Tutorial 6 - EU Law PDF

**Tutorial 6: Competition law I** **Task 6.1 European football troubles** The European Football Federation (EFF) has organized the Grand Winners League since 1956, and in 2013, EFF partnered with Sonsoft (Swedish gaming console producer) and Tsunami Sports (US-based video game developer) to create the virtual football game Grand Winners. The game generated a global turnover of €1.3 billion in its first year of play and was managed by Grand Winners N.V., a joint venture between EFF, Sonsoft, and Tsunami Sports. Tsunami Sports holds the game\'s trademark and copyright, while Sonsoft holds the patent for the gamepad design. Since 2015, Grand Winners N.V. has organized the Grand Winners' Cup, a professional virtual football competition with sponsorships from major corporations and exclusive broadcasting rights with Twitch. Over time, participation in this Grand Winners' Cup became intensely professionalized, limiting the amount of amateur teams that could participate. Over time, only professional teams qualified, fully excluding amateur players. By 2020, as COVID-19 disrupted physical football and tarnished the image of the International Soccer Association (ISA), the Grand Winners' Cup gained further popularity, increasing its revenue and expanding its audience. In 2020, Carlos Márquez, president of Rams Madrid, proposed the creation of a rival competition, the Mega League, a partially closed competition featuring 15 permanent teams and 5 rotating guest teams. This was in part due to the fact that the e-sports team from the Rams failed to qualify for a couple years in a row for the Grand Winners' Cup. The Mega League aimed to ensure financial stability by guaranteeing annual participation for the permanent members. In November 2020, Márquez sought a license from Tsunami Sports to use Grand Winners for the Mega League, but the request was denied. Márquez then partnered with Itachi, a competitor of Tsunami Sports and Sonsoft, to develop a similar virtual football environment for the Mega League. In February 2021, the Mega League secured a \$5 billion investment from Goliath National Bank, and on April 18, 2021, Márquez announced the league along with 9 permanent members, including leading clubs from Italy, Spain, and Germany, all of which had previously competed in the Grand Winners' Cup. Among them were FC Ballern München, FC Cataluña, Paris Saint Balmain, Manchester Country, Piedmont Calcio, Amsterdam Strikers, Arsenball FC, and Essex United. In response, EFF and Grand Winners N.V. issued a statement on April 20, 2021, declaring that clubs participating in the Mega League would be banned from domestic, European, and international football competitions, and their players would be barred from representing national teams. This led to Rams Madrid filing a complaint against EFF in the Commercial Court of Madrid on April 21. Following the announcement, several teams withdrew from the Mega League, with only FC Cataluña, Rams Madrid, and Piedmont Calcio remaining by April 22. On April 26, the Madrid Commercial Court issued a medida cautelarísima, ruling that EFF could not block the launch of the Mega League or impose sanctions on participating clubs and players until the case was fully considered. Additionally, Ed North, CEO of Tsunami Sports, pursued legal action against Itachi for intellectual property infringement. The Madrid Commercial Court referred the following preliminary questions to the Court of Justice of the European Union (CJEU): i. **Does EFF and Grand Winners N.V.\'s conduct, which prevents clubs from joining other leagues and restricts competitors\' access to the game, violate Article 102 TFEU (abuse of dominant position)?** ii. **Does the formation of the Mega League by major teams constitute an anti-competitive agreement or concerted practice under Article 101 TFEU?** **Task 6.2 Intelligent vacuum cleaners** Breathon is a company established in France specialised in the production of air filters that are scientifically proven to effectively remove viruses, bacteria and particles from the air. Thanks to its leading position in the production of air filters, Breathon has also recently ventured in the world of home appliances and specifically AI-powered vacuum cleaners, developing the (A)iVac. This vacuum cleaner features Breathon's air filters and is meant to use AI to learn and develop itself, in the sense that it will get a feeling for when the house/apartment needs cleaning, based on whether there have been guests over, et cetera -- but the user will also be able to manually power it and use it in designated areas. Over time, the machine will grow used to the user's needs and will be able to anticipate them on the basis of their personal calendar and other information that will be shared to it via an internet-of-things-like connection. In the world of smart home appliances, Breathon company (A)iVac is not the only one -- but Emily Dupont, Breathon's CEO wants it to become a sounding success. Breathon therefore sets up agreements with distributors of home appliances in different Member States. To keep things simple, but effective, first, Breathon will only have one distributor per Member State: Breathon will in each Member State exclusively supply the (A)iVac to one distributor and the distributors are bound can only sell the (A)iVac in the Member State where they are situated. Moreover, for marketing reasons, the distributors have to satisfy certain criteria concerning their brick-and-mortar retail: each of the distributor's sales locations must be approved by Breathon and the décor and furnishing of the sales location for the (A)iVac , advertising and the sales presentation must highlight and promote an image of cleanliness, techological innovation and comfort: taken into account when evaluating this criterion are, in particular, the façade, interior décor, floor coverings, type of walls, ceilings and furniture, sales space and lighting, as well as an overall clean and orderly appearance. Those distributors cannot sell the (A)iVac to unauthorised distributors, nor use third-party online platforms such as Bol.com or Amazon. **Breathon wonders whether this contract would be in line with the Union's rules on competition law.** **[Scheme on how to resolve a case of competition law (article 102)]** 1. **First step: The scope of competition law** a. **Personal undertakings (case law: Hofner, this case defines what a personal undertaking is and what it does and does not include)** b. **Material scope:** Everything related to money (economics) can fall under this scope unless exempted. Everything is in the material scope unless it is exempted in the treaties. c. **Territorial scope:** Entire EU + Also TCN Companies active in the EU when policies are implemented in the EU (case law: Woodlup) 2. **Second step: Are we looking at article 101 or 102 TFEU?** ARTICLE 102 TFEU 3. **Third step: Criteria of article 102 TFEU** - *Undertaking* - *Dominant relevant market* - *Abuse their government position* - *Abuse affects trade between Member state* 4. **Fourth step: Dominant in relevant market?** a. **How do we know that it is dominant in the relevant market?** - **Product in cross elasticity** *A firm will only have market power in the supply of particular goods or services. In this case, what is a product, and what are these companies selling?* The general approach has been to focus upon interchangeability: **the extent to which the goods or services are interchangeable with other products**. This is determined by looking at the demand (1) and the supply sides (2) of the market: 1. **From the demand side:** - Interchangeability requires investigation of cross elasticities of the product. - Cross-elasticity is high where an increase in the price of one product, for example, beef, will lead buyers to switch in significant numbers to lamb or pork. - The existence of a high cross-elasticity indicates that the products are part of the same market. - The Commission and the Court may then look to related factors to determine whether the products really are interchangeable, including the prices of the respective products and their physical characteristics. - **The case law United Brands:** It exemplifies the relevance of the physical characteristics of the product. - **The case law France Télécom:** The CFI held that the market for law and high-speed internet access were distinct since there was insufficient substitutability between them. 2. **From the supply side:** - The degree of interchangeability may also be affected by factors on the supply side. - Even if firms are producing differing products, it may be relatively simple for a firm to adapt its machinery to make the goods produced by a rival. In these circumstances, the two products may be thought to be part of the same market. - **Geography:** It is defined as the territory in which all traders operate in the same or sufficiently homogenous conditions of competition in relation to the relevant products or services without it being necessary for those conditions to be perfectly homogenous conditions. **In the absence of special factors, the relevant geographic market was held in Hilti to be the entire EU.** - **Temporal:** Markets have a temporal element. Indeed, a firm may possess market power at a particular time of year during which competition from other products is low because these other products are available only seasonally. The very definition of the product market will have a temporal dimension in the sense that technological progress and changes in consumer habits will shift boundaries between markets. **Usually, it is a whole year** b. **Once you have established the relevant market how can you say that there is a dominant position?** **SINGLE FIRM DOMINANCE** The legal test for dominance is laid out in United Brands (+ it was quoted in Hoffman-La Roche): When there is no statutory monopoly, the court will consider two types of evidence to determine whether the firm has market power: 1. **The undertaking's market share** You can examine the market share of a single undertaking that may be dominant and compare it with its competitors. If it has a larger market share, it is likely to be in a dominant position. Therefore, if an undertaking holds a significant market share, it will probably indicate that it has a dominant position. In this case, we don\'t have market shares, but we do have sponsorship and broadcasting rights. If you can exclude other entities, such as professional clubs, without causing harm to yourself, this kind of arrangement can establish dominance. **In this case**, there is likely a dominant position in the relevant market. Having a dominant position is not illegal, there has to be abuse for it to be illegal. 2. **Additional factors indicating Dominance: Barriers to Entry** It can be problematic to determine the other factors that indicate dominance. It is clear that the Court should pay attention to factors other than market shares since even a relatively large market share may be fragile because of the possibility of new market entrants. *It must be considered how far barriers to entry render it difficult for other firms to penetrate this market. In the case of Hoffmann-la Roche, the court considered these factors to be of relevance however, it remains questionable whether these factors ought to be regarded as barriers to entry:* - **Economies of scale:** They have been considered to be of relevance in assessing the market power of a particular firm as the capital strength of undertaking and its access to capital markets (many commentators comment that capital is not a barrier to enter since capital markets accurately reflect the cost of capital to a firm and any inefficiency is best dealt with through reform of capital markets). - **Vertical integration:** It is questionable whether it should be regarded as a factor indicating dominance. The motivation for a firm to integrate vertically was considered earlier where it was seen that the rational firm would normally do so only if it was the most efficient method of marketing. - **Superior technology:** It is also doubtful whether it should be perceived as being a barrier to entry. Any new firm wishing to enter the market should expect to expend money on developing technology. - **Legal Provisions:** These provisions within MS that render it more difficult for new firms to break into the market have also been regarded as indicative of dominance. **JOINT DOMINANCE** **Definition:** Joint dominance occurs when two or more independent undertakings collectively possess market power and can act independently of their competitors, customers, and ultimately, consumers. - **Economic Links:** The firms must be linked by economic factors that enable them to coordinate their behavior. These links can be formal, such as agreements or joint ventures, or informal, such as tacit understandings or parallel behaviour. - **Market Power:** The collective entity must possess sufficient market power to influence market conditions and prices independently of competitive forces. - **Independent Behavior:** The firms must be able to act independently of their competitors, customers, and consumers, even if they are not formally coordinated. 5. **Fifth step: Is the dominant position prawn to abuse?** Types of abuse can be found under art.102 =\> This list is non-exhaustive There are several other cases where a dominant position is prawn to abuse ( for instance failure to supply, mergers etc). The NAAT notice is a commission notice called "guidelines on the effect on trade concept contained in articles 81 and 82 of the TFEU". It provides that there will be no appreciable effect on trade where the market share and the turnover of the undertakings involved are low. **Under §73-76 of the NAAT Notice we have cases where a dominant position is prawn to abuse:** - **Exclusionary:** Companies that will not be able to enter the market. These practices aim to eliminate or deter competitors, thereby hindering market entry and innovation. Examples include predatory pricing, tying, and refusals to deal. - **Exploitative:** They are abusing their government position to get more revenue, to get different things to get them for a higher price. These practices allow dominant firms to exploit their market power by charging excessive prices, discriminating against customers, or imposing unfair terms and conditions. 6. **Sixth step: Objective Justifications** Unlike **article 101(3) TFEU**, there is no equivalent of it under article 102 in regard to justification. Nevertheless, the court decided that if there is an objective justification for the dominant firm's conduct and it is proportionate then it can escape condemnation. You can justify how the abuse dominance was to the consumer's benefit however it is generally not accepted. **[Scheme on how to resolve a case of competition law (article 101)]** 1. **First step: The scope of competition law** a. **Personal undertakings (case law: Hofner, this case defines what a personal undertaking is and what it does and does not include)** b. **Material scope:** Everything related to money (economics) can fall under this scope unless exempted. Everything is in the material scope unless it is exempted in the treaties. c. **Territorial scope:** Entire EU + Also TCN Companies active in the EU when policies are implemented in the EU (case law: Woodpulp) 2. **Second step: Are we looking at article 101 or 102 TFEU?** **ARTICLE 101 TFEU** 3. **Third step: Criteria of article 101 TFEU** - Undertakings (case law: Hofner) - Collusion (types of collusion) a. **Agreement:** For it to be considered an agreement, there should be a meeting of the minds. There is no specific form for the agreement. However, the two parties have to agree in some way actively and it must constitute the faithful expression of the party's intentions(there is an offer in some way, even If it is informal). **[CASE LAW]** - **The Quinine Cartel serves as a good example of the ECJ's approach:** - Informal agreements can be caught under Article 101. - The mere fact that the parties can claim to have terminated theme will not be conclusive. - The Court examines the facts to determine whether it was economically plausible that the parties' pricing behaviour could have been achieved without collusion. - **In the Polypropylene case:** - The Commission held that there was a single agreement between firms in the petrochemical industry for many years, even though the agreement was oral, even though there were no sanctions for breach, and even though it was not legally binding. - An agreement existed if the parties reached a consensus on a plan that limited, or was likely to limit, their commercial freedom by determining the lines of their mutual action, or abstention from action, in the market. b. **The decision by the association of undertakings** Must bind the undertakings in law or fact, (the ability to influence members' conduct). c. **Concerted practices:** Parallel behaviour. For example, when considering Maastricht, there are two main supermarkets: Jumbo and Albert Heijn. If Jumbo decides to raise its prices, Albert Heijn will likely maintain its pricing, as both companies are competing against each other. The question then arises: is the price increase by one supermarket a response to the other's actions, or is it driven by broader economic factors? Both will need to justify their pricing strategies. There are four points to note about the concept of concerted practices: 1. **The burden of proving an infringement of Article 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 an issue of whether a concerted practice must have been put into effect.** **[CASE LAW]** - **The ICI v Commission ( dyestuff case):** - This case provides guidance on how to identify concerted practices. - It gives a definition to what concerted practices are and the criteria to identify them. - **The Sugar Cartel case:** - There can be concerted practices even though there is no actual "plan" between the parties. - The key idea is that each undertaking should operate independently on the market. - **The Woodpulp case:** - The Commission found a concerted practice among wood pulp producers but rejected the idea of an oligopolistic market due to many firms. - Although they charged similar prices and changed them simultaneously, the ECJ ruled that this behaviour wasn\'t proof of concertation unless it was the only logical explanation. - Article 101 allows firms to adapt behaviour to competitors. - Price parallelism could be explained by market oligopoly and relevant conditions. - A rigorous economic analysis is needed to explore other possible explanations for the conduct. Without clear communication, the Commission must defend its assumptions against experts who might provide innocent explanations for the behaviour. - **The Huls case (affirmed in T-mobile)** - A concerted practices must be put into effect - The ECJ upheld the Commission\'s finding of concerted practice in the polypropylene market, emphasizing that such practices are prohibited regardless of their actual effects, as long as they have an anti-competitive object. - The burden of proof lies on the undertaking involved to demonstrate that the concerted practice had no influence on its market conduct. 4. **Fourth step: Does Collusion affect trade between Member states?** - **NAAT TEST:** d. *If the parties have less than 5% market share* e. *The horizontal agreement should be less than 40 million revenue aggregate* f. *The vertical agreement should be less than 40 million in revenue for the supplier* 5. **Fifth step: Does the collusion have as its object or effect the restriction of competition?** a. Object: This is listed under art.101(1) TFEU - **STM case:** - It is clear from this case that the Court accepted the words of article 101 were to be read disjunctively. - If the object of the agreement was anti-competitive, then it could be condemned without pressing further since *'certain forms of collusion undertakings can be regarded by their very nature as being injurious to the proper functioning of normal competition'.* - **JSK case:** - According to settled case law 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. - In addition, although the party's intentions are not necessarily a factor in determining whether an agreement is restrictive there is nothing prohibiting the Commission or the Community judicature firm from taking that aspect into account. b. By *Effect (only need to show 1 negative effect)*: depends on the impact on the relevant market - Effect must be appreciable; otherwise excluded by the ***de minimis*** doctrine ◊ Commission notice 2014/C 291/01): - Not under prohibition of 101(1) TFEU if aggregate **market shares** held by all participating undertakings do not exceed, on any of the relevant markets: - 10% for agreements between actual or potential competitors - 15% for agreements between non-competitors - 10% for mixed horizontal/vertical agreements or if unclear - 5% if cumulative effects (*e.g. beer tie agreements with individual undertakings have the effect of foreclosure)* - (Ancillary restraints: any restriction which is **directly related** (subordinate to the implementation of the operation + same parties) and **necessary** (objectively necessary + proportionate) 6. **Fifth step: Justifications** - ***Article 1 is the definitions*** - ***Article 2(1) General exemptions*** - ***Article 3 Limitations market share*** - ***Article 4 Hardcore restrictions (this type of behaviour) =\> entire contract is null and void*** - ***Article 5: Other restrictions*** - **Vertical:** Agreement between brewery and café (brewery sells bier to café who will sell beer). These agreements are more objectively justified. - **Horizontal:** Agreement between bars who should compete. These agreements are more difficult to justify.

Tutorial 6 - EU Law PDF

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