Competition Law & Policy Flashcards
Article 101 TFEU & Article 102 TFEU - The Behaviour of businesses
Article 101 (1) of the TFEU prohibits business agreements or arrangements which prevent, restrict, or distort competition within the internal market and affect trade between Member States.The Article provides a non-exhaustive list of examples of agreements which fall within the provision. This includes agreements which: directly or indirectly fix purchase or selling prices or any other trading conditions; limit or control production, markers, technical development or investment; share markets or sources of supply; apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage or 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 the contracts. Article 101 (2) TFEU provides that any agreement or decision in breach of Article 101 (1) TFEU shall be automatically void. The Court of Justice of the European Union (CJEU) has held that the whole agreement does not have to be held void because of a breach of Article 101; the pffendin clauses can be served. Article 101 (3) TFEU provides for the possibility of exemption for agreements which fall within Article 101 (1), provided that all four of the requirements which it sets out are met. When this is the case Article 101 (1) is declared to be inapplicable. Article 102 prohibits the abuse of market power or dominance, normally by businesses acting unilaterally, within the internal market.
UNDERTAKINGS: Regulations 1/2003: enforcement of Articles 101 and 102 of TFEU - A System of Cooperation
Articles 101 and 102 of the TFEU refer to businesses as ‘undertakings’. The basis of the enforcement regime, set out in Regulation 1/2003, is a system of cooperation between the European Commission, national courts, and national competition authorities. The European Commission, through the Directorate-General for Competition, and national competition authorities, in accordance with criteria set out in the Commission notice on cooperation within the network of competition authorities, 2004. To ensure consistency and effectiveness, Regulation 1/2003 requires close cooperation between national competition authorities and the Commission and between national authorities themselves, including, for instance, the exchange of information. Articles 101 and 102 are directly effective and so may be applied in national proceedings. National courts can request information or advice from the Commission and may refer questions of interpretation to the Court of Justice under the preliminary rulings procedure. National court proceedings and Commission proceedings may run in parallel and a national court may consider a case on which the Commission has already taken a decision. Regulation 1/2003 requires national courts o avoid judgements that conflict with Commission decisions.
The European Commission’s power
Regulation 1/2003 empowers the European Commission to investigate alleged infringements, to require undertakings to terminate infringements, and to impose fines and penalties where breaches are established. The investigatory powers permit the Commission to request or require undertakings to supply information, to interview individuals concerning its enquiries, and to inspect business premisses.Inspections mat be voluntary, conducted with an undertaking’s agreement, mandatory, the latter often being referred ti as ‘dawn raids’. Whilst the Commission had no power of forcible entry, it may require the necessary assistance from national authorities, usually the issue of a search warrant. The Commission mat levy substantial fines and daily penalties for infringements of Articles 101 and 102 for supplying incorrect or misleading information or for failure to comply with a request for information.
Safeguards for undertakings
Information collected pursuant to Regulation 1/2003 may be used only for the purpose for which it was acquired. The Commission must have regard to the legitimate interests of undertakings in the protection of their business secrets, for instance when it publishes decisions. Before the Commission adopts and unfavourable decision, an undertaking must be offered a hearing. Commission decisions are subject to judicial review by the EU courts, being heard by the General Court, with appeal lying to the Court of Justice. Most cases comprise Article 263 actions for annulment. Successful applicants are likely to secure reduced fines, rather than annulment.
Article 101 (1) The Prohibition
Article 101 (1) prohibits 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. All these elements must be satisfied for a breach to be satisfied.
Agreements between undertakings, decisions by associations of undertakings, and concerted practices
Undertaking has been interpreted broadly to include natural and legal persons —individuals an companies — engaged in commercial activity for the provision of goods or services. Agreements covers formal binding contracts and also less formal agreements or arrangements, for instance the so-called gentlemen’s agreement concluded simply by a handshake. The broad scope of Article 101 (1), incorporating not only agreements but also the much less formal concerned practices means that it is unnecessary to identify the precise boundaries of agreement. Article 101 (1) is not confined to arrangements set up directly between undertakings, but also covers decisions of associations of undertakings. Anticompetitive activity might be coordinate through a trade association, for instance through a decision requiring its members to raise their prices to a specified level or to refuse supplies to particular categories of customer. Provided all the elements of Article 101 (1) are satisfied, there is a breach. Even a non-binding recommendation to members may be caught. In the case International Belgium NV v Commission, a system regulating the connection of washing machines and dishwashers to the water supply, recommended to its members by a Belgian water suppliers trade association, operated in such a way as to discriminate against imported machines. The Court of Justice held that a non-binding recommendation would fall within Article 101 (1) if it was intended to be anticompetitive and was normally complied with, resulting in an appreciable effect on competition.
Concerted practices- Oligopoly
Concerted practice has been interpreted broadly, through the outer limits of this concept have proved difficult to identify. The case ‘Imperial Chemical Industries Ltd v Commission 1972, ICI challenged a Commission Decision finding that certain aniline dye producers, including ICI, had fixed prices through concerted practices. The producers maintained that their almost simultaneous and almost identical price rises did not amount to concerted practice but were a feature of an oligopolistic market — a market dominated by relatively few sellers in which, where pricing policies and transparent, rival companies tend to respond without collusion to each other’s market strategy, a form of ‘parallel behaviour. The Court of Justice defined a concerted practice as a form of coordination between undertakings which, without having reached the staged where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition. It held that, whilst parallel behaviour does not in itself constitute concerted practice, it may be strong evidence of it. That will be the case where the conduct leads to conditions of competition which do not correspond to the normal conditions of the market. Finding a concerted practice, the Court held that the companies had not reacted spontaneously to each other’s pricing strategy. Advance announcements of price increases had eliminated all uncertainty between them as to their future conduct and their actions demonstrated a common intention to fix prices. In the case of Woodpulp it also featured an oligopolistic market, but the outcome was different. The Court of Justice accepted that a system of quarterly price announcements operated by certain woodpile producers did not amount to a concerted practice. There was no evidence of communication between the companies and the parallel was the result of the normal operation of the oligopolistic woodpulp market. The Court of Justice’s approach to parallel behaviour in oligopolistic markets is controversial, since it will generally be difficult to determine with any certainty what are ‘normal conditions of the market’.
Cartels
Anti-compettiive arrangements sometimes operate within cartels, on the basis of agreements and/or exchange information. Their activity may be sustained over long periods, often many years, without detection. In recent years, the Commission has increased its efforts to root out cartels. To facilitate this, the Commission has increased its efforts to root out cartels. To facilitate this, the Commission applies a leniency policy allowing whistleblower cartel members to obtain immunity from fingers or reduction in fines for exposing the cartel or supplying information about its activities.
Vertical and Horizontal agreements
Article 101(1) applies to both horizontal and vertical agreements. Horizontal agreements are concluded between parties operating at the same level of the production or distribution chain, for instance an agreement between manufacturers or between retailers. Vertical agreements operate at different levels, for instance a distribution agreement between a manufacturer and a distributor. The case Establissements Consten v Commission 1966 established that Article 101(1) applies to vertical agreements. Under a dealership agreement, Grundig supplied its electronic products to Consten for resale in France. Constant challenged the Commission’s finding of an infringement, arguing that Article 101 applied only to horizontal agreements. The Court of Justice disagreed, holding that both vertical and horizontal agreements are capable of falling within its scope. Restrictions in horizontal agreements are likely to affect inter-brand competition. By contrast, restrictions in vertical agreements are likely to affect intra-brand competition. Inter-brand restrictions pose a greater threat to the market than astra-brand restrictions. This can be illustrated by the potential effect on consumers. If two independent manufacturers of a particular product fix their prices for their respective brands, consumers ability to shop around for a cheaper product is limited, particularly if these manufacturers together hold a large market share. On the other hand, if a manufacturer of a particular product imposes a fixed resale price on its distributors, consumers remain bale to shop around for cheaper products of any other brand. EU competition law formally recognises the less harmful effects of vertical restrictions and their potential benefits, particularly in distribution agreements, through the vertical retains block exemption Regulation 330/2010.
BREACH OF ARTICLE 101(1)Which may affect trade between Member States
There is no breach of Article 101 (1) unless the agreement, decision or concerted practice ‘may affect trade between Member State’. This requirement concerns jurisdiction. Arrangements that have no effect on trade between Member States fail to be considered under law. The Court of Justice’s interpretation is that ‘there would be an effect on trade wherever it is possible to force 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. In the case Vacuum Interrupters Ltd (Commission Decision) 1977, two UK companies had entered into a joint venture research and development agreement ti design and manufacture switchgear in the UK. The Commission found that, in the absence of an agreement, the companies would have developed the product independently and marketed it in other Member States. The agreement made it more difficult for potential competitors from other Member States to enter the UK market, given the combined economic and technical strength of the two manufacturers. The agreement was capable of affecting trade between Member States.
Agreement of minor importance
Early case la established that an agreement is caught by Article 101 (1) only if it has an appreciable effect on the market.Agreements of minor importance are not prohibited. The Notice on agreements of minor importance, 2001 sets out the Commissions view of de minimis agreements. Agreements affecting trade between Member States do not appreciably affect competition if the parties aggregate share of the relevant market does not exceed 10% (agreements between competitors are normally horizontal agreements) or if the market share of each of the parties does not exceed 15% (agreements between non-competitors are normally vertical agreements). De minimis does not apply to agreements containing hardcore restrictions, such as price-fixing and market-sharing, but others, where the thresholds are not exceeded, the Commission will not institute proceedings. Where undertakings assume in good faith that an agreement is covered by the notice, the Commission will not impose fines.
Rule of reason
In EU competition law, some decisions for instance Prenuptial, suggest that the Court of Justice has been willing to adopt a rule of reason approach in assessing agreements under Article 101 (1). Pronuptia concerned a distribution franchise. Typically, distribution franchise arrangements are made between an established distributor of a product and other independent traders. The franchisor grants the franchisees, for a fee, the right to establish themselves using its business name and methods. The franchiser derives financial benefit without investing capital; the franchisees gain access to successful business methods and benefit from the reputation of the franchisor’s business name. In order to protect that reputation, the franchisor will insist upon the franchisee accepting specific obligations, such as those imposed in the Pronuptia agreement.
In the case of Pronutptia 1986, the franchisor granted the franchisee the exclusive right to use the Pronuptia mark in the designated area. The franchisee agreed not to open a shop selling competing goods, not to sell its shop without the franchisor’s prior approval, and to obtain stock only fro m the franchisor or from other suppliers selected by the franchisor. Despite the severity of these restrictions, the Court of Justice held that they did not breach Article 101 (1) because they were indispensable to protect the franchisor’s reputation and know-how and the uniform identity of the franchise outlets.
Regulation 330/2010: Block exemptions for vertical agreements
Regulation 330/2010, contains the block exemptions for certain categories of vertical agreements and concerted practices. Article 2 of the Regulation exempts from Article 101 (1) vertical agreements relating to the conditions under which the parties may purchase, sell, or resell certain goods or services, to the extent that these agreements contain otherwise prohibited restrictions. The Regulation covers, for instance, exclusive distribution, distribution franchise, and selective distribution agreements. The exemption is subject to market-share thresholds. It applies only where both the supplier’s market share does not exceed 30% on the relevant market on which it sells the contract goods or services, and the buyer’s market share does not exceed 30% on the relevant market on which it sells the contract on which it purchases the contract goods and services. The benefit of the block exemption does not apply to vertical agreements containing certain hardcore restrictions, set out in Article 4. The comprise restrictions by the supplier on the buyer’s ability to determine its sale price, save for maximum or recommended sale prices, and restrictions on the territory into which the buyer may resell the goods or services, with some specified exceptions. The impact of Article 4 is that an agreement containing hardcore restrictions is in its entirety, outside the scope of the block exemption. The offending clauses cannot be removed. By contrast to Article 4, Article 5 provides that the block exemption does not apply to certain obligations contained in agreements. Although the Article 5 restrictions themselves fall outside the block exemption, they may be removed, allowing the remainder if the agreement to be block exempted. Severable restrictions comprise certain non-comps obligations (obligations on the buyer not to sell competing goods), including non-compete clauses exceeding five years. Any restrictions falling outside Article 4and 5 is permitted.
