European Competition Law PDF

EUROPEAN UNION COMPETITION LAW C O M P E T I T I O N L AW The two core competition rules in the TFUE are those governing anti- competitive agreements (and other forms of collusion) between independent firms (Article 101) and the abuse of a dominant position (Article 102). Competition Law (or Antitr...

EUROPEAN UNION COMPETITION LAW C O M P E T I T I O N L AW The two core competition rules in the TFUE are those governing anti- competitive agreements (and other forms of collusion) between independent firms (Article 101) and the abuse of a dominant position (Article 102). Competition Law (or Antitrust Law as it is known in the U.S) is designed to protect the process of free competition and to deal with the market imperfections that arise in a free market economy. This course will deal exclusively with these two Articles, but it is important to remember that there are other provisions of Competition Law referring to State Aid and company mergers which we shall not consider in this course.  ARTICLE 101 TFUE – AGREEMENTS, DECISIONS, CONCERTED PRACTICES 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 undertakingsany 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.  Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade ARTICLE 102 between Member States. TFUE Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other ABUSE OF A unfair trading conditions; DOMINANT (b) limiting production, markets or technical development to the prejudice of consumers; POSTION (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making 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. HOW DOES THE EUROPEAN COURT OF JUSTICE DEFINE THE OBJECTIVE OF EU COMPETITION LAW The ECJ has tended to The interest protected is stress the importance of the EU market, and the maintaining the desire is to avoid conducts integration of the internal that might restore the market. national divisions in trade between member states. W H O E N F O RC E S E U C O M P E T I T I O N L AW ? Articles 101 and 102 are enforced: (i)Publicly, by a network of Competition Authorities comprised of the Commission and the national competition authorities of the member states (ii)Privately, through civil litigation in the national courts  Regulation 1/2003 confers significant powers on the Commission to enforce Articles 101 and 102, including the power to investigate in an administrative procedure violations of the provisions, to issue decisions, and to impose significant fines upon undertakings found to be in breach (fines of up to 10 percent of their worldwide turnover). ENFORCEMENT BY THE COMMISSION In the EU structure the Commission acts as an integrated decision maker, investigating, prosecuting and deciding an individual case. However, the Commission’s decisions are subject to review by the EU Courts. P R I VAT E A claimant that has been or is being injured by an agreement or conduct ENFORCEMENT that infringes Article 101 or Article 102 may bring private proceedings before THROUGH CIVIL a national court seeking a declaration of nullity, an injunction and/ or L I T I GAT I O N I N damages to compensate for the loss suffered as a consequence. T H E N AT I O N A L COURTS U N D E R TA K I N G S Articles 101 and 102 apply to undertakings. Undertaking has been defined in the same way under both Articles 101 and 102. It is not defined in the EU Treaties, but case law has settled that the concept: “encompasses every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed”. THE SINGLE ECONOMIC ENTITY DOCTRINE The single economic entity doctrine In the context of parent-subsidiary potentially expands the notion of entity to relationships the entities will constitute a entire corporate groups. This means that single economic unit if the subsidiary Articles 101 and 102 do not interfere “enjoys no economic independence” or if with the internal organization of the group the entities “form an economic unit within (and as such agreements between which the subsidiary has no real freedom members of the group are intra- to determine its course of action on the undertaking and are not considered to be market” but carries out the instructions between separate undertakings). issued by the parent company controlling it. THE INFLUENCE OF CASE LAW Furthermore, that the ability to and Cases have established that where a actual exercise of decisive influence can parent company holds a 100 percent be ascertained even where the parent shareholding in the subsidiary or an company holds only a majority or insignificant amount less, a (rebuttable) minority interest in a subsidiary where: presumption that the parent does in fact the factual evidence, including, in exercise decisive influence over the particular, any management power commercial policy and conduct of its exercised by the parent company or subsidiary applies. companies over their subsidiary, supports such a finding.  The Court of Justice has held that in order to come within the prohibition MAY imposed by Article 101, the A P P R E C I A B LY AFFECT FREE agreement must affect trade between TRADE Member States and the free play of BETWEEN competition to an appreciable extent. THE MEMBER To fall within the scope of Articles STATES 101 and 102, agreements or conduct must therefore have a minimum level of cross-border effects.  The Court has stated that for a conduct to be capable of affecting trade between member states it must be possible to forsee a: C A PA B L E O F AFFECTING TRADE “sufficient degree of probability, on the basis of a set of objective factors of law or fact, that they may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States, in such a way as to cause concern that they might hinder the attainment of a single market between Member States (the EU internal market). Moreover, that influence must not be insignificant. EXCLUSIONS Although Articles 101 and 102 do not contain any express exclusions, in practice a number These are normally justified on of exclusions exist from one or grounds of public policy. both of these provisions by virtue of Treaty provisions, EU case law, or EU regulation. EXAMPLES OF EXCLUSIONS Article 346 (1) (b) TFEU –provides that the provisions of the EU treaties, including the competition rules, do not preclude a member state from taking measures that it considers necessary for the protection of the essential interests of its security which are connected with the production of or trade in arms, munitions and war material. EXAMPLES OF EXCLUSIONS – THE ALBANY CASE In Case C –67/96 –Albany Albany International BV, a Dutch textile company, challenged the requirement to contribute to a sectoral pension fund for employees. The pension scheme was set up based on a collective agreement negotiated between employers' associations and trade unions. The collective agreement had been made universally applicable by the Dutch authorities. THE ALBANY CASE Albany argued that the compulsory nature of the pension contributions constituted anti-competitive behavior and violated EU competition law, specifically Article 101 TFEU (which prohibits agreements that restrict competition). The ECJ had to determine whether collective labor agreements that establish compulsory contributions to a sectoral pension fund fall within the scope of EU competition law. The question centered on whether such agreements should be exempted from competition law because they aim to improve working conditions and social policy goals.  The Court ruled that collective agreements between employers and trade unions that aim to improve working conditions (including setting up sectoral pension funds) fall outside the scope of Article 101 TFEU. THE ALBANY CASE THE ALBANY CASE “An understanding in the form of a collective agreement which sets up in a particular sector a supplementary pension scheme to be managed by a pension fund to which affiliation may be made compulsory by the public authorities does not, by virtue of its nature and purpose, fall within the scope of the Treaty. Such a scheme seeks generally to guarantee a certain level of pension for all workers in that sector and therefore contributes directly to improving one of their working conditions, namely their remuneration”. THE ALBANY CASE “The exclusive right of a sectoral pension fund to manage supplementary pensions in a given sector and the resultant restriction of competition may be justified under the Treaty as a measure necessary for the performance of a particular social task of general interest with which that fund has been entrusted”. THE ALBANY CASE The rationale was that such agreements are fundamental to the social policy objectives of the EU and the improvement of employment conditions, which are essential elements of the EU’s economic and social model. Consequently, they do not constitute the kind of economic activity that competition law is designed to regulate. However, the Court also noted that the exemption applies only when the agreement genuinely pursues social policy objectives. THE SIGNIFICANCE OF THE ALBANY CASE The Albany decision set a precedent for other cases involving similar issues, such as agreements on minimum wages, working hours, and other employment conditions. The ECJ has since followed this approach when assessing the compatibility of collective agreements with competition law. The ruling also implied that not all agreements linked to employment relations automatically qualify for exemption. The agreement must clearly aim to improve working conditions or social welfare. If it primarily serves commercial interests, it might still fall within the scope of 101.1 TFEU. ARTICLE 101 TFUE ARTICLE 101 TFEU Article 101 has two substantive parts: (i)Article 101 (1) contains the core prohibition of collusive agreements between separate undertakings which restrict competition (ii)Article 101 (3) provides a legal exception for agreements achieving offsetting benefits. The burden is on the Commission or other person alleging an infringement of Article 101(1) to establish sufficient proof of an infringement. Only if established does the burden shift onto the undertakings claiming the benefit of exemption to demonstrate that 101 (3) is fulfilled. ARTICLE 101 TFEU Article 101(1) prohibits joint, and not individual conduct. There is an element of collusion between independent undertakings. In many Article 101 cases the existence of an agreement is not in doubt, there may be doubt, however, as to the precise terms of the agreement, or as to whether the terms can be said to restrict competition. In other cases, frequently where it is suspected that a serious violation of the competition rules has been committed, evidence that independent undertakings agreed or concerted to fix prices, may, effectively, prove a violation of Article 101(1). THE MEANING OF AN AGREEMENT The term agreement encompasses situations where undertakings have expressed their joint intention to conduct themselves in a specific way, or, where there is a “concurrence of wills” between economic operators on the implementation of a policy, the pursuit of an objective, or the adoption of a given line of conduct on the market. As long as there is a concurrence of wills, constituting the faithful expression of the parties’ intention, its form or nature is unimportant. AGREEMENTS It can therefore catch horizontal agreements –between competitors operating at the same level or stage of the economy –for example two vitamin manufacturers, or vertical agreements –between non –competitors operating at different levels of the economy –for example a manufacturer of electronic products and a retailer of electronic products. It does not matter whether the agreements are intended to be legally binding, or whether they or written or oral agreements. An agreement may also be found where an offer to collude is accepted tacitly, for example where an undertaking participates in meetings at which anti-competitive agreements are concluded without manifestly opposing them. ARTICLE 101 TFEU If detected, heavy sanctions may be imposed on the undertakings proved to have been party to the infringement. In such cases the parties who have been colluding are likely to try to conceal any collusion rather than attempt to defend the legitimacy of the practices under Article 101(3). The challenge in these cases is to uncover and establish the existence of these covert operations. SOME EXAMPLES. The European Truck Manufacturers Cartel (1997-2011) This involved: Daimler, Volvo/Renault, Iveco, DAF, MAN, and Scania. The truck manufacturers coordinated on the prices of medium and heavy trucks across the European Economic Area (EEA). They also agreed on the timing and the passing on of the costs for compliance with new emission technologies to consumers. The cartel lasted for 14 years, during which the companies colluded on prices and delayed the introduction of cleaner emissions technologies. T RU C K M A N U FAC T U R E R S The price coordination prevented genuine competition in the truck market. Instead of competing by offering lower prices or better features, the companies maintained higher price levels, harming customers and businesses that needed these trucks for logistics and other purposes. By agreeing on the timing of new emission technology and its costs, they restricted innovation and the pace of technological progress, preventing a fair competition environment where manufacturers might have introduced cleaner technologies faster or at a lower cost. TRUCK MANUFACTURERS The cartel distorted competition by reducing incentives for truck manufacturers to innovate and offer competitive prices, thus impacting a large sector of the economy dependent on trucking services. the European Commission imposed fines totaling €3.8 billion, one of the largest fines ever levied for a cartel. T H E V I TA M I N S CARTEL (1989- 1999) The case involved: F. Hoffmann-La Roche, BASF, and other major producers of vitamins. The companies colluded to fix the prices of vitamins (e.g., Vitamin A, B2, C, and E) w worldwide. They also agreed to allocate market shares and coordinated their sales and marketing strategies to prevent price competition and maintain control over the market. Meetings were held regularly to ensure adherence to the agreements and to monitor compliance. V I TA M I N S The cartel artificially inflated the prices of essential vitamins used in human and animal nutrition, pharmaceuticals, and cosmetics. It eliminated price competition in the market, meaning customers had no option but to purchase at the inflated prices set by the cartel members. By controlling market shares and sales strategies, the cartel prevented new companies from entering the market and competing fairly, effectively blocking new entrants. V I TA M I N S The European Commission imposed fines totaling €855 million on the companies involved. This decision marked one of the earliest and largest cases in which the EU aggressively tackled international cartels. THE LCD CARTEL – 2001 - 2006 This case involved: Samsung, LG Display, AU Optronics, and other LCD panel producers. The companies agreed to fix prices for Liquid Crystal Display (LCD) panels, which are used in products like televisions, computer monitors, and mobile phones.They exchanged sensitive information about production levels, market shares, and future business plans to coordinate their actions and keep prices at a desired level. LCD The price-fixing agreement prevented prices of LCD panels from falling in response to market demand, meaning that electronic products using these panels (TVs, monitors, etc.) remained more expensive than they would have been in a competitive market. By sharing information on production and market share, the cartel members restricted output and controlled supply levels, manipulating the market to their advantage and maintaining higher price levels. This agreement blocked competition by ensuring that no single company could undercut the others, removing any incentives to innovate or reduce costs. LCD The European Commission fined the cartel members €648 million. C O N C E RT E D P R AC T I C E S The term concerted practice catches looser forms of collusion. It does not require an agreement or even a plan but catches reciprocal coordination which –“knowingly substitutes practical coordination between the undertakings for the risks of competition”, so precluding any direct or indirect contract between such operators, the object or effect whereof is 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. C O N C E RT E D P R AC T I C E S Where firms engage in conduct designed to remove strategic uncertainty about each other's future conduct on the market, for example through a direct or even indirect exchange or disclosure of strategic information, they may be found not to be acting independently or unilaterally and so their conduct is subject to Article 101.  T H E U K S U G A R A N D C O N F E C T I O N E RY MARKET CONCERTED PRACTICE (1981- 1989) This involved - Tate & Lyle, British Sugar, and two other companies. The companies engaged in information exchanges related to prices, production levels, and market strategies for sugar and confectionery products. The practice did not involve a formal agreement but rather informal meetings and discussions where the companies shared sensitive information. This allowed them to coordinate their market behavior without explicitly agreeing on price-fixing. SUGAR By exchanging sensitive information on prices and production, the companies reduced uncertainty about each other’s behavior. This led to a coordinated approach to pricing and output, effectively stabilizing prices in the market. This behavior distorted competition as it reduced the incentive for each firm to compete independently, leading to higher prices for consumers and reducing the overall competitiveness of the market. The companies were able to align their strategies without the need for a formal agreement, creating a situation similar to a cartel but harder to detect. SUGAR The European Commission found that these exchanges constituted a concerted practice that violated Article 101(1) TFEU. The companies were fined, and the decision underscored that even informal exchanges of information that influence market behavior can be illegal under EU competition law. THE WOOD PULP CASE 1981 - 1985 This involved several wood companies, including Stora, UPM, and other Scandinavian companies. The companies regularly exchanged price announcements before they were officially implemented in the market. They used these pre-announcements to align their future pricing strategies, allowing them to follow each other’s prices without a formal agreement. This practice ensured that all producers adjusted their prices simultaneously, maintaining a stable and artificially high price level. WOOD PULP The exchange of future price information allowed the companies to coordinate their pricing strategies without explicit collusion, reducing the competitive pressure that would normally lead to price variations.It led to a situation where prices became predictable and stable, limiting consumers’ and buyers’ opportunities to find better prices elsewhere. The concerted practice also blocked competitive market dynamics, as companies no longer needed to react independently to market conditions but could instead rely on these pre-announcements to maintain a coordinated approach. WOOD PULP The European Commission initially fined the companies, but the case was appealed to the European Court of Justice (ECJ). The Court acknowledged that price signaling through such announcements could, in principle, be anti-competitive. However, in this specific case, it was difficult to prove that the price announcements themselves had significantly distorted competition. As a result, the fines were annulled, but the case set a precedent for how future concerted practices involving information exchanges might be assessed. T H E C O N TA I N E R S H I P P I N G C A S E – 2011-2016 This involved companies such as: Maersk, CMA CGM, Hapag-Lloyd, MSC, and other large container shipping companies. The container shipping companies regularly communicated their intended future price increases through announcements on their websites and in the media.Although these announcements were made publicly, the regularity and similarity of the announcements allowed the companies to align their behavior, creating an environment where they could effectively coordinate price increases without a formal agreement.The companies used these price announcements as signals, ensuring that competitors would follow the same price hikes, reducing competition. SHIPPING By using public announcements to signal price increases, the companies reduced uncertainty about each other’s pricing behavior, leading to coordinated price hikes.This behavior distorted competition because it allowed the firms to maintain higher prices than they would have if they were competing independently. Consumers and businesses relying on these shipping services were unable to benefit from competitive pricing.The practice prevented price competition and created a more predictable market, where firms did not need to worry about price undercutting or innovation in pricing strategies. SHIPPING The European Commission investigated and found that these announcements constituted a concerted practice under Article 101(1) TFEU. To avoid fines, the companies committed to stop making such announcements and implemented measures to ensure their future behavior would comply with competition rules. This led to a commitment decision, where companies avoided fines but agreed to end the anti-competitive practices. D E C I S I O N S B Y A S S O C I AT I O N S O F U N D E R TA K I N G S The reference to decisions by associations of undertakings facilitates holding associations liable for the anti-competitive behaviour of their members. In Wouters(Woutersv AlgemeneRaadVan NederlandseOrde van Advocaten) it was stated that the concept: “seeks to prevent undertakings from being able to evade the rules on competition on account simply of the form in which they coordinate their conduct on the market. To ensure that this principle is effective, Article 101(1) covers not only direct methods of coordinating conduct between undertakings (agreements and concerted practices) but also institutionalised forms of cooperation, that is to say, situationsin which economic operators act through a collective structure or common body”. D E C I S I O N S B Y A S S O C I AT I O N S O F U N D E R TA K I N G S These decisions often involve setting prices, allocating markets, or standardizing conduct among members that restricts competition within the internal market. T H E I TA L I A N M O T O R I N S U R A N C E CASE (1994) The National Association of Insurance Companies (ANIA) in Italy. ANIA, the association representing motor insurance companies in Italy, recommended its members adopt specific pricing practices. The association issued guidelines setting minimum premiums for motor insurance policies and encouraged its members to follow these recommendations to avoid price competition.The decision by ANIA was effectively a collective agreement on pricing structures, even though it was presented as a "recommendation." I TA L I A N M O T O R I N S U R A N C E By setting minimum premiums, the association’s decision prevented its members from competing freely on price. This eliminated any chance of insurers offering lower premiums to attract customers. The decision led to artificially high prices in the motor insurance market, harming consumers who had to pay more for insurance than they would have in a competitive market.It reduced the incentives for insurance companies to innovate or offer better services, as they were not competing based on price. I TA L I A N M O T O R I N S U R A N C E The European Commission found that ANIA’s decision violated Article 101(1) TFEU. The association and its members were fined, and the Commission required ANIA to withdraw its pricing recommendations, restoring competition in the motor insurance market. T H E S PA N I S H WA S T E M A N A G E M E N T MARKET CASE - 2013 The Association of Spanish Waste Management Companies (FER). FER, representing companies in the waste management sector, issued a directive requiring its members to standardize the prices they charged for waste collection and disposal services. The association organized meetings where members exchanged information on pricing policies and agreed on common price ranges for their services.FER's decision was aimed at stabilizing the market and preventing price wars, encouraging members to adhere to these standardized prices. WASTE MANAGEMENT The decision prevented waste management companies from setting their own prices independently, eliminating competition on price and harming consumers who might have otherwise benefitted from lower costs. By standardizing prices, the association limited the scope for competition based on efficiency, innovation, or service quality, effectively stabilizing the market at an artificially high level. This behavior created barriers for new entrants who could have offered more competitive services, thus maintaining the dominance of existing members. WASTE MANAGEMENT The European Commission investigated and found that FER’s decision constituted a breach of Article 101(1) TFEU. The association and its members were fined, and FER was ordered to stop coordinating prices among its members. The decision reinforced the principle that even indirect attempts to stabilize prices through association directives are prohibited. THE PROFESSIONAL SERVICES CASE – BELGIAN ARCHITECTS Ordre des Architectes (Belgian Architects' Association) The association issued a minimum fee scale for architectural services that all member architects were expected to follow. The association argued that the fee scale aimed to maintain professional standards and ensure quality services, but it effectively restricted architects from offering services below these minimum rates. The association also engaged in monitoring and enforcing compliance among its members, discouraging price competition. B E LG I A N A RC H I T E C T S By imposing a minimum fee scale, the association eliminated price competition among architects, preventing them from offering lower prices to attract clients. The decision led to higher costs for consumers, as clients had no choice but to accept services at or above the minimum price set by the association, even if some architects could have offered lower rates profitably.It also restricted market entry, as new architects could not undercut established competitors to gain market share, effectively maintaining the status quo and limiting innovation in pricing or service delivery. B E LG I A N A RC H I T E C T S The European Commission fined the association for restricting competition and ordered it to cease enforcing the minimum fee scale. This decision emphasized that professional associations must not set pricing guidelines that prevent members from competing on price. NOT LIABLE UNDER ARTICLE 101 TFUE In some cases, the EU Courts have annulled a Commission decision for failing to provide adequate evidence of an agreement, decision or concerted practice. For example, no agreement was found in the Bayer/Adalat case: Although the supplier had pursued a policy designed to try to stop French and Spanish wholesalers from selling products into the UK, the EU Courts found that the Commission had not shown that Bayer had sought to obtain agreement or acquiescence from its wholesalers to adhere to its policy or that the wholesalers had acquiesced explicitly or implicitly in it. A DA L AT C A S E C - 277/87 Adalat, is a medication used to treat cardiovascular conditions (such as high blood pressure and angina). Adalat was sold at different prices across various EU member states due to differences in national price regulations and healthcare reimbursement policies. This price variation created opportunities for parallel trade, where wholesalers in low-price countries would export Adalat to higher-price markets for profit. Bayer was unhappy with this, as it affected its revenue and pricing strategy. A DA L AT Bayer took steps to limit the parallel trade of Adalat by reducing its supplies to wholesalers in countries where the price of the drug was lower (e.g., Spain and France). The company aimed to control the amount of Adalat available in these markets to prevent large quantities from being exported to higher-price markets, such as the UK, where Bayer sold Adalat at a higher price. A DA L AT In response, the European Commission (EC) accused Bayer of engaging in a concerted practice with its wholesalers under Article 101(1) TFEU. The EC argued that by restricting supplies to wholesalers, Bayer was implicitly entering into a form of agreement or understanding with these wholesalers to prevent parallel trade, thereby distorting competition within the EU’s internal market. A DA L AT The central question was whether Bayer's actions constituted a unilateral conduct (which is not covered by Article 101 TFEU unless it amounts to abuse of a dominant position under Article 102 TFEU) or whether these actions formed part of a concerted practice with its wholesalers, thereby violating Article 101(1) TFEU. The ECJ had to determine: Whether Bayer’s actions in limiting supplies amounted to a concerted practice with its wholesalers. If there was an agreement or a meeting of minds between Bayer and its wholesalers to restrict parallel trade. THE DECISION OF THE ECJ Unilateral Conduct: The ECJ found that Bayer's actions were unilateral and did not involve a concerted practice or agreement with its wholesalers. The Court noted that for Article 101(1) to apply, there must be a form of cooperation between parties that involves an agreement or concerted practice. Bayer’s decision to limit supply was made independently, without any reciprocal obligation or agreement with the wholesalers. THE DECISION OF THE ECJ The Court emphasized that just because the wholesalers continued to purchase Adalat under Bayer's restrictive supply policy, it did not imply that they agreed or participated in a concerted effort to restrict competition. The wholesalers were acting independently based on their commercial interests, and there was no evidence of collusion or mutual understanding to prevent parallel trade. Therefore, the mere reduction in supply by Bayer, aimed at preventing parallel trade, did not constitute a breach of Article 101(1) as there was no meeting of minds or common intent. THE SIGNIFICANCE OF THE CASE The case clarified the distinction between unilateral conduct by a company and concerted practices involving agreements or cooperation between two or more parties. The ruling emphasized that a company’s unilateral decision, even if it has anti-competitive effects, does not automatically fall under Article 101(1) unless it involves some form of cooperation or understanding with another party. THE SIGNIFICANCE OF THE CASE he judgment highlighted the limits of EU competition law in controlling company actions that indirectly restrict parallel trade. It signaled that companies could reduce supplies unilaterally without breaching Article 101(1) as long as they did not enter into agreements with their distributors to achieve this goal. This was significant for pharmaceutical companies and other industries dealing with price-regulated markets, as it provided legal leeway to control parallel exports by adjusting supply. T H E A DA L AT C A S E In the Adalat case, the Commission did not establish that Bayer held a dominant position in the market for cardiovascular drugs or in any relevant pharmaceutical market. The focus was not on Bayer’s market power or dominance but rather on the nature of its interactions (or alleged interactions) with its wholesalers. THE WOOD PULP II CASE he Wood Pulp II case (officially referred to as A. Ahlström Osakeyhtiö and Others v Commission, Cases C-89/85, C-104/85, C-114/85, C-116/85, C-117/85, and C- 125/85 to C-129/85) is another significant ruling in EU competition law. Decided by the European Court of Justice (ECJ) in 1993, the case revolved around the behavior of several wood pulp producers and their pricing practices in the European Economic Area (EEA). The case is crucial as it clarified the concept of concerted practices under Article 101 TFEU and the jurisdictional reach of EU competition law over practices occurring outside the EU but affecting the EU market. WOOD PULP II The case involved several non-EU wood pulp producers, primarily from Finland, Sweden, the United States, and Canada. Notable companies included A. Ahlström Osakeyhtiö, Metsä-Serla, and UPM-Kymmene. The European Commission accused the wood pulp producers of engaging in a concerted practice to fix prices, violating Article 101(1) TFEU. The Commission argued that: The producers had coordinated their pricing through a system of price announcements. These announcements, made publicly and simultaneously, indicated the future prices of wood pulp before these prices took effect. The Commission believed that these coordinated announcements were intended to align the companies' behavior, stabilizing the market and ensuring that prices remained artificially high. The EC claimed that the producers, despite being located outside the EU, engaged in a practice that had a direct and immediate impact on the EU market, thus falling under the jurisdiction of EU competition law. WOOD PULP II The ECJ needed to determine two main issues: 1.Whether the practice of simultaneous price announcements by the wood pulp producers constituted a concerted practice under Article 101(1) TFEU. 2.Whether the EU had jurisdiction over these non-EU companies, given that the alleged anti-competitive behavior originated outside the EU but had effects within the EU market. THE DECISION OF THE ECJ – C O N C E RT E D P R AC T I C E No Concerted Practice: The ECJ concluded that the price announcements made by the wood pulp producers did not constitute a concerted practice. It recognized that such price announcements were a common practice in the wood pulp industry worldwide and served legitimate purposes, such as informing buyers and providing transparency. The Court noted that simultaneous price announcements alone were insufficient evidence to prove that the companies had coordinated their behavior to restrict competition. It emphasized that in an oligopolistic market like wood pulp, companies might independently arrive at similar prices due to shared market conditions and the need to react to competitors’ pricing strategies. The ECJ highlighted that for Article 101(1) TFEU to apply, there must be clear evidence of collusion or a meeting of minds between the parties involved. In this case, the evidence provided by the Commission did not sufficiently demonstrate that the wood pulp producers had coordinated their pricing intentionally to distort competition. WOOD PULP - JURISDICTIONAL R E AC H The Court confirmed that the EU had jurisdiction over the case based on the effects doctrine, which allows EU competition law to apply to conduct outside the EU if it has direct, substantial, and foreseeable effects within the EU market. Although the wood pulp producers were based outside the EU, their pricing strategies directly influenced prices within the EU, which justified the Commission's jurisdiction. This was a significant affirmation of the EU’s ability to regulate the competitive conduct of foreign companies that impact the EU market. PA R A L L E L B E H AV I O U R – WOOD PULP The ECJ emphasized the distinction between a concerted practice and parallel behavior that naturally occurs in oligopolistic markets. The Court acknowledged that in such markets, companies often observe and react to each other’s pricing behavior without necessarily colluding The ruling clarified that in the absence of direct evidence showing a mutual agreement or a deliberate attempt to align behavior, the Commission could not simply infer a concerted practice from the companies’ parallel actions or similar pricing. The judgment underscored that behavior consistent with the nature of the market (e.g., price parallelism in an oligopoly) cannot be automatically considered anti- competitive without further evidence of a coordinating mechanism.  The Wood Pulp II case also highlighted the limits of information exchanges as a basis for finding a concerted practice. The ECJ indicated that public price announcements, WOOD PULP when used for transparency and to inform customers, may not necessarily have an anti-competitive purpose or effect, particularly if they are common industry practice. WOOD PULP - JURISDICTION The case affirmed the principle that the EU can apply its competition law extraterritorially under the effects doctrine. If anti-competitive behavior, even if originating outside the EU, has significant effects within the EU market, the EU authorities can exercise jurisdiction. This was a crucial precedent, reinforcing the EU's ability to enforce its competition rules in a globalized economy. However, the ruling also indicated that such jurisdiction must be based on substantial evidence that the practice had intended and foreseeable effects on the EU market. I D E N T I F Y I N G AG R E E M E N T S T H AT INFRINGE ARTICLE 101 TFEU According to the General Court (of the European Court of Justice), in order to determine whether an agreement is prohibited by Article 101, a claimant Article 101 (3) is then used to weigh must first identify the anti -competitive pro competitive effects against those aspects of the agreement, it must restrictions identified. establish a restriction of competition whether by object or effect within the meaning of Article 101 (1). C AT E G O R I E S O F A N A LY S I S In distinguishing anti-from pro-competitive agreements, four broad categories of analysis are used in the EU. 1. Presumption of illegality –Agreements which contain provisions which are restrictive of competition by object (i.e it is the objective of the measure) are assumed to restrict competition within the meaning of Article 101(1). The Commission’s view is that they are also presumed not to satisfy the conditions of Article 101(3). Although this presumption is rebuttable, in practice it is hard to do. C AT E G O R I E S O F A N A LY S I S 2. Full economic analysis Other agreements have to be analysed individually to determine whether they have as their effect a restriction of competition, and if so, whether the agreement is exempted from prohibition as it satisfies the four conditions of Article 101 (3). C AT E G O R I E S O F ANALYSIS 3. De Minimis Agreements which do not appreciably restrict competition fall outside the scope of Article 101 (1): agreements between undertakings which have a weak position on the market, and which do not contain object restraints fall outside Article 101(1) where they have an insignificant effect on competition. C AT E G O R I E S O F A N A LY S I S 4. Safe Harbour: Block Exemption Regulations Agreements benefitting from an EU block exemption are presumed to be compatible with Article 101: it is assumed that agreements satisfying a block exemption will produce efficiencies which offset any anti-competitive effects. Such agreements benefit from an exemption from Article 101( a safe harbour) which can only be withdrawn prospectively ( and therefore not retrospectively). AGREEMENTS WHICH RESTRICT COMPETITION BY OBJECT Certain agreements are considered to be very likely to harm the objectives pursued by the competition rules and are assumed to restrict competition –to be restrictive by object. Where it is shown that the object of an agreement is to restrict competition there is no need to demonstrate anti-competititive effects. AGREEMENTS THAT RESTRICT COMPETITION BY OBJECT –WHAT THE GUIDANCE OF THE COMMISSION STATES The distinction between restrictions by object and restrictions by effect is important. Once it has been established that an agreement has as its object the restriction of competition, there is no need to take account of its concrete effects. In other words, for the purpose of applying Article 101 (1) no actual anti-competitive effects need to be demonstrated where the agreement has a restriction of competition as its object. Article 101(3), on the other hand, does not distinguish between agreements that restrict competition by object and agreements that restrict competition by effect. Article 101(3) applies to all agreements that fulfil the four conditions contained therein. Restrictions of competition by object are those that by their very nature have the potential of restricting competition. These are restrictions which in light of the objectives pursued by the Community competition rules have such a high potential of negative effects on competition that it is unnecessary for the purposes of applying Article 101 (1) to demonstrate any actual effects on the market. This presumption is based on the serious nature of the restriction and on experience showing that restrictions of competition by object are likely to produce negative effects on the market and to jeopardise the objectives pursued by the Community competition rules. Restrictions by object such as price fixing and market sharing reduce output and raise prices, leading to a misallocation of resources, because goods and services demanded by customers are not produced. They also lead to a reduction in consumer welfare, because consumers have to pay higher prices for the goods and services in question. EXAMPLES OF 1.Price –Fixing Agreements: AGREEMENTS Price-fixing involves agreements between T H AT A R E competitors to set the prices at which they sell products or services, rather than CONSIDERED allowing the market to determine prices based on supply and demand. ANTI- Price-fixing restricts competition by COMPETITIVE BY eliminating price variation and preventing competitors from undercutting OBJECT one another. This leads to higher prices for consumers and reduced incentives for innovation and efficiency improvements.  2. Market Sharing Agreements EXAMPLES OF Market-sharing refers to agreements AGREEMENTS where competitors divide markets THAT ARE among themselves. This can include geographic divisions (e.g., each CONSIDERED competitor agrees to operate in ANTI- specific regions) or allocating COMPETITITIVE customer groups. BY OBJECT Market-sharing limits consumer choice and competition in particular areas or customer segments, leading to less competitive pricing and fewer options for consumers. It also stifles competition by insulating companies from direct rivalry. EX AM PL E S O F AGR EE M ENT S TH AT AR E CONSIDERED ANTI-COMPETITITIVE BY OBJECT 3. Output Limitation Agreements Competitors may agree to limit the production or supply of certain goods or services. Such agreements reduce the overall supply available in the market, leading to higher prices. This reduction in competition allows firms to maintain or increase their prices without fear of losing customers to competitors. EX AM PL E S O F AGR EE M ENT S TH AT AR E CONSIDERED ANTI-COMPETITITIVE BY OBJECT 4. Bid rigging Bid-rigging occurs when companies agree on who will win a tender or bidding process, often by pre-determining bids or refraining from competitive bidding. This practice distorts competitive tendering, which is designed to ensure the best value for the buyer. It leads to artificially inflated prices and undermines the integrity of competitive procurement. EX AM PL E S O F AGR EE M ENT S TH AT AR E CONSIDERED ANTI-COMPETITITIVE BY OBJECT 5. Collective Boycotts Collective boycotts involve agreements between competitors to refuse to deal with certain suppliers, customers, or markets. Such actions can exclude certain players from the market, limiting competition and consumer choice. They can also distort market dynamics by reducing competitive pressures that would otherwise benefit consumers. EX AM PL E S O F AGR EE M ENT S TH AT AR E CONSIDERED ANTI-COMPETITITIVE BY OBJECT 6. Resale Price Maintenance (RPM) In resale price maintenance agreements, a supplier and distributor agree that the distributor will sell the supplier’s product at a minimum price. RPM limits the distributor’s ability to set competitive prices. It prevents price competition at the retail level, leading to higher prices for consumers and limiting the distributor’s flexibility to react to market conditions. EX AM PL E S O F AGR EE M ENT S TH AT AR E CONSIDERED ANTI-COMPETITITIVE BY OBJECT 7. Agreements to boycott new entrants Existing competitors may agree to collectively refuse to deal with new entrants or suppliers that serve those new entrants. Such boycotts limit competition by preventing new players from gaining a foothold in the market. This entrenches the position of existing competitors, reduces consumer choice, and stifles innovation. EX AM PL E S O F AGR EE M ENT S TH AT AR E CONSIDERED ANTI-COMPETITITIVE BY OBJECT 8. Agreements on Predatory Pricing Strategies Predatory pricing agreements involve competitors agreeing to lower prices to a level below cost, with the intention of driving competitors out of the market. This behavior harms competition by eliminating rivals that cannot sustain such low prices. Once competitors are driven out, the remaining companies can raise prices, leading to reduced competition and harm to consumers in the long run. EX AM PL E S O F AGR EE M ENT S TH AT AR E CONSIDERED ANTI-COMPETITITIVE BY OBJECT 9. Vertical Agreements with Minimum Purchase Obligations A supplier may require a distributor or retailer to purchase a minimum quantity of goods, irrespective of market demand. This type of agreement can force the distributor or retailer to prioritize the supplier’s products over others, limiting their freedom to stock and sell competing products. This can restrict competition among suppliers and reduce consumer choice. AGREEMENTS WHICH DO NOT RESTRICT COMPETITION BY OBJECT Where the object of an agreement is not found to restrict competition, the burden of proving that this is its actual or potential effect is on the person alleging the breach. Only when this is established does the burden then shift onto the parties seeking to defend it under Article 101 (3). However, because finding a restriction by object exempts the Commission (or other claimant) from its ordinary burden of demonstrating a restriction of competition, the Court has stressed that the category must be interpreted very restrictively. AGREEMENTS WHICH RESTRICT COMPETITION BY EFFECT Where it is not found that the object of the agreement is to restrict competition, the likely impact of the competition on intra –brand (same brand) or inter-brand (different brand) competition must therefore be determined before it can be decided whether it has restrictive effects. AGREEMENTS WHICH RESTRICT COMPETITION BY EFFECT This requires proof that: (i)The agreement affects actual or potential competition to such an extent that on the relevant market negative effects on prices, output, innovation or the variety or quality of goods and services can be expected with a reasonable degree of probability -OR (ii)Restricts a supplier’s distributors from competing with each other since potential competition that could have existed between the distributors (if the restraint had not existed) is restricted. C A S E C - 3 8 2 / 1 2 P M A S T E RC A R D I N C. AND OTHERS V COMMISSION (2014) This case involved MasterCard’s interchange fees for cross-border card payments. The European Commission had found that the fees restricted competition because they inflated costs for merchants, who passed them on to consumers through higher prices. The ECJ found that MasterCard’s interchange fees had the effect of restricting competition. The case revolved around MasterCard's multilateral interchange fees (MIFs), which were charged on cross-border payment card transactions within the European Economic Area (EEA). These fees are paid by the merchant’s bank (the acquiring bank) to the cardholder’s bank (the issuing bank) every time a consumer uses a MasterCard card to make a purchase. The European Commission investigated these fees and found that they restricted competition, as they artificially raised the costs for merchants, who then passed those increased costs on to consumers through higher prices for goods and services. The Commission ruled that these fees violated Article 101(1) TFEU, as they had a restrictive effect on competition. MasterCard appealed the decision, leading to the European Court of Justice (ECJ) case. The central issue in the case was whether MasterCard’s imposition of MIFs on cross- border transactions restricted competition by effect. The European Commission argued that the MIFs had the effect of inflating the costs for merchants, reducing price competition between banks, and ultimately harming consumers. A R T I F I C I A L LY I N F L AT E D M E RC H A N T COSTS The court found that the MIFs led to higher costs for merchants accepting MasterCard payments. These fees were passed on to merchants by their acquiring banks, meaning that merchants had to bear higher costs for processing transactions. Since merchants usually pass these costs on to consumers, this resulted in higher prices for consumers, not just for those using MasterCard, but for all customers, regardless of their payment method. This increase in merchant costs was deemed anticompetitive because it distorted the normal pricing mechanism in the market. The fees effectively set a floor for the charges merchants had to pay for card transactions, making it harder for acquiring banks to offer lower rates. DISTORTED PRICE COMPETITION BETWEEN BANKS The court noted that MIFs acted as a common baseline for fees that acquiring banks charged merchants. This reduced the ability of banks to compete with one another by offering lower fees to merchants. Normally, competition between banks would drive down the costs of card services, benefiting both merchants and consumers. However, because the MIFs were pre-set by MasterCard, banks were less incentivized to reduce their fees below this level. The ECJ agreed with the Commission’s analysis that by setting a minimum level of fees that all banks had to pay, the MIFs restricted competition between banks in the market for payment card services. H I N D E R I N G M A R K E T E N T RY A N D I N N O VAT I O N The ECJ agreed with the Commission’s analysis that by setting a minimum level of fees that all banks had to pay, the MIFs restricted competition between banks in the market for payment card services. This had a chilling effect on innovation and market dynamism. The court held that this restriction of competition could reduce the development of new payment methods or alternative payment networks, which would have otherwise driven prices down or improved services for merchants and consumers. H I N D E R I N G M A R K E T I N N O VAT I O N The payment card market operates on network effects, meaning that the value of a payment network increases as more people use it. MasterCard, being an established player, already had a large user base of merchants and consumers. New entrants faced difficulties because they would need to convince merchants and consumers to switch to their system, which is challenging when established providers like MasterCard had an entrenched position. This was compounded by the fact that MasterCard’s MIFs applied uniformly across a large network, giving it an advantage in scale that smaller or newer providers could not easily match. H I N D E R I N G I N N O VAT I O N The MIFs effectively locked merchants into relationships with acquiring banks that were part of the MasterCard network. Alternative providers would have struggled to convince merchants to switch, particularly since merchants were already paying high fees due to the MIFs and might not have seen enough immediate benefits from switching to a less established provider. Merchants may have also feared losing access to the large number of consumers using MasterCard, further reinforcing their dependence on the established system. I M PAC T O N C O N S U M E R W E L FA R E Ultimately, the ECJ placed significant weight on the fact that the increased costs for merchants due to the MIFs were transferred to consumers in the form of higher retail prices. This had a detrimental effect on consumer welfare, as consumers were paying more for goods and services than they would have in a competitive market without such fees. The court emphasized that even though the fees themselves were not directly paid by consumers, their indirect impact on consumer prices was significant enough to be considered anticompetitive by effect under Article 101(1). CASE T-112/99MÉTROPOLE TÉLÉVISION (M6) V COMMISSION (2001) This case involved agreements between television broadcasters and movie distributors regarding the timing of when certain films could be shown on television following cinema release (referred to as "holdback periods"). The court found that while holdback periods are common in the film industry to protect cinema revenues, the specific agreements in this case had restrictive effects on competition. AC C E S S TO F I L M S The holdback periods set by the agreements could have reduced broadcasters' ability to compete for audience share by delaying the availability of films on TV, which in turn could harm consumers by limiting access to content. Access to films The court analyzed whether these holdback agreements restricted broadcasters' access to popular films, which could affect their ability to compete with each other. By setting specific times when a film could or could not be broadcast on TV, the agreements had the potential to limit broadcasters' freedom to compete in offering viewers recent movie content. For example, a broadcaster that wanted to attract viewers with a recently released film might be hindered by a long holdback period. REDUCED CONSUMER CHOICE Reduced consumer choice. The agreements could reduce consumer choice because viewers would have to wait longer to watch films on television after their cinema release. This delay in availability may force consumers to either pay for cinema tickets or wait a considerable time to see a film on TV, thereby affecting their access to entertainment options. By creating artificial delays in film distribution across different platforms (cinemas, pay-TV, free-to-air TV), the agreements could be seen as limiting consumer choice and harming the competitive landscape for viewers. Potential market foreclosure The court considered whether the agreements led to the foreclosure of competition in the broadcasting market. If a small group of broadcasters and film distributors were able to control when and how films were shown, it could reduce the ability of other broadcasters, especially newer or smaller players, to compete. Market foreclosure occurs when market entry is made difficult or impossible for potential competitors due to existing agreements or conditions. In this case, rigid holdback agreements could have reinforced the position of large broadcasters, limiting the ability of others to compete effectively. THE CONCLUSION OF THE COURT The General Court concluded that while holdback periods were a common practice in the film industry and had legitimate business purposes (e.g., protecting cinema revenues), the specific agreements in this case had the potential to restrict competition by their effects. The holdback periods could have delayed access to films for television broadcasters, hindered competition among TV channels, reduced consumer choice, and affected market dynamics by preventing newer broadcasters from entering or competing effectively in the market. DE MINIMIS RULES The De minimis rules in EU competition law provide guidance on when agreements between companies may fall outside the scope of Article 101(1) TFEU due to their negligible effect on competition. These rules establish thresholds for when agreements are considered to have an insignificant impact on competition and are thus unlikely to infringe EU competition law. The De minimis doctrine serves as a way to balance enforcement by ensuring that only agreements with a meaningful impact on the market are scrutinized, while small-scale agreements that have no appreciable effect are left out. A G R E E M E N T S T H AT D O N O T A P P R E C I A B LY A F F E C T C O M P E T I T I O N The De minimis rules recognize that some agreements between businesses, while falling under the scope of Article 101(1) TFEU, do not have a sufficient impact on competition to warrant enforcement action. Such agreements are considered de minimis, meaning they are of minimal importance and therefore do not significantly harm competition. MARKET SHARE THRESHOLDS The European Commission provides specific thresholds in its De Minimis Notice (currently based on the 2014 Notice on agreements of minor importance). These thresholds are based on the combined market shares of the parties involved in the agreement and differ depending on whether the agreement is between competitors (horizontal agreements) or non-competitors (vertical agreements): Horizontal Agreements (agreements between competitors): The combined market share of the parties must not exceed 10% in any relevant market affected by the agreement. Vertical Agreements (agreements between non-competitors): The market share of each party must not exceed 15% in any relevant market affected by the agreement. BY OBJECT RESTRICTIVE AGREEMENTS The De minimis rules do not apply to agreements that are restrictive of competition by object, meaning agreements that are inherently anticompetitive, regardless of their actual market impact. These include hard-core restrictions such as: Price-fixing agreements Market-sharing agreements Output limitation agreements Bid-rigging Resale price maintenance (RPM) Such agreements are considered so harmful to competition that even if the parties' market shares are below the de minimis thresholds, they are still prohibited under Article 101(1) TFEU. NO PRESUMPTION OF LEGALITY Falling below the De minimis thresholds does not mean the agreement is automatically legal, but rather that it is unlikely to have an appreciable effect on competition and thus is not a priority for enforcement. It remains possible that under specific circumstances (e.g., particular market structures), an agreement could still restrict competition. ARTICLE 101(3) TFEU Any agreement that infringes Article 101(1) may in principle benefit from Article 101(3) (including agreements containing object restraints). In practice, however, it is a significant burden to establish that its four cumulative criteria are met. W H AT A R E T H E F O U R C U M U L AT I V E CRITERIA OF ARTICLE 101.3 TFUE Article 101(3) TFEU provides an exception to the general prohibition on anticompetitive agreements under Article 101(1) TFEU. It allows certain agreements, decisions, or concerted practices that would otherwise be prohibited to be exempt from the competition rules if they meet four cumulative criteria. These criteria ensure that the agreements in question provide pro-competitive benefits that outweigh the anticompetitive effects. 1. IMPROVEMENT IN PRODUCTION, DISTRIBUTION, OR PROMOTION OF TECHNICAL OR ECONOMIC PROGRESS: The Agreement Must Lead to Procompetitive Benefits: The agreement must contribute to improving the production or distribution of goods or services or promote technical or economic progress. This can involve increased efficiency in production or distribution processes. Encouraging innovation or the development of new products and services. Improving the overall quality of products or services. The improvements or progress must be tangible and verifiable, and they should result in benefits for consumers and the market. 2. C O N S U M E R S M U S T R E C E I V E A FA I R SHARE OF THE BENEFITS The Agreement Must Pass on Benefits to Consumers: It is not enough for the agreement to generate efficiencies or progress; a fair share of these benefits must be passed on to consumers. Consumers should enjoy lower prices, better quality, more choices, or innovations resulting from the agreement. In other words, the procompetitive benefits must not solely enrich the parties involved, but they should improve the overall welfare of consumers in the relevant market. For example, if an agreement leads to cost savings or increased efficiency, these savings should translate into lower prices or better services for consumers. 3.THE AGREEMENT MUST NOT IMPOSE U N N E C E S S A RY R E S T R I C T I O N S : The Restrictive Effects Must Be Indispensable: The agreement must not impose restrictions on competition that are not strictly necessary to achieve the procompetitive benefits. The restrictive terms of the agreement should be proportionate to the goal of improving production, distribution, or progress. If less restrictive alternatives exist that would achieve the same benefits, the agreement cannot be justified under Article 101(3). For example, if an agreement between companies could achieve the same level of efficiency without restricting competition to the same extent, the more restrictive version of the agreement would not be allowed. Restrictions that go beyond what is necessary to achieve efficiencies will not be exempted under Article 101(3). 4. N O E L I M I N AT I O N O F COMPETITION The Agreement Must Not Eliminate Competition in a Substantial Part of the Market: Finally, the agreement must not eliminate competition in respect of a substantial part of the products or services in question. Even if the agreement improves efficiency and benefits consumers, it cannot be allowed if it effectively creates a monopoly or dominant position that could harm competition in the long run. For example, an agreement that allows companies to work together to innovate and create new products would not be exempt if, at the same time, it eliminates all competition in the relevant market or forecloses competitors. HYPOTHETICAL EXAMPLE OF 101.3 TFUE Imagine two companies agree to collaborate on developing a new technology that will significantly improve the efficiency of their products. This agreement restricts competition between them, but it could potentially be exempt under Article 101(3) if: 1. Procompetitive Benefits: The collaboration allows the companies to pool resources, leading to faster innovation, reduced production costs, and better-quality products. 2. Consumer Benefits: Consumers receive a fair share of the benefits, such as lower prices for the products or access to better technology. 3. Proportional Restrictions: The restrictions on competition between the companies (e.g., exclusive cooperation) are necessary to achieve the benefits of the collaboration. There are no less restrictive ways to accomplish these results. 4. No Elimination of Competition: The agreement does not eliminate competition in the market or prevent other competitors from entering or expanding in the relevant market. METRO SB-GROßMÄRKTE GMBH V COMMISSION (METRO I CASE) (CASE 26/76) This case involved a selective distribution system set up by a producer of high-quality and technically advanced household appliances. The system restricted sales to authorized dealers who met certain quality criteria, such as providing after-sales service and having well-trained staff. The ECJ recognized that selective distribution systems can be exempted under Article 101(3) if they contribute to improving distribution and ensuring that consumers receive high- quality services (such as specialized advice and maintenance). The court found that this selective distribution system did not unduly restrict competition and that it helped ensure that the products were sold in a way that guaranteed technical advice and service to consumers. This arrangement allowed consumers to receive a fair share of the resulting benefits. EUROPEAN NIGHT SERVICES (ENS) CASE (CASE T-374/94) This case concerned joint ventures between several railway companies to offer night train services between major European cities. The agreement included various restrictions, including the division of responsibilities and profits. The court found that while the agreement restricted competition between the companies, it was eligible for exemption under Article 101(3) because it resulted in significant efficiency gains, such as enabling the companies to offer a high-quality, international night train service that would not have been viable otherwise. The benefits of the joint venture, including better services for consumers, outweighed the restrictive effects on competition. The companies had shown that the cooperation was necessary for the service to function and that it provided substantial benefits to consumers, such as more efficient transport services. THE DIFFICULTY OF SHOWING 101.3 TFUE The four cumulative criteria are difficult to meet and to demonstrate. Above all, the criterion that the agreement is indispensable to the achievement of the resulting benefits is particularly hard to establish, especially when it contains object restrictions. The Commission takes the view that restrictions will not be indispensable to the agreement if the efficiencies specific to the agreement can be achieved by other practicable and less restrictive means. Ultimately the protection of rivalry and the competitive process is given priority over potentially pro-competitive efficiency gains which could result from restrictive agreements. BLOCK EXEMPTIONS Block exemptions are legal instruments in EU competition law that automatically exempt certain categories of agreements from the prohibition of Article 101(1) TFEU. The European Commission issues Block Exemption Regulations (BERs) to provide legal certainty for companies engaged in certain types of cooperation that are generally recognized as beneficial or at least not harmful to competition. Agreements falling within the scope of a block exemption regulation are automatically exempted from the prohibition in Article 101(1), without the need for an individual assessment or application for exemption under Article 101(3). However, these agreements must comply with the conditions laid out in the regulation. Block exemptions help businesses enter into cooperative arrangements—such as distribution agreements, technology transfers, and research and development (R&D) agreements—without the fear of breaching EU competition law, provided they meet specific criteria. T H E C H A R AC T E R I S T I C S O F B LO C K EXEMPTIONS 1.Categories of Agreements: Block exemptions apply to specific categories of agreements, such as vertical agreements, technology transfers, or research and development (R&D) agreements. 2.Market Share Thresholds: Many block exemptions include market share thresholds. If the parties' combined market share exceeds a certain threshold, the agreement will not benefit from the exemption. 3.Hardcore Restrictions: Block exemptions contain a list of "hardcore restrictions," which are considered so harmful to competition that they render the entire agreement ineligible for the exemption, regardless of other conditions 4..Conditions and Obligations: Block exemptions may impose specific obligations or conditions on the parties to ensure the agreement does not harm competition. 5.Legal Certainty: Block exemptions provide a "safe harbou," meaning that businesses can be confident their agreements are lawful as long as they comply with the terms of the exemption.  An important difference that is often referred to in block exemptions is that between active and passive sales. PA S S I V E A N D Passive sales refer to sales made by a distributor or reseller in response to unsolicited requests from individual customers. These ACTIVE sales occur when customers actively seek out the product or service themselves, without any targeted effort or promotion from the distributor. SALES Passive sales are contrasted with active sales, which involve proactive efforts to sell to customers in a specific territory or customer group through targeted advertising, direct marketing, or solicitation. EXAMPLE - VERTICAL BLOCK EXEMPTION REGULATION (VBER) (REGULATION 2022/ 720) The VBER applies to vertical agreements, which are agreements between It covers agreements related businesses operating at to the purchase, sale, or different levels of the supply resale of goods or services. chain (e.g., a manufacturer and a distributor or retailer).  CONDITIONS The agreement must not contain any hardcore restrictions, such as: fixing The market share of both the supplier minimum resale prices (resale price The agreement may include certain and the buyer must not exceed 30% maintenance, or RPM), or territorial or non-compete clauses, but these must of their respective relevant markets. customer restrictions, unless be limited in duration (typically no specifically allowed (e.g., exclusive longer than five years). distribution or selective distribution under specific conditions).  Restrictions such as resale price maintenance (RPM) or territorial restrictions that prevent passive sales to customers in other EU HARDCORE Member States automatically disqualify the agreement from the RESTRICTIONS block exemption. THE PURPOSE OF THE VBER The VBER is designed to facilitate agreements between suppliers and distributors, allowing businesses to organize their distribution systems in a manner that enhances efficiency while ensuring that competition is not unduly restricted. A HYPOTHETICAL EXAMPLE OF THE A P P L I C AT I O N O F T H E V B E R A clothing manufacturer enters into a distribution agreement with a retailer, where the retailer agrees to sell the manufacturer’s products exclusively in a certain region. As long as the market share of both parties does not exceed 30%, and there are no hardcore restrictions such as minimum resale prices, the agreement will benefit from the block exemption. TECHNOLOGY TRANSFER BLOCK EXEMPTION The TTBER applies to agreements related to the licensing of R E G U L AT I O N technology rights, such as patents, (TTBER) know-how, software, and other ( R E G U L AT I O N intellectual property (IP). 316/2014) It covers both horizontal agreements (between competitors) and vertical agreements (between non- competitors). CONDITIONS For agreements between competitors, the combined market share of the parties must not exceed 20% in the relevant market. For agreements between non-competitors, the market share of each party must not exceed 30%. Hardcore restrictions, such as price-fixing between competitors or restrictions on passive sales between non-competitors, are not allowed. HARD CORE RESTRICTIONS Restrictions that prevent the licensee from exploiting its Restrictions on passive sales own technology after the between non-competitors. licensing agreement has ended.  The TTBER encourages the dissemination of technology by providing a safe framework for licensing agreements that promote innovation and efficiency, THE without distorting competition. PURPOSE OF THE TTBER  A company that holds a patent for a new pharmaceutical drug licenses the rights to HYPOTHETICAL produce and sell the drug to a third- EXAMPLE OF party manufacturer. THE APPLICATION OF THE TTBER As long as both companies' market shares are below the relevant thresholds and there are no hardcore restrictions (e.g., prohibiting passive sales), the agreement will be exempt under the TTBER. ARTICLE 102 TFUE  ARTICLE 102 TFUE Article 102 prohibits The dominant any abuse by one or position must be in more undertakings the internal market of a dominant or in a substantial position. part of it. DOMINANCE Article 102 only applies where an undertaking holds a dominant position –in the case Hoffmann –La Roche the Court of Justice held that a dominant position relates to a position of economic strength enjoyed by an undertaking: “Which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors and ultimately of the consumers. Such a position does not preclude some competition.”  The Court has defined two steps in assessing dominance: First, the relevant market must be identified ASSESSING (from a product and geographic perspective) DOMINANCE Secondly, it must be determined whether the undertaking is dominant on the relevant market –this is done by looking at market shares and other factors indicating dominance.  MARKET SHARE Where market shares are very large and have been held for In the case AZKO it established some time, the Court of Justice a presumption of dominance for has accepted that they are firms with a market share of 50 generally, save in exceptional percent or more. circumstances, a good proxy for market power or dominance. MARKET SHARE Although dominance may also be found where market shares are below 50 per cent, in practice a finding of dominance is unlikely if the undertaking’s market share is below 40 percent. However, when assessing dominance, it is important not to look exclusively at market shares. It is also important to consider the reasons why the undertaking has the market share in question, and so a series of additional questions need to be asked.  (i)To compare the undertaking’s market share with those of its rivals. An undertaking with a market share of 40 percent is less likely to be found dominant when its nearest rival has a share of 40 percent, than when its nearest rival has a share of 5 per cent. ADDITIONAL QUESTIONS (ii)To consider how the firm’s market shares have changed over time: falling shares hint at declining market power. CONCERNING MARKET (iii)To consider the dynamics of competition on the market: SHARE competition today and how the market might develop in the future (iv)To consider whether or not there are barriers to entry into the market  T H E PA R T I C U L A R I M P O R TA N C E O F B A R R I E R S T O E N T RY If there are no, or there are low barriers to entry or expansion then an undertaking will be deterred from In contrast if barriers to entry are Barriers to entry are factors which increasing prices (and so be unable high then even a significant price deter (or even prevent) new to exercise market power). This is increase by a dominant firm will not competitors from entering the market. because if the undertaking raises attract new entrants to compete with prices, then others outside the market it. might see the potential to make profits and so enter the market. W H AT C O N S T I T U T E S A B A R R I E R T O E N T RY Guidance by the European Commission states that barriers to expansion or entry may take various forms: “They may be legal barriers, such as tariffs or quotas, or they may take the form of advantages specifically enjoyed by the dominant undertaking, such as economies of scale and scope, privileged access to essential inputs or important technologies, or an established distribution and sales network, for example where it has made significant investments which entrants or competitors would have to match, or where it has concluded long term contracts with its customers that have appreciable foreclosing effects.” ECONOMIES OF SCALE Established companies may benefit from economies of scale, which means that as they increase production, their average costs per unit decrease. This makes it difficult for new entrants, who cannot immediately achieve similar production volumes, to compete on cost. For example, a dominant firm in the telecommunications sector may have large-scale infrastructure in place, allowing it to provide services at lower costs. New entrants would face substantial fixed costs to build comparable infrastructure, creating a significant barrier to entry. A dominant firm could leverage its economies of scale to undercut prices and engage in predatory pricing, making it even harder for new entrants to compete. H I G H C A P I TA L INVESTMENT Some industries require significant upfront investment in infrastructure, technology, or other capital assets. High capital costs act as a deterrent for new competitors who may not have the financial resources to compete with established firms. In the energy sector, building power plants, transmission grids, or renewable energy infrastructure requires massive investment. A dominant energy provider with established infrastructure could use its entrenched position to prevent new entrants from competing on equal terms. A dominant company might use exclusivity agreements or leverage control over essential facilities (e.g., power grids or pipelines) to prevent competitors from accessing the necessary infrastructure, exacerbating entry barriers. AC C E S S TO DISTRIBUTION CHANNELS Dominant firms may have control over key distribution networks, making it difficult for new competitors to distribute their products or services effectively. A dominant manufacturer in the consumer electronics market may have exclusive agreements with major retailers, ensuring its products are given priority over those of new entrants. As a result, new companies may struggle to access the same distribution networks or secure retail shelf space. Dominant firms that enter into exclusive distribution agreements or engage in practices such as refusal to supply to limit a competitor's access to distribution channels may be seen as abusing their dominant position by raising barriers to market entry. INTELLECTUAL PROPERTY RIGHTS A N D PAT E N T S Dominant firms may control essential patents or other intellectual property rights that are necessary for competitors to operate in the market. If a new entrant cannot access the technology or must pay high licensing fees, it becomes difficult to enter the market. In the pharmaceutical industry, a dominant firm may hold essential patents on active ingredients, preventing generic drug manufacturers from entering the market. Even after patent expiry, dominant firms might engage in evergreening (extending patent protections through minor modifications) to delay generic competition. NETWORK EFFECTS In markets where a product's value increases as more people use it (network effects), it becomes difficult for new entrants to compete unless they can quickly attract a critical mass of users. Social media platforms or online marketplaces, such as Facebook or Amazon, benefit from strong network effects. A new competitor would struggle to attract users if the dominant platform already has a large, established user base, making it less likely for people to switch to the new entrant. A dominant firm might engage in exclusionary practices, such as bundling or tying products, to reinforce network effects and prevent rivals from gaining a foothold in the market, which could be considered an abuse of dominance. B R A N D L OYA L T Y A N D R E P U TAT I O N A dominant firm with a well-established brand can create a strong barrier to entry by fostering significant consumer loyalty. New entrants may struggle to convince consumers to switch to their products or services, especially if the dominant firm has invested heavily in marketing and brand building. A dominant firm in the luxury car market may have a prestigious brand reputation, making it difficult for a new entrant to compete, even if the new entrant offers a product of similar quality at a lower price. Brand loyalty is not abusive on its own, but a dominant firm might engage in practices such as exclusive dealing or tying, which exploit this consumer loyalty and prevent new entrants from gaining traction in the market.  High switching costs make it difficult for customers to switch from one supplier to another, as they would incur financial, time, or effort- related costs in doing so. This can be a significant barrier for new entrants trying to attract customers away from established competitors. In software markets, switching from one provider (e.g., Microsoft Office) to another may require retraining employees, migrating SWITCHING data, and incurring integration costs. This can discourage businesses COSTS from adopting new, potentially cheaper or better software solutions offered by new entrants. A dominant firm may artificially increase switching costs (e.g., by making it difficult for customers to migrate data) or impose contractual restrictions (e.g., long-term exclusivity clauses) that effectively lock customers into using their products or services, which could be deemed abusive.  A dominant firm may control a facility or infrastructure that is essential for competitors to operate in the market. If new entrants cannot access this facility on fair terms, they are unable to CONTROL compete. OVER A dominant telecommunications provider that owns the only fiber-optic ESSENTIAL network in a region might refuse to grant access to competing internet FAC I L I T I E S service providers, preventing them from offering services to customers. The essential facilities doctrine is applied when a dominant firm’s control over a key infrastructure or resource creates an insurmountable barrier to entry. A refusal to grant access to such a facility on fair terms can be considered an abuse of dominance under Article 102 TFEU.  Article 102 makes it clear that it is not an offence for a firm to hold a dominant position –an abuse of that dominant position must be committed. Article 102 sets out an illustrative, IDENTIFYING but not exhaustive list of abuses including: THE CONDUCT (i) Directly or indirectly imposing unfair purchase or selling prices T H AT INFRINGES ARTICLE 102 (ii) Limiting production, markets or technical development to the prejudice of consumers (iii) Applying dissimilar conditions to equivalent transactions with other trading partners, thereby placing them at a competitive disadvantage. HOFFMANN-LA ROCHE V COMMISSION (CASE 85/76) Hoffmann-La Roche, a Swiss pharmaceutical company, was found to have engaged in abusive conduct by entering into exclusive purchasing agreements with customers for certain vitamins. These agreements required customers to buy all or most of their vitamin needs from Hoffmann-La Roche. The abuse consisted of exclusive dealing and loyalty rebates, which were conditional discounts designed to ensure that customers would remain loyal to Hoffmann-La Roche and not switch to competitors. HOFFMANN – LA ROCHE This case is a landmark decision in establishing the principle that loyalty rebates and exclusive agreements can be abusive when imposed by a dominant firm. It clarified that rebates or discounts that are not based purely on cost savings or efficiency but are instead designed to foreclose competitors are considered an abuse of dominance. The ECJ emphasized that any practice that ties customers to the dominant firm and prevents them from choosing other suppliers undermines competition. The court rejected Hoffmann-La Roche’s argument that such rebates were based on volume-related efficiencies.  United Brands, a US-based company, was found to have abused its dominant position in the banana UNITED market by engaging in several exclusionary practices. The company BRANDS V was a key supplier of bananas under the "Chiquita" brand in the European COMMISSION market. (CASE 1. The abuse consisted of: Refusal to supply certain customers who 27/76) dealt with United Brands' competitors. 2. The imposition of unfair pricing, as United Brands charged significantly different prices to different customers across Member States without objective justification.  This case is crucial because the ECJ defined what constitutes a dominant position and explained that dominance is not illegal in itself, but abuse of that dominance is. The court emphasized the importance of the company's market share and market power. UNITED BRANDS The court also outlined the notion of refusal to supply as an abuse of dominance, particularly when a firm uses it to exclude competitors or punish customers for dealing with rivals. GOOGLE SHOPPING ( C A S E AT. 3 9 7 4 0 ) Google was found to have abused its dominant position in the online search market by favoring its own comparison-shopping service (Google Shopping) in search results, while demoting rival comparison- shopping services. The abuse consisted of self-preferencing, where Google used its dominant position in the general online search market to give preferential treatment to its own product, Google Shopping, over competitors in search rankings. This case is significant because it highlights the abuse of dominance in digital markets. The European Commission fined Google €2.42 billion for its behavior, arguing that Google’s practice harmed consumers by reducing the visibility of competing services and restricting consumer choice. GOOGLE ANDROID CASE (CASE T- 604/18) The European Commission fined Google €4.34 billion for abusing its dominant position in the mobile operating system market. The Commission found that Google had imposed illegal restrictions on Android device manufacturers and mobile network operators to consolidate its dominance in search services. GOOGLE ANDROID CASE – THE ABUSES Tying: Google required Android device manufacturers to pre-install the Google Search app and Google Chrome browser as a condition for licensing the Google Play Store. Exclusivity: Google made payments to device manufacturers and mobile network operators on the condition that they exclusively pre-installed Google Search. Anti-fragmentation agreements: Google prevented manufacturers from selling devices running on versions of Android that were not approved by Google (so-called Android forks).