EC Competition Law

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EC Competition Law

• Vladimir Bastidas Venegas
• Stockholm University
• 08-16 43 19
• 070-189 12 27

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Lecture 2006-12-04

• The purpose of protecting competition
• The rationale behind the competition law in the
  Community
• Overview of the competition rules
• Article 81 EC

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Competition Law Theory

• Competition ? economic concept theory on perfect
  competition market forces (demand and supply)
  determine price and quantity of each particular
  goods ? leads to the most efficient allocation of
  resources ? protection of competition strives to
  achieve economic efficiency in the market
• Schools of competition law theory
• Freiburg School
• Austrian School (Hayek, Joseph Schumpeter)
• Harvard School (e.g. Joe Bain, Donald Turner)
• Chicago School (Richard Posner, Robert Bork,
  George Stigler)
• Post-Chicago school as e.g. Transaction Cost
  Economics (Oliver Williamson)

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Aim of EC Competition Law

• Market integration
• Economic efficiency
• Consumer Welfare
• Protection of small and medium-sized enterprises
  (SMEs)

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Aim of EC Competition Law

• Article 2
• The Community shall have as its task, by
  establishing a common market and an economic and
  monetary union and by implementing common
  policies or activities referred to in Articles 3
  and 4, to promote throughout the Community a
  harmonious, balanced and sustainable development
  of economic activities, a high level of
  employment and of social protection, equality
  between men and women, sustainable and
  non-inflationary growth, a high degree of
  competitiveness and convergence of economic
  performance, a high level of protection and
  improvement of the quality of the environment,
  the raising of the standard of living and quality
  of life, and economic and social cohesion and
  solidarity among Member States. emphasis added

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Aim of EC Competition Law

• Article 3
• 1.   For the purposes set out in Article 2, the
  activities of the Community shall include, as
  provided in this Treaty and in accordance with
  the timetable set out therein
• g)  a system ensuring that competition in the
  internal market is not distorted

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Aim of EC Competition Law

• Article 4
• 1.   For the purposes set out in Article 2, the
  activities of the Member States and the Community
  shall include, as provided in this Treaty and in
  accordance with the timetable set out therein,
  the adoption of an economic policy which is based
  on the close coordination of Member States'
  economic policies, on the internal market and on
  the definition of common objectives, and
  conducted in accordance with the principle of an
  open market economy with free competition.
  emphasis added

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The EC Competition rules

• Article 81 EC Restrictive Agreements
• Article 82 EC Abuse of a Dominant Position
• Article 86 EC Exclusive Rights granted by the
  State
• Article 87 EC Prohibition against State Aid
• Regulation 139/2004 Merger Control

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Article 81 EC restrictive agreements

• Article 81(1) Prohibition
• Agreement between undertakings
• Effect on trade between Member States
• Restriction of competition
• Article 81(2) Sanction
• Nullity of restrictive clauses
• Nullity of whole agreements
• Article 81(3) Exemption
• Economic benefit
• Consumer benefit
• Indispensability
• Elimination of competition
• Block Exemption Regulations

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Application of Article 81 EC

• Is the agreement caught by the prohibition under
  Article 81(1) EC?
• Can the agreement be exempted under Article 81(3)
  EC?
• If the agreement is found restrictive and
  non-exemptible, is it null and void in whole or
  in part under Article 81(2) EC?

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Article 81(1) EC - prohibition

• General remarks
• Anti-competitive measures through cooperation
• Prohibition enters into effects without need for
  a prior decision, Article 1 (1) Regulation 1/2003
  
• Criteria
• Collusion between undertakings
• Undertakings
• Collusion
• Affect trade between Member States
• Restriction of competition

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Article 81(1) EC - Undertaking

• European Court of Justice ? Case C-41/90 Höfner
• It must be observed, in the context of
  competition law, first that the concept of an
  undertaking encompasses every entity engaged in
  an economic activity, regardless of the legal
  status of the entity and the way in which it is
  financed...

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Article 81(1) EC - Undertaking

• Economic/commercial activity ? Case 35/96
  Commission v. Italy, paragraph 36
• any activity consisting in offering goods and
  services on a given market is an economic
  activity .
• The notion of an undertaking is relative one
  functional approach ? an entity may act as being
  an undertaking when carrying out certain of its
  functions but not when carrying out others

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Article 81(1) EC - Undertaking

• Exclusions from economic/commercial activity
• Acts in the exercise of official authority
  administrative duties, Case 30/87 Pompes
  Funebres activity of purchasing goods must be
  seen in connection to the subsequent activity,
  Case T-319/99 FENIN, paragraph 36 services
  operated according to the principle of
  solidarity, funded by social security charges,
  and free of charge on basis of universal cover
  were not seen as constituting an economic
  activity (see paragraphs 37-39 ). Accordingly,
  the activity of purchasing goods could not be
  seen as economic activity either.
• Agreements between trade unions and employers
  organization see Case C-67/96 Albany

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Article 81(1) EC - Undertaking

• Single economic entity
• Agreements within a single economic entity
  outside Article 81 TEC see C-73/95P Viho
• Shareholders ? over 50 presumption of control
• Composition of the board
• Independency (de facto control)

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Article 81(1) EC - Collusion

• Agreements
• Decision by an association of undertakings
• Concerted practice

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Article 81(1) EC - Collusion

• Agreements
• Written contracts
• Oral agreements
• Gentlemens agreements
• Borderline between collusion and unilateral
  conduct Case 107/82 AEG, Case C-277/87 Sandoz,
  tacit agreement but see C-2/01 P and C-3/01 P
  Bayer where a quota system aimed at reducing
  parallel export was not considered as agreement
  as 1) there was no explicit ban by the producer
  2) wholesalers had attempted in all possible ways
  to circumvent the quota system and attain goods
  for parallel exports.

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Article 81(1) EC - Collusion

• Decisions by an association of undertakings
• Recommendations even when not binding if
  implemented
• Agreements between trade associations
• Decision may also be seen as an agreement between
  members

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Article 81(1) EC - Collusion

• Concerted practice
• Not an agreement no need for a plan parallel
  behavior must be combined with
• something more communication, price
  announcements, phone calls, secret meetings etc.
  see. Joined cases C-89/85, C-104/85, C-114/85,
  C-116/85, C-117/85 and C-125/85 to C-129/85
  Woodpulp, paragraph 63
• According to the Court' s judgment in Suiker
  Unie (cited above, at paragraphs 26 and 173), a
  concerted practice refers to a form of
  coordination between undertakings which, without
  having been taken to the stage where an agreement
  properly so-called has been concluded, knowingly
  substitutes for the risks of competition
  practical cooperation between them. In the same
  judgment, the Court added that the criteria of
  coordination and cooperation must be understood
  in the light of the concept inherent in the
  provisions of the Treaty relating to competition
  that each economic operator must determine
  independently the policy which he intends to
  adopt on the Common Market. emphasis added

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Article 81(1) EC - Collusion

• Case T-305/94 PVC II, paragraph 720 ?
• Although that requirement of independence does
  not deprive economic operators of the right to
  adapt themselves intelligently to the existing
  and anticipated conduct of their competitors, it
  strictly precludes any direct or indirect contact
  between such operators with the object or effect
  either to influence the conduct on the market of
  an actual or potential competitor or to disclose
  to such a competitor the course of conduct which
  they themselves have decided to adopt or
  contemplate adopting on the market (Suiker Unie,
  paragraphs 173 and 174). emphasis added

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Article 81(1) EC - Collusion

• Parallel behavior not illegal per se Case 48-69
  Dyestuff, paragraph 66.
• Price announcements not illegal per se Case
  C-89/85 Woodpulp, paragraph 71.
• Not concerted practice if another economic
  rational explanation for parallel behavior exist
  high burden of proof Woodpulp, paragraphs
  126-127.
• Causal link between concertation and market
  behavior undertakings participating in a
  concerted practice have the burden of proof to
  show that such participation did not influence
  their behavior Case C-199/92 P Hüls, paragraph
  162.

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Article 81(1) EC Effect on Trade

• General remarks
• Jurisdictional requirement
• Extraterritorial application of EC Competition
  Law
• See Commission Notice, Guidelines on the effect
  on trade concept contained in Articles 81 and 82
  of the Treaty, OJ 2004 C 101/7, cited as
  Notice on Community Dimension.
• Steps of Analysis
• Trade
• May affect
• Appreciability

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Article 81(1) EC Effect on Trade

• What constitutes trade?
• Cross-border economic activity between at least
  two Member States (MS)
• Includes establishment in another MS
• That only a part of a MS is involved does not
  preclude that the agreement affects trade.

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Article 81(1) EC Effect on Trade

• May affect
• Case 56-65 Societe Technique Miniere v
  Mashinenbau Ulm (STM), page 249
• For this requirement to be fulfilled it must be
  possible to foresee with a sufficient degree of
  probability on the basis of a set of objective
  factors of law or of fact that the agreement in
  question may have an influence, direct or
  indirect, actual or potential, on the pattern of
  trade between member states.

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Article 81(1) EC Effect on Trade

• Appreciability
• See Case C-234/89 Delimitis
• Market share, 5 aggregate market share of the
  parties in any relevant market (Notice on
  Community Dimension, paragraph 52(a))
• Turnover 40 million euros aggregate turnover in
  the products and services covered by agreements
  (horizontal) or 40 million Euro turnover of the
  supplier (vertical) (Notice on Community
  Dimension, paragraph 52(b))
• Network of parallel agreements

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Article 81(1) EC Effect on Trade

• Agreements that typically affect inter-state
  trade
• Export bans, discrimination on basis of
  nationality, price fixing for particular
  territories.
• Agreements limited to a Member State does not
  preclude them from affecting inter-state trade
  Case 8-72 Cementhandlaren, Case 259/04 Manfredi,
  paragraph 45.
• On the other hand
• Agreements which involve undertakings established
  in other Member States do not necessarily mean
  that an agreement affects inter-State trade,
  Manfredi, paragraph 44.

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Article 81(1) EC Effect on Trade

• Undertakings outside the EC
• Agreement formation implementation if
  implementation is within the Community (Case
  89/85 Woodpulp II, paragraphs 16-18)
• or
• has effect within the Community (Notice on
  Community Dimension, paragraph 100) ? Community
  jurisdiction.

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Article 81(1) EC Restriction

• General remarks
• Connected to the aims of EC competition policy
  market integration, economic efficiency, consumer
  welfare and protection of SMEs
• Covers both horizontal and vertical agreements
• List of restrictions in Article 81(1) EC not
  exhaustive
• For guidance see also Communication from the
  Commission, Notice Guidelines on the application
  of Article 81(3) of the Treaty, OJ 2004, C
  101/08, 27/4/2004, page 97, cited as Exemption
  Notice.
• Requirements
• Establishment of a restriction
• Restriction must be appreciable

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Article 81(1) EC Restriction

• Structure of analysis when establishing a
  restriction of competition
• Object
• Objective criteria no subjective intent
• Price-fixing
• Output restrictions
• Market sharing
• or
• Effect
• Requires a deeper analysis of the market
• Definition of the relevant markets
• Cumulative effects of similar network of
  agreements
• Ancillary restraints

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Article 81(1) EC Restriction

• Commissions proposed analysis of restriction of
  competition (See Exemption Notice)
• Two counterfactuals comparison with the
  situations where the agreement or an individual
  clause does not exist.
• No balancing between positive and negative
  effects.
• Both counterfactuals must be passed for the
  agreement to fall outside Article 81(1) EC.

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Article 81(1) EC Restriction

• Counterfactual 1 Does the agreement restrict
  actual or potential competition that would have
  existed without the contemplated agreement?
  (Exemption Notice, point 18 (1))
• Horizontal effects restrictions on competition
  between the parties to the agreement, and/or
  third parties
• No balancing between positive and negative effects

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Article 81(1) EC Restriction

• Counterfactual 2 Does the agreement restrict
  actual or potential competition that would have
  existed in the absence of the contractual
  restraints? (Exemption Notice, point 18 (2))
• Protects competition that the agreement as such
  has created.
• No balancing between negative and positive
  effects, however, restrictions essential for the
  existence of the agreement may still pass through
  the second counterfactual.

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Article 81(1) EC Restriction

• Appreciability
• Effects must be appreciable see Case 5-69 Völk v
  Vervaecke de minimis Notice.
• Market share thresholds to assess appreciability
  (point 7, de minimis Notice). In horizontal
  agreements the parties aggregate market share
  cannot exceed 10 . In vertical agreements the
  market share of either party cannot exceed 15
  on their respective markets. However, agreements
  containing hardcore restrictions cannot benefit
  from the de minimis Notice, see point 11 in the
  notice.
• Commission Notice on agreements of minor
  importance which do not appreciably restrict
  competition under Article 81(1) of the Treaty
  establishing the European Community (de minimis),
   OJ C 368, 22.12.2001, pp. 13-15, cited as De
  minimis Notice.

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Article 81(3) EC - Exemptions

• Directly under the EC Treaty
• Block Exemption Regulations
• Vertical agreements Regulation 2790/99.
• Horizontal agreements Regulation 2658/2000 on
  specialization Regulation 2659/2000 on RD.
• Technology Transfer Regulation 772/2004.

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Article 81(3) EC - Exemptions

• Exemptions ? Article 81 (3) Since 1/5 2004 An
  agreement may qualify for an exemption directly
  under Article 81(3) in the Treaty. Article 81(3)
  may furthermore be directly applied by the
  Commission, National Competition Authorities
  (NCAs) and National Courts, Regulation 1/2003,
  Articles 4-6. Before 1/5 2004 exclusive
  competence of the Commission to grant individual
  exemption Article 9 (1) Regulation 17/62
  notification ? Article 4 and 5 Regulation 17/62.
• Two positive and two negative criteria all four
  requirements must be satisfied ? Exemption
  Notice, paragraph 34 Joined cases 43/82 and
  63/82 VBVB VBBB v. Commission Joined cases
  T-528/93, T-542/93, T-543/93 and T-546/93
  Metropole Television

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Article 81(3) EC - Exemptions

• Criteria under Article 81.3 EC
• The license agreement must result in economic
  benefits.
• The restriction of competition must be necessary
  to accomplish the economic benefits.
• The consumer must receive a fair share of the
  economic benefits.
• The agreement must not eliminate competition
  altogether.

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Article 81(3) EC - Exemptions

• Economic benefit (Exemption Notice, paragraphs
  48-72) the agreement must contribute to
  improving the production or distribution of goods
  or to promote technical or economic progress
  (Efficiency gains)
• Benefits which could not have resulted from free
  competition of the market
• Cost savings (Exemption Notice, paragraphs 64-68)
• Penetration of market avoiding of free-riding
  incentive for incurring investments Regulation
  2790/1999, Guidelines Vertical Restraints,
  paragraph 116.
• Increase of range of products development of new
  products.

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Article 81(3) EC - Exemptions

• Not to impose restriction which are not
  indispensable to attain the objectives (Exemption
  Notice, paragraphs 73-82)
• Two tests 1) is the agreement as such reasonably
  necessary to attain the objectives of the
  agreement 2) is the restriction as such
  reasonably necessary to attain the objective
  (Exemption Notice, paragraph 73)
• Availability of agreements or terms which are
  equally effective in attaining the benefits but
  less restrictive ? no exemption
• Restrictions which are blacklisted in Block
  Exemption Regulations and notices are unlikely to
  be considered indispensable (Exemption Notice,
  paragraph 79)

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Article 81(3) EC - Exemptions

• Consumer benefit (Exemption Notice, paragraphs
  83-104) the agreements must allow the consumer a
  fair share of the benefits
• Consumer term may include buyers and users of a
  particular good even when not consumers
  (Exemption Notice, paragraph 84)
• The negative effects of the agreement must be
  balanced against the benefits for consumers
  (Exemption Notice, paragraph 85)

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Article 81(3) EC - Exemptions

• The agreement shall not permit the elimination of
  competition for a substantial part of the
  products (Exemption Notice 105-116)
• Both actual and potential competition must be
  considered.
• Market shares.
• Cost of entry entry barriers.
• Position of parties to the agreement, position of
  competitors.
• Buyer power.

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Article 81(3) EC Block Exemptions

• The Commissions power to adopt block exemption
  regulations Regulation 19/65, Regulation
  2821/71, Regulation 1215/99.
• Block exemptions ? the individual regulations are
  directly applicable in the Member States Article
  249 EC Delimitis, paragraphs 45-46.
• Exemption may be revoked by Commission Article
  29, Regulation 1/2003, Article 6 by National
  Competition Authority Article 7, Regulation
  2790/99.

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Article 81(2) - Nullity

• Sanction for infringement of Article 81 (1) TEC
• Severability of infringing clauses up to the
  national court to decide on enforceability of the
  rest of the contract Maschinenbau Ulm, Delimitis

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Article 81 EC Structure of analysis

• Article 81(1) Does the agreement fall within
  the prohibition?
• Agreement between undertakings
• Effect on trade between Member States
• Restriction of competition
• Block exemptions Are there any block exemptions
  applicable to the agreement?
• Article 81(3) Does the agreement qualify for an
  exemption under the EC Treaty?
• Economic benefit
• Indispensability
• Consumer benefit
• Elimination of competition
• Article 81(2) Is the whole or only part of the
  agreement invalid?
• Nullity of restrictive clauses
• Nullity of whole agreements