Competition Law Webinar Article 101

Tutorials   LLB Students:   Tuesday 23 April - 10 AM – Tutorial Room 8

  Tuesday 23 April – 5 PM – Tutorial Room 8

  Friday 26 April – 9 AM – Tutorial Room 7

  BCL/BBL Students:   Thursday 25 April – 10 AM – Tutorial Room 7

  Friday 26 April – 11 AM – Tutorial Room 10

Competition Law Article 101 TFEU

Introduction

  _______________

  _______________

  _______________

What Is Purpose of Competition Law?

  Better “shopping” experience – choice, price, value -> increased consumer welfare

  Introduction of new and innovative products

  Better use of society’s resources -> increased efficiency

  Prevent aggregations of economic power to protect consumers and competition

 Create single European market without national divisions created by private agreements

Areas of Competition Law:

 Cartels and anti-competitive agreements (Art. 101 TFEU)

 Abuse of dominant position, e.g., monopolies (Art. 102 TFEU)

 Mergers (Regulation on mergers; Article 102 TFEU)

  State Aid (Art. 4(3) TEU, Art. 14, 34, 101, 102, 106, 107-109 TFEU)

Articles

Article 101(1) TFEU:

“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; … ”

Article 101(1) TFEU (cont’d):

Article 101(1) TFEU (cont’d):

“… (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. …”

  “Any agreements or decisions prohibited pursuant to this Article shall be automatically void. ...”

Article 101(2) TFEU:

“The provisions of paragraph 1 may, however, be declared inapplicable in the case of:

— any agreement or category of agreements between undertakings ...

— any 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.“

Art. 101(3) TFEU:

Case Law

What is an “Undertaking”?

  ________________

  ________________

  ________________

“Undertaking” =

  Höfner: any entity engaged in economic activity regardless of legal status or way it is financed

 Corporations, partnerships, individuals, trade associations, professions, cooperatives, state-owned corporations acting in commercial context (but not those exercising public powers)

 Does not include entities that only pursue social objectives and do not engage in economic activity (e.g. old age insurance plan)

 Does not include organizations representing labour or management entering into collective agreements -> need to allow those for social policy reasons

What is an “Agreement”?

  _________________

  _________________

  _________________

Cases 41, 44and 45/69 ACF Chemiefarma NV v Commission [1970] ECR 661 – Quinine Case

Facts:

Procedural History:

Holding:

Rationale:

Cinchona Tree. Source: Encyclopedia Britannica Kids online

“AGREEMENT” =   Polypropylene: Commission found (as upheld by CFI) oral

agreement; there was agreement if parties reached consensus on a plan which was likely to limit commercial freedom even though not all firms took part in all parts of the cartel

  Expression of joint intention to act in certain way on market

 Attendance at meetings where agreement is reached and party does not oppose that agreement (even if party does not expressly agree to it) (Hüls decision)

 Concurrence of wills between at least 2 parties – not unilateral

 Concurrence can deduced from conduct

What is “Concerted Practice”?

  ____________________

  ____________________

  ____________________

Case 48/69 ICI v. Commission [1972] ECR 619

Facts:

Procedural History:

Holding:

Rationale:

ICI v Commission:   “[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.”

What is an “Oligopoly”?

  __________________

  __________________

  __________________

What is “Parallel Conduct”?

  ___________________

  ___________________

  ___________________

Cases 89, 104, 116-117 and 125-129/85 A Ahlstrom Oy v Commission [1993] ECR I-1307 (Wood Pulp Case)

  ECJ annulled a decision of the Commission finding a “concerted practice” where there was a large number of firms, they charged similar prices, they changed prices simultaneously and uniformly

  ECJ said parallel conduct, on its own, cannot be proof of concerted action unless that is the only plausible explanation for the parties’ conduct

Case T-9/89 Hüls AG v Comm’n [1992] ECR II-499; Case T-11/89 Shell Int’l Chemical Co. Ltd v Comm’n [1992] ECR II-757; etc. (Polypropylene Cases)

 CFI found “concerted practice” where meetings held to fix prices and set sales-volume targets; and firms exchanged info about: prices they would charge, profit thresholds, sales volumes needed, and sales figures

  Undertakings that participated could not fail to take into account information that was disclosed when they determined their own conduct on the market

 Are concerted practices unlawful if there is no effect on the market?

Case C-199/92 P Hüls AG v Commission [1999] ECR I-4287

 Concerted practice of fixing prices (part of Polypropylene cases but later in time)

  “[P]resumption must be that the undertakings taking part in the concerted action and remaining active on the market take account of the information exchanged with their competitors for the purposes of determining their conduct on that market”

 A “concerted practice ... is caught by Article 81(1) EC*, even in the absence of anti-competitive effects on the market”

* Art. 81 EC = Art. 101 TFEU

Exceptions ...

  ___________________

  ___________________

  ___________________

Article 101(3) TFEU:   “— any agreement or category of agreements between

undertakings ...

  — any 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. “

Case 56/65 Société La Technique Minière v Maschinenbau Ulm GmbH [1966] ECR 235 (“STM decision”)

  Facts: German company gave company, STM, exclusive right to sell its equipment in France; STM could sell the goods outside France; “parallel imports” could be obtained in France from other MS

  Holding: “exclusive right of sale” agreement OK

  Rationale: “it may be doubted whether there is interference with competition if said agreement seems really necessary for the penetration of a new area by an undertaking”; there is opportunity for competition through “parallel re-exportation and importation”

Cases 56 and 58/64 Establissements Consten SARL and Grundig-Verkaufs-GmbH v Commission [1966] ECR 299

  Facts: Grundig gave Consten sole distributorship in France; could not sell outside France; absolute territorial protection so other Grundig distributors could not sell in France

  Holding: unlawful under Art. 85(1) EC [Art. 101 TFEU]

  Rationale: absolute territorial protection isolates/shelters French national market from competition with separate national markets within EC – distorts competition; no favourable effects can lead to different result

Consten:   “There is a presumption that vertical sole distributorship

agreements are not harmful to competition and in the present case there is nothing to invalidate that presumption. On the contrary, the contract in question has increased the competition between similar products of different makes”

  “The situation as ascertained above results in the isolation of the French market and makes it possible to charge for the products in question prices which are sheltered from all effective competition … Since the agreement thus aims at isolating the French market for Grundig products and maintains artificially, for products of a very-well known brand, separate national markets within the Community, it is therefore such as to distort competition in the Common Market.”

Franchises

  _______________

  _______________

  _______________

Case 161/84 Pronuptia de Paris GmbH v Pronuptia de Paris Irmgard Schillgallis [1986] ECR 353

  Facts: franchisor gave franchisee rights to sell wedding clothes with exclusive use of Pronuptia mark on condition franchisee not open another shop in same area or help third party do so; franchisor helped set up store, give know-how

  Holding: agreement is lawful

  Rationale: restrictions allowing franchisor to communicate know-how as part of distribution system without aiding competitors is not restriction in sense of Art. 101; must preserve identity, reputation of network symbolized by mark

  “ A clause prescribing that the franchisee can only sell products provided by the franchisor or by suppliers selected by him must, in these circumstances, be considered necessary for the protection of the reputation of the network. It must not, however, operate to prevent the franchisee from obtaining the products from other franchisees.”

Block Exemptions Using Art. 101(3) as the basis, the Commission has established

block exemptions listing agreements that are exempt from Art. 101:

  Specialization agreements

  Research and development

 Vertical restraints, e.g., vertical agreements between manufacturer and retailer for distribution

  Technology transfer

  Franchising

Limits to Art. 101(3):

Certain agreements are condemned under Art. 101 without looking at possible benefits under Art. 101(3) ... in other words, these agreements violate Art. 101:

 Agreements that limit “parallel trade”

  Horizontal price fixing

 Market division

 Collective boycotts

 Absolute territorial protection (Eisele case)

What is “Parallel Trade”?

  ______________

  ______________

  ______________

Parallel Trade:

  “Parallel import” = “When a product made legally (i.e. not pirated) abroad is imported without the permission of the intellectual property right-holder (e.g. the trademark or patent owner). Some countries allow this, others do not.” Source: OECD online

  “Parallel trade” = “Imports of genuine copyrighted, patented or trademarked products without the authorization of the copyright patent or trademark holder. Parallel trade is the subject of great debate, especially in the pharmaceutical industry ...” Source: Dictionary of Int’l Trade

Parallel Trade:   “A kind of arbitrage in which drugs are imported without the manufacturer's

consent into a jurisdiction from a market having lower prices. Since drug prices are regulated in most countries, parallel trading is unlikely, however, to produce the usual implication of arbitrage - the emergence of a single (or close to single) price for each product overcoming inefficiencies arising from uncompetitive practices - because the price differentials reflect efforts to earn a return on Research and Development investment rather than differences in production costs. Parallel trade, though legal in some jurisdictions (for example, within the EU), is bitterly opposed by the pharmaceutical industry because it undermines the value of a patented product and because it effectively imports the results of other countries' regulatory schemes. It is not clear that parallel trade redounds particularly to the benefit of consumers or third party payers, as distinct from that of the parallel traders”

  [Source: www.dictionarycentral.com]

Cases C-501, 513, 515 and 519/06 GlaxoSmithKline Services Unlimited and others v Commission [2009] ECR I-9291

  Facts: GSK made agreement with wholesalers in Spain to charge lower domestic prices and higher export prices

  Procedural History: proceedings brought by Commission against GSK

  Holding: unlawful

  Rationale: “agreements aimed at prohibiting or limiting parallel trade have as their object the prevention of competition”

  “an agreement between producer and distributor which might tend to restore the national divisions in trade between MS might be such as to frustrate the Treaty’s objective of achieving the integration of national markets through the establishment of a single market”

  “[Art. 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. Consequently, for a finding that an agreement has an anti-competitive object, it is not necessary that final consumers be deprived of the advantages of effective competition in terms of supply or price”

Vertical Agreements:

  Exclusive distribution agreements –> producer supplies only a particular distributor in a particular territory - must look at context to see if caught by Art. 101(1)

  Selective distribution agreements –> supplier distributes only through certain outlets, e.g., with special expertise, e.g., specialist sales staff, brand image

  Exclusive purchasing agreements –> agreement to buy all needs from particular supplier, e.g., petrol stations and pubs – ok if “cumulative effect” does not interfere with market

 Metro-SB [1977]: “to preserve, in the interests of consumers, ... this channel of [selective] distribution ... forms one of the objectives which may be pursued without necessarily falling under the prohibition of Article [101(1)]”

  BMW [1995]: agreement between BMW and dealers forbidding dealer from sending cars to leasing companies that hired out cars beyond the national borders of dealer was “absolute territorial protection” - unlawful

Private Enforcement of Competition Law

 Case C-453/99 Courage Ltd v Crehan [2001] ECR I-6297: private right of action in national courts for anyone who suffers damages as result of violations of Article 101

 Manfredi decision

White Paper on damages actions for breach of the EC antitrust rules (2008)   Recognized need for new methods to increase private

enforcement of competition law to encourage compliance and distribute damages

  Considering various options including opt-in class actions; representative actions brought by an association with a legitimate interest

  Overlooked Dutch, Danish, Norwegian laws permitting opt-out class actions and Swedish, Danish (and now Italian and Polish) laws allowing for opt-in class actions

  Derogatory comments made about opt-out class actions, i.e., U.S. model for class actions

Two examples of deficit in access to justice:  Class action in USA on behalf of purchasers of diamonds settled

for 300 million USD distributed to victims of worldwide cartel

 No similar action for private damages brought on behalf of European victims

 Class action in USA on behalf of owners of Apple MacBook due to defective power cord that frays, sparks, bends, stops working settled for $10 million distributed to USA consumers

 No similar action for private damages brought on behalf of European victims

Future of competition law:  More private actions brought by lawyers on behalf of

consumers?

 Class/group/collective actions?

 Discussed in Brussels on November 12-13, 2012 at conference by ABA Section of International Law, jointly presented by NUIM Department of Law and Netherlands Bar Association and others

  Test case procedure?

Next ...  Article 102 TFEU – Abuse of Dominant Position in

Competition Law