Top Left Background Top Right Background
Bottom Right Background

Competition law

Previous: The free movement of services

Introduction

With free movement rights secured, goods can be freely traded between Member States. With such a large market, there must be a way of securing efficiency and productiveness for EU citizens: consumers. Through competition law, the EU seeks to ensure that the internal market, as created by Art 26 TFEU, remains dynamic. There are several theories on how best to police the internal market:

  • The Harvard School Theory – the structure of a market affects competition, so prevent dominance and monopolies
  • The Chicago School Theory – imperfect competition is a result of high entry barriers, so remove these barriers to allow new players to enter and undercut established players
  • The German Ordoliberalism View – protect consumer welfare first
  • The post-Chicago (modern) approach – trust the judiciary, not the market

Competition law is an exclusive competency area for the EU, as stated by Art 3(1)(b) TFEU. The EU tackles anti-competitive behaviour (or antitrust) in 2 ways:

  • Article 101 TFEU – the prevention of anti-competitive agreements
  • Article 102 TFEU – the prevention of abuse of dominant positions

Complementing these methods are: the EU merger control regulation; Articles 103 and 104 TFEU, which help with the implementation of Articles 101 and 102 TFEU; and Article 106 TFEU, which controls the actions of Member States.

Article 101 TFEU

Art 101(1) prohibits agreements between undertakings, decisions and concerted practices which may affect trade between Member States, and which have the object or effect of preventing, restricting or distorting competition within the internal market. This may include: price fixing; production controls; share markets; the application of dissimilar conditions to equivalent transactions or the requirement that unconnected obligations are fulfilled as part of a contract.

Under Art 101(2), such agreements will be automatically void unless justified under Art 101(3).

Undertaking

  • Sacchi [1974] – an undertaking is any natural or legal person
  • Commercial Solvents v Commission [1974] – a parent company and its subsidiaries will be taken together as 1 undertaking
  • Viho Europe v Commission (Parker Pen Case) [1996] – internal distribution network not within scope of Art 101
  • Dyestuffs [1972] – Any fine will be based on the the combined turnover of a parent company and its subsidiaries
  • FENIN [2006] – public bodies are not undertakings
  • Wouters [2002] – lawyers are undertakings, as they take on financial risk

Agreements, decisions and concerted practices

Bayer v Commission [2000] defines an agreement as a faithful concurrence of wills, whose manifestation method is unimportant. Agreements are not usually difficult to find.

Similarly, decisions (by associations of undertakings) are not usually difficult to find, such as in Belasco [1989], where a cartel decided to fix common prices.

Concerted practices are more difficult to identify. Dyestuffs [1972] defined a concerted practices as as a form of coordination where cooperation is substituted for the risk of competition. Suiker Unie [1975] described a concerted practice as a indirect or direct contact which influences or discloses information to a competitor. In Woodpulp II [1993], there was no justification for the unilateral setting of prices, and Bayer v Commission [2000] warned that concerted practices must be distinguished from individual undertakings merely adapting their own practices.

Unilateral conduct will not be sufficient for a finding of concerted practice. According to Bayer v Commission [2000], the Commission must show explicit acquiescence on the part of a competitor to found such a finding:

  • Ford v Commission [1985] – Ford’s action to stop supplying French distributors (to prevent their re-selling in the UK) with right hand drive cars was not classed as unilateral conduct as it affected agreements with the distributors (and so could be anticompetitive)
  • Bayer v Commission [2000] – Bayer’s unilateral action to prevent European wholesalers from re-selling to the UK at a significant profit was allowed as it was unilateral conduct. It was also not caught by Art 102 TFEU (below)

Effect on inter-state trade

  • STM [1996] – an agreement may affect inter-state trade directly, indirectly, actually or potentially (a broad test of foreseeability)
  • Consten and Grundig [1996] – restoring national divisions in trade is still anticompetitive
  • Volk v Vervaeke [1969] – there is a de minimis exception to this element, which will exclude the operation of Art 101

Object or effect of restricting competition

  • T-Mobile [2009] – object and effect are two alternative options. There is no need to show actual harm to competition if an agreement has an anticompetitive object, such as where mobile phone carriers agree to lower remuneration to dealers
  • GlaxoSmith Spain [2006] – contract term preventing Spanish distributors exporting to UK gave agreement anticompetitive object, intention enough
  • Consten and Grundig [1996] – an arguably anticompetitive object or effect will be caught by this requirement
  • Anticompetitive object includes price fixing, partitioning and production limitations
  • STM [1996] – anticompetitive effect needs market analysis
  • O2 [2006] – anticompetitive effect needs causal link between agreement and effect – the Commission were not entitled to presume that )2 were present in the ‘3G’ mobile market just because they were present in the ‘2G’ mobile market

Vertical agreements

Horizontal agreements are usually agreements between competitors. Conversely, vertical agreements are agreements between undertakings at different levels of the supply chain. They are a particular type of agreements which may fall into the Art 101(1) criteria (above). They are agreements between two or more undertakings at different levels of a production chain which affect the distribution, production, sale or resale of goods or services. For example, they include exclusive or selective distribution agreements and franchise agreements.

  • STM [1996] – an exclusive supply contract has an anticompetitive object
  • Consten and Grundig [1996] – exclusive distributions agreements may be anticompetitive, even if both undertakings are equal in negotiating power
  • Brasserie de Haecht v Wilkin [1967] -exclusive distribution must be examined in its own circumstances
  • Metro [1977] – selective distribution may not be anticompetitive if resellers are chosen using necessary, non-discriminatory and objective criteria with a proportionate aim (not just preserving a brand image)

Exemptions

To avoid an anticompetitive agreement from being voided under Art 101(1), it can be classed as an exempt agreement in one of two ways: by block exemption, or by individual exemption.

Block exemptions

Block exemptions are a more historic way of exempting an agreement from being classed as void due to its effect in competition. Block exemptions are provided by 5 regulations, including regulations on: motor vehicle distribution and servicing; technology transfer; specialisation and research and development. the VABER regulation is particularly important, and is applicable to agreements concerning less than 30% market capitalisation. VABER contains ‘blacklisted terms’, which, if contained in an agreement, will automatically exclude the effect of the exemption. It also contains ‘black clauses’, which, if contained in an agreement, automatically prevent any attempt to exempt the agreement, either by block or individual exemption.

Backlisted terms include resale price maintenance, territorial restrictions, and sales restrictions (subject to some exceptions). Black clauses include non-compete terms lasting for more than 5 years and selective distribution non-compete terms.

Individual exemptions (now rights of defence)

Individual exemptions allow particular agreements to be justified under art 101(3) TFEU. An agreement, decision or concerted practice may be exempt only if it:

  • Improves the production or distribution of goods, or promotes economic or technological progress;
  • It is necessary;
  • It allows consumers a fair share of the benefit of the agreement; and
  • It does not provide undertakings with the possibility of eliminating competition in respect of a substantial part of the products in question.

Two cases help explain art 101(3):

  • GlaxoSmith Spain [2006] – the burden is on the undertakings to show that an agreement is exempt, but this burden may be moved to the Commission to rebut
  • CECED [2000] – agreement to phase out old washing machines justified by environmental objectives, as new machines were 15-20% more efficient

ORPI exemptions

It has been argued that ORPIs may be used to justify agreements, decisions or concerted practices under Art 101(1) in order to exempt them. However, this has never explicitly been done. Wouters [2002] denied that a decision of the Dutch Bar Association violated Art 101(1) through prohibiting lawyer-accountant partnerships. Similarly, no restriction was found in Meca-Medina [2006], where anti-doping rules decided upon by the International Olypmic committee were not found to be anti-competitive, as they served a legitimate objective. The decisions were arguably justified by ORPIs (professional ethics), but also fit into the Art 101(3) exemption.

Art 102 TFEU

Art 102 TFEU, the EU’s second way to ensure a competitive internal market prevents one or more undertakings in a dominant position from abusing that dominant position, where it affects inter-state trade. Such abuse may include the direct or indirect imposition of unfair prices or conditions, the limitation of production or development to the prejudice of the consumer, the application of dissimilar conditions to equivalent transactions or the requirement that unrelated supplementary conditions are fulfilled as part of a contract.

Tetra-Pak I [1990] confirms that Art 101 and 102 operate independently, and BRT v SABAM [1974] confirms that Art 102 has direct effect.

For Art 102 to be effective, there must be dominance in a relevant market, and then abuse.

Dominance

Defining the market

Markets can be defined in different ways. There may be product markets:

  • United Brands [1978] – products with interchangeable chaarcterisitcs form part of the same product market. The banana serves an important section of society and so is a product market in itself.
  • Hoffman-La Roche [1979] – if products have more than 1 use, it can belong to 2 or more different product markets
  • Hugin Cash Registers [1979] – product markets can be very small
  • Commercial Solvents [1974] – there can be markets in raw materials

The Commission often uses the SSNIP test to define a product market, which makes it possible to conclude that a product is in a different market depending on how expensive it would be for a consumer to switch to a different product.

Markets may also be geographic:

  • United Brands [1979] – geographic markets must cover a substantial part of the EU, considering the product’s sales area and transportation costs
  • British Airways [2007]  – market concerned the UK only

Finally, but less commonly, markets may be temporal (defined in time), such as markets leading up to Christmas.

Defining dominance

An undertaking’s dominance can only usually be found through a case-by-case assessment of that undertaking. However, there are a number of guiding indicators:

  • United Brands [1978] – an undertaking will be dominant if it has the power to behave independently of its competitors to an appreciable extent. Market share is a good indicator of dominance. In the case itself, a share of 40-45%, where its nearest competitor had a share of 16%, made United Brands dominant
  • Hoffman-La Roche [1979] – an undertaking will be dominant if it has an appreciable influence on the conditions under which competition will develop. Superior technology can also make an undertaking dominant
  • Hilti [1990] – legal provisions can make an undertaking dominant
  • CommercialSolvents [1974] – product differentiation can make an undertaking dominant

Joint dominance

It is possible for two separate undertakings to be classed as jointly dominant. In Italian Fat Glass [1992], as two independent undertakings shared a technological lead, they were classes as jointly dominant. Joint dominance was also found in CMB [2000].

‘Superdominance’

Tetra-Pak II [1996] suggested that undertakings with a position of dominance approaching a monopoly may be under a stronger obligation to assist competitors.

Abuse of dominant position

In order to take action against a dominant undertaking for breaching art 102 TFEU, the Commission must also prove that the undertaking abused their dominant position in a particular market to the prejudice of competitors or consumers.

Examples of abuse

Price discrimination:

  • United Brands [1976] – a price for products will be excessive where it bears no relation to the economic value of that product

Predatory pricing:

  • AKZO [1991] – a 50% market share will give rise to a presumption of dominance. A chemical manufacturer set very low prices in order to displace competitors. Pricing will be predatory where it is either: below average variable cost; or between average variable cost and average total cost with a plan to eliminate a competitor

Rebates and discounts:

  • Hoffman-La Roche [1979] – illegal to offer exclusive rebates in the vitamins market
  • Birtish Airways [2007] – abuse to offer biased-scale bonuses to travel agents where dominant
  • Michelin [1983] – abuse to offer rebates to tyre retailers where dominant for certain models of car

Refusal to supply:

  • Commercial Solvents [1974] – abuse to exclude competitor from downstream market by restricting raw material supply
  • United Brands [1974] – refusing to meet ordinary orders from wholesalers is abuse where responding to competitive attack
  • Oscar Bronner [1998] – abuse to refuse access to essential facilities where possibility of eliminating undertaking, access indispensable, no actual or potential alternative and no objective justification – no abuse on facts
  • Microsoft [2007] – IP refusal to supply abuse were indispensable, risk of elimination of effective downstream competition, prevention of new technological or product development, no objective justification – abusr to not provide Sun with server interface

Objective justification

The CJEU has developed objective justifications to allow abuse conduct to be allowed:

  • United Brands [1979] – protection of commercial interests – no abuse if reasonable and proportionate action to specifically intended to strengthen market position
  • Tetra-Pak II [1996] – public interest justification
  • British Airways [2007] – efficiencies – where advantage to market or consumers outweighs negative effects, and causal link to benefit, no abuse

Enforcement

Historically (prior to May 2004), the Commission had a monopoly on the enforcement of competition law. Before undertakings entered into agreements which could be anti-competitive, they were required to obtain the Commission’s prior approval. This created significant bottlenecks, resulting in the enactment of the Council regulation 1/2003 (‘the regulation’). This regulation decentralised enforcement powers from the Commission to ‘National Competition Authorities’ (NCAs) and national courts. Now, undertakings can carry out self-assessments to decide whether an agreement is anti-competitive, and an NCA can approve the transaction after it has been concluded. Block exemptions still exist, but individual exemptions are now called ‘rights of defence’, as the agreement will already have been entered into, and the undertaking will be seeking to rely on their self-assessment conclusion.

The issue with devolving powers to NCAs is a lack of legal certainty, as an NCA may interpret Commission guidance differently to the Commission itself. The Commission may at any time interfere with an NCA’s case, taking over the case entirely. The Commission can also request information, investigate, take statements and inspect private property. According to AKZO [1991], in-house lawyers are not protected from Commission investigations.

Procedure

  • Art 17 of the regulation allows requests to be made for information. There is no duty to comply with these requests, as an undertaking cannot be expected to incriminate itself
  • Art 20-21 allows for ‘dawn raids’ to take place on suspected property
  • Art 27(1) provides the first step in any investigation – the Commission will issue a ‘statement of objections’ to the undertaking concerned, explaining that it will be making a decision on the undertaking’s compliance with competition law. The undertaking will have a right to a fair hearing
  • Art 7(1) provides the penalties for breaches of competition law – proportionate remedies. The Commission may require commitment decisions, or it may fine the undertaking for up to 10% of its gross turnover, or both

A statement of objections is not judicially reviewable under art 263 TFEU, as it is only a preparatory act to a decision, following IBM v Commission [1981]. Participating undertakings or competitors may also appeal a decision of the Commission to the General Court, according to Metro [1986]. Under Kruidvat [1996], a dealer who cannot obtain supplies as a result of a decision may not appeal to the General Court.

Failure to act

Where the Commission fails to act on a reported breach, the reporter may claim under Art 265 TFEU that the Commission has failed to act. According to Asia Motor France [1992], this would require the Commission to have been called upon to act, after which it fails to define its position within 2 months. Automec II [1992] did suggest that the Commission should be allowed to prioritise and cannot be forced to decide whether a reported breach was accurate. The Commission is entitled to reject, with reasons, a report within 2 months, according to Guerin Auto v Commission [1995].

An undertaking who wishes to enforce a potential breach of competition law can now also do so in a national court.

Reform

It is submitted that despite disparities in interpretation, the recent reform of enforcement powers in competition law have been beneficial to undertakings by speeding up transactions (not waiting for Commission approval). However, the AKZO [1991] test ought to be reformed to allow dominant market players to run ‘loss-leading’ sales, and the more resource intensive ‘consumer detriment’ model ought to be preferred.

Goto Top
Close Notification

Recent News

Other News