Chapter 26: Competition Law

Competition law covers anti-competitive agreements between firms, abuse of a

dominant position, and mergers. p. 959
Art 101 TFEU is the principal vehicle for the control and anti-competitive
agreements.
Horizontal agreements = made between firms at the same level of the
production cycle.
Vertical agreements = between a producer and a retailer

OBJECTIVES OF COMPETITION LAW:

1. To enhance efficiency; maximising consumer welfare and achieving the
optimal allocation of resources there should be workable competition (F Scherer
and D Ross, Industrial Market Structure and Economic Performance (Houghton
Mifflin, 3rd edn, 1990)).
2. to protect consumers and smaller firms from large aggregations of economic
power p. 960
3. To facilitate the creation of a single European market and to prevent this from
being frustrated by private undertakings; EU prohibits tariffs

ARTICLE 101
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.

2. Any agreements or decisions prohibited pursuant to this Article shall be

automatically void.

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.

ARTICLE 101(1): Undertakings

- It cashes agreements which are made y undertakings, but the Treaty does
not define this term p. 961
- In Hofner, the ECJ held that the term undertakings covers any entity
engaged in an economic activity regardless of its legal status and the way
in which it is financed. At [21]: corporations, partnerships, individuals,
trade associations, the liberal professions, state-owned corporations and
cooperatives. R Whish, Competition Law (OUP, 6 th edn, 2009) 82-91.
- The concept of undertakings does not covers bodies that pursue an
exclusively social objective and do not engage in economic activity, such
as bodies entrusted with the management of statutory health insurance
p. 961
- State-owned corporations can be undertakings, when they operate in a
commercial context, but not when they exercise their public law powers
Whish, p 85-88; similarly, a public body is within Art 101 if exercises
economic activities. p. 962
- Organisations representing management and labour that conclude a
collective agreement are not undertakings
- Employees are not themselves undertakings because they are just part of
the undertakings that employ them

ARTICLE 101(1): AGREEMENTS

- Quinine Cartel case -> informal agreements can be caught under Art 101
and the mere facts that the parties claim to have terminated them will not
be conclusive.
- In Polyproplyene, the Commission said that there was a single agreement
between firms, which had continued over many years, even though the
agreement was oral; an agreement existed if the partied reached a
consensus on a plan which limited, or was likely to limit, their commercial
freedom => single economic aim, the distortion of the market in the
question p. 964
- The Union Courts have held that for there to be an agreement within Art
101 it was sufficient that the undertakings in question should have
expressed their joint intention to conduct themselves in the market in a
specific way.
- It sufficed for the Commission to show that an undertaking participated in
meetings at which an anti-competitive agreement was concluded without
opposing it Huls v Commission
ARTICLE 101(1): CONCERTED PRACTICE p. 965
- Where no agreements, undertakings will be caught by art 101 if there is a
concerted practice
- They may well have colluded, but they may have destroyed all paper
evidence or never have committed anything to paper at all.
- If the term is interpreted too broadly, it may catch parallel pricing tha is a
rational, natural response of firms in the market
- In normal competitive markets, it is unlikely that firms will price at the
same level without some collusion
- They may be different in oligopolistic market because it has:
relatively few sellers, high barriers entry, little product
differentiation and price transparency, such as price changes are
easily detectable by competitors.
- In this case firms will price the same, but not because any collision but
because they recognise its mutual interdependence.
- No firm could unilaterally increase price, because its customers
would switch trade to a competitor: G Stigler, The Kinked
Oligopoly Demand Curve (1947) 55 J Pol Econ 431.
- If price uniformity is really the result of rational action in an oligopoly, and
there is no actual collusion, then it is not sensible or fair to penalise such
parties through fines for colluding. The problem is no longer behavioural,
since the parties are not engaging in behaviour different from what is
normal in that type of market. The problem is structural, in the sense that
this type of market will naturally generate this type of response -> this
theory has been criticised.

R Whish, Competition Law p 548-550

- 4 problems of oligopolistic interdependence:
1. the theory overstates the interdependence of oligopolists; one
firm could cut down prices by the time the other firm discovers what it had
done (even if there are just 3 firms) => it can make profit meantime.
2. presents too simplistic a picture of industrial market structure in
reality the market conditions are more complex than having a symmetrical
oligopoly where producers produce identical goods at the same costs -> the
oligopolists have different costs levels, different products, clients who are
loyal and their market shares will not be equal; the transparency of price info
is important: the easier it is to conceal the price of goods from competitors,
the less will be the interdependence or mutual awareness of the oligopolists.
3. it fails to explain why in some oligopolistic markets the
competition is intense. -> secret price down occurs, offering better quality
products and after sales services or making investments in advertising to
improve brand image.
4. it does not explain satisfactorily its central proposition, which is
that oligopolists can earn supra-competitive profits without actually
colliding. -> it says that it cannot increase prices unilaterally because will
lose customs to their rivals. But for supra-competitive prices, there was an
increase without collision. Answer: price leadership develops: when one firm
raises the prices, the others do the same.
 - In ICI v Commission: 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.
- It is clear from Sugar Cartels case that there can be a concerted practice
even though there is no actual plan between the parties.

4 points about the concept of concerted practice: - p. 969

1. the burden of proving an infringement of art 101 rests with the Commission
and the mere existence of parallel conduct will not, in itself, prove a concerted
practice; if there are explanations for the parallel conduct, they may not fall
under art 101
2. the court will not readily accept that uniformity of price is the result of
oligopolistic market structure
3. there can be differences of opinion on which side of the line a case falls
4. there is the issue whether a concerted practice must have been put into effect
-> issue addressed in Huls and the approach confirmed in T-Mobile.
- in Huls AG v Commission: the concept of concerted practice implies,
besides the undertakings concerting with each other, subsequent
conduct on the market, and a relationship of cause and effect between
the two.
- concerted practices are prohibited regardless of their effect, when they have an
anti-competitive object!!!
- although the very concept of a concerted practice presupposes conduct by the
participating undertakings on the market, it does not necessarily mean that the
conduct should produce the specific effect of restraining, preventing or distorting
competition.

ART 101(1): OBJECT OR EFFECT OF PREVENTING, RESRICTING OR DISTORTING

COMPETITION
- art 101(1) requires that the agreements, decision or concerted practice has the
object or effect of preventing, restricting or distorting competition in the internal
market. p. 970

A) NATURE OF THE PROBLEM:

- It would be absurd if every contract was caught by competition law
- Some agreements may have features that both enhance and restrict
competition
- For example: a supplier wishes to break into a new market, and decides to
use Brown as its distributor for a particular area. Brown may only be
willing to risk marketing the new product if given certain incentives and
protection, such that the supplier will not supply other firms in the same
area. This is a restriction of competition, but the agreement may enhance
competition, since there is a new product on the market

B) EXPERIENCE IN THE US: - p. 971

- S 1 of the Sherman Act: every contract, combination or conspiracy in
restraint of trade is illegal -> a rule of reason was developed
- In Standard Oil v US, White CJ stated that a standard of reason had to be
applied to determine whether a restraint was within the Sherman Act, and
that only undue or unreasonable restraint should be condemned. -> this
was contested
 - Per se rules developed from a rule-of-reason analysis; the enquiry
demanded by the rule of reason may be time-consuming and costly

C) THE ACADEMIC DEBATE IN THE EU 972

- There has been a debate whether we should adopt a rule of reason in the
EU
- The debate was affected by Art 101(3), whereby agreements that are held
to restrict competition can be exempted following an economic analysis
- Korah was an early advocate of adopting a rule of reason analysis in the
EU law
R Whish and B Sufrin, Art 85 and the Rule of Reason (1987) 7 YBEL 36-37:
The adoption of the rule of reasons does more to confuse than to
clarify; it invites misleading comparison with antitrust law analyssi in
the US

D) THE CASE LAW p 973

- We should consider whether the Court is balancing the pro- and anti-
competitive effects of an agreement to determine whether it is caught
within Art 101(1) and how far the terminology of the rule of reason is an
apt description of this approach
Societe La Technique Miniere v Maschinenbau Ulm GmbH: (STM
case)
Do the factors show that the competition has in fact been prevented
or restricted or distorted to an appreciable extent?
They should take account of the nature and quantity of the products
covered by the agreement, the severity of the clauses intended to
protect the exclusive dealership, the opportunities allowed for the
commercial competitors in the same products
Invalid contract under Art 101.

OBEJCT:
- It is clear from the STM (Societe La Technique Miniere v
Maschinenbau) case that the Court accepted that the words of the Art
101 were to be read disjunctively (or, or, or): if the object of the
agreement was anti-competitive then it could be condemned without
pressing further (O Odudu, Interpreting Article 81(1): Object as Subjective
Intention (2001) 26 ELRev 60), since certain forms of collusion between
undertakings can be regarded, by their very nature, as being injurious to
the proper functioning of the normal competition Competition Authority
v Beef Industry Development Society Ltd and Barry Brothers [2008], at
[17]
- Art 101 has been constructed to protect competition as well as the
interests of consumers GlaxoSmithKline [63]
- An agreement may have a restrictive object even if restriction of
competition is not its sole aim General Motors BV v Commission [64]

In GlaxoSmithKline:
In order to assess the anti-competitive nature of an agreement, regard
must be had inter alia to the content of its provisions, the objectives it
seeks to attain and the economic and legal context of which it forms a
part + the parties intention may be taken into account
 The EU competition rules have been influenced by the desire to create
a single market

EFFECT:
- Where the anti-competitive quality of an agreement is not evident from its
object then it is necessary to consider its effects, as emphasised in the
Delimitis case p. 977
- The Consten and Grundig Case indicated that an economic analysis
within Art 101(1) could not validate absolute territorial protection.

SUMMARY: p. 982
i) ECJ condemns certain type of agreement because of their object or
purpose; ECJ has engaged in economic analysis of the art; whilst it has
not employed the language of the rule of reason, there is evidence of a
balancing of the pro- and anti-competitive effects of an agreement,
subject to the caveats made above.

ii) the Union Courts may choose to undertake this analysis by considering
all the clauses of the agreement as a whole, or they might distinguish
between the main and ancillary clauses of the agreement. The fact that
the court chooses the latter mode should not disguise the fact that there
is some weighing of the pro- and anti-competitive effects of the
agreement, as exemplified by Pronuptia.

iii) METROPOLE CASE:

1. the Union Courts considered the entire economic context to tell
whether a clause restricting conduct should nonetheless be allowed,
because it enabled a party to rbreak into the market, the conclusion
being that such restrictions on freedim if action were nit restrictive of
competition; The Unions Courts have, in this sense, balanced the
pro- and anti-competitive effects of an agreement: R Nazzini,
Article 81 EC between Time Present and Time Past: A Normative
Critique of Restriction of Competition in EU law (2006) 43
CMLRev 487 => the exclusivity clause in Metropole was
designed ti give subscribers something attractive so as to enable
TPS to break into a market where there was a strong
competition.
2. the reasoning assumes that a rule of reason is incompatible with the
existence of Article 101(3).

iv) It has been argued that a more thoroughgoing balancing of pro- and
anti-competitive effects within Article 101(1) would be beneficial, and
would still leave room for a distinctive role for Article 101(3) Wesseling

ARTICLE 101(1): THE EFFECTS ON TRADE BETWEEN MS p. 983

- The ECJ held in STM that the test was whether it was 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. At 249 in the case
 - The fact that all the parties of the agreement are from one MS does not
preclude the application of art 101(1), since it will increase
compartmentalisation of the EU along national lines, thereby rendering it
more difficult for firms from other states to penetrate that national market.
- The agreement may also be made outside the EU if it might have an
impact on trade within the EU

ARTICLE 101(1): THE DE MINIMIS DOCTRINE p. 983

- An agreement must have an appreciable impact on competition or on
inter0state trade
- No proceedings in cases covered by the Notice.
- The criterion is that agreements between undertakings do not
appreciably restrict competition where the aggregate market
share held by the parties to the agreement does not exceed 10
per cent on markets where the parties are actual or potential
competitors p. 983-4
- The relevant figure is 15% where the parties are not competitors on the
relevant markets
- In cases where it is difficult to classify the agreement then the 10%
threshold applies.
- Para 8 of the Notice: vertical cases, where competition may be restricted
by the cumulative effect of the agreements => the threshold is reduced to
5%
+ individual suppliers or distributors with market share not exceeding 5%
will not be considered to have contributed significantly
- The benefits of the Notice are excluded if the agreements contain
hardcore restriction listed in para 11:
a) between competitors: sale price, limitation of output or allocation of
markets or customers
b) between non-competitors: minimum resale price, the territory into
which the buyer may sell the contract goods.

ARTICLE 101(3): EXMEPTIONS p. 984

- If an agreement is within art 101(1) it can gain exemption under Art
101(3).
- There are 4 conditions: all must be fulfilled (below)!!!

A) INDIVIDUAL EXEMPTION
- The courts apply the entirety of art 101 p. 984
- The Commission has published guidelines on the application of Article
101(3), which provide a useful frame of reference L Kjolbye, The New
Commission Guidelines on the Application of Article 81(3): An Economic
Approach to Article 81 [2004] ECLR 566.
- The commission makes clear that the balancing of pro- and anti-
competitive effect whould take place within Article 101(3) rather than Art
101(1)
1st condition: there must be some efficiency gains flowing from
the restrictive agreements (i.e.: reducing costs, better products)
2nd condition: consumers must receive a fair share of the resulting
benefit
3rd condition: It must contain only restrictions which are
indispensable to the attainment of the agreements objectives ->
 twofold: the restrictive agreement must be reasonably necessary to
achieve the efficiencies and the individual restrictions of competition that
glow from the agreement must also be reasonably necessary for the
attainment of those efficiencies.
4th condition: it cannot lead to the elimination of competition in
respect of the substantial part of the products in question.
=> all of them must be fulfilled!!!
- in considering everything, one should not lose sight of its overall
impact p. 896

B) BLOCK EXEMPTIONS p. 987

- They have common features: they state reasons for their enactment, set
out the substance of the exemption, contain provisions limiting the size of
the firms that can take advantage of them and list the type of clauses that
are and are not allowed within the relevant agreement

ARTICLE 101: COMPETITION AND NON-COMEPTITION CONSIDERATIONS:

Article 101(3):
- Some authors argue that non-competition considerations can be taken into
account within Art 101(3) G Monti, Article 81 EC and Public Policy
(2002) 39 CMLrev 1057, 1087-1089.
- R Whish, Competition Law, 152-155: even if a broad view of art 101(3) is
possible, the narrow approach based on economic efficiency is preferred.

ARTICLE 101: VERTICAL RESTRAINT: - p. 989

- Vertical agreements are made between parties at different level of
production process (i.e.: manufacturer and retailer)
- In terms of Art 101(3), the EU has primarily used block exemptions to deal
with vertical restraints
THE ECONOMIC DEBATE
a) the first view:
A manufacturer must decide how to market its product p. 990
Vertical restraint: NO FARMFUL BECAUSE:
1. the manufacturer will choose the most efficient marketing option (it
is in a better position);
2. the manufacturer will not restrict output to any greater degree than
it would otherwise do, and will not take any greater monopoly profit, if
such is available
3. any restraints are either outweighed by the pro-competitive effects
of the agreements and/or are necessary to persuade the distributor to
market the goods.
4. vertical restraints should be lawful because they do not produce
anti-competitive effects.

Bork supports the lase view. He said in The Antitrust Paradox, A policy
at War with Itself, at 297-298:
~ basic economic theory tells us that the manufacturer who imposes
such restraints cannot intend to restrict and must intend to create
efficiency

b) the second view:

 Vertical restraints, DANGERS: - p. 991
1. market foreclosures: if a producer has made exclusive contracts
with certain outsells to sell only its brand of a product, then it may be
difficult for other producers to secure outlets for their sales
2. consumers can be harmed
3. they can serve as a mask for cartels between producers and
distributors.
4. agreements which divide the market along national or regional lines
will be against the creation of a single European market, which is of
prime important to EU competition law
- The Commission concluded that there should be a more economics-based
approach to vertical restraints and that there should be one block exemption for
all vertical agreements.

EXLUSIVE DISTRIBUTION p. 994

- In an exclusive distribution agreement (EDA) the producer agrees to
supply only to a particular distributor within a particular territory
- ADVANTAGES: may persuade a distributor to market a new product or to
market an existing product in a new area; may facilitate the efficient
distribution of its goods, since ot woll not have to incur transport costs to
multiple sites
- DISADVANTAGES: it can be caught within art 101(1) when, for example,
the export can prohibit a distributor from exporting a product outside a
territorial designated area

SELECTIVE DISTRIBUTION p. 995:

- Selective distribution agreements (SDA) stand in contrast to EDAs
- SDA: is a system in which the supplier chooses to distribute the goods only
through certain outsets
- There are now block exemptions for vertical restraints
- The METRO case established 4 conditions where fulfilled, the SDA
is not held to be within art 101(1):
1. NATURE OF THE PRODUCT
~ product must be justifiable to limit price competition; i.e.: those that
require specialist sales staff, good where brand image is important
2. QUALITATIVE CRITERIA
~ The Metro principle does not allow a supplier to impose quantitative
limits on those who can distribute the product, or to discriminate as
between distributors.
~ the producers will choose to distribute the products by qualitative or
quantitative criteria, or a mixture, depending upon the nature of the
product. p. 996-997
3. NON-ELIMINATION OF COMPETITION THOUGH MULTIPLE SDAs
~ the compatibility of a particular SDA with art 101(1) may be affected by
the existence of other such SDAs, if the overall impact is to eliminate or
unduly restrict competition p. 997
4. NO ABSOLUTE TERRITORIAL PROTECTION
~ the ECJ will not tolerate an SDA if it operates so as to confer absolute
territorial protection apparent from the BMW case.

FRANCHISING p. 999
 - The franchisor allows the franchisee to use intellectual property rights
belonging to the former, such as trade names, logos.
- Twofold advantage: the franchisor receives payment for the sue of its
intellectual property rights; the franchisee can start an independent
business with the assurance that the product has been tried and tested
elsewhere p. 1000
- In Yves Rocher: the franchisee was forbidden from opening more than one
shop => within art 101(1)

ECLUSIVE PURCHASING p. 1000

- Exclusive purchasing agreements (EPA) when one party agrees to buy all
it needs of a product from a particular supplier. (i.e. petrol stations)

THE BLOCK EXEMPTION p. 1001

- Less formalistic, more economically oriented and applied to all species of
vertical restraints, except for distribution agreements of motor vehicles.
- Art 1 of the Regulation 330/2010:
vertical agreement means an agreement or concerted practice entered
into between two or more undertakings each of which operates, for the
purpose of the agreement or the concerted practice, at a different level of
production or distribution chain, and relation to the conditions under which
the parties may purchase, sell or resell certain goods or services
- Art 2: An agreement that does not fall within Art 101(1) will not need to
use the block exemption p. 1002
- Art 3: the exemption in art 2 applies on the condition that the market
share held by the supplier does not exceed 30% of the relevant market on
which it sells the contract goods or services; the same applies to the buyer
- Art 4: it excludes: resale price maintenance, restrictions on the territory
- Art 5: excludes the benefit of the block exemption from certain term
contained in such an agreement
- Art 6: withdrawing the benefit of a block exemption

COMPETITION LAW: ENFORCEMENT p. 1005

a) THE TRADITIONAL APPROACH
- The traditional approach had 2 foundations: Agreements had to be notified
to the Commission and the Commission had a monopoly over the
application of Art 101(3).
- The White Paper on Modernisation abolished the notification and the
Commissions monopoly because of its lack of resources
b) THE NEW REGIME p. 1006
- Agreements within art 101(1) which do not satisfy the conditions of art
101(3) shall be prohibited, no prior decision to that effect being required.
- NCAs and National courts can now apply the entirety of art 101 and 102.
- There are provisions to facilitate cooperation between an NCA and the
Commission; the Commission can relieve the NCAs from their competence
to apply those articles.
c) JUDICIAL REVIEW
- The applicant must show standing under Article 263 p. 1008
- An action may be brought against the Commission for failure to act under
art 265 TFEU; the Commission is not obliged to proceed with a complaint
d) DAMAGES ACTIONS
 - Damages available where a state entity is the defendant in an Article 102
action or where the defendant is a private party.

CONCLUSIONS:
i. the EU Courts have given a broad reading to Article 101, with the objectives of
enhancing efficiency and preventing the single market programme from being
hindered by private actors.
ii. a market/economic analysis will be required to determine whether the
agreements are within Art 101(1); ECJ has insisted that object and effect should
be read disjunctively
iii. narrow view of the interpretation of art 101(3)
iv. the reach of the EU competition law has not been the work of the courts
alone; the legislature has intervened through measures such as the Merger
Regulations; the Commission itself has orchestrated developments in diverse
ways, through the passage of block exemptions, the control of merges, the
increased attention paid to competition in the public sector and the reform of the
enforcement mechanisms.