Competition Law.
It is believed that the initial interest by scholars in examining the relationships existing between economics and law came from the theory of law coined by Karl Marx. Later, Karl Renner, using the already laid foundation by Marx made more contributions to the relationships between law and economics. For instance, in his book, Institutions of Private Law and their Social Function he expounded on the Marxist theory pointing out that in spite of the legal concepts (for example those giving guidelines on contracts and property) being stable, their roles in the society have in deed undergone much transitions. He proposed that for legal concepts to be expounded, thorough penetrations into their economic foundations had to be established.
The competition law has been developed all along in history. Some guidelines used to mark a path or shed some light into the economic analysis of legal concepts included the issue of ownership which was perceived to be associated with land. Secondly, the authority to control property was a feature only in the similar person owning the property. With the advent of industrial revolution and emergence of share trading, forms of property included those intangible ones like the bought shares.
The modern tend has by far changed greatly with the introduction of private property ownerships by modern corporation. The pioneers to study the interdisciplinary study of law and economics were Gardiner Means and Adolf Berle. It was during their time when stock markets changed the nature of powers possessed by the owners of the shares to control the intangible property. Berle and Means proposed that shareholders having 51 percent of shares in any given company had no right to control the activities of that company. This proposal came slightly after there was widespread distribution of stock holdings via the stock markets. Contrary, individuals having lesser percentage of shares (less than 51 percent) had all the rights and powers to control the company. This concept was applicable with the modern corporations and private property owners.
There is a connection between Competition law and the Contract law. Contract law was one time private until the close of 19th Century when it assumed fully the constitutional scope. Therefore, the economic study of ownership shows clearly how institutions of law went through radical transitions while on the exterior maintaining the theoretical shell.
There was eventually a necessity to put into application the legal limitations on the market authorities. This came as a result of the liberalization of trade and the gradual withdrawal of the state from the extensive role it had earlier assumed during the era of collectivism. The focal point of legal scholarship also shifted from the constitutional doctrines obsessions which had limitations of the actions by the state to the key players in the market force.
The inception of liberalization of trade claimed much importance of the Competition law which acted to solve the powers of control in the market place. In the legal setting, it was important for lawyers to master the basics of the competition law knowing the key players in the market and the general structural operation of the market. The emerging discipline of competition law was so imperative that lawyers could not assume since it furnished them about the knowledge of microeconomics and price theory, industrial organization which deals with the behavior of firms in the market place and finally the main doctrines of contract law.
Basically, competition laws are known as antitrust laws which are Magna Carta of the free enterprise system. The antitrust laws, as widely known in the U.S, are imperative to the preservation of freedom in economic environment according to the U.S Bill of Rights which provides for the protection of the peoples fundamental al freedoms. There are some issues greatly prohibited by competition law. These issues include a firm deliberately misusing a central position of a market place. The competition law prohibits any contract, understanding and arrangement between two or more enterprises having the effect of substantially lessening or limiting access to market.
The prohibition applies to both the written and oral agreements which may be regarded as informal. The competition law clearly outlines these prohibitions and does not consider if the agreements are made through written consents or oral approvals. There are procedures stipulated by courts to determine whether an agreement unreasonably restrains competition. The procedures put forward by courts for analysis depend on the form of agreement in question. Some agreements, for example the per se offenses, are considered to be intrinsically anticompetitive that they are automatically illegal. In fact, these agreements are considered against the law in spite of the intention of the parties or the authentic effect of the agreements on competition.
The courts have identified various agreements which constitute per se offenses. The agreements constitute those between the competitors. Some of the agreements include those involving the fixing of prices or sometimes the terms and conditions of sales and credits. The multinational companies may decide to fix the prices of commodities or force terms and conditions of their products on customers. Other agreements which involve per se offenses can include the allocation of customers and territories. It is not allowed to deal with any individual (s) or as commonly called, group boycotts. Sometimes the agreement may include the selling of one product conditioned on an accord by the purchaser to buy a second distinct product. This agreement is also considered to be consisting of per se offenses. The last form of per se offenses contained in agreements includes the resale price maintenance.
Although the law classifies some conditions as prohibited practices, the same competition law provides exceptions to these prohibited practices. Some other agreements exist between the distributors and suppliers including the trade association members which add to the economic effectiveness. These agreements are in addition to the anticompetitive agreements even if the agreements may always lead to anticompetitive effects. The agreements, although they are anticompetitive, can be excluded in effect by the competitive influences after considering the expected gain in effectiveness from the agreements in comparison with any adverse consequence on competition.
In competition law, there are rules of reason and block exemptions. Exemptions of competition law can be on a basis of case to case or sometimes assuming the form of block exemption. When such exemptions assume the block exemption or become on a case to case basis, this approach can be termed ad the Rule of Reason. The Rule of Reason requires an in-depth investigation of the consequence on competition in the prevailing market. Usually, in the Rule of Reason, there is careful consideration of the competitive intent and its consequences considering the business justification of the activity in question to establish their legitimacy. Similarly, potentially anticompetitive practices which can not qualify to be classified under the per se group are examined under the standard of Rule of Reason.
There are various types of anticompetitive agreements which fall foul of competition law and which can be said to be per se offenses. These agreements include price fixing, output fixing by cartels, collusive tendering and the sharing of the market. Unlawful monopolization is one of the offenses classified to be a breach of the competition law. The unlawful monopolization comprises of two major elements. The first element is the possession of market influence in the pertinent market in that other parties have little or no role to play in market control. The second element is the willful attainment or protection of the authority as distinguished from the growth or rather development brought as a result of a superior product, historic accident or business intelligence.
What is meant by market power is a question which remains in the mind of a critical business mind. In most definitions appearing in business law texts present market power as the authority to regulate prices or exempt stiff or any form of competition. In measuring market power, market share becomes an imperative tool in determining this authority in the market. However, this is only done with shares more than 70 percent considered to command sufficient market power while the shares less that 40 percent are generally regarded to be insufficient for market power command. Well, there are circumstances which can be said that a business entity willfully acquired market power. Especially considering the second element, the courts have found it necessary to display anticompetitive or even a predatory conduct. These are typically efforts to exempt rivals on other weird basis apart from provision of efficiency. Common cases of such conducts consist of under cost-pricing, unjustifiable litigation filing against the competitors or total denial of right of entry to an indispensable facility.
While the acquisition of unlawful monopolization is an offense under the competition law, attempt to acquire the same is also regarded to be an offense under the same law which has three elements. These intentions may include attempts to regulate prices or consequently plan to obliterate competition which automatically qualifies a breach of the competition law. The second element is the anticompetitive or predatory conduct directed towards the unlawful objective and the third element consist of a perilous propensity of success in obtaining a monopoly in the pertinent market.
In considering competition law, it is necessary to examine horizontal agreements which are made between the autonomous enterprises or simply enterprises which potentially compete in one particular market. It has been observed that several horizontal agreements which relate to discounts, outputs, prices or the market sharing always restrain competitors. In so doing, these horizontal agreements unswervingly or in some way trim down the right of entry to market by other parties. These kinds of agreements are not permitted under the competition law and are thus classified as per se offenses. There is another form of agreements known as vertical agreement. These kinds of agreements occur between independent enterprises. These may happen at different distribution or production stages for instance, exclusive dealing and other stages.
These stages can by design be exempted from the purviews of the competition law by the Rule of Reason approach by the establishments of competition law. An issue of vertical restraints and the anticompetitive effects come into the limelight because of the insight that the anticompetitive effects have the possibilities of flowing from the limitations forced on the firms. The limitations can either be related to price for instance the maintenance of resale price or at the same time it can be unrelated to price like the customer or territorial limitations. These limitations are imposed on the firms in the downstream manner and are related to price or non price regulations.
Collusive tendering is another concept which is important in considering the competition law. Usually, the agreement between different enterprises to submit similar bids for one or several contracts is termed as collusive tendering. However, collusive tendering to some level, assume more complicated forms and the tendering firms or enterprises may make a consensus among themselves and select the business for which the preferred tendering individual will bid for the deal. To ensure that at least every firm comes out to be successful bidder, this selection system is backed by appropriate tools to avoid some form of bias. However, some portion of the earned profit gained by the successful bidder is shared among other bidders which act like a compensation for the loss resulting from the decision. According to the competition law, collusive bidding is fully identified as a breach of law and thus classified as a per se offense.
Another aspect of per se offense as recognized by competition law is price fixing. Price fixing is a collective consensus to decide on prices of commodities. However, price fixing is depended on two major exemptions. The first exemption requires that a list of proposed prices provided by trade associations to its small business members may not be considered as a breach of competition law. The fixed prices are not considered a violation of competition law when the prices are no more than recommendatory in nature and individual enterprises are free to charge what they desire.
The second exemption is about the cartels which seek to fix to decide on prices for particular commodities. These cartels are exempted from competition law since the law is basically concerned with the practices of anticompetitive effects on merely the domestic market. The cartels usually fix an output quota for every firm which is participating as an alternative to price fixing at which the commodities are sold.
The effect of fixing output quotas for every participating firm is to prevent the less vigorous or less efficient types of firms. The end result of this procedure is to lessen the competition and avoid heavy imposing of higher prices to the consumers. The competition law also considers the procedure of collective agreement to decide on output quotas for individual participants in a cartel as a breach of law. Another emerging concept where competition law is increasing gaining application is in the field of sports. The European Court of Justice declared that several aspects of sports particularly the economical ones are the areas under discussion to Community law. Although the court considers sport economic elements to be subject to Community law, the same Court recognizes particular elements of the sports sector. It is true to say that sport is an economic activity owing to our observations of sports clubs which are run with a lot of professionalism to realize handsome profit. For instance, the professional football clubs like the Manchester United and Arsenal are run by sound business plans. As a result, the European Court of Justice established that the European Union law is relevant to sports.
This was after the ruling by the European Court of Justice in the case of Walrave in 1974. The court identified that sport constitutes an economic activity within the sports union. How does sport apply to competition law Any joint selling on an exclusive foundation prevents or discourages competition even in sports or any given sector. This is because exclusive joint selling has a profound effect of declining the output and restraining the competition in prices.
At the same time, the sale of the whole rights on the basis of exclusive has another profound effect of strengthening the incumbent television position as the sole company with the financial power to win every bid in the sector. The effect of having a single television company having dominance leads to discontented demand from the broadcasters and reduced capability to provide an attractive offer to the customers. It has been identified that in the U.K that sports and films are the leading income generating sources for television companies and also particularly for pay-TV Channels. Sports and films in the U.K have also proved to be increasingly important in the development of novel technologies and per se the industry has received competent investors.
Sport is considered an economic activity prior to the declaration on the particular identified sports characteristics and the social role of sports in the U.K. As a result, these accounts should be considered in order to put into practice universal policies. In addition, the Annex IV to the conclusion of the President on 7th -9th December, 2000 by Nice provides sport as an economic activity subject to competition law. To understand the issue of sports and competition law, it is important to identify some of applications of the competition law to sports in the European Union.
The declarations provided in the Annex IV to the presidency conclusions in 2000 by the European Council in Nice emphasizes the necessity to consider the educational and as well as the cultural roles intrinsic in the field of sports. The emphasis is directed toward making sports special element in the society so that the ethical code and the solidarity which is essential to its preservation of the social function can be nurtured and appreciated. Some cases which give light to the relationship of sports and competition law include the Bosman case which gave light to sports and free movement. The competition law formed the background situation on the decision by the European court on the Bosman case.
Jean-Marc Bosman was a professional soccer player in Belgium who played for the team R.C Liege which was the pioneering division club in Belgium. The case of Bosman came as a result of a dispute between himself and the R.C Liege club in 1990. Bosman alleged that the UEFA-FIFA and the Belgian Football Federation transfer laws had restrained his transfer to another French club by the name US Dunkerque. It was barely in the middle of the 1990s that these economic facets of sporting activities became to be recognized as imperative issues. This realization of sporting activities to be pertaining to economic elements came after the judgment of Bosman case. It should be noted that the same realization erupted after there was huge sums of money being made for broadcasting rights to major sporting events. A major question was asked to the European Court about the interpretation of the Articles 48, 85 and that of 86 of the Treaty of Rome of the 25th March, 1957. The Articles were not understood whether they prohibited a football club from receiving or demanding payment of a sum of money upon commitment of one of its players who has reached the end of his contract by another new club. The case of Bosman was the question which led to the formation of competition laws in the area of sports which came out to be perceived as a special form of economic activity.
Competition law was also invoked in the case which involved the Union des Associations Europennes de Football (UEFA) Champions League. The UEFA Champions League is a tournament in the UK which is organized yearly between the best European clubs playing football. A total of 72 clubs participate in the tournament and the clubs come from both the European Union and the non- EU nations. Only 32 qualifying clubs reach the last stage and it is usually in September and the closing stages are in May of the preceding year . The association (UEFA) in 1999 notified the Commission about its Regulations on the joint selling to the UEFA Champions League of its commercial Rights therefore demanding clearance under the European competition laws. To date, the UEFA has sold all its TV rights to the UEFA Champions Leagues final stages on behalf of the participating clubs in the league. These rights were sold in form of a bundle on an exclusive basis to a single broadcaster for up to a total of four years in each member state participating. These sales have been done to a television company which is free to air which can sublicense some of the rights to a pay-TV Channels. Drawbacks resulting from this system include the poor exploitation of live footages.
The Commission had originally rejected the joint selling pact which was fully informed about in the year 1999. This step was because the UEFA had sold all the TV rights of the Champions League in one bundle to one broadcaster on an exclusive basis for up to a total of four years at an instant. Most of the buyers were free-TV broadcaster companies which could easily sublicense some of the rights to pay-TV broadcasting companies. These arrangements were totally contradicting the interests of the clubs, broadcasters, fans and other consumers. There was one most imperative drawback which came as a result of the original joint selling pact. This drawback was that not all the matches were viewed live on TV and the phone operators and internet users were denied the rights of access. This showed that the pact had a negative effect of denying competition between different the broadcasters.
The commission had earlier rejected the current rules which had been notified for regulatory clearance on the basis that if a group of people joined forces to put up for sale a commodity then that actually restrained competition. These rules misrepresented competition between the broadcasters and instead encouraged the concentration by the media thus stifling the development of sport service via the internet and through mobile phones by denying the rights to access to content. This was not the expectations of the consumers and fans. From the case of UEFA, we see that the joint selling of the TV rights of football can only be permitted if the pact is beneficial to the consumers and only if specific safeguards are observed like the Articles 81 section 3 of the EU Treaty. The Article allows the Commission to exclude the restrictive agreements which may contribute to progressing the distribution or production of commodities at the same time permitting the consumers a fair share of the gained benefit.
The effect of joint selling is that it is discriminative, in that only extensive media groups can afford to acquire and exploit the bundle of rights. These extensive groups are usually overriding incumbent broadcasters. The joint selling also leads to the less extensive broadcasters having dissatisfied demand which can impact on the exploitation of novel technologies since they may be forced to rely on some parties in presenting images and sound of football. Generally, it has been observed that a large percentage of current media cases involving competition law engross the rights in sports and the buying or selling of the rights. These cases have been dealt under the antitrust, which is, the agreements or sometimes the abuse of overriding positions. Only recently, has the sporting organization turned on a multifaceted task of making adjustments on the regulation of sport to make them inline with the modern sporting, legal and economic demands. For instance, in 2001, the
Commission cleared altered the regulations concerning the UEFA broadcasting which allowed the national football associations to block football television broadcasting for 212 hours on either of the weekend days to safeguard stadium attendance and unpaid participation in the stadium. Long negotiations finally led to the FIA (Federation Internationale d Automobile) to agree to change their guidelines in order to be in line with the EU laws. Competition law has been applied in diverse areas in our modern society. The diversity of law has attracted the applications of competition law in business, sports and other areas which might in future require the bringing into play of this kind of statutes.
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