased when she—entirely deservedly—won the Winter Williams prize for the best examination performance in the subject and took the Magister Juris degree with distinction, acquiring a glittering set of marks. I sincerely hope she will enjoy a successful career as an academic, and I fully anticipate this book will be very warmly received. Stephen Weatherill Oxford, July 2009 v

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Acknowledgments Writing a book is a solitary pursuit, or so it is generally accepted. And yet I have come across preciously few books that do not first introduce to readers a host of persons that have been of invaluable support in completing the task at hand. This is true, too, of myself. I make mention of the following people to whom I am indebted for making this book a reality. My supervisor, Professor Pierre Larouche, for giving me room to discover and develop my academic abilities. You have provided me with an intellectually challenging environment—and your high standards have been a constant source of motivation. I have learned much from you. Professors Monica Claes, Eric van Damme, Sacha Prechal, Linda Senden and Stephen Weatherill. Thank you for the time and effort you spent scrutinising my manuscript. Your comments will always be as valuable to me as your verdict. You inspire me to greater academic pursuits. My friends and colleagues at Tilburg University, who have been invaluable in creating a very gezellige work environment. I wish to mention in particular Christophe, Michelle and Simone. Kelly, Annemiek, Tessa and Nathalie, lifelong friends who kept me (in)sane and amused through four years of writing. I hope to do the same for you. Richard, Lisa, Mel, Jo and the rest of the team at Hart Publishing. Without your tremendous support and keen editorial skills, this book would not be able to capture with such precision what I would otherwise have wanted to say. The Netherlands Organization for Scientific Research (NWO), through whose support this research was made possible. My parents and sister. Intellectual pursuits are undoubtedly important, but so is family—your unconditional love and care constantly remind me of this. My partner, Gary Low, for a never-ending supply of support and trust, through trying times and moments of laughter. For just being you. I owe to you an indelible mark of gratitude.

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List of Tables and Figures Tables Table 1.1 Agencies in European Law .................................................................... Table 1.2 Networks, Markets and Hierarchies Compared and Contrasted .......... Table 2.1 Overview of the NCAs and NRAs in Germany, France, the Netherlands and the United Kingdom .............................................................. Table 2.2 National Legislation and Abbreviations ............................................... Table 2.3 Implementation of Article 8 Objectives in Germany, France, the Netherlands and the United Kingdom .............................................................. Table 2.4 Implementation of Article 8(1) of the Framework Directive by Germany, France, the Netherlands and the United Kingdom .......................... Table 2.5 Legislative Operationalisation of Competences Covered by Articles 5 and 29(2) of Regulation 1/2003 ........................................................................ Table 2.6 Legislative Implementation of Wholesale Remedies in Germany, France, the Netherlands and the United Kingdom ........................................... Table 2.7 Dispute Settlement Powers in National Electronic Communication Market: Legislative Implementation of Article 20 Framework Directive and Article 5(4) of the Access Directive in Four Member States ............................. Table 2.8 Sanctions Available to National Competition Authorities in Germany, France, the Netherlands and the United Kingdom .......................... Table 2.9 Sanctions Available to National Regulatory Authorities in Germany, France, the Netherlands and the United Kingdom .......................... Table 2.10 Designated NCAs and NRAs in Germany, France, the Netherlands and the United Kingdom ................................................................................... Table 2.11 Staff and Budgets of NCAs and NRAs in Germany, France, the Netherlands and the United Kingdom .............................................................. Table 2.12 Conflict of Interest Rules in Germany, France, the Netherlands and the United Kingdom ................................................................................... Table 2.13 Conflict of Interest Rules in Germany, France, the Netherlands and the United Kingdom (Continued) ............................................................. Table 2.14 NCA and NRA Decision-Making Units in Germany, France, the Netherlands and the United Kingdom .............................................................. Table 2.15 The Status and Location of NCAs and NRAs in Germany, France, the Netherlands and the United Kingdom ........................................................ Table 2.16 Governmental Intervention in NCA and NRA Affairs in Germany, France, the Netherlands and the United Kingdom .......................... Table 2.17 Individual Independence of NCA and NRA Staff in Germany, France, the Netherlands and the United Kingdom ...........................................

13 26 46 47 50 55 58 62

65 69 72 81 82 87 88 91 93 95 98

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List of Tables and Figures Table 2.18 The Funding of NCAs and NRAs in Germany, France, the Netherlands and the United Kingdom ............................................................ Table 3.1 The Legal Basis for Amicus Curiae Interventions by NCAs ............... Table 3.2 Locus Standi before National Courts vis-à-vis NCA and NRA Decisions .......................................................................................................... Table 3.3 Suspensory Effect of NCA and NRA Decisions at Member State Level ................................................................................................................. Table 6.1 The Chairs of the European Regulators Group (ERG) to Date .......... Table 7.1 Assessing the Options for Case Allocation within the European Competition Network (ECN): Formalised Decisions versus Ex Ante Procedural Harmonisation .............................................................................. Table 7.2 A Cost-Benefit Analysis of Judicial Review for Information Collection within the European Competition Network (ECN) ......................

101 122 126 128 211

293 311

Figures Figure 1.1 Traditional Modes of Governance Compared and Contrasted ........... 15 Figure 1.2 The Emergence of Networks in European Law ................................... 38 Figure 3.1 Judicial Review of NCA and NRA Decisions in Germany ............... 108 Figure 3.2 Judicial Review of NCA and NRA Decisions in France ................... 109 Figure 3.3 Judicial Review of NCA and NRA Decisions in the Netherlands .... 110 Figure 3.4 Judicial Review of NCA and NRA Decisions in the United Kingdom .......................................................................................................... 112 Figure 5.1 The Role of the Commission in the Adoption of NCA Decisions (Article 11 of Regulation 1/2003) ................................................................... 171 Figure 5.2 The Adoption of NRA Measures (Article 7 of the Framework Directive) ......................................................................................................... 172 Figure 5.3 Procedural Tools for Consistency Applicable to National Authorities ....................................................................................................... 188 Figure 6.1 The Organisational Structures of the ECN and ERG ....................... 213 Figure 6b.1 Summarising Network-Based Governance ...................................... 249 Figure 7.1 The Case Allocation Process in the European Competition Network (ECN) ............................................................................................... 293 Figure 7.2 Exchange of Information within the European Competition Network (ECN) ............................................................................................... 303

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Abbreviations ARCEP

Autorité de Régulation des Communications électroniques et des Postes Awb Algemene Wet Bestuursrecht BKartA Bundeskartellamt BNetzA Bundesnetzagentur für Elektrizität, Gas, Telekommunikation, Post und Eisenbahnen CA 1998 Competition Act 1998 CAT Competition Appeal Tribunal CBB College van Beroep voor het Bedrijfsleven CdC Code de Commerce CESR Committee of European Securities Regulators CFI Court of First Instance COCOM Communications Committee Code PCE Code des postes et des communications électroniques CommA 2003 Communications Act 2003 DGCCRF Direction Générale de la Concurrence, de la Consommation et de la Répression des Fraudes DG COMP Directorate-General for Competition DG INFSO Directorate-General Information Society & Media EA 2002 Enterprise Act 2002 ECHR European Convention for the Protection of Human Rights and Fundamental Freedoms ECMS Electronic Case Management System ECN European Competition Network EEA European Environment Agency EECMA European Electronic Communications Market Authority ERG European Regulators Group ESBC European System of Central Banks GWB Gesetz gegen Wettbewerbsbeschränkungen IRG Independent Regulators Group Mw Mededingingswet NCA national competition authority NRA national regulatory authority NMa Nederlandse Mededingingsautoriteit Ofcom Office of Communications OFT Office of Fair Trading ONP Open Network Provision xvii

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Abbreviations OPTA SMP TKG Tw

Onafhankelijke Post en Telecommunicatie Autoriteit Significant Market Power Telekommunikationsgesetz Telecommunicatiewet

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Introduction

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HERE IS A growing awareness of the importance of the successful administration of European rules. Consider the European Commission’s recent Communication ‘A Europe of Results: Applying Community Law’, in which we are told: ‘Laws do not serve their full purpose unless they are properly applied and enforced.’1 This observation is as trite as it is fundamental. It focuses our attention squarely on the notion of effectiveness—a leitmotiv in European integration.2 For most of its existence, the European Community (and later also the European Union) has been concerned with the promulgation of new rules and principles—to allow citizens and firms to reap the benefits that an integrated Europe should bring. Since 1992, however, there has been a particular, been a shift in emphasis: with the body of Internal Market legislation largely in place, attention has naturally turned to its application and enforcement.3 The continuous widening and deepening of the European enterprise only serves to reinforce the relevance of this topic. How can we ensure that 27 national administrations correctly, diligently and coherently apply the ever-expanding acquis communautaire to the benefit of just under 500 million Europeans? This question begets no easy answers or quick-fix solutions. This book engages in the debate on the better application of European law. To that end, it examines the new institutional frameworks introduced for the administration of EC competition and EC communications law in 2002. The 1 European Commission (EC), ‘A Europe of Results: Applying Community Law’ (Communication) COM (2007) 502 final, 5 September 2007, 1. 2 Evident in such celebrated cases as Case 26/62 NV Algemene Transport en Expeditie Onderneming van Gend en Loos v Nederlandse Administratie der Belastingen [1963] ECR 1; Case 6/64 Flaminio Costs v ENEL [1964] ECR 585; Cases C-6 & 9/90 Andrea Francovich and Danila Bonifaci and Others v Italian Republic [1991] ECR I-5357. See also F Snyder, ‘The Effectiveness Of European Community Law: Institutions, Processes, Tools And Techniques’ (1993) 56 Modern Law Review 19. 3 P Sutherland, ‘The Internal Market after 1992: Meeting the Challenge’ (The Sutherland Report) SEC (92) 2044, 28 October 1992; European Commission (EC), ‘Operation of the Community’s Internal Market after 1992: Follow-up to the Sutherland Report’ SEC (92) 2277, 2 December 1992; European Commission (EC), ‘Reinforcing the Effectiveness of the Internal Market’ (Communication) COM (93) 256 final, 2 June 1993; European Commission (EC), ‘Making the Most of the Internal Market: Strategic Programme’ (Communication) COM (93) 632 final, 22 December 1993; European Commission (EC) ‘The Development of Administrative Cooperation in the Implementation and Enforcement of Community Legislation in the Internal Market’ (Communication) COM (94) 29 final, 16 February 1994; European Commission (EC), ‘The Impact and Effectiveness of the Internal Market’ (Communication) COM (96) 520 final, 30 October 1996; European Commission (EC), ‘Action Plan for the Internal Market’ (Communication) CSE (97) 1 final, 4 June 1997; European Commission (EC), ‘The Strategy for Europe’s Internal Market’ (Communication) COM (1999) 624 final, 24 November 1999; European Commission (EC), ‘Internal Market Strategy: Priorities 2003– 2006’ (Communication) COM (2003) 238 final, 7 May 2003.

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Introduction enforcement of European competition law was thoroughly reformed for the first time in 40 years with the finalisation of Regulation 1/2003, applicable as of 1 May 2004.4 While Regulation 1/2003 does not purport to change the substance of the law, it does mark a significant decentralisation of the institutional and procedural framework. The main modifications concern Article 81(3) EC, which allows for exemptions to the prohibition on restrictive practices found at Article 81(1) EC. First, under the old regime of Regulation 17, Article 81(3) could only be applied by the Commission.5 The latter was therefore placed in a leading position for the application and development of EC competition law. In principle, other authorities, including national courts and national competition authorities, could only apply the prohibition in Article 81(1) (as well as Article 82) but could not grant exemptions.6 Regulation 1/2003 puts an end to the exclusive competence of the Commission over Article 81(3) and empowers all actors (the Commission, national courts and national authorities) to use the whole of Article 81 EC. Secondly, under Regulation 17, the Commission exercised its powers to grant exemptions under Article 81(3) through a notification system, whereby agreements had to be notified to the Commission before any exemption could be given. Under Regulation 1/2003, Article 81(3) is made applicable without any prior decision being required. The overall thrust of the reform is to shift the burden of enforcing Articles 81 and 82 from the Commission onto the national authorities and courts, so as to enable the Commission to free its resources for the most important cases. The changes brought about by Regulation 1/2003 were extensively debated in the run-up to the adoption of the Regulation.7 One of the most frequently voiced

4 Council Regulation No 1/2003/EC on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty [2003] OJ L1/1. 5 Council Regulation (EEC) No 17 (First Regulation implementing Articles 85 and 86 of the Treaty) [1959–62] OJ Spec Ed 87, Art 9(1). 6 In practice, the situation was slightly less clear-cut, since national courts could give effect to block exemption regulations issued by the Commission or assess the likelihood of an individual exemption of a given agreement or practice: Commission Notice on cooperation between national courts and the Commission in applying Articles 85 and 86 of the EEC Treaty [1993] OJ C39/6 [24] ff. Similarly, national competition authorities could assess the likelihood of an individual exemption under Art 81(3) EC (with the help of the Commission if necessary) before deciding on whether to proceed with a case before them: Commission Notice on cooperation between national competition authorities and the Commission in handling cases falling within the scope of Articles 85 or 86 of the EC Treaty [1997] OJ C313/3 [57] ff. 7 See eg the contributions in CD Ehlermann and I Atanasiu (eds), The Modernisation of EC Antitrust Policy, European Competition Law Annual 2000 (Oxford, Hart Publishing, 2001) 145; B Hawk (ed), Annual Proceedings of the Fordham Corporate Law Institute: EC Competition Law Reform (New York, Juris Publishing, 2002); D Geradin (ed), Modernisation and Enlargement: Two Major Challenges for EC Competition Law (Antwerp, Intersentia, 2004); CD Ehlermann, ‘The Modernization of EC Antitrust Policy: A Legal and Cultural Revolution’ (2000) 37 Common Market Law Review 537; I Forrester, ‘The Reform of the Implementation of Articles 81 and 82 following Publication of the Draft Regulation’ (2001) 28 Legal Issues of Economic Integration 173; H Gilliams, ‘Modernisation: From Policy to Practice’ (2003) 28 European Law Review 451; L Idot, ‘“Le future ‘règlement d’application des articles 81 et 82 CE”: chronique d’une révolution annoncée’ (2001) 17 Dalloz 1370; W Jaeger, ‘Die möglichen Auswirkungen einer Reform des EG-Wettbewerbsrecht für die nationale

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Introduction criticisms concerned the risk that the uniform application of EC competition law would be unwound through the independent actions of the various actors. To counter that, Regulation 1/2003 provides for close cooperation between all the authorities, for control mechanisms and in particular for the creation of a network regrouping the Commission and the national competition authorities: the European Competition Network. Its task is to ensure consistency in the work of the national authorities. As regards electronic communications, the old EC regulatory framework that completed the liberalisation of the telecom sector8 was entirely replaced by a new set of directives, which had to be implemented mostly by 24 July 2003.9 These new directives effected significant changes in the substantive law. For one, the scope of the regulatory framework was extended beyond telecommunications to cover all networks and services used to convey ‘electronic communications’ (including also broadcasting infrastructure, for instance). Undoubtedly the most

Gerichte’ (2000) 50 Wirtschaft und Wettbewerb 1062; B Rodger, ‘The Commission White Paper on Modernisation of the Rules Implementing Articles 81 And 82 of the EC Treaty’ (1999) 24 European Law Review 653; A Schaub, ‘Modernization of EC Competition Law: Reform of Regulation No 17’ (2000) 23 Fordham International Law Journal 752; M Siragusa, ‘A Critical Review of the White Paper on the Reform of the EC Competition Law Enforcement Rules’ (2000) 23 Fordham International Law Journal 1089; J Venit, ‘Brave New World: The Modernisation and Decentralisation of Enforcement under Articles 81 and 82 of the EC Treaty’ (2003) 40 Common Market Law Review 545; R Wesseling, ‘The Commission White Paper on Modernisation of EC Antitrust Law: Unspoken Consequences and Incomplete Treatment of Alternative Options’ (1999) 8 European Competition Law Review 420. 8 The so-called Open Network Provision (ONP) Framework, made up of Commission Directive 96/19/EC of 13 March 1996 amending Directive 90/388/EEC with regard to the implementation of full competition in telecommunications markets [1996] OJ L74/13 and Directive 97/51/EC of the European Parliament; and of the Council Directive of 6 October 1997 amending Council Directives 90/387/EEC and 92/44/EEC for the purpose of adaptation to a competitive environment in telecommunications [1997] OJ L295/23; Directive 97/13/EC of the European Parliament and of the Council of 10 April 1997 on a common framework for general authorisations and individual licences in the field of telecommunications services [1997] OJ L117/15; Directive 97/33/EC of the European Parliament and of the Council of 30 June 1997 on interconnection in telecommunications with regard to ensuring universal service and interoperability through application of the principles of Open Network Provision (ONP) [1997] OJ L199/32; and Directive 98/10/EC of the European Parliament and of the Council of 26 February 1998 on the application of open network provision (ONP) to voice telephony and on universal service for telecommunications in a competitive environment [1998] OJ L101/24. See also P Larouche, Competition Law and Regulation in European Telecommunications (Oxford, Hart Publishing, 2000) ch 1. 9 Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services (the Framework Directive) [2002] OJ L108/33; Directive 2002/20/EC of the European Parliament and of the Council on the authorisation of electronic communications networks and associated services (the Authorization Directive) [2002] OJ L108/21; Directive 2002/19/EC of the European Parliament and of the Council on access to and interconnection of electronic communications networks and associated facilities (the Access Directive) [2002] OJ L108/7; Directive 2002/22/EC of the European Parliament and of the Council on universal service and users’ rights relating to electronic communications networks and associated services (the Universal Service Directive) [2002] OJ L108/51; Commission Directive 2002/77/EC on competition in the markets for electronic communications networks and services [2002] OJ L249/21; and Directive 2002/58/EC of the European Parliament and of the Council concerning the processing of personal data and the protection of privacy in the electronic communications sector [2002] OJ L201/37.

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Introduction important change in substance concerned the core of regulation, namely the heavier obligations imposed on firms enjoying Significant Market Power (SMP)—a position equivalent to dominance under Article 82 EC. There, the rather formalistic and inflexible provisions of the old regime were replaced by a new approach, closely aligned with competition law. On the institutional side, the new directives strengthen the position of national regulatory authorities as the main actors in charge of the application and enforcement of the law. At the same time, in order to alleviate concerns not unlike those expressed in relation to the decentralisation process under competition law, the work of the national authorities is subject to a number of control mechanisms to ensure consistency across the EU. To allow these coordination procedures to work efficiently, the new framework makes room for the creation of a network of regulators that includes the Commission and the national authorities, called the European Regulators Group.10 The question this book seeks to answer is whether this ‘network-based’ model as it has been introduced in competition and communications law can and should be considered as a promising new institutional paradigm for the administration of Community law. The selection of these regimes as our case studies is based on two interlinked considerations. Firstly, competition and communications law were among the first areas in which networks were introduced to aid in the enforcement of the European rules. Secondly, the networks in place for these two fields of law are particularly sophisticated and thus a valuable source of information as well as inspiration. It is fitting to mention here that similar or comparable structures have been contemplated or introduced for other areas of the law as well.11 This book aims to serve a useful function by indicating the direction of future institutional change in European law beyond the fields under discussion. The book is divided into three parts. Part I analyses the traditional models for the application and enforcement of EC law to show that there is room for improvement and that, hence, the network model may meet a need on the part of Community institutions. Three traditional models are identified: centralised,

10 Commission Decision 2002/627/EC of 29 July 2002 establishing the European Regulators Group for Electronic Communications Networks and Services [2002] OJ L200/38 as amended by Commission Decision 2004/641/EC of 14 September 2004 and Recital 36 Framework Directive (above n 9). 11 See ch 1, section IV. Consider the European Regulators Group for Electricity and Gas (ERGEG), established by Commission Decision 2003/796/EC of 11 November 2003 [2003] OJ L296/34; and the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS), established by Commission Decision 2004/6/EC of 5 November 2003 [2004] OJ L3/30. See also European Commission (EC), ‘State Aid Action Plan: Less and Better Targeted State Aid: A Roadmap for State Aid Reform, 2005–2009’ (Consultation document) COM (2005) 107 final, 7 June 2005 in which the Commission considers the creation of a network of independent authorities in the Member States that would share responsibility for the enforcement of Arts 87–89 EC in terms of detection and recovery of illegal aid, while also facilitating the horizontal flow of information and exchange of best practices.

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Introduction decentralised and agency-based governance. Drawing on examples from the competition and the communications fields, the discussion highlights the difficulty of allocating competences in a multi-level governance structure and the need for meaningful interaction between the various governance levels. This challenge leads to a further question: how do we strike a balance between the need for coherence as a basic condition for the Internal Market on the one hand and the importance of respect for local traditions, preferences and particularities on the other hand? The emergence of networks for the administration of European law is chartered so that we may understand where to situate the network model in relation to the traditional regimes. Part II is an explanatory analysis of the institutional frameworks as they have been introduced by Regulation 1/2003 and the EC electronic communications framework. Chapters two, three and four consider the role of the three major players—namely the national authorities, the national courts and the Commission—and the regulatory environment in which they operate. In particular, we shall focus on the extent to which European law specifies their institutional characteristics and the procedures they must follow. Chapters five and six then discuss the inter-institutional relationships between these principal actors—how the law has designed relationships and how they actually work in practice. Chapter five deals with the specific methods for consistency on offer— above and beyond the traditional tools of infringement proceedings and preliminary references. Chapter six considers the European Competition Network and the European Regulators Group: their internal organisation, their functioning and their contribution to coherency. Finally, Part III provides an external critique of the network-based model to assess its wider normative attractiveness. To that end, we inquire how it fares in the light of three complementary perspectives: that of the firms and consumers that are subject to the system; that of the Member States that administer the system; and that of society as a whole, which should benefit from the system. The concluding chapter pulls together all the relevant arguments discussed in the three Parts and offers a view on whether, in the final analysis and given its relative merits and demerits, the network model is worthy of wider use within the European legal system. This book is written from a legal perspective. The methodology is accordingly largely classical: legislation, case law and literature are used to ascertain and assess the state of the art. In Part II we also engage in functional comparative legal research. Since the respective bodies of European law do not deal conclusively with all the relevant issues that impact on the way in which the legal rules are administered—or require implementation or operationalisation for their proper functioning—it is necessary also to examine selected national legal systems to obtain an overarching view of the general legal state of affairs. For our purposes, we have chosen France, Germany, the United Kingdom and the Netherlands as sample Member States. Both normative and pragmatic reasons have inspired these choices. In normative terms, France, Germany and the United Kingdom are xxiii

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Introduction generally considered the most influential legal systems in the European Union. The Netherlands is often presented as an interesting case study, since it usually tries to synthesise the best elements from the systems of its larger neighbours. In pragmatic terms, most of the national working materials of the Member States are only available in their original languages, which presents obvious linguistic limits for a single researcher. Functionalist methodology takes a particular issue (which may be a provision of EC law) as its starting-point and then examines how each of the legal systems has dealt with it. To illustrate, rather than describing one after another of the institutional set-ups for the enforcement of the competition rules in the four Member States, we identify a single issue—say the independence of the authority in relation to market parties—and look at what the law and practice of the Member States provide on this. By proceeding in this way, we can respect as much as possible the integrity of the national legal systems while at the same time making comparisons between the various jurisdictions and allowing similarities and differences to appear more clearly than under a classical comparative law approach. Another deviation from the traditional legal paradigm is the interdisciplinary approach featured in certain parts of this book. Thus, chapters one and six rely on political science to explain the workings of the network structure, and Part III makes use of insights from the literature of economics in considering the wider normative credentials of the network-based model. Scattered throughout the book are highlighted text boxes, which provide supplementary points and additional information. Foreign words or expressions are purposively left in the original languages so that readers who are familiar with the foreign system in question will recognise the concepts. Where the foreign concept is mentioned for the first time, a brief English translation is provided for other readers. The book has been written on the basis of the law as it stood on 1 May 2008. Major developments after that date have, when necessary and possible, been considered and incorporated into the discussion.

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1 Modes of Governance in EC Law

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HIS CHAPTER ANALYSES the traditional enforcement paradigms for European law. Following some reflections on the notion of governance in section I, we shall begin by describing the main institutional structures and methods presently available (section II). Drawing on examples from the fields of competition and communications, we shall adopt a critical approach to highlight the perceived advantages and drawbacks of the traditional regimes (section III). The emergence of the network model is charted in section IV, and some concluding remarks are offered in section V.

I. THINKING ABOUT GOVERNANCE

In 1962, with rumours of a communist coup rife in Fifth Republic France, de Gaulle famously wondered how anyone can be expected to govern a country that has 246 kinds of cheese.1 The roi juste might just as well have been addressing the regulation of a European Union comprising 27 Member States. As the European polity expands, so do the dilemmas of governance it faces. What do we mean by ‘governance’? The term is generally taken to correspond to the post-modern form of economic and political constellations that ‘have escaped the narrow confines of traditional national systems of government’.2 The literature on governance is vast.3 Ideas of governance appear to straddle several disciplines: law, political 1

E Mignon, Les Mots du General de Gaulle (Paris, Fayard, 1962). P Schmitter, How To Democratize The European Union. . . And Why Bother? (Lanham, Rowman & Littlefield, 2000). 3 In relation to the European Union, consider, eg, http://ec.europa.eu/governance/index_en.htm; G De Búrca and J Scott (eds), Law and New Governance in the EU and the US (Oxford, Hart Publishing, 2006); D Curtin and RA Wessel (eds), Good Governance and the European Union (Antwerp, Intersentia, 2005); B Kohler-Koch (ed), Linking EU and National Governance (Oxford, Oxford University Press, 2003); O De Schutter, N Lebessis and J Paterson (eds), Governance in the European Union, Forward Studies Unit Series (Luxembourg, Office for Official Publications of the European Communities, 2001); the articles included in European Law Journal (2002) 8(1); S Hix, ‘The Study of the European Union II: The “New Governance” Agenda and its Rival’ (1998) 5 Journal of European Public Policy 38; A Stone Sweet and W Sandholtz, ‘European Integration and Supranational Governance’ (1997) 4 Journal of European Public Policy 297; G Majone, ‘From the Positive to the Regulatory State: Causes and Consequences of Changes in the Mode of Governance’ (1997) 17 Journal of European Public Policy 139; G Marks, L Hooghe and K Blank, ‘European Integration from the 1980s: 2

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Modes of Governance in EC Law science, economics—to name only the most usual suspects. The term ‘governance’ is used in relation to national, European and international orders, and it crosses the public–private divide. Almost by necessity, the term is ambiguous and capable of carrying several layers of meaning.4 For our purposes a functional definition is sufficient. Accordingly, and as defined in the Oxford English Dictionary, ‘governance’ is the act, manner or function of governing, with governing in turn referring to the exercise of power.5 Governance thus encompasses all stages of the policy chain, from drafting to enacting to implementing to enforcing rules. In their seminal article ‘Mind the Gap: Law and New Approaches to Governance in the European Union’, Joanne Scott and David Trubek direct an inquiry into new modes of governance in the EU’s lego-political landscape.6 They distinguish two categories of new governance.7 Their first category is ‘new, old governance’ (NOG). NOG is a hybrid, a blend of traditional characteristics of the Community Method and innovative features.8 Scott and Trubek outline the enhanced participation of civil society in the preparation of Community measures,9 the increasing popularity of framework directives10 and the comitology

State-centric v Multi-level Governance’ (1996) 34 Journal of Common Market Studies 341; M Pollack, ‘The New Institutionalism and EC Governance: The Promise and Limits of Institutional Analysis’ (1996) 9 Governance: An International Journal of Policy and Administration 429. Outside the EU, consider the International Monetary Fund (IMF) policy on good governance; the work of the Organisation for Economic Co-operation and Development (OECD) on public governance and public management; and the research produced by the World Bank Institute in governance and anti-corruption. 4 Thus, Roderick Rhodes has identified at least six different uses in the context of social sciences (the minimal state, corporate governance, new public management, good governance, sociocybernetic systems and self-organising networks): R Rhodes, ‘The New Governance: Governing without Government’ (1996) 44 Political Studies 652. 5 This corresponds closely to the definition adopted by the European Commission in ‘European Governance’ (White Paper) COM (2001) 428 final, 25 July 2001, 8: ‘the rules, processes and behaviour that affect the way in which powers are exercised at European level’. 6 J Scott and D Trubek, ‘Mind The Gap: Law And New Approaches To Governance In The European Union’ (2002) 8 European Law Journal 1. 7 They remark, however, that the two categories cannot be hermetically separated and might be better conceived as situated on a continuum. 8 Following the White Paper on Governance (above n 5), Scott and Trubek explain the Community Method as premised on the Commission’s exclusive right of initiative, with the Council of the European Union and European Parliament adopting binding legislation (preferably using qualified majority voting in Council), with execution of EU policies entrusted to the Commission and national authorities and with the Court of Justice exercising supervisory jurisdiction to uphold the rule of law. 9 See the White Paper on Governance (above n 5) 11–18; European Commission (EC), ‘Towards a Reinforced Culture of Consultation and Dialogue: General Principles and Minimum Standards for the Consultation of Interested Parties by the Commission’ (Communication) COM (2002) 704 final, 11 December 2002; Art 11 TEU as amended by the Lisbon Treaty; and ‘Interactive Policy Making’, the principal component of ‘Your Voice in Europe’, two internet-based instruments to collect feedback from citizens, consumers and business. 10 See the EC Treaty (Treaty of Rome as amended) Protocol on the Application of the Principles of Subsidiarity and Proportionality [6]–[7].

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Thinking about Governance system.11 Their second category of governance comprises ‘fully-fledged alternatives’ to the Community Method: recourse to partnerships between the Commission and Member States in the context of Community structural funding;12 the social dialogue that sees management and labour as drivers that can propose legislation, which can then be made into formal law by the EC institutions;13 or the Open Method of Coordination (OMC).14 The examples used by Scott and Trubek predominantly concern evolution in lawmaking processes. This chapter (and this book) focuses on the logical next step: developments in the administration of legislative outcomes—in particular, the institutional structures and regulatory methods for the application and enforcement of EC rules. Although lawmaking and law enforcement can no longer be seen in a strict dichotomy, Renauld Dehousse is still correct to point out that implementation of European policies is constrained by choices made in the legislative phase and generally perceived to be of less importance.15 He is also correct to criticise this ‘legislative bias’. Indeed, it is clear that one cannot assume that success in enforcement is guaranteed once Community rules are sustainable in substance.16 The need for a strategy for the administration of EC rules was firmly put on the Community agenda by the 1992 Sutherland Report.17 This Report identified three principal objectives that ought to guide the Community in successfully managing its Internal Market: enhancing the transparency of EC law for the

11 Council Decision 2006/512/EC of 17 July 2006 amending Decision 1999/468/EC laying down the procedures for the exercise of implementing powers conferred on the Commission [2006] OJ L200/11. 12 The Structural Funds comprise the European Regional Development Fund, the European Social Fund, the European Agricultural Guidance and Guarantee Fund and the Financial Instrument for Fisheries Guidance. These contribute towards the financing of regional and horizontal operations at national level to promote social and economic cohesion. Consider Council Regulation (EC) No 1260/99 of 21 June 1999 laying down general provisions on the Structural Funds [1999] OJ L161/1 as amended by Council Regulation (EC) No 1447/2001 of 28 June 2001 [2001] OJ L198/1, by Council Regulation (EC) No 1105/2003 of 26 May 2003 [2003] OJ L158/3 and by Council Regulation (EC) No 173/2005 of 24 January 2005 [2005] OJ L29/3, of which Art 8 deals with partnerships. 13 Arts 138–39 EC. Agreements concluded by management and labour may also be implemented through collective bargaining in the Member States: Art 139(2) EC. See further C Barnard, EC Employment Law, 3rd edn (Oxford, Oxford University Press, 2006) ch 2. 14 Under the OMC Member States agree on common objectives and measuring instruments (such as statistics, indicators, guidelines), and their performance in achieving these objectives is evaluated using processes of peer pressure. The role of the European Parliament and Court of Justice is extremely limited under OMC. For a general overview, see P Craig, EU Administrative Law (Oxford, Oxford University Press, 2006) ch 6 and the references mentioned therein. The OMC operates in the areas of economic policy, employment policy and social inclusion. 15 R Dehousse, ‘Misfits: EU Law and the Transformation of European Governance’ in C Joerges and R Dehousse (eds), Good Governance in Europe’s Integrated Market (Oxford, Oxford University Press, 2002). 16 Consider in particular the classic article by F Snyder, ‘The Effectiveness of European Community Law: Institutions, Processes, Tools and Techniques’ (1993) 56 Modern Law Review 19. 17 P Sutherland, ‘The Internal Market after 1992: Meeting the Challenge’ (The Sutherland Report) SEC (92) 2044, 28 October 1992. Stephen Weatherill speaks of ‘market management’: S Weatherill, ‘New Strategies for Managing the EC’s Internal Market’ (2000) 53 Current Legal Problems 595.

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Modes of Governance in EC Law public; administrative cooperation between Member States and the Commission; and decentralisation of application of EC rules.18 The Sutherland Report was followed by a host of Commission documents on the attainment of the Internal Market, which in greater or lesser degree echoed these objectives in securing the effectiveness of EC law.19 Around the turn of the century the Commission’s White Paper on European Governance stimulates renewed interest in the matter.20 One section of the White Paper dealt specifically with the question of the administration of EC law. For the Commission, the emphasis is no longer just on the efficiency gains to be achieved; reference is also made to the normative concern with legitimacy: ‘More effective enforcement of Community law is necessary not only for the sake of efficiency of the internal market but also to strengthen the credibility of the Union and its policies’.21 In its recent Communication ‘A Europe of Results: Applying Community Law’, the Commission lucidly summarises the problem and outlines the steps to be taken: Laws do not serve their full purpose unless they are properly applied and enforced. The body of legislation is significant—over 9000 legislative measures of which nearly 2000 are directives, each requiring between 40 and 300 measures for transposition into national and regional legislation. The EU encompasses 27 national administrations and over 70 autonomous regions. Over 500 million Europeans enjoy the possibility to query their rights under these laws. Citizens’ expectations of the benefits that the EU brings should be met. That is why, in pursuing the objective of Better Regulation,22 it is

18 On the timing of the Report, the Commission remarked that with the 1992 deadline for the creation of the Internal Market in sight, the Community now logically ‘embarked on a phase of administering the existing body of rules’: European Commission, ‘Operation of the Community’s Internal Market after 1992: Follow-up to the Sutherland Report’ SEC (92) 2277, 2 December 1992. 19 Consider, eg, European Commission, ‘Reinforcing the Effectiveness of the Internal Market’ (Communication) COM (93) 256 final, 2 June 1993; European Commission, ‘Making the Most of the Internal Market: Strategic Programme’ (Communication) COM (93) 632 final, 22 December 1993; European Commission, ‘The Development of Administrative Cooperation in the Implementation and Enforcement of Community Legislation in the Internal Market’ (Communication) COM (94) 29 final, 16 February 1994; European Commission, ‘The Impact and Effectiveness of the Internal Market’ (Communication) COM (96) 520 final, 30 October 1996; European Commission, ‘Action Plan for the Internal Market’ (Communication) CSE (97) 1 final, 4 June 1997; European Commission, ‘The Strategy for Europe’s Internal Market’ (Communication) COM (1999) 624 final, 24 November 1999; and European Commission, ‘Internal Market Strategy: Priorities 2003–2006’ (Communication) COM (2003) 238 final, 7 May 2003. 20 Above n 5. 21 Ibid, 5. 22 The ‘Better Regulation’ initiative was launched in 2005 as part of the revised Lisbon Strategy: European Commission, ‘Better Regulation for Growth and Jobs in the European Union’ (Communication) COM (205) 97 final, 16 March 2005; European Commission, ‘Implementing the Community Lisbon Programme: A Strategy for the Simplification of the Regulatory Environment’ (Communication) COM (2005) 535 final, 25 October 2005. One of the components of Better Regulation is better implementation, application and enforcement of Community law: European Commission, ‘Better Monitoring of the Application of Community Law’ (Communication) COM (2002) 725 final, 16 May 2003; European Commission, ‘A Europe of Results: Applying Community Law’ (Communication) COM (2007) 502 final, 5 September 2007. Other action points include simplification of existing regulation, the use of impact assessments, the reduction of administrative burdens for firms and consumers and more efficiency in infringement proceedings: http://ec.europa.eu/governance/better_

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Governance Models, the EC and its Member States necessary to attach high priority to the application of law, to identify why difficulties in implementation and enforcement may have arisen and to assess whether the present approach to handling issues of application and enforcement can be improved.23

It is thus appropriate to consider the present institutional environment by examining available enforcement models in European law. That is the object of the subsequent sections.

II. GOVERNANCE MODELS, THE EC AND ITS MEMBER STATES

There are generally three models in use for the administration of EC law. Many variants are possible and indeed occur in practice.24 Our aim, however, is not to provide an exhaustive account of the workings of specific sectors such as the Common Agricultural Policy (CAP) or fisheries. Instead, we intend to paint the background against which the emergence of networks can be understood.

A. Centralised Governance Centralised governance refers to the application and enforcement by EC institutions of European legislation. The archetypal EC application and enforcement institution is the Commission.25 A textbook example in which such a model is

regulation/index_en.htm; European Commission, ‘A Strategic Review of Better Regulation in the European Union’ (Communication) COM (2006) 689 final, 14 November 2006; European Commission, ‘Second Strategic Review of Better Regulation in the European Union’ (Communication) COM (2008) 32 final. See also the essays collected in S Weatherill (ed), Better Regulation, Series of the Oxford Institute of European and Comparative Law 6 (Oxford, Hart Publishing, 2007). 23 ‘A Europe of Results’, ibid, 2. 24 For a more detailed taxonomy, see C Scott, ‘Agencies for European Regulatory Governance: A Regimes Approach’ in D Geradin, R Munoz and N Petit (eds), Regulation Through Agencies: A New Paradigm for EC Governance (Cheltenham, Edward Elgar, 2005). Consider also A Sapir et al, An Agenda for a Growing Europe: The Sapir Report (Oxford, Oxford University Press, 2004) ch 6, which identifies four basic approaches. In order of centralisation or delegation to the European level, these are delegation, commitment, coordination and autonomy. 25 We are thus not concerned with the implementation powers of the Commission under Art 202 third indent EC or its competence to make delegated legislation under supervision of a comitology committee. Delegated legislation and comitology committees exist for all three modes of governance discussed here. Since they are considered to belong to the legislative rather than enforcement phase, we will not discuss them further in this book. For information on the workings of the comitology system, consider CF Bergström, Comitology: Delegation of Powers in the European Union and the Committee System, Oxford Studies in European Law 8 (Oxford, Oxford University Press, 2005); C Joerges and E Vos (eds), EU Committees: Social Regulation, Law and Politics (Oxford, Hart Publishing, 1999); Craig (above n 14); M Andenas and A Turk (eds), Delegated Legislation and the Role of Committees in the EC (The Hague, Kluwer Law International, 2000). Nor are we concerned with direct management as addressed by the two reports of the Committee of Independent Experts in the wake of the fall of the Santer Commission and Council Regulation (EC, Euratom) 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities [2002] OJ

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Modes of Governance in EC Law used is the regulation of anti-competitive conduct from the 1960s to the turn of the century.26 The Treaty of Rome envisages an important position for competition rules. Article 3(f) of the Treaty calls for ‘the institution of a system ensuring that competition in the Common Market is not distorted’. Articles 81–89 provide the foundation for the competition policy of the Community. The competition rules are directed against both private undertakings and national governments. Policy towards private undertakings is controlled by Articles 81 and 82. Article 81 bans agreements and practices that restrict or distort competition, subject to the possibility of an exemption, while Article 82 prohibits the abuse of a dominant position. The Treaty endows the Commission with independent powers to ensure the application of the competition rules against recalcitrant undertakings.27 It investigates, prosecutes and fines perceived anti-competitive behaviour. The role of the Commission is further buttressed in secondary legislation. Due to Franco-German disagreement, the Treaty is intentionally vague on how to apply Article 81’s bifurcated structure.28 Two possible methods of implementation are conceivable. Under the Verbot mit Erlaubnisvorbehalt a restrictive agreement is automatically void, unless it has received the prior authorisation of a public authority to which the agreement has been notified. Using the system of exception légale,29 undertakings themselves decide if their agreements are in accordance with the law, but the competition authority can elect to challenge them and, if successful, declare them unenforceable with retrospective effect. The adoption of Regulation 17 in 1962 meant the introduction of a prior authorisation regime for competition enforcement.30 The Commission obtained the exclusive competence to receive notifications and grant exemptions.31 L248/1, ie the implementation of the Community budget through the Commission in fields as emergency aid, humanitarian assistance etc. For an analysis of direct management, consult Craig (above n 14) ch 2. 26 For a detailed examination of the origins of the competition rules, see DG Goyder, EC Competition Law, 4th edn (Oxford, Oxford University Press, 2003). For an explanation of the substance and procedure of the competition rules, see inter alia, R Whish, Competition Law, 5th edn (London, LexisNexis, 2003); M Motta, Competition Policy: Theory and Practice (Cambridge, Cambridge University Press, 2004); C Kerse and N Khan, EC Antitrust Procedure (London, Thomson, Sweet & Maxwell, 2004). 27 Art 85 EC. Reaffirmed by the Court of Justice in Case C-344/98 Masterfoods Ltd v HB Ice Cream Ltd [2000] ECR I-11369. 28 A Deringer, ‘Les Règles de la Concurrence au Sein de la C.E.E. (Analyse et Commentaire des Articles 85 à 94 du Traité) [1964] 7 Revue du Marché Commun 560. 29 The German and French terminology respectively is used to indicate the origin of either principle. In English, the terminology is that of prior authorisation and legal exception. 30 Council Regulation (EEC) No 17 (First Regulation implementing Arts 85 and 86 of the Treaty) [1959–62] OJ Spec Ed 87. 31 Ibid, Arts 4 and 9(1). The centrality of the Commission’s role was further enhanced by a high degree of autonomy in decision-making, as it had only to consult an advisory comitology committee. In addition, in 1965 the Council granted the Commission broad powers to ‘legislate’ without its approval through the adoption of block exemption regulations: Council Regulation 19/65/EEC on the application of Article 85(3) of the Treaty to certain categories of agreements and concerted practices [1965] OJ Sp Ed 35, amended by Council Regulation 1215/99/EC [1999] OJ L148/1.

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Governance Models, the EC and its Member States National competition authorities were still able to decide on infringements of the primary prohibition.32 In actual fact, their importance was greatly reduced, because of their lack of competence to complete the assessment. Member States were thus not particularly forthcoming in the setting up of competition bodies.33 Alternatively, they denied these bodies the competence to apply Articles 81 and 82.34 National courts were also accorded a limited role.35 In Belgische Radio en Televisie v SV SABAM and NV Sonior the Court of Justice ruled that only the prohibition in Article 81 had direct effect.36 The judgment eliminated incentives to bring suits in the national courts, because they too could decide only one of the two issues relevant to the application of Article 81.37 Finally, we must mention the special mechanism incorporated in Regulation 17 under which the jurisdiction of the national authorities was terminated as soon as the Commission initiated proceedings.38 While used sporadically, its existence was yet another disincentive for application of the EC rules at national level. It is clear, then, that the Commission is accorded pride of place within centralised governance.

B. Decentralised Governance Centralised governance is the exception.39 As a general rule, it falls to the national authorities to bridge the gap between general EC legislation and individual cases.

32 Reg 17 Art 9(3). Until the entry into force of Reg 17, Member State competition authorities still had the primary competence to apply Arts 81 and 82 EC. In reality, for the six years that they could do so, no meaningful national-level enforcement practice ensued. For the reasons, see the text to n 58. 33 For instance, the Dutch Nederlandse Mededingingsautoriteit (NMa) was established only in 1998. See further A Haslam-Jones, ‘A Comparative Analysis of the Decision-Taking Process in Competition Matters in Member States of the European Union, the European Commission and the United States’ (1995) 16 European Competition Law Review 154. 34 Only Belgium, France, Germany, Greece, Italy, the Netherlands, Spain and Portugal had done so. 35 Article 81(2) EC enables only national courts to determine the civil law effects (damages, injunctive relief) of an infringement of the prohibition on restrictive agreements: Case 48/72 Brasserie de Haecht v Wilkin-Janssen [1973] ECR 77. 36 Case 127/73 Belgische Radio en Televisie v SV SABAM and NV Sonior [1974] ECR 51 [16]. 37 In addition, the Court clarified in Masterfoods (above n 27, [48]) that the Commission could at any time adopt an individual decision, even if the case had already been decided by a national court and the Commission decision would conflict with this judgment. 38 Reg 17 Art 9(3). The importance of this provision increased as the Court read Art 81(1) very broadly and thereby increased the scope of the Commission’s competences. See Case 56/65 Société Technique Minière (STM) v Maschinenbau Ulm GmbH (MBU) [1966] ECR 235; Case 22/78 Hugin Kassaregister AB and Hugin Cash Registers Ltd v Commission [1979] ECR 1869 [16]; Case C-234/89 Stergios Delimitis v Henninger Bräu AG [1991] ECR I-935. 39 In addition to the enforcement of the EC competition rules until 2003, the only other fields in which centralised governance is practiced are state aid (Arts 87–89 EC); merger control (Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings [2004] OJ L24/1); and trade law (Arts 131–34 EC).

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Modes of Governance in EC Law To illustrate, we will consider the situation in telecommunications from the 1980s until 2003.40 In the wake of the liberalisation of the telecommunications sector, the Commission called for the establishment of national regulatory authorities to administer the new European telecommunications legislation.41 The Member States could determine which public bodies would carry out at national level the tasks assigned to these regulatory authorities. So too could they decide on the position of these bodies within the overall state administration, their institutional characteristics, as well as the applicable procedural rules. Unsurprisingly, a survey of the institutional landscape thus revealed considerable divergences across the Member States. For instance, regulatory authorities in Belgium, Sweden and the United Kingdom were headed by a single director, whereas their counterparts in Austria, Italy and Germany practiced collegiate regulation. Ministers in the Netherlands, Denmark and Cyprus could issue general instructions to the authority, a possibility that did not exist in France. Some Member States (such as Belgium and Portugal) left ‘sensitive’ matters such as licensing and price regulation to the Ministry, which in other Member States were granted to independent bodies. National courts ensured that the decisions of the national administrations at least complied with basic provisions of national law, both as regards procedure and substance, and in some cases engaged in full-fledged review of the merits. In addition, national courts protected the legal rights individuals derived from Community law through the doctrines of direct effect42 and supremacy.43 As such, national courts ruled on the compatibility of national decisions (or even

40 For a detailed account of the substance of telecommunications regulation in that time as well as the initial liberalisation moves, see P Larouche, Competition Law and Regulation in European Telecommunications (Oxford, Hart Publishing, 2000) esp ch 1. The European approach contrasts with that chosen in most federal regimes, such as the United States, Australia and Canada, where the bulk of regulatory duties are entrusted to a federal telecommunications regulator. See M Kerf and D Geradin, ‘Controlling Market Power in Telecommunications: Antitrust vs Sector-Specific Regulation—An Assessment of the United States, New Zealand and Australian Experiences’ (1999) 14 Berkeley Technology Law Journal 919. 41 Commission Directive 88/301/EEC on competition in the markets in telecommunications terminal equipment [1988] OJ L131/73, affirmed by the Court in Case C-18/88 Régie des télégraphes et des telephones v GB-Inno-BM SA [1991] ECR I-5941. The Community term ‘national regulatory authority’ was officially coined in Council Directive 92/44/EEC on the application of open network provision to leased lines [1992] OJ L96/35. 42 Regarding Treaty provisions, see Case 26/62 NV Algemene Transport en Expeditie Onderneming van Gend en Loos v Nederlandse Administratie der Belastingen [1963] ECR 1. Regarding regulations, see Case 39/72 Commission v Italy [1973] ECR 101 and the language of Art 249 EC. Regarding the vertical direct effect of directives, see Case 41/74 Van Duyn v Home Office [1974] ECR 1337. In horizontal relations, standing case law still holds, notwithstanding an apparent relaxing attitude that directives cannot be directly effective. The negative effects of this stance have to some extent been mitigated by the possibility of ‘indirect effect’ or the principle of implementation, requiring national courts to read national law in such a way as to conform to the provisions of the directives. See Case 14/83 Von Colson and Kamann v Land Nordrhein-Westfalen [1984] ECR 1891; Case 80/86 Criminal proceedings against Kolpinghuis Nijmegen BV [1987] ECR 3969; and Case C-106/89 Marleasing SA v La Comercial Internacionale de Alimentacion SA [1990] ECR I-4135.

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Governance Models, the EC and its Member States national laws) with EC law, where necessary with the help of preliminary rulings from the European Court of Justice (ECJ), which were requested pursuant to Article 234 EC.44 Finally, national courts could hold a Member State liable in damages for breaching Community law.45 The Commission maintained a general supervisory overview. Its Annual Reports on the Implementation of the Telecommunications Regulatory Package included extensive annexes detailing at length how Member States had fared in the application of the telecommunications rules. Satisfactory and defective performances were singled out, inducing peer pressure and benchmarking.46 Annual reports are easily accessible,47 and most sections are published in all of the Community’s official languages. Further, the Commission could bring infringement proceedings under Article 226 EC if it estimated that either the national telecommunications rules or a decision of the regulatory authority was in breach of Community law.48 At the end of 1998, there were 89 such proceedings pending against Member States.49

43 See Van Gend en Loos (above n 42); Case 6/64 Flaminio Costa v ENEL [1964] ECR 585; and Case 106/77 Amministrazione delle Finanze dello Stato v Simmenthal SpA [1978] ECR 629. 44 Directive 97/51 of the European Parliament and of the Council amending Council Directives 90/387/EEC and 92/44/EEC for the purpose of adaptation to a competitive environment in telecommunications [1997] OJ L295/23. Art 5a(3) provided telecommunications operators with an EC-created right of appeal to a judicial body against decisions by national regulatory authorities. This Article was at the core of the preliminary reference to the ECJ in Case C-462/99 Connect Austria Gesellschaft für Telekommunikation GmbH v Telekom-Control-Kommission [2003] ECR I-5197. 45 Cases C-6/90 and 9/90 Francovich and Bonifaci v Italy [1991] ECR I-5357; Cases C-46/93 and C-48/93 Brasserie du Pecheur SA v Germany and R v Secretary of State for Transport, ex parte Factortame Ltd and Others [1996] ECR I-1029; Case C-224/01 Gerhard Köbler v Republik Österreich [2003] ECR I-10239; Case C-173/03 Traghetti del Mediterraneo SpA v Repubblica italiana [2006] ECR I-5577. An example specific to the telecom sector is Case C-392/93 The Queen v HM Treasury, ex parte British Telecommunications plc [1996] ECR I-1631. 46 These reports can have a strong deterrent effect on the national authorities as a mentioning of a violation of European law signals the possibility for the Commission to open a formal infringement action and a possibility for private parties to contest the national decision before the national court as contrary to primary EC law. 47 Http://ec.europa.eu/information_society/policy/ecomm/library/communications_reports/ index_en.htm. These reports are assembled on the basis of information obtained through missions carried out in the Member States by Commission officials; analyses of the notifications of national transposition and implementing measures received from Member States; market data received from the national authorities; and surveys commissioned on price developments. 48 S Kadelbach, ‘European Administrative Law and the Law of a Europeanized Administration’ in Joerges and Dehousse (eds) (above n 15) 167, 170 notes that the relationship between the Commission, as the central European authority, and the Member State executive is however not hierarchical. Unless otherwise provided for by specific EC law, the Commission has no supervisory powers over specific Member State agencies, and it has to revert to the responsible government if these agencies violate European law. For an analysis of the mechanism of infringement proceedings, see A Gil Ibañez, The Administrative Supervision and Enforcement of EC Law: Powers, Procedures and Limits (Oxford, Hart Publishing, 1999) chs 4 and 5. 49 JF Pons, ‘The Liberalization of Telecommunications in Europe and the Role of Regulators’ (speech) Rome, 12 April 1999, available at http://europa.eu.int/comm/competition/speeches/text/ sp1999_010_en.html.

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Modes of Governance in EC Law C. Decentralised Governance with a Centralised Twist The decentralised model offers a relatively clean break between the roles of the Community and its Member States. The actions of Member States in applying and enforcing EC law are subject to limited control from the EC level. A variant of this model involves a stronger EC presence through agencies. Agencies are a ‘variety of organizations that perform functions of a governmental nature and which often exist outside the normal departmental framework of governance’.50 Consider Table 1.1. for an overview of existing European agencies.51 An agency generally functions under the authority of an administrative, governing or management board, which lays down the general guidelines and adopts the work programme of the agency. Agency boards commonly include one or two representatives from each Member State and one or several Commission representatives.52 Each member of the board has one vote, and the norm is to require a two-thirds majority for board decisions. The effect is that Member State equality, in formal terms at least, applies within boards of agencies.53 It is also clear that Member States can exert strong national influence through the agency board.54 That said, in most cases the Commission holds the final decision-making powers. An executive director is responsible for oversight of the day-to-day work of an agency, drawing up the work programme, implementing that programme and preparing the agency’s annual report. Appointment is normally either by the board on a proposal from the Commission55 or by the Commission on the basis of candidates put forward by the board. The board and

50 G Majone, ‘The Credibility Crisis of Community Regulation’ (2000) 2 Journal of Common Market Studies 273. Consider also the definition of Community agencies given on the Europa website (http://europa.eu/agencies/community_agencies/index_en.htm): ‘A Community agency is a body governed by European public law; it is distinct from the Community Institutions (Council, Parliament, Commission, etc) and has its own legal personality. It is set up by an act of secondary legislation in order to accomplish a very specific technical, scientific of managerial task, in the framework of the European Union’s “first pillar”.’ 51 Excluded from the following discussion are Second Pillar Agencies, Third Pillar Agencies and executive agencies, created in response to the fall of the Santer Commission and entrusted with certain tasks related to the implementation of Community programmes that are directly managed by the Commission—so without the involvement of national bureaucracies. 52 They may also include members appointed by the European Parliament or representatives of the social partners or other relevant stakeholder groups, who commonly do not have the right to vote. 53 Craig (above n 14) 171. 54 This is why the Commission has been trying to reduce, and ideally remove, the number of Member State representatives on agency boards—to no avail, however. 55 The power thus bestowed upon the Commission is limited by three developments. First, there has been an increased emphasis on the need for the director to be independent and to possess the skills relevant to the agency’s area. Second, there is provision for the Commission’s list of candidates to be produced after an open competition for the post, which must be advertised in the Official Journal and other relevant sites. Third, there is a requirement that the person chosen by the board as a result of this process must appear before the European Parliament before being formally appointed, make a statement concerning his or her vision for the agency and answer questions.

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Governance Models, the EC and its Member States director are assisted in their work by one or more technical or scientific committee, which draft opinions on (technical) questions or acts as information relays. Table 1.1 Agencies in European Law Agency

Abbreviation

Year of Establishment

Community Fisheries Control Agency Community Plant Variety Office European Agency for Reconstruction European Agency for Safety and Health at Work European Agency for the Management of Operational Cooperation at the External Borders European Aviation Safety Agency European Centre for Disease Prevention and Control European Centre for the Development of Vocational Training European Chemicals Agency European Environment Agency European Food Safety Authority European Foundation for the Improvement of Living and Working Conditions European Fundamental Rights Agency

CFCA CPVO EAR OSHA FRONTEX

2005 1994 2000 1994 2004

EASA ECDC

2002 2005

Cedefop

1975

ECHA EEA EFSA EUROFOUND

2007 1990 2002 1975

European GNSS Supervisory Authority

FRA

2007

GSA

2007

European Institute for Gender Equality

under preparation

Fusion for Energy

2007

European Maritime Safety Agency

EMSA

2003

European Medicines Agency

EMEA

1995

European Monitoring Centre for Drugs and Drug Addiction

EMCDDA

1993

European Network and Information Society Agency

ENISA

2004

European Railway Agency

ERA

2004

European Training Foundation

ETF

1990

Office for the Harmonisation in the Internal Market

OHIM

1993

Translation Centre for Bodies of the European Union

CdT

1994

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Modes of Governance in EC Law There are three broad categories of agencies.56 The first, information agencies, comprises two sub-categories. The European Centre for the Development of Vocational Training (CEDEFOP), the European Foundation for the Improvement of Living and Working Conditions (EUROFOND) and the European Training Foundation (ETF) all collect, analyse and disseminate information relating to their specific policy area. The second sub-category, which includes the European Environment Agency (EEA), the European Agency for Safety and Health at Work (EU-OSHA) and the European Monitoring Centre for Drugs and Drug Addication (EMCDDA), takes an active part in creating and coordinating expert networks. Expert networks comprise National Focal or Reference Points, which are required to cooperate with the agencies and, at national level, coordinate the activities related to the agencies’ work programmes. The second broad category is management agencies, which assist the Commission in the management of EU programmes. These agencies also have budgetary implementation tasks related to the programmes. The third category, regulatory agencies, are in some way involved in regulating economic and social policies, such as the preparation and adoption of the regulatory framework; the preparation and adoption of legislative acts for implementing the regulatory framework; and the monitoring of the implementation of the regulatory and legislative framework. Examples are the Office for the Harmonisation of the Internal Market (OHIM), the Community Plant Variety Office (CPVO), the European Medicines Agency (EMEA) and the European Food Safety Agency (EFSA).

D. Traditional Governance Models Compared and Contrasted Our examination of traditional governance models can be rendered in pictorial form (see Figure 1.1). The existing governance models are a function of Community control, Member State autonomy and multi-level relationships. Decentralised enforcement, depicted on the left, is characterised by modest Community control (through Articles 234 and 226 EC), strong Member State autonomy and a modest overlap between the two governance levels.57

56 The typology followed here derives from E Vos, ‘Agencies and the European Union’ in T Zwart and L Verhey (eds), Agencies in European and Comparative Law (Antwerp, Intersentia, 2003) 119. Other taxonomies are proposed by, inter alia, European Commission, ‘The Operating Framework for the European Regulatory Agencies’ (Communication) COM (02)718 final, 11 December 2002; Craig (above n 14) 154 ff; and D Geradin and N Petit, ‘The Development of Agencies at EU and National Levels: Conceptual Analysis and Proposals for Reform’ (2005) Jean Monnet Working Paper No 1/04, http://www.jeanmonnetprogram.org/papers/04/040101.pdf. 57 For information on Commission involvement in administrative proceedings at national level in the context of inspections, see Gil Ibañez (above n 48) ch 3. More generally, see Kadelbach (above n 48).

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The Models in Perspective Figure 1.1 Traditional Modes of Governance Compared and Contrasted

On the right, centralised enforcement shows an all-powerful Community presence, reduced Member State autonomy (if any) and a complete separation between the EC and national levels. The agency model treads the via media. There is a stronger Community influence than under decentralised governance, because of the presence of a second Community body in the law enforcement phase. The precise extent of this influence is dependent on the type of agency involved and the nature of its activity. At the same time, Member States continue to possess a sizeable degree of procedural autonomy, because important executive powers continue to be located at the national level. In terms of multi-level relationships, the agency structure allows for regular contact between the Community and the national level, as well as between the Member States—albeit on a smaller scale.

III. THE MODELS IN PERSPECTIVE

Moving beyond the descriptive, this section offers an external critique of the three enforcement paradigms with reference to the case studies used before. We shall consider a wide spectrum of political-legal notions focusing on the following questions: What rationales support its creation? Is the model acceptable for Community institutions and Member States? Is it supported or hindered by the Treaty and the acquis commauntaire?

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Modes of Governance in EC Law A. Centralised Governance Centralised governance in competition law arose as a result of a complex interplay of practical and political considerations. To quote Ian Forrester and Christopher Norall, The principles embodied in the competition rules were novel and almost revolutionary. They required fundamental changes in deeply ingrained habits of thought and patterns of economic conduct. The officials of the new competition Directorate-General did not trust businessmen, lawyers and judges to apply the rules correctly (or even, as the case might be, in good faith); they sought to keep a maximum of surveillance and control in their own hands.58

In post-war Europe, cartel arrangements were considered not only acceptable but even normal.59 Competition rules and institutions in the Six were in a primitive state. Italy, Luxembourg and Belgium did not have any such laws. Germany alone possessed a new and relatively comprehensive competition regime, albeit without experience in enforcement.60 The state of affairs at national level led many to assume that the Community competition rules would play an equally marginal role and would not be seriously enforced.61 As a result, the Member States did not perceive Regulation 17 as an unlawful incursion upon their sovereign competences. From the Commission’s perspective, centralised enforcement would give it great visibility and powers—qualities that would tempt any authority that had only recently come into existence and was seeking to create political momentum. Then there was what David Gerber calls the ‘unification imperative’.62 The competition rules have been understood by the Commission and the Court as part of a programme designed to unify the European market. As such, their consistent interpretation and application was of paramount concern.63 Regulation theorists accept that centralized governance is the most effective tool to

58 I Forrester and C Norall, ‘The Laicization of Community Law: Self-Help and the Rule of Reason: How Competition Law Is and Could Be Applied’ in B Hawk (ed), Annual Proceedings of the Fordham Corporate Law Institute: EC Competition Law Reform (New York, Juris Publishing, 2003) 45, 46. Originally published in (1984) 21 Common Market Law Review 11. 59 They were believed to stabilise the economy, and a number of Member States actively supported the creation of cartels and endorsed these through legislation. 60 Goyder (above n 26) 28. 61 DJ Gerber, ‘The Transformation of European Community Competition Law’ (1994) 35 Harvard International Law Journal 97, 103. The author notes that many did not view the competition rules as law at all but rather as general policy principles. It was also widely believed that if Community competition law were to be applied, its application would be limited either almost exclusively to the very largest firms or to firms that engaged primarily in transnational business. 62 Ibid, 98 and the footnotes listed there. 63 The Court thus provided the Commission with ‘windows of opportunity’ to affirm its prerogatives. An example is the ever-expanding interpretation of the ‘effect on trade between Member States’ notion, which constitutes the jurisdictional trigger for the application of European competition law. See Société Technique Minière (STM) v Maschinenbau Ulm GmbH (MBU) (above n 38); Hugin (above n 38) 16; and Delimitis (above n 38). The broadening remit of competition law was in

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The Models in Perspective bring about homogeneity in regulatory approaches.64 Homogeneity is in turn expected to lead to more legal certainty, which lowers transaction costs and increases levels of economic trade and welfare.65 This is because firms need to familiarise themselves with only a single set of rules and a single enforcer.66 Centralized governance is particularly apposite when there are externalities. National authorities typically fail to sufficiently consider the impact of their decisions outside the domestic jurisdiction: When the firms exercising market power trade internationally, the costs of their market power will be borne partly by foreign consumers, while the producer rents may accrue entirely to the domestic economy. So even though the overall costs of market power may outweigh its overall benefits, the costs to the domestic economy may be lower than its benefits to the domestic economy. So domestic competition authorities will tend to take a more indulgent attitude to the exercise of market power by multinational firms than they would do if all the costs were borne by domestic consumers.67

A centralised authority, like the Commission, will however take the entire European market as reference point. This of course is essential for the proper development and functioning of the Internal Market. It is axiomatic that the success of the Commission is the sine qua non of centralized governance. The experience with competition law reveals however that this enforcement model puts a vast strain on the limited resources of the Community. The Competition Directorate-General had a handful of senior officials during its first year of operations, gradually rising to about twenty by the end of the second year, and increasing steadily to seventy-eight by April 1964 and to just over one hundred by ten years later.68 Yet, as early as 1967 the Commission was faced with a daunting 37,450 cases that had accumulated since the entry into force of Regulation 17 just four year prior. Only 222 decisions were ever

line with the general evolution of Community law at the time, for instance in the field of free movement of goods, from Case 8/74 Procureur du Roi v Dassonville [1974] ECR 837 to Case 120/78 Rewe-Zentrale AG v Bundesmonopolverwaltung für Branntwein (‘Cassis de Dijon’) [1979] ECR 649. 64 R Baldwin and M Cave, Understanding Regulation: Theory, Strategy, And Practice, (Oxford, Oxford University Press, 1999) ch 5. A single enforcer may be expected to ensure internal consistency in its decision-making. In the European context, if that authority is the Commission, we can further assume that it will interpret, apply and enforce the law correctly – that is to say, in conformity with the intention of the European legislature. 65 See further H Wagner, ‘Economic Analysis of Cross-Border Legal Uncertainty: The Example of the European Union’ in J Smits (ed), The Need for a European Contract Law: Empirical and Legal Perspectives (Groningen, Europa Law Publishing, 2005). 66 We can also argue that this model can ensure more credible regulation. When it is difficult to observe under decentralized enforcement whether the Member States are making an honest effort to enforce a common rule, the rule is not credible. If the rule is not credible, businesses will be less eager to trade across borders. Of course, whether this effect will come about is dependent on the success of the centralized enforcer. 67 K Gatsios and P Seabright, ‘Regulation In The European Community’ (1989) 5 Oxford Review of Economic Policy 37, 40–41. 68 Goyder (above n 26) 31.

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Modes of Governance in EC Law adopted.69 Internal procedure was cumbersome70 and excessively timeconsuming. Forrester has observed that carrying a case from start to finish in one matter consumed less than nine months—the administrative speed record—but in another matter might take 28 years.71 Criticism grew as the years went by. The Commission attempted some adjustments,72 but by the millennium a consensus had emerged that a thorough overhaul of the system was necessary to bring about more efficiency in enforcement.73 The next section will examine how the Community institutions went about this.

B. Decentralised Governance Focusing on decentralised governance, we have noted that this is the default enforcement model. The reasons for this state of affairs can be explained simply. The Community possesses those sovereign powers that the Member States have agreed to attribute to it, either explicitly or implicitly. The Treaty provides for Community institutions to exercise the attributed powers. It does not, however, set up a uniform system for the application and enforcement of legislative output. In the absence of specific provisions to the contrary, Article 10 of the EC Treaty calls upon Member States to administer Community law.74 Koen Lenaerts and Piet van Nuffel have observed that in this respect, ‘the Community exhibits 69

I Forrester, ‘Modernisation of EC Competition Law’ in Hawk (ed) (above n 58) 80. The Commission would first need to publish a notice in the Official Journal in all official languages to allow interested parties to submit observations. Then the Advisory Committee had to be consulted. Finally, the full Commission would adopt the decision, which would again be published in the Official Journal in all official languages. 71 Forrester (above n 69) 83. 72 On the non-institutional side, there was: the de minimis Notice according to which market operators whose market share did not exceed the threshold mentioned were not required to notify (Commission Notice concerning agreements, decisions and concerted practices of minor importance which do not fall under Article 85(1) of the Treaty establishing the European Economic Community [1970] OJ C64/1 as amended); the waiver of prior notification for a number of agreements under Article 4(2) of Regulation 17; the adoption of block exemption regulations and the technique of comfort letters, which informed undertakings that after a first perusal of their agreement the Commission saw no cause for concern. On the institutional side, both the Commission Notice on cooperation between national courts and the Commission in applying Arts 85 and 86 of the EEC Treaty [1993] OJ C39/6 and the Commission Notice on cooperation between national competition authorities and the Commission in handling cases falling within the scope of Arts 85 or 86 of the EC Treaty [1997] OJ C313/3 attempted to increase the participation of national authorities and courts in European competition law enforcement. The Notices had little to no effect however. 73 Adopting a slightly different approach, it could also be argued that the need for reform was also warranted because of legitimacy reasons. In the long term, the inability to enforce the law with a high frequency has repercussions for its credibility. Rules lacking in credibility will have a similar impact on the incentives of the business community to take entrepreneurial risks as ineffectively enforced rules. 74 Eg, Case 68/88 Commission v Hellenic Republic [1989] ECR 2965. Consider also Case C-478/93 Kingdom of the Netherlands v Commission [1995] ECR I-3081 [39], where the Court characterised the organisation framework as ‘a decentralized system of management based on a division of tasks and responsibilities as between Member States and the Commission’. 70

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The Models in Perspective characteristic features of a federal system in which legislative power is assigned to the central authority, but executive power is vested in authorities in the federated States’.75 The division of competences is a reflection of the principle of subsidiarity.76 Laid down in Article 5, third indent of the Treaty, the principle incorporates a preference for powers to be exercised by the lowest echelons of governance. A corollary of ‘executive federalism’ is national procedural autonomy. To the extent that there are no common rules in the matter and subject to compliance with general obligations deriving from the EC Treaty,77 Member States act in accordance with their own constitutional traditions and procedural and substantive rules when administering Community rules.78 Accordingly, whereas centralised governance has the virtue of homogeneity, decentralised governance brings the benefits of proximity, flexibility and diversification—the virtue of heterogeneity. Policies are executed at the same level as where the beneficiaries of that policy, or those subject to it, are located. Member States are able to adopt solutions that match local preferences. In particular, they can experiment with rules, processes and enforcement, allowing the emergence of ‘better’ solutions than those currently in place. Decentralisation moreover yields access to a regulatory capacity far greater than that available to the Community. Finally, the default nature of decentralised governance renders this the model politically most acceptable. The most obvious defect of decentralised governance is that it tends to result in uneven and faulty enforcement of EC rules across the Member States.79 Xénophon Yatanagas explains what causes this to happen:

75 K Lenaerts and P Van Nuffel, Constitutional Law of the European Union, 2nd edn (London, Sweet & Maxwell, 2005) 607. See also W Van Gerven, The European Union: A Polity of States and Peoples (Oxford, Hart Publishing, 2005) 20. 76 Lenaerts and Van Nuffel (ibid) 100 ff; K Lenaerts, ‘The Principle of Subsidiarity and the Environment in the European Union: Keeping the Balance of Federalism’ (1994) 17 Fordham International Law Journal 846, 850–52. See further ch 7, section III, subsection A and the references cited there. 77 Member States must adopt rules that are effective and equivalent to domestic laws, eg Case 33/76 Rewe-Zentralfinanz eG and Rewe-Zentral AG v Landwirtschaftskammer für das Saarland [1976] ECR 1989. For an example in telecommunications, see Connect Austria Gesellschaft für Telekommunikation GmbH v Telekom-Control-Kommission (above n 44). Also, they must behave loyally towards the Community institutions pursuant to Article 10 EC. 78 It will become clear that in certain areas the Community is increasingly coveting the province of the Member States. Examples are given in Kadelbach (above n 48) 171. That said, Member States have strong national traditions in the field and are typically loathe to accept too many intrusions. J Schwarze, ‘The Europeanization of National Administrative Law’ in J Schwarze (ed), Administrative Law under European Influence: On the Convergence of the Administrative Laws of the EU Member States (Baden-Baden, Nomos, 1996). 79 Nicolaides, Geveke and den Teuling speak of the EU’s ‘implementation deficit’ in this respect. P Nicolaides, A Geveke and AM den Teuling, Improving Policy Implementation in an Enlarged European Union (Maastricht, EIPA, 2003). See also P Nicolaides, ‘The Political Economy of Multi-tiered Regulation in Europe’ (2004) 42 Journal of Common Market Studies 599; R Baldwin, Rules and Government (Oxford, Clarendon Press, 1995) 252–71. In a way, we can of course also qualify the main problem of centralised governance as an implementation deficit. After all, the insufficiency of

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Modes of Governance in EC Law [T]here is an institutional vacuum between EU legislators and the implementation of European laws by the national authorities at the Member State level. The absence of adequate features of conflict resolution and an unequal expertise and independence of the national regulators further undermine the efficiency of the system. The lack of a European administration infrastructure makes cooperation between the national administrations essentially depend on their mutual trust and loyalty. In the perspective of enlargement, this situation becomes clearly insufficient to ensure the credibility and legitimacy of the European rule-making processes.80

The condition of trust is often problematic. Take, for example, the prohibition on restrictions on the free movement of goods. Following the ECJ’s seminal judgment in Cassis de Dijon, national authorities must recognise out-of-state standards as equivalent to their own, unless they can show a good reason why their own rules should apply.81 However, Commission reports on the application of mutual recognition revealed that the application of the principle of mutual recognition was often hindered by ‘the practical decisions made by the authorities that are in direct contact with citizens or economic operators’.82 Reasons cited for the behaviour included a wish to favour national producers, mistrust of acts adopted by out-of-state authorities and ignorance.83 We are thus faced with a threefold ‘institutional design deficit’:84 national administrations lack the necessary regulatory attributes or proper incentives to enforce EC law; interactions with other Member States are deficient in quality and quantity; and there is insufficient Community oversight over the enforcement measures taken at national level.85 It should be appreciated that the various components of the institutional design deficit are mutually reinforcing. Thus, all

resources also results in defective implementation of the relevant legal rules. Keeping in with normal European parlance, however, we will reserve references to the implementation deficit to discussions on decentralised governance. 80 X Yataganas, ‘Delegation of Regulatory Authority in the European Union: The Relevance of the American Model of Independent Agencies’ (2001) Jean Monnet Working Paper No 3/01, http://www. jeanmonnetprogram.org/papers/01/010301.html, 32. 81 Above n 63. 82 First Report on the Application of the Principle of Mutual Recognition in Product and Services Markets SEC (1999) 1106, 13 July 1999 6. Note that this report followed twenty years after the judgment was delivered. 83 Ibid. 84 This notion is related to but broader than Majone’s ‘institutional deficit’. G Majone, ‘The Credibility Crisis Of Community Regulation’ (2000) 38 Journal of Common Market Studies 273, 279, where the author refers to ‘the mismatch between highly complex regulatory tasks and available administrative instruments’ and is invoked to justify the creation of specialised agencies, capable of rule-making, fact-finding and enforcement. 85 According to Majone, the uneven application of EC rules and the hesitation to apply those rules coherently confront the EC with the ‘dilemma of regulatory federalism’: in principle decentralised governance is desirable because it is more attuned to local preferences. However, due to the lack of regulatory capacities and mistrust that obtains in practice, it might do to opt for centralisation instead. This, however, means that the benefits of differentiation in accordance with varying local conditions are lost. G Majone (ed), Regulating Europe (London, Routledge, 1996) chs 3 and 12. The economic merits and demerits of centralisation and decentralisation are discussed in more detail below in ch 7, sections III and IV.

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The Models in Perspective Member States recognise that they have an incentive to use EC law to their domestic advantage and accordingly suspect that the others are not enforcing the Community rules rigorously or correctly.86 Their own resolve to do so therefore suffers as a result. Add to that the fact that the threat of punishment for misadministration by the Community level is remote, because of the limited resources available to the Commission for infringement actions as well as the slow and cumbersome nature of these actions.87 The upshot might very well be that a Member State is induced to cut down on the time, finances or personnel allocated to the administration of EC law. With a diminution in regulatory capacities, it will be more difficult to maintain satisfactory enforcement standards. And this would confirm the suspicion of other Member States of poor enforcement. We would thus appear to be trapped in a vicious cycle. The administration of the European telecom rules between 1998 and 2003 confirms these shortcomings of decentralised governance.88 The creation of regulatory authorities proved difficult in Continental Member States.89 Their mandated broad, discretionary powers were considered antithetical to the primacy of politics. In the words of the French Conseil d’Etat: ‘Elles présentent de ce fait une particularité importante au regard des principes traditionnels d’organisation de l’Etat, qui font aboutir au ministre et soumettent au pouvoir hiérarchique ou de tutelle du Gouvernement l’ensemble des administrations étatiques’.90 The status of regulatory authorities in a number of Member States was accordingly dubious, which did little to enhance their legitimacy and credibility in the eyes of market operators. The allocation of the most essential competences to the Ministry rather than to the regulatory body exacerbated the difficult position in which the latter found itself. Left with a patchwork of limited competences, judicial challenges against national decisions centred on competence issues rather than going to the merits

86 The incentive to cheat is primarily related to the desire to obtain a competitive advantage over other Member States. On the one hand, the hope is to attract businesses from other Member States. On the other hand, the idea is to enhance the competitiveness of home firms in the European market by reducing their regulatory burden. See further Baldwin and Cave (above n 64) 177–79. 87 The effectiveness of infringement proceedings is further compromised by the fact that the detection and collection of evidence of distortive behaviour by the Member States is far from easy for the non-blatant cases and the Commission’s discretion in deciding whether it wants to use its resources to actually prosecute the matter—a decision that is influenced at least in part by political reasons relating to the Commission’s dependence on the Member States for adopting legislation in the Council and implementing adopted Community rules. 88 For a critique of the substantive flaws in the 1998 telecommunications framework, see P Larouche, ‘What Went Wrong: The European Perspective’ (2003) Tilec Discussion Paper No 03/01, http://www.tilburguniversity.nl/tilec/publications/discussionpapers/2003–001.pdf. 89 This was notably different in the United Kingdom and Ireland. In the Anglo-American administrative law tradition, national authorities can quite easily be given broad, discretionary powers. Accordingly, the first UK telecommunications body, Oftel, was developed as a strong sectoral authority. 90 Conseil d’Etat Rapport, ‘Les autorités administratives indépendentes’, http://www.conseil-etat. fr/ce/rappor/index_ra_li0100.shtml.

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Modes of Governance in EC Law of the cases.91 Courts ended up ruling most claims for judicial review successful. Empirical evidence further found that a number of national regulators were handicapped by inadequate investigative and enforcement powers.92 Authorities also deliberately misconstrued or misapplied the European rules in favour of nationalist interests or firms, because of political pressure or regulatory capture. Cooperation among national authorities, and between them and the Commission was poor. Whatever cooperation that did take place was typically on the basis of personal contacts between officials.93 There was no evidence of a systematic exchange of information on experiences by national authorities.94 In its Annual Implementation Reports, the Commission thus remarked on the wide divergences in the enforcement of the EC rules at national level.95 Firms in turn called for more consistency to ensure a level playing field in telecoms.96 We will examine the Commission’s response below.

C. Decentralised Governance with a Centralised Twist Agencies are modern creatures in EC governance.97 Their creation is usually justified with reference to one or more of the following:98 agencies enable the Commission to focus on its core strategic functions; they remove the resolution of technical regulatory issues from day-to-day political change, and long-term policy consistency and neutrality regarding national interests is thereby

91

Larouche (above n 88) 16. See also ch 3, text attached to nn 45–54. I Forrester, C Norall and A Sutton, ‘The Institutional Framework for the Regulation of Telecommunications and the Application of the EC Competition Rules’ ESSC-EC-EAEC BrusselsLuxembourg [1996] 33 ff. 93 There were two comitology committees (the ONP and the Licensing Committee), which could function as discussion fora, but in practice they were too oriented towards technical work to improve working relationships between the Community and the national level. See L Hancher and S Lavrijssen, ‘De Rol van Netwerken van Nationale Mededingingstoezichthouders bij de Bevordering van Good Governance in the Europese Unie’ [2004] copy with the author. During the 1990s, a High Level Group of National Administrations and Regulatory Authorities and the Independent Regulators Group were created, but at the time these bodies were generally too weak to do much to counter divergent practices at national level through advanced cooperation and coordination. See M Cave and P Crowther, ‘Determining the Level of Regulation in EU Telecommunications: A Preliminary Assessment’ (1996) 20 Telecommunications Policy 725, 737. Of course, the possibility of infringement proceedings always lurked in the background as the ultimate tool to ensure consistency. However, when the overarching aim is to improve cooperation between the Commission and national bodies, pitting these two against each other in court proceedings is likely to do more harm than good. 94 Forrester, Norall and Sutton (above n 92) 23. 95 European Commission, ‘Fifth Report on the Implementation of the Telecommunications Regulatory Package’ (Communication) 2. 96 European Commission, ‘Seventh Report on the Implementation of the Telecommunications Regulatory Package’ (Communication) COM (01) 706 final 13. 97 For an analysis of the historical development of agencies, see Majone (ed), Regulating Europe (above n 85) chs 1 and 4. 98 Eg, White Paper on Governance (above n 5) 24. 92

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The Models in Perspective ensured;99 they permit interaction between national and Community authorities dealing with the same terrain; and finally, they facilitate the use of experts, contributing to a reduction in information asymmetries between the market and the administration. These undoubtedly are positive features. However, the agency model suffers from legal–political limitations. The Treaty is understood to prevent the creation of fully-fledged regulatory agencies. Article 4 EC lists the various institutions operating at Community level and specifies that each of them must act ‘within the limits of the powers conferred upon them by this Treaty’. This is generally interpreted as a prohibition on the establishment of additional bodies, short of a Treaty revision. In a high-profile ruling in 1958, the Court of Justice stipulated that the delegation of powers by Community institutions to ad hoc bodies not envisaged by the Treaty on the European Coal and Steel Community was only possible subject to strict conditions.100 In any event, the delegation of broad discretionary powers was not permitted.101 The Meroni doctrine is generally held to be applicable to the Treaty of Rome as well.102 It can be countered that Meroni is now anachronistic. After all, the judgment was rendered in a context radically different from that prevailing in Europe today.103 More fundamentally, Renauld Dehousse and Michelle Everson have argued that the granting of regulatory powers to European agencies does not amount to a delegation of powers from an EC institution to a regulatory body but rather a ‘Europeanisation’ of powers traditionally belonging to the Member States.104 A Court ruling declaring the doctrine inapplicable is unlikely to come about, however, if only for the scant evidence of a practice of overruling in the European judicial system.105 Legislative activity does not seem forthcoming either. On the contrary, the Commission continues to reaffirm that Meroni prevents it from proposing ‘meaningful’ agencies.106 A cynic would venture that

99 This is seen by Majone as the real comparative advantage of agencies. G Majone, ‘The Agency Model: The Growth of Regulation and Regulatory Institutions in the European Union’ (1997) 3 Eipascope 3. 100 Case 9/56 Meroni & Co, Industrie Metallurgiche SpA v High Authority [1957] ECR 133; Case 98/80 Giuseppe Romano v Institut national d’assurance maladie-invalidité [1981] ECR 1241. 101 The Court justified its stance with reference to Art 7 of the Treaty, which is interpreted to embody the principle of institutional balance. According to the Court, that principle would be rendered nugatory in case of delegation of wide, discretionary powers. For criticism of that reasoning, see Geradin and Petit (above n 56) 30. 102 See, eg, K Lenaerts, ‘Regulating the Regulatory Process: “Delegation of Powers” in the European Community’ (1993) 18 European Law Review 41. 103 The doctrine has been elaborated in the specific context of the European Coal and Steel Community, where the High Authority had been endowed with wide implementation and regulatory powers deriving from the Treaty. 104 Dehousse (above n 15) and M Everson, ‘Independent Agencies: Hierarchy Beaters?’ (1995) 1 European Law Journal 180. 105 The most well-known example is probably Cases C-267 and C-268/91 Criminal Proceedings against Bernard Keck and Daniel Mithouard [1993] ECR I-6097. 106 White Paper on Governance (above n 5) esp 24; Operating Framework for European Regulatory Agencies (above n 56); European Commission, ‘Draft Interinstitutional Agreement on the

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Modes of Governance in EC Law the Commission simply hides behind the acquis communautaire to avert a reduction in its own powers. It advocates the ‘unity and integrity of the executive function’, which it unsurprisingly locates in the Commission and its President.107 The executive function is further defined broadly to include all that occurs after the passage of primary regulations and directives. This perspective informs its call for a reinvigoration of ‘the Community method’,108 its opposition to comitology committees109 and its reluctance to create fully-fledged regulatory agencies. Real agencies with discretionary powers would challenge the unity and integrity of the Commission’s executive function.110 The Commission’s sentiments are echoed by the Member States, albeit for different reasons. They, too, fear a loss of control. The default nature of decentralised governance means that Member States will not look kindly upon what they perceive as a transfer of their ‘prerogatory’ competences and role in the enforcement stage to a Community body.111 After all, and their presence on the agency boards notwithstanding, in most cases the ultimate decision-making power rests firmly with the Commission. According to Giandomenico Majone, the lack of a European tradition of regulation by independent agencies further fuels the reluctance of Member States: why should they grant European agencies powers that they themselves have historically been unwilling to delegate to similar domestic institutions?112

IV. THE EMERGENCE OF NETWORKS FOR EC LAW ENFORCEMENT

Having outlined the merits and demerits of existing enforcement models, this section will trace the rise of networks for law enforcement in Europe. Before doing so, we will briefly consider the political science origins of the network concept.

A. The Network in Political Science Networks have long been at the heart of political science. At its most basic level, policy networks can be defined as Operating Framework for the European Regulatory Agencies’ COM (2005) 59 final, 25 February 2005, esp 4. According to Majone, there are, however, tensions within the Commission regarding the topic, with some members wishing to move beyond Meroni to create true regulatory agencies: G Majone, ‘Delegation of Powers in a Mixed Polity’ (2002) 8 European Law Journal 319. 107 Operating Framework for European Regulatory Agencies (above n 56) 1. 108 White Paper on Governance (above n 5). 109 Bergström (above n 25) 209 ff. 110 Craig (above n 14) 163. 111 Majone, ‘The Agency Model’ (above n 99) 3. 112 Ibid. This is in great contrast to the situation in the United States, where the agency phenomenon had already taken off by the nineteenth century.

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The Emergence of Networks for EC Law Enforcement a set of relatively stable relationships which are of non-hierarchical and interdependent nature linking a variety of actors, who share common interests with regard to a policy and who exchange resources to pursue these shared interests, acknowledging that cooperation is the best way to achieve common goals.113

The policy network concept has a dazzling array of usages. Reviewing the state of the art, Tanja Börzel notes the presence of two different ‘schools’ of policy networks.114 The Anglo-American ‘interest intermediation school’ views policy networks as a meso-level concept embracing all different forms of relationships between interest groups and the state.115 The German ‘governance school’ on the other hand, conceives policy networks as a specific form of public–private interaction. They are seen as a mechanism to mobilise political resources in situations in which these resources are widely dispersed between public and private actors.116 The governance school contrasts policy networks with the two conventional forms of governance: hierarchies and markets. A network is unlike a hierarchy in that it does not have central direction or an established set of authority relations. A network is unlike a market in that relations are personalised and based on informal exchange rather than formal contractual exchange.117 A comparison between markets, hierarchies and networks is offered in Table 1.2.

113 T Börzel, ‘What’s so Special about Policy Networks? An Exploration of the Concept and its Usefulness in Studying European Governance’ (1997) European Integration Online Papers No 16, 1; and T Börzel, ‘Organizing Babylon: On the Different Conceptions of Policy Networks’ (1998) 76 Public Administration 253, 254. A similar idea is expressed by Scott, who adopts a regulatory perspective. He speaks not of policy networks but instead employs the ‘regulatory space metaphor’, recognising that ‘resources relevant to the holding of regulatory power and exercising of capacities are dispersed or fragmented’: C Scott, ‘Analysing Regulatory Space: Fragmented Resources and Institutional Design’ [2001] Public Law 329, 330. The metaphor of regulatory space was initially proposed by L Hancher and M Moran, ‘Organizing Regulatory Space’ in L Hancher and M Moran (eds), Capitalism, Culture and Economic Regulation (Oxford, Clarendon Press, 1989). 114 Börzel, ‘What’s so Special about Policy Networks?’ (ibid) 3; and Börzel, ‘Organizing Babylon’ (ibid) 255. 115 Eg, see F van Waarden, ‘Dimensions and Types of Policy Networks’ (1992) 21 European Journal of Political Research 29; H Kriesi, Les démocraties occidentals (Paris, Économica, 1994); R Rhodes, Beyond Westminster and Whitehall (London, Unwin Hyman, 1988); S Wilks and M Wright (eds), Comparative Government–Industry Relations: Western Europe, the United States and Japan (Oxford, Clarendon Press, 1987). 116 Eg, see P Kenis and V Schneider, ‘Policy Networks and Policy Analysis: Scrutinizing a New Analytical Toolbox’ in B Marin and R Mayntz (eds), Policy Network: Empirical Evidence and Theoretical Considerations (Frankfurt am Main, Campus Verlag, 1991) 25; J Kooiman (ed), Modern Governance: New Government–Society Interactions (London, Sage, 1993). 117 S Wilks, ‘Understanding Competition Policy Networks in Europe: A Political Science Perspective’ in CD Ehlermann and I Atanasiu (eds), Constructing the EU Network of Competition Authorities, European Competition Law Annual 2002 (Oxford, Hart Publishing, 2005) 65, 67. Unlike hierarchies and markets, policy networks do not necessarily have dysfunctional consequences. While markets are unable to control the production of negative externalities (problems of market failure), hierarchies produce losers, who have to bear the costs of a political decision, eg, exploitation of the minority by the majority.

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Modes of Governance in EC Law Table 1.2 Networks, Markets and Hierarchies Compared and Contrasted Market

Network

Hierarchy

Normative base

Specific contract

Complementary resources and skills

Work contract

Interaction means

Price

Relationships

Procedures

Conflict resolution

Negotiation / legal action

Reciprocity, reputation

Hierarchical position

Strategy

Go where you want

Aligned aspiration and choice

Strategic plans

Organisation

Do what you like

Permeable boundaries

Job descriptions

Processes

Do as you like

Minimal critical rule

Standard operating procedures

Resources

Put information where you want

Flexible resource architecture

Centralised filing, individual pigeonholes

Degree of flexibility

High

Intermediate

Low

Degree of implication between parties

Low

Medium to high

Medium to high

Collaborative climate

Precision, suspicion, control

Open, mutual benefits, trust

Formal, bureaucratic control

Preferences and choice of partners

Independent

Interdependent

Dependent

Source: Report of the Working Group “Networking People for a Good Governance in Europe”

The governance school is en vogue for the study of the European polity.118 Indeed, part of the literature has depicted the European Union as such as a ‘network form of organization’.119 At root, these authors argue, the European 118 For instance, it was explicitly endorsed by the Working Group ‘Networking People for a Good Governance in Europe’, which was one of the groups preparing the White Paper on Governance (above n 5). The following discussion draws on Börzel (above n 113) although that paper makes a somewhat different division of the ways in which policy networks have been invoked for research on European governance. 119 A Bressand and K Nicolaidis, ‘Regional Integration in a Network World Economy’ in W Wallace (ed), The Dynamics of European Integration (London, Pinter, 1990); W Wallace, ‘Introduction: The Dynamics of European Integration’ in W Wallace (ed), The Dynamics of European Integration (London, Pinter, 1990); R Keohane and S Hoffmann, ‘Institutional Change in Europe in the 1980s’ in R Keohane and S Hoffmann (eds), The New European Community: Decision-making and Institutional Change (Oxford, Westview Press, 1991); L Mescalfe, ‘Après 1992: la Commission pourra-t-elle gérer l’Europe?’ (1992) 63 Revue Française d’Administration Publique 401; K Ladeur, ‘Towards a Legal Theory of Supranationality: The Validity of the Network Concept’ (1997) 3 European Law Journal 33.

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The Emergence of Networks for EC Law Enforcement Union can no longer be conceptualised and explained by using the dichotomy of international organisation/confederation versus supranational state/federation. Rather, it is a system of ‘governance without government’, which proceeds through negotiations in policy networks linking public and private actors of different levels and dimensions of government. A variation of this theme focuses on Europe’s institutions. Les Metcalfe, for instance, sees the Commission as a prime example of a network organisation.120 Wolfgang Wessels adopts a similar view regarding comitology committees.121 A second set of authors adopts the converse perspective. They invoke policy networks to analyse the impact of European policy-making on the domestic structures of the Member States. Three strands of opinion have emerged. The first considers that the possibility for subnational actors such as regional or local governments directly and independently to access the European policy-making arena weakens the role of the state as gatekeeper of national interests. A second view arrives at the opposite conclusion. It holds that subnational actors become more dependent on the resources of the central government and that as such the role of the state is strengthened. The third view presumes the transformation of the state through a process of Europeanisation. In the same way as the European Union becomes a networked form of governance, so does the state. As Beate Kohler-Koch puts it, the state is transformed ‘from actor into arena’ by a shift from hierarchical, state-centred coordination to non-hierarchical selfcoordination of public and private actors across all levels of government.122

B. Networks as Legal Tools: The Initial Approach Networks in political science and legal networks share certain commonalities. These are the fundamental characteristics of a network—a series of interlocking and non-hierarchical relationships. Different disciplines conceive networks differently, however, and it would do to point out the key differences between legal networks and networks in political science. In political science, the focus is often 120 L Metcalfe, ‘The European Commission as a Network Organization’ (1996) 26 Publius: The Journal of Federalism 43. A major point of interest is the relationship between the Commission and national and transnational interest groups in various policy areas and the influence of these sectoral networks on policy outcomes and policy change in European policy-making. 121 W Wessels, ‘Comitology: Fusion in Action—Politico-administrative Trends in the EU System’ (1998) 5 Journal of European Public Policy 209. Cf Joerges and Neyer’s depiction of comitology committees as a forum for ‘deliberative politics’ in which all participants engage in the search for the common good: C Joerges and J Neyer, ‘From Intergovernmental Bargaining to Deliberative Political Processes: The Constitutionalization Of Comitology’ (1997) 3 European Law Journal 273. This would apply in particular for those committees that represent economic and social interests and/or are composed of experts. For an overview of criticism of this view, see Craig (above n 14) 115 ff. Similar claims could arguably be made for the Council, in particular its COREPER, the Economic and Social Committee or agencies, in particular those with National Focus or Reference Points. 122 B Kohler-Koch, ‘The Strength of Weakness: The Transformation of Governance in the EU’ in S Gustavsson and L Lewin (eds), The Future of the Nation State (London, Routledge, 1996) 169.

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Modes of Governance in EC Law on power dependency relations; to uncover how and why actors work together; and what relational norms govern their dealings. In a legal network, interaction takes place first and foremost because the law has decreed that it must be so, as it has linked the relevant actors through a series of interrelating legal rights and obligations. Another distinction with regard to networks is as follows. Political science uses networks as an analytical toolbox to describe changes in Europe– state–society relations. Political science as a discipline is therefore neutral with regard to network creation: it narrates what it observes existing in reality but adopts a passive attitude towards the realisation of this reality. The law, on the other hand, plays an important part in creating legal networks by actively crafting a web of interlocking and non-hierarchical relationships between the various actors.123 This also means that the legal network typically has a higher level of institutionalisation than does its political science equivalent. It must be pointed out that the same network can be both legal and political at the same time—the two perspectives are not mutually exclusive. Indeed, many legal networks eventually also become policy networks, meaning that the linkages between the various actors are no longer only grounded in formal (legal) rules but based also on informal connections, which are premised on trust, the development of common behavioural standards and working practices, resource dependency, as well as reputational enforcement. That said, it is important to distinguish the legal from the political science to make it clear that our interest in the remainder of this book is in networks that have a firm basis in the law. We will consider a few examples to map out the development of legal networks in the European context. In the same way that policy networks have no uniform meaning or application, legal networks vary in intensity of their organisational profile. The early networks, introduced as part of the governance of the Internal Market in the late 1980s, were modest in scope and setup. For example, under the directives on public procurement, firearms and television, the control authorities in the Member States had to be identified.124 They had an obligation to report on

123 For a functional categorisation of networks interacting with the European Union and used by the European Commission in the formulation or implementation of its policies, see Networking Working Group (above n 118). Kassim has questioned the appropriateness of the network model in the Community context, because it would be insufficiently sensitive to EC fluidity and institutional complexity and fail to recognise the importance of EC institutions: H Kassim, ‘Policy Networks, Networks and European Union Policy Making: A Sceptical View’ (1994) 17 West European Politics 15. His argument has been refuted by Peterson, who says that although the model would require further testing, it does provide the most powerful analytical approach available: J Peterson, ‘Policy Networks, Networks and European Union Policy Making: A Reply to Kassim’ (1995) 18 West European Politics 389. 124 Council Directive 92/50/EEC relating to the coordination of procedures for the award of public service contracts [1992] OJ L209/1 Art 39; Council Directive 93/37/EEC concerning the coordination of procedures for the award of public works contracts [1993] OJ L199/54 Art 34; Council Directive 91/477/EEC on control of the acquisition and possession of weapons [1991] OJ L256/51 Art 13; Council Directive 89/552/EEC on the coordination of certain provisions laid down by Law, Regulation or Administrative Action in Member States concerning the pursuit of television broadcasting activities [1989] OJ L298/23 Art 23. Examples mentioned in Ibañez (above n 48) 298.

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The Emergence of Networks for EC Law Enforcement the application of these directives to enable the Commission to compare the different national measures and assess the effectiveness of the directives. In the field of recognition of diplomas, special coordinators in the Member States also had to be identified and notified, and they were under specific obligations to cooperate with each other to facilitate the implementation of the directives.125 In the 1990s, networks were created as part of information agencies.126 Consider the European Environment Agency (EEA). Its task is to provide the Community and Member States with objective, reliable and comparable information at the European level in the environmental field. To achieve that objective, EEA’s founding regulation enjoins the agency to set up and coordinate a European Information and Observation Network (Eionet).127 In all, over 600 actors are involved in Eionet. The regulation does not distribute the relevant tasks among the actors, and in practice the internal organisation of Eionet is carried out by the EEA. At the level of information production, the EEA adopts somewhat of a steering role through the adoption of annual Work Programmes, which set general objectives and identify specific projects for the implementation of the information collection function. At the level of information exchange, Eionet operates without any form of institutionalisation. Eionet members are unable to interfere with each other’s work and there is no central coordinator synchronising their action. Furthermore, the EEA is charged to cooperate actively with other Community bodies and international organisations.128 The details of such cooperation are left for the parties themselves to work out.129

125 Council Directive 89/48/EEC on a general system for the recognition of higher-education diplomas awarded on completion of professional education and training of at least three years’ duration [1989] OJ L19/16 Art 9(2) and Council Directive 92/51/EEC on a second general system for the recognition of professional education and training [1992] OJ L209/25 Art 13(2). 126 See the categorisation of agencies above, text to n 56; and E Chiti, ‘The Emergence of a Community Administration: The Case of European Agencies’ (2000) 37 Common Market Law Review 309, 317. 127 Council Regulation (EC) No 1210/90 on the establishment of the European Environmental Agency and the European Environment Information and Observation Network [1990] OJ L120/1 as amended by Regulation (EC) No 1641/2003 [2003] L245/1 Arts 1, 2(i) and 4. Eionet members comprise national focal points, main components elements and European topic centres. National focal points coordinate activities relate to the EEA work programme at the national level. As for the main component elements, they are bodies in the national networks possessing relevant knowledge regarding environmental science and regularly collecting and supplying environmental data. Finally, the European topic centres are institutions or organisations contracted by the EEA to provide specific information according to the tasks identified in the multi-annual programmes. For more details, see Chiti (above n 126) 325 ff. 128 Art 15(1). Authorities explicitly listed include the Joint Research Centre, Eurostat, the Organization for Economic Cooperation and Development, the Council of Europe as well as the United Nations and its specialised agencies. 129 In practice, Memoranda of Understanding have been agreed. The EEA has also agreed Memoranda with the World Health Organization, the United Nations Environment Programme and the Organization for Economic Cooperation and Development.

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Modes of Governance in EC Law C. The Next Step: Lawmaking Networks We note that the 1980s and 1990s networks are characterised by a limited degree of institutionalisation. The integration between the single components of the network is assumed, rather than achieved through their legal interdependence. The intent of the Community legislature was to create networks as instruments ancillary to the existing modes of governance. Networks were clearly not conceived as an independent mode of governance in their own right. The approach changes around the millennium. Networks began to be employed as the core structures through which European rules should be made and administered. Two early examples of the new approach are the European Central Banks System (ESCB) and the Committee of European Securities Regulators (CESR). The Treaty on European Union laid the Treaty foundations for the creation of the ESCB, which became operational on 1 January 1999.130 The ESCB comprises the Frankfurt-based European Central Bank (ECB) and the national central banks (NCBs) of all Member States.131 Together, the NCBs are the shareholders of the ECB.132 At the same time, the NCBs come under the tutelage of the ECB, whose decision-making bodies govern the banking network.133 The Governing Council is the main decision-making body. Its members are the governors of the NCBs of the Euro area and the Executive Board.134 The Governing Council adopts regulations, guidelines and decisions for the performance of the system’s tasks and formulates the monetary policy of the Community.135 The Executive Board is the management of the ESCB.136 Composed of the ECB President, Vice-President and four other members, it implements monetary policy.137 In so

130 Arts 8 and 105 ff EC and Art 1.1 ESCB Statute. The ESCB was already established on 1 July 1998, allowing a half year for phasing-in. The basic tasks to be carried out through the ESCB are specified in Art 105(2) EC and Art 3 ESCB Statute, and additional tasks can be found in Arts 4–6 ESCB Statute. 131 Art 107(1) EC and Art 1.2 ESCB Statute. Technically speaking, until all Member States have introduced the Euro, it is the ‘Eurosystem’ that is the key actor. The Eurosystem comprises the ECB and the NCBs of the thirteen Member States whose common currency is the Euro. Art 1 of Decision 2004/257/EC of the European Central Bank adopting the Rules of Procedure of the European Central Bank [2004] OJ L80/33. 132 Art 28.2 ESCB Statute. 133 Art 107(3) EC and Art 8 ESCB Statute. 134 Art 112(1) EC and Art 10 ESCB Statute. The President of the Council and a member of the Commission may participate, without having the right to vote, in meetings of the Governing Council: Art 113(1) EC. There is also a General Council, comprising the President and Vice-President of the ECB and the governors of the NCBs of all twenty-seven Member States: Art 45.2 ESCB Statute. The General Council is a transitional body and will cease to exist when all Member States have adopted the Euro: Art 123(3) EC. Its tasks are laid down in Art 47 ESCB Statute. 135 Art 110(1) EC and Art 12.1 ESCB Statute. The acts adopted by the Governing Council have the same effects in law as the acts adopted by the Community institutions under the normal lawmaking procedures: Art 34.2 ESCB Statute and Decision 2004/257/EC (above n 131) Art 17. 136 Art 112(2)(a) EC and Art 11 ESCB Statute. 137 Art 12.1 ESCB Statute.

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The Emergence of Networks for EC Law Enforcement doing, it gives the necessary instructions to the NCBs.138 The latter are the operational arms of the ESCB and carry out the operations that form part of the tasks of the ESCB.139 Thus, the NCBs that are subject to the instructions of the ECB are directly represented in the governing body, which is to ensure the NCBs’ compliance with ESCB policies. We observe that the ESCB is hence not a superstructure created ex nihilo and placed above the national banks that must obey its orders. Rather, ‘[i]t is a network generated by these banks themselves and its coordination-decision node just happens to be located in Frankfurt’.140 Indeed, according to its organisational principles, the ESCB functions in a spirit of cooperation and teamwork.141 It acts as a cohesive unit towards the outside world.142 Finally, it promotes the exchange of personnel, know-how and experience among its members. Turning to the area of securities regulation, we find the origins of CESR in the 2001 Lamfalussy Report.143 The model propounded there embodies four levels.144 CESR, a cooperative network comprising the national securities regulators, has a role to play at Level 2 (delegated lawmaking) and Level 3 (implementation).145 CESR draws up the technical measures that implement the Level 1 framework principles decided by normal EC legislative procedures. It prepares

138 According to Art 14.3 ESCB Statute, the Governing Council takes the necessary steps to ensure compliance with the guidelines and instructions of the ECB and requires that any necessary information be given to it. If the Governing Council feels that an NCB is not complying with its obligations, it may bring that bank before the ECJ under Art 237(d) EC and Art 35.6 ESCB Statute, after delivery of a reasoned opinion to that bank. The NCB concerned is under a duty to take the necessary measures to comply with the Court’s judgment finding that it has failed to fulfil its obligations but cannot be fined if it persists in the infringement. 139 Art 12.1 ESCB Statute. For the bulk of the ESCB’s activities, the actual intra-system division of labour has thus been guided by the principle of decentralisation. 140 ‘Comment organiser en réseau le système administratif communauraire’, Séminaire du réseau Europe 2020 Bonn, 1999 cited by the Networking Working Group (above n 118) 22. 141 Http://www.ecb.int/ecb/orga/escb/html/principles.en.html. 142 For instance, unlike those of the American Federal Reserve, the ESCB press releases make no mention of any dissenting voices within the network. 143 Final Report of the Committee of Wise Men on the Regulation of European Securities Markets, 15 February 2001. The Report was endorsed by the Stockholm European Council in March 2001, Presidency Conclusions, Stockholm European Council, 23 and 24 March 2001, Annex 1 and by the European Parliament Resolution on the implementation of financial services legislation (2001/ 2247/(INI)). See further N Moloney, ‘New Frontiers in EC Capital Markets Law: From Market Construction to Market Regulation’ (2003) 40 Common Market Law Review 809; and M Pollack, The Engines of European Integration: Delegation, Agency, and Agenda Setting in the EU (Oxford, Oxford University Press, 2003) 140–44. 144 Level 1 is the adoption of framework legislation laying down basic principles by Council and Parliament; Level 2 concerns the adoption of implementing principles; Level 3 concerns strengthened cooperation to ensure consistent implementation and application of Level 1 and Level 2 legislation; and Level 4 is the strengthened enforcement of the Community rules by the Commission. 145 Commission Decision 2001/527/EC establishing the Committee of European Securities Regulators [2001] OJ L191/43, amended by Commission Decision 2004/8/EC [2003] OJ L3/33. CESR’s website can be accessed at http://www.cesr-eu.org/index.php?page=home&mac=0&id=. CESR builds upon informal cooperation between national securities regulators in the 1997 Forum of European Securities Commissions (FESCO).

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Modes of Governance in EC Law these measures in consultation with market participants, end-users and consumers and submits them to the Commission for final adoption.146 At Level 3, CESR ensures effective daily oversight of the European financial markets.147 In particular, it facilitates close cooperation between its members by organising mutual assistance and information exchange.148 It also fosters the uniform application of the Community rules through the adoption of guidelines, recommendations and standards. A special Review Panel evaluates regulatory and supervisory practices of the national authorities.149 Finally, CESR has created an internal Mediation Mechanism to solve potential conflicts between its members.150 In summary, it can be said that when compared to the early ancillary networks, the ESCB and CESR exhibit far more complex organisational structures and a greater resource dependency between their component elements. D. Law Administration Networks: Introducing the ECN and the ERG The ESCB and CESR are primarily involved in rule-making processes, although CESR also plays a strong role in rule application. The networked mode of governance is now also being introduced for the administration of European law pure and simple.151 We can find two particularly refined examples in the European Competition Network (ECN) and the European Regulators Group (ERG).

146 In practice, the procedure has some additional steps. First, the Commission, after consultation of the European Securities Committee (ESC, a comitology committee), asks CESR to draw up the measures. After the Commission has received the CESR draft advice, it presents a proposal to the ESC, who must vote on the proposal within three months. In the meantime, the Commission also ensures that Parliament is fully informed of all of these proposed measures. After approval by the ESC, Parliament is given one month to consider if the proposed technical implementing measures should be formally adopted by the Commission. We can thus also see a more widely triangular network between the Commission, CESR and the ESC. 147 ‘The Role of CESR at “Level 3” under the Lamfalussy Process’ CESR/04–527b, October 2004. 148 Charter of the Committee of Securities Regulators CESR/06–289c, July 2006; and Multilateral Memorandum of Understanding on the Exchange of Information and Surveillance of Securities Activities CESR/05–335, 26 January 1999. A catalogue of all mutual recognition and cooperation obligations under the Directives where CESR is active can be found in CESR/04–104b. Provision is explicitly made for joint investigations and the supply of unsolicited information. A special Exchange of Information and Surveillance Coordination Group (CESR-Pol) is set up to clarify issues of cooperation. 149 Art 4.3 CESR Charter. The Review Panel is a permanent group comprising the internal coordinator of each CESR member. 150 Art 4.4 CESR Charter and Protocol on Mediation Mechanism of the Committee of European Securities Regulators CESR/06–286b, August 2006. 151 Cf Majone, ‘The Credibility Crisis of Community Regulation’ (above n 50) 273, 295. Majone also considers some of the newer agencies, such as EMEA, to be central nodes of networks including national agencies as well as international organisations. This position has been qualified by Chiti, ‘The Emergence of a Community Administration’ (above n 126) 323, 324, who notes that while the various actors ‘are made interdependent through a complex network of links’, this network exhibits a ‘low institutionalization’. In any event, networked agencies typically comprise (independent) experts and international organisations, whereas the other networks discussed in principle involve only the

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The Emergence of Networks for EC Law Enforcement As can be inferred from its nomenclature, the ECN has its tasks in the field of competition law. It is established under the auspices of Regulation 1/2003.152 The Regulation encapsulates the view that the time has come to replace the Verbot mit Erlaubnisvorbehalt with the system of exception légale. It proposes a system of decentralised, shared enforcement between the Commission and the national competition authorities through the ECN153—one that eradicates the problem of resource deficiencies and proposes to ensure a singular approach to competition issues. The Regulation is fleshed out in six Commission notices. Two cover relationships with national actors (one on the Commission–authority relation,154 the other on the Commission–courts liaison);155 two cover substantive issues (the Community institutions and national administrations. The linkages between the actors are of a predominantly vertical character, ie, to and from the network node. Limited provision is made for direct horizontal contact between the actors. Furthermore, agency networks are primarily relevant in the field of risk regulation (see Majone, ‘The Agency Model’ (above n 99)), whereas our concern is more with networks for economic regulation. We will accordingly not concern ourselves with networked agencies in the remainder of this book, and these will also not be considered as examples of network-based governance in the way that term is conceived here. 152 Council Regulation No 1/2003/EC on the implementation of the rules on competition laid down in Arts 81 and 82 of the Treaty [2003] OJ L1/1. The Regulation entered into force on 1 May 2004. It was preceded by European Commission, ‘Modernisation of the Rules Implementing Arts 85 and 86 of the EC Treaty’ (White Paper), 28 April 1999, which had also considered four other options to enhance efficiency: procedural simplification; a reduction in the need for prior notification for certain types of agreement; a change in the interpretation of Art 8 so as to include an analysis of the harmful and beneficial effects of an agreement under Art 81(1) EC; and a sharing of the Commission exemption monopoly with the national competition authorities. The literature on the so-called modernisation of EC competition law is vast. See, eg, contributions in CD Ehlermann and I Atanasiu (eds), The Modernisation of EC Antitrust Policy, European Competition Law Annual 2000 (Oxford, Hart Publishing, 2001) 145; B Hawk (ed), Annual Proceedings of the Fordham Corporate Law Institute: EC Competition Law Reform (New York, Juris Publishing, 2002); D Geradin (ed), Modernisation and Enlargement: Two Major Challenges for EC Competition Law (Antwerp, Intersentia, 2004); CD Ehlermann, ‘The Modernization of EC Antitrust Policy: A Legal and Cultural Revolution’ (2000) 37 Common Market Law Review 537; I Forrester, ‘The Reform of the Implementation of Articles 81 and 82 following Publication of the Draft Regulation’ (2001) 28 Legal Issues of Economic Integration 173; H Gilliams, ‘Modernisation: From Policy to Practice’ (2003) 28 European Law Review 451; L Idot, ‘Le future “règlement d’application des articles 81 et 82 CE”: chronique d’une révolution annoncée’ (2001) 17 Dalloz 1370; W Jaeger, ‘Die möglichen Auswirkungen einer Reform des EG-Wettbewerbsrecht für die nationale Gerichte’ (2000) 50 Wirtschaft und Wettbewerb 1062; B Rodger, ‘The Commission White Paper on Modernisation of the Rules Implementing Articles 81 and 82 of the EC Treaty’ (1999) 24 European Law Review 653; A Schaub, ‘Modernization of EC Competition Law: Reform of Regulation No 17’ (2000) 23 Fordham International Law Journal 752; M Siragusa, ‘A Critical Review of the White Paper on the Reform of the EC Competition Law Enforcement Rules’ (2000) 23 Fordham International Law Journal 1089; J Venit, ‘Brave New World: The Modernisation and Decentralisation of Enforcement under Articles 81 and 82 of the EC Treaty’ (2003) 40 Common Market Law Review 545; R Wesseling, ‘The Commission White Paper on Modernisation of EC Antitrust Law: Unspoken Consequences and Incomplete Treatment of Alternative Options’ (1999) 8 European Competition Law Review 420. 153 Indeed, around the mid-1990s all Member States had adopted national competition laws and established competition authorities. The regulatory environment thus allowed for the introduction of a degree of decentralised governance. 154 Commission Notice on cooperation within the Network of Competition Authorities [2004] OJ C101/43. 155 Commission Notice on the cooperation between the Commission and national courts [2004] OJ C101/54.

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Modes of Governance in EC Law ‘effect on trade’ concept156 and Article 81(3) of the Treaty);157 and two notices are a customer service effort on the part of the Commission, covering complaints158 and guidance letters.159 The ERG is the progeny of communications law. The intent of the Community legislature was to create a structure that will ensure a consistent approach in regulatory decision-making.160 Six directives make up the Electronic Communications regulatory package. In the Framework Directive we find the institutional model as well as the cornerstone of communications regulation: the Significant Market Power regime.161 The Authorisation Directive deals with conditions relating to market entry.162 Wholesale relationships are regulated by the Access Directive,163 while retail relationships are addressed in the Universal Service Directive.164 The Consolidated Services Directive consolidates the prohibition on legal monopolies in the communications sector.165 Finally, sensitive issues such as confidentiality, data retention and cold calling are dealt with in the Directive on Privacy and Personal Data.166

E. New Governance Revisited The creation of the ECN and the ERG presents a fine opportunity to consider the network trend. Scott and Trubek explain that a complex interplay between political and legal realities accounts for the rise of new forms of governance.167 The Union is confronted with ever more complex problems, often in a context of 156

Commission Guidelines on the effect on trade concept [2004] OJ C101/81. Commission Guidelines on the application of Article 81(3) of the Treaty [2004] OJ C101/97. Commission Notice on the handling of complaints by the Commission [2004] OJ C101/65. 159 Commission Notice on informal guidance relating to novel questions that arise in individual cases (guidance letters) [2004] OJ LC101/78. 160 In European Commission, ‘Towards a New Framework for Electronic Communications Infrastructure and Associated Services: The 1999 Communications Review’ (Communication) COM (99)539, which preceded the 2003 regulatory regime, the Commission also evaluated a second institutional scenario: the creation of a European Regulatory Authority for telecommunications. 161 Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services [2002] OJ L108/33. 162 Directive 2002/20/EC of the European Parliament and of the Council on the authorisation of electronic communications networks and associated services [2002] OJ L108/21. 163 Directive 2002/19/EC of the European Parliament and of the Council on access to, and interconnection of, electronic communications networks and associated facilities [2002] OJ L108/7. 164 Directive 2002/22/EC of the European Parliament and of the Council on universal service and users’ rights relating to electronic communications networks and associated services [2002] OJ L108/51. 165 Commission Directive 2002/77/EC on competition in the markets for electronic communications networks and services [2002] OJ L249/21. 166 Directive 2002/58/EC of the European Parliament and of the Council concerning the processing of personal data and the protection of privacy in the electronic communications sector [2002] OJ L201/37. 167 Scott and Trubek (above n 6) 6, 7. See also C Sabel and J Zeitlin, ‘Learning from Difference: The New Architecture of Experimentalist Governance in the European Union’ (2008) 14 European Law Journal 271. 157 158

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The Emergence of Networks for EC Law Enforcement regulatory uncertainty. At the same time, it is increasingly recognised that uniform solutions are not always appropriate. The national level also exerts pressure for change: there, we see command-and-control regulation being replaced with regimes that allow for co-regulation, management by objectives and trial-and-error processes. Then there is the perennial legitimacy deficit that is believed to necessitate more responsive and participatory forms of governance. The influence of the subsidiarity doctrine reinforces these tendencies. On a meta-level, these factors can arguably be subsumed within the overarching concern for improved and more effective institutional structures and regulatory methods. With this in mind, let us revisit the historical evolution of competition and communications enforcement. We have seen that something was most definitely amiss in the administration of these European rules. The centralised model in competition law, which should guarantee correct and consistent enforcement, failed due to a lack of resources on the part of the Commission. The decentralised model in communications law, which should bring the benefits of proximity and more regulatory capacity, failed due to inconsistencies in law enforcement across Member States. Ultimately, a serious negative impact on the credibility of both sets of legal rules could result. The difficult issue is balancing the need for a European-wide level playing field on the one hand and the need to preserve subsidiarity in law enforcement on the other hand. The creation of agencies could have been a solution. Moves to this governance model were contemplated for both regimes. In the 1990s the German Bundeskartellamt and competition officials in the United Kingdom favoured the creation of an independent cartel office at a European level.168 Such a body was necessary, it was felt, to counter the increasing political pressure the Competition Directorate is under. The source of that pressure is two-fold. At the national level, the Commission is dependent on the cooperation of Member States to fulfil its mission, thereby opening up the possibility of undue leveraging and bargaining.169 At the Community level, final decisions in competition proceedings are made by the full Commission, allowing for pressure from other Directorates to take account of considerations other than competition policy when deciding.170 Unsurprisingly, the Commission opposed the idea of an independent cartel

168 See L Laudati, ‘The European Commission as Regulator: The Uncertain Pursuit of the Competitive Market’ in Majone (ed), Regulating Europe (above n 85); K Van Miert, ‘The Proposal for a European Competition Agency’ (1996) 2 EC Competition Policy Newsletter; and CD Ehlermann, ‘Reflections on a European Cartel Office’ (1995) 32 Common Market Law Review 471. 169 Within the realm of competition law, the need for cooperation exists in particular in the field of state aids. More generally, the doctrine of national procedural autonomy and the need for implementation of directives mean that the Commission is heavily dependent on the goodwill of Member States. Given that Commissioners typically seek to continue their careers in their home states after working for the EC means that national pressure can be difficult o resist. 170 In practice, it is particularly the directorates for industrial and social policy that adopt positions at odds with those of the competition directorate.

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Modes of Governance in EC Law office, fearing a loss of power over an area in which it enjoys significant executive competences.171 No legislative proposal to that effect has therefore ever been seriously contemplated. In telecoms regulation, the European Parliament strenuously campaigned for a European Regulatory Authority for Telecommunications.172 At its instigation, two of the Telecommunications Directives comprising the 1998 framework mandated the Commission to investigate the added value of a telecom agency.173 The Commission’s opinion, set forth in the 1999 Review, broadly followed the study it had commissioned on this issue.174 It considered that ‘the creation of a European regulatory authority would not provide sufficient added value to justify the likely costs’.175 The outcome was much to the satisfaction of the Council, who had initially rejected the Parliament amendments. This was in part because of political reasons: Member States are usually hesitant to agree to a transfer of enforcement competences to the Community level and will invoke the principles of subsidiarity and national procedural autonomy in their support. It was also in part because of pragmatic reasons: Member States have often spent considerable time and resources putting in place a national enforcement infrastructure, and they are understandably loathe to see their efforts rendered relatively meaningless.176

171

See the White Paper on Governance (above n 5) 24. The issue was also broached in the 1994 Report by the High Level Group on Information Society in ‘Europe and the Global Information Society: Recommendations to the European Council’, commonly referred to as the Bangemann Report. 173 Art 8 of Directive 97/51 of the European Parliament and of the Council amending Council Directives 90/387/EEC and Art 22 of Directive 97/33 of the European Parliament and of the Council on interconnection in telecommunications with regard to ensuring universal service and interoperability through application of the principles of Open Network Provision (ONP) [1997] OJ L199/32. 174 Eurostrategies/Cullen International Report ‘Draft Final Report on the Possible Added Value of a European Regulatory Authority for Telecommunications’ ECSC-EC-EAEC Brussels-Luxembourg 1999. This study followed two earlier reports dealing at least partially with the issue of the establishment of an ERA: Forrester, Norall and Sutton (above n 92) esp 51–82; and NERA/Denton Hall, ‘Issues Associated with the Creation of a European Regulatory Authority for Telecommunications’ ECSC-EC-EAEC, Brussels/Luxembourg [1997]. 175 1999 Communications Review (above n 160) 9. These costs would not only lie in the political, legal, technical, economic and linguistic skills that would necessarily attend the creation of a new regulatory body but also include the wider cost to the economy as a whole that would be brought on by adding another layer of administration. 176 We should mention here that the idea of an agency for the enforcement of European rules in the field of electronic communications has recently attracted renewed interest. In its revision proposals for the Electronic Communications Regulatory Framework, the Commission calls for the setting up of a European Electronic Communications Market Authority (EECMA). Whether the EECMA will ever see the light of day is highly doubtful, however, with both the Council and the European Parliament expressing reservations in their first reactions to the Commission proposal. For a more detailed discussion of the proposal, see below ch 7, section IV. 172

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Conclusion With the agency option unpalatable, the idea of a network for the administration of the rules surfaced.177 Networks should allow the preservation of decentralisation together with coherency in the application of EC law. National authorities would bear the brunt of the enforcement activities, as they have the relevant resources to do so.178 The Commission and the national authorities would be grouped in a network to ensure consistency, with the Commission also receiving special control powers for that purpose. Importantly, network-based governance proved politically acceptable. For the Commission, the special control powers it was conferred properly recognised its core position in the executive function as guardian of the Treaty. The Member States took comfort in being in charge of the daily administration of the Community rules. The European Competition Network and the European Regulators Group were duly established. They have been fully operational since 2004.179

V. CONCLUSION

This chapter has analysed the traditional enforcement models in European law to explain the introduction of networks for the administration of legal rules. The Community has been concerned to emphasise effective law enforcement in its quest to strengthen the credibility of the EU and its policies. In particular, effectiveness is taken to necessitate a certain degree of homogeneity in decisionmaking practices across Member States. It is clear that centralised and agencybased governance have apparent credentials to contribute to this objective. It is also clear that political realities act against their actual implementation. The Community thus seeks to improve the default decentralised model by reducing—or redressing—its characteristic institutional design deficit. This is the object of the network-based mode of governance.180 The chapters that follow will explain precisely how the network model has taken on the challenge to balance consistency with subsidiarity. We have seen that the creation of networks is not an entirely new phenomenon. The evolution has rather been progressive, as represented in Figure 1.2. On the far left, is the situation as it prevailed in the 1980s and 1990s: networks were merely an element of the traditional, decentralised enforcement model, with no particularly meaningful role or competences to speak of. In the second phase, 177 Interestingly, while the reform proposals in competition and communications law were proposed and adopted simultaneously, this does not appear to have been as a result of a conscious effort on the part of the various DGs to introduce similar institutional models for both fields. 178 ‘Resources’ covers personnel, financial support, as well as information about the activities to be regulated. 179 The networks had in fact already commenced activities prior to 2004, namely by establishing a proper organisational structure and ensuring the necessary preconditions for the efficient functioning of the network system. 180 Network-based governance can thus be considered to fit into the EU’s Better Regulation Strategy (above n 22).

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Modes of Governance in EC Law depicted in the middle, networks occupy a more or less independent place in the overall process of adopting and executing rules, with tasks and responsibilities closer to lawmaking than law enforcement. On the far right is the situation as it currently stands for competition and electronic communications law: networks are again conceived as an independent governance structure but are now positioned predominantly below the lawmaking level, with their efforts concentrated on the entire phase of law enforcement; national authorities are fully integrated into the networks.

Figure 1.2 The Emergence of Networks in European Law

The rise of networks has been placed in the context of new forms of governance in the EC legal system. The main features of new forms of governance as set out by Scott and Trubek include one or more of the following: wide possibilities for participation by stakeholders; coordination between acts and actors at various levels of government; coordinated diversity and lowest-level jurisdiction; deliberative problem-solving; reliance on soft law and tools to encourage regulatory experimentation and policy innovation.181 One of the questions we will address in what follows is the extent to which network-based governance incorporates these elements.

181

Scott and Trubek (above n 6) 5 ff.

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2 The Role of National Authorities in Network-Based Governance

T

HIS CHAPTER AND the next consider the role of national actors and the regulatory environment in which they operate under network-based governance. The main focus will be the extent to which European law specifies these issues and how four selected national systems (France, Germany, the Netherlands and the United Kingdom) have implemented this European mandate.1 The present chapter concerns itself with the national authorities: the national competition authorities (NCAs) that are responsible for administering the European competition rules and the national regulatory authorities (NRAs) that must apply and enforce the 2002 Electronic Communications Framework. The position of national courts will be considered in chapter 3. This chapter begins by introducing the various enforcement regimes in place at Member State level (section I). We will then proceed to examine the mandate and function of the NCAs and NRAs (section II), their powers and procedures (section III) and finally, the institutional endowments that these national authorities must possess as a matter of Community law (section IV).

I. NATIONAL ENFORCEMENT STRUCTURES COMPARED

The section presents the various NCAs and NRAs in existence in Germany, France, the Netherlands and the United Kingdom.

A. Germany Competition enforcement in Germany is first and foremost the responsibility of the Bundeskartellamt or BKartA (Federal Cartel Office).2 Since Germany is a federal state, there is another set of enforcement bodies at the regional level: the 1 2

On the reasons for this selection, see the Introduction to this book. Http://www.bundeskartellamt.de/.

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The Role of National Authorities in Network-Based Governance Landeskartellbehörden (regional cartel offices).3 Each Land (German region) has its own Landeskartellbehörde. The Landeskartellbehörden apply the same substantive rules as the Bundeskartellamt, namely the Gesetz gegen Wettbewerbsbeschränkungen or GWB (Act against Constrains of Competition) because there are no Land-level competition statutes. The jurisdiction of the Landeskartellbehörden only extends to infringements of the competition rules the effects of which remain territorially confined to their respective Land.4 Both sets of authorities often work together, and by law the Bundeskartellamt is a party to proceedings before the Landeskartellbehörden.5 That said, the Landeskartellbehörden are not subordinate or responsible to the Bundeskartellamt. Their decisions applying the GWB are taken independently and are final. They can, and do, respond to local policy priorities. Bavaria, for instance, has traditionally supported small businesses and has accordingly issued its own guidelines about GWB compliance for small businesses.6 The Bundesministerium für Wirtschaft und Technologie (Federal Ministry of Economics), through its Minister, is also listed as a competition authority under German law.7 Its involvement is confined to merger policy, where it can intervene to authorise a merger initially prohibited by the Bundeskartellamt.8 Lastly we must mention the Monopolkommission (Monopolies Commission),9 an advisory body within the field of competition policy. Notably, it produces biannual reports on the state of economic development and competition of the various sectors of German industry, including the communications sector.10 The Bundesnetzagentur für Elektrizität, Gas, Telekommunikation, Post und Eisenbahnen or BNetzA (Federal Network Agency for Electricity, Gas, Telecommunications, Post and Railways) is the principal regulatory authority.11 As its name indicates, the Bundesnetzagentur bears regulatory responsibility for electronic communications, as well as many other sectors of the economy. The Bundesnetzagentur is, like the Bundeskartellamt, replicated at the level of the Länder, which have all their own Landesregulierungsbehörde (regional agency for

3

§ 48(1) Gesetz gegen Wettbewerbsbeschränkungen. § 48(2) Gesetz gegen Wettbewerbsbeschränkungen. 5 § 54(3) Gesetz gegen Wettbewerbsbeschränkungen. These are not independent bodies but organs of the Länder. The Wirtschaftsminister und -Senatoren (Ministers for Economic Affairs and senators) operate as Landeskartellbehörden. 6 Organisation for Economic Co-operation and Development (OECD), ‘Regulatory Reform in Germany: The Role of Competition Policy in Regulatory Reform’ [2003] 23 (hereafter ‘OECD Report’). 7 § 48(1) Gesetz gegen Wettbewerbsbeschränkungen. See also http://www.bmwi.de/. 8 § 42 Gesetz gegen Wettbewerbsbeschränkungen. According to the OECD Report (above n 6), such interventions are rare and usually controversial. 9 The Monopolkommission was created in 1973 during the second revision of the Gesetz gegen Wettbewerbsbeschränkungen. 10 § 121 Telekommunikationsgesetz and § 44 Gesetz gegen Wettbewerbsbeschränkungen. In addition, the Government can instruct the Monopolkommission to prepare opinions. These opinions may also be delivered at the Monopolkommission’s own initiative. 11 Http://www.bundesnetzagentur.de/enid/2.html. 4

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National Enforcement Structures Compared regulation). In some Länder, a single body discharges the responsibilities bestowed upon the Landeskartellbehörden and the Landesregulierungsbehörde.12

B. France In contrast with the double-layered German approach, France has opted for a single-layer enforcement structure. Competition law is applied by two separate bodies: the Direction Générale de la Concurrence, de la Consommation et de la Répression des Fraudes or DGCCRF (Director General for Competition, Consumption and the Repression of Frauds)13 and the Conseil de la Concurrence (Competition Council).14 DGCCRF is a division of the Ministry of Economics, Finance and Industry and is in charge of investigations under the French Code de Commerce (French Competition Code). The Conseil de la Concurrence is a quasi-judicial college that is responsible for decision-making. This division in functions is the result of a strict objective application of the notion of impartiality as embodied inter alia in Article 6 of the European Convention on Human Rights.15 The Autorité de Régulation des Communications électroniques et des Postes or ARCEP (Authority for the Regulation of Electronic Communications and Post)16 is charged with enforcing communications law. Its work is supplemented by that of the Commission supérieure du service public des postes et des communications électroniques (Committee on public service in the postal and electronic communications sector).17 The Commission is an advisory body that is called upon inter alia to review and comment upon developments in the postal and electronic communications sector and suggest, where necessary, modifications to the existing legal regime.

12

This is, for instance, the case in Bavaria. Http://www.minefi.gouv.fr/DGCCRF/. Http://www.conseil-concurrence.fr/user/index.php. This institutional setup is about to change, however. Loi nº 2008–776 du 4 août 2008 de modernisation de l’économie, NOR: ECEX0808477L, JORF nº 0181 du 5 août page 12471 foresees the replacement of the Conseil de la Concurrence with the Autorité de la concurrence, a single independent competition authority that combines investigative and decision-making powers (albeit separated through a Chinese-wall construction) that would bring the French enforcement system in line with that currently in place in the great majority of Member States and at the Community level. 15 See E Paulis, ‘Checks and Balances in the EU Antitrust Enforcement System’ in B Hawk (ed), International Antitrust Law and Policy: Fordham Corporate Law 2002 (New York, Juris Publishing, 2003) 381. 16 Http://www.arcep.fr/. 17 Art L125 Code des postes et des communications électroniques. 13 14

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The Role of National Authorities in Network-Based Governance C. The Netherlands Yet another approach has been adopted by the Netherlands, which has the most streamlined enforcement structure of all four Member States surveyed here. It has a single authority for competition law: the Nederlandse Mededingingsautoriteit or NMa (Dutch Competition Authority).18 The implementation and enforcement of electronic communications is the prerogative of the Onafhankelijke Post en Telecommunicatie Autoriteit or OPTA (Independent Post and Telecommunications Authority).19 Legislation initially called for a further consolidation of the enforcement structure by transforming OPTA—and similar bodies in other sectors—into chambers of the NMa, the idea being to have a single integrated body responsible for all (network-based) sectors of the economy.20 Indeed, the NMa has become the competent authority for energy and, more recently, for transport regulation. The strong profiling of OPTA, coupled with its ever-expanding competences, has led the legislature to re-think its policy of chamberisation. The present enforcement regime appears unlikely to change.

D. The United Kingdom The United Kingdom has adopted a structure that contrasts sharply with the Dutch approach. This is notably with regard to competition law, where an ‘interlocking’ web of authorities enforces the competition rules. The Office of Fair Trading (OFT)21 is the central competition authority, with a general competence to apply the Competition Act 1998 and the Enterprise Act 2002. Further, there exist a number of regulatory bodies, each with responsibility for a particular sector of the economy.22 These regulators are all given the power to enforce the Competition Act 1998 and the Enterprise Act 2002 in the field for which they bear responsibility. 18

Http://www.nmanet.nl/nederlands/home/index.asp. Http://www.opta.nl/. In addition, there is the Agentschap Telecom (Radiocommunications Agency Netherlands), a specialised body within the Ministry of Economics responsible for frequency management. 20 This approach would be in accordance with that advocated by the European Parliament in the first reading of the Framework Directive. Its Committee on Industry, External Trade, Research and Energy proposed a timetable for the integration of the NRA into the NCA, reasoning that such a move would fit in with the temporary nature of sector-specific regulation for the electronic communications sector. See Report on a proposal for a directive of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services (COM(2000) 393 – C5–0428/2000 – 2000/0184(COD)) A5–0053/2001 FINAL, 7 February 2001, amendment 23. 21 Http://www.oft.gov.uk/default.htm. 22 The Office of Communications (Ofcom); the Gas and Electricity Markets Authority (Ofgem); the Director General of Water Services (Ofwat); the Northern Ireland Authority for Energy Regulation (Ofreg NI); the Office of Rail Regulation (ORR); and the Civil Aviation Authrity (CAA). 19

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National Enforcement Structures Compared Another important entity in the UK competition system is the Competition Commission.23 This body exercises decisive powers in the merger review process. It also conducts in-depth inquiries into (regulated) markets, in response to a reference made to it by the OFT,24 the Secretary of State or a sectoral regulator.25 If the Competition Commission finds an adverse effect upon competition or any other detrimental effect upon consumers, it is obliged to adopt certain remedies.26 Communications regulation is administered by the Office of Communications (Ofcom).27 Ofcom and the OFT enjoy concurrent competences in the application of competition law in the electronic communications sector. E. Comparisons The brief overview above has revealed disparities in approach among the German, French, Dutch and UK enforcement structures. Germany is the only Member State with a two-layered system, due to its specific constitutional organisation as a federation. Impartiality considerations have led France to create a bifurcated competition authority. In the United Kingdom, jurisdiction over competition matters is shared by a generic competition authority and sectorspecific regulators, inspired by the belief that the knowledge of the latter is indispensable to the proper application of the rules in the sectors concerned.28 A notable similarity is the trend towards consolidation, particularly regarding regulatory authorities. In all four Member States, the remit of jurisdiction of these authorities is wider than communications law alone, with Germany’s Bundesnetzagentur as the prime example of a completely integrated regulator. Attempts towards consolidation of competition authorities have thus far only been undertaken by the Netherlands, where they have recently been discarded. Table 2.1 provides an overview of the German, French, Dutch and UK enforcement structures. 23 Established on 1 April 1999 pursuant to section 45(1) of the Competition Act 1998. It succeeds the Monopolies and Mergers Commission (MMC), which had been in existence under a variety of names since 1948. 24 Section 131(1) Enterprise Act 2002. The OFT can make a reference to the Competition Commission when it has reasonable grounds for suspecting that any feature or any combination of features of a market for goods or services prevents, restricts or distorts competition in the supply of goods or services. 25 See Art 17 of Regulation 1/2003 regarding the possibility of sectoral inquiries by the Commission. 26 Ss 35 and 41 Enterprise Act 2002. In terms of remedies, the Competition Commission may accept undertakings or make orders when it considers that undertakings will not be complied with: ss 82 and 83 Enterprise Act 2002. 27 Http://www.ofcom.org.uk/. 28 This is also the case in Greece. In addition, the United Kingdom lacked sufficiently strong competition tools at the time public monopolies were privatised. It also has a general disposition to diffuse power widely. See OECD, ‘United Kingdom: The Role of Competition Policy in Regulatory Reform’ [2002].

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Netherlands United Kingdom

France

Germany

/

NMa OFT Sectoral regulators (including Ofcom) Secretary of State Competition Commission

Bodies Active in Competition Law and Policy Bundeskartellamt Landeskartellbehörden Bundesministerium für Wirtschaft und Technologie Monopolkommission DGCCRF Conseil de la Concurrence

Division: chap2

ARCEP Commission superieure du service public OPTA Ofcom

advisory administrative administrative / judicial administrative administrative administrative administrative administrative / advisory

Bodies Active in the Field of Communications Law and Policy Bundesnetzagentur Landesregulierungs-behörden Monopolkomission

Nature of Those Bodies administrative administrative administrative

Table 2.1 Overview of the NCAs and NRAs in Germany, France, the Netherlands and the United Kingdom

administrative administrative

administrative advisory

Nature of Those Bodies administrative administrative advisory

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Mandate and Function II. MANDATE AND FUNCTION

This section discusses the objectives that the NCAs and the NRAs must pursue when exercising the powers they have been conferred under Regulation 1/2003 and the 2002 Electronic Communications Framework respectively. Our examination of the latter regime will be kept to those components that concern economic regulation, to the exclusion of consumer protection provisions and other more social aspects that are incorporated into the law.29 A number of tables will be used to graphically represent the implementation and operationalisation of EC competition and EC communications law. For reasons of space, national legislation is commonly abbreviated, as are the names of national authorities. As an aid to the reader, Table 2.2 introduces the official title of the national competition and communications acts and their adopted abbreviations. Table 2.2 National Legislation and Abbreviations Member State Germany France

Competition Act

Abbreviation GWB

Gesetz gegen Wettbewerbsbeschränkungen Code de Commerce CdC

Netherlands Mededingingswet United Competition Act Kingdom 1998 Enterprise Act 2002

Mw CA 1998 EA 2002

Communications Act Telekommunikationsgesetz Code des postes et des communications électroniques Telecommunicatiewet Communications Act 2003

Abbreviation TKG Code PCE

Tw CommA 2003

A. Competition Law The only indication offered by the Community legislature on the goals that NCAs should seek to achieve is Recital 9 of the Regulation 1/2003, which posits that ‘Articles 81 and 82 of the Treaty have as their objective the protection of 29 Thus, the role of national authorities under Directive 2002/22/EC of the European Parliament and of the Council on universal service and users’ rights relating to electronic communications networks and associated services (the Universal Service Directive) [2002] OJ L108/51 and under Directive 2002/58/EC of the European Parliament and of the Council concerning the processing of personal data and the protection of privacy in the electronic communications sector [2002] OJ L201/37 will thus in principle not be addressed. For an overview of the tasks of NRAs under these Directives, see D Stevens and P Valcke, ‘NRAs (and NCAs?): The Cornerstones for the Application of the New Framework—New Requirements, Tasks, Instruments and Cooperation Procedures’ (2003) 50 Communications & Strategies 159.

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The Role of National Authorities in Network-Based Governance competition on the market’.30 Attempting to flesh out this general statement, the Commission has declared in its Guidelines on Article 81(3) EC, that Article 81 aims ‘to protect competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources’.31 The 2005 Discussion Paper on Article 82 reflects the same vision for that provision.32 And the 2000 Guidelines on Vertical Restraints declare that ‘[m]arket integration is an additional goal of EC competition policy’.33 The Changing Goals of EC Competition Law and Policy As it is the Commission that steers EC competition policy and its objectives, it is not surprising that changes in Competition Commissioners are frequently accompanied by changes in competition policy. Karel van Miert, Commissioner from 1993 to 1998 was primarily concerned with openness and access to the market: We have adopted a commitment to open markets and free competition. It is the role of the Commission as competition authority to ensure that these markets remain open and that free competition can flourish unhindered.i Mario Monti, Commissioner from 1999 to 2004, listed consumer protection as the top priority: I have put consumer welfare at the top of the agenda of competition policy in Europe. I hope I have contributed to strengthening the foundations for a strong European competition policy which constantly promotes the interests of Europe’s citizens.ii Neelie Kroes, Commissioner since 2005, has forged a strong link between competition law, the Lisbon Strategyiii and innovation: Competition policy is a key driver for delivering an attractive environment for growth and jobs… The agenda we are promoting in Europe is intended to deliver the sustainable, dynamic growth needed to guarantee the standard of living and social protection which European citizens have come to expect.iv ————————————

30 While the Recital can be—mistakenly—read as implying that competition is an end in itself, Art 2 of the Treaty makes clear that the Community is concerned with the promotion of economic welfare and progress, with competition policy being one of several instruments to achieve that goal. 31 Guidelines on the application of Article 81(3) of the Treaty [2004] OJ C101/97 [13]. See also the mission of the Directorate-General for Competition (DG COMP), which is to ‘enforce the competition rules of the Community Treaties in order to ensure that competition in the EU market is not distorted, thereby contributing to the welfare of consumers and the competitiveness of the European economy’. The reference to consumer welfare has also found expression in the mission statement of the UK’s OFT (‘making markets work well for consumers’). 32 DG COMP, ‘The Application of Article 82 of the Treaty to Exclusionary Abuses’ (discussion paper) [2005] [4]. 33 Commission Guidelines on Vertical Restraints [2000] OJ C291/1 [7].

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Mandate and Function

i ‘Europe 2000, the Challenge of Market and Competition Policy’, 26 September 1997. ii ‘Competition for Consumers’ Benefit’, 22 October 2004. Consider also SPEECH/04/212 ‘Proactive Competition Policy and the Role of the Consumer’, 29 April 2004; and SPEECH/03/79 ‘Competition Enforcement and the Interests of Consumers: A Stable Link in Times of Change’, 14 February 2003. iii The aim of the Lisbon Strategy is to make the EU the world’s ‘most competitive and dynamic knowledge-driven economy by 2010’. The Lisbon Strategy rests on three pillars, of which the first seeks to prepare the ground for the transition to a competitive, dynamic, knowledge-based economy, with particular emphasis on the need to adapt constantly to changes in the information society and to boost research and development. For an overview of the various components and key documents that comprise the Lisbon Strategy, see http://ec.europa.eu/growthandjobs/key/index_en.htm. See also A Sapir and Others, An Agenda for a Growing Europe: The Sapir Report (Oxford, Oxford University Press, 2004). iv SPEECH/05/98 ‘Regulating for Competition and Growth’, 17 February 2005. Consider also SPEECH/05/73 ‘Effective Competition Policy: A Key Tool for Delivering the Lisbon Strategy’, 3 February 2005; and ‘Towards a Proactive Competition Policy in Favour of Innovation’, 27 April 2005.

B. Communications Law Article 8 of the Framework Directive lists three core objectives that should underpin and guide the work of the NRAs.34 First, NRAs must promote competition in the provision of electronic communications networks, services and associated facilities.35 Second, they must contribute to the development of the internal market.36 Third, they must promote the interests of the citizens of the European Union.37 Each objective is exemplified by a non-exhaustive catalogue of illustrations as to how they may be met.38 The Article 8 objectives permeate the whole of EC communications law.39 Table 2.3 compares their implementation by Germany, France, the Netherlands and the United Kingdom. We can see that the Dutch Tw most fully conforms to the Community law template. In the other three Member States the relevant legislation contains more elaborate catalogues of goals to be pursued, with a number of additional objectives not found in Article 8. These other objectives vary from the generic to

34 In addition to the three objectives listed there, Art 8(1) adds that NRAs may also contribute to ensuring the implementation of policies aimed at the promotion of cultural and linguistic diversity and pluralism. 35 Art 8(2). 36 Art 8(3). The internal market is defined by Art 14(2) EC to comprise ‘an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured’. 37 Art 8(4). All persons holding the nationality of a Member State are citizens of the Union: Art 17(2) EC. Arts 12 and 17–22 EC outline the rights that Community law bestows upon European citizens. 38 For instance, competition can be promoted by encouraging efficient investment in infrastructure and by promoting innovation. 39 See, eg, Arts 5(1), 5(4) and 8(4) Directive 2002/19/EC of the European Parliament and of the Council on access to, and interconnection of, electronic communications networks and associated facilities (the Access Directive) [2002] OJ L108/7.

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Ofcom (United Kingdom)

Art L32–1(II) Code PCE

ARCEP (France)

Article 1.3(1) Tw

§ 2(2) TKG

BNetzA (Germany)

OPTA (Netherlands)

Basis in National Law

National Regulatory Authority + + + + + + + + +

To safeguard consumer interests, including privacy To secure fair competition To encourage infrastructure investment and support innovation To promote the development of the internal market To ensure universal service at affordable prices To promote telecom services in public institutions To ensure an efficient use of frequencies, free of interference To ensure an efficient use of numbering resources To protect public safety interests + To supply and finance electronic communications + To ensure effective and fair competition between firms for the benefit of users + To encourage infrastructure investment and innovation + To define access conditions that guarantee free and equal competitive conditions + To ensure that operators respect the confidentiality of transmitted information + To ensure that operators respect public order and safety obligations + To consider the interests of provinces and users as regards access + To encourage shared usage of installations + To ensure the absence of discrimination in the treatment of operators + To maintain and develop networks and interoperable services at EC level + To ensure effective management of radio frequencies and numbers + To ensure a high level of consumer protection To respect the principle of technological neutrality To ensure the integrity and safety of pubic networks + To promote competition inter alia by encouraging investments in infrastructure and supporting innovation + To contribute to the development of the internal market + To promote the interests of end-users as regards choice, price and quality + To promote competition + To contribute to the development of the internal market + To promote the interests of all EU citizens + To consider the desirability of technology-neutral regulation + To encourage the provision of network access and service interoperability + To encourage compliance with EU or international technical standards

Explicit Objectives

Table 2.3 Implementation of Article 8 Objectives in Germany, France, the Netherlands and the United Kingdom

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Mandate and Function the specific and, so it seems, are not listed in any particular order. Further, the three core objectives are often not couched in the same terms that appear in Article 8. Although most of the additional objectives mentioned do appear in Article 8’s list of illustrations, the failure to distinguish between objectives and illustrations has the effect of equating the latter with the former in terms of legal importance.40 This blurs the distinction between means and ends. The potentially undesirable ramifications of this blurring are twofold. Legal doctrine has noted that there is ample opportunity for conflict amongst the various objectives, especially given the absence of a clear hierarchy.41 If the risk of a conflict is already considered worrisome when the NRA has to strike a balance between three objectives, what then of the authority that has a catalogue of 14 objectives to juggle? The UK Communications Act 2003 simply instructs Ofcom in such an event to ‘secure that the conflict is resolved in the manner they think best in the circumstances’.42 This does not necessarily solve matters from a Community perspective. As will be more fully explained in chapter 5, NRAs are answerable to the Commission for the choices embodied in their regulatory decisions.43 The Commission may comment upon and even veto draft decisions, and one of the reasons that could prompt such intervention is a decision that appears incompatible with the objectives of Article 8. It is easy to see that if the compromise struck by the NRA between the various goals is unpalatable to the Commission, the latter may feel justified in overriding that choice through a veto. This course of action could potentially undermine the wide and discretionary powers that NRAs are accorded under the 2002 Regulatory Framework to enable them to act with greater effectiveness than before.44 A second and related concern is that a long list of carefully crafted objectives could convey the impression that NRAs continue to possess a patchwork of limited competences. Ingenious litigants (especially former incumbents) may attempt to use this perception to continue to mount legal challenges against regulatory decisions, arguing that the authority was simply not competent to decide the way it did. National courts could in turn continue to gratify these litigants by maintaining a formalistic approach when adjudicating claims for judicial review, thereby undermining the work of the NRAs.45 40 This approach also fails to appreciate that the list of illustrations is non-exhaustive and may be supplemented or superseded by other means to achieve the three core objectives. 41 Stevens and Valcke (above n 29) 169; P Larouche and M de Visser, ‘Key Institutional Issues and Possible Scenarios for the Review of the EC Electronic Communications Framework’ (2005) Tilec Discussion Paper 2005–32, http://www.tilburguniversity.nl/tilec/publications/discussionpapers/2005– 032.pdf, 4. 42 S 4(11). 43 See ch 5, section I-A(i) and (v). 44 On the former, unsatisfactory, state of affairs, see above ch 1, section III-B. 45 As will be explained in ch 3, section IV-A, such an approach would also seem difficult to reconcile with Art 4 of the Framework Directive, which calls upon national courts to ‘ensure that the merits of the case are duly taken into account’ when reviewing decisions.

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Regulatory Principles Underpinning the 2002 Directives In addition to objectives laid down in Article 8 of the Framework Directive, there are also five regulatory principles that underpin the 2002 Electronic Communications Framework. These principles have been developed by the Commission in the 1999 Communications Review,i which states that future regulation should: 1. Be based on clearly defined policy objectives, namely those found in Article 8; 2. Be the minimum necessary to meet those policy objectives and so conform to a proportionality test;ii 3. Further enhance legal certainty in a dynamic market; 4. Aim to be technologically neutral,iii meaning that it should not impose, or discriminate in favour of, the use of a particular type of technology but rather ensure that the same service is regulated in an equivalent manner, irrespective of the means by which it is delivered—or be objectively justifiable if it is not;iv 5. Be enforced as closely as practicable to the activities being regulated.v The Directives do not as such require the NRAs to follow these principles, but since they derive from generally accepted principles of good regulation it may be said that the NRAs are de facto bound by them. The French Code PCE has even listed the fourth regulatory principle as an objective to guide ARCEP in its activities. Two additional principles find expression throughout the 2002 Regulatory Framework: transparency and non-discrimination. The first is closely related to the regulatory principle of legal certainty and requires NRAs to consult widely before regulating and to publish decisions and other information.vi The second principle demands that operators, services and networks that find themselves in a similar position must be treated similarly.vii The regulatory principle of technological neutrality can be seen as a specific application of the principle of non-discrimination.viii ———————————— i European Commission (EC), ‘Towards a New Framework for Electronic Communications Infrastructure and Associated Services: The 1999 Communications Review’ (Communication) COM (99)539, 12–13. ii This implies that the regulatory action must be suitable to achieve the desired end; that it is necessary to achieve that end and does not impose a burden that is excessive in relation to the objectives sought to be achieved. On the principle of proportionality in EC law generally, see T Tridimas, The General Principles of EU Law, 2nd edn (Oxford, Oxford University Press, 2006) chs 3–5. iii Art 8(1) and Recital 18 Framework Directive. See further I van der Haar, ‘Technological Neutrality: What does it Entail?’, TILEC Discussion Paper, 2007, http://www.tilburguniversity.nl/tilec/publications/discussionpapers/2007–009.pdf. iv For instance, national authorities may promote digital television as a means to increase spectrum efficiency. See Recital 8 Framework Directive. v This is another formulation of the principle of subsidiarity: Art 5 EC. vi Arts 3(4) and 6 Framework Directive. vii Art 12 EC. viii A de Streel, ‘A First Assessment of the New European Regulatory Framework for Electronic Communications’ (2005) 58 Communications & Strategies 141, 143.

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Powers and Procedures III. POWERS AND PROCEDURES

This section discusses the powers conferred on the NCAs and NRAs to achieve the objectives pursued by European competition and communications law and the procedures they should use as a matter of Community law.

A. The Powers of the NCAs and NRAs The national authorities enjoy both general and specific powers to execute their European mandate. These will be discussed in turn, followed by an overview of the sanctions that NCAs and NRAs should be able to impose. i. General Powers Under competition law, the general power of the NCAs may be expressed in simple terms: Recital 6 of Regulation 1/2003 states that NCAs should be empowered to apply EC competition law. This is to ensure the effective application of these rules. Article 5 of the Regulation therefore provides that they have the power to apply Articles 81 and 82 EC in individual cases.46 Jurisdictional Principles: The Relationship between EC and National Competition Law The general competence of NCAs to apply and enforce Articles 81 and 82 EC raises two questions. Firstly, what triggers the applicability of these two provisions? Secondly, once it is determined that EC competition law applies, what scope, if any, remains for the application of national competition rules?i The latter question was one of the main bones of contention between the Commission and the Council in the drafting of the Regulation.ii The relevant rules can now be found in Article 3 of Regulation 1/2003, supported by Recitals 8 and 9. There are four principles. The first and leading principle is that when NCAs—or national courts—apply national competition law to agreements and the like that may affect trade between Member States,iii they must also apply Article 81. Similarly, they must apply Article 82 to any abuse prohibited by that provision.iv The second principle concerns conflicts between the cartel prohibition in EC and national competition law. Article 3(2) incorporates the doctrine of the supremacy of EC law by providing that the application of national competition law may not lead to the prohibition of agreements (and the like) that: do not restrict competition within the meaning of Article 81(1); fulfil the conditions of Article 81(3); or are covered by a block exemption.

46 See also Recital 4 and the last sentence of Recital 6. This presupposes that NCAs are given the competence to apply Arts 81 and 82 EC, reflected in Art 35(1) Reg 1/2003. In practice, more than half of the then fifteen Member States had not given their authorities the competence to apply the European competition rules prior to 1 May 2004.

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The position in relation to Article 82 is different. The third principle states that Member States can adopt national laws that are stricter than Article 82 to sanction unwanted unilateral conduct, within their national territory of course. Recital 8 mentions laws intended to protect economically dependent firms as an example. The fourth principle addresses diagonal conflicts, ie, conflicts between EC competition law and national rules other than competition rules. In this respect, Article 3(3) provides that the Regulation does not preclude the application of provisions of national law that predominantly pursue an objective different from that pursued by Articles 81 and 82 EC.v Recital 8 adds that such national laws must comply with general principles and other provisions of Community law. ———————————— i Art 83(2)(e) EC explicitly calls for this issue to be settled in secondary law. ii The Commission originally proposed that once it was shown that there was an effect on trade between Member States (the threshold for the applicability of Arts 81 and 82 EC), Community competition law would apply to the exclusion of national competition law. This approach was justified with a reference to the potential danger of ‘re-nationalisation’ of EC competition law. iii Elaborated in the Commission Guidelines on the effect on trade concept [2004] OJ C101/81. Whilst there are some new features in the Notice, most of the rules found in it are taken directly from solutions resulting from case law, eg Case 56/65 Société Technique Minière v Maschinenbau Ulm GmbH [1966] ECR 235; Case 22/78 Hugin Kassaregister AB and Hugin Cash Registers Ltd v Commission [1979] ECR 1869. iv An important justification for this arrangement is that it should preclude a party to a proceeding from claiming that the competition authority has used the wrong legal basis for its action. v Recital 9 mentions national laws that prohibit or sanction unilateral and/or contractual unfair trading practices as examples.

In EC communications law, there is a direct link between the objectives NRAs must pursue and the powers they possess. Article 8 of the Framework Directive posits that NRAs must be able to take ‘all reasonable and proportionate measures’ aimed at achieving the objectives set out in the remainder of the provision. The appellation ‘reasonable’ indicates that national measures must be fair and sensible. The reference to proportionality requires NRAs not to stray beyond what is necessary to achieve the Article 8 objectives.47 The function of Article 8 can thus be likened to that of Article 308 EC. Article 308 is a source of residual power, entitling the Community to legislate in cases in which the Treaty does not provide a specific legal basis for the realisation of one of its objectives or tasks.48 The provision has been used to allow the Community to ‘react to fresh challenges and developments and to explore new policy areas’.49 Since the electronic 47 Art 5 third indent EC and the Treaty of Amsterdam Protocol on the Application of the Principles of Subsidiarity and Proportionality. 48 See R Schütze, ‘Dynamic Integration: Article 308 EC and Legislation “In the Course of the Operation of the Common Market”: A Review Essay’ (2003) 23 Oxford Journal of Legal Studies 333, 334. 49 The Future of Europe: Laeken Declaration, adopted by the Member States on 15 December 2001. The policy areas in which Art 308 EC was most frequently used were the areas of ‘research and development’ and ‘environmental policy’. Both fields were explicitly recognised as Community competence in the Single European Act, now Title XVIII and XIX respectively.

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Powers and Procedures communications sector is characterised by innovation and rapid technological progress, it is difficult to predict if and when regulatory intervention by NRAs is appropriate and to enumerate those situations in the 2002 Regulatory Framework. A residual competence along the lines of Article 8 can fill the lacunae, if any, in the (specific) legislative competences of national authorities. Table 2.4 shows how Germany, France, the Netherlands and the United Kingdom have implemented this general competence under Article 8(1) of the Framework Directive. Legislation in all systems imposes a duty on the NRAs to exercise their competences in accordance with the objectives underlying the 2002 Electronic Communications Framework but shies away from defining the existence and scope of their competences with reference to those objectives. This situation may be explained by the primacy of politics. Member State legislatures are seen as the primates of politics, and Member States are therefore reluctant to grant sweeping powers to national authorities to achieve their objectives; a more commonly used method is thus expressly to spell out the means these authorities have to achieve their ends.50 Table 2.4 Implementation of Article 8(1) of the Framework Directive by Germany, France, the Netherlands and the United Kingdom National Regulatory Authority

Basis in National Law

Contents

Bundesnetzagentur / (Germany)

/

ARCEP (France)

Art L32–1(II) Code PCE

‘Within the remit of their respective competences, the Minister and ARCEP can take, under objective and transparent conditions, reasonable and proportionate measures to achieve the following objectives [listed above in Table 2.3].’

OPTA (Netherlands)

Art 1.3(1) Tw

‘The Board takes care that its decisions contribute to the realisation of the objectives listed in Article 8(2)–(4) of the Framework Directive.’

Ofcom (United Kingdom)

s 4(2) CommA 2003

‘It shall be the duty of Ofcom to act in accordance with the six Community requirements (which give effect, amongst other things, to the requirements of Article 8 of the Framework Directive and are to be read accordingly).’

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See also above ch 1, section III-B.

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The Role of National Authorities in Network-Based Governance ii. Specific Powers a. Competition Law Article 5 of Regulation 1/2003 also lists the various decisions that NCAs should in any event be able to make in the enforcement of Articles 81 and 82 EC. Thus, they ought to have the power to: + Require that an infringement be brought to an end. NCAs can make such a determination on the basis of a complaint or on their own initiative;51 + Adopt interim measures. The Regulation does not indicate when interim measures are appropriate. However, based on Article 8 of the Regulation, and applying by analogy European Court of Justice (ECJ) case law dealing with the issue of Commission competences, there would have to be a prima facie infringement of the competition rules and a need to prevent serious and irreparable damage to competition to warrant such measures;52 + Adopt commitment decisions. These make binding commitments voluntarily offered by firms under investigation to overcome an NCA’s initial objections against the conduct at hand;53 + Impose fines, periodic penalty payments or any other penalty provided for in their national law;54 + Decide that there are no grounds for action on their part. Such a decision is particularly appropriate when a complaint is already (being) dealt with by another competition authority.55 In addition, Article 29(2) of the Regulation gives NCAs the competence to withdraw the benefit of a block exemption regulation if the conduct at issue has effects that are incompatible with Article 81(3) in the territory of a Member State that has all the characteristics of a distinct geographic market. With the exception of declaratory decisions and decisions finding past infringements, the competences of the Commission and NCAs are identical.56 Table 2.5 compares how the four sample Member States have given effect to these provisions of the Regulation.57 We see that in all four legal systems the national competition legislation

51

For the corresponding Commission competence, see Art 7 Reg 1/2003. For the Commission, see Art 8 Reg 1/2003. 53 For the Commission, see Art 9 Reg 1/2003. 54 For the Commission, see Arts 23 and 24 Reg 1/2003. The reference to ‘any other penalty’ refers to the possibility that exists under some national competition laws to impose criminal sanctions (fines or imprisonment) on natural persons for breaches of the competition rules. 55 Recital 18 and Art 13 Reg 1/2003. At the national level, see eg Case No 1068/2/1/06 Casting Book Limited v OFT, Judgment of 14 December 2006, in which the UK Competition Appeal Tribunal found in favour of the OFT in a case relating to the closure of an investigation purely on the basis that it no longer constituted an administrative priority for the OFT. 56 The powers of the Commission are examined below in ch 4, section I-A. 57 For an overview of how the other Member States have given effect to Art 5, in particular whether their national competition statutes admit the power of NCAs to impose structural remedies, 52

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Powers and Procedures includes specific legal bases matching most—and in the case of German law, all—decisional outcomes found in Arts 5 and 29(2).The German legislature, in an effort to ensure that the competences of its NCA mirror as closely as possible those of the Commission, has also conferred on the Bundeskartellamt competence to find past infringements and conduct sector inquiries.58 b. Communications Law The specific competences of NRAs under the 2002 Electronic Communications Framework are more numerous than those of NCAs under Regulation 1/2003. Here we will focus on the powers of the NRAs in relation to market access, the regulation of market behaviour (the Significant Market Power (SMP) regime) and dispute settlement. 1. Market Access: General Authorisations and Scarce Resources

Market access for firms occurs by virtue of a general authorisation, that is to say, a national law detailing the rights and conditions59 regarding all or certain types of electronic communications services and networks.60 NRAs are responsible for monitoring firms’ compliance with the conditions set out in this general authorisation.61 Proof of compliance can be requested on a case-by-case basis in interim measures and commitment decisions, see ECN, ‘Results of the Questionnaire on the Reform of Member States (MS) National Competition Laws after EC Regulation No 1/2003’ [2008]’, available at the ECN website. On the question of direct effect of Art 5, see E Gippini-Fournier, ‘Institutional Report’ in H Koeck and M Karollus (eds), The Modernisation of European Competition Law: Initial Experiences with Regulation 1/2003, vol 2 (Vienna, FIDE XXIII Congress Publications, 2008) 458–59; and R Smits, ‘The European Competition Network: Selected Aspects’ (2005) 32 Legal Issues of Economic Integration 175. For more on the implementation of Regulations in general, see R Kral, ‘National Normative Implementation of EC Regulations: An Exception or Rather a Common Matter’ (2008) 33 European Law Review 243; Case C-313/99 Gerard Mulligan and Others v Minister for Agriculture and Food [2002] ECR I-5719; Joined Cases C-383/06 to C-385/06 Vereniging Nationaal Overlegorgaan Sociale Werkvoorziening and Gemeente Rotterdam v Minister van Sociale Zaken en Werkgelegenheid en Sociale Economische Samenwerking West-Brabant v Algemene Directie voor de Arbeidsvoorziening, judgment of 13 March 2008, nyr, [35]–[40]. 58 See the last sentence of Art 10; and Art 17 Reg 1/2003. 59 Art 2(2)(a) Directive 2002/20/EC of the European Parliament and of the Council on the authorisation of electronic communications networks and associated services (the Authorisation Directive) [2002] OJ L108/21. These conditions are exhaustively enumerated in Annex A of the Directive. Where this is necessary to guarantee national security, Member States can impose additional conditions, which must be proportionate and non-discriminatory. 60 In other words, no explicit regulatory action on the part of an NRA is required before a firm can enter the market. NRAs may ask for a notification in order to keep a register, but a firm does not have to wait for a reply to this notification, nor is it required to provide more information than necessary for identification purposes. 61 When an firm complies with the conditions, NRAs have the additional task of issuing standardised declarations to facilitate the exercise of rights of way and rights of interconnection: Art 9 Authorisation Directive (above n 59). In addition, the general authorisation gives providers of public electronic communications networks and services the right to be considered for designation as universal service provider or to provide elements of universal service.

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Art 56(1)(c) Mw ss 32, 33 CA 1998

NMa (Netherlands) s 35 CA 1998

Art 83 Mw

Art L464–1 CdC

§ 32a and § 60 GWB

§ 32 GWB

Art L464–2(I) CdC

Interim Measures

Termination Infringement

Conseil de la Concurrence (France)

National Competition Authority BKartA (Germany)

s 31A(2) CA 1998

Art 49a Mw

Art L464–2(I) CdC

§ 32b GWB

Accept Commitments

/

/

Art L462–8 and L464–6 CdC

§ 32c GWB

No Action

Rule 13 CA 1998 (OFT Rules) Order 2004

Art 89a Mw

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Withdrawal Benefit Block Exemption § 32 d GWB

§ 32(3) GWB: possibility to find past infringements —§ 32e GWB: sector-inquiries Article L470–6 CdC: the Conseil de la Concurrence shall have the powers recognised in Regulation 1/2003 Art 58a: possibility to adopt structural remedies

Additional Competences

Table 2.5 Legislative Operationalisation of Competences Covered by Articles 5 and 29(2) of Regulation 1/2003

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Powers and Procedures response to complaints or own-initiative interventions when the national authority has reasons to believe that conditions are not being complied with.62 Further, NRAs are given the power to regulate radio spectrum and numbers.63 They manage the national numbering space,64 allocate and assign frequencies65 and impose fees for the rights of use of these resources.66 NRAs must also encourage and, when appropriate, ensure adequate access,67 interconnection68 and interoperability of services.69 In justified cases they are even competent to impose interconnection obligations on firms.70 NRAs may in addition lay down technical or operational conditions that must be complied with by the provider and/or beneficiary of access obligations.71

62 Exceptions apply for conditions related to the payment of administrative charges, usage fees and contributions to the universal service fund. 63 The numbers and frequencies available may be insufficient to satisfy demand, meaning that allocation is necessary. If and when feasible, however, numbers and frequencies must be included in the general authorisation. 64 Art 10 Framework Directive. They control the assignment of numbers and manage the national numbering plans. 65 Such rights of use must be granted through open, transparent and non-discriminatory procedures. Member States must also specify whether those rights can be transferred at the initiative of the right holder and under which conditions: Art 5(2) Authorisation Directive (above n 59); Art 9 Framework Directive as regards radio frequencies; and Art 10 Framework Directive as regards numbers. 66 Art 13 Authorisation Directive (above n 59). Fees must reflect the need to ensure the optimal use of these resources, be objectively justified, transparent, non-discriminatory and proportionate in relation to their intended purpose and take into account the objectives of Art 8 Framework Directive. The list of fees included in the Authorisation Directive is exhaustive (see Joined Cases C-292/01 and C- 293/01 Albacom SpA and Infostrada SpA v Ministero del Tesoro, del Bilancio e della Programmazione Economica and Ministero delle Comunicazioni [2003] ECR I-9449), and any fees levied must also be imposed on the incumbent and not just on new entrants (see Joined Cases C-327/03 and C-328/03 Bundesrepublik Deutschland v ISIS Multimedia Net GmbH und Co KG and Firma O2 (Germany) GmbH und Co UHG [2005] I-8877). 67 ‘Access’ is a generic term covering any situation in which one party is granted the right to use the network or facilities of another party, on either an exclusive or shared basis: Art 2(a) Access Directive (above n 39). 68 Interconnection is a specific form of access and covers the physical and logical linking of networks. It allows users on one network to communicate with users on other networks, or to access services provided on other networks: Art 2(b) Access Directive (above n 39). 69 Art 5(1) Access Directive (above n 39). Interoperability of services requires the use of common standards and protocols, or the use of a conversion function that can map between different systems. The Commission has published a list of standards and/or specifications for electronic communications networks, services and associated facilities and services ([2002] OJ C331/32) to encourage the harmonised provision of electronic communications networks, services and associated facilities and thereby to improve freedom of choice for users. 70 Art 5(1)(a) and (3) Access Directive (above n 39). In addition, to the extent this is necessary to ensure accessibility for end-users to digital radio and television broadcasting services specified by the Member States, NRAs can impose access to application program interfaces (APIs) and electronic programme guides (EPGs) on objective, transparent, proportionate and non-discriminatory conditions: Art 5(1)(b) and (3) Access Directive. 71 Art 5(2) Access Directive (above n 39).

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The Role of National Authorities in Network-Based Governance 2. Regulation of Market Behaviour: SMP

At the core of the competences of the NRAs is the application of the Significant Market Power (SMP) regime. Recital 25 notes that ‘[t]here is a need for ex ante obligations in certain circumstances to allow the development of a competitive market’. Before they can impose such obligations, the NRAs must follow three interlinking steps. The first step is that of market definition and comprises two stages. A Commission Recommendation on product and service markets72 selects and delineates the product or service dimension of markets justifying regulation due to the presence of hardcore market power that cannot be effectively addressed through the use of the EC competition rules.73 Taking account of this Recommendation, NRAs then define markets appropriate to national circumstances.74 Under certain conditions, they can also define markets that have not been included in the Commission Recommendation.75 In the second step, the NRAs analyse the markets defined under the first step to determine whether or not they are effectively competitive.76 In doing so, NRAs must take the utmost account of the Commission’s Guidelines on market analysis.77 A market is considered78 to be effectively competitive where there are

72 Commission Recommendation 2003/311/EC of 11 February 2003 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services [2003] OJ L114/45, adopted pursuant to Art15 Framework Directive, now replaced by Commission Recommendation of 17 December 2007 [2007] OJ L344/65. 73 Three criteria are used to justify the inclusion of a market in the Recommendation: i) there are high and non-transitory entry barriers; ii) the market structure does not tend towards effective competition within the relevant time horizon; and iii) the application of competition law alone would not adequately address the market failure(s) concerned: [9]–[16]. 74 Art 15 Framework Directive and Recital 2 Commission Recommendation on relevant markets. 75 Art 15(3) of the Framework Directive. If an NRA seeks to define a market that differs from those defined in the Commission Recommendation it must submit its draft decision on market definition to the Commission and the other NRAs in accordance with the consultation procedure laid down in Art 7 Framework Directive (discussed in more detail below in ch 5, section II). Any non-listed market defined by NRAs as susceptible to ex ante regulation must satisfy the following three criteria. First, the market must be characterised by the presence of high and non-transitory barriers to entry. Second, the market structure must not tend towards effective competition within the relevant time horizon. Thirdly, the application of competition law on a stand-alone basis would not adequately address the market failure(s) concerned. 76 Arts 14 and 16 Framework Directive; Arts 6–8 Access Directive (above n 39) and Arts 16–19 Universal Service Directive (above n 29). An analysis of effective competition must include an analysis as to whether the market is prospectively competitive and thus whether any lack of effective competition is durable. See Recital 27 of the Framework Directive. 77 Commission Guidelines of 9 July 2002 on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services [2002] OJ C165/6. 78 The Commission Guidelines at [112] state that according to the Commission, ‘A finding that a relevant market is effectively competitive is, in effect, a determination that there is neither single nor joint dominance on that market. Conversely a finding that a relevant market is not effectively competitive is a determination that there is single or joint dominance on that market.’

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Powers and Procedures no firms with SMP;79 and conversely, a market is considered not effectively competitive where one or more of such firms can be identified. In the former situation, national authorities cannot impose regulatory obligations and must withdraw any existing obligations.80 If the conclusion is that there is no effective competition, then NRAs must impose,81 under the third step, one or more of the remedies provided in the 2002 Regulatory Framework on the relevant SMP operator(s).82 Alternatively, the NRA may maintain or amend such obligations where they already exist. In the event of an SMP operator active on a wholesale market,83 the regulatory authority can impose one or more of the remedies listed in the Access Directive. These comprise five behavioural remedies: + Transparency,84 which requires operators to make publicly available specific information such as accounting information, technical specifications, network characteristics, terms and conditions for supply and use, and prices; + Non-discrimination,85 which seeks to ensure that the SMP firm applies equivalent conditions in equivalent circumstances and that the firm provides services and information to others under the same conditions, and of the same quality, as it provides for its own services, or those of its subsidiaries or partners; + Accounting separation,86 in particular making transparent wholesale tariffs and internal transfer prices;

79 Art 14 Framework Directive defines SMP in a way equivalent to the notion of dominance within EC competition law. This is confirmed by Recital 25 of the Framework Directive. According to standing case law, a firm is considered to have a dominant position if it is able to behave to an appreciable extent independently of competitors, customers and ultimately consumers: Case 27/76 United Brands Company and United Brands Continentaal BV v Commission [1978] ECR 207. In addition, Art 14 also covers the situation of collective dominance (para 2) and dominance on interdependent markets (para 3). NRAs thus have to pay close attention to the case law of the ECJ on Article 82 EC, particularly the case law dealing with the telecom sector as such, eg Case 247/86 Alsatel v Novasam [1988] ECR 5987 [23]; Case 311/84 CBEM v Compagnie luxembourgoise de télédiffusion SA et al [1985] ECR 3261 [18] and [27]. 80 Art 16(3) Framework Directive. 81 In its Guidelines on Market Analysis and SMP (above n 77), the Commission points out in [114] that the finding of SMP without the imposition of regulatory obligations would be inconsistent with the framework. See also Commission Decision of 17 May 2005 in Case DE/2005/0144, discussed in more detail below in ch 5, section I-A(v). 82 Art 16 (4) Framework Directive. See also European Regulators Group, ERG(03)30 ‘The Approach to Appropriate Remedies in the New Regulatory Framework’ [2003] now replaced by ERG(06)33 ‘Revised ERG Common Position on the Approach to Appropriate Remedies in the ECNS Regulatory Framework’ [2006], available at http://erg.ec.europa.eu/. The ERG is discussed below, ch 6. 83 Referring to the horizontal relationships between operators of electronic communications networks or providers of electronic communications services. 84 Art 9 Access Directive (above n 39). In addition, the NRA may require the publication of a reference offer, which must be sufficiently unbundled. It may make changes to these offers. 85 Art 10 Access Directive. 86 Art 11 Access Directive. NRAs can require that accounting records, including data on revenues received from third parties, are provided on request. They may publish information that contributes to an open and competitive market, subject to respect for national and Community rules on

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The Role of National Authorities in Network-Based Governance + Access obligations,87 meaning that operators may not withdraw access, must negotiate in good faith or give third-party access to specific network elements and associated facilities for fair compensation.88 This can include the imposition of technical or operational conditions when access obligations are imposed; + Price control obligations and cost recovery,89 including the requirements that prices must be based on costs and that firms must utilise costaccounting systems. Table 2.6 shows the national legislation in our four sample Member States. Table 2.6 Legislative Implementation of Wholesale Remedies in Germany, France, the Netherlands and the United Kingdom National Regulatory Authority

Transparency NonAccounting discrimination Separation

Access Price Obligations Controls and Cost Recovery

BNetzA (Germany)

§ 20 TKG

§ 19 TKG

§ 24 TKG

§§ 21–23 TKG

§ 29 TKG

ARCEP (France)

Art L38 Code PCE

Art L38 Code PCE

Art L38 Code PCE

Art L38 Code PCE

Art L38 Code PCE

OPTA (Netherlands)

Art 6a.9 Tw

Art 6a.8 Tw

Art 6a.10 Tw

Arts 6a.6 and 6a.11 Tw

Art 6a.7 Tw

Ofcom (United Kingdom)

s 87(6) CommA 2003

s 87(6) CommA 2003

s 87(8) CommA 2003

s 87(5) CommA 2003

s 87(9) CommA 2003

In exceptional cases, NRAs may impose additional obligations, subject to Commission approval.90 An example of an additional obligation is a structural remedy such as divesture. In the case of an SMP operator on the retail market91 and the insufficiency of remedies at the wholesale level,92 national authorities should rely on the non-exhaustive list of remedies provided in the Universal commercial confidentiality. Given its far-reaching nature, this obligation is only justified when there is a persistent network monopoly enjoying an entrenched competitive advantage. 87 Arts 5(2) and 12 Access Directive. The Article also includes a non-exhaustive list of examples of access obligations that may be imposed. Finally, the Article lists a number of factors that should be considered by the NRA in deciding whether or not to impose access obligations. 88 A prominent example is unbundling of the local loop. 89 Art 13 Authorisation Directive (above n 59). 90 Art 8(3) Access Directive (n 39). 91 Denoting the relationship between operators of electronic communications networks or the providers of electronic communications services and end-users. 92 Since most anti-competitive behaviour observed at the retail level can be traced to the exercise of market power on a related upstream market, it is considered more appropriate to regulate the wholesale market.

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Powers and Procedures Service Directive: price control (such as caps or cost-orientation obligations), together with accounting obligations,93 the publication of certain information to end-users, non-discrimination or bundling.94 NRAs must base their choice for a particular remedy (or remedies) on the nature of the problem identified and act with due consideration of the objectives contained in Article 8 of the Framework Directive.95 Their decisions must be reasoned.96 Remedies must be proportionate and incentive-compatible, meaning that they must be designed so that the advantages to the regulated party of compliance outweigh the benefits of evasion. To assist NRAs in their decisionmaking competences in this respect, the European Regulators Group has drawn up a Common Position on Remedies.97 This Common Position consists of four substantive chapters following the underlying logic of a remedy selection process. Accordingly, the first chapter identifies and categorises the standard competition problems or market failures that arise in the various electronic communications sectors. This is followed by a catalogue of the available standard remedies and a chapter on the principles that should guide the NRAs in selecting appropriate remedies.98 The core fourth chapter consists of a matching between the standard competition problems and the remedies available. Market analyses are conducted in cycles of two- to three-year duration. Regulatory intervention pursuant to the SMP regime is thus periodic rather than continuous. 3. Dispute Settlement

The classic regulatory functions of the NRAs are supplemented by their power to resolve disputes between firms that are active in electronic communications markets.99 Article 20 of the Framework Directive lays down a generic competence to settle disputes, and Article 5(4) provides a specific legal basis for NRAs to deal with disputes relating to access and interconnection questions. Whereas the first Article appears to make regulatory intervention dependent on a request by one of 93 NRAs may themselves undertake an annual audit to ensure compliance with the cost accounting system, provided they have the necessary qualified staff, or they may require that the audit is carried out by another qualified body, independent of the operator concerned: see Recital 27. 94 Art 17(2) Universal Service Directive (above n 29). 95 Art 8(4) Access Directive (above n 39) and Art 17 Universal Service Directive (above n 29). 96 For instance, according to the ERG Common Position on Remedies (above n 82) 53, decisions should always include a consideration of possible alternative remedies to ensure that the least burdensome and most effective remedy is selected. ‘Burdensome’ refers not only to the administrative burden of compliance for the SMP firm but also to the need for ongoing monitoring on the part of the NRA. 97 Above n 82. See Art 7(2) Framework Directive. 98 In addition to the need for remedies to be incentive-compatible, NRAs should seek to adopt remedies that support feasible infrastructure investment. See Art 8(2) Framework Directive. If it is considered that replication of infrastructure is not feasible, service competition should be encouraged. 99 Recital 32 of the Framework Directive describes a dispute as a situation in which the parties have ‘negotiated in good faith but failed to reach agreement’.

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The Role of National Authorities in Network-Based Governance the parties to the dispute,100 the second provision also allows an NRA to act on its own initiative to secure the policy objectives of Article 8 of the Framework Directive.101 There has been academic justification, however, for a right for NRAs to intervene in the absence of formal requests also pursuant to Article 20 of the Framework Directive, with this Article being read within the framework of their general regulatory power under Article 8(1) of that same Directive.102 When we consider how the sample Member States have implemented these two provisions (see Table 2.7), it becomes clear that in practice NRAs lack a legal basis for own-initiative intervention. Cases brought before the NRAs must be resolved with the adoption of a binding decision, and any failure on the part of a firm party to the dispute settlement to respect this decision may be sanctioned under national (administrative) law.103 The NRA’s intervention should respect the 2002 Regulatory Framework and in particular the objectives laid down in Article 8 of the Framework Directive.104 Decisions must be reasoned and be publicly available, subject to requirements of business confidentiality.105 NRAs must issue their decisions within the shortest possible timeframe and in any case within four months,106 bearing exceptional circumstances.107 Further, Member States may provide for their NRA to decline to resolve a dispute through a binding decision when other appropriate dispute resolution mechanisms, for instance mediation, are available and would better contribute to a timely resolution of the dispute. These may be tried for a maximum of four months. If the conflict is not resolved by that time, either party can place the matter before the NRA, which is then

100 Art 20(1) reads: In the event of a dispute arising in connection with obligations arising under this Directive or the Specific Directives between undertakings providing electronic communications networks or services in a Member State, the national regulatory authority concerned shall, at the request of either party, issue a binding decision to resolve the dispute in the shortest possible time frame and in any case within four months except in exceptional circumstances. The Member State concerned shall require that all parties cooperate fully with the national regulatory authority. 101 Art 5(4) reads: With regard to access and interconnection, Member States shall ensure that the national regulatory authority is empowered to intervene at its own initiative where justified or, in the absence of agreement between undertakings, at the request of either of the parties involved, in order to secure the policy objectives of Article 8 of the Framework Directive (emphasis added). 102 P Nihoul and P Rodford, EU Electronic Communications Law: Competition and Regulation in the European Telecommunications Market (Oxford, Oxford University Press, 2004) 631; A Ottow, ‘Dispute Resolution under the New Framework’, http://www.ivir.nl/publicaties/ottow/dispute resolutionundertheneweuframework.pdf, 5. 103 See Nihoul and Rodford (ibid) 631. 104 Art 20(3) Framework Directive. 105 Art 20(4) Framework Directive. 106 This relatively short period is to some extent offset by the inclusion of an express obligation on the firms involved to fully cooperate with the NRA. 107 For instance, when one of the firms has failed to meet in a timely manner a request to supply information that the NRA requires to make a decision.

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Powers and Procedures obliged to adopt a binding decision.108 Following the adoption of a dispute ettlement decision, parties have a right to appeal that decision to the national court.109 Article 21 of the Framework Directive provides for a special dispute resolution system for the resolution of cross-border disputes.110 Table 2.7 Dispute Settlement Powers in National Electronic Communication Market: Legislative Implementation of Article 20 Framework Directive and Article 5(4) of the Access Directive in Four Member States National Regulatory Authority

Legal Basis for the General Competence to Resolve Disputes

BNetzA (Germany)

§ 133 TKG: ‘In the event of a dispute arising in connection with obligations ensuing from or by virtue of this Act . . . the Ruling Chamber shall, at the request of either party . . . issue a binding decision’

ARCEP (France)

Art L36–8(II) Code PCE: ‘In case of a breakdown of commercial negotiations, ARCEP can also be seized of disputes relating to [all obligations under the Framework Directive and the Specific Directives]’

OPTA (Netherlands)

Art 12.2 Tw: ‘If a dispute has arisen between market parties concerning the fulfilment of an obligation imposed under or by virtue of this Act, the College can decide that dispute at the request of one of the parties to the dispute’

Ofcom (United Kingdom)

s 185(1)-(3) CommA 2003: ‘Any one or more of the parties to the dispute may refer it to OFCOM’

Legal Basis for Specific Competence to Resolve Disputes relating to Access and Interconnection

Art L36–8(I) Code PCE: ‘In case of a refusal of access or interconnection, the breakdown of negotiations or the disagreement on the conclusion or execution of an interconnection or access agreement, ARCEP can be seized of the dispute by one of the parties’

s 185(1)-(3) CommA 2003: ‘Any one or more of the parties to the dispute may refer it to OFCOM’

108 In total, the entire procedure must thus be completed after eight months. Although the normal procedure may be extended beyond four months in exceptional circumstances, the procedure leading to a binding decision cannot be extended beyond four months if alternative dispute resolution mechanisms have been tried in the first instance. 109 Art 4 Framework Directive. 110 See further below ch 6, section II-A(iii).

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The Role of National Authorities in Network-Based Governance

Dispute Settlement: Issues and Answers Paul Nihoul and Peter Rodford have remarked that NRAs ‘are specialised in the treatment of difficulties relating to electronic communications. It was logical, and appropriate, for the European institutions to entrust them with the task of resolving conflicts in this sector’.i While there is undoubtedly great merit in this view, it should not mask the fact that the power of NRAs to settle disputes has raised a number of interesting issues. First and foremost, the combining of competences that are usually kept separate within a single authority can be considered problematic in the light of Article 6 ECHR. In most Member States, dispute settlement is the exclusive competence of the courts.ii Assigning this competence to an administrative authority could thus be at odds with the constitutional idea of the separation of powers. It can further be queried whether NRAs have the impartiality required to carry out judicial action. Robert Queck gives the example of intervention by a national authority in interconnection negotiations, where the authority is afterwards called upon to resolve a dispute that has arisen between the parties to the negotiations regarding the same matter of interconnection.iii These difficulties can, however, be overcome. As regards impartiality concerns, a comparison may be made with the institutional design of a great number of NCAs at the national level and the Commission in the context of EC competition law enforcement. Competition enforcement also involves a combining of functions, namely the investigation of alleged infringements—a competence usually considered as administrative in nature—and the prosecution and imposition of sanctions for these infringements—a competence considered as (quasi-)judicial in nature. Most Member States, as well as the Commission, have not seen the need to spread these functions over separate bodies and have put a single administrative body in charge of all aspects of competition enforcement. These States have accommodated impartiality concerns within the internal structure of the NCAs through ‘Chinese-wall’ constructions and the like. There is no reason to believe that such internal separation cannot be effective in ensuring a climate of impartiality. Addressing separation of powers concerns, it can first be observed that NRAs do not have an exclusive competence to settle disputes between firms in the electronic communications sector. Own-initiative interventions notwithstanding, parties to a dispute must petition the NRA to become involved in the matter. Alternatively, they can decide to bring the matter before a court of law.iv When a dispute is settled by the NRA, it should be noted that the European Court of Human Rightsv has held that an initial determination of the existence and scope of civil rights and obligations can be made by a non-judicial body, provided that a subsequent appeal to a judicial body is open to the parties.vi As will be discussed in more detail in the next chapter, Article 4 of the Framework Directive grants parties affected by an NRA decision a right of appeal to a court of law. A second issue concerns the relationship between dispute settlement and the competences enjoyed by NRAs under the SMP regime. It will be recalled under that regime, national authorities intervene periodically. Yet a great many incidents might occur in the meantime that might warrant a regulatory response lest legal uncertainty or even a legal vacuum results.vii Dispute settlement competences could arguably be used by NRAs to fill this regulatory gap. In addition to ex ante intervention pursuant to the SMP regime, ex post intervention through dispute settlement would then also be possible.

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Powers and Procedures

This view on dispute settlement competences appears in line with the general competence of NRAs under Article 8(1) of the Framework Directive and the wording of Article 5(4) of the Access and Interconnection Directive, which states that NRAs are ‘empowered to intervene at their own initiative when justified in order to secure the policy objectives of Article 8 [of the Framework Directive]’. It would be odd indeed to confine an entity with such expertise and resources as the NRA to the periodic market analysis exercise. To be sure, one could of course argue that NRAs should not use their dispute settlement powers on these occasions but should rather be given the competence to re-open a market analysis when confronted with changed circumstances. However reasonable this might sound, a proposal to extend NRA competences to that effect suffers from at least one major drawback. It is in clear contradiction to the rationale behind the 2002 Regulatory Framework—that is, ensuring a sufficient degree of legal certainty and predictability for market operators to allow investment decisions to be taken and hence innovation to be encouraged. Further, intermediate intervention under the SMP regime might, if it has to go through all or most of the three stages identified earlier, be a much lengthier process with concomitant drawbacks than intervention under dispute settlement.viii The prospect of using dispute settlement competences in an ex post, complementary fashion has been voiced by, inter alia, ARCEP (or ART, as it then was), noting in the context of dispute settlement as regards interconnection disputes, ‘This new form of legal regulation provides the possibility to permanently adapt the interconnection regulatory scope, as the ART set the aims of its strategy to favour development of the market by means of individual decisions’ (emphasis added).ix ARCEP hereby recognises the advantages of intervention through dispute settlement in that it permits swift regulatory responses that help guarantee market development on a continuous basis. Another example of great reliance on dispute settlement was the use of these competences by OPTA to circumvent the limitations imposed upon it under the Dutch implementation of the 1998 framework.x ———————————— i Nihoul and Rodford (above n 102) 630. See also R Queck, ‘The Future of National Telecommunications Regulatory Authorities’ 2 (2000) Info 251, 257. ii Stevens and Valcke (above n 29) 170. See, eg, Art 112 of the Dutch Constitution, ‘The judicial power is charged with the resolution of disputes concerning civil rights and debt claims.’ iii Above n i, 258. iv As explicitly recognised by Art 20(5) Framework Directive: ‘The procedure . . . shall not preclude either party from bringing an action before the courts.’ It must, however, be recognised that it might be more difficult for courts to meet the requirements applying to NRAs, for instance in terms of observing the Art 8 objectives in adjudicating claims for dispute resolution: Stevens and Valcke (above n 29) 170. v The relevance of the Convention and the case law of the ECHR for Community law has been recognised in Case 222/84 Marguerite Johnston v Chief Constable of the Royal Ulster Constabulary [1986] ECR 1651 [28] and is now reflected in Art 6(2) TEU and the Charter of Fundamental Rights of the European Union [2006] OJ C346/1. vi Eg, Öztürk v Germany (Appl no 8544/79) (1984) Series A no 73 [65]. This case law recognises the realities of modern society, in which, for reasons of expertise, time and resources, it might be more expedient to have matters decided by a non-judicial body in the first instance.

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The Role of National Authorities in Network-Based Governance

vii In addition, ex post intervention also allows for some degree of experimentation and regulatory competition, as—unlike the situation under the SMP regime, where the markets for intervention are for the most pre-determined—the need for ex post intervention through dispute settlement will arise and have to be assessed on a case-by-case basis. On the value of (a certain degree of) regulatory competition in complex and technical areas, see below ch 7, section III. viii According to European Commission (EC), ‘European Electronic Communications Regulation and Markets 2005 (‘11th Report’)’ COM (2006) 68 final, 20 February 2002, 50, by 15 November 2005 Belgium, the Czech Republic, Estonia, Cyprus, Latvia, Luxembourg and Poland had yet to notify the Commission of the outcome of any of the at least 18 market reviews. According to the timeframe initially intended, NRAs were to conduct their initial market reviews in the second half of 2003. By contrast, dispute settlement decisions in principle have to be rendered within four months. ix E Rolin, ‘Settlement of Disputes Brought before the Telecommunications Regulatory Authority’ [2002], available at http://www.arcep.fr//.htm.

x L Hancher, P Larouche and S Lavrijssen,‘Principles of Good Market Governance’ (2004) 49 Tijdschrift voor economie en management 339.

iii. Sanctions This subsection rounds up the discussion by taking a look at sanctions available to NCAs and NRAs to punish firms for infringing the core obligations imposed by EC competition and EC communications law.111 a. Competition Law It will be remembered that one of the specific competences bestowed upon NCAs by Article 5 of Regulation 1/2003 is the ability to ‘impose fines, periodic penalty payments or any other penalty provided for in their national law’. The openended nature of the drafting reflects the doctrine of national procedural autonomy, allowing Member States not only to levy corporate fines but also to impose fines upon private individuals or even imprison those who have violated the EC competition rules. Table 2.8 offers an overview of available sanctions at Member State level.

111 The remedies that NRAs must impose following a finding of SMP are not considered sanctions, given that they are imposed in application of the 2002 Electronic Communications Framework. Equally, sanctions imposed for procedural infringements of the rules, for instance a failure to cooperate with the NCA or NRA, are also not considered here.

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Powers and Procedures Table 2.8 Sanctions Available to National Competition Authorities in Germany, France, the Netherlands and the United Kingdom National Competition Authority (NCA)

Maximum Periodic Penalty Payment

BKartA (Germany)

Maximum Maximum Fine on Fine on Undertakings Individuals

Maximum Additional Term of Sanctions Imprisonment

10 per cent of total turnover in preceding business year [§ 81(4) GWB]

5 years for bid-rigging [§ 298 StGB]

Skimming off of economic benefits [§ 34 GWB]

4 years for fraudulent participation in infringement competition rules [Art L420–6 CdC]

Publication, broadcasting or posting of conviction decision [Art L464–2 (I) CdC]

5 years for cartel offence (ie, hardcore cartels) [ss 188 and 191 EA 2002]

Competition disqualification order [s 204 EA 2002]

10 per cent of pre-tax worldwide turnover [Art L464–2(II) CdC]

€3 million [Art L464–2(II) CdC]

NMa Not (Netherlands) specified

€450,000 or 10 per cent of annual turnover [Art 57 Mw]

€450,000 [Arts 56 and 75a Mw]

OFT (United Kingdom)

10 per cent of worldwide turnover in preceding business year [s 36 CA 1998]

Conseil de la Concurrence (France)

5 per cent of average daily turnover

The competition statutes in all four case study legal systems set the same ceiling for corporate fines, namely ten per cent of the firm’s total turnover in the preceding business year.112 This ceiling is identical to that for Commission 112 On 1 May 2008, the European Competition Authorities, comprising the NCAs of the 27 Member States, the Commission and the competition authorities of the EFTA States have agreed principles for convergence of pecuniary sanctions imposed on undertakings for infringements of antitrust law, available at the websites of its members.

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The Role of National Authorities in Network-Based Governance fines.113 The French and Dutch NCAs may also impose periodic penalty payments, and they are further competent to fine individuals for breaches of the competition rules.114 That said, practice to date shows that the Conseil de la Concurrence has used this sanction sparingly, presumably because it is also competent to seek the imprisonment of individuals who are found to have committed breaches of the competition rules.115 The possibility to imprison natural persons is also recognised under German and English law. All three legal systems stipulate comparable terms of imprisonment and reserve this sanction for hardcore infringements of the competition rules. Unlike the Bundeskartellamt and the Conseil de la Concurrence, the OFT may also prosecute private individuals for criminal offences, although it has to refer the matter to court for punishment.116

b. Communications Law Among the tasks entrusted to the NRAs by the 2002 Regulatory Framework is that of the monitoring of firms’ compliance with the conditions set out in the general authorisation.117 In the event of noncompliance, the NRA must give the firm the occasion to remedy the breach or explain its position.118 If the matter is not resolved and the breach persists, the NRA must proceed to impose penalties on the recalcitrant firm.119 The 2002 Regulatory Framework does not specify the type of penalty, other than to mention fines as a possibility.120

113

Art 23(2) Reg 1/2003. For a long time, the Dutch system did not have sanctions for natural persons. This state of affairs changed on 1 October 2007, when the NMa obtained the power to fine individuals who breach the competition rules: Wet van 28 juni 2007, houdende wijziging van de Mededingingswet als gevolg van de evaluatie van die wet, Staatsblad van het Koninkrijk der Nederlanden, 2007, 284 and Besluit van 21 juli 2007, houdende vaststelling van het tijdstip van inwerkingtreding van de wet van 28 juni 2007 houdende wijziging van de Mededingingswet als gevolg van de evaluatie van die wet. 115 Although it appears to be unclear whether imprisonment is also possible for breaches of the EC competition rules. See G Danecker and O Jansen, Competition Law Sanctioning in the European Union: The EU Law Influence on the National System of Sanctions in the European Area (New York, Kluwer Law International, 2004) 119. 116 The German and French NCAs must refer the matter to the Public Prosecutor under § 30 Gesetz über Ordnungswidrigkeiten and Arts L420–6 and L462–6 Code de Commerce respectively. In December 2007, the OFT for the first time brought charges against three individuals for their role in a cartel involving marine hoses. 117 For present purposes, conditions imposed in respect of rights of use (of radio spectrum, numbers) are also included in the notion ‘conditions of a general authorisation’. 118 The firm must have one month to rectify or reply: Art 10(2) Authorisation Directive (above n 59). A shorter time period can be agreed to by the firm or be stipulated by the NRA in case of repeated breaches. Conversely, an NRA may also decide to grant a longer period for remedial action to be taken or observations to be submitted. 119 This is thus a different situation from that pertaining under EC competition law, under which the Commission and some NCAs (such as the Bundeskartellamt) can find an infringement without imposing a sanction. 120 Art 10(3) Authorisation Directive (above n 59). 114

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Powers and Procedures Pecuniary penalties are indeed available under all four legal systems under scrutiny here, as can be seen in Table 2. 9. There is quite a degree of divergence, however, regarding the maximum extent of fines. The Netherlands and the United Kingdom have ensured that the maximum fines that can be imposed by their NCAs and NRAs are similar. These States also provide for the highest fines. The more restrictive attitude in fine-setting in Germany and France can arguably be rationalised with reference to the availability of other sanctions. Under German law, when intent or negligence can be imputed to the defaulting firm it is liable for reparation of the damage caused. The availability of civil liability must be positively evaluated. When fines are used to fund the NRA or disappear into the Treasury, civil liability ensures compensation to those that have actually suffered from the breach committed. As in Germany, UK communications law also provides the sanction of civil liability, although the consent of Ofcom must be obtained before a claim can be commenced.121 The position under French law is that fines may be supplemented by criminal sanctions, in the form of mandatory imprisonment ranging from three months to a year. Criminal sanctions are available for a wide range of infringements. The French attitude is not mirrored in the other States. German and UK law admittedly also allow for criminal liability, but the former legal system does so only in respect of infringement of privacy rules, and under the latter system criminal sanctions are not mandatorily imposed. Remedial measures must be appropriate and proportionate. An NRA must inform a firm of the penalty it has decided upon within a week and give it a reasonable period of time to comply with the decision.122 In exceptional circumstances, NRAs may suspend and even withdraw a firm’s right to perform market activities.123 This sanction is, however, only possible if the firm has seriously and repeatedly infringed the general authorisation and then only after the insufficiency of other remedial measures has been demonstrated. Parties have the right to appeal NRA decisions establishing breach and penalty.124 If there are circumstances giving rise to urgency, the NRAs may prescribe interim measures.125

121 Section 104(4) Communications Act 2003. This concerns claims relating to Ofcom’s power to set conditions for persons or firms providing electronic communications networks or services. (The condition may be either general in nature or specific, meaning that it concerns universal service, access, privileged supplier or SMP.) It is unclear why Ofcom has to give its consent for a civil suit for breach of any of these conditions. One could perhaps speculate that this power is in recognition of Ofcom’s regulatory mission and special expertise in the field, which would enable it to judge whether civil liability is indeed warranted for the breach committed. That said, it does appear a little odd (to say the least) that the firm suffering damage because of this breach might be prevented from claiming compensation for it, in the event that Ofcom refuses its consent. It must be noted here that the Communications Act does not appear to stipulate any constraints for Ofcom’s discretion in making this determination. 122 Art 10(3) Authorisation Directive. 123 Art 10(5) Authorisation Directive. While penalties must be imposed, the withdrawal of rights is discretionary. 124 Art 10(7) Authorisation Directive. 125 Art 10(6) Authorisation Directive. For interim measures to be permissible, the breach must represent an immediate and serious threat to the public or pose an economic or operational threat.

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The Role of National Authorities in Network-Based Governance Table 2.9 Sanctions Available to National Regulatory Authorities in Germany, France, the Netherlands and the United Kingdom National Regulatory Authority (NRA) BNetzA (Germany)

Maximum Financial Penalty

€500,000 [§§ 126(5) and 149 TKG]

Suspension or Withdrawal of the Right to Perform Market Activities § 126(3) TKG

ARCEP (France)

3 per cent of annual turnover during preceding year pre-tax [Art L36–11(2)(b) Code PCE]

Art L36–11(2)(a)(i) Code PCE

OPTA (Netherlands)

€450,000 or 10 per cent of annual domestic turnover [Art 15.4 Tw] 10 per cent of relevant turnover for the relevant period [ss 96 and 97 CommA 2003]

Art 15.2a(2) Tw

Ofcom (United Kingdom)

s 100 CommA 2003

Additional Sanctions

+ Liability for damages vis-à-vis consumers and competitors [§ 44 TKG] + Criminal liability for invasion of privacy [§ 148 TKG] + Criminal liability [Arts L39 et seq Code PCE] + Confiscation of equipment and prohibition on performing activities in e-communications sector for a maximum of 3 years [Art L39–6 Code PCE]

+ Civil liability [s 104 CommA 2003] + Criminal liability [s 404 CommA 2003]

iv. Interim Conclusion It is evident that the NCAs and NRAs have been given a broad fiat by the European legislature. What is also clear is that they have been left with considerable discretion as to how to exercise this European mandate.126 The justification 126 Confirmed in Recital 36 Framework Directive. That the Commission is concerned to protect this discretion may be gathered from the infringement proceedings it has brought against a variety of Member States for disrespecting the powers NRAs have been granted under the Regulatory Framework. For a recent example, consider Case C-424/07 Commission v Federal Republic of Germany, concerning the amendment of the TKG as far as the regulation of ‘new markets’ is concerned (the so-called regulatory holidays amendment).

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Powers and Procedures for this regulatory design is to be found in the fast-changing environments within which these authorities operate and the complexity of the problems they encounter. That said, the discretion of the NCAs and NRAs is subject to certain constraints. We will see in chapter 5 that the European legislature has put in place a variety of mechanisms that aim to keep their discretion in check and safeguard consistency across Europe.

B. Procedures Applicable to NCAs and NRAs as a Matter of EC Law Devising the procedural framework for the enforcement of Community rules is usually considered to fall within the realm of the constituent Member States. This is primarily because the EC has limited competences to influence national administrative structures, and Member States have strong national traditions in this field.127 This division of competences between the EC (creator of rights and obligations) and the Member States (creators of procedures and remedies) is commonly captured in the principle of national procedural autonomy.128 The discretion of Member States is not unlimited, however. National procedural autonomy is subject to two conditions, found in the case law of the Community Courts.129 First, the principle of effectiveness requires that the exercise of Community rights is not made excessively difficult or impossible. Second, the principle of equivalence stipulates that procedures governing the exercise of Community rights must not be less favourable than those applicable to similar claims in national law. Moreover, the European Court of Justice has reasoned that the doctrine of national procedural autonomy holds only to the extent that Community law is silent on procedural matters. Over time, case law130 and secondary legislation131 have made ever more inroads into the applicability of the doctrine. 127 See J Schwarze, ‘The Europeanization of National Administrative Law’ in J Schwarze (ed), Administrative Law under European Influence: On the Convergence of the Administrative Laws of the EU Member States (Baden-Baden, Nomos, 1996) 800. 128 First propounded by the ECJ in Case 33/76 Rewe-Zentralfinanz eG and Rewe-Zentral AG v Landwirtschaftskammer für das Saarland [1976] ECR 1989. For an assessment, see J Schwarze, ‘Judicial Review in EC Law: Some Reflections on the Origin and the Actual Legal Situation’ [2002] International Comparative Law Quarterly 17. See also J Bridge, ‘Procedural Aspects of the Enforcement of EC Law through the Legal Systems of the Member States’ (1984) 9 European Law Review 28. 129 Rewe-Zentralfinanz (ibid); Case C-430–431/93 Van Schijndel & van Veen v Stichting Pensioenfonds voor Fysiotherapeuten [1995] ECR I-4705; Case C-326/96 Levez v Jennings Ltd [1998] ECR I-7835. 130 For state liability, see most notably: Cases C-6 & 9/90 Andrea Francovich and Danila Bonifaci and Others v Italian Republic [1991] ECR I-5357; Cases C-46/93 & C-48/93 Brasserie du Pêcheur SA v Bundesrepublik Deutschland and The Queen v Secretary of State for Transport, ex parte Factortame Ltd and Others [1996] ECR I-1029; and Case C-453/99 Courage Ltd v Crehan [2001] ECR I-6297. 131 Directive 2004/17 of the European Parliament and of the Council of 31 March 2004 coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors [2004] OJ L134/1; Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts,

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The Role of National Authorities in Network-Based Governance This subsection outlines EC-created procedural requirements contained in Regulation 1/2003 and the 2002 Electronic Communications Framework that govern the way in which national authorities must exercise their regulatory mandates.

i. Competition Law The procedural rules found in Regulation 1/2003 mainly concern the working relationships between NCAs. Their aim clearly is to enhance the effectiveness of enforcement. The rights and obligations applicable to NCA activities relate to: + Investigations and fact-finding missions.132 NCAs may ask each other for assistance in order to collect information on their behalf and for their account. Assistance comprises investigations or other fact-finding measures and must be necessary to establish whether there has been an infringement of the European competition rules. + The suspension or termination of proceedings.133 When an NCA is dealing with a case, this is sufficient ground for another authority to suspend proceedings or reject a complaint concerning the same matter. Similarly, an NCA may reject a complaint that has already been dealt with by one of its foreign counterparts.134 + The burden of proof.135 An NCA alleging a breach of the competition rules must adduce evidence to support this claim, and a defendant firm invoking the exemption of the cartel prohibition per Article 81(3) EC bears the burden of proving that they are entitled to this benefit. Community law does not address the required legal standard of proof. National rules on this issue must, however, be compatible with general principles of EC law, notably those of effectiveness and equivalence.

public supply contracts and public service contracts [2004] OJ L134/114; Council Directive 97/80/EC of 15 December 1997 on the burden of proof in cases of discrimination based on sex [1998] OJ L14/6; Council Resolution of 16 June 1994 on the development of administrative cooperation in the implementation and enforcement of Community legislation in the internal market [1994] OJ C179/1; Council Resolution of 29 June 1995 on the effective uniform application of Community law and on the penalties applicable for breaches of Community law in the internal market [1995] OJ C188/1; Council Resolution of 8 July 1996 on cooperation between the administrations for the enforcement of legislation on the internal market [1996] OJ C224/3. 132 Recital 28 and Art 22 Reg 1/2003; and Commission Notice on cooperation within the Network of Competition Authorities [2004] OJ C101/43 [29]–[39]. See further below ch 6, section II-A(ii). 133 Recital 18 and Art 13 Reg 1/2003; and Commission Notice on the network (ibid) [20]–[25]. See further below ch 6, section II-A(ii). 134 The Commission also enjoys these rights. Recital 18 moreover adds that the Commission may reject complaints due to lack of Community interest: Case T-24/90 Automec srl v Commission [1992] ECR II-2223, esp [77]. 135 Recital 5 and Art 2 Reg 1/2003.

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Powers and Procedures + The right to act as amicus curiae in national courts.136 NCAs have the right to present amicus curiae submissions to national courts. Written observations are always possible and, where permitted by the national court, an NCA may also deliver its submissions orally. To enable NCAs to make observations, they may request the relevant courts to provide them with documents necessary for the assessment of the case. National law must ensure that there are mechanisms in place that keep NCAs sufficiently well informed of ongoing proceedings before national courts to enable the meaningful exercise of their power to act as amicus curiae.137

ii. Communications Law The position under the 2002 Electronic Communications Framework is somewhat different than that under Regulation 1/2003. The procedural requirements are greater in number and even more detailed. There is furthermore a notable disparity between the two legal regimes in terms of the legal nature of procedural requirements. The great majority of requirements applicable to the NCAs are formulated as rights. Thus, although NCAs may suspend or terminate their proceedings because one of their peers is already seized of the matter, each authority ‘retains full discretion in deciding whether or not to investigate a case’.138 NCAs can ask another authority for assistance, but they need not do so. Equally, the requested NCA may decide to entertain the application but is under no obligation to do so. In contrast, the procedural requirements applicable to NRAs are mostly formulated as obligations. These include: + Consultation with market parties.139 Interested parties must be consulted whenever a measure with significant impact on the market is envisaged by an NRA.140 NRAs must publish their national consultation procedures, which should allow for a reasonable period of consultation.141 The scope of 136 Recital 21 and Art 15(3) Reg 1/2003. National law may confer wider powers to make observations on national competition authorities. For instance, in France the Conseil de la Concurrence can give expert testimony in civil proceedings: European Commission (EC), ‘Modernisation of the Rules Implementing Articles 85 and 86 of the EC Treaty’ (White Paper), 28 April 1999, 37. See further below ch 3, section III-B(ii). 137 In Germany, §§ 90 and 96 GWB require national courts to inform the Bundeskartellamt of all civil litigation brought under the GWB or the EC competition rules. For instance, it could be provided that the registry must inform the NCA of proceedings involving the European competition rules as soon as possible after it has been informed so itself. 138 Commission Notice on the network (above n 132) [5]. 139 Recital 15 and Art 6 Framework Directive and Commission Guidelines on market analysis and SMP assessment (above n 77) [144]–[145]. Specific consultation obligations can be found in Art 12(2) Framework Directive; Arts 5(2), 7(1)(b) and 14(2) Authorisation Directive (above n 59); and Art 16 Universal Service Directive (above n 29). 140 This includes draft decisions that have an effect on trade between Member States. Dispute settlement decisions and interim measures fall outside the scope of the consultation obligation. 141 The European Parliament initially lobbied for the establishment of a harmonised procedure to have NRAs establish standard consultation criteria: Report by the Committee on Industry, External

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The Role of National Authorities in Network-Based Governance the obligation to consult extends to the grounds and evidence supporting the envisaged measure. The results of the consultation must be made public, excluding confidential information.142 An NRA must ‘take account’ of any comments received before adopting a final decision. Member States are obliged to ensure the establishment of a single information point through which parties can assess all consultations in progress. This is typically a dedicated section of the NRA’s webpage. + Transparency in the exercise of activities.143 NRAs are subject to extensive duties to publish information, to ensure that market players and potential market entrants understand their rights and obligations and know where to find relevant information. These duties vary from the very general, for instance the publication of all information that can contribute to an open and competitive market,144 to the more specific, for instance making available statements concerning compliance by firms with mandated cost accounting systems. The scope of publication duties covers information on procedures and conditions that apply to parties wishing to exercise certain rights145 (which themselves must also be transparent, see below) and regulatory outcomes.146 + Objective, transparent, non-discriminatory and proportionate procedures, selection criteria and conditions in respect of the general authorisation and individual rights of use.147 Among these requirements, emphasis is placed on the proportionality principle. NRAs may not impose on firms formalities and/or conditions that are not necessary to ensure the attainment of legitimate objectives.148

Trade, Research and Energy on a proposal for a directive of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services (COM(2000) 393 – C5–0428/2000 – 2000/0184(COD)) A5–0053/2001 FINAL, 7 February 2001, amendment 33. The Commission considers that two months is a reasonable period for consultation, given that a longer period could hinder the development of the market, although it also recognises that different periods may at times be justified. When, however, the draft measure is proposed on the basis of the results of an earlier consultation, the length of consultation period may well be shorter than two months. 142 Commission Guidelines on market analysis and SMP assessment (above n 77) [148]. Whether information is confidential is determined by Community and national rules on business confidentiality. 143 Art 3(3) Framework Directive and Recital 34 Authorisation Directive (above n 59). 144 Recital 13 and Art 5(4) of the Framework Directive. 145 See Arts 5(5) and 9(4) Framework Directive. 146 Inter alia, dispute resolution decisions [Art 20 (4) Framework Directive], decisions on the allocation of rights of use [Art 5 Authorisation Directive]; the outcome of consultations with market parties and annual compliance statements in respect of cost accounting systems [Art 13 Access Directive (above n 39)]. 147 Arts 9–11 Framework Directive; Art 2(4) Commission Directive 2002/77/EC on competition in the markets for electronic communications networks and services (the Consolidated Services Directive) [2002] OJ L249/21; Arts 5(2), 6, 7(3), 13 and 14 Authorisation Directive (above n 59); and Art 5 Access Directive (above n 39). 148 Art 8(1) Framework Directive and Recital 15 Authorisation Directive.

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Powers and Procedures + Reasoned decisions.149 This obligation ‘seeks to give an opportunity to the parties defending their rights, to the court exercising its supervisory functions and to [all other interested parties] the circumstances in which the [NRA] has applied the [2002 Regulatory Framework]’.150 It is hence closely linked to the obligation on the part of NRAs to exercise their powers transparently and the availability of judicial review (see below). + Time-limits. An NRA must come to its decision within a reasonable time period, which is commonly denoted to mean the shortest possible timeframe. In three instances, EC communications law lays down strict deadlines, namely as regards the issuance of declarations to facilitate the exercise of rights conferred by the general authorisation (one week);151 decisions on rights of use (three weeks in the case of numbers and six weeks in the case of radio frequencies); and decisions settling disputes between market parties (four months).152 + Consultation and cooperation with NCAs and national consumer protection agencies on matters of common interest when appropriate.153 NRAs and NCAs must exchange information necessary or useful for the application of the EC communications rules.154 NCAs should therefore provide NRAs with all relevant data obtained using the former’s investigatory and enforcement powers, including for instance information on operators’ activities and their shareholdings. The receiving authority must guarantee the same level of confidentiality as the sending authority. NRAs are further required to associate NCAs with market analyses as appropriate when exercising their SMP regulatory competences.155 + Judicial review.156 The Framework Directive stipulates that firms and individuals should be able to seek redress from national courts against

149 Art 20(4) Framework Directive and Arts 7(1)(c) and 10(3) Authorisation Directive. For Community Institutions this duty is found in Art 253 EC. 150 Case 24/62 Germany v Commission [1963] ECR 63. 151 Art 9 Authorisation Directive (above n 59). 152 Art 20(4) Framework Directive. In exceptional circumstances, this period may be extended by another four weeks. 153 Art 3(4) Framework Directive. See further below ch 5, section I-A(iii). 154 Art 3(5) Framework Directive; Recital 13 Access Directive (above n 39); and Commission Guidelines on market analysis and SMP (above n 77) [136]–[137]. Note that even in the absence of specific provisions, the primacy of EC law and the obligation for NRAs not to contradict or undermine EC competition law would require Member States to organise collaboration between both sets of bodies: Case 13/77 SA GB-INNO-BM v Association des détaillants en tabac (ATAB) [1977] ECR 2115; Case 229/83 Association des Centres distributeurs Édouard Leclerc and Others v SARL ‘Au blé vert’ and Others [1985] ECR-1; Case 267/86 Pascal Van Eycke v ASPA NV [1988] ECR 4769; Case 66/86 Ahmed Saeed Flugreisen and Silver Line Reisebüro GmbH v Zentrale zur Bekämpfung unlauteren Wettbewerbs eV [1989] ECR 803. 155 Art 16(1) Framework Directive and Commission Guidelines on market analysis and SMP assessment [135]. 156 Recital 12 and Arts 4 and 11(3) Framework Directive; Art 2(5) Consolidated Services Directive (above n 147); Recital 26 and Art 10(7) Authorisation Directive (above n 59). See further below ch 3, sections II and III-A.

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The Role of National Authorities in Network-Based Governance decisions taken by NRAs in the fulfilment of their regulatory mandate or adopted in the course of a dispute resolution procedure.157 It is further provided that NRA decisions must in principle remain effective pending the outcome of the appeal. A final word of caution. The EC-created procedural requirements detract from the procedural autonomy of Member States but do not negate it. The effective application of and adherence to those requirements are not determined exclusively by Community law but continue to require national operationalisation.158 Two examples, one in the field of EC competition law and the other in the field of EC communications law, suffice to illustrate this point. EC law determines that NCAs can act as amicus curiae, but the framework for amicus curiae submissions and the protection of the rights of defence subsequent to such submissions is to be determined by national procedures and practices.159 Equally, while collaboration between NRAs and NCAs in the context of the SMP procedure is mandated by EC law, the specificities of such collaboration are left to national law to decide.160

IV. INSTITUTIONAL PRINCIPLES

The discussion in this chapter thus far has focused on the mandate and powers of the NCAs and NRAs and the procedures they must observe. The discussion is this section will consider the actors themselves in more detail. In particular, it looks at what European law has had to say in relation to their definition and designation, their regulatory capacity and the degree of independence they must possess from market parties and the state, notably the executive. The remarks offered at the beginning of the previous section apply with equal, if not more, force to institutional matters.161 Here as well, EC law is increasingly 157

Nihoul and Rodford (above n 102) 637. There has been a fair amount of criticism directed at, notably, Regulation 1/2003, for its failure (fully) to harmonise procedural rules across the European Union. It was feared that in the absence of common rules, the rights of defence of firms would be unacceptably compromised. However, as Paulis and De Smijter correctly point out, the divergence in procedures is mitigated by the fact that all Member States are bound by a common minimum standard of procedural rules, determined by the European Convention on Human Rights (Recital 37 Regulation 1/2003): E Paulis and E De Smijter ‘Enhanced Enforcement of the EC Competition Rules Since 1 May 2004 by the Commission and the NCAs: The Commission’s View’ in P Lowe and M Reynolds (eds), Antitrust Reform in Europe: A Year in Practice (London, International Bar Association, 2005). Secondly, there is a soft convergence of procedural rules across Member States towards the benchmark of Regulation 1/2003. For instance, most NCAs have now also been granted the competence to adopt commitment decisions or investigate non-business premises. 159 Recital 21 Reg 1/2003. 160 For an overview of the state of affairs in the four sample Member States, see below ch 5, section I-A(iii). 161 See Recital 11 Framework Directive, which recognises the ‘institutional autonomy’ of Member States; and see also the Treaty on European Union (Maastricht Treaty) Declaration (No 19) on the 158

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Institutional Principles encroaching upon the province of Member States. This occurs either explicitly, which we will see is the case for the 2002 Electronic Communications Framework, or more implicitly, through assumptions on the institutional endowments of national authorities, as has happened under Regulation 1/2003.

A. The Definition and Designation of NCAs and NRAs Regulation 1/2003 does not contain a definition of what qualifies as a ‘national competition authority’. With reference to Article 35 of the Regulation, however, it is possible to infer that an NCA is the body, or bodies, responsible for the effective application of the EC competition rules, regardless of their administrative or judicial character according to national law.162 Article 2(g) of the Framework Directive explains that a ‘national regulatory authority’ means the body or bodies charged by a Member State with any of the regulatory tasks assigned in this Directive and in the Specific Directives.163 David Stevens and Peggy Valcke correctly note that ‘[b]y consequence, every body or institution that performs a task which—according to the specific articles of the directives—should be assigned to a NRA, is considered to be a NRA and has to comply with all relevant institutional requirements’.164 Two observations follow from this brief survey. The first is that the terms ‘competition authority’ and ‘national regulatory authority’ are autonomous concepts of Community law. They apply uniformly in the whole of the Community, and their meaning can differ from the meaning conferred on the same words in national law. It ultimately falls to the ECJ to offer definitive guidance on the exact meaning of the concepts. The second is that EC law allows for the existence of multiple NCAs or NRAs per Member State.165 Public enforcement of EC competition law is ensured by three main types of bodies. The first type comprises integrated administrative bodies modelled on the Commission. They combine investigatory and decision-making powers. The German Bundeskartellamt, the British OFT and the Dutch NMa are examples of this type of authority. The second type of competition authority encompasses bifurcated administrative authorities: one body, commonly a Ministerial division, is responsible for enquiries, and a second body, often a quasi-judicial college, is in charge of decision-making. This structure prevails in France. The third, relatively uncommon type includes an administrative authority in charge of investigations implementation of Community law: ‘it must be for each Member State to determine how the provisions of Community law can best be enforced in the light of its own particular institutions, legal system and other circumstances’. 162 See also Recital 35 Reg 1/2003. 163 Art 2(g) Framework Directive. 164 Stevens and Valcke (n 29) 161. 165 Recital 35 Reg 1/2003 remarks that this is in recognition of the variations in the enforcement systems of Member States.

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The Role of National Authorities in Network-Based Governance and the adoption of positive decisions, and a court with exclusive jurisdiction to issue prohibition decisions and impose fines.166 When it comes to the application of the 2002 Regulatory Framework, Member States have typically put a single NRA in charge, the possibility of multiple NRAs notwithstanding.167 It is clear that each Member State determines which body should be an NCA or NRA and designates it accordingly.168 The corollary of this discretion is the obligation to notify the Commission of all authorities that are assigned tasks for the enforcement of EC competition and EC communications law, and their respective responsibilities.169 Transparency considerations dictate that the information must also be publicly available, because interested parties must be able ‘to determine from which entity they may expect action [and] against which entity an appeal, or a complaint, can be initiated’.170 Table 2.10 indicates which bodies are designated as NCAs and NRAs in the four sample Member States. For a discussion of the overall enforcement structure at national level and relationships between the various bodies, see above, section I.

B. Regulatory Capacity The principle of effectiveness,171 read together with the obligation of loyalty towards the Community found in Article 10 EC, arguably puts Member States under an obligation to provide sufficient resources to those parts of their administration that implement, apply and enforce European law.172 Article 35 of Regulation 1/2003 requires that the designation of NCAs is done ‘in such a way that the provisions of this regulation are effectively complied with’. Focusing on the word ‘effectively’, Wouter Wils has remarked: 166 The Swedish competition authority at times operates according to this structure. While the administrative authority can itself impose fines for infringements, it can also petition the Stockholm City Court to sanction infringements of the competition rules. 167 If a Member State has several NRAs, Art 3(4) Framework Directive imposes a duty to ensure proper consultation and cooperation between these bodies. Also, the tasks of each NRA should be published in an easily accessible form to enable firms and users to know who is exercising what jurisdiction. 168 Art 35(1) Reg 1/2003 and Recital 37 Framework Directive. Using the case law on the designation of operators of services of general economic interest under Art 86(2) EC by analogy, Member States must have taken some definite steps to assign responsibility for EC competition and EC communications law to the authority: Case 127/73 BRT v SABAM [1974] ECR 313 [20]; Case C-242/95 GT-Link A/S v De Danske Statsbaner (DSB) [1997] ECR I-4449 [49]; and Case C-280/00 Altmark Trans GmbH [2003] ECR I-7747 [89]. 169 Art 3(6) Framework Directive. This obligation is not explicated in Regulation 1/2003; however, as a matter of common courtesy, possibly in connection with Art 10 EC, notification nevertheless seems required. 170 Nihoul and Rodford (above n 102) 21. 171 The principle of equivalence seems less well suited for application in the area of institutional matters. 172 See J Temple Lang, ‘General Report: The Duties of Cooperation of National Authorities and Courts and the Community Institutions under Article 10 EC Treaty’, Report for the XIX FIDE Congress, Helsinki, 1–3 June 2000, vol I, 380.

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Institutional Principles Table 2.10 Designated NCAs and NRAs in Germany, France, the Netherlands and the United Kingdom Member State

Designated NCAs

Designated NRAs

Germany

+ Bundeskartellamt + Landeskartellbehörden

+ Bundesnetzagentur + Landesregulierungsbehörden

France

+ DGCCRF + Conseil de la Concurrence

+ ARCEP

Netherlands

+ NMa

+ OPTA

United Kingdom

+ + + + + + + +

+ Ofcom

OFT Ofcom Ofgem Ofwat Ofreg Ofreg NI ORR CAA

[I]t can be argued that Article 35(1) and [Article] 5 of the Regulation, read together, impose on Member States the obligation to ensure that their national competition authorities have not only the legal power to apply Articles 81 and 82 EC in individual cases, but also a minimum of resources to enable them to make effective use of these powers.173

In a similar vein, Imelda Maher has noted that ‘[l]imited budgets are not a bar to an agency developing its role and its effectiveness, but it can impede effective enforcement, in particular when there are insufficient resources to deal with the number of cases arising’.174 The Framework Directive calls on the Member States to ensure that the tasks assigned to the NRAs are entrusted to a competent authority.175 Recital 11 confirms that competence refers the ‘possession of all the necessary resources, in terms of staffing, expertise and financial means’.176 National authorities thus must have qualified personnel, meaning staff able to analyse markets and propose appropriate measures,177 and they must also have 173 W Wils, ‘European Competition Law and Policy: The Reform of Competition Law Enforcement—Will it Work?’ in D Cahill (ed), The Modernisation of EU Competition Law Enforcement in the European Union, FIDE 2004 (Cambridge, Cambridge University Press, 2006) 46. See also EC, ‘Modernisation of the Rules Implementing Articles 85 and 86 of the EC Treaty’ (White Paper), 28 April 1999 [46]. 174 I Maher, ‘Networking Competition Authorities in the European Union: Diversity and Change’ in CD Ehlermann and I Atanasiu (eds), Constructing the EU Network of Competition Authorities, European Competition Law Annual 2002 (Oxford, Hart Publishing, 2004) 223, 228. 175 Art 3(1) Framework Directive. 176 This requirement of sufficiency of resources was originally contained in the main text of the Framework Directive, stipulating that ‘[Member States] shall ensure that the authority has sufficient staff and financial resources to allow it to carry out effectively all functions assigned to it’, DG INFSO Working Document on the Framework Directive. 177 See Nihoul and Rodford (n 102) 22.

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The Role of National Authorities in Network-Based Governance sufficient financial resources to carry out the tasks conferred upon them. Table 2.11 compares the staff and budgets of NCAs and NRAs in the four sample Member States for 2007. Table 2.11 Staff and Budgets of NCAs and NRAs in Germany, France, the Netherlands and the United Kingdom National Competition Authorities (NCAs)

Number Budget of (€ Staff million)

National Regulatory Authorities (NRAs)

Number Budget of (€ Staff million)

Germany

BKartA

283

17

BNetzA

2,358

74,5

France

DGCCRF

211

9

ARCEP

165

44,7

Conseil de la Concurrence

130

12,3

Netherlands NMa

392

45,7

OPTA

134

17,2

United Kingdom

587

89,9

Ofcom

812

155,2

OFT

There are some key differences between the levels of resources placed at the disposal of national authorities in the legal systems under study. First, the German and French competition authorities have fewer staff and smaller budgets than do the Dutch and British NCAs. Second, the conditions under which the NRAs operate in Germany and the UK are broadly similar, and the Bundesnetzagentur and Ofcom have substantially more to spend on their regulatory tasks and have more personnel available than their French and Dutch counterparts. What could be a conceivable explanation for this state of affairs? We may discount the geographic size of the territory under an authority’s responsibility, since the Dutch NCA, working in a medium-sized Member State, has a budget more than twice the size of that of the German NCA, while covering a geographic jurisdiction less than half the size of its German counterpart. It has been suggested that the commitment of a State to competition policy or regulation could be a relevant factor. Speaking about the situation in France, Laurence Idot has said that ‘[l]a «culture de concurrence» n’est pas aussi implantée qu’on pourrait le penser dans un Etat fortement marqué par des traditions colbertistes et d’interventionnisme étatique. L’on se bornera à relever la faiblesse des moyens attribués à l’autorité de concurrence’.178 While this might very well hold true for France, it certainly does not explain the position of the Bundeskartellamt, especially since Germany regards competition policy as part of the country’s economic constitution. 178 L Idot, ‘French Report’ in Cahill (ed) (above n 173) 151. See also OECD, ‘France: The Role of Competition Policy in Regulatory Reform’ [2003] 2. The OECD Report notes that improvements are made being in this respect though.

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Institutional Principles The key explanation relates to the scope of duties imposed on the national authorities. The NMa’s jurisdiction extends beyond the competition rules to energy and transport regulation, and the OFT also administers consumer protection legislation. Similarly, the Bundesnetzagentur and Ofcom are established as integrated authorities, with the first body regulating the energy, postal and transport sectors besides the field of electronic communications, and the latter body responsible for all aspects pertaining to communications and broadcasting. To be sure, this makes it difficult to compare in absolute terms the means available to NCAs and NRAs in the four legal systems. Table 2.11 is nevertheless helpful as an instructive guide on regulatory capacity across Europe, as the figures can function as benchmarks or comparators to assess the position in which authorities in Member States other than the four under consideration here find themselves.

C. Independence i. Some Thoughts on Independence Importantly, we must also deal with the degree of independence that NCAs and NRAs have from their political masters, as well as from market actors. There are good reasons to insist on this institutional characteristic. It allows the authorities to act without reference to volatile interests. This should make their decisions consistent and fair over time.179 Independent action should be reassuring to stakeholders and increase the acceptability of an authority’s existence and its rules.180 In consequence, the authority will be better equipped to deliver its mandated objectives. This book takes a contextual approach to the independence of NCAs and NRAs. The following indicators are used:181 + + + +

Independence from market actors; Institutional independence; Personal independence; and Financial independence.

179 See G Majone, ‘From the Positive to the Regulatory State: Cause and Consequences of Changes in the Mode of Governance’ (1997) 17 Journal of Public Policy 139, 153; and Maher (above n 174) 225. 180 See J Temple Lang, ‘Decentralised Application of Community Competition Law’ (1999) 22 World Competition 3, 5. In the context of telecommunications, the principle has received international recognition through its inclusion in the WTO Regulatory Reference Paper (Telecommunications Services). 181 These are drawn from a variety of sources, including: OECD, ‘Telecommunications Regulations: Institutional Structures and Responsibilities’ DSTI/ICCP/TISP (2005) 6 FINAL; and the Ecta/JonesDay Regulatory Scorecard: Report on the Relative Effectiveness of the Regulatory Framework for Electronic Communications [2004], available at http://ww.spcnetwork.co.uk/uploads/ Scorecard.pdf.

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The Role of National Authorities in Network-Based Governance The 2002 Electronic Communications Framework contains a few provisions that touch upon the independence of NRAs. That said, these do not address this issue exhaustively. Regulation 1/2003 does not include any explicit requirements regarding the independence of NCAs but simply assumes this to be in place. The analysis in the following sections accordingly relies heavily on an analysis of national legislation.

ii. Independence from Market Actors In its dealing with market actors, national authorities ought to behave independently. Regulatory capture must be avoided and so too partiality in the decisionmaking process. We will measure the independence of national authorities against the following two standards. The first is the required level of separation between a national authority and affected market interests. Here we look at the existence and actual content of conflict–of-interest rules. Secondly, we consider the structure of the decision-making body. It has been argued that collegiate structures are to be preferred because they will ‘reduce the danger that regulators will feel vulnerable and behave defensively; create a sense that decisions follow internal debate; reduce unpredictable behaviour; and avoid the impression that individual whims have a place in regulation’.182 Thus, in the United Kingdom the entry into force of the Enterprise Act 2002 saw the replacement of the Office of Director-General of Fair Trading by a five-member OFT Board.183 Similarly, in the Netherlands, the enhanced status of the NMa led to the transfer of decisionmaking competences from the Director-General to a three-member ‘College’. However, care must be taken to ensure that the clarity and consistency of decisional output do not suffer. Multiple members mean multiple opinions, which all have to find expression in a single text, in the worst scenario leading to scanty reasoning or decisions that are ambiguous on matters of importance.184

182 R Baldwin and M Cave, Understanding Regulation: Theory, Strategy and Practice (Oxford, Oxford University Press, 1999) 324. 183 See R Whish, Competition Law, 5th edn (London, LexisNexis, 2003) 65. 184 A nice illustration is offered by a comparison of judgments delivered by the Community courts and AG Opinions. The latter tend to be exhaustive and thoroughly reasoned accounts of the law governing all aspects of the case and addressing all legal arguments made on behalf of the parties. The former, by contrast, do not always address all matters raised (the first preliminary references on the meaning of EU citizenship being a case in point) or seem to arrive at a certain outcome without clear reasoning to that support that outcome, indicating that agreement could only be reached on the final decision but not on the reasoning supporting it.

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Institutional Principles a. Separation between Authorities and Market Parties In Régie des télégraphes et des téléphones v GB-Inno-BM, the European Court of Justice ruled on the requisite degree of separation between competition authorities and market actors.185 The case concerned two firms that were in the business of selling telephone equipment. The applicant also operated the public telephone network and had the power under Belgian law to approve the connection of telephones that it did not sell itself to that network. It sought a court order requiring that the defendant cease selling telephones without informing purchasers that the products were not approved. The defendant counterclaimed that the Belgian law infringed the European competition rules, in particular Article 82 read together with Article 86. The Court agreed: [T]he maintenance of effective competition and the guaranteeing of transparency require that the drawing up of technical specifications, the monitoring of their application, and the granting of type-approval must be carried out by a body which is independent of the public or private undertakings offering competing goods or services in the telecommunications sector (emphasis added).186

Transposed to the current context, it is reasonable to infer that NCAs must be absolutely independent from commercial actors. Turning to EC communications law, Article 3(2) of the Framework Directive stipulates that NRAs must be legally and functionally independent from participants in the electronic communications industry. Legal independence means that Member States cannot designate firms as NRAs and hence impose a duty on them to ensure the application of the 2002 Regulatory Framework. Member States have typically separated the conduct of economic activities and the exercise of regulatory responsibilities through the creation of independent administrative authorities. Functional independence requires that there is no possibility whatsoever for market actors to influence unduly the work of NRAs.187 When a Member State still owns firms in the industry, the Framework Directive even demands structural separation between the NRA and market participants.188 In such a

185 Case 18/88 Régie des télégraphes et des téléphones v GB-Inno-BM [1991] ECR I-5941. Although the ruling dealt with a situation pertaining to the telecommunications market, it is of relevance for competition law generally since it stipulates the implications of Arts 82 and 86 EC. 186 Régie des télégraphes et des téléphones v GB-Inno-BM (ibid) [26], referring also to Case C-202/88 France v Commission (Terminal Equipment) [1991] ECR I-1223 [52]. 187 See also Case C-91/94 Criminal Proceedings against Thierry Tranchant and Téléphone Store SARL[1995] ECR I-3911, in which the ECJ held, ‘The requirement of independence seeks to eliminate any risk of a conflict of interests’ [19]. See also: Joined Cases C-46/90 and C-93/91 Procureur du Roi v Jean-Marie Lagauche and others [1993] ECR I-5267; Case C-69/91 Criminal Proceedings against Francine Gillon, née Decoster [1993] ECR I-5335; and Case C-92/91 Criminal Proceedings against Annick Neny, née Taillandier [1993] ECR I-5383. 188 Arts 3(2) second sentence and 11(2) Framework Directive. Stevens and Valcke (n 29) 169 submit that the trigger should be interpreted broadly. Thus, a Member State will be called upon to ensure structural separation not only when it controls a majority share in the firm, but also when it has a minority interest in or control over a firm active in the electronic communications market.

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The Role of National Authorities in Network-Based Governance scenario, the State must ensure that its commercial stakes do not affect the exercise of regulatory responsibilities. Although legislation does not provide any indication of what is meant by ‘effective structural separation’, following a number of infringement proceedings, it is now clear that placing both functions in the hands of the same Ministry is not satisfactory from the perspective of Community law.189 As hinted at in the introduction to this section, assessing whether there exist any links between national authorities and firms will be done by analysing national rules on conflicts of interest, which are shown in Tables 2.12 and 2.13. The legal systems under study all have fairly well-developed conflict-of-interest regimes, which share much in common but also differ on certain aspects. Four such aspects will be highlighted here. First, UK law proceeds differently from the other legal systems regarding the source of rules of conflict. French, German and Dutch law all include these in the national competition or communications legislation. In contrast, the OFT and Ofcom are themselves entrusted with drawing up rules of conflict.190 One might prefer the legislative approach, because it gives more clout to the status of these rules. Given the cumbersome process of amendment, enshrining the rules in legislation also creates certainty and predictability for stakeholders. Conversely, the UK approach is flexible and responsive to change. The OFT and Ofcom inevitably possess a higher degree of knowledge regarding the functioning of the market and potential conflicts than do members of Parliament. It might thus be logical to grant to them the function of determining the relevant rules, as the detail and precision thereof may be expected to increase accordingly. The above leads us to consider a further question: to what extent can independence be imposed by the State? To be sure, legislative attention to this matter signals that the State takes independence seriously. To be sure also, the law itself may be a poor proxy for independence.191 Much also depends on the internal culture of the authority and its commitment to observe this notion in its daily activities. While the law can cultivate such a culture, it cannot replace it. It is pertinent to bear these observations in mind when reading the remainder of this section, as a number of differences between the four sample legal regimes are culture-related.

189 IP/05/875; MEMO/05/242; IP/05/1269; MEMO/05/372; IP/06/464; MEMO/06/158; IP/06/948; MEMO/06/271. In EC, ‘The Status and Implementation of Directive 90/388/EEC on competition in the markets for telecommunications services’ (Communication) [1995] OJ C275/2 the Commission had initially indicated that both functions could be concentrated in the hands of the same Ministry, albeit in different services, if there was ‘real’ separation; financial independence of one from the other and if personnel movements were subject to special supervision. It is clear that the Commission’s current interpretation of independence is preferable. 190 But note that the OFT’s Rules of Procedure are based on para 8(2) of Schedule 1 of the Enterprise Act 2002. The OFT is under a duty to consult with the Secretary of State before drawing up or revising its rules on conflicts of interest. The Rules can be found at the OFT’s website. 191 C Gauer, ‘Does the Effectiveness of the EU Network of Competition Authorities Require a Certain Degree of Harmonisation of National Procedures and Sanctions?’ in Ehlermann and Atanasiu (eds) (above n 174) 192.

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United Kingdom

Netherlands

France

Germany

OFT Rules of Procedure Annex C Members’ Code of Conduct

OFT (NCA) Ofcom (NRA)

Art 4(1)(c) Wet OPTA

Art 4(4) Mw

NMa (NCA)

OPTA (NRA)

Art L.131 Code PCE and ARCEP Decision nº 07–0461 of 7 juin 2007

Art 25 of the Loi du 13 juillet 1983; Art L.461–2 CdC;Décret of 29 octobre 1936

Conseil de la Concurrence (NCA) ARCEP (NRA)

§ 4 Gesetz über die BNetzA

Statutory Source of Conflict-of-Interest Rules § 51(5) GWB

BNetzA (NRA)

National Authority BKartA (NCA)

+ No management or ownership of firms, cartels, trade/industry/professional organisation + No remunerated activities, business activities or other profession + No political activities + No interest in firms [but see below Table 2.13] + No participation in cases in which there is a relevant interest + No interest in firms in telecom, postal, audiovisual or information sectors + No other professional or political activities + No participation in cases in which there is a relevant interest + No interest in firms [but see below Table 2.13] + No additional positions/activities + No interest in institutions or firms + No employment at a Ministry + No political activities + No participation in cases in which there is a relevant interest + No links of any nature with firms within Ofcom’s remit of responsibilities

All staff

Ofcom Board Members and families

OFT Board Members

Members of the College

Members of the Raad van Bestuur

All staff

All staff

President and Vice-presidents

Scope ratione materiae

Scope ratione personae

Table 2.12 Conflict of Interest Rules in Germany, France, the Netherlands and the United Kingdom

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Netherlands

France

Germany

It is possible to hold interest, subject to disclosure to the Board Secretary Certain remunerated activities are permitted, subject to disclosure duties

OFT (NCA)

Ofcom (NRA)

OPTA (NRA)

ARCEP (NRA) NMa (NCA)

Conseil de la Concurrence (NCA)

Extent of Conflict-of-Interest Rules Absolute It is possible to hold a position on a company organ/board, subject to Ministerial permission It is possible to hold business interests or exercise business activities, unless independence is compromised Absolute It is possible to hold interest, unless impartiality is jeopardised; additional positions or activities are required to be reported to the Minister It is possible to hold interest, unless impartiality is jeopardised

National Authority BKartA (NCA) BNetzA (NRA)

Automatic dismissal

Sanctions for Infringement

College members must submit a declaration to the Minister stating compliance with the prohibition rules Interests that could potentially cause conflicts of interest are entered into a public register There is a requirement to inform the Board Secretary of any gifts or hospitability received

Acceptance of additional position/activities must be made public

The President and Vice-Presidents are permitted to publish only scientific, literary or artistic works

Staff must inform the Minister of any gifts or advantages received

Notes

Table 2.13 Conflict of Interest Rules in Germany, France, the Netherlands and the United Kingdom (Continued)

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Institutional Principles A second aspect for consideration is the scope ratione personae of the conflict rules, which is shown in Table 2.12. Only in relation to three authorities (the Bundeskartellamt, the Conseil de la Concurrence and ARCEP) are the conflict of interest rules applicable to all staff employed. The reason why these rules cover all staff in the Bundeskartellamt rather than only board members is because, in contrast with the other authorities, decisions are not taken by the President or the board but by special Beschlussabteilungen (decision divisions).192 The French approach may be explained with reference to a strict observance of the case law of the European Court of Human Rights in relation to Article 6 of the European Convention on Human Rights and in particular the need for impartiality in decision-making. National case law has qualified independent administrative authorities such as the Conseil de la Concurrence and ARCEP as courts within the meaning of that provision and in consequence requires that they respect fully the principles governing the right to a fair trial, including impartiality.193 Thus far, the diversities uncovered have been explained by differences in attitude in the legal systems under examination. Turning to the scope ratione materiae of the conflict rules, also shown in Table 2.12, we observe that the dividing line is not qua legal system, but qua type of authority. The rules applicable to NRAs are without exception more prohibitive than those governing NCAs.194 For instance, for three of the four NRAs, political involvement is precluded,195 and two of them have been subjected to stringent rules concerning the receipt of gifts or hospitality.196 It is likely that the key reason for this restrictive approach stems from the historic preoccupation with the need for

192 This might at first sight not explain the apparent divergence in approach between the Bundeskartellamt and the Bundesnetzagentur. In the latter, authority decisions are also not taken by the Board but by Beschlusskammern (decision chambers). Why, then, is no extension in scope ratione personae of the conflict-of-interest rules provided for? The answer can arguably be found in the TKG. According to §132(3) and (4) TKG, in a number of instances the Beschlusskammer is composed of the President and the two Vice-Presidents. These cases concern the most important, and arguably controversial, regulatory competences of the BNetzA: award proceedings for frequencies; spectrum trading; the imposition of universal service obligations; market definitions and market analyses. 193 See J Bougrab, ‘Independent Administrative Authorities in France’ in R Caranta, M Andenas and D Fairgrieve (eds), Independent Administrative Authorities (London, British Institute of International and Comparative Law, 2004) 47, 56. Indeed, a number of decisions by the Conseil de la Concurrence have been annulled by the courts for non-compliance with this provision: Conseil de la Concurrence, ‘2000 Activity Report’, 7–8. Impartiality and independence concerns also influenced the drafting of the 2001 Loi sur les nouvelles régulations économiques (Loi NRE), which ensures stricter internal separation between the various phases of enforcement and the persons responsible, in an effort to ensure more respect for the right to a fair trial. 194 NCAs are typically subject to ‘mere’ observance of the natural justice adage nemo iudex in causa sua. 195 The Bundesnetzagentur, ARCEP and OPTA. 196 The Bundesnetzagentur and Ofcom. It is also worth noting that according to the ARCEP Professional Code of Ethics (Decision nº 2007–0461 du 7 juin 2007 adoptant la charte déontologie des membres de l’Autorité de régulation des communications électroniques et des postes) persons that have been employed by ARCEP are under an obligation to seek the opinion of a special ethics board before accepting a position in the private sector for the first five years after leaving the authority.

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The Role of National Authorities in Network-Based Governance independent regulators, evidenced by the attention it has received from the European legislature in the various directives from the liberalisation of the sector to the present day.197 A final aspect worthy of comment is that of sanctions, which are shown for our four sample states in Table 2.13. French competition legislation is alone in explicitly prescribing the sanction that must follow when one of the Conseil de la Concurrence’s members breaches the rules on conflict of interest. None of the other regimes under study include comparable provisions. The reasons for this difference are unclear. There is no evidence that the French provision has ever been used or that it was introduced in response to an incident for which sanctions would have been appropriate but were legally unavailable. It further does not appear that a need for sanctions has ever been felt in the other legal regimes.

b. The Structure of the Decision-Making Unit There is no EC law on the ‘appropriate structure’ of the decision-making unit within NCAs or NRAs. The approaches adopted at national level are still virtually identical, however. Each of the sample legal systems now provide for collegiatetype structures, as can be seen by Table 2.14.198 Under French, Dutch and UK law, decisions are taken by the board of the national authority. In Germany however, Beschlussabteilungen (in the case of the Bundeskartellamt) and Beschlusskammern (in the case of the Bundesnetzagentur) adopt decisions. These are organised and function ‘somewhat like a court of law’.199 It is believed that this quasi-judicial structure exemplifies most clearly the independence of the German NCA and NRA.200 197 Commission Directive 88/301/EEC of 16 May 1988 on competition in the markets in telecommunications terminal equipment [1988] OJ L131/73 Art 6; Commission Directive 90/388/ EEC of 28 June 1990 on competition in the markets for telecommunications services [1990] OJ L192/10 Art 7; Council Directive 92/44/EEC of 5 June 1992 on the application of open network provision to leased lines [1992] OJ L165/27 Art 2 fourth indent; Directive 95/62 of the European Parliament and of the Council of 13 December 1995 on the application of open network provision (ONP) to voice telephony [1995] OJ L108/62 Art 2(2) fourth indent; Directive 97/51/EC of the European Parliament and of the Council of 6 October 1997 amending Council Directives 90/387/EEC and 92/44/EEC for the purpose of adaptation to a competitive environment in telecommunications [1997] OJ L295/23 Art 5a(2); and now Framework Directive Art 3. 198 The Dutch and British NCAs used to have a single person in charge of decision-making. See the introduction to this section. 199 OECD, ‘Germany’ (above n 6) 22. All members of the Beschlussabteilungen and Beschlusskammern are career civil servants with lifelong tenure; at least one of the members must be qualified to act as a judge: §§ 51(4) and 105(2) GWB; and § 132(2) TKG. It should be noted that even the President of the Bundeskartellamt cannot influence the decisions taken by the Beschlussabteilungen: § 105(1) GWB. In the Netherlands, the former Art 3(2) Mw stipulated that the persons involved in the decision-making procedure should not be involved in the preparation of reports and in the preceding investigation. The current provisions instead emphasise the organisational unity of the NMa, whereby the Board can give instructions both to the competition department, which is responsible for investigation, and to the legal department, which is responsible for, inter alia, imposing sanctions. 200 OECD, ‘Germany’ (above n 6).

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Institutional Principles Table 2.14 NCA and NRA Decision-Making Units in Germany, France, the Netherlands and the United Kingdom National Authority

Bundeskartellamt (NCA) Germany Bundesnetzagentur (NRA) Conseil de la Concurrence (NCA) France ARCEP (NRA) NMa (NCA) Netherlands OPTA (NRA) OFT (NCA) United Kingdom Ofcom (NRA)

Decision-Making Unit

Structure of Unit

Beschlussabteilungen Collegiate

Number of DecisionMaking Members 3

Beschlusskammern

Collegiate

3

Section of the Board Board Board Board Board Board

Collegiate

8

Collegiate Collegiate Collegiate Collegiate Collegiate

7 3 3 8 9

iii. Institutional Independence We have thus far dealt with the independence of national authorities from market actors. We will now turn to the subject of their independence from the state. It is fitting to mention here that independence in this context typically means that an authority is able to conduct its affairs without intrusion from its political masters, while it must still heed general government policy.201 For our specific purposes, we have chosen two criteria—their status in the national administrations and the possibility of their decisions being overturned by the Ministries—as the criteria to examine the degree of institutional independence that national authorities possess. a. Independence towards the Executive and Status of NCAs and NRAs We have seen that the 2002 Electronic Communications Framework insists on structural separation only between economic activities and regulatory responsibilities, insofar as the Member State retains public ownership of or control over participants in the industry. Neither this legislation nor Regulation 1/2003 demands that national authorities must enjoy a special status in the overall state 201 OECD, ‘Telecommunications Regulations’ (above n 181) 14; L Hancher, P Larouche and S Lavrijssen, ‘Principles of Good Market Governance’ (2004) 49 Tijdschrift voor economie en management 339, 359; A Heringa and L Verhey, ‘Independent Agencies and Political Control’ in L Verhey and T Zwart (eds), Agencies in European and Comparative Perspective (Antwerp, Intersentia, 2003) 156, 157; and W Melody, ‘On the Meaning and Importance of “Independence” in Telecom Reform’ (1997) 21 Telecommunications Policy 195, 197.

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The Role of National Authorities in Network-Based Governance administrative apparatus. As may be gathered from Table 2.15, NCAs and NRAs in the four sample legal systems have been established as independent administrative authorities and hence organically separate from the relevant Ministries.202 That said, most of them are located in the same cities as the Ministries. This could allow for informal political influence on their work, for instance as a result of common lunches. The approach taken in Germany concerning the location of the Bundeskartellamt appears to avert this threat. A conscious effort was made there to ensure physical separation: initially, the Bundeskartellamt was located in Berlin, but when the Government itself decided to move to Berlin, the seat of the Bundeskartellamt was moved to Bonn.203 Geographic separation can reinforce the image of independence.204 b. Options for Political Intervention An authority’s independence is in jeopardy if its decisions can be overturned by a Minister (or another state organ) or if a Minister may give specific administrative instructions guiding the authority’s conduct. Mark Thatcher and Alec Stone Sweet have cautioned, ‘The smaller the zone of discretion, the greater the agent’s interest will be in monitoring and anticipating the principal’s reactions to activities, to the extent of the fear, or wish to avoid, having decisions overturned’.205 law does not rule out that political considerations may influence the behaviour of national authorities. Member State discretion in this respect is, however, constrained by Article 10 EC in that they cannot issue directions that would lead an authority to adopt decisions that challenge the objectives pursued by the European legislation.206

202 Two exceptions must be noted, however. In France, the second NCA, DGCCRF, is a government Ministry. Note though that this situation will change as a result of the Loi nº 2008–776 du 4 août 2008 de modernisation de l’économie, NOR: ECEX0808477L, JORF nº 0181 du 5 août page 12471, which foresees the replacement of the Conseil de la Concurrence with the Autorité de la concurrence, a single independent competition authority that combines investigative and decisionmaking powers (albeit separated through a ‘Chinese-wall’ construction). In Germany, the Landeskartellbehörden are not independent organs but bodies of the Länder. The Wirtschaftminister und -Senatoren operate as Landeskartellbehörden. 203 The approach had a downside as well, however. A number of Bundeskartellamt staff switched to the Ministry and vice versa, so that they did not have to move. 204 OECD, ‘Germany’ (above n 6) 22. 205 M Thatcher and A Stone Sweet, ‘Theory and Practice of Delegation to Non-majoritarian Institutions’ (2002) 25 West European Politics 1, 6. 206 Note that in the run-up to the adoption of the Framework Directive, the European Parliament sought to include a prohibition on political intervention, to no avail. In its First Reading, Parliament proposed the ‘political and economic independence’ of NRAs, arguing that complete operational and political autonomy of NRAs was essential for a consistent quality of NRAs in Europe and hence the full application of the 2003 Directives (above n 20), amendment 22. In its Second Reading, it had slightly altered the proposal to require the ‘political and financial independence’ of NRAs, justified by the statement that ‘political independence is as important as independence from market parties’: Recommendation for Second Reading on the Council Common Position for adopting a Directive of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, A5–0435/2001 final, 4 December 2001, amendment 10. The Commission, however, did not take on the proposed amendments.

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United Kingdom

Netherlands

France

Germany

Ofcom (NRA)

OFT (NCA)

OPTA (NRA)

NMa (NCA)

Bundeskartellamt (NCA) Bundesnetzagentur (NRA) Conseil de la Concurrence (NCA) ARCEP (NRA)

National Authority

Autorité administrative indépendante Zelfstandig bestuursorgaan Zelfstandig bestuursorgaan Non-ministerial Government Department Independent Statutory Corporation

Status vis-à-vis Government Selbstandige Bundesoberbehorde Selbstandige Bundesoberbehorde Autorité indépendante

s 1(9) Office of Communications Act 2002

§ 1 Gesetz uber die Bundes-netzagentur

§ 51(1) GWB

Legal Basis for Status

London

London

The Hague

The Hague

London

London

The Hague

The Hague

Paris, including the DGCCRF (NCA) Paris

Paris Paris

Bonn

Berlin

Location of Ministry

Bonn

Location of Authority Bonn

Table 2.15 The Status and Location of NCAs and NRAs in Germany, France, the Netherlands and the United Kingdom

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The Role of National Authorities in Network-Based Governance Table 2.16 illustrates the prevailing state of affairs regarding governmental intervention at the national level. We see that the French authorities—and to a lesser extent, those in the UK—operate with complete independence of their political masters. In fact, in none of the Member States are government ministers able to overrule decisions by the national authorities.207 And although the UK Secretary of State may give Ofcom detailed directions, the Communications Act also stipulates formal and procedural limitations of his discretion as regards the use of this power.208 The possibilities for intervention through general instructions as they exist under Dutch and German law can be similarly evaluated. Used

207 Under the old German law, Ministerial interventions were permitted ‘for prevailing reasons concerning the economy as a whole and the public interest’: § 8 GWB. See A van Aaken, ‘Independent Administrative Authorities in Germany’ in Caranta, Andenas and Fairgrieve (eds) (above n 193) 80, who claims that ministerial authorisations were also allowed ‘where the restraint on competition is compensated by the overall economic advantages’. Ministerial exemptions from the cartel prohibition were, however, a rare occurrence, due to an established policy of non-intervention, which was the achievement of the first Minister of Economics, Ludwig Erhard. The Siebtes Gesetz zur Ändering des GWB, Article 1 Bundesgesetzblatt Jahrgang 2005 Teil 1 Nr 42, 12.Juli 2005, p 1954 has removed § 8 GWB. In some Member States, Ministerial intervention is, however, still possible in relation to mergers and acquisitions, eg § 42 GWB. Since mergers do not fall within the scope ratione materiae of Reg 1/2003, interventions here will not be used in the assessment of the degree of institutional independence of NCAs. It is interesting to note, however, that the possibility under German law for the Minister to overrule a prohibition decision by the Bundeskartellamt for public interest reasons is perceived to limit rather than enhance the political influence. Since there is a place for the political institutions to exercise their influence, it is possible to keep it out of the ordinary proceedings: see J Bornkamm, in Panel Discussions in B Hawk (ed), International Antitrust Law and Policy: Fordham Corporate Law 2003 (New York, Juris Publishing, 2004) 423. 208 In the Netherlands, old Art 4(4) Mw also allowed for instructions in individual cases. These had to be in written format and had to be appended to the case file, in order to maintain a sufficient degree of distance of politics. Art 4(4) has never been invoked by the Minister. The amendments made to the Mw on the occasion of the operationalisation of Reg 1/2003 have removed this competence: Wet van 30 juni 2004 tot wijziging van de Mededingingswet en van enige andere wetten in verband met de implementatie van EG-verordeningen 1/2003 en 139/2004 (Wet modernisering EG-mededingingsrecht) Staatsblad 2004, 345. In Germany, some authors have argued that individual instructions are also possible, eg R Bechtold, GWB.Kartellgesetz (München, Beck, 2002) 500. However, given the quasi-judicial nature of the Beschlussabteilungen, it is submitted that the better view is that such a possibility does not exist. Before the reform brought about by the Enterprise Act 2002, the political influence of the Secretary of State in the United Kingdom had led commentators to argue that the competition authorities in the UK were less independent than in other countries. The Secretary of State had broad powers to exclude certain agreements and conduct from the prohibitions of the Competition Act. After the 2002 reform, the powers of the Secretary of State have decreased substantially, and at the same time, the competences of the OFT have been strengthened. Paragraph 6 of Schedule 3 gives the Secretary of State the power to exclude the application of the cartel prohibition in order to avoid conflict with international obligations. He has similar powers when there are ‘exceptional and compelling reasons of public policy’. In the operation of the Competition Act 1998 since its entry into force, the Secretary of State has never used his power to intervene in an individual case; he has only used this power to adopt general rules, eg Competition Act 1998 (Public Transport Ticketing Schemes Block Exemption) Order 2001 SI 201 no 319.

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United Kingdom

Netherlands

France

Germany

None None None

OFT (NCA Ofcom (NRA)

None

OPTA (NRA)

NMa (NCA)

None

None

Conseil de la Concurrence (NCA) ARCEP (NRA)

None

None

Bundeskartellamt (NCA) Bundesnetzagentur (NRA)

Legal Basis for Government Ministers to overrule NCA/NRA Decisions

National Authority

ss 5, 9, 23 and 156 CommA 2003

None

None

None

None

None

None

None

Legal Basis for Government Ministers to Issue Specific Instructions

ss 5, 9, 23 and 156 CommA 2003

None

Art 19 Wet OPTA

Art 5b and d(1) Mw

None

None

§ 117 TKG

§ 52 GWB

Legal Basis for Government Ministers to Issue General Instructions

Instructions must relate to national security, foreign relations, international obligations, public security and health, promptness standards, broadcasting standards, and the management of the radio spectrum

General instructions by government ministers must be published in the National Gazette before taking effect

General instructions by government ministers must be published in the National Gazette before taking effect

General instructions by government ministers must be published in the Federal Gazette before taking effect

Additional Limitations on Government Intervention

Table 2.16 Governmental Intervention in NCA and NRA Affairs in Germany, France, the Netherlands and the United Kingdom

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The Role of National Authorities in Network-Based Governance sporadically—if at all—instructions must be published, thereby creating accountability.209 A last comment concerns the French Conseil de la Concurrence. We saw that this body shares responsibility for competition matters with a Ministerial department, the DGCCRF. One might thus fear that this department will seek to subvert the law’s prohibition on directions or other forms of political influence. The Cour de Cassation has, however, ruled that Article 6 of the European Convention on Human Rights requires a strict separation between investigative functions and decision-making responsibilities,210 and this case law is now codified in the 2001 Loi des Nouvelles Régulations Economiques.211 iv. Individual Independence This subsection examines the independence of the permanent staff of NCAs and NRAs, typically their boards. We shall discuss: the appointment of the heads of the authorities; eligibility criteria for the posts (if any); terms of office; and the grounds for removal (if any). Again, there are no requirements in the European legislation under scrutiny on these issues—everything is left to the discretion of the Member States. That said, Table 2.17 reveals that the four sample systems have much in common in the approach adopted. Appointments of key members of staff are typically made by the responsible Minister. The French Code PCE also foresees a role for Parliament in appointing the ARCEP board.212 This should benefit the authority’s legitimacy and raise awareness of its broader responsibilities to the overall constituency.213 Most legal 209 Annual Report Bundeskartellamt 2002. See also G Majone, ‘Independent Agencies and the Delegation Problem: Theoretical and Normative Dimensions’ in B Steuenberg and F Van Vught (eds), Political Institutions and Public Policy (Dordrecht, Kluwer Academic Publishers, 1997): ‘While the Bundeskartellamt itself is not immune from political influence, the procedures that a government must follow are so transparent that to change a judgment incurs high political costs’. In German law however, a violation of the publishing requirement does not render the instruction or the decisions based on it invalid. See W Eschweiler, ‘Die Regulierungsbehorde im Spannungsfeld zwischen Unabhangigkeit und Weisungsunterworfenheit’ (2001) 4 Kommunikation & Recht 238, 240. 210 Cass Com 5 October 1999, JPC 1999.II.10203 Concl J Sainte-Rose. 211 Thus, the rapporteur in charge of a case can no longer assist during the deliberations on the decision to be taken. Also, the acts of instruction (designation of the rapporteurs, transmission of the request for investigation to the DGCCRF and notification of the statement of objections to the firm(s) concerned) are now within the competences of the rapporteur general and no longer the responsibility of the President of the Conseil de la Concurrence. Finally, although the government is represented during sessions of the Conseil by the Director for Competition, Consumer Affairs and Fraud Control, who is appointed by the Minister of Economics, he does not interfere with the deliberations and may only present the circumstances of the case and the law applicable to it. 212 In German communications law, there is indirect involvement of Parliament through the Beirat, which is composed of nine members of the Bundestag (lower house) and nine members from the Bundesrat (upper house) and makes proposals to the federal government on appointments. 213 OECD, ‘Germany’ (above n 6) 17; R Gönenç, M Maher and G Nicoletti, ‘The Implementation and the Effects of Regulatory Reform: Past Experience and Current Issues’ [2001] OECD Economic Studies No 32; M Kerf, M Schiffler and C Torres, ‘Telecom Regulators – Converging Trends’ [2001] Public Policy for the Private Sector, Note No. 230. Note in this respect also the practice in Germany

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Institutional Principles regimes stipulate eligibility criteria. Such criteria are helpful because they signal to stakeholders that the authority will be well equipped to carry out its mandate. Arguably, this could help ward off regulatory capture or unwarranted political interventions. Regarding the duration of appointments, German competition law is alone in not providing term limits or specifying grounds for dismissal. This has, however, been seen as unobjectionable because the Bundeskartellamt’s independence ‘results from political choice and support, not from statutory guarantees or protections’.214 Indeed, Presidents have always occupied their posts for a considerable period of time.215 According to even the OECD, it is politically inconceivable for the President of the Bundeskartellamt to be removed from his office over a difference in policy.216 In marked contrast to the other legal regimes, French communications law precludes reappointment and dismissal of ARCEP members, which enhances their independence.217 There has been academic debate in this context on the merits of nonrenewable terms. Some suggest that these are good: they allow staff to conduct their affairs without having to worry about currying political favour in order to secure reappointment. Such a moral hazard perspective assumes that a national authority will be more creative in the application of the rules because it knows that its behaviour is without repercussions or sanction. Others worry that non-renewable terms hamper the ability and incentive of staff to acquire in-depth expertise, potentially damaging an authority’s reputation and opening up room for regulatory capture. For authorities in highly technical and complex sectors, this second view is probably more persuasive.

for the appointments of the Pesident and the Vice-Presidents of the Bundesnetzagentur to reflect the proportional representation of Germany’s main political parties: Ecta/JonesDay (n 208). 214 OECD, ‘Germany’ (above n 6) 22. English law also does not stipulate the exact term of office for OFT and Ofcom members, and here as well, political culture has in practice led to stable terms, with little chance of staff being replaced at any time by the Secretary of State. 215 Since its establishment, only five men have had the honour of heading the authority: Eberhard Gunther (1958–76); Wolfgang Kartte (1976–92); Dieter Wolf (1992–2000); Ulf Böge (2000–07) and Bernard Heitzer (2007–present). The GWB does provide some guidance on the appointments of members of the Beschlussabteilungen. According to § 54(1) GWB, they must be civil servants appointed for life and be qualified to serve as judge or senior civil servant. Consider also the level of legislative detail regarding appointments to the Monopolkommission: § 45 GWB stipulates the procedure (appointed by the Federal President on a proposal by the Federal Government); the eligibility criteria (special knowledge and experience in the fields of economics, business administration, social policy, technology or commercial law); the term of office (four years with the possibility of reappointment); and the grounds for removal (members can request dismissal by giving notice to the Federal President). 216 OECD, ‘Germany’ (above n 6) 22. 217 This was also provided for the ART, ARCEP’s predecessor, which was established on 26 July 1996. According to Bougrab (above n 193) 54, the mandate of independent administrative authorities is in principle never renewable, ‘thus guaranteeing freedom and excluding any risk of sympathy towards those who named them’. It is not clear why members of the Conseil de la Concurrence, also an independent administrative authority, may be reappointed. See Art L461–1(V).

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Germany

/

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Board members appointed by Minister of Economics, Finance and Industry [Arts L461–1 and 461–2 CdC]

Conseil de la Concurrence (NCA)

ARCEP (NRA)

President and Vice-President are nominated by Federal Government, upon proposal by Beirat and appointed by Federal President [§§ 3(3) and (4) Gesetz über die BnetzA]

Head is appointed by Federal Minister for Economics and Labour

Bundeskartellamt (NCA)

Bundesnetzagentur (NRA)

Appointment Procedure for Key Members of Staff

National Authority

+ Economic, legal or technical qualification in the fields of e-communications, post or economics + Below 65 years of age

Board comprised of: + 8 (former) members of the judiciary; + 4 experts in economics, competition or consumer matters; and + 5 people active in relevant industries

Art 33(2) Grundgesetz: ‘Every German is equally eligible for any public office, according to his aptitude, qualifications and professional achievements’

Art 33(2) Grundgesetz: ‘Every German is equally eligible for any public office, according to his aptitude, qualifications and professional achievements’

Eligibility Requirements for Senior Staff Positions

6 years

6 years

5 years

Not specified

Term of Appointment

No

Yes

Yes

Not specified

Reappointment Allowed?

No dismissal possible

+ Failure to participate in three consecutive sessions + Failure to inform the President of additional economic activities + Participation in a case in which there is a direct personal interest

‘Important grounds’ [wichtigem Grund] (§4(5) Gesetz über die BNetzA)

Not specified

Grounds for Dismissal

Table 2.17 Individual Independence of NCA and NRA Staff in Germany, France, the Netherlands and the United Kingdom

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United Kingdom

Netherlands

/ Board members appointed by Secretary of State for Trade and Industry [Schedule 1, s 1(1) EA 2002]

OFT (NCA)

Joint appointment of board members by Secretaries of State for Trade & Industry and Culture, Media & Sport [s 1(3) OFCOM Act 2002]

Board members appointed by the Minister of Economics [Art 3 Wet OPTA]

OPTA (NRA)

Ofcom (NRA)

Board members appointed by the Queen upon recommendation of the Minister of Economics [Art 3 Mw]

NMa (NCA)

Not specified

Not specified

Not specified

Expertise in areas for which NMa bears responsibility

Not specified (3 to 5 years in practice)

Determined by Secretary of State (maximum 5 years)

4 years

6 years for Chairperson; 4 years for other Board members

Not specified

Yes

Yes

Yes, for 4 years

+ + + +

Undischarged bankruptcy Prejudicial conflict of interest Incapacity Misbehaviour

Incapacity or misbehaviour

Substantial reasons, including: position in political body or financial or other interests in an undertaking which could compromise integrity

Unsuitability, incompetence or other heavy-weighing reasons relating to the person concerned

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The Role of National Authorities in Network-Based Governance Finally, we note that in most cases, staff can only be dismissed if they have committed a severe breach of ethical rules.218 It is somewhat disconcerting that the grounds for dismissal are open-ended in Dutch and UK law, which could mask subjectively motivated dismissals. No evidence of such a practice has been found, however. v. Financial Independence The funding of national authorities can come about in two different ways. An authority can raise funds from the industry it regulates. Alternatively, it may receive grants from the central government. A combination of these two methods is of course also possible, for instance when government funding is offered if industry-generated income is insufficient. The problem with government contributions is that the state can use the power of the purse to exert undue influence on authorities.219 In consequence, budget cuts inspired by less than noble motives can hamper authorities in attracting qualified personnel. This could make them unduly dependent on the informational resources of market actors and the informal influential power they embody. There is a sharp distinction between NCAs and NRAs in terms of funding, which can be seen from Table 2.18. Whereas competition authorities in our four sample Member States receive annual grants from their national governments,220 the coffers of the regulatory authorities are filled via fees from market actors. So too, we note the absence of a legal basis for the finances of the NCAs in the national competition legislation (with the exception of France); this lacuna does not exist in the case of the NRAs.

218 Dutch law also addresses the problem of the malfunctioning of the Board as a whole: Art 5f Mw; Art 124 Aanwijzingen voor de regelgeving; Art 23 Kaderwet zelfstandige bestuursorganen; and Art 23 Wet OPTA. As regards the NMa, the Minister can order ‘the necessary measures’, which are not further specified. Before doing so, he must first set a time period within which the Board can redeem itself. The measures taken must be communicated to Parliament. As regards the OPTA, the Minister can, if he is of the opinion that the Board has seriously neglected the exercise of responsibilities and functions entrusted to it, determine that these responsibilities and functions are transferred to him. Such a transfer must be preceded by a proposal to that effect, published as general decree (Algemene Maatregel van Bestuur). Thus far, neither mechanism has been used. 219 See the sources listed above in n 213. 220 The strictest rules apply to Ofcom. Schedule 1, s 8(1) Ofcom Act 2002 stipulates that Ofcom must ensure that it conducts its affairs so as to ensure that its revenues are at least sufficient to enable it to meet its obligations and carry out its functions. Any grants to Ofcom require the consent of the Treasury and can be paid only for the purposes of enabling it to incur or meet liabilities in respect of capital and revenue expenditure. While the Secretary of State may make advances to Ofcom, these have to be repaid in full, including interest.

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Institutional Principles Table 2.18 The Funding of NCAs and NRAs in Germany, France, the Netherlands and the United Kingdom

Bundeskartellamt (Germany) Conseil de la Concurrence National Competition (France) Authorities (NCAs) NMa (Netherlands) OFT (United Kingdom)

National Regulatory Authorities (NRAs)

Funding Source

Legal Basis

Appropriations and fees

Nothing in GWB

Appropriations

Art L-461–3 CdC

Appropriations

Nothing in Mw

Appropriations

Nothing in CA 1998 or EA 2002

Bundesnetzagentur Fees and appropriations (Germany)

Part 9 TKG

ARCEP (France)

Fees, when necessary supplemented by appropriations

Art L133 Code PCE

OPTA (Netherlands)

Fees, appropriations and other revenues

Art 9 Wet OPTA

Ofcom (United Kingdom)

Fees, when necessary supplemented by grants

Sched 1, s 8 Ofcom Act 2002; ss 38 and 347 CommA 2003

A likely reason for this difference stems from the nature of intervention. NRAs engage in ex ante regulatory oversight, and the Authorisation Directive stipulates that administrative charges and fees for rights of use may be levied on industries and that these may be set at a level that will cover most of the operational and other costs of NRAs.221 Conversely, the enforcement of the competition rules by the NCAs is done ex post. To be sure, the fines they levy on firms for breaching the law could be used for funding purposes, but it would hardly be legitimate to set the level of a fine with reference to an authority’s operational expenditure, as opposed to such factors as the severity and duration of the infringement. Furthermore, the Commission has always received grants from the general EU budget to apply the competition rules. It is arguable that Member States have copied this feature into the design of their own competition bodies—as they indeed have done with so many other features of the competition enforcement structure. 221

Art 12 Authorisation Directive (above n 59).

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The Role of National Authorities in Network-Based Governance vi. Interim Conclusion Three deductions follow from the above survey of NCA and NRA independence. The first is that notwithstanding the freedom granted by Community law, the Member States have adopted broadly similar approaches to the issue. The second is that differences in attitude toward independence can be explained with reference to institutional culture within particular Member States and do not seem to relate to different perceptions on the degree of independence that authorities should have. The Commission itself has affirmed that ‘[h]ow independence is actually achieved institutionally will vary, to a certain degree according to the legal tradition and experience in each Member State’.222 Consider the German Bundeskartellamt, which is widely seen as one of Europe’s most successful competition authorities. The GWB has little to say on its independence or functioning. Yet in practice, one of the core features of German competition law is the independent institutional culture of the Bundeskartellamt. The third conclusion that can be made is that national authorities maintain a high degree of independence from both industry and government—a reassuring fact. They conduct their affairs without undue influence from stakeholders and are in relationships of institutional autonomy with the national governments. This is axiomatic. While national authorities are controlled by the Commission and their fellow national authorities (as shown in greater detail in chapters 5 and 6), such mechanisms of control leave unaffected the need for political accountability to the national constituency, and this is effected primarily through ministerial responsibility to parliament. This allows for a balance to be struck, whereby national authorities distance but do not entirely divorce politics from their enforcement work.

V. CONCLUSION

This Chapter has examined the role of national actors and the regulatory environment in which they operate under network-based governance. This examination has been carried out with the help of the functional research approach, with an eye to ascertaining the state of the law in four selected national systems (France, Germany, the Netherlands and the United Kingdom). In line with subsidiarity, national authorities are the centre of gravity for the daily enforcement of European law under the network regime. Most importantly, however, the Community legislature seeks to ensure that these national authorities possess the necessary regulatory attributes to effectively fulfil their European

222 EC, ‘The Status and Implementation of Directive 90/388/EEC on competition in the markets for telecommunications services’ (Communication) [1995] OJ C275/2.

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Conclusion mandate. Regulation 1/2003 and the 2002 Electronic Communications Framework accordingly devote considerable attention to the setup and powers of the NCAs and NRAs. The national authorities have thus been endowed with broad and largely discretionary powers. In addition, Community law gives each national competition authority the right to ask another authority to conduct an inspection on its behalf, and it may suspend its proceedings on the ground that another NCA is already pursuing the matter. Regulation 1/2003 further includes rules on the burden of proof and provides that NCAs may act as amicus curiae before their national courts. European electronic communications law imposes duties on national regulatory authorities to consult with market parties; to observe exacting transparency standards in their decision-making; and to issue reasoned decisions, which must moreover be rendered within strict time-limits. EC law further stipulates that they should cooperate with NCAs and national consumer protection agencies on matters of common interest when this is appropriate. In addition, and as a matter of Community law, interested parties must have the right to petition the courts for judicial review of NRA decisions. In terms of institutional characteristics, NCAs and NRAs must have available sufficient resources (financial and otherwise) and act independently in exercising their responsibilities (explicitly required under EC communications law and assumed under EC competition law). It is good to see that the four Member States under examination have, for the greater part, performed the transposition and operationalisation exercise satisfactorily. This should hopefully ensure that the national authorities are indeed better able to carry out their European mandate. For those matters that are left to them to determine, the Member States have mostly adopted similar solutions. This is illustrated, for instance, when we consider the sanctions available to NRAs for breach of general authorisations under the 2002 Electronic Communications Framework. Such a development is surely to be welcomed, since it can disprove claims that the lack of a European procedural code compromises the effectiveness with which the law is enforced by national actors. We have seen in chapter 1 that the Community seeks to enhance the effectiveness with which European rules and policies are enforced. In particular, it feels that there must be more homogeneity in decision-making practices across Europe. It is clear that the creation of equivalent enforcement structures at the national level makes a valuable contribution to this objective. Yet the wide discretion enjoyed by NCAs and NRAs was believed to necessitate additional features to safeguard consistency. Chapter 5 will explain how their work is thus subject to a number of control mechanisms, some of which go to substance but most of which are procedural in nature. Further, chapter 6 will discuss how European law has made room for the creation of networks in which the national authorities and the Commission interact on a regular and permanent basis. But

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The Role of National Authorities in Network-Based Governance first we must inquire into the role and regulatory environment of the second archetypal national enforcement creature: the national courts. This will accordingly be the topic of the next chapter.

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3 The Role of National Courts in Network-Based Governance

T

HE PREVIOUS CHAPTER examined the role of national authorities and the environment in which they operate under network-based governance. This chapter discusses the same issues in relation to national courts. As in chapter 2, the focus of this analysis is the extent to which European law determines the role of national courts and incorporates procedural and institutional characteristics that must be observed in the adjudication process. We will inquire how the four selected Member States (France, Germany, the Netherlands and the United Kingdom) have given effect to these European requirements.1 National courts can play four different roles under Regulation 1/2003 and the 2002 Electronic Communications Framework. First, they may be designated as a national competition authority (NCA) or national regulatory authority (NRA).2 As such, national courts have to submit to all obligations incumbent on these authorities as defined by EC legislation, including cooperation within the European Competition Network (ECN) and the European Regulators Group (ERG).3 An example of a national court as competition authority is the Swedish Competition Court, which inter alia imposes fines for the infringement of Articles 81 and 82 EC and their Swedish equivalents4 and can order inspections aimed at establishing such infringements.5 In general, however, such designations are rare. Second, national courts can have some control over decisions made by NCAs and NRAs. Third, national courts exercise general jurisdiction: they may decide lawsuits between private parties, such as actions relating to contracts or actions for damages. Finally, in those Member States where infringements of Articles 81 or 82 EC, their domestic equivalents or the 2002 Electronic Communications 1

On the reasons for this selection, see the Introduction. For competition law, see Art 35(1) Reg 1/2003; and Commission Notice on the cooperation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 EC [2004] OJ C101/54 [2]. For NRAs, see the functional definition of the notion ‘national regulatory authority’ in Art 2(g) Framework Directive. 3 Note, however, the limits on the competence of the Commission to relieve competition authorities of their competence pursuant to Art 11(6) Reg 1/2003 with regard to national courts, as set out in Art 35(3) and (4) Reg 1/2003. 4 Art 26ff Swedish Competition Act. 5 Art 47ff Swedish Competition Act. 2

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The Role of National Courts in Network-Based Governance Framework (as implemented in national law) qualify as criminal offences, national courts may hear and decide upon criminal sanctions. It should be remembered that these different types of proceedings are not necessarily brought before the same types of national court. Rather, administrative, civil and criminal courts can all be involved in what is essentially the same case. In analysing the requirements posed by EC legislation, it will become clear that these requirements do not always concern the same type of proceedings or the same type of court either. For the purposes of our analysis, the main focus will be on national courts as review institution and, to a lesser extent, on national courts when adjudicating private litigation. We shall begin by introducing the institutional setup at the national level (section I). Section II then assesses the mandate of national courts under Regulation 1/2003 and the 2002 Electronic Communications Framework. Section III examines their powers and the procedures that govern actions at law; and finally, section IV discusses the institutional constraints they must possess as a matter of European law.

I. NATIONAL ENFORCEMENT STRUCTURES COMPARED

As a starting-point, it is for Member States to determine the court structure within which decisions taken by NCAs and NRAs can be challenged and within which individuals can obtain protection against infringement of rights conferred by Community law.6 In this section, we introduce the national court systems in France, Germany, the Netherlands and the United Kingdom as they function for the review of NCA and NRA decisions.7 In Germany, the review of decisions by the NCA and NRA is entrusted to two separate court structures, as can be seen in Figure 3.1. Decisions by the NCA, the Bundeskartellamt (Federal Cartel Office), including those imposing fines,8 can be

6 Case 33/76 Rewe-Zentralfinanz eG and Rewe-Zentral AG v Landwirtschaftskammer für das Saarland [1976] ECR 1989. Member States must adopt rules that are effective and equivalent to domestic laws and observe Art 10 EC in devising their national court structure. Confirmed in the 2002 Electronic Communications Framework in Recital 4 Framework Directive. 7 For an overview of the NCAs and NRAs and the national competition and communications law in the four Member States, see above ch 2, section I. In all Member States, the civil enforcement of the competition and communications rules is, unsurprisingly, concentrated in civil courts. The Commission is presently developing initiatives to encourage private enforcement of the competition rules: European Commission (EC), ‘Damages Actions for Breach of the EC Antitrust Rules’ (White Paper) COM (2008) 165 final. 8 § 83 GWB and Gesetz über Ordnungswidrigkeiten (OWiG) (Law regarding Administrative Offences), save where the proceedings are referred by the Bundeskartellamt to the public prosecutor. See § 30 OWiG.

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National Enforcement Structures Compared appealed exclusively to the Oberlandesgericht Düsseldorf (Court of Appeal),9 a court within the civil court structure.10 A further appeal on points of law11 can be made to the Bundesgerichtshof (Federal Supreme Court) in Karlsruhe, but leave is required.12 Leave is granted if a legal issue of fundamental importance is to be decided or if a decision by the Bundesgerichtshof is necessary to develop the law or ensure uniform court practice.13 Decisions by the Bundesnetzagentur, the principal NRA, including those imposing fines and other penalties, are reviewed by the Verwaltungsgericht, the lowest tier of the administrative court structure.14 In principle, no further appeals are possible.15 When compared with the German model, French law manifests certain similarities, particularly the division of jurisdiction between civil and administrative courts. (See Figure 3.2.) We saw in the previous chapter that France operates a dual enforcement structure in competition law, comprising a government department, the Director General for Competition, Consumption and the Repression of Frauds (DGCCRF), and an independent administrative authority, the Conseil de la Concurrence. Decisions by the DGCCRF are reviewed by the Conseil d’État (Council of State), the highest administrative court. Appeals from decisions by the Conseil de la Concurrence are taken to the Paris Cour d’Appel (Court of

9 § 63(1) and (4) and §83 GWB. § 36 Zivilprozessordnung (ZPO) (Code of Civil Procedure) shall apply mutatis mutandis. An appeal may be based also upon new facts and evidence. Before the move of the Bundeskartellamt from Berlin to Bonn, the Oberlandesgericht Berlin heard cases against Bundeskartellamt decisions. 10 For the Landeskartellbehörden, the competent court is the Oberlandesgericht of the district in which the Landeskartellbehörde has its seat: §§ 63(4) and 83 GWB. Appeals in merger cases, including those directed against a decision of the Federal Minister of Economics, fall within the exclusive jurisdiction of the Oberlandesgericht Düsseldorf. 11 §§ 76(2) and 84 GWB. The appeal on points of law may be based only on the claim that the decision rests upon a violation of the law and cannot be based upon the argument that the Bundeskartellamt erroneously assumed it had jurisdiction. 12 §74(1) GWB. The Oberlandesgericht decides on whether or not leave is granted. Leave is not required when the appeal is based on inter alia the alleged denial of the right to be heard or if there is no statement of reasons: § 74(4) GWB. 13 § 74(2) GWB. If the Oberlandesgericht refuses to grant leave, then that refusal is in and of itself appealable to the Bundesgerichtshof, which can issue a decision without a hearing: §75 GWB. 14 § 137 TKG. 15 § 137(3) TKG: ‘In the case of decisions under §132 [decisions concerning market regulation, award proceedings for frequency assignments, spectrum trading and the imposition of universal service obligations] appeals (on issues of fact and law) against judgments and appeals (on procedural issues) against other decisions of the administrative court shall be ruled out.’ This does not apply with regard to appeals against decisions concerning the submission of alleged confidential documents by the authority during court proceedings; appeals against denial of leave to appeal on questions of law pursuant to §§ 133 and 135 of the Verwaltungsgerichtsordnung (Code of Administrative Court Procedure) and appeals against decisions on jurisdiction under §17a(2) and (3) of the Gerichtsverfassungsgesetz (Courts Constitution Act). These decisions can be appealed to the Bundesverwaltungsgericht (Federal Supreme Administrative Court) in Leipzig. The reason for this limitation of appeal to a single instance can arguably be explained with reference to the decision-making practice within the Beschlusskammern of the Bundesnetzagentur. These three-member panels are organised and function on a formal and judicial basis that is largely similar to court proceedings. For instance, at least of one of the members of a Beschlusskammer must be qualified to act as a judge. See § 132(2) TKG.

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Figure 3.1 Judicial Review of NCA and NRA Decisions in Germany

Appeal), which is part of the civil court structure.16 A further appeal on points of law lies with the Cour de Cassation (Court of Cassation), the highest civil court. With the exception of decisions settling disputes, decisions by the main NRA, the Authority for the Regulation of Electronic Communications and Post (ARCEP), are under the control of the administrative courts, more particularly the Conseil d’État.17 Dispute settlement decisions are appealable within the civil court structure, in first instance to the Paris Cour d’Appel18 and in second instance to the Cour de Cassation on points of law.19 A division of jurisdiction between civil and administrative courts is not present in the Netherlands as far as review of NCA and NRA decisions is concerned, as can be seen in Figure 3.3. Decisions by both the competition authority (NMa) and the regulatory authority (OPTA), including those imposing 16 Art L464–8 CdC and Décret no 87–849 du 19 octobre 1987 relatif au recours exerces devant la cour d’appel de Paris contre les décisions du Conseil de la Concurrence and Art L36–8 (IV) Code PCE. 17 Art L36–11(V) Code PCE and Art L521–1 Code de justice administrative (Code of administrative justice). 18 Arts L 5–6 and L36–8(IV) Code PCE. See also Décision n° 96–378 DC du juillet 1996, loi de réglementation des télécommunications, publication journal officiel du 27 juillet 1996, p 11400. 19 According to the Loi de Simplification de Droit du 9 décembre 2004, the Minister of Economics can go into cassation, even if he has not been a party to the initial appeal before the Paris Cour d’Appel.

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National Enforcement Structures Compared

Figure 3.2 Judicial Review of NCA and NRA Decisions in France

sanctions,20 can be exclusively appealed to the Rechtbank Rotterdam (district court),21 the lowest tier of the administrative court structure. Appeals lie to the highest administrative court, the College van Beroep voor het Bedrijfsleven or CBB (Trade and Industry Appeals Tribunal). As regards decisions by the NMa, the hearing by the administrative courts is preceded by an internal objection procedure, the bezwaarschriftprocedure, under the auspices of the competition body.22 In practice, this procedure is followed in a minority of cases as a result of

20 Art 17.1(2) Tw. This provision applies in deviation of Art 8:7 Algemene Wet Bestuursrecht (Awb) (General Administrative Law Act). Limiting appeal to only one instance would have been in violation of Art 14(5) International Covenant on Civil and Political Rights. 21 Art 93 Mw and Art 17.1(2) Tw. A similar procedure applies to those decisions taken by OPTA that do not fall within the scope of Article 17.1(1) Tw and that have not been adopted following the so-called elaborate public preparation procedure [uitgebreide openbare voorbereidingsprocedure]: there is the possibility of direct appeal subject to consent by OPTA: Art 7:1a Awb. For decisions that have been adopted following the elaborate public preparation procedure, internal review is never necessary: Art 6b.1 Tw, s 3.5 Awb and Art 7:1(1)(d) Awb. 22 Art 7:1 Awb. Pursuant to Art 92 Mw, an ‘independent’ advisory committee, the Adviescommissie Bezwaarschriften Mededingingswet (Advisory Committee on Administrative Appeals under the Competition Act), must be consulted if the parties decide to appeal a decision imposing a fine by the NMa. The independence of the Adviescommissie resides in the fact that it cannot include employees of the Ministry of Economic Affairs or members of the Board of the NMa. The Adviescommissie is empowered to give advisory opinions, including recommendations, on how the NMa should deal with the objections raised. The NMa must take these opinions into account but can deviate from them. It must give reasons for its deviation.

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The Role of National Courts in Network-Based Governance the Wet rechtstreeks beroep (Law on direct appeal),23 which allows an immediate appeal to the court if all parties to the proceedings agree to this and the NMa gives its consent.24 A similar procedure applies to OPTA decisions other than those relating to interoperability, Significant Market Power (SMP), dispute settlement and enforcement.25 These latter types of decisions can be appealed only to the CBB in first and last instance.26

Figure 3.3 Judicial Review of NCA and NRA Decisions in the Netherlands

23 Wet van 13 mei 2004 tot wijziging van de Algemene Wet bestuursrecht en enige andere wetten in verband met de mogelijkheid om de bezwaarschriftenprocedure met wederzijds goedvinden buiten toepassing te laten (rechtstreeks beroep) Staatsblad 2004, 220. 24 The NMa has indicated that in cases involving decisions imposing sanctions, it will in principle grant requests to allow direct appeal. It has also indicated that the internal revision procedure might be appropriate if for instance the facts or viewpoints of the parties are not clear; if it is still possible to resolve the disagreement among the parties; or if the decision-making procedure suffered from defects that can easily be remedied during the internal revision phase. See Staatscourant 2 September 2004, no 168/19. Consent will be refused if the objection is directed at a failure to act on the part of the relevant authority or if another objection has been filed against the decision which does not contain a request for a direct appeal, unless that objection is blatantly inadmissible. Decisions involving mergers are automatically and always exempt from internal review. See Art 93(2) Mw. 25 Art 17.1(3) Tw. 26 Art 17.1(1) Tw, with the exception of decisions pursuant to Art 15.2.a [preventing an operator from offering electronic communications services or networks] and Art 15.4 [fines and periodic penalty payments].

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National Enforcement Structures Compared As in the Netherlands, in the United Kingdom decisions by the principal NCA, the Office of Fair Trading, and the NRA, the Office of Communications (Ofcom), are appealable to a single court—the Competition Appeal Tribunal (CAT).27 Elements of appeals to the CAT from decisions by the Ofcom that relate to price control matters must be referred to the Competition Commission for determination, and the CAT must decide the matter in accordance with the decision of that Commission.28 The CAT also hears actions for damages and other monetary claims arising from infringement decisions made under the Competition Act 1998 and the EC Treaty.29 Appeals on a point of law or as to the amount of a penalty lie from decisions of the CAT with permission to the Court of Appeal.30 From the Court of Appeal further appeal may be taken, with permission, to the House of Lords. Notwithstanding the statutory right to appeal to the CAT, there is always the possibility of judicial review before the ordinary courts.31 Since Member States are free to organise their judicial administration as they see fit, it is unsurprising to observe that the four jurisdictions under scrutiny have developed structures that differ on certain aspects, although commonalities may also be detected. One feature that is shared by all four legal systems is that NRA decisions are in principle judicially controlled by the administrative courts. A slight deviation is present in the French system, however, with dispute settlement decisions by ARCEP appealable within the civil court structure. This is because of a judgment by the Conseil Constitutionnel, where that court relied on two interlinking 27 Ss 46 and 47 CA 1998 and EC Competition Law (Articles 84 and 85) Enforcement Regulations 2001 (as amended); and subsections 192 and 317(6) and Schedule 11, para 9 of the CommAct 2003. There is no requirement of leave as regards proceedings before the CAT. 28 S 193 CommA 2003. The Competition Commission’s determination need not be followed if it would be set aside applying the principles applicable on a claim for judicial review: s 193(7) CommA 2003. 29 Ss 47A and 47B Competition Act 1998 (as amended). Moreover, the CAT reviews decisions made by the Secretary of State, the Office of Fair Trading (OFT) and the Competition Commission in respect of mergers and market references or possible references under the Enterprise Act: ss 120 and 179 Enterprise Act 2002. In relation to these reviews, the CAT applies the same principles as would be applied by a court on an application for judicial review, namely illegality, irrationality and procedural impropriety. See Lord Diplock in Council of Civil Service Unions and others v Minister for the Civil Service (‘GCHQ’) [1984] 3 All ER 935. 30 S 49 CA 1998; s 196 CommA 2003; and ss 58 and 59 Competition Appeal Tribunal Rules 2003 (SI 2003 No 1372). Leave will only be granted when the court considers that the appeal would have a real prospect of success or when there is some other compelling reason why the appeal should be heard: Civil Procedure Rules, Part 52. 31 More particularly, before the Administrative Court of the Queen’s Bench Division: Civil Procedure Rules, Part 54. This possibility is particularly appropriate where no statutory route of appeal has been set out by the Communications Act. This route is unlikely to be chosen frequently though, since in most cases the Communications Act does foresee a statutory right of appeal, and the initiation of proceedings for judicial review is contingent upon leave being granted. The granting of leave is discretionary, and leave will commonly be refused when all alternative remedies—such as an appeal to the CAT—have not been exhausted or when the alternative remedies have successfully addressed the matters complained of. In any event, the time limit of three months for an application for judicial review in practice often precludes the possibility of bringing a case via judicial review, as the statutory appeals procedure has to be gone through before an application can be made.

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Figure 3.4 Judicial Review of NCA and NRA Decisions in the United Kingdom

arguments to justify the competence of the civil courts over the matter.32 First, decisions under dispute settlement relate to private law agreements. Second, submitting a dispute to ARCEP is optional, as a claim may also be brought before the Conseil de la Concurrence, the Paris Cour d’Appel or another competent court. Uniting jurisdiction for these specific appeals under the civil Cour de Cassation is thought to enhance consistency in the application of the law and thereby ensure the proper administration of justice. The judgment has attracted its fair share of criticism, with commentators arguing that the nature of dispute settlement decisions remains administrative and thus properly within the prerogative competences of the administrative courts.33 The legal systems have taken different paths as regards review of NCA decisions. Under French and German law, review is within the competences of the civil jurisdiction, whereas the position in the Netherlands is that the administrative courts decide on the legality of NCA decisions. The difference owes much to national views on the nature of competition rules. In French and 32 Décision n° 86–224 DC du 23 janvier 1987, loi transférant à la juridiction judiciaire le contentieux des décisions du Conseil de la concurrence, publication journal officiel du 25 janvier 1987, p 924. Also Décision n° 96–378 DC du juillet 1996, loi de réglementation des télécommunications, publication journal officiel du 27 juillet 1996, p 11400. 33 Eg, E Rolin, ‘Settlement of Disputes Brought before the Telecommunications Regulatory Authority’ [2002], accessible through http://www.arcep.fr/eng/index.htm.

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National Enforcement Structures Compared German law, the origins of competition law can be traced to rules on unfair trading. To date, a number of unfair trading rules can be found in German competition law, and the French competition rules have been included in the Code de Commerce, as opposed to a Code de la Concurrence. Jurisdiction for the enforcement of those unfair trading rules found in the GWB and Code de Commerce is allocated to the Bundeskartellamt and the Conseil de la Concurrence.34 Rules on unfair trading are inherently civil in nature. Given its roots, competition law also came to be regarded as part of civil law, the focus being on the fact that private conduct is regulated, ignoring for the sake of convenience that proceedings are commonly initiated or steered by a public law body.35 Accordingly, jurisdiction would naturally seem to reside in the civil courts. Under German law, two additional factors have confirmed the competence of civil courts for competition review.36 First, the government wished to underline that decisions about markets are not based on administrative decisions by the state. Second, it was thought that civil courts would fully and thoroughly review decisions by the Bundeskartellamt, while the administrative courts would rather have contented themselves with a relatively marginal review, focusing on whether the authority had abused its discretion. Conversely, in the Netherlands and the United Kingdom, competition law developed by direct reference to Articles 81 and 82 EC and the body that bore primary responsibility for their enforcement, the European Commission. Under Dutch law, competition enforcement was initially conceived as criminal in nature and entrusted to the public prosecutor. From 1998 onwards however, a specialised government body, the NMa, became responsible for prosecuting competition infringements on the basis of administrative law. The reasons for this turnaround centred on the defective functioning of the public prosecutor’s office and the realisation that cooperation with the Commission and other competition authorities would be easier for an administrative body.37 The emphasis in Dutch law was thus not on the private parties to whom the competition rules were addressed but on the administrative organ that was charged with their enforcement. Accordingly, jurisdiction would naturally seem to reside in the administrative courts. Finally, we have seen that under UK and Dutch law, a single court is competent to review NCA as well as NRA decisions. Such institutional convergence is highly 34 It must be noted that the OFT currently also has jurisdiction for consumer matters and that the OFT’s competences under the CA 1998 and the EA 2002 are at times seen as supplementary to the consumer rules, rather than as the primary competence of the body. 35 See Organisation for Economic Co-operation and Development (OECD), ‘France: The Role of Competition Policy in Regulatory Reform’ [2003]. 36 See R Sturm, ‘The German Cartel Office in a Hostile Environment’ in G Doern and S Wilks, (eds), Comparative Competition Policy: National Institutions in a Global Market (Oxford, Oxford University Press, 1996) 201. 37 P Kalbfleish, ‘Netherlands: Country Experience with Criminal Law Sanctions’, speech delivered at the conference ‘Remedies and Sanctions in Competition Policy’, Amsterdam Centre of Law and Economics, 18 February 2005, available at the NMa website.

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The Role of National Courts in Network-Based Governance beneficial, particularly in the light of increasing cooperation between NCAs and NRAs38 and the substantive links between EC competition law and the core of EC communications law, namely the SMP procedure.

II. MANDATE AND FUNCTION

A. Competition Law It will be recalled that national courts can be involved in several capacities in the enforcement of the European competition and communications rules. However, EC law does not usually insist that Member States designate courts as having jurisdiction in all types of proceedings. The preoccupation of Regulation 1/2003 is with the role of courts in private litigation: National courts have an essential part to play in applying the Community competition rules. When deciding disputes between private individuals, they protect the subjective rights under Community law, for example by awarding damages to the victims of infringements. The role of the national courts here complements that of the competition authorities of the Member States (emphasis added).39

The Regulation also posits national courts as an option for review, in some instances giving them power over Commission inspection decisions, as explained in the box below. National Courts and the Review of Commission Decisionsi Under Regulation 1/2003, national courts are called upon to review certain Commission decisions, namely those ordering inspections of business and other premises.ii Recital 27 and Articles 20(8) and 21(3) of the Regulation set out the scope of control. National courts should ensure that all Commission decisions are authentic and that the coercive measures sought are neither arbitrary nor excessive.iii For this purpose, a national court may ask the Commission why it suspects that a breach of the competition rules has been committed, the seriousness of that alleged breach and the nature of the involvement of the firms that the Commission seeks to subject to an inspection. If such information is not forthcoming, the national court may refuse the authorisation.iv However, national courts may not call into question the necessity for the inspection nor demand that they are provided with all the information in the Commission’s file.v

38 Arts 3(4), (5) and 16(1) Framework Directive, Recital 13 Directive 2002/19/EC of the European Parliament and of the Council on access to, and interconnection of, electronic communications networks and associated facilities (the Access Directive) [2002] OJ L108/7 and Commission Guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services [2002] OJ C165/6 [135]–[137]. For more detail on this matter, see below ch 5, section I-A(iii). 39 Recital 7 Reg 1/2003. See also Commission Notice on the co-operation between the Commission and the national courts (above n 2) [2].

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Mandate and Function

According to the Commission Notice on cooperation with national courts, the principle of loyal cooperation furthermore requires national courts to take their decisions within an appropriate timeframe that allows the Commission to conduct effectively its inspection.vi The lawfulness of the final Commission decision is subject to review only by the Community Courts.vii ———————————— i Of course, national law can also provide for judicial control of national investigative measures. To the extent that these concern a purely domestic breach of the national competition rules, so without any effect on trade between Member States, EC law is not concerned with them. Otherwise, Member States must make sure that their national rules observe the principles of effectiveness, equivalence and loyalty. ii With regard to the inspection of business premises, national legislation may require authorisation from a national court to allow a national enforcement authority to assist the Commission in case of opposition of the firm concerned. Such authorisation may also be sought as a precautionary measure. With regard to the inspection of non-business premises, the Regulation requires the authorisation of a national court before a Commission decision ordering such an inspection can be executed. iii This is in principle a proportionality test. In the case of inspection of business premises, this test must be carried out with reference to the subject matter of the inspection. In the case of inspection of non-business premises, the proportionality test must be carried out having regard in particular to: the seriousness of the suspected infringement; the importance of the evidence sought; the involvement of the firm concerned; and the reasonable likelihood that business books and records relating to the subject matter of the inspection are kept at those non-business premises. iv National courts are also competent to determine whether the relevant national rules have been properly applied. v Case C-94/00 Roquette Frères SA v Commission [2002] ECR I-9011 [39] and [62]–[66]. vi Commission Notice on the co-operation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 EC [2004] OJ C101/54 [41], referring to Case C-94/00 Roquette Frères SA v Commission [2002] ECR I-9011 [91]–[92]. vii Art 20(8) and Art 21(3) Reg 1/2003.

B. Communications Law The 2002 Electronic Communications Framework mainly conceives national courts as a control instrument in relation to NRA decisions. Article 4 of the Framework Directive stipulates a right of review against decisions taken by NRAs in the fulfilment of their regulatory mandate40 or resolving disputes between market parties if so requested.41 The Framework Directive also alludes to the role of national courts in civil litigation. Chapter 2 explained that one of the powers 40 See further Art 10(7) Framework Directive and Art 2 Commission Directive 2002/77/EC on competition in the markets for electronic communications networks and services (the Consolidated Services Directive) [2002] OJ L249/21. Art 4’s predecessor, Art 5a(3) Directive 97/51, was at the core of a preliminary reference to the Court of Justice in Case C-462/99 Connect Austria Gesellschaft für Telekommunikation GmbH v Telekom-Control-Kommission and Mobilkom Austria AG [2003] ECR I-5197, where it was held that the Article had direct effect. 41 Art 5(4) Access Directive (above n 38); and Art 20 and 21 Framework Directive.

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The Role of National Courts in Network-Based Governance of the NRAs is to resolve disputes between firms in the communications field.42 According to Articles 20 and 21, the parties may alternatively decide to seek redress by instituting civil proceedings via the courts system. Finally, it should not be forgotten that the substantive overlap between competition and communications law means that a number of regulatory problems (such as access and discrimination) may also be dealt with under competition law, wherein, as we have just seen, national courts also act as first-instance enforcers. Firms thus often have available three concurrent options: they may engage the NRA, complain to the NCA43 or go to the national courts. We will see that the differing conceptions of the role of national courts have ramifications for the nature of the procedural and institutional requirements incorporated in Regulation 1/2003 and the 2002 Electronic Communications Framework respectively.

III. POWERS AND PROCEDURES

A. The Powers of the National Courts i. Competition Law Article 6 of Regulation 1/2003 confirms the direct effect of the European competition rules, stating that ‘national courts shall have the power to apply Articles 81 and 82 of the Treaty’.44 In particular, national courts may decide that agreements that contravene the cartel prohibition are void per Article 81(2) EC. Further, in Courage Ltd v Crehan the Court of Justice ruled that damages are available as a matter of Community law, consequent on a breach of Articles 81 or 82 EC.45 Finally, national courts must be able to grant interim relief.46 42 Cases must in principle be solved within four months with the adoption of a binding decision. This period may be extended once in the event of exceptional circumstances. If the authority decides to use non-conventional conflict mechanisms, such as mediation, the total time period comes to eight months: four months for the trying of non-conventional mechanisms and an additional four months for the procedure before the national authority itself. For more detailed discussion, see above ch 2, section III-A(ii). 43 Competition authorities traditionally provide a natural venue for settling disputes arising between firms or for acting on consumers’ requests. 44 Case 127/73 Belgische Radio en Televisie v SV SABAM and NV Sonior [1974] ECR 51 [16]. 45 Case C-453/99 Courage Ltd v Crehan [2001] ECR I-6297. In that case, the applicant was actually a party to the illicit agreement. Joined Cases C-295/04 to C-298/04 Vincenzo Manfredi and Others v Lloyd Adriatico Assicurazioni SpA and Others [2006] ECR I-6619 confirms that any natural or legal person may bing an action for damages. In that case the Court also clarified that injured persons should be able to obtain compensation not only for actual losses suffered (damnun emergens) but also for loss of profit (lucrum cessans) and interest. National law may, however, prevent a party from being unjustly enriched or profiting from his unlawful conduct. In making this determination, national courts should consider inter alia the respective bargaining strength of the contracting parties and the extent to which a contracting party was responsible for the violation of EC competition law.

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Powers and Procedures ii. Communications Law We have seen that the focus of the 2002 Electronic Communications Framework is on national courts as a control mechanism vis-à-vis the NRAs. When reviewing a NRA decision, national courts are required by Article 4 of the Framework Directive to take the merits of the case duly into account. This is to ensure meaningful judicial review. The introduction of Article 4 was a reaction to case law that saw national courts on the Continent use their competences to annul NRA decisions on primarily formalistic grounds through restrictive interpretations of NRA powers. This trend was seen as counterproductive to the achievement of the Internal Market for electronic communications.47 The enhanced position of NRAs under the 2002 Electronic Communications Framework, in particular their broad legislative fiat and considerable discretion in exercising this mandate, further confirmed the need for effective judicial control. The Legislative History of Article 4 Framework Directive In its original proposal for Article 4, the Commission suggested that ‘the appeal body shall be able to consider not only the procedure according to which the decision was reached, but also the facts of the case’.i The European Parliament was worried that this wording could cause ‘legal ambiguities’ in some Member States and accordingly amended Article 4 to read that ‘the appeal body shall be able to consider not only the procedure according to which the decision was reached, but also the facts and the merits of the case’ (emphasis added).ii The Commission agreed to this elaboration and changed its proposal accordingly.iii The Council, however, deleted the entire sentence, reasoning that it was incompatible with the principle of subsidiarity and could transform the appeal body into a ‘shadow regulator’.iv Parliament and the Commission were not to be deterred, however, and the sentence was reintroduced during the second reading.v At that point, the emphasis shifted from ‘facts’ to ‘merits’, and the final text of Article 4 accordingly no longer requires national courts to consider the facts of the case. ————————————

46 Commission Notice on the co-operation between the Commission and the national courts (above n 2) [11]–[14], referring to Case C-234/89 Stergios Delimitis v Henninger Bräu AG [1991] ECR I-935 and Case C-344/98 Masterfoods Ltd v HB Ice Cream Ltd [2000] ECR I-11369. 47 Eg, EC, ‘Sixth Report on the Implementation of the Telecommunications Regulatory Package’ (Communication) COM (2000) 814, 7 December 2000, 14. Judicial restriction of NRA powers occurred, eg, in the Netherlands: A Ottow, ‘Over Toezicht En Rechtsbescherming: De Omissies In De Telecommunicatiewet’ (2002) 14 Mediaforum 108. The reasons for this restrictive case law must be sought in the doctrine of the primacy of politics: major decisions are made by or under the authority of elected officials. The wide, discretionary powers that European law sought to confer on the NRAs were seen as a threat to this doctrine, creating an uneasy feeling in national courts that the establishment of the NRAs was something to be wary of and accordingly prompted strict control on competence issues.

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The Role of National Courts in Network-Based Governance

i ‘Proposal for a Directive of the European Parliament and of the Council on a common regulaory framework for electronic communications networks and services’ COM (2000) 393 final, 12 July 2000, 4 and 16. ii Report by the Committee on Industry, External Trade, Research and Energy on a proposal for a directive of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services (COM(2000) 393 – C5–0428/2000 – 2000/0184(COD)) A5–0053/2001 FINAL, 7 February 2001, amendment 27, endorsed by the European Parliament in first reading. iii ‘Amended proposal for a Directive of the European Parliament and of the Council on a common regulaory framework for electronic communications networks and services’ COM (2001) 380 final, 4 July 2001, 15. iv Common Position (EC) No 38/2001 adopted by the Council on 17 September 2001 [2001] OJ C337/34; Communication from the Commission to the European Parliament pusuant to the second subparagraph of Article 251(2) of the EC Treaty concerning the common position of the Council on the adoption of a Directive of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, SEC (2001) 1365 final, 17 September 2001. v Recommendation for Second Reading on the Council Common Position for adopting a Directive of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, A5–0435/2001 final, 4 December 2001, amendment 12, endorsed by Parliament in second reading and Opinion of the Commission pursuant to Article 251(2), third paragraph, point (c) of the EC Treaty, on the European Parliament’s amendments to the Council’s common position amending the proposal of the Commission, COM (2002) 78 final, 7 February 2002.

The current phrasing of Article 4 prompts two observations. First, we must consider its effect on the behaviour of national courts in common law jurisdictions such as the United Kingdom. In UK law there exists a fundamental distinction between appeal and judicial review. Judicial review attaches to the procedure according to which a decision was arrived at, which includes scrutiny of the contested decision for errors of fact and law.48 In contrast, on appeal, the correctness of the decision as such is under question. When acting in the latter capacity, courts are more interventionist: they look deeper and harder at the decisions before them and have wider powers to dispose of the cases, including substitution.49 In UK law, consideration of the merits is possible only in appeal proceedings. By mandating a review of the merits, Community law thus effectively rules out judicial review of Ofcom decisions. In other words, although the aim of Article 4 was to dictate the scope of review, in response to the overly 48 The test of judicial review is that first set out in Associated Provincial Picture Houses v Wednesbury Corporation [1947] 2 All ER 680 and subsequently summarised by Lord Diplock in Council of Civil Service Unions and others v Minister for the Civil Service (‘GCHQ’) [1984] 3 All ER 935 to encompass illegality (unlawfulness), irrationality (unreasonableness) and procedural impropriety (unfairness). 49 Under Sched 8, para 3(2) Competition Act 1998 the power of the CAT in appeals includes the power to: i) confirm or set aside the decision in question; ii) remit the matter to the OFT; iii) impose or revoke or vary the amount of any penalty; iv) give such directions or take such other steps as the OFT itself could have given or taken; and v) make any other decision which the OFT itself could have made. Conversely, when applying judicial review principles, the CAT may dismiss the request for review and quash part or all of the decision to which it relates and, in the latter case, remit the matter back to the OFT.

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Powers and Procedures formalistic behaviour of Continental courts, it could very well impact on the standard or intensity of review in common law courts, with the concomitant danger that appeal bodies in such jurisdictions might indeed develop into shadow regulators, as feared by the Council.50 The second observation regarding the wording of Article 4 is that it ignores the fact that even if a court duly takes the merits of a case into account, this is not the sole determinant of the outcome of that case. Equally, if not more important, is the standard of review. Presumably, a national court should only annul NRA decisions in ‘extreme cases’, namely those in which the decision is blatantly wrong or inappropriate or in which fundamental principles51 or procedural rights52 have not been observed. The need for a certain degree of judicial deference can be justified with reference, on the one hand, to the complex and highly technical nature of most cases—which means that differences of opinion are likely occur frequently53—and, on the other hand, to the fact that EC communications law already contains a number of built-in procedural safeguards to ensure reasonable decisions. Article 6 of the Framework Directive requires NRAs to consult extensively with stakeholders before adopting measures that have a significant impact on the market. Firms have thus had the opportunity to communicate their points of view and convince the authority. A court should not subsequently redo the regulatory authority’s work. These two points regarding Article 4 demonstrate that additional reflections about its precise wording should be undertaken. What exactly is it that we wish national courts to do vis-à-vis NRA decisions? In other words, what type of judgment should national courts hand down?

50 Indeed, in the context of competition law, the CAT when dealing with appeals against decisions by the OFT has not shown any great deference. See for example Institute of Indepenent Insurance Brokers v Director General of Fair Trading 1002/2/1/01(IR) [2002] CAT 2; Aberdeen Journals v Director General of Fair Trading 1009/1/1/02 [2003] CAT 11; BetterCare Group Limited v Director General of Fair Trading 1006/2/1/01 [2002] CAT 7; Freeserve.com PLC v Director General of Fair Trading 1007/2/3/02 [2003] CAT 5; IBA Health Limited v Office of Fair Trading 1023/4/1/03 [2003] CAT 27; and Hutchison 3G (UK) v Office of Communications 1047/3/3/04 [2005] CAT 39. 51 In EC communications law, examples would include the regulatory principles as set out in EC, ‘Towards a New Framework for Electronic Communications Infrastructure and Associated Services: The 1999 Communications Review’ (Communication) COM (99)539. Such principles include non-discrimination and the objectives listed in Art 8 Framework Directive. 52 Such as audi alteram partem, when the authority is acting ultra vires or if the decision does not contain a statement of reasons. 53 Consider for instance the case in which the national authority decides upon an interconnection rate of 0.66 eurocent per minute. The SMP operator who must grant access to its network for that price might disagree because it believes the rate should have been set at 0.69 eurocent per minute, and the operator who has to pay this rate might disagree because it believes that the rate should have been set at 0.63 eurocent per minute. Unless the rate of 0.66 is clearly inadequate or wrong, a court should not secondguess the decision of the national regulatory authority.

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The Role of National Courts in Network-Based Governance B. Procedures to be Followed by National Courts as a Matter of EC Law We have seen in the previous chapter that European legislature is increasingly eroding the autonomy of Member States in determining the procedural rules that govern the behaviour of NCAs and the NRAs.54 This section considers to what extent a similar development has taken place in relation to national courts.55 It will be seen that Regulation 1/2003 and the 2002 Electronic Communications Framework incorporate different procedural rules. This is in all likelihood because the two legal regimes vary in their perceptions of the role to be played by national courts. Nevertheless, keeping in line with the comparative analysis used in this book, for each requirement we will examine how the four sample Member States have given effect to it for adjudication processes under competition and communications law.

i. The Burden of Proof Article 2 of Regulation 1/2003 stipulates the burden of proof for judicial review proceedings and civil litigation.56 The applicant (firm or NCA) alleging a breach of the competition rules must adduce the evidence to support that claim, and defendant firms invoking the exemption of the cartel prohibition per Article 81(3) EC bear the burden of proving that they are entitled to this benefit.57 Article 2 contains an uncontroversial procedural requirement. Its introduction is probably linked to considerations of legal certainty, to confirm that the move from a system of prior authorisation to a system of exception légale did not have any ramifications in terms of the burden of proof.58 This background explains the legal state of affairs at Member State level. Most already recognised a similar 54 Above ch 2, section III-B. Even where Member States continue to possess national procedural autonomy (Case 33/76 Rewe-Zentralfinanz eG and Rewe-Zentral AG v Landwirtschaftskammer für das Saarland [1976] ECR 1989), they must observe the principles of effectiveness, equivalence and Community loyalty in determining the procedural framework for the protection of rights which individuals derive from Community law. 55 For an example of strong Community involvement, see Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters [2001] OJ L12/1. 56 On the burden of proof in cartel cases, see L Parret, ‘Sense and Nonsense of Rules of Proof in Cartel Cases’, Tilec Discussion Paper 2008–4, 2008, http://papers.ssrn.com/sol3/papers.cfm?abstract_ id=1088959. 57 This division is derived from the division in the Treaty itself between the prohibition in Art 81(1) and the conditions under which it may be declared inapplicable set out in Art 81(3) EC. In Case C-204/00 Aalborg Portland A/S v Commission [2004] ECR I-123 [78]–[79], the Court qualified the provision as follows: ‘Although according to those principles the legal burden of proof is borne either by the Commission or by the firm or association concerned, the factual evidence on which a party relies may be of such a kind as to require the other party to provide an explanation or justification, failing which it is permissible to conclude that the burden of proof has been discharged.’ 58 For further information on these two modalities to enforce Art 81 EC, see above ch 1, section II-A.

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Powers and Procedures division in the burden of proof, which moreover is usually found in domestic rules on civil procedure rather than in national competition acts. The more contentious issue is the standard of proof. Recital 5 of the Regulation stipulates that the existence of infringements and exemptions must be ‘demonstrated to the required legal standard’. It is left to national rules to determine what that standard is, subject to compatibility with general principles of Community law. Standards of proof vary somewhat between Member States, depending on such factors as the type of sanctions imposed (civil or criminal) and occasionally the type of court deciding the case.59 For instance, in Germany the standard of proof in administrative appeal proceedings and civil proceedings is that of full conviction (‘vollen Überzeugung’) of the deciding court.60 In proceedings concerning the imposition of fines, German law requires that there must no longer be any reasonable doubt (‘kein vernünftiger Zweifel’) of an infringement of the competition rules.61 In the United Kingdom, the standard of proof in civil proceedings—including proceedings concerned with infringements of the competition rules—is the ‘balance of probabilities’. In proceedings involving penalties, the infringement must, however, be proven on the basis of ‘strong and compelling evidence’.62 In general, it can be observed that, in line with the principle of proportionality, the more serious the implications for the defendant, the higher the standard of proof. Since the 2002 Electronic Communications Framework does not include any rules on the burden of proof,63 national implementing acts have also come up empty in this respect. ii. Amicus Curiae Interventions Article 15 of Regulation 1/2003 gives NCAs—and the Commission, under certain conditions64—the right to present amicus curiae submissions to national courts in the context of civil litigation.65 The aim is to address the regulatory capacities 59 See EC, ‘Damages Actions for Breach of the EC Competition Rules’ (Staff Working Paper) SEC (2005) 1732, 19 December 2005, [79]. 60 §§ 355ff Zivilprozessordnung in conjunction with §§ 57 and 73(2) GWB. 61 § 46(1) Gesetz über Ordnungswidrigkeiten in conjunction with §§ 244ff Zivilprozessordnung. 62 Napp Pharmaceutical Holdings Ltd v DGFT 1000/1/1/01(IR) [2001] CAT 1. 63 The only reference to the burden of proof in EC communications law can be found in Art 13(3) Access Directive (above n 38) and concerns the obligation on an SMP operator to provide for cost-oriented prices. When faced with such an obligation, the SMP operator is declared to have the burden of proving that charges are indeed derived from costs, including a reasonable rate of return on investment. 64 Discussed below in ch 5, section I-B(iii). 65 This right is without prejudice to wider powers to make observations before national courts that national law might have conferred on NCAs: Art 15(4) Reg 1/2003. The ECN Working Group on Cooperation Issues has compiled a table reflecting the degree to which national laws have converged to Reg 1/2003: ECN, ‘Results of the Questionnaire on the Reform of Member States (MS) National Competition Laws after EC Regulation No 1/2003’ [2008], available at the ECN website. One of the points considered was whether national law included provisions designed to facilitate the exercise of

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The Role of National Courts in Network-Based Governance of courts by providing the judiciaries with the knowledge necessary to decide the case in accordance with the European competition rules. As such, the observations must relate to the application of Articles 81 and 82 EC.66 Written observations are always possible, and where permitted by the national court, an NCA may also deliver its submissions orally. National law determines the procedural conditions that govern the amicus curiae power of NCAs, including protection for the rights of defence.67 Table 3.1. provides an overview of the amicus curiae competences of the NCAs in the four sample Member States. Table 3.1 The Legal Basis for Amicus Curiae Interventions by NCAs

Germany

France

Regarding the Application of EC Competition Law § 90a GWB

Regarding the Application of National Competition Law §§ 90 and 96 GWB

Arts L470–5 and L470–6 CdC

Arts L462–3 and L470–5 CdC; Art 9(1) Décret no 87–849

Netherlands Art 89h Mw and Art 44a Rv [Code of Civil Procedure]

/

United Kingdom

Practice Direction 52: Appeals [Rules of Civil Procedure] point 21.01A(5)

Practice Direction 52: Appeals [Rules of Civil Procedure] point 21.10A(4)

Additional Notes

BKartA can also address questions to parties, witnesses and experts Conseil de la Concurrence can only present written observations; the Minister of Economics can present oral observations The NMa has adopted guidelines on the use of its amicus curiae competence Submissions possible only before the Court of Appeal

the amicus curiae right by NCAs and the Commission. Five Member States (Belgium, Bulgaria, Italy, Malta and Luxembourg) do not intend to introduce such facilitating provisions; amendments are under consideration in Portugal and Slovenia; in Denmark and Finland there are no specific rules on the operation of Art 15(3), but this has not resulted in legal obstacles to its application; and the remaining Member States all have provisions for NCA interventions, although these are not necessarily found in the relevant competition statute. 66 For the purpose of preparing these observations, NCAs and the Commission may request the relevant national court to transmit any documents necessary for the assessment of the case. The information thus received may, however, be used only for the purpose of making amicus curiae submissions and thus not, for instance, to initiate a separate investigation. 67 Recital 21 Reg 1/2003.

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Powers and Procedures When we consider the state of the law at national level, we see that all jurisdictions except the Netherlands also permit their NCAs to act as amicus curiae in relation to the application of national competition law. This is indeed logical. Most national competition law mirror Articles 81 and 82 EC, and it is thus very likely that difficult questions that come to the fore under the European competition rules will also be replicated at the national level. In both cases, intervention by a competition authority might be warranted.68 Secondly, in cases of parallel application of Community and national competition law, it will be both difficult and artificial to separate the EC and national law aspects of a case (on the assumption that this is even possible) and only allow amicus curiae interventions in respect of the European rules.69 German law allows amicus curiae interventions by its NRA as well.70 This approach deserves consideration by other Member States as well. Similar to the competition rules, the provisions of the 2002 Electronic Communications Framework can also be complex, in both economic and technical terms, meaning that national courts could derive considerable benefit from the specialist knowledge of their NRA. An issue for further consideration is the relationship between amicus curiae interventions and the rights of defence. The right to a fair trial demands that parties are informed of and can comment on submissions made to the court.71 In all legal systems parties must be informed of the contents of written amicus

68 See NMa, ‘Amicus Curiae Guidelines’ [2004], available at http://www.nmanet.nl. Point 10 reads: ‘In principle, the Director-General of NMa’s power to intervene as an amicus curiae only relates to observations concerning the application of Articles 81 or 82 of the EC Treaty. This power does not extend to the application of sections 6 or 24 of the Competition Act [Dutch equivalents]. However, the provisions of sections 6 and 24 of the Competition Act and Articles 81 and 82 of the EC Treaty correspond to a considerable degree. In most cases, observations made by the Director-General of the NMa with regard to the application of Articles 81 and 82 of the EC Treaty will therefore also have consequences for the application of sections 6 and 24 of the Competition Act.’ 69 The parallel application of European and national competition law is possible per Art 3 Reg 1/2003. In this respect, note especially Art 3(2), which allows for the application of stricter national laws in relation to alleged abuse of a dominant position. Since several national laws still contain such stricter provisions, this might be a reason for the applicant to base its case on both EC and national competition law. 70 See §139 TKG. In France, ARCEP is given the right to make written observations to the court pursuant to Arts R11–2 and R11–5 Code PCE. This, however, does not qualify as the right of amicus curiae because submissions are limited to cases in which ARCEP decisions are being challenged and is only provided because ARCEP cannot itself be a party to such proceedings. 71 Art 6 ECHR; Kress v France (Appl no 39594/98) ECHR 2001-IV; Reinhardt and Slimane-Kaïd v France (Appl no 23043/93 and 22921/93) ECHR Reports 1998-II; KDB v the Netherlands (Appl No 21981/93) ECHR Reports 1998-II; JJ v the Netherlands (Appl no 21351/93) ECHR Reports 1998-II; Van Orshoven v Belgium (Appl no 20122/92) ECHR Reports 1997-III; Lobo Machado v Portugal (Appl no 16764/89) ECHR Reports 1996-I; Vermeulen v Belgium (Appl no 19075/91) ECHR Reports 1996-I; Borgers v Belgium (Appl no 12005/86) (1991) Series A no 214-B. In the context of the role of the AG in EC law, see Case C-17/98 Emesa Sugar (Free Zone) NV v Aruba [2000] ECR I-665, confirmed in Case C-434/02 Arnold André GmbH & Co KG v Landrat des Kreises Herford [2004] ECR I-11825 [24]–[27] and Case C-210/03 Swedish Match AB and Swedish Match UK Ltd v Secretary for Health [2004] ECR I-11893 [22]–[25].

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The Role of National Courts in Network-Based Governance curiae interventions.72 French and Dutch law also allow the parties to the litigation to comment upon the oral contribution of the NCA, with Dutch law further providing that the parties may also respond to each other’s observations in relation to the amicus curiae intervention.73 It remains to be seen if the absence of such opportunity will be considered a violation of the right to a fair trial.74 The right of amicus curiae has been exercised sparsely thus far. Only the German and the French NCAs have sporadically submitted interventions to the courts.75

iii. Locus Standi before the National Courts Under Article 4 of the Framework Directive, the right to appeal NRA decisions is conferred on ‘any user or undertaking providing electronic communications networks and/or services’ that is ‘affected’ by that decision.76 Recital 12 adds that a user or firm is considered as ‘affected’ by a decision when it is addressed to him or her. The more interesting question is whether third parties may also petition the courts to obtain review of NRA decisions.77 The European Parliament was firmly of the opinion that they should be so entitled, proposing in the first 72 § 90 GWB; Art 8 Décret no 87–849 du 19 octobre 1987 as amended by Décret 2005–1667 du 27 décembre 2005; Art 89h Mw and Article 44 Rv; and Practice Direction 52: Appeals [Rules of Civil Procedure] 21.01A(11). The NMa’s Amicus Curiae Guidelines (above n 68) at point 38 also allow for the publication of amicus curiae interventions more broadly. Once a ruling has been delivered, the NMa’s interventions will be published on the NMa’s website and on the intranet of the European Competition Network. 73 Art L462–3 Code de Commerce and Arrêt de cassation de Cour de Cassation (chambre commerciale, financière et économique) du 13 juillet 2004 Sociéte DTP terrassement – ‘Pont de Normandie’, Bulletin officiel de la Concurrence, de la Consommation et de la Répression des fraudes, n° 9 du 8 novembre 2004; Art 89h(3) Mw and Art 44 (3) Rv. 74 Under German law, the possibility for the Bundeskartellamt to address questions to the parties, witnesses and expert in the process of the exercise of the right of amicus curiae would especially warrant guarantees to protect the right to a fair trial. 75 EC, ‘Report on Competition Policy 2004’ SEC (2005) 805 final, 56. See also the NMa’s Amicus Curiae Guidelines (above n 68) 15: ‘The Director-General of the NMa wishes to emphasise that he will exercise restraint in using his power to intervene as an amicus curiae in court proceedings’; and at 20: ‘[W]hen the Director General of the NMa considers whether or not to make an intervention, he will take into account the resources such an intervention requires. An amicus curiae intervention is a power and not an obligation. NMa will not intervene in court cases at the expense of its key tasks.’ In Germany, the case load of the Bundeskartellamt means that it hardly ever acts as amicus curiae before the courts of first instance and before the court of appeal, but by tradition it submits oral observations in all civil proceedings heard by the antitrust division of the Bundesgerichtshof. See J Bornhamm, ‘Judicial Control and Review of Antitrust Administrative Policies’ in B Hawk (ed), International Antitrust Law and Policy, Fordham Corporate Law 2002 (New York, Juris Publishing, 2003) 369. 76 See also Art 2 Consolidated Services Directive (above n 40), which says ‘any aggrieved party’. 77 Furthermore, any firm that considers that its application for the grant of rights to install facilities has not been dealt with in accordance with the principles set out in the Framework Directive also qualifies as an affected party.

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Powers and Procedures reading of Article 4 that ‘everyone having an interest to do so’ had standing.78 Conversely, a narrow approach to locus standi could perhaps be favoured on grounds of administrative efficiency and the effet utile of European law. The Commission has frequently frowned upon the practice of firms systematically appealing NRA decisions, together with the practice of a number of national courts that systematically suspend NRA decisions pending appeal (on which more below).79 A strict test of standing could help reduce unnecessary delays in the implementation of the 2002 Electronic Communications Framework, thereby benefiting the development of the Internal Market and generating more legal certainty for firms. The Court provided clarification on this matter in Tele2 Telecommunication GmbH v Telekom-Control-Kommission.80 It ruled that Article 4 conferred a right of appeal also on users and firms that are not themselves addressees of an NRA decision taken in the context of the SMP procedure but whose rights are adversely affected by it. The Court reasoned that these users or competitors are potential beneficiaries of the specific regulatory remedies that NRAs may impose following a finding of SMP and that they are hence affected by decisions withdrawing or amending those remedies. It added that confining the right of appeal to addressees of NRA decisions would furthermore be at odds with the objectives laid down in Article 8 of the Framework Directive, which permeate the entire Framework, in particular the promotion of competition in the electronic communications sector. Table 3.2 presents the rules on locus standi in the four sample jurisdictions. French competition law has the most restrictive attitude. Legislation denies standing to third parties outright. This position seems at odds with the approach taken by the Community Courts when faced with challenges to Commission decisions in application of Articles 81 and 82 EC.81 In those cases, complainants,

78 Report by the Committee on Industry, External Trade, Research and Energy on a proposal for a directive of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services (COM(2000) 393 – C5–0428/2000 – 2000/ 0184(COD)) A5–0053/2001 FINAL, 7 February 2001, amendment 27, endorsed by the European Parliament in first reading. 79 Eg, EC, ‘European Electronic Communications Regulation and Markets 2005 (11th Report’)’ COM (2006) 68 final, 20 February 2002, 10. 80 Case C-426/05 Tele2 Telecommunication GmbH v Telekom-Control-Kommission, judgment of 2 February 2008. See also Case C-55/06 Arcor AG & Co KG v Bundesrepublik Deutschland, judgment of 24 April 2008 [171]–[178]; and Case C-366/06 DNA Verkot Oy, removed from the Registry on 19 March 2007. 81 This approach also seems to stand out in French law generally. French administrative law typically uses the notion of an acte faisant grief, meaning that practically every person adversely affected by a measure has standing to challenge it; and the notion of intérêt pour agir has been construed broadly. See R Chapus, Droit du contentieux administrative, 9th edn (Paris, Montchrestien, 2001) 419ff, as cited by Jacobs AG in Case C-50/00P Unión de Pequeños Agricultores (UPA) v Council [2002] ECR I-6677 [85].

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The Role of National Courts in Network-Based Governance those participating in the proceedings before the Commission and even employees of an affected firm have been accorded locus standi.82 Table 3.2 Locus Standi before National Courts vis-à-vis NCA and NRA Decisions Who has locus standi vis-à-vis NCA decisions?

Third Legal Basis parties included?

Who has locus standi vis-à-vis NRA decisions?

Third Legal basis parties included?

Germany

Parties to the proceedings at the BKartA

Possibly § 63(2), § 54(2) and (3) GWB

Parties to the proceedings at the BNetzA

Possibly § 134(2) TKG

France

Parties to the case and the Minister of Economics

No

Arts 1–1, 8 and 9 Décret 87–849 and Art L464–8 CdC

Interested parties

Not clear

Netherlands

Belanghebbende Not clear

Art 1:2 Awb

Belanghebbende Yes

Art 17.1 Tw and Art 1:2 Awb

United Kingdom

Parties to the case and those with sufficient interest

ss 46 and 47 CA 1998

Parties to the case and those with sufficient interest

ss 192(2) and 196(3) Comm A 2003

Yes

Yes

Art L36–11(IV) Code PCE

In the other three Member State jurisdictions, it appears that a connection is made between involvement in the decision-making process and standing to challenge the resultant act. Thus, in Germany participation in proceedings before the Bundeskartellamt or Bundesnetzagentur is the linchpin for standing to seek judicial review. The participation threshold seems easier to cross for third parties dissatisfied with NRA, as opposed to NCA, decisions. An Applicant seeking to challenge NRA decisions need only demonstrate that their interests are ‘likely to be affected’ (a standard of probability), whereas applicants who wish to attack NCA decisions must show that they are ‘substantially affected’ by the contested decision (a factual standard). Case law has not yet clarified whether this difference in phraseology indeed has practical ramifications. Locus standi under UK law is not dependent on participation in the decisionmaking process, although this can of course be helpful in establishing standing in 82 Case 26/76 Metro SB-Großmärkte GmbH & Co KG v Commission [1977] ECR 1875; Case C-70/97 Kruidvat BVBA v Commission [1998] ECR I-7183; Case T-37/92 Bureau Européen des Unions des Consommateurs v Commission [1994] ECR II-285; Case T-12/93 Comité Central d’Enterprise de la Société Générale des Grands Sources v Commission [1995] ECR II-1213.

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Powers and Procedures a particular case. Legislation unambiguously accords standing to the addressees of decisions and to any third party that is considered by the CAT to have a sufficient interest in judicial review. This jurisdictional requirement is rarely an obstacle to access to the court.83 Dutch law and French communications law adopt yet another approach. Legislation defers the determination of locus standi to the courts. Third-party standing hinges on the interpretation the courts give to the notion of ‘interested party’. The Rechtbank Rotterdam has adopted an expansive reading of the notion, holding that as far as NRA decisions are concerned, third parties have a right of access to the court.84 Whether the same holds true for challenges to NCA decisions remains to be seen. The Paris Cour d’Appel is as yet undecided on whether third parties can appeal ARCEP decisions. Two overarching considerations conclude this section. Firstly, we may tentatively say that legal regimes adopt a (slightly) more liberal approach to standing for third parties in relation to NRAs than prevails for judicial challenges of NCA decisions. Secondly, UK and German law adopt the same approach for challenges to NCA and NRA decisions. Given the possibility of pursuing a single matter before both NCAs and NRAs, as well as the links between both areas of law—a decision under one regime might very well spur or affect a decision under the other—an integrated approach is surely preferable. To be sure, where a single court is competent to review decisions of the NCA and NRA, as is the case in the United Kingdom and the Netherlands, unified standing rules are all the more appropriate.

iv. Suspensory Effect of Appeals Article 4 of the Framework Directive stipulates that NRA decisions must in principle remain intact pending the outcome of an appeal. On the one hand, systematic suspension would induce unnecessary delays in the implementation of regulatory decisions and could thus compromise the development of the Internal Market in electronic communications. On the other hand, the special expertise of the NRA and the extensive public consultation process that precedes most regulatory decisions85 is believed to warrant a presumption of legality. The validity of these considerations obviously extends to appeals brought against 83 See SA de Smith, H Woolf and J Jowell, Judicial Review of Administrative Action (London, Sweet & Maxwell, 1995) 106ff. In general, judicial review is open to statutory bodies or pressure groups, as in R v Secretary of State for Employment ex parte Equal Opportunities Commission [1995] 1 AC 1. 84 Judgment of 7 January 2002 Versatel v OPTA zaak no TELEC 00/1010-SIMO (2002) Mediaforum Jur No 9 and Judgment of 19 March 2002 Versatel v KPN WTV 98/2144-SIMO and WTV 98/2188-SIMO. This case law took a long time to come about, however. 85 Art 6 and Recital 15 Framework Directive and Commission Guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services [2002] OJ C165/6 [144]–[145].

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The Role of National Courts in Network-Based Governance NCA decisions. Article 4, however, allows national courts to adopt interim measures when it is necessary. The legal state of the art at national level is set out in Table 3.3. Table 3.3 Suspensory Effect of NCA and NRA Decisions at Member State Level Does appeal suspend NCA decisions?

Legal Basis

Grounds for Granting Suspensory Effect

Does appeal suspend NRA decisions?

Legal Basis

Grounds for Granting Suspensory Effect

Germany

Yes, for the great majority of BKartA decisions

§§ 64 and 65 GWB

N/A

No

§ 137(1) TKG

Not specified

France

No

Art L464–8 CdC

Manifestly No excessive consequences or emergence of new facts of exceptional gravity

Arts L36–8(III) and L36–11(IV) Code PCE

Urgency and serious doubts as to legality of contested decision

Netherlands Yes, but only decisions imposing fines

Art 63 Mw

Not specified

No

Art 6:16 Awb

Not specified

United Kingdom

s 46(4) CA 1998

Not specified

No

CAT Rules (SI 2003 No 1372) point 61(1)

Not specified

Yes, but only decisions imposing penalties

A perusal of the sample legal regimes shows that only French law has captured the spirit of the Community rule. Outlawing automatic suspension of both NCA and NRA decisions, the French legislation furthermore contains explicit limitations on the courts’ discretion to grant interim relief.86 German, Dutch and UK communications laws leave the matter entirely in the hands of the courts. In practice, courts in these jurisdictions frequently decide to suspend NRA decision 86 It should be noted also that the grounds for suspensory effect are the same per court. The grounds for interim relief for decisions by the Conseil de la Concurrence are also those used for interim relief as regards dispute settlement decisions by the ARCEP. It will be recalled that both types of decisions are reviewed by the Paris Cour d’Appel. The grounds on which all other ARCEP decisions can be suspended are included in the scheme and are applied by the Conseil d’État.

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Powers and Procedures pending appeal.87 This corresponds to a wider trend at the national level, whereby courts seem eager to grant interim relief. Indeed, automatic suspension is often the national practice.88 Subjective rights of individuals are thought to warrant protection in the face of potential illegality of the decision under challenge; allowing the immediate implementation of the decision might therefore cause an unnecessary or unjustified infringement of those rights. The approach of German competition law most clearly reflects these beliefs.89 A presumption of illegality is applied to the great majority of decisions by the Bundeskartellamt.90 In those rare instances when appeal does not have suspensory effect, the Bundeskartellamt can nevertheless suspend enforcement and is actually required to do so if enforcement of the contested decision would result in undue hardship for the party that is not required by prevailing public interests. While the Bundeskartellamt may insist on the immediate enforcement of its decision if this is in the public interest or in the prevailing interests of an affected party, the court can simply restore suspensory effect upon application. This might explain why immediate enforcement is ordered only sporadically.91 The position under Dutch and UK competition law is rather more moderate. Only NCA decisions imposing fines are automatically suspended.92 This practice may nevertheless not be problem-free. The majority of decisions finding an infringement of the competition rules impose fines. Since fines are intended to

87 Tesauro AG in Case C-213/89 R v Secretary of State for Transport, ex parte Factortame Ltd and others [1990] ECR I-2433 emphasised ‘the similarity of the criteria for interim relief in the various Community systems, identifying the two basic preconditions as prima facie case (however designated) and the periculum in mora’. However, this in and of itself does not mean that the outcome— suspension or not—is also similar across the various Community systems. Rather, practice thus far indicates that, as far as NRA decisions are concerned, it is not. In EC, ‘The Review of the EU Regulatory Framework for Electronic Communications Networks and Services’ (Communication) COM (2006) 334, the Commission notes the judicial practice of routinely suspending regulatory decisions and the varying practices of courts in their treatment of interim relief; it proposes to lay down EU-level criteria for granting suspension of regulatory decisions, inspired by the ECJ’s case law. 88 See the Commission’s 11th Implementation Report (above n 79) 10. 89 § 80 of the Verwaltungsgerichtsordnung stipulates that in general, the introduction of a complaint and the institution of an action for annulment automatically suspends the decision under attack, unless the national administrative authority expressly opposes suspension in the public interest, in which case it is for the competent court to make a decision. 90 § 64(1) GWB stipulates that an appeal has suspensory effect insofar as the decision being appealed concerns a finding of an infringement of the competition rules [§ 32 read together with §§ 19–21]; revokes the recognition of competition rules by trade and industry associations and professional organisations [§ 26(4)]; declares that fixed prices for newspapers and magazines can no longer be applied [§ 30(3)]; or revokes or alters a ministerial authorisation for a merger [§ 42(2)]. 91 OECD, ‘Germany: The Role of Competition Policy in Regulatory Reform’ [2003] 25. 92 Of course, in practice this means that a large proportion of the decisions by the NMa and the OFT are suspended because most decisions finding an infringement of EC or national competition rules will also impose fines. The NMa can, however, decide in the decision concerned that the appeal does not lead to the suspension of the fine, but case law has made it clear that the NMa can only use this competence in exceptional cases.

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The Role of National Courts in Network-Based Governance have not only a repressive but also a dissuasive effect, automatic suspension could compromise this intended deterrent effect.93 National jurisdictions could usefully look to the practice of the Community Courts for inspiration. Article 242 EC posits that actions brought before the Court shall not have suspensory effect. However, if the Court considers that circumstances so require, it may order that the contested act be suspended.94 Interim measures are almost invariably sought but seldom granted. Applicants must prove the existence of fumus boni iuris, or a solid prima facie case, and periculum in mora, so the risk of serious and irreparable harm to the applicant that, in the balance of interests,95 outweighs any harm that would result from suspending the decision.96 In practice, this is difficult to prove. Purely financial loss is in principle not considered as irreparable, unless it threatens the very existence of the plaintiff,97 the damage cannot be quantified98 or compensation cannot restore the position the claimant was in before the damage was caused.99 The burden of proof is imposed on the claimant100 and includes furnishing proof ‘that he cannot wait until the conclusion of the main action without personally suffering damage which would have serious and irreparable effects for him.’101 Drawing on ECJ case law still further,102 a compromise solution might be to allow suspensory effect but require applicants to lodge security or bonds. Such financial guarantees

93 Indeed, the deterrent effect of fines for infringement of the competition rules has induced the EC legislature and Member States to increase substantially the maximum fines that can be imposed. 94 For more details, see eg, I Hardcastle, ‘Interim Measures in Proceedings concerning EC Law: New Departures’ (1994) 5 European Business Law Review 95; P Olivier, ‘Interim Measures: Some Recent Developments’ (1992) 29 Common Market Law Review 7; and H Schermers and D Waelbroeck, Judicial Protection in the European Communities, 6th edn (The Hague, Kluwer Law International, 2001). 95 Interim relief is also granted if it would be disproportionate to the Community’s interest not to allow suspension of the decision during the Court’s proceedings. 96 Eg, Case 71/74 Nederlandse Vereniging voor de Fruit en Groenten-importhandel, Nederlandse Bond van Grossiers in Zuidvruchten en ander Geimporteerd Fruit v Commission [1974] ECR 1034; Case 97/85 Union Deutsche Lebensmittelwerke GmbH and Others v Commission [1985] ECR 1031. These conditions have also been extended to the award of interim relief by national courts against Community measures, eg, Case C-143/88 and C-92/89 Zuckerfabrik Süderdithmarschen AG v Hauptzollamt Itzehoe and Zuckerfabrik Soest GmbH v Hauptzollamt Paderborn [1991] ECR I-415; Case C-465/93 Atlanta Fruchthandelsgesellschaft and others v Bundesamt für Ernährung und Forstwirtschaft [1995] ECR I-3761 and Case C-68/95 T Port GmbH & Co KG v Bundesanstalt für Landwirtschaft und Ernährung [1996] ECR I-6065. 97 Case 310/85R Deufil GmbH & Co KG v Commission [1986] ECR 537; Case 152/88R Sofrimport SARL v Commission [1988] ECR 2931; Cases C-51/90R and C-59/90R Cosmos-Tank BV, Matex Nederland BV and Mobil Oil BV v Commission [1990] ECR I-2167. 98 Cosmos-Tank B (ibid). 99 Case C-19/90R Commission v Germany [1990] ECR I-3351. 100 Case 250/85R Brother Industries Ltd v Council [1985] ECR 3459; Case C-356/90R Belgium v Commission [1991] ECR I-2423. 101 Case 142/87R Belgium v Commission [1987] ECR 2589; Belgium v Commission (ibid). 102 Zuckerfabrik Suderdithmarschen (n 109) [30]–[32]; Atlanta Fruchthandelsgesellschaft (above n 96) [42], [43] and [45]; and T Port GmbH & Co KG (above n 96) [48].

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Institutional Principles safeguard the effectiveness of the decision if its legality is ultimately upheld and at the same time function to dissuade abuse by applicants. v. Appeals to Non-judicial Bodies In most Member States appeals against NRA decisions are brought before the courts. Other possibilities can, however, be envisaged. The most common alternative is for another administrative body to decide the matter. Two additional procedural requirements must be observed by non-court appeal bodies. There must be an avenue of appeal to a judicial body within the meaning of Article 234 EC. The European Court of Justice takes a number of factors into account when determining whether a review body qualifies as such: whether it is established by law; whether the body is permanent; whether its jurisdiction is compulsory; whether its procedure is inter partes; whether it applies rules of law; and whether it is independent.103 Second, Community law imposes a duty on administrative appeal bodies to provide reasoned decisions so as to ensure that parties are in a better position to challenge these decisions in court. Denmark is currently the only Member State that has established a separate appeals body that is not a court.104

IV. INSTITUTIONAL PRINCIPLES

While European law leaves it to the Member States to designate the courts having jurisdiction for actions under competition or communications law, the 2002 Electronic Communications Framework does address the institutional characteristics of national courts. When reviewing NRA decisions, national courts must possess the appropriate expertise to fulfil this task, and they must act independently of the parties to the litigation, including any NRA whose decision is under attack.

A. The ‘Appropriate Expertise’ of National Courts Article 4 of the Framework Directive demands that appeal bodies, including courts, ‘have the appropriate expertise available to enable them to carry out their 103 Eg, Case C-54/96 Dorsch Consult Ingenieurgesellschaft mbH v Bundesbaugesellschaft Berlin mbH [1997] ECR 4961; Case 61/65 F Vaassen-Göbbels (a Widow) v Management of the Beambtenfonds voor het Mijnbedrijf [1966] ECR 261; Case 14/86 Pretore di Salò v Persons Unknown [1987] ECR 245 [7]; Case 109/88 Handels – og Kontorfunktionaerernes Forbund I Danmark v Dansk Arbejdsgiverforening, acting on behalf of Danfoss [1989] ECR 3199 [7]-[8]; Case C-393/92 Municipality of Almelo and Others v NV Energiebedrijf Ijsselmij [1994] ECR I-1477; and Case C-111/94 Job Centre Coop.ARL. [1995] ECR I-3361 [9]. 104 EC, ‘Eighth Report on the Implementation of the Telecommunications Regulatory Package: European Telecoms Regulation and Markets 2002’ COM (2002) 695 final, 3 December 2002, 19.

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The Role of National Courts in Network-Based Governance functions’. No further guidance is offered regarding what exactly is meant by this. Inspiration may, however, be drawn from the rationale that underlies this requirement. It is clear that national courts that are knowledgeable about the matters to be adjudicated will be better able to assess the complex economic assessments carried out by the NRAs and as such more likely to render judgments that are ‘correct’ and that do not unnecessarily or inappropriately undermine the work of the NRAs. In turn, this should hopefully lead to a greater degree of consistency in judgments across Europe. ‘Appropriate expertise’ can accordingly be interpreted to denote access to105 and possession of knowledge of: Community law, in particular EC communications law; the technological and economic workings of the markets for communications networks and services; and key concepts of competition law.106 The next issue for consideration is how Member States should implement this requirement. A number of possibilities come to mind. Member States could create specialised courts with exclusive competence to rule on challenges brought against NRA decisions. A variation is the establishment of specialised chambers within the general civil or administrative courts. The creation of such courts or chambers can be complemented by the use of special appointment criteria. The Commission has recognised the validity of this option, while cautioning at the same time that ‘[a]ppeal bodies which have a general, non-specialised remit may find it difficult to handle this workload [the detailed consideration of questions of fact which can be extremely complex in both economic and technical terms]’.107 EC competition law has not directly addressed the matter of expertise within national courts reviewing NCA decisions. This state of affairs might seem surprising at first sight. After all, in the run-up to the adoption of what is now Regulation 1/2003, critics were concerned that national courts would lack the ability to successfully apply Article 81(3) EC.108 Three lines of arguments, not necessarily compatible, could account for the absence of a European requirement of expertise. First, the Commission could simply have assumed that national courts would be sufficiently knowledgeable to adjudicate competition cases because they had always been able to apply Article 81(1) and (2) and Article 82,

105 The use of the words ‘available to it’ would seem to indicate that the expertise need not be in-house, but may also be provided by external sources, provided of course that they conduct themselves in an independent manner. 106 See also P Nihoul and P Rodford, EU Electronic Communications Law: Competition and Regulation in the European Telecommunications Market (Oxford, Oxford University Press, 2004) 637, who note that the requirement in Art 4 of an effective appeals mechanism means that courts ‘must be given the resources and personnel necessary to ensure that the appeal process is effective’. 107 The Commission’s 11th Implementation Report (above n 79) 53. However, specialisation can also be a disadvantage: specialised judges may be more prone to insularity. 108 EC, ‘White Paper on Reform of Regulation 17: Summary of the Observations’ (DG COMP document), 29 February 2000, available on the website of DG COMP, 13ff. Even those parties in favour of decentralising the application of Art 81(3) EC to national courts called for the establishment of specialised courts at the domestic level.

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Institutional Principles as well as a large number of other provisions of Community law that also necessitate complex economic assessments. Second, and in conjunction with this, Regulation 1/2003 introduced a number of procedural tools that assist national courts in the enforcement of the European competition rules. Thus, they may ask the Commission for information or advice; they may receive amicus curiae submissions; and they may look for inspiration in the public database that lists all the judgments across Europe that apply Articles 81 or 82 EC.109 A separate expertise requirement would thus be superfluous. Third, it could be argued that the general Community principles of effectiveness and loyalty require that national courts possess the appropriate expertise to protect adequately the rights that individuals derive from European law. Since these principles pervade the entire European legal system, it would hence be gratuitous to codify them in Regulation 1/2003.110 Turning to the national level, the legal systems under study have all opted for specialisation, although the manner in which it is realised betrays some differences in attitude. UK law undoubtedly operates the most sophisticated regime. Appeals against NCA and NRA decisions are heard by the CAT, a specialised judicial body created by the Enterprise Act 2002. It has cross-disciplinary expertise in law, economics, business and accountancy. The CAT is exclusively competent to hear appeals and other applications or claims brought under the competition or communications rules. To become a member of the CAT, the Enterprise Act requires that the appointee possesses (appropriate) knowledge and expertise in competition law, economics, business or regulation.111 The German competition act calls for the establishment of a special cartel division at the Oberlandesgericht Düsseldorf and at the Bundesgerichtshof.112 The German judicial structure for control of NCA decisions is thereby the only one to ensure a specialised judiciary in all layers of the appeal procedure. Surprisingly, given the general convergence in regime applicable to proceedings 109 Art 15 Reg 1/2003 and Commission Notice on the co-operation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 EC [2004] OJ C101/54. See further below ch 5, section I-B. 110 Of course, the same argument could be used to question the merits of the reference to expertise in Art 4 Framework Directive. There might nevertheless be valid reasons for a specific codification in secondary legislation. First, a specific provision provides a clear legal basis (and instruction) for Member States to indeed provide for expert courts. Secondly, a specific provision brings clarity for national courts, national authorities and market operators as to the standard national courts should conform to in exercising judicial functions in a specific area of EC law. 111 The precise stipulations differ depending on the position a person is applying for. The President must appear to the Lord Chancellor to have appropriate experience and knowledge of competition law and practice: Sched 2(1)1 Enterprise Act 2002. To be appointed to the panel of chairpersons, a candidate must appear to the Lord Chancellor to have appropriate experience and knowledge (either of competition law and practice or of any other relevant law and practice): Sched 2(1)2 Enterprise Act 2002. Finally, ordinary members must have backgrounds in law, economics, business, accountancy or regulation. 112 §§ 91 and 94 GWB respectively. According to the OECD Report on Germany (above n 91), this kind of specialisation is evidently the norm: the Bundesgerichtshof has eight special senates, in addition to its twelve civil and five criminal senates.

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The Role of National Courts in Network-Based Governance under German (and European) competition and communications law, the TKG lacks comparable provisions. In practice, an additional chamber dealing with communications cases has been established at the Verwaltungsgericht Köln.113 French and Dutch law proceed along similar lines. Legislation has not addressed the matter of specialisation within the judicial structures for control of NCA and NRA decisions. The courts themselves have responded to the need to accumulate expertise to effectively handle their caseload. The Paris Cour d’Appel and the Rechtbank Rotterdam have created specialised chambers to hear and decide cases involving economic or regulatory issues.114 One of the considerations that prompted the concentration of judicial review within the Rechtbank Rotterdam was the assumption that few competition cases were expected to reach the courts and that it would hence not be realistic to expect all Rechtbanken (District Courts) to amass the requisite knowledge to deal with those cases. In any event, the fact that a single court is competent to hear appeals against NCA and NRA decisions in and of itself helps that court to become specialised in the relevant area. ‘Appropriate Expertise’ and Civil Proceedings Courts that hear appeals regarding NCA and NRA decisions are of course not the only ones that must have ‘appropriate expertise’. Although the matter is not directly addressed by EC legislation, national courts that decide cases between private parties must also have ‘appropriate expertise’ to handle such litigation. This requirement seems especially important in competition litigation, given the complementary role envisaged for national courts in private litigation vis-à-vis public enforcement by the Commission and NCAs. A number of national competition laws have addressed this issue. The German GWB allows for the Länder or the Federal Government to concentrate jurisdiction for civil actions in one Landgericht (District Court) or Oberlandesgericht (Court of Appeal), which then covers several court districts or the entire territories of several Länder.i Such concentration can be undertaken to serve the administration of justice in cartel matters, ‘in particular to ensure the uniformity of court practice’. French law allows for a similar structure. Competence in civil litigation can be entrusted to a small number of tribunaux de commerce (commercial courts) and tribunaux de grande instance (higher District Courts).ii UK law proceeds differently. It does not limit the courts’ competence to hear and decide civil litigation but allows for the transfer of cases between ordinary courtsiii and the Competition Appeal Tribunal (CAT) for the latter to determine whether there has been an infringement of the competition rules.iv Any such findings are binding upon the civil courts.

113 114

The Commission’s 11th Implementation Report (above n 79) Annex I 103. In the Cour d’Appel, First Chamber, section H.

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Institutional Principles

The Netherlands has adopted yet another approach. An ‘expert centre’ on financial and economic law has been installed at the Rechtbank Rotterdam. Judges of other Rechtbanken (District Courts) and Gerechtshoven (Courts of Appeal) can take part in the operation of this centre as and when they deem appropriate. In addition to this expert centre, practical arrangements have been put in place. Judges who are willing to specialise in competition law are appointed as deputy judges in one or more of the other district courts. When a competition case reaches the courts, it is then possible to select a group of specialising judges to hear that particular case. By hearing a great number of competition law cases, the judges can reach a high level of specialisation. ———————————— i § 89 and 92 GWB. It is mentioned that such a concentration effort can be undertaken ‘if such centralisation serves the administration of justice in cartel matters, in particular to ensure the uniformity of court practice’ (emphasis added). ii Art L420–7 Code de Commerce, inserted by the Loi NRE. iii In other words, the High Court, the county courts, the Court of Sessions and the sheriff court. iv S 16 Enterprise Act 2002.

B. The Independence of National Courts The 2002 Electronic Communications Framework insists that national courts are independent of the parties to any litigation, including any NRA whose decision is being challenged.115 This requirement acquires particular significance where appeals are decided by a non-judicial body, for instance another administrative body. Paul Nihoul and Peter Rodford have pointed out that a high standard of independence must then be guaranteed, otherwise ‘the appeal procedure loses credibility and the appeal cannot be said to be effective as required’ by EC communications law.116 The Community Courts have not had occasion to indicate how to assess whether an appeal body satisfies this requirement. We may expect that it will draw inspiration from its case law on the concept of ‘court or tribunal’ under Article 234 EC. One of the factors that the Court takes into account in determining whether a body qualifies as such is whether it is independent. Independence is assessed with reference to: the manner and duration of appointment of members of the appeal body; provisions concerning the removal from office; and whether 115 Arts 4 and 11(3) and Recital 12 Framework Directive; and Art 2(5) and Recital 9 Consolidated Services Directive (above n 40). EC, ‘Proposal for a Directive of the European Parliament and of the Council on a common regulaory framework for electronic communications networks and services’ COM (2000) 393 final, 12 July 2000 initially read that any appeal body should be independent of the government and the NRA. 116 Nihoul and Rodford (above n 106): ‘the concept of independence of the parties involved applies not only in an institutional sense but also to the personnel of the appellate body . . . which must not be connected in one way or another to one or more of the parties or otherwise subject to a conflict of interest.’

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The Role of National Courts in Network-Based Governance judgment is given without receiving instructions.117 It often compares the legislative provisions under question to those governing members of the judiciary. These factors bear great similarity to those used by the European Court of Human Rights concerning the interpretation of judicial independence as laid down in Article 6 ECHR: In determining whether a body can be considered to be an independent tribunal, ie in particular independent of the executive and of the parties to the case, regard must be had to the manner of appointment of its members and the duration of their term of office, the existence of regulations governing their removal or guarantees for their irremovability, laws prohibiting their being given instructions by the executive in their adjudicatory role, the existence of legal guarantees against outside pressures, the question whether the body presents an appearance of independence and the attendance of members of the judiciary in the proceedings.118

Some Member States (such as Belgium, Spain, Luxembourg and the Netherlands) used to have a first, internal appeal during which the NRA had to re-assess its decision.119 That system was in line with the organisation of appeals as it generally exists in the administrative law of those Member States. This practice is now largely discontinued. First, time and resources were diverted from the main mission of the NRA, that is, regulatory oversight of electronic communications markets.120 Second, the internal revision procedure in many cases turned out to be an unnecessary repetition of the initial decision-making procedure.121 Very few decisions were in fact decided differently. For instance, OPTA’s 2002 Annual Report notes that in that year the authority came to a different decision in only ten per cent of the cases and that in most of those cases, the different decision was prompted by an interim judgment by the President of the Rechtbank Rotterdam.122 As the situation currently exists in the Member States, appeals are lodged with courts that are part of the ordinary civil or administrative law enforcement structures. It is axiomatic that these possess the requisite independence from the parties of the case.

117

See case law cited above n 103. Holm v Sweden, Judgment of 13 October 1992 (Series A-279-A) [54]. Earlier yet less completely, the Court enumerated similar criteria in Campell and Fell v United Kingdom Judgment of 28 June 1984 (Series A-80) [78]. All EU Member States are signatories to the ECHR and must thus abide by the standards set by the Convention and the Court in its interpretation thereof. See further F Jacobs and R White, The European Convention on Human Rights, 4th edn, revised by C Ovey and R White (Oxford, Oxford University Press, 2006) 181ff. 119 The Commission’s 8th Implementation Report (above n 104) 19. 120 Ibid. This was all the more problematic given the lack of resources of NRAs identified by the market parties. 121 See Nihoul and Rodford (above n 106) 638. 122 ‘Visie op de Markt: Jaarverslag OPTA 2002’, 94, available at http://www.opta.nl. The same could be said for the NMa. In 2003 the authority completed a total of 145 internal revision procedures, of which only 40 were held to be well founded (or partly so): ‘2003 Annual Report NMa and Dte’, 13, available at http://www.nmanet.nl. 118

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Conclusion V. CONCLUSION

This chapter has explored the role of national courts and the regulatory environment in which they operate under network-based governance. To obtain a good view of the state of the law, we have considered the European legal instruments as well as the laws of four selected national systems. As with the national authorities, the Community legislature has been rather precise in addressing the regulatory attributes of national courts under Regulation 1/2003 and the 2002 Electronic Communications Framework. We may thus properly classify the attention European law devotes to this issue as a defining feature of network-based governance. This approach also bears witness to a growing recognition of the important role of national courts under European law, coupled with the awareness that specifying procedural and institutional parameters ensures an equal playing field for those in need of judicial protection across Europe, thereby contributing to the development of the Internal Market. A Plethora of Procedural Constraints? During the negotiations on Article 4 of the Framework Directive, the European Parliament and the Commission proposed a number of additional conditions or requirements to govern the EC-created right of appeal. These included: A time limit for appeals and the delivery of judgments: requests for appeal would have to be made within one month of publication of the NRA decision, and the court would have to rule on the case within three months of such a request.i A requirement for Member States to ensure that judgments could be effectively enforced.ii Criteria governing the appointment of the appeal body: members would have to be appointed and leave office under the same conditions as members of the judiciary; and at least the presiding member of the appeal body should have the same legal and professional qualifications as members of the ordinary judiciary.iii A codification of the audi alteram partem principle: the appeal body would have to take its decisions following a procedure in which both sides were heard. Criteria indicating when an NRA decision could be suspended: the appeal body would only be allowed to suspend the decision under attack for urgent and imperative reasons linked to a potential conflict with the present regulatory framework.iv These requirements were too much for the Council. It preferred a very minimalist right of appeal, with the competent body not necessarily having to be a court and without requiring that the merits of the case be considered. As we saw earlier, Parliament and the Commission eventually managed to obtain the Council’s agreement on these two issues, at the expense of the requirements outlined above. ————————————

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The Role of National Courts in Network-Based Governance

i Report by the Committee on Industry, External Trade, Research and Energy on a proposal for a directive of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services (COM(2000) 393 – C5–0428/2000 – 2000/0184(COD)) A5–0053/2001 FINAL, 7 Feb 2001, amendment 27, endorsed by the European Parliament in first reading. ii ‘Proposal for a Directive of the European Parliament and of the Council on a common regulaory framework for electronic communications networks and services’ COM (2000) 393 final, 12 July 2000, 4 and 16. iii Ibid. iv Report by the Committee on Industry, Trade, Research and Energy (above, n i).

The nature of the European requirements regarding national courts differs somewhat between EC competition and EC communications law. This is because the two regimes have diverging views of the primary role of national courts. Regulation 1/2003 posits national courts as an alternative to NCAs and the Commission, whereas the 2002 Electronic Communications Framework conceives them only as a control instrument in relation to NRA decisions. These diverging conceptions mean that any comparison on the basis of the provisions of EC law is necessarily somewhat incongruous, as it involves comparing courts acting in first instance (ie, under EC competition law) with courts acting in second instance (ie, under EC communications law). However, we also saw that courts under the 2002 Framework may also act concurrently with NRAs in a variety of situations and that courts under Regulation 1/2003 also engage in control of NCA decisions. This means that there are valuable opportunities for mutual learning and cross-fertilisation between the two legal regimes. A similar argument can be made in relation to the legal status quo in the four sample Member States. These jurisdictions have only sporadically used the introduction of a procedural condition by EC law in one regime as a trigger to duplicate that requirement in the other legal regime. While understandable, this attitude is unfortunate. The substantive links between both areas of law mean that a number of claims may be brought either under the European competition rules or under the communications rules. In addition, both UK and Dutch law (and to a lesser extent, French law as well) entrusts review of NCA and NRA decisions to the same courts. Ideally, this would result in more similarities in procedural and institutional regimes.

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4 The Role of the Commission in Network-Based Governance

T

HE PREVIOUS TWO chapters have examined the role of national actors under network-based governance. This chapter directs attention to the role of the key player at Community level—the Commission. The present discussion addresses only those aspects of the Commission’s role that are distinctive to the network regime. We shall first deal with the Commission’s competence to adopt individual decisions addressed to firms (section I). This power is, as will be seen, exclusive to the network model as it operates for competition enforcement. Section II then considers the special powers the Commission is conferred to oversee and guide the activities of the national actors.

I. DIRECT ADMINISTRATION: PROSECUTING INFRINGEMENTS OF THE COMPETITION RULES

The EC Treaty empowers the Commission to directly administer the European competition rules.1 Article 85 EC entrusts it with the application of Articles 81 and 82 EC and with the investigation of suspected infringements of these provisions.2 We have seen that Community law is usually applied by agencies and courts at the national level. That the Commission is endowed with independent powers of enforcement is accordingly exceptional.3 A similar competence does not exist for EC communications law. That said, the Commission’s power to administer the EC competition rules stretches far and wide now that these rules apply to all sectors of the economy—electronic communications included.4 If 1

For the reasons, see above ch 1, section III-A. Confirmed by the ECJ in Case C-234/89 Stergios Delimitis v Henninger Bräu AG [1991] ECR I-935 [44]; Case C-344/98 Masterfoods Ltd and HB Ice Cream [2000] ECR I-11412 [48]. 3 Other fields in which this is also the case are state aid (Arts 87–89 EC) and merger control (Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings [2004] OJ L24/1). 4 The continued applicability of the European competition rules notwithstanding the presence of a sector-specific regulatory regime was recently confirmed by Deutsche Telekom AG (Case COMP/C1/37.451, 37.578, 37.579) Commission Decision 2003/707/EC [2003] OJ L263/9, upheld by the Court 2

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The Role of the Commission in Network-Based Governance and when necessary, the Commission could thus use its competences under Articles 81 and 82 EC to pursue competition violations committed by firms active in that sector.5 This section will address the types of decisions the Commission may adopt, its prioritisation policy and the Commission bureaucracy through which competition policy is administered.

A. Types of Decisions Regulation 1/2003 contains the various competition determinations that the Commission can make during the course or at the completion of an investigation.6 It may:

of First Instance in Case T-271/03 Deutsche Telekom AG v Commission [2008] judgment of 10 April 2008, appealed to the ECJ in Case C-280/08. The Commission found Deutsche Telekom guilty of exclusionary pricing for local loop access under Art 82 EC. The charges imposed by Deutsche Telekom were, however, regulated by the German national regulatory authority, then the Reg TP, under the German Telecommunications Act (implementing a variety of European telecoms directives). In this respect the European approach differs from that which prevails on the other side of the Atlantic. In Verizon Communications Inc v Law Offices of Curtis V Trinko 540 US 682 (2004) the US Supreme Court ruled that the Telecommunications Act 1996 already was ‘an effective steward of the antitrust function’ (698) and that the application of the Sherman Act (the main competition statute in the United States) was unnecessary and could perhaps even be counterproductive. See further P Larouche, ‘Contrasting Legal Solutions and the Comparability of EU and US Experiences’, Tilec Discussion Paper 2006–028, 2006, http://www.tilburguniversity.nl/tilec/publications/ discussionpapers/2006–028.pdf, esp 10–11; D Geradin, ‘Limiting the Scope of Article 82 EC: What Can the EU Learn from the US Supreme Court’s Judgment in Trinko in the Wake of Microsoft, IMS and Deutsche Telekom?’ (2004) 41 Common Market Law Review 1519. 5 Note that in Deutsche Telekom (ibid) the Commission’s use of competition law was intended primarily to discipline the German regulatory authority. For more on this strategy, see C Hocepied and A de Streel, ‘The Ambiguities of the European Electronic Communications Regulation’ in E Dommering and N Van Dijk (eds), The Round Table Expert Group on Telecommunications Law (Amsterdam, Amsterdam University Press, 2005) 162 ff. For criticism, see N Petit, ‘The Proliferation of National Regulatory Authorities Alongside Competition Authorities: A Source of Jurisdictional Confusion?’ in D Geradin, R Muñoz and N Petit (eds), Regulation through Agencies in the EU: A New Paradigm of European Governance (Cheltenham, Edward Elgar, 2005). Presently, the need for the Commission to resort to competition law to supervise and, where necessary, rectify the behaviour of national regulatory authorities should be limited. This is because the SMP regime (which, it will be recalled, relies heavily on competition principles and methodology) together with the special control mechanisms over the activities of the national regulatory authorities (see below), should go a long way towards ensuring a state of healthy competition in electronic communications. For an overview of the activities of the Commission in relation to electonic communications, under both the special regulatory framework and the general competition rules, consider the special section on electronic communications included in the Commission’s Annual Reports on Competition Policy at http://ec. europa.eu/comm/competition/annual_reports/. 6 Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Arts 81 and 82 of the Treaty [2003] OJ L1/1. The Commission at times also closes proceedings informally, typically following an internal settlement with the firm in question, eg IP/08/22 ‘Commission Welcomes Apple’s Announcement to Equalise Prices for Music Downloads from iTunes in Europe’, 9 January 2008; IP/06/139 ‘Commission Closes Investigation following Changes to Philips CD-Recordable Disc Patent Licensing’, 9 February 2006; IP/05/519

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Direct Administration: Prosecuting Infringements of the Competition Rules + Adopt interim measures.7 Two cumulative conditions must be met before such measures can be awarded. There must be a prima facie finding of infringement of the competition rules and a need to prevent serious and irreparable damage to competition.8 Interim measures are adopted at the Commission’s initiative and apply for a limited time period.9 + Order the termination of an infringement.10 The Commission can make such a decision on the basis of a complaint or on its own initiative.11 It may impose fines and periodic penalty payments.12 The Commission can also order behavioural or structural remedies.13

‘Commission Welcomes Improved Access to Tickets for the 2006 World Cup’, 2 May 2005. On investigations generally, see C Kerse and N Khan, EC Antitrust Procedure (London, Thomson, Sweet & Maxwell, 2004). 7 Art 8 and Recital 11 Reg 1/2003. This is a codification of case law, in particular Case 792/79R Camera Care Ltd v Commission [1980] ECR 119, reaffirmed by the CFI in Case T-131/89R Cosimex GmbH v Commission [1990] ECR II-1 [11] and Case T-44/90 La Cinq SA v Commission [1992] ECR II-1 [27]–[30]. See further A Nordsjo, ‘Regulation 1/2003: Power of the Commission to Adopt Interim Measures’ (2006) 27 European Competition Law Review 299; P Nebbia, ‘The Notion of “Urgency” in Interim Proceedings Concerning Competition Law: Some Thoughts after the Microsoft Order’ (2007) 28 European Competition Law Review 271. 8 We note that there are some differences between the Regulation and the case law it seeks to codify. In its case law, the Court of Justice spoke of ‘serious and irreparable damage’ to the competitor requesting interim measures, not of serious and irreparable damage to the competitive process as does Art 8. The Court also considered that interim measures would be appropriate if their absence would be ‘intolerable in the public interest’. There is no specific mention of this option in Art 8. Case law finally subjected the award of interim measures to a proportionality test (they had to be ‘restricted to what is required in the given situation’). This test is, regrettably, not expressly incorporated in Art 8. It is not yet clear whether these differences will have practical ramifications. 9 While competitors may thus request the Commission to grant interim relief, the Commission is not required to accede to such applications. 10 Art 7 and Recital 11 Reg 1/2003. 11 Those entitled to lodge a complaint are Member States and natural or legal persons who can show a ‘legitimate interest’. This notion is explained in the Commission Notice on the handling of complaints by the Commission under Articles 81 and 82 of the EC Treaty [2004] OJ C101/65 [33]–[40]. 12 Arts 23 and 24 Reg 1/2003; Commission Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003 [2006] OJ C 210/02; Commission Notice on immunity from fines and reduction of fines in cartel cases [2006] OJ C 298/17; Commission Regulation (EC) No 622/2008 of 20 June 2008 amending Regulation (EC) No 773/2004 as regards the conduct of settlement procedures in cartel cases [2008] OJ L171/3; Commission Notice on the conduct of settlement procedures in view of the adoption of Decisions pursuant to Article 7 and Article 23 of Council Regulation (EC) No 1/2003 in cartel cases [2008] OJ C 167/1. On leniency, see further below ch 6, section II-B(ii). For an innovative use of the power to impose periodic penalty payments, see Mastercard, EuroCommerce and Commerial Cards (Cases COMP/34.579, 36.518 and 38.580) Commission Decision of 19 December 2007, where the Commission allowed Mastercard a six-month period to comply with its decision finding an infringement of Art 81 EC, and stipulated that only after the expiry of this grace period would Mastercard incur daily penalty payment if it did not amend its behaviour to be competition-compliant. 13 The Regulation expresses a preference in favour of behavioural remedies: structural remedies may be imposed only when there is no equally effective behavioural remedy or when any equally effective behavioural remedy would be more burdensome for the firm. Structural remedies are only considered proportionate to the infringement when there is a substantial risk of a lasting or repeated infringement that derives from the very structure of the firm: Recital 12.

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The Role of the Commission in Network-Based Governance + Adopt commitment decisions.14 In the course of proceedings that might otherwise end with a prohibition, the firms under investigation may offer specific commitments to the Commission that would overcome the objections raised against their collaboration.15 The Commission can, by decision, render the proposed commitments binding on the parties.16 Commitment decisions may be reopened i) when there has been a material change in the facts on which the decision was based; ii) the firms do not abide by their commitments; or iii) it turns out that the decision is based on incomplete, incorrect or misleading information provided by the parties.17 + Make a finding of inapplicability of the EC competition rules for reasons of Community public interest.18 These findings seek to clarify legal doctrine and ensure consistency in decision-making practice across the EU. They are hence particularly appropriate for new practices that have not yet been settled in case law or administrative practice.

14 Art 9 and Recital 13 Reg 1/2003. The Commission already adopted such decisions under the old Regulation, eg Eurofix-Bauco/Hilti (Cases IV/30.787 and 31.488) Commission Decision 88/138/EEC [1988] OJ L65/19. See further W Wils, ‘Settlements of EU Antitrust Investigations: Commitment Decisions under Article 9 of Regulation No 1/2003’ (2006) 29 World Competition 345; C Cook, ‘Commitment Decisions: The Law and Practice under Article 9’ (2006) 29 World Competition 209; O Armengol and A Pascual, ‘Some Reflections on Article 9 Commitment Decisions in the Light of the Coca-Cola Case’ (2006) 27 European Competition Law Review 124; M Ferro, ‘Committing to Commitment Decisions: Unanswered Questions on Article 9 Decisions’ (2005) 26 European Competition Law Review 451; J Temple Lang, ‘Commitment Decisions under Regulation 1/2003: Legal Aspects of a New Kind of Competition Decision’ (2003) 24 European Competition Law Review 347. 15 Coca-Cola Company (Case COMP/A.39.116/B2) Commission Decision 2005/670/EC [2005] OJ L253/21 makes clear that firms may offer commitments even before the Commission has issued a formal statement of objections. See further Armengol and Pascual (ibid). Commitments are not appropriate in cases which the Commission intends to impose a fine: Recital 13 Reg 1/2003. MEMO/04/271 ‘Commitment Decisions (Article 9 of Council Regulation 1/2003 providing for a modernised framework for antitrust scrutiny of company behaviour)’, 17 September 2004 indicates that that refers in particular to hardcore cartels. The procedure for the adoption of commitment decisions is set out in Art 27(4) Reg 1/2003. 16 The discretionary nature of the Commission’s power under Art 9 was confirmed by the CFI in Case T-170/06 Alrosa Company Ltd v Commission [2007] ECR II-2601, under appeal to the ECJ per Case C-441/07P. Note that commitment decisions find only that there are no longer any grounds for action by the Commission, without concluding whether there has been, or still is, an infringement of the competition rules: Recital 13 Reg 1/2003. It is also stated there that commitment decisions are ‘without prejudice’ to the powers of national competition authorities and national courts to decide upon the case. This is rather curious in view of the obligation in Art 16 of Reg 1/2003, which requires national actors not to adopt decisions in conflict with those taken by the Commission in respect of the same case. 17 Art 9(2) Reg 1/2003. The addressees of a commitment decision may of course also ask the Commission to terminate the decision if the commitments are no longer appropriate or necessary. 18 Art 10 and Recital 14 Reg 1/2003. Art 81 EC can be declared inapplicable either because it escapes the prohibition contained in Art 81(1) or because it qualifies for individual exemption. The applicable procedure can be found in Art 27(4) Reg 1/2003.

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Direct Administration: Prosecuting Infringements of the Competition Rules + Make a finding of a past infringement if there is a legitimate interest in doing so.19 These decisions do not usually impose a fine. + Adopt guidance letters if so requested.20 For the Commission to accede to a request, three cumulative conditions must be met: the case must raise a novel issue; clarification seems prima facie useful; and there is no need for further fact-finding to adopt the letter.21 + Withdraw the benefit of a block exemption regulation.22 This the Commission may do when it finds that an agreement has characteristics incompatible with Article 81(3) EC.

B. The Commission’s Prioritisation Policy The Commission may pursue each and every breach of the competition rules. In practice it operates a policy of prioritisation: like any other public body it simply lacks the resources to pursue all possible competition violations.23 The Commission accordingly limits its interventions to two types of cases.24 The first are ‘hardcore’ infringements such as price fixing agreements or those that divide 19 Art 7(2) and Recital 11 Reg 1/2003. A legitimate interest will exist when there is a risk of repetition of the infringement now terminated, for the sake of developing Community competition policy or ensure the consistent application thereof. Case law had already recognised and Commission decision-practice already used this power under the previous regime, eg Case 7/82 Gesellschaft zur Verwertung von Leistungsschutzrechten mbH (GVL) v Commission [1983] ECR 483 [22]–[23]; Bloemenveilingen Aalsmeer (Case IV/31.379) Commission Decision 88/491/EEC [1988] OJ L262/27; Distribution of Package Tours during the 1990 World Cup (Cases IV/33.384 and IV/33.378) Commission Decision 92/521/EEC [1992] OJ L326/31; Zera/Montedison and Hinkens/Stähler (Cases IV/31.550 and IV.31.898) Commission Decision 93/554/EEC [1993] OJ L272/28; Europe Asia Trades Agreement (Case IV/34.250) Commission Decision 1999/458/EC [1999] OJ L193/23. 20 Recital 38 and Commission Notice on informal guidance relating to novel questions concerning Articles 81 and 82 of the EC Treaty that arise in individual cases (guidance letters) [2004] OJ C101/78. Guidance letters, decisions finding past infringements and findings of inapplicability are of particular relevance as sources of guidance for firms, even more so now that the former system of prior authorisation that obtained under Reg 17 has been replaced with that of legal exception. On the duty of the Commission to offer guidance to firms, see Joined Cases T-305/94, T-306/94, T-307/94, T-313/94 to T-316/94, T-318/94, T-325/94, T-328/94, T-329/94 and T-335/94 Limburgse Vinyl Maatschappij NV and others v Commission [1999] ECR II-931 [149]. 21 Notice on guidance letters (ibid) [8]. In relation to the second criterion, factors to be considered are i) the economic importance from the point of view of the consumer of the goods or services concerned by the agreements; and/or ii) the extent to which the agreement (is likely to) correspond(s) to more widely spread economic usage in the marketplace; and/or iii) the extent of the investments linked to the transaction in relation to the size of the firms concerned and the extent to which the transaction relates to a structural operation such as the creation of a non-full function joint venture. The Notice in [9]–[10] also lists a number of situations in which the Commission will not consider a request for guidance, namely when the question is the subject of ongoing litigation at the national or Community level or if the question is hypothetical. 22 Art 29(2) and Recital 10 Reg 1/2003. 23 Recognised by the Court of First Instance in Case T-24/90 Automec srl v Commission [1992] ECR II-2223 in particular [77]. 24 See Recital 3 Reg 1/2003; Commission Notice on complaints (above n 11) [11].

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The Role of the Commission in Network-Based Governance markets.25 The second are cases relevant for the development of European competition policy or the coherent application of Articles 81 and 82 EC.26 The Commission’s intention to concentrate on the most serious infringements may be explained by the following considerations. The need for effectiveness in enforcement is a compelling reason. Hardcore infringements typically have a pan-European dimension, and the Commission is the only competition enforcer whose decisions apply throughout the European market.27 A more cynical view is that pursuing hardcore cases ensures extensive press coverage and good PR for the Directorate-General for Competition. The rationale for Commission intervention in the second type of case is best captured by Masterfoods Ltd v HB Ice Cream Ltd.28 There, the Court of Justice explained that the Commission ‘entrusted by Article 85(1) of the EC Treaty with the task of ensuring application of the principles laid down in Articles 81 and 82 of the Treaty, is responsible for defining and implementing the orientation of Community competition law’.29

C. The Commission’s Decision-Making Bureaucracy Decisions about cases are taken by the College of Commissioners, acting on the advice and recommendation of the Commissioner who has special responsibility for competition.30 Before the matter is put before the College, the Commissioner discusses the case with her officials and with her personal cabinet. The Advisory Committee on Restrictive Practices and Dominant Positions, composed of representatives of the national competition authorities, must also be consulted prior to the taking of decisions.31 The internal Commission bureaucracy operates in a pyramidal fashion. At the top is the Commissioner for competition matters. The next tier comprises the Director General, who heads the Directorate-General for Competition (DG 25

See Art 81(1)(a) and (c) EC. This also explains the competence to adopt decisions finding past infringements, declaratory decisions and—although they do not qualify as formal decisions—guidance letters. 27 See Commission Notice on cooperation within the Network of Competition Authorities [2004] C101/43 [14]–[15] and [54]. Decisions by national competition authorities only produce legal effects within their Member State. It does not appear possible to work around this limitation by having the national authority impose a fine that reflects the totality of the harm caused to all Member States affected by the unlawful behaviour. 28 (n 2). 29 [46]. 30 The collegiate nature of Commission decisions has been confirmed by the Court of First Instance in Case T-25/95 Cimenteries CBR SA v Commission [2000] ECR II-491 [721]. 31 Art 14 Reg 1/2003 and Commission Network Notice (above n 27) [58]–[68]. The Advisory Committee is provided with a summary of the case, the documents needed to assess the case and the draft decision. The Commission must take the utmost account of the opinion delivered by the Committee. The Advisory Committee may recommend that its opinion is published. The Committee may also discuss proposed Community legislation. In that case, an additional Member State representative competent in competition matters may be appointed. 26

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Indirect Administration: Overseeing and Guiding National Actors COMP) and is assisted in his work by three Deputy Directors-General. The Directors who head the nine Directorates make up the third tier. There is one Directorate who deals specifically with cartels, and each of the five Directorates with responsibility for particular economic sectors has antitrust units as well.32 The bottom tier consists of the Heads of Division or Unit. Mention must finally be made of the office of the Chief Economist, who assists DG COMP with complex economic assessments,33 and the Hearing Officers, whose duty is to ensure that parties’ due process rights are properly protected in the course of competition investigations.34

II. INDIRECT ADMINISTRATION: OVERSEEING AND GUIDING NATIONAL ACTORS

That the Commission may directly implement EC law is an exclusive feature of the network model designed for the administration of the competition rules. The Commission also possesses significant responsibilities that are common to the network regimes conceived for both competition and communications law. It must supervise and oversee the work of the national authorities and national courts.35 In this capacity, the Commission monitors the behaviour of these national actors and influences their decision-making. These powers will be considered in turn.

32 Directorate G deals with cartels. The Directorates that are responsible for various sectors of the economy are B (energy and environment); C (information, communication and media); D (financial services and health-related markets); E (basic industries, manufacturing and agriculture); and F (transport, post and other services). 33 For a detailed discussion, see L-H Röller and P Buigues ‘The Office of the Chief Competition Economist at the European Commission’, http://ec.europa.eu/dgs/competition/officechiefecon_ec. pdf. The activities of the Chief Economist consist of contributing to individual competition cases, assisting in the development of general policy instruments and advising on cases pending before the Community Courts. When advising on individual cases, the Chief Economist has three tools at his disposal: written opinions or internal notes; attendance at weekly meetings with the Commissioner for Competition; and a final advice, which is usually also made available to the other Commissioners. Note that although the Chief Economist organisationally belongs to DG COMP, he delivers independent advice. 34 The position of the Hearing Officer was created in 1982 following criticism from legal and industrial circles and pressure from the UK House of Lords Committee on the need for an independent guarantor of procedural rights of the parties in proceedings before the Commission. The Hearing Officers are obliged to submit a final report on every draft decision to the College of Commissioners stating whether the right to be heard has been respected. See further Commission Decision 2001/462/EC of 23 May 2001 on the terms of reference of hearing officers in certain competition proceedings [2001] OJ L162/21. 35 For an opinion strongly in favour of this type of role for the Commission, particularly in order to preserve the credibility of the integration process, see G Majone, ‘The European Commission: The Limits of Centralization and the Perils of Parliamentarization’ (2002) 15 Governance 375.

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The Role of the Commission in Network-Based Governance A. Monitoring National Actors Article 211 EC states that one of the Commission’s tasks is ensuring that Community law is properly applied. The Commission thus monitors how national legislatures implement directives and how national courts and agencies enforce the entire body of European rules. If it comes across instances of misimplementation or misadministration, the Commission may bring infringement proceedings.36 These proceedings are certainly not the most effective instrument to supervise the national level. Scarce resources mean that the Commission is unable to prosecute every instance of malfeasance that takes place. The Commission may also decide that it is politically imprudent to pursue a matter, due to its dependence on the cooperation of Member States in the adoption and execution of Community law. Infringement proceedings are furthermore slow and cumbersome. Lastly, they operate ex post facto, seeking to undo the harm that has already been caused. We saw in chapter 1 that the European legislature placed considerable emphasis on the need for national enforcement practices to be both effective and consistent across Member States.37 This emphasis is unsurprising. Until then, the European competition rules had been administered under a model of centralised governance. Stakeholders feared that the move towards national-level enforcement could compromise the integrity of competition policy. Ordinarily speaking, such fears would be all but imaginary. Indeed, we have also seen how the decentralised application of the European telecom rules resulted in just such a pandemonium of diverging or even incompatible national decisions and judgments.38

36 P Craig and G de Búrca, EU Law: Text, Cases and Materials, 4th edn (Oxford, Oxford University Press, 2008) ch 12; S Weatherill, Cases and Materials on EU Law, 8th edn (Oxford, Oxford University Press, 2007) ch 4; C Harlow and R Rawlings, ‘Accountability and Law Enforcement: The Centralised EU Infringement Procedure’ (2006) 31 European Law Review 447; R Rawlings, ‘Engaged Elites Citizen Action and Institutional Attitudes in Commission Enforcement’ (2000) 6 European Law Journal 4; F Snyder, ‘The Effectiveness of European Community Law: Institutions, Processes, Tools and Techniques’ (1993) 56 Modern Law Review 19, 30. For an overview of infringement proceedings, past and present, brought against the Member States for the failure to implement (correctly) the European directives on electronic communications, see http://ec.europa.eu/information_society/policy/ecomm/ implementation_enforcement/infringement/index_en.htm. For competition law, see the Commission’s Annual reports on the national implementation of EC law. The most recent is European Commission (EC), ‘24th Annual Report on Monitoring the Application of Community Law’ COM (2007) 398 final, 17 July 2007, 5. 37 Ch 1, esp sections I and IV. 38 To be clear, this does not mean that the Community should strive for uniformity in the enforcement of its rules and policies. On the contrary, as argued in more detail below in ch 7, section IV-A, it is in fact valuable to have some measure of regulatory diversity between Member States as this allows for experimentation and regulatory emulation. Also, to the extent that preferences and market conditions vary between national systems, different regulatory solutions mean that more preferences are satisfied than if a uniform solution is applied.

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Indirect Administration: Overseeing and Guiding National Actors Accordingly, under network-based governance the Commission is endowed with special powers to monitor and discipline the work of national actors, over and beyond the generalist tool of infringement proceedings.39 Thus, national authorities must consult with the Commission before taking decisions in application of the EC competition or communications rules.40 This is done through the notification of complete draft decisions. Upon receipt, the Commission has one month to reflect on the proposed measure and to resolve possible differences of opinion with the responsible national authority by submitting observations.41 If the Commission considers that making comments would not be sufficient to guarantee a satisfactory decision, it may prevent the national authority from finally adopting the draft measure. This is usually because the proposed measure would unjustifiably impede the homogeneity of Community law.42 In competition law, this is done by the Commission taking over the case from the national authority, whose jurisdiction is thereby terminated.43 In communications law, the Commission adopts a veto decision, imposing a duty on the regulatory authority to redo the entire procedure.44 The difference in mechanism is almost certainly in recognition of the Commission’s powers of direct administration for competition law, which do not exist for communications law. The competition regime also has special mechanisms that govern the relationship between the Commission and national courts. Thus, national courts must provide notifications of their judgments applying the EC competition rules to the Commission, which enters these into a publicly accessible database.45 When

39

These tools are examined in more detail below in ch 5, section II. In competition law, this procedure consists of two steps. First, a national authority must inform the Commission that it has opened an investigation into a potential competition violation. Second, it must provide the Commission with a summary of the case and the proposed decision. 41 For competition law, see Art 11(4) Reg 1/2003 and the Network Notice (above n 27) [46] mention a thirty-day timeframe. For communications law, see Art 7(3) Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services (the Framework Directive) [2002] OJ L108/33 gives the Commission one month to make observations or decide to initiate the procedure of Art 7(4), allowing the Commission to suspend the adoption of a national measure for two months. Within this period the Commission may issue a veto decision (see below). Consider also Commission Recommendation of 23 July 2003 on notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services [2003] OJ L190/13. 42 For competition law, the situations in which the Commission may take over the case from a national competition authority are listed in the Network Notice (above n 27) [54]. For communications law, the test can be found in Art 7(4) Framework Directive (ibid). 43 Art 11(6) Reg 1/2003. 44 Art 7(4) Framework Directive. 45 Art 15(2) Reg 1/2003 and Commission Notice on the co-operation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 EC [2004] OJ C101/54 [37]. The database can be found at http://ec.europa.eu/comm/competition/elojade/ antitrust/nationalcourts/. The Commission operates a comparable database on a voluntary basis under communications law: http://ec.europa.eu/information_society/policy/ecomm/ implementation_enforcement/article_7/national_judiciaries/index_en.htm. National courts may search these databases for inspiration or support when confronted with novel or difficult questions. 40

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The Role of the Commission in Network-Based Governance necessary, the Commission may make amicus curiae submissions to the national courts.46 For obvious constitutional reasons, these observations are not binding—although we may expect them to carry significant persuasiveness. Compared to infringement proceedings, the Commission’s special control powers exhibit some preferential features. Due to the obligation on national actors to inform the Commission of their decisions and judgments, misadministration is almost certainly always detected.47 The Commission’s supervisory powers are premised on ex ante control. They thus serve to prevent undesirable decisions from becoming law and generating economic harm. Lastly, the mechanisms are expedient because of the strict and short deadlines to which they are subjected.

B. Influencing National Actors The second component of the Commission’s supervisory role is its ability to influence the decisional output of national authorities and courts. It can do so with the help of substantive as well as procedural devices. In substantive terms, the Commission ‘harmonises’ the rules to be applied. The individual decisions it adopts in enforcement of Articles 81 and 82 EC shape the evolution of European competition law.48 This is in particular because, it will be remembered, the Commission’s prioritisation policy means that it will typically decide novel cases. The competence to make findings of inapplicability or past infringement must be viewed in a similar light. The Commission also promulgates block exemption regulations in which it declares Article 81(1) EC’s cartel prohibition inapplicable to whole categories of agreements at once.49 Again, the generic applicability of Articles 81 and 82 EC and the substantive alignment of the Significant Market Power (SMP) regime with competition principles confirm

46 Art 15(3) Reg 1/2003 and Commission Notice on national courts (ibid) [17]–[20] and [31]–[35]. 47 The assumption here is that the Commission possesses adequate resources to properly scrutinise the draft decisions. 48 It will be remembered that the Commission must consult the Advisory Committee prior to taking a decision and that this Committee is composed of representatives of the national competition authorities, who are thus informed of the contents of and reasoning underlying Commission decisions. 49 When adopting block exemption regulations the Commission acts under delegated authority from the Council: Council Regulation 19/65/EEC of 2 March 1965 on the application of Article 85(3) of the Treaty to certain categories of agreements and concerted practices [1965] OJ Spec Ed 35 as amended by Council Regulation 1215/1999 of 10 June 1999 [1999] OJ L148/1. In its proposal for what eventually became Regulation 1/2003, the Commission initially planned to confer upon itself original legislative competences. This proposal was rejected by the Council as the Member States feared that otherwise too many powers would be concentrated in the Commission. There are block exemption regulations for vertical agreements, motor vehicles, specialisation agreements, R&D agreements, technology transfer agreements and agreements in the air transport sector.

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Indirect Administration: Overseeing and Guiding National Actors the relevance of these individual decisions and block exemption regulations for the national actors that administer EC communications law.50 Under the communications regime, we have seen that the Commission has the opportunity to make comments on the draft decisions it receives from the national authorities. It regularly uses these observations to set out its vision on particular issues—as a guide for other authorities to follow in their decisionmaking.51 The most important Commission comments are accompanied by press releases to further draw attention to them. Consider the notification of a decision by the British Ofcom concerning wholesale broadband access.52 The first authority to do so, Ofcom had identified several sub-national geographical markets. The Commission took advantage of the opportunity to establish its policy towards the use of geographic differentiation in market definitions by including a special section entitled ‘criteria for assessing sub-national markets’ in its observations.53 In the Commissioner’s own words, I [Commissioner Reding, whose portfolio includes electronic communications] welcome the precedent set by Ofcom’s proposal to define sub-national geographic markets. The proposal at the same time has enabled the Commission to provide clear guidance and policy principles for all national regulators in this important area. This should now be a solid basis for a coherent European regulatory approach to regional markets and give the required legal certainty to the market.54

Lastly, the Commission issues notices guidelines, communications and recommendations that put flesh on the bones of the legal rules found in the Treaty or espoused by the European legislature.55 For competition law, we should in particular mention the Guidelines on Article 81(3) EC, relating to the grant of individual exemptions of the cartel prohibition, and the Guidelines on the ‘effect on trade’ concept, relating to the jurisdictional threshold that must be crossed

50 The SMP regime is discussed in more detail above in ch 2, section III-A(ii). Laid down in Arts 14–16 Framework Directive, it follows the classic stages in competition methodology of market definition, market assessment and the imposition of remedies. Consider also the notion of Significant Market Power itself, which is equivalent to the notion of ‘dominance’ as defined by the Community Courts in their case law on Art 82 EC. See further A de Streel, ‘The Integration of Competition Law Principles in the New European Regulatory Framework for Electronic Communications’ (2003) 26 World Competition 489. 51 The Commission is usually closely involved with the first-mover authority through prenotification meetings and the like. 52 UK/2007/0733. 53 SG-Greffe (2008) D/200640. 54 IP/08/232 ‘Telecoms: Commission Approves OFCOM Proposal to De-regulate Part of UK Broadband Market’, 14 February 2008. 55 The reasons national authorities and courts adhere to these instruments are addressed below in ch 5, section II-B. Note further that the Commission does not have sole responsibility for the contents of notices and the like: many are adopted following deliberation with national authorities in the context of the network. Having said that, the Commission usually provides the initiative for their adoption.

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The Role of the Commission in Network-Based Governance before EC competition law becomes applicable.56 For communications law, most important are the Recommendation on relevant markets, identifying those markets that must be examined by the national authorities for the presence of firms with SMP, and the Guidelines on market definition and analysis, which stipulate how national authorities must assess the markets identified and how they must go about finding firms with SMP.57 In procedural terms, national authorities and courts may consult the Commission on the proper interpretation or application of the Community rules. This allows the Commission to foster shared understandings and common perspectives across the EU. The competition regime formally recognises this right for authorities and courts in its foundational Regulation 1/2003.58 Under the communications regime reliance would have to be placed on Article 10 EC—case law has indicated that this provision imposes a duty on the Commission to behave loyally towards national actors and assist them in their efforts to duly administer EC law.59

C. The Commission’s Supervisory Bureaucracy When supervising national actors, the Commissioners with portfolios for competition and communications law are usually delegated the competence to make decisions on behalf of the College of Commissioners.60 We have already considered the organisation of DG COMP. Unit A2 (antitrust and mergers: policy and scrutiny) scrutinises and, when necessary, comments on draft measures of the national competition authorities. Responsibility for electronic communications lies with the Directorate-General Information Society & Media (DG INFSO) and its Commissioner. Its structure is virtually identical to that of DG COMP. The Director-General is assisted by two Deputy Directors-General as well as a number 56 Commission Guidelines on the application of Article 81(3) of the Treaty [2004] OJ C101/97; and Commission Guidelines on the effect on trade concept [2004] OJ C101/81. 57 Commission Guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services [2002] OJ C165/6; and Commission Recommendation of 11 February 2003 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services [2003] OJ L 114/45, now replaced by Commission Recommendation of 17 December 2007 [2007] OJ L344/65. Under Art 19 Framework Directive the Commission can issue harmonisation recommendations, and under Art 17 of that Directive, it may draw up lists of standards and specifications for electronic communications networks and services. Finally, there always remains the possibility of directives or decisions pursuant to Art 86(3) EC. 58 Arts 11(5) and 15(1); Commission Notice on national courts (above n 45) [21]–[30]. 59 C-2/88 Criminal Proceedings against JJ Zwartveld and Others [1990] ECR I-3365 [17]–[22]. 60 This does not rule out further delegations. For instance, under the communications regime, the competence to decide whether to comment on national draft decisions has been delegated by the Commissioners for competition and communications law to the Directors-General of DG INFSO and DG COMP.

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Conclusion of assistants and advisers. DG INFSO has ten Directorates, of which one has specific responsibility for electronic communications. This Directorate comprises five units, which deal with policy development, implementation of the Community rules, radio spectrum and oversight of national draft measures. Reviewing the notifications of national regulatory authorities is a joint responsibility of DG INFSO and DG COMP due to the alignment of communications law with competition principles and methodology. Notifications are received by the special Greffe, administratively attached to DG INFSO. Upon receipt, the Greffe informs the heads of the purposively created Task Forces—one in Unit C1 of DG COMP, the other in Unit B5 of DG INFSO. The heads then establish joint case teams, which typically include at least one official of each DG to deal with the notification within the initial one-month deadline. The outcome—a letter of comment or a veto decision—is signed by the Commissioner for competition matters or the Commissioner who holds the information society portfolio. Finally, when exercising delegated legislative power, DG INFSO is assisted by the Communications Committee (COCOM).61

III. CONCLUSION

It is clear that the Commission has an important part to play under networkbased governance. Under the competition variant, the Commission acts on a par with the national authorities because the Treaty allows it to engage in direct administration. In practice, its prioritisation policy means that the Commission is accorded pride of place in enforcement activities. This is in particular for cases raising novel issues. The Commission’s supervisory responsibilities are the central facet of its role under the network regime. They are thus in effect for the competition as well as the communications institutional structure. These responsibilities reflect the understanding of the Community legislature of the need for law administration to be effective and consistent across Europe. This is essential for the credibility of the Union and its rules. Infringement proceedings are not sufficient to deal with the problems of uneven or faulty enforcement faced under decentralised governance. Under network-based governance, the Commission is hence in a direct relationship with the national actors. It monitors their decision-making through 61 COCOM is a comitology committee, created by Art 22 Framework Directive. COCOM acts alternatively according to the management procedure (for instance in relation to Commission decisions identifying transnational markets per Art 15(4) Framework Directive) or the advisory procedure (for instance in relation to Commision harmonisation recommendations per Art 19 Framework Directive). The various comitology procedures can be found in Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission [1999] OJ L184/23 as amended by Council Decision 2006/512/EC of 17 July 2006 [2006] OJ L 200/11. There is a separate comitology committee for spectrum matters, the Radio Spectrum Committee (RSC), set up by Art 3 Commission Decision 2002/676/EC of 24 April 2002 on a regulatory framework for radio spectrum policy [2002] OJ L108/1.

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The Role of the Commission in Network-Based Governance ex ante scrutiny, and it may prevent authorities from taking decisions if it considers this to be appropriate. The Commission also has wide-ranging powers to exert a harmonising influence on the decisional output of national authorities and courts. This chapter completes our examination of the roles played by the three major actors that make up the institutional triangle under the network regime: the Commission, the national authorities and the national courts. In the two chapters that follow we shall discuss inter-institutional relations between these principal players—how the law has designed them and how they actually work in practice.

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5 Methods for Consistency across National Institutions

T

HE PRECEDING THREE chapters have considered the roles and make-up of the three major players in network-based governance: the Commission, the national authorities and the national courts. This and the following chapter look at how these institutions work together. Here we shall focus on how the law has taken on the challenge to ensure consistency in the actions of the national actors. After briefly discussing the need for coordination, we shall examine the procedural tools for consistency that the European legislature has put in place (section I) and then look at the substantive tools that are geared towards the same end (section II).1 The Community’s primary concern with consistency under network-based governance follows from the model of decentralised administration on which it is premised.2 With a multitude of national actors competent to enforce the Community rules, how to avoid a cacophony of contradictory or diverging decisions across and within the legal systems of the Member States?3 It is clear that in particular the discretionary powers of the national authorities render this risk acute. The need for coordination can be supported with both legal and economic arguments. In legal terms, one could latch onto the principle of equality: one has a right to have similar situations treated the same way across the Member States that make up the European Union.4 Further, we have seen that the Community is concerned 1 The distinction between procedural and substantive tools follows P Larouche, ‘Coordination of European and Member State Regulatory Policy: Horizontal, Vertical and Transversal Aspects’ (2004) 5 Journal of Network Industries 277. 2 Chs 2 and 3 have established that primary responsibility to administer EC competition and EC communications law rests firmly with the national authorities and national courts. 3 A caveat is in order here. The Community should not confuse consistency with uniformity. As argued in more detail below in ch 7, section IV-A, it is in fact valuable to have some measure of regulatory diversity between Member States as this allows for experimentation and regulatory emulation. Also, to the extent that preferences and market conditions vary between national systems, different regulatory solutions mean that more preferences are satisfied than if a uniform solution is applied. 4 F Chirico and P Larouche, ‘Conceptual Divergence, Functionalism and the Economics of Convergence’ in S Prechal and B van Roermund (eds), The Coherence of EU Law: The Search for Unity in Divergent Concepts (Oxford, Oxford University Press, 2008) 478.

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Methods for Consistency across National Institutions to achieve a certain degree of homogeneity in law enforcement, as it sees this as a prerequisite for the effectiveness of its policies (in particular market integration) and ultimately its own credibility.5 In economic terms, ever more firms conduct business activities in multiple Member States, and divergence in legal regimes engenders significant transaction costs for them.6 They must collect information on the legal status quo in each of the relevant legal systems. Firms also face the costs of legal disputes in a variety of jurisdictions. Further, contradictory or diverging decisions by national authorities or courts—inter-state as well as intra-state—generate substantial compliance costs, because firms need to tailor their behaviour, products and services to the requirements of multiple legal regimes.7 This translates into increased prices or reduced revenues and benefits for firms and consumers. These in turn lead to a reduction in cross-border trade, to lower levels of investment, consumption and income and ultimately to a negative impact on economic growth.8 A variant of this argument asserts that coordination is needed to level the playing field: consistency in regulation is necessary because certain firms would otherwise operate under a regime more or less favourable than that applicable to their competitors.9 Inconsistency has various causes. Most common is a difference in regulatory capacities, resources and expertise.10 An authority or court enforcing the law may lack the requisite personnel or financial support to do so, or may misinterpret the European rule due to a knowledge or experience deficit. This unintended consistency may be contrasted with intentional deviation. An authority may also deliberately misconstrue or misapply the European rules in favour of nationalist interests or firms. This is usually because of a nationalist outlook, political pressure or regulatory capture. In both cases, the result is the same: the scope and degree of regulation in force at any point in time may differ from one Member State to the next.

5 European Commission (EC), ‘European Governance’ (White Paper) COM (2001) 428 final, 25 July 2001, 5; EC, ‘A Europe of Results: Applying Community Law’ (Communication) COM (2007) 502 final, 5 September 2007, 2. For EC communications law, the need for consistency finds expression in Recital 36 of the Framework Directive and Recital 4 of the ERG Decision. 6 For more detail, see H Wagner, ‘Economic Analysis of Cross-Border Legal Uncertainty: The Example of the European Union’ in J Smits (ed), The Need for a European Contract Law: Empirical and Legal Perspectives (Groningen, Europa Law Publishing, 2005); Chirico and Larouche (above n 4) 481 ff. 7 Larouche (above n 1) 280. Note that firms will accordingly not be able to enjoy or maximise economies of scale because they are prevented from using a single production or marketing technique across the EU. See R Van den Bergh, ‘The Subsidiarity Principle in European Community Law: Some Insights from Law and Economics’ (1994) 1 Maastricht Journal of European and Comparative Law 337, 344. 8 The importance of legal certainty for the purposes of investment and innovation is explicitly recognised in Recital 38 of Reg 1/2003. 9 Larouche (above n 1) 280. 10 G Majone, Regulating Europe (London, Routledge, 1996) 277.

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To be sure, a certain contribution to consistency is made by Articles 226 and 234 EC and the threat of Member State liability.11 The Court of Justice stated in Kingdom of the Netherlands v Commission: [C]ompliance with the common rules and their uniform application throughout the Member States of the Community can be secured either by infringement proceedings under Article 169 [now 226] of the EC Treaty or in proceedings brought before national courts, which may have recourse to the procedure under Article 177 [now 234] of the Treaty.12

These tools suffer from a number of drawbacks, however. For infringement proceedings, the Commission must first detect and collect evidence of distortive behaviour. This is far from easy for non-blatant cases—especially when we consider that the Commission has only scarce resources available to discharge this responsibility. Pragmatic and political reasons moreover dictate that infringement actions might not always be prudent given the Commission’s dependence on the Member States in the adoption and execution of EC law. Still further doubts can be raised concerning the appropriateness of infringement proceedings in the specific context of network-based governance. With this action typically brought against a state—and not the national authority that has actually caused the breach of Community law—a ruling by the Court that the Member State has breached its Treaty obligations would see that State exerting pressure on the authority to redress the grievance. This could create tension with the prescribed independence for national authorities from both State and market.13 Secondly, infringement proceedings could very well jeopardise the vital collaboration between the Commission and the national authorities by pitting them against each other.14 This, we may expect, will not do much good for the effectiveness and eagerness with which EC law is administered. In any event, infringement proceedings operate on an ex post basis, as does liability litigation—seeking to undo harm that has already been caused. As far as preliminary references are concerned, national courts might be overly confident in asserting that they understand the Community rules and that there is hence no need for a reference.15 All three procedures are furthermore slow, cumbersome 11 Cases C-6 & 9/90 Andrea Francovich and Danila Bonifaci and Others v Italian Republic [1991] ECR I-5357; Cases C-46/93 & C-48/93 Brasserie du Pêcheur SA v Bundesrepublik Deutschland and the Queen v Secretary of State for Transport, ex parte: Factortame Ltd and Others [1996] ECR I-1029. In relation to national courts, see Case C-224/01 Gerhard Köbler v Republik Österreich [2003] ECR I-10239; Case C-173/03 Traghetti del Mediterraneo SpA v Repubblica italiana [2006] ECR I-5577. 12 Case C-478/93 Kingdom of the Netherlands v Commission [1995] ECR I-3081 [38]. 13 Mandated by Art 3(2) Framework Directive. See further above ch 2, section IV-C. 14 N Petit, ‘The Proliferation of National Regulatory Authorities alongside Competition Authorities: A Source of Jurisdictional Confusion?’ in D Geradin, R Muñoz and N Petit (eds), Regulation through Agencies in the EU: A New Paradigm of European Governance (Cheltenham, Edward Elgar, 2005). 15 For a variety of reasons: a court may firmly believe that this is indeed the case, or it could lack the expertise to judge adequately arguments by the parties in favour of a reference. That national competition authorities, even those with certain judicial characteristics, lack the competence to refer

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Methods for Consistency across National Institutions and sporadically used. While undoubtedly useful, they must thus be supplemented. This is what has happened under network-based governance. The discussion in the following sections will consider the regulatory methods available under this model to influence the behaviour of national actors.

I. CONSISTENCY THROUGH PROCEDURAL TOOLS

National actors are mostly coordinated with the help of procedural tools. We can distinguish devices that seek to monitor and discipline the national authorities and those that apply to national courts. For each tool, we shall first examine the network model for the administration of the competition rules, followed by the communications variant.

A. Devices Applicable to the National Authorities There are several ways to organise our discussion of the tools that seek to ensure that national authorities behave consistently. One way would be to proceed chronologically with reference to the various steps in the decision-making process at which control can be exercised. Alternatively, we could catalogue the devices by looking at whether they find application at the European or the national level. Yet another approach would see us focus on the tools’ legal force as the mode of classification. The greatest instrumental value, however, has a taxonomy structured around the frequency with which the various devices are used. We shall see that some are a standard feature of national decision-making processes. Others rarely apply. An approach that emphasises the incidence of the devices therefore allows readers to have the most accurate picture of their operation and impact in actual life.

questions was confirmed by the Court of Justice in Case C-53/03 Synetairismos Farmakopoion Aitolias & Akarnanias (Syfait) and Others v GlaxoSmithKline plc [2005] ECR II-4609. Note the Opinion of Jacobs AG, who arrived at the opposite conclusion. His opinion at [45] features a pragmatic approach to the appropriateness of allowing such bodies to take advantage of Art 234 EC: Considerations of judicial economy would favour allowing a reference to be made at the earliest possible stage, thereby avoiding the need for subsequent proceedings before a reviewing court in order to enable a preliminary reference to be made. It is also at least arguable that a specialised competition authority having judicial characteristics might be better placed to identify the relevant issues of Community competition law than a generalist court charged with reviewing the decisions of the former body at a subsequent stage. With the decentralisation of Community competition law, the possibility for the judicially structured national competition authorities to refer questions to the Court of Justice would provide some additional safeguard of the uniformity of Community law. Also in favour of this is A Komninos, ‘Article 234 EC and National Competition Authorities in the Era of Decentralization’ (2004) 29 European Law Review 106.

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Consistency through Procedural Tools Six principal devices may be identified: i ii iii iv v vi

Notification Consultation Transversal Controls Judicial Review Commission Intervention The European Consistency Provision

These will be considered in turn. It is fitting to also mention here that national authorities under the regimes for both competition and communications law are under a general obligation to cooperate with the Commission for the sake of consistency.16

i. Notification a. Competition Law The notification procedure in competition law consists of two stages. First, the national competition authorities (NCAs) must report proceedings they have begun under the European rules per Article 11(3) of Regulation 1/2003.17 They need only provide basic information at this point: the acting authority; the parties, products and territories concerned, the alleged violation and the origin of the case.18 The aim of this exercise is to detect issues that might necessitate case re-allocation.19 According to the Regulation, NCAs are under an obligation to notify the Commission and may also communicate the information to each other. However, the Commission’s Notice on cooperation within the Network of Competition Authorities indicates that an NCA is under a duty to inform its counterparts.20 While this instrument falls within the realm of soft law, the rationale behind notification suggests that this second construction is preferable. New proceedings must be notified before or without delay after the first formal

16 For EC competition law, this obligation is laid down in Art 11(1) Reg 1/2003. For EC communications law, see Art 7(2) Framework Directive. Both provisions should be read together with Art 10 EC. 17 According to EC, ‘Report on Competition Policy 2007’ COM(2008)368 final, 16 June 2008, 21, the Commission was informed of around 140 new case investigations launched by the NCAs in 2007, with clusters in the energy, food and media sectors. The Commission has accepted a similar obligation for its own proceedings under Art 11(2) Reg 1/2003. For the issue of whether purely national cases should also be communicated, see S Brammer, ‘Concurrent Jurisdiction under Regulation 1/2003 and the Issue of Case Allocation’ (2005) 42 Common Market Law Review 1383, 1394 ff. 18 Commission Notice on cooperation within the Network of Competition Authorities (the Network Notice) [2004] OJ C101/43 [17]. 19 Ibid [16]. On the process of case allocation, see below ch 6, section II-A(ii). 20 Above n 18 [17].

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Methods for Consistency across National Institutions investigative measure.21 This is done by uploading a special Article 11(3) form in a dedicated intranet application. The working language for Article 11(3) notifications is English.22 Secondly, NCAs are under an obligation to inform the Commission before they adopt a decision finding an infringement of the competition rules, adopting commitments or withdrawing the benefit of a block exemption.23 Article 11(4) stipulates that they must provide the Commission with a summary of the case and the envisaged decision.24 Similar to the Article 11(3) notification, communication to the Commission is compulsory, and the information may be shared with the other NCAs.25 Notification should take place thirty days prior to the adoption of the decision.26 This should give the Commission sufficient time to assess the draft measure against established decision-making practice and case law. This notification too is carried out by uploading an Article 11(4) form into a special IT system. The language is that of the notifying NCA, which also supplies a basic summary in English that is available to the other authorities. Upon receipt, the Commission may send written or oral observations to the notifying authority.27 In these, the Commission can draw attention to existing case law or enter into a dialogue with the authority to ensure coordination between the draft

21 Examples of ‘first formal investigative measures’ include requests for information; interviews of natural or legal persons; and inspections of the firm’s premises or private homes. Advance notification of the initiation of procedures is the rule, but a slightly deferred communication is acceptable when, for instance, the NCA must act quickly to secure evidence by organising a surprise visit to the firm’s place of business. 22 Personal contacts between NCA officials are conducted in a language (easily) understandable for both, which may but not need be English. 23 The Network Notice (above n 18) [48] also encourages the notification of decisions that reject complaints, that close ex officio procedures or that award interim relief, because these can also be important from a competition policy point of view. The legal basis for the notification of these decisions is Art 11(5) Reg 1/2003. 24 If the NCA is unable to provide the Commission with the envisaged decision, it must send other documents that indicate the proposed course of action. The Commission may request additional information to allow it to assess properly the NCA’s draft decision: Art 11(4) Reg 1/2003 and Network Notice (above n 18) [44]. 25 In practice, a meaningful descriptive summary is disseminated electronically through the IT application, which can be accessed by all NCAs. The full text of the proposed decision is normally provided only on request: K Dekeyser and D Dalheimer, ‘Cooperation within the European Competition Network: Taking Stock after 10 Months of Case Practice’ in P Lowe and M Reynolds (eds), Antitrust Reform in Europe: A Year in Practice (London, International Bar Association, 2005). Originally, the idea was to circulate complete draft decisions among all the NCAs: Joint Statement of the Council and the Commission on the Functioning of the Network of Competition Authorities, 15435/02 ADD 1 available at http://ec.europa.eu/comm/competition/ecn/index_en.html. In the end, this plan was discarded because it was not considered feasible on a practical level. 26 There is scope for flexibility, however: an NCA may ask the Commission to respond within a shorter deadline if special circumstances require this. See Network Notice (above n 18) [47]. 27 According to EC, ‘Report on Competition Policy 2007’ COM(2008)368 final, 16 June 2008, 21, in 2007 the Commission services reviewed or advised on a very significant number of cases originating from NCAs (although no further indication is given on the precise number of interventions), following up on information provided under Art 11(4) or upon informal request. Observations are usually communicated in a very informal manner in phone contacts between the Commission services and the NCA concerned.

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Consistency through Procedural Tools decision and ongoing Commission practice. The comments offered by the Commission are not legally binding. That said, we may expect the recipient authority to seriously consider them—if only because failure to do so could induce the Commission to relieve the authority of its competence, as we will see below.28 At the culmination of the notification period, the NCA may finalise the draft decision and must inform the Commission and the other NCAs that it has closed its proceedings.29

b. Communications Law Pursuant to Article 7(3) of the Framework Directive, the national regulatory authorities (NRAs) are under an obligation to inform the Commission and each other about their envisaged decisions.30 This duty extends to decisions relating to the Significant Market Power (SMP) procedure31 or resolving a dispute between 28 See also D Gerber and P Cassinis, ‘The “Modernisation” of European Community Competition Law: Achieving Consistency in Enforcement: Part I’ (2006) 27 European Competition Law Review 11, 16. 29 Network Notice (above n 18) [48]. Unlike national courts, the NCAs do not need to provide the Commission with copies for their final decision. The Commission will refrain from adopting decisions that conflict with those taken by the NCAs that have been properly notified, unless the Community interest would indicate otherwise: Network Notice [57] and Joint Statement of the Council and the Commission (above n 25) [24]. 30 See also Commission Recommendation 2003/561/EC of 23 July 2003 on notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services (the Art 7 Recommendation) [2003] OJ L190/13 points 5 and 6, providing that draft measures should be sufficiently reasoned and listing the information that must be included in a notification. The Commission may seek further information or clarification from the notifying NRA. If the information requested is readily available, then the NRA must provide it within three working days: Commission Art 7 Recommendation, points 10 and 11. The revised Recommendation of 15 October 2008, C(2008)5925 final in point 6 introduces the possibility of a simplified notification for draft decisions that withdraw regulation from markets that are no longer included in the revised Recommendation on relevant markets from November 2007; that have been found to be competitive in a previous market review and remain competitive; that amend technical details of a previously imposed remedy or that extend existing remedies to undertakings in a similar situation. A second notification mechanism for NRA is laid down in Art 8(3) Directive 2002/19/EC of the European Parliament and of the Council on access to, and interconnection of, electronic communications networks and associated facilities (the Access Directive) [2002] OJ L108/7. This mechanism caters for situations in which an NRA would like to impose an obligation on an SMP operator other than those listed in Arts 9–13 Access Directive. The NRA must then submit a sufficiently reasoned request to the Commission, which is discussed within COCOM (the responsible comitology committee) to allow the other NRAs the opportunity to express their opinion. The Commission takes the final decision and has thus far been sympathetic to the requests it had received, eg Case UK/2004/0047, SG (2004) D/20211 and Case UK/2004/0065, SG-Greffe (2004) D/202512. 31 Thus to any one of the three steps of market definition (Art 15 Framework Directive), market analysis and the identification of operators with Significant Market Power (Arts 15 and 16 Framework Directive) or the imposition, maintenance, amendment or withdrawal of regulatory remedies (Art 5 or 8 Access Directive (ibid) concerning the remedies listed in Arts 9–13 of that Directive and those found in Directive 2002/22/EC of the European Parliament and of the Council on universal service and users’ rights relating to electronic communications networks and associated services (the Universal Service Directive) [2002] OJ L108/51). Decisions reviewing regulatory obligation already in

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Methods for Consistency across National Institutions firms that would affect intra-Community trade.32 The Directive does not indicate when notifications are due. The Commission has recommended waiting until the NRA has completed the public consultation that it must organise whenever it intends to adopt a decision that would significantly affect the market.33 That way, the Commission may consider the comments of market parties in deciding on its own observations on the draft measure.34 Before notifying its draft measure, the NRA may meet informally with Commission officials to present and discuss the key elements of its analysis.35 This opportunity is usually taken advantage of.36 Notification takes place by electronic mail. The other NRAs are informed through the Commission’s website and other electronic means.37 Article 7(3) communications are in the language of the notifying authority, with a summary notification form in another language to facilitate the effective consultation of the other NRAs.38 Once they have received the notification, the Commission and the other authorities have one month to make comments.39 In practice, the Commission

place at the time the current legal framework entered into force are also covered per Art 16 Universal Service Directive. This last category will progressively become redundant. 32 Defined in Recital 38 Framework Directive in accordance with Case 8/74 Procureur du Roi v Benoît and Gustave Dassonville [1974] ECR 837 [5] as ‘Measures that could affect trade between Member States are measures that may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States in a manner which might create a barrier to the single market.’ 33 COCOM 04–49 ‘National consultation under Article 6 of Directive 2002/21/EC running in parallel with notifications pursuant to Article 7 of Directive 2002/21/EC’ (Working Document), 30 June 2004; EC, ‘Market Reviews under the EU Regulatory Framework: Consolidating the Market for Electronic Communications’ (Communication) COM (2006) 28 final, 6 February 2006, 4. On the public consultation at national level, see Art 6 Framework Directive and Commission Guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services [2002] OJ C165/6 [144]–[145]. Specific consultation obligations are laid down in Art 12(2) Framework Directive; Arts 5(2), 7(1)(b) and 14(2) Directive 2002/20/EC of the European Parliament and of the Council on the authorisation of electronic communications networks and associated services (the Authorisation Directive) [2002] OJ L108/21; and Art 16 Universal Service Directive (above n 31). Decisions within the ambit of Art 7(6) [urgent measures]; Art 20 [dispute resolution] or Art 21 [cross-border dispute resolution] Framework Directive are exempted from the notification duty. The period of the consultation must be reasonable, which the Commission has interpreted to mean a two-month period. The results of the consultation must be made public, with the exception of confidential information. NRAs must further establish a single information point through which interested parties may at all times gather relevant information about ongoing consultations. 34 This avoids the need for the NRA to send a second notification to the Commission if it makes significant amendments to its draft measure following the public consultation. This would generate delays and unnecessary resource expenditure on the part of the NRA and the Commission. 35 Commission Art 7 Recommendation (above n 30) point 18. 36 By 9 April 2008, the Commission reported that it had conducted 233 pre-notification meetings: COCOM 08–13 ‘Article 7 procedures’ (Working Document), 9 April 2008. 37 Commission Art 7 Recommendation (above n 30) points 2 and 3. 38 Ibid, point 4. This form is annexed to the Recommendation. 39 If the time allowed for the national consultation exceeds one month, then the time available to the Commission and the other authorities is correspondingly extended: Commission Guidelines on market analysis and SMP assessment (above n 33) [146]. Comments made by the Commission are in

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Consistency through Procedural Tools sends observations in about half of the cases.40 It usually carries out a proportionality check of the envisaged decision41 and verifies its compatibility with the objectives set out in Article 8 of the Framework Directive. As with the Commission’s observations under the competition regime, these comments are not legally binding. Few NRAs offer observations on each other’s proposed decisions. This is because of time and language constraints. With the applicability of Article 7(3) being the rule rather than the exception, NRAs often simply lack the time to fulfil their own regulatory responsibilities and also provide input on the work of their 27 counterparts. Even if an NRA has the regulatory capacity, an actual draft decision is available only in the language of the notifying authority, and the summary notification might not provide the necessary detail to send comments. The notifying authority must take the utmost account of comments issued by the Commission and the other NRAs before adopting its decision,42 which it then communicates to the Commission.43 c. Comparing the Two Legal Regimes The notification mechanism seeks to reveal potential inconsistencies in the administration of the Community rules and to remedy these before they actually materialise. There are a few differences between the design of this mechanism in Regulation 1/2003 and in the Framework Directive. First, unlike the NCAs, the NRAs are under no obligation to report new cases to the Commission or each other. Secondly, whereas the Framework Directive requires that NRAs must be informed of each other’s draft decisions and prescribes that they must take the utmost account of comments received, similar obligations cannot be found in Regulation 1/2003. Having said that, we have seen that both requirements are de facto also observed under the competition regime. At first glance, one might be disappointed to observe that national authorities are not in the habit of commenting on each other’s decisions. We must, however, realise that most cases are relatively straightforward, so the cost incurred by the commenting authority may very well outweigh the benefit that the recipient authority will derive from the observations made. Further, it may be said that the contribution towards consistency for the non-notifying authorities can be found the language of the notifying authority, when possible translated into the language used in the summary notification form: Commission Art 7 Recommendation (above n 30) point 4. 40 The Commission notifies national authorities by electronic means and also publishes its comments in a publicly accessible database, which can be found on its website. Between July 2003 and April 2008, the Commission offered observations in 438 cases and did not do so in 271 cases: COCOM 08–13 ‘Article 7 procedures’ (Working Document), 9 April 2008. The Commission observations are made publicly available through the website of DG INFSO. 41 Commission Guidelines on market analysis and SMP assessment (above n 33) [117]–[118]. 42 Art 7(5) Framework Directive. According to the Commission Art 7 Recommendation (above n 30) point 17, the NRA must inform the Commission and the other NRAs of the manner in which it has taken account of their observations. 43 Commission Guidelines on market analysis and SMP assessment (above n 33) [155].

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Methods for Consistency across National Institutions more in the circulation of draft decisions and the ideas contained therein than in the active participation in shaping the decisions of another authority.

d. Failure to Notify What happens when a national authority fails to observe its notification duty— intentionally or otherwise? To answer this question it is interesting to consider Directive 98/34 on the provision of information in the field of technical standards and regulations.44 Article 8(1) of this Directive requires Member States to notify the Commission of any draft ‘technical regulations’ they wish to adopt.45 Article 9 contains a standstill provision: a notifying Member State is barred from adopting the technical regulation for a period of three months, during which it is considered by the Commission and the other Member States.46 In CIA Security International SA v Signalson SA and Securitel SPRL the Court of Justice ruled on the legal consequences of a Member State’s failure to comply with Article 8.47 The case concerned three firms that were in the business of selling burglar alarm systems and were embroiled in litigation. Signalson and Securitel petitioned the Belgian national court to restrain CIA from marketing its alarm because it had not been approved in accordance with the Belgian law on security system. CIA counterclaimed that the Belgian legislation was invalid because it had not been communicated to the Commission under Article 8. The Court agreed with CIA: The effectiveness of Community control would be that much greater if the Directive is interpreted as meaning that breach of the obligation to notify constitutes a substantial procedural defect such as to render the technical regulations in question inapplicable to individuals.48

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[1998] OJ L204/37. Art 1(9) of the Directive defines ‘technical regulation’ as: technical specifications and other requirements, including the relevant administrative provisions, the observance of which is compulsory, de jure or de facto, in the case of marketing or use in a Member State or a major part thereof, as well as laws, regulations or administrative provisions of Member States, except those provided for in Article 10, prohibiting the manufacture, importation, marketing or use of a product. Art 1(2) of the Directive defines ‘technical specification’ as: a specification contained in a document which lays down the characteristics required of a product such as levels of quality, performance, safety or dimensions, including the requirements applicable to the product as regards the name under which the product is sold, terminology, symbols, testing and test methods, packaging, marketing or labelling and conformity assessment procedures. 46 This period may be extended if the Commission or another Member State delivers a detailed opinion that the measure may create an obstacle to the free movement of goods (Art 9(2)) or when the Commission announces its intention to propose a Community instrument on the matter (Art 9(3)). 47 Case C-194/94 CIA Security International SA v Signalson SA and Securitel SPRL [1996] ECR I-2201. 48 Ibid [48]. 45

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Consistency through Procedural Tools In the subsequent case of Unilever Italia SpA v Central Foods SpA the Court ruled that breach of the standstill obligation would similarly render the relevant technical regulation inapplicable.49 It is suggested that the reasoning advanced in CIA can be extended to the notification procedure for national authorities under EC competition and communications law. Its introduction was prompted by the same considerations that resulted in the adoption of Directive 98/34—that is, to enable national regulations and decisions to be checked for compatibility with EC law before they are adopted and pose an obstacle to intra-Community trade. The effectiveness rationale put forward by the Court in CIA is hence equally persuasive in the context of network-based governance. In sum, it would seem proper to extend the penalty of non-enforceability to national decisions finalised in breach of the obligation of notification under Regulation 1/2003 and the Framework Directive. ii. Consultation Article 11(5) of Regulation 1/2003 gives each NCA the right to consult the Commission on cases involving European competition law. The query may relate to economic, factual or legal matters. The Commission thus has the opportunity to clarify its views and to offer insights drawn from its own experiences or those of other NCAs, to thereby foster the development of common perspectives among the national authorities.50 This is in particular because the Commission has indicated that it will associate the other NCAs with the request for assistance. It is for the requesting authority to decide whether and when it is opportune to seek the Commission’s advice. The consultation is carried out either through an individual request, through discussions within the Advisory Committee on Restrictive Practices and Dominant Positions (the comitology committee for competition matters)51 or through deliberations within the context of the European Competition Network. 49 Case C-443/98 Unilever Italia SpA v Central Foods SpA [2000] ECR I-7535. Note also the forceful contrary opinion by Jacobs AG, who balanced the benefits of effectiveness in the enforcement of EC law with the costs this would bring for private parties in the form of reduced legal certainty. See further C Barnard, The Substantive Law of the EU: The Four Freedoms (Oxford, Oxford University Press, 2004) 119–27; S Weatherill, Cases and Materials on EU Law, 8th edn (Oxford, Oxford University Press, 2007) 141–47. In Case C-159/00 Sapod Audic v Eco-Emballages SA [2002] ECR I-5031 the Court held that it fell to the national courts to decide on the consequences of inapplicability in private litigation; and in Case C-226/97 Criminal Proceedings against Johannes Martinus Lemmens [1998] ECR I-3711, it imposed limits on this case law by ruling that while failure to notify technical regulations rendered national regulations inapplicable inasmuch as they hindered the use or marketing of a product that was not in conformity with the regulations, it did not have the effect of rendering unlawful any use of a product that was in conformity with the unnotified regulations. 50 See D Gerber and P Cassinis, ‘The “Modernisation” of European Community Competition Law: Achieving Consistency in Enforcement: Part 2’ (2006) 27 European Competition Law Review 51, 56. 51 Art 14(7) Reg 1/2003. Either on its own initiative or at the request of an NCA, the Commission may put a national case on the agenda of the comitology committee.

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Methods for Consistency across National Institutions The Framework Directive does not recognise a similar consultation mechanism. In practice, the NRAs are, however, able to consult Commission officials on the proper application of the 2002 Electronic Communications Framework during pre-notification meetings. In addition, and outside that institutional context, NRAs have the right to ask the Commission for assistance or advice on the basis of Article 10 EC. Case law has indicated that this provision imposes a duty on the Commission to behave loyally towards national actors and assist them in their efforts to administer EC law.52

iii. Transversal Controls With transversal controls, we refer to mechanisms that organise the relationships between the NCAs and the NRAs.53 That there is room for coordination is clear when we consider that the mandates of these different authorities may overlap and give rise to double regulation, with attendant costs in the form of contradictory decisions and lengthy and complex procedures.54 In this respect, consider in particular the substantive alignment of the mainstay of EC communications law, the SMP regime, with competition methodology.55 Accordingly, Article 3(4) of the Framework Directive provides that NRAs must consult NCAs and cooperate with them on matters of common interests when this is appropriate.56 Further, NRAs and NCAs must exchange the information necessary for the application of

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C-2/88 Criminal Proceedings against JJ Zwartveld and Others [1990] ECR I-3365 [17]–[22]. Larouche (above n 1) 278. 54 On such overlaps, see Petit (above n 14). Note that contradictory decisions in this context cover not only contrasting decisions addressed to the same firm taken by authorities whose geographic remit is different, but also decisions taken by authorities that exercise concurrent jurisdiction over the same territory. In this last scenario, we may expect the costs associated with incompatible decisions and inefficient legal procedures (for instance because of parallel or sequential intervention by the NCA and the NRA) to be especially grave. 55 The SMP regime is discussed in more detail above in ch 2, section III-A(ii). Laid down in Arts 14–16 Framework Directive, it follows the classic stages in competition methodology of market definition, market assessment and the imposition of remedies. Consider also the notion of SMP itself, defined in Art 14(2) Framework Directive as equivalent to the concept of ‘dominance’ developed by the Community Courts in their case law on Art 82 EC (‘a position of economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers’). See further A de Streel, ‘The Integration of Competition Law Principles in the New European Regulatory Framework for Electronic Communications’ (2003) 26 World Competition 489. 56 Most Member States have interpreted ‘matters of common interest’ to refer to the consistent interpretation of competition law concepts by the NRA and the NCA. Consider the Dutch approach. According to Art 8(2) Cooperation Protocol NMa/OPTA (available at the websites of both authorities), competition law concepts are consistently applied if i) the OPTA has obtained the prior written permission of the NMa for its proposed interpretation; ii) the interpretation is in accordance with guidelines drawn up by the NMa and OPTA; iii) the interpretation suggested by OPTA is in line with the interpretation used in an earlier case by either the NMa or the OPTA; or iv) the interpretation is consistent with the interpretation used in a case that can no longer be appealed. Art 3(4) also requires consultation and cooperation between NRAs and national consumer bodies when this is appropriate. 53

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Consistency through Procedural Tools the European communications rules.57 Lastly, Member States must ensure that NRAs involve NCAs in the SMP procedure when this is considered appropriate.58 Legal responsibility for the analysis remains firmly with the NRA, however.59 The controls foreseen in the Framework Directive are a legislative specification of the Court’s case law, according to which NRAs cannot take decisions contradicting or undermining European competition law.60 This explains the repeated use of the term ‘appropriateness’ in the legislative obligations. The concept arguably recognises the wide variety in enforcement structures at the national level and, by the same token, the differences in knowledge of competition policy that NRAs possess. Thus in some respects, the intensity of coordination may vary per Member State. The modalities of coordination in the context of the SMP procedure have been the subject of a Position Paper on NRA–NCA cooperation61 drawn up by the Independent Regulators Group (IRG), a body operating outside the scope of European law and bringing together national authorities with responsibility for communications matters. The Position Paper distinguishes between markets that are listed versus markets that are not listed in the Commission’s Recommendation on relevant markets. In relation to the first category, NCAs should be able to advise the NRAs on the definition of the relevant geographic market and the SMP assessment.62 Their comments should be duly considered in the finalising of the decision. In relation to the second category, closer collaboration is foreseen. Thus, the national authorities should exchange market analysis outcomes when a particular market has already been dealt with by the NCA; there should be an exchange of data to be used as evidence in the SMP procedure; or joint case teams should be created, comprising officials of both the NRA and the NCA.63 So how have the four sample Member States designed these transversal controls? In Germany, the Bundeskartellamt holds a veto right over determinations by the Bundesnetzagentur on market definition and market analysis,64 and 57 Art 3(5) Framework Directive. Confidential information is also included. Some legal systems also provide that the NRA and the NCA must exchange information for the application of the competition rules, eg the Netherlands (Art 15 Cooperation Protocol NMa/OPTA) and Germany (§50c GWB and § 123 TKG). 58 Art 16(1) Framework Directive. See also Recital 13 Access Directive (n 30). 59 Commission Guidelines on market analysis and SMP assessment (above n 33) [136]. 60 Case 66/86 Ahmed Saeed Flugreisen and Silver Line Reisebüro GmbH v Zentrale zur Bekämpfung unlauteren Wettbewerbs eV [1989] ECR 803; Case C-35/96 Commission v Italian Republic [1998] ECR I-3851; and Case C-198/01 Consorzio Industrie Fiammiferi (CIF) v Autorità Garanta della Concorrenza e del Mercato [2003] ECR I-8055. 61 Nr 11/02, available at http://www.irg.eu/. The relationship between the IRG and the ERG is discussed below in ch 6, section I. 62 Ibid [14]. 63 Ibid [16]. 64 Frequency regulation is also included: §§ 61(3), 62(2)(3) and 123 TKG. This division of labour—whereby the NCA has the last say over market definition and analysis, while the NRA focuses on remedies—is also supported by Larouche (above n 1) 291–92. He notes that this approach would fit in with the varying degrees of control that the Commission may exercise over the work of the NRAs. As will be seen below, the Commission has issued notices in relation to the first two steps of the

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Methods for Consistency across National Institutions it may comment on the remedies that are proposed.65 A comparable regime obtains in France, where the Autorité de Régulation des Communications électroniques et des Postes (ARCEP) needs to ask the Conseil de la Concurrence for advice before it may define markets and identify firms with SMP.66 Under Dutch law, the Nederlandse Mededingingsautoriteit (NMa) and the Onafhankelijke Post en Telecommunicatie Autoriteit (OPTA) consult each other on market definition and analysis in the communications sector.67 Upon receipt of the consultee’s observations, the consultor has two weeks to respond. If the consultor does not do so, then it is assumed that both authorities are in agreement. The consultee’s observations are published together with the final decision. UK law does not have any special rules for collaboration between the Office of Fair Trading (OFT) and the Office of Communications (Ofcom) for the SMP exercise. This is because Ofcom has the power to also enforce competition law, as well as the communications rules.68 Ofcom is hence presumed to possess the requisite expertise to correctly apply competition law concepts. Practice thus far indicates that collaboration in the context of the SMP procedure has improved the quality of regulatory decisions by the NRAs.69 Importantly, the ambit of the transversal controls provided by the Framework Directive is limited to the proper discharge of the tasks entrusted to the NRAs by Community law. They do not address the prior question of the allocation of jurisdiction in line with subsidiarity and national autonomy. The issue is, however, dealt with in the IRG Position Paper.70 It suggests a variety of devices for successful transversal collaboration in this respect: mutual information duties on complaints, a procedure for case allocation, as well as the splitting or joint handling of common cases. It is interesting to look at how the Member States have dealt with the above. We will see that national approaches are somewhat heterogeneous. This reflects the different institutional choices by the Member States in designing the administrative infrastructure for the enforcement of EC competition and communications law.71 Neither German nor French law contains a formal cooperation agreement that assigns cases to specific authorities. Only information and consultation duties are

SMP procedure (market definition and market analysis) and enjoys a veto right over these aspects of NRA draft decisions. Conversely, NRAs enjoy more leeway at the remedies stage: there are no Commission notices, and the Commission may only offer non-binding observations. 65 § 123 TKG, with a cross-reference to §§ 16–43 TKG. 66 On a number of occasions, ARCEP has modified its position on market analysis following consultation by the Conseil de la Concurrence: EC, ‘European Electronic Communications Regulation and Markets 2005 (11th Report)’ (Communication) COM (2006) 68 final, Annex I, 138. 67 Art 14 Cooperation Protocol NMa/OPTA. Mergers between entities active in the field of electronic communications fall within the exclusive competence of the NMa, which must immediately inform the OPTA and set it an appropriate time for the submission of observations. 68 See further above ch 2, section I. 69 EC, ‘Market Reviews under the EU Regulatory Framework’ (above n 33) 4. 70 Above n 61, [21]. 71 See further above, ch 2, section I.

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Consistency through Procedural Tools provided for. Thus, in Germany, the Bundeskartellamt notifies the Bundesnetzagentur when it intends to apply competition law to a problem in the communications sector and offers it the opportunity to state its views. In principle, the Bundeskartellamt has indicated that it will not intervene if the Bundesnetzagentur can claim jurisdiction. In France, the President of ARCEP must inform the Conseil de la Concurrence of alleged abuses of market power in the communications field. The Conseil has accepted a similar obligation for competition matters that fall within ARCEP’s remit of jurisdiction. More sophisticated cooperation regimes are in place in the Netherlands and the United Kingdom. The Dutch NMa and OPTA have signed a Cooperation Protocol that in principle assigns common cases to the OPTA, unless efficiency considerations dictate otherwise.72 There is also room for joint action, particularly in relation to matters of great common interest. When dealing with such a case, the boards of both authorities are consulted on the final decision.73 If the OPTA fails to initiate proceedings, the NMa is able to intervene to restore effective competition.74 Once an authority is acting on a certain case, the other is barred from entertaining complaints regarding the same issue, unless differences in the applicable legal frameworks justify concurrent or sequential intervention.75 Finally, the Cooperation Protocol provides for quarterly meetings between NMa and OPTA staff as well as for exchange programmes. According to UK law, the OFT and Ofcom must consult each other before acting on a case when it appears that they may have concurrent jurisdiction.76 Cases are referred to whichever authority is considered best placed to act, with a priority rule in favour of Ofcom for cases that concern the communications sector.77 Simultaneous intervention on the part of the OFT and Ofcom in the 72 This Protocol is drawn up pursuant to Art 18.3(2) Tw. The default rule (OPTA has priority) is laid down in Art 3(4), and the exception can be found in Art 3(5). The NMa and the OPTA also encourage interested parties to contact the OPTA in relation to matters within the scope of the Tw. 73 Art 10 of the Cooperation Protocol. 74 Ibid, Arts 8 and 9. If the NMa intends to bring proceedings in relation to a matter within OPTA’s jurisdiction, it must inform that authority of its intention and give it a three-week period to raise objections, which should be based on the objectives laid down in the Tw, Art 9(2). If OPTA would indeed object, then the matter is placed before the boards of the NMa and the OPTA who must decide on the appropriate course of action, Art 9(3). This perspective on the allocation of jurisdiction is also suggested in Commission Notice on the application of the competition rules to access agreements in the telecommunications sector: framework, relevant markets and principles [1998] OJ C265/2 [11] ff. 75 Art 7(4) of the Cooperation Protocol. 76 OFT Guideline ‘Concurrent Application to Regulated Industries’ (available at the OFT website) ss 5 and para 3.12. The Secretary of State has the final say in determining which functions fall within Ofcom’s jurisdictional remit. 77 Para 3.13 OFT Concurrency Guideline. The factors to be considered in this respect are the authority’s sectoral knowledge, whether multiple regulated sectors are affected; whether there have been prior contacts between the authority and the parties; and whether the authority has recently dealt with the same firm or similar issues. As such, factors that may point towards Ofcom jurisdiction include the desirability to ensure consistency of regulation within the ambit of Ofcom’s regulatory responsibilities; the fact that Ofcom may in some circumstances be in a better position to appreciate the relationship between cases brought under competition law and regulation within its sector; and

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Methods for Consistency across National Institutions same case is avoided for reasons of double jeopardy.78 In contrast with the Dutch approach, joint investigations are not possible. This is because it is believed that such investigations are a source of jurisdictional confusion and complex procedural issues. An important feature of the UK system is the Concurrency Working Party (CWP), comprising the OFT and all the sectoral regulators.79 It facilitates consistency in the interpretation of competition law; considers practical working arrangements between the authorities; provides a vehicle for the discussion of matters of common interest; and organises the sharing of information on pending cases. The CWP is complemented by monthly informal meetings between the OFT and Ofcom during which problematic issues and cases are discussed. Case handlers and other personnel may attend these meetings if and when appropriate. To conclude this section, it can be said that the arrangements in place in the Netherlands and the United Kingdom are particularly effective for transversal coordination. The details of the schemes mean that all the key avenues for collaboration are regulated. For authorities and firms this creates transparency and legal certainty. And as a result of regular interaction, we may expect feelings of amicability between the NCAs and the NRAs, as well as a willingness to cooperate and learn from each other, which makes for greater administrative effectiveness.80 iv. Judicial Review National courts rule on the compatibility of NCA and NRA decisions with Community law, when necessary with the help of preliminary rulings from the Court of Justice. For instance, if a private party believes that an authority has breached its notification duty or has adopted a wrong interpretation of the relevant EC rules, it may petition the national court for redress. The competition regime leaves the modalities of judicial review to national law to determine, subject to compliance with general obligations deriving from the EC Treaty.81 However, we have seen that the communications regime indicates that there must the specialist experience and knowledge of Ofcom staff in the communications sector. The OFT is considered more appropriate to investigate if the conduct relates to potential criminal activities or hardcore cartels or has effects on competition beyond the substantive scope of Ofcom’s jurisdiction. 78 S 6 Competition Act 1998 (Concurrency) Regulations 2004 SI 2004/1077; and paras 2.5 and 3.1 OFT Concurrency Guideline. 79 Paras 2.9–3.11 OFT Concurrency Guideline. The CWP normally meets twice every month, and to allow for the efficient handling of business, attendance is generally limited to one or two persons from each authority. 80 For instance, the Commission noted in EC, ‘On Market Reviews under the EU Regulatory Framework’ (above n 33) 4 that in those instances that NRAs have consulted NCAs on their market analysis, it in many cases has resulted in a better performance in this regulatory exercise. 81 Member States must adopt rules that are effective and equivalent to domestic laws, eg Case 33/76 Rewe-Zentralfinanz eG and Rewe-Zentral AG v Landwirtschaftskammer für das Saarland [1976] ECR 1989. Also, they must behave loyally towards the Community institutions pursuant to Art 10 EC.

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Consistency through Procedural Tools be a right of appeal against NRA decisions.82 In addition, appeal bodies should possess certain institutional attributes: they must be independent of the parties involved, have the expertise required to judge cases, have the ability to take decisions on the merits and the power to adopt interim decisions as necessary.

v. Commission Intervention (Pre-emption and Veto) a. Competition Law Article 11(6) of Regulation 1/2003 authorises the Commission to remove a case from the jurisdiction of an NCA by commencing its own proceedings in respect of the same case.83 There are three possible scenarios. First, the Commission may simply be the first authority to carry out an investigation.84 Second, the case may be referred from the NCA to the Commission following the compulsory communication of new proceedings, because both authorities believe that the Commission is better suited to deal with it.85 Thirdly, at some point after this notification and with the national proceedings in full swing, the Commission may consider it imperative to intervene through Article 11(6). In particular, we may think of a situation in which the Commission receives an NCA’s draft decision and judges that sending observations under Article 11(4) is not sufficient to guarantee the proper application of EC competition law concepts. Our concern here is with the third scenario.86 82

Art 4 Framework Directive. See further above ch 3, section III-A. Also Recital 17 of Reg 1/2003 and Network Notice (above n 18) [50]–[57]. The ‘same case’ is defined as a case brought ‘under the same legal basis against the same agreement(s) or practice(s) by the same undertaking(s) on the same relevant geographic and product market’: Network Notice [51]. Art 11(6) may also be invoked against national courts that have been designated as NCAs, but its use is explicitly prohibited in relation to courts that act as review courts: Art 35(3) and (4) Reg 1/2003. Some authors have suggested that the combined reading of Art 11(6) with Art 3 of the Regulation (prescribing that NCAs must apply the EC competition rules to behaviour that affects trade between Member States in addition to the application of national competition rules) means that the NCA would also have to close its proceedings brought under national law: C Gauer, ‘Due Process in the Face of Divergent National Procedures and Sanctions’ in P Lowe and M Reynolds (eds), Antitrust Reform in Europe: A Year in Practice (London, International Bar Association, 2005). The only exception would be when the application of stricter national law is permitted. 84 The Commission must have adopted a ‘first formal investigative measure’, for instance issued a request for information or conducted an inspection of a firm’s premises. The mere receipt of a complaint is not sufficient. A new practice seems to be the publication of a notice on the initiation of proceedings, first used by the Commission in relation to the alleged infringement of Art 82 EC by Qualcomm: Press notice of 1 October 2007, available at the website of DG COMP. 85 According to the Network Notice (above n 18) [14]–[15], the Commission is particularly well placed to deal with competition violations that have effects on competition in more than three Member States; that are closely linked to other Community provisions that may be exclusively or more effectively applied by the Commission; and that raise a new competition issue. Or they may do so to ensure the effective enforcement of the EC competition rules. 86 The other, more amicable modalities of case allocation are discussed below in ch 6, section II-A(ii). 83

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Methods for Consistency across National Institutions The Regulation does not specify when the Commission may take over a case. The Network Notice, however, suggests a variety of situations in which preemption might be appropriate.87 This is firstly when an NCA intends to adopt conflicting decisions or decisions that are obviously contrary to established case law or the Commission’s regulations and decisions. John Fingleton has rightly remarked that ‘conflicting decisions’ should be taken to refer to decisions that diverge and cannot both be complied with—excluding decisions that stake different, but equally reasonable, interpretations of competition law concepts if no obstacle to the Internal Market ensues.88 By adopting such a contrôle périphérique the Commission would allow for a certain measure of regulatory competition that should be beneficial for the dynamic evolution of competition policy in Europe.89 The Commission may also consider taking a case away from an NCA that is unduly drawing out proceedings or that has no objection to being so relieved. Finally, pre-emption is possible when the Commission needs to develop Community competition policy90 or when the effectiveness of enforcement requires the use of this power. Once the Commission has decided that there are good reasons to relieve an NCA of its competence, it must announce its intentions to all the NCAs and explain its reasons.91 The NCA that is currently acting on the case may then request a meeting of the Advisory Committee on Restrictive Practices and Dominant Positions, composed of representatives of the NCAs.92 The Committee discusses the Commission’s proposal and issues an informal statement.93 If the Commission is still convinced that it should use Article 11(6), it proceeds to commence a proceeding itself, and the NCA thus loses its competence to conclude its treatment of that particular case.94 To be clear, the Commission does not proceed by way of a decision addressed to the NCA concerned: it is the

87 Network Notice (above n 18) [51]. See also Joint Statement of the Council and the Commission (above n 25) [21]. 88 J Fingleton, ‘The Distribution and Allocation of Cases among Members of the Network: The Perspective of the Commission/NCAs’ in CD Ehlermann and I Atanasiu (eds), Constructing the EU Network of Competition Authorities, European Competition Law Annual 2002 (Oxford, Hart Publishing, 2004) 333. 89 The capacity of network-based governance to foster regulatory competition is further discussed below in ch 7, section IV-A. 90 This, according to the Network Notice, is in particular the case when there is a similar competition issue that arises in several Member States. 91 Network Notice (above n 18) [55]. For the procedure to be followed in the other two instances when Art 11(6) applies, see below ch 6, section II-A(ii). 92 Art 14 of Reg 1/2003. The Advisory Committee usually convenes two weeks after the Commission has sent an invitation for the meeting: Network Notice (above n 18) [65]. An oral procedure is possible if there are no objections [66]. 93 Network Notice (above n 18) [62]. 94 In principle, the pre-emption loses its effect after the Commission has adopted a decision. The NCA, however, has no incentive to continue its proceedings, because its decision would have to be consistent with the Commission’s prior decision per Art 16(2) Reg 1/2003 (see below).

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Consistency through Procedural Tools launch of proceedings at the Community level that, together with the compulsory closure of proceedings at the national level, that puts an end to the NCA’s jurisdiction. The Commission has not yet exercised its power of pre-emption. Figure 5.1 provides a graphic overview of the various ways in which the Commission exerts influence on NCA decisions pursuant to Article 11 of the Regulation, covering both the notification procedure outlined earlier and the pre-emption tool that has been the focus of this subsection. Figure 5.1 The Role of the Commission in the Adoption of NCA Decisions (Article 11 of Regulation 1/2003)

b. Communications Law Figure 5.2 gives an overview of the role played by the Commission and the other NRAs in the adoption of NRA measures pursuant to Article 7 of the Framework Directive. In addition to providing that the Commission and the NRAs may make comments on an NRA’s draft decision (as explained above), Article 7(4) of the Framework Directive also gives the Commission a veto right over any NRA determination that seeks to define markets that are not listed in the Commission’s Recommendation on relevant markets or that proposes to designate particular firms as having or lacking SMP, which would affect intra-Community trade. 171

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Methods for Consistency across National Institutions Figure 5.2 The Adoption of NRA Measures (Article 7 of the Framework Directive)

The veto right does not currently extend to the remedies that NRAs intend to impose, much to the Commission’s frustration. The Commission believes that the discretion enjoyed by the NRAs in deciding on the proper regulatory obligations warrants Community-level oversight to guarantee optimal consistency. In the negotiations on the Framework Directive it accordingly pressed for a veto right that would cover all three stages of market definition, market analysis and remedies.95 This suggestion was unpalatable to the Council, which desired that the Commission be only allowed to offer non-binding opinions on the decisions by NRAs. This was in part because of fears of overly long and complex decision-making procedures and in part out of concern for the independence of NRAs.96 95 EC, ‘Proposal for a Directive of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services’ COM (2000) 393 final, 12 July 2000, Art 6(4). 96 Common Position (EC) No 38/2001 adopted by the Council on 17 September 2001 [2001] C337/34 Art 6(4). The Council probably also considered that a binding veto right for the Commission would amount to an unwarranted trespass on Member State autonomy.

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Consistency through Procedural Tools It was the European Parliament that brokered the present regime. The rationale for the decision not to have a veto right over remedies is that it was felt that national differences can be best expressed in the design of regulatory obligations, and hence the remedies stage was of less concern from an Internal Market perspective than the two preceding steps of market definition and market analysis. This is not to say that there was no pressure to ensure some measure of consistency on the choice of remedies as well. Under Article 7(3) the Commission is presently allowed to send written observations on the appropriateness of proposed obligations—which it frequently does.97 The discretion of the NRAs is further circumscribed by the European Regulators Group (ERG) Common Position on Remedies.98 In practice, most NRAs transmit copies of their draft measures that cover market definition, analysis and remedies, thereby blurring the line between the two steps that are, and the one step that is not, subject to potential Commission veto.99 The Framework Directive also provides the criteria that govern the Commission’s exercise of the veto right. It must consider that the draft decision in question would create a barrier to the single market, or it must have serious doubts on the decision’s compatibility with EC law, in particular the objectives listed in Article 8 of the Framework Directive.100 ‘Serious doubts’ must surely mean that a mere divergence of opinion between the Commission and an NRA, or between NRAs, is not sufficient. For the interpretation of the first criterion it is useful to consider the case law of the Court of Justice on the availability of Article 95 EC as a legal basis for harmonisation: If the mere finding of disparities between national rules and of the abstract risk of obstacles to the exercise of fundamental freedoms or of distortions of competition liable to result therefrom were sufficient to justify the choice of Article 100a [now 95] as a legal basis, judicial review of compliance with the proper legal basis might be rendered nugatory.101 97 According to Art 8(4) Access Directive (above n 30), remedies must be based on the nature of the problem identified; and be proportionate and justified in the light of the objectives set out in Art 8 Framework Directive. The Commission’s focus is on remedies that appear to be incomplete, ineffective or tardy in achieving the necessary regulatory outcome. It regularly indicates specific remedies that the NRAs should consider imposing, different from the ones listed in the notification. 98 ERG (06)33 ‘Revised ERG Common Position on the Approach to Appropriate Remedies in the ECNS Regulatory Framework’ [2006], replacing ERG (03)30 [2003]. See Art 7(2) Framework Directive: NRAs and the Commission ‘shall, in particular, seek to agree on the types of instruments and remedies best suited to address particular types of situations in the market place’. 99 The German Bundesnetzagentur, the Dutch OPTA and the Portuguese ANACOM usually submit separate notifications for the remedies they seek to impose: EC Staff Working Document SEC (2007) 962, 11 July 2007 accompanying EC, ‘Market Reviews under the EU Regulatory Framework (2nd report)’ (Communication) COM (2007) 401 final, 11 July 2007, 4. 100 Ie, the promotion of competition, the development of the internal market and the promotion of the interests of EU citizens. 101 Case C-376/98 Germany v Parliament and Council (‘Tobacco Advertising’) [2000] ECR I-8419 [84]; Case C-434/02 Arnold André GmbH & Co KG v Landrat des Kreises Herford [2004] ECR I-11835 [30]–[34]; Case C-210/03 Swedish Match AB and Swedish Match UK Ltd v Secretary of State for Helath [2004] ECR I-11893 [29]–[33]; Joined Cases C-154/04 and C-155/04 Alliance for Natural Health and

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Methods for Consistency across National Institutions The Court reasoned that Community intervention for the sake of the Internal Market is valid only if the degree of heterogeneity between the laws and regulations of the Member States pose a genuine risk to the functioning of the Internal Market. This reasoning should be extended to Article 7(4) of the Framework Directive. Both Article 7(4) of the Framework Directive and Article 95 EC are concerned with the division of competences between the Community and its Member States. Just as Article 95 EC does not bestow on the Community legislature a general power to regulate the Internal Market, so Article 7(4) of the Framework Directive does not give the Commission a general right to prohibit NRA decisions.102 The decentralisation paradigm that underlies network-based governance would be difficult to reconcile with a standard for Commission intervention that sought uniformity in decision-making across Europe. A pragmatic view on the nature of regulatory decisions under EC communications law confirms that the Commission should intervene only when an NRA measure hampers the Internal Market on the basis of concrete evidence or would significantly conflict with Community law. These decisions take place within the context of significant uncertainty about the evolution of the sector—in particular the technological developments that may or may not occur and that may or may not appeal to consumers. As a result, there is no right answer to most—if not all—major regulatory dilemmas. Rather, regulatory decisions essentially involve policy trade-offs. For instance, short-term gains in consumer welfare from lower prices and increased competition routinely have to be weighed against longerterm gains from investments in new technologies and increased dynamic efficiency. Similarly, the interests of one category of customers often have to be balanced with those of another category.103 It could thus very well be that two authorities—two or more NRAs, or an NRA and the Commission—each favour a different regulatory approach, without necessarily implying that one authority is completely mistaken. When a number of reasonable choices are open, allowing some measure of divergence might be preferable to reduce the risk of massive regulatory failure if all the authorities followed the same approach, imposed in a

Nutri-Link Ltd v Secretary of State for Health and National Association of Health Stores and Health Food Manufacturers Ltd v Secretary of State for Health and National Assembly for Wales [2005] ECR I-6451 [28]–[32]. 102 General and full review of NRA decisions rests properly with the national courts, confirmed by Art 4 Framework Directive. Allowing the Commission to review NRA decisions fully would introduce an inefficient duplication of review. Rather, the Commission’s role under Art 7 Framework Directive is to safeguard EC competition law (where the Commission has the lead role and provides guidance for market definition and assessment) and the Internal Market, and it is given a limited veto right to protect these two interests. 103 For instance, the regulation of mobile termination rates implied that the interests of the users of fixed communications (who paid high termination rates to call mobile subscribers) were given priority to those of mobile subscribers (who benefited from the net wealth transfer from fixed to mobile), contrary to what had been the case. Of course, by now, most fixed users are also mobile subscribers so that the overall wealth transfer might not have been that considerable.

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Consistency through Procedural Tools top-down fashion. This is even if it imposes some costs in the shorter term. With time, accumulated experience makes it easier to discern which choice works in practice. If the Commission feels that one of the two conditions in Article 7(4) of the Framework Directive conditions obtains, it will issue a ‘serious doubts letter’, requiring the NRA to postpone adoption of its draft measure for a further two months.104 The decision to initiate an in-depth examination under Article 7(4) is communicated to industry players and other interested parties through the Commission’s website, and they are invited to share their views.105 There then follows a dialogue between the NRA concerned and the Commission services. The NRA may then decide to withdraw or maintain its draft measure.106 In the first scenario, informal discussions will continue between the Commission and the NRA until agreement is reached. At that point, the measure will be re-notified under Article 7(3) and is usually approved without comments. There are obvious gains to be obtained by selecting this route. For the NRA, it avoids the reputational damage a veto would bring. For the Commission, it need not jeopardise the vital cooperation between itself and the national level that underpins network-based governance. Take, for example, the Dutch draft measure that sought to regulate the retail broadcasting market. Following domestic Parliamentary unease about alleged high price increases for cable services, OPTA looked into the matter and ended up notifying a measure to the Commission that would allow it to regulate the retail prices of the three largest cable operators through price caps for a three-year period.107 The retail broadcasting market, however, is not listed in the Commission’s Recommendation on relevant markets. This is not necessarily a problem, because NRAs may define additional markets if they are characterised by high and non-transitory entry barriers, if there is the prospective absence of effective competition behind these entry barriers and if the market failures cannot be addressed with the help of the ordinary competition rules.108 The Commission, however, held that these criteria were not met in the case at hand. In particular, it felt that the suggested duration for regulatory intervention was 104 In addition to the one-month consultation period pursuant to Art 7(3). This period may not be extended. If the Commission fails to act within this period of time, it is understood that the NRA may proceed to adopt its draft measure. 105 They usually have to do so within five working days. 106 Commission Art 7 Recommendation (above n 30) point 16. The Commission informs interested parties that a draft measure had been drawn by posting a notice on its website. By 9 April 2008, NRAs had used the possibility of withdrawal on 31 occasions: COCOM 08–13 ‘Article 7 Procedures’ (Working Document), 9 April 2008. 107 Case NL/2005/0247. 108 Art 15(3) last sentence Framework Directive and Commission Recommendation 2003/311/EC of 11 February 2003 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communication networks and services [2003] OJ L114/45 [19], now replaced by Commission Recommendation 2007/879/EC of 17 December 2007 [2007] OJ L344/65 [17].

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Methods for Consistency across National Institutions excessive and that the proportionality of price regulation was not unequivocal.109 It thus initiated the Article 7(4) procedure.110 OPTA thereupon withdrew its notification. Informal discussions ensued, and agreement was eventually reached to abandon price regulation and allow instead for price supervision for one year.111 OPTA then re-notified its amended decision, which the Commission let pass without making comments.112 Both the OPTA and the Commission have celebrated the outcome as a victory.113 If the NRA decides to maintain its draft measure, the Commission has three options at the end of the investigative period. It may withdraw its serious doubts and allow the NRA to adopt its decision.114 It may also send observations, which the NRA must take the utmost account of in finalising its decision. Lastly, it may adopt a veto decision requiring the NRA to withdraw its proposed decision and obliging it to redo the entire SMP procedure.115 In that case, the Commission must first consult the Communications Committee, COCOM, which is composed of the NRAs and issues non-binding advice.116 Veto decisions explain the reasoning on which they are based and also offer specific suggestions for amendment. They are notified by electronic mail to the NRA concerned and then posted on the Commission’s website, where they can be freely accessed.117 So far, the Commission has adopted five veto decisions. These will be considered in turn.

109 According to the Commission, Dutch cable operators would (soon) face growing competitive pressure from new commercial offers by suppliers of competing services such as satellite, digital terrestrial TV and radio; and TV over broadband telephone lines. As far as the proportionality of the draft measure was concerned, the Commission relied on a decision by the Dutch competition authority, the NMa, holding that the retail tariffs were not excessive within the meaning of the Dutch competition rules, which are in substance identical to Arts 81 and 82 EC. 110 SG-Greffe (2005) D/205996. 111 During this year, OPTA would not intervene, on the condition that the retail tariff increases of the three operators did not exceed the increase of the consumer price index. OPTA would monitor the application of this condition, and any breach was to be considered as an exceptional circumstance within the meaning of Art 7(6) Framework Directive. This was probably introduced as a concession to OPTA but does not seem compatible with the purpose of Art 7(6): how can an NRA determine beforehand that urgent circumstances will arise? 112 IP/05/1662 ‘Commission Allows Light Touch Intervention by Dutch Regulator in Cable TV and Radio Broadcasting for One Year’, 21 December 2005. 113 Commissioner Viviane Reding commented, ‘I am pleased with OPTA’s commitment not to intervene with heavy regulation in this dynamic market’ in IP/05/1622; and then OPTA Chairman Chris Fonteijn stated, ‘We are satisfied that we have avoided a veto, because it would have benefited no one. Consumers would have been left with empty hands in that case. Now the door to the regulation of these tariffs is wide open’: OPTA Press release ‘OPTA and Commission Agree on Cable’, 12 December 2005 (available at OPTA’s website). 114 By 9 April 2008, the Commission had withdrawn its objections in eight cases: COCOM 08–13 ‘Article 7 Procedures’ (Working Document), 9 April 2008. 115 It is not clear whether the NRA could immediately adopt a second draft measure amended in accordance with the Commission’s suggestions or better reasoned. The better view is that the NRA cannot: such measures are likely to have a significant impact on the market and should therefore be subject to a public consultation per Art 6 Framework Directive. 116 Arts 7(4) and 22(2) Framework Directive. 117 Commission Art 7 Recommendation (above n 30) point 14.

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Consistency through Procedural Tools c. The First Finnish Veto Decision The Commission’s first veto decision was addressed to the Finnish NRA Ficora in relation to two draft measures concerning the markets for publicly available international telephone services provided at a fixed location for residential and non-residential customers in Finland.118 Ficora had found that there was no operator with SMP, despite TeliaSonera having a market share of around 55 per cent in the residential market and 50 per cent in the non-residential market.119 In arriving at this conclusion, it emphasised that there were several providers of international calling; that there were only low barriers to entry; and that subscribers could without difficulty obtain international call services from an operator different from that which provided the subscriber connection. The Commission offered two reasons in justification of its veto. First, there is a presumption of SMP in the presence of market shares in excess of 50 per cent. To be sure, the presumption may be discounted in a particular case, but the Commission considered that Ficora had failed to explain adequately why it had done so in the case before it.120 Secondly, Ficora had wrongly focused almost exclusively on the regulation of the wholesale level. This, said the Commission, had led it to ignore what the degree of competition would be in the absence of that regulation and what the effect of its decisions would be for the continued existence of that regulation. Indeed, if an NRA finds that a retail market is effectively competitive, it must carefully consider to what extent this finding is the result of existing regulatory obligations in place at the wholesale level—the so-called Greenfield approach. Were it otherwise, then, just like Ficora, the NRA might be inclined to remove wholesale regulation, only to see the retail market

118 Commission Decision of 20 February 2004 C (2004)527 final in Cases FI/2003/0024 and FI/2003/0027 concerning markets 4 and 6 of the Commission Recommendation on relevant markets (above n 108). See also L Di Mauro and G Intal, ‘Market Analyses under the New Regulatory Framework for Electronic Communications: Context and Principles behind the Commission’s First Veto Decision’ (2004) 2 Competition Policy Newsletter 52. 119 Market shares are calculated from the volume of international calls in minutes. 120 The Commission referred to Case 85/76 Hoffmann-La Roche & Co AG v Commission [1979] ECR 461 by analogy. Roche held 47 per cent of the shares in the relevant markets; its competitors respectively held 27, 18 and 7 per cent. The ECJ at [51] held that ‘Roche’s share, which is equal to the aggregate of the shares of its two next largest competitors, proves that it is entirely free to decide what attitude to adopt when confronted by competition’. Ficora’s case involving TeliaSonera was, in the Commission’s view, quite similar, as TeliaSonera’s market share was almost double the size of its next competitor (about 30 per cent) and more than all of its competitors’ market shares combined. Ficora had further failed to offer market data relating to the exact degree of changes in market shares of the past years, market data related to price levels and market data related to other factors that are relevant to the assessment of market power. In its submission of 16 January 2004, it had merely stated that ‘over the 10 years of competition in the international telephone service market there have been no complaints made to Ficora or to the Finnish Competition Authority’ and that ‘this can be seen as an indication of a competitive market’. However, the sole fact that no complaints have been made does of course not mean that there cannot be SMP on the market under scrutiny. The need to review all economic characteristics of the relevant markets, including but not limited to market shares, is confirmed in the Commission’s Guidelines on Market Analysis and SMP Assessment (above n 33) [87].

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Methods for Consistency across National Institutions revert back to its original non-competitive state. The Commission concluded that if Ficora wished to rely on existing remedies to support a finding of non-SMP for TeliaSonera then it should explicitly consider on what basis these remedies would remain in place for the foreseeable future. Ficora subsequently re-notified a draft measure confirming that the market was effectively competitive, which the Commission approved without comments.121 d. The Second Finnish Veto Decision Ficora was also on the receiving end of the Commission’s second veto decision.122 At issue was the market for access and call origination on public mobile telephone networks, which sees service providers (SPs) and mobile virtual network operators (MVNOs) buying access and call origination services from mobile network operators (MNOs), which enable them to also compete in the retail market.123 Ficora intended to designate TeliaSonera, an MNO, as having SMP, because of its high market share (which exceeded 60 per cent); the fact that the most important SP used its network; the lack of countervailing buying power; and TeliaSonera’s network effects, economies of scale and scope, and financial strength.124 The Commission was not convinced. It held first that Ficora had not properly considered the apparent market dynamics. Besides TeliaSonera there were two other MNOs that operated nationwide networks. Although the MNOs were under no regulatory obligation to do so, SPs and MVNOs had been able to conclude access agreements on a commercial basis with each of them. SPs were thus able to increase their market share in the retail market, giving the MNOs a clear incentive to maintain commercial relationships with SPs and encourage other SPs also to switch to their network. The Commission accordingly observed that the switch of a successful SP from TeliaSonera’s network to that of one of the other MNOs would fundamentally alter the distribution of market shares. This outcome was conditional on the MNOs having sufficient capacity to accommodate additional SPs and the SPs themselves not being locked in to their suppliers due to high switching cost and the absence of countervailing buying power.125 Ficora had not supplied any evidence to indicate that either condition was not met. Indeed, the other two MNOs had excess capacity and were successful in making attractive competitive offers to the SPs. So too did they have incentives to 121

Case FI/2005/0202. Commission Decision of 5 October 2004 C (2004) 3682 final in Case FI/2004/0082. 123 Market 15 of the Commission Recommendation on relevant markets (above n 108). 124 Ficora accordingly imposed four different regulatory remedies: i) the obligation to relinquish access rights; ii) interconnection; iii) non-discrimination as regards pricing and others terms; and iv) the obligation to negotiate on national roaming with a network operator that had a licence for third-generation mobile networks. 125 In terms of switching costs, we could think of the SPs having to switch SIM cards. 122

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Consistency through Procedural Tools bear the costs of switching themselves, because this would increase traffic on their networks.126 Finally, the Commission found that Ficora had given undue weight to evidence of network effects, economies of scale and scope, and financial advantages. Whereas the capacity of the other two MNOs was lower than TeliaSonera’s, they could negate the competitive advantage this would otherwise entail by attracting a larger number of customers onto existing capacity. Further, these MNOs were, like TeliaSonera, part of large vertically and horizontally integrated telecommunications groups. Ficora has since re-notified an amended draft measure, concluding that the market is effectively competitive.127 e. The Austrian Veto Decision The Austrian NRA, the Telekom-Control Kommission, was the recipient of the Commission’s third veto decision.128 Its draft measure related to the Austrian market for transit services in the fixed public telephone network.129 Transit services are used to convey calls between telephone exchanges either at a local level or across regions. In Austria, the former incumbent Telekom Austria owned the nationwide fixed telephone network. At the time the market analysis was carried out, it offered almost 90 per cent of transit services to alternative network operators (ANOs). However, countervailing tendencies were also visible. A number of operators had commenced self-provision by rolling out their own networks and directly connecting to each other and Telekom Austria. These operators were accordingly no longer dependent on transit services offered by Telekom Austria. The Telekom-Control Kommission considered direct interconnection to be a substitute for transit services, included it in its market definition and accordingly found that Telekom Austria’s market share dropped below 50 per cent—allowing it to hold the market to be effectively competitive. The Commission’s veto decision rested on two grounds. First, it held that there was insufficient evidence for the inclusion of self-provision through direct interconnection in the market. From a demand-side substitutability perspective, network roll-out required considerable investment as well as substantial planning and time. As a result, it was unlikely that operators presently purchasing transit services could move to self-provision with some measure of immediacy in the face of price changes. Here the Commission pointed to similar findings by the UK and Finnish NRAs.130 From a supply-side substitutability perspective, none 126 In the course of the Commission’s investigation it was revealed that some MNOs had in fact already considered paying for the switching costs that SPs would incur. 127 Ficora decision of 13 October 2004. Interestingly, the measure does not appear to have been notified under Art 7(3) Framework Directive but has been sent as a final measure under Art 7(5) Framework Directive. 128 Commission Decision of 20 October 2004 C(2004) 4070 in Case AT/2004/0090. 129 Market 10 of the Commission Recommendation on relevant markets (above n 108). 130 Case FI/2004/0075 and Case UK/2003/0016.

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Methods for Consistency across National Institutions of the operators that relied on direct interconnection had as yet actually used their newly created capacity to offer transit services to third parties. Secondly, like Ficora, the Telekom-Control Kommission was rebuked for not having applied a thorough Greenfield analysis.131 The Austrian NRA should have properly considered the consequences of removing the regulatory obligations at present imposed on Telekom Austria for the continued supply of transit services at reasonable rates. This was in particular because it would presumably not be economically feasible for operators of relatively small networks to roll out their own networks, and these operators would consequently remain dependent on Telekom Austria for transit services. In its amended draft measure the Telekom-Control Kommission confirmed its findings of effective competition in the market.132 This time, the Commission agreed with the NRA. It added that in light of this conclusion it was not necessary to determine the precise scope of the relevant market. f. The German Veto Decision The Commission’s fourth veto decision was addressed to the German Regulierungsbehörde für Telekommunikation und Post (RegTP, now the Bundesnetzagentur) and related to the market for call termination on individual public telephone networks provided at a fixed location.133 Call termination works as follows. If a consumer subscribing to operator A makes a call to a consumer subscribing to operator B, the call is handed from operator A to operator B, who terminates it at the premises of the consumer receiving the call. Operator B may charge operator A a wholesale price for this termination service. This is the termination charge. In Germany there were 54 operators in the business of offering telephone services: former incumbent Deutsche Telekom and 53 ANOs. In line with the Commission’s Recommendation on relevant markets, RegTP found that each of the 54 networks constituted a separate market and that each of the operators had a 100 per cent market share on its relevant market. Yet it sought to designate only Deutsche Telekom as having SMP. This was because Deutsche Telekom could threaten to increase its own tariffs when negotiating the level of termination charges with the ANOs and thereby prevent these ANOs from charging Deutsche Telekom excessive tariffs for termination rates on their networks. The Commission’s reasoning once again centred on the Greenfield approach. In its draft measure the RegTP had used both a strict and a modified Greenfield approach. Under the former, the RegTP proceeded on the assumption that 131 See also D Grewe, A Inotai and S Kramer, ‘Two Recent Veto Decisions under the New Regulatory Framework for Electronic Communications: The Importance of Competition Law Principles in Market Analysis’ (2005) 1 Competition Policy Newsletter 49. 132 Case AT/2007/0590. 133 Commission Decision of 17 May 2005 C(2005)1442 final in Case DE/2005/0144 in relation to market 9 Commission Recommendation on relevant markets (above n 108).

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Consistency through Procedural Tools Deutsche Telekom was under no regulatory obligation to interconnect with each of the ANOs, thus ignoring the European interconnection rules and the regulation of Deutsche Telekom’s termination rates under German law. In this scenario Deutsche Telekom could credibly threaten to refuse interconnection to the ANOs. The Commission disagreed. It explained, as it had done in the first Finnish veto decision and the Austrian veto, that NRAs cannot ignore existing regulatory obligations in carrying out their SMP analysis. This is necessary to ensure that the absence of SMP is only found when markets are genuinely competitive and not when the absence of SMP is precisely the result of the regulation in place. Under the modified Greenfield approach, the RegTP acknowledged the existence of an interconnection obligation for Deutsche Telekom but excluded this obligation in its assessment of the market power of the ANOs. To do otherwise, the RegTP believed, would introduce an unacceptable measure of circularity: after all, the rationale for the interconnection obligation was precisely to ensure equality in the negotiations on termination rates between Deutsche Telekom and the ANOs. Again the Commission disagreed. That the ANOs had SMP, it said, followed from their 100 per cent market share—and was not influenced by the interconnection obligation. Having thus established the proper parameters for the Greenfield approach, the Commission examined the RegTP claim that Deutsche Telekom enjoyed countervailing buying power. It found none. Given that the termination rates of Deutsche Telekom were subject to regulation and that it was obliged to purchase termination services from the ANOs, Deutsche Telekom was in fact deprived of much, if any, leverage when negotiating termination rates with the ANOs.134 Finally, the Commission found that the RegTP had unduly limited its analysis to the negotiation powers between Deutsche Telekom and each of the 53 ANOs. It transpired that there were also a number of direct interconnection agreements between the ANOs, and an examination of these could have provided helpful input in deciding on the market power of the ANOs.135 Following the Commission’s veto decision, the RegTP re-notified a draft measure in which it designated all 53 ANOs as having SMP.136 The measure was approved without comments.137

134 In fact, RegTP had confirmed that Deutsche Telekom in practice had never ceased to buy termination services from an ANO, even at rates it did not agree with and continued to challenge in court. 135 This would be the case in particular for those agreements that, unlike the interconnection agreements with Deutsche Telekom, had been negotiated in an unregulated context. 136 RegTP had requested the German government to challenge the Commission’s veto decision before the Court of Justice under Art 230 EC. It was only when the government declined to do so that RegTP withdrew its vetoed draft measure. 137 Case DE/2006/0343 SG-Greffe (2006) D/201097.

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Methods for Consistency across National Institutions g. The Polish Veto Decision The Commission’s latest veto decision was directed at the Polish NRA UrzTd Komunikacji Elektronicznej (UKE) in relation to its two draft measures concerning the markets for retail access to the public telephone network at a fixed location for residential and non-residential customers in Poland.138 Consumers need a connection to the public telephone network in order to make and receive telephone calls as well as for the purposes of related services, such as dial-up internet. UKE considered that broadband connections were a substitute for narrowband connections, given that both can be used to deliver telephony services. It accordingly adopted a market definition that included broadband access and found that Telekomunikacja Polska SA, a provider of broadband access, should be designated as having SMP.139 The Commission found that UKE had supplied insufficient evidence to justify the inclusion of retail broadband access in the relevant market. From a demandside substitutability perspective, consumers do not usually switch from narrowband to broadband for the exclusive purpose of accessing telephone services. They do this rather to obtain higher speed internet services—which constitutes a different market. Most consumers further maintain their subscription to narrowband when they purchase broadband access. Finally, the prices that Telekomunikacja Polska SA charges for its broadband services are considerably higher than the subscription fees for narrowband services. From a supply-side substitutability perspective, operators would have to incur significant expenditure to upgrade their networks and make them suitable for the delivery of broadband services. In view of these differences in functionality and price, UKE could not justifiably seek to regulate retail broadband access.140 UKE has yet to notify an amended draft measure.

138 PL/2006/518 and PL/2006/524 in relation to markets 1 and 2 of the Commission Recommendation on relevant markets (above n 108). 139 It imposed a string of regulatory obligations: a prohibition of excessive pricing; an obligation to refrain from distorting the market entry of other firms; an obligation to refrain from limiting competition by fixing prices below costs; an obligation to refrain from applying preferential treatment to end users; an obligation to refrain from obliging end users to use unnecessary services; cost orientation and cost accounting obligations; and an obligation to submit for approval prices and other conditions of service provision. 140 The Commission did not exclude the possibility that functionality and price differences would decrease in the future, meaning that broadband services could become part of the relevant product market. It noted that UKE appeared to be concerned about possible anti-competitive conduct in the retail broadband market, but wholesale regulation should be sufficient to disperse that threat and, in any event, reliance could be placed on the general competition rules.

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Consistency through Procedural Tools h. Some Observations on the Veto Decisions141 It is clear that the Commission is primarily concerned to make sure that the NRAs have carried out a proper market analysis, duly based on competition law concepts and convincingly reasoned. This should be appreciated from an accountability perspective. Upon closer scrutiny, we note that the Commission accords particular importance to the assumptions found in its Recommendation on relevant markets as well as the decision-making practice of the other NRAs. This too seems proper. The Framework Directive instructs the NRAs to take the utmost account of the Recommendation and the Commission’s Guidelines on market analysis.142 Indeed, their explicit purpose is to provide guidance and consistency. The consideration shown for the decisions by the other NRAs could be endorsed as a valuable attempt at benchmarking by the Commission. Yet on a cautious note, it is at odds with the legal standard of Article 7(4) of the Framework Directive to justify a veto as a consequence of a mere divergence in regulatory approaches by the NRAs. The Commission would need to explain explicitly why the failure to adopt identical approaches in proposed measures is objectionable from an Internal Market perspective. The German veto decision is a cause of some unease in this respect. There, the Commission simply remarked that ‘[c]ontrary to the other NRAs that have notified market 9 so far, RegTP asserts that [Deutsche Telekom’s] buying power limits the ability of each ANO to behave independently of its customers and consumers’.143 The accompanying press release adds: [I]t is worthwhile noting that all the other NRAs that have notified these markets [for call termination on individual fixed networks] so far (in particular the NRAs of the UK, Portugal, Austria, Finland, Hungary and Sweden), have found that each operator, including each ANO, is dominant on the market for call termination on its network. RegTP’s conclusions are therefore different from those of the other NRAs that have notified these markets. In this way, the Commission’s veto decision also aims to ensure a consistent and harmonised approach throughout the EU.144

The Commission’s approach creates somewhat of a paradox when we recall that the NRAs are under a strict obligation to offer adequate reasons and evidentiary

141 This section draws on P Larouche and M de Visser, ‘The Triangular Relationship Between The Commission, NRAs And National Courts Revisited’ (2006) 64 Communications & Strategies 125. 142 Art 15(3) and Recitals 27 and 28 Framework Directive. 143 Commission Decision of 17 May 2005 C(2005)1442 final in Case DE/2005/0144 [34]. 144 MEMO/05/162 ‘The European Commission’s Veto Decision on Call Termination on Individual Public Telephone Networks Provided at a Fixed Location in Germany: Frequently Asked Questions’, 17 May 2005. It can be ventured that the Commission could have established neither of these: exempting from SMP regulation 53 ANOs together representing at most 5 per cent of all local fixed network connections in Germany cannot conceivably hamper the internal market; and on the proper use of the Greenfield approach, the position of the German NRA did not significantly conflict with Community law. It can be noted that on this latter point, the national courts of at least three Member States (the United Kingdom, Ireland and the Netherlands) ended up disagreeing with their NRAs in relation to mobile termination and in fact supported the position of the German NRA.

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Methods for Consistency across National Institutions support for their measures and that their alleged failure to do so features prominently in the veto decisions.145 To this perspective, we add another dimension: explanations help generate legitimacy for the existence and exercise of powers—and the right to veto NRA decisions is an intrusive one and not to be taken lightly. This is important because the wider relationship between the Commission and the NRAs is premised upon cooperation, not conflict. On a more positive note, the Commission has in fact allowed divergent measures—or at least divergent lines of reasoning—to stand in a number of instances.146 Whereas the Commission’s veto decisions contain recommendations as to how the national authorities should proceed, it is clear that NRAs are not prevented from confirming their initial findings—if and when more persuasively reasoned.

i. Comparing Competition and Communications Regimes How do the Commission’s power of pre-emption under competition law and its right to veto national decisions under communications law compare? It is clear that the two mechanisms are largely identical in purpose and time of operation. Both function as preventive tools to keep the discretion of national authorities in check. They are thus the logical follow-up to the duty of compulsory communication that the law imposes on NCAs and NRAs. Some differences, however, may also be detected. From a legal perspective, the Commission’s ability to take over a case from an NCA can be exercised in the face of an effectiveness defect at the national level—a possibility not admitted for the use of the right to veto NRA measures.147 To be sure, we have seen that a lack of regulatory

145 To be sure, the quality of the Commission’s reasoning that seeks to explain why the criteria that govern its exercise of the veto power are met is overall rather minimalist. See the German veto decision (above n 133) [19]; first Finnish veto decision (above n 118) [14]; second Finnish veto decision (above n 122) [13]; and Austrian veto decision (above n 128) [17]. Some improvement is, however, noticeable: Polish veto decision (above n 138) [16]. See also R Cawley, The New EU Approach to Sector Regulation in the Network Infrastructure Industries (PhD thesis, Delft University, 2007) 261: ‘[T]here does not appear to be a systematic analysis of the impact of the measure on the development of effective competition or better market structures in a wider EU context’. 146 Eg Case IE/2004/0121, SG-Greffe (2005) D/200269 (concerning the finding by Irish ComReg of collective dominance in the wholesale market for access and call origination on public mobile telephone networks, although the majority of NRAs to notify that same market only found single-firm SMP); ES/2005/0330, SG-Greffe (2006) D/200402 (concerning the finding by the Spanish CMT of collective dominance in the wholesale market for access and call origination on public mobile telephone networks); Case IT/2006/0383; Case IT/2006/0384 and Case IT/2006/0386, SG-Greffe (2006) D/202771 (concerning the definition by the Italian AGCOM of two markets that are not listed in the Commission’s Recommendation on relevant markets (above n 108), namely the market for Internet dial-up termination and the market for call termination on international networks). 147 It will be recalled that the criteria that allow Art 11(6) Reg 1/2003 to be invoked include cases in which an NCA is unduly drawing out proceedings or in which the effectiveness of enforcement so requires.

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Consistency through Procedural Tools capacity is one of the main causes of inconsistency in the administration of Community law. To allow for Commission intervention in the face of fledging resources at the national level therefore seems sensible. This leads us to consider a second difference.

Whereas a veto decision ultimately does not affect the decision-making power of the NRA to issue a final decision, the preclusive effect attendant on the initiation of proceedings by the Commission under competition law for all intents and purposes means the loss of competence for the NCAs. This, we may venture, is because of the Commission’s powers of direct administration for competition law, which do not exist for communications law.148 Further, the Commission relieves an NCA of its jurisdiction by launching its own proceedings at Community level—yet an NRA will receive an official Commission decision informing it that it has to withdraw its draft measure. We shall return to this difference in chapter 7, when we inquire into the possibilities for judicial review under network-based governance.149 Lastly, the criteria that govern the veto right are stated in the Framework Directive itself, while guidance on when the Commission may take over a case can be found only in the Network Notice—an instrument of soft law. On five occasions thus far has the Commission had recourse to its veto right, but it has yet to exercise its power of pre-emption. What should we make of this difference? One explanation is simply that figures do not say everything: even if the Commission has not removed a case from an NCA, it does not mean that it has not exercised significant informal pressure to induce the authorities to act in a manner conducive to the consistency of EC competition law. It may be objected that the NRAs almost certainly face a similar pressure. Indeed, on 31 occasions draft measures have been withdrawn to avoid a possible Commission veto.150 An alternative explanation is that there might just be less need for pre-emption against NCAs because they are simply ‘better behaved’ than the NRAs. This could be as a result of the higher stigma attached to the use of that power given that it entails the loss of competence for the NCA to proceed with the particular case. For the Commission, the costs associated with the power of pre-emption are arguably higher than those incurs when issuing a veto decision. This is because in the former situation it would have to allocate resources to investigate and decide the case itself.151 In particular, the case might not fit in very well with the Commission’s prioritisation policy.152 Sensitivity to these costs could persuade the Commission against removing cases from the NCAs.

148

See above, ch 4, section I. See below, ch 7, section II-B. 150 COCOM 08–13 ‘Article 7 Procedures’ (Working Document), 9 April 2008. 151 The costs of a veto decision include a procedure that is lengthier than usual; more interaction with the NRA concerned; the drafting of the actual veto decision; the need to review and possibly comment on the amended draft decision; and potentially defending the veto decision before the Community Courts, were the Member State in question to bring an action for annulment. 152 See above, ch 4, section I-C. 149

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Methods for Consistency across National Institutions Another possible explanation involves conceiving the issue in terms of a power battle. Whenever relationships between institutions are redefined, the actors seek to test the new system to establish their position as well as their relationship towards the other institutions. In the short term, we thus witness a series of ‘turf wars’. In the medium to long term, however, a new power equilibrium emerges to which the actors suitably adapt themselves. Power battles are then replaced by informal negotiations, and explicit conflicts are confined to the extreme cases in which, for some reason, the power equilibrium breaks down or needs to be refought. Consider the introduction of co-decision at Maastricht.153 The Parliament initially sought to reassert its strengthened position in the Community lawmaking process and Conciliation Committees had to be convened frequently.154 Presently, however, fast-track proceedings are increasingly used, whereby the legislative act may be adopted after the first reading in Parliament. Similarly, the relationship between the Commission and the NCAs under Article 11(6) of Regulation 1/2003 has been settled. The legal effects of the power of pre-emption are straightforward. In its Network Notice the Commission has indicated in relatively precise terms when it will consider using this power. This creates predictability and shows restraint on the part of the Commission. What is more, the authority to remove cases from the NCAs was already in place under the previous legal regime,155 so that any power battles would have been fought by now. In contrast, the right to veto NRA decisions is completely new. Its introduction was, we saw, moreover surrounded by considerable debate. It was unclear how the Commission would exercise its newly acquired right and indeed how the NRAs themselves would develop.156 It is suggested that the Commission’s veto practice is arguably in accord with this last explanation.157 Its first three veto decisions were adopted in 2004, shortly after the NRAs began to notify their draft measures, with the fourth veto in the first half of 2005. There then followed a period during which the Commission had recourse to informal negotiation techniques and succeeded in persuading NRAs to withdraw their draft measure before the use of Article 7(4) of the Framework Directive became a necessity. 153

Art 251 EC. For the period May 1999 until April 2004, 28.8 per cent of the files were concluded at first reading and 21.8 following the use of the conciliation committee. Conversely, from mid-2004 until December 2006, 62.7 per cent of the files were concluded at first reading and only 6.2 per cent at conciliation: EC, ‘Co-decision: May 1999 to December 2006: Some Statistical Data’, available at http://ec.europa.eu/codecision/institutional/statistics_en.htm. 155 Art 9(3) Reg 17. 156 Consider the problems that obtained under the full decentralisation paradigm, above ch 1, section III-B. Also, the threat of regulatory capture still seems greater for the NRAs than for the NCAs, if only because the latter are responsible for the entire economy, thus making it more difficult for certain sectoral interests to take the overhand. It is also the case that the behaviour of NRAs is at times more strongly influenced by domestic political concerns so that there might be a greater need for a Community-level veto. Here we can recall the intended regulation of the Dutch cable market by OPTA, who was responding to calls to that effect by the Dutch Parliament. 157 See Cawley (above n 145) 287–88. 154

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Consistency through Procedural Tools Alternatively, the Commission issued serious doubts letters, entered into dialogue with the NRAs to influence their behaviour and then, satisfied, withdrew its serious doubts. And although the fifth veto decision dates from early 2007, not only does its adoption come after an interval of a year and a half, it is addressed to an NRA from one of the ‘new’ Member States that only just started to exercise its regulatory responsibilities under EC communications law. vi. The European Consistency Provision Article 16(2) of Regulation 1/2003 intends to avoid conflicting decisions in the application of the European competition rules.158 As such, it provides that NCAs must not take decisions that conflict with those adopted by the Commission in relation to the same case. The NCAs will be informed that the Commission is acting on a particular case through Article 11(2), the Community equivalent to the NCA’s duty of compulsory communication under Article 11(3). If the Commission decision is on appeal to the Community Courts, the NCAs are advised to consult with the Commission before deciding. They should, similar to the national courts (see below), ideally suspend their proceedings. It would seem that there is little scope for the use of this device. First, its applicability is limited to cases that are the ‘same’—that is, cases involving the same type of behaviour by the same firms on the same relevant geographic and product market.159 This clearly is a restrictive condition. Second, there is the contextual limitation that follows from the interplay between Articles 16(2) and 11(6) of the Regulation. The former provision can come into play only after the Commission has completed its investigation and adopted a decision: during the course of its proceedings, Article 11(6) relieves NCAs of their competence to apply the European competition rules. The NCAs usually have no incentive to become engaged in a matter that the Commission has already disposed of.160 Not only would it have to allocate scarce resources to the investigation and decisionmaking, but it would have to arrive at an outcome in concord with the Commission’s prior findings. Thirdly, we may point to the human rights dimension involved. Sequential interventions on the part of the Commission and the NCAs in the same case might raise objections under the ne bis in idem principle.161 158 Recital 22. See also Gerber and Cassinis, ‘Modernisation: Part II’ (above n 50) 51–54. Art 16(2) excludes commitment decisions from its ambit, but the Commission’s MEMO/04/217 ‘Commitment Decisions (Article 9 of Council Regulation 1/2003 providing for a modernised framework for antitrust scrutiny of company behaviour’, 17 September 2004 specifies that any subsequent national decision should be compatible with the Commission’s commitment decision. 159 Network Notice (above n 18) [51]. 160 But note Gerber and Cassinis, ‘Modernisation: Part II’ (above n 50) 53 fn 13, where some scenarios are described in which the NCAs might nevertheless wish to deal with a case. 161 Gerber and Cassinis, ‘Modernisation: Part II’ (above n 50) 53, referring to the Opinion of Tizzano AG in Case C-397/03P Archer Daniels Midlands Company and Archer Daniels Midlands Ingredients Ltd v Commission [2006] ECR I-4429 [86]–[111].

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Methods for Consistency across National Institutions The Framework Directive does not include a similar provision for communications regulation due to the absence of concurrency of jurisdiction between the Community and the national level. vii. Summary of the Procedural Tools Applicable to National Authorities What emerges from the discussion thus far is that of the six devices that we identified at the beginning of our examination (notification, consultation, transversal controls, judicial review, Commission intervention and the EU consistency provision), some are exclusive to the competition variant of network-based governance. This, we saw, is because of the Commission’s competence to administer EC competition law directly—a power it does not possess in relation to EC communications law. The two principal devices of consultation and Commission intervention are, however, available under both legal regimes and can be properly considered as features of the network model generally. Figure 5.3 graphically presents the resultant procedural framework that governs the behaviour of NCAs and NRAs. The darkness of the arrow indicates the frequency with which the particular device is applied. Figure 5.3 Procedural Tools for Consistency Applicable to National Authorities

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Consistency through Procedural Tools B. Devices Applicable to the National Courts The previous section has considered the control mechanisms to which the work of the national authorities is subjected. In this section we shall inquire into the procedural devices that govern the relationship between the Commission and national courts. For constitutional reasons related to the need to respect the separation of powers and thus the need for courts to perform their role as a judicial check independently, these devices are rather lighter than those applicable to the NCAs and NRAs. In particular, the Commission lacks the competence to impose its will against national courts. We shall follow the taxonomy proposed in the previous section and thus use the frequency with which a device is used as our mode of organisation.

i. Notification Article 15(2) of Regulation 1/2003 obliges Member States to send national judgments applying the EC competition rules to the Commission, which enters the non-confidential versions of these judgments into a publicly accessible database.162 For the Commission, this device enables it to verify the correct application of Community competition law and decide whether it needs to present the relevant court with amicus curiae submissions (see below). For national courts, the database serves as a valuable source of inspiration and guidance. Although it should foster the development of a common case law across Europe, the utility that can be derived from this instrument is presently somewhat underdeveloped, however. This is because judgments are available only in the original language of the notifying Member States, reducing their possible contribution to benchmarking and knowledge-creation. That is, unless Dutch courts are fluent in Lithuanian and that Swedish is well understood in Hungary. It would thus be helpful to supply basic summaries of the judgments in one or more other Community language.163 By 1 June 2008, the database comprised 168 judgments, generated by the national courts of fourteen Member States.164 Most are the result of private litigation. This would confirm the Regulation’s conception of national courts as a

162 Commission Notice on the co-operation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 EC [2004] OJ C101/54 [37]. The database can be found at http://ec.europa.eu/comm/competition/elojade/antitrust/nationalcourts/. Judgments must be sent to the Commission without delay after the full written judgment is notified to the parties of the litigation. 163 See Gerber and Cassinis, ‘Modernisation: Part II’ (above n 50) 56 164 Austria (10), Belgium (17), Denmark (1), Finland (1), France (42), Germany (35), Ireland (2), Italy (1), Lithuania (1), the Netherlands (17), Portugal (2), Spain (33), Sweden (3) and the United Kingdom (3).

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Methods for Consistency across National Institutions complement to the public enforcers (the NCAs and the Commission), rather than as control instruments in relation to NCA decisions.165 Notification of judgments in the arena of communications is not a statutory requirement under the Framework Directive, but at a seminar for national judges in 2005, there was overwhelming support in favour of such a mechanism.166 As a result, the Commission has created a special section on its website that contains the non-confidential versions of judgments reported on a voluntary basis by national courts and NRAs.167 As with the competition law database, the judgments are provided only in the language of the deciding court.168 At the time of writing, the communications database contains 12 judgments originating from eight Member States.169 The obvious discrepancy with the competition law variant is almost certainly due to the voluntary character of the communications database. Another difference is that the judgments posted on the website of the Commission’s Information Society and Media DirectorateGeneral (DG INFSO) all concern applications for judicial review against NRA decisions. This again confirms the view of the European legislature on the role to be played by national courts under this particular regime.170 ii. Consultation National courts have the right to ask the Commission for assistance in cases involving Articles 81 or 82 EC.171 As such, the Commission may provide a court with information in its possession172 or issue an opinion on economic, factual or 165

See above ch 3, esp section II. Proceedings of seminar for national judges ‘Article 7 of Framework Directive 2002/21/EC on electronic communications, 30 November 2005, available at http://ec.europa.eu/information_society/ policy/ecomm/implementation_enforcement/article_7/events/index_en.htm, esp 4, 5 and 15. 167 Http://ec.europa.eu/information_society/policy/ecomm/implementation_enforcement/ article_7/national_judiciaries/index_en.htm. 168 In addition to providing summaries in one of the other languages, NRAs could make it a point to inform national courts of the existence of the database whenever they appear in litigation and encourage the courts to transmit final judgments to the Commission to be added to the database. 169 Austria (6), Belgium (3), Germany (2), Ireland (2), the Netherlands (2), United Kingdom (2), France (1) and Sweden (1). 170 Art 4 Framework Directive. For more detail, see above ch 3, esp sections II and III-A. 171 Art 15(1) Reg 1/2003 and Commission Notice on cooperation with national courts (above n 162) [21]–[30]. This is a codification of Case C-234/89 Stergios Delimitis v Henninger Bräu AG [1991] ECR I-935 [53]; Joined Cases C-319/93, C-40/94 and C-224/94 Hendrik Evert Dijkstra v Friesland (Frico Domo) Coöperatie BA and Cornelis van Roessel and others v De coöperatieve vereniging Zuivelcoöperatie Campina Melkunie VA and Willem de Bie and Others v De Coöperatieve Zuivelcoöperatie Campina Melkunie BA [1995] ECR I-4471 [34]. 172 The information can be of a substantive (eg documents in the Commission’s possession) or of a procedural nature (eg whether a case is pending before the Commission, whether the Commission has initiated proceedings or whether it is about to take a decision). Some limitations are however in place. If the national court cannot or will not guarantee the protection of confidential information and business secrets or if there are overriding reasons relating to the need to safeguard the interests of the Community or to avoid any interference with its functioning and independence, then the Commission must not send the information, codification of Zwartveld (n 52) [10]–[11]; Case 166

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Consistency through Procedural Tools legal matters related to the application of the EC competition rules.173 This allows the Commission to explain its perspective and encourage cross-jurisdictional convergence. This purpose is further served by the publication of opinions delivered by the Commission’s Directorate-General for Competition (DG COMP) on its website.174 The Commission aims to reply to requests for information within one month, and it seeks to deliver opinions within four.175 To avoid conflicting opinions, the Commission and the NCAs undertake to inform each other when they receive a request for assistance on the administration of European competition law. Commission opinions do not bind the national courts. Traditional means of guidance remain available. Thus, national courts may also consult the Court of Justice through Article 234 EC. There are competing views on the relationship between the special administrative devices and the right to request preliminary references.176 Some are rather cynical about the appropriateness of having the judiciary seeking assistance from an administrative body.177 They believe that courts will refrain from using the special devices for fear of comprising their independence. Others rationalise the administrative devices by pointing to the delay and expenses that a preliminary reference now necessarily entails as well as the Commission’s superior knowledge of the fields at issue.178 Between 1 May 2004 and 31 January 2007, the Commission provided 19 opinions and answered three requests for both information and an opinion.179

C-275/00 Commission v First NV and Franex NV [2002] ECR I-10943 [49] and Case T-353/94 Postbank NV v Commission [1996] ECR II-921 [93]. More specifically, the Commission has indicated that it will not transmit information voluntarily submitted by a leniency applicant without the latter’s consent. 173 Opinions will not consider the merits of the case before the national court and the Commission does not hear the parties before formulating its views, Commission national courts notice (164) [19], [29]–[30]. 174 Http://ec.europa.eu/comm/competition/court/requests.html. 175 Commission Notice on cooperation with national courts (above n 162) [22] and [28]. Requests for a Commission opinion should be drafted in simple and precise terms and ideally not exceed 10 pages. In terms of content, the request should describe the subject matter of the case at hand, the reasons for the request and, when appropriate, include a summary of the main arguments of the parties to the litigation. 176 Eg, K Wright, ‘European Commission Opinions to National Courts in Antitrust Cases: Consistent Application and the Judicial–Administrative Relationship’, ESCR Centre for Competition Policy Working Paper Series No 8–24, 2008, http://www.ccp.uea.ac.uk/default.asp?id=workingpapers. 177 The failure of national courts to call upon the Commission as a legal or economic expert under the former regime of Regulation 17 has been attributed to the unease allegedly experienced by national courts over involving an administrative body in the exercise of their judicial responsibilities. 178 Delays are particularly objectionable for a field as dynamic and fast-moving as competition law. In terms of knowledge, although the CFI has accumulated considerable expertise in competition affairs because it hears direct actions brought against Commission decisions under Arts 81 and 82, preliminary references still go to the ECJ, the less expert of the two Community Courts when it comes to competition law. 179 E Gippini-Fournier, ‘Institutional Report’ in H Koeck and M Karollus (eds), The Modernisation of European Competition Law: Initial Experiences with Regulation 1/2003, vol 2 (Vienna, FIDE XXIII Congress Publications, 2008) 467. Consider also EC, ‘Annex to the Report on Competition Policy

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Methods for Consistency across National Institutions The position of national courts under the communications regime is identical to that of the NRAs. Whereas the Framework Directive does not provide for a consultation mechanism, Article 10 EC admits of the right for courts to ask the Commission for assistance.180

iii. Amicus Curiae Observations Pursuant to Article 15(3) of Regulation 1/2003, the Commission may make amicus curiae submissions to national courts when this is necessary for the coherent application of EC competition law.181 This device is the counterpart of the right for national courts to consult the Commission. Both address the regulatory capacities of courts by providing the judiciaries with the knowledge necessary to decide cases in accordance with Community competition law. That said, whereas consultation is requested at the initiative of national courts, amicus curiae submissions are provided ex officio. Written observations are always possible and when permitted by the national court, the Commission may also deliver its submissions orally.182 NCAs are bestowed a similar competence in relation to litigation within the relevant Member States.183 When amicus curiae submissions can be presented and whether parties to litigation have a right of reply is left to national law to determine.184 Amicus curiae observations are not binding, although we may expect that courts treat them with considerable respect. The Commission acted as amicus curiae for the first time in 2006, when it presented observations to the Paris Cour d’appel.185 In 2007, it sought to make use of its amicus curiae power

2007’ (Staff Working Document) SEC(2008) 2038, 16 June 2008, 101 where the Commission indicates which courts requested an opinion in 2007, as well as the content and context of the requests, and summarises its responses. 180 Zwartveld (above n 52). This case concerned requests for information emanating from the Dutch public prosecutor. 181 Art 15(3) Reg 1/2003 and Commission Notice on cooperation with national courts (above n 162) [31]–[35]. The procedural framework for the submission of amicus curiae observations is left to national law to determine. In EC, ‘Reform of Regulation 17: The Proposal for a New Implementing Regulation: Article 15(3) Submissions as Amicus Curiae’ (Staff Working Paper) SEC(2001) 1827, 13 November 2001, 4 the Commission states that it intends to make amicus curiae submissions ‘where the proper interpretation of Commission notices or guidelines is in dispute or where the Commission brings in information on similar issues being dealt with by itself or by Member States’. 182 The Commission must be provided with all the relevant documentation to allow it to prepare its observations. The information thus received may, however, be used only for the purpose of making amicus curiae submissions. More generally, the Commission should be kept well-informed of proceedings before the national courts. 183 Art 15(3) and (4) Reg 1/2003. On the operationalisation of these provisions in the domestic legal systems, see above ch 3, section III-B(ii). 184 See above ch 3, section III-B(ii) for an overview of the status quo in France, Germany, the Netherlands and the United Kingdom. 185 Case 05/17909 Garage Grémeau v Daimler Chrysler, judgment of 7 June 2007; and EC, ‘Report on Competition Policy 2006’ COM (2007) 358 final, 25 June 2007 [72]. The case dealt with the

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Consistency through Procedural Tools in a case before the Dutch Gerechtshof.186 A number of NCAs have also been exercising this power before their national courts.187 The mechanism of amicus curiae is not available under the communications regime. iv. The European Consistency Provision Like NCAs, national courts are prohibited from giving rulings that conflict with prior or proposed Commission decisions.188 National courts are informed of the existence of such decisions through the website of DG COMP, through requests for assistance or through amicus curiae submissions. Once they have become aware of potential conflicts, national courts have three choices.189 If the Commission has not yet adopted a decision, a national court must consider suspending its interpretation of Commission Regulation (EC) No 1400/2002 of 31 July 2002 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices in the motor vehicle sector [2002] OJ L203/30. 186 LJN: BB3356, Gerechtshof Amsterdam, 06/00252. The Dutch Rechtbank (district court) in Haarlem had ruled that a firm could deduce a fine imposed by the Commission for an infringement of the European competition rules from its (taxable) profit, even though a similar possibility does not exist under Dutch law, because Commission fines consisted of punitive elements and elements intended to neutralise illegal gains, which places them outside the national definition of ‘fine’. When the case was appealed to the tax chamber of the Gerechtshof (court of appeal), the Commission sought to intervene as amicus curiae, concerned to emphasise that its fines are not intended to skim off illegal gains and worried that the lower court’s ruling offended against the principles of effectiveness and equivalence. Unsure whether the Commission is able to make use of this power in proceedings other than competition cases in the strict sense, the Gerechtshof has now asked the ECJ to clarify the scope of the Commission’s amicus curiae competence: Case C-429/07 Inspecteur van de Belastingdienst v X BV. 187 Eg, the Belgian, French and German authorities: EC, ‘Report on Competition Policy 2004’ SEC (2005) 805 final, 20 June 2006 [115]. These NCAs, however, already were permitted under national law to lodge observations as amicus curiae themselves. 188 Art 16(1) Reg 1/2003. Commission Notice on cooperation with national courts (above n 162) [11]–[14]. At the national level, § 33(4) GWB stipulates that decisions by the Bundeskartellamt or a foreign NCA are binding upon German courts. Similarly, in damage proceedings before the UK ordinary courts or before the Competition Appeal Tribunal, the court is bound by Commission infringement decisions or by a decision of the OFT that either national or EC competition law has been violated, or by a decision of the CAT on appeal from a decision of the OFT to either of these two effects: ss 18 and 20 Enterprise Act 2002, inserted as ss 47a and 58a Competition Act 1998. Art 16(2) excludes commitment decisions from its ambit, but the Commission’s MEMO/04/217 ‘Commitment decisions (Article 9 of Council Regulation 1/2003) providing for a modernised framework for antitrust scrutiny of company behaviour’, 17 September 2004 specifies that any subsequent national decision should be compatible with the Commission’s commitment decision. 189 See further A Komninos, ‘Effect of Commission Decisions on Private Antitrust Litigation: Setting the Story Straight’ (2007) 44 Common Market Law Review 1387. See also C Hanley, ‘House of Lords, Judgment of 19 July 2006, Inntrepreneur Pub Co (CPC) and Others v Crehan [2006] UKHL 38: “The Abandonment of Deference”’ (2007) 44 Common Market Law Review 817. The author comments on the judgment of the House of Lords in Inntrepreneur Pub v Crehan, ruling that the court owed no deference to Commission decisions, per Lord Hoffmann: [T]he decision of the Commission is simply evidence properly admissible before the English court which given the expertise of the Commission, may well be regarded by that court as highly persuasive. As a matter of law however it is only part of the evidence which the court will take into account. If upon assessment of all the evidence the judge comes to the conclusion that the view of

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Methods for Consistency across National Institutions proceedings.190 Alternatively, if the Commission has already adopted a decision but in a manner that is disagreeable to a national court, the court must refer the validity of that decision to the Court of Justice.191 Finally, if the Commission’s decision is on appeal under Article 230 EC, then the national court must stay its proceedings and await judgment by the Luxembourg Courts.192 Whatever the scenario, it is always incumbent on a national court to examine whether interim relief should be awarded. Recourse to this device will in all likelihood be sporadic.193 As the concern is with cases that concern the ‘same’ conduct, courts will usually be called upon to award damages on the back of findings that the competition rules have been breached—not to rule on the legality of behaviour that the Commission has already examined and found illegal. The Framework Directive does not contain similar provisions for NRAs. v. Evaluating the Status Quo When we juxtapose the competition and communications variants of the network model, we are immediately struck by the absence of any formal consistency tools under the latter regime. This focuses our attention on two important questions. Can these special devices properly be considered as characteristic of network-based governance—or are they to be explained with reference to the singular nature of competition law enforcement? And how relevant is it in this respect whether these tools are vigorously applied? It can be accepted that Articles 15 and 16 of Regulation 1/2003 are most apparent as instruments for Commission monitoring, allowing this institution directly to safeguard the consistency of Community law. Their introduction reflects the legislature’s vision of national courts acting on a par with the Commission and NCAs in the administration of the competition rules.194 This also explains why the majority of available devices under Regulation 1/2003 are the Commission was wrong, I do not see how consistently with his judicial oath he can say that as a matter of deference he proposes nevertheless to follow the Commission. 190 The Commission has committed itself to expediting its own proceedings in order to enable the outcomes of civil disputes to be decided. However, applying the doctrines of acte clair and acte éclairé by analogy, if a national court cannot reasonably doubt the Commission’s contemplated decision or when the Commission has already decided a similar case, it may proceed to give judgment immediately. 191 Case 314/85 Foto-Frost v Hauptzollamt Lübeck-Ost [1987] ECR 4199 [12]–[20]. However, if the parties to the national proceedings include the addressee of the Commission decision, a preliminary reference seems precluded, following Case C-188/92 TWD Textilwerke Deggendorf GmbH v Bundesrepublik Deutschland [1994] ECR I-833. 192 In the Commission Notice on cooperation with national courts (above n 162) [13] it is also envisaged that national courts may refer the validity of Commission decisions to the ECJ. It is difficult to see, however, why a national court would do so if the same question is already before the Community Courts as a result of a direct action per Art 230 EC. 193 Gerber and Cassinis, ‘Modernisation: Part II’ (above n 50) 52. 194 That said, in principle the tools cover the national courts in all their various guises (enforcer, review instance of NCA decisions and deciding lawsuits between private parties). It is also fitting to

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Consistency through Procedural Tools shared between courts and authorities alike.195 Conversely, the communications legislature conceived national courts as control instruments vis-à-vis the NRAs and therefore, it seems, saw no reason to provide specific procedural devices applicable to these actors. This is, however, misconceived. On the one hand, national courts may also act concurrently with the NRAs in a variety of situations.196 Following the logic of the competition regime, this would render the availability of consistency tools immediately relevant. On the other hand, it is of little help to synchronise the work of the NRAs only to see their actions wrongly undone by national judiciaries. The formalistic case law under the previous legal regime and the overly frequent suspension of NRA decisions by some courts under the current set of rules attest to the fact that consistency at the judicial review stage is not threatened on merely a theoretical level. It may well be argued that the right for national courts to consult the Commission in the face of uncertainty in the application of the law is already available pursuant to Article 10 EC and moreover that the Commission operates a database on a voluntary basis for judgments concerning European communications law. It can also be objected that experience to date shows that none of the special procedural tools included in Regulation 1/2003 are applied very often. Both claims are true. However, not all courts will be aware of their competences and obligations under Article 10 EC or the possibility of voluntary notification and access to the database. Formal inclusion of these rights in the law offers this awareness. Indeed, such special tools also have a clear hortatory or educational value. They alert national courts that they find themselves within the realm of European law and impose on them the concomitant need for a Europe-friendly perspective in adjudication.197 That is to say, national courts should, for instance, display proper respect for the special institutional characteristics of the NRAs and their relationship with the Commission under Article 7 of the Framework Directive.198 mention here the ongoing training and education of national judges in matters of European competition law. According to EC, ‘Report on Competition Policy 2007’ COM(2008)368 final, 16 June 2008, 22, since 2002 the Commission has co-financed 35 such training projects, thereby training around 3,500 judges by the end of 2007. 195 Including the possibility of calling upon the Commission as legal or economic expert; the requirement to notify draft decisions or final judgments; and the obligation to respect prior or envisaged Commission decisions in relation to the same matter when deciding. 196 For instance, Arts 20(5) and 21(4) Framework Directive provide for concurrent competence of the NRAs and the national courts in settling disputes under the communications regime. Also, if a firm fails to comply with an NRA decision, its competitor may complain to the NRA but may also decide to bring a suit for damages in the national court. Lastly, the substantive overlap between competition and communications law means that a number of regulatory problems (such as access or discrimination) may also be dealt with under competition law, where we have seen that national courts also act as first-instance enforcers. 197 The fact that the electronic communications regime is laid down in directives arguably exacerbates matters, as it obscures their Community origins and Internal Market imperatives. 198 Consider the decision by the UK CAT in Case Co 1047/3/3/04, Judgment of 29 November 2005 Hutchinson 3G v Office of Communications [2005] CAT 39. Ofcom had found that Hutchinson had SMP in the market for voice call termination on mobile networks, and its draft decision to that effect

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Methods for Consistency across National Institutions To conclude this section, it is clear that special procedural tools applicable to national courts have a value that extends beyond the confines of competition law enforcement. It is also clear that their merits reside as much in their existence as in their exercise. As such, it seems proper to recognise such tools as an integral part of network-based governance. The communications legislature would do well to introduce similar tools in the Framework Directive.

II. CONSISTENCY THROUGH SUBSTANTIVE DEVICES

We have thus far seen how procedural tools are used to coordinate the work of national authorities and courts. It is, however, also possible to achieve a certain measure of consistency through substantive devices. These devices usually ‘harmonise’ the law to be applied by national actors. Their contribution to consistency is twofold. First, the behaviour of firms is evaluated according to the same legal standard across Europe. Second, homogeneity in legal rules constitutes the bedrock for the effective operation of the procedural devices.199 Whereas our discussion of the procedural tools was premised on the identity of the addressees thereof, we distinguish the substantive devices with reference to their legal force.

A. Hard-Law Devices When we speak of hard law we refer to rules that have been attributed legal effect, in particular binding force. The treaties, as well as the legislation that derives from them, string together European hard law. Failure to abide by hard law results in sanctions, in the form of infringement proceedings or Member State liability.200 i. Competition Law Article 3 of Regulation 1/2003 imposes a duty on national actors to apply the European competition rules to conduct that has an effect on trade between Member States—irrespective of whether the national actors seek also to apply their national competition law. If European and national law are applied in parallel, the Regulation further requires convergence in outcome. National actors was duly notified and endorsed by the Commission: Case UK/2003/0040 SG-Greffe (2004) D/200489. The CAT annulled the final decision but unfortunately did not explicitly address the reasons why it chose to annul a decision that, from the Commission’s perspective, was unobjectionable. 199 We will see below in ch 6, section II-A that identity in law is a prerequisite for the operation of a number of cooperation mechanisms, such as the exchange and use of information. 200 See cases cited above in n 11.

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Consistency through Substantive Devices thus cannot prohibit conduct under national law that would be permissible under Articles 81 and 82 EC; neither can they authorise behaviour that violates EC competition law.201 A modern trend at national level is the incorporation of convergence rules in competition statutes. These typically impose a duty on national authorities to reflect European competition case law and decision practice when exercising their responsibilities.202 Consider section 60 of the UK Competition Act 1998: (1) The purpose of this section is to ensure that so far as possible (having regard to any relevant differences between the provisions concerned) questions arising under this Part in relation to competition within the UK are dealt with in a manner which is consistent with the treatment of corresponding questions203 arising in Community law in relation to competition within the Community. (2) At any time when the court204 determines a question arising under this Part, it must act (so far as it compatible with the provisions of this Part and whether or not it would otherwise be required to do so) with a view to securing that there is no inconsistency between: (a)the principles applied, and decision reached, by the court in determining that question; and

201 Commission Network Notice (above n 18) [43]; and Commission Notice on cooperation with national courts (above n 162) [6]. In relation to Art 81 EC, conduct that is permissible covers conduct that i) does not restrict competition within the meaning of Art 81(1) EC; ii) meets the criteria of Art 81(3) EC; or iii) falls within the scope of a block exemption regulation. This is a codification of Case 14/68 Walt Wilhelm and others v Bundeskartellamt [1969] ECR 1 and Joined Cases 253/78 and 1 to 3/79 Procureur de la République and Others v Bruno Giry and Guerlain SA and Others [1980] ECR 2327 [15]–[17]. In relation to unilateral conduct, the obligation of convergence does not apply: NCAs may apply national laws that are more restrictive than Art 82 EC, for instance laws intended to protect economically dependent firms. Furthermore, Reg 1/2003 does not prevent the application of national rules that pursue an objective different from that pursued by Arts 81 and 82 EC, such as a prohibition on unfair trading practices. Gerber and Cassinis, ‘Modernisation: Part I’ (above n 28) 13 note that the effect of Art 3 Reg 1/2003 is reinforced by Art 12(2), concerning the exchange of information: information that has been transferred under that provision cannot be used to adopt decisions under national law that are inconsistent with decisions based on Community law. What is more, Art 12(2) does not distinguish between agreements or unilateral conduct. 202 It is fitting to mention here that in other respects, national competition statutes also have voluntarily approximated the rules incorporated in Reg 1/2003. Consider ECN, ‘Results of the Questionnaire on the Reform of Member States (MS) National Competition Laws after EC Regulation No 1/2003’ [2008], noting such convergence in respect of inter alia the abolition of a notification system for agreements; the power to impose structural remedies; the power to seal business premises, books and records; the power to inspect non-business undertakings; and the power to offer informal guidance to firms. 203 Even when the factual circumstances of the case at national level are markedly different from those arising in case before the Community Courts, the CAT has remarked that its duty under s 60 is to approach the matter ‘in the manner in which we think the European Court would approach it, as regards the principles and reasoning followed by that Court’: Case No 1006/2/1/01 BetterCare Group v Director General of Fair Trading [2002] CAT 7. 204 ‘Courts’ in this context includes the OFT, sectoral regulators and the Competition Commission: s 60(5) Competition Act 1998.

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Methods for Consistency across National Institutions (b)the principles laid down by the Treaty and the European Court, and any relevant decision of that Court, as applicable at that time in determining any corresponding question arising in Community law. (3) The court must, in addition, have regard to any relevant decision or statement205 of the Commission (emphasis added).

This approach acknowledges that there will be situations in which consistency is not feasible.206 The Dutch legislature has used a different technique to prevent inconsistencies between the Dutch and the European competition regime. Key definitional provisions in the Dutch competition act refer directly to the EC Articles or notions. For instance, Article 1e defines ‘agreement’ as ‘an agreement, referred to in Article 81(1) of the Treaty’.207 This technique offers flexible and durable consistency, because developments at Community level are automatically reflected in the Dutch competition rules. In other instances, the Dutch act incorporates the European definition of a competition concept. Thus, ‘dominant position’ is defined as a position of one or more undertakings which enables them to prevent effective competition being maintained on the Dutch market or a part thereof, by giving them the power to behave to an appreciable extent independently of their competitors, their suppliers, their customers or end-users.208

Here, changes in European case law or decision-making requires the attention of the Dutch legislature if consistency is to remain between the two levels. Bringing the focus back on the European level, we must next mention the hard law produced by the Commission. Its individual decisions apply the basic principles of EC competition law in particular cases.209 It will be remembered that as a result of the Commission’s prioritisation policy it usually decides novel questions and policy issues. Of particular importance in this respect is the competence of the Commission to issue declaratory decisions—those that make a finding of inapplicability of the European competition rules and those that establish that a past infringement of these rules has taken place.210 Not only do these decisions clarify the proper application of EC competition law, they also

205 According to the OFT, these include clear statements by the Commission about competition policy as expounded in its Annual Reports on Competition Policy and Notices: OFT Guideline 400 ‘The Major Provisions’ (available at the OFT’s website) para 6.2. 206 For a number of such situations, see R Whish, Competition Policy, 5th edn (Oxford, Oxford University Press, 2005) 352 ff. 207 An identical approach is followed in relation to the notions ‘undertakings’ [Article 1f]; ‘association of undertakings’ [Article 1g]; and ‘concerted practice’ [Article 1h]. The reference to the EC provisions includes the case law of the Community Courts and the Commission’s decisionmaking practice. 208 Art 1i Mw, reflecting Case 27/76 United Brands Company and United Brands Continentaal BV v Commission [1978] ECR 207 [65]; and Hoffmann-La Roche (above n 120) [38]. 209 For the types of decision available to the Commission, see above ch 4, section I-A. 210 Art 10 and Recital 14 Reg 1/2003 and Art 7(2) and Recital 11 Reg 1/2003 respectively.

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Consistency through Substantive Devices embody a set of norms on the correct analytical approach to follow in competition matters—the key steps of market definition,211 market analysis and, when necessary, remedies.212 Second, block exemption regulations exclude a generic type of conduct from the ambit of Article 81(1) EC.213 These must be applied by the national actors per Article 249 EC and thereby ensure the equal treatment of conduct throughout the Union, regardless of which authority is dealing with the matter.214 Through individual decisions and block exemption regulations the Commission shapes the evolution of Community competition law and is thus able to influence the work of the national actors.

ii. Communications Law Article 8 of the Framework Directive harmonises the objectives that underpin and guide the work of the NRAs. This should ensure that they exercise their discretionary powers in a similar or comparable fashion. First, NRAs must promote competition in the provision of communications networks, services and associated facilities. Second, they must contribute to the development of the internal market. Third, they must promote the interests of European citizens. Each objective is fleshed out by a non-exhaustive catalogue of examples as to how they may be met in practice.215 A device along the lines of Article 3 of Regulation 1/2003 has not been necessary here in the absence of overlapping substantive sets of rules. There is no European communications regime at Community level that parallels Articles 81 and 82 of the Treaty and the body of case law and decisions that have sprung up around them. Further, Member States did not have sophisticated national telecommunications regimes at the time when the European communications policy took off in the mid-1980s, which otherwise could potentially have created conflict. 211 Commission Notice on the definition of the relevant market for the purposes of Community competition law [1997] OJ C372/5. 212 Under Art 7 Reg 1/2003 the Commission can order behavioural or structural remedies. 213 When adopting block exemption regulations the Commission acts under delegated authority from the Council. With the exception of transport, the Council has enacted three such enabling regulations: Regulation No 19/65/EEC of 2 March of the Council on application of Article 85(3) of the Treaty to certain categories of agreements and concerted practices [1965] OJ 533 as amended by Council Regulation 1215/1999 of 10 June 1999 [1999] OJ L148/1; Regulation (EEC) No 2821/71 of the Council of 20 December 1971 on application of Article 85(3) of the Treaty to categories of agreements, decisions and concerted practices [1971] OJ L285/46; and Council Regulation (EEC) No 1534/91 of 31 May 1991 on the application of Article 85(3) of the Treaty to certain categories of agreements, decisions and concerted practices in the insurance sector [1991] OJ L143/1. 214 The only exception is when an NCA finds that the effects of the conduct at issue within the geographic area for which it is responsible are incompatible with Art 81(3) EC and withdraws the benefit of a block exemption regulation per Art 29(2) Reg 1/2003. 215 For instance, competition can be promoted by encouraging efficient investment in infrastructure and by promoting innovation.

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Methods for Consistency across National Institutions Chapter 4 has explained that the Commission is not conveyed powers of direct administration for the European communications rules. Having said that, the generic applicability of Articles 81 and 82 EC and the substantive alignment of the SMP regime with competition principles mean that the Commission’s individual decisions under Articles 81 and 82 and its block exemption regulations also exert certain homogenising effects on the actions of the national actors that administer EC communications law.216 B. Soft-Law Devices Substantive consistency may also be achieved with the help of soft law, defined by Linda Senden as ‘[g]eneral rules of conduct laid down in instruments which have not been awarded legal force as such, but which nevertheless may have certain legal effects and which are directed at and may produce practical effects’.217 The greater part of soft-law tools under network-based governance is authored by the Commission.218 They take the form of notices, recommendations or guidelines. There are two main substantive soft-law instruments addressing the interpretation of the European competition rules. The first, on Article 81(3) EC, relates to individual exemptions from the cartel prohibition.219 The second, on the ‘effect on trade’ concept, relates to the jurisdictional threshold that must be crossed for the European rules to be applicable.220 In European communications law, the most prominent soft-law instruments concern the SMP regime. The Recommendation on relevant markets identifies 216 See Commission Notice on the application of the competition rules to access agreements in the telecommunications sector: framework, relevant markets and principles [1998] OJ C265/2. 217 L Senden, Soft Law in European Community Law, Modern Studies in European Law (Oxford, Hart Publishing, 2004). Other well-known definitions are provided by inter alia F Snyder, ‘Soft Law and Institutional Practice in the European Community’ in S Martin (ed), The Construction of Europe (The Hague, Kluwer Academic Publishing, 1994) 198 (‘rules of conduct which, in principle, have no legally binding force but which nevertheless may have practical effects’); and G Borchardt and K Wellens, ‘Soft Law in European Community Law’ (1989) 14 European Law Review 267: Community soft law concerns the rules of conduct which find themselves on the legally nonbinding level (in the sense of enforceable and sanctionable) but which according to their drafts have to be awarded a legal scope, that has to be specified at every turn and therefore do not show a uniform value of intensity with regard to their legal scope, but do have in common that they are directed at (intention of the drafters) and have as effect (through the medium of the Community legal order) that they influence the conduct of Member States, institutions, firms and individuals, without, however containing Community rights and obligations. 218 We will see below in ch 6, section II-B(ii) that the European Competition Network and especially the European Regulators Group are also important producers of soft law. 219 Commission Guidelines on the application of Article 81(3) of the Treaty [2004] OJ C101/97. 220 Commission Guidelines on the effect on trade concept [2004] OJ C101/81. Other relevant instruments include the Commission Guidelines on vertical restraints [2000] OJ C291/1; Commission Guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements [2001] OJ C3/2; Commission Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreements [2004] OJ C101/2; Commission notice on the application of the competition rules to the postal sector and on the assessment of certain State measures relating to postal services [1998] OJ C39/2.

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Consistency through Substantive Devices those markets that NRAs must examine for the presence of operators with SMP.221 The Guidelines on market definition and analysis explain how the NRAs must assess the markets they have identified and how they must go about determining whether an operator possesses SMP.222 More generally, Article 19 of the Framework Directive provides that the Commission may issue harmonisation recommendations.223 These typically reflect experiences gained at the national level in the form of best practices. Thus far, Article 19 recommendations have addressed leased lines,224 broadband communication through powerlines,225 cost accounting226 and the processing of caller information in the face of emergencies.227 Senden’s definition of soft law makes clear that the core distinguishing feature in relation to hard law is the absence of legal force. Adopting a legalist perspective, soft-law tools merely set out the opinion of the Commission on a given issue.228 Yet the decision-making of national authorities and courts reveals that these instruments are nearly always followed in practice.229 How can we explain this? To answer this question we need first to consider the wordings of the relevant hard-law instruments. Article 15(3) of he Framework Directive mandates NRAs

221 Commission Recommendation on relevant markets (above n 108). The Recommendation was initially intended as a binding instrument. 222 Commission Guidelines on market analysis and SMP assessment (above n 33). 223 Recommendations are adopted after consultation with the NRAs in the setting of COCOM, acting in accordance with the advisory procedure: Art 22(2) Framework Directive referring to Arts 3 and 7 of Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission [1999] OJ L184/23. There are special arrangements for the harmonisation of numbering resources: Arts 10(4) and 19(2) Framework Directive. 224 Commission Recommendation of 21 January 2005 on the provision of leased lines in the European Union, Part 1: Major supply conditions for wholesale leased lines, Brussels 21.2.2005 C(2005) 103/1 final; and Commission Recommendation of 29 March 2005 on the provision of leased lines in the European Union, Part 2: Pricing aspects of wholesale leased line part circuits, 951/2 final. 225 Commission Recommendation of 06/IV/2005 on broadband electronic communications through powerlines, Brussels 06/IV/2005 C(2005)1031 final. 226 Commission Recommendation of 19 September 2005 on accounting separation and cost accounting systems under the regulatory framework for electronic communications [2005] L226/64. 227 Commission Recommendation of 25 July 2003 on the processing of caller location information in electronic communications networks for the purpose of location-enhanced emergency call services [2003] L189/49. 228 See Joined Cases T-74/00, T-76/00, T-83/00 to T-85/00, T-132/00, T-137/00 and T-141/00 Artegodan GmbH and Others v Commission [2002] ECR II-4945 [124], where the CFI held that communications cannot offer an authoritative interpretation of the relevant provisions of EC law but only serve to make known the Commission’s views: ‘While, in such a communication the Commission is authorized to clarify, and even supplement, specific provisions of the applicable legislation with a view to ensuring their practical efficacy, that communication cannot have the effect of amending the mandatory rules set out in that legislation’. For an analysis of the self-binding effects of soft law on the Commission, see Senden (above n 217) ss 10.4 and 10.5. 229 That national authorities follow those notices in practice can be deduced from inter alia the Commission’s Annual Implementation Reports: for the NRAs see, eg, EC, ‘European Electronic Communications Regulation and Markets 2004’ (Communication) COM (2004) 759 final, 2 December 2004, 10.

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Methods for Consistency across National Institutions to take ‘the utmost account of the recommendation [on relevant markets] and the guidelines [on market analysis]’.230 Article 19 of the Directive contains a similar obligation in relation to the Commission’s harmonisation recommendations. The competition regime is silent on the effects of soft law for the NCAs and the national courts. Here Article 10 of the Treaty is relevant. It requires the loyalty of national actors, both through action and inaction, to secure the effectiveness of the Community legal system. Read together with the general cooperation obligation that Regulation 1/2003 imposes on NCAs for consistency’s sake, we can distil a duty for these authorities to consider relevant soft-law tools in the course of their decision-making.231 Indeed, such behaviour would enhance the consistent and effective administration of Community hard law. It would appear per Salvatore Grimaldi v Fonds des maladies professionnelles that national courts too must consider soft law in adjudicating cases.232 The Court of Justice ruled: [T]he measures in question are true recommendations, that is to say measures which, even as regards the persons to whom they are addressed, are not intended to produce binding effects. . . However, in order to give a comprehensive reply to the question asked by the national court, it must be stressed that the measures in question cannot therefore be regarded as having no legal effect. The national courts are bound to take recommendations into consideration in order to decide disputes submitted to them, in particular . . . where they are designed to supplement binding Community provisions.233

Some points of import may be distilled from this decision. First, soft law’s function as a mandatory interpretation aid is derived from hard law. The legal effects of recommendations are thus indirect and conditional. This view is consistent with the effects of soft law for national authorities, which are also premised on the existence of hard law. Second, if we accept the ‘supplement’ rationale offered by the Court, then an extension of the obligation to types of soft law other than recommendations must follow. The SMP guidelines, the Article 81(3) Notice, the ‘effect on trade’ Guidelines all fulfil a function identical to that of the Recommendation on relevant markets—the only tool to benefit directly from the Grimaldi principle. It would be arbitrary to focus on the name of a soft-law tool to the exclusion of its intended effects. This is in particular given that the Court itself has always practised an effect-based case law.234 But,

230

This obligation is repeated for the Guidelines in Art 14(2) Framework Directive. A similar line of reasoning would apply to the NRAs if the rules of secondary legislation were not in place. It follows from Case 229/86 Brother Industries Ltd and Others v Commission [1987] ECR 3757 that Art 10 EC on a stand-alone basis cannot create a legally binding obligation to transpose and comply with soft-law instruments. 232 Case C-322/88 Salvatore Grimaldi v Fonds des maladies professionnelles [1989] ECR 4407. 233 Ibid, [16] and [18]. 234 Illustrated inter alia in the wide definition of the concept ‘measures having equivalent effect’ to a quantitative restriction per Art 28 EC (Case 8/74 Procureur du Roi v Dassonville [1974] ECR 837 and Case 120/78 Rewe-Zentrale AG v Bundesmonopolverwaltung für Branntwein (‘Cassis de Dijon’) [1979] 231

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Consistency through Substantive Devices ultimately, the obligation to consider soft law is simply that—the Court implicitly recognises that national courts also possess an inherent competence to deviate from soft-law tools in adjudicating. Indeed, to consider something means that one must take account of it and arguably justify the choice for a different course of action, yet it cannot be taken to mean that the discretion to arrive at another conclusion is negated. Our discussion of the practical effects of soft law must next consider the incentives of national actors to apply these tools in the wider context of network-based governance. In terms of negative incentives, we may forge a link between soft law and the procedural devices aimed at consistency. Deviation from Commission notices and the like exposes national authorities to more Commission scrutiny.235 For instance, one of the criteria for a veto under the communications regime is a market definition that does not correspond to the Commission’s Recommendation on relevant markets.236 Then in Automobiles Peugeot SA v Commission the Court of First Instance held the Commission to the interpretation of the European competition rules it had given in a soft-law instrument, although it did not explicitly rule that the instrument was binding on the Commission.237 If we accept that the Commission cannot easily, if at all, depart from its soft-law tools, then we must also accept that it will react, to the extent that its competences so permit, to non-conformist behaviour by national authorities.238 National authorities must further justify to the Commission why they choose an approach different from that proposed in the soft-law instrument.239 Thus, in the first Finnish veto decision the Commission found that Ficora had not adequately established why TeliaSonera did not have SMP when

ECR 649) or the concept of ‘state aid’ under Art 87 EC (eg Case C-143/99 Adria-Wien Pipeline GmbH v Finanzlandesdirektion für Kärnten [2001] ECR I-8365 [38]). For a different view, see Senden (above n 217). 235 There is thus a strong link with moral convictions and self interest. Take the example of a traffic camera. Without its presence, drivers might be inclined to run the traffic light, knowing that they will not face any repercussions for their illegal behaviour. Similarly, if NCAs and NRAs were not required to submit their draft decisions for control, they might be less inclined to follow Commission notices. In addition to the procedural devices laid down in Reg 1/2003 and the Framework Directive, the Commission can always also bring Art 226 EC proceedings. 236 The Commission has indicated that the extent to which NRAs follow the Recommendation on relevant markets and the Guidelines on market analysis and SMP assessment is an important factor in the assessment of the proportionality and legality of the draft measure: Commission Art 7 Recommendation (above n 30) [7]. 237 Case T-9/92 [1993] ECR II-493. 238 In relation to Art 11(6) Reg 1/2003 one of the criteria that justifies pre-emption of NCA jurisdiction is an envisaged decision that is obviously in conflict with previous decisions by the Commission. Further, on the assumption that the Commission decides in accordance with its soft-law instruments, the threat of a takeover per Art 11(6) might induce NCAs to apply these instruments, regardless of whether the Commission at the time has already had occasion to do the same. 239 For NRAs, see Commission Art 7 Recommendation (above n 30) [7]; and Art 19 Framework Directive (in relation to Commission harmonisation recommendations). For NCAs, see Art 11(4) Reg 1/2003 read together with Art 10 EC.

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Methods for Consistency across National Institutions its market share exceeded the threshold above which there is a strong presumption of SMP according to the Guidelines on market analysis.240 A qualification is in order here: the position of national courts is somewhat different in view of their constitutional position, leaving them outside the ambit of a number of the procedural tools.241 In terms of positive incentives, soft-law instruments are usually well-drafted and coherently structured. They typically make for easy reading and are peppered with numerous references to the case law of the Community Courts. Also, most national actors are glad to have some guidance on how to interpret the rather technical competition rules or the SMP regime. This argument gains further weight when we recall the modest regulatory capacity of some authorities and courts. Finally, although it is the Commission that issues the soft-law tools, their contents have usually been thoroughly debated with the NCAs or NRAs. Their practical ‘co-authorship’ is likely to encourage the national authorities to apply these instruments in their decision-making. It is clear, then, that soft-law instruments are powerful normative tools. This is due not least to their close relationship with hard law. Indeed, soft-law tools in network-based governance are a bit of a hybrid constellation, holding between the two extremes of classical, binding hard law and classical, non-binding soft law. They combine the flexibility of soft law with the effectiveness of hard law. Hard law, through the Treaty or through secondary legislation, obliges national actors to take account of the Commission’s notices and the like when executing their mandate. Hard law’s procedural tools act as a powerful deterrent to deviant behaviour on the part of NCAs and NRAs as they increase pressure on these actors to obey soft law in their daily decision-making practices. From a consistency perspective, this construction can be regarded as compelling. It enhances the effectiveness of the contribution of substantive devices to a coherent application of EC law. Yet the closer soft law is positioned to the dividing line with hard law, the greater public law’s concern with issues like legitimacy, accountability and judicial review. We shall return to this point in chapter 7.242

240 Commission Decision of 20 February 2004 C (2004)527 final in Cases FI/2003/0024 and FI/2003/0027 [75]. Although it follows from Cases DE/2004/0119 and DE/2004/0150, SG-Greffe (2004)D/206323 that NRAs must also justify non-deviation from the Recommendation on relevant markets. 241 Although under the competition regime, national courts must transmit their judgments to the Commission, which can use these as a trigger to lodge amicus curiae observations when the cases go on appeal, Commission intervention is not certain, and in any event, its observations are not binding. Under the communications regime, the Commission really only has the tool of Art 226 EC at its disposal, and this is probably too distant a threat to encourage national courts to consider soft law. 242 See further, eg, Borchardt and Wellens (above n 217); F Beveridge and S Nott, ‘A Hard Look at Soft Law’ in P Craig and C Harlow (eds), Lawmaking in the European Union (London, Kluwer Law International, 1998); and Larouche (above n 1) 285–86.

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Conclusion III. CONCLUSION

The rationale for coordinating the work of national actors can be regarded as compelling for a regime that is premised on decentralisation. This is because contradictory or diverging national decisions compromise the effet utile of European policies and could ultimately damage the Union’s legitimacy. Adopting an economic perspective, conflicting regulatory choices burden businesses and have a dampening effect on commerce. The traditional consistency mechanisms on offer in the Treaty, infringement proceedings and preliminary references, have failed on this front. It appears that network-based governance has greater chances of success in securing the necessary amount of consistency, due to its sophisticated web of devices aimed at that objective. Consistency requires two main preconditions. The first, supplied by the substantive devices, concerns the homogeneity of the legal rules to be administered by the multitude of national actors. The second, ensured through the procedural devices, relates to the consistent application of these homogenous rules. It follows that the substantive tools precede the procedural tools and that as the former are more successful, the need for reliance on the latter diminishes commensurately. In the end, there are strong synergies between the procedural and substantive devices. A prime example is soft law, a substantive tool, the effects of which are determined in part by the existence and operation of the procedural tools. Most of the consistency mechanisms we have discussed are shared between the competition and the communications regimes. The notification of draft decisions, the right to consult the Commission, judicial review, the Commission’s power to intervene and Commission-authored soft law may thus be properly considered as characteristic of network-based governance. The key difference is the competition variant has special devices that govern the relationship between the Commission and the national courts, whereas the communications regime does not. Given the overarching aim of consistency, this is highly undesirable. The communications regime seems to ignore that consistency concerns also play a role at the judicial review stage. It moreover wrongly sees courts as only a control instrument in relation to NRA decisions, whereas the two bodies may act concurrently in a variety of situations. Thus, the right to consultation, the obligation to notify judgments and the possibility of amicus curiae submissions deserve to be introduced for the administration of EC communications law. Due to their constitutional position, national courts are subject to fewer and lighter devices than are national authorities. Furthermore, those devices ultimately cannot prevent inconsistent or erroneous judgments. Still, certain parallels may be discovered. The obligations to consult, notify and secure single-case consistency under Regulation 1/2003 cover both NCAs and national courts. The soft-law instruments are addressed to and applied by courts and authorities alike. The capacity of the web of coordination devices to secure consistency is inseparably linked to its key features. First, these devices are premised on 205

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Methods for Consistency across National Institutions hierarchical working relationships—they ensure vertical coordination. Secondly, the Commission is accorded pride of place within this system. It has at its disposal the largest toolbox and the most interventionist devices—with the possibility to prevent national authorities from taking decisions that it believes would impede the consistency of EC law at the apex. Thirdly, interaction through the procedural devices usually takes place at predefined moments—for instance before the conclusion of the national proceedings—and is limited to the case at hand. It is axiomatic that the specialist consistency devices make an important contribution to the consistent administration of EC law. To their existence, we must add another dimension, however: the will of the principal actors to work symbiotically on a continuous and permanent basis.243 This is what the network as institutional structure seeks to achieve, and it is to this that we now turn.

243

See also Gerber and Cassinis, ‘Modernisation: Part II’ (above n 50) 57.

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6 The Network: A European Administration Infrastructure

T

HIS CHAPTER LOOKS at how the Commission and the national authorities work together within the European Competition Network (ECN) and the European Regulators Group (ERG). These networks provide a European infrastructure for the administrative bodies to work together on a regular and permanent basis. Similar to the consistency devices, the ECN and the ERG seek to enhance the effectiveness and coherency with which European rules are administered by national actors. However, they attain this objective through a different conceptualisation of the relationship between the Commission and the national actors. While the consistency mechanisms are premised on hierarchy and a dominant position for the Commission, the networks emphasise horizontal linkages and equality. This chapter begins by introducing the structures and mandates of the ECN and the ERG (section I). We shall proceed to examine how interactions between the Commission and the national authorities are organised (section II). The chapter then assesses how network membership Europeanises the national authorities and discusses the positive effects this should generate (section III).

I. ORGANISATION, MANDATE AND FUNCTION OF THE ECN AND ERG

A. The European Competition Network (ECN) The European Competition Network1 was established by the Network Notice2 and the Joint Statement of the Council and the Commission on the functioning of the network of competition authorities.3 It has been fully operational since 1 1

Http://ec.europa.eu/comm/competition/ecn/index_en.html. Commission Notice on cooperation within the Network of Competition Authorities (the Network Notice) [2004] OJ C101/43. 3 Joint Statement of the Council and the Commission on the Functioning of the Network of Competition Authorities, 15435/02 ADD 1 available at ECN website (above n 1). See also Art 11(1) Reg 1/2003. 2

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The Network: A European Administration Infrastructure May 2004.4 Its members are the Commission and the twenty-seven national competition authorities (NCAs). The ECN’s regulatory structure is two-tiered. Daily operation is organised through a common intranet: the ECN Interactive.5 The second tier consists of face-to-face meetings of ECN members in a variety of settings. The directors-general of the NCAs and the Commission’s DirectorateGeneral for Competition (DG COMP) meet twice a year to discuss broad policy points, major initiatives and the very development of the ECN itself. Then there is the ECN plenary, which groups the ECN liaison officers of the NCAs and the ECN Unit in DG COMP. Plenary meetings are used to address horizontal issues of common interest and for preliminary discussions on forthcoming Commission initiatives. Workings groups make up the next layer. They help set the agenda for plenary meetings by exploring topical issues and perform an important liaison role between the NCAs by sharing practices and benchmarking. The number of working groups is commonly around six.6 The final part of the ECN organisation is sectoral subgroups. These are dedicated to particular sectors and are created or dissolved as required.7 The ECN has two main objectives.8 The first, consistency in law enforcement, relates to the manner in which jurisdiction is exercised across Europe. The second, efficient decision-making, relates to the actual content of the activities undertaken by the NCAs.

B. The European Regulators Group (ERG) The European Regulators Group9 has its origins in Commission Decision 2002/ 627.10 It has been in operation since 2004.11 The ERG comprises the twenty-seven 4 Note that prior to that date, an informal version of the ECN was in existence; it played a large role in facilitating various aspects of the practical cooperation between the Commission and the NCAs, such as work-sharing, information exchange and leniency. 5 We may assume that the existence of a physical network has been an important factor in the success of the ECN. Twenty years ago, a similar institutional endeavour would almost certainly have failed because inter-state cooperation would not have been underpinned by efficient technological links. 6 Working groups usually do not include representatives of all ECN members but only officials from NCAs that have volunteered and DG COMP staff. A single working group usually has members from only two-thirds of the NCAs. . 7 In 2006, there were 15 sectoral subgroups for: banking, securities, insurance, food, pharmaceuticals, professional services, healthcare, environment, energy, railways, maritime transport, motor vehicles, telecoms, media and sports. 8 Network Notice (above n 2) [1] and [3]; and Joint Statement of the Council and the Commission (above n 3) [2] and [5]. 9 Http://erg.ec.europa.eu/. 10 Commission Decision of 29 July 2002 establishing the European Regulators Group for Electronic Communications Networks and Services [2002] L200/38 as amended by Commission Decision 2004/641/EC of 14 September 2004 [2004] OJ L293/30 and Commission Decision 2007/ 804/EC of 6 December 2007 [2007] OJ L323/43. See also Recital 37 Framework Directive. 11 The ERG initially functioned as a provisional group. This was because an NRA could only become a member of the ERG after its Member State had implemented the 2002 Electronic

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Organisation, Mandate and Function of the ECN and ERG NRAs of the European Member States, the regulatory authorities of the four European Free Trade Association (EFTA) states12 and those of three Candidate States.13 The Commission is not an ERG member. This is likely because the Commission in this context, in contrast to the competition regime, does not engage in direct application of the European electronic communications rules.14 That said, the Commission is very much involved in the workings of the Group. It hosts the ERG secretariat and participates in deliberations.15 Consider the statement by the Commissioner who held the portfolio for communications law at the ERG’s inaugural meeting: The added value of this Group is that it brings together [the NRAs], with your national expertise, and [the Commission] with our specific role and competencies under the Treaty, in a forum where we can work together to assess the situation at European level and to find European solutions to common problems.16

These sentiments are echoed in ERG output. Thus, its 2004 Annual Report observes: A very positive evolution was the increasing and deepening cooperation with the Commission services. It has become visible that the EC and the NRAs in the ERG are partners, often with the same objectives. . . As can clearly be seen from ERG documents, the cooperation between the ERG and the Commission Services was very productive. Many issues and work items were discussed extensively between the ERG and the Commission, be it at working level and or at the plenary meetings at the level of the Heads of the NRAs.17

It might be argued that ERG membership should be extended to include the Commission. Several advantages and justifications for this approach are immediately manifest. Formalising cooperation between the Commission and the NRAs would acknowledge both regulatory practice and legislative specification (found in Article 7(2) of the Framework Directive). This would contribute to legal certainty and transparency. It could raise the profile and legitimacy of the ERG in

Communications Framework and notified the Commission of the identity of its NRA. Delays on the part of the Member States in carrying out these regulatory obligations meant that it took some time before the ERG could become a fully functioning network. 12 Iceland, Liechtenstein, Norway and Switzerland. 13 Croatia, Turkey and the Former Yugoslav Republic of Macedonia. 14 For more on the role of the Commission in enforcing Arts 81 and 82 EC, see above ch 4, section I. 15 Art 4 ERG Decision (above n 10) and ERG (03) 07 ‘Rules of Procedure for ERG’ [2003] Arts 1.4 and 5.6. These include meetings of the Contact Network, Working Groups and Project Teams (see below). 16 E Liikanen, ‘European Regulators Group (ERG): Inaugural Meeting’, 25 October 2002, available at the ERG website (above n 9). 17 ERG (05) 16 ‘ERG Annual report 2004’ [2005] 1 and 3 respectively. Consider also the Conclusions of ERG Plenary Meetings, which use phrases such as ‘complementarity of activities’ and ‘agreed close cooperation between the ERG and the Commission in respect of an issue’, to give some examples.

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The Network: A European Administration Infrastructure the eyes of market parties. Also, the NRAs would still have access to a forum where they could meet without the Commission’s presence: the Independent Regulators Group (IRG), a body that exists and operates outside the realm of European law but whose membership is identical to that of the ERG.18 Commission membership in the ERG would help differentiate the two bodies where they presently display great overlap in terms of mandate, structure and work programmes.19 The chair is central to the running of the ERG on a daily basis. The holder of this post is elected by the members for a term of one year, and an overview of the chairs from 2003 to 2008 is given in Table 6.1.20 The chair works closely together with the previous chair and the chair-elect to ensure continuity in the work of the Group. Chairs are assisted by the ERG secretariat, which furnishes administrative support; arranges ERG meetings, agendas and the annual reports; takes part in the preparation and implementation of annual work programmes; and helps to identify issues that may need the attention of the ERG.21 The chair has the following responsibilities: convening, presiding over and moderating ERG meetings;22 ensuring that the ERG performs its tasks as set out in the annually agreed work programmes;23 representing the ERG to the outside world; and when called upon, appearing before the European Parliament to explain the activities of the Group. The chair is at the apex of the ERG institutional structure, which also includes the ERG plenary, a contact network, expert working groups and project teams. The ERG plenary is composed of the heads of the NRAs.24 It normally meets four times a year, during which it adopts the ERG annual work programme; discusses

18 Http://www.irg.eu/render.jsp?categoryName=CATEGORY_ROOT. It appears that the NRAs value the opportunity of also being able to discuss matters amongst themselves, without the Commission present. The continued existence of the IRG alongside an ERG of which the Commission is also a member, would satisfy this need. 19 ERG (06) 03 ‘Independent Regulators Group / European Regulators Group’ [2006]. 20 Art 5 ERG Decision (above n 10); and ERG (03) 07 ‘Rules of Procedure for ERG’ [2003] Art 3.1. During his or her term, the ERG Chair also continues to fulfil his regulatory responsibilities for his NRA. Re-election is not possible. 21 The staff for the secretariat is chosen by an ERG panel comprised of appointed Heads and paid for by the ERG. The Commission confers the secretariat staff the status of seconded national experts and provides them with offices in Brussels and mission and office expenses: ERG(08)09 ‘Annual Report 2007’ [2007] 14. 22 In deciding when to convene the ERG, the chair acts in agreement with the Commission: Art 4 third al ERG Decision (above n 10). 23 A work programme indicates the main regulatory challenges and issues facing the NRAs in the year ahead and provides for the adoption of a number of soft-law instruments. It is initially drawn up in draft form and issued for public consultation. At the end of each year, the ERG submits an annual report to the Commission on the Group’s success in attaining the objectives listed in the work programme, which the Commission forwards to the European Parliament and the Council: Art 8(1) ERG Decision (above n 10). 24 The ERG may also invite experts and other observers to attend these meetings: ERG (03) 07 ‘Rules of Procedure for ERG’ [2003] Art 1.5.

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Organisation, Mandate and Function of the ECN and ERG Table 6.1 The Chairs of the European Regulators Group (ERG) to Date Year

Chair

NRA

2008

Daniel Pataki

NCAH (HU)

2007

Roberto Viola

Agcom (IT)

2006

Kip Meek

Ofcom (UK)

2005

Jorgen Abild Andersen

NITA (DK)

2004

Eric van Heesvelde

BIPT (BE)

2003

Jens Arnbak

OPTA (NL)

significant regulatory initiatives; and adopts ERG documents.25 The Commission is always present on these occasions and reports on the workings of the Article 7 procedure;26 meetings of the comitology committee; and its planned regulatory proposals. The Contact Network functions as an auxiliary to the plenary. It is staffed by senior representatives of the NRAs and chaired by a representative of the ERG chair. The contact network is akin to the Council’s Committee of Permanent Representatives (COREPER). Its tasks include seeking agreement on contentious issues; helping to set the agenda for plenary meetings;27 and ensuring that proposals for ERG documents are focused, clear and coherent. Expert working groups deal with particular themes, for instance the Significant Market Power (SMP) procedure or the rights of end-users. Project teams are ad hoc, set up to deal with certain regulatory problems. The working groups and project teams draw up proposals, which the plenary may adopt as ERG documents.28 For each work item in an ERG work programme, the chair of the working group or project team prepares a project requirement description for approval by the plenary, setting out the deliverables and time tables of the work that must be undertaken. The ERG secretariat monitors the progress of the working groups and project teams on an ongoing basis to ensure that the regulatory targets defined in the work programmes are met within the allocated time. In addition to these institutionalised meetings, the ERG occasionally organises one-day seminars for the NRAs to consider and debate selected topics of particular significance.29 25 Ibid, Art 5.2. Plenary meetings are usually preceded by a preparatory meeting between the ERG chair and a representative of DG INFSO, either in Brussels or through video conference. 26 Explained in detail above in ch 5, section I-A(i) and (v). 27 In particular, it may delay items from being placed on an agenda if it feels that further discussion is necessary to secure consensus or recommend priority topics. 28 See Art 5 ERG Decision (above n 10) and ERG (03) 07 ‘Rules of Procedure for ERG’ [2003] Arts 5.4, 5.5, 6 and 7. 29 For instance, in October 2006 there was a full day seminar on ‘Development of the ERG’, with issues to be discussed including harmonisation, mutual support and organisational issues. This meeting was one of the catalysts for the ERG Madeira Declaration (ERG(06)51 ‘Statement on the

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The Network: A European Administration Infrastructure The ERG has a broad legislative fiat that includes both advisory responsibilities and coordination ones.30 In particular, it must assist the Commission with advice on all matters pertaining to the regulation of electronic communications.31 To ensure consistency, it acts as an interface between individual NRAs, as well as between the Commission and the NRAs taken as a whole. The Cost of Participating in the ERG The first two annual reports of the ERG included estimates of the resources that the NRAs spent on participating in the work of the Group.i In 2003, fourteen authorities supplied data. Together, they reported spending approximately 20,000 hours on ERG work (an average of 1,429 hours per NRA).ii For the 2004 annual report, the ERG secretariat was able to collect information from 25 NRAs.iii The data show a significant increase in the commitment of the national authorities to the ERG’s work. Overall, almost 66,000 hours were devoted to ERG-related activities, with contribution per authority averaging around 2,760 hours. In terms of financial expenditure, on average each NRA spent €33,000 on ERG work in 2004.iv Unfortunately, subsequent annual reports have not continued to analyse the participation costs of the NRAs, financial or otherwise. ———————————— i Such as preparing for and attending ERG meetings (at both plenary and lower-levels), travelling and drawing up ERG documents. ii ERG (04) 04 ‘ERG Annual Report 2003’ [2004] 8. iii ERG (05) 16 ‘ERG Annual Report 2004’ [2005]. iv To put these figures into perspectives, compare the administrative costs incurred by NRAs in relation to the SMP procedure. Small Member States (Cyprus, Estonia, Luxembourg, Latvia, Malta and Slovenia) on average per year spend 363 hours and €42,029 on data collection; 292 hours and €36,967 on public consultation; and 107 hours and €17,007 on notification of their draft measures to the Commission. The numbers for middle-sized Member States (Austria, Belgium, Czech Republic, Denmark, Finland, Hungary, Ireland, Lithuania, Netherlands, Romania, Slovakia and Sweden) are 820 hours and €478,586 on data collection; 674 hours and €102,503 on public consultation; and 170 hours and €958,875 on notification of proposed decisions to the Commission. Finally, large Member States (France, Germany, Italy, Poland, Spain and the United Kingdom) on average per year spent 1770 hours and €240,850 on data collection; 1092 hours and €252,805 on public consultation; and 973 hours and €741,665 on notification to the Commission. See Impact Assessment accompanying the legislative proposals for a revision of the 2002 Electronic Communications Framework (Commission Staff Working Document) SEC (2007) 1472, 139–40.

Development of the ERG’ [2006]), a programme of regulatory commitments aimed at delivering an increasingly harmonised approach to the regulation of electronic communications markets in Europe. 30 ERG Decision (above n 10) Art 3. 31 If the Commission were to become an ERG member, the advisory role of the ERG would accordingly require reconsideration.

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Organisation, Mandate and Function of the ECN and ERG C. Comparisons The regulatory mandates of the ECN and the ERG are largely similar, although the tools with which they seek to achieve their objectives are not completely identical.32 The concern of both networks is to emphasise coherency in national decision-making by ensuring that the various cooperation and coordination processes incorporated in the law work efficiently. In terms of regulatory anatomy, the ECN and the ERG both operate a tiered organisational design, whereby policy is prepared in a bottom-up fashion.33 (See Figure 6.1.) The most noticeable difference is that the ECN does not presently have a chair. This could very well be because of the nature of the ECN’s work, which has thus far been mainly focused on case-based interactions34 and perhaps therefore benefits more from sophisticated IT applications than from a president-like figure.

Figure 6.1 The Organisational Structures of the ECN and ERG

32 It is important to realise that the source of their mandates is not found in the core legislative instruments that govern the fields in which the networks operate. Although recital 15 Reg 1/2003 stipulates the creation of the ECN, and recitals 36 and 37 Framework Directive do the same for the ERG, their remit and tools are elaborated in a soft-law instrument (the Network Notice, above n 2) and a Commission decision (above n 10) respectively. This point is returned to below, ch 7, section II-A(i). 33 Both the ERG and the ECN embody elements of the composition of the Council of Ministers. Whereas the ERG’s institutional structure resembles the Council’s internal organization, the ECN compares to its external mode of operation. 34 Case-based interaction will be discussed further below in section II-A.

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The Network: A European Administration Infrastructure

Networking National Courts For constitutional reasons related to the need to respect the independence of the judiciary, it was clear that the Commission could not establish networks involving national courts. To ensure consistency also in the work of these actors, we have seen how the Commission can nevertheless rely on a combination of procedural and substantive techniques.i Still, courts have also been attracted to the anticipated benefits that networking would bring them. They, too, are thus pursuing partnerships with their foreign counterparts—at their own initiative or prompted by the Community legislature.ii One such network that has been set up at the initiative of its component members is the Association of European Competition Law Judges (AECLJ). Established in 2001, the AECLJ groups national judges working in the field of European competition law.iii It provides them with a forum to exchange views and experiences, with the ultimate goal of establishing ‘best practices’ for the swift and correct application of Articles 81 and 82 EC. The AECLJ pursues these objectives through annual conferences, regular seminars and training projects.iv The Association furthermore actively participates in public consultations organised by the Commission in the field of European competition law.v ———————————— i Mention must also be made of the ongoing training and education of national judges in matters of European competition law. According to European Commission (EC), ‘Report on Competition Policy 2007’ COM(2008)368 final, 16 June 2008, 22, since 2002 the Commission had co-financed 35 such training projects, which had enabled the training of around 3,500 judges by the end of 2007. ii For an inventory of the host of judicial networks in existence today and an analysis of the impact they bring to bear on the relationships between national courts and the ECJ as well as on the position of participating courts domestically (vis-à-vis other national courts and vis-à-vis other state organs), see M de Visser and M Claes, ‘Courts United? On European Judicial Networks’ in B de Witte and A Vauchez (eds), The European Legal Field (forthcoming, 2009). iii The UK Competition Appeal Tribunal (CAT) played a leading role in establishing the AECLJ (and has also provided its secretariat), and it is thus no surprise that the president of the CAT, Sir Christopher Bellamy, was elected as the Association’s first president. He was succeeded in 2005 by Joachim Bornkamm of the German Bundesgerichtshof. iv These are often co-financed by the European Commission: EC, ‘Final Evaluation of the Community’s Action Programme to Promote Bodies Active at European Level and Support Specific Activities in the Field of Education and Training’ (Report) COM(2008) 337 final, 5 June 2008, 11. Consider in this respect also the parliamentary question by Robert Goebbels (PSE), E-3748/08, 8 July 2008: ‘To enable the AECLJ to extend its activities in the interest of better “cooperation with national courts” (Article 15), could the Commission not propose appropriate European funding for this public-interest association in the framework of the EU budget?’. The Commission has yet to provide a response to this query. v For instance, see its comments in EC, ‘Damages Actions for Breach of the EC Antitrust Rules’ (White Paper) COM(2008) 165, final, 2 April 2008, available at http://ec.europa.eu//competition///_paper_comments/_en.pdf.

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Structuring Interaction between the Commission and the National Authorities II. STRUCTURING INTERACTION BETWEEN THE COMMISSION AND THE NATIONAL AUTHORITIES

The preceding section has introduced the composition and principal tasks of the ECN and the ERG. The networks do not possess legal personality or autonomous powers. They are simply the institutional infrastructure through which the national authorities interact in a variety of ways with each other and with the Commission on a host of matters directed at the successful exercise of their regulatory mandates. The modalities for such interaction as well as the intensity, type and frequency thereof will be analysed in this section. The semi-converged regulatory environment in which the national authorities operate (in terms of their Community-created mandate, powers, procedures and institutional principles) provides the bedrock for this multi-level cooperation.

A. Case-Based Interactions The first task of the ECN and the ERG is to facilitate cooperation between network members during the course of decision-making procedures for single cases. Regulation 1/2003 and the 2002 Electronic Communications Framework include several ways in national authorities and the Commission can cooperate for that purpose. The discussion will begin with an overview of the processes that are shared between the two networks. This is followed by an examination of those processes that are exclusive to the competition variant and those that are only available under the communications variant. i. Shared Processes Both the ECN and the ERG are involved in the consultation on national draft decisions and facilitate the exchange of information. a. Consultation on Draft Decisions We have seen in the previous chapter that the national authorities must consult each other and the Commission before they adopt certain decisions.35 Under competition law, this process is run through the ECN Interactive. The NCAs must upload special Article 11(3), Article 11(4) and Article 11(5) forms in the IT application, which can be accessed by the other authorities.36 35 See above ch 5, section I-A(i). For the NCAs, this obligation is found in Art 11(4) Reg 1/2003; for the NRAs, see Art 7(3) Framework Directive. 36 These forms correspond to the opening of proceedings by the NCA; envisaged prohibition or commitment decisions or decisions withdrawing the benefit of a block exemption regulation; and the closure of proceedings. Note that the notifying NCA is not legally obliged to inform its peers under Reg 1/2003, but it ‘can’ do so.

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The Network: A European Administration Infrastructure The ERG is not accorded an explicit role in relation to the notification procedure created by Article 7 of the Framework Directive. That said, in practice it has evolved into an important player. First, the ERG has identified a number of NRAs with relevant expertise and experience in relation to particular regulatory issues, designating them ‘knowledge centres’ so that other authorities may more easily seek advice.37 Second, Article 7 Expert Groups are constituted to advise affected NRAs whose notifications are being scrutinised by the Commission under Article 7(4) of the Framework Directive, or in respect of which the Commission proposes to issue serious doubts letters.38 Most Expert Groups have thus far recommended that the notifying authority in question withdraw the measure—advice that has always been followed. The Commission has begun to request a copy of Expert Group reports to assist it in preparing draft veto proposals.39 b. Exchange of Information Article 12 of Regulation 1/2003 permits NCAs and the Commission to exchange information40 and gives them the right to use that information as evidence in national proceedings.41 This right extends to confidential information. The Regulation does not contain a definition of this term, but drawing on the Commission’s notice on access to the Commission file and related case law,42 it 37 This measure, together with the case studies of regulatory ‘best practices’, also helps to remedy resource constraints. 38 Initially, the creation of an Article 7 Expert Group was voluntary, if an NRA so requested. The Dutch OPTA asked for an Expert Group to be set up to examine its broadcast transmission market notification, and the German Bundesnetzagentur did the same for its leased lines market notification. Since February 2007, establishment of an Article 7 Expert Group is automatic when any NRA’s notification enters the Phase II procedure or when the Commission proposes to issue a serious doubts letter. In the following four months, four Expert Groups were set up to assess notifications: by the Maltese MCA on joint dominance in the wholesale broadband access market; by the Italian AGCOM on SMP in the market for mobile call origination to non-geographic numbers; by the Polish UKE on retail access to the public telephone network; and by the UKE again on wholesale leased lines. See ERG Letter to Commissioner Reding, 6 November 2007, 9. In addition, NRAs can seek informal peer review of their draft measures prior to finalisation and notification to the Commission. 39 ERG Letter to Commissioner Reding, ibid, 10. 40 This denotes ‘any matter of fact or law’: Commission Network Notice (above n 2) [25]. 41 Other modalities of information exchange are provided in Arts 18 and 19 Reg 1/2003. Thus, the Commission must inform NCAs when it addresses investigative measures to firm located in the territories for which they are responsible. In the case of interviews, NCA officials may request to be present. Furthermore, Member States and NCAs must provide the Commission with all the relevant information necessary for it to carry out its responsibilities. A number of national laws already allowed the transfer of information to foreign competition authorities prior to the enactment of Reg 1/2003, eg Art 91 Dutch Mededingingswet and Art L-462–9 French Code de Commerce. 42 Commission Notice on the rules for access to the Commission file in cases pursuant to Articles 81 and 82 of the EC Treaty, Articles 53, 54 and 57 of the EEA Agreement and Council Regulation (EC) No 139/2004 [2005] C325/07 section 3.2. As a Community term, the definition of ‘confidential information’ is ultimately a matter for the ECJ to decide. When it does, it may be expected to look for inspiration to existing documents that also use the term and offer a definition, such as the notice. In judgments delivered under the previous notice on access to the file the Community Court ruled that

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Structuring Interaction between the Commission and the National Authorities may be taken to refer to information the disclosure of which could seriously harm a firm or natural person (production secrets and processes, technical know-how, sales strategies or the identity of complainants).43 A decision by the Commission qualifying information as confidential is legally binding for the NCAs because of the doctrine of supremacy.44 For the NCAs, the commitment to ‘mutually recognise the standards of each other’s systems as a basis for cooperation’45 would similarly indicate that information that enters the ECN as confidential retains that status during subsequent transfers and for evidentiary purposes. This cooperation instrument allows NCAs and the Commission to take decisions on the basis of the most complete information available, including information located outside the geographic area over which a single authority exerts jurisdiction. This should go towards reducing the risk of type-I errors (false positives, ie, unjustifiable regulatory intervention) and type-II errors (false negatives, ie, failure to intervene when justified) in decision-making. Information exchanges principally occur in three scenarios. First, once a network member has reported that it has begun proceedings under the European competition rules, information may be exchanged to determine the geographic dimension of the suspected infringement and decide on case reallocation.46 Second, if a case is actually transferred, the authority that closes its proceedings may provide the authority that is now seized of the matter all information that it had already collected.47 From the perspective of administrative efficiency, this avoids duplication of investigative efforts and the consequent risk of lengthy and

the Commission could not depart from the rules and principles it had laid down in that document and adopted the Commission’s definition of confidential information, eg Case T-7/89 SA Hercules Chemicals NV v Commission [1991] ECR II-1711 [54]; Case T-353/94 Postbank NV v Commission [1996] ECR II-921 [87]. 43 Eg Case 145/83 Stanley George Adams v Commission [1985] ECR 3539 [34]; Case T-65/89 BPB Industries and British Gypsum [1993] ECR II-389; Case C-310/93P BPB Industries and British Gypsum [1995] ECR I-865. 44 In practice, a firm or person submitting information will claim its confidentiality. The Commission notice on access to the file (above n 42) stipulates that the reasons for such a claim must be substantiated and that information which is already known or which has lost its commercial importance (for instance through the passage of time) cannot be considered confidential. Note that the test is objective—a firm’s desire to keep information confidential is irrelevant: Lenz AG in Case 53/85 AKZO Chemie BV and AKZO Chemie UK Ltd v Commission [1986] ECR 1965. 45 Joint Statement of the Council and the Commission (above n 3). 46 This happened for instance in relation to a cartel by manufacturers of flat and car glass. Several NCAs had received complaints from customers that suspected a price cartel. Inspections revealed that the cartel was probably European-wide in scope and that the Commission would be best placed to investigate the matter: MEMO/05/63 ‘Anti-trust: Commission Investigation in the Flat and Car Glass Sector’, 24 February 2005. 47 This type of situation occurs only sporadically. As explained below, in most cases, the authority that commences proceedings continues to investigate and decide that specific case. Examples are cases brought following a complaint or involving complex leniency applications: K Dekeyser and D Dalheimer, ‘Cooperation within the European Competition Network: Taking Stock after 10 Months of Case Practice’ in P Lowe and M Reynolds (eds), Antitrust Reform in Europe: A Year in Practice (London, International Bar Association, 2005).

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The Network: A European Administration Infrastructure complex procedures. Third, network members may carry out inspections at the request and for the account of other authorities. The information thus obtained is transmitted to the requesting authority per Article 12.48 In practice, exchanges take place by filling out special Article 12 forms, which are circulated through the ECN IT-system. For non-confidential information, the Electronic Case Management System (ECMS) is used. The ECMS is secured against unauthorised access. To deal with confidential information, each competition authority has created the post of authorisation disclosure officer (ADO). The ADOs are exclusively competent to send and receive confidential information, using state-of-the-art email encryption or other secure means of transmission.49 The Regulation specifies several conditions that govern the use of exchanged information in evidence.50 First, proceedings in which the transferee seeks to use the information must concern the same subject matter that led the transferor to collect the information. The scope of the investigation is the determining factor, and in practice a case-by-case assessment is probably necessary.51 The proceedings must furthermore be brought under Articles 81 or 82 EC, unless the parallel application of national rules leads to an identical outcome.52 Secondly, a network member may be limited in its choice of sanctions. While the Regulation lists the penalties available to the Commission, it defers to national law for the type of sanctions that NCAs may impose. There is a

48 While Art 12 suggests that the competition authorities have discretion in determining whether to exchange information, once an authority has acceded to a request by another authority to engage in an investigation, it would appear that the investigating authority is then no longer able to refuse to transfer the information it has collected. See D Waelbroeck, ‘Twelve Feet All Dangling Down and Six Necks Exceeding Long’: The EU Network of Competition Authorities and the European Convention on Human Rights and Fundamental Freedoms’; and A Kist, ‘Exchange of Information: Scope and Limits Seen from the Perspective of the National Competition Authorities’ in CD Ehlermann and I Atanasiu (eds), Constructing the EU Network of Competition Authorities, European Competition Law Annual 2002 (Oxford, Hart Publishing, 2004). 49 According to Dekeyser and Dalheimer (above n 47) 14, the technology used is identical to that the Commission relies on to transfer documents to the NCAs in preparation for meetings of the Advisory Committee. 50 In general, see K Dekeyser and E de Smijter, ‘The Exchange of Evidence within the ECN and How It Contributed to the European Co-operation and Co-ordination in Cartel Cases’ (2005) 32 Legal Issues of Economic Integration 161. 51 See Case 85/87 Dow Benelux [1989] ECR 3137 [17]–[20]. 52 Art 12(2) and Recital 16 Reg 1/2003. This requirement reinforces the general obligation imposed on national actors to observe the outcome under Arts 81 and 82 EC when applying their national competition laws to cases that have effect on trade between Member States. See also Arts 3 and 16 Reg 1/2003. If the case is subsequently pursued under national competition law alone, the information that an NCA has obtained through the ECN Intranet cannot be used as evidence in these national proceedings. It can, however, probably be relied on to initiate a new investigation under national law: see M Bloom, ‘Exchange of Confidential Information among Members of the EU Network of Competition Authorities: Possible Consequences of a Relatively Broad Scope for Exchange of Confidential Information on National Procedural Law and Antitrust Sanctions’ in Ehlermann and Atanasiu (eds) (above n 48) 400, with reference to Case C-67/91 Dirección General de Defensa de la Compentencia v Asociación Española de Banco Privada and others (‘Spanish Banks’) [1992] ECR I-4785; and Dow Benelux (ibid).

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Structuring Interaction between the Commission and the National Authorities presumed positive correlation between the existence of a certain penalty and the level of protection for the rights of defence. As far as firms are concerned, all national systems provide financial sanctions, and NCAs are accordingly under a duty to mutually recognise the due process available in the other Member States.53 The exchanged information is thus considered to have been collected under conditions equivalent to those obtaining in the transferee state, and the deciding NCA may apply the entirety of the arsenal of sanctions. The situation is radically different as far as natural persons are concerned. This is because some Member States allow for the imposition of criminal sanctions on directors, managers or employees, while others do not recognise a similar possibility.54 The resulting heterogeneity renders an automatic and unconditional presumption of equivalence inappropriate. This is because those Member States that do provide for criminal sanctions offer a commensurately higher degree of protection for the rights of defence. For instance, while firms may refuse to answer only questions that would cause them to admit that they have breached the competition rules, individuals enjoy the right to remain silent.55 Care must be taken to avoid these additional guarantees from being circumvented. As such, if a transferee authority wishes to impose sanctions on natural persons, it must first assess whether the legal system of the transferor authority ‘foresees sanctions of a similar kind’. If this is indeed the case, then an irrefutable presumption of equivalence applies, and the transferee authority may sanction as it sees fit.56 Otherwise, the authority must carry out an ad hoc equivalency check by comparing the degree of protection for due process rights under its own legal system with those available under the laws of the transferor state. If the transferee authority finds that both systems operate comparable standards of protection, then it may still proceed to sanction natural persons. However, in this case, Regulation 1/2003 prevents the transferee authority from imposing custodial sanctions, given the presumed difference in the standard of the rights of defence. The Network Notice contains two main safeguards for firms in relation to the exchange and use of information. The first concerns the protection of confidential information. Suppose that a competition authority collects confidential information from firm A. This authority subsequently transfers this information per Article 12, and the transferor authority relies on it as evidence in its decision. During the course of the proceedings, a third party seeks access to the file—much to the disquiet of firm A, which is concerned to prevent disclosure of the confidential information. Articles 27 and 28 of the Regulation address this situation. Article 27 excludes confidential information from the right of access to

53

Recital 16 Reg 1/2003. In relation to the four Member States under discussion, see above ch 2, section III-A(iii). Commission Network Notice (above n 2) [28(c)]; Case 374/87 Orkem v Commission [1989] ECR 3283; Case T-112/98 Mannesmannröhren-Werke AG v Commission [2001] ECR II-729. 56 As explained by Dekeyser and de Smijter (above n 50) 170, the rationale seems to be that if the type of sanctions is similar, then so must the rights of defence be. 54 55

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The Network: A European Administration Infrastructure the Commission’s file. Disclosure is permitted only if it is necessary to prove the breach of the competition rules,57 and we may expect that this exception will be applied with restraint. While this provision does not cover access to the file for NCA proceedings, the principle of equivalence probably suggest a similar approach. Support for this interpretation can be found in Article 28. Applicable to all competition enforcers, this provision prevents network members from disclosing information that is covered by professional secrecy. This is a Community term58 and basically denotes confidential information. Protection of such information is thus in principle guaranteed throughout the Union. The second safeguard concerns leniency applications. Leniency programmes reward firms that report cartels to the competition authorities and cooperate with investigations, by offering full immunity or a reduction in the fines that would otherwise have been imposed.59 They have enjoyed overwhelming popularity in recent years as one of the most effective tools to uncover hardcore cartels. The Regulation does not require that competition authorities operate leniency programmes nor does it specify the conditions under which leniency may be granted.60 Importantly, there is also no one-stop shop, that is to say, a leniency application to one authority does not commit the others. As a result, when the Regulation entered into force, the legal status quo saw considerable differences between the network members in relation to leniency programmes.61 The risk for firms can be put simply. A leniency application will be relied on by a competition authority to commence proceedings, as is exactly its main purpose.

57 For the Commission laid down in Art 27(2) Reg 1/2003 and Art 15(3) Commission Regulation (EC) No 773/2004 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty [2004] OJ L123/18. 58 See in particular Art 287 EC; and Commission Network Notice (above n 2) [28(a)]. 59 The Commission has recently also introduced a ‘settlement procedure’ for cartels. Under this procedure, parties are given access to the evidence the Commission has accumulated, and, in return for acknowledgement of the parties’ involvement in the cartel and their liability for it, the Commission may reduce the fine it intends to impose by ten per cent: Commission Regulation (EC) No 622/2008 of 20 June 2008 amending Regulation (EC) No 773/2004 as regards the conduct of settlement procedures in cartel cases [2008] OJ L171/3; Commission Notice on the conduct of settlement procedures in view of the adoption of Decisions pursuant to Article 7 and Article 23 of Council Regulation (EC) No 1/2003 in cartel cases [2008] OJ C167/1; IP/08/1056 ‘Antitrust: Commission Introduces Settlement Procedure for Cartels’, 30 June 2008; and MEMO/08/458 ‘Antitrust: Commission Introduces Settlement Procedure for Cartels: Frequently Asked Questions’, 30 June 2008. This procedure is already available under French law (Art L464–2 III Code de Commerce) and has been applied with considerable success by the Conseil de la Concurrence. The UK OFT has recently introduced on a trial basis an informant reward scheme for people who provide information on the existence of cartels. 60 At the time of writing, only Denmark, Malta, Spain and Slovenia do not operate leniency programmes. 61 For instance, some required written statements, while for others oral applications were sufficient. Furthermore, some programmes excluded full immunity for the ringleaders or instigators of the cartel. A considerable degree of harmonisation has now been achieved through the ECN Model Leniency Programme. See below, textbox entitled ‘The ECN Model Leniency Programme and the ERG Common Position on Remedies’.

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Structuring Interaction between the Commission and the National Authorities The other authorities will be alerted to this fact through the notification per Article 11(3). They can then request the first authority to send them the information it has received from the leniency application under Article 12 of Regulation 1/2003, which they can subsequently use to prosecute the leniency applicant for its involvement in an illegal cartel.62 Were this indeed possible, leniency programmes would be fatally compromised. No firm would take the carrot and then patiently wait for the stick to hit it. It is no surprise then that the Network Notice caters for this type of situation.63 First, the Article 11(3) notification form is made available only to those competition authorities that have committed themselves to observe the principles incorporated in the Notice.64 Since all authorities have signed a statement to that effect, these forms in practice circulate freely on the ECN Intranet.65 Second, the Notice bars network members from using the information in Article 11(3) forms to commence own-initiative proceedings.66 Third, information submitted by a leniency applicant may be transferred per Article 12 only if the applicant agrees to the

62 The concern of leniency applicants that information they have provided to the Commission could subsequently be sent to the national courts per Art 15(1) Reg 1/2003 (stipulating that the Commission should assist the national courts in the enforcement of Arts 81 and 82 EC and may for that purpose, provide them with information) and be used against them in damages actions is addressed in the Commission Notice on the co-operation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 EC [2004] OJ C101/54 [26]. The Notice stipulates that the Commission will not transmit this type of information to national courts, unless the leniency applicant consents to the transfer. 63 The safeguards in the Network Notice cover leniency applications itself, as well as all information that has been collected during the course of investigations that were carried out because of the information contained in leniency applications. 64 Commission Network Notice (above n 2) [42] and Annex. 65 A list of all the authorities that have signed the statement can be found at http://ec.europa.eu/ comm/competition/antitrust/legislation/list_of___statement.pdf. 66 On the Art 11(3) form, the competition authority must indicate whether the case is a leniency case, as well as the identity of the applicant: D Reichelt, ‘To What Extent Does the Co-operation within the European Competition Network Protect the Rights of Undertakings?’ (2005) 42 Common Market Law Review 745, 769. The prohibition applies to the use of the European as well national competition rules. Still, an authority may proceed with an investigation if it becomes aware of the existence of a cartel through other means than the Art 11(3) form—for instance a complainant. This is considered acceptable because it is ‘part of the “normal” risk of detection that anyone runs that infringes the law’: Dekeyser and Dalheimer (above n 47) 15. In practice, however, we may expect this risk to be slightly higher than usual, as a competition authority will be particularly attentive to signals from the market that a cartel could be in place. See S Brammer, ‘Concurrent Jurisdiction under Regulation 1/2003 and the Issue of Case Allocation’ (2005) 42 Common Market Law Review 1383. Brammer also touches upon the difficult question of what would happen if a competition authority acted in disregard of the prohibition to bring proceedings: how would an applicant be able to accumulate the necessary proof to show that this was indeed what happened; and what would the fate of the second investigation be?

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The Network: A European Administration Infrastructure transfer;67 if it applied for leniency to the prospective transferee as well;68 or if thetransferee undertakes not to rely on that information or its offspring in proceedings brought against the applicant.69 In the context of communications law, Article 5 of the Framework Directive allows the Commission and the NRAs to exchange information.70 Similar to the competition regime’s Article 12, confidential information is included. Again, a transferor must decide whether the information qualifies as confidential,71 and its assessment must be respected by the transferee. Three modalities of information exchange may be distinguished. First, upon request, NRAs must provide the Commission with the information it requires to carry out its tasks under the Treaty,72 including assessing compliance of NRA behaviour with WTO commitments or deciding on intervention through the competition rules in the communications sector.73 Second, the Commission may subsequently transfer this information to other NRAs.74 The authority that has supplied the information can, however, contest such an exchange by explicit and reasoned application. Third, Article 5 imposes a duty on the NRAs to directly supply each other with information following substantiated requests to that effect.75 This type of

67 Commission Network Notice (above n 2) [40]. ECN members have committed to encouraging leniency applicants to give their consent. Once given, consent cannot be withdrawn. Consent is not necessary when an authority has carried out an investigation under Art 22 Reg 1/2003 (see below, section II-Aii) at the request of the authority that has received the leniency application: the first authority may transfer, and the second authority may use the information thus collected. 68 Commission Network Notice (above n 2) [41]. The only limitation is that the applicant must no longer be able to withdraw the information. A number of leniency programmes, that of the Commission included, allow the leniency applicant to withdraw the evidence it has provided if it fails to meet the other requirements for conditional leniency. See S Blake and D Schnichels, ‘Leniency following Modernisation: Safeguarding Europe’s Leniency Programmes’ (2004) 2 Competition Policy Newsletter 7, 10. 69 Commission Network Notice (above n 2) [41(2)]. The commitment must be in writing and a copy sent to the leniency applicant. 70 Art 3(5) Framework Directive stipulates that NCAs and NRAs may provide each other with the information necessary for the application of the 2002 Electronic Communications Framework. See D Stevens and P Valcke, ‘NRAs (and NCAs?): The Cornerstones for the Application of the New Framework: New Requirements, Tasks, Instruments and Cooperation Procedures’ (2003) 50 Communications & Strategies 176. The authors are of the opinion that this provision constitutes a second legal basis for inter-NRA information exchanges. 71 This assessment must be made with the help of Community and national rules on business confidentiality. For the Community rules, consider in particular Postbank (above n 42) and Hercules (above n 42). 72 The Commission’s requests must be reasoned and proportionate to the performance of its responsibilities. 73 Commission Guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services [2002] OJ C165/6 [139]. If an NRA has obtained the information from firms, then it must inform them of the transfer [140]. 74 The Commission will inform the firm that originally supplied the information of the transfer: Commission guidelines on market analysis and SMP assessment (ibid) [141]. 75 Such an exchange must be necessary to allow the transferor or the transferee to meet its regulatory obligations under Community law. NRAs with mandates that cover more than enforcing the 2002 Electronic Communications Framework are thus barred from requesting or exchanging

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Structuring Interaction between the Commission and the National Authorities exchange occurs most frequently. Recall in particular the ‘knowledge centres’: NRAs with relevant expertise and experience in relation to certain issues or areas will assist other authorities in the exercise of their regulatory mandate. InterNRAs information transfers are further appropriate in the context of crossborder dispute resolution or transnational market analysis).76 In practice, horizontal transfers are organised through the ‘member area’ section of the ERG website and the contact network, while vertical transfers take place on a bilateral basis between the Commission and the NRAs or through the ERG secretariat, when the information is intended for all the NRAs. As distinct from the competition regime, exchanges of information under Article 5 are motivated more by consistency than by efficiency considerations. The aim is to provide transferee NRAs with the necessary methodological tools and understandings to properly apply the 2002 Electronic Communications Framework—rather than with factual proof of specific competition violations by specific firms. It seems reasonable to infer that the Framework Directive for that reason, and unlike Regulation 1/2003, does not stipulate that NRAs may use the exchanged information as evidence.77 This is left to the Member States to determine.

ii. Processes Exclusive to the Competition Regime In addition to consultation on draft decisions and information exchanges, there are two types of case-based interaction that are exclusively available to the ECN under the competition regime: case allocation procedures and fact-finding missions.

a. Case Allocation Since Regulation 1/2003 is premised on full parallel jurisdiction for the Commission and the twenty-seven NCAs, it is clear that a regime for case allocation is useful. It avoids contradictory or divergent decisions across Europe, which we information per Art 5 Framework Directive for the purposes of carrying out those wider mandates. Community law does not require that the NRAs inform firms that confidential information they have supplied is being transferred to other NRAs. Note that the European Parliament in the first reading of the Framework Directive proposed a general obligation on NRAs and the Commission to inform firms of transfers of confidential information: Committee on Industry, External Trade, Research and Energy A5–0053/2001 amendment 31. 76 See below, section II-A(iii). Regarding transnational market analysis, see Commission guidelines on market analysis and SMP assessment (above n 73) [143]. 77 Here we should, however, mention the case of roaming, where the effect of the practice is trans-frontier, creating in fact a regulatory failure, since, eg, the Dutch NRA would not act on a practice of Dutch providers that harmed only non-Dutch consumers. This comes closer to the typical competition law situation in which authorities interact on evidentiary matters.

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The Network: A European Administration Infrastructure saw in the previous chapter, generate legal as well as economic concerns.78 Although the Regulation does not specify the conditions under which an authority is competent to investigate and decide a particular case, the soft-law Network Notice provides some guidance on this issue.79 Two main principles underpin the case allocation criteria presented in the Network Notice.80 As a rule, cases should be the responsibility of a single competition authority, and this authority should ideally be that first seized of the matter.81 The allocation criteria for each case seek to identify a ‘well-placed’ authority.82 This is a competition enforcer that exercises jurisdiction over the territory in which the presumptively illegal conduct has substantial effects; is able to address effectively the situation; and can obtain the necessary evidence to prove a breach of the European competition rules, alone or with the assistance of other authorities.83 The Notice also suggests a variety of situations that may be best dealt with by the Commission.84 This is firstly when a suspected infringement affects the state of competition in three or more Member States. Furthermore, it is when the case has close links to other provisions of Community law that may be exclusively or more effectively applied by the Commission, such as Article 86 EC or the Treaty’s state aid provisions. Finally, the Commission is considered well-placed to administer Articles 81 or 82 EC when there is a need to develop European competition policy or when this is indicated for reasons related to the effectiveness of the proceedings.

78 See above, introductory paragraphs of ch 5. In legal terms, they can jeopardise the Internal Market; in economic terms, multiple proceedings mean considerable transaction costs for both the competition authorities and the firms under investigation. This was recognised by Alexander Schaub, then Director-General for Competition: A Schaub, ‘Continued Focus on Reform: Recent Developments in EC Competition Policy’ in B Hawk (ed), International Antitrust Law and Policy: Fordham Corporate Law 2001 (New York, Juris Publishing, 2002) 31, 39. 79 Commission Network Notice (above n 2) [5]–[15]. The Commission was eager to preserve a certain amount of flexibility in the allocation process and would further not accept binding rules to govern the exercise of jurisdiction; it considered that accepting that it would be incompetent to act in certain cases would be incompatible with its power to administer directly the EC competition rules. 80 See Brammer (above n 66) 1387. 81 While several NCAs may deal with a single infringement, it is not possible for an NCA and the Commission to be concurrently involved in the same case, because Art 11(6) Reg 1/2003 stipulates that once the Commission launches proceedings at the Community level, the jurisdiction of the NCAs is preempted until proceedings have come to a close. See further above ch 5, section I-A(v). Concurrent intervention by several NCAs may be appropriate, for instance, to prosecute a regional cartel. In these cases, one NCA will be the lead authority and will ensure close cooperation with the others. 82 Other solutions were advanced during the drafting of Regulation 1/2003 and accompanying instruments. The Bundeskartellamt advanced a test based on the notion of the ‘centre of gravity’ of an infringement, the so-called Schwerpunkttheorie: Bundeskartellamt, Praxis und Perspektiven der dezentralen Anwendung des EG-Wettbewerbsrechts (1998) 19–21. The Commission rejected the centre of gravity test as being too vague and instead put forward the notion of ‘best placed authority’, which was later replaced by the current notion of ‘well-placed’. 83 Commission Network Notice (above n 2) [8]. 84 Ibid [14]–[15].

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Structuring Interaction between the Commission and the National Authorities To be clear, these situations do not constitute rules of jurisdiction, and the Commission is accordingly not required to pursue breaches of the competition rules that would come within one of these categories.85 This is borne out by practice. The Commission’s approach can be captured for instance by Deutsche Post AG v Commission.86 The case concerned a provision of the German postal law that granted Deutsche Post the exclusive right to distribute letters weighing less than 100 grams.87 So too was Deutsche Post the only firm authorised to carry out mail preparation services, including the pre-sorting of mail. Deutsche Post had relied on the legislative provision to offer discounts to bulk mailers that fed self-prepared and pre-sorted mail directly into Deutsche Post’s sorting centres. However, it denied similar financial benefits to commercial firms that engaged in mail preparation services.88 The Bundesverband der Kurier-Express-Postdienste eV, a German association of postal service providers, criticised this behaviour as abusive under Article 82 EC and accordingly complained to the Bundeskartellamt as well as to the Commission. It so happened that the Commission was already investigating the German law for potential incompatibility with Article 86 EC. This latter provision may be applied only by the Commission, and the logic of the Network Notice would accordingly suggest that the Commission should also consider the complaint by the Bundesverband under Article 82 EC. It chose not to agreeing with the Bundeskartellamt that the national authority would conduct the investigation into the alleged abuse behaviour and advising the complainant to withdraw its complaint, which it duly did.89 The logic of the case allocation system suggests that transfers should take place as early as possible. We have seen that Article 11(3) indicates that NCAs are under

85 The Commission generally enjoys discretion in deciding whether to take up a case. It operates a policy of prioritisation and may for instance reject complaints that concern matters that do not enjoy priority: Case T-24/90 Automec srl v Commission [1992] ECR II-2223. However, the Commission cannot exclude certain categories of cases in principle but must carry out a case-by-case assessment to determine whether it wishes to become involved: Case C-119/97P Union française de l’express (Ufex), formerly Syndicat français de l’express international (SFEI), DHL International and Service CRIE v Commission and May Courier [1999] ECR I-1341. See further above ch 4, section I-C. The system of case allocation for the enforcement of Arts 81 and 82 EC thus differs radically from that in place under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the Merger Regulation) [2004] OJ L24/1, which grants exclusive jurisdiction to the Commission for mergers that have a ‘Community dimension’, determined with the help of quantitative criteria. 86 Deutsche Post AG und Bundesrepublik Deutschland (Case COMP/38.745) Commission Decision of 20 October 2004. 87 § 51(1) PostGesetz. 88 It would appear that the legislation did not actually prevent commercial firms from enjoying discounts but that Deutsche Post had made the decision not to offer them. 89 Both the Commission and the Bundeskartellamt decided that the behaviour under investigation breached Community law: Deutsche Post AG und Bundesrepublik Deutschland (Case COMP/ 38.745) Commission Decision of 20 October 2004 (initially appealed to the Community Courts in Joined Cases T-490/04 and T-493/04 Bundesrepublik Deutschland und Deusche Post AG v Commission, but the case has been withdrawn from the register on 7 May 2008) and B9–55/03, decision of 11 February 2005, upheld on appeal by the Oberlandesgericht Düsseldrof in VI-2 KART 14/04, judgment of 23 November 2005 respectively.

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The Network: A European Administration Infrastructure a duty to inform each other of the launch of proceedings and that the Commission is under a similar obligation per Article 11(2). This, it will be remembered, is done by uploading a special Article 11(3) form to the ECN Intranet. Once such a form has entered the intranet, there is an indicative two-month period during which the case may be reallocated or agreement is reached on the modalities of joint action by several NCAs.90 According to the Network Notice, this may be necessary if there are multiple investigations in relation to the same competition violation; if the case appears to be blatantly misallocated; or if the acting authority is incompetent to deal with the matter. Reallocation after the lapse of the two-month period is permissible only if the facts known about a case change materially so as to render another authority clearly better placed to deal with it; or if the Commission decides to relieve an NCA of its competence by launching its own proceedings in respect of the same case.91 The actual transfer of a case comes about by two separate actions. The transferring authority closes its proceedings or rejects the complaint that led it to commence an investigation. Article 13 of the Regulation gives NCAs the express competence to suspend their proceedings or reject a complaint because another competition authority is already investigating (or has decided) the same case.92 The transferee authority then commences its proceedings by adopting a formal investigative measure and may send information already collected by the transferor under Article 12 of the Regulation. No referral decision is accordingly adopted.93 Firms and complainants are informed as soon as possible of the transfer and the identity of the authority that now has responsibility for investigating and deciding the case.94

90 In some cases, the transferor and transferee agree to reallocate a case prior to its entry into the Electronic Case Management System. Here we must think in particular of situations in which the transferor receives a complaint that it immediately perceives can be better dealt with by the transferee. 91 Art 11(6) Reg 1/2003, discussed in detail above ch 5, section I-A(v). 92 ‘Dealing with the case’ means that another authority is actively investigating the case—it is not sufficient that another authority has received a complaint in respect of the same suspected breach of the competition rules: Commission Network Notice (above n 2) [20]. If the Commission rejects a complaint, the Commission Network Notice [35] gives the complainant the right to have this decision judicially reviewed per Art 230(4) EC. The rights of complainants who lodge complaints with an NCA are governed by the relevant national law. Art 13 can also be applied to part of a complaint or part of the proceedings in a case: Commission Network Notice [24]. Note that Art 13 is a discretionary power for the competition authorities: they are under no obligation to suspend or terminate their proceedings. The Network Notice explains in [22] that if a complaint is rejected following a thorough investigation of the alleged infringement, a second authority will rightly be hesitant to commence proceedings in respect of the same case. Yet if the complaint is rejected for other reasons, for instance because the authority lacks the necessary resources to prosecute the breach or collect the evidence, a second authority may wish to take up the matter. On possible negative or positive conflicts of jurisdiction that could come about as a result of this flexibility, see Brammer (above n 66) 402 ff. 93 The ECN could not adopt such decisions because it does not possess autonomous powers. The consequences of this state of affairs for the possibilities for firms to seek judicial redress are considered below in ch 7, section II-B. 94 Commission Network Notice (above n 2) [34].

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Structuring Interaction between the Commission and the National Authorities At the time of writing, few cases have been reallocated. To quote the Commission’s 2006 Report on Competition Policy: The Commission was informed of some 150 new case investigations launched by the NCAs. A small number of complaints were reallocated from the Commission to NCAs that were willing to follow up the matters raised, whereas in a limited number of instances NCAs expressly drew the Commission’s attention to suspected competition problems that appeared to have effects in several Member States.95

The experiences of the German Bundeskartellamt, as recounted by one of its staff, confirm this account: As regards the operation of the case allocation rules in practice, we were quite surprised by our first experiences. At the stage of the discussions that led to the network notice, we were working on the details of the case reallocation procedures and expected that there would be more cases in which we would have to enter into case allocation discussions with other national competition authorities. But in practice, it has turned out that in most situations it is quite clear from the start where the case should be handled; and they stay with the authority that starts the investigation.96

b. Fact-Finding Missions Article 22 of Regulation 1/2003 authorises network members to carry out fact-finding missions on behalf of other authorities. This is to allow each competition enforcer to base its decisions on the most complete information available, including information located outside the geographic area over which it exercises jurisdiction and which it otherwise would not be able to obtain. Whereas NCAs are under a duty to accept requests originating from the Commission, the Regulation provides them with discretion when faced with applications from other national authorities. Whether an NCA will entertain a request by a fellow authority depends on its array of investigative powers, its resources and its prioritisation policy (though not necessarily in that order).97 Fact-finding missions are governed by the laws and regulations in place for the authority that has been requested to conduct the investigation.98 Community law gives DG COMP officials the right to assist NCAs in their inspections. A number of

95

EC, ‘Report on Competition Policy 2006’ COM (2007) 358 final, 32. A Barong, ‘The European Competition Network: What is It and Where It’s Going’ (2005) 4 The AntitrustSource 9. 97 According to Dekeyser and Dalheimer (above n 47) 12, requests between NCAs have thus far never been simply declined. 98 That is to say, national—or Community—law determines the competences the investigating authority can avail itself of and the procedural conditions it must observe when conducting the inspection or other fact-finding measure. Accordingly, when the legality of the information collecting is challenged by a firm, for instance for failure to adequately protect the rights of defence, such claims must be evaluated with reference to the legal regime applicable to the authority that carried out the inspection. 96

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The Network: A European Administration Infrastructure Member States have extended this right to officials from requesting NCAs.99 The information that has been collected is transferred to the requesting authority through the ECN Intranet using an Article 12 form. iii. Processes Exclusive to the Communications Regime Similar to the ECN, the ERG has available two additional types of case-based interaction under the 2002 Electronic Communications Framework: crossborder dispute resolution procedures and transnational market analysis. a. Cross-Border Dispute Resolution In the event of a dispute between firms located in different Member States, the relevant NRAs must work together to resolve the disagreement if they are so requested.100 In particular, the NRAs may exchange information through the ‘member area’ section of the ERG website or the contact network to coordinate an appropriate outcome. As with inter-state dispute resolution, the NRAs may decline to become involved when other mechanisms (such as mediation) exist that would better contribute to the dispute’s resolution.101 If they do take up the matter and resort to binding decisions to terminate the disagreement, then these are exempt from the notification procedure created by Article 7 of the Framework Directive.102 However, we may expect the relevant NRAs to circulate the decisions amongst themselves to ensure that they reflect the agreed outcomes.103 Further, it seems sensible to upload final decisions into the ERG IT application for future reference by other NRAs. The NRAs have not yet had occasion to use this mechanism. 99 For instance, Art L-450–1(II) Code de Commerce states that the French Minister for Economic Affairs may authorise officials from the requesting NCA to accompany the French competition staff when they can be of assistance in ensuring the effectiveness of the investigation. 100 Art 21 Framework Directive. The determination that NRAs are competent is made with reference to the place of establishment of the firms involved. 101 These mechanisms may be tried for a four-month period, after which the NRAs must accede to requests and resolve disputes. They are under no time limit in that event, probably to allow them to coordinate their actions effectively, which might be more or less difficult depending on the (number of) NRAs involved. We may detect a number of differences between the intra- and the inter-state variants. First, Art 21 does not provide that the dispute must be resolved by means of a binding decision nor that such a decision must include a full statement of the reasons on which it is based. Second, as alluded to above, whereas Art 20 lays down a number of deadlines within which the dispute must be resolved, Art 21 does not offer any such timeframe. Third, Art 21 does not explicitly state that decisions of the NRAs will be made available to the public, subject to compliance with rules on business confidentiality. The practical ramifications, if any, of these differences are not yet clear. 102 It is not necessary to resolve the dispute by binding decision; other solutions are also acceptable under Art 21. It almost goes without saying that the obligations imposed by the NRAs must be in accordance with the 2002 Electronic Communications Framework. 103 In the event of one NRA disagreeing with the decision of another NRA, it could, depending on the national rules on locus standi, attempt to challenge that decision before the national court responsible for reviewing decisions by that NRA.

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Structuring Interaction between the Commission and the National Authorities b. Transnational Market Analysis As can be inferred from the nomenclature, transnational market analysis is a variation on the paradigm SMP procedure for markets that cover the whole of the Community or a substantial part of it.104 Following the regulatory comitology procedure, the Commission identifies such markets by decision.105 The NRAs must then jointly undertake the market analysis and decide on the imposition of remedies. Each NRA then adopts a decision implementing the agreed result for the territory over which it exerts jurisdiction.106 The ERG is the forum through which such joint analyses are carried out.107 Precisely which tiers will be involved still has to be determined, because the Commission has yet to adopt its first decision identifying a transnational market. iv. Some Broader Reflections on the Processes It is clear from the previous discussion that the principal means through which a network facilitates cooperation during the course of a single decision-making procedure are the consultation on draft decisions and the exchange of information. In this respect the ECN and the ERG thus share common features. That these two mechanisms occupy centre stage under network-based governance is hardly surprising. The requirement that national authorities circulate their draft decisions and the right to offer comments on the proposed measures of their peers are the main procedural devices to secure consistency in decision-making. As for information exchanges, inter-state cooperation would simply not be possible without them. That the other processes are not shared between the ECN and the ERG could very well be the result of differences in the nature of the relevant legal regime, seen together with the state of the Internal Market for the areas within the network’s purview. The competition regime calls upon NCAs to prosecute infringements that have or could have effects on inter-state trade. As such, a suspected breach of the competition rules must have a cross-border dimension to it for the NCA to be able to investigate and decide that case under the European competition rules. This means that it is likely that more than one authority can 104

Arts 2(b), 15(4) and 16(5) Framework Directive. Art 22(3) Framework Directive, referring to Art 5 Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of implementing powers conferred on the Commission [1999] L184/23 as amended by Council Decision 2006/512/EC of 17 July 2006 [2006] OJ L200/11. Under the regulatory procedure, the Commission may adopt a decision only if it is in accordance with the committee’s opinion. Otherwise, the Commission must submit to the Council a proposal relating to the measures to be taken. Within three months of reception, the Council may make its opposition to the proposal known, in which case the Commission must re-examine it. As distinct from the standard procedure, the Commission thus delineates both the product and the geographic dimension of the market to be analysed. 106 These decisions are subject to national public consultation (Art 6 Framework Directive) and must be notified to the Commission (Art 7 Framework Directive): Art 16(6) Framework Directive. 107 Commission guidelines on market analysis and SMP assessment (above n 73) [122]. 105

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The Network: A European Administration Infrastructure assert jurisdiction over an infringement or that evidence of a competition violation is located outside the geographic remit of the investigating authority. At the same time, the cross-border dimension requires modalities of interaction that produce not only consistent but also efficient outcomes. The processes of case allocation and fact-finding respond to these needs. Conversely, the communications regime requires NRAs to regulate markets that are thus far still predominantly national in geographic dimension. Conflicts of jurisdiction are thus unlikely to come about, and evidence is generally well within reach for a regulating authority—meaning that inter-state efficiency concerns will be less pressing. However, consistency considerations dictate that provision is made for some form of transnational cooperation if and when cross-border elements present themselves—hence the processes of cross-border dispute resolution and transnational market analysis. That neither process has been used to date would seem to reinforce this interpretation of the differences between the two networked regimes. On the assumption that these variations correspond to market developments and institutional factors endogenous to particular legal regimes, they should be interpreted as a sign of the flexibility and dynamic nature of the networks. Network-based governance can be adapted to the peculiarities of the field of law at issue. Ultimately, this means that new processes of case-based interaction should be made available as and when national authorities develop a need for them. In this respect, we could hope to see valuable cross-fertilisation and mutual learning between networked regimes.

B. Framing Enforcement Policy In addition to facilitating case-based interactions, the ECN and the ERG are involved in framing enforcement policy. They do this by selecting priority areas and by adopting soft-law instruments that guide the national authorities in the exercise of their responsibilities. This subsection seeks to cast light on how the networks go about this.108 i. Agenda-Setting Within the ECN, the annual agenda is set during meetings of the directorsgeneral of the NCAs and DG COMP. Within the ERG, this task falls to the Plenary. The ERG also involves market parties in the process, as it includes a 108 For the ECN, consider also the special section on the work of the network in the Commission’s Annual Reports on Competition Policy: EC, ‘Report on Competition Policy 2004’ SEC(2005) 805 final, 53–58; EC, ‘Report on Competition Policy 2005’ SEC (2006)761 final, 69–78; EC, ‘Report on Competition Policy 2006’ COM(2007) 358 final, 32; EC, ‘Report on Competition Policy 2007’ COM(2008) 368 final, 20–21. For the ERG, consider also ERG (06) 03 ‘Independent Regulators Group / European Regulators Group’ [2006].

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Structuring Interaction between the Commission and the National Authorities prospective list of priorities in its annual work programme that is subject to public consultation.109 The consultative document is published on the ERG website, and responses are solicited either through written submissions or through participation in public hearings.110 Consultations are in principle restricted to a single round of comments. The timescale for responses is a minimum of 15 working days in case of a public consultation and a maximum of 20 working days when a public hearing is organised.111 The ERG usually draws up a separate document that summarises the contributions it has received in response to its draft work programme.112 The selection of priorities for the ECN and the ERG is with reference to one or both of the following considerations: whether the field or issue is novel; and/or whether there are material consistency gains to be achieved.113 The national authorities often (at least partially) synchronise their priorities to match those of the network. This is unsurprising. We would expect the national authorities to nominate topics that produce regulatory challenges in their domestic decisionmaking when debating an the agenda for the ECN or ERG. In fact, there will thus already be overlap in priority items as between network members and the network itself at the time of agenda-setting. This approach has clear advantages. It helps boost consistency as the same issues are addressed at the same time across Europe. Case-based interaction between authorities is facilitated, and possible incongruities in decision-making is more easily detected. Market parties may further enjoy higher levels of legal certainty. ii. Guiding Network Members in Decision-Making Three types of network output can be identified. The first, benchmarks, present comprehensive overviews of the regulatory performances of the national authorities and identify best practices or performance indicators. Network members are encouraged to use these benchmark standards to assess and, when necessary, 109 The scope and procedure for consultation are fleshed out by a number of ERG documents: ERG(03)05 rev1 ‘ERG and Transparency in Practice’ [2003] in particular point 1.A; ERG(03)07 ‘Rules of Procedure for ERG’ [2003] in particular Arts 5.1, 9.2 and 9.4; and ERG(06)03 ‘A Guide to Who We Are and What We Do’ [2006]. 110 Written submissions should be addressed to the ERG Secretariat, preferably by email. 111 If a public hearing is organised, it must be held no later than 12 working days after the start of the consultation procedure and conclude within 20 working days. Public hearings take place in Brussels. The timescale and procedure applicable in any one instance is made available on the ERG website. 112 Eg, ERG (07)65rev2b ‘Summary of the Stakeholders’ Comments on IRG/ERG Draft Work Programme 2008’ [2007]. 113 Whether a field or issue is novel is determined from the perspective of the competition or the communications regime. Think for instance of the application of the competition rules to areas previously sheltered, such as energy. A key policy area that is currently addressed within the ECN is the ability of NCAs, in their application of Arts 81 and 82 EC, to disapply anti-competitive state measures, following the ruling in Case C-198/01 Consorzio Industrie Fiammiferi (CIF) and Autorità Garanta della Concorrenza e del Mercato [2003] ECR I-8055: EC, ‘Report on Competition Policy 2007’ COM(2008)368 final, 16 June 2008, 21.

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The Network: A European Administration Infrastructure improve their own decision-making practices. Benchmarking is done formally as well as informally. The lowest tiers of a network (working groups, sectoral subgroups, project teams) regularly exchange sectoral knowledge and experiences. Such exchanges can constitute the raw material for official Overviews in the case of the ECN114 or Principles of Implementation and Best Practice or Reports in the case of the ERG.115 Harmonisation instruments are the second type of network output. They reflect the members’ combined position on the proper methods to apply and enforce the relevant European rules. The ECN has, at the time of writing, adopted only one such document, the Model Leniency Programme.116 Yet, its working groups and sectoral subgroups frequently agree on ‘common approaches’ or ‘mutual understandings’ on a more informal basis. The ERG’s official texts, so-called Common Positions, are rather more numerous. Their nature and scope are wide. Whereas some Common Positions are theoretical and address topics relevant for the entire communications field, others are exceedingly practical and focus on the correct approach to a particular market or the best way to apply a certain regulatory remedy.117 The third type of output, Commission advice, is the network’s contribution to law-making at the European level. For the ECN, this is done through discussions

114 For instance, the ECN Working Group on Cooperation Issues is in charge of drawing up periodically updated reports on the degree to which there is voluntary approximation between national competition statutes and the rules laid down in Reg 1/2003: ECN, ‘Results of the Questionnaire on the Reform of Member States (MS) National Competition Laws after EC Regulation No 1/2003’ [2008]. Matters in respect of which such convergence has been observed include the abolition of a notification system for agreements; the power to impose structural remedies; the power to seal business premises, books and records; the power to inspect non-business undertakings; and the power to offer informal guidance to firms. 115 Examples are ERG(05)23 ‘Broadband Market Competition Report’ [2005]; ERG(05)51 ‘Report on Experiences with Market Definition, Market Analysis and Applied Remedies’ [2005]; ERG (07)09 ‘Final Report on IP Interconnection’ [2007]; and ERG(07)53 ‘Report on ERG Best Practices on Regulatory Regimes in Wholesale Unbundled Access and Bitstream Access’ [2007]. 116 Http://ec.europa.eu/comm/competition/ecn/model_leniency_en.pdf; and MEMO/06/356 ‘Competition: The European Competition Network Launches a Model Leniency Programme: Frequently Asked Questions’, 29 September 2006. The ECN is currently working on the soft harmonisation of fining policy and on how to ensure that the ne bis in idem principle is observed when fines are imposed by network members. Indeed, two Commission officials involved in ECN matters have, writing in their personal capacity, that ‘the working methods behind the ECN Model Programme might serve as inspiration for other cooperation projects within the ECN’: K Dekeyser and M Jaspers, ‘A New Era of ECN Cooperation: Achievements and Challenges with a Special Focus on Work in the Leniency Field’ (2007) 30 World Competition 3, 23. For more on the Model Leniency Programme, see below, textbox entitled ‘The ECN Model Leniency Programme and the ERG Common Position on Remedies’. 117 The best example of the first type of common position is ERG(03)30 ‘The Approach to Appropriate Remedies in the New Regulatory Framework’ [2003], now replaced by ERG(06)33 ‘Revised ERG Common Position on the Approach to Appropriate Remedies in the ECNS Regulatory Framework’ [2006]. Examples of the second type of common position include ERG(07)83 ‘Symmetry of Fixed Call Termination Rates and Symmetry of Mobile Call Termination Rates’ [2007] and ERG(07)54 ‘ERG Common Position on Best Practice in Remedies Imposed as a Consequence of a Position of Significant Market Power in the Relevant Markets for Wholesale Leased Lines’ [2007].

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Structuring Interaction between the Commission and the National Authorities between the NCAs and DG COMP officials in the Plenary.118 Since the ERG’s mandate explicitly foresees an advisory function, it must adopt official Opinions, which state the Group’s view on Commission initiatives.119 There is considerable interaction between the various types of network output. Thus, benchmarks—informal exchanges included—are translated into harmonisation instruments or used as a basis for Commission policy initiatives. The converse also happens. Harmonisation instruments may be supplemented by benchmarks that flesh out their general principles and thereby offer valuable assistance in their practical application. So too are there synergies between network instruments and Commission documents. For instance, the Commission wished to review and update its 1998 recommendation on accounting separation and requested an ERG Opinion.120 This was duly delivered121 and used as the basis for the Commission’s new 2005 recommendation.122 The ERG subsequently adopted a Common Position on accounting separation as an implementation aid for the national authorities.123 In the case of the ECN, we can point to the example of leniency policy. Following the promulgation of the ECN Model Leniency Policy,124 the Commission amended its own leniency programme to reflect the contents of the network document.125 It did this in

118 Policy proposals that have been discussed in this setting include EC, ‘Damages Actions for Breach of the EC Antitrust Rules’ (Green Paper) COM(2005) 627 final, 19 December 2005; and EC, ‘The Application of Article 82 of the Treaty to Exclusionary Abuses’ (DG COMP Discussion Paper), December 2005. 119 Advice is in practice given in other ways as well. For instance, when the ERG became aware that the Commission intended to publish a recommendation on leased lines, it provided the Commission with a document setting out the experiences of the NRAs to date. The Commission incorporated these data as benchmarks in its two leased lines recommendations: Commission Recommendation of 21 January 2005 on the provision of leased lines in the European Union Part 1: Major supply conditions for wholesale leased lines C(2005)103/1 final; and Commission Recommendation of 29 March 2005 on the provision of leased lines in the European Union Part 2: Pricing aspects of wholesale leased lines part circuits C(2005)951/2 final. 120 Commission Recommendation (EC) of 8 April 1998 on interconnection in a liberalised telecommunications market (Part 2: Accounting separation and cost accounting) [1998] OJ L141/6. 121 ERG (04) 15rev 1 ‘ERG Opinion on Proposed Changes to Commission Recommendation of 1998 on Accounting Separation and Cost Accounting’ [2004]. 122 Commission Recommendation (EC) 2005/698 of 19 September 2005 on accounting separation and cost accounting systems under the regulatory framework for electronic communications [2005] OJ L266/64. 123 ERG (05)29 ‘ERG Common Position: Guidelines for Implementing the Commission Recommendation C (2005) 3480 on Accounting Separation and Cost Accounting Systems under the Regulatory Framework for Electronic Communications’ [2005]. 124 Above n 116. 125 Commission Notice (EC) on Immunity from fines and reduction of fines in cartel cases [2006] OJ C298/17; IP/06/1288 ‘Competition: Commission and Other ECN Members Cooperate in Use of Leniency to Fight Cross-Border Cartels’, 29 September 2006; IP/06/1705 ‘Competition: Commission Adopts Revised Leniency Notice to Reward Companies that Report Cartels’, 7 December 2006; G Cauer and M Jaspers, ‘The European Competition Network Achievements and Challenges: A Case in Point: Leniency’ (2006) 1 Competition Policy Newsletter 8; S Suurnäkki and M Tierno Centella, ‘Commission Adopts Revised Leniency Notice to Reward Companies that Report Hardcore Cartels’ (2007) 1 Competition Policy Newsletter 7.

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The Network: A European Administration Infrastructure observance of the commitment, undertaken by all network members, to ‘using their best effort’ to ensure such alignment. Network instruments normally emanate from the lower parts of the institutional hierarchy, upwards towards to the directors-general (ECN) or the plenary (ERG) for enactment. Once an agenda is set, a working group or project team is entrusted with the necessary preparations. This may be an existing group or team, but if the item does not fit within the mandate of the bodies already in place, a new one is created. The working group or project team collects information and prepares a draft. This is then submitted to the directors-general or the plenary. Adoption is by consensus. In exceptional cases, when there is a real need for a common perspective but consensus proves unattainable, the ERG rules of procedure allow for acts to be made by two-thirds majority.126 Dissenting opinions are included in annexes to the final text. Since the ECN and the ERG lack legal personality, their output falls within the realm of soft law. That said, network instruments—harmonisation instruments and benchmarks in particular—are extremely influential. The ECN Model Leniency Programme incorporates the following statement: ‘The ECN members commit to using their best efforts, within the limits of their competence, to align their respective programmes with the ECN Model Programme’.127 The ERG’s rules of procedure are even more demanding: The positions or opinions of the Group shall not be binding on its members, but members shall take the utmost account of such positions or opinions. Where national circumstances prevent individual members from applying one of those positions or opinions, their reasoning for not following that position or opinion shall be published. Otherwise, parties to a collective position or opinion would be expected to take all appropriate steps to abide by that position or opinion, except in circumstances which could not be foreseen at the time when the position or opinion was agreed.128

This creates normative commitments in relation to the other authorities to respect this commitment. Failure to do so may be costly in terms of reputation because fellow network members could ‘punish’ maverick authorities by ignoring their views or denying them prestigious positions within the network structure— notably chairmanship of working groups or project teams. The ERG proposes to monitor compliance with its soft-law instruments through a combination of self assessment by NRAs and a quality assurance check by a project team drawn from the other authorities.129 The adoption process also fosters a sense of ownership of 126 Art 4(1)–(3) ERG (03)07 ‘Rules of Procedure for ERG’ [2003]. Also, if an urgent matter arises between plenary meetings, the chair may seek agreement to a document by electronic procedure. He or she must set the timescale for comments and indicate clearly the consequences of failing to respond within the time-limit. 127 Above n 116, 2. 128 ERG Rules of Procedure (above n 126) Art 4(4). Confirmed in ERG (06)52 ‘ERG 18th Plenary Meeting, Madeira: Conclusions’ [2006]. 129 ERG Letter to Commissioner Reding, 27 February 2007, Annex I, available at the ERG website and ERG(08)19 ‘ERG Timetable for Monitoring of Conformity with ERG Common Positions’ [2008],

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Structuring Interaction between the Commission and the National Authorities final documents, making it very likely that their contents are indeed applied.130 Network documents further meet a clear need on the part of the national authorities. The legal rules that they must administer are both broadly phrased and fairly technical. Guidance on their proper application is accordingly welcomed, because it helps to reduce search costs as well as the risk of type-I or type-II errors in decision-making. National courts can be expected to show a certain amount of deference towards network documents. This because they might not possess the specialised expertise to pass judgement on these texts.131 In addition, they may believe that respect is due for instruments agreed upon by representatives of all the national authorities—and the Commission, in the case of ECN documents. The ECN Model Leniency Programme and the ERG Common Position on Remedies It is interesting to explore the formative processes of ECN and ERG instruments. The focus of what follows will therefore be on how the networks went about the adoption of their two most important documents: the ECN Model Leniency Programme and the ERG Common Position on Remedies. Recall that Regulation 1/2003 does not harmonise the various leniency programmes of the NCAs and the Commission. This meant multiple filings by firms with all the authorities that potentially had jurisdiction, contradictory obligations under these various programmes and burdensome procedures. At a meeting of the ECN directors-general that took place shortly after the entry into force of the Regulation, it was decided to create a leniency working group, co-chaired by the UK’s Office of Fair Trading and the French Conseil de la Concurrence.i This group assessed the seriousness of the situation and identified key problem areas, duly delivering its findings to the ECN plenary, who agreed that the status quo was in serious need of improvement. By early 2005, an expert group was formed, made up of NCA and DG COMP officials, to draw up a proposal for a model leniency programme. The experts discharged their mandate speedily, and a draft was placed before the directors-general within a year. Following further discussions at that level, the Model Leniency Programme was unanimously endorsed by the ECN members on 29 September 2006.

covering two types of activity: a monitoring exercise conducted to establish the degree of conformity of national regulatory regimes with the relevant Common position and an action plan that seeks to identify individual NRA plans to bring national regulation into line with the relevant Common Position. As for the timing of the monitoring exercise, the ERG engages in this once the majority of NRAs have completed their market reviews. 130 Due to the well informed rule-making process, the output is also generally accepted as realistically attainable. 131 On the expertise of national courts in more detail, see above ch 3, section IV-A and ch 5, section I-B.

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The Network: A European Administration Infrastructure

The Programme aims to trigger a soft convergence of leniency programmes across Europe and facilitate the adoption of such programmes by the few NCAs that do not yet operate one.ii It includes the principal elements that are considered essential for any leniency programme, such as the type of information the applicant must provide and the evidentiary threshold that must be crossed before leniency may be granted.iii It further provides a complete set of ‘termination and cooperation duties’ for applicant firms and streamlines the procedure for processing leniency applications.iv The Programme also introduces a uniform summary application system for potential competition violations in respect of which the case allocation criteria indicate that the Commission is particularly well-placed to take up the case. NCAs may agree to receive only a short description of cartels that have been duly reported to the Commission.v Upon receipt, an NCA confirms that the applicant is the first to file with it and commits to protect the applicant’s place in the queue. While a summary application does not as such lead to immunity for the applicant, it may do so in the future. Should the Commission decline to pursue the alleged infringement and leaves it to one of the NCAs with whom the applicant has filed a summary application, then this NCA will grant the applicant time to complete its application. We have seen that all network members undertook ‘to using their best effort’ to align their national programmes with the ECN model. The Commission did so by adopting draft amendments to its own leniency programme on the day that the ECN version was launched.vi Under the electronic communications framework, the Commission’s Recommendation on relevant marketsvii and its Guidelines on market analysis and SMP assessmentviii map out how NRAs should exercise their discretion in relation to the first two steps of the SMP procedure. In contrast, the law does not provide for Commission notices regarding the imposition of remedies. The central position that the SMP regime occupies in the mandate of the NRAs prompted the ERG to prioritise the crafting of a guide on remedies. It accordingly set up a project team to study the matter and invited the Commission to participate in the process. The project team began its work by organising a public consultation. Nearly 30 interested parties replied. Their opinions were duly considered in formulating the actual proposal. The proposed text was placed before the ERG plenary in November 2003, where it was endorsed jointly by the ERG and the Commission as a draft common position. Following a second round of public consultations, the final text was adopted as ERG(03)30 at the London plenary meeting in April 2004. A revision process was initiated in November 2005 to reflect the practical experiences of the NRAs in the application of the SMP regime and sought to address new market developments. The ERG plenary approved the current version of the Common Position on Remedies in May 2006.ix The Common Position analyses remedies issues at a general level and is structured to follow the logic of the remedy selection process. It first identifies and categorises the standard competition problems that obtain in the communications sector and lists the catalogue of available standard remedies. This is followed by a set of overarching principles that the NRAs should adhere to in selecting appropriate remedies. Finally, the standard competition problems are matched to the available remedies. The NRAs have agreed to take the utmost account of ERG common positions. ————————————

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Structuring Interaction between the Commission and the National Authorities

i At around the same time, the Commissioner for competition had called for reflections on the possibility of setting up a one-stop-shop system for leniency applications: SPEECH/05/73 ‘Effective Competition Policy: A Key Tool for Delivering the Lisbon Strategy’, 3 February 2005; SPEECH/05/78 ‘Building a Competitive Europe: Competition Policy and the Re-launch of the Lisbon Strategy’, 7 February 2005. Importantly, she made it clear that reflections on a one-stop-shop should ‘take full account of the specific needs of those who will eventually have to operate it. This means that rather than limiting ourselves to centralising solutions, we have to look at the options for a one-stop leniency which fully exploit the dimensions of the network’: SPEECH/05/205 ‘The First Hundred Days’, 7 April 2005, 5. ii The one-stop-shop system introduced by the ECN Model Programme thus differs from that in place under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the Merger Regulation) [2004] OJ L24/1, under which a firm only needs to file a single application, which would have EC-wide effect. Rather, the one-stop-shop principle is conceived as a system in which the contents of the various national and European leniency programmes are the same , and an applicant can thus expect the same treatment in any ECN jurisdiction. iii Leniency applicants must inform the competition authority of the names of the other parties to the cartel, furnish a detailed description of the cartel (eg, the product and territories affected by it, its duration and nature) and corroborating evidence of its existence, as well as information on any past or possible future leniency applications to other competition authorities, inside or outside the EC. To be granted immunity from fines, the evidence provided must enable the recipient ECN member to carry out targeted inspections in relation to the cartel. A firm may qualify for a reduction in fines if it provides the authority with evidence of the cartel that, according to the authority, has significant added value relative to the evidence already in its possession at the time it receives the leniency application. Firms that have coerced others to participate in the cartel cannot qualify for immunity. iv In terms of termination and cooperation duties, for instance, an applicant firm may not destroy, falsify or conceal information for the entire period that it is contemplating to submit a leniency application. Furthermore, a firm must in principle immediately end its involvement in the cartel once an application has been made, except when the competition authority considers that continued participation is reasonably necessary to preserve the integrity of its inspections. Before submitting an official application, a prospective leniency applicant may anonymously approach a competition authority to obtain informal guidance on the application of the leniency programme. ECN members may also allow firms to apply for a ‘marker’, which protects the applicant’s place in the queue for a certain period of time to allow it to gather the necessary information to meet the evidentiary threshold for immunity. v At the time of writing, summary applications are accepted by the NCAs in the Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, the Netherlands, Portugal, Slovakia, Sweden and the United Kingdom. vi Culminating in Commission Notice (EC) on Immunity from fines and reduction of fines in cartel cases [2006] OJ C298/17. See also the references above n 125. vii Commission Recommendation of 11 February 2003 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services [2003] OJ L114/45, now replaced by Commission Recommendation of 17 December 2007 [2007] OJ L344/65. viii [2002] OJ C165/6. ix ERG(06)33 ‘Revised ERG Common Position on the Approach to Appropriate Remedies in the ECNS Regulatory Framework’ [2006].

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The Network: A European Administration Infrastructure III. THE NETWORK EFFECT: EUROPEANISING NATIONAL AUTHORITIES

We must complement our understanding of the functioning of networks by considering their effect on the position of the national authorities within their domestic settings. The essential argument can be put quite briefly. Just as national courts act as Community courts of general jurisdiction when applying European law, so too the networks transform national authorities into Community authorities when they administer EC rules.132 National authorities are no longer part of only the national administrative hierarchy, applying only home-grown approaches. They have become agents in the enforcement of European law and part of a broader Community administration. The authorities execute their mandate with a keen awareness of and attention to the wider European context. Their outlook is Europeanised.133 This network effect seems to arise as a result of a number of different processes, linked by strong synergies. First, the cooperation and coordination duties in Regulation 1/2003 and the 2002 Electronic Communications Framework make network members dependent on each other for resources such as information, advice, legitimacy and authority (formal and informal).134 Their peers exert normative influence on an authority’s national decision-making process, and each authority has to account for at least some of its actions to the other authorities—most notably through mandatory consultation on draft decisions. Network members can further offer factual and legal input not available in their own jurisdictions. The successful exercise of an authority’s mandate may thus require it to strengthen ties with other network members. Resource dependency is reinforced by reputational enforcement. Low levels of performance or reliability on the part of an authority will result in a loss of respect in the eyes of other network members. It may very well compromise their incentive to provide assistance in future cases. Recall here that most horizontal relationships are designed as discretionary, meaning that national authorities are under no obligation to, say, provide others with information or carry out fact-finding missions on their behalf. Ultimately, a maverick authority could face

132 On the position of national courts, see M Claes, The National Courts’ Mandate in the European Constitution, Modern Studies in European Law (Oxford, Hart Publishing, 2006). For an example specific to the competition regime, see Case T-51/89 Tetra Pak Rausing SA v Commission [1990] ECR II-309 [42]. 133 Following C Carter and A Scott, ‘Legitimacy and Governance beyond the European Nation State: Conceptualizing Governance in the European Union’ (1998) 4 European Law Journal 429, 437 we conceptualise the process of Europeanisation as ‘involving changes in domestic governance arising from the economic and political imperatives of EU membership, and impacting upon both procedural and substantive aspects of domestic politics and policies’. 134 For more general literature on the theory of resource dependency in the context of networks, consider, eg, B Marin and R Mayntz (eds), Policy Network: Empirical Evidence and Theoretical Considerations (Frankfurt am Main, Campus Verlag, 1991); and A Héritier (ed), Policy-Analyse. Kritik und Neuorientierung (Wiesbaden, Westdeutscher Verlag, 1993).

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The Network Effect: Europeanising National Authorities exclusion from the realms of influence. Since network-based governance is premised on repeated interactions, reputational enforcement is a credible threat.135 Borrowing political science parlance, the Europeanisation of national authorities is also helped by the cultivation of a shared ‘logic of appropriateness’.136 Through repeated interactions, related to individual cases as well as more general issues, network members will come to hold a common set of beliefs, values and assumptions. They will make use of the same evaluation techniques and analytical tools. For example, the competition authorities all believe in the importance of competition for a well-functioning economy, that perfect competition is unattainable and that market shares are an important indicator of the presence of market power. Conversely, they do not consider the employment practices or environment-consciousness of firms as relevant in making such determinations. The network members thus form an epistemic community—their legal mentalities are approximated.137 This constitutes a powerful foundation for resource dependency and personal relations between the authorities.138 Trust-building is another relevant process. We saw in chapters 1 and 5 that absent transnational relationships, national authorities suffer from severe information asymmetries regarding each other’s rigour in law enforcement. Each 135 Scott conceives of reputational enforcement or peer pressure as an effective mechanism of inter-authority accountability: C Scott, ‘Accountability in the Regulatory State’ (2000) 27 Journal of Law and Society 38. See also A Héritier, ‘Policy-Making by Subterfuge: Interest Accommodation, Innovation and Substitute Democratic Legitimation in Europe: Perspectives from Distinctive Policy Areas’ (1997) 4 Journal of European Public Policy 171; A Héritier, ‘Elements of Democratic Legitimation in Europe: An Alternative Perspective’ (1999) 6 Journal of European Public Policy 269; W Kickert, ‘Complexity, Governance and Dynamics: Conceptual Explorations of Network Management’ in J Kooiman (ed), Modern Governance: New Government–Society Interactions (London, Sage, 1993). For opinions against this, see C Harlow and R Rawlings, ‘Promoting Accountability in Multilevel Governance: A Network Approach’ (2007) 13 European Law Journal 542, 545. This state of affairs can be expressed in principal-agent parlance as involving ‘double delegation’: national authorities have two principals. They are vertically responsible to national politicians and stakeholders, and they are horizontally responsible to their peers in other Member States. See D Coen and M Thatcher, ‘Network Governance and Multi-Level Delegation: European Networks of Regulatory Agencies’ (2008) 28 Journal of Public Policy 49. 136 J Marsh and J Olson, ‘The Institutional Dynamics of International Political Orders’ (1998) 52 International Organization 943, cited by S Wilks, ‘Understanding Competition Policy Networks in Europe: A Political Science Perspective’ in Ehlermann and Atanasiu (eds) (above n 48) 77. 137 The term is generally associated with Peter Haas: P Haas, ‘Epistemic Communities and International Policy Coordination’ (1992) 46 International Organization 1. The use of the notion ‘epistemic community’ has a long history in competition enforcement. See Wilks (ibid); F van Waarden and M Drahos, ‘Courts and (Epistemic) Communities in the Convergence of Competition Policies’ (2002) 9 Journal of European Public Policy 913. See also S Wilks, ‘The European Competition Network: What Has Changed?’ forthcoming, who writes that ‘Dieter Wolf, when head of the Bundeskartellamt, liked to refer to the European agencies as members of “the cartel family”.’ 138 See also F Snyder, ‘The Effectiveness of European Community Law: Institutions, Processes, Tools and Techniques’ (1993) 56 Modern Law Review 19, 26, who states that ‘it is essential to take account of the priorities, structures, incentives and ideologies of national administrations, in short, bureaucratic politics as a factor in achieving effectiveness’. See also V Schmidt and C Radaelli, ‘Policy Change and Discourse in Europe: Conceptual and Methodological Issues’ (2004) 27 West European Politics 183.

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The Network: A European Administration Infrastructure authority thus tends to adopt solutions favourable to national interests and industries, and each authority recognises that this incentive is shared by the others.139 Further, the risk of castigation by the Commission for misbehaving authorities per Article 226 EC is relatively remote due to the limited resources available for monitoring and prosecuting breaches of the European rules. As a result, we observe low levels of confidence between national authorities and defective enforcement of EC law. The network radically changes these dynamics. It creates information supplies regarding the intentions, strategies and behaviour of national authorities at all stages of the enforcement process. Helped by the existence of the epistemic community, each authority can now monitor the work of the others and knows that its own behaviour is controlled in the same way. It now has a stronger incentive to pursue European interests and reflect European concerns in its decision-making. This incentive is moreover buttressed by the relationships forged between the authorities through resource dependency and reputational enforcement. With mounting evidence confirming that the others indeed behave as they ought, each national authority grows to trust its peers and may in turn be expected to strengthen its own commitment to enforcement practices that conform to EC rules. Finally, the continuous interactions, the existence of an epistemic community and high levels of confidence between national authorities support the forging of personalised relationships between officials. Here we can think of staff exchanges, courtesy visits and email asking professional questions or advice outside the formal legal processes.140 Such personal contacts in turn strengthen the epistemic community and generate further trust as they breed familiarity and mutual respect. Likewise, they may raise resource dependency between authorities and make reputational enforcement more effective. We note that two elements are influential, if not decisive, for these symbiotic processes to materialise. The first, the hard-law cooperation and coordination duties, force each national authority to establish working relationships with the others. The second, considerable homogeneity in regulatory environments, encourages each authority to discover familiar traits in the others and hence rationalise its relationships with them—it will want to make these work. In sum, we can say that the network effect amounts to a normative political ecosystem supported by a strong legal framework. It is suggested here that the consequences of national authorities behaving as Community actors when enforcing Community law may be profound. From an

139 This may be explained in terms of game theory, more particularly with reference to the prisoners’ dilemma: D Begg et al, ‘Making Sense of Subsidiarity: How Much Centralization for Europe?’ [1993] CEPR Report; K Gatsios and P Seabright, ‘Regulation in the European Community’ (1989) 5 Oxford Review of Economic Policy 37; R Baldwin and M Cave, Understanding Regulation: Theory, Strategy and Practice (Oxford, Oxford University Press, 1999) 177 ff; N Mankiw and M Taylor, Economics (London, Thomson, 2006) 329–36. This argument is explored in more detail below in ch 7, section IV-A. 140 For instance, staff from NCAs is regularly seconded to DG COMP for two or three months.

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The Network Effect: Europeanising National Authorities institutional perspective, it may be necessary to identify a new dimension to Article 10 EC. That is, a duty on national authorities to look beyond frontiers in decision-making. They should actively consider the output, practices and perspectives of their fellow authorities in their own decision-making.141 As such, this duty to look beyond frontiers builds upon and reinforces the effectiveness of horizontal interactions through the network.142 It adds further clout to the normative network effect. A new dimension to Article 10 is furthermore in keeping with the Article’s purpose and usage. Created as a general effectiveness principle, the Article invokes within actors who are involved in the administration of EC law loyalty towards the EC’s objectives and thus encourages them to conduct themselves in a manner that best allows those objectives to be achieved. .143 Still, Article 10 is parasitical in that it cannot create obligations by itself but can only build upon and reinforce existing rules of Community law. In line with its wording, the Court of Justice first invoked Article 10 to flesh out the duties of the Member States vis-à-vis the Community.144 Later case law recognised that this vertical dimension was reciprocal in nature and that Community institutions should assist or cooperate with the Member States if this was necessary for the effectiveness of EC law.145 More recently still, the Court held that Article 10 also governs

141 Gerber is also in favour of such a development, albeit not justified with reference to Art 10 EC: D Gerber, ‘The Evolution of a European Competition Law Network’ in Ehlermann and Atanasiu (eds) (above n 48) 62. 142 On the duty of national actors to work together if to do so would facilitate the exercise of their responsibilities under EC law, see, eg, J Temple Lang, ‘The Duties of National Authorities under Community Constitutional Law’ (1998) 23 European Law Review 109; and J Temple Lang ‘The Duties of Cooperation of National Authorities and Courts under Article 10 EC: Two More Reflections’ (2001) 26 European Law Review 84, 89. Arguing that national authorities should read, as far as feasible, the horizontal cooperative mechanism found in Regulation 1/2003 as mandatory rather than voluntary in nature per Art 10 EC, see: Dekeyser and de Smijter (above n 50) 164–65; and W Wils, ‘Powers of Investigation and Procedural Rights and Guarantees in EU Antitrust Enforcement: The Interplay between European and National Legislation and Case Law’ (2006) 29 World Competition 3, 14. 143 Case 68/88 Commission v Hellenic Republic [1989] ECR 2965 [23]. 144 The Court used Art 10 EC inter alia for the development of a number of famous doctrines of European law, such as the direct effect of directives (Case 190/87 Oberkreisdirektor des Kreises, Borken and Vertreter des öffentlichen Interesses beim Oberverwaltunsgericht für das Land Nordrhein-Westfalen v Handeslonderneming Moormann BV [1988] ECR 4689—while the doctrine itself was already recognised in 1979, it was only in Moorman that the Court grounded it explicitly on Art 10 EC) and Member State liability (Joined Cases C-6 and 9/90 Francovich and Bonifaci v Italy [1991] ECR I-5357 [36]; Cases C-46/93 and C-48/93 Brasserie du Pêcheur SA v Germany and R v Secretary of State for Transport, ex p Factortame Ltd and others [1996] ECR I-1029 [20]). 145 Case 230/81 Luxembourg v European Parliament [1983] ECR 255; Case C-56/90 Commission v United Kingdom [1993] ECR I-4109; Case 2/88 Zwartveld [1990] ECR 3365; Case C-234/89 Delimitis [1991] ECR I-935. See also K Mortelmans, ‘The Principle of Loyalty to the Community (Article 5 EC) and the Obligations of the Community Institutions’ (1998) 5 Maastricht Journal of European and Comparative Law 67.

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The Network: A European Administration Infrastructure relationships between the Community institutions.146 With network-based governance, the legal regimes attend to relationships between Member State authorities, and it would appear only proper for Article 10 to do the same.147 Adopting a procedural perspective, we could expect the network effect to produce a further approximation in the regulatory environment and endowments of national authorities. Take their powers and procedures.148 As a result of intra-network contacts, authorities will be able to evaluate how their procedural regime contributes to the effective exercise of their mandate. When this benchmarking reveals that other network members are endowed with more suitable powers or operate more suitable procedures, the first authority will attempt to converge towards that benchmark as increased effectiveness in the administration of the Community rules should translate into increased status within the network. This will be considered valuable due to the network effect just discussed. Taken to its logical extreme, we should ultimately see ‘a race to the top’ whereby each national authority engages in procedural innovation, setting ever more efficient benchmarks.149 Independence offers another illustration of this point. Suppose that there are only two authorities, A and B. In the absence of any links between A and B, we may expect a fair number of A’s decisions to be influenced by national (political or economic) considerations. This is because A will be dependent on its government and/or the market for resources such as information, advice, legitimacy and authority. Further, the immediacy of the gains of acceptance and reputation within A’s national context outweigh the far more distant and uncertain costs of non-acceptance or punishment by B. Now suppose that A and B are both members of a transnational network and under a duty to cooperate with each other. This will quite likely induce A to adopt decisions that pursue the European interest independent of national considerations. First, resource dependency on the national government and the market is largely replaced by resource dependency on B through these cooperation duties. Secondly, if A were to adopt non-independent decisions, these would be detected by B, who could then apply

146 Case C-284/90 Council v European Parliament [1992] ECR I-2277; Case 204/86 Hellenic Republic v Council [1988] ECR 5323; Case 272/80 Criminal Proceedings against Frans-Nederlandse Maatschappij voor Biologische Producten BV [1981] ECR 3277. See also Treaty of Nice Declaration on Article 10 of the Treaty establishing the European Community; Art 13(2) TEU as amended by the Lisbon Treaty (‘The institutions shall practice mutual sincere cooperation’). 147 For a somewhat similar argument in a constitutional setting, see A Menon and S Weatherill, ‘Legitimacy, Accountability, and Delegation in the European Union’ in A Arnull and D Wincott (eds), Accountability and Legitimacy in the European Union (Oxford, Oxford University Press, 2002) 120 ff. 148 See also Dekeyser and Jaspers (above n 116) 11 and 12, who speak of a ‘healthy imitation process’ within the ECN. 149 Of course, the actual materialisation of this process requires that national legal systems and governments support these initiatives. More generally on the capacity of the network to facilitate regulatory competition, see below ch 7, section IV-A.

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Conclusion reputational enforcement sanctions against A. We may thus say that network membership creates powerful incentives for a high degree of independence in decision-making.150 From a substantive perspective, there is scope for a truly European competition law and communications law with feedback and cross-fertilisation. We saw that the network has a role to play in framing enforcement policy to guide national authorities in the administration of the relevant European rules. It is inherent in the exercise of this task that national authorities adopt a Europeanised perspective because consensus to adopt network instruments will not otherwise be attainable. Through network documents, national institutions, their concerns and interests become part of European policies.151 Based on practical experience in administering EC law, these documents offer vital feedback to the Community level on how to adapt and improve those rules.152 They allow for crossfertilisation between national laws and European law. As network output is more attuned to European interests, the Community institutions, and the Commission in particular, may be expected to consider it with more attention during their lawmaking activities. The outcome of formal law-making processes could in turn be further fleshed out by network documents. Under network-based governance, normative authority would thus flow upwards as well as downwards.

IV. CONCLUSION

By their very nature, networks facilitate the flow of information. The extremely complex networks in place for administering EC competition and EC communications law also manage the flow and the interpretation of that information. The ECN and the ERG provide a European administrative infrastructure by linking the national authorities and the Commission on a lasting basis. The networks are involved in and facilitate two broad types of interaction between

150 See G Majone, Regulating Europe (London, Routledge, 1996) ch 12, who arrives at a similar conclusion, albeit from a different premise. His starting point is the ‘commitment problem’ of national governments towards regulatory policies and the credibility of national agencies to address this problem. Majone argues that the credibility of these agencies and their commitment to regulatory policies can be strengthened through teamwork. For doubts that networks have the ability to enhance the independence of national authorities, see Coen and Thatcher (above n 135). More generally on how national authorities may perceive the creation of networks using a political science perspective, see: D Coen and C Doyle, ‘Designing Economic Regulatory Institutions for the European Network Industries’ (2000) 9 Current Politics and Economics of Europe 455; D Coen and A Héritier (eds), Redefining Regulatory Regimes: Utilities in Europe (Cheltenham, Edward Elgar, 2005); M Thatcher, ‘Analysing Regulatory Reform in Europe’ (2002) 8 Journal of European Public Policy 859; and M Thatcher, ‘Delegation to Independent Regulatory Authorities’ (2002) 25 West European Politics 125. 151 See Gerber (above n 141). 152 A similar argument is made by Wilks, ‘Understanding Competition Policy Networks’ (above n 136).

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The Network: A European Administration Infrastructure these actors. Case-based interactions take place through dedicated IT applications. Whereas the mechanisms of consultation on draft decisions and information exchange are common to both the ECN and the ERG, other processes are exclusive to one regime depending on the requirements of the legal rules to be administered. Through face-to-face meetings at different levels of the administrative hierarchy network members further frame enforcement policy, by selecting priority areas and by adopting soft-law instruments that seek to guide the national authorities in the exercise of their responsibilities. The information transferred through these interactions is structured, with the type and scope of information specified in advance. The information is furthermore focused and directed at certain objectives, be they law administration in an individual instance or fleshing out broadly phrased Community norms. This helps to manage the interpretation of information, as the recipient members will know what they can or must do with it. In this respect, the network also benefits from the existence of the epistemic community and a relatively homogenous regulatory environment. One of the core objectives of a network is improving the quality of national decision-making processes by ensuring more consistency in law enforcement. This is done directly and tangibly through the various models of interaction provided by Regulation 1/2003 and the 2002 Electronic Communications Framework. A more indirect and intangible—but by no means less effective— contribution is made by the processes of resource dependency, reputational enforcement and trust-building. The specialist consistency devices and the setup of the ECN and ERG thus share the same objective, yet they are based on different conceptions of the relationship between the Commission and national authorities. Whereas the consistency tools are premised on a classic command model of regulation, the network mainly spawns consensual and heterarchical interaction. That said, the two models operate in a symbiotic relationship. A number of the consistency tools are internal—they are exercised through or within the network infrastructure. Furthermore, much of the network effect relies on the existence of the consistency instruments and the normative influence they exert. At the same time, the network reinforces the effectiveness of the vertical tools through a greater learning-effect. Every national authority becomes familiar with the existence and exercise of these mechanisms, which elaborates on their responsibilities as well as on the correct interpretation and application of the relevant European rules. In the end, the evolution of the network’s normative political ecosystem could render the need to exercise the consistency tools less frequent or even superfluous.153 To the extent that this indeed occurs, we can conceive the network

153 Coen and Thatcher (above n 135) note that ‘there is some evidence that NRAs accepted the creation of the ERG as it required the Commission to cooperate with NRAs which would reduce the scope for using its new veto powers from the new framework’. While this might be so, it must be

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Conclusion as a model of self-regulation, in which national authorities and the Commission (if it is a network member) adopt legal norms. The ECN and the ERG have largely similar regulatory mandates and institutional anatomies. Differences may, however, also be detected. Thus, the Commission is a member of the ECN but not of the ERG. Moreover, whereas the interaction within the ECN has to date been strongly case-based, the ERG has been busy mostly with work of a general character. These differences should be interpreted as a sign of the flexibility and dynamic nature of networks: they can be adapted to suit the needs of the Community legislature when devising particular models and subsequently to the wishes of the network members. To quote the Commission’s 2007 Annual Report on Competition Policy, ‘The actual intensity, scope and potential of cooperation within the ECN go beyond the legal obligations set out in Regulation 1/2003’.154 We may reasonably hope to see useful cross-fertilisation and learning between networked regimes. Ultimately, the network is an innovative and arguably effective model of law administration. What is clear also are the potentially huge ramifications this model could entail. From the perspective of national authorities, we recall the network effect or their transformation into Community authorities. This could very well result in a new dimension to Article 10 EC, act as a catalyst for further procedural convergence and a truly European law, with feedback and crossfertilisation between the Community and the national level. In the last part of this book, we will accordingly move beyond the explanatory and conduct an external critique of network-based governance to assess whether its wider use in EC law should be encouraged. Before that, we will briefly summarise the core characteristics of network-based governance.

remembered that part of the network effect, notably reputational enforcement and resource dependency, rely on the formal legal obligation on national authorities to consult with each other and the Commission before taking decisions. 154 Above n 108, 20.

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Summarising Network-Based Governance

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HIS PART HAS offered an inquiry into the specific institutional frameworks introduced for the administration of EC competition and EC communications law just after the turn of the twenty-first century. Let us now draw together the findings of the previous chapters and outline the core characteristics of network-based governance. In line with subsidiarity, national actors (authorities and courts) are positioned as the frontline institutions for the daily administration of EC law. Importantly, European law is encroaching upon the executive province of the Member States by dictating in considerable detail the setup and powers of those national actors. This is to ensure that national actors possess the regulatory attributes necessary to discharge their European mandate. The national authorities have thus been conveyed broad and largely discretionary powers. In addition, Community law gives the national competition authorities (NCAs) the right to ask other authorities to conduct inspections on their behalf, and they may suspend their proceedings on the ground that another NCA is already pursuing the matter. Regulation 1/2003 further includes rules on the burden of proof and provides that NCAs may act as amicus curiae before their national courts. As regards communications law, the national regulatory authorities (NRAs) are under an obligation to consult with market parties; to observe exacting transparency standards in their decision-making; to issue reasoned decisions, which must moreover be rendered within strict time-limits. EC law further stipulates that they should cooperate with NCAs and national consumer protection agencies on matters of common interest when appropriate. In addition, and as a matter of Community law, interested parties must have the right to petition the courts for judicial review of NRA decisions. In terms of institutional characteristics, NCAs and NRAs must have available sufficient resources (financial and otherwise) and act independently in exercising their responsibilities. Turning to the national courts, the parameters laid down by EC law differ somewhat between the competition and the communications regime. This is because Regulation 1/2003 conceives national courts as a first-instance alternative to the public enforcers, whereas the 2002 Electronic Communications Framework gives them a position of control vis-à-vis the NRAs. The Regulation 246

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Summarising Network-Based Governance specifies the burden of proof and stipulates that national courts may receive amicus curiae observations from the NCAs and the Commission. The Communications Framework contains rules on locus standi; prescribes that NRA decisions must in principle remain intact pending the outcome of appeals; and requires that national courts possess sufficient expertise to rule on claims for judicial review and are independent of the parties to the litigation. The Commission plays a central part in the quest to secure more consistency across Europe and prevent under- or over-enforcement. It monitors and, when necessary, disciplines national actors and is endowed with special powers for those purposes. Thus, national authorities must consult with the Commission before taking decisions. The Commission may submit observations and even prevent a national authority from finally adopting a draft measure in an effort to preserve the homogeneity of Community law. In competition law, this is done by the Commission taking over cases from national authorities, whose jurisdiction is thereby terminated. In communications law, the Commission may adopt a veto decision, imposing a duty on the regulatory authority to redo the entire procedure. Regulation 1/2003 also contains special mechanisms that govern the relationship between the Commission and national courts. The latter must notify their judgments applying the EC competition rules to the Commission, who enters these into a publicly accessible database. When necessary, the Commission may make amicus curiae submissions to the national courts. Constitutional reasons indicate that the Commission lacks the competence to impose its will on national courts. The Commission is able to influence the decisional output of national authorities and courts, with the help of substantive and procedural devices. In substantive terms, the Commission harmonises the rules to be applied. Under the competition variant, the Commission acts on a par with the national authorities, because the Treaty allows it to engage in direct administration. In practice, the Commission typically decides novel cases and thus shapes the evolution of European competition law. The block exemption regulations it promulgates must be seen in the same light. The generic applicability of Articles 81 and 82 EC and the substantive alignment of the SMP regime with competition principles confirm the relevance of the Commission’s individual decisions and block exemptions for the national actors that administer EC communications law. Under the 2002 Electronic Communications Framework, the Commission uses its power to make observations on NRA draft decisions to set out its position on policy issues. The influence of the Commission is finally also felt through a stream of soft-law instruments. In procedural terms, national authorities and courts may consult the Commission on the proper interpretation or application of Community rules. This allows the Commission to foster shared understandings and common perspectives across the EU. European law makes room for the creation of networks comprising the national authorities and the Commission: the European Competition Network (ECN) and the European Regulators Group (ERG). These networks also seek to 247

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Summarising Network-Based Governance improve the quality of national decision-making processes by ensuring more consistency in law enforcement. As such, they provide a European administration infrastructure that allows for constant and institutionalised cooperation between the public actors. The ECN and the ERG are involved in and facilitate two broad types of institutional interaction, with the help of IT applications and face-to-face meetings. In terms of cooperation in individual cases, national authorities circulate their draft decisions prior to adoption and may offer comments on the proposed measures of their peers; they may also exchange information. Regulation 1/2003 furthermore provides for collaboration between network members by allowing them to reallocate cases amongst themselves if necessary and to carry out fact-finding missions on behalf of other competition enforcers. The 2002 Electronic Communications Framework foresees cooperation between the NRAs in the event of cross-border disputes between firms or when the market to be analysed is transnational in nature. In addition to case-based interactions, the ECN and the ERG are also active in framing enforcement policy, by selecting priority subject areas and by adopting soft-law instruments that aim to guide the national authorities in the exercise of their regulatory mandate. Due to participation in networks, national authorities are Europeanised. They become agents in the application and enforcement of EC law and part of a broader Community administration. They carry out their duties and responsibilities with keen awareness of and attention to the wider European context. This ‘network effect’ arises as a result of a combination of symbiotic processes. National authorities are made dependent on each other for resources such as information, advice, legitimacy and authority (formal and informal). They can practice credible reputational enforcement, given that network-based governance is premised on repeated interactions. Furthermore, networked interaction creates information supplies regarding the intentions, strategies and behaviour of national authorities at all stages of the enforcement process. Helped by the existence of the epistemic community, each authority can now monitor the work of the others and knows that its own behaviour is controlled in the same way. They now all have a stronger incentive to pursue European interests and reflect European concerns in their decision-making. Ultimately, the networks’ normative political ecosystems could very well necessitate the recognition of a new dimension to Art 10 EC, act as a catalyst for further procedural and institutional convergence and allow for the development of a truly European law, with feedback and cross-fertilisation between the Community and the national level. Finally, the use of soft law mushrooms under network-based governance, and their nomenclature notwithstanding, these instruments exert a relatively strong effect on the national actors. The harmonising influence of the Commission on the decisional output of national authorities and courts is felt mainly through notices, communications and guidelines, which put flesh on the bones of the general legal rules found in the Treaty and espoused by the European legislature. Hard law, through the Treaty and through secondary legislation, 248

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Summarising Network-Based Governance obliges national actors to take account of these soft-law tools when executing their mandates. Also, deviation from such instruments exposes national authorities to more Commission scrutiny than would otherwise be the case. The instruments adopted by the ECN and the ERG also fall within the realm of soft law, since the networks lack legal personality. Network documents typically include statements in which the members commit themselves to observe these documents in their decision-making. In addition, national actors are glad to have some guidance on how to interpret the rather technical competition or communications rules, and their participation in the adoption process also fosters a sense of ownership of these documents. The core elements of network-based governance are graphically presented in the figure below. Figure 6b.1 Summarising Network-Based Governance

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7 Three Perspectives on Network-Based Governance

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ART II OF this book offers an explanation of network-based governance. It has become clear that the network model may very well be an answer to Europe’s institutional design deficit. Consistency and effectiveness are key tenets in this regulatory design, which incorporates an intricate web of institutional features aimed at these concerns. As such, the model introduces homogeneity in the decision-making processes and institutional structures of national actors. It also contains specialist consistency devices that link administrative actors through regular cooperative relationships. To rest here, however, would not offer an honest perspective on the meritocracy of the network regime. That it is efficacious is ultimately only one factor— albeit an important one—in the overarching question of its acceptability. We must also inquire into the model’s wider normative credentials. This chapter therefore carries out an external critique of the network regime. We shall begin by introducing the perspectives that structure our critique. We shall then discuss the demands that each perspective imposes and assess network-based governance within our understanding of these demands. Any evaluative analysis must be clear about the standards against which the object of that analysis will be measured. Whether an institutional structure is judged to work well or whether there are apparent defects in the system depends in part on the criteria that inform our critique. For instance, when is a mode of governance considered legitimate? Is this purely a matter of accountability relationships, or do other criteria also play a role? If so, what are those other criteria, and how to they relate to accountability and to each other? So it is clear that one needs a normative framework, and one might use good governance as such. The problem with the concept of good governance, however, is that it can be vague and imprecise, an empty vessel to be filled with whatever strikes one’s fancy. The Commission’s White Paper on European Governance and its five listed principles of good governance have attracted their fair share of criticism for precisely this reason.1 Another objection is that the term ‘good 1 Commission (EC), ‘European Governance’ (White Paper) COM (2001) 428 final, 27 June 2001. The five principles of good governance listed are openness, participation, accountability, effectiveness

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Three Perspectives on Network-Based Governance governance’ has an aura of innovation or newness about it, although its component elements are often nothing more than translations or adaptations of well-established constitutional paradigms. For these reasons, good governance would not add anything to the analysis that will be undertaken in this Part. Our solution is to use different perspectives as a looking-glass through which to evaluate the network regime. It should be pointed out that the perspectives with which this Part concerns itself are all external to the network regime: we shall focus on the normative beliefs and considerations of groups that are outside the network-based governance framework but affected by it. For our specific purposes, we have identified three such external groups: the firms and consumers that are subject to the system; the European institutions and Member States that set up the system; and finally, society as a whole, which should benefit from the system. The reason we distinguish between these three groups is that each is affected by network-based governance in different ways. It follows that they will each have different concerns in assessing the merits of this institutional model. Firms and consumers are directly affected by the rules that network-based governance seeks to administer effectively and consistently. They are thus concerned with two issues: namely, the legitimacy of this institutional regime and the adequacy of judicial protection. These two factors influence the attitudes of firms and consumers towards compliance with the relevant legal rules and cooperation with the actors that apply them—and in that manner, they have a direct bearing on the effectiveness of these rules. More generally, questions of legitimacy acquire particular prominence within European policy. Consider the evergreen ‘democratic deficit’ debate2 or the introduction of European citizenship at Maastricht.3 and coherence. Consider, eg, C Joerges, Y Meny and J Weiler, ‘Mountain or Molehill? A Critical Appraisal of the Commission’s White Paper on Governance’, Jean Monnet Working Paper No 6/01, 2001, http://www.jeanmonnetprogram.org/papers/01/010601.html. 2 There is an abundance of literature on this topic. Consider, eg, F Scharpf, Governing in Europe: Effective and Democratic? (Oxford, Oxford University Press, 1999); A Moravcsik, ‘In Defence of the “Democratic Deficit”: Reassessing Legitimacy in the European Union’ (2002) 40 Journal of Common Market Studies 603; L Hansen and M Willians, ‘The Myths of Europe: Legitimacy, Community and the “Crisis” of the EU’ (1999) 37 Journal of Common Market Studies 233; G Majone, ‘Europe’s “Democracy Deficit”: The Question of Standards’ (1998) 4 European Law Journal 5; C Carter and A Scott, ‘Legitimacy and Governance beyond the European Nation State: Conceptualizing Governance in the European Union’ (1998) 4 European Law Journal 429; F Scharpf, ‘Economic Integration, Democracy and the Welfare State’ (1997) 4 Journal of European Public Policy 18; P Craig, ‘Democracy and Rule-Making within the EC: An Empirical and Normative Assessment’ (1997) 3 European Law Journal 105; C Harlow, ‘A Community of Interests? Making the Most of European Law’ (1992) 55 Modern Law Review 331; J Weiler, ‘The Transformation of Europe’ (1990) 100 Yale Law Journal 2403. 3 Arts 17–22 EC. Consider J Weiler, ‘European Citizenship: Identity and Differentity’ in M La Torre (ed), European Citizenship: An Institutional Challenge (The Hague, Kluwer Law International, 1998); H D’Oliveira, ‘European Citizenship: Its Meaning, its Potential’ in R Dehousse (ed), Europe after Maastricht: An Ever Closer Union? (München, CH Beck, 1994). The preoccupation with the EU’s legitimacy reached new heights following the signing of the Treaty of Maastricht and the complications that beset its ratification. This has been viewed as the end of the period of ‘permissive consensus’ that facilitated elite-driven integration. See, eg, L Lindberg and S Scheingold, Europe’s Would-be Polity: Patters of Change in the European Community (Englewood Cliffs, Prentice Hall, 1970); W Wallace and

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Three Perspectives on Network-Based Governance The availability of judicial protection is recognised as a fundamental right in both European and human rights law4 and a base condition for any structure that claims to be founded on the rule of law.5 The second perspective on network-based governance involves the EC institutions and Member States. For the EC institutions that are affected by the network model, the emphasis will be on inter-institutional relationships as captured in the principle of institutional balance. Existing governance structures such as comitology committees and agencies are often criticised for expanding the role of one institution, usually the Commission, at the expense of another, typically Parliament. What of the position of networks in the scheme of institutional balance? For the Member States, we will use the principle of subsidiarity to consider the distribution of authority between the EC and the national level as encapsulated in network-based governance. For this second group, thus, the discussion draws upon the primary concern of public bodies to preserve and ideally enhance their powers vis-à-vis each other. Our final section, looking from the perspective of society as a whole, is concerned with the welfare-enhancing effects of this model of governance. We shall consider whether the network regime delivers regulatory decisions that are allocatively and dynamically efficient—in particular, whether it brings efficiency benefits that are greater than those available under other institutional structures. Here the discussion will rely heavily on insights from economics literature. The reasons for employing this type of societal critique on the network model are twofold. First, Europe wishes to become a more competitive and dynamic, knowledge-based economy.6 Second, with competition and communications law firmly entrenched in economic discourse as far as substance is concerned, it

J Smith, ‘Democracy or Technocracy? European Integration and the Problem of Popular Consent’ (1995) 18 West European Politics 144; C Joerges, ‘The Law’s Problems with the Governance of the European Market’ in C Joerges and R Dehousse (eds), Good Governance in Europe’s Integrated Market (Oxford, Oxford University Press, 2002). 4 For EC law, see Art 6(2) TEU and Art 47 Charter of Fundamental Rights of the European Union [2007] C303/01; Case 222/84 Marguerite Johnston v Chief Constable of the Royal Ulster Constabulary [1986] ECR 1651 [17]–[20]; Case 222/86 Union nationale des entraîneurs et cadres techniques professionnels du football (Unectef) v Georges Heylens and otehrs [1987] ECR 4097 [14]–[15]. For human rights law, see Arts 6 and 13 European Convention for the Protection of Human Rights and Fundamental Freedoms; Golder v United Kingdom (Appl no 4451/70) (1975) Series A no 18 [34]–[35]. 5 See Art 6(1) TEU. For an analysis of the notion, see, eg, P Craig, ‘Formal and Substantive Conceptions of the Rule of Law: An Analytical Framework’ [1997] Public Law 467. 6 This is the aim of the ‘Lisbon Strategy for Growth and Jobs’, launched during the meeting of the European Council in March 2000. For an overview of the various components and key documents that comprise the Lisbon Strategy, see http://ec.europa.eu/growthandjobs/key/index_en.htm. See also A Sapir and Others, An Agenda for a Growing Europe: The Sapir Report (Oxford, Oxford University Press, 2004). Here we also draw attention to the EU’s Better Regulation policy, which seeks to ensure that regulation contributes to the achievement of the Lisbon objectives. For more information, see http://ec.europa.eu/governance/better_regulation/index_en.htm. See further S Weatherill (ed), Better Regulation, Studies of the Oxford Institute of European and Comparative Law No 6 (Oxford, Oxford University Press, 2007).

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Three Perspectives on Network-Based Governance would be very odd if the institutional arrangements used to execute these rules were to ignore economics or fall foul of its theories.

I. THE PERSPECTIVE OF FIRMS AND CONSUMERS

We shall begin our assessment of network-based governance by adopting the perspective of the firms and consumers that fall within the ambit of the legal rules that the network model seeks to administer effectively and consistently. The first part of this section asks whether this model is worthy of support by firms and consumers. We confront the difficult questions of legitimacy, accountability and transparency, inquiring into the meaning of these cardinal notions and examining the extent to which the network can be said to observe them. The question of the network’s legal accountability will then be addressed separately, as it raises a number of controversial questions in its own right.

A. Legitimacy, Accountability and Transparency In Western liberal democracy, the term ‘legitimacy’ can be either the lifeline or the death knell to any socio-legal institution. Therefore, no comprehensive assessment of network-based governance can avoid dealing with the nature with which power is legitimately wielded by the European Competition Network (ECN) and the European Regulators Group (ERG), as well as the concomitant issues of accountability and transparency. One might say that networks draw their legitimacy from their component members—assuming they possess a more or less adequate degree of legitimacy in their own right. This argument is, however, too simplistic. A network is more than the sum of its parts. As explained in Chapter 6, the ECN and ERG are entities with distinct personalities that extensively affect the work of their members—and thus indirectly affect market participants and society as a whole. While legitimacy issues involving constituent members may affect the legitimacy of a network, this does not derogate from the fact that its distinctiveness in itself warrants a legitimacy assessment of the network. The often quoted excerpt from his autobiographical Confessions has Saint Augustine of Hippo saying ‘What then is time? If no one asks me, I know what it is. If I wish to explain it to him who asks, I do not know.’7 In a way, if ‘time’ were replaced with ‘legitimacy’, one might expect the same answer. At a general level, legitimacy explains a justification for and acceptance of authority.8 The purpose 7 ‘Quid est ergo tempus? Si nemo ex me quaerat, scio; si quaerenti explicare velim, nescio.’ H Chadwick (tr), The Confessions (New York, Oxford University Press, 1998) Book XI, Ch XIV. 8 G de Búrca, ‘The Quest for Legitimacy in the European Union’ (1996) 59 Modern Law Review 349. Consider further A Hyde, ‘The Concept of Legitimation in the Sociology of Law’ [1983]

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The Perspective of Firms and Consumers of any regulatory construct is, as its nomenclature suggests, to regulate behaviour. The regulatory regime does so by creating and modifying norms to achieve its desired effect. Whether such norms are viewed with a legal lens or a social or moral lens, the validity and effectiveness of the norms are in some sense dependent on issues of legitimacy. This is especially relevant in a regulatory regime that uses negotiation-based strategies as opposed to hardcore sanctions. For norms to be valid and effective, they must be legitimate, in the ‘narrow’ sense of having a legal basis.9 So too must they be seen to be legitimate, as used in its ‘wider’ sense. Legitimacy in its wider sense is a social perception: the regulator is seen to act with authority; the regulatees perceive that its existence and behaviour are socially credible, proper and acceptable. As constituents of a rationally-ordered society, they thus cooperate with the regulatory construct and behave according to its rules. Legitimacy in its wider sense thus accentuates the ability of the regulator to achieve its mandated objectives.10 It therefore follows that validity is only partially determined by the legal rule itself—and that for the greater part, a norm’s effectiveness is heavily dependent on the socio-political context within which it operates.11 When a regulator and its rules are demonstrably valid and effective, their legitimacy is enhanced, which in turn bolsters the effect of the regulatory norms, etc etc. The acceptability of specific norms increases the acceptability of the regulator’s existence. Vice versa, the greater the degree of diffuse legitimacy for the regulator’s existence, the more easily will specific norms be accepted.12 Legitimacy may accordingly be conceived as a virtuous (and conversely, vicious) circle. Following on from the above, we shall take legitimacy to arise from a dynamic interaction of constitutional, social and moral sources. The test devised by Robert Baldwin and Christopher McCrudden in the realm of regulation takes into account these wider concerns and is therefore appropriate to the present context:

Wisconsin Law Review 379; T Franck, The Power of Legitimacy among Nations (New York, Oxford University Press, 1990); J Habermas, Legitimation Crisis (Boston, Beacon Press, 1975); A Weale and M Nentwich (eds), Political Theory and the European Union: Legitimacy, Constitutional Choice, and Citizenship (London, Routledge, 1998); R Barker, Political Legitimacy and the State (Oxford, Oxford University Press, 1990). On the notion of authority, see J Raz, The Authority of Law (Oxford University Press, Oxford, 1979); and J Coleman, ‘Incorporationism, Conventionality and the Practical Difference Thesis’ (1998) 4 Legal Theory 381. 9 Approached from a legal perspective, it means that a rule or institution need only identify a legal basis for its existence and thereby is legitimate. This is what Joseph Weiler calls ‘formal legitimacy’ in The Constitution of Europe (Cambridge, Cambridge University Press, 1999) 77–86. 10 Another relevant factor is the availability and use of sanctions, which can induce cooperation or force compliance even if the regulator and its rules are not perceived as acceptable, and cooperation on that ground is hence not forthcoming. 11 HLA Hart and Hans Kelsen posited that legal norms need to be effective in order to be valid: HLA Hart, The Concept of Law, 2nd edn (Oxford, Clarendon Press, 1994) 103–4; H Kelsen, Pure Theory Of Law, 2nd edn, M Knight (tr) (Berkeley, University of California Press, 1967) 211–14. 12 See D Easton, A Systems Analysis of Political Life (New York, Wiley, 1965); D Beetham and C Lord, Legitimacy and the European Union (London, Longman, 1998).

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Three Perspectives on Network-Based Governance Is it supported by legislative authority? Is it otherwise accountable? Does it carry out its tasks with due process? Is the body expert? Is it efficient? These five criteria constitute the limited vocabulary of the language of legitimacy.13

Importantly, the elements cannot always be neatly separated. We shall see that they can reinforce one another, and moreover, trade-offs between the different elements are at times inevitable. In the final analysis, the concern is to assess the appropriateness of the balance struck between these complementary and competing factors. The aim of this section is not to offer a sociological assessment of the actual support that the networks are achieving; it is rather to offer an assessment of the legitimacy that they ought to achieve.14 i. Legislative Mandate The basis of the legislative mandate criterion is that an administrative body and its activities merit public support because they are mandated by the legislature.15 Thus, it applies the transmission-belt model of administrative law.16 Through the ballot box, citizens control the legislature. Legislation serves as the ‘transmission belt’ to the administration, both transferring democratic legitimacy to administrative actions and constraining those actions so that they advance legislative goals. The same idea can also be expressed in the language of agency. The assumption is that the principal (the legislature) is vested with some form of legitimate authority by the electorate and that the agent (the administrative body) can be deemed to be acting legitimately if it stays within the parameters set by the principal. As Deirdre Curtin notes, when applying the principal–agent model to the context of the EU, two deviations from the paradigm case must be considered.17 13 R Baldwin and C McCrudden, Regulation and Public Law (London, Weidenfeld and Nicolson, 1987) 33. The test is repeated in R Baldwin, Rules and Government (Oxford, Clarendon Press, 1995) 33–59; and R Baldwin and M Cave, Understanding Regulation: Theory, Strategy and Practice (Oxford, Oxford University Press, 1999) ch 6. Other distinctions or tests that are commonly used when dealing with questions of legitimacy are the distinction between formal and social legitimacy, proposed by Weiler, The Constitution of Europe (above n 9); and the distinction between ‘input’ and ‘output’ legitimacy put forward by F Scharpf, ‘Economic Integration, Democracy and the Welfare State’ (1997) 4 Journal of European Public Policy 18 and Scharpf, Governing in Europe (above n 2). 14 See Baldwin and Cave (ibid) 82. 15 This connotes ‘narrow’ legitimacy as explained in the introductory paragraphs of this chapter. The legislative mandate criterion broadly corresponds to Weiler’s ‘formal (or legal) legitimacy’: Weiler, The Constitution of Europe (above n 9). He contrasts this with social (or empirical) legitimacy, which signifies the broad, societal acceptance of the system and corresponds to what we, in the introductory paragraphs of this chapter, have termed ‘legitimacy in its wider sense’. 16 RB Stewart, ‘The Reformation of American Administrative Law’ (1975) 88 Harvard Law Review 1667; RB Stewart, ‘Administrative Law in the Twenty-First Century’ (2003) 78 New York University Law Review 437; M Thatcher and A Stone-Sweet, ‘Theory and Practice of Delegation to Non-majoritarian Institutions’ (2002) 25 West European Politics 1; K Strom, ‘Delegation and Accountability in Parliamentary Democracies’ (2000) 37 European Journal of Political Research 261. 17 D Curtin, ‘Holding (Quasi-)Autonomous EU Administrative Actors to Public Account’ (2007) 13 European Law Journal 523, 525. For an analysis of the EU according to the principal–agent model,

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The Perspective of Firms and Consumers First, there is no unitary chain of delegation running all the way from individual European citizens to EU-level or intermediate actors, including the Commission, European agencies and comitology committees. Second, there can be multiple principals in the European context, and the European Parliament is not always or necessarily (one of) the principal(s)—the Council and the Commission also act as principal(s). The legislative mandate criterion provides an understandable and basic core in legitimacy assessments. It does not, however, provide for accurate answers to questions of legitimacy. Legislative mandates are often vague. They allow for considerable discretion and thereby necessitate interpretation by the mandatee. This is easily explained. The legislature lacks the requisite knowledge, time and foresight to stipulate precise and concise mandates. What is more, broad discretion is often deliberately built into mandates because complex and polycentric policy-making is seen to necessitate judgement.18 Also, where dynamic policy fields are concerned, the more detailed the mandate, the more often it requires amendment to keep up with changing regulatory conditions. Generous mandates are then an economically efficient solution: they minimise resource expenditure on the part of the legislature and allow for responsive administration, with the concomitant benefits this is expected to entail. At the same time, such mandates potentially confine the courts’ role as a judicial check to possible discretionary executive imbalance. Complainants will face considerable difficulty in demonstrating that the contested act is ultra vires or that the administration is underperforming.19 Unsurprisingly, the ECN and the ERG are both provided with broad mandates. In relation to the former, the Joint Statement by the Council and the Commission reads: ‘The cooperation within the Network is dedicated to the effective enforcement of the EC competition rules throughout the Community.’20 The Commission Network Notice adds: ‘The network formed by the competition authorities should ensure both an efficient division of work and an effective and consistent application of EC competition rules.’21 The mandate of the ERG is phrased in much the same terms: The Group shall provide an interface between national regulatory authorities and the Commission in such a way as to contribute to the development of the internal market

consider M Pollack, The Engines of European Integration: Delegation, Agency, and Agenda Setting in the EU (Oxford, Oxford University Press, 2003; P Lindseth, ‘Democratic Legitimacy and the Administrative Character of Supranationalism: The Example of the European Community’ (1999) 99 Columbia Law Review 628. 18 L Fuller, ‘The Forms and Limits of Adjudication’ (1979) 92 Harvard Law Review 353, 394. 19 Baldwin and McCrudden (above n 13) 34. 20 Joint Statement of the Council and the Commission on the Functioning of the Network of Competition Authorities 15435/02 ADD 1 [5]. 21 Commission Notice on cooperation within the Network of Competition Authorities [2004] OJ C101/43 [3].

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Three Perspectives on Network-Based Governance and to the consistent application in all Member States of the regulatory framework for electronic communications networks and services.22

The rules whose consistent and effective application the ECN and the ERG must ensure are likewise characterised by generic objectives, which might at times exist in mutual tension. We have discussed how EC competition law has been interpreted to support variously the protection of competitors, the promotion of consumer welfare and the creation of an attractive environment for growth and jobs.23 Similarly, the EC communications rules are constructed around the needs to promote competition, to develop the internal market and to promote the interests of EU citizens.24 The mandate structure for the ECN and the ERG is somewhat opaque. The legislation stipulates—in recitals, no less—the creation of the networks but has little to say on their mandates.25 We observe that the European Parliament was only consulted prior to the adoption of Regulation 1/2003, whereas it acted as co-legislator in the adoption of the Framework Directive. It is the Commission who, through a soft-law notice for the ECN and a hard-law decision for the ERG, laid down the objectives to be achieved by the two networks, whose legislative credentials are thus rather weak. Inclusion of the mandates in legislation, ideally adopted pursuant to co-decision, would be helpful. Given the need for broad discretions for the networks, it is proposed that the justificatory strength of the legislative mandate claim would in any event remain minimal. Enhanced legitimacy effects could conceivably be derived by requiring the networks to publish their visions on their mandates and hold discussions on these—with Parliament and/or stakeholders.26 This suggested requirement is examined in more detail below.

ii. Accountability Dawn Oliver has explained that accountability involves being liable to be required to give an account or explanation of actions and, where appropriate, to suffer the consequences, take the blame or undertake to put matters right if it should appear that errors have been made. In other words, it is explanatory

22 Commission Decision 2002/627/EC of 29 July 2002 establishing the European Regulators Group for Electronic Communications Networks and Services (Commission ERG Decision) [2002] OJ L200/38 as amended by Commission Decision 2004/641/EC of 14 September 2004 Art 3. Also ERG(03)07 ‘Rules of Procedure for ERG’ [2003] Art 2. 23 Above ch 2, section II. 24 Framework Directive Art 8(2)–(4). 25 Regulation 1/2003 Council Regulation Recital 11 for the ECN; and Framework Directive Recitals 36 and 37 for the ERG. The ERG is not mentioned in any of the specific Directives that together constitute the other component of the 2003 Electronic Communications Framework. 26 Baldwin and McCrudden (above n 13) 35.

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The Perspective of Firms and Consumers and amendatory. Accountability is therefore closely related to responsibility, transparency, answerability and responsiveness, and these terms are often used interchangeably.27

We may distil four component elements:28 (i) an obligation on the body being held accountable to provide external account-holders with information about conduct; (ii) a relational and dialogic interaction whereby the body that is accountable must answer, explain and justify and the body calling for the account can question, assess and criticise; (iii) the ability of the account-holder to evaluate or pass judgement on the body’s conduct; and (iv) the possibility for the account-giver to face consequences as a result. We use the term ‘consequences’ as opposed to ‘sanction’,29 in order to include fora that lack the authority to impose formal sanctions but are nevertheless capable of providing effective reparation or redress. As will be seen below, these are precisely the characteristics of the most recent administrative accountability fora. Consequences may encompass formal sanctions—fines or forced resignation—but they can very well be informal, such as ‘the disintegration of public image and career as a result of negative publicity’.30 Also, consequences may be direct, or if it is an actor other than the accountability forum that applies pressure to ensure that matters are put right, consequences may be indirect. This we observe particularly with the new accountability mechanisms.

27 D Oliver, Government in the United Kingdom: The Search for Accountability, Effectiveness and Citizenship (Milton Keynes, Open University Press, 1991) 22. See further C Harlow, Accountability in the European Union (Oxford, Oxford University Press, 2002) esp ch 1; A Arnull and D Wincott (eds), Accountability and Legitimacy in the European Union (Oxford, Oxford University Press, 2002); R Mulgan, ‘“Accountability”: An Ever-Expanding Concept?’ (2000) 78 Public Administration 555; C Graham, ‘Is there a Crisis in Regulatory Accountability?’ Discussion Paper No 13, Centre for the Study of Regulated Industries (1996), reprinted in R Baldwin, C Scott and C Hood (eds), A Reader on Regulation (Oxford, Oxford University Press, 1998) 482; M Bovens, ‘Analysing and Assessing Accountability: A Conceptual Framework’ (2007) 13 European Law Journal 447; M Bovens, The Quest for Responsibility: Accountability and Citizenship in Complex Organisations (Cambridge, Cambridge University Press, 1998); A-M Slaughter, ‘Agencies on the Loose? Holding Government Networks Accountable’ in G Bermann, M Herdegen and P Lindseth (eds), Transatlantic Regulatory Cooperation: Legal Problems and Political Prospects (Oxford, Oxford University Press, 2000); C Scott, ‘Accountability in the Regulatory State’ (2000) 27 Journal of Law and Society 38. The prominence of UK authors in the debate on accountability probably stems from the fact that the term has no obvious equivalent in most other languages. Its rise in the UK was primarily in the context of New Public Management. 28 See Oliver (ibid); Bovens, ‘Analysing and Assessing Accountability’ (ibid) 451. These are adopted inter alia in C Harlow and R Rawlings, ‘Promoting Accountability in Multilevel Governance: A Network Approach’ (2007) 13 European Law Journal 542; Curtin, ‘(Quasi-) Autonomous EU Administrative Actors’ (above n 17); Mulgan (ibid). See also R Grant and R Keohane, ‘Accountability and Abuses of Power in World Politics’ (2005) 99 American Political Science Review 29, 29. 29 See Bovens, ‘Analysing and Assessing Accountability’ (above n 27). See also Harlow and Rawlings, ‘Promoting Accountability in Multilevel Governance’ (ibid) 545. Mulgan (above n 27) speaks of sanctions as a ‘process of rectification’, thereby at least implicitly accepting that sanctions could extend beyond the very formal and coercive type. This is further supported by his inclusion of ombudsmen and audit offices into institutions of accountability. 30 Bovens, ‘Analysing and Assessing Accountability’ (above n 27) 452.

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Three Perspectives on Network-Based Governance Two further observations are relevant. Accountability is primarily retrospective, involving an assessment of past conduct.31 Still, accountability may also have prospective hopes and results. It may be safely assumed that administrators are well aware of the availability of effective accountability processes, and this awareness will operate as an incentive to behave in a responsive manner so as to avoid the costs of wrongful behaviour.32 Secondly, increasing accountability is not a positive sum game, as Onera O’Neill so poignantly indicates: Perhaps the culture of accountability that we are relentlessly building for ourselves actually damages trust rather than supporting it. Plants don’t flourish when we pull them up too often to check how their roots are growing: political, institutional and professional life may not flourish if we constantly uproot it to demonstrate that everything is transparent and trustworthy.33

Accountability claims urge support for administrative bodies on the grounds that they are strongly controlled or held to account by legitimate bodies and, to take the argument one step further, hence act in the public interest.34 There are a plethora of possible accountability fora. We shall restrict ourselves to examine how networks fare in relation to three of these, namely parliamentary, legal and administrative accountability.35 Law and politics are the classic—and for many constitutional lawyers, the principal—processes in ensuring accountability.36 Administrative accountability is a new-style process, on the rise at the

31 We thus exclude ex ante accountability tools, which are typically mattes of institutional design, such as appointment procedures or continuous oversight through approval mechanisms. 32 See Papadopoulos, who calls this the ‘logic of consequentiality’: Y Papadopoulos, ‘Problems of Democratic Accountability in Network and Multilevel Governance’ (2007) 13 European Law Journal 469, 472. See also D Curtin and A Nollkaemper, ‘Conceptualizing Accountability on International and European Law’ (2005) 36 Netherlands Yearbook of International Law 3, 8; Bovens, ‘Analysing and Assessing Accountability’ (above n 27) 453; Harlow, Accountability in the European Union (above n 27) 10, referring to the ‘fire-watching’ function of accountability; and Mulgan (above n 27) 564, speaking of the ‘law of anticipated reactions’. 33 O O’Neill, A Question of Trust (Cambridge, Cambridge University Press, 2002) 19. To the same effect, see D Brin, The Transparent Society (Reading, Perseus, 1998); M Power, The Audit Society: Rituals of Verification (Oxford, Oxford University Press, 1999). 34 Another version of this argument is to focus on the contribution of accountability to the protection of democratic values or responsiveness to the will and interests of democratically elected fora, as is often done in studies about the EU, eg, W van Gerven, ‘Which Form of Accountable Government for the European Union?’ (2005) 36 Netherlands Yearbook of International Law 227; Scott (above n 27) 39. Two other perspectives that can arguably also be subsumed under the ‘public interest’ header are the wish to prevent the development of concentrations of power and the desire to enhance the learning capacity and effectiveness of public administration. See P Aucoin and R Heintzman, ‘The Dialectics of Accountability for Performance in Public Management Reform’ (2000) 66 International Review of Administrative Sciences 45. 35 Other taxonomies are suggested by inter alia Bovens, ‘Analysing and Assessing Accountability’ (above n 27) 456; C Lord, Democracy in the European Union (Sheffield, Academic Press, 1998); Oliver (above n 27) 23ff; Grant and Keohane (above n 28). 36 Although political accountability need not be limited to parliamentary accountability, this is its core component.

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The Perspective of Firms and Consumers national, transnational and international level, intended to support and supplement the core means of political and legal accountability.37 a. Parliamentary Accountability In national political systems, parliamentary accountability is the corollary of the delegation theory that underlies the legislative mandate claim.38 Through the Minister responsible, administrative bodies, which have been delegated power, are held to account to their principal, Parliament, for the exercise of those transferred competences; Parliament in turn accounts to its principal, the electorate, at election time.39 As explained, the principal–agent model of delegation does not fully ‘fit’ the European system.40 Mark Bovens and Deirdre Curtin therefore argue that given the existing institutional specifics of the EU system, it is preferable to employ a ‘public accountability model’.41 Under this model the salient fact is the existence of a social relationship between account-givers and account-holders, whereby it is not necessary for an account-holder to be tied into a principal–agent relationship with the account-giver.42 The purely democratic perspective on public accountability accords a central role to democratic institutions, such as the European Parliament. Conversely, the checks-and-balances approach also allows for an important role for other types of actors.43 The analysis presented below follows this public accountability model.

37 The inadequacy of conventional approaches to accountability has been forcefully argued by Graham (above n 27). 38 See the works cited above n 16. 39 Note that the first part of this process is by no means straightforward or unproblematic these days, with Ministers often lacking knowledge of matters not directly within their purview, not in the least because many administrative authorities maintain a high degree of independence from their political masters. The last link denotes electoral accountability, which can be regarded as a weak form of accountability, because accountability ends the moment the last vote is cast. Parliamentary accountability foresees an important role for political parties as they make the final and critical link between Parliament and the electorate. This they do by making the whole process manageably and by allowing voters to coordinate the removal of MPs and government officials by switching from one political party to another. See Lord (above n 35) 92. 40 See also Lord (above n 35) 81–86. 41 Bovens, ‘Analysing and Assessing Accountability’ (above n 27); Curtin, ‘(Quasi-) Autonomous EU Administrative Actors’ (above n 17) 531; P Nicolaides, A Geveke and A-M den Teuling, Improving Policy Implementation in an Enlarged European Union: The Case of National Regulatory Agencies (Maastricht, EIPA, 2003). We shall thus also not enter the debate on the EU’s alleged or real democratic deficit or possible absence of a European demos—questions addressed extensively by Weiler, The Constitution of Europe (above n 9). 42 See also P Day and R Klein, Accountability: Five Public Services (London, Tavistock, 1987); B Romzek and M Dubnick, ‘Accountability’ in JM Shafritz (ed), International Encyclopaedia of Public Policy and Administration (Boulder, Westview Press, 1998); J Lerner and P Tetlock, ‘Accounting for the Effects of Accountability’ (1999) 125 Psychological Bulletin 255; H McCandless, A Citizen’s Guide to Public Accountability: Changing the Relationship between Citizens and Authorities (Victoria, Trafford, 2001); C Pollit, The Essential Public Manager (London, Open University Press, 2003). 43 Curtin, ‘(Quasi-) Autonomous EU Administrative Actors’ (above n 17) 531; Bovens, ‘Analysing and Assessing Accountability’ (above n 27) 463. See also R Dehousse, ‘Institutional Reform in the

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Three Perspectives on Network-Based Governance To be clear, the precise focus here is on the relationship between networks and the European Parliament. This does not mean that the European Parliament alone has a role to play in enforcing accountability in relation to networks. National parliaments too can make useful contributions when they hold individual network members—national authorities—to account, either directly or indirectly through the responsible Minister. These domestic accountability relationships create derivative accountability for the networks. The degree of control by national parliaments will, however, not be further considered here, for both normative and empirical reasons. In normative terms, if we accept that a network is more than the sum of its parts, as was suggested above, then parliamentary control over the activities of individual network members must be complemented by control over the network as such. It is suggested that such complementary control falls naturally to the European Parliament.44 Indeed, it would seem institutionally and doctrinally absurd for a national parliament to hold a national authority to account not just for its own activities within the network structure but for the output of the network as a whole.45 That the network has a European mandate and outlook confirms the suitability of the European Parliament as accountability forum. In empirical terms, there is a considerable body of literature addressing the degree of control by national parliaments over national executives, including independent administrative authorities.46 Conversely, the question of how the accountability of the network as such is fashioned, has thus far not been the subject of academic discourse. The role of the European Parliament in the oversight of administrative actors is primarily fashioned through reporting mechanisms. Consider for example the annual reports prepared by the European agencies and the annual reports made by the Commission on the working of comitology committees.47 An assessment

European Community: Are there Alternatives to the Majoritarian Avenue?’ (1997) 20 West European Politics 118; Lord (above n 35) 100; A Héritier, ‘Policy-Making by Subterfuge: Interest Accommodation, Innovation and Substitute Democratic Legitimation in Europe—Perspectives from Distinctive Policy Areas’ (1997) 4 Journal of European Public Policy 171. 44 See Matthews v the United Kingdom (Appl no 24833/94) ECHR 1999-I [52] which stresses that the European Parliament ‘represents the principal form of democratic, political accountability in the Community system’. 45 Then again, with transnational constructs that fall properly between the national and the European level, such as the network, we might very well have to rethink the way in which we conceive effective national parliamentary control, which could perhaps develop to allow for just such an extension in the scope of parliamentary accountability. 46 P Craig and A Tomkins (eds), The Executive and Public Law: Power and Accountability in Comparative Perspective (Oxford, Oxford University Press, 2006); R Caranta, M Andenas and D Fairgrieve (eds), Independent Administrative Authorities (London, British Institute of International and Comparative Law, 2004). 47 For agencies, consider eg Council Regulation (EEC) No 1210/90 of 7 May 1990 on the establishment of the European Environment Agency and the European Environment Information and Observations Network [1990] OJ L120/1 Art 8; Council Regulation (EC) No 40/94 of 20 December 1992 on the Community trade mark [1994] OJ L11/1 Art 119(2)(d); Regulation (EC) No 726/2004 of the European Parliament and of the Council of 31 March 2004 laying down Community

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The Perspective of Firms and Consumers of the relationship between Parliament and the networks reveals that the ERG fares somewhat better than does the ECN. The Group is required by law to submit annual reports on its functioning to the Commission, which then transmits these to Parliament and the Council, adding comments when appropriate.48 There are no separate reports on the functioning of the ECN. Information on the Network is provided through the Commission’s annual reports on competition policy, which include a separate section on the ECN.49 For both networks, the annual reports are publicly available through their websites.50 Drawing on the practice of the national authorities that are its component members, it is worth considering the introduction of a requirement for the networks to also draw up annual work programmes and submit these to Parliament (either through the Commission as intermediate or directly). In the work programmes, the networks would set out the intended interpretation of their mandates for the coming year, and this could further enhance the significance of the legislative mandate claim. It also renders the annual reports more meaningful, as they would assess how the network has fared in achieving its performance targets in any particular year. The ERG is already in the habit of drawing up an annual work programme. This is subject to public consultation through its website.51 The draft programme, opinions received and final programme are all available online. Ideally, the ECN and the ERG should submit their annual work programmes and reports directly to Parliament. However, it is not clear to what extent this would be politically and legally feasible. The advisory role of the ERG might make the Commission unwilling to agree to a direct connection between the Group and Parliament.52 From a legal perspective, it is not clear whether a requirement for the network to report to Parliament directly would be possible only if the network is given legal personality. If the answer is in the affirmative, the network would presumably not be much different from an agency, which raises a number of problematic issues in its own right (not least those related to the scope of competences the network could be bestowed).53

procedures for the authorization and supervision of medicinal products for human and veterinary use and establishing a European Medicines Agency [2004] OJ L136/1 Art 66(e). For comitology committees, see Council Decision 1999/468/EC of 28 June 1999 (the Comitology Decision) as amended by Council Decision 2006/512/EC of 17 July 2006 laying down the procedures for the exercise of implementing powers conferred on the Commission [1999] OJ L184/23 Art 7(4); and eg, EC, ‘Report on the Working of Committees during 2005’ COM (2006) 446 final, 9 August 2006. 48 Commission ERG Decision (above n 22) Art 8. 49 Available at the Commission’s website, http://ec.europa.eu/comm/competition/annual_ reports/. 50 Http://ec.europa.eu/comm/competition/ecn/index_en.html (ECN) and http://erg.ec.europa. eu/ (ERG). 51 ERG(06)03 ‘A Guide to Who We Are and What We Do’ [2006] 8. 52 The Commission’s right to comment on the ERG annual report is arguably a consequence of the ERG’s advisory function. 53 Case 9/56 Meroni & Co, Industrie Metallurgiche SpA v High Authority [1957] ECR 133. For a full discussion of this case, see above ch 1, section III-C.

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Three Perspectives on Network-Based Governance Finally, the law could provide for periodic review of the networks’ functioning, say at five-year intervals.54 Such review would be a natural point for more thorough Parliamentary evaluation of a network’s performance. Reporting requirements should be supplemented by deliberation by the accountability forum of the information provided. Under Article 197 EC, Parliament monitors the Commission through the asking of oral and written questions. Given that the Commission currently acts as intermediary between the ECN/ERG and Parliament, the latter could conceivably use this instrument to debate the activities of the networks. The ERG Rules of Procedure also foresee the possibility for the Groups’s chair to be called in for questioning on the manner in which the network has fulfilled its mandate.55 This must be positively evaluated from a direct democratic legitimacy perspective. A similar obligation for the ECN, which it currently does not have, would require its institutional design to be altered, as this network does not currently have a chair. Parliamentary accountability aside, introducing a chair for the ECN could in any event be beneficial from a transparency viewpoint as he or she would be the face of the network for the outside world. Internally, a chair could enhance the efficiency of network operations. We recall that the tasks of the ERG chair include presiding over meetings of the Group, moderating discussions and facilitating consensus. The chair also bears overall responsibility for progress towards the delivery of work programmes and for the efficiency and effectiveness of ERG activities. Another relationship between the European Parliament and the network could be forged through the right of EU citizens to petition the former on matters that come within the Community’s field of activity when the matter affects the citizen directly.56 Petitions are concerned either with expressions of view on a particular policy issue or with the redress of grievances. As the activities of the networks

54 Framework Directive Art 25 already stipulates a periodic review of the functioning of the Framework Directive but does not address the functioning of the ERG directly. 55 ERG(03)07 ‘Rules of Procedure for ERG’ [2003] Art 10.2. To date, no use has been made of this possibility. Similar obligations have been imposed on the executive directors of some of the more recent European agencies, eg Regulation (EC) No 1592/2002 of the European Parliament and of the Council of 15 July 2002 on common rules in the field of civil aviation and establishing a European Aviation Safety Agency [2002] L240/1 Art 29(2); Council Regulation (EC) No 2007/2004 of 26 October 2004 establishing a European Agency for the Management of Operational Cooperation at the External Borders of the Member States of the European Union [2004] OJ L349/1 Art 25(2); Regulation (EC) No 460/2004 of the European Parliament and of the Council of 10 March 2004 establishing the European Network and Information Security Agency [2004] OJ L77/1 Art 4(g); Regulation (EC) No 1907/2006 of the European Parliament and of the Council of 18 December 2006 concerning the Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), establishing a European Chemicals Agency, amending Directive 1999/45/EC and repealing Council Regulation (EEC) No 793/93 and Commission Regulation (EC) No 1488/94 as well as Council Directive 76/769/EEC and Commission Directives 91/155/EEC, 93/67/EEC, 93/105/EC and 2000/ 21/EC [2006] OJ L396/1 Art 83(k); Council Regulation (EC) No 168/2007 of 15 February 2007 establishing a European Union Agency for Fundamental Rights [2007] OJ L53/1 Art 15(6). 56 Art 194 EC and Rule 191 of the Rules of Procedure of the European Parliament (16th ed September 2007). In addition to EU citizens, this right is also available to resident third-country nationals and legal persons who have their headquarters within the Community.

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The Perspective of Firms and Consumers clearly come within the Union’s sphere of competences, petitions concerning them will be admissible.57 Petitions have since 1987 been dealt with by a special Committee on Petitions. To provide redress, the Committee can draw up reports on matters referred to it, organise hearings, send MEPs to conduct fact-finding missions or request information or action from the Commission.58 The impact of this type of accountability should not be overstated. The information and expertise deficits that partially account for vague legislative mandates may very well inhibit thorough scrutiny by Parliament. Parliamentary control furthermore takes place at relatively infrequent intervals.59 Limitations on parliamentary time and influence are considerable, and the European Parliament lacks powerful sanctioning instruments. For agencies and comitology committees, Parliament can rely on budgetary tactics to express disapproval because it retains the ultimate power of discharge over non-compulsory expenditure.60 As the networks are primarily funded by the national authorities (see below), the threat of budgetary power loses much of its impact. Finally, we must be alert to the possible politicisation of network activities as Parliament becomes more involved, which could affect the (prescribed or assumed) independence of network members. b. Legal Accountability Legal control through the judiciary is traditionally perceived as a second essential component of accountability systems.61 Its significance derives from its foundations, which must be sought in classic rule-of-law thinking and the doctrine of 57 Subject of course to compliance with formal requirements for filing the petition: the petition must be written in one of the official languages of the EU, it should include all facts pertinent to the issue and it should be written clearly and legibly. 58 Rule 192 of the Rules of Procedure of the European Parliament (16th edn September 2007). The Committee prepares an annual report for debate in plenary session: Report on the Deliberations of the Committee on Petitions during the Parliamentary year 2006 (2007/2132(INI)) A6–0392/2007. 59 See Baldwin and Cave (above n 13) 288. 60 Arts 272 and 273 EC. For agencies, see further Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities [2002] OJ L248/1 Art 185. For comitology committees, see the 2006 amendment of the Comitology Decision (above n 47) introduces another sanctioning tool. The newly devised ‘regulatory procedure with scrutiny’ entitles Parliament to reject or veto delegated legislation for exceeding the implementing powers provided for, incompatible with the aim or content of the basic instrument or failure to respect the principles of subsidiarity or proportionality: Council Decision 2006/512/EC of 17 July 2006 amending Decision 1999/468/EC laying down the procedures for the exercise of implementing powers conferred on the Commission [2006] OJ L200/11 Art 5a. 61 We follow Mulgan (above n 27) 564 in excluding the institutional framework of checks and balances within which public bodies operate and which they must observe (eg, legislation, judicial principles) from the concept of legal control: [B]eing accountable for alleged breaches of the law does not mean that compliance with the law is also an act of accountability or that the law itself is an accountability mechanism … [T]he legal accountability mechanism is confined to that part of the law which lays down enforcement procedures. The main body of the law, which most public servants follow as a matter of normal practice, is an instrument for controlling their behaviour but not for holding them accountable.

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Three Perspectives on Network-Based Governance the separation of powers. Within the institutional system of the EU, the European Court of Justice has played a fundamental role as accountability forum.62 Consider the case law relating to the rights and obligations of the European Parliament under Article 230 EC,63 the development of the doctrine of Member State liability64 and the legitimacy of comitology committees.65 Nevertheless, the appropriateness and efficacy of legal control as a method of holding actors to account is not unequivocal. Some question whether courts have the expertise to consider the technical and polycentric issues inherent in regulation.66 They emphasise the importance of administrative efficiency and the need to safeguard key features of the European integration process such as flexibility, experimentation and deliberation.67 The proper scope for judicial oversight over intranetwork activities and network documents is examined separately below.

c. Administrative Accountability Parliaments and courts comprise the traditional fora through which administrative actors are held to account. More recently, we have witnessed the emergence of a number of institutions that perform independent and external administrative and financial scrutiny.68 Particularly noteworthy in this context are the ombudsmen and audit offices.

62 Also in a number of Member States considerable trust is placed in legal accountability, at times more than in political or parliamentary accountability: Harlow, Accountability in the European Union (above n 27) 16–18. 63 Case 138/79 SA Roquette Frères v Council [1980] ECR 3333; Case 139/79 Maizena GmbH v Council [1980] ECR 3393 (both concerning the right of the European Parliament to intervene in Article 230 proceedings); Case 13/83 European Parliament v Council [1985] ECR 1513 (concerning Parliament’s ability to bring proceedings against the other institutions for failure to act); Case 294/83 Parti écologiste ‘Les Verts’ v European Parliament [1986] ECR 1339 (establishing that Parliament could also be a respondent in Article 230 actions, even though the text of that Article at the time only referred to the Council and the Commission as potential respondents); and Case C-70/88 Parliament v Council (‘Chernobyl’) [1990] ECR I-2041; Case C-187/93 European Parliament v Council (Shipment of Waste) [1994] ECR I-2857 (concerning the right for Parliament to sue under Art 230 for the purpose of protecting its prerogatives). 64 Joined cases C-6/90 and C-9/90 Andrea Francovich and Danilla Bonifaci and Others v Italian Republic [1991] ECR I-5357; Joined cases C-46/93 and C-48/93 Brasserie du Pêcheur SA v Bundesrepublik Deutschland and the Queen v Secretary of State for Transport, ex parte Factortame Ltd and Others [1996] ECR I-1029; Case C-224/01 Gerhard Köbler v Republik Österreich [2003] ECR I-10239. 65 Case 25/70 Einfuhr- und Vorratstelle für Getreide und Futtermittel v Köster et Berodt & Co [1970] ECR 1161; Case 23/75 Rey Soda v Cassa Conguaglio Zucchero [1975] ECR 1279; Case 5/77 Carlo Tedeschi v Denkavit Commerciale srl [1977] ECR 1555. 66 Eg, M Shapiro, ‘Administrative Discretion: The Next Stage’ (1983) Yale Law Journal 1487. 67 J Scott and D Trubek, ‘Mind the Gap: Law and New Approaches to Governance in the European Union’ (2002) 8 European Law Journal 1. 68 In the case of traditional mechanisms, accountability is rendered to a higher authority (‘upwards accountability’); under administrative processes, accountability is rendered to a broadly parallel institution (‘horizontal accountability’): Scott (above n 27) 42. Bovens, ‘Analysing and Assessing Accountability’ (above n 27) 460 refers to this last relation as involving ‘diagonal accountability’.

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The Perspective of Firms and Consumers The European Ombudsman performs two principal tasks.69 First, he acts as a court substitute by resolving individual grievances concerning maladministration suffered at the hands of Community institutions and bodies.70 Second, he provides overarching quality control of Community administration and acts as a stimulus towards improvement.71 Here we should mention the European Code of Good Administrative Behaviour,72 intended to flesh out the right to good administration found in Article 41 of the EU Charter of Fundamental Rights.73 The Ombudsman has exerted a powerful influence on the development and reform of European governance.74 That said, the Ombudsman has only voluntary and non-coercive powers to secure accountability. He may address recommendations to the Community institution concerned or make a special report to the

69 Art 195 EC; and Art 43 of the Charter of Fundamental Rights of the European Union [2006] OJ C346/1. Given that he is appointed by and must answer to the European Parliament, the Ombudsman can formally be seen as a Parliamentary instrument of scrutiny. Still, its position and role are of a hybrid nature: the Ombudsman is also responsible for scrutinising the behaviour of Parliament itself and must not take instructions from anybody. For these reasons, we discuss this institution in a separate section. On the Ombudsman more generally, consider K Heede, The European Ombudsman: Redress and Control at Union Level (The Hague, Kluwer, 2000); P Craig, EU Administrative Law (Oxford, Oxford University Press, 2006) ch 22; P Magnette, ‘Between Parliamentary Control and the Rule Of Law: The Political Role of the Ombudsman in the European Union’ (2003) 10 Journal of European Public Policy 677; K Heede, ‘Enhancing the Accountability of Community Institutions and Bodies: The Role of the European Ombudsman’ (1997) 4 European Public Law 587. 70 Maladministration occurs when a public body fails to act in accordance with a rule or principle that is binding upon it. Citizens do not need to show that they are directly concerned by the alleged maladministration to complain—a clear advantage in comparison to applying to the courts. Also, Ombudsman procedures are typically swifter than court proceedings, with the former aiming to acknowledge receipt of complaints within a week, deciding whether to open an inquiry within a month and closing inquiries within a year. There are some procedural rules, however: complaints must be made within two years of the date when the relevant facts between known and the institution or body concerned must have already been contacted. Complaints against national, regional or local authorities are inadmissible, even when the complaints are about Community law—these are typically forwarded to the competent national or regional ombudsman. The Ombudsman is also barred from investigating complaints concerning the Community Courts acting in their judicial role and complaints the facts of which are or have been the subject of legal proceedings. 71 This is usually done through reports or recommendations resulting from inquiries conducted by the Ombudsman. These inquires may be either own-initiative or on the basis of complaints submitted to the Ombudsman directly or through a MEP. There have been inquiries in relation to inter alia public access to documents by Community institutions other than the Council and Commission (616/PUBAC/F/IJH) and the use of the Commission’s discretion in dealing with complainants under the Art 226 procedure (3453/2005/GG). 72 Available at the website of the European Ombudsman, http://www.ombudsman.europa.eu/ home/en/default.htm. 73 In particular, the principles of transparency and accountability, which are seen as inherent to the concept of good administrative practices. The Code functions as a standard-setting document and is also used as a primary source of reference in deciding individual cases of maladministration. The Ombudsman, supported by the European Parliament, advocates the transformation of the Code from a soft-law tool to a binding European regulation. 74 Since its establishment in 1995, the Ombudsman has dealt with over 10,000 complaints. For an overview of the achievements of the office, consider the annual reports of the EU Ombudsman and the guide entitled ‘What can the European Ombudsman Do for You?’ (both available at the Ombudsman website).

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Three Perspectives on Network-Based Governance European Parliament. Thus, much hinges on the moral incentive of the addressee of the recommendations to redress the flaws identified. In practice, fortunately, relationships with other institutions are generally good. Like Parliament, the Ombudsman is further constrained by available resources, and he provides intermittent scrutiny. As the ECN and the ERG do not formally have the status of Community bodies, it is not clear whether the Ombudsman is competent to entertain complaints regarding their functioning. Giving the networks legal personality would clarify matters, yet this solution is likely to bring us back to the agency conundrum. Audit offices secure the legality and probity of public spending.75 As with the Ombudsman, the sanctions available to audit offices are not generally legally coercive—rather, they involve publicity and embarrassment.76 Another similarity is that control by audit offices is usually exercised at a few, predefined occasions per annum. Auditing under network-based governance is a somewhat complex affair. The ECN and the ERG are resourced by the national authorities and the Commission. That is to say, each member bears its own costs associated with participation in the network and the National Regulatory Agencies (NRAs) jointly fund the secretariat of the ERG.77 An audit of the network as such is hence not possible. At the same time, it is difficult to see how an audit of an individual network member can encompass not only the soundness and legality of expenditure consequent upon participation by that member but also the network activities that are not within the exclusive control of that particular member. The existing institutional design does not seem to admit of a comprehensive solution: it seems unfeasible to concentrate all financial expenditure at a given point within the network and thereby pinpoint any particular audit body (either the European Court of Auditors or a national audit office) that would bear responsibility for assessing the accounts.

iii. Due Process The due process claim holds that public support is merited because an administration uses procedures through which it considers the interests of the public, or

75 The newer technique of ‘value-for-money’ audit also allows spending to be checked for ‘quality’, ‘performance’, ‘effectiveness’ and ‘economy’. This type of audit is closely identified with New Public Management and its internal, hierarchical techniques of managerial accountability. Consider Harlow, Accountability in the European Union (above n 27) ch 5; Power (above n 33); F White and K Hollingsworth, Audit, Accountability and Government (Oxford, Oxford University Press, 1999); B Laffan, ‘Auditing and Accountability in the European Union’ (2003) 10 Journal of European Public Policy 762; B Laffan, ‘Becoming a “Living Institution”: The Evolution of the European Court of Auditors’ (1999) 37 Journal of Common Market Studies 251. 76 Indirectly, legally coercive sanctions are possible, such as when Parliament uses its budgetary power in response to or in accordance with the audit office’s recommendations. 77 ERG(07)14 ‘European Regulators Group: Annual Report 2006’ [2007] 10.

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The Perspective of Firms and Consumers at least those affected by the outcome of the process, decision, policy or action.78 Direct legitimation through deliberative discourse may be complemented by indirect legitimation: although one might not agree with the outcome, one recognises the validity of the process through which it was reached.79 Due process requires at least two elements to be present. First, there should be public hearings or other devices through which affected interests can participate in rule-making.80 The value of participation is twofold.81 The instrumental perspective hopes that by considering the views of those with a certain expertise, the final decision will be of a better quality. This perspective presupposes ‘regulatory space’.82 While the institutional rule-making structure—the network—possesses formal power, important informational resources are within the control of private organisations. Participatory processes allow the accumulation of the many facets of the regulatory space—both the formal and the informal. The non-instrumental view is that participation enhances involvement with the policy and renders the outcome more acceptable, which should, or so it is hoped, lead to better compliance. This view is premised upon the ‘developmental individualist’—participation aids the self-improvement and development of

78 See generally DJ Galligan, Due Process and Fair Procedures: A Study of Administrative Procedures (Oxford, Clarendon Press, 1996); J Mashaw, Due Process in the Administrative State (New Haven, Yale University Press, 1985). Here we should mention the debate on whether the EU needs a general code on procedural rights, akin to the American Administrative Procedure Act 1946, s 53 of which lays down the ‘notice and comment procedure’: [A]fter notice required by this section, the agency shall give interested persons an opportunity to participate in the rule-making through the submission of written data, views or arguments with or without the opportunity for oral presentation. After consideration of the relevant matter presented, the agency shall incorporate in the rules adopted a concise general statement of their basis and purpose. See, eg, Craig, EU Administrative Law (above n 69) chs 10 and 11; Baldwin (above n 13) 76–80; G Majone, Regulating Europe (London, Routledge, 1996) ch 13; F Bignami, ‘Three Generations of Participation Rights before the European Commission’ (2004) 68 Law and Contemporary Problems 61; F Bignami, ‘The Democratic Deficit in European Community Rulemaking: A Call for Notice and Comment in Comitology’ (1999) 40 Harvard International Law Journal 451; C Harlow, ‘Codification of EC Administrative Procedures? Fitting the Foot to the Shoe or the Shoe to the Foot?’ (1996) 2 European Law Journal 3; M Shapiro, ‘Codification of Administrative Law: The US and the Union’ (1996) 2 European Law Journal 26; R Dehousse et al, ‘Europe after 1992: New Regulatory Strategies’, EUI Working Paper 92/31. On the American APA, see eg, S Breyer and R Stewart, Administrative Law and Regulatory Policy, 5th edn (New York, Aspen Publishers, 2002). Participation is thus a clear example of ‘input’ legitimacy as used by Scharpf, Governing in Europe (above n 2). 79 J Black, ‘Proceduralizing Regulation: Part II’ (2001) 21 Oxford Journal of Legal Studies 33, 46. 80 A distinction is often made between participation in individual acts and in general acts, with broader rights for individual decisions (see below). 81 See Craig, EU Administrative Law (above n 69) 320; Mashaw (above n 78); and Galligan (above n 78) 75–82. 82 L Hancher and M Moran, ‘Organizing Regulatory Space’ in L Hancher and M Moran (eds), Capitalism, Culture and Regulation (Oxford, Clarendon Press, 1989). For use of the regulatory space concept in telecommunications regulation, see C Hall, C Scott and C Hood, Telecommunications Regulation: Culture, Chaos and Interdependence inside the Regulatory Process (London, Routledge, 2000). This approach to the regulatory process in devising accountability structures has been used inter alia by Scott (above n 27).

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Three Perspectives on Network-Based Governance individuals.83 Therefore individuals should have an active ‘voice’ within the system as regards decisions which have a direct impact on their development. Conversely, the legislative mandate and parliamentary accountability claims presume the ‘passive individualist’, whose stance towards politics is one of apathy. The involvement of individuals is restricted to the election of representatives who participate in the administration through scrutiny and oversight on their behalf. Promoting participation brings to the fore fundamental questions:84 Who should participate? How to ensure that possible participants have the requisite capacity and motivation to exercise their discourse rights? How extensive should participation be? And how much delay should be accepted for participation’s sake? Robert Baldwin and Martin Cave caution: Placing emphasis on ‘acceptable’ and ‘correct’ results can blind one to the price that has to be paid for these. On occasions it might be better to have a timely decision than to wait for a decision that offers the chances of a marginally higher level of procedural acceptability or correctness.85

Besides participation, due process also demands the giving of reasons.86 The two requirements are closely linked. For interested or affected parties, reasons are the natural conclusion of the participatory process. They enable them to understand the raison d’être of the measure and how their contribution has featured in determining the contents of that measure. For the administration, it ensures reflexivity and self-criticism: having to justify one’s choices ensures that one must seriously think through proposed courses of action.87 For the court, reasons are

83 This ‘dignitarian’ approach has been propounded by inter alia Hart (above n 11); J Rawls, A Theory of Justice (Oxford, Oxford University Press, 1973). For a detailed discussion of participatory or deliberative democracy, consider J Black, ‘Proceduralizing Regulation: Part I’ (2000) 20 Oxford Journal of Legal Studies 597; and Black, ‘Part II’ (above n 79), drawing on J Habermas, Between Facts and Norms: Contributions to a Discourse Theory of Law and Democracy, W Rehq (tr) (Cumberland, MIT Press, 1996). On discourse theory of regulation, see J Black, ‘Regulatory Conversations’ (2002) 29 Journal of Law and Society 163. C Joerges and J Neyer have applied a deliberative democracy framework to analyse and legitimise comitology committees, eg ‘Transforming Strategic Interaction into Deliberative Problem-Solving: European Comitology in the Foodstuffs Sector’ (1997) 4 Journal of European Public Policy 609. On enhancing accountability through participation, see B Manin, Principles of Representative Government (Cambridge, Cambridge University Press, 1998); J Rosenau and WM Fagen, ‘Increasingly Skilful Citizens: A New Dynamism in World Politics?’ (1997) 41 International Studies Quarterly 655. 84 Black, ‘Part II’ (above n 79) 37, 38; Baldwin (above n 13). 85 Baldwin and Cave (above n 13) 333. They also note that participatory requirements are likely to bring about an increase in the length, formality and complexity of the rules adopted, because opposing interests are accommodated through comprises and qualifications. See also Harlow, ‘Codification of EC Administrative Procedures?’ (above n 78) 13ff; G Ganz, Administrative Procedures (London, Sweet & Maxwell, 1995). 86 Laid down for EC Institutions in Art 253 EC. On the importance of reason-giving, in particular in regulatory regimes or for regulatory authorities, see G Majone, ‘Causes and Consequences of Changes in the Mode of Governance’ (1997) 17 Journal of Public Policy 139, 160; M Shapiro, ‘The Giving Reasons Requirement in European Community Law’ [1992] University of Chicago Legal Forum 179. 87 See Black, ‘Part II’ (above n 79) 36.

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The Perspective of Firms and Consumers helpful in the exercise of judicial review.88 At the same time, procedural requirements could enhance the role of the courts at the expense of that of the administration.89 Such obligations may facilitate legal challenges against executive acts and may increase the likelihood of regulatory capture by those who are ingenious at manipulating such challenges to their advantage.90 The law does not stipulate any due process criteria for the ECN, and neither can such rules be found in self-authored soft-law instruments. This is probably because this network was meant to prioritise case-based interactions over the development of common approaches.91 To date, the ECN has published only three documents: the Model Leniency Programme; an overview of advocacy and enforcement activities in the area of professional services; and the results of a questionnaire on the reform of national laws after Regulation 1/2003.92 Affected interests were not allowed to participate in any of the adoption processes, presumably because of confidentiality concerns. However, the Leniency Programme and the advocacy overview are both accompanied by rather detailed reasons. Conversely, the ERG is mandated by law to heed process rights. With regard to consultation, the ERG Decision’s Article 6 enjoins the Group to ‘consult extensively and at an early stage with market participants, consumers and end-users in

88 See the view of the ECJ in Case 24/62 Germany v Commission [1963] ECR 63; Case 110/81 SA Roquette Frères v Council [1982] ECR 3159 [24]; Case T-44/90 La Cinq SA v Commission [1992] ECR II-1 [42]; Case T-206/99 Métropole Télévision SA v Commission [2001] ECR II-1057 [44]. For the scope of the duty to give reasons, see eg, Joined cases 296 and 318/82 Kingdom of the Netherlands and Leeuwarder Papierwarenfabriek BV v Commission [1985] ECR 809 [19]; Case C-367/95P Commission v Chambre syndicale nationale des enterprises de transport de fonds et valeuers (Sytravel) and Brink’s France SARL [1998] ECR I-1719 [63]. 89 In the US, the courts have developed ‘hard look’ review in assessing compliance with procedural rules. This phrase connotes the idea that courts must take a ‘hard look’ at an agency’s decision-making process and assess whether the factual and analytical basis for the decision is properly recorded, the reasoning adduced and the consideration given to the comments submitted by third parties. The term was coined by Judge Harold Leventhal of the DC Circuit in Pikes Peak Broadcasting Co v FCC 422 F 2d 671 (DC Cir 1969); and Greater Boston Television Corp v FCC 444 F 2d 841 (DC Cir 1970). An example of a case in which this approach was taken too far is Vermont Yankee Nuclear Power Corp v Natural Resources Defence Council 435 US 519 (1978), on which see R Stewart, ‘Vermont Yankee and the Evolution of Administrative Procedures’ (1978) 91 Harvard Law Review 1821. 90 Baldwin and Cave (above n 13) 315; Harlow, Accountability in the European Union (above n 27) 165, referring to M Galanter, ‘Predators and Parasites: Lawyer-Bashing and Civil Justice’ (1994) 28 Georgia Law Review 633; D Stevens, ‘Covert Collusion’ (1995) 15 Yearbook of European Law 46. 91 This difference between the ECN and the ERG is explained in more detail above in ch 6. As to the scope of application of due process rights, we exclude case-based interactions as these can be conceived as the functional equivalent of internal administrative actions, and legal systems generally do not allow process rights for such actions. 92 Available at the ECN website (above n 50). In addition to these formal documents, there are also a number of informal approaches agreed upon within the meetings of sector-specific workgroups, subgroups or the heads of DGs, which remain internal to the competition authorities.

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Three Perspectives on Network-Based Governance an open and transparent manner’.93 Consultations are foreseen for policy documents, such as Common Positions or Opinions, as well as the annual work programmes and reports.94 The consultative document is published on the ERG website, and responses are solicited either through written submissions or through participation in public hearings.95 Which of these modalities is used for a particular consultation is determined on a case-by-case basis.96 Consultations are in principle restricted to a single round of comments. The timescale for responses is a minimum of 15 working days in case of a public consultation and a maximum of 20 working days when a public hearing is organised.97 The ERG has committed itself to reflect the input of contributions received in its final documents. Respecting this promise, the Group indeed explicitly indicates why it does or does not agree with the comments made.98 ERG documents generally state the reasons on which they are based.99 The final document and the contributions are published on the Group’s website, save when confidentiality has been requested.100

93 Above n 22. The ERG draws a distinction between experts and interested parties, which are defined as ‘market participants, consumers and end-users or their representatives’. The impact of this distinction is, however, not clear. The scope and procedure for consultation are fleshed out by a number of ERG documents: ERG(03)05 rev1 ‘ERG and Transparency in Practice’ [2003]; ERG(03)07 ‘Rules of Procedure for ERG’ [2003]; ERG(06)03 ‘A Guide to Who We Are and What We Do’ [2006. For a comparison between the consultation practices of the ERG and CESR (on which, see above ch 1, section IV), see also D Coen and M Thatcher, ‘After Delegation: The Evolution of European Networks of Regulatory Agencies’, forthcoming. 94 ERG(03)05 rev 1 ‘ERG and Transparency in Practice’ [2003] point 1.A; ERG(03)07 ‘Rules of Procedure for ERG’ [2003] Arts 5.1, 9.2 and 9.4. Provision is further made for meetings between the Group and interested parties to discuss matters of common interest, should the ERG be so inclined: ERG(03)07 Art 9.6. 95 Written submissions should be addressed to the ERG Secretariat, preferably by email. 96 On the basis of ERG(03)05 rev 1 ‘ERG and Transparency in Practice’ [2003] point 1.D. It may be expected that the ERG looks to factors such as the nature of the specific subject, possible alternatives for consultations, confidentiality issues, the interests of third parties and the urgency of the matter in making this determination. 97 If a public hearing is organised, such a hearing will be held no later than 12 working days after the start of the consultation procedure and will be concluded within the timeframe of 20 working days. Public hearings take place in Brussels. The timescale and procedure applicable in any one instance are made available on the ERG website. 98 Eg ERG (07)20 ‘Consultation Summary on Harmonisation’ [2007] for ERG(06)67 ‘Harmonisation: The Proposed ERG Approach’ [2006] and ERG(06)68 ‘Effective Harmonisation within the European Electronic Communications Sector: A Consultation by the ERG’ [2006]. 99 Some documents are also accompanied by an explanatory memorandum, eg ERG(06)19 ‘Revised ERG Common Position on Remedies: Explanatory Memorandum’ [2006] for ERG(06)33 ‘Revised ERG Common Position on the Approach to Appropriate Remedies in the ECNS Regulatory Framework’ [2006]. 100 ERG(03)07 ‘Rules of Procedure for ERG’ [2003]Art 9.4. For examples, consider ERG(04)24 ‘Note on the Hearing on Cost Accounting and Accounting Separation’ [2004]; ERG(04)34 ‘Executive Summary on Consultation Responses “Draft ERG Opinion on the Revision of the Commission Recommendation 98/322 on Cost Accounting and Accounting Separation”’ [2004]; ERG(05)03 ‘Explanatory Note on the 2005Work Programme Consultation and Hearing’ [2005]; ERG(05)26 ‘Summary of ERG Responses to the Consultation of the ERG Working Paper on the SMP Concept for the New Regulatory Framework’ [2005]; ERG(07)20 ‘Consultation Summary on Harmonisation’ [2007].

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The Perspective of Firms and Consumers The ERG most frequently invokes the ‘normal’ consultative procedure as opposed to public hearings.101 A perusal of past consultations reveals that the response rate is rather high, averaging around 18 contributions per consultation.102 With a few exceptions,103 replies to calls for input are provided only by market participants and major trade organisations such as ETNO and ECTA.104 A possible explanation is that consumers and end-users are not interested in making their views known. More realistically, it may be feared that these interests are not well organised or well financed enough to actually participate. On the truth of this account, we must beware of the dangers of undue influence or capture.105 With the ERG confronted with the concerns and pressures from only market parties, to the exclusion of other interests, its policies could end up reflecting a certain bias in favour of these market concerns. We recall that ‘regulatory space’ presupposes a certain dependence on the informational resources held by these private actors for the public authority to survive and prosper. Thus we query how the ERG can mobilise consumer and end-user interests to arrive at balanced participation.106 Should the Group be required to actively seek their contribution, for instance by contacting (European) consumer organisations? Would it be an idea to attach a consumer group to the ERG?107 A concept that straddles the claims of accountability and due process is transparency.108 Leger AG argues this succinctly:

101 At 1 November 2008, there had only been 3 hearings: on remedies; accounting separation and cost accounting; and on the 2006 draft work programme. 102 The consultation on the draft ERG Common Position on best practice in remedies imposed as a consequence of a position of significant market power in the relevant markets for wholesale leased lines received the least responses (four), and the consultation on the draft joint ERG/EC approach on appropriate remedies in the new regulatory framework the most (50). 103 Eg, the contribution by the Japanese government to the consultation on FL-LRIC modelling or the response of the Romanian government to the consultation on broadband market competition and country case studies. 104 ETNO stands for European Telecommunications Network Operators’ Association, and ECTA is the European Competitive Telecommunications Association. ETNO used to be a frequent critic of ERG consultations, maintaining that ‘compared to the original promises of observership and consultation, industry’s participation in the ERG has been revised to one of simply providing blind input to its annual work programme’: Coen and Thatcher (above n 93) 18. 105 Pioneered by G Stigler, ‘The Theory of Economic Regulation’ (1971) 2 Bell Journal of Economics 3. See also MH Bernstein’s ‘life-cycle theory’: MH Bernstein Regulating Business by Independent Commission (New Jersey, Princeton University Press, 1955) and Baldwin and Cave (above n 13) ch 3 for an overview of regulatory theories. It may be objected that it will be difficult to capture networks as such, as they operate primarily in virtual form, and firms are denied access to ERG meetings. Capture would thus come about indirectly, by lobbying the ERG’s component members, the national authorities. 106 There is a wider trend within EC law to promote the involvement of civil society in decision-making, eg EC, ‘European Governance’ (White Paper) COM (01) 428 final 8, 25 July 2001; and EC, ‘Towards a Reinforced Culture of Consultation and Dialogue: General Principles and Minimum Standards for Consultation of Interested Parties by the Commission’ (Communication) COM (2002)704 final, 11 December 2002. 107 On the upsides and downsides of consumer panels, see Baldwin and Cave (above n 13) 306–8. 108 It is also possible to conceive of a direct link between transparency and legitimacy: if citizens do not understand the business of government, then it is questionable whether they will nevertheless

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Three Perspectives on Network-Based Governance The fact that citizens are aware of what the administration is doing is a guarantee that it will operate properly. Supervision by those who confer legitimacy on the public authorities encourages them to be effective in adhering to their initial will and can thereby inspire their confidence, which is a guarantee of public content as well as the proper functioning of the democratic system. At the highest level of that system, providing the public with information is also the surest method of involving them in the management of public affairs.109

Transparency is hence a precondition for some sort of amorphous public accountability110—‘amorphous’ because censure and redress are indirect or lacking altogether.111 By allowing citizens to see what is going on within the administration, they may in addition become aware of the existence of administrative practices on which they might wish to exert influence by invoking participation rights. Transparency is thus an instrument for accountability and due process but not constitutive of these mechanisms. As pointed out by Peter Dyrberg, ‘there is a cluster of elements under the heading “transparency”.’112 Here we will deal mainly with the degree to which information is available. It is worth remembering that more transparency is not necessarily a positive sum game: too

perceive it as legitimate. See the Treaty on European Union Declaration 17 on Democracy, Transparency and Subsidiarity. Transparency is a principle of growing importance in the EC. Consider Art 1 EU (demanding that decisions are taken ‘as openly as possible’), Art 255 EC (right to access to documents), fleshed out in Regulation (EC) No 1049/2001 of the European Parliament and of the Council of 30 May 2001 regarding public access to European Parliament, Council and Commission documents [2001] L145/43 and Arts 41, 42 of the Charter of Fundamental Rights (above n 69). There is also a considerable body of case law, eg Case C-58/94 Kingdom of the Netherlands v Council [1996] ECR I-2169; Case T-194/94 John Carvel and Guardian Newspapers Ltd v Council [1995] ECR II-2765; Case T-105/95 WWF UK (World Wide Fund for Nature) v Commission [1997] ECR II-313; Case T-174/95 Svenska Journalistförbundet v Council [1998] ECR II-2289; Case T-14/98 Heidi Hautula v Council [1999] ECR II-2489; Case T-92/98 Interporc v Commission [1999] ECR II-3521 [39]. For literature, consider C Hood and D Held, Transparency: The Key to Better Governance? (Oxford, Oxford University Press, 2006); V Deckmyn (ed), Increasing Transparency in the European Union? (Maastricht, EIPA, 2002); P Dyrberg, ‘Accountability and Legitimacy: What is the Contribution of Transparency?’ in Arnull and Wincott (eds) (above n 27); D Curtin, ‘Betwixt and Between: Democracy and Transparency in the Governance of the European Union’ in J Winter et al (eds), Reforming the Treaty on European Union: The Legal Debate (The Hague, Kluwer Law International, 1996); A Tomkins, ‘Transparency and the Emergence of European Administrative Law’ (1999/2000) 19 Yearbook of European Law 217; B Vesterdorf, ‘Transparency: Not Just a Vogue Word’ (1999) 22 Fordham International Law Journal 902; J Lodge, ‘Transparency and Democratic Legitimacy’ (1994) 32 Journal of Common Market Studies 343. 109 Case C-353/99P Council v Heidi Hautala [2001] ECR I-9565 [52]. 110 Eg, Recital 2 Reg 1049/2001 (above n 108); Interporc (above n 108) [39]. 111 See also Bovens, ‘Analysing and Assessing Accountability’ (above n 27) 457, who speaks of ‘social accountability’; E Fisher, ‘The European Union in the Age of Accountability’ (2004) 24 Oxford Journal of Legal Studies 495, 504; and Oliver (above n 27) 25. This type of accountability accords an important role to the media and freedom of expression rights. It also ties in with the increased emphasis on an active civil society. As far as the networks are concerned, the possibility of consequences in the form of withheld public support cannot materialise, given that networks are not directly elected. 112 Above n 108, 84. Compare for instance the different taxonomies used by Vesterdorf, ‘Transparency: Not Just a Vogue Word’ (above n 108) 903; and Fisher (ibid) 503.

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The Perspective of Firms and Consumers much information may be confusing and discourage participation. Also, it could result in administrative costs that are too high for the administration as well as affected interests. The primary tool with which networks ensure transparency is their websites. That of the ERG contains considerably more information than does the ECN website. It would appear that the rules of professional secrecy to which the ECN members are subjected offer an explanation for this difference.113 ECN-related information not covered by these rules is, however, available online, including extensive statistics on new case investigations or envisaged case decisions, as well as lists identifying the authorities that operate leniency programmes or accept summary applications.114 In the case of the ERG, the agendas and conclusions of meetings of the Plenary are published on the website.115 Plenary meetings are generally accompanied by press releases116 and public debriefings, to which all interested parties are invited through the website or through email alerts if they subscribe to the ERG news sendlist.117 Email alerts are also used to inform subscribers of the publication of new ERG documents or other important developments. The Chair may further, on his or her own initiative, describe the work or explain the views of the ERG to the press or other interested parties, in response to enquiries or in cases of emergency.118 More generally, the ERG organises regular meetings with stakeholders, for instance prior to the plenaries or by means of workshops on major regulatory challenges.119 In terms of access to documents, the ERG has committed itself to observe the rules and principles laid down in the Regulation on Access to Documents for the EU Institutions.120

113

See the statement to this effect on the ECN website (above n 50) in the ‘FAQ’ section. For an explanation of leniency programmes and summary applications, see above ch 6, sections II-A and II-B. 115 ERG(03)07 ‘Rules of Procedure for ERG’ [2003] Art 9.3 and ERG(03)05 rev 1 ‘ERG and Transparency in Practice’ [2003] point III-A and point III-C. Agendas are published at least one week before meetings, and the conclusions are made available on the website within one week after meetings take place. 116 ERG(03)05 rev 1 ‘ERG and Transparency in Practice’ [2003] point III-B. 117 Everyone is eligible to subscribe to this list by sending an email to [email protected]. 118 ERG(03)07 ‘Rules of Procedure for ERG’ [2003] Art 9.6. 119 According to ERG(07)14 ‘Annual Report 2006’ [2007] 4 the first such workshop related to next-generation networks and IP interconnection. ERG (08)09 ‘Annual Report 2007’ [2008] 4 adds that the ERG has also held bilateral meetings with interested associations at their request. 120 ERG(07)13 ‘Note on Access to ERG documents: Policy Proposal’ [2007] and ERG(03)05 rev 1 ‘ERG and Transparency in Practice’ [2003]. Reg 1049/2001 (above n 108). Consider J Heliskosi and P Leino, ‘Darkness at the Break of Noon: The Case Law on Regulation No 1049/2001 On Access To Documents’ (2006) 43 Common Market Law Review 735; H Kranenborg, ‘Is it Time to Revise the European Regulation on Public Access to Documents?’ (2006) 12 European Public Law 251; M de Leeuw, ‘The Regulation on Public Access to European Parliament, Council and Commission Documents in the European Union: Are Citizens Better Off?’ (2003) 28 European Law Review 324; D Curtin, ‘Citizens’ Fundamental Right of Access to EU Information: An Evolving Digital Passepartout?’ (2000) 37 Common Market Law Review 7. On the topic of language in relation to access to documents, see D Curtin and R van Ooik, ‘The Sting is Always in the Tail: The Personal Scope of Application of the EU Charter of Fundamental Rights’ (2001) 8 Maastricht Journal of European and Comparative Law 114

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Three Perspectives on Network-Based Governance iv. Expertise The expertise claim values the ability qua knowledge of administrative bodies to adopt the most appropriate courses of action in the face of polycentric problems. This claim is hence strongly institutionalist in nature. Compared to the claims previously discussed, it amounts to a technocratic as opposed to democratic vision of legitimacy. A problem with the expertise claim is that it may be difficult for the public to assess whether the expertise has been applied appropriately or effectively as it is often not clear what would have happened if alternative choices had been adopted. This has been aptly phrased by Baldwin: ‘the patient who is not a surgeon tends not to know if the operation was as successful as it might have been’.121 Also, many citizens have an innate distrust of experts. One must further remember that an expert does not a politically neutral outcome make. Reliance on experts is considered particularly apposite when a polycentric conflict requires resolution, which by the same token, implies that their resolution of the conflict will have a political dimension to it. These problems can, however, be considerably attenuated through reason-giving and transparency. We may detect a certain incompatibility between this claim and the instrumental rationale for due process. The expertise rationale would presume that an authority possesses all the requisite knowledge to arrive at the best decision and accordingly has no need of the contributions by private parties. Having said that, we may forge a connection between the non-instrumental rationale for due process and the expertise test, as participation may enhance the acceptability of the expert judgment. Also, the relationship between the accountability claim and the expertise claim may be one of tension. The credibility of the decision-maker derives from its expertise, and there is hence no need, it may be asserted, for strict accountability mechanisms: one must simply ‘trust the expert’. What is more, such mechanisms could hamper the swift and effective exercise of expertise. Another version combines expertise with the logic of commitment. Says Giandomenico Majone, governments find it difficult to maintain long-term commitment to given regulatory policies, because their time horizons are short, defined with reference to the date of the next election.122 Delegating responsibility for the policies offers a solution. Credibility of commitment demands that

107; Case T-107/94 Christina Kik v Council and Commission [1995] ECR II-1717, upheld on appeal by Case C-270/95P Christina Kik v Council and Commission [1996] ECR I-1987; Case T-120/99 Christina Kik v Office for Harmonization in the Internal Market (Trade Marks and Designs) (OHIM) [2001] ECR II-2235, upheld on appeal by Case C-361/01 Christina Kik v Office for Harmonization in the Internal Market (Trade Marks and Designs) (OHIM) [2003] ECR I-8283. 121 Baldwin (above n 13) 45. 122 Majone, Regulating Europe (above n 78); G Majone, ‘Delegation of Powers in a Mixed Polity’ (2002) 8 European Law Journal 319; G Majone, ‘The Credibility Crisis of Community Regulation’ (2000) 38 Journal of Common Market Studies 273; G Majone, ‘Europe’s Democratic Deficit: The Question of Standards’ (1998) 4 European Law Journal 5; G Majone, ‘The Agency Model: The Growth of Regulation and Regulatory Institutions in the European Union’ (1997) 3 Eipascope 3; Moravcsik, ‘In Defence of the “Democratic Deficit”’ (above n 2) 613; A Moravcsik, ‘Is There a “Democratic Deficit”

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The Perspective of Firms and Consumers delegatees are institutionally insulated from direct democratic contestation and possess specialist expertise to allow trustworthy and informed decision-making. Expertise-based legitimacy claims are ubiquitous in the European context.123 Integration has long been conceived as an elite-driven process. Institutionally, bodies like the Commission, agencies and comitology committees owe their existence, at least in part, to their conception as technocratic centres of expertise. More generally, at both the European and the national levels certain policy fields—such as central banking and technical administration (which undoubtedly includes competition and communications policy)—are considered particularly suited to expert-based decision-making.124 The ECN and the ERG are undoubtedly expert. Their memberships and organisational structures indicate as much. We have seen that the national authorities can be assumed to have qualified personnel.125 The layered anatomies of both networks mean that common approaches or documents are conceived by expert officials in working groups and the like, before they are placed before the network plenaries for adoption.126 v. Effectiveness and Efficiency The final legitimacy claim comprises two sub-claims: first, that the authority deserves support because it delivers effective results;127 and second, that these results are economically efficient. The first claim is linked to the legislative mandate claim, because the mandate forms the template against which to assess how effectively stated objectives are being achieved. To the extent that the mandate is vague, the ease with which this assessment is carried out may suffer correspondingly. Accountability mechanisms may impact positively on the degree of effectiveness. Having to explain and justify one’s actions creates a powerful incentive to present not only correct (in terms of the legislative mandate) but also effective outcomes.128 in World Politics? A Framework for Analysis’ (2004) 39 Government and Opposition 336; Slaughter (above n 27) 527. For criticism of Majone and Moravcsik, see eg D Wincott, ‘European Political Development, Regulatory Governance, and the European Social Model: The Challenge of Substantive Legitimacy’ (2006) 12 European Law Journal 743; R Bellamy, ‘Still in Deficit: Rights, Regulation and Democracy in the EU’ (2006) 12 European Law Journal 725; A Føllesdal and S Hix, ‘Why there is a Democratic Deficit in the EU: A Response to Majone and Moravcsik’ (2006) 44 Journal of Common Market Studies 553. 123 S Gustavsson, ‘Defending the Democratic Deficit’ in Weale and Nentwich (eds) (above n 8). 124 Majone, Regulating Europe (above n 78); Moravcsik, ‘In Defence of the “Democratic Deficit”’ (above n 2). 125 Above ch 2, section IV-B. 126 Above ch 6, section II-B. 127 See the definition of effectiveness provided by F Snyder, ‘The Effectiveness of European Community Law: Institutions, Processes, Tools and Techniques’ (1993) 56 Modern Law Review 19: ‘effectiveness is taken to mean that “law matters”: it has effects on political, economic and social life outside the law—that is, apart from simply the elaboration of legal doctrine.’ 128 See Oliver (above n 27) 30.

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Three Perspectives on Network-Based Governance Similarly, the legitimacy consequent upon effectiveness is enhanced further if the inputs and procedures used can also be shown to be legitimate. As a tentative assessment, it must be said that network interactions and output make positive contributions to the level of consistency between and quality of decisions by the national authorities. Still, what remains unclear is whether these contributions are sufficient and whether the mechanisms currently employed are better suited than alternatives would be. A more definitive answer would necessitate a thorough cost-benefit analysis to see the extent to which the costs incurred by national authorities as a result of network membership are offset by the benefits they derive from participation in the network.129 The second claim judges network output with reference to criteria that are separate from the legislative mandate. It queries whether the network encourages behaviour that benefits society as a whole. This too necessitates some form of economic analysis to determine the degree of allocative or dynamic efficiency. Baldwin himself admits that this second form of claim is highly contentious: ‘indeed it is the most dubious form of claim discussed’.130 He notes that the pursuit of efficiency may conflict with the legislative mandate, particularly so in areas in which distributional considerations are central. That said, efficiency claims have considerable force in debating the legitimacy of the EU. Notably Internal Market policies—which cover the competition and the communications rules—are often praised for delivering benefits to EU citizens that surpass those that a single Member State could provide.131

vi. Interim Conclusion In a speech to the European Parliament on 21 July 1999, the then Commission President-designate Romano Prodi argued that the European Union had to ‘address the issues that really matter to people’s everyday lives’, because ‘at the end of the day, what interests them is not who solves these problems, but that they are being tackled’.132 In other words, output legitimacy and efficiency—rather than democracy—are what count. The opposing view, democratisation through more 129 In terms of cost, we can think of preparation and participation in meetings and opportunity costs, ie, the resources that are spent on ECN/ERG work as opposed to cartel detection or SMP analysis. In terms of benefit, we can think of higher quality decisions and consequently perhaps a decrease in the number of judicial challenges or the fact that national authorities need not reinvent the wheel for every new issue that crops up. 130 Baldwin (above n 13) 46. 131 Eg, Commission ‘Completing the Internal Market’ (White Paper) COM(85) 310, 14 June 1985; M Everson and Others, The Economics of 1992: The EC Commission’s Assessment of the Economic Effects of Completing the Internal Market (Oxford, Oxford University Press, 1989); P Cecchini, The European Challenge 1992: The Benefits of a Single Market (Brookfield, Gower Press, 1989). On the assumption that the mandates of the networks leave scope for an efficiency-based interpretation, we shall attempt an economic analysis of the network regime separately below. 132 Address delivered to Parliament, Bulletin EU 7/8 1999.

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The Perspective of Firms and Consumers parliamentarisation, also has its staunch defenders.133 Each position relates to a quite divergent finalité politique for the Union. Eight years on, the jury is still out. Any assessment of the legitimacy of networks will be coloured by one of these perspectives. Networks cannot claim to have full democratic legitimacy; their legitimacy is rather engendered through processes of deliberation, institutionalised expertise and effectiveness. This state of affairs ought not to be a matter of concern. We have seen that trade-offs between the various elements might be inevitable. More precise and concise legislative mandates could deny the networks the ability to take proactive action in the dynamic and polycentric policy fields for which they bear responsibility. More parliamentary accountability could bring about the politicisation of network activities, with the concomitant danger of impinging upon the network members’ prescribed independence and thereby fetter their performance.134 We must further recall the purpose of the ECN and the ERG. Both are intended to provide effective law administration and thereby reduce, if not remedy, the Union’s implementation deficit. Legitimation derived from expertise and efficiency thus acquires particular prominence. Furthermore, mirroring new governance approaches in national administrative law, many of the other new governance models at the EU level, such as Open Method of Coordination (OMC), are also designed to foster legitimacy primarily through deliberative processes and transparency.135 The networks are thus in good company. This trend, moreover, confirms the diagnosis made by political scientists on the evolution of democracy: the focus shifts from the selection of leaders to direct participation in the practice of power.136 In final support, we can refer to Article 10(3) of the Treaty on European Union, as amended by the Lisbon Treaty, stipulating participatory democracy.137 Still, if we would follow Carol Harlow in considering that ‘managerial efficiency and effectiveness can never be the end of the story’,138 how to bolster the democratic credentials of the networks? Indeed, the Treaty on European Union, as amended by the Lisbon Treaty, also posits that ‘the functioning of the Union shall be founded on representative democracy’.139 Some solutions have been suggested. The networks could be required by law to submit annual work

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Eg, van Gerven (above n 34). On the independence of national authorities, see above ch 2, section IV-C. Scott and Trubek (above n 67). 136 P Magnette, ‘Towards “Accountable Independence?” Parliamentary Controls of the European Central Bank and the Rise of a New Democratic Model’ (2000) 6 European Law Journal 326, 328 citing Rosenau and Fagen (above n 83); and Manin (above n 83). 137 An example of (embryonic) deliberative democracy was the Convention that drew up the Charter of Fundamental Rights of the European Union [2006] OJ C346/1. See also Case T-135/96 Union Européenne de l’artisanat et des petites et moyennes enterprises (UEAPME) v Council [1998] ECR II-2335 [88]–[89], where the CFI held that the participation of social partners in the legislative process constituted a form of participatory democracy, compensating for the lack of involvement of the European Parliament. 138 Harlow, Accountability in the European Union (above n 27) 190. 139 Art 10(1) TEU as amended by the Lisbon Treaty. 134 135

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Three Perspectives on Network-Based Governance programmes and reports directly to the European Parliament. Also, Parliament could be given the right to invite a network representative, ideally the chair, to explain the network’s activities. It is then for Parliament, in particular its committees, to create the intellectual conditions for sound debate on the workings of the networks and thereby embed them within traditional democratic political processes.140 Our discussion thus far could give the impression that the networks enjoy if not identical, then at least equivalent degrees of legitimacy. This requires qualification. The ERG’s legitimacy is surely more comprehensive than that of the ECN. Consider the ERG’s (embryonic) relationship with the European Parliament, the due process rights it is mandated to observe and the extensive transparency tools it operates. The key explanation for this difference is the greater preoccupation of the ERG with the development of common approaches. Legitimacy claims are considerably more salient in relation to network activities that result in the adoption of soft law than for case-based interactions. The latter are best seen as instances of internal administration continued from the national to the European level, for which the network arguably draws sufficient legitimacy from its component members. This is because the final decisions towards which these intra-network case-based interactions are geared are subject to the classic cluster of political, legal and administrative mechanisms through which national authorities obtain their legitimacy. In turn, this derivative legitimacy also benefits the network’s output, given that the experiences and decisions of the national authorities form the basis of the common approaches they propound.141 If and when the ECN decides also to increase the output of soft-law instruments, we must hope to see useful cross-fertilisation and learning between the two regimes. From a transparency perspective, it would in any event be helpful to conceptualise the ECN more clearly as a separate institutional structure by giving it its own website and annual reports. In the future, this could be successfully supported by the establishment of a permanent secretariat and chair, mirroring the anatomy of the ERG. Due process also remains an area wanting of some improvement. Detailed rules on the modalities of participation are currently found in the self-authored documentn ‘ERG and Transparency in Practice’. They should be incorporated

140 In this respect, the European Parliament could look towards national parliamentary committees on European Affairs, such as the famous Danish Folketing, as a source of inspiration. See Harlow, Accountability in the European Union (above n 27) 100. 141 For similar reasoning by the CESR, the network of national securities regulators, see CESR/04– 104b ‘The Role of CESR at Level 3 under the Lamfalussy Process’ [2004] 7/8: The legitimacy of the role of CESR at level 3 comes from the fact that CESR members take individual decisions on a daily basis that create jurisprudence. This ‘bottom up’ approach relates to the normative nature of concrete decision making activities of [the national authorities]. . . Accordingly, in an attempt to take converging decisions . . . the members of CESR may decide to enter these common approaches simply into the minutes of meetings or, if felt necessary, to transform into indicate guidance, or into regulatory recommendations providing a benchmark or more strongly, into standards that carry commitment of the CESR members.

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The Perspective of Firms and Consumers into the Rules of Procedure. This document in turn should be given higher visibility on the ERG website: it is now buried in the generic subsection entitled ‘ERG Documents’, but could be listed alongside the ERG foundational documents. Furthermore, the ERG and the Community legislature ought seriously to reflect upon the means available to consider the interests of all those entitled to participate. This is an affirmative duty that would include consumers and end-users. It goes without saying that these due process recommendations apply with equal force to the ECN. Administrative accountability will continue to be an issue for both networks. The institutional design of the ECN and the ERG precludes direct relationships between the networks and the European Ombudsman or Court of Auditors. Here the networks must make do with derivative accountability, relying on the accountability of each national authority to its national Ombudsman and audit office.142 Yet, while theories of derivative accountability are commonplace in the European context,143 it is typically seen not as a substitute for direct accountability but rather as a supplement. A partial answer might be found in the development of ‘accountability networks’, which are advocated by Carol Harlow and Richard Rawlings:144 the grouping of national enforcers into networks could be matched by the grouping of accountability fora into networks as well. They point to the example of the European Network of Ombudsman (ENO), which was set up in 1996 and is made up of the European Ombudsman together with his national counterparts. ENO allows for the transfer of complaints from one ombudsman to the next; rapid information exchanges; and the exchange of experiences and best practices.145 This is all done through advanced information technology,146 complemented by face-to-face seminars. The similarities with the ECN and the ERG are obvious.

142 For the workings of the Ombudsman and the audit office in a number of Member States, see Craig and Tomkins (eds) (above n 46). 143 Think of the increased emphasis on national parliaments as a response to the ‘democratic deficit’. See, eg, P Kiiver, The National Parliaments in the European Union: A Critical View on EU Constitution Building (The Hague, Kluwer Law International, 2006); van Gerven (above n 34); S Andersen and T Burns, ‘The European Union and the Erosion of Parliamentary Democracy: A Study of Post-Parliamentary Governance’ in S Andersen and K Eliassen (eds), The European Union: How Democratic Is It? (London, Sage, 1996). For a view that cautions against over-reliance on democratisation—and hence legitimation—of the EU through the Member States, see Lord (above n 35) 125ff. 144 Harlow and Rawlings, ‘Promoting Accountability in Multilevel Governance’ (above n 28). Consider, eg, the Conference of Community and European Affairs Committees of Parliaments of the European Union (COSAC), a cooperation structure of both national parliaments dealing with European affairs and representatives of the European Parliament, formally recognised in the Protocol on the role of national parliaments in the European Union, annexed to the Treaty of Amsterdam. 145 Http://ombudsman.europa.eu/liaison/en/default.htm and the Ombudsman Guide ‘What Can the European Ombudsman Do for You?’ 26. 146 Eg, the network’s virtual newspaper Ombudsman Daily News and internet summits for interactive discussions that allow file-sharing.

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Three Perspectives on Network-Based Governance Ultimately, if the networks currently do not already merit an acceptable level of composite legitimacy, drawn from multiple sources and from multiple levels, then they can without too much difficulty be designed to do so.

B. Effective Judicial Protection One of the ways to achieve accountability, and thus legitimacy, is through the courts. This subsection will examine the relationship between the network structures and the courts. We will first define what effective judicial protection is and then discuss whether this protection is actually available to firms in relation to the most prominent case-based interactions between network members (case allocation; information exchange; Commission letters of comment; and Commission intervention through takeovers or vetoes) as well as in relation to network-authored soft law. i. The Constitutive Components of Effective Judicial Protection The Court of Justice has stressed: [T]he European Economic Community is a Community based on the rule of law, inasmuch as neither its Member States nor its institutions can avoid a review of the question whether the measures adopted by them are in conformity with the basic constitutional charter, the Treaty.147

Individuals are therefore ‘entitled to effective judicial protection of the rights they derive from the Community legal order’.148 Thus, ubi ius, ibi remedium. The requirement of effective judicial protection is a general principle of Community law, the observance of which is ensured by the Court.149 The principle underlies the constitutional traditions common to the Member States.150 It is laid down in Articles 6 and 13 of the European Convention for the Protection of Human Rights and Fundamental Freedoms151 as well as in the Charter of Fundamental 147

Les Verts (above n 63) [23]. Case C-50/00P Unión de Pequeños Agricultores (UPA) v Council [2002] ECR I-6677 [39]. 149 Case 11/70 Internationale Handelsgesellschaft mbH v Einfuhr- und Vorratsstelle für Getreide und Futtermittel [1970] ECR 1125 [3]–[4]; Case 4/73 J Nold, Kohlen- und Baustoffgroßhandlung v Commission [1974] ECR 491 [13]; Case C-260/89 Elliniki Radiophonia Tiléorassi AE and Panellinia Omospondia Syllogon Prossopikou v Dimotiki Etairia Pliroforissis and Sotirios Kouvelas and Nicolaos Avdellas and Others (ERT) [1991] ECR I-2925 [41]–[42]. 150 Johnston (above n 4) [17]–[20]; Case 222/86 Union nationale des entraîneurs et cadres techniques professionnels du football (Unectef) v Georges Heylens and others [1987] ECR 4097 [14]–[15]; Case C-185/97 Coote [1998] ECR I-5199 [24]; Case C-249/88 Commission v Belgium (‘Contrats-programmes’) [1991] ECR I-1275 [25]. 151 The European Court of Human Rights first recognised this right in Golder v United Kingdom (Appl no 4451/70) (1979) Series A no 18 [34]–[35]. The relevance of the Convention for Community law has been recognised in Johnston (above n 4) [28] and is now reflected in Art 6(2) TEU and the Charter of Fundamental Rights of the European Union [2006] OJ C346/1. Art 46(c) extended 148

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The Perspective of Firms and Consumers Rights of the European Union.152 The scope of the requirement is broad, covering the acts of the EC institutions153 as well as the acts of all Member State bodies when acting within the realm of Community law.154 Importantly, we must deal with the rationale for judicial review. Two perspectives may be identified. The first relates to the need to offer redress for grievances suffered by citizens that are caused by the government or public authorities. This way of conceiving judicial review is subjective because it is defined in terms of the private rights of the applicant. The second perspective involves the desire to safeguard legality by ensuring that public authorities act only within the limits of their powers and to guarantee that decisions are more or less accurate.155 This second perspective is conceived as objective because the true focus of the review is not the claimant but the act. It is immediately clear that the two perspectives are not incongruous but should be conceived as simply two sides of the same coin. This is not to say that the distinction is without practical relevance. Indeed, we will see that the elements of effective judicial protection are determined in some part by the perspective adopted. At its most basic, judicial protection denotes access to court.156 However, the adjective ‘effective’ implies that we should also consider the way in which courts dispose of cases. We can thus identify four components in debating whether there exists effective judicial protection against a specific regulatory action: + + + +

jurisdiction; standing; the court’s mandate; and remedies

The criterion of jurisdiction suggests that there must be a court with competence to entertain a review request. That competence is premised first of all upon the presence of a challengeable act.157 Normally, to be challengeable the act must be

moreover the jurisdiction of the Court of Justice to cover the observance by the Institutions of the provisions of the ECHR. On the ECHR generally, see F Jacobs and R White, The European Convention on Human Rights, 4th edn (Oxford, Oxford University Press, 2006) revised by C Ovey and R White. 152 Art 47, referred to by the CFI in Case T-54/99 T-54/99 max.mobil Telekommunikation Service GmbH v Commission [2002] ECR II-313 [57] and Case T-177/01 Jégo-Quéré et Cie SA v Commission [2002] ECR II-2365 [42]. 153 Eg, Les Verts (above n 63) [24]. 154 Johnston (above n 4) [19]; Case 5/88 Hubert Wachauf v Bundesamt für Ernährung und Forstwirtschaft [1989] ECR 2609 [19]; and ERT (above n 149) [42]–[45]. 155 Strictly speaking, we should thus speak of effective judicial protection when concerned with the subjective view and of effective judicial control when referring to the objective view. 156 See, eg, Joined Cases C-174/98P and C-189/98P Kingdom of the Netherlands and Gerard van der Wal v Commission [2000] ECR I-1 [17]. 157 In the United Kingdom, a matter must be ‘justiciable’: R v Ministry of Defence, ex parte Smith [1995] 4 All ER 427; and in particular, Council of Civil Service Unions v Minister for the Civil Service (‘GCHQ’) [1985] AC 374 418. For France, see JB Auby, ‘Administrative Law in France’ in R Seerden and F Stroink (eds), Administrative Law of the European Union, its Member States and the United States—A Comparative Analysis (Antwerp, Intersentia, 2002) 79–80.

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Three Perspectives on Network-Based Governance of a binding character, produce legal effects and be definitive. Courts adopt a purposive approach in deciding these matters. They look beyond form to the substance of the act.158 The objective and subjective perspective converge here, in the sense that under both a court may be expected to take a wide view of what constitutes a challengeable act. In the multilevel structure that is the European Union, a competent court is determined with reference to the author of an act. The Community Courts offer judicial protection against acts of the Institutions through Article 230 EC.159 Acts of national administrations can be challenged in national courts. To the extent that there are no common rules in the matter and subject to compliance with general obligations deriving from the EC Treaty,160 national courts act in accordance with their own procedural rules when reviewing state actions. The criterion of standing relates to the capacity of a potential claimant to bring an action. Not everyone has a right of audience with a court to attack a challengeable act. Conditions of admissibility are dependent on first, the conceptual perspective one adopts on judicial review and second, the nature of the contested act. The subjective perspective, introduced briefly above, equates substantive rights and standing. The category of persons with standing is hence limited as an infringement of a right has to be shown.161 From an objective viewpoint, by contrast, an individual claim is but an occasion for review of administrative conduct and, if the contested act proves illegal, to restore legality. The threshold for standing is hence lower and the circle of potential claimants much larger.162

158 Under Community law, see eg, Joined Cases 16/62 and 17/62 Confédération nationale des producteurs de fruits et légumes and Others v Council [1962] ECR 471; Joined Cases 55–59/63 and 61–63/63 Acciaierie Fonderie Ferriere di Modena and Others v High Authority of the European Coal and Steel Community [1964] ECR 211; Case 6/68 Zuckerfabrik Watenstedt GmbH v Council [1968] ECR 409; Joined Cases T-481/93 and T-484/93 Vereniging van Exporteurs in Levende Varkens and Others and Nederlandse Bond van Waaghouders van Levend Vee and others v Commission [1995] ECR II-2941 [86]; Joined Cases C-68/94 and C-30/95 French Republic and Société commerciale des potasses et de l’azote (SCPA) and Entreprise minière et chimique (EMC) v Commission (‘Kali and Salz’) [1998] ECR I-1375 [63]. 159 Indirect challenges are possible under Art 241 EC (plea of illegality), Art 234 EC (preliminary reference) or Art 288 EC (action for damages). 160 Ie, the principles of effectiveness, equivalence and loyalty. 161 A textbook example is the German system, wherein Art 19(4) Basic Law states that ‘Wird jemand durch die öffentliche Gewalt in seinen Rechten verletzt, so steht ihm der Rechtsweg offen’. 162 A good example is offered by French administrative law and its concept of ‘intérêt pour agir’, which is interpreted very widely indeed: Auby (above n 157) 81–82. Also in the United Kingdom, where the claimant has to show a ‘sufficient interest’, as required by s 31(3) Supreme Court Act 1981, the approach to standing is increasingly liberal: Inland Revenue Commissioners v National Federation of Self Employed and Small Businesses [1982] AC 617; and R v Secretary of State for the Foreign and Commonwealth Affairs, ex parte World Development Movement Ltd [1995] 1 WLR 386. An objective viewpoint would also allow for a pluralist system of law enforcement, with actions being brought by interest groups and the like.

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The Perspective of Firms and Consumers In terms of the nature of the act, it is common for legal systems to accept a wider right of action against individual acts as opposed to general ones.163 Standing rules are then exploited as a rationing device for wider policy reasons. One justification concerns the prompt and efficient despatch of lawmaking and executive activities. Restrictions appear necessary to protect public authorities against vexatious litigants, unmeritorious claims and costly litigation, as well as from the uncertainty engendered by delay.164 A second justification relates to the economy of judicial procedure. For applicants, justice delayed may very well be justice denied. Nevertheless, we must take care to avoid excessively restrictive standing rules as they can cause injustice in individual cases and more broadly work as a disincentive to potential litigants. Rational litigants calculate the chances of success before embarking on the expense of litigation. If these are slim or nonexistent judicial challenges will not be instituted. As a result, administrative illegality might go unchallenged, standards of public administration may not be maintained and legal principle may not develop.165 A balance thus needs to be struck. The component part of effective judicial protection that relates to a court’s mandate involves assessing the behaviour of the court. Once it has been properly seized, how does it dispose of cases? We identify a couple of relevant determinants. Firstly, the law’s determination of the scope of the court’s mandate. A broad distinction can be drawn between restricted and full review competence.166

163 To establish whether an act is general in nature, courts apply a number of criteria: the act must lay down normative principles; it must specify in an abstract manner the conditions for its application; it must establish general rules that regulate in an identical way an indeterminate number of cases; and its rules must be applicable to any situation that is or will come about within the conditions specified for its application: Joined Cases 36–38/58 and 40–41/58 Società Industriale Metallurgica di Napoli (SIMET), Meroni & Co Industrie Metallurgiche, Erba, Meroni & Co Industrie Metallurgiche, Milan, Fer.Ro and Acciaierie San Michele v High Authority [1959] ECR 157; Acciaierie Fonderie Ferriere di Modena (above n 158); Watenstedt (above n 158); Case 101/76 Koninklijke Scholten Honig NV v Council and Commission [1977] ECR 797. 164 A prime example of this approach is the system of leave, as operated in the United Kingdom. This approach has been expressly held permissible by the European Court of Human Rights in Ashingdane v United Kingdom (Appl no 8225/78) (1985) Series A no 93 and H v United Kingdom (Appl no 11559/85) 45 DR 281. The only limitation imposed by the Court is that the restrictions must not be so wide-ranging as to destroy the very essence of the right. 165 C Harlow and R Rawlings, Law and Administration, 2nd edn (London, Butterworths, 1997) 535, citing L Bridges, G Meszaros and M Sunkin, Judicial Review in Perspective, 2nd edn (London, Cavendish, 1995) 199. 166 In Continental legal systems, this translates into legality and merits control, or in French contrôle de légalité (under le contentieux de l’annulation) and contrôle de l’opportunité (under le contentieux de pleine jurisdiction). In common law systems, the distinction broadly corresponds to that between judicial review and appeal. In EU parlance, the terminology used is that of limited and unlimited jurisdiction. For more on judicial control, see J Schwarze, European Administrative Law, rev 1st edn (London, Sweet & Maxwell, 2006) 261–95; Craig, EU Administrative Law (above n 69) ch 13; Craig and Tomkins (eds) (above n 46); Seerden and Stroink (eds) (above n 157); Harlow and Rawlings, Law and Administration (ibid) chs 16 and 17; L Brown and J Bell, French Administrative Law, 5th edn (Oxford, Clarendon Press, 2003) 253–67. On the scope of review in competition law, see D Bailey, ‘Scope of Judicial Review under Article 81 EC’ (2004) 41 Common Market Law Review 1327. See also the previous discussion in relation to Art 4 Framework Directive above ch 3, section III-A.

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Three Perspectives on Network-Based Governance The former is concerned with the legality or lawfulness of the administrative act. Classic legality control is competence control. The question before the court is whether the authority has acted within the limits of its powers, properly understood. A court may not interfere with action lawfully taken within the jurisdiction of the public authority. Under full review courts look into how an authority has exercised its available competences. This may include passing judgment on the desirability or expediency of the act before it. Typically, courts possess wider powers under full review as in addition to quashing or remitting orders, they can also make any decision the public authority could have made. Much depends on the grounds for review. Restricted control is typically characterised by a numerus clausus of available review grounds, and the litigant must phrase his or her objections to fit that mould. Full review has wider grounds for review, as the decision as a whole is looked at. Yet, widely drafted—or generously interpreted—grounds under the numerus clausus may result in a blurring of the distinction. An example is Article 230 of the Treaty.167 Although detailing four, and only four, potential grounds of review, the broad phrasing and the inclusion of such grounds as ‘infringement of the Treaty or any rule of law relating to its application’ might mean that few, if any, aspects of a challenged act can escape a court’s scrutiny. This approach involves considerable judicial discretion, leaving some authors to reflect that ‘the rules governing judicial review have no more substance than a seedless grape’.168 This judicial discretion or creativity constitutes the second relevant factor in analysing the court’s behaviour in review cases. It evokes fundamental normative questions. What is the relationship between courts and public authorities? To what extent, if at all, should a court defer to the opinion of a public authority as expressed in the act under review? How does judicial control of public authorities relate to other accountability mechanisms? Sharply divergent views exist about the proper scope and function of judicial review, in scholarly literature as well as in practice. We do not seek to enter this debate. Instead, we offer some general observations. The intensity of judicial control seems to vary depending on whether law, fact or policy is at issue.169 Generally, whereas the courts rigorously scrutinise interpretations of the law, they accord more flexibility to public authorities on issues of policy or involving discretion. This can be justified with

167 The Treaty also contemplates full review. Art 229 enables the grant of full jurisdiction to the courts in the determination of penalties. This has happened in the field of competition law in Art 31 Reg 1/2003. The European Court of Justice also exercises full jurisdiction in damages actions under Art 288(2) EC. 168 Harlow and Rawlings, Law and Administration (above n 165) 535, citing E Gellhorn and G Robinson, ‘Perspectives on Administrative Law’ (1975) 75 Columbia Law Review 771. 169 It must of course be recognised that these distinctions can at times be difficult to draw. For an analysis in the context of Community law, see Craig, EU Administrative Law (above n 69) ch 13.

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The Perspective of Firms and Consumers reference to the Montesquieuan séparation des pouvoirs. After all, the legislature mandates the administration and not the judiciary to strike a balance between conflicting and competing interests.170 Keeping in mind the objective and subjective perspectives on judicial review, we may argue that the intensity of review and the criteria for standing should find themselves in an inverse relationship. Both are tools to balance the perceived need for public authorities to be efficient on the one hand, and the importance of judicial control and effective redress on the other hand. While standing rules are restrictive, those applicants able to cross the threshold ought to be greeted by a judiciary willing to carefully scrutinise contested decisions. Conversely, generous access creates pressure for judicial restraint in order to avoid courtrooms becoming administration offices.171 The last criterion that we listed above inquires into the effects of successful claims for judicial protection. Once a court finds that a contested public action is unlawful, the principal remedies to enforce legal accountability are annulment and compensation.172 Annulment sees the court setting aside an invalid or illegal act and holding it void.173 This nullity usually applies ex tunc, meaning that the act never lawfully existed.174 In most cases, it falls to the authority whose act has been quashed to redress the wrong it has committed.175 Exceptions include situations in which a court has unlimited jurisdiction or in which there is only

170 This principle of institutional balance finds recognition in the case law of the Community Courts. See Joined Cases T-305, T-306/94, T-307/94, T-313/94 to T-316/94, T-318/94, T-325/94, T-328/94, T-329/94 and T-335/94 Limburgse Vinyl Maatschappij (LVM) NV, Elf Atochem SA, BASF AG, Shell International Chemical Company Ltd, DSM NV, DSM Kunststoffen BV, Wacker-Chemie GmbH, Hoechst AG, Société artésienne de vinyle, Montedison SpA, Imperial Chemical Industries plc, Hüls AG and Enichem SpA v Commission [1999] ECR II-931 [148]–[149]; and B Vesterdorf, ‘Judicial Review in EC Competition Law: Reflections on the Role of the Community Courts in the EC System of Competition Law Enforcement’ (2005) 1 Competition Policy International. 171 Jacobs AG favoured the second approach in his Opinion in UPA (above n 148) [66]. 172 Other possible remedies include interim relief, injunctions, declarations, prohibition orders and mandatory orders. Note that under UK law, remedies are at the discretion of the courts, meaning that even if an applicant is successful on the merits, the court may decline to grant a remedy: A Tomkins, ‘The Struggle to Delimit Executive Power in Britain’ in Craig and Tomkins (eds) (above n 46) 45. For more on judicial remedies, see Craig, EU Administrative Law (above n 69) ch 20; H Schermers and D Waelbroeck, Judicial Protection in the European Union, 6th edn (The Hague, Kluwer Law International, 2001) §§ 1012–158; T Heukels and A McDonnell (eds), The Action for Damages in Community Law (The Hague, Kluwer Law International, 1997); Schwarze, European Administrative Law (above n 166) 504–43; Craig and Tomkins (eds) (above n 46); Seerden and Stroink (eds) (above n 157); Brown and Bell (above n 166) chs 8 and 9; J Bell, S Boyron and S Whittaker, Principles of French Law, 2nd edn (Oxford, Oxford University Press, 2008) ch 6. 173 See, eg, Art 231 EC. Actions for the annulment of Community acts can either be direct via Art 230 EC or indirect via Art 234 EC. 174 In exceptional cases, courts may decide to limit the temporal effect of invalidity. Consider Art 231(2) EC and Art 8:72(3) Awb (the Dutch General Administrative Law Act). 175 See Art 233 EC; and eg, Case 92/78 SpA Simmenthal v Commission [1979] ECR 777 [32]; Joined cases T-480/93 and T-483/93 Antillean Rice Mills NV, Trading & Shopping Co Ter Beek BV, European Rice Brokers AVV, Alesie Curaçao NV and Guyana Investments AVV v Commission [1995] ECR II-2305 [60]; and Exporteurs in Levende Varkens (above n 158) [47].

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Three Perspectives on Network-Based Governance one legally correct decision.176 Compensation allows for the recovery of losses incurred as a result of unlawful public action.177 Which of these remedial tools is available usually depends upon the type of action brought. Legal systems commonly distinguish between actions for annulment and actions for damages liability.178 These actions are autonomous and independent.179 Their purposes differ: one is directed at abolition, the other at financial reparation. Their effects also differ: annulment produces erga omnes authority; compensation is granted only to the parties involving in the litigation. Lastly, their tests differ, too: a successful action for annulment does not necessarily translate into a successful action for damages. For an act to be declared void, it is sufficient that this act is illegal or invalid. Conversely, for a public authority to be liable to pay compensation, the applicant must also show damage and causation.180 Then there is the question of what constitutes ‘illegality’ in the context of damages actions. In a number of legal systems, the degree of unlawfulness that ensures success in annulment actions is less than that required to establish liability to pay compensation.181 176 An example of the former is Art 31 of Reg 1/2003, providing that fines imposed by the Commission for breaches of the competition rules may be cancelled, reduced or even increased by the Court of Justice. An example of the latter is Art 8:72(4) Awb (Dutch General Administrative Law Act). 177 See Art 288(2) EC. In a number of legal systems, there also exists the possibility for liability for valid legal acts: consider the French concept of égalité devant les charges publiques and the German notion of Sonderöpfer. Damages liability for lawful acts has been refused in the EC: Case T-184/95 Dorsch Consult Ingenieurgesellschaft mbH v Council and Commission [1998] ECR II-667, upheld on appeal in Case C-237/98P [2000] ECR I-4549. Note also the influence of Community law on the availability of the remedy of compensation through the development of the doctrine of state liability: Joined cases C-6/90 and C-9/90 Andrea Francovich and Danila Bonifaci and Others v Italian Republic [1991] ECR I-5357; and Brasserie du Pêcheur (above n 64) esp [51]. 178 Note though that in a number of legal systems, it is possible to combine both actions so that a court may award damages in the course of an application for annulment, eg in the Netherlands through Art 8:73 Awb or in the United Kingdom pursuant to 54.2(2) Civil Procedure Rules (with s 31(4) Supreme Court Act setting out the circumstances in which a court may award damages on a claim for judicial review). 179 But consider the early case law of the ECJ, to the effect that annulment of a contested act was a necessary precondition for an application for damages: Case 25/62 Plaumann & Co v Commission [1963] ECR 95. This approach was reconsidered in Case 4/69 Alfons Lütticke GmbH v Commission [1971] ECR 325 [6]; and Case 5/71 Aktien-Zuckerfabrik Schöppenstedt v Council [1971] ECR 975 [11]. Also, if a measure does not concern the applicant directly and individually and cannot therefore be challenged under Art 230 EC, this does not prevent that measure from satisfying the test for damages liability: Joined cases 5, 7 and 13–24/66 Firma E. Kampffmeyer and Others v Commission [1967] ECR 245. At the same time, there are instances in which the ECJ will declare an action for damages inadmissible if the applicant was directly and individually concerned by the act and could thus have brought an action for annulment under Art 230 EC: Case 59/65 Heinrich Schreckenberg v Commission [1966] ECR 543; Case 4/67 Anne Muller (née Collignon) v Commission [1967] ECR 365; Case C-310/97P Commission v AssiDomän Kraft Products AB, Iggesunds Bruk AB, Korsnäs AB, MoDo Paper AB, Söndra Cell AB, Stora Kopparbergs Bergslags AB and Svenska Cellulosa AB [1999] ECR I-5363. A similar situation pertained in the Netherlands prior to 1994: damages could be awarded only by the civil courts on the back of successful actions for annulment in the administrative courts. 180 In EC law, see, eg, Lütticke (ibid) [10]. 181 Consider for instance the German, French and EC legal systems. The latter system maintains a fundamental distinction based on the discretion available to the author of the act. If there is considerably reduced or even no discretion, the mere infringement of Community law may be

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The Perspective of Firms and Consumers Much of the discussion above has been devoted to analysing what effective judicial protection means. This has been done with reference to four interconnected elements: jurisdiction, standing, the mandate of the courts and remedies. We shall proceed to consider the manner and extent to which these elements are present in network-based governance. This is done with a view to assessing the degree of judicial accountability vis-à-vis acts adopted within and by networks. ii. Controlling Case-Based Interactions Network-based governance greatly increases the number of potential interactions between member institutions. This raises many fascinating judicial review issues.182 First, despite the convergence of regulatory environments, a certain degree of heterogeneity in procedural rights and sanctions persists.183 This means that the availability of judicial protection against case allocation and information exchanges is a practical concern for firms and complainants alike. Second, the procedural consistency tools accord an important position to the Commission in national decision-making procedures. To what extent does and should Community law provide for judicial protection against Commission observations following the notification of draft decisions, as well as against Commission veto decisions or the use of ouster clauses? a. Case Allocation At the moment, case allocation is an issue only under the competition regime. Still, the gradual realisation of a true Internal Market for communications networks and services might very well allow for a similar system in the future. Three scenarios are possible within the ECN, as shown in Figure 7.1.184 First, a sufficient: Case C-5/94 The Queen v Ministry of Agriculture, Fisheries and Food, ex parte: Hedley Lomas (Ireland) Ltd [1996] ECR I-2553 [28]. Conversely, when the author possesses a significant element of discretion, illegality is only established when the decision-maker has manifestly and gravely disregarded the limits on the exercise of power: Case C-352/98P Laboratoires Pharmaceutiques Bergaderm SA and Jean-Jacques Goupil v Commission [2000] ECR I-5291 [43]. On the rationale for this distinction, see Joined cases 83 and 94/76, 4, 14 and 40/77 Bayerische HNL Vermehrungsbetriebe GmbH & Co KG and Others v Council and Commission [1978] ECR 1209 [5]–[6]; and Brasserie du Pêcheur (above n 64) [45]. 182 Final decisions of national authorities are definitely challengeable. For NRA decisions this is stipulated by Art 4 Framework Directive. See above ch 3, section III-A. For a number of decisions within the field of competition law, Regulation 1/2003 stipulates a right of appeal: eg, requests for information (Art 18), inspections (Arts 20 and 21) and decisions imposing fines or periodic penalty payments (Art 31). For the position on guidance letters, findings of inapplicability or decisions refusing to grant interim relief, see D Geradin and N Petit, ‘Judicial Remedies under EC Competition Law: Complex Issues arising from the “Modernisation” Process’ [2005] Fordham Corporate Law 10 available at SSRN; and L Parret, ‘Judicial Protection after Modernisation of Competition Law’ (2005) 32 Legal Issues of Economic Integration 339. 183 Above ch 2, section III. 184 If case allocation is also introduced in the communications regime, only the first scenario will seem viable, as the Commission does not have individual decision-making competences in that field.

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Three Perspectives on Network-Based Governance case may be transferred from NCA 1 to NCA 2. Second, a case may be transferred from the Commission to an NCA. Third, a case may be transferred from an NCA to the Commission.185 We have seen in chapter 6 that allocation comes about as a result of the closure of proceedings by the transferor and the opening of proceedings by the transferee.186 On the assumption that the first set of proceedings was instigated following a complaint, the closure of proceedings is of immediate interest to the complainant as it entails the rejection of its complaint. This in turn means that the complainant might lose procedural participatory rights that it would otherwise have had.187 The second act, the opening of proceedings, is of primary concern to the firms under investigation by the transferee as it exposes them to prosecution and potentially sanctions under procedural conditions perhaps less favourable than if the case had remained with the transferor.188 The discussion will proceed firstly with an examination of available judicial protection against closure acts, from the perspectives of complainants and investigated firms. The focus will then shift to the possible avenues through which a firm can challenge the act initiating proceedings. For both types of act, the analysis will explicitly consider the likelihood of the applicant obtaining a favourable court ruling. For closure acts, there is a potential discrepancy between the position of the complainant at national and European levels. In scenario 1 (transfer from NCA to NCA) and scenario 3 (transfer from NCA to the Commission), the matter will be determined by the national courts under national procedural law. Admittedly, Article 13 of Regulation 1/2003 permits a competition authority to reject a

185 In this scenario, the opening of proceedings by the Commission produces the consequences of Art 11(6) of the Regulation, ie, the automatic termination of the jurisdiction of all NCAs until the Commission has adopted a final decision or abandoned the investigation. It is nevertheless discussed here, rather than under the heading ‘ouster clauses and vetoes’ below, as there are two important differences between this scenario and that discussed there. First, the use of the ouster clause in case allocation is consensual: the NCA concerned must suggest or recommend that the case be transferred to the Commission. The effects of the ouster clause are thus intended. Conversely, in the situation discussed below, the ouster clause is used to prevent deviant NCA behaviour, and we may expect that its exercise will be against the will of the NCA concerned (leaving aside exceptional cases in which NCAs may consent: Commission Notice on cooperation within the Network of Competition Authorities (the Network Notice) [2004] OJ C101/43 [54](e)). Second, whereas the scenarios in this subsection all take place within two months of the first investigative measure, the use of the ouster clause as discussed below comes towards the end of the procedure before the NCA. This radically changes the dynamics of the process for all actors involved, including in particular the NCA that will now also have an interest in judicial control. 186 No allocation act is taken within the ECN. See above ch 6, section II-A(ii). 187 C Gauer, ‘Due Process in the Face of Divergent National Procedures and Sanctions’ in P Lowe and M Reynolds (eds), Antitrust Reform in Europe: A Year in Practice (London, International Bar Association, 2005). For example, before the Commission complainants have the right to be associated to the proceedings: Commission Regulation (EC) No 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty [2004] L12318 Art 6. Conversely, in Germany complainants enjoy no procedural rights. 188 We can think of differences in terms of access to the file, time limits for the exercise of the right of reply and the ceiling for and type of sanctions.

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The Perspective of Firms and Consumers Figure 7.1 The Case Allocation Process in the European Competition Network (ECN)

complaint on the ground that another network member is already pursuing the matter, but it does not stipulate that this act should be a justiciable decision.189 Reviewing the status quo, Ute Zinsmeister and Max Lienemeyer note that complainants do not enjoy the right to formal decisions in every Member State.190 In contrast, in scenario 2 (transfer from the Commission to NCA) when the Commission chooses not to act on a complaint, Community law accords the complainant the right to obtain a decision rejecting its complaint, which can be appealed to the Court of First Instance (CFI).191 Even when there is a challengeable decision, chances of success are slim, however.192

189 Network Notice (above n 185) [35]. This issue has also been addressed by P Oliver, ‘Le règlement 1/2003 et les principes d’efficacité et d’équivalence’ (2005) 3/4 Cahiers de Droit Européen 351, 374; and D Arts and K Bourgeois, ‘Samenwerking tussen Mededingingsautoriteiten en Rechtsbescherming: Enkele Bedenkingen’ (2006) Tijdschrift voor Belgische Mededinging 26, 32–33. Neither sees a possibility under Community law to stipulate a right of appeal for complainants. 190 U Zinsmeister and M Lienemeyer, ‘Die verfahrensrechtlichen Probleme bei der dezentralen Anwendung des europäischen Kartellrechts’ (2002) 52 Wirtschaft und Wettbewerb 331, 338. 191 Art 7(2) Reg 773/2004 (above n 187); Network Notice (n 185) [35]; and Commission Notice on the handling of complaints by the Commission under Articles 81 and 82 of the EC Treaty [2004] OJ C101/65. These provisions are a codification of case law, in particular Case T-186/94 Guérin Automobiles v Commission [1995] ECR II-1753 [23]; Case 26/76 Metro-SB-Großmärkte GmbH & Co KG v Commission [1977] ECR 1875 [13]; and Case T-24/90 Automec Srl v Commission [1992] ECR II-2223 [71]–[81], allowing the Commission to adopt a policy of prioritisation based on the degree of

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Three Perspectives on Network-Based Governance In view of the discretion enjoyed by most competition authorities in choosing cases, courts can be expected to adopt a lax standard of review.193 It is difficult to prove that an reallocation amounts to a manifest error. Here both court and litigant are hindered by a lack of evidence. Exchanges and consultations within the network, the Network Notice declares, are matters between public enforcers.194 Firms and complainants are informed of transfers but not of the reasoning that underlies them.195 As to the duty to give reasons, Article 13 provides a bias in favour of an authority that closes a file after having ‘referred’ the case to another competition authority.196 In the end, even if a court were to annul the contested decision, the complainant would enjoy a pyrrhic victory only: the court cannot compel the authority to conduct an investigation, and the complainant has no right to obtain a decision as to the existence of the alleged infringement.197 The authority could simply adopt a second rejection decision, albeit with more sustainable reasoning. The inequality between complainants with and without court access is thus attenuated in practice. Nevertheless, we must remember that complainants without court access are denied the symbolism of court rulings, even if not in their favour. A firm wishing to challenge the closure of proceedings by a transferor will also be faced with an uphill struggle. Jurisdiction and standing are far from obvious. It is uncertain whether the action by which the ‘closing’ authority informs the firm that the investigation has been halted would and should qualify as justiciable. Second, the firm will have to show that its interests or rights have been infringed by that action. As the law does not give firms the right to have their cases investigated by particular authorities, legal systems that adopt the subjective perspective on judicial review are unlikely to accord standing. We further observe that the firm cannot rely on the imposition (or threat) of sanctions at the culmination of the procedure in the absence of a causal link between the

Community interest in deciding which complaints to pursue and which to reject. The Commission must inform the complainant of the authority that has taken over the case: Art 8 Reg 773/2004 (above n 187). Complainants brought an action for annulment per Art 230 EC against a Commission decision rejecting their complaint on the grounds that the Greek NCA was already dealing with the matter (Case T-153/06), but the action was later withdrawn. 192 See also Arts and Bourgeois (above n 189) 34–36. 193 For the state of the law at Community level, see Automec (above n 191) [72]–[86]; Case T-144/92 and Case T-37/92 Bureau Européen des Unions des Consommateurs and National Consumer Council v Commission [1994] ECR II-285; Case T-77/95 Union française de l’express (Ufex), DHL International, Service CRIE and May Courier v Commission [2000] ECR II-2167; and C Kerse, ‘The Complaint in Competition Cases: A Progress Report’ (1997) 34 Common Market Law Review 213. 194 Network Notice (above n 185) [4]. See further Arts and Bourgeois (above n 189) 34; and S Brammer, ‘Concurrent Jurisdiction under Regulation 1/2003 and the Issue of Case Allocation’ (2005) 42 Common Market Law Review 1383, 1415. 195 Network Notice (above n 185) [34]. Art 27(2) Reg 1/2003 excludes correspondence between network members and documents drawn up pursuant to Art 11 from the right of access to the file. For criticism of this state of affairs, see Brammer (ibid) 1415. 196 Consider also the Network Notice (above n 185) [36]. 197 For the state of the law at Community level, see the Commission Notice on the handling of complaints (above n 191) [27]–[28].

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The Perspective of Firms and Consumers termination of proceedings by the first authority and the discretionary decision of the second authority to penalise the firm upon the conclusion of that authority’s proceedings.198 Damien Geradin and Nicolas Petit point to the costs incurred by the firm as a result of reallocation, such as translation fees and delays.199 Given the swift nature of case allocation—the Network Notice speaks of a two-month period, and in practice cases are transferred well within that time—those costs should, however, be manageable. Let us nevertheless assume, if only for argument’s sake, that a firm is admitted to court. Even then, a court is unlikely to entertain the argument that the closure of proceedings was unlawful solely either because the firm concerned incurs extra costs or because the transferee is less well placed to deal with the case—or even because the transferee uses less sophisticated (read: favourable) procedural rules. In respect of the first argument, it is difficult to see how this harm can be translated into a legal basis upon which the claim can be granted. The second argument ignores the combined effect of the flexible nature of the case allocation criteria; their reference to a ‘well-placed’ as opposed to the ‘best placed’ authority in these criteria; and the wording of Article 13 of the Regulation. Indeed, the flexibility inherent in the current system allows for the consideration of regulatory capacities, expertise and the like in the case allocation process. Such factors are difficult—one might even say inappropriate—to account for in court adjudication. The third argument would require a court to assess and compare the procedural rules of another Member State against those that make up its own legal system. Aside from considerable judicial reluctance to engage in such exercises, we note that firms are entitled to a minimum basic level of due process rights guaranteed under Community law and the European Convention on Human Rights. Turning to the initiation of proceedings by a transferee, national courts may be expected to refuse to review acts to this effect as they do not produce direct legal consequences, thereby following the position of the Court of Justice as set out in International Business Machines (IBM) Corporation v Commission.200 The Court noted: A statement of objections does not compel the undertaking concerned to alter or reconsider its marketing practices. . . Whilst a statement of objections may have the effect of showing the undertaking in question is incurring a real risk of being fined by the Commission, that is merely a consequence of fact, and not a legal consequence.201

Moreover, review of such a decision would

198 W Wils, ‘The Reform of Competition Law Enforcement: Will It Work?’ Community Report, FIDE Dublin (2004) 40. 199 Geradin and Petit (above n 182) 10. 200 Case 60/81 International Business Machines (IBM) Corporation v Commission [1981] ECR 2639. 201 Ibid [19].

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Three Perspectives on Network-Based Governance make it necessary for the Court to arrive at a decision on which the Commission has not yet had the opportunity to state its position and would as a result anticipate the arguments on the substance of the case, confusing different procedural stages both administrative and judicial.202

Admittedly, the Court contemplated that, notwithstanding the apparent preliminary character of the act, review would be possible if the acts or decisions adopted in the course of the preparatory proceedings not only bore all the legal characteristics referred to above [legal effects binding on, and capable of, affecting the interests of the applicant] but in addition were themselves the culmination of a special procedure distinct from that intended to permit the Commission or the Council to take a decision on the substance of the case.203

Some authors have argued that the initiation of proceedings by a competition authority in the context of case allocation benefits from this exception, as it entails the final decision to close the examination in progress before another authority.204 However, the findings of the Court in that same case contradict this argument. IBM relied on a number of effects arising from the initiation of proceedings by the Commission to claim admissibility to have this action reviewed immediately. One of these was the termination of the jurisdiction of national authorities this automatically entailed as per the ouster clause, then found in Article 9(3) of Regulation 17. Addressing this point, the Court summarily stated that termination of proceedings by one competition authority and the opening of an examination by another did ‘not adversely affect the interests of the undertaking concerned’.205 If the Court is unwilling to regard the exercise of the ouster clause as rendering the opening of proceedings susceptible to review, we may certainly expect a similar outcome regarding the other, more voluntary, modalities of case allocation. This state of affairs does not mean that firms are deprived of judicial protection. Decisions adopted at the culmination of administrative procedures are surely susceptible to judicial review, and pleas related to the competence of the investigating authority may be raised in this context. The criterion of standing is obvious and may be dealt with quickly. Regardless of the perspective one adopts, the addressee of the decision will undoubtedly be admitted to court. It is less clear if an appeal centred on the unlawful initiation of proceedings could be successful. The court would have to determine whether the authority responsible

202

Ibid [20]. Ibid [11]. 204 Geradin and Petit (above n 182); J Cooke, ‘Application of EC Competition Rules by National Courts’ in Lowe and Reynolds (eds) (above n 187). Although these authors address only the third scenario (transfer from NCA to Commission), from the firms’ and complainants’ perspectives, there is nothing that distinguishes this scenario from the other two at issue here (transfer from Commission to NCA or transfer from NCA to NCA). 205 IBM (above n 200) [18]. Rather, the Court considered, such transfers of jurisdiction would protect the firm concerned from parallel proceedings. 203

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The Perspective of Firms and Consumers for the final decision was competent to act. Under the Regulation, each competition authority has the power to apply the European competition rules, subject to there being a cross-border dimension to the alleged infringement.206 Due to the liberal interpretation of that requirement, competence is easily demonstrated.207 More specifically, in making the argument that this particular authority should not have been seized of the case, a dissatisfied firm derives but limited assistance from the case allocation criteria, as their soft-law character makes their binding force uncertain.208 Furthermore, their flexibility—they speak of a ‘well placed’ authority as opposed to the ‘best placed’ authority—renders them unhelpful as a legal benchmark.209 This leaves national competence rules. Many competition laws require a causal link between alleged infringements and the territory for which the competition authority bears responsibility.210 This effects doctrine is in fact an extension of the Network Notice’s allocation criteria. It will be a rare occurrence indeed if an authority with no connection whatsoever to the alleged infringement were to become responsible for its investigation. Finally, even when it is competent, in most legal systems the competition authority has discretion to decide whether to initiate proceedings. A court should rightfully be reluctant to interfere with the exercise of l’opportunité by finding that the authority should not have brought proceedings. Two points of import may be distilled from the discussion thus far. Firstly, although there certainly are avenues for judicial protection for firms and complainants, the chances of success are not very promising. Secondly, it seems that there is no opportune occasion for firms under investigation or complainants to challenge allocation as such. For the purposes of this discussion, let us examine two alternatives to the present state of affairs. A first option would be to introduce a formal allocation or referral act. Although case allocation discussions take place within the ECN, lack of legal personality means that the network cannot adopt such acts. Conferring decision-making competence on the Commission in this respect would be legally feasible but politically fraught due to the equality upon which the network is premised. It would thus have to be the transferor who takes the allocation decision. The

206

Art 5 Reg 1/2003. Commission Guidelines on the effect on trade concept [2004] OJ C101/81. 208 See above ch 6, section II-A(ii); and confirmed in Cases T-339/04 and T-340/04 France Télécom SA v Commission [2007] ECR II-521 (see below). The only binding competence rule is the ouster clause laid down in Art 11(6) Reg 1/2003. 209 France Télécom (ibid); Gauer (above n 187) 3. Gauer argues that this implies that it cannot be excluded that a case is dealt with by another authority than the one towards which the criteria pointed. 210 K Lenaerts and D Gerard, ‘Decentralisation of EC Competition Law Enforcement: Judges in the Frontline’ (2004) 27 World Competition 313, 322; Brammer (above n 194) 1385; and Arts and Bourgeois (above n 189) 35. 207

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Three Perspectives on Network-Based Governance justiciability of such acts has been addressed in the context of merger proceedings.211 Article 9 of the Merger Regulation allows the Commission to refer the examination of a merger to a national authority.212 In Royal Philips Electronics NV v Commission the Court held that a referral decision is capable of affecting the legal situation of the parties to the merger as well as third parties.213 The literature, however, questions if application by analogy to Regulation 1/2003 is possible. First, the Merger Regulation defines exclusive competences for the Commission and the national authorities. Mergers with a Community dimension come within the exclusive jurisdiction of the Commission.214 This means that it is precisely the referral decision that creates the Member States’ jurisdiction by removing a merger with a Community dimension out of the competence of the Commission. However, Regulation 1/2003 establishes a system of parallel competences. The allocation of cases is hence not a question of transferring competence but merely one of dividing work.215 Firms and complainants do not have the right to a procedure at a particular competition authority.216 Second, the substantive rules for assessment of a merger differ depending on whether it is the Commission has jurisdiction, in which case the Merger Regulation applies, or whether the national authorities are the ones to scrutinise the merger, in which case national merger laws apply. By contrast, Article 3 of Regulation 1/2003 ensures that all network members assess alleged anticompetitive behaviour according to the same set of substantive rules. Still, the Court also relied on differences in procedural rules and judicial protection in holding referral decisions justiciable.217 These two factors would nevertheless suggest that, although not complete, a certain analogy between the two procedures could be envisaged.218

211 Brammer (above n 194) 1418; Arts and Bourgeois (above n 189) 38; Geradin and Petit (above n 182) 8; and Parret (above n 182) 359. 212 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (Merger Regulation) [2004] OJ L24/1. 213 Case T-119/02 Royal Philips Electronics NV v Commission [2003] ECR II-1433. See also Joined Cases T-346/02 & T-347/02 Cableuropa SA and Others v Commission [2003] ECR II-4251. 214 Arts 4, 6 and 8 Merger Regulation (above n 212). The criteria for a Community dimension are set out in Art 1. In addition, competition authorities are under an obligation to assess proposed mergers, whereas the enforcement of Arts 81 and 82 EC (and their national equivalents) is a discretionary competence. 215 Brammer (above n 194) 1419. Any breach of Articles 81 or 82 can theoretically come under the jurisdiction—and thereby also procedural rules—of any network member. Through case allocation, the relevant procedural law is simply singled out from the number of potentially applicable legal systems. 216 Network Notice (above n 185) [31]. The Notice justifies this position by stating that the authority to which a case is transferred will be well placed to handle it and would thus in any event have been competent to commence ex officio proceedings. 217 The Court ruled that the possible existence of remedies before the national courts, which could if necessary avail themselves of Article 234 EC, could not preclude the possibility of bringing a case directly before the Community judiciary under Article 230 EC at [290]. 218 Note that in scenario 1 (the transfer of a case between NCAs), it would be a national court that decides on the justiciability of the allocation decision. For consistency reasons, it might do to provide

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The Perspective of Firms and Consumers The introduction of formal allocation decisions would, however, leave unaffected the flexible nature of the allocation criteria, the existence of Article 13 and the evidence problems.219 Although there would be the possibility of raising the allocation argument, it is uncertain if success will be enhanced. In France Télécom SA v Commission, both the French Conseil de la Concurrence and the Commission were seized of a complaint against an alleged abuse of a dominant position in the French ADSL market.220 The Conseil de la Concurrence dealt with the complainants’ request for interim measures.221 The Commission issued a decision requiring the applicant to submit to an inspection. The applicant then challenged that decision, alleging a violation of the division of work instituted by the Network Notice. According to allocation rules, the applicant claimed, the French Conseil de la Concurrence was the most suitable authority to investigate its case. The CFI disagreed. It began by noting that the Notice stipulates that consultations are matters between public enforcers and that the allocation of cases does not create individual rights for firms to have their cases dealt with by particular authorities.222 Turning to the case allocation criteria, the Court noted that these are phrased in discretionary terms and as such cannot amount to an obligation for an authority to investigate or abstain from investigating any particular case.223 Finally, said the Court, the Notice declares that each network member retains full discretion in deciding whether or not to investigate a case.224 The applicant’s claim was accordingly held to be unfounded. Furthermore, case allocation decisions invite external involvement in and scrutiny of what is clearly intended as an inter-network arrangement.225 Such external involvement could act as a brake on the effectiveness and flexibility of

that such transfer actions qualify as formal decisions. For the same reason, if we wish to make sure that such actions are appealable, it might also be necessary that EC law stipulates a right of appeal, akin to Art 4 Framework Directive. 219 The introduction of formal allocation rules akin to those in the Merger Regulation could further amount to a complete overhaul of the system. It could undo the flexibility inherent in the current system. Here we must remember that merger control is mandatory: firms must notify their mergers, and the competition authorities are obliged to issue either positive or negative decisions. Conversely, enforcement under Regulation 1/2003 is characterised by discretion so that competition authorities prosecute those infringements that are most serious, most important in policy terms or for which they possess the regulatory capacities. Indeed, within the network structure no competition authority can be compelled to investigate a case. 220 France Télécom (above n 208). See also F Rizzuto, ‘Parallel Competence and the Power of the EC Commission under Regulation 1/2003 according to the Court of First Instance’ (2008) 29 European Competition Law Review 286. 221 Décision du Conseil de la concurrence n° 04-D-17 du 11 mai 2004. 222 France Télécom (above n 208) [83]. Here, the CFI referred to [4] and [31] of the Network Notice (above n 185). 223 France Télécom (above n 208) [84]. 224 Ibid. Indeed, although Art 13 of the Regulation gives each competition authority the right to suspend an investigation or reject a complaint on the ground that another authority is already dealing with the case, it is not obliged to do so. 225 Network Notice (above n 185) [4] and [34].

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Three Perspectives on Network-Based Governance the allocation process.226 The improved incentives for firms and complainants to access the courts might result in an explosion of litigation. Ultimately, network members could become hesitant to refer cases and prefer—arguably for the wrong reasons—to dispose of matters themselves. A second option would be to approach the issue on an ex ante basis through the general harmonisation of procedural rules and sanctions. To the extent that the enticement is found in procedural heterogeneity, the creation of a homogeneous regulatory environment would eliminate the incentive for firms and complainants to go to court over case allocation. Nevertheless, this solution would likely be at variance with the doctrine of subsidiarity and would amount to a deep incursion into national procedural autonomy—which has been somewhat eroded in recent years but would be all but eliminated by ex ante procedural harmonisation. Member States will be loathe to support such an initiative. We must also question the effectiveness and appropriateness of superimposing EC-created procedural rules upon national legal systems for specific cases and take note of the damage they can do to the coherency of national legal regimes.227 Perceived in terms of competence, it is moreover not clear whether either Article 83 or Article 308 EC suffices as a legal basis. Our understanding of the legal complexities of ex post review and ex ante harmonisation must be complemented by a short discussion of the likely costs these would entail. There are first the legislative costs associated with both the introduction of case allocation decisions and the harmonisation of procedural frameworks. For the first option, these costs are in addition to the costs associated with the exercise of judicial review. Here we must think of the expenses incurred by firms and complainants of preparing and bringing lawsuits, the expenses for the authority that has to defend the case allocation decision228 and the expenses for the judiciary that must hear and decide the lawsuit. In view of the uncertain prospects of successful challenges, it is worth considering the matter in terms of opportunity costs. As firms, complainants, authorities and courts do not have access to unlimited resources, should available resources be allocated to judicial review or should they be spent on, for instance, innovation, law enforcement or case law development?229 Some might argue that the constitutional importance

226 This is believed to ensure an efficient division of work. The flexibility that characterises the current setup allows the most suitable authority—determined with reference to objective factors (eg, the territory involved) as well as subjective considerations (eg, resource capacity)—to handle a case. 227 For instance, court proceedings in which the competition aspect is but part of the case would have to be tried under two different sets of rules: the harmonised Community-imposed rules for the competition aspects and the normal rules of civil procedure for the other aspects. Such an outcome would hardly be compatible with the principle of transparency. It will also increase the costs of litigation, as transaction costs and search costs will rise. 228 These include financial and personnel costs. 229 A relevant consideration here is the relationship between the cost of review and the stakes at issue. If the stakes exceed the cost by a considerable magnitude, then we should nevertheless opt in favour of judicial review and accept that it amounts to a second-best solution in terms of efficiency for network interactions. That said, it will be a rare occurrence indeed to find that the stakes involved

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The Perspective of Firms and Consumers of judicial review means that it always ought to take precedence. The point here is not to discredit that claim. Rather, it is that such a view embodies a certain policy decision and inevitably has repercussions for the achievement of other objectives. If we were to opt for the second option, the legislative costs—which are significantly higher than for the first option—would be in addition to the costs of the implementation efforts to be undertaken by the Member States230 and Commission supervision over this process.231 This option would, however, also bring cost savings, as the relevant actors would no longer need to allocate resources to judicial review proceedings over case allocation disputes. Still, these pale in comparison to the enormity of the costs just set out.232 If we consider the three options for case allocation discussed above (laid out in Table 7.1), the current process emerges as the most sustainable solution. The first alternative (formalised allocation decisions) would not deliver greater chances of success for firms under investigation or for complainants than does the current model. Yet the costs involved are considerably higher. The virtues of the second alternative (ex ante procedural harmonisation) are perhaps persuasive, but legal and economic thinking will prevent its realisation—at least in the short to medium term. A decision to change the current state of affairs ought to be based on a full understanding of the need for judicial review of case allocation. Such a decision ought to take into account the nature of case allocation233 within the network system; the value of judicial review as a constitutional guarantee; and a rational cost-benefit calculus. It seems inevitable that any such choice, like the current one, will entail tradeoffs between these elements.

in the allocation of a case will so clearly outweigh the costs of review. This is because of the semi-converged environment—in terms of mandate and function, powers, procedures and applicable principles—within which national authorities operate. 230 Eg the adoption of national legislation, training of civil servants and staff of the authorities, training of the judiciary. 231 Primarily through infringement proceedings. This also entails higher costs for the Community judiciary who are the final arbiters in Art 226 EC proceedings. Here can we make the same point about opportunity costs: the Commission cannot pursue all violations of EC law, and the question must be asked whether prosecuting non-implementation of procedural harmonisation directives amounts to the best use of the Commission’s finite resources. Whereas the costs of the exercise of judicial review are continuous, however, the costs of the second option will likely be incurred only over a limited period of time. 232 Moreover, the costs would be incurred ex ante and over a limited time span, whereas the benefits would materialise ex post and over a much longer period of time. In making a cost-benefit calculus, the costs would thus be better quantifiable than the benefits that will also work against the adoption of this option. 233 Leaving aside their preparatory nature and the risk of spawning an industry of satellite litigation of judicial review of case allocation, part of the literature has also argued that we are concerned with firms that have infringed the law and that their decision to do so renders them in danger of being prosecuted and punished. By analogy with normal administrative or criminal law, perpetrators are not commonly given the right to choose their prosecutor or judge, eg Gauer (above n 187) 5.

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Three Perspectives on Network-Based Governance Table 7.1 Assessing the Options for Case Allocation within the European Competition Network (ECN): Formalised Decisions versus Ex Ante Procedural Harmonisation Current State of Affairs Benefits + Almost full access to courts + Effectiveness and flexibility within the network Downsides + Limited success + Inequality between complainants + Inability to challenge allocation as such Costs + Judicial review costs (for firms, authorities and courts)

Formalised Case Allocation Decisions + Presumed ability to challenge the allocation process

Ex Ante Procedural Harmonisation + Elimination of incentives to challenge allocation decisions

+ Limited success on the merits + Potential impediment to effectiveness and flexibility within the network

+ Conflicts with subsidiarity and national procedural autonomy + Potential decrease in coherency of national legal systems

+ Lawmaking costs (at EC and national levels) + Judicial review costs (for firms, authorities and courts)

+ Huge lawmaking costs (at EC and national levels)

b. Information Exchange The ability of authorities to exchange information is one of the linchpins of network-based governance. Its contribution to effective law enforcement can hardly be overstated. At the same time, information exchange has been criticised as infringing fundamental due process guarantees.234 Although information exchange is a process common to both the competition and the communications regimes, the latter does not provide for using exchanged information as evidence. We will see that this power within the competition framework is a particularly apt demonstration of the dilemma between effective enforcement of EC rules on the one hand and protection of due process rights on the other hand. A second difference between the two regimes under study here concerns the type of information exchanged. Probably as a result of the nature of the legal regime and the state of the Internal Market, the NRAs transfer information of a more methodological nature, while the NCAs exchange chiefly factual information 234 The protection of confidential information against third-party access and of leniency applicants is satisfactorily addressed in the law: above ch 6, section II-A(i).

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The Perspective of Firms and Consumers related to individual case enforcement.235 Again, this renders the issue of judicial protection more poignant under the competition regime. The discussion that follows is, however, not without relevance for communications law, as its regime may well develop along similar lines in the future. We saw that information exchange lies at the base of many other processes of case-based interactions. As these take place more frequently, as they will as the Internal Market in electronic communications develops, so will the type of information to be transferred change and the need for its use in evidence become more apparent. The new system will presumably strongly resemble the current competition regime. Importantly we must maintain a distinction between three events: the collection of information by the transferor; the exchange of that information between the transferor and the transferee; and the use of that information by the transferee (Figure 7.2).236 The legality of the first event (collection of the information) is governed by the law of the transferor.237 Judicial protection against unlawful collection is presumed available at the national courts of the transferor’s Member State or at the Court of First Instance if the Commission is responsible for the investigation.238 Figure 7.2 Exchange of Information within the European Competition Network (ECN)

We must draw attention to the stage at which an act is amenable to judicial scrutiny. Community law requires that the act produces discernible legal effects by bringing about a distinct change in the legal position of the applicant.239

235 Also, when the NRAs exchange information for the purpose of cross-border dispute resolution, they can be likened more to a court than to a prosecutor. 236 On the precise workings of information exchange: ch 6, section II, subsection A (i). 237 Art 22 Reg 1/2003; and Network Notice (above n 185) [27]. 238 Network Notice (above n 185) [4] and [27]. 239 Joined Cases 8–11/66 Cimenteries and Others v Commission [1967] ECR 75 [91]; Case 22/70 Commission v Council (European Agreement on Road Transport) [1971] ECR 263.

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Three Perspectives on Network-Based Governance When proceedings have multiple stages, it is accepted that certain intermediate decisions represent a definitive position of a Community institution and hence produce legal consequences. Indeed, the law stipulates a right of review for decisions containing requests for information during cartel procedures.240 Case law has also accepted that a decision ordering an enquiry is a reviewable intermediate act.241 Unfortunately, not all Member States employ similar reasoning. A number opt instead to defer judicial scrutiny of investigative measures to appeals against final decisions.242 This leaves us with a conundrum. Community law’s renvoi to national law for judicial protection is thwarted if a transferor’s system postpones review to a final decision—which will be adopted by the transferee—and the transferee’s legal system denies jurisdiction to assess the lawfulness of investigative measures taken by the transferor. According to Dirk Arts and Karel Bourgeois, pragmatic considerations dictate that a court in the transferee Member State assesses the legality of the investigation in the context of a review of the final decision.243 Two legal bases are identified for such jurisdiction. The competence of a court under national law to assess a final decision extends, they argue, to the exchanged information because its evidentiary character renders it an essential and integral part of that final decision. Second, the reference to national rules in the Regulation bestows a Community dimension on those rules when applied for the purposes of EC law.244 The court in the transferee Member State could invoke the primacy of EC law to claim the competence to consider compliance with the requirements found in the Regulation, including the national rules of the transferor Member State. It would thus have the implicit competence to marginally assess the lawfulness of the exchanged information used as evidence.245 The argument of Arts and Bourgeois is undoubtedly persuasive. Under the assumption that the firm in question would also wish to challenge the final decision, their solution seems cost-efficient, as all relevant actors (firm, authority and court) are faced with only a single set of judicial proceedings in a single judicial instance. This means also that the hindrance to the effectiveness of

240 Art 18(3) Reg 1/2003. K Lenaerts et al, Procedural Law of the European Union (London, Sweet & Maxwell, 1999) 148 refer to the independence of the determination of the final decision and the adequacy of judicial protection against that final decision as relevant factors to determining whether an appeal against ‘procedural’ decisions should be possible. 241 Joined Cases 46/87 and 227/88 Hoechst AG v Commission [1989] ECR 2859; LVM (above n 170); and Arts 20(4) and 21(3) Reg 1/2003. 242 Arts and Bourgeois (above n 189) 43. They use the Belgian situation as an example of a legal system that only provides for judicial review of final decisions. Although certain particularly invasive measures such as inspections of non-business premises require judicial authorisation, this control entails an ex ante assessment of a justification for the measure, ie whether it is neither arbitrary nor excessive, it does not amount to an ex post control of the legality of the investigation. 243 Arts and Bourgeois (above n 189). 244 Indeed, the competence for the transferor authority to act derives from Reg 1/2003, and the national rules provide the framework in terms of possible measures, procedural conditions and the like within which that competence must be exercised. 245 This is also what courts have to do under private international law.

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The Perspective of Firms and Consumers network operations owing to litigation is minimal in their formative stages. However, the authority (as defendant and on behalf of the transferor) and the court will incur search costs to determine the state of the law of the investigative rules in the transferor state. For the firm, this entails the risk of type-I or type-II errors (false positives or false negatives) in the assessment of the lawfulness of the investigative measures due either to misunderstanding or misinterpretation of the transferor’s legal system.246 In addition, these same factors are likely to result in too marginal judicial oversight. The last aspect in particular might prove fatal for the solution favoured by Arts and Bourgeois. It seems widely accepted that compliance with formal rules of procedure—and hence with due process rights of firms—ought to be thoroughly reviewed by courts.247 This is in particular when a public authority possesses discretionary competences. Even if this were this not considered problematic, we are still left with the question of jurisdiction. Although Arts and Bourgeois claim that a court in the transferee Member State possesses inherent competence to carry out the assessment of the original investigation, not all courts will be eager to ‘usurp’ such additional jurisdiction.248 Imposition of the competence through a Community law mandate will presumably not be supported by all Member States since they will rather perceive this option as an unwarranted incursion of their sovereignty.249 In any event, the option presents considerable externalities from a system-wide perspective. In the first place, the transferee system’s coherency is lessened because a special competence would be introduced for only a small set of cases. Second, the transferor’s legal system no doubt strikes a certain equilibrium between the need for judicial protection and the need for administrative efficiency.250 As many different equilibriums can be envisaged, we may expect that the transferee’s rules are not identical to that of the transferor. If the court in the transferee state is called upon to assess the legality of information collection according to the transferor’s rules, there is a danger that it might not fully relate to the equilibrium found in those rules and arrive at an outcome that upsets that equilibrium. Thus far we have proceeded on the assumption that the firm in question intends also to challenge the final decision of the transferee authority. If it has no such intentions, then review in the transferee Member State loses much of its appeal. The firm will suffer unnecessary delay in obtaining judicial protection. 246

This is the same for cases brought under private international law. For the position at Community level, see Case 53/85 AKZO Chemie BV and AKZO Chemie UK Ltd v Commission [1986] ECR 1965. 248 For a variety of reasons: the law might be formulated in such a way as to leave precious little scope for this wider jurisdiction; they might consider themselves overworked or under-resourced and hence not in need of more responsibilities; or they might simply have no inclination to investigate a second legal system. 249 Indeed, recall that the Network Notice (above n 185) [4] explicitly mandates that each network member bears responsibility for observance of due process rules—arguably including judicial protection for observance of those rights—in the context of its own investigations and proceedings. 250 Extrapolating, this could be seen as the balance between public and private interests. 247

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Three Perspectives on Network-Based Governance The search costs spent by the court and authority and the risk of type-I or type-II errors could be easily avoided if judicial review were located in the transferor Member State. Still, we will see below that review at that stage raises its own concerns. The second event shown above in Figure 7.2, the exchange of the information, is considered an internal network matter.251 No challengeable transfer decisions are therefore adopted, and firms are not informed of transfers. Still, due to the almost automatic transfer of certain information at particular procedural stages (after case reallocation or following an investigation carried out on behalf of the transferee) firms will in fact often know what information is transmitted to which network member.252 Although the transferor ought to disclose to the transferee if the information collection is or could still be contested, this does not prevent the transfer from taking place.253 When the collection process is later ruled unlawful, the transferee would seem to lose the possibility of using the tainted information as evidence.254 Yet, the transferee will not proceed on the basis of a tabula rasa, and it cannot be ruled out that the information may have an indirect influence on the final decision. It has thus been suggested to introduce the procedure devised by the Court of Justice in AKZO Chemie BV and AKZO Chemie UK Ltd v Commission255 for the disclosure of confidential information to a third party.256 After giving the firm in question an opportunity to state its view on the intended exchange, the transferor would adopt a decision amenable to review on the matter. The transfer would then be postponed until the firm is able to exercise its right to judicial control of

251

Network Notice (above n 185) [4]. The Network Notice (above n 185) [34] requires that firms are informed of case reallocation and the identity of the transferee. Before the start of the investigation, the firm will normally be informed of the subject matter and purpose of inspection, allowing it to discern whether the information sought is intended for another network member. 253 When read together with Art 10 EC, the competition authority would in fact seem obliged to do so. 254 The transferee should exclude the information from its file and give it back (in the case of originals of documents) or destroy it (in the case of copies): K Dekeyser and D Dalheimer, ‘Cooperation within the European Competition Network: Taking Stock after 10 Months of Case Practice’ in Lowe and Reynolds (eds) (above n 187). See allso Case 46/87R Hoechst AG v Commission [1987] ECR 1549 [34]; and Case 85/87R Dow Chemical Nederland BV v Commission [1987] ECR 4367 [17]. 255 Above n 247. 256 A Andreangeli, ‘The Impact of the Modernisation Regulation on the Guarantees of Due Process in Competition Proceedings’ (2006) 31 European Law Review 342, 357; S Lage and H Brokelmann, ‘The Possible Consequences of a Relatively Broad Scope for Exchange of Confidential Information on National Procedural Law and Antitrust Sanctions’ in CD Ehlermann and I Atanasiu (eds), Constructing the EU Network of Competition Authorities, European Competition Law Annual 2002 (Oxford, Hart Publishing, 2004) 413; and (although not referring explicitly to AKZO) M van der Woude, ‘Exchange of Information within the European Competition Network: Scope and Limits’ in Ehlermann and Atanasiu (eds), Constructing the EU Network of Competition Authorities, European Competition Law Annual 2002 (Oxford, Hart Publishing, 2004) 386. Van der Woude does refer to Case T-353/94 Postbank NV v Commission [1996] ECR II-921, which concerned the transfer of documents by the Commission to the national courts. 252

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The Perspective of Firms and Consumers the decision. Reliance in such scenarios is also placed on the Court’s judgment in Samenwerkende Elektriciteits-Produktiebedrijven (SEP) NV v Commission, in which it was held that the AKZO procedure has analogous application if the Commission wishes to transmit a document to the competent national authorities for which confidential treatment has been requested.257 However, the facts at issue in both judgments differ considerably from the present discussion. The applicants in AKZO and SEP were concerned with the protection of their commercial interests—not with safeguarding their rights of defence.258 More fundamentally, we must ponder whether judicial review of an exchange decision is the most appropriate avenue to protect due process rights. A moment’s thought reveals that firms in fact seek to prevent the third event, the use of information by transferees, because of perceived errors that have occurred during the first event259—which brings us back to the issue of judicial protection against illegal information collection. Ex post review in the transferee Member State (the Arts and Bourgeois solution) may once again appear attractive. However, in addition to the costs this would entail, we have seen that ex post review might not fully protect due process rights because it allows tainted information to reach transferees. Instead, the obvious alternative is for Community law to mandate that information may be exchanged only if its legality is established or can no longer be contested.260 The benefits of this approach are apparent, as full and complete protection of due process rights would be guaranteed. More fundamentally, it would be possible to free-ride on the legal systems of transferor states and take advantage of the equilibrium between judicial protection and administrative efficiency contained therein. The courts will assess, and the authorities will defend the information collection according to their own rules of civil procedure. This reduces, even eliminates, search costs. It prevents the occurrence of a system imbalance and the externalities this would entail. Admittedly, some Member States might have to create judicial remedies against intermediate decisions, but in devising such remedies, they can ensure that they fit the equilibrium of their particular systems.

257 Case C-36/92P Samenwerkende Elektriciteits-Produktiebedrijven (SEP) NV v Commission [1994] ECR I-1911 [39] and Case T-39/90 SEP v Commission [1991] ECR II-1497. 258 Also, the recipient national authority in SEP had commercial interests in one of SEP’s competitors. It can hence be questioned to what extent it is possible to extrapolate a general principle from that case. In any event, this situation does not exist anymore. As shown above in ch 2, section IV-C, all Member States have created independent authorities that are not linked to state-owned firms. 259 Also, judicial review over information exchanges would arguably require the introduction of transfer decisions. There might, however, be another obstacle to review: in view of the Court’s judgment IBM (above n 200) it is not clear whether such a decision would constitute a challengeable act. 260 Reichelt argues that this approach is in fact required under the rule of law: D Reichelt, ‘To What Extent does the Co-operation within the European Competition Network Protect the Rights of Undertakings?’ (2005) 42 Common Market Law Review 745, 751.

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Three Perspectives on Network-Based Governance Ex ante review preceding the transfer of information no doubt brings with it costs at both European and national levels, to the extent that Member States would need to introduce this remedy into their legal systems.261 Furthermore, it is worth pointing out that since information exchange occurs primarily at the onset of proceedings, judicial review at that juncture might slow down the pace of competition investigations.262 Litigation could further exert a chilling effect on the incentives for network members to rely on each other for the collection and provision of information. Ultimately, this could hamper the effectiveness of network operations.263 The core threat to due process rights is believed to exist at the third event shown above in Figure 7.2, the use of exchanged information as evidence. Due to differences in the remit of the investigative powers of network members, information exchange could result in members obtaining and using information either that they could not have collected themselves or the collection of which their own national laws prescribe more stringent conditions.264 In particular, there is debate regarding the possible correlation between this issue and the non-uniform scope of protection for certain lawyer–client communications (legal professional privilege).265 For the great majority of network members, including the Commission, the prohibition to take or to investigate documents covered by privilege covers only independent lawyers. However, four Member States extend protection to in-house legal counsel.266 Can these Member States use documentation produced by in-house counsel transferred to them within the network, even though such information would have benefited from privilege if

261 These will be lower than under ex post review, as a number of Member States already allow for this type of review and hence do not need to spend resources on adapting their national laws. This fact, together with the smaller incursion into national procedural autonomy and coherency of national systems, will also make political agreement at the European lawmaking stage more forthcoming. Also, the potential damage done to the coherency of legal systems is smaller. 262 One solution could be the introduction of fast-track proceedings, as are also used in merger cases. Gauer (above n 187) 13 also sees another obstacle as regards exchanges following case reallocation. Notifying the firm concerned that an information exchange is due to take place might constitute an unjustified warning to the firm as to the opening of a file concerning them. 263 In particular, the success of an optimal system of case allocation might be jeopardised. 264 Van der Woude (above n 256) 384 and Lage and Brokelmann (above n 256) 416 both believe that this should not be possible. In addition to the arguments set out below, we can observe that there will normally be a correlation between the scope and strength of an authority’s investigative powers and the degree of protection for due process rights. Furthermore, in a number of situations the authority that is asked to gather evidence could also qualify as a well-placed authority within the meaning of the case allocation criteria and could hence have investigated the matter itself, in which case the firm would also be faced with a perceived lower protection for the rights of defence. 265 For a detailed overview of the scope of legal professional privilege, see European Company Lawyers Association, ‘The Situation of In-House Counsel in Member States: Comparative Tables’ (2003), http://www.ecla.org/legal.php. See also the Report by the Council of Bars and Law Societies of Europe (CCBE), ‘Regulated Legal Professionals and Professional Privilege within the European Union, the European Economic Area and Switzerland, and Certain Other European Jurisdictions’ (2004), http://elixir.bham.ac.uk/Free%20Movement%20of%20Professionals/Links_docs/fish_report_ en.pdf. 266 Belgium, Greece, Ireland and the United Kingdom.

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The Perspective of Firms and Consumers they themselves had been responsible for the information collection? Article 12 of the Regulation gives an affirmative answer.267 As such it is difficult to see how an appeal against this use could be successful. The applicant firm would have to challenge the validity of this provision for incompatibility with higher-ranking norms of Community law—probably the rights of defence—through a preliminary reference procedure.268 On a cursory assessment, this would be an excessively difficult claim to make. The content of Article 12 is premised upon two interlinked beliefs. First, the effectiveness of the network structures requires not only the transfer of information between network members but also that it must extend to subsequent use of that information in evidence. This is essential inter alia for an optimal system of case allocation. Second, the rights of defence of firms are sufficiently equivalent across Member States. In particular, all legal systems operate a common minimum standard of fundamental rights through the ECHR and EC law.269 Mutual recognition of processes governing information collection is hence considered both feasible and appropriate. The discretionary power of the Community legislature to make such evaluative choices is likely to induce the Court to deploy a more marginal intensity of review. Applying this standard, we may expect the Court to rule that the Regulation cannot be seen to blatantly disrespect due process rights. Indeed, the lower standard—exclusion of protection for in-house counsel communications—was endorsed by the Court for Commission investigations in AM & S Europe Limited v Commission as reflecting the legal traditions common to the Member States.270 This ruling was recently confirmed in Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v Commission.271 The Court

267 See also the start of Recital 16 Reg 1/2003 and Network Notice (above n 185) [27]. For national law, see, eg the OFT Guidelines ‘Powers of Investigation’ (available at the OFT’s website), s 6.3 of which states that the OFT may use the communications of in-house lawyers sent by another network member in its investigation. 268 Of course, it is not for the applicant to decide on a reference but the national court. 269 There is also a correlation between the type of available sanctions and the rights of defence: above ch 6, section II-A(i). 270 Case 155/79 AM & S Europe Limited v Commission [1982] ECR 1575. The Court subjected protection of professional privilege to two conditions: the communications should be made for the purposes and in the interests of the client’s rights of defence; and second, they must emanate from independent lawyers. This second condition is intimately linked to the conception of a lawyer’s role as collaborating in the administration of justice by the courts, evidenced in particular in the rules of professional ethics and discipline to which lawyers are subject. A slight extension of the scope of legal professional privilege was achieved in Case C-53/92P Hilti AG v Commission [1994] ECR I-667, where the Court of First Instance held that legal professional privilege extends to internal notes reporting the text or content of communications between an independent lawyer and a client. For a critical analysis of the extension of legal professional privilege to in-house lawyers, see W Wils, ‘Powers of Investigation and Procedural Rights and Guarantees in EU Antitrust Enforcement’ (2006) 29 World Competition 3, 20. 271 Joined Cases T-125/03 and T-253/03 Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v Commission [2007] ECR II-4771. The Court allowed a small extension of the material scope of legal professional privilege, ruling that preparatory documents could enjoy protection ‘provided that they were drawn up exclusively for the purpose of seeking legal advice from a lawyer in the exercise of the rights of defence’. The case also contains a detailed discussion of the procedure to be followed by the

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Three Perspectives on Network-Based Governance considered that although more Member States presently admit of an extension of legal professional privilege to cover in-house lawyers than when AM & S was decided, a clear majority still supports the opposite view.272 In sum, it is clear that due process requires a certain amount of judicial oversight over the information processing chain. The task at hand is to identify what the courts should review. The analysis above reveals two distinct concerns for due process: first, information collection that is illegal according to the transferor’s rules; second, information collection that is illegal according to the transferee’s rules. It seems rational to make judicial review available only for the first scenario. Denying firms locus standi to sue for breach of the transferee’s rules of procedure is justified on account of the damage that would otherwise be done to the effet utile of the network. This is because that damage outweighs the cost incurred by firms as a result of what must be considered a minor heterogeneity in due process rights. We can also conceive the argument in terms of the equilibrium approach: once information has been collected in accordance with the transferor’s legal equilibrium, it would seem improper to reevaluate the information according to, and hence impose, the equilibrium of the transferee legal system. This is moreover wasteful, as resources may likely be spent to assess the same information twice—first for observance of the transferor’s rules and subsequently for compliance with the transferee’s rules. Next, we attempt to rationalise where and hence when judicial control ought to take place. Efficiency considerations dictate that firms should be given a single opportunity to obtain judicial protection against illegal investigations. Importantly, the choice between ex ante or ex post review must be based on an evaluation of the costs and benefits to the entire legal system and not merely those related to the individual case. Table 7.2 shows that protection by transferor courts seems most compelling. The ability to free-ride on existing systems and take advantage of existing judicial protection/efficiency equilibriums in particular should be greatly valued. Still, this option entails certain negative externalities for the network (delay and a potential chilling effect on information exchange

Commission in relation to documents that the firm under investigation alleges are covered by legal professional privilege. The applicants had also applied for interim relief, and it is interesting to note that the President of the CFI in his Order (Case T-125/03R [2003] ECR II-4771) did contemplate an extension of the scope of protection to also cover in-house lawyers. He considered that the role assigned to independent lawyers of collaborating in the administration of justice by the courts could potentially be shared by lawyers employed within firms where they are subject to strict rules of professional conduct. The CFI, however, ruled that the ECJ in AM & S (ibid) had defined the concept of ‘independent lawyer’ in negative terms as excluding a relationship of employment, instead of positively, as denoting membership of the bar or law society or being subject to professional discipline and ethics. The interim order was later reversed by the ECJ in Case C-7/04 P(R) Commission v Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd [2004] ECR I-8739. 272 Akzo Nobel v Commission (ibid) [170]–[171].

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The Perspective of Firms and Consumers between members). However, these will affect all network members equally, and in time we can expect an internalisation of those effects in network procedures.273 Table 7.2 A Cost-Benefit Analysis of Judicial Review for Information Collection within the European Competition Network (ECN)

Benefits

Costs

Ex Ante Review in Transferor State + Full protection of due process rights + Ability to free-ride on the existing equilibrium between protection and efficiency + Delay and chilling effect on the use of information exchange within the network + Lawmaking costs (at EC and national levels)

Ex Post Review in Transferee State + Only a single set of judicial proceedings + No hindrance to network operations + Search costs for transferee authority and court + Risk of type-I or type-II errors + Lawmaking costs (at EC and national levels)

c. Commission ‘Letters of Comment’ Network-based governance conceives the Commission as a party in the original decision-making process of the national authorities. Consider in particular the Commission ‘letters of comment’ following mandatory notification of draft decisions by the national authorities.274 Firms are not heard prior to their issuance and letters of comment are not communicated to the firms,275 although those issued under the electronic communications regime can be accessed online.276 The impact of Commission observations is considerable. Many national authorities revise their draft decisions according to Commission suggestions. Those that do not may subsequently see their decisions annulled in court for reasons similar to those indicated in the Commission comments. It is therefore appropriate to inquire whether letters of comment should be subject to judicial scrutiny. 273 Also, the importance of lawful investigations will be impressed upon network members. After all, even if a network member is not concerned about its own reputation in this respect, the other network members will rely on it and trust it to carry out its investigations with the utmost diligence to minimise problems with judicial review. 274 See further above ch 5, section I-A(i). 275 For instance, in Denmark an amendment to the competition statute limits the rights of access to such files as far as Commission letters of comments are concerned, and the Swedish City Court in Stockholm has ruled that such letters are not accessible: judgment of 23 May 2006 in case n° 7300–05, related by E Gippini-Fournier, ‘Institutional Report’ in H Koeck and M Karollus (eds), The Modernisation of European Competition Law: Initial Experiences with Regulation 1/2003, vol 2 (Vienna, FIDE XXIII Congress Publications, 2008) 447. 276 Http://circa.europa.eu/Public/irc/infso/ecctf/library?l=/commissionsdecisions&vm= detailed&sb=Title.

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Three Perspectives on Network-Based Governance This was the question before the Court of First Instance in Vodafone España and Vodafone Group plc v Commission.277 The case dealt with the EC communications regime, in particular a Commission letter of comment addressed to the Spanish national authority in relation to its draft measure, which found that Vodafone, together with two other firms, held a position of collective dominance on the market for mobile access and call origination.278 Vodafone petitioned the Court to annul this letter under Article 230 of the Treaty. The Commission responded by raising an objection of inadmissibility. Its letter of comment, it claimed, did not constitute a challengeable act. The applicant firm disagreed. It argued that the letter of comment was in fact an authorisation decision: by not proceeding to an in-depth inquiry under Article 7(4), the Commission allowed the Spanish regulator to adopt its draft measure. Also, according binding effect to the letter of comment was necessary to safeguard the consistent application of Community law. Lastly, it submitted that the contested act amounted to an implied decision not to initiate the Article 7(4) procedure, thereby depriving Vodafone of the procedural rights it would otherwise have enjoyed. Here the applicant drew on earlier case law in the fields of state aid and merger control, holding that Commission decisions that terminate the procedure for review at Community level are susceptible to challenge before the Community Courts.279 The CFI rejected this line of reasoning in its entirety. It began by noting that the legal framework conceives of shared responsibility for consistency, whereby not only does the Commission have a key role to play, but the national authorities themselves also must make an important contribution by cooperating with each other and the Commission.280 This, the Court found, was reflected in Article 7(5) of the Framework Directive, which obliges national authorities to ‘take the utmost account’ of the Commission’s observations and, as such, does not provide that these comments ought to prevail over those of other national authorities.281

277 Case T-109/06 Vodafone España and Vodafone Group plc v Commission, Order of 12 December 2007, repeated and confirmed in Case T-295/06 Base NV v Commission Order of 22 February 2008. 278 ES/2005/0330, SG-Greffe (2006) D/200402, 30 January 2006. See also IP/06/97 ‘Commission Endorses, with Comments, Spanish Regulator’s Measure to Make Mobile Market More Competitive’, 31 January 2006. The Spanish regulator proposed to impose an obligation on the three operators with SMP to respond to reasonable requests for access to their networks and to offer reasonable terms for the supply of access services. 279 On state aid, see Case C-198/91 William Cook plc v Commission [1993] ECR I-2487 [23]–[26]; Case C-225/91 Matra SA v Commission [1993] ECR I-3203 [17]–[20]; and Case T-395/04 Air One SpA v Commission [2006] ECR II-1343 [30]–[31], relating to decisions pursuant to Article 88(3) EC not to initiate the second phase of the state aid procedure and to approve the grant of new aid. On merger control, see Case T-87/96 Assicurazioni Generali SpA and Unicredito SpA v Commission [1999] ECR II-203 [37]–[44]; Royal Philips (above n 213) [282], dealing with decisions in which the Commission took the view that it does not have the competence to assess a merger and decisions in which it referred a case to the national authorities, Arts 6(1)(1) and 9 Merger Regulation (above n 212). 280 Vodafone (above n 277) [92]. The Court here referred in particular to Arts 7(2) and 8(3)(d) Framework Directive. 281 Ibid [93].

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The Perspective of Firms and Consumers Commission letters of comment, it continued, are precisely that: they recommend and give advice.282 They do not approve notified draft measures or authorise national authorities to act. Indeed, said the Court, a perusal of the legal framework revealed no provision to that effect. Turning to Vodafone’s last argument, the need to ensure protection of its procedural rights, the Court first observed that the Framework Directive does not contemplate the involvement of interested parties in the Article 7(4) procedure and that accordingly, there are simply no procedural rights that firms are deprived of if this procedure is not initiated.283 It continued that in the event of a Commission letter of comment, the final decision is taken at national level, and it thus falls to the national courts to safeguard firms’ procedural rights. Finally, the Court held that the case law on state aid and merger control to which the applicant had referred was not relevant to the present proceedings. Review of state aid and mergers with a Community dimension comes within the exclusive competence of the Commission, and it is hence only before that institution that parties can usefully submit their observations.284 Conversely, because decisions under the EC communications regime are in principle adopted by the national authorities, it is sufficient that interested parties are heard at the national level. Thus, with Vodafone’s claim unsuccessful on all counts, the Court ruled that Commission letters of comment are not amenable to judicial review under Article 230 of the Treaty. In its objection of inadmissibility, the Commission also alleged that Vodafone lacked standing. The Court agreed. As a non-privileged applicant, Vodafone will only be admitted to court if it can demonstrate that a contested act concerns it directly and individually.285 Following the Commission’s submissions, the Court 282 A Commission letter of comment is accordingly a preparatory Community act in the context of a procedure leading to the adoption of a national measure by the relevant national authority, which, according to established case law, cannot be the subject of an independent action for annulment: Case C-147/96 Kingdom of the Netherlands v Commission [2000] ECR I-4723 [35]; Case T-311/04 José Luis Buendía Sierra v Commission [2006] ECR II-4137 [98]. 283 Vodafone (above n 277) [121]. This conclusion was not affected by the Commission practice of informing interested parties of the initiation of the second phase of the procedure under Art 7(4) of the Framework Directive through a notice on its website and the invitation to interested parties to submit their comments within five working days. 284 Ibid [128]. The Court further observed that the decisions at issue in that case law produced binding effect, ie, expressly declaring a state aid measure compatible with Community law or changing the legal rules applicable to the proposed merger—either to Art 81 EC or to national legislation on mergers. 285 As non-privileged applicants, individuals are only directly admitted to the Community Courts when they wish to challenge a decision that is addressed to them. In all other cases, they must demonstrate that the act concerns them directly and individually. The literature on Article 230 EC qua standing is vast. Consider, eg, Schermers and Waelbroeck (above n 172) 424–59; P Craig and G De Bùrca, EU Law: Text, Cases and Materials, 4th edn (Oxford, Oxford University Press, 2008) 509–28; A Arnull, The European Union and its Court of Justice, 2nd edn (Oxford, Oxford University Press, 2006); A Ward, ‘Judicial Architecture at the Cross-Roads: Private Parties and Challenge to EC Measures Post-Jégo Quéré’ (2001) 4 Cambridge Yearbook of European Legal Studies; A Arnull, ‘Private Applicants and the Action for Annulment since Codorniu’ (2001) 38 Common Market Law Review 7; N Neuwahl, ‘Article 173 Paragraph 4 EC: Past, Present and Possible Future’ (1996) 21 European Law

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Three Perspectives on Network-Based Governance focused on only the first limb of the test.286 Case law has interpreted direct concern to require a direct causal link between a contested act and the situation of the claimant.287 This means that the addressee of the act is left no discretion in its implementation.288 That was not the case here. Even though letters of comment must be taken ‘the utmost account of ’, they do not negate completely the discretion of the national authority to decide whether to adopt a draft measure and to determine its content.289 It is not a Commission letter of comment that brings about a distinct change in the legal position of the applicant— rather this results from the decision by the national authority. However, the foregoing does not mean that Vodafone is deprived of all judicial protection. The Court noted that the Commission’s observations feed into national decisions, which can be duly appealed to national courts. These courts can make use of the Article 234 EC procedure, and since preliminary references may also relate to non-binding Community acts, they can thus ascertain whether particular Commission letters of comment are based on correct interpretation of Community law.290 Some points of import may be distilled from this ruling. Firstly, it is surely correct that the Court does not allow challenges to letters of comment as such. At a normative level, direct challenges are at odds with the basic premise of network-based governance. Letters of comments are inter-network interactions. Their aim is to enhance the consistency of law enforcement through dialogue between the enforcers. It emphatically is not to affect the legal position of

Review 17; P Craig, ‘Legality, Standing and Substantive Review in Community Law’ (1994) 14 Oxford Journal of Legal Studies 507; C Harlow, ‘Towards a Theory of Access for the European Court of Justice’ (1992) 12 Yearbook of European Law 213; H Rasmussen, ‘Why is Art 173 Interpreted against Plaintiffs?’ (1980) 5 European Law Review 114; A Barav, ‘Direct and Individual Concern: An Almost Insurmountable Barrier to the Admissibility of Individual Appeal to the EEC Court’ (1974) 11 Common Market Law Review 191. 286 Applicants are regarded as individually concerned by a measure if it ‘affects them by reason of certain attributes which are peculiar to them or by reason of circumstances in which they are differentiated from all other persons and by virtue of these factors distinguishes them individually just as in the case of the person addressed’: Plaumann (above n 179). 287 Joined Cases 41 to 44/70 NV International Fruit Company and Others v Commission [1971] ECR 411 [24]–[27]; Case 11/82 SA Piraiki-Patraiki and Others v Commission [1985] ECR 207; Kali and Salz (above n 158) [49]–[52]; Case C-386/96P Société Louis Dreyfus & Cie v Commission [1998] ECR I-2309 [43]; Case T-172/98, T-175 to 177/98 Salamander AG and Others v Parliament and Council [2000] ECR II-2487. 288 That is the case in particular when the possibility that addressees will not give effect to the Community measure is purely theoretical and their intention to act in conformity with it is not in doubt. 289 Comments letters typically oblige national authorities to consider particular cases or legal documents or to elaborate on reasoning, but they do not as such prescribe outcomes. Furthermore, comments letters rarely relate to all aspects of an individual decision that a national authority intends to adopt. 290 Vodafone (above n 277) [102] referring to Case C-322/88 Salvatore Grimaldi v Fonds des maladies professionnelles [1989] ECR 4407 [8] and Case C-94/91 Hans-Otto Wagner GmbH v Fonds d’intervention et de Régularisation due Marché du Sucre [1992] ECR I-2765 [16]–[17].

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The Perspective of Firms and Consumers firms.291 The threat to the legitimacy of letters of comment and their contribution to consistency through frequent litigation is another compelling reason against judicial control. Pragmatic considerations lend further support for a negative answer. What would happen if the Court annulled a Commission letter of comment and the relevant national decision was already adopted, following that letter? Would national authorities be required to postpone adoption until the validity of letters is determined? Would the Commission be required to systematically notify letters of comment to the firms that are the addressees of national draft decisions? Whatever the answer, we may expect an increase in uncertainty and delay, as well as higher transaction and administration costs. Secondly, we must inquire whether due protection of firms’ procedural rights at national level requires the possibility of responding to Commission observations during the review process of national decisions.292 The judgment skirts around this issue. That national courts can refer questions on the interpretation of letters of comment to the Community Courts would suggest that these letters will be a subject of discussion between applicant firms and defendant authorities in the course of national proceedings. At the same time, the Court speaks generically of ‘the procedural rights which parties enjoy where the Commission merely makes comments’, without particularising whether this includes a right of reply as a matter of Community law. In support of such a right we can rely on Article 6 of the European Convention on Human Rights, in particular the requirement that proceedings must be adversarial. The European Court of Human Rights has ruled on several occasions that [this] means in principle the opportunity for parties to a criminal or civil trial to have knowledge of and comment on all evidence adduced or observations filed, even by an independent member of the national legal service [typically the commissaire du gouvernement or the avocat general], with a view to influencing the court’s decision.293

The reasoning of the Human Rights Court focuses on the function of the office giving the observations, which the Court identifies to be assistance in ensuring

291 See also European Commission (EC), ‘Report on Competition Policy 2005’ SEC (2006)761 final, 73: ‘These comments . . . are regarded as an internal correspondence between competition authorities and are not accessible to the parties under Regulation (EC) No 1/2003. Should an NCA draw inspiration from these comments to envisage new objections against the undertakings, it would have to issue a further statement of objections (or its national equivalent) and allow the parties to be heard’. 292 We may expect firms also to deploy Commission letters of comment in support of their claims. They may, for instance, argue that a national authority has paid insufficient attention to the observations made. Courts should scrutinise such claims carefully, subject to respect for the nonbinding nature of Commission observations. 293 Kress v France (Appl no 39594/98) ECHR 2001-IV; Reinhardt and Slimane-Kaïd v France (Appl no 23043/93 and 22921/93) ECHR Reports 1998-II; KDB v the Netherlands (Appl No 21981/93) ECHR Reports 1998-II; JJ v the Netherlands (Appl no 21351/93) ECHR Reports 1998-II; Van Orshoven v Belgium (Appl no 20122/92) ECHR Reports 1997-III; Lobo Machado v Portugal (Appl no 16764/89) ECHR Reports 1996-I; Vermeulen v Belgium (Appl no 19075/91) ECHR Reports 1996-I; Borgers v Belgium (Appl no 12005/86) (1991) Series A no 214-B.

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Three Perspectives on Network-Based Governance consistent case law. It is also influenced by the authority of the office, which is seen to imbue opinions with considerable force. In terms of their role and status, thus, we perceive a great degree of similarity between the observations of an independent member of the national legal service and Commission letters of comment.294 As such, providing firms with the opportunity to reply to the submissions of the Commission is justified on account of procedural fairness.295 Thirdly, the CFI’s preference for indirect judicial protection through the national courts, with the possibility of preliminary reference, draws attention to the importance of having a properly endowed judiciary and a well-functioning procedural framework. National courts should have the expertise to consider the polycentric and technical issues inherent in EC communications law.296 They should be able to assess Commission letters of comments, because recourse to Article 234 EC will presumably be sporadic. The length of this procedure is daunting in general but takes on an extra dimension in the case of dynamic fields, such as communications law.297 In terms of procedure, a reasonable duration for the national appeals process is a prerequisite for effective judicial protection.298 Justice delayed is justice denied. Although the judgment was rendered in relation to the EC communications framework, we would expect the outcome to be the same under the EC competition regime. This is because the content and the context in which Commission letters of comment are adopted are, if not identical, then at least largely similar between both sets of rules. For indirect challenges to Commission observations

294 While noting the difference in addressees: unlike Commission letters of comment, the observations under scrutiny in the Article 6 case law were directed at the court, not at the principal decision-maker. Approaching the issue from another angle, and as distinct from case allocation and information exchanges, this route of judicial protection entails minimal costs and little network disruption. 295 We observe that the Court of Justice has found against the applicability of the human rights case law in relation to the Opinions of the Advocate General, per Case C-17/98 Emesa Sugar (Free Zone) NV v Aruba [2000] ECR I-665, confirmed in Case C-434/02 Arnold André GmbH & Co KG v Landrat des Kreises Herford [2004] ECR I-11825 [24]–[27] and Case C-210/03 Swedish Match AB and Swedish Match UK Ltd v Secretary for Health [2004] ECR I-11893 [22]–[25]. The Court ruled that there exists an ‘organic and functional link between the Advocate General and the Court’ insofar as the former is a member of the Court itself. The Opinion accordingly derives its authority from an internal as opposed to external source. It is part of the deliberation by the Court, not of the proceedings between the parties. This reasoning does not appear transposable to the relationship between the Commission and national authorities under the notification and consultation procedure. Admittedly, the Commission takes part in the process by which national authorities reach their decisions—and therefore in carrying out the administrative function entrusted to them; yet the Commission and national authorities are institutionally separate. Also, while letters of comment precede proceedings between authorities and firms, they seek to defend particular interests. 296 See further above ch 3, section IV-A and ch 5, section I-B. In particular, a number of Member States have set up specialised courts or tribunals to hear appeals against decisions by national regulatory authorities. This practice merits wider application. 297 We can only speculate whether the fact that only interpretation questions are permitted acts as a further disincentive for national courts. 298 See the case law of the European Court of Human Rights in relation to Art 6 of the Convention.

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The Perspective of Firms and Consumers to be feasible under competition law, there is, however, a practical obstacle to be overcome. Article 27(2) prescribes that the right of access to files excludes correspondence between network members. Although the provision covers only access to Commission files, Article 28’s obligation of professional secrecy arguably does extend to the Commission letters of comment and would prevent disclosure by the national competition authorities.299 This prohibition would need to be relaxed in the event of judicial review of a national decision. d. Ouster Clauses and Vetoes The pinnacle of vertical coordination is the Commission’s ability to impose its will against national authorities if it believes that a proposed course of action would impede the consistency of Community law. Unlike the previous instances of case-based interactions, the party with primary interest in obtaining judicial review is not a firm but the national authority that is being superseded. Having said that, in the competition regime the ouster clause found in Article 11(6) of Regulation 1/2003 terminates the jurisdiction of the national authority once and for all. For reasons analogous to those alluded to in the discussion on case allocation, firms and complainants may thus also wish to challenge the transfer of the case from the national to the Community level. In particular, in the present scenario the use of the ouster clause would come when proceedings before the national authority have reached an advanced stage.300 The costs incurred by firms as a result of reallocation (eg, translation fees, delays, costs of new lawyers) may thus be considerable.301 In any event, they will be significantly higher than under the standard process of case allocation, which must be completed within two months of the initiation of proceedings.302

299 See also K Dekeyser and M Jaspers, ‘A New Era of ECN Cooperation: Achievements and Challenges with Special Focus on Work in the Leniency Field’ (2007) 30 World Competition 3, 10, relying on the Opinion of Lenz AG in AKZO (above n 247) at [1977], finding that professional secrecy extends to internal documents of the administration. Since letters of comment do not usually include new information or evidence, they further argue that a refusal to grant access to these documents does not amount to a violation of firms’ due process rights per Joined Cases T-25/95 Cimenteries CBR and Others v Commission [2000] ECR II-491 [420]. 300 We recall that the Network Notice (above n 185) speaks of situations in which the NCAs are envisaging decisions at [55] and that under ‘normal’ case allocation, transfers should be effected within two months of the first notification under Art 11(3) Reg 1/2003. 301 See also Cooke (above n 204) 6; Geradin and Petit (above n 182) 8. Not only will the firms concerned have strong incentives to see the case retained before a particular national authority, its lawyers—especially external ones—will be similarly minded—bearing in mind the undesirable consequences of having to transfer a case (and a client). 302 Network Notice (above n 185) [18].

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Three Perspectives on Network-Based Governance Although the exercise of the ouster clause is preceded by an intra-network consultation process,303 the outcome of that process does not qualify as a formal decision.304 The Network Notice reads at paragraph 55: ‘If an NCA is already acting on a case, the Commission will explain the reasons for the application of Article 11(6) of the Council Regulation in writing to the NCA concerned and to the other members of the Network’. The term ‘decision’ is avoided, and the paragraph speaks of ‘explaining’ as opposed to ‘stating’ the reasons—a phrase that appears in Article 253 of the Treaty in relation to inter alia decisions within the meaning of Article 249 EC. Moreover, the commitment to provide explanations is laid down in a soft-law document.305 It could be objected that this reading favours form over substance—and the Court is known to adopt a non-formalistic approach in deciding whether certain acts have a decisional character.306 In this regard, the Court will require that the act must be ‘intended to produce legal effects’.307 This does not appear to be the case with the Commission’s explanation. That act is rather a statement of fact or a declaration of intent, paving the way for the initiation of proceedings by the Commission.308 It is this second act that, together with the closure of proceedings by the national authority, actually puts an end to the jurisdiction of the national authorities and hence produces discernable legal effects. We therefore return to the question: what avenues exist for judicial review of the two acts by which the case transfer is effectuated—and what are the chances of success? As discussed earlier, the possibilities for judicial protection against the closure of proceedings are left largely to national law. We shall not rehearse at this point the entirety of arguments made in that earlier discussion as to why firms and complainants are unlikely to bring successful claims for judicial review but merely restate the main findings. It is uncertain whether the closure of proceedings qualifies as a justiciable act and whether a firm or complainant should be accorded standing. Neither harm suffered in the form of administrative inconvenience nor higher costs amount to a legal basis to grant a claim for annulment.

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Above ch 5, section I-A(v). As intra-network consultations are between public enforcers, we could furthermore question whether firms would have access to these documents to bring a challenge—even if a formal decision was adopted. 305 Although these produce a certain self-binding effect for the Commission. See L Senden, Soft Law in European Community Law, Modern Studies in European Law (Oxford, Hart Publishing, 2004) 432ff. 306 European Agreement on Road Transport (above n 239); Joined cases 53 and 54/63 LemmerzWerke GmbH and Others v High Authority of the European Coal and Steel Community [1963] ECR 239; IBM (above n 200) [9]. 307 European Agreement on Road Transport (above n 239); Kali and Salz (above n 158) [62]. According to Cimenteries (above n 239) [91], an act has legal effects when it brings about a distinct change in the legal position of the applicant. 308 See also Brammer (above n 194) 1418. It would thus be comparable to the acts under scrutiny in, eg, Case 114/86 United Kingdom of Great Britain and Northern Ireland v Commission [1988] ECR 5289 [12]–[14]; and Case C-66/91 and C-66/91 R Emerald Meats Ltd v Commission [1991] ECR I-1143 [28]–[29]. 304

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The Perspective of Firms and Consumers Furthermore, although procedural rules may differ between legal systems, this fact will not necessarily induce a court to grant an application as there is a common minimum level of due process rights that is constantly enlarged through bottom-up convergence.309 Also with regard to the initiation of proceedings by the Commission, we can refer back to the reasoning expounded in the section above on case allocation and judicial review. The Court will not review the act initiating the proceedings, ruling that it does not adversely affect the interests of the firm concerned as per IBM.310 The judgment in France Télécom seems to confirm the Court’s reticence to judicially review case allocation within the network.311 Yet while we may agree that the initiation of proceedings by the Commission per the ouster clause does not affect the legal rights of firms or complainants—notwithstanding the factual and financial nuisance it most certainly causes—this reasoning cannot hold for the national authority concerned. The Commission’s decision relieves it of its competence and thus unequivocally influences its legal position in a negative manner.312 An action for annulment under Article 230 EC would therefore be immediately possible.313 Bearing in mind that the Regulation states the competence for the Commission to oust jurisdiction in absolute terms,314 successful

309 Above ch 6, section III. Here we can refer again to the comparison made in the literature with referrals under the Merger Regulation, in particular the judgment of the Court in Royal Philips (above n 213). Although the Court relied on differences in procedural rights in finding referral decisions capable of affecting the legal situation of the merging parties, that case dealt with a transfer from the Community to the national level—whereas the use of the ouster clause concerns the transfer of cases from the national level to the Community level. We may question to what extent the resultant inability for the firms to avail themselves of Art 230 EC was a decisive factor in the Court’s reasoning. 310 Above n 200, [18]. Of course, the act could be challenged indirectly to the extent that it is reflected in the final decision. This outcome is also supported by W Wils, Principles of European Antitrust Enforcement (Oxford, Hart Publishing, 2005); and Brammer (above n 194) 1422. 311 Above n 208. 312 Arts and Bourgeois (above n 189) 39; Wils, ‘The Reform of Competition Law Enforcement’ (above n 198) 32. 313 See also Wils, ‘The Reform of Competition Law Enforcement’ (above n 198) 41. According to standing case law, a local authority has the same rights as private parties and must therefore prove that it is individually and directly concerned by the contested act: Case C-95/97 Région wallonne v Commission [1997] ECR I-1787. In general, the cases show that challenges against acts concerning their own activities are admissible: eg, Case C-180/97 Regione Toscana v Commission [1997] ECR I-5245 [6]–[11]; Case T-214/95 Het Vlaamse Gewest v Commission [1998] ECR II-717 [28]–[30]; Case T-288/97 Regione Friuli Venezia Giulia v Commission [1999] ECR II-1871 [28]–[34]; Case T-132/96 and T-143/96 Freistaat Sachsen, Volkswagen AG and Volkswagen Sachsen GmbH v Commission [1999] ECR II-3670; Case T-32/98 and T-41/98 Government of the Netherlands Antilles v Commission [2000] ECR II-201. See further, P Van Nuffel, ‘What’s in a Member State? Central and Decentralized Authorities before the Community Courts’ (2001) 38 Common Market Law Review 871. 314 The exercise of the ouster clause is subject only to procedural requirements, namely the duty to consult, and in this respect it differs from Article 7 of the Framework Directive in communications law, which also stipulates a substantive test. Admittedly, the Commission has indicated in the Network Notice (above n 185) that it will intervene only through Article 11(6) as sanction in a limited number of situations, but these situations are framed very broadly (eg, ‘there is a need to develop Community competition policy’) and preceded by the qualification that the Commission will ‘in principle’ limit itself to these situations.

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Three Perspectives on Network-Based Governance pleas seem limited to those alleging failure of the Commission’s duty to consult with the authority.315 Bringing the focus to judicial review of veto decisions and thereby moving to the realm of communications law, these definitely qualify as official decisions within the meaning of Article 249 EC. Hence, they can be challenged directly before the Community Courts, subject to the claimant having locus standi to do so. As addressee of a veto decision, the national authority will readily be admitted to court. Whether an action will be brought will in practice depend on the willingness of the relevant Member State to take the Commission to court on behalf of the authority.316 Matters are considerably more complicated for firms. Under Article 230 (4) EC, a firm must show that a Commission veto decision is of direct and individual concern to it if it is to be accorded standing.317 To this day, Plaumann is still the authority for the meaning of ‘individual concern’, which exists when a measure affects [applicants] by reason of certain attributes which are peculiar to them or by reason of circumstances in which they are differentiated from all other persons and by virtue of these factors distinguishes them individually just as in the case of the person addressed.318

The Court interprets direct concern to require a direct causal link between the contested act and the situation of the claimant.319 Implementation must be purely automatic. We can identify two types of potential applicants: a would-be addressee of a national draft decision now vetoed and competitors of the would-be addressee. Would-be addressees could conceivably demonstrate individual concern, as these firms would be mentioned by name in the national measure that is the subject of the Commission veto.320 Even if we assume that a firm is successful

315 The precise details as to consultation are set out in the Network Notice (above n 185) [55]–[56]. The national authority could invoke the principles of equal treatment and legitimate expectations to claim self-binding effect of the Notice as regards the Commission. For more details, see Senden, Soft Law in European Community Law (above n 305). 316 Resource issues would probably prevent an NRA from going to Court itself. Care must be taken to avoid this ‘resource-dependency’ on the Government creating a tension with the requirement of independence of national authorities. 317 As non-privileged applicants, individuals are only directly admitted to the Community Courts when they wish to challenge a decision that is addressed to them. In all other cases, they must demonstrate that the act concerns them directly and individually. See the references above in n 285. 318 Plaumann (above n 179), confirmed in UPA (above n 148). 319 See cases cited above in n 287. 320 As such, an applicant firm could argue that it belongs to a closed category of persons, ie, one in which membership was fixed at the time of the contested act. See Joined Cases 106 and 107/63 Alfred Toepfer and Getreide-Import Gesellschaft v Commission [1965] ECR 429; Case 62/70 Werner A Bock v Commission (Chinese Mushrooms) [1971] ECR 897; Piraiki-Patraiki (above n 287). The preceding argument might be opposed by contending that membership was only provisionally fixed, given that the national measure was still a draft. It is clear that when the Commission confines itself to the adoption of a letter of comment, the national authority indeed still has the power to amend the list of addressees of its national decision—the Commission’s comments might even recommend such a

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The Perspective of Firms and Consumers here, it will encounter great difficulty in showing direct concern. It is clear that the would-be addressee of the national measure would feel the effect of the Commission veto decision. It incurs costs as a result of the delay in establishing its legal obligations, now that the national authority will have to redo the entire procedure. It also faces the possibility of the final decision being less favourable in the legal obligations that it imposes than the initial draft measure. That said, any changes to the firm’s legal position result from the final decision adopted by the national authority. Still, the firm could claim direct concern if the content of that national decision was determined by the Commission decision. This is, however, not the case. To be sure, veto decisions contain recommendations as to how national authorities should proceed. Yet, a veto decision does not firmly prescribe what a national decision should say.321 Another route would see the firm placing reliance on its participation in the veto procedure to establish direct concern. The initiation of the veto procedure is published on the Commission website, with a request to interested parties to submit their comments within five working days. Would-be addressees of the national decision normally do so. Case law concerning anti-dumping, competition policy and state aid admits of a more liberal approach to standing than the default Plaumann test on account of participation in the administrative procedure.322 The judgment of the CFI in Vodafone suggests, however, that analogous application of this case law to the matter in hand will not work.323 The key determinant for the Court’s liberal approach is that the anti-dumping, competition policy and state aid regimes all have organised procedures that envisage a

move. That said, when the Commission instead exercises its right of veto, the power of the national authority to change its draft decision is foreclosed, and it will have to start the entire national decision-making process anew, leading to the adoption of a second draft decision. 321 We have seen above in ch 5, section I-A(v) that the Commission to date has issued five veto decisions. On two occasions, the NRAs that were the addressee of a veto decision have in fact confirmed their initial findings in their re-notified draft measures, albeit supported with better reasoning. In both cases, these measures were approved by the Commission. The Commission veto decision could thus be considered a preparatory act in the course of a procedure leading to the adoption of final decisions by national authorities. This situation could change in the future. The Commission Proposal for a Directive of the European Parliament and of the Council amending Directives 2002/21/EC on a common regulatory framework for electronic communications networks and services; 2002/19/EC on access to, and interconnection of, electronic communications networks and services, and 2002/20/EC on the authorization of electronic communications networks and services COM(2007)697 final proposes a new Art 7(8) in the Framework Directive, giving the Commission the power to require a national authority to impose a specific regulatory obligation within a given time-limit. 322 Participation covers the actual submission of a complaint; situations in which a claimant had a right to complain but was prevented from exercising it; and situations in which a claimant has, for whatever reason, failed to exercise his right to complain, provided his competitive situation was substantially affected by the contested act: Metro (above n 191) [13] ; Case T-3/93 Société Anonyme à Participation Ouvrière Compagnie Nationale Air France v Commission [1994] ECR II-121 [82]; Joined Cases T-528/93, T-542/93, T-543/93 and T-546/93 Metropole télévision SA and Reti Televisive Italiane SpA and Gestevisión Telecinco SA and Antena 3 de Televisión v Commission [1996] ECR II-649 [61]–[62]. 323 Vodafone (above n 277) [121] and [164]–[166].

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Three Perspectives on Network-Based Governance participatory role for interested firms.324 As pointed out by the CFI in Vodafone, the EC communications regime itself—Commission practice notwithstanding— is by contrast silent as regards formal involvement by third parties in the veto procedure.325 For the Court, this silence is moreover perfectly understandable and in no need of reform. After all, it is the national authority that possesses final decision-making competences, and the legal framework does recognise participation rights for firms before this authority—and even provides for a right of appeal to the national court when the firm can plead infringement of its due process rights.326 Unable to claim direct concern, the would-be addressee would thus fail to surmount the hurdle for locus standi. The second type of potential applicant, competitors of would-be addressees, will fare no better. They will be told that their applications fail since the activity of offering communications networks or services can be carried out by anyone at any time, just like the importation of clementines, which Plaumann was engaged in.327 Furthermore, and similar to any would-be addressee, if they have submitted comments to the Commission, they too would not be able to profit from this fact in establishing standing for the reasons just considered. Next we must inquire into the intensity of review. The test will in all likelihood be that of manifest error, because of the complexity of the legal area and the Commission’s discretion, given that the Commission may, but does not have to, veto a national decision and that broadly framed conditions have to be established before the veto power can be exercised.328 As with actions brought by a competition authority against the initiation of proceedings, the Court will also attach greater importance to compliance with the formal rules of procedure.329 Annulment on this ground would accordingly seem most likely.

324 On the necessity of formal participation rights, see, eg, Exporteurs in Levende Varkens (above n 158) [55]–[59]; Case T-99/94 Asociacíon Española de Empresas de la Carne v Council [1994] ECR II-871 [19]; Case T-585/93 Stichting Greenpeace Council (Greenpeace International) and Others v Commission [1995] ECR II-2205 [56]. 325 Vodafone (above n 277) [121]. 326 Ibid [164]–[166]. This is another difference in comparison to the cases on state aid and merger control, where the Commission is the sole competent authority and it is therefore only at Community level that meaningful participation rights can be exercised. 327 The chances of success for neither the competitors of the would-be addressee nor the would-be addressee will improve as a result of the Lisbon Treaty, which maintains the test of ‘direct and individual concern’ for acts other than those addressed to the applicant. While in the case of regulatory norms individual concern is no longer required, this is of no use for the firms in the scenario we are discussing here, as it is precisely direct concern, more than individual concern, that is the problem. 328 Eg, Case 730/79 Philip Morris Holland BV v Commission [1980] ECR 2671; Case 310/85 Deufil GmbH & Co KG v Commission [1987] ECR 901; Joined cases 62/87 and 72/87 Exeçutif regional wallon and SA Glaverbel v Commission [1988] ECR 1573. For the ECSC Treaty, this test is explicitly laid down in Art 33(1), confirmed by the Court in Case 6/54 Kingdom of the Netherlands v High Authority of the European Coal and Steel Community [1955] ECR 103, 115. 329 Case C-269/90 Technische Universität München v Commission [1991] ECR I-5469 [13] ff. For a study of the development of process rights by the ECJ, see H-P Nehl, Principles of Administrative Procedure in EC Law (Oxford, Hart Publishing, 1999).

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The Perspective of Firms and Consumers As posited by the Court in Les Verts, a request for a preliminary ruling under Article 234 EC complements the direct action under Article 230 EC by providing an effective remedy against Community measures that an applicant lacks standing to challenge before the Community Courts.330 Here timing is of the essence. An action cannot be brought against a veto decision sec and immediately, upon its receipt by the national authority, as one cannot conceive of a litigious context in which its validity could be raised.331 One will have to wait until the national authority withdraws its vetoed draft decision—in the unlikely scenario that this act would qualify as justiciable under national law—or the new final decision by the national authority and use this as the trigger to argue the invalidity of the veto decision. This route is, however, far from problem free.332 It is for the national court to decide whether a reference is warranted. Although validity questions obviously cannot be decided by national courts,333 success in obtaining a reference is not guaranteed for the parties to the litigation. The court could consider that the veto decision is valid334 or reason that an assessment of its validity it not necessary to enable it to give judgment. The Court could also refuse to reply, ruling that the question raised is not relevant to the resolution of the substantive action in the national court.335 The veto decision mandates the national authority to withdraw its initial draft decision but does not prescribe what the new, final decision should say. The Court will, however, normally assume that the court needs a reply to the question and only in

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Above n 63). See also Case C-256/05 Telekom Austria AG, formerly Post & Telekom Austria AG Order of 6 October 2005 unpublished. Here the NRA, which also qualified as a court of law, referred the validity of a Commission veto addressed to it, to the Court of Justice under Article 234 EC. The Court declined jurisdiction, ruling that there was no case pending before the authority and that it was not called upon to give judgment in proceedings intended to lead to a decision of a judicial nature. The requirement of a pending case is standard case law: Case 138/80 Jules Borker [1980] ECR 1975 [4]; Case 318/85 Regina Greis Unterweger [1986] ECR 955 [4]; Case C-111/94 Job Centre Coop. ARL [1995] ECR I-3361 [9]; Case C-447/00 Holto Ltd [2002] ECR I-735 [17]. According to Art 92(1) Rules of Procedure of the Court of Justice, the Court may decide the case by order when it is clear that it has no jurisdiction or when the action is manifestly inadmissible. The case is unusual in that the authority could have challenged the decision via a direct action but was unable to because its Member State did not want to support its initiative. Note also the Court’s interesting description of the Article 7 procedure, to the effect that the authority had submitted its draft decision on its own initiative and that the Commission had merely answered the national authority. We may venture a guess that the Court’s description, rather than displaying its ignorance of the operation of the Framework Directive, was purposively included to hint at the Court’s reluctance to become embroiled in judging the exercise of the Commission’s powers under Art 7. 332 For an overview of the limitations and drawbacks of indirect challenge, consider the eloquent Opinion of Jacobs AG in UPA (above n 148). 333 Case 314/85 Foto-Frost v Hauptzollamt Lübeck-Ost [1987] ECR 4199. 334 For many different reasons: it could firmly believe this to be so; it could lack the expertise to doubt the validity or judge adequately arguments to that effect (this argument is of course less likely to hold sway for specialised courts such as the UK’s CAT); or it could not want to incur the delay and expenses that a preliminary reference by now necessarily entails (in particular in light of the Art 4 requirement that there must be an ‘effective appeal mechanism’). 335 For an overview of situations in which the Court declines to render a ruling, see Schermers and Waelbroeck (above n 172) §§ 498–518. 331

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Three Perspectives on Network-Based Governance exceptional circumstances reject a question as irrelevant.336 Still, as the veto decision does not dictate the outcome of the final national decision and the Commission possesses considerable discretion in the exercise of the veto power, there will be judicial ardour for using a light touch when assessing the validity of the Commission decision.337

e. Interim Conclusion There are a number of avenues for interested or affected parties to access the courts in relation to case-based interactions within networks.338 The crux of the matter is whether there should be an extension of judicial review. In this respect, we should remember that judicial review plays a role in ensuring the efficient working of modern liberal democracies and their market economies by protecting rights and ensuring governmental accountability. Nevertheless, judicial review also involves trade-offs. One of the problems of a decentralised model for law enforcement is the absence of fully-fledged relationships among the responsible national bodies, which contributes to an implementation deficit.339 Network-based governance addresses this deficit by providing for an administrative infrastructure that fosters such relationships. Its success as an administration model and its appeal as a solution to the implementation deficit hinge on the effectiveness and flexibility of the cooperative processes between the Commission and the national authorities. Case-based interactions should be conceived as means to make these relationships work, or in other words, as internal working arrangements.340 Besides entertaining the ‘sigma’ values in administration of ‘the three

336 Case C-355/97 Landesgrundverkehrsreferent der Tiroler Landesregierung v Beck Liegenschaftsverwaltungsgesellschaft mbH and Bergdorf Wohnbau GmbH, in liquidation [1999] ECR I-4977 [22]; Case C-105/94 Ditta Angelo Celestini v Saar-Sektkellerei Faber GmbH & Co KG [1997] ECR I-2971 [22]; Case C-415/93 Union royale belge des sociétés de football association ASBL v Jean-Marc Bosman, Royal club liégeois SA v Jean-Marc Bosman and others and Union des associations européennes de football (UEFA) v Jean-Marc Bosman [1995] ECR I-4921 [59]–[61]. 337 See above ch 5, section I-A(v), where it is shown that although the Commission can be quite specific in indicating what it would like to see as the final decision, national authorities do not always decide in accordance with these preferences, and their subsequent draft decisions can nonetheless make their way through the Article 7 procedure without difficulty. 338 Note that we are clearly not concerned here with possibilities to challenge final decisions and what the role of the court should be in relation to those decisions. For views on the relationship between the courts and regulatory agencies (which encompass the national authorities in our terminology), see, eg, Baldwin and McCrudden (above n 13) ch 4; Harlow and Rawlings, Law and Administration (above n 165) ch 10; J Black, P Muchlinski and P Walker, Commercial Regulation and Judicial Review (Oxford, Hart Publishing, 1998); D Galligan (above n 78); and Craig, EU Administrative Law (above n 69) ch 13. 339 See further ch 1, section III-B. 340 This view is shared by the Commission: see its statement in relation to the letters of comment it issues under Reg 1/2003 (above n 291).

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The Perspective of Firms and Consumers Es—economy, efficiency and effectiveness341—the introduction of review might very well lead to a juridification of the administrative process. Network members might become more cautious in the use of the cooperative processes, potentially resulting in deficient law enforcement and decreasing levels of inter-state confidence. Opportunities for judicial review should therefore be confined to the boundaries of the network, its entries and exits. Case allocation, information exchanges and Commission letters of comment should thus not be challengeable as such: legal proceedings should focus on the acts preceding, preparing and completing the intra-network interactions. Under this view, two factors acquire special importance: convergence in procedural law and the principle of transparency—the first, because it neutralises incentives for litigation; and the second, because it allows firms and complainants to evaluate whether and when to go to court. This last point leads us to consider a second important perspective in support of the approach advocated here. One must be careful in distinguishing access to the courts from success before the courts. It is foolish to adopt a broader notion of what constitutes a challengeable act and loosen standing requirements if this does not increase the likelihood of the courts rendering verdicts of invalidity. As all actors (firms, authorities and courts) possess finite resources, and on the assumption that they behave rationally in allocating these, available resources should be spent on their core activities (innovation, law enforcement, case law development respectively), not on unsuccessful litigation. Relaxing the concept of reviewable acts and the locus standi rules (which would further amount to an overhaul of the existing system as far as actions before the Community Courts are concerned342) could distort the rational cost-benefit calculus of firms, by wrongly signalling that seeking judicial review is a promising route to pursue. While this might not be overly problematic in any individual case, we should extrapolate to consider the impact on a system-wide basis, which would be significant. In sum, the approach advocated here is not (primarily) focused on a conceptual justification but on a pragmatic concern of effectiveness. iii. Soft Law Revisited We must next consider the need for and feasibility of judicial accountability for acts of a general normative nature that are aimed at influencing individual 341 C Hood, ‘A Public Management for All Seasons’ (1991) 69 Public Administration 3, 10ff; Harlow and Rawlings, Law and Administration (above n 165). 342 Attempts within the judicial arena to liberalise the standing rules have been undertaken by Jacobs AG in UPA (above n 148) and the CFI in Jégo-Quéré (above n 152). See further Art 263(4) TFEU as amended by the Lisbon Treaty: ‘Any natural or legal person may, under the conditions laid down in the first and second paragraphs, institute proceedings against an act addressed to that person or which is of direct and individual concern to them, and against a regulatory act which is of direct concern to them and does not entail implementing measures’. For comment, see Craig, EU Administrative Law (above n 69) 344ff.

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Three Perspectives on Network-Based Governance decisions taken by the national actors. For our purposes, this refers to network documents, in particular the ECN Model Leniency Programme and the ERG Common Positions.343 A formalistic narrative would question the relevance of this section. After all, it is clear that these documents qualify as soft law, authoritatively defined by Linda Senden as ‘[g]eneral rules of conduct laid down in instruments which have not been awarded legal force as such, but which nevertheless may have certain legal effects and which are directed at and may produce practical effects’.344 In the absence of binding force, courts generally decline jurisdiction to pronounce on their validity, although the Court of Justice has held that it is competent to decide on the interpretation of soft law under Article 234 EC.345 This, one might argue, renders our question otiose, an intellectual teaser at best. Yet, a pragmatic view on the role of soft law in network-based governance functions as a counterargument. As discussed earlier, the decision-making practice of national authorities shows that these documents are almost always followed as a result of specific incentives for national authorities to behave this way.346 Briefly, in terms of negative incentives we note that network documents typically include statement whereby the members commit themselves to observe these.347 This creates obligations vis-à-vis each other to respect these commitments, which can be ‘enforced’ through reputation and resource dependency. In terms of positive incentives, we saw that soft law is of a certain quality, that national authorities derive only limited guidance from the open and flexible wordings that appear in the hard-law rules in the exercise of their considerable discretionary competences and that the adoption process fosters a sense of ownership of these documents.

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For an explanation of what these are, see above ch 6, section II-B(ii). Senden, Soft Law in European Community Law (above n 305). Other well-known definitions are provided by inter alia F Snyder, ‘Soft Law and Institutional Practice in the European Community’ in S Martin (ed), The Construction of Europe (The Hague, Kluwer Academic Publishing, 1994) 198 (‘rules of conduct which, in principle, have no legally binding force but which nevertheless may have practical effects’); and G Borchardt and K Wellens, ‘Soft Law in European Community Law’ (1989) 14 European Law Review 267 (‘Community soft law concerns the rules of conduct which find themselves on the legally non-binding level (in the sense of enforceable and sanctionable) but which according to their drafts have to be awarded a legal scope, that has to be specified at every turn and therefore do not show a uniform value of intensity with regard to their legal scope, but do have in common that they are directed at (intention of the drafters) and have as effect (through the medium of the Community legal order) that they influence the conduct of Member States, institutions, firms and individuals, without, however containing Community rights and obligations’). 345 Grimaldi (above n 290) [7]–[9]. As the Court spoke of ‘all acts of the institutions of the Community’ it is not clear whether the Court would also accept jurisdiction to rule on the interpretation of network documents. 346 Above ch 6, section II-B(ii). 347 Eg, for the ERG: ERG (06)52 ‘ERG 18th Plenary Meeting, Madeira: Conclusions’ [2006] states that ‘[w]hile ERG Common Positions shall not be binding, Members shall be recommended to take the utmost account of them. ERG members commit to provide reasoned regulatory decisions, by reference to the relevant ERG Common Position(s).’ For the ECN, the Model Leniency Programme provides, ‘The ECN members commit to using their best efforts, within the limits of their competence, to align their respective programmes with the ECN Model Programme.’ 344

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The Perspective of Firms and Consumers Furthermore, network-based governance is characterised by a proliferation in soft-law documents relative to the traditional enforcement models.348 If we conceive of the need for judicial review as a function of the impact of the decision to be reviewed will have upon the individual firm, then the enormous practical significance of soft law in our governance model renders the availability of judicial oversight particularly acute.349 To put it differently, simply to rely on the soft-law character of network documents in order to defy judicial scrutiny is a relatively meagre argument, and the aim of this section is to see if there are additional (stronger) arguments that bolster this conclusion—or that indicate that we should rather consider reversing the status quo. The argument can also be framed in economic terms. It certainly is wasteful to challenge a large number of individual decisions if the real bone of contention is a wrong or inefficient soft-law document applied in these individual decisions, and a single set of legal proceedings against that particular document could arguably solve the problem. If other accountability mechanisms are absent or defective, firms further incur the potentially high costs of being constrained in their commercial activities by soft-law documents that embody wrong or inefficient outcomes. As a result, we may expect rent-seeking behaviour of these firms vis-à-vis the national authorities and the Commission as authors of the objectionable soft law, which in turn is at odds with the economic importance of the independence of these actors.350 Thus, one might argue, the solution is simple: soft law under network-based governance ought to be made reviewable—in other words, made into hard law.351 This translation could be accomplished indirectly by judicial recognition. As noted, in deciding whether a certain act is challengeable, courts normally adopt a functional approach. They inquire whether the act was aimed at producing the effect of law.352 According to Francis Snyder, ‘[e]xercising its power of judicial review, the Court of Justice may decide that the putatively soft law has hard legal consequences, and thus transgresses the boundary between negotiation and

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Above ch 4, section II-B; ch 5, section II-B; and ch 6, section II-B(ii). This point has also been taken up by a committee of the European Parliament, which notes that soft law ‘can give rise to a “political commitment” that can even assume the character of a legally binding obligation’ and considers that ‘the parties concerned should . . . not be deprived of the legal protection afforded by the Court of Justice’: Opinion of the Committee on the Internal Market and Consumer Protection of 8 June 2006 (2007/2028(INI)). Consider also the European Parliament resolution of 4 September 2007 on institutional and legal implications of the use of ‘soft-law’ instruments at X and Z. 350 The independence of national authorities is discussed in more detail above in ch 2, section IV-C. 351 If network documents are made reviewable, they will have to become hard law, ie binding, as no court would accept jurisdiction to assess the legality of a document that does not produce binding effects. Consider for instance Art 263(1) TFEU as amended by the Lisbon Treaty, which clearly states in relation to acts not produced by the Community institutions that the Court ‘shall also review the legality of acts of bodies, offices or agencies of the Union intended to produce legal effects vis-à-vis third parties’ (emphasis added). 352 At the Community level, this was first stated in European Agreement on Road Transport (above n 239). 349

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Three Perspectives on Network-Based Governance legislation’.353 In fact, the Court has in the past reclassified Commission-authored soft law as hard law and assessed its legality.354 Two avenues are conceivable. A private party might invoke soft law as a ‘sword’ in a national court, with recourse to the Court by means of Article 234 EC. Secondly, soft law might be challenged under Article 230 EC.355 The admissibility of either action is, however, unlikely, because networks do not have the status of Community bodies or institutions. The transformation of soft to hard law could alternatively be accomplished directly by Community legislation. This route would squarely raise the issue of the legal personality of the networks: as the ECN and the ERG at the moment do not have legal personality, how could they be seen to promulgate binding rules? If the networks are given legal personality, then the ECN and the ERG would not be much different from agencies, and in light of Meroni it is highly questionable whether an agency-like body could have the competence to adopt hard law the content of which resembles the current soft law.356 Perhaps more fundamentally, ‘hard-law’ network output could jeopardise the continued existence of such documents. On the one hand, if future documents are binding, agreement on their content will not be easy to achieve.357 On the other hand, national authorities might not be so eager to adopt network documents if they knew that once adopted, they must be followed. Clearly, the underlying attitude towards an obligation is remarkably different from that of a desire. To these concerns, we add another dimension: that of the effect of judicial review. Justiciability might very well result in an explosion of litigation and 353

F Snyder, ‘The Effectiveness of European Community Law’ (above n 127) 36. The most well-known example is Case C-303/90 French Republic v Commission [1991] ECR I-5315. The ECJ has moreover made it clear that the need to review all acts intended to produce legal effects does not just cover those adopted by the Community institutions listed in Art 7 of the Treaty but extends to other Community bodies vested with legal personality: Case C-15/00 Commission v European Investment Bank [2003] ECR I-7281 [75]; Case C-370/89 Société Générale d’Entreprises Electro-Mécaniques SA (SGEEM) and Roland Etroy v European Investment Bank [1992] ECR I-6211 [15]–[16]. 355 It appears that there could also be a possibility to use Art 241 EC (the exception of illegality). According to the text of Art 241 and the interpretation given to it by the Court in Case 92/78 SpA Simmenthal v Commission [1979] ECR 777 [35]–[41], the Article can be relied upon to challenge only the validity of regulations or acts of the institutions that produce similar effects and constitute the legal basis of the decision that is being attacked. However, in Case T-23/99 LR af 1998 A/S v Commission [2002] ECR II-1705 [272]–[276] the Court of First Instance held, with regard to the Commission guidelines on the setting of fines, that ‘although the guidelines do not constitute the legal basis of the contested decision, they determine, generally and abstractly, the method which the Commission has bound itself to use in assessing the fines imposed by the decision and, consequently, ensure legal certainty on the part of the undertaking’. Given the direct legal connection between the contested individual decision and the guidelines, the latter could form the subject of an Art 241 EC claim, accepted on appeal by the Court of Justice in Joined Cases C-189/02P, C-202/02P, C-205/02P to C-208/02P and C-213/02P Dansk Rørindustri A/S and Others v Commission [2005] ECR I-5425 [236]–[237]. 356 Meroni (above n 53). For a full discussion of this case, see above ch 1, section III-C. 357 Worse still, they could end up reflecting the lowest common denominator and hence jeopardise the network’s task of achieving sustainable consistency in law enforcement. Note that the Commission is already of the opinion that ERG documents reflect the lowest common denominator and invokes this as a reason to replace the ERG with an agency: see below section IV-B. 354

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The Perspective of Firms and Consumers thereby exert a chilling effect on the future promulgation of network documents. This would be detrimental as these documents provide valuable guidance to national authorities and thereby contribute to consistency in law enforcement. Long-range planning may be discouraged in order to deal with specific ad hoc challenges, jeopardising the responsiveness of soft law.358 Partly dependent on the intensity of review, judicial review may discourage the pursuit of radical initiatives and so hamper regulatory innovation.359 Judicial review furthermore is essentially litigant-driven and thus susceptible to private interests, which are themselves remedy-driven. Also, as discussed, litigation is resource intensive, in terms of costs actually incurred as well as in terms of opportunity costs. Of course, we can also point to a number of potentially beneficial effects of judicial review. The symbolism of a ‘day in court’ and of a court ruling is compelling. The threat of an unfavourable ruling, even if only slight, could function as a pre-emptive incentive for networks to maintain and further improve the quality of their documents.360 Importantly, judicial review could enhance the accountability of initial rule-makers and hence increase the legitimacy of the resulting norms. As such, we cannot be overly deferential to the chilling effect possibly generated by having judicial review: legal accountability would have to trump administrative efficiency at some point. Ultimately, whether judicial review on the whole has a negative or positive impact is a difficult question to answer, and responses will depend in part on one’s persuasions as to the role of the courts in modern society. For argument’s sake, let us nevertheless assume the justiciability of soft law. This leaves a second question: which court should entertain the challenges? The national courts would be convenient and easily accessible from the perspective of

358 Baldwin and McCrudden (above n 13) 60. Baldwin and Cave (above n 13) 302 speak of a ‘regulatory lag’ in this respect. 359 Baldwin and McCrudden (above n 13). 360 Scott (above n 27). But note the critical view of Harlow and Rawlings, Law and Administration (above n 165) 565: The implication of the traditional control theory, asserting the pivotal position of the courts, is that government dutifully follows the lead given by the judges. Matters could never be so simple. A more realistic hypothesis is that judicial review has only a sporadic, peripheral and temporary impact on government policy. . . We should not be surprised if the effect on the quality of administrative decision-making is patchy, review eliciting negative as well as positive responses, or if practical reactions are adjusted as the perceived frequency and significance of this type of challenge increases. A similar belief is expressed by Baldwin and McCrudden (above n 13) ch 4, who also note that the impact of judicial review on administrative decision-makers is a function of a number of different factors and is not unequivocally positive. D Feldman, ‘Judicial Review: A Way of Controlling Government?’ (1988) 66 Public Administration 21 has pursued the theme by reference to different techniques of judicial control or effects on the government. He distinguishes between i) directing, which he defines as the traditional judicial function of compelling the government to adhere to stated legal powers and duties; ii) limiting, which refers to establishing the scope of or setting the limits to the exercise of discretion; and iii) structuring, which means making explicit values or goals that are to guide decision-making. Each of these techniques may have different implications in terms of likely impact on administrative processes, with structuring being the most invasive, by reason of the greater exercise of prior control.

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The Perspective of Network Administrators sense is a dynamic principle. It evolves as the Herren der Verträge modify the competence of the institutions or procedures through Treaty revisions, IGCs and daily decision-making practice.409 An important question here is the scope of institutional balance. In its current version it covers only the institutions mentioned as such in the Treaty.410 The resultant exclusion of actors such as comitology committees and agencies has been criticised.411 There are two strands to this criticism, one formal, the other substantive in nature. The formal criticism laments the discrepancy between legal institutional balance and institutional reality. It holds that comitology committees and agencies affect, quite fundamentally at times, the relationships between the Council, Commission and Parliament, and on the powers of these institutions. Comitology committees, in particular the heavier variants, enhance the representation and influence of the Council and Member States; and detract from Parliament’s right of supervision over Commission measures. With agencies, the absence of discretionary regulatory powers should not blind us to the influence they bring to bear on Commission decisions through their information and expertise. Put bluntly, the Commission lacks the resources to scrutinise critically the input provided by agencies: while de lege it will retain the competence to adopt decisions, de facto it will tend to do as agencies suggest.412 specific provisions of the Treaty, and the differences between those provisions, particularly as regards the involvement of the European Parliament, are not always based on consistent criteria’). 409 Aptly recognised by van Gerven AG in Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur (above n 64) [6]. A general analysis is presented in Jacqué, ‘The Principle of Institutional Balance’ (above n 388). For reflections on the resulting institutional balance after the Treaty of Amsterdam, see D Nickel and M Petite, ‘Amsterdam and Institutional Balance: A Panel Discussion’, Jean Monnet Working Paper No 14/98, 1998, http://www.jeanmonnetprogram.org/papers/98/98–14.html; M Nentwich and G Falkner, ‘The Treaty of Amsterdam: Towards a New Institutional Balance’, European Integration Online Papers No 15, 1997, http://eiop.or.at/eiop/texte/1997–015a.htm; Prechal (above n 380). For an analysis of the Nice Treaty, see X Yataganas, ‘The Treaty of Nice: The Sharing of Power and the Institutional Balance in the European Union—A Continental Perspective’, Jean Monnet Working Paper No 1/01, 2001, http://www.jeanmonnetprogram.org/papers/01/010101.html. For an assessment of European foreign policy in the light of institutional balance, see I Pernice and D Thym, ‘A New Institutional Balance for European Foreign Policy?’ (2002) European Foreign Affairs Review 369. 410 Current Art 7 EC lists the European Parliament, Council, Commission, Court of Justice and Court of Auditors. Art 13(1) TEU as amended by the Lisbon Treaty adds the European Council and the European Central Bank. 411 Eg, by G de Búrca, ‘The Institutional Development of the EU: A Constitutional Analysis’ in P Craig and G de Búrca (eds), The Evolution of EU Law (Oxford, Oxford University Press, 1999); Prechal (above n 380) 285ff; Baldwin and Cave (above n 13) 156; Lenaerts and Verhoeven (above n 384) 47ff; S Smismans, ‘Institutional Balance as Interest Representation: Some Reflections on Lenaerts and Verhoeven’ in Joerges and Dehousse (eds) (above n 3). Another phenomenon that has received criticism under an analysis of political institutional balance is the use of soft law, in particular when it is used in place of legislation: L Senden, ‘Soft Law and its Implications for Institutional Balance in the EC’ (2005) 1 Utrecht Law Review 79. 412 This could present some risk for the Commission, which might be called upon to bear responsibility for decisions the formation of which it has not played a substantive role. See R Dehousse, ‘Misfits: EU Law and the Transformation of European Governance’ in Joerges and Dehousse (eds) (above n 3). This risk could manifest itself in particular in relation to highly technical and complex sectors. A more cynical interpretation would be that this result could actually be

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Three Perspectives on Network-Based Governance potential applicants. However, due to their (perceived) non-expertise it is not certain that they will render right or efficient outcomes.361 Furthermore, applying by analogy the Court’s reasoning in Foto-Frost, this solution could result in, for example, the Swedish court upholding a network document and the Greek court striking it down.362 The costs of devising appropriate legislative proposals, in particular attending to the consistency and expertise concerns of national courts, might also render this option economically unacceptable.363 The Community Courts may be expected to ensure internally consistent outcomes. The CFI in particular possesses the requisite expertise to render rulings that are correct as to the validity of network documents.364 The costs of devising legal solutions are therefore likely to be lower than if review were to take place at national level. However, as with review of Commission letters of comment and Commission interventions, standing would pose a serious problem.365 The general nature of network documents, which are more akin to regulations or directives than decisions, almost certainly prevents findings of individual concern. It would also be difficult to show direct concern, because even if network documents were binding, they would not eliminate completely the national authorities’ discretion in decision-making. The difficulty of showing locus standi, coupled with considerable higher costs for firms to bring challenges at the Community (as opposed to the national) level, could result in too few

361 On the expertise of national courts, see above ch 3, section IV-A; and on the consistency mechanisms applicable to national courts, see ablve ch 5, section I-B. 362 Above n 333. 363 The latter costs are incurred by market parties, national authorities (as they would arguably have to defend network documents using resources otherwise dedicated to enforcement activities) and national courts. On the other hand, these costs would be decentralised, ie spread over 27 legal systems, which might increase acceptability—although we cannot rule out a certain degree of forum-shopping. 364 Note also the possibility of specialised courts per Art 257 TFEU as amended by the Lisbon Treaty. For a finding that the creation of a special panel for competition matters is undesirable, see the House of Lords’ European Union Committee, ‘An EU Competition Court’ HL (2006–07) 15th Report. 365 The text of the Treaty in its pre-Lisbon version suggests that in the case of general measures, individuals face a double barrier as they must also demonstrate that an act is in fact a decision, disguised as regulation, in addition to showing direct and individual concern. Case law has, however, accepted the possibility of challenges against true legislative acts: Case C-309/89 Codorníu SA v Council [1994] ECR I-1853 [19]; Antillean Rice Mills (above n 175) [65]–[66]; and Case C-390/95P Antillean Rice Mills and Others v Commission [1999] ECR I-769 [28]. This extension covers regulations (Case T-122/96 Federazione nazionale del commercio oleario (Federolio) v Commission [1997] ECR II-1559 [59]), directives (Case T-135/96 Union Européenne de l’artisanat et des petites et moyennes enterprises (UEAPME) v Council [1998] ECR II-2335) and other general acts (Case T-105/98 Dumont du Voitel v Council [1999] ECR II-1289). As regards the ‘direct and individual concern’ test, two openings to the Court’s restrictive approach have emerged. First, when a claimant has participated in the procedure leading to the adoption of the contested act, this is sufficient to individualise him (see cases cited above in n 322). Second, when a claimant suffers a specific and abnormally heavy injury (Les Verts (above n 63); Case C-358/89 Extramet Industrie SA v Council [1991] ECR I-2501; and Codorníu (above)); or when there exists a specific Schutznorm in favour of a claimant, the conditions for individual concern will also be met (Antillean Rice Mills (above n 175); Case 152/88 Sofrimport SARL v Commission [1990] ECR I-2477; and Piraiki-Patraiki (above n 287). However, there is no reason to believe that either of these inroads could be applicable here.

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The Perspective of Firms and Consumers challenges to ensure meaningful judicial control. The new test of the Lisbon Treaty will not solve this problem. On the assumption that network documents qualify as regulatory acts, private applicants would no longer need to surmount the Plaumann hurdle.366 Still, they must demonstrate direct concern. As network documents may be expected to leave some latitude of discretion to the national authorities to allow them to reflect local circumstances in their decisions, the Court would be forced to rule claims for judicial review inadmissible. A third option could be to attach appellate bodies to the ECN and ERG for review purposes. Like the Community Courts, such bodies would ensure a high degree of consistency and correctness in their rulings. Their creation would involve the sunk costs normally associated with setting up a new body as well as the legislative costs of securing political agreement among the Member States in favour of this scenario. There is furthermore a risk of regulatory capture: if the ECN or ERG as a whole or its members are captured, and they are responsible for the staffing of or themselves staff the appeal body, then undue influence on the judicial process cannot be ruled out.367 This risk can, however, be accommodated: legislation could stipulate the independence of the appeal body and its members.368 In addition, or alternatively, there could be recourse to the Community courts to annul appellate body decisions.369 In the latter event, we would be faced with an additional institutional layer and a potentially longer judicial process, both of which add to the cost of this scenario. We must finally remember that obtaining access to the courts is but one determinant of obtaining judicial protection. As discussed earlier, much also depends on the intensity with which courts might control network documents and hence the chances of successful outcomes—from the perspective of firms, that is. We may very well expect that the judicial response would be one of reticence, considering the following factors:370 first, the expertise of the networks and the technical nature of matters within their purview; second, the wish to 366

If network documents would not qualify as such, then the test remains as it presently is. Even if such a body would in fact render independent decisions, the appearance of influence or bias could amount to an infringement of the right to effective judicial protection. Consider, eg, the case law of the European Court of Human Rights under Art 6 ECHR: Piersack v Belgium (Appl no 8692/79) (1982) Series A no 85; Procola v Luxembourg (Appl no 14570/89 (1995) Series A no 326. 368 For instance, through provisions on eligibility criteria, the manner and duration of appointment, the conditions, if any, for removal of office and mandating that members are not bound by any instructions. This is typically done with European agencies that have such ‘internal’ appeal bodies. For a recent example, consider the Proposal for a Regulation of the European Parliament and of the Council establishing an Agency for the Cooperation of Energy Regulators COM(2007)530 final Art 15. 369 This solution is also practiced with regard to a number of agencies, eg, Council Regulation (EC) No 40/94 of 20 December 1993 on the Community trade mark [1994] OJ L11/1 Art 63, Regulation (EC) No 1592/2002 of the European Parliament and of the Council of 15 July 2002 on common rules in the field of civil aviation and establishing a European Aviation Safety Agency [2002] OJ L240/1 Arts 41–42, Proposal for a Regulation of the European Parliament and of the Council establishing an Agency for the Cooperation of Energy Regulators COM(2007)530 final Art 16. 370 Baldwin and McCrudden (above n 13) 63ff. A similar approach is practised in the United States: see Chevron USA Inc v Natural Resources Defense Council, Inc, et al 467 US 837 (1984). For a 367

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Three Perspectives on Network-Based Governance assuage the potentially adverse effects of judicial review—when, nevertheless, the decision is taken to have judicial oversight, deference to the initial decision-maker could prevent the worst of these concerns from materialising; third, the fact that in classic constitutional theory the administration would already be accountable to the political organs for policy determinations. Were the courts to carve out a large role for themselves in these areas, this could be censured as superfluous or inappropriate. It would also promptly raise the issue of the accountability of the judiciary.371 The above examination reveals legal, economic and normative arguments in favour of the status quo—in other words, in favour of not having judicial review of the soft law produced by networks. Participation could fill the void instead. It is geared towards the same end as the ‘objective’ view on court involvement (the desire to ensure the legality of government actions) as distinct from the ‘subjective’ view, which is focused on the protection of citizens’ rights against the state. The judicial process can be seen to provide ex post participation in rulemaking:372 through the courts, firms have a ‘voice’ to air their grievances against the network. They thus gain access to and participate in rule-making, albeit in an extremely costly and indirect manner.373 On this view, ex ante participation should be favoured, because it succeeds in achieving the desired objective in an exceedingly cheaper, more efficient and direct manner. However, participation does not necessarily eradicate the judicial accountability deficit; it might actually render it more pronounced because the courts would be the natural forum to safeguard meaningful participation by providing redress for citizens or firms that allege that their participation rights have been infringed.374 It is the prerogative and obligation of the Community legislature to untie this Gordian knot.

general overview of the standard of review before the Community Courts, see Craig, EU Administrative Law (above n 69) ch 13. For national law, see Schwarze, European Administrative Law (above n 166) ch 3; and Craig and Tomkins (eds) (above n 46). 371 Wincott refers to the ‘perversion of democracy’ to denote the shift in power from the political process to the judiciary, which weakens the former: D Wincott, ‘Does the European Union Pervert Democracy? Questions of Democracy in New Constitutionalist Thought on the Future of Europe’ (1999) 4 European Law Journal 411; Harlow, Accountability in the European Union (above n 27) 166. We must note, however, that this view is premised on the existence and effectiveness of other, political, accountability mechanisms. If practice belies this assumption—and cannot be amended by reinforcing political processes or parliamentarisation—a policy-making judiciary might be acceptable, or even desirable. See further T Zwart, ‘Judicial Review of Agency Actions: The Scope of Review’ in T Zwart and L Verhey (eds), Agencies in European and Comparative Law (Antwerp, Intersentia, 2003) 171. 372 For critical reflection, see Craig, EU Administrative Law (above n 69) 321. 373 R Cotterell, ‘Judicial Review and Legal Theory’ in G Richardson and H Genn (eds), Administrative Law and Government Action: The Courts and Alternative Mechanisms of Review (Oxford, Clarendon, 1961). 374 See Craig, EU Administrative Law (above n 69) chs 10–11. This is also recognised in the case law of the Community Courts, which adopts a more liberal interpretation towards standing for private parties when they have participated in the initial decision-making process (see the cases cited above in n 322). This approach ensures legal accountability and protects participation rights.

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The Perspective of Firms and Consumers Although the Community Courts have acknowledged as a fundamental principle of Community law the right to be heard in relation to individual determinations,375 they have consistently refused to recognise participatory rights for norms of a generalist nature.376 For the latter type of measure, access to the courts is only available to plaintiffs who can invoke legally enforceable participation rights that are expressly provided for in the rules governing the procedure in question.377 The Community legislature has, however, proved reluctant to stipulate binding legal duties to consult for the adoption of European regulatory norms. While it increasingly solicits the opinions of interested parties, the principles and rules governing the participatory process are often expressly stated to be not judicially enforceable. In its Communication on Consultation, the Commission explains why: A situation must be avoided in which a Commission proposal could be challenged in the Court on the grounds of alleged lack of consultation of interested parties. Such an overly-legalistic approach would be incompatible with the need for timely delivery of policy, and with the expectations of the citizens that the European Institutions should deliver on substance rather than concentrating on procedures.378

These undoubtedly are convincing reasons. At the same time, the Commission also recognises the instrumental and non-instrumental rationales for consultation: ‘Good consultation serves a dual purpose by helping to improve the quality of the policy outcome and at the same time enhancing the involvement of interested parties and the public at large.’379 Respect for these rationales could arguably require at least some basic legally enforceable participation rights. In the

375 Case 17/74 Transocean Marine Paint Association v Commission [1974] ECR 1063; Case 85/76 Hoffmann-La Roche & Co AG v Commission [1979] ECR 461; Case T-260/94 Air Inter SA v Commission [1997] ECR II-997, now codified in the Charter of Fundamental Rights of the European Union [2000] OJ C364/1 Art 41(2). This right must thus be guaranteed even in the absence of an express provision. Individual determinations are those decisions that are either addressed to the plaintiff or of direct and individual concern to him. For more on participation rights, see Craig, EU Administrative Law (above n 69) ch 10; K Lenaerts and J Vanhamme, ‘Procedural Rights of Private Parties in the Community Administrative Process’ (1997) 34 Common Market Law Review 531; Bignami, ‘Three Generations of Participation Rights’ (above n 78); Harlow, ‘Towards A Theory Of Access’ (above n 285); J Schwarze, ‘Judicial Review in EC Law: Some Reflections on the Origins and the Actual Legal Situations’ (2001) 51 International Comparative Law Quarterly 17; L Azoulay ‘The Court of Justice and Administrative Governance’ (2001) 7 European Law Journal 425. 376 Case C-170/89 Bureau Européen des Unions de Consommateurs(BEUC) v Commission [1991] ECR I-5709 [19]; Case C-104/97P Atlanta AG and Others v Commission and Council [1999] ECR I-6983 [31]-[38] ; Case T-13/99 Pfizer Animal Health SA v Council [2002] ECR II-3305 [487]; Case T-135/96 Union Européenne de l’artisanat et des petites et moyennes enterprises (UEAPME) v Council [1998] ECR II-2335 [81]; Case C-10/95P Asociación Española de Empresas de la Carne (Asocarne) v Council [1995] ECR I-4149 [39]. 377 It should be noted that also in the United States, the basis for participation rights in general rule-making is a statute, the Administrative Procedure Act 1946. 378 EC, ‘Towards a Reinforced Culture of Consultation and Dialogue: General Principles and Minimum Standards for Consultation of Interested Parties by the Commission’ (Communication) COM (2002)704 final, 11 December 2002. 379 Ibid, 5.

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Three Perspectives on Network-Based Governance final analysis, much could depend on the impact of Article 11 TEU, introduced by the Lisbon Treaty, if and when that Treaty enters into force: 1. The institutions shall, by appropriate means, give citizens and representative associations the opportunity to make known and publicly exchange their views in all areas of Union action. 2. The institutions shall maintain an open, transparent and regular dialogue with representative associations and civil society. 3. The European Commission shall carry out broad consultations with parties concerned in order to ensure that the Union’s actions are coherent and transparent.

II. THE PERSPECTIVE OF NETWORK ADMINISTRATORS

The previous section examined the network model from the perspective of the citizens (including firms) affected by the rules the enforcement of which the networks seek to improve. In this section we shall inquire into how Member States and EC institutions are affected by this model. First, we will consider the horizontal relationships between the EC institutions, as captured in the principle of institutional balance. Next we will look at the vertical relationship between the EC and the Member State level, with a focus on the principle of subsidiarity.

A. Horizontal Relationships and Institutional Balance This section seeks to address how networks such as the ECN and the ERG affect institutional balance, if they do at all. First, we shall discuss the precise meaning of institutional balance so as to understand why network-based governance might have an impact. Secondly, we shall focus on the nature of that impact and query whether there remains an institutional balance—albeit one that differs from the current version—or whether an imbalance results. The issue of institutional balance made its first appearance on the EC stage in 1957. In Meroni, the European Court of Justice stated that ‘the balance of powers which is characteristic of the institutional structure of the Community [is] a fundamental guarantee granted by the Treaty in particular to the undertakings and associations to which it applies’.380 Only in 1990 did the Court define what it understood by institutional balance: ‘a system for distributing powers among the 380 Meroni (above n 53). On this ‘protective’ dimension of institutional balance, see further Case C-282/90 Industrie- en Handelsonderneming Vreugdenhil BV v Commission [1992] ECR I-1937 [20]–[22]. For an analysis of this latter judgment, see F Fines, ‘A General Analytical Perspective on Community Liability’ in T Heukels and A McDonnell (eds), The Action for Damages in Community Law (The Hague, Kluwer Law International, 1997); and S Prechal, ‘Institutional Balance: A Fragile Principle with Uncertain Contents’ in T Heukels, N Blokker and M Brus (eds), The European Union after Amsterdam: A Legal Analysis (The Hague, Kluwer Law International, 1998) 282ff.

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The Perspective of Network Administrators different Community institutions, assigning to each institution its own role in the institutional structure of the Community and the accomplishment of the tasks entrusted to the Community’.381 Yet we would be mistaken to consider this notion as another of the Court’s creations. In fact, the origins of institutional balance, although European, are found in that famous birthplace of democracy, ancient Greece. Giandomenico Majone has written how Aristotle wanted to conceive of the best actual operable system of government, avoiding the traps of tyranny, oligarchy and anarchy.382 The philosopher concluded that this system would involve a mixture of monarchy, aristocracy and democracy—thus reflecting the interests of the one, the few and the many. Majone and Paul Craig have described how the doctrine of mixed government influenced the early Italian republics, England and the emerging United States.383 As a claim for the allocation of power in the system of government, it is useful to juxtapose mixed government with the Montesquieuan séparation de pouvoirs. Both theories seek to address the same threat: the accumulation and abuse of power at the hands of a single institution or person. Both theories employ the same method to disperse that threat: checks and balances.384 Yet the design employed by the two theories differs.385 The concept of the separation of powers emphasises the confinement of each institution (the physical entities that are visible to citizens) to its own distinctive function (taken to denote the theoretical idea that the state exercises different kinds of powers, conventionally defined as the trinity of legislating, administering and adjudicating) and provides for controls to ensure that each institution keeps within its confines. The balance sought is hence that between functions. In contrast, the method of mixed government seeks to fragment the functions over different institutions and thereby balance between institutions. It was conceived, in the words of Craig, as [a] form of political ordering [that encapsulates] a balance between different interests, which represented different sections within civil society. These different interests were

381 Chernobyl (above n 63) [21]. Institutional balance is an unwritten principle of Community law: Joined cases 205–15/82 Deutsche Milchkontor GmbH and Others v Federal Republic of Germany [1983] ECR 2633 [17] where the Court referred to ‘the general principles on which the institutional system of the Community is based and which govern the relations between the Community and the Member States’. Note B de Witte, ‘Institutionele Beginselen van Gemeenschapsrecht’ in H Cousy et al (eds), Liber Amicorum Walter van Gerven (Deurne, Kluwer, 2000) 30, who observes that while doctrine speaks of ‘the principle’ of institutional balance, the Court merely speaks of ‘institutional balance’. He adduces as possible explanation the circumstances in which the notion is invoked, involving as they do a synthetic description of the rules regarding the delimitation of the competences of the EC institutions as laid down in the Treaties. 382 G Majone, ‘Delegation of Regulatory Powers in a Mixed Polity’ (2002) 8 European Law Journal 319, 324. 383 Ibid, 324–26; Craig, ‘Democracy and Rule-Making’ (above n 2) 113ff. 384 Consider K Lenaerts and A Verhoeven, ‘Institutional Balance as a Guarantee for Democracy in EU Governance’ in Joerges and Dehousse (eds) (above n 3) 39ff, who rely on this concept to trace back the origins of institutional balance to the separation of powers theory. 385 S Beer, To Make a Nation: The Rediscovery of American Federalism (Cambridge, MA, Belknap Press 1993) 285, cited in Majone, ‘Delegation of Regulatory Powers’ (above n 382) 323.

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Three Perspectives on Network-Based Governance not primarily conceived of in terms of differing political beliefs as such, although these might enter into the picture. They were, rather, distinctions based upon different groupings within society.386

As both the theory and practice of mixed government focus in particular on legislative authority, let us use this function to explain further. Using nineteenthcentury England as example, we can see that the different interests in society were that of ‘the one’ (as represented by the King), ‘the few’ (as represented by the nobles in the House of Lords) and ‘the many’ (as represented by the members of the House of Commons).387 All these institutions (and hence interests) shared in the decision-making process. Given that the consent of all was necessary for laws to be made, no single factional interest could trump the others. At the same time, deliberations among the different interests produced outcomes that expressed and served the ‘common good’, rather than particular self-interests. To put this differently, under the separation of powers theory institution equals function, whereas under mixed government, institutions are not characterised by distinct functions but by dedicated interests, which are represented in a fusion of functions and in varying degrees. Within the EC, institutional balance can be thought of in two ways, one legal and the other political.388 These will be discussed consecutively. From a legal point of view, institutional balance must be read together with Article 7 of the EC Treaty, which stipulates that ‘each institution shall act within the limits of the powers conferred upon it by this Treaty’. Koen Lenaerts and Piet van Nuffel have deduced three obligations:389 first, each institution must have independence in exercising its power;390 second, no institution may unconditionally assign its powers to other institutions or bodies;391 third, each institution must respect the powers of the other institutions.392 The Court of Justice is the self-appointed guardian of institutional balance, as established by the Member States in the Treaty.393

386

Craig, ‘Democracy and Rule-Making’ (above n 2) 114. See Blackwell, Commentaries on the Law of England, 16th edn (1825), vol I, bk 2, 146–61, as used by Craig, ‘Democracy and Rule-Making’ (above n 2) 115. 388 J-P Jacqué, ‘The Principle of Institutional Balance’ (2004) 41 Common Market Law Review 383; Lenaerts and Verhoeven (above n 384) 35. 389 K Lenaerts and P van Nuffel, Constitutional Law of the European Union, 2nd edn (London, Sweet & Maxwell, 2005) 560. 390 This refers in particular to the power of each institution to decide on its internal organisation and manner of operation, while respecting the rules of the Treaty. 391 Meroni (above n 53); and Case 98/80 Giuseppe Romano v Institut national d’assurance maladie-invalidité [1981] ECR 1241. 392 Case 149/85 Roger Wybot v Edgar Faure and Others [1986] ECR 2391 [23], dealing with the organisation of Parliamentary sessions; and EC, ‘The Institutional System of the Community: Restoring the Balance’ (Communication) COM (81) 581, 7 October 1981, on how the Commission will accommodate Parliament’s wishes in the exercise of its right of initiative, while not betraying the exclusive nature of this competence. We may detect thus also a connection between institutional balance and the principle of loyal cooperation. See Art 13(2) TEU as amended by the Lisbon Treaty: 387

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The Perspective of Network Administrators In its legal guise, institutional balance is often used to discuss the Community lawmaking process.394 It is clear from the earlier discussion that this emphasis corresponds to that applied in the theory and practice of mixed government theory. Thus, the Commission’s exclusive right of initiative allows it to represent the general Community interest, and Council and Parliament hold the final decision-making powers as representatives of the Member State governments and the peoples of Europe.395 It also reflects the general division of competences between the Community institutions and the Member States whereby the former adopt legislation, and the latter retain primary responsibility for the implementation, application and enforcement of that legislation.396 Yet it is a non sequitur to conclude that institutional balance is of relevance only to lawmaking. While it may be somewhat difficult to employ the concept in the case of the judicial function, its application to the executive function seems justified. The effectiveness of laws and their ability to achieve the desired result also depend on their administration, and a situation must be avoided in which sectional interests can reassert themselves at that stage to undo the ‘common-good’ compromise ‘The institutions shall practice mutual sincere cooperation’, which reflects the Court’s case law, namely Case 204/86 Hellenic Republic v Council [1988] ECR 5323 [16]; and Case C-65/93 European Parliament v Council [1995] ECR I-643 [23]. 393 Chernobyl (above n 63) [23]; Les Verts (above n 63) [25]. 394 Relevant issues include the extension of co-decision; voting requirements in the Council; the choice of legal basis; the Commission’s exclusive right of initiative; and the division between compulsory and non-compulsory expenditure in the EU’s budgetary procedures. See also the focus of analysis in Jacqué, ‘The Principle of Institutional Balance’ (above n 388); J Rood, ‘The Community Method and the Institutional Balance after the European Convention’ in A Michalski (ed), The Political Dynamics of Constitutional Reform: Reflections on the Convention on the Future of Europe (The Hague, Netherlands Institute of International Relations Clingendael, 2004); Lenaerts and Verhoeven (above n 384); M Smith and R Keleman, ‘The Institutional Balance: Formal and Informal Change’, CEPS Working Document No 11, 1997; M O’Neill, ‘Case C-65/93 and the European Parliament’s Right of Consultation: Community Institutional Balance in Action’ (1996) 18 Dublin University Law Journal 149. 395 Arts 213(2), 203 and 189 respectively. Note also the close relationship with legitimacy and democracy: the institutions may be perceived as legitimate and democratic by representing these interests: Lenaerts and Verhoeven (above n 384); Craig, ‘Democracy and Rule-Making’ (above n 2) 116ff. On Parliament’s involvement, see further Case 138/79 SA Roquette Frères v Council [1980] ECR 3333 [33] and Case 139/79 Maizena GmbH v Council [1980] ECR 3393 [34]: consultation of Parliament in the legislative process ‘represents an essential factor in the institutional balance intended by the Treaty, although limited, it reflects at Community level the fundamental democratic principle that the peoples should take part in the exercise of power through the intermediary of a representative assembly’. 396 See further above ch 1, section II-B. Some authors have argued in favour of extending institutional balance to also encompass relations between the Community institutions and the Member States, eg, Fisher (above n 111) 506; C Joerges and J Neyer, ‘From Intergovernmental Bargaining to Deliberative Political Processes: The Constitutionalisation of Comitology’ (1997) 2 European Law Journal 273; E Vos, ‘The Rise of Committees’ (1997) 2 European Law Journal 210. Reliance could be placed on Case C-95/97 Région wallonne v Commission [1997] ECR I-1787 and Case C-180/97 Regione Toscana v Commission [1997] ECR I-5245. Against such an extension, see Prechal (above n 380) 283, who argues that such a view could lead to an unwarranted and unnecessary strengthening of the Council as representative of the Member States. In addition, we note that there are already other specific principles that attend to the vertical relationship between the Community institutions and the Member States: attribution, subsidiarity and loyalty.

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Three Perspectives on Network-Based Governance embodied in the legal rules. Furthermore, the choice not to employ a separation of powers model within the Community means that we should not expect to find that a single institution possesses the absolute prerogative over implementation.397 At the same time, it is readily apparent that this does not rule out a dominant role for one of the institutions. Indeed, the Treaty mainly entrusts the executive function to the Commission.398 Article 211 EC charges this institution to ‘ensure that the provisions of this Treaty and the measures taken by the institutions pursuant thereto are applied’, and Article 202 EC says that the Council ‘shall confer on the Commission, in the acts which the Council adopts, powers for the implementation of the rules which the Council lays down’.399 Nevertheless, the Council is permitted to reserve the exercise of implementation powers for itself, although case law has clarified that such exercise is to be exceptional and justified by clear and cogent reasoning.400 The Treaty does not foresee any direct involvement of the European Parliament in the implementation process. Its role rather consists of supervising the Commission’s enforcement of Community law.401 As there are no specific provisions addressing the implementation of the Electronic Communications Framework, the division of competences is as set out above. The Treaty does have something to say on the administration of the competition rules, which basically follow the general pattern just described. Article 83 calls upon the Community legislature, following the consultation procedure, to define the role of the Commission in applying the substantive competition rules. Article 85 makes clear that, together with the competent national authorities, it is the Commission that ‘shall ensure the application of the principles laid down in Articles 81 and 82’. The Lisbon Treaty confirms institutional balance in its legal guise for the implementation of Community law.402

397 For an analysis of how the separation of powers doctrine applies within the EC legal system, see K Lenaerts, ‘Some Reflections on the Separation of Powers in the European Community’ (1991) 28 Common Market Law Review 11; and the older piece by P Pescatore, ‘L’exécutif communautaire: justification du quadripartisme institué par les traités de Paris et de Rome’ (1978) 14 Cahiers de droit européen 87. 398 See also EC, ‘The Institutional System of the Community’ (above n 392) 8, where the Commission posits that it ‘is the Community’s supreme executive body’. 399 In Case 16/88 Commission v Council [1989] ECR 3457 [11] the ECJ defined ‘implementation’ to comprise ‘the drawing up of implementing rules and the application of rules to specific cases by means of acts of individual application’. 400 Ibid [10]. See further K Lenaerts, ‘Regulating the Regulatory Process: “Delegation Of Powers” in the European Community’ (1993) 18 European Law Review 23. 401 Consider the annual reports on the activities of the Community it must draw up and submit to Parliament pursuant to Arts 200 and 212 EC. 402 Thus, Art 14(1) TEU as amended by the Lisbon Treaty declares that the European Parliament ‘shall, jointly with the Council, exercise legislative and budgetary functions’, with Art Art 16(1) TEU as amended by the Lisbon Treaty containing an almost identically worded job description for the Council, save for the replacement of ‘jointly with the Council’ with ‘jointly with the European Parliament’; and Art 17(1) TEU as amended by the Lisbon Treaty states that the Commission ‘shall promote the general interest of the Union and take appropriate initiatives to that end. It shall ensure

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The Perspective of Network Administrators The Court of Justice has further considered institutional balance in relation to comitology committees and agencies. In Köster the defendant argued that the management comitology procedure interfered with the Commission’s right of decision, putting at issue its independence.403 It further asserted that the interposition between the Council and Commission of a body not provided for by the Treaty distorted inter-institutional relationships. The Court of Justice disagreed. It ruled that Article 202 enabled the Council to determine any detailed rules to which the Commission is subject in exercising the powers conferred on it, which could legitimately include the establishment of a comitology committee. The function of a management committee is to ensure permanent consultation to guide the Commission in the exercise of delegated powers and to enable the Council to substitute its own action for that of the Commission. As management committees do not have the power to take a decision in place of the Commission or Council, their insertion into the Community structure does not distort the institutional balance. In Meroni the Court was confronted with an applicant who alleged that the delegation of powers by the European Coal and Steel Community (ECSC) High Authority to administer the imported ferrous scrap equalisation fund to two Brussels agencies was illegal, in particular as these agencies were not subject to the conditions that the Treaty would have required if those powers had been exercised directly by the High Authority.404 The Court, having established that a true delegation of powers had taken place, ruled that exempting the Brussels agencies from the Treaty constraints in reality gave them more extensive powers than those held by the High Authority under the Treaty. It was also adamant that Community institutions can delegate only clearly defined executive powers, the use of which must be entirely subject to the supervision of the delegating institution.405 To allow the delegation of discretionary powers ‘by entrusting it to bodies other than those which the Treaty has established to effect and supervise the application of the Treaties, and of the measures adopted by the institutions pursuant to them. It shall oversee the application of Union law under the control of the Court of Justice of the European Union’. 403 Case 25/70 Einfuhr- und Vorratsstelle für Getreide und Futtermittel v Köster et Berodt & Co [1970] ECR 1161. 404 Meroni (above n 53). 405 Most authors accept this distinction between executive and non-executive (discretionary) powers at face value, but in practice the distinction is often somewhat artificial, in particular in the policy areas with which we are concerned. In view the uncertainty about the evolution of these areas, regulatory determinations essentially involve tradeoffs. For instance, short-term gains in consumer welfare from lower prices and increased competition routinely have to be weighed against longerterm gains from investment, innovation and increased dynamic efficiency. If regulatory determinations involve tradeoffs, then, the determination cannot be modelled as a simple two-step process, namely the setting of a norm (by an institution endowed with legislative powers) and its application to a set of facts (by an institution endowed with executive/administrative powers). It would seem more accurate to model the process as a chain of decisions, each involving a further refinement of the tradeoffs, always with a view to deal with uncertainty as well as possible. See further P Larouche and M de Visser, ‘The Triangular Relationship between the Commission, NRAs and National Courts Revisited’ (2006) 64 Communications & Strategies 125.

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Three Perspectives on Network-Based Governance the exercise of such power each within the limits of its own authority would render [the] guarantee [of institutional balance] ineffective’.406 What then of the use of networks such as the ECN and the ERG under institutional balance as legal principle? It should be clear by now that the legal vision of institutional balance translates into a highly formalistic inquiry. It looks only at how the Treaty has allocated competences to the Community institutions and whether this allocation is respected—in particular, whether these competences are unlawfully bequeathed to other bodies or extended at the expense of another institution, in defiance of what the Treaty has envisaged. It is thus that we note that the networks lack formal decision-making or regulatory authority. Whether the processes of case-based interaction provided for in the law (such as the allocation of cases or the exchange of information) are employed is consequently decided by network members—and not by the networks as such. Similarly, the instruments adopted by the networks, such as the ECN Model Leniency Programme and the ERG Common Position on Remedies, of necessity have a soft-law character. The legal regimes accordingly do not foresee that the networks will be transferred authority or responsibility located by the Treaty in a Community institution. Following on from the case law just discussed, it can therefore be contended that the presence of networks within the Community structure is compatible with legal institutional balance. Besides this legal account, we also have to consider political institutional balance. As a political principle, institutional balance is used to describe how institutions are conceived and how interactions between them are organised. It allows for normative reflections on whether the current balance is well founded. Let us be clear here: institutional balance does not—and arguably should not—mean that each institution has equal powers. We also observe that ‘there is not one single or stable institutional balance’;407 the particular balance for a certain policy domain or function can be surmised only through a perusal of the corresponding legal basis, which stipulates the applicable legislative procedure (and thereby the involvement of the European Parliament) and the voting requirements in Council.408 Furthermore, institutional balance in this political

406 For a presentation of the arguments adduced to counter the Court’s view that delegation to independent agencies violates institutional balance, see Majone, ‘Delegation of Regulatory Powers in a Mixed Polity’ (above n 382) 328ff. For an overview of possibilities to set up agencies without violating institutional balance as interpreted by the Court, see R van Ooik, ‘The Growing Importance of Agencies in the EU: Shifting Governance and Institutional Balance’ in D Curtin and R Wessel (eds), Good Governance and the European Union: Reflections on Concepts, Institutions and Substance (Antwerp, Intersentia, 2005) esp 149ff. 407 Prechal (above n 380) 276. 408 See Joined cases 188–90/80 French Republic, Italian Republic and United Kingdom of Great Britain and Northern Ireland v Commission [1982] ECR 2545 [6] (‘The limits of the powers conferred on the Commission by a specific provision of the Treaty are to be inferred not from a general principle, but from an interpretation of the particular wording of the provision in question’); Case 242/87 Commission v Council [1989] ECR 1425 [13] (‘Under the system governing Community powers, the powers of the institutions and the conditions on their exercise derive from various

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Three Perspectives on Network-Based Governance Similarly, the role played by the networks affects the implementation process. The Commission’s hierarchical powers of control notwithstanding, networkbased governance is premised upon equality, trust and mutual learning.413 This may affect the Commission’s willingness to use these powers. Furthermore, the more general work produced by the networks, even if not legally binding, exerts considerable influence—not just on the national authorities but also on instruments adopted by the Commission in the exercise of delegated powers. We recall in particular the advisory work of the ERG and synergies between network output and Commission documents. For instance, the Commission wished to review and update its 1998 recommendation on accounting separation and requested an ERG Opinion,414 which was duly delivered415 and used as the basis for the Commission’s new 2005 recommendation.416 The ERG subsequently adopted a Common Position on accounting separation as an implementation aid for the national authorities.417 In the case of the ECN, we can take the example of leniency policy. Following the promulgation of the ECN Model Leniency Policy,418 the Commission amended its own leniency programme to reflect the contents of the network document.419 It did this in observance of the commitment, undertaken by all network members, ‘to using their best effort’ to ensure such alignment. The failure to recognise and accommodate these important actors in the Treaty would mean that institutional balance becomes a hollow phrase. It should be stressed that the argument is thus not that the establishment of networks unjustifiably disturbs institutional balance. We recall that institutional balance is a dynamic principle, allowing for continuous adjustment and

intended: the Commission would retain the formal power to decide but could deflect criticism directed at wrong or unwelcome decisions by hiding behind an agency’s expert advice. 413 As argued above in ch 6. 414 Commission Recommendation (EC) of 8 April 1998 on interconnection in a liberalized telecommunications market (Part 2: Accounting Separation and Cost Accounting) [1998] OJ L141/6. 415 ERG (04) 15rev 1 ‘ERG Opinion on Proposed Changes to Commission Recommendation of 1998 on Accounting Separation and Cost Accounting’ [2004]. 416 Commission Recommendation (EC) 2005/698 of 19 September 2005 on accounting separation and cost accounting systems under the regulatory framework for electronic communications [2005] OJ L266/64. 417 ERG (05)29 ‘ERG Common Position: Guidelines for Implementing the Commission Recommendation C (2005) 3480 on Accounting Separation & Cost Accounting Systems under the Regulatory Framework for Electronic Communications’ [2005]. 418 Http://ec.europa.eu/comm/competition/ecn/model_leniency_en.pdf and MEMO/06/356 ‘Competition: The European Competition Network Launches a Model Leniency Programme— Frequently Asked Questions’, 29 September 2006. 419 Commission Notice (EC) on Immunity from fines and reduction of fines in cartel cases [2006] OJ C298/17; IP/06/1288 ‘Competition: Commission and Other ECN Members Cooperate in Use of Leniency to Fight Cross-Border Cartels’, 29 September 2006; IP/06/1705 ‘Competition: Commission Adopts Revised Leniency Notice to Reward Companies that Report Cartels’, 7 December 2006; G Cauer and M Jaspers, ‘The European Competition Network Achievements and Challenges: A Case in Point—Leniency’ (2006) 1 Competition Policy Newsletter 8; S Suurnäkki and M Tierno Centella, ‘Commission Adopts Revised Leniency Notice to Reward Companies that Report Hardcore Cartels’ (2007) 1 Competition Policy Newsletter 7.

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The Perspective of Network Administrators amendment. As it does not foresee a monopoly over the executive function by any institution, there is no theoretical obstacle to the involvement of new institutional actors. The substantive criticism ties in with the notion of legitimacy. Grainne de Búrca has argued: [S]ome of the important actors and institutions which have come to exercise influence and power are not actually covered by the constitutional guarantees and controls governing the institutional framework. As a result they do not, for example, fall within the review jurisdiction of the Court, are not subjected to the general constitutional and administrative law principles of good government, and do not satisfy fundamental standards of accessibility and transparency.420

It will also be remembered that in Meroni, the Court relied on the fact that the Brussels agencies were not subject to Treaty rules concerning a duty to give reasons and susceptibility to judicial review, to find an infringement of institutional balance. The previous section on legitimacy has shown that this second line of criticism can in practice be relatively easily addressed for the networks. The ERG in particular satisfactorily heeds due process and transparency standards. We can thus say that the networks operate, if not de lege, then at least de facto, in an environment that accommodates a variety of checks and balances. That said, it would be both prudent and proper to expressly incorporate the networks in the institutional scheme laid down in the Treaty, for reasons of transparency and coherency. To summarise, if our inquiry were directed at an evaluation of comitology committees or agencies possessing non-discretionary competences from the perspective of institutional balance, our conclusions would not be much different than if networks such as the ECN and the ERG were the subject of the inquiry. Given the nature of their competences, the use of networks observes the division of powers between the various institutions encapsulated in the Treaty. However, their practical importance could negatively impact on the powers of the Commission and possibly also on the supervisory rights held by the European Parliament.421 Applying the criticism addressed at comitology committees and

420 De Búrca, ‘The Institutional Development of the EU’ (above n 411) 69. See also Smismans (above n 411) 102. 421 This argument could hold particularly for the electronic communications sector, where legislation is adopted pursuant to a co-decision procedure. Parliament’s unhappiness at being marginalised in the executive phase while having been promoted to co-legislator in the lawmaking phase is well known. For the current accommodation of its concerns in the context of comitology, see Council Decision (EC) 2006/512 of 17 July 2006 amending Decision 1999/468/EC laying down the procedures for the exercise of implementing powers conferred on the Commission [2006] L200/11 introducing a new regulatory procedure with scrutiny, giving Parliament the right to oppose the adoption of proposed delegated measures. On the limited role for Parliament in relation to comitology, see K St C Bradley, ‘The European Parliament and Comitology: On the Road to Nowhere?’ (1997) 3 European Law Journal 23; CF Bergström, Comitology: Delegation of Powers in the European Union and the Committee System (Oxford, Oxford University Press, 2005); J-P Jacqué,

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Three Perspectives on Network-Based Governance agencies by analogy, this situation should ideally be reflected in primary Community law, which should incorporate a reinterpreted institutional balance.

B. Vertical Relationships and the Principle of Subsidiarity The previous section has considered the horizontal dimension of our institutional discussion. In this section we shall adopt the vertical perspective by inquiring into the relationship between the Community and its Member States as conceived by the principle of subsidiarity. We shall accordingly ask if the use of networks strengthens or undermines this principle as it currently operates in the law enforcement phase.422 Subsidiarity became a principle of Community law at Maastricht.423 We find it spelled out in Article 5 EC: ‘Implementing Powers and Comitology’; and K St C Bradley, ‘Institutional Aspects of Comitology: Scenes from the Cutting Room Floor’ in C Joerges and E Vos (eds), EU Committees: Social Regulation, Law and Politics (Oxford, Hart Publishing, 1999). 422 In keeping with the theme of this book, the political decision by the Community to exercise its powers in the fields of competition law and electronic communications law will thus not be scrutinised for compliance with subsidiarity. Such an examination would quite likely be of academic interest only: although a subsidiarity analysis could point towards transferring responsibility for the exercise of competences in both policy fields from the Community back to the Member States, no such shift has ever been undertaken and does not seem likely for the fields under discussion, since the Community has firmly establishes its presence in these fields through well-developed sets of legal rules. Compliance with subsidiarity is stated in Recital 34 Reg 1/2003 and Recital 41 Dir 2002/21. For competition law, see further Case T-168/01 GlaxoSmithKline Services Unlimited v Commission [2006] ECR II-2969 [201]–[202], appealed to the ECJ in Cases C-501/06, C-513/06, C-515/06, C-519/06; B Rodger, ‘Taking the Community Interest Line: Decentralisation and Subsidiarity in Competition Law Enforcement’ (1997) 18 European Competition Law Review 485; R Wesseling, ‘Subsidiarity in Community Antitrust Law: Setting the Right Agenda’ (1997) European Competition Law Review 22; R Alford, ‘Subsidiarity and Competition: Decentralized Enforcement of EU Competition Laws’ (1994) 27 Cornell International Law Journal 271; L Idot, L’application du “principe du subsidiarite” en droit de la concurrence (Saarbrücken, Europa-Institut, 1993). It must be noted that according to Art 3(1)(b) TEU as amended by the Lisbon Treaty, competition policy is classified as an area of exclusive competence, meaning that subsidiarity is no longer legally applicable to this field. For electronic communications law, see J-M Sun and J Pelkmans, ‘Why Liberalisation Needs Centralisation: Subsidiarity and EU Telecoms’ (1995) 18 The World Economy 635. 423 Art 5 EC was not the first mention of subsidiarity in the Treaty, although it was the first mention of the principle under that name. Earlier, the Single European Act had introduced the idea in the area of environmental law, with then Art 130r(4) providing, ‘The Community shall take action relating to the environment to the extent to which the objectives referred to in paragraph 1 can be better attained at Community level than at the level of the individual Member States’: K Lenaerts, ‘The Principle of Subsidiarity and the Environment in the European Union: Keeping the Balance of Federalism’ (1994) 17 Fordham International Law Journal 846. For an analysis of the reasons that prompted its introduction into Community law and an overview of the incorporation process, see D Wyatt, ‘Subsidiarity: Is it Too Vague to be Effective as Legal Principle?’ in K Nicolaidis and S Weatherill (eds), National Models and the Constitution of the European Union (Oxford, Oxford University Press, 2003); A Estella, The EU Principle of Subsidiarity and its Critique, Oxford Studies in European Law (Oxford, Oxford University Press, 2002); G Bermann, ‘Taking Subsidiarity Seriously: Federalism in the European Community and the United States’ (1994) 94 Columbia Law Review 331, esp 344–66; K van Kersbergen and B Verbeek, ‘The Politics of Subsidiarity in the European Union’ (1994) 32 Journal of Common Market Studies 215.

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The Perspective of Network Administrators In areas which do not fall within its exclusive competence, the Community shall take action, in accordance with the principle of subsidiarity, only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale or effects of the proposed action, be better achieved by the Community.

The principle incorporates a preference for power to be exercised by the lower echelons: the Member States.424 This preference is subject to a test of qualified efficiency. Community-level action is justified if, but only if, this produces efficiency gains in comparison to state action. The phrase ‘cannot be sufficiently achieved’ furthermore indicates that these efficiency gains should reach beyond a certain minimum level.425 Subsidiarity is thus focused on outcome (consider the reference to the scale or effects of the proposed action) and privileges efficiency as the determining criterion.426 Subsidiarity as efficiency may be helpfully compared to subsidiarity in its original, philosophical meaning, which conceives it as a principle of social organisation.427 Associating it in particular with Catholic social thinking, Pope Pius XI explained it thus in his Quadragesimo Anno: As history abundantly proves, it is true that on account of changed conditions many things which were done by small associations in former times cannot be done now save by large associations. Still, that most weighty principle, which cannot be set aside or

424 Note that Art 5 EC in its original version does not recognize or address levels within the Member States. However, this is changed by the Lisbon Treaty, with Art 5(3) TEU as amended reading: ‘The Union shall act only if and insofar as the objectives of the proposed action cannot be achieved sufficiently the Member States, either at central or at regional and local level’ (emphasis added). 425 N Barber, ‘The Limited Modesty of Subsidiarity’ (2005) 11 European Law Journal 308, 311. The Treaty of Amsterdam Protocol on the Application of the Principles of Subsidiarity and Proportionality lists three guidelines that should assist in determining whether Community action has the requisite added value: i) the issue under consideration has transnational aspects that cannot be satisfactorily regulated by action by Member States; ii) actions by Member States alone or lack of Community action would conflict with the requirements of the Treaty (such as the need to distort competition or avoid disguised restrictions on trade or strengthen economic and social cohesion) or would otherwise significantly damage Member States’ interests; iii) action at Community level would produce clear benefits by reason of its scale or effects compared with action at the level of the Member States. The phrase ‘clear benefits’ again confirms that the added value of EC-level action must be markedly superior to Member State-level action. The necessity of Community action has to be substantiated by qualitative, or wherever possible, quantitative indicators. The Protocol was preceded by EC, ‘The Principle of Subsidiarity’ (Communication) SEC(92) 1990 final, 27 October 1992; the Edinburgh European Council Guidelines ‘Overall Approach to the Subsidiarity Principle’, 11–12 December 1992; and the Inter-institutional Agreement signed by the Commission, the Council and the European Parliament on Procedures for Implementing the Subsidiarity Principle of 25 October 1993. Note the change in formulation of the principle by the Lisbon Treaty: the phrase ‘and can therefore’ is replaced with ‘but can rather’, which confirms the singular nature of the test to be applied. 426 As opposed to values such as fairness, justice or process. See G de Búrca, ‘Reappraising Subsidiarity’s Significance after Amsterdam’, Jean Monnet Working Paper 7/99, 1999, http://www. jeanmonnetprogram.org/papers/99/990701.html, 20. For a discussion of other subsidiarity tests that were introduced in the European context, such Art 130r(4) EC, see Baldwin (above n 13) 243–44. 427 M Wilke and H Wallace, ‘Subsidiarity: Approaches to Power-Sharing in the European Community’, RIIA Discussion Papers 27, 1990, 11.

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Three Perspectives on Network-Based Governance changed, remains fixed and unshaken in social philosophy: Just as it is gravely wrong to take away from individuals what they can accomplish by their own initiative and industry and give it to the community, so also it is an injustice and at the same time a grave evil and disturbance of the right order to assign to a greater and higher association what lesser and subordinate organisations can do. For every social activity ought of its very nature to furnish help to the members of the body social, and never destroy and absorb them.428

This doctrinal view of subsidiarity has been said to require that decisions affecting individuals are taken as closely as possible to the individuals concerned.429 This perspective on subsidiarity has also found expression in Community law. Article 1 TEU envisions a Europe in which ‘decisions are taken as closely as possible to the citizen’.430 Emphasis is thus placed on accountability and legitimacy as relevant considerations in deciding on the use of powers. This article, together with Article 5 EC, suggests that while European subsidiarity is at its core utilitarian-based, it also encompasses ideas of democracy.431 Subsidiarity must be seen in relation to the principles of attribution and proportionality, which are laid down in the first and third indent of Article 5 EC respectively.432 Strictly speaking, attribution concerns the allocation of competence; subsidiarity purports to deal with whether a certain competence ought to be exercised and proportionality with how a certain competence ought to be exercised.433 It is clear, however, that these questions are closely interrelated.434 Generally, all three principles are concerned with demarcating the room for 428 Quadragesimo Anno: On Reconstruction of the Social Order (15 May, 1931) [79], commemorating the fortieth anniversary of Pope Leo XIII’s 1891 encyclical Rerum Novarum. See further: Barber (above n 425); J Peterson, ‘Subsidiarity: A Definition to Suit any Vision?’ (1994) Parliamentary Affairs 115; N Emiliou, ‘Subsidiarity: An Effective Barrier against “The Enterprises of Ambition”’ (1992) European Law Review 383. The importance of the individual and lower level units in designing democratic structures has also been traced back to Aristotle’s Politics, the writings of St Thomas Aquinas, Johannes Althusius and German corporatists. See Estella (above n 423) ch 3; A Føllesdal, ‘Survey Article: Subsidiarity’ (1998) 6 The Journal of Political Philosophy 190; P Marquardt, ‘Subsidiarity and Sovereignty in the European Union’ (1994) 18 Fordham International Law Journal 616; C Millon-Delsol, Le Principe de Subsidiarité (Paris, Presse Universitaires de France, 1993); D Cass, ‘The Word that Saves Maastricht? The Principle of Subsidiarity and the Division of Powers within the European Community’ (1992) 29 Common Market Law Review 1107; Wilke and Wallace (above n 427). 429 J Steiner, ‘Subsidiarity under the Maastricht Treaty’ in D O’Keeffe and P Twomey (eds), Legal Issues of the Maastricht Treaty (London, Wiley Chancery Law, 1994) 50. 430 This provision is not legally enforceable, unlike the version contained in Art 5 EC. See AG Toth, ‘A Legal Analysis of Subsidiarity’ in O’Keeffe and Twomey (eds) (ibid) 38; and Barber (above n 425) 312. 431 The EU’s commitment to democracy is expressly stated in Art 2 TEU as amended by the Lisbon Treaty. See also Arts 10(1), 21(1) and (2)(b) TEU as amended by the Lisbon Treaty. 432 ‘The Community shall act within the limits of the powers conferred upon it by this Treaty and of the objectives assigned to it therein’ (first indent). ‘Any action by the Community shall not go beyond what is necessary to achieve the objectives of this Treaty’ (third indent). On proportionality, see T Tridimas, The General Principles of EU Law, 2nd edn (Oxford, Oxford University Press, 1999) chs 3–5. 433 Case C-376/98 Germany v European Parliament and Council (Tobacco Advertising) [2000] ECR I-8419 confirmed the sequential application of the principles of attribution and subsidiarity: once the

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The Perspective of Network Administrators manoeuvre available to the Community and to Member States. More specifically, subsidiarity’s confinement to areas of nonexclusive competence brings us back to attribution to determine which competences the Community possesses, as well as their nature—both highly contentious questions.435 Similarly, the answer to the question of whether competence ought to be exercised by the Community as per subsidiarity is at least partially dependent on the kind of action envisaged as per proportionality.436 Indeed, according to the formulation of the subsidiarity principle in Article 5 EC, Community action is acceptable only ‘in so far as’ it meets the qualified efficiency test.437 The blurring of subsidiarity and proportionality is also noticeable in the Protocol on the Application of the Principles of Subsidiarity and Proportionality, annexed to the Treaty of Amsterdam, which stipulates a preference for softer forms of law and shared policy-making.438 We shall not examine here the legal and political application of the subsidiarity principle in European practice.439 Suffice it to say for the present that the

Court had found that the Community institutions lacked the competence to adopt the contested directive, it did not entertain the subsidiarity challenge put forward by the applicant. 434 For an example in which questions of attribution and subsidiarity are arguably elided, see EC, ‘European Contract Law’ (Communication) COM (2001) 398 final, 11 July 2001. 435 On attribution, see S Weatherill, ‘Better Competence Monitoring’ (2005) 30 European Law Review 23; P Craig, ‘Competence: Clarity, Conferral, Containment and Consideration’ (2004) 29 European Law Review 323; A Von Bogdandy and J Bast, ‘The European Union’s Vertical Order of Competences: The Current Law and Proposals for its Reform’ (2002) 39 Common Market Law Review 227; N Bernard, ‘The Future of European Economic Law in the Light of the Principle of Subsidiarity’ (1996) 33 Common Market Law Review 633. On exclusive competence, see Arts 2(1) and 3 TFEU as amended by the Lisbon Treaty. The exclusion of the internal market from the list of exclusive competences confirms the Court’s judgment in Case C-491/01 The Queen v Secretary of State for Health, ex parte British American Tobacco (Investments) Ltd (BAT) and Imperial Tobacco Ltd [2002] ECR I-11453 [179]. 436 See de Búrca, ‘Reappraising Subsidiarity’s Significance after Amsterdam’ (above n 426); Bermann (above n 423) 386–90; EC, ‘The Principle of Subsidiarity’ (above n 425). 437 See Lenaerts and van Nuffel (above 389) 112. Steiner (above n 429) 50 suggests that it is particularly in the proportionality dimension that subsidiarity as democratic principle finds expression. 438 Protocol on the Application of the Principles of Subsidiarity and Proportionality [6]–[7]. Consider also the reference to incentive measures or recommendation in certain legal bases as well as the exclusion of harmonisation measures for, eg, culture, public health and education. 439 On legal subsidiarity, see Estella (above n 423); de Búrca, ‘Reappraising Subsidiarity’s Significance after Amsterdam’ (above n 426); G de Búrca, ‘The Principle of Subsidiarity and the Court of Justice as an Institutional Actor’ (1998) 36 Journal of Common Market Studies 217; V Harrison, ‘Subsidiarity in Article 3b of the EC Treaty: Gobbledegook or Justiciable Principle?’ (1996) 45 International and Comparative Law Quarterly 431; J Gonzalez, ‘The Principle of Subsidiarity’ (1995) 20 European Law Review 355; AG Toth, ‘Is Subsidiarity Justiciable?’ (1994) 19 European Law Review 268; Emiliou (above n 428). The cases in which the ECJ has discussed subsidiarity include Case C-84/94 United Kingdom v Council (Working Time Directive) [1996] ECR I-5755; Case C-233/94 Germany v Council and the European Parliament (Deposit Guarantee Schemes) [1997] ECR I-12405; Case C-377/98 Netherlands v Parliament and Council [2001] ECR I-7079 [32]–[33]; BAT (above n 435) [173]–[185]; Cases C-154/04 & C-155/04 Alliance for Natural Health [2005] ECR I-6451. On political subsidiarity, see C Ritzer, M Ruttloff and K Linhart, ‘How to Sharpen a Dull Sword: The Principle of Subsidiarity and its Control’ (2006) 7 German Law Journal 733; Wyatt (above n 423); A Vergés Bausili, ‘Rethinking the Methods of Dividing and Exercising Powers in the EU: Reforming Subsidiarity and National Parliaments’, Jean Monnet Working Paper 9/02, 2002, http://www.

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Three Perspectives on Network-Based Governance vagueness of subsidiarity, while rendering the principle seductively attractive to many, has somewhat undermined its utility. The crux of the matter is thus about operationalising this concept to see whether networks build upon it or detract from it in the arena of law enforcement. Roger van den Bergh and Jacques Pelkmans have used insights from economics literature to enhance the workability of subsidiarity.440 This book accepts the relevance of this choice, particularly in light of the utilitarian core of European subsidiarity.441 The object of the ensuing analysis is accordingly to employ economic arguments in assessing the use of networks. Given that the political decision in favour of this particular institutional model has already been taken, however, we do not seek to influence the political debate but rather aim to inquire whether we can reconstruct an economic justificatory framework that can underpin that political decision—on an ex post basis, that is. It will be remembered that the implementation and enforcement of Community law fall as a rule to the Member States, with Community oversight organised through the procedures of Articles 226 and 234 EC.442 The Court of Justice has emphasised the principle of national procedural autonomy in this respect, whereby the Member States give effect to Community law in accordance with

jeanmonnetprogram.org/papers/02/020901.html; J Delors et al (eds), Subsidiarity: The Challenge of Change: Proceedings of the Jacques Delors Colloquium (Maastricht, EIPA, 1991); the Commission’s annual reports on ‘Better Lawmaking’; EC, ‘Impact Assessment Guidelines’ SEC(2005) 791, 15 June 2005 ss III 1.3. and 5.2. 440 R van den Bergh, ‘The Subsidiarity Principle in European Community Law: Some Insights from Law and Economics’ (1994) 1 Maastricht Journal of European and Comparative Law 337; J Pelkmans, ‘Testing for Subsidiarity’, Bruges European Economic Policy Briefings No 13, 2006, http://www.coleurop.be/template.asp?pagename=BEEP; J Pelkmans, ‘Subsidiarity between Law and Economics’, College of Europe Research Papers in Law 1/2005, 2005, http://www.coleurop.be/ template.asp?pagename=lawpapers. Subsidiarity also features in economics literature on fiscal federalism and regulatory competition. 441 Let us be clear here: subsidiarity as economic principle is an additional, different way of conceiving the balance between Community and state action. It cannot take the place of subsidiarity in its political or legal guise. On the contrary, by putting flesh on the bones of subsidiarity, an economic test could provide a much needed objective underpinning of the political decision on the desirability of centralisation—a decision that can in last resort be reviewed by the European Court of Justice (for whom compliance with procedural rules and a marginal review on the substance would also become easier). 442 Art 10 EC; Case C-478/93 Kingdom of the Netherlands v Commission [1995] ECR I-3081 [39], where the Court characterised the organisation framework as ‘a decentralised system of management based on a division of tasks and responsibilities as between Member States and the Commission’; J Bridge, ‘Procedural Aspects of the Enforcement of EC Law through the Legal Systems of the Member States’ (1984) 9 European Law Review 28. See further above ch 1, section II-B.

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The Perspective of Network Administrators their domestic traditions, procedures and conditions.443 This setup reflects the preference evident in subsidiarity for action at the lowest possible level. In particular, national procedural autonomy can be seen as an application of subsidiarity at the law enforcement stage.444 What then should we make of the use of networks? How, if at all, do they square with subsidiarity as national procedural autonomy? Economists are concerned with identifying arrangements that are welfareimproving. As decentralisation is seen as superior to centralisation in achieving allocative efficiency, economics confirms the priority that subsidiarity gives to this regulatory strategy. The thesis by Charles Tiebout is the classic epitome of this line of thought.445 Suppose that there is a variety of communities that each offer a different bundle of public goods446 in return for a uniform tax imposed on all the residents of that particular community. What would happen in this scenario, Tiebout argued, is that each individual would, subject to his budget constraints, locate himself in the community that offers his preferred bundle of goods. The result of this sorting process would be Pareto-efficient, given that the provision of public goods would be optimal and personal utility maximised. The Tiebout thesis has been extended to legal rules and institutions: [L]aws also have public goods characteristics. A legal rule is indivisible: one person’s enjoyment of a particular kind of legal protection does not preclude others from that enjoyment. A legal rule is also non-excludable: persons may not be excluded from legal protection. States may offer individuals and firms a varying set of legal rules and institutions. . . Firms and individuals are free to move to jurisdictions in which the laws are best adapted to their preferences.447

The Tiebout thesis points to four important benefits of decentralisation.448 First, local authorities (the Member States, for our purposes) will have better knowledge of local conditions affecting implementation than the central authorities

443 Case 33/76 Rewe-Zentralfinanz eG and Rewe-Zentral AG v Landwirtschaftskammer für das Saarland [1976] ECR 1989. 444 See also EC, ‘The Principle of Subsidiarity’ (above n 425); Council Directive (EC) 92/44 of 5 June 1992 on the application of open network provision to leased lines [1992] OJ L165/27 Recital 14 (‘in application of the principle of subsidiarity, the national regulatory authority of each Member State will play an important role for the implementation of this Directive’); and Lenaerts, ‘The Principle of Subsidiarity and the Environment’ (above n 423) 850–52. 445 C Tiebout, ‘A Pure Theory of Local Expenditures’ (1956) 64 The Journal of Political Economy 416. See van den Bergh, ‘The Subsidiarity Principle in European Community Law’ (above n 440); Pelkmans, ‘Testing for Subsidiarity’ (above n 440); Pelkmans, ‘Subsidiarity between Law and Economics’ (above n 440); and D Begg et al, ‘Making Sense of Subsidiarity: How Much Centralization for Europe?’, Centre for Economic Policy Research (CEPR) Report, 1993. 446 Public goods are goods that are neither excludable nor rival—ie, individuals cannot be prevented from using a public good, and one person’s enjoyment of a public good does not reduce another person’s ability to enjoy that same good. 447 Van den Bergh, ‘The Subsidiarity Principle in European Community Law’ (above n 440) 340. 448 D Begg et al (above n 445) 40. See also the identification of virtues of local governance by Bermann (above n 423) 339ff, including self-determination and accountability; political liberty; flexibility; preservation of identities; diversity; and respect for internal divisions of component states.

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Three Perspectives on Network-Based Governance (the Community institutions).449 Second, localities will have better knowledge of local preferences. Third, local policies will be more flexible and responsive to local conditions than centrally-determined ones. Fourth, local authorities can experiment with rules, processes and enforcement, and a comparison of the results will provide valuable input in future policy design.450 The report by the Centre for Economic Policy Research on subsidiarity explains that central authorities are unable to mimic these effects because localities are more accountable to their local populations and their policies hence more responsive to local preferences.451 National procedural autonomy under Community law can thus be firmly grounded on economic arguments corresponding to the efficiency as well as the democracy dimension of subsidiarity. There are, however, also reasons that would have us question decentralisation as a regulatory strategy. The following considerations in particular could justify at least some degree of centralisation or coordination in the administration of legal rules.452 Thus, where there are cross-border externalities, one Member State is affected by the regulatory action of another. Konstantine Gatsios and Paul Seabright have explained how the anticompetitive use of market power constitutes such an externality: When the firms exercising market power trade internationally, the costs of their market power will be borne partly by foreign consumers, while the producer rents may accrue entirely to the domestic economy. So even though the overall costs of market power may outweigh its overall benefits, the costs to the domestic economy may be lower than its benefits to the domestic economy. So domestic competition authorities will tend to take a more indulgent attitude to the exercise of market power by multinational firms than they would do if all the costs were borne by domestic consumers.453

With each Member State adopting the same approach to its domestic firms, all will be worse off than if coordination or European-level administration were practiced. Centralisation or coordination may also be called for when there are economies of scale—for instance, because enforcing certain rules requires information that can only, or more efficiently, be collected on an EU-wide scale. A third consideration relates to the desire to combat rent-seeking behaviour by

449 See EC, ‘Modernisation of the Rules Implementing Articles 85 and 86 of the EC Treaty’ (White Paper) COM (99) 101 final, 28 April 1999 [46]. 450 See FA von Hayek, ‘Competition as a Discovery Process’ in FA von Hayek, New Studies in Philosophy, Politics, Economics and the History of Ideas (Chicago, University of Chicago Press, 1978) 179. Regulatory competition is further discussed below in section IV-A. 451 D Begg et al (above n 445) 7ff, 41ff and 63ff. See also J Weiler, The Constitution of Europe: “Do the New Clothes Have An Emperor?” and Other Essays on European Integration (Cambridge, Cambridge University Press, 1999) ch 2. 452 For other considerations relating also to designing rules and policies, see D Begg et al (above n 445) 36ff and 60ff; van den Bergh, ‘The Subsidiarity Principle in European Community Law’ (above n 440) 341ff; J Pelkmans, ‘Regulation and the Single Market: An Economic Perspective’ in H Siebert (ed), The Completion of the Internal Market (Tübingen, Mohr, 1990). 453 K Gatsios and P Seabright, ‘Regulation in the European Community’ (1989) 5 Oxford Review of Economic Policy 37, 40–41.

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The Perspective of Network Administrators firms at the Member State level, which could lead to captured administration and firm-biased enforcement behaviour. Within the European context, regulatory coordination or centralisation may be particularly appropriate on transaction cost grounds.454 Increasing numbers of firms operate at a European level, and decentralised administration tends to produce diversity and unevenness in enforcement regimes. This engenders search costs, as firms need to familiarise themselves with the various ways in which common rules are enforced. More serious is that inconsistent or incongruous action by the Member State exposes firms to significant compliance costs, complicating business life considerably.455 It also leads to distortions of competition, whereby certain firms operate under regimes less or more favourable than those applicable to their competitors.456 As a consequence, predictability suffers, creating insecurity, which enhances entrepreneurial risk.457 It seems clear then that there is a strong economic justification for at the very least a basic degree of centralisation at EC level, or regulatory coordination between Member States, in matters of law enforcement.458 Subsidiarity dictates that the latter option be preferred insofar as it is feasible, given that it ensures the most respect for the ideal of decentralisation.459 At the same time, an examination of the literature on game theory suggests that voluntary coordination among Member States to the effect of rigorously and properly enforcing the common rules agreed at European level is unlikely to be successful.460 Even though each Member State has an incentive to agree to coordinate with the others, it also has

454 P Larouche, ‘Coordination of European and Member State Regulatory Policy: Horizontal, Vertical and Transversal Aspects’ in D Geradin, R Munoz and N Petit (eds), Regulation Through Agencies: A New Paradigm for EC Governance (Cheltenham, Edward Elgar, 2005). 455 Eg, firms are not able to enjoy or maximise economies of scale in their operations as they are prevented from using the same production and marketing techniques across the EU. See van den Bergh, ‘The Subsidiarity Principle in European Community Law’ (above n 440) 344. 456 This situation qualifies as an Internal Market failure and may also be considered in terms of a violation of the principle of equality: one has a right to have similar situations treated the same way in the Member States that make up the European Union. In the context of competition and e-communications law, the importance of consistency in law enforcement for the Internal Market is emphasised in inter alia Recital 36 Framework Directive; and Recital 4 the ERG Decision. For an earlier work that arrived at similar conclusions, see H Siedentopf and J Ziller (eds), Making European Policies Work: The Implementation of Community Legislation in the Member States (London, Sage Publications, 1988). 457 The importance of legal certainty for the purposes of investment and innovation is explicitly recognised in Recital 38 Reg 1/2003. 458 From a legal perspective, this conclusion can be supported with reference to Art 10 EC. See S Weatherill, ‘Beyond Preemption? Shared Competence and Constitutional Change in the European Community’ in O’Keeffe and Twomey (eds) (above n 429) 1, 31. See further ch 6, section III. 459 See also Edinburgh European Council Guidelines [9]: ‘Where appropriate under the Treaty, and provided this is sufficient to achieve its objectives, preference in choosing the type of Community action should be given to encouraging cooperation between Member States, coordinating national action or to complementing, supplementing or supporting such action.’ This observes the proportionality dimension of subsidiarity. 460 D Begg et al (above n 445); Gatsios and Seabright (above n 453); van den Bergh, ‘The Subsidiarity Principle in European Community Law’ (above n 440); Baldwin and Cave (above n 13)

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Three Perspectives on Network-Based Governance an incentive to cheat while hoping that the others keep up their side of the bargain.461 The problem is that there exist powerful information asymmetries whereby the other states cannot easily observe whether a certain Member State is behaving as it ought.462 Each Member State furthermore has the same temptation to cheat so that it is unlikely to trust that, absent monitoring, the others are indeed vigorously and accurately policing the common rules.463 Furthermore, the threat of punishment for defector states is relatively remote in the Community context due to the limited resources available to the Commission for infringement actions as well as the slow and cumbersome nature of such actions.464 Inter-state infringement actions are even more unlikely, because of the political backlash this most certainly would generate.465

177ff; Pelkmans, ‘Testing for Subsidiarity’ (above n 440); and Pelkmans, ‘Subsidiarity between Law and Economics’ (above n 440). More generally, see N Mankiw and M Taylor, Economics (London, Thomson, 2006) 329–36. 461 The incentive to cheat is primarily related to the desire to obtain a competitive advantage over other Member States. On the one hand, the hope is to attract businesses from other Member States. On the other hand, the idea is to enhance the competitiveness of home firms in the European market by reducing their regulatory burden. For the NCAs, relevant factors could be the uncertain commitment of some Member States to competition law enforcement, which could induce nationalistflavoured behaviour to strengthen that commitment, as well as the relatively young age of a number of the competition enforcers, who first and foremost saw it fit to engage in national ‘PR campaigns’ to enhance support for their existence. In relation to the NRAs, we recall that in the early phases of European telecommunications regulation, many were still intimately linked to their governments, who at that time continued to have strong financial interests in their incumbents. 462 This holds in particular for complex policy areas. See P Sutherland, ‘The Internal Market after 1992: Meeting the Challenge’ (commonly known as the Sutherland Report) SEC (92) 2044, 28 October 1992; EC, ‘Operation of the Community’s Internal Market after 1992: Follow-up to the Sutherland Report’ SEC (92) 2277, 2 December 1992; EC, ‘Reinforcing the Effectiveness of the Internal Market’ (Communication) COM (93) 256 final, 2 June 1993; EC, ‘The Development of Administrative Cooperation in the Implementation and Enforcement of Community Legislation in the Internal Market’ (Communication) COM (94) 29 final, 16 February 1994; Siedentopf and Ziller (above n 456); Dehousse et al (above n 78); Majone, Regulating Europe (above n 78) 278ff; P Nicolaides, A Geveke and A-M den Teuling, Improving Policy Implementation in an Enlarged European Union (Maastricht, EIPA, 2003) chs 1–2. 463 The consequence in all Member States would ultimately be regulatory laxness or competitive deregulation. Under this outcome, only the firms stand to gain. Even if firms cannot or do not ‘vote with their feet’ and migrate to Member States with laxer regimes, the knowledge that other Member States are more lenient in enforcing rules diminishes the incentives for firms located in strict(er)enforcement Member States to comply with the rules and cooperate with the enforcement authorities: Baldwin and Cave (above n 13) 178. Although the economic theory of infinitely repeated games has shown that recurring interactions between participants could enhance the sustainability of coordination, its practical effectiveness is questionable: Gatsios and Seabright (above n 453) 47ff. 464 The effectiveness of infringement proceedings is further compromised by the fact that the detection and collection of evidence of distortive behaviour by the Member States is far from easy for non-blatant cases and by the Commission’s discretion in deciding whether it wants to use its resources to actually prosecute such matters—a decision that is influenced at least in part by political reasons relating to the Commission’s dependence on the Member States for adopting legislation in the Council and implementing adopted Community rules. 465 For a few (rare) examples, see Case 141/78 French Republic v United Kingdom of Great Britain and Northern Ireland [1979] ECR 2923; Case C-388/95 Kingdom of Belgium v Kingdom of Spain [2000] ECR I-3123.

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The Perspective of Network Administrators It is suggested here that the network radically changes these dynamics and thereby allows for credible inter-state coordination.466 We have seen in chapter 5 how the national authorities are required to consult with each other before taking decisions. This means that each authority can monitor the manner in which the others enforce the common rules and moreover knows that its own behaviour is controlled in the same way.467 Each authority now has a stronger incentive to keep up its side of the bargain and pursue the common interest in administering the relevant rules.468 With mounting evidence confirming that the others behave correctly, each authority grows more confident in its peers and in turn may be expected to strengthen its own commitment to observe the agreement. The possibility for the Commission to impose its will against the national authorities constitutes a sanction considerably more effective—because it is faster and simpler—than the clumsy and lengthy tool of infringement proceedings.469 Thus, the networks help to neutralise the incentive to cheat. We should here briefly recall the argument made in chapters 5 and 6 at greater length, namely that the tools that ensure that coordination is credible, also contribute directly to the overall aim pursued by that coordination. Ineffective or inconsistent enforcement behaviour is not only caused by intentional deviation on the part of Member States; it may also come about when an enforcing authority suffers from a knowledge or experience deficit.470 The information supplied within networks that allows national authorities to observe each others’ conduct is at the same time a valuable educational resource, furnishing them with the understanding and know-how needed for administering the common rules. It hence goes directly to redressing the capacity deficits that produce unintended inconsistencies and ineffectiveness.471

466 We shall not here consider the more positive cooperation in actual implementation that the networks also enable, such as fact-finding missions on behalf of out-of-state authorities or crossborder dispute resolution. This is because the extent of such cooperation cannot be determined generally for the network model but is heavily dependent on the nature of the legal regime that Member States are called upon to administer and the stage of development of the Internal Market in the areas within their purview. See further ch 6, section II. 467 The capacity of national authorities to monitor each other effectively is helped by the fact that they together constitute an epistemic community, meaning that they hold a common set of beliefs, values and assumptions and make use of the same evaluation techniques and analytical tools. See further above ch 6, section III. 468 This incentive is buttressed by the resource dependency that exists between the national authorities. See further above ch 6, section III. 469 This vertical accountability is supplemented by horizontal accountability through peer pressure and reputational enforcement: low levels of performance or reliability on the part of an authority will result in a loss of respect in the eyes of the others. It will diminish their incentive for assistance in future cases—as the law foresees should happen—and the recalcitrant authority could ultimately face exclusion from the realms of influence by being denied the chairmanship of a working group or project team, for instance. As the network model is premised on repeated interactions, such reputational enforcement is a credible threat. See further above ch 6, section III. 470 See Majone, Regulating Europe (above n 78) 277. 471 This too is in conformity with subsidiarity: in this situation, the Member States would lack the means sufficiently to achieve the objectives by themselves.

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Three Perspectives on Network-Based Governance In sum, applying the principle of subsidiarity, we can conclude that the use of networks preserves national procedural autonomy by enhancing the effectiveness of localised enforcement. The networks’ structure remains premised on decentralisation, with the national authorities having primary responsibility for the application and enforcement of the legal rules. This corresponds to economic thinking on the optimal assignment and exercise of powers. Decentralisation is believed to deliver higher levels of allocative efficiency than centralisation as a result of the better satisfaction of local preferences, which is in turn explained by the greater accountability of localities to their citizens. Furthermore, the networks help to correct the flaws that uncompromised decentralisation would entail, in particular the transaction costs associated with unsatisfactory and uneven enforcement behaviour by Member States. Crucially, the network does so in full respect of the proportionality dimension of the principle of subsidiarity. That is, by providing for credible coordination between the national authorities, it avoids the other extreme of full-blown centralisation.472 The network is further characterised by flexibility, as notably demonstrated by its soft law output, which allows national authorities to arrive at solutions most suited to their particular national circumstances.473 It will be remembered that the Treaty of Amsterdam Protocol on Subsidiarity favours just such forms of law.474 Ultimately, this governance model strikes an appropriate balance between the pros and cons of centralisation and decentralisation. That is to say, nuanced networks tread closer to the Scylla of decentralisation than to the Charybdis of centralisation, while in the final analysis, much like Odysseus, successfully managing to avoid being caught and consumed by either.475

III. THE SOCIETAL PERSPECTIVE

In this final section we shall conduct a societal critique of the network model. In the analysis of the principle of subsidiarity in the previous section we saw that 472 From an economic perspective, centralisation would jeopardise the advantages of inter alia information collection, flexibility and accountability associated with decentralisation. From a practical perspective, we can mention the strain this would put on the limited resources of the Community as shown for instance by the experience of competition enforcement under Reg 17. The inability to enforce the law with a high frequency has repercussions for its perceived effectiveness and, in the long term, credibility. Rules lacking in credibility have a similar impact on the incentives of the business community to take entrepreneurial risks as inconsistently enforced rules. Centralised enforcement also suffers from legal-political constraints, with Member States commonly hesitant to transfer enforcement competition to the Community level for sovereignty reasons. See further ch 1, section III. 473 Eg, ECN Model Leniency Programme [8]–[9]; Recital 4 ERG Decision; ERG (03) 07 ‘Rules of Procedure for ERG as Proposed by the European Regulators Group’ [2003] Art 4.4. 474 See also L Senden and S Prechal, ‘Differentiation in and through Community Soft Law’ in B De Witte, D Hanf and E Vos (eds), The Many Faces of Differentiation in EU Law (Antwerp, Intersentia, 2001) 183. 475 Homer, Odyssey Book 12.

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The Societal Perspective theory assumes that once decentralised enforcement is practised, there should be room for experimentation with rules and enforcement processes, spurring a process of continuous regulatory evolution. The first part of this section considers whether such is indeed the case under the network model—or whether the concern with consistency and legal certainty, which explains the existence and informs the operation of the coordination mechanisms, actually forecloses such behaviour and thereby foregoes the benefits associated with this practice. The second part of the section examines the Commission’s recent proposal to replace the network in communications law with a European agency. Adopting a welfare perspective, we query whether this suggested institutional change should be considered as an attractive improvement on the status quo or is rather a step in the wrong direction.

A. Competition among Rules, Consistency and Legal Certainty What has emerged from our discussion on the principle of subsidiarity is that economic discourse reveals a prima facie bias in favour of decentralisation. This regulatory strategy, so the argument goes, is the superior route to achieving allocatively efficient outcomes and enhanced social welfare. Although the network model does not fully conform to this ideal, it will be recalled that it relies on national-level enforcement. Such decentralised enforcement, we saw, should generate a number of advantages, some static, others dynamic. In particular, focusing on dynamic advantages, the Tieboutian thesis predicts that we should witness a process of continuous improvement of rules and practices as Member States compete for the favours of ‘consumers’ of regulatory products, meaning both firms and individuals. The discussion in this section will consider the scope properly available for this phenomenon under the network model. First, we deal with the nature of competition among rules. Secondly, we shall consider how much of such competition we should actually witness under network-based governance, bearing in mind the wider concerns of consistency and legal certainty that permeate this institutional structure. There are a number of important reasons why competition among rules has found favour with a sizeable part of the legal community.476 Using Hayekian 476 Eg, D Esty and D Geradin (eds), Regulatory Competition and Economic Integration: Comparative Perspectives (Oxford, Oxford University Press, 2001); W Bratton et al (eds), International Regulatory Competition and Coordination: Perspectives on Economic Regulation in Europe and the United States (Oxford, Clarendon Press, 1996); S Woolcock, ‘Competition among Rules in the Single European Market’ in W Bratton et al (eds), International Regulatory Competition and Coordination: Perspectives on Economic Regulation in Europe and the United States (Oxford, Clarendon Press, 1996); H Søndergaard Birkmose, ‘Regulatory Competition and the European Harmonisation Process’ (2006) 17 European Business Law Review 1075; R van den Bergh, ‘Towards an Institutional Legal Framework for Regulatory Competition in Europe’ (2000) 53 Kyklos 435; D Esty and D Geradin, ‘Regulatory Co-opetition’ (2000) 3 Journal of International Economic Law 235; H Siebert and M Koop, ‘Institutional Competition versus Centralization: Qua Vadis Europe?’ (1993) 9 Oxford Review of Economic

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Three Perspectives on Network-Based Governance terminology, such competition uses the ‘market for regulations’ as a discovery procedure for finding the ‘best’ legal arrangements.477 By accommodating a process of trial and error, it also reduces the risk of massive failure compared to if all Member States were to follow the same approach, imposed in a top-down fashion. This is particularly valuable for policy fields characterised by complexity, where a wide array of possible regulatory alternatives typically exists and it is not immediately obvious which of these is to be preferred. Competition allows the available options to be tested against each other. It thereby provides regulators with the information necessary to make an informed choice as to the most appropriate regulatory strategy. Competition among states furthermore allows for responsive regulation. Rules can be adapted as and when market conditions change: there is no need to make use of the EC decision-making procedures and incur the attendant regulatory lag.478 Regulatory autonomy for Member States also means that laws and decisions can be better attuned to local needs and wants. To the extent that preferences are heterogeneous as between the Member States, such variety increases utility as more preferences may be satisfied. According to public choice theory, competition among rules moreover has the potential to arrest rent-seeking behaviour by firms and capture of the regulator.479 Were a regulator to cater its laws and regulations to the interests of particular firms, its attractiveness to other consumers of laws would surely be diminished and its competitive position in relation to the other regulators would thereby likewise suffer.480 A second strand of reasoning conceives of regulators as Policy 15; N Reich, ‘Competition between Legal Orders: A New Paradigm of EC Law?’ (1992) 29 Common Market Law Review 861; H Hauser and M Hösli, ‘Harmonization or Regulatory Competition in the EC (and the EEA)?’ (1991) 46 Aussenwirtschaft S497. On the different models of competition between rules in the US and the EU, see S Deakin, ‘Legal Diversity and Regulatory Competition: Which Model for Europe?’ (2006) 12 European Law Journal 440. On the value of diversity from a legal perspective, see P Beaumont, C Lyons and N Walker (eds), Convergence and Divergence in European Public Law (Oxford, Hart Publishing, 2002); de Witte, Hanf and Vos (eds) (above 474). In the EU context, the debate on competition among rules is often focused on company law, with reference to C-212/97 Centros Ltd v Erhvervs- of Selskabsstyrelsen [1999] ECR I-1459; Case C-208/00 Überseering BV v Nordic Construction Company Baumanagement GmbH (NCC) [2002] ECR I-9919; and Case C-167/01 Kamer van Koophandel en Fabrieken voor Amsterdam v Inspire Art Ltd [2003] ECR I-10155. Consider also the opportunities for competitive processes between the Member States under the Open Method of Coordination. For an overview, see Craig, EU Administrative Law (above n 69) ch 6; S Weatherill, Cases and Materials on EU Law, 8th edn (Oxford, Oxford University Press, 2007) 651ff. 477 FA von Hayek, ‘Competition as a Discovery Procedure’ (above n 450) 179. 478 Under co-decision, the average period for adoption of a legislative act (from the Commission proposal to its signature) at first reading is 13.7 months. The period increases to 26.5 months if a second reading by the Parliament is required and 33.7 months when there is conciliation: EC, ‘Codecision: May 1999 to December 2006—Some Statistical Data’, http://ec.europa.eu/codecision/ institutional/analysis/codecision_stat_en.pdf. Note that this does not even cover the time needed by the Commission to draft its proposal. 479 For a general overview, see Baldwin and Cave (above n 13) 21–25 and the references cited therein. 480 But note the caveat of J-M Sun and J Pelkmans, ‘Regulatory Competition in the Single Market’ (1995) 33 Journal of Common Market Studies 67, 72: relations between regulators and firms are not always or necessarily adversarial. The interests of the two groups may very well converge without the

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The Societal Perspective inherently selfish, concerned more with winning re-election or maximising available budgets than with meeting the preferences of their citizenry.481 The infrequent occurrence of elections, referenda and the like, means that citizen control will be of only limited importance in keeping such behaviour in check. Here as well, competition among regulators provides an effective external disciplinary function and thereby ‘tames the Leviathan tendencies of regulators’.482 Having said that, Tiebout himself has admitted that competition must give way to ‘integration’ or harmonisation of laws in the face of certain phenomena.483 Most of these we have already encountered in considering when centralisation or coordination would be the more appropriate regulatory strategy.484 They are thus only briefly summarised at this juncture. In the presence of cross-border externalities, a local regulatory choice will not reflect the harms and benefits imposed on other jurisdictions and thus embody a suboptimal choice. Unfettered competition among rules may also be inappropriate when it generates unpalatable transaction costs and legal uncertainty for firms.485 They incur search costs as they must be knowledgeable about the state of the law of each of the relevant jurisdictions and adaptability costs as they need to tailor their behaviour to fit the requirements of multiple legal regimes.486 They too bear the risk of frequent changes in policy. In the end, firms may be discouraged from engaging in cross-border trade and investment and thereby reduce overall welfare.487 Thirdly, it has been argued that competing states will engage in competitive deregulation

regulator being captured. Gatsios and Seabright (above n 453) 46 make a distinction between nondiscretionary and discretionary regulation. Under the former it is relatively clear what the rules are; the only uncertainty for regulators is whether firms are complying with them, and the uncertainty for firms is their risk of detection if they are in breach. Conversely, under discretionary there is uncertainty not only about the factors relating to particular firms but also about the precise aims that the agency is pursuing, leaving more room for capture. 481 G Brennan and J Buchanon, The Power to Tax: Analytical Foundations of a Fiscal Constitution (Cambridge, Cambridge University Press, 1980). 482 S Sinn, ‘The Taming of Leviathan: Competition among Governments’ (1992) 3 Constitutional Political Economy 177. The so-called ‘voice’ option—participation in the political process—is hereby supplemented by the so-called ‘exit’ option—voting with one’s feet or purse. See A Hirschman, Exit, Voice and Loyalty: Responses to the Decline in Firms, Organizations and States (Cambridge, Harvard University Press, 1970). 483 Tiebout (above n 445) 423. In particular, one of the assumptions of the Tiebout model is that there are no external economies or diseconomies between communities. 484 See above, text between n 452 and n 458. 485 The costs are excessive when they outweigh the benefits of diversity brought about by competition. When compared to externalities, the existence of transaction costs is the less solid argument: whereas an externality either exists or does not, transaction costs are always an order of magnitude. On the principle of legal certainty in EC law, see T Tridimas, The General Principles of EU Law, 2nd edn (Oxford, Oxford University Press, 2007) ch 6; Craig, EU Administrative Law (above n 69) ch 16. For an overview of both national and EC law, see Schwarze, European Administrative Law (above n 166) ch 6. 486 As a consequence, firms may also have to forego important scale economies—another argument in favour of harmonisation. 487 See further H Wagner, ‘Economic Analysis of Cross-Border Legal Uncertainty: The Example of the European Union’ in J Smits (ed), The Need for a European Contract Law: Empirical and Legal Perspectives (Groningen, Europa Law Publishing, 2005).

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Three Perspectives on Network-Based Governance and a lowering of standards to attract more consumers: the so-called ‘race to the bottom’.488 However, another line of thinking is that just as firms may decide to forego competition and design cartel-like working environments, so too regulators may collude rather than compete with each other. This could lock in inefficient regulatory choices and create a regulatory lag in responding to market developments. We would be wrong, however, to conceive of competition among rules and harmonisation as absolutely antithetical.489 Often, these approaches do not apply in their pure form but rather appear as hybrid constructions, with varying degrees of competition and cooperation.490 More importantly, competition and harmonisation are increasingly recognised as complementary devices.491 In the EU context in particular, it is accepted that competition among rules requires a certain minimum level of harmonisation. The reasoning is as follows.492 While free movement rights are necessary for access to the markets of other Member States, they are not sufficient. Disparities between legal regimes would make inter-state trade more costly than intra-state trade, due to the need to comply with host-state rules that differ from the home-state rules. Here mutual recognition is important. Mutual recognition requires national authorities to recognise out-of-state regulatory systems as equivalent to their own, unless they can show a

488 This argument builds on the logic of a prisoners’ dilemma. The term was coined by W Cary, ‘Federalism and Corporate Law: Reflections upon Delaware’ (1974) 83 Yale Law Journal 663, 669 in relation to the relaxation of corporate standards in favour of managers at the expense of shareholders, instigated by the US State of Delaware. There is an ongoing debate on the likelihood of a ‘race to the bottom’ actually taking place: eg C Radaelli, ‘The Puzzle of Regulatory Competition’ (2004) 24 Journal of Public Policy 1. It has been said that the risk of such a race is relatively remote in the EC context: Woolcock (above n 476) 317ff; van den Bergh, ‘Towards an Institutional Legal Framework’ (above n 476) 456. For a view questioning the probability of a ‘race to the bottom’ in relation to competition rules, see E Fox, ‘Antitrust Law on a Global Scale: Races Up, Down, and Sideways’ in Esty and Geradin (eds) (above n 476) 348, 352. 489 A Sykes, ‘Regulatory Competition or Regulatory Harmonization? A Silly Question?’ (2000) Journal of International Economic Law 257; Esty and Geradin (above n 476); Sun and Pelkmans, ‘Regulatory Competition in the Single Market’ (above n 480); van den Bergh, ‘Towards an Institutional Legal Framework’ (above n 476); K Holzinger and C Knill, ‘Competition and Cooperation in Environmental Policy: Individual and Interaction Effects’ (2004) 24 Journal of Public Policy 25. Note further that competition among rules may result in spontaneous and voluntary convergence between legal orders and can thereby lead to ex post harmonisation: A Ogus, ‘Competition between National Legal Systems: A Contribution of Economic Analysis to Comparative Law’ (1999) 48 International and Comparative Law Quarterly 405. 490 But note Deakin (above n 476), who argues that the US model of competitive federalism is premised on pure competition. For the EU, pure or total harmonisation was prominently used in the 1970s but today has taken a backseat to other harmonisation strategies, such as optional harmonisation, partial harmonisation or minimum harmonisation. 491 van den Bergh, ‘Towards an Institutional Legal Framework’ (above n 476); Sun and Pelkmans, ‘Regulatory Competition in the Single Market’ (above n 480) 69; Esty and Geradin (above n 476); Deakin (above n 476) 443; and Woolcock (above n 476) 304ff. 492 Sun and Pelkmans, ‘Regulatory Competition in the Single Market’ (above n 480) 69ff.

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The Societal Perspective good reason why their own rules should apply.493 This leads to home-country control and thereby allows for an intensification of competition among rules.494 In practice, mutual recognition is heavily dependent on mutual trust between the national authorities.495 Such trust will often require a basic degree of equivalence between legal regimes, to be achieved through legislative harmonisation of essential requirements.496 Over and above this floor of common minimum rules, mutual recognition should produce competition among rules, and society should reap the benefits this competition is expected to yield. Harmonisation further allows Member States to address the failures of pure competition and their associated costs.497 Legislation then sets the boundaries within which competition among rules can take place. Thus, we find that the role of European law in relation to this phenomenon is twofold.498 It must design a legal framework that encourages competition where this would bring important benefits (a facilitative function), and at the same time it must ensure that this competitive process is healthy by avoiding, so far as possible, externalities, high transaction costs and a ‘race to the bottom’ (a delimitation function). Bringing the focus back on the two policy fields this book is concerned with, it is suggested that both European competition and electronic communications law stand to gain from at least a certain degree of competition among regulators. For competition law, we note its complexity, caused in considerable part by its reliance on economics.499 As regards communications law, its legal rules operate in a context of significant uncertainty about the evolution of the sector, in

493 Judicially recognised for the first time in Case 120/78 Rewe-Zentrale v Bundesmonopolverwaltung für Branntwein (‘Cassis de Dijon’) [1979] ECR 649; and the central tenet of EC, ‘Completing the Internal Market’ (White Paper) COM (85) 310 final, 14 June 1985. The principle is found in the Treaty in Art 47 (diplomas) and Art 220 (companies and legal persons). More generally, see K Armstrong, ‘Mutual Recognition’ in C Barnard and J Scott (eds), The Law of the Single Market: Unpacking the Premises (Oxford, Hart Publishing, 2002). On the approach of the ECJ to questions of market access and justification, see C Barnard and S Deakin, ‘Market Access and Regulatory Competition’ in Barnard and Scott (eds), The Law of the Single Market: Unpacking the Premises (Oxford, Hart Publishing, 2002). 494 Consider Sun and Pelkmans, ‘Regulatory Competition in the Single Market’ (above n 480) 72ff for an assessment of the different tracks to competition among rules in the EU. 495 See EC, ‘First Report On the Application of the Principle of Mutual Recognition In Product and Services Markets’ (Staff Working Paper) SEC (1999) 1106, 13 July 1999; EC, ‘Internal Market Strategy: Priorities 2003–2006’ (Communication) COM (2003) 238 final, 7 May 2003, 6. 496 On harmonisation, see PJ Slot, ‘Harmonisation’ (1996) 21 European Law Review 378; Weatherill, Cases and Materials on EU Law (above n 476) ch 17; C Barnard, The Substantive Law of the EU: The Four Freedoms (Oxford, Oxford University Press, 2004) ch 18, esp 520ff on technical harmonisation and standardisation. Also, when the Court allows for host country control, because the host state can justify the applicability of its legal rules, legislative harmonisation will be necessary to realise competition among rules. 497 This can be done ex ante, through Art 95 EC, or ex post, with the help of Art 96 EC. 498 See van den Bergh, ‘Towards an Institutional Legal Framework’ (above n 476) esp 461–62. On the importance of the role of legal rules in ‘framing’ competition between rules and comparing the EU and the US approaches in this respect, see Deakin (above n 476). 499 See further van den Bergh, ‘Towards an Institutional Legal Framework’ (above n 476) 454ff; D Geradin, ‘Competition between Rules and Rules of Competition: A Legal and Economic Analysis of

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Three Perspectives on Network-Based Governance particular the technological developments that may or may not occur and that may or may not appeal to consumers.500 With this in mind, we proceed to ascertain how the balance between competition and harmonisation has been struck under the network model. As an arrangement for the administration of European rules, it is clear that the scope for competition among national authorities under the network model is necessarily constrained by the existence and substantive content of these European rules. Ceteris paribus, the more detailed the legislation to be enforced, the less room for competition among regulators.501 Here, we pause for a moment to reflect on the relationship between fact-finding and competition among regulators. Fact-finding connects with the static benefits of decentralisation: the informational advantages for national authorities consequent upon their closeness to the playing field and therefore their greater ability to ascertain the situation accurately.502 However, fact-finding essentially amounts to ‘filling in the blanks’ in order to complete processes when the main decision has been taken elsewhere. While the final national decisions will accordingly diverge, this outcome cannot properly be considered as an instance of competition among regulators. For that to occur, the regulators must be able to adopt diverging approaches regarding policy determination, which presupposes the existence of at least some degree of discretion. That national authorities under competition and communications law indeed possess the requisite discretion was established in chapter 2.503 Nevertheless, we also saw in chapter 5 that this discretion is circumscribed by the various consistency mechanisms that the European legislator has put in place. Of particular relevance are the possibility for the Commission to impose its will against national authorities, as well as the Commission notices and network documents that aim to guide national authorities in the exercise of their responsibilities.504 Nevertheless, the law recognises that there is scope for competitive processes. First, the Commission may only take over proceedings or adopt a veto decision

the Proposed Modernization of the Enforcement of EC Competition Law’ (2002) 9 Columbia Journal of European Law 1, esp 16ff, which contain an assessment of the scope for competition among rules under the old regime of Reg 17. 500 See further Larouche and de Visser (above n 405) 126. 501 Note that the assumption here is that this legislation is mandatory and thus a substitute rather than a complement to national laws. 502 This point is mentioned in EC, ‘Modernisation of the Rules’ (above n 449) [46]. 503 Above ch 2, section III-A. In particular, the national competition authorities have a general competence to apply the broadly phrased Arts 81 and 82 EC, and the national regulatory authorities must be able to take all reasonable and proportionate measures to achieve the general objectives listed in the Framework Directive Art 8(2)–(4). 504 Above ch 5, sections I-A and II-B; and above ch 6, section II-B(ii). This, it will be recalled, was the express purpose of the consistency mechanisms: they were introduced because it was feared that if no measures were taken, the uniform application of EC law might be unwound through the independent actions of the various authorities.

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The Societal Perspective after a high evidentiary threshold has been met.505 A mere divergence of opinion between the Commission and the national authority, or between national authorities, is not sufficient for resorting to these measures.506 Second, the substantive consistency mechanisms (the Commission notices as well network output) are soft-law instruments. As non-legally binding tools, they expressly allow for national authorities to adopt divergent approaches.507 A specificity of the competition regime that must be mentioned separately is that the Commission is, like the national authorities, also able to adopt individual decisions.508 The Commission has indicated that it sees a special responsibility for itself in this respect to develop competition policy, inter alia by deciding novel cases.509 This too may limit the space left to the national authorities to innovate. At the same time, Commission officials have expressed their commitment to competition among rules: [T]he most profound reason [for moving to a system of decentralised implementation] is that multiple enforcement is likely to lead to more innovation in the interpretation

505 Above ch 5, section I-A(v). In competition law, one of the instances in which the Commission may relieve a national authority from a case and take it over is when the draft decision is in conflict with ‘consolidated case law’—a notion that covers ECJ judgments, previous Commission decisions and other national decisions. John Fingleton has rightly remarked that this should be read to refer not to situations in which reasonable minds have reached two particular decisions that although different, are not incompatible and do not undermine the single market, but rather to situations in which two different decisions impose on a firm a set of obligations that are (commercially) inconsistent with each other: J Fingleton, ‘The Distribution and Attribution of Cases among the Members of the Network: The Perspective of the Commission/NCAs’ in Ehlermann and Atanasiu (eds) (above n 256) 328, 333. In electronic communications law, the Commission should intervene only when the draft measure proposed by a national authority is such that it will hamper the internal market (on the basis of concrete evidence) or that it will significantly conflict with Community law. 506 This fits in with a wider trend in EC law whereby simple disparities are not sufficient for EC-level action. Consider in particular the case law of the ECJ concerning harmonisation to the effect that a mere finding of disparities is not sufficient to have recourse to Art 95 EC: Case C-376/98 Germany v Parliament and Council (‘Tobacco Advertising’) [2000] ECR I-8419 [81]–[86]; Arnold André (above n 295) [30]–[34]; Case C-210/03 Swedish Match AB and Swedish Match UK Ltd v Secretary of State for Helath [2004] ECR I-11893 [29]–[33]; Joined Cases C-154/04 and C-155/04 Alliance for Natural Health and Nutri-Link Ltd v Secretary of State for Health and National Association of Health Stores and Health Food Manufacturers Ltd v Secretary of State for Health and National Assembly for Wales [2005] ECR I-6451 [28]–[32]. 507 But note the relationship between the procedural and the substantive mechanisms: above ch 5, section II-B. Deviation from Commission notices and the like exposes national authorities to greater Commission scrutiny under the procedural mechanisms. For example, one of the situations in which a veto decision can be envisaged is a market definition that does not correspond to the Commission Recommendation. 508 Art 85 EC; and Arts 7–10 Reg 1/2003. See further above ch 4, section I. 509 See Recital 3 Reg 1/2003; Case C-344/98 Masterfoods Ltd v HB Ice Cream Ltd [2000] ECR I-11369 [46]; EC, ‘Modernisation of the Rules’ (above n 449) [83]–[88]. The Commission can avail itself of a number of instruments in this respect: declaratory decisions (Art 7(2) Reg 1/2003); informal guidance for firms (Art 10 Reg 1/2003). Furthermore, this interest in developing policy is featured as one of the criteria in favour of allocating a case to the Commission and can also justify the use of Art 11(6): Commission Notice on cooperation within the Network of Competition Authorities [2004] OJ C101/43 [15] and [54] respectively.

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Three Perspectives on Network-Based Governance and application of the law. Enforcement by several authorities is likely to be more creative, innovative and adaptive to change than enforcement by a monopolist authority.510

These two interests may be reconciled. The Commission need not always take the lead in devising regulatory responses to novel issues. It may allow the national authorities some room for experimentation and use the knowledge thus obtained to decide which answers seem most appropriate.511 The Commission’s decision would then authoritatively confirm what the best solution was found to be. In practice, it would appear that the Commission’s special responsibility to develop competition policy has not been too much of an inhibiting factor and that national authorities can indeed act as regulatory innovators.512 Consider the reform of professional services. After the disappointing outcome in Wouters,513 the Commission left the problem to the national level. A 2006 ECN survey on advocacy and enforcement activities found that ‘NCAs replies [to the questionnaire on which the survey is based] show distinct approaches in how they are going about promoting reform of the professions’.514 By now it should be acknowledged that the form of competition referred to here is not so much the traditional Tieboutian form of regulatory arbitrage, whereby firms and individuals ‘vote with their feet’ by relocating to the jurisdiction with the regime they consider preferable.515 Rather, our concern is with regulatory emulation between national authorities. With this, we refer to ‘the process whereby regulators change their policies as a result of observing that the regulatory policies pursued by other countries are more effective or more likely to

510 W Wils, ‘The Modernisation of the Enforcement of Articles 81 and 82 EC: A Legal and Economic Analysis of the Commission’s Proposal for a New Council Regulation Replacing Regulation No 17’ in B Hawk (ed), Annual Proceedings of the Fordham Corporate Law Institute on International Antitrust Law and Policy (EC Competition Law Reform) (New York, Juris Publishing, 2003) 553. 511 A similar strategy is recommended for the drafting of notices, guidelines and communications. See Larouche (above n 454), who remarks that these instruments have traditionally been issued on the basis of the Commission’s decision practice in individual cases, when the Commission views were confronted with those of interested parties. The system of Reg 1/2003 sees the Commission moving away from the frontline to focus on the novel and blatant cases. To ensure the quality and accuracy of the Commission notices and the like, it would do to use the experiences of national competition authorities in enforcing EC competition law (‘battle-testing’) as input for these instruments. 512 P Kalbfleish, ‘Lustrumspeech’, 5 March 2008, available at the website of the Dutch competition authority. 513 Case C-309/99 JCJ Wouters, JW Savelbergh, Price Waterhouse Belastingadviseurs BV v Algemene Raad van de Nederlandse Orde van Advocaten [2002] ECR I-1577. 514 ECN, ‘Overview of National Competition Authorities’ Advocacy and Enforcement Activities in the Area of Professional Services’, 2006, available at the ECN website, 5. 515 For Tieboutian competition to occur, the following conditions have to obtain: there should be a sufficiently large number of jurisdictions for consumers of regulation (firms as well as individuals) to choose from; these consumers should be able to and do engage in regulatory arbitrage; regulators must be incentivised to react to the behaviour of consumers; and both consumers and regulators have full knowledge of differences between the available legal regimes. Regulatory arbitrage need not involve physical mobility: it also takes place when consumers purchase goods and services that are produced in accordance with the rules applicable in other jurisdictions and that, through free movement, are now available in the local jurisdiction.

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The Societal Perspective meet the objectives of the regulators’.516 Importantly, regulatory emulation is not dependent on the competitive pressures associated with arbitrage.517 A national authority may decide to change its regulatory practice by adopting elements of another authority’s practice simply for reasons of domestic concern—to enhance its domestic reputation and standing, for instance, or to allow additional welfare benefits to accrue to the national population.518 Yet for regulatory emulation to be successful, it is necessary for the national authorities to take a European approach and engage with the work of their peers. They must have full knowledge of the existence, operation and effects of alternative regulatory choices.519 The argument made here is that the networks are original institutional devices that foster successful regulatory emulation.520 We have seen in chapter 6 that they provide for frequent interaction between the national authorities. In particular, national authorities are bound to consult with each other and the Commission before taking decisions.521 There are also discussions on general topics in the networks’ project teams, working groups and plenaries. Through these contacts, which occur in a variety of contexts, the networks boost the circulation of 516 Woolcock (above n 476) 298. He mentions the move towards independent central banks as an example, with other Member States impressed and inspired by the highly effective German model. See also Larouche and de Visser (above n 405); F Chirico and P Larouche, ‘Conceptual Divergence, Functionalism and the Economics of Convergence’ in S Prechal and B van Roermund (eds), The Coherence Of EU Law: The Search for Unity in Divergent Concepts, Oxford Studies in European Law (Oxford, Oxford University Press, 2008). 517 Sun and Pelkmans, ‘Regulatory Competition in the Single Market’ (above n 480) 68. This is of course not to say that arbitrage may not result in regulatory emulation. 518 The trigger for change is thus determined with reference to national hopes and concerns and is taken regardless of whether a failure to change the regulatory practice would mean that domestic firms would relocate to another jurisdiction or the wish to attract foreign business to the own jurisdiction. 519 This implies effective enforcement of the rules. In the case of under-enforcement, the effects of a certain rule or policy cannot be assessed, and this in turn creates legal uncertainty, which may inhibit regulatory arbitrage or emulation. Knowledge of under-enforcement further risks a ‘competition in laxity’: Woolcock (above n 476) 303. We have seen, inter alia in the discussion on subsidiarity, that the network model makes an important contribution to establishing effective enforcement. In practice, it is not always easy to gauge the impact of a particular rule, because it must be appreciated within the wider national regulatory system and institutional culture. As the effect of a rule become more difficult to assess, the scope for competition among rules reduces commensurately. 520 The following discussion draws on Larouche and de Visser (above n 405). Although the focus in the ensuing discussion is on regulatory emulation among national authorities, the network model also cultivates such emulation among national courts, in particular through the dissemination of judgments. In EC competition law, Art 15(2) Reg 1/2003 says that national courts must notify their judgments applying the competition rules to the Commission, which enters these into a publicly accessible database. Although EC communications law does not have a similar obligation, judges are encouraged to voluntarily submit their judgments to the Commission for inclusion into a special database, and an increasing number of judges now do so. See further above ch 5, section I-B(i). 521 Under electronic communications law, national authorities are expressly obliged to explain how they have taken into account the views expressed by their peers and the Commission, and, one may assume, in the case of deviant behaviour, why it choose not to follow its peers: Commission Recommendation (EC) of 23 July 2003 on notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services [2003] OJ L190/13 17.

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Three Perspectives on Network-Based Governance information and ideas among the national authorities.522 Cross-jurisdictional comparisons are thereby facilitated and experimentation cultivated: which authority would not like to be the one that sets the newest benchmark? Even when the European legislator has allowed for it, a bottom-up emulation process is, however, not necessarily indicated in all cases. Here as well, a trade-off must be made between the advantages of consistency and legal certainty and those of learning-by-doing via slight discrepancies. Obviously, when there already is a broad consensus among the national authorities, it seems sensible to insist on more consistency. When, however, a number of reasonable choices are open to the authorities—usually because there is uncertainty surrounding the available options523—allowing some measure of divergence might be preferable in order to reduce the risk of massive regulatory failure, even if it imposes some costs in the short term. With time, accumulated experience will make it easier to discern which choice works in practice. For competition law, IP rights or two-sided markets may be suitable candidates for such a process.524 In electronic communications law, areas that seem appropriate for regulatory emulation include remedies and certain issues relating to market definition,525 as well as the assessment of SMP.526 When emulation is appropriate, we should witness maverick authorities attempting to innovate on regulation. With the help of information relayed through networks via one or other of the processes just mentioned, other authorities can keep a close eye on these developments to see which maverick authorities appear to have made the best choices for their jurisdictions.527 Discussions should ensue within the network (first within the lower tiers and eventually within the Plenary), leading to benchmarking and other exercises, until some best practice(s) emerge. Maverick authorities can come from either the smaller or the larger jurisdictions. In favour of the former, it may be argued that for these authorities the risk of implementing an inappropriate solution and incurring the losses it would inevitably entail is less dramatic than it would be for

522 This process is further helped by pan-European firms, which may be expected to closely observe the behaviour of the various authorities and refer to this conduct in their discussions with any particular national authority—be it when providing input for general policy documents or in individual cases. 523 It is clear that much here depends on the nature of the uncertainty. 524 On the former, see D Geradin, ‘Abusive Pricing in an IP-Licensing Context: An EC Competition Law Analysis’, TILEC Discussion Paper 2007–20, 2007, http://www.tilburguniversity.nl/tilec/ publications/discussionpapers/2007–020.pdf. On the latter, see J-C Rochet and J Tirole, ‘Two-Sided Markets: A Progress Report’ (2006) 35 Rand Journal of Economics 645. 525 Eg, whether cable and DSL are on the same market for broadband access (market 12) and transmission of broadcasting signals (market 18). 526 Eg, the presence of collective dominance for mobile call origination (market 15) or the impact of countervailing buyer power on the SMP findings for smaller provides of call termination (markets 9 and 16). 527 In practice, the process most frequently used will be notification of draft decisions, with national authorities being required to indicate proposed courses of action in relation to particular situations or problems. See further above ch 5, section I-A(i).

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The Societal Perspective larger jurisdictions. In favour of larger jurisdictions taking more risk, one could point to the typically greater resources, experience and expertise of these authorities, which increase the likelihood of those authorities choosing adequate regulatory responses.528 At this juncture, it is interesting to examine the state of play in communications law. While it is acceptable for authorities from the larger jurisdictions to take the lead in experimenting, this should not foreclose the possibility for other authorities to choose different strategies. Yet it would appear that this is exactly what has happened on a number of occasions. The British Office of Communications (Ofcom) typically takes the lead in conducting market assessments and deciding on remedies. The Commission is closely involved with this authority and generally endorses its approach.529 Subsequently, in its Article 7 comments on draft decisions by the other authorities, the Commission often adheres to the line set out in the initial major cases.530 There has hence been little if any room for other authorities to engage in maverick behaviour and stray from the ‘consensus’. This is an area of concern. As mentioned, the European legislature has carved out an ‘innovation space’ for the national authorities and thereby allows them to depart from what others have done. This we can deduce from the discretion conferred upon the national authorities and the design of the consistency mechanisms. Again, these mechanisms set limits to the scope permissible for emulation yet do not seek to exclude it altogether.

528 In practice it might be inevitable that authorities from larger jurisdictions act as regulatory innovators as it is statistically more likely that they are the first to be confronted by new phenomena. 529 A particularly blatant example is Commission Art 7(3) comments letter SG-Greffe (2008) D/200640 in respect of UK/2007/0733 in respect of market 12 (wholesale broadband access). The British Ofcom identified several sub-national geographical markets; the Commission comments letter includes a separate section entitled ‘criteria for assessing sub-national markets’, which is intended as general guidance for all national authorities. This is confirmed by the press release that accompanied the Commission’s letter: IP/08/232 ‘Telecoms: Commission Approves OFCOM Proposal to De-regulate Part of UK Broadband Market’, 14 February 2008, in which Commissioner Reding said that she welcomed ‘the precedent set by Ofcom’s proposal to define sub-national geographic markets. The proposal at the same time has enabled the Commission to provide clear guidance and policy principles for all national regulators in this important area. This should now be a solid basis for a coherent European regulatory approach to regional markets and give the required legal certainty to the market.’ 530 For a particularly illuminating illustration, see Commission Decision of 17 May 2005 C(2005)1442 final in Case DE/2005/0144 (German veto decision). See also above ch 5, section I-A(v). There, the German authority saw its draft decision vetoed by the Commission, in large part because it was out of step with the other authorities that had already decided on the same issue: MEMO/05/162 ‘The European Commission’s Veto Decision on Call Termination on Individual Public Telephone Networks Provided at a Fixed Location in Germany: Frequently Asked Questions’, 17 May 2005. See also R Cawley, The New EU Approach to Sector Regulation in the Network Infrastructure Industries (PhD thesis, Delft University 2007) 331, who argues that the high number of national authorities supporting the veto decision (there were ten votes in favour, one against and nine abstentions) ‘appears to be motivated by a fear that their own approach to regulation of call termination could be undermined by the proposed national measure’. The German approach was later endorsed by national courts in the UK, Ireland and the Netherlands in deciding appeals against decisions by their national authorities.

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Three Perspectives on Network-Based Governance Fortunately, countervailing tendencies may also be detected. The Commission has allowed divergent measures—or at least divergent lines of reasoning—to stand in a number of situations.531 Furthermore, the ERG has identified national authorities with relevant experience and knowledge in relation to particular regulatory areas or issues, and these authorities have made themselves available to other ERG members for practical advice and assistance.532 The wish to become one of these knowledge centres could very well induce a national authority to become a regulatory innovator and thereby challenge Ofcom’s apparent hegemony. In sum, the network model facilitates a particular species of competition among rules, best described as regulatory emulation. Such emulation sees national authorities looking around for better solutions by comparing and benchmarking with others. The network simplifies this process. It offers the authorities an infrastructure through which they can circulate information and ideas regarding alternative legal choices and their effects. Hayekian discovery processes are thereby fostered, more effective enforcement is induced and the risk of massive regulatory failure is kept in check. At the same time, the European legislature has recognised that regulatory emulation cannot work across the board. Divergence between legal regimes creates transaction costs: firms must be knowledgeable about the state of the law in all the Member States in which they do business; they need to adapt their behaviour to fit the requirements of each of the jurisdictions concerned; and firms bear the risk of unexpected changes in each and any of the Member States. These costs have prompted the various consistency mechanisms, which provide the parameters within which diverse autonomous solutions can emerge. However, the remaining scope for emulation is not always taken advantage of, or so it seems. Too much emphasis is placed on coherency and legal certainty, resulting in ‘a level, but barren playing field’.533 Here lies an important role for the Commission.534 The Commission should encourage bottom-up emulation when appropriate. Thus, it should communicate to the national authorities that it does not need or want to see regulatory outcomes that are identical from Dublin to Warsaw and from Helsinki to

531 Eg, Case IE/2004/0121, SG-Greffe (2005) D/200269; Case ES/2005/0330, SG-Greffe (2006) D/200402; Case IT/2006/0383; Case IT/2006/0384 and Case IT/2006/0385. 532 ERG (06) 51 ‘Statement on the Development of the ERG’ [2006]. 533 Weatherill, ‘Beyond Preemption?’ (above 458) 19. See also Deakin (above n 476) 444, who argues, ‘One essential prerequisite [for competition among rules perceived as a process of discovery] is the preservation of local-level diversity, since without diversity, the stock of knowledge and experience on which the learning process depends is necessarily limited in scope.’ But see Holzinger and Knill (above n 489) 36–42, who find that the interaction of cooperation (harmonisation) and competition among rules leads to the full convergence of national policies, irrespective of the type of harmonisation, the type of policy and the sequence of interaction. 534 A similar point is made by P Nicolaides, ‘The Political Economy of Multi-tiered Regulation in Europe’ (2004) 42 Journal of Common Market Studies 599.

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The Societal Perspective Athens.535 As such, we should ideally observe congruence between what the law envisages and the reality of regulatory practice. Such a state of play would furthermore better exploit the paradigm of decentralisation on which the network model is premised.

B. Upgrading the Network? The preceding discussion has suggested that the network model captures a desirable form of institutional ordering. This is because the structure maximises the benefits associated with decentralisation while avoiding the flaws that would obtain under unfettered application of this regulatory model. In particular, the thesis was advanced that the network model facilitates and encourages regulatory emulation. This helps national authorities to adopt the right decisions—‘right’ connoting those regulatory actions that are allocatively and dynamically efficient. The Commission’s view of the network structure appears less sanguine, however. Under the EC communications regime, the Commission favours the replacement of the ERG with a European agency. Whether this proposal should be endorsed from a welfare point of view is assessed in the following inquiry.536 First, we introduce the rationale for the proposed agency and explain its composition. Second, we assess whether the introduction of an agency makes sense from an economic perspective, in light of our understanding of the present network regime. The section concludes with an outlook on the political response to suggested institutional reform. Given the absence of similar suggestions in the context of competition law, the discussion that follows shall be kept to the proper model for the administration of the communications rules. That said, were the Commission to consider replacing the ECN with an agency, our observations would probably apply with equal force. The current communications regulation calls for periodic revisions, the first of which was mandated to take place within three years of the date of application,

535 This signalling function of the Commission would in turn also be an important guide for the behaviour of national authorities when interacting within the network, for instance when commenting on each other’s draft decisions or when designing benchmarks and other more general documents. Such an approach would also be valuable in light of the relationship between the procedural and the substantive consistency mechanisms, as it would confirm that deviation from Commission notices and the like is permissible and will not always or necessarily result in the Commission pronouncing a veto or taking over the proceedings. This, in turn, properly confirms the soft-law character of these notices. 536 We shall accordingly not consider here whether the new institutional arrangement would improve on the network model in terms of legitimacy and accountability.

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Three Perspectives on Network-Based Governance 24 July 2003.537 The Commission duly obliged with the adoption of a ‘Communication on the Review of the EU Regulatory Framework for Electronic Communications Networks and Services’ in June 2006.538 A public consultation followed. Over 200 interested parties replied, including trade associations and worker’s unions, user associations, Member States as well as the ERG.539 The latter’s contribution spurred a regulatory dialogue between the Commission and the Group in the winter of 2006–07.540 The process culminated in a set of reform proposals on 13 November 2007 that called for, inter alia, the setting up of a European Electronic Communications Market Authority (EECMA).541 For the Commission, the need for the EECMA is readily explained when the state of the Internal Market is considered: Europe does not yet have a single market for electronic communications networks or services. Implementation of the EU rules via 27 separate national regulatory systems has resulted in two major drawbacks: the artificial segmentation of markets on a national basis and a fundamental lack of consistency in the way the EU rules are applied.542

537

Arts 25 and 28(1) Framework Directive. COM (2006) 334 final, 29 June 2006. The Communication was supported by Hogan and Hartson LLP and Analysys, ‘Preparing the Next Steps in Regulation of Electronic Communications: A Contribution to the Review of the Electronic Communications Framework’, July 2006, available at http://ec.europa.eu/information_society/policy/ecomm/doc/library/ext_studies/next_steps/regul_of_ ecomm_july2006_final.pdf. The Commission Communication draws on a prior consultation process, comprising discussions with regulatory authorities, discussions with Member States in two High Level meetings with Ministries in September 2005 and March 2006, as well as a public call for input on the review, which involved a public hearing with over 440 participants in January 2006 and over 150 written submissions. 539 Contributions can be accessed at http://ec.europa.eu/information_society/policy/ecomm/ library/public_consult/index_en.htm#review. 540 Available at the ERG website. That the ERG took this process very seriously may be deduced from the fact that it set up a task force comprising former ERG chairs together with the then-ERG chair to draft a response to Commissioner Reding’s letter. 541 Commission Proposal for a Regulation of the European Parliament and of the Council establishing the European Electronic Communications Market Authority COM (2007) 699 final. The other two proposals are Commission Proposal for a Directive of the European Parliament and of the Council amending Directives 2002/21/EC on a common regulatory framework for electronic communications networks and services; 2002/19/EC on access to, and interconnection of, electronic communications networks and services, and 2002/20/EC on the authorization of electronic communications networks and services COM(2007)697 final and Commission Proposal for a Directive of the European Parliament and of the Council amending Directive 2002/22/EC on universal service and users’ rights relating to electronic communications networks, Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector and Regulation (EC) No 2006/2004 on consumer protection cooperation COM (2007) 698 final. 542 EC, ‘Report on the Outcome of the Review of the EU Regulatory Framework for Electronic Communications Networks and Services in accordance with Directive 2002/21/EC and Summary of the 2007 Reform Proposals’ (Communication) COM(2007) 696 final, 13 November 2007 s 4. The 2007 Reform Proposals can be grouped under the three pillars of better regulation, completing the single market and connecting with citizens. The proposal for the EECMA falls under the second pillar. 538

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The Societal Perspective The following line of thinking underlies this lament.543 For firms doing business in more than one Member State, divergence in legal regimes creates higher transaction costs than if legal regimes were harmonised.544 This means increased prices, or reduced revenues or benefits for the firm or consumer. These in turn lead to a reduction in cross-border trade, to lower levels of investment, consumption and income, and ultimately to a negative impact on economic growth. This is all the more problematic in the light of the EU’s mission to become the world’s ‘most competitive and dynamic knowledge-driven economy by 2010’.545 We are told that the ERG is unable to address sufficiently the Internal Market deficit, as it allows ‘only for loose coordination among regulators’.546 This is the consequence of its consensus-based modus operandi, which the Commission feels results in network output that reflects the lowest common dominator or even a regulatory vacuum when there are substantial differences of opinion.547 It is believed that the ‘more authoritative’548 cooperation structure of the proposed Authority will help to create a level playing field and encourage the development of panEuropean firms and services. Its establishment is connected to two other consistency-enhancing amendments: a strengthening of the independence of national authorities549 and a Commission veto over remedies.550 Organisationally, the would-be Authority comprises a director, an administrative board, a board of regulators, a chief network security officer, a permanent stakeholders’ group and a board of appeal.551 The director would be central to the

543

For more detail, see Wagner (above n 487). These costs include collecting information on the legal state of the art in the Member States where a firm is active, the cost of legal disputes under a variety of legal regimes and the cost of adapting behaviour, products and services to the requirements of multiple legal systems. 545 This is the aim of the ‘Lisbon Strategy’, launched during the meeting of the European Council in March 2000. The Lisbon Strategy rests on three pillars, of which the first seeks to prepare the ground for the transition to a competitive, dynamic, knowledge-based economy, with particular emphasis on the need to adapt constantly to changes in the information society and to boost research and development. For an overview of the various components and key documents that comprise the Lisbon Strategy, see http://ec.europa.eu/growthandjobs/key/index_en.htm. 546 Other causes highlighted are the lack of independent regulators in a number of Member States, sometimes a lack of properly resources regulators, delays in applying remedies, inefficient remedies and inconsistency in remedies across Europe, and routine suspension of regulatory decisions on appeal. 547 Eg, Commission Communication summarising the reform proposals (above n 542) s 4.2. 548 Ibid. 549 Commission Proposal amending the Framework Directive (above n 541) Art 3(3) provides that Member States must ensure that national authorities exercise their powers independently; that only appeal bodies or courts have the power to overturn their decisions; and that the regulatory authorities must have strict conditions for the dismissal of their administrative heads. 550 Commission Proposal amending the Framework Directive (above n 541) Art 7(4)(c). In addition, Art 7(6) would set a deadline of three months within which a national authority whose decision has been vetoed must withdraw the planned measure or notify a revised draft national decision. In the latter case, the Commission may require the national authority to impose a specific remedy within a specified time: Art 7(8). 551 Commission Proposal establishing the EECMA (above n 541) Art 24. See also EC, ‘Draft Interinstitutional Agreement on the Operating Framework for the European Regulatory Agencies’ COM (2005) 59 final, 25 February 2005. 544

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Three Perspectives on Network-Based Governance running of the Authority:552 overseeing the daily operations; adopting opinions, recommendations and decisions, subject to the assent of the board of regulators; drawing up work programmes and implementing them; maintaining the budget and preparing annual reports.553 The administrative board would be composed of twelve members, designated in equal numbers by the Commission and the Council.554 It would have a role in appointing the other bodies and members thereof of the Authority and exercise disciplinary authority over the director and the security officer; adopt work programmes; draw up budgets; advise on the administrative charges the Authority may levy; adopt annual reports, financial rules and related implementing provisions.555 The board of regulators would resemble the ERG and groups the heads of the 27 NRAs.556 It would advise the director before he adopts opinions, recommendations and decisions; guide him in the exercise of his tasks; have a role in the appointment of the director; approve the Authority’s annual work programmes and the independent section on regulatory activities of the annual reports.557 The Commission’s proposal also envisages the integration of the European Network and Information Security Agency (ENISA) into the ECCMA.558 This explains the post of the chief network

552 The Commission Proposal establishing the EECMA (above n 541) stipulates expertise or experience in the communications sector as an eligibility requirement for the posts of director and chief network security officer and for membership of the administrative board and the board of appeal: see Art 29(2) for the director (‘merit, skills and experience relevant for electronic communications networks and services’); Art 31(2) for the chief network security officer (‘merit, skills and experience relevant for dealing with network and information security issues’); Art 25(1) for the administrative board (‘secure the highest standards of competence and independence, and a broad range of relevant expertise’); and Art 33(1) for the board of appeal (‘relevant experience in the electronic communications sector’). 553 Ibid, Arts 29 and 30. Appointment is, as said, by the administrative board on a proposal by the Commission, after consultation of the board of regulators and a Q&A session before the European Parliament. 554 Ibid, Art 25. The board would meet at least twice-yearly, and there is provision for further meetings at the initiative of its chair, at the request of the Commission or a third of its members. Each member would have one vote, and the norm would be to require a two-thirds majority of members present for board decisions. 555 Ibid, Art 26. 556 Ibid, Art 27. Each member has one vote, and the norm would be to require a simple majority for decisions to be adopted. This proposed structure fits a trend in which the Commission attempts to minimise the influence of Member States over agencies by designing their boards to limit or exclude the number of Member State representatives as compared to Commission (or other) representatives. See, eg, its proposal for the European Food Safety Authority; the European Maritime Safety Agency; European Aviation Safety Agency; and the European Medicines Agency. The heads of the national authorities that would make up the board of regulators are explicitly envisaged to act independently and not on behalf of their respective Member States, in recognition of their reinforced independence: Recital 35. 557 Commission Proposal establishing the EECMA (above n 541) Art 28. As regards the appointment of the director, the board would deliver an opinion on the candidate to be appointed, which would require a majority of three quarters of its members. 558 Following the evaluation of ENISA: EC, ‘Evaluation of the European Network and Information Security Agency (ENISA)’ (Communication) COM (2007) 285 final, 1 June 2007; IDC EMEA ‘Evaluation of European Network and Information Security Agency’ (2007), http://ec.europa.eu/dgs/ information_society/evaluation/studies/s2006_enisa/docs/final_report.pdf. A number of problems

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The Societal Perspective security officer, who would oversee all aspects of the Authority’s work relating to network and information security.559 The officer would answer to the director and would be assisted by the permanent stakeholder groups, composed of industry experts, consumer representatives and academics.560 Finally, the board of appeal would hear actions brought against decisions by the Authority in relation to the issuance of rights of use for the European Telephone Numbering Space,561 followed by legality review by the Community Courts.562 In terms of legislative fiat, the Authority would be provided with a catalogue of neatly defined tasks and tools.563 While not going into the minutiae of the Authority’s job description, it should be pointed out that the tasks are primarily informational and advisory in nature.564 The Authority would assist the Commission by giving it opinions on inter alia draft measures of national authorities, the identification of transnational markets and the selection of firms for the provision of cross-European services. It is the Commission that would take final decisions, after taking careful account of the Authority’s opinions. The Authority would also assist the national authorities, by promoting the exchange of information and best practices. It could do so through information surveys on technical aspects; and own-initiative studies on modes of regulation and training. The Authority would appear to lack the ability to adopt Common Positions, with this

were identified, in particular, ‘The Agency’s size and resources should be increased to reach the critical mass necessary to act effectively and allow for an appropriate mix of skills and competences.’ The close connection between the work of ENISA and the electronic communications framework was also remarked upon by the ECJ in Case C-217/04 United Kingdom v Parliament and Council [2006] ECR I-3771 [58]. 559 Commission Proposal establishing the EECMA (above n 541) Art 31. 560 Ibid, Art 32. The group would offer general assistance; draw up proposals for the relevant parts of the Authority’s work programmes; and ensure communication with stakeholders. The number, composition and appointment of members as well as the operation of this group would be determined in procedures adopted by the chief network security officer, in consultation with the director. Provision is also made for a group on interoperability and electronic accessibility, with a particular focus on the needs of disabled end-users: Art 22. 561 Ie, numbers using a single EU-wide prefix (3883) that can be assigned to organisations wishing to establish one-stop, pan-European call centres. 562 Commission Proposal establishing the EECMA (above n 541) Arts 33–35. 563 Ibid, Arts 3–23. 564 In its Impact Assessment accompanying the legislative proposals (Commission Staff Working Document) SEC (2007) 1472, the Commission also explores an EECMA with centralised and discretionary powers, responsible for market reviews and spectrum management. This option was also debated in the late 1990s (on which see above ch 1, section IV) and in the Commission 2006 Impact Assessment (above n 538). Reasons cited in favour of this option have been the removal of national influences in decisions, faster deployment of services with pan-European potential and a lowering of administrative burdens. Against the creation of a single European regulatory agency are subsidiarity concerns, given that many markets and services are still national in scope; the danger that the information advantages associated with decentralised enforcement would be compromised; and the legal constraint posed by Meroni, to the effect that only ‘clearly defined executive powers’ can be delegated to bodies not foreseen in the Treaty. In the end, the Impact Assessment dismissed an EECMA with discretionary powers as ‘unrealistic’.

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Three Perspectives on Network-Based Governance competence being reserved for the Commission.565 Finally, the Authority would have a role in providing the public with general information on the development of the electronic communications sector; the functioning of the institutional framework (eg, notifications of draft decisions, remedies applied, national appeal procedures); and interoperability and electronic accessibility in Europe. The Commission’s proposal foresees a variety of controls and mechanisms to ensure that the Authority would be accountable. Candidate-directors may be invited to appear before the European Parliament to answer questions.566 The Authority would be under the obligation to send annual work programmes and reports to Parliament, Council and Commission.567 Furthermore, the Commission proposal provides that Parliament or Council could request the director to report on the carrying out of his tasks.568 The Commission would be able to exert some political leverage on the activities of the Authority through its representatives on the administrative board; by providing the list of candidates for the posts of director, chief network security officer and board of appeal member; and delivering opinions on annual work programmes. Legal accountability would be ensured by the Community Courts.569 The Authority could be investigated by the European Ombudsman as well as the European Anti-Fraud Office (OLAF).570 Finally, the Authority would be subject to a financial accountability regime comprising internal auditing, external control by the Court of Auditors and budgetary discharge by Parliament on recommendation of the Council.571 Bringing the focus to due process, the Authority would be enjoined to consult with interested parties and make the outcome of such processes publicly available, subject to confidentiality requirements.572 The Commission proposal has a

565 Commission Proposal amending the Framework Directive (above n 541) Art 19 and Recital 37. Note that Art 19 in its present form already allows for Commission harmonisation measures to further the achievement of the objectives set out in Art 8 Framework Directive. Limited use has thus far been made of this regulatory power. 566 Commission Proposal establishing the EECMA (above n 541) Art 29(2) and (4). 567 Ibid, Art 26(5) and (10), Art 28(4). Each annual report would be required to include an independent section approved by the Board of Regulators concerning the regulatory activities of the Authority during the year considered. Annual reports would also be sent to the European Economic and Social Committee and the Court of Auditors. 568 Ibid, Art 29(6). 569 Ibid, Art 35. Consider also Art 263(1) TFEU (ex Art 230(1) EC) as amended by the Lisbon Treaty: ‘[The Court] shall also review the legality of acts of bodies, offices or agencies of the Union intended to produce legal effects vis-à-vis third parties.’ 570 Commission Proposal establishing the EECMA (above n 541) Arts 47(3) and 40 respectively. The Authority would also accede to the Inter-institutional agreement of 25 May 1999 between the European Parliament, the Council and the Commission concerning internal investigations by OLAF [1999] OJ L136/15. 571 Commission Proposal establishing the EECMA (above n 541) Art 38; and Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities [2002] OJ L248/1 Arts 128 and 185 and Commission Regulation (EC, Euratom) 2343/2002 of 23 December 2002 on the Framework Financial Regulation for the Bodies Referred to in Article 185 of Council Regulation 1605/2002 [2002] OJ L357/72 Art 91. 572 Commission Proposal establishing the EECMA (above n 541) Art 42.

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The Societal Perspective separate article on transparency.573 The Authority would be told to carry out its tasks transparently. It would be instructed more specifically to present the public with objective, reliable and easily accessible information, relating in particular to the results of its work; and to make public the annual declarations of interest by the director, officials seconded by the Member States and experts. The proposal also provides that the board of regulators may authorise interested parties to observe some of the Authority’s activities. Further, the Regulation on access to documents would be applied to the Authority.574 We have already seen that the Commission and the ERG entertained a correspondence on the proposal to establish the EECMA. The ERG agreed that there is a need to enhance consistency to complete the single market. Not surprisingly, the ERG stressed its own role in achieving this goal and argued for strengthening the present model. The suggested institutional setup, the ERG has stated, amounts to ‘new layers of unnecessary centralism’ that are ‘not in line with the evolution of the cooperation amongst regulators toward a federal and non-bureaucratic model’.575 To be sure, the Commission’s Impact Assessment had also considered the option of an ‘enhanced ERG’. Thus, the ERG could play a more formal advisory role to the Commission in the notification and veto procedures, with the Commission taking ‘due account’ of the Group’s positions. The Commission acknowledged that, assuming effective coordination among the national authorities, the outcomes of this option would be similar to the agency option. However, we also saw that the Commission does not believe this assumption of effective coordination in fact holds. Its Impact Assessment states: The current ERG serves as a useful meeting point for national regulators and a platform for the exchange of experiences. However, individual NRAs are not bound to follow the ERG common line in their market reviews and their first priority is to analyse and remedy a particular situation in their Member State, rather than ensure consistency across the EU. Under current rules, there is no requirement for NRAs to be independent of government. Whereas the commitment of NRAs to more coordination in the application of remedies could improve the current situation, this would depend on there not being significant differences of opinion within the ERG. It is also possible that the Commission could in some cases view consistency of remedies from a different perspective than the NRAs assembled in the ERG.576

To properly appreciate the Commission’s stance, it is important to consider the reforms introduced by the ERG following its Plenary meeting in October 2006, during which a number of initiatives were agreed to achieve common regulatory approaches across the EU.577 There will be more guidance available to national

573

Ibid, Art 45. Ibid, Art 47, referring to Regulation 1049/2001 (above n 108). ERG (07) 70 ‘ERG Ready for Extended Role’ (Press Release) [2007]. 576 Impact Assessment accompanying the legislative proposals (above n 564) 83. 577 ERG Letter to Commissioner Reding, 27 February 2007, Annex I, available at the ERG website. This letter also identifies and comments on other scenarios involving an ‘enhanced ERG’, including 574 575

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Three Perspectives on Network-Based Governance authorities in their decision-making through a greater number of Common Positions in priority areas578 and case studies of regulatory ‘best practices’ that inform authorities how to apply the Common Position on Remedies to key markets. To effectuate adherence to Common Positions, national authorities are recommended to take the utmost account of them and commit to provide reasoned regulatory decisions by reference to them. Compliance is monitored through a combination of self-assessment and a quality assurance check by a project team drawn from other authorities.579 There are also a couple of new knowledge-sharing arrangements. First, the ERG has identified national authorities with relevant expertise and experience in relation to particular regulatory issues, and these will make themselves available to other ERG members for practical advice.580 Second, Article 7 Expert Groups are constituted to advise affected NRAs whose notifications have entered Phase-II procedures or in respect of which the Commission proposes to issue serious doubts letters.581 Most Expert Groups have thus far recommended that the notifying authority withdraw the measure—advice that has always been followed envisaging the ERG as a comitology committee or making the ERG responsible for the activities that currently fall within the Commission’s remit under Article 7. The ERG also noted that it does not believe that by 2010 (the expected date of entry into force of the new legislation) the formal oversight mechanism of the veto will be warranted. A subsequent letter to Commissioner Reding of 6 November 2007 lists a number of initiatives to enhance the collaboration between the ERG and the Commission, including a formalisation of the cooperation between the Commission’s Article 7 Task Force and the ERG’s Article 7 Expert Group; more frequent consultation of the ERG on regulatory issues; ERG involvement in the drafting of implementing measures such as the Recommendation on relevant markets and the SMP Guidelines; and the association of the Commission more closely with the development of ERG work programmes. 578 To be identified following a consultation process with stakeholders: ERG(06)67 ‘Harmonisation: The Proposed ERG Approach’ [2006] and ERG(06)68 ‘Effective Harmonisation within the European Electronic Communications Sector: A Consultation by the ERG’ [2006]. 579 ERG(08)19 ‘ERG Timetable for Monitoring of Conformity with ERG Common Positions’ [2008]. The first monitoring exercise carried out by the ERG related to the ERG’s Broadband Common Positions (ERG (06)69 ‘ERG Common Position on Best Practice in Bitstream Access Remedies Imposed as a Consequence of a Position of Significant Market Power in the Market for Wholesale Broadband Access’ [2006] and ERG(06)70 ‘ERG Common Position on Best Practice in Wholesale Unbundled Access (including Shared Access) Remedies Imposed as a Consequence of a Position of Significant Market Power in the Relevant Market’ [2006]): ERG(08)06 ‘Report on the Monitoring of Conformity with ERG Common Positions: Lessons Learned from Broadband Questionnaires and Next Steps’ [2008]. For aspects of Common Positions where national decisions are not (fully) in conformity, the ERG encourages a more intensive dissemination of best practice, for instance through workshops. 580 This measure, together with the case studies of regulatory ‘best practices’, should also help to remedy resource constraints. 581 Initially, the creation of Article 7 Expert Groups was voluntary and upon request of the NRA in question. The Dutch OPTA asked for an Expert Group to be set up to examine its broadcast transmission market notification, and the German Bundesnetzagentur did the same for its leased lines market notification. Since February 2007, establishment of an Article 7 Expert Group is automatic when any NRA’s notification enters the Phase-II procedure or when the Commission proposes to issue a serious doubts letter. In the following four months, four Expert Groups were set up to assess the notification by the Maltese MCA on joint dominance in the wholesale broadband access market; by the Italian AGCOM on SMP in the market for mobile call origination to non-geographic numbers; and by the Polish UKE on retail access to the public telephone network and on wholesale leased lines:

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The Societal Perspective by the authority in question. The Commission has begun to request a copy of Expert Group reports to assist it in preparing draft veto proposals.582 In operational terms, decision-making may be expected to become more efficient as it will be possible to adopt Common Positions by two-third majority, and a newly established Secretariat will support the ERG Chair in his or her activities.583 In light of the above discussion, we can draw the following conclusions about the Commission’s proposal to create the EECMA. First, the Commission appears to undervalue the ERG’s contribution to regulatory consistency. The Group’s recent initiatives in particular seem valuable in this respect. It is especially relevant to note that two core deficiencies mentioned in the Commission’s Impact Assessment—consensus-based voting and the voluntary nature of Common Positions—have been taken up by the ERG. Of course, one could also argue that these improvements would not have taken place had it not been for the Commission’s insistence that the status quo was unsatisfactory.584 That might well be the case, yet now that these changes have come about, they ought to be considered when assessing the future of the institutional regime in EC communications law. We have already established that the Commission has admitted that successful voluntary coordination would yield an Internal Market that is not much different than that that would obtain under the auspices of the EECMA. It is clear then that the need for an agency is not unequivocal as far as consistency is concerned.585 Adopting a slightly different perspective, we should realise that opting for a bottom-up approach to achieve consistency through voluntary coordination— rather than a top-down process of European-level harmonisation—means that we should also accept that such cooperation is an evolutionary process, as a result of the greater degree of voluntariness. The credibility of this approach relies on mutual trust between the national authorities involved. Establishing the requisite

ERG Letter to Commissioner Reding, 6 November 2007, 9. In addition, NRAs can seek informal peer review of their draft measures prior to finalisation and notification to the Commission. 582 ERG Letter to Commissioner Reding, 6 November 2007, 10. 583 On the ERG’s internal structure, see above ch 6, section I. 584 Some might accordingly fear that, absent Commission pressure, the ERG’s efforts to improve consistency will again falter. It can be argued in response that the level of accountability and transparency (see above) as well as closer collaboration with the Commission would be sufficient to prevent this from happening. 585 On the need for consistency as far as pan-European services are concerned, the Commission has acknowledged that there are currently few such services, but it believes that there is significant potential for cross-border services to develop in the future. If they do, the key issue to be addressed is their authorisation. The Commission envisages the EECMA providing advice and coordinating the procedures related to identifying services, defining common authorisation and selection methods and defining the conditions attached to the rights of use. Member States would still retain the power to issue the rights of use for pan-European services under a harmonised procedure and harmonised set of conditions laid down in a Commission decision based on comitology. It would, however, seem that the current ERG Decision already allows for ERG Opinions to the Commission on such issues. In addition, it is possible to conceive of consistency-enhancing measures independent of the creation of the EECMA, such as a Commission Recommendation on remedies under Article 19 Framework Directive or making mandatory the consultation of NCAs on envisaged draft measures.

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Three Perspectives on Network-Based Governance levels of confidence does not happen overnight, however. The law should foster this process, for instance by linking national authorities through legal relationships, but cannot impose it. The ERG was established in 2003, and allowing three to four years for that confidence to be established and consistency efforts to be in full swing seems both natural and acceptable. Moreover, the ability of an institutional structure to achieve greater welfare hinges not just on its capacity to generate similar or identical decisions across the EU, but also—even more so—ensuring that these decisions are allocatively efficient. This argument has already been alluded to in the previous section. For the Commission, in its proposal for EECMA, the emphasis is on the reduction of transaction costs and greater legal certainty for firms as a result of more centralisation in the institutional setup.586 While there are welfare gains that can be realised through more consistency, those transaction cost savings may very well be offset by the benefit of having different regulatory solutions. Legal diversity may be warranted because of static considerations. With communications markets and services thus far still predominantly national, local differences or preferences can be heterogeneous—and so should regulatory responses be.587 Variation in regulatory approaches can also be practised for dynamic reasons, namely the desire to exploit Hayekian discovery processes. As we have observed, rapid changes in technology and markets make some measure of regulatory experimentation quite appropriate for the enforcement of EC communications law.588 The discussion thus far suggests that the network regime captures a desirable balance between the need for consistency and the need for experimentation. We have accordingly discussed at length the various consistency mechanisms that obtain under this regime: notably, the consultation on draft decisions, the possibility of a Commission intervention, as well as the existence and operation of the network. At the same time, the previous section showed that the legislature has allowed room for divergence and that the consistency devices facilitate the successful exploitation of the subsequent possibilities of regulatory experimentation.589 We have no reason to believe that the proposed EECMA will succeed in

586 We recall that in its Art 7 practice, the Commission at times has displayed a tendency to foreclose regulatory emulation—presumably for similar reasons. See above, section IV-A. 587 For instance, the newly proposed remedy of functional separation—which requires an incumbent operator to separate its network infrastructure from the units offering services using this infrastructure—might be inappropriate in Member States with well-developed cable networks or where the ‘ladder of investment’ concept has been successfully implemented. 588 See the speech by Ofcom Chief Executive Ed Richards before the European Parliament, 27 February 2008: I would argue that no single institution can know all the right answers in a fast-changing environment such as modern communications. . . One key strength of a ‘regulatory network’ is that it can encourage a plurality of ideas and facilitate regulatory innovation from which best practice can emerge in a creative way, rather than through the exercise of centralised command and control. 589 This leads to the normative question of who bears responsibility for ensuring consistency. Surely the European level ought to be accorded an important role in this respect. Responsibility is,

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The Societal Perspective improving the status quo. If anything, with more centralisation there could be rather less scope for regulatory emulation than is presently available. The Commission’s mantra of more consistency would seem to confirm this suspicion. What is more, it appears that the Commission confuses ‘consistency’ with ‘uniformity’ when critiquing the ERG. The distinction between the two notions is important, not least because uniformity is doubtless unattainable (particularly under a governance model premised on decentralisation), whereas consistency is not so elusive. It is worth noting that this fundamental distinction has not been lost on all Commission Directorates-General, with the Competition DG adopting a more realistic perspective than its Information Society & Media counterpart on the pursuit of coherence in the making of an Internal Market through networkbased governance: It is important to underline, however, that the [European Competition] Network aims at coherence, not absolute uniformity. Ensuring an overall level playing field for European business is achieved when the same type of arguments and considerations govern enforcement action by ECN members. Market-specific or case-specific elements may result in a different outcome for cases that might initially appear to be the same. Different ECN members may also opt for different instruments—such as prohibition or commitment decisions—to address the concerns identified.590

We should finally be mindful of the effect of the EECMA on relationships between authorities. An increased role for the European level could result in hierarchical relationships of power becoming prevalent. This could signal the erosion of horizontal interactions and with it, informal power through peer pressure and reputational enforcement, which chapter 6 showed to be of great practical significance. As a result, the effective administration of EC law across Member States could suffer. The national authorities themselves argue this point forcefully: We strongly believe that the collaborative/collegiate approach of the ERG to date has been an important, if not the key, basis for NRA support for the ERG. The legitimacy of the ERG in the eyes of its members, and the effectiveness of the mechanisms it has put in place, derive from the fact that the NRAs are at the root of the ERG as an institution, both in practice (eg, through the constitution of the Article 7 expert groups) and in principle (based on the NRAs’ privileged position of knowledge and understanding with respect to their national markets). Care is needed to ensure that whatever changes are made do not undermine this foundation, and the progress which has already been achieved.591

however, usefully shared with the national level. Regulatory emulation may produce more, as well as more sustainable, consistency then when only top-down harmonisation is practiced. See Ogus (above n 489) 590 EC, ‘Annex to the Report on Competition Policy 2007’ SEC(2008) 2038, 16 June 2008, 100. 591 ERG Letter to Commissioner Reding, 27 February 2007, 8. This vision was also expressed by the President of the French ARCEP in an article published in the French newspaper Les Echos on 20

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Three Perspectives on Network-Based Governance Under this view, the Community should buttress the base conditions of the present governance model, not supplant it with an agency. As such, proposals to reassert the independence of national authorities or insist on sufficient available resources are to be favourably regarded.592 Time will tell what changes, if any, will be made to the institutional setup for the enforcement of EC communications law. The Council and Parliament thus far appear critical of the Commission’s proposed EECMA.593 The political independence of the authority is a serious cause for concern, according to the committee responsible for drafting the Parliament report on the Commission proposal.594 Legislation presently insists on national authorities being independent from both market and state—and the Commission is keen to further strengthen this characteristic. The thrust of these suggestions is to protect the authorities from political pressure. Yet the EECMA would function under the ultimate supervision of Commission and Member State representatives through the administrative board. This, it is feared, could compromise its political independence and would result in a strange paradox whereby its position is compared to that of the national authorities. During its September Plenary, the European Parliament, for this and other reasons, rejected the EECMA. Instead, it voted in favour of the creation of a Body of European Regulators in Telecom (BERT).595 For all intents and purposes, BERT would embed the ERG into European law, by conferring it legal personality and explicitly according it functions and responsibilities in regulation. Similar to the ERG, its principal task would be to act as an advisor to the Commission and the NRAs in order to promote a consistent regulatory approach across Europe. To this end, BERT would further develop the ERG common positions and establish a

February 2008, , available at the website of the French NRA, ARCEP: ‘[The proposed EECMA] brisera en outre la dynamique de coopération positive enclenchée au sein d’un réseau de régulateurs européens indépendants.’ 592 Commission Proposal amending the Framework Directive (above n 541) Art 3(3) provides that Member States must ensure that national authorities exercise their powers independently; that only appeal bodies or courts have the power to overturn their decisions; and that there must be strict conditions for the dismissal of the head of regulatory authorities. It further charges Member States to ensure that national authorities have adequate financial and human resources to carry out their tasks and that they have separate annual budgets. 593 At the moment, it appears that the only support for the EECMA comes from emerging communications operators, active in several Member States. However, even for them, the concern is not to have an agency as such, but rather stronger regulators, ‘Opposition to proposed EU telecoms authority grows’, available at the Euractiv website. 594 Industry, Research and Energy Committee, ‘Telecoms Review gets Chilly Welcome in Parliament’, available at the Euractiv website. See also the speech by Richards (above n 588). 595 European Parliament Opinion, First Reading, Report on the Proposal for a Regulation of the European Parliament and of the Council Establishing the European Electronic Communications Market Authority, A6–0316/2008, 18 July 2008. BERT is also supported by the Committee of the Regions, Opinion on Telecommunications Reform package, 75th Plenary Session, 18–19 June 2008, EDUC-IV-020.

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The Societal Perspective compliance programme to track NRA regulatory action.596 Interestingly, the proposed recitals stipulate a delimitation of this goal of ensuring consistency, as it must be accomplished ‘without harmonising existing regulatory approaches to a degree which undermines regulatory competition’.597 In addition, the Commission would be formally obliged to consult BERT and take the utmost account of opinions delivered.598 In terms of the composition of BERT, the replication of the ERG is clear. Gone is the administrative board that Parliament considered so objectionable for independence reasons, with BERT instead comprising two organs: a board of regulators, grouping representatives of the NRAs, with the Commission having observer status; and a managing director with operational responsibilities.599 BERT would also exhibit some new features when compared to the ERG: eg, decisions by the board of regulators would normally be adopted on the basis of a two-thirds majority of members present.600 Parliament also proposes various direct political controls over BERT. The selection of the managing director, who would be appointed by the board of regulators, would be overseen by the Commission and Parliament, which are entitled to issue non-binding opinions on candidates.601 Parliament would furthermore be entitled to request that the managing director or a board member present it with informed briefings or attend hearings.602 Finally, one third of the contributions to the BERT coffers would come from the general Community budget and two-thirds from the NRAs.603 The Council, too, appears to be against the replacement of the ERG with the EECMA. The conclusions of the first Telecommunications Council to take place after the publication of the Commission proposals state, ‘Several Member States expressed their doubts related in particular to the need to create a new European agency.’604 Around the same time, it is reported that Cyprus, the Czech Republic, Germany, Malta, the Netherlands, Poland, Spain and Slovakia sent a letter to Commissioner Reding, expressing their opposition to the creation of the

596 European Parliament Opinion on the European Electronic Communications Market Authority (ibid) Arts 1(3) and 3(a) as amended. 597 Ibid, Recitals 2 and 4a as amended. 598 Ibid, Arts 1(1) and 4(4)(a) as amended. 599 Ibid, Art 24 as amended. 600 Ibid, Art 25(4) as amended. 601 Ibid, Art 29(2) as amended. 602 Ibid, Arts 26(11) and 29(6) as amended. 603 Ibid, Art 36(1) as amended. The rationale for this division is that a minimum contribution from the EU helps to embed BERT into the Community system, hence subjecting it to European accountability and transparency requirements, while preventing it from taking on the characteristics of an agency. By stipulating that NRAs must also contribute to the BERT budget, the national authorities should be incentivised to offer it high quality assistance as they contribute to its functioning. 604 Press Release, 2835th Council Meeting, 10.

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Three Perspectives on Network-Based Governance EECMA.605 These States have tapped into the static benefit of decentralisation to dismiss the Commission proposal: ‘We should realise that the EU is not a homogeneous state with similar conditions for enforcement . . . and policy can be based on existing bodies and institutions.’ We may speculate that underneath this factual assertion lie deeply ingrained beliefs about competence questions as well as the more pragmatic concern that Member States have often spent considerable time and resources putting in place national enforcement infrastructures and will understandably be loathe to see their efforts rendered relatively meaningless.606 On the assumption that their voting behaviour in the Council accords with the sentiments expressed in this letter, these eight Member States constitute a blocking minority.607 What happens next will depend first of all on whether the Commission decides to maintain its current proposal or amend it according to Parliament’s wishes. It will then be for the Council to officially take a stance—on the EECMA (if the Commission does not modify its proposal) and on BERT. With Parliament and Council apparently broadly in agreement on preserving the fundamentals of the ERG (and hence network-based governance), we can speculate that the Commission will be unsuccessful in its attempts to create an agency—and probably for the better.

IV. CONCLUSION

An institutional arrangement must possess satisfactory normative credentials if it is to remain in place, let alone be extended to other policy areas. This chapter has asked what we should make of the attractiveness of the network regime. To that end, we have employed three complementary perspectives on this form of governance, namely those of the firms and consumers that are subject to the system; the institutions and Member States that administer the system; and finally, society as a whole, which should benefit from the system. The analysis first addressed the legitimacy of the network. Our test was that devised by Baldwin and McCrudden, which comprises five criteria: legislative mandate; accountability; due process; expertise and efficiency. It is readily apparent that one’s view on the overall acceptability of the network will be informed by the type of legitimacy one believes most important. 605 The letter itself is not publicly accessible, but its existence is mentioned in the press, eg ‘Nederland ligt dwars bij EU-toezicht telecommarkt’, available at http://www.europa-nu.nl. 606 See further above ch 1, section II-B. In particular, Germany is alleged to be fiercely opposed to the plans of Commissioner Reding following their disagreement on the issue of ‘regulatory holidays’: ‘Telecoms and Internet Regulation Review’, available at the Euractiv website; and ‘Telecom Sector Gears up for “Battle of Reding” at Council Meeting’, also available at the Euractiv website. The German Secretary of State said that the UK, France and Spain agreed with the German position. See also ‘EU Ministers to Reject New Telecoms Authority’, available at the Euractiv website. 607 There are 321 votes in total, and 232 votes in favour are required for the proposal to be adopted. The eight Member States mentioned together hold 122 votes.

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Conclusion In terms of expertise and efficiency the network achieves satisfactory results. The model subscribes to the decentralised administration of EC law, indicated by economic discourse to deliver allocatively efficient outcomes. This is because of the better satisfaction of local preferences, due to meaningful accountability of national actors to their local populations. By facilitating regulatory emulation through institutionalised interactions, networks further deliver dynamic efficiency. This fosters in particular Hayekian discovery processes. Trial-and-error processes allow legal regimes to respond to the uncertainty characteristic of rapidly changing working environments. On occasion it appears that bottom-up emulation is not always practiced when this is pertinent. The Commission should then seek to encourage this process to fully exploit the utility of the decentralisation paradigm. At the same time, the consistency mechanisms reflect the understanding that there should also be homogeneity in decision-making practice across Europe for Internal Market reasons. These mechanisms are cleverly designed to simultaneously structure and facilitate regulatory emulation should this prove appropriate. It can be acknowledged that the efficiency benefits delivered by the network regime are significant when we recall that it was set up to redress the EU’s institutional design deficit. Networks foresee public participation through consultation to allow firms and consumers to influence the decision-making process. Having deliberative processes and transparency fits in with a new trend that emphasises participatory democracy. That said, due process rights could benefit from more precision and more visibility. The networks also have some work to do to encourage all affected interests to take part to avoid the process becoming swayed in favour of sectional industrial concerns. We must be critical of the parliamentary accountability mechanisms. They are presently limited in number and operate in a roundabout way through the Commission as intermediary. There is room for improvement here. The European legislature should fashion a direct accountability relationship between the network and the European Parliament. So too should the possibility of parliamentary intervention increase. The network could be required by law to submit annual work programmes and reports. Parliament could further be given the right to invite network representatives to explain a network’s activities. However, we should also not ignore the downside of this strategy insofar as it can politicise the work of networks and thereby compromise the independence of their component members. Control by the courts over the activities of the network is limited. This is because, with the exception of Commission veto decisions, no challengeable acts are adopted. Thus none of the allocation of cases, the transfer of information, the Commission’s letters of comment, the Commission’s takeover of national proceedings nor the network documents are as such susceptible to judicial review. Some might feel that this state of affairs is undesirable. We should, however, be weary of extending the courts’ supervisory jurisdiction over these events. Most 381

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Three Perspectives on Network-Based Governance network-based interactions are simply preparatory steps in wider decisionmaking processes—instances of internal administration continued from the national to the transnational level. Preliminary acts are typically immune from direct scrutiny for obvious reasons. Moreover, it should not be forgotten that network-based interactions are intended to enhance the efficiency and effectiveness of EC rules in daily practice. This aim should be respected—not undermined by inviting a process of juridification. It is equally important not to lose sight of the fact that even if network interactions become challengeable, problems with locus standi and a low intensity of review mean that the prospect of courts delivering verdicts of invalidity would still be slim. As all actors (firms, authorities and courts) possess finite resources, and on the assumption that they behave rationally in allocating these, available resources should be spent on their core activities (innovation, law enforcement and case law development respectively)—not on unsuccessful litigation. To be sure, firms and consumers are not left completely empty-handed because of the possibility to legally challenge final national decisions and thereby indirectly raise the illegality of preparatory network acts. To be sure also, this could very well make the network a ‘black-box’, with the consequential dangers of opaqueness and obscurity. From the perspective of firms and consumers, the second best solution would see a convergence of procedural rules across Member States because of the resulting diminution in incentives to challenge case-based interactions. For network documents, we would ideally witness enhanced participation, which would be legally enshrined in Community law. Between the two networks we have dealt with, the ERG enjoys greater legitimacy than does the ECN. This is presumably because its output includes a larger number of soft-law tools in relation to which legitimacy questions are arguably more pressing. This is because, again, case-based interactions are best seen as instances of internal administration, for which the network arguably draws sufficient legitimacy from its component members. At the same time, insofar as a network does adopt soft law, the critique on the existing rules on due process and parliamentary accountability acquires even greater importance. In terms of institutional anatomy too, the ECN could usefully look towards the ERG for inspiration. The acceptability of the network regime for the EC institutions was measured against the principle of institutional balance. Since the network has not been transferred regulatory authority located by the Treaty in a Community institution, the regimes observe institutional balance in its legal guise. Approaching the principle from a political viewpoint, the network model is subject to largely the same critique as the one levelled against comitology committees and agencies. That is to say, it creates incongruity between the balance encapsulated in the Treaty and institutional reality. This is particularly problematic to the extent that it allows the network to escape the constitutional guarantees and controls laid down by the constituent Treaty for the institutional actors mentioned therein. 382

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Conclusion Here we may derive some comfort from the fact that the networks operate in environments that have a variety of checks and balances—the need for further enhancement notwithstanding. For Member States, the network model is desirable because it safeguards the principle of subsidiarity in the form of national procedural autonomy. First, it is premised on decentralisation, with national authorities having primary responsibility for the administration of EC law. Second, it fosters the effectiveness of localised enforcement by establishing credible transnational coordination. This coordination allows for gains in the form of reduced transaction cost, a levelplaying field and elimination of cross-border regulatory externalities. The Commission’s proposal for a European Electronic Communications Market Authority seems ill-considered in terms of welfare. Due to more centralisation in the institutional setup of this agency, the efficiency and effectiveness of regulation is likely to be reduced. In terms of efficiency, the proposed model would seem to be less inclined to approve of legal diversity than would be indicated as desirable by economic discourse and is possible under the present network regime. In terms of effectiveness, it is likely that the proposed model would emphasise hierarchical EC–national relationships over collegiate interauthority relationships. Given that the latter type of interactions are particularly valuable in strengthening the incentives of national authorities to administer EC law, their marginalisation is highly undesirable.

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8 Conclusions

T

HE EU IS increasingly concerned with the effective administration of its rules and policies. This is a matter of efficiency—for the sake of maximising the social and economic benefits that citizens and firms should derive from an integrated Europe—and a matter of political self-interest—to strengthen its credibility in the eyes of those citizens and firms. That there is room for improvement is clear when we consider the traditional models for application and enforcement of European rules and policies. These conventional models have attractive features but also problematic defects.1 The default model of decentralised governance puts national actors in charge of bridging the gap between general EC rules and individual cases. It yields access to considerable regulatory capacity and brings the benefits of proximity and flexibility. Also, it is in full accord with the principle of subsidiarity. However, decentralised governance often results in the uneven or faulty administration of European law across the Member States. This is due to a threefold institutional design deficit. First, national administrations may lack the necessary regulatory attributes or proper incentives to enforce EC law. Secondly, interactions with other Member States may be deficient in quality and quantity because of a serious lack of mutual trust. Thirdly, there is insufficient Community oversight over the enforcement measures taken at national level, given the delays, complexity and discretion inherent to the classic tools of infringement proceedings and preliminary references. Under centralised governance, Community institutions, notably the Commission, are entrusted with the application and enforcement of EC rules. This model is most successful in producing homogeneity in decision-making, which should achieve more legal certainty for firms, lower their transaction costs and ultimately increase levels of economic trade and welfare. With the Commission as the archetypal enforcement institution, centralised governance should also ensure that the law is implemented, applied and enforced in accordance with the intentions of the European legislature. However, scarce resources mean that the Commission is actually unable to develop decision-making practices that would allow these benefits to materialise. What is more, the lack of political acceptance

1

See above ch 1.

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Conclusions works against this model: Member States are usually hesitant to transfer competences to the European level and will invoke the principle of subsidiarity. The third model of agency-based governance holds the middle between the two extremes of decentralisation and centralisation. While the Member States retain an important role in the enforcement stage, there is a heavier European presence through agencies, with the extent of that presence dependent on the type of agency involved. By allowing for regular contact between the Community and the national level as well as—albeit on a smaller scale—among the Member States, this model generates more consistency in enforcement than does decentralised governance. This is because national authorities are supplied with the knowledge and expertise to properly apply the European rules, and since misbehaviour is more likely to be detected, they will be less inclined to deliberately misconstrue or misapply EC law. At the same time, however, the agency model is characterised by a multitude of actors, which compromises uniformity. There are furthermore no specific control mechanisms, and instances of maladministration at national level must accordingly be sanctioned under Arts 234 and 226 EC, with their attendant weaknesses. Crucially, the agency model suffers from legalpolitical constraints. This is a result of the infamous ruling in Meroni and the Member States’ unwillingness to transfer to a Community body their ‘prerogatory’ competences and role in the enforcement stage. The difficult issue, then, is balancing the need for a European-wide level playing field on the one hand and the preservation of subsidiarity in law enforcement on the other hand. This book has analysed and commends to its readers the network model, which has been examined here in the context of the administration of EC competition and EC communications law and which has demonstrated that it is well suited to this challenge. In 2002, both EC competition law and EC communications law underwent major changes, which resulted in, amongst other things, new institutional frameworks. In both cases, coherency in the application of European law through national authorities was a significant concern. The centralised system that had been used for the regulation of anticompetitive conduct from the 1960s to the turn of the century was replaced with a model of decentralised, shared enforcement between the Commission and the national competition authorities. Stakeholders feared that such a move might fatally compromise the integrity of competition policy. As regards communications law, the concern was not so much to safeguard the prevailing level of consistency but rather to improve the homogeneity with which the European rules were administered. Since its inception, EC communications law has followed the default decentralised model of enforcement, positioning national regulatory authorities at the centre of the daily administration of the European rules. This had resulted, under the old 1998 regime, in divergent and even incompatible national decisions and judgments. Network-based governance is premised on decentralisation. As such, it follows the classic models of decentralised and agency-based governance. There are good 385

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Conclusions reasons for doing so. From a legal-political perspective, national-level enforcement preserves the principle of subsidiarity as national procedural autonomy. It can thereby lay claim to a significant degree of political acceptability on the part of the Member States. From an economic perspective, decentralisation is seen as superior to centralisation in achieving allocatively efficient outcomes and enhanced social welfare.2 This is because of the better satisfaction of local preferences, which is in turn explained by the greater accountability of localities to their citizens. The key difference between network-based governance and decentralised governance is that, under network-based governance, institutional regimes actually incorporate innovative features that avoid the flaws that obtain under the unfettered application of decentralised enforcement. That is to say, it addresses the threefold institutional design deficit. First, EC law devotes considerable attention to the setup and powers of national actors in order to ensure that they possess the necessary regulatory attributes to effectively fulfil their European mandate.3 Thus, the national competition authorities (NCAs) and the national regulatory authorities (NRAs) have been entrusted with broad and discretionary competences. In addition, and as a matter of Community law, the NCAs may ask each other for assistance in collecting information; they may suspend proceedings on the ground that another authority is already seized of the matter; and they have the right to offer amicus curiae submissions to their national courts. Regulation 1/2003 also provides that NCAs bear the burden of proving infringements of Articles 81(1) or 82 EC. Turning to the NRAs, EC law obliges them to consult interested parties prior to adopting measures with a significant impact on the market; to observe high standards of transparency; to use objective, non-discriminatory and proportionate procedures, selection criteria and conditions in relation to general authorisations and individual rights of use; to provide reasoned decisions within relatively strict deadlines; and to cooperate with NCAs and national consumer protection agencies on matters of common interest when appropriate. Furthermore, the Framework Directive stipulates a right of judicial review of NRA decisions. In terms of institutional characteristics, national authorities must have access to sufficient resources (both financial and nonfinancial) and operate independently of state and market (explicitly required in EC communications law and assumed under EC competition law). For national courts too, EC law specifies a number of elements of their enforcement structure. That said, the nature of these requirements differs somewhat between the competition and communications variants. This is because the former posits national courts as a first-instance alternative to NCAs and the Commission, whereas the latter only conceives them as control instruments in relation to NRA decisions. Regulation 1/2003 determines the burden of proof in

2 3

See above ch 7, section III-B. See above chs 2 and 3.

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Conclusions litigation and prescribes that national courts may receive amicus curiae observations from the public enforcers. The Framework Directive contains rules on locus standi before national courts; specifies that NRA decisions must in principle remain intact pending the outcome of appeals; and demands that national courts have the appropriate expertise to adjudicate claims for judicial review and must be independent of the parties to the litigation. Secondly, the network model facilitates meaningful and regular interaction between Member States.4 European law links the national authorities in a framework of legal rights and obligations. It also makes room for the creation of networks comprising the national authorities and the Commission: the European Competition Network (ECN) and the European Regulators Group (ERG). The ECN and the ERG are the institutional vehicles within which these rights and obligations are exercised, with the help of dedicated IT applications and face-toface meetings. In terms of cooperation in individual cases, national authorities circulate their draft decisions and may offer comments on the proposed measures of their peers; and they may exchange information. Regulation 1/2003 also provides that NCAs should cooperate with each other by reallocating cases if appropriate and by engaging in investigations at the request of fellow NCAs. The Framework Directive also envisages collaboration between the NRAs in the event of cross-border disputes between firms or when the market to be analysed is transnational in nature. In addition to case-based interactions, the ECN and the ERG are involved in framing enforcement policy, by selecting priority areas and by adopting soft-law instruments that seek to guide the national authorities in the exercise of their responsibilities. The argument in the preceding paragraphs is reinforced when we consider that networked coordination serves to transform national authorities into Community actors when administering European law. That is to say, national authorities are no longer part of only a national administrative hierarchy, applying only home-grown approaches. They become agents in the enforcement of EC law and part of a broader Community administration. The authorities execute their mandate with keen awareness of and attention to the wider European context: their outlook is Europeanised.5 This is due to a number of symbiotic processes. Thus, the legal rights and obligations incorporated in Regulation 1/2003 and the Framework Directive make the national authorities dependent on each other for resources such as information, advice, legitimacy and authority. Consultation on draft decisions in particular provide national authorities with the information necessary to monitor the manner in which the others enforce the common rules. The effectiveness of this monitoring exercise is enhanced by the existence of an epistemic community among the authorities: through repeated interactions, a

4

See above ch 6. See above ch 6, section III. The considerable homogeneity in regulatory environment constitutes the bedrock of these processes, as it encourages each authority to discover familiar traits in the others and hence rationalise its working relationships with them. 5

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Conclusions ‘logic of appropriateness’ is cultivated, and the authorities will come to share a value system and make use of the same concepts and analytical tools. Each authority further knows that its own behaviour is controlled in the same way. This gives them all a powerful incentive to keep up their side of the bargain and pursue the European interest in administering the relevant rules. To do otherwise could provoke reputational enforcement whereby authorities could be denied resources or excluded from the realms of influence. With mounting evidence confirming that the others authorities are indeed behaving correctly, each authority grows more confident in its peers and, in turn, may be expected to strengthen its own commitment to the European rules.6 The effects that this normative political ecosystem may bring about are significant. In institutional terms, we may discover a new dimension to Art 10 EC in the form of a duty on national authorities to consider actively the output, practices and perspectives of their fellow authorities in their own decisionmaking. In procedural terms, we may see a further approximation in regulatory environment and institutional endowments, due to the benchmarking that networked interaction almost certainly will induce. And in substantive terms, there may be scope for a truly European competition or communications law, with feedback and cross-fertilisation between the Community and the national level. Thirdly, the Commission is conferred special procedural powers to supervise and oversee the work of the national actors.7 It must be consulted by the national authorities before they take any decision. The Commission may submit observations and even prevent authorities from finally adopting measures, usually for the sake of preserving the homogeneity of European law. In competition law, this is done by the Commission taking over cases from NCAs, whose jurisdiction is thereby terminated. In communications law, the Commission adopts veto decisions, requiring NRAs to redo the entire procedure. Compared to the traditional tool of infringement proceedings, these special control powers exhibit some preferable features. Due to the obligation on national actors to inform the Commission of their decisions, unsatisfactory decisions are almost certainly detected. The Commission’s supervisory powers are further premised on ex ante control. They thus serve to prevent undesirable decisions from becoming law and generating economic harm. Lastly, the mechanisms are expedient because of the strict and short deadlines to which their exercise is subjected.

6 On the appropriateness of this solution from the perspective of subsidiarity interpreted in line with economic insights, see above ch 7, section III-B. 7 See above chs 4 and 5.

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Conclusions Regulation 1/2003 also contains special mechanisms that govern the relationship between the Commission and national courts.8 National courts must accordingly notify their judgments applying Arts 81 and 82 EC to the Commission, which enters these into a publicly accessible database. When necessary, the Commission may make amicus curiae submissions to the national courts. For obvious constitutional reasons, these observations are not binding, although they will certainly be persuasive. In addition, the Commission also has wide-ranging powers to exert a harmonising influence on the decisional output of national authorities and courts through substantive means: its own decisions under Arts 81 and 82 EC,9 block exemption regulations, observations made during the consultation procedure and, most particularly, soft-law instruments. It is clear then that the institutional frameworks introduced by Regulation 1/2003 and the 2002 Regulatory Framework for Electronic Communications differ in important respects from the classic models for the administration of European law. In particular, they allow for meaningful and constant interaction between and across the various levels of government. We may thus properly refer to the network model as a new enforcement paradigm. Whereas networks as such are not new to European law—similar constructs have been used as ancillary features of decentralised or agency-based enforcement and for the making of laws—this is the first time that we have encountered such a sophisticated species for the purposes of the application of EC rules.10 The key tenets of network-based governance as they have been outlined above are common to both the competition and communications variants. Yet differences may also be detected. Thus, communications legislation is more prescriptive in specifying the regulatory attributes of NRAs and national courts than its competition counterpart. Regulation 1/2003 contains specialist control devices directed at national courts, which are unavailable under the communications regulatory framework. Furthermore, the modalities for interaction employed by the ECN are primarily case-based, while the ERG mostly engages in work of a general character. These divergences should be interpreted as a sign of the flexibility and dynamic nature of the network regime: it can be adapted to suit the needs of specific fields of law—first by the Community legislature when it devises new networks and subsequently by network members as and when it becomes appropriate or necessary. Ideally, we should see useful cross-fertilisation and mutual learning between network-based regimes.

8 It was argued above in ch 5, section I-B that the communications legislature would do well to introduce similar mechanisms in the 2003 Electronic Communications Framework, since the concerns that prompted their introduction under Regulation 1/2003 also exist for the administration of the EC communications rules—as the practices under the old 1998 regime demonstrate—and in light of the educational value these tools possess. 9 For more on the role of the Commission as direct enforcer of the EC competition rules, in particular the types of decisions it can take and its prioritisation policy, see above ch 4, section I. 10 The emergence of networks in European law more generally and the network in its political science understanding are analysed above in ch 1, section IV.

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Conclusions It follows from the previous discussion that the network model is able to deliver effectiveness and consistency in the administration of European law. It is axiomatic that this has positive implications for its acceptability (including a possible extension to other policy fields) by both the European institutions and the general public, notably the users that are subject to the system. These findings also open the possibility of wider use of network-based governance beyond the fields under discussion. It is clear that the model’s core features as they have been explained above are not bound up with the specificities of the two legal regimes that we have used as case studies so as to preclude its applicability in other fields. That said, it is also clear that it does not necessarily or automatically follow that network-based governance ought to be introduced across the board for the administration of Community law—at the expense of the current three paradigms. Rather, whether the model warrants introduction in other areas must be decided with reference to its most virtuous aspect: its capacity to pursue consistency for Internal Market reasons, while at the same time respecting diversity and local autonomy. This means that in those legal fields where this tension between coherence and diversity is most apparent or acute, institutional change in the direction of network-based governance should be considered. Think for instance of fields of law characterised by a high degree of uncertainty or areas in which Member States have made very different regulatory choices. In such cases, the demands of the making of an Internal Market must surely accommodate respect for local autonomy, be it for static reasons (better satisfaction of varying local preferences) or dynamic considerations (diversity as a source of experimentation and learning). There are two additional considerations to bear in mind when contemplating the wider use of network-based governance. First, the need for and appropriateness of the relevant national authorities possessing broad and discretionary powers—in other words, the risk of inconsistency and its attendant costs must be real. Second, the Commission must be able to effectively guide and supervise national actors, which means excluding fields in which decisions are adopted on a routine basis (eg, customs, agriculture). It would appear that other regulated industries are prime candidates when their rules may be most successfully administered with the help of a network-based regime—and perhaps it could even be worthwhile contemplating the replacement of agency-based governance with network-based governance in some cases, so as to emphasise and further develop the all important horizontal linkages between national actors. One important question, then, remains for consideration: what is the relationship of network-based governance with constitutional values, in particular modes of legitimation other than effectiveness?11 The law traditionally looks to parliaments and courts to provide legitimacy. In the case of networks, their parliamentary and legal accountability is rather poor at present. Relationships

11

See above ch 7, esp section II.

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Conclusions with the European Parliament are few in number and operate in a roundabout way through the Commission as intermediary. The role of the courts in relation to the activities of the networks is also limited. This is because, excluding the Commission’s veto decisions, no challengeable acts are adopted. In other words, the allocation of cases, the exchange of information, the Commission’s observations during the consultation process, the pre-emption of the jurisdiction of NCAs and the adoption of soft-law instruments are as such not susceptible to judicial review. This state of affairs is partly due to networks’ lack of legal personality. A network does not enjoy the status of a Community body and does not possess autonomous competences. Some might feel that the real influence networks bring to bear on the decision-making processes of the NCAs and the NRAs warrants that they be given legal personality so as to secure adherence to fundamental constitutional values. Indeed, one of the concerns expressed in the debate on new forms of governance in European law is that their emergence comes at the expense of the rule of law. While this unease must be taken very seriously, one must not jump on the bandwagon too easily. Instead, one must carefully consider whether there is merit in this view and if so, how any defects may be best addressed. A first question is whether giving networks legal personality is tantamount to making them agencies. If the answer is in the affirmative, then there are a number of drawbacks to be aware of. In view of Meroni, it is not at all clear if networks could continue to promulgate soft-law tools such as the ECN Model Leniency Programme or the ERG Common Positions. These instruments make a particularly valuable contribution to consistency in the administration of European law. This is not only because they offer much needed guidance on the proper application of legal rules that are both broadly phrased and fairly technical, but also because the national authorities themselves have collaborated on the adoption of these tools—and are thus very likely to apply them. It is doubtful whether Commission-authored soft law can in fact achieve the same result. The reception of the Commission’s proposal for a European Electronic Communications Market Authority (EECMA) highlights another potential concern. Legislation presently insists (either explicitly or through a strong assumption) that national authorities operate independently from the market and the state. Yet, agencies function under the ultimate supervision of Commission and Member State representatives through administrative boards. This, it is feared, could compromise their political independence and result in a strange paradox whereby the position of the EECMA is compared to that of the national authorities.12 And worse, such a setup could introduce political influence on the work of the NCAs or NRAs through the backdoor. Legal concerns aside, the

12 Recall that in ch 2, section IV-C it was established both the Community and the Member States are keen to make sure that the national authorities are able to discharge their mandate independently.

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Conclusions political climate is notably unwelcoming towards the creation of agencies—as the reactions of the Member States to the Commission’s proposal for an EECMA again confirm. Even if the transformation of networks into agencies is not required, would a network’s legal personality actually have profound consequences for the amount and impact of parliamentary and legal accountability? There are important reasons why one might be apprehensive here. In terms of the relationship with the European Parliament, contacts would remain intermittent, usually confined to deliberations on annual work programmes and reports—although giving Parliament the right to invite a network representative to appear before it to explain the activities of the network could enhance the frequency of its involvement. Still, to be able to speak of meaningful accountability, Parliament would also have to create the intellectual climate for a thorough evaluation of the network’s performance. This is not an easy task for any accountability forum, since there always seems to be a serious mismatch between the abundance of scrutiny work to be done and the scarcity of time and personnel available for this task. Furthermore, we must be alert to the possible politicisation of the activities of networks as Parliament becomes more involved. This could impinge on the independence of the national authorities as prescribed or assumed by European law, and thereby fetter their performance. In terms of the relationship of networks with courts, care must be taken to avoid the juridification of the network regime and, in particular, of the relations between the national and the Community level. We should be wary of cultivating a culture of litigation and replacing administrative discretion with judicial discretion. This is all the more so given the polycentricity and complexity of the issues that arise in the fields of law that this book has concerned itself with. It is likely that case-based interactions (including case allocation, information exchange and Commission letters of comment) would continue to be considered preliminary acts in the wider decision-making process, with the possibility for judicial review deferred until the final national decision stage. It is also important to consider that the justiciability of acts is only one aspect of effective judicial control. Much also depends on locus standi rules and the intensity of review. Under the prevailing legal state of affairs, the prospect of a court delivering a verdict of illegality would still be slim. This does not, of course, mean that we should not seek to enhance the legitimacy of networks through Parliamentary or legal means but rather that we should be aware that this, to a large extent, could very well be window-dressing and might provide no more rule of law than does the current setup. It seems fitting to remark at this juncture that the degree of Parliamentary and legal accountability generally available for the European institutions and their acts is contentious and that there are fierce debates as to whether and how to improve this state of affairs. Seen within this wider European context, it is almost normal that the position in which network-based governance finds itself leaves something to be desired. This was also illustrated when we measured the network 392

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Conclusions regime against the principle of institutional balance: its position is just as precarious as that of agencies, comitology committees and a host of other institutional devices.13 In other words, the existing imperfections regarding the network’s legal and political accountability cannot, as such and taken by themselves, be used to reject the network model. Perhaps more provocatively, it can be queried whether we should still look to classic constitutional processes as the primary tools to secure the legitimacy and accountability of new forms of governance. To be sure, it seems unthinkable to conceive of an institutional environment in which neither courts nor parliaments play a role. To be sure also, it is increasingly recognised that reliance should also (or even instead) be placed on alternative methods to furnish a normative justification for the existence of such new governance forms. Deliberative participation and transparency enjoy particular popularity in discussions on how to reconceptualise legitimacy in transnational contexts. As far as networks engage in the promulgation of soft law, affected interests should be involved in their formation. This should benefit both the quality of the resulting documents and their social acceptability. Then, there is the argument that participation could help fill the void of defective judicial protection against network-authored soft law. It is geared towards the same end as the ‘objective’ view on court involvement—the desire to ensure the legality and accuracy of government actions—as distinct from the ‘subjective’ view that is focused on the protection of citizens’ rights against the state. The judicial process can be seen to provide ex post participation in rule-making. Through the courts, firms have a ‘voice’ to air their grievances against the network. Firms thus gain access to and participate in rule-making, albeit in an extremely costly and indirect manner. On this view, ex ante participation should be favoured, because it succeeds in achieving the desired objective in a cheaper, more efficient and direct manner.14 In terms of opportunities for participation, the ECN could take a leaf out of the ERG’s book. The communications network is enjoined by Article 6 of the ERG Decision to ‘consult extensively and at an early stage with market participants, consumers and end-users in an open and transparent manner’. In practice the ERG invites participation in relation to Common Positions and its annual work programmes and reports; and reflects the input of contributions received in the measures finally enacted. That said, the rules on participation are presently laid down in a self-authored document, and it would be helpful to instead incorporate them into official rules of procedure. The ERG also has some work to do to encourage all affected interests to take part to avoid becoming captured by

13

For more detail, see above ch 7, section III-A. In relation to case-based interactions the argument was made that the second-best solution from the perspective of firms is a convergence of procedural rules across Member States, because this would reduce their incentives to challenge case-based interactions. To avoid the network becoming a ‘black box’, emphasis would have to be placed on transparency and participation. 14

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Conclusions sector industrial concerns—for instance by actively reaching out to (European) consumer organisations to offer comments or by attaching a consumer group to the ERG. Transparency, in the form of availability of information, allows citizens to see what is going on within the administration. They may thus become aware of opportunities for participation and are able to judge for themselves how the networks perform their mandates. In this respect too, the ECN could learn from the ERG. The agenda and conclusions of meetings of the ERG Plenary (comprising the heads of the NRAs) are published on the ERG’s website. Plenary meetings are further accompanied by press releases and public debriefings, and interested parties may subscribe to email alerts that inform them of the publication of new documents or other important developments. The ERG Chair may further, on his or her own initiative, describe the work or explain the views of the Group to the press or other interested parties; and the ERG has committed itself to observe the rules and principles laid down in the Regulation Access to Documents for the EU institutions. Adopting a more contextual perspective, it could be argued that European networks make a positive contribution to the legitimacy of their component elements, notably the national authorities. The difficulties that beset parliamentary and legal accountability not only permeate the European legal system but are a contemporary feature in many Member States, too. The discretionary competences of the NCAs and the NRAs, and the technical nature of the fields within their remit of jurisdiction, mean that also for them the classical accountability devices would be usefully supplemented by new-style processes. The network infrastructure provides peer accountability, which may be expected to be particularly successful. This is because national authorities are regularly informed about the conduct of their peers, possess the knowledge and expertise to properly judge the work undertaken and are able to impose consequences for unsatisfactory work. As such, we would be faced with a form of self-regulation—or more accurately, self-legitimation—by the national authorities. In addition to peer review, it is worth recalling the emergence of accountability networks, whereby the grouping of national enforcers into networks is matched by the grouping of accountability fora (such as ombudsmen or parliaments) into networks as well. From a European constitutional viewpoint too, network-based governance holds out an attractive promise. Although the Lisbon Treaty no longer expressly extols the virtues of ‘unity in diversity’, this theme is apparent in the Articles that address the relationship between the European and national levels. As alluded to earlier in this concluding chapter, the main argument of this book is that network-based governance could help to deliver just that when it comes to the application and enforcement of European rules. Let us be clear here—the effectiveness of European law requires that European rules and policies are administered in the same way throughout the Member States. The clear need for homogeneity in decision-making at the national level is readily acknowledged. This not in the least because of the transaction cost savings 394

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Conclusions and level playing field it should secure. At the same time, consistency must not be elided with uniformity—if only because the latter is doubtless unattainable, whereas the former is not so elusive. Indeed, some measure of regulatory divergence is both acceptable and appropriate.15 In terms of acceptability, any structure that is premised on decentralisation will have to contend with a degree of discrepancy in the work of national actors. Only a centralised enforcer would be able to deliver absolute coherency, and we have seen that the Treaties are designed in such a way as to render national-level enforcement the default position. The case law of the Community courts bears further recognition of the fact that complete consistency is not sought within the European legal system: consider for instance Cassis de Dijon’s rule of reason or the constraints on the use of Article 95 EC that are explicated in Tobacco Advertising. In terms of appropriateness, in a number of cases, having different regulatory solutions is actually beneficial from a welfare perspective. Since local preferences and market conditions are not homogeneous across the EU, regulatory divergence increases utility as more preferences may be satisfied than if a uniform solution obtains. Differentiation further allows for regulatory emulation, which sees national authorities looking around for better solutions by comparing and benchmarking with others. This injects dynamism in the law and keeps the risk of massive regulatory failure in check—qualities that are particularly valuable for rapidly changing working environments in which uncertainty is rampant. The network model offers the national authorities the infrastructure through which they can circulate information and ideas regarding alternative legal choices and their effects. It thereby optimally exploits the opportunities offered by Hayekian discovery processes. The sum total of the reasons fleshed out above clearly demonstrates that networks are able to mediate a desirable balance between the need for consistency and the need for diversity—and to such an extent that cannot be replicated by traditional enforcement regimes. It is on this case that the book rests. It is hoped that this book has served a useful function in presenting to the reader a new enforcement paradigm, yet it cannot pretend to have exhaustively addressed all the fascinating issues that surround such a change in institutional direction. A future research agenda could perhaps consider any one or more of the following. While network-based governance clearly attends to the role and position of national courts, it obviously cannot group these in a network together with administrative authorities. Yet, the considerations that prompt the need for links between administrative actors in the enforcement phase are also present (albeit perhaps not to the same extent) for national courts—indeed, this explains the procedural consistency mechanisms applicable to these bodies. It would be most

15 See above ch 7, section IV-A regarding competition among rules, consistency and legal certainty; and above ch 7, section IV-B regarding the Commission’s proposal for an ECCMA.

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