Newsletter
Suscríbete a nuestro Newsletter y entérate de las últimas novedades.
https://centrocompetencia.com/wp-content/themes/Ceco
volver
Commitment decisions are a type of tool used by competition authorities in certain jurisdictions aimed at resolving a competition law conflict. Simply put, this type of resolution is characterized by the investigated company’s initiative to cease its conduct and bring the investigation to an end. Specifically, it is the investigated company that proposes remedies for the conduct.
If the competition authority is satisfied with the commitment proposal submitted by the investigated company, the investigation ends and the commitments become legally binding for a specific period of time (Kováts, 2022). Although the duration of these commitments depends on the criteria of each jurisdiction, in the United States —where this mechanism was first used— commitments were often perpetual (DoJ, 2018).
Commitment decisions are a relatively new tool in the global regulatory framework. As explained in a report summarizing a 2016 OECD roundtable discussion (“OECD Report”), it was only in 2004 that the European Union (“EU”) formally recognized this type of solution (regulated under Article 9 of Council Regulation 1/2003). This milestone led a significant number of jurisdictions to adopt the commitment decision mechanism. Countries such as the United Kingdom, Australia, Romania, Germany, Chile, and South Korea have established regulations allowing for such resolutions (albeit with various particularities).
However, the OECD Report also acknowledges that certain informal alternatives to commitment decisions existed prior to 2004. For example, within the EU, Regulation 17/62 established the first legal framework for enforcing competition rules. Article 3(3) stated that the European Commission, prior to issuing a sanctioning decision, could direct companies to adopt “recommendations intended to bring the infringement to an end,” (allowing for informal settlements with investigated firms and opening the door to “soft” enforcement).
However, this institutional framework began to be criticized in the 1990s, as the use of soft enforcement tools by the Commission was seen as lacking clarity in terms of strategy, procedures, and objectives (see CeCo article “Relevancia del enforcement suave en Europa”). These critiques led to the eventual enactment of Regulation 1/2003, which formally regulated so-called “commitment decisions” in Article 9.
Today, commitment decisions are a widely used tool by competition authorities. Kováts (2022) notes that in the EU there are more investigations concluded through commitments than through other mechanisms. Epstein (2007) reports that in the United States, approximately 60% of antitrust disputes handled by the FTC and DOJ are resolved through these types of mechanisms (referred to as “consent decrees” in that jurisdiction).
Regarding the benefits, the OECD Report highlights at least three reasons why cease commitments can be a useful —and a tool preferred by both authorities and companies— to end investigations for infringements of competition laws.
In the EU, from the perspective of the company under scrutiny, the first factor to consider is the absence of fines. Indeed, the acceptance by the authority of the commitments proposed by the investigated party leads to the early termination of the case, without reaching a sanctioning decision. However, it should be noted that, in other jurisdictions, some institutions similar to cease commitments may include monetary payments to the state (this is the case of Chile, through the so-called “extrajudicial agreements” that the Fiscalía Nacional Económica may enter into with potential defendants; see example here).
Secondly, commitments may be attractive because, normally, they are subject to more limited judicial review than a decision on the merits of the case. This circumstance can be favorable both from the perspective of the competition authority and the investigated company, which may prefer to shorten the length of the trial to reduce its costs in terms of time and money.
Thirdly, the OECD Report refers to the absence of a final ruling on the potential infringement. This is particularly attractive for companies, as it eliminates (or at least reduces) the risk of facing damages actions (especially in follow-on systems, where the compensatory action only “arises” once a guilty verdict has been issued by the competition authority).
In summary, the benefits of cease commitments amount to being efficient and swift solutions, minimizing resource expenditure (time and money) for both the competition agency and the parties involved in the investigation.
However, cease commitments also present risks. A first risk would be the “marginalization” of the role of judicial reviewers, triggered by the limited scrutiny of cease commitments. In this regard, the OECD Report suggests that the adoption of these agreements has led to a significant decrease in the number of cases that reach the review of the General Court of the EU (OECD, 2016, p.3).
Another problematic aspect of cease commitments is that they are the result of a “negotiation” between the authority and the parties, giving rise to opportunistic strategies. In this sense, Wagner-von Papp (2019) points out that in the respective negotiation there is the possibility that one of the agents wins and obtains some type of benefit by exploiting an advantage over the other. For example, the authority could seek to impose disproportionate commitments by threatening to impose high fines. On the other hand, companies could take advantage of the information asymmetry (with respect to the authority) to suggest commitment measures that will not be enough to solve the problem.
Additionally, another problem of commitment decisions is that, since no final decision is adopted (either an acquittal or conviction), they do not generate concrete or precise signals to the market regarding the lawfulness or unlawfulness of the conduct in question, or about the theory of harm ultimately considered by the authority. In this sense, if several commitment decisions are adopted, the competition authority could become less predictable in its actions.
As a replacement for this solution, authorities may resort to the prohibition of the investigated conduct. Mariniello (2014) compares the implications and differences between deciding to accept commitments or to prohibit the investigated conduct. From a social welfare perspective, there are two main reasons why violations of competition laws should be corrected: (i) to restore and preserve the proper functioning of the market, and (ii) to minimize the risk that similar infringements, in the same or other markets, occur in the future (that is, “general prevention”). While prohibition decisions fulfill both objectives, commitment decisions only fulfill the first.
The requirements for accepting a cease commitment (or an analogous figure) vary in each jurisdiction. In general terms, these will tend to be accepted when they allow for the effective termination of the anticompetitive practice that triggered the authority’s investigation.
In the United States, both the Department of Justice (DOJ) and the Federal Trade Commission (FTC) use negotiated settlement processes to solve infringement cases (OECD, 2016). The DOJ submits consent decrees in federal courts for civil cases (settlements) and has the authority to initiate criminal prosecutions. On the other hand, the FTC issues administrative consent orders without requiring judicial approval, addressing a broader range of antitrust infringements. While the DOJ handles criminal cases, the FTC only has civil and administrative jurisdiction (thus referring criminal cases to the DOJ).
As noted by DeBow (1987), in the United States, for a consent order to be accepted, the commitments undertaken by the company must: (i) prevent the recurrence of the investigated conduct(s), (ii) restore competitive conditions, and (iii) effectively monitor that the investigated conduct does not occur again.
In contrast, in the EU, the European Commission has stated that commitment decisions should not apply to hardcore cartels, as these should be directly sanctioned with a fine (European Commission, 2004). Additionally, for the authority to use this tool, it must state that there are efficiency reasons justifying the limitation of the authority’s efforts and, additionally, explicitly identify what those reasons are (European Commission, 2004).
“Market tests” are documents proposed by the accused companies in which they outline a series of actions aimed at addressing the concerns raised by the authorities. In general, these documents are published so that various sector stakeholders (interested third parties) can comment on the relevance of the proposed commitments, which may result in modifications to the commitments initially offered.
Market testing seeks to bring transparency to cease commitments. In particular, the process begins with the formal publication of the proposed commitments. In this way, the agency — and the companies offering the commitments — receive feedback and comments from the various agents affected (e.g., competitors, customers, public entities). The opinions collected in these processes are usually significant contributions, as they serve as inputs for the authority — and the parties — to adjust the final form of the commitment.
However, Olsen and Gosh (2014) explain two difficulties associated with third-party evaluations of cease commitments. First, it is not always easy to find third parties with sufficient information to effectively and usefully comment on the proposed commitments. Second, there is an apparent discretion with which competition authorities decide whether the commitments are sufficient to address the potential risks to competition.
As an example, Olsen and Gosh discuss an investigation initiated in 2010 by the European Commission against Google, for abusing its dominant position in the internet search engine sector (CASE AT.39740). In April 2013, Google proposed an initial set of commitments, which received negative feedback during the market testing process. This led to a second and third iteration in which Google had to strengthen the commitments it had initially offered.
In a broad definition, cease commitments can be segmented according to the type of measure (remedy) offered by the company. In this sense, cease commitments may be: (i) structural and/or (ii) behavioral. In principle, the composition of a set of commitments may include both types of remedies, provided that they succeed in addressing the competition concerns raised by the authorities.
In the European Union, behavioral commitments are those that involve changes in the company’s conduct in relation to the way it provides certain products or services. On the other hand, structural commitments concern the ownership of the company and usually involve the divestiture of assets (e.g., some type of divestment).
Meanwhile, the Korea Fair Trade Commission (South Korea’s competition authority) distinguishes two types of commitments: (i) those used to restore the competitive situation, and (ii) those that actively seek to improve competition and consumer welfare (e.g., the establishment of non-profit organizations, or compensation to consumers) (OECD, 2016).
Monitoring commitments is essential to guarantee the effectiveness of cease commitments. However, this activity can impose high costs on competition agencies.
In this scenario, competition agencies have sought different mechanisms to monitor —indirectly— whether cease commitments are being fulfilled. The Israeli Competition Authority (Israel’s competition authority) estimated that operating a specialized monitoring unit was costly and not very effective. For this reason, it opted for the creation of a complaints channel where third parties involved in the industry can report any non-compliance by companies that have adopted cease commitments (OECD, 2016).
On the other hand, in Sweden, two methods can be distinguished: (i) “self-monitoring” and (ii) “soft monitoring.” The first refers to the obligation of companies to submit periodic reports to verify efforts and progress related to the agreed commitments. In turn, “soft monitoring” is very similar to the method used in Israel; that is, it depends directly on the involvement of third parties who report any deviation from the acquired commitments.
In Peru, this type of mechanism —to resolve competition law disputes— is established in Article 25 of Legislative Decree No. 1034. This tool can be used by companies up to 45 business days after the notification of the statement of objections or the resolution initiating the procedure.
The evaluation of the proposed commitments consists of two stages. The first is carried out by the Technical Secretariat, which negotiates the terms of the commitment with the applicants for a maximum period of 60 business days. The second stage is in the hands of the Commission for the Defense of Free Competition (CLC) of INDECOPI, which has 30 business days to decide whether or not to accept the commitment.
In 2019, this mechanism allowed the CLC to conclude an administrative sanctioning procedure in the market for PET plastic bottle preforms. In this case, two companies were under investigation for allocating clients between 2008 and 2016.
With the commitments offered by the companies, it was possible to end the sanctioning process 9 months before the regular deadline established by the Consolidated Text (TUO) of the Law for the Repression of Anticompetitive Conduct. Specifically, the companies were ordered to implement a Compliance Program aligned with competition rules. Additionally, as a complementary remedy, each company assumed the payment of a sum of money allocated to support activities of investigation, promotion, and defense of competition.
Effectiveness of Commitment Decisions
Public Roundtable Discussion Series on Regulation & Antitrust Law
Summary of Discussion on the Roundtable on Commitment Decisions in Antitrust Cases
Regulación 17/62 – Unión Europea
Antitrust Consent Decrees in Theory and Practice
Commitment Decisions: An overview of EU and national case law
Commitments or prohibition? The EU Antitrust Dilemma
Commitment Decisions in Antitrust cases -Note by the United States-
Judicial Regulation of Industry: An Analysis of Antitrust Consent Decrees
