The Application of EC Competition Rules by the Domestic Judiciary

1
The Application of EC Competition Rules by the
DomesticJudiciary

• Prof. dr. Peter GRILC
• Doc. dr. Klemen PODOBNIK
• University of Ljubljana
• School of Law
• Vienna, 9/6/2005

2
Workshop

• Facts contractual issues
• Agreement between Westfield AG (car manufacturer)
  and Westfield SI (car distributor)
• Car manufacturer Westfield AG established in
  Germany ? EXPORT MARKET
• Car distributor Westfield SI established in
  Slovenia ? MARKET OF DESTINATION
• Nature of the agreement ? unknown

3
Workshop

• Facts ? product characteristics
• Price range mid- level
• Mid-level technology
• EU 4 standard compatible, EU 4 validity ends 2013
• Technological solutions for EU 5 standard in
  progress (prediction EU 5 compatible in 2007)
• Fuel consumption medium (8l/100km combined)
• EURONCAP

4
Workshop

• Facts ? market characteristics
• Nr. of players / substitutes 6
• Car price on export market 20.000 EUR
• Car price on destination market 15.000 EUR
• Export market high buying power
• Destination market lower buying power, higher
  than EU Avg.
• Quantity of cars imported from export to
  destination market 120.000
• Retail sale margin 25
• Destination market internal distribution prices
  vary according to regional development and buying
  power
• Facts ? marketing
• Global marketing carried out by the manufacturer
  Westfield AG
• Local marketing carried out by the distributor
  Westfield SI and dealers ? not responsible and
  not financially involved in the global marketing

5
Workshop

• Facts ? relationship between the manufacturer
  Westfield AG (Germany) and the distributor
  Westfield SI (Slovenia)
• Manufacturer issues a non-negotiable order to the
  distributor ? it is not to complete deals with
  individual buyers and/or dealers from Germany
• Manufacturer deals with distributors from Germany
  these, in turn, cooperate with dealers from
  Germany.
• Number of dealers in GER ? 64
• Territorial exclusivity

6
Workshop

• Facts Destination market relationships
• Distributor Westfield SI ? a network of agreemnts
  with dealers
• Number of dealers on destination market 35
• Dealers rights ?
• Territorial exclusivity on the destination market
• Dealers duties ?
• Adequate showroom
• single branding
• full range
• Obligation to provide after-sales services
  (servicing, spare parts,,,)
• Realization of the annual order the quantity is
  not to be lower than that specified in the
  framework agreement
• Authorized for repairs during the warranty period
  as an alter ego of the manufacturer
• Repair expenses covered by manufacturer (95) and
  dealer (5)

7
Workshop

• OPTION 1
• Car manufacturer FORD brings an action for
  damages against the manufacturer, distributor and
  dealers in Slovenia
• Loss of profit entry into market has been
  rendered impossible

• OPTION 2
• Car manufacturer Westfield AG brings an action
  against a dealer from Slovenia dealer has not
  completed its order
• Dealer ? the agreement is null and void ? breach
  of TEC 81/1
• Car manufacturer Westfield AG ? ours is an
  egreement covered by article 81/3 TEC

8
Workshop

• Define irrelevant data!
• Define missing data that can be identified by a
  judge
• Define missing data that demand economic analysis
• Who will you name as expert?
• What questions will he/she have to address?
• How much time will he/she have?

9
Workshop

• What questions will you pose as judges?
• Definition of the relevant market
• Positions of the undertakings in the distribution
  network ? market shares, market power
• Evaluation of the behaviour of the involved
  undertakings
• 81/(1)?
• 81/(3)?

10
Workshop

• ARTICLE 81 TEC
• (1) The following shall be prohibited as
  incompatible with the common market all
  agreements between undertakings, decisions by
  associations of undertakings and concerted
  practices which may affect trade between Member
  States and which have as their object or effect
  the prevention, restriction or distortion of
  competition within the common market, and in
  particular those which
• (a) directly or indirectly fix purchase or
  selling prices or any other trading conditions
• (b) limit or control production, markets,
  technical development, or investment
• (c) share markets or sources of supply
• (d) apply dissimilar conditions to equivalent
  transactions with other trading parties, thereby
  placing them at a competitive disadvantage
• (e) make the conclusion of contracts subject to
  acceptance by the other parties of supplementary
  obligations which, by their nature or according
  to commercial usage, have no connection with the
  subject of such contracts.
• (2) Any agreements or decisions prohibited
  pursuant to this Article shall be automatically
  void.

11
Workshop

• ARTICLE 81
• (3) The provisions of paragraph 1 may, however,
  be declared inapplicable in the case of
• - any agreement or category of agreements between
  undertakings
• - any decision or category of decisions by
  associations of undertakings
• - any concerted practice or category of concerted
  practices,
• which contributes to improving the production or
  distribution of goods or to promoting technical
  or economic progress, while allowing consumers a
  fair share of the resulting benefit, and which
  does not
• (a) impose on the undertakings concerned
  restrictions which are not indispensable to the
  attainment of these objectives
• (b) afford such undertakings the possibility of
  eliminating competition in respect of a
  substantial part of the products in question.

12
Workshop

• 81/3 TEC analysis questions
• 2 positive conditions
• 1 ? Does the agreement, concerted practice or
  decision by association contributes to improving
  the production or distribution of goods or to
  promoting technical or economic progress,
• 2 ? If YES, does it allow consumers a fair share
  of the resulting benefit?
• 2 negative conditions
• 1 ? Does the agreement impose on the
  undertakings concerned restrictions which are not
  indispensable to the attainment of these
  objectives?
• 2 ? Does it afford such undertakings the
  possibility of eliminating competition in respect
  of a substantial part of the products in question?

13
Workshop

• Does the agreement contributes to improving the
  production or distribution of goods or to
  promoting technical or economic progress?
• Improvement of production or distribution ?
  practically any benefit or advantage
• Reduction or abolition of barriers to entry
• Higher level of output
• Higher quality
• Quality control
• Full capacity production
• Standardization
• Production planning
• Broader range of products

14
Workshop

• Does the agreement contributes to improving the
  production or distribution of goods or to
  promoting technical or economic progress?
• Promotion of economic progress -
• Many potential factors unclear interpretation
• Increased competitiveness
• Research ynd development
• Social issues and concerns? ? (un)employment,
  loabour policy???

15
Workshop

• Does the agreement allow consumers a fair share
  of the resulting benefit?
• Benefits, relevant for consumers ?
• Broader range of available products or services
• Entry of a new competitor (e.g. a market
  previously dominated by a state monopoly)
• Lower costs ? lower retail prices
• Broader range ? new, improved products
• Higher level of inter-brand competition
• Fair Share ?
• Transfer of a reasonable part of the benefit
• The restraint is not to benefit only the involved
  undertakings

16
Workshop

• Does the agreement impose on the undertakings
  concerned restrictions which are not
  indispensable to the attainment of these
  objectives?
• Indispensable restraints ? Least Drastic Means
  standard
• RPM (Retail price maintenance) ? MIN unacceptable
  / MAX allowed / RECOMMENDED PRICES controversial
• Ban on parallel imports ? prohibited

17
Workshop

• Does the agreement afford such undertakings the
  possibility of eliminating competition in respect
  of a substantial part of the products in
  question?
• Questions of fact ?
• Relevant prodct market (potential substitutes)
• Relevant geographic market
• Is there a level of competition in the market?
• Should only intra-brand competition be analysed?
• NO! ? inter-brand competition is much more
  important
• Are high market shares of the involved
  undertakings enough for the final verdict?
• NO! ? potential and actual competition,,
  competitive pressure
• Buyer power?
• Trend of demand for the relevant product?
• Mature or new market?

18
Workshop

• VAR 1
• The quantity of cars in the destination market
  600
• VAR 2
• Product sneakers (sport shoes)
• VAR 3
• The quantity sneakers in the destination market
  is 1000 pairs
• Retail price 100 EUR
• Marginal cost for the production of the relevant
  sneaker is 6.5 USD (South Asiania)