EU competition law and economics [1 ed.] 9780199566563, 0199566569

Table of contents :
Contents
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
About the Authors
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
General Court
Tables Of Cases
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
European Court of Justice
Permanent Court Of International Justice
France
United Kingdom
United States
Table Of Commission Decisions
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
European Treaties And Conventions
Tables of Legislation
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. xxxiv) European Secondary Legislation
Regulations
Directives
National Legislation
Canada
Germany
European
United States
1 Introduction
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 1) 1  Introduction
I.  The Ubiquity of EU Competition Law
A.  Impact of EU Competition Law on Public and Private Decision-Makers
B.  The Positive Economic Effects of EU Competition Policy
(1)  The beneficial macro and micro-economic effects of competition law
(2)  Beneficial macro-economic effects
(3)  Beneficial micro-economic effects
(a)  General remarks
(b)  Neoclassical price theory
(c)  The market failure theory
(4)  The ‘integrationist’ effects of competition law
Illustration: the Volkswagen case
II.  The History of EU Competition Law
A.  Origins of Competition Laws
(p. 14) B.  Appearance of Modern Competition Laws
(1)  The adoption of competition law in North America
(p. 15) (2)  The emergence of competition regimes in Europe
(a)  The ordo-liberal school
(b)  Treaty establishing the European Economic Community
C.  Modernization of EU Competition Law
III.  The Goals of EU Competition Law
A.  Economic Goals
B.  European Integration Goals
Illustration: the GSK v Commission case
IV.  The Sources of EU Competition Law
A.  Treaty Law
(p. 27) (1)  Rules applying to undertakings—Articles 101 and 102 TFEU
(2)  Rules applying to Member States—Articles 106 and 107 to 109 TFEU
(3)  ‘Enforcement’ rules—Article 103, 104, and 105 TFEU
(4)  Protocol on competition policy and the internal market
B.  Secondary Law
C.  Case Law
(1)  Decisional practice of the Commission
(2)  The case law of the European Courts
(3)  National case law
V.  The Scope of Application of EU Competition Law
A.  Scope Ratione Personae—To Whom Does EU Competition Law Apply?
(1)  Jurisprudential definition of the concept of ‘undertaking’
(2)  Jurisprudential restrictions of the concept of ‘undertaking’
B.  Scope Ratione Materiae—To What Sectors Does Competition Law Apply?
(1)  Agricultural products
(p. 47) (2)  Transport
(p. 49) (3)  Network industries
(4)  The arms industry
C.  Scope Ratione Loci—Where is EU Competition Law Applied and Enforced?
(1)  The prescriptive jurisdiction of EU competition law
(2)  Executive jurisdiction of EU competition law
(a)  Investigative measures
(p. 54) (b)  Orders
(3)  The problem of global competition law
(a)  Diagnosis—inadequacy of a competition law system that is not international
(p. 55) Illustration: the Boeing/McDonnell-Douglas case
(b)  Remedy—internationalization of competition law
(4)  Conclusions
Footnotes:
2 Elements of Competition Law Economics
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 59) 2  Elements of Competition Law Economics
I.  Introduction
II.  Epistemology of Competition Economics
A.  Classical and Neoclassical Competition Economics
(p. 63) (1)  The law of supply and demand
(2)  The theory of ‘perfect competition’
(3)  The monopoly and the cartel
(4)  Evaluation of classical and neoclassical competition theories
B.  The Normative Economics of Competition
(p. 71) (1)  The Harvard School (or the ‘structuralist’ movement)
(2)  The Chicago School (or the ‘behaviouralist’ movement)
(3)  New industrial economics (or ‘Post-Chicago’ School)
(p. 78) III.  Methodology of Competition Economics
A.  The Concept of Market Power
Illustration: behavioural theory of anticompetitive conduct—the Alcoa/Reynolds case
B.  Measuring Market Power
(1)  Direct measurement of market power
(a)  The Lerner index and the semantics of cost
(b)  Measuring profits
(c)  Price comparisons
(d)  Price-elasticity of residual demand
C.  Measuring Market Power, Indirectly
(1)  Structural measurement
(a)  Market shares
(b)  Measuring concentration
(2)  Additional measurement tools—assessment of obstacles to entry and expansion
(a)  What is a barrier to entry?
(b)  Characteristics of a barrier to entry
(c)  Types of barrier to entry
(d)  Structural barriers
(p. 95) (e)  Strategic barriers relating to the behaviours of incumbent undertakings
D.  Other Useful Economic Concepts—Competition Law, Law of Costs
(p. 97) (1)  Marginal cost
(p. 98) (2)  Average costs
(a)  Average total costs
(b)  Difficulties
(c)  Subdivision—fixed and variable average costs
(i)  Fixed costs
(ii)  Variable costs
(3)  Average avoidable costs
(4)  Other cost concepts
(a)  Average incremental costs
(b)  Stranded costs
Footnotes:
3 The Law and Economics of Anticompetitive Coordination
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 105) 3  The Law and Economics of Anticompetitive Coordination
I.  Article 101(1) TFEU—The Prohibition Rule
A.  The Legal Component of Article 101(1) TFEU—A Concurrence of Wills between Several Independent Undertakings
(1)  Plurality of independent undertakings
(a)  ‘Intra-group’ agreements
Illustration: Viho v Commission
(b)  Agency agreements
(c)  Employment contracts
(2)  Concurrence of wills
(p. 112) (a)  Agreements
(i)  A broad concept
(ii)  Limits of the concept
(iii)  Private coercion
(iv)  Public coercion
(p. 116) (v)  Unilateral actions
(p. 118) (b)  Decisions by associations of undertakings
(c)  Concerted practice
(3)  Final comments
(p. 123) B.  The Economic Component of Article 101(1) TFEU—A Restriction of Competition
(1)  The concept of competition
(p. 125) (2)  Substantive content of the concept of a ‘restriction of competition’
(a)  What a restriction of competition is not (or is no longer)
(i)  A situation of contractual imbalance
(ii)  A restriction on the parties’ freedom to act on the market
(b)  What a restriction of competition is
(i)  An ‘economic’ concept
(ii)  The ‘integrationist’ approach towards a restriction of competition
(3)  Presumed restrictions of competition vs Proven restrictions of competition—the object and effect dichotomy
(a)  Presumed restrictions: the concept of restriction by ‘object’
(b)  Restrictions of competition to be proved: the concept of restriction by ‘effect’
(i)  Basic principles for assessing agreements under Article 101(1) TFEU
(ii)  Appreciable effects
(iii)  Cumulative effects
(4)  The ancillary restraints doctrine
C.  The Jurisdictional Component of Article 101(1) TFEU—A Restriction ‘Within the Internal Market’ Which ‘Affects Trade between Member States’
(p. 145) (1)  Horizontal jurisdictional issues
(2)  Vertical jurisdictional issues
(a)  The ‘effect on trade’ concept—purpose
(b)  The ‘effect on trade’ concept—interpretation
(i)  Screening—quantitative presumptions
(ii)  Individual assessment—qualitative analysis
(iii)  The agreement involves an economic activity
(iv)  The agreement has the ability to affect trade
(v)  The agreement ‘may have an influence’ on trade between Member States
Decrease, increase, or diversion of trade
(p. 156) Direct or indirect influence on trade
(vi)  The agreement ‘appreciably’ affects trade between Member States
(c)  Shortcuts for the appraisal of the effect on trade
(i)  Transnational agreements
(ii)  National, regional, and local agreements
II.  Article 101(2) TFEU—The Rule of Nullity
A.  The Principle
B.  The Practice
(p. 162) III.  Article 101(3) TFEU—The Exception Rule
A.  Overview of the Exception Rule
B.  The Application of the Four Conditions of Article 101(3) TFEU
(1)  The welfare improvement condition
(a)  Economic improvements
(i)  Type of possible efficiency gains
(ii)  Conditions for the admissibility of efficiency gains
(b)  Non-economic improvements
(p. 169) (2)  The passing-on condition
(3)  The indispensability condition
(4)  The non-elimination of competition condition
Footnotes:
4 Abuse of Dominance
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 175) 4  Abuse of Dominance
I.  Introduction
II.  Determining Dominance
A.  Market Definition
(p. 178) (1)  The components of a relevant market
(a)  The product market
(i)  Demand-side substitution
(ii)  Supply-side substitution
(iii)  Potential competition
(b)  The geographic market
(2)  Methods for defining a relevant market
B.  Dominance
(1)  Introduction
(2)  The definition of dominance stemming from case law
(3)  The definition and assessment of ‘substantial market power’
(4)  Factors to be taken into account to determine the presence of dominance
(a)  Market position of the undertaking under investigation and its competitors
(p. 190) (b)  Expansion or entry
(c)  Countervailing buyer power
(5)  Collective dominance
(p. 194) (a)  Collective dominance and oligopolistic anticompetitive coordination
(i)  The Commission’s initial attempts to craft a doctrine of oligopolistic dominance
(ii)  The Courts’ acceptance of the doctrine of collective dominance under Article 102 TFEU
(iii)  Clarifications in the field of merger control
(p. 198) (iv)  Exportability of the EU Merger Regulation case law to Article 102 TFEU?
(v)  The enduring low-enforcement practice of the Commission
(vi)  The uncertain contours of the notion of abuse of a collective dominant position
(b)  Other settings in which collective dominant positions can be identified
(i)  Collective dominance as the cumulative effect of individual dominant positions on distinct markets
(p. 202) (c)  Collective dominance short of the single economic entity doctrine
(d)  Collective dominance and legislative/regulatory measures
(e)  The test for collective dominance in oligopolistic settings
(i)  The existence of a collective entity
(ii)  Assessment of dominance
III.  The Notion of Abuse
A.  Exclusionary Abuses
(1)  The concept of exclusionary abuse
(p. 207) (a)  The case law of the EU Courts and the decisional practice of the Commission
(p. 208) (b)  From a form-based approach to effects-based approach to exclusionary abuses
(i)  The form-based approach pursued by the EU Courts and the Commission
(ii)  The modernization of Article 102 and the 2005 Discussion Paper
(iii)  The 2008 Guidance Paper
(2)  The various forms of exclusionary abuses
(a)  Exclusive dealing
(i)  Exclusive purchasing
(p. 214) (b)  Conditional rebates
(i)  The concept of conditional rebates
(p. 215) (ii)  Effects of conditional rebates
(iii)  Decisional practice of the Commission and case law of the EU Courts preceding the adoption of the Guidance Paper
(iv)  The Guidance Paper
(v)  Case law of the EU Courts and decisional practice of the Commission after adoption of the Guidance Paper
(p. 231) (c)  Tying
(i)  The concept of tying
(ii)  Effects of tying
(iii)  Decisional practice of the Commission and case law of the EU Courts
(iv)  The Guidance Paper
(d)  Predation
(i)  The concept of predation
(ii)  Effects of predation
(iii)  Decisional practice of the Commission and case law of the EU Courts
(e)  Refusal to supply and margin squeeze
(i)  The concepts of refusal to supply and margin squeeze
(ii)  Effects of refusal to supply and margin squeeze
(iii)  Decisional practice of the Commission and case law of the EU Courts
(iv)  The Guidance Paper
B.  Exploitative Abuses
(1)  Excessive prices
(a)  Introduction
(b)  Standards set by the European Courts’ case law and Member State courts for assessing excessive price
(c)  Practical difficulties of controlling excessive prices
(i)  Finding an adequate cost measure and defining an appropriate profit margin
(ii)  Identifying the appropriate benchmarks
(iii)  Designing an adequate remedy
(d)  Decisional practice of DG Competition
(e)  Limits to the application of Article 102(a) TFEU
(f)  Comparison with US law
(g)  Summary on excessive pricing
(2)  Unfair contractual terms and conditions
(a)  Abuse of buyer power
(b)  Abuse through the imposition of ‘other unfair trading conditions’
(p. 293) C.  Price Discrimination
(1)  Introduction
(p. 294) (2)  Definition, conditions, and different forms of price discrimination
(a)  Definition of and conditions for price discrimination
(b)  Different forms of price discrimination
(c)  Welfare effects of price discrimination
(3)  The scope of Article 102(c) TFEU
(4)  Analytical framework for examining price discrimination measures
(a)  Price discrimination in primary line injury settings
(i)  Main forms of primary line price discrimination measures examined under Article 102(c)
(ii)  Why have the Commission and the EU Courts mistakenly relied on Article 102(c) to address primary line cases?
(b)  Price discrimination in secondary line injury settings
(p. 308) (i)  Main forms of secondary line price discrimination measures examined under Article 102(c)
(ii)  Secondary line injury price discrimination by non-vertically integrated operators
(iii)  Secondary line injury price discrimination by vertically integrated operators
(iv)  The choice of Article 102(c) as the legal basis for the secondary line injury cases
(c)  Geographic price discrimination and measures facilitating this form of discrimination
(i)  Case law of the EC Courts and Commission decisions on geographic price discrimination
(ii)  Is Article 102(c) the appropriate legal basis for geographic price discrimination and facilitating measures?
(5)  Conclusion
Footnotes:
5 Enforcement, Institutions, and Procedure
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 321) 5  Enforcement, Institutions, and Procedure
I.  Introduction
(p. 323) II.  The Institutional Framework
A.  The Commission
(1)  Missions
(2)  Organization
B.  The National Competition Authorities
(1)  The powers and duties of NCAs under EU competition law
(a)  Main institutional models
(p. 329) C.  Interplay of the Commission and NCAs within the ECN
(1)  Vertical issues
(a)  Priority competence of the Commission
(p. 330) (b)  Duty of loyal cooperation
(c)  Cooperation mechanisms
(p. 331) (d)  Monitoring instruments
(2)  Horizontal issues
(p. 335) (3)  The European Competition Network
D.  The National Courts
(1)  The role of national courts in the EU competition system
(2)  Vertical and horizontal coordination with national courts
(a)  Vertical relationships between the Commission and national courts
(i)  Duty to avoid passing judgments contrary to Commission decisions
(ii)  Duty on the Member States to forward written judgments to the Commission
(iii)  The amicus curiae procedure
(iv)  Duty on the Commission to transmit information to national courts
(b)  Horizontal relationships amongst national courts
III.  The Procedural Framework
A.  The Detection of Infringements
(1)  Market monitoring
(2)  Information received through other institutional channels
(3)  Information received from complainants
(4)  Information received from consumers
(p. 346) (5)  Information received through specific legal instruments
(a)  Sector inquiries
(b)  Leniency
B.  The Investigation of Alleged Infringements
(1)  Requests for information
(2)  Inspections
(p. 351) (a)  Inspections of firms’ premises
(b)  Inspection of other premises
(3)  Power to take statements
C.  The Evaluation of Infringements
(1)  Preliminary remarks
(2)  The Statement of Objections
(3)  Access to file
(4)  Right to be heard
(5)  Final stages
D.  The Decision
(p. 358) (1)  Decisions finding and terminating an infringement
(p. 360) (2)  Decisions making commitments binding
(3)  Decisions withdrawing the benefit of a block exemption Regulation
(4)  Decisions ordering interim measures
(5)  Settlement decisions
E.  Final Remarks
IV.  The Judicial Framework
A.  Acts Subject to Annulment Proceedings
(1)  The theory
(2)  The practice
B.  Persons that can Start Annulment Proceedings
(1)  Decisions addressed to other individuals
(2)  Acts of a general nature
C.  Modalities of Annulment Proceedings
(1)  Formal conditions
(2)  Substantive conditions
(a)  Grounds of external legality
(p. 378) (b)  Grounds of internal legality
D.  Parallel and Subsequent Actions to Annulment Proceedings
(1)  Actions seeking to obtain a revision of the fine
(2)  Actions seeking compensation from the EU institutions
E.  Scope and Intensity of Judicial Review in Annulment Proceedings
(p. 381) (1)  The scope of judicial review—Restricted vs Unlimited jurisdiction
Table 5.1  Main differences between annulment proceedings (restricted review) and appeal (full jurisdiction)
(p. 382) (2)  The intensity of judicial review—Standard (full) vs Marginal (restrained) review
(a)  The theory
(b)  The practice
(p. 384) (i)  Review of the law
(ii)  Review of the facts
(p. 386) (iii)  Review of ‘complex economic matters’
Footnotes:
6 Cartels And Other Horizontal Hardcore Restrictions
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 391) 6  Cartels And Other Horizontal Hardcore Restrictions
I.  The EU Anti-Cartel Policy
(p. 396) II.  Substantive Cartel Law
A.  Substantive Scope of Application—What Agreements Constitute Hardcore Cartels?
(1)  Concept of a hardcore cartel
(p. 398) (2)  Types of hardcore cartels
(a)  Cartels related to price fixing or other trading conditions
(i)  Price-fixing cartels
(ii)  Cartels over trading conditions
(b)  Cartels limiting production, markets, technical development, or investments
(i)  Limitation or control of production
(ii)  Limitation or control of ‘markets’
(iii)  Limitation or control of technical development
(iv)  Limitation or control of investment—the principle
(v)  Limitation or control of investment—the specific case of crisis cartels
(c)  Agreements entailing the sharing of markets or of sources of supply
(d)  Agreements applying dissimilar conditions to equivalent transactions and entailing joint boycott
(i)  Agreement applying dissimilar conditions to equivalent transactions
(ii)  Collective boycott strategies
B.  Personal Scope of Application—What Undertakings are Liable for Hardcore Cartels?
(1)  The ‘parental liability’ doctrine
(2)  Conduct of employees
(3)  Undertakings succeeding other undertakings as purchasing entities
(4)  Third parties not present in the market but active within the cartel
C.  Temporal Scope of Application—Are There Time Limits for Pursuing a Hardcore Cartel?
III.  Institutional Aspects of Cartel Law
A.  Deterring Hardcore Cartels
(1)  Punishing hardcore cartels
(a)  Administrative fines
(i)  Method of calculation
(p. 414) (ii)  Determining the basic amount
(iii)  Adjustment of amount of fine
(p. 416) (b)  Alternative penalties?
(2)  Detecting hardcore cartels
(a)  Ex officio detection by the Commission
(b)  Indirect detection by the firms themselves
(i)  The EU leniency programme
(p. 421) B.  Litigation Relating to Cartels and Hardcore Restrictions
Footnotes:
7 Horizontal Cooperation Agreements
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 423) 7  Horizontal Cooperation Agreements
I.  Introduction
II.  The Law Applicable to Horizontal Cooperation Agreements
A.  Origin of Applicable Texts
B.  Scope of Application of the EU Framework
III.  Principles of Competition Analysis Applicable to Horizontal Cooperation Agreements
A.  Basic Principles of Competition Analysis of Horizontal Cooperation Agreements
(p. 428) (1)  Is the agreement in question restrictive of competition within the meaning of Article 101(1)?
(2)  Can a restrictive agreement benefit from exemption in Article 101(3)?
(p. 429) B.  Specific Principles for Competition Analysis (By Type of Cooperation)
(1)  Exchanges of information
(a)  Definition and scope
(b)  Assessment under Article 101(1) TFEU
(i)  Main competition concerns
(ii)  Restriction of competition by object
(iii)  Restrictive effects on competition
(iv)  Restrictive effects on competition–market characteristics
(p. 433) (v)  Restrictive effects on competition—characteristics of the information exchanged
(c)  Assessment under Article 101(3) TFEU
(3)  Research and development agreements
(a)  Introduction
(p. 437) (b)  Assessment under Article 101(1)
(i)  Main competition concerns
(ii)  Relevant markets
(iii)  Restrictions of competition by object
(iv)  Restrictive effects on competition
(c)  Assessment under Article 101(3)
(p. 440) (4)  Production and specialization agreements
(a)  Introduction
(b)  Assessment under Article 101(1)
(i)  Main competition concerns
(ii)  Relevant markets
(iii)  Restrictions of competition by object
(iv)  Restrictive effects on competition
(v)  Assessment under Article 101(3)
(5)  Purchasing agreements
(a)  Introduction
(b)  Assessment under Article 101(1)
(i)  Relevant markets
(ii)  Main competition concerns
(iii)  Restrictions of competition by object
(iv)  Restrictive effects on competition
(v)  Analysis under Article 101(3)
(6)  Commercialization agreements
(a)  Introduction
(b)  Assessment under Article 101(1)
(i)  Relevant markets
(ii)  Main competition concerns
(iii)  Restrictions of competition by object
(p. 451) (iv)  Restrictive effects on competition
(vi)  Assessment under Article 101(3)
(7)  Standardization agreements
(a)  Introduction
(b)  Analysis under Article 101(1)
(i)  Relevant markets
(ii)  Main competition concerns
(iii)  Restrictions by object
(p. 457) (iv)  Restrictive effects—agreements normally not restrictive of competition
(v)  Restrictive effects—additional guidance on FRAND requirements
(vi)  Restrictive effects—effects-based assessment for standardization agreements
(c)  Assessment under Article 101(3)
C.  Conclusions
Footnotes:
8 The Law And Economics Of Vertical Restraints
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 463) 8  The Law And Economics Of Vertical Restraints
I.  Introduction
II.  Types of Vertical Restraint
A.  The Issue
B.  The Exclusive Contractual Relationship Group
(1)  Notion of exclusive contractual relationships
(2)  Theories of competitive harm
(3)  Objective justifications and pro-competitive effects
C.  The Resale Price Maintenance Group
(1)  Notion of resale price maintenance
(2)  Theories of competitive harm
(3)  Objective justifications and pro-competitive effects
(p. 470) D.  The Limited Distribution Group
(1)  Notion of limited distribution
(2)  Theories of competitive harm
(3)  Objective justifications and pro-competitive effects
E.  The Market-Sharing Group
(1)  Notion of market sharing
(2)  Theories of competitive harm
(3)  Objective justifications and pro-competitive effects
F.  The Buyer Power Group
(1)  Notion of buyer power
(2)  Theories of competitive harm
(p. 475) (3)  Objective justifications and pro-competitive effects
III.  A Step-by-Step Method for the Self-Assessment of Vertical Restrictions
A.  Screening of Vertical Restraints
(1)  The presumption of incompatibility
(a)  Preliminary remarks
(b)  Resale price maintenance
(c)  Territorial resale prohibitions
(i)  Principle
(ii)  Exceptions
(d)  Restrictions on active and passive sales in selective distribution networks
(e)  Restrictions of cross-deliveries in selective distribution networks
(f)  Restrictions on component suppliers to sell to end-users, repairers, and independent service providers
(p. 481) (2)  The presumptions of compatibility
(a)  Agreements of minor importance
(i)  The appreciability rule
(ii)  The practice
(b)  Agreements between small and medium-sized enterprises
(c)  Block exemption mechanism
(p. 483) (i)  The double market-share thresholds
(p. 486) (ii)  Conditions
(iii)  Withdrawal of the block exemption
B.  Full-Blown Competition Analysis of Vertical Restraints
(1)  Preliminary remarks
(p. 488) (2)  Method
(a)  Selection of the theories of harm
(b)  Assessment of the theories of harm
(p. 490) (c)  Efficiencies and objective justifications
(p. 491) IV.  Online Distribution
A.  The Context
B.  The New Framework for Online Distribution
(1)  Selective distribution and online commerce
(2)  Active and passive sales
(a)  Internet sales are passive
(b)  In exceptional circumstances, internet sales may be considered active
(p. 495) V.  Conclusions
Footnotes:
9 Merger Control
Damien Geradin, Anne Layne-Farrar, Nicolas Petit
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 497) 9  Merger Control
I.  Introduction
A.  History of the Development of an EU Merger Control Regime
(p. 499) B.  The Concept of Concentration in EU Competition Law
(1)  Definition
(2)  Different types of concentrations
II.  Regulation 139/2004
(p. 501) A.  Should the Concentration be Notified?
(1)  The concept of ‘concentration’
(2)  The ‘Community dimension’
(p. 502) (a)  Identification of the undertakings concerned
(b)  Calculation of the turnover to determine whether the thresholds are reached
(3)  Implications resulting from the fact that a concentration has a ‘Community dimension’
(a)  Compulsory ex ante notification and suspension rule
(b)  Lack of jurisdiction of the Member States
(p. 506) B.  Is the Concentration Compatible with the Common Market?
(1)  The double test included in Regulation 139/2004
(p. 507) (2)  Assessment of horizontal mergers
(a)  The screening of horizontal mergers—market shares and HHI
(b)  The in-depth analysis
(i)  Non-coordinated effects
(ii)  Coordinated effects
(3)  The analysis of non-horizontal mergers
(a)  Filtering non-horizontal mergers
(b)  The admissibility of vertical mergers
(c)  The admissibility of conglomerate mergers
(4)  The assessment of the parties’ justifications
(a)  The ‘failing firm’ doctrine
(b)  The ‘efficiency defence’?
(i)  Nature of the issue
(ii)  Efficiency gains in economic theory
(iii)  Principles applicable to the consideration of efficiency gains
(5)  The analysis of the compatibility of ancillary restraints
(6)  The compatibility analysis of full-function joint ventures
(a)  What is a joint venture?
(b)  The concept of ‘full function’ and the applicability of the EMCR
(i)  The content of full function
(ii)  The material condition
(iii)  The time condition—lasting quality/stability
(iv)  Substantial rules applicable to full-function joint ventures
(c)  Comparative assessment of the legal regimes of Article 101 TFEU and the EMCR
III.  The Institutional and Procedural Implementation of Merger Control
A.  The Informal Pre-Notification Procedure
(p. 529) B.  The Formal Notification Procedure
(1)  Form CO
(2)  Calendar of the procedure
(a)  General remarks
(p. 530) (b)  Phase I
(c)  Phase II
(d)  Remedies
(i)  Nature of the issue
(ii)  ‘Structural’ and ‘behavioural’ remedies
C.  Merger Litigation
(p. 535) (1)  Annulment proceedings
(a)  Marginal review
(b)  Effective judicial review
D.  Conclusions—Myths and Reality of Merger Control
(1)  The myth(s)
(2)  The reality
Footnotes:
(p. 541) Index Of Names
Index Of Names
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit
(p. 543) General Index
General Index
From: EU Competition Law and Economics
Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit

Citation preview

Contents Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

About the Authors ix Tables of Cases xi Table of Commission Decisions xxiii Tables of Legislation xxxi 1.  Introduction 1 I.  The Ubiquity of EU Competition Law 1.01 A.  Impact of EU Competition Law on Public and Private DecisionMakers 1.03 B.  The Positive Economic Effects of EU Competition Policy 1.09 II.  The History of EU Competition Law 1.32 A.  Origins of Competition Laws 1.33 B.  Appearance of Modern Competition Laws 1.39 C.  Modernization of EU Competition Law 1.56 III.  The Goals of EU Competition Law 1.61 A.  Economic Goals 1.61 B.  European Integration Goals 1.73

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IV.  The Sources of EU Competition Law 1.81 A.  Treaty Law 1.81 B.  Secondary Law 1.97 C.  Case Law 1.102 V.  The Scope of Application of EU Competition Law 1.128 A.  Scope Ratione Personae—To Whom Does EU Competition Law Apply? 1.128 B.  Scope Ratione Materiae—To What Sectors Does Competition Law Apply? 1.145 C.  Scope Ratione Loci—Where is EU Competition Law Applied and Enforced? 1.167 2.  Elements of Competition Law Economics 59 I.  Introduction 2.01 II.  Epistemology of Competition Economics 2.10 A.  Classical and Neoclassical Competition Economics 2.10 B.  The Normative Economics of Competition 2.35 III.  Methodology of Competition Economics 2.55 A.  The Concept of Market Power 2.56 B.  Measuring Market Power 2.62 C.  Measuring Market Power, Indirectly 2.83 (p. vi) D.  Other Useful Economic Concepts—Competition Law, Law of Costs 2.125 3.  The Law and Economics of Anticompetitive Coordination 105 I.  Article 101(1) TFEU—The Prohibition Rule 3.04 A.  The Legal Component of Article 101(1) TFEU—A Concurrence of Wills between Several Independent Undertakings 3.07 B.  The Economic Component of Article 101(1) TFEU—A Restriction of Competition 3.70 C.  The Jurisdictional Component of Article 101(1) TFEU—A Restriction ‘Within the Internal Market’ Which ‘Affects Trade between Member States’ 3.151 II.  Article 101(2) TFEU—The Rule of Nullity 3.202 A.  The Principle 3.202 B.  The Practice 3.207

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III.  Article 101(3) TFEU—The Exception Rule 3.215 A.  Overview of the Exception Rule 3.215 B.  The Application of the Four Conditions of Article 101(3) TFEU 3.222 4.  Abuse of Dominance 175 I.  Introduction 4.01 II.  Determining Dominance 4.04 A.  Market Definition 4.05 B.  Dominance 4.48 III.  The Notion of Abuse 4.131 A.  Exclusionary Abuses 4.132 B.  Exploitative Abuses 4.371 C.  Price Discrimination 4.452 5.  Enforcement, Institutions, and Procedure 321 I.  Introduction 5.01 II.  The Institutional Framework 5.08 A.  The Commission 5.09 B.  The National Competition Authorities 5.27 C.  Interplay of the Commission and NCAs within the ECN 5.38 D.  The National Courts 5.71 III.  The Procedural Framework 5.90 A.  The Detection of Infringements 5.91 B.  The Investigation of Alleged Infringements 5.123 C.  The Evaluation of Infringements 5.141 D.  The Decision 5.166 E.  Final Remarks 5.201 IV.  The Judicial Framework 5.204 A.  Acts Subject to Annulment Proceedings 5.210 B.  Persons that can Start Annulment Proceedings 5.221 (p. vii) C.  Modalities of Annulment Proceedings 5.234 D.  Parallel and Subsequent Actions to Annulment Proceedings 5.243 E.  Scope and Intensity of Judicial Review in Annulment Proceedings 5.251 6.  Cartels and Other Horizontal Hardcore Restrictions 391 I.  The EU Anti-Cartel Policy 6.01

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II.  Substantive Cartel Law 6.15 A.  Substantive Scope of Application—What Agreements Constitute Hardcore Cartels? 6.15 B.  Personal Scope of Application—What Undertakings are Liable for Hardcore Cartels? 6.53 C.  Temporal Scope of Application—Are There Time Limits for Pursuing a Hardcore Cartel? 6.75 III.  Institutional Aspects of Cartel Law 6.78 A.  Deterring Hardcore Cartels 6.78 B.  Litigation Relating to Cartels and Hardcore Restrictions 6.113 7.  Horizontal Cooperation Agreements 423 I.  Introduction 7.01 II.  The Law Applicable to Horizontal Cooperation Agreements 7.06 A.  Origin of Applicable Texts 7.06 B.  Scope of Application of the EU Framework 7.10 III.  Principles of Competition Analysis Applicable to Horizontal Cooperation Agreements 7.16 A.  Basic Principles of Competition Analysis of Horizontal Cooperation Agreements 7.16 B.  Specific Principles for Competition Analysis (By Type of Cooperation) 7.22 C.  Conclusions 7.166 8.  The Law and Economics of Vertical Restraints 463 I.  Introduction 8.01 II.  Types of Vertical Restraint 8.06 A.  The Issue 8.06 B.  The Exclusive Contractual Relationship Group 8.08 C.  The Resale Price Maintenance Group 8.18 D.  The Limited Distribution Group 8.21 E.  The Market-Sharing Group 8.29 F.  The Buyer Power Group 8.38 III.  A Step-by-Step Method for the Self-Assessment of Vertical Restrictions 8.45 A.  Screening of Vertical Restraints 8.47 B.  Full-Blown Competition Analysis of Vertical Restraints 8.86

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IV.  Online Distribution 8.100 A.  The Context 8.100 B.  The New Framework for Online Distribution 8.104 V.  Conclusions 8.112 (p. viii) 9.  Merger Control 497 I.  Introduction 9.01 A.  History of the Development of an EU Merger Control Regime 9.02 B.  The Concept of Concentration in EU Competition Law 9.06 II.  Regulation 139/2004 9.16 A.  Should the Concentration be Notified? 9.18 B.  Is the Concentration Compatible with the Common Market? 9.41 III.  The Institutional and Procedural Implementation of Merger Control 9.141 A.  The Informal Pre-Notification Procedure 9.141 B.  The Formal Notification Procedure 9.143 C.  Merger Litigation 9.161 D.  Conclusions—Myths and Reality of Merger Control 9.183 Index of Names 541 General Index 543

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About the Authors Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Damien Geradin is a partner at Covington & Burling in Brussels. He is also a Professor of competition law and economics at Tilburg University and a William W. Cook Global Law Professor at the University of Michigan Law School. He is the author of many publications in the fields of competition law, intellectual property law, and the regulation of network industries. He is the co-editor-in-chief of the Journal of Competition Law & Economics published by Oxford University Press. He holds a PhD in law from Cambridge University. Dr Anne Layne-Farrar received her BA in economics with honours, summa cum laude, from Indiana University (Bloomington), her master’s and her PhD in economics from the University of Chicago. She has worked as an economic consultant for the past 15 years, advising corporations and lawyers on competition, intellectual property, regulation, and policy issues across a broad range of industries. She has numerous publications in academic journals, including Antitrust Law Journal, International Journal of Industrial Organization, and Journal of Competition Law and Economics. She is currently a Vice President in the Chicago Office of Compass Lexecon. Nicolas Petit is Professor at the Law School of the University of Liege (ULg), Belgium and Visiting Professor at EDHEC Business School, Lille, France. He is the Director of the ULg LLM in European Competition and Intellectual Property Law and Director of the Brussels School of Competition (BSC). He has authored many publications in the field of competition law, focussing in particular on oligopolies, abuse of dominance, intellectual property rights, and network industries. In 2009, he received the Jacques Lassier Prize from the International League of Competition Law (LIDC). Nicolas is also the founder of a well known weblog on competition law and economics .(p. x)

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Tables Of Cases Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

General Court T-13/89 ICI v Commission, 10 March 1992 [1992] ECR II-1021 6.25 T-30/89 Hilti v Commission [1991] ECR II-1439 4.227 T-64/89 Automec I, 10 July 1990 [1990] ECR II-3671 5.214 T-65/89 BPB Industries plc and British Gypsum Ltd v Commission [1993] ECR II-389 4.490 T-68/89 and T-77–78/89 Società Italiana Vetro SpA, Fabbrica Pisana SpA and PPG Vernante Pennitalia SpA v Commission (‘Italian Flat Glass’), 10 March 1992 [1992] ECR II-1403 3.63, 4.74, 4.87, 4.88, 4.90, 4.110, 5.267, 9.61 T-69/89 Radio Telefis Eireann v Commission (Magill) [1991] ECR II-485 4.72, 4.318, 4.320, 4.321, 4.323, 4.324, 4.326, 4.328, 4.333, 4.334, 4.335, 4.339 T-79/89, T-84/89, T-85/89, T-86/89, T-89/89, T-91/89, T-92/89, T-94/89, T-96/89, T-98/89, T-80/89, T-81/89, T-83/89, T-87/89, T-88/89, T-90/89, T-93/89, T-95/89, T-97/89, T-99/89, T-100/89, T-101/89, T-103/89, T-105/89, T-107/89 and T-112/89 BASF AG v Commission, 6 April 1995 [1995] ECR II-729 5.24 T-102/89 and T-104/89 BASF AG v Commission, 27 February 1992 [1992] ECR II-315 5.25 T-141/89 Tréfileurope v Commission [1995] ECR II-791 3.27 T-152/89 ILRO SpA v Commission, 6 April 1995 [1995] ECR II-1197 6.11

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T-28/90 Asia Motor France SA v Commission, 18 September 1992 [1992] ECR II-2285 5.100 T-83/91 Tetra Pak International v Commission (Tetra Pak II) [1994] ECR II-755 4.230, 4.231, 4.377, 4.449, 4.501, 4.531 T-10/92 Cimenteries CBR ea v Commission, 18 December 1992 [1992] ECR II-2667 5.153, 5.154 T-35/92 John Deere Ltd v Commission [1994] ECR II-957 7.25, 7.34 T-37/92 Bureau europeen des unions des consommateurs and National Consumer Council v Commission, 18 May 1994 [1994] ECR II-285 5.223, 5.234 T-83/92 Zunis Holding v Commission, 28 October 1993 [1993] ECR II-1169 5.226 T-87/92 BVBA Kruidvat v Commission, 12 December 1996 [1996] ECR II-1913 5.223 T-96/92 CE de la Societe des grandes sources Perrier v Commission, 27 April 1992 [1992] ECR II-1213 5.223, 5.225 T-102/92 Viho Europe BV v Commission, 12 January 1995 [1995] ECR II-17 3.08, 3.09, 6.56 T-114/92 BEMIM v Commission, 24 January 1995 [1995] ECR II-147 5.223 T-3/93 Societe anonyme a participation ouvriere Compagnie nationale Air France v Commission, 24 March 1994 [1994] ECR II-121 5.223(p. xii) T-17/93 Matra Hachette SA v Commission [1994] ECR II-595 3.120, 3.236, 9.162 T-24/93, T-25/93, T-26/93 and T-28/93 Compagnie maritime belge transports SA and Compagnie maritime belge SA, Dafra-Lines A/S, Deutsche Afrika-Linien GmbH & Co and Nedlloyd Lijnen BV v Commission, October 1996 [1996] ECR II-01201 3.161, 3.177, 3.241, 4.293, 4.497 T-528/93, T542/93, T543/93 and T-546/93 Metropole television SA, Reti Televisive Italiane SpA, Gestevision Telecinco SA and Antena 3 de Television v Commission, 11 July 1996 [1996] ECR 649 5.223, 7.115 T-88/94 Societe commerciale des potasses et de l’azote et Entreprise miniere et chimique v Commission, 15 June 1994 [1994] ECR II-401 5.235 T-141/94 Thyssen Stahl [1999] ECR II-347 7.25 T-229/94 Deutsche Bahn AG v Commission [1997] ECR II-1689 4.516 T-305/94 Elf Atochem SA v Commission, 20 April 1999 [1999] ECR II-931 5.240 T-353/94 Postbank NV v Commission, 18 September 1996 [1996] ECR II-921 5.85 T 374/94 European Night Services and others v Commission [1998] ECR II-3141 3.135 T-25/95 SA Cimenteries CBR v Commission, 15 March 2000 [2000] ECR II 491 5.240

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T-86/95 Compagnie Générale Maritime and others v Commission [2002] ECR II-1011 3.241 T-41/96 Bayer AG v Commission, (‘Adalat’ case) 26 October 2000 [2000] ECR II-3383 1.79, 3.20, 3.22, 3.42, 3.43, 3.45, 3.48, 4.539, 4.540, 4.540 T-65/96 DEP Kish Glass & Co Ltd v Commission, 8 November 2001 [2001] ECR II-3261 5.100 T-102/96 Gencor Ltd v Commission, 25 March 1999 [1999] ECR II-753 1.169, 4.95, 4.120, 5.239, 9.61 T-5/97 Industrie des poudres sphériques v Commission [2000] ECR II-3755 4.344 T-228/97 Irish Sugar plc v Commission, 7 October 1999 [1999] ECR II-2969 3.182, 4.113, 4.114, 4.119, 4.489, 4.495, 4.502, 4.503, 4.534, 4.540 T-596/97 Dalmine v Commission, 24 June 1998 [1998] ECR II-2383 5.212 T-62/98 Volkswagen AG v Commission 6 July 2000 [2000] ECR II-2707 1.30, 3.42 T-65/98 Van den Bergh Foods Ltd v Commission, 23 October 2003 [2003] ECR I-4653 3.145, 3.147, 5.234, 8.09 T-89/98 National Association of Licensed Opencast Operators (NALOO) v Commission [2001] ECR II 515 4.381 T-128/98 Aéroports de Paris v Commission, 12 December 2000 [2000] ECR II-3929 1.138, 4.514 T-191/98, T-212–214/98 Atlantic Container Line AB v Commission (‘TACA’) 4.117, 4.128, 4.136, 5.234, 6.28 T-198/98 Micro Leader Business v Commission, 16 December 1999 [1999] ECR II-3989 4.539 T-202/98, T-204/98 and T-207/98 Tate & Lyle et al v Commission, 12 July 2001 [2001] ECR II-2035 3.114 T-9/99 HFB Holding für Fernwärmetechnik Beteiligungsgesellschaft mbH & Co KG et al v Commission, 20 March 2002 [2002] ECR II-1487 1.134, 6.66 T-25/99 Colin Arthur Roberts and Valerie Ann Roberts v Commission [2001] ECR II-1881 3.145 T-59-99 Ventouris Group Enterprises SA v Commission [2003] ECR II-5257 3.134 T-112/99 Métropole Télévision (M6) et al v Commission, 18 September 2001 [2001] ECR II-2459 3.85, 3.89, 3.149, 3.233 T-219/99 British Airways plc v Commission [2003] ECR II-5917 1.113, 4.491, 5.234 T-319/99 FENIN v Commission, 4 March 2003 [2003] ECR II-357 1.132(p. xiii)

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T-342/99 DEP Airtours v Commission, 6 June 2002 [2002] ECR II-258 1.124, 4.96, 4.120, 4.124, 4.125, 4.126, 4.127, 5.268, 5.285, 5.287, 9.61, 9.69, 9.72, 9.73, 9.98, 9.167, 9.172 T-44/00 Mannesmannröhren-Werke AG v Commission, 8 July 2004 [2004] ECR II-2223 3.132 T-67/00, T-68/00, T-71/00 and T-78/00 JFE Engineering Corp v Commission [2004] ECR II-2501 3.160, 6.44 T-158/2000 ARD v Commission, 30 September 2003 [2003] ECR II-3825 5.223 T-185/00, T-216/00, T-299/00 and T-300/00, Métropole télévision SA (M6) et al v Commission, 8 October 2002 [2002] ECR II-3805 7.99, 7.115 T-251/00 Lagardère SCA and Canal + SA v Commission, 20 November 2002 [2002] ECR II-04825 9.111 T-310/00 MCI Inc v Commission 5.224 T-368/00 General Motors Nederland and Opel Nederland v Commission, 21 October 2003 [2003] ECR II-4491 4.539 T-377/00, T-379/00, T-380/00, T-260/01 and T-272/01 Philip Morris International Inc v Commission, 15 January 2003 [2003] ECR 1 5.220 T-383/00 Beamglow v Parlement ao, 14 December 2005 [2005] ECR II-5459 5.247 T 66/01 Imperial Chemical Industries Ltd v Commission 3.162, 3.163 T-67/01 JCB Service v Commission [2004] ECR II-49 8.50 T-168/01 GlaxoSmithKline Services Unlimited v Commission, 27 September 2006 [2006] ECR II-2969 1.79, 3.70, 3.101, 3.118, 3.120, 3.242 T-203/01 Manufacture française des pneumatiques Michelin v Commission (Michelin II) [2003] ECR II-4071 4.172, 4.213, 4.214 T-236/01, T-239/01, T-244–246/01, T-251/01 and T-252/01 Tokai Carbon Co Ltd and others v Commission, 29 April 2004 [2004] ECR II-1181 6.114 T-310/01 Schneider Electric v Commission, 22 October 2002 [2002] ECR II-4071 1.124, 5.287, 9.98, 9.167, 9.168 T-325/01 DaimlerChrysler AG v Commission, 15 September 2005 [2005] ECR II-3319 3.14 T-5/02 Tetra Laval v Commission, 25 October 2002 [2002] ECR II-4381 1.124, 5.287, 9.90, 9.98, 9.167, 9.168 T-43/02 Jungbunzlauer AG v Commission, 27 September 2006 [2006] ECR II-3435 6.69 T-44/02 OP, T-54/02 OP, T-56/02 OP, T-60/02 OP and T-61/02 OP Dresdner Bank v Commission, 27 September 2006 [2006] ECR II-3567 3.22, 3.66

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T-49–51/02 Brasserie nationale v Commission, 27 July 2005 [2005] ECR II-3033 3.22 T-56/02 Bayerische Hypo-und Vereinsbank v Commission, 14 October 2004 [2004] ECR II-3495 3.22 T-77/02 Schneider v Commission, 22 October 2002 [2002] ECR II-04519 5.268, 9.98 T-80/02 Tetra Laval v Commission, 25 October 2002 [2002] ECR II-04519 5.268 T-109/02, T-118/02, T-122/02, T-125/02, T-126/02, T-128/02, T-129/02, T-132/02 and T-136/02, Bolloré SA ea v Commission of the European Communities, 26 April 2007 [2007] ECR II-947 3.11, 6.113 T-114/02 Babyliss SA v Commission, 3 April 2003 [2003] ECR II-01279 9.89 T-193/02 Laurent Piau v Commission [2005] ECR II-209 4.99, 4.101, 4.120, 4.122 T-259–264/02 and T-271/02 Raiffeisen Zentralbank Österreich AG v Commission (Austrian Banks Cartel case) 14 December 2006 [2006] ECR II-5169 1.91, 1.113 T-2/03 Verein fur Konsumenteninformation v Commission (‘Lombard Cartel’), 13 April 2005 [2005] ECR II-01121 5.214 T-28/03 Holcim AG v Commission, 21 April 2005 [2005] ECR II-1357 5.250(p. xiv) T-53/03 BPB v Commission [2008] ECR II-1333 7.26 T-212/03 MyTravel Group v Commission, 9 September 2008 [2008] ECR II-2027 5.250 T-217/03 and T-245/03 Fédération nationale de la Cooperation bétail et viande (National Federation of the livestock and meat cooperation) (FNCBV) v Commission, 13 December 2006 [2006] ECR II-4987 1.152 T-271/03 Deutsche Telecom v Commission [2008] ECR II-477 .4.188, 4.347, 4.348, 4.353 T-328/03 O2 (Germany) v Commission, 2 May 2006 [2006] ECR II-1231 3.93, 7.75 T-340/03 France Télécom SA v Commission, 30 January 2007 [2007] ECR II-107 1.124, 2.131, 4.274, 4.283 T-155/04 SELEX Sistemi Integrati SpA v Commission, 12 December 2006 [2006] ECR II-4797 1.138 T-201/04 Microsoft v Commission, 17 September 2007 [2007] ECR II-3601 1.05, 1.124, 4.140, 4.238, 4.241, 4.248, 4.335, 5.23, 5.273 T-431/04 R Italian Republic v Commission, 18 June 2007 [2007] ECR II-64 5.206 T-30/05 William Prym GmbH & Co KG and Prym Consumer GmbH & Co KG v Commission, 12 September 2007 [2007] ECR II-00107 6.113 T-36/05 Coats Holdings Ltd, and J & P Coats Ltd v Commission, 12 September 2007 [2007] ECR II-00110 6.113

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T-101/05 and T-111/05 BASF and UCB v Commission, 12 December 2007 [2007] ECR II-4949 5.174, 6.113, 6.114 T-112/05, Akzo Nobel NV v Commission of the European Communities, 12 December 2007 [2007] ECR II-5049 3.11, 3.12, 6.61 T-155/06 Tomra Systems v Commission, 9 September 2010 4.214, 4.215, 4.216 T-442/07 Ryanair Ltd v Commission, 29 September 2011 5.206 T-427/08 CEAHR v Commission, 15 December 2010 5.103

European Court of Justice 322/21 NV Nederlandsche Banden Industrie Michelin v Commission, 9 November 1983 [1983] ECR 3461 1.64 C-8/55 Fedechar, 29 November 1956 [1956] ECR 291 5.242 19/61 Mannesmann AG v High Authority, 13 July 1962 [1962] ECR 675 1.130 C-25/62 Plaumann 15 July 1963 [1963] ECR 305 5.223 13/63 Italian Republic v Commission, 17 July 1963 [1963] ECR 165 4.455 C-23/63 Societe anonyme Usines Emile Henricot v High Authority, 5 December 1963 [1963] ECR 441 5.215 56 and 58/64, Établissements Consten SàRL and Grundig-Verkaufs-GmbH v Commission, 13 July 1966 [1966] ECR 429 1.74, 1.75, 3.70, 3.75, 3.114, 3.142, 3.188, 5.272, 8.02 C-56/65 Société Technique Minière v Maschinenbau Ulm, 30 June 1966 [1966] ECR 337 3.84, 3.85, 3.89, 3.113 C-8–11/66 Societe anonyme Cimenteries CBR Cementsbedrijven NV v Commission [1993] ECR 75 5.212, 5.240 C-23/67 SA Brasserie de Haecht v Consorts Wilkin-Janssen, 12 December 1967 [1967] ECR 525 3.142, 8.30 C-10 and 18/68 Societa ‘Eridania’ Zuccherifici Nazionali v Commission, 10 December 1969 [1969] ECR 459 5.229 14/68 Walt Wilhelm v Bundeskartellamt, 13 February 1969 [1969] ECR 1 5.48 C-5/69 Franz Völk v SPRL Ets J Vervaecke, 9 July 1969 [1969] ECR 295 3.129, 8.63 C-41/69 ACF Chemiefarma v Commission, 15 July 1970 [1970] ECR 661 3.23(p. xv) C-48/69 Imperial Chemical Industries Ltd v Commission (Dyestuffs), 14 July 1972 [1972] ECR 619 3.55, 3.59, 3.62, 4.80, 4.82, 6.55 54/69 SA française des matières colorantes (Francolor) v Commission, 14 July 1972 [1972] ECR 851 1.169

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C-22/70 Commission v Council, 31 March 1971 [1971] ECR I-263 5.212 78/70 Deutsche Grammophon v Metro SB [1971] ECR 487 4.380 22/71 Béguelin Import Co v SAGL Import Export, 25 November 1971 [1971] ECR 949 1.169, 3.171, 3.203 6/72 Europemballage and Continental Can v Commission, 21 February 1973 [1973] ECR 215 1.31, 1.74, 1.169, 4.500, 5.239, 6.55, 9.02, 9.03 C-8/72 Vereeniging van Cementhandelaren v Commission, 17 October 1972 [1972] ECR 977 3.199, 6.25 6/73 and 7/73 Istituto Chemioterapico Italiano and Commercial Solvents v Commission, 6 March 1974 [1974] ECR 223 1.91, 1.169, 4.314, 4.316, 4.318 6 and 7/73 R Istituto Chemioterapico Italiano and Commercial Solvents v Commission [1973] ECR-357 4.314 C-40/73 Suiker Unie, 16 December 1975 [1975] ECR 480 3.15, 3.16, 3.26, 3.30, 3.155, 4.484, 4.487 40–48, 50, 54–56, 111, 113 and 114/73 Coöperatieve Vereniging ‘Suiker Unie’ UA v Commission of the European Communities (European Sugar) [1975] ECR 1663 3.56 167/73 Commission v French Republic, 4 April 1974 [1974] ECR 359 1.155 15/74 Centrafarm BV and Adriaan de Peijper v Sterling Drug Inc [1974] ECR-1147 4.321 36/74 BNO Walrave and LJN Koch v Association Union Cycliste Internationale ea, 12 December 1974 [1974] ECR 1405 1.132 C-73/74 Papiers Peints de Belgique, 26 November 1975 [1975] ECR 1491 3.165 26/75 General Motors v Commission [1975] ECR 1367 4.409 13/76 Gaetano Donà v Mario Mantero, 14 July 1976 [1976] ECR 1333 1.132 C-26/76 Metro v Commission, 25 October 1977 [1977] ECR 1875 3.70, 3.236, 5.223 C-27/76 United Brands v Commission [1978] ECR 207 4.50, 4.68, 4.377, 4.379, 4.380, 4.381, 4.384, 4.386, 4.392, 4.396, 4.400, 4.408, 4.414, 4.446, 4.473, 4.476, 4.526, 5.241, 7.143, 7.158 C-83 and 94/76, 4, 15 and 40/77 Bayerische HNL Vermehrungsbetriebe GmbH & Co KG v Council and Commission, 25 May 1978 [1978] ECR 1209 5.250 85/76 Hoffmann-La Roche v Commission, 13 February 1979 [1979] ECR 461 1.94, 4.50, 4.85, 4.88, 4.135, 4.169, 4.213, 4.214, 4.485, 4.485, 4.491, 4.500 6/77 Commission v Kingdom of Belgium, 12 October 1978 [1978] ECR 1881 1.155 C-13/77 SA GB-INNO-BM v Association of Tobacco Retailers (‘INNO/ATAB’), 16 November 1977 [1977] ECR 2115 3.33, 6.74

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C-28/77 Tepea v Commission, 20 June 1978 [1978] ECR 1391 3.23 C-30/78 Distillers v Commission, 10 July 1980 [1980] ECR 2223 5.240 C-209 –215/78 and 218/78 Van Landewyck v Commission [1980] ECR 3125 3.233 258/78 LC Nungesser KG and Kurt Eisele v Commission (‘Maize Seed case’), 8 June 1982 [1982] ECR 2015 1.135 C-155/79 AM&S v Commission, 18 May 1982 [1982] ECR 1575 5.264 C-792/79 R Camera Care v Commission, 17 January 1980 [1980] ECR 119 5.191 C-61/80 Coöperatieve Stremsel-en Kleurselfabriek v Commission, 25 March 1981 [1981] ECR 851 3.200 100–103/80 SA Musique Diffusion française et al v Commission, 7 June 1983 [1983] ECR 1825 1.71, 6.66, 6.81 C-26/81 Oleifici Mediterranei v CEE, 29 September 1982 [1982] ECR 3057 5.247(p. xvi) C-60/81 IBM v Commission, 11 November 1981 [1981] ECR 2639 5.215, 5.216, 5.217 322/81 NV Nederlandsche Banden Industrie Michelin v Commission (Michelin I) [1983] ECR I-03461 4.168, 4.169, 4.173, 4.179, 4.488 7/82 GVL v Commission [1983] ECR 483 6.75 43/82 and 63/82 VBBB and VBVB [1984] ECR 19 3.222, 3.233 C-86/82 Hasselblad v Commission [1984] ECR 883 8.50 C-96–102, 104, 105, 108 and 110/82 NV IAZ International Belgium et al v Commission, 8 November 1983 [1983] ECR 3369 1.04, 7.151 107/82 Allgemeine Elektrizitäts-Gesellschaft AEG-Telefunken AG v Commission [1983] ECR 3151 3.40, 3.183, 6.56, 8.50 C-228–229/82 Ford v Commission, 28 February 1984 [1984] ECR 1129 3.41, 5.242 260/82 Nederlandse Sigarenwinkeliers Organisatie v Commission, 10 December 1985 [1985] ECR 3801 6.88 C-319/82 Société de vente de ciments et bétons de l’Est SA v Kerpen & Kerpen GmbH und Co KG, 14 December 1983 [1983] ECR 4173 3.205 C-29–30/83 Compagnie royale Asturienne des mines SA and Rheinzink GmbH v Commission of the European Communities, 28 March 1984 [1984] ECR 1679 3.65, 3.157 C-123/83a BNIC v Clair, 30 January 1985 [1985] ECR 391 3.114, 3.193 C-243/83 SA Binon & Cie v SA Agence et messageries de la presse, 3 July 1985 [1985] ECR 2015 3.114, 4.86, 8.50

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C-294/83 Les Verts v Parliament, 23 April 1986 [1986] ECR 1339 5.212 298/83 Comité des industries cinématographiques des Communautés européennes (CICCE) v Commission, 28 March 1985 [1985] ECR 1105 4.444 42/84 Remia v Commission [1985] ECR 2545 3.148, 3.177, 3.199, 3.233, 3.236, 5.273, 9.162 C-68/94 and C-30/95 République française et Société commerciale des potasses et de l’azote (SCPA) et entreprise minière et chimique (EMC) v Commission, 31 March 1998 [1998 ECR I-01375 9.165 C-75/84 Metro SB-Grossmarkte GmbH & Co KG v Commission, 22 October 1986 [1986] ECR 3021 5.223 C-142/84 BAT et Reynolds v Commission, 18 June 1986 [1986] ECR 1899 5.145 142 and 156/84 British-American Tobacco Company Ltd et RJ Reynolds v Commission [1987] ECR I-4487 9.03 C-191/84 Pronuptia de Paris GmbH v Pronuptia de Paris Irmgard Schillgallis [1986] ECR 353 8.50 209–213/84 Public Ministry v Lucas Asjes et al, Andrew Gray et al, Andrew Gray et al, Jacques Maillot et al and Léo Ludwig et al (‘Nouvelles Frontières Case’), 30 April 1986 [1986 ECR] 1425 1.155 226/84 British Leyland plc v Commission [1986] ECR 3263 4.380, 4.393, 4.408, 4.409, 4.423, 4.424, 4.533 226/84 General Motors v Commission [1975] ECR 1367 4.380, 4.408, 4.409 C-5/85 AKZO Chemie BV and AKZO Chemie UK Ltd v Commission, 23 September 1986 [1986] ECR 2585 5.239 C-89/85, C-104/85, C-114/85, C-116/85, C-117/85 and C-125–129/85 Ahlström Osakeyhtiö et al v Commission (‘Wood Pulp’), 31 March 1993 [1993] ECR I-1307 1.64, 1.169, 2.04, 3.63, 4.80, 5.286, 5.287, 9.162 118/85 Commission v Italy, 16 June 1987 [1987] ECR 2599 1.132 C-311/85 Vereniging van Vlaamse Reisbureaus [1987] ECR 3801 8.50 C-62/86 AKZO Chemie BV v Commission, judgment, 3 July 1991 2.131, 4.259, 4.261, 4.262, 4.263, 4.268, 4.272, 4.293, 4.493 66/86 Ahmed Saeed Flugreisen et Silver Line Reisebüro GmbH v Zentrale zur Bekämpfung unlauteren Wettbewerbs eV [1989] ECR 803 4.86(p. xvii) C-136/86 BNIC v Aubert, 3 December 1987 [1987] ECR 4789 3.193 247/86 Société alsacienne et lorraine de télécommunications et d’électronique (Alsatel) v SA Novasam [1988] ECR 5987 4.86 263/86 Belgian State v René Humbel and Marie-Thérèse Edel, 27 September 1988 [1988] ECR 5365 1.132

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30/87 Corinne Bodson v SA Pompes funèbres des régions libérées. Reference for a preliminary ruling: Cour de cassation, France, Competition, Funeral services, Exclusive special rights [1988] ECR I-02479 3.179, 4.111, 4.380, 4.396, 4.398, 4.541 C-46/87 and 227/88 Hoechst v Commission, 21 September 1989 [1989] ECR 2859 5.218 238/87 AB Volvo v Erik Veng Ltd [1988] ECR 6211 4.321 C-374/87 Orkem v Commission, 18 October 1989 [1989] ECR 3283 5.218, 5.264 395/87 Ministère Public v Tournier [1989] ECR 2521 4.396 110/88 Lucazeau v SACEM [1989] ECR 2811 4.380, 4.387, 4.396 C-234/89 Delimitis v Henninger Bräu AG [1991] ECR I-935 3.145, 5.42, 5.78, 5.84, 8.30 C-41/90 Klaus Höfner and Fritz Elser v Macrotron GmbH, 23 April 1991 [1991] ECR I-1979 1.131, 1.136 C-179/90 Merci convenzionali porto di Genova SpA v Siderurgica Gabrielli SpA 1.138 C-2/91 Criminal proceedings against Wolf W Meng, 17 November 1993 [1993] ECR I-5751 3.34 C-159/91 and C-160/91 Christian Poucet v Assurances générales de France and Caisse mutuelle régionale du Languedoc-Roussillon, 13 February 1993 [1993] ECR I-637 1.139, 1.140, 1.144 C-241/91 and C-242/91 Radio Telefis Eireann and Independent Television Publications Ltd v Commission [1995] ECR 743 4.320 C-320/91 Criminal proceedings against Paul Corbeau, 19 May 1993 [1993] ECR I-2533 1.158 C-325/91 France v Commission, 16 June 1993 [1993] ECR I-3283 5.214, 5.232 C-49/92 P Commission of the European Communities v Anic Partecipazioni SpA [1999] ECR I-04125 3.58 C-51/92 P Hercules Chemicals v Commission, 8 July 1999 [1999] ECR I-4235 5.157 C-128/92 HJ Banks & Co Ltd v British Coal Corporation [1994] ECR I-1209 3.212 C-200/92 ICI v Commission [1999] ECR I-4399 6.25 C-250/92 Gottrup-Klim v Dansk Landbrugs Grovvareselskab [1994] ECR I-5641 3.177 C-364/92 SAT Fluggesellschaft mbH v Eurocontrol, 19 January 1994 [1994] ECR I-43 1.138, 7.117 C-393/92 Gemeente Almelo v Energiebedrijf IJsselmij [1994] ECR I-1477 4.111, 4.119 C-18/93 Corsica Ferries Italia Srl v Corpo dei Piloti del Porto di Genova, 17 May 1994 [1994] ECR I-1783 4.500, 4.509, 4.510, 4.524

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C-39/93 SFEI v Commission, 16 June 1994 [1994] ECR I-2681 5.214 C-266/93 VAG Leasing, 24 October 1995 [1995] ECR I-3477 3.15 C-383/93 Centre d’insémination de la Crespelle v Coopérative de la Mayenne [1994] ECR I-5077 4.111 C-480/93 Zunis Holding v Commission 5.226 C-68/94 and C-30/95 République française et Société commerciale des potasses et de l’azote (SCPA) et entreprise minière et chimique (EMC) v Commission (‘Kali & Salz’) [1998] ECR I-1375 4.94, 5.274, 9.61, 9.92 C-96/94 Centro Servizi Spediporto v Spedizioni Marittima del Golfo [1995] ECR I-2883 4.115 C-140/94 DIP v Comune di Bassano del Grappa and others [1995] ECR I-3257 4.115 C-244/94 FFSA v Ministry of Agriculture and Fisheries, 16 November 1995 [1995] ECR I-4013 1.140 C-333/94 P Tetra Pak v Commission [1996] ECR I-5951 4.231, 4.449 C-7/95 John Deere v Commission [1998] ECR I-3111 7.33, 7.34(p. xviii) C-10/95 Asocarne, 23 November 1995 [1995] ECR I-4149 5.231 C-70/95 Sodemare v Regione Lombardia [1997] ECR I-3395 4.115 C-73/95 Viho Europe BV v Commission, 24 October 1996 [1996] ECR I-5457 3.08, 3.09, 4.113, 4.119 C-282/95 Guerin automobiles v Commission, 18 March 1997 [1997] ECR I-1503 5.216 C-343/95 Diego Calì & Figli Srl v Servizi ecologici porto di Genova SpA (SEPG), 18 March 1997 [1997] ECR I-1547 1.138, 1.141 C-350/95 P and C-379/95 P Commission and French Republic v Tiercé Ladbroke Racing Ltd [1997] ECR I-6265 3.30 C-35/96 Commission v Italy, 18 June 1998 [1998] ECR I-3851 1.132, 3.199 C-67/96 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie, 21 September 1999 [1999] ECR I-5751 1.140, 1.141, 1.142, 1.143 C-215/96 and C-216/96 Carlo Bagnasco ea v Banca Popolare di Novara (BNP)) and Cassa di Risparmio di Genova e Imperia (Carige), 21 January 1999 [1999] ECR I-135 3.199 C-230/96 Cabour and Nord Distribution Automobile/Arnor ‘SOCO’, 30 April 1998 [1998] ECR I-2055 7.167 C-306/96 Javico v Yves Saint Laurent Parfums, 28 April 1998 [1998] ECR I-1983 1.169, 3.158, 5.73

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C-386/96 Societe Louis Dreyfus & Cie v Commission, 5 May 1998 [1998] ECR I-2309 5.222 C-395/96 P and C-396/96 P Compagnie Maritimes Belges, judgment, 16 March 2000 2.131, 4.98, 4.117, 4.282, 4.293, 4.502, 9.61 C-7/97 Oscar Bronner v Mediaprint [1998] ECR I-7794 4.308, 4.316, 4.317, 4.324, 4.349, 4.350, 4.351, 4.364, 4.368 C-126/97 Eco Swiss China Time Ltd v Benetton International NV, 1 June 1999 [1999] ECR I-3055 1.85 C-180–184/98 Pavel Pavlov v Stichting Pensioenfonds Medische Specialisten, 12 September 2000 [2000] ECR I-06451 1.133 C-286/98 P Stora Kopparbergs Bergslags v Commission, 16 November 2000 [2000] ECR I-9925 6.55, 6.57, 6.58 C-344/98 Masterfoods Ltd v HB Ice Cream Ltd 14 December 2000 [2000] ECR I 11369 5.42, 5.78 C-352/98 P Bergaderm and Goupil v Commission, 4 July 2000 [2000] ECR I-5291 5.247 C-163/99 Portuguese Republic v Commission, 29 March 2001 [2001] ECR I-2613 4.524 C-194/99 Thyssen Stahl AG v Commission [2003] ECR I-10821 7.34 C-214/99 Neste Markkinointi Oy and Yötuuli Ky [2000] ECR-I-11121 3.144, 3.145, 3.146 C-238/99 P, C-244/99 P, C-245/99 P, C-247/99 P, C-250–252/99 P and C-254/99 P Limburgse Vinyl Maatschappij NV, DSM NV and DSM Kunststoff en BV, Montedison SpA, Elf Atochem SA, Degussa AG, Enichem SpA, Wacker-Chemie GmbH and Hoechst AG and Imperial Chemical Industries plc v Commission, 15 October 2002 [2002] ECR I-8375 5.185 C-309/99 Wouters Savelbergh and Price Waterhouse Belastingadviseurs BV v Algemene Raad van de Nederlandse Orde van Advocaten, 19 February 2002 [2002] ECR I-1577 1.133, 3.53, 3.178 C-453/99 Courage v Crehan, 20 September 2001 [2001] ECR I-06297 1.94, 3.204, 3.211, 3.214, 5.01, 5.73 C-475/99 Firma Ambulanz Glöckner v Landkreis Südwestpfalz, 25 October 2001 [2001] ECR I-08089 1.136(p. xix) C-50/00 P Union de Pequenos Agricultores v Council, 25 July 2002 [2002] ECR I-6677 5.231 C-137/00 Milk Marque Ltd and National Farmers’ Union, 9 September 2003 [2003] ECR I-7975 1.151, 1.152

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C-204/00 P, C-205/00 P, C-211/00 P, C-213/00 P, C-217/00 P and C-219/00 P Aalborg Portland et al v Commission, 7 January 2004 [2004] ECR I-00123 9.165 C-218/00 Cisal di Battistello Venanzio & C Sas v Istituto nazionale per l’assicurazione contro gli infortuni sul lavoro (INAIL), 22 January 2002 [2002] ECR I-691 1.139 C-338/00 Volkswagen v Commission, 18 September 2003 [2003] ECR I-9189 1.30 C-02/01 P Bundesverband der Arzneimittel-Importeure v Bayer AG and Commission, 6 January 2004 [2004] ECR I-23 1.79, 4.539, 4.540, 5.234 C-102/01 Aéroports de Paris v Commission, 24 October 2002 [2002] ECR I-9297 4.514 C-198/01 Consorzio Industrie Fiammiferi, 9 September 2003 [2003] ECR I-8055 1.94, 1.95, 3.36 C-264/01, C-306/01, C-354/01 and C-355/01, AOK Bundesverband ea, 16 March 2004 [2004] ECR I-2493 1.144 C-418/01 IMS Health [2004] ECR I-5039 4.322, 4.324, 4.326, 4.326, 4.327, 4.328, 4.329, 4.330, 4.331, 4.333, 4.334, 4.335, 4.339, 5.206 C-189/02 P, C-202/02 P, C-205/02 P to C-208/02 P and C-213/02 P Dansk Rorindustri A/ S (C-189/02 P), Isoplus Fernwarmetechnik Vertriebsgesellschaft mbH ao, 28 June 2005 [2005] ECR I-5425 5.10 C-213/02 P R ø rindustri v Commission [2004] ECR I-05425 1.102 C-12/03 P Commission v Tetra Laval (‘Tetra Laval II’) 15 February 2005 [2005] ECR I-987 5.281, 5.284, 5.285 C-13/03 P Commission v Tetra Laval BV [2005] ECR I-1113 9.169, 9.170 C-53/03 Syfait v GlaxoSmithKline plc, 31 May 2005 4.540 C-176/03 Commission v Council, 13 September 2005 [2005] ECR I-7879 1.04 C-551/03 General Motors Nederland and Opel Nederland v Commission, 6 April 2006 [2006] ECR I-3173 3.119 C-94/04 and C-202/04 Cipolla and Others [2006] ECR I-11421 3.37 C-95/04 P British Airways plc v Commission, 23 February 2006 1.91, 4.177, 4.491, 8.73 C-289/04 P Showa Denko KK v Commission, 29 June 2006 [2006] ECR I-05859 1.91 C-295/04–298/04 Vincenzo Manfredi, 13 July 2006 [2006] ECR I-6619 1.85, 3.180, 3.213, 3.214, 5.01 C-407/04 P Dalmine SpA v Commission, 25 January 2007 [2007] ECR I-829 6.11 C-411/04 P Salzgitter Mannesmann GmbH v Commission, 25 January 2007 [2007] ECR I-00959 6.113

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C-519/04 P David Meca-Medina and Igor Majcen v Commission, 18 July 2006 [2006] ECR I-6991 1.135 C-168/05 Elisa María Mostaza Claro v Centro Móvil Milenium SL, 26 October 2006 [2006] ECR I-10421 1.85 C-217/05 Confederación Española de Empresarios de Estaciones de Servicio v Compañía Española de Petróleos SA, 14 December 2006 3.14, 3.16, 3.17, 3.145 C-238/05 Asnef-Equifax, Servicios de Información sobre Solvencia y Crédito, SL v Asociación de Usuarios de Servicios Bancarios (Ausbanc) [2006] ECR I-11125 3.243, 7.57 C-319/05 Commission v Germany [2007] ECR I-9811 3.237 C-328/05 P SGL Carbon AG v Commission, 10 May 2007 [2007] ECR I-3921 1.95, 6.113 C-421/05 City Motors Groep NV v Citroën Belux NV [2007] ECR I-659 3.208(p. xx) C-3/06 P Danone Group v Commissions, 8 February 2007 [2007] ECR I-01331 6.113 C-76/06 P Britannia Alloys & Chemicals Ltd v Commission, 7 June 2007 [2007] ECR I-0440 6.113 C-280/06 Autorità Garante della Concorrenza e del Mercato against Ente tabacchi italiani—ETI SpA, Philip Morris Products SA, Philip Morris Holland BV, Philip Morris GmbH, Philip Morris Products Inc and Philip Morris International Management SA, 11 December 2007 [2007] ECR I-10893 6.69, 9.03 C-413/06 P Bertelsmann AG v Impala [2008] ECR II-4951 4.101, 4.121, 9.61 C-468–478/06 Sot Lélos kai Sia EE and Others v GlaxoSmithKline EVE 1.80, 3.72, 4.71 C-501/06 P, C-513/06 P, C-515/06 P and C-519/06 P 1.80, 3.105 C-209/07 Beef Industry Development Society Ltd, Barry Brothers (Carrigmore) Meats Ltd [2008] ECR I-8637 3.115, 3.117, 3.118, 3.119, 6.16, 6.30, 6.43, 6.11 C-260/07 Pedro IV Servicios SL v Total España SA [2009] ECR I-02437 3.145 C-429/07 Inspecteur van de Belastingdienst v X BVneca, 11 June 2009 [2009] ECR I-4833 5.84 C-440/07 P Commission v Schneider Electric SA, 16 July 2009 [2009] ECR I-6413 5.250, 5.264 C-441/07 P Commission v Alrosa Co Ltd, 29 June 2010 5.187 C-08/08 T-Mobile and others v Raad van bestuur van de Nederlandse Mededingingsautoriteit 3.93, 3.113, 3.115, 3.117, 3.118 C-97/08P Akzo Nobel v Commission, 10 September 2009 6.54, 6.58 C-280/08 P Deutsche Telekom v Commission, 14 October 2010 4.347, 4.408, 4.409

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C-393/08 Emanuela Sbarigia 3.179 C-439/08 Vlaamse federatie van verenigingen van Brood-en Banketbakkers, Ijsbereiders en Chocoladebewerkers (VEBIC) VZW, 7 December 2010 5.31, 5.206, 7.44 C-52/09 TeliaSonera Sverige, 17 February 2011 4.355, 4.363 C-375/09 Prezes Urzędu Ochrony Konkurencji i Konsumentow v Tele2 Polska sp zoo, 3 May 2011 5.31, 5.166, 5.206 C-439/09 Pierre Fabre Dermo Cosmétique SAS 8.49

Permanent Court Of International Justice France v Turkey, Series 1 no 10 1.168

France Paris Court of Appeals, Esso, Total, BP et Shell v Ministère de l’Economie, des Finances et de l’Industrie, 9 December 2003, BOCCRF no 2 of 12 March 2004 7.49

United Kingdom King, The v Norris 2 Keny 300, 96 Eng Rep 1189 (KB 1758) 1.37

United States A.A. Poultry Farms, Inc v Rose Acre Farms, Inc, 881 F2d 1396, 1401 (7 th Cir 1989), cert denied, 110 Sct 1326 (1990) 4.279 Aspen Skiing 4.325 Berkey Photo, Inc v Eastman Kodak Co, 603 F2d 263, 294 (2nd Cir 1979), cert denied 444 US 1093 (1980) 4.433 Brooke Group Ltd v Brown & Williamson Tobacco Corp, 509 US 209 (October Term 1992), 224 4.279(p. xxi) Brown Shoe Co, Inc v United States, 370 US 294 (1962) 1.64, 1.69 Brunswick Corp v Pueblo Bowl-O-Mat, Inc, 429 US 477, 489 (1977) 5.227 Dr Miles Medical Co v John D Park & Sons Co, 220 US 373 (1911) 8.51 Federal Trade Commission v Morton Salt, 334 US 37 4.477 FTC v Heinz, 116 F Supp 2d 190 (DDC 2000), rev’d 246 F3d 708 (DC Cir 2001) 9.55 Leegin Creative Leather Products, Inc v PSKS, Inc 127 S Ct 2705 (2007) 8.51 Ortho Diagnostic Systems, Inc v Abbott Labs, 920 F Supp 455 (SDNY 1996) 4.188 Standard Oil Co of New Jersey v United States 221 US 1 (1911) 1.42, 8.51

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US v du Pont, 351 US 377 (1956) 4.45 Verizon Communications, Inc v Law Offices of Curtis Trinko, LLP, 157 LEd2d 823, 836 (2004) 4.325, 4.434(p. xxii)

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Table Of Commission Decisions Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

ABB/Daimler-Benz, Commission Decision of 18 October 1995, IV/M.580, 4.93 ABG/Oil companies operating in the Netherlands, Commission Decision of 19 April 1977, IV/28.841, 77/327/EEC 4.84 AEG-Telefunken, Commission Decision IV/28.748, OJ L 117 of 24 November 1982 P 3.40 Aerospatiale/Alenia/De Havilland, M.53, 2 October 1991 1.03, 9.185 Airtours/First Choice, Commission Decision, IV/M.1524, 22 September 1999 1.03, 4.93, 4.100, 9.62, 9.69, 9.96, 9.98, 9.185 Alcan/Pechiney, M.1715 1.03 Alcoa/Reynolds, COMP/M.1693, 3 May 2000, OJ L 58 of 28 February 2002 2.61, 2.98 Alpha Flight Services/Aéroports de Paris, Commission Decision, 98/153 of 11 June 1998, OJ L 230 of 18 August 1998 4.514 Alstom case Commission Decision, 7 July 2004, OJ L 150, 10 June 2005 1.08 AMCA, Commission Decision of 19 January 2005, COMP/E-1/37.773 6.25 Amino Acids, COMP/36.545/F3, OJ L 152, 7 June 2001 1.04 Animal feed phosphates, Commission Decision of 20 July 2010, COMP/38.866, OJ C 111 of 9 April 2011 5.198, 5.199 AOL/Time Warner, Commission Decision of 11 September 2000, OJ L 268 of 9 October 2001 9.81, 9.82

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ARA, ARGEV, ARO, Commission Decision of 16 October 2003, OJ L 75, 2004 3.233 AREVA/Urenco/ETC, Commission Decision, COMP/M.3099, 6 October 2004 9.134, 9.135, 9.136 AROW/BNIC, IV/29.883, Commission Decision of 15 December 1982, OJ L 379 of 31 December 1982 3.31 Assurpol, Commission Decision 92/96/EEC, IV/33.100, OJ L 37, 1992 3.233 AstraZeneca, COMP/A.37.507/F3, OJ L 332 of 30 November 2006 1.62, 1.72 AstraZeneca/Novartis, Commission Decision of 26 July 2000, COMP/M.1806, OJ L 110, 2004 4.30 Atlas, Commission Decision of 17 July 1996, IV/35.337, OJ L 239 of 19 September 1996 9.191 Automobiles Peugeot SA, Commission Decision of 7 December 2005, COMP/36.623 6.20 Automotive glass, Commission Decision of 12 November 2008, COMP/39.125, OJ C 173 of 25 July 2009 6.82 Bananas, Commission Decision, COMP/39.188, 15 October 2008 7.26 Bandengroothandel Frieschebrug BV/NV Nederlandsche Banden-Industrie Michelin, Commission Decision of 7 October 1981, IV.29.491, OJ L 353 of 9 December 1981 4.168, 4.488 BASF/Eurodiol/Pantochim, Commission Decision of 11 July 2001, COMP/M.2314, OJ L 132 of 17 May 2002 9.92 BdKEP/Deutsche Post AG and Bundesrepublik Deutschland, Commission Decision of 20 October 2004, COMP/38.745 4.522 Belgian Architects’ Association, Commission Decision of 24 June 2004, COMP/38.549, no official publication 6.25 Belgian wallpaper, Commission Decision of 23 July 1974, OJ L 237 of 29 August 1974 6.51 Bertelsmann/Kirch/Premiere, M.993, 27 May 1998 1.03, 9.185(p. xxiv) Bitumen—NL, Commission Decision of 13 September 2006, COMP/38.456 6.25, 6.87 BL, Commission Decision 84/379 of 2 July 1984, OJ L 207 of 2 August 1984 4.533 Bloemenveilingen Aalsmeer, Commission decision of 26 July 1988, IV/31.379, OJ L 262 of 22 September 1988 1.152 Blokker/Toys ‘R’ Us, Commission Decision of 26 June 1997, IV/M.890, OJ L 316 of 25 November 1998 1.03, 9.92, 9.185 Boeing/McDonnell Douglas, IV/M.887, Commission Decision of 30 July 1997, OJ L 336 of 8 December 1997 1.178

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BP Kemi/DDSF, Commission Decision of 5 September 1979, IV/29.021, OJ L 286 of 14 November 1979 6.32 BPB Industries plc, Commission Decision 89/22 of 5 December 1988, IV/31.900, OJ L 10 of 13 January 1989 4.490 Brussels National Airport case, Commission Decision 95/364 of 28 June 1995, OJ L 216 of 12 September 1995 4.511 Calcium carbide and magnesium based reagents for the steel and gas industries Commission Decision of 22 July 2009, COMP/39.396 6.25 Campari, Commission Decision of 23 December 1977, IV/171, 856, 172, 117, 28.173, OJ L 70 of 13 March 1978 3.159 Car glass COMP/39.125, OJ C 173, 25 July 2009 1.04, 6.87 Carbon Gas Technologie, Commission Decision of 8 December 1983, IV/29.955, 83/669/EEC 3.233 Carreaux céramiques, Commission Decision of 29 December 1970, IV/25107, OJ L 10 of 13 January 1971 6.25 Cartonboard, Commission Decision, IV/C/33.833, 13 July 1994, OJ L 243 of 19 September 1994 7.26 Cast iron and steel rolls, Commission Decision of 17 October 1983, IV/30.064, OJ L 317 of 15 November 1983 6.25 CECED, Commission Decision 2000/475/EC of 24 January 1999, OJ L 187, 2000 3.233 Central marketing of the commercial rights to the UEFA Champions League, COMP/C. 2-37.398, OJ L 291 of 8 November 2003 1.133 Cewal, Commission Decision 93/102 of 23 December 1992, OJ L 34 of 10 February 1993 4.496 Cewal, Cowac and Ukwal, Commission Decision, 23 December 1992, IV/32.448 and IV/32.450, and Cewal IV/32.448 and IV/32.450 4.293, 4.496 Chloroprene rubber case 6.87 Cimbel, Commission Decision of 22 December 1972, IV/243, 244, 245, OJ L 303 of 31 December 1972 6.25 Clearstream, Commission Decision of 2 June 2004, COMP/38.096 4.520 COAPI, IV/33.686, OJ L 122 of 2 June 1995 1.133 Cobelpa/VNP, Commission Decision, IV/312-366, 8 September 1977, OJ L 242 of 21 September 1977 7.45 Commission v Association of Belgian Architects, Commission Decision of 24 June 2004, COMP/38.549, 3.53

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Commission Decision, 29 October 1975, 76/185/ECSC, adopting interim measures concerning the National Coal Board, National Smokeless Fuels Limited and the National Carbonizing Company Limited, OJ L 35, 1976 4.341 Commission Decision 82/267/EEC of 6 January 1982 relating to a proceeding under Article 85 of the EEC Treaty 3.40 Commission Decision 97/745 of 21 October 1997, OJ L 301 of 5 November 1997 4.509 Commission Decision 2000/521 of 26 July 2000, OJ L 208 of 18 August 2000 4.513(p. xxv) Commission Decision of 23 May 2001 on the terms of reference of hearing officers in certain competition proceedings, OJ L 162 of 19 June 2001 5.155 Commission Decision 2006/857/EC of 15 June 2005 relating to a proceeding under Article 82 of the EC Treaty and Article 54 of the EEA Agreement 1.62 Compagnie Maritime Belge SA, Commission Decisions of 29 April 2004, COMP/ D2/32448 and 32450, OJ L 171 of 2 July 2005 6.49 Consumer Detergents, Commission Decision of 13 April 2011, COMP/39579, OJ C 193 of 2 August 2011 5.198 Copper fittings, Commission Decision of 20 September 2006, COMP/F-1/38.121 6.25, 6.87 CVC/Lenzing, M.2187, 17 October 2001 1.03, 9.185 Danish Crown/Vestjyske Slagterier, Commission Decision 9 March 1999, IV/M.1313, OJ L 20 of 25 January 2000 1.150, 9.96 Danone Group/Kronenbourg and Heineken NV/Heineken France breweries, Commission Decision of 29 September 2004, COMP/C.37.750/B2 6.36 DECA, Commission Decision of 22 October 1964, IV.A-00071, OJ L 173 of 31 October 1964 3.152 Deutsche Post AG—Interception of cross-border mail, Commission Decision 2001/892 of 25 July 2001, OJ L 331 4.519 Deutsche Post AG—Interception of crossborder mail, Commission Decision of 25 July 2001, COMP/C-1/36.915, OJ L 331, 2001 4.423, 4.425, 4.519 Deutsche Post AG, Commission Decision of 20 March 2001, COMP/35.141, OJ L 125 of 5 May 2001 4.269, 4.270 Deutsche Telekom AG, COMP/C-1/37.451, 37.578, 37.579, OJ L 263 of 14 October 2003 1.160, 4.345, 4.346 Deutsche Telekom/Betaresearch, M.1027, 27 May 1998 1.03, 9.185 DRAMs, Commission Decision of 19 May 2010 COMP/38.511, OJ C 180 of 21 June 2011 5.198 DSD, Commission Decision of 17 September 2001, 2001/837/EC, OJ L 319, 2001 3.233

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Dutch Banks, Commission Decision, IV/31.499, 19 July 1989, OJ L 253 3.79 E.ON Gas, COMP/39.317, OJ C 278 of 15 October 2010 5.186, 5.244 E.ON/GDF, Commission Decision of 8 July 2009, COMP/39.401, OJ C 248 of 6 October 2009 6.14, 6.83 E.ON/Endesa, Commission Decision of 25 April 2006, COMP/M.4110 9.39 EBU/Eurovision System, Commission Decision, OJ L 179, 1993 3.233 ECS v Akzo, Commission Decision of 14 December 1985, IV/30.698, OJ L 375, 1985 4.136, 4.299 ECS/Akzo, Commission Decision 85/609 of 14 December 1985, OJ L 374 of 31 December 1985 4.492 Electrabel/Compagnie Nationale du Rhône, Commission Decision of 10 June 2009, COMP/M.4994 9.32 Electrical and mechanical carbon and graphite products COMP/E2/C.38.359 1.04, 6.28 Electrolux/AEG, IV/M.458, 21 June 1994 7.76 Elevators and mechanical escalators Commission Decision of 21 February 2007, COMP/E-1/38.823, 6.87 EMI/TimeWarner 1.03, 9.186 ENI, COMP/39.315, OJ C 352 of 23 December 2010 5.186 ENI/EDP/GDP (4064), M.3440, 9 December 2004 1.03, 9.185 Enso/Stora 9.50 Eurofix-Bauco v Hilti, Commission Decision of 22 December 1987, IV/30.787 and 31.488, OJ L 65, 11 March 1988 4.10, 4.226, 4.239, 4.494(p. xxvi) Fatty Acids, Commission Decision of 2 December 1986, IV/31.128, OJ L 3 of 6 January 1987 7.53 Fedetab, Commission Decision of 20 July 1978, IV/28.852, IV/29.127 IV/29.149, OJ L 224 of 15 August 1978 6.25 Fenex, Commission Decision of 5 June 1996, IV/34.983, OJ L 181 of 20 July 1996 6.25 Flat glass, Commission Decision of 28 November 2007 relating to a proceeding under Article 81 of the EC Treaty, COMP/39.165, OJ C 127 of 24 May 2008 5.175 Flat glass (Italy), Commission Decision of 7 December 1988, IV/31.906, OJ L 33 of 4 February 1989 4.87 Floral, Commission Decision of 28 November 1979, IV/29.672, OJ L 39 of 15 February 1980 7.126

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Ford Volkswagen, Commission Decision 93/49/EE of 23 December 1992, IV/33.814, OJ L 20, 1993 3.233 Ford Werke AG, Commission Decision of 18 August 1982, IV/30.696, OJ L 256 of 24 November 1983 3.41 French beef, Commission Decision of 2 April 2003, COMP/C.38.279/F3, OJ L 209 of 19 August 2003 3.32 Fujitsu/Fujitsu Siemens Computers, COMP/M.5413, OJ C 4 of 9 January 2009 7.02 Fujitsu/Siemens, Commission Decision of 30 September 1999, N IV/JV.22, OJ C 318 of 5 November 1999 9.119, 9.133 Gas insulated switchgear case 6.14, 6.87 Gaz de France/Suez, COMP/M.4180, Commission Decision of 14 November 2006 9.15 Gaz de France/Suez, COMP/M.4180, Commission Decision of 14 November 2006 9.15 GEC-Weir Sodium, Commission Decision of 23 November 1977, COMP 377D07 81, OJ L 327 of 20 December 1977 3.250 Gencor/Lonrho, Commission Decision IV/M.619, OJ L 11 of 14 January 1997 4.93, 9.96, 9.185 Gencor/Lonrho, Commission Decision 24 April 1996, M.619 1.03 General Electric/Honeywell, Commission Decision of 3 July 2001, COMP/M.2220, OJ L 48 of 18 February 2004 1.03, 1.178, 9.95, 9.185 General Motors Continental, Commission Decision of 19 December 1974, IV/28.851, OJ L 294, 1975 4.400, 4.423 Goodyear Italiana–Euram, Commission Decision 3.159 Goodyear Italiana–Euram, Commission Decision 3.159 Graphite electrodes, COMP/E-1/36.490, OJ L 100, 16 April 2000 1.04 Grosfillex-Fillistorf, Commission Decision of 11 March 1964, IV/A-00061, OJ L 58 of 9 April 1964 3.152 Guinness/Grand Metropolitan, Commission Decision of 15 October 1997, IV/M938, OJ L 288 of 27 October 1998 9.88 Hasselblad, Commission Decision of 2 December 1981, COMP/IV/25.757, OJ L 161 of 12 June 1982 5.173 HOV-SVZ/MCN, Commission Decision 94/210 of 29 March 1994, OJ L 104 of 23 April 1994 4.516 IFTRA rules for producers of virgin aluminium, Commission Decision of 15 July 1975, IV/27.000, OJ L 228 of 29 August 1975 6.25

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Ilmailulaitos/Luftfarsverket, Commission Decision 1999/98 of 10 February 1999, OJ L 69 of 16 March 1999 4.514 Industrial bags, Commission Decision of 30 November 2005, COMP/38.354, 39 6.25, 6.31, 6.47, 6.87 Industrial thread, Commission Decision of 14 September 2005, COMP/38.337 6.25(p. xxvii) Industrieverband Solnhofener Natursteinplatten eV, Commission Decision 80/1074 of 16 October 1980, OJ L 318 of 26 November 1980 4.501 Intel, Commission Decision of 13 May 2009, COMP/C-3/37-990, OJ C 227 of 22 September 2009 1.05, 4.140, 4.141, 4.144, 4.213, 5.12 International removal services, 32, Commission Decision of 11 March 2008, COMP/ 38.543 6.25 ITT/Promedia 4.424, 4.518 JCB, Commission Decision of 21 December 2000, COMP.F.1/35.918, OJ L 69 of 13 March 2002 5.173 Kali + Salz/MdK/Treuhand, Commission Decision of 14 December 1993, IV/M.308, 4.93 Kali und Salz, Commission Decision of 14 December 1993, IV/M.308, OJ L 186 of 21 July 1994 9.92 Kesko/Tuko, M.784, 20 November 1996 1.03, 9.185 Kodak, Commission Decision of 30 June 1970, IV/24055, OJ L 159 of 21 July 1970 3.159 KSB/Goulds/Lowara/ITT, Commission Decision 91/38/EEC, IV/32.363, OJ L 19, 1991 3.233 Langnese-Iglo GmbH, Commission Decision of 23 December 1992, IV/34.072, OJ L 183 of 26 July 1993 3.255, 8.84 Laurent Piau v FIFA, Commission Decision of 15 April 2002 3.233 Laurent Piau v FIFA, Commission Decision of 15 April 2002 3.233 Long Term Electricity Contracts France, Commission Decision of 17 March 2010 relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union, COMP/39.386, OJ C 133 of 22 May 2010 5.186 Magill TV Guide/ITP, BBC and RTE, Commission Decision of 21 December 1988, IV/ 31.851, OJ L 78, 1998 4.320 Mannesman/Vallourec/Ilva, Commission Decision, IV/M.315, OJ L 102 of 21 April 1994 9.96 Marine Hoses, Commission Decision of 28 January 2009, COMP/39406 5.137, 6.95

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Matra/Aérospatiale, Commission Decision of 28 April 1999, IV/M.1309, OJ C 133 of 13 May 1999 1.165 MCI Worldcom/Sprint, M.1741, 28 June 2000 1.03, 9.185 Meldoc, Commission Decision 86/596 of 26 November 1986, OJ L 348 of 10 December 1986 4.501 Methacrylates, 25 Commission Decision of 31 May 2006, COMP/F/38.645 6.25 Michelin, Commission Decision of 20 June 2001, COMP/E-2/36.041/PO, OJ L 143 of 31 May 2002 4.171 Microsoft Commission Decision of 24 May 2004 relating to a proceeding pursuant to Article 82 of the EC Treaty, COMP/C-3/37.792, OJ L 32 of 6 February 2007, 5.244 Microsoft, Commission Decision of 24 March 2004, COMP/C-3/37.792 1.05, 4.26, 4.140, 4.225, 4.232, 4.250, 4.310, 4.328, 4.333, 5.12, 5.244 Microsoft, Commission Decision of 24 May 2004, OJ L 32 of 6 February 2007, COMP/ C-3/37.792 5.12 Microsoft, Commission Decision of 27 February 2008, COMP/C-3/37.792, OJ C 166 of 18 July 2009 2.44 Microsoft (Tying), Commission Decision of 16 December 2009 relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union and Article 54 of the EEA Agreement, COMP/39.530, OJ C 36 of 13 February 2010 5.12(p. xxviii) MSG Media Service, M.469, 9 November 1994 1.03, 9.185 Napier Brown—British Sugar, Commission Decision of 18 July 1988, IV/30.178, OJ 284 of 19 October 1988 4.342 Nathan Bricolux, Commission Decision of 5 July 2000, OJ L 54, 2001 8.50 Navewa/Anseau, Commission Decision of 17 December 1981, IV/29.995, OJ L 325 of 20 November 1982 7.151 Needles, Commission Decision of 26 October 2004, COMP 38.338 PO 6.46 Nestlé/Perrier, Commission Decision 92/553, IV/M.190, 22 July 1992 4.93, 4.541, 5.225 Newscorp/Telepiù, Commission Decision of 2 April 2003, COMP/M.2876 9.93 Nokia Corporation/SP Tyres UK 9.115 Nordic Satellite Distribution, M.490, 19 July 1995 1.03, 9.185 O2 UK Ltd/T-Mobile UK Ltd, COMP/38.370, OJ L 200, 7 August 2003 1.160 Olympic/Aegean Airlines, M.5830, 26 January 2011 9.185 Omega—Nintendo, OJ L 255 COMP/36.321 1.78, 6.19

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Opel Nederland BV/General Motors Nederland BV, Commission Decision of 20 September 2000, OJ L 59 of 28 February 2001 4.539 Oracle/PeopleSoft merger, Commission press release IP/04/1312 of 26 October 2004 9.149, 9.151 Oracle/PeopleSoft, Commission Decision 2005/621/EC, OJ L 218, 2005 4.26 Organic Peroxides, Commission Decision 2003 6.70, 6.98 Österreichische Banken, Commission Decision of 11 June 2002, COMP/36.571 6.94 Paraffin wax, 53, Commission Decision of 1 October 2008, COMP/39.181 6.25 Peroxygen, Commission Decision of 23 November 1984, IV/30907, OJ L 35 of 7 February 1985 6.44 Peroxygen products, IV/30.907, OJ L 035, 7 February 1985, at 1–19 3.100 Plasterboard, Commission Decision of 27 November 2002, COMP/37.978 6.82 PO Nintendo Distribution COMP/35.706 1.78, 6.19 PO Video Games COMP/35.587 1.78, 6.19 PO/Belgian architects fee system, Commission Decision 24 June 2004, COMP/38.549, 1.133 PO/Yamaha, Commission Decision of 16 July 2003, COMP/37.975 6.18, 6.67, 8.50 Portuguese Airports, Commission Decision 1999/199 of 10 February 1999, OJ L 69 of 16 March 1999 4.513, 4.524 Preinsulated pipes, Commission Decision of 21 October 1998, IV/35691, OJE L 24 of 30 January 1999 6.52, 6.87 Professional Videotapes case 6.87 Prokent-Tomra, Commission Decision of 29 March 2006, COMP/E-1/38.113, OJ C 227 of 22 September 2009 4.214 PRYM-BEKA, Commission Decision of 8 October 1973, IV/26.825, OJ L 296 of 24 October 1973 7.76 Qualcomm 7.139, 7.141, 7.142, 7.143, 7.144 RAI/Unitel, IV/29.559, OJ L 157 1.133 Rambus, Commission Decision of 9 December 2009, COMP/38.636, OJ C 30 of 6 February 2010 4.432, 5.12, 7.139, 7.140, 7.143, 7.144 Raw tobacco—Italy, Commission Decision of 20 October 2005, COMP/C.38.281/B.2, OJ L 353 of 13 December 2006 6.25 Raw tobacco—Spain, Commission Decision of 20 October 2004, COMP/C.38.238/B.2, OJ L 102 of 19 April 2007 3.32(p. xxix)

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Raymond—Nagoya, Commission Decision of 9 June 1972, IV/26.813, OJ L 143 of 23 June 1972 3.152 REIMS II, Commission Decision 1999/695/EC of 15 September 1999, IV/36.748 3.121 Reinforcing bars, Commission Decision of 17 December 2002, COMP/37.956OJ L 353 of 13 December 2006 6.29 Rennet, IV/29.011, Commission Decision, 5 December 1979, OJ L 51 of 25 February 1980 3.79, 3.200, 7.117 Reuter/BASF, IV/28.996, IV/28.996, Commission Decision of 26 July 1976, OJ L 254 of 17 September 1976 1.133, 3.19 Rewe/Meinl, Commission Decision of 3 February 1999, IV/M.1221, OJ L 274 of 23 October 1999 9.92 Rieckermann/AEG-Elotherm, Commission Decision of 6 November 1968, IV/23077, OJ L 276 of 14 November 1968 1.170, 3.152 Rolled zinc products and zinc alloys, Commission Decision of 14 December 1982, IV/ 29.629, OJ L 362, 1982 3.65 Roofing felt, Commission Decision 86/399 of 10 July 1986, OJ L 232 of 19 August 1986 4.501 Rovin 6.42 RTL/Veronica/Endemol (‘HMG’), 20 September 1995, M.553 1.03, 9.185 Rubber chemicals, Commission Decision of 21 December 2005, COMP/F/38.443, OJ L 353 of 13 December 2006 6.25 Ryanair, Commission Decision of 12 February 2004, OJ L 137 of 30 April 2004 1.08 Ryanair/Aer Lingus, Commission Decision of 27 June 2007/30 October 2006, COMP/ M.4439 1.03, 9.13, 9.54, 9.185 Saint-Gobain/Wacker-Chemie/NOM, Commission Decision of 4 December 1996, IV/M. 774, OJ L 247 of 10 September 1997 1.03, 9.92, 9.185 SAMSUNG/AST, Commission Decision, IV/M.920 9.32 SAMSUNG/AST, Commission Decision, IV/M.920 9.32 SCA/Metsä Tissue, M.2097, 31 January 2001 1.03, 9.185 Scandlines Sverige AB v Port of Helsingborg, Commission Decision of 23 July 2004, COMP/A.36.568/D3 4.381, 4.391, 4.402, 4.410, 4.413 Schneider/Legrand, M.2283, 10 October 2001 1.03, 9.185 Schöller Lebensmittel GmbH Co KG, Commission Decision of 23 December 1992, IV/ 31.533 and IV/34.072, OJ L 183 of 26 July 1993 3.255, 8.84

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Sea Containers v Stena Sealink, Commission Decision 94/19/EC of 21 December 1993 relating to a proceeding pursuant to Article 86 of the EC Treaty, IV/34.689, OJ L 8, 1994 4.25 Sony/BMG, Commission Decision of 19 July 2004, COMP/M.3333, OJ L 62 of 9 March 2005 9.125, 9.130, 9.135 Sorbates, Commission Decision of 1 October 2003, COMP/EI-37.370 1.04, 6.25 Souris Bleue/Topps + Nintendo, Commission Decision of 13 December 2006, COMP/ C-3/37.980, OJ L 353 of 26 May 2004 3.100, 6.19 Sperry New Holland, Commission Decision of 16 December 1985, COMP/IV/30.839, OJ L 376 of 31 December 1985 5.149 Stichting Baksteen case, Commission Decision of 29 April 1994, IV/34.456, OJ L 131 of 26 May 1994 6.40, 6.42 Supexie, Commission Decision of 23 December 1970, IV/337, OJ L 10 of 13 January 1971 3.152 Swedish Interconnectors, COMP/39.351, OJ C 142 of 1 June 2010 5.186 Synthetic Fibres, Commission Decision of 4 July 1984, 84/380/EEC, OJ L 207, 1984 3.233 Telia/Telenor, Commission Decision, IV/M.1439, OJ L 40 of 9 February 2001 9.191(p. xxx) Telos, Commission Decision of 25 November 1981, COMP/IV/29.895, OJ L 58 of 2 March 1982 5.128 Tetra Laval/Sidel, M.2416, 30 October 2001 1.03, 9.185 Tetra Pak II, Commission Decision 92/163 of 24 July 1991, IV/31043, OJ L 72 of 18 March 1992 4.228, 4.229, 4.239, 4.281, 4.283, 4.449, 4.501, 4.531, 4.535, 4.536, 4.540 T-mobile Austria/tele.ring, Commission Decision of 26 April 2006, COMP/M.3916 9.56 TomTom/TeleAtlas, Commission Decision of 14 May 2008, COMP/M.4854 9.14 Trans-Atlantic Conference Agreement, Commission Decision of 16 September 1998, IV/35.134, OJ L 95 of 9 April 1999 6.28 UEFA, Commission Decision of 21 December 1994, OJ L 378 of 31 December 1994 3.250 UIP, Commission Decision of 12 July 1989, 89/467, OJ L 226 of 8 March 1989 7.133 UK Agricultural Registration Exchange Commission Decision of 17 February 1992, IV/ 31.370 and 31.446, OJ L 68 of 13 March 1992 7.25, 7.46, 7.53 VBVB/VBBB, Commission Decision of 25 November 1981, IV/428, OJ L 54, 1982 3.233

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Video Games, Nintendo Distribution, Commission Decision of 30 October 2002, OJ L 255, 2003 8.33, 8.56 VIFKA, Commission Decision of 30 September 1986, IV/28.959, OJ L 291 of 15 October 1986 3.79 Virgin/British Airways, Commission Decision 2000/74 of 14 July 1999, OJ L 30 of 4 February 2000 4.491 Visa International—Multilateral Interchange Fee, COMP/29.373, OJ L 318, 2002 3.121 Vitamins, COMP/E-1/37.512, OJ L 6, 10 January 2003 1.04, 6.25, 6.82 Volkswagen Commission Decision IV/35.733, OJ L 124 1.30 Volvo/Scania, Commission Decision of 14 March 2000, COMP/M.1672, OJ L 143 of 29 May 2001 1.03, 9.184, 9.185 VVVF, Commission Decision, IV/597, 25 June 1969, OJ L 168 of 10 July 1969 3.152 VW-MAN, Commission Decision of 5 December 1983, V/29.329, OJ L 376 of 31 December 1983 7.74 Wanadoo España v Telefónica Commission Decision of 4 July 2007, COMP/38.784 4.348, 4.350, 4.366, 4.367, 5.276 Wanadoo Interactive, Commission Decision, 16 July 2003, COMP/38.233 4.273, 4.283 Wirtschaftsvereinigung Stahl, Commission Decision of 26 November 1997, IV/36.069, OJ L 1 of 3 January 1998 7.34, 7.46 Wood Pulp, Commission Decision of 19 December 1984, OJ L 85 of 26 March 1985 6.24, 6.25 Zinc phosphate, Commission Decision of 11 December 2001, COMP/E-1/37.027, OJ L 153 of 20 June 2003 6.25 Zinc producer group, Commission Decision of 6 August 1984, IV/30.350, OJ L 220 of 17 August 1984 6.25

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Tables of Legislation Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

European Treaties And Conventions Charter of Fundamental Rights of the European Union Art 17 5.130 European Convention on Human Rights and Fundamental Freedoms Art 6(1) 5.231 Single European Act 1986 1.28 Art 7A 1.28 Treaty Establishing the European Coal and Steel Community 1951 (ECSC or Treaty of Paris) 1.04, 1.43, 1.49, 1.50, 3.212, 4.455, 6.81 Art 60(1) 4.500 Art 65 1.49 Art 66 1.49 Art 90 5.48 Treaty Establishing the European Economic Community 1957 (EEC Treaty) 1.04, 1.28, 1.43, 9.02 Art 3(f) 1.51, 1.91 Art 85 1.91, 3.40, 3.100 Art 86 1.91

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Treaty establishing the Economic Community 1.51, 1.52, 1.53, 1.59, 1.70, 4.533 Preamble 1.62, 1.69 Title VI, Chap 1 1.59, 1.81 Title VII, Chap I, Section I 1.87 Title VII, Chap I, Section II 1.87 Art 2 EC 1.28, 1.74 Art 3 EC 1.74 Art 3(1)(g) EC 1.51, 1.90, 1.91, 1.92, 1.94, 1.95, 1.96 Art 3(f) 3.33, 3.34 Art 4 EC 1.63, 1.69 Art 10 EC 3.33, 3.34, 4.115 Art 12 EC 4.524 Art 33 1.149 Art 36 1.147 Art 49 EC 3.37 Art 81 EC 1.52, 1.53, 1.55, 1.59, 1.60, 1.69, 1.75, 1.95, 1.101, 1.105, 1.106, 1.109, 1.169, 2.55, 2.128, 3.34, 5.14, 5.60, 5.80, 5.81, 5.86, 5.102, 5.103, 5.116, 5.125, 5.129, 5.142, 5.153, 5.165, 5.166, 5.170, 5.174, 5.231, 7.22, 7.96, 7.121, 8.83, 9.60 Art 81(1) EC 1.54, 1.80, 1.94, 1.149, 1.156, 3.105, 3.218, 5.166, 5.188, 7.99, 8.63, 9.132 Art 81(3) EC 1.54, 1.60, 3.87, 3.119, 3.236, 3.241, 5.166, 5.188, 9.132, 9.153 Arts 81–86 1.149 Art 82 1.132, 4.388, 5.142,

EC 1.52, 1.55, 1.59, 1.69, 1.71, 1.75, 1.101, 1.105, 1.106, 1.109, 1.110, 1.153, 2.128, 3.236, 4.98, 4.140, 4.141, 4.210, 4.213, 4.214, 4.322, 4.387, 4.411, 4.500, 5.14, 5.60, 5.80, 5.81, 5.86, 5.102, 5.103, 5.125, 5.129, 5.165, 5.166, 5.170, 5.174, 5.231, 8.83

Art 82(a) 4.409, 4.411, 4.414, 4.420, 4.428 Art 83 EC 1.52 Art 84 EC 1.52, 1.156 Art 85 EC 1.51, 1.56, 4.89 Art 85(1) EC 1.102, 4.89

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 85(2) EC 3.205 Arts 85–90 1.74 Art 86 EC 1.51, 1.102, 3.177, 4.89 Arts 87–89 EC 1.59 Art 88(1) EC 1.150 Art 88(3) EC 1.150 Arts 90–100 EC 1.153 Art 98 EC 1.63, 1.69 Art 223 EC 1.125 Art 230 EC 3.93, 5.225 Art 234 EC 1.113 Art 296 EC 1.166 Art 297 EC 1.166(p. xxxii) Art 298 EC 1.166 Art 299 EC 1.167 Art 308 EC 9.04 Art 346(1)(b) 1.163, 1.164, 1.165 Art 348 1.166 Treaty of Lisbon 1.59, 1.90, 1.91, 1.119, 5.233 Treaty on the European Union Art 51 1.92 Treaty on the Functioning of the European Union (TFEU) 1.03, 1.05, 1.08, 1.09, 1.31, 1.59, 1.82, 1.89, 1.92, 1.97, 1.119, 1.128, 1.158, 1.167, 1.168, 1.188, 1.189, 3.37, 3.77, 3.113, 3.152, 3.162, 3.203, 3.236, 4.433, 4.448, 4.453, 4.542, 5.208, 5.235, 5.251, 5.252, 5.254, 6.17, 6.45 Title VI 1.153 Title VII, Chap 1 1.59, 1.81 Art 3 1.98 Art 4(3) 5.42 Art 17 5.10, 5.24 Art 34 1.31, 3.98

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 36 3.98 Art 42 1.147, 1.155 Art 49 1.31 Art 52 1.128 Art 56 1.31, 3.37 Art 90 1.154 Art 101 1.51, 1.52, 1.55, 1.59, 1.68, 1.76, 1.79, 1.82, 1.84, 1.85, 1.86, 1.87, 1.89, 1.94, 1.99, 1.101, 1.102, 1.105, 1.108, 1.113, 1.128, 1.168, 1.169, 2.54, 2.128, 3.02, 3.03, 3.05, 3.08, 3.09, 3.12, 3.15, 3.17, 3.18, 3.19, 3.22, 3.23, 3.30, 3.34, 3.36, 3.42, 3.43, 3.44, 3.49, 3.51, 3.53, 3.55, 3.68, 3.75, 3.101, 3.106, 3.113, 3.118, 3.129, 3.131, 3.139, 3.145, 3.148, 3.151, 3.152, 3.155, 3.157, 3.158, 3.166, 3.167, 3.183, 3.187, 3.189, 3.204, 3.207, 3.209, 3.210, 3.212, 3.213, 3.214, 3.217, 3.233, 3.241, 4.80, 4.81, 4.85, 4.87, 4.88, 4.89, 4.111, 4.113, 4.139, 4.537, 4.538, 4.539, 5.08, 5.10, 5.13, 5.17, 5.26, 5.28, 5.30, 5.38, 5.39, 5.42, 5.44, 5.45, 5.46, 5.50, 5.59, 5.71, 5.72, 5.73, 5.77, 5.81, 5.82, 5.83, 5.84, 5.89, 5.91, 5.94, 5.96, 5.114, 5.131, 5.136, 5.141, 5.143, 5.153, 5.172, 5.184, 5.185, 5.194, 5.201, 5.218, 5.250, 5.264, 6.02, 6.28, 6.45, 6.62, 6.66, 6.68, 6.72, 6.73, 6.74, 6.75, 6.81, 6.85, 6.87, 6.101, 6.102, 6.107, 7.05, 7.16, 7.49, 7.144, 8.45, 8.47, 8.46, 8.62, 8.73, 8.79, 8.84, 9.01, 9.03, 9.18, 9.21, 9.60, 9.110, 9.111, 9.121, 9.138, 9.148, 9.162 Art 101(a)–(e) 3.114 Art 101(b) 6.30 Art 101(1) 1.58, 1.100, 1.102, 1.108, 1.156, 3.03, 3.04, 3.05, 3.06, 3.07, 3.08, 3.09, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16, 3.17, 3.18, 3.20, 3.22, 3.26, 3.27, 3.30, 3.36, 3.39, 3.40, 3.41, 3.43, 3.52, 3.53, 3.61, 3.62, 3.63, 3.66, 3.70, 3.74, 3.75, 3.76, 3.80, 3.81, 3.82, 3.83, 3.84, 3.85, 3.88, 3.89, 3.92, 3.93, 3.95, 3.102, 3.113, 3.115, 3.122, 3.123, 3.124, 3.126, 3.128, 3.129, 3.130, 3.134, 3.136, 3.137, 3.141, 3.142, 3.148, 3.152, 3.153, 3.156, 3.158, 3.162, 3.167, 3.171, 3.178, 3.182, 3.202, 3.205, 3.207, 3.215, 3.216, 3.217, 3.227, 3.245, 5.13, 5.43, 5.272, 5.279, 6.11, 6.13, 6.14, 6.15, 6.16, 6.18, 6.21, 6.40, 6.42, 6.43, 6.50, 6.51, 6.53, 6.71, 6.75, 7.05, 7.08, 7.16, 7.17, 7.20, 7.21, 7.24, 7.28, 7.31, 7.40, 7.60, 7.62, 7.63, 7.67, 7.68, 7.69, 7.74, 7.76, 7.79, 7.85, 7.86, 7.102, 7.106, 7.107, 7.108, 7.109, 7.123, 7.125, 7.128, 7.144, 7.145, 7.150, 7.151, 7.153, 7.154, 7.159, 7.161, 8.02, 8.46, 8.48, 8.46, 8.48, 8.61, 8.63, 8.69, 8.70, 8.77, 8.78, 8.79, 8.87, 9.133, 9.139 Art 101(1)(a) 6.23 Art 101(1)(d) 4.501 Art 101(2) 3.03, 3.158, 3.202, 3.203, 3.204, 3.205, 3.207, 5.72, 8.48 Art 101(3) 1.58, 1.69, 1.89, 1.100, 1.108, 1.126, 1.156, 3.03 3.04, 3.73, 3.83, 3.88, 3.92, 3.97, 3.114, 3.120, 3.123, 3.126, 3.167, 3.204, 3.215, 3.216, 3.217, 3.218, 3.219, 3.220, 3.221, 3.222, 3.224, 3.227, 3.229, 3.230, 3.233, 3.234, 3.235, 3.236, 3.237, 3.238, 3.241, 3.243, 3.244, 3.245, 3.246, 3.247, 3.249, 3.250, 3.252, 4.103, 5.11, 5.13, 5.43, 5.71, 5.188, 5.190, 5.272, 5.279, 5.280, 6.11, 6.40, 7.05, 7.06, 7.08, 7.13, 7.16, 7.21, 7.28, 7.50, 7.58, 7.62, 7.67, 7.71, From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

7.76, 7.90, 7.95, 7.99, 7.109, 7.116, 7.117, 7.119, 7.128, 7.134, 7.151, 7.159, 7.162, 7.163, 7.166, 7.168, 7.169, 7.170, 8.02, 8.03, 8.48, 8.52, 8.54, 8.70, 8.71, 8.74, 8.85, 8.87, 8.96, 8.97, 8.98, 8.110, 9.47, 9.133, 9.139(p. xxxiii) Arts 101–106 1.149 Art 102 1.05, 1.51, 1.52, 1.55, 1.59, 1.64, 1.68, 1.80, 1.82, 1.83, 1.84, 1.85, 1.86, 1.87, 1.89, 1.94, 1.99, 1.101, 1.102, 1.113, 1.124, 1.128, 1.137, 1.150, 1.168, 1.169, 2.54, 2.128, 2.152, 3.30, 3.124, 3.169, 3.214, 3.244, 3.253, 4.01, 4.02, 4.03, 4.05, 4.09, 4.10, 4.12, 4.16, 4.23, 4.24, 4.30, 4.41, 4.44, 4.49, 4.57, 4.62, 4.80, 4.81, 4.82, 4.83, 4.84, 4.85, 4.87, 4.88, 4.89, 4.92, 4.97, 4.98, 4.101, 4.102, 4.103, 4.104, 4.105, 4.106, 4.107, 4.111, 4.112, 4.113, 4.115, 4.120, 4.122, 4.123, 4.124, 4.125, 4.126, 4.131, 4.134, 4.136, 4.138, 4.139, 4.140, 4.141, 4.142, 4.143, 4.145, 4.165, 4.167, 4.168, 4.172, 4.175, 4.176, 4.177, 4.180, 4.214, 4.218, 4.221, 4.229, 4.232, 4.234, 4.238, 4.244, 4.249, 4.250, 4.270, 4.314, 4.318, 4.330, 4.331, 4.334, 4.348, 4.349, 4.350, 4.353, 4.355, 4.361, 4.363, 4.367, 4.397, 4.418, 4.430, 4.431, 4.432, 4.438, 4.444, 4.447, 4.448, 4.479, 4.486, 4.500, 4.501, 4.502, 4.509, 4.519, 4.520, 4.535, 4.540, 5.08, 5.10, 5.11, 5.13, 5.17, 5.22, 5.26, 5.28, 5.30, 5.38, 5.39, 5.43, 5.44, 5.45, 5.46, 5.50, 5.59, 5.71, 5.72, 5.77, 5.81, 5.82, 5.83, 5.84, 5.89, 5.91, 5.94, 5.96, 5.114, 5.131, 5.136, 5.141, 5.143, 5.153, 5.172, 5.184, 5.185, 5.186, 5.201, 5.218, 5.239, 5.258, 5.264, 5.273, 6.33, 6.87, 7.140, 8.73, 9.02, 9.03, 9.18, 9.21, 9.61, 9.87, 9.148, 9.162 Art 102(a) 4.87, 4.131, 4.371, 4.377, 4.380, 4.430, 4.432, 4.439, 4.443, 4.446, 4.540, 4.541 Art 102(b) 4.87, 4.131, 4.178, 4.180, 4.335, 4.336, 4.339, 4.443, 4.452, 4.478, 4.479, 4.480, 4.485, 4.503, 4.505, 4.540, 4.542 Art 102(c) 4.452, 4.453, 4.455, 4.475, 4.476, 4.477, 4.478, 4.479, 4.482, 4.483, 4.485, 4.486, 4.487, 4.488, 4.490, 4.491, 4.492, 4.494, 4.495, 4.496, 4.498, 4.499, 4.500, 4.501, 4.502, 4.503, 4.504, 4.505, 4.506, 4.507, 4.511, 4.512, 4.513, 4.514, 4.516, 4.518, 4.519, 4.522, 4.524, 4.525, 4.529, 4.530, 4.531, 4.532, 4.535, 4.536, 4.540, 4.541, 4.542 Art 102(d) 4.131, 4.234 Art 103 1.52, 1.89, 1.99 Art 103(1) 5.13 Art 103(2) 5.13 Art 103(2)(b) 1.100 Art 104 1.52, 1.89 Art 105 1.89 Art 105(3) 1.100 Art 106 1.87, 1.88, 4.117, 4.509, 4.512

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 106(1) 1.87 Art 106(2) 1.87 Art 107 1.87, 1.137 Arts 107–109 1.59, 1.87, 1.128 Art 108 1.87 Art 109 1.87 Art 119 1.63 Art 120 1.63 Art 127 1.128 Art 130 1.128 Art 179(2) 7.71 Art 214 1.128 Art 252 1.99 Art 256 1.121 Art 256(1) 5.208 Art 257 1.125 Art 258 1.121, 1.166, 4.346, 5.81, 5.206 Art 259 1.121, 1.166, 5.206 Art 261 1.120, 5.207, 6.113 Art 262 5.244 Art 263 1.120, 5.134, 5.151, 5.204, 5.207, 5.211, 5.212, 5.214, 5.216, 5.218, 5.219, 5.221, 5.224, 5.225, 5.231, 5.232, 5.233, 5.252 Art 263(2) 5.237 Art 263(5) 5.234 Art 265 5.206 Art 267 1.121, 5.77, 5.85, 5.86, 5.206, 5.231 Art 268 1.120, 5.207, 5.246, 5.247, 5.250, 9.177, 9.180 Art 269 9.177, 9.180 Art 277 5.231 Art 278 5.134, 5.206, 5.215, 5.235

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 279 5.206, 5.235 Art 296 5.167, 5.238 Art 340 1.120, 5.246, 5.247, 9.176, 9.177, 9.178, 9.180 Art 352 9.04 Art 353 9.04 Protocol 27 1.90, 1.92, 1.93, 1.96

(p. xxxiv) European Secondary Legislation Regulations Block Exemption Regulation Art 4 1.76 Council Regulation 17/62, OJ L, 21 February 1962 1.54, 1.55, 1.56, 1.57, 1.89, 1.148, 1.156, 3.04, 3.82, 5.14, 6.41, 9.18 Art 9(1) 1.54 Regulation 141/62 1.156, 1.157 Council Regulation 26/62 1.148, 1.152 Art 2 1.152 Regulation 17/65 Art 7 8.83 Regulation 19/65/EEC 5.188 Council Regulation 1017/68, OJ L 175 1.156 Art 3(1)(a) 1.156 Regulation 2821/71 5.188 Council Regulation 2840/72, OJ L 300 1.187 Council Regulation 2988/74, OJ L 319 6.76 Art 1 6.76 Commission Regulation 417/85, OJ L 53 7.06 Commission Regulation 418/85, OJ L 53 7.06 Council Regulation 4056/86, OJ L 378 1.109, 1.156, 1.157 Art 1(2) 1.157 Art 1(3) 1.157 Art 2(1)(b) 1.156 Art 3 1.156 Art 8 4.89

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 8(2) 4.89 Council Regulation 3975/87, OJ L 374 1.156 Art 2 1.156 Annex 1.156 Council Regulation 3976/87, OJ L 374 1.156, 5.188 Council Regulation 4064/1989, OJ L 24 European Merger Control Regulation (EMCR) 1.99, 9.02, 9.07, 9.16, 9.18, 9.19, 9.27, 9.34, 9.38, 9.41, 9.42, 9.61, 9.95, 9.96, 9.97, 9.112, 9.121, 9.122, 9.123, 9.125, 9.133, 9.138, 9.146, 9.148, 9.153, 9.161, 9.164, 9.168, 9.187, 9.191 Art 2 9.152 Art 2(1)(b) 9.95, 9.99 Art 2(2) 9.95 Art 2(3) 9.41, 9.129, 9.137, 9.152 Art 2(4) 9.132 Art 3 9.19, 9.132 Art 3(1)(a) 9.19 Art 3(1)(b) 9.19 Art 3(4) 9.122 Art 4(5) 9.31 Art 7 9.31 Art 7(1) 9.32 Art 18(4) 5.223 Art 21 9.39 Art 21(2) 9.33, 9.38 Art 21(3) 9.33, 9.38 Art 21(4) 9.38 Art 22 9.36 Regulation 1534/91 5.188 Regulation 479/92 5.188 Council Regulation 1310/97, OJ L 180 9.02 Preamble, Recital 8 9.153

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Commission Regulation 447/98 9.146 Regulation 270/99 3.12, 3.15 Commission Regulation 2790/1999, OJ L 336, Block Exemption 8.02, 8.03, 8.04, 8.72, 8.78, 8.100, 8.104 Art 4 3.138 Commission Exemption Regulation 2658/2000, OJ L 304 1.59, 7.08 Commission Regulation 2659/2000 OJ L 304 1.59, 7.08 Council Regulation 44/2001, OJ L 012 5.87, 5.89 Art 2 5.87 Art 27 5.88 Art 34 5.89 Art 60 5.87 Regulation 2887/2000 9.191 Council Regulation 1400/2002 3.208 Council Regulation 1/2003, OJ L 1 1.57, 1.58, 1.99, 1.102, 1.103, 1.105, 1.107, 1.126, 1.127, 1.149, 1.156, 1.157, 3.88, 3.166, 3.168, 3.170, 3.221, 5.08, 5.14, 5.28, 5.37, 5.39, 5.40, 5.41, 5.45, 5.47, 5.50, 5.63, 5.64, 5.71, 5.80, 5.84, 5.85, 5.123, 5.125, 5.135, 5.174, 5.233, 6.95, 9.33, 9.138 Preamble, Recital 3 5.40 Preamble, Recital 7 5.72 Preamble, Recital 13 5.178, 5.180 Preamble, Recital 14 5.40, 9.40 Preamble, Recital 15 5.62, 5.63 Preamble, Recital 22 1.157(p. xxxv) Art 2 3.88 Art 3 3.168 Art 3(1) 3.167, 5.43 Art 3(2) 3.167, 3.169, 5.43 Art 3(3) 3.169 Art 5 1.126, 3.166, 5.30, 5.32, 5.166 Art 6 1.126, 3.166, 5.71

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 7 1.101, 1.175, 5.26, 5.44, 5.103, 5.129, 5.146, 5.150, 5.151, 5.158, 5.164, 5.165, 5.167, 5.187, 5.189, 5.196, 5.219, 6.111 Art 7(1) 5.103, 5.170, 5.172 Art 7(2) 5.86, 5.98, 5.99 Art 7(3) 5.96 Arts 7–10 1.113, 5.201 Art 8 1.175, 5.26, 5.44, 5.129, 5.146, 5.150, 5.151, 5.158, 5.164, 5.165, 5.189, 5.191, 5.192 Art 9 5.26, 5.44, 5.129, 5.150, 5.165, 5.172, 5.177, 5.178, 5.181, 5.186, 5.187, 5.189, 5.195, 5.219, 5.223 Art 9(2) 5.183 Art 10 5.26, 5.44, 5.165, 5.166, 5.181, 5.189, 5.223 Art 11 1.107, 5.53, 5.63 Art 11(1) 5.44 Art 11(2) 5.44 Art 11(3) 5.45, 5.53, 5.64 Art 11(4) 5.45, 5.47, 5.64, 5.190 Art 11(5) 5.44 Art 11(6) 5.46, 5.47, 5.64, 5.142, 5.185 Art 12 5.61, 5.63, 5.66 Art 12(1) 5.58, 5.59 Art 12(2) 5.59 Art 12(3) 5.60 Art 13 5.54 Art 14 5.109 Art 14(1) 5.165, 5.189 Art 14(3) 5.165 Art 14(5) 5.165 Art 14(7) 5.165 Art 15 5.76, 5.81, 5.84 Art 15(1) 5.85, 5.86

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 15(2) 5.80, 5.81 Art 15(3) 5.82 Art 16(1) 5.77, 5.85 Art 16(2) 5.42, 5.185 Art 17 1.75, 5.107, 5.110, 5.125, 5.129 Art 17(1) 5.108 Art 17(2) 5.109 Art 18 5.109, 5.124, 5.125, 5.138, 5.166, 5.219 Art 18(1) 5.124 Art 18(2) 5.126, 5.129 Art 18(3) 5.129, 5.219 Art 18(6) 5.124 Arts 18–21 5.202 Art 19 5.109, 5.138, 5.139, 6.95 Art 20 1.174, 5.109, 5.130, 5.166, 5.219 Art 20(1) 5.131 Art 20(2)(d) 6.95 Art 20(3) 5.132 Art 20(4) 5.129, 5.132, 5.134, 5.219 Art 21 1.174, 5.130, 5.135, 5.136, 5.137, 6.95 Art 21(3) 5.136, 6.88 Art 22 5.61, 5.109 Art 22(1) 5.67 Art 23 1.04, 1.175, 5.26, 5.109, 5.128, 5.129, 5.146, 5.150, 5.151, 5.158, 5.164, 5.165, 5.189, 5.196, 5.201 Art 23(2) 1.04, 3.27, 5.174, 6.81, 6.86 Art 23(3) 5.174 Art 24 1.175, 5.26, 5.109, 5.129, 5.132, 5.201 Art 24(2) 5.146, 5.150, 5.151, 5.158, 5.164, 5.165, 5.189 Art 25(1)(a) 6.75

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 25(1)(b) 6.75 Art 25(2) 6.76 Art 25(3) 6.77 Art 27 1.101, 5.151, 5.240 Art 27(1) 5.146, 5.158, 5.149 Art 27(2) 5.153 Art 27(3) 5.223 Art 27(4) 5.181, 5.184, 5.223 Art 29 5.219 Art 29(1) 5.44, 5.150, 5.165, 5.188, 5.189, 8.83, 8.85 Art 29(2) 5.190, 8.85 Art 30 5.201 Art 31 1.120, 5.207, 5.244, 6.113, 6.114 Art 32 1.157 Art 33 1.101 Art 34 1.157 Art 35(1) 5.28, 5.29 Art 35(2) 5.29 Art 36 1.157 Art 38 1.157 Art 39 1.157 Art 43 1.157(p. xxxvi) Regulation 139/2004, OJ L 24 1.60, 1.69, 1.99, 4.102, 5.153, 5.223, 7.14, 7.15, 9.02, 9.16, 9.22, 9.43, 9.46, 9.49, 9.99, 9.121, 9.122, 9.138, 9.144, 9.145 Preamble 9.99 Preamble, Recital 4 9.153 Preamble, Recital 10 9.26 Preamble, Recital 29 9.99 Preamble, Recital 30 9.154 Preamble, Recital 32 9.49

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Art 1(1) 9.21 Art 1(2) 9.25 Art 2(1) 9.188 Art 2(2) 9.41, 9.153 Art 2(3) 1.99, 9.41, 9.43 Art 2(4) 9.153 Art 3 9.06, 9.08, 9.31 Art 3(1) 9.20 Art 3(1)(b) 9.19 Art 3(2) 9.19, 9.20 Art 3(4) 9.112 Art 4 9.31 Art 4(1) 9.29, 9.30 Art 4(2) 5.223, 9.29 Art 4(5) 9.21 Art 5 9.24 Art 6(2) 9.153 Art 7 9.145 Art 7(1) 9.31 Art 8(2) 9.153 Art 9(3) 9.146 Art 10 9.149 Art 10(1) 9.145 Art 10(3) 9.145 Art 10(4) 9.145, 9.150 Art 10(6) 9.145 Art 11 9.145, 9.150 Art 12 9.145 Art 13 9.145, 9.150

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Art 14 5.223, 9.145 Art 14(2) 9.32 Art 15 5.223, 9.145 Art 16 5.244, 9.161 Art 18 5.223, 9.148 Art 18(4) 5.223 Art 21(3) 9.33 Art 22 9.21 Council Regulation 411/2004, OJ L 68 1.156 Commission Regulation 773/2004, OJ L 123 1.101, 5.98, 5.193, 6.111 Art 1 6.111 Art 3 5.139 Art 5 5.223 Art 6(1) 5.101 Art 6(2) 5.101 Art 7 5.219 Art 10(1) 5.146 Art 10 bis (3) 6.111 Art 11 5.223 Art 13(1) 5.223 Annex 5.99 Commission Regulation 802/2004, OJ L 133 9.144 Art 9 9.145 Art 11 5.223 Art 14 9.148 Art 15 9.148 Art 19 9.146 Art 20 9.146 Annex I 9.144

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Council Regulation 1184/2006, OJ L 214 1.148, 1.149 Art 1 1.149 Art 2 1.149 Art 2(1) 1.149 Art 2(2) 1.149 Art 3 1.150 Council Regulation 1419/2006, OJ L 269 1.157 Commission Regulation 1459/2006, OJ L 272 1.157 Commission Regulation 622/2008, OJ L 173 1.101, 5.196 Commission Regulation 267/2010, OJ L 83 7.13 Commission Regulation 330/2010, OJ L 102 3.138, 3.145, 7.99, 7.101, 8.02, 8.04, 8.06, 8.46, 8.70, 8.72, 8.80 Preamble, Recital 8 8.70 Art 1(1)(a) 8.02 Art 1(1)(b) 8.02 Art 1(d) 8.80 Art 2(1) 8.46 Art 2(5) 8.46 Art 3 8.71 Art 4 8.47, 8.48, 8.49, 8.110 Art 4(a) 8.52 Art 4(b) 8.55, 8.56, 8.58 Art 4(c) 8.58, 8.59, 8.105 Art 4(d) 8.60 Art 4(e) 8.61 Art 5 8.48, 8.79, 8.80, 8.81, 8.82 Art 5(1)(b) 8.81 Art 5(1)(c) 8.82 Art 5(2)(a) 8.80 Art 6 8.83

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Art 7 8.71 Art 7(a) 8.68 Art 7(b) 8.70 Art 9 9.37 Commission Regulation 1217/2010 (R & D Regulation) OJ L 355 7.09 Preamble, Recital 2 7.71 Art 1 7.64 Art 3(2) 7.66 Art 3(3) 7.66 Art 3(4) 7.66 Art 3(5) 7.66 Art 4 7.65 Art 5 7.63 Art 5(b)(i) 7.63 Art 5(b)(ii) 7.63 Commission Regulation 1218/2010 (Specialization Regulation) OJ L 355 7.09 Preamble, Recital 10 7.87 Art 1 7.72, 7.73 Art 1(o) 7.88 Art 1(p) 7.88 Art 2 7.87 Art 2(2) 7.88 Art 2(3) 7.88 Art 3 7.87 Art 5 7.87 Staff Regulations Art 17 1.116 Art 17(1) 1.116 Art 17a(1) 1.116

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Directives Directive 2002/19/EC Access Directive Art 12 4.353 Directive 2002/21/EC Framework Directive Recital 25 4.353

National Legislation Canada Act for the Prevention and Suppression of Combinations in Restraint of Trade (Statutes of Canada, 1889, 52 Vic, c 41) 1.39

Germany Law on restriction of competition Art 1 3.79

European Statute of the Court of Justice Art 19 5.234 Art 40 5.234 Rules of Procedure Court of Justice Art 42(2) 5.236 Rules of the General Court Art 48(2) 5.236

United States Clayton Act 4.477 s 7A 9.153 Constitution, Section 8, Art 1, cl 3 3.162 Hart-Scott-Rodino Antitrust Improvements Act 1976 9.153 Title II 9.153 Robinson-Patman Act 4.477, 4.505 Sherman Act 1890 1.42, 1.63, 3.29 Section I 1.42, 1.49, 1.84, 3.02 Section II 1.42, 1.49, 1.84, 4.81, 4.279(p. xxxvii) (p. xxxviii)

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1 Introduction Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Subject(s): Consumer benefits — Free movement — European Union — Application of EU competition rules — Fair, reasonable and non-discriminatory terms (FRAND)

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(p. 1) 1  Introduction I.  The Ubiquity of EU Competition Law 1.01 A.  Impact of EU Competition Law on Public and Private Decision-Makers 1.03 B.  The Positive Economic Effects of EU Competition Policy 1.09 II.  The History of EU Competition Law 1.32 A.  Origins of Competition Laws 1.33 B.  Appearance of Modern Competition Laws 1.39 C.  Modernization of EU Competition Law 1.56 III.  The Goals of EU Competition Law 1.61 A.  Economic Goals 1.61 B.  European Integration Goals 1.73 IV.  The Sources of EU Competition Law 1.81 A.  Treaty Law 1.81 B.  Secondary Law 1.97 C.  Case Law 1.102 V.  The Scope of Application of EU Competition Law 1.128 A.  Scope Ratione Personae—To Whom Does EU Competition Law Apply? 1.128 B.  Scope Ratione Materiae—To What Sectors Does Competition Law Apply? 1.145 C.  Scope Ratione Loci—Where is EU Competition Law Applied and Enforced? 1.167

I.  The Ubiquity of EU Competition Law 1.01  ‘Show business competition policy’ Only a few areas of law, and in particular of European Union law, garner as much press exposure as EU competition law: ‘Europe fines Intel $1.45 billion in antitrust case’;1 ‘European Commission blocks Ryanair’s bid for Aer Lingus’;2 ‘Brussels slaps record fine on glass cartel’;3 ‘European banks get EU warning’.4 In fact, major business newspapers almost daily report on competition authorities’ interventions in the market. Press agencies now boast dozens of specialized competition journalists and offer competition-related briefings on a real-time basis. 1.02  This evolution bears testimony to the steady rise of EU competition law as a critical issue throughout Europe and elsewhere. Today, the constraints imposed by EU competition law have become a major area of concern for decision-makers both in the public and private (p. 2) sectors (see Section A). Yet, beyond the cosmetics of press releases and business reports, the significance of EU competition law can be measured by its profound and lasting effects on economic activity (see Section B).

A.  Impact of EU Competition Law on Public and Private DecisionMakers

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1.03  Impact on undertakings EU competition law has a direct, critical influence on the business strategies chosen by firms (or ‘undertakings’ as mentioned in the Treaty on the Functioning of the European Union (TFEU)). To take a few examples, companies of a certain size that decide to merge need to obtain prior authorization from the European Commission.5 Although, to date, the Commission has only actually objected to a very small number of the 4,274 combinations notified between 1990 and December 2009 (the prohibition against the concentration of the aircraft manufacturers GE and Honeywell in 2001 is one well-known example),6 it has frequently allowed these operations subject to significant conditions or ‘remedies’, including the divesture of entire industrial facilities, the compulsory licensing of intellectual property (IP) rights, and the adoption of long-term supply commitments. 1.04  In the same vein, undertakings that coordinate their pricing policies, limit their production, partition markets, or reduce their investments expose themselves to the ire of competition authorities. Whilst such coordinations, generally referred to as ‘cartels’,7 used to be the customary organizational model adopted by European industries before the Second World War,8 they are, today, said to be the ‘cancer’ of modern free market economies and (p. 3) are accordingly heavily sanctioned.9 In this regard, EU competition law allows the imposition, on cartel participants, of administrative fines of up to 10 per cent of their total worldwide revenue in the preceding year.10 Of course, the EU competition law regime is still far from the harsh tone set by US antitrust law, where participation in a cartel is punishable by imprisonment.11 Nonetheless, over the last decade the Commission has been able to impose a number of stiff fines on undertakings convicted of participating in a cartel. In 2003, a €462 million fine was imposed on just one company, Roche, in the famous Vitamins case.12 In February 2007, four undertakings were fined €992 million for illegally concluding a series of agreements in the mechanical elevator and escalator installation and maintenance market of four Member States (Germany, Belgium, Luxembourg, and the Netherlands).13 Finally, in the car glass cartel, the firm Saint Gobain was fined €896 million, the highest fine ever imposed on a single undertaking in a cartel case.14 Since such staggering financial penalties may force infringing firms out of business,15 the enforcement of EU competition law now constitutes a legal risk that undertakings can no longer ignore. This explains the success of internal compliance programmes designed, often with great ingenuity, by competition law practitioners for their corporate clients. (p. 4) 1.05  Firms’ unilateral conduct on the market has also become a concern for companies holding a powerful position on one or several markets. Microsoft, which was sanctioned and fined €497 million in March 2004 for leveraging its near monopoly position in the market for PC operating systems (OS) onto the markets for work group server operating systems and for media players, is a clear illustration of the Commission’s strict enforcement of Article 102 TFEU.16 Later in the same decade, in May 2009, the Commission fined Intel €1.06 billion on the ground that it unlawfully granted rebates that foreclosed its competitors.17 In EU competition law, size is, in itself, ‘suspect’: an undertaking that occupies a dominant position would, by its very presence in the market, be deemed to alter the degree of prevailing competition.18 The TFEU therefore subordinates dominant undertakings to a regime of ‘special responsibility’19 that allows the Commission to declare illegal and, if necessary, prohibit and sanction, commercial practices that are otherwise lawful, when practised by a non-dominant firm. Such commercial practices include, inter alia, price discrimination, exclusive supply clauses, tie-in sales, aggressive new product launch prices (‘introductory pricing’ in economics jargon), and even certain types of price discounts and rebates.

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1.06  Impact on public authorities Unlike in the United States, where ‘big stick’ government is often decried as encroaching upon individual freedoms and entailing costly policy choices, the State—and its supporting administration—is often perceived in Europe as a legitimate, and benevolent, organization. Accordingly, European governments and other public authorities have traditionally enjoyed a large margin of manoeuvre to intervene in economic and social affairs. 1.07  EU competition law has, however, significantly limited this freedom. A first illustration of this can be found in the major liberalization programmes initiated by the Commission in the 1990s. Those reforms led to the elimination of statutory monopolies20 and to the dismantling of restrictive regulations in a large range of economic sectors (telecommunications, energy, postal service, air, rail, and maritime transport, often referred to as network industries).21 Whilst those reforms were not, sensu stricto, triggered by EU competition law, the Commission has nonetheless proactively enforced competition rules in those sectors, where the natural advantage held by incumbent operators remained in place for several years following liberalization and abuses were pervasively carried out by the former state-sponsored monopolists. EU competition law was therefore particularly instrumental in putting an end to abusive practices which risked undermining the benefits of the liberalization process. 1.08  Second, EU competition law also constrains the ability of the Member States to intervene financially in the economy. Often, States grant subsidies to support national undertakings (p. 5) facing strong international competition, for instance steel producers or car manufacturers. States may also seek to attract foreign direct investment (FDI) in their territory by offering financial incentives to foreign firms (tax and social security exemptions, direct subsidies, etc). Obviously, such measures are liable to distort competition by artificially increasing the competitiveness of certain economic operators at the expense of others. State aid that distorts, or threatens to distort, competition is therefore declared ‘incompatible with the common market’ in the TFEU.22 In recent years the Commission has proactively enforced the State aid rules. The Alstom case, for instance, showed that Member States are not allowed to ‘rescue’ an undertaking that is in financial difficulties, regardless of whether such difficulties arose as a result of international competition or as a result of its own industrial strategic decisions.23 The Ryanair case also demonstrated that local municipalities are not necessarily free to grant financial advantages in order to induce undertakings to settle in their territory.24

B.  The Positive Economic Effects of EU Competition Policy 1.09  Introduction The Commission’s active enforcement policy, and more fundamentally the rules of the TFEU, are based on the belief that a ‘proactive’ competition policy delivers beneficial macro and micro-economic effects (see Section 1).25 Moreover, within the EU, the competition rules are deemed to bring a decisive contribution to the economic integration of national markets (see Section 2).

(1)  The beneficial macro and micro-economic effects of competition law 1.10  The effects of competition policy and its implementing Regulations can be observed at both the macro-economic level (ie, on factors such as growth, inflation, jobs, consumption, and investment) and the micro-economic level (ie, at the level of the individual economic ‘agents’, namely the undertaking and the consumer).

(2)  Beneficial macro-economic effects 1.11  General statements Beyond abstract, intuitive statements on the positive macroeconomic effects of competition policy, there have been few attempts to evaluate accurately the effects of competition policy on the determinants of long-term growth. Even farreaching, sophisticated macro-economic assessments, like the famous ‘Sapir report’ of

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2003,26 remain silent (p. 6) on the source of their contention that EU competition policy has sustained technological innovation and contributed to the EU’s macro-economic stability.27 1.12  Imputation issues The lack of concrete, ‘hard fact’, evidence in support of the allegation that competition policy delivers beneficial macro-economic effects is unsurprising. In addition to competition policy, many other public policies (monetary, budgetary, commercial, etc) can contribute to growth, job creation, consumption, and investment. It is hard, then, to isolate the macro-economic contribution of competition policy from these other policies.28 1.13  Attempts at empirical measurement Notwithstanding the identification problem, several economists have tried to quantify, at least indirectly, the contribution of competition policy to economic growth. While some have questioned whether the impact of active enforcement is worth its cost, these studies tend not to offer any hard cost–benefit evidence.29 In an effort to provide such evidence, several studies have tried to evaluate the social cost of monopolies on Gross Domestic Product (GDP). For instance, studies carried out in the 1950s in the United States placed the social cost of monopoly between 0.1 and 1 point of GDP.30 On the other hand, a French study by Professors Jenny and Weber in 1983 reached an estimate of 7.4 per cent.31 In their famous work on industrial economics published in the 1990s, Professors Scherer and Ross estimated the social cost of monopoly to be in a range of 4 per cent to 7 per cent.32 A 2003 study by Baker harkens back to the 1950s estimate. He found that [t]he total annual costs of antitrust enforcement in the United States are no more than $2 billion each year [both direct and indirect] … [whereas] the costs to the economy from (p. 7) the exercise of market power could readily be at least 1 percent of national product, or in excess of $100 billion annually, not withstanding the antitrust laws.33 Finally, an even later empirical study on ‘total factor productivity’ in 22 industries of 12 OECD countries between 1995 and 2005 demonstrated a causal link between strong competition enforcement and long-term economic growth, although it offered no hard figures on GDP.34 While the specific figures estimated vary tremendously, the consensus among these studies is that competition enforcement is justified (and perhaps should even be increased) to reduce the huge cost to society that derives from the exercise of market power.

(3)  Beneficial micro-economic effects 1.14  Micro-economic theory envisages the effects of competition on the welfare of individual economic agents. In this context, the early works of neoclassical economists in the late nineteenth century cast light on the welfare-reducing effects of monopoly on economic agents (Section (b)). The findings of those economists subsequently gave rise to a new, normative, body of economic literature, which views the enforcement of competition rules as a means to eradicate ‘market failures’ (Section (c)). Prior to delving into those issues, however, a number of general remarks concerning micro-economic analysis are appropriate (Section (a)).

(a)  General remarks 1.15  Allocation of scarce resources Economic theory studies how scarce resources are allocated within society. To take an example, a business manager enjoys scarce (ie, limited) labour and financial resources.35 His primary, if not sole, activity is thus to decide how best to use (allocate) those resources, for example purchasing inputs, making investments, etc, in order to maximize his return (ie, his profits). By the same token, given the scarcity of

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resources available, any human society must decide who will perform which tasks and under what conditions in order to maximize social welfare. 1.16  Allocation method To allocate resources, a given human society faces several options: it can delegate allocation decisions to a central government be it, or not, democratically constituted (‘central planning’) or it can rely on the ‘market’, that is, a system where suppliers and customers exchange their resources (the ‘market economy’). In most cases, societies allocate their resources through both State and market mechanisms, although not necessarily to the same extent.

(b)  Neoclassical price theory 1.17  Presentation Neoclassical price theory was initially developed by Alfred Marshall at the end of the nineteenth century.36 In its normative dimension, it views the market as the best form of economic organization. The famous ‘invisible hand’ of the market would indeed deliver an optimal allocation of scarce resources within society, by channelling those resources (p. 8) to the economic agents who value them the most.37 In layman’s language, one would say resources are allocated to people who like them best. 1.18  The decisive role of ‘price’ Within the resource-allocation process, the price plays a critical coordination role,38 in allowing the selection of the agents who will be supplied and the conclusion of transactions between suppliers and customers. The supply of goods/ services can only take place if the price (the value) at which the customer/consumer is willing to buy the product matches the price (value) at which the producer agrees to sell his product. The supplier must offer a price lower than (or equal to) the maximum price which the customer is ready to pay for the product/service (his maximum valuation of the product/ service). This is known as a reservation price. The customer must offer a price greater than (or equal to) the price under which the supplier would stop producing (in principle, any price lower than the costs of production, since at that price the supplier would lose money on each sale made). The market allows what is called an equilibrium price to be reached through negotiation, and this, in principle, guarantees optimal allocation of the resources. 1.19  Monopolies and competition Neoclassical price theory indicates that the optimal operation of the market—generally referred to as ‘market performance’—is contingent on the existence or absence of competition. In a market with limited competition, for instance a monopoly, the allocation of resources will be suboptimal. When a single firm owns the entire production capacities of a market, it can refuse to supply certain customers who nonetheless are willing to pay a price greater than its costs of production. In this case, the allocation of resources is suboptimal since the monopolist could improve the situation of those particular customers by selling them the product without incurring any loss (its costs would still be covered).39 The exclusion of certain customers from consumption leads to a deadweight loss. Those particular customers who are not supplied are forced to shift to other products, which they value less. In addition, the customers that are supplied, because they are ready to pay a higher monopoly price, have less resources to invest into other products/services. 1.20  A similar logic applies to markets where suppliers coordinate their industrial and commercial policies (eg in the case of a cartel). Producers can refuse to supply certain customers by collectively reducing their output. The Organization of Petroleum Exporting Countries (OPEC) is a well-known example of this. By means of a formal, institutionalized agreement, oil-exporting countries collectively reduce the quantities of petrol placed on the market, thereby causing certain customers who value it at levels exceeding the costs of production to be excluded from the market.

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1.21  Of course, one may wonder why a supplier would refuse to supply its products to customers that value it. Here again, neoclassical price theory offers an explanation. Economic agents are deemed to act ‘rationally’, and thus seek to maximize the utility which they derive from (p. 9) their activities.40 For a firm, utility maximization equates to profit maximization, that is, the maximization of the difference between the price charged and the cost incurred. By reducing production, a firm with a monopoly can create scarcity on the market and thereby lead prices to rise. Limiting production is therefore an obvious profitmaximizing strategy, provided, of course, that the gain arising from the price increase exceeds the loss arising from the reduction in the quantities supplied. 1.22  Debate Economic theorists do not fully agree in respect of the magnitude of the harmful effects of monopolies. On the one hand, a number of orthodox economists consider that the sole harmful effect of monopolies lies in the exclusion of potential customers whose reservation price is less than the monopolist’s price but greater than its costs.41 This deadweight loss, or allocative inefficiency of the monopoly, may be corrected by introducing price discrimination. Under perfect price discrimination, the monopolist adopts differentiated tariffs, indexed to the reservation price of each customer on the market, so that all of the quantities requested at a price greater than cost are supplied. The fact that certain customers pay a price far in excess of costs is not a problem, as long as they are ready to pay for it (their reservation price is not met). Competition economists often refer to this approach as the total welfare standard. 1.23  According to other authors, the primary cost of a monopoly is the price surplus paid by customers to the monopolist even if all of the quantities requested on the market are indeed supplied (eg in the case of price discrimination). All customers, including those whose reservation price is high, should be supplied at a price level that is geared to the costs of the monopolist. There is otherwise an inappropriate transfer of income from the customer to the supplier, which may be referred to as a distributive inefficiency. Because it focuses on the wellbeing of the customer, this approach has been labelled the consumer welfare standard. In practice, it has led politicians to support the adoption of price control mechanisms on monopolists in times of economic inflation.42

(c)  The market failure theory 1.24  Introduction Building on the works of neoclassical theorists, a new economic school of thought, sometimes called welfare economics, emerged. As explained previously, the free operation of economic agents on the market occasionally fails to ensure an optimal allocation of resources. This may, for instance, happen because a producer holds a monopoly or because rivals coordinate their pricing policies. When such ‘market failures’ arise,43 public (p. 10) intervention into the marketplace is deemed necessary to eradicate the observed inefficiencies.44 This need for public intervention is what caused competition law to develop.45 1.25  Government failure Whilst modern economic theory teaches that market imperfections justify public intervention, in addition it demonstrates that government intervention is also fraught with significant imperfections. The first of these imperfections is informational. As compared to firms, public authorities do not possess accurate, comprehensive, reliable information on markets (on prices, costs, output, technology, etc). Absent perfect information, government may thus be mistaken. Public intervention may in turn lead to suboptimal outcomes (ie, it may not improve social welfare). The costs of intervention may even be higher than those of the original market failure which it aimed to correct.

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1.26  A second imperfection concerns the risk of opportunism of government representatives. Public choice theory argues that elected officials (and, even more so, civil servants) are, like entrepreneurs, driven by self-interest and profit-maximization objectives. Because public officials do not sell products/services in exchange for a price, and thus cannot make monetary profits, ‘profit maximization’ takes other forms, such as ensuring reelection or reappointment, expanding powers and jurisdiction, or increasing notoriety.46 Such strategies may lead to suboptimal decisional outcomes, with public officials making self-serving choices at the expense of society. For instance, a civil servant may refuse to inflict a fine on a monopolist, in the hope that he may, in the future, obtain an influential position within this company (the so-called ‘revolving door practice’). Or, at the other end of the spectrum, an agency official may push for large fines to be imposed on a high-profile company in order to fund a large budget for her group or in the hope for reappointment.

(4)  The ‘integrationist’ effects of competition law 1.27  Trade in Europe before 1957 Prior to 1957, a customer living in one Member State could not easily acquire goods and services produced in another Member State.47 Indeed, a whole host of barriers to trade—tariffs (customs duties), quantitative restrictions (eg quotas), and regulations (eg specific marketing authorizations)—prevented goods and services from moving across national boundaries.48 1.28  EC Treaty and common market The adoption of the Treaty Establishing the European Community (EC Treaty or Treaty of Rome) in 1957 changed this situation. The Treaty of (p. 11) Rome progressively replaced several nationwide economic territories with a ‘common market’49 based on a ‘customs union’ (ie, the dismantling of tariff and non-tariff barriers),50 and on the coordination of national regulations (through harmonization or mutual recognition),51 so that factors of production (goods, services, labour, and capital) could flow freely between Member States. 1.29  Economic rationale of European integration The beneficial economic effects of European integration were well summarized in a report compiled in 1992 by Professor Cecchini.52 First, market integration enables firms to achieve tremendous economies of scale .The dismantling of obstacles to trade increases the size of the market on which European firms are active, entitling them to serve new customers based in other Member States. In industries with high fixed costs, firms engaging in cross-border trade are thus able to reduce their average production cost and, consequently, their prices. Second, many domestic firms which were previously protected by tariff and non-tariff barriers suddenly faced the competitive pressure of foreign undertakings and thus had strong incentives to become more efficient.53 1.30  Competition law as a safeguard to market integration The benefits arising from the elimination of public obstacles to trade could be largely undermined if firms could freely re-establish similar barriers. For instance, a supplier may contractually assign exclusive sale territories to its distributors and prevent them from serving customers outside their national territories. Such a distribution system obviously erects indirect obstacles to trade. 54

Illustration: the Volkswagen case The Volkswagen group was ordered by the Commission to pay a heavy fine (€102 million) for impeding the purchase of vehicles in Italy by customers not residing within that Member State.54 Volkswagen had concluded agreements with its subsidiaries and with the Italian dealers in its distribution network aimed at prohibiting or restricting sales of Volkswagen and Audi vehicles in Italy to customers of other Member States or dealers in its network established in other Member States. The methods used by Volkswagen to restrict these ‘parallel imports’ from Italy included a contingent supply system for Italian dealers leading

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to a partitioning of the market and a bonus system that discouraged the Italian dealers from selling to non-Italian customers. (p. 12) 1.31  To alleviate this risk, and ensure the effet utile of the other Treaty provisions in particular Articles 34, 49, and 56 TFEU, which aim at eliminating public barriers to intraCommunity trade, the competition rules of the TFEU have been used to combat private obstacles to trade.55 This particular feature of EU competition law finds formal expression in the provisions of the EU Treaty, which declares anticompetitive conduct ‘incompatible with the common market’ rather than unlawful.56

II.  The History of EU Competition Law 1.32  Because it was first formally enacted in 1957, EU competition law is generally perceived as a relatively recent legal discipline (Section B). Its real, substantive, origins are however much older, and can be traced back to the history of ancient civilizations (Section A).

A.  Origins of Competition Laws 1.33  Antiquity Anticompetitive practices are probably as old as the history of trade. In ancient Egypt and Greece (more than 3,000 years BC), historians report the existence of monopolistic and collusive practices.57 In this context, the famous Greek astronomer, Thales, for instance, holds a somewhat surprising place in the history of competition law. Following erudite astronomic observations, Thales managed to forecast a particularly hot and sunny period.58 Anticipating an abundant olive harvest, Thales immediately rented all of the oil presses available in the neighbourhoods of Milet and Chios. When the harvest came around, Thales enjoyed a regional monopoly in olive pressing equipment. He made a fortune in renting olive pressing capacity. 1.34  The first regulations prohibiting anticompetitive conduct were adopted a few centuries BC, in India and Rome. Surprisingly, the substantive scope of those regulations was quite similar to modern competition rules: they forbade certain agreements between undertakings, boycotts, output-limiting conduct, and activities of private and public monopolies.59 (p. 13) However, those regulations lacked effectiveness. They were periodically dismantled by kings, emperors, and governments wanting to extract rents from public monopolies as well as reward political support through the granting of private monopolies.60 1.35  Development of competition laws (tenth to eighteenth century) Until the tenth century, trade in Europe was limited and concerns for restrictions of competition were rare. The development of commercial exchanges in Europe, however, induced a number of countries to adopt competition-inspired legislation. In Great Britain, legislation was passed to establish price control mechanisms and to forbid specific infringements. English law prohibits, for instance, forestalling practices under which operators artificially create shortages by buying goods before they reach the market. Elsewhere in continental Europe, similar laws emerged between the thirteenth and sixteenth centuries.61 1.36  Again, however, this second round of commitment of European nations to competition laws was fragile. Most economic activities were subject to State monopolies. In Great Britain, for instance, the government sold exclusive rights (labelled ‘licences’) over certain markets to collective organizations of entrepreneurs.62 In continental Europe, with the reign of Louis XIV, the influence of Colbertism led nations to create national industrial monopolies and to support the export activities of domestic firms through the allocation of significant subsidies.

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1.37  Progress in the eighteenth century The development of common law paved the way for the development of an embryonic competition culture. Common law sanctions restraints of trade, that is, restrictions that two parties to a contract impose on each other’s freedom to operate without restriction on the market (eg non-compete clauses in the sale of a business). In the same vein, in 1758 in The King v Norris, an English judge condemned several salt producers that had engaged in price fixing.63 The ruling is particularly interesting because it considers the price level—allegedly low—as irrelevant. The infringement hinged on the very act of collusion. A per se prohibition of cartels began to take shape. 1.38  At around the same time in France, ‘corporations’—groups of individuals enjoying monopolies in entire economic sectors—fell into disgrace. In 1791, the Décret d’Allarde and the Loi le Chapelier elevated freedom of trade and industry as a mandatory rule of law and accordingly outlawed ‘corporations’.64 That said, in practice, monopolies, State funding, and protectionism still remained pervasive.65

(p. 14) B.  Appearance of Modern Competition Laws 1.39  The first bodies of modern competition rules appeared in North America (Canada and then the United States) at the end of the nineteenth century (Section 1).66 These two nations’ rules had a significant influence on the design and content of the EU competition rules (Section 2).

(1)  The adoption of competition law in North America 1.40  From the industrial revolution to ‘trusts’ The second industrial revolution, which started in the second half of the nineteenth century led to a surge in the degree of competition on many product/services markets in the United States. The development of modern transport (railway and internal combustion engine) and telecommunications (telegraph and telephone) induced US firms—which primarily traded their goods and services at the local, State level—to operate across several regions of the US territory, so as take advantage of economies of scale. 1.41  To insulate themselves from what was perceived as profit-killing price competition, market players formed trusts, that is, legal organizations in which several independent firms of the same sector cooperate to determine their commercial policies.67 In the same vein, major mergers and acquisitions were implemented—under the impetus of financial tycoons such as JP Morgan—to reduce overcapacities in a number of industries (eg the steel industry) and undermine the ‘ruinous’ competitive process. 1.42  Adoption of the Sherman Act US farmers and small undertakings were harmed by the trusts’ pricing policies, from which they sourced their inputs. In addition, the monopolization of the petrol industry by John Rockefeller’s Standard Oil became a cause of concerns for the US decision-makers.68 Petrol is a critical input in many goods and services, then and today. Its pricing has a significant effect on the overall US economy (and particularly, impacts inflation). Moreover, Rockfeller’s monopoly threatened the democratic process. Policy makers feared that Rockfeller would seek to steer his strong economic power to influence decision making in a number of unrelated policy areas. Those concerns led to the adoption of the Sherman Act in 1890. Section I of the Sherman Act enshrines a prohibition of interfirm contracts, combinations, and conspiracies (trusts and other forms of agreements), which restrain trade between US States. Section II of the Sherman Act outlaws the monopolization, or attempts to monopolize, of any part of the trade or commerce.

(p. 15) (2)  The emergence of competition regimes in Europe

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1.43  It took 50 more years for competition rules to be adopted in Europe. Drawing on both the North American experience and on the insights of the so-called ‘ordo-liberal’ theories of the Fribourg School (Section (a)), the founding fathers of the EU enacted European-wide competition rules with the 1951 Treaty of Paris establishing the European Coal and Steel Community (ECSC). A few years later, the 1957 Treaty of Rome establishing the European Community (EC) recognized that a system of undistorted competition shall prevail in Europe, and provided to this end a sophisticated competition law regime covering anticompetitive agreements between competitors, abuses of dominance, and rules governing State aid (Section (b)).

(a)  The ordo-liberal school 1.44  The ultra-liberalism of the twentieth century In the early twentieth century, an ideology that can be described as ultraliberal prevailed in Germany. The Prussian legislation in force in the German empire considered—as was subsequently theorized by Ludwig Von Mises and Friedrich Hayek69—that government should never interfere with freely established, contractual relationships between private economic agents. Accordingly, cartels were viewed as entirely lawful. Naturally, they became a pervasive market practice. Historians report that 4,000 cartels were active in Germany70 at the end of the Weimar Republic in 1933.71 Then the advent of the Nazi regime further increased the number of cartels in the German industry. 1.45  The emergence of ordo-liberalism Against this background, a number of German schol-ars from the University of Fribourg (amongst others, Walter Eucken) considered, in the 1930s, that because market competition does not arise spontaneously, State intervention is required in order to establish, organize, promote, and protect it. Left to themselves, firms will collude rather than compete.72 And even when firms do not collude, they try to eliminate competition by acquiring harmful dominant positions.73 1.46  To promote healthy market competition, according to this view, later named ordoliberalism, heavy-handed public intervention is thus required. However, because executive authorities’ intervention intrinsically embodies a risk of discretionary abuse, the competition system must be based on a detailed, prescriptive, and high-ranking regulation. The Fribourg scholars thus advocated the adoption of an economic constitution (‘ Wirtschaftsverfassung’),74 which, in practice dictated to firms occupying a dominant position to behave as if they were active in a competitive market.75 To this end, competition statutes were explicitly and (p. 16) exhaustively to provide for a list of practices deemed to restrict competition (eg predatory pricing, boycotts, and the granting of loyalty rebates). As will be seen later, the very idea that dominant firms should be forced, because of their market position, to behave in a particular fashion has heavily influenced the case law of the European courts and is the foundation for the ‘special responsibilities’ provision in force today.76 Similarly, the pervasive regulation of vertical agreements that has long prevailed under EU competition law is a clear practical repercussion of ordo-liberal ideas. 1.47  From a public policy perspective, the end of the Second World War provided a fertile ground for the transposition of ordo-liberal theories in Germany. Indeed, the postwar economic reforms of the West German Minister of Economics, Ludwig Erhard, significantly drew upon ordo-liberal theories. 1.48  Marshall Plan In the postwar era, the nations administering the German territory adopted laws designed to eliminate cartels and structurally to dismantle a number of industries in Germany.77 The purpose of these rules was primarily to dissolve the giant industrial cartels (in the Ruhr region, in particular) and the groups which had helped Germany to reach a position of military supremacy under Hitler.

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(b)  Treaty establishing the European Economic Community 1.49  Treaty of Paris Aware of, and possibly enlightened by, the US experience and the work of the ordo-liberal school, the governments of Belgium, France, Germany, Italy, Luxemburg, and the Netherlands considered in 1951 that competition and market integration were necessary conditions for collective prosperity. European-wide competition rules should (i) ensure undistorted competition and (ii) eliminate private obstacles to trade amongst European countries. This rationale prompted the drafter of the 1951 ECSC Treaty to lay down competition provisions (Arts 65 and 66) prohibiting both cartels and abuses of economic power (including concentrations) in the steel and coal sectors.78 The implementation of those provisions was then entrusted to a supranational executive body of the ECSC, the ‘High Authority.’ 1.50  Treaty of Rome In 1957, the six founding Member States of the ECSC considered that full economic integration, not limited to coal and steel, was necessary. Amongst other things they expanded, in the Treaty of Rome, the competition provisions of the ECSC Treaty to all economic sectors. Importantly, those rules were perceived as complements of other Treaty provisions which sought to eradicate public barriers to trade between Member States (ie, public regulations forbidding foreign firms from operating on domestic territory). There was indeed a real risk that, through market partitioning agreements for instance, firms reinstate private obstacles to trade, thereby undermining the dynamics of economic integration which the Treaty purports to achieve.79 Moreover, the EC competition provisions embodied a ban on State aids that distort competition, in selectively advantaging certain companies over others. (p. 17) 1.51  Compromise The competition rules of the EC Treaty are the result of a political compro-mise. On the one hand, the German ordo-liberal view that the rules of competition should be enshrined in a constitutional instrument is clearly reflected within the EC Treaty. Its preamble provides, at Article 3(f), that the activities of the Community shall include a system of undistorted competition.80 Similarly, the rules on cartels and abuse of dominance form an integral part of the Treaty (Arts 85 and 86 EC, now Arts 101 and 102 TFEU). No regulatory instrument can thus supersede those provisions. 1.52  On the other hand, the fact that the EC Treaty did not provide for a specific European com-petition enforcement structure (ie, institutions and procedures), was clearly a concession to the French government, which was reluctant to forfeit its freedom to intervene discretionarily in market-related issues, by being placed under the permanent supervision of a supranational authority.81 This explains why Article 84 EC (now Art 104 TFEU) delegated the enforcement of the competition rules to the Member States. Article 84 EC provided nonetheless that the Council of Ministers (‘the Council’), that is, the EU’s main legislative arm, could adopt specific Regulations governing the enforcement of Articles 81 and 82 EC (now Arts 101 and 102 TFEU), pursuant to the procedure set out under Article 83 EC (now Art 103 TFEU). 1.53  Institutional negotiations Competition enforcement issues gave rise to lengthy negotia-tions between France and Germany in the years following the adoption of the EC Treaty. Whilst the German government supported the adoption, pursuant to a Council Regulation, of an authorization/notification system, whereby the European Commission would ex ante review all business transactions involving a potential violation of the then Article 81 EC, the French—who had finally agreed to entrust the Commission with some powers—argued in favour of a legal exception system, whereby the Commission would pursue infringements of the EC competition rules ex post.

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1.54  Regulation 17/62 Those negotiations finally came to fruition in 1962, with the adoption of Council Regulation 17/62. In line with the German position, Regulation 17/62 established a centralized enforcement system,82 where the European Commission (and more particularly the Directorate General for Competition, (DG COMP)) was entrusted with significant enforcement powers and, in particular, the power to scrutinize ex ante agreements between firms. While national authorities and courts remained competent to enforce the prohibition laid out in the then Article 81(1) EC, Article 9(1) of the Regulation additionally bestowed upon the Commission exclusive jurisdiction over the enforcement of Article 81(3) EC. This provision salvages anticompetitive agreements from the prohibition of Article 81(1) EC, provided the said agreement generates economic benefits. In practice, all firms likely to conclude a potentially restrictive agreement are thus incentivized to ‘notify’ it to the Commission. 1.55  Limits of Regulation 17/62 This mandatory notification procedure, which had the undeni-able direct merit of helping the Commission to build significant market expertise quickly was, however, fraught with very significant shortcomings. Only a few years after the adoption of Regulation 17/62, the Commission had received a massive number of notifications, and (p. 18) was no longer capable of enforcing the competition rules in a swift, timely manner. The Commission thus developed a number of administrative practices to speed up case processing: adoption of block exemption regulations and guidelines, comfort letters,83 negative clearance decisions,84 de minimis notices, etc.

C.  Modernization of EU Competition Law 1.56  The modernization process In 1999, 40 years after the inception of Regulation 17/62, the Commission undertook a review of the EC competition enforcement framework. The Commission’s effort ushered in a ‘White Paper on the modernisation of the regulations implementing Articles 85 and 86 of the EC Treaty’, which painted a grim picture of its own enforcement activities:85 the Commission’s monopoly over the notification and exemption of agreements had led EC and non-EC firms to notify a huge number of agreements which, for the most part, did not pose a real threat to competition. As a result, the Commission had spent a considerable amount of time reviewing benign agreements, whilst more serious agreements, those that are difficult to uncover, had hardly been investigated for lack of available resources.86 In addition, this notification procedure imposed significant costs and red tape on companies. 1.57  Regulation 1/2003 The White Paper’s main findings did not give rise to strong opposition within the competition law community.87 The Commission thus subsequently submitted to the Council a proposed Regulation reforming the competition enforcement system. The Council followed the Commission’s proposal and adopted Regulation 1/2003 (‘the Regulation’), which now replaces Regulation 17/62. This Regulation came into force on 1 May 2004.88 1.58  The Regulation’s primary innovation is to ‘decentralize’ the enforcement of EU competition rules. First, it abolishes the Commission’s monopoly as regards Article 101(3) TFEU. Second, it replaces the ex ante authorization with an ex post legal exception system. Firms and their counsel can no longer request the Commission to review proposed agreements. Undertakings are now required to self-assess their business practices through the lens of Article 101(1) and (3) TFEU. 1.59  Entry into force of the Lisbon Treaty The TFEU, which followed the ratification of the Lisbon Treaty in 2009, replaces the EC Treaty. Under the new Treaty, the EU competition rules can now be found in Articles 101, 102, and 107 to 109, which replace Articles 81, 82, (p. 19) and 87 to 89 EC. As was the case under the previous Treaty, those rules cover agreements between undertakings, abuses of dominance, and anticompetitive State aids respectively.89 Similarly, the substantive wording of Articles 101, 102, and 107 to 109 TFEU is almost identical to the wording of the competition rules of the EC Treaty. From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Overall, with the exception of State aid provisions, the competition rules of the Lisbon Treaty thus remain remarkably stable. The only noticeable change relates to the reference to the common market which, under the new Treaty, is replaced by a reference to the ‘internal market’. 1.60  Current trends in European competition law In addition to the above institutional and procedural changes, in recent years EU competition law has undergone drastic, substantive evolution. Since the late 1990s, the Commission has endorsed a so-called ‘more economic approach’,90 which turns EU competition law into a technical, sophisticated discipline, where economists often supplant legal experts.91 In brief, the Commission will no longer focus on the formal features of a given practice to establish an infringement of the competition rules (the so-called ‘forms-based approach’), but instead will seek to verify concretely whether the practice has given—or is likely to give—rise to competitive harm (the so-called ‘effects-based approach’). This evolution, which this book seeks fully to embrace, has its advantages, insofar as it diminishes the risks of false convictions (type I errors). Yet, the benefits provided by economic analysis in the decision-making process must be put into perspective with the costs, namely those resulting from the loss of legal certainty.

III.  The Goals of EU Competition Law A.  Economic Goals 1.61  Doctrinal debate There has been, in recent years, endless doctrinal discussions on the economic objective(s) underpinning EU competition law.92 The theoretical literature ascribes four possible objectives to the EU competition rules.93 (p. 20) 1.62  Fairness A first strand of authors consider that the primary economic goal of EU competition law is to protect fairness in competition. This interpretation is based on the wording of the Preamble to the Treaty of Rome itself.94 It endorses the ordo-liberal view that the rules of the competitive ‘game’ should be the same for all undertakings. In other words, competition law enforcement should seek to level the playing field, offering a guarantee of genuine equality of opportunity to market players,95 absent which firms would be dissuaded from participating in the market. In practice, this interpretation is well illustrated by Commission decisions ordering firms occupying a dominant position to share their IP rights or to increase their prices so as to assist the entry of their competitors. Quite ironically, a US Department of Justice official labelled this approach ‘Gentlemen’s competition’.96 Similarly, the view that the EU competition rules seek to promote ‘fairness’ may have led the Commission to sanction, in recent years, practices whereby dominant firms manipulate official administrative procedures (eg marketing authorization procedures for pharmaceutical products)97 or ambush their competitors (in the context of standardsetting organizations, eg, by failing to disclose that they own essential IP rights).98 1.63  Economic freedom, plurality, and consumer choice Articles 119 and 120 TFEU refer to ‘the principle of an open market economy with free competition’.99 Albeit inserted in the Treaty’s general provisions on the EU’s economic and monetary policy, certain scholars consider that those provisions arguably apply to the EU competition rules. In a nutshell, this view maintains that market players—in particular small ones—must be free to operate on the market, and should therefore be protected from any obstacle arising from the behaviour of other agents, whether public or private. This view, in turn, hinges on the belief that plurality in the market enhances social welfare.100 The theoretical foundations of this can be traced back to the works of the so-called ‘Harvard School’ in the 1950s which

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held that the less concentrated a market, the better its performance in terms of price and choice for the consumer.101 (p. 21) 1.64  From a practical standpoint, the plurality goal implies, for instance, a strict interpretation of abuse of dominance rules. On markets where a firm holds a dominant position, customers/suppliers do not face many purchasing/selling options. This, in turn, allegedly justifies that, under Article 102 TFEU, holding a dominant position is, in and of itself, suspicious, so that firms occupying such a market position are subject to a special responsibility (certain behaviours by dominant undertakings which, absent a dominant position, would be entirely lawful, may be deemed unlawful).102 Similarly, this goal entails a harsh enforcement policy against mergers which reduce the number of firms active on a market through, for instance, the creation or strengthening of a dominant position.103 Finally, this objective can be discerned in the field of anti-cartel enforcement, where the Commission views agreements ‘substituting practical cooperation’ (ie, unity of decision) for the ‘risks of competition’ (ie, plurality on the market) as per se infringements of the competition rules, regardless of their effects on the market.104 1.65  Taken to extremes, pluralism can lead to unsatisfactory results. In industries with increasing returns to scale, prohibiting firms from serving a large share of the market leads to productive inefficiency and consumers would suffer as a result. A number of scholars, in particular the so-called ‘Chicago School’ scholars, have criticized this approach and encouraged courts and agencies to protect competition, not competitors. 1.66  Economic efficiency A third interpretation, which originates in the work of US scholars and finds no clear-cut support in the wording of the Treaty, ascribes to EU competition law the promotion of economic efficiency.105 Richard Posner, an illustrious representative of the Chicago School, summarized this idea in one pithy maxim: ‘Efficiency is the ultimate goal of antitrust.’106 Yet, this view remains particularly controversial, and commentators often dismiss it as overly simplistic.107 (p. 22) 1.67  Under this approach, competition authorities should primarily incriminate output-reducing strategies and refrain from enforcing competition rules against outputincreasing conduct. More precisely, competition authorities’ decisions should be based on a systematic examination of firms’ efficiency, understood as the ratio of output produced to input used. Where a firm’s input remains constant, all its output-increasing strategies should be deemed lawful. Similarly, where a firm’s output remains constant, its inputreducing strategies should be deemed lawful. Such strategies are indeed deemed to maximize the aggregate wealth created in society, or to minimize the share of society’s wealth used to produce a given good or service.108 As such, those strategies maximize social welfare. Interestingly, under this interpretation, all that matters is that the total wealth produced increases (or that the total wealth used decreases), even if the increment in wealth is captured by a relatively small segment of society (producers and not consumers). In other words, this approach considers the size of the economic pie and not how the slices of that pie are distributed. 1.68  In practice, this approach imposes significant limits on the application of competition law. To take the example of Article 102 TFEU, for instance, many otherwise unlawful fidelity rebates granted by dominant firms should be tolerated, because they (i) increase the quantities served on the market and (ii) decrease production costs through the achievement of economies of scale. In the field of merger control, mergers to monopoly should be cleared in all cases where the price increases linked to the market power held by the merged entity (which is likely to reduce output), are lower than the costs savings arising from the integration of the parties’ assets (economies of scale, synergies, etc). Finally, under Article 101 TFEU, horizontal distribution agreements between firms with significant

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market power should be tolerated if the agreement meanwhile generates redeeming efficiencies that are sufficient to outweigh its potential anticompetitive effects. 1.69  Consumer welfare A fourth interpretation views the promotion of ‘consumer welfare’ as the defining goal of EU competition law. In this regard, Article 101(3) TFEU specifically requires that consumers receive a fair share of the efficiency benefits generated by an agreement. Similarly, the Commission’s Guidelines on the assessment of horizontal mergers state that the relevant benchmark in assessing efficiency claims is that consumers will not be worse off as a result of the merger. For that purpose, efficiencies should be substantial and timely, and should, in principle, benefit consumers in those relevant markets where it is otherwise likely that competition concerns would occur.109 The main implication of this standard is that mere increases in society’s total wealth are not sufficient to insulate a business strategy from the ambit of the competition rules. The benefits arising from increases in efficiency should be transferred to consumers. An increasing number of legal and policy documents adopted by the Commission refer to the consumer welfare standard as the ultimate goal of EU competition law.110 (p. 23) 1.70  Conclusion The debate over the goals of EU competition law is far from settled.111 Whilst most scholars have to date sought to ascribe a whole and sole objective to EU competition law, we believe that each of the four objectives mentioned held an important place in the founding fathers’ concerns when the European Community was created.112 The EC Treaty was indeed a collective work, moulded by various influences, all of which are reflected in the various provisions referring to competition policy. In other words, the Treaty’s commitment to ‘undistorted competition’ enshrines a multifaceted concept. 1.71  Importantly, one should not lose sight of the fact that EU competition law is primarily a public policy tool.113 As with tax policy, the emphasis placed on one or the other objective (fairness, freedom, efficiency, consumer welfare) may fluctuate over time, and be influenced by external factors, such as changes in the overall economic situation, political background of the competition commissioner, etc. That said, the goals of economic efficiency and consumer welfare seem to be particularly prevalent in the latest applications of the competition rules.114 The Commission, which is legally entrusted with the mission of enforcing the EU’s competition policy,115 seems to endorse the view that a ‘competitive and open market offers the best guarantee of European undertakings boosting their efficiency and their potential for innovation’ (emphasis added).116 Also, the Commission regularly recalls that ‘consumer welfare is the standard for implementing competition law’.117 1.72  That notwithstanding, the Commission and the European Courts continue, on occasion, to make decisions inspired by other objectives. The AstraZeneca case, for instance, where the Commission held unlawful several deceptive practices implemented by a dominant firm, regardless of their effects on the market, is a remarkable illustration of this. As a result, one should not discard this debate as purely theoretical in nature. In practice, the question of the goals of EU competition law has practical consequences. Firms uncertain of which (p. 24) standard will be applied to their conduct face considerable uncertainty regarding the legality of their business decisions.

B.  European Integration Goals 1.73  Rationale As noted, the effectiveness of the Treaty rules prohibiting public obstacles to trade between Member States would be seriously undermined if firms could reinstate private barriers to trade, for example through horizontal market-sharing agreements.

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1.74  Case law To obviate risks of private partitioning of Member States’ markets, the European Courts very early on considered that market integration was a core objective of the EU competition rules. In 1966, the Court of Justice held in Consten and Grundig v Commission that: an agreement … which might tend to restore the national divisions in trade between member states might be such as to frustrate the most fundamental objectives of the Community; the Treaty, the aim of the Preamble and text of which is to eliminate the barriers between states and which in many of the provisions is severe with regard to their reappearance, could not allow undertakings to recreate such barriers.118 (Emphasis added) Since this judgment, many EU scholars and enforcers commonly consider that market integration is the ‘primary’ goal of EU competition rules.119 1.75  Practical consequences Over the past decades, the Consten and Grundig ruling has had a major impact on the practice of EU competition law, in particular helping the Commission to build a strong decisional record against agreements frustrating the objective of market integration. Its practical consequences can be observed at four different levels. First, from an enforcement policy viewpoint, the Commission considers that sectors likely to have restrictions to trade between Member States constitute priority enforcement targets .120 Many investigations have, for instance, been launched in the car distribution and pharmaceutical sectors (p. 25) where, despite significant price differentials among Member States, trade between Member States has remained historically limited.121 1.76  Second, from an evidentiary perspective, the Commission considers that the mere existence of market partitioning practices constitutes an infringement, regardless of its actual (and potential) effects on the market. In other words, the Commission does not need to verify that the impugned agreement has had anticompetitive effects to apply Article 101 TFEU to such agreements. Similarly, firms cannot escape a finding of infringement by arguing that their conduct did not generate anticompetitive effects.122 Agreements frustrating the objective of market integration are said to have, as their object, the restriction of competition. 1.77  Third, the Commission and the EU judiciary have promoted a wide substantive interpretation of the Treaty provisions when faced with market partitioning practices.123 As will be seen in Chapter 3, the concept of an ‘agreement between undertakings’ which seems to catch only the concerted action of several firms, may also apply to purely unilateral courses of conduct.124 1.78  Finally, from a punitive standpoint, the Commission—supported by the EU Courts— consistently qualifies practices which breach the objective of market integration as ‘very serious’ infringements and, in turn, applies to them a draconian penalty regime.125 1.79  Recent case law Several recent judgments, discussed below, have, however, seemed to downgrade the importance of market integration as a key objective of EU competition rules. In Adalat, for instance, both the General Court (GC) and the Court of Justice refused to consider that a pharmaceutical supplier’s unilateral practice of rationing supplies in order to limit parallel trade amounted to an anticompetitive agreement .126 Likewise, in GlaxoSmith-Kline v Commission, the GC refused to accept that a supplier’s dual pricing system, aimed at (p. 26) reducing parallel trade in drugs, constituted, by its object, an infringement of the Treaty.127 A concrete analysis of the pro-and anti-competitive effects of the impugned practice was needed in order to establish a breach of Article 101 TFEU.128

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Illustration: the GSK v Commission case In the EU, there has traditionally been significant parallel trade from Spain, where the public authorities set very low maximum prices, to other Member States, such as the UK, where prices are higher. In 1998, the Spanish subsidiary of the GlaxoSmithKline group (GSK) adopted new general sales conditions stipulating that its drugs would be sold at differentiated prices to Spanish wholesalers. GSK’s Spanish subsidiary wanted to apply higher prices to products sold in Spain but intended for export, than to products intended for the local market. This so-called ‘dual pricing’ system was scrutinized by the Commission, which held that it was incompatible with Article 101 TFEU. The GC, on appeal, refused to consider that the purpose of the dual pricing system was to restrict competition. In particular, the Court held that it could not be assumed that parallel trade tends to reduce prices and increase the welfare of the end consumers: in most cases, parallel importers pocket the price difference, and the consumers located in the export countries do not benefit from lower prices. The market integration objective must therefore be assessed with regard to an even more fundamental objective—that of enhancing consumer welfare.128 1.80  This case law, however, is still in flux. On appeal, the Court of Justice quashed the GC’s judgment.129 In addition, in a ruling rendered in the field of Article 102 TFEU, the Court of Justice has also seemed to endorse the view that unilateral actions limiting parallel trade may be tantamount to an unlawful abuse of dominance.130

IV.  The Sources of EU Competition Law A.  Treaty Law 1.81  In line with the ordo-liberal recommendation that competition rules should be enshrined in the highest possible legal instrument, the EU rules of competition can be found in Title VII, Chapter I of the TFEU. Those rules can be divided into three groups.131

(p. 27) (1)  Rules applying to undertakings—Articles 101 and 102 TFEU 1.82  Wording The competition rules of the TFEU are first directed at firms, referred to more generally as ‘undertakings’. Article 101 TFEU provides that: 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.

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3.  The provisions of paragraph 1 may, however, be declared inapplicable in the case of: — any agreement or category of agreements between undertakings, — any decision or category of decisions by associations of undertakings, — any concerted practice or category of concerted practices, which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a)  impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b)  afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question. 1.83  Article 102 TFEU provides that: 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 between Member States. Such abuse may, in particular, consist in: (a)  directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b)  limiting production, markets or technical development to the prejudice of consumers; (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.

1.84  Distinction Influenced by US legal scholars who draw a distinction between Section 1 of the Sherman Act, which targets the joint conduct of several firms, and Section 2, which outlaws firms’ unilateral monopolization practices, EU lawyers often consider that Article 101 TFEU applies to collective conduct and Article 102 TFEU covers individual conduct. In our opinion, this distinction is not entirely satisfactory. The case law of the Commission and the European Courts has, indeed, extended the ambit of Article 101 TFEU (p. 28) to unilateral actions.132 In addition, it is possible to rely upon Article 102 TFEU to sanction the conduct of several firms jointly occupying a dominant position.133 1.85  Public policy According to the case law, Articles 101 and 102 TFEU are rules of ‘public policy’ (also referred to as rules of ‘public order’).134 In practice, this means that courts are bound to raise infringements of Articles 101 and 102 TFEU ex officio, even if the parties in the proceedings have not raised any allegations on those grounds. In other words, the court may thus have to rule ultra petita .135 1.86  In addition, parties to judicial proceedings are free to invoke, and benefit from, the applicability of Articles 101 and 102 TFEU, irrespective of whether they have actively participated in an infringement. For instance, a party that has deliberately concluded an unlawful distribution agreement but that later wishes to escape the contractual obligations

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can legitimately ask a court to declare the said agreement null and void pursuant to Article 101 TFEU.

(2)  Rules applying to Member States—Articles 106 and 107 to 109 TFEU 1.87  Overview A second group of rules, which will not be dealt with at great length in this book, comprises provisions which impose, directly or indirectly, obligations on the Member States.136 Article 106 TFEU governs the situation of undertakings enjoying ‘special’ or ‘exclusive’ rights (monopoly or quasi-monopolies granted by law) as well as public undertakings. In respect of such firms, Article 106(1) TFEU forbids Member States to enact (or maintain in force) rules which infringe Articles 101 and 102 TFEU. In addition, pursuant to Article 106(2) TFEU, those firms are, like other firms, bound to observe Articles 101 and 102 TFEU, ‘in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them’ (eg services of general economic interest). Articles 107, 108, and 109 TFEU forbid Member States from granting aid to firms. There are exceptions to this principle and specific procedures apply in State aid cases. 1.88  Practical assessment With the ongoing liberalization of sectors subject to special or exclusive rights and public undertakings (ie, network industries such as telecommunications, energy, post, rail, air transport), the practical significance of Article 106 TFEU decreases. By contrast, the enforcement of State aid rules has been increasingly pervasive in recent years, partly because of the many financial measures which States have adopted to help firms to face the challenges of globalization, the 2008 financial meltdown, etc.

(3)  ‘Enforcement’ rules—Article 103, 104, and 105 TFEU 1.89  Content The TFEU does not endorse a particular enforcement model. Article 103 TFEU provides that the Council shall define, through Regulations, the rules governing the institutional and sectoral implementation of the principles contained in Articles 101 and 102 (p. 29) TFEU.137 Absent such implementing Regulations, Articles 104 and 105 TFEU provide for a transitional enforcement system, and define respectively the powers of Member State authorities and of the Commission. As explained previously, Articles 104 and 105 TFEU were applied between 1957 and 1962, before the entry into force of Regulation 17/62.

(4)  Protocol on competition policy and the internal market 1.90  The Lisbon Treaty repeals Article 3(1)(g) EC, which stated that the ‘activities’ of the European Community included ‘a system ensuring that competition in the internal market is not distorted’. A new Protocol No 27, appended to the TFEU, however, reproduces almost literally the substantive content of Article 3(1)(g) EC. This Protocol unambiguously states that the internal market ‘includes a system ensuring that competition is not distorted’.138 1.91  This modification has triggered a great deal of controversy within the competition law community. Ahead of the adoption of the Lisbon Treaty, a number of observers voiced concerns that the proposed abolition of Article 3(1)(g) EC, and its replacement by a mere Protocol, would mark—in line with the intentions disclosed by some Heads of State while negotiating the Treaty139—a downgrading of the legal status of competition policy, from an ‘end’ of the EU, to a simple ‘means’.140 This view is partly based on the case law of the European Courts, which had repeatedly held that Article 3(1)(g) EC enunciated a true ‘objective’ of the European Community.141 In response to this, a former high-ranking official of the European Commission has contended that, pursuant to the wording of Article 3(1)(g), the system of undistorted competition was simply a means of the EU.142 Because ‘an

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objective that does not exist cannot be lost’, it was thus arguably wrong to claim that the new Treaty brings about a relegation of EU competition policy.143 1.92  On close examination, both views appear reasonable. Almost inevitably, the resolution of this debate will therefore require the European Courts to rule on the status of Protocol No 27 in the context of future judicial proceedings. In this regard, we believe that a useful distinction (p. 30) may be drawn between, on the one hand, the ranking of Protocol No 27 within the hierarchy of European rules and policies and, on the other hand, the substantive content of Protocol No 27. On the first issue, the most likely conclusion is that Protocol No 27 ranks as high as former Article 3(1)(g) EC, so that conflicts between EU competition policy and other European policies (or ‘activities’) should be dealt with according to the traditional case law standards. This is because Article 51 of the Treaty on the European Union—that is, the other new Treaty which besides the TFEU deals primarily with institutional issues—states that Protocols form an integral part of the Treaties and have a legal value identical to Treaty provisions. 1.93  On the second issue, however, the European Courts face more options. They may, for instance, decide to follow their traditional case law and consider that the content of Protocol No 27 enshrines an ‘objective’ of the EU. However, the European Courts may resort to teleological interpretation and, in line with the reported intentions of some Heads of State, judge that a system of undistorted competition should no longer be an ‘objective’ of the EU, but simply a means that might, for instance, be traded-off against other, more important, goals. 1.94  From a public policy perspective, we believe that the latter interpretation could have a number of detrimental and undesirable consequences. First, it could undermine the adaptability of competition rules to new issues, which were not foreseen by the Treaty drafters. In the past Article 3(1)(g) EC has often been used to legitimize extensions of the scope of Articles 101 and 102. For instance, Article 3(1)(g) was instrumental in entitling the Commission to challenge exclusionary abuses under Article 102.144 Similarly, the European Courts have also relied on Article 3(1)(g) to establish Member States’ liability in cases where regulatory intervention had induced/coerced firms to conclude unlawful agreements.145 Finally, the Courts found support in Article 3(1)(g) in order to hold that violations of Article 101(1) could lead to a right to damages before national courts.146 1.95  Second, this interpretation may weaken the effectiveness of competition law enforcement. The gradual and continual increase in the fines imposed on cartels has, for instance, partly found its legal basis in Article 3(1)(g) EC.147 In the same vein, this provision has been a stepping stone for the devolution of increased powers to national competition authorities (NCAs) and, in particular, the power to set aside provisions of domestic legislation which frustrate the effet utile of Article 81.148 1.96  In sum, therefore, the transfer of the content of Article 3(1)(g) EC to Protocol No 27 could possibly entail a weakening of competition law within the EU legal order.

B.  Secondary Law 1.97  Open-ended nature of the Treaty rules The competition rules of the TFEU are particularly terse. They leave many substantive and enforcement issues unresolved. To fill this gap, the Council and the Commission have adopted texts which seek to clarify the conditions governing the application of the Treaty provisions. (p. 31) 1.98  Exclusive competence of the EU Under Article 3 TFEU, the EU shall have ‘exclusive competence’ in ‘the establishing of the competition rules necessary for the functioning of the internal market’. This means that the Council, and possibly other

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European institutions, are the sole institutions competent to define the substance of EU competition policy. 1.99  Council Regulations As explained previously, the Council has set out detailed rules for the enforcement of Articles 101 and 102 TFEU in Regulation 1/2003. In addition, the Council has occasionally adopted other Regulations with a view to increasing the effectiveness of EU competition policy. For instance, the Council adopted in 1989 a Regulation establishing an ex ante system of control of concentrations between undertakings.149 Interestingly, this Regulation is not only based on Article 103 TFEU, but also on Article 252 TFEU, which allows the Council to adopt legislation ‘to attain one of the objectives set out in the Treaties’ when the Treaty has ‘not provided the necessary powers’ for this purpose. Reliance on Article 252 TFEU was perceived as necessary because the adoption of a merger control system went beyond the strict implementation of Articles 101 and 102 TFEU. Indeed, in an effective merger control regime, the competition authority must be entitled to forbid concentrations conducive to dominance, regardless of the existence of an abuse. This legal basis was again used in 2004 to modify the substantive standard for the assessment of mergers. Regulation 139/2004 no longer refers to the concept of dominance as the key criterion for evaluating mergers, but now refers to a standard alien to Article 102 TFEU, that is, the ‘significant impediment to effective competition’ concept.150 1.100  Commission Regulations Under the TFEU, Article 105(3) provides that ‘the Commission may adopt regulations relating to the categories of agreement in respect of which the Council has adopted a regulation or a directive pursuant to Article 103(2)(b) [which lays down detailed rules for the application of Article 101(3)]’. Accordingly, the Commission may adopt directly so-called block exemption regulations which salvage categories of restrictive agreements from the prohibition of Article 101(1) TFEU. 1.101  In addition, Article 33 of Regulation 1/2003 authorizes the Commission to take any provision it deems appropriate in order to ensure its implementation.151 On this basis, the Commission has adopted Regulation 773/2004, which sets out the main procedural rules governing the enforcement of Articles 101 and 102 TFEU (rules related to the conduct of inspections, the treatment of complaints, the organization of a hearing, the protection of (p. 32) business secrets, etc).152 The Commission also relied on this legal basis in 2008, to establish a settlement procedure in cartel cases, whereby firms may, in exchange for the early recognition of their participation in a cartel, obtain a discount on the fine eventually inflicted.153

C.  Case Law (1)  Decisional practice of the Commission 1.102  Introduction Although, under Regulation 1/2003, the Commission is no longer the only body entitled to enforce the Treaty competition rules, it is undeniably the ‘orchestrator’ of competition policy in the EU. This idea is particularly well expressed in the Dansk Rørindustri A/S v Commission case, where the Court of Justice stressed that the missions of the Commission were not simply confined to enforcing Articles 101 and 102 TFEU: The supervisory task conferred on the Commission by Articles 85(1) and 86 of the EC Treaty [now Arts 101(1) and 102 TFEU] not only includes the duty to investigate and punish individual infringements but also encompasses the duty to pursue a general policy designed to apply, in competition matters, the principles laid down by

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the Treaty and to guide the conduct of undertakings in the light of those principles.154 1.103  Decisions To discharge this duty, the Commission has a number of tools at its disposal. Decisions are the primary means of Commission intervention. Decisions are legal instruments addressed to specific, identified, firm(s) (or, in the field of State aid, to a Member State). For instance, the Commission adopts Decisions to declare a given practice incompatible with the EU Treaty, to take interim measures, to impose corrective measures, to inflict fines, etc. The variety of such measures has increased since the adoption of Regulation 1/2003.155 Commission Decisions have binding force. They represent an important source of EU competition law. 1.104  Other instruments For a number of reasons—notably its limited administrative resources—the Commission seems to be relying increasingly on methods of competition law enforcement based on informal pronouncements (press releases, oral statements, etc) and soft law instruments which do not pertain, sensu stricto, to case law.156 Those instruments differ in scope (general v individual), author (the Commission itself, DG COMP, individual Commission officials, third parties, etc), purpose (publicity, guidance, etc), form (written or oral), and binding effect.157 (p. 33) 1.105  Formal Commission Guidelines, Notices, and Communications Over the past 15 years, the Commission has issued an increasing number of Guidelines, Communications, and Notices.158 These instruments are adopted by the Commission as a whole and published in the Official Journal of the European Union (OJ). Examples of such Communications include the Guide lines on vertical restraints, the Guidelines on the applicability of Article 101 to horizontal cooperation agreements, the Commission notice on the definition of the relevant market for the purposes of EU competition law, and the Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations between undertakings.159 1.106  Put simply, the main purpose of these formal instruments is to provide assistance to firms,160 competitions authorities, and national courts161 when engaging in complex competitive assessment.162 They thus pursue enforcement-related goals, that is, they aim to induce firms to comply with EU competition law and to assist courts and competition authorities in applying it. 1.107  In addition, in our view, those Communications addressing substantive issues of competition law may also help the Commission to detect infringements of the competition rules.163 In the decentralized enforcement system instituted by Regulation 1/2003 (and a fortiori (p. 34) within the realm of the private enforcement of competition law), competitors, suppliers, customers, and governments play a key role in the detection of competition law infringements. It can be argued that the Guidelines, Notices, and Communications adopted by the Commission increase the likelihood that those dealing with infringers will be able to detect anticompetitive behaviour and attempt to bring it to an end. 1.108  In that respect, the Guidelines on the application of Article 101(3) TFEU are a case in point. Despite their title—which suggests that they focus solely on the interpretation of the exception provided in Article 101(3)—the Guidelines deal at length with substantive issues underlying ‘the prohibition rule of Article 101(1) EU’.164 Similarly, the Guidelines on the applicability of Article 101 to horizontal cooperation agreements devote considerable space to categories—and examples—of unlawful agreements and practices, under the heading ‘assessment under Article 101(1)’.165

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1.109  Commission papers (discussion papers, etc) Driven to a large extent by DG COMP, that is, the Commission’s administrative department specialized in competition matters, a new breed of ‘papers’ dealing with specific legal issues (and/or economic sectors) has mushroomed in EU competition enforcement. Despite their heterogeneous nomenclature (discussion papers, position papers, consultation papers, working papers, etc), those papers share at least three common features. First, they are authored by services within DG COMP (generally, units or directorates). Second, such papers are generally adopted in the context of the ‘review’ of specific enforcement policies (eg the socalled ‘Article 82 EC review’, which seeks to increase the role of economic analysis in abuse of dominance cases).166 They are therefore, by their very nature, acts with a provisional status, setting out DG COMP’s preliminary views on certain practice(s)/sector(s) and, in certain circumstances, posing questions to stakeholders.167 Third, these papers are general in scope and do not target individual market players. 1.110  Similar to so-called Green Papers and White Papers, which are formally adopted by the Commission and normally culminate in legislative action,168 this type of Commission paper is often followed up by subsequent action (eg adoption of guidelines, decisions, etc). For instance, the Merger Remedies Study169 and, perhaps more importantly, the Discussion (p. 35) Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses gave rise respectively to a reform on the Guidelines on merger remedies and to a Guidance Paper on exclusionary abuse. The less formal papers can be a means of issuing ‘trial balloons’, whereby DG COMP can solicit feedback and tap into the current debate before issuing Guidelines. 1.111  Annual reports on competition policy Since 1971, the Commission has published an Annual Report on Competition Policy (the ‘annual report’) providing an overview of the main developments in EU competition policy and summarizing changes to EU competition rules that have occurred over the course of the previous year.170 The annual report is adopted by the Commission as a whole in the form of an official ‘Communication’. It is usually preceded by a foreword from the Competition Commissioner.171 1.112  Importantly, annual reports show, through selected examples, how the EU competition rules are implemented. In addition, they are often supplemented by various sets of annexes (in the form of Staff working papers), which provide detailed case-specific information, methodological information, statistics, etc. Again, annual reports constitute a useful tool to instigate voluntary compliance with the law. 1.113  Press releases The Commission usually issues press releases following the adoption of a formal decision under Articles 101 and 102 TFEU or the European Merger Control Regulation (EUMR), for example decisions finding an infringement and imposing fines, commitment decisions, decisions imposing remedies, etc.172 In addition, it occasionally adopts press releases to comment on or clarify certain developments in EU and national competition laws (often in the form of ‘Memos’ or ‘Frequently Asked Questions’).173 (p. 36) 1.114  Articles written by Commission officials Commission officials routinely address issues relating to the enforcement of EU competition law in articles published in generalist174 and scientific reviews, academic treatises,175 etc. In contrast with oral statements—which mainly focus on public policy issues—written articles typically relate to technical and/or case-specific issues of EU competition enforcement. Very often, those articles clarify aspects of the Commission’s reasoning underlying particular investigations and decisions that might other wise have remained unknown. They constitute therefore a

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useful source of guidance for legal practitioners, who frequently rely upon them to provide advice to their clients. 1.115  Oral statements In a world driven by information, Competition Commissioners, individual DG COMP officials, and spokespersons often convey enforcement messages to the general public through oral statements. Speeches given at international symposiums, interviews, and press conferences offer convenient opportunities to announce new enforcement actions, provide explanations of the Commission’s analysis in specific cases, and send warnings to firms suspected of a violation of EU competition law. Whilst over the past 12 years, the three successive Competition Commissioners appear to have been equally vocal—we have found no evidence of an increase in the number of speeches delivered by Competition Commissioners—the content and implications of their public pronouncements seem to be, however, a question of individual personality. Commissioners such as Karel Van Miert or Neelie Kroes were well known for their powerful—and often controversial—statements.176 1.116  Importantly, Commission officials cannot, in principle, divulge information or express opinions on the Commission’s activities.177 The statements made by individuals employed by the Commission are, however, not all covered by the same rules. First, Commissioners are not civil servants within the meaning of the Staff Regulations and enjoy a legal mandate to represent the Commission in public. Second, the Commission’s spokespersons, who are called upon to discuss the Commission’s activities before the media, enjoy a general authorization, within the meaning of Article 17 of the Staff Regulations, to make public statements that convey information received in the line of duty not otherwise available to the public. All other civil servants must obtain authorization to disclose information on the Commission’s (p. 37) enforcement activities. That said, Commission officials regularly comment in public on ongoing investigations or decisions adopted. In practice, only the highest ranking civil servants—such as Directors General, Deputy Directors General, Directors, Heads of Unit, and cabinet members—make such statements. In this context, Commission officials usually take extreme care to ensure that they speak ‘in a personal capacity’, and that ‘the views expressed [by them] are not an official position of the European Commission’. 1.117  Expert reports and third parties studies The Commission relies increasingly on reports and studies authored by third parties. In commissioning such reports, the Commission typically seeks expert advice that will allow it to gather data on particular economic sectors or commercial practices,178 to determine the feasibility/desirability of proposed policy reforms,179 to assess the outcome of past enforcement actions in certain fields/sectors,180 or simply to promote the emergence and discussion of innovative ideas on intricate issues of EU competition policy.181 1.118  Miscellaneous The Commission’s competition policy is also often clarified in other documents, circumstances, etc. For instance, the Commissioner’s responses to parliamentary questions, although fairly rare, may cast light on the Commission’s approach in certain cases (often highly politicized ones).

(2)  The case law of the European Courts 1.119  Introduction The ECJ is a generalist court which deals with all questions of EU law, both institutional and substantive, since the creation of the European Community in 1957. In order to reduce the growing backlog of cases of the Court of Justice, the Council created in 1989 the GC, to which it gave jurisdiction to hear at first instance annulment proceedings brought by natural and legal persons. Since the entry into force of the Lisbon Treaty, the GC also has first instance jurisdiction over annulment proceedings brought by Member States.

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1.120  Main features of EU competition litigation Because EU competition law is primarily enforced through Commission Decisions against natural and legal persons, most of the competition cases have, since 1989, been dealt with by the GC. The most frequent types of proceedings brought before the GC are (i) applications for annulment of Commission Decisions (Art 263 TFEU); (ii) applications for annulment or reduction of fines imposed by (p. 38) the Commission (Art 261 TFEU);182 and (iii) applications seeking compensation for damages caused by the Commission when unlawfully enforcing the competition rules (Arts 268 and 340 TFEU). 1.121  The Court of Justice’s intervention in the field of competition law is less frequent. The Court assumes duties which are akin to those of a supreme court. It (i) hears appeals on questions of law against judgments of the GC (Art 256 TFEU); (ii) responds to preliminary references from national courts (Art 267 TFEU); and (iii) rules on infringement proceedings brought against Member States for failure to comply with EU law obligations (Arts 258 and 259 TFEU). 1.122  Nature and intensity of judicial review As explained previously, the substance of EU competition law has become increasingly economic in nature. The upshot of this is that the outcome of cases routinely hinges upon complex economic assessments, where the frontier between legality and illegality is far from clear. 1.123  Almost inevitably, the Commission must thus enjoy a certain degree of discretion when discharging its enforcement duties. To accommodate that discretion, the European Courts have devised a standard of judicial review which, albeit apparently homogeneous, fluctuates amongst the various areas of competition enforcement. As will be seen in Chapter 5, this standard of judicial review has, in recent years, been heavily criticized by scholars and practitioners. 1.124  Whilst in certain matters, such as merger control, judicial review of the Commission’s decisions has seemed to become more intense, following a series of annulment judgments in Airtours, Schneider, and Tetra Laval,183 the GC has been reluctant to scrutinize Commission’s decisions under Article 102 TFEU. The GC’s judicial deference as regards the Commission’s assessments in that field is particularly well illustrated in judgments such as Microsoft v Commission and Wanadoo v Commission .184 In Microsoft v Commission, the GC held, for instance, that: it follows from consistent case-law that, although as a general rule the Community Courts[’] review of complex economic appraisals made by the Commission is necessarily limited to checking whether the relevant rules on procedure and on stating reasons have been complied with, whether the facts have been accurately stated and whether there has been any manifest error of assessment or a misuse of powers.185 1.125  Many consider that those cases demonstrate the EU Courts’ discomfort in matters involving sophisticated economic analysis. To increase the effectiveness of judicial review, as well as to reduce the average duration of proceedings before the EU Courts (currently it takes 20 to 30 months for the GC to rule on a competition case), a number of observers have recently argued in favour of establishing a specialist competition court at the EU level, similar to the (p. 39) Competition Appeals Tribunal in the UK.186 Article 257 TFEU indeed provides for the creation of ‘specialised courts attached to the General Court to hear and determine at first instance certain classes of action or proceeding brought in specific areas’.

(3)  National case law

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1.126  Decentralized enforcement system Until recently, NCAs and national courts had not been particularly involved in the enforcement of EU competition law. With the adoption of Regulation 1/2003, this situation has changed. Regulation 1/2003 has abolished the Commission’s jurisdictional monopoly over Article 101(3) TFEU and explicitly declares that NCAs and national courts can apply Article 101(3) TFEU.187 Whilst, from a mere legal standpoint, it is questionable whether an institution can, by means of a Regulation, legally declare the direct effect of a provision of the Treaty, the fact remains that since 2004 EU competition rules are increasingly enforced by national institutions. As in most decentralized enforcement systems, the implementation of EU competition rules by various NCAs and national courts triggers interesting dynamics, such as experimentation, crossfertilization, etc.188 For instance, the case law of the French courts on the requirements that may be imposed on online retailers in the context of selective distribution networks has clearly inspired the Commission’s new guidelines on vertical restraints. 1.127  However, the enforcement of the EU competition rules by an indefinite number of national institutions generates obvious concerns of inconsistent application across Europe. To reduce risks of inconsistency, Regulation 1/2003 in addition to various Commission Communications, establishes a whole host of cooperation mechanisms between the Commission, NCAs, and national courts.

V.  The Scope of Application of EU Competition Law A.  Scope Ratione Personae—To Whom Does EU Competition Law Apply? 1.128  ‘Undertakings’ EU competition rules apply primarily—in some instances directly (Arts 101 and 102 TFEU) and in others indirectly (Arts 107 to 109 TFEU)—to ‘undertakings’. European competition law is thus faced with a definitional problem. Does the concept of an (p. 40) ‘undertaking’, which is defined neither in the TFEU nor in secondary legislation,189 encompass, as economists would say, any ‘organization which transforms resources into goods and services which it sells on a market’? By this definition, any entity is potentially subject to EU competition law—raising the question of whether it is necessarily a good idea to make certain organizations (universities, hospitals, cultural centres, etc) subject to the EU competition regime. 1.129  The difficult task of elucidating the meaning of the concept of an undertaking fell to the EU judiciary. The Court first defined the concept broadly (Section 1) and then later restricted its scope (Section 2).

(1)  Jurisprudential definition of the concept of ‘undertaking’ 1.130  Economic activity, characteristic feature of an undertaking The question of defining the concept of an undertaking occupied the EU judiciary very early on. As early as 1962, the Court of Justice in the Mannesmann case held that an undertaking is: A unitary organisation of individuals and tangible and intangible assets connected to a legally independent subject, and pursuing on an ongoing basis a specific economic goal.190 1.131  The concept of undertaking was more clearly defined some years later when the Court of Justice made the notion of an undertaking dependent on the exercise of an ‘economic activity’.191 Thus, in the case of Höfner and Elser, the Court held that: The concept of undertaking includes any entity exercising an economic activity, regardless of the legal status of that entity and its method of financing.192

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1.132  While it might seem that definition merely shifts the ambiguity from ‘undertaking’ to ‘economic activity’, which was also left undefined, in fact it is not problematic. Already recognized from previous EU jurisprudence,193 ‘economic activity’ is—as the GC would later recall in the FENIN case—an activity consisting of ‘offering goods or services on a given market’.194 (p. 41) ‘Offering goods or services’ is, in turn, defined by the Court, as supplying ‘services … for payment’, or, more generally, in exchange for ‘economic consideration’.195 1.133  Extent of the notion of undertaking The extent of the concept of undertaking was progressively clarified through the Court of Justice case law. It is now taken to include, inter alia: football clubs;196 Formula 1 teams; opera singers;197 artists; businessmen; individual professionals (lawyers, architects, doctors, accountants, etc);198 and employees pursuing their own economic interests.199 1.134  Classifications under internal law are irrelevant Formal classifications under national law are of little significance to the EU judiciary. An undertaking can be a commercial company, a civil company, a cooperative, an economic interest grouping, a public institution, etc. Nor does the body in question have to have legal personality, as defined by national law, in order to be called an undertaking within the meaning of EU competition law.200 1.135  Diverse activities The coexistence, within one and the same organization, of both economic and non-economic activities, is common.201 In the area of public health, for example, it is common for public hospitals to dispense universal medical care (noneconomic activity) while simultaneously granting licences for the inventions made by their laboratories (economic activity).202 Thus a public hospital is an undertaking within the meaning of EU law when its laboratories monetize their IP rights. In the same vein, the Court held that the International Olympic Committee’s anti-doping regulations also fell within the scope of the Treaty, even though the regulations were purely sports-related and not an economic activity per se.203 Given the tremendous amount of economic activity based on sports, however, and the repercussions for sports-based economic activity that lax doping rules could have, this ruling makes sense. By contrast, non-economic activities are not caught by competition law. (p. 42) 1.136  Non-profit organizations The concept of an undertaking also covers entities that are not for profit, such as certain public bodies in charge of an economic activity and certain non-profit associations whose object is to exercise an economic activity. Thus, both a public employment office providing executive placement services (Höfner and Elser)204 and a non-profit medical organization providing emergency transport and ambulance services (Ambulanz Glöckner)205 have been held to be ‘undertakings’ by the Court of Justice. In defining an undertaking, it is therefore irrelevant whether the entity’s activity is or is not for profit, unlike the equivalent concept in company law. It is enough for an activity to be exercised for onerous consideration, that is, that the activity is normally provided in consideration for direct compensation (when paid by the beneficiary of the activity) or indirect compensation (when paid by another undertaking or institution). It is this jurisprudence, incidentally, which allows new business models providing free goods and services to one side of a market (consumers) to be made subject to competition law: prima facie, search engines (Google.com), theme-based community sites (MySpace.com), free morning papers, etc, do not sell a product or service to the customers. They do, however, exercise an economic activity within the meaning of competition law. These entities—and this is the key to their success—are paid by undertakings located on the other side of the two-sided market, namely advertising entities.

(2)  Jurisprudential restrictions of the concept of ‘undertaking’

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1.137  Where the problem lies The potentially limitless scope of the concept of an undertaking has not failed to provoke sharp criticism from legal scholars. At issue is the risk that some activities which, from an economic standpoint, may be termed ‘for the public good’ might somehow find themselves subject to the EU competition regime and its accompanying constraints.206 Termed an undertaking, a university could thus find itself deprived of public subsidies under Article 107 TFEU, or even unable to provide free education under Article 102 TFEU. Aware of such considerations, the Court of Justice has endeavoured to ‘confine’ its case law. 1.138  State activities The Court first removed certain activities by public authorities from the scope of the ‘economic activity’ concept. It held, for instance, that entities enjoying and exercising prerogatives ‘that were typical’ of governmental organizations, could not be termed undertakings.207 In the Eurocontrol case, the Court, for example, was of the view that air traffic control was not an economic activity.208 It also held, in Diego Cali, that marine anti-pollution monitoring did not constitute an economic activity but rather a ‘general interest mission’ that was part of the essential functions of the State in terms of environmental protection.209 (p. 43) 1.139  Social security benefits In the Poucet and Pistre judgments, the Court of Justice also considered that bodies which fulfil an ‘exclusively social’ function based on ‘national solidarity’ do not perform an economic activity, or constitute an undertaking thereby.210 1.140  One outstanding question, however, remained: should schemes with a function that was not exclusively social (so-called ‘provident’ schemes’) be carved out as well? Provident schemes are those that are supplementary to the usual State social security schemes, for instance supplementary insurance, retirement services, pensions, and life assurance. Such schemes appear, prima facie, to have the nature of solidarity. However, they are frequently provided by independent entities, for a profit, in direct competition with one another and with the equivalent State services. Consequently, it is questionable whether companies offering such schemes should be excluded from the scope of the economic activity concept. This question was finally referred to the wisdom of the EU judiciary in two cases, FFSA and Albany, which dealt with, respectively, retirement insurance for non-employed individuals in the agricultural sector and a sectoral pension fund.211 In these cases the Court ruled that such schemes should be distinguished from the health insurance funds in the Poucet case, which fulfilled an exclusively social function. These cases, therefore, could not be said to give rise to ‘national solidarity’ and, consequently, the providers of the services in each of these cases must be considered as undertakings subject to EU competition rules. 1.141  Functional approach As Advocate General Francis Jacobs explained in Albany, in order to determine whether a social security system exercises an economic activity, the Court must apply a ‘functional approach’.212 He then laid down three criteria that would usually be indicative of the existence of an economic activity, as opposed to national solidarity: (i)  membership of the insurance scheme or system is optional; (ii)  the contributions made by a specific beneficiary would finance his own future social security benefits (the principle of capitalization), rather than being used immediately to finance the current social security benefits of other contributors (the principle of allocation); (iii)  the contributions paid should correlate to the benefits received by the contributor (correlated benefits), as opposed to the financial income of the managing body (uncorrelated benefits). 213

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(p. 44) 1.142  If these criteria are met, the presumption is that the activity in question is economic in nature, although it still remained unclear whether the criteria were cumulative. The Albany case, for instance, involved a supplementary pension fund based on a mandatory membership system exhibiting certain features of ‘solidarity’ (both indicative of national solidarity). However, the Court held that the fund exercised an economic activity under competition law because the entity in question itself determined the amount of the contributions and benefits and the scheme functioned according to the principle of capitalization. The fund could therefore be seen to be active on the market as an undertaking in competition with insurance companies.214 1.143  Overall, the approach followed by the Court to determine whether a given individual or entity is an ‘undertaking’ seems to be based on a case-by-case assessment. This approach hinges on looking at a number of parameters that help to determine whether the scheme under review is consistent with an engagement in economic activity or, rather, takes the form of solidarity. If only some of the three criteria laid down by Advocate General Jacobs in Albany are met, then the Court will turn to older case law that points to other factors indicative of national solidarity, such as the absence of a profit motive and the social character of the functions. 1.144  Reminder concerning cumulative activities In accordance with the principles described, where services with an exclusively social character (eg those in Poucet) are combined with economic activities, the Court considers that only the latter activities will fall within the scope of EU competition law.215

B.  Scope Ratione Materiae—To What Sectors Does Competition Law Apply? 1.145  One of the features of competition law regimes is that they are not sector-specific, that is, they theoretically apply to all sectors of the economy. That said, an immediate qualification must be made: although EU competition law aims to catch all economic activities within the scope of the Treaty, it does not apply uniformly in all economic sectors.

(1)  Agricultural products 1.146  Brief recap of common agricultural policy A prominent feature of the EU, and one to which almost half its annual budget is devoted,216 is the common agricultural policy (CAP). Laid out in Title II of the Treaty, the CAP is characterized by guaranteed price mechanisms,217 production quotas, and aids to farmers, all of which, of course, run entirely counter to the Treaty’s pursuit of free, undistorted competition.218 (p. 45) 1.147  Special system of competition in the agricultural sector Noting the special nature of the agricultural sector, Article 36 EC (now Art 42 TFEU) therefore required the adoption of a Council Regulation, in order to determine the conditions for application of the competition rules in this sector: The provisions of the chapter relating to the competition rules only apply to the production of and trade in agricultural products to the extent determined by the Council in the context of the provisions and in accordance with the procedures provided in Article 37, paragraphs 2 and 3, in the light of the objectives referred to in Article 33. 1.148  The Council lost no time in clarifying the conditions for the application of the competition rules to agricultural products. In the wake of Regulation 17/62, which set out the general principles for implementing EU competition rules, the Council adopted, on 4 April 1962, Regulation 26/62 providing for the application of special principles in the

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agricultural sector.219 In 2006, Regulation 26/62 was repealed and replaced, without any fundamental changes, by Regulation 1184/2006.220 1.149  Derogations for agreements Article 1 of Regulation 1184/2006 declares that Articles 81 to 86 EC (now Arts 101 to 106 TFEU) apply to the production of, and trade in, those agricultural products which are listed in Annex I of the then EC Treaty. Article 2 of the Regulation, however, immediately lays out three derogations to this principle as applied to agreements between undertakings. Contrary to the position under Regulation 1/2003— whereby agreements between undertakings may be assessed by NCAs and courts—the assessment of agreements within the agricultural sector falls within the exclusive jurisdiction of the Commission.221 Three derogations, then, provide for situations in which the Commission is not to apply Articles 81 to 86 EC (now Arts 101 to 106 TFEU) to the production of, and trade in, specified agricultural products: (i)  Article 81(1) EC does not apply to agreements, decisions, and practices which are an integral part of a ‘national organisation of the market’; (ii)  Article 81(1) EC does not apply to agreements, decisions, and practices which are necessary for the attainment of the objectives referred to in Article 33 EC, namely ‘to increase agricultural productivity, ensure a fair standard of living for the agricultural community, stabilise markets, assure the availability of supplies, and ensure that supplies reach consumers at reasonable prices’; (iii)  Article 81(1) EC does not apply, as is explicitly stated in Article 2(1), to national agreements which—without imposing the obligation to charge a specified price— concern ‘the production or sales of agricultural products or the use of joint facilities for the (p. 46) storage, treatment or processing of agricultural products’, 222 in other words, agricultural cooperatives and groups of agricultural operators. 223 1.150  Limited scope of derogations In practice, these derogations only raise a limited obstacle to the application of the competition rules in the agricultural sector. Namely, they do not affect the application of Article 102 TFEU, the merger control regulation224 or the State aid provisions.225 1.151  Moreover, the first derogation no longer has much relevance since ‘national market organizations’ have given way to ‘common market organizations.’226 The Court held in the Milk Marque Ltd case that national authorities had jurisdiction to apply national competition law in the areas governed by the common market organizations, signifying that even in the absence of the application of EU competition law, the undertakings concerned will still be governed by national competition laws.227 1.152  Finally, the Court of Justice and the GC have consistently promoted a strict approach in respect of the second derogation.228 Thus, in FNCBV v Commission, which dealt with a cartel between the main French federations in the beef sector, the GC refused to allow the application of Article 2, Regulation 26/62.229 The federations had participated in a cartel aimed at fixing a minimum purchasing price for certain categories of cattle and suspending imports of beef to France. They argued that the cartel was necessary to ensure a fair standard of living for the agricultural community and to stabilize the markets.230 The GC agreed to recognize the relevance of the first objective. In considering the proportionality of the measures taken by the federations for this purpose, however, the Court felt that the agreement included an excessive risk ‘of harming, at the very least, the charging of reasonable prices in deliveries to consumers’.231 The derogation of Regulation 26/62 did not, therefore, apply in the particular case.

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(p. 47) (2)  Transport 1.153  Brief recap of the common transport policy Just as with agricultural products, the transport sector has been the subject of a common EU policy, laid out in Title VI of the TFEU.232 The aim of this policy is to remove obstacles to cross-border transport,233 primarily in order to help the effectiveness of the major freedoms of movement (goods and people, in particular) provided by the Treaty. 1.154  Discussion on the applicability of the competition rules The existence of a common transport policy has led some to claim, mainly for political reasons, that the sector is not subject to the application of EU competition rules.234 The proponents of this theory took their line of argument from Article 90 TFEU, according to which: The objectives of the Treaty shall be pursued by member states, in matters governed by this Title, within the framework of a common transport policy. 1.155  Based solely on the wording of the Treaty, however, Article 90 TFEU—unlike Article 42 TFEU in the agricultural sector—in no way ruled out the applicability of the competition rules to the transport sector. In the Nouvelles Frontières case, the Court of Justice concluded that: the competition rules of the Treaty, … apply to the transport sector regardless of the establishment of a common policy in that sector.235 1.156  Sectoral approach In fact, it was in secondary legislation that the specific rules relating to the transport sector were laid out: Regulation 141/62, adopted in November 1962, suspended the application of Regulation 17/62 (and therefore the mandatory notification mechanism) to the transport sector. Without any enforcement powers,236 the Commission now had to wait for the Council to adopt enforcement provisions in order for it to intervene in the transport sector. The Council chose a sector-specific approach by adopting separate Regulations for (i) transport by rail, road, and inland waterway;237 (ii) maritime transport services;238 and (iii) air transport.239 These Regulations held two things in common: first, most of the specific (p. 48) procedural rules are the same240 and, second, a derogation from the provision in Article 101(1) TFEU that declared ‘technical cartel agreements’ incompatible with the Treaty,241 recognizing, instead, the benefit of (generous) exemptions under Article 101(3) for certain forms of cooperation that would usually be prohibited. Regulation 4056/86, which thereby exempted cartels dividing markets between maritime shippers from the application of Article 101(1), is in this regard a model of legislative leniency.242 1.157  Influence of modernization To take full account of the case law—which does not require a specific procedural regime for the transport sector—and arguably to simplify the EU enforcement structure, Regulation 1/2003 repealed Regulation 141/62 and thus eliminated the specific procedural provisions enshrined in sectoral regulations. The general legal exception system is now applicable in the transport sector.243 However—and this is important—Regulation 1/2003 maintains the special substantive rules (‘technical exceptions’ and exemptions).244

(p. 49) (3)  Network industries 1.158  Inadequacy of the TFEU’s competition rules In the early 1990s, European institutions undertook to ‘liberalize’—that is, open up to competition—the ‘network industries’ (telecommunications, energy, postal services, etc) sectors where there had previously been a system of State monopolies.245 In these industries, therefore, there were good reasons to believe that the application of EU competition rules246 might not have been

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sufficient to ensure that formerly monopolistic market structures would become competitive:247 •  specificity of the sectors/practices and insufficient expertise of competition authorities—competition rules (and authorities) are not capable of settling the complex issues relating to methods of access to infrastructure (price and conditions), which are frequent in liberalized sectors. Market entry is usually conditional on receiving access to the incumbents’ infrastructures at a reasonable price; 248 •  unsuitable modus operandi of the competition authorities—competition rules (and authorities) generally intervene ex post to sanction restrictive practices. In emerging markets such as those undergoing liberalization, the ex ante intervention of regulatory authorities may be needed in order to prevent incumbents from abusing their dominance and to stimulate the entry of new traders; •  inappropriate normative structure of the competition rules—competition rules (and authorities) typically do not prescribe positive obligations (obligations to do something) but only injunctions (obligations not to do something). In liberalized sectors, however, it is often necessary to impose specific obligations on incumbent operators, that is, to enjoin them to implement measures designed to ensure transparency, the separation of accounts, access to network elements, cost orientation, unbundling, etc; •  failures of the competition rules—competition rules (and authorities) typically do not take into account the universal service requirements (provision of a service at an affordable price and at a quality level that is constant and continuous throughout the territory) that typically apply in these sectors. 1.159  Adoption of ad hoc regulations In order to ensure the liberalization of formerly monopolistic sectors, the Commission decided to adopt a sequential strategy .249 First, sector-specific Directives were adopted to open the market to competition and provide a regulatory framework that would prevent incumbents from abusing their market power to prevent entry. These Directives would also provide for a variety of measures designed to reduce switching costs (p. 50) (eg number portability in the telecommunications field), thereby facilitating market entry. Once the liberalized markets had become competitive, sector-specific regulations would give way to the exclusive application of the EU competition rules. 1.160  Qualifications An attractive concept, this sequential approach is not, in practice, totally satisfactory. In the course of the liberalization processes, competition rules must first be able to intervene as an adjunct to sectoral regulation: •  anti-competitive agreements—sector-specific rules typically do not catch certain anticompetitive behaviours such as cartels relating to pricing or sales terms which nevertheless affect the sectors being deregulated; •  mergers—sector-specific rules do not provide for any form of merger control to take place in liberalized sectors. Merger control is, however, essential, since the liberalization process typically triggers consolidation among the various players in the market; 250 •  other practices—the flexibility of competition rules allows the resolution of a series of problems typically not envisaged in sector-specific regulatory frameworks (eg infrastructure-sharing agreements), 251 and anticompetitive practices that have not been addressed by the sectoral regulator. 252

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1.161  This is why, in the course of the deregulation process, the Commission has often vigorously applied EU competition rules to fill in the gaps in the sectoral regulations. 1.162  Interpretative instruments The Commission has adopted interpretative texts which clarify the principles for applying competition rules in the sectors being liberalized. Since 1991, several Notices and Guidelines have addressed a range of issues that are linked with the application of competition rules to the liberalized sectors, such as market definition, dominance analysis, etc. Such interpretative documents have been adopted in the telecommunications253 and in the postal services sectors.254

(4)  The arms industry 1.163  Where the problem lies EU competition rules in principle apply to the arms industry. However, Article 346(1)(b) of the Treaty states that: any Member State may take such measures as 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; such measures shall not adversely affect the conditions of (p. 51) competition in the internal market regarding products which are not intended for specifically military purposes. 1.164  Article 346(1)(b) EC refers to a real ‘national security exception’. Although the provision does not rule out the application of the competition rules to undertakings active in the arms sector, Member States nonetheless have the power—in the case of a procedure applying the competition rules—to take any measure to protect the essential interests of their security. 1.165  Practical impact Article 346(1)(b) EC has only been invoked once thus far, in the case of Matra/Aérospatiale .255 In that case, the French authorities were trying to avoid the need for parties to a concentration to notify the aspects of the operation relating to missiles and missile systems.256 They therefore enjoined the parties not to provide information on these aspects, in their notification. The Commission checked to see whether the conditions of Article 346(1)(b) EC were met. It concluded that the French authorities had legitimately sought to protect the essential interests of their national security. 1.166  There are, however, certain limitations to the national security exception. Importantly, it does not apply to certain industrial activities of a civil nature (aeronautical engineering) that are often ancillary to military activities. Second, if the measures taken distort competition, Article 348 TFEU authorizes the Commission to negotiate an ‘adjustment’ of these measures with the Member State in question.257 Third, if a Member State makes wrongful use of the national security exception, the Commission (or any other Member State) can directly file an appeal with the Court of Justice in respect of the breach, in derogation from the procedure provided in Articles 258 and 259 TFEU.258

C.  Scope Ratione Loci—Where is EU Competition Law Applied and Enforced? (1)  The prescriptive jurisdiction of EU competition law 1.167  Brief reminder of the concept of prescriptive jurisdiction Prescriptive jurisdiction refers to a State’s basic ability to adopt legislation that may apply within and outside its territory. Theoretically, States will either pass legislation that applies on the basis of nationality (all practices in restraint of trade committed by EU undertakings fall within the scope of the TFEU), or on the basis of territoriality, which can have several variations (all practices in restraint of trade committed by undertakings that are active in

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the Union territory fall within (p. 52) the scope of the TFEU; or all practices in restraint of trade affecting the Union territory fall within the scope of the TFEU).259 1.168  Choice of criterion of objective territoriality In Articles 101 and 102, the TFEU tells us that a cartel or an abuse of a dominant position are incompatible if their aim or effect is to distort competition ‘within the internal market’. The TFEU thus bases the normative jurisdiction of its competition rules on a principle of territoriality of the impact of the restraint:260 •  unless a restraint of competition has an impact within the EU, the competition rules of the TFEU do not apply; •  if a restraint of competition has an impact within the EU, the competition rules of the TFEU do apply. 1.169  The principle, rooted in the actual wording of Articles 101 and 102 TFEU, has been confirmed, after lengthy jurisprudential developments,261 in the Javico judgment.262 1.170  Practical impact In the first of the circumstances mentioned (absence of impact of restraint within the EU), EU competition law does not apply even though the undertakings responsible for the restraint are established in the EU.263 The restraint of competition will not, (p. 53) however, necessarily remain unchecked. If the restraint produces effects on non-Member territories, the competition rules of foreign States may have jurisdiction to catch and, if necessary, prohibit the anticompetitive practice.264 1.171  In the second circumstance described above (impact of the restraint within the EU), EU competition law applies to restraints of competition even when such restraints are implemented by undertakings located outside the EU, as long as their impact is felt within the EU. If, today, the doctrine of effects as the basis of the extraterritorial jurisdiction of a State is no longer in serious dispute,265 it nonetheless continues to result in serious practical difficulties.

(2)  Executive jurisdiction of EU competition law 1.172  Brief recap of the concept of executive jurisdiction Executive jurisdiction is the area in which a given government can adopt measures and orders to implement competition rules, namely investigations, coercive measures concerning assets or individuals, injunctions to do or not do something, etc. Certainly the executive jurisdiction of EU competition law extends, without any problem, throughout the EU territory. In contrast, when the party which is the subject of the enforcement measures is outside the territory of the EU, the executive jurisdiction of EU competition law can vary. A distinction must be made here between investigative measures (Section (a)) and orders (Section (b)).

(a)  Investigative measures 1.173  The position of scholars Leading scholars have argued, pursuant to public international law, that in the context of applying competition law, State authorities are not justified in forcing, either directly or indirectly, parties or witnesses located abroad, to produce documents or provide information.266 1.174  Assessment In practice, however, a distinction must be made between two issues. As regards on-site inspections (‘dawn raids’),267 it is undeniable that the EU cannot conduct these in a foreign territory unless there are specific international cooperation procedures. As regards simple requests for information, on the other hand, nothing prevents EU authorities from asking foreign-based undertakings to provide documents that are in their possession.268

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(p. 54) (b)  Orders 1.175  Clarification Orders refer to demands made by an authority to a party which is subject to its jurisdiction to carry out an act abroad for the purpose of compliance with the law in question.269 In competition law, these include injunctions to provide information,270 cease and desist orders,271 corrective measures,272 interim measures,273 decisions imposing sanctions (administrative fines or criminal penalties),274 and orders for the payment of compensation, etc.275 1.176  Assessment Enforcement of orders is not problematic provided the undertakings which are the subject of the order have assets in the EU. On the other hand, orders cannot be enforced against foreign undertakings which have no assets within the EU territory. One could argue that, with globalization, this issue is likely to become increasingly academic as corporations generally have to establish a presence (and thus own some assets) in the EU. But that does not take into account the dematerialization of trade and the advent of the digital economy: more and more undertakings provide services in the EU even though they are not physically present there.

(3)  The problem of global competition law (a)  Diagnosis—inadequacy of a competition law system that is not international 1.177  The principles of territorial application of competition law which have just been set forth raise at least four major difficulties. 1.178  Fundamental dissensions among authorities Under the doctrine of effects, there is nothing to prevent different competition authorities from declaring that they have jurisdiction to examine the same practice/operation. In practice, if one competition authority prohibits a transaction or a certain type of behaviour, this is sufficient for that transaction or behaviour to be anticompetitive, even if all other competition authorities claiming jurisdiction considered the activity in question to pose no problems under their own competition rules.276 This danger, which certainly affects the area of merger control, is illustrated by the Boeing/McDonnell-Douglas or the GE/Honeywell cases.277

(p. 55) Illustration: the Boeing/McDonnell-Douglas case In 1997, Boeing and McDonnell-Douglas, two US aircraft manufacturers, agreed to merge. The operation was approved unconditionally on 1 July 1997 by the US Federal Trade Commission (FTC) which found that the concentration would not result in a ‘substantial lessening of competition’, since McDonnell-Douglas was not a major competitive force in the commercial aircraft market. At the same time, the operation was notified to the European Commission—which made a different finding. It found that Boeing, already in a dominant position in the large commercial jet aircraft market, would strengthen this dominant position in acquiring McDonnell-Douglas. The Commission threatened to declare the operation incompatible unless certain modifications were made by the parties. After a month of tense negotiations, the Commission authorized the deal, subject to conditions, on 30 July 1997. Of course, the influence of political and economic interests did not escape anyone.278 For the EU, it was a matter of preserving the long-term interests of the European manufacturer Airbus, Boeing’s sole competitor. For the United States, it was important to ensure a restructuring of the defence sector through the merger rather than seeing McDonnell-Douglas exit the market. 1.179  Nations having competition law regimes attempt to resolve these problems by concluding cooperation agreements. The agreement concluded between the United States and the EU is the best known of such agreements.279 Apart from the mechanisms of reciprocal notification, exchange of information, and procedural cooperation/coordination, the most fundamental aspect of this agreement is the establishment of ‘comity’ mechanisms. Article V(1) of the agreement provides a general obligation of negative comity: each party takes into consideration the important interests of the other during all stages of From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

the procedure.280 In addition, Article V(2) of the agreement provides for a mechanism of positive comity: one party may ask the other to take enforcement measures against anticompetitive practices which are committed on the territory of the latter, but which harm the important interests of the party making the request.281 1.180  Transaction and duplication costs Even absent any disagreement, the cumulative application of distinct competition law regimes generates significant transaction costs for undertakings that must first discover and then comply with the specific laws of multiple jurisdictions. In addition, there is the public cost of duplication of administrative procedures, although each authority will focus on the effect of the transaction on its own domestic market. 1.181  Problems of enforcement As stated, the principle of the territoriality of enforcement measures (inspections, cease and desist orders, corrective measures, etc) impedes the efficiency, (p. 56) at a domestic level, of competition systems. Meanwhile, the bilateral agreements mentioned are inevitably limited by their non-binding nature. 1.182  Exposure of the emerging economies Frequently, emerging economies do not have competition rules, or if they have them, fail to enforce them sufficiently to catch the anticompetitive practices of major foreign industrial groups.282 If one adheres to the principle of territoriality applied by the main competition law regimes, competition authorities of the countries to which these corporations belong would not have jurisdiction, or even where they do have jurisdiction would not try to catch export cartels and abuses.

(b)  Remedy—internationalization of competition law 1.183  Agreement among scholars The importance of creating international competition rules is broadly agreed among legal scholars.283 There is also a broad agreement that the various initiatives to develop such rules—for instance within the framework of the ICN,284 UNCTD,285 or OECD,286—have not, to date, been adequate. 1.184  Discussion on the methods While there is a broad recognition that the development of international competition rules would be desirable, scholars tend to disagree as to how such development should take place. Some authors propose the adoption of a brand new international competition authority.287 Others, more realistically, advocate the establishment of an international system within the World Trade Organization (WTO).288 (p. 57) 1.185  The question of feasibility Certain scholars, such as Professor Eleanor Fox, have argued that the political feasibility of a system involving an institutional structure for dispute settlement (such as the WTO), was doubtful, because this would inevitably entail a degree of coercion over national sovereignty which States will be reluctant to concede.289 Others have disputed this claim, asserting that in the area of IPRs—where, however, greater divergences exist among national legislations than is the case in competition law—States have succeeded in concluding an agreement on the Trade-related Aspects of Intellectual Property Law (TRIPS), within the WTO. 1.186  Assessment Although the WTO appears to be the right forum for an international competition agreement, it is primarily interested in the behaviours of States. And, while an agreement imposing the obligation for members to protect ‘undistorted’ competition is a realistic prospect, an international system of substantive competition law with direct effect and its own supranational institutions remains utopian. The failure of the Cancun ministerial conference in 2003, one of the aims of which was to promote international negotiation on basic principles and the establishment of minimum common values in

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competition law,290 illustrates the difficulty of making progress on the development of a global competition regime.291

(4)  Conclusions 1.187  Prospects In the absence of a global competition law regime, the frictions between the different competition law regimes remain and can only be settled by bilateral ad hoc agreements. The EU has concluded a large number of agreements with non-Member States, which go beyond simple technical agreements like the US–EU Agreement. These include: •  the agreement creating an association between the EEC and Turkey, known as the ‘Ankara Agreement’; 292 •  the EEA Agreement (Norway, Liechtenstein, Iceland) (the same States, with the addition of Switzerland); 294 (p. 58) • the European Agreements;

293

and the EFTA Agreement

295

•  the Euro-Mediterranean Agreements.

296

1.188  Most of these agreements contain competition rules which reflect the provisions of the TFEU. These rules aim at preventing and sanctioning anticompetitive practices which might affect trade between the EU and non-Member States or groups of co-contracting States. These rules are implemented in a decentralized manner: each of the parties to the agreement has jurisdiction to apply its provisions. Certain provisions of these agreements are the subject of escape clauses.297 1.189  Practical effect In practice, these agreements extend to new territories the standard of protection offered by EU competition law to undertakings active within these territories. Suppose, for instance, that an EU undertaking exporting its products to Norway is the victim of a predatory pricing strategy conducted by a Norwegian undertaking that is dominant on the relevant market. Legal action may be taken against that company before the Norwegian authorities based on the prohibition against abuses of dominant position. The rules applied by the Norwegian authority are those of the EEA Agreement (since trade between the EU and Norway is affected), which are identical to those of the TFEU. They must be interpreted in accordance with EU case law. 1.190  Qualified effectiveness The effectiveness of the competition rules contained in the international agreements concluded by the EU with non-Member States is not uniform. Where the parties have a similar level of economic development, the rules will generally be effective. Thus, the rules of the EEA Agreements and the European Agreements are effectively enforced. On the other hand, where the level of economic development differs, implementation will typically be weak. The competition provisions in the EuroMediterranean Agreements, for instance, are not enforced.298 Such agreements nevertheless produce an indirect normative influence on the States that contract to them. Thus many non-Member States that are parties to agreements with the EU have adopted national competition legislation that is inspired by the rules laid down in the TFEU.

Footnotes: 1

  James Kanter, ‘Europe Fines Intel $1.45 Billion in Antitrust Case’, New York Times, 13 May 2009. 2

  David Lawsky and Sabina Zawadzki, ‘EU Commission blocks Ryanair’s bid for Aer Lingus’, Reuters, 27 June 2007.

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3

  Sarah Arnott, ‘Brussels slaps record fine on glass cartel’, The Independent, 13 November 2008. 4

  Stephen Castle, ‘European Banks Get EU Warning’, International Herald Tribune, 23 July 2009. 5

  EU merger control was the subject of much debate following the famous ‘merger mania’ of the 1990s. See ‘Europe’s Merger Morass’, The Economist, 23 September 2000, at 73–4. 6

  To date, the Commission has issued 20 Decisions declaring concentrations to be ‘incompatible’ with the common market. See Decisions M.4439, RyanAir/Aer Lingus, 30 October 2006; M.3440, ENI/EDP/GDP, 9 December 2004; M.2416, Tetra Laval/Sidel, 30 October 2001; M.2187, CVC/Lenzing, 17 October 2001; M.2283, Schneider/Legrand, 10 October 2001; M.2220, General Electric/Honeywell, 3 July 2001; M.2097, SCA/Metsä Tissue, 31 January 2001; M. 1741, MCI Worldcom/Sprint, 28 June 2000; M. 1672, Volvo/ Scania, 15 March 2000; M. 1524, Airtours/First choice, 22 September 1999; M. 1027, Deutsche Telekom/Betaresearch, 27 May 1998; M.993, Bertelsmann/Kirch/Premiere, 27 May 1998; M.890, Blokker/Toys ‘R’ Us (II), 26 June 1997; M.774, Saint Gobain/Wacker Chemie/Nom, 4 December 1996; M.784, Kesko/Tuko, 20 November 1996; M.619, Gencor/ Lonrho, 24 April 1996; M.553, RTL/Veronica/Endemol (HMG), 20 September 1995; M.490, Nordic Satellite Distribution, 19 July 1995; M.469, MSG Media Service, 9 November 1994; M. 53, Aerospatiale/Alenia/De Havilland, 2 October 1991. Added to the above list should be those concentrations which the parties abandoned before a ban was pronounced. See eg cases M. 1852, EMI/TimeWarner and M. 1715, Alcan/Pechiney. 7

  Cartels date back to early wars, when those fighting concluded agreements to suspend hostilities in order to exchange prisoners. Nowadays the cartel is understood as an agreement to suspend competition (which itself is a form of economic warfare). See with regard to these points, J. Joshua and C. Harding, Regulating Cartels in Europe—A Study of Legal Control of Corporate Delinquency (Oxford: Oxford University Press, 2003), at xxiii. 8

  A negative perception of cartel agreements is, in Europe, relatively recent, dating back to the end of the Second World War. Prior to that, agreeing with competitors to limit the harmful effects of ‘excessive’ competition was viewed as a perfectly legitimate practice, a form of collective industry code preferable to ‘individualism’. A legacy of nineteenth century Austrian and German schools of thought, the cartels so common in the Rhine region had the blessing of the public authorities. Realizing, after the Second World War, that the major cartels in the Ruhr had backed the German war effort and established the military supremacy of the Third Reich, the drafters of the European Steel and Coal and EC Treaties were keen to establish the basis of a lasting peace in Europe. They therefore introduced in these treaties a provision prohibiting agreements in restraint of trade. Not surprisingly, however, history and habit have been hard to break, meaning that even today undertakings in certain industries continue to enter into cartel agreements. See J. Monnet, Mémoires (Paris: Fayard, 1998). 9

  See Mario Monti’s speech, ‘Fighting Cartels Why and How? Why should we be concerned with cartels and collusive behaviour?’, 3rd Nordic Competition Policy Conference, Stockholm, 11–12 September 2000. 10

  The objective of administrative sanctions is to ‘exhort people to respect the laws and regulations and to encourage them to adopt behaviours that are in accordance with the legal framework.’ See J. Schwartze, ‘Sanctions imposed for infringements of European competition law according to Article 23 of EC Regulation no. 1/2003 in light of the general principles of the law’ (2007) 43(1) RTD 1. See Art 23(2) of Council Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1 of 4 January 2003, at 1. National legal systems may provide criminal sanctions for infringements of national competition law. Member States which have adopted such provisions include Estonia, France, Greece, Hungary, Ireland, the Czech From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Republic, Romania, and the UK. The question of transposing these solutions to the EU level is the subject of fierce debate, however. A recent Court of Justice judgment, the scope of which is still argued, might perhaps provide a legal basis for introducing criminal sanctions into Community law. See CJ, C-176/03 Commission v Council, 13 September 2005 [2005] ECR I-7879, at 47 and 48. 11

  In the United States, a number of industry executives have been imprisoned for infringing antitrust laws. In December 2001, eg, the chairman of the board of directors of Sotheby’s, Alfred Taubman, was sentenced to a year and a day’s imprisonment for having been actively involved in concerted price-fixing practices with Christies. See ‘Taubman Sentenced To One Year—Plus A Day’, Forbes, 22 April 2004. 12

  See Commission Decision of 21 November 2001, COMP/E-1/37.512, Vitamins, OJ L 6 of 10 January 2003, at 1–89. 13

  See Commission Decision of 21 February 2007, COMP/E-1/38.823, Elevators and escalators, nyr. 14

  Summary of Commission Decision of 12 November 2008 relating to a proceeding under Article 81 of the Treaty establishing the European Community and Article 53 of the EEA Agreement, COMP/39.125, Car glass, OJ C 173 of 25 July 2009, at 13. 15

  See CJ, Cases annexed 96–102, 104, 105, 108, and 110/82 NV IAZ International Belgium et al v Commission, 8 November 1983 [1983] ECR 3369, at 56. According to the EU judge in that case, the Commission does not have to take account of the ‘adverse financial situation’ of an undertaking when it sanctions it: ‘recognition of such an obligation would be tantamount to conferring an unjustified competitive advantage on undertakings least well adapted to the conditions of the market.’ The undertaking’s inability to pay is therefore not, in principle, a mitigating circumstance that is taken into account by the Commission in calculating an individual fine (see Commission Decision of 18 July 2001, COMP/E-1/36.490, Graphite electrodes, OJ L 100 of 16 April 2002, at 1, paras 184–5). The Commission has, however, encouraged a flexible interpretation of this principle, either by reducing the amount of a fine (see Commission Decision of 3 December 2003, COMP/C.38.359, Electrical and mechanical carbon and graphite products, at 360 where the Commission reduced the amount of the fine imposed on the undertaking SGL by taking account of (i) the serious financial problems it was then experiencing and (ii) the fines which had recently been imposed on it for its participation in two other cartels), or by agreeing to adjustments in payment terms (eg deferred payment; see Commission Decision of 7 June 2000, COMP/ 36.545/F3, Amino Acids, OJ L 152 of 7 June 2001, at 24, para 438). See COMP/C37.370, Sorbates (2005/493/EC), where two firms left business in the years following the discovery of the cartel. 16

  See Commission Decision of 24 March 2004, COMP/C-3/37.792, Microsoft, OJ L 32 of 6 February 2007, at 23. See also, GC, T-201/04 Microsoft v Commission, 17 September 2007, ECR II-360. See regarding this case, N. Petit, ‘L’arrêt Microsoft: abus de position dominante, refus de licence et vente liée—L’article 82 TCE sans code source’ (2008) 145 JDE 8–12. 17

  Commission Decision of 13 May 2009, COMP/37-990, Intel, available at . 18

  There are grounds for criticizing this eminently ‘structuralist’ approach. See Chapter 2.

19

  See CJ, Michelin v Commission [1983] ECR 3461.

20

  The terms used in EU law are ‘exclusive rights’ and ‘special rights’.

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21

  In order to achieve its chief aims of improving consumer welfare and promoting a single European market, the Commission aimed to increase competition in these European industry sectors, which necessitated the opening of the sectors to new market participants. The Commission was therefore quick to require Member States to terminate legal monopolies that had previously been granted to some undertakings. 22

  The present treatise does not cover State aids, which are presented here simply to illustrate the wide reach of EU competition law. 23

  See Commission Decision of 7 July 2004 concerning the aid measures enforced by France in favour of Alstom, OJ L 150 of 10 June 2005, at 24. 24

  See Commission Decision of 12 February 2004 concerning the advantages granted by the Walloon Region and Brussels South Charleroi Airport to the airline Ryanair when it set up at Charleroi, OJ L 137 of 30 April 2004, at 1. 25

  See Commission Notice, ‘A Pro-active Competition Policy for a Competitive Europe’, 20 April 2004, COM(2004) 293 final, at 2: Competition policy is one of a number of Community policies impacting upon the economic performance of Europe. It is a key element of a coherent and integrated policy to foster the competitiveness of Europe’s industries and to attain the goals of the Lisbon strategy. 26

  See An Agenda For A Growing Europe—Making the EU Economic System Deliver, Report of an Independent High-Level Study Group established on the initiative of the President of the European Commission, July 2003, at 130. 27

  By improving the EU’s resilience to external shocks. Ibid, esp at 73–4.

28

  Certain political representatives have proposed concrete estimates of the macroeconomic effects of competition law. Eg, Belgium’s former Minister for the Economy, F. Moerman, mentioned annual benefits of around €250 million, representing 6,000 potential jobs, for Belgium. See F. Moerman, ‘Towards a Belgian competition authority’ in P. Nihoul (ed), Decentralisation in the Application of Competition Law. A Greater Role for the Practitioner? (Brussels: Bruylant, 2004), at 253–4. 29

  Most notably, Richard Posner falls into this camp. Richard A. Posner, ‘The Social Costs of Monopoly and Regulation’ (1975) 83(4) J Political Economy 807, at 818–19 (‘Indeed, the costs of regulation probably exceed the costs of private monopoly’). Warren Schwartz identifies the appropriate question that should be asked: do the deterrence effects of enforcement outweigh the costs of achieving them? Warren F. Schwartz, ‘An Overview of the Economics of Antitrust Enforcement’ (1079–80) 68 Georgetown LJ 1075 at 1082: The costs involved in deterring violations by exacting a price from individual antitrust violators therefore must be traded off against the benefits from the resulting reduction in the harm caused by antitrust offenses. Decreasing the number of antitrust violations benefits society by reducing both the misallocation of resources associated with charging monopoly prices and the waste of resources involved in securing monopoly power. To maximize the social value of enforcement expenditures it is these two types of harm that must be minimized. Greater or lesser gain to the monopolist, however, does not necessarily correlate with the magnitude of the social harm caused by the proscribed conduct.

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30

  A cost that is perhaps less than the cost of regulating and administering competition law. See, in particular, the study carried out by A. Haberger, ‘Monopoly and Resource Allocation’ (1954) 44 Am Economic Rev 77. The period under empirical examination extended from 1924 to 1928. Haberger, who was aware of the problems of measurement, decided to overestimate rather than underestimate the cost of monopoly. Of course, an approach, which overestimates the cost of monopoly, is not reliable since the empirical measurement of cost is based on a system in which antitrust law already applies. The estimate cannot therefore be a true and fair view of the monopoly cost, which is already limited by the application of antitrust law. See also K. Cowling and D. Mueller, ‘The Social Costs of Monopoly Power’ (1978) 88 Economic Journal 727, who, for their part, had estimated the welfare losses for the US economy as between 4 and 13 per cent of GDP. 31

  See F. Jenny and A. Weber, Initiation into Microeconomic Theory (Paris: Dunod, 1983).

32

  See F.M. Scherer and D. Ross, Industrial Market Structure and Economic Performance, 3rd edn (Boston, MA: Houghton Mifflin, 1990), at 459–62. 33

  Jonathan B. Baker, ‘Does Antitrust Policy Improve Consumer Welfare? Assessing the Evidence’ (2003) 17(4) J of Economic Perspectives 27, at 43 and 45. 34

  See Paolo Buccirossi, Lorenzo Ciari, Tomaso Duso, Giancarlo Spagnolo, and Cristiana Vitale, DP7470 Competition Policy and Productivity Growth: An Empirical Assessment, September 2009. 35

  Our example is taken from N.G. Mankiw, Principles of Economics (New York: The Dryden Press/Harcourt Brace, 1998). 36

  See A. Marshall, Principles of Economics (London/New York: Macmillan, 1890).

37

  See A. Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776. Depending on their respective preferences, each economic agent that values a good, service, or investment, may be freely supplied on the market. 38

  See Michael L. Katz and Harvey S. Rosen, Microeconomics, 3rd edn (Columbus, OH: Irwin McGraw-Hill, 1998), at 10. 39

  In the sense of Vifredo Pareto’s optimum, ie, ‘making someone better off, without making someone worse off’. According to Pareto, an optimal allocation of resources exists when it is no longer possible to improve the situation of any individual without harming another individual. See V. Pareto, Cours d’économie politique (Lausanne: 1896). 40

  The premise that undertakings are absolutely rational at all times must be qualified. See eg Gary S. Becker, ‘Irrational Behavior and Economic Theory’ (1962) 70(1) J Political Economy 1 (discussing how some irrational (non-optimizing) firms may exist in a largely rational industry, at 11–13). More intuitively appealing in its explanation of suboptimal behaviour is the theory of ‘near-rational behaviour’. Along these lines, see George A. Akerhof and Janet L. Yellen, ‘A Near-Rational Model of the Business Cycle, With Wage and Price Inertia’ (1985) 100 Quarterly J Economics 823 (discussing that firms may adjust prices and wages slowly and thereby fail to optimize at every point in time, even though the related losses tend to be small, at 825). 41

  See Mankiw, n 35, at 318.

42

  According to the orthodox view, combating inflation, eg, is not a suitable area for competition authority intervention. Inflation leads to a general price increase on the market, thereby affecting all producers uniformly. See K.N. Hylton, Antitrust Law (Cambridge: Cambridge University Press, 2003), at 151.

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43

  See Mankiw, n 35, at 10. The invisible hand that guides the market does not always operate optimally. In particular, one or more of the following shortcomings may be present in a market: externalities (ie, a spillover stemming from an economic transaction which impacts third parties that are not directly involved in the transaction), public goods (goods or services which benefit all of society and which are neither exclusive nor rivalrous), asymmetries of information (situations where there is imperfect information on one side of transaction), transaction costs, natural monopoly (in the case of economies of scale or increasing returns), etc. All of these examples constitute scenarios of so-called market failure. 44

  Ibid. Appropriate State intervention is seen as justified for the purpose of promoting efficiency and eradicating or at least reducing market failures. In addition to the objective of promoting efficiency, a second objective of government intervention in the marketplace is the goal of fairness or equitable redistribution (eg through fiscal policies like taxes). 45

  It also led to the adoption of special regulations in certain sectors, eg in the telecommunications sector, to correct the negative effects of a market failure known as ‘natural monopoly’. 46

  See J.M. Buchanan, The Limits of Liberty (Chicago, IL: Chicago University Press, 1975). A government subject to mandatory re-election will thus have a tendency to favour choices and decisions that are in line with the preferences of the categories of electors that are crucial to its re-election. See W.D. Nordhaus, ‘The Political Business Cycle’ (1975) 42 Rev of Economic Studies 169. 47

  Of course, by the mid-1950s the development of international transportation had contributed to the increase in imports/exports within the European area. 48

  The State has a predominant role in the development of a nation’s wealth by adopting selective protectionist policies that include establishing tariff barriers and encouraging exports. 49

  See Art 2 of the former EC Treaty.

50

  In other words, a free trade area (no internal obstacles to trade) and a common customs tariff, in accordance with the definition in Art XXIV.8 of the General Agreement on Tariffs and Trade (GATT). 51

  When the EU adopted the Single European Act in 1986, it set the goal of creating an ‘internal market’ in Europe by 1992. See Art 7A. The concept of an ‘internal market’, which is closely related to the concept of a ‘common market’, expresses the desire for greater harmonization of national policies. 52

  See P. Cecchini, The European Challenge, 1992: The Benefits of a Single Market (Aldershot: Gower, 1988). 53

  Since the protection offered by customs duties has disappeared, prices, production, and innovation are directly stimulated by the dismantling of the obstacles to economic trade among Member States. 54

  See Commission Decision IV/35.733, VW, OJ L 124, at 60. See GC, T-62/98 Volkswagen AG v Commission, 6 July 2000 [2000] ECR II-2707; CJ, C-338/00 P Volkswagen AG v Commission, 18 September 2003 [2003] ECR I-9189. 55

  See in particular J. Stuyck, ‘Libre circulation et concurrence: Les deux piliers du Marché commun’, Mélanges en hommage à Michel Waelbroeck, vol II (Brussels: Bruylant, 1999), at 1477. See also C.-D. Ehlermann, ‘The Contribution of EC Competition Rules to the Single

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Market’ (1992) 29 Common Market L Rev 257, which emphasizes competition law’s crucial role in the construction of the large European internal market. 56

  The concept of incompatibility with the common market is complementary to the goal of promoting economic efficiency. Namely, eliminating private barriers to trade and allowing for the completion of an integrated market achieves both goals. Note that the EU judiciary saw the incompatibility concept as separate from economic efficiency and especially important for obtaining an integrated market. See CJ, 6/72 Europemballage and Continental Can v Commission, 21 February 1973 [1973] ECR 215. 57

  See K.P. Ewing, Competition Rules for the 21st Century: Principles from America’s Experience (The Hague: Kluwer Law International, 2003), at 75–6. 58

  The Greek philosopher Aristotle provides this example in his discussion of monopolies in Book IV of his Politics collection. 59

  See Ewing, n 57, at 76. The Lex Julia de Annona—adopted under Caesar during the Roman Republic around 50 BC—provided for sanctions against arrangements intended to raise the price of wheat. Around AD 301, the emperor Diocletian issued an edict aimed at fighting the increase in the cost of living which sanctioned, in particular, practices aimed at artificially creating situations of shortage in staples. Finally, Zeno’s constitution of AD 483, which pursued similar goals, prohibited not only monopolies and private agreements but also eliminated ‘public’ or ‘State’ monopolies previously granted by the Emperor. 60

  The Emperor Justinian, eg, decided to reintroduce the status of State monopolies. See R.O. Wilberforce, A. Campbell, and N.P.M. Elles, The Law of Restrictive Trade Practices and Monopolies (London: Sweet & Maxwell, 1957). 61

  The King of Bohemia Wenceslas II introduced the constitutiones juris metallici between 1283 and 1305, which prohibited ore traders from making agreements among themselves to increase prices. The municipal statutes of Florence of 1322 and 1325 eliminated public monopolies. 62

  In 1561, a system of licences of industrial monopolies was introduced.

63

  See 2 Keny 300, 96 Eng Rep 1189 (KB 1758).

64

  See Allarde decree, 2–17 March 1791: ‘Any person shall be free to choose the trade, profession, art or occupation he wants’. See le Chapelier Law of 14 and 17 June 1791. 65

  See M. Glais and P. Laurent, Traité d’économie et de droit de la concurrence (Paris: PUF, 1983), at 21–2. 66

  Contrary to the popular view, Canada adopted a competition legislation one year before the United States. On 2 May 1889, Canada adopted the Act for the Prevention and Suppression of Combinations in Restraint of Trade, Statutes of Canada, 1889, 52 Vic, c 41. 67

  See M. Motta, Competition Policy—Theory and Practice (Cambridge: Cambridge University Press, 2004), at 1. 68

  This fear became the cause of the legislature’s intervention with the adoption of the Sherman Act. In Standard Oil Co of New Jersey v United States, 221 US 1 (1911) [1], the US Supreme Court found Standard Oil guilty of illegally monopolizing the US oil industry through a series of anticompetitive actions. Standard Oil was severely sanctioned and dismantled into several competing companies. 69

  See Ludwig von Mises, A Critique of Interventionism (1929); Ludwig von Mises, Interventionism: An Economic Analysis (1941); Friedrich Hayek, The Constitution of Liberty (Chicago, IL: University of Chicago Press, 1960).

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70

  See D. Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus (Oxford: Oxford University Press, 1998), at 148. 71

  See K.-U. Kuhn, ‘Germany’ in D.J. Graham and E.M. Richardson (eds), Global Competition Policy (Washington DC: Institute for International Economics, 1997). Germany did, however, have an administrative system for controlling cartels, established by legislation in 1923. 72

  See Gerber, n 70, at 250.

73

  Ibid.

74

  Ibid, at 245.

75

  Ibid, at 252.

76

  Ibid, at 253.

77

  Ibid, at 268–9.

78

  These provisions bear traces of sections 1 and 2 of the Sherman Act. The founding fathers were advised by several American experts (R. Bowie, Professor at Harvard, and G. Ball, an American attorney with an office in Paris). The provisions were ‘corrected’ by an eminent French legal expert (M. Lagrange, Councillor of State). See Gerber, n 70, at 338–9. 79

  Ibid, at 343; and D. Goyder, Competition Law, 4th edn (Oxford: Oxford University Press, 2003), at 23–4. 80

  See Art 3 (f) EEC Treaty, later Art 3 (1)(g) EC.

81

  See Gerber, n 70, at 347.

82

  See Council Regulation 17 of 6 February 1962, First Regulation implementing Articles [81] and [82] of the Treaty, OJ L, 21 February 1962, at 204. 83

  Administrative letters in which DG COMP informs the parties that it considers that competition law did not apply to the agreements notified or that it did not consider it necessary to pursue the procedure to the stage of making a decision. 84

  Formal decisions finding that the behaviour examined did not constitute either an anticompetitive agreement as defined in Art 81 EC (now Art 101 TFEU) or an abuse of a dominant position as defined in Art 82 EC (now Art 102 TFEU). 85

  See White Paper on the modernisation of the regulations implementing Articles 85 and 86, COM(1999) 101 final of 28 April 1999, OJ C 132 of 12 May 1999. 86

  See ibid.

87

  With the notable exception of D. Waelbroeck, ‘La modernisation des règles de concurrence’ (2001) 1–2 Cahiers de droit européen 204. This author considers that the number of notifications was not excessive. 88

  See Regulation 1/2003, n 10, on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1 of 4 January 2003, at 1–25. 89

  Title VII, Chapter 1 TFEU replaces former Title VI, Chapter 1 EC Treaty.

90

  In the late 1990s, the Commission began a wave of reforms targeting the fundamental rules of EU competition law—regulations on vertical restrictions, horizontal agreements, technology transfer agreements, concentrations between undertakings. The text adopted under the reforms aimed to increase the efficiency of competition policy in Europe. See Commission Exemption Regulation 2658/2000 of 29 November 2000 on the application of Article 81(3) of the Treaty to categories of specialization agreements, OJ L 304 of 5 December 2000, at 3–6; Commission Exemption Regulation 2659/2000 of 29 November 2000 on the application of Article 81(3) of the Treaty to categories of research and development agreements, OJ L 304 of 5 December 2000, at 7–12; Commission Regulation From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

2790/1999 of 22 December 1999 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices, OJ L 336 of 29 December 1999, at 21–5; Commission Notice—Guidelines on Vertical Restraints, OJ C 291 of 13 October 2000, at 1–44; Commission Notice, Guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements, OJ C 3 of 6 January 2001, at 2–30; Council Regulation 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJ L 24 of 29 January 2004, at 1–22; Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ C 31 of 5 February 2004, at 5–18. 91

  See regarding this, D. Geradin and N. Petit, ‘Droit de la concurrence et recours en annulation à l’ère postmodernisation’, RTD Eur, 4, October–December 2006, 795. 92

  See eg L. Parret, ‘Do We (Still) Know What We are Protecting?’, Tilburg Law and Economics Center (TILEC) Discussion Paper No 2009-010, 1 April 2009. 93

  See R.J. van den Bergh and P.D. Camesasca, European Competition Law and Economics: A Comparative Perspective (Antwerp/Oxford: Intersentia/Hart Publishing, 2001), at 1–2. Others would like to see competition policy given industrial objectives. See in particular, J. Oudin, Europe et mondialisation—L’espoir industriel, Information report 462 (97–98)— Delegation of the Senate for the European Union. 94

  See Preamble to the EC Treaty, which states, eg ‘ Recognising that the removal of existing obstacles calls for concerted action in order to guarantee steady expansion, balanced trade and fair competition.’ 95

  This is the concept of fairness that was espoused by the ordo-liberal doctrine already referred to. See Gerber, n 70, at 37–8. 96

  See ‘Section 2 and Article 82: Cowboys and Gentlemen’, Remarks by J. Bruce McDonald, Deputy Assistant Attorney General, Antitrust Division, US Department of Justice, presented to the College of Europe, Global Competition Law Centre, The Modernisation of Article 82, Second Annual Conference, Brussels, 16–17 June 2005. 97

  Commission Decision 2006/857/EC of 15 June 2005 relating to a proceeding under Article 82 of the EC Treaty and Article 54 of the EEA Agreement, COMP/A.37.507/F3, AstraZeneca, OJ L 332 of 30 November 2006, at 24–5. 98

  ‘Commission accepts commitments from Rambus lowering memory chip royalty rates’, IP/09/1897, 9 December 2009. 99

  See Arts 4 and 98 EC.

100

  See D. Encaoua and R. Guesnerie, Politiques de la concurrence (CAE no. 60) (Paris: La Documentation française, 2006), at 37. By extension, economic concentration may allow some dominant undertakings to influence the play of democracy. See G. Amato, Antitrust and the Bounds of Power—The Dilemma of Liberal Democracy in the History of the Market (Oxford: Hart Publishing, 1997), at 2. 101

  See, generally, Monti, n 9, at 87. In the United States, Professor Robert Lande is one of the few authors who espouses, in keeping with ordo-liberal ideology, that the main objective of the Sherman Act is the maintenance of a choice for the consumer. See R. Lande, ‘Consumer Choice as the Ultimate Goal of Antitrust’ (2001) 62 U Pittsburg L Rev 503: The role of antitrust can best be understood in terms of a fundamental standard— the standard of consumer choice. The antitrust laws are intended to ensure that the marketplace remains competitive so that worthwhile options are produced and

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made available to consumers, and this range of options is not to be significantly impaired or distorted by anticompetitive practices. See also R. Lande, ‘Proving the Obvious: The Antitrust Laws Were Passed to Protect Consumers (Not Just to Increase Efficiency)’ (1999) 50 Hastings LJ 959. 102

  See CJ, 322/21 NV Nederlandsche Banden Industrie Michelin v Commission, 9 November 1983 [1983] ECR 3461, at 57. 103

  A good illustration of this can be found in a US case of 1962, oft-cited as favouring the protection of competitors over the protection of competition. In Brown Shoe v United States, the US Supreme Court upheld the prohibition on the merger of Brown Shoe and G.R. Kinney Co, two shoe manufacturers whose combined market share did not exceed 4.5 per cent. Obsessed with the risk of economic concentration, the Court was worried about a snowball effect in the shoe market, which would lead to the marginalization of small businesses. The Court therefore diverged from the principle that promoting competition should take precedence over protecting competitors. It declared: It is competition, not competitors, which the Act protects. But we cannot fail to recognize Congress’ desire to promote competition through the protection of viable, small, locally owned business. Congress appreciated that occasional higher costs and prices might result from the maintenance of fragmented industries and markets. It resolved these competing considerations in favor of decentralization. We must give effect to that decision. See Brown Shoe Co, Inc v United States, 370 US 294 (1962). Regarding this point, see Amato, n 100, at 18. 104

  See CJ, 89/85 Ahlström Osakeyhtiö vCommission (‘ Wood Pulp’), 27 September 1988 [1993] ECR I-1307, at 63. 105

  In this vein, see van den Bergh and Camesasca, n 93, at 5. The origin of this view lies in the works of the Chicago School, which we discuss in Chapter 2. See also Monti, n 9, at 22. 106

  See R.A. Posner, Antitrust Law, 2nd edn (Chicago, IL: University of Chicago Press, 2001), at 29. 107

  See eg ‘An economic approach to Article 82’, July 2005, European Advisors Group on Competition Policy (EAGCP), at 2 108

  See J. Brodley, ‘The Economic Goals of Antitrust: Efficiency, Consumer Welfare and Technological Progress’ (1987) 62 NYU L Rev 1020, who links the concepts of social welfare and economic efficiency. 109

  See Guidelines on the assessment of horizontal mergers, para 79.

110

  See eg Guidance Communication on the Commission’s Enforcement Priorities in Applying Article 82 of the EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings, C(2009) 864 final, para 19. 111

  See D. Geradin, ‘Efficiency Claims in EC Competition Law’ in H. Ullrich (ed), The Evolution of European Competition Law—Whose Regulation, Which Competition? (Cheltenham: Edward Elgar, 2006). 112

  Others, however, question whether the founding fathers had considered such concepts. See van den Bergh and Camesasca, n 93, at 6. 113

  The GC and the Court of Justice have been careful not to become involved in the debate relating to the economic purposes of competition rules. As far as we know, the European Courts have never explicitly pronounced on the economic objectives of European

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competition law. Such moderation by the Courts is perhaps the best evidence that the question is a political one and not a strictly legal one. 114

  See Geradin, n 111.

115

  See CJ, Cases annexed 100–103/80 SA Musique Diffusion française et al v Commission, 7 June 1983 [1983] ECR 1825, at 105: That task certainly includes the duty to investigate and punish individual infringements, but it also encompasses the duty to pursue a general policy designed to apply, in competition matters, the principles laid down by the Treaty and to guide the conduct of undertakings in the light of those principles. 116

  See Commission Notice—A proactive competition policy for a competitive Europe, esp para 1. The Notice also states that ‘Vigorous competition is thus a key driver for competitiveness and economic growth’. 117

  See, in this vein, the words of N. Kroes, ‘Making consumers’ right to damages a reality: the case for collective redress mechanisms in antitrust claims’, Conference on collective redress for European consumers, Lisbon, SPEECH/07/698, 9 November 2007 (‘Consumer welfare is the standard of antitrust enforcement’). See also N. Kroes, ‘Preliminary Thoughts on Policy Review of Article 82’, Fordham Corporate Law Institute, New York, SPEECH/ 05/537, 23 September 2005. See again the Commission’s Discussion document on abuses of dominant position, 19 December 2005, at paras 4 and 54 (‘the objective of Article 82 is the protection of competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources’). 118

  See CJ, Cases annexed to 56 and 58/64, Établissements Consten SàRL and GrundigVerkaufs-GmbH v Commission, 13 July 1966 [1966] ECR 429. In the Continental Can case the ECJ again notes the fundamental value of the objective of market integration provided in Art 2 EC: the restrictions on competition which the Treaty allows under certain conditions because of the need to harmonize the various objectives of the Treaty, are limited by the requirements of Articles 2 and 3, going beyond this limit involves the risk that weakening of competition would conflict with the aims of the common market. With a view to safeguarding the principles and attaining the objectives set out in Articles 2 and 3 of the Treaty, Articles 85 to 90 have laid down general rules applicable to undertakings. See CJ, 6/72 Continental Can v Commission, 21 February 1973 [1973] ECR 215, at 24–5. 119

  See European Commission, IXth Report on Competition Policy, 1979, at 9. See also Claus-Dieter Ehlermann, ‘The Contribution of EC Competition Policy to the Single Market’ (1992) 29 Common Market L Rev 257, 273. 120

  Article 17 of Regulation 1/2003, specifically, relating to the ‘Investigations into sectors of the economy and into types of agreements’ illustrates our remarks: Where the trend of trade between Member States, the rigidity of prices or other circumstances suggest that competition may be restricted or distorted within the common market, the Commission may conduct its inquiry into a particular sector of the economy or into a particular type of agreements across various sectors. In the course of that inquiry, the Commission may request the undertakings or associations of undertakings concerned to supply the information necessary for

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giving effect to Articles 81 and 82 of the Treaty and may carry out any inspections necessary for that purpose. 121

  See, in particular, the conclusion of C. Dussart, ‘Parallel Import of Motor Vehicles: The Peugeot Case’ (2006) 1 Competition Policy Newsletter, at 49. 122

  See Commission Notice—Guidelines on Vertical Restraints, n 90, esp at para 7, which sums up this principle well: However, in the case of restraints by object as listed in Article 4 of the Block Exemption Regulation, the Commission is not required to assess the actual effect on the market. Market integration is an additional goal of EC competition policy. Market integration enhances competition in the Community. A company should not be allowed to recreate private barriers between Member States where State barriers have been successfully abolished. 123

  See eg G. Monti, EC Competition Law—Law in Context (Cambridge: Cambridge University Press, 2007), at 41. 124

  See our exposition in Chapter 3.

125

  In 2002, the Commission imposed a fine totalling €167.8 million on Nintendo and on seven of its official distributors in Europe for entering into an agreement to prevent exports from cheaper countries to more expensive ones. See Commission Decision of 30 October 2002, COMP/35.587 PO Video Games, COMP/35.706 PO Nintendo Distribution, and COMP/ 36.321 Omega—Nintendo, OJ L 255 of 8 October 2003, at 33. In calculating the fine, the Commission noted that: It follows from the facts that the infringement had the object of enhancing the territorial protection awarded to exclusive distributors to a state of absolute territorial protection and eliminating in each territory all competition with the distributor of the products in that territory. It also had the object of artificially partitioning the single market, thereby jeopardising a fundamental principle of the Treaty Restrictions of this kind are by their nature very serious violations of Article 81(1) of the Treaty and 53(1) of the EEA Agreement. 126

  See CJ, C-02/01 P Bundesverband der Arzneimittel-Importeure v Bayer AG and Commission, 6 January 2004 [2004] ECR I-23; GC, T-41/96 Bayer AG v Commission, 26 October 2000 [2000] ECR II-3383. 127

  See GC, T-168/01 GlaxoSmithKline Services Unlimited v Commission, 27 September 2006 [2006] ECR II-2969. 128

  Moreover, with regard to the heavy investment in R&D incurred by the upstream producers, it does not seem illegitimate for these producers to protect themselves from reimportation of their products at cut-rate prices. In this case, one Member State is in essence subsidising R&D for another, with parallel imports acting to increase the subsidy. Finally, to the extent that drug prices are set or controlled by Member States, the influence made by parallel trade on retail prices (as opposed to wholesale prices) appears, at the very least, hypothetical. 129

  Judgment of the Court (Third Chamber) of 6 October 2009, Joined Cases C-501/06 P, C-513/06 P, C-515/06 P, and C-519/06 P). 130

  See CJ, Joined Cases C-468–478/06 Lélos kai Sia (Syfait II), [2008] ECR I-8637.

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131

  See Title VI, Chapter I, Section I of the EC Treaty.

132

  See our exposition in Chapter 3.

133

  See our exposition in Chapter 4.

134

  See in particular, CJ, C-126/97 Eco Swiss China Time Ltd v Benetton International NV, 1 June 1999 [1999] ECR I-3055; CJ, annexed Cases C-295/04–298/04 Vincenzo Manfredi et al, 13 July 2006 [2006] ECR I-6619, at 31. 135

  See C-168/05 Elisa María Mostaza Claro v Centro Móvil Milenium SL, 26 October 2006 [2006] ECR I-10421. 136

  See Title VII, Chapter I, Sections I and II TFEU.

137

  These Regulations were adopted by a qualified majority following the Commission’s proposal, after consultation with the European Parliament. Implementation questions cover, eg general and sectoral methods of applying Art 101(3), relations between EU law and national law, sanctions and penalties, corrective measures, etc. 138

  See Protocol No 27 on the internal market and competition, OJ C 115 of 9 May 2008, at 309. 139

  See ‘A Less “Anglo-Saxon” EU. Sarkozy Scraps Competition Clause from New Treaty’, Der Spiegel, 22 June 2007. 140

  See A. Riley, ‘The EU Reform Treaty and the Competition Protocol: Undermining EC Competition Law’, CEPS Policy Briefs, 24 September 2007 who supports the view that the Lisbon Treaty watered down competition policy. See also A. Weitbrecht, ‘From Freidburg to Chicago and Beyond—The First 50 Years of European Competition Law’ (2008) 2 ECLR 81. 141

  eg in the Club Lombard case, the GC expressly referred to ‘the fundamental objective of undistorted competition embodied in Article 3(g) EC’. See GC, Cases T-259–264/02 and T-271/02 Raiffeisen Zentralbank Österreich AG and Others v Commission, 14 December 2006 [2006] ECR II-5169, at 255. See also CJ, C-289/04 P Showa Denko KK v Commission, 29 June 2006 [2006] ECR I-05859, at 55, judging that free competition within the common market ‘constitutes a fundamental objective of the Community under Article 3(1)(g) EC’. See also Advocate General Kokott, in C-95/04 P British Airways plc v Commission, 23 February 2006, at 69, referring to ‘the purpose of protecting competition in the internal market from distortions (Article 3(1)(g) EC)’; and CJ, Cases 6/73 and 7/73 Istituto Chemioterapico Italiano and Commercial Solvents v Commission, 6 March 1974 [1974] ECR 223, at 25, referring to ‘the objectives expressed in article 3(f) of the Treaty and set out in greater detail in Articles 85 and 86’. 142

  See M. Petite, ‘La place du droit de la concurrence dans le futur ordre juridique communautaire’ [2008] 1 Concurrences. 143

  Ibid. See also T. Buck, ‘Kroes vows to maintain “firm and fair” line on competition’, Financial Times, 25 June 2007. 144

  See CJ, 85/76 Hoffmann-La Roche v Commission, 13 February 1979 [1979] ECR 461, at 38. 145

  See CJ, C-198/01 Consorzio Industrie Fiammiferi, 9 September 2003 [2003] ECR I-8055, at 54–5. 146

  See CJ, C-453/99 Courage v Crehan, 20 September 2001 [2001] ECR I-06297, at 20.

147

  Article 3(1)(g) was invoked to justify fining a firm already punished in another legal order. See CJ, C-328/05 P SGL Carbon AG v Commission, 10 May 2007 [2007] ECR I-3921.

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148

  See CJ, C-198/01, Consorzio Industrie Fiammiferi, n 145, at 54–5.

149

  See Council Regulation 4064/1989 of 21 December 1989 on the control of concentrations between undertakings, OJ L 395 of 30 December 1989, at 1. 150

  See Council Regulation 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJ L 24 of 29 January 2004, at 1, in Art 2(3) (the concept of dominant position is maintained, in the guise of an example of a significant obstacle to effective competition). 151

  See Art 33 of Regulation 1/2003: The Commission shall be authorised to take such measures as may be appropriate in order to apply this Regulation. The measures may concern, inter alia: a) the form, content and other details of complaints lodged pursuant to Article 7 and the procedure for rejecting complaints; b) the practical arrangements for the exchange of information and consultations provided for in Article 11; c) the practical arrangements for the hearings provided for in Article 27. 2. Before the adoption of any measures pursuant to paragraph 1, the Commission shall publish a draft thereof and invite all interested parties to submit their comments within the time-limit it lays down, which may not be less than one month. Before publishing a draft measure and before adopting it, the Commission shall consult the Advisory Committee on Restrictive Practices and Dominant Positions.

152

  See Commission Regulation 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty, OJ L 123 of 27 April 2004, at 18. 153

  See Commission Regulation (EC) No 622/2008 of 30 June 2008 amending Regulation (EC) No 773/2004, as regards the conduct of settlement procedures in cartel cases, OJ L 173, 1 July 2004, at 1. 154

  C-213/02 P Rørindustri and others v Commission [2004] ECR I-05425.

155

  See, for a full description, Geradin and Petit, n 91.

156

  On soft law instruments see generally, U. Morth, Soft Law in Governance and Regulation: An Interdisciplinary Analysis (Cheltenham: Edward Elgar, 2004), at 37–8. 157

  We do not examine other less orthodox—but by no means less effective—forms of intervention such as information purposefully leaked to the press by regulators. For a good account of this phenomenon, see M. Heim, ‘The Impact of the Media on EU Merger Decisions’ (2003) 2 European Competition L Rev 49. 158

  See D. Geradin and N. Petit, ‘Judicial Remedies under EC Competition Law: Complex Issues arising from the “Modernisation” Process’ in International Antitrust Law and Policy: Fordham Corporate Law (Huntington: NY: Juris Publishing, 2005), at 393. There is no significant difference between these instruments, which seem to be interchangeable (see H.A. Cosma and R. Whish, ‘Soft Law in the Field of EU Competition Policy’ (2003) 14(1) European Business L Rev 25, at 51). In a nutshell, the proliferation of such Guidelines, Notices, and Communications is due to the recognition that economic operators need added guidance in light of (i) the requirement, introduced by the adoption of Regulation 1/2003, that firms themselves assess the legality of their business practices and (ii) the increased sophistication of substantive EU competition law resulting in part from the influence of micro-economic analysis.

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159

  Although the Commission’s website contains most Notices, the Commission has not published a full list of all those in force. However, a list of such Notices is provided as an Annex to the Notice on cooperation between the Commission and National Courts. See Commission Notice on the cooperation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 EC, OJ C 101 of 27 April 2004, at 54. This list does not appear to be exhaustive, given that a number of Notices are not mentioned (sub-contracting, exclusive commercial agents, etc). It has been suggested that the omitted instruments should now be presumed defunct. See C. Kerse and N. Khan, EC Antitrust Procedure, 5th edn (London: Thomson–Sweet & Maxwell, 2005), at para 1-026. For a full list, see Van Bael and Bellis, Competition Law of the European Community, 4th edn (The Hague: Kluwer Law International, 2005), at 1146–8. 160

  See Commission Notice—Guidelines on Vertical Restraints, n 90, at 1, para 3: ‘By issuing these Guidelines the Commission aims to help companies to make their own assessment of vertical agreements under the EC competition rules.’ 161

  See Commission Notice on the cooperation between the Commission and the courts of the EU Member States in the application of Articles 81 and 82 EC, n 159, at para 8: national courts may find guidance in Commission regulations and decisions which present elements that are similar to those in a case they are dealing with, as well as in Commission notices and guidelines relating to the application of Articles 81 and 82 EC and in the annual report on competition policy. 162

  To that end, the Guidelines set out the views of the Commission (ie, its interpretation of statutory and case law). In addition, the Commission often builds on the case law of the EU Courts, where existing precedent is unclear or where it does not fully answer a specific question. See eg Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 81(1) of the Treaty establishing the European Community (de minimis), OJ C 368 of 22 December 2001, at 13. 163

  Most of these instruments concern substantive issues of EU competition law, although the Commission adopted such instruments with respect to procedural matters as well. See Kerse and Khan, n 159, at para 1-026. 164

  See L. Idot, ‘La qualification de la restriction de concurrence: à propos des lignes directrices de la Commission concernant l’application de l’article 81 §3’ in G. Canivet, La Modernisation du droit de la concurrence (Paris: LGDJ, 2006), at 88. 165

  The guidelines on vertical restraints contain similar provisions, under the heading ‘negative effects of vertical restraints’. Commission Notice—Guidelines on Vertical Restraints, n 90, at paras 103–14. 166

  See Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses, Brussels, December 2005, available at . They may also follow expert reports issued by third parties. See eg Consultation paper on the review of Council Regulation 4056/86 laying down detailed rules for the application of Articles 81 and 82 of the Treaty to maritime transport, 27 March 2003, available at . 167

  See Consultation paper on the review of Council Regulation 4056/86 laying down detailed rules for the application of Articles 81 and 82 of the Treaty to maritime transport, n 166.

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168

  They usually give rise to a legislative proposal from the Commission to the Council (and possibly the Parliament). 169

  In October 2005, the Commission issued a self-evaluation document reviewing its policy on merger remedies (its goal was also to determine whether (and where) further improvements were needed). The study followed a process of consultation of firms involved in merger transactions having led to the adoption of remedies. See DG COMP In House Merger Remedies Study, October 2005 available at . 170

  The annual report on Competition Policy is published by the Commission in response to a request of the European Parliament contained in a Resolution of 7 June 1971. It is now published in conjunction with the General Report on the activities of the EU. 171

  See eg Report on Competition Policy 2006, COM(2007) 358 final.

172

  In particular, in respect of Decisions adopted pursuant to Arts 7 to 10 of Regulation 1/2003, n 10, on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1, 2003, at 1. See also, Kerse and Khan, n 159; L. Ortiz Blanco, EC Competition Procedure, 5th edn (London: Sweet & Maxwell, 2005), at para 6-050. The Commission’s press releases (and other written information disclosed to the press) are issued by its Directorate-General for Press and Communication. This department is under the authority of the President of the Commission and is headed by a Director General and by the Spokesperson. The Spokesperson is assisted by more than 20 spokespersons responsible for specific portfolios, among which competition policy. See J. Faull, ‘The Spokesperson and the Law’ in A. von Bogdandy, P.C. Mavroidis, and Y. Mény (eds), European Integration and International Co-ordination: Studies in Transnational Law in Honour of Claus-Dieter Ehlermann (Alphen aan den Rijn: Kluwer Law International, 2002), at 160. 173

  The Commission increasingly adopts press releases to comment on judgments handed down by European Courts (such press releases are common in the context of judgments under Art 234 EC) and on measures adopted by other bodies (EU legislation, decisions of NCAs, etc). Eg, following the GC’s ruling in Tetra Laval, the Commission publicly expressed its disagreement with the standard of judicial review endorsed by the Court. See Commission Press Release, Commission appeals GC ruling on Tetra Laval/Sidel to the European Court of Justice, IP/02/1952, 20 December 2002. See, more generally, Ortiz Blanco, n 172, at para 4.33. Press releases labelled ‘Memos’ generally seek to clarify legal issues arising from certain cases (the Commission usually issues Memos in the context of settlements when it does not adopt a final decision). Memos describe briefly the facts of the case and the legal approaches followed by the Commission, and sometimes provide answers to FAQs. During the British Airways proceedings, the Commission explained that its press releases are an important source of guidance for firms, as they convey its stance on certain practices. See T-219/99 British Airways plc v Commission [2003] ECR II-5917, at 62: According to the press release on the principles concerning travel agents’ commissions, issued on the same day that the contested decision was adopted, that decision constituted a first step in dealing with commissions paid by airlines to travel agents. The principles established in that press release also gave clear guidance for any other airline in a situation similar to that of BA, and the Commission stated that it would take all measures necessary to ensure that those principles were complied with by other airlines in equivalent situations.

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In the Austrian Banks Cartel case, the GC noted that the Commission, through the adoption of a press release, had clarified the state of the law with respect to agreements on bank interest rates. The Court accordingly rejected the allegation that the Commission had been ambiguous and had created legal uncertainty. See T-259–264/02 and T-271/02 Raiffeisen Zentralbank Österreich AG and others v Commission [2006] ECR II-5169, at 507. 174

  See eg M. Petite, ‘EU Commitment to free competition remains unchanged’, Financial Times, 27 June 2007. 175

  See eg the competition law treatise edited by J. Faull and A. Nikpay, The EC Law of Competition (Oxford: Oxford University Press, 2007). 176

  eg Commissioner Kroes publicly rebuked the US Assistant Attorney General for Antitrust for his ‘totally unacceptable’ criticism of the GC ruling in the Microsoft case. See T. Buck, ‘Kroes rebuffs US on Microsoft ruling’, Financial Times, 19 September 2007. 177

  Articles 17(1) and 17a(1) of the Staff Regulations provide as follows: ‘An official shall refrain from any unauthorised disclosure of information received in the line of duty, unless that information has already been made public or is accessible to the public’; ‘An official has the right to freedom of expression, with due respect to the principles of loyalty and impartiality’. See Staff Regulations of Officials of the European Communities, available at . 178

  See I. Paterson, M. Fink, A. Ogus et al, Economic impact of regulation in the field of liberal professions in different Member States, Study for the European Commission, DG COMP, January 2003 available at . 179

  See Study on the conditions of claims for damages in case of infringement of EC competition rules, Comparative report prepared by D. Waelbroeck, D. Slater, and G. EvenShoshan, 31 August 2004 available at . 180

  See, in the field of maritime transport, The application of competition rules to liner shipping, Final report, Global Insight et al, 26 October 2005, available at . 181

  See M. Ivaldi, B. Jullien, P. Rey, P. Seabright, and J. Tirole Idei, The Economics of Unilateral Effects, Toulouse, November 2003, Interim Report for DG COMP, European Commission, available at ; K.U. Kühn and X. Vives, Information Exchange among Firms and their Impact on Competition (Luxembourg: Office for Official Publications of the European Community, 1995); E. Kantzenbach, E. Kottman, and R. Krüger, New Industrial Economics and Experiences from European Merger Control—New Lessons about Collective Dominance?, Study commissioned by the European Commission (Luxembourg: Office for Official Publications of the European Communities, 1995); S. Meadowcroft and D. Thompson, Minority Share Acquisition: The Impact upon Competition (Luxembourg: Office for Official Publications of the European Communities, 1986). 182

  See also Art 31 of Regulation 1/2003, n 10.

183

  In these three cases the GC censured the decisions of the Commission for errors in the factual assessment, lack of sufficient evidence, and errors of law. See GC, T-342/99 Airtours v Commission, 6 June 2002 [2002] ECR II-258; GC, T-310/01 Schneider Electric v Commission, 22 October 2002 [2002] ECR II-4071; GC, T-5/02 Tetra Laval v Commission, 25 October 2002 [2002] ECR II-4381. The growing effectiveness of judicial control in mergers

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encourages parties to make use of the remedies offered to them by EU law. This development is reinforced by accelerated judicial procedures. 184

  See GC, T-201/04 Microsoft Corp v Commission, 17 September 2007, nyr; GC, T-340/03 France Télécom SA v Commission, 30 January 2007 [2007] ECR II-107. 185

  See GC, Microsoft Corp v Commission, para 87.

186

  See Confederation of British Industry, ‘The Need for an EU Competition Court’, 15 June 2006, available at . Others have proposed waiving the rule that requires the functions of a judge at the Court to be reserved for legal experts (rule provided in the Treaty in Art 223 EC). In particular, the appointment of economists would allow progress both in terms of quality (of case law) and quantity (case backlog). See Comments of William Bishop before the House of Lords, ‘An EU Competition Court’, 20 October 2006. For a full report, see House of Lords, European Union Committee, 15th Report of Session 2006–07, ‘An EU Competition Court’, Report with Evidence, 23 April 2007. 187

  See Arts 5 and 6 of Regulation 1/2003, n 10.

188

  This issue faces perennial debate within the United States in the context of federal vs state law. One of the primary arguments made in the US ‘federalism’ debate is precisely that state laws allow for experimentation. See eg H. Hovenkamp, ‘State Antitrust in the Federal Scheme’ (1983) 58 Indiana LJ 375, at 389–90; see also, R.W. Hahn and A. LayneFarrar, ‘Federalism in Antitrust’ (2003) 26(3) Harvard J Law and Public Policy 877. 189

  The concept is taken from the section devoted to the competition rules in Arts 52, 127, 130, and 214, but is not defined. 190

  See CJ, 19/61 Mannesmann AG v High Authority, 13 July 1962 [1962] ECR 675.

191

  In the Mannesmann judgment, ibid, the Court talked of an ‘economic goal’.

192

  See CJ, C-41/90 Klaus Höfner and Fritz Elser v Macrotron GmbH, 23 April 1991 [1991] ECR I-1979. 193

  See eg CJ, 118/85 Commission v Italy, 16 June 1987 [1987] ECR 2599, at 7 and CJ, Case C-35/96 Commission v Italy, 18 June 1998 [1998] ECR I-3851, at 36. 194

  See GC, T-319/99 FENIN v Commission, 4 March 2003 [2003] ECR II-357, at 36. The concept of economic activity is assessed from the supply-side viewpoint and not, as in the FENIN case, from the viewpoint of demand (purchases), as the plaintiff s claimed. FENIN was an association of undertakings marketing medical goods and equipment used in hospitals in Spain. On the basis that it was the victim of anticompetitive practices allegedly committed by 26 entities (including three ministerial ones) in charge of managing the Spanish national health system (SNS), FENIN filed a complaint with the Commission. The entities in question systematically paid for their purchases of medical equipment within an average period of 300 days, which although lengthy, was much timelier than other providers were paying their debts. FENIN maintained that this discriminatory practice constituted an abuse of a dominant position in breach of Art 82 EC. The Commission dismissed FENIN’s complaint on the grounds that the competition rules of the Treaty do not apply to the entities in question. It found that: first, the two entities do not constitute undertakings when they participate in the management of the public health service; and second, the position of customers (purchasers) of the entities in question could not be dissociated from their subsequent position as suppliers (providing public health services). The entities in question were not, therefore, acting as undertakings when they bought medical products from members of the petitioner. The GC, on hearing FENIN’s appeal, upheld the Commission’s position: the GC found that the concept of economic activity could not be determined by a ‘purchasing activity as such’. It considered that the character of a purchasing activity depends on ‘whether the subsequent use of the purchased product has an economic character or not’. When an undertaking buys a good for use in an activity that is not From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

economic in nature, it does not act as an undertaking within the meaning of the EC Treaty competition rules. 195

  See CJ, 263/86 Belgian State v René Humbel and Marie-Thérèse Edel, 27 September 1988 [1988] ECR 5365. The advantage of using the economic activity criterion is that it ensures a certain homogeneity in substantive EU law since this concept is also used to delineate the scope of the rules relating to freedom of establishment, the free provision of services, and free movement of persons. See CJ, 36/74 BNO Walrave and LJN Koch v Association Union Cycliste Internationale ea, 12 December 1974 [1974] ECR 1405; CJ, Case 13/76 Gaetano Donà v Mario Mantero, 14 July 1976 [1976] ECR 1333. 196

  See Commission Decision of 23 July 2003, COMP/C.2-37.398, Central marketing of the commercial rights to the UEFA Champions League, at 105–6, OJ L 291 of 8 November 2003, at 25. 197

  See Commission Decision of 26 May 1978, IV/29.559, RAI/Unitel, OJ L 157 of 15 June 1978, at 39. 198

  See CJ, Case C-309/99 Wouters Savelbergh and Price Waterhouse Belastingadviseurs BV v Algemene Raad van de Nederlandse Orde van Advocaten, 19 February 2002 [2002] ECR I-1577, at 49; Commission Decision of 24 June 2004, COMP/38.549, PO/Belgian architects fee system, at 36–7; CJ, Joined Cases C-180–184/98 Pavel Pavlov ea v Stichting Pensioenfonds Medische Specialisten, 12 September 2000 [2000] ECR I-06451, at 77; see Commission Decision of 30 January 1995, IV/33.686, COAPI, OJ L 122 of 2 June 1995, at 37. 199

  eg a research activity. See Commission Decision of 26 July 1976, IV/28.996, Reuter/ BASF, OJ L 254 of 17 September 1976, at 40. 200

  See GC, T-9/99 HFB Holding für Fernwärmetechnik Beteiligungsgesellschaft mbH & Co KG et al v Commission, 20 March 2002 [2002] ECR II-1487, at 66. 201

  See Green Paper on services of general interest, COM(2003) 0270 final, at para 44.

202

  See, by analogy, in the agricultural sector, CJ, 258/78 LC Nungesser KG and Kurt Eisele v Commission (‘ Maize Seed case’), 8 June 1982 [1982] ECR 2015, at 7–9. 203

  See CJ, C-519/04 P David Meca-Medina and Igor Majcen v Commission, 18 July 2006 [2006] ECR I-6991, at 27. 204

  See CJ, C-41/90 Klaus Höfner and Fritz Elser v Macrotron GmbH, n 192.

205

  See CJ, C-475/99 Firma Ambulanz Glöckner v Landkreis Südwestpfalz, 25 October 2001 [2001] ECR I-08089, at 9–22 . 206

  The provision of public goods or services, such as police, education, and health services, must not be exclusive or competitive. 207

  See CJ, C-364/92 SAT Fluggesellschaft mbH v Eurocontrol, 19 January 1994 [1994] ECR I-43, at 30. 208

  Ibid. See also GC, T-155/04 SELEX Sistemi Integrati SpA v Commission, 12 December 2006 [2006] ECR II-4797, at 77. See CJ, C-179/90 Merci convenzionali porto di Genova SpA v Siderurgica Gabrielli SpA, 10 December 1991 [1991] ECR I-5889. Similarly, in the case of Aéroports de Paris, the GC distinguished policing activities from the economic activities of management and the operation of airports, which are remunerated by commercial charges that vary depending on the sales achieved. See GC, T-128/98 Aéroports de Paris v Commission, 12 December 2000 [2000] ECR II-3929, at 112. 209

  See CJ, C-343/95 Diego Calì & Figli Srl v Servizi ecologici porto di Genova SpA (SEPG), 18 March 1997 [1997] ECR I-1547, at 22–3.

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210

  ‘National solidarity’ is defined as situations in which (i) those subject to the largest optional contributions finance the social security benefits of the least well-off and (ii) active workers finance the social security benefits paid to pensioners. See CJ, C-159/91 and C-160/91 Christian Poucet v Assurances générales de France and Caisse mutuelle régionale du Languedoc-Roussillon, 13 February 1993 [1993] ECR I-637, at 16–19. See, in the same vein, CJ, C-218/00 Cisal di Battistello Venanzio & C Sas v Istituto nazionale per l’assicurazione contro gli infortuni sul lavoro (INAIL), 22 January 2002 [2002] ECR I-691, at 38: the Court held that an Italian body responsible by law for an occupational accidental and health insurance scheme was not an undertaking. In addition to its national solidarity objective, there was the fact that the benefits amount and contributions were set by law. See also paras 43–6. 211

  See CJ, C-244/94 FFSA v Ministry of Agriculture and Fisheries, 16 November 1995 [1995] ECR I-4013, at 17ff; CJ, C-67/96 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie, 21 September 1999 [1999] ECR I-5751, at 77–87. 212

  See Opinion of the Advocate General F. Jacobs of 28 January 1999, in the case Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie, n 211, at 311. 213

  See CJ, C-343/95 Diego Calì & Figli Srl v Servizi ecologici porto di Genova SpA (SEPG), n 209, at 41 where the Court notes the absence of a link between the contributions made and the benefits provided that led to the conclusion that there was national solidarity and, consequently, no economic activity. 214

  See CJ, C-67/96 Albany International BV v Stichting Bedrijfspensioenfonds Textielindustrie, n 211, at 81 and 84. 215

  They alone constitute decisions of undertakings. See CJ, Joined Cases C-264/01, C-306/01, C-354/01, and C-355/01, AOK Bundesverband ea, 16 March 2004 [2004] ECR I-2493, at 58. 216

  In 2006, the PAC represented 42 per cent of the Community budget.

217

  Guaranteeing farmers a minimum price greater than the market price, which would not cover the production costs. 218

  Initially adopted to ensure the EU’s self-sufficiency in food, given the rural exodus taking place at the time, the CAP quickly reached its objective by leading to increased production volumes and the modernization of production facilities. A victim of its own success, however, production quickly then became distorted: agricultural production reached all time highs, leading to a pricing collapse in the market. The CAP was therefore given new objectives in the years 1980–90, namely to cut back production. In 2003, a reform introduced the principle of ‘decoupling’: the calculation and payment of aid is therefore no longer linked to farmers’ production. 219

  See Council Regulation 26/62 applying certain rules of competition to production of and trade in agricultural products, OJ 30 of 20 March 1962, at 993. 220

  See Council Regulation 1184/2006 of 24 July 2006 applying certain rules of competition to the production of, and trade in, agricultural products, OJ L 214 of 4 August 2006, at 7. 221

  The Commission has sole jurisdiction to determine which agreements, decisions, and practices meet the conditions of this provision. See Art 2(2) of Regulation 1184/2006. 222

  Especially agreements creating cooperatives within a Member State.

223

  There is debate among scholars as to whether this derogation is a form of the second one above or, on the contrary, stands on its own. See M. Waelbroeck and A. Frignani,

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Commentaire J. Megret—Competition, 2nd edn (Brussels: Editions de l’Université de Brussels, 1997), at 66–7. 224

  For an illustration, see Commission Decision, IV/M.1313, Danish Crown/Vestjyske Slagterier, 9 March 1999, OJ L 20 of 25 January 2000, at 1 . 225

  See Art 3 of Regulation 1184/2006, specifically, which states that the provisions of Art 108(1) and (3) TFEU apply to the agricultural sector. 226

  Common market organizations (CMOs) are the provisions governing the production of, and trade in, agricultural products. They cover a large number of products (cereals, pork, eggs, poultry, fruit and vegetables, etc) and account for 90 per cent of the Community’s agricultural production. Their principal role is to set the prices of agricultural products for European markets, grant aid to producers, and control production. In concrete terms, the CMOs set indicative prices for the agricultural products sold in the EU. 227

  See CJ, C-137/00 Milk Marque Ltd and National Farmers’ Union, 9 September 2003 [2003] ECR I-7975, at 67. 228

  The strict nature of this approach had already been emphasized by Waelbroeck and Frignani, n 223, at 55–6. See eg the Commission decision of 26 July 1988, IV/31.379, Bloemenveilingen Aalsmeer, OJ L 262 of 22 September 1988, at 27, at paras 137–49. This approach is still very clear in CJ, C-137/2000 Milk Marque Ltd and National Farmers’ Union, n 227, at 57, where the Court holds that ‘the maintenance of effective competition on the market for agricultural products is one of the objectives of the common agricultural policy and the common organisation of the relevant markets’. 229

  See GC, annexed Cases T-217/03 and T-245/03 Fédération nationale de la Cooperation bétail et viande [ National Federation of the livestock and meat cooperation ] (FNCBV) ea v Commission, 13 December 2006 [2006] ECR II-4987. 230

  Ibid, at 192.

231

  Ibid at 206. What is more, the agreement could not in any way achieve the second objective since it did not provide any measure for reducing supply in a context of overproduction and under-consumption. 232

  See Arts 90 to 100.

233

  And other objectives include, in particular, transport safety.

234

  Historically, States played a major role in the transport sector. Most of the air and rail transport companies were State-controlled undertakings. Application of the competition rules led some to fear painful restructurings. 235

  See CJ, annexed Cases 209–213/84 Public Ministry v Lucas Asjes et al, Andrew Gray et al, Jacques Maillot et al and Léo Ludwig et al (‘ Nouvelles Frontières Case’), 30 April 1986 [1986 ECR] 1425, at 42. The Court had implied it in the past. See CJ, 167/73 Commission v French Republic, 4 April 1974 [1974] ECR 359, at 20–1 (the rules of the second part of the EC Treaty—now the third part, which enshrines the ‘Community policies’—are ‘designed to apply to all economic activities [and] can only be removed in accordance with the express provisions of the Treaty’). See also CJ, 6/77 Commission v Kingdom of Belgium, 12 October 1978 [1978] ECR 1881, at 10, which posits the same principle in the area of State aid. 236

  With the exception of Arts 84 and 85 EC (now Arts 104 and 105 TFEU), which, pending adoption of implementing provisions by the Council, made any action the responsibility of the national authorities and the Commission.

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237

  See Council Regulation 1017/68 of 19 July 1968 on the application of competition rules to the rail, road, and inland waterway transport sectors, OJ L 175 of 23 July 1968, at 1. 238

  See Council Regulation 4056/86 of 22 December 1986 determining the arrangements for applying Articles 85 and 86 of the treaty to maritime transport services, OJ L 378 of 31 December 1986, at 4. 239

  See Council Regulation 3975/87 of 14 December 1987 determining the arrangements for applying the competition rules to air haulage undertakings, OJ L 374 of 31 December 1987, at 1. See also Council Regulation 3976/87 of 14 December 1987 concerning the application of Article 85 paragraph 3 of the treaty to categories of agreements and concerted practices in the area of aviation transport, OJ L 374 of 31 December 1987, at 9, which grants authority to the Commission to adopt block exemption regulations. These Regulations were amended by Council Regulation 411/2004 of 26 February 2004 repealing Regulation 3975/87 and amending Regulation 3976/87 as well as Regulation 1/2003, regarding air transport between the Community and nonmember countries, OJ L 68 of 6 March 2004, at 1. 240

  A procedure known as an ‘opposition’ procedure thus applied in the area of rail, road, and inland waterway transport and in that of maritime transport. 241

  See Art 2(1)(b) of Regulation 4056/86, n 238 (in the maritime transport sector, cooperation for the purpose of ‘the exchange or pooling for the purpose of operating transport services, of vessels, space on vessels or slots and other means of transport, staff, equipment or fixed installations’ do not infringe Art 101(1) TFEU). See Art 2 and Annex to Regulation 3975/87, n 239 (in the air transport sector, cooperation for the purpose of ‘[t]he introduction or uniform application of mandatory or recommended technical standards for aircraft, aircraft parts, equipment and aircraft supplies, where such standards are set by an organisation normally accorded international recognition, or by an aircraft or equipment manufacturer’ do not infringe Art 101(1) TFEU). See Art 3(1)(a) of Regulation 1017/68, n 237 (in the rail, road and inland waterway transport sector, cooperation for the purpose of ‘the standardization of equipment, transport supplies, vehicles or fixed installations’ do not infringe Art 101(1) TFEU). 242

  See Art 3 of Regulation 4056/86, n 238, which exempts ‘the coordination of shipping timetables, sailing dates or dates of calls; the determination of the frequency of sailings or calls; the coordination or allocation of sailings or calls among members of the conference; the regulation of the carrying capacity offered by each member; the allocation of cargo or revenue among members’. 243

  See Art 43 and recital 36 of the Preamble to Regulation 1/2003, n 10. The complicated arrangement of these laws is made even more complicated by Art 32 of Regulation 1/2003 which identifies the following exemptions: a)  international maritime transport of the ‘tramp services’ type as defined in Article 1, paragraph 3, point a), of Regulation (CEE) 4056/86; b)  maritime transport services provided exclusively between ports located in a member state, as provided in Article 1, paragraph 2, of Regulation (EEC) 4056/86; c)  air transport between the airports of the Community and non-member countries. 244

  Which is why there are still, eg, basic block exemptions for certain aspects of the transport sector. See Arts 34, 36, 38, and 39 of the Regulation. These specific rules are, however, gradually being eliminated. See, regarding maritime conferences, Regulation 1419/2006 of the Council of 25 September 2006 repealing Regulation 4056/86 specifying the arrangements for applying Articles 85 and 86 of the treaty to maritime transport, and amending Regulation 1/2003 to extend its scope to cabotage (ie, maritime transport

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services between ports in one or to the same Member State) and international tramp services, OJ L 269 of 28 September 2006, at 1. In the area of air transport, see Commission Regulation 1459/2006 of 28 September 2006 on the application of Article 81, paragraph 3, of the treaty to certain categories of agreements, decisions or concerted practices, the object of which is to promote consultation on tariffs for the transport of passengers on scheduled air services and slot allocations at airports, OJ L 272 of 3 October 2006, at 3. 245

  See D. Geradin, ‘L’ouverture à la concurrence des entreprises de réseau: analyse des principaux débats du processus de libéralisation’ (1999) 1–2 Cahiers de Droit Européen 13. 246

  See, in particular, for confirmation of the principle in the postal services sector, CJ, C-320/91 Criminal proceedings against Paul Corbeau, 19 May 1993 [1993] ECR I-2533. 247

  The experience of New Zealand illustrates this well. See D. Geradin and M. Kerf, Controlling Market Power in Telecommunications: Antitrust vs Sector-Specific Regulation (Oxford: Oxford University Press, 2003), at 119ff. 248

  In the case of New Zealand, it thus took several years to resolve a fairly ordinary case of interconnection based on competition rules. See Ibid, at 149. 249

  Technically, the strategy implemented is, first, to remove any special and exclusive rights and, second, to control the market power of incumbents that still retain their dominant positions. See Geradin, n 111; N. Petit, ‘The Proliferation of National Regulatory Authorities alongside Competition Authorities: A Source of Jurisdictional Confusion?’ in D. Geradin, R. Muñoz, and N. Petit (eds), Regulation through Agencies—A New Paradigm of European Governance (Cheltenham: Edward Elgar, 2005), at 180. 250

  eg since the energy market has been opened to competition, over a hundred mergers have been notified to the Commission. See M. Piergiovanni, ‘EC Merger Control Regulation and the Energy Sector: An Analysis of the European Commission’s Decisional Practice on Remedies’ (2003) 3 J Network Industries 227. 251

  See Commission Decision of 30 April 2003, COMP/38.370, O2 UK Ltd/T-Mobile UK Ltd, OJ L 200 of 7 August 2003, at 59. 252

  eg margin squeeze practices. See Commission Decision of 21 May 2003, COMP/ C-1/37.451, 37.578, 37.579, Deutsche Telekom AG, OJ L 263 of 14 October 2003, at 9. 253

  See Guidelines on the application of EEC competition rules in the telecommunications sector, OJ C 233 of 6 September 1991, at 2; Commission Notice on the application of the competition rules to access agreements in the telecommunications sector—Framework, relevant markets and principles, OJ C 265 of 22 August 1998, at 2; and Commission guidelines on market analysis and the assessment of Significant Market Power under the regulatory framework for electronic communications networks and services, OJ C 165 of 11 July 2002, at 6. 254

  Notice from the Commission on the application of the competition rules to the postal sector and on the assessment of certain State measures relating to postal services, OJ C 39, 1998, at 2. 255

  A similar provision was introduced in secondary legislation instituting an EU system for control of concentrations, and has been invoked on several occasions. 256

  See Commission Decision of 28 April 1999, IV/M.1309, Matra/Aérospatiale, OJ C 133 of 13 May 1999, at 5. 257

  See Art 348 TFEU:

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If measures taken in the circumstances referred to in Articles 346 and 347 have the effect of distorting the conditions of competition in the common market, the Commission shall, together with the State concerned, examine how these measures can be adjusted to the rules laid down in the Treaty. 258

  Ibid. The Court then rules in camera.

259

  The territory of the Community is defined in Art 349 TFEU. Currently it extends to the territory of the 27 Member States. 260

  This requirement is often cited as ‘localization of the competitive effects’. See eg C. Gavalda and G. Parleani, Droit des affaires de l’Union européenne, 4th edn (Paris: Litec, 2007), at 294. More fundamentally, public international law would refer to ‘objective territoriality’. Since the famous Lotus case, States can rely on public international law to extend the reach of their laws and submit to the jurisdiction of their courts, persons, assets, and actions outside their territory. See judgment of the Permanent Court of International Justice of 7 September 1927, France v Turkey, Series 1 no 10. 261

  The Javico judgment ends a long period of the development of the law. In the 1971 Béguelin case, the Court seemed to suggest that the incompatibility of Art 101 TFEU applied if a cartel produced its effects on the territory covered by EU law. See CJ, 22/71 Béguelin Import Co v SAGL Import Export, 25 November 1971 [1971] ECR 949. In subsequent case law the Court succeeded in avoiding settling the difficult question of whether EU law applied when an anticompetitive effect was observed in the EU. In the cases Dyes, Continental Can and Commercial Solvents, the Court merely noted that the undertakings in question had subsidiaries or branch offices within the EU, through which the foreign firms had been active in the EU. See CJ, 54/69 SA française des matières colorantes (Francolor) v Commission, 14 July 1972 [1972] ECR 851; CJ, 6/72 Europemballage Corporation et Continental Can v Commission, 21 February 1973 [1973] ECR 215; CJ, 6/73 Istituto Chemioterapico Italiano and Commercial Solvents v Commission, 6 March 1974 [1974] ECR 223. In Woodpulp I, the Court held then that ‘the place where the cartel agreement is implemented’ is the determining factor. See CJ, 89/85 Ahlström Osakeyhtiö v Commission (‘ Wood Pulp’), 27 September 1988 [1993] ECR I-1307, at 16. Eventually, EU law found its point of equilibrium in a doctrine known as a qualified effect. In the Gencor case, relating to the Commission injunction against the concentration of two South African diamond producers, the GC held that: ‘when it is foreseeable that a planned concentration will produce an immediate and substantive effect in the Community, application of the Regulation is justified with regard to public international law’ (emphasis added). See GC, T-102/96 Gencor Ltd v Commission, 25 March 1999 [1999] ECR II-753, at 90. The Javico judgment makes this doctrine permanent by referring to the impact of the restraint of competition inside the common market. 262

  See CJ, Case C-306/96 Javico v Yves Saint Laurent Parfums, 28 April 1998 [1998] ECR I-1983, at 12: In order to determine whether agreements such as those concluded by YSLP with Javico fall within the prohibition laid down by that provision it is necessary to consider whether the purpose or effect of the ban on supplies which they entail is to restrict to an appreciable extent competition within the common market and whether the ban may affect trade between Member States. 263

  See Commission Decision of 6 November 1968, IV/23077, Rieckermann/AEG-Elotherm, OJ L 276 of 14 November 1968, at 25.

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264

  Nearly 100 countries have legislation regarding competition. Y. Devellennes and G. Kiriazis, ‘The Creation of an International Competition Network’ (2002) Competition Policy Newsletter, at 25. 265

  See P. Demaret, ‘L’application du droit communautaire de la concurrence dans une économie mondiale globalisée. La problématique de la territorialité’ in J.-F. Bellis (ed.), La politique communautaire de la competition face à la mondialisation et à l’élargissement de l’Union européenne (Baden-Baden: Nomos, 2001), at 13. 266

  See B. Goldman, ‘Les champs d’application territoriale des lois sur la concurrence’, Recueil des cours de l’Académie de droit international, 1969, iii, 631, at 714; J. Stoufflet, ‘La compétence extraterritoriale du droit de la concurrence de la Community économique européenne’ (1971) Journal de droit international 487, at 497–8. 267

  See Arts 20 and 21 of Regulation 1/2003, n 10.

268

  We can see a distinction between simple requests for information and decisions enjoining the party to provide information. 269

  See P. Demaret, ‘L’extraterritorialité de lois et des relations transatlantiques: une question de droit ou de diplomatie?’ (1985) RTD Eur 1, at 4–5. 270

  See Arts 23 and 24 of Regulation 1/2003, n 10. Under which the Commission can impose fines and penalties if the parties provide inaccurate or incomplete information or do not provide information within the specified time limit. 271

  See Art 7 of Regulation 1/2003, n 10. An injunction to cease an anticompetitive practice means that the undertaking should cease to engage in conduct that has an anticompetitive object, or effect. 272

  Ibid.

273

  Ibid, Art 8.

274

  Ibid, Art 23.

275

  Ibid, Art 24 for the penalties.

276

  There is sometimes concern about the risk of cumulative sanctions. However, when several fines are imposed on an undertaking by different competition authorities, it must be understood that each State, by its own laws, does not sanction the anticompetitive practice in itself but the effects it produces on its own territory. 277

  See Commission Decision of 30 July 1997, IV/M.887, Boeing/McDonnell Douglas, OJ L 336 of 8 December 1997, at 16; Commission Decision of 3 July 2001, COMP/M.2220, General Electric/Honeywell, OJ L 48 of 18 February 2004, at 1. 278

  See L. Idot, ‘Mondialisation, liberté et régulation de la competition—Le contrôle des concentrations’ (2002) 2/3 Revue Internationale de Droit Economique, at 197. 279

  An initial agreement was signed on 23 September 1991, but was cancelled by the Court of Justice. In a decision of the Council and Commission of 10 April 1995, the 1991 Agreement was declared applicable with retroactive effect. See Agreement Between The Government of the United States of America and the European Communities Regarding the Application of Their Competition Laws—Exchange of letters interpreted with the government of the United States of America, OJ L 95 of 27 April 1995, at 47. 280

  Ibid, Art VI.

281

  Ibid, Art V(2).

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282

  See F. Jenny, ‘Globalization, Competition and Trade Policy’ in Y.-C. Chao, G. San, C. Lo, and J. Ho (eds), International and Comparative Competition Laws and Policies (The Hague: Kluwer Law International, 2001), at 45. This is the case, eg, for the major exporting cartels, the effects of which can be very harmful on such countries. See, in this regard, B. Hoekman and P. Holmes, ‘Competition Policy, Developing Countries, and the World Trade Organization’, World Bank, April 1999. Available at . The authors consider that, for developing economies, the main interest in having an international agreement on competition is to ban major export cartels. In fact, more often than not, their domestic law will not allow them effectively to prohibit this type of practice. 283

  See, in particular, Idot, n 278, at 191. See contra, J.-F. Pons, ‘Is it Time for an International Agreement on Antitrust, DG Competition, European’, 3–5 June 2002, who argues that it is not the right time for an international solution. 284

  The International Competition Network is an organization that was created in October 2001 comprising competition authorities from all over the world. It seeks to find consensus on specific problems and to draft codes of practice. See . 285

  The United Nations Commission for Trade and Development assists the competition authorities of developing countries and emerging economies in the practical problems they encounter in competition law and policy (normative cooperation and technical assistance basically). See . 286

  The Organisation for Economic Co-Operation and Development established a competition committee made up of top officials from the competition authorities of the OECD countries plus observers from a number of non-member countries. The object of the Committee is to encourage action to stop anticompetitive practices and regulations. It has been assisted by a competition division responsible for providing analysis to the Committee and promoting globally the reforms put forward by the Committee. To this end, the Division prepares documents, studies, and recommendations for action. It also provides assistance to States wishing to improve their competition law system. See . 287

  See D. Borges Barbosa, ‘The World Competition Agency as a Necessary International Institution’ in R.S. Uh (ed.), Financial Institutions and Services (New York: Nova Publishers, 2006), at 31; O. Bertrand and M. Ivaldi, ‘An “International Sheriff ” to enforce fairness in worldwide competition’, Vox, 18 June 2007. 288

  See A.T. Guzman, ‘International Antitrust and the WTO: The Lesson from Intellectual Property’, Berkeley Program in Law & Economics, Working Paper Series, Year 2000 Paper 36, at 16; F. Jenny, ‘Competition Law and Policy: Global Governance Issues’ (2003) 26(4) World Competition 609, at 624. 289

  See E.M. Fox, ‘Competition Law and the Millennium Round’ (1999) 2 J Int’l Economic L 665. More generally, for a formal demonstration, see A. Bradford, ‘International Antitrust Negotiations and the False Hope of the WTO’ (2007) 48(2) Harvard International LJ 383. 290

  Transparency, non-discrimination, and impartiality, in particular, as well as aid for the creation of institutional and normative capacity. See, in particular, Annual reports of the Working Group on the Interaction between Trade and Competition Policy to the General Council, WT/WGTCP/7 of 17 July 2003, available at .

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291

  See Ministerial Conference, Fifth session, Cancun, 10–14 September 2003, Ministerial Notice adopted 14 September 2003, WT/MIN(03)/20, 23 September 2003. 292

  See Agreement creating an association between the European Economic Community and Turkey, OJ P 217 of 29 December 1964, at 3687. See also Council Decision 1/95 of the EC-Turkey Association, of 22 December 1995, relating to the establishment of the final phase of the customs union, OJ L 35 of 13 February 1996, at 1, particularly Arts 32 to 38. 293

  See Agreement on the European Economic Area—Final Act—Joint Declarations— Declarations by the Governments of the Member States of the Community and the EFTA States—Arrangements—Agreed Minutes—Declarations by one or several of the Contracting Parties of the Agreement on the European Economic Area, OJ L 1 of 3 January 1994, at 3. See also the series of additional protocols, available from the website of the European Commission’s DG COMP. 294

  See Regulation 2840/72 of the Council of 19 December 1972 concluding an Agreement between the European Economic Community and the Swiss Confederation, OJ L 300 of 31 December 1972, at 188. 295

  See Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and Romania, of the other part, OJ L 357 of 31 December 1994, at 2, particularly Art 64; see Europe Agreement establishing an association between the European Communities and their Member States, of the one part, and the Republic of Bulgaria, of the other part, OJ L 358 of 31 December 1994, at 3, particularly Art 64. 296

  See eg Association Agreement between EU-Morocco, 26 February 1996, OJ L 70 of 18 March 2000, particularly Arts 36 to 41. 297

  Especially regarding State aid for agreements concluded with countries in economic transition. 298

  See D. Geradin and N. Petit, ‘Règles de concurrence et partenariat euro-méditerranéen: échec ou succès’ (2003) 1 Revue Internationale de Droit Economique 47.

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2 Elements of Competition Law Economics Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Subject(s): Market power — Economics

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(p. 59) 2  Elements of Competition Law Economics I.  Introduction 2.01 II.  Epistemology of Competition Economics 2.10 A.  Classical and Neoclassical Competition Economics 2.10 B.  The Normative Economics of Competition 2.35 III.  Methodology of Competition Economics 2.55 A.  The Concept of Market Power 2.56 B.  Measuring Market Power 2.62 C.  Measuring Market Power, Indirectly 2.83 D.  Other Useful Economic Concepts—Competition Law, Law of Costs 2.125

I.  Introduction 2.01  The current sociology of EU competition law Like other branches of corporate law, EU competition law is no longer the sole province of lawyers.1 Instead, lawyers collaborate on a daily basis with economic consultants. Authorities and courts are not to be outdone either. In 2003, the Commission announced the creation, within DG Competition (DG COMP), of the position of chief economist, responsible for heading a unit of economists who are to provide analytical support to the legal team and to review draft decisions for their social welfare implications.2 A year later in France, an eminent professor of industrial economics acceded to the highest judicial office, with Frédéric Jenny’s appointment a member of the French Cour de Cassation.3 (p. 60) 2.02  The origins of the economics of competition law The involvement of economists in the competition law process is a sufficiently important phenomenon for us to take a few moments to consider it.4 To appreciate its scope, we must go back in time and beyond the borders of the EU. In the United States, from the 1950s on, economists and law professors, versed in classical and neoclassical price theories, became interested in antitrust policy as a practical application of their theories. Their studies relied on complex economic arguments and quickly gave rise to a new discipline: competition economics.5 2.03  The resistance of EU competition law In the EU, the influence of competition economics (and incentives and effects-based approach) was marginal for a long time.6 The Treaty’s competition rules were designed by law professors7 and were formally enforced by DG COMP.8 Cooperation agreements between undertakings were deemed incompatible regardless of the market power of the undertakings for the businesses involved: it was thought that by committing to an agreement, undertakings illegally limited their freedom of action on the market and hence the motivations to do so could not be benign. The standard for assessing mergers was therefore whether they ‘create or strengthen a dominant position’, regardless of any efficiency gains that might derive as a result.9 2.04  The breakthrough of competition economics into EU law It was not until the end of the 1990s that competition economics started exerting some influence on the Commission and the EU Courts.10 The decisions of the Commission and the judgments of the EU Courts, particularly as regards vertical agreements, were then harshly criticized as being poorly in line with economic theory.11 They were contrasted with the decisions of the

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US courts and authorities, which were considered to be more sensitive to the teachings of economic theory. 2.05  Breaking with the formalistic approach which had so far prevailed, the Commission engaged in reforming the assessment of vertical agreements to be more in line with economic analysis.12 The new approach focused on the ‘market power’ of the parties to an agreement.13 (p. 61) 2.06  The legal revolution But the assessment of vertical agreements was not the only area of EU competition law to be reformed by the Commission. It also sought to modernize its approach in the areas of horizontal cooperation agreements, technology transfer agreements, control of concentrations, abuse of a dominant position, etc.14 In the end, no area of competition law was spared from what is now referred to as the ‘economic approach’ or the ‘effects-based approach’, albeit to varying degrees.15 2.07  The scholarly debate Despite the many efforts led by the Commission, the economic approach received a cold reception from a number of scholars who considered that economics, traditionally the ‘servant’ of competition law, had now become its ‘master’.16 In fact, the conflict between these two interpretations does not necessarily have to be resolved. What is new with competition economics is that the rule of law has more recourse to economic tools in its customary implementation. On the other hand, the economic purposes pursued by competition law have existed since the adoption of the Treaty of Rome, with the qualifications already mentioned in Chapter 1. 2.08  Scholars also recognized that competition law economics poses problems of a practical nature as well. While its aim is laudable (to serve as a tool to help in decision making, whether individual or regulatory, and to help in evaluating the law), it should be borne in mind that effects-based analysis when applied improperly (eg in the absence of a unified economic theory) can provide misleading results. Moreover, even when applied well, it is rarely the case that sufficient data are available to reach a foolproof conclusion. The inevitable ambiguities must, by necessity, be resolved by a judgment regarding the perceived risks and/or severity of the potential harm. Such judgments naturally imply some degree of legal insecurity for those subject to the legal system.17 2.09  The remainder of the chapter Today, competition economics is generally described as a composite discipline borrowing from different economic schools of thought. In what follows, we describe the leading schools of thought in regards to competition economics as they (p. 62) have evolved over the years (Section II).18 Then we get to the methodological aspects of competition economics or, more concretely, the instruments and concepts on which competition economics rely (Section III).

II.  Epistemology of Competition Economics A.  Classical and Neoclassical Competition Economics 2.10  Introduction Classical and neoclassical economists were the first to focus on competition issues. The classical economists of the seventeenth century and before, particularly Adam Smith, saw competition as a behavioural process .19 The common view was thus that competition is an individual behaviour by which each actor (firm or person) will play to their own advantage so as to defeat rivals. Thanks to the ‘invisible hand’ of the market, the sum of these selfish individual behaviours naturally results in a goods price that is close to the costs of production. 2.11  With the neoclassical economists of the late nineteenth century and early twentieth century came a structural interpretation of competition,20 which is still a feature of the economics of law today.21 Neoclassical theorists constructed two theoretical models of market structures which are meant to constitute the alpha and omega of social welfare. First, ‘perfect competition’, that is, a market made up of a multitude of buyers and sellers,

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optimizes the operation of the law of supply and demand and consequently provides a positive contribution to social welfare (see Section B). In other words, the more actors that are present in a market, the more likely it is that the invisible hand will function to the benefit of society. Second, monopoly markets (or cartelized markets) disrupt the invisible hand (the operation of the law of supply and demand) and by doing so greatly impair social welfare (Section C). These neoclassical conclusions, however, must be assessed with some care (Section D).

(p. 63) (1)  The law of supply and demand 2.12  A brief recap of the law of supply and demand As is well known, if ‘demand’ for a product increases, the price increases;22 if ‘supply’ of a product increases, the price decreases.23 Hence, when coal is in high demand its relative scarcity of supply makes each unit more valuable (purchasers compete to buy it) and its price rises logically. This may have the consequence that the market price will rise above the reservation price of some buyers who will thus no longer be able to acquire the product. Analogously, when the harvest of certain agricultural products is plentiful (so that scarcity is reduced) their prices collapse. Only certain sellers, those who offer the lowest prices (notably the most efficient ones), will survive to sell their products on the market. 2.13  This intuition was formalized by Alfred Marshall, the father of neoclassical economics, in a graphic representation showing the prices on the Y-axis and the quantities on the X-axis (see Fig 2.1).24 As regards demand, the quantities sought decrease as the price of the good increases. The downward sloping curve of demand (D) illustrates this phenomenon. The quantities placed on the market, on the other hand, rise as the price increases. The upward sloping supply curve (S) illustrates this phenomenon. 2.14  Figure 2.1 illustrates the difference between the incentives of buyers and sellers.25 When the price is low (in relation to ‘equilibrium’, eg P L), only a few sellers are willing to place quantities on the market, but not enough to meet demand. In such a case, the result is what is termed excess demand (or insufficient supply). As a result, allocation of resources is not optimal because customers who would benefit from purchasing the good are not supplied View full-sized figure

Figure 2.1  How supply and demand interoperate (p. 64) and must either to turn to other products or do without altogether. When the price is high (in relation to ‘equilibrium’, eg P H), many sellers are ready to place quantities on the market, but not enough consumers are willing to pay the price, hence not all the quantities produced are bought. In such a case, there is what is known as excess supply (or insufficient demand). In this case, too, allocation of resources is not optimal since the sellers have expended resources to produce goods that will not be purchased, resources that would have had a more productive use elsewhere. Marshall shows that there is an

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equilibrium price that exactly matches supply and demand.26 Its level is situated where the supply and demand curves intersect, resulting in P * and Q * in the graph.27

(2)  The theory of ‘perfect competition’ 2.15  The virtues of supply and demand The first neoclassical competition theorists were convinced that when competition is ‘perfect’, it contributes positively to social welfare as it causes the equilibrium price and quantity pair as presented by Marshall to emerge. 2.16  Conditions of perfect competition The perfect competition equilibrium, however, is not automatic. Five criteria must be satisfied for perfect competition to emerge (referred to as ‘necessary conditions’ by economists).28 First, the market must be characterized by a large number of sellers and buyers, no single one of which can influence prices.29 Second, the products must be homogeneous. In the eyes of the buyers, the products of each of the sellers must be viewed as strictly identical to one another. Third, the information of the buyers and sellers must be perfect .The purchase and sales terms on the market (especially the price) must be immediately known by everyone. Fourth, the entry (and exit) of new producers on the market must be free. Any economic agent may start up new productive operations without incurring any economic or regulatory obstacles (typically referred to as ‘barriers to entry’). Finally, the acquisition of a product must not result in any transportation cost, which would restrict the free movement of goods. Figure 2.2 summarizes these five necessary criteria. 2.17  Virtuous effects of perfect competition According to classical theorists, perfectly competitive markets provide for a number of virtuous effects. First of all, a single price is created in the market. No one seller is capable of fixing a price that differs from his competitors. As soon as one of the suppliers raises his price, he immediately loses all his customers to his competitors and is forced to exit the market. As soon as one supplier reduces his price, he finds that his profits decline relative to his competitors. 2.18  The second virtuous effect of perfect competition described by Marshall also relates to the equilibrium price. The price paid by the consumers ‘is driven down’ to its lowest sustainable level: it is simply equal to the marginal cost of production of all the producers. The explanation is relatively simple. Since none of the sellers can individually fix the price, each must ‘accept’ the price imposed by the market.30 That said, the only level guaranteeing that each(p. 65) View full-sized figure

Figure 2.2  The necessary conditions for ‘perfect’ competition producer can stay in the market is the marginal cost of production: if price is less than the marginal production cost, the producer is no longer profitable and has to exit the market;31 if it is greater than the marginal production cost, the producer loses his customers to his rivals, who are selling at marginal production cost. 2.19  Conclusions When competition is perfect, the law of supply and demand works well. Perfect competition leads not only to an optimal allocation of resources through the equilibrium price, but also to the elimination of supra-competitive profits.32

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(3)  The monopoly and the cartel 2.20  Imperfections in the law of supply and demand A monopoly exists when a market is sup-plied by one single undertaking.33 Whether this results from the commercial success (stemming from, eg, particular ‘business acumen’) of a firm, the existence of natural barriers (eg the tremendous expense of building a tunnel linking France and Great Britain) or a regulatory decision (eg the restricted certification process for the provision of legal services), a monopoly disturbs the welfare benefits of the law of supply and demand. 2.21  Unlike perfect competition where no seller can influence prices (sellers are called price-takers), the monopolist is a price maker. Since it controls all the production capacities, the monopolist enjoys a ‘scarcity rent’; it has the power to reduce the quantities offered on the market. With the supply of the product restricted to a level below that demanded, prices naturally rise to a level greater than the costs of the monopolist.34 As long as the gains made (p. 66) from raising the price are greater than the losses resulting from reduced quantities sold (and hence not meeting some of the existing demand), the monopolist’s incentives are clear: prices are higher under monopoly than under competition. 2.22  Analogy with the cartel A cartel, which is nothing other than a monopoly comprised of several undertakings working in concert organized by means of an agreement to restrict production and keep prices high, produces analogous effects.35 A cartel, however, is an industrial organization which is less stable than the monopoly, requiring as it does trust and cooperation among the participants. 2.23  The three principle inefficiencies of a monopoly (or a cartel) Neoclassical theorists consider that a monopoly generates at least three inefficiencies. The first of these is its allocative inefficiency, of which we have already had a brief glimpse in Chapter 1. Certain customers who value the product at a level above the cost of producing it and are willing to compensate the monopolist for those costs are nonetheless not supplied because the monopolist reduces the quantities offered on the market in relation to the competitive level (see QM in Fig 2.3 and the arrow from QC, representing the competitive quantity supplied). This quantity reduction leads to a ‘suboptimal’ allocation of resources, as defined by Vilfredo Pareto, because some amount of surplus is left unclaimed.36 The monopolist could improve the situation of the customers excluded from buying the product without incurring a loss (his costs would be covered), but he would sacrifice his own profits to do so. Customers not supplied by the monopolist must turn to other products which they value less or simply do without. The loss of welfare (in value) caused by the monopolist is represented in Figure 2.3 by the triangle ABC and referred to by economists as the ‘deadweight loss’ of monopoly.37 2.24  The second inefficiency is the monopoly’s productive inefficiency. As John Hicks, Nobel prize winner for economics, explained, ‘the best of all monopoly profits is a quiet life’.38 Exempt from any competitive discipline, the monopoly undertaking is free to let its production costs drift upwards. Its shareholders do not take action against the monopoly’s poor cost control performance because they are not able to compare the monopolist with any competing undertakings.39 It is no surprise, then, to find among the great monopolists massive undertakings with breathtakingly high cost curves. The landline telecommunications companies, which were originally protected by natural barriers to entry in the form of substantial network building and later protected by government regulations, are a classic example of this phenomenon. Of course, it is important to understand that the natural barriers to entry in(p. 67)

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View full-sized figure

Figure 2.3  Inefficiencies associated with monopolies telephone service were the reason that the telephone monopolies emerged in the first place. This point reinforces the difficulty involved in disentangling any productive inefficiencies from the inherently high costs frequently associated with monopolies. 2.25  The third inefficiency of a monopoly is dynamic. In the same vein as discussed, some have argued that monopolists have few, if any, incentives to innovate.40 The idea here, as expressed most prominently by Kenneth Arrow, is that the monopolist recognizes that any innovations it introduces will only cannibalize its current sales, and moreover that it will do so at the cost of the investment required to reach the innovation. It makes little sense to expend resources when few net gains in profit are anticipated to result. Hence, economists supporting dynamic inefficiencies arguments extended the notion of the ‘quiet life’ of the monopolist to research and development (R&D) and innovation as well. 2.26  This third dynamic inefficiency has been, and still is, extremely controversial. One of the more prominent attackers of the theory was the famous Austrian economist Joseph Schumpeter.41 In brief, Schumpeter argued that innovation is primarily done by monopolists. The connection between market power and innovation resulted, Schumpeter claimed, from the more powerful undertaking’s ability to finance and develop innovations and to bring them to market. Smaller, weaker undertakings, on the other hand, lacked the resources to conduct research or to develop its fruits. Moreover, under Schumpeter’s view, monopolists are condemned to innovate in order to maintain the uniqueness of their market position, not because they face rivals today but because rivals can emerge from unforeseen quarters at any moment, sweeping in to replace the incumbent. This view led to Schumpeter’s best known quote regarding the ‘perennial gale of creative destruction’. (p. 68) 2.27  The debate over innovation—what defines it, who is best at creating it, what factors spur its creation, and so on—is one that continues to rage today.42 Even casual observers of high technology industries must recognize the tremendous amount of innovation that has emerged from small, start-up undertakings in the Silicon Valley of California.43 Thus far, the empirical evidence remains mixed with some support for both Schumpeter’s view that monopolists can be highly innovative as well as contrary views that smaller, nimbler, hungrier undertakings produce the most and best innovation. The truth is probably far too complicated to be explained by one variable alone. 2.28  Other inefficiencies Other forms of inefficiencies are also associated with monopoly, some purely formal. For instance, the term ‘X inefficiency’ is sometimes used in the competition economics literature. This expression, coined by Harvey Lebenstein, in fact covers inefficiencies that are not allocative, but rather are productive and dynamic.44 The competition economics literature also refers to the notion of technical inefficiency, which is a form of productive inefficiency (linked to the idea that the monopolist chooses suboptimal production techniques). Along the same lines, another term often used is internal or organizational inefficiency, which tends to indicate that the internal structure of the monopolist is not optimal (duplications in certain units, absence of control mechanisms, etc). The concept of ‘managerial inefficiency’, a more recent concept, is a variant of From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

organizational inefficiency. Shielded from any competitive pressure and exposed to superficial control by shareholders (who, as noted, are incapable of comparing the performance of their undertaking with other operators on the market), executives running monopolies are not purely concerned with profit. Provided they meet the minimum profit requirement they are free to make decisions motivated instead by individual interest,45 such as in-kind bonuses (luxury offices, business cars, etc), initiatives aimed at boosting their personal stature (creation of foundations, charity work, etc), nepotism, and so forth. 2.29  Lastly, a newly emerging concept is that monopolies exhibit distributive inefficiency.46 This concept relates to the distribution of benefits across undertakings and individuals. As explained, monopolists charge prices in excess of their marginal costs. While the customers supplied at this monopoly price only pay the monopolist if the price set is less than their reservation price for the good, the fact remains that they are paying more than they would have under competitive conditions. As a result, monopolies transfer resources from consumers to themselves (see red zone in Fig 2.4). This distribution of resources to the company from consumers is said to be a new form of inefficiency. Hence, it is suggested that competition law should focus on controlling prices on concentrated markets. The question of distributive efficiency, which has been a bone of contention for economist for decades, is a political one. After all, the optimal distribution of resources among consumers and undertakings, the latter of which employ individuals (who are also consumers) and are often held by individual shareholders (who are consumers as well) is a subjective matter. Profits earned by a monopoly can be redistributed to shareholders (by dividends), to employees (by profit-sharing(p. 69) View full-sized figure

Figure 2.4  Distributional effects of monopolies mechanisms), and to society in general (by tax mechanisms), or even kept within the undertaking but reinvested in new R&D or other productive endeavours that contribute to social welfare. 2.30  Conclusions In a monopoly (or cartel), the law of supply and demand in the market does not lead to socially optimal outcomes.

(4)  Evaluation of classical and neoclassical competition theories 2.31  Perhaps one of the most important aspects of the neoclassical models is that they illustrate quite clearly the effects of competition (and its antithesis, monopoly) on social welfare. For the reasons outlined hereafter, however, these models fail to provide a precise guide for intervention by the competition authorities. 2.32  Failure to adapt to contemporary economic realities With the exception of a few economic sectors, classical and neoclassical theories focus on market structures which largely disappeared in the twenty-first century. Nowhere do the features characterizing perfect competition seem to exist.47 Moreover, it is difficult to identify modern-day monopolies—except perhaps statutory monopolies—that are so stable that no firm is likely to enter the market on which they operate. Even Microsoft, which is often considered as a stable monopoly, is regularly challenged by new operators (Linux, Apple, and most recently From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Google) and hence only imperfectly fits the description of neoclassical theory. That said, neoclassical theorists did offer a glimpse of the more complicated market structures of today: Augustin Cournot’s theory focused on the oligopoly, a market structure where only a handful of sellers operate and thus represents a midpoint between perfect competition and monopoly. (Oligopolies are markets where there are only a few sellers.48) In the model known as Cournot competition, oligopolists fix their production at a level that leads to a price greater than perfect (p. 70) competition but less than the monopoly price. Cournot’s duopoly is then characterized by a ‘mild’ competition where each of the operators makes economic profits.49 2.33  Another problem comes from the fact that, because the classical and neoclassical theories are so abstract, they produce inexact and unrealistic results. As Friedrich Hayek notes, perfect competition paradoxically results in ‘the absence of any competitive activity’ since the price is constantly unified.50 The assessment made against the monopoly should also be corrected since, as we shall see, it acts in certain circumstances in a way that is allocatively efficient (through price discrimination), productively efficient (by realizing economies of scale), and dynamically efficient (by financing innovation). 2.34  Useful, albeit limited While it is true that the lack of realism of the models described have made practical enforcement based upon them impossible,51 neoclassical models nevertheless offer useful benchmarks for determining the direction of effects, even if they cannot be relied upon to determine the magnitudes.52

B.  The Normative Economics of Competition 2.35  Introduction Immediately after the Second World War, competition economics became more normative. Based on empirical economic analyses, scholars from Harvard University formulated ambitious policy recommendations as a guide for competition authorities (discussed in Section 1). A few years later, members of the University of Chicago proposed a different interpretation of the economic theory of the legal implications, an approach that was diametrically opposite from Harvard’s (see Section 2). The teachings of these two schools were both criticized by a new modern movement of thought which appeared in the 1980s, often referred to as Post-Chicago School (see Section 3). The debate between the Chicago and Post-Chicago viewpoints is one that is still carried on today.

(p. 71) (1)  The Harvard School (or the ‘structuralist’ movement) 2.36  A new methodology In the 1960s, a group of economists from Harvard led by Professor Joe Bain started reflecting, as the neoclassical theorists had done, on the relationship between the structure of a market and its performance. But any similarity between the two approaches stops there. Rejecting the arguments of neoclassical theory, which were felt to be too abstract, the Harvard economists used an empirical method based on making factual observations of branches of industry.53 2.37  The ‘SCP’ paradigm Their work highlighted a causal relationship between the structure of a market, that is to say, its endogenous characteristics (the number of producers and buyers, barriers to entry, degree of product differentiation, etc), the conduct of the undertakings (price setting, investments, publicity policies, etc), and the performance of the industry, that is, its contribution to ‘welfare’, which is understood not only as economic efficiency but, more generally, as social progress.54 Professor Bain argued that the more concentrated the structure of a market is, the more suboptimal the behaviours of the undertakings on that market are (supra-competitive price policies) and the more negative the performance of the industry is (the supra-competitive profits of the undertakings are to the detriment of consumers).

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2.38  Like any equation, the Structure-Conduct-Performance paradigm contains an unknown factor: the explanation for the relationship of cause and effect between the size of a firm and the profits it makes. Professors Carl Kaysen and Donald Turner suggested one answer, an elementary one: the existence of high profits is proof that large firms have ‘unreasonable market power’—the power to raise price above the costs—which they exploit to the detriment of consumers.55 Of course, this is just one possible answer. High profits may also signify high (and risky) upfront investments, such as often required with researchdriven products and services; high profits ex post are required to recoup risky outlays made ex ante. 2.39  Structuralist recommendations The originality of the Harvard School is illustrated in the fact that its authors moved from economic theory to formulate policy recommendations. They felt that government must closely monitor the structures of concentrated markets.56 However, as regards the legal remedies to be used, the members of the Harvard School differ on which approach is best. Some, like Professor James Rahl, argue in favour of a strict application of Section 2 of the Sherman Act, which prohibits ‘monopolization’.57 Others, like Kaysen and Turner, recommended that a special law be passed which would allow (p. 72) concentrated markets to be deconcentrated at any time.58 On the other hand, the ex ante control of concentrations between undertakings was not endorsed by the Harvard School, which thought such a policy would be too limited and incapable of correcting concentration that emerged through organic growth. 2.40  From theory to practice The radical proposals put forward by Bain, Kaysen, and Turner found political favour at the end of the 1960s. The White House Task Force on Antitrust Policy produced a report known as the Neal Report59 that recommended the adoption of a special law entitled the Concentrated Industries Act which would have allowed the implementation of a policy to deconcentrate concentrated markets.60 The Attorney General would have been responsible for identifying all concentrated US industries and then for taking legal proceedings against firms holding more than 15 per cent of the identified market.61 The set objective was to use structural remedies to reduce the undertakings’ market share to below 12 per cent.62 In 1972, Senator Philip Hart proposed the adoption of a similar law evocatively entitled the Industrial Reorganization Act.63 Neither of these proposals was ever made into US law. 2.41  In fact, enthusiasm for the Harvard proposals quickly faded. The legislative proposals met with a lot of harsh criticism64 and the drafts got buried when reviewed by the parliamentary committee. Reviewers, for instance, pointed to the fact that the relationship between market concentration and firm profitability was weak and that such important considerations as examining the potential for barriers to entry had been ignored. Furthermore, there was little to suggest that the analyses had confirmed whether deconcentration trends held in the long term or if they merely exhibited short-term fluctuations.

(2)  The Chicago School (or the ‘behaviouralist’ movement) 2.42  Introduction Coincident with the demise of the Harvard School of Thought, the years 1960–70 saw the birth of a new movement at the University of Chicago.65 The view there (p. 73) broke with the stance that concentrated market structures had to be dissolved. The Chicago School differed from the Harvard structuralists both methodologically and ideologically.66 First, methodologically, it rehabilitated the theoretical analysis of the markets (by invoking neoclassical competition theory).67 Next, ideologically, it assigned to competition (and to the policy underlying it) the single objective of promoting economic efficiency, in its three forms (allocative, productive, and dynamic).68

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2.43  Another interpretation of the ‘SCP’ paradigm The difference in approach led members of the Chicago School to propose a different interpretation of the SCP paradigm which looks more favourably on industrial concentration.69 In their view, the condemnation of concentration, without other anticompetitive conduct, overlooks the efficiencies that can come with concentration in the form of economies of scale, cost reductions, and product improvements.70 When such efficiencies are present in an industry, undertakings may logically be encouraged to grow in size, thus accentuating the degree of market concentration. Large firms, which tend to be more efficient than smaller ones, thus sell products that are less costly and of better quality.71 And since their costs are lower, their profits naturally surpass those of small undertakings. 2.44  In general, the difference between the Harvard and the Chicago Schools lies in their interpretation of the SCP paradigm. For the Chicago School, the existence of profits in concentrated industries does not automatically come from the exercise of ‘unreasonable market power’ but can be explained by the greater efficiency of large undertakings.72 2.45  Minimalist legal recommendations Codified in work by Robert Bork evocatively entitled The Antitrust Paradox,73 the advice given by the Chicago School to government is the very (p. 74) opposite of the structuralist directives of the Harvard School. Competition authorities should not be concerned with market structure. Most of the time, the oligopolistic concentration of the markets is a rich source of efficiencies. The Chicago School challenged the Harvard proposals for administering structural measures on concentrated markets.74 2.46  Instead, the Chicago School argues that authorities should limit their intervention to the detection of collusive behaviours (which show no efficiency) and, where necessary, to punish them when they appear.75 But the need for competition authorities to intervene to prevent collusive behaviour may in fact be limited. According to George Stigler, horizontal collusion is rare in practice since it is intrinsically unstable—the participants nearly always have incentives to deviate from the agreement.76 As to vertical collusion (eg retail pricefixing agreements between suppliers and distributors), it can often be explained by large efficiency gains.77 In truth, according to the Chicago School, collusion should only be a concern for concentrated markets. That is, governments need only look into collusive behaviours when markets are oligopolistic. Thus both the Harvard and Chicago Schools were concerned with concentrated markets, but for the Harvard School concentration was enough on its own while the Chicago School focused on anticompetitive behaviours within concentrated markets. 2.47  In the final analysis, the Chicago School therefore advocates a ‘minimalist’ competition policy. In line with these precepts, the Reagan Administration of the early 1980s limited antitrust intervention to its very minimum (‘small antitrust’).78

(3)  New industrial economics (or ‘Post-Chicago’ School) 2.48  Introduction On reflection, the Harvard and Chicago Schools may be closer than is ordinarily thought. If one were to pinpoint what they had in common, one would say that each paints too-simplistic a caricature of the way markets operate. It was too restrictive to conclude that all concentrated markets were problematic, as the Harvard School did; on the other hand, it was too sweeping a generalization to conclude that all monopolies and oligopolies were efficient and should be left to their own governance, as the Chicago School did. When not taken to their extremes, both schools offer useful insights. 2.49  The key concept of ‘strategic behaviour’ In the 1970s and 1980s, some economists drew the same conclusion that markets are more complex than suggested by the Chicago School.79 (p. 75) These economists focused on oligopolistic markets, which constitute most contemporary industrial structures, albeit under very specific circumstances. As Professors Dennis Carlton and Jeffrey Perloff explain, on oligopolistic markets interdependent undertakings sometimes adopt so-called ‘strategic’ behaviours From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

which ‘try to reduce the competition exercised by [their] current or potential rivals’ with the ultimate goal of ‘harming [their] competitors’ and ‘thus increasing [their] profits’.80 2.50  The Post-Chicago economists, adopting a ‘behaviouralist’ approach like the Chicago School,81 have identified a number of non-cooperative strategic behaviours which negatively affect market performance and, where necessary, justify the intervention of competition authorities.82 In particular, they have identified some circumstances under which oligopolistic firms have incentives to engage in predatory pricing,83 ‘limit pricing’,84 raising rivals’ costs of production,85 strategic investments (eg advertising expenses,86 or R&D), etc.87 It is important to note that just like the Chicago School models, the PostChicago models rest on some strong assumptions and therefore can only be applied to policy with great caution, something that the authors themselves have been quick to point out.88 Moreover, these models are often difficult to implement in practice.89 (p. 76) 2.51  The Post-Chicago economists have also developed a theory of strategic cooperative behaviours. Undertakings sometimes take decisions which make it easier for them to coordinate and which ultimately limit competition.90 Unlike non-cooperative behaviour, where the undertaking that initiates the behaviour tries to reduce the profit of its rivals, cooperative behaviour is aimed at increasing all participants’ earnings, and thus it increases the profit of the initiators’ competitors as well. Cartels provide the clearest example of this type of behaviour. Other types of cooperation that are a priori less harmful but may nevertheless reflect strategic cooperative behaviours are covered as well, for instance the exchange of statistical information, early price announcements,91 the practice of facilitating cartel agreements (such as the widespread use of preferential customer clauses in vertical relations),92 etc. 2.52  Assessment In sum, the main contribution of the ‘Post-Chicago School’ is to rehabilitate the idea that intervention by the competition authorities is legitimate under certain circumstances. How frequently those certain circumstances are relevant in practice remains a subject of debate.93 2.53  Conclusions While it has more explicitly introduced the complexity of the economic realities into competition analysis, Post-Chicago economics has done so at the cost of conceptual unity and, where applicable, the normative force of the Harvard and Chicago Schools. In the final analysis, we are left with individualistic evaluations, entirely dependent upon the circumstances at hand in a particular case, which brings with it a serious problem of legal uncertainty. This is probably a contributing reason why, in various parts of the world, courts and competition authorities continue, according to their decisions, to draw on the teachings of the Harvard and Chicago theories.94 2.54  As is probably apparent from our review of all three economic movements, beneath the apparent clarity of the concepts of strategic cooperative behaviours (illustrated in Art 101 TFEU) and non-cooperative ones (illustrated in Art 102 TFEU) there is a fair amount of complexity and uncertainty. First, regardless of whether we are talking of Chicago or PostChicago, modern scholars are divided about the specific standards that need to be applied to the assessment of strategic behaviours. Many—not necessarily consistent—tests have been proposed to assess exclusionary abuses of dominance, such as predatory pricing or anticompetitive rebates. With respect to such practices, EU law is still in flux. Moreover, the analytical tools used by industrial economics today borrow from virtually the whole range of modern economic theories, including, in no particular order, the theory of contestable (p. 77) markets,95 game theory,96 principal–agent theory,97 transaction cost theory (sometimes also known as theory of the firm),98 signal theory,99 the theory of externalities,100 behavioural economics,101 etc.

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(p. 78) III.  Methodology of Competition Economics 2.55  Introduction As we shall see, the main focus of study of competition economics is ‘market power’ (Section A). Market power can enable behaviours with pernicious effects on economic efficiency (which competition law, from a purely economic angle, is supposed to be responsible for protecting). Making the same finding, EU competition rules are today based, if not wholly at least mainly, on the concept of market power.102 Economists have designed instruments to help authorities, courts, and undertakings to identify and measure market power and its possible abuses and these are listed in Section B.

A.  The Concept of Market Power 2.56  Concept of ‘market power’ Whether an undertaking merges with a competitor, resorts to the strategic behaviours already mentioned, or enters into a cartel agreement, the concern of competition economics is that the undertaking may acquire, strengthen, or exploit market power. Market power describes the capacity of undertakings, by reducing their production, to set higher prices than those which would prevail in a situation of perfect competition (ie, prices exceeding marginal cost)103 and, at least in the short term, to thus make supracompetitive profits. 2.57  Differing degrees of market power Defining market power in these terms might lead one to fear that any market would, at the end of the day, find itself in the sights of competition authorities. Obviously such a situation would not be desirable. Market power is not harmful on its own, rather it is the abuse of market power that raises concerns. Emphasizing this point is the fact that in all markets in which products/services are not perfect substitutes104—that is, all the markets with the possible exception of those for fungible commodities105—undertakings can (p. 79) fix their prices higher than their marginal cost.106 Despite this price setting ability, it quite often happens that on these same markets the undertakings engage in fierce competition, hence making the intervention of competition authorities unnecessary.107 2.58  Market power and competition are therefore not necessarily antithetical. Economists tell us today with one accord (and such consensus is sufficiently rare as to be underlined here) that there are degrees in market power.108 Only certain undertakings enjoy ‘significant’ market power, that is, those that are able to raise their price to a level that is substantially greater than their marginal cost, in the medium, or even long, term. The crux of the problem is obviously to determine at what level of market power anticompetitive concerns begin to appear. And it is on this matter, which calls for a necessarily arbitrary response, that structuralist and behaviouralist economists are frequently split.109 2.59  Extending the concept of market power Focused on the power a firm has over prices, our definition of the concept of market power is incomplete. Apart from quantities, it says nothing about the fact that a powerful undertaking on the market is as often capable of influencing other parameters such as the quality of products/services, which it can make worse while holding price and quantity constant, or innovation, which it can stall .110 The concept of market power therefore encompasses other dimensions.111 2.60  Power to exclude Others, without in any way denying the relevance of power over price, consider that the concept of market power also covers a power to exclude rivals or entrants. This is the theory put forward by Professors Thomas Krattenmaker, Robert Lande, and Steven Salop.112 A firm has power to raise prices above the competitive level (or to prevent any price decrease) when it is able to raise the costs of its competitors and limit their production. An established undertaking can, for example, buy a large amount of shelf space in supermarkets while its competitor develops an intense advertising campaign. Unable to obtain adequate or appropriate display space, and hence unable to make the sales potentially triggered by the advertising campaign, the production of the competitor stagnates. Similarly, (p. 80) an established undertaking can dissuade customers from From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

turning to the products of a new entrant113 by offering them financial benefits (rebates, customer loyalty programmes, etc) or by imposing penalties114 (threatening to stop supplying another key product or, in the case where the established undertaking supplies complementary products, by making competing products incompatible). All these practices may have the effect of raising rivals’ costs. If one takes the example where an undertaking stops supplying a complementary product or service that is essential to consumers, the new entrant will also have to penetrate this new market if it wants to supply the consumers in the first market. These practices clearly limit production. If one takes the example of customer loyalty programmes, the new entrant can be dissuaded from marketing new capacities. The increase in production, which should have led to a price reduction, does not occur. 2.61  Practical scope This less classical form of the concept of market power has been recognized by European authorities.115 For instance, in the area of merger control, authorities traditionally investigate the future risk of significant market power being created or strengthened. In their investigations, authorities now tend to test behavioural theories of anticompetitive behaviours, which are directly inspired by the works mentioned earlier. They will, for instance, try to determine whether the merged entity will engage in behaviours that raise rivals’ costs. Such scenarios are frequent in vertical mergers, that is, the merger of two undertakings operating at distinct stages of the production process. When one of the parties to the operation controls certain resources that are key to downstream operators who are competitors of the other party to the operation, the newly merged entity is likely to increase the costs of its downstream competitors by making it more difficult for them to be supplied with the input at prices and on terms identical to those which would have prevailed if there had been no merger.116 117

Illustration: behavioural theory of anticompetitive conduct—the Alcoa/Reynolds case In 2000, the two US aluminium producers, Alcoa and Reynolds, notified the Commission of a planned merger.117 This merger had a vertical dimension. Reynolds was the main producer of P0404, a specific quality of primary aluminium used in the manufacture of aluminium alloys for the aerospace industry. Downstream, Alcoa produced alloys of this type. Its sole competitor was McCook Metals, previously supplied by Reynolds. The Commission was concerned that post-merger McCook would no longer be supplied with the raw material by the merged entity—or would be supplied on disadvantageous conditions— and would therefore be excluded from the downstream market for aluminium (p. 81) alloys for the aerospace industry.118 During the proceedings, Alcoa offered to share with an independent third party part of a foundry producing P0404 and, where necessary, to maintain competitive supplies of P0404. The Commission held that these commitments were appropriate, and cleared the transaction.119

B.  Measuring Market Power 2.62  Preliminary remarks Looking for an absolute instrument with which to measure market power has always come to naught. Despite the efforts of many economists, no instrument manages clearly to measure whether or not market power exists. At the end of the day authorities, courts, and undertakings must rely on a range of instruments, concepts, and criteria meant to proxy market power, as listed below.

(1)  Direct measurement of market power (a)  The Lerner index and the semantics of cost

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2.63  The Lerner index As market power has been defined as the power of a firm to fix prices at a level above that which would prevail in a perfectly competitive market, that is, above marginal costs, Abba Lerner considered that the best way to evaluate market power would be to compare the level of prices in a given market with the level of prices which would exist in the same market in a situation of perfect competition.120 According to Lerner, the gap between the price of the seller and its marginal cost of production reveals its degree of market power. This measure is essentially the undertaking’s gross margin. 2.64  While this comparison is easy to grasp conceptually, the level of the gap between the two figures is not necessarily representative of the extent of market power. For example, in some markets, a gap of several hundred euros on an extremely expensive product (eg a luxury car) may not identify meaningful market power, while a gap of just a few euros on an inexpensive good (eg a food product) may. To account for the problem of levels, Lerner designed an index that expresses relative values. The index (L) measures the ratio between (i) the price (P) less marginal cost of production (Cm) (eg the absolute price gap) and (ii) the price (P).The marginal cost of an undertaking (sometimes referred to as incremental cost), is defined as the cost incurred to produce an additional unit of output (in actual fact, the cost of the last unit of output produced).121 Thus, Lerner’s index measures the proportion of a price offered on the (p. 82) market which is greater than its costs. The undertaking has market power if the ratio is greater than 0. The closer the index gets to 1, the larger the undertaking’s market power.

2.65  Marginal cost, theoretical standard Although attractive in theory, in practice Lerner’s index only provides limited indications.122 First, note that it is a short-term measure because it is based on marginal costs. In industries with high fixed costs that must be recovered through apparently high prices (in that they exceed short run marginal costs), the Lerner index will suggest greater market power than actually exists. 2.66  Second, the index glosses over real-world complications that can have a material impact on the analysis. Let us imagine a simple example in which a firm produces electricity. It costs €500 million to build a nuclear power plant. It then costs €1,000 to produce each megawatt of electricity (the productive capacity of modern electric nuclear generators is estimated to be between 500–2,000 MW). The total cost of the first unit is €500,001,000; the total cost of the second is €500,002,000; the total cost of the third unit is €500,003,000; and so on. In our example, the marginal cost of the first unit is €500,001,000–500,000,000, that is, €1,000; the marginal cost of the second unit is €500,002,000–500,001,000, that is, €1,000; and the marginal cost of the third unit is €500,003,000–500,002,000, that is €1,000. Here, marginal cost is not only easy to identify but it also remains constant as production rises. That is not always the case. Indeed, it is typically quite hard to calculate incremental costs in practice.123 2.67  First, with the exception of certain sectors, undertakings do not typically produce one additional unit of output but will rather produce series of additional units. In other words, production does not increase in a smooth linear fashion but instead increases in steps. Under such circumstances, how should one calculate the cost of a single marginal unit? Second, sometimes a single input is used to produce more than one good at a time, such as when the lights in a factory shine equally on two distinct production lines. How should the utility bill be allocated to each product’s cost?

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2.68  Besides the problems of isolating incremental costs in the first instance, analysing marginal costs poses a range of additional issues. The electricity example was obviously simplistic. The marginal cost of an undertaking is rarely constant. As their production increases, undertakings achieve efficiency gains (effects of training, gains in productivity, etc) or, on the other hand, incur new fixed costs, when, for example, their output capacity reaches saturation level (need to build a new power plant, exhaustion of pollution emission quotas, etc) or their production tool deteriorates or suffers an incident following heavy use (breakdowns). Depending on the situation, the marginal cost can either decrease or increase as production rises, and can do both over a large enough range of output. 2.69  The difficulties in cleanly isolating costs are the likely explanation for what has been called the ‘marginalist controversy’. In the 1940s, a study by Richard Lester challenged the ‘marginalist’ premises of neoclassical price theory by demonstrating that undertakings (p. 83) themselves do not calculate their marginal cost.124 Despite its imperfections, however, marginal cost remains a useful and frequently employed concept in economics. 2.70  Productive inefficiency and high costs of monopolies Aside from the complications of accurately measuring marginal cost, the Lerner index also underestimates the market power of the most powerful undertakings. In the most serious cases of market power, the gap between price and costs may shrink away to very little. This can occur, as noted earlier, because firms with substantial market power often have little incentive to keep costs low or production efficient and may indeed use revenues for non-monetary profit taking, in the form of lavish offices say, which of course show up on the accounting books as costs.125 If price margins do not keep pace with rising (inefficiently so) costs, then the Lerner index will be misleadingly small. 2.71  Marginal cost and non-manufacturing industries In many sectors, and this is particularly so in the IT sector, the marginal costs of undertakings are minimal or close to zero.126 In such industries, firms incur large fixed costs, the size of which bears no correlation to the volume they intend to produce. For example, the invention of a new piece of software, production of a film, development of a biotechnology research tool, design of a financial product, etc, all involve substantial upfront costs but low to no incremental costs of use.127 While upfront costs are high in these markets, ‘variable costs’, that is, the cost that depends on the volume of production, are low.128 Burning a software programmes on a disk, granting intellectual property (IP) licences for broadcasting a film, licensing a biotech research tool, or marketing a financial investment—all these actions involve only reproduction or distribution costs and perhaps some enforcement costs for protecting IP rights, but do not involve sizeable recurring charges analogous to a manufacturer’s variable costs. In these non-manufacturing sectors, the marginal cost of putting an additional unit of the products/services on the market will therefore be insignificant.129 In this case, if prices were set equal to marginal costs, the undertakings would be unable to recoup their large, and typically risky, upfront investments and would thus leave the market. But applying the Lerner index to such sectors would lead to the erroneous conclusion that all market players hold significant market power. (p. 84) This problem would also be present in all other industries where fixed costs are high and variable costs low: energy, air transport, telecommunications, rail transport, the pharmaceutical industry, etc. 2.72  Conclusions What must be well understood is that the problems we have just identified present a significant obstacle to reliable and accurate measurement of market power by competition authorities and courts based on the Lerner index: if undertakings do not know their marginal cost, how could third parties (the competition authorities and courts) be expected to measure it accurately,130 especially since there are asymmetries of information and risks of the firms overestimating their costs in order to escape investigation?131 In light of this problem, competition lawyers and economists have tried to

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design other measurement tools in the never-ending search for better guidance on the market power question.

(b)  Measuring profits 2.73  Introduction Intuitively, it might be tempting to infer a causal link between the high profits observed in a sector and the holding of significant market power. This, in any case, is the link upon which many litigants relied in the 1970s in the United States to prove the existence of illegal monopolies. After all, a monopoly can typically charge supra-competitive profits. There were therefore prima facie good reasons for making profits the legal ‘paradigm’ of market power. 2.74  Type I and II errors Making profits the benchmark for measuring market power is not always appropriate. As already noted, monopoly undertakings which enjoy market power are sometimes inefficient, and so their reported profits may be limited. Moreover, in the event of an abrupt fall in demand, even a monopolist will post heavy losses. Similarly, relying on profits is likely to result in a type II error (or false negative), assuming some undertakings do not have market power when if fact they do. Thus a type II error appears when an authority fails to control a conduct which harms economic efficiency.132 2.75  In addition, large profits pose a similar problem of identification of costs133 since the level of profits can be explained by the achievement of major efficiency gains (decreasing marginal costs) that cannot be replicated by other smaller scale operators (eg new entrants).134 Focusing intervention on firms making significant profits, although the firms may just be reaping the rewards of their industrial and commercial superiority, would lead here to a type I error (or false positive).135 The repercussions of this enforcement failing can distort both the (p. 85) immediate market (by hindering an efficient undertaking) and long-term competition (by reducing the expected rewards of investing in efficient production in the first place). 2.76  Accounting profits or economic profits? As noted, litigants in the 1970s usually relied on documentation showing large profits to persuade authorities and courts of the existence of significant market power. In this respect, they usually cited the ‘accounting profits’ of the undertakings, pointing to the values shown on the assets side of the annual balance sheet of the undertakings in question. However, in the early 1980s, economists showed that this was a profound mistake for at least two reasons. First, accounting profits are calculated without taking into account the opportunity cost of mobilizing capital.136 The problem is that a firm, which decides to invest x euros as capital, takes a risk as it gives up other market opportunities (to allocate its resources differently). Hence, this firm incurs an opportunity cost (the cost of what it gives up) that is in no way reflected by the book value of the capital. Second, accounting profits do not inform on the timing of investments or enable economists to identify easily the incremental profits from a particular action. For example, the depreciation of past investments (such as when a piece of equipment loses production capacity over time and with use), the allocation of taxes and costs, and so forth will all prevent the final accounting profit figure from being economically predictive. 2.77  Measuring ‘economic profits’, that is, the total income less the cost of labour, input, and capital and including the opportunity cost will actually reflect the profits of an undertaking.137 This definition means that it is possible for an undertaking to achieve significant profits in the accounting sense, but for profits to be low, or even zero, in the economic sense; hence, the often condemned unreliability of profit-measurement tools.138

(c)  Price comparisons 2.78  Introduction If it were possible to identify the competitive level of prices that would otherwise prevail, it would then be fairly simple to determine if an undertaking exercises significant market power by simply comparing existing prices to the competitive prices. According to some, this type of approach would be possible, and desirable, by introducing some degree of empiricism,139 based on what economists call ‘natural experiments’. Such From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

experiments essentially look within a given sector for data on the market in time (observation of price differences on the market at various comparable times), in space (observation of price differences on distinct but comparable markets), or in sectors that are close but distinct (observation of price differences on geographical markets).140 At the end of such an investigation, it may (p. 86) be possible to ‘reconstruct’ one (or more) market(s) that appear structurally competitive(s).141 All that is then needed is to compare the price of the undertaking in question with the estimated price on those benchmark markets (‘competitive benchmark price’). 2.79  Mobile phones in Ireland Such natural experiments can be illustrated by the following example. In 2007, Professors Gregory Sidak and Jerry Hausman published an analysis focused on the mobile phone market in Ireland, which was composed of two operators controlling nearly 94 per cent of the market.142 The national regulatory authority had deemed that these operators held significant market power. The authors proposed an alternative analysis of the market based on the method just presented. In particular, they focused on the prices on the British mobile phone market, which the Irish national authority deemed to be competitive. The UK would appear to be a valid benchmark for Ireland since, in terms of costs, technology, and regulations, the British market shared many characteristics with the Irish market. Sidak and Hausman proved empirically that mobile prices were actually higher in the UK, where competition was presumed, than in Ireland, where only two operators essentially shared the market. 2.80  Impracticality Because it is conceptually simple, the empirical benchmark approach is undeniably appealing. The sector analysed by Professors Sidak and Hausman was, however, exceptional in that the presence of authorities controlling the day-to-day operation of the markets offered accurate and up-to-date information. Moreover, due to the harmonization Directives adopted at Community level, the regulatory requirements imposed in both Member States were relatively close. The problem with this approach is that finding two markets that are sufficiently comparable may be extremely difficult. As Sidak and Hausman seem to acknowledge,143 it will not always be possible to identify two appropriate comparators, with the possible exception of adjacent retail markets.144 As a result, this approach can be but one tool in the box; it will not always be feasible.

(d)  Price-elasticity of residual demand 2.81  Other techniques enable market power to be measured directly—for example, by measuring the price-elasticity of residual demand faced by an undertaking.145 The priceelasticity of demand in the market measures the reaction of the quantities that are wanted in response to a price increase—if quantities remain stable, demand is said to be inelastic; if they decrease considerably, demand is said to be elastic. The concept of residual demand faced by an undertaking is the total demand of the market less the quantity supplied by other undertakings.146 To put it more simply, it is the fringe of demand not supplied once other undertakings have satisfied their customers and sold the quantities they have.147 One might say that this is the natural customer base of the undertaking in question. (p. 87) 2.82  If, on this portion of demand, the undertaking is unable to increase prices without incurring a decrease in demand (customers stop consuming or turn to its competitors), demand is elastic and the undertaking is deemed not to have market power. Conversely, if its order book is kept full in spite of a price increase, demand is inelastic and the undertaking has market power. Although attractive in theory,148 measuring market power using residual demand faced by an undertaking poses significant problems in terms of collecting information and conducting the econometric calculations.149

C.  Measuring Market Power, Indirectly

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2.83  Preliminary comments Given the limits to marginal cost, residual demand, and other direct approaches to measuring market power, competition economics traditionally has taken recourse to other instruments. For instance, Professors Landes and Posner have expressed the view that market power should be estimated using a formula that takes into account market shares, as well as the general elasticity of demand and supply.150 Today, competition authorities typically rely on multi-factor analysis, combining a review of market shares (Section 1) with other indices (Section 2).

(1)  Structural measurement (a)  Market shares 2.84  Presentation Market shares are still the primary benchmark used by competition authorities to assess whether a firm is dominant on one or several markets. 2.85  Value or volume? According to economists, measuring market shares in terms of revenue (ie, sales of each firm in relation to sales of the sector) certainly provides the most reliable indirect assessment of the power of operators on the market.151 To reconsider the mobile phone example, a legitimate question is whether it is a good idea to evaluate market shares in terms of volume (number of subscribers of each operator) when it is possible that some only rarely use their telephone. A measurement in terms of revenue is a truer reflection of the economic importance of each operator. Even so, revenue-based market share is not always representative either. On markets where there are a lot of firms, input reserves and capacity can be indicative of market power. For instance, anticipating reserves of raw materials (eg in the steel industry, where the stocks of scrap metal ore must be bought in advance) or where firms have production capacities in reserve, an undertaking that has low reserves and is therefore incapable of influencing quantities/prices in the mid and long term, will only have weak market power, even if, at the time of evaluation, it makes most of the sales in the sector.152 The European authorities, as a matter of principle, adopt the opposite approach, placing more weight on current sales. (p. 88) 2.86  Characteristic of economic operations Assessing market shares is intrinsically linked to the way a particular market works. In some markets where transactions are infrequent and irregular in terms of size (eg the aeronautical sector) market share can vary greatly from one year to another. In fact, in any industry in which ‘design wins’ are important, ‘share’ can fluctuate considerably over time. Thus care must be taken to ensure that assessment of market share is performed over a sufficiently long period. 2.87  Similarly, when the focus is on the future market power of an undertaking (eg in the prospective area of control of concentrations) it is crucial to take account of anticipated changes. For example, suppose an undertaking currently has a ‘large’ share, but due to a recent contractual win is at production capacity. If other sales contracts are expected to come up for bid in the short term, other undertakings clearly will be better positioned to win them.

(b)  Measuring concentration 2.88  Concentration ratios Simply counting the number of firms on the market is not always a true reflection of the actual size of an oligopoly. Certain markets with a large number of operators can in fact be controlled by a handful of undertakings. The risk of tacit collusion is then greater than suggested by simply counting the undertakings that are active in the market. This issue can be addressed by looking at market concentration ratios. A concentration ratio (CR) is the sum of the market shares of the m largest firms (CRm). Thus, the ratio CR4 is the sum of the market shares of the four largest firms in a market. A

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market composed of ten operators, but where the ratio CR4 is 80 per cent (the four largest firms hold 80 per cent of market shares) can be described as oligopolistic. 2.89  Two instruments are generally used to measure concentration: concentration rates, which are nothing other than the market share held by a given group of undertakings, and concentration indices. The best known index is the HHI (Herfindahl-Hirschman Index, named after the two economists who invented it), which equals the sum of the square of the market shares of each of the undertakings present in the market.153 The index ranges from zero (perfectly competitive) to 10,000 (monopoly); it goes up when the number of undertakings goes down and when asymmetries of market share between operators increase.154

(2)  Additional measurement tools—assessment of obstacles to entry and expansion 2.90  Introductory comments Market share and the measurement of market concentration are, in the view of many economists, ‘poor’ indicators of an undertaking’s market power.155 To our knowledge no economist would dare to define an absolute threshold for presuming significant market power based on a level of market share/ concentration. At best, market shares serve as a mechanism for ‘filtering’ market power. How then can authorities and courts measure market power more precisely? Economic theory tells us that in addition to the structural measurement tools, the focus must be expanded to other parameters, that is, the obstacles (usually referred to as ‘barriers’) to entry and expansion. (p. 89) 2.91  Understanding barriers to entry The ‘contestable market theory’, which was developed in the early 1980s,156 embodies the idea that faced with the threatened intrusion of potential entrants (or the expansion of current competitors), a firm is, in principle, deterred from cutting its production or raising its prices.157 On the other hand, when a firm is protected by barriers to entry, it will be able to exert a certain influence on prices and, hence, will enjoy market power. If the existence of barriers to entry and expansion is not in itself sufficient to conclude that market power exists,158 it is nonetheless a crucial parameter in the analysis undertaken by competition authorities, regardless of the practice/operation in question (determination of a dominant position, prospective analysis of the effects of a concentration, etc). 2.92  Entry or expansion? Economists are equally interested in barriers to entry (ie, obstacles to the entrance of operators that are not currently present on the market) and in barriers to expansion (ie, obstacles to the growth of the production capacities of incumbent competing operators). In fact, whether it is an undertaking that is likely to enter the market (referred to as a ‘potential competitor’ or ‘new entrant’) or an undertaking already present which might expand its activities (‘current competitor’), the competitive pressure being exerted on the market power is inherently the same.159

(a)  What is a barrier to entry? 2.93  Harvard vs Chicago, again From a simple commonsense point of view it would be tempting to say, as the OECD does, that a barrier to entry is ‘any factor which makes it harder for potential applicants to enter a market’.160 But this definition would ignore a significant economic controversy between the Harvard and Chicago economists.161 The Harvard economists, whose views are expressed through Joe Bain, define a barrier to entry as any advantage of incumbent firms in an industry over potential entrants, reflected in the extent to which the incumbent undertakings can raise their prices above the competitive level without encouraging new competitors to enter the industry.162

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Bain also indicates the three main factors that contribute to the presence of a barrier to entry: absolute cost advantage, economies of scale requiring major investments, and product differentiation. Bain therefore proposes an empirical definition rooted in examining the prices practised on the market. (p. 90) 2.94  George Stigler, for his part, defines a barrier to entry as a production cost (over all possible production levels or over a subset of the latter) which must be borne by the firms seeking to enter an industry but which is not (or has not been) incurred by incumbent firms.163 Stigler therefore proposes a definition more closely aligned with neoclassical theory and focusing on the costs incurred by the undertakings. Of course, one of the three advantages that Bain lists are cost advantages, so the two definitions have some fundamental aspects in common. 2.95  Illustration A brief example taken from the electronic communications sector highlights the differences and, in some cases, the analogies, between these two approaches. If the entrants and the incumbent operators have identical access to the technology, Stigler’s view is that economies of scale and other productive, financial, advertising, and other investments (costs already realized by the incumbent operators) do not constitute barriers to entry, whereas Bain thinks that they do.164 On the other hand, if the incumbent was ‘offered’ its telecommunications network by the authorities, the (costly) construction of an alternative network by the new entrants constitutes a barrier to entry according to Stigler’s definition.165 Similarly, the incumbent operator generally enjoys a ‘first-mover advantage’ which would act as a barrier to entry according to both Stigler’s and Bain’s definitions: the incumbent operator, which has for a long time had no competitors on the market, has been able to build a customer base for itself without undertaking any significant marketing. In order to capture customers new entrants must, on the other hand, spend large amounts for marketing. These (asymmetrical) investments constitute a barrier to entry.166 2.96  Assessment Bain’s definition is certainly more inclusive than Stigler’s. Of the various different criticisms that have been made of this definition the most persuasive is that Bain’s definition covers elements which concern the efficiency of the undertakings already present in the market, such as, for example, a cost advantage or a profitable product differentiation strategy. 2.97  On the other hand, Stigler’s definition has been accused of being too narrow in that (i) it excludes from barriers to entry irrecoverable costs (which are also incurred by the incumbent undertaking)167 and (ii) it does not take into account the absence of similarity of the cost structures between the undertakings. (p. 91) 2.98  Finally, Bain’s and Stigler’s detractors have accused them of not being interested in ‘strategic barriers to entry’, that is, behaviours adopted by the incumbent undertaking to stave off the entry of competitors (eg making threats of exclusion by public announcements, making a pre-emptive acquisition of the capacities of marginal operators eyed by the entrant, establishing excessive production capacities,168 registering ‘dormant’ or ‘immaterial’ IP rights (for blocking purposes), etc).169 2.99  Recent discussions of the definition of barriers to entry tend to show that a static structural approach to barriers to entry is not sufficient; there must also be a more dynamic and behavioural approach. For instance, even if an entrant’s and an incumbent’s costs are similar, there may be a barrier to entry if a new entrant must incur those costs over a

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shorter period of time.170 Likewise, economies of scale and investment costs, as identified by Bain, may represent barriers if they delay entry and reduce social welfare.171

(b)  Characteristics of a barrier to entry 2.100  Status of problem As interesting as it may be in theory, the debate relating to the definition of the concept of barriers to entry seems to have had a minor impact in practice. What is important is not so much the formal content of the concept of barriers to entry but the ability of the obstacle in question to deter the probable entry (or expansion) of a competitor which would be timely and sufficient .172 2.101  Preventing ‘timely’ entry It would be wrong to think that only obstacles that are insurmountable in the long term for potential entrants are barriers to entry. On the contrary, since the authorities are interested in the competitive pressure exerted on undertakings that are already present in the market, anything that on the day of examination, or in the near future, constitutes an obstacle to entry deserves to be considered as a barrier to entry.173 Following the same line of thought, long-term entry (eg with a time line three or four years down the road) is not likely to constrain the current price policy of incumbent operators. 2.102  Preventing ‘probable’ entry The aim of analysing barriers to entry is to determine the existence and the extent of the market power of an undertaking that is already established on the market. This is why the analysis must not be simply theoretical: an answer must be found to the question of whether entry (or expansion) is not only possible within a suitable period in order to put pressure on the incumbent undertaking, but also whether it is probable. In other words, it is not a matter of finding out whether an undertaking might enter a market (p. 92) but of knowing whether it is likely to do so174 because it has a commercial interest in doing so.175 2.103  Preventing entry of ‘sufficient’ competition Because only entry (or expansion) that is sufficiently intense is likely to constrain the incumbent undertaking, the extent and importance of the entry (expansion) that is envisaged must be examined as well.176

(c)  Types of barrier to entry 2.104  Introduction Summarizing all the theoretical studies devoted to the concept of barriers to entry, the OECD in 2005 offered a list of types of barriers to entry which is widely accepted as comprehensive.177 Below we offer a slightly adapted version of that list.178

(d)  Structural barriers 2.105  These are barriers to entry which are endogeneous to the market in question and which do not stem from the behaviour of the incumbent undertakings. 2.106  Absolute cost advantages These advantages comprise the favourable economic conditions enjoyed by firms already present on the market which new entrants cannot enjoy (so that new entrants would be unable to replicate the prices offered by incumbent firms).179 The question of innovation in the market is crucially important here: in a market that is exposed to a sustained rate of innovation, the cost advantage enjoyed by an undertaking may, in the medium term, prove to be particularly precarious. 2.107  Economies of scale With an identical cost structure, undertakings already present on the market may benefit from economies of scale resulting from a high level of production. The undertakings can then allocate their fixed costs (eg the cost of obtaining their premises) over a relatively high number of units produced and thus reduce their average production cost.

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2.108  Economies of scope An incumbent producing a range of products can allocate its common costs over all the units of the various products and, if need be, cut the average production cost of the different products. In other words, economies of scope allow an undertaking to crosssubsidize production. A potential entrant who is not present on these various other markets would not be able to replicate the prices of that undertaking. 2.109  High investment costs The amount and cost (interest) of capital required to enter into a market may constitute a barrier to entry. Financing terms can differ substantially across investment projects depending upon their relative risk levels, and interest rates can vary (p. 93) across undertakings even within the same industry due to the differing ability of firms to repay loans. 2.110  Product differentiation and advertising investments Product differentiation and advertising investments are often considered to be barriers to entry180 for they often go hand in hand with loyalty to the brand of the incumbent. A potential entrant may decide not to enter a market if it has to make major expenditures in order to advertise its products and encourage the customers of the incumbent to change their consumption habits. It should be noted, however, that when it is permitted (ie, in most of the economic sectors) advertising can have a positive effect on entry. By improving the information provided to consumers, it can increase sales opportunities.181 2.111  Reputation effects The notoriety acquired by undertakings already present in the market can constitute a barrier to entry to the extent that the new entrant must make special efforts (eg investments) to attract customers who consider reputation to be an important factor in their purchasing decision.182 2.112  Switching costs183 These are the costs incurred not by the entrant but by a consumer who switches from one supplier’s product to another’s. When this cost is high, elasticity of demand is weak and the new entrant is faced with a barrier to entry.184 An example helps to clarify. Previously when a consumer switched his mobile phone operator, he lost his phone number, necessitating the often time-consuming process of notifying all his contacts of the change. This switching cost made it more difficult for customers of an operator to switch to another operator, even in the face of mobile service price increases. Regulations requiring number portability have eliminated this switching cost.185 2.113  Network effects Direct network effects appear when the usefulness that one customer derives individually from the consumption of a good/service increases with the number of other people who collectively consume it. Hence the individual usefulness of being connected to the telephone network increases with the number of subscribers collectively connected to the network. Indirect network effects appear when the size of the network affects the quality or cost of the good/service. For instance, an individual does not benefit directly when she purchases a widely used printer, but because it is widely used she is likely to find that service and repair is easier to find in her area and the cost of replacement toner cartridges may be lower as well. An undertaking wishing to enter a market which has network effects will tend to encounter barriers that may even be virtually insurmountable,186 whilst the (p. 94) incumbent undertaking can take advantage of its customer base to expand the number of its customers. 2.114  Regulatory barriers Notwithstanding its merits or how opportune it is, the existence of a regulation, law, or any other legal instrument that imposes conditions on undertakings within a given market can also constitute a barrier to entry.187 The practice of setting quotas to regulate access to certain professions (eg the legal and medical professions) is a good example of this.

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2.115  Barriers to exit These are all costs that an undertaking might incur if it leaves the market. These barriers therefore include sunk costs188 (costs that cannot be recouped, eg advertising investments), investments that have no salvage value (eg highly specialized machinery), or undertaking dissolution costs (eg the costs of unwinding established contractual relations). Economists consider that exit costs are likely to deter new entrants from entering a market in the first place.189 What is more, to the extent that the fear of incurring large exit costs is also shared by the incumbents on the market, the latter may be all the more determined to prevent any market entry by using strategic behaviours. Barriers to exit therefore can double as barriers to entry for potential entrants.190 2.116  ‘First-mover advantages’ First-mover advantages can take several forms, most of which are related to other potential barriers. Most simply, being first in a market can create reputation effects that later entrants have difficulty overcoming. In markets with network effects, firstmovers can benefit from switching costs. Or, if the market is characterized by learning effects, experience or the acquisition of know-how (eg production experiences a learning curve that takes a ‘positive exponential’ form) then it may be impossible for undertakings which were not present from the start to compete on equal cost footing in the short, or perhaps even in the medium, term with the incumbent undertaking. 2.117  Vertical integration Vertical integration can be a source of strategic advantages. Vertically integrated undertakings, for example, may enjoy security in terms of upstream supplies or, more simply, they may achieve substantial cost savings, particularly relating to transaction costs since they may not need to look for co-contractors to distribute their products, negotiate the terms for distributing their products, or monitor proper performance of the contractual obligations. Finally, on markets where undertakings are vertically integrated, new entrants risk being foreclosed due to preferential treatment between the upstream and downstream operations of vertically integrated firms.191

(p. 95) (e)  Strategic barriers relating to the behaviours of incumbent undertakings 2.118  These are barriers intentionally erected by incumbents. Unlike structural barriers, they are not obstacles inherent to the market in question but rather barriers created by market participants. While many of these barriers are analysed by economists as measures of the market position of an undertaking (eg its dominant position), lawyers are generally interested in these barriers in relation to the lawfulness of the behaviours of the undertaking in question. 2.119  Strategic tariff barriers A distinction is usually made between three types of strategic tariff barriers: (i) strategic financial barriers, the purpose of which is to block/limit the access of a new entrant (or a current competitor that wishes to expand) to financial resources (capital); (ii) strategic barriers with a signalling effect the object of which is to influence the perception that a potential entrant has of the profitability of the market; and (iii) strategic barriers with a reputation effect which the incumbent undertaking uses to reinforce an aggressive image vis-à-vis new entrants.192 2.120  Overinvestment in capacities By investing in excess production capacities an incumbent can discourage new entrants which may be concerned that once they have entered the market, the incumbent will flood the market with huge quantities, inducing a downward trend in prices that makes entry unprofitable.193 This phenomenon becomes more acute when a potential entrant must incur sunk investment costs in order to compete with the incumbent undertaking.194 2.121  Loyalty discounts and group rebates Provided it enjoys sufficient market power, an incumbent can create an obstacle to the entry (or expansion) of competitors by offering discounts to its customers. The latter can take several forms. First, it can set up a system of loyalty discounts: customers are encouraged to obtain their supplies for their contestable volumes (those which might be satisfied by competitors) from the incumbent by making the grant of a discount conditional upon satisfying a volume or minimum percentage of From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

orders.195 The incumbent can also make the grant of a discount on a product conditional on the purchase of other products. 2.122  Tied sales The dominant undertaking may also erect a barrier to entry on the market by jointly offering several products. If customers respond positively, it will be hard for (p. 96) a potential entrant to penetrate the market without itself adopting this approach. Entry on multiple fronts is, however, more costly than entry on one single product market.196 2.123  Exclusive commercial arrangements An incumbent supplier may use exclusive supply agreements with its customers to limit, or even prevent, competitors from entering the market. These agreements may erect barriers to entry to the extent that the contestable share of the market for new entrants is reduced in proportion to the extent/term of said agreements.197 2.124  Patent hoarding If the existence of intellectual property rights and, where applicable, exclusive operating rights can constitute a barrier to entry on a market, these rights logically fall within the category of regulatory barriers. What is involved here is a strategy used by some undertakings which develop a portfolio of intellectual property rights with the intention of blocking the entry (or expansion) of rival undertakings. Incumbents may, for example, file an array of patent applications in related fields with the competent authorities (related to sometimes minor innovations). The risk of infringing any one of these patents in the event of entry onto the market (and costly court actions that can follow) can deter the entry of new operators.198 These barriers to entry must be examined very carefully for it is particularly tricky to separate what falls under a legitimate intellectual property right from an illegally obtained intellectual property right.

D.  Other Useful Economic Concepts—Competition Law, Law of Costs 2.125  The key role of production costs in analysing competition Examining production costs in competition law is useful from two points of view. First, a focus on production costs may facilitate the identification of competition law infringements by competition authorities. Prices that are significantly above the production costs of a dominant firm, for instance, may amount to exploitation. Conversely, prices that are below certain measures of costs may be considered exclusionary or predatory. In either of these extreme cases, production costs will be the benchmark against which prices will be assessed. 2.126  Second, undertakings can sometimes justify practices that are deemed suspect by the authorities by formulating counterarguments based on their production costs. One example of this is a merger that generates efficiency gains, particularly when it results in cost savings (eg by means of returns to scale or economies of scope).

(p. 97) (1)  Marginal cost 2.127  Introduction In the pure and perfect competition model, we have seen the market price drops to the level of the marginal cost of the undertakings. Since it offers a theoretical yardstick of significant market power, if data permitted it would be sufficient to measure the marginal cost of an undertaking against its prices to reach conclusions regarding the undertaking’s capacity to harm consumer welfare.199 Inversely, according to the teachings of neoclassical price theory, when undertakings set prices aligned to marginal cost, the market is deemed to be operating competitively. 2.128  Definition As explained earlier, marginal cost is the cost which would be borne by a firm to make one additional unit of a given product/service.200 Industrial economics, which is interested in the decisions of firms, teaches that this cost is the one which entrepreneurs would calculate to decide whether it would be opportune to produce an additional unit (ie, to choose their level of production), but since in competition law the focus is on the

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behaviour of undertakings that have already made their decisions regarding production, the marginal cost of an undertaking is represented by the cost of the last unit produced.201 2.129  Controversy Phillip Areeda and Donald Turner, both representatives of the Harvard School, have argued that although marginal costs are worth looking at, they are very hard to calculate in practice.202 We know from the work of economists in the 1930s that in practice undertakings do not calculate this cost—ever. How could competition authorities therefore base their investigations on marginal cost when this information does not exist and must be estimated imperfectly? In fact, modern economists teach us that undertakings calculate their prices based on three considerations: production costs, obviously, but also the commercial objectives of the firm in question (maximizing result, developing a reputation on the market, obtaining share, etc) and consumer behaviour (sensitivity to price, etc). Given this latter parameter, it is possible for consumers to be responsive to high prices that are not aligned to costs—luxury goods come particularly to mind. In such markets, pricing is not generally aligned to costs but seeks to reflect the value perceived by the consumer. What is more, even if access to information about the marginal costs were available, this cost only concerns the production of an additional unit/the last unit, so that it is hard to draw conclusions about the behaviour of an undertaking for anything other than that unit.

(p. 98) (2)  Average costs (a)  Average total costs 2.130  Definition Average total cost (ATC) is the total cost incurred by an undertaking divided by the total number of units. It is perhaps in order to overcome the problems associated with calculating marginal cost that economists and lawyers are, in practice, often tempted, by trial and error, to rely on ATC. And on the face of it, ATC, representing as it does the ‘typical’ cost of a unit produced (per unit cost), has the virtues of a significant yardstick. 2.131  Customary practical applications ATC is often used when assessing the pricing conduct of a dominant firm and, in particular, predatory strategies. EU case law thus considers that certain pricing practices that lead to prices below ATC may, under certain conditions, have a predatory effect.203

(b)  Difficulties 2.132  ATC, however, is not entirely free of difficulties when it comes to assessing anticompetitive practices. 2.133  Limited significance of ATC Prices below ATC are not necessarily anticompetitive.204 For instance, firms that conduct what is called ‘loss-leading’ or ‘penetration pricing’ strategies set prices, in the short term, that forgo recovery of all of their ATC (eg they give up some of their fixed costs) to ensure that their products take hold on the market quickly. Grocery stores often follow a loss-leader strategy, setting some popular item’s price below cost in an effort to induce shoppers into the market who will then purchase other, higher margin, items so as to offset the loss. 2.134  Multi-product firms and the allocation of common costs Measuring ATC can prove to be complicated. This is the case when looking at multi-product firms, that is, undertakings which are active in markets that are distinct but which use common production factors (labour or capital) to supply their diverse products. It is a question of both measuring and then assigning common costs, which are defined as the costs associated with two or more activities within the same undertaking.205 Consider an extreme example: what proportion of the remuneration of a postman should be imputed to the cost of delivering one unit of express mail compared to the normal mail that he also delivers

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during his round? A more common example lies in the cost represented by establishing an HR or legal department responsible for the activities of the various group subsidiaries. 2.135  Economists tell us there must be an allocation of the common costs over the various products/services in question. There are, however, many different methods of distributing (p. 99) common costs over the different activities (and determining the proportion that should be attributed to the supply of a specific product/service). All these methods involve varying degrees of complicated analyses and there is no consensus among analytical accounting experts about any of them. Generally, therefore, even with ATC (as opposed to the more controversial marginal cost), a certain degree of arbitrariness remains. 2.136  Strategic behaviours There has been a lot of talk about cost-allocation issues in the recently liberalized sectors. For instance, in the postal sector, incumbents faced with the new challenges of opening up to competition have sometimes taken to transferring to the accounts of their (State remunerated) universal service activities a large part of their common costs so as to lower only the reported costs on the newly competitive activities (eg express mail). These accounting strategies, also known as ‘cross subsidies’, can be illegal.

(c)  Subdivision—fixed and variable average costs 2.136a  In order to overcome the aforementioned problems, economists and lawyers have taken to refining cost analysis by distinguishing between two components within total costs, that is (Section (i)) fixed costs and (Section (ii)) variable costs. (i)  Fixed costs

2.137  Definition These are production costs which do not vary depending on the quantity of goods or services, such as property taxes, rent, and infrastructure expenses in some cases. The level of these costs remains ‘fixed’ regardless of the number of units produced. In the air transport sector, for example, the expenses incurred to build up a fleet are, at least in the short and medium term, fixed costs. 2.138  Economic law Undertakings with high fixed costs will in principle be able to achieve ‘returns on scale’, that is, they will be able to reduce their per-unit fixed costs by producing more units. Fixed costs are then allocated over a greater scale of production and have less impact on each unit produced. With returns to scale the average fixed cost decreases as production increases. 2.139  Practical impact In practice, the principle of spreading fixed costs over larger production levels directly influences the strategies of firms: undertakings have every interest in adopting behaviours that enable them to increase their production and, if necessary, in exploiting all of these returns on scale. Economics thus sheds a new light on behaviours which competition law sometimes penalizes blindly. A particular instance of this is price discrimination or discounts granted by dominant undertakings: where a single price system necessarily may exclude certain consumers from buying the product (those whose reservation price is lower than the price set) and therefore does not allow the quantities produced to be maximized, discrimination or volume-related rebates allow these customers to be satisfied and raise the scale of production. 2.140  Similarly, Ronald Coase’s famous theory of the firm indicates that if economies of scale are achieved by operators situated downstream or upstream, it may be efficient for a firm to delegate the performance of a task (eg the distribution of its product or the production of an input) to a specialized third party. This is why car manufacturers delegate tyre production to third party specialists. These ‘transactional’ reasons provide objective justifications for the cooperation agreements between undertakings which also concern competition law.

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(p. 100) 2.141  Confusion between fixed costs and sunk costs Lawyers and public decision-makers sometimes confuse the concepts of fixed costs and sunk costs (also called ‘irreversible costs’). Sunk costs are, as we have seen, costs which have been incurred and which cannot be recovered in case of exit (advertising expenses, certain innovation expenses, etc). Although it is true that sunk costs are, if not exclusively at least primarily, fixed costs,206 the opposite is not true: a fixed cost is not necessarily irrecoverable. To take another example in the air transport field, acquiring the fleet is a fixed cost which may be recovered in case of exit since planes can be resold on the second hand market or reallocated to other routes. 2.142  Dogma Lawyers sometimes say that sunk costs are not taken into account by firms when defining their pricing policy. In other words, firms would not seek to recover those costs from their customers.207 This claim is obviously going too far. All undertakings, for example those which have incurred major innovation expenses, seek to recover some of those costs over the long term. If an undertaking does not expect to recoup R&D costs through sales in the market, for instance, it will not invest in that R&D. This point is especially important in highly innovative sectors, such as pharmaceuticals and IT. (ii)  Variable costs

2.143  Definition These are costs which vary depending on the production volume. The costs of inputs or energy used in the production process are in principle variable costs. In the transport sector, fuel expenses are a variable cost. Because measuring them tends to be easier, economists often use average variable costs (AVC) instead of marginal costs (which depend solely on variable costs since fixed costs do not vary based on production).208 2.144  Economics Economic theory teaches that an undertaking will stay on the market as long as it is able to cover its variable costs in the short and medium term (ie, its unit price is higher than or equal to its average variable costs) since recovering fixed costs is in fact a long-term concern. On the other hand, if an undertaking does not manage to cover its variable costs it is, in principle, forced to exit the market. This is why an airline which has high fixed costs and low variable costs continues to fly its fleet of aircrafts even when the occupancy rates of its planes are low.209 2.145  Practical impact AVC has practical applications in the two previously mentioned areas of identifying conduct violating competition law and justifying conduct that may be deemed in violation of competition law. First, when it comes to identifying an infringement, AVC is traditionally used by competition authorities in the context of predatory pricing tests.210 In short, a dominant undertaking which prices its products or services at a price that is lower than its AVC is undoubtedly seeking to squeeze out its competitors. It is not acting rationally (p. 101) since each unit that it sells represents a net loss. Although it is often considered to be a satisfactory approximation of marginal cost, using AVC has been, however, criticized so that authorities seem to be moving away from it in favour of average avoidable costs (AAC). AAC are defined as those costs that are entirely avoided if production ceases. 2.146  Next, looking at ‘justification’, dominant undertakings sometimes refer to their AVC to justify discriminatory pricing behaviour or price cutting, which the authorities suspect is anticompetitive. The idea is simple: a dominant firm which grants a price reduction to some customers and agrees to sell its product above AVC is not necessarily seeking to foreclose its competitors. Since any price higher than the variable cost enables it to recover at least some of its fixed costs (the difference between the price and the average variable cost), serving these customers, including at a knock-down price, is more efficient than failing

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altogether to satisfy their demand. This is why it is usually said that price discrimination, rebates, or discounts result in more rapid recovery of fixed costs. 2.147  When do costs cease being fixed A fixed-cost item may, in time, become variable, just as a variable cost item may become fixed. Outsourcing is one example. When an undertaking itself produces an intermediate component which it incorporates into final goods, it must incur certain fixed costs, in particular fixed assets (equipment, etc) associated with that component. But if that undertaking decides to outsource production of that same component, it no longer incurs a fixed cost but a variable cost corresponding to the purchase of the component from a third party.211 2.148  Similarly, any fixed cost becomes variable in the long term. For instance, the cost of building a nuclear power plant, which is a fixed cost in the short term for any energy producer (regardless of whether it produces 0 or 1,500 MW) necessarily becomes a variable cost when it is looked at over the long term. Once a power plant reaches its capacity limit, another one must be built to increase production. The construction cost of a power plant is therefore linked to the relatively large increase in the quantities produced.

(3)  Average avoidable costs 2.149  Definition As mentioned briefly above, AAC represent all average costs incurred by an undertaking for the supply of a specific product/service and which are recoverable over a given period .They therefore include not only the AVC but also the part of the fixed average costs which (i) is specific to the production of the good/service in question and (ii) can, over a certain period, be recovered by the undertaking. The term used is ‘avoidable cost’ as a way of simply referring to what the undertaking would have saved by discontinuing the production in question.212 One of the main advantages of the notion of avoidable costs is that it overcomes the shortcomings that go along with the measurement of variable costs: those of fixed costs which, as we have seen, influence the pricing decisions of firms (those they want to recover eventually) are taken into account here;213 common fixed costs that cannot be imputed to the good/service in question are not taken into account. (p. 102) 2.150  Practical impact The concept of AAC has been used increasingly in competition law in recent years,214 particularly with regard to characterizing exclusionary or predatory price policies of dominant undertakings, that is, abusively low prices. The variable cost standard, in fact, previously allowed firms that incurred large fixed costs to escape any criticism under competition law despite the potentially anticompetitive efforts of their practices. The avoided cost standard, which is less broad and more closely tied to business decisions, is undoubtedly going to become the common legal standard in EU competition law.215

(4)  Other cost concepts (a)  Average incremental costs 2.151  Definition Average incremental costs are made up of all costs specifically linked to an increment, that is, an increase, of production. This concept therefore covers not only variable costs but also fixed costs, whether recoverable or not. The difference with marginal cost lies in the fact that average incremental cost corresponds to the average cost of a set of additional units and not of a single one, which is more realistic since firms do not decide to produce by unit but by ‘a set’ of units. As with AAC, average incremental cost does not include the common costs relating to other products, which makes it a standard that is useful for multiproduct firms.

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2.152  Practical impact Long-run average incremental cost (or LRAIC) is regularly used in the newly liberalized network industries. These industries have two characteristics that make the LRAIC a cost standard that argue for its use in reaching conclusions about the existence of a competition law infringement (eg predatory prices). First, undertakings that are active in these sectors often have multiple activities, including what are called ‘reserved’ activities, that is, where they enjoy a monopoly behind which they can attempt to conceal the costs of competing activities.216 Second, LRAIC is used within a relatively longtime frame in order to take account of the often considerable investments made in these sectors (infrastructure investments) which are only incurred by firms that take a long-term view.217 However, as recognized in the Article 102 Guidance Paper, LRAIC is not applicable when products and services can be sold in bundles.218 In that case, the relevant comparison is not whether incremental revenues cover incremental cost, but rather is whether the bundle as whole is priced (p. 103) in a predatory fashion. Moreover, sometimes costs are common across the provision of several goods, which requires an allocation.

(b)  Stranded costs 2.153  Definition These are irrecoverable costs of a specific type since they only appear in certain industries. They can be defined as the costs incurred by an undertaking due to the universal service obligation (eg picking up the mail and distributing it to households at least once each business day) which the undertaking has and which it would not have incurred if the activity to which the costs relate had been a competitive activity.219 2.154  Practical impact Incumbents with universal service obligations have often taken advantage of significant stranded costs in order to (i) challenge the price reduction obligations imposed by the sector regulators based on lower cost measurements (eg average variable costs) and/or (ii) justify their high price policies by the need to recover their investments from the customers.220

Footnotes: 1 

eg in intellectual property it is common practice for engineers and lawyers to collaborate.

2

  See L.-H. Röller, ‘Economic Analysis and Competition Policy Enforcement in Europe’ in P.A.G. van Bergeijk and E. Kloosterhuis (eds), Modelling European Mergers: Theory, Competition Policy and Case Studies (Cheltenham: Edward Elgar, 2005), 14. It should also be noted that approximately 200 of the 700 civil servants who make up DG COMP have training in economics. Around 20 civil servants hold a doctorate in economics. M. Monti, Competition Commissioner between 1999 and 2005, was Professor of Economics at the University of Bocconi in Milan. 3 

See Interview with F. Jenny, ‘An Economist on the Bench’ (2005) 1 Concurrences, 5–8.

4

  For a full survey see D. Encaoua and R. Guesnerie, Politiques de la concurrence (CAE no 60), (Paris: La Documentation française, 2006), Part One. 5

  See eg the appointment of D. Turner in 1965 as Assistant Attorney General for Antitrust at the Department of Justice. The office of the US judge is also becoming more economicsbased. Lawyers with advanced economic training, such as R. Posner or F. Easterbrook exercise judicial functions. 6

  See D. Gerber, ‘Law and the Abuse of Economic Power in Europe’ (1987) Tulane L Rev 57. D.B. Audretsch, W.J. Baumol, and A.E. Burke, ‘Competition Policy in Dynamic Markets’ (2001) 19(5) Int’l J Industrial Organization 614: ‘If there is any body of law that owes its existence to economics, it is surely antitrust law.’ 7

  See our arguments on the origin of the Treaty’s competition rules in Chapter 1.

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8

  Lawyers have long made up the great majority of the staff at DG COMP. See G. Monti, EC Competition Law—Law in Context (Cambridge: Cambridge University Press, 2007, Cambridge), at 80. 9

  See, in this regard, D. Gerard, ‘Merger Control Policy: How to Give Meaningful Consideration to Efficiency Claims’ (2004) 40(6) Common Market L Rev 1410. 10

  However, in the past European judges and the Commission, did take, from time to time, economic analyses into account. The Wood Pulp II judgment is a case in point. The Court ordered two opinions by economic experts for the purpose of determining if the price parallelisms observed in the wood pulp market could be explained by the oligopolistic characteristics of the sector. See CJ, C-89/85, C-104/85, C-114/85, C-116/85, C-117/85, and C-125–129/85 Ahlström Osakeyhtiö et al v Commission, 31 March 1993 [1993] ECR I-1307. 11

  See in particular B.E. Hawk, ‘System Failure: Vertical Restraints and EC Competition Law’ (1995) 35 Common Market L Rev 973. 12

  See Green Paper—Community competition policy and vertical restrictions, COM(96) 721, 22 January 1997, at para 65: ‘For policy purposes, it is necessary to translate the conclusions from economic analysis into workable tools that are both consistent with EC competition rules and relatively easy to implement with the necessary legal certainty for undertakings’ (emphasis added). 13

  In order to assess market power, the Commission uses market share thresholds. Below certain thresholds, practices are presumed to be compatible. Above certain thresholds, the practices must each be subject to an in-depth examination. A legitimate question is whether the market share approach is actually much of an economic improvement over the prior process though. Market share analysis has been the subject of considerable debate. For an example of the criticisms levelled, see Robert H. Lande, ‘Market Power Without a Large Market Share: The Role of Imperfect Information and Other “Consumer Protection” Market Failures’, American Antitrust Institute Working Paper No 07-06, 14 March 2007. Available at SSRN . 14

  There is also a growing influence of economics on the law of State aids, the law of car distribution, and so forth. 15

  Merger review has undergone a more significant transformation in relation to effectsbased economic analysis than cartel investigations. 16

  In other words, many lawyers expressed concern that economics, heretofore a tool for implementing the rule of law, had become the very purpose of the rule of law. See L. Vogel, L’économie, serviteur ou maître du droit (Paris: Litec, 2004), at 605. 17

  Interdisciplinarity has been the subject of some heavy criticism. See eg A. D’Amato, ‘The Interdisciplinary Turn in Legal Education’, Northwestern University School of Law Public Law and Legal Theory Series No 06-32, at 66: as to the question of emergence, there is little evidence that economic analysis of law has changed these areas in any innovative way. Indeed, the focus on the quantitative aspects of antitrust—such as in Robert Bork’s reductionism of antitrust to the goal of delivering the lowest prices to the consumer—has had a distorting effect on the field. The original impetus (not the only motive, of course) for antitrust legislation—combating an incipient fascist tendency of huge corporate combinations to overwhelm and run the government—seems to be an inconvenient memory for those who would like economic analysis to quantify everything in dollars.

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18

  Of course, there are disagreements between the various movements that we discuss in this chapter. See R.J. van den Bergh and P.D. Camesasca, European Competition Law and Economics: A Comparative Perspective (Antwerp/Oxford: Intersentia/Hart Publishing, 2001), at 16, who emphasize the great divergences among economic schools since classical theory. However, competition economics has been nourished by these interactions between movements, schools, and doctrines so that today it is relatively stable and reliable, at least in those applications with a longer history. 19

  See P. McNulty, ‘A Note on the History of Perfect Competition’ (1967) 75 J Political Economy 395, who mentions the influence of other writers in the seventeenth century; P. McNulty, ‘Economic Theory and the Meaning of Competition’ (1968) 82 Quarterly J Economics 639. 20

  In fact, classical economists such as A. Smith and J. Stuart Mill spoke of competition but never gave a precise definition of the concept. It was not until the British economist S. Jevons, one of the co-founders of the neoclassical movement, that the adjective ‘perfect’ began to be heard. The neoclassical economist Y. Edgeworth was subsequently the first to attempt to define what perfect competition might be. But it was not until 1921 and the book Risk Uncertainty and Profit by F. Knight that economists offered an explicit statement of the five conditions that must be met for a market structure to qualify as perfect competition. J. Boncoeur and H. Thouement, Histoire des idées économiques de Walras aux contemporains, 3rd edn (Paris: Armand Colin, 1921), ch III, at 39–55. V. Pareto subsequently explained why perfect competition is an ideal to be attained. 21

  See van den Bergh and Camesasca, n 18, at 18.

22

  When supply is held constant, of course.

23

  When demand is held constant, of course.

24

  See R. Guesnerie, L’économie de marché (Paris: Le Pommier, 2006), at 35.

25

  Ibid.

26

  Note that Marshall studied what is known as ‘partial’ equilibrium, ie, he showed how prices are determined on a particular market, not for the economy as a whole. L. Walras studied the much broader concept of general equilibrium by imagining the situation of an auctioneer who by trial and error determines the equilibrium prices on all markets. 27

  See Guesnerie, n 24, at 6.

28

  See M. Glais and P. Laurent, Traité d’économie et de droit de la concurrence (Paris: PUF, 1983), at 8. 29

  Each of the sellers and buyers must be considered an ‘atom’ on the market.

30

  Sellers of this type are called ‘price-takers’.

31

  When the price is equal to the marginal cost, sellers are nonetheless profitable since they do not make a loss and therefore remain on the market. The important notion to bear in mind here is the difference between ‘accounting profits’ and ‘economic profits’. The marginal cost that economists use includes opportunity costs, or the cost of using resources to produce the good at hand instead of moving those resources to their next best alternative. Hence zero economic profits, as occurs when price equals marginal cost, enables firms to earn positive accounting profits equal to the competitive return for the particular industry or market. 32

  See Glais and Laurent, n 28, at 6.

33

  The first premise of perfect competition has therefore not been met.

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34

  See J. Pearce Azevedo and M. Walker, ‘Dominance: Meaning and Measurement’ (2002) 7 European Competition L Rev 366. 35

  Classical theorists saw an analogy between the cartel and the monopoly as an antithesis to competition. See in particular, A. Smith’s famous words: People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices (A. Smith, An Enquiry into the Nature and Causes of the Wealth of Nations, 1776, at 127–8). 36

  V. Pareto argues that a situation is optimal when it is no longer possible to improve the situation of an economic agent without making that of another (economic agent) worse. This condition is referred to as Pareto Optimality. See V. Pareto, Course of Political Economy (Lausanne: 1896). 37

  This triangle is also sometimes referred to as the ‘Harberger triangle’. Its value is equal to (QC−QM) × (PM−PC)/2. See A. Haberger, ‘Monopoly and Resource Allocation’ (1954) 44(2) Am Economic Rev 77. Note that the fact that the holder of a monopoly makes economic profits is not the source of major concern for neoclassical theorists. Such profits are only one of the collateral consequences of monopoly power. 38

  E. Combes, Economie et politique de la concurrence (Paris: Dalloz, 2005), at 36, para 11. See J. Hicks, ‘The Theory of Monopoly’ (1935) Econometrica 1. 39

  See J. Tirole, The Theory of Industrial Organization (Cambridge, MA: MIT Press, 1988).

40

  See K. Arrow, ‘Economic Welfare and the Allocation of Resources for Invention’ in R. Nelson, The Rate and Direction of Inventive Activity (Princeton, NJ: Princeton University Press, 1962), 609. 41

  See J.A. Schumpeter, Capitalism, Socialism and Democracy (New York: Harper, 1975).

42

  The relationship between competition and innovation is one of the most hotly debated issues in economic theory. See P. Aghion, ‘A Primer on Innovation’, Bruegel Policy Brief 04, Issue 2006/06, October 2006. 43

  See Guesnerie, n 24, at 78 who points out that the greatest technological leaps in the twentieth century originated in the tight networks of small undertakings in the Silicon Valley. 44

  See H. Leibenstein, ‘Allocative Efficiency vs X-Efficiency’ (1966) 56 Am Economic Rev 392. 45

  See O. Williamson, ‘Managerial Discretion and Business Behavior’ (1963) 53(5) Am Economic Rev 1032. 46

  See van den Bergh and Camesasca, n 18, at 6, who refer to this problem.

47

  All the writers agree on this point. See, in this sense, van den Bergh and Camesasca, n 18, at 20. 48

  The term oligopoly is a combination of two Greek words: ‘oligos’, an adjective meaning ‘small’, and ‘poleo’, a verb meaning ‘to trade’ or more generally ‘to sell’. 49

  See A. Cournot, Recherches sur les principes mathématiques de la théorie des richesses (Paris: Dunod, 2001). 50

  Incidentally, a market structure organized on the basis of atomicity of producers is generally inefficient. In a large number of sectors, the existence of economies of scale results in efficiency gains. Exploiting these economies of scale implies an increase in the size of the undertakings active in the market and a reduction in their number. These scale efficiency gains go hand in hand with substantial improvements in ‘welfare’ for both From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

manufacturers and consumers (reduction in price, improvements in the quality of the products and services, etc). This observation subsequently led to the development of more pragmatic theories, eg the theory of ‘workable competition’. See J. Clark, ‘Towards a Theory of Workable Competition’ (1940) 30 Am Economic Rev 241. The theory of monopolistic competition is another such theory. Proposed by E. Chamberlin in 1933, it is based on four conditions which to some extent echo perfect competition, but differ slightly from it: (i) undertakings sell products that are of the same type but are imperfectly substitutable (differentiated products); (ii) each firm may choose the price of its product; (iii) the number of undertakings that are part of the industry in question is high and each is negligible in relation to all the others; and (iv) there is free entry and exit on the market. In this model each firm sells a specific product the price of which it sets. On its own (narrow) market, it holds a limited monopoly. See E. Chamberlin, The Theory of Monopolistic Competition (Cambridge, MA: Harvard University Press, 1933). 51

  Ibid, at 22.

52

  While most economists recognized the practical limitations of neoclassical models, some ordo-liberal theorists later argued in favour of making perfect competition, with some adjustments, a policy guideline. See van den Bergh and Camesasca, n 18, at 21. 53

  The first research is that of Mason in 1930–40. See E.S. Mason, ‘Price and Production Policies of Large Scale Enterprises’ (1939) 29 Am Economic Rev 61. 54

  Understood as being the contribution of the commercial activity of the undertakings in the market to general material welfare, ie, not only allocative, productive, and dynamic efficiency but also in terms of distribution of revenue, growth, and employment. See F.M. Scherer and D. Ross, Industrial Market Structure and Economic Performance, 3rd edn (Boston, MA: Houghton Mifflin, 1990), at 4. 55

  See C. Kaysen and D.F. Turner, Antitrust Policy (Cambridge, MA: Harvard University Press, 1959), at 106, 110, and 111. 56

  In general, implementation of a strict policy relating to the control of undertakings operating within concentrated markets. 57

  See the arguments of R. Joliet, Monopolization and Abuse of a Dominant Position—A Comparative Study of the American and European Approaches to the Control of Economic Power (The Hague: Martinus Nijhoff, 1970), at 106. 58

  See Kaysen and Turner, n 55, at 266. This would involve sending deconcentration and disinvestment orders to operators. Ibid, at 498 and 520. 59

  This was a Commission established by the White House to study the concentration of US industry. The Task Force, set up in December 1967, was chaired by Phil C. Neal, Dean of the Faculty of Law at the University of Chicago and comprised three practising lawyers, three economists, and six professors of law (William F. Baxter, Robert H. Bork, Carl H. Fulda, William K. Jones, Dennis G. Lyons, Paul W. Macavoy, James W. McKie, Lee E. Preston, James A. Rahl, George D. Reycraft, Richard E. Sherwood, and S. Paul Posner). See A.A. Foer, ‘Putting the Antitrust Modernization Commission into Perspective’ (2003) 51 Buffalo L Rev 1029, at 1039–41. The proposals for specific legislation were adopted by 11 out of the 13 members of the Task Force. 60

  See White House Task Force on Antitrust Policy, Report 1 (in Trade Reg, supp to no 415, 26 May 1969), reproduced in (1968–69) Antitrust Law and Economics Rev (Winter) 11. 61

  Concentrated industries were defined as the industries whose sales exceeded $500 million and in which four undertakings jointly held more than 70 per cent of market share.

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62

  This target is set so that the four largest undertakings in the sector would not control more than 50 per cent of the market. 63

  See P.A. Hart, ‘Restructuring the Oligopoly Sector: The Case for a New “Industrial Reorganization Act”’ (1972) 4 Antitrust Law & Economics Rev 35. 64

  See Y. Brozen, ‘The Antitrust Task Force Deconcentration Recommendation’ (1970) 13 J Law and Economics 279. At the famous Airlie House conference in 1974, critics of the structuralist approach synthesized their arguments and research. The conference activities and subsequent work succeeded in discrediting the recommendations of the structuralist school. 65

  The founders of this movement were Aaron Director, Robert Bork, Harold Demsetz, Richard Posner, and George Stigler. 66

  See R. Posner, ‘The Chicago School of Antitrust Analysis’ (1979) 127 U Penn L Rev 925, at 944 who establishes the issue of economic concentration and deconcentration policies as the fundamental difference between the Chicago School and the Harvard School. 67

  See van den Bergh and Camesasca, n 18, at 4. This methodology is no less capable of being criticized. While it is motivated by empirical observation, the analysis is based on theoretical models, often with restrictive premises far removed from reality. 68

  See R.H. Bork, The Antitrust Paradox—A Policy at War with Itself (New York: The Free Press, 1993), at 91; N. Mercuro and S.G. Medema, Economics and the Law—From Posner to Post-Modernism (Princeton, NJ: Princeton University Press, 1997), at 53; see van den Bergh and Camesasca, n 18, at 4. The concept of economic efficiency refers to the optimization of allocative efficiency and productive efficiency. Allocative efficiency exists when productive resources are used for the purposes that consumers value most or, in other words, when all the demand on the market is satisfied. Productive efficiency exists when the productive resources are used optimally by the undertakings, ie, when they reduce their costs in an optimal fashion. 69

  See van den Bergh and Camesasca, n 18, at 42.

70

  See Posner, n 66.

71

  See H. Demsetz, ‘Industry Structure, Market Rivalry and Public Policy’ (1973) 16 J Law and Economics, 1. 72

  A positive causal link can certainly be established between the structure of a market and its performance (for the Harvard School, making a profit). The Chicago School finds that this link, however, does not come from the market power of the operators but, on the contrary, from the greater efficiency of the latter. See H. Demsetz, ibid, which explains the concentration of an industry either (i) by the commercial or productive superiority of an undertaking or (ii) by the greater efficiency of a market structure comprising a limited number of undertakings (eg due to economies of scale). It should be noted that Bain had already mentioned the possibility of concentration of markets being both the cause and the consequence of the efficiency of undertakings. See J. S. Bain, Industrial Organization (London: Wiley, 1959), at 424. Nevertheless, Bain felt that efficiency was only one of several explanations while the Chicago School considers that this is the primary explanation. 73

  See Bork, n 68.

74

  See Demsetz, n 71, at 9. Deconcentration policies include the risk of promoting the appearance of inefficient market structures. If, in certain cases, they can reduce the risk of collusion it is not certain that this positive effect is sufficient to offset the resulting efficiency losses. Ibid, at 4–5.

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75

  This doctrine is echoed in Germany, where Professor Hoppmann criticized the structure/ performance link and came out in favour of a competition policy targeting behaviour. See van den Bergh and Camesasca, n 18, at 40 and 45. 76

  See G.J. Stigler, ‘Theory of Oligopoly’ (1964) 72 J Political Economy 44.

77

  See L.G. Telser, ‘Why Should Manufacturers Want Fair Trade?’ (1960) 3 J Law and Economics 86. 78

  See P.A. London, The Competition Solution—The Bipartisan Secret behind American Prosperity (Washington DC: AEI Press, 2005). 79

  See H. Hovenkamp, ‘The Reckoning of post-Chicago Antitrust’ in A. Cucinota, R. Pardolesi, and R. van den Bergh (eds), Post-Chicago Developments in Antitrust (Cheltenham: Edward Elgar, 2002), at 4. 80

  See D.W. Carlton and J.M. Perloff, Modern Industrial Organization, 4th edn (London: Longman Higher Education, 1990), at 351ff. They focus in particular on ‘strategic interactions’. 81

  See A.I. Gavil, W.E. Kovacic, and J.B. Baker, Antitrust Law in Perspective: Cases, Concepts and Problems in Competition Policy, American Casebook Series (St Paul, MN: Thomson West, 2002), at 67–8. 82

  See Carlton and Perloff, n 80, at 315–79; see van den Bergh and Camesasca, n 18, at 60. Intervention is justified where there is ‘welfare loss’. The concept is broader than the concept of efficiency established as the objective of competition policy by the Chicago School. Efficiency is the maximization of the sum of producer and consumer surpluses; thus equal transfers from consumers to producers create a zero net effect on total surplus. ‘Welfare’, however, is most often evaluated in terms of consumer surplus alone, so that gains to producers that have no direct impact on consumer welfare (eg when improvements in the cost of production are not passed on to consumers via lower prices) have a zero net effect on welfare. Second order effects, such as gains to the producer’s shareholders who also function as consumers, are generally not considered. 83

  D.E. Waldman and E.J. Jensen, Industrial Organization, Theory and Practice (Reading, MA: Addison-Wesley Longman, 1997), at 245–8. Eg a strategy consisting of reducing prices in order to eliminate competitors, then raising them again later when rivals find entry difficult. 84

  See for a full treatment of price limitation practices, Tirole, n 39, para 9.4, at 367ff.

85

  See S.C. Salop and D.T. Scheffman, ‘Cost-Raising Strategies’ (1987) 36(1) J Industrial Economics 19. 86

  See R. Schmalensee, ‘Advertising and Entry Deterrence: An Exploratory Model’ (1983) 91(4) J Political Economy 636; O.P. Heil and A.W. Langvardt, ‘The Interface between Competitive Market Signalling and Antitrust Law’ (1994) 58(3) J Marketing 81. 87

  On the literature relating to strategic investments, see M. Motta, Competition Policy— Theory and Practice (Cambridge: Cambridge University Press, 2004), at 454. 88

  See eg Dennis W. Carlton and M. Waldman, ‘Theories of Tying and Implications for Antitrust’ in W. Dale Collins (ed), Economics of Antitrust (American Bar Association, forthcoming). Hart et al concede a similar point in their seminal paper on vertical integration simply stating that ‘Given these conflicting effects it is hard to deliver clear-cut prescriptions for antitrust policy on vertical mergers’, O. Hart et al, ‘Vertical Integration

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and Market Foreclosure’, 1990 Brookings Papers on Economic Activity: Microeconomics, 205, 213. 89

  Herbert Hovenkamp made this point in his general critique of the Post-Chicago School noting that, [w]hile [the post-Chicago methodologies] sometimes produce robust economic conclusions, testing them has proven difficult. Further, they are messier and more difficult to use and too often strain the fact-finding power of courts beyond the breaking point. ( H. Hovenkamp, ‘Post-Chicago Antitrust: A Review and Critique’ (2001) Colum Bus L Rev 257, 336 ). 90

  See Salop and Scheffman, n 85.

91

  For a complete description of these behaviours, see Carlton and Perloff, n 80, at 379–86.

92

  Ibid. Clauses such as ‘most favoured nation’ offer a guarantee to any buyer that he is paying the lowest possible price. When its use is widespread in an oligopoly setting, each producer is able more easily to detect if one of its competitors is cheating on the implied cooperative agreement and the incentive of each to deviate from the collusive price decreases since a price reduction becomes very costly (it has to be extended to all customers). 93

  For a summary of this point, see J. Church, ‘The Impact of Vertical and Conglomerate Mergers on Competition’, Report for DG COMP Merger Task Force, European Commission, September 2004, at 4–10. 94

  According to Professor E. Elhauge, recent judgments of the US Supreme Court apply the precepts of the Harvard School. See E. Elhauge, ‘Harvard, not Chicago: Which Antitrust School Drives Recent Supreme Court Decisions’ (2007) 3 Competition Policy International 59. 95

  See W.J. Baumol, J.C. Panzar, and R.D. Willig, Contestable Markets and the Theory of Industrial Structure (New York: Harcourt Brace, 1982). The theory of contestable markets appeared in the early 1980s with the publication of Baumol, Panzar, and Willig’s work. It summarizes and sets out the conclusions of the Chicago School. In short, it finds that concentrated markets are not problematic provided new operators can enter the market when incumbents try to extract supra-competitive profits (ie, the market is contestable). This theory therefore stresses the concepts of exit costs and irrecoverable investments, the effects of which deter potential entrants from entering a market and therefore ease the competitive pressures on the established operators. 96

  See N. Petit, Oligopoles, collusion tacite et droit communautaire de la concurrence (Brussels: Bruylant-LGDJ, 2007), ch I. Game theory is a mathematical theory based on the premise that producers are players in a ‘game’ seeking to maximize their gains in light of the anticipated behaviour of others. Players therefore act in a strategic way. This theory allows predictions to be made about the behaviour of operators on the market. Eg it allows one to determine if operators in an oligopoly are going to become involved in parallel price hike strategies or if a price-fixing agreement will be adhered to by all the parties to the agreement. 97

  This theory focuses on the ‘principal–agent’ relationship: a ‘principal’ grants authority to an ‘agent’ to conduct a task, the performance of which he cannot completely observe or control. When information is asymmetric, with the agent having greater information, the theory finds that ‘problems of opportunism’ appear. One such problem is ‘moral hazard’: the agent does not comply with the terms of the agreed contract but instead tries to defraud the principal, say by distributing a competitor’s products in addition to the principal’s. In order to limit the problems of opportunism, principals generally must incur two types of

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expenses: incentive expenses meant to align the agent’s incentives with the principal’s (eg profit sharing) and audit expenses meant to catch and punish the agent for any opportunistic behaviour and thus to limit its occurrence (eg unannounced visits to the point of sale). Agents, in an attempt to limit the principal’s concerns, incur expenses known as agency costs, such as monthly reporting which a distributor agrees to perform. See Tirole, n 39, at 51–5. 98

  Transaction cost theory seeks to answer the following question: why do firms not conclude a contract with a specialist third party to produce a good or a service instead of handling diverse production tasks themselves, using internal employees over whom they have hierarchical control? Ronald Coase was the first to answer this question. He explains that to carry out an action, undertakings can choose between (i) the market, ie, they will conclude a contract with another operator (a decentralized mechanism based on prices) and (ii) the firm, ie, they will themselves carry out this activity (an organized mechanism based on authority). Consider an example: to fit its vehicles with tyres a car maker can choose either to buy them from major tyre producers or to become vertically integrated in the tyre manufacturing business. According to Coase, the decisive criterion between both these possibilities is the size of the transaction costs (from concluding a contract) and the internal organization costs (from vertical integration). Transaction costs are traditionally split between (i) research and information costs; (ii) negotiation and decision costs; and (iii) monitoring and control costs. See R. Coase, ‘The Nature of the Firm’ (1937) 4 Economica 386; O. Williamson, Market and Hierarchies: Analysis and Antitrust Implications (New York: The Free Press, 1975). 99

  The decisions taken by economic operators regarding pricing and production send signals to the market. An operator can thus make considerable strategic investments (advertising, R&D, etc) in order, eg, to signal to potential entrants that it has major resources to defend its market share in the event of market entry. See O.P. Heil and A.W. Langvardt, ‘The Interface between Competitive Market Signalling and Antitrust Law’ (1994) 58(3) J Marketing 81. Signals are informative when there is imperfect information because they offer indirect information in the absence of direct information. Signal theory has interesting applications in the area of tacit oligopolistic collusion, eg although it originated in the area of labour economics. See A.M. Spence, ‘Job Market Signaling’ (1973) 87(3) Quarterly J Economics 355. 100

  In very general terms, an externality, either positive or negative, is defined as the undesired and unintentional after effect on a third party of a specific behaviour, either an individual or several individuals linked by agreements, including those joined in a firm. Eg a car distributor creates a positive externality when he advertises his products. The other distributors in the network carrying the same brands, which are therefore potential competitors, benefit from the car brand names being circulated among potential customers. A steel producer, on the other hand, creates a negative externality when its factories generate pollution affecting, eg nearby agricultural activities. 101

  Behavioural economics suggests that agents do not always, as neoclassical theory tends to suggest, make rational decisions (ie, decisions aimed at maximizing utility). On the contrary, in some situations, economic agents adopt behaviours that might appear irrational (contrary to what neoclassical theory would predict). Eg individuals or undertakings may have very high discount rates that result in myopic behaviour. Or, the decisions taken by undertakings may not always be motivated by monetary profit, eg if racial prejudice motivates some decisions. For individual behaviour, lab experiments show the sometimes irrational nature of operators’ decisions. See V.L. Smith, Bargaining and Market Behavior— Essays in Experimental Economics (Cambridge: Cambridge University Press, 2000).

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102

  The criterion of market power has, since the reform of the regulations applicable to agreements between undertakings, occupied a central place in EU competition law. See Commission Notice of 6 January 2001: Guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements, OJ C 3 of 6 January 2001, at 1, para 7: ‘Economic criteria such as the market power of the parties and other factors relating to the market structure, form a key element of the assessment of the market impact likely to be caused by a cooperation and therefore for the assessment under Article 81.’ Similarly, in its guidelines on vertical restrictions, the Commission considers that: ‘For most vertical restraints, competition concerns can only arise if there is insufficient inter-brand competition, i.e. if there is some degree of market power at the level of the supplier or the buyer or at both levels.’ See Commission Notice—Guidelines on Vertical Restraints, OJ C 291 of 13 October 2000, at 1, para 6. 103

  See Tirole, n 39, at 284. Conceptually, market power is analogous with the notion of monopoly power, although a firm need not be a monopoly to possess market power. 104

  See Motta, n 87, at 116. Such a situation, eg, exists when products are differentiated, exchange costs are large, or customers are loyal to particular brands. 105

  See R. Posner, Antitrust Law, 2nd edn (Chicago, IL: University of Chicago Press, 2001), at 265. A product is said to be a commodity once any qualitative difference derived from its natural origin has disappeared. Wheat, chemicals such as sulphuric acid, refined metals, refined oil products, refined sugar, more elaborated manufactured products such as rails or standard electronic components, electricity, pass band, RAM processors, etc are generally viewed as commodities. 106

  See D. Geradin, P. Hofer, F. Louis, N. Petit, and M. Walker, ‘The Concept of Dominance’ in D. Geradin (ed), GCLC Research Papers on Article 82 EC (Bruges: Global Competition Law Centre, 2005), at 9. 107

  Generally markets where recovery of fixed costs is substantial and relatively easy.

108

  See R. Landes and R. Posner, ‘Market Power in Antitrust Cases’ (1981) 94 Harvard L Rev 937, at 939: ‘the fact of market power must be distinguished from the amount of market power’. See also Geradin et al, n 106, at 9; Motta, n 87, at 116. 109

  See Motta, n 87, at 116.

110

  See J. Pearce Azevedo and M. Walker, ‘Dominance: Meaning and Measurement’ (2002) 7 European Competition Policy Review 365. 111

  The Commission recently acknowledged that [m]arket power is the ability to maintain prices above competitive levels for a significant period of time or to maintain output in terms of product quantities, product quality and variety or innovation below competitive levels for a significant period of time. In markets with high fixed costs, undertakings must price significantly above their marginal costs of production in order to ensure a competitive return on their investment. (Commission Notice—Guidelines on the application of Article 81(3) of the Treaty, OJ C 101 of 27 April 2004, at 97, para 25).

112

  T.G. Krattenmaker, R.H. Lande, and S.C. Salop, ‘Monopoly Power and Market Power in Antitrust Law’ (1987) 76 Georgetown LJ 241: A firm or group of firms may raise price above the competitive level or prevent it from falling to a lower competitive level by raising its rivals’ costs and thereby causing them to restrain their output (‘exclude competition’). Such allegations are at the bottom of most antitrust cases in which one firm or group of firms is claimed

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to have harmed competition by foreclosing or excluding its competitors. We denote this power as exclusionary or ‘Bainian’ market power. 113

  See R. Schmalensee, ‘Another Look at Market Power’ (1982) 95 Harvard L Rev 1789.

114

  See P. Klemperer, ‘Entry Deterrence in Markets with Consumer Switching Costs’ (1987) 97 Economic Journal 99. 115

  This form of market power is already explicitly taken into account by a number of competition authorities, including the OFT which states that ‘[a dominant firm] can also use its market power to engage in anticompetitive conduct and exclude or deter competitors from the market’. See ‘The Chapter II Prohibition’, OFT 402, 1999, at para 3.9. 116

  See Guidelines on the assessment of horizontal mergers under the Council Regulation on control of concentrations between undertakings, OJ C 265 of 18 October 2008, at 6, para 31. 117

  See Commission Decision, COMP/M.1693, Alcoa/Reynolds, 3 May 2000, OJ L 58 of 28 February 2002, at 25. 118

  Ibid, at para 128: ‘the merged firm will be able to foreclose its competitors in the downstream market and become the main supplier of aerospace alloys’. 119

  Ibid, at paras 138–9. In this operation, other anticompetitive concerns have also been identified by the Commission and corrected by the parties by means of undertakings. 120

  See A. Lerner, ‘The Concept of Monopoly and the Measurement of Monopoly Power’ (1934) 1 Rev of Economic Studies 157. 121

  Neoclassical theory postulates that economic agents think about the margin by comparing the usefulness of an additional action to its cost. Additional units are produced until the marginal cost of a given unit is exactly equal to the marginal revenue expected from its sale. 122

  Theoretically even, the index postulates a single price, although many undertakings engage in price differentiation (discrimination). See on this point, R. Landes and R. Posner, n 108, at 943. 123

  See Motta, n 87, at 116.

124

  See R. Lester, ‘Shortcomings of Marginal Analysis for Wage-Employment Problems’ (1946) 36 Am Economic Rev 63. 125

  See Motta, n 87, at 116.

126

  See C. Shapiro and H.R. Varian, Information Rules—A Strategic Guide to the Network Economy (Boston, MA: Harvard Business School Press, 1999). 127

  This applies, by extension, to other sectors, eg the pharmaceutical industry (creation of a drug, etc). 128

  Generally, these are the costs that vary depending on the volume of production. Costs of material and energy used in the production process, eg are variable costs. In the aviation sector, fuel expenses are a variable cost. Economic theory teaches that an undertaking will continue to produce as long as it covers its variable costs. This is why an undertaking that operates cinemas and which therefore has very large fixed costs but very low variable costs will remain open even if it only fills 5 per cent of its cinemas each night (in the short run, anyway—at some point the operator will choose to sell the assets to a higher value user). This logic can be applied to aviation transport as well.

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129

  See C. Ahlborn, V. Denicolò, D. Geradin, and A.J. Padilla, ‘DG COMP’s Discussion Paper on Article 82: Implications of the Proposed Framework and Antitrust Rules for Dynamically Competitive Industries’, at 13, para 3.1: Innovative industries tend to have high fixed costs and low marginal costs of production. This is because developing a new, innovative product requires heavy investment, possibly in research and development. However, it may also be because innovative firms often need to invest in a physical or virtual network to create and distribute their products. Once these initial investments are made, the incremental costs of additional units are fairly low, sometimes close to zero. 130

  See Landes and Posner, n 108, at 941: ‘[B]ecause marginal cost is a hypothetical construct—the effect on total costs of a small change in output—it is very difficult to determine in practice, especially by the methods of litigation.’ 131

  See Motta, n 87, at 116. What is more, undertakings can take advantage of their asymmetry of information with the authorities and courts to overestimate the cost data they send competition authorities. 132

  See A. Christiansen and W. Kerber, ‘Competition Policy with Optimally Differentiated Rules instead of “Per se Rules vs Rule of Reason”’ (2006) 2 J Competition Law and Economics 215. 133

  See D. Dewey, The Antitrust Experiment in America (New York: Columbia University Press, 1990), at 107 and 91–105. 134

  See S. Peltzman, ‘The Gains and Losses from Industrial Concentration’ (1977) 20 J Law and Economics 229 which shows that profits in concentrated industries are larger not because of higher prices linked to a market upsurge, but because of the reduced costs of the large undertakings: H. Demsetz, ‘Industry Structure, Market Rivalry, and Public Policy’ (1973) 16 J Law and Economics 1. 135

  See Christiansen and Kerber, n 132. A type I error (false positive) appears when the competition authority restricts a market practice or controls a market structure which contributes to economic efficiency. 136

  See the seminal paper of F.M. Fisher and J.J. McGowan, ‘On the Misuse of Accounting Rates of Return to Infer Monopoly Profits’ (1983) 73 Am Economic Rev 82. 137

  See K.N. Hylton, Antitrust Law (Cambridge: Cambridge University Press, 2003), at 9.

138

  Ibid. But measuring opportunity costs is a very inexact science. Allocating common costs for multiproduct firms is a sensitive issue for the competition authorities and courts. 139

  See J.A. Hausman and J.G. Sidak, ‘Evaluating Market Power Using Competitive Benchmark Prices Rather than the Hirschman-Herfindahl Index’ (2007) 74(2) Antitrust LJ 388. 140

  See the definition given by D. Scheffman and M. Coleman, ‘FTC Perspectives on the Use of Econometric Analyses in Antitrust Cases’ available at : ‘natural experiments try to exploit differences in data over space, time, and competitors to shed light on market definition, barriers, and the analysis of potential competitive effects’. See L.-H. Röller, ‘Economic Analysis and Competition Policy Enforcement in Europe’ in P.A.G. van Bergeijk and E. Kloosterhuis (eds), Modelling European Mergers: Theory, Competition and Case Studies (Cheltenham: Edward Elgar, 2005), 17.

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141

  Any variations in quality, cost, or currency may be ‘smoothed out’ by applying econometric techniques. 142

  See Hausman and Sidak, n 139.

143

  Ibid.

144

  See L.J. White, ‘Market Definition in Monopolization Cases: A Paradigm is Missing’ in W.D. Collins (ed), Issues in Competition Law and Policy (Chicago, IL: American Bar Association, forthcoming). 145

  See Landes and Posner, n 108. Note that elasticity is inversely proportional to the Lerner index, the degree depends on market structure. 146

  See Carlton and Perloff, n 80, at 66.

147

  See Motta, n 87, at 125.

148

  Ibid. The reasoning generally ignores dynamic issues, such as the reaction of competitors who might decide to increase their own prices, and does it account for the introduction of new features or changes in quality? 149

  Ibid, esp at 125–8.

150

  See Landes and Posner, n 108, at 944ff.

151

  See Motta, n 87, at 119.

152

  Ibid.

153

  The index varies therefore between 10,000 (in the case of a monopolistic market) and 1 (in the case of an atomistic market). See Tirole, n 39, at 221. 154

  See A. Lindsay, The EC Merger Regulation: Substantive Issues, London: Thomson/ Sweet & Maxwell, 2003), para 3.54. 155

  See Carlton and Perloff, n 80, at 644.

156

  Although the question of barriers to entry goes much further back. See in particular D.H. Wallace, ‘Monopolistic Competition and Public Policy’ (1936) 26(1) Am Economic Rev, Supplemental Papers and Proceedings of the 48th Annual Meeting of the American Economic Association, 77. 157

  W.J. Baumol, J.C. Panzar, and R.D. Willig, Contestable Markets and the Theory of Industry Structure (New York: Harcourt Brace Jovanovich, Inc, 1982). 158

  The level of competition already present on the market is particularly indicative of the weight to be given to barriers to entry. OECD, Policy Roundtables, Barriers to Entry, 2005, available at . 159

  The European Commission placed particular emphasis on this point during the discussions on the modernization of the enforcement of Art 102. See DG COMP Discussion Paper on the application of Article 82 of the Treaty to exclusionary abuses, (2005), at 34–40. 160

  See OECD, Policy Roundtables, Barriers to Entry, n 158.

161

  Here we will pass over the most radical opinions, such as that of H. Demsetz who considers that the only real barriers to entry originate in the action of government power. See H. Demsetz, ‘Barriers to Entry’ (1982) 72 Am Economic Rev 47. 162

  J. Bain, Barriers to New Competition (Cambridge, MA: Harvard University Press, 1956).

163

  G. Stigler, The Organization of Industry (Chicago, IL: University of Chicago Press, 1968). In his definition, Stigler does not (at least not explicitly) propose taking into consideration the costs which have been incurred by the undertakings present on the market, but only those that they are incurring today or will incur tomorrow. Legal scholars

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are, however, unanimous in considering that Stigler’s definition should be understood as comprising all costs incurred by undertakings. 164

  eg Bain argues that it will be more difficult for new entrants to find funds to increase their production and make investments than the incumbent undertaking. See also on this point, Carlton and Perloff, n 80, at 79. As a general rule, competition and regulatory authorities espouse the Bain approach of economies of scale. The economies of scale achieved by telecommunications operators that have a huge customer base (enabling them to reduce the rate of contribution to the fixed costs of each client) are traditionally perceived to be a barrier to entry by competition and regulatory authorities. 165

  Or if, eg, the authorities charge astronomical amounts for a mobile spectrum operating licence, whereas the incumbent previously obtained such a licence for free (or at a lower cost). 166

  See Carlton and Perloff, n 80, at 128.

167

  R. Schmalensee, ‘Sunk Costs and Antitrust Barriers to Entry’ (2004) 94 Am Economic Rev, Papers and Proceedings 471, 473. 168

  See Motta, n 87, para 7.3.1, at 454 and fn 59.

169

  One can also cite the development of customer loyalty programmes aimed at raising switching costs or the engagement of massive investments for R&D (the infamous ‘R&D wars’). See S.C. Salop and D.T. Scheffman, ‘Cost-Raising Strategies’ (1987) 36(1) J Industrial Economics 19; Motta, n 87, at 554, note 59. Another possibility is the renegotiation of supply and distribution contracts. See Carlton and Perloff, n 80, at 298, who take the example of the Alcoa case in the United States (where the undertaking holding the aluminium monopoly had negotiated contracts with electricity generators stipulating that the latter would not supply energy to competing aluminium producers). 170

  R.P. McAfee, H.M. Mialon, and M.A. Williams, ‘What Is A Barrier To Entry?’ (2004) 94 Am Economic Rev, Papers and Proceedings, 461. 171

  Ibid.

172

  See eg European Commission, Guidelines on the assessment of horizontal mergers under the Council Regulation on control of concentrations between undertakings, n 116, at 68. 173

  See D.W. Carlton, ‘Why Barriers to Entry Are Barriers to Understanding’ (2004) 94 Am Economic Rev, Papers and Proceedings, 466, 467. This analysis suggests competition authorities pay particular attention to the market dynamics and the costs of adjustments. 174

  See OECD, Policy Roundtables, Barriers to Entry, n 158, at 86. See also J. Baker, ‘The Problem with Baker Hugues and Syufy: On the Role of Entry in Merger Analysis’ (1997) 65 Antitrust Journal 371. See also the guidelines of the Federal Trade Commission and the Department of Justice, 1992 Horizontal Merger Guidelines, 3.3. 175

  See eg DG COMP Discussion Paper on the application of Article 82 of the Treaty to exclusionary abuses, n 159, at 38–9. 176

  Ibid, at 35.

177

  OECD, Policy Roundtables, Barriers to entry, n 158.

178

  To be clear, we treat sunk costs as one type of structural barrier to entry. It is possible to consider that some sunk costs are intentionally incurred by incumbent firms in order to create an obstacle to entry and, if need be, to constitute strategic barriers to entry (eg

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advertising investments in particular). For our purposes, however, treating them as a separate category is not warranted. 179

  eg depreciation expenses which the incumbent undertakings have perhaps already paid for in full, which reduces their production cost. 180

  J. Bain, Barriers to New Competition (Cambridge, MA: Harvard University Press, 1956), 123. 181

  See in particular, I. Kessides, ‘Advertising, Sunk Costs, and Barriers to Entry’ (1986) 68 Rev of Economics and Statistics 64, 84, and note 5. 182

  It seems, however, that the courts are still sometimes reluctant to consider reputation as a barrier to entry. See OECD, Policy Roundtables, Barriers to Entry, n 158, at 73. 183

  These are also described as ‘transfer’ costs or ‘exit’ costs.

184

  See in particular, J. Farrell and P. Klemperer, ‘Coordination and Lock-In: Competition with Switching Costs and Network Effects’, Handbook of Industrial Organization (Amsterdam: Elsevier, 2007). 185

  With regard to the exit costs in the electronic communications sector in France, see the Report on ‘the exit costs’, Mission entrusted to Philippe Nasse by the Minister for Industry (2005), available at . 186

  See G.J. Werden, ‘Network Effects and Conditions of Entry: Lessons from the Microsoft Case’ (2001) 69 Antitrust LJ 87. 187

  See OECD, Policy Roundtables, Barriers to Entry, n 158, at 74. It would be possible to consider that some barriers described as regulatory barriers in fact originate in the legal strategy of the undertakings already present on the market, so that these should fall within the category of strategic barriers rather than structural barriers. 188

  See in particular T. Ross, ‘Sunk Cost and the Entry Decision’ (2004) 4 J Industry, Competition and Trade, Bank papers, 79, 80. These should be distinguished from fixed costs, some of which may be recovered, even if the two concepts can sometimes describe the same cost expended by the undertaking. 189

  See, in particular, the arguments on this point in OECD, Policy Roundtables, Barriers to Entry, n 158, at 66–8. 190

  See Werden, n 186.

191

  See eg the Guidelines on the assessment of non-horizontal concentrations under the Council regulation on control of concentrations between undertakings, Official Journal C 265 of 18/10/2008, at 49. 192

  Two situations may be distinguished here. First, the undertaking can set its prices at a level lower than its costs for a certain limited period. Such predatory prices may in certain circumstances have crowding out effects and therefore be contrary to the competition rules. Second, an undertaking may set its prices at what is called the ‘price limit’ level—greater than costs, but sufficiently low so as to deter entry—with the aim of discouraging any potential entrant from entering the market. See in particular Tirole, n 39, at 367–75; see also R. Gilbert, ‘Mobility Barriers and the Value of Incumbency’ in R. Schmalensee and R. Willig, Handbook of Industrial Organization (Amsterdam: Elsevier, 1989); P. Milgrom and J. Roberts, ‘Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis’ (1982) 50(2) Econometrica 443–59. See also OECD, Policy Roundtables, Predatory Foreclosure, 2004, available at .

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193

  See A.M. Spence, ‘Entry, Capacity, Investment and Oligopolistic Pricing’ (1977) 8 Bell J Economics 534. 194

  See A. Dixit, ‘The Role of Investment in Entry Deterrence’ (1980) 90 Economic Journal 95. 195

  See in particular OECD, Policy Roundtables, Bundled and Loyalty Discounts and Rebates, 2008, available at . 196

  The barriers to entry on the second market may also deter a potential entrant from entering the first market, when the provision of both products is seen as necessary to viably compete in either market. See in particular, B. Nalebuff, ‘Bundling as an Entry Barrier’ (2004) 119 Quarterly J Economics 159. 197

  As a result, a potential entrant might not enter a market if entry would not allow it to reach a sufficiently large number of customers. See in particular P. Aghion and P. Bolton, ‘Contracts as Barriers to Entry’ (1987) 77 Am Economic Rev 388. 198

  See OECD, Policy Roundtables, Intellectual Property Rights, 2004, available at . See also, J. Lerner, ‘Patenting in the Shadow of Competitors’ (1995) J Law and Economics 489–90: ‘Firms with high litigation costs appear less likely to patent in the same [patent technology] subclasses as rivals’. 199

  The theory that pricing aligned to marginal cost guarantees an economic optimum has been the subject of scholarly debate. See, in particular, W. Baumol and D.F. Bradford, ‘Optimal Departures from Marginal Cost Pricing’ (1970) 60 Am Economic Rev 265. 200

  See US Department of Justice, Competition and Monopoly: Single-firm conduct under Section 2 of the Sherman Act (US Department of Justice: 2008), 62. See also P. Areeda and D. Hovenkamp, Antitrust Law, 2nd edn (Alphen aan den Rijn: Kluwer Law International, 2002), 753b3, at 367. 201

  Most competition law cases, especially in the area of Arts 81 and 82 EC (now Arts 101 and 102 TFEU, respectively), are examined after the fact. 202

  See Areeda, P. and Turner, D.F., ‘Predatory Pricing and Related Issues Under Section 2 of the Sherman Act’ (1975) 88 Harvard Law Review 697; Motta, n 87, at 116; DG COMP Discussion Paper on the application of Article 82 of the Treaty to exclusionary abuses (2005), at para 107. 203

  See the case law on predatory prices, in particular CJ, C-62/86 AKZO Chemie BV v Commission, judgment, 3 July 1991, and for a recent application, Court of First Instance, T-340/03 France Télécom SA v Commission, 30 January, 2007 (appeal pending). See DG COMP Discussion Paper, n 202, at paras 127–33. Based on the case law of the Court and in particular the Compagnie Maritime Belge judgment, the Commission considers that a price exceeding average total cost would not be predatory except in exceptional circumstances. See CJ, Cases C-395/96 P and C-396/96 P Compagnie Maritime Belge, judgment, 16 March 2000. 204

  See Department of Justice, Single-firm conduct under Section 2, n 200, at 49–76.

205

  In contrast, direct costs are costs that can be directly allocated to the supply of a product/service. 206

  When an undertaking adds workers to increase its output, the cost of training a new employee for a specific technique is a variable cost that is not recoverable. 207

  This idea has resulted in some competition authorities refusing to incorporate sunk costs in their analysis of the allegedly excessive price policies of dominant undertakings

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and, by doing so, rejecting the justifications for the pricing based on the high sunk costs incurred by said firms. 208

  P. Areeda and H. Hovenkamp thus define this cost as the cost resulting from the production of one unit at a period during which ‘the undertaking does not change its production assets generating fixed costs, such as its factory’; see Areeda and Hovenkamp, n 200, 735b1, at 365 and 735b3, at 367. 209

  From the time the price of the ticket covers the cost of the service provided to the customer who consumes it. This example can be transposed to cinemas, rail transport, etc. 210

  See in particular ICN, Unilateral Conduct Working Group, Report on Predatory Pricing (2008), available at . 211

  This cost is called variable in that it varies depending on the number of final goods produced. It might, however, become a fixed item again if the undertaking had a contract with the outsourcing company providing for a flat fee regardless of the quantity bought. 212

  As compared with the sales realized.

213

  In addition, with regard to predatory prices or rebates, a cost test based on AAC allows the sole focus to be on the costs incurred by the undertaking with regard to specific levels of output or supplying certain customers only. D. Ridyard, ‘Exclusionary Pricing and Price discrimination Abuses under Article 82—An Economic Analysis’ (2002) 23 European Competition L Rev 286, 295. 214

  See first, J.A. Ordover and R.D. Willig, ‘An Economic Definition of Predation: Pricing And Product Innovation’ (1981) 81 Yale LJ 8; see also OECD, Policy Roundtables, Predatory Foreclosure, n 192, at 68–9. 215

  See in particular W. Baumol, ‘Predation and the Logic of the Average Variable Cost Test’ (1996) 39 J Law and Economics 49, 59 and P. Bolton et al, ‘Predatory Pricing: Strategic Theory and Legal Policy’ (2000) 88 Georgetown LJ 2239, 2250. See also, ICN, Report on Predatory Pricing, n 210; Department of Justice, Singlefirm conduct under Section 2, n 200, at 65–7; DG COMP Discussion Paper, n 202, at 106–12. 216

  This behaviour is referred to as cross subsidization.

217

  Recourse to LRAIC as well as its place within cost tests are both still confused however. See, eg OECD, Policy Roundtables, Bundled and Loyalty Discounts and Rebates, European Contribution, 2008 (not yet published). Compare with DG COMP Discussion Paper, n 202, at 123–6; Department of Justice, Single-firm conduct under Section 2, n 200, at 63–4. 218

  See Communication from the Commission—Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ 2009, C 45/7, at para 27. 219

  On stranded costs, see, eg J. Sidak and W. Baumol, ‘Stranded Costs’ (1995) 18 Harvard J Law & Public Policy 835. 220

  See, eg in the electricity sector, European Commission Communication relating to the methodology for analysing State aid linked to stranded costs, 26 July 2001.(p. 104)

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3 The Law and Economics of Anticompetitive Coordination Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Subject(s): Article 101(3) TFEU application to individual contracts — Basic principles of competition law

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(p. 105) 3  The Law and Economics of Anticompetitive Coordination I.  Article 101(1) TFEU—The Prohibition Rule 3.04 A.  The Legal Component of Article 101(1) TFEU—A Concurrence of Wills between Several Independent Undertakings 3.07 B.  The Economic Component of Article 101(1) TFEU—A Restriction of Competition 3.70 C.  The Jurisdictional Component of Article 101(1) TFEU—A Restriction ‘Within the Internal Market’ Which ‘Affects Trade between Member States’ 3.151 II.  Article 101(2) TFEU—The Rule of Nullity 3.202 A.  The Principle 3.202 B.  The Practice 3.207 III.  Article 101(3) TFEU—The Exception Rule 3.215 A.  Overview of the Exception Rule 3.215 B.  The Application of the Four Conditions of Article 101(3) TFEU 3.222 3.01  Preliminary remarks In today’s economy, many products/services—from mobile tele-phony to steel, from sports clothing to the distribution of oil products, from catering to legal services—are brought to the market by a handful of firms. On those oligopolistic markets, no firm is in principle—unless it is dominant—individually able to raise prices or limit output. However, the firms active on those markets may collectively exercise market power and jointly increase their profits through the coordination of their commercial conduct. From an economic perspective, this form of ‘strategic cooperative behaviour’ generates welfare losses similar to those of a conventional monopoly. Unsurprisingly then, strategic cooperative behaviour has been a key area of concern for EU competition enforcement.1 3.02  A ‘classic’ competition offence All modern competition law regimes outlaw the coordi n-ation of independent undertakings where it leads to a restriction of competition. In the United States, for instance, Section 1 of the Sherman Act declares unlawful any type of ‘combination in form of trust or otherwise, or conspiracy’. In the European Union, a similar (p. 106) prohibition system is enshrined in Article 101 TFEU, which holds that ‘agreements between undertakings’ which restrict competition are ‘incompatible’ with the Treaty. 3.03  Three-pronged approach Article 101 TFEU is a three-pronged provision. First, Article 101(1) TFEU establishes a prohibition rule, which provides that agreements between undertakings which may affect trade between Member States and which restrict competition are incompatible with the internal market (Section I). Second, Article 101(2) TFEU declares that agreements deemed incompatible pursuant to Article 101(1) TFEU are null and void (Section II). Third, Article 101(3) TFEU embodies an exception rule which defuses the application of Article 101(1) to agreements that bring a positive net contribution to consumer welfare (Section III).

I.  Article 101(1) TFEU—The Prohibition Rule

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3.04  The choice of a ‘prohibition’ system From a comparative law perspective, competition rules can be enforced in two different ways. In certain legal regimes a permissive enforcement system, referred to as a system of ‘control of abuses’, prevails. In this system, firms can, in principle, coordinate freely their behaviour on the market. In exceptional circumstances, however, public authorities may declare some of those instances of coordination unlawful. This liberal system fits nicely with the free-market spirit of the EU Treaties. However, haunted by the memories of the Ruhr cartels during the Second World War, and influenced as well by the ordo-liberal heavy-handed enforcement approach, the founding fathers decided to implement a radically different system, which declares all concerted actions between undertakings incompatible with the common market.2 This socalled ‘prohibition system’ is captured in Article 101(1) TFEU which states that: 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 common 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.

3.05  ‘Hotch-potch’ Obviously the main agreements caught under Article 101(1) TFEU are those whereby firms jointly set prices, reduce output, partition markets, or limit investments (p. 107) (often referred to collectively as ‘cartels’).3 In addition to this, however, the wording of Article 101(1) TFEU also embraces a myriad of other agreements which may have anticompetitive effects. In a world where firms increasingly cooperate through ‘strategic alliances’, ‘joint ventures’, ‘patent pools’, and other agreements,4 the application of Article 101 TFEU has indeed become a critical issue for the business community. Agreements caught under Article 101 TFEU include horizontal cooperation agreements between rival firms (eg joint R&D agreements) which may restrict competition to the extent they harmonize the parties’ costs structures; vertical agreements between manufacturers and retailers (eg exclusive distribution agreements), which may limit intrabrand competition amongst retailers by affording each of them exclusive territorial protection, or may limit inter-brand competition when they entail exclusive dealing arrangements (eg single branding) that foreclose competitors; technology transfers between owners of intellectual property (IP) rights and licensees, which may be granted in exchange for a non-compete commitment by the licensee; and so forth. 3.06  What renders a given agreement ‘ incompatible’ Three cumulative conditions must be met for an agreement to fall foul of Article 101(1) TFEU. The first condition, which can be referred to as the legal component of Article 101(1) TFEU, requires the proof of a concurrence of wills between several independent undertakings (Section A). The second condition, which can be referred to as the economic component of Article 101(1) TFEU, involves proving that the agreement has the object or the effect of restricting competition (Section B). The third condition, which can be labelled the jurisdictional component of

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Article 101(1) TFEU, requires evidence that the agreement restricts competition within the common market and may have an effect on trade between Member States (Section C).

A.  The Legal Component of Article 101(1) TFEU—A Concurrence of Wills between Several Independent Undertakings (1)  Plurality of independent undertakings 3.07  It takes two, or more, to … agree An agreement necessarily involves more than one economically independent firm. Thus, there can be no Article 101(1) TFEU concerns absent a situation involving a plurality of independent undertakings. In practice, this requirement has important consequences for certain types of coordination.

(a)  ‘Intra-group’ agreements 3.08  Agreements between several entities belonging to the same corporate group fall short of Article 101 TFEU.5 A supply agreement between a parent company and its subsidiary will, for instance, be considered as a mere internal organizational measure within a ‘single economic unit’, which falls short of the concept of ‘agreement’ under Article 101(1) TFEU.6 (p. 108) 3.09  Presumption Under EU competition law the existence of a ‘single economic unit’ is presumed when the parent company owns 100 per cent of its subsidiary. As the General Court (GC) held in Viho: Where, as in this case, the subsidiary, although having a separate legal personality, does not freely determine its conduct on the market but carries out the instructions given to it directly or indirectly by the parent company by which it is wholly controlled, Article [101(1)] does not apply to the relationship between the subsidiary and the parent company with which it forms an economic unit.7 (Emphasis added)

Illustration: Viho v Commission Parker Pen, a manufacturer of ballpoint pens, fountain pens, and ink cartridges, distributed its products through a network of subsidiaries which it wholly owned. Viho, a wholesale dealer of office supplies, had filed a complaint with the Commission based on Article 101 TFEU. The latter claimed that Parker required its subsidiaries to limit their deliveries to their exclusive distribution territory, in breach of Article 101(1) TFEU. 3.10  Other scenarios The fact that the parent company does not fully control its subsidiary does not, however, necessarily rule out the existence of a ‘single economic unit’. In cases where the parent-subsidiary relationship does not involve 100 per cent ownership, a case-by-case assessment will be necessary to determine whether the controlling undertaking exercises a ‘decisive influence’ on the controlled undertaking (eg if it appoints the subsidiary’s board of directors, it takes strategic decisions on investments; the subsidiary is subject to reporting requirements, etc). In such cases, there may be a ‘single economic unit’ within the meaning of Article 101(1) TFEU, absent 100 per cent ownership links. 3.11  The risk of a back fire As explained, the ‘economic unit’ doctrine defuses the applicability of Article 101(1) TFEU to intra-groups agreements. It may thus be used by firms as a means of defence in the context of Article 101(1) TFEU proceedings. That said, in other circumstances, this doctrine has occasionally led to the aggravation of the liability of companies involved in infringements of Article 101(1) TFEU, for instance when it comes to the punishment of infringements. In a string of (highly controversial) judgments, the GC and Court of Justice have indeed upheld Commission decisions finding the parent undertaking liable for its subsidiary’s involvement in a cartel—regardless of the fact that the mother company had neither participated in, nor even been made aware of, the cartel to which its subsidiary was found to be party. Such decisions are based simply on a From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

presumption arising from the ownership of share capital and the ensuing conclusion that the two entities formed a single economic unit.8 (p. 109) 3.12  The rationale behind this decisional practice is that—as noted by the GC in Akzo—where the fine is imposed on the parent company, it must be calculated based on the global turnover of the entire group, composed of the parent and its subsidiaries.9 Consequently, a violation of Article 101 TFEU committed by a small subsidiary within a large group may trigger gigantic (and, some would argue, disproportionate) fines. On the other hand, principal– agent theory tends to indicate that holding the parent responsible for its subsidiaries aligns the parent’s and the subsidiary’s incentives to establish ex ante prevention and ex post control mechanisms, with a view to ensure compliance with Article 101(1) TFEU. Without such responsibility, the parent would be motivated to turn a knowingly blind eye to its subsidiaries’ behaviour.

(b)  Agency agreements 3.13  Analogies with intra-group agreements A similar reasoning immunizes agency agreements from the application of Article 101(1) TFEU. Under an agency relationship, a firm (the agent) is retained by a third party (the principal) to negotiate and conclude agreements on its behalf. Agency agreements exhibit a number of interesting features for both principal and agent. First, from the principal’s perspective, they are a convenient organizational method which does not involve the heavy cost of setting up a fully fledged internal distribution network. In this context, agency agreements are particularly interesting for producers contemplating the penetration of new, or risky, markets. Second, from the agent’s perspective, they are less costly and risky than classic distribution agreements. This is because the agent does not purchase products from the supplier, but simply negotiates supply contracts on its behalf. 3.14  ‘Genuine’ agency agreements Under EU competition law, ‘genuine’ agency agreements do not fall within the scope of Article 101(1) TFEU. The genuine agent is indeed deemed to enjoy no commercial autonomy. He acts ‘on behalf of’ the principal and is compensated through a commission specified in the agency agreement. In other words, the agent acts ‘as if’ he constituted an ‘economic unit’ with the principal.10 (p. 110) 3.15  Conditions necessary to find a ‘genuine’ agreement The requirements to characterize a ‘genuine’ agency agreement have recently evolved. The first criterion relates to the so-called allocation of ‘commercial and financial risks’. In the past, the Court and the Commission conditioned the finding of a ‘genuine’ agency agreement (to which Art 101(1) TFEU would not apply) upon proof that the agent assumed ‘no commercial and financial risk’.11 Conversely, the Commission considered that there was no ‘genuine’ agency agreement (so Art 101(1) TFEU did apply) in cases where the agent assumed, in particular, one or more of the following risks: •  transport and other logistics costs; •  advertising costs; •  maintenance and stock of the products; •  provision of after-sales (or warranty) service; •  specific investments in equipment, premises, or training of personnel; •  liability vis-à-vis third parties for the products sold; and •  liability vis-à-vis the principal for non-performance of the contract by the customer. 12

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3.16  Additional criterion In Confederacion Española de Estaciones de Servicio, the Court of Justice recently introduced a second condition that must be fulfilled for a genuine agency agreement to be found.13 The Court seemed concerned that under the previous case law some agents were inappropriately considered ‘genuine’ agents, although they enjoyed a certain degree of autonomy of commercial action. This was in particular the case in situations where the agent acted on behalf of several principals (known as ‘multiple agency’) or performed in parallel other commercial activities. The Court thus deemed it necessary to add a further condition for the finding of a genuine agency, which is that the agent must be an ‘auxiliary orga[nization] forming an integral part of the principal’s undertaking’.14 In other words, for an agency agreement to fall outside Article 101(1) TFEU, the agent must act exclusively for the principal, as if he was a simple commercial employee.15 In practice, multiple agency agreements are thus normally covered by Article 101(1) TFEU. From an economic standpoint, this solution is legitimate. Professors Bernheim and Whinston have indeed demonstrated that multiple agency agreements may facilitate collusion between rival producers.16 (p. 111) 3.17  Principal–agent relationship In recent years, the case law has clearly reduced the immu-nity of ‘genuine’ agency agreements. This trend was furthered in a recent ruling of the Court, which holds that contractual provisions governing the relationship between the principal and the ‘genuine’ agent fall within the scope of Article 101 TFEU. In CEPSA, the Commission, followed by the Court of Justice, held that noncompete and exclusivity of supply clauses between a principal and its (genuine) agents fell within the ambit of Article 101(1) TFEU.17 As a result of this case law, only those contractual provisions which govern the genuine agent’s relationship with customers are immunized from the application of Article 101 TFEU.

(c)  Employment contracts 3.18  An agreement between an undertaking and one of its employees does not fall under Article 101(1) TFEU. From an economic perspective, employees form the ‘human capital’ of a firm, and thus are an integral part of it. From a legal perspective, moreover, an employee normally enjoys no decisional autonomy (he is subject to a hierarchical relationship). 3.19  Notwithstanding this, an employee may be deemed an independent undertaking within the meaning of Article 101 TFEU if he pursues his own economic interests (research, freelance activity, etc) and those interests are separate from those of his employer. This situation arose in the Reuter/BASF case where the Commission ruled on a non-compete clause between a company and one of its former employees.18

(2)  Concurrence of wills 3.20  Introduction To coordinate their conduct on the market, the firms involved must demon-strably share a common mindset. As the GC indicated in Bayer, ‘the concept of an agreement within the meaning of Article [101(1) TFEU] … centres around the existence of a concurrence of wills between at least two parties’ (emphasis added) .19 3.21  This concurrence of wills may take different forms. The Treaty, in this context, refers to: agreements (Section (a)); decisions by an association of undertakings (Section (b)); and concerted practices (Section (c)). The main differences between those three concepts relate to evidentiary issues.

(p. 112) (a)  Agreements (i)  A broad concept

3.22  An EU law concept The concept of agreement, as governed by Article 101(1) TFEU, does not refer to a particular form of arrangement. According to the GC in Bayer, ‘the form in which it is manifested is unimportant so long as it constitutes the faithful expression’ of ‘the parties’ intention’.20 In the same vein, the concept of agreement is independent from

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national law concepts. Hence, Article 101(1) TFEU is not limited to agreements which form legally binding contracts under civil or common law principles. 3.23  Examples Numerous ‘arrangements’ between economic operators have been deemed to constitute ‘agreements’ within the meaning of Article 101 TFEU: a simple mutual verbal agreement,21 a gentleman’s agreement,22 a protocol, a memorandum of understanding, subsections of a contract, general guidelines, the acceptance of general terms and conditions of sale, etc. 3.24  Adherence In addition, the case law has held that where an agreement has been reached, the reluctance of some parties to enter into the agreement or the fact that they do not reap any private benefits from the arrangement do not disqualify a finding of ‘agreement’.23 (ii)  Limits of the concept

3.25  The very extensive interpretation of the concept of an agreement has, in practice, raised a number of difficulties. The Court has therefore sought to limit its ambit in three areas. (iii)  Private coercion

3.26  Case law Arguably influenced by general principles of continental civil law, the early case law of the Court refused to find ‘agreements’ where one party had not freely and deliberately acquiesced to cooperate with other firms. For instance, Article 101(1) TFEU did not apply where parties had been coerced by other cartel participants to join a coordinated course of conduct. In Suiker Unie, for example, the Court of Justice held that the existence of an agreement was conditional upon identifying free consent.24 3.27  U-turn? Later, however, the case law embraced a more extensive interpretation of the concept of agreement. In line with English common law, the defective consent of a party (eg due to fraud or violence) was deemed to no longer rule out the qualification of agreement.25 The defect in consent is, however, taken into account at a later stage, for the purposes of (p. 113) sanctioning the infringement of Article 101(1) TFEU. The Commission can indeed mitigate the amount of the fine inflicted on the undertakings which did not intend to, but nonetheless did, take part in the agreement.26 Also, with the expected development of private enforcement, those firms that have coerced others to participate in an unlawful agreement face larger exposure to customers’ claims for compensation. 3.28  The rationale for this strict case law hinges on the idea that a firm exposed to private pressure is free to denounce its economic partners to the competition authorities. A firm that remains silent deliberately forfeits its opportunity to denounce the cartel participants and thus can be deemed to have deliberately chosen to engage in the unlawful agreement. (iv)  Public coercion

3.29  US antitrust law and the ‘State Compulsion’ doctrine The consent of firms to an alleged agreement is sometimes influenced by the intervention of a public authority. US antitrust law offers undertakings a ground of defence in such circumstances—called the Act of State Defence. In short, when private anticompetitive conduct originates from government action, firms cannot be held liable for an infringement of the provisions of the Sherman Act. 3.30  EU law A similar, albeit slightly different, principle prevails under EU law.27 In Suiker Unie, the Court considered that Article 101(1) TFEU should not apply, if—but for regulatory requirements—the impugned practice would not have taken place. In Commission and French Republic v Tiercé Ladbroke, the Court of Justice stated that if ‘the anticompetitive conduct is required of undertakings by national legislation or if the latter creates a legal framework which itself eliminates any possibility of competitive activity on their part, Articles [101] and [102] do not apply.’28 Faced with heavy-handed State intervention, firms

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cannot be deemed to have ‘freely’ consented to form an agreement. The voluntary element required for establishing an unlawful agreement is thus missing. 3.31  Criterion To benefit from the EU equivalent of the Act of State Defence, undertakings must prove that the State (understood broadly as a public authority with ‘imperium’) has exercised a ‘direct influence’ over their decision.29 The Court of Justice interprets this concept narrowly. In Arow/BNIC, for example, the Commission sanctioned undertakings that had entered into an agreement to set the price of cognac. For their defence, the undertakings argued that these agreements had been extended and later made compulsory by a ministerial decree. The Commission observed, however, that at the time the price-fixing agreement was concluded, the public measure in question was not yet in force. The firms involved had therefore coordinated their conduct of their own free will. 3.32  In situations where influence is not decisive, but where the State merely supports or encourages illicit agreements, the State compulsion doctrine will not play. Yet, the Commission has, (p. 114) in past cases, recognized that firms could benefit from mitigating circumstances when sanctioning the impugned practice.30 3.33  The related question of the Act of State Off ense It is fair and legitimate to immunize undertakings from their liability under EU competition law in cases of State intervention. Yet, in such a situation, the distortion of competition that arises as a result of State intervention remains. To tackle this issue, the Court of Justice laid down in INNO/ ATAB the foundations of an ‘Act of State Offence’. Relying on Articles 3(f) and importantly on Article 10 EC, which enshrine a ‘duty’ of loyal cooperation on Member States, the Court held that Member States must refrain from taking measures that might limit the effet utile of the Treaty’s competition provisions.31 3.34  Taken extensively, this Act of State Offence could have entailed dramatic consequences for Member States. This is because many regulatory instruments limit the scope for competition amongst market players (eg regulations providing for preliminary authorizations erect barriers to entry; harmonization regulations increase the homogeneity of products/services/costs; etc). As a result of this case law, many State measures applicable to a plurality of undertakings could have been challenged on the basis of Articles 3(f), 10, and 81 EC (now Art 101 TFEU). In Meng, the Court of Justice thus sought to limit the cases in which a Member State can be held liable for an infringement of Article 101 TFEU: … Article [101], read in conjunction with Article [3(f)] of the [former EC] Treaty, requires the Member States not to introduce or maintain in force measures, even of a legislative or regulatory nature, which may render ineffective the competition rules applicable to undertakings. By virtue of the same case-law, such as the case where a Member State requires or favours the adoption of agreements, decisions or concerted practices contrary to Article [101] or reinforces their effects or deprives its own legislation of its official character by delegating to private traders responsibility for taking economic decisions affecting the economic sphere.32 3.35  From theory to practice The scope of this case law is unclear. Although, in theory, it provides a legal basis for bringing infringement proceedings against a Member State (Act of State Offence), the Commission almost never used it, presumably for political reasons.33 3.36  Prospects In more recent times, however, the Court of Justice has seemed to lean towards a more severe approach towards public restrictions of competition.34 In Italian Matches, the Court drew the following distinction: •  if the impugned legislation leaves room for manoeuvre to the undertakings, they can be the subject of proceedings for infringement of Article 101(1) TFEU. In this

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case, the (p. 115) involvement of the State will be taken into account at the sanctioning stage as a mitigating circumstance; •  conversely if, under the legislation, undertakings enjoy no room for manoeuvre, competition authorities cannot pursue them for infringement of Article 101(1) TFEU. Interestingly, however, the Court added that, in such circumstances, the national competition authorities must declare inapplicable any national legislative provisions which render Article 101 ineffective ‘from engaging in autonomous conduct which prevents, restricts or distorts competition’. 35 In practice, once the law has been declared inappli cable, firms will no longer be able to argue that the legislation forces them to coordinate their conduct. Should they continue to act in concert, they will be amenable to Article 101(1) TFEU. 3.37  Freedom of movement? Overall, the TFEU’s rules on free movement (of persons, goods, and services) bring the greatest impediment to public measures restricting competition. In its recent Cipolla judgment,36 the Court had to rule on the compatibility with the Treaty of a mandatory price floor for the provision of legal services in Italy. Reaffirming its case law on the State compulsion doctrine, the Court held that the Italian State (and not the lawyers’ association) was vested with the power to take decisions relating to the minimum fee scale, and had simply made use of it. Consequently, it was impossible to take direct action against the lawyers’ association. However, the Court considered that this public measure made it more difficult for lawyers established outside Italy to provide legal services on the Italian market. The latter were indeed deprived of the ability to price compete with domestic lawyers. The Court therefore held that the Italian legislation constituted a restriction to the freedom to provide services protected under the Article 49 EC (now Art 56 TFEU).37 3.38  Competition advocacy In recent years, the Commission seems to have pursued a different strategy to combat public restrictions of competition. Through constructive and educational dialogue with Member States, the Commission tries to prevent, or if already existing to induce public authorities to repeal (or modify), State measures restricting competition.38 In this context, the Commission adopted a policy document entitled ‘Better Regulation: A Guide to Competition Screening’, which seeks to induce Member States to carry out ex ante competition impacts whilst drafting legislation/regulation. This document, which unfortunately has gone widely unnoticed, devises a number of principles for ‘competition screening’ and provides a typology with illustration of regulatory measures restricting competition (ie, measures exempting certain markets or sectors from competition, measures which directly interfere with the commercial conduct of companies, and measures which indirectly interfere with the commercial conduct of companies). (p. 116) (v)  Unilateral actions

3.39  The issue The above principles should in theory exclude pure ‘unilateral conduct’ from the ambit of Article 101(1) TFEU. However, between the 1970 and the 1990s, the Commission—and the Court—have applied Article 101(1) TFEU to practices which, at least in appearance, looked clearly unilateral. To this end, the Commission and the Court have devised two particularly creative, and somewhat controversial, doctrines. 3.40  The ‘common interest’ doctrine The first doctrine can be traced back to the AEG Telefunken case.39 In that case, a unilateral refusal, by a supplier, to appoint a new distributor within its selective distribution network was deemed to constitute an unlawful agreement pursuant to Article 101(1) TFEU. The Commission considered that beyond the unilateral nature of the refusal, a ‘common interest’ allegedly existed between several

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firms, that is, the supplier and its incumbent distributors, who had no interest in facing the entry of a new member within the distribution network. 3.41  The ‘contractual framework’ doctrine The second doctrine is well illustrated in Ford II. In a written document, Ford announced unilaterally to its German distributors that it would cease to deliver them ‘left hand drive’ cars. The Commission considered that Ford’s announcement was part of a collective strategy which led to a reduction of cars sold on the market, and was accordingly unlawful pursuant to Article 101(1) TFEU.40 This is because from the date on which they joined Ford’s distribution network, its distributors could be deemed to have implicitly agreed to the supplier’s subsequent commercial choices. 3.42  Case law evolution In two judgments, Bayer and Volkswagen Germany, handed down respectively in 2000 and 2003, the GC placed a limit on the Commission’s attempts to bring purely unilateral behaviour under the concept of agreement pursuant to Article 101 TFEU. 3.43  The Bayer decision41 In the Adalat case, the Commission applied Article 101 TFEU to Bayer’s Spanish distribution policy for the drug Adalat (a drug for the treatment of cardiovascular diseases). In the past, Bayer’s Spanish and French wholesalers had engaged in parallel exports to the UK where the prices offered by Bayer’s UK wholesalers were 60 per cent higher. To curb those parallel imports, Bayer progressively limited the quantities of Adalat supplied to Spanish and French wholesalers. Upon complaints of the latter, the Commission relied on the contractual framework doctrine and came to the conclusion that Bayer’s unilateral reductions in quantities (and outright refusals to supply) were agreements violating Article 101(1) TFEU, the effect of which was to fragment the national markets. 3.44  The Commission’s conclusion was far from undisputable. On the facts, the wholesalers had clearly not agreed to Bayer’s reduction of supplies. On the contrary, they had continuously requested additional quantities to Bayer. Moreover, they had even tried to procure Adalat through other channels. No ‘concurrence of wills’ thus existed between Bayer and (p. 117) its wholesalers. In addition, from a public policy standpoint, the Commission’s decision could have encouraged inefficient distribution structures, by artificially inducing drug manu facturers to integrate vertically so as to benefit from the immunity of intra-group agreements under Article 101 TFEU. 3.45  The GC, followed by the Court of Justice, quashed the Commission decision.42 The Court considered that, on the facts, there had been no concurrence of wills between Bayer and its wholesalers. For the GC and the Court of Justice, a unilateral measure (eg an invitation to act in a particular way) may only constitute an agreement if it is expressly or impliedly accepted by the other party.43 However, when the other party reacts against this unilateral measure, there can be no agreement. 3.46  The Vokswagen Germany judgment In this case the Commission found that Volkswagen Germany had unlawfully requested its dealers to observe a recommended price and to refuse discounts on the Passat. Albeit unilateral in nature, Voslkwagen’s request was, according to the Commission, akin to an unlawful agreement. Because the distributors had signed a distribution agreement whilst joining the network, they could be presumed to have agreed, in advance, to any subsequent illegal modification of that contract. 3.47  The GC struck down the Commission’s decision. It held that the Commission had not demonstrated the dealers’ acquiescence to Volkswagen’s request. According to the GC, the mere fact of signing a distribution agreement ex ante cannot lead to the presumption that all ex post unlawful evolutions have been agreed upon. In the words of the GC:

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it cannot be accepted that an unlawful contractual variation could be regarded as having been accepted in advance, upon and by the signature of a lawful distribution agreement. In that case, acquiescence in the unlawful contractual variation can occur only after the dealer has become aware of the variation desired by the manufacturer.44 3.48  In addition, the GC clarified an evidentiary question left open in the Bayer judgment, namely that the proof of acquiescence may be inferred from the parties’ actual behaviour on the market. 3.49  Conclusion The above principles can be summarized as follows. The fact that one under-taking proposes a certain course of action in the market and that the other acquiesces, expressly or impliedly, gives rise to an agreement between undertakings within the meaning of Article 101 TFEU. If, however, the other undertaking rejects the initial proposal, either expressly or implicitly (by taking a non-compliant course of action), there is no agreement, absent a concurrence of wills.

(p. 118) (b)  Decisions by associations of undertakings 3.50  Preliminary remark Research into the history of cartels indicates that conspirators have often sought to disguise illicit activity behind the veil of classic, legitimate, ‘associations’. In Great Britain, for instance, in the 1920s many large-scale anticompetitive arrangements between industrial companies often took the form of ‘trade associations’ (eg the Bradford Dyers’ Association, British Cotton and Wool Dyers Association, Associated Portland Cement).45 3.51  Non-formalist interpretation Again, the concept of an ‘association of undertakings’ is not defined in the Treaty. The case law of the Court of Justice and the Commission has promoted an extensive interpretation of this concept. A group of firms that is not registered as an ‘association’ pursuant to national law may nevertheless be found to constitute an ‘association of undertakings’ within the meaning of Article 101 TFEU. Similarly, the existence of an entity with legal personality, with articles of association or with a for-profit purpose is not dispositive in deciding whether a particular group of companies forms an association of undertakings.46 3.52  The same is true of the word ‘decision’ found in Article 101(1) TFEU, but left undefined by the Treaty. The Court and the Commission have promoted a non-formalistic approach of the wording of the Treaty, whereby a circular, a recommendation, or even an email may constitute a decision. 3.53  Illustrations In Wouters, the Court held that a professional organization such as the Bar of the Netherlands was an ‘association of undertakings’ within the meaning of Article 101(1) TFEU.47 In the same vein, the Commission recently ruled against the Belgian Architects’ Association on the ground that its scale of recommended minimum fees breached Article 101(1) TFEU.48 Finally, the Commission seems to consider that within the professional services sector (architects, pharmacists, estate agents, accountants, lawyers), most supervisory and regulatory organs constitute associations of undertakings that fall foul of Article 101 TFEU. In those sectors, the Commission seeks to eliminate a number of pervasive restrictive practices, such as fixed prices, recommended prices, advertising restrictions, entry restrictions and reserved rights, and regulations governing business structure and multi disciplinary practices.49

(c)  Concerted practice

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3.54  Preliminary comment Among the various forms of concurrences of will, the concept of a concerted practice is by far the most cryptic, both in the case law and the legal literature. (p. 119) 3.55  The nebulous case law of the Court It took decades for the Court to define accurately what constitutes a concerted practice. The Court first sought to clarify the concept in the 1969 Dyestuffs ruling.50 It held that: … Article [101] draws a distinction between the concept of ‘concerted practices’ and that of ‘agreements between undertakings’ or of ‘decisions by associations of undertakings’ the object is to bring within the prohibition of that article a form of coordination between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition. By its very nature, then, a concerted practice does not have all the elements of a contract but may inter alia arise out of coordination which becomes apparent from the behaviour of the participants.51 (Emphasis added) 3.56  A year later, in European Sugar Industry, the Court honed this definition by declaring that the criteria of’coordination’ and ‘cooperation’ used in the preceding definition in no way require[d] the working out of an actual plan’, [but] ‘must be understood in the light of the concept inherent in the provisions of the treaty relating to competition that each economic operator must determine independently the policy which he intends to adopt on the common market including the choice of the persons and undertakings to which he makes offers or sells.52 3.57  The Court further added: although it is correct to say that this requirement of independence does not deprive economic operators of the right to adapt themselves intelligently to the existing and anticipated conduct of their competitors, it does however strictly preclude any direct or indirect contact 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.53 3.58  Finally, more recently in Commission v Anic Partecipazioni SpA, the Court stated that: A comparison between that definition of agreement and the definition of a concerted practice … shows that, from the subjective point of view, they are intended to catch forms of collusion having the same nature and are only distinguishable from each other by their intensity and the forms in which they manifest themselves.54 3.59  Clarification The difference between an agreement and a concerted practice has been nicely summarized by Professor Giorgio Monti:55 if two competitors sign a contract fixing a common price for their goods, they have concluded an anticompetitive agreement. On the other hand, if these two competitors meet and exchange information about their future commercial policies, there is a concerted practice if these parties rely on that information to define their future conduct. Dyestuffs is a good example of a concerted practice. In that case, (p. 120) the undertakings had not concluded any direct agreement on

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price.56 Rather, they had secretly committed to announce to each other in advance their respective price increases and the dates on which they would occur. 3.59a  Direct, ‘smoking gun’, evidence vs Concordant circumstantial evidence Undertakings concluding illicit agreements usually take infinite precautions not to leave any direct evidence of their conspiracies. The concept of a ‘concerted practice’ catches factual settings in which there is no trace of agreement, but in which shreds of circumstantial evidence point to unlawful, anticompetitive coordination. Under the current case law standards, the burden of proof which the Commission must discharge to sustain a finding of concerted practice requires providing the three following pieces of circumstantial evidence: (i)  Contacts between competitors based on direct elements (telephone conversations, exchange of emails, minutes of meetings) and indirect elements (parking tickets, matching agendas, costs of representation, etc). Mere unilateral signalling strategies (press announcements) do not constitute contacts between competitors. (ii)  A concurrence of wills (or a meeting of minds) between each of the undertakings to substitute cooperation for competition. According to the Court, when the information exchanged relates to commercial data, consensus is presumed. This is because ‘the intended recipient of the information cannot refrain from taking it into account when he defines his behaviour on the market’. (iii)  A subsequent coordinated course of conduct on the market as well as anticompetitive effects. In Hüls, however, the Court held that the proof of anticompetitive effects was not required. The Commission was simply required to prove that the coordination had an anticompetitive object. 3.60  Challenge of proving concerted practices The constituent elements of a concerted practice are difficult to prove. To escape competition law exposure, undertakings that are parties to such practices often falsify documents, use sobriquets, organize meetings outside the EU territory, etc. This probably explains why, in the 1970s, the Commission sought to infer the existence of concerted practices from the observation of mere parallel conduct. 3.61  This practice, however, raised concerns that the Commission would apply Article 101(1) TFEU to situations of oligopolistic tacit collusion where the endogenous features of the market leads firms independently to mimic their rivals’ commercial policies. Applying Article 101(1) to such practices would first be unfair, because on such markets firms have no other—rational—choice but to follow each others’ strategies. In addition, prohibiting parallel oligopolistic conduct through Article 101(1) TFEU would be ineffective unless other corrective measures were added (eg divestitures). 3.62  The position of the Court of Justice In Dyestuffs, the Commission had sanctioned parallel price announcements. In their appeals to the Court of Justice, the parties had argued that the oligopolistic nature of the market was the key explanatory factor for their parallel behaviour. The Court upheld this argumentation as a matter of principle, and allowed the parties to rebut the Commission’s reliance on evidence of parallel conduct. It ruled that to prove an infringement of Article 101(1) TFEU, the Commission had to demonstrate that the parallel behaviour in question could not be explained by the ‘normal conditions of the market’ and, (p. 121) in particular, by its tight oligopolistic nature.57 On the facts, the Court however held that the market was not a pure oligopoly and that therefore the parallel behaviour of dyestuff producers originated in an unlawful concerted action.

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3.63  Scholarship A number of prominent scholars criticized this judgment. René Joliet, who would later become a judge at the Court of Justice, deplored the Court’s overly superficial economic analysis. According to Joliet, the Court should have more thoroughly examined whether the market’s normal operation could have led to parallel behaviour.58 In dismissing this possibility on the basis of cursory evidence, the Court demonstrated a clear reluctance to uphold firms’ defences to the effect that their behaviour was merely rational and could not be ascribed to a concerted practice. In turn, the Court’s insufficient degree of economic analysis de facto left the Commission free to prohibit oligopolistic tacit collusion under Article 101(1) TFEU. Subsequent case law The issue of oligopolistic tacit collusion under Article 101(1) TFEU recurred in the Wood pulp case (and later in the Italian flat glass case). Now a judge at the Court of Justice, Joliet was able to influence the outcome of the Wood pulp judgment.59 In this case, the Court held that the Treaty ‘does not deprive economic operators of the right to adapt themselves intelligently to the existing and anticipated conduct of their competitors.’60 It considered that parallel conduct in itself cannot be regarded as furnishing proof of an infringement to Article 101(1) TFEU ‘unless concertation constitutes the only plausible explanation for such conduct’.61 3.64  This standard of proof is undeniably high. To prove that concerted action is the only explanation for the parallel behaviour, the Commission must rule out each of the alternative potential explanations which might otherwise justify such conduct. On the facts, the Court engaged in an in-depth economic analysis and appointed economic experts. The experts pointed to the existence of: a ‘very high degree of transparency’ on the market; ‘a group of oligopolies-oligopsonies consisting of certain producers and of certain buyers and each corresponding to a given kind of pulp’; and a large flow of information due to a ‘very dynamic trade press’. They thus considered the normal operation of the market as a more plausible explanation for the uniformity of prices than a deliberate strategy of anticompetitive concertation.62 (p. 122) 3.65  Other explanations of parallel conduct In Asturienne-Rheinzink,63 the Commission found two zinc producers guilty of a concerted practice. The Commission held that the two firms had both unlawfully refused in parallel to supply their Belgian distributors. According to the Commission, the zinc producers were allegedly seeking to discourage parallel exports from Belgium to Germany. In their appeal before the Court of Justice, the parties successfully argued that their purported parallel course of conduct was remote from any concerted practice. The zinc producers had independently decided to cease supplies, because the Belgian distributors had failed to settle their invoices. The Court thus quashed the decision of the Commission.

(3)  Final comments 3.66  Standard of proof Unlike in other areas of competition law, the question of the applicable standard of proof for finding an infringement of Article 101(1) TFEU was for a long time ignored. The question is, however, of crucial importance, and was finally clearly addressed in the judgment Dresdner Bank and others v Commission .64 3.67  The Dresdner Bank case Before the definitive adoption of the euro in several EU Member States, a transitional period was arranged in which the national currency and the euro coexisted. During that period, banks had to convert the national currency into euros. In a 2001 decision, the Commission considered that several German banks had unlawfully coordinated the price of the commissions received on the purchase of banknotes in currencies of the euro zone at around 3 per cent. With this practice, the banks sought to recover around 90 per cent of the revenues lost due to the abolition of the buying and selling spread. In its decision, the Commission relied both on (i) factual elements which

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seemed to prove a concerted action among the banks and (ii) on the uniformity of the pricing policies applied by the German banks. 3.68  On appeal, the GC censured the Commission, considering that the latter had provided no substantive proof of the existence of an agreement in breach of Article 101 TFEU. According to the GC, the (relative) convergence of the rates invoiced (within a range of between 3–4.5 per cent), could only be explained by the operation of the market after the disappearance of the exchange risk. 3.69  Importantly, the GC further added that the Commission must adduce ‘precise’ and ‘consistent’ evidence to establish the existence of an agreement. The GC, however, considered that it is not necessary for the Commission to meet the criteria of precision and consistency with regard to each element of the infringement. On the contrary, it is enough that, taken ‘globally’, the indications referred to by the Commission meet these requirements.

(p. 123) B.  The Economic Component of Article 101(1) TFEU—A Restriction of Competition (1)  The concept of competition 3.70  Perfect competition vs Workable competition … For obvious reasons, the concept of ‘competition’ mentioned in the Treaty and, inter alia, under Article 101(1) TFEU shall not be construed through the lens of the unrealistic model of pure and perfect competition described in Chapter 2. In the early Consten and Grundig and Metro I cases,65 the Court seemed rather to view the model of ‘workable competition’ designed by the US economist John Maurice Clark in the 1940s, as the appropriate theoretical foundation of the Treaty provisions.66 In practice, the implication of this is that the optimal degree of competition to be attained may vary from one market to another.67 As noted by the Court, ‘its parameters may assume unequal importance, as price competition does not constitute the only effective form of competition or that to which absolute priority must in all circumstances be’.68 3.71  Assessment Whilst more realistic than the perfect competition model, the concept of ‘workable competition’ is however equally impractical, as it is likely to receive many different, and possibly subjective, interpretations. The concept of workable competition suggests in particular that competition may be traded off against other objectives far removed from competition (eg social policies, cultural pluralism), endowing competition authorities with a large degree of discretion to promote discretionary policy choices, falling beyond their official remit. 3.72  In addition, the issue of whether EU competition law protects ‘workable competition’ as opposed to other forms of competition is primarily a question of semantics. The case law of the Court also refers occasionally to the concept of ‘effective competition’, thereby implying that this issue is primarily theoretical.69 3.73  Inter-brand and intra-brand competition A somewhat more interesting discussion relates to the notions of inter and intra-brand competition. As a matter of principle, EU competition law seeks to protect—although with a different intensity—both (i) inter-brand (p. 124) competition, that is, competition between sellers of products (or services) of different brands or, in economic terms, between slightly imperfect substitutes within a same relevant market and (ii) intra-brand competition, that is, competition between sellers of products (or services) of the same brand, or in economic terms, absolutely perfect substitutes (eg competing retailers within a same distribution network).70 In practice, intrabrand competition often occurs downstream, at the level of distributors supplying to end-

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users (but not only, ie, wholesalers may also sell products of the same brand).71 By contrast, inter-brand competition often occurs upstream, at the level of production. 3.74  A common, mistaken, view is that vertical agreements, as opposed to horizontal agreements, primarily entail restrictions of intra-brand competition (eg through territorial exclusivity). However, a vertical agreement may also contain restrictions of inter-brand competition, for instance when a supplier forbids its retailers from selling/purchasing the products of its rivals (a practice labelled ‘single branding’). Conversely, a horizontal agreement may entail restrictions of intra-brand competition, for instance when cartel participants commit jointly to fix the retail price of their distributors. The Commission is aware of this, and considers that because restrictions of competition may be capable of affecting both inter-brand and intra-brand competition at the same time, it may be necessary to analyse a restraint in light of these two forms of competition, before concluding whether Article 101(1) applies.72 3.75  Internal and external competition Article 101(1) TFEU undeniably applies to restrictions of ‘internal competition’ whereby rival firms reciprocally agree to cease competing against each other. In addition, however, the Court of Justice extended in Consten and Grundig the scope of Article 101 TFEU to restrictions of ‘external competition’, that is, restrictions of competition between the parties to an agreement—or just one of them—and third parties.73 In that particular case, an agreement which granted absolute territorial protection to a retailer, and which consequently did not restrict competition between the parties, was nevertheless held to be incompatible with Article 101(1) TFEU on the ground that it prevented third parties, that is, other retailers, from entering the distribution market. This judgment has since been interpreted as the stepping stone of the application of Article 101 TFEU to vertical restraints. 3.76  Miscellaneous Article 101(1) TFEU applies equally to restrictions of competition at the level of demand and supply (eg sales cartels or purchasing cartels) for goods and services. Moreover, both restrictions of actual and potential competition are covered. Joint R&D agreements, which may restrict future, potential competition, thus fall within the ambit of Article 101(1) TFEU.

(p. 125) (2)  Substantive content of the concept of a ‘restriction of competition’ 3.77  Introductory clarification The TFEU refers to agreements which ‘distort’, ‘affect’, and ‘restrict’ competition, without however, drawing any distinctions among those terms. In practice, the Commission and the EU Courts seem to use those terms interchangeably in their decisional practice.

(a)  What a restriction of competition is not (or is no longer) (i)  A situation of contractual imbalance

3.78  Competition law vs Other statutory provisions An imbalanced commercial contract where one party with a strong bargaining position is clearly advantaged as compared to the other party (eg a contract between a large supermarket chain and a small supplier), does not necessarily restrict competition. Consequently, absent a restriction of competition, the fact that a co-contractor is subject to unfair commercial terms (in terms of prices and conditions) does not open ground for rescission on the basis of EU competition law.74 Issues of contractual fairness and equity shall be dealt with under other statutory provisions (ie, civil law or unfair competition rules). As will be seen, however, in the case of agreements that actually restrict competition, the contractual context (and, where applicable, situations of contractual imbalance) is a relevant element which the courts can take into account when ruling on the award of damages (and compensation for the interests harmed).

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(ii)  A restriction on the parties’ freedom to act on the market

3.79  The initial, formalistic, approach of the Commission Influenced by the principle of ‘free enterprise’, as well as by the German ordo-liberal tradition,75 the Commission’s first decisions declared restrictive of competition all agreements whereby the parties limited their commercial autonomy in favour of coordinated action, regardless of the market power of the parties.76 3.80  Under this interpretation, a whole host of agreements (and contractual provisions) have been deemed to fall within the scope of Article 101(1) TFEU. Combined with the system of prior notification of agreements, this extensive interpretation led undertakings to submit thousands of agreements to the Commission in the hope of benefiting from an exemption. 3.81  Calls for a rule of reason In the 1970s and 1980s, European scholars challenged the Commission’s approach of the concept of a restriction of competition as overly intrusive and alien to the protection of competition. Drawing on the insights of US antitrust law, they argued in favour of the introduction of a ‘rule of reason’ under Article 101(1) TFEU.77 Following this approach, an agreement should be found incompatible pursuant to (p. 126) Article 101(1) TFEU only if, following a ‘balancing’ exercise, its anticompetitive effects exceeded its pro-competitive effects. 3.82  The introduction of a US-style rule of reason would have allegedly had two advantages. First, from a procedural standpoint, many agreements caught by Article 101(1) under the Commission’s broad interpretation would have escaped the costly notification procedure (under Regulation 17/1962). Second, from a substantive standpoint, the competitive assessment underlying the rule of reason would have refocused Article 101(1) TFEU on purely economic concerns. 3.83  Evaluation The wording of the Treaty however erects a serious legal obstacle to the introduction of a system of rule of reason under Article 101(1) TFEU. Article 101(3) declares that incompatible agreements (and other forms of coordination) pursuant to Article 101(1) may benefit from an exemption if they have positive effects on social welfare. This provision would be made redundant if these positive effects were to be already assessed in the context of Article 101(1). 3.84  Incompatibility with the case law In addition to the above difficulty, the Commission’s early decisions were not in line with the notion of restriction of competition promoted by the Court of Justice’s seminal ruling in Société la Technique Minière .78 In this case, the Court had been asked to rule on the compatibility of an exclusive supply commitment under Article 101(1) TFEU. Such commitments inevitably restrict the commercial freedom of the parties, in limiting the producer’s ability to supply other customers.79 However, the Court repudiated the Commission’s form-based approach, stating that Article 101(1) TFEU ‘is based on an economic assessment of the effects of an agreement and cannot therefore be interpreted as introducing any kind of advance judgment with regard to a category of agreements determined by their legal nature’.80 An agreement, such as the one in question cannot fall automatically under the prohibition set out in Article [101(1) TFEU]. But, such an agreement can contain the elements provided in the said legislative provision by reason of a particular factual situation or of the severity of the clauses protecting the exclusive dealership.81

(b)  What a restriction of competition is (i)  An ‘economic’ concept

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3.85  Economic interpretation of the concept of restriction of competition It took a number of years for the GC and the Court of Justice to clarify fully the concrete, practical meaning of the judgment Société la Technique Minière. In Métropole Télévision (M6), the GC stressed that this judgment is part of a broader trend in the case-law according to which it is not necessary to hold, wholly abstractly and without drawing any distinction, that any agreement restricting the freedom of action of one or more of the parties is necessarily caught by the prohibition laid down in Article [101(1) TFEU]. In assessing the applicability of that provision to an agreement, account should be (p. 127) taken of the actual conditions in which it functions, in particular the economic context in which the undertaking operate, the products or services covered by the agreement and the actual structure of the market concerned.82 3.86  In what constitutes a clear-cut, unambiguous statement, the GC wholly dismisses the form-based interpretation endorsed by the Commission in its early decisions.83 Moreover, the GC also censures proponents of the rule of reason, stating that: According to the applicants, as a consequence of the existence of a rule of reason in Community competition law, when Article 85(1) of the Treaty is applied it is necessary to weigh the pro and anti-competitive effects of an agreement in order to determine whether it is caught by the prohibition laid down in that article. It should, however, be observed, first of all, that contrary to the applicants’ assertions the existence of such a rule has not, as such, been confirmed by the Community courts. Quite to the contrary, in various judgments the Court of Justice and the Court of First Instance have been at pains to indicate that the existence of a rule of reason in Community competition law is doubtful.84 (Emphasis added) 3.87  Later, in its Guidelines on Article 81(3), the Commission confirmed the demise of the form-based approach when it stated that to prove an infringement, ‘It is not sufficient in itself that the agreement restricts the freedom of action of one or more of the parties’.85 3.88  Practical repercussions under Regulation 1/2003 The enforcement system put in place under Regulation 1/2003 allocates the burden of proving an infringement of Article 101(1) TFEU on the competition authority (and/or plaintiff).86 One could thus argue that a transposition of the rule of reason system would have elevated the burden of proof bearing on the competition authority. To prove an infringement of Article 101(1) TFEU, the competition authority would have had to prove not only anticompetitive effects but also would have had to identify, and dismiss, potential pro-competitive effects. By rejecting the rule of reason, the burden of proof is arguably shared among the parties: the authority (and/or the plaintiff), have the burden of proving an anticompetitive effect, while the defendant has to invoke the benefit of an exemption as defined in Article 101(3) TFEU and substantiate its claims by specifically proving the existence of pro-competitive effects. This, however, ignores a number of practical realities. 3.89  Counterfactual standard In Métropole Télévision, the GC not only discarded previous Commission interpretations, it also devised a clear legal standard for bringing proof of a restriction of competition. The GC ruled that there is a restriction of competition if the agreement reduces the actual or potential competition which would exist in the absence of an agreement.87 Remarkably, this statement espouses a sound economics-based methodology, generally referred to as ‘counterfactual’ or ‘but for’ analysis. Whether ex ante —when firms self-assess tentative agreements—or ex post—when competition authorities and courts (p. 128) evaluate past and present agreements—a three-step approach must be applied.88 First, one must speculate on the hypothetical degree of competition (‘Comp’) in the market without the agreement (‘Comp WtA’). Second, one must determine the degree of

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competition in the market with the agreement (‘Comp WA’). Third, one must then compare the outcome of those assessments. If Comp WtA > Comp WA, then there is an infringement to Article 101(1) TFEU. Importantly, both Comp WtA and Comp WA must be assessed in terms of prices, output, product variety, product quality, innovation, etc. 3.90  Despite the necessarily speculative nature of counterfactual analysis, given that the ‘but for’ world has not occurred and must instead be hypothesized, it is not always mere ‘guesswork’. For instance, if an allegedly anticompetitive agreement takes place in a welldefined geographic area, analysis of an economically similar geographic area in which no such agreement was in place can provide the basis for a meaningful counterfactual comparison. Or, competition that took place within the same region (even among the same parties) before the agreement was said to have begun, can be studied, as long as care is taken to account for any relevant factors that may have changed over time. Finally, a closely related, but distinct market or industry, again not subject to an agreement can be used as the basis for the counterfactual analysis. 3.91  But even when such concrete comparators cannot be identified, counterfactual analysis still represents an important development in the assessment of coordinated behaviour because such analysis helps to clarify the theory of harm being put forward in the case. In the comparison between the two states of the world, the specific factors or conditions that differ between the two must be identified and how those factors or conditions lead (or potentially will lead) to consumer harm must be explained. This alone provides some rigour to the analysis. 3.92  Illustration: mobile telephony infrastructure sharing/national roaming In early 2000, most mobile operators incurred huge fixed costs for the acquisition of 3G spectrum licences. As a result of the implementation of costly attribution procedures everywhere in Europe, the ability of mobile operators to roll out 3G networks (and start providing service) was largely compromised, simply because of the further capital expenditures required. In this context, in 2001, O2 Germany and T-Mobile Deutschland notified the Commission of a two-pronged horizontal agreement which sought to minimize deployment costs through (i) the sharing of certain network elements (antenna relays, masts, etc) and (ii) the conclusion of national roaming arrangements (each using the network of the other in certain regions). The Commission did not object to the sharing of infrastructures. However, it considered that the agreement’s provisions relating to national roaming restricted competition on a number of key parameters (coverage, service quality, etc). First, as a result of the agreement, the roaming operator would not have proper incentives to develop its own network sufficiently. Second, the agreement would also limit call quality and network transmission rates, because the (p. 129) roaming operator would have to rely on the technical and commercial choices made by the host operator.89 Third, the Commission took objection to a risk that the wholesale charge arrangements between the mobile operators might lead to coordination on retail price levels. The Commission thus found the agreement to restrict competition within the meaning of Article 101(1) TFEU. Despite these reservations, the Commission issued an exemption based on Article 101(3) TFEU. 3.93  This decision was subsequently subject to partial annulment proceedings. O2 and TMobile sought to challenge the provisions of the decision which had declared part of their agreement incompatible with Article 101(1).90 3.94  The GC reviewed the Commission’s analysis, and in particular its counterfactual examination of the market situation in the absence of the agreement. It considered that the Commission had not mentioned, let alone examined, the risk that absent the agreement one of the parties could have been fully or partially absent from the mobile telephony market in Germany.91 Had this been the case then the restrictive effects of the agreement would be far less clear. On the contrary, the agreement would guarantee both undertakings’ presence

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in the market and, therefore, a certain degree of rivalry. The Commission simply reiterated that the agreement, once implemented, would give rise to restrictions of competition, thereby continuing to focus only on the market context resulting from the agreement, without comparison to the market in the absence of the agreement.92 The GC partly annulled the decision of the Commission. 3.95  Interestingly, under the EU counterfactual standard, an agreement that will exert clear, appreciable, anticompetitive restrictive effects may thus escape Article 101(1) TFEU, if absent the agreement, one can predict a situation where competition is (at least equally) hampered. It is the relative state of competition that matters, so even if some restrictive effects can be identified if the agreement offers relief from other restrictions it may avoid censure. 3.96  Subsequent clarifications The Commission further clarified the way this double test ought to be implemented. The Guidelines indicate that the counterfactual analysis implies a twotier assessment that focuses first on the agreement, and second on the particular contractual restraints. First, one needs to assess whether the agreement restricts competition that would have existed absent the agreement. If, for instance, ‘due to the financial risks involved and the technical capabilities of the parties it is unlikely on the basis of objective factors that each party would be able to carry out on its own the activities covered by the agreement’, the parties would not be competitors.93 The agreement thus cannot limit competition that does (p. 130) not exist. Second, one needs to examine whether competition that would have existed with the agreement, but absent the contractual restraint, is restricted. In other words, the analysis focuses on the question whether there could be a less restrictive agreement between the parties. As explained by the Guidelines, the question is not whether the parties in their particular situation would not have accepted to conclude a less restrictive agreement, but whether given the nature of the agreement and the characteristics of the market a less restrictive agreement would not have been concluded by undertakings in a similar setting.94 3.97  Competition The Guidelines concerning the application of Article 101(3) TFEU refer to agreements that ‘are likely to have an appreciable adverse impact on the parameters of competition on the market, such as price, output, product quality, product variety and innovation’.95 The potentially anticompetitive effect of the agreement must therefore be assessed on each and every one of those parameters . (ii)  The ‘integrationist’ approach towards a restriction of competition

3.98  Recap By contrast to other modern competition law systems such as US antitrust law, the sole goal of which is the promotion of consumer welfare, EU competition law is often said to have an additional objective: to achieve the integration of national geographic markets within a larger trans-European market by removing obstacles to interstate trade.96 3.99  On close examination, it is probably erroneous to view this goal as a non-economic goal, wholly distinct from the promotion of consumer welfare. After all, the EU Treaties’ commitment to market integration lies entirely on the belief that it fosters competition across the European territory and increases choice to the benefit of consumers. Moreover, market integration enables firms to achieve economies of scale, to make purchasing economies (eg by having access to alternative sources of supply), and to take rationalization measures (cost savings that may be realized from shifting output from one plant to another plant located in another territory), which then can be transferred to consumers in the form of reduced prices or increased consumer choice. That said, the objective of ‘market

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integration’—some have talked of a ‘dogma’ or ‘mantra’—plays a critical role in the enforcement of the EU competition rules. 3.100  Legal stringency Until recently, the EU Courts have viewed market integration as one of the most fundamental objectives of the EU. Hence, they have generally considered that agreements threatening market integration were hardcore restrictions of competition. Those agreements must thus be deemed unlawful, regardless of whether (i) they have—or not—anticompetitive effects and (ii) they give rise—or not—to economic benefits (efficiencies, etc). Such agreements include, for instance, horizontal market partitioning agreements whereby rival companies seek to protect their domestic territories,97 as well as vertical agreements (p. 131) whereby suppliers fix different retail prices (price discrimination) and seek to prevent parallel imports (arbitrage) across countries.98 3.101  The ‘dual pricing’ case—a more economic approach? Recently, in GSK v Commission, the GC has seemed to stray away from the abovementioned strict interpretation and has instead endorsed a more economic interpretation of restrictions of competition.99 In the EU, parallel trade in drugs from Spain (where public authorities fix low maximum prices) to other Member States (eg the UK) where prices are much higher, is a well-known phenomenon. In 1998, the Spanish subsidiary of GlaxoSmithKline adopted new terms and conditions of sale, stipulating differentiated prices for drugs sold to Spanish wholesalers. The subsidiary in particular wanted to apply higher prices to drugs sold in Spain but intended for (parallel) export as compared to drugs intended for the local market. In line with earlier case law, the Commission declared this system of ‘dual pricing’ a restriction of competition by object, incompatible with Article 101 TFEU. 3.102  On appeal, the GC set aside the Commission decision. The GC considered that the mere fact that an agreement sought to limit parallel trade could not by itself establish a presumption that the agreement had an anticompetitive object. Rather, the GC indicated that this question was contingent on whether parallel trade entails competition (in terms of supply and prices) to the benefit to consumers.100 In other words, the conclusion that impediments to parallel trade are restrictive by object is not automatic, but requires further analysis of the market’s ‘legal and economic context’.101 Parallel trade is not protected as such, but only ‘in so far as it gives final consumers the advantages of effective competition in terms of supply or price’.102 As a basis for its analysis, the GC considered that whilst linked to the issue of the functioning of the internal market, the objective of Article 101(1) TFEU is, quite simply, to prevent firms ‘from reducing the welfare of the final consumer of the products in question’.103 3.103  On the facts, the GC reviewed the ‘main characteristics of the legal and economic context’ of parallel trade in pharmaceuticals.104 It held, in particular, that low prices in pharmaceuticals were not the result of the competitive process, but of different national price regulations. Hence, it cannot be presumed that parallel trade has an impact on the prices charged to the final consumers of medicines reimbursed by the national sickness insurance scheme and thus confers on them an appreciable advantage analogous to that which it would confer if those prices were determined by the play of supply and demand .105 (Emphasis added) Since parallel trade is not the offspring of competition, a restriction of parallel trade is not a restriction of competition. Moreover, the GC noted that—as explained by the Commission in a related Communication—most of the financial benefit of parallel trade ‘accrues to the (p. 132) parallel trader rather than to the health care system or the patient’.106 For those

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reasons, the Court considered that Glaxo’s agreement was not restrictive by object, and that its practical, concrete effects on competition had to be scrutinized. 3.104  Observation What is noteworthy here is that the GC is calling for the counterfactual economic analysis described above. In the absence of ‘dual pricing’ agreements, consumer welfare would not necessarily improve, since the profit margin achieved through the parallel import would be absorbed by the parallel importers. Moreover, limiting parallel imports and maintaining dual pricing can increase the undertaking’s incentives to serve Spain in the first instance; with forced uniform pricing across nations, nations with price caps may find they are underserved or not served at all.107 3.105  The appeal This unprecedented judgment of the GC was appealed before the Court by both Glaxo and the Commission (amongst other).108 The latter in particular alleged that the GC had ‘made an incorrect interpretation and application of the term “object” in Article 81(1) EC’.109 First, the Commission argued that the GC’s ruling is not in line with wellestablished case law. Second, the Commission challenged the new legal standard as unduly ‘restrictive’ for parallel trade, and criticized its particular implementation in the case at hand, with the Court not scrutinizing adequately benefits to consumers. 3.106  Under a very legalistic reasoning, which almost entirely disregards the economic and legal context of parallel trade, the Court set aside the GC’s innovative ruling. The Court’s reasoning is twofold. First, the Court is reluctant to depart from its traditional case law which finds that ‘agreements aimed at prohibiting or limiting parallel trade have as their object the prevention of competition’,110 and which it has occasionally applied to the pharmaceutical sector.111 Second, the Court relies on a textual interpretation of Article 101 TFEU and contends that there is ‘nothing in that provision to indicate that only those agreements which deprive consumers of certain advantages may have an anti-competitive object.’112 The Court adds that Article 101 TFEU ‘aims to protect not only the interests of competitors or of consumers, but also the structure of the market and, in so doing, competition as such’. In other words, and in our opinion quite disputably, an agreement that is unlikely to have harmful effects on consumer welfare may nonetheless be deemed a restriction by object. By requiring proof that the agreement entailed disadvantages to consumers as a prerequisite for a finding of anticompetitive object under Article 101 TFEU, the GC erred in law. Overall, the Court thus invalidates any attempt to follow a more economic approach in relation to commercial conduct that involves parallel trade. (p. 133) 3.107  Critical appraisal The conservative and harsh stance of the Court of Justice on parallel trade is not supported by the economic literature. The very few empirical economic studies which have sought to examine the effects of parallel trade on consumer welfare have reached inconsistent results. To focus only on the EU internal situation— where parallel trade is protected113—a first strand of studies invalidated the perception that parallel trade enhances consumer welfare in the short term through price reductions. In 1999, a survey conducted in relation to a wide range of trademarked products (eg compact disks, cars, cosmetics and perfumes, soft drinks, clothing) for instance reported that the ‘effect of [parallel trade] on retailers and consumers was largely seen as neutral’, and consequently that the case for international exhaustion is ‘simply stated and rests on the assumption that this will deliver lower prices to consumers’.114 3.108  In the same vein, a 2004 study by the London School of Economics (LSE) empirically tested the effects of parallel imports on six pharmaceutical product categories in six EU Member States.115 It found that

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the hypothesis that pharmaceutical parallel trade stimulates price competition and drives prices down in destination (importing) countries over the long-term is rejected. There is also very little evidence lending support to the argument that parallel trade stimulates (price) competition among exporting and importing countries. Thus, the arbitrage hypothesis of price equalisation or price approximation is also rejected.116 3.109  A similar finding was reached in a 2003 study, which demonstrated that parallel imports of pharmaceutical products in Finland had not intensified price competition, and has thus only generated minimal consumer savings.117 3.110  A second strand of empirical studies has, however, pointed to a contrary conclusion. In 2001, a study showed that the price of drugs subject to parallel imports in Sweden had risen less than the price of other drugs.118 Similarly, a 2003 study focusing on patented drugs in Denmark, the UK, Germany, Sweden, and the Netherlands found that prices had decreased with competition from parallel trade between 1997 and 2002.119 Another study covering 50 pharmaceutical products in Denmark, Germany, the UK, and Sweden found in 2006 that parallel imports competition had exercised a downward effect on prices120. 3.111  Finally, a third strand of studies offers nuanced, ambiguous results. For instance in 1999, a report of the Swedish Competition Authority indicated that the magnitude of the price increases arising from a prohibition of parallel imports was at best limited.121 To add even more confusion to this complex state of affairs, an academic paper published in 2003 argued (p. 134) that the price pressure exerted by parallel imports was highly product specific and often immaterial.122 3.112  Overall, the empirical economic literature hardly provides any conclusive evidence that parallel trade delivers lower prices to consumers. In light of this, the Court’s position on agreements that restrict parallel trade seems overly severe. In the absence of clear economic guidance, courts could call for an evaluation of the specific prices at issue in the parallel trade case at hand, but have thus far not done so.

(3)  Presumed restrictions of competition vs Proven restrictions of competition —the object and effect dichotomy 3.113  Introduction It follows from the wording of Article 101(1) TFEU, that to find an infringement of Article 101(1), the Commission (or a court/plaintiff), must prove that the agreement (or, in the alternative, a concerted practice or decision of association of undertakings) under scrutiny has as its ‘object or effect’ the restriction of competition. The Court of Justice has traditionally considered that the words ‘object’ and ‘effect’ are to be read disjunctively.123 In other words, the Commission must seek first to verify whether the agreement has as its ‘object’ the restriction of competition.124 If this is the case, and subject to the fulfilment of the other conditions for the application of Article 101, this will be the end of the investigation, and the infringement will be proven (even if the agreement has generated no anticompetitive effects). Proof of actual or potential anticompetitive effects will not be required in order for an agreement to be declared incompatible with the TFEU. If—and only if—however, this is not the case, the Commission will have to undertake the burdensome verification of whether the agreement in ‘effect’ restricts competition.

(a)  Presumed restrictions: the concept of restriction by ‘object’ 3.114  Definition A restriction by ‘object’ is a practice that holds such features that—from a balance of probabilities perspective—will in all likelihood harm competition.125 Whilst there is no formal list of restrictions by ‘object’, it is reasonable to consider that all those agreements—and in particular cartels—referred to in the text of the Treaty at Article 101(a) to (e) must be deemed restrictions by ‘object’. Regulations, guidelines, and other soft law instruments also occasionally classify certain types of agreements and clauses as restrictions by (p. 135) ‘object’.126 As a result, agreements that have as their object to From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

restrict competition include price-fixing agreements among competitors,127 market sharing agreements, agreements to exchange information regarding otherwise unpublished prices, passive sale prohibitions,128 and agreements fixing the retail price of a distributor.129 3.115–3.116  That said, the concept of a restriction by ‘object’ is open-ended.130 According to the Court in Competition Authority v Beef Industry Development Society Ltd and Barry Brothers (Carrigmore) Meats Ltd131 and in T-Mobile v Raad van bestuur van de Nederlandse Mededingingsautoriteit,132 restrictions by object cover all those practices which, ‘by their very nature’ are injurious of competition. The Court sought to provide further clarity in adding that a practice has as its object the restriction of competition if: according to its content and objectives and having regard to its legal and economic context, it is capable in an individual case of resulting in the prevention, restriction or distortion of competition within the common market.133 3.117  In Competition Authority v Beef Industry Development Society Ltd and Barry Brothers (Carrigmore) Meats Ltd, the Court considered as a restriction by object an agreement amongst processors of beef representing approximately 93 per cent of the market seeking to rationalize the beef industry in order to make it more competitive by reducing, but not eliminating, production overcapacity. In T-Mobile v Raad van bestuur van de Nederlandse Mededingingsautoriteit, where the agreement had no direct effect on the price paid by end-users, the Court held that an exchange of information between competitors had an anticompetitive object if the exchange was capable of removing uncertainties concerning the intended conduct of the participating undertakings.134 3.118  Practical importance The notion of a restriction by object is a vexing issue, which has given rise to a spate of disputes before the EU Courts in recent years. This is because, in (p. 136) practice, the classification of an agreement as a restriction by object—for example a cartel—has critical consequences. In a nutshell, it imposes a light evidentiary burden on the competition authority, which does not need to assess the effects of the agreement under scrutiny.135 The analysis will focus on the formal features of the agreement, and on determining whether those features are such that the agreement will likely restrict competition. A mere ‘reading’ of the agreement will thus suffice to establish an infringement of Article 101 TFEU.136 In Competition Authority v Beef Industry Development Society Ltd and Barry Brothers (Carrigmore) Meats Ltd137 the Court, for instance, noted that ‘close regard must be paid to the wording of its provisions and to the objectives which it is intended to attain’. 3.119  Undertakings parties to an agreement that restricts competition by object face, by contrast, a tougher time. They cannot avoid a finding of infringement by arguing, and even proving, that their agreement exerted no anticompetitive effects (eg because they did not implement the agreement on the market or because their cumulative market share is minimal).138 Neither is the absence of anticompetitive intent a means of defence.139 The fact that the parties did not seek to restrict competition (eg they sought to remedy the effects of a crisis in their sector) does not dismiss a finding of restriction by object.140 By contrast, the EU institutions may take the wilful intention of the parties to restrict competition into account. This is, however, not an essential factor.141 3.120  Restrictions by object vs ‘Hardcore’ restrictions Competition authorities, and in particular, the Commission, occasionally talk of ‘hardcore’ restrictions. In practice, the concept of a ‘hardcore’ restriction is often confounded with the notion of a restriction by ‘object’. The thin dividing line between the two concepts is the following. A ‘hardcore’ restriction is surely a restriction by object. As explained in the Guidelines on Article 101(3) TFEU, its anticompetitive effects are presumed.142 However, a ‘hardcore’ restriction is a subset of restriction by object, which must be treated particularly severely from a legal standpoint, because it is blatantly inefficient. Contrary to the principle that standard

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restrictions by (p. 137) ‘object’ can benefit from an exemption under Article 101(3) TFEU,143 a hardcore restriction thus cannot benefit from a block exemption regulation (see exception of horizontal guidelines). More importantly, it is unlikely ever to benefit from an individual exemption pursuant to Article 101(3) TFEU.144 Thus, hardcore restrictions are ‘per se’ prohibited. 3.121  In practice, the Commission has occasionally exempted restrictions by object—for instance in the REIMS II case,145 or in the International Multilateral Interchange Fee Agreement of 2002 .146

(b)  Restrictions of competition to be proved: the concept of restriction by ‘effect’ 3.122  Reasoning Limiting the scope of Article 101(1) TFEU to restrictions by ‘object’ or would leave unchecked a plethora of agreements which, although unintended to restrict competition, might nonetheless cause competitive harm on the market. Joint R&D agreements provide a good example. Whilst those agreements seem perfectly neutral from a competition standpoint, their specific terms may occasionally create anticompetitive effects by, for instance, harmonizing the parties’ cost structures leading to an alignment of prices on the market. 3.123  Understandably, these agreements come within the scope of Article 101(1) TFEU, subject to the ability of the Commission (or plaintiff) to prove their restrictive effect by applying the abovementioned counterfactual standard. In its Guidelines on the Application of Article 101(3) TFEU (sometimes labelled the ‘General Guidelines’), the Commission has defined the basic principles applicable to the assessment of the restrictive effects that an agreement may have on competition (Section (i)).147 Importantly, Article 101(1) TFEU only applies if the agreement has appreciable effects on competition (Section (ii)). In addition, Article 101(1) TFEU applies to agreements which have little restrictive effects on competition but which—taken together with other agreements—‘cumulatively’ have such effects (Section (iii)). (i)  Basic principles for assessing agreements under Article 101(1) TFEU

3.124  Introduction The Commission’s approach is economic in nature. An agreement will be deemed to have restrictive effects on the relevant market if its adverse effects on prices, output, innovation, or the variety or quality of goods and services can be expected with a reasonable degree of probability .148 To this end, the key question hinges on assessing whether the agreement contributes to create, maintain, or strengthen market power to the benefit of (p. 138) the parties to the agreement.149 A single branding agreement between a supplier and an important retailer may, for instance, entitle the supplier to gain market power, because it will foreclose its competitors’ access to retail outlets. 3.125  Testing the likely effects on competition of an agreement will not, however, always be necessary. When the agreement has been applied, the Commission will focus on the actual conduct of the parties on the market. It will, for instance, scrutinize whether the agreement has led to price increases (which might be proof that the parties collectively enjoy market power).150 3.126  On closer examination, the approach proposed by the Commission in the General Guidelines is quite inadequate. The Guidelines recall that it is normally necessary to define the relevant market. They then go on to mention a laundry list of factors which have normally to be examined, such as ‘the nature of the products, the market position of the parties, the market position of competitors, the market position of buyers, the existence of potential competitors and the level of entry barriers’.151 Yet, the Guidelines provide no further guidance on those issues. This may, of course, be attributed to the fact that (i) the core concern of the Guidelines is to clarify the application of Article 101(3) TFEU (and not

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of Art 101(1)) and (ii) detailed, additional guidance for the various types of agreements is provided in other specific instruments.152 3.127  In addition, the Guidelines fail to explain how this ‘market power’ test must be articulated in practice with the counterfactual standard discussed. We believe, however, that the answer to this question is fairly easy. It ought to be tested whether the situation with and without the agreement entails the creation, maintenance, or strengthening of market power. (ii)  Appreciable effects

3.128  The early case law: laying down the principles Driven, arguably, by (i) the need to avoid too large a number of agreements falling within the scope of Article 101(1) in light of the Commission’s scarce administrative resources and (ii) the traditional principle de minimis non curat praetor, the Court of Justice considered that those agreements the effects of which are insufficiently appreciable, should be excluded from the prohibition rule. 3.129  In a remarkably terse judgment (three paragraphs) handed down in 1969, the Court considered in Völk that ‘an agreement falls outside the prohibition in Article [101] when it has only an insignificant effect on the markets, taking into account the weak position which the persons concerned have on the market of the product in question.’153 This case law marks the birth of what is known as the de minimis doctrine, under which restrictions of competition of minor importance should not fall under the prohibition rule of Article 101(1) TFEU. (p. 139) 3.130  The codification of the de minimis rule in soft law instruments In line with this principle, the Commission subsequently developed in 1986,154 1997,155 and in 2001156 a Notice removing certain categories of agreement from the scope of the Article 101(1) TFEU prohibition. More precisely, and because the Commission cannot declare Article 101(1) wholly inapplicable, its Notice expresses that in cases where the agreement has no appreciable effects, it ‘will not institute proceedings either upon application or on its own initiative’.157 3.131  The Commission’s Notice defines appreciable effects in a negative way. Since 1997, the notices follow an economic approach,158 which seeks to quantify, with the help of market share thresholds, what is not an appreciable restriction of competition under Article 101 TFEU. Below certain market share thresholds, parties to the agreement will not be deemed to enjoy market power. In this regard, the Commission’s 2001 Notice on agreements of minor importance holds that agreements between competitors whose aggregate market share does not exceed 10 per cent on any of the relevant markets do not appreciably restrict competition within the meaning of Article 101.159 In the same vein, agreements between non-competitors whose market share does not exceed 15 per cent on any of the relevant markets affected by the agreement do not appreciably restrict competition within the meaning of Article 101.160 In cases where it is difficult to classify the agreement as either an agreement between competitors or an agreement between noncompetitors, the conservative 10 per cent threshold prevails.161 Finally, because market shares are not fixed and frequently evolve over time, the Notice exhibits a certain degree of flexibility. The above rules also benefit agreements that do not exceed the thresholds during two successive calendar years by more than 2 per cent.162 3.132  The Court of Justice has occasionally referred to the Commission’s Notice in its case law, thereby confirming the validity of the above rules. In Mannesmannröhren-Werke AG v Commission, for instance,163 the GC noted that the thresholds had been crossed, so that the contracts under scrutiny were not agreements of minor importance within the meaning of the Commission’s Notice.

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3.133  Small and medium-sized undertakings The Commission’s Notice does not clearly say whether agreements between small and medium-sized undertakings should benefit, as a general principle, from the de minimis doctrine. Small and medium-sized undertakings are (p. 140) enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding €50 million, and/or an annual balance sheet total not exceeding €43 million.164 3.134  This question arose in Ventouris v Commission .165 In this case, a provider of ferry services, challenged a Commission decision which had fined a number of ferry operators for unlawful price-fixing agreements on routes between Greece and Italy. The applicant submitted that the alleged agreement fell outside the scope of Article 101(1) TFEU on the ground that its company came within the category of small and medium-sized enterprises (SMEs) and that the Commission had allegedly acknowledged, when determining the amount of the fine, that its participation in the agreement did not affect competitive conditions in the market.166 The agreement was therefore one of minor importance. The Court confirmed that the 1997 Notice excluded, as a general rule, agreements between SMEs, but stressed that ‘only agreements to which all the parties are SMEs’ fell outside the scope of the prohibition.167 In the present case, only two companies (including the applicant) could be regarded as SMEs. 3.135  De minimis agreements above the threshold The fact that the agreement exceeds the minimum threshold applicable does not mean that it appreciably restricts competition. In those cases, an individual assessment of the agreement will be necessary to determine whether it appreciably restricts competition.168 For instance, in European Night Services (ENS) v Commission, the Commission had exempted the agreement creating ENS —a joint venture between national railway operators seeking to provide overnight passenger rail services between the UK and the continent through the Channel Tunnel— subject to a number of access conditions (provision of locomotive, train crew, and path to a rival railway operator). This decision was challenged by some of the parties before the GC. Amongst other things, the applicants argued that the Commission had not established that the agreement had appreciable effects on competition: ‘the only market shares in excess of 4% likely to be enjoyed by ENS were 6% and 7% for leisure travellers on the LondonAmsterdam and London-Frankfurt/Dortmund routes respectively.’169 3.136  The Commission argued that ‘in accordance with its notice on agreements of minor importance … Article 101(1) TFEU applie[d] to an agreement when the market share of the parties to the agreement amoun[ted] to 5% .’170 In other words, once the threshold is crossed, the agreement has allegedly appreciable effects. 3.137  The GC rebutted the Commission’s position. It held that ‘the mere fact that that threshold may be reached and even exceeded does not make it possible to conclude with certainty that an agreement is caught by Article 101(1).’171 The GC moreover noted that the Commission had to state the reasons for considering that an agreement has appreciable effects on (p. 141) com petition, and is thus caught by Article 101(1) TFEU.172 The GC annulled the Commission’s decision on that ground. 3.138  Unlawful de minimis agreements The text of the Notice expressly precludes the application of the de minimis presumption to certain types of agreements. The agreements in question are (i) those between competitors who have as their object the fixing of prices when selling the products to third parties, the limitation of output or sales, and the allocation of markets or customers173 and (ii) those between non-competitors which contain restrictions that are expressly listed as ‘hardcore restrictions’ under Article 4 of the Block Exemption Regulation on vertical agreements.174 In practice, however, the Commission has never pursued hardcore restrictions implemented by undertakings of a small size.175 This

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probably explains the mistaken view that the de minimis doctrine also applies to restrictions by object.176 3.139  Critical appraisal While the de minimis Notice seeks to assist firms, competition author-ities, and courts to assess, from the outset, whether an agreement deserves to be scrutinized under Article 101 TFEU, it relies on a somewhat complex mechanism. The simplicity implied by the market share thresholds often belies the reality of their determination. In practice, the calculation of market shares is a complex issue.177 Moreover, and prior to this, a delineation of the relevant market is necessary. This, in and of itself, often proves intricate and onerous for firms—in particular small ones—and national courts with no specific expertise in competition law and economics. 3.140  Cross-fertilization As will be seen under Chapter 8, the de minimis Notice has influenced the review of the rules applicable to vertical restraints. In particular, the de minimis requirement to scrutinize the market share of both parties to a vertical agreement (double market share threshold) has been transposed in the Commission’s Block Exemption Regulation 330/2010. (iii)  Cumulative effects

3.141  Big picture When scrutinizing an agreement through the lens of Article 101(1) TFEU, it may be tempting to jump to the conclusion that there is no appreciable restriction of competition, in particular where one of the parties to the agreement is small, so that the agreement only covers a marginal part of the market. For instance, a single branding commitment subscribed by a small retailer to the benefit of a large manufacturer does not appreciably harm rival manufacturers. However, this agreement may restrict competition if it adds up to similar agreements—of the same and/or of other firms—on the same relevant market. The key economic concern here is a risk of customers’ foreclosure arising from single branding arrangements which induce buyers on the market to concentrate their orders for a particular type of product with one supplier (ie, exclusive purchasing agreements, (p. 142) non-compete clauses, quantity forcing). Altogether, those agreements can act as a barrier to the entry/expansion of other suppliers. 3.142  Case law This issue was at the heart of the seminal Court of Justice ruling in SA Brasserie de Haecht v Consorts Wilkin-Janssen, which involved vertical agreements between a large Belgian brewery and a small liquor licensee. In this case, the Court held first that ‘by referring in the same sentence to agreements … which may involve many parties, article [101(1)] implies that the constituent elements of those agreements … may be considered together as a whole’ (emphasis added).178 More importantly, and in full congruence with its ruling in Consten and Grundig rendered a year before, the Court endorsed a pragmatic, economically driven interpretation. It held that Article [101(1)] implies that regard must be had to such effects in the context in which they occur, that is to say, in the economic and legal context of such agreements, decisions or practices and where they might combine with others to have a cumulative effect on competition.179 3.143  It concluded in noting ‘the existence of similar contracts may be taken into consideration for this objective to the extent to which the general body of contracts of this type is capable of restricting the freedom of trade’ (emphasis added).180 3.144  Test In brief, firms, competition authorities, and courts, should not follow a myopic approach focusing on the particular agreement under scrutiny, but should instead seek to grasp the bigger economic and legal picture. Faced with a single agreement (or a handful of them), the assessment should first determine on whether it belongs to a group/network of similar agreements, from the same and/or rival suppliers. The degree of similarity required to find a network of parallel agreements is unclear. Contracts with a common purpose (ie,

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single branding), but subject to different terms and conditions, arguably belong to a similar network of agreements.181 3.145  Second, the assessment should determine whether this agreement ‘may combine with other agreements to have a cumulative effect on competition’.182 The key issue here is to quantify the market coverage of the network of similar agreements. In Van den Bergh Foods v Commission, for instance, the Court reviewed a Commission Decision which had found a freezer exclusivity agreement unlawful. It confirmed that together with other agreements (from rivals, in particular) ‘the networks of agreements in place on the relevant market affect (p. 143) 83% of outlets in that market’.183 By contrast, in Roberts and Roberts v Commission, the Court found that a network of agreements that left 80 per cent of the purchased quantities open to competition could not be deemed unlawful.184 Finally, in its de minimis Notice, the Commission has clarified that a cumulative foreclosure effect is unlikely to exist if less than 30 per cent of the market is covered by the network of parallel agreements.185 This principle is in line with the benchmark applicable under Regulation 330/2010, where vertical agreements covering less than 30 per cent of the relevant market benefit (subject to other conditions) from the block exemption. 3.146  Third, the assessment should evaluate the contribution of the particular agree ment(s) under scrutiny to the cumulative foreclosure effect. In Neste Markkinointi Oy and Yötuuli Ky and Others, for instance, the Court considered that a number of contracts, which could be terminated on a one-year notice (as compared to other contracts which were entered into for a period of several years) only represented a very small proportion of all the exclusive purchasing agreements entered into by a particular supplier.186 The Court thus considered that those contracts could be regarded as making no significant contribution to the cumulative effect. However, one could argue that those contracts were in the first place not relevant in the analysis. The fact that those contracts were different from other contracts should have led the Court to consider that they did not belong to a similar net work of agreements. Again, in the de minimis Notice, the Commission considered that ‘individual suppliers or distributors with a market share not exceeding 5% are in general not considered to contribute significantly to a cumulative foreclosure effect.’ In other words, this means that if one, or more, agreement(s) covers less than 5 per cent of a relevant market, it should be deemed to bring a de minimis contribution to the cumulative fore closure effect. 3.147  Finally, it is necessary to analyse the market conditions—in particular the real and specific opportunities for new competitors to penetrate that market notwithstanding the existence of the network of agreements.187 Financial constraints, marketing authorizations, reputational effects, fixed costs, etc may indeed render entry/expansion of rival suppliers ineffective.

(4)  The ancillary restraints doctrine 3.148  Presentation In Remia, the Court drew inspiration from the well-known adage, accessorium sequitur principale, to accept that a restrictive non-compete clause which was merely ancillary to an otherwise non-restrictive agreement escaped the application of Article 101(1).188 In this case, the Court had to rule on the validity under Article 101 TFEU of an agreement which purported to transfer a company to a third party. The Court noted that non-competition clauses incorporated in an agreement for the transfer of an undertaking in principle have the merit of ensuring that the transfer has the effect intended. By virtue of that (p. 144) very fact they contribute to the promotion of

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competition because they lead to an increase in the number of undertakings in the market in question.189 3.149  Conditions The application of the ‘ancillary restraints doctrine’ is subject to two conditions.190 First, the main agreement must not restrict competition within the meaning of Article 101(1) TFEU. Second, the restrictive clause must be ancillary to the principal operation. This latter condition was clarified by the GC in Métropole Télévision .191 In this judgment, the GC considered that a restriction is ancillary if it is ‘directly related and necessary’ to the implementation of the principal agreement.192 A restriction ‘directly related’ to the implementation of a principal operation means ‘any restriction which is subordinate to the implementation of that operation and which has an evident link with it’.193 The ‘necessary’ character of a restriction is in turn assessed by looking at the operation from two aspects. According to the GC, ‘it is necessary to establish, first, whether the restriction is objectively necessary for the implementation of the main operation and, second, whether it is proportionate to it.’194 A restriction will only be deemed to be necessary ‘if, without the restriction, the main operation is difficult or even impossible to implement’.195 3.150  Cross-fertilization The ancillary restraints doctrine has subsequently penetrated the field of merger control, where joint ventures and other structural transactions are often accompanied by non-compete obligations.196

C.  The Jurisdictional Component of Article 101(1) TFEU—A Restriction ‘Within the Internal Market’ Which ‘Affects Trade between Member States’ 3.151  Establishing the jurisdiction of Article 101 TFEU over a given practice first entails solving horizontal jurisdiction issues, that is, demonstrating that the practice affects the territory of the EU, as opposed to the territory of third countries (Section 1). Second, it entails solving vertical jurisdiction issues, in proving that the practice may have an effect on trade between the Member States of the EU, as opposed to purely domestic conduct (Section 2).

(p. 145) (1)  Horizontal jurisdictional issues 3.152  Wording of the TFEU Pursuant to the TFEU, only those agreements that restrict competition ‘within the internal market’ fall foul of Article 101. Agreements that restrict competition outside the ‘the internal market’ fall within the jurisdiction of other competition rules, adopted by non-EU countries. As explained in Chapter 1, this rule—which is often referred to as the ‘effects doctrine’—seeks to establish the jurisdiction of the EU or one of its 27 Member States over a particular case. In DECA, Grosfillex-Fillistorf, Supexie, Rieckermann/AEG-Elotherm, Raymond-Nagoya, and VVVF, which related to restrictions of competition targeting non EU-countries, the Commission refused to apply Article 101(1) TFEU since the agreements could not be said to have produced an effect within the internal market.197 3.153  Export cartels An export cartel is an agreement between firms to charge a specified export price and/or to divide export markets. Many competition law regimes leave export cartels unchallenged, absent injurious effects on competition in the domestic market. EU law is no exception. In principle, export cartels amongst EU firms do not fall under Article 101(1) TFEU, absent an effect within the internal market.198 3.154  There is relatively little literature on the frequency and effects of export cartels.199 However, those agreements are often said to target primarily developing countries, which lack the institutional tools to defeat such conduct. Accordingly, it is often argued that export

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cartels should be dealt with in the context of international organizations, such as the OECD, the WTO, or the ICN. 3.155  Export cartels with domestic anticompetitive object/effect Importantly, not all export cartels fall outside the scope of EU law. EU firms may agree to export certain (surplus) quantities to non-EU countries, in order to create an artificial shortage of supply within the internal market, and in turn charge higher prices. An analogous practice was at stake in the Suiker Unie case.200 More generally, firms engaging in joint exports towards non-EU countries may incidentally divert quantities away from the EU territory, and in turn relax price competition within the internal market. In both cases, there is an impact within the common market and, consequently, Article 101 TFEU applies.201 3.156  Export agreements which prevent competitive re-imports Agreements governing export sales towards non-EU countries may also fall foul of Article 101(1) TFEU, when the products/(p. 146) services subject to the agreement can be re-imported into the EU. For instance, a vertical agreement between an EU-based supplier and a non-EU distributor may restrict the latter’s ability to resell outside an allocated territory, including the EU.202 If resale within the EU would be possible and likely absent the agreement, then the agreement clearly has an impact ‘within the internal market’ (it protects the EU territory from competition by re-imports). 3.157  The case law of the EU Courts provides a number of illustrations of this. In CRAM/ Rheinzink,203 Schiltz, a Belgian firm, had purchased quantities of rolled zinc products to producers located in France and Germany. Pursuant to the agreement, Schiltz had been requested to resell those products specifically into Egypt. However, Schiltz re-imported the products into Germany, and resold them at prices slightly lower than those normally charged on this market.204 In this case, both the Commission and the Court found that the agreement allowed the two producers to limit parallel imports within the internal market.205 In turn, Article 101 TFEU was indisputably applicable. 3.158  Similarly in Javico,206 Yves St Laurent Parfums (YSLP) had concluded with Javico, a German firm, several distribution agreements for the sale of YSLP perfumes in Russia, Ukraine, and Slovenia. The contracts provided that the contractual products would be sold only in the territories of Russia, Ukraine, and Slovenia (and not outside). At a later stage, YSLP found products which had been sold to Javico on the British, Belgian, and Dutch markets. YSLP thus filed an action for damages. The case eventually reached the Court of Justice through the preliminary reference procedure, with Javico arguing that the agreement was incompatible and void within the meaning of Article 101(1) and (2) TFEU. The Court of Justice, asked to rule on the merits of this argument, considered that Article 101 TFEU was applicable, even if the agreements applied to non-EU territories. The Court noted, in particular, that an agreement which requires a reseller not to resell contractual products outside the contractual territory has as its object the exclusion of parallel imports within the Community and consequently restriction of competition in the common market .207 (Emphasis added) 3.159  In practice, re-imports typically arise in respect of products/services which are subject to appreciable price differentials between the EU and the export country.208 However, re-imports may be undermined by: (i) the level of the EU customs duties imposed on the (p. 147) products/services concerned;209 (ii) the importance of transport costs;210 (iii) the accumulation of profit margins across the distribution chain;211 and (iv) the existence of intellectual property rights, which may be used to block parallel trade originating from nonEU countries. A careful, case-by-case assessment is thus necessary. Moreover, re-imports

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must be of an ‘appreciable’ magnitude to trigger the jurisdiction of the EU competition rules.212 3.160  Other agreements with an impact within the internal market The case law of the Court of Justice provides additional illustrations of agreements with only remote connections to the EU territory, which nonetheless have an impact within the internal market. First, competing firms in the EU and in third countries may share markets, by agreeing to stay away from each other’s domestic market.213 In JFE Engineering Corp and others v Commission,214 the Commission sanctioned eight European and Japanese producers which had unlawfully agreed not to sell seamless steel tubes and pipes in each other’s domestic markets. On appeal, the Japanese producers argued that their tubes were only sold to oil companies external to the EU, and they were never resold within the EU. Hence, the EU competition rules were arguably not applicable to the impugned marketsharing agreement between EU and Japanese producers. The GC however noted, amongst other things, that the Japanese producers might have had an interest in selling their products in the EU, following the cessation of seamless tube production by the UK incumbent supplier.215 3.161  Second, agreements governing economic activities undertaken away from the EU territory may impact within the internal market, when the products/services subject to the agreements are an important input for EU customers. This issue was present in the Compagnie Maritime Belge case, where several liner conferences had shared maritime transport routes between Africa and the EU, thereby limiting the catchment area of EU ports as well as reducing the availability of transport services for EU customers.216

(2)  Vertical jurisdictional issues (a)  The ‘effect on trade’ concept—purpose 3.162  Principle Agreements that have an impact within the internal market may fall within the jurisdiction of two sets of rules, namely the EU competition rules and the national (p. 148) competition laws.217 Pursuant to the TFEU, Article 101(1) only applies to agreements which ‘may affect trade between Member States’. In its ruling in ICI v Commission, the GC held that this condition seeks to ‘define, in the context of the law governing competition, the boundary between the areas covered by Community law and the law of the Member States.’218 To this end, it confines the jurisdiction of Article 101(1) TFEU to practices which are ‘capable of having a minimal level of cross-border effects within the [EU]’.219 This requirement is generally referred to as ‘the effect on trade concept’. It is congruent with the quasi-federal nature of the rules enshrined in the TFEU. 3.163  ‘Autonomous’ concept The GC’s pronouncement in ICI v Commission deserves a word of caution. The effect on trade concept is not a jurisdictional test to determine which of EU or national competition law applies. Rather, it is an ‘autonomous Community (now EU) law criterion’ which only determines when EU law is applicable.220 It thus provides no information about the jurisdiction of national competition law. Accordingly, the fact that an agreement has no effect on trade between Member States does not automatically trigger the jurisdiction of national competition law. This will only be the case if the jurisdictional conditions set by national competition law are fulfilled.221 Conversely, the fact that an agreement affects trade between Member States does not exclude the jurisdiction of national competition law. In this case, both EU and national competition laws may apply cumulatively to the same agreement. 3.164  Market integration With the elimination of public obstacles to trade across the EU (eg quotas, customs duties, and other obstacles to trade), an ever-growing number of private economic transactions affects trade between Member States. Whilst the effect on trade concept sought initially to limit EU law jurisdiction to a subset of anticompetitive practices, the inner dynamics of the internal market have incidentally expanded the scope of EU competition rules over the past decades.222 This has given rise to theoretical From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

problems (possible violation of the subsidiarity principle) as well as practical issues (parties invoking EU competition law in order to challenge decisions taken pursuant to national law).223 More fundamentally, many cases devoid of any EU public policy interest have been deemed to fall within the jurisdiction of EU competition rules. 3.165  Faced with a progressively integrated, EU-wide market in many sectors, a new, limitative jurisdictional requirement might thus be more appropriate. Already in 1975, Advocate General Trabucchi in the Wallpapers case observed that the effect on trade concept could be replaced by a ‘concept based on its importance for the Community (now EU)’.224 To date, the EU Courts have refused to follow this approach. (p. 149) 3.166  Normative vs Institutional jurisdiction It is a common mistake to believe that a practice that may affect trade between Member States has to be examined at the EU level (by the Commission) and falls short of the institutional jurisdiction of national competition authorities (NCAs) and courts. However, Articles 5 and 6 of Regulation 1/2003 expressly entrusts NCAs and national courts with the jurisdiction to apply Article 101 TFEU. In certain circumstances, Regulation 1/2003 even requires NCAs and national courts to apply Article 101 TFEU. This is the case when NCAs and national courts only apply national competition law to agreements, decisions of associations of undertakings, and concerted practices which may otherwise affect trade between Member States. In such circumstances, there is a risk that the solutions promoted under national competition laws differ from EU competition law principles. 3.167  To avoid this, Article 3(1) of Regulation 1/2003 thus provides for a ‘cumulative jurisdiction’ rule, which compels NCAs and national courts to apply Article 101 TFEU (and the related case law) when they apply national competition law to agreements that may affect trade between Member States. This rule intends to ensure that Article 101 TFEU is applied to all cases within its scope.225 In turn, Article 3(2) of Regulation 1/2003 seeks to limit the risk of schizophrenic decisions when both EU and national competition laws apply. It provides for a so-called ‘convergence’ rule which forbids NCAs and national courts from (i) authorizing under national law agreements which would be held incompatible under Article 101(1) TFEU and (ii) prohibiting agreements which do not restrict competition within the meaning of Article 101(1) or which benefit from an exemption under Article 101(3).226 3.168  In practice, the complex system enshrined in Article 3 imposes on NCAs and national courts a duty to scrutinize the ‘effect on trade concept’ in all national competition law cases. Since 2004, it has led to a significant increase in the application of the EU competition rules at the national level.227 This confirms the view of a number of English scholars that Regulation 1/2003 is not so much about decentralization through the empowerment of NCAs and courts, but rather about the forced Europeanization of national competition policy.228 3.169  Exceptions (including Article 102 TFEU) The ‘cumulative jurisdiction’ and ‘convergence’ rules do not apply when NCAs and national courts apply national merger control laws or other provisions of national law that pursue an objective different from the goal of the EU competition rules (eg sector-specific regulation in network industries, environmental regulations, unfair competition legislation).229 In addition, the convergence rule does not preclude Member States from adopting and applying stricter national competition laws on unilateral conduct (rules on abuse of economic dependence, superior bargaining power, resale below cost or at a loss, stricter standards on dominance, etc).230 This means that NCAs and courts (p. 150) can forbid under national law behaviour that is

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not tantamount to an unlawful abuse under Article 102 TFEU, provided there is a specific legal basis to this end.

(b)  The ‘effect on trade’ concept—interpretation 3.170  Introduction There is an extensive body of case law in relation to the effect on trade concept. In the wake of Regulation 1/2003, the Commission adopted formal Guidelines to help NCAs and national courts assess whether an agreement may affect appreciably trade between Member States (‘Guidelines on the effect on trade concept’).231 The Guidelines provide for a two-stage methodology to this end. First, agreements have to be screened through a set of quantitative presumptions (Section (i)). Second, should none of those presumptions be applicable, agreements should be subject to a multi-factor, qualitative analysis, along the lines described in the Guidelines (Section (ii)). (i)  Screening—quantitative presumptions

3.171  Appreciability In Béguelin, the Court stated that an agreement must affect trade between Member States ‘to an appreciable extent’ in order to trigger the applicability of Article 101(1) TFEU.232 In view of this and of subsequent case law,233 the Commission sought to define presumptions of whether or not the appreciable effects threshold was met based on turnover and market share figures.234 3.172  The Non-Appreciable Affectation of Trade (NAAT) rule At paragraph 52, the Guidelines set out a rebuttable presumption ‘defining the absence of an appreciable effect on trade between Member States’.235 This presumption, known under the name ‘NAAT rule’, applies to all agreements including hardcore restrictions (to the exception of crossborder cartels, which are deemed by their very nature to have appreciable effects on trade).236 It applies if two cumulative conditions are met: (a)  The aggregate market share of the parties on any relevant market within the EU affected by the agreement does not exceed 5%, and (b)  In the case of horizontal agreements, the aggregate annual EU turnover of the undertakings concerned in the products covered by the agreement does not exceed 40 million euro. In the case of agreements concerning the joint buying of products the relevant turnover shall be the parties’ combined purchases of the products covered by the agreement. In the case of vertical agreements, the aggregate annual Community turnover of the supplier in the products covered by the agreement does not exceed 40 million euro. 237 (p. 151) 3.173  Below this threshold, the Commission will not initiate proceedings upon application or on its own initiative,238 and arguably neither should national enforcers in light of the Commission’s strong commitment to apply the presumption to ‘all’ agreements.239 Above this threshold,240 the agreement does not necessarily affect trade between Member States to an appreciable extent.241 A case-by-case analysis is necessary. The same is true for emerging markets, where market shares and turnover figures are not available.242 3.174  The appreciable affectation of trade presumption The Guidelines also formulate a positive presumption of appreciable effects on trade that applies to a subcategory of agreements, that is, those agreements which cover two or more Member States, and which are deemed to affect trade between Member States ‘by their very nature’ (eg agreements that concern parallel imports). The appreciable effects requirement will be presumed if:

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the turnover of the parties in the products covered by the agreement calculated as indicated in paragraphs 52 and 54 exceeds 40 million euro [or] the market share of the parties exceeds the 5% threshold set out in the previous paragraph [52].243 3.175  An SME exemption Because SMEs are normally local or regional companies, the Guidelines presume that agreements between SMEs are in principle not capable to affect trade between Member States.244 3.176  Market definition The above presumptions purport to establish user-friendly instruments. In practice, however, they entail sophisticated, time-consuming economic analysis. This is because the presumptions hinge on market share thresholds, which involve the notoriously complex delineation of the relevant market.245 The EU Courts and the Commission’s Guidelines acknowledge this problem.246 As a matter of principle, the case law considers that the application of the appreciable effects test does not necessarily require that relevant markets be defined and market shares calculated. Yet, the Commission —quite inconsistently—observes later in its Guidelines that the practical implementation of the presumptions makes it ‘necessary to determine the relevant market’.247 (ii)  Individual assessment—qualitative analysis

3.177  Introduction Agreements that fall short of the above presumptions shall be subject to an individual assessment, which takes account of ‘qualitative elements relating to the nature of the agreement or practice and the nature of the products that they concern’.248 In line with the standard defined in the seminal Remia judgment, this assessment should seek to establish whether it is possible (p. 152) to foresee with a sufficient degree of probability on the basis of a set of objective factors of law or fact that it may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States, such as might prejudice the realisation of the aim of a single market in all the Member States.249 Moreover, this influence ought to be ‘appreciable’. On closer examination, the individual assessment stage thus hinges on a multi-factor analysis,250 which entails the verification of four distinct issues.251 (iii)  The agreement involves an economic activity

3.178  ‘Trade’ The concept of trade between Member States clearly covers the trade of goods and services. In addition, it also applies to the establishment of the exercise of an economic activity (ie, carrying out an economic activity in a stable and continuous way in an EU Member State). The Wouters case sheds light on this issue.252 In this case, the supervisory board of the Bar of Rotterdam had denied Mr Wouters, a member of the Bar of Amsterdam, the right to practise in Rotterdam under the name Arthur Andersen & Co Lawyers and Tax Advisers. The supervisory board’s decision was based on a Regulation which prohibited lawyers from setting up professional partnerships with tax advisers. The aim of this Regulation was to preserve the independence of professional lawyers. The Court of Justice was subsequently asked whether the Regulation was a decision by associations of undertakings contrary to Article 101(1) TFEU. As regards the ‘effect on trade’ concept, the Court noted that the Regulation applied equally to ‘visiting lawyers who are registered members of the bar of another member state’ and that ‘economic and commercial law’ governs a growing number of ‘transnational transactions’.253 The Regulation could therefore be deemed to affect trade between Member States, because it impeded establishment in the Dutch legal services market.

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3.179  Other examples The above principle has entitled the Court to leave the door open to the application of EU competition rules in a slew of cases involving local conduct, arising from national proceedings.254 In Bodson, for instance, the Court suggested that the activities of a group of undertakings holding a public monopoly over funeral services in the south of France could affect trade between Member States. The Court did not challenge the (p. 153) Commission’s view that the conduct under scrutiny had an imperceptible influence on transactions with other Member States in so far that ‘it did not involve the supply of any goods other than coffins and that a monopoly exists in only some 14% of communes in France’.255 Rather, the Court considered that the benefit of a structural monopoly over a large part of the territory of a Member State could impede the provision of cross-border services by non-local firms. It noted in particular that a monopoly may ‘affect the importation of goods from other Member States or the possibility for competing undertakings established in other Member States to provide services in the first-mentioned Member State.’256 3.180  Similarly, in Manfredi, the Court found that an agreement amongst insurance companies that had led to an increase of the premiums for civil liability car insurance policies in Italy could affect trade between Member States. The Court considered that there could be an effect on trade because despite important barriers to entry ‘the market concerned [was] susceptible to the provision of services by insurance companies from other Member States’.257 According to the Court of Justice, the national court should verify whether the agreement was capable of having a deterrent effect on insurance companies from other Member States without activities in Italy, in particular by enabling the coordination and fixing of civil liability auto insurance premiums at a level at which the sale of such insurance by those companies would not be profitable.258 3.181  Finally, in AmbulanzGlöckner, the Court had to rule on a measure which subjected the provision of emergency and patient transport services in a German Land to a preliminary authorization procedure, under the responsibility of incumbent medical aid organizations. The Court recalled generally that ‘trade between Member States may be affected by a measure which prevents an undertaking from establishing itself in another Member State with a view to providing services there on the market in question.’259 Regardless of the local nature of the services at stake, it referred the case to the national court and noted that ‘the economic characteristics of the emergency transport market and the patient transport market’ should be scrutinized, so as to determine with ‘a sufficient degree of probability’ whether the impugned measure ‘will actually prevent operators established in Member States other than the Member State in question either from providing ambulance transport services in that Member State or from establishing themselves there.’260 (iv)  The agreement has the ability to affect trade

3.182  ‘Capable’ The applicability of Article 101(1) TFEU is not subject to establishing that the agreement has an actual effect on trade. It is enough to prove that the agreement holds the potential (or is ‘capable’) to have such an effect,261 with a ‘sufficient degree of probability’.262 (p. 154) In other words, it is the agreement’s ability to affect trade between Member States which must be scrutinized. Accordingly, there is no obligation to calculate accurately the actual effects of an existing agreement.263 Neither is it necessary to show that a future agreement will affect trade at the time it is implemented.264 It is sufficient to establish that in the ‘foreseeable future’, a given agreement may affect trade between Member States.265

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3.183  Standard of proof In the past, the standard of probability applied by the EU Courts to prove potential effects seemed particularly lax. In the AEG Telefunken case, the Court confirmed that a hypothetical effect on trade sufficed to trigger the applicability of Article 101 TFEU. The mere fact that at a certain time traders applying for admission to a selective distribution network or who have already been admitted are not engaging in intraCommunity trade cannot suffice to exclude the possibility that restrictions on their freedom of action imposed by the manufacturer may impede intra-Community trade, since the situation may change from one year to another in terms of alterations in the conditions or composition of the market both in the common market as a whole and in the individual national markets.266 3.184  However, in more recent years, the Commission stressed that the analysis of potential effects on trade could not be based on ‘remote’ or ‘hypothetical’ effects.267 For instance, the mere fact that consumers have less money to spend on imported products, because they must purchase from a local cartel, is not sufficient to establish EU law jurisdiction. 3.185  Guidelines A welcome innovation of the Commission’s Guidelines is to summarize the various factors which influence the ‘capability’ of an agreement to affect trade.268 First, the ‘nature of the agreement’ is of particular relevance.269 Cross-border, market partitioning cartels are obviously more likely to affect trade than other cooperation agreements confined to the territory of a single Member State. 3.186  Second, the ability of an agreement to affect trade also fluctuates with the ‘nature of the products covered by the agreement’.270 For instance, agreements relating to air transport services—which are a key input to many other economic activities—are undeniably more likely to affect trade than agreements involving retail distribution activities. Similarly, agreements covering products with a high value/weight ratio (ie, products that are easily transportable) are more likely to affect trade than agreements covering products which are not easily traded across borders. 3.187  Third, the ‘legal and factual environment’ is of utmost relevance to assess the ability of an agreement to affect trade between Member States.271 If, absent the agreement, there is no trade between Member States—because, for instance, of regulatory barriers or because market players do not trade across borders—the agreement cannot affect trade patterns (p. 155) that do not exist, and Article 101 TFEU shall not apply. This may for instance be the case with certain cultural products (books, traditional songs, etc) which have a limited geographical radius. 3.188  Somewhat confusingly, the Guidelines add a further criterion to the assessment of the ability of an agreement to affect trade between Member States. Pursuant to the Guidelines, the ‘market position of the undertakings concerned and their sales volume’ are allegedly ‘indicative’ of the ability of the agreement to affect trade. However, the position and the importance of the parties on the market for the products concerned is arguably more relevant in relation to the assessment of ‘appreciability’, which is a factor distinct from the agreement’s ability to affect trade between Member States. The ruling of the Court in Consten and Grundig—which the Commission quotes in its Guidelines—said just this when it held that

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even an agreement imposing absolute territorial protection may escape the prohibition laid down in Article 85 if it affects the market only insignificantly, regard being had to the weak position of the persons concerned on the market in the products in question.272 (v)  The agreement ‘may have an influence’ on trade between Member States Decrease, increase, or diversion of trade

3.189  Definition Trade between Member States is surely affected if a practice limits cross-border commercial flows. However, in Consten and Grundig the Court of Justice suggested that the word ‘affect’ referred to either a reduction or an increase in the volume of trade between Member States: What is particularly important is whether the agreement is capable of constituting a threat, either direct or indirect, actual or potential, to freedom of trade between member states in a manner which might harm the attainment of the objectives of a single market between states. The fact that an agreement encourages an increase, even a large one, in the volume of trade between states is not sufficient to exclude the possibility that the agreement may ‘affect’ such trade within the meaning of Article [ 101 ].273 (Emphasis added) 3.190  In light of the various linguistic versions of the Treaty, this solution is not evident. In languages such as French, Dutch, or Spanish, the word ‘affect’ refers to a negative influence. This notwithstanding, the EU Courts and the Commission have repeatedly deemed that trade could be affected even when an agreement caused an increase in trade.274 3.191  Reasoning The ‘effect on trade’ concept is jurisdictional in nature.275 It seeks to cover all situations involving cross-border issues. Because many anticompetitive agreements may increase trade between Member States (customers of a cartel might relocate their orders abroad), the ‘effect of trade’ concept must encompass all diversions of trade which would not have developed in the absence of the agreement.276 (p. 156) Direct or indirect influence on trade

3.192  Principle Agreements may directly or indirectly affect trade between Member States. Its influence is ‘direct’ when the effect on trade concerns the product subject to the agreement. Steel producers engaging in a market-sharing agreement will directly limit trade in steel between Member States. 3.193  The influence of an agreement on trade between Member States may also be ‘indirect’. This situation occurs when the effect on trade concerns products related to those covered by the agreement. In BNIC v Clair,277 for instance, the Court reviewed an agreement on spirits used in the production of cognac. The spirits were not traded outside the region of Cognac in France. This notwithstanding, the Court found that the agreement had an effect on trade between Member States because the final product incorporating the spirits, Cognac, was subject to significant cross-border trade. More generally, any agreement that covers local intermediate products (raw materials, etc) may affect trade at other stages of the value chain.278 (vi)  The agreement ‘appreciably’ affects trade between Member States

3.194  As explained previously, only those agreements that ‘appreciably’ affect trade between Member States fall within the purview of EU competition rules. That said, the Guidelines offer scant guidance on how to interpret what is appreciable when the presumptions outlined above do not apply. In essence, the Guidelines consider that a caseby-case analysis is warranted.279 In this context, ‘the market position of the undertakings concerned and their turnover in the products concerned’ are the key elements.280 The

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Commission seems to apply a sliding scale whereby the higher the market position/turnover of the undertakings concerned, the greater the likelihood that the agreement will appreciably affect trade between Member States.281 However, the Guidelines provide no thresholds for the purpose of applying this sliding scale. Hence, determining what is and what is not appreciable often amounts to a guessing game. To be on the safe side, it is reasonable to consider that agreements which do not fulfil the NAAT presumption are appreciable.

(c)  Shortcuts for the appraisal of the effect on trade 3.195  Paradox The Commission Guidelines enshrine an ‘economic approach’ for the effect on trade concept, which hinges on case-by-case impact assessments. However, this methodology is complex to implement in practice. Thus, somewhat inconsistently, Section III of the Guidelines reintroduces a form-based approach.282 This approach consists of regrouping (p. 157) common types of agreements according to their geographical coverage and, for each of those groups, providing guidance on the effect of trade concept. This section does not, however, provide guidance on appreciable effects. (i)  Transnational agreements

3.196  The first group of agreements dealt with in the Guidelines consists of ‘agreements and practices covering or implemented in several member states’. These agreements are those concerning imports and exports (eg a national distribution agreement that forbids a retailer from selling to end consumers from other Member States),283 cross-border cartels (market partitioning, price fixing, allocation of quotas, etc),284 horizontal cooperation agreements covering several Member States (eg production and distribution joint ventures which relocate production),285 and vertical agreements implemented in several Member States (including agreements between distributors to source only within their Member State).286 The Guidelines provide numerous illustrations of such agreements. 3.197  Importantly, the Guidelines declare that those agreements ‘are, by their very nature, capable of affecting trade between member states’.287 It is thus ‘not necessary to conduct a detailed analysis of whether trade between Member States is capable of being affected’.288 It will only be necessary to assess whether the impact is appreciable. (ii)  National, regional, and local agreements

3.198  A second group of agreements comprises those covering the territory of a single Member State or just part of it. According to the Commission, such agreements cannot be deemed automatically to affect trade between Member States. A ‘more detailed inquiry into the ability of the agreements … to affect trade between member states’ is warranted.289 3.199  National cartels covering a single Member State The Guidelines first provide guidance on cartels that cover a single Member State.290 Such agreements may typically affect trade between Member States if the cartel participants take steps to ‘exclude competitors from other Member States’,291 or ‘to join the restrictive agreement’.292 A key condition for this is that the product covered by the national/regional agreement be ‘tradable’, that is, potentially subject to cross-border trade. In Bagnasco, for instance, the Court had to deal with the standard banking conditions imposed by the Associazione Bancaria Italiana on banks (p. 158) established in Italy. The Court observed that the potential for cross-border trade in retail banking services was very limited.293 In addition, the uniform standard banking conditions were found to have no decisive influence on the decision of non-domestic operators to establish in Italy.294 3.200  Horizontal and vertical agreements covering a single Member State Similarly, the Guidelines provide guidance on horizontal cooperation agreements and vertical agreements which, whilst covering a single Member State, may have an effect on trade. Horizontal cooperation agreements may be capable of affecting trade if they have foreclosure effects (eg national certification regimes that exclude firms from other Member

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States),295 or if they have an impact on imports/exports (firms which previously imported raw material from a joint venture which is entrusted with the production of that product).296 The same is true of vertical agreements. Single branding agreements that generate foreclosure effects adverse to foreign rivals may affect trade between Member States.297 National resale price maintenance schemes encourage consumers to divert purchases towards other Member States.298 3.201  Agreements covering part of a Member State Finally, the Guidelines deal with agreements that cover only part of a Member State. Regional agreements are generally less likely to have appreciable effects on trade. Hence, the Guidelines consider that the best indicator is the share of the national market that is covered by the agreement.299 Regional agreements that cover areas with massive demand concentration (eg big cities), are more likely to affect trade than agreements covering rural areas. By contrast, local agreements, including those concerning border regions, are deemed per se ‘not capable of appreciably affecting trade between Member States’.300

II.  Article 101(2) TFEU—The Rule of Nullity A.  The Principle 3.202  The Treaty Article 101(2) TFEU states that agreements and decisions that are prohibited under Article 101(1) TFEU ‘shall be automatically void’. Interestingly, Article 101(2) TFEU does not mention concerted practices, thereby confirming that such practices cover only informal types of coordination which cannot be annulled sensu stricto. (p. 159) 3.203  Erga omnes effect The TFEU, however, sheds no further clarification on the regime that applies to agreements that are null and void. Over the years, the case law has thus clarified this issue. In its judgment in Béguelin, the Court of Justice stated that unlawful agreements and decisions were null erga omnes: since the nullity referred to in Article [101(2)] is absolute, an agreement which is null and void by virtue of this provision has no effect as between the contracting parties and cannot be set up against third parties.301 3.204  Ex tunc effect In the Courage case, the Court further expanded on this and explained that: This principle of nullity, which can be relied on by anyone, and the courts are bound by it once the conditions for the application of Article [101], paragraph 1 are met and so long as the agreement concerned does not justify the grant of an exemption under Article [101](3) of the Treaty. Since the nullity referred to in Article [101](2) is absolute, an agreement which is null and void by virtue of this provision has no effect as between the contracting parties and cannot be set up against third parties. Moreover, it is capable of having a bearing on all the effects, either past or future, of the agreement or decision concerned.302 (Emphases added) 3.205  The ‘severability’ rule Given the rather drastic consequences of Article 101(2) TFEU, the Court of Justice circumscribed the effects of the rule of nullity to those specific provisions of the agreement that are incompatible with Article 101(1).303 In other words, Article 101(2) does not target the provisions of the agreement which are severable from the incompatible clauses. This is an issue to be decided by domestic courts on the basis of national law, as confirmed by the Court in Kerpen and Kerpen:

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The consequences of such nullity for other parts of the agreement are not a matter for Community law. The same applies to any orders and deliveries made on the basis of such an agreement and to the resulting financial obligations. 3.206  In practice, the ‘severability’ of a particular clause will thus often be dealt with in the context of follow-on domestic litigation.304

B.  The Practice 3.207  ‘Defence’ and ‘ offence’ The rule of nullity provided in Article 101(2) TFEU has received interesting applications in the context of national litigation. Defendants have first sought to invoke Article 101 TFEU as a shield, to escape contractual obligations by claiming that their agreement was null and void because it was incompatible with EU competition rules. (p. 160) For instance, a retailer that is brought to court by a supplier for failure to observe a recommended price may—should he wish to sell at lower prices—raise as a defence the allegation that the agreement is incompatible with Article 101(1), and thus null and void. Applicants have also sought to use Article 101 as a sword in order to terminate established commercial relationships without incurring contractual penalties.305 One of the mother companies of a joint venture may, for instance, initiate proceedings under Article 101 to have it declared null and void. 3.208  Actions for damages amongst parties to an unlawful agreement Occasionally, parties seeking to have an anticompetitive agreement declared null in court will also request damages, alleging that the impugned restrictive agreement was concluded at the behest of the other party. This setting arose in the City Motors Groep NV case, where CMG, a Belgian car distributor, had requested from Citröen, a large car manufacturer, damages for unlawful breach of their concession contract.306 The termination clause in the agreement was allegedly contrary to Regulation 1400/2002. 3.209  On cursory examination, however, such actions seem contrary to basic principles of justice, and in particular to the rule nemo auditur propriam turpitudinem allegans, which bars people acting unlawfully from obtaining damages in court. In Courage v Crehan, the Court of Justice was confronted with this issue for the first time. A brewery was seeking to recover money from a recalcitrant pub tenant. The latter contested the action on its merits, claiming that the underlying agreement was contrary Article 101 TFEU. In addition, the pub tenant filed a counterclaim for damages against the brewery (alleging that he had been charged excessively high prices). The national UK courts referred a question to the Court concerning the validity of English law, which did not allow a party to an illegal agreement to claim damages from the other party. 3.210  Following Advocate General Mischo’s opinion, the Court considered that the English law bar on actions for damages could prejudice the effectiveness of the EU competition rules. The Court noted that: The full effectiveness of Article [101] of the Treaty and, in particular, the practical effect of the prohibition laid down in Article [101](1) would be put at risk if it were not open to any individual to claim damages for loss caused to him by a contract or by conduct liable to restrict or distort competition. Indeed, the existence of such a right strengthens the working of the Community competition rules and discourages agreements or practices, which are frequently covert, which are liable to restrict or distort competition. From that point of view, actions for damages before the national courts can make a significant contribution to the maintenance of effective competition in the Community. There should not therefore be any absolute bar to

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such an action being brought by a party to a contract which would be held to violate the competition rules. 3.211  The Court nonetheless added a qualification to the above statement: Community law does not preclude national law from denying a party who is found to bear significant responsibility for the distortion of competition the right to obtain damages from the other contracting party. Under a principle which is recognised in most of the legal systems of (p. 161) the Member States and which the Court has applied in the past, a litigant should not profit from his own unlawful conduct, where this is proven.307 (Emphasis added) 3.212  In sum, parties that bear no responsibility for the existence of an infringement of Article 101 TFEU shall be entitled to compensation, assuming damages can be shown, regardless of their participation in the agreement.308 This reasoning applies to all agreements, including cartels where a firm is coerced to join the collusive course of action.309 From a purely theoretical standpoint, this rule dilutes the severity of the principle whereby a firm can be found guilty of an infringement of Article 101 TFEU absent free consent to the collusive course of conduct.310 3.213  Actions for damages against parties to an unlawful agreement In Manfredi,311 the Court of Justice further extended the above principle. It held that all victims of unlawful agreements should be allowed to claim damages against parties to an infringement of Article 101 TFEU. The ruling followed a decision of the Italian NCA against an anticompetitive agreement between three domestic insurance companies. With the agreement, civil liability insurance premiums for accidents caused by cars, ships, etc had increased. Following the decision, Mr Manfredi claimed restitution of the increased premium paid by virtue of the unlawful agreement. The Italian court solicited the views of the Court of Justice on whether third parties could claim compensation for the loss caused by an illegal cartel. In its judgment, the Court ruled that ‘that any individual can rely on the invalidity of an agreement or practice prohibited under that article and, where there is a causal relationship between the latter and the harm suffered, claim compensation for that harm.’312 3.214  Caveat Actions for damages before national courts remain subject to domestic rules, over which EU law has little impact. In accordance with the principle of procedural autonomy, EU law simply imposes that such rules are not less favourable than those governing similar domestic actions (‘principle of equivalence’) and that they do not render practically impossible or excessively difficult the exercise of rights conferred by EU law (‘principle of effectiveness’).313 EU law thus leaves a lot of room for the Member States to define national compensation rules.314 Across Member States, there is a lot of variance in relation to the rules governing actions for damages.315 This situation, which is increasingly perceived as a source of legal uncertainty and transaction costs, harms the development of private enforcement, and has been in recent years a key concern of the Commission.316

(p. 162) III.  Article 101(3) TFEU—The Exception Rule A.  Overview of the Exception Rule 3.215  Wording Article 101(3) TFEU sets out an exception rule, which salvages a number of agreements, decisions of association of undertakings, and concerted practices, from the prohibition rule of Article 101(1) TFEU. Technically, this provision declares Article 101(1) TFEU:

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inapplicable in the case of [agreement, decision or category by associations of undertakings and concerted practice] 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.

3.216  Purpose The rationale under the exception rule of Article 101(3) TFEU originates in overenforcement concerns. Due to its abstract, general wording, Article 101(1) covers very many anticompetitive practices which also wield pro-competitive effects, or find other legitimate justifications. Article 101(3) TFEU seeks to limit the risk of type I errors (false positives) by exempting otherwise anticompetitive practices from the prohibition upon proof of welfareenhancing effects. Obviously, Article 101(3) TFEU only becomes relevant in respect of agreements which restrict competition within the meaning of Article 101(1). 3.217  Method The exception rule introduces a ‘balancing’ exercise into Article 101 TFEU. Once a restriction of competition has been found under Article 101(1), it must be put into perspective with possible welfare enhancing effects under Article 101(3).317 3.218  Scope of application As a matter of principle, the exception rule applies to virtually all types of agreements which restrict competition by object or effect, including hardcore restrictions of competition (eg a cartel).318 In the past, the Commission has, for instance, exempted crisis cartels under Article 101(3) TFEU. In the same vein, its guidelines on (p. 163) horizontal cooperation agreements declare that price fixing in the context of joint production and distribution ventures can benefit from an exemption under Article 101(3) TFEU. 3.219  Nevertheless, hardcore restrictions of competition are generally excluded from the benefit of ‘block exemptions’ regulations which declare certain categories of agreements lawful. In addition, the Commission has often declared that, in practice, it is ‘unlikely’ that a hardcore restriction can ever benefit from an individual exemption pursuant to Article 101(3) TFEU.319 Its Guidelines on Article 101(3), for instance, take a hostile stance with respect to the exemption of severe restrictions of competition in declaring generally that ‘they neither create objective economic benefits, nor do they benefit consumers’.320 3.220  Enforcement system Until 2004, the Commission was the sole entity entitled to enforce Article 101(3) TFEU. Parties wishing to enter into a welfare-enhancing but anticompetitive agreement had to request prior clearance from the Commission. In addition to legal certainty for the parties to the agreement, this system gave rise to a significant body of case law, which has helped many third parties to evaluate their own agreements. 3.221  With the adoption of Regulation 1/2003, firms must no longer notify their agreements to the Commission for prior approval. Agreements that fulfil the conditions of Article 101(3) TFEU are valid and enforceable. Because they can be challenged ex post by competition authorities or in national courts, parties to the agreement must carefully selfassess their planned agreements. This new system generates considerable resource savings on the part of the Commission. However, it also increases legal uncertainty for firms seeking to conclude agreements. To provide guidance to stakeholders—including NCAs and courts confronted with anticompetitive agreements—the Commission has issued a set of Guidelines on the application of Article 101(3) of the Treaty (the ‘General Guidelines’). The Guidelines provide a methodology for the application of Article 101(3) TFEU in individual cases.321 To this end, they are based on the case law of the EU Courts. Yet, the Guidelines

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also seek to reflect the Commission’s own interpretation of disputed case law principles and to cover issues that have not been dealt with by the EU Courts.322 As a result, the overall validity of the Guidelines remains a bone of contention (including inside the Commission). In addition, the quality of the guidance provided in the Guidelines is inevitably lower than the detailed guidance provided in positive Article 101(3) Commission decisions.

B.  The Application of the Four Conditions of Article 101(3) TFEU 3.222  The benefit of the exemption of Article 101(3) TFEU is subject to the satisfaction of four conditions. According to established case law, those conditions are cumulative.323 The bene fit of the exception rule thus applies as long as they are all fulfilled and ceases when any (p. 164) condition is not met.324 The Guidelines add that the conditions are exhaustive, in that the benefit of the exception rule cannot be subordinated to other conditions.325

(1)  The welfare improvement condition 3.223  The first condition for the benefit of an exemption requires proof that the agreement ‘contributes to improving production or distribution or promote[s] technical or economic progress’. In line with well-settled case law, this condition covers both economic (Section (a)) and non-economic (Section (b)) improvements. The Commission’s Guidelines, however, have sought to discard the admissibility of non-economic justifications for anticompetitive agreements (Section (b)).

(a)  Economic improvements 3.224  According to the Commission, the primary, if not only, valid source of improvement under Article 101(3) consists in ‘objective economic benefits’, or ‘pro-competitive effects’,326 which occur ‘by way of efficiency gains’. The Guidelines provide a detailed description of the various types of possible efficiency gains (Section (i)) and define the conditions for such efficiency gains to be admissible under the exception rule (Section (ii)).327 (i)  Type of possible efficiency gains

3.225  Cost efficiencies With a great deal of detail, the Guidelines provide examples of possible ‘cost efficiencies’ flowing from inter-firm agreements: synergies,328 economies of scale,329 economies of learning,330 economies of scope,331 reduction of transaction costs, etc. Those cost efficiencies frequently appear in the area of horizontal cooperation agreements.332 Through strategic alliances, for instance, airline companies regroup passengers amongst commonly operated aircrafts. The ensuing increase in traffic density leads to economies of scale. 3.226  Qualitative efficiencies A qualitative efficiency arises when value is created through new or improved (quality, reliability, safety, etc) products/services.333 Distribution agreements which lead to the provision of services tailored to the needs of local consumers can be said to generate efficiencies of a qualitative nature.334 Qualitative efficiencies have been found, for instance, in the banking sector where cooperation agreements have made available improved facilities for cross-border payments.335 Unfortunately, however, and in contrast to cost efficiencies, the Guidelines fail to provide a clear picture of the various types of admissible quality-related efficiencies (eg those relating to advertising investments, brand image).336 (p. 165) 3.227  Balancing As explained previously, firms, competition authorities, and courts are called upon to balance anticompetitive effects under Article 101(1) TFEU with pro-competitive effects under Article 101(3).337 In practice, this balancing test may not be as easily undertaken as envisioned in the Guidelines.338 This is because many procompetitive effects cannot be quantified—or translated into a meaningful monetized figure (take, eg, a joint R&D agreement whereby two pharmaceutical companies work on a common specialty)—and cannot in turn be weighed against their anticompetitive effects.339 In that sense, when the pro-competitive effects of an agreement are ‘qualitative’ in nature From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

the balancing test advocated by the Guidelines almost inevitably calls for a ‘value judgment’.340 Conversely, even a firm running a fully fledged quantitative assessment under Article 101(3) TFEU will encounter problems in demonstrating that the efficiencies created by its agreement offset its anticompetitive effects, simply because the assessment under Article 101(1) does not necessarily require a precise quantification of anticompetitive effects. (ii)  Conditions for the admissibility of efficiency gains

3.228  Requisite characteristics Paragraph 51 of the General Guidelines mentions the various conditions that a ‘decision-maker’ (a competition authority, a court, or arguably the parties) should scrutinize when faced with an anticompetitive agreement: (i) the claimed efficiencies must have an objective nature; (ii) there must be a link between the agreement and the efficiencies; (iii) the efficiencies must be likely and their magnitude verifiable; and (iv) the method and timing must be clearly articulated. 3.229  Objective efficiency gains Only efficiency gains that constitute objective economic benefits will be taken into account. By contrast, efficiency gains arising from the mere exercise of market power will not be admissible.341 For instance, a cartel agreement that limits output through the allocation of quotas inevitably leads to a decrease of production costs. Yet, this benefit is inadmissible under Article 101(3) TFEU because it does not ‘lead to the creation of value through the integration of assets and activities’ (and, as will be seen later, cost savings are not transferred to customers). An agreement of this type only entails an improvement ‘from the subjective point of view of the parties’.342 3.230  Causality Efficiency gains must be directly caused by the restrictive agreement.343 A remote causal relationship between the agreement and the claimed efficiency will exclude the application of Article 101(3) TFEU. For instance, parties to an agreement cannot claim that (p. 166) they will increase R&D capital expenditure thanks to the joint profits resulting from price coordination. On the other hand, a restrictive territorial exclusivity might directly increase a retailer’s incentive to optimize its point of sale through investments. 3.231  Likelihood and magnitude Parties contemplating the adoption of a restrictive agreement must conduct a probability assessment in order to determine whether the envisioned efficiency benefits will materialize. Forecasts and projections must be substantiated, so that competition authorities and courts can, as the case may be, verify that future efficiencies are likely to materialize.344 In addition, the claimed efficiencies must be ‘as accurately and as reasonably possible’ calculated or estimated.345 When the purported efficiencies are qualitative, parties should undertake a detailed description of the new or improved product/services.346 Parties should keep a record of the self-assessment of their agreements, should a competition authority/court scrutinize their agreement at a later stage. 3.232  Method The method by which the efficiencies will be achieved, and the dates at which they will become operational must be clearly set out.347

(b)  Non-economic improvements 3.233  Public policy improvements348 The case law of the EU Courts and the decisional practice of the Commission) promote a more open interpretation of Article 101(3) TFEU than the Guidelines do. They cover not only pure ‘economic efficiencies’ but also encompass non-competition concerns.349 In the Métropole Télévision judgment, the GC held that ‘the Commission is entitled to base itself on considerations connected with the pursuit of the public interest in order to grant exemptions under Article [101](3).’350 For instance, the EU Courts and the Commission held that, amongst others, environmental benefits,351 the protection of employment,352 cultural diversity and media pluralism,353 regional (p. 167) development,354 and professional ethics,355 constituted legitimate factors to be taken into

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account when reviewing an agreement under Article 101(3).356 This case law has drawn the attention of many commentators in the past few years.357 3.234  Conflict? There is a clear inconsistency between the case law of the EU Courts, on the one hand, and, on the other hand, the strict economic interpretation of Article 101(3) TFEU conveyed in the Guidelines, on the other. In an attempt to bridge a potential conflict with the case law, the Guidelines on Article 101(3) declare that non-competition concerns are admissible under Article 101(3), provided that they (i) ‘are pursued by other Treaty provisions’ and (ii) ‘can be subsumed under the four conditions of Article [101](3) TFEU’.358 In other words, the non-competition concerns followed must ‘translat[e] into economic benefits’ that satisfy the four conditions of Article [101](3) TFEU.359 The Guidelines thus seem to require an economic quantification of benefits which are essentially non-economic or not purely economic in nature. 3.235  Rationale The Guidelines’ orthodox interpretation of Article 101(3) TFEU360 is wholly based on the fear that the abolition of the Commission’s exemption monopoly would induce NCAs and/or national courts to exempt unlawful agreements on national public policy grounds thereby bringing about an increased degree of legal uncertainty/ inconsistency.361 3.236  Assessment In our opinion, the Commission’s concerns that NCAs and/or national courts might abuse Article 101(3) TFEU to pursue public policy objectives at the expense of the competitive process are reasonable. That said, the narrow substantive interpretation of Article 101(3) introduced by the Guidelines on Article 101(3) TFEU yields a number of problems. First, in endorsing an interpretation of Article 101(3) which departs from the EU Courts’ case law, the Commission has undermined the precedential value of its Guidelines as a whole and causes legal confusion. Second, the Guidelines’ attempt to reconcile the EU (p. 168) Courts’ case law with its proposed restrictive interpretation of Article 101(3) TFEU fails to convince.362 This is because many non-competition concerns that have been held admissible by the EU Courts are not amenable to pure economic quantification and cannot therefore be ‘subsumed’ under the four conditions of Article 101(3) in the manner envisaged by the Guidelines. For instance, it is unclear how an anticompetitive agreement that prevents cuts in the labour force363—and protects inefficient production units from going out of business—directly benefits consumers within the meaning of the second condition of Article 101(3) as interpreted by the Guidelines.364 The same is true of agreements that wield positive effects on sustainable development, as those benefits will be difficult to substantiate in terms of probability and almost impossible to quantify.365 Finally, and contrary to the Commission’s position, the case law of the EU Courts seems to accommodate within Article 101(3) a variety of non-competition concerns that cannot strictly be ascribed to the goals pursued by other Treaty provisions.366 For instance, a longterm supply agreement that fosters the security of energy supplies could potentially,367 under the EU Courts’ case law, be found admissible for an exemption under Article 101(3). However, to the best of our knowledge, the security of energy supply does not yet constitute a goal explicitly pursued by the TFEU.368 3.237  A note of caution In practice, the benefit of an exemption on the basis of public policy considerations remains relatively uncertain. The above case law involved exceptional situations. Hence, firms self-assessing their agreements should be cautious when basing their industrial choices on public policy grounds. This is compounded by the fact that both the EU Courts and the Commission consider that exceptions must be interpreted strictly and there is no apparent reason for Article 101(3) TFEU to be treated differently.369

(p. 169) (2)  The passing-on condition

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3.238  Pursuant to the second condition of Article 101(3) TFEU, ‘consumers’ must receive ‘a fair share’ of the agreement’s resulting benefit. In other words, an agreement that is only beneficial to the parties cannot benefit from an exemption. 3.239  ‘Consumers’ In referring to ‘consumers’, the Treaty covers not only end consumers but also undertakings acting as intermediate customers (including producers purchasing the products as an input, wholesalers, retailers, etc).370 From an economic perspective, this interpretation is wholly justified. Otherwise, firms contemplating a cost-efficient agreement, but faced with a downstream monopsonistic purchaser would be prevented from concluding the agreement, in light of the risk that their customer would not pass on price reductions (and maintain the prices charged) to end-users. In such a situation, firms would be deterred from concluding efficient agreements even though the source of the problem originates in the downstream purchaser’s market power (a type I error). 3.240  ‘Consumers’ in the same market The Guidelines contend that ‘the efficiencies generated by the restrictive agreement must be sufficient to outweigh the anti-competitive effects produced by the agreement within that same relevant market’ (emphasis added).371 The rationale for this rule is fairly obvious. As explained by a former Commission official, the Guidelines seek to preclude complex ‘inter-personal comparisons’.372 Back in 2004, the Commission feared that in the case of an agreement which harms consumers of product A/ Member State A and benefits consumers of product B/Member State B, NCAs and national courts might give preference to consumers of a certain product market/geographic market on the basis of non-economic considerations (eg national bias). To avoid this problem, the Guidelines provide that the anticompetitive effects that take place in a relevant market cannot be compensated with pro-competitive effects that take place in another relevant market.373 3.241  At first glance, this market-by-market standard constitutes a commendable development, which is likely to simplify the assessment of agreements under Article 101 TFEU. Yet, this standard also seems to restrict the range of efficiency arguments that can be invoked under Article 101(3) and is inconsistent with the case law which, contrary to the position adopted by the Commission in the Guidelines, accepts in principle that the balancing of pro and anticompetitive effects can be conducted across different markets.374 Under the EU Courts’ case law, any agreement that on the whole produces a net positive effect for consumers, regardless of whether some consumers are harmed while others are favoured, is deemed pro-competitive and benefits from Article 101(3). In Compagnie Maritime Belge v Commission, the GC held that: for the purposes of examining the merits of the Commission’s findings as to the various requirements of Article [101(3)] of the Treaty, … regard should naturally be had to the (p. 170) advantages arising from the agreement in question, not only for the relevant market, … but also, in appropriate cases, for every other market on which the agreement in question has might have beneficial effects ….375 (Emphasis added) 3.242  Similarly, in GlaxoSmithKline v Commission (a judgment handed down after the adoption of the Guidelines, the GC noted that: It is therefore for the Commission, in the first place, to examine whether … the agreement in question must enable appreciable objective advantages to be obtained, it being understood that these advantages may arise not only on the relevant market but also on other markets .376 (Emphasis added)

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3.243  Finally, in somewhat similar language, the Court of Justice held more recently in Asnef-Equifax that under Article 101(3) TFEU: it is the beneficial nature of the effect on all consumers in the relevant markets that must be taken into consideration, not the effect on each member of that category of consumers.377 (Emphases added) 3.244  Interestingly, the Guidelines on Article 101(3) TFEU are also inconsistent with the Commission’s practice in other fields of competition law. For example, the Guidelines on horizontal cooperation agreements suggest that the anticompetitive ‘spill-over’ effects that arise on the market(s) where the parties to a joint venture remain independent can be exempted if, for instance, the agreement meanwhile generates efficiencies on the market concerned by the cooperation.378 Moreover, in other fields, such as Article 102 TFEU, the Commission is ready to balance the actual anticompetitive effects on consumers in a defined relevant market, with the future pro-competitive effects on consumers in prospective, undefined, relevant markets. For instance, the Commission will balance the actual harmful effects of an alleged abusive refusal to license intellectual property rights, with its positive effects on the dominant firm’s incentives to invest in R&D and market new products.379 3.245  Sliding scale The passing-on condition incorporates a ‘sliding scale’. The greater the restriction of competition found pursuant to Article 101(1) TFEU, the greater must be the efficiency gains and the pass-on to consumers under Article 101(3).380 It is indeed presumed that if the restrictive effects of an agreement are relatively limited and the efficiency gains substantial, it is very likely that a fair share of those benefits will be passed on to consumers. Conversely, (p. 171) if the restrictive effects of the agreement are substantial and the efficiency gains limited, it is very unlikely that a fair share of those benefits will be passed on to consumers.381 3.246  Extent of passing-on The notion of ‘fair share’ under Article 101(3) TFEU implies that the efficiencies transferred to consumers must be ‘at least’ equal to the agreement’s restrictive effect on competition.382 3.247  Timing of passing-on The fact that the passing-on does not occur immediately does not prevent the application of Article 101(3) TFEU.383 For instance, joint R&D agreements only deliver efficiencies in the future, and consumers might have to suffer a certain degree of anticompetitive harm in the initial cooperation period. When taking into account prospective efficiencies, a discount rate must be applied to reflect the rate of inflation, and more fundamentally, to display the fact that future gains have lower value than immediate benefits. 3.248  Assessing passing-on ex ante Firms self-assessing the rate and probability of passing-on must look at four factors.384 First, the characteristics and structure of the market have a direct influence on the parties’ incentives to pass on cost efficiencies. On concentrated markets, where the parties enjoy market power (individually or jointly with other firms), passing-on is unlikely.385 Second, the nature of the efficiency gains also influences the probability of passing-on. Variable costs efficiencies are more likely to be passed on than fixed costs efficiencies (which normally have no direct influence on prices).386 Third, the price elasticity of demand has a direct influence on the passing-on rate. Demand is said to be price-elastic, when a price change (a price cut) triggers a variation in quantities demanded (a surge in demand). According to the Guidelines, the more price-elastic the demand is, the more likely the parties will pass on cost savings to consumers. This is because the parties will capture a significant number of sales simply by transferring cost efficiencies in the form of price reductions. Fourth, the magnitude of the restriction of competition must be reviewed. As explained previously in relation to the

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sliding scale, a substantial reduction in the competitive constraints facing the parties will demand ‘extraordinarily large’ efficiencies to trigger the benefit of an exemption.

(3)  The indispensability condition 3.249  Standard Under the third condition for the application of Article 101(3) TFEU, the agreement must ‘not impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives’. This condition implies the demonstration that there is no less restrictive alternative that achieves the same amount of efficiencies (the necessity test).387 If there are no alternatives, or if there are alternatives which deliver fewer efficiency gains, the indispensability condition will be fulfilled. (p. 172) 3.250  Discretion This condition confers a large margin of appreciation to competition authorities, when negotiating amendments to an agreement. Often, competition authorities will go beyond a mere ‘necessity’ test and seek to perform a ‘suitability’ assessment. By contrast, in some cases the Commission has considered that restrictions that were not indispensable, but merely useful, could be exempted under Article 101(3) TFEU.388 The Commission decision in UEFA illustrates the application of the indispensability condition in practice.389 3.251  Guidelines The Commission considers that the indispensability condition enshrines a twofold test.390 First, one must determine whether the agreement is necessary to achieve the efficiencies. Second, the individual restrictions of competition contained in the agreement must also be necessary to achieve the efficiencies. However, this test has never been upheld by the EU Courts, which focus on restrictions of competition regardless of whether the whole agreement or only clauses are restrictive. Its validity is thus unclear.

(4)  The non-elimination of competition condition 3.252  The last condition for the applications of Article 101(3) TFEU is that the agreement does not ‘aff ord [the parties] the possibility of eliminating competition in respect of a substantial part of the products in question’. The key concern here is to ensure that following the agreement, there remains sufficient ‘rivalry’ on the market.391 3.253  Structural competition To this end, the Commission first considers that the analysis should focus on the magnitude of the ‘remaining sources of actual competition’ on the market, that is, actual and potential competitors.392 Competition will probably be eliminated if the agreement involves all the actual competitors of a market, a maverick operator,393 or a close competitor.394 3.254  Parametrical competition Second, the Commission considers that there will be an elimination of competition if the agreement eliminates rivalry in one of its most important expressions, such as price, or if it suppresses rivalry in respect of several significant parameters (eg innovation and production).395 3.255  Illustration In the Langnese-Iglo and Schöller cases, the Commission refused to exempt single branding agreements concluded by two leading ice cream producers whose market (p. 173) shares were respectively 45 per cent and 20 per cent.396 The Commission held that the exclusivity obligations contained in the agreements foreclosed other competitors. The agreement thus eliminated external competition,397 thereby giving rise to concern given the weakness of internal competition between the ice cream producers. In the case in question, the market exhibited signs of tacit collusion.398

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Footnotes: 1

  See S.C. Salop and D.T. Scheffman, ‘Cost-Raising Strategies’ (1987) 36(1) J Industrial Economics 19. 2

  The (institutional) implementation of this prohibition may take two forms: the first possibility is through a notification system, by which agreements between undertakings must first be notified to an authority and explicitly authorized. This system prevailed, under the ambit of Regulation 17/62, until 2004, when the notification procedure was repealed. A second possibility, which has been in force since 2004, is that of the legal exception: undertakings must assess their agreements themselves, and run the risk, at any moment, of their agreements being declared incompatible if the conditions for the application of Art 101(1) TFEU are met and the parties cannot show that the agreement falls within the Art 101(3) exception. 3

  V. Waelbroeck and A. Frignani, Commentaire J Mégret: Droit de la CE, Vol 4, Competition, 2nd edn (Brussels: Editions de l’Université Libre de Bruxelles, 1997), at 124. We discuss cartels in more detail in Chapter 6. 4

  See, regarding these questions, M.M. Leitão Marques and A. Abrunhosa, ‘Cooperative Networking: Bridging the Cooperation-Concentration Gap’ in H. Ullrich (ed), The Evolution Of European Competition Law—Whose Regulation, Which Competition? (Cheltenham: Edward Elgar, 2006). 5

  GC, T-102/92 Viho Europe BV v Commission, 12 January 1995 [1995] ECR II-17 and CJ, C-73/95 Viho Europe BV v Commission, 24 October 1996 [1996] ECR I-5457 at 51. 6

  CJ, Viho Europe BV v Commission, esp at 13–18; D. Brault, Politique et pratique du droit de la concurrence en France (Paris: LGDJ, 2004), at 756–60. 7

  GC, Viho Europe BV v Commission, spec, and CJ Viho Europe BV v Commission, esp at 51. 8

  GC, Joined Cases T-109/02, T-118/02, T-122/02, T-125/02, T-126/02, T-128/02, T-129/02, T-132/02, and T-136/02, Bolloré SA ea v Commission of the European Communities, 26 April 2007 [2007] ECR II-947; GC, T-112/05, Akzo Nobel NV ea v Commission of the European Communities, 12 December 2007 [2007] ECR II-5049. As a reminder, it is sufficient in principle to show the existence of an economic unit, in order to bring a parent company within the ambit of the competition rules. In Bolloré, the GC seemed hesitant to accept the existence of a presumption: according to Court in that case, ownership of the entire share capital of a subsidiary company is a ‘strong indication’ (not a presumption) of control but, in addition, the Commission must demonstrate some parental involvement in the subsidiary’s business. See para 150. 9

  GC, T-175/05 Akzo Nobel and others v Commission, at 89: It is not therefore because the parent company instigated its subsidiary to commit the infringement or, a fortiori, because the parent company is involved in the infringement, but because they constitute a single undertaking in the above sense that the Commission is able to address the decision imposing fines to the parent company of a group of companies.

See also GC, Akzo, esp at 91. In Akzo, the GC returned to a more orthodox approach: holding a 100 per cent stake entails a presumption of decisive influence, which may be reversed if the parent company can demonstrate the complete commercial autonomy of the subsidiary. See ibid, paras 62–5. However, on the facts of this case, the GC’s interpretation of the concept of commercial policy is very wide-ranging. The parent company has only to take an interest in the strategy, operational plan, investments, general operational policies, auditing and accounting, human resources, or legal matters, for control over the subsidiary

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to be presumed. See ibid, paras 72–7. In the same vein, the concept of decisive influence is so broad that it extends to simple activities of reporting, consultation, or supervision. This principle is highly problematic: it does not take into account that, even in vertically integrated groups, there are agency problems, with subsidiaries frequently taking advantage of inadequate information to act in an opportunistic way. See S. Völcker, ‘Rough Justice? An Analysis of the European’s Commission’s New Fining Guidelines’ (2007) 44 Common Market L Rev 1285–320 at 1317. 10

  He is therefore part of the same economic unit (undertaking) as the principal. See for a recent reminder, CJ, C-217/05 Confederación Española de Empresarios de Estaciones de Servicio v Compañía Española de Petróleos SA, 14 December 2006, nyr, at 44–6 and GC, T-325/01 DaimlerChrysler AG v Commission, 15 September 2005 [2005] ECR II-3319, at 85– 88. For a good summary of these principles, see D. Waelbroeck, ‘Vertical Agreements: 4 Years of Liberalisation by Regulation no 270/99 after 40 Years of Legal (block) Regulation’ in Ullrich (ed), n 4, at 108–9. 11

  See Commission Notice on exclusive distribution agreements with commercial agents, 24 December 1962. Principles espoused by the Court in C-40/73 Suiker Unie, 16 December 1975 [1975] ECR 480 and 539 and C-266/93 VAG Leasing, 24 October 1995 [1995] ECR I-3477, at 19. See Guidelines on vertical restraints, esp paras 12–20. In its Guidelines on vertical restraints the Commission endeavoured, however, to separate ‘true’ agency agreements which do not come within the scope of Art 101 TFEU from other agreements where the agent assumes a commercial and financial risk in relation to the activities for which the principal has appointed him. See for a critical appraisal, Waelbroeck, n 10, at 108–9, which condemns the extensive (and probably finalist) interpretation of the concept of risk by the Commission. 12

  With the exceptions of the loss of the agent’s own commission; or liability for damage resulting from the agent’s negligence. 13

  CJ, C-217/05 CEPSA, 14 December 2006 [2006] ECR I-11987. For a recent analysis, E. Dieny, ‘The Relationship between a Principal and its Agent in Light of Article 101(1) TFEU: How Many Criteria?’ (2008) European Competition L Rev 1, at 5. 14

  CJ, CEPSA, n 13, at 43.

15

  See Suiker Unie, n 11, which already foresaw this requirement.

16

  See B.D. Bernheim and M.D. Whinston, ‘Common Marketing Agency as a Device for Facilitating Collusion’ (1985) 16 RAND J Economics 269. 17

  CJ, CEPSA, n 13, at 62: Nevertheless, it must be pointed out that, in such a case, only the obligations imposed on the intermediary in the context of the sale of goods to third parties on behalf of the principal fall outside the scope of that article. As the Commission submitted, an agency contract may contain clauses concerning the relationship between the agent and the principal to which that article applies, such as exclusivity and non-competition clauses. In that connection it must be considered that, in the context of such relationships, agents are, in principle, independent economic operators and such clauses are capable of infringing the competition rules in so far as they entail locking up the market concerned.

18

  Commission Decision of 26 July 1976, IV/28.996, Reuter/BASF, OJ L 254 of 17 September 1976, at 40–50.

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19

  GC, T-41/96 Bayer, 26 October 2000 [ 2000] ECR II-3383.

20

  Ibid, at 67–9. See also T-49–51/02 Brasserie nationale v Commission, 27 July 2005 [2005] ECR II-3033, at 119; T-44/02 OP, T-54/02 OP, T-56/02 OP, T-60/02 OP, and T-61/02 OP, Dresdner Bank v Commission, 27 September 2006 [2006] ECR II-3567, at 53–5; T-56/02 Bayerische Hypo-und Vereinsbank v Commission, 14 October 2004 [2004] ECR II-3495, at 59–61. 21

  CJ, C-28/77 Tepea v Commission, 20 June 1978 [1978] ECR 1391.

22

  CJ, C-41/69 ACF Chemiefarma v Commission, 15 July 1970 [1970] ECR 661.

23

  Private benefits are, however, taken into account after the infringement has been identified, when the inquiry turns towards assessing the amount of the fines. 24

  CJ, Suiker Unie, n 11.

25

  GC, T-141/89 Tréfileurope v Commission [1995] ECR II-791, at 58: The Court considers that the applicant cannot rely on the fact that it participated in the meetings against its will. It could have complained to the competent authorities about the pressure brought to bear on it and lodged a complaint with the Commission, … rather than participating in such meetings.

26

  See Guidelines on the calculation of fines imposed pursuant to Art 23, para 2, under a), of Regulation (EC) no 1/2003, OJ C 210 of 1 September 2006, at 2. 27

  CJ, Suiker Unie, n 11, at 65–6 and 71–2.

28

  CJ, C-350/95 P and C-379/95 P Commission and French Republic v Tiercé Ladbroke Racing Ltd [1997] ECR I-6265, at 33. 29

  Commission Decision, IV/29.883, AROW/BNIC, 15 December 1982, OJ L 379 of 31 December 1982, at 58. 30

  Commission Decision, COMP/C.38.279/F3, French beef, 2 April 2003, OJ L 209 of 19 August 2003, at 12, para 176, where the support of the French Minister of Agriculture for agreements resulted in the reduction of the fines eventually imposed by 30 per cent. See also Commission Decision, COMP/C.38.238/B.2, Raw tobacco—Spain, 20 October 2004, OJ L 102 of 19 April 2007, at 14. 31

  CJ, C-13/77 SA GB-INNO-BM v Association of Tobacco Retailers (‘ INNO/ATAB’), 16 November 1977 [1977] ECR 2115, at 33: ‘member states may not enact measures enabling undertakings to escape from the constraints imposed by Articles 85(81) to 94 (88) inclusive.’ 32

  CJ, C-2/91 Criminal proceedings against Wolf W Meng, 17 November 1993 [1993] ECR I-5751, at 14. 33

  Regarding the political obstacles, see N. Petit, ‘The Proliferation of National Regulatory Authorities besides Competition Authorities: A Risk of Jurisdictional Confusion?’ in D. Geradin et al (eds), Regulation through Agencies: A New Paradigm of European Governance (Cheltenham: Edward Elgar, 2005). 34

  For a critical opinion that undertakings are acquiring too much freedom, and that the principle of primacy should be fully applied to the question of private constraint, see F. Castillo de la Torre, ‘State Action Defence in EC Competition Law’ (2005) 28(4) World Competition 407.

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35

  CJ, C-198/01 Consorzio Industrie Fiammiferi (CIF) v Autorità Garante della Concorrenza e del Mercato [2003] ECR I-08055 at 53. 36

  Joined Cases C-94/04 and C-202/04 Cipolla and Others [2006] ECR I-11421.

37

  The Court considered, however, that it was the role of the national court to check whether such a regulation, as actually applied, was justified by urgent reasons of general interest, and genuinely met the requirements of consumer protection and the proper administration of justice. The Court also required the national judge to check whether the restrictions in question were proportionate to achieving these objectives. 38

  See N. Kroes, ‘The Competition Principle as a Guideline for Legislation and State Action —The Responsibility of Politicians and the Role of Competition Authorities’, Speech 05/324 given at the 12th International Conference on Competition, Bonn, 6 June 2005. 39

  Commission Decision 82/267/EEC of 6 January 1982 relating to a proceeding under Article 85 of the EEC Treaty, IV/28.748, AEG-Telefunken, OJ L 117 of 24 November 1982 P, at 15 and CJ, 107/82 Allgemeine Elektrizitäts-Gesellschaft AEG-Telefunken AG v Commission [1983] ECR 3151. 40

  Ford had applied to the Commission for an individual exemption. See Commission Decision IV/30.696, Ford Werke AG, 18 August 1982, OJ L 256 of 24 November 1983, at 20. See CJ, C-228–229/82 Ford v Commission, 28 February 1984 [1984] ECR 1129. 41

  See, for a good summary, C. Brown, ‘Bayer v Commission: The ECJ Agrees’ (2004) 7 European Competition L Rev 386. 42

  T-41/96 Bayer, n 19.

43

  Ibid, at para 71: a distinction should be drawn between cases in which an undertaking has adopted a genuinely unilateral measure, and thus without the express or implied participation of another undertaking and those in which the unilateral nature is merely apparent. Whilst the former do not fall within Article 85, paragraph 1, of the Treaty, the latter must be regarded as revealing an agreement between undertakings and may consequently come within the scope of that article. That is the case, in particular, with practices and measures in restraint of competition which, though apparently adopted unilaterally by the manufacturer in the context of its contractual relations with its retailers, nevertheless receive at least tacit, acquiescence of those dealers.

44

  T-62/98 Volkswagen v Commission [2000] ECR II-2707, para 45.

45

  See M. Jephcott and T. Lübbig, Laws of Cartels (Bristol: Jordans, 2003), at 72.

46

  Many examples may be found in the case law and decision-making practice of the Commission: professional federations, sports bodies such as FIFA or UEFA, environmental protection associations, professional associations such as associations of lawyers, architects, etc. 47

  CJ, C-309/99 Wouters [2002] ECR I-15771, at 64.

48

  Commission Decision, COMP/38.549, Commission v Association of Belgian Architects, 24 June 2004, not published but available at . 49

  Commission Notice of 17 February 2004 establishing a Report on competition in the sector of the liberal professions, COM(2004) 83 final. As we saw when we examined the

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State Compulsion Doctrine, there is nonetheless likely to be a limit to this intervention when the State concurs fully in the restrictions enacted by professional associations. 50

  CJ, C-48/69 Imperial Chemical Industries Ltd v Commission, 14 July 1972 [ 1972] ECR 619. 51

  Ibid, at paras 63 and 64.

52

  Judgment of the Court of 16 December 1975, Joined Cases 40–48, 50, 54–56, 111, 113, and 114/73 Coöperatieve Vereniging ‘Suiker Unie’ UA and others v Commission of the European Communities [1975] ECR 1663, at 173. 53

  Ibid, at para 174.

54

  Judgment of the Court (Sixth Chamber) of 8 July 1999, C-49/92 P Commission of the European Communities v Anic Partecipazioni SpA [1999] ECR I-04125. 55

  See G. Monti, EC Competition Law—Law in Context (Cambridge: Cambridge University Press, 2007, Cambridge), at 328–9. 56

  CJ, C-48/69 Imperial Chemical Industries Ltd v Commission, n 50.

57

  Ibid, at para 66. This is a system of proving the negative, which presumes the existence of a concerted practice by ruling out any other scenario. 58

  See R. Joliet, La notion de pratique concertée et l’arrêt ICI dans une perspective comparative (1974) 3–4 Cahiers de droit européen 251, 285. The principle could have remained unheeded or at least little known in the absence of a sufficiently in-depth economic analysis; in the same sense see V. Korah, ‘Concerted Practices’ (1973) 36 Modern L Rev 220. 59

  See, respectively, CJ, C-89/85, C-104/85, C-114/85, C-116/85, C-117/85, and C-125– 129/85 Ahlström Osakeyhtiö et al v Commission (‘Wood Pulp’), 31 March 1993 [1993] ECR I-1307 and GC, T-68/89 and T-77– 78/89 Società Italiana Vetro SpA, Fabbrica Pisana SpA and PPG Vernante Pennitalia SpA v Commission, 10 March 1992 [1992] ECR II-1403. 60

  See CJ, C-89/85 etc, Ahlström Osakeyhtiö et al v Commission, n 59, at para 71.

61

  Ibid.

62

  This is a more onerous system of positive proof, which requires the Commission to prove the existence of a concerted practice and rule out any other explanation (demand for advance price announcements, made by customers, etc). 63

  Commission Decision, IV/29.629, Rolled zinc products and zinc alloys, 14 December 1982, OJ L 362, 1982, at 40 and CJ, C-29–30/83 Compagnie royale Asturienne des mines SA and Rheinzink GmbH v Commission of the European Communities, 28 March 1984 [1984] ECR 1679. 64

  GC, T-44/02 OP, T-54/02 OP, T-56/02 OP, T-60/02 OP, and T-61/02 OP Dresdner Bank ea v Commission, 27 September 2006 [2006] ECR II-3567. 65

  GC, T-168/01 GlaxoSmithKline Services Unlimited v Commission [2006] ECR II-2969, at 109 (taken from para 21 of the Metro I judgment). See also CJ, C-56 and 58/64 Établissements Consten SARL and Grundig-Verkaufs-GmbH v Commission [1966] ECR 429 where the Court speaks of ‘prices subject to workable competition’. 66

  See J.-M. Clark, ‘Toward a Concept of Workable Competition’ (1940) 30 Am Economic Rev 241. Clark comes to the simple conclusion that perfect competition is unattainable in practice and not desirable in theory. A model of competition that is less perfect is nevertheless satisfactory since it offers buyers sufficient options. Clark proposes many criteria to determine whether competition is ‘workable’ (or ‘practicable’): promotional expenses must not be excessive, publicity must be informative, the size of the firms must be as large as allowed by the economies of scale. The theory has, however, been severely From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

criticized, particularly for the debatable nature of the criteria. See F. Easterbrook, ‘Workable Antitrust Policy’ (1986) 84 Mich L Rev 1696; S. Sosnick, ‘A Critique of Concepts of Workable Competition’ (1958) 72 Quarterly J Economics 380. 67

  CJ, C-26/76 Metro v Commission, 25 October 1977 [1977] ECR 1875, at 20 (‘the nature and intensiveness of competition may vary to the extent dictated by the products or services in question and the economic structure of the relevant market sectors’). 68

  GC, GlaxoSmithKline Services Unlimited v Commission, n 65, at 109 (taken from para 21 of the Metro I judgment). 69

  See, in particular, CJ, C-468/06 Sot Lékos kai Sia EE v GlaxoSmithKline AEVE Farmakeftiton Proïonton, 16 September 2008, not published, at 35 (referring to ‘workable competition’) and at 66 (referring to ‘effective competition’). 70

  See Guidelines on the Application of Article 101(3) TFEU, para 17.

71

  See ibid, at para 17.

72

  See ibid, at para 18.

73

  CJ, C-56 and 58/64 Consten and Grundig, n 65, at 339.

74

  See Waelbroeck and Frignani, n 3, at 171.

75

  See I. Liannos, La transformation du droit de la concurrence par le recours à l’analyse économique (Brussels: Sakkoulas/Bruylant, 2007), at 633. Article 1 of the German law on restriction of competition defines a restriction of competition in this way: ‘any limitation of the freedom of commercial action of the parties’. 76

  Commission Decision, IV/29.011, Rennet, 5 December 1979, OJ L 51 of 25 February 1980, at 19; Commission Decision, IV/28.959, VIFKA, 30 September 1986, OJ L 291 of 15 October 1986, at 46; Commission Decision, IV/31.499, Dutch Banks, 19 July 1989, OJ L 253 at 1, para 55. 77

  See, regarding this question, R. Joliet, The Rule of Reason in Antitrust Law—American, German and Common Market Laws in Comparative Perspective (The Hague: Martinus Nijhoff, 1967); R. Kovar, ‘Le droit communautaire de la concurrence et la règle de la raison’ (1987) Revue Trimestrielle de Droit Européen at 237. 78

  CJ, C-56/65 Société Technique Minière v Maschinenbau Ulm, 30 June 1966 [1966] ECR 337. 79

  By means of which a producer entrusts one single distributor with selling its products.

80

  CJ, C-56/65 Société Technique Minière v Maschinenbau Ulm, n 78.

81

  Ibid.

82

  GC, T-112/99 Métropole Télévision (M6) et al v Commission, 18 September 2001 [2001] ECR II-2459, at 76. 83

  Ibid, at para 77.

84

  Ibid, at paras 70 and 76.

85

  See Communication from the Commission—Guidelines on the application of Article 81(3) of the Treaty, OJ C 101 of 27 April 2004, at fn 31. 86

  See Art 2 of Regulation 1/2003.

87

  C-56/65 Société Technique Minière v Maschinenbau Ulm, n 78, at 39 where the Court said: ‘the competition must be understood within the actual context in which it would occur in the absence of the agreement in dispute .’ See also Guidelines on Article 81(3), n 85, at para 24, and Paul H.H. Lugard and Leigh Hancher, ‘Honey, I Shrunk the Article! A Critical

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Assessment of the Commission’s Notice on Article 81(3) of the EC Treaty’ (2004) 7 European Competition L Rev 410, at 413. 88

  This is also referred to as the ‘but for analysis’. The development of the counterfactual analysis goes back to the works of the economist R.W. Fogel who, in the 1960s, challenged the affirmation that certain major discoveries contributed to modern economic development. Fogel, inspired by econometrics and history, tried to measure the economic development which would have been achieved in the absence of the discovery and mass use of the railways, and shows that this contribution to economic development was limited. Fogel won the Nobel prize for economics for his work in 1993. See R.W. Fogel, Railroads and American Economic Growth: Essays in Econometric History (Baltimore, MD: Johns Hopkins Press, 1964). 89

  In addition, the wholesale rates invoiced by the roaming operator to the parties purchasing its services would be based on the wholesale prices paid to the operator visited. Finally, roaming has restrictive effects on the retail markets since, at that level, it would involve greater uniformity of conditions for supplying the services concerned. 90

  GC, T-328/03 O2 (Germany) v Commission, 2 May 2006 [2006] ECR II-1231. The GC considers that the petitioners have interest to act. In general, an exemption, by satisfying the undertakings concerned, removes their interest to act pursuant to Art 230 EC. See GC, paras 44–6. 91

  Ibid, at para 74: ‘examination of the effects of the agreement (by the Commission) is based on the idea that whether or not there had been an agreement both the operators O2 and T-Mobile would have been present and competing in the market in question.’ 92

  Ibid, at para 116.

93

  See Guidelines on the Article 81(3), n 85, at para 18.

94

  Ibid, at para 18.

95

  Ibid, at para 16.

96

  This is the ‘private’ aspect of market integration, which plays as a complement to the ‘public’ aspect of this policy, enshrined in Arts 34 and 36 TFEU. 97

  See eg 5/74/EEC: Commission Decision of 23 November 1984 relating to a proceeding under Article 85 of the EEC Treaty (IV/30.907, Peroxygen products, OJ L 035, 7 February 1985, at 1–19 (where the producers applied the ‘home market rule’). 98

  See Commission Decision, COMP.C-3/37.980, Souris Bleue/TOPPS + Nintendo, 26 May 2004. 99

  GC, T-168/01 GlaxoSmithKline Services v Commission, 27 September 2006 [2006] ECR II-2969. 100

  See ibid, at paras 117–99.

101

  Ibid, at para 119.

102

  Ibid, at para 121.

103

  Ibid, at para 118.

104

  Ibid, at para 124.

105

  Ibid, at para 134.

106

  Ibid, at para 135.

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107

  This is one of the fundamental findings in the economics literature focused on ‘discriminatory pricing’, which means the application of differential prices when costs of production do not differ. See, generally, H.R. Varian, ‘Price Discrimination’ in R. Schmalensee and R.D. Willig (eds), Handbook of Industrial Organization (Amsterdam: Elsevier, 1989), at 597 (surveying price discrimination theory and practices); and also Lars A. Stole, ‘Price Discrimination and Competition’ in M. Armstrong and R. Porter (eds), Handbook of Industrial Organization (Chicago, IL: University of Chicago Press, 2007), at 2223 (surveying price discrimination in oligopoly markets). 108

  CJ, Joined Cases C-501/06 P, C-513/06 P, C-515/06 P and C-519/06 P GlaxoSmithKline et al v Commission [2009] ECR I-9291. 109

  See para 52.

110

  See para 59.

111

  See para 61.

112

  See para 63.

113

  The situation of the EU provides what economists call a good ‘natural experiment’.

114

  National Economic Research Associates, Inc (NERA), 1998, at 17 and 8 respectively.

115

  Accounting for 21 per cent of the retail market.

116

  LSE, 2004, at 13.

117

  Linnosmaa, Karhunen, and Vohlonen, 2003.

118

  Glandsandt and Maskus, 2001.

119

  West and Mahon, 2003.

120

  Pedersen, Enemark, and Sorensen, 2006.

121

  Swedish Competition Authority, 1999.

122

  U. Persson and A. Anell, ‘The Economics of Parallel Trade in Pharmaceuticals: Experiences From Sweden’ (2001) 4(2) Value in Health 168. 123

  CJ, C-56/65 LTM v MBU [1966] ECR 235, at 249: ‘the fact that these are not cumulative but alternative requirements, indicated by the conjunction’ or ‘leads first to the need to consider the precise purpose of the agreement, in the economic context in which it is to be applied’. 124

  CJ, C-08/08 T-Mobile et al v Raad van bestuur van de Nederlandse Mededingingsautoriteit, nyr, at 28: the alternative nature of that requirement, indicated by the conjunction ‘or’, means that it is necessary, first, to consider the precise purpose of the concerted practice, in the economic context in which it is to be pursued. Where, however, an analysis of the terms of the concerted practice does not reveal the effect on competition to be sufficiently deleterious, its consequences should then be considered. 125

  It is defined by the law as an agreement which in all likelihood will harm competition (resale price maintenance). This, in turn, may be based on economic evidence, or on the past experience of the competition authority and courts. 126

  eg under Art 4 of the BER on vertical agreements, the Regulation talks of restrictions which have as their object

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the restriction of the buyer’s ability to determine its sale price, without prejudice to the possibility of the supplier to impose a maximum sale price or recommend a sale price, provided that they do not amount to a fixed or minimum sale price as a result of pressure from, or incentives offered by, any of the parties. See, more generally, Guidelines on Article 101(3) TFEU, para 23: In the case of horizontal agreements restrictions of competition by object include price fixing, output limitation and sharing of markets and customers(28). As regards vertical agreements the category of restrictions by object includes, in particular, fixed and minimum resale price maintenance and restrictions providing absolute territorial protection, including restrictions on passive sales(29). 127

  CJ, C-123/83 BNIC v Clair, 30 January 1985 [1985] ECR 391 and GC, Joined Cases T-202/98, T-204/98, and T-207/98 Tate & Lyle et al v Commission, 12 July 2001 [2001] ECR II-2035. 128

  CJ, C-56 and 58/64 Consten and Grundig v Commission, n 65, at 299.

129

  CJ, C-243/83 SA Binon & Cie v SA Agence et messageries de la presse, 3 July 1985 [1985] ECR 2015. 130

  See in this sense, Barry Rodger at para 23 which indicates that the list of practices under Art 101 is not exhaustive. 131

  CJ, C-209/07 Beef Industry Development Society Ltd, Barry Brothers (Carrigmore) Meats Ltd [2008] ECR I-8637, at 17. 132

  CJ, C-08/08 T-Mobile et al v Raad van bestuur van de Nederlandse Mededingingsautoriteit, n 124, at 29. 133

  Ibid, at para 43.

134

  Ibid, at para 37.

135

  Ibid, at para 30.

136

  See GC, GlaxoSmithKline, n 99, at 147: ‘it cannot be inferred merely from a reading of the terms of that agreement, in its context, that the agreement is restrictive of competition, and it is therefore necessary to consider the effects of the agreement’. 137

  CJ, C-209/07 Beef Industry Development Society Ltd, Barry Brothers (Carrigmore) Meats Ltd, n 131, at 21. 138

  There is, however, a doctrinal debate regarding the question of combining the per se prohibition of hardcore restrictions and the de minimis rule which we will look at later. Certain writers consider that the de minimis rule allows certain agreements containing restrictions by object to escape the per se prohibition. The text of the de minimis Notice, however, does not tend to support this view. See para 11 of the Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 81(1), of the Treaty establishing the European Community (de minimis), OJ C 368 of 22 December 2001, at 14. 139

  CJ, C-551/03 General Motors Nederland and Opel Nederland v Commission, 6 April 2006 [2006] ECR I-3173. In that judgment the Court specified that ‘an agreement may be regarded as having a restrictive object even if it does not have the restriction of competition as its sole aim but also pursues other legitimate objectives’ (para 64). On the other hand: ‘proof of that intention of the parties to an agreement to restrict competition is not a necessary factor in determining whether an agreement has such a restriction as its object

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…, there is nothing to prohibit the Commission or the Community courts from taking that intention into account’ (paras 27–8). 140

  See Beef Industry Development Society Ltd, Barry Brothers (Carrigmore) Meats Ltd, n 131, at 21. 141

  See IAZ International Belgium and Others v Commission [1983] ECR 3369, at 23–5.

142

  See Guidelines on Article 101(3), para 55.

143

  GC, T-17/93 Matra [1994] ECR II-595, at 85. In GlaxoSmithKline, the GC also unambiguously held that: ‘Any agreement which restricts competition, whether by its effects or by its object, may in principle benefit from an exemption’. See GC, T-168/01 GlaxoSmithKline Services Unlimited v Commission, n 99, at 233. 144

  See Guidelines on Article 101(3), para 46.

145

  Commission Decision 1999/695/EC of 15 September 1999 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (IV/36.748, REIMS II) (notified under document number C(1999) 2596) OJ L 275, 1999, at 17. 146

  Commission Decision of 24 July 2002 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (COMP/29.373, Visa International— Multilateral Interchange Fee), OJ L 318, 2002, at 17. 147

  It has also defined additional principles in a series of Notices, Guidelines, and other documents specific to certain types of agreements (eg horizontal cooperation agreements, vertical agreements) which will be examined later. 148

  See General Guidelines at para 24.

149

  See ibid, at para 25. The Guidelines rightly note that evidence of prices above marginal costs does not necessarily indicate that firms have market power (in particular in markets with high fixed costs and low variable costs). See ibid, para 26. That said, the Guidelines also stress that Art 101(1) TFEU applies below the market power level required for proving an infringement of Art 102 TFEU. See ibid, para 27. 150

  See ibid, para 27.

151

  See ibid, para 27.

152

  See ibid, para 27.

153

  CJ, C-5/69 Franz Völk v SPRL Ets J Vervaecke, 9 July 1969 [1969] ECR 295, at 7.

154

  See Commission Notice of 3 September 1986 on agreements of minor importance which do not fall under Article [81](1) of the Treaty establishing the European Economic Community, OJ C 231, 1986, at 2. 155

  Commission Notice on agreements of minor importance published in OJ C 372 of 9 December 1997. 156

  See de minimis Notice, n 138, at 14.

157

  See Commission Notice on agreements of minor importance, n 155, at para 4.

158

  See General Guidelines, at para 24.

159

  See de minimis Notice, n. 138, at 13–15.

160

  These agreements are generally less harmful to competition, and so the de minimis threshold is higher. Importantly, the market share held by each of the parties to the agreement must remain below the 15 per cent threshold for the presumption to apply.

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161

  See de minimis Notice, n 138, at para 7.

162

  See ibid, at para 9.

163

  GC, Case T-44/00 Mannesmannröhren-Werke AG v Commission, 8 July 2004 [2004] ECR II-2223, at 200 and 205. 164

  See Art 2(1) of Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises, OJ L 124 of 20 May 2003, at 36. 165

  GC, T-59-99 Ventouris Group Enterprises SA v Commission [2003] ECR II-5257.

166

  Ibid, at para 165.

167

  Ibid, at para 169.

168

  See General Guidelines, para 24 and note 32: ‘Agreements, which fall outside the scope of the de minimis notice, do not necessarily have appreciable restrictive effects. An individual assessment is required’. 169

  GC, T-374/94 European Night Services and others v Commission [1998] ECR II-3141, at 83. 170

  Ibid, at para 102.

171

  Ibid, at para 102.

172

  Ibid, at para 103.

173

  See de minimis Notice, n 138, Art 11(1).

174

  See Art 4 of the Block Exemption Regulation, 2790/1999 (the Notice has not yet been updated to reflect the changes introduced in Regulation 330/2010). 175

  See J. Faull and A. Nikpay, The EC Law of Competition (Oxford: Oxford University Press, 1999). The text of the Notice would, in reality, have an educational role. 176

  See eg R. Whish, Competition Law, 4th edn (London: Butterworths, 2001).

177

  Market shares should normally be calculated in sales value data. Where this is not possible, they should be calculated in volume data. See de minimis Notice, n 138, at para 10. 178

  CJ, C-23/67 SA Brasserie de Haecht v Consorts Wilkin-Janssen, 12 December 1967 [1967] ECR 525. 179

  Ibid, at 415.

180

  Ibid.

181

  CJ, Case C-214/99 Neste Markkinointi Oy and Yötuuli Ky and Others [2000] ECRI-11121, at 36 and our remarks below. 182

  CJ, C-260/07 Pedro IV Servicios SL v Total España SA [2009] ECR I-02437, at 83. See also C-234/89 Delimitis [1991] ECR I-935 at 13–15; C-214/99 Neste [2000] ECR I-11121, at 25; and CEPSA, para 43. In CJ, C-234/89 Stergios Delimitis v Henninger Bräu AG, 28 February 1991 [1991] ECR I-935, at 24, the Court held that it is necessary to assess the extent to which the agreements entered into by the brewery in question contribute to the cumulative effect produced in that respect by the totality of the similar contracts found on that market. Under the Community rules on competition, responsibility for such an effect of closing off the market must be attributed to the breweries which make an appreciable contribution thereto. Beer supply agreements entered into by breweries whose contribution to the

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cumulative effect is insignificant do not therefore fall under the prohibition under Article 85(1). 183

  GC, T-65/98 Van den Bergh Foods Ltd v Commission, 23 October 2003 [2003] ECR I-4653, at 111, concerning the supply at no cost by Van den Bergh Foods, of freezers to ice cream retailers. These contracts were accompanied by a prohibition against keeping and marketing competing products in those freezers. The resulting cumulative effect of closing off the market was held to be incompatible with Art 101. 184

  GC, Case T-25/99 Colin Arthur Roberts and Valerie Ann Roberts v Commission [2001] ECR II-1881, at 113. 185

  See de minimis Notice, para 8.

186

  CJ, C-214/99 Neste Markkinointi Oy and Yötuuli Ky and Others, n 181, at 36.

187

  GC, T-65/98 Van den Bergh Foods Ltd v Commission, 23 October 2003 [2003] ECR I-4653, at 112. 188

  CJ, C-42/84 Remia BV et al v Commission [1985] ECR 2545.

189

  Ibid, at para 19. The sale of an undertaking did not, in this particular case, restrict competition but, on the contrary, would strengthen it by increasing the number of undertakings present in the market in question. See ibid, at para 19. 190

  Those conditions were codified in the General Guidelines, paras 28–31.

191

  GC, T-112/99 Métropole télévision (M6), n 82, at 104; see also Guidelines on Article 81(3), n 85, at para 19. 192

  GC, T-112/99 Métropole télévision (M6), n 82, at para 104. The GC borrows this concept from the Commission Notice of 14 August 1990 regarding restrictions ancillary to concentrations, OJ C 203, 19990, para 65. 193

  GC, T-112/99 Métropole télévision (M6), n 82, at para 105. The Guidelines on Article 101(3) TFEU use more restrictive semantics in alluding to a restriction ‘subordinate to the implementation’ of the principal transaction and ‘inseparably linked to it’. See para 29. 194

  GC, T-112/99 Métropole télévision (M6), n 82, at para 106.

195

  Ibid, at para 109.

196

  See Commission Notice of 14 August 1990, n 192, at 5.

197

  Commission Decision, IV/337, Supexie, 23 December 1970, OJ L 10 of 13 January 1971, at 12–14; Commission Decision, IV/23077, Rieckermann/AEG-Elotherm, 6 November 1968, OJ L 276 of 14 November 1968, at 25–8; Commission Decision, IV/597, VVVF, 25 June 1969, OJ L 168 of 10 July 1969, at 22–5; Commission Decision, IV.A-00071, DECA, 22 October 1964, OJ L 173 of 31 October 1964, at 2761–2; Commission Decision, IV/A-00061, Grosfillex-Fillistorf, 11 March 1964, OJ L 58 of 9 April 1964, at 915–16; Commission Decision, IV/26.813, Raymond– Nagoya, 9 June 1972, OJ L 143 of 23 June 1972, at 39–42. 198

  Such cartels often affect States which do not have any competition legislation. Eradicating them is a matter for international cooperation. Regular discussions have, eg taken place within the OECD regarding the adoption of international rules on cooperation on this matter. 199

  See Daniel D. Sokol, ‘What Do We Really Know About Export Cartels and What is the Appropriate Solution?’ (2008) 4(4) J Competition Law and Economics 967–82. 200

  Yet, in Suiker Unie, n 11, this practice seemed to take place primarily within the EU.

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201

  See Commission Notice—Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty, OJ C 101, para 105 (which only refer to the first example). 202

  See ibid, at para 108.

203

  CJ, Joined Cases 29/83 and 30/83 Compagnie Royale Asturienne des Mines SA and Rheinzink GmbH v Commission, 28 March 1984 [1984] ECR 167. 204

  This led the producers to discontinue, in parallel, their deliveries to Schiltz.

205

  See CRAM/Rheinzink, n 203, at 24 para 24.

206

  CJ, C-306/96 Javico v Yves Saint Laurent Parfums, 28 April 1998 [1998] ECR I-1983: In order to determine whether agreements such as those concluded by YSLP with Javico fall within the prohibition laid down by that provision it is necessary to consider whether the purpose or effect of the ban on supplies which they entail is to restrict to an appreciable extent competition within the common market and whether the ban may affect trade between Member States. (Emphasis added)

207

  See ibid, at para 14.

208

  Commission Decision, Goodyear Italiana–Euram, OJ L 38 of 12 February 1975, esp para 8; recital specifying that resale inside the EU of products that are the subject of a prohibition against export outside the EU would be even less likely because as far as the Commission is aware there are not, nor having regard to the competitive situation in this field, are there likely to be in the foreseeable future, such differences in price for this product between the EEC and other countries as to allow such additional charges to be absorbed. 209

  Commission Decision, IV/171, 856, 172, 117, 28.173, Campari, 23 December 1977, OJ L 70 of 13 March 1978, at 69: reimportation into the common market of bitter previously exported outside the Community by licensees or their trade customers would seem unlikely, in view of supplementary economic factors such as … the duties charged on crossing the European Economic Community borders. 210

  Commission Decision, IV/24055, Kodak, 30 June 1970, OJ L 159 of 21 July 1970, at 22, para 20. 211

  When an importer in a non-Member State re-exports a product to the EU he does so with a profit margin. The accumulated profit margins contribute to making the price of the reimported product prohibitive. 212

  See Guidelines on the effect on trade concept, para 109.

213

  Ibid, at para 104. Or by concluding reciprocal distribution agreements, allowing each party to control the penetration of its rival’s product on its home market. 214

  GC, Joined Cases T-67/00, T-68/00, T-71/00, and T-78/00 JFE Engineering Corp and others v Commission [2004] ECR II-2501. 215

  Ibid, at para 394.

216

  GC, Joined Cases T-24/93, T-25/93, T-26/93 and T-28/93 Compagnie maritime belge transports SA and Compagnie maritime belge SA, Dafra-Lines A/S, Deutsche Afrika-Linien GmbH & Co and Nedlloyd Lijnen BV v Commission, October 1996 [1996] ECR II-01201.

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217

  See Guidelines on the effect on trade concept, n 201, at 82, para 16.

218

  GC, T-66/01 Imperial Chemical Industries Ltd v Commission, nyr, para 334.

219

  See Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty, n 217, at 13. A somewhat similar principle applies in US economic law. The ‘interstate commerce clause’ provides that the federal legislator only has jurisdiction to regulate interstate trade (and not trade within the states). See Art 1, Section 8, cl 3 of the US Constitution. 220

  Ibid, at para 12: ‘the effect on trade criterion is an autonomous Community law criterion’. 221

  National law shall only apply if the criteria that it provides for justifying its normative jurisdiction are fulfilled. 222

  See R. Wesseling, The Modernisation of EC Antitrust Law (Oxford: Hart, 2000), at 145–

6. 223

  Ibid, at 148–9.

224

  CJ, C-73/74 Papiers Peints de Belgique, 26 November 1975 [1975] ECR 1491, at 1522–

4. 225

  See Report on the functioning of Regulation 1/2003, para 20.

226

  The opposite situation, ie, the authorization, under national law, of an agreement that is incompatible within the meaning of EU law, does not seem to be as problematic since in that case EU law prevails and the agreement is de facto void. 227

  Ibid.

228

  See, in this vein, S. Wilks, ‘Agency Escape: Decentralisation or Dominance of the European Commission in the Modernisation of Competition Policy?’ (2005) 18 Governance 431; A. Riley, ‘EC Antitrust Modernisation’ (2003) 24(12) European Competition L Rev 657. 229

  See Art 3(3) of Regulation 1/2003.

230

  See Art 3(2) of Regulation 1/2003 and para 21 of Report on the functioning of Regulation 1/2003. 231

  Commission Notice—Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty, OJ C 101, 27 April 2004, at 81. 232

  CJ, C-22/71 Béguelin Import/GL Import Export, 25 November 1971 [1971] ECR 949, at 16. 233

  See Guidelines at para 46.

234

  See ibid, at para 47.

235

  See ibid, at para 50.

236

  See ibid, at para 65.

237

  See ibid, at para 52. The Guidelines further state that: In the case of licence agreements the relevant turnover shall be the aggregate turnover of the licensees in the products incorporating the licensed technology and the licensor’s own turnover in such products. In cases involving agreements concluded between a buyer and several suppliers the relevant turnover shall be the buyer’s combined purchases of the products covered by the agreements.

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238

  See Guidelines, at para 50

239

  See ibid, at para 58.

240

  The turnover threshold shall be calculated on the basis of the total sales of the contract product achieved in the EU during the previous financial year by the undertakings concerned. See Guidelines, at para 54. 241

  See ibid, at para 51.

242

  See ibid, at para 52.

243

  See ibid, at para 53.

244

  See ibid, at para 50.

245

  See ibid, at para 55.

246

  See ibid, at para 48.

247

  See ibid, at para 55.

248

  See ibid, at para 59.

249

  CJ, 42/84 Remia BV et al v Commission, n 188, at 22.

250

  CJ, C-250/92 Gottrup-Klim v Dansk Landbrugs Grovvareselskab [1994] ECR I-5641, at 54: ‘Accordingly, the effect on intra-Community trade is normally the result of a combination of several factors which, taken separately, are not necessarily decisive’. 251

  Besides this test (the pattern of trade test), the Guidelines also mention, at paras 20 and 23, the existence of a distinct, competitive-structure test, which was allegedly established by the Court in the Compagnie Maritime Belge case. In this judgment, the Court declared at para 203 that: practices whereby a group of undertakings seeks to eliminate from the market their main established competitor in the common market are inherently capable of affecting the structure of competition in that market and thereby of affecting trade between Member States within the meaning of Article 86 of the Treaty. See CJ, Joined Cases T-24/93, T-25/93, T-26/93 and T-28/93 Compagnie maritime belge transports SA, n 216. This test, however, was never applied again. It is thus unclear whether it is still good law. 252

  CJ, C-309/99 Wouters, n 47.

253

  Ibid, at para 95.

254

  See for a recent case, CJ, C-393/08 Emanuela Sbarigia, nyr, where the Court considered that national legislation regulating opening periods of pharmacies in Italy could not affect trade between Member States, possibly because this legislation had no influence on the decision of pharmacists to establish in Italy. See para 32. 255

  Judgment of the Court (Sixth Chamber) of 4 May 1988, 30/87 Corinne Bodson v SA Pompes funèbres des régions libérées. Reference for a preliminary ruling: Cour de cassation, France. Competition, Funeral services, Exclusive special rights [1988] ECR I-02479. 256

  Ibid.

257

  See Joined Cases C-295–298/04 Manfredi, 13 July 2006 [2006] ECR I-6619, at para 50.

258

  See ibid, at para 51.

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259

  See CJ, para 49.

260

  See ibid, at para 50.

261

  See T-228/97 Irish Sugar v Commission [1999] ECR II-2969, at para 15.

262

  Ibid, at paras 25–32.

263

  See Guidelines, at para 26.

264

  See ibid, at para 27.

265

  See ibid, at para 41.

266

  CJ, C-107/82 AEG Telefunken v Commission, n 39, at 60.

267

  See Guidelines, at para 43.

268

  In line with the case-law of the EU Courts.

269

  See Guidelines, at para 29.

270

  See ibid, at para 30.

271

  See ibid, at para 32.

272

  CJ, C-56 and 58/64 Consten and Grundig, n 65, at para 17. The Commission however acknowledges this at para 17 of its Guidelines. 273

  CJ, C-56 and 58/64 Consten and Grundig, n 65, esp paras 341–2.

274

  See Guidelines, at para 34.

275

  See ibid, at para 35.

276

  See ibid, at para 34.

277

  CJ, C-123/83 BNIC v Clair, n 127, at 29 and CJ, C-136/86 BNIC v Aubert, 3 December 1987 [1987] ECR 4789, at 18. 278

  See Guidelines, at para 38.

279

  See ibid, at para 51.

280

  See ibid, at paras 44 and 47.

281

  See ibid, at para 45.

282

  This section seeks to ‘provide additional guidance on the application of the effect on trade concept’. See Guidelines, at para 59. 283

  See ibid, at paras 62–3 and para 63 in particular.

284

  See ibid, at paras 64–5.

285

  See ibid, at paras 66–9.

286

  See ibid, at paras 70–2.

287

  See ibid, at para 61.

288

  See ibid, at para 61.

289

  Ibid, at para 77.

290

  See for case law illustrations CJ, SC Belasco et al v Commission [1989] ECR 2117, esp at 33: ‘It must first be recalled that … the fact that a cartel relates only to the marketing of products in a single member state is not sufficient to exclude the possibility that trade between member states might be affected.’ See also CJ, C-8/72 Vereeniging van Cementhandelaren v Commission, 17 October 1972 [1972] ECR 977, at 29; CJ, C-42/84

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Remia BV et al v Commission, n 188, at 22, and CJ, C-35/96 Commission v Italy, 18 June 1998 [1998] ECR I-37175, esp at 48. 291

  See Guidelines, at para 79.

292

  See ibid, at para 82.

293

  CJ, Joined Cases C-215/96 and C-216/96 Carlo Bagnasco ea v Banca Popolare di Novara (BNP)) and Cassa di Risparmio di Genova e Imperia (Carige), 21 January 1999 [1999] ECR I-135, at 51–3. 294

  Besides those agreements, national/regional cartels may also affect trade between Member States (a local cartel whose members resell products imported from other Member States). See Guidelines, at para 82. 295

  See generally Guidelines, at paras 83–5 and esp para 84.

296

  See ibid, at para 85.

297

  See ibid, at para 87. In Rennet, n 76, a Dutch cooperative that produced animal rennet (a coagulant) and cheese colorants had imposed an exclusive purchasing obligation on its members. Although confined to a single Member State, this agreement eliminated the possibility of competing suppliers from non-Member States supplying rennet and colorants on the Dutch market (the members held 90 per cent of Dutch cheese production): CJ, C-61/80 Coöperatieve Stremsel-en Kleurselfabriek v Commission, 25 March 1981 [1981] ECR 851. 298

  See Guidelines, at para 88.

299

  See ibid, at para 90.

300

  See ibid, at para 91.

301

  CJ, 22/71 Béguelin Import Co v SAGL Import Export [1971] ECR 949, esp at 29.

302

  See also CJ, C-453/99 Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd et al, 20 September 2001 [2001] ECR I-6297, at 22. 303

  CJ, C-319/82 Société de vente de ciments et bétons de l’Est SA v Kerpen & Kerpen GmbH und Co KG, 14 December 1983 [1983] ECR 4173, at 11: The automatic nullity decreed by Article 85 (2) applies only to those contractual provisions which are incompatible with Article 85 (1)…. The consequences of such nullity for other parts of the agreement are not a matter for Community law. The same applies to any orders and deliveries made on the basis of such an agreement and to the resulting financial obligations. 304

  By contrast, such questions are of little concern for competition agencies, whose mission ends with a finding of infringement (and possibly, a cease and desist order as well as penalties). 305

  eg because the other party may have stopped cooperating (or made no effort to perform its obligations). 306

  CJ, C-421/05 City Motors Groep NV v Citroën Belux NV [2007] ECR I-659.

307

  CJ, C-453/99 Courage and Crehan, n 302, esp at 31.

308

  See arguments of Advocate General van Gerven in CJ, C-128/92 HJ Banks & Co Ltd v British Coal Corporation [1994] ECR I-1209, at 45. He relied on the principle of giving full effect to EU law and the obligation incumbent on the courts to protect the rights accorded

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to individuals in this respect. The Court rejected this submission, however, holding that the provisions in question, which were derived from the ECSC Treaty, did not have direct effect. 309

  See para 44 of the arguments of the Advocate General.

310

  See para 3.30.

311

  CJ, Joined Cases C-295–298/04 Manfredi, n 257 .

312

  Ibid, at paras 63 and 60–1.

313

  See Courage, n 302, at 29 and Manfredi, n 257, at 62.

314

  Ibid, at 62. It is indeed the task of each Member State to define the forms such legal actions may take (in terms of competent courts, assessment of damages etc). 315

  See Denis Waelbroeck, Donald Slater, and Gil Even-Shoshan, ‘Study on the conditions of claims for damages in case of infringement of EC competition rules’, Ashurst, Brussels, 31 August 2004. 316

  Resolved to make progress in this area, the Commission published a Green Paper in 2005. See ‘Green Paper on Actions for damages for breach of EC antitrust rules’, COM(2005) 672 of 19 December 2005. It then issued a White Paper on damages actions for breach of EC antitrust rules in 2008. See ‘White Paper on actions for damages for breach of EC antitrust rules’, COM(2008) 165 of 2 April 2008. The latter’s primary objective is to improve the regulatory framework allowing victims to exercise their right to demand full compensation for all damages incurred as a result of an infringement of EU competition rules. Ibid, at 3. Here, the Commission thus supported a series of measures that contribute to eliminating the obstacles to a private action. In no particular order, these include representative actions (introduced by qualified entities such as consumer associations, public bodies or professional organizations), class actions (introduced by victim support groups and open to all according to an opt-in clause), the requirement of a minimum level of ‘disclosure’, acknowledgement of the quality of ‘irrefutable proof’ of any decision by an NCA or any final court judgment, the establishment of a presumption of ‘fault’ for undertakings found guilty of a breach of Art 101 or 102 TFEU in a decision or a judgment. 317

  See Guidelines, at para 11.

318

  See Guidelines on Article 81(3), n 85, esp para 46, which explicitly provide that ‘Article 81, paragraph 3, does not exclude a priori certain types of agreements from its scope’ and that ‘In principle, all restrictive agreements which cumulatively met the four conditions of Article 81, paragraph 3, are covered by the exemption rule (61)’. However, severe restrictions of competition ‘are unlikely to fulfil the conditions of Article 81, paragraph 3’. This system of per se prohibition is rarely disputed by economists. See, however, P. Salin, ‘Cartels as Efficient Productive Structures’ (1996) 9(2) Rev of Austrian Economics 29. 319

  See Guidelines on Article 101(3), para 46.

320

  See ibid, at para 46. Which add ‘moreover, these types of agreements generally also fail the indispensability test under the third condition’. 321

  As explained at para 6, however, a ‘mechanical’ application of the guidelines is precluded. Each case must be assessed on its own facts and the guidelines ‘must be applied reasonably and flexibly’. 322

  See Guidelines, at para 7.

323

  CJ, 43/82 and 63/82 VBBB and VBVB [1984] ECR 19.

324

  See Guidelines, at para 44.

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325

  See ibid, at para 42.

326

  See ibid, at para 33.

327

  The Guidelines on the application of Article 81(3) EC also make this distinction, esp at paras 59ff. 328

  Ibid, at para 65.

329

  Ibid, at para 66.

330

  Ibid.

331

  Ibid, at para 67.

332

  Particularly joint production, purchasing, and marketing.

333

  See para 59.

334

  They generally improve the service provided to the customer. Ibid, at para 72.

335

  See para 71.

336

  These circumstances are not reprises in the guidelines. See M. Williams and P. Hofer, ‘Minding your Ps and your Qs: Moving beyond Conventional Theory to capture the nonprice dimension of Market Competition’ in Lawrence Wu (ed), Economics of Antitrust: Complex Issues In a Dynamic Economy (White Plains, NY: National Economic Research Associates, Inc (NERA), 2007). 337

  Ibid, at paras 11 and 92.

338

  See in this sense, D. Geradin, ‘Efficiency Claims in EC Competition Law’ in H. Ullrich (ed), n 4, at 336. 339

  See ibid, at 336.

340

  The Guidelines on Article 81(3) seem to acknowledge this in explaining that the question whether qualitative efficiencies (eg new and improved products) compensate for the anticompetitive effects of an agreement ‘necessarily require value judgment’. See Guidelines on Article 81(3), n 85, at paras 10 and 11. 341

  See Guidelines, at para 49.

342

  Ibid, at para 49: ie, a market sharing or production limitation agreement which would, according to the parties, have the effect of reducing the costs, does not entail an objective improvement. 343

  Ibid, at para 54.

344

  See ibid, at para 43.

345

  See ibid, at para 56, plus a description of the calculation method used.

346

  Ibid, at para 57.

347

  See ibid, at paras 56 and 58.

348

  Also referred to as ‘general interest’ considerations. See, on this, A. Komninos, ‘Noncompetition Concerns: Resolution of Conflicts in the Integrated Article 81’, Working Paper (L) 08/08, The University of Oxford Centre for Competition Law and Policy; G. Monti, ‘Article 101 TFEU and Public Policy’ (2002) 39 Common Market L Rev 1057–99; H. Schweitzer, ‘Competition Law and Public Policy: Reconsidering an Uneasy Relationship. The Example of Art 81’, EUI Working Papers Law 2007/30, Italy. This extensive interpretation originates in the fact that within the EU legal order, other policies might have to take prevalence—or be combined—with competition policy.

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349

  Also referred to as ‘public policy’ or ‘general interest’ considerations. See, on this, C. Townley, Article 81 EC and Public Policy (Oxford: Hart Publishing, 2009); Komninos, n 348; Monti, ‘Article 101 TFEU and Public Policy’, n 348, at 1057–99; Schweitzer, n 348. 350

  GC, T-112/99 Métropole Télévision (M6), n 82, at 118.

351

  Commission Decision of 8 December 1983, IV/29.955, Carbon Gas Technologie, 83/669/ EEC; Commission Decision 91/38/EEC, IV/32.363, KSB/Goulds/Lowara/ITT, OJ L 19, 1991, at 25, para 27; Commission Decision 92/96/EEC, IV/33.100, Assurpol, OJ L 37, 1992, at 16, para 38; Commission Decision 2000/475/EC of 24 January 1999, CECED, OJ L 187, 2000, at 47, paras 51 and 57; Commission Decision 2001/837/EC of 17 September 2001, DSD, OJ L 319, 2001, at 1; Commission Decision of 16 October 2003, ARA, ARGEV, ARO, OJ L 75, 2004, at 59. 352

  CJ, C-42/84 Remia BV et al v Commission, n 188, at 42; CJ, Joined Cases C-209 –215/78 and 218/78 Van Landewyck v Commission [1980] ECR 3125 at 182; Commission Decision of 4 July 1984, 84/380/EEC, Synthetic Fibres, OJ L 207, 1984, at 17, para 37. 353

  Commission Decision, IV/428, VBVB/VBBB, 25 November 1981, OJ L 54, 1982, at 36; CJ, 43 and 63/82 VBVB and VBBB v Commission [1984] ECR 19; Commission Decision, EBU/ Eurovision System, OJ L 179, 1993, at 23, para 62. See, more generally, M. Ariño, ‘Competition Law and Pluralism in European Digital—Broadcasting: Addressing the Gaps’ (2004) 54 Communications & Strategies 97, at 107. 354

  Commission Decision 93/49/EE of 23 December 1992, IV/33.814, Ford Volkswagen, OJ L 20, 1993, at 14. 355

  Commission Decision of 15 April 2002, Laurent Piau v FIFA, para 29. In this case, the Commission considered that the FIFA rules on the professional conduct for players’ agents worldwide justified by the general interest ‘are proportionate and compatible with competition law’ (paras 60–1). See, on this, E. Loozen, ‘Professional Ethics and Restraints of Competition’ (2006) 31(1) European L Rev 41. 356

  Certain observers have sought to construe the occasional Commission and Court references to noncompetition benefits as obiter dicta. See L. Gyselen, ‘The Substantive Legality Test under Article 81-3 EC Treaty—Revisited in light of the Commission’s Modernization Initiative’ in von Bogdandy, Mavroidis, and Meny (eds), European Integration and International Coordination, Studies in Transnational Economic Law in Honour of ClausDieter Ehlermann (The Hague: Kluwer, 2002). See, contra, Townley, n 349, at 66. Similarly, it has been argued that most of those non-competition concerns could be reconciled with the Guidelines approach, in that they contained an efficiency component. Finally, others have explained that such non-competition concerns were, by their very nature, ancillary and could thus potentially be taken into account within the Art 81(1) assessment under the ancillary restraints doctrine. See Loozen, n 355. 357

  See J. Bourgeois and J. Bocken, ‘Guidelines on the Application of Article 81(3) of the EC Treaty or How to Restrict a Restriction’ (2005) 32(2) Legal Issues of Economic Integration 111; P. Lugard and L. Hancher, ‘Honey, I Shrunk the Article! A Critical Assessment of the Commission’s Notice on Article 81(3) of the EC Treaty’ (2004) 7 European Competition L Rev 413. 358

  See Guidelines on Article 81(3), n 85, at para 40.

359

  See L. Kjolbye, ‘The New Commission Guidelines on the Application of Article 81(3): An Economic Approach to Article 81’ (2004) 9 ECLR, at 570.

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360

  The rationale for this interpretation is to ensure that, with decentralization, NCAs and courts will not exempt otherwise anticompetitive conduct on the basis of public policy goals. See Kjolbye, n 359. 361

  See Komninos, n 348, at 6.

362

  The legal basis for this theory is debatable. The Commission relies on the Matra judgment, n 143, which, it argues, ‘implicitly’ embodies the principles that non-competition concerns should be subsumed under the four conditions of Arte 81(3). However, in Matra, the Court arguably held that regardless of non-competition concerns, the agreement could benefit from an exemption solely on the basis of a classic economic analysis. See Guidelines on Article 81(3), n 85. 363

  An objective falling within the scope of Art 81(3) according to the Court of Justice in Remia, n 188, at para 42: in connection with the argument to the effect that the survival of the undertaking and the preservation of jobs are only possible if the non-competition clause applies for a period of 10 years, it must indeed be admitted that, as the Court held in its judgment of 25 October 1977 in case 26/76 (Metro, (1977) ECR 1875), the provision of employment comes within the framework of the objectives to which reference may be had pursuant to article 85 (3) because it improves the general conditions of production, especially when market conditions are unfavourable. 364

  Of course, an agreement of this type may be beneficial to consumers in the long run. Yet, the Guidelines take a restrictive stance on long-term efficiencies. At para 87 the Guidelines provide that while The fact that pass-on to the consumer occurs with a certain time lag does not in itself exclude the application of Article 81(3), … the greater the time lag, the greater must be the efficiencies to compensate also for the loss to consumers during the period preceding the pass-on. (Emphasis added) 365

  See P. Sands, Principles of International Environmental Law (Cambridge: Cambridge University Press, 2003), at 1016. 366

  Along the lines of the ‘mandatory requirements’ doctrine that applies under Art 30 EC. See Komninos, n 348, at 12. 367

  eg an agreement to build new generation capacity (a nuclear plant); an agreement to build a new pipeline for the transport of gas; a 25-year supply agreement between a gas producer and a gas distributor. 368

  It is only defined in passing in a number of EC secondary law instruments in the gas sector. 369

  In Community economic law, this rule is habitually upheld by the community Courts in the area of free movement. See, with regard to the free movement of goods, CJ, C-319/05 Commission v Germany [2007] ECR I-9811, at 88. 370

  Ibid, at 84.

371

  See Guidelines on Article 81(3), n 85, at para 43.

372

  See Kjolbye, n 359, at 572.

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373

  Additionally, a number of less explicit motives may have prompted the Commission to establish this standard. Among other things, the market-by-market standard limits the risk that public policy considerations—which do not strictly take place on a relevant market— might be invoked to justify an otherwise anticompetitive agreement. 374

  In economic language, the standard endorsed by the case law of the EU Courts comes close to a ‘total welfare’ standard. 375

  GC, T-86/95 Compagnie Générale Maritime and others v Commission [2002] ECR II-1011, at 343. This point has been confirmed in a number of recent rulings of the Community Courts. See, on this, J. Aitken and S. Mitchell, ‘Efficiency Defences under Art 81 EC—Is the Hurdle Getting Higher?’, in Competition Law (2009), at 64–5. The GC went on to note that Art 101(3) does not ‘requir[e] a specific link with the relevant market’. 376

  GC, T-168/01 GlaxoSmithKline v Commission [2006] ECR II-2969, at 248.

377

  CJ, C-238/05 Asnef-Equifax [2006] ECR I-11125, at 70. The Court accordingly dismissed the allegation that an agreement which had a detrimental effect on a particular category of consumers and no pro-competitive effects in that respect was unlikely to benefit from an exemption. 378

  See Guidelines on Article 81(3), n 85, at para 82. However, in a setting of this kind, the agreement may benefit from the derogation enshrined at para 43 of the Guidelines: ‘efficiencies achieved on separate markets can be taken into account provided that the group of consumers affected by the restriction and benefiting from the efficiency gains are substantially the same.’ 379

  See Guidance Communication on the Commission’s enforcement Priorities in Applying Article 82 of the EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings, C(2009) 864 final, at para 90. 380

  See Guidelines, at para 90.

381

  See ibid, at para 92.

382

  See ibid, at para 85 (which, however, erroneously refer to consumers in the same relevant market). 383

  See Guidelines, at paras 87–8.

384

  See ibid, at para 96.

385

  See ibid, at para 97.

386

  See ibid, at para 98.

387

  See also T. Tridimas, ‘Searching for the Appropriate Standard of Scrutinity’ in E. Ellis, The Principle of Proportionality in the Laws of Europe (Oxford: Hart Publishing, 1999): ‘The test grants to the Community institutions ample discretion and applies to both aspects of proportionality, i.e. suitability and necessity.’ 388

  Commission Decision, COMP 377D07 81, GEC-Weir Sodium, 23 November 1977, OJ L 327 of 20 December 1977, at 26. 389

  Commission Decision, UEFA, 21 December 1994, OJ L 378 of 31 December 1994, at 45, paras 181–91. 390

  See Guidelines, at paras 73–82.

391

  See ibid, at para 105.

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392

  See ibid, at para 109. This concept is often erroneously associated with proving that the agreement does not result in the creation of a dominant position on the market (dominant undertakings can certainly conclude agreements). In which case the agreement might simultaneously come within the ambit of Art 102 TFEU (subject to proving an abuse). See Guidelines, at para 104. 393

  See Guidelines, at para 112.

394

  See ibid, at para 113.

395

  Ibid, at para 110: The last condition for exception provided in Article 81, paragraph 3, is not fulfilled if the agreement eliminates competition in one of its most important expressions. This is particularly the case when an agreement eliminates price competition … (Emphases added)

396

  Commission Decision, IV/34.072, Langnese-Iglo GmbH, 23 December 1992, OJ L 183 of 26 July 1993, at 19–37; Commission Decision, IV/31.533 and IV/34.072, Schöller Lebensmittel GmbH Co KG, 23 December 1992, OJ L 183 of 26 July 1993, at 1–18. 397

  Ibid, at paras 126–41. In other words, the agreement had a positive effect on the noncompete condition (C4). 398

  Ibid, at para 146: It can be presumed that where there is a duopolistic market structure such as that observed on the relevant market here, competition between the duopolists tends to be limited. Any aggressive conduct on the part of either undertaking will very likely produce a corresponding reaction on the part of the other, whose market potential is comparable. The conviction will therefore arise that the maximization of the profits of both will be best served if they refrain from competing with one another. (p. 174)

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4 Abuse of Dominance Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Subject(s): Defining abuse of dominant position — Determining abuse of dominant position — Basic principles of competition law

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(p. 175) 4  Abuse of Dominance I.  Introduction 4.01 II.  Determining Dominance 4.04 A.  Market Definition 4.05 B.  Dominance 4.48 III.  The Notion of Abuse 4.131 A.  Exclusionary Abuses 4.132 B.  Exploitative Abuses 4.371 C.  Price Discrimination 4.452

I.  Introduction 4.01  Article 102 TFEU prohibits dominant firms from abusing their dominant position. Two elements need to be present for Article 102 to apply to a given firm conduct: (i) that firm must be dominant on one or several markets and (ii) it must have abused that dominant position. In other words, being dominant is not unlawful in itself, fortunately as firms may acquire dominance by competing on the merits (eg because they offer better products and services). Similarly, Article 102 applies only to firms that already hold a dominant position. Unlike in US antitrust law, ‘monopolization’, that is, the acquisition of monopoly power through anti-competitive means, is not an offence under EU competition law. 4.02  Over the past decade, the Commission has adopted a number of high-profile Article 102 decisions in many critical sectors of the European economy (energy, financial services, airlines, pharmaceuticals, postal services, telecommunications, etc). The Commission has also investigated and condemned major information technology firms, such as Microsoft and Intel. The decisional practice of the Commission and the case law of the EU Courts has often been harshly criticized by scholars and practitioners for being excessively formalistic and, thus, not in line with economic theory. Reacting to such criticisms, the Commission has attempted since 2004 to ‘modernize’ its enforcement of Article 102. It did so by first issuing a Discussion Paper in December 2005,1 which has no binding effect but was intended to stimulate debate on the way Article 102 should be applied. This document was followed in December 2008 by a Guidance Paper, which outlines the way the Commission will set its enforcement priorities with respect to exclusionary abuses.2 (p. 176) 4.03  This chapter is divided in two main sections. Section II explores the assessment of dominance. As a firm can only be dominant on a given market, this section starts by discussing the various methods that are used by the Commission and the Courts to define markets. Section III then reviews the second element that is required to trigger the application of Article 102, that is, the proof of an abuse.

II.  Determining Dominance 4.04  The first step in the assessment of dominance is to define the relevant market(s) (Section A). Once such markets have been defined, various economic tools can be used to determine the extent to which one or several firms are dominant on them (Section B).3

A.  Market Definition

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4.05  Although the exercise of defining a ‘relevant market’ for competition analysis continues to be discussed, as illustrated amply in the discussions regarding the most recent round of the US Horizontal Merger Guidelines revisions, it also continues to be an instrumental tool in the application of Article 102 TFEU. Because one of the primary factors of interest in an Article 102 matter, namely a firm’s market power, is nearly impossible to measure directly, we must rely on proxies. Defining a ‘relevant market’ is one of the most important steps in assessing proxies of market power. 4.06  According to the Commission’s Notice on the definition of the relevant market for the purposes of EU competition law (hereinafter ‘the Commission’s Notice’): Market definition is a tool to identify and define the boundaries of competition between firms. It serves to establish the framework within which competition policy is applied by the Commission. The main purpose of market definition is to identify in a systematic way the competitive constraints that the undertakings involved face.4 4.07  The importance of identifying ‘the competitive constraints’ lies in gauging an undertaking’s market power. If a firm faces no competitive constraints, it is free to restrict its output and to charge the highest price its customers will pay for its goods and services— in other words, the undertaking is a monopoly. The more effective the competitive constraints, the closer the quantity supplied and the price charged will be to the perfectly competitive ideal, which offers a nice theoretical benchmark even if perfect competition is rarely ever seen in practice. (p. 177) 4.08  The one instance in which market definition is irrelevant is when all reasonable alternative definitions lead to the same conclusion. In particular, the Commission’s Notice observes that If under the conceivable alternative market definitions the operation in question does not raise competition concerns, the question of market definition will be left open, reducing thereby the burden on companies to supply information.5 4.09  Given the pivotal role that the relevant market plays in Article 102 assessment, it is important that the definition not be over-or under-inclusive.6 If the definition is too narrow, constraints will be unjustly imposed on an undertaking with no real market power in practice; if it is too broad, a firm with genuine market power will be able to threaten the operation of effective competition without fear of agency oversight or imposed restrictions. 4.10  In light of the balance required in the definition of a relevant market, it is not surprising that Article 102 case outcomes can be manipulated through the chosen market definition. Parties seeking to avoid competition agency scrutiny typically argue for as broad a market as possible, hence implying the existence of many competitive constraints and the absence of any meaningful market power. On the other hand, parties seeking to establish an undertaking’s dominance, and hence seeking to impose ‘special responsibilities’ for that undertaking’s conduct, can argue for a narrow market definition—and indeed some of the Commission’s older cases have been criticized for this reason.7 The Hilti case is one example.8 In Hilti, the Commission defined a narrow relevant market consisting of poweractuated fastening systems (nail guns); it did not consider whether the prices of other fastening systems, such as screws, bolts, welding, rivets, and the like posed any constraint on the pricing of nail guns, or whether customers might switch among these various fastener types if faced with a nail gun price increase.

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4.11  As a final caveat, it is important to understand that the ‘relevant market’ is a distinct competi-tion concept. As such, a ‘market’ for competition policy purposes typically has an entirely different meaning from any use of the word ‘market’ that the parties under investigation may make in their internal business documents, such as those describing strategic planning and day-to-day operations, or from the general use of the term ‘market’ as regularly seen in news media or the popular press. 4.12  Because of the manipulation and misinterpretation risks involved, it is important to use economic tools—and whenever possible, data analysis—to determine market definition for Article 102 purposes. Regardless of the specific approach taken, however, we must remember why we are defining a relevant market in the first place: to proxy for the competitive constraints facing the firm(s) under inquiry. Market definition informs on that issue, but it is not definitive given its indirect nature.

(p. 178) (1)  The components of a relevant market 4.13  Within competition assessments, a ‘relevant market’ comprises the intersection of the product market and the geographic market, both of which should be defined using economic analysis. The product market identifies the products and producers that impose effective competitive constraints on the firms whose actions are under scrutiny while the geographic market identifies the physical area within which those products and producers compete.

(a)  The product market 4.14  The Commission’s Notice specifies that ‘[a] relevant product market comprises all those products and/or services which are regarded as interchangeable or substitutable by the consumer, by reason of the products’ characteristics, their prices and their intended use.’9 The task in market definition, then, is to determine how consumers view products and whether they will move to another product if the price of their first product of choice increases by an appreciable amount. This task is accomplished through the aide of two key concepts—demand-side substitution and supply-side substitution—plus one additional but more controversial concept—potential competition. (i)  Demand-side substitution

4.15  Demand analysis identifies those products that consumers view as interchangeable. As such, demand-side substitution ‘constitutes the most immediate and effective disciplinary force on the suppliers of a given product, in particular in relationship to other pricing decisions.’10 4.16  Consider a simple example to illustrate the concept of demand-side substitution. When at the grocery store facing the products arrayed on the baking aisle, you see three brands of granulated sugar. Interestingly, even though granulated sugar is by and large a commodity product, you will probably see that all three brands have similar but slightly different prices, most likely reflecting brand strength. However, if one of those brands attempted to raise its price by some small but significant amount, chances are quite high that many consumers would switch from purchasing that brand to one of the other, now relatively less expensive, brands precisely because granulated sugar is largely a commodity product. Such product switching would be direct evidence of demand-side substitution and would indicate that the three granulated sugar brands are in the same relevant market for the purposes of Article 102 assessments. 4.17  But we cannot stop our market definition assessment there. What of honey, corn syrup, or artificial sweeteners—are these products in the same relevant market with granulated sugar as well? The answer depends on the particular circumstances in the case at hand and whether the consumers of interest are willing to switch to honey, say, if the relative price of granulated sugar rose by a small but significant amount. Thus, as

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O’Donoghue and Padilla explain, ‘[t]he scope and scale of demand-side substitution depends entirely on consumer preferences’.11 (p. 179) 4.18  To take the argument further, it is unimportant whether two products appear, as a matter of casual observation, to have similar physical characteristics (as will two brands of granulated sugar). Consumers may view seemingly similar products as not being interchangeable. This is often the case when consumers hold strong brand preferences. Socalled luxury goods (fur coats, designer clothes, sports cars, and the like) often meet this criterion, as the brand name itself carries a great deal of weight for differentiating the products for certain consumers. And, equally, consumers may view products with distinct physical characteristics as close substitutes, as would be the case if consumers switched from one brand of granulated sugar to honey in the face of a relative price change. It is not enough, therefore, to describe products qualitatively or discuss them anecdotally; to the extent possible given the information available, one must examine consumer preferences and behaviour to determine the effects of demand-side substitution. (ii)  Supply-side substitution

4.19  The complement to demand-side substitution is supply-side substitution. Here it is suppliers that define the substitutes (within, of course, the acceptance of consumers). If ‘suppliers are able to switch production to the relevant products and market them in the short term without incurring significant additional costs or risks in response to small and permanent changes in relative prices’, then supply-side substitution will act as a constraint on an undertaking’s market power.12 For instance, suppose that a shoe manufacturer attempted to raise the price it charges for size 38 shoes. Other shoemakers could easily and quickly increase their own production of size 38 shoes, thereby increasing the supply of that size shoe and thus countering the price increase. In other words, timely entry places a check on incumbent firms’ ability to raise prices or restrict output. 4.20  Some conditions must be met for supply-side substitution to be relevant, however. Most importantly, the assets needed to produce, distribute, and commercialize the substitute product must be readily available to the suppliers; the suppliers must have incentives to make rapid production adjustments in the face of significant but small price increases; and consumers must see the resulting goods as viable substitutes. Moreover, enough suppliers must be able to switch production in this rapid fashion in order to provide a meaningful constraint on prices. Depending on the market circumstances, numerous suppliers may need to be deemed capable of such a swift response to a price increase in order to have a consequential impact on market prices—that is, the increase in the quantity supplied must be large enough to reverse the price increase in order for supply-side substitution to pose an effective competitive constraint. As a result, the Commission’s Notice on market definition requires that ‘most of the suppliers’ or ‘most if not all manufacturers’ are capable of shifting between the production of goods before the Commission will consider those producers as offering supply-side substitutes in the same market.13 (iii)  Potential competition

4.21  The final element of product market definition is determining whether potential competition can constrain an undertaking’s market power. Rather than being firms already supplying goods and able to shift production quickly in response to changes in demand, as with (p. 180) supply-side substitution, potential competition represents those entities that are currently outside the market, but could enter the market in the longer term or through the investment of sunk costs.

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4.22  Three distinguishing features separate supply-side competition from potential competition. First is speed. With supply-side substitution competition is fast, whereas with potential competition it is assumed to take a year or more, due to the investments required. It is here that barriers to entry will be considered: low to no barriers to entry imply faster and less costly entry whereas the presence of significant barriers to entry may render potential competition altogether infeasible. Second, the level of price effects needs to be larger for potential competition. Because supply-side competition is rapid and does not require significant sunk cost investments, it can respond to relatively modest price increases. In contrast, potential competition responds to expected long-term prices and therefore tends to be triggered by greater price increases. Third, the scope of price effects differs as well. Again because it is swift and since competitors anticipate it, supply-side competition affects both pre-entry and post-entry prices, whereas potential entry affects only post-entry prices because the competition must be realized to be effective. 4.23  Given its more nebulous nature, potential competition may or may not be part of the market assessment in any given Article 102 case. As the Commission’s Notice explains, ‘If required, this analysis is only carried out at a subsequent stage, in general once the position of the companies involved in the relevant market has already been ascertained, and when such position gives rise to concerns from a competition point of view.’14

(b)  The geographic market 4.24  In addition to the product market definition, the second necessary element of defining a relevant market for an Article 102 assessment is determining the geographic scope of the market. Let us again start with the Commission Notice description: The relevant geographic market comprises the area in which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different in those area.15 Here the task is determining how far a consumer is willing to travel or transport a product when faced with a price increase for the first product of choice. 4.25  For physical goods, transport costs are among the most important factors determining the extent of a geographic market. Most durable goods, such as household appliances like dishwashers and refrigerators, are large, heavy, and therefore expensive to ship across locales. As a result, these products tend to have narrower, often local markets for end consumers. Likewise, location-specific services, such as railway and maritime shipping, typically have narrow local markets—sometimes comprising just one port or one city’s airports. This was the case in both Stena Sealink and Aéroports de Paris, where the Commission determined that a specific transport location constituted the relevant market.16 Obviously, if the service at (p. 181) issue is shipping out of a specific city, only shipping services located within or very nearby that city will be relevant. 4.26  When transport costs are low, however, the geographic limits of the market are often flexible. Software, for instance, has low or even zero transport costs (eg zero when it is offered as a service over the internet), so software markets may be defined narrowly by functionality, but are often global in geographic scope. Thus in both the Microsoft and PeopleSoft-Oracle matters, the Commission found global software markets.17 For those cases, the product market definition—the specific software applications and features that were determined to compete with one another—was paramount, while geography played a far lesser role as the geographic scope of sales was determined to be worldwide.

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4.27  For intangible goods, transport costs are irrelevant. In particular, intellectual property (IP) does not have geographic barriers per se, but rather legal barriers that define statutory regions. This flows from the fact that IP rights are granted by governments and hence are recognized only by the government doing the granting. For instance, an innovator must obtain a patent in each jurisdiction for which he wishes to obtain the rights of exclusion for her innovation, but if she chooses to do so she can generally obtain patents on the innovation in multiple jurisdictions. When multi-jurisdiction coverage is obtained, while the particular patent numbers will differ across locales and the specific patent claims may be written somewhat differently across the patents so as to be in accordance with local practice, for all intents and purposes the patented innovation is covered in a very broad geographic area. The question then becomes, as before, how do customers (licensees or consumers purchasing a product embodying the patent) see the product and which geographic areas should be included in the market according to customer behaviour. 4.28  Chains of substitution For either product or geographic market definitions, the products and services at issue may involve ‘chains of substitution’. It is often the case that drawing a bright-line circle around products clearly to define a market is quite difficult. Even though it might be clear that the extremes of the product or geographic spectrum would obviously not be in the same market, going stepwise through the products or areas does not offer a clear stopping point. In this circumstance, a somewhat arbitrary demarcation for the market is chosen, but allowance is made for ‘chains of substitution’ outside that market. Hence, certain products will be deemed indirect substitutes to products that fall within the relevant market, even though the indirect substitute products do not fall directly in the same market. 4.29  For example, suppose that it is determined that grocery stores are in the same relevant market if they are within ten minutes drive of one another. By this rule, stores A and B are considered to be in the same relevant market. A third store, C, is 20 minutes drive from store A, but is within ten minutes of store B, meaning that stores B and C would be in the same relevant market. Store C would therefore be considered to pose an indirect constraint on A. Because store C constrains the prices charged in store B, and store B constrains the prices charged in store A, store C indirectly constrains the prices charged in store A. More specifically, if store A attempted to raise its prices, it must consider whether store B will follow suit, or whether it will keep its prices relatively low and thus take customers away from A. Of course, in (p. 182) making its determination, store B will consider how store C will react. With store C not raising its prices, B will be less likely to raise its prices, even though A’s price increase means that competition with store A is softer and would allow B some leeway to increase its own prices. This chain of substitution mitigates store A’s incentive and ability successfully to increase its prices. 4.30  The chain of substitution line of reasoning has been applied in several Commission cases. One example is the AstaZeneca/Novartis herbicide case.18 There the Commission found that a chain of substitution linked two broad spectrum herbicides to one another, even though the products were not found to be in the same relevant market. The hypothetical monopolist test was used to establish the reasoning: the Commission concluded that a hypothetical monopolist would not find it profitable to raise the price of the herbicide at issue as that would lead to a drop in overall sales and profits as customers substituted to another of the broad spectrum herbicides. Thus, even though the products differed and were not considered direct substitutes, the Commission concluded that they nonetheless exerted price constraints on one another.

(2)  Methods for defining a relevant market

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4.31  The hypothetical monopolist test A number of constructs exist for measuring demandside substitution. One of the more prevalent is the hypothetical monopolist test (HMT). This test defines the narrowest market (collection of products plus geographic area) for which a single firm could sustainably raise prices or otherwise exercise market power. It is a ‘thought experiment’, since it defines a counterfactual that can only be estimated and cannot be known. It is also a flexible test in that it can use either quantitative or qualitative evidence, or both—although (reliable) quantitative evidence is always preferable. 4.32  Under this test, one asks how many customers will switch away from the good under investigation in response to a ‘small but significant and non-transitory increase in price’, or SSNIP. Common practice sets the SSNIP amount at 5–10 per cent. Thus the typical analysis selects a ‘candidate market’ or bundle of goods, assumes that the price of those goods increases by 5–10 per cent, and estimates how many customers would switch to goods outside the candidate market in reaction to the price increase. If that number is small enough that a hypothetical monopolist supplying the candidate bundle of goods would increase its profits by raising its price, then the next step would be to make the candidate market a bit smaller and again check whether a SSNIP of 5–10 per cent would be profitable for the hypothetical monopolist. If, however, it is found that a SSNIP would not be profitable for the candidate market, then products are added sequentially until a product market is obtained for which a 5–10 per cent price increase would be profitable for a hypothetical monopolist supplying the entire candidate market. The goal, then, is the smallest market for which such a price increase would be profitable for a hypothetical monopolist. 4.33  The HMT can also factor in supply-side substitution. The question in this case is whether and how many suppliers of products not included in the candidate market will react to a price increase by shifting their production to supply the now higher priced good, thereby increasing competition and lowering prices. (p. 183) 4.34  In conducting the HMT, recall that a price increase has two opposing effects for a supplier’s profits. Since profits equal price minus cost (referred to as net price or gross margin) multiplied by the quantity of goods sold, there are two elements we must consider: gross margin and quantity sold. The test assumes that costs remain the same, so any price increase will raise the gross margin, but it can also induce changes in quantities sold. For the hypothetical monopolist, then, the first effect is that a higher price translates into a higher profit margin, meaning that each sale made contributes more to the supplier’s overall earnings. On the other hand, consumers do not like higher prices and therefore tend to purchase less as prices rise, meaning that fewer sales are likely to be made when prices increase. In order for a supplier to benefit from raising prices, the first effect of a higher margin for a given unit of product sold must outweigh the second effect of fewer units being sold as prices rise. 4.35  Critical loss Another way to gauge demand-side substitution is the critical loss test. This test measures the price increase that just offsets the two reactions deriving from a price increase, leaving profits unchanged. In other words, the critical loss amount is the price increase that results in an increase in the gross margin just sufficient to offset the loss of profits stemming from a decline in the quantity sold. This level can then be compared to the drop in sales that is expected to result from a price increase for the undertakings under investigation. If the expected loss is greater than the critical loss, then a price increase will not be profitable and the party(s) are sufficiently constrained. Thinking of the problem in this fashion can be particularly helpful in merger contexts where the newly combined undertaking is expected to raise prices by some anticipated amount.

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4.36  Note that critical loss analysis is inappropriate in two-sided markets because it will lead to overly narrow market definitions. This follows because the formula fails to take into account the lost volume on the ‘B’ side of the market that stems from a price increase to the ‘A’ side.19 4.37  Statistical analysis We can also look at how the products within the candidate market react when prices outside that market increase. Specifically, we can calculate price correlations across two products over time. If the correlations are positive, then the supposed outside goods may actually belong inside the market, suggesting a broadening of the candidate market. However, observe that correlation is a scale variable that ranges from zero to one, and as such, the delineation for what constitutes a sufficiently ‘positive’ correlation is not clearcut. Moreover, the correlation may be spurious, caused, say, by a common shock that affects both products and has nothing to do with either demand-or supply-side substitution. Nonetheless, correlation can be one of the many tests that are considered when looking at market definition and can be used to corroborate findings obtained under another method. 4.38  Cointegration analysis is another useful statistical tool. Similar to simple correlations, cointegration tests whether two price series show the same, constant trend over time.20 Such a constant trend can be indicative of supply-side substitution, which continually draws rising (p. 184) prices back to their mean level. Cointegration has the advantage of measuring prices over time, so delayed price effects can be captured and common shocks (eg strikes, natural disasters) can be identified. 4.39  Data requirements But how, exactly, are HMT, the critical loss, and the other tests calculated? Clearly data of some sort are required. The candidate of choice is typically historical sales records. For instance, if the undertakings involved in the Article 102 investigation have company records of prices charged and quantities sold going back for any reasonable period, one can look for price change events and then calculate how the quantities sold changed in response in order to measure the demand-side substitution. 4.40  Full demand estimation through econometric methods (regression analysis) is the most sophisticated tool for assessing demand substitution and market definition, although the data demands are the greatest. While this most thorough approach is not feasible for many markets, for some it is quite common. For instance, with the ready availability of supermarket scanner data, economists now have access to detailed price and quantity data that enables a detailed calculation of price effects (eg price elasticities, customer switching patterns). Thus markets can be carefully delineated for consumer goods sold in groceries. 4.41  So-called ‘natural experiments’ are another favourite empirical approach among economists. A natural experiment occurs when some outside force (eg a strike, a flood, a war, a change in legislation) causes a demand shock wholly unrelated to market power to which consumers might react. Quantitative analysis then considers the price and quantity patterns before and after this shock. For example, the global oil price increases that took place in 2008–09 affected the prices of many goods for which transportation is a key cost component. One such particular good was milk, which experienced price increases of 20–25 per cent across Europe in 2009. If the Commission were faced with an Article 102 case involving milk sales, this natural experiment would have enabled an empirical test on consumers’ reactions to the price increase. One could check, for instance, whether milk consumption fell by any appreciable amount and whether soy milk consumption rose, as soy milk is a possible substitute for cow’s milk. If soy milk consumption did rise in reaction to an increase in the price of cow’s milk (holding the price of soy milk constant), then it might be reasonable to consider both cow’s milk and soy milk in the same relevant market.

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4.42  Questionnaires and surveys Less reliable, but certainly better than no data at all, are customer interviews, questionnaires, and surveys. Although surveys can cover large numbers of customers, in competition cases they are most often relatively small-scale endeavours asking some ‘representative’ group of customers what they would do if faced with a price increase of a particular good. The questions might elicit the names and brands of possible substitute goods or they might instead provide respondents with lists of possible substitutes and record their reactions. 4.43  Survey methods are less reliable than data sources providing evidence on actual customer behaviour, however. This follows because people answering hypothetical questions on their potential behaviour in reaction to something that has not actually occurred are known to make mistakes in judgment. In particular, people may provide the answer that they believe the interviewer wants to hear. Or they may simply be unable to predict their behaviour in the absence of real experience. Nevertheless, such indirect evidence is often the best one can muster. (p. 185) 4.44  Company documents Finally, if neither direct data on customer behaviour in the form of sales data nor indirect data in the form of surveys conducted for the case are available, we can review the internal documents of the undertakings for clues on the relevant market definition. In particular, strategic planning documents often identify the competitors and products that the undertakings consider to be their top rivals. Firms sometimes conduct studies on customer substitution as well, recording quantity changes as prices were adjusted. And they may have customer surveys or questionnaires conducted for internal business reasons (and therefore untainted by any desire to elicit certain responses for either support or defence against Article 102 allegations) that can inform on the relevant market. 4.45  Important caveats Regardless of the quality and detail of the data employed, none of the above tests is perfect. One particular concern is the so-called ‘cellophane fallacy’, named after the case in which it was first identified.21 The fallacy occurs when a SSNIP is applied to a firm that is already pricing at supra-competitive levels. Under that circumstance, the HMT or critical loss test may indicate that the undertaking cannot profitably raise its prices, and hence suggest that the firm does not have significant market power, simply because raising prices above the already-existing monopoly level would push customers to otherwise distant substitutes or to doing without the good altogether, thereby leading to a profit loss for the undertaking. In other words, a monopolist will already have set prices so as to maximize its profits, so naturally any additional price increase will lead to a profit loss. In this case, the test would falsely indicate that the firm has no market power. In US v du Pont, for instance, the Court found that du Pont, a leading producer of cellophane, was active on the ‘flexible packaging market’, and held on this market a share of approximately 20 per cent. However, the Court assessed the alternative for cellophane after du Pont had raised its cellophane prices to the monopoly level. Hence, the Court erroneously included imperfect substitutes in the relevant market. 4.46  To guard against the cellophane fallacy, one could estimate the competitive price before conducting a hypothetical monopolist test with a SSNIP or a critical loss test. In practice, however, if determining the competitive price were easy, we would not need to conduct any other tests. We could simply compare the actual price the undertaking was charging in the marketplace with the competitive one to assess that undertaking’s market power—we would not need any HMT or critical loss estimation. Alternatively, one could ignore the HMT test and instead rely on qualitative evidence to determine the relevant market. The point of the HMT and critical loss tests, however, is to provide meaningful structure to the assessment of markets, to ensure that physically similar products are included in the same market only when consumers view them as substitutes, and to identify those seemingly dissimilar products that should be included in a market because consumers substitute among them. It is difficult to impossible to achieve those goals through From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

qualitative analysis alone. As a result, the Commission’s Discussion Paper observes that ‘[t]he SSNIP test at prevailing prices remains useful in the sense that it is indicative of substitution patterns at those prices.’22 4.47  The best approach, then, is to conduct a SSNIP or critical loss test, but compare the results against other measures to ensure that the market has not been defined too broadly and thus falsely indicated a lack of market power. One way to do that is to consider multiple tests (p. 186) with qualitative checks, where consistent results among all of the evidence would offer the most reliable market definition.

B.  Dominance 4.48  In this section, we successively review the definition of dominance stemming from the case law of the EU Courts, the definition and assessment of ‘substantial market power’, the factors to be taken into account to determine the presence of dominance, and the notion of collective dominance.

(1)  Introduction 4.49  Once a relevant market has been defined, the next step in the Article 102 TFEU analysis is determining whether an undertaking is dominant on that market. Because this provision of EU competition law centres on the abuse of dominance, establishing the existence of that dominance is a necessary step in any Article 102 case. If an undertaking is not dominant, then there is no Article 102 TFEU case, although its behaviour may nevertheless fall under other EU competition law provisions (such as Article 101 in case of anticompetitive coordination).

(2)  The definition of dominance stemming from case law 4.50  In the seminal United Brands and Hoffmann-La Roche cases, the Court defined dominance as: 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, customers and ultimately of its consumers.23 4.51  Some authors have seen two elements in this definition, namely (i) the power to behave independently of competitors, customers, and consumers and (ii) the ability to prevent effective competition being maintained on the relevant market.24 However, it seems that on the legal ground, these elements are simply one and the same thing.25 This is confirmed by the rulings of the EU Courts which have never drawn any distinction between these elements. 4.52  Nonetheless, the formulation used by the Court of Justice is not entirely satisfactory. The concept of ‘acting independently’ does not provide an adequate basis for discriminating between dominant firms and non-dominant firms. No firm can act to an appreciable extent independently, since every firm, dominant or not, will be constrained by its respective (p. 187) demand curve, which is obviously affected by the presence of competitors and the behaviour and preferences of its customers.26 4.53  There is, of course, one important sense in which a dominant firm can act to an appreciable extent independently of its competitors. As Richard Whish notes, ‘the ability to restrict output and increase price derives from independence or, to put the matter another way, freedom from competitive constraint.’27 In the Guidance Paper, the Commission interprets the notion of independence in a similar manner by stating it ‘is related to the degree of competitive constraint exerted on the undertaking in question’.28 And that

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dominance ‘entails that these competitive constraints are not sufficiently effective and hence that the firm in question enjoys substantial market power over a period of time.’29 4.54  This, however, raises the question of what ‘substantial market power’ means, an issue on which, as will be seen in the next section, economists have done considerable thinking.

(3)  The definition and assessment of ‘substantial market power’ 4.55  From an economic perspective, competition can be said to be effective when no firm, either acting individually or in concert, is able to exercise substantial market power. Market power is a continuum and a very large number of firms possess some degree of market power. Dominance should therefore apply only to those firms that possess substantial market power or a very high degree of market power. The question then immediately turns on what counts as substantial market power, as opposed to insubstantial or insignificant market power. 4.56  Scholars and competition law enforcers have identified two forms of substantial market power. A first form of substantial market power concentrates on the ‘power over price’. In this respect, the Guidance Paper states that ‘an undertaking ‘which is capable of profitably increasing prices above the competitive level for a significant period of time does not face sufficiently effective competitive constraints and can thus generally be regarded as dominant.’30 The concept of ‘power over price’ is, however, not entirely satisfactory. First, it underplays the fact that substantial market power can be exercised on many other factors such as, for instance, quality, service, and innovation.31 Thus, a definition of substantial market power should also encompass the ability to lower quality or reduce the pace of innovation. Second, the suggested definition of this concept requires the identification of the competitive price level which is a notoriously daunting task, as explained in the section above. It is indeed virtually impossible to determine the competitive price level, and if that was possible, there would be no need to be concerned with the concept of dominance. 4.57  A second form of market power is the ‘power to exclude’.32 Identifying a firm as dominant because it has the power to exclude competitors is, however, problematic as the second (p. 188) element required by Article 102 TFEU is the presence of an abuse, generally taking the form of an exclusionary conduct. Thus, in any case where a firm has in fact engaged in exclusionary conduct satisfying the second element, one would think that would necessarily mean that the firm must have had the power to exclude rivals, thus satisfying the first element. But adopting that logic would largely conflate what are supposed to be separate legal elements, thus eliminating any screening effect from the dominance element. Moreover, non-dominant firms can also exclude their competitors from markets simply because they have better products, lower costs, lower prices, and so on. Hence, no correlation can be drawn between the power to exclude and dominance. 4.58  There does not seem to be any magic formula which can be readily used to determine the presence of substantial market power and thus dominance. What the Commission and the EU Courts have done is thus to rely on a variety of factors to determine whether a firm holds a dominant position, as will be discussed in the next section.

(4)  Factors to be taken into account to determine the presence of dominance 4.59  Based on the case law of the EU Courts, the Guidance Paper provides that in its assessment of dominance the Commission

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will take into account the competitive structure of the market, and in particular the following factors: •  constraints imposed by the existing supplies from, and the position on the market of, actual competitors (the market position of the dominant undertaking and its competitors); •  constraints imposed by the credible threat of future expansion by actual competitors or entry by potential competitors (expansion and entry); •  constraints imposed by the bargaining strength of the undertaking’s customers (countervailing buyer power). 33 We review hereafter these different factors.

(a)  Market position of the undertaking under investigation and its competitors 4.60  As the Commission notes in the Guidance Paper: Market shares provide a useful first indication for the Commission of the market structure and of the relative importance of the various undertakings active on the market.34 4.61  The Commission is undeniably correct in not overstating the importance of market shares as an indicator of dominance. In fact, market shares are at best a crude indicator of dominance,35 since they capture the undertaking’s position only in a static fashion, as can be illustrated by some examples. (p. 189) 4.62  As a first example, consider an undertaking that has 60 per cent of a particular product market in the year prior to the start of an Article 102 TFEU investigation. Three years prior, however, suppose that undertaking had a 90 per cent share of the same product market. A 60 per cent share with a downward trend is quite different from a 60 per cent share that has been increasing over time, or that has remained stable for many years. Significantly declining market shares can indicate a number of relevant competitive constraints—such as successful challenges from rival undertakings, ease of new firm entry, losses in bids for new business, and the like—that either preclude or are eroding an undertaking’s dominance. 4.63  As a second example, again consider an undertaking that has 60 per cent of a particular product market in the year prior to the start of the investigation. This time, however, suppose that the share the year before was 30 per cent and the share two years before was 75 per cent. If the relevant product market is characterized by suppliers bidding for projects, which they then supply for some specified period of time, such as one year, then a high share in one year is not evidence of dominance but simply of winning the bid for that year’s project. When the next project comes up for bid, if it will again be contestable by all firms in the market, then it may be that no undertaking is dominant. The key issue in this situation is therefore not shares in any one year, but the length of time any given project runs and whether the bidding process is open to other suppliers. 4.64  It is because of these counter examples and others like them that the Guidance Paper recognizes that market shares must be interpreted ‘in the light of the relevant market conditions’, including volatility and trends over time.36 4.65  While the Commission has offered no safe harbour below which shares would definitively preclude any finding of dominance, relatively low market shares (below 40 per cent per the Guidance Paper) are generally taken to indicate that the undertaking is not likely to be found dominant on the relevant market. Exceptions are admissible, however, such as when an industry faces capacity constraints.37 In that instance, even firms with low market share may be able to exercise market power because their rivals cannot react by increasing their own output. Relatively high market shares, on the other hand, will indicate that dominance is likely to be found, although here no specific number is given by the From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Guidance Paper (others, however, have suggested 70 per cent38). Moderately high shares (between 40–70 per cent) indicate that further investigation measures are needed to determine whether the undertaking is dominant. 4.66  In sum, the higher the share and the longer the time that high share is held by the undertaking, the more credence market share tends to be given as suggestive of dominance, although shares are generally not relied on as the sole evidence of dominance.

(p. 190) (b)  Expansion or entry 4.67  As competition is a ‘dynamic process’, the Guidance Paper notes that ‘an assessment of the competitive constraints on an undertaking cannot be based solely on the existing market situation’.39 Hence, the ‘potential impact of expansion by actual competitors or entry by potential competitors, including the threat of such expansion or entry, is also relevant.’40 4.68  It is generally admitted that ‘barriers to entry’ can take a variety of forms, including: •  Legal barriers to entry. For instance, undertakings enjoying exclusive rights to provide a given product or service (ie, statutory monopolies) will by definition enjoy a dominant position as no other firm can enter in the market to challenge them. •  Sunk costs. These are costs that must be incurred in order to compete on a given market, and that are not recoverable upon exit. Such costs include large capital investments (eg the building of a power station, large advertising expenses). 41 •  Economies of scale. In the presence of large economies of scale, a potential entrant may be deterred or delayed for a substantial period from entering the market due to the perceived difficulty of competing successfully against the incumbent who has already attracted such scale economies. The markets for online search and search advertising are a case in point. While many companies may be able to develop competitive search engines, the importance of scale in this sector is such that successful entry may not be possible. 42 •  Network effects. The presence of such effects, which occur where users’ valuations of a network increase as more users join the network, may make entry difficult. Social networks, such as Facebook, are characterized by significant network effects, which while not making entry impossible requires that a new entrant develop a strategy that will allow it to gain sufficient scale in a reasonably short period. •  Technological lead. The fact that an undertaking owns superior technology, which is for instance protected by IP rights, may represent a barrier to entry. That said, undertakings that once appeared dominant on a market because of superior technologies are regularly toppled by new entrants as may be observed in vibrant consumer electronic markets, such as videogames, MP3 players, smartphones, etc. •  Vertical integration/control of an ‘essential facility’. In some circumstances, a new entrant on a downstream market may be dependent on an input solely produced by another firm, which will then be considered as dominant on the upstream market for that essential input. 4.69  The concept of ‘barrier to expansion’ that is referred to in the Guidance Paper is different.43 While barriers to entry relate to the ability of firms outside a particular market to impose (p. 191) a constraint on the potential for exercising market power within the market, barriers to expansion relate to the ability of firms already operating in the market to impose a constraint on the potential for a firm or firms to exercise market power within the market. Thus, a firm holding a significant market share may not be able to increase prices as customers could turn to rivals able to expand their output. Barriers to expansion can be low even though barriers to entry are high. That would, for instance, be the case in a market which requires new entrants to undertake significant capital investment, such as From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

the construction of a power plant, the output of which could be increased at low cost as the market requires. On the other hand, a barrier to expansion exists when rivals are unable to expand output without incurring significant sunk costs. In the preceding example, this may be the case when the power plant in question is already working at full capacity, hence making an output increase dependent on incurring significant sunk costs (eg the construction of an additional plant). 4.70  While the Commission will entertain claims that the market in question in an investigation faces no barriers to entry or expansion, the Guidance Paper makes clear, however, that it will only consider that an undertaking can be deterred from increasing prices ‘if expansion or entry is likely, timely and sufficient’.44 In this respect, the Guidance Paper provides that to consider expansion or entry: •  ‘likely’ it ‘must be sufficiently profitable for the competitor or entrant, taking into account factors such as the barriers to expansion or entry, the likely reactions of the allegedly dominant undertaking and other competitors, and the risks and costs of failure’; 45 •  ‘timely’ it ‘must be sufficiently swift to deter or defeat the exercise of substantial market power’; and •  ‘sufficient’, it ‘must be of such a magnitude as to be able to deter any attempt to increase prices by the putatively dominant undertaking in the relevant market.’ 46 4.71  An aside on technology markets Patents are sometimes referred to as granting their holders a ‘limited monopoly’.47 In Sot Lélos kai Sia EE and Others v GlaxoSmithKline EVE, the Court of Justice held for instance that a medicine is protected by a patent which confers a temporary monopoly on its holder, the price competition which may exist between a producer and its distributors, or between parallel traders and national distributors, is, until the expiry of that patent, the only form of competition which can be envisaged.48 4.72  The essence of a patent is in fact a government-provided right to exclude others from use of the covered intellectual property for some specified period. The important distinction to bear in mind when considering patents and dominance, however, is that a patent will rarely define a relevant market. Indeed, while pharmaceutical and chemical patents may fully define a product, in most other industries patents tend to cover extremely narrow elements of a single product or service. In high technology, for instance, a particular piece of electronic hardware may be covered by thousands of complementary patents. As a result, the fact that the undertaking holds IP rights does not automatically translate into a finding (p. 192) of dominance. Voicing this point in its Magill decision, the Court of Justice found that ‘so far as dominant position is concerned … mere ownership of an intellectual property right cannot confer such a position.’49

(c)  Countervailing buyer power 4.73  Even after looking at market shares, as well as barriers to entry and expansion, we cannot conclude that a firm is dominant until we have considered the firm’s customers. Indeed, a dominant buyer can constitute an effective constraint on a seller regardless of market share and barriers to entry. As the Guidance Paper acknowledges on this point, ‘Competitive constraints may be exerted not only by actual or potential competitors but also by customers’.50

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4.74  The OECD has defined buyer power as ‘the ability of a buyer to influence the terms and conditions on which it purchases goods’.51 Naturally, if buyers are influencing the terms on which they buy goods, suppliers cannot be acting independently, as required by the definition of dominance. This possibility is now well established in EU Court precedent. For instance, in its Italian Flat Glass judgment, the GC criticized the Commission for failing even to consider the countervailing effects of buyer power.52 As with all forms of market power, buyer power is also a matter of degree. The important point here is whether a strong buyer or group of buyers has sufficient market power substantively to constrain an otherwise dominant supplier. 4.75  The steps required for assessing buyer power are analogous to those for determining dominance. First, a relevant market must be defined, this time the procurement market for customers of the undertaking at issue. Customer concentration is then estimated for that market, either in terms of the percentage of supplier demand accounted for by the largest buyer or group of buyers or in relative terms of buyer demand to seller supplier percentages. Finally, other factors influencing buyer power are assessed to either corroborate (or contradict) the findings suggested by the concentration measure. 4.76  In particular, buyer power can derive from a number of factors. In addition to the customer’s size or the share of revenues they comprise for the undertaking, buyers may also have an ability to self-supply (eg with a house brand for retailers) or they may be ‘unavoidable trading partners’ with whom a supplier must deal in order to reach the targeted customers. Buyers may be able to sponsor a new supplier or enable a smaller supplier to expand significantly, if the buyer’s sales alone constitute enough scale to support a new supplier. Or, buyers may simply be able to switch to an alternative product to discipline a supplier that attempted to raise prices. 4.77  Other routes are open to retailer and distributor buyers as well. For instance, if a retailer can delist a supplier from an acceptable vendor list, or credibly threaten to do so, it can thereby preclude the supplier from a meaningful distribution of its products. Likewise, changing (p. 193) distribution outlets may entail switching costs for the undertaking, which the distributor can take advantage of to obtain better wholesale terms. When the supplier has limited outside options, its bargaining power with the distributor/buyer will be impaired. In other words, the seller will not be able to make a credible threat to walk away from negotiations. To the extent that the buyer does have other options aside from the seller at issue, it will obtain appreciable bargaining power that can be used to improve the terms and conditions of its purchase. 4.78  When any of these circumstances exist, then even a supplier with substantial market share may be found not dominant. Indeed, with a strong enough single buyer (a monopsonist), even a monopolist can be adequately constrained so as to prevent dominance.

(5)  Collective dominance 4.79  Economic theory teaches that market power can be enjoyed by a single firm, but can also be jointly enjoyed by two or more firms. A classic way of jointly exercising market power is the formation of a cartel. However, absent any cartel or agreement, certain market conditions can in themselves induce independent firms jointly to exercise their market power. This may in particular happen on oligopolistic markets where prices rise and output decreases as a result of individual decisions taken by the operators, which do however take account of their interdependence in the framework of repeated interaction. This in turn leads to losses in allocative efficiency similar to those resulting from a cartel without, however, any collusive agreement being entered into.53 This issue, often referred to as the

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‘oligopoly problem’, has given rise to substantial practical difficulties in both the EU and the United States.54 4.80  As regards EU competition law, the concern for such market structures is not recent. In Dyestuff55 and Wood Pulp,56 the Court of Justice held that such practices could not be caught under the concept of ‘concerted practice’ pursuant to Article 101 TFEU. The question subsequently arose whether the application of Article 102 TFEU to the abuse of a dominant position held by ‘one or more undertakings’ could provide a basis for initiating legal action towards such market outcomes. Under the influence of the Commission, both the GC and the Court of Justice upheld a ‘collective dominance’ doctrine whereby anticompetitive oligopolistic outcomes could constitute an infringement of Article 102 TFEU (Section (a)).57 However, the EU Courts and the legislator further stretched this concept so as to encapsulate a number of other market configurations which are distinct from oligopolistic coordination settings (Section (b)). These judgments and decisions raise important concerns (Section (c)).

(p. 194) (a)  Collective dominance and oligopolistic anticompetitive coordination (i)  The Commission’s initial attempts to craft a doctrine of oligopolistic dominance

4.81  In the early 1960s, US scholars such as Professor Rahl suggested the development of a case law which would bring the ‘shared monopoly power’ of oligopolies within the reach of Section 2 of the Sherman Act.58 With the ambiguities surrounding the applicability of Article 101 TFEU to tacit collusion (and its progressive obstruction in Dyestuffs and Wood Pulp), European scholars followed a similar approach and turned to Article 102 TFEU. In contrast to Section 2 of the Sherman Act, however, the Treaty offers the ‘advantage’ of providing an explicit textual basis to this end.59 Article 102 TFEU indeed holds unlawful the ‘abuse by one or more undertakings of a dominant position’. 4.82  The first vindication of this possibility came in 1965. A group of professors appointed by the Commission to study the problems raised by the interpretation of Article 102 TFEU60 alluded to the possibility to apply abuse of dominance law to oligopolistic price leadership.61 In subsequent years, the idea gained traction, and a number of eminent scholars made similar proposals.62 Professor Joliet, for instance, argued that the wording of Article 102 TFEU embraced ‘collective market domination’ situations which, in turn, covered ‘the conjectural interdependence of action characteristic of tightly oligopolized industries’.63 4.83  The proposed interpretation of Article 102 TFEU remained, however, subject to contention. Literally, Article 102 TFEU refers to the ‘abuse by one or more undertakings’, and thus seems to cover the participation of several companies to an abuse, rather than a joint market position. Theologically, moreover, the Treaty drafters purported to target the so-called German Konzerns, that is, groups of firms that were legally distinct but subject to a unified economic management, including vertically related companies (mother and subsidiaries).64 4.84  This notwithstanding, in the early 1970s the Commission took a first try at the notion of collective dominance. In the midst of the 1973 oil crisis, the two main oil distributors in the Netherlands, BP and Gulf, had reduced supplies to one of their customers, ABG, meanwhile maintaining supplies to others. In a provisional Report, the Commission considered that BP and Gulf collectively held a dominant position on the Dutch market, and could thus be investigated for abuse under Article 102 TFEU.65 Whilst the final Decision in this case (p. 195) remained mute on collective dominance,66 the Commission reaffirmed, in subsequent years, its interest in the concept in several annual reports.67

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4.85  The growing willingness of the Commission to control oligopolies with Article 102 sparked resistance at the Court of Justice. In an obiter dictum, the Court held in HoffmannLa Roche that: a dominant position must also be distinguished from parallel courses of conduct which are peculiar to oligopolies in that in an oligopoly the courses of conduct interact, while in the case of an undertaking occupying a dominant position the conduct of the undertaking which derives profits from that position is to a great extent determined unilaterally.68 4.86  In subsequent cases, the Court systematically rebuff ed invitations from parties, Advocates General, and the Commission to apply the notion of collective dominance.69 (ii)  The Courts’ acceptance of the doctrine of collective dominance under Article 102 TFEU

4.87  Remarkably, the Court’s conservatism did not discourage the Commission from developing its first abuse of collective dominance case in 1988.70 In the Italian Flat Glass case, the Commission found that three producers of flat glass had unlawfully colluded pursuant to Article 101 TFEU and collectively abused a dominant position under Article 102 TFEU. According to the Commission, the market position of the various firms could be jointly examined, because the ‘undertakings present[ed] themselves on the market as a single entity and not as individuals’ (emphasis added).71 Given that the parties jointly controlled between 79–95 per cent of the market, they held a collective dominant position.72 4.88  The Decision was appealed before the newly born General Court (at the time ‘Court of First Instance’). The pleadings revolved around the expression ‘more undertakings’ enshrined in Article 102 TFEU. The parties and the UK Government sustained that this expression covered the situation of ‘undertakings [that] form part of one and the same single economic entity’—in other words corporate groups—whose internal agreements fall short of Article 101 TFEU.73 In contrast, the Commission offered a more extensive reading: the concept of a collective dominant position could be applied to wholly independent undertakings, (p. 196) provided that they present themselves ‘as a single entity and not as individuals’,74 in the presence for instance, of ‘structural links’ (eg a ‘systematic exchange of products’).75 4.89  To solve this of issue interpretation, the GC relied on the wording of the Treaty.76 When Article 101 TFEU refers to agreements between ‘undertakings’, it refers to relations between two or more economic entities capable of competing with one another.77 Hence, when Article 102 TFEU refers to ‘undertakings’, there is no legal or economic reason to suppose that the term has a different meaning.78 Consequently, a collective dominant position can be held by several independent undertakings that compete one against the other on a relevant market.79 4.90  While bringing this welcome clarification, the judgment however introduced a new uncertainty. The Court held that: there is nothing, in principle, to prevent two or more independent economic entities from being, on a specific market, united by such economic links that, by virtue of that fact, together they hold a dominant position vis-à-vis the other operators on the same market.80 (Emphasis added) 4.91  In the GC’s ruling, a finding of a collective dominant position is made conditional on the proof that the parties are united by ‘economic links’. From this point onwards, the scholarly debate on collective dominance focused almost exclusively on defining what constitutes ‘economic links’. Some contend that economic links cover direct (and possibly indirect) agreements amongst independent firms.81 Others argue that the notion of

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economic links encapsulates (also or only) the situation of interdependence found in tight oligopolies.82 (iii)  Clarifications in the field of merger control

4.92  Background The case law developed in the field of merger control—a 1989 Regulation introduced a merger control system in the EU—clarified that the second interpretation was the right one. In this new area of competition enforcement, the Commission has been granted the power to forbid mergers creating or strengthening a ‘dominant position’. The Commission progressively sought to develop a doctrine of collective dominance that could (p. 197) lead to the ex ante prohibition of oligopolistic mergers conducive to tacit collusion.83 Meanwhile, the Commission largely ignored the doctrine of collective dominance under Article 102 TFEU. It used the concept sporadically, in market situations remote from oligopolistic tacit collusion.84 4.93  The case law From 1992 to 1999, the Commission adopted a host of merger decisions in N estlé/Perrier (clearance with remedies), Kali und Salz (clearance with remedies), ABB/Daimler Benz (clearance with remedies), Gencor/Lonrho (prohibition), and Airtours v Commission (prohibition),85 which were all based on the theory that the proposed concentration would create or strengthen a collective dominant position, in the form of a tacitly collusive equilibrium. 4.94  The judgments delivered in the context of annulment proceedings against those decisions clarified that the notion of collective dominance captured tacit collusion. The ruling of the Court in France v Commission was the first to state that view, albeit implicitly. The Court ruled that parties may hold a collective dominant position ‘because of correlative factors which exist between them’.86 4.95  But the clearest pronouncements on this issue were yet to come. In Gencor Ltd v Commission, a case which concerns a 3–2 merger of two South African suppliers of platinum metal, the GC held that: there is no reason whatsoever in legal or economic terms to exclude from the notion of economic links the relationship of interdependence existing between the parties to a tight oligopoly within which, in a market with the appropriate characteristics, in particular in terms of market concentration, transparency and product homogeneity, those parties are in a position to anticipate one another’s behaviour and are therefore strongly encouraged to align their conduct in the market, in particular in such a way as to maximise their joint profits by restricting production with a view to increasing prices.87 4.96  A few years later, the Airtours plc v Commission judgment eliminated all remaining ambiguities. For the first time in the history of collective dominance, the Court explicitly talked of ‘tacit coordination’ in a judgment.88 This case is also (and primarily) known for refining the evidentiary conditions required to prove collective dominance, and bringing them in line with modern economic, game theory thinking. (p. 198) (iv)  Exportability of the EU Merger Regulation case law to Article 102 TFEU?

4.97  The above case law was developed in the area of merger control. The question thus arises whether it can be exported to the context of Article 102 TFEU. To this day, the issue still sparks disagreements amongst scholars and practitioners. Some argue against that view, insisting on the different goals of Article 102 and the EU Merger Regulation,89 or simply pointing out consequentialist arguments.90 Others consider that, in principle, there is no legal reason to treat the concepts of collective dominance differently under Article 102 and the Merger Regulation.91

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4.98  From a legal perspective, however, there are several reasons supporting that latter view. First, the notion of single firm dominance is interpreted similarly under both instruments. By parity of reasoning, a similar approach should prevail in relation to collective dominance. Second, the European Courts have endorsed this view. Many collective dominance ‘merger’ judgments cross-reference former Article 82 EC rulings. And subsequent Article 102 TFEU judgments quote the ‘merger’ cases as precedents. This is particularly clear in Compagnie Maritime Belge v Commission, a case that on the facts did not involve a situation of oligopolistic collusion.92 Confirming the exportability of the merger judgments to Article 102 settings, the Court quotes France v Commission as authority. Moreover, in this case, the Court borrows substantive concepts from the merger case law. With words reminiscent of the notion of ‘correlative factors’ established in France v Commission, the Court states for instance, that the existence of an agreement or of other links in law is not indispensable to a finding of a collective dominant position; such a finding may be based on other connecting factors and would depend on an economic assessment and, in particular, on an assessment of the structure of the market in question.93 Implicit in the Court’s ruling is thus the view that Article 102 harbours tacit collusion. 4.99  The ruling in Laurent Piau v Commission—again a case that does not deal with a situation of tacit collusion—will however dispel all remaining uncertainties.94 In this case, a football player’s agent had lodged a complaint with the Commission, in relation to restrictions FIFA placed on the exercise of his profession. The complainant argued that as an association of inde pendent football clubs, FIFA occupied a collective dominant position. In turn, FIFA was allegedly guilty of unlawful abuse, by excluding certain football players’ agents from the (p. 199) market. Following several modifications of FIFA regulations, the Commission dismissed the complaint. 4.100  The complainant challenged the Commission’s decision to turn down his complaint before the GC. In its judgment, the GC found that the football clubs held a collective dominant position by virtue of their membership of FIFA.95 Yet, while the GC could arguably have confined its reasoning to this sole finding (ie, the football clubs entertained structural links), it proceeded to add, citing expressly the Airtours merger case law, that: Three cumulative conditions must be met for a finding of collective dominance: first, each member of the dominant oligopoly must have the ability to know how the other members are behaving in order to monitor whether or not they are adopting the common policy; second, the situation of tacit coordination must be sustainable over time, that is to say, there must be an incentive not to depart from the common policy on the market; thirdly, the foreseeable reaction of current and future competitors, as well as of consumers, must not jeopardise the results expected from the common policy.96 4.101  With explicit references to ‘oligopoly’ and ‘tacit coordination’, the Laurent Piau v Commission judgment makes clear that the concept of collective dominance under Article 102 TFEU covers situations of tacit collusion.97 The subsequent case law of the EU Courts, in particular in Bertelsmann AG v Impala, will confirm this.98 (v)  The enduring low-enforcement practice of the Commission

4.102  As the Commission has trust in its ability to prevent tacit collusion situations under Regulation 139/2004,99 or in the context of sector-specific regulatory frameworks,100 it has

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been extremely cautious in launching Article 102 TFEU proceedings on the basis of the collective dominance doctrine. 4.103  In addition, among the few collective dominance decisions adopted by the Commission, there has been so far been no Article 102 TFEU case where oligopolistic interdependence was held to constitute a sufficient connecting element required for a collective dominant position.101 In most cases, the Commission was able to adduce evidence of close links between the companies and the Commission’s reliance on the collective dominance concept might be (p. 200) explained by the willingness to circumvent Article 101(3) exemptions or immunity from fines.102 4.104  In the debates leading to the adoption of the Discussion Paper and the Guidance Paper, several stakeholders urged the Commission to clarify whether it intended to enforce Article 102 TFEU where there were only connecting factors in the form of pure oligopolistic interdependence.103 4.105  Faced with a new stream of Article 102 TFEU rulings, the Commission made a number of pronouncements on the issue. In 2005, it expressly confirmed in its Discussion Paper on Article 102 that collective dominance could apply outside ‘the existence of an agreement or of other links in law’ and that a finding of collective dominance could ‘be based on other connecting factors and depends on an economic assessment and, in particular, on an assessment of the structure of the market in question.’104 The Commission also provided guidance on the conditions necessary for the purposes of establishing collective dominance. Remarkably, the Commission alluded for the first time to the notion of abuse of collective dominance, indicating that such abuses were typically collective, rather than individual.105 4.106  In 2009, however, the Commission endorsed a more conservative approach, which sets the current enforcement paradigm. With the release of the Guidance Paper, the Commission seemed to confirm its lack of interest in the enforcement of Article 102 TFEU in tacitly collusive oligopolies. Whilst the Guidance Paper confirms the theoretical applicability of the concept of collective dominance,106 it focuses only on ‘single dominant positions’ as a matter of enforcement priority. That said, the Guidance Paper is not binding on national competition authorities (NCAs), which remain therefore free to run abuse of collective dominance cases on the basis of both Article 102 and national legislation. (vi)  The uncertain contours of the notion of abuse of a collective dominant position

4.107  Over the years, the case law has vastly expanded the boundaries of Article 102 TFEU. At least in principle, Article 102 may apply to tacit collusion. As a result, firms active in oligopolies should take a cautious stance as they can now be found guilty of abuse, even if they do not hold a position of single firm dominance. 4.108  It is important to note, however, that the case law does not prohibit tacit collusion. As explained previously, holding a dominant position, including a collectively dominant one, is not unlawful per se. What is forbidden to oligopolists, however, is to abuse a collective dominant position. And the case law on what constitutes an ‘abuse’ of collective dominance remains murky. Scholars are especially divided on whether the conventional notion of (p. 201) abuse, crafted by the Courts in relation to single firm dominance, applies also to collective dominant positions.107 Given the low level of enforcement of the collective dominance, this issue may remain unsettled for years.

(b)  Other settings in which collective dominant positions can be identified 4.109  As explained, besides oligopolistic markets, the concept of collective dominance has also developed in different configurations. This has been essentially so for legal reasons.

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(i)  Collective dominance as the cumulative effect of individual dominant positions on distinct markets

4.110  Initially, the concept of collective dominance seemed to apply only where one relevant market was concerned. This is apparent in the (often overlooked) wording of the GC in Flat Glass where the Court held that two or more independent firms could be jointly dominant ‘ on a specific’, ‘ same market’.108 4.111  Subsequently, the concept of collective dominance was however extended to situations where several undertakings enjoyed a dominant position respectively on different markets.109 The reason for this extension is of a legal nature. Article 102 TFEU requires, for a finding of a dominant position, that there is a dominant position ‘within the common market or in a substantial part of it’. In Almelo and La Crespelle, several firms enjoyed a dominant position on a number of distinct and narrow geographic markets.110 Taken one by one, the dominant position of each firm did not seem to affect a substantial part of the common market. However, in a fashion similar to the cumulative effect doctrine under Article 101 TFEU, the Court considered that it was possible to aggregate individual dominant positions on different markets under the concept of collective dominance, so that a substantial part of the common market was affected.111 4.112  This case law raises important legal questions. First, the Commission never itself enforced Article 102 TFEU in situations of this type. These cases referred to above reached the Court of Justice through preliminary rulings. There is therefore some uncertainty as to whether the Commission would pursue such cases. Second, most of these cases could potentially have been dealt with under national law.112 It would thus be welcome if the Commission could clarify its position on this issue and state whether there is a ‘cumulative effect’ doctrine under Article 102 when several small companies each hold a single dominant position on neighbouring geographic markets. In addition, the Commission should explain why such situations of ‘minor geographic importance’ should not be left to national law.

(p. 202) (c)  Collective dominance short of the single economic entity doctrine 4.113  A further setting where collective dominance situations have been found consists in undertakings related to the same group that operate at different levels within the supply chain (and thus on different markets113), but that are not sufficiently integrated to form a single economic entity and can thus be are found individually dominant. This situation, often referred to as ‘vertical collective dominance’, arose in the Irish Sugar case.113a In that decision, the Commission wanted to put an end to a series of abuses entered into by a supplier and its distributor. The latter was under the control of the former but the two of them did not meet the conditions set by the Court of Justice for a finding of a single economic entity.114 Thus they formed two distinct economic units. Only part of the anticompetitive practices could have been brought to an end pursuant to Article 101 TFEU as some of them were purely unilateral to the distributor. These practices could not be caught under Article 102 either, because there was no evidence that the distributor held an individual dominant position. The Commission thus linked the practices of the distributor to the dominant position of the supplier by relying on the concept of collective dominance. 4.114  The Irish Sugar judgment, although isolated, is problematic in several respects. It could indeed extend the ‘special responsibility’ bearing on dominant undertakings not to impair competition to their distributors and trading partners.115 While in Irish Sugar a number of factual elements suggested that the producer held a significant control (through close management relationships) over the distributor, it remains to be seen whether, in a case where control would not be so strong, undertakings could be considered jointly dominant.116 Absent any enforcement after the Irish Sugar case, there is some uncertainty whether the Commission will actively scrutinize the trading partners of dominant

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companies or whether it only intends to do so in very specific instances, such as the ones at stake in that case.

(d)  Collective dominance and legislative/regulatory measures 4.115  A number of plaintiff s have also tried to invoke the collective dominance concept in order to challenge national laws on the basis of Article 102 TFEU and the former Article 10 EC. In all these cases, the Court of Justice rebutted the claims. In Spediporto, Bassano, and Sodemare, the Court considered that the national laws at hand could not lead to a collective dominant position, because the undertakings were not linked sufficiently so that there was no com petition at all between them.117 The standard for holding that national legislation creates (p. 203) collective dominant positions is thus that the undertakings be sufficiently linked between themselves that they adopt the same conduct on the market, that is, that they do not compete with each other. 4.116  In spite of the negative stance taken by the Court to the above cases, a number of authors nonetheless argue that State liability cannot be excluded in theory.118 Some even call on the Commission to bring enforcement proceedings against Member States that would, through legislation, create or strengthen a market structure that is conducive to anticompetitive behaviour (eg a collective dominant position that could lead to potential abuses). A clarification on this issue by the Commission would therefore be welcome.

(e)  The test for collective dominance in oligopolistic settings 4.117  In Compagnie Maritime Belge, the Court of Justice defined the test for a finding of collective dominance: It follows that the expression one or more undertakings in Article 86 of the Treaty [now Art 106 TFEU] implies that a dominant position may be held by two or more economic entities legally independent of each other, provided that from an economic point of view they present themselves or act together on a particular market as a collective entity…. So, for the purposes of analysis under Article 86 [now Art 106] of the Treaty, it is necessary to consider whether the undertakings concerned together constitute a collective entity vis-à-vis their competitors, their trading partners and consumers on a particular market. It is only where that question is answered in the affirmative that it is appropriate to consider whether that collective entity actually holds a dominant position and whether its conduct constitutes abuse.119 4.118  Two steps are thus necessary in order to find a collective dominant position.120 First, there must be a ‘collective entity’ (Section (i)). Second, the identified collective entity must enjoy a dominant position. Classically, the assessment of dominance is made by reference to market shares as well as the other parameters that were outlined in our single dominance discussion (Section (ii)). (i)  The existence of a collective entity

4.119  Pursuant to the case law, a collective entity may be found either when some ‘economic links’ exist between the undertakings or when some ‘correlating factors’ lead them to behave as a common entity. While the concept of economic links not only covers oligopoly and can help in finding collective dominance in other market configurations (ie, Almelo, Irish Sugar, etc), the concept of correlating factors seems exclusively to target situations of oligopolistic interaction. 4.120  It is in relation to the latter concept that there remains some legal uncertainty. In Laurent Piau, the GC set the legal test for tackling oligopolistic interdependence taking the form of tacit coordination under Article 102 TFEU cases. Borrowing from its merger case law, and in particular from Airtours, it held that three cumulative conditions must be fulfilled for a (p. 204) finding of collective dominance, namely: (i) oligopolists can monitor

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adherence to a tacitly collusive equilibrium; (ii) oligopolists can punish deviation from the tacitly collusive equilibrium;121 and (iii) current and future competitors, as well as consumers, are unable to jeopardize the tacitly collusive equilibrium.122 New texts have added a fourth requirement, namely that oligopolists share a common understanding of the tacitly collusive policy.123 4.121  A number of subsequent judicial pronouncements (again in the field of merger control) blurred the simplicity of the above standard. In Impala v Commission, the Court held that: in the context of the assessment of the existence of a collective dominant position, although the three conditions … which were inferred from a theoretical analysis of the concept of a collective dominant position, are indeed also necessary, they may, however, in the appropriate circumstances, be established indirectly on the basis of what may be a very mixed series of indicia and items of evidence relating to the signs, manifestations and phenomena inherent in the presence of a collective dominant position. 4.122  Against this background—and absent any practical guidance from individual cases— the sole possible interpretation of those judgments suggests that in Article 102 TFEU cases, a finding of ‘collective entity’ requires either: (i) the observance of a certain degree of parallel behaviour amongst oligopolists (the manifestation of the ‘collective entity’) or (ii) the satisfaction of the three conditions articulated by the GC in Laurent Piau v Commission (the explanation for the ‘collective entit y’). 4.123  Now, given that merger control has a number of features that make it different from Article 102 TFEU proceedings, it can be questioned whether the test should be enforced in a similar fashion.124 4.124  A first issue concerns the burden of proof lying on the Commission. In the context of the EU Merger Regulation, the Airtours conditions aim at predicting a risk of future tacit coordination. In contrast, the approach under Article 102 TFEU aims at showing that parallel pricing has actually occurred because of market features that were conducive to tacit collusion. A flawed decision can always be adopted under the Merger Regulation. However, under Article 102, a risk also exists that a parallel price increase, for instance, be sanctioned where it does not result from tacit coordination (when, eg, price competition was constrained because of national legislation or because the price increase was caused by underlying cost increases).125 For this reason, while one should tolerate a margin of appreciation under the Merger Regulation given the predictive nature of the assessment, the standard of proof under Article 102 should be more stringent. Because information not available to the Commission in merger proceedings is generally available in ex post enforcement scenarios, it seems (p. 205) reasonable to require the Commission to establish with a great degree of care the existence of tacit coordination. 4.125  This is particularly true with respect to the substantive conditions laid down in Airtours. As far as the second condition is concerned, the GC specifically noted in Airtours that the Commission did not have to bring evidence of the existence of a specific retaliatory mechanism. Rather it just had to show that a potential retaliatory mechanism might give incentives to firms not to deviate.126 The backward looking nature of Article 102 allows a better assessment of whether the collective action is the direct consequence of the existence of a retaliatory mechanism. Therefore, the Commission should be required, unlike under the Merger Regulation test, to show that a specific retaliatory mechanism existed and exerted a deterrent effect that led the oligopolists to stick to a common line of action.

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4.126  Equally, the transposition of the third Airtours condition within Article 102 proceedings could be debated. Under this condition, the Commission should prove that the ‘foreseeable’ reaction of current and potential competitors as well as consumers would not jeopardize the expected results of the common policy. However, if an anticompetitive effect resulting from an abusive practice has been observed, it probably implies that potential competition was not sufficient and that the jointly dominant undertakings could actually behave independently of their actual and potential competitors, as well as consumers.127 Nevertheless, this does not mean that the Commission should not analyse the question of potential competition within Article 102 proceedings.128 On the contrary, the Commission should prove that the undertakings could effectively implement tacit coordination because of the absence of countervailing power from their customers as well as actual and potential competitors. 4.127  Another related issue concerns the degree to which—in support of its finding of a collective entity—the Commission should produce evidence that competition between the oligopolists is hampered. In Airtours, the GC held: The evidence must concern, in particular, factors playing a significant role in the assessment of whether a situation of collective dominance exists, such as, for example, the lack of effective competition between the operators alleged to be members of the dominant oligopoly and the weakness of any competitive pressure that might be exerted by other operators.129 4.128  In TACA, the GC however added that: there can be no requirement, for the purpose of establishing the existence of such a dominant position, that the elimination of effective competition must result in the elimination of all competition between the undertakings concerned.130 4.129  This ruling is unclear because it does not say how much competition between the oligopolists should be hampered to lead to a finding of collective dominance. There could be, for instance, a risk that even where operators compete on a number of parameters, they could nevertheless (p. 206) be found to enjoy a collective dominant position.131 This would be quite problematic. In certain industries, operators might not compete on price compete on a wide range of other parameters (quality, innovation, commercial services, etc) which should limit findings of a ‘collective entity’. For instance, in the oil sector, or the tobacco sector, price competition is to a large extent constrained by the cost of raw material, the homogeneity of products, or taxation. This does not preclude operators from competing fiercely on these markets. It is thus submitted that competition agencies should focus on markets where there is a lack of effective competition on a large range of parameters. (ii)  Assessment of dominance

4.130  Whether or not the assessment of collective dominance should be carried out in a similar fashion to that of individual dominance is an open question.132 In particular, reliance on market shares may not be as decisive in collective dominance settings as in single dominance ones. While an undertaking may be presumed to enjoy an individual dominant position if it has a very large market share, a finding of collective dominance may not be reached even in the presence of a very large market share. For instance, if the collective entity enjoys a 70 per cent market share, but there is important product differentiation, a lack of transparency, the ability to exercise collective market power seems plausible. This is why there should not be any presumption of collective dominance on the basis of the identification of a high collective market share in an oligopolistic market.

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III.  The Notion of Abuse 4.131  For Article 102 to apply, it must be demonstrated that the dominant firm has committed one or several abuses on the market(s) in question. Article 102 prohibits two main categories of abuses, exclusionary abuses (Art 102(b) and (d)) and exploitative abuses (Art 102(a)), which are respectively dealt with in Sections A and B below. Article 102 also prohibits certain forms of price discrimination (Section C below).

A.  Exclusionary Abuses 4.132  In this section, we successively review the concept of exclusionary abuse and the various forms of exclusionary abuses.

(1)  The concept of exclusionary abuse 4.133  We review hereafter the concept of exclusionary abuse as traditionally interpreted in the case law of the EU Courts and the decisional practice of the Commission. We then discuss the gradual evolution away from a form-based approach to the concept of exclusionary abuse to an effects-based approach.

(p. 207) (a)  The case law of the EU Courts and the decisional practice of the Commission 4.134  Although the case law of the EU Courts and the decisional practice of the Commission comprise a large number of decisions dealing with Article 102, the notion of exclusionary abuse has historically been extremely vague. As pointed out by Temple Lang and O’Donoghue in 2005: ‘no currently-applied definition has sufficient normative content to be applied ex ante as a normative rule by firms making pricing decisions or embarking on a given course of conduct.’133 4.135  The concept of exclusionary abuse has been given a variety of different meanings. In Hoffmann-La Roche, for instance, an exclusionary abuse was defined as a behaviour which, through recourse to methods different from those which condition normal competition in products or services on the basis of transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition.134 The notion of ‘normal competition’ is inherently vague and cannot be the basis for distinguishing competitive behaviour from anticompetitive one. 4.136  In other cases, the Commission and the Courts suggested that exclusionary abuse should be distinguished from ‘competition on the merits’135 and that dominant undertakings have a ‘special responsibility’ not to allow their conduct to impair genuine undistorted competition.136 Unfortunately, the notions of ‘competition on the merits’ and of ‘special responsibility’ fare no better when it comes to assessing the compatibility with Article 102 of unilateral conduct by dominant firms. The fact that a dominant firm has a special responsibility does not say much about what that responsibility entails. In Atlantic Container, the GC held that this term ‘means only that a dominant undertaking may be prohibited from conduct which is legitimate where it is carried out by non-dominant undertakings.’137 This statement, however, says nothing about what type of conduct that is legitimate for non-dominant firms is illegitimate for dominant ones. The notion of ‘competition on the merits’ is equally unhelpful. As pointed out in an OECD briefing paper trying to define the contours of the notion: that phrase has never been satisfactorily defined. This has led to a discordant body of case law that uses an assortment of analytical methods. That, in turn, has

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produced unpredictable results and undermined the term’s legitimacy along with policies that are supposedly based on it.138

(p. 208) (b)  From a form-based approach to effects-based approach to exclusionary abuses (i)  The form-based approach pursued by the EU Courts and the Commission

4.137  In addition to the lack of a workable definition of the notion of exclusionary abuses, the case law of the EU Courts and the decisional practice of the Commission were often criticized for its ‘formalism’.139 4.138  In the field of rebates, for instance, the case law condemned various forms of rebates without the need to show that these rebates generated exclusionary effects driving equally efficient rivals out of the market.140 That formalistic approach was not only at odds with the effectsbased approach put forward by scholars and practitioners, but also created the risk that dominant firms would not engage in pro-competitive behaviour because of the fear of breaching Article 102. (ii)  The modernization of Article 102 and the 2005 Discussion Paper

4.139  Roughly at the time Neelie Kroes became Competition Commissioner, DG COMP expressed the intention to move away from its form-based approach and embrace the effectsbased approach it had already adopted with respect to the enforcement of Article 101. The first step in that direction came with the major policy speech given by Commissioner Kroes at the Fordham international antitrust conference in September 2005 in which she declared that she was convinced that the exercise of market power must be assessed essentially on the basis of its effects in the market, although there are exceptions such as the per se illegality of horizontal price fixing…. Article [102] enforcement should focus on real competition problems: In other words, behaviour that has actual or likely restrictive effects on the market, which harm consumers. [ … ] Low prices and rebates are, normally, to be welcomed as they are beneficial to consumers.141 4.140  Commissioner Kroes’ speech was immediately followed by a Commission Discussion Paper on Article 82 EC (now Art 102 TFEU),142 which promoted the very effects-based approach announced by the Commissioner. While the new economics-based principles guiding the approach proposed in the Discussion Paper were largely welcomed by commentators, the ways in which the Commission proposed to analyse certain categories of conduct were criticized as too reminiscent of the old formalistic approach.143 The Commission was of course operating under tight constraints. First, it was ‘prisoner’ to the unhelpful case law to which it had in large measure contributed. Second, a number of highly sensitive cases (p. 209) were still being investigated144 or were subject to appeal145 at the time and the Commission did not want to tie its hands. That said, the Discussion Paper largely met its objective of stimulating debate as it was subject to abundant commentary, conferences, and events. (iii)  The 2008 Guidance Paper

4.141  The next steps for the Commission were not clear as there was, for instance, speculation on whether the Discussion Paper would be turned into guidelines. While Commission officials were regularly recalling the Commission’s intention to pursue an effects-based approach, no further move was made for almost three years before the Commission published a Guidance Paper on its enforcement priorities in applying Article 82 EC (now Art 102 TFEU) to abusive exclusionary conduct by dominant undertakings (hereinafter, the ‘Guidance Paper’).146 This document is of a sui generis nature as it ‘sets out the enforcement priorities that will guide the Commission’s action in applying Article [102] to exclusionary conduct by dominant undertakings.’147 The Commission does not From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

therefore state or restate the way in which Article 102 should be interpreted, a task which falls within the exclusive remit of the Court of Justice, but explains the circumstances in which a given dominant firm’s conduct is likely to be subject to enforcement action by the Commission.148 4.142  The Guidance Paper focuses only on exclusionary abuses leaving aside exploitative abuses and price discrimination. The Guidance Paper seeks to address the two criticisms referred to above. First, the Guidance Paper seeks to provide a definition of anticompetitive foreclosure (which is another formulation of the notion of exclusionary abuse) that carries more substance than the vague and largely unhelpful definitions mentioned above. Second, the Guidance Paper signals that the Commission will pursue an effects-based approach in its enforcement of Article 102 TFEU. 4.143  The Guidance Paper defines the term ‘anticompetitive foreclosure’ as a situation where effective access of actual or potential competitors to supplies or markets is hampered or eliminated as a result of the conduct of the dominant undertaking whereby the dominant undertaking is likely to be in a position to profitably increase prices to the detriment of consumers.149 (p. 210) This definition suggests that a two-stage test will be relied upon to assess whether a given conduct is anticompetitive. In accordance with such test the Commission should first establish the presence of foreclosure and then prove that such foreclosure will harm consumer welfare. The reference to consumer welfare is important as it suggests that a conduct that would merely affect the ‘structure of competition’ by, for instance, eliminating less efficient competitors but that would have no effect on prices or on the quality of products, or innovation, and thus would not harm consumers, would not lead to enforcement action by the Commission under Article 102. It is thus the presence of likely consumer harm that will trigger the intervention of the Commission. 4.144  The Guidance Paper then lists a number of factors that will generally be relevant to its assessment of foreclosure, including: the position of the dominant undertaking, the conditions on the relevant market, the position of the dominant undertaking’s competitors, the position of the customers or input suppliers, the extent of the allegedly abusive conduct, possible evidence of actual foreclosure, and direct evidence of any exclusionary strategy.150 This list triggers two observations. First, the majority of these factors relate to the ‘structure of the market’, which is surprising considering the Commission’s apparent attempt to move away from the ordo-liberal perspective. Second, none of these factors relate directly to the assessment of harm to consumer welfare, which is again quite surprising considering the emphasis placed on consumer harm in the definition of anticompetitive foreclosure provided for in the Guidance Paper. The Guidance Paper merely says that ‘[t]he identification of likely consumer harm can rely on qualitative and, where possible and appropriate, quantitative evidence’.151 In this respect, the rather cursory treatment of consumer harm in the Commission’s Intel decision is not particularly reassuring.152 4.145  Finally, the Guidance Paper indicates that the Commission will normally intervene under Article 102 where there is ‘cogent and convincing evidence’ that the allegedly abusive conduct ‘is likely to lead to anticompetitive foreclosure’.153 It also provides that the assessment of a given conduct will be made by comparing the actual or likely future situation in the relevant market (with the dominant undertaking’s conduct in place) with an appropriate counterfactual, such as the simple absence of the conduct in question or with

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another realistic alternative scenario, having regard to established business practices.154 4.146  The Guidance Paper also contains a section dealing with price-based exclusionary conduct. It states that to prevent anticompetitive foreclosure, the Commission ‘will normally only intervene where the conduct concerned has already been or is capable of hampering competition from competitors which are considered to be as efficient as the dominant undertaking.’155 As the objective of competition is not to protect (less efficient) competitors, the ‘as efficient test’ is certainly conceptually correct, although its application may at times raise significant difficulties.156 (p. 211) 4.147  The Guidance Paper states that the cost benchmarks the Commission will normally use to perform the ‘as efficient competitor’ test are the average avoidable cost (AAC) and long-run average incremental cost (LRAIC).157 In practice, when the effective price of a product is not sufficient to cover the AAC of producing the good or service in question (P e < AAC),158 this means that the dominant firm sacrifices profits in the short term and that an ‘as efficient competitor’ will not be able to serve the targeted customers without incurring a loss.159 Failure to cover LRAIC (P e < LRAIC) indicates that the dominant firm is not recovering all the fixed costs of producing the good or service in question and that an ‘as efficient competitor’ could be foreclosed from the market.160 4.148  The Guidance Paper provides that if the data clearly suggest that an as efficient competitor can compete effectively with the dominant firm’s price conduct, the Commission will ‘in principle’ infer that this conduct is unlikely adversely to impact effective competition, and thus consumers, and will therefore be unlikely to intervene.161 If, by contrast, the data suggest that the price charged by the dominant firm has the potential to foreclose as efficient competitors, the Commission will integrate this into the general assessment of anticompetitive foreclosure, taking into account other relevant quantitative and/or qualitative evidence (see the foreclosure analysis discussed at paras 4.143ff).162 This language is important as it makes clear that under the Guidance Paper the performance of a price-cost test is necessary, but not sufficient to determine the presence of foreclosure. Indeed, while a price-cost test may establish that by granting aggressive rebates to a given customer a dominant firm may foreclose as efficient competitors from such a customer, the demand of that customer may be insufficient (because it, eg, only represents 5 per cent of the overall demand) to drive as efficient competitors from the market. 4.149  Unfortunately, while the Guidance Paper rightly states that in cases of alleged pricing abuses the Commission will base its assessment on an ‘as efficient competitor’ test, it provides that the Commission may in certain circumstances deviate from the ‘as efficient’ standard to protect less efficient competitors: the Commission recognises that in certain circumstances a less efficient competitor may also exert a constraint which should be taken into account when considering whether a particular price-based conduct leads to anticompetitive foreclosure. The Commission will take a dynamic view of this constraint, given that in the absence of an abusive practice such a competitor may benefit from demand-related advantages, such as network and learning effects, which will tend to enhance its efficiency.163 4.150  This approach is regrettable since it leaves dominant firms in a situation of uncertainty. They may decide not to grant some forms of pro-competitive rebates (eg above cost discounts) due to the fact they are concerned by the possible antitrust implications.164

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Even if there are (p. 212) settings where above-cost pricing could arguably lead to foreclosure, such settings seem very rare to say the least.

(2)  The various forms of exclusionary abuses 4.151  We successively review the following categories of conduct that may be found to be exclusionary abuses: exclusive dealing, conditional rebates, tying, predatory pricing, and refusal to supply and margin squeeze.

(a)  Exclusive dealing (i)  Exclusive purchasing

4.152  An exclusive purchasing obligation is an agreement to sell a product on the condition that a customer on a particular market purchase exclusively, or to a large extent, only from the dominant undertaking. Such agreements have possible anticompetitive effects, but may also generate redeeming efficiencies. 4.153  The major anticompetitive concern raised by exclusive dealing agreements is that such agreements might foreclose enough of the market to competitors to impair competition.165 Such foreclosure may impede entry or expansion of rivals in the market, or accelerate their exit from the market, hence increasing the market power of the excluding firm.166 4.154  More particularly, exclusive purchasing may inflict competitive harm for the following reasons. First, most industries are subject to economies of scale, meaning that firms can lower their costs by expanding until they reach the output level that minimizes their costs, which is called the minimum efficient scale.167 If foreclosure prevents a competitive number of rivals from maintaining this scale, or from expanding their operations to reach it, then it impairs their efficiency. Second, foreclosure can similarly deprive rivals of economies of scope if, without the foreclosure, rival expansion would have enabled them to offer a variety of products that can be more efficiently produced or sold together than separately. Third, most industries are characterized by a learning curve, so that substantial foreclosure of the market can impair rival efficiency by simply slowing down rival expansion even though it does not outright prevent that expansion. Fourth, even if rivals are able to achieve their minimum efficient scale and scope of production, foreclosure that bars rivals from the most efficient suppliers or means of distribution (downstream exclusive dealing) can also impair rival efficiency by increasing their costs. Finally, dominant firms may foreclose rivals by denying them access to key inputs by making exclusive deals with the sellers (upstream exclusive dealing). (p. 213) 4.155  If rival efficiency is impaired in any of these ways, then rivals will have to cover their now higher costs by charging higher prices than they otherwise would have. In the extreme case, these higher prices will be unsustainable, and thus rival entry will be deterred and existing rivals will be eliminated. But even if foreclosure reduced rival efficiency without outright eliminating them, it will worsen the market options available to consumers, and mean that these rivals will impose less of a constraint on the defendant’s market power than they otherwise would have. This can thus enhance or maintain that market power even if it does not eliminate rivals or bar their entry. 4.156  The Guidance Paper indicates that, while some customers may benefit from exclusive agreements (because they receive compensation, such as rebates and other forms of price incentives, in return for buying all or most of their needs from the dominant firm), the Commission will focus its attention on those cases ‘where it is likely that consumers as a whole will not benefit’.168 This would in particular be the case if there are many buyers and the exclusive purchasing obligations of the dominant undertaking, taken together, have the effect of preventing the entry or expansion of rival firms. An agreement whereby a customer representing 10 per cent of the total demand for the product in question agrees to source that product exclusively from the dominant supplier cannot foreclose rivals if that is

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the only agreement of that type. Problems arise when the dominant supplier concludes exclusive agreements covering a large fraction of the total demand. 4.157  The Guidance Paper notes that some factors will be of particular relevance in determining whether the Commission will intervene against exclusive purchasing arrangements. The capacity for exclusive purchasing obligations to result in anticompetitive foreclosure arises in particular where an important competitive constraint is exercised by competitors who either are not yet present in the market at the time the obligations are concluded, or who are not in a position to compete for the full supply of the customers because, for instance, the dominant undertaking’s brand is a ‘must-stock’ item.169 In contrast, if rivals can compete on equal terms for each individual customer’s entire demand, exclusive purchasing obligations are generally unlikely to hamper effective competition unless the switching of supplier by customers is made difficult by the duration of the exclusive purchasing obligation. The Guidance Paper observes that ‘the longer the duration of the obligation, the greater the likely foreclosure effect’.170 4.158  Although exclusive dealing agreements can have anticompetitive effects, they also have many possible redeeming efficiencies.171 They might, for instance, reduce uncertainty about whether future sales will occur at the contractually set price. This can give suppliers the contractual commitments they need to invest in capital intensive projects (eg banks may only agree to fund the construction of a power plant if they have guarantees that the owner of the plant will be able to sell its power). While customers may not be willing to commit to buy large volumes of the product in question (in case their needs for this product end up being lower than anticipated), they may be more amenable to commit to buy the totality of their needs from the supplier, whatever those needs might be, hence providing it with at least the assurance that the buyer will take all it can profitably use.

(p. 214) (b)  Conditional rebates 4.159  While the granting of rebates is a common commercial practice largely used by dominant and non-dominant firms, the assessment of rebates is one of the most complex and unsettled areas of competition law. In the EU, the decisional practice of the European Commission and the case law of the EU Courts have been harshly criticized as unnecessarily strict, following a form-based approach that sits uneasily with modern economic theory.172 In response, in its 2005 Discussion Paper, the Commission promoted an effects-based approach to the assessment of rebates. This approach was then confirmed in the Guidance Paper. (i)  The concept of conditional rebates

4.160  Although, as will be seen, the case law of the EU Courts refers to several different concepts, such as fidelity rebates, volume rebates, or target rebates, these forms of price incentive all belong to the broader category of conditional rebates, which cover different incentive schemes granted by a supplier to its customers or distributors/retailers provided that the latter’s purchases or sales achieve or exceed certain thresholds formulated in terms of volume targets, percentages of total requirements, or increase in purchases.173 4.161  Conditional rebates can be classified into different categories. For instance, Ahlborn and Bailey distinguish rebates, according to: •  the type of thresholds which, as noted in the definition above, can be defined in terms of volume targets (quantity rebates) or percentage of total requirements (market-share rebates) or increase in purchases (growth rebates). When the percentage required is 100 per cent, we can speak of exclusive rebates;

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•  the scope of application, whether they are forward-looking, that is, they apply to incremental units above the threshold (incremental rebates) or backward-looking, that is applying to both units below and above the threshold (retroactive rebates or roll-back rebates); •  the products or set of products to which they apply, whether they apply to one category of products (single-product rebates) or across several distinct products (multi-product or bundled rebates). 174 4.162  This section will classify rebates according to the way they operate and their potential effects on competition. It distinguishes between single-product and multi-product (bundled) rebates. It also distinguishes between conditional175 and unconditional176 rebates and, as far as conditional rebates are concerned, between incremental and retroactive rebates.

(p. 215) (ii)  Effects of conditional rebates 4.163  While rebates may in limited circumstances be granted for exclusionary purposes, this is the exception rather than the rule.177 This is evidenced by the fact that both dominant and non-dominant firms (the latter having no power to exclude) resort to various types of rebates, including conditional rebates, to increase their sales with resulting efficiencies, such as the realization of economies of scale, the faster recovery of fixed costs, etc.178 As pointed out in a report commissioned by the UK Office of Fair Trading (OFT) on Selective Price Cuts and Fidelity Rebates: The pervasive use of … non-cost-related discounts by firms without market power demonstrates that there are many non-exclusionary motives for using discount schemes.179 4.164  There is thus no reason to presume that a given regime of conditional rebates produces anticompetitive effects, hence placing the burden on the dominant firm to prove that its rebates are objectively justified or generate valuable efficiencies, which is a notoriously difficult task. Given that there are many pro-competitive rationales for the granting of rebates by dominant firms to their customers, such a presumption is totally unwarranted and unreasonable. In this respect, the OFT Report notes that: Theory does not suggest that dominant firms would usually use discount schemes to harm competition. In turn, theory does not support a presumption that discounts employed by dominant firms should be presumed to have anti-competitive effects unless they can be ‘justified’ with an efficiency rationale. Given this, a requirement that discounts must be ‘justified’ could chill price competition where firms are discouraged from employing beneficial discounts due to the burden of having to justify them to the authorities.180 (iii)  Decisional practice of the Commission and case law of the EU Courts preceding the adoption of the Guidance Paper

4.165  Over the last 30 years, the EU Courts adopted a number of important judgments addressing the compatibility of rebates with Article 102 TFEU. 4.166  In Hoffmann-La Roche, Roche had entered into ‘fidelity agreements’ with 22 large purchasers of vitamins which had the following main features. Roche paid a rebate to those customers who had obtained all or most of their requirements from Roche calculated on vitamin total purchases. The amount of the rebate differed from customer to customer and

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typically varied between 1–5 per cent, although one customer received rebates of 12.5–20 per cent. (p. 216) 4.167  The Court of Justice ruled that a dominant firm violates Article 102 when it applies, either under the terms of agreements concluded with these purchasers or unilaterally, a system of fidelity rebates, that is to say discounts conditional on the customer’s obtaining all or most of its requirements—whether the quantity of its purchases be large or small.181 The Court considered that such rebates were incompatible with the objective of undistorted competition within the common market, because ‘they are not based on an economic transaction which justifies this burden or benefit but are designed to deprive the purchaser of or restrict his possible choices of sources of supply and to deny other producers access to the market.’182 The Court of Justice also established a distinction between fidelity rebates and volume rebates by stating that the fidelity rebate, unlike quantity rebates exclusively linked with the volume of purchases from the producer concerned, is designed through the grant of a financial advantage to prevent customers from obtaining their supplies from competing producers.183 4.168  The next important judgment of the Court of Justice was in Michelin I, in which Michelin offered its dealers an annual variable discount based on the dealer’s turnover in Michelin heavy vehicle, van, and car tyres in the previous year. The dealer received the discount, or the full rate thereof, only if it achieved an annual sales target set by Michelin. Neither the discount as a whole nor the scale of discounts was published by Michelin. The Commission concluded that this discount scheme violated Article 102184 and Michelin appealed the decision to the Court of Justice. 4.169  The Court observed that the rebate in question, which was characterized by the use of sales targets, did not fit within the distinction made in Hoffmann-La Roche between ‘fidelity’ and ‘volume’ or ‘quantity’ rebates. The rebates used by Michelin were not merely based on the purchase of a certain amount of tyres by its distributors. The system in question did not require dealers to enter into any exclusive dealing agreements or to obtain a specific proportion of their supplies from Michelin. The Court considered that in deciding whether Michelin had committed an abuse it was therefore necessary to consider all the circumstances, particularly the criteria and rules for the grant of the discount, and to investigate whether, in providing an advantage not based on any economic service justifying it, the discount tends to remove or restrict the buyer’s freedom to choose his sources of supply, to bar competitors from access to the market, to apply dissimilar conditions to equivalent transactions with other trading parties or to strengthen the dominant position by distorting competition.185 4.170  Applying this approach, the Court of Justice first found that the discount systems based on a long reference period, such as the one-year period used by Michelin, had ‘the inherent effect, at the end of that period, of increasing pressure on the buyer to reach the purchase figure needed to obtain the discount or to avoid suffering the expected loss for the entire (p. 217) period.’186 The Court also found that, due to the retroactive nature of the discount system used by Michelin, ‘the variations in the rate of discount over a year as a result of one last order, even a small one, affected the dealer’s margin of profit on the whole year’s sales of Michelin heavy-vehicle tyres.’187 Hence, even slight variations could put dealers under appreciable pressure. The Court further criticized the lack of transparency of Michelin’s discount system considering its rules changed on several occasions during the relevant period. Moreover, neither the scale of discounts nor the sales targets or discounts From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

relating to them were communicated in writing to dealers, which meant that they were left with uncertainty and on the whole could not predict with any confidence the effect of attaining their targets or failing to do so. The Court concluded that all those factors were instrumental in creating for dealers a situation in which they were under considerable pressure, especially towards the end of a year, to attain Michelin’s sales targets if they did not wish to run the risk of losses which its competitors could not easily make good by means of the discounts which they themselves were able to offer.188 4.171  A few years later, Michelin had another brush with the Commission regarding a complex rebates regime comprising different components. First, Michelin paid rebates to its dealers based on the quantity of tyres they purchased the year before. The rebates system provided for an annual refund expressed as a percentage of the turnover achieved by the dealer with Michelin, the rate increasing gradually according to the quantities purchased. Michelin’s general conditions provided for three scales, depending on the tyres in question (all types, heavy plant tyre, and retreads). In 1995, for example, the rebates ranged, in the case of retreads, from 2 per cent on a turnover of over 7,000 French Francs to 6 per cent on a turnover in excess of 3.92 million Francs. Michelin also paid a service bonus based on its assessment of whether the dealer had earned various service points. The bonus ranged from 0–1.5 per cent during the period 1980–91 and from 0–2.25 per cent for the period 1992–96. Finally, Michelin also offered additional bonuses, including: (i) a progress bonus based on increased purchases from the prior year; (ii) a PRO bonus based on a combination of progress, quantity of tyres returned for retreading, and total output; and (iii) a Michelin Friends Club bonus for promotion of Michelin tires. The Commission deemed the above an abuse of a dominant position, fining Michelin €19.76 million and prohibiting it from engaging in the conduct again.189 Michelin appealed to the GC. 4.172  The GC first reviewed the argument made by Michelin that its quantity rebates did not infringe Article 102. The GC recalled that quantity rebate systems linked solely to the volume of purchases made from a dominant firm are generally considered not to have the foreclosure effect prohibited by Article 102. If by expanding the quantity supplied the supplier is able to lower its costs, it is entitled to pass on that reduction to the customer in the form of a lower price. When the rate of the discount increases according to the volume purchased, a rebate will not infringe Article 102 (p. 218) unless the criteria and rules for granting the rebate reveal that the system is not based on an economically justified countervailing advantage but tends, following the example of a loyalty and target rebate, to prevent customers from obtaining their supplies from competitors.190 The approach followed by the GC is therefore quite restrictive as quantity rebates will only comply with Article 102 provided that the amount of the rebate is directly linked to the cost savings realized thanks to the greater volume of supply. 4.173  Following the approach pursued by the Court of Justice in Michelin I, the GC indicated that it would look at all the relevant circumstances to determine whether the rebates were exclusionary. In this respect, the GC first sought to determine whether the rebates had a loyaltyinducing effect. In its decision the Commission inferred that the rebates were loyalty-inducing in light of the fact that the discount was calculated on the dealer’s entire turnover with Michelin and the fact that the reference period applied for the purpose of the discount was one year. The GC observed that

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if a discount is granted for purchases made during a reference period, the loyaltyinducing effect is less significant where the additional discount applies only to the quantities exceeding a certain threshold than where the discount applies to total turnover achieved during the reference period. In the latter case, the saving which may be made by reaching a higher scale applies to total turnover achieved whereas, in the former case, it applies only to the additional amount purchased.191 4.174  In other words, the GC observed that retroactive rebates where the rebate will apply to all the units sold once a quantity threshold is exceeded and not only to the incremental units sold create a strong loyalty-inducing effect. The GC noted that the applicant did not provide any information showing that the rebate in question was based on a countervailing advantage which could be economically justified or if it rewarded an economy of scale made by the applicant because of orders for large quantities. The GC ruled that the Commission was entitled to conclude, in the contested decision, that the quantity rebate system at issue was designed to tie truck tyre dealers in France to the applicant by granting advantages which were not based on any economic justification. 4.175  As regards the service bonus system put in place by Michelin, the GC examined whether the Commission was correct to find that the service bonus was unfair, because of the subjectivity of the assessment of the criteria giving entitlement to the bonus. Here again, the GC supported the Commission as the GC considered that a discount system applied by a dominant undertaking, which leaves that undertaking a considerable margin of discretion as to whether the dealer may obtain the discount must be considered unfair and constitutes a breach of Article 102: Because of the subjective assessment of the criteria giving entitlement to the service bonus, dealers were left in uncertainty and on the whole could not predict with any confidence the rate of discount which they would receive by way of service bonus.192 4.176  Finally, the GC rejected the argument made by the applicant that the Commission should have carried out a detailed analysis of the effects of the rebates in question. The GC considered (p. 219) that for the purposes of establishing a breach of Article 102, it is sufficient to show that the abusive conduct of the dominant firm ‘tends to’ restrict competition or, in other words, that the conduct ‘is capable of’ having that effect. Hence, for the purposes of applying Article 102, ‘establishing the anti-competitive object and the anticompetitive effect are one and the same thing’.193 If it is shown that the object pursued by the conduct in question is to limit competition, that conduct will also be liable to have such an effect. In this respect, the GC found that the Commission demonstrated that the purpose of the rebate systems applied by Michelin was to tie its dealers, and these systems tended to restrict competition because they sought, in particular, to make it more difficult for the Michelin’s competitors to enter the relevant market.194 4.177  In British Airways, the Court of Justice endorsed the judgment of the GC, in which it had considered that the Commission was correct in finding that British Airways’ (BA) rebates were in breach of Article 102.195 BA had concluded agreements with UK travel agents accredited by the International Air Transport Association (IATA) entitling them to a basic standard commission on their sales of BA air tickets. In addition to that basic commission system, BA concluded agreements with IATA travel agents comprising three distinct systems of financial incentives: marketing agreements, global agreements, and, finally, a performance reward scheme.

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4.178  In its appeal to the Court of Justice, BA claimed inter alia that the GC had made an error of law in its assessment of the exclusionary effect of the bonus schemes in question; that the GC erred in finding that BA’s bonuses were not based on an economically justified consideration as it is economically justified for an airline to reward travel agents which allows it to increase its sales and help it to cover its high fixed costs by bringing additional passengers; and that the GC failed to examine whether BA’s conduct involved a prejudice to consumers as required by Article 102(b) TFEU. 4.179  Citing Michelin I, the Court of Justice observed that an exclusionary effect may arise from goal-related discounts or bonuses, that is, those the granting of which is linked to the attainment of sales objectives defined individually, and that BA’s bonus schemes in question were of such a nature.196 Furthermore, the Court noted that an exclusionary effect also occurred when the rebates in question were of a retroactive nature, which was again the case with BA’s bonus schemes. The exclusionary effect of retroactive rebates was particularly strong when the dominant firm in question holds a market share that is subsequently higher than its competitors, which was again the case with BA. 4.180  The Court of Justice also rejected BA’s claim that its bonus schemes could be economically justified as it is justified for an airline to reward travel agents which allows it to increase its sales and helps it to cover its high fixed costs by bringing additional passengers. As to Michelin’s reference to the prejudice of consumer interests referred to in Article 102(b), discounts or bonuses granted by dominant undertakings may be contrary to Article 102 ‘even where they do not correspond to any of the examples mentioned in the second paragraph of that article.’197 Moreover, Article 102 ‘is aimed not only at practices which may (p. 220) cause prejudice to consumers directly, but also at those which are detrimental to them through their impact on an effective competition structure.’198 (iv)  The Guidance Paper

4.181  The Guidance Paper seeks to move away from the terminology traditionally used by the Commission and the EU Courts, which relied on concepts such as fidelity rebates, quantity rebates, or target rebates, towards the clearer notion of ‘conditional rebates’, which it defines as ‘rebates granted to customers to reward them for a particular form of purchasing behaviour.’199 While the Guidance Paper acknowledges that conditional rebates are not an uncommon practice, it notes that such rebates—when granted by a dominant undertaking—can also have actual or potential foreclosure effects similar to exclusive purchasing obligations.200 4.182  The Guidance Paper makes a distinction between single-product rebates (ie, rebates applying to one product) and multi-product or bundled rebates (ie, rebates applying across several products). The Guidance Paper discusses bundled rebates as part of its section on tying, but as such rebates raise issues analogous to single-product rebates, we will analyse them as part of this section. 4.183  Single-product rebates The Guidance Paper details several factors that it considers to be of particular importance in determining whether a given system of conditional rebates is liable to result in anticompetitive foreclosure. 4.184  As with exclusive purchasing obligations, the Guidance Paper indicates that anticompetitive foreclosure is more likely to occur where the dominant undertaking’s rivals are not able to compete on equal terms for the entire demand of each individual customer. The reason is that a conditional rebate granted by a dominant undertaking may enable it to use the ‘non-contestable’ portion of the demand of each customer (ie, the amount that would in any event be purchased by the customer from the dominant undertaking) as

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leverage to decrease the price to be paid for the ‘contestable’ portion of demand (ie, the amount for which the customer may prefer and be able to find substitutes).201 4.185  The concern expressed in the Guidance Paper can be illustrated as follows. Let us assume that a dominant supplier sells to a particular company. The supplier has an assured base of sales to that customer because, for a portion of the customer’s demand, there are no proper substitutes.202 These sales represent the non-contestable share of that company’s demand. However, the portion of the customer’s demand for which substitutes are available is the contestable share of that customer’s demand.203 The dominant supplier offers the company a retroactive rebate. This gives the customer a rebate over all the quantities sourced if it purchases more than the rebate threshold level within the reference period.204 This scenario is illustrated by Figure 4.1. 4.186  The competition concern is that when the non-contestable part (NC) of the customer demand in question is large compared to the contestable part (C), that is, when NC > C, the (p. 221) View full-sized figure

Figure 4.1  Retroactive rebate scheme retro active rebate may allow the dominant supplier to leverage its position of strength in the non-contestable to the contestable part of a customer’s sales. Indeed, while the dominant supplier can recoup the rebate on its overall sales including both contestable and non-contestable parts (ie, the dominant firm does not incur losses on the whole range of sales), competing suppliers will have to recoup the rebate over a smaller base represented by the contestable part. This retroactive rebate scheme could thus have the effect of excluding equally efficient rivals from that part of the customer’s sales that would otherwise be contestable. 4.187  Echoing the position expressed by the EU Courts, the Guidance Paper also notes that ‘retroactive’ rebates may foreclose the market significantly, ‘as they may make it less attractive for customers to switch small amounts of demand to an alternative supplier, if this would lead to loss of the retroactive rebates.’205 In this respect, the higher the rebate as a percentage of the total price (eg a 20 per cent rebate, which is a large rebate) and the higher the threshold (eg the fact that the 20 per cent rebate would be granted when the buyer purchases more than 90 per cent of its requirements from the dominant firm), the greater the inducement below the threshold (this indictment being sometimes referred to as the ‘suction effect’206) and, therefore, the stronger the likely foreclosure of actual or potential competitors. 4.188  Moving away from the formalistic approach pursued by the EU Courts, the Guidance Paper provides that the Commission intends to investigate ‘to the extent that the data are available and reliable’ whether the rebate granted by the dominant firm is capable of hindering the expansion or entry even of ‘as efficient’ competitors by making it more difficult for them to supply part of the requirements of individual customers.207 (p. 222) 4.189  The Commission will estimate what price a rival would have to offer to the buyer that has received a conditional rebate from a dominant firm in order to compensate this buyer for the loss of that rebate if the latter would switch part of its demand, which is referred to as the ‘relevant range’, away from the dominant undertaking. The price that the competitor will have to match is not the average price of the dominant undertaking, but the From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

normal (list) price less the rebate it loses by switching (ie, the ‘effective price’), calculated over the relevant range of sales and in the relevant period. 4.190  The Guidance Paper provides that for incremental rebates, the ‘relevant range’ is normally the incremental purchases (ie, the purchases made beyond the threshold set by the dominant firm for granting the rebate) that are being considered. For retroactive rebates, it will generally be relevant to assess in the specific market context how much of a customer’s purchase requirements can realistically be switched to a rival (the ‘contestable share’ or ‘contestable portion’). 4.191  Against this background, the Guidance Paper provides that: •  Where the effective price remains consistently above the LRAIC of the dominant undertaking, this would normally allow an equally efficient competitor to compete profitably notwithstanding the rebate. In those circumstances the rebate is normally not capable of foreclosing in an anticompetitive way. •  Where the effective price is below AAC, as a general rule the rebate scheme is capable of foreclosing even as efficient competitors. •  Where the effective price is between AAC and LRAIC, the Commission will investigate whether other factors point to the conclusion that entry or expansion even by as efficient competitors is likely to be affected. In such a case, the Commission will investigate whether and to what extent rivals have realistic and effective ‘counterstrategies’ at their disposal, for instance their capacity also to use a ‘noncontestable’ portion of their buyer’s demand as leverage to decrease the price for the relevant range. 208 4.192  A simple numerical example can be used to clarify the leverage mechanism described by the Commission in the Guidance Paper. Suppose that Customer A will always buy 50 units that are available only from the dominant supplier, so the assured base or the non-contestable share Q A NCS = 50 Units. But the customer’s total demand Q A T = 100 Units, and the remaining 50 units could be satisfied by products sold by either the dominant supplier or one of its competitors. Thus the contestable share Q A CS = 50 Units .The AAC = $1/Unit. The LRAIC = $2/Unit. 4.193  The dominant supplier offers the following pricing scheme. The customer pays $4/ Unit if it buys any quantity less than 100 units. So P Before Rebate = $4/Unit if Q < 100 Units. But if the customer buys 100 units (Q = 100 Units) it receives a rebate R worth $120 in total, or $1.2 for each of the 100 units bought in total. P After Rebate = $2.8/Unit if Q = 100 Units. To determine whether there is a suction effect, the Guidance Paper requires the calculation of (p. 223) the effective price, P e, for the units that belong to the contestable share and then to see whether this price is inferior to the dominant supplier’s ATC. P Before Rebate = $4/Unit P After Rebate = $2.8/Unit = $4/Unit—$1.2/Unit Contestable share C = 50 Units ➔Total With rebate = 100 × $2.80 = $280 ➔Total Without rebate = 50 × $4 = $200 Total With rebate – Total Without rebate = $280 – $200 = $80 is being paid for the last 50 contestable units The effective price (P e) over the last 50 = $80/50 = $1.6 As AAC < P e < LRAIC ➔ the Commission will look at whether the dominant firm’s rivals have counterstrategies

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4.194  Among the factors taken into consideration by the Commission in its assessment is whether the threshold set by the dominant firm is ‘individualized’ or ‘standard’. The importance of this distinction comes from the fact that while an ‘individualized’ threshold allows the dominant supplier to set the threshold at such a level as to make it difficult for customers to switch suppliers, a standardized volume threshold may be too high for some smaller customers and/or too low for larger customers to have a loyalty-enhancing effect.209 The loyalty-inducing effect is thus probably stronger for individualized thresholds than standard ones. 4.195  The Guidance Paper indicates that the Commission will be willing to consider ‘claims by dominant undertakings that rebate systems achieve cost or other advantages which are passed on to customers’.210 The Guidance Paper is, however, rather cryptic as to the categories of cost advantages that will be accepted by the Commission, merely providing that transactioncost related advantages are often more likely to be achieved with standardized volume targets than with individualized ones. As to other efficiencies, the Guidance Paper limits itself to noting that incremental rebates are generally more likely to give resellers an incentive to produce and resell a higher volume than retroactive rebate schemes without, however, explaining why this is the case.211 4.196  The Guidance Paper would have benefitted from a broader review of the various ‘efficiencies’ or pro-competitive effects that have often been associated with rebates and other forms of price concessions, such as: •  Price reduction: the most obvious effect of rebates is to reduce the prices of the firm offering the rebate to the direct benefit of its customers. 212 This also stimulates price cuts by other competitors which, in turn, enable firms on downstream markets to decrease their prices to their own customers. •  Economies of scale and faster fixed costs recovery: in industries with high fixed costs, such as innovative industries (information technology, pharmaceutical research, etc) rebates allow suppliers to increase output and, in turn, recover their fixed costs more rapidly (since (p. 224) they will be able to achieve economies of scale by spreading their fixed costs over larger volumes) resulting in lower average total costs and prices for consumers. 213 •  Economies of scope and reduction of transaction costs: multi-product rebates can allow businesses to achieve economies of scope and reduce transaction costs as buyers are able to obtain the requirements for different products from a single supplier. 214 •  Avoiding double marginalization: rebates assist in avoiding ‘double marginalization’ if the dominant firm’s customer also enjoys substantial market power, because there is a risk that absent the rebates, the price would be higher than the price which would prevail if a vertically integrated monopolist was operating on the market. 215 •  Preventing hold-up: in certain cases, the rebate system may be necessary to provide the incentive for the dominant supplier to make certain relationship-specific investments to supply a particular customer. 216 This may be the case when supplying a customer requires the supplier to invest in new technologies, new production, or even build a production plant. Conditional rebates may be the most efficient way to give the type of assurances needed by the supplier to engage in such investments. •  Supplementary services: rebates may also be an effective way of providing incentives for customers to supply complementary services (product promotion, etc), hence aligning the incentives of the customers with those of the supplier. 217

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4.197  Bundled rebates In a multi-product rebate setting, a dominant supplier might be assured of a certain level of sales from a customer if that customer’s demand is spread across several different products, and the dominant supplier is the only company able to offer some of those products.218 In this case, a multi-product scheme can work in the same way as a single product one—to leverage the dominant company’s position of strength in the assured base into the contestable part of a customer’s sales. 4.198  The test proposed by the Commission in its Guidance Paper is that: If the incremental price that customers pay for each of the dominant undertaking’s products in the bundle remains above the LRAIC of the dominant firm from including this product in the bundle, the Commission will normally not intervene since an equally efficient competitor with only one product should in principle be able to compete profitably against the bundle. Enforcement action may however be warranted if the incremental price is below the LRAIC, because in such a case even an equally efficient competitor may be prevented from expanding or entering.219 (p. 225) 4.199  This test can once again be illustrated through a simple numerical example. Assume that the dominant supplier sells two products, X and Y. Product X is only offered by the dominant supplier, but Product Y is offered by both the dominant supplier and some efficient rivals. Customer A will always buy 50 units of Product X from the dominant supplier, so this supplier has an assured base of 50 units (Q X A NCS = 50 Units). But the customer also has a demand for 50 units of Product Y (Q Y A CS = 50 Units), and these sales could be contested by efficient entrants or rivals, so there is a contestable market of 50 units. The LRAIC of producing one unit of X and Y is similar, that is, $2. 4.200  The dominant supplier offers the following multi-product rebate scheme. The customer pays $4 per unit for either product if they buy any aggregate quantity less than 100 units. So P Before Rebate = $4/Unit if Q < 100 Units. But if they buy 100 units they are given a rebate worth $120 in total, or $1.20 per unit for each of the 100 units bought in total. So P After Rebate = $2.8/Unit if Q = 100 Units. As the methodology and the figures are the same as in the example used above, the result will be the same. The effective price (P e) over the 50 contestable units of Product Y is $80/50 = $1.6. As P e < LRAIC, the rebate creates a suction effect. 4.201  Assessment of the effects-based approach of the Guidance Paper While the logic of the suction effect test proposed by the Commission is attractive and such a pricecost test represents major progress compared to the formalistic approach pursed by the EU Courts, this test has been severely criticized by legal and economic scholars as uncertain, impracticable, and likely to lead to serious mistakes as it applies to single-product rebates.220 4.202  First, the numerical example taken above, which is in line with the Commission’s own example in the Discussion Paper, is highly stylized (ie, simplified) and relies on a number of assumptions (the threshold is set above the amount that the buyer would purchase from the dominant company in the absence of any rebate, the NC is above C and the respective size of NC and C do not fluctuate, etc), which are not likely to hold in practice.221 Moreover, this test may be complex to apply—and thus prone to implementation errors—to certain categories of rebates. This may, for instance, be the case with respect to rebates taking the form of ‘grids’ whereby the level of the rebate varies in small incremental steps depending on the performance of the buyer.222 This may explain why the Commission takes a particularly cautious stance in the Guidance Paper as it indicates that it

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‘will take into account the margin of error that may be caused by the uncertainties inherent in this kind of analysis.’223 4.203  That said, the most significant difficulty raised by the suction effect test relates to the deter-mination of the size of the contestable share of a given customer’s demand.224 The suction (p. 226) effect test relies on the assumption that the dominant supplier controls a part of the demand of the customer to which it gives a rebate (or, in the case of multiproduct rebates, the dominant supplier sells a product needed by the customer in question and for which there is no alternative supplier), which will be its assured base. It also assumes that this assured base (and thus the non-contestable part of the customer’s demand) is large (as otherwise, the dominant firm would not be able to leverage its control of the non-contestable part to the contestable part).225 4.204  The test is quite intuitive for multi-product rebates, where it is easy to distinguish between the competitive and non-competitive products since they are distinct. As far as single-product rebates are concerned, it is by contrast difficult to determine in practice whether—and, if so, the extent to which—the demand of a given customer for a particular product or service is contestable. Several factors should play a role in this determination: •  Switching costs: when such costs are significant, they may have the effect of locking-in customers with the dominant supplier even if they were willing to switch part of their requirements to alternative suppliers. The contestable share will thus be small. Switching costs may for instance be present when the customer has made significant investments to use the products of the dominant firm (eg where the customer has made specific investments in equipment, premises, or training of personnel). •  Must-have brands (or must-stock products): some brands or products may be essential for various categories of retailer. For instance, supermarkets may have to stock certain popular consumer brands, such as Coca-Cola, Danone, or Nestlé and consumer electronics’ retailers may have to stock leading brands, such as Apple, LG, Samsung, or Sony. With limited exceptions, brands tend to play a lesser role in input markets, such as raw materials or electronic components, as these inputs will be embedded in products and thus not directly identifiable by the end consumers. •  Capacity constraints: even if customers were willing and able to switch to alternative suppliers, such suppliers may be unable to satisfy the resulting demand, hence providing an assured base to the dominant firm (at least equal to the total demand minus the maximum available capacities of its rivals). •  Single-source supply: in sectors where transaction costs savings are of critical importance, customers may prefer to buy from a single supplier that is able to supply them with the full, or at least a large part, of the range of the products they need. This may prevent suppliers with a narrow range of products from supplying such customers. 226 (p. 227) 4.205  The problem is that these different factors, and their relative importance for a given product/service and/or a given customer, are notoriously hard to measure. While economists have long explored the issue of the contestability of a given ‘market’,227 little seems to have been written on the issue of the contestability of a given ‘customer’s demand’, which is not surprising since this very notion seems to be of limited application beyond the assessment of single-product rebates. 4.206  In the Guidance Paper the Commission also refers to some factors that need to be taken into account in the determination of the scope of the contestable share:

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For existing competitors their capacity to expand sales to customers and the fluctuations in these sales over time may also provide an indication of the relevant range. For potential competitors, when possible, an assessment of the scale at which a new entrant would realistically be able to enter may be undertaken. It may be possible to take the historical growth pattern of new entrants in the same or in similar markets as an indication of a realistic market share of a new entrant.228 4.207  Some of these factors may be more relevant than others. As far as existing competitors are concerned, it is certainly true that some of these firms may be able to develop strategies to ‘expand sales to customers’. For instance, when faced with capacity constraints, a dominant firm’s rival may decide to concentrate all its supplies on one or a limited number of customers. If its output needs to be increased, this rival may also decide to subcontract the manufacturing of its products to other producers. However, the fact that rivals may be able to expand their sales is, as we have seen, only one of the factors that may allow them to satisfy a given customer’s demand, but it does not say very much as to the willingness of that customer to switch its orders to these rivals. Moreover, ‘the fluctuations in these [firms’] sales over time’ is a questionable factor. No clear relationship can be established between the share of a given customer’s demand supplied by one or several rivals of a dominant firm at a given stage, and the degree of contestability of that demand at that stage or, a fortiori, at a later stage. It is not, for instance, because one or several rivals of a dominant firm supply 5 per cent of the share of a given customer’s demand that these 5 per cent represent the contestable share of that customer’s demand. These firms may in fact have failed to capture the totality of the contestable share of that customer’s demand (which would be, eg, as high as 20 per cent) for a variety of reasons (high prices, insufficient quality, etc). 4.208  As far as new entrants are concerned, their ‘historical growth pattern in the same or in similar markets’ represents at best a rough instrument to determine the size of the buyer in question’s (p. 228) contestable share. First, the determination of the size of the contestable share is an issue that should be analysed at the customer level, not at the market-wide level. Moreover, the fact that historical growth in the market in question or in ‘similar’ (whatever this means) markets has been limited may be explained by a variety of factors, which have little to do with the willingness of one or several buyers to switch their requirements to one or several new entrants. 4.209  The Commission seems to acknowledge the limitations of the factors mentioned in its Guidance Paper as it indicates in a footnote that: The relevant range will be estimated on the basis of data which may have varying degrees of precision. The Commission will take this into account in drawing any conclusions regarding the dominant undertaking’s ability to foreclose as efficient competitors.229 4.210  Given the considerable difficulty of measuring the size of the contestable share of a given customer’s demand and the resulting risk of mistakes when engaging in such measurement, it is subject to question whether the suction effect test meets the requirements of ‘administrability’ and ‘certainty’ that should always apply to the tests used by competition authorities and courts for assessing the legality of dominant firms’ practices.230 As noted, dominant firms adopting certain types of potentially anticompetitive rebates may not be able to self-assess their practices as they may not have the information to run complex price-cost tests such as the suction effect test.231 Due to uncertainty, they

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may thus be forced to abandon efficient rebate schemes given their inability to assess their legality or to take inconsiderate risks.232 4.211  Moreover, because of the complexity of applying a suction effect test and the large amount of information and technical resources needed to apply it properly, it is subject to question whether the suction effect is administrable at all, except in the limited number of cases where the size of the contestable share of the demand of a given customer of the dominant firm is easy to determine. (v)  Case law of the EU Courts and decisional practice of the Commission after adoption of the Guidance Paper

4.212  Following the adoption of the Guidance Paper, the Commission adopted on 13 May 2009 a Decision in which it condemned Intel to a record fine of €1.06 billion on the ground that it had granted conditional rebates and payments to a number of original equipment manufacturers (OEMs) and a large retailer of consumer electronics purchasing its x86 CPUs, and that it had paid OEMs to delay, cancel, or in some other way restrict the commercialization of specific AMD-based products. (p. 229) 4.213  In its Decision, the Commission claimed that it was not bound by the Guidance Paper as this document is ‘intended to set priorities for the cases that the Commission will focus upon in the future, it does not apply to proceedings that had already been initiated before it was published, such as this case.’233 Instead, the Commission relied on the restrictive approach that prevails in the case law of the EU Courts dealing with conditional rebates, recalling the position held by the Court of Justice in Hoffmann-La Roche whereby an undertaking which is in a dominant position on a market and ties purchasers … by an obligation or promise on their part to obtain all or most of their requirements exclusively from the said undertaking abuses its dominant position within the meaning of article 82 EC …234 Referring to British Airways and Michelin II, the Commission also noted that ‘for the purposes of establishing an infringement of Article 82 EC, it is not necessary to demonstrate that the abuse in question had a concrete effect on the markets concerned.’ In direct contradiction with the philosophy of the Guidance Paper, the Discussion Paper that preceded it and policy speeches by Commission officials, the Commission thus stuck to the formalistic approach of the EU Courts, and of its own decisional practice, whereby no evidence of foreclosure is needed.235 To avoid criticism, the Commission nevertheless applied an ‘as efficient competitor’ test to prove that the conditional rebate schemes prevented or made it more difficult for each of those OEMs to source x86 CPUs from AMD.236 But it made it very clear that this test was not required pursuant to the case law of the EU Courts. 4.214  As to the GC, it recently lost an opportunity to modernize its case law. In its recent judgment in Tomra, the GC not only faithfully repeated the controversial case law of the Court of Justice in the area of rebates (Hoffmann-La Roche, Michelin II, etc), but to some extent made it even worse.237 This judgment stemmed from an appeal lodged by Tomra, a company that produces automatic recovery machines for empty beverage containers (reverse vending machines (RVMs)), against a Commission Decision finding that it had infringed Article 102 TFEU by implementing an exclusionary strategy in several national RVM markets, involving exclusivity agreements, individualized quantity commitments, and individualized retroactive rebate schemes, thus foreclosing competition on the markets.238 The GC’s discussion of the compatibility of Tomra’s rebates with Article 102 is interesting

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as it summarizes the legal tests adopted by the EU Courts with respect to the ‘loyalty’ rebates in prior judgments. According to the GC: with more particular regard to the granting of rebates by an undertaking in a dominant position, it is apparent from a consistent line of decisions that a loyalty rebate, which is granted in return for an undertaking by the customer to obtain his stock exclusively or almost exclusively from an undertaking in a dominant position, is contrary to Article 82 EC.239 4.215  It is undeniably true that loyalty rebates may produce exclusionary effects. Whether or not such effects occur can, however, only be determined on the basis of a price-costs analysis of (p. 230) the type proposed by the Commission in its Guidance Paper (within the limits discussed above).240 While the GC acknowledges that the Commission has performed such an analysis, it restates the traditional case law whereby ‘the actual effects of the applicants’ practices’ do not have to be demonstrated by the Commission to establish an infringement as loyalty rebates are ‘liable to’ restrict competition.241 Although the Commission has been conducting price-cost tests in its more recent rebates cases, it does not make a difference whether these tests are properly conducted as in any event loyalty rebates are per se illegal. 4.216  But this is not the only part of the judgment (or, more generally, the case law of the EU Courts on rebates) that is subject to criticism. Indeed, as correctly observed by Tomra in its appeal, even if the contested decision had demonstrated that all the agreements in question might have had foreclosure effects, that would prove only that competitors would have been foreclosed from supplying customers which had already concluded those agreements. Nothing would have prevented Tomra’s rivals from supplying the remaining customers. Indeed, the fact that a given rebate forecloses one or several competitors of the dominant firm from supplying one or several customers is not sufficient to demonstrate the presence of anticompetitive effects. Such effects will only appear when such customers represent a substantial share of the market that is critical for rivals’ competitiveness. Otherwise, even if they are unable to supply one or several customers, rivals will have access to a sufficient share of the demand for the products/services in question to allow them profitably to enter or remain on the market, and thus constrain the dominant firm. 4.217  Yet, in one of the most extraordinary statements ever made in a competition law judgment, the GC states that: the foreclosure by a dominant undertaking of a substantial part of the market cannot be justified by showing that the contestable part of the market is still sufficient to accommodate a limited number of competitors…. [T]he customers on the foreclosed part of the market should have the opportunity to benefit from whatever degree of competition is possible on the market and competitors should be able to compete on the merits for the entire market and not just for a part of it.242 4.218  That position is entirely untenable as, taken literally, it suggests that if a dominant firm grants loyalty rebates to customers whose combined purchases amount to 10 per cent of the market (hence, leaving the other 90 per cent up for grabs by new entrants), that firm would nevertheless have committed an abuse. Moreover, this type of disastrous statement goes entirely against the efforts by the Commission, and some NCAs, to move away from a legalistic approach of enforcing Article 102 TFEU to an effects-based one.

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4.219  Clearly, the EU Courts’ case law on loyalty rebates, as well as in other areas of abuse of dominance law, not only is incongruent with effects-based reform, but truly plays against it by validating formalistic analyses. In fact, this case law signals to the Commission and NCAs that, although they are free to engage in effects-based analysis, this analysis is not essential to a finding of infringement and even if such analysis ends up being flawed that will not jeopardize the viability of their decision in appeal.

(p. 231) (c)  Tying (i)  The concept of tying

4.220  Tying generally refers to a situation where a seller refuses to sell one product (the ‘tying’ product) on the market for which it is dominant unless the buyer also takes another product (the ‘tied’ product).243 Tying can take place on a contractual basis, but also on a technical or technological basis (where, eg, the tying and the tied product are physically integrated or designed in such a way that they can only work together). Microsoft’s integration of its Internet Explorer web browser into its Windows operating system led, for instance, to competition law investigations in both the United States and the EU on the ground that it amounted to technological tying of two distinct products, which created foreclosure effects. 4.221  Although it is often used as a synonym for tying, ‘bundling’ usually refers to the way products are offered and priced by a dominant firm. Bundling can come in two distinct forms: ‘pure bundling’ or ‘mixed bundling’. While in the case of ‘pure bundling’ the products ‘are only sold jointly in fixed proportions’,244 ‘mixed bundling’ (also referred to as ‘bundled rebates’) refers to a situation whereby the products are made available separately, but the sum of the prices when sold separately is higher than the bundled price, hence giving buyers a strong incentive to take the bundle. The compatibility of bundled rebates with Article 102 was discussed at paras 4.197ff. (ii)  Effects of tying

4.222  Tying is a common practice used by both dominant and non-dominant firms to offer better, cheaper, and more convenient products or services. Shoes have always been sold with laces and cars with tyres, and hotel nights generally with breakfast. But beyond these trivial examples, product integration has become a key business strategy in many industries. Manufacturers of consumer electronics, for instance, combine many different components into a single product to make these components work better or to make the product more cost-effective, smaller, or less energy consuming. Smartphones, for instance, comprise elements that used to be provided separately (eg phone and camera), and their larger screen allows users to play games, exchange emails, browse the internet, and access various forms of content. Manufacturers seek to grow sales by increasing the value proposition offered to their customers, and tying different functionalities is an important part of that strategy. 4.223  While in the vast majority of cases tying is pro-competitive, tying may also be used as an exclusionary strategy. First, there may be circumstances where a firm that is dominant in the market for the tying product may seek to extend its market power into the market for the tied product by tying the purchase of the two goods together (a strategy often referred to as ‘monopoly leveraging’).245 Because customers must obtain the monopoly product from the dominant firm, if that firm ties a complementary product to its monopoly product (ie, customers can only buy the monopoly product if they also purchase the tied product), then customers will be less willing to purchase a separate (now redundant) tied product from an independent supplier, thereby foreclosing competition in the otherwise competitive complementary product market.

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(p. 232) 4.224  Second, there may also be circumstances where tying may not be so much about leveraging a dominant position in the tying product market to the tied product market as it is about protecting dominance in the tying product market.246 When the tying monopolist has reason to believe that successful tied product makers are likely to evolve into tying product makers in the future, it has incentives to foreclose rivals in the tied product markets to prevent or reduce erosion in its tying market over time. For instance, in the US Microsoft case, the Department of Justice argued that by tying Windows with Internet Explorer, Microsoft did not aim to reap profit in the browser market, but to protect its dominant position in the operating system market from the threat that might emerge from a significant browser competitor, which could eventually be turned into an alternative operating system.247 (iii)  Decisional practice of the Commission and case law of the EU Courts

4.225  The Commission has only issued a small number of decisions concerning tying and bundling, the most famous one being its 2004 Decision (which also concerned refusal to license, see paras 4.334ff) in which it condemned Microsoft for abusing its dominant position on the PC operating system market.248 While Microsoft was a case of technological tying, the Commission prior to Microsoft handled two cases of contractual tying: Hilti and Tetra Pak II. 4.226  The first of these cases concerned the conduct of Hilti, which was the largest producer of nail guns in the EU. Nail guns use nails and cartridge strips, which are specifically made and adapted to a particular brand of nail gun. Eurofix and Bauco complained that Hilti was excluding them from the market in nails compatible with Hilti by refusing to sell Hilti cartridges without nails to distributors and by cutting off the supply of Hilti cartridges to rival nail makers. The Commission found that, although interdependent, the markets for nail guns, Hilti-compatible cartridge strips, and Hilti-compatible nails, were separate product markets since they are subject to different conditions of supply and demand.249 4.227  Hilti attempted to justify its behaviour by safety reasons claiming that nails made by certain independent nail makers, such as those made by the complainants, were substandard and dangerous. The Commission refused that justification as the normal course of action for Hilti should have been to inform competent UK authorities and ask them to take action against the independent producers of nails it considered dangerous.250 The Commission concluded that Hilti’s actions reflected ‘a commercial interest in stopping the penetration of the market of non-Hilti consumables since the main profit from [nail guns] originates from consumables, not the sale of nail guns.’251 Hilti’s appeal to the Commission’s decision was rejected by the GC.252 4.228  The second case of contractual tying concerned Tetra Pak, the largest supplier in the EU of equipment for the packaging of liquid and semi-liquid food and the materials (cartons) for such packaging. Tetra Pak was active in both the aseptic and non-aseptic packaging sectors. (p. 233) In its decision, the Commission identified four separate markets, distinguishing between: (i) the market in machinery for the aseptic packaging of liquid food; (ii) the corresponding market in cartons (‘aseptic markets’); (iii) the market in machinery for the non-aseptic packaging of liquid food; and (iv) the corresponding market for cartons (‘nonaseptic markets’).253 4.229  The Commission observed that taking advantage of its dominant position on the aseptic market in machines, Tetra Pak managed to impose on the buyers of such machines a variety of contractual clauses, including an obligation to use its cartons exclusively. Tetra Pak tried to justify this obligation by the need to protect public health, but, as in Hilti, the

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Commission rejected that justification and condemned Tetra Pak for its attempt to eliminate competition on the market for cartons in breach of Article 102. 4.230  Tetra Pak appealed the decision of the Commission to the GC and then the Court of Justice. The GC rejected Tetra Pak’s argument that the machinery for packaging a product is indivisible from the cartons holding that: For a considerable time there have been independent manufacturers who specialize in the manufacture of non-aseptic cartons designed for use in machines manufactured by other concerns and who do not manufacture machinery themselves.254 4.231  As to Tetra Pak’s attempt to justify the obligation imposed on the buyers of its machinery to use its cartons, the GC observed that: It is not for the manufacturers of complete systems to decide that, in order to satisfy requirements in the public interest, consumable products such as cartons constitute, with the machines with which they are intended to be used, an inseparable integrated system…. In those circumstances, … the protection of public health may be guaranteed by other means, in particular by notifying machine users of the technical specifications with which cartons must comply in order to be compatible with those machines, without infringing manufacturers’ intellectual property rights.255 Tetra Pak’s appeal of the GC’s judgment to the Court of Justice was unsuccessful.256 4.232  In Microsoft, the Commission decided that Microsoft infringed Article 102 by tying Windows Media Player (WMP) with its Windows PC operating system (Windows).257 The Commission considered that anticompetitive tying requires the presence of the following elements: (i) the tying and the tied goods are two separate products; (ii) the undertaking concerned is dominant in the tying product market; (iii) the undertaking concerned does not give customers a choice to obtain the tying product without the tied product; and (iv) the tying in question forecloses competition.258 (p. 234) 4.233  The Commission found that WMP and Windows were two separate products.259 The distinctness of products had to be assessed with a view to consumer demand, and, according to the Commission, the fact that the market provides media players separately shows that there is separate consumer demand for media players that could be distinguished from the demand for client PC operating systems. Hence, WMP and Windows were separate products. It also found that Microsoft was dominant on the market for PC operating systems. 4.234  The Commission also established that customers were not given the choice of acquiring the tying product without the tied product as Microsoft rendered the availability of Windows conditional on the customer’s simultaneous acquisition of the tied product. The Commission noted that the fact that customers need not pay extra (WMP is distributed with Windows at no additional cost) was not a relevant consideration as the wording of Article 102(d) ‘does not require a reference to “paying” when introducing the element of “supplemental obligation”.’260 It also noted that there is no language in Article 102 that would suggest that ‘in order to show coercion, customers need to be forced to use the tied product’.261 4.235  As to the element of foreclosure, the Commission stated that tying has a harmful effect on competition.262 It acknowledged, however, that there were circumstances

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relating to the tying of WMP which warrant a closer examination of the effects that tying has on competition in this case. While in classical tying cases, the Commission and the Courts considered the foreclosure effect for competing vendors to be demonstrated by the bundling of a separate product with the dominant product, in the case at issue, users can and do to a certain extent obtain third party media players through the Internet, sometimes for free. There are therefore good reasons not to assume without further analysis that tying WMP constitutes conduct which by its very nature is liable to foreclose competition.263 4.236  The Commission thus considered that the form-based approach applied to tying in its prior decisions (Hilti and Tetra Pack) had to be replaced by an effects-based approach that the Commission was beginning to promote at the time. As a result, it followed a threestep analysis. First, the Commission observed that given that Windows was present on more than 90 per cent of all PCs, the tying of WMP with Windows ensured WMP unmatched ubiquity in the market. The Commission also rejected the view that other media player vendors could offset WMP’s ubiquity through other distribution channels, such as installation agreements with OEMs, free downloading of their software from the internet, etc.264 The ubiquitous presence of WMP on PCs thus provided a significant ‘competitive advantage’ to Microsoft. Second, the Commission considered that this competitive advantage would lead content providers to encode their content primarily in WMPcompatible format and application vendors to write applications primarily for WMP. The presence of strong network effects would ultimately tip the market in favour of Microsoft.265 Finally, the Commission looked at market developments in the media player industry and identified a trend in favour of WMP.266 (p. 235) 4.237  As a remedy to the infringement, the Commission ordered Microsoft to offer a version of Windows for client PCs that does not include WMP. 4.238  Although many observers praised the Commission for the significant efforts it put in its investigation and its willingness to analyse the facts in great detail, its decision contains a number of significant flaws. The first element of the test, whereby two products are distinct if there is separate demand for the tied product, makes little economic sense. Taken literally, it might lead one to conclude that mobile telephones and ring tones, PCs and keyboards, and MP3 players and earphones are all distinct products, despite the fact that consumers clearly see them as forming part of a single product. As correctly observed by the applicant in the Microsoft case,267 the correct test is that two products are distinct if there is no separate consumer demand for both the tying and the tied product. Hence, unless this test, which the EU Courts have repeatedly affirmed in their case law, is changed, there is a considerable risk that perfectly benign combinations of products are caught as tying with the meaning of Article 102 TFEU (a type I error). 4.239  The third element of the test, according to which there is coercion when the dominant firm does not give the option of buying the tying product without the tied product, does not fare better.268 This test makes sense in certain circumstances, but does not in others. Clearly, if a customer cannot acquire a printer (the tying product) without buying a large quantity of paper (the tied product) from the printer manufacturer, that customer will not purchase paper from the manufacturers’ competitors, at least for a certain period of time. In these circumstances, which were present in the seminal Hilti and Tetra Pak judgments,269 the customer is clearly coerced to buy the dominant firm’s paper and rival paper makers are foreclosed. In contrast, in the settings that were at stake in the Microsoft case, the test used by the Commission is flawed. It is indeed not because a customer buying Windows also automatically acquires WMP that this customer is coerced. Unlike in the prior example, nothing prevents this customer from acquiring as many rival media players as he wishes and many computer users have different browsers on their computer (a practice called ‘multi-homing’). Clearly, the test of coercion applied by the Commission is too broad

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and should be limited (p. 236) to situations where the tie makes it significantly more difficult (even if only financially) for the customer to purchase or consume a rival version of the tied good. 4.240  Finally, it did not take long after the decision to realize that the remedy adopted by the Commission, that is, the obligation imposed on Microsoft to offer a version of Windows with WMP (so-called ‘Windows N’), was a failure. As Microsoft charged the same price for the bundled and the unbundled versions, Windows N had very few takers. 4.241  Microsoft subsequently appealed the decision of the Commission to the GC, which delivered its judgment in September 2007.270 In that judgment, the GC supported the position of the Commission that: (i) operating systems for PCs and media players are distinct products; (ii) Microsoft is dominant on the market for operating systems; and (iii) the condition of coercion is met in that Microsoft does not give consumers the option of obtaining Windows without WMP. 4.242  However, as far as the condition of foreclosure is concerned, the GC departed from the effects-based approach followed by the Commission in its decision. That is made clear at paragraph 1058 of the judgment, which stated that the Commission’s findings that the ubiquitous presence of WMP on PCs provided a significant ‘competitive advantage’ to Microsoft are in themselves sufficient to establish that the fourth constituent element of abusive bundling is present in this case. Those findings are not based on any new or speculative theory, but on the nature of the impugned conduct, on the conditions of the market and on the essential features of the relevant products. They are based on accurate, reliable and consistent evidence which Microsoft, by merely contending that it is pure conjecture, has not succeeded in showing to be incorrect. 4.243  Hence, according to the GC, it is sufficient to show that WMP was ubiquitous on PCs to demonstrate that the tying in question creates a competitive advantage that rivals are unable to replicate. Once such a competitive advantage has been demonstrated, it is no longer necessary to show that the tying produces foreclosure effects in the market in question. In our view, assimilating the presence of a ‘competitive advantage’ to the presence of ‘foreclosure’ is unjustified and not at all in line with the Commission’s more prudent approach in a case such as Bronner (see paras 4.316ff). 4.244  Less than a year after the judgment of the GC, the Commission initiated another tying investigation against Microsoft and eventually sent a statement of objections to Microsoft in January 2009 outlining the Commission’s preliminary view that Microsoft’s tying of its Internet Explorer web browser with Windows infringed Article 102. In the press release accompanying the statement, the Commission noted that it had gathered during the investigation evidence that led it to believe that: the tying of Internet Explorer with Windows, which makes Internet Explorer available on 90% of the world’s PCs, distorts competition on the merits between competing web browsers insofar as it provides Internet Explorer with an artificial distribution advantage which other web browsers are unable to match.271 (p. 237) 4.245  This made it obvious that the Internet Explorer case was effectively a re-run of the WMP case. One of the differences, however, in the approach of the Commission in the Internet Explorer case related to the remedy sought. Having learned from its mistake in the WMP case, the Commission did not want Microsoft to develop a version of Windows without Internet Explorer, but instead wanted Microsoft to carry a number of competing browsers with each copy of Windows. This ‘must carry’, the legality of which was questionable, would

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force Microsoft to program a ‘ballot screen’ to make users select which browser to install on their new PC. 4.246  In the end, Microsoft settled the case by offering remedies to the Commission, which the Commission rendered legally binding through an Article 9 decision.272 As ‘requested’ by the Commission, Microsoft committed to offer European users of Windows a choice among different web browsers. Specifically, Microsoft offered to make available for five years in the EEA (through the Windows Update mechanism) a ‘Choice Screen’ enabling users of Windows XP, Windows Vista, and Windows 7 to choose which web browser(s) they want to install in addition to, or instead of, Microsoft’s browser Internet Explorer. 4.247  While the Article 9 decision adopted by the Commission brought Microsoft’s Internet Explorer tying to an end, the fact of the matter is that the case law of the European Courts after the GC’s judgment is entirely unfavourable to dominant firms engaging in tying and bundling in the vast majority of the cases for efficiency-related reasons. Of particular concern is that the test set by the GC in its judgment is highly formalistic and, for reasons explained above, defies economic logic. (iv)  The Guidance Paper

4.248  The Guidance Paper was adopted in December 2008, that is, more than a year after the judgment of the GC in Microsoft. As will be seen, the Guidance Paper seems to take a slightly different approach than the approach of the GC.273 4.249  A first interesting aspect of the Guidance Paper’s section on tying is that the Commission does not refer to the condition of coercion found in the case law. According to the Guidance Paper, the Commission will normally intervene on the basis of Article 102 where an undertaking is dominant in the tying market and where, in addition, the following conditions are fulfilled: (i) the tying and tied products are distinct products, and (ii) the tying practice is likely to lead to anticompetitive foreclosure.274 (p. 238) 4.250  As far as the distinctiveness of the products is concerned, the Guidance Paper seems to follow the Commission’s traditional approach in that it says that whether the products at stake will be considered to be distinct depends on consumer demand. However, unlike in the Microsoft decision, the Guidance Paper does not suggest that the fact that the market provides the tied product separately means that the tying and the tying products are ‘distinct’ within the meaning of Article 102. Instead, the Guidance Paper says that: Two products are distinct if, in the absence of tying or bundling, a substantial number of customers would purchase or would have purchased the tying product without also buying the tied product from the same supplier, thereby allowing stand-alone production for both the tying and the tied product.275 4.251  That seems to be a more logical test than the one found in the decisions of the Commission. However, the traditional test seems to reappear when the Guidance Paper adds that the evidence as to whether two products are distinct can include ‘indirect evidence, such as the presence on the market of undertakings specialised in the manufacture or sale of the tied product without the tying product or of each of the products bundled by the dominant firm …’276 4.252  As to the condition of foreclosure, the Guidance Paper provides that tying or bundling may be used for both ‘off ensive’ and ‘defensive’ leveraging purposes.277 It also lists a number of factors that are of particular importance for identifying cases of likely or actual anticompetitive foreclosure. It notes, for instance, that ‘the risk of anticompetitive

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foreclosure is expected to be greater where the dominant undertaking makes its tying or bundling strategy a lasting one.’278 4.253  Finally, the Guidance Paper provides that the Commission will look into claims by dominant undertakings that their tying and bundling practices may lead to cost savings benefiting customers, reduce transaction costs for customers, or that combining two independent products into a new, single product might enhance the ability to bring such a product to the market to the benefit of consumers.279

(d)  Predation (i)  The concept of predation

4.254  This exclusionary practice involves a dominant firm, presumed to have greater financial resources than its rivals, pricing its products below some relevant measure of cost in order to drive its rivals out of the market. The rivals, unable to sustain the losses required to price at par with the dominant firm, instead exit the market. (ii)  Effects of predation

4.255  While price competition is a central, and highly desirable, part of the competitive process, there may be circumstances where dominant firms might strategically cut prices to unprofitable levels in the short term to eliminate or discipline rivals and then subsequently raise (p. 239) prices to supra-competitive levels, hence inflicting a net injury on consumers.280 Profits that would be lost initially would be ‘recouped’ later. 4.256  The difficulty with predation cases is that it is often hard to distinguish harmful predatory pricing from desirable competitive price-cutting, hence creating the risk that attempts to condemn the former may mistakenly condemn and deter the latter. The challenge for competition authorities and courts is therefore to fashion practical rules that adequately deter harmful predatory pricing without overly deterring competitive pricecutting and the benefits it brings to consumers. While there are different views as to the content of such rules, there is a consensus among economists that cost benchmarks are generally helpful in determining when prices are predatory.281 The basic principle is that a profit maximizing firm will sell its product at a price that exceeds its marginal costs as otherwise it will go out of business. The various types of costs discussed in Chapter 2 are relevant to this inquiry. 4.257  An important caveat: two-sided markets The above discussion of predatory pricing presumes traditional markets, with one set of sellers supplying one set of buyers. In two-sided markets contexts, however, where the seller provides related goods and services to two (or more) distinct sets of buyers, the rules change. Most importantly, it is well known that undertakings operating a two-sided market platform—such as a software platform (eg an operating system that consumers buy and that software programmers create applications for) or a payment card platform (eg a credit card network which consumers use to pay for goods and which merchants accept as a form of payment)—will often choose to charge only one side of the platform, providing services free to the other side.282 In twosided markets, absent any anticompetitive intent or effect, firms can thus rationally choose to price one side below the marginal costs of serving that side (to the extent that such costs can even be isolated, given that many costs will be common to both sides).283 4.258  As a result, the proper assessment of allegations of predatory pricing within a twosided market must take into account the prices and costs on both sides of the market to ensure that undertakings are not incorrectly accused simply on the basis of following a widespread, and generally welfare-enhancing, pricing strategy that sets prices on one side at or near zero.

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(iii)  Decisional practice of the Commission and case law of the EU Courts

4.259  The AKZO test In its seminal AKZO judgment,284 the Court of Justice adopted the legal standard to be applied in predatory pricing cases. This standard is based on two limbs. First, prices below average variable costs are abusive since a dominant firm has (p. 240) no interest in applying such prices except that of eliminating competitors so as to enable it subsequently to raise its prices by taking advantage of its monopolistic position, since each sale generates a loss, namely the total amount of the fixed costs (that is to say, those which remain constant regardless of the quantities produced) and, at least, part of the variable costs relating to the unit produced.285 4.260  Second, prices below average total costs (ie, fixed costs plus variable costs), but above average variable costs, are abusive ‘if they are determined as part of a plan for eliminating a competitor’.286 Such prices can indeed eliminate from the market firms that are perhaps as efficient as the dominant undertaking but which, due to their smaller financial resources, are incapable of sustaining the price competition waged against them. 4.261  The two limbs of the Akzo test can be illustrated by a simple example. Let us assume that the total costs of producing product A is €100, including €60 of fixed costs and €40 of variable costs. By selling product A at a price of €35, the dominant manufacturer does not cover any part of its fixed costs (the costs that this firm incurs regardless of the amount produced), but it also prices below its variable costs (the costs that vary depending of the amount produced), which means that any additional unit A that is sold will increase its loss. Pursued over an extended period, this strategy should lead the manufacturer to shut down its operations. According to the Court of Justice, the only rationale for dominant firms to sell below AVC is to exclude rivals, which due to their more limited resources may not be able to sustain the price war for as long as the dominant firm. In contrast, by setting the price at €45, the dominant manufacturer covers all its variable costs, but also part of its fixed costs. Hence, it has an economic incentive to continue its operations independently of a strategy of exclusion. This is the reason why the Court requires an additional element to show that a price that is above AVC but below ATC is abusive, namely that it is a part of a ‘plan for eliminating a competitor’. 4.262  The Akzo test, which has been confirmed in subsequent decisions, raises a number of important questions, which are discussed hereafter. 4.263  The cost standards to be used to assess predation In Akzo, the Court of Justice test relied on the ATC and AVC benchmarks. While reliance on AVC has the merit of conceptual clarity, as noted above there seems to be no good reason but predation to sell below AVC, an observation that had already led Areeda and Turner to select that benchmark in their well-known predation test,287 it also triggers some implementation challenges. 4.264  In this respect, a central difficulty is that distinguishing fixed costs from variable costs may not always be easy. While some costs (eg the costs of building a manufacturing plant) are clearly fixed, and others (eg the costs of acquiring the inputs used in the manufacturing of the product) are clearly variable, some other costs (eg the costs of advertising a product) may be harder to classify. Moreover, as the economic maxim says, ‘in the long run all costs are variable’ since assets (p. 241) whose costs are seen as fixed may need to be replaced after some years. Whether a cost is fixed or variable therefore depends on the period that is taken into consideration in the analysis.288

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4.265  An alternative cost benchmark is the AAC, which, according to the Guidance Paper, is ‘the average of the costs that could have been avoided if the company had not produced a discrete amount of (extra) output, in this case the amount allegedly the subject of abusive conduct.’289 One of the main advantages of relying on AAC is that this overcomes the difficulty of segregating fixed and variable costs since they include not only the AVC but also the part of the fixed average costs which (i) is specific to the production of the good/ service in question and (ii) can, over a certain period, be recovered by the undertaking. On the other hand, as with the AVC test, the ACC test assumes that the only rationale for selling products below AAC is anticompetitive predation since the dominant firm in question would have been better off by discontinuing the production in question. Failure to cover AAC therefore indicates that ‘the dominant undertaking is sacrificing profits in the short term and that an as efficient competitor cannot serve the targeted customers without incurring a loss.’290 4.266  In the Guidance Paper, the Commission also refers to the notion of LRAIC in place of ATC. LRAIC is defined as ‘the average of all the (variable and fixed) costs that a company incurs to produce a particular product.’291 While LRAIC and ATC are the same in the case of single-product undertakings, they should differ in the case of multi-product undertakings with economies of scope. In such case, LRAIC should be below ATC for each individual product, as LRAIC does not include true common costs.292 As with the ATC standard, pricing below LRAIC may not be sufficient to establish predation.293 The reason is that LRAIC includes sunk costs, which firms are interested in recovering in part rather than not at all by selling below LRAIC. Hence, for below-LRAIC prices to be predatory, such prices should be accompanied by an additional element, such as the presence of an anticompetitive intent. 4.267  Dealing with joint and common costs Even when the dominant firm produces a single product, delimiting its fixed and variable costs is not always easy. This, however, becomes an even more complex task when the dominant firm produces several products. In that case, the dominant firm may have fixed and/or variable costs that are common to several of its products. To take a simple example, incumbent postal operators offer a variety of postal and non-postal services, including regular mail service, parcels, express mail, but also in some cases banking or insurance. These services will often be offered by the same employees and rely on the same assets (eg sorting centres, post offices, vehicles) as those used to offer postal services. 4.268  This raises the question of how to calculate costs for the purpose of applying the Akzo test when a dominant firm producing several products is accused of predation. One possible approach would be simply to ignore the presence of common costs and instead only focus (p. 242) on costs that are truly incremental to the product the dominant firm is accused of selling at predatory prices. As explained by O’Donoghue and Padilla, the rationale of this approach is that the business decision to sell a given product is based on whether the additional revenues it generates ‘will exceed the specific cost incurred in adding a product line, and not whether the product would not only cover its own specific costs, but also contribute something towards common costs.’294 However, the problem with this approach is that it penalizes competitors that only sell one product and which therefore have to cover all the stand-alone costs of producing that product. Hence, an alternative approach would be to require the dominant firm to allocate its common costs on an acceptable basis between the several products it produces. This alternative approach, generally referred to as ‘fully-allocated costs’, may not, however, be free from difficulties since there is no generally acceptable methodology to allocate common costs. There is therefore a risk that this allocation may be made arbitrarily.

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4.269  The issue of allocation of costs when the dominant firm in question produces several products was at stake in Deutsche Post .295 In that case, United Parcel Service (UPS) had lodged a complaint to the European Commission alleging that Deutsche Post was using revenue from its profitable letter-post monopoly on the German market to finance a strategy of below-cost selling in parcel services, which are open to competition. However, instead of trying to allocate costs between Deutsche Post’s monopolistic and competitive activities, the Commission relied on the LRAIC incurred by Deutsche Post to provide its parcel service activity to determine whether it engaged in predatory pricing in the provision of such service.296 4.270  Whether one can draw the inference from Deutsche Post that it is not necessary to allocate common costs in predation cases initiated under Article 102 TFEU is unclear. The incremental approach taken by the Commission in this case was heavily influenced by the fact that Deutsche Post was subject to a universal service obligation under German law whereby every potential postal user was entitled to receive from Deutsche Post over-thecounter parcel services of the prescribed quality at uniform prices.297 Hence, Deutsche Post was legally required to maintain a capacity reserve large enough to cover any peak demands that could arise in over-the-counter parcel services while meeting statutory service-quality standards for those services. Thus, even if Deutsche Post were no longer to offer mail-order parcel services, it would still be obliged vis-à-vis every mail-order customer to provide over-the-counter parcel services within a specified delivery target. Against that background, the Commission considered that Deutsche Post’s mail-order parcel services operations should not be burdened with the common fixed cost of providing network capacity that Deutsche Post had to incur as a result of its statutory universal service obligation.298 Hence, it found that Deutsche Post should only earn revenue on this parcel service which at least covers the costs attributable to or incremental to producing the specific service. 4.271  Hence, as pointed out by some observers, it is not clear whether in the absence of the universal service obligation to which Deutsche Post was subject under German law, the (p. 243) Commission would have opted for an incremental cost approach as such an approach would be too favourable to dominant firms, which could allocate all their common costs to the service in which they enjoy substantial market power or even a monopoly, such as in the case of Deutsche Post. 4.272  The evidence required to demonstrate the presence of an exclusionary intent One question triggered by the second limb of the Akzo test—which requires that for showing that a price that is above AVC but below ATC is abusive it must be part of a ‘plan for eliminating a competitor’—relates to the type of evidence that can be taken into account to establish the presence of an anticompetitive intent. 4.273  In its Wanadoo decision,299 the Commission sought to demonstrate that conduct by Wanadoo Interactive (WIN) was part of a plan to exclude competitors by relying on direct documentary evidence allegedly attesting to the existence of such a plan. Such evidence included, for instance, a document expressing the objective for the second quarter of 2000 and for 2001 to ‘pre-empt’ the asymmetric digital subscriber line (ADSL) market ‘with an all-inclusive offer [plus] package and accelerating investments for 2001, but with a negative impact on the balance sheet’ or an email stating that Wanadoo would ‘have difficulty in preempting this market if our prices are too high.’300 4.274  In its appeal to the Commission decision, France Télécom (which following a merger had succeeded to WIN’s rights) argued that ‘such informal and spontaneous, even unconsidered words’ were merely a ‘reflection of the dialectics of the decision-making process’ in a large organization and that they bound only their authors and not the undertaking.301 The GC, however, rejected this argument by observing that those words ‘came from management-level staff within the undertaking and that some of them were

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expressed in the context of formal presentations for the purpose of taking a decision or of a very detailed framework letter.’302 Hence, their spontaneous and unconsidered nature was questionable. 4.275  While the documents used by the Commission to show that Wanadoo’s exclusive intent originated from the management, it nevertheless remains that all firms, no matter how procompetitive their conduct, seek to drive their competitors out of the market. Moreover, any lawyer who has conducted a document review in a competition case knows that sales executives often tend to use hyperbole to create a strong impression on colleagues even if what they say cannot be taken literally. Thus, even absent any abusive intent in the competition law sense of the term, it may be easy for the Commission or NCAs to identify documents suggesting a plan to eliminate competitors even if what was meant by the authors of these documents was that the firm should engage in vigorous competition. 4.276  This had led some authors to suggest that in addition to direct evidence, the Commission should also rely on indirect evidence, that is, to ‘factors that tend to show that the explanation for the price-cutting is predatory’.303 This approach is certainly in line with the current state of economics in this field of predation. Economists consider that to demonstrate the presence of anticompetitive predation one should not only show the presence of below-cost (p. 244) pricing, but also of a plausible predatory strategy in the particular market at stake. While profit recovery remains the core explanation for predatory practices, economists have pointed to more expansive recoupment explanations. 4.277  For instance, Bolton et al argued that predatory pricing ‘must be viewed as strategic communication involving threats and sanctions’.304 In their view, recoupment is not just about earning back lost profits—it can also be about protecting a monopoly’s future profits. So, for example, if a cable company is successful in preventing a rival’s entry in a relatively small market, it will have prevented that entrant’s expansion into other nearby markets as well. While the financial losses in the localized predatory market may never be recovered, when those losses are compared to the broader monopoly profits at stake for the dominant firm in its full territory, predatory pricing can be strategically justifiable as an investment in maintaining monopoly profits. 4.278  Bolton et al also present ‘financial predation’ as another justification for below-cost pricing.305 Under this theory, an incumbent prices below cost in order to dry up an entrant’s financial support. By pricing low, the incumbent drives the entrant’s profits down. The entrant’s financial backers will then be reluctant to continue their funding. Even if the financiers recognize that the incumbent is pricing predatorily, they will nonetheless see support of the entrant as risky, with the chance that their investment will earn no return. Thus, even if all parties are fully aware of the strategic behaviour that is occurring, there is no way for them to contract a solution—entrants will thus lose their financial backing. Financial predation will make sense whenever the entrant’s funding is staged over time (as is common with venture capital and angel funding), with later rounds of financing depending on the entrant’s market performance, and when the incumbent enjoys better financial access than the entrant, either through internal funding or better terms and conditions for outside financing. 4.279  Whether recoupment is necessary Many lawyers and economists consider that recoupment, the ability of the dominant firm to recover the losses incurred through belowcost prices through subsequent supra-competitive prices, should be an essential component of the predation test.306 That is also the position of the US Supreme Court, which in Brooke Group stated that a

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prerequisite to holding a competitor liable under the antitrust laws for charging low prices is a demonstration that the competitor had a reasonable prospect, or, under § 2 of the Sherman Act, a dangerous probability, of recouping its investment in belowcost prices.307 4.280  The reason is that: Recoupment is the ultimate object of an unlawful predatory pricing scheme; it is the means by which a predator profits from predation. Without it, predatory pricing produces lower aggregate prices in the market, and consumer welfare is enhanced. Although unsuccessful predatory pricing may encourage some inefficient substitution toward the product being sold at less than its cost, unsuccessful predation is in general a boon to consumers.308 (p. 245) 4.281  The Commission and the EU Courts consider, however, that recoupment is not an essential element of predation. In the Tetra Pak II case, the Commission found that Tetra Pak, which had a 90 per cent market share of the aseptic cartons market, had engaged in predatory pricing in the market for non-aseptic cartons.309 On appeal before the Court of Justice, Tetra Pak argued that the possibility of recouping the losses after the competitor’s exit was a ‘constitutive element in the notion of predatory pricing’.310 Since the sales below cost took place in the non-aseptic cartons market, on which it did not have a dominant position, it had no realistic chance of recouping its losses later. The Court, however, rejected that argument and upheld the finding of predatory pricing, stating: it would not be appropriate, in the circumstances of the present case, to require in addition proof that Tetra Pak had a realistic chance of recouping its losses. It must be possible to penalize predatory pricing whenever there is a risk that competitors will be eliminated.311 4.282  In his Opinion in Compagnie Maritime Belg e,312 Advocate General Fennelly appeared to show some support for the view that recoupment should be part of the predatory pricing test.313 In his view, recoupment ‘should be part of the test for abusively low pricing by dominant undertakings’ given that The reason for restraining dominant undertakings from seeking to hinder the maintenance of competition by, in particular, eliminating a competitor is that they would thus be enabled to charge abusively high prices. Thus, an inefficient monopoly would be reinstated and consumers would benefit only in the short run. If that result is not part of the dominant undertaking’s strategy it is probably engaged in normal competition.314 4.283  The position of Advocate General Fennelly does not represent the current state of EU competition law. In its subsequent Wanadoo decision, the Commission followed the position taken by the Court of Justice in Tetra Pak II by rejecting the need to show the presence of recoupment.315 That position was supported on appeal by the GC, which stated that the Commission was right ‘to take the view that proof of recoupment of losses was not a precondition to making a finding of predatory pricing’.316 4.284  Whether above-cost pricing can be exclusionary Whether or not above-cost prices, that is, prices allowing an equally efficient rival to compete, can sometimes be predatory is an issue that has been hotly debated amongst lawyers and economists. In this respect, a particularly interesting debate took place between Professors Aaron Edlin and Einer Elhauge in papers published in the Yale Law Journal .The debate appears to have been motivated by price wars among airlines, where incumbent hub-and-spoke airlines strategically cut prices on a particular route when a new direct-flight entrant emerges,

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leading to the rapid exit of that entrant and a return of prices to their higher pre-entry level. (p. 246) 4.285  While Edlin acknowledges that monopolists should in general have pricing freedom, and that the potential to earn monopoly profits is a spur to innovation,317 his primary argument is that: In markets where an incumbent monopoly enjoys significant advantages over potential entrants, but another firm enters and provides buyers with a substantial discount, the monopoly should be prevented from responding with substantial price cuts or significant product enhancements until the entrant has had a reasonable time to recover its entry costs and become viable, or until the entrant’s share grows enough so that the monopoly loses its dominance.318 4.286  He reaches the above conclusion on the basis of very narrow model framework. In particular, Edlin assumes homogeneous goods, where consumers purchase on the basis of price alone, and where all parties have full information, with the incumbent known to be the lowest cost provider and any entrant known to have relatively higher costs. The relevant context for Edlin’s analysis is markets characterized by learning by doing or by economies of scale. For the former, time alone will probably be enough for the entrant to become as efficient as the dominant firm. For the latter, time is not enough; the entrant must have the opportunity to compete for sufficient sales, and thereby to grow its share of the market, in order to become as efficient as the dominant incumbent. 4.287  Edlin also assumes a particular set of dynamic firm reactions. In the face of a policy in which the dominant firm is prevented from cutting prices in reaction to new entry, Edlin assumes that the dominant incumbent will adopt a policy of limit pricing ex ante, in order to prevent new entry from ever occurring. On this basis, he concludes that his policy prescription will benefit consumers in the short run and long run, because prices will perpetually be below the monopoly level, even before a new entrant appears. Implicit in his argument, however, is an assumption that all relevant firms have already entered the market. In other words, Edlin ignores longer term incentives of firms to develop businessacumen-based monopolies in the first instance. When the odds of earning monopoly profits fall, so too will investments to achieve such monopolies. Furthermore, Edlin ignores the possibility of dynamic competition, where a new entrant would leapfrog the incumbent in terms of product quality. 4.288  Writing in response to Edlin, as well as to a few earlier papers making similar proposals, Einer Elhauge argues that restricting above-cost pricing responses will often penalize efficient pricing behavior when incumbents do not even have the market power to restrict output. This is because, in many competitive markets, incumbent firms maximize their ability to incur common costs (and thus create output) by charging high-demand buyers higher prices to get them to cover a disproportionate share of recurring common costs, and charging low-demand customers lower prices that are closer to firms’ marginal costs once these common costs are incurred.319 4.289  Airline hub-and-spoke networks are a primary example of how common costs affect pricing and how demands can interrelate, meaning that single point-to-point routes cannot be analysed in isolation in any meaningful way. More pointedly, there is no evidence that airlines regularly earn a competitive rate of return, let alone a monopolistic one. All of

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which (p. 247) suggests that other forces, aside from anticompetitive foreclosure, are at play in that industry’s pricing. 4.290  In regard to the potential foreclosure of not-yet efficient rivals who simply need time to become as-efficient, Elhauge argues that would-be efficient entrants can always obtain the necessary funding to withstand any reduced prices that are below their own current costs but above the dominant firm’s costs. That is, Elhauge assumes perfectly functioning capital markets.320 Under this assumption, any entrant with a commercially valuable product which is deemed to be following the same (or a better) cost curve as the dominant firm will be able to secure the needed financial support to withstand any above-cost pricecutting campaign mounted by a dominant incumbent. 4.291  In response to Edlin’s (selective) dynamic competition point, Elhauge argues that policies that negatively affect firms’ innovation investment decisions are dangerous for agencies to pursue: more efficient firms do not simply drop from the heavens. Someone had to make the risky investments necessary to create them in the first place. And their incentives to make those risky investments will be smaller if the law lowers the rewards for successfully creating a more efficient firm.321 4.292  In their discussion of predatory pricing under EU competition law, O’Donoghue and Padilla come to a similar conclusion regarding the caution that is required should competition authorities pursue above-cost price cuts as anticompetitive: Condemning above-cost pricing should be approached with considerable reserve, since price competition is almost always desirable and it is very difficult, if not impossible, to formulate a legal rule to distinguish between an above-cost low price that will eliminate a competitor and one that will not. Speculative future gains through legal restrictions on above-cost price cuts should not be favoured over the present certainty of lower prices and, in the short-term at least, higher output.322 4.293  The Commission and the EU Courts examined the issue of above-cost predatory pricing in the Compagnie Maritime Belge case. That case concerned the conduct of the Associated Central West Africa Lines (‘Cewal’), a shipping conference made up of shipping companies operating a regular liner service between the ports of Zaïre (now the Democratic Republic of the Congo) and Angola and those of the North Sea, with the exception of the UK. The Commission found that there was a dominant position held collectively by the members of the Cewal conference and held that the conference violated Article 102 by altering the conference’s freight rates with respect to the rates in force so as to obtain rates identical to or lower than those charged by the main independent competitor for ships sailing on the (p. 248) same or similar dates (a practice known as ‘fighting ships’).323 The Commission’s test to reach that conclusion relied on three factors: (i) the price cuts were reactive and selective, having been adopted in response to entry and only for those ships whose sailing dates directly competed with the entrant; (ii) the reduced prices met (and once beat) the entrant; and (iii) the price cuts reduced defendant profits compared to what they would have been with higher prices. The Commission got around the Akzo predation test by saying that, although this practice was not ‘predatory’ pricing, it was nonetheless abusive.324 The GC affirmed this theory, but also suggested the alternative theory that any above-cost price cut the ‘real purpose’ of which was to strengthen a dominant position by eliminating a competitor was illegal.325 The Court of Justice declined to rule generally on when it was illegal for a dominant firm to make selective above-cost price cuts to meet prices of an entrant, but held that at a minimum such selective price cuts were illegal when

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the firm had over 90 per cent market share and had the avowed purpose of eliminating the entrant.326 4.294  The Guidance Paper In its Guidance Paper, the Commission indicates that it generally intervenes where there is evidence showing that a dominant undertaking engages in predatory conduct by deliberately incurring losses or foregoing profits in the short term ([which is referred to as] ‘sacrifice’), so as to foreclose or be likely to foreclose one or more of its actual or potential competitors with a view to strengthening or maintaining its market power, thereby causing consumer harm.327 4.295  Sacrifice As noted, the Guidance Paper provides that a conduct will be considered as entailing a sacrifice if the dominant firm (i) by charging a lower price for all or a particular part of its output over the relevant period or (ii) by expanding its output over the relevant period, incurred or is incurring losses that could have been avoided.328 To take a simple example, an airline that is dominant on a given market (eg the Brussels–Madrid route) can engage in predation by incurring losses (that could have been avoided) as a result of adopting low prices, increasing the frequency of its flights, or doing both. 4.296  The Guidance Paper indicates that the Commission will adopt AAC as the benchmark for assessing whether the dominant firm incurs or incurred avoidable losses and that pricing below AAC will thus generally be viewed as a clear indication of sacrifice.329 The Commission thus refers to a cost benchmark that is slightly different from that applied by the EU Courts. Instead of AVC, the Commission suggests applying the AAC benchmark. AAC covers not only AVC, but also the fixed costs that a dominant firm would avoid incurring by stopping production. If the dominant firm prices below AAC, it means it incurs a loss it could avoid by simply halting production. In such a case, the dominant firm is not minimizing its losses, as would be expected of a rational firm, and a predatory strategy can be presumed. (p. 249) 4.297  The Guidance Paper, however, indicates that the ‘concept of sacrifice includes not just pricing below AAC’.330 Rather oddly, it says that to show a predatory strategy, the Commission may also investigate whether the allegedly predatory conduct led in the short term to net revenues lower than could have been expected from a reasonable alternative conduct, i.e. whether the dominant undertaking incurred a loss that it could have avoided.331 4.298  This statement, which goes beyond the current state of the case law, is rather worrying as it is entirely open-ended. It is always possible after the fact to claim that alternative conduct would have been more profitable. Moreover, this approach is also quite intrusive in that it amounts to second-guessing corporate decisions. It is one thing to determine that a firm has engaged in predation because it priced a product or service below AAC and another to say that despite the fact the dominant firm did not incur a sacrifice, its prices are nevertheless predatory as this firm could have adopted more profitable course of conduct. 4.299  Anticompetitive foreclosure The Guidance Paper states that if sufficient data are available, the Commission will apply an ‘as efficient competitor’ analysis.332 Pursuant to this test where the effective price is below AAC, as a general rule it is capable of foreclosing even as efficient competitors (see our comments on sacrifice). Where the effective price is between AAC and LRAIC, the Commission will investigate whether other factors point to the conclusion that entry or expansion even by as competitors is likely to be affected. Finally, where the effective price is above LRAIC, there should be no predation. This approach is From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

therefore in line with the Akzo test described above, the only variation relating to the cost benchmarks (AAC and LRAIC, instead of AVC and ATC). 4.300  In addition, the Guidance Paper provides that it is not necessary to show that competitors have exited the market in order to determine the presence of anticompetitive foreclosure.333 That is in line with the position of the Court of Justice whereby the Commission should not wait for competitors to be driven out of the market to take action. In addition, the Guidance Paper provides that by adopting low prices, dominant firms may seek to prevent competitors from competing vigorously and have them follow the dominant firm’s pricing. It is indeed a better outcome for the dominant firm to maintain a nonthreatening competitor in the market than to force it to exit with the risk that its assets are purchased at low price by a more aggressive new entrant.334 4.301  As far as consumer harm is concerned, the Guidance Paper provides that such harm may be demonstrated by assessing the likely foreclosure effect of the conduct, combined with consideration of other factors, such as the presence of barriers to entry.335 4.302  Objective necessity and efficiencies The Commission considers that it is unlikely that predation will create efficiencies. The Commission will, however, consider claims by a dominant undertaking that the low pricing enables it to achieve economies of scale or efficiencies related (p. 250) to expanding the market.336 It may also be demonstrated that predation is objectively necessary and proportionate on the basis of factors external to the dominant undertaking.337

(e)  Refusal to supply and margin squeeze (i)  The concepts of refusal to supply and margin squeeze

4.303  In competition law, a ‘refusal to supply’ refers to a situation where a vertically integrated firm that is dominant on an upstream market (eg the market for wholesale broadband services) denies another firm access to an input (eg, wholesale broadband product) that it needs to compete with the dominant firm on a downstream market (eg retail broadband services). Anticompetitive refusal to supply is thus an example of ‘vertical foreclosure’. In case of a refusal to license, a firm which holds IP rights refuses to license such rights to a competitor that needs to license them to manufacture a product or offer a service on a downstream market. 4.304  ‘Margin squeeze’ refers to a situation in which a vertically integrated dominant firm uses its control over an input supplied to downstream rivals to prevent them from making a profit on a downstream market in which the dominant firm is also active. Margin squeeze thus amounts to a ‘constructive’ refusal to supply. The dominant firm could in theory engage in margin squeeze in a number of different ways. It could, for instance, raise the input price to levels at which rivals could no longer sustain a profit downstream. Alternatively, it could engage in below-cost selling in the downstream market, while maintaining a profit overall through the sale of the upstream input. Finally, the dominant firm could raise the price of the upstream input and lower the price of the downstream retail product to create a margin between them at which a rival could not be profitable. (ii)  Effects of refusal to supply and margin squeeze

4.305  By refusing to supply an essential input to competitors, an undertaking that holds a dominant position on an upstream market may harm competition on a downstream market. The natural remedy to this problem may be to mandate the upstream firm to supply its downstream competitor. The problem with this remedy is that it may negatively affect the upstream firm’s incentives to invest.

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4.306  This explains why economists tend to frame the mandatory access debate around a trade-off between ex ante and ex post efficiency.338 On the one hand, mandating a dominant firm holding an essential facility to share such a facility with one or several competitors stimulates competition in downstream markets, thus promoting ex post (allocative) efficiency.339 On the other hand, mandatory sharing may reduce the return of the facility holder and thus decrease its ex ante incentives to invest and compete dynamically.340 This has led some economists to suggest the need to balance the ex post allocative efficiency gains, which can be realized by mandating access, with the ex ante dynamic efficiency gains, which can be (p. 251) protected by refusing access.341 As will be seen below, this approach is somewhat echoed in the Guidance Paper. 4.307  Despite the largely documented importance of ‘dynamic efficiency’,342 the Commission and the Court of Justice have traditionally focused on the increased ‘allocative efficiency’, which would be gained by stimulating competition between the access ‘giver’ and the access seeker(s) in downstream markets. There might be good reasons for that. First, ex post allocative efficiency gains are generally easier to measure than ex ante ones. As far as ex post gains are concerned, mandating access to an essential facility will often lead to significant results identifiable in the short term, such as increased competition in the downstream market, falling prices, and improved quality of service. Yet, though less apparent, the harm created by mandatory access on ex ante incentives can be very serious. In this regard, the right question is not to ask whether mandatory access will ruin the business prospects of the bottleneck holder, but whether such access will reduce, or even eliminate, the incentives for this firm, as well as any other firm, to invest in facilities (physical infrastructures, new processes, etc), which will probably be subject to compulsory sharing.343 Second, from a public choice standpoint, it seems clear that competition authorities whose time horizon is not necessarily long (after all, a Commissioner is only appointed for five years), will obtain greater immediate ‘rewards’ by giving access to a bottleneck in terms of showing to the public that they are promoting competitive market structures and protecting consumer welfare. 4.308  In the Bronner case, Advocate General Jacobs did not miss the importance of the ex ante vs ex post trade-off as he explained: In the long-term it is generally pro-competitive and in the interest of consumers to allow a company to retain for its own use facilities which it has developed for the purpose of its business. For example, if access to a production, purchasing or distribution facility were allowed too easily there would be no incentive for a competitor to develop competing facilities. Thus while competition was increased in the short term it would be reduced in the long term. Moreover, the incentive for a dominant undertaking to invest in efficient facilities would be reduced if its competitors were, upon request, able to share the benefits. Thus the mere fact that by retaining a facility for its own use a dominant undertaking retains an advantage over a competitor cannot justify requiring access to it.344 4.309  It is, however, in cases where the essentially facility is protected by IP rights that the tension between ex ante and ex post efficiency is the most acute.345 The objective of granting IP rights is indeed to reward a firm for the investments made in developing a new process or product. (p. 252) Exclusion is thus the essence of an IP right, a fact that leads some authors to claim that compulsory licensing should never be forced on IP rights holders.346 4.310  Interestingly, this tension is at the core of the Microsoft case. This case, the tying limb of which was discussed above at paras 4.232 ff, originated from a complaint lodged to the Commission by Sun Microsystems in December 1998. In its complaint, Sun Microsystems argued that, by refusing access to interoperability information, Microsoft was leveraging its market power in the PC operating system market in order to monopolize the From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

work group server operating system market. On the other hand, during the proceedings, Microsoft justified its refusal to provide that information, some aspects of which were protected with IP rights, on the ground it needed to protect the outcome of billions of dollars of R&D investments in software features, functions and technologies. This is the essence of intellectual property right protection. Disclosure would negate that protection and eliminate future incentives to invest in the creation of intellectual property.347 This argument was essentially used by Microsoft as an ‘objective’ justification to its refusal to share interoperability information with its competitors. 4.311  To respond to this argument, the Commission engaged in a balancing process between Microsoft’s interests in protecting its investment in IP rights and the benefits (in terms of innovation) that would be derived from mandating Microsoft to give access to the information requested by its competitors and it concluded that: A detailed examination of the scope of the disclosure at stake leads to the conclusion that, on balance, the possible negative impact of an order to supply on Microsoft’s incentives to innovate its outweighed by its positive impact on the level of innovation of the whole industry (including Microsoft). As such the need to protect Microsoft’s incentives to innovate cannot constitute an objective justification that would offset the exceptional circumstances identified.348 4.312  It is extremely hard to determine whether the Commission’s balancing act between ex post and ex ante efficiencies in terms of innovation has been pursued in a fair and effective manner. But this is not the main point, which instead relates to the desirability for a competition authority or a court to engage in such a process. This is not an easy question. On the one hand, a positive aspect of this process is that it gives consideration to the need to protect the incentives of the IP rights holder to innovate. Balancing the costs and benefits of the options (p. 253) given to the Commission (mandating access vs not mandating access) seems also a fair mechanism to determine the option that will maximize economic welfare. On the other hand, such a balancing process may suffer a number of pitfalls. First, balancing ex ante vs ex post efficiencies is obviously a very difficult process, which even the most sophisticated economists may find daunting. The risk of mistaken decisions is therefore high. Moreover, as a balancing test can be approached from several different angles, the methodology used by the competition authority will always (rightly or wrongly) be criticized by the defendant thereby triggering a battle of experts and steering the case away from the more crucial points. 4.313  Microsoft’s advisers were quick to criticize this aspect of the decision and they were probably right to do so. Balancing tests are an inherently unreliable and unpredictable method to address mandatory access cases. They may also introduce a bias in favour of access seekers.349 But does it mean that balancing tests of the type used by the Commission in its Microsoft decision are valueless? No, but this test should only play a ‘marginal’ role, that is, it should aim to verify whether the costs of granting access in terms of reduced ex ante efficiency clearly outweighs the ex post benefits of giving access. Beyond that, its role should be limited. (iii)  Decisional practice of the Commission and case law of the EU Courts

4.314  Refusal to supply The origin of the EU refusal to supply case law is often traced back to the Commercial Solvents case.350 Commercial Solvents was the only supplier of aminobutanol, a chemical essential for making ethambutol and other drugs in the EU. It had supplied aminobutanol to Zoja, which made drugs based on that substance. But Commercial Solvents decided to change to a policy of making drugs based on aminobutanol itself, and

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told Zoja it was reserving aminobutanol for its own use and would no longer be supplying it to Zoja. The Court of Justice ruled that: an undertaking which has a dominant position in the market in raw materials and which, with the object of reserving such raw material for manufacturing its own derivatives, refuses to supply a customer, which is itself a manufacturer of these derivatives, and therefore risks eliminating all competition on the part of this customer, is abusing its dominant position within the meaning of Article 102.351 4.315  The central issue, of course, is to determine the exact circumstances in which dominant firms should give access to their facilities. As will be seen in the developments that follow, this remains a controversial issue in EU law. (p. 254) 4.316  Following Commercial Solvents, the Commission relied on the so-called ‘essential facilities’ doctrine to mandate infrastructure holders to give access to their facilities to downstream competitors. This doctrine was often criticized for stretching the law too far. In Bronner, however, the Court of Justice limited the obligation for dominant firms to grant access to their facilities to a narrow set of circumstances.352 The Bronner case originated from a dispute between Oscar Bronner, a company which published Der Standard, a newspaper which had a small share of the Austrian daily newspaper market, and MediaPrint, which published Neue Kronen Seitung and Krunier, which together represented a significant share of that market. MediaPrint had established a nationwide home-delivery scheme for the distribution of its newspapers, which consisted of delivering the newspapers directly to subscribers in the early hours of the morning. 4.317  Oscar Bronner initiated proceedings before a national court seeking an order requiring MediaPrint to cease abusing its alleged dominant position on the market by including Der Standard in its home-delivery service against payment of a reasonable remuneration. Oscar Bronner argued that postal delivery, which generally does not take place until the late morning, does not represent an ‘equivalent alternative to homedelivery’. Moreover, in view of the small circulation of Der Standard, it would be unprofitable for Oscar Bronner to set up its own home-delivery service. In defence, MediaPrint argued that the setting up of its home-delivery service required a significant investment, and that the fact that it held a dominant position did not place it under an obligation to assist competitors. 4.318  Against that background, the national court asked the Court of Justice whether the circumstances at play in the case, that is, the refusal by MediaPrint to give access to its mail delivery service to its smaller competitor, could constitute an abuse of a dominant position within the meaning of Article 102 TFEU. The Court replied that, pursuant to the case law of the Court of Justice (including Commercial Solvents and Magill, discussed at paras 4.320ff) Article 102 may only apply where three conditions are fulfilled: the refusal of access to a facility must be likely to prevent any competition at all on the applicant’s market; the access must be indispensable or essential for carrying out the applicant’s business; and the access must be denied without any objective justification.353 4.319  The Court of Justice then focused on the question of indispensability, which it considered not to be present in the case at hand. The Court estimated that other methods of distributing daily newspapers, such as by post and sale in shops, ‘even though they may be less advantageous for the distribution of certain newspapers, exist and are used by the publishers of those daily newspapers.’354 In addition, the Court found that nothing made it impossible, or even unreasonably difficult, for any other publisher of daily newspapers to establish, alone or together with other publishers, its own nationwide home-delivery scheme.355 Rightly in our (p. 255) view, the Court thus took a rather strict stance on the

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circumstances in which access should be given clearly indicating that it will take the condition of indispensability very seriously. 4.320  The mandatory access question has also been addressed with respect to IP rights. In Magill, the television companies in Britain and Ireland each published weekly TV magazines listing their own programmes only. They refused to give lists of their TV programmes for the following week to an independent weekly TV magazine called Magill, which wanted to publish all the programmes of all the TV channels for the whole week, a product for which there was an unsatisfied consumer demand. The Commission found in favour of Magill356 and its decision was subsequently confirmed by the GC357 the decision of which was in turn confirmed by the Court of Justice.358 The Court ruled that the exercise of an IP right by a dominant firm could, in ‘exceptional circumstances’, involve abusive conduct. The Court considered that in the case at hand these circumstances were met in that: •  the refusal in question concerned a product (TV listings) that was indispensable for the production of a new product (a comprehensive TV magazine covering the programmes of all TV channels) for which there was clear and unsatisfied consumer demand; •  the TV companies by refusing to provide this essential information, were monopolizing the separate (downstream) market for TV programme guides; and •  there was no objective justification for the refusal.

359

4.321  Some observers argued that the fact that the copyright in question did not protect any invention or investment had a major influence in the decision of the Commission and the judgments of the European Courts.360 It is hard to know the extent to which the Court of Justice judges were influenced by this consideration, but it is submitted that whether or not the list of programmes in question deserved copyright protection was not a factor to be taken into account. First, from a practical standpoint, it seems hard to establish a distinction between products or services that ‘deserve’ copyright protection and those that ‘do not deserve’ such protection. In Magill, it is true that the copyright in question did not reward any creative effort, but simply reflected the oddity of Irish copyright legislation. But other cases might involve copyrights which reward some limited, but not insignificant, creative efforts. Moreover, from a legal standpoint, the Court of Justice case law has repeatedly (p. 256) held that EU law cannot encroach upon matters relating to the existence (nature and extent of protection) of IP rights.361 Thus, EU competition law cannot be used to redress situations where an operator has obtained copyright, and thus the exclusivity that goes with them, for a product or service that in the eyes of competition officials or judges did not deserve protection.362 In the absence of an EU harmonization of laws related to intellectual property protection, the granting of copyright remains a matter for national law. 4.322  In the IMS case, IMS, a company providing data on regional sales of pharmaceutical products in Germany to pharmaceutical laboratories had developed with the collaboration of industry a ‘brick structure’ allowing it to present data sales in a particularly effective fashion. IMS brought proceedings before a German court to prevent PII, a company competing with IMS on this data sales market, from using any brick structure derived from the IMS 1860 brick structure. The Landgericht Frankfurt am Main granted an interlocutory order preventing PII from using the IMS brick structure, an order which was confirmed on appeal as well as in a subsequent judgment following the acquisition of PII by NDC. In those proceedings, the national court viewed the IMS structures as data banks (or parts thereof) which are protected by the German copyright law. It also referred to the Court of Justice several questions for a preliminary ruling regarding the applicability of Article 102 TFEU to

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IMS’ refusal to grant a licence for its brick structure to NDC. As far as the main question asked by the German court is concerned, the Court replied that: The refusal by an undertaking which holds a dominant position and owns a copyright of a brick structure indispensable to the presentation of regional sales data on pharmaceutical products in a Member State to grant a licence to use that structure to another undertaking which also wishes to provide such data in the same Member State, constitutes an abuse of a dominant position within the meaning of Article 82 EC where the following conditions are fulfilled: –  the undertaking which requested the licence intends to offer, on the market for the supply of the data in question, new products or services not offered by the copyright owner and for which there is a potential consumer demand; –  the refusal is not justified by objective considerations; –  the refusal is such as to reserve to the copyright owner the market for the supply of data on sales of pharmaceutical products in the Member State concerned by eliminating all competition on the market. 363 4.323  This judgment has been seen by many as well in line with Magill. However, it attempts to give additional precision on several important aspects of the Magill test. Two aspects are particularly important. 4.324  The first relates to the condition contained in Magill that stipulates a refusal to license was abusive if it could be shown that such refusal had the effect of excluding competition on a secondary market.364 In its submissions, IMS argued that, in essential facilities cases, it was necessary to identify two markets: the market for the supply of the facility in question and (p. 257) the market for the goods or services for which access is needed. In its judgment, the Court of Justice stated that for the application of its Bronner case law ‘it is sufficient that a potential market or even a hypothetical market can be identified’.365 Thus, the Court suggests that ‘potential’ or ‘hypothetical’ markets can be constitutive of an upstream market, access to which should be given to allow competitors to compete on a downstream market. 4.325  The Court does not say anything, however, as to the exact meaning of such terms and the way they should be applied in practice.366 The implications of reliance on such terms could, however, be extremely broad. As any IP right could ‘hypothetically’ be marketed as a standalone item (even if, in practice, a rational entrepreneur would not do so, eg because of transaction costs, the inability to price a licence, etc), the holder of the right would then be forced to grant a licence to any competitor which could prove that such a licence is necessary to allow it to compete on a downstream market.367 This would represent a huge disincentive for dominant firms to invest into new production processes that would allow them to gain a competitive advantage vis-à-vis competitors as the product of such investments may have to be given to these competitors on the ground they need it to be able to compete with the dominant firm on a downstream market. 4.326  The second issue relates to the requirement in Magill that, to qualify a refusal to license an IP right as an abuse of dominant position, the refusal in question had to concern a licence that was indispensable for the production of a ‘new product’ for which there was clear and unsatisfied consumer demand. In IMS, the Court of Justice insisted on the importance of this condition. Specifically, at paragraph 52 of the judgment the Court required as one of the conditions for a refusal to give a licence to constitute an abuse that ‘the undertaking which requested the licence intends to offer, on the market for the supply

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of the data in question, new products or services not offered by the copyright owner and for which there is a potential consumer demand.’ 4.327  As stated by the Court in IMS, this condition is problematic. The Court indeed fails to specify what precisely is to be understood by the term ‘new product’, a term that is not subject to any well-received legal or economic definition. Does the Court consider that a new product is a product that is entirely different from the product already offered by the copyright holder? Or does it consider as a ‘new’ product a product which represents mere improvements of the product already sold on the market by the copyright holder? A passage in the judgment seems to suggest that the truth might be in the middle. The Court indeed states that the refusal by a dominant firm to allow access to a product protected by a copyright may be regarded as an abuse (p. 258) only where the undertaking which requested the licence does not intend to limit itself essentially to duplicating the goods or services already offered on the secondary market by the owner of the copyright, but intends to produce new goods or services not offered by the owner of the right and for which there is a potential consumer demand.368 It thus seems that a new product is a product that does not duplicate the existing product, but intends to offer a product that is different and for which there is a potential (importantly, the Court does not say ‘actual’) consumer demand. But again, it is not clear how ‘different’ a product should be different from the product already sold on the secondary market to be considered as ‘new’. 4.328  Let us now return to the March 2004 Microsoft decision adopted by the Commission in which the Commission found inter alia that Microsoft’s refusal to share with its competitors on the work group server market the interoperability information they needed to be able to compete with Microsoft on this market. In its decision, the Commission recognized that ‘it cannot be excluded that ordering Microsoft to disclose such specifications and allow such use of them by the third parties restricts the exercise of Microsoft’s intellectual property rights.’369 The Commission, however, referred to the Magill case in which the Court stated that while ‘the refusal by the owner of an exclusive right [copyright] to grant a licence, even if it is the act of an undertaking holding a dominant position, cannot in itself constitute an abuse of dominant position,’370 the exercise of such right by the owner ‘may, in exceptional circumstances involve abusive conduct’.371 The Commission then summarized the set of exceptional circumstances outlined in Magill, but claimed ‘there is no persuasiveness to an approach that would advocate the existence of an exhaustive checklist of circumstances of exceptional character that may deserve to be taken into account when assessing a refusal to supply.’372 4.329  The Commission addressed one by one the conditions that were set by the Court of Justice in Magill. First, the Commission established that Microsoft effectively refused to disclose interoperability information and allow its use for the development of compatible work group servers by its competitors.373 Among the additional circumstances to be taken into consideration, the Commission then argued that Microsoft’s conduct involves a disruption of previous levels of supply of interoperability information. Second, the Commission showed that this disruption of prior levels of supply of interoperability creates a risk of elimination of competition on the work group server market. The Commission argued that while Microsoft’s market share for work group server operating system products had quickly increased over the last few years, its competitors’ market shares had consistently declined.374 It also established a link between Microsoft’s refusal to supply interoperability-related information to its competitors and the elimination of competition on the work group server market. The Commission refuted the numerous arguments raised by Microsoft to deny that the lack of interoperability disclosures would eliminate competition on the market and (p. 259) that, in any event, these disclosures are not necessary as there From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

are several categories of substitutes for disclosure.375 For the Commission, interoperability disclosures are essential to Microsoft’s competitors on the work group server market and Microsoft’s refusal to provide them creates risks of elimination of competition on that market.376 4.330  It is, of course, extremely difficult to verify the factual correctness of the analysis of the Commission and we will not enter into this debate. The decision of the Commission is extremely long (302 pages with no less than 1,342 footnotes) and contains detailed technical discussions. However, assuming that the facts established by the Commission correctly reflect the reality of the market, the Commission seems to have addressed the conditions imposed by the Court of Justice in Magill and IMS for establishing that a refusal to supply a product protected by an IP right amounts to an abuse of a dominant position contrary to Article 102 TFEU (refusal to supply an essential product, risks of elimination of a downstream market, and no objective justification for the refusal). 4.331  Yet, there seems to be one condition that the Commission overlooked, or at least insufficiently examined in its analysis, which is that the refusal in question must concern a product that is indispensable for the production of a new product for which there is potential consumer demand. As we have seen above, this condition is problematic, but it was confirmed in the IMS case. Hence, unless it could be shown that the interoperability information requested by Microsoft’s competitors is not protected by IP rights, it seems clear that this condition should be met to justify the application of Article 102. 4.332  The Commission’s decision contains limited references to the impact of the refusal on the ability of Microsoft’s competitors to develop new products. For instance, the Commission states that: Due to the lack of interoperability that competing work group server operating system products can achieve with the Windows domain architecture, an increasing number of consumers are locked into a homogeneous Windows solution at the level of the work group server operating system. This impairs the ability of such customers to benefit from innovative work group server operating system features brought to the market by Microsoft’s competitors. In addition, this limits the prospect for such competitors to successfully market their innovation and thereby discourages them from developing new products. … In a longer-term perspective, if Microsoft’s strategy is successful, new products other than Microsoft’s work group server operating systems will be confined to niche existences or not be viable at all. There will be little scope for innovation— except possibly for innovation coming from Microsoft.377 4.333  In the above passages, the Commission sought to demonstrate that Microsoft’s refusal to supply interoperability information would eventually prevent competitors from developing new products and that innovation in the work group server market would be only Microsoft’s. This analysis does not seem to meet the new product test designed in Magill and further refined in IMS, however. In Magill, it was indeed possible to identify the specific new product (ie, a weekly TV magazine comprising the programmes of all TV channels), the production of which would have been made impossible by the dominant firm’s refusal to supply. (p. 260) In Microsoft, the Commission simply suggests that Microsoft’s refusal to disclose interoperability will prevent its competitors from developing unspecified future new products. This, in the authors’ opinion, fails to meet the Magill test.

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4.334  In its appeal to the GC, Microsoft argued that none of the exceptional circumstances in which a refusal by an undertaking in a dominant position to grant third parties a licence covering IP rights could be characterized as abusive, as recognized by the Court of Justice in Magill and approved in IMS, were present in the case at hand. In its judgment, the GC engaged in a heavy technical discussion rejecting Microsoft’s arguments that the first two conditions that need to be met for a refusal to license to lead to an infringement of Article 102 TFEU, indispensability and elimination of competition, were not met in this case. It then focused on the third condition, that is, whether the interoperability information would be used to produce a ‘new product’. 4.335  In this respect, the GC noted that the circumstance relating to the appearance of a new product, as envisaged in Magill and IMS Health … cannot be the only parameter which determines whether a refusal to license an intellectual property right is capable of causing prejudice to consumers within the meaning of [Article 102(b) TFEU].378 4.336  Pursuant to this provision, such prejudice may arise ‘where there is a limitation not only of production or markets, but also of technical development.’ The GC noted that it was on that last hypothesis that the Commission based its finding in the contested decision. Thus, the Commission considered that Microsoft’s refusal to supply the relevant information limited technical development to the prejudice of consumers within the meaning of Article 102(b) TFEU. 4.337  The GC thus considered that the Commission was correct to observe that as a result of the lack of interoperability that competing work group server operating system products could achieve with Windows, a growing number of consumers were locked into a homogeneous Windows solution.379 According to the GC, the Commission was also correct to consider that the artificial interoperability advantage Microsoft retained by its refusal discouraged its competitors from developing and marketing competing products with innovative features to the prejudice of consumers.380 Such products were thus placed at a disadvantage with regard to parameters such as security, reliability, ease of use, or operating performance speed. The Court also noted that the Commission had emphasized that there was ample scope for differentiation and innovation beyond the design of interface specifications and that Microsoft’s competitors would have no interest in merely reproducing Windows work group server operating systems, but on the contrary that they would have no other choice but to differentiate their products from Microsoft’s products with respect to certain parameters and certain features.381 4.338  With respect to the presence of an objective justification, the GC noted that it is for the dominant undertaking concerned, and not for the Commission, to raise any plea of objective justification before the end of the administrative procedure and to support it with (p. 261) arguments and evidence.382 The GC noted that Microsoft justified its conduct solely on the fact that the technology concerned was covered by IP rights. It argued that were it required to grant third parties access to that technology, that would eliminate future incentives to invest in the creation of more intellectual property. The GC, however, considered that the fact that Microsoft’s technology was protected by IP rights could not in itself be considered as an objective justification and that Microsoft did not sufficiently demonstrate that sharing interoperability information with competitors would affect its incentives to invest.383 The GC concluded that Microsoft did not demonstrate the presence of any objective justification for its refusal to disclose the interoperability at issue.

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4.339  This judgment triggers the following observations. First, the GC’s ruling makes clear that the appearance of a new product cannot be the only parameter which determines whether a refusal to license infringes Article 102(b) TFEU. This appears to be a significant extension of the ‘exceptional circumstances’ test adopted in Magill and IMS. It is questionable whether this extension is justified, especially considering that an access seeker will often, in our view, be in a position to claim that a refusal to supply will harm ‘technical development’ (whatever this open-ended concept means). Second, with respect to the presence of an objective justification, the GC claimed that it was Microsoft’s burden to show that the disclosure of its interoperability information would have a significant impact on its incentives to invest. In our view, it is unfair to place the burden on the dominant firm holding IP rights of demonstrating that mandatory licensing would hurt its incentives to invest, since it is normally on the Commission (or the complainant) to bring proof of the existence of an infringement. 4.340  Margin squeeze Margin squeeze allegations have arisen in several cases before the EU institutions. They have been frequent in network industries opened to competiton. 4.341  In National Carbonising, the National Carbonising Company (NCC) purchased all the coal it needed for coke production from the National Coal Board (NCB), whose subsidiary, National Smokeless Fuels Limited (NSF), produced industrial and domestic hard coke in competition with NCB. NBC held a virtual monopoly in coal production and, through NSF, controlled almost 90 per cent of the downstream coke market.384 As a result of successive increases in the cost of NCC’s raw materials sourced from NCB, NCC’s costs of production rose by £10.39 per ton, whereas the maximum price increase downstream for the finished product was only £6.70. NCC would therefore have been unable to operate economically on the basis of these pricing structures and sought interim relief. Because it was only an interim decision, the Commission’s decision did not enter into detail on the relevant legal principles to be applied to a price squeeze. It merely stated that an upstream dominant firm supplying an essential input to rivals may ‘have an obligation to arrange its prices so as to allow a reasonably efficient manufacturer of the derivative a margin sufficient to enable it to survive in the long-term.’385 (p. 262) 4.342  The next case was British Sugar/Napier Brown,386 where a margin squeeze was one of a number of abuses that British Sugar plc (BS), the dominant sugar manufacturer in the UK, had allegedly committed. BS was found to be dominant in the UK markets for the supply of raw and granulated sugar to retail and industrial clients. Its pricing policy towards Napier-Brown (NB)—which acted as a buyer and re-seller of sugar in competition with BS—was found to result in ‘insufficient margin for a packager and seller of retail sugar, as efficient as BS itself in its packaging and selling operations, to survive in the long-term.’387 The Commission found that BS was dominant in both the market for the raw material (sale of bulk sugar) and the derived product (retail sugar) and that maintaining … a margin between the price which it charges for a raw material to the companies which compete with the dominant company in the production of the derived product and the price which it charges for the derived product, which is insufficient to reflect that dominant company’s own costs of transformation (in this case the margin maintained by BS between its industrial and retail sugar prices compared to its own repackaging costs) with the result that competition in the derived product is restricted, is an abuse of dominant position.388 4.343  In Industrie des Poudres Sphériques, Pechiney Electrometallugie (PEM) was the sole EU producer of primary calcium metal and also marketed broken calcium metal (a derivative of primary calcium metal). Industries des Poudres Sphériques (IPS) competed with PEM in the derivative market for broken calcium metal. IPS alleged that PEM set the price of primary calcium metal abnormally high, which in combination with the very low price for broken calcium metal, forced its competitors to sell at a loss if they were to remain From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

in the market. IPS alleged that PEM’s primary calcium metal offer of 21 June 1995, gave rise to a margin squeeze. 4.344  The Court defined a price squeeze as arising where a vertically integrated dominant firm supplies an input to rivals at prices ‘at such a level that those who purchase it do not have a sufficient profit margin on the processing to remain competitive on the market for the processed product.’389 The Court suggested that this might occur in two ways: (i) where the prices for the upstream product were abusive or (ii) the prices for the derived product were predatory.390 However, in practice, the Court applied a single test for abuse, since it held that the upstream price would be abusive or the downstream price predatory if ‘an efficient competitor’ could not compete on the basis of the dominant firm’s pricing.391 The Court expressly excluded from this definition a company with higher processing costs than the dominant firm.392 4.345  In Deutsche Telekom,393 the Commission applied for the first time competition law principles to a margin squeeze in the telecommunications sector. Deutsche Telekom (DT) was found (p. 263) guilty of a margin squeeze in circumstances where it charged competitors more for unbundled broadband access at the wholesale level than it charged its subscribers for access at the retail level. From 2002, prices for wholesale access were lower than retail subscription prices but the difference was still not sufficient to cover DT’s own downstream product-specific costs for the supply of end-user services. The Commission stated that a margin squeeze would occur where the competing services were comparable and ‘the spread between DT’s retail and wholesale prices is either negative or at least insufficient to cover DT’s own downstream costs.’394 This meant that DT would have been unable to offer its own retail services without incurring a loss if it had had to pay the wholesale access price as an internal transfer price for its own retail operations. As a consequence the profit margins of competitors would be squeezed, even if they were just as efficient as DT.395 As pointed out by the Commission, a ‘margin squeeze imposes on competitors additional efficiency constraints which the incumbent does not have to support in providing its own retail services.’396 4.346  One interesting aspect of Deutsche Telekom is that it illustrates the tension that may occur between sector-specific rules and authorities, on the one hand, and antitrust rules and authorities, on the other hand. The German telecommunications regulator had approved the rates proposed by DT, but DT’s competitors complained to the Commission that these rates amounted to a margin squeeze. In its defence, DT contended that if there was any infringement of EU law, the Commission should not be acting against an undertaking whose charges were regulated, but against Germany (under Art 258 TFEU). The Commission, however, rejected that argument on the ground that, pursuant to a constant case law, ‘competition rules may apply where the sector-specific legislation does not preclude the undertakings it governs from engaging in autonomous conduct that prevents, restricts or distorts competition.’397 The Commission considered that, despite the intervention of the German regulatory authority, DT retained a commercial discretion, which would have allowed it to restructure its tariffs further so as to reduce or indeed put an end to the margin squeeze.398 4.347  DT appealed the decision of the Commission to the GC, which, however, supported the Commission decision both on the methodology to be used for determining the presence of a margin squeeze abuse and the fact that given the fact that DT’s retail prices were lower than its wholesale prices there was an insufficient margin for an equally efficient operator to compete in the market.399 Similarly, the GC rejected DT’s argument that there could not be abusive pricing in the form of a margin squeeze in the present case, because wholesale charges had been approved by the regulatory authority. The GC ruled that a finding of abuse could be found provided that the undertaking subject to price regulation had the commercial discretion to avoid or end the margin squeeze on its own initiative, which was

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the case of DT.400 DT unsuccessfully appealed the decision of the GC to the Court of Justice.401 (p. 264) 4.348  The Deutsche Telekom decision was followed by another margin squeeze decision targeting another large telecommunications incumbent, this time Telefónica.402 This case originated from a complaint to the Commission from France Télécom alleging that the margin between the wholesale prices Telefónica’s subsidiaries charged their competitors for wholesale broadband access in Spain and the retail prices they charged end-users was not sufficient to enable Telefónica’s competitors to compete in the broadband retail market.403 Based on a detailed analysis, the Commission considered that margin squeeze was indeed present and capable of foreclosing competition in the retail market, and had harmed consumers. As there was no objective justification or efficiency defences to Telefónica’s behaviour, the Commission found that it had infringed Article 102 TFEU and imposed a fine of €151,875,000. 4.349  One of the most interesting questions at stake in Telefónica was whether, to prove a breach of Article 102, the Commission had to demonstrate that access to Telefónica’s DSL network was ‘essential’ to its competitors to provide retail broadband services. Because a margin squeeze is nothing less than a ‘constructive’ refusal to supply,404 it appears logical that the conditions that had been set by the Court of Justice in Bronner should be met to establish a margin squeeze infringement. Hence, in its reply to the statement of objections, Telefónica argued that the Commission should prove that the upstream input (ie, its DSL network) is ‘indispensable’ for the provision of the downstream service. 4.350  In this respect, Telefónica alleged that the conditions set by the Court in Bronner were not met in its case because: (i) there were real and/or potential alternatives to the regional and national wholesale access services of Telefónica; (ii) the regional and national wholesale access services of Telefónica could be replicated; and (iii) the alleged conduct was not likely to eliminate all competition on the downstream market. Telefónica concluded that given the fact it was not obliged under Article 102 to grant access to its own network, it was illogical, and legally unjustified, to maintain that its pricing policy concerning its national and regional wholesale products was nonetheless subject to Article 102 on the mere ground that these wholesale products had been offered to competitors as a result of a regulatory obligation.405 4.351  The Commission, however, argued that the particular circumstances of this case ‘fundamentally differed’ from those in Bronner .406 First, Telefónica had a duty to supply the upstream inputs in question and it was clear from the considerations underlying both EU and Spanish law that Telefónica’s duty to supply the relevant upstream products results from a balancing by the public authorities of the incentives of Telefónica and its competitors to invest and innovate. This is because the need to promote downstream competition in the long term by imposing access to Telefónica’s upstream inputs exceeds the need to preserve Telefónica’s ex ante incentives to invest in and exploit the upstream infrastructure in question for its own benefit.407 (p. 265) 4.352  Second, the Commission estimated that ‘Telefónica’s ex ante incentive to invest in its infrastructure [we]re not at stake in the present case.’408 Indeed, Telefónica’s infrastructure was to a large extent the fruit of investments that were undertaken well before the advent of broadband in Spain and that thus bore no relation to the provision of broadband services (but for the provision of traditional fixed telephony services). Also, those original investments were undertaken in a context where Telefónica was benefiting from special or exclusive rights that shielded it from competition. The

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investment criteria used by the former monopoly at that time would have led to the investment being made even if there would have been a duty to supply.409 4.353  In our view, this position is entirely flawed. As to the first exception, EU competition law and national regulatory laws have different objectives irrespective of whether the latter implements secondary EU law. As expressly stated by the GC, national regulatory authorities apply a different set of principles and assumptions.410 The objective of EU competition law is to prevent anticompetitive behaviour so as to maintain a competitive market structure for the benefit of consumers.411 Regulation and regulators must balance a broader set of objectives including not only the protection of competition, but also the creation of competitive market structures, the promotion of investments in the telecommunications sector, and the maintenance and improvement of universal service.412 Hence, the imposition of an obligation to deal by regulators may serve to achieve objectives that are broader than those pursued under Article 102 TFEU.413 An obligation to deal may thus be imposed by national regulatory authorities in circumstances where the Commission would not be entitled to impose such an obligation. The Commission is not entitled to use Article 102 to enforce regulatory obligations. (p. 266) 4.354  As to the second exception, it is difficult to apply in practice and is likely to lead to unpredictable and erroneous results. Whether or not the ‘firm’s upstream market position has been developed under the protection of special or exclusive rights or has been financed by state resources’ may not be clear-cut. Some of the network assets required to provide a wholesale product may have been paid for in large part after market liberalization and it may be difficult to determine which parts of the assets have been paid for preliberalization and post-liberalization. Incumbent operators may have to upgrade very significantly the networks inherited from the pre-liberalization/pre-privatization periods to make such networks usable for the provision of end-user services. 4.355  Whether or not the ‘essentiality’ of the upstream input had to be demonstrated in margin squeeze cases was again addressed in the TeliaSonera judgment of the Court of Justice.414 This case originated in a reference for a preliminary ruling made by Stockholm District Court in which it asked the Court of Justice a series questions on the interpretation of Article 102 TFEU concerning an alleged abuse of a dominant position in the form of a margin squeeze. The reference was made in the course of proceedings between TeliaSonera Sverige AB and the Konkurrensverket (the Swedish Competition Authority). TeliaSonera is the incumbent operator of the fixed telephone network in Sweden. Apart from providing broadband services to the benefit of end-users (retail market), TeliaSonera offered access to its metallic access network to other operators (wholesale market), which were also active on the end-user market. The Swedish Competition Authority alleges that TeliaSonera abused its dominant position on the wholesale market by applying a margin between the wholesale price for ADSL products and the retail price for ADSL services it offers to consumers which would not have been sufficient to cover TeliaSonera’s incremental costs on the retail market. Against that background, the Stockholm District Court decided to stay the proceedings in the case and refer questions to the Court of Justice. 4.356  One of the questions was whether to constitute a margin squeeze abuse ‘the good or service supplied by the dominant undertaking on the wholesale market [should be] indispensable to competitors.’415 To that question, the Court answered that while essentiality must be demonstrated in a refusal to supply case, it does not have to be demonstrated in a margin squeeze case as it is a distinct abuse. Specifically, the Court provided that its Bronner judgment could not be interpreted in such a way that:

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the conditions to be met in order to establish that a refusal to supply is abusive must necessarily also apply when assessing the abusive nature of conduct which consists in supplying services or selling goods on conditions which are disadvantageous or on which there might be no purchaser.416 4.357  Margin squeeze could, ‘in itself, constitute an independent form of abuse distinct from that of refusal to supply.’417 (p. 267) 4.358  While ‘essentiality’ is not a condition to establish an abuse, the Court of Justice nevertheless considered that ‘when assessing the effects of the margin squeeze, the question whether the wholesale product is indispensable may be relevant.’418 The Court added that the possibility cannot be ruled out that, by reason simply of the fact that the wholesale product is not indispensable for the supply of the retail product, a pricing practice which causes margin squeeze may not be able to produce any anticompetitive effect, even potentially.419 4.359  The Court concluded that: in order to establish that a pricing practice resulting in margin squeeze is abusive, it is necessary to demonstrate that, taking into account, in particular, the fact that the wholesale product is indispensable, that practice produces, at least potentially, an anti-competitive effect on the retail market which is not in any way economically justified.420 4.360  We find that the position of the Court of Justice is quite paradoxical in that the test for refusal to supply (ie, the refusal by the dominant firm to give access at all to its downstream rivals) is more demanding for a complainant that the test for a margin squeeze (ie, where access is authorized but at a non-profitable price for its downstream rivals). Thus, what seems to be the most severe restriction (complete refusal) may be easier to defend for the dominant firm than the lesser restriction (margin squeeze). (iv)  The Guidance Paper

4.361  In the Guidance Paper, the Commission states that intervention on competition law grounds requires careful consideration where the application of Article 102 would lead to imposing an obligation to supply on the dominant firm as ‘the existence of such an obligation—even for a fair remuneration—may undermine firms’ incentives to invest and innovate and, thereby, possibly harm consumers.’421 Obligations to supply may, on the one hand, discourage dominant firms from investing and, on the other hand, tempt competitors to free ride on the dominant firm’s investments instead of investing themselves. 4.362  The Guidance Paper provides that refusal to supply typically arises when the dominant firm competes on a downstream market with the buyer to whom it refuses to supply.422 The Commission does not consider it necessary that the refused product was previously traded.423 Similarly, it is not necessary that there is ‘actual’ refusal on the part of a dominant undertaking. ‘Constructive’ refusal such as unduly delaying or otherwise degrading the supply of the product in question or involving the imposition of unreasonable conditions in return for the supply, may be sufficient.424 4.363  The Guidance Paper also recognizes the conceptual link between refusal to supply and margin squeeze that we observed above as it notes that,

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instead of refusing to supply, a dominant undertaking may charge a price for the product on the upstream market which, compared to the price it charges on the downstream market, does (p. 268) not allow even an as efficient competitor to trade profitably in the downstream market on a lasting basis.425 As noted above, in TeliaSonera, the Court of Justice has somewhat loosened this conceptual link, by—wrongly in our view—ruling that the conditions that needed to be present for a refusal to supply to infringe Article 102 do not have to be met to establish that a margin squeeze infringes that provision. 4.364  As far as its enforcement priorities are concerned, the Commission will intervene when the three conditions recognized by the Court in Bronner are present, that is when the refusal: (i) relates to a product or service that is objectively necessary to be able to compete effectively on a downstream market; (ii) is likely to lead to the elimination of effective competition on the downstream market; and (iii) is likely to lead to consumer harm.426 4.365  The Commission, however, observed that in certain specific cases, it may be clear that imposing an obligation to supply is manifestly not capable of having negative effects on the input owner’s and/or other operators’ incentives to invest and innovate upstream, whether ex ante or ex post .427 4.366  The Commission considers that this is particularly likely to be the case when the particular circumstances it identified in Telefónica are present, that where: •  ‘regulation compatible with Community law already imposes an obligation to supply on the dominant undertaking and it is clear, from the considerations underlying such regulation, that the necessary balancing of incentives has already been made by the public authority when imposing such an obligation to supply’; or •  ‘the upstream market position of the dominant undertaking has been developed under the protection of special or exclusive rights or has been financed by state resources’. 428 4.367  The Guidance Paper, an otherwise well-reasoned document,429 therefore accepts uncritically the above exceptions, hence making them part of its ‘official’ enforcement policy on Article 102. That should, however, not come as a surprise since at the time of writing the Guidance, Telefónica had appealed the decision of the Commission before the GC. Even if the drafters of the Guidance Paper could have easily perceived that the Telefónica exceptions were fundamentally misguided, they may have estimated that the Commission was bound to remain consistent with what it said in the decision. 4.368  The Guidance Paper provides some direction on the way the Commission will apply the conditions set in Bronner (which must be established in all refusal to supply cases, but for the exceptions described above). As to the condition of objective necessity, the Guidance Paper provides that an input is indispensable ‘where there is no actual or potential substitute on which competitors in the downstream market could rely so as to counter—at least in the long term—the negative consequences of the refusal.’430 In this respect, the Commission will (p. 269) normally assess whether rivals could effectively ‘duplicate’ the input produced by the dominant firm ‘in the foreseeable future’.431 4.369  As to the condition that effective competition be eliminated, the Commission considers that this risk is generally greater

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the higher the market share of the dominant firm in the downstream market; the less capacity-constrained the dominant firm is relative to competitors in the downstream market; the closer the substitutability between the dominant firm’s output and that of its competitors in the downstream market; the greater the proportion of competitors in the downstream market that are affected, and; the more likely it is that the demand that could be served by the foreclosed competitors would be diverted away from them to the advantage of the dominant undertaking.432 4.370  Finally, the Guidance Paper provides that in examining the likely impact of a refusal to supply on consumer welfare, the Commission will examine whether for the consumers, the likely negative consequences of the refusal to supply in the relevant market outweigh over time the negative consequences of imposing an obligation to supply. If they do, the Commission will normally pursue the case.433 As noted above at para 4.312, this type of balancing test is very hard to carry out and therefore should not be the basis of Commission intervention, although it can play a supporting role. Determining whether the negative impact of an obligation to supply on incentives to innovate or invest is outweighed by the negative consequences of a refusal to supply amounts to reading a crystal ball.

B.  Exploitative Abuses 4.371  Article 102(a) TFEU prohibits conduct by a dominant firm that is ‘directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions’ and which seeks to take advantage of the dominant firm’s market power to exploit consumers. Exploitative abuses essentially include two forms of conduct by dominant firms: the imposition of ‘excessive’ prices and/or ‘unfair’ contractual terms and conditions. In this section, we review successively these two forms of exploitative conduct starting with the socalled excessive prices.

(1)  Excessive prices (a)  Introduction 4.372  The control of excessive prices is based on the simple premise that, while in competitive markets the price of a good or a service should equal its marginal cost of production,434 the same outcome is not guaranteed when the equilibrium price exceeds the competitive price due to the exercise of market power by the supplier of such good or service. In such cases, the price will lead to allocative and productive inefficiencies. Consumer welfare will be affected (p. 270) by transfers of rents from consumers to producers (as consumers will have to pay higher prices than those prevailing in a competitive market) and production may be carried out by both efficient and less efficient firms (if prices exceed marginal costs, firms with relatively higher costs may still be able to stay in business). 4.373  Yet, the deceptively simple logic put forward to justify controlling excessive prices is not without limitations. First, while this logic may apply to static industries where investments are limited and economies of scale absent, many industries exhibit dynamic features characterized by high fixed costs (due to significant investments) and low marginal costs (due to economies of scale and scope). Forcing firms to price at marginal cost on pain of committing an exploitative abuse would lead to significant losses as firms would be unable to recover their fixed costs.435 This would in turn deter firms from investing (as investments generate fixed costs) thereby negatively affecting innovation and growth. In these industries which include, for instance, sectors such as information technology, consumer electronics, and biotechnology, allowing firms to price above marginal cost is

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thus dynamically efficient and conducive to dynamic competition. This of course raises the problem of what an acceptable profit margin in such industries should be, a complex question (discussed at paras 4.387ff) that in our view is not to be decided by competition authorities. 4.374  Excessive pricing is also an area of competition law which differs significantly from most others. First, the notion of excessive pricing has failed to stimulate much economic analysis in Europe. This is in great part due to the fact that most studies on the economics of abusive pricing have focused on exclusionary pricing behaviour, as such abuses are more frequent than exploitative ones. Moreover, excessive pricing is an antitrust offence only in a limited number of jurisdictions. While high prices can lead to violations of competition rules in the EU, its Member States, and a limited number of countries, most nations consider that the charging of high prices should not be controlled by competition authorities as the market will typically self-correct any pricing excesses by dominant firms.436 There is also a widely accepted view that competition authorities are ill-suited to carry out price controls, a task which should be better left to sector-specific regulators.437 Because they intervene on an ad hoc basis, that is, to sanction specific anticompetitive behaviour, competition authorities cannot easily transform themselves into price regulators. Price regulation is a long-term effort which requires quasi-permanent supervision. It also requires significant resources and expertise in a vast array of disciplines, including not only law and economics, but also accounting and financial analysis.438 4.375  This notwithstanding, there might be a good conceptual reason to control excessive pricing under the competition rules. Take a monopolist charging excessive prices in market A. As a result, the monopolist dries up demand on neighbouring markets (B, C, D, etc). But the monopolist also dries up a range of unrelated markets (W, X, Y, Z) which include all the (p. 271) markets where customers purchase goods/services. For instance, a customer faced with surging oil prices will purchase lesser quantities of milk, cereals, fruits, etc (assuming finite resources). As a consequence, the monopolist’s pricing policy on market A thus forecloses—possibly unwillingly—sales opportunities for other producers on a range of markets. In turn, this may force out a number of firms from those markets, increase concentration, decrease entry opportunities, and eventually harm consumer welfare.439 4.376  Against this background, this section reviews the case law of the EU Courts and the decisions of the Commission dealing with the control of excessive prices. As will be seen, there is a growing consensus among competition agencies that controlling prices should be limited to exceptional circumstances. Moreover, where such circumstances justify them, given the inherent risks of costly mistakes and unintended adverse effects, price controls should be based on a sound economic analysis of market circumstances and carried out with the utmost caution.

(b)  Standards set by the European Courts’ case law and Member State courts for assessing excessive price 4.377  Article 102(a) TFEU prohibits dominant firms from imposing ‘unfair purchase or selling prices or other unfair trading conditions’.440 While this provision is generally described as a tool forbidding excessive pricing, its reference to ‘trading conditions’ suggests it can also be used to prevent the imposition of unfair terms and conditions by dominant firms.441 The criteria for assessing whether a price is ‘unfair’ within the meaning of Article 102 were established in some of the first competition cases brought before the Court of Justice. In its seminal United Brands ruling, the Court held that a price is deemed ‘excessive’ when ‘it has no reasonable relation to the economic value of the product supplied’.442

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4.378  Importantly, the Court of Justice adopted the following two-stage approach for determining whether a price is excessive. Specifically, one would have to: (i)  ‘[Examine w]hether the difference between the costs actually incurred and the price actually charged is excessive’; and (ii)  ‘[I]f the answer to this question is in the affirmative, [determine] whether a price has been imposed which is either unfair in itself or when compared to competing products.’ 443 4.379  In other words, a comparison between the price and the cost is first carried out to reveal the profit margin achieved by the dominant firm. If that profit margin is found to be ‘excessive’, the dominant firm’s pricing policy needs to be further investigated in order to determine whether the price is ‘unfair’. The Court’s judgment, however, did not provide further guidance on the application of the conditions comprised in this test. In particular, it did not clarify the basis on which to determine whether a price-cost difference is excessive. (p. 272) Similarly, it did not explain the notion of ‘unfair’ price when applying the second branch of the test. This is problematic since terms such as ‘excessive’ and ‘unfair’ are inherently vague and devoid of meaning in the absence of an established economic test to determine whether a given price falls within their scope.444 4.380  Unfortunately, subsequent cases referred to the Court of Justice only led to sporadic pronouncements on the methods applicable for establishing an excessive price within the meaning of Article 102 TFEU. The Court even seemed to abandon the United Brands twolimb test, and favour a more ‘integrated’ approach based on various categories of benchmarking (which will be analysed in greater detail in paras 4.391ff). In a first strand of cases, the Court directly compared the pricing policy of a dominant firm with the prices of equivalent firms active on neighbouring geographic markets.445 In a second strand of cases, the Court undertook to make comparisons between the prices charged by the same dominant firm (i) to various customers and (ii) over time.446 4.381  To date, it is thus difficult to find consistency in the standards relied on by the Court of Justice.447 As will be seen, the most recent pronouncement of the Commission, in Scandlines Sverige AB v Port of Helsingborg, suggests that the two-limb test espoused in United Brands remains the relevant analytical framework for assessing whether a price is excessive. In that decision, the Commission importantly recalled that the evidence of an ‘excessive’ profit margin was not sufficient in itself to establish an abuse.448 The Commission underlined that (p. 273) it was bound to prove the existence of an ‘unfair’ price pursuant to the second limb of the United Brands test, thus making it clear that the two conditions for a finding of abusive excessive pricing set in United Brands were cumulative, rather than alternative. In other words, a finding of abuse cannot be reached when only one of such conditions is met.

(c)  Practical difficulties of controlling excessive prices 4.382  Excessive pricing is one of the most controversial doctrines in the field of competition law. In addition to the compelling argument that competition authorities and courts should not engage in price control as this task is better left to specialized authorities, one reason for the controversial nature of this area of competition law lies in the insuperable practical difficulties inherent in ascertaining whether a price is excessive, and the potentially grievous consequences of an erroneous determination. 4.383  In substance, these difficulties have been encapsulated by competition lawyers and econo-mists in three main criticisms.449

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(i)  Finding an adequate cost measure and defining an appropriate profit margin

4.384  The application of the first limb of the United Brands standard, which requires a determination of ‘whether the difference between the costs actually incurred and the price actually charged is excessive’, generates two major difficulties. First, any determination of which of the dominant firms’ costs should be taken into consideration is of the utmost complexity. Second, once this issue has been solved, the controversial question of what an acceptable profit margin is must be answered. 4.385  Determining an adequate cost measure Economic theory suggests that in a competitive equilibrium, the price of a good or a service should equal its marginal cost of production. Relying on marginal costs raises, however, a number of significant problems. First, reliance on the cost of an additional unit of output is meaningless in dynamic industries, which are characterized by high fixed costs and low marginal ones. For instance, innovative firms may invest extremely large sums of money to develop a new technology with the objective of licensing it against a royalty. While innovation generates very high fixed costs, the marginal cost of granting a single licence to that technology will be equal or close to zero.450 In innovation markets, any relevant cost measure should thus factor in the R&D expenditures of the dominant firm.451 This leads, however, to the question of which R&D costs should be taken into account. Considering only the R&D costs directly linked to the development of a given technology would be under-inclusive as innovative firms usually have to engage in dozens of research projects to develop one successful technology.452 The costs of failed projects would (p. 274) thus also have to be taken into consideration.453 However, accounting for such costs is a complex question on which there seems to be no consensus among economists. 4.386  Moreover, even in static industries, calculating costs—marginal or other—may be complex. As pointed out by Motta and de Streel, cost calculations are even difficult for sectoral regulators (eg telecommunications or energy authorities), which have vast resources and substantial information on the markets they regulate.454 Calculating the cost of production is particularly problematic in the presence of costs that are common to various products. For instance, a chemical plant may manufacture different lines of products with the same equipment, thereby making it difficult to allocate costs across these different products. There are a variety of methods to allocate common costs, none of which seems inherently superior to the others.455 Similar facts can thus lead to different outcomes depending on the cost allocation method selected by the Court or competition authority in charge of the case in question. This very problem was recognized by the Court in United Brands: the Court recognized the considerable and at times very great difficulties in working out production costs which may sometimes include a discretionary apportionment of indirect costs and general expenditure and which may vary significantly according to the size of the undertaking, its object, the complex nature of its setup, its territorial area of operations, whether it manufactures one or several products, the number of its subsidiaries and their relationship with each other.456 4.387  In addition, even if it is possible to calculate the dominant firm’s production costs, it is well known in economic theory that firms holding a paramount market position are not necessarily cost-efficient. The costs of the dominant firm under investigation may be abnormally high by virtue of cost inefficiencies (eg ‘X-inefficiency’) and therefore will constitute an inadequate benchmark for assessing the ‘excessiveness’ of its pricing policy.457 The Court of Justice recognized that difficulty in the SACEM case, and held that the relevant costs for the purpose of applying Article 102 TFEU were the costs of an

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‘efficient firm’.458 But this statement is not particularly helpful as it is almost impossible to ascertain, in the abstract, the costs of an efficient firm on a given market. 4.388  Identifying an adequate profit margin Even when an appropriate methodology to carry out the price-cost comparison has been identified, the definition of what constitutes an ‘excessive’ margin of profit remains subject to debate. The Commission and the Courts have indeed (rightly) not quantified a threshold above which profits become excessive. The case law nonetheless indicates that dominant firms will only be sanctioned when their profit (p. 275) margin is ‘grossly exorbitant’.459 A common thread to all the cases is that Article 102 TFEU has been applied only when prices exceeded costs by more than 100 per cent of the value of the product/service in question.460 4.389  Yet, such a margin in respect of the dominant firms’ profits may, in some cases, still be overly restrictive.461 Profit margins vary widely across industries. While in static industries small margins can often be observed as firms win or preserve market share by slightly undercutting their competitors (in which case a margin of, eg, 25 per cent may be exorbitant), much more significant margins (including margins over 1,000 per cent) can be observed and legitimately justified in dynamic industries. As noted, such industries are characterized by large and risky investments. The risks stem from the fact that innovation is akin to an uncertain process of ‘trial and error’. Firms generally experience a number of setbacks prior to developing a successful product and for that reason the road to success will very often be long.462 4.390  It could be argued that this issue should be addressed by including all R&D costs, including the costs of failed projects, in the costs taken into account for the price-cost comparison (see the preceding section). This would, however, ignore several important factors. First, as we have seen, computing the costs of R&D, including the costs of failed projects, is not an easy matter and there is always a risk that such costs may not be sufficiently taken into account. Second, there are situations where major innovations result from a ‘stroke of genius’ rather than long and costly research. Imposing a cap on the profit margin resulting from a price-cost comparison would penalize the inventors of such major breakthroughs, while at the same time it would reward inefficient R&D processes. Third, high margins in dynamic industries are hardly permanent as successful products are usually typically displaced by new products developed by competitors. The video-game industry, for instance, has witnessed cut-throat competition between firms such as Nintendo, Sega, Sony, and more recently Microsoft, whose market shares and profits have fluctuated widely depending on which supplied the ‘must have’ consoles and games at any given time.463 The mobile telephony industry has similarly gone through three generations of standards since the arrival on the market of the first handsets and fourth generation standards are about to emerge.464 In markets subject (p. 276) to Schumpeterian competition, the period during which substantial profits can be reaped may thus be short. 4.391  Finally, it should be noted that in its recent Port of Helsinborg decision, the Commission stated that even if the profit margin achieved by a dominant firm was high, or even deemed ‘excessive’, this would not necessarily mean that its price is abusive.465 In order to reach this conclusion, the Commission would have to proceed to the second question as set out by the Court in United Brands in order to determine whether the prices charged to the dominant firms are unfair, either in themselves or when compared to those imposed by competitors.466 This second question is discussed in the next section. (ii)  Identifying the appropriate benchmarks

4.392  While the first limb of the United Brands test focuses on a price-cost comparison to determine the excessiveness of a price, the second limb of the test suggests the need to benchmark prices. As will be seen, the various benchmarks that have been applied by the

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Commission and the EU Courts to determine whether a price is ‘unfair’ create serious difficulties. 4.393  The historical prices benchmark In British Leyland, the Court of Justice undertook a comparison between the historical prices of the dominant firm and the prices it charged in the past.467 The Court found that the fees had increased 600 per cent during the relevant period, and as a result considered them abusive. In that case, it was manifest that the increase in fees was not justified by an increase in costs, but was a bold attempt by British Leyland to prevent parallel trade in motor vehicles. 4.394  However, in many other cases applying such a benchmark may prove difficult. An increase in prices over a certain period may be due to a variety of factors distinct from the desire to exploit consumers. Prices may be legitimately adjusted to reflect changes in input prices (raw materials, labour costs, etc), changes in market circumstances (end of a price war, etc), efforts to increase margins to fund investments, etc. Moreover, in cyclical industries prices may vary significantly depending on the level of demand for the product at a given time.468 While prices will decrease when demand is significantly below capacity, prices are likely to increase when demand is significantly above industry capacity. Such price increases reflect normal competitive behaviour and it would be inefficient to block them even if they resulted in periods where prices are significantly above costs. There is even a pro-competitive element in allowing such price fluctuations, as high prices are likely to stimulate entry thereby increasing the degree of competition on the market. 4.395  These difficulties may explain why ‘price differentials over time’ is a benchmark that has hardly been used by the EU and NCAs. 4.396  The geographical benchmark In United Brands and Bodson, the Court compared the prices of a given product over different geographic markets.469 In United Brands, the Court (p. 277) seemed to acknowledge that important price differentials between Member States could be deemed excessive if unjustified.470 It thus went on to examine the price differentials charged by United Brands in several Member States. In Bodson, in order to determine whether prices charged by concession holders were excessive, the Court referred to the possibility of making a comparison between those prices (offered on a market which was not competitive) and ‘prices charged elsewhere’ (on markets which were not covered by the public concession and which were therefore open to competition).471 4.397  A number of reasons suggest, however, that it is inappropriate to infer the ‘unfairness’ of a pricing policy—and, accordingly, to declare it abusive pursuant to Article 102 TFEU—from the observation of geographic price differentials. First, preventing dominant firms from charging higher prices in some markets than in others would amount to prohibiting geographic price discrimination, a policy which cannot be justified on the basis of efficiency considerations.472 Basic economics also teach that a ban on geographic price discrimination can lead to undesirable distributive consequences.473 When an operator sells a product or service at different prices depending on the conditions of demand in different countries, an obligation to adopt a uniform price will generally have adverse distributive consequences in the countries where prices are low. Indeed, the uniform price will certainly be higher than what consumers in those countries would have been charged in the absence of such an obligation. Mandatory uniform pricing will thus trigger a transfer of wealth from (generally poor) consumers in the low price countries to (generally rich) consumers in the high price ones. Even worse, the firm in question may simply decide no longer to serve consumers in the low price countries and focus on those in the high price countries.

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4.398  In addition to the questionability of preventing price discrimination, comparing prices across geographic markets creates significant problems. A first difficulty relates to the selection of the market(s) against which prices will be compared. Markets may be selected because they present features that appear analogous to those of the markets in which the downstream firm is subject to an investigation (same size, relatively similar input costs, etc)—and thus offer good comparators—or because they are markedly different (such as in Bodson)—and thus offer an interesting contrast. Yet, there may be markets where good comparators may be hard to find, as the costs and prices of a product/service may be directly linked to regulatory obligations. The insurance market is a good example of this phenomenon, as the scope of coverage typically depends on regulatory obligations which may vary significantly across borders. (p. 278) 4.399  A second issue relates to the need to take into account the differences in market conditions which could affect the validity of the geographic price comparisons. Prices may vary across geographic markets for a variety of reasons, such as differences in input costs, regulatory frameworks, taxes, purchasing power of the consumers, market concentration, etc. Aggressive pricing on some markets may also be a strategy used by dominant (and non-dominant) firms to stimulate sales of a product that has yet to receive consumer acceptance—a strategy commonly referred to as ‘penetration pricing’—or simply to respond to price cuts from competitors. In sum, the number of factors that need to be taken into account to ensure the analytical relevance of geographic price comparisons is such that this method, albeit theoretically attractive, may be hard to apply in practice. 4.400  The competitors benchmark The so-called ‘competitors’ benchmark consists in comparing the prices charged by the dominant company with those charged by its competitors.474 Such a methodology was used in United Brands and General Motors. In General Motors, for instance, the Commission observed that the prices charged by the dominant firm were ‘twice as high’ as the prices charged by rival agents/manufacturers for a similar service.475 4.401  Here, again, reliance on this method is not without problems. First, price differences may also be explained by different pricing strategies. For instance, new entrants may decide to price aggressively to gain market share, a strategy that an incumbent cannot necessarily afford to follow as, for instance, it may be less efficient than new entrants or, even if equally efficient, constrained in its pricing practices by competition law (eg by a prohibition of below-cost pricing). More fundamentally, forcing the dominant firm to reduce price differentials with competitors would have the effect of impeding long-term competition, as lower prices may prevent entry or encourage exit. 4.402  Second, price differences among competitors may simply reflect variations in quality —in which case it is normal that the better products sell at a higher price. This problem is particularly acute where competing products, such as consumer electronics goods, face some degree of differentiation. Should a competition authority assess the excessiveness of the prices of Apple’s iPods by comparing them with the prices of Microsoft’s Zune music player? Considering the different features of such products—despite the fact they tend to meet similar consumer needs—the answer can only be negative. The Commission recognized this problem in its Port of Helsingborg decision where it held it was not possible meaningfully to compare the charges imposed by the Port of Helsingborg with those of other ports.476 4.403  Finally, and perhaps more fundamentally, the presence of competitors seems to suggest that the market in question is not subject to insurmountable barriers to entry.477 As will be seen, (p. 279) the existence of such barriers to entry is considered by scholars as

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well as by Commission officials as required for competition authorities to intervene against allegedly excessive prices.478 (iii)  Designing an adequate remedy

4.404  Another significant problem arising from attempts to control prices imposed by dominant firms relates to the selection of the appropriate remedy when such prices have been found to be excessive. 4.405  Competition authorities can, for instance, declare that a given price is abusive and impose a fine on the infringing firm. But in general, most competition authorities are reluctant to tell the dominant firm what the acceptable price will be unless they are willing to set a maximum price or profit margin. Should a competition authority nonetheless accept to provide indications on this issue, that would not be the end of the story. As pointed out by Emil Paulis, Director for Policy and Strategic Support at the Directorate General for Competition (DG COMP): intervening against excessive pricing may entail the risk of a competition authority finding itself in the situation of a semi-permanent quasi-regulator. The authority may have to come back time and again to the pricing of the dominant firm when cost or other conditions change in the industry, something that a ‘generalist’ competition authority is much less equipped for than proper regulators with their deep knowledge of and continuous involvement in their industries.479 4.406  Mr Paulis suggests that an authority may, however, be able to establish a simple price comparison rule that can avoid such a situation. In his view, An example of such a rule could be that the dominant firm cannot charge more (or only X per cent more) in market A than it does in market B where the freely determined price in market B for some reason is more acceptable than the freely determined price in market A.480 He acknowledges, however, that there may still be recurring problems with such a rule as ‘the dominant firm may come back after a few years claiming that conditions have changed and the rule needs to be revised.’481 This leads him to conclude that these practical difficulties [are] so convincing and the risk of competition authorities arriving at the wrong result so great that enforcement actions against exploitative conduct in my view should only be taken as a last resort.482 4.407  Excessive pricing is also a form of abuse for which structural remedies appear to be of little help. Such remedies may be quite effective to deal with exclusionary abuses, such as price squeezes or constructive refusals to supply (which often stem from the imposition of high prices on essential inputs needed by downstream competitors). As such abuses are made possible by the fact the dominant firm is vertically integrated, structural remedies taking the (p. 280) form of vertical separation may prevent further pricing abuses.483 But structural remedies are unlikely to be useful with respect to exploitative abuses since such abuses do not seek to exclude competitors, but rather to exploit consumers.

(d)  Decisional practice of DG Competition 4.408  During the period 1957–02, DG COMP adopted only four formal decisions condemning a dominant firm for charging excessive prices (General Motors, United Brands, British Leyland, and Deutsche Post II). Three of these decisions were atypical and two of them were struck down by the Court of Justice.

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4.409  General Motors, British Leyland, and Deutsche Post II were atypical for the following reasons. In the first two cases the Commission did not really seek to prevent the dominant firms in question from exploiting their dominant position on a given market, but sought to prevent them from hindering parallel trade between Member States.484 In General Motors, the Commission decided that General Motors had violated Article 102(a) TFEU by charging excessive prices for the delivery of type-approval certificates (over which it had a legal monopoly) for new General Motors cars imported into Belgium. In that case, General Motors’ objective was not to exploit its legal monopoly in the provision of conformity certificates, but to discourage parallel imports of Opel cars from other EU Member States into Belgium. While in the appeal lodged by General Motors the Court of Justice supported the reasoning of the Commission, it nevertheless annulled the decision on the grounds that General Motors had voluntarily reduced its price for the service in question and refunded the excess amount as soon as it realized that its prices were too high.485 Similarly, in British Leyland, the car manufacturer demanded a high price for the issuance of type-approval certificates as a way of discouraging individuals from importing cars from Member States where they were sold at lower prices.486 The price was condemned as excessive, but viewed by the Court as part of a policy of maintaining price differentials across Member States rather than as an attempt to reap monopoly profits.487 Finally, as will be seen below, in charging the full postal tariff for the distribution of incoming international mail originating from Germany (so-called re-mail), Deutsche Post was not so much seeking to exploit its monopoly in the distribution of mail as preventing remailers from competing on the German market for domestic mail. By the same token, Deutsche Post was preventing its domestic customers from benefiting from the development of an internal market in postal services. 4.410  Since 2002, the Commission has adopted only one formal decision with respect to exploitative abuses. In Port of Helsingborg, the Commission rejected a complaint by Scandlines, a ferry operator, that the Port of Helsingborg had abused its dominant position by charging excessive and discriminatory port fees.488 As regards the allegation of excessive pricing, the Commission drew the conclusion that it possessed insufficient evidence to conclude that the (p. 281) port charges had no reasonable relation to the economic value of the services provided by the port to the ferry operators. This decision is interesting for a number of reasons. 4.411  First, as noted, the Commission confirmed that the two parts of the United Brands test must be satisfied to prove the presence of excessive prices contrary to Article 102(a) TFEU: While a comparison of prices and costs, which reveals the profit margin, of a particular company may serve as a first step in the analysis (if at all possible to calculate), this in itself cannot be conclusive as regards the existence of an abuse under Article 82.489 A high profit margin cannot thus be sufficient to establish an abuse. In order to prove an abuse, the Commission must assess the costs actually incurred by the dominant firm in providing the products/services in question (the costs of production) and make a comparison with the prices actually charged (first step). It must then assess whether the prices are unfair when compared to prices charged by competitors, or whether the prices are unfair in themselves (second step).490 4.412  Second, the Commission decision illustrates the fact that it will not easily accept that another product/market constitutes a relevant benchmark. The Commission explained that in the case at hand it was not possible to draw any conclusion from comparisons with other ports, as regards the level of their respective fees, for the following reasons: (i) each port established its own specific charging system; (ii) most of the ferry-owners had individual agreements with the port in question whereby they paid less than indicated in From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

the official tariff on which a comparison would be based; (iii) the list of services provided within the port charges varied between ports; and (iv) each port differed substantially from the others in terms of their activities, the size of their assets and investments, the level of their revenues and the costs of each activity. The Commission concluded that a comparison of the prices must be made on a consistent basis. In the case in point, this notably implied that (i) the products/services provided were comparable and (ii) the charging systems could allow a meaningful comparison. 4.413  Third, in Port of Helsingborg, the Commission considered that the ‘determination of the economic value of the product/service should also take account of other non-cost related factors, especially as regards the demand-side aspects of the product/service concerned.’491 This means that the higher prices imposed by a dominant firm may simply reflect the fact that the product/service they provide has greater value for the consumers (eg due to the prestige of the brand) than comparable products/services provided by competitors. As pointed out by the Commission, The demand-side is relevant mainly because customers are notably willing to pay more for something specific attached to the product/service that they consider valuable. This specific feature does not necessarily imply higher production costs for the provider. However it is valuable for the customer and also for the provider, and thereby increases the economic value of the product/service.492 4.414  In this unusually long decision, the Commission explains in detail why it decided to reject the Scandlines complaint and makes clear that the United Brands test is strict (because it (p. 282) requires that its two limbs be met to justify a finding of abuse) and that it will not be easily convinced by complaints alleging that a dominant firm has committed an abuse by charging an excessive price. The Commission thus placed on itself a high evidentiary burden to demonstrate in future cases that prices charged by dominant firms should be condemned as violations of Article 102(a) TFEU. 4.415  Although some cases initiated by the Commission against excessive prices during that period did not lead to a formal decision,493 the small number of decisions adopted by the Commission tends to suggest that it has generally refrained from investigating exploitative price abuses and focused instead on prosecuting exclusionary pricing practices (for which the number of decisions adopted is much more significant). The Commission’s approach was aptly summarized in its XXIVth Report on Competition Policy (1994) in which it stated: The existence of a dominant position is not in itself against the rules of competition. Consumers can suffer from a dominant company exploiting this position, the most likely way being through prices higher than would be found if the market were subject to effective competition. The Commission in its decision-making practice does not normally control or condemn the high level of prices as such. Rather it examines the behaviour of the dominant company designed to preserve its dominance, usually directly against competitors or new entrants who would normally bring about effective competition and the price level associated with it.494 (Emphasis added) 4.416  The cautiousness of the Commission with respect to excessive pricing can also be observed in statements made by Commission officials. For instance, in 2003, Philip Lowe, then Director General of DG COMP declared that the Commission is

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aware that it is extremely difficult to measure what constitutes an excessive price. In practice, most of our enforcement focuses therefore as in the US on exclusionary abuses, i.e. those which seek to harm consumers indirectly by changing the competitive structure or process of the market [and that the Commission] should continue to prosecute such practices where the abuse is not self correcting, namely in cases where entry barriers are high or even insuperable.495 (p. 283) 4.417  Similarly, in 2007, Emile Paulis, then head of DG COMP’s Policy Directorate observed that: There are two basic reasons why enforcement actions against excessive prices are particularly difficult—and especially so for a ‘generalist’ competition authority. First, determining whether a specific price is ‘excessive’ involves complicated comparisons of prices with costs of production and investment…. Second, intervening against excessive pricing may entail the risk of a competition authority finding itself in the situation of a semi-permanent quasi-regulator…. I consider these practical difficulties so convincing and the risk of competition authorities arriving at the wrong result so great that enforcement actions against exploitative conduct in my view should only be taken as a last resort.496 4.418  More recently, in 2010, Damien Neven and Miguel de la Mano, respectively Chief Economist and Deputy-Chief Economist of DG COMP, observed that: high prices tend to be self-correcting as they attract market entry and encourage investment and the reallocation of resources to those activities and markets that are of greatest value for consumers. Competition policy enforcement—for example through a misguided application of Article 102 TFEU as an instrument to regulate prices—could interfere with the competitive process thereby ultimately leading to a reduction in consumer welfare. From this perspective, it may be appropriate for a competition agency to focus its resources on preventing exclusionary conduct by a dominant firm that restricts efficient entry or raises rivals’ costs, thereby limiting their ability or incentive to compete effectively, to the detriment of consumers; in other words, conduct that leads to anticompetitive foreclosure.497 4.419  The above statements do not suggest that the Commission will no longer investigate excessive prices, but that the Commission will only do this in exceptional circumstances. As will be seen, several European commentators share that view.

(e)  Limits to the application of Article 102(a) TFEU 4.420  In light of the immense difficulties posed by the application of Article 102(a) TFEU to prices charged by dominant firms, the majority of scholars who analysed this provision reached the conclusion that it should be implemented only in a narrow set of circumstances. 4.421  For instance, Motta and de Streel argue that competition authorities should only carry out excessive pricing investigations when the following conditions arise simultaneously: (i)  high and non-transitory barriers to entry must be present on the market in question;

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(ii)  the presence of a monopoly (or near monopoly) that results from current or past exclusive or special rights (ie, legislation giving monopoly rights to one firm or limiting the number of firms that can intervene on a given market). Importantly, the authors specify that prices should not be subject to controls when the monopoly (or near monopoly) was acquired or maintained through investments as such controls could affect incentives to invest; (iii)  there should be no effective way for the competition authority to eliminate the entry barriers; and (iv)  there should no sector-specific regulator.

498

(p. 284) 4.422  Evans and Padilla also argue that an interventionist approach to excessive prices should be limited to situations responding to the following cumulative conditions: (a)  ‘[T]he dominant firm enjoys a (near) monopoly position in the market, which is not the result of past investments or innovation, and which is protected by insurmountable barriers to entry’; (b)  ‘[T]he prices charged by the firm widely exceed its average total costs’; and (c)  ‘[T]here is a risk that those prices may prevent the emergence of new goods and services in adjacent markets.’ 499 4.423  There is a fair amount of convergence between these two proposed tests. First, both tests provide that interventions should be limited to circumstances where high and nontransitory barriers to entry can be identified in the market in question. Second, the dominant firm must enjoy a (near) monopoly position in the market, which is not the result of past investments or innovation. The Motta and de Streel test suggests that this position must have resulted from current or past exclusive or special rights. These conditions—the presence of a (near) monopoly right not justified by investment, but for instance created by statute—correspond to the majority of the excessive pricing decisions adopted by the Commission (General Motors, British Leyland, and Deutsche Post II) Perhaps, the greatest insight from these conditions is that competition authorities should not seek to control high prices in dynamic industries. As discussed, placing a cap on profits in such industries would discourage investments and impede innovation. This would in turn harm dynamic (Schumpeterian) competition and in the medium to long term hurt consumers, who would be deprived of the new, innovative products and services resulting from this form of competition. 4.424  The two proposed tests seem to diverge, however, in some fashion. Conditions (iii) and (iv) of the Motta and de Streel test are not referred to by Evans and Padilla, but it does not mean that they are inconsistent with the test they propose. As pointed out by Motta and de Streel, these latter conditions are essentially of an institutional nature whereas Evans and Padilla’s test focuses on substantive conditions. The main differences between the two tests relate to conditions (b) and (c) of the Evans and Padilla test. Condition (b) requires that the prices charged by the dominant firm widely exceed average total cost. This is not a particularly contentious condition and it seems once again to be in line with the decisional practice of the Commission and the case law of the Court of Justice.500 Similarly, in the ITT/ Promedia case—which was settled prior to the adoption of a formal decision—the Commission was concerned that the prices charged by the Belgian incumbent telephony operator to publishers of telephone directories were almost 100 per cent above the costs it

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incurred for the collection, treatment, and provision of data to the publishers of directories.501 4.425  Condition (c) of the test proposed by Evans and Padilla, which requires a risk that the prices in question be such as to prevent the emergence of new goods and services in adjacent markets, is somewhat less straightforward. This condition seems to suggest that competition (p. 285) authorities should only care about excessive prices when they have exclusionary effects. One example of such a situation can be found in the so-called Deutsche Post II case in which Deutsche Post charged the full domestic tariff on mail coming from abroad but containing a reference to Germany (eg in the form of a German reply address).502 The Commission considered that the tariff charged by Deutsche Post to foreign postal operators to distribute the incoming mail to the German addressees was above costs (as the costs related to the distribution of incoming international mail only represented 80 per cent of the costs of distributing domestic mail) and decided that Deutsche Post, which at the time still enjoyed a monopoly for the distribution of mail, had abused its dominant position. The interesting part of this case relates to the fact that by imposing the full domestic tariff to incoming international mail, which originated in Germany (unless typical incoming international mail which originates abroad), Deutsche Post was not seeking to exploit its market power on the market for the distribution of mail, but to prevent so-called re-mailing practices, whereby some of its German customers sent abroad mail that was intended for German addressees (ie, purely domestic mail) to benefit from cheaper rates offered by foreign postal operators. Deutsche Post’s excessive prices thus did not have exploitation as their primary objective. Rather they sought to prevent foreign operators from competing for the provision of domestic mail. 4.426  Interestingly, in a paper already referred to above, Mr Paulis, then an official at DG COMP, reviewed the Motta/de Streel and the Evans/Padilla tests. Mr Paulis agrees with the condition, found in both proposed tests, that ‘intervention should … be limited to markets characterized by very high and long lasting barriers to entry’, to which he would however add barriers to expansion.503 In contrast, Mr Paulis is ‘not convinced by the proposal to restrict intervention to situations where current or past exclusive or special rights are the cause of the dominant position.’504 He is also not convinced by the condition that excessive pricing inquiries should be limited to situations where there is no specific regulator as ‘[t]he Commission should maintain the option to intervene when a national regulator is not acting or is taking decisions that are not in conformity with Community law.’505 He is not suggesting that the Commission should substitute itself for sector-specific regulators, which are better suited to engage in price controls, but only to intervene in the narrow situation where these regulators fail properly to discharge their price control duties.506 Finally, Mr Paulis is not seduced by condition (c) of the Evans/Padilla test as he does not think— without, unfortunately, explaining why—that the Commission’s intervention should be limited to circumstances where this condition is present.507 Mr Paulis thus concludes his review of the proposed tests by stating that the only reasonable criterion that can be used to identify markets that could be candidates for interventions against excessive prices is the presence of ‘very high and long lasting barriers to entry and expansion’.508 (p. 286) 4.427  But does the above turn Mr Paulis into an interventionist civil servant with respect to price controls? The answer can only be in the negative in light of the following passage from his paper: There are two basic reasons why enforcement actions against excessive prices are particularly difficult—and especially so for a ‘generalist’ competition authority. First, determining whether a specific price is ‘excessive’ involves complicated comparisons of prices with costs of production and investment. This may involve difficult decisions about the profitability of a dominant firm. Determining whether a

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price is excessive may also involve difficult comparisons with whatever useful ‘benchmark’ prices can be identified… . Second, intervening against excessive pricing may entail the risk of a competition authority finding itself in the situation of a semi-permanent quasi-regulator. The authority may have to come back time and again to the pricing of the dominant firm when cost or other conditions change in the industry, something that a ‘generalist’ competition authority is much less equipped for than proper regulators with their deep knowledge of and continuous involvement in their industries. I consider these practical difficulties so convincing and the risk of competition authorities arriving at the wrong result so great that enforcement actions against exploitative conduct in my view should only be taken as a last resort. In many markets prices may temporarily be high but once market forces have had the time to play out the prices will come back to more normal levels. In such cases it would be unwise to run the risk of taking a wrong decision and furthermore spend enforcement resources on solving a problem that would solve itself over time anyway.509 (Emphasis added) 4.428  Thus, the main thrust of Mr Paulis’s paper seems to be that while competition authorities should retain the ability to control excessive prices (as provided by Art 102(a) TFEU), they should only do so in the presence of ‘very high and long lasting barriers to entry and expansion’. In addition, because of the difficulties raised by the control of high prices, intervention should be a matter of last resort, that is, in situations where the Commission is unable to tackle these barriers to entry and expansion when, for instance, such barriers result from exclusionary abuses. It is thus only in the presence of ‘natural’ barriers to entry that the Commission should intervene against excessive prices.510 (p. 287) 4.429  In some recent papers, other scholars have, however, questioned the dominant view that excessive prices should only be controlled at the margins. For instance, Ariel Ezrachi and David Gilo questioned one of the reasons that is often mentioned by those suggesting that competition authorities should not try to control high prices, that is the fact that high prices encourage entry and are therefore self-correcting.511 But Ezrachi and Gilo do not suggest that excessive prices should be prohibited. They merely say that a decision not to prohibit such prices should not be based on the fact that high prices are selfcorrecting (a premise they question), but rather for reasons such as the need to protect investment incentives or difficulties of implementation, which as we have seen are particularly serious. 4.430  In another paper, Lars-Henrik Röller, DG COMP’s former Chief Economist, argues that Article 102(a), which prohibits excessive pricing, should only be used for ‘enforcement gap’ cases, that is, anticompetitive conduct that EU competition rules are unable to catch.512 Gap cases may occur due to the fact that, unlike US antitrust law, EU competition law does not prohibit ‘monopolization’, that is, the acquisition of monopoly power through anticompetitive means. As pointed out by Röller: Article [102] only applies to firms that are already dominant. In other words, anticompetitive conduct that leads to a dominant position can not be caught in Europe under exclusionary abuse. This is an enforcement ‘gap’, since it is precisely the way in which dominance is acquired that matters in terms of economic effects. I like to suggest that antitrust enforcement through exploitative abuse cases should be based on a acquiring a dominant position through anticompetitive exclusionary conduct. In this way, exploitative abuse cases are back to investigating exclusionary conduct, which is in fact the proper way to identify anticompetitive conduct. By focusing on the road to dominance through anticompetitive behaviour, exploitative

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abuse are firmly grounded in the way markets work, rather than deciding on what is ‘excessive’ from an ex post point of view. 4.431  Interestingly, this approach was recently supported by the current DG COMP Chief Economist and its Deputy, which argue that: if a firm engages in conduct that directly results in eliminating all competition and thereby allows it to acquire a dominant position, it may be considered that such position has been obtained illegitimately … According to this approach, if it can be conclusively proven that (1) in the absence of the exclusionary conduct in question the firm would not have acquired, or would be unable to exploit, a dominant position, (2) and such exploitation ultimately results in long-term consumer harm, then the practice and subsequent acquisition of dominance may be considered an abuse within the meaning of Article 102 TFEU—in particular paragraph (a).513 The approach proposed by Röller and Neven/de la Mano is fundamentally sound as it focuses 4.432  on the source of the problem (the anticompetitive conduct) rather than its symptom (the (p. 288) high prices).514 Moreover, it provides a strict limiting principle to the otherwise open-ended application of Article 102(a) in that it requires that the Commission proves that (i) the dominant firm acquired its dominant position through anticompetitive behaviour (eg deception) and (ii) it subsequently engaged in excessive pricing resulting in long-term consumer harm. However, it is dubious whether the wording of the treaties and the case law entitle the Commission to use Article 102(a) to correct the anticompetitive conduct of firms that do not (yet) enjoy a dominant position. (f)  Comparison with US law

4.433  As explained above, the TFEU includes a provision prohibiting dominant firms from charging excessive prices. Thus, the near absence of excessive pricing cases in the EU is largely a function of the sound exercise of enforcement discretion. By contrast to the TFEU, US antitrust law includes no prohibition on excessive pricing as has been made clear in the case law. In Berkey Photo, Inc v Eastman Kodak Co, the Court of Appeals for the Second Circuit said: Setting a high price may be a use of monopoly power, but it is not in itself anticompetitive … Judicial oversight of pricing policies would place the courts in a role akin to that of a public regulatory commission …515 4.434  Similarly, in Trinko, the US Supreme Court made clear that The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices—at least for a short period—is what attracts ‘business acumen’ in the first place; it induces risk taking that produces innovation and economic growth.516 4.435  There is a strong belief in the United States that high prices are self-correcting (as they will attract entry) and thus there is no need for antitrust intervention. Moreover, the US view is that by granting inventors exclusive rights to their inventions for a specified period of years, (p. 289) the patent statutes recognize that the possibility of monopoly

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profits is a particularly important inducement to undertake risky R&D to create intellectual property. 4.436  As a result, a claim that the price charged by a firm is excessive (or that royalties asked by a technology licensor) cannot succeed under US antitrust law. The focus of US antitrust law is thus on the prohibition of exclusionary pricing strategies, that is, conduct though which a dominant firm seeks to eliminate its competitors. In addition, US antitrust law also condemns ‘monopolization’, that is, the acquisition of market power through anticompetitive means (eg intentional deception).

(g)  Summary on excessive pricing 4.437  Excessive pricing is one of the most controversial aspects of EU competition law. Many scholars, practitioners and some Commission officials recognize that antitrust intervention on the ground that prices are too high should be limited to narrow and specific circumstances. This is the case since (i) determining whether a price is excessive involves both conceptual and practical difficulties (which are of course worse in the technology licensing context) and misguided decisions could have devastating impact on innovation incentives and (ii) DG COMP itself does not want to become a price regulator . 4.438  As to the limited circumstances in which DG COMP should nevertheless intervene to control prices, the approach proposed by Professor Röller and supported by Neven and de la Mano—whereby the control of excessive prices should be limited to cases where a dominant position has been acquired through anticompetitive conduct—seems sound. However, as stated above, it is not in line with the wording of Article 102 TFEU which prohibits the abuse of an existing dominant position.

(2)  Unfair contractual terms and conditions 4.439  While the Commission’s efforts to enforce Article 102(a) have essentially focused on instances of ‘excessive’ prices, this provision also covers the direct or indirect imposition by a dominant firm of ‘unfair purchase … prices or other unfair trading conditions.’ In other words, Article 102(a) also prevents (i) dominant buyers from purchasing inputs at unfairly low prices and (ii) dominant firms in general from imposing terms and conditions that they would not be able to impose on their consumers or trading parties in the absence of market power. In the remainder of this section, we will review these two possible instances of abuse.

(a)  Abuse of buyer power 4.440  Buyer power, which can be defined as the presence of market power on the buying side of the market, is a concept of significant importance in the assessment of dominance (see Section B), as well as in the assessment of vertically structured industries where the demand side of the market is more concentrated than its seller side (eg the distribution market where some large chains may have significant purchasing power over their, much smaller, suppliers). 4.441  As far as abuse of dominance is concerned, the adverse effects of buyer market power may seem counter-intuitive because the consequence is lower prices in the purchasing market, which although harmful to input sellers may benefit consumers where the lower acquisition costs of inputs achieved by the dominant buyer are passed on to consumers in terms of lower selling prices. This intuition, however, overlooks the fact that these lower input (p. 290) prices are sub-competitive prices and thus produce a lower and sub-competitive market output and quality. 4.442  Hence, the exercise of buyer power could negatively affect consumers for the following reasons. First, where the firm with buyer market power also has selling market power in a downstream market, the predictable result of upstream monopsony power is lower downstream output, and thus higher (supra-competitive) prices in the downstream market in which the dominant buyer sells. Second, even if an upstream exercise of buyer From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

market power did translate into lower downstream consumer prices, those lower prices would remain sub competitive prices that create sub-competitive levels of market output and quality downstream. These sub-competitive levels of output and quality would remain harmful to consumers, who by definition would have been willing to pay more for the output and quality level that a competitive market would have afforded them. 4.443  In addition, if price discrimination is possible, then a buyer with market power who wants to gain a competitive advantage downstream may be able to insist on a large discount compared to what the sellers charge other buyers who compete with the powerful buyer downstream. This may distort downstream competition as the powerful buyer pays a sub competitive price on its purchases whereas rival buyers pay a supra-competitive price for their purchases. By leveraging its market power on the upstream purchasing market the dominant buyer could thus exclude its rivals on the downstream market. This risk of exclusion would of course depend on the importance of the input in question in the production costs of the downstream goods. The higher the importance of the input costs in the cost structure of the downstream goods, the higher the risk of exclusion. It is not clear, however, whether such conduct should fall under Article 102(a) or another paragraph of that provision (eg Art 102(b)). 4.444  While the presence of such risks led competition authorities carefully to examine mergers that could lead to the creation of buyer power, there is little relevant case law, at least in EU law, dealing with abuses of buyer power. In Comité des industries cinématographiques des Communautés européennes (CICCE), an association of film producers asked the Court of Justice to annul a decision of the Commission dismissing a complaint lodged by this association, which claimed that three French television companies holding exclusive broadcasting rights had violated Article 102 ‘by setting very low license fees’ for the rights of the films concerned.517 During the course of its investigation, the Commission had written to the CICCE stating that whether the television companies had acted improperly by fixing unfair licence fees depended on the relationship between the price paid and the economic value of the service provided. The Commission, however, dismissed the complaint on the ground that the CICCE had failed to substantiate an abuse. The Commission pointed to the fact that in the case of film broadcasting rights it was impossible, in view of the variety of potential criteria for assessing the value of films, to determine a yardstick that was valid for all films. As a result, the Commission decided that if the television companies had committed an abuse, it had to be demonstrated in relation to each film rather than by reference to all films as the CICCE had argued in its application since each film was different. (p. 291) 4.445  In its judgment, the Court dismissed the CICCE’s application against the Commission. This judgment nevertheless contained some interesting elements. First, the Court did not deny that imposing an unfairly low purchase price could amount to an abuse of a dominant position and stated that in the case at hand the Commission was ‘justified in requiring the abuse alleged by the CICCE to be provided or at least corroborated by examples relating to each specific films.’5 18 Second, the Court set aside a decision by the French Competition Authority which held on the basis of information similar to that produced by the CICCE in its complaint to the Commission that the television companies had abused their dominant position. 4.446  In any event, one serious obstacle to the application of Article 102(a) to exercises of buyer power relates to the development of a legal test determining when the payment of sub-competitively low input prices would amount to an abuse under that provision. When lower input prices lead to high consumer prices on a downstream market (due to the output reduction on the input market), such latter prices could potentially be considered as being ‘excessive’ under the United Brands case law. In that case, however, the fact that the excessive prices on the downstream market result from the exercise of buyer power on an upstream market is not relevant to the analysis. As pointed out by O’Donoghue and Padilla, From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

the difficult question would, however, be to determine ‘at what point output reductions/ price increases that do not give rise of excessive pricing nevertheless constitute an abusive exercise of monopsony purchasing power.’ That is likely to be a difficult and uncertain inquiry.

(b)  Abuse through the imposition of ‘other unfair trading conditions’ 4.447  In addition to prohibiting conduct whereby dominant firms impose ‘unfair purchase or selling prices’ on their trading partners, Article 102 also condemns conduct whereby firms would seek to exploit their market power by imposing ‘other unfair trading conditions’. Although the notion of ‘unfair trading condition’ is potentially extremely broad, and could thus catch a large number of dominant firm practices, there is very little relevant Commission decisional practice and EU Courts’ case law. Besides the fact that the Commission’s enforcement of Article 102 has focused on exclusionary rather than exploitative abuses, this is probably due to the fact that unfair trading practices are typically caught under national legislation regulating contractual relationships. Hence, traders that have been subject to unfair commercial practices will often act on that basis rather than lodge complaints with the Commission or seize national courts or competition authorities on the basis of Article 102. 4.448  The notion of ‘unfair trading conditions’ is unfortunately as imprecise as the notion of ‘unfair prices’, and there is no language in Article 102 or elsewhere in the TFEU that allows practitioners to have a clearer picture of what was meant by the drafters of the Treaty. As such cases will traditionally involve contractual disputes, references to ‘traditional’ or ‘well accepted’ contractual practices can be of help, although there will always be some subjective element in the assessment. When assessing the potential ‘unfairness’ of individual clauses, it is also important to look at the agreement as a whole as contractual negotiations may involve trade-off s with some clauses that could appear ‘unfair’ if taken in isolation being offset by other more generous provisions. (p. 292) 4.449  The most extensive discussion of the imposition of ‘unfair trading conditions’ by dominant firms can be found in the Tetra Pak II decision of the Commission.519 In that decision, the Commission found that Tetra Pak took advantage of its dominant position on the so-called aseptic markets in machines and cartons intended for the packaging of liquid foods through inter alia ‘the imposition on users of Tetra Pak products in all Member States of numerous contractual clauses aimed at unduly binding them to Tetra Pak and at artificially eliminating potential competition.’520 4.450  The Commission found that Tetra Pak had imposed abusive contractual conditions governing the sale and lease of Tetra Pak equipment, which constituted additional obligations which had no connection with the purpose of the contract. For instance, buyers of Tetra Pak equipment were contractually prohibited from adding accessory equipment to the machine, modifying or adding/removing parts of the machine, and moving the machine. The Commission considered that these obligations deprived the purchaser of certain aspects of its property rights.521 The Commission similarly condemned the requirement under which Tetra Pak’s customers had to obtain maintenance and repair services exclusively from Tetra Pak even beyond the guarantee period of the equipment. As regards the leasing of equipment, the Commission condemned Tetra Pak’s practice of charging a base rental fee virtually equal to the selling price of almost the entire sum of present and future rental charges.522 The Commission considered that: the charging of this base rental completely distorts the nature of the lease contract since it requires the leaseholder to pay in advance, at the time the machine is placed at his disposal, almost the entire sum of present and future rental payments (up to more than 98%). Such a requirement makes the lease contract equivalent to

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a purchase contract in terms of the financial commitment required of the user, but does not confer ownership rights on that user.523 4.451  The Commission also prohibited setting the term of the lease to a minimum of three to nine years considering that this duration was excessive. It found that in the case of Italy the ‘initial term of the lease (nine years), even without renewal, equals or exceeds the technological (up to obsolescence) if not physical life of machines.’524 This altered the very nature of the lease contract. In addition, the Commission considered that the minimum term of three years constituted an abuse in so far as, in a sector in which there is rapid technological development, it unduly binds the leaseholder to Tetra Pak, preventing him—instead of authorizing him, as the type of contract he has chosen should in principle do—to seize opportunities which may emerge on the market, and conversely makes it more difficult for Tetra Pak’s rivals to penetrate the market.525

(p. 293) C.  Price Discrimination (1)  Introduction 4.452  Price discrimination is one of the most complex areas of EU competition law.526 There are several reasons for this. First, the concept of price discrimination covers many different practices (discounts and rebates, tying, selective price cuts, discriminatory input prices set by vertically integrated operators, etc) whose objectives and effects on competition differ. From the point of view of competition law analysis, it is thus not easy to classify these practices under a coherent analytical framework. Second, there is consensus among economists that the welfare effects of the (various categories of) price discrimination are ambiguous. It is hard to say a priori whether a given form of price discrimination increases or decreases welfare. The response to this question may indeed depend on which type of welfare standard (total or consumer) is actually pursued. Moreover, even if one agrees on a given standard, the welfare effects of discriminatory prices generally depend on factual issues, such as whether it increases or decreases total output. Third, the exact scope of Article 102(c), the only competition provision of the TFEU dealing with discrimination, is not entirely clear. While the Commission and the EU Courts have applied Article 102(c) to many different practices, there are good reasons to believe that this provision should be applied to a limited set of circumstances, most forms of discrimination being adequately covered by Article 102(b) or other TFEU provisions. 4.453  Against this background, the main objective of this section is to throw some light on the compatibility of price discrimination with EU competition law. In order to do so, we do not seek to propose a grand unifying theory that would provide a single test offering a way to distinguish between practices compatible and incompatible with the TFEU. Instead, we offer an analytical framework which distinguishes between different categories of price discrimination depending on their effects on competition. Different tests may thus be needed to assess the compatibility of the practices belonging to these categories with EU competition law. Another objective of this section is to show that Article 102(c) should only be applied to the limited circumstances where a non-vertically integrated dominant firm price discriminates between customers with the effect of placing one or several of them at a competitive disadvantage vis-à-vis other customers (secondary line price discrimination). In contrast, Article 102(c) should not be applied to pricing measures designed to harm the dominant firm’s competitors (first line price discrimination) or to fragment the single market across national lines. As will be seen, relying on Article 102(c) to condemn such practices goes against the letter and the spirit of this provision and may also apply a wrong

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test to such practices. It is also not necessary since other provisions of the TFEU can be used to achieve this objective.

(p. 294) (2)  Definition, conditions, and different forms of price discrimination 4.454  Hereafter, we successively attempt to define the concept of price discrimination, identify the conditions for price discrimination to occur, and describe the main forms of price discrimination.

(a)  Definition of and conditions for price discrimination 4.455  Article 102(c) does not provide a definition of price discrimination. It simply considers abusive situations one or several firms holding a dominant position apply ‘dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage’. The Court of Justice has extended this notion of abuse to the converse situation of the application of similar conditions to different transactions.527 Article 102(c) as interpreted by the Court thus means that some forms of price discrimination may be considered as abuses of a dominant position. By contrast, it does not provide a clear economic test to distinguish price discrimination from other business practices. 4.456  Scholars have, however, provided economic tests helping to identify price discrimination. For instance, in his famed antitrust book, Richard Posner explains that: Price discrimination is a term that economists use to describe the practice of selling the same product to different customers at different prices even though the cost of sale is the same to each of them. More precisely, it is selling at a price or prices such that the ratio of price to marginal costs is different in different sales …528 4.457  This definition is helpful in that it provides an objective criterion, that is, the presence of different ratios of price to marginal costs (ie, rates of return), to identify the occurrence of price discrimination. It also suggests that different prices for the same product do not necessarily amount to price discrimination as the difference may be justified by cost variations. It is generally admitted that several conditions must be present for price discrimination to occur. 4.458  First, a firm must have some market power (ie, the ability to set supra-competitive prices) to be able to price discriminate. Otherwise, it cannot succeed in charging any consumer above the competitive price. As scenarios of perfect competition are extremely rare, most firms enjoy some degree of market power and thus price discrimination can be observed even in competitive markets. Dominance is not essential for price discrimination to occur, although it is only in situations of dominance that price discrimination may be considered abusive in EU competition law. 4.459  Second, the firm must have the ability to sort consumers depending on their willingness to pay for each unit. The level of information enjoyed by a firm over its customers may in turn determine the forms of price discrimination it decides to put in place. Firms enjoying only imperfect information about their customers’ willingness to pay will only be able to price discriminate imperfectly. (p. 295) 4.460  Third, the firm must be able to prevent or limit the resale of the goods or services in question by consumers paying the lower price to those who pay the higher price. In some cases, resale is impossible due to transaction costs (eg transport costs from high to low price areas), while in others firms adopt contractual or other measures to prevent arbitrage between consumers (eg prohibition of resale as part of terms of sale).529

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4.461  Absent one or several of these conditions, price discrimination is impossible or at least unlikely to succeed.

(b)  Different forms of price discrimination 4.462  As pointed out by Carlton and Perloff, the objective of all methods of price discrimination is to ‘capture as much consumer surplus as possible’.530 But this can be achieved through different forms of price discrimination. 4.463  First degree price discrimination occurs when a firm is able perfectly to discriminate between consumers; that is, when it enjoys the ability to charge the maximum each consumer is willing to pay for each unit of a given product or service. Most economists, however, agree that this scenario can almost never be observed in practice as first degree price discrimination assumes that the firm has perfect knowledge of its customers’ willingness to pay, an assumption which is unlikely to be met in most markets.531 4.464  Second degree price discrimination occurs when a firm sets a price per unit which varies with the number of units the customer buys. This can be achieved through volume discounts whereby the price of a unit varies depending on the quantity purchased by the buyer or the adoption of a two-part tariff whereby the consumer pays a flat fee independent of the quantity purchased plus a variable fee which depends on the quantity purchased. 4.465  Third degree price discrimination takes place when a firm charges different prices to different groups of customers depending on their elasticity of demand. Consumers with high elasticity of demand will be charged higher prices than those with low elasticity of demand (Ramsey pricing). 4.466  The distinction between first, second, and third degree discrimination is only of limited relevance in the competition law analysis context as it tells little about the effects of competition generated by the different forms of price discrimination it distinguishes.

(c)  Welfare effects of price discrimination 4.467  While an extensive discussion of the welfare effects of price discrimination would be a distraction, it is important to understand that such effects cannot be determined a priori .Their determination requires a case-by-case analysis. 4.468  The welfare effects of first degree price discrimination do not deserve an extensive discussion since, as noted, this form of discrimination is unlikely to occur in practice. Let us just say that (p. 296) these effects essentially depend on the welfare standard selected.532 Because the firm in question is able to charge the maximum each consumer is willing to pay for a given product or service, it will be in a position to extract all consumer surplus. Thus, first degree price discrimination enhances total welfare (ie, the sum of producer and consumer welfare) because it eliminates any ‘deadweight loss’ that would otherwise result from market power. On the other hand, it decreases consumer welfare as consumer surplus is totally absorbed by the producer. 4.469  The welfare effects of second and third degree price discrimination require a greater degree of attention. Second and third degree price discrimination particularly increase welfare when they allow a firm to supply a group of consumers who would not be supplied in the absence of price discrimination. Third degree price discrimination taking the form of different tariffs for peak and off-peak train travel may, for instance, allow pricesensitive consumers who would not be able to use the train service under a uniform price to gain access to that mode of transportation.533 A similar result can also be achieved through second degree price discrimination taking the form of rebates as such rebates may allow

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new categories of consumers to buy a product which they could not have afforded under a uniform price. 4.470  It is widely admitted that the welfare effects of such forms of discrimination essentially depend on the question of whether price discrimination increases total output.534 Rebates producing exclusionary effects do not necessarily increase demand, but rather reallocate market shares between producers. As in the case of predation, the exclusionary effects of such rebates may force the competitors of the dominant firm to exit the market and thus lead to a reduction of output. A similar outcome may result from selective price cuts. On the other hand, rebates that increase total output by serving consumers that would not be served under a uniform price enhance welfare. The welfare effects of rebates and other forms of price cuts thus depend on the facts at play in each individual case. 4.471  A key insight of economics is that price discrimination is most likely to expand output where the seller has declining average total costs.535 Expanding output through price discrimination is an essential strategy for firms facing problems of fixed cost recovery.536 Price discrimination allows firms facing large fixed costs (in practice all firms that make substantial investments) to expand their output and thus spread fixed costs over a large number of units. When marginal costs are low (eg in network or information-based industries), any positive price allows the firm to contribute to its fixed costs. Prohibiting price discrimination would thus prevent efficient recovery of fixed costs and would, in the long run, have a negative impact on investments.537 (p. 297) 4.472  Another interesting issue is whether economic theory has something to say about geographic price discrimination.538 Let us assume, for instance, that a firm sells widgets for 5 cents in Member State A and for 7 cents in Member State B, the intensity of demand being higher in B than in A. Let us also assume that the firm in question is able to prevent arbitrage or that arbitrage is not possible due to transaction costs. Preventing price discrimination would produce ambiguous effects as the imposition of a uniform price (eg 6 cents) would make consumers in Member State B better off and those in Member State A worse off. Aggregating gains and losses may suggest overall welfare gains, provided of course that the firm continues to serve both markets. But this condition might not be met in practice. If consumer demand in B is indeed larger than consumer demand in A, the firm may simply decide to stop serving A in order to focus on B. Such a scenario would lead to welfare losses as consumers of Member State A would no longer be served. Thus, an overall prohibition of price discrimination across Member States would not be justified as it might lead to welfare losses. 4.473  A different issue is whether measures seeking to prevent resale in high price Member States of products or services bought in low price Member States should be banned. Such measures have been subject to a per se prohibition by the Court of Justice on the ground that they would affect market integration.539 On the other hand, there may be good reasons to allow restrictions on the cross-border resale of goods. Such restrictions may, for instance, be part of a package of measures designed to induce distributors to distribute a new brand and thus take a commercial risk.540 Moreover, prohibiting such restrictions may encourage producers to integrate vertically, thereby reducing to an even greater extent intra-brand competition. 4.474  In sum, a per se prohibition on price discrimination cannot be justified on the basis of economic theory as price discrimination may, depending on the facts of each case, enhance welfare.

(3)  The scope of Article 102(c) TFEU

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4.475  Article 102(c) considers that the fact for one or several firms to hold a dominant position of ‘applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage’ is an abuse of a dominant position. As noted, the Court of Justice also considers as an abuse the application of similar conditions to unequal transactions. The Court’s case law indicates that ‘dissimilar conditions’ also include ‘dissimilar prices’. Price discrimination thus clearly falls within the scope of Article 102(c). 4.476  The language of this provision triggers the following remarks. First, among the conditions which need to be met for applying Article 102(c) is a requirement that the measure under investigation applies dissimilar prices to ‘equivalent transactions’. The evaluation of the equivalence of two transactions is not an easy matter as there are a myriad of factors that can be invoked to justify the lack of equivalence between two transactions. The most obvious reason for stating that two transactions are not equivalent is that the sales involve different (p. 298) costs for the seller.541 The problem is of course to determine how significant cost differences should be for two transactions to be considered non-equivalent. Indeed, if all cost differences, however small, were to be taken into consideration very few transactions would be considered as equivalent. It could also be argued that differences regarding the moment at which sales are made render two transactions non-equivalent. For many products or services (airline tickets, package holidays, etc), the moment at which a sale is made has a major impact on the price imposed by the sellers. When the cost of providing the product or service in question does not differ depending on the time of sale, it is subject to question whether a time of sale difference could justify a finding that two transactions are not equivalent. Finally, there is some uncertainty as to whether differences relating to the situation of the buyers can be taken into consideration when assessing the equivalence or lack of equivalence of two transactions.542 For instance, applying prices inversely related to the elasticity of buyers is a strategy frequently used by firms to expand output. But when the cost of supplying consumers sorted on the basis of their elasticity does not differ, it is not clear whether differences in elasticity of demand can render transactions non-equivalent under the terms of Article 102(c). Unfortunately, the decisional practice of the Commission and the case law of the EU Courts fail to provide any clear guidance on the above issues. In fact, the Commission and the Courts generally assume that two transactions are equivalent without much analysis.543 4.477  The application of Article 102(c) also requires that dissimilarly treated equivalent transactions should place some of the dominant firm’s trading parties at a competitive disadvantage against others. This condition clearly indicates that Article 102(c) essentially seeks to prevent ‘secondary line’ injury.544 Scholarly discussions regarding price discrimination often draw a distinction between ‘primary line’ injury, which involves the dominant firm applying different prices to its competitors and ‘secondary line’ injury, which is imposed on one of several customers of the dominant firm as against one or several other customers.545 The reference to the placing of the dominant firm’s ‘trading parties at a competitive disadvantage’ clearly indicates that the parties Article 102(c) seeks to protect are the customers of the dominant player and not its competitors. Literally all legal scholars seem to agree on this point.546 The need for a competitive disadvantage to occur also suggests that for Article 102(c) to apply, (p. 299) the dominant firm’s customers should be in competition with each other.547 This requirement makes the finding of a discriminatory abuse dependent on finding a downstream market on which these firms compete. 4.478  The Commission and the EU Courts have largely ignored the above condition with the result that they have applied Article 102(c) to dominant firms’ pricing practices, which have little to do with putting their trading parties at a competitive disadvantage.548 For instance, Article 102(c) has been applied to pricing practices such as fidelity rebates or selective price cuts, which were allegedly designed to harm the dominant firms’ From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

competitors. These practices are classic examples of primary line discrimination which should not be covered by Article 102(c). As pointed out by several authors, they should instead be treated under Article 102(b), which is the proper legal basis for dominant firms’ practices which produce exclusionary effects. Similarly, Article 102(c) has been used to condemn practices which essentially sought to partition markets along national lines.549 Here, again, such practices have little to do with the secondary line injury scenarios which Article 102(c) is designed to prevent. 4.479  One could argue that the selection of the proper legal basis (Art 102(b) vs Art 102(c)) is essentially an academic issue with limited practical implications. Such a view would be too simplistic, however, as the choice of the proper legal basis under Article 102 TFEU may have serious implications. As will be seen, the problem with Article 102(c) is that, as interpreted in the current case law, the evidentiary level it requires to reach a finding of abuse of a dominant position is quite low. After all, Article 102(c) only requires the application of dissimilar prices to equivalent transactions with the effect of placing some trading parties at a competitive disadvantage.550 The requirement that trading parties be placed at a ‘competitive disadvantage’ is not very demanding. It falls short, for instance, of requiring proof that such parties would be forced to exit the market should the discriminatory practice continue. Moreover, in most instances, the Commission and the EU Courts have simply ignored this condition for finding a violation of Article 102(c).551 In contrast, Article 102(b) has been interpreted as requiring a showing of exclusionary effects. The language of this provision also conditions the finding of an abuse to the showing of a prejudice to the consumers. As price discrimination measures taking the form of rebates generally benefit consumers, the evidentiary burden imposed by Article 102(b) thus seems higher. 4.480  This low evidentiary threshold is not of major concern when dealing with cases of secondary line discrimination which do not produce exclusionary effects. After all, this form of discrimination is quite rare and hardly justifiable when it occurs. In contrast, when the matter in question involves primary line discrimination, a simple finding of price discrimination is clearly insufficient to reach a finding of abuse of a dominant position. Such cases, which, for instance, concern rebates and selective price cuts, require at the minimum the showing that the measure in question produces exclusionary effects, which may drive rivals out of the market. In fact, not unlike essential facilities cases, secondary line price discrimination cases (p. 300) involve a strategy whereby a dominant firm restricts the output of its rivals by excluding them from the market. The right legal basis to deal with such cases is Article 102(b).

(4)  Analytical framework for examining price discrimination measures 4.481  This section provides an analytical framework for examining the various forms of price discrimination imposed by dominant firms. As we have seen, price discrimination can take the form of many different practices the objectives and effects of which can substantially differ. Because of such differences, we propose to divide these practices into three categories depending on whether they create primary line injury, secondary line injury, or whether they involve geographic price discrimination.

(a)  Price discrimination in primary line injury settings 4.482  While the wording of Article 102(c) clearly indicates that this provision was designed to prevent price discrimination practices placing a dominant firm’s customers at a competitive disadvantage vis-à-vis other customers (secondary line price discrimination), a significant number of Commission decisions and EU Court judgments rely on Article 102(c) to condemn primary line price discrimination measures.

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4.483  This section outlines the main categories of primary line price discrimination, which have been found as constituting abuses of a dominant position in the Commission’s decisional practice and in the EU Courts’ case law. It then shows that these practices have little to do with the types of behaviour that Article 102(c) initially sought to prevent and also tries to explain why the Commission and the EU Courts examined, mistakenly in our opinion, these practices under Article 102(c). (i)  Main forms of primary line price discrimination measures examined under Article 102(c)

4.484  A first form of primary line price discrimination consists of rebates, that is, discounts paid retrospectively by a seller to a purchaser in respect of past purchases.552 Rebates generally entail price discrimination because the customer who receives a rebate pays a lower price than other customers purchasing a similar good or service.553 Another form of price discrimination can be found in selective price cuts whereby, as we have seen, an operator cuts its prices selectively, but not below costs, to customers who might switch to a competitor, while leaving prices to other customers at a higher level.554 4.485  As made clear in 4.159ff, rebates may have exclusionary effects and it is for that reason that the Commission has intervened generally on the basis of Article 102(b) to stop pricing regimes having such an effect. However, Commission decisions and Court of Justice (p. 301) judgments involving rebates have condemned them on the basis of Article 102(c), omitting in their analysis the ‘competitive disadvantage’ condition built in this provision. This can, for instance, be observed in Hoffmann-La Roche, a case where the dominant company had granted rebates to a number of purchasers, as a counterpart to the commitment from the purchasers to acquire all or most of their vitamins or certain vitamins from Roche.555 The Commission held that these contracts, on the one hand, had a horizontal effect by distorting competition between vitamins producers and, on the other hand, had a discriminatory effect in that they applied dissimilar conditions to equivalent transactions. The Court ruled on the question of discrimination by holding that: the effect of a fidelity rebate is to apply dissimilar conditions to equivalent transactions with other trading parties in that two purchasers pay a different price for the same quantity of the same product depending on whether they obtain their supplies exclusively from the undertaking in a dominant position or have several sources of supplies. 4.486  The Court condemned the discrimination on face value and did not engage in an analysis of the competitive situation downstream as required under Article 102(c).556 Roche, however, argued that the rebates were not of such a type as to place its customers at a competitive disadvantage. The Court eluded the question declaring: since the course of conduct under consideration is that of an undertaking occupying a dominant position on a market where for this reason the structure of competition has already been weakened, within the field of application of article [102] any further weakening of the structure of competition may constitute an abuse of a dominant position.557 4.487  The Court of Justice’s reference to the weakening of the structure of competition on the producer’s market confirms that the discrimination was sanctioned for its primary line injury effect rather than for the secondary line injury required by Article 102(c). The Court did not deal with the question of the competitive disadvantage. Instead, it relied on abstract arguments to establish a violation of Article 102(c).558

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4.488  Similarly, in Michelin I, the dominant tyre producer on the Dutch market for new replacement tyres for trucks, buses, and similar vehicles paid an annual bonus to its dealers depending on their reaching a sales target, which was set at a level higher than the purchases made in previous years.559 The bonus was determined individually and selectively for each dealer. In addition to showing that this practice had the effect of tying independent dealers to Michelin (thereby foreclosing competitors), the Commission identified a discrimination contrary to Article 102(c). Different bonuses were indeed granted to dealers whose situations were comparable. These bonuses were not linked to cost efficiencies, but to the loyalty (p. 302) that had been shown to Michelin. The Commission, however, paid no attention at all to the conditions mentioned in Article 102(c). In its assessment of the effects of the discount, the Commission only relied on the horizontal effect of the practice, namely that it ‘distorts the competition between tyre producers’ and impedes ‘access to the Netherlands market for [Michelin’s] competitors’.560 The Commission’s findings were annulled by the Court, which considered that the differences in the treatment of dealers could be explained by a number of commercial reasons. It could thus not be inferred from these differences that Michelin had engaged in discrimination.561 4.489  Finally, in Irish Sugar, the Commission found that target rebates offered by Irish Sugar to major food wholesalers in Ireland were discriminatory because they were dependent on percentage increases in purchases rather than absolute purchase volumes.562 Thus, companies ordering small volumes but having improved their sales compared to the previous year were treated similarly to companies ordering large volumes but having not increased their sales. In its reasoning, the Commission was, however, less concerned by the discrimination the rebate system introduced between distributors than by the fact the rebates were ‘making it difficult for competitors to gain a foothold in the market’ and ‘part of a policy of restricting the growth of competition from domestic sugar packers’.563 Once again, the Commission focused on the primary line effects of the measure in question rather than on its secondary line effects. 4.490  In some cases, however, the Commission and the EU Courts examined both primary and secondary line effects of fidelity rebate schemes. In British Plasterboard Industries, for instance, BPB, the dominant plasterboard producer in Great Britain and Ireland (through its subsidiary BG) was faced with increasing competition from imports from France and Spain.564 In Northern Ireland, BPB withdrew a rebate from its customers who intended to import Spanish plasterboard. Moreover, it offered an additional rebate to all customers who agreed to purchase exclusively from BG and not deal with imported products.565 The GC held that such a practice ‘by virtue of its discriminatory nature was clearly intended to penalize those merchants who intended to import plasterboard and to dissuade them from doing so, thus further supporting BG’s position in the plasterboard market.’566 Although it did not elaborate on the issue and made no reference to Article 102(c), the GC’s statement seemed to point in the direction of two effects, that is, a secondary line injury for those merchants not committing to loyalty and a primary line one with the maintenance of BG’s dominant position. As far as the secondary line injury was concerned, the Commission’s decision indicated that imports had prompted increased price competition at the merchants’ level.567 (p. 303) 4.491  British Airways is another case were both primary and secondary effects were identified. In this case, the Commission and the GC considered that the loyalty (or growth) rebate schemes relied upon by British Airways had a discriminatory nature contrary to Article 102(c).568 Two customers (ie, travel agents) purchasing the same level of British Airways tickets could indeed receive a different rebate if their sales of British Airways tickets were different in the previous year.569 The practice had, as the Commission held in its decision, the effect of distorting competition between British Airways and other airlines on the market for transport services.570 Yet, unlike Hoffmann-La Roche, British Airways did not simply create a primary line injury discrimination. In their reasoning, both From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

the Commission and the Court of Justice also referred to the distortion of competition existing downstream between travel agents. The market for supplying air travel agency services was intensely competitive and the ability of agents to compete in supplying such services was affected by the discriminatory conditions of remunerations resulting from British Airway’s schemes.571 4.492  As far as selective price cuts are concerned, the Commission was originally quite cautious in equating these practices with price discrimination pursuant to Article 102(c). In ECS/Akzo, the Commission sanctioned as an abuse of a dominant position the predatory prices selectively offered and charged by Akzo to ECS’s customers with a view to excluding the latter from the market.572 Although the decision was largely based on the below-cost nature of the prices, the Commission also referred to the discriminatory nature of the conduct. However, the Commission decided not to apply Article 102(c) to the matter at hand: Discrimination between similarly-placed customers is expressly prohibited by Article [102](c) when it places certain firms at a competitive disadvantage. In the present case however the anticompetitive effect of AKZO’s differential pricing involved not so much direct injury to customers but rather a serious impact on the structure of competition at the level of supply by reason of its exclusionary effect.573 4.493  The Commission prohibited Akzo from offering or applying prices which would result in customers of ECS paying Akzo prices dissimilar to those being offered by Akzo to comparable customers.574 4.494  In Eurofix-Bauco v Hilti the Commission did not apply Article 102(c) either. Hilti had implemented a discriminatory strategy taking the form of selective price cuts and other advantageous terms in favour of its competitors’ main customers. Hilti’s other customers did not benefit from these special conditions. The Commission considered that these practices (p. 304) were part of a strategy to limit the entry of competitors in the market for Hilti-compatible nails and thus relied essentially on a primary line injury reasoning.575 The Commission held: An aggressive price rivalry is an essential competitive instrument. However, a selectively discriminatory pricing policy by a dominant firm designed purely to damage the business of, or deter market entry by, its competitors, whilst maintaining higher prices for the bulk of its other customers, is both exploitative of these other customers and destructive of competition. 4.495  In more recent cases, however, the Commission and the Court held that selective price cuts could amount to price discrimination incompatible with Article 102(c). In Irish Sugar, the target rebates scheme described above had an additional feature that rendered it similar to a selective price cut. The size of the target rebate varied depending on the customer at stake, that is, being more favourable to particular customers of competing sugar packers. The Commission held that this constituted ‘selective and discriminatory pricing’. However, in analysing its effects, the Commission relied on a primary line injury analysis by stating that this practice was part of a policy of restricting the growth of competition from domestic sugar packers.576 4.496  A more explicit finding of price discrimination incompatible with Article 102(c) appeared in Compagnie Maritime Belge .The members of Cewal, a liner conference holding a joint dominant position on shipping routes between northern Europe and Zaïre, had operated a ‘fighting ships’ schemes pursuant to which it offered (i) liner services at the closest dates of sailing possible to the sailings of its main competitor, G&C and (ii) special rates different from the rates normally charged by Cewal and that were the same or lower than the prices of G&C. In its decision, the Commission showed that the practice amounted From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

to a primary line injury abuse because the members of Cewal were seeking to eliminate their principal competitor through the use of fighting ships. In addition to this finding, however, the Commission added that the practice constituted ‘a clear abuse of a dominant position in breach of Article [102](c)’ in that it had: a discriminatory effect against shippers who, having to load on dates some time from the sailing dates of G&C ships, must therefore pay the higher regular conference tariff for the carriage of the same goods. This is because shippers have dissimilar conditions imposed on them for equivalent transactions, which places those who are forced to pay higher rates at a competitive disadvantage.577 4.497  The decision was appealed by the parties which argued inter alia that there was no discrimination because at any given time, all shippers were treated in the same way.578 In fact, the parties were merely applying a uniform price differentiation scheme with respect to timing. (p. 305) The GC and the Court of Justice eluded the question of price discrimination and relied on the exclusionary nature of the practice to consider it an abuse of a dominant position.579 4.498  The question nevertheless arises as to whether a different price structure between traditional customers and competitors’ customers or those contemplating shifting to a competitor should be always deemed discriminatory. As we have seen, pricing selectively according to the elasticity of customers is widely admitted as efficiency-enhancing conduct by economists. The Commission and the EU Courts have not, however, resolved the issue of whether customers with different price elasticity could be considered as being in a different situation, thereby rendering Article 102(c) inapplicable. (ii)  Why have the Commission and the EU Courts mistakenly relied on Article 102(c) to address primary line cases?

4.499  As we have seen in Section XXX, it is clear from the wording of Article 102(c) that this provision was designed to prevent price discrimination practices which placed a dominant firm’s customers at a competitive disadvantage vis-à-vis other customers. Article 102(c) thus seeks to prevent secondary line price discrimination. Interestingly, the majority of the cases in which the Commission and the EU Courts evoked Article 102(c) essentially deal with primary line injury. The mechanisms put in place by the dominant firms in question typically sought to produce exclusionary effects designed to encourage competitors to exit the market and to prevent entry.580 The question why the Commission nonetheless relied (explicitly or implicitly) on Article 102(c) thus arises. Several reasons may have prompted the Commission and the Court to use this provision in an extensive fashion. 4.500  First, the Commission’s extensive interpretation of the concept of price discrimination is rooted in the early history of the application of Article 102 TFEU. Besides the fact that the ESCC Treaty’s provision on price discrimination did not draw any distinction between primary line and secondary line injuries,581 the possibility of applying Article 102 to primary line discrimination settings was supported early on by a group of scholars appointed in the 1960s by the Commission to advise it on the application of Article 102 TFEU.582 More importantly, the Court of Justice delivered several rulings under Article 102 TFEU where it (p. 306) imposed fairly limited constraints on the Commission to prove an abuse of a dominant position. In particular, the Court ruling in Continental Can indicated to the Commission that the list of abusive practices mentioned in the Treaty was not exhaustive.583 This opened the way to subsequent broad pronouncements on the issue of price discrimination. An important step was made in 1979 with the seminal Hoffmann-La Roche ruling where the Court delivered a signal whereby to reach a finding of price discrimination under Article 102(c), it was not necessary strictly to apply the conditions

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imposed by that provision. As Advocate General van Gerven rightly observed in his Opinion in Corsica Ferries : It appears implicitly from the Community case-law, … that the Court does not interpret that phrase [ie, ‘applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage’] restrictively, with the result that it is not necessary, in order to apply it, that the trading partners of the undertaking responsible for the abuse should suffer a competitive disadvantage against each other or against the undertaking in the dominant position.584 4.501  The requirement of a secondary line injury for establishing an abuse of a dominant position having been largely removed from Article 102(c), the Commission enjoyed a large scope for developing a praeter legem policy against price discrimination.585 This explains why the Commission has been able in a number of cases to rely on a primary line injury reasoning to sanction discriminatory business conduct. The Commission was further comforted in its approach by subsequent judgments of the EU Courts (eg Tetra Pak II) holding that the proof of an abuse did not require bringing evidence of the anticompetitive effects of the conduct at stake.586 4.502  Second, in a number of cases the Commission seized the opportunity to apply Article 102(c) beyond the limited scope of secondary line price discrimination in support of a finding of abuse of dominance in a primary line setting. Indeed, in most cases involving primary line price discrimination, the question arises whether the practice at stake is a normal competitive (p. 307) strategy that should not be condemned (the so-called ‘meeting competition’ strategy) or whether it is an exclusionary behaviour that seeks to exclude competitors from the market. This is, in particular, important in the context of above-cost selective price cuts, where the case law requires, for a finding of an abuse of a dominant position, the showing that the firm under scrutiny has the intent to eliminate its competitors.587 In these cases, a finding of discrimination may have helped to reach the legal evidentiary level required to identify a finding of abuse under Article 102. This is apparent in the Irish Sugar case where the imposition of discriminatory prices was interpreted as one of the elements showing a policy of restricting the growth of competition from domestic sugar packers.588 4.503  Third, and linked to the prior observation, may also be the fact that most forms of pricing abuses involve some aspect of discrimination. A finding of discrimination may thus not only lower the evidentiary threshold for finding an abuse, but also allow the Commission to impose a higher fine, considering it has established two separate infractions. In Irish Sugar and in British Airways, for instance, the Commission combined a finding of exclusionary abuse (under Art 102(b)) with a price discrimination abuse (under Art 102(c)). 4.504  Finally, if it had not been extended by the Commission, Article 102(c) would have lan-guished as ‘dead letter’ law. Indeed, from an economic viewpoint, a seller that is not vertically integrated would rarely have any incentive to distort downstream competition since an upstream firm benefits from a competitive downstream market for distributing its goods. A pricing practice that removes distributors from the market may produce two types of adverse effects on the seller. First, the distributors may compete less aggressively for the distribution of the goods at stake. Second, a risk of consolidation of the market structure downstream may reduce the bargaining power of the upstream firm and consequently negatively affect its revenues. This may explain why the Commission has shown little

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interest towards secondary line price discrimination and has preferred instead to curb the provision towards an active policy against primary line discrimination. 4.505  These reasons explain to one degree or another why Article 102(c) has been extended by the Commission and the EU Courts to primary line price discrimination.589 We believe this extension is unfortunate as it applies the wrong legal test to primary line abuses. Since such abuses involve exclusionary effects, they would be better dealt with under Article 102(b).

(b)  Price discrimination in secondary line injury settings 4.506  The decisional practice of the Commission and case law of the Court of Justice has applied Article 102(c) to secondary line injury settings in two main situations, which will be discussed below (Section (i)). This section then discusses whether Article 102(c) is the right legal basis for sanctioning the practices of secondary line price discrimination (Section (ii)). (p. 308) (i)  Main forms of secondary line price discrimination measures examined under Article 102(c)

4.507  A first scenario can be found when non-vertically integrated operators apply discriminatory prices to their customers. A second scenario involves discriminatory pricing by vertically integrated operators. (ii)  Secondary line injury price discrimination by non-vertically integrated operators

4.508  The decisional practice of the Commission and the case law of the EU Courts provide various examples of secondary line injury price discrimination by non-vertically integrated operators, in particular in the transport sector where an undertaking (often a public one) has been granted an exclusive right to operate an essential facility without, however, being active on the downstream market. Most of the cases dealt with by the Commission and the Courts involved discrimination on nationality grounds, or measures trying to favour domestic activities over international and/or non-domestic ones. 4.509  In Corsica Ferries II, the public authorities granted the corporation of pilots of the Port of Genoa the exclusive right to provide compulsory piloting services in the Port of Genoa.590 The piloting tariffs had been fixed by the corporation of pilots and approved by the Minister. Various reductions of the basic tariff applied for vessels permitted to carry out maritime cabotage, that is, traffic between two Italian ports. Only vessels flying the Italian flag could obtain permission to engage in maritime cabotage and, thus, benefit from the tariff reductions. Corsica Ferries, a maritime transport operator which operated a liner service between the Port of Genoa and various Corsican ports complained of the discriminatory nature of the tariffs. The Court of Justice held that: Article [102](1) and Article [106] of the Treaty prohibit a national authority from enabling an undertaking which has the exclusive right of providing compulsory piloting services in a substantial part of the common market to apply different tariffs to maritime transport undertakings, depending on whether they operate transport services between Member States or between ports situated on national territory.591 4.510  Indeed, as Advocate General van Gerven had explained in his Opinion, the compulsory piloting services carried out by the corporation of pilots were ‘strictly the same’ for both the company that was active on the cabotage market or on an international line.592 The measure was in fact a subtle and indirect way of conferring an advantage on national economic operators.

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4.511  Similar examples of sellers conferring a preferential treatment on specific undertakings can also be observed in a number of cases involving airport facilities. For instance, in the Brussels National Airport case, the Belgian legislation provided for a system of stepped discounts on landing fees, which favoured airlines that had a large volume of traffic at the Brussels airport over airlines having a lower volume of traffic.593 The thresholds established by the Belgian (p. 309) legislation were such that only a carrier based at the Brussels airport could benefit from the discounts, to the detriment of other EU carriers. This had the effect of favouring the Belgian public carrier over its competitors. The Commission considered that Article 102(c) could be applied to cases where: an undertaking in a dominant position [gives] preference to another undertaking from the same State or another undertaking which is pursuing the same general policy.594 4.512  In this case, the State, acting through its intermediary, that is, the Belgian airways authority enjoying an exclusive right on the market for aircraft landing and takeoff services, was giving ‘preferential treatment’ to a specific undertaking, that is, the national public airline Sabena. The Commission hence applied Article 106 in combination with Article 102(c). 4.513  A similar line of reasoning was followed by the Commission in the Portuguese Airports case, where discounts on landing fees de facto created an advantage in favour of national airlines.595 Furthermore, this case also concerned the application of different landing charges for domestic and international flights (and in particular intra-EEA flights). These measures were also held to be discriminatory within the meaning of Article 102(c) because the landing and takeoff services provided by the airports were the same, irrespective of whether the airline had an international or domestic activity.596 4.514  In Alpha Flight/Aéroports de Paris, ADP, the manager of the Paris airports had charged commercial fees to Alpha Flight and OAT, two suppliers of ground-handling services, in return for granting a licence to operate in one of the airports (ie, a form of access fee remunerating the services provided by the airport manager, such as supervision and organization of ground-handling activities).597 The commercial fee paid by each of the suppliers was calculated on the basis of their respective turnover.598 Following a complaint filed by Alpha Flight, the Commission’s investigation revealed that the fees were applied in a discriminatory manner. It appeared that on the basis of equivalent turnovers, the fees paid by OAT were substantially different. In addition, self-handling airlines were charged much lower fees than the companies providing ground-handling activities to airlines, although the management services supplied by ADP to both kinds of operators were strictly similar.599 The Commission thus considered that the variation of the fee from one supplier to another within the same airport distorted competition between suppliers or users of groundhandling services and thus amounted to discrimination contrary to Article 102(c).600 The hypothesis of discrimination on the ground of nationality, although not explicitly referred to in the decision, could not be ruled out, given that at the time of the case ADP and OAT (a subsidiary of Air (p. 310) France) were both national public companies, whereas Alpha Flight was the subsidiary of a UK company. (iii)  Secondary line injury price discrimination by vertically integrated operators

4.515  Markets structures where vertically integrated firms control essential inputs are often prone to secondary line injury price discrimination. Indeed, vertically integrated operators generally have incentives to charge a lower price to their downstream subsidiary

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than to the latter’s competitors. The decisional practice of the Commission and the case law of the EU Courts contain several examples of this. 4.516  A first illustration can be found in the Deutsche Bahn case. Transfracht, a subsidiary of the German railway operator was active in the carriage of maritime containers to or from Germany passing through German ports. Intercontainer was active in the carriage of maritime containers to or from Germany, passing through West European ports (Belgian and Dutch ports). Although providing a similar service (ie, the carriage of maritime containers to and from Germany), both firms had been charged different prices by Deutsche Bahn for access to the rail infrastructure. The facts revealed, for instance, that the price differences ranged from 2–77 per cent in respect of the carriage of empty containers in favour of Transfracht. The Commission and the GC thus considered that Deutsche Bahn had infringed Article 102(c) in applying dissimilar conditions to equivalent services. The discrimination had the effect of placing the parties operating from western ports at a competitive disadvantage vis-à-vis Deutsche Bahn and its subsidiary.601 In support of this, the Commission had gathered evidence that Deutsche Bahn’s price discrimination had substantially limited the carriage of containers between the western ports and Germany in favour of imports and exports to and from Germany through the port of Hamburg.602 4.517  The GC dismissed the two justifications raised by Deutsche Bahn for discriminating between Transfracht and Intercontainer. First, it rejected the alleged cost reductions achieved in German ports by Deutsche Bahn through rationalization strategies because there was no reason why these rationalization strategies had not been implemented with respect to the carriage of containers coming from western ports.603 Second, the greater competition from other carriage methods on routes originating from western ports could not justify higher tariffs. To the contrary, this greater competition should have given rise to a reduction of Deutsche Bahn tariffs applied on the western journeys.604 4.518  A similar scenario took place in the famous ITT Promedia saga. Belgacom, the Belgian national telecommunications operator was active on the market for publishing telephone directories through its subsidiary, Belgacom Directory Services (BDS).605 ITT Promedia NV, a directory-publishing company that wanted to have access to data regarding Belgacom’s subscribers, complained to the Commission that the latter had applied, inter alia, discrim inatory prices for access to the data on its subscribers for voice telephony services. (p. 311) In particular, ITT had been charged a price representing 34 per cent of its turnover. The Commission considered that there was no justification for this, except the market power associated with Belgacom’s dominant position. In the course of the proceedings, however, Belgacom agreed to abolish the turnover price component and to adopt a calculation based on the ratio of total annual costs to the number of publishers. Absent any published decision on this element of the case, it would be speculative to guess whether the Commission relied on Article 102(c) during the proceedings. In any event, however, the facts of the case are a blatant illustration of secondary line price discrimination by a vertically integrated operator. 4.519  In Deutsche Post, the Commission decided that Deutsche Post had infringed Article 102 by inter alia surcharging incoming cross-border letter mailings from the UK sent by customers outside Germany but containing a reference in the letter content to an entity residing in Germany.606 By surcharging such mailings, Deutsche Post tried to put an end to ABA remailing, a practice whereby German customers would mail letters from the UK to be sent to German addresses. The Commission found that Deutsche Post committed an abuse of a dominant position on the market for the forwarding and delivery of incoming crossborder letter mail in Germany by price discriminating between incoming cross-border letter mail which it considered to be genuine international mail and incoming cross-border letter mail which it considered to be virtual ABA re-mail. The Commission found that this conduct could fall under Article 102(c) as Deutsche Post imposed dissimilar prices to equivalent transactions, a situation that placed some of its trading parties (eg mail-order companies From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

operating from the UK indicating in the content of their mailings a reference to an entity residing in Germany) at a competitive disadvantage vis-à-vis other trading parties (eg mailorder companies operating from the UK not indicating such a reference). This was a clear example of secondary line price discrimination. 4.520  In 2004, the Commission adopted a decision finding that Clearstream Banking AG and its parent company Clearstream International SA had violated Article 102 inter alia by applying discriminatory prices to its customers.607 This case concerned the provision of clearing and settlement services for securities issued according to German law. Such services are provided by Central Securities Depositories (CSDs), entities which hold and administer securities and enable securities transactions to be processed. Clearstream AG, a CSD, had a monopoly for the provision of such services for German securities. It was providing clearing and settlement services to other CSDs but also to International Central Securities Depositories (ICSDs).608 There are two ICSDs in the EU: Euroclear Bank (EB) and Cleastream Banking Luxembourg (CBL), a subsidiary of Clearstream International SA and a sister company to Clearstream Banking AG. The discrimination issue in this case was that, from 1997 to 2002, Clearstream had charged higher fees to Euroclear Bank than to CSDs outside Germany. The Commission established that these fees were discriminatory because the service provided by Clearstream to CSDs and to EB was equivalent and because there was no objective justification (cost differences) for the difference in fees. (p. 312) 4.521  This case is interesting because the discriminatory effects seem to have taken place at two different levels. First, EB was discriminated against vis-à-vis CSD entities with which it was competing on several different markets. This was thus a clear case of secondary line discrimination. At the same time, it seems that the primary rationale for the price discrimination put in place by Clearstream AG was to penalize EB, which was a direct competitor of its sister company CBL on the market for secondary clearing and settlement of securities in cross-border trades. The reason this discrimination was possible on a second level was that Clearstream AG and CBL were part of the same group. Hence a degree of vertical integration could be found. 4.522  Finally, in the recent BdKEP case, the Commission considered that some provisions of the German postal law were inducing Deutsche Post AG (DPAG) to engage in price discrimination contrary to Article 102(c).609 The disputed provisions had the effect of allowing large senders (in general corporations) to feed self-prepared mail directly into sorting centres and enjoy discounts for doing so, while commercial mail preparation firms were denied the right to enjoy similar discounts. The Commission considered that DPAG was applying dissimilar conditions to equivalent transactions because large senders and commercial firms handing over similar volumes of prepared mail at sorting centres (thus leading to the same savings in handling operations and efficiency gains for DPAG) paid different tariffs. 4.523  Yet, the secondary line competitive injury resulting from DPAG’s practice was not manifest because commercial mail preparation firms and large senders were not competing on the same relevant market. The Commission considered nonetheless that there was a secondary line injury element in DPAG’s conduct. Indeed, the investigation revealed DPAG had launched two mail preparation services to large senders. It was thus active at the same level as commercial preparation firms.610 By virtue of the discriminatory discount conditions, the failure of mail preparation firms to qualify for quantity-based discounts put those firms at a competitive disadvantage vis-à-vis DPAG because they did not have the ability to procure their clients’ savings on postage whereas DPAG was able to allow for a consolidation of its clients’ mail items in order to procure them savings on postage.611 The discrimination thus additionally constituted an exclusionary abuse because DPAG could

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extend its dominant position on the market for basic postal services into the market for mail preparation services. (iv)  The choice of Article 102(c) as the legal basis for the secondary line injury cases

4.524  As far as secondary line injury price discrimination is concerned, Article 102(c) seems to be the appropriate legal basis. Indeed, unlike in the case of primary line discrimination examined in the preceding section, most of these cases do not contain an element of leveraging/extension of a dominant position. They represent clear examples of situations where price discrimination by a supplier distorts competition between its trading parties. However, the cases of secondary line discrimination by non-vertically integrated firms examined above are not ‘genuine’ cases of secondary line discrimination because they all involved an element of discrimination on the ground of nationality. Indeed, in most of these cases the dominant suppliers’ conduct must have been motivated by a desire to favour domestic operators. (p. 313) The practices in question in these cases nonetheless fit well in the concept of secondary line discrimination irrespective of the aims pursued by the dominant firms involved. This is probably why both the Commission and the EU Courts proceeded on the basis of Article 102(c).612 In addition, it is not clear that the other legal basis provided for by the TFEU to condemn discrimination (ie, Art 12 EC) could have been applied to sanction such practices.

(c)  Geographic price discrimination and measures facilitating this form of discrimination 4.525  The EU Courts’ case law gives a number of illustrations where Article 102(c) has been used to sanction dominant firms engaged in geographic price discrimination. It is, however, doubtful whether Article 102(c) was the appropriate legal basis for situations of this type. (i)  Case law of the EC Courts and Commission decisions on geographic price discrimination

4.526  The leading case on geographic price discrimination is United Brands .613 United Brands Company (UBC) unloaded at Rotterdam and Bremen ports bananas of a similar quality with identical unloading costs and then sold these bananas to customers (distributors/ripeners) from various Member States at significantly different prices. Customers were delivered the bananas at one of the ports of unloading and carried them to their own ripening rooms in their own Member States. UBC’s general sales conditions incorporated a clause which had the effect of preventing parallel imports from one Member State to another by prohibiting the exports of green, unripened bananas. In its decision, the Commission considered that both the practice of differentiating prices according to the Member State of the customers and the clause seeking to prevent parallel imports amounted to abuses of a dominant position. (p. 314) 4.527  In its judgment, the Court of Justice upheld the decision of the Commission on both points. As far as the clause preventing arbitrage was concerned, the Court found that: the prohibition on resale imposed upon duly appointed Chiquita ripeners and the prohibition of the resale of unbranded bananas … were without any doubt an abuse of the dominant position since they limit markets to the prejudice of consumers and affect trade between Member States, in particular by partitioning national markets. Thus UBC’s organization of the market confined the ripeners to the role of suppliers of the local market and prevented them from developing their capacity to trade vis-

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a-vis UBC, which moreover tightened its economic hold on them by supplying less goods than they ordered.614 4.528  The language used in the above quote seems to suggest that the clause in question was considered abusive because (i) it had the effect of partitioning national markets and (ii) prevented distributors/ripeners from developing an activity of cross-border traders in bananas. 4.529  As far as the imposition of different prices was concerned, the Court relied expressly on the language of Article 102(c): These discriminatory prices, which varied according to the circumstances of the Member States, were just so many obstacles to the free movement of goods and their effect was intensified by the clause forbidding the resale of bananas while still green and by reducing the deliveries of the quantities ordered. A rigid partitioning of national markets was thus created at price levels, which were artificially different, placing certain distributor/ripeners at a competitive disadvantage, since compared with what it should have been competition had thereby been distorted. Consequently the policy of differing prices enabling UBC to apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage, was an abuse of a dominant position. 4.530  The analysis of the Court of Justice in the above passage postulates that the partitioning of national markets placed distributors/ripeners at a competitive disadvantage, one of the conditions required for a measure to fall under Article 102(c). In fact, the opposite is true. Price discrimination between different distributors/ripeners could have placed some of them at a competitive disadvantage on the cross-border market for the resale of bananas, thereby creating a secondary line injury. But once the markets were partitioned across national lines, different prices could no longer create a competitive disadvantage among distributors/ripeners since these traders could not compete with each other. 4.531  A similar practice of geographic price discrimination was held to be an abuse of a dominant position in Tetra Pak II .615 In that case, Tetra Pak, the dominant undertaking in aseptic machines and cartons intended for the packaging of liquid foods, was charging different prices for cartons and machines across Member States. Prices were considerably lower in Italy than in other Member States.616 The fact that these disparities remained between Member States while the analysis had shown that the relevant geographical market was the EU as a (p. 315) whole and that the transport costs were fairly limited suggested that the differences in price could not be attributed to objective market conditions.617 Both the Commission and the GC thus estimated that these differences in pricing were the result of an overall market partitioning strategy pursued by the dominant operator.618 The Commission and the GC concluded that Article 102(c) had been infringed.619 4.532  The application of Article 102(c) in this case was problematic for the following reasons. First, the Commission and the Court failed to analyse whether Tetra Pak’s trading parties were placed at a competitive disadvantage. Second, the fact that the Commission decision and the GC judgment condemned as abuses of a dominant position a large number of contractual clauses through which Tetra Pak had compartmentalized markets should

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have sufficed to bring the geographic price differentials to an end.620 There was thus no need to condemn geographic price discrimination as a distinct abuse. 4.533  A distinct, though related, pattern of price discrimination arose in two other cases In British Leyland, the Commission and the Court of Justice sanctioned a discriminatory pricing practice that sought to insulate the UK market for selling Metro cars from import competition.621 In the UK, a person seeking to register a vehicle for use on the roads had, unless he was importing the vehicle for personal use, to produce a certificate of conformity certifying that the vehicle conformed to a previously approved type vehicle. UK legislation gave British Leyland a monopoly on the market for issuing the certificates for imported British Leyland vehicles. British Leyland marketed its vehicles in Great Britain through a selective distribution network. However, a stream of re-imports of Metro cars came from Belgium as a result (p. 316) of the differences between the prices charged by British Leyland in the UK for right-hand drive vehicles, and in the EU for left-hand drive vehicles. Imports of this type were possible because conversion of left-hand drive to right-hand drive was fairly easy. In order to protect its domestic distributors, British Leyland tried to impose higher fees for the grant of certificates of conformity for imported left-hand drive vehicles than for certificates of identical right-hand drive vehicles (for which there were almost no exports/re-imports except for diplomatic or military personnel). The Commission found this treatment difference discriminatory and held it to be an abuse of a dominant position.622 In this case, the Commission was obviously concerned by the fact that the practice in question amounted ‘to a penalty on parallel trade’ and ‘impeded … the free movement of goods and economic interpenetration which the EC Treaty aims to encourage.’623 4.534  Similarly, in Irish Sugar, the Commission and the Court condemned the discriminatory ‘border rebates’ granted by Irish Sugar to customers located close to the Northern Ireland border. The Commission mentioned in passing that the rebate was placing those who did not qualify for the rebate at a competitive disadvantage. In contrast, the Commission focused on the fact that the rebate was intended to deter imports from Irish Sugar’s competitors as part of a policy of dividing markets and excluding competitors.624 The GC confirmed the Commission’s finding of discrimination and insisted that the practice ran contrary to the ‘essence of a common market in that it created an obstacle to the achievement of [the] common market’ and therefore constituted an abuse.625 4.535  In these last two cases, unlike in United Brands and Tetra Pak II, Article 102(c) did not strictly apply to geographic price discrimination. Rather these cases concerned practices taking the form of price discrimination (not necessarily geographically, eg British Leyland) which helped to ensure that a given geographic market remained shielded from imports from other Member States. Of course, these practices may have contributed indirectly to the maintenance of different prices across different territories. But this effect was indirect and did not constitute the core target of Article 102’s infringement findings. (ii)  Is Article 102(c) the appropriate legal basis for geographic price discrimination and facilitating measures?

4.536  United Brands and Tetra Pak II cases are mistakenly based on Article 102(c). The conditions of Article 102(c) and, in particular, the condition that customers be placed at a competitive disadvantage did not appear to be fulfilled, precisely because the customers in question operated on different geographic markets and thus were not competing with each other. More generally, condemning outright geographic price discrimination runs contrary to the central goal of attaining a common market. The existence of price differentials among Member (p. 317) States is indeed the main driver for the emergence of patterns of parallel trade within the EU, which in turn ensures that prices across Member States converge towards the lower prices. Thus, provided resale is possible and profitable, market mechanisms should be sufficient to eliminate non-cost-based price differences. Competition policy should thus not be concerned with the existence of price differentials but, rather,

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should seek to ensure that outside competition from parallel trade is not impeded by firms’ practices to maintain artificial obstacles to trade. 4.537  Under EU competition law, a number of provisions can be used to ensure that firms do not artificially try to restrict trade between Member States. First, Article 101 TFEU has been applied on various occasions to practices seeking to prevent parallel trade. Often, a producer will try to induce its distributors not to resell the products in question so as to partition geographic markets and price discriminate along geographic lines. This is acknowledged in the Guidelines on Vertical Restraints which underline the anticompetitive effect of: territorial resale restrictions, the allocation of an area of primary responsibility, restrictions on the location of a distributor and customer resale restrictions. The main negative effect on competition is a reduction of intra-brand competition that may help the supplier to partition the market and thus hinder market integration. This may facilitate price discrimination .626 The Guidelines also evoke the facilitating effect of exclusive distribution agreements627 as well as exclusive customer allocation agreements on price discrimination.628 4.538  Similarly, the Guidelines on the application of Article 101 TFEU to technology transfer agreements underline the risks of price discrimination stemming from captive use restrictions (ie, obligations on a licensee to limit production of the licensed product to the (p. 318) quantities required for the production of his own products, thus preventing resale)629 and of quantity limitations aimed at partitioning markets.630 4.539  Besides the regulatory framework in place, the Commission and the EU Courts have often sanctioned concerted practices between producers and their distributors with a view to restricting parallel trade on the basis of Article 101 TFEU.631 However, as the Bayer ruling showed, it may not be possible to apply Article 101 to measures restricting parallel trade when there is no agreement between a supplier and its retailers (ie, when there is no ‘meeting of minds’ or where the supplier is vertically integrated and he himself operates the distribution of the products).632 4.540  If the supplier holds a dominant position, conduct aimed at hindering parallel imports can, however, fall within Article 102.633 As was the case in Tetra Pak II, such conduct may infringe Article 102(a) since it implies the application of unfair trading conditions to retailers. It may also fall under Article 102(b) when the dominant firm refuses to supply retailers to ensure that markets remained geographically compartmentalized.634 As in British Leyland and Irish Sugar, Article 102(c) has also been applied to practices intended to limit trade flows between Member States to maintain price differentiation along geographic lines. (p. 319) 4.541  Absent measures aimed at facilitating price discrimination, the existence of price differences among different geographic markets suggests that the conditions of competition in different areas are not homogeneous and several distinct relevant geographic markets exist.635 In such a situation, the reliance on Article 102(c) to condemn geographic price discrimination—in addition to making no sense on policy grounds—does not seem to be legally possible since Article 102(c) should only apply to differential pricing practices within one and the same market. The existence of different prices on different geographic markets should thus not be subject to challenge under Article 102(c). This does not mean, however, that the pricing policy of a dominant firm would be left completely unchecked. Indeed, there could be a case for intervention on the basis of Article 102(a) if the prices are deemed excessive in certain markets.636

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(5)  Conclusion 4.542  Price discrimination involves many different practices relied upon by firms in dominant, as well as non-dominant, positions. As a legal matter, the only competition law provision of the TFEU specifically dealing with price discrimination in the context of dominance, that is, Article 102(c), has been applied to a range of situations that have little to do with the Article’s specific purpose of preventing secondary line injury price discrimination. The application of Article 102(c) to certain pricing practices, including rebates, selective price cuts, tied and bundled prices, discriminatory pricing of inputs by vertically integrated operators, and geographic price discrimination, is an unwelcome development. The progressive extension of the scope of Article 102(c) can be explained by a variety of reasons, such as the relatively low evidentiary threshold required by this provision as interpreted by the Court of Justice compared to Article 102(b), the fact that price discrimination can be observed in most forms of pricing abuses, and so forth. Nevertheless, this extension is not without consequences since it has allowed the Commission to condemn under Article 102(c) pricing practices allegedly designed to exclude competitors by simply showing the presence of some form of vaguely defined price discrimination, but without demonstrating any competitive harm.

Footnotes: 1

  DG COMP Discussion Paper on the application of Article 82 of the Treaty to exclusionary abuses, December 2005. 2

  Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, December 2008, OJ C 45, 2009, at 7. 3

  See W. Landes and R. Posner, ‘Market Power in Antitrust Cases’ (1981) 94(5) Harvard L Rev 937–96: The standard method of proving market power in antitrust cases involves first defining a relevant market in which to compute the defendant’s market share, next computing that share, and then deciding whether it is large enough to support an inference of the required degree of market power. 4

  Commission Notice on the definition of the relevant market for the purposes of Community competition law, OJ C 372, 1997, at para 2. 5

  Ibid, at para 27.

6

  See the discussion in R. O’Donoghue and J. Padilla, The Law and Economics of Article 82 EC (Oxford: Hart Publishing, 2007), ch 2, at 63. 7

  See T. Kauper, ‘The Problem of Market Definition Under EC Competition Law’ in B. Hawk (ed), International Antitrust Law and Policy: Fordham Corporate Law Institute (London: Sweet & Maxwell, 1997), 303. 8

  Commission Decision, 22 December 1987, IV/30.787 and 31.488, Eurofix-Bauco v Hilti, OJ L 65, 11 March 1988, at 19. 9

  Commission Notice on definition, n 4, at para 7.

10

  Ibid, at para 13.

11  12

O’Donoghue and Padilla, n 6, at 69, ch 2.

  Commission Notice on definition, n 4, at para 20.

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13

  Ibid, at para 21.

14

  Ibid, at para 24.

15

  Ibid, at para 8.

16

  Commission Decision 94/19/EC of 21 December 1993 relating to a proceeding pursuant to Article 86 of the EC Treaty, IV/34.689, Sea Containers v Stena Sealink, OJ L 8, 1994, at 8. 17

  Commission Decision of 24 March 2004, COMP/C-3/37.792, Microsoft, C (2004) 900 final; Commission Decision 2005/621/EC, Oracle/PeopleSoft, OJ L 218, 2005, at 6. This later case is a merger case, but the principles followed in relation to market definition are, with only limited exceptions, similar. 18

  Commission Decision of 26 July 2000, COMP/M.1806, AstraZeneca/Novartis, OJ L 110, 2004, at 1. Again, this is a merger case, but the reasoning can be transposed under Art 102 TFEU. 19

  D.S. Evans and M.D. Noel, ‘Defining Antitrust Markets When Firms Operate Two-Sided Platforms’ (2005) Columbia Business L Rev 667–702. 20

  More technically, suppose that two time series are non-stationary. Eg a public company’s stock price follows a random walk over time, as does that company’s futures option price. If there is a statistically significant connection between the firm’s future and spot prices, the two price series will be cointegrated, meaning a linear combination of the two will yield a stationary series, even though both series taken individually are non-stationary. 21

  US v du Pont, 351 US 377 (1956).

22

  Discussion Paper on Article 82, n 1, at para 15.

23

  CJ, 27/76 United Brands v Commission [1978] ECR 207, at 65 and CJ, 85/76 HoffmannLa Roche v Commission [1979] ECR 461, at 38. This definition has since then been repeatedly used by the Commission and the EU Courts in most Art 102 judgments. 24

  See R. Whish, Competition Law, 5th edn (London: LexisNexis-Butterworths, 2005), at 179 and S. Bishop and M. Walker, The Economics of EC Competition Law, 2nd edn (London: Sweet & Maxwell, 2002), at para 6.06. 25

  See D. Neven, R. Nutall, and P. Seabright, Merger in Daylight—The Economics and Politics of European Merger Control (Washington DC: CEPR, 1993), at 18. 26

  D. Geradin et al, ‘The Concept of Dominance in EC Competition Law’, Global Competition Law Center, Research Paper on the Modernization of Article 82 EC, July 2005, at 3. 27

  Whish, n 24, at 179.

28

  Guidance Paper on abusive exclusionary conduct by dominant undertakings, para 10.

29

  Ibid.

30

  Ibid, at para 11.

31

  See J. Pearce Azevedo and M. Walker, ‘Dominance: Meaning and Measurement’, (2002) 7 European Competition Policy Rev 363, 365. 32

  See T.G. Krattenmaker, R.H. Lande, and S.C. Salop, ‘Monopoly Power and Market Power in Antitrust Law’ (1987) 76 Georgetown LJ 241, observing that this form of market power can be found where:

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A firm or group of firms may rise price above the competitive level or prevent it from falling to a lower competitive level by raising its rivals’ costs and thereby causing them to restrict output. Such allegations are at the bottom of most antitrust cases in which one firm or group of firms is claimed to have harmed competition by foreclosing or excluding its competitors. We denote this power as ‘exclusionary’ … market power. 33

  Guidance Paper, n 28, at para 12.

34

  Ibid, at para 13.

35

  Market share can be calculated on the basis of sales revenues, unit volumes, or more typically both. In most instances, revenue share and volume share will closely correlate. There are, however, two instances in which this will not be the case. First, if a firm is practising ‘introductory pricing’, whereby a new product has an initially low price meant to induce customers to purchase an otherwise unknown product, while other firms on the relevant market are not practising introductory pricing, then revenue shares and volume shares may give different answers on market position. Second, if the products involved are differentiated, then prices across firms in the relevant market then, again, revenues and volumes will give different share answers. The former case points to the importance of understanding firm behaviour on the relevant market, and not simply relying on share calculations. In the latter case, both share measures can be informative, particularly if data over time is available, so that any changes in share can be assessed. 36

  Ibid.

37

  Ibid, at para 14.

38

  O’Donoghue and Padilla, n 6, ch 3, at 113.

39

  Guidance Paper, n 28, at para 16.

40

  Ibid.

41

  In United Brands, the Court of Justice noted that the particular barriers to competitors entering the market are the exceptionally large capital investments required …, the introduction of an essential system of logistics …, economies of scale from which newcomers to the market cannot derive any immediate benefit and the actual cost of entry made up inter alia of all the general expenses incurred in penetrating the market such as the setting up of an adequate commercial network, the mounting of very large-scale advertising campaigns, all those financial risks, the costs of which are irrecoverable if the attempt fails.

See CJ, 27/76 United Brands v Commission, n 23, at 122. 42

  Guidance Paper, n 28, at para 16.

43

  Ibid, at para 17.

44

  Ibid, at para 16.

45

  Ibid.

46

  Ibid.

47

  See G.C. Moschini and H. Lapan, ‘Intellectual Property Rights and the Welfare Effects of Agricultural R&D’ (1997) 79 Am J Agricultural Economics 1229.

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48

  CJ, C-468–478/06 Sot Lélos kai Sia EE and Others v GlaxoSmithKline AEVE [2008] ECR I-7139, at 64. 49

  GC, T-69/89 Radio Telefis Eireann v Commission [1991] ECR II-485, at 46.

50

  Guidance Paper, n 28, at para 18.

51

  See OECD Roundtable on Buying Power of Multiproduct Retailers (1998), available at . 52

  Judgment of the CFI(First Chamber) of 10 March 1992, Joined Cases T-68/89, T-77/89, and T-78/89 Società Italiana Vetro SpA, Fabbrica Pisana SpA and PPG Vernante Pennitalia SpA v Commission [1992] ECR II-01403. 53

  It may also lead to losses in productive efficiency since firms in such oligopolies no longer not compete and may not seek to achieve economies on the cost side, etc. 54

  See V. Korah, ‘Gencor v Commission: Collective Dominance’ (1999) 6 European Competition L Rev 337. 55

  See CJ, 48/69 ICI v Commission (‘ Dyestuffs’) [1972] ECR 619.

56

  See CJ, Joined Cases C-89, 104, 114, 116, 117, and 125–129/85 Ahlström Oy v Commission (‘ Wood Pulp’) [1993] ECR I-1307. 57

  Lawyers and economists often refer to a similar concept under the name ‘joint dominance’. To date, however, the case law of the Court of Justice only refers to the concept of ‘collective dominance’, which will thus be used for the purpose of the present study. 58

  See R. Joliet, Monopolization and Abuse of a Dominant Position—A Comparative Study of the American and European Approaches to the Control of Economic Power, Collection scientifique de la faculté de droit de l’université de Liège, Faculté de droit, Université de Liège (The Hague: Martinus Nijhoff, 1970), at 299. 59

  Ibid, at 298. Its applicability to tacit collusion amongst independent oligopolistic firms seemed, at first sight, conceivable (by contrast to US antitrust law) talking of a ‘gap’ in US antitrust law. 60

  See ‘Concentration of Enterprises in the Common Market, Memorandum of the EEC, Commission of December 1, 1965’ (1966) 26 Common Market Reports. 61

  See Opinion of Advocate General Mayras in Dyestuffs, CJ, 48/69 ICI v Commission [1972] ECR 619. This view also seemed to be shared by early German scholars. See Joliet, n 58, at fn 723. 62

  See B. Goldman, ‘Chronique jurisprudentielle de la Cour de Justice des Communautés Européennes’ (1973) Journal de Droit International 939. 63

  See Joliet, n 58, at 239.

64

  See ibid, at 238.

65

  Report of 10 December 1975 on the behaviour of the oil companies in the Community during the crisis of autumn–winter 1973–1974, COM(1975). 66

  See Commission Decision of 19 April 1977, IV/28.841, ABG/Oil companies operating in the Netherlands, 77/327/EEC. 67

  See VIIIth Annual Report on Competition Policy, 1978, p 256; IXth Annual Report on Competition Policy, 1979, p 190. See in particular XVIth Annual Report on Competition Policy, 1986, para 331. 68

  See Hoffmann–La Roche, n 23, at 39.

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69

  CJ, 243/83 SA Binon et Cie v SA Agences et messageries de la presse [1985] ECR 2015; CJ, 66/86 Ahmed Saeed Flugreisen et Silver Line Reisebüro GmbH v Zentrale zur Bekämpfung unlauteren Wettbewerbs eV [1989] ECR 803; CJ, 247/86 Société alsacienne et lorraine de télécommunications et d’électronique (Alsatel) v SA Novasam [1988] ECR 5987. 70

  Commission Decision of 7 December 1988, IV/31.906, Flat glass (Italy), OJ L 33 of 4 February 1989, at 44. 71

  Ibid, at para 79. This uniformity of conduct resulted from several elements, including a ‘marked degree of interdependence with regards to prices and terms of sales’, as well as ‘structural links relating to production through the systematic exchange of products’. 72

  In turn, the Commission found the parties guilty of a variety of abuses under Art 102(a) and (b) (eg restriction of consumer’s ability to choose sources of supplies, setting of sales quotas). Ibid, at paras 79–80. 73

  GC, Società Italiana Vetro SpA, Fabbrica Pisana SpA and PPG Vernante Pennitalia SpA v Commission, n 52 at 342–3. 74

  Ibid, at para 350 (in addition to a high joint market share).

75

  The Commission repeatedly insisted that it did not apply the concept of collective dominance ‘solely on the ground that [the parties] form part of a tight oligopoly’. Ibid, at para 350. 76

  Ibid, at paras 357–8.

77

  Ibid, at para 357.

78

  Ibid, at para 358. The Court also noted, at para 359: the Court finds support for that interpretation in the wording of Article 8 of Council Regulation (EEC) No 4056/86 of 22 December 1986 laying down detailed rules for the application of Articles 85 and 86 of the Treaty to maritime transport (Official Journal L 378, p. 4). Article 8(2) provides that the conduct of a liner conference benefitting from an exemption from a prohibition laid down by Article 85(1) of the Treaty may have effects which are incompatible with Article 86 of the Treaty. A request by a conference to be exempted from the prohibition laid down by Article 85(1) necessarily presupposes an agreement between two or more independent economic undertakings.

79

  In contrast, intra-group relationships seem to be within the province of individual dominant positions. 80

  GC, Società Italiana Vetro SpA, Fabbrica Pisana SpA and PPG Vernante Pennitalia SpA v Commission, n 52, at para 358. 81

  See T. Soames, ‘An Analysis of the Principles of Concerted Practice and Collective Dominance: A Distinction Without a Difference?’ (1996) 1 European Competition L Rev 24; R. Whish and B. Sufrin, ‘Oligopolistic Markets and Competition Law’ (1992) 12 Yearbook of European Law 59. 82

  See A. Jones and B. Sufrin, EC Competition Law: Text, Cases, and Materials, 2nd edn (Oxford: Oxford University Press, 2004), at 683. 83

  In this decisional practice, the Commission thus seems to consider that the notion of economic links covers oligopolistic interdependence. 84

  The Commission has resorted to the concept to catch a number of anomalous market configurations that fell short of conventional competition law doctrines. See below.

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85

  Commission Decision, IV/M.190, Nestlé/Perrier, 22 July 1992; Commission Decision, IV/ M.308, Kali + Salz/MdK/Treuhand, 14 December 1993; Commission Decision, IV/M.580, ABB/Daimler-Benz, 18 October 1995; Commission Decision, IV/M.619, Gencor/Lonrho, 24 April 1996; Commission Decision, IV/M.1524, Airtours/First Choice, 22 September 1999. 86

  CJ, Joined Cases C-68/94 and C-30/95 République française et Société commerciale des potasses et de l’azote (SCPA) et entreprise minière et chimique (EMC) v Commission [1998] ECR I-1375, at para 211. L. Papadias, ‘Some Thoughts on Collective Dominance from a Lawyer’s Perspective’ in P. Buigues and P. Rey (eds), The Economics of Antitrust and Regulation in Telecommunications (Cheltenham: Edward Elgar, 2004), at 120. 87

  GC, T-102/96 Gencor Ltd v Commission [1999] ECR II-753, at 276.

88

  GC, T-342/99 Airtours plc v Commission [2002] ECR II-2585, at 60–2.

89

  See L. Vitzilaiou and C. Lambadarios, ‘The Slippery Slope of Addressing Collective Dominance Under Article 82 EC’, CPI Antitrust Chronicle, 8 October 2009, at 10. 90

  See B. Hawk and M. Motta, ‘Oligopolies and Collective Dominance: A Solution in Search of a Problem. Treviso Conference on Antitrust Between EC Law and National Law’, 8th edn, Fordham Law Legal Studies Research Paper No 1301693, at 102–3. 91

  See J. Temple Lang, ‘Oligopolies and Joint Dominance in Community Antitrust Law’ in B.E. Hawk (ed), Fordham Corporate Law Institute (2000), 269. 92

  CJ, Joined Cases C-395/96 and C-396/96 P Compagnie Maritime Belge Transports and others v Commission [2000] ECR I-1365. Yet, the notion of abuse of collective dominance had been raised, and this gave an opportunity for the Court to clarify the concept. 93

  See ibid.

94

  GC, T-193/02 Laurent Piau v Commission [2005] ECR II-209, at 111. Some authors nonetheless challenge the relevance of Piau as a precedent for a finding that collective dominance applies to tacit collusion. See F. Mezzanote, ‘Tacit Collusion as Economic Links in Article 82 EC Revisited’ (2009) 3 European Competition L Rev 137. 95

  GC, Laurent Piau v Commission, n 94, at 113–14.

96

  Ibid, at para 111.

97

  The case was appealed before the Court of Justice, but the judgment did not give rise to any discussion of the concept of collective dominance. 98

  CJ, C-413/06 P Bertelsmann AG v Impala [2008] ECR II-4951. See on this, F. Mezzanotte, ‘Interpreting the Boundaries of Collective Dominance in Article 102 TFEU’ (2010) 21(4) European Business L Rev 519–37. 99

  N. Petit and D. Henry, ‘Why the EUMR should not enjoy a monopoly over tacit collusion’ in OCCP (ed), Changes in Competition Policy over the last two decades, Anniversary Publication (Office of Competition and Consumer Protection, 2010), at 181. 100

  Papadias, n 86.

101

  H. Haupt, ‘Collective Dominance Under Article 82 EC and EC Merger Control in the Light of the Airtours Judgment’ (2002) 9 European Competition L Rev 434, at 438; See also M. Clough, ‘Collective Dominance—The Contribution of the Community Courts’ in M. Hoskins and W. Robinson (eds), Essays for Judge David Edwards (Oxford: Hart Publishing, 2003). 102

  Soames, n 81.

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103

  Geradin et al, n 26, at 34. This would additionally provide useful guidance to NCAs and courts which might (have) engage(d) in action against anticompetitive oligopolies on the basis of Art 102-like provisions. Eg on the basis of complex monopoly-style investigations in the UK. 104

  See Discussion Paper on Article 82 EC, n 1, at para 46.

105

  Ibid, at para 74. The Commission, however, did not exclude findings of individual abuses of a collective dominant position. 106

  See Guidance Paper, n 28, at para 4: Article 82 applies to undertakings which hold a dominant position on one or more relevant markets. Such a position may be held by one undertaking (single dominance) or by two or more undertakings (collective dominance). This document only relates to abuses committed by an undertaking holding a single dominant position.

107

  See eg A. Vandencasteeele and D. Waelbroeck, ‘Une nouvelle approche à l’égard des abus de monopolisation? Quelques commentaires à propos du document de travail de la Commission européenne relatif à l’application de l’article 82 aux abus de monopolisation’ (2006) 1 Revue Internationale de Droit Economique 87. 108

  See GC, T-68/89, 77/89, and 78/89, SIV and others v Commission [1992] ECR II-1403, at 358. 109

  As John Temple Lang observes, ‘joint dominance in one market is not the same as a series of national, (or other) markets in each of which there is one sole dominant undertaking’, see Temple Lang, n 91, at 318. The author points out, referring to Bodson, that there can be joint dominance situations, ‘even if the number of companies involved is quite large, and would not otherwise be thought as constituting an oligopoly’, at 300. 110

  ECJ, C-393/92 Gemeente Almelo and others v Energiebedrijf IJsselmij [1994] ECR I-1477; CJ, C-383/93 Centre d’insémination de la Crespelle v Coopérative de la Mayenne [1994] ECR I-5077. 111

  This hypothesis is explicitly pointed out by P. Nihoul and P. Rodford, EU Electronic Communications Law (Oxford: Oxford University Press, 2004), at paras 3.327ff. 112

  See ibid, at para 3.331.

113

  See Temple Lang, n 91, at 382.

113a 114

  Commission Decision 97/624 of 14 May 1997, OJ L 258 of 22 September 1998, at 1.

  See CJ, 73/95 Viho v Commission [1996] ECR I-5457.

115

  See G. Monti, ‘The Scope of Collective Dominance under Article 82 EC’ (2001) 38 Common Market L Rep 131, 143. 116

  See Korah, n 54, at 2.2.1 and 3.2.5.

117

  See CJ, C-96/94 Centro Servizi Spediporto v Spedizioni Marittima del Golfo [1995] ECR I-2883, at 34: National legislation which provides for the fixing of road-haulage tariffs by the public authorities cannot be regarded as placing economic agents in a collective dominant position characterized by the absence of competition between them.

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See also, CJ, C-140/94 DIP and others v Comune di Bassano del Grappa and others [1995] ECR I-3257, at 27: National rules which require a licence to be obtained before a new shop can be opened and limit the number of shops in the municipality in order to achieve a balance between supply and demand cannot be considered to put individual traders in dominant positions or all the traders established in amunicipality in a collective dominant position, a salient feature of which would be that traders did not compete against one another. And see CJ, C-70/95 Sodemare and others v Regione Lombardia [1997] ECR I-3395. 118

  See Monti, n 115, at 153; S. Stroux, ‘Is EC Oligopoly Control Outgrowing Its Infancy?’ (2000) 23 World Competition 3, 22. 119

  This has been repeated by the GC in the TACA ruling, see GC, Joined Cases T-191/98, T-212–214/98 Atlantic Container Line AB and Others v Commission, [2003] ECR II-3275. 120

  See on this, M. Jephcott and C. Withers, ‘Where to now for EC oligopoly control?’ (2001) 22 European Competition L Rev 301; Nihoul and Rodford, n 111, at para 3.341; Clough, n 101, at 174. 121

  See GC, Laurent Piau v Commission, n 94, at para 111; R. Whish, Competition Law, 4th edn (London: Butterworths, 2001), at 479; Temple Lang, n 91; Jonathan Faull and Ali Nikpay, The EC Law of Competition (Oxford: Oxford University Press, 1999); Nihoul and Rodford, n 111; Clough, n 101, at 174. See, also in TACA, n 119, the references to Gencor and Airtours, at para 652. 122

  GC, T-193/02 Laurent Piau v Commission, n 94, at 111.

123

  See Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ C 31, 5 February 2004, at 5–18, para 41. 124

  See, for a good presentation of these, Temple Lang, n 91, at 314.

125

  It should be observed that parallel pricing is consistent with competition as well as with collusion. Eg if all firms use the same inputs, then a cost increase in an input should feed through to all the firms raising their prices. As a matter of economics, the more competitive the market, the more the cost increase would be passed on. 126

  This has been criticized by A. Nikpay and F. Houwen in ‘Tour de Force or a Little Local Turbulence? A Heretical View on the Airtours Judgment’ (2003) 24 European Competition L Rev 193, 199. 127

  See ibid, who have criticized excessive reliance on this condition in the field of the Merger Regulation. A fortiori, their line of reasoning could be extended to the assessment under Art 102. 128

  See Monti, n 115, at 138.

129

  See GC, Airtours, n 88, at para 63.

130

  See TACA, n 119, at para 653.

131

  See Temple Lang, n 91, at 315.

132

  See Monti, n 115.

133

  J. Temple Lang and R. O’Donoghue, ‘The Concept of Exclusionary Abuse under Article 82’, GCLC Research Papers on Article 82, July 2005, mimeo.

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134

  CJ, 85/76 Hoffman-La Roche v Commission [1979] ECR 461.

135

  Commission Decision, 14 December 1985, IV/30.698, ECS v Akzo, OJ L 375, 1985, at para 81. 136

  GC, T-191/98 Atlantic Container Line and others v Commission, n 119, at 1124.

137

  Ibid, at 1460.

138

  OECD, ‘What is Competition Policy on the Merits’, Policy Brief, June 2006, available at . 139

  See Donoghue and Padilla, n 6, at ch 4.

140

  On this case law, see D. Waelbroeck, ‘Michelin II: A Per Se Rule against Rebates by Dominant Companies?’ (2005) 1 J Competition Law and Economics 149–71. 141

  N. Kroes, ‘Preliminary Thoughts on Policy Review of Article 82’, Speech at the Fordham Corporate Law Institute, New York, 23 September 2005, available at . 142

  DG COMP Discussion Paper on the application of Article 82 of the Treaty to exclusionary abuses, December 2005, available at . 143

  C. Ahlborn, V. Denicolò, D. Geradin, and J. Padilla, ‘DG COMP Discussion Paper on Article 82: Implications of the Proposed Framework and Antitrust Rules for Dynamically Competitive Industries’, available at . 144

  The Intel case was still being investigated at the time of adoption of the Discussion Paper. The Commission Decision was adopted in May 2009. Commission Decision, 13 May 2009, COMP/C-3/37.990, Intel, OJ C 227 of 22 September 2009, at 13. 145

  The decision of the Commission in Microsoft, n 17, was the subject of an appeal to the GC whose judgment was adopted in September 2007, T-201/04 Microsoft v Commission, 17 September 2007 [2007] ECR II-3601. 146

  Guidance Paper on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings issued in December 2008, OJ C 45, 2009, at 7. For an analysis, see N. Petit, ‘From Formalism to Effects? The Commission’s Communication on Enforcement Priorities in Applying Article 82 EC’ (2002) 32 World Competition 485. 147

  Ibid, at para 2.

148

  See Intel Decision, n 144, at 916: The Guidance Paper is not intended to constitute a statement of the law and is without prejudice to the interpretation of Article [102] by the Court of Justice or the Court of First Instance. As a document intended to set priorities for the cases that the Commission will focus upon in the future, it does not apply to proceedings that had already been initiated before it was published, such as this case.

149

  Guidance Paper, n 28, at para 19.

150

  Ibid, at para 20.

151

  Ibid, at para 19.

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152

  D. Geradin, ‘The Decision of the Commission of 13 May 2009 in the Intel case: Where is the Foreclosure and Consumer Harm?’ (2009) 2 J European Competition Law & Practice 9. 153

  Guidance Paper, n 28, at para 20.

154

  Ibid, at para 21.

155

  Ibid, at para 23.

156

  See below our analysis of rebates.

157

  Guidance Paper, n 28, at para 26.

158

  P is the price effectively paid by the customer (eg the list price minus a rebate). e

159

  Guidance Paper, n 28, at para 26.

160

  Ibid.

161

  Ibid, at para 27.

162

  Ibid.

163

  Ibid, at para 24.

164

  Moreover, if they decide to go ahead with a rebate regime which prima facie appears in line with EU competition law (and which they need to grant to realize pro-competitive efficiencies or meet competition), but is in fine challenged by the Commission, the resulting investigation will result in significant legal costs, management distraction, damage to the brand, possible fines and injunctions, and follow-on private litigation. 165

  See E. Elhauge and D. Geradin, Global Antitrust Law and Economics (Eagan, MN: Foundation Press, 2007), at 516. 166

  It is important to note that dominant firms may engage in practices that although falling short of outright exclusivity can have foreclosure effects, eg fidelity/market share rebates (see next section), slotting allowances, and category management. On these practices, see O’Donoghue and Padilla, n 6, at 36, section 7.2.3. The assessment of such practices should follow the same principles as those applied to exclusive dealing obligations. Competition authorities and courts have also looked at so-called ‘English clauses’ whereby the buyer is required to report to the dominant supplier any better offer and is only allowed to accept such an offer when the dominant supplier does not match it. While such clauses may be advantageous for buyers (as they create price competition among suppliers), they may nevertheless produce foreclosure effects especially when the buyer has to reveal the identity of the rival making the better offer, as this may discourage competitors from making competing offers. 167

  Ibid.

168

  Guidance Paper, n 28, at para 34.

169

  Ibid, at para 36.

170

  Ibid.

171

  See Elhauge and Geradin, n 165, at 519.

172

  See eg D Waelbroeck, n 140; J. Temple Lang and R. O’Donoghue, ‘Defining Legitimate Competition: How to Clarify Pricing Abuses under Article 82’ (2002) Fordham Int’l LJ 83. 173

  This definition draws on G. Faella, ‘The Antitrust Assessment of Conditional Discounts and Rebates’ (2008) J Competition Law and Economics 375, at 376. See also the definition given by the Commission in its Guidance Paper, n 28, at para 37 (‘Conditional rebates are

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rebates granted to customers to reward them for a particular form of purchasing behaviour’). 174

  C. Ahlborn and D. Bailey, ‘Discounts and Selective Pricing by Dominant Firms: A TransAtlantic Comparison’ (2006) 2 European Competition Journal 1004. 175

  ‘Conditional rebates are granted to customers to reward a certain (purchasing) behaviour of these customers.’ See the Discussion Paper, n 1, at para 137. 176

  ‘Unconditional rebates, while granted to certain customers and not to others, are granted for every purchase of these particular customers, independently of their purchasing behaviour.’ Ibid. 177

  In its submission to the OECD Roundtable on rebates, the United States observes that: Generally [conditional discounts/rebates] are efficient means of competing that do not raise concerns even if they may harm competitors at times. To the contrary, discounting of any type reflects the type of robust competition that the antitrust laws aim to foster.

See United States, Roundtable on Bundled and Conditional Discounts and Rebates; DAF/ COMP/WP3/WD(2008)47, at 1. 178

  D. Ridyard, ‘Exclusionary Pricing and Price Discrimination Abuses under Article 82—An Economic Analysis’ (2002) 6 European Competition L Rev 286. 179

  ‘Selective Price Cuts and Fidelity Rebates’, Economic Discussion Paper, July 2005, OFT804, para 1.7, available at . 180

  Ibid, at para 2.29.

181

  Hoffmann-La Roche, n 23, at para 89.

182

  Ibid, at para 90.

183

  Ibid.

184

  Commission Decision, 7 October 1981, IV.29.491, Bandengroothandel Frieschebrug BV/ NV Nederlandsche Banden-Industrie Michelin, OJ L 353 of 9 December 1981, at 33–47. 185

  CJ, 322/81 NV Nederlandsche Banden Industrie Michelin v Commission (Michelin I) [1983] ECR I-03461, at 14. 186

  Ibid, at 81.

187

  Ibid.

188

  Ibid, at 84.

189

  Commission Decision, 20 June 2001, COMP/E-2/36.041/PO, Michelin. OJ L 143 of 31 May 2002, at 1. 190

  GC, T-203/01 Manufacture française des pneumatiques Michelin v Commission (Michelin II) [2003] ECR II-4071, at 59. 191

  Ibid, at 85.

192

  Ibid, at 141.

193

  Ibid, at 241.

194

  Ibid, at 244.

195

  CJ, C-95/04 British Airways v Commission [2007] ECR I-2331.

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196

  Ibid, at 71.

197

  Ibid, at 58.

198

  Ibid, at 106.

199

  Guidance Paper, n 28, at para 37.

200

  Ibid.

201

  Ibid, at para 39.

202

  See Discussion Paper, n 1, at para 143.

203

  Ibid, at para 153.

204

  Ibid, at para 152.

205

  Guidance Paper, n 28, at para 40.

206

  Discussion Paper, n 1, at para 153.

207

  Guidance Paper, n 28, at para 41. According to this standard, as long as a dominant firm sells its products at an effective price (standard price minus the rebate it grants to its customers) that is above a certain measure of its costs, the rebate in question should be legal even if it has the effect of eliminating weaker competitors. Tests which rely on competitors’ costs or any other benchmark exceeding the dominant firm’s own costs would protect less efficient competitors and ultimately deprive consumers of the beneficial effects of price competition. Such tests would also generate a significant degree of uncertainty as it would be impossible for a dominant firm to know in advance whether its rebates would be illegal. While dominant firms obviously know their cost structure, they are in no position to know the costs of their competitors and thus could not self-assess their pricing practices. This aspect was recently emphasized by the GC in Deutsche Telecom in which the Commission had applied the ‘as efficient competitor’ test. The Court condoned this test, holding that any other approach would be contrary to the general principle of legal certainty. See GC, T-271/03 Deutsche Telecom v Commission [2008] ECR II-477 at 192. A similar approach prevails in US antitrust law as made clear by a US federal court in Ortho Diagnostic Systems, Inc v Abbott Labs, 920 F Supp 455 (SDNY 1996), which held that: only price cutting that threatens equally or more efficient competitors is condemned under Section 2. Any other rule would entail too substantial a risk that the antitrust laws would be used to protect an inefficient competitor against price competition that would afford substantial benefits to consumers. (At 469–70) 208

  Guidance Paper, n 28, at para 44.

209

  Ibid, at para 45.

210

  Ibid, at para 46.

211

  Ibid.

212

  This is true unless, of course, the grant of discounts is accompanied by an increase of initial prices (the so-called ‘penalty prices’). 213

  See Ridyard, n 178.

214

  See United States, 2008 OECD submission, n 177, at para 8.

215

  See S. Bishop, Delivering Benefits to Consumers or per se Illegal?: Assessing the Competitive Effects of Loyalty Rebates in the Pros and Cons of Price Discrimination (Stockholm: Swedish Competition Authority, 2005), at 73. See also S. Kolay, G. Shaffer, and

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J. Ordover, ‘All Units Discounts in Retail Contracts’ (2004) 13 J Economics & Management Strategy 429–59. 216

  See European Commission, 2008 OECD submission, n 177, at para 26.

217

  See Bishop, n 215.

218

  See Guidance Paper, n 28, at para 60: If the evidence suggests that competitors to the dominant undertaking are selling identical bundles, or could do so in a timely way without being deterred by possible additional costs, the Commission will generally regard this as bundle competing against a bundle, in which case the relevant question is not whether the incremental revenue covers the incremental costs for each product in the bundle, but rather whether the price of the bundle as a whole is predatory.

219

  See ibid, at para 60.

220

  See Faella, n 173, at 394.

221

  Although the suction effect test may be easier to apply in the case of multi-product rebates (as the scope of the contestable and non-contestable parts of a given customer’s demand is easier to establish), the above test is also stylized as it relies on a scenario involving two products (X and Y). The application of this test is likely to be considerably more difficult in complex settings (where, eg, the rebates are spread over a wider range of products). 222

  Some rebate regimes provide, eg, that if the buyer purchases 70 per cent of its requirements from the dominant it obtains a 5 per cent rebate, if it purchases 80 per cent it obtains a 7 per cent rebate, if it buys 90 per cent a 9 per cent rebate, and if it buys 100 per cent it obtains an 11 per cent rebate. 223

  Guidance Paper, n 28, at para 41.

224

  In its submission to the OECD Roundtable on rebates, the OFT stated: While sound in theory, perhaps the most difficult aspect of applying the [suction effect] test is assessing what proportion of a customer’s purchases are in practice ‘assured’ as opposed to ‘contestable.’ (UK, Roundtable on Bundled and Conditional Discounts and Rebates, DAF/COMP/WP3/WD(2008)46, 10 June 2008 at § 38)

225

  See Discussion Paper, n 1, at para 146: In markets where for all or most part of demand there are proper substitutes, for instance where the product is homogeneous and the competitors to the allegedly dominant company are not capacity constrained, rebate systems will generally not have a market distorting foreclosure effect. If competitors are competing on equal terms for all the customers and for each individual customer’s entire demand, then a rebate system is unlikely to have a foreclosure effect unless the effective price under the rebate system, calculated over all sales by the dominant company to its customer(s), is found to be predatory….

226

  Note, however, that a supplier that is unable to supply the full range of products required by a given customer, can try to team up with other suppliers producing the products missing from its products range so as jointly to offer the product range needed.

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227

  W. Baumol, J. Panzar, and R. Willig, Contestable Market and the Theory of Industry Structure (New York: Saunders College Publishing/Harcourt Brace, 1982). 228

  Guidance Paper, n 28, at para 42. Although this is not mentioned among the factors referred to in this paragraph, the competition authority investigating the rebate could perhaps rely on business documents (eg business plans of the dominant firms’ competitors, documents outlining the purchasing strategy of the dominant firm’s customers) to determine the size of the contestable share of the relevant customers’ demand. The problem, however, is that such documents may be misguided or simply contradictory. A potential buyer may, eg, exaggerate the share it is willing to buy from a dominant firm’s rival in order to induce that rival to give it a good price. It is only where business documents (seized or requested by a competition authority in the context of an investigation, or produced in court) appear to converge that they could be used as one of the factors taken into account in the assessment of the size of the contestable share of a given customer’s demand. But even if this is the case, recourse to such materials would be subject to criticism. If the size of the contestable share, a factor essential to the application of the suction effect, depended on the assessments/expectations of its customers or competitors, a dominant firm could never determine through a self-assessment whether a retroactive rebate regime is compliant with antitrust law. 229

  Ibid, at fn 29.

230

  On administrability, see United States, 2008 OECD submission, n 177, at para 33 (‘Clear and Administrable are needed to enable firms to know in advance if [the rebate] they are considering may subject them to antitrust liability’). On legal certainty, see R. Nazzini, ‘Anticompetitive Rebates in EC Competition Law: A Way Forward?’ [2008] Global Competition Policy 6 (arguing that ‘[the approach set out in the Discussion Paper] may not provide dominant undertakings with a sufficient degree of legal certainty in setting their pricing policies’). 231

  See United States, 2008 OECD submission, n 177, at para 13 (‘[S]tandards need to be not only judicially administrable but also readily applicable by businesses based on information available to them at the time they are making pricing decisions’). 232

  See C. Ahlborn et al, n 143 (‘Given all these difficulties, and the consequent lack of legal certainty, dominant firms wishing to comply with Article 82 EC may decide not to make use of conditional rebate schemes, even where they enhance consumer welfare’). 233

  Commission Decision, 13 May 2009, COMP/C-3/37.990, Intel, at 916.

234

  Ibid, at 920.

235

  Ibid, at 922.

236

  Ibid, sections 4.2.2, 4.3.1, and 4.5.

237

  GC, T-155/06 Tomra Systems and others v Commission, 9 September 2010, nyr.

238

  Commission Decision, 29 March 2006, COMP/E-1/38.113, Prokent-Tomra, OJ C 227 of 22 September 2009, at 2. 239

  Tomra, n 237, at 210.

240

  Guidance Paper, n 28.

241

  Tomra, n 237, at 219.

242

  Ibid, at 241.

243

  See Guidance Paper, n 28, at para 48.

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244

  Ibid.

245

  See Elhauge and Geradin, n 165, at 495ff.

246

  See eg R. Cooper Feldman, ‘Defensive Leveraging Strategy in Antitrust’ (1999) 87 Georgetown LJ 2079. 247

  T. Bresnahan, ‘Network Effects and Microsoft’, SIEPR Discussion Paper No 00-51, August 2001, available at . 248

  Commission Decision, Microsoft, n 17.

249

  Commission Decision, Eurofix-Bauco v Hilti, n 8, at 55.

250

  Ibid, at 29.4.

251

  Ibid, at 90.

252

  GC, T-30/89 Hilti v Commission [1991] ECR II-1439.

253

  Commission Decision, 24 July 1991, IV/31043, Tetra Pak II, OJ L 72 of 18 March 1992, at 1–68, para 11. 254

  GC, T-83/91 Tetra Pak International v Commission (Tetra Pak II), 6 October 1994 [1994] ECR II-755, at 82. 255

  Ibid, at 83–4.

256

  CJ, C-333/94 P Tetra Pak v Commission (Tetra Pak II) [1996] ECR I-5951.

257

  Commission Decision, Microsoft, n 17.

258

  Ibid, at 794.

259

  Ibid, at section 5.3.2.1.2.

260

  Ibid, at 831.

261

  Ibid, at 832.

262

  Ibid, at 835.

263

  Ibid, at 841.

264

  Ibid, at 844.

265

  Ibid, at 878.

266

  Ibid, at 933.

267

  Microsoft v Commission, n 145, at 887: Microsoft takes issue with the fact that in the contested decision the Commission considers only the question whether what it alleges to be the tied product, namely media functionality, is available separately from what it alleges to be the tying product, namely the client PC operating system. In reality, the appropriate question is whether the tying product is regularly offered without the tied product. In fact, there is no real consumer demand for a client PC operating system without media functionality and no operator therefore markets such a system.

268

  N. Petit and N. Neyrinck, ‘Back to Microsoft I and II: Tying and the Art of Secret Magic’ (2011) 2(2) Journal of European Competition Law & Practice 117–21. 269

  In both Hilti and Tetra Pak II, the finding of unlawful tying hinged on the fact that the tie in question prevented consumers from acquiring the tied product from other sources. In Tetra Pak II, consumers purchasing a Tetra Pak packaging machine had to commit also to buy their requirements of cartons from Tetra Pak. In Hilti, consumers could buy Hilti’s proprietary cartridge strips only if they also bought the corresponding complement of nails.

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Even if consumers were not formally required to source all their requirements of nails from Hilti, that was the practical consequence. Nails and fastening tools are expensive, and for obvious reasons consumers had no incentive to purchase more nails than they needed, namely one per cartridge. Nails for Hilti cartridge strips were ‘rival goods’. The use of Hilti nails thus necessarily excluded the use of their-party nails and foreclosed competition. In these cases, consumers of the tied product were locked in and thereby deprived of their freedom of choice. 270

  Microsoft v Commission, n 145.

271

  ‘Commission confirms sending a Statement of Objections to Microsoft on the tying of Internet Explorer to Windows’, MEMO/09/15, 17 January 2009. 272

  See ‘Commission accepts Microsoft commitments to give users browser choice’, IP/ 09/1941, 16 December 2009 (confirming that the Commission had adopted a decision that renders legally binding commitments offered by Microsoft to boost competition on the web browser market). 273

  In the Microsoft Internet Explorer case, the Commission, however, followed very closely the approach of the GC adopting a more formalistic approach than the one it had adopted in its 2004 landmark decision. This raises some questions about the importance of the Guidance Paper. On the one hand, it has been adopted by the Commission with the clear objective of pursuing an effects-based approach that is more in line with the teachings of economic theory. On the other hand, when a case has been initiated, the Commission will typically follow the formalistic case law of the EU Courts as it gives it a lot of leeway in terms of finding an infringement. In fact, the principles contained in the Guidance Paper would only apply at the moment of case selection, ie the decision as to whether an investigation should be launched. After that, the Commission no longer considers itself to be bound by these principles. That obviously limits the value of the Guidance Paper. 274

  Guidance Paper, n 28, at para 50.

275

  Ibid, at para 51.

276

  Ibid.

277

  Ibid, at para 52.

278

  Ibid, at para 53.

279

  Ibid, at para 62.

280

  See Elhauge and Geradin, n 165.

281

  O’Donoghue and Padilla, n 6, at 236–7.

282

  See generally J.-C. Rochet and J. Tirole, ‘Platform Competition in Two-Sided Markets’ (2003) 1 J European Economics Association 990–1029; see also J. Tirole and J.-C. Rochet, ‘Two-Sided Markets: A Progress Report’ (2006) 37 RAND J Economics 645–67: Managers devote considerable time and resources to figure out which side should bear the pricing burden, and commonly end up making little money on one side (or even using this side as a lossleader) and recouping their costs on the other side. 283

  G. Parker and M.W. Van Alstyne, ‘Unbundling the Presence of Network Externalities’ (2002), Working Paper, . 284

  CJ, 62/86 Akzo Chemie BV v Commission [1991] ECR I-3359.

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285

  Ibid, at 71.

286

  Ibid, at 72.

287

  See Philip Areeda and Donald Turner, ‘Predatory Pricing and Related Practices under Section 2 of the Sherman Act’ (1975), 88 Harvard L Rev 697. 288

  On this issue, see O’Donogue and Padilla, n 6, at 239: Most commentators agree that the correct period for assessing which costs are variable is the period of the alleged predatory pricing, that is the period in which the alleged predatory prices prevailed or could reasonably be expected to prevail.

289

  See Guidance Paper, n 28, at fn 18.

290

  Ibid, at para 26.

291

  Ibid, at fn 18.

292

  Ibid.

293

  See O’Donoghue and Padilla, n 6, at 242.

294

  See ibid, at 260.

295

  Commission Decision, 20 March 2001, COMP/35.141, Deutsche Post AG, OJ L 125 of 5 May 2001, at 27–44. 296

  Ibid, at para 36.

297

  Ibid, at para 8.

298

  Ibid, at para 10.

299

  Commission Decision, 16 July 2003, COMP/38.233, Wanadoo Interactive.

300

  Ibid, at para 110.

301

  GC, T-340/03 France Telecom v Commission [2007] ECR II-107, at 201.

302

  Ibid, at 202.

303

  O’Donoghue and Padilla, n 6, at 251–2.

304

  P. Bolton, J. F. Brodley, and M.H. Riordan, ‘Predatory Pricing: Strategic Theory and Legal Policy’ (2000) 88 Georgetown LJ 22 39. 305

  Ibid.

306

  On the recoupment test, see Judge Easterbrook’s discussion in A.A. Poultry Farms, Inc v Rose Acre Farms, Inc, 881 F2d 1396, 1401 (7th Cir 1989), cert denied, 110 SCt 1326 (1990). 307

  Brooke Group Ltd v Brown & Williamson Tobacco Corp, 509 US 209 (October Term 1992), at 224. 308

  Ibid.

309

  Commission Decision, Tetra Pak II, n 253, at 12.

310

  CJ, Tetra Pak II, n 256, at 40.

311

  Ibid, at 44.

312

  CJ, Compagnie Maritime Belge Transports and others v Commission, n 92.

313

  Opinion of Advocate General Fenelly, delivered on 29 October 1998, Compagnie Maritime Belge Transports and others v Commission, n 92.

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314

  Ibid, at 136.

315

  Commission Decision, Wanadoo, n 299, at 335.

316

  GC, France Telecom v Commission, n 301, at 228.

317

  A. Edlin, ‘Stopping Above-Cost Predatory Pricing’ (2002) 111 Yale LJ 952.

318

  Ibid, at 945.

319

  E. Elhauge, ‘Why Above-Cost price Cuts to Drive Out Entrants Are Not Predatory—and the Implications for Defining Costs and Market Power’ (2003) 112 Yale LJ 686–7. 320

  Elhauge acknowledges that when market testing for a potential entrant is involved, price cuts from a dominant firm can be misleading, suggesting a less profitable market than is actually the case, and can thus falsely lead an entrant to exit a market. He also argues that a would-be efficient entrant will be unable to withstand below-cost price cuts, justifying traditional predatory price tests. He does not reconcile these views, however, and it is not at all clear why a financial backer of a new entrant would be willing to sustain losses when the dominant firm is not losing money, but be unwilling to sustain such losses when the dominant firm is also losing money. 321

  Elhauge, n 319, at 795.

322

  O’Donoghue and Padilla, n 6, at 281.

323

  Commission Decision, 23 December 1992, IV/32.448 and IV/32.450, Cewal, Cowac and Ukwal and IV/32.448 and IV/32.450, Cewal. 324

  Ibid, at 82.

325

  GC, Joined Cases T-24/93, T-25/93, T-26/93 and T-28/93 Compagnie maritime belge transports and others v Commission [1996] ECR II-1201 at 146. 326

  CJ, Compagnie maritime belge, n 92, at 117, 119–20.

327

  Guidance Paper, n 28, at para 63.

328

  Ibid, at para 64.

329

  Ibid.

330

  Ibid, at para 65.

331

  Ibid.

332

  Ibid, at para 67.

333

  Ibid, at para 69.

334

  Ibid, at para 69.

335

  Ibid, at para 71.

336

  Ibid, at para 74.

337

  Ibid, at paras 28–9.

338

  For an excellent discussion of this trade-off, see Elhauge, n 319, at 295–6.

339

  In economic terms, competitive markets maximize consumer welfare by promoting allocative efficiency (making the goods consumers want in the quantities valued by society). 340

  Elhauge, n 319, at 297 (‘If property rights are restricted to allow sharing and imitation, then a necessary cost will be a reduced incentive to invest and invent’). 341

  See the literature review in ibid, at 300–5.

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342

  See the literature quoted in ibid, at 275, fn 66.

343

  Ibid, at 302.

344

  Opinion of Advocate General Jacobs, delivered on 28 May 1998, C-7/97 Oscar Bronner v Mediaprint [1998] ECR I-7794, at 57. 345

  See ‘Innovation and Competition Policy’, Part I—Conceptual Issues, Economic Discussion Paper 3, March 2002, Office of Fair Trading, at 5.100: When access issues are raised in relation to technology, standards or interfaces, they key question for a competition authority is: when should dominant firms be forced to make their technology, interfaces, or facilities available to other firms. The theoretical trade off is (deceptively) simple. Imposing compulsory access conditions may reduce the return earned by the owner of the property right, and as a result may diminish investment incentives. This is potentially true of both the firm subject to the access requirement, and of other firms that observe the intervention. Against this, compulsory access can increase the current level of competition in the market, and may also facilitate incremental innovations on the part of those firms gaining access. In the long-term, if access rights foster the growth of competitors with established brands, customers bases and experience, they may also facilitate more fundamental innovation and competition. 346

  See A.B. Lipsky and J.G. Sidak, ‘Essential Facilities’ (1999) 51(5) Stanford L Rev 1187, 1219: The foregoing analysis illustrates why the application of the essential facilities doctrine to intellectual property is antithetical to the policies of patent, copyright and other kindred legal systems. The essential facilities doctrine is, above all, a legal rule of mandatory sharing and compulsory dealings. This characteristic alone is inconsistent with the exclusivity that is necessary to preserve incentives to create, the core operative device of intellectual property law in a market economy. The essential facilities doctrine, moreover, is more likely to condemn intellectual property in precisely those circumstances in which this result is least defensible: Under the essential facilities doctrine, the more an invention is unique, valuable and difficult to duplicate, the greater the obligation to share it. In short, essential facilities principles are inherently inconsistent with intellectual property protection. 347

  Commission Decision, Microsoft, n 17, at 709.

348

  Ibid, at 783.

349

  From the point of view of the defendant, such a balancing process can also be criticized for the following reasons. First, as pointed out above, there is a risk that this balancing process will systematically over-emphasize the benefits of mandating access and underemphasize the benefits of protecting the IP right holder’s incentives to invest. Indeed, the immediate benefits of granting access will generally appear high (in terms of increased consumer choice, higher output, and lower prices), while the immediate costs will often be low. By contrast, restricting access to the dominant firm’s IP rights will only benefit longterm competition. The natural bias of a competition enforcement agency may thus be to privilege short-term benefits, instead of long-term ones. One could also convincingly argue that the balancing approach adopted by the Commission only focuses on the costs, in terms of reduced incentives to invest, that mandatory access imposes on the IP right holder in question. But it does not take into account the impact of such a decision on all other companies planning to invest in R&D. In fact, granting access to IP rights held by a

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dominant firm in a given market may have a negative impact on current or future IP right holders in all other markets. 350

  CJ, Joined Cases 6 and 7/73 R Istituto Chemioterapico Italiano and Commercial Solvents v Commission [1973] ECR-357 and 6 and 7/73 Commercial Solvents and Others v Commission [1974] ECR 223. 351

  Ibid, at 25.

352

  Oscar Bronner v Mediaprint, n 344.

353

  Ibid, at 41.

354

  Ibid, at 43.

355

  The Court of Justice added (at 45) that: in order to demonstrate that the creation of such a system is not a realistic potential alternative and that access to the existing system is therefore indispensable, it is not enough to argue that it is not economically viable by reason of the small circulation of the daily newspaper or newspapers to be distributed. For such access to be capable of being regarded as indispensable, it would be necessary at the very least to establish … that it is not economically viable to create a second homedelivery scheme for the distribution of daily newspapers with a circulation comparable to that of the daily newspapers distributed by the existing scheme.

356

  Commission Decision, 21 December 1988, IV/31.851, Magill TV Guide/ITP, BBC and RTE, OJ L 78, 1998, at 43. 357

  GC, T-69/89 Radio Telefis Eireann v Commission [1991] ECR II-485.

358

  CJ, Joined Cases C-241/91 and C-242/91 Radio Telefis Eireann and Independent Television Publications Ltd v Commission [1995] ECR 743. 359

  Ibid, at 53–6.

360

  I. Forrester, ‘EC Competition Law as a Limitation on the Use of IP Rights in Europe: Is there a Reason to Panic?’ paper delivered at the Eighth Annual EU Competition Law and Policy Workshop, Robert Schuman Centre for Advanced Studies, European University Institute, 6–7 June 2003, at 6–7: I submit that we cannot find one single factor which led the Commission to decide to condemn the broadcasters, and the European Courts to uphold that decision. The combination of downstream monopolisation, discrimination, and prevention of the emergence of a new product was certainly potent. However, apart from these, the remarkable nature and scope of the national right were extremely important. The order in which TV programmes are to be shown during the forthcoming week is not something with intrinsic artistic value, nor was it a secret. 361

  CJ, 15/74 Centrafarm BV and Adriaan de Peijper v Sterling Drug Inc [1974] ECR-1147, at 39; CJ, 238/87 AB Volvo v Erik Veng Ltd [1988] ECR 6211, at 7. 362

  See Temple Lang, n 91, at 5 (‘Competition law should not be used to try to correct what are said to be defects in intellectual property law’). For a different opinion, see again Forrester, n 360, at 15 (‘The Magill and IMS cases can be seen as remedies to aberrations in the application of national copyrights law’). 363

  CJ, C-418/01 IMS Health [2004] ECR I-5039, at 52.

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364

  For a discussion of this issue from the point of view of US antitrust law, see R. Pitofsky et al, ‘The Essential Facilities Doctrine under U.S. Antitrust Law’ (2002) 70 Antitrust LJ 443, and P. Marquardt and M. Leddy, ‘The Essential Facilities Doctrine and Intellectual Property Rights: A Response to Pitofsky, Patterson, and Hooks’ (2003) 70 Antitrust LJ 847. 365

  CJ, IMS, n 363, at 44.

366

  To make matters even more confusing, the Court then says that ‘it is determinative that two different stages of production may be identified and that they are interconnected, the upstream product is indispensable in as much as for supply of the downstream product’, ibid, at 45. Thus, the Court suddenly no longer refers to the existence of an upstream ‘market’, but of an upstream ‘product’. 367

  One could argue, of course, that in Aspen Skiing, the US Supreme Court mandated access although only one market was concerned. But, as explained in Justice Scalia’s opinion in Trinko, the test for applying Aspen Skiing is strict as it requires the showing of an exclusionary intent on the part of the would-be monopolist. Moreover, US courts have recognized a variety of circumstances where business justifications could defeat the allegation of anticompetitive intent. See J. Venit and J. Kallaugher, ‘Essential Facilities: A Comparative Law Approach’ in B. Hawk (ed), Fordham Corporate Law Institute (1994), at 315, 317. 368

  CJ, IMS, n 363, at 49.

369

  Commission Decision, Microsoft, n 17, at 546.

370

  Ibid, at 550.

371

  Ibid.

372

  Ibid, at 555.

373

  Ibid, at 560–84.

374

  Ibid, at 590–612.

375

  Ibid, at 668–92.

376

  Ibid, at 692.

377

  Ibid, at 694 and 700.

378

  GC, Microsoft, n 145, at 647.

379

  Ibid, at 650.

380

  Ibid, at 653.

381

  Ibid, at 658.

382

  Ibid, at 688.

383

  Ibid, at 692–701.

384

  Commission Decision, 29 October, 1975, 76/185/ECSC, adopting interim measures concerning the National Coal Board, National Smokeless Fuels Limited and the National Carbonizing Company Limited, OJ L 35, 1976, at 6. 385

  Ibid, at 7.

386

  Commission Decision, 18 July 1988, IV/30.178, Napier Brown—British Sugar, OJ 284 of 19 October 1988, at 41–59. 387

  Ibid, at para 65.

388

  Ibid, at para 66.

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389

  GC, T-5/97 Industrie des poudres sphériques v Commission [2000] ECR II-3755, at 178.

390

  Ibid, at 179.

391

  Ibid, at 180.

392

  Ibid, at 179.

393

  Commission Decision, 21 May 2003, COMP/C-1/37.451, 37.578, 37.579, Deutsche Telekom AG, OJ L 263, 2003, at 9. 394

  Ibid, at para 140.

395

  Ibid, at para 102.

396

  Ibid, at para 141.

397

  Ibid, at para 54.

398

  Ibid, at para 57.

399

  GC, T-271/03 Deutsche Telekom v Commission [2008] ECR II-477, at 237.

400

  Ibid, at 97–124.

401

  CJ, C-280/08 P Deutsche Telekom v Commission, 14 October 2010, nyr.

402

  Commission Decision, 4 July 2007, COMP/38.784, Wanadoo España v Telefónica.

403

  Ibid, at 5.

404

  While access to the requested input is not formally refused, the price at which the input is sold does not allow the vertically integrated firms’ downstream competitors to operate profitably. 405

  Commission Decision, Telefónica, n 402, at 301.

406

  Ibid, at 302.

407

  Ibid, at 303.

408

  Ibid, at 304.

409

  Ibid.

410

  See GC, Deutsche Telekom, n 399, at 113: (‘[Sector-specific regulations] have objectives that differ from those of Community competition policy’). 411

  See D. Geradin and R. O’Donoghue, ‘The Concurrent Application of Competition Law and Regulation: The Case of Margin Squeeze Abuses in the Telecommunications Sector’ (2005) 1(2) J Competition Law and Economics 355–425. 412

  For a similar view, see G. Faella and R. Pardolesi, ‘Squeezing Price Squeeze under EC Antitrust Law’, September 2009, available at : The balancing carried out by a regulatory authority does not necessarily coincide with the same assessment made by an administrative or judiciary authority in charge of applying antitrust rules. Regulatory authorities may impose obligations to supply beyond the limits set by competition law. And see E. Gonzalez-Diaz and J. Padilla, ‘The Linkline Judgment—A European Perspective’, in Global Competition Policy, April 2009. 413

  See eg recital 25 of Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (‘Framework Directive’), OJ L 108, 2002, at 33: ‘There is a need for ex ante obligations in certain circumstances in order to ensure the development of a competitive market’ (emphasis added). See also Art 12 of Directive 2002/19/EC of the From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

European Parliament and the Council of 7 March 2002 on access to, and interconnection of, electronic communications networks and associated facilities (‘Access Directive’), OJ L 108, 2002, at 7: A national authority may, in accordance with the provisions of Article 8, impose obligations on operators to meet reasonable requests for access to, and use of, specific network elements and associated facilities, inter alia in situations where the national regulatory authority considers that denial of access or unreasonable terms and conditions having a similar effect would hinder the emergence of a sustainable competition market at the retail level, or would not be in the end-user’s user interest. (Emphasis added) 414

  CJ, C-52/09 TeliaSonera Sverig e, 17 February 2011, nyr.

415

  Ibid, at 12, question 7.

416

  Ibid, at 55.

417

  Ibid, at 56.

418

  Ibid, at 69.

419

  Ibid, at 72.

420

  Ibid, at 77.

421

  Guidance Paper, n 28, at para 75.

422

  Ibid, at para 76.

423

  Ibid, at para 79.

424

  Ibid.

425

  Ibid, at para 80.

426

  Ibid, at para 81.

427

  Ibid, at para 82.

428

  Ibid.

429

  With some exceptions, however, notably rebates and discounts. See Damien Geradin, ‘A Proposed Test for Separating Pro-competitive Conditional Rebates from Anti–competitive Ones’ (2009) 32 World Competition 41. 430

  Guidance Paper, n 28, at para 83.

431

  Ibid.

432

  Ibid, at para 85.

433

  Ibid, at para 86.

434

  This equilibrium price will be (i) allocatively efficient (as all consumers willing to pay a price in excess of the marginal cost of production will be supplied) and (ii) productively efficient (as goods and services will be produced by the most efficient firms, ie those with the lowest marginal cost of production). 435

  See Bishop and Walker, n 24, at para 6.19.

436

  See eg M. Motta and A de Streel, ‘Exploitative and Exclusionary Excessive Prices in EU Law’ in C.-D. Ehlermann and I. Atanasiu (eds), What Is an Abuse of a Dominant Position?

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(Oxford: Hart Publishing, 2006), 91, at 108 (‘[E]xploitative practices are self-correcting because excessive prices will attract new entrants’). 437

  Ibid, at 109 (‘[U]nlike an industry regulator, a competition authority’s role is not to set prices, whereas an excessive pricing action de facto amounts to telling a firm that a price above a certain level would not be acceptable’). 438

  See, for an illustration, F. Fisher and J. McGowan, ‘On the Misuse of Accounting Rates of Return to Infer Monopoly Profits’ (1983) 73 Am Economic Rev 82. 439

  This effect will be particularly acute on markets relating to products/services that do not fulfil basic needs, where customers will simply forego consumption. 440

  See generally on excessive pricing, O’Donoghue and Padilla, n 6, at ch 12.

441

  See eg GC, T-83/91 Tetra Pak International SA v Commission [1994] ECR II-755.

442

  See CJ, 27/76 United Brands v Commission, n 23, at 250. See also at 251: This excess could, inter alia, be determined objectively if it were possible for it to be calculated by making a comparison between the selling price of the product in question and its cost of production, which would disclose the amount of the profit margin.

443

  Ibid, at 252.

444

  In addition, the Court brought further complexity by indicating in an obiter dicta that other methods could be devised to find whether a price is unfair; ibid, at 253. National courts and competition authorities could thus approach excessive prices allegations through a variety of methods not necessarily mentioned by the Court of Justice in United Brands, n 23. 445

  See CJ, 110/88 Lucazeau and others v SACEM and others [1989] ECR 2811, at 25: When an undertaking holding a dominant position imposes scales of fees for its services which are appreciably higher than those charged in other Member States and where a comparison of the fee levels has been made on a consistent basis, that difference must be regarded as indicative of an abuse of a dominant position.

See also CJ, 30/87 Corinne Bodson v SA Pompes funèbres des régions libérées [1988] ECR 2479 (to determine whether prices are unfair, ‘it must be possible to make a comparison between the prices charged by the group of undertakings which hold concessions and prices charged elsewhere’). This test had already been implicitly referred to in CJ, 78/70 Deutsche Grammophon v Metro SB [1971] ECR 487. 446

  See CJ, 226/84 British Leyland plc v Commission [1986] ECR 3263, at 27–8 (where the Court recalled—along the lines of the United Brands language—that a price is excessive where it is ‘disproportionate to the economic value of the service provided’. However, the Court concluded that the dominant firm’s prices were excessive, because the price differential between the various services in question was not proportionate to the minimal cost differences between several services). A similar standard had already been applied in CJ, 26/75 General Motors v Commission [1975] ECR 1367, at 12. 447

  The lack of clarity of the case law is further aggravated by isolated rulings applying a different methodology. See eg GC, T-89/98 National Association of Licensed Opencast Operators (NALOO) v Commission [2001] ECR II 515, at 72. The GC applied an ‘efficient

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demand’ benchmark, ie it checked whether a dominant firm’s efficient customers could still achieve profits without suffering a competitive disadvantage. 448

  The decision arose from a complaint brought by Scandlines Sverige AB, a ferry operator active on the Helsingborg (Sweden)–Elsinore (Denmark) route, which sought to contest the pricing policy of the Port of Helsingborg. See Commission Decision, 23 July 2004, COMP/A.36.568/D3, Scandlines Sverige AB v Port of Helsingborg, at 158: In any event, even if it were to be assumed that the profit margin of HHAB [the dominant firm] is high (or even ‘excessive’), this would not be sufficient to conclude that the price charged bears no reasonable relation to the economic value of the services provided. The Commission would have to proceed to the second question as set out by the Court in United Brands, in order to determine whether the prices charged to the ferry operators are unfair, either in themselves or when compared to other ports. (Emphasis added) 449

  For a full account of these criticisms, see D. Evans and J. Padilla, ‘Excessive Prices: Using Economics to Define Administrable Legal Rules’ (2005) 1 J Competition Law and Economics 97; See also Motta and de Streel, n 436. 450

  This indeed only holds true when the innovative firm solely engages into the licensing of its technology. In contrast, if the innovative firm engages in production activities, it will incur a higher marginal cost, which will comprise production and distribution costs. 451

  See D. Geradin, ‘Abusive Pricing in an IP Licensing Context: An EC Competition Law Analysis’, TILEC Discussion Paper 2007-020, June 2007, at 14, available at . 452

  See Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreements, OJ C101 of 27 April 2004, at 2, para 8. 453

  Ibid (‘the innovator should normally be free to seek compensation for successful projects that is sufficient to maintain investment incentives, taking failed projects into account’). See also E. Paulis, ‘Article 82 EC and exploitative conduct’, 12th EUI Competition Law and Policy Workshop—A reformed approach to Article 82 EC, Florence, 8–9 June 2007, mimeo, at investment costs should be taken into account when determining whether prices are excessive’). 454

  See Motta and de Streel, n 436, at 98 (‘A direct calculation of the costs, which is already difficult for a sectoral regulator even when firms are subject to an accounting transparency obligation, may be virtually impossible for an antitrust authority’). 455

  See, for a good account of these methods, M. Canoy, P. de Bijl, and R. Kemp, ‘Access to telecommunications networks’, TILEC Discussion Paper 07/2003 at pp 52ff (these methods are ie, equal proportionnate mark-up (EPMU), Pro-rata appointment, Incremental and stand-alone costs calculation and the ‘commercial negotiation’ method). 456

  See, CJ, 27/76 United Brands v Commission, n 23, at 245. See also O’Donoghue and Padilla, n 6, at 615. 457

  See Motta and de Streel, n 436, at 97.

458

  See CJ, 110/88 Lucazeau and others v SACEM, n 445, at 29.

459

  See E. Pijnhacker Hordijk, ‘Excessive Pricing under EC Competition Law; An Update in the Light of “Dutch Developments”’ in B. E. Hawk (ed), Fordham Corporate Law Institute (2002), 463, at 474. See also Temple Lang and O’Donoghue, n 133, who explain at 39 that

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Art 82 EC ‘arguably applies only in cases where there are significant barriers to entry that cannot be overcome by investments in anticipation of monopoly rents.’ 460

  See Pijnhacker Hordijk, n 459.

461

  Assuming that an adequate cost measure is found.

462

  eg the price of a drug prescribed to patients will obviously be well above its marginal cost of production as this price generally needs to cover years of research over thousands of compounds, trials on animals and then human beings, and extremely stringent controls by health authorities. Thus, significant margins are justified by the need to compensate for the huge upfront costs generally associated with the development of the drug, including the costs of failed projects, as well as those associated with the many complex procedures necessary to allow commercialization. Forcing firms to reduce their margins may thus constrain innovation. 463

  See eg D. Rubinfeld, ‘Competition, Innovation, and Antitrust Enforcement in Dynamic Network Industries’, Address to the Software Publishers Association (1998 Spring Symposium), San Jose, California, 24 March 1998, available online at . 464

  See, for a good account of the prospects in the communications industry, E. Richards, R. Foster, and T. Kiedrowski (eds), Communications The Next Decade—A collection of essays prepared for the UK Office of Communications, November 2006, available at . 465

  See Commission Decision, Scandlines Sverige AB v Port of Helsingborg, n 448, at 102 and 137. 466

  Ibid, at 158.

467

  See British Leyland plc v Commission, n 446 .

468

  See Bishop and Walker, n 24, at para 6.19.

469

  See also, CJ, 395/87 Ministère Public v Tournier [1989] ECR 2521: When an undertaking holding a dominant position imposes scales of fees for its services which are appreciably higher than those charged in other Member States and where a comparison of the fee levels has been made on a consistent basis, that difference must be regarded as indicative of an abuse of a dominant position. In such a case it is for the undertaking in question to justify the difference by reference to objective dissimilarities between the situation in the Member States concerned and the situation prevailing in all the other Member States.

And see CJ, 110/88 Lucazeau v SACEM, n 445 (another case concerning the level of royalties charged by SACEM for playing recorded music in discotheques). 470

  See CJ, 27/76 United Brands v Commission, n 23, at 239.

471

  See Corinne Bodson, n 445: it must be possible to make a comparison between the prices charged by the group of undertakings which hold concessions and prices charged elsewhere. Such a comparison could provide a basis for assessing whether or not the prices charged by the concession holders are fair.

472

  See Motta and de Streel, n 436, at 112–13.

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473

  See W. Bishop, ‘Price Discrimination under Article 86: Political Economy in the European Court’ (1981) 44 Modern L Rev 282, 288–9. 474

  See O’Donoghue and Padilla, n 6, at 616.

475

  See Commission Decision of 19 December 1974, IV/28.851, General Motors Continental, OJ L 294, 1975, at para 8. 476

  Commission Decision, Scandlines Sverige AB v Port of Helsingborg, n 448, at 156: There would be insuperable difficulties in this case in establishing valid benchmarks which would imply that, for the port taken as reference, the profits (and the equity) related to the ferry-operations are segregated from those of the other activities. Such a comparison would need the same amount of effort for each port as the one required for the port of Helsingborg, with similar uncertainties as regards the precise level of the costs, profits and equity attributable to the ferry-operations.

477

  See Motta and de Streel, n 436, at 113.

478

  See Section (iv).

479

  See Paulis, n 453, at 3.

480

  Ibid.

481

  Ibid.

482

  Ibid.

483

  In the late 2000s, the Commission showed interest for the application of structural remedies in sectors where high prices were sustained by virtue of vertical integration. See European Commission, Press Release, ‘Commission energy sector inquiry confirms serious competition problems’, IP/07/26 of 10 January 2007. 484

  See Motta and de Streel, n 436, at 107.

485

  See General Motors v Commission, n 446, at 22.

486

  See British Leyland plc v Commission, n 446, at 29.

487

  Ibid. See also D. Geradin and N. Petit, ‘Price Discrimination Under EC Competition Law: Another Antitrust Doctrine in Search of Limiting Principles?’ (2006) 2(3) J Competition Law and Economics 479. 488

  See Commission Decision, Scandlines Sverige AB v Port of Helsingborg, n 448.

489

  Ibid, at 102.

490

  Ibid, at 103.

491

  Ibid, at 226.

492

  Ibid, at 227.

493

  Note that, in the telecommunications field, the Commission also intervened against high prices on a few occasions at the end of the 1990s. Its inquiries did not lead, however, to the adoption of formal decisions as the cases were eventually taken over by the national telecommunications regulators. In July 1998, eg, the Commission opened in-depth investigations into a number of cases relating to fixed-mobile interconnection rates on the ground that these rates were excessive. See IP/98/707 of 27 July 1998 and IP/98/141 of 9 July 1998. After a short inquiry, the Commission closed some of these files on the ground that the investigated firms had voluntarily decided to lower their rates. In other cases, it stayed its proceedings in view of action taken by the national regulatory authorities. See ‘Commission closes mobile telecommunications cases after price cuts’, IP/98/1036, 26 November 1998. This example suggests that the Commission has intervened to control

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excessive prices on a greater number of occasions than the formal decisions mentioned above. But these cases, as well as some other cases initiated by the Commission at the end of the 1990s, responded to particular circumstances. After spending much of the decade trying to create competition in the telecommunications sector through liberalization measures, the Commission was impatient to see its efforts translated into lower prices for consumers. In this sector, former monopolies benefited from incumbency advantages and retained some form of natural monopoly. Another specific aspect of this line of cases, is that, because of the complexities of controlling prices, the Commission has whenever possible transferred such cases to sector-specific regulators. 494

  See European Commission, XXIVth Report on Competition Policy 1994, para 207.

495

  P. Lowe, ‘How different is EU anti-trust? A route map for advisors’—An overview of EU competition law and policy on commercial practices’ Speech, ABA 2003 Autumn meeting, available at . 496

  Paulis, n 453, at 2–3.

497

  D. Neven and M. de la Mano, ‘Economics at DG Competition, 2009–2010’ (2010) 37 Rev Industrial Organization 309. 498

  See Motta and de Streel, n 436, at 109–12.

499

  See Evans and Padilla, n 449, at 122.

500

  See British Leyland plc v Commission, n 446, at 25.

501

  See European Commission, Press Release, ‘Settlement reached with Belgacom on the publication of telephone directories—ITT withdraws complaint’, IP/97/292 of 11 April 1997. 502

  See Commission Decision of 25 July 2001, COMP/C-1/36.915, Deutsche Post AG— Interception of cross-border mail, OJ L 331, 2001, at 40. 503

  See Paulis, n 453, at 6.

504

  Ibid, at 7.

505

  Ibid.

506

  Ibid.

507

  Ibid, at 8.

508

  Ibid, at 6.

509

  Ibid, at 2–3.

510

  The views of Mr Paulis are not isolated within DG COMP as, eg Philip Lowe, Director General of DG COMP declared in 2003 that: [The Commission is] aware that it is extremely difficult to measure what constitutes an excessive price. In practice, most of our enforcement focuses therefore as in the US on exclusionary abuses, i.e. those which seek to harm consumers indirectly by changing the competitive structure or process of the market…. And in my view, we should continue to prosecute such practices where the abuse is not self correcting, namely in cases where entry barriers are high or even insuperable. (Lowe, n 495) Interestingly, Mr Lowe seems to have more sympathy than Mr Paulis for the argument that enforcement against excessive prices should be limited to situations where the dominant firms were former statutory monopolies as he added the following sentence to the above statement: ‘It probably makes also sense to apply these provisions in recently liberalized

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sectors where existing dominant positions are not the result of previous superior performance.’ In March 2007, Mr Lowe confirmed this view in stating that: High prices certainly harm consumers in the short run. But is that a sufficient case for intervention by a competition authority? What if high prices would in the medium term attract entry and spur competition? If there are no high or insurmountable barriers to entry, it might well be that high prices are actually likely to be, on balance and with a longer term perspective, good for consumers. There is much more for consumers to gain through increased competition than a mere decrease in prices: competition brings more choice, scope for differentiation in quality, innovation, etc. (P. Lowe, ‘Consumer Welfare and Efficiency—New Guiding Principles of Competition Policy?’, 13th International Conference on Competition and 14th European Competition Day, Munich, 27 March 2007) 511

  A. Ezrachi and D. Gilo, ‘Are Excessive Prices Really Self-Correcting?’ (2009) 5(2) J Competition Law and Economics 249–68 and ‘Excessive Pricing, Entry, Assessment and Investment—Lessons from the Mittal Litigation’ (2010) 76(3) Antitrust LJ 873. 512

  L.-H. Röller, ‘Exploitative Abuses’ in Ehlermann and Marquis (eds), European Competition Annual 2007: A Reformed Approach to Article 82 (Oxford and Portland, OR: Hart Publishing, 2007). 513

  Neven and de la Mano, n 497, at 317.

514

  An illustration of this approach can be found in the Rambus case, which was settled through an Art 9 decision. The complainants alleged that Rambus had engaged in ‘patent ambush’, a situation which occurs where an IP right owner knowingly and deliberately fails to meet its duty to disclose to a standard setting organization (SSO) ownership of IP rights which are subsequently incorporated in the standard under adoption. In June 2007, the Commission sent a statement of objections (SO) to Rambus in which it considered that Rambus had engaged in intentional deceptive conduct in the context of JEDEC standardization processes by not disclosing the existence of the patents which it later claimed where relevant to the standard. ‘Commission confirms sending a Statement of Objections to Rambus’, MEMO/07/330, 23 August 2007. The Commission then considered that Rambus ‘breached the EC Treaty’s rules on abuse of a dominant market position (Article [102]) by subsequently claiming unreasonable royalties for the use of those relevant patents.’ The deception allowed the Commission to turn Rambus into an excessive pricing case as EU competition law does not prohibit the acquisition of monopoly power through anticompetitive conduct (in this case monopolization through deceptive behaviour). The problem faced by the Commission was to determine what ‘reasonable’ royalties were. Eventually, the Commission decided to avoid this question by settling the case in accepting the remedies voluntarily offered by Rambus, which included the royalties they were prepared to charge on certain patents. As a result, the Commission never effectively took a position on the level of royalties—or on the methodology to determine such royalties—that could be legitimately charged by Rambus. 515

  Berkey Photo, Inc v Eastman Kodak Co, 603 F2d 263, 294 (2nd Cir 1979), cert denied 444 US 1093 (1980). 516

  Verizon Communications, Inc v Law Offices of Curtis Trinko, LLP, 157 LEd2d 823, 836 (2004). 517

  CJ, 298/83 Comité des industries cinématographiques des Communautés européennes (CICCE) v Commission, 28 March 1985 [1985] ECR 1105.

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518

  Ibid, at 25.

519

  Commission Decision, Tetra Pak II, n 253, at 1; on appeal to the GC, Tetra Pak II, n 254; on appeal to the CJ, C-333/94 Tetra Pak v Commission, n 256. 520

  Commission Decision, Tetra Pak II, n 253, at 170.

521

  Ibid, at 107.

522

  Ibid, at 108.

523

  Ibid, at 137.

524

  Ibid, at 140.

525

  Ibid.

526

  There is, however, a relatively abundant legal and economic literature on the subject. On the economics of price discrimination, see Ridyard, n 178; D. W. Carlton and J. M. Perloff, Modern Industrial Organization, 3rd edn (London: Addison-Wesley, 1999), ch 9; J. Tirole, The Theory of Industrial Organization (Cambridge, MA: MIT Press, 2003), ch 3; H. R. Varian, ‘Price Discrimination and Social Welfare’ (1985) 75 Am Economic Rev 870; R. Schmalensee, ‘Output and Welfare Implications of Third Degree Price Discrimination’ (1981) 71 Am Economic Rev 242. For a legal analysis of price discrimination under Art 102 TFEU, see M. Waelbroeck, ‘Price Discrimination and Rebate Policies under EU Competition Law’, Fordham Corporate Law Institute (1995), 148. 527

  See CJ, 13/63 Italian Republic v Commission, 17 July 1963 [1963] ECR 165 in the context of the ECSC Treaty. 528

  R. Posner, Antitrust Law, 2nd edn (Chicago, IL: University of Chicago Press, 2001), at 79–80. 529

  See Carlton and Perloff, n 526, at 277–80.

530

  Ibid, at 280.

531

  See M. Motta, Competition Policy—Theory and Practice (Cambridge: Cambridge University Press, 2004), at 493–4. 532

  See S. Bishop and M. Walker, The Economics of EC Competition Law, 2nd edn (London: Sweet & Maxwell, 2002), at 196. 533

  Ibid, at 198.

534

  See Faull and Nikpay, n 121, at para 3.235.

535

  For a good discussion of this, see Ridyard, n 178, at 286.

536

  Ibid.

537

  Ibid, at 287: Marginal cost pricing … retains some desirable efficiency properties in [industries facing problems of cost recovery], but simple short-run marginal cost pricing fails to remunerate the firm’s fixed costs. In a dynamic context, it will also fail to provide incentives for firms to make such investments in the future. As a consequence, firms in fixed cost recovery industries charge prices in excess, often well in excess, of short-run marginal costs. The likelihood that such pricing will entail less static efficiency (i.e.: certain consumers will be dissuaded from consuming the product even though they value it higher than the marginal cost of supply) must be tradedoff against the risk that the product would not exist at all if investors were not

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offered the prospect of fixed cost recovery—and even some profit on top—at the time when the necessary investments were made. 538

  See Motta, n 531, at 495–6.

539

  See United Brands n 23.

540

  See generally on this V. Korah and D. O’Sullivan, Distribution Agreements under the EC Competition Rules (Oxford: Hart Publishing, 2002), at 27–36. 541

  See Faull and Nikpay, n 121, at para 3.237.

542

  See, however, in United Brands, n 23, where the Court of Justice indicated at 228 that: Differences in transport costs, taxation, customs duties, the wages of the labour force, the conditions of marketing, the differences in the parity of currencies, the density of competition may eventually culminate in different retail selling price….

543

  See I. Van Bael and J.-F. Bellis, Competition Law of the European Community (The Hague: Kluwer Law International, 2005), at 915. 544

  In fact, the rationale of Art 102(c) might have been quite close to the primary rationale behind the US Robinson–Patman Act, which was to protect competition on the downstream market and, more specifically, small purchasers against large purchasers. See Federal Trade Commission v Morton Salt, 334 US 37. See also D. T. Armentano, Antitrust and Monopoly—Anatomy of a Policy Failure, 2nd edn (Oakland, CA: The Independent Institute, 1999), at 167 (‘[I]s is readily admitted that Section 2 of the Clayton Act and its important Robinson-Patman amendments, were passed in order to protect small, independent business firms from the buying and selling practices of larger corporations, particularly large chain stores’). 545

  See eg Jones and Sufrin, n 82, at 411; Faull and Nikpay, n 121, at para 3.235.

546

  See S. Martinez Lage and R. Allendesalazar, ‘Community Policy on Discriminatory Pricing: A Practitioner’s Perspective’, Paper presented at the 2003 Annual EU Competition Law and Policy Workshops—What is an Abuse of a Dominant Position?, Florence, at 14; Van Bael and Bellis, n 543, at 915; Whish, n 24, at 716 and 710. 547

  See Temple Lang and O’Donoghue, n 172, at 115.

548

  See Martinez Lage and Allendesalazar, n 546, at 15.

549

  See paras 4.533–4.534.

550

  See Temple Lang and O’Donoghue, n 172, who consider it is a strict test which is however not applied in practice. 551

  See Faull and Nikpay, n 121, at 176.

552

  This definition is taken from Lennart Ritter and David Braun, European Competition Law: A Practictioner’s Guide (The Hague: Kluwer Law International, 2004), at 465. 553

  See CJ, 40/73 Suiker Unie and others v Commission, 16 December 1975 [1975] ECR 1663, at 122: As the commission has emphasized the effect of the system complained of was that different net prices were charged to two economic operators who bought the same amount of sugar from SZV if one of them purchased from another producer as well.

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By acting in this way SZV applied dissimilar conditions to equivalent transactions with other trading parties’ within the meaning of article 86 (c) of the Treaty. 554

  See, on this, E. Elhauge, ‘Why Above-Cost Price Cuts To Drive Out Entrants Are Not Predatory—and the Implications for Defining Costs and Market Power’ (2003) 112 Yale LJ 681; A. S. Edlin, ‘Stopping Above-Cost Predatory Pricing’ (2002) 111 Yale LJ 941; Whish, n 24, at 653. 555

  See Hoffmann-La Roche v Commission, n 23.

556

  Ibid, at 35. The trading parties were 22 large firms of different industries.

557

  Ibid, at 122ff.

558

  A similar approach can be observed in Suiker Unie, n 553. In that case, the Commission had considered that the fidelity rebates granted by SZV, a dominant sugar producer in southern Germany, to its customers amounted to an ‘unjustifiable discrimination against buyers who also buy sugar from other sources than SZV’. The Commission, in particular, seemed concerned by the fact that the rebate policy had been adopted so as to ‘limit possibilities for imports’ and ‘to strengthen the dominant position of the producer’. The Commission thus examined the horizontal effects of the rebates scheme. The Court followed the Commission’s reasoning as it essentially disregarded the ‘competitive disadvantage’ requirement contained in Art 102(c) and preferred linking the discrimination to foreclosure effects generated by the rebates. 559

  See Commission Decision 81/969 of 7 October 1981, Bandengroothandel Frieschebrug BV/NV Nederlandsche Banden-Industrie Michelin, OJ L 353 of 9 December 1981, at 33–47, para 38. 560

  Ibid, at para 49.

561

  See CJ, 322/81 NV Nederlandsche Banden Industrie Michelin v Commission, 9 November 1983 [1983] ECR 3461, at 90. 562

  See Commission Decision 97/624, n 113a, at 154.

563

  Ibid, at 152 and 154.

564

  See Commission Decision 89/22 of 5 December 1988, IV/31.900, BPB Industries plc, OJ L 10 of 13 January 1989, at 50–72. 565

  Ibid, at para 148.

566

  See GC, T-65/89 BPB Industries plc and British Gypsum Ltd v Commission [1993] ECR II-389, at 119. 567

  See Commission Decision, BPB Industries plc, n 564, at 49.

568

  See Commission Decision 2000/74 of 14 July 1999, Virgin/British Airways, OJ L 30 of 4 February 2000, at 1–24. 569

  Ibid, at paras 108–11. The travel agents were thus given incentives to remain loyal to British Airways through increasing their sales of BA tickets. 570

  Ibid, at 111.

571

  See Commission Decision, Virgin/British Airways, n 568, at 111 and GC, T-219/99 British Airways plc v Commission, 17 December 2003, nyr, at 238. 572

  Commission Decision 85/609 of 14 December 1985, ECS/Akzo, OJ L 374 of 31 December 1985, at 1–27.

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573

  Ibid, at para 83.

574

  Ibid, at Art 3(3). Article 3(5) was however annulled by the Court of Justice. See CJ, Akzo Chemie BV v Commission, n 284. 575

  See Commission Decision, Eurofix-Bauco v Hilti, n 8, at 19–44. At paras 80–1 of the Decision the Commission considered that the practice was deemed to be ‘designed to damage the business of, or deter market entry by, its competitors’. Some have seen in the Commission’s qualification of the practice a reference to both primary and secondary line injuries, see Van Bael and Bellis, n 543, at 915. 576

  See Commission Decision 97/624, n 113a, at 154. This was upheld by the GC, T-228/97 Irish Sugar plc v Commission, 7 October 1999 [1999] ECR II-2969, at 215–25. 577

  See Commission Decision 93/102 of 23 December 1992, Cewal, OJ L 34 of 10 February 1993, at 20–43, para 83. 578

  See GC, T-24/93, T-25/93, T-26/93, and T-28/93 Compagnie Maritime Belge Transports SA and Others v Commission, 8 October 1996 [1996] ECR II-1211 at 124. 579

  It is of note, however, that Advocate General Fennelly stated: ‘normally, nondiscriminatory price cuts by a dominant undertaking which do not entail below-cost sales should not be regarded as being anti-competitive’. A contrario, this seems to imply that discrimatory selective price cuts above costs could be held abusive under Art 102. See Opinion of Advocate General Fennelly of 29 October 1998 [2000] ECR I-1365 at 132. 580

  In most of these cases, complainants were not the trading parties, but the competitors, suffering the exclusionary effect of the practice. This probably reveals that the trading parties did not consider themselves as having been put at a competitive disadvantage. 581

  It merely prohibited ‘discriminatory practices involving, within the common market, the application by a seller of dissimilar conditions to comparable transactions …’ See Art 60(1) of the ECSC Treaty. 582

  See David Gerber, Law and Competition in Twentieth Century Europe—Protecting Prometheus (Oxford: Clarendon Press, 1998), at 356–7. In the early 1960s, the Commission sought to establish a theoretical framework for interpreting the abuse concept encapsulated in Art 102 through the appointment of a group of professors charged with working out the basic enforcement principles of this provision. The professors released a Memorandum on Concentration in the Common Market in 1966 which seemed to suggest that the concept of price discrimination embodied in then-Art 86 (c) could encompass the eviction of competing companies. See, contra, René Joliet, Monopolization and Abuse of a Dominant Position, Collection scientifique de la Faculté de droit de l’Université de Liège (The Hague: Martinus Nijhoff, 1970), at 477. Professor Joliet argued that Art 102(c) merely applied to secondary line discriminations and did not apply to ‘discriminatory price cutting having adverse effects upon primary-line competition’. 583

  CJ, 6/72 Europemballage Corporation and Continental Can Company Inc v Commission, 21 February 1973 [1973] ECR 215. 584

  In its ruling on the case, the Court of Justice did not even mention the condition of competitive disadvantage in its judgment. See Van Bael and Bellis, n 543, at 917. 585

  The extensive reliance on Art 102(c) for sanctioning primary line injuries price discrimination merely mirrors the evolution of case law and decisional practice of the Commission under Art 101(1)(d), which forbids collusive discriminatory action in the same terms as Art 102. In its decision Industrieverband, the Commission implicitly envisaged the concept of discrimination in a primary line injury setting by holding that a collective aggregated sales bonus (ie a concerted bonus granted to all customers purchasing from the members of the association of undertakings) was placing ‘other suppliers at a competitive disadvantage, since they [had] to surmount an artificial, collectively erected barrier when From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

supplying members’ customers and this generates business for the members’. On appeal before the Court, the Commission confirmed that it interpreted the discount at stake as a discriminatory practice. See Commission Decision 80/1074 of 16 October 1980, Industrieverband Solnhofener Natursteinplatten eV, OJ L 318 of 26 November 1980, at 32– 9. In a number of other decisions, the Commission applied similar principles. In Roofing Felt, eg, the Commission sanctioned a concerted campaign against another manufacturer, IKO, to induce it to abandon a price-cutting policy through application of discriminatory rebates. See Commission Decision 86/399 of 10 July 1986, Roofing felt, OJ L 232 of 19 August 1986, at 15–33. In Meldoc, the Commission sanctioned the concerted implementation of dumping prices to prevent imports from Belgian suppliers on the Dutch market for fresh milk. See Commission Decision 86/596 of 26 November 1986, Meldoc, OJ L 348 of 10 December 1986, at 50–65. 586

  eg in the recent Deutsche Post AG case, the Commission justified its superficial assessment of the discriminatory conduct at stake by recalling the Tetra Pak II ruling pursuant to which ‘Article 102 may be applied even in the absence of a direct effect on competition’. See Commission Decision, n 253, at 133. See GC, (Tetra Pak II), n 254. 587

  See CJ, C-395/96 P Compagnie Maritime Belge Transports SA and C-396/96 P DafraLines A/S v Commission, 16 March 2000 [2000] ECR I-1365, at 119. 588

  See Commission Decision 97/624, n 113a, at 145ff.

589

  Interestingly, the US Robinson–Patman Act, which was historically adopted with the main aim of preventing price discrimination from damaging competition between downstream customers (secondary line effects) has also been applied from the start to primary line effects. The main difference between EU law and US law, however, is that price discrimination has rarely been subject to US enforcement since the 1980s. 590

  See CJ, C-18/93 Corsica Ferries Italia Srl v Corpo dei Piloti del Porto di Genova, 17 May 1994 [1994] ECR I-1783. 591

  Ibid, at 45. This ruling was subsequently confirmed by the Commission in a decision which condemned the Italian Republic for not complying with the ruling. See Commission Decision 97/745 of 21 October 1997, OJ L 301 of 5 November 1997, at 27–35. 592

  See Opinion of Advocate General Van Gerven delivered on 9 February 1994 in CJ, Corsica Ferries Italia Srl v Corpo dei Piloti del Porto di Genova, n 590, at 19. 593

  See Commission Decision 95/364 of 28 June 1995, OJ L 216 of 12 September 1995, at 8–14. 594

  Ibid, at para 17.

595

  See Commission Decision 1999/199 of 10 February 1999, Portuguese Airports, OJ L 69 of 16 March 1999, at 31–9, para 26. A similar line of reasoning was followed in a decision concerning the landing charges applied by the Spanish Airport Authorities, see Commission Decision 2000/521 of 26 July 2000, OJ L 208 of 18 August 2000, at 36–46, paras 48–53. 596

  See Commission Decision 1999/98 of 10 February 1999, Ilmailulaitos/Luftfarsverket, OJ L 69 of 16 March 1999, at 24–30 and Commission Decision 1999/199, Portuguese Airports, n 595. 597

  See Commission Decision, 98/153 of 11 June 1998, Alpha Flight Services/Aéroports de Paris, OJ L 230 of 18 August 1998, at 10–27. 598

  OAT’s global fee structure was, however, slightly different.

599

  Ibid, at 119 and 121.

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600

  Ibid, at 126 of Commission Decision. Confirmed by GC, T-128/98 Aéroports de Paris v Commission, 12 December 2000 [2000] ECR II-3929 and CJ, C-102/01 Aéroports de Paris v Commission, 24 October 2002 [2002] ECR I-9297. 601

  See GC, T-229/94 Deutsche Bahn AG v Commission [1997] ECR II-1689, at 93.

602

  See Commission Decision 94/210 of 29 March 1994, HOV-SVZ/MCN, OJ L 104 of 23 April 1994, at 34–57, para 254. 603

  See GC, n 601, at 90.

604

  Ibid, at 91.

605

  See XXVIIth Report on Competition Policy, 1997 at para 67 and Commission Press Release, IP/97/292 of 11 April 1997, ‘Settlement reached with Belgacom on the publication of telephone directories–ITT withdraws complaint’. 606

  See Commission Decision 2001/892 of 25 July 2001, Deutsche Post AG—Interception of cross-border mail, OJ L 331 of 15 December 2001, at 40–78. 607

  See Commission Decision of 2 June 2004, Clearstream, COMP/38.096, nyr.

608

  ICSDs are organizations whose core business is clearing and settling securities (traditionally Eurobonds) in an international (non-domestic) environment. 609

  As well as Art 86(1). See Commission Decision of 20 October 2004, COMP/38.745, BdKEP/Deutsche Post AG and Bundesrepublik Deutschland, nyr. 610

  Ibid, at 60.

611

  Ibid, at 94.

612

  In fact, in many of the cases, the reference to the national discrimination was not mentioned in the review of Art 102(c). This is particularly manifest in the appeal of the Commission’s decision in Portuguese Airports before the Court of Justice. The appellant observed that the various measures at stake did not discriminate on the grounds of nationality because they were not dependent on the nationality of the airlines. The Court conceded that Art 102 (c) applied to the application of dissimilar conditions to equivalent transactions irrespective of the existence of discrimination on the ground of nationality. See CJ, C-163/99 Portuguese Republic v Commission, 29 March 2001 [2001] ECR I-2613, at 46. The Court preferred to rely on an objective economic assessment of the forbidden measures. The Court only mentioned in passing that the discount system favoured the national airlines (see para 56). As far as the discounts were concerned, it referred to Michelin, whereby the mere fact that the system was correlated to the volume of purchases could not lead to the conclusion that there was discrimination. The Court, however, observed that the non-linear progression of the discount only allowed two large companies to obtain it and that there was no objective justification for it (the Court did not make any explicit pronouncement as to the value of economies of scale in terms of justification). As far as the differentiation between domestic and international fees were concerned, the Court held that it led to applying dissimilar conditions to equivalent transactions because different tariffs were charged for the same number of landings of similar aircraft (see para 66). A similar approach had been followed by the Court in Corsica Ferries II, where the question of the discrimination on the ground of nationality had not been evoked under Art 102 (c), but with respect to the issue of the freedom to provide services where the Court had held that: The system gives preferential treatment to vessels permitted to engage in maritime cabotage, in other words, those flying the Italian flag…. Such a system indirectly discriminates between economic operators according to their nationality, since vessels flying the national flag are generally operated by national economic operators, whereas transport undertakings from other Member States as a rule do From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

not operate ships registered in the State applying that system. (CJ, Corsica Ferries Italia Srl v Corpo dei Piloti del Porto di Genova, n 590, at 32–3) 613

  See United Brands, n 23.

614

  Ibid, at 159.

615

  See GC, Tetra Pak II, n 254 and Commission Decision, Tetra Pak II, n 253, at 1–68. There were also a number of discrimination elements in the case which were not concerned with geographic price discrimination, but which related to price discrimination, within the Italian market, between users. See paras 158, 160, 161, 62–68 of the Decision. 616

  See Commission Decision, Tetra Pak II, n 253, at 52. Tetra Pak was indeed facing fierce competition from Elopak in Italy. 617

  See GC, Tetra Pak II, n 254, at 170 and Commission Decision, Tetra Pak II, n 253, at 160 618

  See GC, Tetra Pak II, n 254, at 171 and Commission Decision, Tetra Pak II, n 253, at 160. 619

  See GC, Tetra Pak II, n 254, at 173.

620

  Two clauses in the contract limited the purchaser’s right to resell or transfer the equipment to third parties: a first clause (referred to as cl xv) provided the purchaser is required to obtain Tetra Pak’s agreement before selling or transferring the use of the equipment (Italy), resale is subject to conditions (Spain), and Tetra Pak reserves the right to repurchase the equipment at a pre-arranged fixed price (all countries); failure to comply with this clause may give rise to a specific penalty (Greece, Ireland, United Kingdom). A second clause (referred to as cl xvi) provided: the purchaser must ensure that any third party to whom he resells the equipment assumes all his obligations (Italy, Spain). In its decision the Commission held that: The requirement that the purchaser obtain Tetra Pak’s agreement before he can exercise his right to dispose of an asset in his property or even to transfer its use (Italy) not only has no connection with the purpose of the previously signed sales contract but also, in view of the effect it has on the very essence of the right of ownership, constitutes an unfair condition of the transaction…. These conditions prohibit export of the machine and forbid third parties which are potential purchasers from being offered conditions of resale which are more favourable than those which apply to Tetra Pak. Such conditions directly affect trade between the Member States and again limit the purchaser’s outlets … Tetra Pak’s automatic right of pre-emption must in itself be considered to constitute an abuse in so far as it again unduly limits the ability of the user, who does after all own the machine, to dispose of his asset as he wishes, and constitutes one of the instruments by which Tetra Pak is able to compartmentalize national markets … Requirement to ensure that any third party purchasing equipment assume the obligations of the initial purchaser. Resale was made difficult because obliges the initial purchaser to ensure that the third party accepts a series of obligations which themselves constitute abuse.

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(See Commission Decision, Tetra Pak II, n 253, at 123–8) 621

  See Commission Decision 84/379 of 2 July 1984, BL, OJ L 207 of 2 August 1984, at 11– 16. Confirmed implicitly by the Court of Justice on appeal, British Leyland plc v Commission, 11 November 1986, n 446. 622

  See Commission Decision 84/379, n 621, at 26.

623

  Ibid, at 29.

624

  See Commission Decision 97/624, n 113a, at 129.

625

  See GC, Irish Sugar plc v Commission, n 576, at 183. In addition, the export rebates (granted to Irish Sugar’s customers exporting sugar in processed form to other Member States) seemed designed to make sure that its customers contemplating sourcing from foreign suppliers would not switch to the latter in order to obtain supplies. See ibid, at 139. 626

  See Commission Notice—Guidelines on Vertical Restraints, OJ C 291 of 13 October 2000, at 1–44, para 114 that concerns market partitioning groups, ie agreements the main element of which is that the buyer is restricted in where he either sources or resells a particular product. 627

  Ibid, at 161: In an exclusive distribution agreement the supplier agrees to sell his products only to one distributor for resale in a particular territory. At the same time the distributor is usually limited in his active selling into other exclusively allocated territories. The possible competition risks are mainly reduced intra-brand competition and market partitioning, which may in particular facilitate price discrimination.

Ibid, at 172: The combination of exclusive distribution with exclusive purchasing increases the possible competition risks of reduced intra-brand competition and market partitioning which may in particular facilitate price discrimination. 628

  See at 178: In an exclusive customer allocation agreement, the supplier agrees to sell his products only to one distributor for resale to a particular class of customers. At the same time, the distributor is usually limited in his active selling to other exclusively allocated classes of customers. The possible competition risks are mainly reduced intra-brand competition and market partitioning, which may in particular facilitate price discrimination.

629

  See Commission Notice—Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreements, n 452, at 2–42, para 188: there are two main competitive risks stemming from captive use restrictions: (a) a restriction of intratechnology competition on the market for the supply of inputs and (b) an exclusion of arbitrage between licensees enhancing the possibility for the licensor to impose discriminatory royalties on licensees. See also at 186 which explains what a captive use restriction is:

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In other words, this type of use restriction takes the form of an obligation on the licensee to use the products incorporating the licensed technology only as an input for incorporation into his own production; it does not cover the sale of the licensed product for incorporation into the products of other producers. 630

  Ibid, at 98: quantity limitations are used to implement an underlying market partitioning agreement. Indications thereof include the adjustment of quantities over time to cover only local demand, the combination of quantity limitations and an obligation to sell minimum quantities in the territory.

631

  See eg Commission Decision of 20 September 2000, Opel Nederland BV/General Motors Nederland BV, OJ L 59 of 28 February 2001, at 1–42 and GC, T-368/00 General Motors Nederland and Opel Nederland v Commission, 21 October 2003 [2003] ECR II-4491 (partial annulment); GC, T-62/98 Volkswagen v Commission, 6 July 2000 [2000] ECR II-2707. 632

  See GC, T-41/96 Bayer AG v Commission, 26 October 2000 [2000] ECR II-3383, at 71; CJ, C-2/01 P and C-3/01 P Bundesverband der Arzneimittel-Importeure eV and Commission v Bayer AG, 6 January 2004 [2004] ECR I-23, at 101 and 141. The ruling of the GC in Micro Leader Business seems also to support this view. See GC, T-198/98 Micro Leader Business v Commission, 16 December 1999 [1999] ECR II-3989, at 56. 633

  See GC, Bayer AG v Commission, n 632, at 176.

634

  CJ, C-53/03 Syfait and Others v GlaxoSmithKline plc, 31 May 2005,[2005] ECR I-4609. Note in addition that a gap in the EU competition system exists where, as the GC held in Bayer, a supplier restricts parallel trade ‘without abusing a dominant position, and there is no concurrence of wills between him and his wholesalers’. This can, eg, arise if the supplier is vertically integrated and does not enjoy a dominant position on the market. The Court seems to recognize that, in such situation, ‘a manufacturer may adopt the supply policy which he considers necessary, even if, by the very nature of its aim, for example, to hinder parallel imports, the implementation of that policy may entail restrictions on competition and affect trade between Member States’. See GC, Bayer AG v Commission, n 632, at 176. But this question falls outside the scope of this section which is only concerned with the extent of the liability imposed by Art 102 on dominant firms. 635

  As implicitly confirmed in the Commission Notice on the definition of the relevant market for the purposes of Community competition law, OJ C 372 of 9 December 1997, and more explicitly by the Commission in its market definition practice. See eg, Commission Decision, Nestlé/Perrier, n 85, at 1–31. 636

  In that respect, the Court held in Bodson that price differences in different locations may provide a basis for assessing whether the prices charged are excessive pursuant to Art 102 (a). See Corinne Bodson, n 445.(p. 320)

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5 Enforcement, Institutions, and Procedure Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Subject(s): Basic principles of competition law — European Competition Network — Enforcement by EU Commission — Enforcement of Articles 101 and 102 TFEU — Regulation 1/2003 — National Competition Authorities (NCAs)

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(p. 321) 5  Enforcement, Institutions, and Procedure I.  Introduction 5.01 II.  The Institutional Framework 5.08 A.  The Commission 5.09 B.  The National Competition Authorities 5.27 C.  Interplay of the Commission and NCAs within the ECN 5.38 D.  The National Courts 5.71 III.  The Procedural Framework 5.90 A.  The Detection of Infringements 5.91 B.  The Investigation of Alleged Infringements 5.123 C.  The Evaluation of Infringements 5.141 D.  The Decision 5.166 E.  Final Remarks 5.201 IV.  The Judicial Framework 5.204 A.  Acts Subject to Annulment Proceedings 5.210 B.  Persons that can Start Annulment Proceedings 5.221 C.  Modalities of Annulment Proceedings 5.234 D.  Parallel and Subsequent Actions to Annulment Proceedings 5.243 E.  Scope and Intensity of Judicial Review in Annulment Proceedings 5.251

I.  Introduction 5.01  ‘Public’ vs ‘Private’ enforcement EU competition law is primarily enforced through a system of ‘public enforcement’, where specialized administrative institutions initiate, decide, and terminate cases. This enforcement structure differs from the United States where antitrust rules are primarily enforced through the initiation of cases by private persons before ordinary courts, and to a lesser extent by public institutions (ie, the Antitrust Division of the US Department of Justice and the Federal Trade Commission).1 Certainly, over the past decade, the EU institutions have made significant efforts to promote private enforcement.2 (p. 322) To date, however, the public-enforcement leg of the system has remained predominant, and private enforcement before ordinary courts only plays a marginal role. 5.02  Rationale for ‘public’ enforcement There are several reasons to bestow the enforcement of competition rules upon specialized administrative agencies (the ‘competition authorities’) with intrusive powers. First, the application of the competition rules requires complex economic assessments that generalists courts are arguably illequipped to undertake. Specific authorities composed of ‘experts’ in competition law and economics should thus deal with such cases.

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5.03  Second, competition law infringements often involve hidden behaviour (eg cartels), that can only be uncovered through market-monitoring activities. Again, the courts only hear requests brought by plaintiff s, and do not exercise oversight activities over markets. 5.04  Third, courts are often reluctant to—and sometimes cannot—order the investigative meas ures needed to come to a conclusion in a competition case. 5.05  Fourth, assuming all available evidence has been collected, competition investigations are often resource intensive (in terms of handling large amounts of documents, managing the data, etc) and courts have little means to process the evidence necessary to bring a case to completion. 5.06  Fifth, courts deal only with cases brought before them by third parties. Hence, they cannot select enforcement ‘targets’ and, in particular, cannot prioritize their resources on those specific markets/practices that matter the most from an economic standpoint. As a result, courts may be clogged with cases of minor importance in ‘economic welfare’ terms.3 5.07  Consequence In view of the above considerations, and also possibly of historical factors, the enforcement of EU competition rules has been primarily entrusted to specialized agencies at both the EU and national levels. In the abstract, those authorities share analogies with sector-specific regulators in network industries (eg electronic communications) or other independent agencies (eg European agencies such as the European Chemicals Agency).4 Yet, in contrast to them, they generally have oversight over all sectors of the economy.5

(p. 323) II.  The Institutional Framework 5.08  Articles 101 and 102 TFEU are enforced by competition authorities at both the European (Section A)—by the Commission—and national levels (Section B)—by national competition authorities (NCAs).6 Since the adoption of Regulation 1/2003, the Com mission and the NCAs form a ‘network’ of competition authorities called the European Competition Network (ECN). A set of specific legal mechanisms have been adopted to ensure a harmonious and effective enforcement of EU competition rules amongst the ECN (Section C). In addition, national courts also offer a remedial avenue for plaintiff s seeking to invoke EU competition rules (Section D).

A.  The Commission 5.09  At the European level, the competition authority is the Commission. This section provides an overview of the role (Section 1) and organization (Section 2) of the Commission in the field of EU competition law.

(1)  Missions 5.10  The Commission’s duties in the field of EU competition law are threefold. First, pursuant to Article 17 TFEU, the Commission ‘shall ensure the application of the Treaties’. Accordingly, as the ‘guardian of the Treaties’ the Commission must detect, investigate, and eliminate infringements to Articles 101 and 102 TFEU. The Court has summarized this in saying that the Commission has a ‘supervisory’ mission.7 Journalists often refer to this idea with the graphic expression that the Commission is the EU’s competition ‘watchdog’.7a 5.11  Second, the Court held that the Commission’s mission also encompasses ‘the duty to pursue a general policy designed to apply, in competition matters, the principles laid down by the Treaty and to guide the conduct of undertakings in the light of those principles.’8 In line with this, the Commission provides guidance to undertakings to assist them in the selfassessment of proposed conduct. For instance, the Commission has adopted a set of

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Guidelines on the application of Article 101(3) TFEU,9 or a Guidance Paper that clarifies the principles governing the application of Article 102 TFEU to exclusionary conduct. 5.12  In addition, the duty of the Commission to pursue a ‘general policy’ finds its best expression in the Commission’s prioritization policy. Although the Commission monitors the entire economy, it often channels its resources to certain priority sectors, by virtue of policy decisions taken at the highest level within the Commission. For instance, in recent years, the (p. 324) Commission has followed a proactive enforcement policy in the information and communications technologies sector, with cases such as Microsoft I and II, Rambus, Intel, and IBM .10 5.13  Third, the Commission is competent to propose the adoption of legislative instruments, in order ‘to give effect to the principles set out in Articles 101 and 102 TFEU’.11 Pursuant to Article 103(2) TFEU, the Commission can propose Regulations or Directives in particular to: (a)  to ensure compliance with the prohibitions laid down in Article 101(1) and in Article 102 by making provision for fines and periodic penalty payments; (b)  to lay down detailed rules for the application of Article 101(3), taking into account the need to ensure effective supervision on the one hand, and to simplify administration to the greatest possible extent on the other; (c)  to define, if need be, in the various branches of the economy, the scope of the provisions of Articles 101 and 102; (d)  to define the respective functions of the Commission and of the Court of Justice of the European Union in applying the provisions laid down in this paragraph; (e)  to determine the relationship between national laws and the provisions contained in this Section or adopted pursuant to this Article. 5.14  In practice, the Commission exercises this mission through the publication of Discussion Papers, Green Papers, White Papers, and eventually draft Regulations and Directives. For instance, in 1999, the Commission issued a ‘White Paper on the modernisation of the rules implementing Articles 81 and 82’, which led to the abolition of Regulation 17/1962 and paved the way for the adoption of Regulation 1/2003.12 More recently, and whilst proposed Directives have been somewhat less popular in the field of competition policy, the Commission issued, in 2009, a ‘Proposal for a Directive on rules governing damages actions for infringements of Article 81 and 82 of the Treaty’.

(2)  Organization 5.15  DG COMP The enforcement of the EU competition rules is bestowed upon a particular Directorate General of the Commission, the Directorate-General for Competition, best known as DG COMP. This Directorate is placed under the political authority of a Competition Commissioner (and his cabinet), who is appointed for a period of five years and whose main role is to set policy priorities. DG COMP must implement the ‘political (p. 325) priorities’ and ‘instructions’ devised by the Competition Commissioner (in theory, together with the College of Commissioners).13 5.16  Directorates and Units DG COMP is placed under the administrative authority of a Director General who oversees the civil servants’ work. From an organizational standpoint, DG COMP is, like other DGs, divided in ‘Directorates’. There are currently nine Directorates within DG COMP, five of which are in charge of a particular sector of the economy (energy and environment; information, communication, and media; financial services; basic

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industries, manufacturing and agriculture; transport, post, and other services). The four other Directorates are in charge of specific horizontal issues (eg cartels). 5.17  Each of those Directorates is further divided in ‘Units’, placed under the authority of a head of unit and deputy head of unit. Insofar as the five sector-specific Directorates are concerned, each unit is in charge of a specific type of anticompetitive practices. In each Directorate, there is thus typically one unit in charge of antitrust cases (ie Arts 101 and 102 TFEU), one unit in charge of mergers, and one unit in charge of State aid. Occasionally, additional units are created to cope with a particular problem. For instance, in the aftermath of the financial crisis in 2007, a ‘Task force financial crisis’ was created. It is composed of three dedicated units. 5.18  Staff and budget DG COMP boasts approximately 900 civil servants and enjoys a yearly financial budget ranging between €8–12 million. In 2007, in DG COMP there were approximately 184 professionals with a background in law and 83 with a background in economics.14 5.19  Chief economist team In 2003, a Chief Economist Team (CET) was created at DG COMP. It is placed under the authority of a high-profile economist who, until now, has been selected amongst academics external to DG COMP.15 The Chief Economist is assisted by a team of approximately 20 expert economists. The functions of the CET are threefold. First, it provides DG COMP with economic support and assistance in its day-to-day casework (the ‘support’ function). Second, it provides the Commissioner with an independent opinion, in particular before a final decision to the College of Commissioners is proposed (the ‘checkand-balances’ function). Finally, it assists the Commission in crafting legal instruments (Regulations, Guidelines, etc) and policy decisions with economic ramifications (the ‘policy’ function). 5.20  Legal Service As in other areas of EU law, the Legal Service of the Commission plays a key role in the enforcement of the competition rules. First, it provides legal advice to DG COMP in the context of its decision-making activities. The opinion of the Legal Service must in particular be solicited in relation to any proposed measure that will lead to the adoption of a Commission ‘decision’ (eg decision to reject a complaint, adoption of a Statement of Objections). 5.21  Second, the Legal Service represents the Commission in all competition cases before the EU Courts. In practice, the Legal Service appears before the EU Courts through ‘agents’ who are (p. 326) civil servants specialized in EU litigation. Occasionally, these agents are seconded by external lawyers (academics, practitioners, etc). 5.22  Third, the Legal Service delivers opinions on DG COMP’s proposed regulatory reforms (including on soft law instruments). For instance, it has been reported that the Legal Service played a critical role in relation to shaping the substance of the Guidance Paper on the application of Article 102 TFEU to exclusionary abuses.16 5.23  A specific unit (officially labelled a ‘team’) of the Legal Service is in charge of ‘competition and mergers’. It is, together with other teams, placed under the administrative responsibility of a Director General, and under the political authority of the President of the Commission. In case of disagreement between the Legal Service and DG COMP over a particular issue, the matter is transferred to the College of Commissioners. In practice, the intervention of the Legal Service in competition proceedings is often perceived as part of a system of internal ‘checks and balances’. 5.24  The College of Commissioners, the Competition Commissioner, and the Director General of DG COMP Pursuant to Article 17 TFEU, the Commission adopts its decisions as a ‘collegiate body’.17 This means that all Commission decisions must be

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deliberated, and subsequently adopted, by the 27 Commissioners upon a rule of majority (in reality, the Commissioners strive to achieve consensus).18 5.25  In practice, however, it would be overly cumbersome to request the College of Commissioners to decide on all aspects of EU law, and in particular, of EU competition law. Hence, the Commission has established an ‘empowerment’ procedure. Article 13(1) of the rules of internal procedure of the Commission provides that: ‘The Commission may, provided the principle of collective responsibility is fully respected, empower one or more of its Members to take management or administrative measures on its behalf and subject to such restrictions and conditions.’ In this context, the Competition Commissioner has been empowered individually to take a number of management and administrative measures on behalf of the College. Those measures consist in: (i) provisional measures (eg requests for information, inspections); (ii) definitive measures of limited importance (eg decisions to clear mergers pursuant to the simplified procedure); and (iii) execution measures (eg decisions requesting a firm to pay interest rates following a judgment confirming a Commission decision).19 In contrast, definitive measures that have an adverse effect on natural and legal persons cannot be adopted pursuant to the empowerment procedure (eg infringement decisions). Finally, Article 13(3) of the rules of internal procedure of the Commission entitles the Commissioner to further ‘sub-delegat[e]’ those power to the Director General for competition. (p. 327) 5.26  In practice, decisions finding infringements to Articles 101 and 102 TFEU (Art 7 of Regulation 1/2003), ordering interim measures (Art 8 of Regulation 1/2003), imposing commitments (Art 9 of Regulation 1/2003), declaring Article 101 or 102 inapplicable (Art 10 of Regulation 1/2003), and ordering fines (Arts 23 and 24 of Regulation 1/2003) can only be taken by the College of Commissioners.

B.  The National Competition Authorities 5.27  Introduction At the national level, NCAs are entrusted with the duty to apply the EU competition rules (alongside domestic competition rules). It would be beyond the scope of this book to review the various NCAs of the EU. In this section, we thus first focus on the core competences that NCAs must enjoy pursuant to EU competition law (Section 1). We then provide a ‘helicopter’ view of the main institutional models of NCAs established at the domestic level (Section 2).

(1)  The powers and duties of NCAs under EU competition law 5.28  Effectiveness The Member States of the EU must establish effective NCAs. Under Article 35(1) of Regulation 1/2003, the Member States shall designate NCAs responsible for the application of Articles 101 and 102 TFEU, in such a way that ‘the provisions of Regulation 1/2003 are effectively complied with’. The Notice on cooperation within the Network of Competition Authorities talks of a ‘General Principle of Effectiveness’.20 5.29  Procedural autonomy In EU competition law, the principle of effectiveness is only relevant insofar as outcomes are concerned. Besides this, Member States enjoy freedom on the means, by virtue of the principle of ‘procedural autonomy’. Member States can, for instance, decide to designate administrative or judicial organs as NCAs.21 Moreover, Member States ‘may allocate different powers and functions to those different national authorities, whether administrative or judicial’.22 5.30  Core set of NCA competences To ensure a minimal degree of effectiveness across the EU, though, Article 5 of Regulation 1/2003 sets out the powers that NCAs shall have with a view to applying Articles 101 and 102 TFEU. The provision reads as follows:

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acting on their own initiative or on a complaint, [NCAs] may take the following decisions: requiring that an infringement be brought to an end, ordering interim measures, accepting commitments, imposing fines, periodic penalty payments or any other penalty provided for in their national law. (p. 328) 5.31  Case law interpretation Lately the Court has made clear in VEBIC that the competence to take infringement decisions includes the ability of NCAs to appear before the review courts to defend their decisions.23 However, in Tele2 Polska, the Court held that the powers of the NCAs listed in Article 5 were limitative, and did not include the ability to take inapplicability decisions.24 5.32  Limitation Article 5 of Regulation 1/2003 makes it impossible for a Member State to designate a court as the sole NCA. Article 5 requires that NCAs be able to act ex officio and accept commitments. In principle, courts cannot do this.

(a)  Main institutional models 5.33  Typology25 Three institutional models of NCA prevail in the EU. First, several Member States have opted for the ‘integrated agency model’, where an administrative authority investigates and decides cases. This model is the one followed at the EU level as well as Member States, such as Germany and Italy. 5.34  Second, some Member States have endorsed the ‘bifurcated judicial model’, where a designated administrative authority investigates cases (as a prosecutor), and then initiates proceedings before a court, which decides on the merits of the case. This model is also known as the ‘adjudication model’, in reference to the institutional setting that prevails in the United States. It has been followed in Ireland and Austria. 5.35  Finally, other Member States have adopted a ‘bifurcated agency model’, where a designated administrative authority investigates cases (as a prosecutor), and another administrative organ decides on cases. This model prevails in France, Belgium, Spain, and Luxembourg. 5.36  Pros and cons Each of those models has advantages and drawbacks. The integrated agency model is generally seen as the most efficient decision-making model, with shorter administrative proceedings and the ability to align the work of investigators with the priorities of decision-makers. However, this model generates concerns of ‘prosecutorial bias’ or a ‘tunnel vision’ effect. In contrast, the bifurcated models limit the risk of prosecutorial biases, with the ‘second look’ of independent organs. Yet, those models are more expensive for parties in terms of procedural costs, increase vantage points for lobbyists, and create coordination problems between the investigative and decisional bodies. 5.37  Assessment In a Staff Working Paper issued in 2009, the Commission commended the system established in Regulation 1/2003.26 According to the Commission, ‘the key challenge … to boost enforcement results while ensuring the consistent and coherent application of EC competition rules, has been largely achieved.’ More than a thousand cases have been dealt with by the NCAs since the entry into force of Regulation 1/2003. The Commission considers this to be an ‘impressive’ result.27

(p. 329) C.  Interplay of the Commission and NCAs within the ECN 5.38  Introduction Insofar as the application of Articles 101 and 102 TFEU to individual cases is concerned, the proliferation of competition authorities generates a number of substantive (consistency in interpretation) and jurisdictional (parallel proceedings) challenges.

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(1)  Vertical issues 5.39  With the proliferation of NCAs, a risk of inconsistent interpretation of Articles 101 and 102 TFEU cannot be ruled out. To avoid this, Regulation 1/2003 establishes a number of mechanisms which confer a key role to the Commission (which acts, as seen above, as the ‘guardian of the Treaty’).

(a)  Priority competence of the Commission 5.40  First, Regulation 1/2003 seeks to dissuade NCAs from dealing with certain specific cases. Regulation 1/2003 suggests that the Commission is ‘particularly well placed’ to deal with four types of cases: (i) hardcore cartels and abuses;28 (ii) cases with significant crossborder effects (ie, cases with effects in more than three Member States);29 (iii) cases which involve other EU law provisions which may be exclusively or more effectively applied by the Commission;30 and (iv) cases that involve novel competition issues.31 5.41  This means that NCAs should focus their enforcement activities on other areas of the law (eg cases having a national scope, etc.). This does not imply that NCAs should never investigate hardcore cartels, novel legal questions, etc. However, in the system of Regulation 1/2003, the Commission is better placed to deal with such cases.

(p. 330) (b)  Duty of loyal cooperation 5.42  The core duty The Treaty on the European Union states, at Article 4(3), ‘that pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties’. Albeit general in wording and vague in substance, this general principle has a number of specific consequences on NCAs. Under Article 16(2) of Regulation 1/2003, When competition authorities of the Member States rule on agreements, decisions or practices under Article [101] or Article [102] of the Treaty which are already the subject of a Commission decision, they cannot take decisions which would run counter to the decision adopted by the Commission. Moreover, established case law indicates that NCAs cannot take decisions that risk running counter not only to existing Commission decisions, but also to contemplated Commission decisions.32 5.43  The duty of consistent interpretation of national law This principle has been further elaborated in Article 3(1) of Regulation 1/2003, which imposes on NCAs dealing with domestic competition cases the obligation systematically to assess whether trade between Member States is affected. If this is the case, NCAs must also apply EU competition law. And in this context, Article 3(2) provides that the application of national competition law cannot lead to the prohibition of practices that are not restrictive pursuant to Article 101(1) TFEU or exempted under Article 101(3) TFEU.33 The purpose of this provision is to eliminate the risk that NCAs circumvent substantive EU competition law principles through the application of national law only.

(c)  Cooperation mechanisms 5.44  To limit the risks of inconsistent interpretation of Articles 101 and 102 TFEU, Article 11(1) of Regulation 1/2003 provides that ‘The Commission and the competition authorities of the Member States shall apply the Community competition rules in close cooperation’. In practice, this general statement is complemented by two specific principles. First, the Commission must—upon request but also on its own initiative—transmit to NCAs all information it holds that may be relevant to the assessment of a case.34 Second, the NCAs can consult the Commission on any case involving the application of EU competition law.35

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(p. 331) (d)  Monitoring instruments 5.45  Cooperation Finally, the Commission is also entrusted with the duty to monitor the enforcement activities of NCAs. To this end, Regulation 1/2003 imposes a number of informational obligations upon NCAs. Pursuant to Article 11(3), the NCAs shall ‘inform the Commission in writing before or without delay after commencing the first formal investigative measure’ under Articles 101 and 102 TFEU.36 Pursuant to Article 11(4), ‘no later than 30 days before the adoption of a decision requiring that an infringement be brought to an end, accepting commitments or withdrawing the benefit of a block exemption Regulation’, the NCAs shall inform the Commission.37 5.46  Worst-case scenario The above rules entitle the Commission to solve problems ahead of the adoption of a final decision, through informal discussions with NCAs. If, however, the issues cannot be resolved informally, the Commission can rely on Article 11(6) of Regulation 1/2003 to remove the case from the NCA, and deal with the issue itself. Under this provision, ‘the initiation by the Commission of proceedings for the adoption of a decision under Chapter III shall relieve the competition authorities of the Member States of their competence to apply Articles [101 and 102 TFEU].’ In practice, Article 11(6) may be applied in the following situations: (a)  [NCAs] envisage conflicting decisions in the same case; (b)  [NCAs] envisage a decision which is obviously in conflict with consolidated case law; the standards defined in the judgments of the Community courts and in previous decisions and regulations of the Commission should serve as a yardstick; concerning the assessment of the facts (e.g. market definition), only a significant divergence will trigger an intervention of the Commission; (c)  [NCA](s) is (are) unduly drawing out proceedings in the case; (d)  There is a need to adopt a Commission decision to develop Community competition policy in particular when a similar competition issue arises in several Member States or to ensure effective enforcement. 38 5.47  Track record of the Commission Since the entry into force of Regulation 1/2003, 300 envisaged decisions have been submitted by the NCAs on the basis of Article 11(4). In none of these cases, have proceedings been initiated by the Commission pursuant to Article 11(6) with a view to relieving an NCA of its competence to deal with a case.39 5.48  Ne bis in idem ? In Walt Wilhem, the Court held that a given anticompetitive practice can be subject to separate proceedings under EU and national law, before distinct competition (p. 332) authorities.40 As a result, a given anticompetitive practice can be sanctioned twice. The Court has, however stated that: if, however, the possibility of two procedures being conducted separately were to lead to the imposition of consecutive sanctions, a general requirement of natural justice, … demands that any previous punitive decision must be taken into account in determining any sanction which is to be imposed. .41 This constitutes an extension of the Walt Wilhem rule to situations involving the parallel application of EU competition law. 5.49  Some sense of moderation is thus expected from competition authorities when applying sanctions to a conduct that has previously been sanctioned by other competition authorities.

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(2)  Horizontal issues 5.50  The issue Regulation 1/2003 establishes a system of ‘parallel competences’. With 27 Member States empowered to apply Articles 101 and 102 TFEU, the risk of jurisdictional overlap and, in turn, of decisional conflicts/inconsistencies, cannot be ruled out. To prevent this, Regulation 1/2003, and the accompanying soft law instruments, provide for a number of specific principles. 5.51  Well-placed NCAs From a public policy standpoint, the Commission seems to support the view that a single NCA, possibly with the assistance of other NCAs, shall deal with the case entirely, including the assessment of cross-border effects in other jurisdictions. In principle, only a ‘well-placed’ NCA should deal with a case. This will occur if three cumulative conditions are met. First, ‘the agreement or practice has substantial direct actual or foreseeable effects on competition within its territory, is implemented within or originates from its territory.’42 Second, the NCA ‘is able to effectively bring to an end the entire infringement, i.e. it can adopt a cease-and-desist order the effect of which will be sufficient to bring an end to the infringement and it can, where appropriate, sanction the infringement adequately.’43 Third, the NCA ‘can gather, possibly with the assistance of other authorities, the evidence required to prove the infringement’.44 (p. 333) 5.52  Case reallocation Those conditions may be satisfied by several NCAs which are thus all ‘well placed’ to deal with a case. In such a case, the Commission considers that the first NCA that has dealt with the case shall remain in charge.45 5.53  As amongst those ‘well-placed’ NCAs, some may be better placed than others. The Commission does not rule out the possibility of case reallocation. Under Article 11(3) of Regulation 1/2003, NCAs shall inform each other when they commence competition proceedings. This early information obligation entitles NCAs to solve jurisdictional issues at the early stages of competition proceedings. In this regard, the Commission states that: Where case re-allocation issues arise, they should be resolved swiftly, normally within a period of two months, starting from the date of the first information sent to the network pursuant to Article 11 of the Council Regulation. During this period, competition authorities will endeavour to reach an agreement on a possible reallocation and, where relevant, on the modalities for parallel action.46 5.54  Practice The reallocation of cases amongst NCAs does not involve a ‘transfer’ of cases as such. Rather, the reallocation of cases involves one authority going ahead with the investigation of a case, while another NCA abstains from acting or closes its file (either on the basis of its discretion (not) to act or on the basis of Article 13 of Regulation 1/2003). 5.55  Other situations In some situations, the intervention of several NCAs in parallel is unavoidable or may be acceptable. This is, for instance, the case, where ‘an agreement or practice has substantial effects on competition mainly in their respective territories and the action of only one NCA would not be sufficient to bring the entire infringement to an end and/or to sanction it adequately.’47 In such settings, the Commission insists on the fact that the NCAs acting in parallel should coordinate their actions to the extent possible, and possibly agree on the designation of a ‘lead authority’.48 Moreover, a sense of mutual moderation should prevail insofar as sanctions are concerned. The NCAs should take account of the penalties that they may mutually inflict, in order to avoid ‘double jeopardy’ issues.49 5.56  Negative jurisdictional conflicts There have been discussions within the ECN in relation to the situation where an NCA is seized by a complainant but is not particularly ‘well placed’ to deal with the case, since it requires extensive investigations in other

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Member States. This situation is problematic when the other NCAs that are better placed do not consider the case to be a priority. (p. 334) 5.57  However, this situation is not necessarily disturbing as NCAs and the Commission are in principle free to set enforcement priorities, and to set aside cases of limited policy interest. In any event, the complainant always can turn to the court system to obtain a ruling on his complaint. 5.58  Exchange of case-related information Parallel actions by several NCAs has an underestimated advantage. Pursuant to Article 12(1) of Regulation 1/2003, ‘the Commission and the competition authorities of the Member States shall have the power to provide one another with and use in evidence any matter of fact or of law, including confidential information.’ With the dissemination of case-related information within the ECN, NCAs obtain a better picture of suspected infringements. 5.59  The transmission of information pursuant to Article 12(1) is subject to limitations. First, information transmitted shall only be used by the receiving NCA ‘for the purpose of applying Article 101 or Article 102 TFEU and in respect of the subject-matter for which it was collected by the transmitting [NCA]’, or for the purpose of also applying national competition law in parallel to EU competition law.50 This provision protects against the risk that a receiving NCA transmits this information to other branches of the national administration (eg to regulatory authorities), to domestic companies, or uses it in the context of other noncompetition-related missions (eg some NCAs also have consumer protection duties). 5.60  Second, information collected in a jurisdiction that does not provide for custodial sanctions cannot be used as evidence in another jurisdiction to seek the imposition of custodial sanctions.51 5.61  Implementation In practice, Article 12 has been used in three types of setting.52 First, NCAs have made use of it at the very early stage of investigations (prior to inspections) in a highly confidential manner. Second, in the context of Article 22 (inspections by conduct by an NCA on behalf of another NCA), the information collected has been transferred to the requesting authority on the basis of Article 12. Third, when cases have been allocated between NCAs or reallocated to another NCA, the information has been passed on pursuant to Article 12.

(p. 335) (3)  The European Competition Network 5.62  Introduction Not unlike other areas of EU law, such as the regulation of electronic com-munications, EU competition law now applies a model of ‘network-based governance’.52a Under recital 15 of the Preamble to Regulation 1/2003 ‘the Commission and the competition authorities of the Member States should form together a network of public authorities applying the Community competition rules in close cooperation.’53 This system is predicated on the view that in the EU-27, the effective enforcement of competition rules across the European territory will be better achieved if decentralized NCAs with knowledge of domestic markets work hand in hand to eliminate restrictions of competition. In addition, this system is congruent with the spirit of subsidiarity that flows through the EU legal system.54 5.63  Applicable legal instruments Whilst some of the modalities for information and consultation within the ECN can be found in Regulation 1/2003, and in particular in Articles 11 and 12, further modalities for cooperation within the ECN were to be laid down by the Commission, in close cooperation with the Member States.55

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5.64  On the day of adoption of Regulation 1/2003, the Council and the Commission thus issued a ‘Joint Statement’ on the functioning of the network of competition authorities.56 This Joint Statement was ‘political in nature’ and aimed at setting out ‘a common political understanding shared by all Member States and the Commission on the principles of the functioning of the Network’.57 This notwithstanding, the joint declaration contained a number of interesting principles (eg case allocation should take place within three months,58 a single authority (p. 336) should deal with cases ‘as often as possible’,59 the Commission will take no decision conflicting with an NCA decision once Arts 11(3), 11(4), and 11(6) have been used).60 Those principles were later complemented, and confirmed, by the Communication on cooperation within the ECN, which now constitutes the legal backbone of that network.61 5.65  Functions of the ECN The ECN has five main functions. First, it offers a forum for discussion between its members, on both jurisdictional and substantive issues. For instance, the ECN is a key discussion forum for new directions in substantive competition policy. In this regard, the ECN was actively consulted ahead of the reform of the rules on horizontal cooperation agreements. Working groups devoted to horizontal questions of legal, economic, or procedural nature (cartels, cooperation issues and due process, mergers, etc) and sectoral subgroups (Energy, Financial Services, Pharmaceuticals, etc) have been established within the ECN to exchange views and disseminate best practices.62 Those groups are attended by civil servants of NCAs and of the Commission. Strategic issues are discussed at meetings of Director Generals of the NCAs and of the Commission. 5.66  Second, the ECN provides an interface for the exchange of case-related information pursuant to Article 12 of Regulation 1/2003. In this context, the ECN provides an interface to lodge formal requests for case-related input. This goes beyond formal cooperation under Article 12, and covers informal requests for input. For instance, NCAs may make general requests, such as ‘surveys and questionnaires about national legislation, enforcement practice, legal procedure and conceptual issues in the field of competition policy.’63 They may also exchange views on particular sectors of the economy, in relation to sector inquiries or other methodological problems. 5.67  Third, the ECN is the framework under which an NCA requests another NCA to undertake an act of investigation (ie, an inspection or a request for information) on its behalf and in its account, pursuant to Article 22(1) of Regulation 1/2003. 5.68  Fourth, the ECN is a useful statistical instrument. The Commission can monitor and benchmark NCA activities across Europe. In this context, the ECN publishes statistics on a yearly basis.64 From a substantive standpoint, the ECN also entitles the Commission to compare the developments in the case law of NCAs across the EU. (p. 337) 5.69  Fifth, the ECN plays a key advocacy role. Since early 2010, the ECN has published an electronic brief five times a year. This publication intends to inform the public at large of the wealth of activities within the ECN and its members. In addition, the ECN occasionally provides guidance to the private sector through the release of policy documents. For instance, on 15 March 2010, the Commission published an explanatory Brochure on ‘How EU competition policy helps dairy farmers in Europe’ and a Working Paper on ‘The interface between EU competition policy and the CAP: competition rules applicable to cooperation agreements between farmers in the dairy sector’.65 The Brochure and the Working Paper were an initiative of the ECN Joint Working Team on Milk. Finally, the ECN also engages in advocacy activities before its national members. For instance, as a response to the need to enhance the convergence and effectiveness of leniency programmes, the ECN adopted in September 2006 a ‘model leniency programme’.66 This

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document sets out a basic framework for rewarding the cooperation of firms which are party to unlawful cartels. 5.70  Recent developments In a somewhat unprecedented move, the heads of European competition authorities within the ECN issued a resolution of November 2010, calling the attention of policy makers to the need for effective competition authorities, comprising high-level experts and enjoying sufficient financial resources. The fact that the ECN can speak with one voice and convey messages to policy makers is a clear sign that the ECN is developing into a strong, stand-alone organization.

D.  The National Courts (1)  The role of national courts in the EU competition system 5.71  Introduction The national courts also have a key role to play in the EU competition system. Since the adoption of Regulation 1/2003, Articles 101 and 102 TFEU have ‘full’ direct effect (in the past, Art 101(3) TFEU did not have direct effect). Pursuant to Article 6 of Regulation 1/2003, ‘National courts shall have the power to apply Articles [101] and [102] of the Treaty’.67 5.72  Advantages of acting before national courts As explained in recital 7 of the Preamble to Regulation 1/2003, national courts safeguard the ‘subjective rights’ of private individuals. Hence, in all cases which the Commission or NCAs do not view as priorities, the national courts may provide remedial avenues to complainants.68 With few nuances, the Commission’s Notice on the handling of complaints has summarized the six merits of actions before national courts: —  National courts may award damages for loss suffered as a result of an infringement of Article 101 or 102 TFEU; —  National courts may rule on claims for payment or contractual obligations based on an agreement that they examine under Article 101 TFEU; —  It is for the national courts to apply the civil sanction of nullity of Article 101(2) in contractual relationships between individuals. They can in particular assess, in the light of the applicable national law, the scope and consequences of the nullity of certain contractual (p. 338) provisions under Article 101(2), with particular regard to all the other matters covered by the agreement; —  National courts are usually better placed than the Commission to adopt interim measures; —  Before national courts, it is possible to combine a claim under EU competition law with other claims under national law; —  Courts normally have the power to award legal costs to the successful applicant. This is never possible in an administrative procedure before the Commission. 5.73  Past case law As seen previously, national courts have often applied EU competition rules in the context of so-called ‘Euro-defences’, where a firm typically invokes the incompatibility of the contract with Article 101 TFEU to escape contractual obligations. This, for instance, was at the heart of cases such as Courage v Crehan69 and Javico .70 5.74  Future case law If the Commission’s bid to enhance private actions for damages ever succeeds, national courts should have a crucial role to play, with compensatory actions following a competition authority decision (follow-on litigation), or even in the absence of such decisions (stand-alone litigation).

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(2)  Vertical and horizontal coordination with national courts 5.75  Introduction With the full direct effect of the EU competition rules, actions before national courts should increase. Whilst this may improve the effectiveness of EU competition law, it also threatens its uniform application. A number of vertical and horizontal coordination mechanisms have thus been adopted. However, in contrast with NCAs, the Council and the Commission have much less leverage when it comes to regulating the Member States’ judiciaries. Many of the mechanisms that were set up take the form of ‘soft’ coordination instruments.

(a)  Vertical relationships between the Commission and national courts 5.76  Introduction Articles 15 and 16 of Regulation 1/2003 on the ‘Cooperation with National Courts’ are the key provisions that govern the relationships between the Commission and the national courts. Other provisions and case law also regulate their interactions. (i)  Duty to avoid passing judgments contrary to Commission decisions

5.77  Principle Pursuant to Article 16(1) Regulation 1/2003: When national courts rule on agreements, decisions or practices under Article [101] or Article [102] of the Treaty which are already the subject of a Commission decision, they cannot take decisions running counter to the decision adopted by the Commission. They must also avoid giving decisions which would conflict with a decision contemplated by the Commission in proceedings it has initiated. To that effect, the national court may assess whether it is necessary to stay its proceedings. This obligation is without prejudice to the rights and obligations under Article [267] of the Treaty. (p. 339) 5.78  Since the Delimitis and Masterfoods cases,71 it is well settled that this obligation also applies to contemplated Commission decisions in the context of pending administrative proceedings. As a result, national courts should inquire whether the Commission has opened proceedings, and whether it intends to adopt a decision. In turn, the Commission should decide cases that are pending before national courts as a matter of priority. If the Commission decision is subject to annulment proceedings, the national court should stay proceedings until the judgment of the General Court (GC). 5.79  Parallel procedures at the national level In many Member States, specific procedures apply when national courts and NCAs (as well as other regulatory authorities) act in parallel in a similar matter. (ii)  Duty on the Member States to forward written judgments to the Commission

5.80  Principle Regulation 1/2003 seeks to establish a certain degree of Commission monitoring over the application of EU competition law by national courts. To this end, Article 15(2) imposes on the Member States the obligation to ‘forward to the Commission a copy of any written judgment of national courts deciding on the application of Article 81 or Article 82 of the Treaty.’ Unlike the obligation that bears on NCAs (to inform the Commission of contemplated decisions), the informational obligation that bears on Member States relates to adopted judgments. 5.81  Assessment The Commission Staff Working Paper accompanying the Report on the functioning of Regulation 1/2003 reveals that Member States have failed to forward all national judgments applying Article 101 or 102 TFEU and, when they have done so, they have not acted ‘without delay’ as required under Article 15.72 In principle, the Commission could initiate proceedings against the Member States that have failed to discharge their obligation under Article 258 TFEU. However, this latter option may be politically difficult for the Commission. A number of suggestions have thus been made to improve the system. For

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instance, the NCAs could be requested to collect national judgments, and to forward them to the Commission. (iii)  The amicus curiae procedure

5.82  Principle Whilst the Commission cannot remove a case from national courts, it nonetheless enjoys several levers to influence them. In particular, the Commission can submit written observations on its own initiative, ‘when the coherent application of Article 101 and 102 TFEU so requires’.73 Article 15(3) further adds that it can submit oral observations, with the (p. 340) permission of the court in question. Finally, to prepare its observations, the Commission can request the national court to ensure the transmission of all necessary information. 5.83  Similar powers have been granted to NCAs in cases involving Articles 101 and 102 TFEU (without, however, the need for them to prove that their ‘coherent application’ of Articles 101 and 102 TFEU so requires).73a 5.84  Practice Since the adoption of Regulation 1/2003, the Commission has relied on Article 15 in two cases, namely Garage Grémeau v Daimler Chrysler France and Inspecteur van de Belastingdienst v X BX .74 In this later case, the Court explicitly recognized that the Commission could submit observations to a national court on its own motion, including in relation to institutional issues (eg the deductibility of fines imposed for infringements of Articles 101 and 102 TFEU).75 The reasons for the Commission’s limited interest in the amicus curiae procedure are diverse. Beyond the additional workload that such procedures represent, the Commission may be reluctant to submit observations that national courts may eventually disregard. Moreover, by virtue of a form of decisional subsidiarity, the Commission may consider that NCAs should be the first to step in. (iv)  Duty on the Commission to transmit information to national courts

5.85  Principle In addition to imposing duties on national courts (and on the Member States), Regulation 1/2003 also imposes several obligations on the Commission. Article 15(1) grants national courts the power to request from the Commission (i) information in its possession76 or (ii) its opinion in relation to the application of the competition rules. Through this mechanism, national courts can, for instance, obtain information on whether the Commission intends to adopt a decision in a similar case and, as the case may be, stay proceedings to comply with Article 16(1) of Regulation 1/2003.77 As far as Commission’s preliminary rulings are concerned, the Notice on the cooperation between the Commission and the courts states that ‘the opinion of the Commission does not legally bind the national court’, in contrast to opinions issued by the Court of Justice under Article 267 TFEU.78 5.86  Practice The Commission should not to deliver its opinion on the merits of the case.79 Rather, the Commission’s answers should be confined to providing factual information, legal clarifications (eg on the notion of ‘undertaking’) or economic opinions (eg delineation of the relevant market).80 The Commission has endeavoured to address national courts’ (p. 341) requests within four months (but in concrete cases, the Commission has sometimes taken up to 16 months to address Article 15(1) requests).81 As of 31 March 2009, the Commission had issued opinions on 18 occasions to national courts.82 Some stakeholders have pointed out to a possible reluctance of national courts to using Article 15(1) of Regulation 1/2003. To overcome this, the Commission has published examples of opinions given to national courts on its website so that that national courts know what to expect from an Article 15(1) opinion.83

(b)  Horizontal relationships amongst national courts 5.87  Principle Jurisdictional conflicts amongst national courts are dealt with on the basis of Regulation 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters.84 Pursuant to this Regulation, the courts that hold jurisdiction are the courts of the Member State where the defendant, regardless of his nationality, is

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domiciled.85 In the case of an undertaking, the statutory seat, central administration, or principal place of business is taken into consideration.86 5.88  Conflict In practice, jurisdictional conflicts are not particularly frequent. Indeed, should a conflict arise, Article 27 of Regulation 44/2001 provides that: ‘Where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established. 5.89  Recognition National courts are bound to recognize judgments rendered under Articles 101 and 102 TFEU in the other Member States.87 The only possible derogation arises if (p. 342) rec ognition is manifestly contrary to ‘public policy in the Member State in which recognition is sought’.87a Given that Articles 101 and 102 TFEU are rules of public policy,88 national courts can thus review almost systematically whether the judgment the recognition of which is sought has correctly applied Article 101 or 102 TFEU. This puts a major dent in the principle of automatic recognition of foreign judgments that prevails under Regulation 44/2001.

III.  The Procedural Framework 5.90  Introduction Now that we have described the institutional structure of the EU competition system, it is time to examine how the Commission and NCAs process competition cases. Given the necessary limitations of this book, we focus only on the EU Commission’s modus operandi (which often constitutes a good proxy for other competition authorities in Europe). In general, a competition case goes through four stages: detection (Section A), investigation (Section B), evaluation (Section C), and decision (Section D).

A.  The Detection of Infringements 5.91  General remarks The first and foremost activity of competition authorities is to unearth information indicative of a potential infringement of Article 101 or 102 TFEU.89 To this end, the Commission (and more generally NCAs) relies on six distinct types of detection mechanisms.

(1)  Market monitoring 5.92  Big Brother The Commission is not an Orwellian authority. It does not hide and spy on market players in an obsessive quest for evidence of unlawful conduct. 5.93  Yet, and contrary to what is often written, the Commission constantly monitors the evolution of markets. The Commission pays close attention to market facts and data, through the monitoring of business journals, academic papers, economic reports, radio and TV programmes, the internet, etc. A spectacular example of market monitoring can be found in France. In 2001, the French NCA opened an investigation following the broadcasting of a TV programme on Parisian palaces’ commercial practices.90 The Parisian palaces were eventually fined in 2005 for unlawful exchange of sensitive information.

(2)  Information received through other institutional channels 5.94  Information that circulates within DG COMP As explained previously, within a sectoral Directorate, several units generally work on distinct antitrust matters (in general antitrust, mergers, and State aid). Those units are not supposed to act as silos. Rather, information (p. 343) retrieved by the merger and State aid units should be shared with the

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antitrust unit (and vice versa). This may thus lead to the opening of Articles 101 and 102 TFEU cases. 5.95  Information received by DG COMP from other institutions At the apex of the ECN, the Commission receives information from NCAs and from national courts. The Commission additionally receives information from other Directorates General (eg information society, energy, and transport), national and European regulatory agencies (eg the EMEA), or other European institutions (eg parliamentary questions).

(3)  Information received from complainants 5.96  Introduction Pursuant to Article 7(3) of Regulation 1/2003, a ‘natural or legal person can show a legitimate interest and Member States’ can lodge complaints alleging breaches of Article 101 and/or 102 TFEU.91 The Commission adopted a Notice on the handling of complaints,92 which sets out the conditions of admissibility of complaints, the rights of complainants, and their involvement in the procedure. 5.97  Informal vs Formal complaints There are two possible ways to complain before the Commission. First, natural or legal persons can complain informally. The complainant is then a mere informant. She brings information on potentially anticompetitive practices to the attention of the Commission, through unofficial contacts. Should the Commission open proceedings subsequently, it will be deemed to have acted ex officio. Informal complainants enjoy no specific rights to participate in subsequent proceedings (through, eg the submission of observations). 5.98  Second, natural or legal persons can formally complain to the Commission, pursuant to Article 7(2) of Regulation 1/2003. Those complaints must comply with the requirements set out in Regulation 773/2004 relating to the conduct of proceedings.93 In contrast to informal complainants, formal complainants benefit from specific rights. First, formal complainants have a right to a reasoned reply from the Commission. Second, formal complainants can participate in subsequent proceedings. This, however, comes at a certain price: drafting a formal complaint consumes time, effort, and money. Moreover, formal complainants—whose identity is disclosed to the firm(s) accused of anticompetitive conduct —may be subject to retaliation. 5.99  Admissibility To qualify as a formal complaint pursuant to Article 7(2), a complaint must be drafted on the basis of Form C, which can be found in Annex to Regulation 773/2004. In brief, the complainant’s submission must: (i) provide information regarding the complainant and the undertaking(s) or association of undertakings giving rise to the complaint; (ii) set out in detail the facts from which it appears that there exists an infringement; (iii) submit all documentation relating to or directly connected with the facts set out in the complaint; (iv) set out views about the geographical scope of the alleged infringement and explain, where that is not obvious, to what extent trade between Member States is affected; (p. 344) and (v) explain the finding or action that is sought as a result of proceedings brought by the Commission. 5.100  Rights of complainants Formal complainants are entitled to have their complaint dealt with swiftly, carefully, and seriously by the Commission. As the Court held: once the Commission decides to proceed with an investigation, it must, in the absence of a duly substantiated statement of reasons, conduct it with the requisite care, seriousness and diligence so as to be able to assess with full knowledge of the case the factual and legal particulars submitted for its appraisal by the complainants.94

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5.101  In practice, however, the Court accepts that the Commission may sometimes take up to several years to come to a view on the merits of a complaint. If the Commission pursues the complaint—and sends a Statement of Objections to the suspected firm(s), the complainant is entitled to receive a non-confidential copy of this document,95 and to submit observations both in writing and orally (if a hearing is organized).96 5.102  No right to the opening of proceedings Whilst formal complainants are entitled to certain rights, this does not mean that the Commission is under a duty to investigate all submitted complaints. The Commission can reject complaints either because it finds that information submitted is insufficient to pursue the case or, because the case does not constitute an enforcement priority, and thus is of insufficient ‘Community interest’. The notion of Community interest is clarified at para 44 of the Notice on the handling of complaints, which states as follows: Among the criteria which have been held relevant in the case law for the assessment of the Community interest in the (further) investigation of a case are the following: —  The Commission can reject a complaint on the ground that the complainant can bring an action to assert its rights before national courts. —  The Commission may not regard certain situations as excluded in principle from its purview under the task entrusted to it by the Treaty but is required to assess in each case how serious the alleged infringements are and how persistent their consequences are. This means in particular that it must take into account the duration and the extent of the infringements complained of and their effect on the competition situation in the Community. —  The Commission may have to balance the significance of the alleged infringement as regards the functioning of the common market, the probability of establishing the existence of the infringement and the scope of the investigation required in order to fulfil its task of ensuring that Articles 81 and 82 of the Treaty are complied with. (p. 345) —  While the Commission’s discretion does not depend on how advanced the investigation of a case is, the stage of the investigation forms part of the circumstances of the case which the Commission may have to take into consideration. —  The Commission may decide that it is not appropriate to investigate a complaint where the practices in question have ceased. However, for this purpose, the Commission will have to ascertain whether anti-competitive effects persist and if the seriousness of the infringements or the persistence of their effects does not give the complaint a Community interest. —  The Commission may also decide that it is not appropriate to investigate a complaint where the undertakings concerned agree to change their conduct in such a way that it can consider that there is no longer a sufficient Community interest to intervene.

5.103  The Commission can reject complaints either before commencing an investigation or after taking investigative measures.97 If the Commission decides to set aside a complaint, it must ‘inform the complainant of its reasons and set a time-limit within which the complainant may make known its views in writing.’98 If the Commission finds that the complainant’s observations are unlikely to lead to a different assessment, it shall reject the complaint through a formal Article 7 decision. In practice, the Commission enjoys a large

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degree of discretion to reject complaints, and the EU Courts are generally reluctant to annul such decisions.99

(4)  Information received from consumers 5.104  Paradox Whilst consumers are often said to be the true addressees of competition policy, their role in competition proceedings, and in particular in the detection of infringements, has remained embryonic. 5.105  Consumer Liaison Office In a bid to foster consumer participation in competition proceedings, in 2003 the Commission created a Consumer Liaison Office (CLO) within DG COMP.100 The CLO is primarily responsible for receiving information and requests concerning competition problems faced by end users. A team of Consumer Liaison Correspondents responsible for each economic sector gives advice to consumers within a month of receiving queries.101

(p. 346) (5)  Information received through specific legal instruments 5.106  Introduction The EU competition framework also provides for two ad hoc instruments that purport to improve the Commission’s ability to detect infringements, that is, sector inquiries (Section (a)) and the leniency programme (Section (b))

(a)  Sector inquiries 5.107  Principle A reactive detection policy that would rely only on information submitted by firms (through complaints) and consumers is insufficient to detect competition law infringements. It is thus important to allow the Commission to investigate markets proactively, in search for possible restrictions of competition. Pursuant to Article 17 of Regulation 1/2003, the Commission can thus instigate ex officio inquiries ‘into sectors of the economy and into types of agreements’. 5.108  The threshold for opening a sector inquiry is quite low. The Commission can open a sector inquiry as soon as ‘the trend of trade between Member States, the rigidity of prices or other circumstances suggest that competition may be restricted or distorted within the common market.’102 It does not need to identify a possible competition infringement, in contrast to targeted, individual investigations (through inspections and requests for information). 5.109  A key aspect of sector inquiries is that the Commission enjoys prerogatives similar to those it enjoys in the context of individual investigations. Pursuant to Article 17(2), the Commission can send requests for information, take statements, organize inspections, and seek the assistance of NCAs.103 Failure to comply with such measures may be sanctioned with fines, in the conditions set out at Articles 23 and 24 of Regulation 1/2003. 5.110  Practice In contrast to individual investigations, Article 17 inquiries are seen as a preliminary detection tool, rather than an investigation instrument. Alluding to the Commission’s intrusive power under Article 17, some authors have expressed worries that sector inquiries would be akin to ‘fishing expeditions’.104 5.111  Selection The Commission opened sector inquiries in a variety of fields, the scope of those inquiries has fluctuated dramatically. 5.112  Two trends can be nonetheless observed in the Commission’s sector inquiry policy. First, the Commission has opened sector inquiries in ‘strategic’ sectors of the EU economy (eg in sectors such as energy or telecommunications). Second, the Commission has launched such inquiries in sectors with important media exposure (eg in the pharmaceutical industry, financial services, retail banking).

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5.113  Sector inquiries are burdensome. Opening a sector inquiry risks absorbing large amounts of resources. In turn, this may impair the Commission’s ability to intervene against other practices. In the pharmaceuticals sector, for instance, the Commission had to establish a (p. 347) specific ‘task force’ to handle the inquiry, which, to date, has not generated significant results. The Commission it must carefully weigh the cost and benefits of opening a sector inquiry. 5.114  Outcome On the basis of the information collected in the sector inquiry, the Commission can open targeted individual investigations under Article 101 or 102 TFEU. Prior to this, however, the Commission often concludes sector inquiries with the publication of a report that summarizes the main findings of the investigation. These reports generally contain valuable information on the markets that were investigated (regulatory framework, market dynamics, barriers to entry, etc). Occasionally, firms have changed their behaviour following publication of the report.105

(b)  Leniency 5.115  Cartels are notoriously difficult to uncover from the outside. To incentivize insiders to denounce cartels in which they participate, the Commission introduced a leniency programme in the late 1990s. The idea behind this programme is to reward whistle-blowers through reduction of fines in exchange for evidence of unlawful behaviour. The EU leniency programme is now enshrined in the 2006 Commission Notice on immunity from fines and reduction of fines in cartel cases.106 The Commission’s leniency programme is discussed in Chapter 6 (para 6.100ff). 5.116  Settings in which full immunity can be granted The Commission will grant full immunity from fines to the firm that: is the first to submit information and evidence which in the Commission’s view will enable it to: (a)  carry out a targeted inspection in connection with the alleged cartel; or (b)  find an infringement of Article 81 EC in connection with the alleged cartel. In contrast, the Commission will not grant full immunity if: at the time of the submission, the Commission had already sufficient evidence to adopt a decision to carry out an inspection in connection with the alleged cartel or had already carried out such an inspection. or if: at the time of the submission, sufficient evidence to find an infringement of Article 81 EC in connection with the alleged cartel. (p. 348) 5.117  Conditions where full immunity can be granted The Notice provides that three conditions must be fulfilled for the granting of full immunity. Those conditions can be found under para 12 of the Notice: (a)  The undertaking cooperates genuinely, fully, on a continuous basis and expeditiously from the time it submits its application throughout the Commission’s administrative procedure …

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(b)  The undertaking ended its involvement in the alleged cartel immediately following its application, except for what would, in the Commission’s view, be reasonably necessary to preserve the integrity of the inspections; (c)  When contemplating making its application to the Commission, the undertaking must not have destroyed, falsified or concealed evidence of the alleged cartel nor disclosed the fact or any of the content of its contemplated application, except to other competition authorities. 107 5.118  Partial immunity The Commission can also be lenient towards firms that are not the first in the door. Under para 23 of the Notice, such firms ‘may be eligible to benefit from a reduction of any fine that would otherwise have been imposed’. Those firms must ‘provide the Commission with evidence of the alleged infringement which represents significant added value with respect to the evidence already in the Commission’s possession’ and also comply with the three conditions in para 12 of the Notice. The Notice provides guidance on what brings ‘added value’.108 5.119  The first firm that provides significant added value will obtain a reduction of 30–50 per cent, the second firm a reduction of 20–30 per cent, and subsequent firms a reduction of up to 20 per cent.109 5.120–5.122  Some scholars believe that conceding partial immunity on subsequent firms creates ‘adverse selection’ problems. With this rule, firms that participate in cartels know they have the chance to receive a fine reduction. As a result, the financial risks arising from the punishment (p. 349) of unlawful cartels decrease, and firms have fewer incentives to comply with the competition rules.110–112

B.  The Investigation of Alleged Infringements 5.123  Introduction Once informed of a possible competition infringement, the Commission will seek to verify its existence through investigative measures. Pursuant to Regulation 1/2003, the Commission enjoys several types of investigative powers, which may be exercised either through simple requests, or through mandatory decisions. In both cases, firms must faithfully cooperate with the Commission.

(1)  Requests for information 5.124  Principle Article 18(1) of Regulation 1/2003 states that ‘the Commission may, by simple request or by decision, require undertakings and associations of undertakings to provide all necessary information’.113 Article 18(6) further indicates that the Commission can also address requests for information to ‘the governments and competition authorities of the Member States’.114 Interestingly, Article 18 can be used by the Commission at any stage of the administrative proceedings, including at very late stages, should it need further information. Practitioners call such measures ‘Article 18 requests’ or ‘RFI’. 5.125  ‘Necessary’ information To assuage the risk of ‘fishing expeditions’, Regulation 1/2003 places a limit on what the Commission can request. Under Article 18, the Commission can only request ‘necessary’ information. When it issues a request for information, the Commission must thus provide indications on the nature and scope of the suspected infringement. This can be contrasted with requests for information in the context of sector inquiries where, as explained previously, the Commission is under no such obligation.115 5.126  Formalities Article 18(2) of Regulation 1/2003 imposes several obligations on the Commission. It must, in particular, ‘state the legal basis and the purpose of the request’.

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This requirement is important. It enables the review courts subsequently to verify whether the requested information was necessary. (p. 350) 5.127  The Commission must also ‘fix the time-limit within which the information is to be provided’. No minimum time limit is set in the Regulation. However, the case law considers that the Commission should leave addressees of requests for information a ‘reasonable’ time in which to reply. In practice, undertakings that receive requests for information generally request time extensions. The Commission can grant them at his discretion. 5.128  Finally, the request for information must also mention ‘the penalties provided for in Article 23 for supplying incorrect or misleading information’. Undertakings that supply, ‘intentionally or negligently’ incorrect or misleading information, may be fined up to 1 per cent of their total turnover in the preceding business year. A statement is deemed ‘incorrect’ if it ‘gives a distorted picture of the true facts asked for, and [it] departs significantly from reality on major points’.116 5.129  Simple request or decision The Commission can either address a simple request for information under Article 18(2), or issue a decision under Article 18(3) of Regulation 1/2003. The main difference between these two options lies in the fact that under Article 18(3), the Commission can ‘impose the penalties provided for in Article 24’117 ie ‘periodic penalty payments not exceeding 5% of the average daily turnover in the preceding business year per day and calculated from the date appointed by the decision.’118 Article 18(3) thus allows the Commission to force undertakings, through daily financial constraints, to disclose the requested information.

(2)  Inspections 5.130  Introduction The Commission’s raids at the premises of companies often make the headlines. As such inspections impinge significantly on the right to property,119 they are subject to a number of strict procedural conditions. The rules governing the inspection of firms’ premises (Section (a)) and of other premises (Section (b)) are respectively set out at Articles 20 and 21 of Regulation 1/2003.

(p. 351) (a)  Inspections of firms’ premises 5.131  Conditions Pursuant to Article 20(1), ‘[i]n order to carry out the duties assigned to it by this Regulation, the Commission may conduct all necessary inspections of undertakings and associations of undertakings.’ As with requests for information, such inspections must be ‘necessary’ to establish an infringement of Article 101 or 102 TFEU. Unlike for requests for information, the Commission cannot conduct inspections with ‘governments’. 5.132  The Commission can launch an inspection by granting written authorization to its officials pursuant to Article 20(3) of Regulation 1/2003. The Commission can also launch an inspection through the adoption of a formal decision pursuant to Article 20(4), in which case the addressee of the decision will have no other choice but to comply with the inspection, on pain of being subject to periodic penalty payments under Article 24. 5.133  Powers of the Commission The Commission’s officials and other accompanying persons (eg civil servants from the NCA on the territory of which the inspection takes place) have the following powers: (a)  to enter any premises, land and means of transport of undertakings and associations of undertakings;

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(b)  to examine the books and other records related to the business, irrespective of the medium on which they are stored; (c)  to take or obtain in any form copies of or extracts from such books or records; (d)  to seal any business premises and books or records for the period and to the extent necessary for the inspection; (e)  to ask any representative or member of staff of the undertaking or association of undertakings for explanations on facts or documents relating to the subject-matter and purpose of the inspection and to record the answers. 5.134  Judicial review Firms subject to an inspection ordered by decision can challenge it before the GC.120 They may, in particular, bring annulment proceedings under Article 263 TFEU and seek to obtain a suspension of the inspection before the President of the GC pursuant to Article 278 TFEU.

(b)  Inspection of other premises 5.135  Introduction Article 21 is certainly one of the most significant innovations brought by Regulation 1/2003. Pursuant to this provision, the Commission can launch inspections in ‘other premises, land and means of transport’, this includes ‘the homes of directors, managers and other members of staff of the undertakings and associations of undertakings concerned’. 5.136  Conditions Article 21 is an intrusive provision the application of which is subject to strict conditions. First, the Commission can only inspect other premises, if ‘a reasonable suspicion exists that books or other records related to the business and to the subject matter of the inspection … are being kept in any other premises.’ Moreover, Article 21 can only be used in the context of inspection where ‘a serious violation of Article 101 or Article 102 TFEU’ is suspected (eg a cartel). Finally, such inspections can only be ordered by decisions, subject to review by the EU Courts. They also cannot be executed without prior authorization from the (p. 352) judiciary of the Member State concerned. Pursuant to Article 21(3), the national courts ‘shall control that the Commission decision is authentic and that the coercive measures envisaged are neither arbitrary nor excessive’. 5.137  Practice Until now, the Commission has only exceptionally used Article 21. In the Marine Hoses case, the Commission launched for the first time an inspection at the home of the manager of a firm.121

(3)  Power to take statements 5.138  Principle Article 19 empowers the Commission to ‘take statements’. In contrast to written replies to requests for information, which are often very structured, documented, and articulated, such statements are akin to interviews. They may thus be more spontaneous and individualized than responses to Article 18 requests. Under Article 19, the Commission has the ability to take statements within the firm(s) suspected of infringement, but also from customers, suppliers, etc. This notwithstanding, the Commission cannot force a natural or legal person to make a statement. 5.139  Practice To take statements, the Commission can organize interviews at firms’ premises, within DG COMP, or through other communication means (telephone, video conferencing, etc). Article 3 of Regulation 773/2004 prescribes a procedural framework for interviews.122 The Commission shall, at the beginning of the interview, state the legal basis and the purpose of the interview. It will also recall its voluntary nature.

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5.140  The Commission can record interviews. It must inform the person interviewed of its intention to make a record of the interview. It may also, when the statement is recorded, set a time limit within which the person interviewed can bring corrections to such statements.

C.  The Evaluation of Infringements (1)  Preliminary remarks 5.141  Purpose of the evaluation stage Once the Commission has collected sufficient information and has ‘serious doubts’ of an infringement of Article 101 or 102 TFEU, it initiates ‘formal proceedings’. At this stage, the administrative procedure becomes more bilateral—it involves the suspected firms and the Commission—and more focused—the Commission has a more accurate view of possible competition infringements. 5.142  Opening of formal proceedings The evaluation stage starts with the adoption of a decision to open formal proceedings.123 This is a sui generis decision that cannot be subject to judicial review. (p. 353) 5.143  Consequences The decision to open formal proceedings has several important consequences. First, it relieves NCAs of their competence to apply Articles 101 and 102 TFEU. Second, the decision grants firms suspected of an infringement the benefit of procedural safeguards. 5.144  Sequence Three important stages punctuate the assessment. First, the Commission addresses a Statement of Objections to the undertaking(s) suspected of infringement. Second, the Commission grants them access to the case file. Third, the firm(s) suspected of infringement can reply to the Commission’s allegations.

(2)  The Statement of Objections 5.145  Definition The Statement of Objections—or ‘SO’ as practitioners call it—informs the undertaking(s) subject to an investigation of the allegations of infringements that the Commission suspects. According to the Court, the SO is: is a procedural and preparatory document, intended solely for the undertakings against which the procedure is initiated with a view to enabling them to exercise effectively their right to a fair hearing. The factual and legal assessments set forth in that document are purely provisional and the commission is under a duty to revise them in the light of the explanations provided by those undertakings and of any amendments made to the agreements or practices complained of.124 5.146  Rationale In essence, the SO is intended to entitle firms suspected of infringement to exercise their right to be heard. Pursuant to Article 27(1) of Regulation 1/2003, the Commission shall give firms which are the subject of the proceedings conducted by the Commission ‘the opportunity of being heard on the matters to which the Commission has taken objection’.125 However, this right would be meaningless if the firms subject to the investigation were kept in ignorance of the Commission’s concrete objections. Hence, the Commission is under the obligation to: inform the parties concerned in writing of the objections raised against them. The statement of objections shall be notified to each of them.126 5.147  In simpler words, with the SO, firms suspected of infringement are given a chance to prove the Commission wrong.

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5.148  Content The objections raised in the SO must be clear and accurate. Its addressees must be in a position to identify precisely the Commission’s concerns (ie, relevant markets, nature of the alleged infringements, etc). If the Commission purports to inflict a fine, the SO must (p. 354) indicate the objections in relation to which the penalty may be imposed, as well as provide indications of its duration and gravity. In practice, a SO is generally drafted and structured as a final decision. It may be complemented with annexes, which often contain external documents relevant to the Commission’s findings. 5.149  Exhaustiveness The SO must also be exhaustive.127 This implies that the Commission cannot take an infringement decision in relation to objections that have not been previously and explicitly articulated in a SO. If, in the course of the investigation, the Commission intends to proceed with additional objections, it must adopt a supplementary SO. Sometimes, the Commission will simply issue a ‘Letter of facts’, to account for new factual developments in relation to prior objections.128 If the new facts are distinct from the facts enshrined in the previous SO, then the commission must issue a new SO. 5.150  Scope The Commission must adopt a SO when it intends to issue: (i) a decision finding and terminating an infringement pursuant to Article 7 of Regulation 1/2003; (ii) a decision ordering interim measures pursuant to Article 8 of Regulation 1/2003; (iii) a decision inflicting fines pursuant to Article 23 or fixing the definitive amount of periodic penalty payments pursuant to Article 24(2) of Regulation 1/2003; and (iv) a decision withdrawing the benefit of such an exemption pursuant to Article 29(1) of Regulation 1/2003. Interestingly, the Commission does not need to issue a SO prior to engaging in discussions on commitments under Article 9 of Regulation 1/2003. 5.151  Judicial review Given that the SO is a provisional act, it cannot be challenged before the GC under Article 263 TFEU.129

(3)  Access to file 5.152  Purpose Once informed of the Commission’s allegations, the parties start devising their line of defence. In this context, it is crucial for them to gain access to the file that contains the evidence supporting the Commission’s case. Moreover, full disclosure of the Commission’s file ensures that exculpatory documents are not concealed from them. 5.153  Legal basis The right of parties to access the Commission’s file originates in the case law of the Court.130 It has now been codified in Article 27(2) of Regulation 1/2003, which states: be entitled to have access to the Commission’s file, subject to the legitimate interest of undertakings in the protection of their business secrets. The right of access to the file shall not extend to confidential information and internal documents of the Commission or the competition authorities of the Member States. In particular, the right of access shall not extend to correspondence between the Commission and the competition authorities of the Member States, or between the latter, including documents drawn up pursuant to Articles 11 and 14. Nothing in this paragraph shall prevent the Commission from disclosing and using information necessary to prove an infringement.131 (p. 355) The rules governing access to the file are further set out in a 2005 Notice on the rules for access to the Commission file in cases pursuant to Articles 101 and 102 TFEU.132 5.154  Content of the file Paragraph 8 indicates that the Commission’s file ‘consists of all documents which have been obtained, produced and/or assembled by the Commission Directorate General for Competition, during the investigation.’133 In the Cement case, the Court explained that those documents ‘include both incriminating evidence and exculpatory

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evidence, save where the business secrets of other undertakings, the internal documents of the Commission or other confidential information are involved.’134 5.155  Disputes frequently arise in relation to the content of the file to which the firms can have access. In practice, firms may request access to documents that are, for instance, internal to the Commission. Those disputes must be dealt with first with the case team. Should a conflict persist, the firms can call on the Hearing Officer.135 5.156  Beneficiaries The right of access to the Commission’s file seeks to protect the right of incriminated parties to be heard. As a result, only the addressees of a SO have access to the Commission’s file. Complainants and third parties have no such right. 5.157  Timing Access to the case file must be granted as swiftly as possible following the notification of the SO. Firms subject to formal proceedings would otherwise be practically deprived of their right to be heard and, in turn, unable to challenge the Commission’s case against them. It is not sufficient to grant access to the file at the stage of judicial proceedings before the EU Courts.136

(4)  Right to be heard 5.158  Principle Pursuant to Article 27(1), the Commission must afford the firms that face pro-ceedings a right of reply: Before taking decisions as provided for in Articles 7, 8, 23 and Article 24(2), the Commission shall give the undertakings or associations of undertakings which are the subject of the proceedings conducted by the Commission the opportunity of being heard on the matters to which the Commission has taken objection. The Commission shall base its decisions only on (p. 356) objections on which the parties concerned have been able to comment. Complainants shall be associated closely with the proceedings. 5.160  The Commission must give to the recipient(s) of a SO a reasonable period of time to submit their reply. In practice, the Commission often gives up to eight weeks, with a possible extension of two or three weeks in complex cases. The parties generally try to buy additional time. They can lodge requests to this effect before the case team and, absent a positive response, the Hearing Officer. Such requests have no suspensory effect. 5.161  Procedure The parties prepare detailed written submissions responding to the allegations made by the Commission in its SO. Once they have handed in their reply, parties can request an oral hearing to present their defence to persons other than the ‘case team’. The oral hearing is typically attended by senior officials, representatives of the Member States, members of the Legal Service, etc. Regrettably, the Commissioner does not attend. 5.162  Purpose of oral hearing The purpose of the oral hearing is to give recipients of an SO the opportunity to develop orally the arguments already submitted in writing, to bring more precision on some aspects of their defence, or to inform the Commission of other matters which may be relevant. The oral hearing also provides a discussion forum where those attending may ask questions. If the recipient of an SO requests the organization of an oral hearing, the Commission has no other choice but to convene one. 5.163  The oral hearing is often confused with having ‘one’s day in court’. However, unlike a standard trial, the oral hearing is not public.137 Moreover, the oral hearing is not placed under the supervision of a judge who reviews the evidence and eventually decides the case. Rather, the oral hearing is organized by a Hearing Officer (‘HO’), who is an independent civil servant acting under the authority of the Commissioner for competition.137a The HO is thus fully independent from DG COMP. The main roles of the HO are to (i) deal with all organizational aspects including date, duration, and agenda of the hearing; (ii) hold preparatory meetings involving the Commission staff and the parties before the hearing;

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(iii) chair the hearing and decide on the admission of questions during it; and (iv) decide whether fresh documents are admitted during the hearing.138 5.164  Report In each procedure leading to a decision under Articles 7, 8, 23, and 24(2) of Regulation 1/2003, the HO must draft a final report on whether the rights of defence have been complied with. This report is submitted as an annex to the draft decision, and is sent to the College of Commissioners and to the Advisory Committee on Restrictive Practices and Dominant Positions.

(5)  Final stages 5.165  ‘Inter-service consultation’ The final stages of the evaluation process involve the consultation of the Legal Service and other DGs. Importantly, the Commission must also consult the Advisory Committee on Restrictive Practices and Dominant Positions, prior to taking any (p. 357) decision under Articles 7, 8, 9, 10, 23, 24(2), and 29(1) of Regulation 1/2003.139 The Advisory Committee, which is composed of Member States’ representatives (ie, representatives of NCAs), shall deliver a written opinion on the Commission’s preliminary draft decision.140 The Commission is not bound by this opinion. However, it shall take ‘the utmost account’ of it and inform the Advisory Committee of the manner in which it did so.141 The opinions of the Advisory Committee are occasionally published.142

D.  The Decision 5.166  Introduction The following section describes the main types of decision the Commission can take once it has completed its assessment. This section does neither cover decisions adopted pursuant to Articles 18 and 20 (dealing with investigations), nor decisions imposing fines for procedural infringements or inapplicability decisions (which, until now, have never been adopted by the Commission).143

(p. 358) (1)  Decisions finding and terminating an infringement 5.167  Principle The Commission can adopt decisions finding and terminating infringements pursuant to Article 7 of Regulation 1/2003. Those decisions must be reasoned in facts and law, to comply with Article 296 TFEU. In addition, they must concern objections on which the parties have had the opportunity to be heard. 5.168  Practice In general, a decision finding and terminating an infringement contains a title, a preamble that summarizes the case, a section that sets out the underlying facts, a legal assessment of the facts, and an operative part that succinctly describes the infringement, its duration, the identity of the firms guilty of unlawful conduct, and possibly the sanction and/or remedies. In recent years, the length of those decisions has increased quite significantly. 5.169  Finding of infringement In certain specific cases, the operative part of the Commission’s decision will simply enshrine a finding of infringement. This will, for instance, be the case, if the infringement has already ceased (the firm under investigation may have modified its conduct during the investigation). In such cases, the adoption of a decision that concerns past unlawful conduct remains useful to deter firms from committing further infringements, help victims to obtain damages before national courts, and contribute to the interpretation of the competition rules. 5.170  Injunctions The operative part of a Commission’s decision may also enshrine injunctions that purport to eliminate an existing infringement. In its decisional practice, the Commission has devised three types of injunctions. First, the Commission has issued ‘cease and desist’ orders mandating firms to bring infringements to an end.144 For instance, the

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Commission may order a dominant company to cease including long-term, single-branding commitments in its contracts with customers. 5.171  Second, the Commission may order ‘any behavioural or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end’. Those measures will often be necessary when a cease and desist order is not sufficient to terminate an infringement. For instance, a decision may order a dominant firm to give rivals access to its essential infrastructure or to license its proprietary technology at fair, reasonable, and non-discriminatory terms. 5.172  Interestingly, such remedies can be of a structural nature (eg divestments), in that they alter property rights. Structural remedies can, however, only be ordered ‘where there is no equally effective behavioural remedy or where any equally effective behavioural remedy would be more burdensome for the undertaking concerned.’ Until now, the Commission has not (p. 359) ordered structural remedies in the context of Articles 101 and/ or 102 cases. Nevertheless, the power to impose structural remedies under Article 7(1) has probably helped the Commission to obtain such remedies as part of Article 9 commitment decisions.145 5.173  Third, the Commission occasionally requests firms to disclose publicly certain categories of information. For instance, in JCB, the Commission requested parties to inform their distributors that they could undertake passive sales.146 Similarly, in Hasselbald, the Commission asked the parties to inform the public of the measures adopted to eradicate the infringement.147 5.174  Penalties The Commission’s infringement decisions may also inflict fines. Their purpose is not only to punish past infringements, but also to deter future infringements.148 Article 23(2) of Regulation 1/2003 entitles the Commission to impose fines on infringing firms when ‘either intentionally or negligently: (a) they infringe Article 81 or Article 82 of the Treaty’.149 For each undertaking and association of undertakings participating in the infringement, the fine shall not exceed 10 per cent of its total turnover in the preceding business year. Pursuant to Article 23(3) of Regulation 1/2003, in fixing ‘the amount of the fine, regard shall be had both to the gravity and to the duration of the infringement’.150 A set of Guidelines has clarified the methodology followed by the Commission to calculate the amount of the fines.151 5.175  Practice In the past decade, the amount of fines imposed by the Commission has risen to unprecedented levels, in both cartel and abuse of dominance cases. Ten-digit fines are now a reality in EU competition law. In the Flat glass cartel,152 for instance, the Commission inflicted a total fine of €1,38 billion. 5.176  Hungry for more? The Commission only rarely reaches the 10 per cent turnover ceiling—it has been reported that the average fine represents just 1 per cent of total turnover. In addition, some scholars have argued that the optimal deterrent fine is many times higher than the current level.153 On the other hand, despite the increase in fines in recent years, there is no evidence of improved implementation of EU competition rules. This raises the question of whether higher fines are the way to go.

(p. 360) (2)  Decisions making commitments binding 5.177  Preliminary remarks In certain circumstances, the Commission and the suspected firms may be favourable to a ‘settlement’. The former will close proceedings in exchange for a modification of the latter’s behaviour. This practice, which has long existed in the case law, has been officially recognized in Article 9 of Regulation 1/2003. Under this provision:

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Where the Commission intends to adopt a decision requiring that an infringement be brought to an end and the undertakings concerned offer commitments to meet the concerns expressed to them by the Commission in its preliminary assessment, the Commission may by decision make those commitments binding on the undertakings. Such a decision may be adopted for a specified period and shall conclude that there are no longer grounds for action by the Commission.154 5.178  Conditions Recital 13 of the Preamble to Regulation 1/3003 and a Commission memorandum of 2004 provide information on the legal framework applicable to commitment decisions.155 First, settlement negotiations start at the initiative of firms subject to administrative proceedings, which must offer commitments to the Commission. In practice, however, it is not rare for the Commission to start settlement discussions on its own motion. 5.179  Second, the commitments must ‘remove the Commission’s initial competition concerns as expressed in a preliminary assessment’.156 This implies that the parties are cognizant with the Commission’s concerns. Commitment discussions can, however, occur prior to the issuance of a SO. The parties and the Commission regularly engage in such discussions in the early stages of the proceedings. 5.180  Third, commitment discussions are not appropriate ‘in cases where the Commission intends to impose a fine’, such as cartel cases.157 The rationale behind this is that commitments have only corrective effects for the future and do not make good past injuries. They fail to punish past anticompetitive conduct (in contrast, a fine can do this). Moreover, because they do not lead to a decision finding an infringement, they are unlikely to be of much help to customers seeking compensation for past competitive harm before the courts (through requests for profit-disgorgement orders, actions for damages, etc). Finally, ‘efficiency reasons justify that the Commission limits itself to making the commitments binding, and does not issue a formal prohibition decision.’158 This statement is, however, unclear. It suggests that (p. 361) commitments should only be ordered when the Commission believes it can reach a similar outcome to that under a conventional procedure, though with significant procedural savings. 5.181  Legal value If the above conditions are met, the Commission can render commitments ‘binding’. It will adopt a decision concluding that there are no longer grounds for action. Those decisions often contain limited reasoning. They simply explain the reasons why the proposed commitments assuage the Commission’s concerns. Under Article 27(4) of Regulation 1/2003 the Commission is only requested to publish ‘a concise summary of the case and the main content of the commitments or of the proposed course of action’.159 5.182  The commitments may only bind the parties for a limited period of time. For instance, a dominant firm that has committed to supply an essential input to its rivals may only be placed under such an obligation for a limited number of years (depending on how many years are necessary to revive competition in the relevant market).160 5.183  The adoption of a commitment decision does not deprive the Commission of the ability to re-open proceedings. Pursuant to Article 9(2) of Regulation 1/2003, the Commission may do so: (a)  where there has been a material change in any of the facts on which the decision was based; (b)  where the undertakings concerned act contrary to their commitments; or (c)  where the decision was based on incomplete, incorrect or misleading information provided by the parties.

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5.184  Relation with NCAs It may be tempting to jump to the conclusion that absent a Commission decision finding an infringement, NCAs are free to open infringement proceedings under EU competition law. Recital 22 of the Preamble to Regulation 1/2003 corroborates this intuition, in stating that ‘Commitment decisions adopted by the Commission do not affect the power of the courts and the competition authorities of the Member States to apply Articles 101 and 102 TFEU.’161 5.185  However, in all cases where the Commission has opened formal proceedings, NCAs are in principle relieved of their jurisdiction pursuant to Article 11(6) of Regulation 1/2003. Moreover, Article 16(2) of Regulation 1/2003 states that When competition authorities of the Member States rule on agreements, decisions or practices under Article 101 or Article 102 TFEU which are already the subject of a Commission (p. 362) decision, they cannot take decisions which would run counter to the decision adopted by the Commission.162 Finally, recital 22 is not entirely compatible with the ne bis in idem principle which the EU Courts consider ‘a fundamental principle of Community law applicable to competition law’.163 5.186  Practice In recent years, Article 9 decisions have become very popular, in particular in abuse of dominance cases. In 2010, for instance, the Commission took no infringement decisions under Article 102 TFEU, but settled all pending cases with Article 9 decisions.164 Given the lax standards that the Commission must meet to prove unlawful abuse, firms are understandably prone to offer generous commitments in exchange for an early termination of administrative proceedings. And the Commission, which faces resource constraints and occasionally pursues a hidden regulatory agenda, usually takes a favourable approach to dominant firms’ proposals to settle cases. 5.187  The Commission’s eagerness to settle cases with commitments is likely to be further amplified by recent evolutions in the case law. In its Alrosa ruling, the Court of Justice considered that given their voluntary nature, commitments under Article 9 of Regulation 1/2003 can go beyond the concessions that the Commission can impose under Article 7 of Regulation 1/2003.165

(3)  Decisions withdrawing the benefit of a block exemption Regulation 5.188  Principle Pursuant to Article 29(1) of Regulation 1/2003, the Commission may withdraw, acting on its own initiative or on complaint, the benefit of a block exemption Regulation, where it finds that an agreement, decision of association of undertakings, or concerted practice has certain effects incompatible with Article 101(3) TFEU.166 (p. 363) 5.189  Procedure In this case, the Commission must open formal proceedings, and individually assess the agreement.167 This may lead to the adoption of a SO. 5.190  Extension NCAs can also withdraw the benefit of a block exemption Regulation pursuant to Article 29(2) of Regulation 1/2003, when faced with practices ‘which have effects which are incompatible with Article 101(3) TFEU in the territory of a Member State, or in a part thereof, which has all the characteristics of a distinct geographic market.’ Pursuant to Article 11(4) of Regulation 1/2003, NCAs must inform the Commission prior to taking any such decision. National courts do not enjoy a similar prerogative.

(4)  Decisions ordering interim measures 5.191  History Since the Camera Care case in 1980, the Commission has the ability to order interim measures in the course of its enforcement activities (eg at any stage of the

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investigation, evaluation).168 In practice, the Commission has often ordered such measures at the request of undertakings. 5.192  Regulation 1/2003 Article 8 of Regulation 1/2003 has codified this prerogative. However, this provision slightly differs from the existing case law. It retains ‘ ex officio’ intervention as the sole instance in which the Commission can order interim measures.169 Whilst, in practice, there is little doubt that complainants will continue to request interim relief from the Commission, the formulation of Article 8 denies them an opposable ‘right’ to interim relief. As a result, decisions refusing interim relief cannot be subject to judicial review. 5.193–5.196  Conditions The Commission will only order interim measures in ‘cases of urgency due to the risk of serious and irreparable damage to competition’, and where there is ‘a prima facie finding of infringement’.170–172

(5)  Settlement decisions 5.197  Rewards The Notice clarifies the rewards that firms willing to settle can obtain. The Commission indicates that it ‘will reduce by 10% the amount of the fine to be imposed after the 10% cap has been applied having regard to the Guidelines on fines.’173 Moreover, the Commission commits that it will not increase fines for deterrence purpose by more than 2 per cent.174 5.198  Track record Since the entry into force of the Settlement Notice in 2008, four cartel cases have been settled.175 One of those cases is a ‘hybrid’ settlement, with only some of the (p. 364) cartelists acknowledging their guilt. In such cases, the procedural efficiencies are more limited than in ‘full’ settlement cases. 5.199  It is subject to question whether the 10 per cent reward is sufficiently attractive to incentivize companies to settle. For instance, in the Animal Feed Phosphates cartel, one firm eventually decided to opt out of the settlement negotiations. 5.200  Moreover, in several cases, the Commission had to offer additional advantages (eg ‘mitigating circumstances’ or larger fine reductions under the leniency programme) to induce firms to settle.

E.  Final Remarks 5.201  Publicity Article 30 of Regulation 1/2003 states that the ‘Commission shall publish the decisions, which it takes pursuant to Articles 7 to 10, 23 and 24’, that is decisions: (i) finding and terminating infringements (including those imposing remedies); (ii) ordering interim measures; (iii) rendering commitments binding; (iv) finding Articles 101 and 102 TFEU to be inapplicable; and (v) inflicting fines and periodic penalty payments for substantive infringements. 5.202  Some important decisions, such as those withdrawing the benefit of a block exemption Regulation or procedural decisions (those related to RFI, interviews, and inspections under Arts 18–21) are not subject to a publicity requirement. The Commission is free to decide whether it should publish them. In practice, it often takes a long time for the Commission to publish its decisions. 5.203  Languages Commission decisions are in principle published in the L series of the Official Journal, in each of the 23 languages of the EU. In practice, however, only summary decisions are published in the 23 languages of the EU (in the C series of the Official Journal).

IV.  The Judicial Framework

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5.204  Introduction Article 263 TFEU entitles natural and legal persons to start annulment proceedings against a variety of acts adopted by the Commission in the field of competition law. Pursuant to Article 263 TFEU, any natural or legal person is able to ‘institute proceedings against an act addressed to that person or which is of direct and individual concern to them, and against a regulatory act which is of direct concern to them and does not entail implementing measures.’176(p. 365) View full-sized figure

Figure 5.1  The settlement p rocedure 5.205  Roadmap Against this background, the goals of this section are to identify those acts that can be subject to annulment proceedings (Section A); review who is entitled to initiate such proceedings (Section B); recall the modalities applicable to annulment proceedings (Section C); evoke parallel (revision of fines) and subsequent actions (for indemnity) that may arise in the context of annulment proceedings (Section D); and cast some light on the scope and intensity of the EU Courts’ judicial review in annulment proceedings (Section E). (p. 366) 5.206  Exclusions The present section does not deal with infringement proceedings pursuant to Articles 258 and 259 TFEU, failure to act proceedings under Article 265 TFEU,177 suspension/interim reliefs requests pursuant to Articles 278 and 279 TFEU,178 and preliminary references under Article 267 TFEU.179 Albeit frequent, those judicial remedies have much less practical importance in competition law than annulment proceedings (and parallel actions for fines revision/damages). 5.207  The Court of Justice of the EU The GC and the Court of Justice together form the Court of Justice of the EU. The GC is the lead jurisdiction in competition cases. It hears direct actions launched by natural and legal persons as well as the Member States against Commission decisions. Those actions are primarily annulment proceedings under Article 263 TFEU, fine revision requests under Article 261 TFEU,180 and indemnity actions under 268 TFEU. 5.208  The Court of Justice only intervenes as a jurisdiction of last resort. Pursuant to Article 256(1) TFEU, ‘Decisions given by the General Court [are] subject to a right of appeal to the Court of Justice on points of law only’. In practice, the Court of Justice rarely intervenes in competition matters, given the strong factual content of most Commission

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decisions. That said, in recent years, several new issues of principle that arose from the ambiguous wording of Regulation 1/2003 were dealt with by the Court of Justice. 5.209  Composition In most competition cases, the GC sits in chambers of three or five judges. The composition of chambers (and the allocation of cases to them) does not follow a logic of specialization. Unlike the Court of Justice, the GC it is not assisted by Advocates General.

A.  Acts Subject to Annulment Proceedings (1)  The theory 5.210  Three conditions must be satisfied in order for an act to be the subject of an annulment action. 5.211  An act of the EU First, the act must originate from an EU institution.181 Under this condition, acts adopted by the Commission fall within the scope of Article 263 TFEU, whilst decisions and judgments of NCAs and courts do not. Moreover, this condition insulates (p. 367) from the scope of Article 263 TFEU those acts that are adopted by either the Advisory Committee or by the ECN. 5.212  Acts with legal effects Second, only those acts producing legal effects on a person’s situa-tion and affecting that person in an adverse manner can be challenged on the basis of Article 263 TFEU.182 In the ERTA judgment, the Court held that annulment proceedings are opened against ‘all acts adopted by the institutions, whatever their nature or form, which are intended to have legal effects.’183 Interestingly, the ERTA ruling extends the scope of Article 263 TFEU to all those acts which, albeit not in the form of a decision, in substance produce binding legal effects. In EU competition law, this judgment has important implications.184 During the administrative procedure, the Commission undertakes numerous investigative and organizational acts which are not formal decisions, but which nonetheless directly affect the legal position of the undertaking(s) concerned. As a result, many acts adopted in competition proceedings have been re-qualified as decisions.185 In the Cement judgment, for instance, some of the undertakings challenged a letter through which the Commission withdrew the benefit of immunity from fines.186 The Court held that the appeal was admissible since the letter was: ‘a measure which produces legal effects touching the interests of the undertaking concerned and which is binding on them. It thus constitute[d] not a mere opinion but a decision. 5.213  The GC even recognized that in the context of merger control, a statement by the spokesman for the Commissioner responsible for competition matters could be subject to an action for annulment. In this case, the statement announced that a proposed concentration between two undertakings fell outside the ambit of the relevant Regulation, since it did not have an EU dimension within the meaning of the Merger Regulation. 5.214  In other cases, the Court did not explicitly re-qualify the act as a decision but merely assessed whether it produced (or aimed at producing) binding legal effects.187 In line with this approach, the rejection of a complaint,188 a letter detailing the reasons for which the (p. 368) Commission will not follow up on a complaint,189 the grant or refusal to grant third party access to the file,190 and the refusal to hear interested third parties,191 were considered challengeable acts within the meaning of Article 263 TFEU. In France v Commission, the Court even held that a Commission Notice which surreptitiously introduced new legal obligations could be subject to annulment proceedings.192

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5.215  Definitive acts Third, to be challengeable, the act must be definitive. In other words, a preparatory act which only constitutes one of the steps towards a final decision cannot be challenged.193 This principle was established in the well-known judgment IBM v Commission .194 The Court held: it is clear from the case-law that in principle an act is open to review only if it is a measure definitively laying down the position of the Commission or the Council on the conclusion of that procedure, and not a provisional measure intended to pave the way for the final decision.195 5.216  On the basis of this principle, the Court has judged that a SO or a letter opening the formal procedure were not open to challenge.196 In the same vein, in Guérin, the letters through which the Commission responded to complaints and invited the plaintiff s to make comments were deemed preparatory and as such excluded from the scope of Article 263 TFEU.197 5.217  The Court did, however, recognize in IBM one exception to this principle: if acts or decisions adopted in the course of the preparatory proceedings not only bore all the legal characteristics referred to above [that is to say producing legal obligations affecting the (p. 369) interests of the appellant] but in addition were themselves the culmination of a special procedure distinct from that intended to permit the Commission or the Council to take a decision on the substance of the case.198 5.218  This exception covers those situations in which the acts fall within a phase which can be sepa-rated from the course of proceedings that lead to the adoption of the definitive act.199 EU competition law provides numerous illustrations of this exception, because the procedures applicable to Articles 101 and 102 TFEU and mergers often involve several successive and distinct phases (eg the detection, the investigation, the evaluation). In practice, this case law has led the Court to consider that requests for information or inspection decisions could be challenged within the meaning of Article 263 TFEU.200

(2)  The practice 5.219  Illustrations Amongst the acts that can typically be challenged under Article 263 TFEU, one finds infringement decisions under Article 7 of Regulation 1/2003, decisions making commitments binding under Article 9 of Regulation 1/2003, exemption decisions, decisions withdrawing the benefit of a block exemption under Article 29 of Regulation 1/2003, decisions rejecting complaints under Article 7 of Regulation 773/2004, decisions ordering requests for information under Article 18 of Regulation 1/2003,201 decisions ordering inspections under Article 20,202 etc. 5.220  In contrast, the Courts consider that the following acts cannot be challenged: decisions opening formal proceedings, statement of objections, Commission refusals to grant access to certain documents in its file, letters requesting information, internal Commission guidelines, purely political statements, legal actions introduced by the Commission,203 etc. Overall, firms seem reluctant to waive their essential procedural guarantees in exchange for a discrete penalty discount. This is all the more true since settling a case increases risks of exposure to costly follow-on actions for damages before national courts.

B.  Persons that can Start Annulment Proceedings

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5.221  Introduction Article 263 TFEU distinguishes two types of potential annulment applicants. First, ‘privileged’ applicants, that is the institutions of the EU and its Member States, can initiate annulment proceedings against any act (both normative and individual) without having to prove a ‘specific quality to act’.204 Second, ‘individual’ applicants, that is, (p. 370) legal or natural persons can bring annulment proceedings against acts addressed to them.205 Such applicants cannot bring annulment proceedings against an act not addressed to them (ie, a decision addressed to a third party or a Regulation) unless they prove that this act is ‘of direct and individual concern to them’ or unless this act is ‘a regulatory act which is of direct concern to them and does not entail implementing measures’. In EU competition law, ‘regulatory acts’ are rare. Hence, the main source of litigation brought by natural and legal persons involves annulment applications against individual decisions. Applicants may be the addressees of a decision, or third parties (eg a plaintiff seeking to challenge an exemption decision under Article 101(3) TFEU). In the later case, proof of direct and individual concern must be brought.206 This condition has been restrictively interpreted by the EU Courts. Competition litigation is, however, frequently cited as an example of a field where this rigorous approach has been progressively relaxed.207 Under certain conditions, individual applicants can challenge decisions that are not directly addressed to them (Section 1). Besides this, it remains however disputed whether individual applicants can challenge acts of a general nature under Article 263 TFEU (Section 2).

(1)  Decisions addressed to other individuals 5.222  Conditions Market players may seek to challenge decisions that are not addressed directly to them. For instance, an operator may have incentives to challenge an exemption decision addressed to a rival, or a merger clearance decision involving competitors. Any individual applicant wishing to bring an annulment action against a decision that is not addressed to her must prove that she is both directly and individually concerned by it. The first of these conditions (direct concern) requires proof that the act produces immediate effects on the legal situation of the individual without the need for subsequent intervention by national or European authorities.208 As competition rules are implemented via the adoption of decisions addressed directly to undertakings, it is often acknowledged that third parties are directly concerned. 5.223  The second condition (individual concern) requires applicants to prove that the decision affects them by reason of certain attributes which are peculiar to them or ‘by reason of circumstances in which they are differentiated from all other persons, and by virtue of these factors distinguishes them individually just as in the case of the person addressed.’209 This requirement is assessed with flexibility in the competition law field. The active participation of third parties in the administrative procedure generally creates a presumption that those parties are directly and individually concerned by the adopted decision. However, in certain cases, the Court did not require that the applicant should have actively participated in (p. 371) the procedure.210 It considered that in order to be regarded as individually concerned, it suffices that the texts governing the administrative procedure foresee the possibility of the applicant intervening as a complainant,211 or simply to be heard in order to make comments.212 As far as the regulations governing the enforcement procedure in relation to agreements and abuse of a dominant position,213 or in relation to merger control,214 open up the ability to intervene in a procedure to persons showing ‘sufficient interest’ (a very broad concept), there (p. 372) is a large number of potential applicants,215 including suppliers, consumer associations,216 actual or potential competitors,217 and even non-competitors operating on neighbouring markets.218

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5.224  Abuses? The broadening, in the case law, of the scope of the ‘quality to act’ in competition law cases is to be welcomed as it guarantees effective legal protection to natural and legal persons.219 Nevertheless, this approach could equally lead to access to the Court being given to applicants whose ‘interest to act’ is diametrically opposed to the objective of protecting competition. The condition of having an ‘interest to act’ (intérêt à agir), which exists in numerous national legal systems, is not a necessary requirement under Article 263 TFEU.220 This gap has never been filled by the Court, which only examines sporadically whether the applicant truly has an interest to act. It often assumes that this interest exists once direct and individual concern has been proved.221 This confusion of concepts has led to criticizable outcomes in two categories of case. 5.225  Trade unions First, trade unions often oppose mergers as they can have a detrimental impact on the employees they represent. Trade unions have therefore attempted to use annulment actions envisaged in Article 263 TFEU to challenge merger clearance decisions. As the interest of these applicants is foreign to the objectives pursued by competition rules, it follows that the principles governing the admissibility of annulment actions should lead to the rejection of this type of action.222 In CE Société Générale des grandes sources Perrier,223 a case where several trade unions had brought an annulment action against a Commission decision (p. 373) authorizing, with conditions, the takeover of Perrier by Nestlé,224 the GC declared such action inadmissible. It, however, relied on the conditions found in Article 263 TFEU rather than declaring the appeal inadmissible on the basis that there was a lack of interest to act. The GC acknowledged that the Commission decision ‘individually’ concerned these trade unions. It refused to admit, however, that the Commission decision concerned them ‘directly’. The GC held that the alleged fall in employment was not a result of the Commission decision but of subsequent ‘autonomous and hypothetical’ interventions of the undertakings concerned. 5.226  Shareholders Second, shareholders of an undertaking sometimes seek to impede the car-rying out of a planned merger as it could reduce the scope of their powers. In the Zunis Holding case, three minority shareholders of Generali sought to annul a Commission letter confirming that the operation, by which Mediobanca increased its interest in Generali, did not constitute a concentration.225 In the particular case, the minority shareholders sought to prevent another shareholder from increasing its participation in the capital. Their annulment action was brought for reasons having nothing to do with any potential harm to competition and—for reasons analogous to those developed above—their appeal was declared inadmissible. The GC held that ‘the mere fact that an act may affect the relations between the different shareholders of a company does not of itself mean that any individual shareholder can be regarded as directly and individually concerned by that measure.’226 5.227  Outcome These decisions achieve the right result. It would, however, have been simpler and more analytically rigorous to refuse the applicants’ access to the Court on the basis that they did not have an ‘interest to act’. It is thus suggested that both the GC and the Court of Justice would gain from systematically examining the condition of having an interest to act on the basis of the competition rules, rather than entering into complex discussions over whether the conditions of ‘direct’ and ‘individual’ concern are met. This suggested approach would be analogous to the requirement traditionally imposed by US federal courts that applicants wishing to challenge an antitrust law decision prove the existence of an ‘antitrust injury’.227 5.228  The simple fact that an individual has an interest to act does not necessarily mean his action is desirable from a public policy standpoint. As denounced by some US scholars, competitors (whose interest to act is often presumed) may be tempted to use antitrust law to reduce competition in the market.228 Firms could indeed seek to invoke antitrust law violations to (p. 374) neutralize the efficiency gains resulting from a merger between competitors or to protect themselves from competitors’ aggressive pricing behaviour.229 From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

This issue has a special significance in US law, insofar as private actions are the most important tool in the implementation of the antitrust rules. 5.229  In the EU, the question of annulment actions brought by competitors equally presents an interest insofar as too great a broadening of the scope of the conditions of admissibility to bring annulment actions would also allow undertakings to harm competitors by challenging Commission decisions for anticompetitive reasons. The current case law seems to have dealt with this difficulty by relying on the conditions of direct and individual concern to block this form of unwanted litigation. It has also laid down the principle that the simple fact of being in a competitive relationship with the addressee of the act is not enough to give a person the capacity to act.230 5.230  It does not, however, seem to be opportune to restrict competitors’ access to the courts for the above-mentioned reasons. Indeed, unlike appeals brought by trade unions or minority shareholders whose objectives are unrelated to the protection of competition, the question of whether a competitor’s appeal is abusive involves an assessment, when deciding on admissibility, of questions of substance in order to determine if, for example, an aggressive pricing policy is the result of greater economic efficiency, or the result of an anticompetitive strategy of predation. This would in fact lead to confusing the question of whether the claim is well founded with the question of whether it is admissible. In accordance with EU case law, it is preferable to maintain broad access for competitors to bring annulment actions.

(2)  Acts of a general nature 5.231  Historical background Article 263 TFEU’s ‘individual concern’ condition has traditionally denied individual applicants the ability to bring an annulment action against acts of a general nature unless the act in question disguises a decision.231 The restrictive nature of this principle was based on the idea that it is not appropriate that the application of a normative act be hindered by appeals on the part of individuals.232 Moreover, the Court considered such a limitation reasonable insofar as individuals could challenge the illegality of a Regulation by pleading its illegality incidentally on the basis of Article 277 TFEU, or through the preliminary reference procedure on the basis of Article 267 TFEU.233 That said, numerous observers have expressed concerns that the restriction of individual applicants’ capacity to act against acts of a general nature could deny them effective legal protection.234 This was (p. 375) particularly true in the field of EU competition law, where the Commission has shown an insatiable appetite to regulate matters through soft law instruments. As explained previously, these acts do not always limit themselves to codifying the Commission’s decisional practice but sometimes lay down new legal principles.235 5.232  Problems In France v Commission, the Court acknowledged that notices were challengeable when they sought to produce legal effects by adding to the law.236 However, an appeal against these acts was only open to privileged applicants. Potential immunity from litigation for Notices seemed shocking given that the Treaty has never granted the Commission the competence to define new and general legal norms through Notices. In addition, as some commentators observed, there was a paradox in acknowledging, on the one hand, that interested parties, more often than not undertakings and consumers, were affected by texts that are in the legislative pipeline and should therefore be consulted at the time of their elaboration and, on the other hand, objecting to the fact that these same parties were ‘individually concerned’ by these texts once they sought to challenge them before the European Courts.237 5.233  Lisbon The Lisbon Treaty modified the wording of Article 263 TFEU. Pursuant to this provision, any natural or legal person can institute proceedings ‘against a regulatory act which is of direct concern to them and does not entail implementing measures’. Absent any concrete example, it remains unclear whether this modification brings significant

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change. However, one cannot exclude that economic operators will attempt to challenge the legality of Notices and Guidelines adopted by the Commission before the GC.

C.  Modalities of Annulment Proceedings (1)  Formal conditions 5.234  Annulment proceedings must be brought within the two months following: (i) the publication of an act; (ii) its notification to the applicant; or (iii) the day the applicant became aware of it.238 They may be brought in any official language of the EU. The applicant must be represented by a lawyer licensed to practise within the jurisdiction of a Member State or within an EEA State.239 Any person with an interest in the result of a case submitted to the EU Courts (p. 376) may ask to intervene in the annulment proceedings.240 This possibility is frequently used in competition appeals by competitors of the addressee of a decision,241 trade associations,242 clients and users’ associations,243 consumers,244 workers’ representatives,245 etc. 5.235  In accordance with Article 278 TFEU, bringing annulment proceedings has no suspensory effects. However, the TFEU allows EU Courts to order a stay of execution or interim measures. The stay of execution does not necessarily cover the whole of the challenged act but may be limited to certain aspects, such as commitments entered into by the parties to a concentration.246

(2)  Substantive conditions 5.236  Preliminary remarks Annulment applications must mention all the points of law and fact that the applicant intends to invoke.247 Failure to articulate all possible annulment arguments may have negative consequences. This is because the initial annulment application casts arguments in stone for subsequent proceedings. In other words, it is no longer possible to raise new arguments while legal proceedings are pending, unless new points of fact and law appear during the written procedure.248 5.237  Article 263(2) TFEU prescribes four ‘grounds’ of review. Those are the types of illegality the finding of which by the EU Courts can lead to the annulment of the challenged measure: ‘lack of competence’, ‘infringement of an essential procedural requirement’, ‘infringement of th[e] Treaty or of any rule of law relating to its application’, or ‘misuse of powers’.249 5.238  Categorization issues This classification, which originates in French administrative law, is not entirely waterproof and is thus often criticized.250 For example, the insufficient reasoning of a Commission decision constitutes both an infringement of an essential procedural requirement and an infringement of the Treaty insofar as Article 296 TFEU requires the Commission to reason its decisions. The classification found in the Treaty remains useful, however, since besides its illustrative purpose, the different grounds of annulment in an annulment action engender different legal effects. There is a classic distinction between those grounds for annulment which relate to ‘external legality’ and which the EU Courts can raise (p. 377) on their own motion (Section (a)) and those grounds of review which relate to ‘internal legality’, which the EU Courts cannot raise on their own motion (Section (b)).

(a)  Grounds of external legality 5.239  Lack of competence is the first ground of external legality. This is the defect of an act that was adopted by an institution that did not have the legal power to do so.251 The EU Courts can raise this ground of annulment on their own motion, even if the parties have not done so in their appeal. In competition law, this ground of review has only been raised in two types of circumstance. First, applicants have invoked a lack of competence ratione personae by the authority from which the act emanated. In AKZO, the undertakings challenged the possibility for the Competition Commissioner to take decisions ordering investigations in accordance with an authorization granted to him by the College of From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

Commissioners.252 Second, applicants have invoked the Commission’s lack of competence ratione loci. In Gencor, the parties challenged the Commission’s power to rule on mergers between undertakings essentially active outside the EU.253 5.240  Infringement of an essential procedural requirement is the second ground of external legality. It is frequently invoked in EU competition law. It involves a defect resulting from a misapplication of the rules which govern both the procedure as well as the form for each act. In the same way as the lack of competence, the EU Courts can raise this ground on their own initiative. The EU Courts are competent to determine if a procedural requirement is essential. Failure to comply with a duty to consult (eg the Advisory Committee) is generally considered an infringement of an essential procedural requirement.254 Similarly, an infringement of the rights of the defence and, especially, the duty, as envisaged in Article 27 of Regulation 1/2003, to allow the parties concerned (by a decision) to make observations, also constitutes an infringement of an essential procedural requirement.255 In general, the EU Courts have sought to avoid drawing too radical consequences from the infringement of an essential procedural requirement.256 Annulment ensues only if, in the absence of irregularity, the administrative procedure would have reached a different result.257

(p. 378) (b)  Grounds of internal legality 5.241  The first ground of internal legality consists in an infringement of ‘th[e] Treaty or of any rule of law relating to its application’. In EU competition law, this defect relates to the infringement by the Commission of the Treaty competition rules, secondary legislation, or general principles of EU law (proportionality, etc).258 In practice, this ground for annulment is invoked when the Commission commits errors of law or when it erroneously assesses the facts to which it applies the law. Examples abound in the case law.258a 5.242  Misuse of powers is the second ground of internal legality. It involves a defect by which the public authority exercises a power to achieve an end that is foreign to what the power attributed to it aims at.259 Insofar as the Commission enjoys extensive powers to implement competition policy and as this defect is, in practice, often closely related to a problem of competence, the misuse of powers ground has never been successfully invoked.260

D.  Parallel and Subsequent Actions to Annulment Proceedings 5.243  Introductory remarks In EU competition litigation, the annulment of the act is no longer the only goal sought by applicants. Litigants are increasingly seeking to obtain, in parallel, a revision of the sanction imposed on them under the EU Courts’ ‘full jurisdiction’ (Section 1). Moreover, applicants have increasingly attempted to hold the EU institutions, and in particular, the Commission, responsible for illegalities, and to obtain compensatory damages from the Courts (Section 2).

(1)  Actions seeking to obtain a revision of the fine 5.244  Increased fines, increased litigation The last decade has witnessed a marked strengthening Commission in the Commission’s fining policy.261 The Commission continues to impose record fines for substantive infringements, with the Intel or Car glass decisions standing as glaring illustrations of this evolution.262 The same is true in relation to procedural infringements, (p. 379) as exemplified by the E. ON case, or as regards periodic penalty payments, as shown in the Microsoft case.263 As a response to the Commission’s strict sanctioning policy, litigants are increasingly bringing, in parallel with an annulment action, appeals seeking to have fines reduced. Article 262 TFEU and Article 31 of Regulation 1/2003 state that the Court has full jurisdiction over fines and periodic penalty

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payments, and that it may ‘cancel, reduce or increase the fine or periodic penalty payment imposed’.264 5.245  Practice Until now, the GC has exercised its power with restraint. The Court essentially confines its assessment to whether the factors linked to duration and gravity, leniency and methodology have been correctly applied.265 The implementation of these principles has, however, allowed the GC substantially to reduce the fines imposed by the Commission on some occasions. On the other hand, the GC has only once revised a fine upwards.266

(2)  Actions seeking compensation from the EU institutions 5.246  Introduction In EU competition law, legal and natural persons can theoretically claim damages when an unlawful decision of the Commission has a detrimental impact on them. This type of proceedings has been increasingly popular in recent years. With the adoption of several judgments striking down Commission decisions in merger proceedings (eg in Airtours and Schneider/Legrand), practitioners have explored new legal avenues to hold the Commission accountable for its actions. One possible means of redress is to resort to Articles 268 and 340 TFEU which provide that the EU shall ‘make good any damage caused by its institutions’.267 5.247  Conditions For the non-contractual liability of the Commission to arise, and thereby trigger a right to compensation to the benefit of the applicants, three conditions must be met.268 First, the Commission must have committed a ‘sufficiently serious breach of a rule of law intended to confer rights on individuals’. Whether a breach of EU law is ‘sufficiently serious’ depends on the margin of discretion enjoyed by the Commission when adopting its decision, the factual complexity of the situations at hand, and the difficulties in applying and/or interpreting the relevant legal provisions.269 The higher the margin of discretion, complexity, (p. 380) and legal difficulty, the most egregious the violation of EU law must be in order for the Commission to be held liable under Articles 268 and 340 TFEU. In the field of merger control law, for instance, breaches of certain procedural requirements or basic principles of due process, may be ‘serious breaches’ of EU law. However, errors in the Commission’s substantive assessment are unlikely to trigger a right to compensation. 5.248  Second, the applicant must have suffered a certain, specific, proven, and quantifiable harm which—in line with classic tort law principles—may consist either of a damnum emergens (eg a loss of cost savings or of the costs of a merger and acquisition bid) or a lucrum cessans (eg a loss of future profits). 5.249  Third, the applicant must establish the existence of a direct and immediate causal link between the damage and the Commission’s unlawful action. The parties will have to substantiate the existence of a causal link between their alleged loss and the Commission’s decision. To take one example, the applicant may argue that absent the unlawful decision to block its proposed merger, it could have appropriated the profits currently achieved by the other party to the merger. 5.250  Practice For a long time, competition law scholars and practitioners showed little interest in the question of bringing into play the non-contractual liability of the Commission. The stringent conditions for establishing Commission liability and right to damages set out in the case law represents a high hurdle to overcome. In Holcim,270 the GC dismissed a series of actions brought under Article 268 TFEU against Commission decisions applying Article 101 TFEU. The judgments in Schneider Electric SA v Commission and Mytravel v Commission confirm this position.271 In the current state of EU competition law, substantive errors cannot be tantamount to serious breaches of EU law. Of course, this leaves the ability of firms to obtain damages for certain procedural errors. However, in the existing case law, procedural errors have at best triggered marginal compensation.272 Overall, the EU Courts seems keen to maintain the Commission’s margin of manoeuvre unchanged. As the Court

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emphasized in HNL, widening the scope of actions for damages could negatively affect the Commission’s ability to defend the general interest of the EU.273

E.  Scope and Intensity of Judicial Review in Annulment Proceedings 5.251  Introduction The TFEU provides for a specific system of judicial review which draws inspiration from the legal tradition of its founding Member States, and which applies to all areas of EU law. In the section that follows, we review in turn the scope (Section 1) and intensity (Section 2) of the EU Courts’ judicial review in competition cases.

(p. 381) (1)  The scope of judicial review—Restricted vs Unlimited jurisdiction 5.252  Legal basis The EU Courts’ jurisdiction to review the decisions of the Commission in the field of EU competition law derives from the TFEU. As seen, Article 263 TFEU provides that the ECJ has jurisdiction over actions brought against Commission decisions ‘on grounds of lack of competence, infringement of an essential procedural requirement, infringement of the Treaties or of any rule of law relating to their application, or misuse of powers.’ 5.253  Main differences The fact that the EU Courts enjoy restricted rather than unlimited jurisdiction over Commission decisions (with the exception of the EU Courts’ unlimited jurisdiction to review fines) has implications on what EU Courts can do. Under a system of restricted jurisdiction, the EU Courts are only entitled to review the legality of decisions and when these decisions are illegal to annul them,274 rather than re-examine the case on the merits.275 In contrast, when the Courts have full jurisdiction—as in a classic appeals procedure—they can substitute their point of view for that of the Commission and adopt a de novo decision. In addition, when the Courts have restricted jurisdiction, their assessment will be confined to the evidence contained in the case file, in contrast to appeals proceedings with full jurisdiction, where fresh evidence can be taken. Table 5.1  Main differences between annulment proceedings (restricted review) and appeal (full jurisdiction)

System of judicial review

Perimeter of judicial review

Powers of the judge

Annulment

Case record (decision + file)

Remand (annulment)

Appeal

Case record (decision + file) + any fresh evidence brought by the parties

Substitution (possible de novo ruling, in part or in full)

5.254  Rationale This system of restricted review in annulment proceedings results from the ‘institutional balance’ put into place by the TFEU.276 While the Commission is entrusted with the enforcement of the competition law provisions contained in the TFEU and EU legislation, as well as the development of the EU competition policy, the EU Courts are (only) given the task of reviewing the legality of the Commission decisions enforcing EU competition law.

(p. 382) (2)  The intensity of judicial review—Standard (full) vs Marginal (restrained) review (a)  The theory 5.255  Introduction The intensity of the Courts’ judicial review has been historically influenced by the standards that prevail under French administrative law. In essence, two standards of review can apply to decisions adopted by administrations (including competition authorities).

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5.256  Marginal review The first and most limited standard of review, the so-called ‘marginal review’ (contrôle restreint) is applied where—by virtue of statutory provisions— the administrative authority enjoys discretionary power (pouvoir discrétionnaire), that is, when it is free to choose between different measures to address a certain factual situation. In this case, the review court simply assesses whether the decision is vitiated by a ‘manifest error of appraisal’, defined as ‘a blatant error, which a reasonable man would not have made’.277 For instance, when a civil servant acts unlawfully, the administration may either initiate a disciplinary procedure or consider that such action is not necessary, for example because the civil servant has an outstanding record. In this case, the review court must not go beyond a mere marginal review of the decision. In the field of competition law, this standard should be applied in the area of merger control in cases where, for example, the Commission would examine a merger leading to a tight oligopoly (in other words, a situation of collective dominance) and where it could choose between: (i) prohibiting the transaction; (ii) clearing the transaction unconditionally; or (iii) clearing it subject to conditions. 5.257  Standard review The second standard of review, the so-called ‘standard review’ (contrôle normal), is applied where the administrative authority has a ‘duty to act in a certain way’ (competence liée), that is, where the administrative authority must, by virtue of the law, take a specific decision with regard to a given factual setting. In this case, the review court normally applies a thorough standard of judicial review. A standard review applies, for example, in retirement cases where the administration has a duty to ensure that the civil servant has the right to retire, thereby giving him a right to a pension. In the field of competition law, the same standard of review applies, for instance where the competition authority has to comply with the fundamental principle of the right to be heard, including the right to have access to key documents or the right to submit observations. 5.258  Review targets The above standards of review can in principle be applied to four issues as, when asked to review a decision of the Commission, the EU Court examines: (i)  whether the Commission has made an error of law—the legal basis for the decision, or the criteria applied, are erroneous. This could happen where the Commission finds a non-dominant firm guilty of an infringement of Article 102 TFEU; (ii)  whether the Commission has made an error in assessing the facts—the factual basis for the decision is non-existent, or erroneous. For example, the Commission has found a low pricing strategy abusive on the basis of an alleged increase in the market share of the dominant firm whilst, in fact, its market share has decreased; (p. 383) (iii)  whether the Commission has misused its powers—the underlying purpose of the decision is alien to the protection/promotion of competition. For example, this could happen when the Commission sanctions an efficient non-EU firm with the sole purpose of protecting domestic companies from increased rivalry; (iv)  whether the Commission has incorrectly characterized the facts in law—the Commission characterizes facts in law when it translates the factual setting which is subject to its review (eg a price-cutting commercial practice) in a legal concept (to take the same example, an abusive predatory strategy). The facts are incorrectly characterized in law when the factual setting at the origin of the decision does not fulfil the conditions for being translated into a legal concept. For example, this would be the case where the Commission finds that a tight oligopolistic market is akin to a collective dominant position, whilst the market does not exhibit sufficient price transparency to give rise to joint dominance.

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5.259  Discussion Whilst, a contrôle normal is generally applied in the first three scenarios, it is in respect of the fourth scenario that the intensity of judicial review is the most problematic as it can fluctuate depending on whether the Commission has the ‘duty to act in a certain way’ or, on the contrary, if it has a ‘discretionary power’. If, on the one hand, the Commission has the duty to act in a certain way, the review court exercises a ‘standard review’ and examines the decision thoroughly. If, on the other hand, the competition authority enjoys discretionary power, the review court—considering that the administration should nonetheless be subject to a certain, albeit limited, degree of judicial accountability— exercises a marginal review.

(b)  The practice 5.260  Introduction Former President of the CFIBo Vesterdorf proposed a distinction that departs a little from the theory, and that throws light on the review practice of the EU Courts. It draws a distinction between issues of facts, of law, and complex economics matters. The intensity of control [exercised by the EU Courts over Commission decisions] varies depending on whether the Courts are reviewing, on the one hand, the correctness of the facts or the correct application of the law (full control) and, on the other hand, the correctness of the Commission’s appreciation of complex economic matters (restrained control).278 5.261  In B. Versterdorf’s view, as a consequence of the ‘institutional balance’ described in the preceding section, the EU Courts have also recognized a ‘margin of discretion’ when reviewing ‘complex economic matters’. 5.262  While the distinction between the degree or the intensity of the control applied to issues of facts and law, and to complex economic matters, is well accepted, it nevertheless raises some challenges. First, it is often hard to distinguish between issues of facts and law, and economic appreciations. Second, it is not clear how one should distinguish between ‘complex’ and ‘non-complex’ economic appreciations. These issues are dealt with in the developments that follow. (p. 384) (i)  Review of the law

5.263  Principle The EU Courts exercise full scrutiny over the interpretation of EU competition law. The Commission enjoys no margin of discretion when it comes to the interpretation of EU law.279 It is for the EU Courts to interpret the law and verify whether the Commission has complied with their interpretation of the law when enforcing EU competition rules. 5.264  Procedure vs Substance In this respect, the EU Courts have developed legal standards both with respect to the procedural and substantive aspects of competition law. As far as procedural aspects are concerned, the EU Courts have emphasized the importance that the Commission respects the ‘rights of defence’ in its enforcement of competition law. In a significant number of cases, the EU Courts ensured the strict observance of procedural rights by the Commission in its Articles 101 and 102 investigations,280 as well as in its merger control decisions.281 5.265  As far as substantive aspects are concerned, the EU Courts have developed a variety of legal standards (or tests) that should be relied upon to determine the compatibility with EU competition law of a wide range of commercial practices susceptible of creating anticompetitive effects, including horizontal agreements, vertical agreements, oligopolistic behaviour, exclusive dealing, rebates, predatory pricing, selective price cuts, tying and

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bundling, refusal to supply, margin squeeze, price discrimination, and exploitative prices and conditions.282 5.266  An important observation with respect to these legal tests is that they are intensely ‘economic’ in nature. Questions, such as whether evidence of ‘recoupment’ should be brought to determine whether the prices of a dominant firm are predatory or whether such a test should rely on a given cost benchmark rather than another, cannot be detached from the economics of exclusionary pricing. By adopting or refining such tests, the EU Courts issue decisions of considerable economic importance for suppliers, their customers, and endusers. Because of their impact on welfare, such questions also involve economic policy choices. This shows that in competition law, legal and economic questions cannot be seriously divorced as the content of the standards adopted by the EU Courts translates economic reasoning and needs to be implemented through economic tools. (ii)  Review of the facts

5.267  Fact-intensive cases Appraisal of the facts is critical in competition law matters as the vast majority of competition cases are won or lost on the facts rather than on abstract legal or economic theories. The critical importance of controlling the facts was one of the reasons that led to the creation of the Court of First Instance in 1989, now relabelled General Court.283 (p. 385) This newly created Court took its mission very seriously. In the Italian flat glass case, the GC stated that it is incumbent on it … to check meticulously the nature and import of the evidence taken into consideration by the Commission in the decision.284 5.268  As a result, many judgments of the GC dissect in the most minute detail Commission decisions, and the Commission’s inadequate treatment of the facts has led to the annulment of a significant number of Commission decisions both in the field of anticompetitive agreements and mergers.285 5.269  Categorization issues Of course, it is not always easy to determine whether a ground of appeal raises a question of fact, law, or a matter of complex economic appraisal. Certainly, primary or basic facts, such as whether a given meeting amongst rivals took place, the parties who attended the meeting, what was decided at that meeting, and whether the decisions taken at the meeting were subsequently implemented by the participants, raise no difficulty of categorization. The correctness of such facts, which are often determinative of the outcome of a case, are not a matter of economic appreciation and should thus be subject to the full control of the EU Courts. 5.270  Yet, the distinction becomes less clear when EU Courts are confronted with what former Judge Sir David Edward refers to as ‘facts of an economic nature’.286 For instance, a firm challenging a Commission decision finding that it has committed an abuse of dominance may argue that the Commission’s definition of the relevant market is flawed, that it does not hold a dominant position and that its price-or non-price-related conduct does not amount to an abuse of dominance. Market definition issues raise factual questions, such as whether Product A is a substitute for Product B. But they can also be framed as a legal question, such as whether the test used by the Commission is in line with the case law of the EU Courts. In addition, market definition may raise complex economic questions in particular as the Commission relies on economic tools to assess whether distinct products belong to the same market.287 5.271  That said, whether a ground of appeal raises factual and/or legal questions is of little practical significance since EU Courts can comprehensively review issues of facts and law. In contrast, the issue of whether the ground in question relates to matter of complex

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economic appraisals is important as it may determine the intensity of the review that may be exercised by the EU Court. (p. 386) (iii)  Review of ‘complex economic matters’

5.272  Evolution of the case law The application of a deferential standard of review to complex economic matters is not a recent phenomenon. Such a standard had already been applied by the Court of Justice in its seminal Consten v Grundig judgment, where it held that: judicial review of complex economic evaluations by the Commission concerning [Article 101(3)] exemptions must take account of their nature by confining itself to an examination of the relevance of the facts and legal circumstances which the Commission deduces therefrom. This review must in the first place be carried in respect of the reasons given for the decisions which must set out the facts and considerations on which the said evaluations are based.288 5.273  This standard of review, which the Court of Justice subsequently extended to evaluations made by the Commission regarding the application of Article 101(1) TFEU,289 has also been applied in cases involving the application of Article 102 TFEU and the Merger Control Regulation. In Microsoft, for instance, the GC observed that it followed from consistent case-law that, although as a general rule the Community Courts undertake a comprehensive review of the question as to whether or not the conditions for the application of the competition rules are met, their review of complex economic appraisals made by the Commission is necessarily limited to checking whether the relevant rules on procedure and on stating reasons have been complied with, whether the facts have been accurately stated and whether there has been any manifest error of assessment or a misuse of powers.290 5.274  Similarly, in its Kali and Salz judgment,291 which concerned an appeal against a Commission decision, which stated that, as a result of a proposed concentration, two entities would enjoy a collective dominant position, the Court of Justice held that: the basic provisions of the [Merger Control] Regulation, in particular Article 2 thereof, confer on the Commission a certain discretion, especially with respect to assessments of an economic nature. Consequently, review by the Community judicature of the exercise of that discretion, which is essential for defining the rules on concentrations, must take account of the discretionary margin implicit in the provisions of an economic nature which form part of the rules on concentrations.292 5.275  Definitional issues The central question is of course to determine the content and contours of the notion of ‘complex economic matters’. This question is critical. First, as noted, whether a contested issue in a decision is labelled as a question of ‘fact’ or an ‘economic issue’ and, if the latter, whether this issue is ‘complex’ determines the intensity of the review that should be carried out by the Commission.293 Second, as the Commission is increasingly applying a more ‘economic approach’ to competition cases, unless the deferential standard of review applied to complex economic matters is carefully circumscribed, the review of its (p. 387) decisions could become increasingly ‘light’ on the ground that the appraisal of complex economic issues should be the province of the Commission.294

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5.276  Clearly, the application of competition rules involves economic reasoning, but it is not clear when such reasoning is ‘complex’. Competition law enforcement may require assessments that are ‘technically’ complex, such as determining whether a vertically integrated firm that is dominant on an upstream market has engaged in ‘margin squeeze’ with the aim of foreclosing downstream competitors.295 Assessing the presence of a margin squeeze involves relatively complex cost analysis, which a specialized authority is better placed to undertake than a generalist court. Moreover, some assessments may not only be complex from a technical viewpoint, but also require a policy call. A situation of this kind may, for instance, arise in the case of distributional trade-off s, when the Commission must decide whether the anticompetitive effects of an agreement (or a proposed merger) on a particular market are outweighed by the pro-competitive efficiencies created by this transaction on another market.296 5.277  Complex is not difficult In this respect, Judge Nicolas Forwood makes a fundamentally important observation. In his view, in approaching the distinction between ‘complex’ and ‘non-complex’ economic appraisals, it is important ‘not to conflate the concept of “complex” economic appraisals with “difficult” economic appraisals.’297 This is because: The mere fact that an assessment is made which requires the consideration of (possibly esoteric) economic arguments and the examination of economic evidence —even in the substance volumes that now regularly accompany applications in the [General Court]—does not necessarily make an assessment subject to judicial review a ‘complex’ one, subject only to limited control, even though it may make the task of the judge extremely difficult to or burdensome.298 5.278  Judge Forwood further indicates that: On the contrary, it could be said that what the Court of Justice had in mind, at least in the first thirty years or so of its case law, was that ‘complexity’ refers more to the nature of assessment that needs to be made, rather than its technical or evidential difficulty.299 5.279  Complex is policy-related And Judge Forwood contrasts Article 101(3) assessments, which require making ‘value judgments’, from determinations of whether an agreements falls under Article 101(1) or whether an undertaking is dominant or its conduct abusive, which do not require the Court ‘to depart from its default approach of a “comprehensive review”.’300 (p. 388) 5.280  Interestingly former Judge Bellamy makes a similar distinction between ‘facts of an economic nature’,301 which as described above, refer to issues such as whether the Commission’s market definition or assessment of dominance are correct, and, another category of facts, such as those relating the Commission’s balancing of anticompetitive effects with procompetitive efficiencies in the context of an Article 101(3) assessment, which are ‘probably moving away from facts strictly so-called and almost entering the question of policy’.302 For those facts, the GC accords ‘a considerable margin of appreciation to the competition authority and it is only rarely that the [General Court] will interfere [with that sort of issues].’303 Former Judge Bellamy, however, adds that, even with respect to such issues, GC judges have the possibility of intervening through ‘a very convenient route known as “defects in the reasoning” or “défauts de motivation”’ and that ‘is probably by that route that the decisions of the Commission are most closely controlled’.304

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5.281  Concrete intensity of judicial review over complex economic assessments Overall, the EU Courts’ case law makes clear that complex economic appraisals, while perhaps subject to a less comprehensive or complete review than for issues of law and facts, will nevertheless remain intense. As the Court of Justice noted in Tetra Laval, the fact that the Commission has a margin of discretion with regard to economic matters: does not mean that the Community Courts must refrain from reviewing the Commission’s interpretation of information of an economic nature. Not only must the Community Courts, inter alia, establish whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it.305 5.282  In this case, the same view, in even stronger terms, was also expressed by Advocate General Tizzano who claimed that: the fact that the Commission enjoys broad discretion in assessing whether or not a concentration is compatible with the common market does certainly not mean that it does not have in any case to base its conviction on solid elements gathered in the course of a thorough and painstaking investigation or that it is not required to give a full statement of reasons for its decision, disclosing the various passages of logical argument supporting the decision.306 5.283  This clearly means that, while the EU Courts are ready to recognize some leeway for the Commission, they will not authorize it to be careless in its assessments falling under the notion of complex economic appraisals. 5.284  Summary If we follow former Judge Legal’s interpretation of Tetra Laval, complex economic assessments are subject to a control that, without amounting to a contrôle normal (‘standard review’), nonetheless goes beyond the contrôle restreint (‘marginal review’) and by the same token of the ‘manifest error of appraisal’. Put simply, the standard hinges on (p. 389) reviewing ‘the consistency, relevance of the reasoning and sufficiency of the documentation on the sides of facts’. 5.285  Illustration The Tetra Laval standard of review, which focuses on four key decisional parameters, entails a strict degree of judicial scrutiny. This is well illustrated in Airtours v Commission. In this case, the GC quashed a Commission decision which had prohibited a merger in the short-haul package holiday market on grounds of collective dominance.307 The GC first reviewed the factual accuracy of the Commission’s evidence. It found that the decision’s finding of collective dominance was erroneously based on the prediction that demand growth would be limited, whilst market trends showed a steady history of growth in the past decade. It then scrutinized the reliability of the Commission’s reasoning. It found that the Commission had ignored standard economic theory in concluding that demand volatility would induce oligopolists to observe a cautious industrial strategy. It also controlled the consistency of the Commission’s assessment, and found that the decision confusingly referred to vertical integration as both a pro-competitive and an anticompetitive factor. Finally, the GC lambasted the lack of exhaustiveness of the decision’s reasoning. The Commission’s decision had not reviewed the competitive pressure stemming from potential entry. In that respect, the Court found that a number of firms active on the

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long-haul package holiday market could have constrained the price policy of the (allegedly dominant) post-merger oligopoly. 5.286  Intensive delegated review through experts It is interesting to observe that in some relatively old cases, the European judges took an interventionist position in reviewing the economic evidence and reasoning relied upon by the Commission in competition cases. In the Wood Pulp case, for instance, the Court of Justice did not defer to the substantial body of economic evidence that had been put together by the Commission to demonstrate the existence of a concerted practice between the exporters of wood pulp to the EU.308 It not only rejected the Commission’s view that a system of quarterly price announcements made by these exporters was sufficient evidence of concertation, but it hired its own experts and relied on their reports to hold that the system of price announcements could be regarded as a rational response to the fact that the pulp market constituted a long-term market and to the need felt by both buyers and sellers to limit commercial risks. 5.287  Despite the willingness of the GC judges to get their hands dirty and review with great care the economic evidence presented by the Commission in a number of cases—as amply illustrated by the Airtours,309 Schneider/Legrand,310 and Tetra Laval/Sidel311 judgments,312 the GC has never made use of its ability to hire its own independent experts. This is regrettable since Wood Pulp clearly illustrated the usefulness of such experts, especially in situations where large bodies of contradictory economic evidence have been submitted by the Commission and the parties.

Footnotes: 1

  In the United States, private persons who contemplate litigation face fewer challenges in terms of acquiring relevant evidence (the courts can order defendants to disclose all relevant evidence in their possession), and can reap large benefits from litigation (the perspective of being awarded ‘treble’ and ‘punitive’ damages). 2

  As explained, the EU competition rules enjoy direct effect and can thus be applied by national jurisdictions. In addition, national Courts have a key role to play in relation to the compensation of damages inflicted by unlawful restrictions of competition. See CJ, C-453/99 Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd ao, 20 September 2001 [2001] ECR I-6297; CJ, Joined Cases C-295–298/04 Vincenzo Manfredi v Lloyd Adriatico Assicurazioni SpA ao, 13 July 2006 [2006] ECR I-6619. For a complete overview of the various policy efforts undertaken by the Commission to promote private enforcement, see . 3

  Given that competition rules seek primarily to promote economic welfare, the enforcement system should thus focus on areas and issues which exhibit the most significant market failures. For instance, in recent years, the Commission has focused a vast amount of its resources on the the energy sector. See COMP/39.386, EDF (Contrats à Long Terme France), 17 March 2010; COMP/39351, Svenska Kraftnät/Dansk Energi (Interconnexions suédoises), 14 April 2010; COMP/39.317, E.ON Gas, 4 May 2010; COMP/ 39.315, ENI, 29 September 2010. This policy orientation was confirmed in the Commission’s Staff Working Paper on the review of Regulation 1/2003, at §15: ‘The electricity and gas sectors constitute a key input to the overall economy and are fundamental services for citizen.’ 4

  See D. Geradin and N. Petit, ‘The Development of Agencies at EU and National Levels: Conceptual Analysis and Proposals for Reform’, Jean Monnet Working Paper 01/04.

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5

  In addition, those competition authorities differ widely from an institutional, procedural, and organizational standpoint (to account for domestic idiosyncrasies). 6

  Merger control is subject to specific enforcement mechanisms, which are dealt with in Chapter 9, Section III. 7

  See CJ, Joined Cases C-189/02 P, C-202/02 P, C-205/02 P to C-208/02 P, and C-213/02 P Dansk R ø rindustri A/S (C-189/02 P), Isoplus Fernwärmetechnik Vertriebsgesellschaft mbH ao, 28 June 2005 [2005] ECR I-5425. 7a 8

  See, eg, ‘The Unchained Watchdog’, The Economist, 18 February 2010.

  Ibid.

9

  See Communication from the Commission—Guidelines on the application of Article 81(3) of the Treaty, OJ C 101 of 27 April 2004. 10

  See Commission Decision of 24 May 2004 relating to a proceeding pursuant to Article 82 of the EC Treaty and Article 54 of the EEA Agreement against Microsoft Corporation, COMP/C-3/37.792, Microsoft, OJ L 32 of 6 February 2007, at 23–8; Commission Decision of 16 December 2009 relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union and Article 54 of the EEA Agreement, COMP/39.530, Microsoft (Tying), OJ C 36 of 13 February 2010, at 7–8; Commission Decision of 9 December 2009 relating to a proceeding under Article 102 of the Treaty on the functioning of the European Union and Article 54 of the EEA Agreement, COMP/38.636, Rambus, OJ C 30 of 6 February 2010, at 17–18; Commission Decision of 13 May 2009 relating to a proceeding under Article 82 of the EC Treaty and Article 54 of the EEA Agreement, COMP/C-3/37.990, Intel, OJ C 227 of 22 September 2009, at 13–17; Commission’s Press Release, ‘Antitrust: Commission market tests IBM’s commitments on mainframe maintenance and closes separate case into alleged unlawful tying’, 20 September 2011, IP/11/1044. 11

  See Art 103(1) TFEU, OJ C 83 of 30 March 2010, at 1.

12

  See White Paper on modernisation of the rules implementing Articles 81 and 82 of the EC Treaty (formerly Articles 85 and 86 of the EC Treaty), OJ C 132 of 12 May 1999. 13

  See , at para 1.2. 14

  See at 5. For updated data, see DG Competition, Annual Management Plan 2010, available at . 15

  See .

16

  See N. Petit, ‘From formalism to effects? The Commission’s Communication on enforcement priorities in applying article 82 EC’ (2009) World Competition 32. 17

  See Art 17 TFEU, OJ C 115/26 of 9 May 2008 and esp 17(6)(b): ‘The President of the Commission shall decide on the internal organisation of the Commission, ensuring that it acts consistently, efficiently and as a collegiate body.’ 18

  See GC, Joined Cases T-80/89, T-81/89, T-83/89, T-87/89, T-88/89, T-90/89, T-93/89, T-95/89, T-97/89, T-99/89, T-100/89, T-101/89, T-103/89, T-105/89, T-107/89, and T-112/89 BASF AG and others v Commission, 6 April 1995 [1995] ECR II-729. 19

  See GC, Joined Cases T-79/89, T-84/89, T-85/89, T-86/89, T-89/89, T-91/89, T-92/89, T-94/89, T-96/89, T-98/89, T-102/89, and T-104/89 BASF AG and others v Commission, 27 February 1992 [1992] ECR II-315.

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20

  See Commission Notice on cooperation within the Network of Competition Authorities, OJ C 101 of 27 April 2004, at para 2. 21

  Art 35(1) of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1 of 4 January 2003, at 1–25: ‘The authorities designated may include courts’. 22

  Ibid, Art 35(2): When enforcement of Community competition law is entrusted to national administrative and judicial authorities, the Member States may allocate different powers and functions to those different national authorities, whether administrative or judicial.

23

  See CJ, C-439/08 Vlaamse federatie van verenigingen van Brood-en Banketbakkers, Ijsbereiders en Chocoladebewerkers (VEBIC) VZW, 7 December 2010, not yet published. 24

  See CJ, C-375/09 Prezes Urzędu Ochrony Konkurencji i Konsumentów v Tele2 Polska sp zoo, 3 May 2011, not yet published. 25

  See M. Trebilcock and E. Iacobucci, ‘Designing Competition Law Institutions’ (2002) 25 World Competition 361. 26

  See Commission Staff Working Paper accompanying the Communication from the Commission to the European Parliament and Council—Report on the functioning of Regulation 1/2003, COM(2009) 206 final, SEC/2009/0574 final. 27

  Ibid, at para 184: ‘Since the entry into force of Regulation 1/2003, the enforcement of EC competition rules has vastly increased. The results of enforcement actions within the ECN are impressive.’ 28

  See recital 3 of the Preamble to Regulation 1/2003, n 21: The centralised scheme set up by Regulation No 17 no longer secures a balance between those two objectives. It hampers application of the Community competition rules by the courts and competition authorities of the Member States, and the system of notification it involves prevents the Commission from concentrating its resources on curbing the most serious infringements. It also imposes considerable costs on undertakings.

29

  See Notice on cooperation, n 20, at para 14: t he Commission is particularly well placed if one or several agreement(s) or practice(s), including networks of similar agreements or practices, have effects on competition in more than three Member States (cross-border markets covering more than three Member States or several national markets).

30

  Ibid, at para 15: Moreover, the Commission is particularly well placed to deal with a case if it is closely linked to other Community provisions which may be exclusively or more effectively applied by the Commission, if the Community interest requires the adoption of a Commission decision to develop Community competition policy when a new competition issue arises or to ensure effective enforcement.

31

  Ibid. See also recital 14 of the Preamble to Regulation 1/2003, n 21:

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In exceptional cases where the public interest of the Community so requires, it may also be expedient for the Commission to adopt a decision of a declaratory nature finding that the prohibition in Article 81 or Article 82 of the Treaty does not apply, with a view to clarifying the law and ensuring its consistent application throughout the Community, in particular with regard to new types of agreements or practices that have not been settled in the existing case-law and administrative practice. 32

  See CJ, C-234/89 Stergios Delimitis v Henninger Bräu AG, 28 February 1991 [1991] ECR I-935. See also CJ, C-344/98 Masterfoods Ltd v HB Ice Cream Ltd, 14 December 2000 [2000] ECR I-11369. 33

  However, NCAs may apply stricter national rule under national law than under Art 102 TFEU. See Art 3(2) of Regulation 1/2003, n 21: Member States shall not under this Regulation be precluded from adopting and applying on their territory stricter national laws which prohibit or sanction unilateral conduct engaged in by undertakings. 34

  See ibid, Art 11(2): The Commission shall transmit to the competition authorities of the Member States copies of the most important documents it has collected with a view to applying Articles 7, 8, 9, 10 and Article 29(1). At the request of the competition authority of a Member State, the Commission shall provide it with a copy of other existing documents necessary for the assessment of the case.

35

  See ibid, Art 11(5): ‘The competition authorities of the Member States may consult the Commission on any case involving the application of Community law.’ 36

  See ibid, Art 11(3).

37

  See ibid, Art 11(4).

38

  See para 54 of Notice on cooperation, n 20.

39

  See para 264 of Commission Staff Working Paper, n 26: The actual initiation of proceedings by the Commission with a view to ‘correct’ the approach taken by a Member State competition authority in an envisaged decision should be reserved to the severest problems of coherent application where they arise in a case that presents sufficient Community interest for the Commission to conduct its own procedure in the matter. The Network Notice provides guidance as to the circumstances in which this may be envisaged. Until now, the Commission has not seen the necessity of taking this step. As mentioned above, this may be attributed to various factors including notably the commitment of national competition authorities towards coherent application, extensive horizontal exchanges in the ECN including in dedicated sectoral subgroups, as well as informal exchanges between the Commission services and the national competition authorities in the context of the Article 11(4) submissions.

40

  CJ, 14/68 Walt Wilhelm and others v Bundeskartellamt, 13 February 1969 [1969] ECR 1, at 11:

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the possibility of concurrent sanctions need not mean that the possibility of two parallel proceedings pursuing different ends is unacceptable. Without prejudice to the conditions and limits indicated in the answer to the first question, the acceptability of a dual procedure of this kind follows in fact from the special system of the sharing of jurisdiction between the community and the member states with regard to cartels. If, however, the possibility of two procedures being conducted separately were to lead to the imposition of consecutive sanctions, a general requirement of natural justice, such as that expressed at the end of the second paragraph of article 90 of the ECSC treaty, demands that any previous punitive decision must be taken into account in determining any sanction which is to be imposed. In any case, so long as no regulation has been issued under article 87(2) (e), no means of avoiding such a possibility is to be found in the general principles of community law; this leaves intact the reply given to the first question. 41

  Ibid.

42

  See Notice on cooperation, n 20, at para 8.

43

  Ibid.

44

  Ibid.

45

  See ibid, at para 6: ‘In most instances the authority that receives a complaint or starts an ex-officio procedure will remain in charge of the case’. 46

  Ibid, at para 18. See also para 19 which states: ‘Re-allocation of a case after the initial allocation period of two months should only occur where the facts known about the case change materially during the course of the proceedings.’ 47

  Ibid, at para 12: Parallel action by two or three NCAs may be appropriate where an agreement or practice has substantial effects on competition mainly in their respective territories and the action of only one NCA would not be sufficient to bring the entire infringement to an end and/or to sanction it adequately.

48

  Ibid, at para 14: The Commission is particularly well placed if one or several agreement(s) or practice(s), including networks of similar agreements or practices, have effects on competition in more than three Member States (crossborder markets covering more than three Member States or several national markets).

49

  See C. Gauer and F. Paulis, ‘Le Règlement 1/2003 et le principe ne bis in idem’ [2005] 1 Concurrences 2. 50

  See Regulation 1/2003, n 21, Art 12(2): Information exchanged shall only be used in evidence for the purpose of applying Article 81 or Article 82 of the Treaty and in respect of the subject-matter for which it was collected by the transmitting authority. However, where national competition law is applied in the same case and in parallel to Community competition law and does not lead to a different outcome, information exchanged under this Article may also be used for the application of national competition law.

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51

  See ibid, Art 12(3): Information exchanged pursuant to paragraph 1 can only be used in evidence to impose sanctions on natural persons where (i) the law of the transmitting authority foresees sanctions of a similar kind in relation to an infringement of Article 81 or Article 82 of the Treaty or, in the absence thereof, (ii) the information has been collected in a way which respects the same level of protection of the rights of defence of natural persons as provided for under the national rules of the receiving authority. However, in this case, the information exchanged cannot be used by the receiving authority to impose custodial sanctions.

52

  See Commission Staff Working Paper, n 26, at para 242.

52a

  See M. de Visser, Network-based governance in EC law: the example of EC competition and EC communications law (Oxford and Portland: Hart Publishing, 2009). 53

  See recital 15 of the Preamble to Regulation 1/2003 n 21: The Commission and the competition authorities of the Member States should form together a network of public authorities applying the Community competition rules in close cooperation. For that purpose it is necessary to set up arrangements for information and consultation. Further modalities for the cooperation within the network will be laid down and revised by the Commission, in close cooperation with the Member States.

54

  Although subsidiarity should not play a major role in EU competition law, which is an exclusive EU competence. 55

  See recital 15 of the Preamble to Regulation 1/2003 n 21.

56

  Joint Statement of the Council and the Commission on the functioning of the network of competition authorities, 10 December 2002, Doc 15435/022 ADD 1, Brussels, available at . 57

  See ibid, at para 3: This Joint Statement is political in nature and does therefore not create any legal rights or obligations. It is limited to setting out common political understanding shared by all Member States and the Commission on the principles of the functioning of the Network.

58

  Ibid, at para 12: Case allocation will be completed as quickly as possible. An indicative time limit (up to 3 months) will be used within the Network. Normally, this allocation will remain definitive to the end of the proceedings provided that the facts known about the case remain substantially the same. If so, this implies that the competition authority which has notified the case to the Network, will normally remain the responsible competition authority if it is well placed to deal with the case and no other competition authority raises objections during the indicative time period.

59

  Ibid, at para 16:

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Cases will be dealt with by a single competition authority as often as possible. A single NCA will be usually well placed to act if only one Member State is substantially affected by an agreement or practice, particularly when the main anticompetitive effects appear in the same Member State and all participating companies to an agreement or an abusive behavior have their seat in that Member State. 60

  Ibid, at para 23: The Commission will normally not—and to the extent that Community interest is not at stake—adopt a decision which is in conflict with a decision of an NCA after proper information pursuant to both Article 11(3) and (4) of the Regulation has been provided and the Commission has made no use of Article 11(6) of the Regulation.

61

  See Notice on cooperation, n 20 .

62

  See , at 9.

63

  Ibid, at 14.

64

  See

65

  See .

66

  See .

67

  See Regulation 1/2003, n 21, Art 6.

68

  See ibid, recital 7 of the Preamble .

69

  See CJ, C-453/99 Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd ao, n 2. 70

  CJ, C-306/96 Javico International and Javico AG v Yves Saint Laurent Parfums SA, 28 April 1998 [1998] ECR I-1983. 71

  See CJ, C-234/89 Stergios Delimitis v Henninger Bräu AG, n 32; CJ, C-344/98, Masterfoods Ltd v HB Ice Cream Ltd, n 32. 72

  See Commission Staff Working Paper, n 26, at para 291: Article 15(2) of Regulation 1/2003 requires Member States to forward to the Commission a copy of any written judgment of national courts deciding on the application of Articles 81 or 82 EC. These judgments must be sent ‘without delay after the full written judgment is notified to the parties.

The Commission publishes a database of the judgments it receives from the Member States pursuant to Art 15(2). This database, although welcomed as potentially being a valuable source of case practice, is criticized by several stakeholders on the grounds that it is far from complete. 73

  See Art 15(3) TFEU: Any citizen of the Union, and any natural or legal person residing or having its registered office in a Member State, shall have a right of access to documents of the Union’s institutions, bodies, offices and agencies, whatever their medium, subject to the principles and the conditions to be defined in accordance with this paragraph.

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73a

  This results from the cooperation system under Art 11 of Regulation 1/2003.

74

  See CJ, C-429/07, Inspecteur van de Belastingdienst v X BV, 11 June 2009 [2009] ECR I-4833. 75

  Ibid, at para 40.

76

  See on this, GC, T-353/94 Postbank NV v Commission, 18 September 1996 [1996] ECR II-921, at 57. 77

  See on this, CJ, C-234/89 Stergios Delimitis v Henninger Bräu AG, n 32, at para 53.

78

  See Notice on cooperation, n 20, at para 29: ‘Moreover, unlike the authoritative interpretation of Community law by the Community courts, the opinion of the Commission does not legally bind the national court.’ 79

  Ibid: ‘When giving its opinion, the Commission will limit itself to providing the national court with the factual information or the economic or legal clarification asked for, without considering the merits of the case pending before the national court.’ 80

  In this regard, the procedure is much more comprehensive than the preliminary reference procedure under Art 267 TFEU, which concerns only issues of validity or interpretation of EU law. See, also Staff Working Paper, n 26 at para 280: Two opinions were given to Swedish courts, the first of which concerned the issue of whether a municipality can be concerned to be as ‘undertaking’ under Articles 81 and 82 EC with a ‘legitimate interest’ to complain pursuant to Article 7(2) of Regulation 1/2003. The second related to the definition of the relevant market in a case where a port was alleged to have abused its dominant position as the provider of port services by charging excessive fees to a Danish stated-owned ferry operator. 81

  See Notice on cooperation, n 20, at para 28: In order to ensure the efficiency of the co-operation with national courts, the Commission will endeavour to provide the national court with the requested opinion within four months from the date it receives the request.

82

  See Staff Working Paper, n 26, at para 277: Under Article 15(1), national courts can ask the Commission for information or its opinion on questions concerning the application of Articles 81 and 82 EC. As of 31 March 2009, the Commission has issued opinions on 18 occasions to national courts in Belgium (5), Spain (9), Lithuania (1), The Netherlands (1) and Sweden (2).

83

  Ibid, at para 282: Some stakeholders have highlighted what they perceive as reluctance on the part of some national judges to seek opinions from the Commission under Article 15(1). To try to address this issue, the Commission has published examples of opinions given to national courts on the Directorate General for Competition’s website so that national courts can get an idea of what an opinion can provide. Guidance is also given on the Directorate General for Competition’s website detailing what requests for opinions should contain.

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84

  See Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, OJ L 012 of 16 January 2001, at 1–23. 85

  See ibid, Art 2.

86

  See ibid, Art 60.

87

  See ibid, Art 34.

87a 88

  See Ibid, at Art 15(1)(a).

  See our remarks in Chapter 1.

89

  With the exception of State aid and merger control, where ex ante notification mechanisms apply. 90

  See Decision no 05-D-64 du 25 novembre 2005 relative à des pratiques mises en oeuvre sur le marché des palaces parisiens, available at . 91

  See Regulation 1/2003, n 21, Art 7(3) .

92

  See Commission Notice on the handling of complaints by the Commission under Articles 81 and 82 of the EC Treaty, OJ C 101 of 27 April 2004, at 65–77. 93

  See Commission Regulation (EC) No 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty, OJ L 123 of 27 April 2004, at 18–24. 94

  See GC, T-28/90 Asia Motor France SA and others v Commission, 18 September 1992 [1992] ECR II-2285; GC, T-65/96 DEP Kish Glass & Co Ltd v Commission, 8 November 2001 [2001] ECR II-3261, at 45. 95

  See Regulation 773/2004, n 93, Art 6(1): Where the Commission issues a statement of objections relating to a matter in respect of which it has received a complaint, it shall provide the complainant with a copy of the non-confidential version of the statement of objections and set a timelimit within which the complainant may make known its views in writing.

96

  See ibid, Art 6(2): The Commission may, where appropriate, afford complainants the opportunity of expressing their views at the oral hearing of the parties to which a statement of objections has been issued, if complainants so request in their written comments.

97

  See Commission Notice on handling of complaints, n 92, at para 45.

98

  Regulation 1/2003, n 21, Art 7(1): Where the Commission, acting on a complaint or on its own initiative, finds that there is an infringement of Article 81 or of Article 82 of the Treaty, it may by decision require the undertakings and associations of undertakings concerned to bring such infringement to an end. For this purpose, it may impose on them any behavioural or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end. Structural remedies can only be imposed either where there is no equally effective behavioural remedy or where any equally effective behavioural remedy would be more burdensome for the undertaking concerned than the structural remedy. If the

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Commission has a legitimate interest in doing so, it may also find that an infringement has been committed in the past. 99

  See, however, GC, T-427/08 CEAHR v Commission, 15 December 2010, not yet published. 100

  See the contact form, available at . 101

  If DG COMP is not the competent Directorate to deal with the consumer’s issue, the CLO may transfer the information to other DGs in the Commission or to an NCA (and in particular those that have consumer protection as one of their functions). 102

  See Regulation 1/2003, n 21, Art 17(1).

103

  See ibid, Art 17(2): ‘Articles 14, 18, 19, 20, 22, 23 and 24 shall apply mutatis mutandis’.

104

  See H. Andersson and E. Legnerfält, ‘Dawn Raids in Sector inquiries—Fishing Expeditions in Disguise?’ (2008) 8 European Competition L Rev 439. 105

  The first sector inquiry of the Commission in the margarine sector resulted in the withdrawal of suspected abuse of dominant procedure. See First Annual Report of the Commission on Competition Policy, 1971, at 103, available at . Similarly, in an informal inquiry on prices for compact discs in Germany, the five big majors decided to abandon their practice of publication of minimum prices. See D. Wood and N. Baverez, ‘Sector Inquiries under EU Competition Law’, Competition Law Insight, 8 February 2005, available at , at 4. Finally, the opening of a sector inquiry in the leased lines sector led incumbents of various Member States to drop the price of their services. See J.-F. Pons, ‘L’application des règles de concurrence à l’off re de lignes de télécommunications louées dans la Communauté européenne’, Public hearing inquiry into the leased lines sector, Brussels, 22 September 2000, available at . 106

  See Commission Notice on immunity from fines and reduction of fines in cartel cases, OJ C 298 of 8 December 2006, at 17. 107

  Ibid, at para 12.

108

  Ibid, at para 25: The concept of ‘added value’ refers to the extent to which the evidence provided strengthens, by its very nature and/or its level of detail, the Commission’s ability to prove the alleged cartel. In this assessment, the Commission will generally consider written evidence originating from the period of time to which the facts pertain to have a greater value than evidence subsequently established. Incriminating evidence directly relevant to the facts in question will generally be considered to have a greater value than that with only indirect relevance. Similarly, the degree of corroboration from other sources required for the evidence submitted to be relied upon against other undertakings involved in the case will have an impact on the value of that evidence, so that compelling evidence will be attributed a greater value than evidence such as statements which require corroboration if contested.

109

  Ibid, at para 26:

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The Commission will determine in any final decision adopted at the end of the administrative procedure the level of reduction an undertaking will benefit from, relative to the fine which would otherwise be imposed. For the first undertaking to provide significant added value: a reduction of 30–50%: second undertaking to provide significant added value: a reduction of 20–30%; subsequent undertakings that provide significant added value: a reduction of up to 20%. The notice adds that: In order to determine the level of reduction within each of these bands, the Commission will take into account the time at which the evidence fulfilling the condition in point was submitted and the extent to which it represents added value. 110–112

  See M. Motta and M. Polo, ‘Leniency Programs and Cartel Prosecution’ (2003) 21(3) Int’l J Industrial Organization 347–79. 113

  See Art 18(1) of Regulation 1/2003, n 21, Art 18(1): ‘In order to carry out the duties assigned to it by this Regulation, the Commission may, by simple request or by decision, require undertakings and associations of undertakings to provide all necessary information.’ 114

  See ibid, Art 18(6): ‘At the request of the Commission the governments and competition authorities of the Member States shall provide the Commission with all necessary information to carry out the duties assigned to it by this Regulation.’ 115

  See ibid, Art 17: Where the trend of trade between Member States, the rigidity of prices or other circumstances suggest that competition may be restricted or distorted within the common market, the Commission may conduct its inquiry into a particular sector of the economy or into a particular type of agreements across various sectors. In the course of that inquiry, the Commission may request the undertakings or associations of undertakings concerned to supply the information necessary for giving effect to Articles 81 and 82 of the Treaty and may carry out any inspections necessary for that purpose.

116

  See Commission Decision of 25 November 1981, COMP/IV/29.895, Telos, OJ L 58 of 2 March 1982, at 19–22, para 21. 117

  See Regulation 1/2003, n 21, Art 18(3): Where the Commission requires undertakings and associations of undertakings to supply information by decision, it shall state the legal basis and the purpose of the request, specify what information is required and fix the time-limit within which it is to be provided. It shall also indicate the penalties provided for in Article 23 and indicate or impose the penalties provided for in Article 24. It shall further indicate the right to have the decision reviewed by the Court of Justice.

118

  See ibid, Art 24: The Commission may, by decision, impose on undertakings or associations of undertakings periodic penalty payments not exceeding 5% of the average daily turnover in the preceding business year per day and calculated from the date appointed by the decision, in order to compel them: to put an end to an infringement of Article 81 or Article 82 of the Treaty, in accordance with a decision taken pursuant to Article 7; to comply with a decision ordering interim measures taken pursuant to Article 8; to comply with a commitment made binding by a

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decision pursuant to Article 9; to supply complete and correct information which it has requested by decision taken pursuant to Article 17 or Article 18(3); to submit to an inspection which it has ordered by decision taken pursuant to Article 20(4). 119

  The right to property is protected at Art 17 of the Charter of Fundamental Rights of the European Union, OJ C 83 of 30 March 2010, at 389–403. 120

  Article 20(4) of Regulation 1/2003 requires the Commission to specify in its decision that the firms have ‘the right to have the decision reviewed by the Court of Justice’, n 21. 121

  See M. Pino, ‘The Marine Hoses Cartel’ (2009) 2 Competition Policy Newsletter 53.

122

  See Regulation 773/2004, n 93, Art 3: Where the Commission interviews a person with his consent in accordance with Article 19 of Regulation (EC) No 1/2003, it shall, at the beginning of the interview, state the legal basis and the purpose of the interview, and recall its voluntary nature. It shall also inform the person interviewed of its intention to make a record of the interview.

123

  See Regulation 1/2003, n 21, Art 11(6): The initiation by the Commission of proceedings for the adoption of a decision under Chapter III shall relieve the competition authorities of the Member States of their competence to apply Articles 81 and 82 of the Treaty. If a competition authority of a Member State is already acting on a case, the Commission shall only initiate proceedings after consulting with that national competition authority.

124

  See CJ, C-142/84 BAT et Reynolds v Commission, 18 June 1986 [1986] ECR 1899 at 14.

125

  See Regulation 1/2003, n 21, Art 27(1): Before taking decisions as provided for in Articles 7, 8, 23 and Article 24(2), the Commission shall give the undertakings or associations of undertakings which are the subject of the proceedings conducted by the Commission the opportunity of being heard on the matters to which the Commission has taken objection. The Commission shall base its decisions only on objections on which the parties concerned have been able to comment. Complainants shall be associated closely with the proceedings.

126

  Regulation 773/2004, n 21, Art 10(1) which codifies established case law: ‘The Commission shall inform the parties concerned in writing of the objections raised against them. The statement of objections shall be notified to each of them.’ 127

  See Regulation 1/2003, n 21, Art 27(1): ‘The Commission shall base its decisions only on objections on which the parties concerned have been able to comment’. 128

  See Commission Decision of 16 December 1985, COMP/IV/30.839, Sperry New Holland, OJ L 376 of 31 December 1985, at 21. 129

  Article 27 explicitly states: ‘ Before taking decisions as provided for in Articles 7, 8, 23 and Article 24(2) …’. 130

  See GC, T-10/92 Cimenteries CBR ea v Commission, 18 December 1992 [1992] ECR II-2667, at 38. 131

  See Regulation 1/2003, n 21, Art 27(2).

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132

  See Commission Notice on the rules for access to the Commission file in cases pursuant to Articles 81 and 82 of the EC Treaty, Articles 53, 54 and 57 of the EEA Agreement and Council Regulation (EC) No 139/2004, OJ C 325 of 22 December 2005, at 7–15. 133

  Ibid, at para 8: The ‘Commission file’ in a competition investigation (hereinafter also referred to as ‘the file’) consists of all documents (6), which have been obtained, produced and/or assembled by the Commission Directorate General for Competition, during the investigation.

134

  See GC, T-10/92 Cimenteries CBR ea v Commission, n 130, at para 68.

135

  See Art 9 of Commission Decision of 23 May 2001 on the terms of reference of hearing officers in certain competition proceedings, OJ 2001 L 162, at 21: Where it is intended to disclose information which may constitute a business secret of an undertaking, it shall be informed in writing of this intention and the reasons for it. A time limit shall be fixed within which the undertaking concerned may submit any written comments. See Decision 2011/695 of the President of the European Commission of 13 October 2011 on the function and terms of reference of the hearing officer in certain competition proceedings, OJ L 275, 20/10/2011, at 29–37. 136

  See CJ, C-51/92 P Hercules Chemicals v Commission, 8 July 1999 [1999] ECR I-4235.

137

  However, the oral hearing is in principle recorded.

137a

  Decision 2011/695 of the President of the European Commission of 13 October 2011, n 135. 138

  For more information, see . 139

  See Regulation 1/2003, n 21, Art 14(1): ‘The Commission shall consult an Advisory Committee on Restrictive Practices and Dominant Positions prior to the taking of any decision under Articles 7, 8, 9, 10, 23, Article 24(2) and Article 29(1).’ 140

  Ibid, Art 14(3): The consultation may take place at a meeting convened and chaired by the Commission, held not earlier than 14 days after dispatch of the notice convening it, together with a summary of the case, an indication of the most important documents and a preliminary draft decision. In respect of decisions pursuant to Article 8, the meeting may be held seven days after the dispatch of the operative part of a draft decision. Where the Commission dispatches a notice convening the meeting which gives a shorter period of notice than those specified above, the meeting may take place on the proposed date in the absence of an objection by any Member State. The Advisory Committee shall deliver a written opinion on the Commission’s preliminary draft decision. It may deliver an opinion even if some members are absent and are not represented. At the request of one or several members, the positions stated in the opinion shall be reasoned.

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141

  Ibid, Art 14(5): ‘The Commission shall take the utmost account of the opinion delivered by the Advisory Committee. It shall inform the Committee of the manner in which its opinion has been taken into account.’ 142

  Ibid, Art 14(7): At the request of a competition authority of a Member State, the Commission shall include on the agenda of the Advisory Committee cases that are being dealt with by a competition authority of a Member State under Article 81 or Article 82 of the Treaty. The Commission may also do so on its own initiative. In either case, the Commission shall inform the competition authority concerned.

143

  Pursuant to Art 10 of Regulation 1/2003, Where the Community public interest relating to the application of Articles 81 and 82 of the Treaty so requires, the Commission, acting on its own initiative, may by decision find that Article 81 of the Treaty is not applicable to an agreement, a decision by an association of undertakings or a concerted practice, either because the conditions of Article 81(1) of the Treaty are not fulfilled, or because the conditions of Article 81(3) of the Treaty are satisfied. The Commission may likewise make such a finding with reference to Article 82 of the Treaty.

According to the Court of Justice ruling in Tele2 Polska, such decisions are an exclusive competence of the Commission, and NCAs are not be entitled, pursuant to Art 5 of Regulation 1/2003, to take such inapplicability decisions. See CJ, C-375/09 Prezes Urzȩdu Ochrony Konkurencji i Konsumentów v Tele2 Polska sp zoo, n 24, at para 8. Under Art 5 of Regulation 1/2003, the NCAs may only ‘decide that there are no grounds for action on their part’ where on the basis of the information in their possession the conditions for prohibition are not met. 144

  See Regulation 1/2003, n 21, Art 7(1): Where the Commission, acting on a complaint or on its own initiative, finds that there is an infringement of Article 81 or of Article 82 of the Treaty, it may by decision require the undertakings and associations of undertakings concerned to bring such infringement to an end. For this purpose, it may impose on them any behavioural or structural remedies which are proportionate to the infringement committed and necessary to bring the infringement effectively to an end. Structural remedies can only be imposed either where there is no equally effective behavioural remedy or where any equally effective behavioural remedy would be more burdensome for the undertaking concerned than the structural remedy. If the Commission has a legitimate interest in doing so, it may also find that an infringement has been committed in the past.

145

  See Commission Staff Working Paper, n 26, at para 92. See eg Commission Press Release, ‘Commission welcomes ENI’s structural remedies proposal to increase competition in the Italian gas market’, 4 February 2010, MEMO/10/29, available at . 146

  See Commission Decision, COMP.F.1/35.918, JCB, 21 December 2000, OJ L 69 of 13 March 2002, at 48. 147

  See Commission Decision, COMP/IV/25.757, Hasselblad, 2 December 1981, OJ L 161 of 12 June 1982, at 33.

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148

  See GC, T-101/05 and T-111/05 BASF and UCB v Commission, 12 December 2007 [2007] ECR II-4949, at 43. See also J. Schwartze, ‘Les sanctions imposées pour les infractions au droit européen de la concurrence selon l’article 23 du Règlement no 1/2003 CE à la lumière des principes généraux du droit’ (2007) 43(1) Revue Trimestrielle de Droit européen 1–9. 149

  See Regulation 1/2003, n 21, Art 23(2).

150

  Ibid, Article 23(3) .

151

  See on this D. Geradin and D. Henry, ‘The EC Fining Policy for Violations of Competition Law: An Empirical Review of the Commission Decisional Practice and the Community Courts’ Judgments’ (2005) 1 European Competition Journal 401. 152

  See Commission Decision of 28 November 2007 relating to a proceeding under Article 81 of the EC Treaty, COMP/39.165, Flat glass, OJ C 127 of 24 May 2008, at 9–11. 153

  See E. Combe and C. Monnier, ‘Cartel Profiles in the European Union’ [2007] 3 Concurrences 23; C. Veljanovski, ‘Cartel Fines in Europe—Law, Practice and Deterrence’ (2007) 29 World Competition 1. 154

  See Regulation 1/2003, n 21, Art 9.

155

  See ibid, recital 13 of the Preamble. See also Commission Press Release, ‘Commitment decisions (Article 9 of Council Regulation 1/2003 providing for a modernised framework for antitrust scrutiny of company behaviour)’, MEMO/04/217, 17 September 2004, available at . 156

  See ibid.

157

  Regulation 1/2003, n 21, Recital 13: Where, in the course of proceedings which might lead to an agreement or practice being prohibited, undertakings offer the Commission commitments such as to meet its concerns, the Commission should be able to adopt decisions which make those commitments binding on the undertakings concerned. Commitment decisions should find that there are no longer grounds for action by the Commission without concluding whether or not there has been or still is an infringement. Commitment decisions are without prejudice to the powers of competition authorities and courts of the Member States to make such a finding and decide upon the case. Commitment decisions are not appropriate in cases where the Commission intends to impose a fine.

158

  See Commission Press Release, ‘Commitment decisions’, n 155.

159

  See Regulation 1/2003, n 21, Art 27(4): Where the Commission intends to adopt a decision pursuant to Article 9 or Article 10, it shall publish a concise summary of the case and the main content of the commitments or of the proposed course of action. Interested third parties may submit their observations within a time limit which is fixed by the Commission in its publication and which may not be less than one month. Publication shall have regard to the legitimate interest of undertakings in the protection of their business secrets.

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160

  This notwithstanding, only behavioral commitments are limited in time. Structural commitments are, in contrast, perpetual. 161

  See Regulation 1/2003, n 21, Art 27(4). This provision further states that ‘Interested third parties may submit their observations within a time limit which is fixed by the Commission in its publication and which may not be less than one month.’ 162

  See ibid, Art 16(2).

163

  See CJ, Joined Cases C-238/99 P, C-244/99 P, C-245/99 P, C-247/99 P, C-250–252/99 P, and C-254/99 P Limburgse Vinyl Maatschappij NV, DSM NV and DSM Kunststoff en BV, Montedison SpA, Elf Atochem SA, Degussa AG, Enichem SpA, Wacker-Chemie GmbH and Hoechst AG and Imperial Chemical Industries plc v Commission, 15 October 2002 [2002] ECR I-8375, at 57. 164

  See Commission Decision of 17 March 2010 relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union, COMP/39.386, Long Term Electricity Contracts France, OJ C 133 of 22 May 2010, at 5–6; Commission Decision of 14 April 2010 relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union, COMP/39.351, Swedish Interconnectors, OJ C 142 of 1 June 2010, at 28–9; Commission Decision of 4 May 2010 relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union, COMP/39.317, E. ON Gas, OJ C 278 of 15 October 2010, at 9–10; Commission Decision of 29 September 2010 relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union, COMP/39.315, ENI, OJ C 352 of 23 December 2010, at 8–10. 165

  See CJ, C-441/07 P Commission v Alrosa Co Ltd, 29 June 2010, not yet published, at para 48. 166

  See Regulation 1/2003, n 21, Art 29(1): Where the Commission, empowered by a Council Regulation, such as Regulations 19/65/EEC, (EEC) No 2821/71, (EEC) No 3976/87, (EEC) No 1534/91 or (EEC) No 479/92, to apply Article 81(3) of the Treaty by regulation, has declared Article 81(1) of the Treaty inapplicable to certain categories of agreements, decisions by associations of undertakings or concerted practices, it may, acting on its own initiative or on a complaint, withdraw the benefit of such an exemption Regulation when it finds that in any particular case an agreement, decision or concerted practice to which the exemption Regulation applies has certain effects which are incompatible with Article 81(3) of the Treaty.

167

  In such settings, the Commission must consult the Advisory Committee, see Regulation 1/2003, n 21, Art 14(1): ‘The Commission shall consult an Advisory Committee on Restrictive Practices and Dominant Positions prior to the taking of any decision under Articles 7, 8, 9, 10, 23, Article 24(2) and Article 29(1).’ 168

  See CJ, C-792/79 R Camera Care v Commission, 17 January 1980 [1980] ECR 119, at 18. 169

  See Regulation 1/2003, n 21, Art 8: ‘In cases of urgency due to the risk of serious and irreparable damage to competition, the Commission, acting on its own initiative may by decision, on the basis of a prima facie finding of infringement, order interim measures.’ 170–172

  Ibid.

173

  Ibid, at para 32.

174

  Ibid.

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175

  See Commission Decision of 19 May 2010 relating to a proceeding under Article 101 of TFEU, COMP/38.511, DRAMs, OJ C 180 of 21 June 2011, at 15–17; Commission Decision of 20 July 2010 relating to a proceeding under Article 101 of the Treaty on the Functioning of the European Union, COMP/38.866, Animal feed phosphates, OJ C 111 of 9 April 2011, at 19–21; Commission Decision of 13 April 2011, relating to a proceeding under Article 101 of the Treaty on the Functioning of the European Union, COMP/39579, Consumer Detergents, OJ C 193 of 2 August 2011, at 14–16; Commission decision of 19 October 2011, relating to a proceeding under Article 101 of the Treaty on the Functioning of the European Union, COMP/39605—CRT Glass, nyr. 176

  See Art 263 TFEU.

177

  eg if the Commission dismisses complaints without providing reasons, see eg CG, T-442/07 Ryanair Ltd v Commission, 29 September 2011, not yet published. 178

  See, eg, GC, T-431/04 R Italian Republic v Commission, 18 June 2007 [2007] ECR II-64.

179

  See, eg, CJ, C-418/01 IMS Health GmbH & Co OHG v NDC Health GmbH & Co KG, 29 April 2004 [2004] ECR I-5039; CJ, C-439/08 Vlaamse federatie van verenigingen van Brooden Banketbakkers, Ijsbereiders en Chocoladebewerkers (VEBIC) VZW, 7 December 2010, not yet published; CJ, C-375/09 Prezes Urzędu Ochrony Konkurencji i Konsumentów v Tele2 Polska sp zoo, n 24. 180

  And Art 31 of Regulation 1/2003 which provides that ‘The Court of Justice shall have unlimited jurisdiction to review decisions whereby the Commission has fixed a fine or periodic penalty payment. It may cancel, reduce or increase the fine or periodic penalty payment imposed.’ 181

  See Art 263 TFEU: The Court of Justice of the European Union shall review the legality of legislative acts, of acts of the Council, of the Commission and of the European Central Bank, other than recommendations and opinions, and of acts of the European Parliament and of the European Council intended to produce legal effects vis-à-vis third parties.

182

  Ibid.

183

  See CJ, C-22/70 Commission v Council, 31 March 1971 [1971] ECR I-263, at 42. See also CJ, C-294/83 Les Verts v Parliament, 23 April 1986 [1986] ECR 1339, at 24 which states that those acts ‘intended to have legal effects vis-à-vis third parties’ can be challenged on the basis of Art 263 TFEU. 184

  See D. Simon, Le système juridique communautaire, 3rd edn (Paris: PUF, 2001), at para. 414. 185

  The contrary scenario by which a decision is re-interpreted so as to be qualified as a non-binding act seems theoretically feasible but has limited practical application. The Dalmine case, however, provides an example. The GC ruled that a decision enjoining the applicant to provide the required information within 30 days on pain of periodic penalty payment is not produc[ing] binding legal effects and does not therefore constitute a challengeable measure for the purposes of Article [263] of the Treaty. Nor does such a decision produce binding legal effects in so far as it holds the applicant jointly liable for the periodic penalty payments imposed on addressees of the same decision. That decision constitutes only a procedural stage during which the

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Commission adopts, where appropriate, a decision definitively fixing the total amount of the periodic penalty payment and thus bearing enforceable authority. It is therefore only a preparatory act which does not raise objections as such. See Order of the General Court, T-596/97 Dalmine v Commission, 24 June 1998 [1998] ECR II-2383. 186

  See Joined Cases C-8–11/66 Société anonyme Cimenteries CBR Cementsbedrijven NV and others v Commission [1993] ECR 75. 187

  See S. Van Raepenbusch, Droit Institutionnel de l’Union Européenne, 4th edn (Brussels: Larcier, 2005), at 616. 188

  See CJ, C-39/93 SFEI v Commission, 16 June 1994 [1994] ECR I-2681.

189

  See GC, T-64/89 Automec I, 10 July 1990 [1990] ECR II-3671.

190

  See GC, T-2/03 Verein für Konsumenteninformation v Commission (‘ Lombard Cartel’), 13 April 2005 [2005] ECR II-01121. See also L. Ritter and D. Braun, European Competition Law: A Practitioner’s Guide, 3rd edn (The Hague: Kluwer Law International, 2004), at 1155. 191

  See C. Kerse and N. Khan, EC Antitrust Procedure, 5th edn (London: Thomson-Sweet & Maxwell, 2005), at para. 8.033. 192

  See CJ, C-325/91 France v Commission, 16 June 1993 [1993] ECR I-3283.

193

  See CJ, C-23/63 Société anonyme Usines Emile Henricot and others v High Authority, 5 December 1963 [1963] ECR 441, at 445: It follows from the natural meaning of the word that a decision marks the culmination of procedure within the High Authority, and is thus the definitive expression of its intentions … that a decision must appear as a measure taken by the High Authority, acting as a body, intended to produce legal effects and constituting the culmination of procedure within the High Authority, whereby the High Authority gives its final ruling in a form from which its nature can be identified. 194

  Certain commentators have explained that this rule is necessary to avoid a situation by which the Commission finds itself impeded by too many intermediary appeals. See P. Duffy, ‘Quelles réformes pour le recours en annulation’ (1995) 5–6 Cahiers de Droit Européen 555. See also Simon, n 184, at 520. This justification is not, however, convincing. An annulment action does not produce suspensory effects. It is therefore difficult to see how the lodging of an annulment action could hinder institutional action. See Art 278 TFEU. It would seem more correct to state that the Court does not regard preparatory acts as producing legal effects insofar as they can later be cancelled out by a subsequent measure. 195

  See CJ, C-60/81 IBM v Commission, 11 November 1981 [1981] ECR 2639.

196

  In any event, the legal defects affecting preparatory acts can always be challenged incidentally on the back of an appeal against the final act. See IBM v Commission, ibid, at para 12: ‘whilst measures of a purely preparatory character may not themselves be the subject of an application for a declaration that they are void, any legal effects therein may be relied upon in an action directed against the definitive act for which they represent a preparatory step.’ 197

  See CJ, C-282/95 Guérin automobiles v Commission, 18 March 1997 [1997] ECR I-1503.

198

  See CJ, IBM v Commission, n 195, at para 11.

199

  See Van Raepenbusch, n 187, at 617.

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200

  See respectively CJ, C-374/87 Orkem v Commission, 18 October 1989 [1989] ECR 3283 and CJ, Joined Cases C-46/87 and 227/88 Hoechst v Commission, 21 September 1989 [1989] ECR 2859. 201

  Art 18(3).

202

  Art 20(4).

203

  See GC, T-377/00, T-379/00, T-380/00, T-260/01 and T-272/01 Philip Morris International, Inc v Commission, 15 January 2003 [2003] ECR 1. 204

  See Art 263 (2) and (3) TFEU. See Simon, n 184, at paras 416 and 419. The European Parliament, the Court of Auditors, and the European Central Bank must, however, prove the existence of an institutional interest to act, ie aiming at safeguarding their prerogatives. 205

  See Art 263(4) TFEU. With the exception, however, of proceedings against positive decisions (eg exemption decisions). See Simon, n 184, at para 422. 206

  See Art 263 TFEU.

207

  See Simon, n 184, at para 428.

208

  See CJ, C-386/96 Société Louis Dreyfus & Cie v Commission, 5 May 1998 [1998] ECR I-2309, at 43. 209

  See CJ, C-25/62 Plaumann, 15 July 1963 [1963] ECR 305. This condition has been harshly criticized by legal commentators. 210

  See GC, Joined Cases T-528/93, T542/93, T543/93, and T-546/93 Métropole télévision SA, Reti Televisive Italiane SpA, Gestevision Telecinco SA and Antena 3 de Television v Commission, 11 July 1996 [1996] ECR 649, at 62; GC, T-96/92 CE de la Société des grandes sources and others v Commission, 27 April 1992 [1992] ECR II-1213, at 35 and 36. 211

  See the principle laid down in CJ, C-26/76 Metro SB-Grossmarkte GmbH & Co KG v Commission, 25 October 1977 [1977] ECR 1875, at 13: it is in the interests of a satisfactory administration of justice and of the proper application of Articles 85 and 86 that natural or legal persons who are entitled, pursuant to Article 3(2)(b) of Regulation No 17, to request the Commission to find an infringement of Articles 85 and 86 should be able, if their request is not complied with either wholly or in part, to institute proceedings in order to protect their legitimate interests. 212

  See eg the possibility to hear representatives of workers’ organizations envisaged in Art 18(4) of Regulation 4064/89 on the control of concentrations between undertakings, OJ L 395 of 30 December 1989; GC, T-96/92 CE de la Société des grandes sources and others v Commission, n 211, at paras 35 and 36. But effective participation leads to the bestowal of having a ‘quality to act’, see CJ, C-75/84 Metro SB-Grossmarkte GmbH & Co KG v Commission, 22 October 1986 [1986] ECR 3021, at 222–3. 213

  See eg Regulation 1/2003, n 21, Art 27(3) and (4), which envisages: If the Commission considers it necessary, it may also hear other natural or legal persons. Applications to be heard on the part of such persons shall, where they show a sufficient interest, be granted. The competition authorities of the Member States may also ask the Commission to hear other natural or legal persons. Where the Commission intends to adopt a decision pursuant to Article 9 or Article 10, it shall publish a concise summary of the case and the main content of the commitments or of the proposed course of action. Interested third parties may submit their observations within a time limit which is fixed by the Commission in its publication and which may not be less than one month. Publication shall have

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regard to the legitimate interest of undertakings in the protection of their business secrets. See Commission Regulation 773/2004, n 93, Art 13(1): natural or legal persons other than those referred to in Articles 5 and 11 apply to be heard and show a sufficient interest, the Commission shall inform them in writing of the nature and subject matter of the procedure and shall set a time-limit within which they may make known their views in writing. 214

  See Regulation 139/2004, n 132, Art 18, and Art 11 of Commission Regulation 802/2004 of 7 April 2004 implementing Council Regulation 139/2004 on the control of concentrations between undertakings, OJ L 133 of 30 April 2004, at 1–39: For the purposes of the rights to be heard pursuant to Article 18 of Regulation 139/2004, the following parties are distinguished: (a)  notifying parties, that is, persons or undertakings submitting a notification pursuant to Article 4(2) of Regulation 139/2004; (b)  other involved parties, that is, parties to the proposed concentration other than the notifying parties, such as the seller and the undertaking which is the target of the concentration; (c)  third persons, that is natural or legal persons, including customers, suppliers and competitors, provided they demonstrate a sufficient interest within the meaning of Article 18(4), second sentence, of Regulation 139/2004, which is the case in particular —  for members of the administrative or management bodies of the undertakings concerned or the recognised representatives of their employees; —  for consumer associations, where the proposed concentration concerns products or services used by final consumers; (d)  parties regarding whom the Commission intends to take a decision pursuant to Article 14 or Article 15 of Regulation 139/2004.

215

  C. Kerse and N. Khan define a person as having an interest to act as every person suffering or having suffered direct loss or harm as a result of the practice in question. See Kerse and Khan, n 191, at paras 2.016 and 8.030. 216

  See GC, T-37/92 Bureau européen des unions des consommateurs and National Consumer Council v Commission, 18 May 1994 [1994] ECR II-285. See, on the other hand, the more restrictive conditions applicable to associations of undertakings, which must prove (i) that they are invested with the mandate to represent their members and (ii) that the practice in question causes serious harm to the interests of their members. See GC, T-114/92 BEMIM v Commission, 24 January 1995 [1995] ECR II-147. See also GC, T-87/92 BVBA Kruidvat v Commission, 12 December 1996 [1996] ECR II-1913. 217

  See GC, T-3/93 Société anonyme à participation ouvrière Compagnie nationale Air France v Commission, 24 March 1994 [1994] ECR II-121, at 82. 218

  See GC, T-158/2000 ARD v Commission, 30 September 2003 [2003] ECR II-3825.

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219

  See K. Lenaerts and J. Vanhamme, ‘Procedural Rights of Private Parties in the Community Administrative Process’ (1997) 34 Common Market L Rev 557 and L. Ortiz Blanco, EC Competition Procedure (Oxford: Clarendon Press, 1996), at 325 who consider that the case law is quite flexible. This observation is limited to competition law litigation (or to anti-dumping litigation), as the case law in other fields is much more restrictive. 220

  See M. Canedo, ‘L’intérêt à agir dans le recours en annulation en droit communautaire’ (2000) 3 Revue Trimestrielle de Droit Européen 454. 221

  The Court may examine the question of interest to act in order to determine if, because of the development of legal and factual circumstances, there is still an interest in bringing an annulment action against the challenged act. Thus, in MCI Inc v Commission where the parties (WorldCom—later MCI and Sprint) had abandoned the merger before the Commission had adopted a decision, it still continued with the procedure and adopted a prohibition decision. MCI brought an annulment action. The Commission invoked the lack of interest to act on the part of the applicant. The GC considered that ‘In the present case, the disappearance of the contractual basis for the merger transaction, following the notifying parties’ abandonment of the proposed merger, cannot therefore in itself preclude judicial review of the contested decision.’ See T-310/00 MCI Inc v Commission, [2004] ECR II-3253, at para 49. 222

  See contra G. Vandersanden, ‘Pour un élargissement du droit des particuliers d’agir en annulation contre des actes autres que les décisions qui leur sont adressées’ (1995) 5–6 Cahiers de Droit Européen 539–40 and Duffy, n 194, who enthusiastically welcomed the broadening of Art 230 EC to cover these types of actions. 223

  GC, T-96/92 Société Générale des grandes sources Perrier v Commission, 27 April 1995 [1995] ECR II-1213. 224

  See Commission Decision of 22 July 1992, Nestlé/Perrier OJ L 356, 1992. The Commission obtained from Nestlé a transfer of a broad range of brands and production capacity as high as 3 billion litres of water (about 20 per cent of the capacity of the three former operators) to a new and viable entrant which had sufficient production capacity to exercise competitive pressure on Nestlé and BSN. 225

  See GC, T-83/92 Zunis Holding and others v Commission, 28 October 1993 [1993] ECR II-1169. 226

  Ibid, at para 34. The GC limited the shareholders’ access to the court to ‘special circumstances’ which it did not define more specifically. This judgment was appealed to the Court of Justice. See C-480/93 Zunis Holding and others v Commission. The Advocate General expressed his disagreement with the GC on the question of direct concern. On the other hand, he considered that the applicants were not individually concerned insofar as the number of shareholders within Generali was extremely high. The Court of Justice did not respond from this angle, stating that the act was not open to challenge insofar as ‘a decision [ie the Commission’s letter] which merely confirms a previous decision [the clearance decision itself ] is not an actionable measure.’ 227

  See Brunswick Corp v Pueblo Bowl-O-Mat, Inc, 429 US 477, 489 (1977).

228

  Notably R. Posner, F. Easterbrook, W. Baumol, and J. Ordover, cited in E. Snyder and T. Kauper, ‘Misuse of the Antitrust Laws: The Competitor’s Plaintiff’ (1991) Michigan L Rev 551. 229

  Ibid.

230

  See CJ, Joined Cases C-10/68 and 18/68 Società ‘Eridania’ Zuccherifici Nazionali and others v Commission, 10 December 1969 [1969] ECR 459.

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231

  The case law has extended this exception to Directives. See CJ, C-10/95 Asocarne, 23 November 1995 [1995] ECR I-4149. But challenging Directives pose problems from the point of view of ‘direct’ concern insofar as they do not enjoy horizontal direct effect. See Simon, n 184, at 530–1. 232

  See C. Harding, ‘The Private Interest in Challenging Community Action’ (1992) 5 European L Rev 354. 233

  See CJ, C-50/00 P Union de Pequenos Agricultores v Council, 25 July 2002 [2002] ECR I-6677. 234

  The implementation of Art 267 or 277 TFEU demands, on the part of the applicant, an infringement of the Regulation, in order subsequently to invoke illegality. This is problematic for the following reasons. First, it seems rather odd that the only way for an applicant to challenge a Regulation is by first violating it. Second, these restrictions on the ability of individuals to challenge general acts seems incompatible with Art 6(1) of the Convention on Human Rights. Finally, this seems to clash with the objective of promoting citizens’ rights since the Maastricht Treaty. See notably, D. Waelbroeck, ‘Le droit au recours juridictionnel effectif du particulier—Trois pas en avant, deux pas en arrière’ (2002) 1–2 Cahiers de Droit Européen 3; Vandersanden, n 222; D. Waelbroeck and A.-M. Verheyden, ‘Les conditions de recevabilité des recours en annulation des particuliers contre les actes normatifs communautaires à la lumière du droit comparé et de la Convention des droits de l’homme’ (1995) 3–4 Cahiers de Droit Européen 399; A. Arnull, ‘Private Applicants and the Action for Annulment under Article 173 of the EC Treaty’ (1995) Common Market L Rev 7. 235

  See I. Forrester, ‘Modernisation: an extension of the powers of the Commission?’ in D. Geradin (ed), Modernisation and Enlargement: Two Major Challenges for EC Competition Law (Antwerp: Intersentia, 2004), at 87–8. See eg the low thresholds fixed by the Commission guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty, OJ C 101, 2004, at 81, paras 52–3, which pose a double negative and positive presumption of effect on trade and thus extend the field of application of European competition law. 236

  See C-325/91 France v Commission, 16 June 1993 [1993] ECR I-3283. The formal nonbinding nature of these acts does not exclude them from falling under Art 263 TFEU. 237

  See P. Craig and G. de Búrca, EU Law: Text, Cases, and Materials, 3rd edn (Oxford: Oxford University Press, 2003), at 516. 238

  See Art 263 (5) TFEU. Additional time limits are granted to those applicants who are geographically far away. 239

  See Art 19 of the Statute of the Court of Justice.

240

  See ibid, Art 40.

241

  See GC, T-219/99 British Airways plc v Commission, 17 December 2003 [2003] ECR II-5917; GC, T-65/98 Van den Bergh Foods Ltd v Commission, 23 October 2003 [2003] ECR II-4653. 242

  See CJ, Joined Cases C-2/01 and P C-3/01 Bundesverband der Arzneimittel-Importeure eV v Commission, 6 January 2004 [2004] ECR 2004 I-23. 243

  See GC, T-191/98 Atlantic Container Line AB v Commission, 30 September 2003 [2003] ECR II-3275. 244

  See GC, T-37/92 Bureau européen des unions des consommateurs andt National Consumer Council v Commission, n 216.

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245

  See GC, T-219/99 British Airways plc v Commission, n 241; GC, T-65/98 Van den Bergh Foods Ltd v Commission, n 241. 246

  See Arts 278 and 279 TFEU. See eg GC, T-88/94 Société commerciale des potasses et de l’azote et Entreprise minière et chimique v Commission, 15 June 1994 [1994] ECR II-401. See, for a recent example of a request in this sense, Order of the President of the CFI, T-201/04 Microsoft v Commission, 22 December 2004 [2004] ECR II-4463. 247

  An appellant is not justified to request the annulment of the whole decision but only those parts which have a direct and individual effect. 248

  See Art 42(2) of the Court of Justice’s rules of procedure and Art 48(2) of the GC’s rules of procedure. 249

  Litigants can invoke several grounds for review in support of their appeal.

250

  See Kerse and Khan, n 191, at para 8.037; Ritter and Braun, n 190, at 1155.

251

  See J. Rivero and J. Waline, Droit Administratif, 17th edn (Paris: Dalloz, 1998), at para 255. 252

  See CJ, C-5/85 AKZO Chemie BV and AKZO Chemie UK Ltd v Commission, 23 September 1986 [1986] ECR 2585. 253

  See GC, T-102/96 Gencor Ltd v Commission, 25 March 1999 [1999] ECR II-753. One could add to these two cases, cases in which the Commission introduces new legal principles, thereby going beyond the powers granted to it by primary and secondary law. See eg Continental Can where the Commission assumed the power to carry out merger control on the basis of Art 102 TFEU, CJ, C-6/72 Europemballage Corp and Continental Can Co Inc v Commission, 18 April 1975 [1975] ECR 215. 254

  See eg GC, T-25/95 SA Cimenteries CBR and others v Commission, 15 March 2000 [2000] ECR II-491, at 487 where the Commission infringed an essential procedural requirement by not inviting, during the administrative procedure, the undertakings to present their observations on the potential exercise of its power to impose a fine on them. 255

  Insufficient reasoning of a decision most certainly constitutes an infringement of an essential procedural requirement. See GC, T-305/94 Elf Atochem SA and others v Commission, 20 April 1999 [1999] ECR II-931, at 1172; CJ, Joined Cases 8–11/66 Société anonyme Cimenteries CBR Cementsbedrijven NV and others v Commission, 15 March 1967 [1967] ECR 75. 256

  See Ortiz Blanco, n 219, at 326.

257

  See CJ, C-30/78 Distillers v Commission, 10 July 1980 [1980] ECR 2223.

258

  See CJ, C-27/76 United Brands Co and United Brands Continental BV v Commission, 14 February 1978 [1978] ECR 207. 258a

  GC, T-328/03, O2 v Commission, ECR 2006 II-1231; GC, T-321/05, AstraZeneca AB and AstraZeneca plc v Commission, nyr; GC, T-427/08, Confédération européenne des associations d’horlogers-réparateurs (CEAHR) v Commission, nyr. 259

  See CJ, C-8/55 Fédéchar, 29 November 1956 [1956] ECR 291.

260

  Though formally evoking the lack of competence of the Commission, the Court of Justice judgment in Ford involved, in fact, a misuse of powers. See CJ, Joined Cases C-228/82 and 229/82 Ford of Europe Inc and Ford-Werke Aktiengesellschaft v Commission, 28 February 1984 [1984] ECR 1129.

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261

  See J.F. Bellis, ‘La détermination des amendes pour infraction au droit communautaire de la concurrence—bilan de cinq années d’application des lignes directrices de 1998’ (2003) 3–4 Cahiers de Droit Européen 377. This tendency is reinforced by the fact that the Commission seeks to make fines the central instrument in the implementation of the competition rules. To this end, it has put so-called ‘leniency programmes’ in place which allow it to grant a reduction in fines or even immunity from fines, in the case where the parties privy to an anticompetitive agreement reveal its existence or assist the Commission in bringing to light a violation of the Treaty rules. See Commission Notice on immunity, n 106. 262

  The Commission imposed a fine of €437,196,304 on Microsoft. See Commission Decision of 24 May 2004 relating to a proceeding pursuant to Article 82 of the EC Treaty, COMP/C-3/37.792, Microsoft, OJ L 32 of 6 February 2007, at 23–8. 263

  See Commission Decision of 27 February 2008 fixing the definitive amount of the periodic penalty payment imposed on Microsoft Corporation, COMP/C-3/37.792, Microsoft, OJ C 166 of 18 July 2009, at 20–3. 264

  A power which is confirmed in Art 31 of Regulation 1/2003 and by Art 16 of Regulation 139/2004, n 132. See on this S. Mail-Fouilleul, Les sanctions de la violation du droit communautaire de la concurrence (Paris: LGDJ, 2002), at para 598. 265

  For an empirical analysis of this matter see D. Geradin and D. Henry, ‘The EC Fining Policy for Violations of Competition Law: An Empirical Review of the Commission’s Decisional Practice and the Community Courts’ Judgments’, (2005) European Competition J 401. 266

  GC, T-101/05 and T-111/05, BASF and UCB v Commission, n 148. National review courts also occasionally increase fines. In France, on 11 January 2005, the Paris Court of Appeal, for the first time, increased a fine meted out by the national competition authority. It doubled the €20 million fine levied on France Telecom by the national competition authority for failing to respect an injunction imposed on it, see Council Decision 04-D-18 of 13 May 2004. 267

  See Arts 268 and 340 TFEU.

268

  See CJ, C-26/81 Oleifici Mediterranei v CEE, 29 September 1982 [1982] ECR 3057, at 16 and GC, T-383/00 Beamglow v Parlement ao, 14 December 2005 [2005] ECR II-5459, at 95. 269

  See CJ, C-352/98 P Bergaderm and Goupil v Commission, 4 July 2000 [2000] ECR I-5291, at 40, 42, and 44. 270

  See GC, T-28/03 Holcim AG v Commission, 21 April 2005 [2005] ECR II-1357.

271

  See CJ, C-440/07 P Commission v Schneider Electric SA, 16 July 2009 [2009] ECR I-6413; GC, T-212/03 MyTravel Group v Commission, 9 September 2008 [2008] ECR II-2027. 272

  See N. Petit and C. Lousberg, ‘TPI, 9 septembre 2008, MyTravel Group plc/ Commission’ (2008) 4 Revue des Affaires Européennes 785–92. 273

  See CJ, C-83/76 and 94/76, and 4/77, 15/77 and 40/77 Bayerische HNL Vermehrungsbetriebe GmbH & Co KG and others v Council and Commission, 25 May 1978 [1978] ECR 1209. 274

  When the EU Courts find a decision illegal, they must strike it down (in full or in part).

275

  See B. Vesterdorf, ‘Judicial Review in EC Competition Law: Reflections on the Role of the Community Courts in the EC System of Competition Law Enforcement’ (2005) 1 Global

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Competition Policy 3–27, at 9ff; D. Bailey, ‘Scope of Judicial Review under Article 81 EC’ (2004) 41 Common Market L Rev 1327–60, at 1330ff. 276

  See Vesterdorf, n 275, at 10: The [EU] system envisaged a sort of institutional balance. The Commission and the Courts should focus on their respective primary functions: competition policy and enforcement on the one hand, judicial review on the other. It is a simple, but fundamentally important, premise which is enshrined in the EC Treaty itself.

277

  See Conclusions of Commissaire du gouvernement G. Braibant under Lagrange, CE, 15 February 1961. 278

  See Vesterdorf, n 275, at 11.

279

  Ibid, at 12.

280

  See eg C-374/87 Orkem v Commission, n 200, at paras 35–40 (holding that the Commission cannot use requests for information to force investigated firms to admit they have breached EU competition law); CJ, C-155/79 AM&S v Commission, 18 May 1982 [1982] ECR 1575. 281

  See CJ, C-440/07 P Commission v Schneider Electric SA, n 271.

282

  For a discussion of these standards, see E. Elhauge and D. Geradin, Global Antitrust Law & Economics (Eagan, MN: Foundation Press, 2007). 283

  See Vesterdorf, n 275, at 13.

284

  See GC, Joined Cases T-68/89, T-77/82, and T-78/89 SIV v Commission, 10 March 1992 [1992] ECR II-1403, at 95. 285

  In the Airtours, Tetra Laval, and Schneider/Legrand cases. See GC, T-342/99 Airtours v Commission, 6 June 2002 [2002] ECR II-02585; T-80/02 Tetra Laval v Commission, 25 October 2002 [2002] ECR II-04519; and T-77/02 Schneider v Commission, 22 October 2002 [2002] ECR II-04519. The GC took issue with the lack of cogent evidence supporting the assertions made by the Commission. 286

  See C. Bellamy, OECD Roundtable, Judicial Enforcement of Competition Law, 1996, at 106, available at . 287

  See the various tools referred to in the Commission Notice on the definition of relevant market for the purposes of Community competition law, OJ C 372 of 9 December 1997, at 5– 13. 288

  See CJ, C-56/64 and 58/64 Etablissements Consten SaRL and Grunding-Verkaufs-GmbH, 10 June 1965 [1965] ECR 299. 289

  See C-42/84 Remia v Commission, 11 July 1985 [1985] ECR II-649.

290

  See GC, T-201/04 Microsoft v Commission, 17 September 2007 [2007] ECR II-3601, at 87. 291

  See CJ, Joined Cases C-68/94 and C-30/95 French Republic and Société commerciale des potasses et de l’azote (SCPA) and Entreprise minière et chimique (EMC) v Commission (‘ Kali & Salz’), 31 March 1998 [1998] ECR I-1375. 292

  Ibid, at paras 14–15.

293

  See text accompanying paras 5.255 ff.

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294

  See I. Forrester, ‘A Bush in Need of Pruning: The Luxuriant Growth of Light Judicial Review’ in C.D. Ehlermann and M. Marquis (eds), European Competition Law Annual 2009: Evaluation of Evidence and Its Judicial Review in Competition Cases (Oxford: Hart Publishing, 2010). 295

  See eg Commission Decision of 4 July 2007 relating to a proceeding under Article 82 of the EC Treaty, COMP/38.784, Wanadoo España v Telefónica, OJ C 83 of 2 April 2008, at 6–9. 296

  Communication from the Commission, Guidelines on the application of Article 81(3) of the Treaty, OJ C 101 of 27 April 2004, at 97. 297

  See N. Forwood, ‘The Commission’s More Economic Approach: Implications for the Role of the EU Courts, the Treatment of Economic Evidence and the Scope of Judicial Review’, in Ehlermann and Marquis (eds), n 294. 298

  Ibid.

299

  Ibid.

300

  Ibid.

301

  See Bellamy, n 286.

302

  Ibid.

303

  Ibid.

304

  Ibid.

305

  See CJ, C-12/03 P Commission v Tetra Laval (‘ Tetra Laval II’), 15 February 2005 [2005] ECR I-987, at 328. 306

  See Opinion of Advocate General Tizzano delivered on 25 May 2004, at para 87.

307

  See GC, T-342/99 Airtours v Commission, n 285.

308

  See CJ, C-129/85 Ahlström Osakeyhtiö and Others v Commission, 31 March 1993 [1993] ECR I-1307. 309

  See GC, T-342/99 Airtours v Commission, n 285.

310

  See GC, T-310/01 Schneider Electric v Commission, n 271.

311

  See GC, T-5/02 Tetra Laval v Commission [2002] ECR II-4381.

312

  See Y. Botteman, ‘Mergers, Standard of Proof and Expert Economic Evidence’ (2006) 2 J Competition Law and Economics 71.(p. 390)

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6 Cartels And Other Horizontal Hardcore Restrictions Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Subject(s): Cartels — Horizontal agreements — Basic principles of competition law

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(p. 391) 6  Cartels And Other Horizontal Hardcore Restrictions I.  The EU Anti-Cartel Policy 6.01 II.  Substantive Cartel Law 6.15 A.  Substantive Scope of Application—What Agreements Constitute Hardcore Cartels? 6.15 B.  Personal Scope of Application—What Undertakings are Liable for Hardcore Cartels? 6.53 C.  Temporal Scope of Application—Are There Time Limits for Pursuing a Hardcore Cartel? 6.75 III.  Institutional Aspects of Cartel Law 6.78 A.  Deterring Hardcore Cartels 6.78 B.  Litigation Relating to Cartels and Hardcore Restrictions 6.113

I.  The EU Anti-Cartel Policy 6.01  Concept of cartel A cartel can be defined as a collective organization whose members make an agreement to suspend competition among themselves. The Organization of Petroleum Exporting Countries (OPEC), a group of States which jointly limit the quantities of oil placed on the market, is undoubtedly the best example of what a cartel may be. 6.02  Similar in nature, the cartels against which EU competition law takes exception are however slightly different. Whilst Article 101 TFEU takes issue with collective organizations whose purpose is to suspend competition, its primary target are secret organizations, not State-sponsored ones, whose members are undertakings and not government entities. 6.03  Public enemy no 1 The father of classical economics, Adam Smith, was one of the first economists to voice concerns over the harmful effects of cartels. In his famous work The Wealth of Nations in 1776, Smith explained that: … People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.1 (p. 392) 6.04  More recently, former EU Competition Commissioner Mario Monti described cartels as ‘cancers on the open market economy’.2 In a similar vein, US Supreme Court Judge Antonin Scalia labelled cartels as the ‘supreme evil’ of the antitrust laws. EU competition law describes cartels more soberly, but still eloquently, as ‘hardcore restrictions’ or ‘hardcore cartels’. 6.05  Economic clarification The very reason why competition officials never seem to run short of harsh enough words to describe cartels can be found in economic theory. Economists unanimously agree that a cartel produces significant welfare losses, which probably exceed those of a monopoly (for reasons discussed below).3 A cartel is, in fact, comparable to a collective monopoly. It therefore exhibits all the inefficiencies associated with form of organization: allocative inefficiencies (customers who are willing to pay a price

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higher than the costs of the producers, but inferior to the cartel price, are nonetheless not served) and distributive inefficiencies (unequal distributions of surplus). 6.06  In addition, however, because a cartel is collective in nature,4 it exhibits none of the efficiencies that arise from a single-firm monopoly. The productive efficiencies and, more particularly, the economies of scale generally associated with size tend to be absent, at least in principle, because production is spread across several undertakings. Further, cartels are not a source of dynamic efficiencies. Cartel participants have indeed no incentive to engage in costly business or technological innovation, unless they want to defect from the cartel. In sum, according to modern economy theory, the cartel has all the disadvantages of monopoly power without any of its potential benefits. 6.07  Empirical clarification Economists have long tried empirically to validate the negative preconception surrounding cartels. Although their findings tend to be variable in their particulars,5 they all essentially lead to the same qualitative conclusion: cartels raise prices and lower welfare. 6.08  For instance, a representative study by John Connor and Robert Lande focusing on the cartel overcharge (the difference between the cartel price and the competitive price that would have prevailed absent the cartel) caused by 674 cartels in the United States and Europe (p. 393) throughout the period 1780–2004,6 identified an average overcharge of 25 per cent and up to 43 per cent for national cartels within Europe.7 6.09  Other studies relating to the global social cost of cartels have produced equally alarming results. For instance, in 2000 the OECD assessed the negative effects of cartels (ie, the overcharge and the various inefficiencies they generate)8 at nearly 20 per cent of the trade volume affected by the cartels.8a Similarly, in 2008, the Commission reviewed the 18 cartels which had been subject of Commission decisions during the years 2005 to 2007. Assuming a middle overcharge of 10 per cent, the Commission estimated that those cartels had given rise to a consumer harm of approximately EUR 7.6 billion.9 6.10  Stability If, as was thought by some economists in the first half of the last century,10 cartels are naturally self-destructing cooperatives due to the temptations of private gain earned at the expense of the collective, their substantial negative social welfare implications would not be too worrisome. As modern economics and competition agency experience has established all too well, however, even though cartel agreements are generally fragile, they can also be tenacious and thus long lasting. Certain environments tend to facilitate collusion. In particular, [h]omogeneity of product and purchasing commitments, high market concentration, small number of sellers, inelastic demand, high barriers to entry, small size of buyers, and availability of information [especially pricing information] are some of the factors that are likely to facilitate collusion.11 Several sectors which exhibit such features—such as agricultural products, chemicals, raw and semi-finished industrial materials, and construction—have in recent years been the target of high-profile investigations.12 Thus, cartels appear to be a perennial problem, which helps to explain the harsh stance against such agreements taken by competition authorities in all of the developed nations. 6.11  Legal implications Under EU law, cartels are considered to be restrictions of competition ‘by object’ within the meaning of Article 101(1) TFEU. Cartel members cannot thus escape a finding of infringement by claiming that their agreement has no anticompetitive effects,13 (p. 394) that they had no intention to restrict competition,14 or that they were forced to join the cartel.15 In addition, even if these agreements are not explicitly excluded from the benefit of an exemption pursuant to Article 101(3) TFEU, the

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Commission considers it ‘highly unlikely’ that they can fulfil the four cumulative conditions provided for in this provision.16 6.12  Political implications For several years, competition authorities throughout the world, with the European Commission at the forefront, have been engaged in a crusade against cartels.17 In the EU, the increased intensity in the battle against cartels is the result of a two-pronged historical development. 6.13  In the mid-1990s, observing that large-scale cartels were still operating on the EU territory, the Commission, via Commissioner Van Miert, acknowledged the failure of its anticartel enforcement policy, and the need to improve its cartel detection instruments.18 Drawing on the insights of economic theory, a system incentivizing cartelists to denounce their conspiracies in exchange for immunity from fines (an approach which had already been used successfully by US antitrust officials) was thus introduced in 1996 into EU law, (p. 395) and subsequently improved further in 2002 and 2006. Under this so-called ‘leniency programme’, the Commission grants full immunity from fines to firms that are the first to come forward with elements of proof that allow the Commission to establish an infringement of Article 101(1).19 The Commission’s leniency policy also extends lesser rewards to undertakings that are not the first to provide information regarding unlawful agreements. Later denouncers may face reduced fines if they provide the Commission with ‘evidence … which represents significant added value with respect to the evidence already in the Commission’s possession’.20 6.14  At the same time the Commission embarked on a dramatic, and highly controversial,21 policy of significantly increasing the fines imposed on undertakings guilty of infringing Article 101(1). Between 2006 and 2007, the total amount of fines imposed thus increased a staggering 44.62 per cent to €3,333,802,700 in 2007.22 This trend seems to be far from over.23 In 2008, the Commission imposed fines totalling €2.271 billion on 34 undertakings in seven different cases.24 In the Car Glass cartel, for instance, the Commission imposed fines totalling €1,383,896,000 on Asahi, Pilkington, Saint-Gobain, and Soliver for partaking in unlawful market-sharing agreements and for exchanging commercially sensitive information regarding the supply of car glass in the European Economic Area. St Gobain alone, a repeat off ender, was given a fine of €896,000,000.25 In 2009, the Commission imposed fines of €553 million to both E.ON and GDF Suez for sharing the French and German natural gas markets.26 In 2010, the Commission slapped a €799 million fine on 11 air cargo carriers and a €648 million on 6 LCD panel producers for unlawful cartels.26a

(p. 396) II.  Substantive Cartel Law A.  Substantive Scope of Application—What Agreements Constitute Hardcore Cartels? (1)  Concept of a hardcore cartel 6.15  Article 101(1) TFEU The various examples of agreements explicitly prohibited under Article 101(1) TFEU constitute hardcore cartels.27 These are agreements, decisions of associations of undertakings, or concerted practices 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 source of supply; d)  apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

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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. 6.16  According to the Court of Justice, this list is, however, not exhaustive.28 The Commission and the national competition authorities (NCAs) can thus investigate and sanction ‘hardcore cartels’ that are not explicitly referred to in Article 101(1), such as joint boycott agreements. Furthermore, the fact that an agreement falls within one of the categories listed in Article 101(1) does not trigger in itself the prohibition mechanism found in that provision. As discussed in Chapter 3, to fall under that provision, the agreement in question must also affect trade between Member States and have an impact within the common market.29 6.17  ‘Vertical’ cartels (1) If the text of the TFEU clearly covers horizontal cartels, that is, agreements between actual or potential competitors, the term ‘hardcore restriction’ is also frequently used to describe agreements which, at first glance, do not seem to constitute cartels. This is in particular the case of certain practices within distribution networks (called ‘vertical restrictions’) which can, like horizontal cartels, inflict substantial harm on social welfare. Examples of this include resale price maintenance whereby suppliers directly or indirectly fix the resale price of their distributors.30 Such a practice may contribute to standardize prices just like a cartel, but at the retail level. 6.18  Undertakings involved in distribution agreements tend, however, to underestimate the risk of a violation of Article 101(1) TFEU. In 2003, for instance, Yamaha, the maker of musical (p. 397) instruments, was hit with a €2.56 million fine for ‘partitioning’ markets along national lines and imposing resale prices on its distributors, within its selective distribution network, for products such as pianos, guitars, and oboes in various Member States.31 Apparently, this market partitioning was not part of a deliberate infringement strategy, but was more of a misstep stemming from a lack of understanding over what constitutes a breach of Article 101(1).32 6.19  ‘Vertical’ cartels (2)33 The strict prohibition of certain categories of vertical restrictions is not surprising, considering the market integration purpose that underpins EU competition rules. In fact, the impact on market integration of a vertical agreement between a producer and each of its national distributors, which organizes absolute territorial protection of each downstream buyer is not fundamentally different from the effect of a horizontal agreement partitioning the national markets among producers (except that the latter affects interbrand, rather than intra-brand, competition, and is harder to justify by efficiencies). Hence, in 2002, the Commission slapped a €167.8 million fine on Nintendo and seven of its official distributors in Europe for entering into an agreement aimed at preventing exports from countries with low prices to countries with high prices.34 Pursuant to the agreement, each distributor was charged with preventing parallel trade from its own territory (ie, exports to another Member State through parallel distribution channels). Under the guidance of Nintendo, the distributors also collaborated closely to track any parallel trade. Distributors that authorized the parallel exports were punished by having their supply reduced or even entirely cut. 6.20  A similar rationale led the Commission to impose a fine of €49.5 million on Automobiles Peugeot SA and its subsidiary Peugeot Nederland NV for adopting a strategy aimed at preventing their Dutch dealers from exporting cars to consumers based in other Member States.35 In the Netherlands, car prices before tax were generally lower than in other Member States with the resulting consequence that a flow of parallel exports from the Netherlands had developed within the network of Dutch Peugeot dealers. To put an end to this situation, Automobiles Peugeot SA and its Dutch subsidiary adopted two types of measures. First, Peugeot set up a system whereby part of the compensation of its Dutch dealers was calculated based on the ultimate destination of the car, hence encouraging From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

these dealers to discriminate against sales to foreign customers. In addition, Automobiles Peugeot SA, via its subsidiary Peugeot Nederland NV, started putting direct pressure on the dealers who had developed a significant export business by threatening to reduce the number of vehicles delivered to them.

(p. 398) (2)  Types of hardcore cartels 6.21  Outline The categories of agreements expressly listed in Article 101(1) offer a good summary of the various types of ‘hardcore cartels’ prohibited by EU law. As already noted, this list is, however, not exhaustive. Other types of cartels deemed hardcore must also be added to it as the case law of the Commission and the Court of Justice develops. 6.22  In most cases of hardcore cartels, the cartelists do not coordinate on just one single aspect of their commercial and industrial policy—they reach agreements on a whole range of factors, such as prices, output, contractual terms, and sales conditions. For the purpose of simplicity, the cases examined below are examined from a single angle, although they could generally be discussed under a variety of viewpoints.

(a)  Cartels related to price fixing or other trading conditions 6.23  Article 101(1)(a) TFEU states that cartels that ‘directly or indirectly fix purchase or selling prices or any other trading conditions’ should be declared incompatible. While cartels concerning prices are particularly widespread (Section (i)), cartels concerning trading conditions are less frequent (Section (ii)). (i)  Price-fixing cartels

6.24  Principle Price competition is at the heart of economic rivalry between undertakings. Therefore, according to the Commission, price-fixing cartels restrict competition in ‘one of its key forms’.36 6.25  Examples The ban on price-fixing cartels covers a variety of different situations. Hardcore cartels include agreements pursuant to which competitors: •  fix prices, 37 price objectives, 38 price increases, 39 target prices, 40 minimum sale prices, 41 recommended prices, 42 and price structuring principles; 43 (p. 399) •  set the purchase price paid by processors to suppliers;

44

•  divide customers in several categories and apply to them jointly defined differentiated prices; 45 •  set the level of rebates offered to customers;

46

•  decide not to offer rebates or discounts, reach agreements on maximum rebates, or on reductions of the rebates they offer to customers; 47 •  adopt a mathematical model for calculating and establishing a minimum common sales prices; 48 •  establish a recommended scale of minimum fees due for professional services provided as an independent contractor; 49 •  prohibit ‘destructive sales below cost’, engaging in dumping, or selling below published prices; 50 •  impose fixed profit margins and standard payment terms; •  fix general price increases based on an index; •  fix the purchase prices of commodities;

53

51

52

or

•  establish a compensation system to balance revenues coming from sales in the domestic market and those for export. 54

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6.26  Ancillary agreements In order to ensure that their agreement works as planned, parties to a price-fixing cartel often adopt ancillary agreements. In addition to a price-fixing agreement, for instance, cartelists may also conclude an agreement setting a timetable for pricing announcements, so as to ensure effective functioning of the principal agreement. Another (p. 400) example would be an agreement providing for regular price ‘reporting’ obligations meant to ensure that the parties to the cartel have indeed complied with their obligations. These agreements are just as illegal as the principal price-fixing agreement they aim to supplement. 6.27  Economic clarification Those ancillary agreements are often of critical importance in ensuring the stability of a cartel. As noted in Chapter 3, early economic theory expressed the view that cartels should not be a priority for competition authorities given cartels’ inherent tendency to collapse. This claim, however, was based on theory that tended to focus on the price-fixing aspects of cartels in isolation and did not fully account for the range of mechanisms that undertakings could use against cartel cheating or defection.55 Later studies established that cartels are often long-lived, albeit frequently with episodic success.56 When seen in this light, it is clear that the full set of agreements between cartelists must be analysed as the seemingly less harmful aspects of an agreement may in fact be the glue that has held the cartel together.57 (ii)  Cartels over trading conditions

6.28  Principle Cartel agreements may also relate to the terms and conditions under which products/services are supplied.58 Those agreements eliminate competition over the quality of the products or services sold by competitors. In the TACA case, for instance, rival shipping companies had entered into an agreement regarding, inter alia, the conditions under which they were allowed to conclude service contracts with ship loaders. As the Commission observed in its decision, these ‘joint service’ contracts harmonized the trading conditions: in the absence of a joint service contract carriers might offer such additional services as increased freetime, extended credit and free documentation or discounts on services provided in other trades. Joint service contracts may therefore help to eliminate any non-price competition. The agreement between the TACA parties to place restrictions on the conditions under which individual service contracts may be entered into also fall within Article [101], paragraph 1, of the Treaty and Article 53, paragraph 1, of the EEA Agreement since its object or effect is to restrict competition on price and other terms.59 6.29  Agreements concerning terms and conditions may encompass a large variety of factors, such as the duration and scope of warranties, after-sales services, payment deadlines, delivery facilities, terms for the rescinding of contracts, etc.60(p. 401) View full-sized figure

Figure 6.1  The price and quantity effects of cartels

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(b)  Cartels limiting production, markets, technical development, or investments (i)  Limitation or control of production

6.30  Principle As a general rule, a single undertaking’s unilateral limitation of production in an oligopolistic market does not reduce the total quantities offered on the market.61 Facing such a reduction from one rival, competing manufacturers usually offset the cut in output by increasing their own capacities. This market call-and-response, however, is disrupted when manufacturers in the same market reach an agreement to reduce the overall quantities placed on the market.62 Under collusion conditions, the total market supply declines. Representing this dynamic graphically, see Figure 6.1, the supply curve shifts to the left and the prices increase. As noted at the beginning of the chapter, this outcome is in all respects similar to the outcome resulting from a monopoly. 6.31  In practice, joint output reduction strategies can be implemented in various ways. One option is to limit output directly—at the production level—with the concerted allocation of output via quotas to each cartel member. In the Industrial bags case, 16 manufacturers of plastic bags for packaging industrial products or raw materials, fertilizer, agricultural products, and building materials, who jointly held 75 per cent of the market, adopted production quotas based on geographic zones.63 Restrictions can also be made indirectly, at the level of supply to customers (eg distributors). In this variant, operators do not reduce the quantities they produce but rather reduce the quantities they supply to customers. The quantities produced that are not sold are either stored (they then represent a tool with which to punish (p. 402) members if there is any deviation from the agreement) or they are sold on alternative markets.64 (ii)  Limitation or control of ‘markets’

6.32  The concept of an agreement limiting ‘markets’, as defined in the Treaty, is somewhat obscure. An illustration of this type of agreement can be found in the Commission decision in the BP Kemi case. The Commission considered that when a major buyer undertakes, for a specific period, to buy all the required quantities of any given product from a single manufacturer, it prevents other manufacturers of the same product from supplying this large buyer during the period in question. The effect of this agreement, which is usually referred to as single branding, is to entirely foreclose, for the supply of the large buyer in question, all competition between the supplier who won the contract and other rival suppliers: when a purchasing obligation of a longer duration is entered into, the relationship of supply is frozen and the role of offer and demand is eliminated to the disadvantage of inter alia new competitors who are thereby prevented from supplying this customer and old competitors who in the meantime may have become more competitive than the actual supplier.65 6.33  This type of agreement can also be examined under Article 102 TFEU if the supplier occupies a dominant position on the relevant market. (iii)  Limitation or control of technical development

6.34  Competition is a key driver of technical development. For instance, in the wireless equipment sector, the development of handsets that take photographs, read audio files, display videos, or provide road navigation services results from relentless competition taking place between handset manufacturers. Just as price competition erodes undertakings’ profit margins, so too can costly R&D. 6.35  The possibly considerable size of R&D investments combined with the significant risk of commercial failure of many innovation policies may induce operators to collude to limit their R&D expenditures. Others may agree on a time schedule for the commercial launch of new innovations. Although there is no doubt that such restrictions are less frequent than

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agreements on prices, output, or trading conditions, they nevertheless represent hardcore restrictions. (iv)  Limitation or control of investment—the principle

6.36  Agreements limiting or controlling investment are those where undertakings agree, for instance, not to invest in the construction of new plants or factories, not to acquire IP rights, and so forth. Those agreements are similar, in effect, to agreements that limit production or technical development. The French Brewery case provides a good illustration of those agreements. In this case, two major French breweries, following a bidding war for the acquisition (p. 403) of drink wholesalers, agreed to a truce aimed at ending the growing costs of wholesaler acquisition, as well as keeping their respective distribution networks balanced.66 (v)  Limitation or control of investment—the specific case of crisis cartels

6.37  A particular form of agreement designed to limit output or investment consists in socalled ‘crisis cartels’, whereby undertakings active in an economic sector suffering from overcapacity collaborate and agree to stop investing in further production facilities or even to reduce existing production capacities. 6.38  While such agreements no doubt harm consumers in the short term as excessive levels of output have depressing effects on prices, they might nevertheless be beneficial in the long run as consumers have a vested interest in the financial health and the good performance of their suppliers. Certainly, the disappearance of undertakings from the market due to bankruptcies may suddenly increase concentration with resulting negative effects on allocative efficiency. 6.39  Crisis cartels aimed at cutting production capacity in an orderly manner may offer a reasonable way to reduce overcapacity, if in the absence of coordination no undertaking would be willing to commit itself to reducing its own output given the risks that the resulting gap may be automatically filled by competitors unwilling to comply with similar commitments. In the long run, of course, in the face of persistent overcapacity even without any coordination at all some firms will certainly fail, so the ultimate question is one of timing—is consumer welfare better served through a more immediate coordinated reduction of capacity decided upon by industry participants or through a potentially longer process guided by market forces? 6.40  With this question in mind, the European Commission has opted to take a measured approach vis-à-vis crisis cartel agreements.67 While the Commission considers that these agreements are in principle prohibited under Article 101(1), it has nevertheless accepted that they can be justified under Article 101(3) TFEU when: (i)  the situation of structural overcapacity is proven; (ii)  the agreement seeks to remedy this situation through a coordinated reduction of this overcapacity; (iii)  the agreement does not entail any pricing coordination or market sharing; (iv)  the agreement is entered into for a limited duration that is precisely established. 6.41  In the Zinc Producers case,68 the Commission indicated that it was ready to exempt a joint capacity reduction agreement due to ‘the heavy financial in the European zinc industry and due to the fact that the agreement was concluded for a specified period’. 6.42  The Commission has also ruled on crisis cartels of more limited coverage. In its decision in Stichting Backsteen, the Commission exempted from the Article 101(1) TFEU prohibition a (p. 404) restructuring agreement limited to a single State, namely the Netherlands.69 In Rovin,70 the Commission considered that a capacity reduction agreement involving the creation of a joint venture between Shell and Akzo would lead to a better From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

utilization of existing capacity and, consequently, to a healthier situation in the sector. The Commission issued a ‘comfort letter’ indicating that the agreement did not infringe Article 101(1). 6.43  The Irish Beef case The recent case law of the Court of Justice, however, seems to take a tougher stance on crisis cartels. For instance, in the so-called Irish Beef case, the ten main Irish beef processing companies formed an organization, BIDS, responsible for preparing a draft plan leading, in particular, to a reduction of around 25 per cent in their processing capacity. BIDS planned to implement this goal by entering into agreements between the undertakings remaining on the market (those remaining) and the undertakings forced to exit the market (those leaving). The draft agreement provided that those remaining would compensate those leaving, who, in return, would undertake to destroy or decommission their processing equipment, or to sell it only to companies based outside Ireland or, where applicable, to those remaining in the market. Further, those leaving would undertake not to compete with those remaining for two years on the beef processing market in Ireland. The Irish NCA held that this agreement was contrary to Article 101(1). Upon appeal by the beef processing companies, the High Court overturned the NCA’s decision. The latter subsequently took the case to the Supreme Court, which decided to stay proceedings so that a reference for a preliminary ruling could be made to the Court of Justice regarding the issue of whether an agreement whereby processors representing approximately 93 per cent of the beef supply market seek to eliminate overcapacity constitutes a restriction of competition ‘by object’. Noting that the agreement led to an increase in the degree of market concentration by significantly reducing the number of undertakings offering processing services, the Court of Justice ruled that this type of agreement conflicted with the spirit of the provisions of the Treaty relating to competition, according to which an economic operator must determine the commercial policy it intends to follow on the market independently. In fact, the undertakings that signed on to the BIDS agreements would not, without those agreements, have had any other means of improving their profitability aside from intensifying their commercial rivalry or concluding mergers. Owing to the agreements, they were permitted to avoid such a process and to ‘mutualize’ a significant proportion of the costs that were necessary to increase the degree of concentration in the market.71

(c)  Agreements entailing the sharing of markets or of sources of supply 6.44  Geographical partitioning of the market When firms partition markets, they jointly decide not to compete head to head on one or more markets. Those agreements usually take the form of a reciprocal grant of territorial exclusivities. Parties to such agreements may, for instance, agree not to sell their products on each other’s domestic market. In the Peroxygen case,72 the Commission sanctioned five of the seven European peroxygen manufacturers for entering into a market-sharing agreement whereby each of them would only sell in the (p. 405) Member States in which it owned production facilities (the so-called ‘domestic market’ rule).73 6.45  Obviously, such agreements constitute very serious infringements to Article 101 TFEU. They directly conflict with the free movement spirit of the TFEU, in particular when they partition markets along national lines. Further, from a purely economic perspective, these practices negatively impact social welfare in creating (or preserving) territorial monopolies with the adverse consequences that are well known. 6.46  Non-geographic market sharing A market-sharing agreement is not necessarily territorial in nature. Manufacturers may also share customers (eg some firms will serve large customers while others will supply small customers) or products (eg some firms will focus on high-end products, with others will concentrate on medium or low-end products).74

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6.47  ‘Bid rigging’ Firms may also avoid competition ‘for’ the market resulting from public or private tendering procedures by engaging in so-called ‘bid-rigging’. Under a bid rigging arrangement, firms determine in advance which of them will offer the best—or the sole— bid. These practices are frequent in the area of public procurement, where firms may be tempted to ‘share’ local markets for construction works (one of the industries meeting several of the conditions that facilitate coordination). They are therefore often caught under national competition laws. That said, a number of bid rigging cases have occasionally been pursued under EU law.75 6.48  Other types of market sharing Finally, as already mentioned, manufacturers can share the market ‘in time’ (eg by staggering the commercial launch of products, such as video games or films).

(d)  Agreements applying dissimilar conditions to equivalent transactions and entailing joint boycott (i)  Agreement applying dissimilar conditions to equivalent transactions

6.49  Agreements applying dissimilar conditions to equivalent transactions are often directed against one of the cartelists’ rivals, which the parties to the agreement wish to force out from the market through a predatory strategy.76–77 Cartelists may, for instance, seek to deter entry through a price discrimination strategy. This can be achieved by offering special discounts to the new entrant’s customers in exchange for these customers agreeing to stop purchasing products or services from the latter.77 (ii)  Collective boycott strategies

6.50  Definition The aim of collective boycott strategies is generally (i) to ‘punish’ or eliminate a customer, a supplier, or a competitor which, because of its commercial policies, is considered (p. 406) undesirable or (ii) to compel an economic player to adopt a specific course of conduct on the market. These practices consequently constitute a deliberate violation of Article 101(1). 6.51  Illustration In the Belgian Wallpaper case,78 Belgian manufacturers of wallpaper had set up a professional association to harmonize their pricing policy, as well as the quality of their products. An independent wholesaler refused to be subject to the pricing policy adopted by the professional association. The members of the professional association subsequently decided to stop supplying the wholesaler in question. The Commission found that this decision entailed a restriction of competition between this wholesaler and other traders. In so doing, the professional association was seeking to impose its general sales terms on customers (and, more specifically, its pricing policy). In the part of the decision relating to the setting of the fine, the Commission stated that the boycott was one of the most serious infringements of the competition rules and an intentional infringement of Article 101(1). 6.52  In the Preinsulated Pipes case,79 the Commission sanctioned ten companies for unlawful market sharing and price fixing. In addition, the Commission objected to the fact that the cartelists had taken systematic reprisal measures against Powerpipe, the only manufacturer who was not a member of the cartel. To this end, the cartelists had decided to boycott Powerpipe’s suppliers by refusing to buy input from them.

B.  Personal Scope of Application—What Undertakings are Liable for Hardcore Cartels? 6.53  The issue As a matter of principle, firms facing liability for unlawful cartel activity under EU competition law are those that have coordinated their conduct. However, in a move to increase the deterrent effect of Article 101(1) TFEU, the Commission and the EU

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Courts extended the reach of Article 101(1) TFEU to other undertakings or bodies active around the edges of the cartel.

(1)  The ‘parental liability’ doctrine 6.54  Whether parent companies should be held liable for cartel activity of their subsidiaries has been the focus of several recent Court of Justice cases.80 On 10 September 2009, the Court of Justice handed down a judgment in what is now regarded as the leading case on parent company liability (ie, the Akzo case).81 6.55  Principle According to settled case law the conduct of a subsidiary may be imputed to the parent company in particular where, although having a separate legal personality, that subsidiary does not decide independently upon its own conduct on the market, but implements, in all material respects, the instructions it receives from its mother company having regard in (p. 407) particular to the economic, organizational, and legal links between those two legal entities.82 Under EU competition law, a parent company may be held liable for the behaviour of its subsidiary, if it exercises a ‘decisive influence’ over the later, so that both companies form part of a ‘single economic entity’. 6.56  Proving a ‘decisive influence’ In full congruence with the Viho ruling described in Chapter 3, the case law of the EU Courts has long held that full ownership of the share capital of a subsidiary was per se sufficient to give rise to a rebuttable presumption that the parent company exercised a ‘decisive influence’ over its subsidiary.83 6.57  However, in Stora Enso, the Court seemed to alter that approach.84 To establish the existence of a ‘decisive influence’, the Court not only relied on the fact that the parent company owned 100 per cent of the share capital of the subsidiary but also on other factors, including the fact that it was not disputed that the parent company exercised influence over the commercial policy of the subsidiary or that both parties were represented jointly during the administrative procedure. Following Stora Enso, one could thus have argued that the Commission could no longer solely rely on ownership links to presume the existence of a single economic entity, but had to adduce additional factors to demonstrate that a decisive influence was actually exercised by the mother company over the subsidiary. 6.58  In its Akzo case, however, the Court of Justice took again a different view. The Court held that the fact that the parent company owned 100 per cent of the share capital of the subsidiary created a ‘rebuttable presumption’ that the parent company exercised a decisive influence on its subsidiary. In particular, the Court ruled that: in the specific case where a parent company has a 100% shareholding in a subsidiary which has infringed the Community competition rules, first, the parent company can exercise a decisive influence over the conduct of the subsidiary and, second, there is a rebuttable presumption that the parent company does in fact exercise a decisive influence over the conduct of its subsidiary . In those circumstances, it is sufficient for the Commission to prove that the subsidiary is wholly owned by the parent company in order to presume that the parent exercises a decisive influence over the commercial policy of the subsidiary. The Commission will be able to regard the parent company as jointly and severally liable for the payment of the fine imposed on its subsidiary, unless the parent company, which has the burden of rebutting that presumption, adduces sufficient evidence to show that its subsidiary acts independently on the market. [W]hile it is true that at paragraphs 28 and 29 of [the Stora Enso case] the Court of Justice referred, not only to the fact that the parent company owned 100% of the capital of the subsidiary, but also to other circumstances, such as the fact that it was not disputed that the parent company exercised influence over the commercial policy of its subsidiary or that both companies were jointly represented during the administrative procedure, the fact remains that those circumstances were From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

mentioned by the Court of Justice for the sole purpose of identifying all the elements on which the Court of First Instance had based its reasoning and not to make the application of the presumption mentioned [above] subject to the production of additional indicia relating to the actual exercise of influence by the parent company .85 (Emphases added) (p. 408) 6.59  The Court concluded that the General Court (GC) did not make any error of law and thus dismissed Akzo’s appeal, which challenged the existence of a ‘single economic entity’. 6.60  The practice The Court of Justice did not provide much insight on the circumstances that can be invoked by parent companies to rebut the presumption of decisive influence. The Court simply stated that ‘it is for the parent company to put before the Court any evidence relating to the organisational, economic and legal links between its subsidiary and itself which are apt to demonstrate that they do not constitute a single economic entity.’ 6.61  In its appeal of the Commission’s decision before the GC, Akzo Nobel argued that: Akzo Nobel’s subsidiaries determine their commercial policy largely on their own, each having its own decision-taking body. Since Akzo Nobel does not carry on any commercial activity or produce or distribute any product, it does not have the power to direct its subsidiaries’ conduct to the point of depriving them of any real independence in determining their own course of action in the market. Akzo Nobel merely determines the group’s general macroeconomic strategy and claims no role in relation to purely commercial decisions. Decisions on pricing and price increases are in principle taken within each subsidiary by the marketing directors for the relevant products. Akzo Nobel therefore deals exclusively with major strategic questions (finance, legal affairs, health and safety and environmental rules and policy, etc.), which excludes matters of commercial policy.86 6.62  Following a thorough analysis of the relationships and interaction between Akzo Nobel and its subsidiaries, the GC found that the applicant had not succeeded in rebutting the presumption that it exercised decisive influence over its subsidiaries’ policies. Therefore, Akzo Nobel, together with those subsidiaries, constituted a ‘single economic entity’—in other words, a single undertaking—for the purposes of Article 101 TFEU, without there being any need to ascertain whether Akzo Nobel exercised influence over the anticompetitive conduct at issue.87 6.63  In sum, the EU Courts seem to apply a de facto quasi-irrefutable presumption in the case of a 100 per cent shareholding since evidence demonstrating that virtually all relevant aspects of commercial policy were left to the autonomous management of a subsidiary will generally be hard to produce. Parent companies should thus expect to be held liable for the infringing conduct of their wholly-owned subsidiaries. 6.64  Consequences The implications of the Court of Justice’s judgment are significant. First, the ruling reinforces the Commission’s enforcement powers and its ability to impose very high fines as the maximum cap of 10 per cent of turnover will be calculated on the basis of the consolidated group turnover rather than that of the subsidiary in question. Second, the Commission can apply a ‘deterrence multiplier’ on the basis of the undertaking’s total size and financial resources, thus leading to a potentially higher fine. Third, parental liability increases the risk of a finding of recidivism as previous infringements of the parent company and other subsidiaries, including in different sectors, can be taken into account. Fourth, third parties instituting claims for damages in respect of losses suffered from a cartel are likely to prefer targetting a parent company than its smaller subsidiary. Fifth, there can be reputational effects for the parent company, notably

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when a listed company is required by stock exchange regulations to disclose ongoing competition law proceedings to its shareholders and investors. (p. 409) 6.65  Assessment Given that cartels can be the result of individual employee actions (eg arranging for agreements and meetings unbeknownst to supervisors), it may seem unjust to hold a corporation responsible for one of its subsidiaries participating in a cartel. On the other hand, the notion of parent company responsibility has strong economic and legal support. Even though, given the principal–agent relationship, parent companies cannot know all of the actions that their subsidiaries take, they are arguably best placed to establish companywide rules and reporting mechanisms to oversee those actions.88 Moreover, corporate culture, in particular tolerance for legally risky behaviours, is generally determined at the corporate level.

(2)  Conduct of employees 6.66  ‘Rogue’ employees? A number of firms have sought to exculpate themselves from the prohibition of Article 101 by arguing that some of their employees instigated the cartel individually and carried out its implementation in secret. The Court of Justice dismissed that argument in its judgment in Musique Diff usion Française, stating that EU law allowed the Commission to impose fines on undertakings and associations of undertakings when either intentionally or negligently they have committed infringements. For the provision to apply it is not necessary for there to have been action by, or even knowledge on the part of, the partners or principal managers of the undertaking concerned, action by a person who is authorised to act on behalf of the undertaking suffices.89 6.67  The Commission applied this principle in the Yamaha case when it stated that: Yamaha is responsible for the conduct of its employees. The Court of Justice has established that when an undertaking has been guilty of an infringement, it is not necessary for there to have been action by, or even knowledge on the part of, the partners or principal managers of the undertaking concerned; action by a person who is authorised to act on behalf of the undertaking suffices.90 This logic is in line with the principles applied by the Court in relation to the parental liability doctrine.

(3)  Undertakings succeeding other undertakings as purchasing entities 6.68  Principle and implications Acquiring a third party undertaking can expose the purchasing undertaking to various legal risks. This explains the meticulous, but necessary, work involved in due diligence, which is usually undertaken before major merger and acquisition deals. EU competition law has amplified these risks. Under Article 101 TFEU, a purchasing (p. 410) undertaking may be held liable for the past involvement of the purchased undertaking in an illegal cartel. It is therefore good practice during a merger or acquisition to expand due diligence efforts to an audit of the past commercial practices of the target undertakings. 6.69  Case law In Jungbunzlauer AG v Commission, in which an undertaking had taken from another the responsibility for the management of a group, the Court held that, precisely because this undertaking had taken over the management tasks, it was also liable for the infringement for the period prior to the group’s restructuring.91 Extending liability in this fashion aligns incentives properly so that the parties best positioned to uncover and correct illegal behaviours will in fact do so.

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(4)  Third parties not present in the market but active within the cartel 6.70  Background: the Organic Peroxides case In its 2003 Organic Peroxides decision, the Commission found that a consultancy firm, AC Treuhand AG, which had provided various audit services to organic peroxides manufacturers, had also played an instrumental role in the operation of the cartel existing among the manufacturers. AC Treuhand AG, a firm based in Switzerland, organized meetings near Zurich airport which enabled the cartel members to meet secretly. Further, AC Treuhand AG had concealed evidence of the infringement. 6.71  Arguably, such actions are akin to aiding and abetting in criminal law or to a contributory infringement in intellectual property law. For the first time ever, the Commission held in its decision that a firm which is not active in a cartelized market, may nonetheless be found guilty of an infringement of Article 101(1). The Commission imposed a €1,000 fine on AC Treuhand AG. 6.72  The AC Treuhand v Commission case AC Treuhand initiated annulment proceedings against the Commission’s decision. In its application for annulment, AC Treuhand AG contended that only parties to a cartel could infringe Article 101 TFEU. Since it was not active on the market, it could not be a member of the cartel. In turn, AC Treuhand AG argued that it could not be held liable for a violation of Article 101. 6.73  The GC rejected AC Treuhand’s argument. According to the GC, the fact that an undertaking is not active in the market on which the restriction of competition took place does not prevent it from being charged with a violation of Article 101 TFEU. Most importantly, AC Treuhand did not limit itself to a solely passive role, as it alleged in its appeal. It had actively contributed to implementing the cartel and the Court found a sufficiently concrete and decisive link of causality between its activity and the restriction of competition. 6.74  Assessment From a legal standpoint, there is nothing particularly shocking in the fact that third parties without market activity can be found complicit in a cartel if they facilitate a (p. 411) violation of Article 101 TFEU. In Inno-ATTAB, for instance, the Court found that governments may be found guilty of an infringement of Article 101 TFEU when they force firms to participate in cartels.

C.  Temporal Scope of Application—Are There Time Limits for Pursuing a Hardcore Cartel? 6.75  Principle The Commission is not subject to any time limit regarding investigations and the establishment of an infringement. It is therefore free to take decisions that find infringements of Article 101 well after the occurrence of the infringing behaviour. On the other hand, the power to impose penalties for a breach of Article 101(1) TFEU is subject to a fiveyear limit under Article 25(1)(b) of Regulation 1/2003.92 When the Commission investigates an infringement that it cannot sanction, because of the time bar, it is bound to prove that it has a ‘legitimate interest’ in doing so.93 In many cases, an intervention of the Commission will remain useful even if it is unable to fine cartel members. First, parties to the cartel may still be subject to follow-on damages actions. In this context, the Commission’s investigation and eventual decision will typically provide the potential claimants with helpful evidentiary elements to seek compensation before national courts. Moreover, even in the absence of a formal sanction, a finding of past infringement will incentivize guilty firms to be particularly careful in the future, given that repeat off enders are subject to heavier fines.

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6.76  Under Article 25(2) of the Regulation, the time bar begins to run, in principle, on the day on which the infringement was committed.94 However, since on average it takes seven years between the time a cartel is formed and the time it is detected, the time bar could potentially be an obstacle to any punitive action by the Commission. This problem is, however, more theoretical than real as cartels are not one-off, episodic infringements, but ongoing ones. (p. 412) Article 25(2) of Regulation 1/2003 hence provides that for ‘continuing or repeated infringements’, the time limit shall not begin to run until the day on which the infringement ceases.95 6.77  It should finally be noted that the time bar relating to the imposition of fines or penalties is interrupted by any act of the Commission or of an NCA which aims to investigate or prosecute the infringement.96

III.  Institutional Aspects of Cartel Law A.  Deterring Hardcore Cartels 6.78  The issue Deterring undertakings from concluding cartel agreements can, obviously, be achieved by increasing the penalties imposed on infringing companies (Section 1). However, to be effective deterrents, penalties must be credible: if it is unlikely that a penalty will be imposed, undertakings will be only minimally deterred from establishing cartels. In this respect, even a large penalty is not credible if the enforcement authority is not able to detect competition law infringements. Consequently, in recent years new legal provisions have been introduced to strengthen cartel detection (Section 2).

(1)  Punishing hardcore cartels (a)  Administrative fines 6.79  Preliminary comments Imposing administrative fines is the only tool at the disposal of the Commission to deter undertakings from engaging in cartel-type behaviours. 6.80  In theory, limiting sanctions to administrative fines may achieve sufficient deterrence as long as the expected costs of participating in a cartel are sufficiently high. In this respect, an undertaking planning to engage in an illegal cartel will probably first consider the likelihood of its behaviour being detected and, second, the amount of the fine should it be caught.97 The expected cost of participating in the cartel is the amount of the fine multiplied by the probability of having to pay it. Hence, to achieve proper deterrence, both the probability of detection and the amount of the fines must be sufficiently high. Even the risk of very large fines will not deter would-be cartelists if the risk of detection of their planned cartel is small. 6.81  Principle Under Article 23(2) of Regulation 1/2003, any undertaking guilty of a breach of Article 101 TFEU is liable to a fine, the amount of which may be up to 10 per cent of the total turnover achieved by that undertaking in the course of the preceding fiscal year.98 In the Musique Diffusion Française case, the Court explained that the rationale for the 10 per cent turnover ceiling was to ‘prevent fines from being disproportionate in relation to the size of (p. 413) the undertaking’.99 That said, the undertaking’s total turnover referred to in Article 23(2) includes revenues that are not necessarily related to the cartel.100 6.82  In the past few years, the fines imposed on undertakings have skyrocketed: •  In the Vitamins decision of November 2001, 101 the Commission imposed a fine of €462 million on a single undertaking, Hoffmann-La Roche, for its participation in a pricefixing cartel which covered eight different vitamins. This was deemed to constitute eight separate infringements.

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•  In 200 2, a fine of €249.6 million was imposed on the French group Lafarge for a single infringement. 102 •  In 2006, the Commission imposed a fine of €992 million on Otis, KONE, Schindler, and ThyssenKrupp for operating cartels in the elevator and mechanical escalator maintenance markets in Belgium, Germany, Luxembourg, and the Netherlands. •  In 2008, the Commission imposed on four automotive glass manufacturers—Saint Gobain, Asahi, Pilkington, and Soliver—a fine of €1,383,896,000 for implementing a market sharing cartel for a five-year period from 1998 to 2003. Saint Gobain’s fine was increased by 60 per cent because of recidivism. 103 6.83  The escalation of fines imposed for cartel infringements is likely to continue. The Commission has, for instance, recently decided to impose fines totalling €1.1 billion on the French company GDF-Suez and on Germany’s E.ON, for a 30-year long market-sharing agreement in the natural gas sector.104 (i)  Method of calculation

6.84  Any rational firm’s decision to form a cartel hinges on a cost–benefit analysis. If the purpose of fines is to dissuade undertakings from entering into cartels, then firms should be able to compare the profits which they make from participating to a cartel (supracompetitive profits) with the costs that they may incur should a competition authority uncover, and sanction, their unlawful behaviour (administrative fines). With this in mind, the Commission adopted in 1998 and in 2006 guidelines for the calculation of fines. 6.85  The calculation of the penalty is done on an undertaking-by-undertaking basis. The approach followed is twofold. First, the Commission determines a ‘basic amount’ for each undertaking or association of undertakings. Second, it may adjust this basic amount either upwards or downwards. (p. 414) (ii)  Determining the basic amount

6.86  The basic amount must be set according to the following method. (i)  The basic amount of the fine to be imposed is determined first from the ‘value of the sales’ of goods or services achieved by the undertaking in relation to the infringement in the geographical sector concerned within the EEA. The Commission will normally use the sales of the undertaking during the last complete year of its participation in the infringement. (ii)  The Commission then attempts to get an initial estimate of the fine. To do this it takes into consideration a proportion of the value of the sales, which it determines based on the severity of the infringement. As a rule, the proportion of the value of the sales taken into account will be set at a level that can be up to 30 per cent. 105 (iii)  The Commission then multiplies this amount by the number of years the infringement lasted. (iv)  Finally, the Commission adds an entry fee, representing an amount between 15– 25 per cent of the value of the sales; a lump sum that is the cost of any participation in the cartel. (v)  Combining these parts, the Commission thus calculates the basic amount of the fine. (iii)  Adjustment of amount of fine

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6.87  This basic amount may then be increased depending on any aggravating circumstances: •  Repeat infringement: when an undertaking continues or repeats an identical or similar infringement after the Commission or an NCA has found that this same undertaking had previously infringed Article 101 or 102 TFEU, the basic amount will be increased up to 100 per cent for each prior infringement found. In practice, the amount of the fines imposed in the case of a repeated infringement tends to increase appreciably: 50 per cent for ThyssenKrupp in the Elevators and mechanical escalators case, 50 per cent for ABB in the Gas insulated switchgear case, 50 and 60 per cent respectively for Bayer and ENI in the Chloroprene rubber case, and 60 per cent for St Gobain in the Car glass case. •  Refusal to cooperate or obstruction in the process of the investigation: in the Professional Videotapes case, the fine imposed on Sony was increased by 30 per cent because one of its employees had refused to respond to questions and because another employee had shredded documents during the inspection. 106 In the Bitumen Netherlands case, the Commission increased the fine imposed on KWS for refusing, on two separate occasions, to provide access to its premises, forcing the Commission to appeal to the Dutch competition authority and the Dutch police. 107 (p. 415) •  Provision of misleading information: in the Copper fittings case, the fine imposed on Advance Fluid Connections was increased by 50 per cent for supplying misleading information to the Commission. 108 •  Role as leader or instigator of the infringement (‘ringleader’): the Commission will also pay particular attention to any measure taken for the purpose of forcing other undertakings to participate in the infringement and/or any reprisal measure taken against other undertakings to ensure that they comply with unlawful practices. 108a •  Continued operation of the cartel after its discovery by the Commission : 109 in 2006, the Commission increased the fines imposed on four undertakings in the Copper fittings case by 60 per cent since they had continued to behave unlawfully after the opening of the Commission’s investigation. 110 6.88  On the other hand, the basic amount may be reduced if there are mitigating circumstances: •  The undertaking in question provides evidence that it has ceased the infringement as soon as the Commission first intervenes: this does not, however, apply to the most blatant infringements. •  Negligence: the undertaking in question provides evidence that the infringement was committed as a result of negligence. 111 Note, however, that the concept of negligence has not yet been fully clarified by the case law. In its judgment in the SSI case, the Court simply stated that there is negligence where the undertakings could not possibly be unaware that by concluding the agreements in dispute they were acting in restraint of competition. 112 •  Limited participation: the undertaking in question provides evidence that its participation in the infringement has been very limited. The undertaking shows, in particular, that during the period during which it participated in the impugned agreement it actually sought to deviate from it, for instance by adopting competitive conduct in the market. The mere fact that an undertaking has participated in an infringement for a shorter period than others is, however, not deemed to be a

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mitigating circumstance in itself, since this circumstance will have already been taken into account in the basic amount. 112a •  Procedural cooperation: when the undertaking in question fully cooperates with the Commission, outside the scope of application of the leniency notice and beyond its legal obligations to cooperate. •  ‘Act of State defence’: when the anticompetitive behaviour has been authorized or encouraged by public authorities or regulations.

(p. 416) (b)  Alternative penalties? 6.89  The perfect penalty in relation to the optimal fine? The spectacular escalation of sanctions for competition law infringements has recently led a number of observers to criticize the legitimacy and efficiency of fines. In this context, it is open to debate whether alternative sanction mechanisms, such as individual criminal penalties/administrative fines, disqualification rules, etc: (i) can offer additional deterrence; (ii) generate more collateral virtuous effects (compensation for the victims, ie customers); (iii) limit the ‘social’ costs of the optimal fine (on shareholders and the workforce); and (iv) prevent the risk of ‘bureaucratic distortions’ identified by public choice theory. 6.90  This problem has lately garnered an increased interest amongst legal scholars and practitioners. For instance, some suggest that private actions for compensation should be encouraged (particularly collective or group actions). This mechanism is already in place in the United States and Canada, and there is some evidence that follow-on private suits provide additional deterrence.113 Another option would be the introduction of punitive damages, again following US antitrust law.114 The notion here is not simply to force the undertaking to disgorge its ill-gotten gains through fines but to penalize it for making the wrong decision in joining the collusive agreement. Adopting disqualification rules, such as the dismissal of executives active within the cartel, imposing personal fines on such individuals, or even their incarceration is something else to be considered. In the United States, since 1995 more than 30 individual executives have been sentenced to jail terms ranging from a few months to several years for their role in their employer’s participation in a price-fixing cartel.115 In fact, the Department of Justice has obtained prison sentences in 50 per cent of all global cartel cases since 1995.116

(2)  Detecting hardcore cartels (a)  Ex officio detection by the Commission 6.91  The second element of the equation As explained, fines are only effective to the extent that undertakings expect to pay them. Thus, detection is the second key element in any deterrence scheme. In recognition of the relationship between fines and the likelihood of having to pay them, competition agencies around the globe have devoted considerable energy to increasing the odds of uncovering collusive agreements. Among the most promising avenues are ‘profiling’ to identify where competition agencies should look for cartels and ‘leniency programmes’ to share the discovery burden with the participants themselves. 6.92  The usual suspects As noted, certain conditions facilitate the formation of cartels and thus certain industries tend to be the subject of repeat infringements. Against this background, (p. 417) competition specialists are thus increasingly trying to establish, based on the cases handled in the course of their decision making, ‘photo fit pictures’ of these suspect industries. These studies allow the competition authorities’ detection activities to be directed toward the sectors that are most likely to harbour cartel agreements, thus allocating scarce agency resources in a sensible fashion. A recent study of 39 cartels

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prosecuted between 1999 and 2006 shows, for instance, that one in every two cartels concerns the chemical industry, and that one in four relates to industrial raw materials. 6.93  Detecting cartels through third party information Competition authorities may rely on all sorts of third party information to uncover cartel agreements. They may trigger investigations upon receipt of a complaint from a competitor or customer of undertakings suspected to be involved in a cartel,117 upon the request of another authority,118 or ex officio based on factual elements gathered in the course of their regular oversight of markets.119 6.94  Additional sources of information may prompt competition authorities to launch an inves-tigation: academic articles, economic reports, information disclosed by the media, etc. As noted above, the French Competition Council decided to investigate potentially unlawful exchanges of information between six Parisian palaces following the broadcast of a popular television programme. Similarly, in the ‘ Lombard Club’ case, the Commission proceeded to on-site inspections (given the colourful moniker of ‘dawn raids’) following the publication of several articles in the Austrian press.120 6.95  Strengthening investigative powers As discussed in Chapter 5, Regulation 1/2003 not only confirmed, but also strengthened, the powers of the Commission with regard to onsite inspections. Article 20 of Regulation 1/2003, for instance, authorizes the Commission to carry out all necessary verifications at the undertakings’ and associations of undertakings’ premises whenever it suspects the existence of an infringement of the competition rules. To this end, the Commission’s agents have the right to access all premises, lands, and means of transport of the undertakings, to audit their books and other professional documents, to take copies or extracts of these, and to ask for oral explanations and clarifications on-site. The Commission has also the power, since 1 May 2004, to request access to the private homes and vehicles of the executives and other members of staff of the undertaking being inspected, provided that there is a reasonable suspicion that books or other professional documents are kept at these private locations. For this purpose, the Commission must, however, obtain a search warrant from the national judicial authorities.121 (p. 418) The Commission may now also affix seals,122 and question any individual who agrees to be questioned.123

(b)  Indirect detection by the firms themselves (i)  The EU leniency programme

6.96  The problem of persistence Detecting hardcore cartels is by no means an easy task for competition authorities. Naturally, undertakings participating in collusive agreements attempt all manner of subterfuge to disguise what they know (or should know) are illegal behaviours. 6.97  A 1991 study by economists Bryant and Eckard considered that only between 13 and 17 per cent of cartels were discovered by competition authorities.124 Other empirical studies tend to show that despite the exponential increases in the fines imposed by competition authorities, cartels continue to form (and reform) over time. In fact, Connor and Lande find that the profits that can be earned through collusion are so high and the agreements, with proper constraints imposed on members, can be so durable that current US monetary sanctions are not adequate to deter cartels.125 6.98  Because they are hidden, and are subject to different forces working towards their dissolution, a cartel’s expected life varies considerably. Levenstein and Suslow find that the average cartel’s lifespan is somewhere between 3.7 and 7.5 years, although the range is quite large, starting as low as 0 and increasing to as many as 30 years. Their research thus suggests that a cartel may die shortly after it is born or otherwise operate for a very long

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time without detection.126 In the Organic peroxides case, for example, the Commission uncovered a cartel that had secretly operated for 29 years.127 6.99  New detection tools Against this background, the Commission has, over the past 15 years, adopted a number of new instruments in order to improve the efficiency of its detection policy.128 (p. 419) 6.100–6.105  Leniency Using a technique taken from US antitrust law (which itself draws on principles of criminal procedural law129–134 and economic theory), the Commission adopted in 1996 what is known as a leniency programme. Under this programme, cartelists which spontaneously submit to the Commission cogent evidence of unlawful cartel behaviour will be granted full immunity, or significant reductions, from fines. These undertakings are known as ‘whistle-blowers’. The leniency programme therefore exploits the natural fragility of cartel agreements by increasing the incentives for one firm to defect by approaching the Commission with evidence of the cartel operation in exchange for immunity or reduced fines. 6.106  Assessment To date, the Commission’s leniency policy is a clear success. Firms involved in cartel agreements are increasingly seeking to take advantage of it. In light of the efficiency of those programmes, NCAs have emulated the Commission’s practice. Belgium, the UK, Germany, and France for example have adopted a similar leniency programme. 6.107  This surge of leniency programmes has even led the European Competition Network (see Chapter 1) to devise a ‘model’ leniency programme. This document seeks to ensure that potential whistle-blowers are not dissuaded from applying for leniency because of the discrepancies amongst the various national leniency programmes.135 6.108  That said, the leniency policy may, however, turn out to become an administrative ‘time bomb’ for the Commission. Since its inception, the EU leniency programme has triggered a flurry of applications. Due to its limited administrative resources, the Commission might not be able to cope with the ever-increasing number of leniency applications. This may in turn undermine the overall effectiveness of the Commission’s anticartel enforcement policy. 6.109  In addition, the fact that the Commission relies mainly, if not exclusively, on its leniency programme to detect cartels sends adverse signals to cartelists.136 If cartel participants trust that the Commission will no longer pursue ex officio detection strategies besides leniency, then each of them may reach the conclusion that there is no point in being a whistle-blower. (p. 420) In order to avoid sending such signals, the Commission occasionally expresses that it will continue to discover cartels ex officio .137 6.110  Moreover, the fact that the Commission extends immunity to the second and third whistleblowers may entail ‘adverse-selection’ problems: undertakings know that if their cartel is discovered, they will probably all be able to negotiate reductions in the fine by cooperating. The threat of an ex post heavy penalty might thus diminish, and with it the ex ante incentive to enter into cartels might increase. 6.111  Finally, in the recent Pfleiderer ruling, the ECJ somewhat undermined the effectiveness of leniency programmes. In this case, the Court recognized that victims of competition infringements seeking damages in follow-on actions should be entitled to gain access to documents relating to a leniency procedure involving the perpetrator of that infringement. Surely, the Court recognized the risk of discouraging accurate leniency applications. But according to the Court, it is up ‘for the courts and tribunals of the Member States, on the basis of their national law, to determine the conditions under which such

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access must be permitted or refused by weighing the interests protected by European Union law’.138 6.112  The ‘settlement’ procedure To limit the dramatic effect of the leniency programme on the Commission’s cartel workload, a ‘settlement’ procedure was introduced in 2008 in Regulation 773/2004. The idea underpinning this procedure is quite straightforward: in the early stages of the administrative procedure, the parties to a cartel may be ready to acknowledge their participation in an infringement if the Commission discloses to them a statement of the objections it intends to raise and the fine it intends to impose. Hence, the Commission can now encourage the parties to indicate whether they wish to take part in discussions to reach a settlement (through a ‘request for the parties to express their interest in engaging in settlement discussions’).139 If the parties accept, the Commission will disclose: (i) its potential objections to their conduct; (ii) the supporting evidence; (iii) the non-confidential versions of the relevant documents; and (iv) the range of probable fines. If the Commission and the parties concur on those elements as a matter of principle, the Commission will request the parties (i) to confirm in writing, and within a given time limit, that they wish to enter into a settlement and (ii) to formulate a settlement proposal (admission of guilt against proposed reduction of the eventual fine).140 If the Commission agrees with the settlement proposal, it sends to the parties a simplified (summary version) Notice of Objections, which the latter must formally accept. The Commission then adopts a final decision under Article 7 or 23 of Regulation 1/2003.

(p. 421) B.  Litigation Relating to Cartels and Hardcore Restrictions 6.113  Sanctions for cartel agreements have become one of the main sources of competition law litigation before the EU Courts. This evolution generates a range of practical problems. 6.114  The dramatic increase in the amount of fines imposed in the area of anticompetitive cartels has prompted the emergence of ‘second chance’ litigation before the European Courts. Under Article 261 TFEU and Article 31 of Regulation 1/2003, the GC enjoys ‘unlimited jurisdiction’ to review the penalties imposed by the Commission.141 This litigation, which has to date primarily been dealt with by the GC,142 has in recent years been increasingly subject to appeals before the Court of Justice.143 The collateral ‘victim’ of the Commission’s fines policy may therefore be the EU judiciary, clogged by an everexpanding backlog of cartel cases. 6.115  One way of remedying this might be for the EU Courts to revise the amount of these fines not only downwards, but also upwards in accordance with their power under Article 31 of Regulation 1/2003.144 Until now, the GC has scrutinized Commission fines with considerable caution. The GC indeed refuses to redo the Commission’s assessment. Its review primarily relates to the issue of knowing whether the duration and gravity of the infringement were correctly assessed, as well as the methodology adopted by the Commission and any application of leniency rules.145 In the UCB case, however, the GC for the first time increased the fine imposed by the Commission on a cartel participant.146 The GC increased by 0.15 per cent the fine imposed on BASF for its participation in the Choline Chloride cartel.

Footnotes: 1

  The negative perception surrounding cartel agreements is a relatively modern one in Europe. As stated in Chapter 1, until the end of the nineteenth century these agreements

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were widespread, especially in Germany and Austria. According to then-current opinion, a cartel is nothing other than the legitimate exercise of the freedom to contract. 2

  See Mario Monti’s speech, ‘Fighting Cartels Why and How? Why should we be concerned with cartels and collusive behaviour?’, 3rd Nordic Competition Policy Conference, Stockholm, 11–12 September 2000. 3

  Although several economists defend the idea that the cartel is a positive structure. This point of view is, however, relatively rare. See eg P. Salin, ‘Cartels as Efficient Productive Structures’ (1992) 9(2) Rev of Austrian Economics 29–42. 4

  See M. Alfter and J. Young, ‘Economic Analysis of Cartels—Theory and Practice’ (2005) 10 European Competition L Rev 546, 547. The deadweight of the cartel is identical to that imposed by the monopoly. See F. Scherer and D. Ross, Industrial Market Structure and Economic Performance, 3rd edn (Boston, MA: Houghton Mifflin, 1990), at 661–7. 5

  See the studies quoted in E. Combe, ‘Quelles sanctions contre les cartels?—Une perspective économique’, (2006) 20(1) RIDE 1. See Gregory J. Werden, ‘The Effect of Antitrust Policy on Consumer Welfare: What Crandall and Winston Overlook’, Working Paper, Economic Analysis Group, 2003 (placing the overcharge at over 10 per cent); M. Levenstein and V. Suslow, ‘What Determines Cartel Success?’, University of Michigan Business School Working Paper No 02-001, revised January 31, 2002 (putting the overcharge at 43 per cent on average and 44.5 per cent as the median); see R. Posner, Antitrust Law, 2nd edn (Chicago, IL: Chicago University Press, 2001), at 303–4 (putting the overcharge at 49 per cent on average and 38 per cent as the median). 6

  See J. Connor and R. Lande, ‘The Size of Cartel Overcharges: Implications for US and EU Fining Policies’ (2006) 51(4) Antitrust Bulletin 983–1022. 7

  This measure was recently challenged. See F. Rosati and C. Ehmer, ‘Science, Myth and Fines: Do Cartels Typically Raise Prices by 25% ?’ [2009] 4 Concurrences 1. 8

  Cartel inefficiencies other than the overcharge are, however, hard to quantify.

8a

  See OECD, ‘New Initiatives, Old Problems: A Report on Implementing the Hard Core Cartel Recommendation and Improving Co-operation’, Report by the CLP, 2000: ‘[t]he harm to society may amount to 20 per cent of the volume of commerce affected by the cartel’, available at , at 12. 9

  See European Commission, Annual Report on Competition Policy 2008, Brussels, 23.7.2009, COM(2009) 374 final, at para 13. 10

  See discussion in Chapter 3. See G. Stigler, ‘A Theory of Oligopoly’ (1964) 72(1) J Political Economy 44. 11

  Y. Bolotova, J.M. Connor, and D.J. Miller, ‘Cartel Stability: An Empirical Analysis’, (2006) 5(2) J Competition Law and Economics 361. 12

  A.R. Dick, ‘Identifying Contracts, Combinations and Conspiracies in Restrain of Trade’ (1996) 17 Managerial and Decision Economics 203–16. 13

  See CJ, Case C-407/04 P Dalmine SpA v Commission, 25 January 2007 [2007] ECR I-829, at 84: ‘ there is no need to take account of the actual effects of an agreement once it appears that its object is to restrict, prevent or distort competition’. 14

  See CJ, Case C-209/07 Competition Authority v Beef Industry Development Society Ltd et al, 20 November 2008, [2008] ECR I-8637, at para 21:

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To determine whether an agreement comes within the prohibition laid down in Article [101(1)] EC, close regard must be paid to the wording of its provisions and to the objectives which it is intended to attain. In that regard, even supposing it to be established that the parties to an agreement acted without any subjective intention of restricting competition, but with the object of remedying the effects of a crisis in their sector, such considerations are irrelevant for the purposes of applying that provision. Indeed, an agreement may be regarded as having a restrictive object even if it does not have the restriction of competition as its sole aim but also pursues other legitimate objectives. 15

  See GC, Case T-152/89 ILRO SpA v Commission, 6 April 1995 [1995] ECR II-1197, at 33: in a similar case ‘the applicant could have complained to the competent authorities about the pressure brought to bear on it and lodged a complaint with the Commission under Article 3 of Regulation No 17 rather than participating in the agreements at issue.’ 16

  See the rare exceptions described in Chapter 3. See Commission Notice—Guidelines on the application of Article 81, paragraph 3, of the Treaty, OJ C 101 of 27 April 2004, at 97– 118, para 46: severe restrictions of competition are unlikely to fulfill the conditions of Article [101(3)]…. Agreements of this nature generally fail (at least) the two first conditions of Article [101(3)]. They neither create objective economic benefits nor do they benefit consumers …. Moreover, these types of agreements generally also fail the indispensability test under the third condition. (Emphasis added). 17

  The Commission announced in its 21st Competition Policy Report for 1991 that it was increasing its anti-cartel activities. In 1998, the OECD launched an initiative of ‘effective action against hard-core cartels’. See in particular OECD Recommendation of the Council concerning effective action against hardcore cartels, 1998, C(98) 35 final, 13 May 1998. See, for a summary of the Commission reforms, N. Kroes, ‘The First Hundred Days’, 40th Anniversary of the Studienvereinigung Kartellrecht 1965–2005, International Forum on European Competition Law, Brussels, 7 April 2005, SPEECH/05/205. See also Commission, Competition Policy Report 2005, at para 172. 18

  See on this point W. Wils, ‘Optimal Antitrust Fines: Theory and Practice’ (2006) 29(2) World Competition 38. Commissioner Van Miert thus stated, in 1994, with surprise and concern that ‘after more than ten years of active pursuit of secret cartels, and heavy fines, the Commission is still discovering classic market sharings and price fixing cartels in major industries.’ See K. Van Miert, ‘The Role of Competition Policy Today’ (1994) 1 Competition Policy Newsletter 2. In 1991, according to Bryant and Eckard, only 13 to 17 per cent of cartels are discovered by the competition authorities. See P. Bryant and E. Eckard, ‘Pricefixing: The Probability of Getting Caught’ (1991) 73(3) Rev of Economics and Statistics 531– 6. 19

  See Commission Notice on immunity from fines and the reduction of fines in cartel cases, OJ C 298 of 8 December 2006, at 17, para 8 and our argument below. 20

  Ibid, at para 24. The Commission also requires the undertaking calling for a reduction to terminate the cartel by no later than the time it provides this evidence. The European leniency system is more or less identical to the one in the United States. 21

  See D. Waelbroeck et al, ‘Enforcement by the Commission the Decisional and Enforcement Structure in Antitrust Cases and the Commission’s Fining System’ in D. Waelbroeck and M. Merola (eds), Towards an Optimal Enforcement of Competition Rules in Europe—Time for a Review of Regulation 1/2003? (Brussels: Bruylant, 2010). L. Ortiz Blanco, A. Givaja Sanz, and A. Lamadrid de Pablo, ‘Fine Arts in Brussels: Punishment and

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Settlement of Cartel Cases under EC Competition Law’ in E.A. Raff aelli, VI Antitrust between EC law and national law—Antitrust fra diritto nazionale e diritto comunitario. VIII Conference—VIII Convegno, 22–3 May 2008. (Brussels: Bruylant/Milano: Giuff rè Editore, 2009), at 155–97. 22

  This increase in fines is a contemporary phenomenon. In its 13th annual report for 1983, para 63, the Commission thus noted that the fines applied were relatively low and that they were not suitable as a complete deterrent. See, on this point, Wils, n 18, at 37. 23

  The flight towards increasing the amount of the fines is expected to continue, as N. Kroes seemed to suggest in a conference in March 2007. See N. Kroes, ‘Reinforcing the fight against cartels and developing private antitrust damage actions: two tools for a more competitive Europe’, Commission/IBA Joint Conference on EC Competition Policy Brussels, 8 March 2007. 24

  See Competition Policy Report 2008, SEC(2009) 1004, 23 July 2009, COM(2009) 374 final, 7. 25

  The previous record referred to the elevators and escalators case (fine totalling €992,312,200); the highest fine ever imposed on a single undertaking for a single unlawful cartel was in the gas insulated switchgear case (€396,562,500). 26

  See Commission Decision of 8 July 2009, COMP/39.401, E. ON/GD, no official publication . 26a

  See Press releases, available at < http://europa.eu/rapid/pressReleasesAction.do? reference=IP/10/1487&format=HTML&aged=1&language=EN&guiLanguage=fr> and . 27

  We have already mentioned the concepts of horizontal and vertical agreements. A horizontal agreement is an agreement concluded between undertakings situated at the same level of the production or distribution process. A horizontal agreement may thus bind the producers of the same product, wholesalers, distributors, etc. A vertical agreement is an agreement between undertakings that are active at different levels of the production or distribution process, eg an agreement between a manufacturer and its distributor. 28

  See CJ, C-209/07 Beef Industry, n 14, esp at para 23.

29

  As previously stated, export cartels do not fall under Art 101(1) TFEU. See our arguments in Chapter 1. 30

  See our arguments in Chapter 9 and Commission Notice—Guidelines on vertical restrictions, OJ C 291 of 13 October 2000, at 1–44, para 47. 31

  See Commission Decision of 16 July 2003, COMP/37.975, PO/Yamaha, no official publication. 32

  See Press Release: ‘The Commission imposes a fine on Yamaha for restrictions of trade and resale price fixing in Europe’, IP/03/1028 of 16 July 2003. 33

  See also, in addition to the decisions mentioned below, Commission Decision of 13 December 2006, COMP/C-3/37.980, Souris/Topps, OJ L 353 of 26 May 2004, at 5. 34

  See Commission Decisions of 30 October 2002, COMP/35.587, PO Video Games, COMP/ 35.706 PO, Nintendo Distribution, and COMP/36.321, Omega—Nintendo, OJ L 255 of 8 October 2003. This decision was confirmed by both the GC and the ECJ. See GC, Case T-18/03, CD-Contact Data GmbH v Commission, ECR 2009 II-01021; ECJ, Case C-260/09 P, Activision Blizzard Germany GmbH v Commission, formerly CD-Contact Data Gmbh, nyr.

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35

  See Commission Decision of 7 December 2005, COMP/36.623, Automobiles Peugeot SA, no official publication. 36

  Commission Decision of 19 December 1984, Wood Pulp, OJ L 85 of 26 March 1985, at 1, para 114. 37

  Commission Decision of 1 October 2008, COMP/39.181, Paraffin wax, at 53, no official publication; Commission Decision of 11 March 2008, COMP/38.543, International removal services, 32, no official publication; Commission Decision of 14 September 2005, COMP/ 38.337, Industrial thread, no official publication. 38

  Commission Decision of 1 October 2003, COMP/EI-37.370, Sorbates, no official publication. 39

  Commission Decision of 31 May 2006, COMP/F/38.645, Methacrylates, at 25, no official publication; Commission Decision of 19 January 2005, COMP/E-1/37.773, AMCA (in which the cartel members agreed price increases and, in particular, a ‘reasonable market price’), at 21, para 88, no official publication; Commission Decision of 22 July 2009, COMP/39.396, Calcium carbide and magnesium based reagents for the steel and gas industries, no official publication; Commission Decision of 21 December 2005, COMP/F/38.443, Rubber chemicals, no official publication; Commission Decision of 20 September 2006, COMP/ F-1/38.121, Copper fittings, at 42, no official publication. 40

  See Commission Decision, Industrial thread, n 37, at paras 70 and 420.

41

  See CJ, Case 8/72 Vereniging van Cementhandelaren v Commission, 17 October 1972, [1972] ECR 977; GC, Case T-13/89 ICI v Commission, 10 March 1992 [1992] ECR II-1021, upheld on appeal by the judgment of the Court of 8 July 1999; Case C-200/92 ICI v Commission [1999] ECR I-4399; Commission Decision of 21 November 2001, COMP/ E-1/37.512, Vitamins, OJ L 6 of 10 January 2003, at 1; Press release of 23 October 2001, IP(01)1355. 42

  Commission Decision of 11 December 2001, COMP/E-1/37.027, Zinc phosphate, OJ L 153 of 20 June 2003, at 1, appeal ongoing; Commission Decision, Wood Pulp, n 36; Commission Decision of 5 June 1996, IV/34.983, Fenex, OJ L 181 of 20 July 1996, at 28. 43

  See Commission Decision, Copper fittings, n 39, at 42.

44

  See Commission Decision of 20 October 2005, COMP/C.38.281/B.2, Raw tobacco—Italy, OJ L 353 of 13 December 2006, at 45–9. It is worth pointing out here a particular application of the doctrine of State incentives to engage in anticompetitive agreements at the stage of calculating the fine: concerning the producers and processors representatives’ behaviour, the Decision considers that a fine of only €1,000 is appropriate. Although the conclusion of Interprofessional Agreements under the terms of Law 88/88 was not mandatory and, in fact, no Interprofessional Agreement was entered for several years, Law 88/88 (as further applied in the administrative practice of the Ministry) created incentives for the conclusion of Interprofessional Agreements containing minimum prices. On this point, see our arguments in Chapter 3. 45

  See Commission Decision, Copper fittings, n 39, at 42.

46

  Commission Decision of 29 December 1970, IV/25107, Carreaux céramiques, OJ L 10 of 13 January 1971, at 15. 47

  See Commission Decision, Industrial thread, n 37, at 53, para 207 and 69, para 280 in particular; see also Commission Decision of 13 September 2006, COMP/38.456, Bitumen— NL, at 48–9, para 142 (relating in particular to a cartel between suppliers of bitumen and construction undertakings fixing a uniform minimum discount for construction undertakings that were members of the cartel and a less high maximum discount for

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construction undertakings that were not members). See also, for a cartel fixing rebates, discounts, and other commercial terms, Commission Decision, Copper fittings, n 39, at 42. 48

  See Commission Decision of 30 November 2005, COMP/38.354, Industrial bags, at 39, nyr (fixing the price of the raw materials to be used to calculate the common price). 49

  Commission Decision of 24 June 2004, COMP/38.549, Belgian Architects’ Association, no official publication. 50

  Commission Decision of 15 July 1975, IV/27.000, IFTRA rules for producers of virgin aluminium, OJ L 228 of 29 August 1975, at 3. 51

  Commission Decision of 20 July 1978, IV/28.852, IV/29.127 IV/29.149, Fedetab, OJ L 224 of 15 August 1978, at 29. 52

  Commission Decision of 17 October 1983, IV/30.064, Cast iron and steel rolls, OJ L 317 of 15 November 1983, at 1. 53

  Commission Decision of 6 August 1984, IV/30.350, Zinc producer group, OJ L 220 of 17 August 1984, at 27. 54

  Commission Decision of 22 December 1972, IV/243, 244, 245, Cimbel, OJ L 303 of 31 December 1972, at 24. 55

  In addition, the models often relied on unrealistic assumptions. See eg the critique of Stiglitz’s assessment of OPEC in G. Tullock, ‘Monopoly and the Rate of Extraction of Exhaustible Resources: Note’ (1979) 69(1) Am Economic Rev 231–3. 56

  See Bolotova et al, n 11.

57

  In the Sugar Institute case, although sugar is a homogeneous good, ‘contract provisions such as credit terms, storage rates, and delivery time introduced heterogeneity in the transactions’, making continual renegotiation of the agreement important. Bolotova et al, n 11. For a discussion of the Sugar Institute cartel, see D. Genesove and W.P. Mullin, ‘Rules, Communication, and Collusion: Narrative Evidence from the Sugar Institute Case’ (2001) 91(3) Am Economic Rev 379–98. 58

  See eg commercial terms applicable to customers (COMP E2/38.359, Electrical and mechanical carbon and graphite products). 59

  Commission Decision of 16 September 1998, IV/35.134, Trans-Atlantic Conference Agreement, OJ L 95 of 9 April 1999, at 1, paras 446–7. 60

  See, in relation to payment deadlines, Commission Decision of 17 December 2002, COMP/37.956, Reinforcing bars, OJ L 353 of 13 December 2006, at 1–4. 61

  This is the prominent idea, developed by economists Bertrand and Cournot, according to which oligopolists who are interdependent adjust their output in light of the decisions made by their competitors and replace, at least in part, the quantities that their rivals agree not to put on the market. 62

  In a situation where there are unused output capacities, agreements aimed at gradually reducing the capacities of some operators and encouraging them to exit the market do not actually result in a total reduction of the output placed on the market. The capacities of the departing operators are replaced by the capacities of the remaining operators. Since there is no limit on total production, these agreements are not analysed in light of Art 101(b). See CJ, C-209/07 Beef Industry, n 14, esp at para 23. 63

  See Commission Decision, Industrial bag s, n 48 .

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64

  eg such supplies can be sold for speculative purposes. The distribution restrictions thus create an illusion of scarcity on the market, which is then exploited in subsequent sales of huge quantities of their product. 65

  See Commission Decision of 5 September 1979, IV/29.021, BP Kemi/DDSF, OJ L 286 of 14 November 1979, at 32, para 60. 66

  See Commission Decision of 29 September 2004, COMP/C.37.750/B2, Danone Group/ Kronenbourg and Heineken NV/Heineken France breweries. See commentary by A. Rutgeerts, ‘Comment un armistice se transforme en cartel sur le marché de la bière française’ (2005) 1 Competition Policy Newsletter 63–4. 67

  This approach is set out is the 12th Competition Policy Report (published in 1982). For an illustration, see the Stichting Baksteen case, Commission Decision of 29 April 1994, IV/ 34.456, OJ L 131 of 26 May 1994, at 15. 68

  Zinc Producers ‘Shutdown Agreement’, 13th Competition Policy Report, 1983, at point 58. 69

  Commission Decision, Stichting Backsteen, n 67 .

70

  13th Competition Policy Report, 1983, at point 60 and 14th Competition Policy Report, 1984, at point 85. 71

  See CJ, Case C-209/07 Beef Industry, n 14.

72

  See Commission Decision of 23 November 1984, IV/30907, Peroxygen, OJ L 35 of 7 February 1985, at 1–34. 73

  See for a final example, GC, Joined Cases T-67/00, T-68/00, T-71/00, and T-78/00 JFE Engineering Corp, Nippon Steel Corp, JFE Steel Corp, Sumitomo Metal Industries Ltd v Commission, 8 July 2004 [2004] ECR II-2501 which concerned, in the market for seamless steel pipes and tubes, market-sharing agreements taking the form of sharing domestic markets. Under the terms of the agreement in question, each undertaking was prohibited from selling standard drilling tubes and transport pipes on the national market of another party to the agreement. 74

  See Commission Decision of 26 October 2004, COMP 38.338 PO, Needles, no official publication. 75

  See eg Commission Decision in Industrial bags, n 48 .

76–77

  There are more extensive examples of such practices in the area of abuse of a dominant position. 78

  Commission Decision of 23 July 1974, Belgian wallpaper, OJ L 237 of 29 August 1974, at

3. 79

  Commission Decision of 21 October 1998, IV/35691, Preinsulated pipes, OJE L 24 of 30 January 1999, at 1. 80

  See M. Debroux, ‘Penalizing Cartels under Competition Law: Definition and Consequences of “Group Liability”’ [2008] 1 Concurrences 1–3. The principle has also been applied in the area of abuse of a dominant position (see Commercial Solvents and Continental Can cases). 81

  C-97/08P Akzo Nobel and Others v Commission, 10 September 2009, nyr.

82

  See, to that effect, 48/69 Imperial Chemical Industries v Commission, 14 July 1972 [1972] ECR 619, at 132–4; 6/72 Europemballage and Continental Can v Commission [1973]

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ECR 215, at 15; and C-286/98 P Stora Kopparbergs Bergslags v Commission, 16 November 2000 [2000] ECR I-9925, at 26. 83

  107/82 AEG-Telefunken AG v Commission, 25 October 1983 [1983] ECR 3151.

84

  C-286/98 P Stora Kopparbergs Bergslags v Commission, n 82.

85

  C-97/08P Akzo, n 81, at paras 60–2.

86

  T-112/05 Akzo Nobel and Others v Commission, 12 December 2007 [2007] ECR II-5049, at 38. 87

  Ibid, at 85.

88

  In its application by the Commission this principle is particularly strict: it does not take account of the fact that even in vertically integrated groups there are agency problems, with the subsidiaries often profiting from imperfect information to act in an opportunistic way. This is particularly true of the major multinational undertakings organized on local distribution structures, where agents’ incentives are often well hidden from the eyes of management. Some have therefore voiced concerns over the parental liability rule. See eg S. Völcker, ‘Rough Justice? An Analysis of the European Commission’s New Fining Guidelines’ (2007) 44 Common Market L Rev 1285, at 1317. 89

  See CJ, Joined Cases C-100-103/80 SA Musique Diffusion française v Commission, [1983] ECR 1825, at 97 and GC, Case T-9/99 HFB Holding für Fernwärmetechnik Beteiligungsgesellschaft mbH & Co KG et al against Commission [2002] ECR II-1487, at 275. 90

  See Commission Decision, PO/Yamaha, n 31, esp at para 129.

91

  See also GC, Case T-43/02 Jungbunzlauer AG v Commission, 27 September 2006 [2006] ECR II-3435 at 103–5. In judgment Ente tabacchi italiani, the Court also ruled on a case against two entities under the management of the same public authority. When a conduct that constitutes the same infringement of the competition rules has been implemented by one entity and then continued until its end by another entity that has succeeded the first one, which itself has not ceased to exist, this second entity can be penalized for the entire infringement if it is established that both those entities were under the supervision of said authority. See CJ, Case C-280/06 Autorità Garante della Concorrenza e del Mercato against Ente tabacchi italiani—ETI SpA, Philip Morris Products SA, Philip Morris Holland BV, Philip Morris GmbH, Philip Morris Products Inc and Philip Morris International Management SA, 11 December 2007 [2007] ECR I-10893, at 52. 92

  In 2002, the Commission concluded the investigation it had begun against a marketsharing agreement between the Danish brewer Carlsberg and the Dutch brewer Heineken, to the extent that it could not find evidence that the suspected infringement had continued after May 1995. In this particular case, the Commission could undoubtedly have established an infringement. However, it would not have been able to punish it. See 33rd Competition Policy Report for 2002, at 31, available at and Press Release IP/02/1603 of 4 November 2002. Note that a different three-year time bar applies to infringements relating to requests for information or the carrying out of inspections. See Art 25(1)(a) of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1 of 4 January 2003. 93

  See CJ, Case 7/82 GVL v Commission [1983] ECR 483.

94

  See also Council Regulation (EEC) No 2988/74 of 26 November 1974 concerning limitation periods in proceedings and the enforcement of penalties under the rules of the

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European Economic Community relating to transport and competition, OJ L 319 of 29 November 1974, at 1. Article 1 of this Regulation stipulates that: 95

  See Regulation 1/2003, n 92, Art 25(2). The power of the Commission to impose fines or penalties for infringements of the rules of the European Economic Community relating to transport or competition shall be subject to the following limitation periods: a) three years in the case of infringements of provisions concerning applications or notifications of undertakings or associations of undertakings, requests for information or the carrying out of investigations; b) five years in the case of all other infringements. Time shall begin to run upon the day on which the infringement is committed. However, in the case of continuing or repeated infringements, time shall begin to run on the day on which the infringement ceases.

96

  See Ibid, Art 25(3).

97

  See G. Becker, ‘Crime and Punishment: An Economic Approach’ (1968) 76 J Political Economy 169. 98

  This ceiling was already present in the ECSC Treaty, See Wils, n 18, at 44.

99

  See CJ, Musique Diffusion Française/Commission, 7 June 1983, esp at para 119.

100

  See Wils, n 18.

101

  See Commission Decision of 21 November 2001, COMP/37.512, Vitamins, OJ L 6 of 10 January 2003, at 1. 102

  See Commission Decision of 27 November 2002, COMP/37.978, Plasterboard, no official publication. 103

  See Commission Decision of 12 November 2008, COMP/39.125, Automotive glass, OJ C 173 of 25 July 2009, at 13–16. 104

  See Commission Decision of 8 July 2009, COMP/39.401, E. ON/GDF, OJ C 248 of 6 October 2009, at 5–6. 105

  See Guidelines for calculating the fines imposed pursuant to Article 23, paragraph 2, under a), of Regulation (EC) No 1/2003, OJ C 210 of 1 September 2006, at 2–5, para 22: In order to decide whether the proportion of the value of sales to be considered in a given case should be at the lower end or at the higher end of that scale, the Commission will have regard to a number of factors, such as the nature of the infringement, the combined market share of all the undertakings concerned, the geographic scope of the infringement and whether or not the infringement has been implemented. 106

  See Annual Report 2007, at 12. See also Commission Decision, Industrial bags, n 48, where the undertaking Bischof and Klein destroyed a document during the inspection. 107

  See Commission Decision, Bitumen—NL, n 47 .

108

  See Commission Decision, Copper fittings, n 39.

108a

  See Commission Decision of 20 October 2005, COMP/C.38.281/B.2, Raw Tobacco, Italy. But this ground of the decision was quashed on appeal in GC, T-12/06, Deltafina SpA v Commission, nyr.

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109

  See Commission Decision in the Preinsulated pipes case, n 79, where the cartel goes on for another nine months after the Commission discovers the existence of the concerted practice during a surprise investigation. 110

  See Commission Decision, Copper fittings, n 39.

111

  See Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003, OJ C 210, 1 September 2006, at 2–5, esp at para 29. 112

  Under Art 21(3) of Regulation 1/2003, n 92, negligence is actually one of the explicit cases that allows the Commission to impose a fine. Pursuant to the case law, it may, however also be taken into account as a mitigating factor when calculating the amount of that fine. See CJ, 260/82 Nederlandse Sigarenwinkeliers Organisatie v Commission, 10 December 1985 [1985] ECR 3801. 112a

  For a decision rejecting this mitigating circumstance, see Commission Decision of 11 March 2008, Case COMP/38543, International Removal Services, at para 573. 113

  In that they increase the effective fine substantially. See J. M. Connor, ‘Global Antitrust Prosecutions of Modern International Cartels’, Staff Paper No 04-15, November 2004. 114

  The US Department of Justice has had tremendous success with its leniency programme, which did not go unnoticed by the Commission. In particular, Riley finds that ‘Since 1997, the Division [DOJ] has recovered just under $4 billion in fines as a result of leniency, with over 50 cartels uncovered’. See A. Riley, ‘The Modernisation of EU Anti-Cartel Enforcement: Will the Commission Grasp the Opportunity?’, CEPS Special Report/January 2010, at 4. 115

  See Connor, n 113, at 13.

116

  Ibid, at 14.

117

  Any individual or legal entity which reports a legitimate interest can file a complaint, either a formal or an informal one. 118

  eg information received from NCAs (in the context of the European competition network), foreign ones (eg in the context of comity procedures), regulatory authorities, questions raised by the European Parliament and others institutions. 119

  There is no limit on the sources of information used. For a discussion of various informal sources, see P. Whilhelm and F. Vever, Échanges d’informations sur un marché oligopolistique: refléxions sur la grille d’analyse des autorités de concurrence (2006) 5 JurisClasseur Contrats, Concurrence, Consommation 5. 120

  See Commission Decision of 11 June 2002, COMP/36.571, Österreichische Banken, no official publication. 121

  Article 21 of Regulation 1/2003. Used for the first time in the Marine hoses case: Commission Decision of 28 January 2009, COMP/39406, Marine Hoses, no official publication. 122

  Regulation 1/2003, n 92, Article 20(2)(d).

123

  Ibid, Article 19.

124

  See Bryant and Eckard, n 18. See also E. Combe, C. Monnier, and R. Legal, ‘Cartels: the Probability of Getting Caught in the European Union’, Bruges European Economic Research Papers No 12, March 2008. 125

  J.M. Connor and R.H. Lande, ‘How High Do Cartels Raise Prices? Implications for Reform of Antitrust Sentencing Guidelines’, Working Paper August 2004.

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126

  M. Levenstein and V. Suslow, ‘What Determines Cartel Success?’, Working paper of the University of Massachusetts. 127

  This is the longest agreement ever punished by the Commission. See IP/03/1700, Press release of 10 December 2003, ‘The Commission imposes a fine on members of the organic peroxide cartel’. 128

  See Monti, n 2: In order to be successful a competition authority must be able to play a number of different cards. In particular, a successful fight against cartels presupposes an effective leniency program, effective enforcement powers and sanctions, and close cooperation amongst competition authorities. In 1996 the Commission adopted for the first time a Leniency Programme. The first experience shows that it has led to a substantial increase in the number of cartels that have been uncovered and punished. The programme provides a strong incentive for companies to come forward and to co-operate. Companies which provide information on a secret cartel before the Commission has opened an investigation can benefit even from total immunity from fines. Moreover, companies which cooperate with the Commission in the course of a pending investigation can benefit from a substantial reduction of their fines. In the Lysine Decision adopted in June this year the Commission granted reductions in the fines of up to 50% for those companies which contributed substantially to its investigation. Such substantial reductions of the fines are based on the premise that the public interest in detection and prohibition of cartels is higher than the interest in fining colluding companies. Considering the effectiveness of leniency programmes, it would in my view be useful to explore the possibilities of adopting a Community wide programme. Indeed, to the extent that leniency programmes diff er significantly, companies will naturally take advantage of the most generous programme. Moreover, such differences can cause problems for the exchange of information between competition authorities. Leniency programmes are not effective in isolation. To be effective they must be backed up by strong enforcement powers and effective sanctions.

129–134

  Particularly the technique known as the ‘guilty plea’.

135

  See Model Leniency Programme available at . This programme sets out the treatment which an undertaking that asks for leniency may expect from any other ECN jurisdiction once all the national leniency programmes have been aligned to the model leniency programme. In addition, the purpose of the model leniency programme is to lessen the burden associated with the need to make multiple applications, especially in cases where the Commission is particularly well placed, by proposing a uniform system of summary applications. Indeed, in a system of parallel jurisdictions, a leniency application sent to any given authority cannot be considered to be a leniency application sent to another authority. It is therefore in the interest of the undertaking to seek leniency from all competition authorities that have jurisdiction to apply Art 101 TFEU on the territory affected by the infringement and that can be considered to be well placed to act against the infringement in question. 136

  And that another co-conspirator risks doing so instead.

137

  To pursue ex officio detection methods, the Commission and other agencies can rely on a number of techniques, such as regular market price reviews. The literature on cartels has established certain anomalies that tend to accompany collusion, eg reduced variance in

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prices. See eg R.M. Abrantes-Metz, L.M. Froeb, J. Geweke, and C.T. Taylor, ‘A Variance Screen for Collusion’ (2006) 24 International Journal of Industrial Organization 467. 138

  ECJ, C-360/09, Pfeiderer v Bundeskartellamt, 14 June 2011, nyr, at paras 26 and 32.

139

  See Art 1 of Commission Regulation (EC) No 773/2004 of 7 April 2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty, OJ L 123 of 27 April 2004. 140

  See Ibid, Art 10 bis (3).

141

  Applicants before the EU Courts typically argue that the Commission has misapplied the leniency rules or the guidelines on the calculation of fines. 142

  See GC, Joined Cases T-101/05 and T-111/05 BASF AG and UCB SA v Commission, 12 December 2007 [2007] ECR II-04949 (appeal for annulment); GC, Joined Cases T-109/02, T-118/02, T-122/02, T-125/02, T-126/02, T-128/02, T-129/02, T-132/02, and T-136/02 Bolloré SA et al v Commission, 26 April 2007 (appeal for annulment); GC, T-36/05 Coats Holdings Ltd, and J & P Coats Ltd v Commission, 12 September 2007 [2007] ECR II-00110 (appeal for annulment); GC, T-30/05 William Prym GmbH & Co KG and Prym Consumer GmbH & Co KG v Commission, 12 September 2007 [2007] ECR II-00107 (appeal for annulment). 143

  CJ, C-76/06 P Britannia Alloys & Chemicals Ltd v Commission, 7 June 2007 [2007] ECR I-04405; CJ, C-3/06 P Danone Group v Commissions, 8 February 2007 [2007] ECR I-01331 (appeal); CJ, C-411/04 P Salzgitter Mannesmann GmbH v Commission, 25 January 2007 [2007] ECR I-00959; CJ, C-328/05 P SGL Carbon AG v Commission, 10 May 2007 [2007] ECR I-03921 (appeal). 144

  See also on the possibility of making an increase, GC, Joined Cases T-236/01, T-239/01, T-244–246/01, T-251/01, and T-252/01 Tokai Carbon Co Ltd and others v Commission, 29 April 2004 [2004] ECR II-1181 at 165. A discussion on this aspect has also emerged in academic writings. Professors Waelbroeck and Frignani, among others, believe that this possibility would be contrary to the principle under which the judge cannot rule ultra petita. See M. Waelbroeck and A. Frignani, Commentaire Mégret—Concurrence, 2nd edn (Brussels: Editions de l’Université de Bruxelles, 1997), esp at 497. To the extent that the appeal for an adjustment of a fine is necessarily introduced by the undertaking targeted by the penalty, proceeding to increase the fine is tantamount to ruling on aspects that the applicant has not raised. 145

  For an empirical analysis of this topic, see D. Geradin and D. Henry, ‘The EC fining policy for violations of competition law: An empirical review of the Commission decisional practice and the Community courts’ judgments’, GCLC Working Paper 03/05, 2005, available at . 146

  See GC, Joined Cases T-101/05 and T-111/05 BASF and UCB v Commission, 12 December 2007 [2007] ECR II-4949.(p. 422)

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7 Horizontal Cooperation Agreements Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Subject(s): Article 101(3) TFEU application to individual contracts — Horizontal co-operation agreements — Basic principles of competition law

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(p. 423) 7  Horizontal Cooperation Agreements I.  Introduction 7.01 II.  The Law Applicable to Horizontal Cooperation Agreements 7.06 A.  Origin of Applicable Texts 7.06 B.  Scope of Application of the EU Framework 7.10 III.  Principles of Competition Analysis Applicable to Horizontal Cooperation Agreements 7.16 A.  Basic Principles of Competition Analysis of Horizontal Cooperation Agreements 7.16 B.  Specific Principles for Competition Analysis (By Type of Cooperation) 7.22 C.  Conclusions 7.166

I.  Introduction 7.01  Definition Horizontal cooperation agreements are agreements that are entered into by undertakings operating at the same stage of the value chain in order to achieve a variety of efficiencies.1 While these agreements are generally pro-competitive,2 they may, however, raise anticompetitive concerns for example … if the parties agree to fix prices or output or to share markets, or if the cooperation enables the parties to maintain, gain or increase market power and thereby, is likely to give rise to negative market effects with respect to prices, output, product quality, product variety or innovation.3 7.02  Different forms There are many different forms of horizontal cooperation agreements. Participating undertakings may decide to collaborate informally, for instance by attending meetings or exchanging information. Or the parties to such agreements may decide to (p. 424) cooperate in a more structured way, by sharing personnel and equipment within a new entity that is specifically created for this purpose (a ‘joint venture’ or JV).4 The JV between Fujitsu and Siemens AG, whereby the two companies produce computers, was a good example of such structural forms of cooperation.5 7.03  Effects on competition These agreements, which often create efficiencies in the form of economies of scale, range, or scope, or dynamic efficiencies such as launching new products on the market, are clearly distinct from the hardcore restrictions of competition that have been discussed above. This is why, under EU law, horizontal cooperation agreements are generally not considered to be agreements that have as their object the restriction of competition, although there may be exceptions. 7.04  However, as these cooperation agreements may adversely affect the parameters of competition, competition law has taken an interest in them. The restrictions of competition triggered by such agreements can be classified in two categories. First, in the market(s) affected by the cooperation, these agreements may increase the market power held by parties in the aggregate.6 Second, in the markets in which the parties remain separately present, the cooperation (upstream or downstream) may lead to anticompetitive effects of coordination (‘ spillover effects’).7 Automobile manufacturers collaborating, for instance, for the design and development of a brand new type of chassis could indeed be led to go

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beyond the primary scope of their cooperation to exchange information on prices, which would be useful for coordinating their price policies on the automobile sales market. 7.05  Legal implication The above considerations explain why cooperation agreements are typically caught by Article 101(1) TFEU. Nevertheless, horizontal cooperation agreements that trigger anticompetitive effects, but generate efficiencies as well, can be exempted under Article 101(3) TFEU. As we will see, the analytical principles guiding this assessment are (p. 425) provided in the Commission guidelines on the applicability of Article 101 to horizontal cooperation agreements.8

II.  The Law Applicable to Horizontal Cooperation Agreements A.  Origin of Applicable Texts 7.06  Background Sagging under the weight of notifications of horizontal cooperation agreements, the Commission was led very early on to adopt secondary law instruments (referred to as ‘block exemption Regulations’) clarifying the conditions under which such agreements could be exempted under Article 101(3). The regime of horizontal cooperation agreements was for a long time governed by two block exemption Regulations—one applying to Research and Development (R&D) agreements9 and the other to specialization agreements10—which established a rather rigid prescriptive legal framework. The Regulations in question distinguished between three types of clauses that could be found in such agreements: white clauses, which were deemed not to pose any problem from the point of view of competition law; black clauses, which were always prohibited; and grey clauses for which an in-depth analysis was required. 7.07  Criticism The analytical approach provided for in these Regulations was criticized by economists for taking no account of the market power of the parties to the agreements.11 As a result, a cooperation agreement covering 15 per cent of the affected markets was subject to the same legal obligations as a cooperation agreement covering 80 per cent of the market. Prompted by the desire to modernize the competition rules and in the wake of the reform of the rules relating to vertical restraints,12 the Commission initiated a reform of its assessment of horizontal agreements that incorporated teachings from economic theory. 7.08  Legal framework These criticisms led the Commission to adopt a new legal framework organized around two types of legal instruments. First, general guidelines specifying the extent to which horizontal cooperation agreements fall (or do not fall) under the prohibition of Article 101(1) TFEU and benefit (or do not benefit) from application of Article 101(3) (p. 426) TFEU.13 Next, two Commission block exemption Regulations specifically defining the conditions for exempting R&D agreements14 and specialization agreements.15 7.09  In December 2010 and January 2011, the Commission adopted instruments revising the EU competition rules on horizontal cooperation agreements. Without amending the structure of the legal framework (one set of Guidelines, two Regulations), it published a new set of Horizontal Guidelines16 and adopted two block exemption Regulations for R&D17 and specialization agreements.18 According to the Commission, the new texts ‘update and further clarify the application of competition rules in this area so that companies can better assess whether their co-operation agreements are in line with those rules.’19

B.  Scope of Application of the EU Framework 7.10  Horizontal agreement concept The Commission regulatory framework covers only horizontal agreements, namely agreements concluded between existing or potential competitors, and distribution agreements between competitors.

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7.11  Six major categories of agreements The Guidelines focus in particular on six types of horizontal agreements: R&D, production, purchase, commercialization, standardization, and information exchange.20 The exemption Regulations and the (more general) Guidelines apply concurrently to R&D agreements and specialization agreements. 7.12  ‘Complex’ agreements The Guidelines provide that with regard to agreements that combine several forms of cooperation (eg R&D and joint production), the ‘centre of gravity’ of the cooperation must be established in order to determine the principles that apply.21 To this effect, two elements are taken into account, the starting point of the cooperation (joint R&D phase followed by joint production phase) and the degree of integration of the different functions being combined.22 Depending on the particular case, the principles relating to one or other of the six types of agreements governed in the Guidelines apply. (p. 427) 7.13  Sector-specific law Certain sectors subject to specific exemption Regulations (eg agriculture and the insurance sector) are also excluded from the scope of application of the exemption Regulations and Guidelines.23 The same is true of certain types of agreements, such as technology transfer agreements.23a 7.14  Interface with Regulation 139/2004 When the cooperation agreement takes the form of a full-function joint venture, the application of the exemption Regulations and of the Guidelines must yield to Regulation 139/2004.24 A full-function joint venture is the most comprehensive form of coordination as it fulfils all the functions which are normally exercised by the other undertakings present on this market (the joint venture will perform all the functions that are expected from an undertaking active in the sector and will not limit itself, eg, to R&D). It is also the most structural (or concentrated) form of cooperation, since the parties put into it all the resources needed (sufficient capital, labour, relevant IP rights, etc) to enable it to act independently. In practice, the parties only maintain supervisory power. 7.15  Full-function joint ventures are caught by Regulation 139/2004 on control of concentrations between undertakings, which is examined in Chapter 9.25 In the rest of this chapter, we will only deal with joint ventures that, due to the less comprehensive and structural cooperation they entail, do not fulfil the criteria for full-function joint ventures.26

III.  Principles of Competition Analysis Applicable to Horizontal Cooperation Agreements A.  Basic Principles of Competition Analysis of Horizontal Cooperation Agreements 7.16  To assess whether a horizontal cooperation agreement is compatible with Article 101 TFEU, the guidelines require that the following steps be undertaken.27 First, it must be determined whether the agreement in question restricts competition within the meaning of Article 101(1) (Section 1). Then, it must be determined whether the agreement in question can be exempted under Article 101(3) (Section 2).

(p. 428) (1)  Is the agreement in question restrictive of competition within the meaning of Article 101(1)? 7.17  The Guidelines draw a distinction between agreements that restrict competition by object and agreements that have the effect of restricting competition. 7.18  As far as restrictions by object are concerned, there is no need to examine the effects of such restrictions as by their very nature they are likely to restrict competition.28 The Guidelines provide that ‘in order to assess whether an agreement has an anti-competitive

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object, regard must be had to the content of the agreement, the objectives it seeks to attain, and the economic and legal context of which it forms part.’29 7.19  If an agreement does not restrict competition by object, it must be examined to assess whether it has appreciable actual or potential effects on competition in that it has or is likely to have an impact on competition parameters, such as price, output, product quality, product variety, or innovation.30 Restrictive effects on competition are likely to occur ‘where it can be expected with a reasonable degree of probability that, due to the agreement, the parties would be able to profitably raise prices or reduce output, product quality, product variety or innovation.’31 This depends on a variety of factors, including the ‘nature and content’ of the agreement, whether the parties ‘have or obtain some degree of market power’, and whether the agreement contributes ‘to the creation, maintenance or strengthening of that market power or allows the parties to exploit such market power.’32 7.20  In this respect, the Guidelines provide that when the parties have a low combined market share, the horizontal cooperation agreement is unlikely to produce restrictive effects within the meaning of Article 101(1), and that should be the end of the analysis.33 What is a low combined market share depends on the type of agreement in question and can be inferred from the ‘safe harbour’ thresholds set out in various chapters of the Guidelines.

(2)  Can a restrictive agreement benefit from exemption in Article 101(3)? 7.21  Agreements that fall within the scope of Article 101(1) can be exempted under Article 101(3). As the burden of proof is placed on the undertaking(s) that invoke the benefit of this provision, such undertaking(s) must provide evidence allowing the Commission to assess whether the agreement in question is likely to bring pro-competitive efficiencies. Determining whether such efficiencies are present is, according to the Guidelines, ‘a question of identifying the complementary skills and assets that each of the parties brings to the agreement.’34

(p. 429) B.  Specific Principles for Competition Analysis (By Type of Cooperation) (1)  Exchanges of information (a)  Definition and scope 7.22  Information exchange scenarios The introduction of a chapter devoted to agreements entailing exchanges of information is an innovation of the new Guidelines.35 The relevant chapter begins by distinguishing different scenarios in which information can be exchanged.36 This can happen either directly between competitors or indirectly via a common agency (eg a trade organization) or a third party (eg market research organizations, suppliers, or retailers). Furthermore, the context of the exchange might differ. For instance, the main objective of the contact with the competitor might be the information exchange itself, or, by contrast, the exchange could be part of a broader horizontal agreement (eg an R&D agreement). 7.23  Possible pro-competitive effects Most information exchange agreements between undertakings are not likely to produce anticompetitive effects. After all, undertakings that merely exchange information are still free to act on the market as they see fit. They do not agree to coordinate their commercial conduct, as they would in the context of a cartel. Furthermore, according to the economic theory of perfect competition, perfect information is a prerequisite to achieve the optimal competitive outcome.37 From this point of view, as the Commission itself acknowledges,38 information exchange might even generate pro-

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competitive effects. However, as will be seen, exchange of information can also create competition concerns in that they may facilitate collusion and/or lead to foreclosure.

(b)  Assessment under Article 101(1) TFEU 7.24  Exchanges of information can take the form of an agreement, a concerted practice, or a decision of an association of undertakings. (i)  Main competition concerns

7.25  Two types of competition concerns Exchanges of market information may lead to restrictions of competition, which can take two forms: (i) either a collusive outcome, which is encouraged or facilitated by an exchange of information, the effect of which is to make undertakings aware of competitors’ market strategies,39 (ii) or a foreclosure effect, which is (p. 430) created because competitors not participating in the exchange are placed in a disadvantageous position.40 Information exchange agreements are also likely to stifle competition in reducing the degree of uncertainty present in the market.41 7.26  Collusive outcome The exchange of information between competitors (especially strategic information, as described below) can artificially increase transparency in the market and, hence, facilitate coordination of companies’ behaviour.42 According to the Guidelines, this can happen through three channels: information exchanges can (i) provide the basis upon which the companies will then be able to reach a common understanding to coordinate their conduct in the market; or (ii) maintain the internal stability of a collusive outcome on the market (as parties can monitor internal deviations from an existing collusive outcome and then possibly take retaliation measures); or (iii) protect the external stability of a collusive outcome on the market (as, where a collusive outcome exists, they enable companies to monitor possible attempts of entry in the market and take targeted measures to prevent it).43 7.27  Anticompetitive foreclosure This can occur on the same market where the information exchanges take place or on a related market. In the former case, competitors who do not have access to the information exchanged can find themselves at a competitive disadvantage and be potentially foreclosed. Alternatively, information takes place on a given market, but also influences a related market (eg downstream). For instance, by gaining enough market power through exchanging information in an upstream market, vertically integrated companies may be able to raise the price of a key input for a downstream market, hence raising the costs of their downstream rivals.44 (ii)  Restriction of competition by object

7.28  Principle In assessing whether an information exchange constitutes a restriction of competition by object, the Commission will pay ‘particular attention to the legal and economic context in which the information exchange takes place.’45 Exchanges of undertakings’ individualized intentions on future prices or quantities are likely to lead to a collusive outcome with resulting higher prices for consumers. Such exchanges are thus assessed as restrictions of competition by object in breach of Article 101(1) TFEU. The Guidelines note that such exchanges would normally be found to constitute cartels.46 They are very unlikely to fulfil the conditions of Article 101(3).47 (p. 431) 7.29  Individualized data regarding future conduct The exchange of information can be a restriction by object only when it refers to data that is individualized and relates to the undertaking’s future conduct. To qualify as individualized, information should allow participants to detect other operators’ deviations on the market (or from which individual operators are identifiable). Data should also refer to future conduct, especially future prices or quantities (including future sales, market shares, territories, and sales to particular groups of consumers). The notions of individualized (as opposed to aggregated)

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and future (as opposed to historic) data are also relevant for restrictions by effect and will be thoroughly discussed below. 7.30  Comment Overall, the final wording of the Guidelines is welcomed as much more reasonable and balanced than earlier drafts.48 The emphasis on future prices and the reference to the legal and economic context are regarded as positive elements; all the more so when compared to the aggressive approach followed in earlier drafts, whereby exchange of information even on ‘current conduct’ was also considered to restrict competition by object, as long as it ‘reveals intentions on future behaviour and … the combination of … data enables the direct deduction of intended future prices or quantities.’49 (iii)  Restrictive effects on competition

7.31  Principle The Guidelines state that [f]or an information exchange to have restrictive effects on competition within the meaning of Article 101(1), it must be likely to have an appreciable adverse impact on one (or several) of the parameters of competition such as price, output, product quality, product variety or innovation.50 The competitive assessment is based on two types of considerations: the economic conditions on the relevant markets and the nature of the information exchanged. (iv)  Restrictive effects on competition–market characteristics

7.32  Relevant market characteristics A collusive outcome is more likely to be achieved by companies exchanging information in a market which is sufficiently transparent, concentrated, non-complex, stable, and symmetric. When examining the characteristics of the market, emphasis should be placed not only on the initial situation in the market, but also on the changes that an exchange of information can bring to these characteristics. 7.33  Transparency According to the Guidelines, ‘transparency can facilitate collusion by enabling companies to reach a common understanding on the terms of coordination, or/and by increasing internal and external stability of collusion.’51 Both the pre-existing levels of transparency and the transparency achieved through the exchange of information must be taken into account. The number of market participants and the nature of transactions (eg public or confidential bilateral transactions) can be critical, when deciding on transparency. (p. 432) 7.34  Concentration Tight oligopolies can facilitate collusion as ‘it is easier for fewer companies to reach a common understanding on the terms of coordination and to monitor deviations.’52 However, it is not uncommon for competition authorities to raise competition law concerns in relation to agreements that do not take place on tight oligopolies. For instance, in Wirtschaftsvereinigung Stahl, the Commission sanctioned an information exchange agreement between 20 undertakings.53 In practice, as long as the market structure is not atomistic (in the vast majority of cases) competition authorities consider that all information exchange agreements may pose competition problems.54 7.35  Complexity In its Guidelines, the Commission acknowledges that ‘it is difficult to achieve a collusive outcome in a complex market environment’.55 Put differently, it is simpler to collude on a price for a single, homogeneous product, than on numerous prices in a market comprised of differentiated products. However, it is not uncommon that undertakings circumvent these difficulties, for example by introducing simple pricing rules, such as pricing points. 7.36  Stability Exchange of information is less likely to have restrictive effects ‘[i]n an unstable environment, [whereby] it may be difficult for a company to know whether its lost sales are due to an overall low level of demand or due to a competitor offering particularly low prices, and therefore it is difficult to sustain a collusive outcome.’56 Volatile demand, substantial growth of existing competitors, frequent entry of new competitors, and constant

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innovation can all be used as indicators that the market situation is not sufficiently stable for a collusive outcome to be achieved. 7.37  Symmetry When undertakings are homogenous in terms of their costs, demand, market shares, product range, etc, they are in a better position to reach a common understanding on the terms of coordination as their incentives are more aligned.57 Hence, a collusive outcome through information exchange is more likely to occur in a symmetric market structure. On the other hand, it could also be argued that information exchange helps undertakings to understand their differences and the sources of their heterogeneity and, therefore, also allows for collusive outcomes in less symmetric markets. 7.38  Retaliation must be likely For a collusive outcome to be sustainable, the threat of a sufficiently credible and prompt retaliation must be likely as otherwise coordinating companies will not believe that it is in their best interest to adhere to the terms of the collusive outcome.58 (p. 433) (v)  Restrictive effects on competition—characteristics of the information exchanged

7.39  In addition to market characteristics, several elements intrinsic to the information exchanged will also be taken into account when deciding on the restrictive effects on competition. 7.40  Strategic information Strategic information refers to commercially sensitive data, which reduces uncertainty in the market. It can be related to ‘prices …, customer lists, production costs, quantities, turnovers, sales, capacities, qualities, marketing plans, risks, investments, technologies and R&D programmes’.59 The Guidelines classify strategic information by order of significance: prices and quantities are the most important, followed by costs and demand. The more strategic the data exchanged, the more likely it is that the exchange breaches Article 101(1) TFEU. 7.41  Market coverage For an information exchange to be likely to have restrictive effects, the companies involved in the exchange must cover a ‘sufficiently large part of the relevant market’.60 Otherwise, the competitors that are not participating in the information exchange could constrain any anticompetitive behaviour of the companies involved. For example, by pricing below the coordinated price level companies unaffiliated within the information exchange system could threaten the stability of a collusive outcome. 7.42  Individualized information Individualized information should be distinguished from aggregated data, the collection and publication of which is generally much less likely to lead to restrictive effects on competition. Only the exchange of the former is in principle problematic, and can even be considered a restriction by object, as mentioned above. In practice, competition authorities often verify whether firms can disaggregate global data to extract data concerning individual affiliate undertakings. 7.43  More generally, they apply the so-called ‘ + 3’ rule, according to which an exchange of aggregated statistics poses no problem as long as three (or more) undertakings participate in it. Conversely, when two undertakings participate in such an exchange, it is sufficient for each undertaking simply to deduct its own data (eg its sales) from the aggregate information (global sales) to obtain individual information about the other. 7.44  It cannot be excluded, however, that even the exchange of aggregated data may facilitate a collusive outcome in certain markets with specific characteristics, for example in tight and stable oligopolies. The reason is that in such market structures ‘companies may not always need to know who deviated, it may be enough to learn that “someone” deviated’.61 In addition, there may be other instances where aggregated data raise competition concerns. As highlighted in VEBIC, the calculation and dissemination of a price index that applies across an entire sector may discourage members from individually

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setting their own prices, and may induce them gradually to converge around a common price level, to the detriment of competition.62 7.45  Age of data According to the Guidelines, the exchange of historic data is unlikely to lead to a collusive outcome.63 By contrast, information on future conduct of the undertaking can (p. 434) amount to a restriction of competition by object. Overall, the rule is that the more recent the information exchanged (or the more frequently it is exchanged), the higher the risk of anticompetitive effects.64 7.46  What constitutes historic data can vary on a case-by-case basis. In its decisional practice, the Commission applied a threshold of 12 months:65 data exchanged that was more than 12 months old was deemed to be historic,66 while the opposite was true for information that was less than 12 months old.67 This ‘rule of thumb’ borders on arbitrary. From an economic perspective, what is important is the rate of market re-initialization, namely, the period after which commercial behaviour loses all reference value in the market. The market re-initialization rate may be less than 12 months in certain sectors (eg short-term trading markets, or ‘spot’ markets in the energy sector). Hence, the fact that the new Guidelines introduce general indicators, instead of the 12-month rule, is to be commended. These indicators include the frequency of price re-negotiations in the market, the data’s nature and aggregation, and the special elements of the market. 7.47  By contrast, the Commission takes a particularly strict approach to the exchange of information on future industrial, commercial, or strategic policies. These exchanges are generally prohibited since they are apt to eliminate all decision-making independence (subject to the satisfaction of other conditions).68 Under EU law, such exchanges are even tantamount to an illicit ‘concerted practice’.69 From an economic perspective, this is not surprising. The exchange of future information allows firms to ‘test’ new policies in a riskfree manner. If other firms respond to an announced future price increase with announcements of future price increases of their own, the price leader would have comfort that it was not likely to face competition and could thus go ahead with its price hike as planned. If rivals did not respond with announcements of their own, thus signalling that the price leader would probably be undercut by competitors, it could decide not to go forward with its announced increase. In this way, the exchange of future information stifles price competition and facilitates coordination among the firms. 7.48  Frequency of the exchange According to the Commission’s guidelines, ‘[f ]requent exchanges of information that facilitate both a better common understanding of the market and monitoring of deviations increase the risks of a collusive outcome.’70 In markets with long-term contracts, even less frequent exchanges could be sufficient to achieve a collusive outcome. 7.49  Non-public information Generally, only the exchange of information which is not genuinely public can give rise to competition concerns under Article 101. The exchange of (p. 435) information that is in the ‘public domain’ (eg information disclosed by a public institution, a regulatory authority, a market research firm,71 a financial newspaper, etc) does not normally infringe competition rules.72 Genuinely public exchanges of information make data equally accessible to all competitors and customers. The fact that information is exchanged publicly reduces the likelihood of a collusive outcome, given that unaffiliated companies, potential entrants, as well as customers can have access to the data.73 However, even data ‘in the public domain’ cannot be considered as genuinely public, if the costs involved in collecting it deter other companies or customers from doing so.74

(c)  Assessment under Article 101(3) TFEU

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7.50  Firms often argue that there are considerable virtues to information exchange agreements. Such redeeming efficiencies can form the basis for an exemption under Article 101(3) TFEU. For Article 101(3) to apply to information agreements, the following conditions must be fulfilled. 7.51  Efficiency gains The Commission recognizes that information exchange can result in various types of efficiency gains. Although it is made clear that the discussion therein is neither exclusive nor exhaustive, the guidelines place emphasis on the following efficiency gains. 7.52  Benchmarking Companies can become more efficient by comparing their performance against best practices in the industry and preparing relevant incentive mechanisms to upgrade their performance. Information needed to carry out this exercise can be legitimately obtained through information exchange agreements.75 7.53  Better allocation of demand and supply The Commission also recognizes in its decisional practice that information exchange agreements can be used to improve the use of existing capacities, prevent future over-and under-capacity, allow optimal planning of investments, help to monitor distributors, etc.76 This is also confirmed in the Guidelines and can be of particular importance for perishable goods.77 (p. 436) 7.54  Addressing asymmetric information problems Information exchange can be valuable in certain sectors, such as banking and insurance, where the problem of asymmetric information leads to higher prices for all customers. By providing information on accidents, consumer defaults, and other risk characteristics, tailored products can be provided, based on the true level of risk. This would in turn may result in lower prices for certain groups of customers.78 7.55  Moreover, exchange of data that is genuinely public can allow both consumers and companies to make more informed choices, hence reducing costs. According to the Guidelines, consumers are most likely to benefit from public exchanges of current data, which are the most relevant for their purchasing decisions.79 7.56  Indispensability To fulfil the condition of indispensability, the parties to an exchange of information will have to prove that the ‘data’s subject matter, aggregation, age, confidentiality and frequency, as well as market coverage of the exchange are of the kind that carries the lowest risks indispensable for creating the claimed efficiency gains.’80 When information exchange takes place in the context of another horizontal agreement (eg R&D or special ization), it should not go beyond what is necessary for the economic purpose of that agreement. 7.57  Pass-on to consumers Consumers should also be able to benefit from the these efficiency gains. The lower the market power of the parties, the more likely it is that the efficiency gains will be passed on to consumers. In Asnef/Equifax, the Court relaxed slightly the conditions for fulfilling this requirement as it stated that [i]n order for the condition that consumers be allowed a fair share of the benefit to be satisfied, it is not necessary, in principle, for each consumer individually to derive a benefit from an agreement, a decision or a concerted practice. However, the overall effect on consumers in the relevant markets must be favourable.81 7.58  No elimination of competition For an information exchange agreement to be exempted under Article 101(3), it should not allow the parties to eliminate competition in respect of a substantial part of the market.

(3)  Research and development agreements

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(a)  Introduction 7.59  Given the growing importance of innovation, joint R&D agreements are in vogue. For instance, in November 2006, Microsoft and Novell announced the conclusion of a joint R&D agreement relating to interoperability solutions: their plan is to develop tools translating the format for exchanging XML-based documents, identity federation systems, and oversight tools, etc.82 This agreement was renewed in July 2011, to promote R&D cooperation between Microsoft and SUSE (which belongs to the Attachmate Group, as Novell).83

(p. 437) (b)  Assessment under Article 101(1) (i)  Main competition concerns

7.60  R&D cooperation can restrict competition in various ways: (i) it may reduce or slow down innovation, leading to fewer or worse products that may come to the market later than they otherwise would; (ii) it may reduce significantly competition between the parties outside the scope of the agreement; and/or (iii) it may make anticompetitive coordination on those markets likely, hence leading to higher prices.84 The Guidelines underline that a foreclosure problem may only arise when the cooperation involves at least one player with a significant degree of market power for a key technology and the exclusive exploitation of the results. (ii)  Relevant markets

7.61  The Guidelines specify that an R&D agreement may affect: (i) existing product markets (including substitutes) when the cooperation concerns R&D for the improvement of existing products;85 (ii) technologies markets, covering, for example, the markets in which undertakings cooperate to develop new technologies which they will exploit by marketing the intellectual property rights separately from the products concerned to which they relate; and (iii) markets for innovation, when the cooperation is directed ‘at an entirely new product (or technology) which creates its own new market’ and ‘which may one day replace existing products’.86 (iii)  Restrictions of competition by object

7.62  The Guidelines state that an agreement the ‘true object’ of which is not R&D but rather the creation of a disguised cartel is in all circumstances incompatible with Article 101(1).87 The presence of hardcore restrictions (price fixing, output limitation, or market allocation, etc) rules out the benefit of the block exemption Regulations, and also deprives the agreement of possible exemption under Article 101(3).88 (iv)  Restrictive effects on competition

7.63  Agreements between non-competing undertakings and others The Guidelines clarify that most R&D agreements do not fall under Article 101(1). This is the case for ‘agreements relating to cooperation in R&D at a rather early stage, far removed from the exploitation of possible results’;89 R&D agreements between non-competitors (eg firms that ‘are not able to carry out the necessary R&D independently’);90 outsourcing agreements of previously captive R&D with ‘specialised companies, research institutes or academic bodies which are not active in the exploitation of the results’;91 and ‘pure’ R&D agreements, which do not (p. 438) include ‘the joint exploitation of possible results by means of licensing, production, and/or marketing.’92 7.64  Block exemption, market-share threshold, and specific conditions A block exemption mechanism defined in Article 1 of the R&D Regulation is available for the various types of cooperation in R&D, whether these are joint research and development of products or processes and joint exploitation of the results of that research and development; joint exploitation of the results of research and development of products or processes jointly carried out pursuant to a prior agreement between the same parties; or joint research and development of products or processes excluding joint exploitation of the

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results. The block exemption also extends to the restrictions that are directly associated and necessary (termed ancillary restraints). 7.65  The benefit of a block exemption is subject to a general condition, provided in Article 4 of the Regulation: the combined market share of the participating undertakings must not exceed 25 per cent of the relevant product and technology market.93 The fact that the combined market share exceeds the 25 per cent threshold does not, however, rule out the possibility of an individual exemption. An in-depth analysis must then be carried out in light of the Guidelines. 7.66  The following specific conditions must also be fulfilled for the block exemption to apply.94 First, all the parties must have access to the results of the joint R&D for the purposes of further research or exploitation (Art 3(2)).95 Second, where the R&D agreement provides only for joint R&D, each party must be independently free to exploit the results of the joint R&D and any pre-existing know-how necessary for the purposes of such exploitation (Art 3(3)). Third, any joint exploitation must relate to results which are protected by IP rights or constitute know-how, which are indispensable for the manufacture of the contract products or the application of the contract processes (Art 3(4)). Finally, undertakings charged with manufacturing must be required to fulfil orders for supplies from all the parties, except where the R&D agreement also provides for joint distribution (Art 3(5)). 7.67  In-depth individual analysis of joint R&D agreements Agreements that do not qualify for the block exemption (either because their combined share of the relevant market exceeds 25 per cent or because the above-mentioned conditions are not fulfilled) can nevertheless be justified pursuant to an in-depth individual analysis. It must then be verified whether there is a restriction of competition as defined in Article 101(1) TFEU, and, if so, whether the agreement benefits from the possibility of exemption under Article 101(3). 7.68  The Guidelines draw a distinction between ‘pure R&D agreements’ and ‘agreements providing for more comprehensive co-operation involving different stages of the exploitation of (p. 439) results’.96 Pure R&D agreements will generally not give rise to restrictive effects on competition within the meaning of Article 101(1), and this is particularly true for R&D aimed towards a limited improvement of existing products or technologies.97 In such a scenario, if the ‘joint exploitation’ of the cooperation takes only the form of licensing to third parties, restrictive effects are unlikely to ensue. In contrast, if the cooperation includes joint production and/or marketing of the slightly improved products or technologies, a closer examination of the possible effects on competition of the cooperation is needed.98 7.69  If the R&D cooperation is directed at an entirely new product or technology which creates its own new market, restrictive effects on existing markets are unlikely to occur.99 The Article 101(1) assessment should thus focus on ‘possible restrictions of innovation concerning, for instance, the quality and variety of possible future products or technologies or the speed of innovation.’100 Such restrictive effects are more likely to arise when the parties to the cooperation initiate their cooperation at a stage where they are each independently rather near to the launch of the product. 7.70  As many R&D agreements may have effects on both innovation and on existing markets, both the existing market and the effect on innovation may be of relevance for the assessment. R&D cooperation may thus have restrictive effects on competition in terms of higher prices or reduced output, product quality, product variety, or innovation in existing markets, as well as in the form of a negative impact on innovation by means of slowing down its development.101

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(c)  Assessment under Article 101(3) 7.71  If the agreement is likely to restrict competition, the Guidelines require a traditional analysis to be conducted in light of Article 101(3) TFEU.102 Paragraph 141 of the Guidelines and recital 10 in the Preamble to the R&D Regulation emphasize that these agreements promote technical and economic progress. The latter can result in cost reductions (particularly job duplication in the research sector), cross-fertilization of ideas and knowhow, a more rapid development of products and techniques, etc.103

(p. 440) (4)  Production and specialization agreements (a)  Introduction 7.72  Scope According to Article 1 of the specialization block exemption Regulation, the concept of specialization agreements covers three categories of agreements: (i) unilateral specialization agreements, whereby one party agrees to cease production of certain products or to refrain from producing those products and instead to buy them from a competing undertaking, while the competing undertaking agrees to produce and supply those products; (ii) reciprocal specialization agreements, by virtue of which two or more parties on a reciprocal basis agree to cease or refrain from producing certain differentiated products and to purchase these products from the other parties, who agree to supply them; or (iii) joint production agreements, by virtue of which two or more parties agree to produce certain products jointly.104 7.73  Semantic curiosity While Article 1 of the Regulation refers to the notion of ‘specialization agreements’ to describe a certain number of cooperation agreements, the Guidelines refer to the notion of ‘production agreements’.105 For the sake of simplicity, this section and its subsections refer to both production and specialization agreements. 7.74  Example of joint production agreement In the VW/MAN case, the Commission examined an agreement by which VW and MAN undertook to develop, build, and distribute a range of utility vehicles in a particular weight category with the aim of improving their existing lines.106 The Commission found that the agreement could have restrictive effects on competition at the parts supply, sales, dealership, and servicing levels, which made it prima facie incompatible with Article101 (1) TFEU. However, the expected improved quality and reduced costs of the products justified the restrictive effects of the agreement. 7.75  Another example of a joint production agreement is the agreement between O2 and TMobile, whereby both mobile telecommunications operators wanted to build a joint third generation mobile communications network (sharing of sites, masts, base stations, and other network elements) in order to supply wireless telecommunications services.107 Pursuant to this agreement, O2 and T-Mobile would share the specified infrastructures and jointly offer national roaming of third generation mobile telecommunications (‘3G’) on the German market. The Commission authorized the agreement (although the decision was subsequently annulled by the General Court (GC)).108 7.76  Example of specialization agreements In the PRYM/BEKA case, the Commission was asked to review a unilateral specialization agreement in which PRYM, an undertaking active in the area of sewing machines, agreed to stop manufacturing needles, while the other party, BEKA, promised to supply PRYM with all the needles it would require at preferential (p. 441) prices.109 The Commission stated that although the agreement was prima facie in breach of Article 101(1) TFEU and did not fall under the exceptions of the Specialization Regulation, it could be still justified under Article 101(3) on the basis of the rationalization effects that it generated at the production level. In the Electrolux/AEG case, the Commission was asked to review an agreement whereby one of the undertakings was specializing in the production of washing machines and the other in the production of

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tumble driers. By a Notice of 5 October 1993, the Commission indicated that it intended to take a favourable position with respect to the agreement.110 7.77  Clarification on specialization Specialization agreements, regardless of whether they are unilateral or reciprocal, are accompanied by purchase/supply agreements. Although such relationships are vertical, they are analysed nonetheless as distribution agreements between competitors, that is in light of the rules relating to horizontal agreements. If specialization agreements consist of purely and simply agreeing not to engage in production activities, they may also consist of agreeing to forgo future investments in a specific area or in capacity increases. 7.78  Clarification on subcontracting agreements Subcontracting agreements are defined as those by which one party (the ‘principal’) entrusts another party (the ‘subcontractor’) to manufacture a given product.111 Subcontracting does not necessarily involve the transfer of know-how or an agreement to stop production by the subcontractor.

(b)  Assessment under Article 101(1) (i)  Main competition concerns

7.79  According to the Guidelines, in the course of an Article 101(1) TFEU assessment, specialization agreements can give rise to the following types of competition concerns: direct limitation of competition between parties, foreclosure of third parties in related markets, and collusive outcome. 7.80  Direct limitation of competition between parties Production agreements can lead the parties directly to align their output levels, the product quality, the price (if, eg, a joint venture also markets the products), and other important factors of competition.112 In the same vein, the 2001 Guidelines stated that these agreements harbour a risk of ‘market partitioning’.113 Partitioning presumably refers to market-sharing problems, where the parties agree not to compete head-on, but instead to specialize and, de facto, agree not to engage in cross-supplies. However, as noted above, undertakings generally conclude longterm supply agreements at the same time as the specialization agreements. 7.81  Collusive outcome Specialization agreements may accentuate the risk of anticompetitive coordination between the parties on the markets where they remain active. This is, as the economic literature explains, the risk of the agreement being used as a means of exchanging (p. 442) information (particularly on volumes) which may make collusion easier in an oligopolistic market.114 What is more, economic analysis warns against the effects of harmonizing the cost structures of the undertakings that are parties to the agreement. This is what the Guidelines define as ‘commonality of costs’, namely the proportion of variable costs that the parties have in common. When costs are so aligned (or, put differently, when commonality is higher), coordinated conduct becomes much easier even without active effort.115 7.82  Foreclosure of third parties in related markets Such related markets include, for instance, downstream markets which rely on input from the market in which the specialization agreement takes place. If one or both parties to a production agreement are also present in the downstream market, they can use the joint production to raise the costs of the components to the downstream market and, hence, the costs of their rivals in that market. This could ultimately force competitors out of the (downstream) market. 7.83  Other possible competition concerns There are, however, other scenarios where competition might be harmed. Specialization agreements create a risk of limiting the diversity of goods supplied, and ultimately therefore can reduce consumer choice.

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Moreover, such agreements may create situations of dependence to the extent that one of the undertakings ceases to manufacture the product.116 (ii)  Relevant markets

7.84  Markets affected by such agreements are (i) product and geographic market(s) directly concerned by the cooperation (ie, the market(s) to which products subject to the agreement belong) and (ii) the upstream, downstream or neighbouring markets ‘closely related’ to the market directly concerned by the cooperation. These latter markets, termed ‘spill-over markets’, are the markets on which the parties remain independently active. There may be anticompetitive spill-over effects when the cooperation leads the parties to coordinate their behaviour on these markets.117 (iii)  Restrictions of competition by object

7.85  Principle The Guidelines state unambiguously that agreements containing hardcore restrictions, that is, agreements of the parties to fix their prices for market supplies, limit output or share markets or customer groups have the object of restricting competition and almost always fall under Article 101(1) TFEU.118 7.86  Exception The Regulation and the Guidelines however introduce a noteworthy exception to the principle of per se prohibition of hardcore restrictions. In Article 4(b) and paragraph 160 respectively, the Regulation and the Guidelines state that Article 101(1) TFEU does not automatically apply (i) to agreements where the parties agree on the output directly concerned by the production agreement (eg the capacity and production volume of a joint venture or the agreed amount of outsourced products) or (ii) where a production joint (p. 443) venture that also carries out the distribution of the manufactured products sets the sales prices for these products, provided that price fixing by the joint venture is the effect of integrating the various functions.119 In such circumstances, the production agreement and the hardcore restriction must be assessed in the light of the ‘overall effects’ of the cooperation on the market.120 (iv)  Restrictive effects on competition

7.87  Block exemption, market-share threshold, and specific conditions The benefit of the block exemption provided in Article 2 of the Regulation is subject to meeting a market-share threshold. Article 3 of the Regulation (as elaborated in Art 5) exempts agreements in which the combined market share of the participating undertakings does not exceed 20 per cent of the relevant market.121 Below this, the parties do not have market power and the individual exemption conditions are deemed to be fulfilled. As regards the 20 per cent threshold, the new Guidelines clarified that in situations where a specialization agreement concerns intermediary products used by one or more of the parties for the production of their own downstream products, the combined market share of the parties must also not exceed 20 per cent in the downstream product market.122 7.88  Ancillary restraints and related commitments Pursuant to Article 2(2) of the Regulation, the block exemption also covers ancillary restraints which do not constitute the primary object of such agreements, but are directly related to and necessary for their implementation, such as those concerning the assignment or use of IP rights. It also covers certain related purchasing and marketing ‘arrangements’ defined in Article 2(3) of the Regulation. It extends in particular to the exclusive purchase and exclusive supply obligations often required in specialization agreements, as well as the joint distribution of the products or the appointment of a third party distributor on an exclusive or non-exclusive basis in the context of a joint production agreement.123 7.89  In-depth individual analysis of production/specialization agreements Crossing the 20 per cent threshold does not eliminate the benefit of an exemption, but a detailed individual analysis must be conducted based on the Guidelines. In this respect, the

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Guidelines elaborate at paragraphs 174 to 182 on the main competitive concerns raised by such agreements. (v)  Assessment under Article 101(3)

7.90  The Guidelines outline the principles that apply to the individual analysis of the benefit of an exemption. 7.91  Efficiency gains Production/specialization agreements generally go hand in hand with a series of efficiency gains in the form of reduced production costs, technological innovations (p. 444) (via the pooling of certain licences and IP rights in order to allow new products to be developed), improved product quality, and variety.124 7.92  In addition, these agreements may enable undertakings to focus their productive effort on the activities where they are most efficient, transferring to other more efficient undertakings a subset of their activities. The economic idea here is ‘comparative advantage’—by focusing on their particular strengths, the parties may gain overall on the marketplace by producing more of the end product. In other words, specialization may result in economies of scale and a more rapid pay-off of new facilities and capital investments. What is more, if joint production allows parties to increase the number of different types of products, it can also lead to cost savings by means of economies of scope. 7.93  Another potential efficiency gain (not mentioned in the Guidelines) is that these agreements allow for product homogenization, which is desirable in some sectors in order to prevent customers/consumers from facing non-standard, incompatible products: hence, limiting their ability to make useful comparisons of competing offers. 7.94  Indispensability It is important, according to the Guidelines, that the agreement does not limit the competitive behaviour of the parties concerning production not covered by the cooperation. In other words, if the joint venture only supplies part of the total output of the parties, and the latter parties also continue to produce individually (the same good/ service as well as other goods/services), the agreement must not contain any restriction relating to the latter activities.125 7.95  Pass-on to consumers Efficiency gains generated by the agreement need to be passed on to consumers in the form of lower prices, or better product quality or variety to an extent that outweighs the restrictive effects on competition.126 Hence, efficiency gains that only benefit the parties or cost savings that are caused by output reduction or market allocation are not sufficient to meet the criteria of Article 101(3). 7.96  No elimination of competition The Guidelines state, again in relatively obscure wording, that when the parties are given the chance to eliminate competition for substantial parts of the products in question, the agreement cannot in principle be exempted.127 The 2001 Guidelines also explicitly mention cases where an undertaking is or becomes dominant, as a result of an agreement. This reference has been eliminated in the current version of the Guidelines.128

(5)  Purchasing agreements (a)  Introduction 7.97  Concept In joint purchasing agreements, two or more undertakings decide collectively to buy the products or services they need to perform their activities. Joint purchasing can be carried out in different ways: by setting up a jointly controlled company or a company in (p. 445) which many other companies hold non-controlling stakes, through contractual arrangement or even looser forms of cooperation.129

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7.98  These agreements usually aim at the creation of buying power allowing participating companies to benefit from better terms and conditions (lower prices, higher quality, etc). Such benefits may in turn be passed on to consumers. As will be seen, buying power may, however, generate some competition concerns. 7.99  Examples There is scant case law in this area, but one example is the case of European Broadcasting Union (EBU), an association of undertakings combining Hertz television channels for the purposes of acquiring rights to retransmit international sporting events.130 More generally, joint purchasing agreements frequently combine small and medium sized enterprises (SMEs) concerned with obtaining from their suppliers the same commercial advantages as their bigger competitors (large retailers). By joining forces, undertakings can increase their bargaining power and thus create or maintain a more level playing field, all to the benefit of consumers to the extent that input costs are held in check.131 7.100  Specific feature Unlike the agreements examined above, no block exemption governs joint purchasing agreements. The text of the Guidelines is therefore the main source of legal guidance in this area. 7.101  Vertical relations? When a joint purchasing agreement involves both horizontal and vertical agreements, a two-step analysis is necessary. The horizontal agreements have to be assessed according to the principles of the Guidelines covering these types of agreement, whereas vertical agreements (those that involve suppliers) must be the subject of ‘a further assessment’ in light of the principles defined in Regulation 330/2010.132

(b)  Assessment under Article 101(1) (i)  Relevant markets

7.102  Two markets may be affected by a joint purchasing arrangement. First, the market(s) with which such an arrangement is directly concerned, that is, the relevant purchasing market(s). Second, the selling market(s), that is, the market(s) downstream where the parties to the joint purchasing arrangement are active as sellers. (ii)  Main competition concerns

7.103  Joint purchasing arrangements may lead to restrictive effects on competition on both the purchasing and/or downstream selling market(s). (p. 446) 7.104  If competitors purchase a significant part of their products together, their incentives for price competition on the selling market(s) may be reduced. In addition, if they enjoy a significant degree of market power on the selling market(s), the lower purchase prices achieved by the joint purchasing arrangement are unlikely to be passed on to consumers. 7.105  If the parties acquire a significant degree of market power on the purchasing market, they may be in a position to force suppliers to reduce the range or quality of products they produce, which may create negative effects on competition (ie, decrease in innovation or in the quality of products, or even output reduction, etc). Buying power of the parties to the joint purchasing arrangement may also be used to foreclose competing purchasers by limiting their access to efficient suppliers. (iii)  Restrictions of competition by object

7.106  When the cooperation does not truly concern joint buying but conceals a ‘disguised cartel’ aimed at fixing prices, limiting output, or partitioning markets, Article 101(1) TFEU automatically applies.133 (iv)  Restrictive effects on competition

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7.107  Agreements between non-competing undertakings The Guidelines state that agreements between purchasers not operating on the same relevant downstream market (therefore not competing) do not fall under Article 101(1) TFEU. This applies, in particular, to agreements between retailers who are active in separate geographic markets.134 Such a situation may also occur when undertakings operating on different product markets engage in joint buying relations. For example, considering an increase in the price of steel owing to Chinese demand, it is thus perfectly conceivable for manufacturers from different sectors that consume large quantities of steel to cooperate in the acquisition of steel. 7.108  Market-share threshold Although no block exemption Regulation applies to purchasing agreements, the Guidelines adopt market-share thresholds analogous to those used for R&D and specialization agreements.135 The Guidelines provide that, while there is no ‘absolute threshold’ above which it can be presumed that the parties to a joint purchasing arrangement have market power so that this arrangement is likely to give rise to restrictive effects within the meaning of Article 101(1), it is unlikely that market power exists if the parties to the joint purchasing arrangement have a combined market share not exceeding 15 per cent on the purchasing market(s), as well as a combined market share not exceeding 15 per cent on the selling market(s). 7.109  It is interesting to observe that the threshold provided in the Guidelines has, to a certain extent, a greater legal impact than the thresholds that apply to R&D and specialization agreements, even though the latter are formally provided by instruments of greater legal force, ie, Regulations. Here, in fact, the threshold allows not only for the exemption as defined in Article 101(3) TFEU to be presumed, but even causes the agreement to fall outside Article 101(1) TFEU. (p. 447) 7.110  In-depth individual analysis of purchasing agreements Crossing the 15 per cent threshold ‘does not automatically indicate that the joint purchasing arrangement is likely to give rise to restrictive effects on competition’. However, in such a situation, this arrangement requires a detailed assessment of its effects on the market.136 7.111  It is possible to discern, within the Guidelines, three theories of anticompetitive harm, namely exploitation of suppliers by creating or strengthening purchasing power, exploitation of downstream market power to the detriment of customers, and finally foreclosure of downstream competitors. 7.112  Exploitation of suppliers through buyer power All buyers seek to lower the prices and improve the conditions on which they obtain supplies—this is universal. Suppliers may offer special concessions for group orders as such orders may be a source of efficiencies, such as lower transaction costs and guaranteed volumes. As noted, buyer power may, however, force suppliers to reduce prices to such a level that they may no longer be able to trade profitably.137 In other words, there is the risk of suppliers being ‘asphyxiated’ by their purchasers, which is a complaint often made in the large distribution sector. The Guidelines observe that buying power may lead to a drop in ‘prices … below the competitive level’ and to reduce the variety and quality of the supply of products on the selling market.138 A good example is the Sogecable/Telefonica case where the Commission was concerned by the fact that the joint acquisition of sporting rights would lead both channels to exploit the Spanish soccer clubs upstream by excessively depreciating the prices paid for the rights.139 7.113  Collusion As noted, joint purchasing arrangements may lead to a collusive outcome if they facilitate the coordination of the parties’ behaviour on the selling market.140 This can be the case if the parties: (i) achieve a high degree of commonality of costs (and, in particular, variable costs) through joint purchasing, provided the parties have market power and the market characteristics are conducive to coordination and (ii) exchange commercially sensitive information such as purchase prices and volumes as it may facilitate

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coordination with respect to price and output on the selling market(s) to the detriment of consumers. 7.114  Foreclosing competitors or increasing their costs The Guidelines explain that the buying power resulting from the agreement may also be used to foreclose the market to competitors and, by doing so, create or strengthen market power downstream.141 The increase in buying power is sometimes accompanied by an increase in rivals’ costs. Suppliers faced with a group of joint purchasers holding buying power may be tempted to price discriminate against certain customers in order to recover the price decreases granted to the joint purchasers.142 By doing so, the purchasing agreement may distort the ability of competing purchasers to remain viable, since their costs go up in a relative sense. 7.115  Buying power vs Selling power The Commission rightly emphasizes the need for a detailed analysis of the structure of both sides of the market and, in particular, the power of sellers. (p. 448) Case law shows that the more concentrated the upstream supply is, the less problematic the strengthening of the buying power will be since market power on the two sides can offset each another. For instance, in the Métropole Télévision case, the broadcasting union, despite the presence of a joint purchasing agreement, was still faced with large international sports associations (FIFA, UEFA, etc).143 These two positions of economic power mutually neutralized one other. (v)  Analysis under Article 101(3)

7.116  Economic benefits If the joint purchasing arrangement produces restrictive effects, a detailed analysis of the efficiency gains and objective justifications for the agreement is necessary.144 Joint purchasing may reduce transaction costs (as one group will negotiate for its members), as well as transport and storage costs. It may also allow small players on the selling market better to compete with leading market actors (eg by buying their supplies as a group, small distributors may be able better to engage in price competition with large retail chains). 7.117  Indispensability Competition law provides no clear response regarding the exclusive purchasing obligations that require the parties to the agreement to buy solely through the cooperation. The Guidelines merely state that such obligations must be examined on a case-by-case basis, subject to the condition of proportionality provided in the third paragraph of Article 101(3) TFEU. They emphasize, without giving any other details, that exclusive purchasing obligations may be indispensable to ‘achieve the necessary volume for the realisation of economies of scale’.145 This principle codifies the Court’s case law in Gottrup-Klim .146 In that case, the issue was whether the provision in a cooperative agreement for purchasing fertilizer and plant-protection products prohibiting its members from purchasing through other competing channels could be justified under Article 101(3). Such a provision eliminated all competition by neutralizing the possibility of obtaining supplies on better terms (particularly regarding pricing) outside the cooperative. On the other hand, the prohibition could appear necessary since it allowed large volumes to be purchased, and resulted in a drop in costs and, ultimately, prices. The Court examined the market and concluded that, due to the influence of volumes on prices, exclusivity could be necessary. The Commission has not always been of this opinion. In the ‘ Rennet’ case of 5 December 1979, for instance, the Commission refused to exempt the exclusive purchase obligation imposed on members of a dairy cooperative.147 7.118  Pass-on to consumers As in the case of specialization/production agreements, efficiencies that only benefit the parties to the joint purchasing arrangement will not suffice.148 Efficiency gains, such as cost efficiencies or qualitative efficiencies, achieved by indispensable restrictions (p. 449) must be passed on to consumers to an extent that

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outweighs the restrictive effects on competition caused by the joint purchasing arrangement. 7.119  Absence of elimination of competition For a joint purchasing arrangement to be exempted under Article 101(3), it should not allow the parties to eliminate competition in respect of a substantial part of both the purchasing and selling markets.149

(6)  Commercialization agreements (a)  Introduction 7.120  Concept Commercialization agreements, under which producers decide to sell, distribute, or promote their products jointly, are symmetrically opposite to joint purchasing agreements. Several degrees of cooperation can be envisaged.150 First, parties can choose to cooperate intensively in that they jointly determine ‘all commercial aspects related to the sale of the product, including price’.151 This form of cooperation is referred to as ‘joint selling’. Alternatively, parties can limit their cooperation to address only one specific commercialization function, such as distribution, after-sales service, or advertising. 7.121  Law applicable to joint distribution agreements Distribution agreements, by which competing undertakings jointly organize the sale of a good/service to the end consumer, are a frequent form of limited cooperation.152 As will be seen in Chapter 8, the Block Exemption Regulation on Vertical Restraints and Guidelines on Vertical Restraints generally cover distribution agreements unless the parties to the agreement are actual or potential competitors (which is generally the case in the case of horizontal agreements). If the parties are competitors, the Block Exemption Regulation on Vertical Restraints only covers non-reciprocal vertical agreements between competitors: (a)  the supplier is a manufacturer and a distributor of goods, while the buyer is a distributor and not a competing undertaking at the manufacturing level, or (b)  the supplier is a provider of services at several levels of trade, while the buyer provides its good or services at the retail level and does not provide competing services at the level of trade where it purchases the contract services. 153 7.122  When parties conclude agreements where the commercialization is related to another type of cooperation upstream, such as joint production or joint purchasing, it is necessary to determine the centre of gravity of the cooperation in accordance with the principles contained in the Guidelines.

(b)  Assessment under Article 101(1) (i)  Relevant markets

7.123  To assess the competitive relationship between the parties, the relevant product and geographic market(s) directly concerned by the cooperation (ie, the market(s) to which the (p. 450) products subject to the agreement belong) must be defined. The Guidelines insist on the importance of defining neighbouring markets: As a commercialisation agreement in one market may also affect the competitive behaviour of the parties in a neighbouring market which is closely related to the market directly concerned by the co-operation, any such neighbouring market also needs to be defined. The neighbouring market may be horizontally or vertically related to the market where the co-operation takes place.154 (ii)  Main competition concerns

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7.124  Commercialization agreements can create different types of restrictions of competition in that they may: (i) lead to price fixing; (ii) facilitate output limitation as the parties may decide on the volume of products placed on the market; (iii) be used as a tool for the parties to divide the markets or to allocate orders or customers; and (iv) lead to an exchange of strategic information relating to aspects within or outside the scope of the cooperation or commonality of costs that may facilitate a collusive outcome.155 (iii)  Restrictions of competition by object

7.125  Price-fixing The Guidelines state that agreements limited to ‘joint selling’ (an expression which seems to be synonymous in the Guidelines with ‘grouped selling’)156 ‘generally have the object of coordinating the pricing policy of competing manufacturers or service providers’.157 Not only do they eliminate price competition, but also restrict the total volume of products to be delivered by the parties. Consequently, these agreements automatically fall under Article 101(1) TFEU. Grouped selling is therefore prohibited per se in EU competition law. Another specific competition concern relates to distribution agreements between competitors operating on separate geographic markets, when they result in a serious risk of ‘market partitioning’.158 This risk concerns, if not exclusively then at least mainly, reciprocal distribution agreements. Under such agreements, parties could be led to allocate markets among themselves, thereby eliminating competition. 7.126  Illustration in case law In the Floral case of 28 November 1979, the Commission held as incompatible (and refused to exempt) a joint commercialization agreement between three French fertilizer companies.159 The object of the joint venture, called Floral, was to export the products of the founders to Germany. The founders had reached an agreement to sell their fertilizer at the same price in Germany. German purchasers therefore had a uniform supply. What is more, the parties applied the agreement exclusively with the consequence that German customers had no way of buying directly from the three manufacturers. In 1977, the order from a wholesaler in Cologne had been refused by Cofaz, one of the parties, on the grounds that the latter already had a distribution channel via Floral and that it did not want to extend its sales given that its plants were geographically distant.

(p. 451) (iv)  Restrictive effects on competition 7.127  Agreements between non-competing undertakings A commercialization agreement that is objectively necessary to allow one party to enter a market it could not have entered individually is normally not likely to give rise to competition concerns.160 Consortia arrangements that allow the companies involved to participate in projects that they would not be able to undertake individually (eg large construction projects) are normally not likely to give rise to competition concerns. 7.128  Market-share thresholds In line with the principles applicable to purchasing agreements, the Guidelines state that commercialization agreements are only subject to Article 101(1) TFEU if the parties possess a certain ‘degree of market power’.161 It is ‘unlikely’ that such a market power exists if the parties to the agreement hold a combined market share that is less than 15 per cent. In addition, at this level of market share, it is ‘likely’ that the conditions of Article 101(3) TFEU are met. 7.129  In-depth individual analysis of commercialization agreements Joint commercialization agreements that do not fall under the safe harbour are subject to a detailed analysis of their impact on the market.162 The Guidelines state that commercialization agreements may, apart from the per se prohibition of grouped selling, create risks of collusion between the parties to the agreement.

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7.130  Collusion Joint commercialization agreements are likely to give rise to restrictive effects on competition ‘if it increases the parties’ commonality of variable costs to a level which is likely to lead to a collusive outcome.163 This risk is particularly serious when, prior to the agreement, the parties already had a high proportion of their variable costs in common (through, eg other forms of cooperation) as the additional increment (ie, the commercialization costs of the product subject to the agreement) can tip the balance towards a collusive outcome. 7.131  The Guidelines, however, note that commonality of costs can only increase the risk of a collusive outcome if the parties have market power and if the commercialization costs constitute a large proportion of the variable costs related to the products concerned.164 That is, for instance, the case when the agreement concerns homogeneous products for which the costs of commercialization (marketing, transport, etc) represent an important part of the total costs incurred by the producers. 7.132  The Guidelines also insist on the need to pay attention to the exchanges of sensitive commercial information that often take place in the context of a joint commercialization agreement. The extent to which such exchanges create competition concerns depends on the structure of the market and the type of information exchanged.165 The assessment of such exchanges should be carried out based on the principles contained in the section of the Guidelines devoted to exchanges of information, which has been discussed above. 7.133  Illustration UIP was a distribution subsidiary established by three Hollywood film producers (Paramount Pictures Corporation, Universal Studios Inc, and Metro-Goldwyn-(p. 452) Mayer Inc). Film distribution covers a series of intermediate activities, such as entering into licensing agreements with cinemas to show the films, paying back some of the receipts made by the operators to the producers, providing videotapes to cinemas, organizing promotional activities, etc. Since the distribution in Europe of two to three films per year was particularly onerous, Hollywood producers had entered into an agreement to distribute their films jointly to cinemas. The three producers in question represented only 16 per cent of the market and retained the individual freedom to set prices. The Commission held that the agreement did not produce any restrictive effect.166 (vi)  Assessment under Article 101(3)

7.134  Economic benefits The Guidelines are fairly vague about the types of efficiency gains emanating from commercialization agreements.167 From an economic standpoint, joint commercialization agreements can result in efficiency gains as they may, for instance, allow parties to achieve economies of scale. By cooperating, participating undertakings can spread their fixed costs associated with distributing their products over a broader scale of production. In addition, joint distribution can also allow small producers (eg SMEs) to counterbalance the buying power of large purchasers (eg large retailers). Finally, reciprocal distribution can enable undertakings located in separate geographic markets to penetrate new markets by mutually benefiting from their distribution network and by thus contacting their reciprocal customers. 7.135  Other conditions The Guidelines stress some characteristics that efficiency gains must fulfil to justify the benefit of an exemption. First, the Commission emphasizes the fact that the size of the efficiency gains depends on the nature of the activity and the parties to the cooperation. This could mean, for example, that the wider the distribution of the relevant good/service (say, if it is a mass consumer product), the greater the potential economic advantages flowing from the agreement.168 Second, the Guidelines state that in very exceptional circumstances price fixing may be exempted. In those cases jointly setting prices must be ‘indispensable’ to achieving efficiency gains, and these gains must be ‘substantial’.169 Finally, the parties must demonstrate that the efficiency gains result from

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an actual process of economic integration and are not simply the result of neutralizing competition.170

(7)  Standardization agreements (a)  Introduction 7.136  The concept of standardization agreements171 These agreements ‘have as their primary objective the definition of technical or quality requirements with which current or future products, production processes, services or methods may comply.’172 (p. 453) 7.137  Standards have gained importance over the years in technology-driven sectors. In today’s technology-driven world, industry standardization, device interoperability, and product-compatibility have become critical to promoting innovation and competition. Standards are typically created by voluntary organizations (generally referred to as standard-setting organizations (SSOs)) composed of participants from a given industry (electronic components, communications, etc). They meet to discuss, analyse, refine, and ultimately adopt mutually acceptable standards, which ensure competing and complementary products and components are compatible and interoperable. 7.138  There are a wide variety of SSOs engaged in standardization efforts in an increasingly large number of industries.173 The European Telecommunications Standards Institute (ETSI),174 for instance, develops standards ensuring the compatibility and interoperability of products in the information and communications technology (ICT) sector. Technology developers, handset and network equipment manufacturers, and mobile carriers regularly meet within ETSI and other SSOs to pursue standardization work. It is within ETSI that the GSM (‘2G’) standard was developed. The 3rd Generation Partnership Project (3GPP), one of the entities which specify standards for 3G mobile phone systems, developed as a cooperative venture between ETSI and other relevant SSOs.175 7.139  Standardization activities, typically carried out by armies of engineers, would generally not be expected to fascinate lawyers and economists. But they do, in particular given the amount of money that may be at stake when the standards in question involve IP rights. The competition concerns that may result from the conduct of undertakings holding essential patents have recently received much attention as a result of complaints lodged with the Commission.176 These complaints led to two high-profile Commission investigations: Rambus and Qualcomm. 7.140  In the former case, the Commission sent a statement of objections to Rambus in July 2007 in which the Commission alleged that Rambus had infringed Article 102 TFEU by abusing a dominant position in the market for technologies relevant to Dynamic Random Access Memory (DRAM). In particular, the Commission considered that Rambus had engaged in a ‘patent ambush’ by intentionally concealing that it had patents and patent applications which were relevant to technology used in the JEDEC standard, and subsequently claiming royalties for those patents.177 Because, unlike in US antitrust law, ‘monopolization’ (the act (p. 454) of acquiring market power through anticompetitive means) is not an offence in EU competition law, the violation of Article 102 was not so much that Rambus had concealed that it had patents reading on the JEDEC standard, but that it had subsequently claimed unreasonable royalties for its patents. The Commission had thus turned the alleged patent ambush case into a claim that Rambus had charged excessive prices for its patents, a form of abuse that is contrary to Article 102. Eventually, in December 2009, the Commission adopted a so-called Article 9 settlement Decision whereby it rendered legally binding the commitments offered by Rambus that in particular put a cap on the licensing fees that Rambus could charge for certain patents essential to JEDEC’s standard for DRAM chips.178

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7.141  The Qualcomm case also concerned alleged excessive royalties, although the context was quite different. In that case, six firms active in the mobile phone equipment sector filed complaints with the European Commission in the latter part of 2005 alleging that Qualcomm’s licensing terms and conditions for its patents essential to the WCDMA standard did not comply with Qualcomm’s commitment to license on fair, reasonable, and non-discriminatory (FRAND) terms and, therefore, breached EU competition rules.179 After a long and thorough investigation, the Commission eventually decided to close its formal proceedings against Qualcomm.180 7.142  The so-called ‘ ex ante/ex post’ test was most likely pivotal in the Commission dropping the case. In brief, the test compares licensing rates and terms from agreements entered into before the patented technology is included in the standard at issue to the licensing rates and terms from agreements after the patented technology is included in the standard.181 If the patent holder is exploiting its inclusion in the standard, using SSO members’ switching costs as the leverage to charge ‘excessive’ rates, then the ex post rates and terms should be markedly higher or more onerous than the ex ante ones. In Qualcomm that was not the case: the ex post rates were the same as the ex ante ones. Hence, either Qualcomm did not obtain market power from its patents’ inclusion in the standard, or it did not exploit that market power. 7.143  As explained elsewhere,182 the Qualcomm case—and also the Rambus case, where the Commission agreed to a weak settlement—illustrates the considerable difficulty for the Commission in determining whether the royalty rates sought by an essential patent holders are ‘fair and reasonable’ or ‘excessive’ under the standard set by the European Court of Justice in United Brands. While determining whether the price of a physical product is excessive is already difficult, that task is even more complex with respect to non-physical constructs, such as IP rights. Although a number of benchmarks were proposed to determine whether Qualcomm’s royalties were ‘fair and reasonable’, these benchmarks suffered from major weaknesses either because they were theoretically unsound or because they would have raised complex implementation issues.183 In the Qualcomm case, the allegations were particularly suspect considering that the royalty rates and other licensing terms contained in Qualcomm’s (p. 455) licences had been negotiated with large and sophisticated corporations at arm’s length—in some cases before the WCDMA standard was adopted, hence the ability to employ the ex ante/ex post test. 7.144  It is against this background that the chapter of the Guidelines dealing with standardization agreements, which was considerably revised and extended compared to the earlier Guidelines, must be seen. Indeed, although this chapter deals with horizontal cooperation agreements falling under Article 101(1), its content seeks to prevent some of the issues at stake in the Rambus and Qualcomm cases, in particular as they relate to standards involving IP rights. Whether or not Article 101 Guidelines were the right instrument to deal with such issues is an open question. Although the initial drafts of the Guidelines were subject to much criticism, the text eventually adopted by the Commission is seen by most experts as a reasonable compromise between essential patent holders and standards implementers.

(b)  Analysis under Article 101(1) (i)  Relevant markets

7.145  Standardization agreements may produce their effects on four possible markets: (i) the product or service market(s) to which the standard or standards relates; (ii) where the standard-setting involves the selection of technology and where the IP rights are marketed separately from the products to which they relate, the relevant technology market; (iii) the

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market for standard-setting (if different standardization bodies or agreements exist); and where relevant, (iv) a distinct market for testing and certification.184 (ii)  Main competition concerns

7.146  The Guidelines generally take a positive attitude to standardization agreements acknowledging that they ‘usually produce significant positive economic effects, for example by promoting economic interpenetration on the internal market and encouraging the development of new and improved products or markets and improved supply conditions.’185 Standards thus normally increase competition and lower output and sales costs, benefiting economies as a whole. Standards may maintain and enhance quality, provide information, and ensure interoperability and compatibility (thus increasing value for consumers). 7.147  The Guidelines, however, identify three sets of circumstances where standardization agreements may give rise to restrictive effects: (i) if SSO participants engage in anticompetitive discussions in the context of standard-setting, this could reduce or eliminate price competition in the markets concerned, hence facilitating a collusive outcome;186 (ii) standards that set detailed technical specifications for a product or service may limit technical development and innovation as the process results in technologies that are not selected as part of the standard being excluded from the market (especially if the SSO members are required exclusively to use a particular standard);187 and (iii) when one or several companies are prevented ‘from obtaining access to the result of the standard, or is only granted access on prohibitive or discriminatory terms, there is a risk of an anticompetitive effect.’188 (p. 456) 7.148  The Guidelines observe that IP law and competition law share the same objectives of promoting innovation and enhancing consumer welfare.189 However, it expresses concerns that a participant holding IP rights essential for implementing the standard, could, in the specific context of standard-setting, also acquire control over the use of a standard. This could allow companies to behave in anticompetitive ways, for example by ‘holding-up’ users after the adoption of the standard ‘either by refusing to license the necessary IP right or by extracting excess rents by way of excessive royalty fees thereby preventing effective access to the standard.’190 As observed elsewhere,191 the risk of holdup in the context of standardization has often been exaggerated as there is little empirical evidence that hold-up occurs on a regular basis, thus warranting special policy attention. We have also shown that in the vast majority of circumstances essential patent holders are constrained and thus unable to engage in hold-up. 7.149  The Guidelines take a cautious position on the issue of market power by holding that: even if the establishment of a standard can create or increase the market power of IPR holders possessing IPR essential to the standard, there is no presumption that holding or exercising IPR essential to a standard equates to the possession or exercise of market power. The question of market power can only be assessed on a case by case basis.192 (iii)  Restrictions by object

7.150  Disguised hardcore restriction Clearly, standardization agreements used as part of a wider restrictive agreement meant to oust actual or potential competitors automatically fall under the prohibition in Article 101(1) TFEU.193 7.151  Illustration The Navewa/Anseau case is a good example of the problem of disguised hardcore restrictions.194 Manufacturers and official importers of washing machines in Belgium had, along with the association of public water distribution companies (Anseau), developed a label certifying the compatibility of their machines with the Belgian regulation on the connection of washing machines to the public water distribution network.

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This very strict regulation aimed to prevent waste water from washing machines flowing back into the public water system. Washing machines that met the standard carried a special warranty label. The problem was that only certain manufacturers and official importers could benefit from the compliance label; parallel importers who met the criteria of the standard nevertheless found themselves excluded from the warranty label. This conduct was found to be contrary to Article 101(1) TFEU and could not be justified under Article 101(3).195

(p. 457) (iv)  Restrictive effects—agreements normally not restrictive of competition 7.152  The Guidelines provide that, in the absence of market power, a standardization agreement is not capable of restricting competition. Restrictive effects are thus unlikely to occur when there is effective competition between different voluntary standards.196 7.153  For those standardization agreements which risk creating market power, the Guidelines adopt a ‘safe harbour’ approach by setting the conditions under which such agreements would normally fall outside the scope of Article 101(1): Where participation in standard-setting is unrestricted and the procedure for adopting the standard in question is transparent, standardisation agreements which contain no obligation to comply with the standard and provide access to the standard on fair, reasonable and nondiscriminatory terms will normally not restrict competition within the meaning of Article 101(1).197 7.154  Unrestricted participation and transparency The Guidelines indicate that when (i) participation in standard-setting is unrestricted (as all competitors in the market or markets affected by the standard can participate in the process leading to the selection of the standard) and (ii) the procedure for adopting the standard in question is transparent (as stakeholders can inform themselves of upcoming, on-going, and finalized standardization work in good time at each stage of the development of the standard), standardization agreements which contain no obligation to comply with the standard and provide access to the standard on FRAND terms will normally not restrict competition within the meaning of Article 101(1).198 7.155  FRAND commitment The IP rights policy that is traditionally adopted by SSOs requests that participants wishing to have their IP rights included in the standard provide an irrevocable commitment in writing to offer to license their essential patents to all third parties on FRAND terms.199 That commitment, which is of a contractual nature,200 should be given prior to the adoption of the standard, and shall bind undertakings to which essential patents might later be transferred.201 In order to avoid compulsory licensing, the IP rights policy should allow IP rights holders to exclude specified technology at an early stage in the development of the standard from the standard-setting process and thereby from the commitment to offer to license.202 7.156  Good faith disclosure The IP rights policy would also need to require good faith disclosure, by participants, of their IP rights that they believe are essential for the implementation of the standard under development.203 The Guidelines do not require participants to carry out a burdensome search of their portfolio, but merely require that the disclosure obligation be (p. 458) based on ‘reasonable endeavours’ to identify IP rights reading on the potential standard. This disclosure requirement does not apply to royaltyfree standards. (v)  Restrictive effects—additional guidance on FRAND requirements

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7.157  According to the Guidelines, ‘FRAND commitments are designed to ensure that essential IPR protected technology incorporated in a standard is accessible to the users of that standard on fair, reasonable and non-discriminatory terms and conditions.’204 7.158  One of the most complex issues with respect to FRAND requirements is the assessment of whether the licensing terms offered by an essential patent holder to a standard implementer is indeed ‘fair and reasonable’. Pursuant to the Guidelines, such an assessment ‘should be based on whether the fees bear a reasonable relationship to the economic value of the IPR’, in other words whether it meets the United Brands test.205 The Guidelines recognize that different methods can be used to make this assessment, including: (i) a comparison of the licensing fees charged by the company in question for the relevant patents in a competitive environment before the industry has been locked into the standard (ex ante) with those charged after the industry has been locked in (ex post). This assumes that the comparison can be made in a consistent and reliable manner;206 (ii) an independent expert assessment of the objective centrality and essentiality to the standard at issue of the relevant IP portfolio;207 and when appropriate, (iii) a reference to ex ante disclosures of licensing terms in the context of a specific standard-setting process.208 The last two methods also assume that the comparison can be made in a consistent and reliable manner. (vi)  Restrictive effects—effects-based assessment for standardization agreements

7.159  The Guidelines specify that the failure to fulfil any or all of the conditions set out for a standardization agreement to benefit from the safe harbour does not lead to any presumption of a restriction of competition within Article 101(1). This case, however, requires a self-assessment to establish whether the agreement falls under Article 101(1) and, if so, if the conditions of Article 101(3) are fulfilled.209 7.160  Whether standardization agreements may give rise to restrictive effects depends on a variety of circumstances, including whether: (i) the members of the SSO remain free to develop alternative standards or products that do not comply with the agreed standard;210 (ii) access to the standard in question is accessible on non-discriminatory terms;211 and (iii) participation in the standard-setting process is open in the sense that it allows all competitors (and/or stakeholders) in the market affected by the standard to take part in choosing and elaborating the standard.212 The assessment of the effects of a standardsetting agreement, should also take into account: (i) the market shares of the goods or services based on the standard,213 as (p. 459) well as (ii) whether the agreement which discriminates against any of the participating or potential members could lead to a restriction of competition.214 7.161  Finally, the Guidelines provide that standardization agreements providing for ex ante disclosures of the most restrictive licensing terms, will not, in principle, restrict competition within the meaning of Article 101(1).215 The Guidelines consider that such unilateral ex ante disclosures of most restrictive licensing terms would be one way to enable the standard-setting organization to take an informed decision based on the disadvantages and advantages of different alternative technologies, not only from a technical perspective but also from a pricing perspective.

(c)  Assessment under Article 101(3) 7.162  Efficiency gains Standard-setting agreements often create significant efficiency gains when, for instance, they are EU-wide, facilitating market integration, and allow companies to market their goods and services in all Member States, leading to increased consumer choice and lower prices.216 Technical interoperability and compatibility standards also encourage competition between technologies from different companies and help to prevent lock-in to one particular supplier. Standards may also reduce transaction costs for

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sellers and buyers, and when they deal with quality and safety issues, enhance consumer welfare, as well as increase the quality of the products. 7.163  Indispensability Restrictions that are not necessary to achieve the efficiency gains that can be generated by a standardization agreement or standard terms do not fulfil the criteria of Article 101(3).217 In particular, standardization agreements should cover no more than what is necessary to ensure their objectives, whether this is technical interoperability and compatibility or a certain level of quality. In cases where having only one technological solution would benefit consumers or the economy at large, the standard in question should be developed on a non-discriminatory basis. The Guidelines, however, note that ‘technology neutral standards’ can, in certain circumstances, lead to larger efficiency gains. 7.164  Pass-on to consumers Efficiency gains attained by indispensable restrictions must be passed on to consumers to an extent that outweighs the restrictive effects on competition caused by a standardization agreement or by standard terms.218 In this respect, the extent to which procedures are used to guarantee that the interests of the users of standards and end consumers are protected should be assessed. It can be presumed that standards that facilitate technical interoperability and compatibility or competition between new and already existing products, services, and processes, will be beneficial to consumers. 7.165  No elimination of competition Whether a standardization agreement affords the parties the possibility of eliminating competition depends on the various sources of competition in the market, the level of competitive constraint that they impose on the parties, and the impact of the agreement on that competitive constraint.219 While market shares are relevant (p. 460) for that analysis, the magnitude of remaining sources of actual competition cannot be assessed exclusively on the basis of market share except in cases where a standard becomes a de facto industry standard. In the latter case, competition may be eliminated if third parties are foreclosed from effective access to the standard. However, if the standard only concerns a limited part of the product or service, competition is not likely to be eliminated.

C.  Conclusions 7.166  Nationalization of case law in horizontal cooperation agreements The modernization of European competition law has resulted in a decentralization of the power of exemption following the recognition of the direct effect of Article 101(3) TFEU. In practice, this means that the NCAs and national courts will be (and already are) hearing cases involving the individual analysis of horizontal cooperation agreements. The Commission, which for its part focuses on cartel cases, no longer issues decisions in this area. The relevant case law is therefore developed at the national level. While the efficiency reasons for the change in approach are understandable, since this case law is not always readily accessible (given the diversity of promulgators and languages involved), a useful source of guidance has disappeared from the toolbox of practitioners and counsel. Moreover, it remains to be seen whether the recent judgment of the CJEU in Tele2 Polska will not equally lead to a dearth of Article 101(3) TFEU cases at the national level.219a 7.167  Comment In the Cabour case, the case law gave power to interpret the exemption regulations to the NCAs and national courts, within the limits provided by the principle of restrictive interpretation of exceptions.220 That means that the instruments analysed in this chapter are of direct use to the courts and the NCAs. 7.168  Guidelines on Article 101(3) TFEU The increase in litigation relating to Article 101(3) at the national level resulting from modernization, as well as the risks of differing interpretation and the complexity of assessments, led the Commission in 2004 to adopt general guidelines on the application of Article 101(3).221 These Guidelines supplement the

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Guidelines examined in this chapter, which are generally terse on the factors to be taken into account for horizontal cooperation under Article 101(3). 7.169  In substance, these Guidelines confirm two fundamental principles. First, the analysis under Article 101(3) consists in balancing the positive effects and the restrictive effects of the agreement in question. The agreement may benefit from an exemption under Article 101(3) if the positive effects (ie, the efficiencies) are greater than the restrictive effects that it generates. Second, it is essential that the four conditions in Article 101(3) be fulfilled for an agreement to be exempted. This implies that an agreement producing considerable efficiencies may nevertheless not be exempted if consumers do not, for example, directly benefit from it. (p. 461) 7.170  These two fundamental principles are supplemented by ten cardinal principles: (i)  The efficiencies must be demonstrable. (ii)  The efficiencies must be objective: they must not result from subjective assessment of the parties but be based on an objective analysis, which is ideally quantitative. (iii)  The restrictions of competition must be necessary to achieve the alleged efficiencies. This principle of necessity (‘indispensability’) exists across European competition law as a whole. No less restrictive alternative strategy must exist. 222 (iv)  The alleged efficiencies must outweigh the restrictions resulting from the agreement. This is not a zero sum game. (v)  Consumers must obtain a significant proportion of the benefits produced by the agreement. This means that (i) the agreement must benefit not only the parties and (ii) to the extent that the agreement would also result in negative effects for the consumer, the positive effects for the consumer must offset the negative effects. (vi)  The greater the restrictions of competition, the more significant the efficiencies must be (known as the ‘sliding scale’ rule). (vii)  Under no circumstances can the presence of efficiencies justify the elimination of competition. If the agreement generates extremely large efficiencies for the benefit of undertakings that are already dominant on the market, a risk of eliminating all competition on the relevant market appears. (viii)  The efficiencies must be specific to the relevant market. An agreement’s restrictive effects in one market cannot be counterbalanced by benefits on another market (unless the markets are very closely linked). (ix)  The analysis of an agreement based on Article 101(3) derives from the substantive factual and legal circumstances surrounding the agreement. This means that an agreement that is justified at one time under Article 101(3) will not necessarily be justified at another time. This is a major difference from the previous practice of the Commission. Structural change in a market, for example, requires all the agreements of the undertakings on this market to be re-examined. (x)  The alleged efficiencies must not result from the market power of the parties to the agreement.

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Footnotes: 1

  Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal cooperation agreements, OJ C 11 of 14 January 2011, at 1, para 1. 2

  Ibid, at para 2.

3

  Ibid, at para 3.

4

  A joint venture is the most ‘structured’ form of horizontal cooperation agreement. According to the Commission, ‘joint ventures are undertakings which are jointly controlled by two or more other undertakings’ (Commission Notice on the concept of a full-function joint venture within the meaning of Council Regulation 4064/89 on the control of concentrations between undertakings, OJ C 66 of 2 March 1998, at 1, para 3). The existence of joint control is established when two or more undertakings or persons have the possibility of exercising decisive influence over another undertaking. Decisive influence in this sense normally means the power to block actions which determine the strategic commercial behavior of an undertaking. (Commission Notice on the concept of concentration within the meaning of Council Regulation 4064/89 on the control of concentrations between undertakings, OJ C 66 of 2 March 1998, at 5, para 19) 5

  In 2009, the company became Fujitsu Technology Solutions, as a result of Fujitsu buying out Siemens’ share of the company. See COMP/M. 5413, Fujitsu/Fujitsu Siemens Computers, OJ C 4 of 9 January 2009, at 1. 6

  Thus, in joint production agreements, supply negotiations may be affected; in joint purchasing agreements, purchasing negotiations may be affected; in commercialization agreements, the sale of the product may be affected. See S. Bishop and M. Walker, The Economics of EC Competition Law—Concepts, Application and Measurement, 3rd edn (London: Sweet & Maxwell, 2010), at 212, para 5.57. 7

  See Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, OJ C 11 of 14 January 2011, at 1, para 156: A production agreement can also have spill-over effects in markets neighbouring the market directly concerned by the co-operation, for instance upstream or downstream to the agreement (the socalled ‘spill-over markets’). The spill-over markets are likely to be relevant if the markets are interdependent and the parties are in a strong position on the spill-over market. 8

  Ibid.

9

  Commission Regulation 417/85 of 19 December 1984 on the application of Article 85(3) of the Treaty to categories of specialization agreements, OJ L 53 of 22 February 1985, at 1– 4. 10

  Commission Regulation 418/85 of 19 December 1984 on the application of Article 85 (3) of the Treaty to categories of research and development agreements, OJ L 53 of 22 February 1985, at 5–12. 11

  According to some writers, the provisions did not correspond to the reality of the horizontal agreements entered into in practice by undertakings. The texts therefore fell short of their mark by prohibiting agreements with effects that were often pro-competitive.

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In actual fact, the exemption regulations were not applied very often. See A. Jones and B. Sufrin, EU Competition Law, 4th edn (Oxford: Oxford University Press, 2010). 12

  See our arguments in Chapter 8.

13

  Guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements, OJ C 3 of 6 January 2001, at 2. 14

  See Commission Regulation 2659/2000 of 29 November 2000 on the application of Article 81, paragraph 3, of the Treaty to categories of research and development agreements, OJ L 304 of 5 December 2000, at 7–12. 15

  See Commission Regulation 2658/2000 of 29 November 2000 on the application of Article 81, paragraph 3, of the Treaty to categories of specialization agreements, OJ L 304 of 5 December 2000, at 3–6. 16

  Guidelines, n 7.

17

  Commission Regulation 1217/2010 of 14 December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements, OJ L 355 of 18 December 2010, at 36 (‘R&D Regulation’). 18

  Commission Regulation 1218/2000 of 14 December 2010 on the application of Article 101(3) on the Treaty on the Functioning of the European Union to certain categories of specialization agreements, OJ L 355 of 18 December 2010, at 43 (‘Specialization Regulation’). 19

  Commission Press Release IP/10/1702, ‘Competition: Commission adopts revised competition rules on horizontal co-operation agreements’. 20

  See Guidelines, n 7, at para 5. Information exchange agreements were included for the first time in the 2011 Guidelines. By contrast, the existing chapter on environmental agreements was removed, in this last revision. This reflects the fact that these will be assessed in the framework of another category included in the Guidelines, especially, R&D or standardization. 21

  Ibid, at para 13.

22

  See Guidelines, n 7, at paras 13–14.

23

  The insurance sector is subject to a block exemption Regulation (see Commission Regulation 267/2010 of 24 March 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of agreements, decisions, and concerted practices in the insurance sector, OJ L 83 of 31 March 2010, at 2). The insurance companies sometimes cooperate out of necessity. These cooperations may be efficient in some respects. They allow for the joint establishment of risk premium rates based on collective statistics or on the number of claims (accuracy in risk assessment depends on the quantity of statistical information available and therefore it is sometimes necessary to team up with several firms), the establishment of standard insurance terms (good for small insurers or new entrants), joint coverage of certain types of risks (coinsurance—enables better coverage of very large risks or risks as yet unknown), more efficient settlement of the claims, verification and acceptance of safety equipment, the institution of registers of information on aggravated risks (fraud prevention). 23a

  See Commission Regulation (EC) No 772/2004 of 27 April 2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements. 24

  See Guidelines, n 7, at para 6.

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25

  See regarding this concept our arguments in Chapter 9.

26

  See Guidelines, n 7, at para 6.

27

  Ibid, at paras 20–53.

28

  Ibid, at para 24.

29

  Ibid, at para 25.

30

  Ibid, at paras 26–7.

31

  Ibid, at para 28.

32

  Ibid, at para 28.

33

  Ibid, at para 44.

34

  Ibid, at para 50.

35

  Sector-specific guidance for information exchange has been available since 2008 for liner shipping (see Guidelines on the application of Article 81 of the EC Treaty to maritime transport services, OJ C 245 of 26 September 2008, at 2). 36

  See Guidelines, n 7, at paras 55–6.

37

  See M. Glais and P. Laurent, Traité d’économie et de droit de la concurrence (Paris: PUF, 1983), at 107. 38

  See Guidelines, n 7, at para 57.

39

  Ibid, at paras 58, 65–68. See also K.-U. Kühn and X. Vives, Information exchanges among firms and their impact on competition (Luxembourg: Office of Official Publications of the European Communities, 1995), at 3; F. Levêque, ‘Do all oligopolists have to be muzzled? Or the John Deere case law from an economist’s point of view’ [2006] 3 Concurrences 3; see also M. Grillo, ‘Collusion and Facilitating Practices: A New Perspective in Antitrust Analysis’ (2002) 14(2) European J Law and Economics 151. For relevant case law, see T-141/94 Thyssen Stahl [1999] ECR II-347, at 403ff. 40

  Ibid, at 69–71.

41

  The existence of a level of uncertainty is necessary in the market to incentivize both undertakings with a high degree of aversion to commercial risk (see Commission Decision, IV/31.370 and 31.446, UK Agricultural Registration Exchange, 17 February 1992, OJ L 68 of 13 March 1992, at 19, para 43) and a low degree (see T-35/92 John Deere Ltd v Commission [1994] ECR II-957, at 47–9). 42

  It should be made clear that the analysis which follows does not cover those information exchanges which take place as part of horizontal cartels, as these agreements are restrictions ‘by object’ which are deemed per se unlawful. See Commission Decision, IV/C/ 33.833, Cartonboard, 13 July 1994, OJ L 243 of 19 September 1994, at 1; T-53/03 BPB v Commission [2008] ECR II-1333. See also Commission Decision, COMP/39.188, Bananas, 15 October 2008, not yet published (summary decision available at OJ C 189 of 12 August 2009, at 12). 43

  See Guidelines, n 7, at paras 58, 65–8.

44

  Ibid, at paras 69–71.

45

  Ibid, at para 72.

46

  Ibid, at para 74.

47

  Ibid.

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48

  P. Camesasca and A. Schmidt, ‘New EC Horizontal Guidelines: Providing Helpful Guidance in the Highly Diverse and Complex Field of Competitor Cooperation and Information Exchanges’ (2011) 2 J European Competition Law and Practice 227, 228. 49

  Draft Communication from the Commission—Guidelines on the applicability of Article 101 TFEU to horizontal co-operation agreements, SEC(2010) 528, version of 4 May 2010, paras 67–8. 50

  See Guidelines, n 7, at para 75.

51

  Ibid, at para 78; C-7/95 John Deere v Commission [1998] ECR I-3111, at 87, 88–9.

52

  Ibid, at 79.

53

  See Commission Decision, IV/36.069, Wirtschaftsvereinigung Stahl, 26 November 1997, OJ L 1 of 3 January 1998, at 10, para 39. 54

  See T-35/92 John Deere Ltd v Commission, n 41; C-7/95 John Deere v Commission, n 51. The Court of Justice notes that such agreements can also pose a problem on nonoligopolistic markets. According to the Court, ‘only general principle applied in relation to the market structure being that supply must not be atomised’ in nature, C-194/99 Thyssen Stahl AG v Commission [2003] ECR I-10821, at 86. 55

  See Guidelines, n 7, at para 80.

56

  Ibid, at para 81.

57

  Ibid, at para 82.

58

  Ibid, at para 85.

59

  Ibid, at para 86.

60

  Ibid, at para 87.

61

  Ibid, at para 89.

62

  C-435/08, VEBIC [2010] nyr.

63

  See Guidelines, n 7, at para 90.

64

  See Commission Decision, IV/312-366, Cobelpa/VNP, 8 September 1977, OJ L 242 of 21 September 1977, at 10, relating to a monthly exchange of information. 65

  This decisional practice is cited as an ‘example’ in the Commission’s Guidelines, without however being granted the status of a general principle. See Guidelines, n 7, at fn 68. 66

  Commission Decision, IV/31.370 and 31.446, UK Agricultural Registration Exchange, 17 February 1992, OJ L 68 of 13 March 1992, at 19, para 50. 67

  See Commission Decision, IV/36.069, Wirtschaftsvereinigung Stahl, 26 November 1997, OJ L 1 of 3 January 1998, at 10, para 17. 68

  This conclusion is for the time being debatable from an economic standpoint since this information has no ‘binding value’ (ie, it is not reliable). 69

  See our arguments in Chapter 3.

70

  See Guidelines, n 7, at para 91.

71

  See A. Capobianco, ‘Information Exchange under EC Competition Law’ (2004) 41 CML Rev 1247, 1261. 72

  In France, eg, telephone exchanges of information on retail oil prices between Esso, Total, BP, and Shell were found to be non-problematic, since those prices were the subject of mandatory public notices on French highways (see Paris Court of Appeals, Esso, Total, BP et Shell v Ministère de l’Economie, des Finances et de l’Industrie, 9 December 2003, BOCCRF no 2 of 12 March 2004). However, had the pump prices not been subject to

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mandatory public notice, the information would have been considered non-public. Here, the telephone exchange of pump prices probably would have become problematic. Cf, however, Example 5, in Guidelines, n 7, at para 109. 73

  Guidelines, n 7, at para 94.

74

  See Guidelines, n 7, at para 92.

75

  Ibid, at para 95. More generally, see B. Henry, ‘Benchmarking and Antitrust’ (1993–94) 62 Antitrust LJ 483 and J. Carle and M. Johnsson, ‘Benchmarking and EC Competition Law’ (1999) 2 European Competition L Rev 74. 76

  See Commission Decision, IV/31.370 and 31.446, UK Agricultural Registration Exchange, 17 February 1992, OJ L 68 of 13 March 1992, at 19, para 60. In this case, the parties maintained that the exchange of information in question allowed them to accelerate the development of their products and to improve production planning and monitoring of licensees. The Commission, however, considered that the exchange was not indispensable to obtain the claimed benefits and that those efficiencies did not compensate for the resulting restrictions of competition. See also Commission Decision, IV/31.128, Fatty Acids, 2 December 1986, OJ L 3 of 6 January 1987, at 17. 77

  See Guidelines, n 7, at paras 96, 110.

78

  Ibid, at para 97.

79

  Ibid, at para 99.

80

  Ibid, at paras 101, 108.

81

  C-238/05 Asnef-Equifax, Servicios de Información sobre Solvencia y Crédito, SL v Asociación de Usuarios de Servicios Bancarios (Ausbanc) [2006] ECR I-11125, at 72. 82

  See Microsoft Press Release of 2 November 2006, available at . 83

  See Microsoft Press Release of 25 July 2011, Microsoft and SUSE Renew Successful Interoperability Agreement, available at . 84

  See Guidelines, n 7, at para 127.

85

  Ibid, at para 136.

86

  Ibid, at paras 138, 139.

87

  Ibid, at para 128.

88

  See Art 5 of the R&D Regulation. It will be noted however that two exceptions to the traditional black clauses are retained by Art 5(b)(i), (ii) of the R&D Regulation (fixing production objectives in the case of joint production and fixing sales and distribution objectives in the case of joint distribution). 89

  See Guidelines, n 7, at para 129.

90

  Ibid, at para 130.

91

  Ibid, at para 131.

92

  Ibid, at para 132.

93

  Then the exemption is granted for seven years under Art 4 of the Regulation. If the undertakings are not competitors, the exemption is granted as long as the joint R&D lasts, and for seven years after the first market launch in the case of joint development. This

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scenario covers the case of new products. Competition law in fact protects what is termed first mover advantage. 94

  It should be noted that unlike the system of vertical agreements, non-compliance with a condition seems to result in the benefit of the exemption being rejected for the entire agreement. 95

  This condition does not apply for research institutes, academic bodies, or undertakings which supply R&D as a commercial service without normally being active in the exploitation of results. 96

  See Guidelines, n 7, at para 137.

97

  Ibid.

98

  Ibid, at para 137.

99

  Ibid, at para 138.

100

  Ibid.

101

  Ibid, at para 139.

102

  Ibid, at paras 68–71.

103

  Note in recital 2 of the Preamble to the R&D Regulation, the reference to Art 179(2) TFEU, under which: For this purpose the Union shall, throughout the Union, encourage undertakings, including small and medium-sized undertakings, research centres and universities in their research and technological development activities of high quality; it shall support their efforts to cooperate with one another, aiming, notably, … at enabling undertakings to exploit the internal market potential to the full, in particular through the opening-up of national public contracts, the definition of common standards and the removal of legal and fiscal obstacles to that cooperation. 104

  Guidelines, n 7, at para 152.

105

  Ibid, at para 150.

106

  See Commission Decision of 5 December 1983, V/29.329, VW-MAN, OJ L 376 of 31 December 1983, at 11. 107

  See our arguments concerning this decision in Chapter 3.

108

  T-328/03 O2 (Germany) GmbH & Co OHG v Commission [2006] ECR II-1231.

109

  In exchange, PRYM obtained a 25 per cent stake in the capital of BEKA. See Commission Decision of 8 October 1973, IV/26.825, PRYM-BEKA, OJ L 296 of 24 October 1973, at 24. 110

  Ibid, at 4. No conclusion had been reached regarding this agreement, until June 1994, where the acquisition of 100 per cent share capital of AEG by Electrolux was cleared by the Commission (Case IV/M.458, Electrolux/AEG, 21 June 1994). 111

  See Guidelines, n 7, at para 150.

112

  Ibid, at paras 157, 174.

113

  Horizontal cooperation agreements guidelines, n 13, at 2, para 101.

114

  See Guidelines, n 7, at paras 181–2.

115

  Ibid, at paras 175–80.

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116

  See here Coase’s theory concerning opportunistic behavior (R. Coase, ‘The Nature of the Firm’ (1937) Economica 4, 386). 117

  Guidelines, n 7, at paras 150–1.

118

  Ibid, at para 160.

119

  Ibid.

120

  Ibid, at para 161.

121

  Ibid, at paras 169–70.

122

  Recital 10 of the Preamble to the Specialization Regulation.

123

  See Arts 1(o) and 1(p) of the Specialization Regulation. The exclusive supply obligation is defined as the obligation not to sell to a competing undertaking other than a party to the agreement concerning the product covered by the specialization agreement. The exclusive purchase obligation is defined as the obligation to purchase the product covered by the specialization agreement only from the party that agrees to supply it. 124

  See Guidelines, n 7, at para 183.

125

  Ibid, at para 184.

126

  Ibid, at para 185.

127

  Ibid, at para 186.

128

  Horizontal cooperation agreements guidelines, n 13, at 2, para 105. It is debatable whether this reference was in line with the Guidelines on the application of Article 81(3) of the Treaty, OJ C 101 of 27 April 2004, at 97–118, para 106. 129

  See Guidelines, n 7, at para 194.

130

  See GC, T-185/00, T-216/00, T-299/00 and T-300/00, Métropole télévision SA (M6) et al v Commission, 8 October 2002 [2002] ECR II-3805 at 64 in particular: While it is true that the purchase of televised transmission rights for an event is not in itself a restriction on competition likely to fall under Article 81(1) EC and may be justified by particular characteristics of the product and the market in question, the exercise of those rights in a specific legal and economic context may none the less lead to such a restriction. 131

  See Guidelines, n 7, at para 194. See Regulation 330/2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ L 102 of 23 April 2010, at 1 and Guidelines on Vertical Restraints, OJ C 130 of 19 May 2010, at 1. 132

  Guidelines, n 7, at paras 195–6.

133

  Ibid, at para 205.

134

  Ibid, at paras 212, 223.

135

  Ibid, at para 208.

136

  Ibid, at para 209.

137

  Ibid, at para 210.

138

  Ibid.

139

  See Commission press statement, IP/00/372, ‘The Commission might impose fines on Telefónica Media and Sogecable on soccer rights in Spain’, Brussels, 12 April 2000.

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140

  See Guidelines, n 7, at para 213.

141

  Ibid, at para 203.

142

  Ibid. To do this, suppliers must have a certain degree of market power.

143

  GC, T-185/00, T-216/00, T-299/00 and T-300/00 Métropole télévision SA, n 130.

144

  See Guidelines, n 7, at para 217.

145

  Ibid, at para 218.

146

  See CJ, C-250/92 Gottrup-Klim et al v Dansk Landbrugs Grovvareslskab Amba, 15 December 1994 [1994] ECR I-05641. 147

  Failure to comply with the clause was sanctioned in this case by a fine. In addition, other provisions of the articles of association allowed the operator of the cooperative to be excluded if the exclusivity obligation was not complied with. See Commission Decision of 5 December 1979, Rennet, IV/29.011, OJ L 51 of 25 February 1980, at 19. 148

  See Guidelines, n 7, at para 219.

149

  Ibid, at para 220.

150

  Ibid, at para 225.

151

  Ibid.

152

  Ibid, at para 226.

153

  Ibid, at para 226. Under the 2001 Guidelines, an additional requirement was provided, that the buyer, together with its connected undertakings, has an annual turnover, not exceeding €100 million (see Horizontal cooperation agreements guidelines, n 13, at 2, para 140). 154

  See Guidelines, n 7, at para 229.

155

  Ibid, para 233.

156

  Defined as the ‘joint determination of all commercial aspects related to the sale of the product’. See Ibid, at para 225. 157

  Ibid, at para 234.

158

  Ibid, at paras 232, 236.

159

  See Commission Decision of 28 November 1979, IV/29.672, Floral, OJ L 39 of 15 February 1980, at 51–63. 160

  See Guidelines, n 7, at para 237.

161

  Ibid, at para 240.

162

  Ibid, at para 241.

163

  Ibid, at para 242.

164

  Ibid, at para 243.

165

  Ibid, at para 244.

166

  Commission Decision of 12 July 1989, 89/467, UIP, OJ L 226 of 8 March 1989, at 25.

167

  See Guidelines, n 7, at para 248.

168

  Ibid, at para 246.

169

  Ibid.

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170

  Ibid, at para 247.

171

  This chapter of the Guidelines also deal with ‘standard terms’ (ie, general condition of sale for products and services). In this section, we will however only cover standardization agreements. 172

  See Guidelines, n 7, at para 257.

173

  See generally M. A. Lemley, ‘Intellectual Property Rights and Standard-Setting Organizations’ (2002) 90 California L Rev 1889. 174

  ETSI, headquartered in Sophia Antipolis, France, was formed in 1988 by the CEPT and is officially recognized by the European Commission as the organization responsible for standardization of information and communication technologies within Europe. Its mission is to ‘develop globally applicable deliverables meeting the needs of the Information and Communications Technologies (“ICT”) community.’ 175

  3GPP is a collaboration agreement that was established in December 1998. It is a cooperation between ETSI (Europe), ARIB/TTC (Japan), CCSA (China), ATIS (North America), and TTA (South Korea). The scope of 3GPP is to make a globally applicable 3G mobile phone system specification within the scope of the ITU’s IMT-2000 project. Note that 3GPP should not be confused with 3GPP2, which was formed in 1998 to develop standards for the 3G evolution of the CDMA2000-based family of standards that previously had been under the aegis of TIA. 3GPP2’s organizational partners are TIA, ARIB, CCSA, TTA, and TTC. 176

  See eg ‘European Panel Investigates DVD-Standards Rivalry’, New York Times, 9 August 2006; ‘Qualcomm rivals take case to EU’, Financial Times, 28 October 2005. 177

  See ‘Commission confirms sending a Statement of Objections to Rambus’, MEMO/ 07/330, 23 August 2007. 178

  See ‘Commission accepts commitments from Rambus lowering memory chip royalty rates’, IP/09/1897, 9 December 2009. 179

  See n 176.

180

  ‘Commission closes formal proceedings against Qualcomm’, MEMO/09/516, 24 November 2009. 181

  See M. Mariniello, ‘Fair, Reasonable and Non-Discriminatory (Frand) Terms: A Challenge for Competition Authorities’ (2011) 7(3) J Competition Law & Economics 523. 182

  See D. Geradin, ‘Pricing Abuses by Essential Patent Holders in a Standard-Setting Context’ (2009) 76 Antitrust LJ 329. 183

  Ibid.

184

  See Guidelines, n 7, at para 261.

185

  Ibid, at para 263.

186

  Ibid, at para 265.

187

  Ibid, at paras 266, 267

188

  Ibid, at para 268.

189

  Ibid, at para 269.

190

  Ibid.

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191

  D. Geradin and M. Rato, ‘Can Standard-Setting Lead to Exploitative Abuse? A Dissonant View on Patent Hold-up, Royalty-Stacking and the Meaning of FRAND’ (2007) 3 European Competition LJ 101. 192

  See Guidelines, n 7, at para 269

193

  Ibid, at paras 273–4.

194

  See Commission Decision of 17 December 1981, IV/29.995, Navewa/Anseau, OJ L 325 of 20 November 192, at 20–1. 195

  The CJ confirmed these findings in C-96–102, 104, 105, 108, and 110/82 NV IAZ International Belgium and others v Commission [1983] ECR 3369. 196

  See Guidelines, n 7, at para 277.

197

  Ibid, at para 280.

198

  Ibid.

199

  R. Brooks and D. Geradin, ‘Interpreting and Enforcing the Voluntary FRAND Commitment’ (2011) 9 International J IT Standards and Standardization Research 1; D. Geradin, ‘Standardization and Technological Innovation: Some Reflections on Ex-ante Licensing, FRAND, and the Proper Means to Reward Innovators’ (2006) 29 World Competition 511. 200

  R. Brooks and D. Geradin, ‘Taking Contracts Seriously: The Meaning of the Voluntary Commitment to Licence Essential Patents on “Fair and Reasonable” Terms’ in S. Anderman and A. Ezrachi, Intellectual Property and Competition Law: New Frontiers (Oxford: Oxford University Press, 2011). 201

  Guidelines, n 7, at para 285.

202

  Ibid.

203

  Ibid, at para 286.

204

  Ibid, at para 287.

205

  Ibid, at para 289.

206

  Ibid.

207

  Ibid, at para 290.

208

  Ibid.

209

  Ibid, at para 273.

210

  Ibid, at para 293.

211

  Ibid, at para 294.

212

  Ibid, at para 295.

213

  Ibid, at para 296.

214

  Ibid, at para 297.

215

  Ibid, at para 299.

216

  Ibid, at para 308.

217

  Ibid, at para 314.

218

  Ibid, at para 321.

219

  Ibid, at para 324.

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219a

  See on Tele2 Polska Chapter 5, esp at para 5.31 and n 143.

220

  See CJ, C-230/96 Cabour and Nord Distribution Automobile/Arnor ‘SOCO’, 30 April 1998 [1998] ECR I-2055. 221

  See Chapter 3.

222

  This is also a basic tenet of US law.(p. 462)

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8 The Law And Economics Of Vertical Restraints Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Subject(s): Guidelines on Vertical Restraints — Basic principles of competition law

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(p. 463) 8  The Law And Economics Of Vertical Restraints I.  Introduction 8.01 II.  Types of Vertical Restraint 8.06 A.  The Issue 8.06 B.  The Exclusive Contractual Relationship Group 8.08 C.  The Resale Price Maintenance Group 8.18 D.  The Limited Distribution Group 8.21 E.  The Market-Sharing Group 8.29 F.  The Buyer Power Group 8.38 III.  A Step-by-Step Method for the Self-Assessment of Vertical Restrictions 8.45 A.  Screening of Vertical Restraints 8.47 B.  Full-Blown Competition Analysis of Vertical Restraints 8.86 IV.  Online Distribution 8.100 A.  The Context 8.100 B.  The New Framework for Online Distribution 8.104 V.  Conclusions 8.112

I.  Introduction 8.01  Each manufacturer seeking to convey goods or services to customers faces a basic, standard choice.1 It may either distribute them directly, through downstream vertical integration (integrated distribution), or it may entrust this task to specialized agents via the conclusion of a vertical agreement (independent distribution).2 (p. 464) 8.02  This chapter focuses on independent distribution and how it is treated under EU competition law. Since the 1960s and the Consten and Grundig case,3 it is acknowledged that vertical agreements can entail restrictions of competition—generally called ‘vertical restraints’—which deserve competition law scrutiny.4 While the early case law and Regulations adopted in the field focused primarily on restrictions of intra-brand competition,5 and condemned many contractual clauses per se, regardless of their actual effects,6 a more liberal and economic approach was introduced with the promulgation of Regulation 2790/1999.7 For a long time, legal and economic studies had cast light on the fact that vertical agreements had as many pro-competitive effects as anticompetitive ones.8 Following one of the most vociferous debates in the history of EU competition law,9 a consensus emerged that competition authorities needed to focus on cases raising real competition concerns, that is, those where inter-brand competition (between competing goods or services) is actually hampered, so that any further restriction of intra-brand competition becomes problematic. Vertical restraints on tight oligopolistic markets were a case in point. On those markets, which are prone to collusive outcomes, competition between suppliers tends to be weak.10

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8.03  In response, the Commission launched studies in 1997 with a view to reforming the law of vertical agreements.11 This process culminated in 1999 with the adoption of block exemption Regulation 2790/1999. The new legal framework, which represented a radical departure from the previous approach,12 rested on a basic economic premise: the ability of a vertical agreement to produce anticompetitive effects hinges predominantly on the market power of the parties to the agreement (especially the supplier’s market share, which reveals the degree (p. 465) of inter-brand competition). In turn, the system created a safeharbour mechanism whereby any agreement between parties holding less than a predetermined ‘market share’ (and which did not include a (shorter) list of black clauses and conditions) would be presumed to benefit from an exemption under Article 101(3) TFEU.13 Above the relevant market share threshold, an individual assessment needed to be carried out in light of the principles mentioned in a set of complementary Guidelines.14 In addition, the new legal framework also governed internet distribution, which was not covered previously.15 8.04  With the expiry of Regulation 2790/1999 on 31 May 2010, but also with the growth of large retailers throughout Europe and the rise of internet distribution (B2B or B2C), the Commission initiated a review process in July 2009 which culminated in the adoption of Regulation 330/2010 and of a new set of Guidelines.16 8.05  Against this background, the purpose of this chapter is to provide an overview of the new legal regime applicable to vertical agreements. Following this introduction, Section II sets out the different types of vertical restraint and the theories of competitive harm ascribed to them. Section III offers a step-by-step overview of the method that should be followed by firms and their counsel in the post-notification era with a view to self-assessing vertical agreements under EU competition law. Section IV deals with the issue of online distribution, which sparked intense controversy during the stakeholder consultation process. Finally, a brief conclusion is provided in Section V.

II.  Types of Vertical Restraint A.  The Issue 8.06  With the paradigmatic shift towards an economic approach in 1999, and its confirmation in the recently adopted texts, EU law has migrated from a ‘form-based approach’ to a so-called ‘effects-based approach’. Pursuant to Regulation 330/2010 and the Guidelines, the crux of the matter is to determine whether a vertical agreement (or part of it) has actual or potential anticompetitive effects that are not outweighed by procompetitive effects (or objective justifications). 8.07  Within the new regulatory framework, six groups of vertical restraints, with distinct possible anticompetitive effects, can be distinguished.17 In line with the way economists work, the Guidelines ascribe one or more theories of competitive harm to each of these types of (p. 466) restriction and identify their possible countervailing objective justifications as well as procompetitive effects.

B.  The Exclusive Contractual Relationship Group (1)  Notion of exclusive contractual relationships 8.08  In an exclusive contractual relationship, a party to a vertical agreement relinquishes its freedom to contract with a third party. Its most drastic variant can be found in ‘single branding’ arrangements, which limit a buyer’s ability to buy, resell, or use as inputs competing goods or services.18 Less extreme declinations of exclusive contractual relationships include quantity forcing,19 conditional rebate schemes (although in some cases they may effectively amount to exclusive agreements), two-part tariffs (fixed fee plus a price per unit), tying arrangements (where the sale of one product is conditional upon the purchase of another),20 or any other clauses (eg ‘English clauses’)21 or penalties which

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rigidify the supplier/buyer relationship by encouraging the buyer to concentrate its purchases of goods or services with one supplier.22 8.09  The Van den Bergh Foods case is a good illustration of an exclusive contractual relationship.23 A supplier of ‘impulse’ ice cream had made freezers available to its Irish distributors for free. In return, the distributors were contractually required to refrain from storing other brands of ice cream in those freezers. 8.10  An exclusive contractual relationship may also result from exclusive supply arrangements. Here, the supplier is obliged (or incentivized) to sell the contractual goods or services only (or mainly) to one buyer, in general or for a particular use.24

(2)  Theories of competitive harm 8.11  Drawing on economic theory, the Guidelines ascribe three theories of competitive harm to exclusive contractual relations, namely foreclosure, collusion, and reduced consumer choice. First, exclusive contracts may foreclose competitors’ access to outlets (eg in the case of single branding or long-term contracts) or inputs (eg in the case of exclusive supply). In a market subject to widespread single branding arrangements, a new supplier hoping to enter the market has no other choice but to set up its own distribution network (with the attendant costs and risks that this involves).25 Such arrangements may thus constitute a barrier to entry. (p. 467) 8.12  Second, collusion may be facilitated when all competitors make use of exclusive contracts.26 Collusion describes a situation in which rival oligopolists explicitly or tacitly agree to align their commercial policies. Because exclusive contracts rigidify the market shares of rival suppliers, they undermine oligopolists’ incentives to cheat from the collusive price through a price cut.27 8.13  Finally, single branding may harm consumer welfare when the buyer is a retailer which deals directly with the final consumer.28 In such a setting, single branding reduces consumer choice within the point of sale.

(3)  Objective justifications and pro-competitive effects 8.14  The economic literature is replete with articles arguing that exclusive contractual relationships have often objective justifications and pro-competitive effects.29 The Guidelines on vertical restraints take several of those findings on board. They focus, in particular, on three types of welfare-enhancing effects that may arise from exclusive contractual relationships. 8.15  First, exclusive contractual relationships can neutralize free-riding amongst rival manufacturers. A free-rider problem arises when a manufacturer finances the pre-and postsales investments of its retailers (advertisement, promotional expenses, training of workforce, etc). This situation generates a ‘positive externality’ which benefits rivals. Those consumers that have been drawn to the relevant point of sale thanks to the supplier’s promotional efforts may eventually purchase a less expensive competing product, since its manufacturer did not incur the promotional expenses.30 Exclusive contractual relationships, and in particular single branding,31 prevent competitors from free-riding on each others’ investment suppliers.32 8.16  Second, in some sectors which often involve branded or positional goods/services, exclusive contractual relationships limit ‘certification’ issues. A manufacturer willing to introduce a new ‘premium’ product/service needs to sell primarily through retailers whose reputation is to stock only ‘quality’ products. If the manufacturer does not limit its sales to such premium stores, its product/service may be undervalued by customers and its marketing strategy may be put into jeopardy. To convince ‘premium’ stores to sell the

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premium product, (p. 468) manufacturers may thus have recourse—at least for a certain period—to exclusive contractual relationships (such as exclusive supply, etc).33 8.17  Third, exclusive contractual relationships are often said to solve ‘hold up’ problems.34 Such issues arise when a buyer makes a ‘specific’ investment for the performance of a vertical contract (an oil refinery builds a pipeline linking its facilities to those of a particular oil supplier). The investment is ‘specific’, because apart from the particular contractual relationship, it has no other value. It is, as economists would say, a ‘sunk cost’. Hostage of its own investments, the buyer ends up locked into a commercial relationship with the supplier, which may for instance engage in opportunistic behaviour by discontinuing the supply of oil or by raising prices. To prevent such a risk, the parties may enter into exclusive contractual relationships, for instance by entering into a long-term exclusive contract, which specifies given quantities and a ceiling price.35

C.  The Resale Price Maintenance Group (1)  Notion of resale price maintenance 8.18  Resale price maintenance (RPM) arises when a supplier imposes—directly or indirectly—a resale price on its buyers.36 RPM may take the form of a fixed, minimum, or maximum resale price. RPM may also arise in disguise when a supplier recommends a resale price but ensures its observance through incentives (payment of premiums, discounts, or other benefits to its distributors) or penalties (eg threats to terminate the contract). A rare example of the Commission dealing with this type of restriction is provided by the B&W case.37 In 2002, the Commission approved B&W Loudspeakers’ notified selective distribution network on condition that the company remove several hardcore restrictions, such as a disguised resale price maintenance clause stipulating minimum retailer prices and margins.

(2)  Theories of competitive harm 8.19  The theories of competitive harm ascribed to RPM assume that the supplier imposes the same price on all of its buyers. They borrow heavily from the economics of horizontal collusion. First, in ways similar to horizontal price collusion amongst purchasers,38 RPM eliminates (p. 469) price competition at the distribution level.39 However, this should only be a cause of concern if the share of the market covered by RPM is significant. An assessment of the aggregate market share of the retailers subject to RPM would thus seem necessary to determine whether it has adverse effects on consumer welfare. Second, RPM facilitates horizontal price collusion amongst suppliers (tacit or explicit).40 Fixing resale prices makes it easier for parties to a horizontal cartel to monitor adherence to a joint line of action. The reason is that when prices are fixed at the resale level, a reduction of market shares at the upstream level can only be explained by the deviation of a cartelist.41 Finally, RPM often entails a uniform resale price, which prevents efficient price discrimination by resellers (price discrimination leading to an increase in output and a more efficient recovery of fixed costs).

(3)  Objective justifications and pro-competitive effects 8.20  The works of Lester Telser42 in the 1960s—and more generally of Chicago scholars— have shed light on the objective justifications, and possible pro-competitive effects, of RPM.43 First, RPM arguably allows suppliers to protect themselves against the risk that retailers lower prices at the expense of quality of service.44 Second, RPM protects the image of certain branded or positional products, which would otherwise be less valued by customers (eg luxury goods). Third, suppliers will often use RPM to convince new operators to join a distribution network. Absent RPM, new retailers may hesitate joining a distribution network for fear of facing aggressive price competition from incumbent retailers. Fourth, when both the upstream and downstream markets are subject to a monopoly, RPM

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eliminates risks of ‘double marginalization’.45 Fifth, when some retailers offer pre-and postsales services and others do not, resale price maintenance removes risks of free-riding.

(p. 470) D.  The Limited Distribution Group (1)  Notion of limited distribution 8.21  In a limited distribution system, a supplier restricts the number of distributors to which it sells goods or services.46 In a first variant, the supplier selects a limited number of distributors on the basis of a set of quantitative and/or qualitative criteria.47 This type of limited distribution is referred to as ‘selective distribution’. In a second variant, the supplier decides to appoint one distributor for a given geographic area (or for a category of customer). This type of limited distribution is referred to as ‘exclusive distribution’ (or ‘customer exclusivity’).48

(2)  Theories of competitive harm 8.22  Limited distribution systems are likely to trigger two types of restrictive effect on competition. First, limited distribution generates foreclosure concerns. Those buyers that do not belong to a limited distribution network are unable to obtain inputs from the relevant supplier. There is therefore a risk of ‘input foreclosure’ which, depending on the market power of the manufacturer, may in turn reduce intra-brand competition at the buyer level.49 8.23  Second, because it is easier to coordinate amongst a small number of entities, limited distribution facilitates collusion—tacit or explicit—amongst purchasers .50 In addition, limited distribution facilitates collusion—tacit or explicit—amongst suppliers, because the monitoring of deviations becomes easier with a limited number of retail outlets. This risk is particularly acute when several suppliers appoint the same distributor for the same territory.

(3)  Objective justifications and pro-competitive effects 8.24  Most of the objective justifications for limited distribution are predicated upon the economic theory of incentives.51 In particular, Chicago School scholars have long argued that suppliers grant contractual protection to their distributors to stimulate their incentives to invest. On markets for durable and complex goods (cars, computers, stereos, etc), distributors often provide essential pre-and post-sales services such as consulting, testing, demonstrations, explanations of the relevant documentation, etc.52 Those services come, however, at a cost, which in turn translates into higher prices. Distributors providing such services are thus vulnerable to the risk that consumers select a product within their point of sale, but subsequently purchase it from a different distributor who offers a more attractive price (precisely because it has not incurred similar costs in pre-and post-sales services).53 (p. 471) 8.25  To maintain retailers’ incentives to invest in pre-and post-sales services, and avoid this freerider problem, suppliers may grant territorial protection, customer exclusivity, or enter into an exclusive supply commitment. More generally, such contractual protection is equally useful when a distributor must make an ‘initial investment’ on a new market,54 undertake ‘promotional efforts’,55 or when it has a certain reputation for quality on the market.56 8.26  In addition to such ‘incentive’ effects, limited distribution engenders a range of ‘costs’ effects. First, limited distribution triggers economies of scale, that is, a reduction in the average total costs of production (the typical cost of each unit produced).57 For instance, in exclusive supply relationships, the supplier only deals with one buyer. Assuming that the supplier finances (part of) a buyer’s equipment, the fixed financial burden of this investment can be allocated over its entire production scale. In contrast, if the supplier has contractual dealings with several buyers, its investments in equipment would be multiplied

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and the financial burden of each fixed investment would have to be spread over fewer quantities. As a result, its average total cost would be higher.58 8.27  Second, limited distribution reduces the number of contractual partners of the supplier, and thus limits transaction costs (negotiations, delivery, billing, monitoring, etc).59 8.28  Finally, some types of limited distribution arrangements, and in particular selective distribution, allow suppliers to prevent ‘principal–agent’ problems. Some retailers subject to competition may neglect the quality of post-sale service, and in turn harm the uniform reputation/brand image of the suppliers’ good. To alleviate such concerns, suppliers may apply ex ante selection systems (selective distribution),60 or contractually require that the distributors comply with a list of specifications in terms of know-how and the image they wish to convey (franchising).61

E.  The Market-Sharing Group (1)  Notion of market sharing 8.29  In a market-sharing arrangement, a supplier restricts the venues where its buyers can purchase or sell contractual goods/services.62 (p. 472) 8.30  A first form of market sharing is exclusive purchasing.63 Here, a buyer commits to purchase exclusively from one particular supplier (eg from a regional wholesaler) in order to meet its requirements of a given product/service. Thus, the buyer cannot purchase from other suppliers of the same product (other wholesalers in other geographical regions).64 8.31  A second conventional form of market sharing involves the resale side of the market, and often arises in the context of exclusive distribution systems (where each buyer is primarily responsible for the resale of the product/service within a given territory or to a designated type of customer).65 There is market sharing when a supplier restricts its distributors’ freedom to resell outside the assigned territory/designated customer base.66 In this context, a distinction is usually drawn between restrictions of ‘active sales’ (the buyer cannot actively solicit customers outside its territory)67 and restrictions of ‘passive sales’ (the buyer cannot meet unsolicited orders from customers outside its territory).68 8.32  Market sharing is a polymorphous concept. In its purest form, a contractual clause may directly forbid the resale of products/services outside the relevant territory (or designated type of customer). Alternatively, the supplier may use indirect incentives (financial rewards or penalties) to encourage distributors to confine their deliveries to their assigned territory/customer base. 8.33  The Nintendo case provides a good illustration of unlawful market sharing. In a 2002 decision, the Commission found that Nintendo and several of its EU distributors had colluded to artificially keep high price differentials across several Member States.69 Under the collusive arrangement, each distributor was required to prevent parallel trade from its territory to other territories (parallel trade involves exports from low price countries to high price countries).70 Nintendo and several distributors had taken active steps to stem parallel trade. Distributors that had allowed parallel exports were punished through supply (p. 473) reductions (or even boycott). As a result of such conduct, the Commission meted out a €167.8 million fine on Nintendo and seven of its official distributors.

(2)  Theories of competitive harm 8.34  In a market-sharing system, each buyer enjoys a monopoly over the resale of a product/service to a particular territory/type of customer. Intra-brand competition is thus entirely eliminated. If inter-brand competition is limited, each buyer thus enjoys ‘significant

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market power’ (the ability to raise prices significantly and durably above the competitive level).71 8.35  In addition, market sharing can thwart the integration of the internal market when resale restrictions partition markets along national lines. In this variant, differentiated prices will prevail across Member States. This goes against the philosophy of EU market integration, which seeks to ensure, whenever possible, homogeneous conditions of trade for customers across the EU.72 8.36  Finally, market sharing facilitates collusion. With market sharing, a buyer’s price cuts do not generate larger sales. Hence, buyers’ incentives to deviate from a tacit or explicit collusive equilibrium are limited.

(3)  Objective justifications and pro-competitive effects 8.37  Even more clearly than exclusive distribution, market sharing eradicates free-rider issues, and may thus encourage buyers to invest in pre-and post-sales services. Importantly, such systems are often imposed by suppliers on—possibly reluctant—buyers who are prone to compete aggressively on price at the expense of quality.73

F.  The Buyer Power Group (1)  Notion of buyer power 8.38  In mainstream competition economics, buyer power is traditionally seen as a disciplining factor against the market power of large suppliers.74 This is because strong buyers have the ability and incentive to bring new sources of supply on the market in response to a small but permanent increase in relative prices.75 8.39  In this context, the Guidelines delve into relatively unchartered territory by turning buyer power into theories of competitive harm. The Guidelines seek in particular to offer guidance on two novel areas, namely upfront access payments (ie, payment of fixed fees by suppliers to retailers in order to gain access to their shelf space—known as slotting allowances) and category management agreements (ie, agreements where the distributor entrusts a given (p. 474) supplier—a ‘category captain’—with the marketing of a category of products, which include rival products). 8.40  Such issues have, however, been dealt with at Member State level. The UK Office of Fair Trading (OFT), for instance, grappled with the issue of category management in the acquisition by United Biscuits (UK) Ltd of the Jacobs Bakery Ltd. In this case, some competitors raised concerns about the power of the merged firm to further its own sales at the expense of its rivals using its control over the supermarkets through the category management process. In the context of this merger, the OFT did not, however, expect a retailer (particularly a major supermarket chain) to permit itself to be disadvantaged by its choice of category manager, or be bound by its recommendations.76

(2)  Theories of competitive harm 8.41  The Guidelines ascribe two theories of harm to upfront access payments. First, they may lead to anticompetitive foreclosure of (i) other distributors if such payments ‘induce the supplier to channel its products through only one or a limited number of distributors’77; (ii) of other suppliers where the widespread use of upfront access payments increases barriers to entry for small entrants.78 Second, the Guidelines state that upfront access payments may reduce competition and facilitate collusion between distributors. According to the Commission, upfront access payments are likely to increase the price charged by the supplier for the contract products since the supplier must cover the expense of those payments. In turn, and without much explanation in relation to the collusion issue, the Guidelines consider that these higher supply prices may reduce retailers’ incentives to

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compete on price downstream, while the profits of distributors are increased as a result of access payments.79 8.42  According to the Commission, category management agreements generally do not raise competition law concerns. Yet, they may occasionally lead to the foreclosure of other suppliers ‘where the category captain is able to limit or disadvantage the distribution of products of competing suppliers’.80 In addition, such agreements may facilitate collusion between distributors when the same supplier serves as a category captain for all or most of the competing distributors on a market. In a rather terse manner, the Guidelines state that in such cases the category captain will provide a common point of reference for the distributors’ marketing decisions.81 More convincingly, the Guidelines consider that category management may also facilitate collusion between suppliers through increased opportunities to exchange sensitive market information.82

(p. 475) (3)  Objective justifications and pro-competitive effects 8.43  As far as upfront access payments are concerned, the Commission recognizes that they may lead to efficiencies such as the efficient allocation of shelf space for new products. In addition, they reduce the risk of free-riding by suppliers on distributors’ promotional efforts.83 This is relevant in particular when suppliers are tempted to launch new products, which are suboptimal. With upfront access payments, the risk of commercial failure does not bear entirely on the buyer. In other words, upfront access payments represent a risksharing mechanism, which decreases the risk that suppliers will launch suboptimal products at the expense of buyers. 8.44  As far as category management agreements are concerned, the Commission considers that they may allow distributors to have access to the supplier’s marketing expertise for a certain group of products. In particular, since such agreements are based on customers’ habits, they lead to increased customer satisfaction by satisfying demand expectations. Put simply, they ensure that the optimal quantity of products is presented directly on the shelves in a timely manner.84 Moreover, such agreements generate cost savings for the buyer, which outsources the management of a category of products to a supplier. Finally, category management agreements generate economies of scale, as the cost of managing a category of products is merely incurred once (by the category captain), and can be spread over a wide range of products.

III.  A Step-by-Step Method for the Self-Assessment of Vertical Restrictions 8.45  With the increased risks stemming from the enforcement of the EU competition rules (ie, heavy fines, annulment and damages actions, damage to reputation, etc), firms should regularly self-assess vertical agreements through the lens of Article 101 TFEU.85 8.46  To this end, the Guidelines on Vertical Restraints suggest that ‘the assessment of a vertical restraint involves in general … four steps’,86 which requires a preliminary delineation of the relevant market.87 In our opinion, the assessment of vertical restraints can be whittled down to a simpler two-step method. First, firms and their counsel should screen their agreement against a set of compatibility and incompatibility presumptions, which can be found in the Regulation and Guidelines (Section A). Second, only those agreements that do not fall under such presumptions must be subject to a full-blown individual competition analysis (Section B). (p. 476) In the following sections, we only deal with vertical agreements covered by Regulation 330/2010,88 and we take it as a given that trade between Member States is affected.

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A.  Screening of Vertical Restraints 8.47  Since 1999, the law of vertical agreements relies extensively on presumptions.89 The Regulation and the Guidelines establish two sets of presumptions, which from the outset permit one to ascertain whether or not their purported vertical agreement falls foul of EU competition rules. Pursuant to those documents, parties to a vertical agreement must first verify whether their purported agreement falls within the presumption of incompatibility provided for in Article 4 of the Regulation (Section 1). Vertical agreements which fall outside this presumption of incompatibility may in turn be presumed compatible with Article 101 TFEU if certain conditions defined in the Regulation and the Guidelines are fulfilled (Section 2). As will be seen, only those vertical agreements that do not benefit from those presumptions are subject to a full-blown competition analysis.

(1)  The presumption of incompatibility (a)  Preliminary remarks 8.48  Article 4 of the Regulation sets down a list of five ‘hardcore restrictions’, (sometimes referred to as ‘black clauses’) whose presence in a vertical agreement ipso jure leads to (i) a presumption that the agreement as a whole restricts competition within the meaning of Article 101(1) TFEU; (ii) the exclusion of the application of the block exemption to the entire agreement;90 and (iii) a presumption that ‘the agreement is unlikely to fulfil the conditions of Article 101(3)’.91 (p. 477) Such restrictions are thus subject to a quasi per se prohibition. There is therefore no need to undertake a painstaking assessment of the economic effects of the agreement. Moreover, the incompatibility rule affects the entire agreement, which is thus deemed null and void as a whole under Article 101(2). 8.49  Interestingly, and despite internet players’ calls to that effect,92 Article 4 does not specifically target restriction(s) on buyers from selling goods/services on the internet. In our opinion, the silence of Article 4 in relation to online sales is precautionary in nature. Absent any track-record on this issue, the Commission has seemed reluctant to cast in stone a restrictive solution, which could soon have become obsolete in sectors driven by rapid technological change.93 Rather, the Guidelines have favoured a case-by-case approach, comparable to the approach taken notably in the French case law.94

(b)  Resale price maintenance 8.50  The first hardcore restriction targets RPM. It declares incompatible agreements which have as their object ‘the restriction of the buyer’s ability to determine its sales price’.95 Under such agreements, the buyer must observe a fixed (or minimum) resale price, set in the contract.96 Importantly, indirect RPM mechanisms are also caught by the prohibition.97 For instance, agreements setting a minimal profit margin98 or a maximum discount level are presumed incompatible.99 In contrast, a maximum100 or recommended101 price (or price level) is not in (p. 478) principle a hardcore restriction unless it disguises an indirect RPM mechanism (when linked to the exertion of pressure, penalties, or incentives).102 8.51  Since the US Supreme Court Leegin ruling of 2007, the strict incompatibility rule applicable to RPM has sparked intense controversy in the EU.103 In Leegin, the US Supreme Court abandoned the century old per se prohibition rule applicable to RPM,104 and subjected those practices to a rule of reason standard (which entails the balancing of the pro-and anticompetitive effects of RPM).105 8.52  Possibly as a result of this controversy, the Guidelines have manifestly relaxed the rigidity of the incompatibility presumption enshrined in Article 4(a) of the Regulation.106 The Guidelines explicitly state that the parties have the ‘possibility to plead an efficiency

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defence under Article 101(3) in an individual case’.107 The Commission thus apparently exhibits greater receptiveness to the efficiency gains arising from RPM.108 8.53  This impression is further confirmed by the Guidelines, which without claiming to be exhaustive, mention three types of justification for RPM.109 First, RPM may ‘be helpful during the introductory period of expanding demand to induce distributors to better take into account the manufacturer’s interest to promote the product’ by, for example, incentivizing them to redouble their promotional efforts.110 Second, RPM may be necessary to organise in a franchise system or similar distribution system applying a uniform distribution format a coordinated short term low price campaign (2 to 6 weeks in most cases) which will also benefit the consumers.111 Finally, the Guidelines endorse the Telserian line of justification, in stating that ‘in some situations the extra margin provided by [resale price maintenance] may allow retailers to provide (additional) pre-sales services, in particular in case of experience or complex products [sic]’ and ‘prevent … free riding at the distribution level’ in relation to the provision of such services.112 (p. 479) 8.54  In theory, therefore, the parties are entitled to invoke some of the efficiencies identified by Chicago scholars to counter a finding of incompatibility. That said, in practice, the flexibility introduced in the Guidelines could prove ineffectual. The majority of the efficiency benefits arising from RPM are ‘qualitative’ in nature. The various positive effects on distributors’ incentives are thus not easily amenable to economic quantification as generally required under Article 101(3) TFEU. In turn, it will often prove complex to balance the harmful quantitative effects of RPM against their qualitative benefits under Article 101(3). As a result, the balancing exercise will inevitably hinge on a value judgment —which by its nature is variable, imprecise, and subjective.

(c)  Territorial resale prohibitions (i)  Principle

8.55  The second hardcore restriction catches measures directly or indirectly restricting the freedom of a buyer from selling goods or services in certain geographical regions or to certain customers.113 Such restrictions are akin to ‘market partitioning’, and should therefore be presumed incompatible. Article 4(b) catches direct obligations not to sell to certain customers/territories, as well as obligations to dismiss orders from other customers/ territories (or to refer to other distributors).114 Its scope of application also covers indirect measures which have the same effect, such as incentive schemes (conditional bonuses or discounts) and pressures (refusals to supply, threats to terminate the agreement).115 According to Article 4(b), the vertical agreement may, however, define the ‘place of establishment’ of the buyer. (ii)  Exceptions

8.56  The Regulation brings four exceptions to the presumption of incompatibility.116 First, restrictions of ‘active sales’ into a territory (or to a customer group) granted exclusively to another buyer are not presumed incompatible. A sale is ‘active’ when the buyer solicits customers located within the exclusive territory (or customer base) assigned to another buyer. In contrast, restrictions on ‘passive sales’ are presumed incompatible. A sale is ‘passive’ when it originates from unsolicited orders of customers located in the exclusive territory (or belonging to the customer base) of another buyer.117 Restrictions of sales via the internet,118 which the Commission deems to be passive and not active sales, are also presumed incompatible

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8.57  Pursuant to the three other exceptions enshrined in the Regulation, a supplier can: (i) restrict ‘sales to end users by a buyer operating at the wholesale level of trade’; (ii) prevent ‘members of a selective distribution system to sell to unauthorised distributors within the territory reserved by the supplier to operate that system’; and (iii) restrict ‘a buyer’s ability to sell (p. 480) components, supplied for the purposes of incorporation, to customers who would use them to manufacture the same type of goods as those produced by the supplier.’119

(d)  Restrictions on active and passive sales in selective distribution networks 8.58  The third hardcore restriction concerns selective distribution agreements. Pursuant to Article 4(c) of the Regulation, suppliers cannot restrict the territories/customers (in)to which selective distributors may sell to end-users.120 This presumption of incompatibility covers both active and passive sales. It thus goes further than the hardcore restriction enshrined in Article 4(b). 8.59  Contrary to a common misconception, Article 4(c) does not forbid exclusive-selective distribution networks. Suppliers can freely select distributors and assign to them specific territories/customers (which means that suppliers will not sell products/services to other distributors within the same territory/customer base).121 What is incompatible is to limit the selective distributors’ ability to make active or passive sales to end-users located within the territory of other selective distributors. Similarly, suppliers can impose a restriction on the dealer’s freedom to determine the location of its business premises.122 This latter possibility permits suppliers significantly to impede the ability of pure internet players (those without a physical infrastructure) to join a selective distribution network.

(e)  Restrictions of cross-deliveries in selective distribution networks 8.60  The fourth hardcore restriction also concerns selective distribution agreements.123 Selective distributors must remain free to purchase the contract products/services from other members of the distribution network, operating either at the same or at a different level of trade.124

(f)  Restrictions on component suppliers to sell to end-users, repairers, and independent service providers 8.61  The last hardcore restriction covers agreements between component suppliers and buyers who incorporate them into their own products.125 Original equipment manufacturers (OEMs) may seek to reserve for themselves markets for repair and maintenance. In practice, they may restrict component suppliers’ ability to sell to end-users, repairers, or independent service providers.126 Article 4(e) thus presumes such restrictions incompatible with Article 101(1) TFEU. The presumption of incompatibility also encompasses indirect restrictions, such as prohibitions on the component supplier to provide certain technical information to endusers.127

(p. 481) (2)  The presumptions of compatibility 8.62  Agreements devoid of hardcore restrictions may be presumed compatible with Article 101 TFEU if they fall within one of the three safe harbours established under EU competition law.

(a)  Agreements of minor importance (i)  The appreciability rule

8.63  In the Franz Völk v SPRL Ets J Vervaecke judgment of 1969, the Court of Justice held that ‘an agreement falls outside the prohibition when it has only an insignificant effect on the markets, taking into account the weak position which the persons concerned have on the market of the product in question’.128 The Commission codified this principle—the socalled ‘appreciability rule’ or de minimis doctrine—in its Notice on agreements of minor importance of 2001.129 Pursuant to the Notice, vertical agreements in which no party holds a market share in excess of 15 per cent are presumed not to appreciably restrict From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

competition within the meaning of Article 101(1) TFEU.130 This presumption of compatibility does not apply if the agreement contains a hardcore restriction.131 (ii)  The practice

8.64  The determination of the supplier and buyer’s market shares requires a prior definition of the relevant product and geographic markets.132 The market share held by a firm fluctuates with the size of the market under consideration. To take a simple example, Coca-Cola’s market share is likely to be small if one takes the view that Coca-Cola operates on the wholesale market for soft drinks. Its market share is obviously much higher if one takes the view that Coca-Cola operates on the wholesale market for carbonated soft drinks with a cola flavour. 8.65  Under EU competition law, the relevant product market comprises all products that consumers consider ‘substitutable by reason of the products’ characteristics, their prices and their intended use’.133 The relevant geographic market ‘comprises the area in which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogenous’.134 8.66  In practice, an analysis of ‘substitutability’ must be undertaken to delineate product and geographic markets. To this end, the most conventional technique consists in simulating the effect of a small, but significant and non-transitory increase in prices (5–10 per cent) on the demand for the product (the so-called ‘SSNIP test’). If demand shifts to other products and/or neighbouring geographic areas, it can readily be assumed that these products and/or neighbouring geographic areas belong to a same relevant market. (p. 482) 8.67  Despite its apparent simplicity, the definition of the relevant market is far from being an exact science. To take again our above example, how can one say with certainty whether Coca-Cola operates on the wholesale market for soft drinks, rather than on the wholesale market for carbonated soft drinks with a cola flavour? Of course, practitioners generally find assistance in decisional precedents, and in particular in the numerous decisions adopted by the Commission under the EU Merger Regulation. That said, a large number of markets still remain to be defined by competition authorities.135 8.68  Moreover, the calculation of the market shares poses a significant challenge. To compute market shares, parties need data on the total sales (for the supplier) and purchases (for the buyer) achieved on the relevant market.136 In principle, however, such data is unavailable to the parties, which do not—and should not—know the amount of sales and purchases achieved by their rival (and their customers/suppliers).137

(b)  Agreements between small and medium-sized enterprises 8.69  The Guidelines exhibit a noticeable degree of sympathy towards SMEs (undertakings which have fewer than 250 employees, and have either an annual turnover not exceeding €40 million or an annual balance-sheet total not exceeding €27 million).138 Vertical agreements between SMEs are deemed ‘rarely capable of appreciably affecting trade between Member States or of appreciably restricting competition within the meaning of Article 101(1) TFEU’, and thus generally fall outside the scope of Article 101(1).139 Should such agreements, however, satisfy the conditions for the application of Article 101(1) TFEU, the Commission will normally refrain from opening proceedings for lack of sufficient interest for the European Union unless those undertakings collectively or individually hold a dominant position in a substantial part of the internal market.140

(c)  Block exemption mechanism

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8.70  The third presumption of compatibility is the main feature of Regulation 330/2010.141 Vertical agreements which observe a dual set of market share thresholds (Section (i)), as well as a range of conditions (Section (ii)) are deemed automatically to fulfil the conditions for the application of Article 101(3).142 In some exceptional circumstances, the benefit of the block exemption may, however, be withdrawn (Section (iii)). (p. 483) (i)  The double market-share thresholds

8.71  Pursuant to Article 3 of the Regulation, a vertical agreement is presumed to benefit from the Article 101(3) TFEU exception: on condition that the market share held by the supplier does not exceed 30% of the relevant market on which it sells the contracts goods or services and the market share held by the buyer does not exceed 30% of the relevant market on which it purchases the contract goods or services.143 8.72  This ‘double market-share threshold’ is a novelty. Interestingly, in 1999 the Commission tried to introduce a similar mechanism. The proposal attracted, however, widespread stakeholder opposition (lawyers seemed reluctant to undertake what was seen as overly complex economic assessments) and the Commission eventually opted for a single market-share threshold .144 Ten years later, criticism of market share thresholds has faded. Firms and their legal counsel are often said to appreciate the legal certainty afforded by such ‘safe harbours’.145 Despite this, however, it remains open to question whether (i) market shares are good proxy for inter-brand competition146 and (ii) whether all firms contemplating the conclusion of a vertical agreement, and in particular small ones, enjoy sufficient expertise to undertake the intricate economic analysis (market definition and market share calculation) prescribed under Regulation 330/2010. 8.73  In substance, the reason behind the introduction of an additional market-share threshold is predicated upon a variant of the ‘buyer power’ (or monopsony) theory. As explained previously, in mainstream competition economics, buyer power is primarily viewed as a (p. 484) welfare-enhancing factor mitigating the effects of significant market power,147 often to the direct benefit of end consumers (particularly so when the buyer is a retailer).148 8.74  However, with the vast expansion of retail distribution and the rise of extremely large retailers,149 concerns over the exploitation of monopsonistic buyer power have become more acute. In the context of vertical agreements, large distributors may impose on suppliers low purchase prices, payment of listing fees, or other (non) price advantages (upfront access payments). Under the previous Regulation, such agreements automatically benefited from a presumptive exemption as long as the supplier’s market share did not exceed 30 per cent. To bring such agreements under in-depth competition law scrutiny, the new texts introduce an additional buyer’s market-share threshold. Only those agreements in which the buyer’s market share remains below 30 per cent are presumed to fulfil the Article 101(3) TFEU conditions. Other agreements, which possibly give rise to anticompetitive buyer power, must be subject to a full-blown, individual assessment. In other words, the new Regulation entails an extension of the substantive scope of EU competition law to new categories of agreements. This is further confirmed by the various new sections—discussed above—of the Guidelines devoted to up-front access payments and category management agreements.

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8.75  That said, the economics of buyer power are far from settled.150 As indicated previously, since the works of J.K. Galbraith, mainstream economic theory views buyer power as a (p. 485) ‘countervailing’ factor, which leads generally to lower resale prices. In a recent study, E. Pfister asserts that ‘invariably, buyer power is considered a factor of competitive strength’.151 In contrast, the main theories of harm associated with buyer power—albeit intuitively and theoretically valid—have not been confirmed empirically.152 8.76  Moreover, those theories of harm often seem predicated upon disputable assumptions. With respect to category management agreements, for instance, the Guidelines state that they may result in anticompetitive foreclosure of other suppliers where the category captain is able to limit or disadvantage the distribution of products of competing suppliers.153 As other commentators have noted, it is however open to question why a retailer would allow a category captain to limit competition through the foreclosure of rival upstream suppliers.154 A retailer has no interest in limiting upstream distribution as it may result in increased input prices. Rather, the retailer, which strives to offer lower prices to end-users, may simply use a category management scheme as an incentive device to stimulate price competition amongst suppliers. In this setting, the retailer will appoint as the category captain the supplier which grants the largest price reductions. As long as equally efficient rival suppliers can compete for shelf management with the category captain, there is no foreclosure concern.155 8.77  Finally, the fact that additional market shares must be calculated raises an informational problem. Each party only enjoys ‘perfect’ information on its own market share (but not on the other’s). Of course, the parties can exchange information on their market shares. Yet, one cannot guarantee that the exchanged information is accurate. In this context, economic theory shows that in situations of information asymmetry, ‘moral hazard’ issues may arise. A retailer willing to conclude—or maintain—a vertical agreement at all costs may, for example, be tempted to share incorrect information with its potential supplier.156 In such case, however, both parties, including the one which acts honestly, may be held liable for infringing Article 101(1). 8.78  Because—from a legal policy perspective—normative standards should ideally be based on robust economic evidence, it would arguably have been wiser to (i) maintain the simple market share threshold of Regulation 2790/1999 for all agreements and (ii) provide, exceptionally, that when—in certain sectors—buyer power is likely to give rise to anticompetitive effects (eg through the exploitation of suppliers), the Commission and national competition authorities (NCAs) can withdraw the benefit of the block exemption.157 (p. 486) (ii)  Conditions

8.79  All agreements devoid of hardcore restrictions and which meet the double marketshare threshold are deemed compatible with Article 101 TFEU.158 However, the parties’ contractual freedom is not absolute. Article 5 of Regulation 3320/2010 identifies three types of restraint which occasionally appear in vertical agreements, and which must comply with specific conditions. If these conditions are met, the restraint is deemed compatible, and this is the end of the self-assessment. If these conditions are not met, the restraint—and the restraint only—is deemed incompatible with Article 101(1) and must therefore undergo a full-blown competition analysis. The rest of the agreement remains, however, covered by the presumption of compatibility.159 8.80  Article 5 first targets ‘direct or indirect non-compete obligations’160 (ie, singlebranding clauses and exclusive purchasing obligations).161 It provides that the block exemption only covers non-compete obligations for a period of no more than five years.162 Any such obligation with an indefinite duration; of more than five years; or tacitly

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renewable beyond a period of five years, is excluded from the benefit of the block exemption.163 8.81  Second, Article 5 focuses on ‘clauses prohibiting a buyer, after termination of the agreement, from manufacturing, purchasing, selling or reselling goods or services’.164 Such clauses are in principle not eligible for a block exemption.165 The Regulation does, however, provide for an exception to this if the clause is: (i) indispensable to protect know-how transferred by the supplier to the buyer; (ii) limited to the retail outlet from which the buyer has operated during the contract period; and (iii) limited to one year following the expiry of the agreement. In fact, this exception primarily concerns franchising agreements, where the franchisor transfers important trade secrets to the franchisee. 8.82  Third, Article 5 excludes from the block exemption clauses which impose ‘any direct or indirect obligation causing the members of a selective distribution system not to sell the brands of particular competing suppliers.’166 The purpose of this provision is to ensure that suppliers making use of selective distribution schemes do not foreclose access to specific competitors. In other words, the block exemption does not apply to practices which are akin to (p. 487) collective boycott.167 By contrast, the block exemption covers general noncompete obligations in the context of selective distribution networks. (iii)  Withdrawal of the block exemption

8.83  Pursuant to Article 6 of Regulation 330/2010, the Commission is empowered to declare the Regulation—and in particular the block exemption—inapplicable to ‘vertical agreements containing specific restraints’. This exception applies only to situations ‘where parallel networks of similar vertical restraints cover more than 50% of a relevant market’.168 The Commission must issue a Regulation to this end.169 8.84  In such cases, the Commission will carry out a full competition analysis of the agreement under Article 101 TFEU.170 This provision seeks to avoid so-called type II errors, which occur when a rule fails to regulate conduct that harms consumer welfare (false negatives or false acquittals). 8.85  Finally, pursuant to Article 29(1) and (2) of Regulation 1/2003, the Commission and the NCAs can respectively withdraw the benefit of a block exemption in particular cases, if an agreement has effects incompatible with Article 101(3) TFEU.171 Insofar as NCAs are concerned, this is only possible if those effects ‘occur in the territory of that Member State, or in a part thereof, and where such territory has all the characteristics of a distinct geographic market.’172

B.  Full-Blown Competition Analysis of Vertical Restraints (1)  Preliminary remarks 8.86  Agreements which fall short of the above-mentioned screening principles must be subject to a full-blown competition analysis.173 The principles governing the individual analysis of such agreements are laid down in the Guidelines. Importantly, those principles must be applied on a case-by-case basis and not mechanically.174

(p. 488) (2)  Method 8.87  Parties undertaking a full-blown competition assessment must first identify the anticompetitive features of their agreement, and the related theories of competitive harm (Section (a)). Second, the parties must test whether those theories of competitive harm are plausible in light of the market characteristics, and whether they are likely to give rise to a restriction of competition within the meaning of Article 101(1) TFEU (Section (b)). Third— and only if there is a restriction of competition under Article 101(1)—the parties must verify

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if their agreement produces efficiencies and objective justifications which trigger the benefit of an exemption under Article 101(3) (Section (c)). 8.88  In this section, we take, as a matter of illustration, a vertical agreement which contains a three-year single branding clause and involves a supplier controlling nearly 40 per cent of the relevant market.

(a)  Selection of the theories of harm 8.89  Not all vertical restraints have a similar effect on competition. Economic theory ascribes specific scenarios of competitive harm to the various types of vertical restraint. A prerequisite of any meticulous self-assessment is therefore to ‘frame’ the analysis by selecting a relevant theory of harm. 8.90  As explained previously, the Guidelines provide useful guidance for this selfassessment. For each category of vertical restraint, the Guidelines articulate a range of possible theories of harm. To take the example of single branding, the Guidelines particularly mention risks of (i) ‘foreclosure of the market to competing suppliers and potential suppliers’ (customer foreclosure);175 (ii) ‘collusion in the case of cumulative use by competing suppliers’ (supplier collusion);176 and (iii) a ‘loss of in-store inter-brand competition where the buyer is a retailer selling to final consumers’.177 We assume, here, that there is no cumulative use of single branding in the market and that the buyer is not a retailer. In such a case, none of the latter two assumptions is relevant. The individual analysis can thus focus exclusively on the risk of foreclosure.

(b)  Assessment of the theories of harm 8.91  The next step involves testing the plausibility of the theory of competitive harm in light of the market features. In assessing any potential risk resulting from a single-branding obligation the Guidelines consider that the following list of factors should be examined: the market position of the supplier,178 the needs of individual customers covered (100 per cent or less),179 the market coverage of the single branding commitment (the tied market share),180 (p. 489) the duration of the non-compete obligation,181 the market position of competitors,182 barriers to entry,183 countervailing power (or purchasing power),184 and the level of trade.185 8.92  The Guidelines provide details on those various factors. For instance, a singlebranding obligation the duration of which is less than one year is deemed unlikely to generate anticompetitive effects. In contrast, single-branding obligations entered into by non-dominant companies for a duration of between one and five years will usually require a proper balancing of pro-and anticompetitive effects. At any rate, single-branding obligations are more likely to result in anticompetitive foreclosure when entered into by dominant companies. 8.93  The same applies to the tied market share. It is important to ascertain whether the point of sale that is foreclosed from rivals constitutes an important sales channel. If a supplier with a 40 per cent market share benefits from a single branding commitment with a customer that accounts for 10 per cent of its sales, the tied market share (ie, 4 per cent of the relevant market) is relatively limited. It is thus unlikely that the agreement restricts competition. If, however, the customer represents half of the sales of the supplier, the tied market share is much higher (ie, 20 per cent of the relevant market). Here, the restrictive effect of the agreement is serious. 8.94  In relation to the countervailing power of buyers, the Guidelines recognize that ‘powerful buyers will not easily allow themselves to be cut off from the supply of competing goods or services’.186 Buyers may, for instance, request financial compensation, through lower purchasing prices. In such cases, the Guidelines do not discard competition concerns. Rather, they stress that whilst this may be beneficial to certain individual buyers, it ‘would be wrong to conclude automatically from this that all single branding obligations, taken

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together, are overall beneficial for customers on that market and for the final consumers’.187 8.95  Finally, in relation to the level of trade, the Guidelines draw a dividing line between agreements concerning final products, where foreclosure is in general more likely ‘given the significant entry barriers for most manufacturers to start retail outlets just for their own products’.188 In contrast, the Guidelines take a more positive view of agreements concerning the supply of a final product at the wholesale level. They consider that there is ‘no real risk of anticompetitive foreclosure if competing manufacturers can easily establish their own wholesaling operation’.189

(p. 490) (c)  Efficiencies and objective justifications 8.96  Once a vertical agreement is found to create actual or likely anticompetitive effects, the parties need to verify whether this agreement can benefit from an individual exemption under Article 101(3) TFEU.190 As explained, vertical restraints may have a number of objective justifications and produce redeeming efficiencies. For each group of vertical restraint, the Guidelines provide clarifications on admissible objective justifications and pro-competitive efficiencies. 8.97  As far as single branding is concerned, the Guidelines recognize that the supplier may seek (i) protection from free-riding by other suppliers (eg on promotional efforts);191 (ii) protection of a relation-specific investment made by the supplier (eg in equipment which can be used only to produce components for a particular buyer);192 (iii) protection from hold-up problems that may arise with the transfer of substantial know-how (which cannot be taken back by the supplier);193 or (iv) to overcome capital market imperfections (eg it is more efficient for the supplier to provide a loan than it is for a bank).194 Interestingly, the Guidelines also declare that quantity forcing is as equally efficient as single branding, but generates less restrictive effects on competition.195 8.98  With only very few exceptions, the Guidelines provide scant guidance on the level of sophistication required in the assessment of objective justifications and efficiency benefits.196 Parties should thus seek guidance from the Commission’s Guidelines on the application of Article 101(3) of the Treaty (the ‘General Guidelines’). 8.99  In practice, parties should proceed with caution. Competition authorities are often conservative when it comes to efficiency arguments. To be fair, their scepticism is understandable. Most objective justifications for vertical restraints do indeed hinge on behavioural speculations (incentives of buyers), rather than on structural efficiencies (quantitative costs savings). Such justifications are thus inevitably tainted with value judgment. To take a simple example, a supplier imposing a single-branding obligation may simply, but legitimately, over-estimate the risk of free-riding. Hence, it is imperative that firms conduct an objective and rigorous assessment of the possible efficiencies of their vertical agreements. In addition, firms should keep all supportive evidence of any efficiency benefits (should subsequent administrative or judicial proceedings be launched).

(p. 491) IV.  Online Distribution A.  The Context 8.100  Up until the adoption of the new EU framework on vertical restraints, the issue of online distribution triggered intense debate.197 In essence, pure internet players (eg eBay),198 argued that under Regulation 2970/1990 firms operating selective distribution networks were free to undermine online distribution through various types of vertical restraint.199 For instance, it was reported that suppliers operating selective distribution systems had occasionally prohibited the setting up of a website, subordinated online sales to the observance of a recommended price, placed a cap on quantities sold through the

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internet, etc.200 In a document entitled ‘Empowering Consumers by Promoting Access to the 21st Century Market, A Call for Action’, eBay thus proposed to eradicate such restraints through a new hardcore restriction, whose proposed wording would read as follows: The exemption provided for in Article 2 shall not apply to vertical agreements which, directly or indirectly, in isolation or in combination with other factors under the control of the parties, have as their object: … (f) the restriction of the ability of the buyer or any of his customers to sell the contract goods or services on the Internet without prejudice to the exceptions permitted under paragraph b. 8.101  Unsurprisingly, those proposals were fiercely challenged by suppliers of branded products (cosmetics, luxury goods, jewellery, watches, etc) which rely primarily on ‘brick and mortar’ shops for the distribution of their products. They argued in particular that preand post-sales services (advice, testing, etc) at the point of sale represent significant investments at both supplier and buyer levels. Members of such networks may in turn be reluctant to incur them, absent protection from internet distributors.201 This would be all the more problematic (p. 492) given the contribution of such services to demand growth.202 That said, for many products, free-riding appears in reality to take place the other way around (eg cars, electronics), with consumers first searching online, and then buying at a brick and mortar shop.203 8.102  Suppliers of branded products thus viewed the existing regulatory framework as satisfactory.204 They argued that the upcoming regulatory framework should confirm that selective distribution entails the freedom to condition online sales upon the existence of a physical outlet (and other qualitative requirements related, eg, to download rates, payment interfaces, search tools).205 In reality, suppliers operating a selective network seemed amenable to cumulative distribution (physical + online). Their primary area of concern related to pure internet distribution, which involves players without a physical presence. 8.103  The debate over the new regulatory framework also concerned other notions, such as the concept of passive and active sales in exclusive distribution networks. According to the existing framework, internet sales were generally deemed passive sales, which suppliers could not restrict. Yet, in light of technological progress, a number of suppliers argued that internet sales could no longer be regarded as passive, in particular when they entail a website targeted at specific customers, customer tracking, etc.206 Those suppliers thus argued that amendments to the regulatory framework needed to be introduced, so as to entitle suppliers to restrict certain internet sales.207

B.  The New Framework for Online Distribution 8.104  Remarkably, the new Regulation does not devote a single line to the issue of online distribution (as was the case with Regulation 2790/99). The issue is entirely left to the Guidelines which take a favourable stance vis-à-vis that form of distribution.208 Paragraph 52 of the Guidelines unambiguously declares that the internet is a powerful tool to reach a greater number and variety of customers than by more traditional sales methods, which explains why certain restrictions on the use of the internet are dealt with as (re)sales restrictions. In principle, every distributor must be allowed to use the internet to sell products…. (p. 493) This positive stance has direct consequences on the rules governing selective distribution (Section 1) and on the notions of active and passive sales (Section 2).

(1)  Selective distribution and online commerce 8.105  In conformity with Article 4(c) of the Regulation, the Guidelines declare that within a selective distribution system, dealers should be free to sell, both actively and passively, to all end-users, also with the help of the internet.209 That said, the Guidelines provide suppliers with some degree of control over internet sales. Just as they may require quality standards for brick and mortar shops, suppliers may require quality standards for the use of From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

internet websites.210 Drawing inspiration from the solutions promoted by the French NCA and the Paris Court of Appeals,211 the Guidelines even acknowledge that a supplier may require its distributors to have one (or more) brick and mortar shop(s) as a condition for joining the distribution system. In the same vein, a supplier may request distributors that use third party platforms to sell their products, to display the logo and brands of the contractual product on the website.212 8.106  The Commission also considers as a ‘hardcore restriction’ any obligation which dissuades dealers from using the internet to reach a greater number (or variety) of customers by imposing criteria for online sales which are not equivalent to those imposed for sales in a brick and mortar shop.213 Importantly, this does not mean that the criteria for online and offline sales should be uniform.214 For example, in order to prevent sales to unauthorized dealers, a supplier may place a limit on the quantities sold by its selected dealers to an individual end-user. In such cases, the cap placed on sold quantities may have to be stricter for online sales, if it is easier for unauthorized dealers to obtain products through the internet.215

(2)  Active and passive sales (a)  Internet sales are passive 8.107  The Guidelines seek to provide guidance on what constitutes a passive and active sale in the online world. As explained previously, the concept of active and passive sales is primarily relevant in relation to exclusive distribution. Suppliers can restrict a distributor’s freedom actively to sell products in a territory that has been granted to a different distributor. However, unsolicited, passive sales cannot be restricted. 8.108  In principle, setting up a website to sell a product is viewed as a passive sale, since it is deemed a reasonable way to allow customers to reach the distributor.216 Surely, the use of a website may have effects beyond the distributor’s own territory (or customer group). However, this stems from the technology itself, which allows easy access from everywhere. (p. 494) 8.109  The Guidelines provide illustrations of passive online sales. If a customer visits the website of a distributor and contacts the distributor and if such contact leads to a sale, including delivery, then that sale is considered passive. The same holds true if a customer opts to be kept (automatically) informed by the distributor and this leads to a sale. Finally, the fact that a distributor offers different language options on its website (including languages not used in its territory) does not, of itself, alter the passive nature of the sale.217 8.110  Given, therefore, that the Guidelines consider internet sales to be passive sales, sales via the internet to another territory (or customer base) cannot be restricted on pain of falling within the presumption of incompatibility set out in Article 4 of the Regulation. In this context, the Guidelines provide four specific examples of hardcore restrictions of passive internet selling: (i) agreements according to which an (exclusive distributor) is required to prevent customers located in another exclusive territory from viewing its website or automatically to re-route its customers to the manufacturer’s or other (exclusive) distributors’ websites;218 (ii) agreements whereby an (exclusive) distributor is required to terminate an internet transaction if the credit card details reveal an address that is not within its exclusive territory;219 (iii) agreements which require that the distributor limit its proportion of overall sales made over the internet;220 and (iv) agreements whereby the buyer pays a higher price for products intended to be resold online (‘dual pricing’).221

(b)  In exceptional circumstances, internet sales may be considered active 8.111  The Guidelines merely lay down a presumption that internet sales are passive. In exceptional cases, internet sales may be considered active, and can thus be restricted. This is the case, for instance, if a distributor sends emails to consumers located in the exclusive territory of another distributor. Similarly, the Guidelines consider online advertisement specifically addressed to certain customers as a form of active selling to those

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customers.222 For instance, territory-based banners on third party websites are active sales into the territory where these banners are shown.223 Similarly, paying a search engine (or an online advertisement provider) to have advertisements displayed specifically to users in a particular territory is active selling into that territory.

(p. 495) V.  Conclusions 8.112  Whilst the recently adopted regulatory framework provides some useful guidance on inter-net distribution, it remains—to say the least—optimistic as regards the ability of firms to juggle with complex economic assessments, such as market definition and market share computation. In addition, it paints a bleak picture of buyer power, which (i) marks a departure from conventional antitrust economics; and (ii) relies on fragile and untested assumptions. Practice will tell whether those extensions of the EU rules on vertical restraints are to be welcomed.

Footnotes: 1

  See R. Coase, ‘The Nature of the Firm’ (1937) 4 Economica 386; O. Williamson, Market and Hierarchies: Analysis and Antitrust Implications (New York: Free Press, 1975). Economists sometimes speak of ‘hierarchy’ (the firm) and ‘delegation’ (the market) strategies. The choice of one or other method of distribution obviously varies according to the relevant sector, timing, and a company’s individual preferences. Eg with regard to the distribution of personal computers, though traditionally carried out using the independent distribution method, the past ten years have shown a growing trend towards integration. Clearly, the manufacturer may still decide to combine these two forms of distribution (‘dual distribution’). Economic research and, in particular, the ‘theory of the firm’ has identified the main determinants of such choice. According to R. Coase, recourse to independent distribution leads to transaction costs (or governance costs) in terms of research, negotiation, and performance problems. In contrast, under the integrated model, firms avoid (some) transaction costs as there exists a relationship of ‘authority’. However, their production costs increase. There is, therefore, a trade-off between transaction costs and production costs. 2

  An agreement governing the relationship between the supplier and a distributor is generally termed a ‘vertical agreement’ because it involves the cooperation of noncompeting undertakings active at different stages of the value chain. Distribution agreements between operators at the same level of the production process are horizontal agreements. The integrated distribution model also raises competition law issues, which are generally assessed under the merger control or abuse of dominance rules. 3

  See Joined Cases 56 and 58/64 Etablissements Consten SARL and Grundig-Verkaufs GmbH v Commission, 13 July 1966 [1966] ECR 299. 4

  A vertical agreement is defined in Art 1(1)(a) of Regulation 330/2010 as covering: an agreement or concerted practice entered into between two or more undertakings each of which operates, for the purposes of the agreement or the concerted practice, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services.

According to Art (1)(1)(b) of the Regulation a ‘vertical restraint’ means a restriction of competition in a vertical agreement falling within the scope of Art 101(1) TFEU—see Commission Regulation 330/2010 of 20 April 2010 on the application of Article 101(3) of the

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Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ L 102, 2010 (‘the Regulation’). 5

  A large number of contractual clauses hampering competition between distributors of the same good or service (territorial exclusivity, etc) were thus prohibited. 6

  During this early period, and for a considerable length of time thereafter, the assessment of vertical agreements was characterized by a complete lack of economic analysis. Agreements between parties that did not enjoy market power could thus be prohibited by the Commission without any meaningful economic analysis being performed to substantiate such findings. 7

  See in this context S. Bishop, ‘Unfinished Business: The New Approach to Assessing Vertical Restraints’ (2002) 37(1) Intereconomics: Review of European Economic Policy 12. 8

  See on this point J. Tirole, The Theory of Industrial Organization (Cambridge, MA: MIT Press, 1988), ch IV. 9

  See B.E. Hawk, ‘System Failure: Vertical Restraints and EC Competition Law’ (1995) 35 Common Market L Rev 973. 10

  Network industries subject to natural monopolies or oligopolies are typically an area where inter-brand competition is limited. 11

  See F. Wijckmans, F. Tuytschaever, and A. Vanderelst, Vertical Agreements in EC Competition Law (Oxford: Oxford University Press, 2006), paras 1.51ff. 12

  And more generally, marks the beginning of the ‘effects-based’ approach in EU competition enforcement. 13

  From a legal practitioner’s point of view the lists of black, grey, and white clauses applicable under the former regime were quite convenient and their replacement by a system relying much more heavily on economic analysis may be somewhat disconcerting. 14

  See Commission Notice—Guidelines on Vertical Restraints, OJ C 130, 2010, at 1 (‘Guidelines’), para 96. 15

  With the internet’s rapid development and easy accessibility it became imperative to review the system of control of independent distribution agreements in order to align it with commercial realities. 16

  See nn 4 and 14.

17

  The Guidelines also devote some space to other types of vertical restraints, such as franchising at paras 189–91 and tying at paras 214–22. These issues will not be dealt with in the present chapter. 18

  The idea here is to prevent the buyer from buying products of another brand. See Guidelines, n 14, at para 129. This explains why the Commission mentions exclusive purchasing in the same breath as vertical restrictions belonging to the exclusive distribution group. The concept of a non-compete obligation would appear to cover both single branding and exclusive purchasing. 19

  The Commission still treats purchase quotas with a greater degree of leniency than exclusivity commitments. See eg Guidelines, n 14, at para 154. 20

  See Guidelines, n 14, at paras 214–22.

21

  Ibid, para 129.

22

  Contracts with penalty clauses may create a risk of foreclosure and deter entry.

23

  See GC, Case T-65/98 Van den Bergh Foods v Commission [1998] ECR II-2641.

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24

  See Guidelines, n 14, at para 192. In the Guidelines, exclusive supply is treated, in and of itself, as a type of vertical restraint. 25

  This theory can be seen, in its strategic version, as a variation of the raising rivals’ costs theory, developed by Professor Salop. See V. Korah and D. O’Sullivan, Distribution Agreements under the EC Competition Rules (Oxford: Hart Publishing, 2002), 19. See T.G. Krattenmaker and S. Salop, ‘Anticompetitive Exclusion: Raising Rivals’ Costs to Achieve Power Over Price’ (1986) 96 Yale LJ 209. 26

  See Guidelines, n 14, at para 151.

27

  See N. Petit, Oligopoles, collusion tacite et droit communautaire de la concurrence (Brussels: Bruylant, 2007), chs I and IV. 28

  See Guidelines, n 14, at para 130.

29

  See B. Klein and K.M. Murphy, ‘Exclusive Dealing Intensifies Competition for Distribution’ (2008) 75 Antitrust LJ 433; G.F. Mathewson and R.A. Winter, ‘The Competitive Effects of Vertical Agreements: Comment’ (1987) 77 Am Economics Rev 1057–62; H.P. Marvel, ‘Exclusive Dealing’ (1982) 25 J Law and Economics 1; I.R. Segal and M.D. Whinston, ‘Exclusive Contracts and the Protection of Investments’ (2000) 31 RAND J Economics 603; B. Klein and A.V. Lerner, ‘The Expanded Economics of Free-Riding: How Exclusive Dealing Prevents Free-Riding and Creates Undivided Loyalty’ (2007) 74 Antitrust LJ 473; D. de Meza and M. Selvaggi, ‘Exclusive Contracts Foster Relationship-Specific Investment’ (2008) 38 RAND J Economics 85. 30

  See P. Rey and J. Tirole, ‘The Logic of Vertical Restraints’ (1986) 76 Am Economics Rev 921. 31

  A single-branding clause allows a supplier to ensure that its distributor focuses its efforts on marketing its product and only its product to the exclusion of the products of other suppliers. In addition, a distributor achieves economies of scale when it distributes a single product. See Tirole, n 8, at 185. 32

  See H. Marvel, ‘Exclusive Dealing’ (1982) 25 J Law and Economics 1.

33

  Not for so long as to hinder large-scale dissemination, however. See Guidelines, n 14, at para 107(c). Such benefits are more likely with ‘experience’ or complex goods that constitute expensive purchases for the final consumer. 34

  See Guidelines, n 14, at para 107(d). For a discussion of the hold-up problem see O. Hart and J. Tirole, ‘Vertical Integration and Market Foreclosure’, Brookings Paper on Economics Activity: Microeconomics, 1990, at 205. 35

  There are other ways to avoid this risk, eg by pooling the investment in a joint venture. See Korah and O’Sullivan, n 25, at 32. 36

  A system of price thresholds or minimum prices has the same effect.

37

  See Commission Press Release, 24 June 2002, ‘Commission clears B&W Loudspeakers distribution system after company deletes hard-core violations’, IP/02/916, Brussels. 38

  The prohibition imposed on resale price maintenance is thus consistent with the priority accorded by the Commission to the fight against horizontal collusion. The Commission—via its Guidelines—would appear to agree that resale price maintenance has detrimental consequences on competition by stating that it maintenance reduces or even eliminates intra-brand competition. See, for arguments in favour of a per se prohibition, F. Van Doorn, ‘Resale Price Maintenance in EC Competition Law: The Need for a Standardised Approach’, 6 November 2009, available at .

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39

  Additionally, a system of maximum or recommended prices, in which resellers remain free to choose a lower or different price, acts as a focal point around which distributors can converge. See Guidelines, n 14, at para 227: The possible competition risk of maximum and recommended prices is that they will work as a focal point for the resellers and might be followed by most or all of them and/or that maximum or recommended prices may soften collusion between suppliers. In other words, the Commission sees in this a strategy based on revealing information to competing suppliers regarding the optimal price level to be reached. 40

  See Guidelines, n 14, at para 224. See, in particular, B. Jullien and P. Rey, ‘Resale Price Maintenance and Collusion’ mimeo, University of Toulouse, 2002; M. Motta, Competition Policy—Theory and Practice (Cambridge, MA: Cambridge University Press, 2004). See also F. Mathewson and R. Winter, ‘The Law and Economics of Resale Price Maintenance’ (1998) 13 Rev of Industrial Organizaton 57. 41

  Systems of resale price maintenance increase price transparency, a corollary of which is an increase in the risk of tacit collusion in concentrated markets. See Guidelines, n 14, at para 224. 42

  See L. Telser, ‘Why Should Manufacturers Want Fair Trade’ (1960) 3 J Law and Economics 86. 43

  See on these points, H. Hovenkamp, Federal Antitrust Policy—The Law of Competition and Its Practice, 2nd edn (St Paul, MN: West Group, 1999), paras 11.3–11.3.c. 44

  In order to make cost savings. On this point, the Chicago authors recognize that control of resale prices eliminates price competition. However, such systems do lead to competition on other equally crucial parameters. 45

  In certain markets, where both the supplier and buyer have market power, it is possible that supracompetitive profits are made twice. In this context one normally speaks of ‘double marginalization’. A supplier, wishing to protect its sales profits but also avoid a reduction in quantities sold at resale level, can control the profits of its distributor by fixing downstream prices. See Tirole, n 8, at 174. 46

  See Guidelines, n 14, at para 174.

47

  Conditions relating to personnel, premises, etc. The supplier may also impose an entry fee (eg in franchise systems). See Tirole, n 8, at 184. 48

  Exclusive supply arrangements, which were discussed above, are drastic forms of limited distribution. 49

  See Guidelines, n 14, at para 175.

50

  Collusion between downstream buyers is facilitated because an understanding of the terms of coordination is simpler; monitoring activities are easier; and the risk of entry is reduced. 51

  See J.J. Laff ont and D. Martimort, The Theory of Incentives: The Principal-Agent Model (Princeton, NJ: Princeton University Press, 2001). 52

  Pre-sales services are recognized in Guidelines, n 14, at para 107(a).

53

  See Tirole, n 8, at 183.

54

  See Guidelines, n 14, at para 107(b), which states ‘to open up or enter new markets’.

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55

  Ibid, at para 107(a), which refers to the ‘free-rider problem’. Also note that the usual providers of capital (banks, equity markets) may provide capital sub-optimally when they have imperfect information on the quality of the borrower or there is an inadequate basis to secure the loan. Where the buyer provides the loan to the supplier, this may be the reason for exclusive supply or quantity forcing vis-à-vis the supplier. See Ibid, at para 107(h). 56

  Ibid, para 107(c), referring to the ‘certification free-rider issue’.

57

  Ibid, para 107(g).

58

  See Tirole, n 8, at 193.

59

  See Korah and O’Sullivan, n 25, at 37, noting that such considerations were at the heart of the old laws which have since been abolished. 60

  See Guidelines, n 14, at para 174.

61

  In this type of distribution network, it is common to prohibit the resale of goods/services to unauthorized distributors outside of the network. 62

  See Guidelines, n 14, at para 168. These territorial systems are more frequent when the downstream party is a wholesaler (as opposed to a retailer). 63

  See eg the many cases concerning exclusive supply clauses in the beer industry: CJ, C-23/67 SA Brasserie de Haecht v Consorts Wilkin-Janssen [1967] ECR 525; CJ, C-234/89 Delimitis [1991] ECR I-935. 64

  However, unlike single branding, it retains the ability to buy and sell competing products. Single branding and exclusive purchasing are often grouped together under the concept of non-compete obligations. 65

  On exclusive distribution, see Section II(B).

66

  The supplier may also restrict its distributors’ ability to resell products/services to certain types of customers (eg business customers or private clients). 67

  ‘Active’ sales mean actively approaching individual customers inside another distributor’s exclusive territory or exclusive customer group by for instance direct mail or visits; or actively approaching a specific customer group or customers in a specific territory allocated exclusively to another distributor through advertisement in media or other promotions specifically targeted at that customer group or targeted at customers in that territory; or establishing a warehouse or distribution outlet in another distributor’s exclusive territory—see Guidelines, n 14, at para 50. 68

  ‘Passive’ sales mean responding to unsolicited requests from individual customers including delivery of goods or services to such customers. General advertising or promotion in media or on the Internet that reaches customers in other distributors’ exclusive territories or customer groups but which is a reasonable way to reach customers outside those territories or customer groups, for instance to reach customers in non-exclusive territories or in one’s own territory, are passive sales—see Guidelines, n 14, at para 50. 69

  See Commission Decision of 30 October 2002, Video Games, Nintendo Distribution, OJ L 255, 2003, at 33. 70

  In this case, there were striking price differences across Europe. According to the Commission, in early 1996, some Nintendo products were up to 65 per cent cheaper in the UK than in the Netherlands and Germany. 71

  Limited by inter-brand competition, both from other goods or services.

72

  See Guidelines, n 14, at para 100(d).

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73

  Assuming that several distributors of a supplier are in a position to compete, one means of control at the supplier’s disposal is to segment the market between the relevant distributors by carving up sales territories. See Tirole, n 8, at 472. 74

  See R. Inderst and G. Shaffer in ‘Buyer Power in Merger Control’ in W.D. Collins (ed), ABA Antitrust Section Handbook, Issues in Competition Law and Policy, who define buyer power as ‘the ability of buyers to obtain advantageous terms of trade from their suppliers’. 75

  See Guidelines, n 14, at para 116.

76

  Such that it resulted in a failure to provide an optimum product mix, which would have maximized the overall profitability of its biscuit range. See UK OFT decision of 10 September 2004 (Anticipated acquisition by United Biscuits (UK) Ltd of the Jacobs Bakery Ltd) where it was also stated that category management involves a leading supplier providing expertise to the retailer to help it to maximize the profitability of each of its product ranges. This may involve, eg, providing research on the best way to market products and at what time. 77

  See Guidelines, n 14, at para 204.

78

  Ibid, at para 205.

79

  Ibid, at para 206. For a discussion of slotting allowances and their impact on the competitive process, see O. Foros and H.J. Kind, ‘Do Slotting Allowances Harm Retail Competition’ CESIFO Working Paper No 1800, Industrial Organisation, September 2006. 80

  See Guidelines, n 14, at para 210.

81

  Ibid, at para 211.

82

  The French NCA has issued an opinion on this subject, see . 83

  See Guidelines, n 14, at para 208.

84

  Ibid, at para. 213.

85

  For some interesting proposals on this point see, see P. Lugaard and J. Haan, ‘Ten Points to Consider when Reviewing Regulation 2790/1999’ (2009) Global Competition Policy Online, March. 86

  See Guidelines, n 14, at para 110.

87

  Ibid: ‘First, the undertakings involved need to establish the market shares of the supplier and the buyer on the market where they respectively sell and purchase the contract products’. 88

  See Art 2(1) of the Regulation, n 4. We therefore do not discuss agreements that fall outside the scope of the Regulation and the Guidelines, ie: (i) agreements between competing firms (with the exception of section 2(4) of the Regulation on non-reciprocal vertical agreements); (ii) agreements concluded within the framework of an association of retailers of goods (other than section 2(2) relating to relations between the association and its members); (iii) vertical agreements falling within a specific block exemption (see Art 2(5) of the Regulation), eg motor vehicle distribution agreements; and (iv) agreements pertaining to leases and rental agreements (see Guidelines, n 14, at para 26). We also exclude real agency contracts. A ‘real’ agency contract does not fall within the purview of Art 101(1) TFEU. A ‘false’ agency contract does on the other hand fall within the ambit of Art 101 TFEU. The dividing line between these two types of contract is drawn by reference to the criterion of imputability of financial and commercial risks associated with the contract. A real agency contract is one by which the agent bears no financial risk. Conversely, a false agency contract is a contract where the financial risk and the risks associated with the non-performance of contractual obligations is imputed to the agent. See the Guidelines, n 14, at paras 13–16. Article 101(1) TFEU is applicable to agency contracts From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

when the agent assumes one or more of the following risks: the agent contributes to the costs associated with the supply of the goods or services (eg transport costs), the agent invests in promotional activities, the agent sets up and operates at its own expense an aftersales service or warranty system, the agent makes market-specific investments in equipment, facilities, or staff training; and the agent assumes liability vis-à-vis third parties for products sold, the agent assumes responsibility for the non-performance of the contract by the customer etc. 89

  See Wijckmans et al, n 11, at para 1.52.

90

  They are of such gravity that the illegality of the clause in question affects the validity of the entire agreement, even where the market-share threshold (to which we shall return) is not exceeded. See the Guidelines, n 14, at paras 47–59. Such restrictions are not severable from the remainder of the agreement. This is important because other restrictions deemed inconsistent with Art 101(1) TFEU (and not covered by Art 101(3)) after an individual assessment remain severable from the agreement (these restrictions are mentioned in Art 5 of the Regulation). Only such clauses are incompatible and the remainder of the agreement survives. See our comments below. 91

  See Guidelines, n 14, at para 47.

92

  See eBay’s ‘Empowering Consumers by Promoting Access to the 21st Century Market, A Call for Action’, p 11. 93

  See LVMH submission concerning the review of the EU competition rules applicable to vertical restraints of 24 September 2009. The luxury product industry generally considers that the growth of online sales of luxury products, the continual adoption of new technologies for internet advertising and sales, make it impossible to adopt exhaustive legislation in this context. 94

  See Decision of the French Conseil de la Concurrence, Decision no 08-D-25 of 29 October 2008 and the Paris Court of Appeals judgment of 29 October 2009. The Paris Court of Appeals referred to the Court of Justice a request for a preliminary ruling in C-439/09 Pierre Fabre Dermo Cosmétique SAS. 95

  Understood as the objective ability of the agreement and not the intention of the parties. See Art 4(a) of the Regulation and the Guidelines above, n 14, at para 48. For a discussion of RPM see O. Foros, H.J. Kind, and G. Schaffer, ‘Resale Price Maintenance and Restrictions on Dominant Firm and Industry-Wide Adoption’, CESifo Working Paper Series No 2032, 2007; see also V. Verouden, ‘Vertical Agreements: Motivation and Impact in Issues in Competition Law and Policy’ in W.D. Collins (ed), ABA Section of Antitrust Law (2008). See also F. Alese, ‘Unmasking the Masquerade of Vertical Price Fixing’ (2007) 28 European Competition L Rev 514 and M. Kneepkens ‘Resale Price Maintenance: Economics Call for a More Balanced approach’ (2007) 28 European Competition L Rev 656. 96

  See CJ, C-243/83 SA Binon & Cie v SA Agence et messageries de la presse [1985] ECR 2015; CJ, 107/82 AEG/Telefunken v Commission [1983] ECR 3151. 97

  For an example of a clause permitting an undertaking to scrutinize the wording of dealers’ advertisements as regards selling prices and to prohibit such advertisements, see CJ, C-86/82 Hasselblad v Commission [1984] ECR 883. 98

  See in particular Commission Decision of 16 July 2003, Case COMP/37.975 Po/Yamaha, paras 81–2 and 144, not yet published. 99

  The prohibition extends to mechanisms that ensure the monitoring and detection of distributors who do not respect the set price. The existence of such mechanism raises suspicion of a concerted practice or vertical price fixing. It may be, eg, an obligation imposed on a distributor to denounce other distributors who depart from the standard price. See also with regard to agency the special case pertaining to a prohibition on the From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

agent to share its commission with the customer. See Guidelines, n 14, at para 48, codifying CJ, C-311/85 Vereniging van Vlaamse Reisbureaus [1987] ECR 3801. 100

  See Commission Decision of 5 July 2000, Nathan Bricolux, OJ L 54, 2001, at 1, para 87.

101

  The GC has drawn a distinction between mere price recommendations and the imposition of strict rules relating to retail prices: see GC, T-67/01 JCB Service v Commission [2004] ECR II-49. See CJ, C-191/84 Pronuptia de Paris GmbH v Pronuptia de Paris Irmgard Schillgallis [1986] ECR 353, at 25. 102

  See Guidelines, n 14, at para 48. And more generally, threats, intimidation, sanctions, suspensions. or delivery delays discouraging a buyer from deviating from a recommended price. 103

  US Supreme Court, Leegin Creative Leather Products, Inc v PSKS, Inc 127 S Ct 2705 (2007). For further discussion on this subject see W.S. Grimes, ‘The Path Forward after Leegin: Seeking Consensus Reform of the Antitrust Laws of Vertical Restraints’ (2008) 75 Antitrust LJ 467. 104

  Which had been established in USC, Dr Miles Medical Co v John D Park & Sons Co, 220 US 373 (1911). 105

  See USC, Standard Oil Co v United States, 221 US 59–68 (1911).

106

  See Alese and Kneepkens, n 95.

107

  See Guidelines, n 14, at para 223. See also para 225: ‘RPM may not only restrict competition but may also, in particular where it is supplier-driven, lead to efficiencies, which will be assessed under Article 101(3).’ 108

  The Commission, at a roundtable discussion organized by the OECD in 2008, seemed prepared to explore all options within the framework of its review of vertical restraints. The Commission indicated that the 1999 texts did not necessarily reflect its state of thinking on the issue. However, the Commission did express its doubts regarding claimed efficiencies arising out of resale price maintenance practices. OECD Competition Committee, Paris, 21– 23 October 2008. 109

  See Guidelines, n 14, at para 225.

110

  Ibid.

111

  Ibid.

112

  Ibid. See also E. Gippini-Fournier, ‘Resale Price Maintenance in the EU: In Statu Quo Ante Bellum?’ in B. Hawk (ed), 36th Annual Conference on International Antitrust Law and Policy 2009: Fordham Corporate Law Institute (London: Sweet & Maxwell, 2010). 113

  See Art 4(b) of Regulation 330/2010, n 4.

114

  See Guidelines, n 14, at para 50. The underlying rationale of such incompatibility is that buyers must be able to sell anywhere they wish. 115

  For other examples see Guidelines, n 14, at para 48.

116

  See Art 4(b) of Regulation 330/2010, n 4, and Guidelines, n 14, at para 51. These exceptions do not mean that the relevant restrictions are valid but that they can, if the relevant conditions are met, qualify for an exemption. 117

  See Guidelines, n 14, at para 51. See also Commission Decision, Video Games, Nintendo Distribution, n 69, at para 331. 118

  See discussion in greater detail under Section IV.

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119

  See Guidelines, n 14, at para 55.

120

  See Art 4(c) of Regulation 330/2010, n 4, and Guidelines, n 14, at para 55.

121

  See Guidelines, n 14, at para 57.

122

  Ibid.

123

  See Art 4(d) of Regulation 330/2010, n 4, and Guidelines, n 14, at para 55.

124

  See Guidelines, n 14, at para 58.

125

  Ibid, at para 59.

126

  It may also seek to prevent mere repairs/maintenance of its product.

127

  See Guidelines, n 14, at para 59. The supplier may, however, impose on its own repair and maintenance network an obligation to purchase spare parts from it, and lay down a prohibition on dealing directly with the component manufacturer. 128

  See CJ, C-5/69 Franz Völk v SPRL Ets J Vervaecke [1969] ECR 295 at 7.

129

  See Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 81, paragraph 1, of the Treaty establishing the European Community (de minimis Notice), OJ C 368, 2002, at 13. 130

  Ibid, at para 7.

131

  Ibid, at para 11(2).

132

  See Guidelines, n 14, at para 88.

133

  See Commission Notice on the definition of relevant market for the purposes of Community competition law, OJ C 372, 1997, at 5, para 7; and see Chapter 4. 134

  Ibid, at para 8.

135

  And where a relevant market analysis has taken place, it may relate to a different/ obsolete economic context. 136

  See Art 7(a) of Regulation 330/2010, n 4. In the absence of reliable data on the value of sales, it is possible to rely on ‘estimates based on other reliable information concerning the market, including market sales volume’. The market share should be calculated on the basis of data for the preceding calendar year. See Art 7(b) of Regulation 330/2010, n 4. 137

  See P.M. Louis, ‘Le nouveau règlement d’exemption par catégorie des accords de transfert de technologie: une modernisation et une simplification’ (2004) 3-4 Cahiers de droit européen 377, 385 and 403. 138

  See Annex to Commission Recommendation 96/280/EC.

139

  See Guidelines, n 14, at para 11.

140

  Ibid.

141

  See Guidelines, n 14, at para 23, which refers to a ‘presumption of legality’.

142

  Technically, the Regulation relies on Art 101(3) TFEU to declare Art 101(1) TFEU inapplicable (Art 2 of Regulation 330/2010, n 4, recalls that a finding of inapplicability of Art 101(1) TFEU finds its origin in the application of Art 101(3)). The Regulation assumes that the conditions for exemption under Art 101(3) TFEU are met. Recital 8 of the Preamble to the Regulation states that agreements that do not exceed the market-share threshold ‘generally lead to an improvement in production or distribution and allow consumers a fair share of the resulting benefits’.

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143

  In the event that the market share exceeds the threshold by 5 per cent at the end of the initial assessment of the agreement, the Regulation (Art 7) provisionally allows the exemption to remain in place. If the market share is less than 35 per cent, the agreement can benefit from the exemption for a period of two years. If the market share is greater than 35 per cent, the exemption is only valid for one year. 144

  Under the legal regime in place under Regulation 2790/1999 the 30 per cent marketshare rule generally only applied to the supplier (except in cases of exclusive supply). 145

  The term ‘safe harbour’ is borrowed from Guidelines, n 14, at para 23.

146

  It is open to debate whether, from an economic point of view, the market-share thresholds constitute an effective screening mechanism for assessing vertical agreements. The market-share thresholds are based on a structural reasoning, which borrows heavily from the teachings of the Harvard School (in particular, the Structure Conduct Performance (SCP) correlation between market share, market power, and supra-competitive prices). For an illustration of such structuralism see recital 4 of the Preamble to the Regulation, n 4, which states that an individual assessment requires that ‘account [be] taken of several factors, and in particular the market structure on the supply and purchase side’. In a market of differentiated products (economists speak of monopolistic competition), market shares below 30 per cent are not incompatible with the existence of significant market power. Moreover, it is open to question whether a rule based on the market shares held by the parties is really that effective for assessing the risks of oligopolistic tacit collusion. In fact, tacit collusion is a rare economic phenomenon which requires that—in addition to the presence of a tight oligopoly—four cumulative conditions be met: mutual understanding of the terms of coordination (C1), detection of any risks of deviation (C2), the existence of a retaliatory mechanism (C3), and an absence of any challenge by forces that are exogenous to the oligopoly (C4). The issue of market share held by each party is of no particular importance. A situation of oligopolistic tacit collusion is indeed possible below the relevant thresholds. On the other hand, even in cases above the relevant thresholds it is possible that there is no risk of tacit collusion—if one of the conditions is not satisfied (C1 and C2, eg where the market is not transparent). One may therefore question the need to carry out a complex market-share threshold assessment with regard to the risks of collusion, while the agreement could simply be screened via a check against these four conditions. 147

  See, eg, the Communication from the Commission—Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ C 45, 2009, at 7, para 18: Competitive constraints may be exerted not only by actual or potential competitors but also by customers. Even an undertaking with a high market share may not be able to act to an appreciable extent independently of customers with sufficient bargaining strength. Such countervailing buying power may result from the customers’ size or their commercial significance for the dominant undertaking, and their ability to switch quickly to competing suppliers, to promote new entry or to vertically integrate, and to credibly threaten to do so. If countervailing power is of a sufficient magnitude, it may deter or defeat an attempt by the undertaking to profitably increase prices. Buyer power may not, however, be considered a sufficiently effective constraint if it only ensures that a particular or limited segment of customers is shielded from the market power of the dominant undertaking. See also the draft Guidelines at para 116:

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In some circumstances buyer power may prevent the parties from exercising market power and thereby solve a competition problem that would otherwise have existed. This is particularly so when strong customers have the capacity and incentive to bring new sources of supply on to the market in the case of a small but permanent increase in relative prices. 148

  In this sense, there has been only little, if no enforcement, of Arts 101 and 102 TFEU against monopsonistic practices. See CJ, C-95/04 P British Airways v Commission, 15 March 2007 [2007] ECR I-2331 where there was a dominant position on a purchasing market. See also the draft Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal cooperation agreements, Brussels, SEC(2010) 528/2 which devote a full section to the competitive risks associated with collective purchasing. 149

  See Dobson Consulting, ‘Buyer Power and Its Impact on Competition in the Food Retail Distribution Sector of the European Union’, prepared for the European Commission—DGIV Study Contract No IV/98/ETD/078 who reports that the largest Belgian company, Delhaize ‘Le Lion’, is a retailer, Britain’s Tesco and J. Sainsbury both appear in the UK top 10 companies; Germany has the giant Metro group; whilst Wal-Mart Stores, number four in the US, is the eighth largest company in the world with US$119bn turnover and 825,000 employees (Fortune, 3/8/98). 150

  For a discussion of buyer power see eg R. Inderst and C. Wey, ‘Buyer Power and Supplier Incentives’ (2007) 51 European Economic Rev 647; see also R. Inderst, ‘Leveraging Buyer Power’ (2007) 25 Int’l J Industrial Organisation 908. 151

  See E. Pfister ‘Buying Power and Competition Policy’ [2009] 1 Concurrences 34, para. 45. 152

  Ibid, at para. 46. To the best of our knowledge, there is no case where the Commission has grappled with the anticompetitive effects of up-front access payments and category management agreements. 153

  See Guidelines, n 14, at para 210.

154

  See P. Lugaard and T. van Dijk, ‘The New EC Block Exemption for Vertical Restraints: A Step Forward and a Missed Opportunity’, Global Competition Policy Online, June 2010, at 5. 155

  In contrast, there may well be exploitation concerns. However, competition authorities across the EU often consider that such risks should not be dealt with as a matter of priority. 156

  Besides which, the system envisaged by the Regulation leads to an increased flow of commercially sensitive information at the distribution stage insofar as the distributor must, in order to determine its market share, know how much sales are made by its competitors. 157

  Under the former system, if the manufacturer held a market share below 30 per cent— but the market share held by the distributor was above this threshold—the Commission had to use the individual withdrawal mechanism and was required to satisfy the heavy burden of proof for the application of Art 101(1) TFEU. The introduction of a 30 per cent market-share threshold in relation to distributors has the effect of freeing the Commission from this burden of proof and allows it to deny the benefit of a block exemption for this type of agreement. 158

  In such circumstances, the parties can craft their vertical agreement as they see fit.

159

  The clauses in question are severable from the rest of the agreement. They themselves cannot benefit from the exemption. See Guidelines, n 14, at para 71. 160

  See Art 1(d) of Regulation 330/2010, n 4:

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any direct or indirect obligation causing the buyer not to manufacture, purchase, sell or resell goods or services which compete with the contract goods or services, or any direct or indirect obligation on the buyer to purchase from the supplier or from another undertaking designated by the supplier more than 80% of the buyer’s total purchases of the contracts goods or services and their substitutes on the relevant market, calculated on the basis of the value or, where such is standard industry practice, the volume of its purchases in the preceding calendar year. 161

  Ibid.

162

  Either its duration does not exceed five years, or its renewal beyond five years requires the express consent of both parties. 163

  The Regulation provides for a derogation from the maximum duration of five years when the contract goods or services are sold from premises and land which the vendor owns. As long as the buyer occupies the premises, a non-compete obligation is justified. See Art 5(2)(a) of Regulation 330/2010, n 4. 164

  See Ibid, Art 5(1)(b) and Guidelines, n 14, at para 68.

165

  See Guidelines, n 14, at para 60.

166

  See Art 5(1)(c) of Regulation 330/2010, n 4, and Guidelines, n 14, at para 69.

167

  See Guidelines, n 14, at para 69.

168

  See Wijckmans et al, n 11, at para 9.08. Using the example of a market on which there are four competing manufacturers. Each has a market share of 25 per cent and imposes on its respective distributors an identical single-branding clause. The cumulative effect of this network of agreements entirely forecloses new entrants. However, an assessment pursuant to the Regulation would have found the agreement valid because (i) the relevant thresholds are respected and (ii) single branding does not as such constitute a black clause. 169

  See Art 6 of Regulation 330/2010, n 4. The ability to do this is based on Art 7 of Regulation 17/65, which has now been replaced by Art 29(1) of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1, 2003, at 1. 170

  See, for an illustration, Commission Decision of 23 December 1992, Langnese Iglo GmbH, OJ L 183, 1993, at 19 and Commission Decision of 23 December 1992, Schöller Lebensmittel GmbH Co KG, OJ L 183, 1993, at 1. 171

  See paras 13 and 14 of Regulation 330/2010, n 4.

172

  See also Art 29(2) of Regulation 1/2003. See Guidelines, n 14, at para 78. In this situation the Commission is also able to intervene if the case raises a particular interest such as the novelty of the relevant issues (see para 80). 173

  Those are either (i) agreements where one of the parties has a market share in excess of 30 per cent or (ii) restrictions introduced into agreements which do not meet the requirements of Art 5 of the Regulation. 174

  See recital 3 of the Preamble to the Guidelines.

175

  See Guidelines, n 14, at para 130.

176

  Ibid.

177

  Ibid.

178

  Ibid, at para 132.

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179

  Ibid, at para 133.

180

  Ibid.

181

  Ibid, at para 133: Single branding obligations shorter than one year entered into by non-dominant companies are generally not considered to give rise to appreciable anti-competitive effects or net negative effects. Single branding obligations between one and five years entered into by non-dominant companies usually require a proper balancing of pro-and anti-competitive effects, while single branding obligations exceeding five years are for most types of investments not considered necessary to achieve the claimed efficiencies or the efficiencies are not sufficient to outweigh their foreclosure effect.

182

  Ibid, at para 134.

183

  Ibid, at para 136.

184

  Ibid, at para 137.

185

  Ibid, at para 138.

186

  Ibid, at para 137.

187

  Ibid.

188

  Ibid, at para 140

189

  Ibid, at para 139. This will in turn depend on the type of product.

190

  On condition that that the supplier does not occupy a dominant position. See Ibid, at para 127. 191

  See Ibid, at para 144. It is of course understandable that a supplier who has funded significant promotional efforts may seek to defend itself against free riders. In this context, the appropriate vertical restraint will be (i) of the non-compete type or quantity-forcing type when the investment is made by the supplier and (ii) of the exclusive distribution, exclusive customer allocation, or exclusive supply type when the investment is made by the buyer. 192

  See Ibid, at para 146. In the same vein, in the case of client-specific investments where, eg, an investment made by the supplier—after termination of the agreement—cannot be used by the supplier to supply other customers and can only be sold at a significant loss, a single branding obligation covering the amortization period of the investment is likely to meet the conditions of Art 101(3) TFEU. 193

  Ibid, at para 148.

194

  Ibid, at para 147.

195

  Ibid, at para 145.

196

  The Guidelines nonetheless provide two examples of self-assessment for non-compete obligations and quantity forcing. 197

  The debate on this issue started relatively early—even before the formal review process of Regulation 2790/1999 began—when the Competition Commissioner set up in 2008 a roundtable entrusted with discussing the future of online commerce. The work of the roundtable centred on the question of distribution via the internet of audiovisual content protected by intellectual property rights (the iTunes case showed that European consumers could not be freely supplied throughout the EU for copyright reasons). However, the roundtable also intended to discuss the online commerce of goods/services which are not protected by such rights. Following the publication of an ‘Issues paper’ containing a list of questions for interested parties, operators active in the sector –whether internet or physical From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

operators—gave their contribution to the public debate. The majority of the contributions submitted tackled the issue of a possible review of the legal framework laid down by Regulation 2790/1999 and the Guidelines. These comments gave impetus to the debate on the issue of vertical restraints and distribution via the internet. A further round of consultation was subsequently organized during the formal review of Regulation 2790/1999. The debates that took place gave rise to a wealth of additional contributions, which can be found at . Most of the contributions quoted in the following footnotes can be found at this URL address. 198

  Others players in this context are , Interactive Software Federation of Europe, Amazon, etc. 199

  According to eBay, selective distribution networks could be used in an anticompetitive manner, eg by rendering on line distribution economically unattractive. 200

  See K. Mahlstein, ‘Vertical Restraints and Competition Policy—Internet Sales, a New Dimension to be Considered’, Global Competition Policy Online, March 2009; S. Kinsella and H. Melin, ‘Who’s Afraid of the Internet? Time to Put Consumer Interests at the Heart of Competition’, Global Competition Policy Online, March 2009. 201

  See on this the contribution made by the Federation of the Swiss Watch Industry, at 1–

2. 202

  See the LVMH contribution, at 38 and 40. This is in particular true for a ‘touch and feel’ product (cosmetics, etc), which customers necessarily test in a brick and mortar shop prior to purchase. 203

  See D. Carlton and J. Chevalier, ‘Free Riding and Sales Strategies for the Internet’, NBER Working Paper 8067, 2001; Y. Bakos, ‘The Emerging Landscape for Retail ECommerce’ (2001) 15(1) J Economic Perspectives 69–80. 204

  According to Estée Lauder in its contribution, the legal framework authorized the exclusion of ‘pure players’ from selective distribution networks. 205

  See the LVMH contribution. This solution draws inspiration from French competition law where the supplier can require from its physical distributors that wish to make online sales that they (i) already have a physical infrastructure in place which meets relevant qualitative criteria and (ii) make the necessary investments so that their website has the requisite level of prestige as required within the network, etc. 206

  Chanel in its contribution considers that sales via the internet should not be considered passive sales but active sales. See also the contribution made by the Premier League which challenges the relevance of the distinction between active and passive sales in the field of internet distribution. 207

  In contrast see the contribution made by Which. This consumer organization considers that there have been few cross-border internet sales to the detriment of consumers. 208

  This would appear to make sense as the Commission cannot rely on any legal precedent in this context. There is in fact no European case law or decisional practice on the issue of the prohibition of online sales. 209

  See Guidelines, n 14, at para 56.

210

  Or for selling by catalogue or for advertising and promotion in general. Ibid, at para 54.

211

  See n 94.

212

  See Guidelines, n 14, at para 54.

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213

  Ibid, at para 56.

214

  In practice, this restriction is likely to give rise to significant interpretation problems.

215

  See Guidelines, n 14, at para 56.

216

  Ibid, at para 52.

217

  Ibid, at para 51

218

  Ibid, at para 52(a).

219

  Ibid, at para 52(b).

220

  Ibid, at para 52(c). However, a supplier may—without limiting the online sales of the distributor—require that the buyer sells at least a certain absolute amount (in value or volume) of the products offline to ensure an efficient operation of its brick and mortar shop. 221

  Ibid, paras 52(d) and 64. This does not exclude the situation whereby the supplier agrees with the buyer a fixed fee (ie, not a variable fee where the sum increases with the offline turnover as this would amount indirectly to dual pricing) to support the latter’s offline or online sales efforts. With regard to this latter restriction the Commission does consider, however, that in some specific circumstances such an agreement may fulfil the conditions of Art 101(3). Such circumstances may be present where a manufacturer agrees such dual pricing with its distributors because selling online leads to substantially higher costs for the manufacturer than offline sales. The Commission provides the example of a situation in which this may be the case: where offline sales include home installation by the distributor but online sales do not, the latter may lead to more customer complaints and warranty claims for the manufacturer. See also in this context the judgment handed down by the Rechtbank Zutphen, 8 August 2007, 79005/HA ZA 06-716. The Dutch court held that a dual pricing scheme pursuant to which a supplier of built-in kitchen equipment offered less attractive pricing conditions to online distributors did not infringe Dutch or EU competition laws. 222

  See Guidelines, n 14, at para 53.

223

  In general, efforts to be found specifically in a certain territory or by a certain customer group is active selling into that territory or to that customer group.(p. 496)

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9 Merger Control Damien Geradin, Anne Layne-Farrar, Nicolas Petit From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

Subject(s): Investigations under the Merger Regulation — Jurisdictional scope

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(p. 497) 9  Merger Control I.  Introduction 9.01 A.  History of the Development of an EU Merger Control Regime 9.02 B.  The Concept of Concentration in EU Competition Law 9.06 II.  Regulation 139/2004 9.16 A.  Should the Concentration be Notified? 9.18 B.  Is the Concentration Compatible with the Common Market? 9.41 III.  The Institutional and Procedural Implementation of Merger Control 9.141 A.  The Informal Pre-Notification Procedure 9.141 B.  The Formal Notification Procedure 9.143 C.  Merger Litigation 9.161 D.  Conclusions—Myths and Reality of Merger Control 9.183

I.  Introduction 9.01  It is appropriate that a discussion of mergers falls to the final chapter in this book on EU competition law and economics, since the legal and economic assessment of mergers spans most, if not all, of the topics that come before. Market definition (Chapter 2) is a pivotal element. Competition concerns created by mergers include both the potential for unilateral anticompetitive conduct on the part of the newly merged entity (Chapter 4) and collusion amongst the remaining firms post-merger in the now more concentrated industry (Chapter 3). In addition, mergers can be horizontal, among competitors in the same market (closely related to issues discussed in Chapter 7), vertical, among related firms within the same supply/production chain (Chapter 8), or conglomerate, among firms with complementary, neighbouring, or unrelated products. As a result, this chapter draws heavily from those that precede it.

A.  History of the Development of an EU Merger Control Regime 9.02  Origins Merger-specific law is relatively new to the EU body of law. Mergers were not covered in the Treaty of Rome and hence, until the early 1970s, the Commission sought to expand the purview of Articles 101 and 102 to cover their review. It was not until 1974, (p. 498) shortly after Continental Can,1 that specific merger regulation was even proposed, and not until over a decade after that that any merger regulation was actually adopted. Regulation 4064/892 (the ‘European Merger Control Regulation’ or ‘EMCR’) sets out an ex ante notification procedure for concentration with an EU dimension. The Regulation was amended in 1997 and again in 2004.3 9.03  Reasons behind the adoption of an EU merger control regime Two reasons seem to have driven the adoption of a merger control regime by the EU. The first is economic.4 The progressive elimination of obstacles to trade between Member States has increased the size of the markets on which firm could produce and sell their products.5 This often led undertakings to extend their area of operations through acquisitions of other corporations. While mergers can generate a range of pro-competitive effects (eg allowing economies of scale and scope, the development of new products), they may also negatively affect competition on a variety of markets; hence, the need for a merger control procedure. The second reason is of a legal nature. The Court of Justice judgments in Continental Can

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and Philip Morris exposed the problem of relying on a system of ex post control of economic concentration,6 which is that undertakings may be entitled to merge only to be forced to return to the status quo ante at a later date and it can be difficult to unscramble the combination. In addition, Article 102 TFEU is only concerned with the presence of dominant position at the time of the infringement. It thus does not anticipate mergers that create dominant positions. This problem is evoked at recital 7 of the Preamble to Regulation 139/2004, which provides: Articles [101] and [102], while applicable, according to the case-law of the Court of Justice to certain concentrations, are not sufficient to control all operations which may prove to be incompatible with the system of undistorted competition envisaged in the Treaty. 9.04  This explains why a specific merger control Regulation, adopted on the basis of Articles 352 and 353 TFEU (formerly Art 308 EC) was eventually deemed necessary. 9.05  Between 1989 and 2010, more than 4,500 operations were notified to the Commission. This number does not comprise the very many mergers notified to the national competition authorities (NCAs). Not all sectors have, however, witnessed a similar number of concentrations. While some sectors have been merger prone,7 others have not witnessed a large number of concentrations.8

(p. 499) B.  The Concept of Concentration in EU Competition Law (1)  Definition 9.06  Article 3 of the Regulation defines the concept of concentration as follows:9 A concentration shall be deemed to arise where a change of control on a lasting basis results from: a)  the merger of two or more previously independent undertakings or parts of under takings, or b)  the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more undertakings … The creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity shall constitute a concentration within the meaning of paragraph 1 (b). 9.07  There is a concentration within the meaning of the EMCR when a change of control occurs on a lasting basis. The EMCR does not therefore control market concentration in itself (which can, eg, result from internal growth or the exit of one or several players from the market in question), but ‘transactions’ resulting from a merger, an acquisition, or a joint venture (JV).10 9.08  As seen in other chapters, EU competition law pays little attention to formal issues, such as the legal qualification or nature of a given agreement, transaction, or conduct. The same is true with respect to merger control. Article 3 covers: mergers between undertakings, either through an absorption or the creation of a new undertaking;

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acquisitions independently of the means by which the target company is acquired (purchase of securities or assets, friendly or hostile takeover, etc); and creations of long-lasting JVs.

(2)  Different types of concentrations 9.09  The three types of concentrations Horizontal mergers involve entities that, absent the acquisition/merger, are actual or potential competitors that operate on a same relevant market. For instance, mergers between manufacturers of similar products or between airlines will typically be horizontal. 9.10  A vertical merger involves firms that do not compete directly with one another for sales to customers in the same relevant market, but instead occupy different stages within the production or supply chain for a given market. For example, Google’s acquisition of YouTube in 2006 combined an online search and advertising firm (ie, Google) with an online content (p. 500) aggregator and video search engine (YouTube being at the time the most widely used video website and video search site), all within the broader online media industry. 9.11  Conglomerate mergers are the catch-all category. Any merger that is not deemed vertical or horizontal is by definition ‘conglomerate’. Mergers between large groups that supply consumer goods will typically be conglomerate as these entities supply a host of related products that often do not compete directly with one another and are better viewed as complementary, such as soap, shampoo, and shaving cream. 9.12  Theories of harm The different types of concentrations raise distinct competition law problems. 9.13  The anticompetitive scenario that typically arises in horizontal mergers consists in the creation or strengthening of the market power of the parties to the concentration, by the disappearance of one of the undertakings and the creation of a stronger market player. At the extreme, horizontal mergers may lead to the creation of a monopoly. In the Ryanair/ Aer Lingus merger, the ultimately banned concentration would have transformed a duopoly into a monopoly on 22 routes to and from Ireland.11 9.14  Vertical concentrations generate risks of foreclosure. Third parties may indeed be deprived of access to purchase or sales opportunities, because the merged entity controls essential inputs or outlets. In the TomTom/TeleAtlas merger, which combined a maker of portable navigation systems with a provider of digital maps, the Commission was concerned that the merged entity would deny supplying downstream rivals with digital maps.12 9.15  Finally, conglomerate mergers generate concerns of portfolio or foreclosure effects when the parties operate on neighbouring markets. In the Suez/GDF merger, the Commission, for instance, analysed the risks of bundled offers of electricity and gas.13

II.  Regulation 139/2004 9.16  In contrast to the first versions of the ECMR, and in particular of Regulation 4064/89, the main innovation of the 2004 reform of the EMCR is a reformulation of the substantive standard of ‘compatibility’ under which concentrations are evaluated. The Regulation also provides for some procedural modifications. 9.17  Outline In any merger assessment, two key questions must be addressed in turn. The first question is of a jurisdictional nature: when should the concentration be notified to the Commission (Section A)? The second question is substantive: is the concentration compatible with the internal market (Section B)?

(p. 501) A.  Should the Concentration be Notified?

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9.18  Preliminary observations The EMCR relies on a system of ex ante notification akin to the system of notifications of agreements that prevailed under the former Regulation 17/62.14–15 Notification is only compulsory if two conditions are met. First, the operation in question must be a ‘concentration’ (Section 1). Second, this concentration must have a ‘European dimension’ (Section 2). We will also see that the determination that a merger transaction has a European dimension bears significant consequences for the parties (Section 3).

(1)  The concept of ‘concentration’ 9.19  The notion of concentration is specifically defined at Article 3 of the EMCR. A concentration arises when there is a ‘change of control on a lasting basis’, resulting from a ‘merger’ (Art 3(1)(a)) or, more generally, the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings of direct or indirect control of the whole or parts of one or more other undertakings (Art 3(1)(b)).16 The notion of ‘control’ is then defined as ‘the possibility of exercising decisive influence on an undertaking’.17 9.20  The EMCR then lays out the elements constitutive of ‘control’. These elements include rights, contracts, or any other means which confer the possibility of exercising decisive influence on an undertaking.18 Control is acquired by persons or undertakings that are holders of the rights or entitled to rights under the contracts concerned; or while not being holders of such rights or entitled to rights under such contracts, have the power to exercise the rights deriving from the contracts.19

(2)  The ‘Community dimension’ 9.21  Reminder As seen previously, Articles 101 and 102 TFEU do not address agreements or unilateral conduct which do not produce a minimal volume of cross-border effects in the internal market.20 The EMCR follows a similar philosophy. The Regulation only applies if the operation in question has a ‘Community dimension’ (or, in today’s parlance, an ‘EU dimension’).21 Determining whether a concentration has a Community dimension or not depends on the identification of the undertakings concerned (Section (a)) and on the assessment and the localization of their turnover (Section (b)).

(p. 502) (a)  Identification of the undertakings concerned 9.22  Who? With respect to determining jurisdiction, the undertakings ‘concerned are those participating in a concentration’.22 In the case of a merger, the undertakings concerned are those which merge. In other cases, it is the notion of acquisition of control that determines the undertakings concerned. As far as the acquiring party is concerned, there can be one or several undertakings jointly acquiring control. 9.23  As far as the acquired party is concerned, the undertakings concerned are the undertaking(s) whose control is being taken over. In principle, each of the undertakings being acquired will be an undertaking concerned within the meaning of the Regulation.23 By contrast, the selling party will not be concerned.

(b)  Calculation of the turnover to determine whether the thresholds are reached 9.24  Thresholds Once the undertakings concerned have been identified, the Regulation provides for two turnover thresholds.24 When either of these thresholds are met, the concentration in question will be deemed to have a ‘Community dimension’. It must thus be notified to the Commission.

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9.25  The first set of thresholds is provided at Article 1(2) of the Regulation: (a)  the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 5000 million; and (b)  the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 250 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Communitywide turnover within one and the same Member State. 25 9.26  Rationale The first criterion only applies to the largest concentrations.26 The second criterion seeks to ensure that the concentration in question is directly ‘linked’ to activities taking place with the EU. 9.27  Second set of thresholds The EMCR provides for a supplementary set of thresholds the objective of which is to extend the reach of the concept of ‘Community dimension’ to concentrations of a smaller dimension. This extension was added in reply to demands formulated by industry at the occasion of the first review of the Regulation. The EU merger procedure avoids the need for undertakings to file their transactions to different NCAs (‘multi-filing’). However, the thresholds provided in 1989 were so high that many transnational operations did not meet the Community dimension thresholds. The EU legislator thus increased the jurisdictional reach of the notion of ‘Community dimension’ in adding the following set of thresholds: (p. 503) 3. A concentration that does not meet the thresholds laid down in paragraph 2 has a Community dimension where: a)  the combined aggregate worldwide turnover of all the undertakings concerned is more than EUR 2500 million; b)  in each of at least three Member States, the combined aggregate turnover of all the undertakings concerned is more than EUR 100 million; c)  in each of at least three Member States included for the purpose of point (b), the aggregate turnover of each of at least two of the undertakings concerned is more than EUR 25 million; and d)  the aggregate Community-wide turnover of each of at least two of the undertakings concerned is more than EUR 100 million, unless each of the undertakings concerned achieves more than two-thirds of its aggregate Communitywide turnover within one and the same Member State.

(3)  Implications resulting from the fact that a concentration has a ‘Community dimension’ 9.28  The identification of a ‘Community dimension’ has important consequences for the parties (Section (a)), but also for the Member States (Section (b)). To allow a degree of flexibility, some derogations are, however, included in the Regulation (Section (c)).

(a)  Compulsory ex ante notification and suspension rule 9.29  Mandatory notification The parties to a concentration with a Community dimension must notify it to the Commission.27 In case of a merger or acquisition of joint control, the parties must jointly notify the transaction.28 In other cases, only the acquiring party must notify the concentration. Pursuant to Article 4(1), the notification of concentrations with a Community dimension must happen ‘prior to their implementation and following the

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conclusion of the agreement, the announcement of the public bid, or the acquisition of a controlling interest.’ 9.30  The idea is to intervene before the concentration has effectively entered into force, but only once there is a sufficient degree of certainty that it will take place. Given the number of mergers announced every week that are then abandoned a few weeks later, the Commission would otherwise have to waste time looking at projects bound to fail. On this latter point, the Regulation shows, however, some flexibility in stating that: Notification may also be made where the undertakings concerned demonstrate to the Commission a good faith intention to conclude an agreement or, in the case of a public bid, where they have publicly announced an intention to make such a bid, provided that the intended agreement or bid would result in a concentration with a Community dimension.29 9.31  Mandatory suspension To make sure that the parties notify their concentration to the Commission, Article 7 of the EMCR provides that no operations of a concentration with a Community dimension (or an operation that is examined by the Commission pursuant to Art 4(5)) can be implemented either before its notification or until it has been declared (p. 504) compatible with the internal market.30 Article 7 provides, however, for a limitation to the principle of suspension: 2.  Paragraph 1 shall not prevent the implementation of a public bid or of series of transactions in securities including those convertible into other securities admitted to trading on a market such as stock exchange, by which control within the meaning of article 3 is acquired from various sellers, provided that: (a)  the concentration is notified to the Commission pursuant to Article 4 without delay; and (b)  the acquirer does not exercise the voting rights attached to the securities in question or does so only to maintain the full value of its investments based on a derogation granted by the Commission under paragraph 3. 9.32  Sanction Failure to comply with the obligations of notification/suspension opens the possibility for the Commission to impose fines not exceeding 10 per cent of the aggregate turnover of the undertakings concerned when they (i) fail to notify a concentration prior to its implementation or (ii) implement a concentration in breach of the obligation of suspension.31 In 2009, Suez was fined €20 million for implementing its concentration with the Compagnie Nationale du Rhône before having received the Commission’s authorization.32

(b)  Lack of jurisdiction of the Member States 9.33  Principle Article 21(2) of the EMCR provides that the Commission is exclusively competent to assess mergers with a Community dimension, as the Commission has ‘sole jurisdiction to take the decisions provided for in this Regulation’. In addition, Article 21(3) excludes the possibility that Member States apply their own national legislation to any concentration that has a Community dimension.33 9.34  This principle creates a ‘one-stop shop’ which brings legal certainty to undertakings. Operations falling within the scope of the EMCR cannot be examined by competition authorities other than the Commission. This approach is certainly preferable to having multiple filings where several competition authorities apply their national merger control rules to the same operation, hence creating the risk of incompatible decisions. It is also preferable to a situation where Member States would be able to challenge a merger that

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has been cleared by the Commission on the basis of the ex post application of their own competition rules. 9.35  The Regulation provides, however, for several exceptions to the ‘one-stop shop’ principle. First, pursuant to Article 4(4), parties to a merger or those acquiring joint control may ask the Commission to transmit an operation having a Community dimension to a Member State when the operation ‘may significantly affect competition in a market within a Member State which presents all the characteristics of a distinct market’. Conversely, pursuant to Article 4(5), the Commission can, at the request of the parties, examine an operation without a Community dimension, ‘which is capable of being reviewed under the national (p. 505) competition laws of at least three Member States’. The Commission must consult with the Member States concerned, each having the right to veto such a referral. 9.36  Upward referral at the request of the Member States (‘Dutch clause’) Pursuant to Article 22 of the EMCR, one or more Member States may request the Commission to examine any concentration that does not have a Community dimension but affects trade between Member States and threatens significantly to affect competition within the territory of the Member State or States making the request. 9.37  Downward referral at the request of a Member State or upon the Commission’s invitation (‘German clause’) Pursuant to Article 9, the Commission may, by means of a Decision, refer a notified concentration to the competent authorities of the Member State concerned in the following circumstances: ‘a concentration threatens to affect significantly competition in a market within that Member State, which presents all the characteristics of a distinct market.’34 9.38  Intervention of the Member States on top of the Commission’s intervention Pursuant to Article 21(4), Member States may, notwithstanding Article 21(2) and (3), take appropriate measures to protect ‘legitimate interests’ other than those taken into consideration by the EMCR and compatible with the general principles and other provisions of EU law. According to this provision, legitimate interests include ‘public security, plurality of the media and prudential rules’. Any other public interest must be communicated to the Commission by the Member State in question and must be recognized by the Commission after an assessment of its compatibility with the general principles and other provisions of EU law before the measures referred to above may be taken. The Commission must inform the Member State concerned of its decision within 25 working days of that communication. 9.39  Types of legitimate interests Various types of legitimate interests, such as public security or the security of energy supply, fall within the scope of Article 21. In the E. ON/ Endesa case,35 Spain tried in vain to invoke the security of energy supply to impose a series of conditions on the German company. Other interests, such as the protection of culture or the environment, can be included. In contrast, the Commission considers that industrial policy objectives seeking to achieve protectionist goals cannot be considered as legitimate interests. 9.40  Practical implications If the above system appears open-ended, it functions thanks to an informal cooperation between competition authorities, which seems based on the same philosophy as Regulation 1/2003. In this respect, recital 14 of the Preamble to the Regulation provides that: The Commission and the competent authorities of the Member States should together form a network of public authorities, applying their respective competences in close cooperation, using efficient arrangements for information

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sharing and consultation, with a view to ensuring that a case is dealt with the most appropriate authority.

(p. 506) B.  Is the Concentration Compatible with the Common Market? (1)  The double test included in Regulation 139/2004 9.41  Former rules The compatibility of a concentration with the internal market is assessed pursuant to a test defined at Articles 2(2) and 2(3) of Regulation 139/2004. This test was subject to significant debate during the negotiations which preceded the adoption of that Regulation. Pursuant to the former EMCR, Regulation 4064/89: A concentration which creates or strengthens a dominant position as a result of which effective competition would be significantly impeded in the common market or in a substantial part of it shall be declared incompatible with the common market.36 (Emphasis added) 9.42  Shortcomings On face value, the early Regulation might have seemed to cover only mergers that created a single firm with a dominant position and thus left untouched mergers that created or strengthened oligopolies. However, this problem was largely addressed by decisions concluding that, when oligopolists coordinate with each other on price or output, they are ‘collectively dominant’. Thus, a merger that creates or strengthens an oligopoly could be deemed to have created or strengthened a collective dominant position. Nonetheless, concerns were expressed that the EMCR failed to cover mergers in oligopolistic markets that were likely to create uncoordinated ‘unilateral’ anticompetitive effects (which we explain below) without creating any single firm dominance or oligopolistic coordination. This was a special concern for those mergers between close competitors on differentiated product markets. Even when these firms’ combined market share remained below the threshold of dominance, such mergers could nevertheless lead to price increases. The same was true of many mergers leading to the creation of a strong market player (a number 2, 3, or 4 player), but falling short of creating a market leader. 9.43  Evolution During the negotiations that led to the adoption of Regulation 139/2004, some delegations proposed to fill this perceived ‘oligopoly gap’ by drawing inspiration from the ‘significant lessening of competition’ test used in US merger law. Under this test, all mergers leading to significant anticompetitive effects, including those that fall short of dominance, can be deemed unlawful. However, a number of other delegations were keen on retaining the dominance test. Following lengthy negotiations, the Member States settled on a compromise between the two tests. Article 2(3) of the new Regulation thus reads: A concentration which would significantly impede effective competition, in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be declared incompatible with the common market.37 (Emphasis added) 9.44  The creation or strengthening of a dominant position is thus not the only possible case of incompatibility.

(p. 507) (2)  Assessment of horizontal mergers 9.45  Ambiguity Horizontal concentrations are generally those that most directly alter the com-petitive structure of the market. Two or more undertakings cease to compete as a result of the merger, hence increasing market concentration. However, economists have

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also shown that horizontal mergers may bring about reedeming efficiency benefits. Some sort of balancing of anticompetitive and procompetitive effects is thus inevitably required. 9.46  Soft law The complex balancing act that the assessment of horizontal merger requires led the US Department of Justice to adopt the Horizontal Merger Guidelines.38 This approach inspired the Commission, which issued shortly after the adoption of Regulation 139/2004 its own Guidelines on the assessment of horizontal mergers.39 To assess such operations, the Commission follows a two-stage approach: it first screens horizontal mergers (Section (a)) and then proceeds to their detailed examination (Section (b)).

(a)  The screening of horizontal mergers—market shares and HHI 9.47  Comfort zone Arguably to achieve administrative efficiencies,40 the Commission has developed mechanisms to screen horizontal mergers designed to distinguish between mergers that prima facie do not restrict competition from those that prima facie can affect competition. Mergers that belong to the first category are subject to a simplified assessment, whereas those that belong to the second are subject to a detailed assessment. 9.48  This screening mechanism can be found in the horizontal merger Guidelines (the ‘Guide-lines’).41 Like the US Guidelines, the Commission Guidelines provide for a ‘safe harbour’ expressed in terms of market share and concentration thresholds. Below such thresholds, an operation is presumed not to create competition problems.42 9.49  As far as market shares are concerned, mergers pursuant to which the aggregate market share of the parties does not exceed 25 per cent are not liable to impede competition.43 (p. 508) 9.50  As far as the degree of market concentration is concerned, the thresholds are expressed on the basis of the Herfindahl-Hirschman Index (HHI).44 This Index can be calculated by adding the squared market share of each operator:45 The Commission is … unlikely to identify horizontal competition concerns in a market with a post-merger HHI below 1000. Such markets normally do not require extensive analysis. The Commission is also unlikely to identify horizontal competition concerns in a merger with a post-merger HHI between 1000 and 2000 and a delta below 250 or a merger with a postmerger HHI above 2000 and a delta below 150 …46 9.51  Concentrations that fall below the threshold do not create any competition concern, and are thus subject to a simplified assessment leading to an authorization decision.47

(b)  The in-depth analysis (i)  Non-coordinated effects

9.52  Definition The Guidelines define the concept of non-coordinated effects (generally referred to as ‘unilateral effects’ by lawyers and economists) as follows: A merger may significantly impede effective competition in a market by removing important competitive constraints on one or more sellers, who consequently have increased market power. The most direct of the merger will be the loss of competition between the merging firms. For example, if prior to the merger one of the merging firms had raised its price, it would have lost some sales to the other merging firm. The merger removes this particular constraint. Non-merging firms in the same market can also benefit from the reduction of competitive pressure that results from the merger, since the merging firms’ price increase may switch some demand to the rival firms, which, in turn, may find it profitable to increase their

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prices. The reduction in these competitive constraints could lead to price increases in the relevant market.48 9.53  Individual dominant position The notion of non-coordinated effects first addresses situations of dominance where, following the concentration, the merged entity can unilaterally increase prices on the relevant market. (p. 509) 9.54  A recent example of this phenomenon can be found in the Ryanair/Aer Lingus case, which led the Commission to adopt a prohibition decision. Ryanair and Aer Lingus are the leading providers of short-haul flights to and from Ireland and compete with each other on such routes.49 The merged entity would have accounted for around 80 per cent of all intra-European traffic. The Commission’s investigation of the case showed that Aer Lingus and Ryanair competed directly with each other on 35 routes to and from Ireland and on 22 of these routes the merger would have left customers with a monopoly. On the remaining routes, Aer Lingus and Ryanair were each other’s closest competitors, and the merger would have significantly reduced consumer choice, with the merged entity holding market shares of over 60 per cent. The market investigation also revealed that most other airlines were unlikely to enter into direct competition against a merged Ryanair/Aer Lingus in Ireland not only because the merged entity would be able to operate from the very large bases of Ryanair and Aer Lingus in Ireland, but also because Ryanair has a reputation of aggressive retaliation against any entry attempt by competitors. A merged Ryanair/Aer Lingus would also have had even greater flexibility to engage in selective short-term price reductions and capacity increases to protect its powerful market position if competitors entered routes to/from Ireland. 9.55  Unilateral effects in the absence of a dominant position The notion of noncoordinated effects also covers below dominance unilateral effects. It is indeed widely admitted that in an oligopolistic market for differentiated products (automobiles, sports goods, etc), the merger of two close competitors can be problematic even if the combined entity would not hold a dominant position. The products on the market are not all equally substitutable for consumers and, thus, the combination of two products (typically representing the first and second choice for a set of customers) may lessen effective competition.50 9.56  Elimination of a maverick A horizontal merger can also create competition problems when it eliminates a maverick, as illustrated in the T-Mobile/tele.ring Decision.51 In this merger, T-Mobile (the second operator on the Austrian mobile telephony market) merged with tele.ring (the fourth operator on this market). As a result of the merger, the new entity would have become the second mobile operator (with a 30–40 per cent market share) after Mobilkom, the market leader (with a 35–45 per cent market share). The merger would have reduced the number of operators from five to four. The merged entity would have faced a strong competitor (Mobilkom), as well as two smaller competitors (One and H3G). Although no dominant position was created, the Commission nonetheless sought to assess the non-coordinated effects of the merger. 9.57  The Commission was particularly concerned that, on a relatively concentrated market, the merger would have the effect of eliminating a maverick. tele.ring was a new entrant which had managed to acquire a 10 per cent market share in less than three years. The Commission’s (p. 510) investigation had, on the basis of price comparisons and an analysis of customers’ switching behaviour, shown that tele.ring exerted considerable competitive pressure, especially on the two largest operators Mobilkom and T-Mobile Austria. The transaction would have removed from the Austrian mobile telephony market the operator that had offered consumers the most advantageous prices in recent years. Although T-Mobile would not have become the market leader in Austria, the concentration

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would have significantly impeded effective competition on the Austrian market for the provision of mobile telephony services to final consumers. 9.58  The Commission eventually cleared the deal given the merging parties’ commitment to divest tele.ring’s UMTS frequencies and mobile telephony sites to operators with lower market shares than T-Mobile Austria. 9.59  Multi-criteria analysis The Guidelines lay out a number of parameters, which can lead to a risk of non-coordinated effects, such as the fact that the merging firms have large market shares and/or are close competitors, that customers have limited possibilities of switching supplier, that competitors are unlikely to increase supply if prices increase, that the merged entity is able to hinder expansion by competitors, and that the merger eliminates an important competitive force, etc.52 (ii)  Coordinated effects

9.60  Notion The concept of coordinated effects covers concentrations that create the risk of parallel behaviour within an oligopoly (what economists refers to as ‘tacit collusion’): In some markets, the structure may be such that firms would consider it possible, economically rational, and hence preferable, to adopt on a sustainable basis a course of action on the market aimed at selling at increased prices. A merger in a concentrated market may significantly impede effective competition, through the creation or the strengthening of a collective dominant position, because it increases the likelihood that firms are able to coordinate their behaviour in this way and raise prices, even without entering into an agreement or resorting to a concerted practice within the meaning of Article 81 of the Treaty. A merger may also make coordination easier, more stable or more effective for firms, that were already coordinating before the merger, either by making the coordination more robust or by permitting firms to coordinate on even higher prices.53 9.61  As seen above, the Court of Justice rejected the view that this form of coordination could be controlled ex post under the notion of concerted practice referred to in Article 101 TFEU.54 It can, however, be controlled ex ante through the concept of ‘coordinated effects’. In fact, this concept is the modern equivalent of the older notion of ‘collective dominance’ as developed by the EU Courts in the context of Regulation 4064/89 and Article 102 TFEU, in the Italian Flat Glass, Kali und Salz, Gencor, Compagnie Maritime Belge, Airtours, and Impala cases. 9.62  The Airtours case In April 1999, Airtours notified to the European Commission its intention to acquire First Choice, one of its direct competitors on the UK market for package holidays made by air to popular short-haul destinations. The Commission found that on this market, the operation would create a collective dominant position held jointly by Airtours/(p. 511) First Choice and two other remaining large vertically integrated operators, Thomson and Thomas Cook, whose cumulative market share would amount to 83 per cent.55 In line with the approach followed to date, the Commission identified a number of indicia pointing to the risk of tacit collusion: a high degree of market concentration with the presence of four large vertically integrated operators,56 an increased gap between the large operators and the smaller ones, low demand growth, low elasticity of demand to prices, operators with similar cost structures, high entry barriers, an absence of countervailing buyer power, etc.57 9.63  This decision is interesting because, for the first time, the Commission was not concerned with price coordination, but with capacity reductions, that is, the quantity of package tours placed on the market. Package tours are a high volume/low margin product, which has the particular characteristic that capacity (number of holidays) is basically set before sales begin and only relatively minor adaptations are possible afterwards. As a result

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the overall supply/demand balance has a strong effect on prices and profitability.58 In particular, competition for market share risks leading to oversupply with serious negative financial consequences for market operators, whereas constraining capacity results in markedly improved profitability for all operators. Therefore, tour operators have an incentive to keep the market tight.59 9.64  The most contentious part of the Commission’s approach, however, is found elsewhere. In its reply to the Statement of Objections, Airtours had argued that tacit collusion would only be conceivable if immediate retaliation was possible in case one of the operators tried to win market share from the others by increasing capacity.60 However, operators could not be punished immediately since capacity can only be increased marginally during a season.61 Retaliation could in principle take place through a large increase in capacity for the following season. However, such retaliation would be less likely to be effective because it would inflict a lower cost due to discounting and because the association between deviation (from the tacit agreement) and punishment would be blurred.62 Hence, tacit coordination (and therefore collective dominance by the large integrated operators) would be unlikely. (p. 512) 9.65  The Commission rejected this argument as it considered that it was not necessary to show that there would be a strict punishment mechanism.63 It nevertheless considered that, even on the basis of Airtours’ own arguments about the punishment mechanism, there were significant possibilities to implement punishment if one of the integrated players were to compete for market share by adding new capacity. The financial impact of oversupply on the market would be such that the threat of reverting to such a market outcome would be sufficient to deter any of the oligopolists from attempting such a strategy.64 9.66  The Commission concluded that the proposed operation would create a dominant position in the market for short-haul foreign package holidays in the UK, as a result of which competition would be significantly impeded in the common market.65 Considering the commitments offered by Airtours as insufficient, the Commission declared the proposed transaction incompatible with the common market.66 9.67  The judgment of the General Court Airtours appealed the Commission’s decision before the General Court (GC). In its appeal, Airtours contented that the Commission had committed an error of assessment in finding collective dominance. In its judgment, the GC rejected point by point the Commission’s conclusions regarding the characteristics of the market and the operators. For instance, the Commission had considered that the volatility of demand made the market more conducive to oligopolistic dominance. The reason was that the volatility demand in combination with the fact that it was easier to increase than to decrease capacity, meant that it was rational for the major operators to adopt a conservative approach to capacity decisions. The GC found that this view was not in line with economic theory, which regards volatility of demand as something that makes the appearance of collective dominance more difficult. Conversely, stable demand, thus displaying low volatility, is a relevant factor indicative of the existence of a collective dominant position, insofar as it makes ‘deviations’ from the common policy more easily detectable.67 9.68  The ruling also questioned the Commission’s conclusions on the retaliation mechanism.68 While acknowledging that the Commission must not necessarily demonstrate the existence of a strict retaliatory mechanism, the Court nonetheless declared that it must establish the existence of ‘sufficient’ deterrents.69 However, in the present case, the transparency of the market was very limited, which significantly limited the risk of retaliation. In addition, the deterrents identified by the Commission did not in fact ensure credible deterrence. For instance, returning to a situation of over-supply would not occur fast enough—generally one year—to have a deterrent effect. Retaliatory measures during

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the selling season are limited because operators can only raise their capacity by 10 per cent.70 (p. 513) 9.69  Synthesis The main contribution of the Airtours ruling lies mainly in the three (cumula-tive) conditions set out by the Court to identify mergers leading to the creation of a collective dominant position. 9.70  First, each member of the oligopoly must be in a position to know the behaviour of the other members so that it can check whether or not they will adopt the same line of conduct. As the Court expressly recognizes, it is not enough for each member of the oligopoly to be aware of the fact that they can benefit from interdependent behaviour on the market; they must also be able to know whether the other operators will adopt and maintain the same strategy. The degree of transparency on the market should, thus, be sufficient to allow each member of the dominant oligopoly to know, in a sufficiently precise and immediate manner, the evolution of the market behaviour of each of the other members. 9.71  Second, it is necessary that the tacit coordination situation lasts, that is, there must be an incentive not to deviate from the common line of conduct on the market. As the Court notes, it is only if all members of the dominant oligopoly maintain a parallel behaviour that they can benefit from it. The parties must thus share the belief that for a collective dominant position to be viable there must be sufficient deterrence factors to create a lasting incentive not to deviate from the common line of conduct. Each member of the dominant oligopoly must be aware that any competitive action aimed at increasing market share would trigger an identical action from the others, such that they would not obtain any benefit from their initiative. 9.72  Third, to demonstrate the existence of a collective dominant position, the Commission must also establish that the foreseeable reaction of current and potential competitors, as well as consumers did not endanger the expected results of the common line of conduct.71 9.73  Codification in the Guidelines The Guidelines codify this case law, while also filling a gap left by Airtours .They add a condition relating to the common understanding of the terms of the coordination.72 According to the Guidelines, the oligopolists must have a ‘common perception’ or ‘similar views’ as to ‘how the coordination should work’.73 This condition allows the Commission to align fully the notion of collective dominance with game theory.74 Four conditions are hence required to demonstrate the existence of a collective dominant position: understanding, detection, retaliation, and lack of protest. 9.74  The second benefit of the Guidelines is to lay out factors that will be used to identify the presence of the above conditions. For instance, the Guidelines specify that the mutual understanding of the terms of the coordination is easier when the undertakings on the market have symmetric cost structures, face high levels of capacity, or are similarly vertically integrated, (p. 514) or adopt facilitation practices (eg simple tariff rules).75 Similarly, the detection of potential deviations is easier when the contracts entered into by the oligopolists include English clauses or most-favoured-buyer clauses.76

(3)  The analysis of non-horizontal mergers 9.75  Specificity Unlike horizontal mergers, which can lead to the elimination of direct competition between the parties, vertical and conglomerate mergers do not immediately affect the number of competitors present on the market. They are therefore assessed more favourably than horizontal mergers. In essence, the analysis of non-horizontal mergers focuses on strategic behavioural issues (eg foreclosure), similar to those found in the area of abuse of dominance.

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(a)  Filtering non-horizontal mergers 9.76  Security zone As for horizontal mergers, the Commission applies filtering principles. The 2008 Guidelines on non-horizontal mergers (the ‘Guidelines’) state at paragraph 25 that the Commission will not consider as problematic mergers: (i)  in which the merged entity does not hold more than 30 per cent of the various markets concerned (input and distribution); and (ii)  the post-merger HHI is below 2,000 on each of the markets concerned.

(b)  The admissibility of vertical mergers 9.77  Ambivalent effects Verticals mergers produce contrasting effects on competition on the market. On the one hand, vertical integration can lead to an improvement of competition when the competitors of the merged entity are already vertically integrated. The merger therefore allows the parties to the concentration to compete more intensely with the other operators on the market. That is, if many firms within the industry at hand are already relatively large vertically integrated players, then the vertical merger under review may create a more level playing field within the industry and thus enhance competition. 9.78  On the other hand, vertical mergers can pose important risks of foreclosure. One such risk is of downstream foreclosure. When one of the parties to the concentration supplies an input that is essential for downstream rivals, the merged entity could decide no longer to supply it, hence affecting the competitive structure downstream. A more subtle variation of refusal to supply is commonly referred to as ‘raising rivals costs’. Rather than an outright refusing to deal, the newly vertically integrated entity could raise the price of the input that it controls, or otherwise makes it difficult but not impossible for downstream rivals to obtain it. Or it may simply degrade the quality of the input supplied to rivals in order to advantage its own downstream operations. 9.79  Another risk posed by vertical concentrations is one of upstream foreclosure. When one the parties to the concentration is an important client or downstream partner (eg a large distributor) of upstream rivals by the concentration may enable the merged entity to foreclose (p. 515) its upstream rivals, blocking their access to downstream outlets, such as key distribution channels, hence harming the upstream firms’ ability to compete effectively. 9.80  In any of these cases, according to the Guidelines foreclosure does not have to result in exit from the market. Disadvantaging rivals and preventing them from competing effectively, for example by imposing particularly unfavourable supply terms on them, is enough to constitute foreclosure. 9.81  Illustration (1) AOL/Time Warner is an example of a vertical merger producing both upstream and downstream effects.77 AOL is an internet access provider present across Europe. Time Warner is a media entertainment company, supplying music and film content. The two companies notified their merger plan. The Commission requested the parties to carry out substantial divestments, based on concerns of foreclosure. In particular, the merged entity could have dominated the then-emerging market for online music distribution. 9.82  As a potential upstream effect, the Commission noted that AOL/Time Warner, whose internet access platform was quite extensive, could have had a significant impact on the broadcasting conditions of other producers of music content, such as by setting excessive prices, by discriminating, or setting technical standards of music broadcasting.78

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9.83  As a potential downstream effect, the Commission considered that the catalogue of titles offered by Time Warner was so extensive that the merged entity: could exercise substantial market power, by refusing to license its rights, or threatening not to license them, or imposing high or discriminatory prices or other unfair commercial conditions on its customers wishing to acquire such rights (such as Internet retailers offering music downloads and streaming).79 9.84  Illustration (2) Another good example of a downstream foreclosure effect is Johnson & Johnson’s (J&J) acquisition of Pfizer’s consumer healthcare business.80 J&J produced an input, nicotine patches, which it sold to companies such as GlaxoSmithKline (GSK) that market a complete solution, NiQuitin, downstream. The Commission feared that as a result of the concentration, J&J’s incentive to supply GSK would be altered as Pfizer also had its own complete solution, Nicorette. Hence, the risk was that J&J would have ‘the ability and the incentive to engage in input foreclosure strategies vis-à-vis GSK and would have access to confidential information from one of its main competitors.’81

(c)  The admissibility of conglomerate mergers 9.85  Problematic mergers The Commission is not interested in all conglomerate mergers, but focuses on mergers concerning distinct, but complementary products (play stations and video games) or neighbouring products (gas and electricity).82 (p. 516) 9.86  The Commission’s approach to conglomerate mergers is generally favourable. In the Guidelines, the Commission states: conglomerate mergers in the majority of circumstances will not lead to any competition problems, in certain specific cases there may be harm to competition.83 9.87  One example of a ‘specific case’ pointed out by the Commission relates to mergers that would produce substantial ‘leverage’. Leverage, as defined by the Commission, is the possibility for an undertaking with a strong position on one market to extend its position to another market, in particular through tying. In a tying scenario, the merged firm conditions the purchase of the dominant (tying) product to the purchase of another product (the tied product). The merged firm can also set its prices so that a bundle of the two products is sold at a lower price than the price of the two products taken separately (mixed bundling). As in tying cases under Article 102 TFEU, these forms of leveraging can lead to the foreclosure of rivals. 9.88  ‘Portfolio power’? In the Guinness/Grand Metropolitan case, the Commission examined a risk of ‘portfolio power’. In this case, Guinness and Grand Metropolitan, two companies active in the production of spirits and beer produced different alcohols, each of which was considered by the Commission as a distinct sub-product market. The combination of these products after the merger created a risk of leverage, as the merged entity could have extended its dominant position in the sale of some alcoholic beverages to other alcoholic beverages: The holder of a portfolio of leading spirit brands may enjoy a number of advantages. In particular, his position in relation to his customers is stronger since he is able to provide a range of products and will account for a greater proportion of their business, he will have greater flexibility to structure his prices, promotions and discounts, he will have greater potential for tying, and he will be able to realise economies of scale and scope in his sales and marketing activities. Finally the implicit (or explicit) threat of a refusal to supply is more potent.84

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9.89  The Court subsequently applied the theory of portfolio effect in three cases. First, in the Babyliss case, the Court relied on this theory to annul a Commission Decision because it had imposed insufficient remedies.85 The Court considered this theory to be part of the law in force. However, it made an interesting distinction between the portfolio effect, which plays a negative role in the assessment of a concentration, and the range effect, which plays a positive role in the same assessment: whereas the concept of portfolio effect aims to assess the true competition situation of an entity resulting from the concentration and, as the case may be, to conclude that it has a dominant position in spite of a market share which does not in itself give rise to a dominant position, by taking into account not only the aggregate market shares of the parties but also the additional market strength arising from the fact that the new entity owns a large number of brands and is present in numerous markets, the range effect as used by the Commission to justify the absence of serious doubts in the countries not covered by the commitments seeks, on the contrary, to put into perspective the strength of the entity resulting (p. 517) from the concentration and thus to rule out a finding of a dominant position to which the aggregation of market shares leads.86 9.90  The Court clarified the significance of the portfolio effect theory in the Schneider Electric and Tetra/Laval cases.87 These rulings appear to limit the scope of the portfolio effect theory to exceptional situations.88 The Court insists that the Commission should carry out its assessment with the outmost care. In particular, it should not overestimate the portfolio effect resulting from the merger.89

(4)  The assessment of the parties’ justifications (a)  The ‘failing firm’ doctrine 9.91  The rescue of an ailing firm sometimes leads to a merger. It has therefore been suggested that the need to protect employment required the Commission to refrain from prohibiting a merger when the concentration allowed a firm to continue its activities on the market. 9.92  The Commission welcomed these suggestions.90 It nevertheless set some conditions.91 First, the undertaking taken over must be failing and not simply struggling, that is, it will in any event exit the market, such that the merger is not the cause of the exit. Second, there must not be any other acquirer offering a solution less detrimental for competition. Third, it is necessary to demonstrate that in case the failing firm were to exit the market, the acquiring undertaking necessarily would take over the market share of the acquired company, or that its assets would disappear from the market if they were not taken over by another company. The Commission’s cautious approach means that the failing firm theory has been accepted in very few cases,92 and has been rejected in many others.93 (p. 518) 9.93  Illustration The Commission applied the failing firm theory in the Newscorp/Telepiù case,94 which is noteworthy because the Commission authorized a merger to monopoly. The Commission’s rationale was that, without this authorization, Telepiù would have exited the market and Newscorp would have eventually acquired a monopoly position regardless, because the entire market demand would have shifted to the only remaining active operator. 9.94  Under these circumstances, declaring the merger compatible (instead of straightforwardly forbidding it) was the best option for the Commission. It allowed the Commission to satisfy social policy objectives, while enabling it to negotiate remedies to limit the anticompetitive effects resulting from the monopoly. Simply forbidding it, and

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leaving the market to sort out the demise of Telepiù, would have prevented the Commission from imposing any corrective measure on the companies involved.

(b)  The ‘efficiency defence’? (i)  Nature of the issue

9.95  Shortcoming? In its initial version adopted in 1989, the EMCR did not allow undertakings to put forward any efficiency gains anticipated by their merger as a means of avoiding an incompatibility decision.95 On this point, the decisional practice of the Commission was not in line with the US antitrust authorities’ practice. As early as 1968, the US integrated measures to take efficiency gains into account in its merger guidelines, which were further developed in the revisions of 1982, 1984, 1992, and 1997.96 The gap between the two jurisdictions was at its peak when the Commission adopted a hostile position against efficiencies brought forward by the parties in the GE/Honeywell case, stating instead that the efficiencies could prejudice competitors of the merged entity (which some called ‘efficiency offence’).97 9.96  Controversy The controversy was frequently aired among academics and practitioners. While a minority claimed that the text of the EMCR had not prevented, on some occasions, (p. 519) the Commission from taking into account efficiency gains,98 a majority of observers condemned the Commission’s excessively restrictive approach on efficiency gains.99 As far as coordinated effects are concerned, this restrictive approach is illustrated by the Mannesman/Vallourec/Ilva, Gencor/Lonrho, Danish Crown/Vestyke Slagterier, and Airtours/First Choice decisions where, after a short analysis, the Commission rejected the parties’ arguments on synergies and costs savings.100 9.97  Softening The position of the Commission eventually evolved. In 2002, through one of its high-ranking officials, the Commission declared itself ready to begin reflecting on how efficiency gains could be taken into account in merger review.101 In its green book on the revision of Regulation 4064/89, it invited interested parties to express their views on the role and significance that efficiency considerations should have in the context of merger control.102 After a majority of observers supported the explicit consideration of efficiency gains, Commissioner Monti declared himself favourable to a revision of the Commission’s approach.103 9.98  This change in approach was not surprising. The Commission intended first to propose an extension of the incompatibility test (and hence of its intervention powers), and pleaded for the replacement of the concept of dominance with the wider notion of substantial lessening of the competition.104 It therefore needed, politically and economically, to adopt a more flexible approach on efficiencies. In addition, the defeats it faced in court in the Tetra Pak/Sidel,105 Schneider/Legrand,106 and Airtours/First Choice107 cases drew its attention to the need for less strident views on the anticompetitive effects of the concentrations notified to it. (p. 520) 9.99  The explanatory memorandum presenting draft Regulation 139/2004 explicitly declared that Article 2(1)(b) could be used as legal basis to take efficiency gains into account.108 The Preamble to Regulation 139/2004 provides that: In order to determine the impact of a concentration on competition in the common market, it is appropriate to take account of any substantiated and likely efficiencies put forward by the undertakings concerned. It is possible that the efficiencies brought about by the concentration counteract the effects on competition, and in particular the potential harm to consumers, that it might otherwise have and that, as a consequence, the concentration would not significantly impede effective

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competition, in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position.109 9.100  The principles applicable to the consideration of efficiency gains are set out in the horizontal merger Guidelines. (ii)  Efficiency gains in economic theory

9.101  Model By the end of the 1960s, economic theory had demonstrated that efficiency gains generated by a horizontal concentration can counterbalance the increased market power of the merged entity.110 The demonstration hinges on the fact that profits are comprised of two components: a per-unit profit margin and the number of units sold. Traditional thinking focused on the per-unit profit, suggesting that the merged entity which combines market power and efficiency gains has the ability significantly to increase its margin by raising its prices while at the same time benefiting from cost savings.111 Economists in the 1960s established that this strategy is not necessarily optimal, even under a profit maximization rule. Due to efficiency gains, a just as optimal strategy can consist of reducing prices to attract new customers; that is, to increase the number of units sold. In the hypothesis of a price reduction in proportion with the efficiency gains, the merged entity would maintain the same per-unit profit margin it realized before the concentration, but its total profits would increase due to the additional sales, as demand increases when prices fall. (p. 521) 9.102  Typology Economists have sought to elaborate typologies of efficiency gains. They have described six main categories:112 •  rationalization of production: insofar as merging parties often have different marginal costs, the merger provides the opportunity to transfer the production to the plants with the lowest marginal costs; 113 •  synergies: when the two entities enjoy complementary patents, production methods, distribution methods, etc, their combination allows the merged entity to produce more efficiently, without incurring the costs of a licensing agreement; 114 •  economies of scale (or of scope): they can bring down average cost as the number of units (or the size of the series) produced increases; •  technological progress: merging parties can often engage in research and development efforts (projects, staff, or both), hence increasing innovation; •  purchasing savings: the increase in negotiating power stemming from the larger size of the combined entity allows it to obtain a variety of rebates linked to the bigger volumes purchased; •  managerial efficiencies: a merger often allows for spreading the best governance practices in the company, while increasing pressure on the managers. 115 9.103  Criticism As the joke goes, economists rarely ever agree. Unsurprisingly, some have adopted differing positions on efficiency gains. Some suggest that measuring efficiency gains would not be workable, as a practical matter.116 Others express doubts on the ability of horizontal mergers even to generate efficiencies.117 Finally, it has been argued that 80 per cent of mergers would actually fail an efficiencies review, that is, the merged entity would actually reach results inferior to the sum of what the two undertakings realized individually,118 a sort of 2 + 2 = 3.119 9.104  These observations require the controlling authority to show a certain degree of care when examining efficiency gains in the context of merger control.

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(iii)  Principles applicable to the consideration of efficiency gains

9.105  Principle Since the 2004 reform, a concentration may avoid an incompatibility decision if it demonstrates that it generates efficiency gains that counterbalance its negative effects on competition.120 What some wrongly qualify as the argument of ‘efficiency defence’ is only (p. 522) one of the parameters to be examined in the context of the analysis of the harm to competition. 9.106  Conditions The Guidelines only focus on the efficiency gains that increase the ability and the incentive of the merged entity to adopt pro-competitive behaviour, to the benefit of consumers.121 The Commission requires that the efficiency gains fulfil three conditions. 9.107  First, efficiency gains must ‘benefit customers’.122 In other words, any cost reduction achieved by the concentration (a gain of ‘productive efficiency’) must be transferred to the consumer, via a decrease in price (a situation of ‘allocation efficiency’).123 Similarly, a merger which stimulates economic progress by putting new products on the market, benefits consumers.124 9.108  Second, efficiency gains must be merger specific, that is, the merger must be the direct cause of the efficiencies and the parties must show that they could not be achieved by a less anticompetitive, non-merger, alternative.125 Among such alternatives, the creation of a production JV can be an equivalent way to achieve alleged cost reductions without increasing concentration. 9.109  Third, the efficiency gains must be ‘verifiable’.126 The parties’ arguments must convince the Commission that efficiency gains are likely to be achieved and that they will be sufficiently important to counterbalance the merger’s damaging effect for consumers. To this end, the submission of quantified data is encouraged. Otherwise, the positive effect for consumers will need to be identified in a qualitative manner, which the Commission requires to be precise.

(5)  The analysis of the compatibility of ancillary restraints 9.110  Very often a variety of restrictions come on top of a merger in order to facilitate it. The seller of an undertaking may, for example, commit to the buyer to respect a noncompete clause for a certain time.127 From a legal standpoint, the question arises whether such restrictions should be examined separately, under Article 101 TFEU, or whether they should rather be examined simultaneously to the merger, and in such case, escape the application of Article 101 and be submitted to a broader substantial test. 9.111  Since 1990, the Commission has expressed a preference for the second approach. Restraints so-called ‘ancillary’ to mergers must be analysed at the same time as the merger, and hence will escape the application of Article 101. A restraint is ‘ancillary’ when it is strictly necessary (p. 523) for, and directly linked to, the merger. The Commission provided indications on the necessity condition by adopting interpretative Notices.128

(6)  The compatibility analysis of full-function joint ventures 9.112  We observed above that EMCR is applicable to full-function joint ventures.129 As will be seen below, these operations are subject to more in-depth control than other forms of concentrations.

(a)  What is a joint venture? 9.113  Principle A JV is a jointly controlled undertaking.130 The concept of joint control means that the JV’s decisional process might be blocked if the (two or more) founding undertakings do not collaborate and agree. In law, there is joint control as soon as two or

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more founding undertakings each have the power unilaterally to block the adoption of the decisions of the JV concerned. 9.114  Examples Most frequently, this blocking power will stem from a de jure joint control, such as the voting rights and veto rights of the founders. For instance, consider two founding undertakings, E1 and E2. If each party has 50 per cent of the voting rights, decisions must be taken at the absolute majority (51 per cent). Here, E1 and E2 must cooperate to make decisions. 9.115  Joint control may nevertheless exist without equal votes for the founders, if the minority founders hold a veto power or additional powers in case of strategic problems and decisions (such powers can result from special rights or quorums).131 The statutes of an undertaking set up by three founders may grant 50 per cent of the voting rights to one of them (E1) and 25 per cent of the voting rights to each of the two others (E2 and E3). If the statutes also foresee that important decisions require 77 per cent of votes, each company holding more than 23 per cent of the voting rights—that is, E1, E2, and E3—can object to the adoption of an important decision. In this case, joint control exists because each founder has a blocking minority. 9.116  More seldom, joint control will be identified de facto. This will be the case if two minority shareholders, which do not individually have a veto power, can together block a decision by (p. 524) cumulating their votes.132 The cumulative exercise of voting rights might stem from (i) a shareholders’ agreement133 or (ii) the convergence of common interests.134 9.117  Clarification (1) It should be noted that the object of joint control is important. To have a JV, the blocking power must concern decisions of strategic commercial policy, which bear consequences on the future of the undertaking. Strategic decisions are understood as, for instance, decisions concerning the nomination and revocation of the managers, decisions of a budgetary nature, decisions on the business plan or the investments.135 9.118  Clarification (2) Joint control must have a lasting nature. As the Commission reiterated in one of its communications on mergers: where an operation leads to a joint control for a starting-up period but, according to legally binding agreements, this joint control will be converted to sole control by one of the shareholders, the whole operation will normally be considered to be an acquisition of sole control.136 9.119  Illustration In the Fujitsu/Siemens case, Fujitsu137 and Siemens138 wanted to create a joint venture (JVC) to which they wished to transfer the development, production, distribution, marketing, and sale of IT hardware and of linked products, including PCs, laptops, workstations, servers, data storage, and some exploitation systems. The Commission considered it to be a JV. On the one hand, JVC was to take over all activities of Fujitsu’s ‘computers’ division, and on the other hand, all activities of Siemens’ ‘IT systems’ division in Europe. The JV was only to remain linked to its parent companies for some specific provision of services, and maintenance and after-sales activities. 9.120  According to the Commission, joint control could be identified from the following indicia: •  each founder owned 50 per cent of the shares; •  the decisions of the board were adopted by simple majority (51 per cent); •  the administrators of each party had an equal number of votes;

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(p. 525) • these votes concerned, inter alia, the budget, the business plan, and the nomination and revocation of the management; •  the parties had to cooperate on strategic commercial decisions, and each held a determining influence.

(b)  The concept of ‘full function’ and the applicability of the EMCR 9.121  Issue outline The identification of a JV leads to the potential application of two types of rules, namely Article 101 TFEU and the EMCR. The criterion to decide which of the two instruments is applicable depends on the form of the JV.139 If the undertaking in question is a ‘full-function joint venture’ (Section (i)), it is subject to the procedural and substantial rules set out in the Merger Regulation (Section (iv)).140 (i)  The content of full function

9.122  Principle According to Article 3(4) of the EMCR, a full-function JV is a ‘… joint venture performing on a lasting basis all the functions of an autonomous economic entity’.141 A joint venture must fulfil a material condition (Section (ii)) and a time condition (Section (iii)) to qualify as full function. (ii)  The material condition

9.123  Notion To satisfy the condition of full function, the EMCR requires that the joint venture be ‘an autonomous economic entity performing all the functions’. 9.124  This condition is assessed through three criteria. First, the joint venture must have ‘sufficient resources to operate independently on a market’,142 that is, it must have its own resources, personnel, sufficient assets to conduct its commercial policy, budget, capital, and decision-making power regarding its service providers. It must also make its own profits and losses and own or have a licence for the IP rights needed for its production activities. In other words, the founding parties must transfer significant resources to the JV. In the Sony/ BMG case, for instance, the JV had received all the catalogues of artists, etc. 9.125  Second, the JV must exercise all the functions ‘normally carried out by undertakings operat-ing on the same market’.143 This requirement implies that the JV must not limit itself to production, purchases, or sales, if the other undertakings active on the same market segment are present at all three levels. A JV is therefore full function if it has a certain depth. In the Sony/BMG case, the JV was to be active in the discovery and launch of artists (artistic (p. 526) direction activity called A&R) and in the distribution and sales of subsequent records, as the other providers of recorded music. 9.126  Third, the JV must have ‘activities beyond one specific function for the parents’.144 In other words, it should not take over ‘one specific function within the parent companies’ business activities without its own access to or presence on the market’. This condition excludes JVs that have a merely auxiliary function in serving the founding parties, such as R&D or production partnerships. The JV will only be full function if it can operate as an independent player on the market with its own access to the market. A JV that would perform all the activities of the founders—production, marketing, distribution, etc—and would only let the founders supply it an input would meet the condition. In such case, the JV takes over more than one specific activity of the founding parties; it is truly autonomous and the founding parties become its auxiliaries. (iii)  The time condition—lasting quality/stability

9.127  A full-function JV must also enjoy a certain lasting quality/stability, without which its impact on the market will not be structural. An indication of its lasting quality can be found in the extent of the transfer of resources from the founding parties. A wide transfer and

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heavy investments are likely to reveal some lasting quality. In the Fujitsu/Siemens case, the parties had not specified the duration of the JV’s activities, which they wanted to be lasting. 9.128  It is, however, not necessary that the JV be created for an indefinite duration. An initial period of activities of ten years will often be sufficient. The assessment of the duration also depends on the market’s nature: the Commission accepted that a JV created for six years qualified as ‘full-function’ because it aimed at developing innovative high-tech products that would trigger structural changes in the sector. (iv)  Substantial rules applicable to full-function joint ventures

9.129  Standard test The full-function JV will in most cases take over the market shares of its founders on the market in question, and will give rise to a concentration as the founders withdraw from the market. The transaction must therefore be assessed in light of Article 2(3) of the EMCR. 9.130  For instance, in 2004, Sony and Bertelsmann, two companies active in various sectors, notified to the Commission a JV/merger project in their activities of music production and edition.145 Sony and Bertelsmann would each withdraw from this sector to the benefit of the JV, which would be active in the discovery and launch of artists as well as in the distribution and sale of records. The transaction would reduce the number of competitors on these markets from five to four (Sony/BMG, EMI, Universal, Warner). 9.131  The Commission carried out a structural assessment. In the Statement of Objections it sent to the parties, the Commission expressed concerns on the evolution of the wholesale prices (p. 527) (small price reductions, but in a context of steeply declining demand) of the record majors (the five big producers) to distributors between 1998 and 2003.146 After analysing various aspects of the market (product homogeneity, market transparency, stability of market shares, multi-market contacts, structural links, etc), the Commission considered that the parallelism stemmed from a collective dominant position on the recorded music market. The parties, however, overturned this conclusion towards the end of the procedure, following the hearing. 9.132  Complementary test The creation of a JV must also be subject to an additional test, fore-seen under Article 2(4) of the EMCR: To the extent that the creation of a joint venture constituting a concentration pursuant to Article 3 has as its object or effect the coordination of the competitive behaviour of undertakings that remain independent, such coordination shall be appraised in accordance with the criteria of article [101(1)] and [101(3)] of the Treaty, with a view to establishing whether or not the operation is compatible with the common market. 9.133  We have already seen that strategies of horizontal cooperation can lead to risks of anticompetitive coordination between competing undertakings. These risks are identical when two independent undertakings cooperate via the creation of a full-function JV. The EMCR hence provides for an additional coordination test which relies on the assessment principles applicable under Article 101(1) and (3) TFEU.147 The coordination can also take place between the founders and their competitors on the market. 9.134  Illustration In this case, Areva and Urenco, the main European companies producing enriched uranium and offering associated services (to produce fuel for nuclear power plants) entered into an agreement organizing the joint control of a JV called Enrichment Technology Company (ETC), which was meant to produce the centrifuges used

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to enrich uranium.148 The JV would supply the centrifuges to the two mother companies and to third parties. 9.135  In the Areva/Urenco case, the Commission expressed concerns that ‘the transaction may also facilitate tacit coordination on supply into the Community’ between the founders Areva and Urenco on the downstream market of the offer of enriched uranium.149 9.136  Areva and Urenco could, for instance, decide not to bid for a specific contract, or could bid for it at non-attractive terms, as a way to leave a customer or sales opportunity to the other party so as to maintain a broad market-share allocation in the EU market. This coordination would have stabilized the market shares of each of the founders on the European market for enrichment services.150 9.137  Note It is necessary to stress that this test introduced an exception mechanism in the Regulation. Legally, the exception only concerns the facets linked to the coordination risk of (p. 528) the founding parties. It may not, therefore, be extended to the anticompetitive effects resulting from the JV’s market power under Article 2(3) of the EMCR.

(c)  Comparative assessment of the legal regimes of Article 101 TFEU and the EMCR 9.138  Strategy? Is it more favourable to have a JV assessed under the classic Article 101 TFEU and Regulation 1/2003 or, rather, to declare it ‘full function’ and, as the case may be, to notify it under Regulation 139/2004? Practitioners generally find an assessment under the EMCR more favourable than an analysis based on Article 101 TFEU. 9.139  In the first hypothesis, the transaction benefits ex ante from the one-stop shop before the Commission, as national law is no longer applicable, in accordance with Article 21 of the Regulation. The agreement cannot be subject to multiple further procedures before national authorities and courts. The founding parties therefore know very quickly whether they can proceed with the creation of the JV. On the other hand, the selfassessment under Article 101(1) and (3) TFEU does not guarantee there will be no actions before national authorities or courts after the completion of the JV. Besides, under the EMCR, the transaction is authorized once and forever, whereas an exemption by category or an individual exemption under Article 101(3) TFEU may be withdrawn (by NCAs and national courts). Last but not least, the merger procedure is fast because the Commission is obliged to respect mandatory time limits. 9.140  In practice, these considerations can influence the terms of the creation of a JV. The companies and their counsel may adjust the terms of a structural transaction in light of the considerations described above.

III.  The Institutional and Procedural Implementation of Merger Control A.  The Informal Pre-Notification Procedure 9.141  Practice Even before filing a notification, the parties to a transaction generally contact the Commission informally to apprise them of their project some time during the months preceding the transaction. The aim is to make sure that the formal notification will be complete (to avoid the Commission declaring it incomplete), thereby re-initializing the procedure. Early informal notification also facilitates the civil servants’ tasks in the course of a short formal procedure as it sometimes allows solution of problems at a very early stage that might otherwise arise during the procedure. 9.142  Illustration The parties often submit a ‘briefing paper’ to the Commission, and a first draft Form CO including the necessary information to give the Commission an overview of the transaction. Other documents may also be communicated to the Commission (supply agreements, distribution agreements, and R&D agreements, into which the notifying parties entered). Civil servants in the Directorate General for Competition (‘DG COMP’) may ask From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

questions and make comments. The parties may already offer draft commitments at this stage. In practice, the questions raised during the pre-notification phase often concern market definitions.

(p. 529) B.  The Formal Notification Procedure (1)  Form CO 9.143  Form CO is the document the parties to the transaction must complete and which the Commission will use to assess the transaction. The parties must answer a wide number of questions and make a competitive assessment of the transaction. This assessment requires the identification of the markets concerned, their definition, the computation of market shares, etc. 9.144  Preparing Form CO is a complex and burdensome formality for the undertakings involved. Regulation 802/2004 and its Annex I foresee the rules on the notification file and the procedure to follow.151

(2)  Calendar of the procedure (a)  General remarks 9.145  Overview The Commission must, within 25 working days of the notification of the transaction (Phase I),152 decide whether it has ‘serious doubts’ on the transaction or if it will, on the contrary, authorize it.153 In the first case, the Commission launches an in-depth assessment procedure (Phase II), the duration of which is limited to 90 working days from its opening.154 The time limits are mandatory for the Commission: Article 10(6) foresees that if the Commission does not take a decision within the time limits set in the Regulation, the merger is deemed compatible.155 These put heavy time constraints on the Commission by imposing an obligation swiftly and precisely to assess the transaction. In a pragmatic way, however, the legislator granted important powers of administrative policing to the Commission,156 and even, under strictly defined conditions, allows it to halt the running of the time frame during the in-depth assessment of the transaction.157

(p. 530) (b)  Phase I 9.146  Description The Regulation foresees that the first step of the assessment lasts 25 working days from the day following receipt of the notification or 35 working days if remedies are offered or if a referral request is presented.158 At the end of this phase, the Commission must authorize the transaction, if it does not raise any problem or if the parties have offered sufficient remedies to alleviate the Commission’s concerns.159 In this hypothesis, the procedure ends. If these conditions are not met, and should the Commission have ‘serious doubts’ on the compatibility of the transaction, the Commission must open an in-depth assessment phase. The vast majority of merger transactions are authorized in Phase 1.

(c)  Phase II 9.147  Hypothesis If the transaction raises ‘serious doubts’ from a competition perspective and the parties have not offered commitments sufficient to alleviate the Commission’s concerns, the Commission will launch a Phase II investigation. This second phase allows it to analyse the transaction in greater detail. The parties may then reopen their discussion of the terms of the transaction. 9.148  Procedure At the start of Phase II, the parties receive a Statement of Objections in which the Commission sets out its objections to the transaction. The parties reply to the Statement of Objections and offer new remedies. The Commission meanwhile carries out market investigations and sends out requests for information. It assesses the parties’ new remedy proposals. Finally, the EMCR provides the possibility of a hearing.160 The format of

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this hearing is similar to those organized in the context of procedures under Articles 101 and 102 TFEU. 9.149  All in all, Phase II can last 125 working days—without counting the possibility of the Commission stopping the clock under Article 10 of the Regulation (see below). This typically puts the parties under a lot of pressure.161 Phase II •  90 working days from the day following the decision to open the in-depth assessment procedure •  + 20 working days if the notifying parties request it or if the Commission requests it in agreement with the notifying parties •  + 15 working days if the parties offered remedies after the 54th working day following the opening of the in-depth assessment (p. 531) 9.150  Stopping the clock One of the novelties of the revised Regulation is the possibility for the Commission to ‘stop the clock’: The periods set [by the Merger Regulation] shall exceptionally be suspended where, owing to circumstances for which one of the undertakings involved in the concentration is responsible, the Commission has had to request information by decision pursuant to Article 11 or to order an inspection by decision pursuant to Article 13.162 9.151  Conditions The first applications of this provision show that the Commission takes many liberties in using the mechanism. It can then free itself from the time constraints provided by the Regulation. In the Oracle/PeopleSoft case, the Commission assessed the transaction over a period starting on 14 October 2003 and ending on 8 November 2004; the Commission stopped the procedure for over six months.

(d)  Remedies (i)  Nature of the issue

9.152  Prohibition system On the basis of Article 2 of the EMCR, one could have feared a mechanical application of the incompatibility provision. Article 2(3) provides that a concentration as a result of which competition would be significantly impeded, is de jure incompatible. The Commission has no choice but to prohibit it.163 No doubt the provision bore a risk of seeing the Commission adopting a large number of incompatibility decisions.164 9.153  Flexibility To avoid that, the Council added a ‘safety valve’ to the Regulation. In the course of the procedure, the parties may offer to amend the terms of their transaction to respond to the Commission’s objections.165–166 These amendments, legally qualified as ‘remedies’, limit the risk that a concentration may be prohibited outright by the Commission. The amendments also offer an undeniable practical advantage: the early solution of problems in the (p. 532) course of the procedure accelerates the calendar of adoption of a decision.167 In addition, the authority limits the duration during which its scarce administrative resources are tied up. 9.154  Soft law In 2001, a Commission Notice (‘the Notice on remedies’), updated in 2008, clarified the dividing lines of the procedure for adoption of remedies.168 It is the parties’ responsibility to propose amendments to their transaction and to demonstrate ‘clearly’ that they ‘[restore] conditions of effective competition on the common market on a permanent basis’.169 The proposed measures must be ‘proportionate’ and ‘entirely eliminate’ the identified problem.170 The Commission is responsible for verifying the validity of the parties’ demonstration, that is, that the proposed measures effectively correct the problem

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in question. Should this be the case, the Commission declares the transaction compatible. To guarantee the effectiveness of the proposed amendments, the Commission adds ‘conditions’ and ‘obligations’ to its decision.171 9.155  Practice Although officially it is the responsibility of the parties to ‘offer’ remedies, the practice tends to be different.172 Far from satisfying itself with the passive role to which the Regulation relegates it, the Commission does not hesitate to drive the design of remedies. In numerous procedings, the parties have been led to sell large portions of their assets, sometimes without any link to the transaction in question. The wide scope of this new decisional practice triggered scholars to question the Regulation’s efficiency and legitimacy after only a few years of application.173 (p. 533) 9.156  Ex post empirical assessment of remedial policy Following the example of its US counterpart—the Federal Trade Commission—some years before,174 the Commission answered these questions with an empirical study of its administrative case law.175 This led to the publication of a study in October 2005 (‘the Commission’s study’),176 which revealed numerous problems: delays in implementation, difficulties in selecting a buyer in cases of asset sales, strategic behaviour by the parties or third parties (competitors, customers, etc), among other issues.177 The Notice of 2008, which is today the text of reference, seeks to solve the problems identified during the 2005 study. (ii)  ‘Structural’ and ‘behavioural’ remedies

9.157  Concept Under currently applicable law, the parties may offer ‘structural’ and/or ‘behavioural’ remedies. The former modify the allocation of ownership rights through the sale of assets belonging to the notifying parties.178 For instance, the parties sell production units to allow the entry of a new player on the market or to reduce the importance of overlap of their market share.179 The latter oblige the parties to exercise their newly concentrated ownership rights in a particular way.180 For instance, the parties may commit to supply products or services in a non-discriminatory way, to modify their sales conditions, to reduce their prices, etc. (p. 534) 9.158  Hybrid measures Hybrid remedies are measures that do not affect the allocation of ownership rights but instead modify the structure of the market by, for instance, allowing the entry of a new player, such as by mandating the merged entity to grant a technology licence to a potential competitor, or to terminate exclusivity agreements, etc.181 9.159  A long-standing debate on the terminology used to identify such remedies took place among academics. Some, underlining their effect on the market structure, called them ‘quasi-structural’ remedies.182 Others, stressing the absence of transfer of ownership right, qualified them as ‘quasi-behavioural’ remedies.183 A consensus seems to have been reached recently, under the aegis of the Working Group on Remedies of the International Competition Network: structural remedies modify the structure of the market, whereas as behavioural remedies modify the companies’ behaviour on the market.184 Consequently, a given remedy can be both structural and behavioural. 9.160  Preference for structural remedies Generally speaking, control authorities show a clear preference for the application of structural remedies (in particular, asset sales) and often disregard behavioural remedies, which require monitoring on their part and hence lead to administrative costs. In this respect, the Commission Notice of 2001 stated that structural measures were ‘as a rule, preferable’.185

C.  Merger Litigation

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9.161  Context The judicial review of the Commission’s decisions gained new strength in the early 2000s. In addition to recognition by Regulation 133/2004 that the EU Courts have full jurisdiction to rule on decisions imposing fines or periodic penalty payments in the course of the procedure,186 EU Courts have taken a strict approach in their review of the substance of Commission’s merger decisions.

(p. 535) (1)  Annulment proceedings (a)  Marginal review 9.162  Historical perspective Relying on principles inspired by French administrative law, the Court of Justice was initially reluctant to exercise an in-depth judicial review of the Commission’s decisions in the first ruling based on Articles 101 and 102 TFEU.187 The Court therefore specified in the Remia case that its control was limited to ‘verifying … whether there has been any manifest error of appraisal’.188 9.163  The concept of manifest error of assessment—not defined in European law—means, according to administrative law, ‘a manifest error, invoked by the parties and recognised by the judge, and which makes no doubt for an enlightened mind.’189 In other words, the control seeks to ensure that the decision does not contain any obvious error, which even a complete beginner could identify. It lies on a double foundation: the judge’s intervention must be limited with respect to (i) a decision adopted in the context of a so-called ‘discretionary’ power (ie, when the administration has the discretion to adopt the decision) and (ii) particularly complex issues. 9.164  When the first actions were brought against decisions adopted on the basis of the EMCR, the Court seemed to consider that the control of the manifest error of appreciation was a judicial standard particularly well suited to the merger control field. On the one hand, the legislator had recognized a large margin of appreciation for the Commission. On the other hand, the issues raised in merger discussions were particularly complex due to the refinement of economic analysis and the difficulties inherent in prospective analysis.190 9.165  The EU Courts therefore tended to show deference to the economic analysis carried out by the Commission. In France v Commission, the Court of Justice specified that the EMCR gave the Commission ‘a certain discretion, … with respect to assessments of an economic nature’, which the judge should respect.191 (p. 536) 9.166  Controversy This approach soon gave rise to heavy criticism from practitioners who feared a risk of ineffective judicial review.192 The control of the manifest error of appreciation would indeed only be a cosmetic control ensuring, de facto, for the Commission some sort of judicial immunity before the EU Courts in terms of selecting the economic evidence supporting their decisions.

(b)  Effective judicial review 9.167  Case law developments It is perhaps the criticism raised above that led the GC recently to reinforce the intensity of its judicial review through three annulment rulings in the cases Airtours, Schneider Electric, and Tetra Laval, which have been described above. 9.168  The Tetra Laval case The Commission—which interpreted these rulings as a violation of the discretion granted to it by the EMCR—asked the Court of Justice, in its appeal in the Tetra Laval case, to rule on the issue of the intensity of judicial review.193 9.169  In its pleadings, the Commission blamed the GC for exceeding the judicial review standard set in France v Commission by scrutinizing too closely the economic reasoning of its decision.194 The case gave rise to an interesting debate on the extent of judicial review of the economic reasoning used by the Commission in its decisions. Advocate General Tizzano partly supported the Commission’s position:

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The rules on the division of powers between the Commission and the Community judicature, which are fundamental to the Community institutional system, do not however allow the judicature to go further, and particularly … to enter into the merits of the Commission’s complex economic assessments or to substitute its own point of view for that of the institution.195 (Emphasis added) 9.170  Following a convoluted and at times obscure reasoning, the Court of Justice ruled on the issue in the following way: Whilst the Court recognises that the Commission has a margin of discretion with regard to economic matters, that does not mean that the Community Courts must refrain from reviewing the Commission’s interpretation of information of an economic nature. Not only must the Community Courts, inter alia, establish whether the evidence relied on is factually accurate, reliable and consistent but also whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it. Such a review is all the more necessary in the case of a prospective analysis required when examining a planned merger with conglomerate effect.196 (Emphasis added) (p. 537) 9.171  With these terms, the Court provides that the judicial review before the GC does not consti-tute a second instance to assess the substance of the transaction. The GC therefore should not substitute its economic analysis for the Commission’s analysis (ie, regarding the theory of harm). Its control should be limited to assess truthfulness, reliability, coherence, and completeness, particularly in the light of the facts presented. 9.172  Example The GC’s ruling in the Airtours plc v Commission case contains a number of recit-als that perfectly illustrate the scope of these principles in the field of collective dominance: •  as far as the truthfulness of economic data is concerned, the Commission had based its conclusion that the concentration created a dominant oligopoly on a weak increase in demand. However, the file showed that the market had grown sharply in the past ten years and no element indicated that this trend would change (ie, the increase in demand was decidedly not weak); •  on the reliability of the economic analysis, the Commission had considered that the volatility of demand made the existence of collective dominance more likely insofar as it would have led tour operators to adopt a cautious approach and limit the planned capacity. 197 The GC found that economic theory contradicted this analysis. Economic theory showed, on the contrary, that volatility of demand added ‘noise’ to the market, which made it more difficult to distinguish the variations in demand caused by actual fluctuations of demand versus those caused by undertakings’ deviations from a common line of conduct; •  as far as coherence is concerned, the Commission had inconsistently held that each tour operator should vertically integrate to be ‘competitive’ and that vertical integration produced an anticompetitive effect because it multiplied the contact points in the oligopoly (sale of seats upstream to other members of the oligopoly and sales of holidays downstream to other operators); 198–201 •  in the area of completeness, the Commission’s economic assessment did not account for the competitive pressure resulting from potential new entry. However, it appeared from the Court’s analysis that potential competitors of the merged entity (tour operators in other EU Member States or UK tour operators present on the market for remote destinations) would be likely to enter efficiently and swiftly on the

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market in cases of tacit coordination due to the absence of significant barriers to entry. 9.173–9.182  It is clear from these examples that the application of the principles defined by the Court should be enough to encourage solid economic reasoning by the Commission, while leaving an important but not disproportionate margin of control to the GC.

D.  Conclusions—Myths and Reality of Merger Control (1)  The myth(s) 9.183  Some observers denounce the Commission’s excessive intervention, which is an obstacle to the conduct of industrial policy and the creation of European champions. 9.184  Along the same line, in recent years ‘small’ States from the north of Europe also denounced the Commission’s excessive severity in merger control decisions. For example, Swedish (p. 538) political authorities heavily criticized the Decision that prohibited the Volvo/Scania merger in 2000.202 The Commission was blamed for granting to itself control power that would prevented companies from small countries from reaching a strong enough position to compete on a global scale.203

(2)  The reality 9.185  The arguments alleging that merger control prevents the creation of large companies appear unfounded. Since the entry into force of the European merger control system in 1990, only 21 transactions over a total of 4,818 cases notified to the Commission have been prohibited.204 9.186  Of course, this figure does not account for transactions abandoned during the course of the procedure. The withdrawal of the merger between the aluminium producers Alcan and Pechiney is a notorious example.205 The EMI/TimeWarner merger is another.206 9.187  Nevertheless, as Mario Monti observed at a hearing in the French Senate, the EMCR did not prevent the appearance of European champions such as Total Fina Elf, Carrefour Promodès, or Framatome Siemens.207 On the contrary, the Commission seems favourable to the appearance of European champions, which explains why some years ago it complained of a lack of merger activity in the banking sector.208 9.188  In addition, from a purely theoretical perspective, the size of companies, which is often the main argument raised by Member States in the context of the debate on industrial (p. 539) champions, does not always guarantee success on the market.209 In a knowledgeglobal economy, mass production and, hence, the need for greater size, may be less relevant factors than they used to be. The thousands of companies around Silicon Valley illustrate that. In any event, in a sector where size matters, the Merger Regulation now accepts that efficiency gains linked to greater size may counterbalance the negative effects of a concentration.210 9.189  In brief, these considerations show that the Commission is not opposed to the creation of large European companies. However, two biases, one laudable and the other which lends itself to criticism, emerge from its decisional practice. 9.190  First the laudable bias: there is no doubt that the Commission is very suspicious of the national preference that some States would like to apply in merger transactions. This national preference clearly appeared when Sanofi-Synthélabo made a hostile public bid on Aventis, another French company. The French prime minister declared that he was favourable to the transaction in light of ‘national interest’, thereby rejecting the counteroffer from Novartis, the large Swiss pharmaceutical company. National bias was even clearer when the then governor of the Bank of Italy, Antonio Fazio, tried to defend ‘the

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Italian character of banks’ by favouring the counter-bid made by Banca Popolare Italiana against the bid made by the Dutch group ABN-Amro on Banca Antonveneta. 9.191  Second, the bias that lends itself to criticism: the statistical data referred to above do not reflect the Commission’s appetite for the authorization ‘with conditions’ of numerous transactions. The Commission often uses the powers granted to it by the EMCR to subordinate clerance to the acceptance of far-reaching conditions. Such excesses, or ‘misuse of powers’ according to some, are frequent in the network industries sectors where the Commission has often sought to reach certain objectives of a regulatory and legislative nature via merger control.211 For instance, in the telecoms sector, DG COMP tried to use its powers under the Merger Regulation to accelerate the pace of liberalization programmes pursued by other Directorates General.212 In the Atlas case, the Commission granted a fiveyear authorization to a JV between France Telecom and Deutsche Telekom on the condition, inter alia, that France and Germany committed to liberalize third party infrastructure, even though that (p. 540) condition was not set out in secondary European legislation.213 Similarly, the Commission authorized the Telia/Telenor merger only after the Swedish and Norwegian governments committed to unbundle the local loop in their respective countries, one year before the date provided in Regulation 2887/2000.214

Footnotes: 1

  CJ, 6/72 Europemballage Corporation et Continental Can Company Inc v Commission [1973] ECR 215. 2

  Council Regulation 4064/89 of 21 December 1989 on the control of concentrations between undertakings, OJ L 395 of 30 December 1989. 3

  Council Regulation 1310/97 of 30 June 1997, OJ L 180 of 9 July 1997 amending Regulation No 4064/89 and Council Regulation 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJ L 24 of 29 January 2004, at 1 . 4

  See B. Goldmann, A. Lyon-Caen, and L. Vogel, Droit Commercial Européen (Paris: Dalloz, 1994), at 473. 5

  See W. Kovacic and C. Shapiro, ‘Antitrust Policy: A Century of Economic and Legal Thinking’ (2000) 14 J Economic Perspectives 43. 6

  See Case 6/72 Continental Can, n 1; CJ, Cases 142 and 156/84 British-American Tobacco Company Ltd and RJ Reynolds v Commission [1987] ECR I-4487. 7

  eg the music industry or the pharmaceutical industry.

8

  eg the network industries (telecommunications, etc) where few large incumbents have merged. 9

  See Council Regulation 139/2004, n 3, Art 3.

10

  A merger is ‘full’ when two previously independent entities gather all their productive resources within the same entity. They cease to exist as independent entities. This is sometimes opposed to a ‘partial merger’: a merger is partial when two undertakings put together common parts of their productive resources, but continue to exist as independent undertakings for the other resources. The best example of a partial merger is the creation of a JV. 11

  Commission Decision of 27 June 2007, COMP/M.4439, Ryanair/Aer Lingus.

12

  Commission Decision of 14 May 2008, COMP/M.4854, TomTom/TeleAtlas.

13

  Commission Decision of 14 November 2006, COMP/M.4180, Gaz de France/Suez.

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14–15

  Council Regulation No 17: First Regulation implementing Articles [101] and [102] of the TFEU, OJ of 21 February 1962, at 204–11. 16

  See Regulation 139/2004, n 3, Art 3(1)(b).

17

  Ibid, Art 3(2).

18

  Ibid, Art 3(1).

19

  Ibid, Art 3(2).

20

  We refer to our observations above on the conditions of impact within the internal market and effect on trade between Member States. 21

  See Regulation 139/2004, n 3, Art 1(1): ‘Without prejudice to Article 4(5) and Article 22, this Regulation shall apply to all concentrations with a Community dimension as defined in this Article’. 22

  See Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings, OJ C 95, 2007, at 1, para 129. 23

  Finally, we note that in the context of concentrations other than mergers or the creation of JVs, ie, in case of exclusive or joint acquisition of existing undertakings or part of undertakings, the seller is never considered as an undertaking concerned. 24

  The calculation of turnover and the elements to take into account in that respect are specified in Art 5 of Regulation 139/2004, n 3. 25

  Ibid, Art 1(2).

26

  See recital 10 of the Preamble to Regulation 139/2004, n 3.

27

  See Regulation 139/2004, n 3, Art 4(1).

28

  Ibid, Art 4(2).

29

  Ibid, Art 4(1).

30

  Ibid, Art 7(1).

31

  Ibid, Art 14(2). See on this last point, Commission Decision, IV/M.920, SAMSUNG/AST.

32

  See Commission Decision of 10 June 2009 inflicting a fine for completion of a merger transaction, in violation of Article 7(1) of Regulation (EEC) No 4064/89 of the Council (COMP/M.4994, Electrabel/Compagnie Nationale du Rhône). 33

  See Regulation 139/2004, n 3, Art 21(3). However, Regulation 1/2003 allows the cumulative application of national law to practices that fall under the scope of European law. 34

  Article 9 foresees a second case: ‘a concentration affects competition in a market within that Member State, which presents all the characteristics of a distinct market and which does not constitute a substantial part of the common market.’ 35

  Commission Decision of 25 April 2006, COMP/M.4110, E. ON/Endesa.

36

  See Regulation 4064/89, n 2, Art 2(3).

37

  See Regulation 139/2004, n 3, Art 2(3).

38

  These Guidelines were adopted back in 1968. However, this text was substantially amended in 1982 and later in 1992, 1997, and 2010 to grant more importance to the assessment of efficiencies. See Horizontal Merger Guidelines, US Department of Justice and

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the Federal Trade Commission, 19 August 2010, available at . 39

  See Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ C 31 of 5 February 2004, at 5. 40

  The Commission’s approach is legitimate. With limited resources, it is understandable that it seeks to spare itself a long and costly in-depth analysis of the risk of tacit coordination in non-problematic concentrations. Filtering systems are efficient as they allow operators to assess at an early stage the nature of the regulatory constraints they may face. This type of mechanism is frequent in competition law. Eg, the regulation of horizontal cooperation agreements and vertical agreements relies on market share thresholds to consider that an agreement benefits from an Art 101(3) TFUE exemption. The de minimis doctrine is another example. See Chapter 4, Section I. 41

  See Guidelines on horizontal mergers, n 39, at paras 89–90. See inter alia R.J. Van Den Bergh, ‘Modern Industrial Organisation versus Old-Fashioned European Competition Law’ (1996) 2 European Competition L Rev 75 at 85. 42

  See Guidelines on horizontal mergers, n 39, at para 14. See, however, para 21 which dismisses the possibility of a presumption. See also the US Horizontal Merger Guidelines, n 38, at para 1.5. According to the Commission, market shares and concentration levels often provide ‘useful first indications of the market structure and of the competitive importance of both the merging parties and their competitors’. 43

  See Guidelines on horizontal mergers, n 39, at para 18. See also Regulation 139/2004, n 3, recital 32 of the Preamble. 44

  Ibid, at para 16. The Guidelines also state that ‘the overall concentration level in a market may also provide useful information about the competitive situation’. 45

  See A.O. Hirschman, National Power and Structure of Foreign Trade (Berkeley, CA: University of California Press, 1945); O.C. Herfindahl, Concentration in the Steel Industry (New York: Columbia University Press, 1950). The index therefore varies between 10,000 (in cases of monopolistic market) and 1 (in cases of atomized market). The Guidelines also mention the index ‘delta’, which allows measurement of the variations of the HHI brought about by the merger. 46

  See Guidelines on horizontal mergers, n 39, at para 20. It must be noted that these principles are without prejudice to the exceptions mentioned above. The HHI was first taken into account in the field of collective dominant position in the Enso/Stora decision in which the Commission relied on a change of 313 points in the index, due to the merger, to consider that competition issues were likely to arise. See Commission Decision 1999/641/ EC in Case COMP/M.1225 Enso/Stora OJ L 254, 29 September 1999, at 9, para 67. 47

  But for the series of exceptions listed under para 20: (a)  a merger involves a potential entrant or a recent entrant with a small market share; (b)  one or more merging parties are important innovators in ways not reflected in market shares; (c)  there are significant cross-shareholdings among the market participants; (d)  one of the merging firms is a maverick firm with a high likelihood of disrupting coordinated conduct; (e)  indications of past or ongoing coordination, or facilitating practices, are present;

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(f)  one of the merging parties has a pre-merger market share of 50% of more. 48

  See Guidelines on horizontal mergers, n 39, at para 24. These effects are analysed in Chapter 4. 49

  European Commission, ‘Mergers: Commission prohibits Ryanair’s proposed takeover of Aer Lingus’, 27 June 2007, IP/07/893. 50

  Such situations also appear in oligopolistic markets on which the merger eliminates part of the competitive constraints burdening the undertakings active on the market, thereby allowing them to benefit from a certain competitive advantage. In the Baby Foods case in the United States, the merger of the two second market operators (20 per cent + 20 per cent) was held incompatible, despite the existence of an undertaking holding a 60 per cent market share: this merger eliminated the competitive pressure these two undertakings exerted on one another, and as a result, the pressure on the first player. See FTC v Heinz, 116 F Supp 2d 190 (DDC 2000), rev’d 246 F3d 708 (DC Cir 2001). 51

  Commission Decision of 26 April 2006, COMP/M.3916, T-Mobile Austria/tele.ring.

52

  See Guidelines on horizontal mergers, n 39, at paras 24–38.

53

  Ibid, at para 39.

54

  See our observations on the notion of concerted practice in Chapter 3.

55

  Guidelines on horizontal mergers, n 39, at para 139. With the merged entity in a leader position. We use the term ‘tour operator’ to designate service providers active in a series of fields (trip organization, travel agency services, charter services, hotel business, car rental, aeroplane seats broker, and cruise ships), which benefit from this diversification to organize package trips including accommodation and a series of services in a given country. 56

  The cumulative market share of the three main tour operators would be 83 per cent, as compared to 70 per cent without the transaction. The HHI (see our explanations in Chapter 2, n 156), used by the Commission to measure market concentration, would increase by 450 points to a level above 2,150 points. 57

  Guidelines on horizontal mergers, n 39, at paras 57–172.

58

  Ibid, at paras 60–1.

59

  Ibid, at paras 135–8. The Commission refers to related events of 1995 showing that the tour operators would adopt a cautious approach regarding capacities. In 1994, the indicators forecast a ‘good’ season in 1995 (ie, increasing demand). The operators therefore decided to adjust their capacities. However, the expected increase in demand did not take place. The operators then faced unsold capacities and incurred substantial losses. Following these events, the pressure of shareholders, and notably of institutional investors, led First Choice and Thomson to limit their ambitions of capacity expansion. 60

  Ibid, at paras 55 and 148. A capacity increase is also possible within the maximum limit of 10 per cent. See also para 152. 61

  Ibid, at para 149.

62

  Ibid.

63

  Ibid, at paras 150 and 55–6: ‘coercion may be unnecessary’ or ‘[The Commission did not] regard a strict retaliation mechanism … as a necessary condition for collective dominance in this case.’

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64

  Or selective sales. Ibid, at para 152. In addition, to the extent that capacities can be adjusted by a 10 per cent range, the potential for retaliation is real. More generally, the Commission considered that the alteration of commercial links is an instrument of retaliation. 65

  Ibid, at para 194.

66

  Airtours had eg offered to sell part of its activities to allow for the appearance of an operator holding between 5 and 7 per cent of the market. 67

  Ibid, at paras 134–47.

68

  Ibid, at paras 183–207.

69

  Ibid, at para 195.

70

  Ibid, at para 204. Finally, the caution of operators regarding capacities, on which the Commission insists heavily, shows that punishment/retaliation by extension of capacities is not plausible. 71

  See GC, T-342/99 Airtours plc v Commission, 6 June 2002 [2002] ECR II-02585, at 62.

72

  The Guidelines provides for a dual test. The Commission must demonstrate that: (i) coordinated effects exist/are possible after the merger and that (ii) these coordinated effects are lasting. The notion of existence of coordination is new. It refers to the possibility, for oligopolists, mutually to understand the terms of the coordination. The lasting nature of the coordination depends on the three conditions set out in the Airtours ruling, which the guidelines merely take over. See the Airtours ruling, n 71, para 41 and esp para 42: ‘The Commission examines whether it would be possible to reach terms of coordination and whether the coordination is likely to be sustainable.’ 73

  Ibid, at 44.

74

  See S. Voight and A. Schmidt, ‘The Commission’s Guidelines on Horizontal Mergers: Improvement or Deterioration?’ (2004) 41 Common Market L Rev 1583, 1588. 75

  See Guidelines on horizontal mergers, n 39, at para 47.

76

  Ibid, at para 51.

77

  See the Commission Decision of 11 September 2000, AOL/Time Warner, OJ L 268 of 9 October 2001, at 28. 78

  Ibid, at 53–4.

79

  Ibid, at 47.

80

  See Commission Decision, IP/06/1726.

81

  ‘Commission approves proposed acquisition of Pfizer’s consumer healthcare business by Johnson & Johnson, subject to conditions’, 11 December 2006, IP/06/1726. 82

  In practice, the focus is on mergers between companies that are active on closely related markets (eg mergers involving suppliers of complementary products or of products which belong to a range of products that is generally purchased by the same set of customers for the same end use). 83

  Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ C 265 of 18 October 2008, at 6, para 92. 84

  See Commission Decision of 15 October 1997, IV/M.938, Guinness/Grand Metropolitan, OJ L 288 of 27 October 1998, at 4, para 40.

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85

  See GC, T-114/02 Babyliss SA v Commission, 3 April 2003 [2003] ECR II-01279.

86

  Ibid, at para 354.

87

  See GC, T-310/01 Schneider Electric SA v Commission, 22 October 2002 [2002] ECR II-4071; GC, T-5/02 Tetra Laval BV v Commission, 25 October 2002 [2002] ECR II-4381. 88

  See GC, T-5/02 Tetra Laval BV v Commission, n 87, at para 322.

89

  See GC, T-310/01 and T-77/02 Schneider Electric v Commission, n 87, at paras 234–49.

90

  Upheld in that respect by the Court of Justice, see CJ, Cases C-68/94 and 30/95 France v Commission (‘ Kali und Salz’), 31 March 1998 [1995] ECR I-1376, esp at 109–125. 91

  See Guidelines on horizontal mergers, n 39, at paras 89–90: The Commission may decide that an otherwise problematic merger is nevertheless compatible with the common market if one of the merging parties is a failing firm. The basic requirement is that the deterioration of the competitive structure that follows the merger cannot be said to be caused by the merger. This will arise where the competitive structure of the market would deteriorate to at least the same extent in the absence of the merger. The Commission considers the following three criteria to be especially relevant for the application of a ‘failing firm defence’. First, the allegedly failing firm would in the near future be forced out of the market because of financial difficulties if not taken over by another undertaking. Second, there is no less anti-competitive alternative purchase than the notified merger. Third, in the absence of a merger, the assets of the failing firm would inevitably exit the market.

92

  See Commission Decision of 14 December 1993, IV/M.308, Kali und Salz, OJ L 186 of 21 July 1994, at 38; Commission Decision of 11 July 2001, COMP/M.2314, BASF/Eurodiol/ Pantochim, OJ L 132 of 17 May 2002, at 45. 93

  See Commission Decision of 4 December 1996, IV/M.774, Saint-Gobain/Wacker-Chemie/ NOM, OJ L 247 of 10 September 1997, at 1; Commission Decision of 3 February 1999, IV/M. 1221, Rewe/Meinl, OJ L 274 of 23 October 1999, at 1; Commission Decision of 26 June 1997, IV/M.890, Blokker/Toys ‘R’ Us, OJ L 316 of 25 November 1998, at 1. 94

  See Commission Decision of 2 April 2003, COMP/M.2876, Newscorp/Telepiù.

95

  See Regulation 4064/89, n 2, Art 2(1)(b). The Regulation did include a reference to the evolution of technical and economic progress, but with the qualification that it should not constitute an obstacle to competition. See OECD Roundtable, ‘Competition Policy and Efficiency Claims in Horizontal Agreement’, ECDE/GD(96)65, p 53 in which the Commission stated: Under cases … notified under the Merger Regulation, by contrast, the Commission has a dominance test and efficiency gains … may not justify the creation or strengthening of a dominant position as a result of which effective competition would be significantly impeded (Article 2(2) Merger Regulation). 96

  See W. Kolasky and A. Dick, ‘The Merger Guidelines and the Integration of Efficiencies into Antitrust Review of Horizontal Mergers’ (2003) 71 Antitrust LJ 207. 97

  See S. Bishop and M. Walker, The Economics of EC Competition Law: Concepts, Application and Measurement (London: Sweet & Maxwell, 2002), at para 7.89. See Commission Decision, COMP/M.2220, General Electric/Honeywell, OJ L 48, 2004, at 1. The higher efficiency of the merged entity may create barriers to entry or to expansion, or lead

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the entity to adopt foreclosure behaviour. See in particular para 412 that perfectly illustrates this approach: On the market for engines, the proposed merger will therefore have the effect of strengthening GE’s existing dominance. The effectiveness of GE.s comprehensive packaged offers can indeed be expected to be increased and GE is expected to maintain its existing customers and moreover gain new ones. The combination of GE.s large commercial aircraft engines and Honeywell’s avionics and non-avionics products can be expected to raise the costs of rivals of the merged entity. In order to compete against the packaged deals of such complementary products, competitors will have to respond by either reducing their prices or by teaming up, in which case their costs are likely to rise. 98

  See P. Camesasca, ‘The Explicit Efficiency Defence in Merger Control: Does it Make the Difference?’ (1999) 14 European Competition L Rev 14, 25 and 26; see D. Neven, R. Nutall, and P. Seabright, Merger in Daylight—The Economics and Politics of European Merger Control (London: Centre for Economic Policy Research, 1993), at 240. 99

  See, for a critique, Van Den Bergh, n 41, at 86.

100

  See Commission Decision IV/M.315, Mannesman/Vallourec/Ilva, OJ L 102 of 21 April 1994, at 15, para 54: ‘While a merger can be the vehicle for reducing structural overcapacities in a market and mitigating the effects of a recession, it is important that the higher level of concentration does not lead to the creation of a position of joint dominance …’; Commission Decision IV/M.619, Gencor/Lonrho, OJ L 11 of 14 January 1997, at 30, para 214; see also Commission Decision IV/M.1313, Danish Crown/Vestjyske Slagterier, OJ L 20 of 25 January 2000, at 1, para 198; Commission Decision IV/M.1524, Airtours/First Choice, OJ L 93 of 13 April 2000, at 1, para 146. 101

  P. Lowe, ‘The substantive standard for merger control, and the treatment of efficiencies in merger analysis: an EU perspective’, Fordham Annual Antitrust Conference, New York, 30–31 October 2002. 102

  See Green Paper on the review of the Merger Regulation 4064/89, COM(2001) 745/6 final, 11 December 2001, para 172. 103

  M. Monti, ‘Review of the EC Merger Regulation—Roadmap for the Reform Project’, Conference on Reform of European Merger Control, British Chamber of Commerce, SPEECH/02/252, Brussels, 4 June 2002; ‘Merger Control in the European Union: A Radical Reform’, European Commission/IBA Conference on EU Merger Control, SPEECH/02/545, Brussels, 7 November 2002. 104

  See C.J. Cook and C.S. Kerse, EC Merger Control, 4th edn (London: Sweet & Maxwell, 2005), at para 7-054. 105

  GC, T-5/02 Tetra Laval BV v Commission, n 87.

106

  GC, T-310/01 and T-77/02 Schneider Electric v Commission, n 87.

107

  GC, T-342/99 Airtours plc v Commission, n 71.

108

  See Proposal for a Council Regulation on the control of concentrations between undertakings, COM(2002) 711 final, Explanatory Memorandum, OJ C 20 of 28 January 2003, at para 60: The Commission is of the opinion that it is legally possible to deal explicitly with the issue of efficiencies under the present substantive test and with the present and proposed wording of the Merger Regulation. This view was also shared by many respondents to the Green Paper. Article 2(1)(b) of the Merger Regulation provides a legal basis in that respect by stating that the Commission shall take account, inter From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

alia, of ‘the development of technical and economic progress provided it is to consumers’ advantage and does not form an obstacle to competition. 109

  See Regulation 139/2004, n 3, recital 29 of Preamble.

110

  See O. Williamson, ‘Economics as an Anti-Trust Defense: The Welfare Trade-off s’ (1968) 59 Am Economic Rev 954–9; see J. Farrell and C. Shapiro, ‘Horizontal Mergers: An Equilibrium Analysis’ (1990) 80(1) Am Economic Rev 107. 111

  See on this point, M. Motta, Competition Policy: Theory and Practice (Cambridge: Cambridge University Press, 2004), at 239. 112

  See L.-H. Roller, J. Stennek, and F. Verboven, ‘Efficiency Gains from Mergers’ in F. Ilzkovitz (ed), European Merger Control: Do we Need an Efficiency Defence? (Cheltenham: Edward Elgar, 2006). 113

  Ibid, at 111.

114

  Ibid.

115

  See on this point, Motta, n 111, at 240.

116

  See F. Fisher and R. Lande, ‘Efficiency Considerations in Merger Enforcement’ (1983) 71 California L Rev 1582. 117

  See F.M. Scherer and D. Ross, Industrial Market Structure and Economic Performance, 3rd edn (Boston, MA: Houghton Mifflin, 1990), at 546. 118

  Why merge, then: well documented on economic theory, States’ and leaders’ desire of large size. See R. Roll, ‘The Hubris Hypothesis of Corporate Takeovers’ (1986) 59(2) J Business 197–216. 119

  See on the limited effect of mergers, R. Bruner, ‘Does M&A Pay’ (2002) 12 J Applied Finance 48. This is even more frequent in cases of friendly mergers such as GDF/Suez. 120

  See Guidelines on horizontal mergers, n 39, at para 76.

121

  Ibid, at para 77.

122

  Ibid, at para 79.

123

  Ibid, at para 80. The cost reductions in question are reductions of variable costs. The Commission adopts a restrictive approach in its analysis of reductions of fixed costs, as in principle they have no impact on prices to consumers. These efficiencies can give rise to cost reductions to the benefit of undertakings and hence have welfare-enhancing effects. The Commission stresses transfers to consumers, which shows that its standards focus on consumer welfare rather than total welfare. See Motta, n 111, at 241. 124

  See Guidelines on horizontal mergers, n 39, at para 81.

125

  Ibid, at para 85.

126

  Ibid, at para 86. The Commission insists that the parties should present ‘precise and convincing’ arguments. 127

  The most common restrictions take the form of agreements between the buyer and the seller. They are often non-compete clauses, licensing or cooperation agreements. 128

  See the Communication of the Commission of 14 August 1990 on restraints ancillary to concentrations, OJ C 203 of 14 August 1990, at 5; see Commission Notice on restrictions directly related and necessary to concentrations, OJ C 188 of 4 July 2001, at 5. In the Lagardère case, the Commission did not analyse ancillary restraints arguing that it wished to cease such type of analysis in the future. The Court annulled the Commission’s Decision.

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The Commission is therefore obliged to take a position on these restraints. See GC, T-251/00 Lagardère SCA and Canal + SA v Commission, 20 November 2002 [2002] ECR II-04825. 129

  See our observations in Chapter 7. See Regulation 139/2004, n 3, Art 3(4): ‘The creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity shall constitute a concentration within the meaning of paragraph 1(b).’ See Commission Notice on the concept of full-function joint ventures under Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings, OJ C 66 of 2 March 1998, at paras 9–10 referring to Commission Notice on the concept of concentration, n 129, at paras 18–39. 130

  See on the concept of joint control, Commission Consolidated Jurisdictional Notice, n 22, at 17ff . 131

  See Decision Nokia Corporation/SP Tyres UK, in which each of the founders held a veto right, which implied that the undertakings cooperated on any decision to be made. The Commission considered it as an absolute presumption of joint control. 132

  eg if the statutes foresee the adoption of decisions by 66.7 per cent of the votes and a majority shareholder holds 40 per cent of the votes and the two minority shareholders each hold 30 per cent of the votes. 133

  It is a legally binding agreement often attendant to the filing of the articles of association and which allows the exercise of voting rights in a convergent manner. 134

  Common interests may justify the conclusion that shareholders act together to exercise joint control. The Commission nevertheless acknowledges that such cases are rare. De facto joint control may be reinforced by factual elements, of which one should be extremely cautious. This will be the case when the founding undertakings are already part of another JV, when they acted together to create a JV or on the basis of the important capital they each invested, or the fact that what they put in common is similar (eg IP rights). The Commission might then find that this constitutes a community of interests, reinforcing the joint control presumption. However, such a conclusion should be moderated by the fact that the Notice itself specifies that de facto joint control is very rare. 135

  Or related to more specific aspects, such as technology on innovative markets, R&D policy, etc. 136

  See Commission Consolidated Jurisdictional Notice, n 22, at para 34.

137

  Information technology and network solutions provider. Subsidiaries in Europe (RU, DE, ES, FI) active in the sector of production and sale of a large range of computers, semiconductors, telecommunication products, and linked products. 138

  Provider of products, services, and electronic systems. Subsidiaries in most Member States. Produces and sells in the energy, transport, medical lighting, information and communications, and household electrical appliances sector. 139

  This is original as competition law is not in principle concerned with the form of the anticompetitive practices (see ie the rules applicable to the concept of undertaking or the concept of agreement). This is justified by the fact that the practice gave rise to two categories of JV: on the one hand, JVs where the parties created a common undertaking that is fully subordinated to them; on the other hand, JVs where the founding parties created a common undertaking that is completely autonomous. 140

  It must therefore be pre-notified to the Commission if the conditions are fulfilled (in particular if the market share thresholds are met). It will then be examined on the basis of the substantial test set out in Regulation 139/2004, n 3.

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141

  See Regulation 139/2004, n 3. See also the old Commission Notice on the concept of undertakings concerned under Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings. 142

  See Commission Consolidated Jurisdictional Notice, n 22, at para 94.

143

  See Commission Notice on the concept of full-function joint ventures under Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings, n 129, at para 12. 144

  See Commission Consolidated Jurisdictional Notice, n 22, at para 95.

145

  In the context of a joint venture. See the Commission Decision, COMP/M.3333, Sony/ BMG, 19 July 2004, OJ L 62 of 9 March 2005, at 30. 146

  On the 100 best-selling albums of each company.

147

  See eg Commission Decision of 30 September 1999, N IV/JV.22, Fujitsu/Siemens, OJ C 318 of 5 November 1999, at 15. 148

  Ibid, the JV would supply centrifuges to its two parent companies and to third parties. See also Commission Decision, Sony/BMG, n 145, at para 176 on the possible incentives for Sony and BMG to coordinate their behaviour on the market linked to musical edition. 149

  See Commission Decision, COMP/M.3099, AREVA/Urenco/ETC, 6 October 2004, not published, at para 192. 150

  See Commission Decision, AREVA/Urenco/ETC, n 148, at para 109.

151

  See Commission Regulation (EC) 802/2004 of 7 April 2004 implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings, OJ L 133 of 30 April 2004, at 1. See in particular, Annex I of the Regulation for Form CO. 152

  See Regulation 139/2004, n 3, Art 7. The transaction was suspended in the meantime.

153

  See Ibid, Art 10(1) and the exceptions foreseen (as far as remedies or referral requests from a Member State are concerned). 154

  See Regulation 139/2004, n 3, Art 10(3) and the exceptions foreseen.

155

  See Ibid, Art 10(6) and Regulation 4064/89, n 2.

156

  These are mainly mechanisms aimed to ensure the efficiency of the information gathering, foreseen by Regulation 139/2004, n 3, at Arts 11 (requests for information), 12 and 13 (inspection powers), 14 (fines), and 15 (periodic penalty payments). 157

  Since the adoption of Regulation 139/2004, the Commission benefits from a more extended timetable for its analysis and from the power to suspend the imperative time limits when, eg, it does not receive the requested information from the notifying parties. See Regulation 139/2004, n 3, Art 10(4): The periods set [by the Regulation on the control of concentration] shall exceptionally be suspended where, owing to circumstances for which one of the undertakings involved in the concentration is responsible, the Commission has had to request information by decision pursuant to Article 11 or to order an inspection by decision pursuant to Article 13. See also Regulation 802/2004, n 151, Art 9. For the rules applicable to requests for information addressed to interested third parties, ie principally the clients, suppliers, and competitors, see Ibid, Art 11. 158

  See Regulation 139/2004, n 3, Art 9(3):

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in cases where a Member State informs the Commission pursuant to paragraph 2 (b) that a concentration affects competition in a distinct market within its territory that does not form a substantial part of the common market, the Commission shall refer the whole or part of the case relating to the distinct market concerned; if it considers that such a distinct market is affected. 159

  See Commission Notice on remedies acceptable under Council Regulation (EEC) No 4064/89 and under Commission Regulation (EC) No 447/98, OJ C 68 of 2 March 2001, at 3. See also Regulation 802/2004, n 151, Arts 19 and 20. 160

  See Regulation 139/2004, n 3, Art 18 and Regulation 802/2004, n 151, Arts 14 and 15.

161

  See the example of the Oracle/PeopleSoft merger, Commission press release IP/04/1312 of 26 October 2004. 162

  See Regulation 139/2004, n 3, Art 10(4).

163

  See Cook and Kerse, n 104.

164

  See P. Rey, ‘Economic Analysis and the Choice of Remedies’ in F. Levêque and H. Shelanski (eds), Merger Remedies in American and European Competition Law (Cheltenham: Edward Elgar, 2003), 129. See K. Paas, ‘Non-structural Remedies in EU Merger Control’ (2006) 5 European Competition L Rev 209. 165–166

  See Regulation 4064/89, n 2. This system, which was initially only applicable to mergers that have reached the second phase of administrative proceedings, was extended to the first phase of the administrative proceedings in 1997 . See Regulation 1310/97, n 3, recital 8 of the Preamble, amending Regulation (EEC) No 4064/89 on the control of concentrations between undertakings, OJ L 180 of 9 July 1997, at 1. In modern EU competition law, the relevant provisions can be found in Regulation 139/2004, n 3, Arts 6(2) and 8(2). See Ibid, Art 6(2): Where the Commission finds that, following modification by the undertakings concerned, a notified concentration no longer raises serious doubts within the meaning of paragraph 1(c), it shall declare the concentration compatible with the common market pursant to paragraph 1(b). See also Ibid, Art 8(2): Where the Commission finds that, following modification by the undertakings concerned, a notified concentration fulfils the criterion laid down in Article 2(2) and, in the cases referred to in Article 2(4), the criteria laid down in Article 81(3) of the Treaty, it shall issue a decision declaring the concentration compatible with the common market. 167

  See W.J. Baer and R.C. Redcay, ‘Solving Competition Problems in Merger Control: The Requirement for an Effective Divesture Remedy’ in Levêque and Shelanski (eds), n 164. This practical consideration is the source of the appearance of remedies in US merger law. Starting from the adoption of the Hart-Scott-Rodino Act in 1976, merger projects between undertakings must always be pre-notified to the control authorities and suspended (see Title II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Pub L no 94-435, 90 Stat 1390, section 7A of the Clayton Act, 15 USC § 18a). The parties, wishing to limit the duration of the suspension of their transaction, sought ways to accelerate the procedure. That is what led them to offer to the authorities to sell some of their assets to limit any risk

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of harm to competition. These remedies take the form of a ‘consent decree’, ie of transactions between the parties and the authority. 168

  See Commission Notice on remedies, n 159, at 3–11.

169

  Ibid, at 6.

170

  See Regulation 139/2004, n 3, recital 30 of the Preamble.

171

  The distinction between conditions and obligations (or charges) is clarified in the Commission Notice on remedies, n 159, at para 12. The requirement that each measure leading to a market change be realized is a condition. The steps necessary to achieve this result are generally the obligations. In other words, the conditions aim at the effective implementation of the remedies (eg the execution of the sale in the time limits set in cases of structural measure). The obligations are the procedural requirements to reach the implementation of the remedies (the nomination of a trustee in charge of the supervision of the asset sale, the organisation of an open sales procedure in case of structural measure, etc). The distinction is important because—outside the imposition of fines and periodic penalty payments—the legal consequences of a violation of the conditions or the obligations differ. For more details, see E. Navarro, A. Font, J. Folguera, and J. Briones, Merger Control in the EU, 2nd edn (New York: Oxford University Press, 2005), at paras 13.99–13.101; see also Cook and Kerse, n 104, at para 8-038. 172

  On what follows, see Cook and Kerse, n 104, at para 8-001.

173

  A recurring criticism is that the Commission twists the Regulation to redefine the market structure in place in certain sectors. In addition, in an influential work published in 1992, three renowned economists noted that: ‘conditions (“remedies”) attached to decisions have often done little to meet competition concerns, since they have relied on excessive optimism about the future development of competitive forces’. See Neven et al, n 98, at 77. See also A. Winckler, ‘Some Comments on Procedure and Remedies under EC Merger Control Rules: Is There Something Rotten in the Kingdom of the EC Merger Control’ in Levêque and Shelanski (eds), n 164, at 75–89. See finally T. Dusso, K. Gugler, and B. Yurtoglu, ‘EU Merger Remedies: A Preliminary Empirical Assessment’, Discussion Paper SP II 2005, mimeo. 174

  See on these points, R.G. Parker and D.A. Balto, ‘The Evolving Approach to Merger Remedies’ [2000] Antitrust Report, May; Baer and Redcay, n 167, at 49. The merger wave at the beginning of the 1990s led to an increase in the number of notifications and, indirectly, the number of remedies imposed. The sudden rise in structural remedies led economists, practitioners, and civil servants of the control authorities to question their effectiveness. In 1995, the Bureau of Competition of the Federal Trade Commission started to carry out an empirical study of the remedies adopted in its decisions. An influential study known as the ‘Divesture Study’ was finally published in 1999. See Bureau of Competition of the Federal Trade Commission, ‘A Study of the Commission’s Divesture Process’, 1999. 175

  See Cook and Kerse, n 104, at para 8-002. The object of the study was not so much to measure the effectiveness of the adopted measures, but rather to identify the problems that arose in their conception and execution. See DG COMP, European Commission, ‘Merger Remedies Study’, Public version, October 2005, available at . See also the Commission press release, IP/05/1327, ‘Mergers: Commission analysis of past merger remedies provides guidance for future cases’, Brussels, 21 October 2005. 176

  See the Merger Remedies Study, Ibid. For a summary of the results of the inquiry, see F. Levêque, ‘Quelle efficacité des remèdes du contrôle européen des concentrations?’ [2006] 1 Concurrences 27; P. Papandropoulos and A. Tajana, ‘The Merger Remedies Study—In Divestiture We Trust?’ (2006) 8 European Competition L Rev 443. The study only concerned 40 Decisions adopted between 1996 and 2000 (see paras 6–7). It relies on questionnaires From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

and interviews realized with parties to the transactions (sellers, licensors), beneficiaries of the corrective measures (buyers, licensees, etc), and trustees (see para 17). The study would still conclude that 81 per cent of the adopted remedies were effective (see para 34). 177

  The main difficulties are the following. In case of sales,difficulties in the delimitation of the assets to be sold (paras 5ff); limited use of alternative remedies, the so-called ‘Crown jewels’ (paras 25ff); difficulties in ensuring that the sales transactions take place smoothly (paras 44ff);difficulties in severing certain production units where there are shared resources and personnel (paras 52ff); problems with the swift implementation of the sale (paras 71ff); delays in the nomination of the trustees for the sales and supervision issues (paras 78ff); difficulties in selection of the appropriate buyer (paras 97ff); deadline of implementation of the remedies not met (approx 40 per cent) (paras 113ff); problems in maintaining the viability, value, and competitiveness of the assets in question (paras 30ff); in the case of an exit from a joint venture: problems with the cooperation of the other parent company (paras 17ff); in the case of remedies aiming to facilitate access to the market: limited efficiency (para 10). 178

  See E. Combe, Economie et politique de la concurrence (Paris: Dalloz, 2005), at 315 para 140; M. Motta, M. Polo, and H. Vasconcelos, ‘Merger Remedies in the European Union: An Overview’ in Levêque and Shelanski (eds), n 164, at 108. Often referred to as ‘divestments’. 179

  They call also sell stakes in the capital of joint ventures, etc.

180

  See Combe, n 178, at para 140.

181

  Or also, supply of essential inputs, granting access to an essential infrastructure, etc.

182

  See N.C. Ersbøll, ‘Commitments under the Merger Regulation’ (2001) 22(9) European Competition L Rev 357, 360; Navarro et al, n 171, at para 11.60, who speak of ‘quasistructural’ remedies when they refer to the sale of exclusivity contracts, because they entail a change in the market structure. Other speak of ‘quasistructural’ remedies due to their contractual nature. See Motta et al, n 178, at 118. 183

  See A. Ezrachi, ‘Under (and Over) Prescribing of Behavioural Remedies’, University of Oxford Centre for Competition Law and Policy, Working Paper (L) 13/05 mimeo, at p 1. Others suggest a distinction between structural remedies, which modify the allocation of ownership, and ‘quasi-structural’ remedies, ie all the others. See Paas, n 164, at 209. 184

  See ICN Merger Working Group: Analytical Framework Subgroup, Merger Remedies Review Project, Report for the fourth ICN annual conference, Bonn, June 2005, para 3.6: Remedies are conventionally classified as either structural or behavioural. Structural remedies are generally one-off remedies that intend to restore the competitive structure of the market. Behavioural remedies are normally ongoing remedies that are designed to modify or constrain the behaviour of merging firms (in some jurisdictions, behavioural remedies are normally referred to as ‘conduct remedies’). See along the same line, for structural remedies, Dusso et al, n 173, at 25. 185

  See Commission Notice on remedies, n 159, at para 9.

186

  See, on judicial control of fines and periodic penalty payments imposed in the course of the procedure, Regulation 139/2004, n 3, Art 16.

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187

  See ie H. Legal, ‘Standards of Proof and Standards of Judicial Review in EU Competition Law’ in B.E. Hawk (ed), Fordham Corporate Law Institute (London: Sweet & Maxwell, 2005), 107, at 108–9. 188

  See CJ, 42/84 Remia BV et al v Commission [1985] ECR 2545 at 34. This case law was confirmed in Matra/Hachette case in which the GC reiterated that: ‘judicial review of the legal characterization of the facts is limited to the possibility of the Commission having committed a manifest error of assessment’. See GC, T-17/93 Matra Hachette SA v Commission, 15 July 1994 [1994] ECR II-00595 at 104. 189

  See ie the conclusions of the French ‘Commissaire du gouvernement’ G. Braibant on the Lagrange case, CE 15 February 1961. 190

  See Cook and Kerse, n 104, at 375.

191

  See CJ, Joined Cases C-68/94 and C-30/95 République française et Société commerciale des potasses et de l’azote (SCPA) et entreprise minière et chimique (EMC) v Commission, 31 March 1998 [1998 ECR I-01375 at 223. See also CJ, Joined Cases C-204/00 P, C-205/00 P, C-211/00 P, C-213/00 P, C-217/00 P, and C-219/00 P Aalborg Portland et al v Commission, 7 January 2004 [2004] ECR I-00123, at 279: Examination by the Community judicature of the complex economic assessments made by the Commission must necessarily be confined to verifying whether the rules on procedure and on the statement of reasons have been complied with, whether the facts have been accurately stated and whether there has been any manifest error of appraisal or misuse of powers. 192

  See eg I. Van Bael, ‘Procedural Rights and Issues’ (2000) Fordham Corporate Law Institute 383. 193

  The authority was supported by part of the doctrine, which considered that the judge had carried out a new assessment of the transaction by substituting his views for those of the Commission. See D. Bailey, ‘Standard of Proof in EC Merger Proceedings: A Common Law Perspective’ (2003) 40 Common Market L Rev 861–2 and 864; see also M. Siragusa, ‘Judicial Review of Competition Decisions under EC Law’, Speech delivered at the Competition Commission Lectures, 21 September 2004, at 7, referring to the judgments of the GC in T-310/01 and T-77/02 Schneider Electric v Commission (n 87, at para 412) and Tetra Laval v Commission (n 87). The most surprising criticism came from a judge at the GC, see Legal, n 187. 194

  See CJ, Case C-13/03 P Commission v Tetra Laval BV [2005] ECR I-1113, at paras 25ff.

195

  See the conclusions of Advocate General Tizzano, n 80, at paras 88–9.

196

  See CJ, Commission v Tetra Laval BV, n 194, at para 39.

197

  Subsequently to increase it if demand was particularly strong.

198–201

  See Airtours case, n 71, at para 284.

202

  See Commission Decision of 14 March 2000, COMP/M.1672, Volvo/Scania, OJ L 143 of 29 May 2001, at 74. 203

  See H. Horn and J. Stennek, ‘EU Merger Control and Small Member State Interests’ in The Pros and Cons of Merger Control (Swedish Competition Authority, 2002), at 83–4. 204

  The Commission adopted 21 prohibition Decisions. See M.5830, Olympic/Aegean Airlines, 26 January 2011; M.4439, RyanAir/Aer Lingus (139/2004), 30 October 2006; M. 3440, ENI/EDP/GDP (4064), 9 December 2004; M.2416, Tetra Laval/Sidel, 30 October 2001; M.2187, CVC/Lenzing, 17 October 2001; M.2283, Schneider/Legrand, 10 October 2001; M. 2220, General Electric/Honeywell, 3 July 2001; M.2097, SCA/Metsä Tissue, 31 January 2001; M. 1741, MCI Worldcom/Sprint, 28 June 2000; M. 1672, Volvo/Scania, 15 March From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

2000; M.1524, Airtours/First Choice, 22 September 1999; M. 1027, Deutsche Telekom/ Betaresearch, 27 May 1998; M.993, Bertelsmann/Kirch/Premiere, 27 May 1998; M.890, Blokker/Toys ‘R’ Us (II), 26 June 1997; M.774, Saint Gobain/Wacker Chemie/Nom, 4 December 1996; M.784, Kesko/Tuko, 20 November 1996; M.619, Gencor/Lonrho, 24 April 1996; M. 553, RTL/Veronica/Endemol (‘HMG’), 20 September 1995; M.490, Nordic Satellite Distribution, 19 July 1995; M.469, MSG Media Service, 9 November 1994; M. 53, Aerospatiale/Alenia/De Havilland, 2 October 1991. See the statistics updated by the Commission at . The merger transactions without a ‘European dimension’ and those that were notified to NCAs should be added to this figure. There are numerous such transactions. 205

  See Commission Press Release, IP/00/258.

206

  Time Warner abandoned its merger project after the Commission issued a Statement of Objections that identified a risk of collective dominance of the four providers of recorded music. See Commission Press Release, IP/00/1122. 207

  See Marion Monti’s hearing, Meeting of the delegation for the European Union, 8 June 2004. 208

  See Charlie McCreevy’s speech, ‘European Banking—Challenges and Changes Ahead’, Institut International d’Etudes Bancaires, Dublin, 20 May 2005, Speech/05/294 of 23 May 2005. 209

  See R. Pitofsky, ‘EU and US Approaches to International Mergers—Views from the US Federal Trade Commission’ in EC Merger Control: Ten Years (London: International Bar Association, 2000), 50. 210

  See Guidelines on horizontal mergers, n 39, at para 76. See also para 80, which provides: Mergers may bring about various types of efficiency gains that can lead to lower prices or other benefits to consumers. For example, cost savings in production or distribution may give the merged entity the ability and incentive to charge lower prices following the merger. See finally Regulation 139/2004, n 3, Art 2(1) which aims at economic progress: the Commission shall take into account the development of technical and economic progress provided that it is to consumers’ advantage and does not form an obstacle to competition. 211

  In the energy sector, the Commission also made extremely dynamic use of the powers granted to it by the Merger Regulation. See on this point, M. Piergiovanni, ‘EC merger control regulation and the energy sector: an analysis of the European commission’s decisional practice on remedies’ (2003) 4 J Network Industries 227. 212

  See on these points, G. Sidak and D. Geradin, ‘European and American Approaches to Antitrust Remedies and the Institutional Design of Regulation in Telecommunications’ in M.E. Cave, S. Majumdar, and I. Vogelsang (eds), Handbook of Telecommunications Economics, vol 2 (Oxford: Oxford University Press, 2006). 213

  Commission Decision of 17 July 1996, IV/35.337, Atlas, OJ L 239 of 19 September 1996, at 23. See para 31:

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In letters sent to the Commission, the French and German Governments have undertaken to take the necessary steps to effectively allow the use of alternative infrastructure for the provision of liberalized telecommunications services by 1 July 1996 and to liberalize the voice telephony service and all telecommunications infrastructure fully and effectively by 1 January 1998. The availability of alternative telecommunications infrastructure in Germany and France renders competitors of Atlas independent of DT and FT’s infrastructure for the purposes of creating trunk network infrastructure to provide liberalized services. Early alternative infrastructure liberalization in France and Germany adds to a regulatory framework in the home countries of the Atlas partners that is designed to ensure a level playing field in the telecommunications markets. 214

  See Commission Decision, IV/M.1439, Telia/Telenor, OJ L 40 of 9 February 2001, at 1.

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Index Of Names From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

(p. 541) Index Of Names Ahlborn, C. 4.161 Areeda, P. 2.129, 4.263 Arrow, K. 2.25 Bailey, D. 4.161 Bain, J. 2.36, 2.40, 2.93–2.99 Baker, J.B. 1.13 Bolton, P. 4.277–4.278 Bork, R. 2.45 Carlton, D. 2.49, 4.462 Cecchini, P. 1.29 Clark, J.M. 3.70 Coase, R. 2.140 Connor, J. 6.08, 6.97 Cournot, A. 2.32 de la Mano, M. 4.418, 4.432, 4.438 de Streel, A. 4.386, 4.421, 4.423–4.424 Eckard, E. 6.97 Edlin, A. 4.284–4.288, 4.291 Edward, D. 5.270 Elhauge, E. 4.284, 4.288–4.291 Erhard, L. 1.47 Evans, D 4.422–4.426 Ezrachi, A. 4.429 Forwood, N. 5.277–5.279 Fox, E. 1.185 Galbraith, J.K. 8.75 Gilo, D. 4.429

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Hart, P. 2.40 Hausman, J. 2.79–2.80 Hayek, F. 1.44, 2.33 Hicks, J. 2.24 Jenny, F. 1.13, 2.01 Joliet, R. 3.63–3.64, 4.82 Kaysen, C. 2.38, 2.39–2.40 Krattenmaker, T. 2.60 Kroes, N. 4.139–4.140 Lande, R. 2.60, 2.83, 6.08, 6.97 Lebenstein, H. 2.28 Lester, R. 2.69 Levenstein, M. 6.98 Lowe, P. 4.416 Marshall, A. 1.17, 2.13–2.14, 2.15, 2.18 Monti, G. 3.59, 6.04, 9.97, 9.187 Motta, M. 4.386, 4.421, 4.423–4.424 Neven, D. 4.418, 4.432, 4.438 O’Donoghue, R.O. 4.17, 4.134, 4.268, 4.292, 4.446 Padilla, J. 4.17, 4.268, 4.292, 4.422–4.426, 4.446 Pareto, V. 2.23 Paulis, E. 4.405–4.406, 4.417, 4.426–4.428 Perloff, J. 2.49, 4.462 Pfister, E. 8.75 Posner, R. 4.456 Reagan, R. 2.47 Rahl, J. 2.39, 4.81 Rockefeller, J.D. 1.42 Röller, L.-H. 4.430–4.432, 4.438 Ross, D. 1.13 Salop, S. 2.60 Scalia, A. 6.04 Scherer, F.M 1.13 Schumpeter, J. 2.26–2.27 Sidak, G. 2.79–2.80 Smith, A. 2.10, 6.03 Stigler, G. 2.46, 2.94–2.98 Suslow, V. 6.98 Telser, L. 8.20 Temple Lang, J. 4.134 Turner, D. 2.38, 2.39–2.40, 2.129, 4.263 Van Miert, K. 6.13 Vesterdorf, B. 5.260–5.261 Von Mises, L. 1.44 Weber, A. 1.13 Whish, R. 4.53 (p. 542)

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General Index From: EU Competition Law and Economics Damien Geradin, Dr Anne Layne-Farrar, Nicolas Petit Content type: Book content Product: Oxford Competition Law [OCL] Published in print: 22 March 2012 ISBN: 9780199566563

(p. 543) General Index above-cost pricing 4.284–4.293 absolute cost advantages 2.106 abuse of dominance 1.51, 1.80 annulment proceedings 5.224 exclusionary abuses 4.131, 4.132–4.370 exploitative abuses 4.131, 4.371–4.451 price discrimination 4.452–4.542 prohibition 1.49 see also dominance accelerated/fast-track procedure 9.182 accessorium sequitur principale 3.148 accounting profits or economic profits 2.76–2.77 Act of State defence 6.88 actions for damages 3.208–3.214, 9.174–9.182 active sales restrictions 8.31, 8.56, 8.58–8.59, 8.103, 8.104, 8.107–8.111 actual competition 3.76 ad hoc regulations 1.159 administrative fines 6.79–6.88 basic amount determination 6.86 calculation method 6.84–6.85 increase of amount 6.87 reduction of amount 6.88 adverse selection problems 6.110 advertising investments 2.110 Advisory Committee on Restrictive Practices and Dominant Positions 5.164–5.165 agency agreements 3.13–3.17 aggressive pricing 4.399

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agreements 3.22–3.49 ancillary 6.26–6.27 anti-competitive 1.79, 1.160, 3.59 assessment principles 3.124–3.127 between non-competing undertakings 7.63, 7.107, 7.127 bilateral 1.181, 1.187 derogations 1.149–1.152 distribution 7.125 exclusivity 4.214 export, preventing competitive re-imports 3.156–3.159 infrastructure-sharing 1.160 intra-group 3.08–3.13 joint boycott 6.16 joint distribution 7.121–7.122 joint research and development 3.76, 3.122, 3.247 local 3.201 national 3.199 private coercion 3.26–3.28 public coercion 3.29–3.38 regional 3.199–3.201 subcontracting 7.78 transnational 3.196–3.197 unilateral actions 3.39–3.49 vertical 3.74, 3.140, 3.142, 3.145, 3.156, 3.196, 7.101 see also horizontal cooperation; specialization; standardization agricultural products sector 1.146–1.152 AKZO test 4.259–4.262, 4.268, 4.272, 4.293, 4.299 allocation principle 1.141 allocation of scarce resources 1.15–1.16 allocative efficiency 4.306–4.309, 4.312–4.313, 9.107 allocative inefficiency 1.22, 2.23 amicus curiae procedure 5.82–5.84 ancillary agreements 6.26–6.27 ancillary restraints doctrine 3.148–3.150, 7.88, 9.110–9.111 ‘Ankara Agreement’ 1.187 annual reports (Commission) 1.111–1.112 annulment proceedings 5.210–5.220, 5.221–5.233, 5.234–5.242, 5.243–5.250, 5.251– 5.287, 9.162–9.173 abuses 5.224 actions seeking compensation from EU institutions 5.246–5.250 actions seeking to obtain revision of fine 5.244–5.245 acts of a general nature 5.231–5.233 direct concern condition 5.222 EU act 5.211 formal conditions 5.234 individual applicants 5.221 individual concern condition 5.223 judicial review 9.167–9.173 restricted vs unlimited jurisdiction 5.252–5.254 standard (full) vs marginal (restrained) 5.255–2.287 legal effects, acts with 5.212–5.214

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marginal review 9.162–9.166 outcome 5.227–5.230 privileged applicants 5.221 shareholders 5.226 substantive conditions 5.236–5.242 external legality 5.238–5.240 internal legality 5.238, 5.241–5.242 trade unions 5.225 anti-cartel policy 6.01–6.14 concept of cartel 6.01–6.03 economic clarification 6.05–6.06 empirical clarification 6.07–6.09 legal implications 6.11 political implications 6.12–6.14 stability 6.10 (p. 544) anti-competitive agreements 1.79, 1.160, 3.59 anti-competitive coordination 3.01–3.255, 7.04 exception rule 3.215–3.255 nullity rule 3.202–3.214 prohibition rule 3.04–3.301 anti-competitive effects, unilateral 9.42 anti-competitive foreclosure 4.142–4.146 buyer power 8.41 predation 4.299–4.301 vertical restraints 8.76, 8.92 anti-trust rules and authorities 4.346 appraisal, manifest error of 9.162–9.166 appreciability rule see de minimis doctrine appreciable effects 3.128–3.140, 3.174, 3.176 arms industry sector 1.163–1.166 articles written by Commission officials 1.114 as efficient competitor test 4.147–4.149 associations of undertakings, decisions by 3.50–3.53 asymmetric information problems 7.54 Austria 5.34 authorization/notification system 1.53 ‘autonomous’ concept 3.163 average avoidable costs (AAC) 2.146, 2.149–2.150, 4.147, 4.265, 4.296, 4.299 average costs 2.130–2.148 average avoidable costs (AAC) 2.146, 2.149–2.150, 4.147, 4.265, 4.296, 4.299 average incremental costs 2.151–2.152 average total costs (ATC) 2.130–2.135, 4.193, 4.266, 4.272 average variable costs (AVC) 2.143, 2.145, 2.149, 4.265, 4.272, 4.296 fixed costs 2.137–2.142, 2.147–2.148 multi-product firms and allocation of common costs 2.134–2.135 strategic behaviours 2.136 variable costs 2.143–2.148 average incremental costs 2.151–2.152 average total costs (ATC) 2.130–2.135, 4.193, 4.266, 4.272 average variable costs (AVC) 2.143, 2.145, 2.149, 4.265, 4.272, 4.296 balancing test 3.227

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barriers to entry 1.27, 2.16, 2.90–2.124, 4.67–4.68 characteristics 2.100–2.103 definition 2.93–2.99 exclusive contractual relationship 8.11 exploitative abuses 4.403, 4.421–4.423, 4.428 legal 4.68 natural 2.24 ‘probable’ entry 2.102 product market 4.22 strategic barriers 2.118–2.124 ‘sufficient’ competition 2.103 ‘timely’ entry 2.101 see also structural barriers barriers to exit 2.115 barriers to expansion 4.69–4.70 behavioural remedies 5.171 behavioural theories 2.61 ‘behaviouralist’ movement see Chicago School Belgium 1.49, 5.35, 6.106 benchmarking 4.396–4.403, 7.52 ‘Better Regulation: A Guide to Competition Screening’ 3.38 biases 5.36, 9.189–9.191 bid rigging 6.47 bilateral agreements 1.181, 1.187 black clauses see hardcore restrictions block exemption 1.100, 3.219 decisions withdrawing benefit of 5.188–5.190 horizontal cooperation agreements 7.06, 7.08 production and specialization agreements 7.87 research and development agreements 7.64–7.66 vertical restrictions 8.70, 8.83–8.85 bonus schemes 4.178–4.180 bonuses 2.28, 4.488 border rebates 4.534 boycott agreements, joint 6.16 breakthrough of competition economics into EU law 2.04–2.05 ‘briefing paper’ 9.142 bundling 4.221, 4.225, 4.242, 4.247, 4.252–4.253 ‘but for’ see counterfactual analysis buyer power (monopsony) 7.115, 8.38–8.44, 8.73–8.75 competitive harm theories 8.41–8.42 objective justifications and pro-competitive effects 8.43–8.44 Canada 6.90 candidate market 4.32 capacity constraints 4.204 cartels 1.04, 1.37, 1.51 collective dominance 4.79 continued operation after discovery 6.87 crisis 6.37–6.43 cross-border, market partioning 3.185, 3.196

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export 3.153–3.154, 3.155 lifespan 6.98 limitation 6.32–6.33 new industrial economics 2.51 nullity 3.212–3.213 overcharges 6.08 procedural framework 5.115 production limitation or control 6.30–6.31 prohibition 1.49 restrictions by ‘object’ 3.114 settlement procedure 1.101 trading conditions 6.28–6.29 ultra-liberalism 1.44 see also anti-cartel policy; institutional aspects; monopolies and cartels; substantive cartel law case law decentralized enforcement system 1.126–1.127 decisional practice of the Commission 1.102–1.118 European Courts 1.119–1.125 categorization issues in judicial review 5.269–5.271 category captain 8.42, 8.44, 8.76 category management agreements 8.39, 8.42, 8.44, 8.76 (p. 545) cease and desist orders 5.170 ‘cellophane fallacy’ 4.45–4.46 chains of substitution 4.28–4.30 chemical industry 6.92 Chicago School (‘behaviouralist’ movement) 1.65–1.66, 2.35, 2.42–2.47, 2.48–2.50, 2.53 barriers to entry 2.93 limited distribution 8.24 resale price maintenance 8.20 vertical restraints 8.54 circumstantial evidence, concordant 3.59 classical and neoclassical competition economics 2.10–2.34 monopolies and cartels 2.20–2.30 perfect competition 2.15–2.19 supply and demand 2.12–2.14 theories, evaluation of 2.31–2.34 coercion condition/test 4.239–4.241 private 3.26–3.28 public 3.29–3.38 cointegration analysis 4.38 Colbertism 1.36 collective boycott strategies 6.50–6.52 collective dominance 9.61, 9.64, 9.67, 9.69 as cumulative effect of individual dominant positions in distinct markets 4.110–4.112 and legislative/regulatory measures 4.115–4.116 and oligopolistic anti-competitive coordination 4.81–4.108 Commission involvement 4.81–4.86 Commission low-enforcement practice 4.102–4.106 Courts’ involvement 4.87–4.91

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merger control 4.92–4.96 Merger Regulation case law under Article 102 4.97–4.101 uncertain contours of notion of abuse 4.107–4.108 in oligopolistic settings 4.117–4.130 assessment of dominance 4.130 existence of collective entity 4.119–4.129 short of single economic entity doctrine 4.113–4.114 vertical 4.113 collective entity 4.119–4.129 College of Commissioners 5.164, 5.239 collusion 1.37 buyer power 8.41 Chicago School 2.46 commercialization agreements 7.130–7.133 exclusive contractual relationship 8.11–8.12 horizontal 2.46 horizontal price 8.19 information exchanges 7.25–7.26 market-sharing 8.36 production and specialization agreements 7.81 purchasing agreements 7.113 resale price maintenance 8.19 vertical 2.46, 8.90 see also tacit collusion commercial contract, imbalanced 3.78 commercialization agreements 7.120–7.135 between non-competing undertakings 7.127 collusion 7.130–7.133 economic benefits 7.134 individual analysis 7.129 joint distribution agreements 7.121–7.122 main competition concerns 7.124 market-share thresholds 7.128 relevant markets 7.123 restrictions of competition by object 7.125–7.126 commitments, binding 5.177–5.187 common agricultural policy (CAP) 1.146 common costs 4.267–4.271, 4.386 common interest doctrine 3.40 common law 1.37 common market 1.59 common transport policy 1.153 commonality of costs 7.81 Communications (Commission) 1.105–1.108 company documents 4.44 company size 9.188 comparative advantage 7.92 compatibility presumption 8.62–8.85 agreements of minor importance 8.63–8.68 block exemption 8.70, 8.83–8.85 conditions 8.79–8.82

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double market-share thresholds 8.71–8.78 merger control 9.16 small and medium-sized enterprises 8.69 see also full-function joint ventures compatibility compensation, private actions for 6.90 compensation-seeking EU institutions 5.246–5.250 competence, lack of 5.239 Competition Commissioners 1.115–1.116, 5.239 competition on the merits notion 4.136 competition reduction and buyer power 8.41 competitive disadvantage geographic price discrimination 4.530, 4.532, 4.536 price discrimination 4.477–4.479, 4.496, 4.499 competitive harm theories 8.89–8.95, 9.12–9.15 competitive harm theories buyer power 8.41–8.42 exclusive contractual relationship 8.11–8.13 limited distribution 8.22–8.23 market-sharing 8.34–8.36 resale price maintenance (RPM) 8.19 competitive price-cutting 4.256 competitors benchmark 4.400–4.403 complainants, information received from 5.96–5.103 complaints, formal and informal 5.97–5.98 complementary test 9.132–9.137 complex economic matters 5.272–5.287 component suppliers selling to end-users, repairers, and independent service providers 8.61 concentration 9.06–9.140 ancillary restraints compatibility 9.110–9.111 competitive harm theories 9.12–9.15 conglomerate mergers 9.11, 9.15 definition 9.06–9.08 double test 9.41–9.44 (p. 546) full-function joint ventures compatibility 9.112–9.140 horizontal mergers 9.09, 9.13, 9.45–9.74 non-horizontal mergers 9.75–9.90 notification 9.18–9.40 downward referral (German clause) 9.37 interventions 9.38 legitimate interests 9.38–9.39 mandatory 9.29–9.30, 9.31 sanction 9.32 turnover calculation 9.24–9.27 undertakings, identification of 9.22 upward referral (Dutch clause) 9.36 ratios (CR) 1.115–1.116 2.88–2.89 thresholds 9.48 vertical mergers 9.10, 9.14 concerted practice 3.54–3.65, 7.47, 9.61

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concordant circumstantial evidence 3.59 concurrence of wills between several independent undertakings 3.07–3.69 agreements 3.22–3.49 associations of undertakings 3.50–3.53 concerted practice 3.54–3.65 plurality 3.07–3.19 conditional rebates 4.159–4.219 bonus schemes 4.178–4.180 case law of courts and decisional practice of Commission 4.212–4.219 double marginalization avoidance 4.196 economies of scale and fixed costs recovery 4.196 economies of scope and transactions costs reduction 4.196 effective price 4.189 effects 4.163–4.164 effects-based approach of Guidance Paper 4.201–4.211 fidelity 4.166–4.169, 4.478, 4.480, 4.485, 4.490 growth 4.161 hold-up prevention 4.196 incremental 4.190, 4.195 loyalty/target 4.161, 4.172, 4.174, 4.194, 4.214–4.215, 4.419 market-share 4.161 multi-product/bundled 4.161, 4.182, 4.197–4.200, 4.203–4.204, 4.221 price reduction 4.196 quantity 4.161 ‘relevant range’ 4.189–4.190 retroactive/roll-back 4.161, 4.174, 4.179, 4.185–4.187, 4.190, 4.214 single-product 4.161, 4.182–4.196, 4.201, 4.204–4.205 ‘suction effect’ 4.200–4.201, 4.203, 4.211 supplementary services 4.196 volume/quantity 4.167, 4.169, 4.172, 4.174 conduct of employees 6.66–6.67 conglomerate mergers 9.11, 9.15, 9.85–9.90 consumer choice 1.63–1.65, 8.11 Consumer Liaison Office (CLO) 5.105 consumer welfare 1.69, 1.71 consumers, information received from 5.104–5.105 consumers and passing-on condition 3.239–3.244 contestable market theory 2.91 contractual framework doctrine 3.41 contractual imbalance situation 3.78 contractual obligations 5.72 convergence rule 3.167, 3.169 cooperation commercialization agreements 7.120 refusal in investigation process 6.87 see also horizontal cooperation coordinated effects see tacit collusion coordination tacit 4.96, 4.101, 4.124, 4.126 see also anti-competitive coordination correlated benefits 1.141

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cost(s) advantages, absolute 2.106 benefit analysis 6.84 common 4.267–4.271, 4.386 commonality 7.81 duplication 1.180 efficiencies 3.225 fully-allocated 4.268 incremental 4.271 investment 2.109 joint 4.267–4.271 legal, award of 5.72 long-run average incremental cost (LRAIC) 2.152, 4.147, 4.199, 4.266, 4.269, 4.299 measure 4.385–4.387 production 2.125–2.126, 4.387 standards and predation 4.263–4.266 stranded 2.153–2.154 switching 2.112, 4.204 transaction 1.180, 4.196 transport 4.26–4.27 variable 2.143–2.148, 4.264, 4.267 see also average; fixed; marginal Council of Ministers (the Council) 1.52 Council Regulations 1.99 counterfactual or ‘but for’ analysis 3.89–3.91, 3.95–3.96, 3.104, 3.123 countervailing buyer power 4.73–4.78, 8.94 Cournot competition 2.32 crisis cartels 6.37–6.43 critical loss test 4.35–4.36, 4.46–4.47 cross-deliveries in selective distribution networks 8.60 culture, protection of 9.39 cumulative activities 1.144 cumulative effects 3.141–3.147, 4.112 cumulative jurisdiction 3.167, 3.169 customer exclusivity 8.21, 8.31 damages actions for 3.208–3.214, 9.174–9.182 awards 5.72 litigation 9.176–9.181 damnum emergens 5.248 data historic (age of data) 7.45–7.47 (p. 547) requirements 4.39–4.41 de minimis agreements above the threshold 3.135–3.137 de minimis agreements, unlawful 3.138–3.139 de minimis doctrine 8.63 de minimis Notice 3.145–3.146 de minimis principle 3.128–3.133, 3.140 deadweight loss 1.19, 1.22 decisional practice of the Commission 1.102–1.118 annual reports 1.111–1.112

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articles written by Commission officials 1.114 decisions 1.103 expert reports and third parties studies 1.117 Guidelines, Notices and Communications 1.105–1.108 oral statements 1.115–1.116 papers (discussion paper, non-papers etc) 1.109–1.110 press releases 1.113 decisive influence 6.56–6.57 defects in the reasoning 5.280 ‘defence’ and’offence’ in nullity rule 3.207 demand-side substitution in product market 4.15–4.18 derogations for agreements 1.149–1.152 deterrence multiplier 6.64 DG COMP 1.54, 1.109–1.110, 2.01 exclusionary abuses 4.139 exploitative abuses 4.437–4.438 infringements detection 5.94–5.95 institutional framework 5.15, 5.20, 5.22 resistance of competition law 2.03 direct concern condition 5.222 direct ‘smoking gun’ evidence 3.59 discretionary power 5.256 Discussion Paper on the Application of Article 82 1.110 disqualification rules 6.90 dissimilar conditions to equivalent transactions agreement 6.49 distribution agreements 7.125 networks (vertical restrictions) 6.17 see also limited distribution distributional trade-off s 5.276 distributive inefficiency 1.23, 2.29 diverse activities 1.135 domestic market rule 6.44 dominance 4.04–4.130, 4.458 barriers to entry 4.67–4.68 barriers to expansion 4.69–4.70 countervailing buyer power 4.73–4.78 definition stemming from case law 4.50–4.54 market definition 4.05–4.47 ‘cellophane fallacy’ 4.45–4.46 company documents 4.44 critical loss test 4.35–4.36, 4.46–4.47 data requirements 4.39–4.41 geographic market 4.24–4.30 hypothetical monopolist test 4.31–4.34, 4.46 product market 4.14–4.23 questionnaires and surveys 4.42–4.43 SSNIP test 4.46–4.47 statistical analysis 4.37–4.38 market position of undertaking under investigation and its competitors 4.60–4.66 single firm 4.98

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substantial market power definition and assessment 4.55–4.58 technology markets 4.71–4.72 see also collective dominance double marginalization avoidance 4.196 double market-share thresholds 3.140, 8.71–8.78 double test (concentration) 9.41–9.44 downstream exclusive dealing 4.154 downstream market production and specialization agreements 7.84 refusal to supply and margin squeeze 4.303–4.304, 4.324–4.325, 4.341, 4.350 downward referral (German clause) 9.37 downward sloping curve of demand 2.13 dual pricing 3.101 due diligence 6.68 duplication costs 1.180 ‘Dutch’ clause 9.36 duty to act in a certain way (competence liée) 5.257, 5.259 dynamic efficiency 4.306–4.309, 4.312–4.313 dynamic industries 4.423 dynamic inefficiency 2.25–2.27 econometric methods 4.40 economic activity, agreement involving 3.178–3.181 economic approach 1.60, 2.06–2.07, 3.195 economic benefits commercialization agreements 7.134 purchasing agreements 7.116 economic concept 3.85–3.97 economic efficiency 1.66–1.68, 1.71 economic freedom 1.63–1.65 economic goals 1.61–1.72 consumer welfare 1.69 economic efficiency 1.66–1.68 economic freedom, plurality and consumer choice 1.63–1.65 fairness 1.62 economic links 4.90–4.91 economic rationale of European integration 1.29 economic unit doctrine 3.11 economies of scale 1.29, 2.107, 4.68 conditional rebates 4.196 exclusionary abuses 4.286 merger control 9.102 production and specialization agreements 7.92 economies of scope 2.108 conditional rebates 4.196 exclusionary abuses 4.154, 4.266 merger control 9.102 production and specialization agreements 7.92 EEA Agreement 1.187, 1.189–1.190 (p. 548) ‘effect on trade’ concept 3.162–3.194 agreement appreciably affects trade between Member States 3.194 agreement has ability to affect trade 3.182–3.188

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agreement may have an influence on trade between Member States 3.189–3.193 ‘autonomous’ concept 3.163 economic activity, agreement involving 3.178–3.181 exceptions 3.169 individual assessment—qualitative analysis 3.177 market integration 3.164 normative vs institutional jurisdiction 3.166–3.168 screening—quantitative presumptions 3.171–3.176 effectiveness principle 3.214 effects-based approach 1.60, 2.06 conditional rebates 4.201–4.211 exclusionary abuses 4.137–4.150 tying 4.236, 4.242 vertical restraint 8.06 efficiency allocative 4.306–4.307, 9.107 dynamic 4.306–4.307 economic 1.66–1.68, 1.71 managerial 9.102 and objective justifications in vertical restraints 8.96–8.99 predation 4.302 productive 9.107 qualitative 3.226 efficiency defence 9.95–9.109 conditions 9.106–9.109 controversy 9.96 criticism 9.103–9.104 model 9.101 principle 9.105 shortcoming 9.95 softening 9.97–9.100 typology 9.102 efficiency gains 3.248, 7.51–7.55 admissibility conditions 3.228–3.232 commercialization agreements 7.135 economies of scale or scope 9.102 managerial efficiencies 9.102 merger control 9.188 merger specific 9.108 production rationalization 9.102 production and specialization agreements 7.91–7.93, 7.95 purchasing agreements 7.118 purchasing savings 9.102 standardization agreements 7.162–7.164 synergies 9.102 technological progress 9.102 types 3.225–3.227 verifiable 9.109 efficiency offence 9.95 efficient competitor test 4.214 EFTA Agreement 1.187

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Egypt 1.33 elimination of competition, absence of in purchasing agreements 7.119 employee conduct 6.66–6.67 employment contracts 3.18–3.19 enforcement gap cases 4.430 policy viewpoint 1.75 public vs private 5.01, 5.02–5.06 rules 1.89 system, decentralized 1.126–1.127 targets 1.75 territoriality issues 1.181 environment, protection of 9.39 epistemology of competition economics see classical and neoclassical competition economics; normative economics of competition equilibrium price 2.18 equivalence principle 3.214 equivalent transactions in price discrimination 4.476–4.477, 4.479 erga omnes effect 3.203 error of law 5.258 essential facilities doctrine 4.316 essentiality 4.355–4.358 Euro-Mediterranean Agreements 1.187, 1.190 European Agreements 1.187, 1.190 European Commission 5.09–5.26 Chief Economist Team (CET) 5.19 College, Commissioner and Director General 5.24–5.26 definitive measures 5.25 Directorates and Units 5.16–5.18 empowerment procedure 5.25 ex officio detection of hardcore cartels 6.91–6.95 execution measures 5.25 general policy 5.12 Guidelines/Guidance Paper 5.11 legal service 5.20–5.23 missions 5.10–5.14 prioritization policy 5.12 provisional measures 5.25 Regulation or Directive proposals 5.13–5.14 Regulations 1.100–1.101 staff and budget 5.18 sub-delegation 5.25 supervisory mission (watchdog) 5.10 vertical relationship with national courts 5.76–5.86 see also DG COMP; European Commission and National Competition Authorities interplay European Commission and National Competition Authorities interplay within the European Competition Network 5.38–5.70 European Competition Network 5.62–5.70 applicable legal instruments 5.63–5.64 functions 5.65–5.69

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recent developments 5.70 horizontal issues 5.50–5.61 case reallocation 5.52–5.54 exchange of case-related information 5.58–5.61 negative jurisdictional conflicts 5.56–5.57 (p. 549) well-placed NCAs 5.51 vertical issues 5.39–5.49 cooperation mechanisms 5.44 loyal cooperation duty 5.42–5.43 monitoring instruments 5.45–5.49 priority competence of the Commission 5.40–5.41 European Competition Network (ECN) 5.08, 6.107 see also European Commission and National Competition Authorities interplay within the European Competition Network European Court of Justice (ECJ) 3.62, 5.207–5.209 European Courts case law 1.119–1.125 European integration goals 1.73–1.80 European Telecommunications Standards Institute (ETSI) 7.138 evidentiary perspective 1.76 exploitative abuses 4.131, 4.371–4.451 ex post empirical assessment of remedial policy 9.156 ex tunc effect 3.204 exception rule 3.215–3.255 enforcement system 3.220–3.221 indispensability condition 3.249–3.251 method 3.217 non-elimination of competition condition 3.252–3.255 passing-on condition 3.238–3.248 purpose 3.216 scope of application 3.218–3.219 welfare improvement condition 3.223–3.237 wording 3.215 exceptional circumstances test 4.339 excessive prices 4.372–4.438 comparison with United States law 4.433–4.436 competitors benchmark 4.400–4.403 cost measure 4.385–4.387 decisional practice of DG COMP 4.408–4.419 geographical benchmark 4.396–4.399 historical prices benchmark 4.393–4.395 limits to application of Article 82(a) 4.420–4.432 profit margin 4.388–4.391 remedy design 4.404–4.407 standards for assessment 4.377–4.381 exchanges of undertakings 7.28 exclusion powers 2.60 exclusionary abuses 4.131, 4.132–4.370 case law of courts and decisional practice of Commission 4.134–4.136 conditional rebates 4.159–4.219 exclusive dealing 4.151–4.158 form-based approach and effects-based approach 4.137–4.150

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predation 4.254–4.302 refusal to supply and margin squeeze 4.303–4.370 tying 4.220–4.253 exclusionary intent, evidence required 4.272–4.278 exclusive commercial arrangements 2.123 exclusive contractual relationship competitive harm theories 8.11–8.13 objective justifications and pro-competitive effects 8.14–8.17 exclusive dealing 4.151–4.158 exclusive distribution (customer exclusivity) 8.21, 8.31 exclusive purchasing 4.152–4.158, 8.30 exclusive rights 4.423 exclusivity agreements 4.214 executive jurisdiction 1.172–1.176 investigative measures 1.173–1.174 orders 1.175–1.176 executives, dismissal of 6.90 expert reports (for the Commission) 1.117 exploitation of suppliers through buyer power 7.112 exploitative abuses see excessive prices export agreements which prevent competitive re-imports 3.156–3.159 export cartels 3.153–3.154, 3.155 external competition 3.255 fact-intensive cases 5.267–5.268 ‘failing firm’ doctrine 9.91–9.94 fair share 1.69, 3.246 fairness 1.62 fast-track procedure 9.182 fidelity rebates 4.478, 4.480, 4.485, 4.490 fifteen per cent threshold 7.110 ‘fighting ships’ 4.293, 4.496 file, access to 5.152–5.157 filtering 9.76 fines 6.14 actions seeking to obtain revision of 5.244–5.245 personal/individual 6.90 see also administrative; penalties firm, theory of 2.140 first-mover advantage 2.95, 2.116 five per cent threshold 3.136, 3.174 fixed costs 2.137–2.142, 2.147–2.148, 4.264, 4.267, 4.296 exploitative abuses 4.385 price discrimination 4.471 recovery 4.196 follow-on private suits 6.90 ‘for the public good’ 1.137 foreclosure 3.200 buyer power 8.42 downstream 9.83–9.84 exclusionary abuse 4.154–4.157, 4.184, 4.191, 4.216–4.217 exclusive contractual relationship 8.11

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input 8.22 limited distribution 8.22 merger control 9.14–9.15, 9.78–9.81 purchasing agreements 7.114 of third parties in related markets 7.82 tying 4.235, 4.242–4.243, 4.249, 4.252 upstream 9.79, 9.82 vertical 4.303, 8.90 see also anti-competitive foreclosure foreign direct investment (FDI) 1.08 foreign firms 1.08 Form CO 9.143–9.144 (p. 550) forms-based approach 1.60, 3.195, 4.137–4.150, 4.236 France 1.38, 1.49, 1.52, 1.53, 2.01, 5.35, 6.106 Décret d’Allarde 1.38 Loi le Chapelier 1.38 merger control 9.162 social cost of monopoly 1.13 vertical restraints 8.49 franchising agreements 8.81 FRAND commitment/requirements 7.154–7.155, 7.157–7.158 free enterprise 3.79 free-rider problem 8.15–8.16, 8.99, 8.101 freedom of movement 3.37 freedom to act on the market, restriction of 3.79–3.84 ‘Frequently Asked Questions’ 1.113 Fribourg School 1.43, 1.46 full-function joint ventures compatibility 9.112–9.140 comparative assessment of legal regimes 9.138–9.140 complementary test 9.132–9.137 concept of full function 9.122 definition of joint venture 9.113–9.120 material condition 9.123–9.126 standard test 9.129–9.131 time condition—lasting quality/stability 9.127–9.128 fully-allocated costs 4.268 future conduct, individualized data regarding 7.29–7.30 General Court (GC) 1.119–1.120, 1.125, 5.207–5.209, 5.213 geographic market 4.24–4.30, 7.84, 8.65 geographic price discrimination 4.472, 4.525–4.541 Article 102(c) 4.536–4.541 case law of courts and Commission decisions 4.526–4.535 competitive disadvantage 4.530, 4.532, 4.536 parallel trade 4.537, 4.539–4.540 secondary line injury 4.530 geographical market partitioning 6.44–6.45 geographical prices benchmark 4.396–4.399 ‘German’ clause 9.37 Germany 1.49, 1.53–1.54, 4.83, 6.106 see also ordo-liberal school global competition law 1.177–1.186

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good faith disclosure 7.156 government failure 1.25–1.26 Greece 1.33 Green Papers 1.110 grey clauses 7.06 gross domestic product (GDP) 1.13 group rebates 2.121 growth rebates 4.161, 4.172, 4.174, 4.214–4.215, 4.491, 4.194 Guidance Communication on exclusionary abuse 1.110 Guidelines (Commission) 1.105–1.108, 1.162 hardcore cartels deterrence 6.78–6.111 ex officio detection by Commission 6.91–6.95 investigative powers, increase in 6.95 leniency programme 6.96–6.111 perfect penalty in relation to optimal fine 6.89–6.90 third party information and detection 6.93–6.94 see also administrative fines; substantive cartel law hardcore restrictions 3.120, 3.218–3.219, 7.06 online distribution 8.100, 8.106, 8.110 vertical restraints 8.48, 8.50 Harvard School (‘structuralist’ movement) 1.63, 2.35–2.41, 2.44–2.45, 2.48, 2.53, 2.93, 2.129 Hearing Officer (HO) 5.155, 5.160, 5.163–5.164 Herfindahl-Hirschman Index (HHI) 2.89, 9.47–9.51 historical background 1.32–1.60 modernization process 1.56–1.60 ordo-liberal school 1.44–1.48 origins 1.33–1.38 Treaty establishing the European Economic Community 1.49–1.55 United States 1.40–1.42 historical prices benchmark 4.393–4.395 hold-up 4.196, 7.148, 8.17 horizontal cooperation agreements 3.200, 3.74, 3.92, 3.172, 3.196, 3.218, 3.244, 5.65, 7.01– 7.170 categories 7.11 commercialization 7.120–7.135 complex 7.12 concept 7.10 definition 7.01 different forms 7.02–7.03 effects on competition 7.03–7.04 Guidelines on Article 101(3) 7.168–7.170 information exchanges 7.22–7.58 interface with Regulation 139/2004 7.14–7.15 legal implication 7.05 nationalization of case law 7.166–7.167 origin of applicable texts 7.06–7.09 production and specialization 7.72–7.96 purchasing 7.97–7.119, 7.101 research and development 7.59–7.71 restriction of competition within meaning of Article 101(1) 7.17–7.20 restrictive agreement benefitting from exemption in Article 101(3) 7.21

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sector-specific law 7.13 standardization agreements 7.136–7.165 horizontal jurisdictional issues 3.152–3.161 horizontal mergers assessment 9.09, 9.13, 9.45–9.74 ambiguity 9.45 coordinated effects (tacit collusion) 9.60–9.64 non-coordinated (unilateral) effects 9.52–9.59 individual dominant position 9.53–9.54 maverick elimination 9.56–9.58 multi-criteria analysis 9.59 unilateral effects in absence of dominant position 9.55 (p. 551) screening—market shares and Herfindahl-Hirschman Index (HHI) 9.47–9.51 soft law 9.46 horizontal price collusion 8.19 hybrid (quasi-structural) remedies 9.158–9.159 hypothetical monopolist test (HMT) 4.31–4.34, 4.45–4.46 immunity 5.116–5.120, 6.101–6.102 impact of competition law on public and private decision-makers 1.03–1.08 public authorities 1.06–1.08 undertakings 1.03–1.05 imports and exports 3.196 in-kind bonuses 2.28 incompatibility presumption 8.48–8.61 active and passive sales in selective distribution networks 8.58–8.59 component suppliers selling to end-users, repairers and independent service providers 8.61 cross-deliveries in selective distribution networks 8.60 resale price maintenance (RPM) 8.50–8.54 territorial resale prohibitions 8.55–8.57 incompatibility test in merger control 9.98 incremental cost approach 4.271 incremental rebates 4.190, 4.195 independence 4.52–4.53 independent experts 5.287 India 1.34 indispensability 3.249–3.251, 4.319 horizontal cooperation agreements 7.170 information exchanges 7.56 production and specialization agreements 7.94 purchasing agreements 7.117 standardization agreements 7.163 individual analysis commercialization agreements 7.129 purchasing agreements 7.110–7.114 individual assessment—qualitative analysis 3.177 individual concern condition 5.223 individual dominant position 9.53–9.54 individualized data regarding future conduct 7.29–7.30 individualized information 7.42–7.44 individualized quantity commitments 4.214 individualized threshold 4.194

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industrial raw materials industry 6.92 inefficiency allocative 1.22, 2.23 distributive 1.23, 2.29 dynamic 2.25–2.27 internal/organizational 2.28 managerial 2.28 productive 2.24, 2.70 technical 2.28 X 2.28 information asymmetric 7.54 imperfections 1.25 individualized 7.42–7.44 misleading 6.87 non-public 7.49 requests 5.124–5.129 strategic 7.40 see also information exchanges information exchanges 7.22–7.58 anti-competitive foreclosure 7.25, 7.27 collusive outcome 7.25–7.26 efficiency gains 7.51–7.55 indispensability 7.56 non-elimination of competition 7.58 pass-on to consumers 7.57 possible pro-competitive effects 7.23 scenarios 7.22 see also restriction of competition infrastructure-sharing agreements 1.160 infringements, alleged, investigation of 5.123–5.140 information, requests for 5.124–5.129 inspections 5.130–5.137 power to take statements 5.138–5.140 infringements detection 5.91–5.122 complainants, information received from 5.96–5.103 consumers, information received from 5.104–5.105 DG COMP 5.94–5.95 leniency 5.115–5.122 market monitoring 5.92–5.93 sector inquiries 5.107–5.114 infringements, evaluation of 5.141–5.165 file, access to 5.152–5.157 formal proceedings 5.141–5.143 inter-service consultation 5.165 purpose 5.141 right to be heard 5.158–5.164 Statement of Objections 5.144–5.151 infringements, repeat 6.87 infringements of Treaty 5.241 injunctions 5.170–5.173

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innovation 2.26–2.27, 7.61 inspections of alleged infringements 5.130–5.137 institutional aspects of cartel law 6.78–6.114 litigation 6.112–6.114 see also hardcore cartels deterrence institutional framework 5.08–5.89 see also European Commission; National Competition Authorities; national courts institutional negotiations 1.53 intangible goods 4.27 integrationist approach 3.98–3.112 ‘integrationist’ effects 1.27–1.31 intellectual property (IP) 3.05 internationalization 1.185 merger control 9.79 refusal to supply and margin squeeze 4.309, 4.312, 4.320–4.321, 4.325–4.326, 4.328, 4.330– 4.331, 4.334–4.335, 4.338 standardization agreements 7.139, 7.148–7.149, 7.155–7.158 inter-brand competition 3.05, 3.73–3.74 market-sharing 8.34 vertical restraints 8.02–8.03, 8.73, 8.90 (p. 552) inter-service consultation 5.165 interest to act condition 5.224 interim measures 5.72, 5.191–5.193 internal competition 3.75, 3.255 internal/organizational inefficiency 2.28 interpretative instruments 1.162 intra-brand competition 3.05, 3.73–3.74, 8.02, 8.34 intra-group agreements 3.08–3.13 introductory pricing 1.05 investigative measures 1.173–1.174 investigative powers, increase in for cartel detection 6.95 investment costs, high 2.109 investment limitation or control cartels 6.36–6.43 Ireland 5.34 irreversible costs see sunk costs Italy 1.34, 1.49 joint boycott agreements 6.16 joint costs 4.267–4.271 joint distribution agreements 7.121–7.122 joint production phase 7.12 joint purchasing 7.97 joint research and development (R&D) agreements 3.76, 3.122, 3.247 phase 7.12 joint selling 7.120 joint service contracts 6.28 joint ventures see full-function joint ventures judicial review 5.255–2.287 annulment proceedings 9.167–9.173 categorization issues 5.269–5.271 complex economic matters 5.272–5.287

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fact-intensive cases 5.267–5.268 marginal (restrained) review 5.256, 5.260 nature and intensity 1.122–1.125 procedural and substantive aspects 5.264–5.266 restricted vs unlimited jurisdiction 5.252–5.254 review targets 5.258 standard (full or normal) review 5.257, 5.260 jurisdiction horizontal 3.152–3.161 normative vs institutional 3.166–3.168 prescriptive 1.167–1.171 restricted vs unlimited 5.252–5.254 see also executive jurisdiction; vertical jurisdictional issues languages 5.203 leader (ringleader) or instigator of infringement 6.87 learning by doing 4.286 legal certainty, loss of 1.60 legal costs, award of 5.72 legal exception system 1.53 leniency programme 6.13, 6.91, 6.96–6.111 assessment 6.106–6.110 ‘first in the door’ 6.101–6.105 infringements detection 5.115–5.122 new detection tools 6.99–6.100 persistence 6.97–6.98 settlement procedure 6.111 Lerner index and semantics of cost 2.63–2.72 marginal cost, theoretical standard 2.65–2.69 marginal costs and non-manufacturing industries 2.71 productive inefficiency and high costs of monopolies 2.70 leveraging, off ensive and defensive 4.252 liberalization programmes 1.07 licences 1.36 limitation of competition between parties 7.80 limited distribution 8.21–8.28 competitive harm theories 8.22–8.23 objective justifications and pro-competitive effects 8.24–8.28 litigation 5.244–5.245 cartels and hardcore restrictions 6.112–6.114 damages 9.176–9.181 features 1.120–1.121 second chance 6.113 see also merger litigation local agreements 3.201 long-run average incremental cost (LRAIC) 2.152, 4.147, 4.199, 4.266, 4.269, 4.299 Louis XIV 1.36 loyalty discounts 2.121 loyalty/target/growth rebates 4.172, 4.174, 4.214–4.215, 4.491, 4.194 lucrum cessans 5.248 Luxembourg 1.49, 5.35 luxury goods 4.18

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macro-economic effects 1.11–1.13 managerial efficiency 9.102 managerial inefficiency 2.28 margin squeeze see refusal to supply and margin squeeze marginal cost 2.127–2.129, 4.385, 4.471 and non-manufacturing industries 2.71 of production 2.18 theoretical standard 2.65–2.69 marginal review 9.162–9.166 market characteristics 3.248 market control or limitation cartels 6.32–6.33 market coverage 7.41–7.42 market failure theory 1.24–1.26 market, geographic 4.24–4.30, 7.84, 8.65 market integration 1.30, 3.164 market monitoring 5.92–5.93 market, neighbouring 7.84 market partitioning 6.18, 6.44–6.45, 7.80, 7.125, 8.35, 8.55 market performance 1.19 market position of undertaking under investigation and its competitors 4.60–4.66 market, potential/hypothetical 4.324 market power 2.05, 2.56–2.61, 3.124, 3.127, 4.458 market power measurement 2.62–2.82 Lerner index and semantics of cost 2.63–2.72 price comparisons 2.78–2.80 price-elasticity of residual demand 2.81–2.82 profits measurement 2.73–2.77 (p. 553) market power, substantial 4.55–4.58 market re-initialization rate 7.46 market share 2.84–2.87, 8.29–8.37 aggregate 3.172 competitive harm theories 8.34–8.36 horizontal cooperation agreements 7.20 horizontal mergers assessment 9.47–9.51 merger control 9.48 non-geographic 6.46 objective justifications and pro-competitive effects 8.37 rebates 4.161 thresholds 3.129, 3.131–3.132 commercialization agreements 7.128 double 3.140, 8.71–8.78 production and specialization agreements 7.87 purchasing agreements 7.108–7.109 research and development agreements 7.64–7.66 single 8.72 tied 8.93 vertical restraint 8.68 market, spill-over 7.84 market structure 2.83–2.124, 3.248 barriers to entry 2.90–2.124 measurement 2.84–2.89

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markets, technology 4.71–4.72, 7.61 markets, two-sided 4.257–4.258 Marshall Plan 1.48 material condition 9.123–9.126 maverick elimination 9.56–9.58 media plurality 9.38 meeting competition strategy 4.502 Member States, rules applying to 1.87–1.88 ‘Memos’ 1.113 merger 1.160 conglomerate 9.11, 9.15, 9.85–9.90 vertical 2.61, 9.10, 9.14, 9.77–9.84 see also horizontal; non-horizontal merger control, institutional and procedural implementation 9.141–9.192 formal notification procedure 9.143–9.160 Form CO 9.143–9.144 phase I 9.145–9.146 phase II 9.145, 9.147–9.151 remedies 9.152–9.160 informal pre-notification procedure 9.141–9.142 merger control 4.92–4.96, 9.01–9.191 detection 9.73–9.74 economic reasons 9.03 history of development 9.02–9.05 jurisdictional issues 9.17 legal reasons 9.03 mutual understanding 9.73–9.74 myths 9.183–9.184 problematic mergers 9.85–9.87 protest, lack of 9.73 reality 9.185–9.192 retaliation 9.73 substantive issues 9.17 see also concentration merger litigation 9.161–9.182 actions for damages 9.174–9.182 annulment proceedings 9.162–9.173 Merger Remedies Study 1.110 methodology of competition economics 2.55–2.154 average avoidable costs 2.149–2.150 average costs 2.130–2.148 average incremental costs 2.151–2.152 marginal cost 2.127–2.129 market power concept 2.56–2.61 market power measurement 2.62–2.82 market structure, indirect measurement of 2.83–2.124 production costs 2.125–2.126 stranded costs 2.153–2.154 micro-economic effects 1.14–1.26 market failure theory 1.24–1.26 neoclassical price theory 1.17–1.23

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minimalist competition policy 2.45, 2.47 minimum efficient scale 4.154 misleading information provision 6.87 misuse of powers 5.242, 5.258, 9.191 mixed bundling see bundled rebates mobile phones in Ireland 2.79 mobile telephony infrastructure sharing/national roaming 3.92–3.95 modernization process 1.56–1.60 monopolies and competition 1.19–1.21 exploitative abuses 4.421–4.423 high costs 2.70 leveraging 4.223 merger control 9.13 profits measurement 2.73–2.74 social cost 1.13 see also monopolies and cartels monopolies and cartels 2.11, 2.20–2.30 allocative inefficiency 2.23 distributive inefficiency 2.29 dynamic inefficiency 2.25–2.27 innovation 2.26–2.27 internal/organizational inefficiency 2.28 managerial inefficiency 2.28 productive inefficiency 2.24 supply and demand imperfections 2.20–2.21 technical inefficiency 2.28 X inefficiency 2.28 moral hazard 8.77 multi-criteria analysis 9.59 multi-homing 4.239 multi-product firms and allocation of common costs 2.134–2.135 multi-product undertakings 4.266 multi-product/bundled rebates 4.161, 4.182, 4.197–4.200, 4.203–4.204 multiple agency 3.16 must-have brands (must-stock products) 4.204 national agreements 3.199 National Competition Authorities (NCAs) 1.95, 1.126–1.127, 3.166–3.169, 5.27–5.37 bifurcated judicial (adjudication) model 5.34–5.36 (p. 554) case law interpretation 5.31 core set of competences 5.30 effectiveness 5.28 horizontal cooperation agreements 7.166–7.167 and infringements 5.184, 5.190 integrated agency model 5.33, 5.36 limitation 5.32 procedural autonomy 5.29 see also European Commission and National Competition Authorities interplay national courts 3.166–3.169, 5.71–5.89 future case law 5.74 horizontal relationships 5.87–5.89

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interests of acting before 5.72 past case law 5.73 role 5.71–5.74 vertical relationship with Commission 5.76–5.86 amicus curiae procedure 5.82–5.84 duty on Commission to transmit information to national courts 5.85–5.86 duty on Member States to forward written judgments to Commission 5.80–5.81 duty to avoid passing judgments contrary to Commission decisions 5.77–5.79 national preference 9.190 national solidarity 1.142 nationality 1.167 natural experiments 4.41 ne bis in idem principle 5.48, 5.185 Neal Report 2.40 necessity principle 7.170 negligence 6.88 neighbouring markets 7.84 nemo auditur propriam turpitudinem allegans rule 3.209 neoclassical competition economics see classical and neoclassical competition economics neoclassical price theory 1.17–1.23, 2.94 decisive role of price 1.18 monopolies and competition 1.19–1.21 nepotism 2.28 Netherlands 1.49 network effects 2.113, 4.68 network industries sector 1.07, 1.158–1.162 new industrial economics (‘Post-Chicago’ School) 2.35, 2.48–2.54 new product 4.327, 4.331–4.335, 4.339 non-appreciable affectation of trade (NAAT) rule 3.172–3.173 non-compete obligations 8.80, 8.82 non-coordinated (unilateral) effects 9.52–9.59 non-elimination of competition 3.252–3.255, 7.96, 7.165 non-geographic market sharing 6.46 non-horizontal mergers 9.75–9.90 conglomerate mergers 9.85–9.90 efficiency defence 9.95–9.109 ‘failing firm’ doctrine 9.91–9.94 filtering 9.76 vertical mergers 9.77–9.84 non-profit organizations 1.136 normative economics of competition 2.35–2.54 Chicago School (‘behaviouralist’ movement) 2.42–2.47 Harvard School (‘structuralist’ movement) 2.36–2.41 new industrial economics (‘Post-Chicago’ School) 2.48–2.54 normative vs institutional jurisdiction 3.166–3.168 North America 1.40–1.42, 1.43 Notice of 2008 9.156 Notice of Objections 6.111 Notices 1.105–1.108, 1.162, 5.214 notification

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ex ante 9.18 procedure, mandatory 1.55 system 1.53 see also concentration nullity rule 3.202–3.214 actions for damages amongst parties to unlawful agreement 3.208–3.214 ‘defence’ and ‘offence’ 3.207 erga omnes effect 3.203 ex tunc effect 3.204 ‘severability’ rule 3.205–3.206 objective justifications and pro-competitive effects buyer power 8.43–8.44 exclusive contractual relationship 8.14–8.17 limited distribution 8.24–8.28 market-sharing 8.37 resale price maintenance (RPM) 8.20 objective necessity 4.302 obligation to supply 4.361, 4.365–4.366 obstruction in investigation process 6.87 Office of Fair Trading (OFT) 8.40 Selective Price Cuts and Fidelity Rebates 4.163–4.164 Official Journal (OJ) 1.105 oligopolistic anti-competitive coordination see collective dominance oligopolistic settings see collective dominance oligopoly 2.32, 4.101, 4.107, 9.70–9.71 gap 9.43 merger control 9.42 new industrial economics 2.49 problem 4.79 online distribution 8.56, 8.100–8.111 active and passive sales 8.103, 8.104, 8.107–8.111 selective distribution systems 8.100, 8.102, 8.104, 8.105–8.106 opportunism of governments 1.26 oral hearing 5.161–5.163 oral statements (Commission) 1.115–1.116 orders 1.175–1.176 ordo-liberal school 1.43, 1.44–1.48, 1.49, 1.51, 3.79 Organization for Economic Cooperation and Development (OECD) countries 1.14, 2.93, Organization of Petroleum Exporting Countries (OPEC) 1.20, 6.01 origins of competition law 1.33–1.38 (p. 555) origins of economics of competition law 2.02 output expansion 4.471 outsourcing 2.147 overinvestment in capacities 2.120 papers (Commission) 1.109–1.110 parallel conduct 3.65 parallel trade 3.101–3.112, 3.174, 6.19–6.20 geographic price discrimination 4.537, 4.539–4.540 market-sharing 8.33 parametrical competition 3.254 parental liability doctrine 6.54–6.65

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decisive influence 6.56–6.57 deterrence multiplier 6.64 rebuttal presumption 6.58 single economic entity 6.55, 6.57, 6.59–6.62 parliamentary questions 1.118 participation, unrestricted 7.154–7.155 pass-on to consumers 7.57, 7.95, 7.118, 7.164 passing-on condition 3.238–3.248 assessment ex ante 3.248 consumers 3.239–3.244 extent 3.246 sliding scale 3.245 timing 3.247 passive sales restrictions 8.31, 8.58–8.59, 8.103, 8.104, 8.107–8.111 patents 2.124, 4.71–4.72, 7.139–7.140, 7.142–7.143, 9.79 payment claims 5.72 penalties 5.174–5.176, 5.244 penetration pricing 4.399 perfect competition 2.11, 2.15–2.19, 2.33, 3.70–3.72 physical goods 4.25 plurality 1.63–1.65, 3.07–3.19 agency agreements 3.13–3.17 employment contracts 3.18–3.19 intra-group agreements 3.08–3.12 plus three rule (+3) 7.43 portfolio power/effect 9.88–9.90 positive economic effects 1.09–1.31 ‘integrationist’ 1.27–1.31 macro-economic 1.11–1.13 micro-economic 1.14–1.26 positive externality 8.15 ‘Post-Chicago’ School see new industrial economics potential competition 3.76, 4.21–4.23 potential/hypothetical markets 4.324 power discretionary 5.256 exclusion 2.60 misuse of 5.242, 5.258, 9.191 over price 4.56 selling 7.115 to exclude 4.57 to take statements 5.138–5.140 predation 4.254–4.302 above-cost pricing 4.284–4.293 AKZO test 4.259–4.262, 4.268, 4.272, 4.293, 4.299 anti-competitive foreclosure 4.299–4.301 concept 4.254 cost standards used for assessment 4.263–4.266 effects of 4.255–4.258 exclusionary intent, evidence required 4.272–4.278 financial 4.278

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joint and common costs 4.267–4.271 objective necessity and efficiencies 4.302 recoupment 4.279–4.4.283 sacrifice 4.294–4.298 two-sided markets 4.257–4.258 premises, inspections of 5.131–5.134 prescriptive jurisdiction 1.167–1.171 press releases (Commission) 1.113 presumed restrictions: restriction by ‘object’ 3.114–3.121 price(s)/pricing: above-cost 4.284–4.293 aggressive 4.399 benchmark, geographical 4.396–4.399 collusion, horizontal 8.19 comparisons 2.78–2.80, 4.406 concessions 4.196 cost test 4.148 cutting, competitive 4.256 discrimination 1.22, 4.452–4.542 bonuses 4.488 competitive disadvantage 4.477–4.479, 4.496, 4.499 definition and conditions 4.455–4.461 equivalent transactions 4.476–4.477, 4.479 fidelity rebates 4.478, 4.480, 4.485, 4.490 first degree 4.463, 4.466, 4.468 loyalty/growth rebates 4.491 primary line injury 4.477, 4.480, 4.482–4.505 rebates 4.484–4.485 second degree 4.464, 4.466, 4.469 secondary line injury 4.477–4.478, 4.480, 4.490–4.491, 4.500–4.501, 4.504, 4.506– 4.524 selective price cuts 4.478, 4.480, 4.484, 4.492–4.494, 4.502 strategy 6.49 target rebates 4.489, 4.495 third degree 4.465–4.466, 4.469 welfare effects 4.467–4.474 see also geographic price discrimination dual 3.101 elasticity of demand 2.81–2.82, 3.248 equilibrium 2.18 fixing 3.134, 6.24–6.27, 7.125 introductory 1.05 maker 2.21 penetration 4.399 policy 4.379 reduction 4.196 reservation 1.18 single 2.17 sub-competitive 4.442–4.443, 4.446 supra-competitive 4.442–4.443

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takers 2.21 uniform 4.398, 8.19 see also excessive prices; neoclassical price (p. 556) principal-agent relationship 3.17 priority enforcement targets 1.75 private coercion 3.26–3.28 procedural autonomy principle 3.214 procedural errors 5.250 procedural framework 5.90–5.200 procedural framework decisions making commitments binding 5.177–5.187 decisions ordering interim measures 5.191–5.193 decisions withdrawing benefit of block exemption Regulation 5.188–5.190 injunctions 5.170–5.173 languages 5.203 penalties 5.174–5.176 publicity 5.201–5.202 settlement decisions 5.194–5.200 see also infringements procedural infringement 5.244 procedural requirement, infringement of 5.240 product differentiation 2.110 product homogenization 7.93 product market 4.14–4.23, 7.61, 7.84 demand-side substitution 4.15–4.18 potential competition 4.21–4.23 supply-side substitution 4.19–4.20 vertical restraints 8.65 production costs 2.125–2.126, 4.387 production limitation or control cartels 6.30–6.31 production rationalization 9.102 production and specialization agreements 7.72–7.96 ancillary restraints and related commitments 7.88 block exemption, market-share threshold and specific conditions 7.87 collusive outcome 7.81 direct limitation of competition between parties 7.80 efficiency gains 7.91–7.93, 7.95 foreclosure of third parties in related markets 7.82 in-depth individual analysis 7.89 indispensability 7.94 joint 7.72–7.75 non-elimination of competition 7.96 pass-on to consumers 7.95 reciprocal 7.72 relevant markets 7.84 restrictions of competition by object 7.85–7.86 subcontracting agreements 7.78 unilateral 7.72, 7.76 productive efficiency 9.107 productive inefficiency 2.24, 2.70 profiling 6.91

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profit accounting or economic 2.76–2.77 margin 4.379, 4.388–4.391 measurement 2.73–2.77 supra-competitive 6.84 prohibition rule 3.04–3.301, 3.128 concurrence of wills between several independent undertakings 3.07–3.69 restriction of competition 3.70–3.150 restriction within internal market affecting trade between Member States 3.151– 3.201 prohibition system 9.152 prosecutorial bias 5.36 protocol on competition policy and internal markets 1.90–1.96 provident schemes 1.140 prudential rules 9.38 public authorities 1.06–1.08 public coercion 3.29–3.38 public security 9.38–9.39 publicity 1.113, 5.201–5.202 punitive standpoint 1.78 purchasing agreements 7.77, 7.97–7.119 absence of elimination of competition 7.119 between non-competing undertakings 7.107 buying power vs selling power 7.115 economic benefits 7.116 indispensability 7.117 individual analysis 7.110–7.114 main competition concerns 7.103–7.105 market-share threshold 7.108–7.109 pass-on to consumers 7.118 relevant markets 7.102 restrictions of competition by object 7.106 specific feature 7.100 vertical relations 7.101 purchasing, exclusive 4.152–4.158, 8.30 purchasing savings 9.102 pure bundling 4.221 qualitative efficiencies 3.226 quantitative analysis 4.41 quantity forcing 8.97 quantity rebates 4.161 questionnaires 4.42–4.43 quorums 9.115 ‘raising rivals costs’ 9.78 Ramsey pricing 4.465 reasonable degree of probability 3.124 rebates 4.469–4.470, 4.484–4.485 border 4.534 group 2.121 target 4.489, 4.495 see also conditional rebates

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rebuttal presumption 6.58 reciprocal grant of territorial exclusivities 6.44 recoupment and predation 4.279–4.283 refusal to supply and margin squeeze 4.303–4.370, 5.276 antitrust rules and authorities 4.346 concepts 4.303–4.304 copyright 4.321–4.322, 4.327 downstream market 4.303–4.304, 4.324–4.325, 4.341, 4.350 effects 4.305–4.313 essential facilities doctrine 4.316 essentiality 4.355–4.358 ex ante dynamic efficiency 4.306–4.30, 4.312–4.313 (p. 557) ex post allocative efficiency 4.306–4.309, 4.312–4.313 exceptional circumstances test 4.339 indispensability 4.319 intellectual property rights (IPR) 4.309, 4.312, 4.320–4.321, 4.325–4.326, 4.328, 4.330– 4.331, 4.334–4.335, 4.338 new product 4.327, 4.331–4.335, 4.339 obligation to supply 4.361, 4.365–4.366 sector-specific rules and authorities 4.346 technical development 4.339 upstream market 4.324, 4.341 vertically integrated firm 4.303–4.304, 4.344 regional agreements 3.199–3.201 regression analysis 4.40 regulatory barriers 2.114 relevant markets 4.05, 4.10–4.11 commercialization agreements 7.123 production and specialization agreements 7.84 purchasing agreements 7.102 research and development agreements 7.61 standardization agreements 7.145 reputation effects 2.111 resale 8.31 resale price maintenance (RPM) 3.200, 8.17–8.20, 8.50–8.54 research and development (R&D) agreements 3.76, 3.122, 3.247, 7.06, 7.08–7.09, 7.11, 7.59– 7.71 assessment under Article 101(3) 7.71 between non-competing undertakings and others 7.63 block exemption, market-share threshold and specific conditions 7.64–7.66 joint R&D agreements 7.67–7.70 main competition concerns 7.60 relevant markets 7.61 restriction of competition by object 7.62 research and development (R&D) costs 4.385 reservation price 1.18 resistance of competition law 2.03 resource allocation, suboptimal 2.23 restraints ancillary 3.148–3.150, 7.88, 9.110–9.111 of trade 1.37

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see also vertical restraint restriction of competition 3.70–3.150, 7.31 agreements normally not restrictive 7.152–7.156 ancillary restraints doctrine 3.148–3.150 by effect 3.122–3.147, 7.17, 7.159–7.161 agreements assessment principles 3.124–3.127 appreciable effects 3.128–3.140 cumulative effects 3.141–3.147 by object 3.114–3.121, 7.28–7.30 commercialization agreements 7.125–7.126 horizontal cooperation agreements 7.17–7.18 information exchanges 7.28–7.30 production and specialization agreements 7.85–7.86 purchasing agreements 7.106 research and development agreements 7.62 standardization agreements 7.150–7.151 characteristics of information exchanged 7.39–7.49 data, historic (age of data) 7.45–7.47 frequency of exchange 7.48 individualized 7.42–7.44 market coverage 7.41–7.42 non-public 7.49 strategic 7.40 FRAND requirements 7.157–7.158 inter-brand and intra-brand competition 3.73–3.74 internal and external competition 3.75 market characteristics 7.32–7.38 complexity 7.35 concentration 7.34 retaliation must be likely 7.38 stability 7.36 symmetry 7.37 transparency 7.33 perfect competition vs workable competition 3.70–3.72 research and development agreements 7.63–7.71 within internal market which affects trade between Member States 3.151–3.201 horizontal jurisdictional issues 3.152–3.161 see also vertical jurisdictional issues see also hardcore restrictions; substantive content; vertical restrictions retaliatory mechanism 9.68 retroactive/roll-back rebates 4.161, 4.174, 4.179, 4.185–4.187, 4.190, 4.214 rewards 5.197–5.200 right to be heard 5.158–5.164 Hearing Officer (HO) 5.160, 5.163–5.164 oral hearing 5.161–5.163 rogue employees 6.66–6.67 royalties 7.140–7.141, 7.143 rule of reason 3.81–3.83, 3.88, 8.51 sacrifice 4.294–4.298 ‘safe harbour’ approach 7.20, 7.153, 8.03, 8.72, 9.48 sanctions 9.32

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Sapir report (2003) 1.11 scope of application of competition law 1.128–1.190 agricultural products sector 1.146–1.152 arms industry sector 1.163–1.166 executive jurisdiction 1.172–1.176 global competition law 1.177–1.186 network industries sector 1.158–1.162 prescriptive jurisdiction 1.167–1.171 transport sector 1.153–1.157 undertaking 1.130–1.144 SCP paradigm (structure/conduct/performance) 2.37–2.38, 2.43–2.44 screening market shares and Herfindahl-Hirschman Index (HHI) 9.47–9.51 quantitative presumptions 3.171–3.176 appreciable affectation of trade 3.174 market definition 3.176 non-appreciable affectation of trade (NAAT) rule 3.172–3.173 (p. 558) SME exemption 3.175 vertical restraints 8.47–8.85 compatibility presumption 8.62–8.85 incompatibility presumption 8.48–8.61 secondary law 1.97–1.101 secondary line injury in price discrimination 4.477–4.478, 4.480, 4.490–4.491, 4.500– 4.501, 4.504, 4.506–4.524 geographic 4.530 non-vertically integrated operators 4.508–4.514 vertically integrated operators 4.515–4.523 sector-specific rules and authorities 4.346 security of energy supply 9.39 selective distribution systems 8.21, 8.100, 8.102, 8.104, 8.105–8.106 selective price cuts 4.470, 4.478, 4.480, 4.484, 4.492–4.494, 4.502 self-assessment of vertical restrictions 8.45–8.99 see also screening for vertical restraints selling power 7.115 semantics of cost see Lerner index and semantics of cost sequential strategies 1.159–1.160 service contracts, joint 6.28 settlement decisions 5.194–5.200 settlement procedure 1.101, 6.111 ‘severability’ rule 3.205–3.206 shareholders 5.226 significant added value 6.104–6.105 significant lessening of competition test 9.43 single branding 3.74, 3.124, 3.200, 6.32 exclusive contractual relationship 8.11–8.13, 8.16 vertical restraints 8.80, 8.90–8.94, 8.97–8.99 single economic entity doctrine 3.10, 4.113–4.114, 6.55, 6.57, 6.59–6.62 single firm dominance 4.98 single market-share threshold 8.72 single price 2.17 single product rebates 4.161, 4.182–4.196, 4.201, 4.204–4.205

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

single product undertakings 4.266 single source supply 4.204 sliding scale rule 7.170 slotting allowances 8.39 small but significant and non-transitory increase in price (SSNIP) test 4.32, 4.46– 4.47, 8.66 small and medium-sized enterprises (SMEs) 3.133–3.134, 3.175, 8.69 social security benefits 1.139 sociology of competition law 2.01 sources of competition law case law 1.102–1.127 secondary law 1.97–1.101 Treaty law 1.81–1.96 Spain 5.35 special discounts 6.49 special responsibility 1.64, 4.136 special rights 4.423, 9.115 specialization agreements 7.06, 7.08–7.09, 7.11 see also production and specialization agreements spill-over effects see anti-competitive coordination spill-over markets 7.84 standard of proof 3.66 standard test 9.129–9.131 standard threshold 4.194 standard-setting organizations (SSOs) 7.137–7.138, 7.147, 7.155, 7.160 standardization agreements 7.136–7.165 efficiency gains 7.162–7.164 ex ante/ex post test 7.142 indispensability 7.163 intellectual property (IP) 7.139, 7.148–7.149 main competition concerns 7.146–7.149 non-elimination of competition 7.165 pass-on to consumers 7.164 patents 7.139–7.140, 7.142–7.143 relevant markets 7.145 restrictive effects agreements normally not restrictive of competition 7.152–7.156 effects-based assessment 7.159–7.161 FRAND requirements 7.157–7.158 objects-based 7.150–7.151 royalties 7.140–7.141, 7.143 standard-setting organizations (SSOs) 7.137–7.138, 7.147, 7.155, 7.160 state activities 1.138 Statement of Objections 5.101, 5.144–5.151, 5.189, 9.148 statistical analysis 4.37–4.38 stopping the clock 9.150 stranded costs 2.153–2.154 strategic barriers 2.118–2.124 strategic behaviour average costs 2.136 cooperative 3.01

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

new industrial economics 2.49–2.51 non-cooperative 2.50–2.51 strategic information 7.40 structural barriers 2.105–2.117 absolute cost advantages 2.106 barriers to exit 2.115 economies of scale 2.107 economies of scope 2.108 first-mover advantage 2.116 investment costs, high 2.109 network effects 2.113 product differentiation and advertising investments 2.110 regulatory barriers 2.114 reputation effects 2.111 switching costs 2.112 vertical integration 2.117 structural competition 3.253 structural measurement 2.84–2.89 concentration ratios 2.88–2.89 market shares 2.84–2.87 structural remedies 5.171–5.172 ‘structuralist’ movement see Harvard School (p. 559) sub-competitive prices 4.442–4.443, 4.446 subcontracting agreements 7.78 subjective rights 5.72 subsidiarity principle 1.98, 3.164 substantive cartel law 6.15–6.77 bid rigging 6.47 collective boycott strategies 6.50–6.52 conduct of employees 6.66–6.67 dissimilar conditions to equivalent transactions agreement 6.49 geographical partitioning of the market 6.44–6.45 hardcore cartels 6.15–6.20 investment limitation or control cartels 6.36–6.43 market control or limitation cartels 6.32–6.33 non-geographic market sharing 6.46 parental liability doctrine 6.54–6.65 price-fixing cartels 6.24–6.27 production limitation or control cartels 6.30–6.31 technical development limitation or control cartels 6.34–6.35 third parties not present in market but active within cartel 6.70–6.74 time limits for pursuance of hardcore cartel 6.75–6.77 trading conditions cartels 6.28–6.29 undertakings succeeding other undertakings as purchasing entities 6.68–6.69 vertical cartels 6.17–6.20 substantive conditions in annulment proceedings 5.236–5.242 substantive content of restriction of competition 3.77–3.112 contractual imbalance situation 3.78 economic concept 3.85–3.97 integrationist approach 3.98–3.112 parties’ freedom to act on the market 3.79–3.84

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

substantive infringement 5.244 substantive interpretation 1.77 substitutability in vertical restraints 8.66 ‘suction effect’ 4.200–4.201, 4.203, 4.211 sunk costs 2.141, 4.68, 4.266, 8.17 supply and demand 2.12–2.15, 2.20–2.21, 7.53 supply-side substitution in product market 4.19–4.20 supra-competitive prices 4.442–4.443 supra-competitive profits 6.84 surveys 4.42–4.43 suspension, mandatory 9.31 switching costs 2.112, 4.204 synergies 9.102 system of control of abuses 3.04 tacit collusion 4.98, 4.107–4.108, 4.120, 8.23 horizontal mergers assessment 9.60–9.64 oligopolistic 3.61, 3.64, 4.106 tacit coordination 4.96, 4.101, 4.124, 4.126 target rebates 4.172, 4.174, 4.214–4.215, 4.491, 4.194, 4.489, 4.495 tariff barriers, strategic 2.119 tariffs 4.469 technical development 4.339, 6.34–6.35 technical inefficiency 2.28 technological lead 4.68 technological progress 9.102 technology markets 4.71–4.72, 7.61 territorial resale prohibitions 8.55–8.57 territoriality 1.167–1.168, 1.182 Thales (Greek astronomer) 1.33 Third Generation Partnership Project (3GPP) 7.138 third parties information and cartel detection 6.93–6.94 not present in market but active within cartel 6.70–6.74 studies (for the Commission) 1.117 thresholds concentration 9.24–9.27 individualized 4.194 standard 4.194 twenty per cent 7.87, 7.89 see also market share/sharing tied market share 8.93 tied sales 2.122 time condition—lasting quality/stability 9.127–9.128 time limits for pursuance of hardcore cartel 6.75–6.77 total factor productivity 1.14 total welfare standard 1.22 trade associations 3.50 trade secrets 8.81 trade unions 5.225 Trade-related Aspects of Intellectual Property Law (TRIPS) 1.185 trading conditions cartels 6.28–6.29

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

transaction costs 1.180, 4.196 transnational agreements 3.196–3.197 transparency merger control 9.68, 9.70 standardization agreements 7.154–7.155 transport costs 4.26–4.27 transport sector 1.153–1.157 Treaty establishing the European Economic Community (EC Treaty, Treaty of Rome) 1.49–1.55 Treaty law 1.81–1.96 ‘enforcement’ rules 1.89 Member States, rules applying to 1.87–1.88 protocol on competition policy and internal markets 1.90–1.96 undertakings 1.82–1.85 ‘trial balloons’ 1.110 ‘trusts’ 1.40–1.41 tunnel vision effect 5.36 turnover calculation 9.24–9.27 twenty per cent threshold 7.87, 7.89 two-sided markets 4.257–4.258 tying 4.220–4.253 concept 4.220–4.221 contractual 4.225, 4.228 decisional practice of Commission and case law of courts 4.225–4.247 effects of 4.222–4.224 effects-based approach 4.236, 4.242 (p. 560) foreclosure 4.235, 4.242–4.243, 4.249, 4.252 form-based approach 4.236 technological 4.225 tied product 4.220 tying product 4.220 type I and II errors 2.74–2.75, 3.239 ubiquity of competition law 1.01–1.31 impact of competition law on public and private decision-makers 1.03–1.08 positive economic effects 1.09–1.31 ultra petita rule 1.85 uncertainty and information exchange 7.25 uncorrelated benefits 1.141 undertakings 4.89 exchanges 7.28 jurisprudential definition 1.130–1.136 jurisprudential restrictions 1.137–1.144 national 1.08 succeeding other undertakings as purchasing entities 6.68–6.69 unfair contractual terms and conditions abuse of buyer power 4.440–4.446 abuse through imposition of ‘other unfair trading conditions’ 4.447–4.451 uniform pricing 4.398 uniform resale price 8.19 unilateral actions 3.39–3.49 United Kingdom 1.35–1.36, 3.50, 6.106

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

United States 1.49, 1.179 annulment proceedings 5.228–5.229 antitrust law 1.04, 3.81–3.82, 3.98 antitrust law and State Compulsion doctrine 3.29, 3.37 breakthrough of competition economics 2.04 cartels 6.08, 6.13, 6.100 collective dominance 4.79 Department of Justice 1.62, 9.46 economic efficiency 1.66 efficiency gains 9.95 enforcement 5.01 excessive prices 4.433–4.436 exploitative abuses 4.416 merger control 9.43 monetary sanctions 6.97 origins of economics of competition law 2.02 penalties 6.90 profits measurement 2.73 public authorities 1.06 Sherman Act 3.02 social cost of monopoly 1.13 undertakings 1.84 White House Task Force on Antitrust Policy 2.40 upfront access payments 8.39, 8.41, 8.43 upstream exclusive dealing 4.154 upstream market 4.324, 4.341, 7.84 upward referral (Dutch clause) 9.36 upward sloping curve of supply 2.13 variable costs 2.143–2.148, 4.264, 4.267 vertical agreements 3.74, 3.140, 3.142, 3.145, 3.156, 3.196, 7.101 vertical integration 2.117, 4.68 refusal to supply and margin squeeze 4.303–4.304, 4.344 secondary line injury in price discrimination 4.515–4.523 vertical jurisdictional issues 3.162–3.201 local agreements 3.201 national agreements 3.199 regional agreements 3.200 transnational agreements 3.196–3.197 see also ‘effect on trade’ concept vertical mergers 9.10, 9.14, 9.77–9.84 vertical restraint 8.06–8.44, 8.86–8.99 buyer power 8.38–8.44 competitive harm theories 8.89–8.95 efficiencies and objective justifications 8.96–8.99 exclusive contractual relationship 8.08–8.17 limited distribution 8.21–8.28 market-sharing 8.29–8.37 resale price maintenance (RPM) 8.18–8.20 vertical restrictions 6.17 see also self-assessment of vertical restrictions veto rights 9.114

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021

volume/quantity rebates 4.167, 4.169, 4.172, 4.174 voting rights 9.114 welfare economics 1.24 welfare effects 4.452, 4.467–4.474 welfare improvement condition 3.223–3.237 economic improvements 3.224–3.232 non-economic improvements 3.233–3.237 ‘whistle-blowers’ 6.100, 6.107, 6.110 white clauses 7.06 White Papers 1.110 willingness to pay (customers) 4.459, 4.463, 4.468 workable competition 3.70–3.72 World Trade Organization 1.184–1.186 X inefficiency 2.28

From: Oxford Competition Law (http://oxcat.ouplaw.com). (c) Oxford University Press, 2021. All Rights Reserved. Subscriber: The WB National Univ of Juridical Science; date: 11 January 2021