Transcript Administration in International Organizations PUBLIC

Administration in International Organizations
PUBLIC COMPETITION LAW
Class III, 20th Oct 2014
Krzysztof Rokita
Anti-competitive agreements
Article 101 TFEU
1. The following shall be prohibited as incompatible with the internal 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
internal 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.
Anti-competitive agreements
The concept of agreement
Basic definition:
„…the concept of an agreement within the meaning of Article [101(1)] of the
Treaty centres around the existence of a concurrence of wills between at
least two parties, the form in which it is manifested being unimportant so
long as it constitutes the faithful expression of the parties' intention.”
Case T-41/96, Bayer AG v Commission, para. 69
„It is also clear from the case-law in that in order for there to be an agreement
within the meaning of Article [101](1) of the Treaty it is sufficient that the
undertakings in question should have expressed their joint intention to
conduct themselves on the market in a specific way”
Case T-41/96, Bayer AG v Commission, para. 67
Anti-competitive agreements
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The concept of agreement
common intention to behave in a certain way on the market
An offer by one party and an acceptance of that offer by another party
No specified form of expressing parties’ intentions (may be in writing, oral,
tacit – inferred from conduct)
Not important whether an agreement may be classified as a contract under
national law
Not important whether it is intended to be legally binding
Not important whether sanctions are provided for a breach
Motivation of the parties for concluding an agreement are not decisive
Anti-competitive agreements
Vertical agreement and unilateral conduct
Unilateral conduct v. Apparently unilateral conduct
Anti-competitive agreements
Sandoz (C-277/87) – unilateral
conduct or agreement?
• each distributor received the same
standard invoice after each order
• invoice contained words “export
prohibited”
• distributors did not protest to that
practice
• they continued to purchase
medicines from Sandoz
• Sandoz claimed that the export
prohibition was a unilateral
conduct on part of that company
Bayer AG v. Commission (T-41/96) –
unilateral conduct or agreement?
• wholesalers in Spain and France started
exporting Adalat to the UK
• Bayer reduced the quantity of Adalat
supplied to the Spanish and French
wholesalers
• wholesalers continued the commercial
relationship between them and Bayer AG,
did not protest
• some of them continued to try to obtain
extra quantities of Adalat for export
through different channels
• Bayer claimed that the export ban was a
unilateral conduct on part of that company
Anti-competitive agreements
Concerted practice
• “Article 85 draws a distinction between the concept of 'concerted practices' and that of 'agreements
between undertakings' or of 'decisions by associations of undertakings'; the object is to bring within the
prohibition of that article a form of coordination between undertakings which, without having
reached the stage where an agreement properly so-called has been concluded, knowingly
substitutes practical cooperation between them for the risks of competition.”
• “By its very nature, then, a concerted practice does not have all the elements of a contract but may
inter alia arise out of coordination which becomes apparent from the behaviour of the participants.”
Case 48/69, Imperial Chemical Industries Ltd v Commission
Anti-competitive agreements
Concerted practice
• requires some form of cooperation between undertakings which, taken
as a whole, removes strategic uncertainty about each other’s future
conduct on the market (and it is contrary to the notion inherent in the
TFEU that every economic operator must determine independently
the policy which he intends to adopt on the common market)
Anti-competitive agreements
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Concerted practice
Elements constituting a concerted practice (according to the CJ in Hüls C-199/92):
undertaking concerting with each other (a common intention of the undertakings to
lessen the competitive pressure between them; market players involved want to pursue
the same goal; there must be some contact between the undertakings, e.g. meetings,
discussions, participation at professional conventions and conferences);
subsequent conduct on the market (the concertation by undertakings involved has
been implemented on the market; there is a rebuttable presumption that undertakings
taking part in the concerted practice and remaining active on the market take account of
the information exchanged with their competitors for the purposes of determining their
conduct on the market);
a relationship of cause and effect between the two (measures implemented on the
market by the undertaking involved in the concerted practice must be the direct result
of the already planned coordination of their market conduct).
Anti-competitive agreements
Decisions by associations of undertakings
Any measure undertaken by an association which coordinates its
members’ actions:
• articles of association and other rules and regulations governing its
constitution;
• common resolutions;
• decisions binding upon the members;
• non-binding recommendations (if in practice undertakings comply
with them);
• codes of conduct.
Anti-competitive agreements
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Single overall agreement/single continuous infringement
The concept of a ‘single, overall agreement’ has been developed by the
Commission in order to facilitate the enforcement of Article 101 TFEU
against complex cartels of a long duration;
a complex of practices adopted by various parties in pursuit of a single anticompetitive economic aim constitutes single overall agreement
an infringement which results from a series of acts or from continuous
conduct forming part of an overall plan, with the same object of distorting
competition
An undertaking may be held liable for the whole single continuous
infringement, even if it participated only in some of the constituent elements
of the infringement (when it was aware of the plan and common objectives
pursued by other undertakings)
The object or effect of preventing, restricting or distorting
competition
Where an agreement has as its object the restriction of competition, it is unnecessary to prove its anticompetitive effects
“It must be recalled that, to come within the prohibition laid down in Article 81(1) EC, an agreement must have ‘as [its] object or effect the
prevention, restriction or distortion of competition within the common market’. It has, since the judgment in Case 56/65 LTM [1966] ECR 235,
249, been settled case-law that the alternative nature of that requirement, indicated by the conjunction ‘or’, leads, first, to the need to
consider the precise purpose of the agreement, in the economic context in which it is to be applied. Where, however, an analysis of the clauses of
that agreement does not reveal the effect on competition to be sufficiently deleterious, its consequences should then be considered and for it to
be caught by the prohibition it is necessary to find that those factors are present which show that competition has in fact been prevented or
restricted or distorted to an appreciable extent.”
“In deciding whether an agreement is prohibited by Article 81(1) EC, there is therefore no need to take account of its actual effects once it
appears that its object is to prevent, restrict or distort competition within the common market…”
C-209/07 - Beef Industry Development and Barry Brothers
The object or effect of preventing, restricting or distorting
competition
Object restraints
“The distinction between ‘infringements by object’ and ‘infringements by effect’
arises from the fact that certain forms of collusion between undertakings can be
regarded, by their very nature, as being injurious to the proper functioning of
normal competition.”
C-209/07 - Beef Industry Development and Barry Brothers, para 17
The object or effect of preventing, restricting or distorting
competition
Object restraints
• so likely to be harmful to competition that they are automatically assumed to restrict competition
• One has to look at the content of an agreement, objectives it seeks to ascertain, and the economic
and legal context of which it forms part.
• In principle, the following restrictions are highly likely to be found to restrict competition by
object:
1. Agreements between competitors to fix prices or to limit output or share markets;
2. Information exchanges between competitors designed to fix purchase or selling prices;
3. Vertical price fixing agreements (resale price maintenance – imposing fixed or minimum prices
on a dealer);
4. Vertical restraints conferring absolute territorial protection on a distributor or aimed at
partitioning national markets.
• An angreement which appears to restrict competition may be deemed lawful in light of the
legitimate objectives of such an agreement (see C-309/99 Wouters)
The object or effect of preventing, restricting or distorting
competition
Agreements that have as their effect the prevention, restriction or distortion of
competition
• an extensive analysis of its effect on the market is necessary
• in-depth examination of the economic market conditions (see C-234/89 Delimitis)
• Analysis of inter-brand (competition between suppliers of competing products) and intra-brand
competition (competition between distributors of the same product), impact on existing and
potential competition
• The need to establish a counter-factual: it is necessary to consider what the position would have
been in the absence of the agreement and then compare two situations
The object or effect of preventing, restricting or distorting
competition
Ancillary restraints
Restrictive provisions of broader agreement (agreement which do not have an
object or effect of preventing competition) that are necessary for the
execution or achievement of the goal of that agreement will also be
compatible with Article 101 TFEU (ancillary restraints).
Two conditions must be satisfied:
• the restriction must be objectively necessary for the implementation of the
main operation;
• the restriction in question must be proportionate.
Example: a non-compete clause in an agreement concerning sale of
business/enterprise.
De Minimis doctrine and the effect on trade between Member
States
“in order to come within the prohibition imposed by Article 85, the agreement must affect
trade between Member States and the free play of competition to an appreciable
extent.”
Case 22/71, para 16
• COMMISSION NOTICE – Guidelines on the effect on trade concept contained in
Articles 81 and 82 of the Treaty (2004/C 101/07)
• COMMUNICATION FROM THE COMMISSION – Notice on agreements of minor
importance which do not appreciably restrict competition under Article 101(1) of the
Treaty on the Functioning of the European Union (De Minimis Notice) (2014/C 291/01)
De Minimis doctrine and the effect on trade between Member
States
An appreciable effect on trade between Member States
• EU Competition law is applicable only if an agreement has an appreciable effect on trade between MS;
• The term trade does not only mean traditional exchange of goods and services across borders, it is a wider
concept and catches all cross-border economic activity;
• the agreement or practice may have influence, direct or indirect, actual or potential, on the pattern of trade
between MS;
• It is sufficient that the agreement or practice is capable of having an effect: it is not necessary to prove that it
actually will do so;
• an increase in trade also means that it has been influenced;
• Market share and the value of turnover are important in the assessment
De Minimis doctrine and the effect on trade between Member
States
The restriction of competition must be appreciable
The prohibition from Article 101 TFEU applies if an agreement restricts
competition appreciably. Consequently, if there is no appreciable impact
on competition, such an agreement is not prohibited by Article 101
TFEU.
See: Notice on agreements of minor importance which do not
appreciably restrict competition under Article 101(1) of the Treaty on
the Functioning of the European Union (De Minimis Notice) (2014/C
291/01)
Article 101(3) TFEU: legal exception to the prohibition
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.
Article 101(3) TFEU: legal exception to the prohibition
Improvement in the production or distribution of goods or in technical or
economic progress
• The improvement compensates for the disadvantages the agreement produces
• a causal link between the agreement and the claimed benefits
• Examples: cost reduction, development of new production technologies and methods, economies
of scale, better production planning, or improvement in the quality and choice of goods and
services
• Are the parties allowed to rely on broader policy issues to benefit from the exemption?
Controversial.
Article 101(3) TFEU: legal exception to the prohibition
Allowing consumers a fair share of the resulting benefit
• a pass-on of the benefits resulting from an agreement to consumers;
• Consumer is interpreted broadly to include not only final consumers (end-users) but also intermediate consumers,
including wholesalers and retailers that purchase products in the course of their trade or business;
• Not every individual consumer must derive benefit from particular agreement, it is rather an overall effect on
consumers that need to be taken into account;
• the pass-on of benefits must at least compensate consumers for any actual or likely negative impact caused to them
by the restriction of competition;
• the net effect of the agreement must at least be neutral from the point of view of those consumers directly or likely
affected by the agreement
Article 101(3) TFEU: legal exception to the prohibition
Indispensable restriction
• A restriction is indispensable if its absence would eliminate or
significantly reduce the efficiencies that follow from the agreement or
make it significantly less likely that they will materialise
• Restrictions will not be indispensable if the efficiencies specific to the
agreement can be achieved by other less restrictive means
Article 101(3) TFEU: legal exception to the prohibition
The agreement must not afford the parties the possibility of
eliminating competition
• the agreement as a whole must not lead to the elimination of
competition
• In Guidelines on the application of Article 81(3) of the Treaty the
Commission argues that “Ultimately the protection of rivalry and the
competitive process is given priority over potentially pro-competitive
efficiency gains which could result from restrictive agreements.”
Article 101(3) TFEU: legal exception to the prohibition
The agreement must not afford the parties the possibility of eliminating competition
Guidelines on the application of Article 81(3) of the Treaty:
“Whether competition is being eliminated within the meaning of the last condition of
Article 81(3) depends on the degree of competition existing prior to the agreement and on
the impact of the restrictive agreement on competition, i.e. the reduction in competition that
the agreement brings about. The more competition is already weakened in the market
concerned, the slighter the further reduction required for competition to be eliminated
within the meaning of Article 81(3). Moreover, the greater the reduction of competition
caused by the agreement, the greater the likelihood that competition in respect of a
substantial part of the products concerned risks being eliminated.”
• An undertaking needs to prove that the competition will not be eliminated (this involves
economic analysis)
Article 101(3) TFEU: legal exception to the prohibition
Block exemptions
• Agreements falling within the ambit of one of the block exemptions are automatically exempt from Article 101(1) on the
grounds that they satisfy Article 101(3);
• Most block exemptions now contain market share thresholds;
• Most block exemptions contain a list of hardcore restraints;
• The Commission may withdraw the benefit of any Commission block exemption when it finds that in any particular case an
agreement to which exemption regulation applies has certain effects which are incompatible with Article 101(3) – Article
29 of Regulation 1/2003
• NCAs have the power to withdraw the benefit of any Commission block exemption where an agreement has effects which
are incompatible with Article 101(3) in the territory of a MS, or in part thereof, which has all the characteristics of a distinct
geographic market - Article 29 of Regulation 1/2003