Advanced EU Law

1. Advanced EU Law Prof.MassimilianoMontini Internal European Market: Competition law (I) Lecture 14, 3/12/2013

2. Competition Law • The adoption of competition rule falls within the field of exclusive competence of the Union • Competition law establishes rules concerning competition which are necessary for the well functioning of the internal market, and in particular to ensure a workable competition among firms • Competition law is then ‘functional’ to the realization of the internal market and the objectives of the Treaty

3. Competition law: objectives • Competition law pursues the following objectives: • Entrepreneurs should compete in fair and equal conditions; • Consumers should be able to freely choose goods and services in a competitive environment • The social nature of the EU competition policy is now expressly mentioned in art. 3(3) TEU: ‘The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, […].’

4. Competition law: functions • Competition law as established in the Treaty is, thus, functional to the integration of different national markets into a single market with similar features to internal markets of Member States • Effectiveness of EU competition rules must be assessed on a case by case basis according to the features of the goods or services exchanged and the structure of the relevant market • Competition law is connected to the respect and achievement of other EU policies, values and objectives included in the Treaty of Lisbon

5. Competition law: competence • EU competition law is based on the Commission’s competence, which works as the European Competition Law Authority • The European Commission applies competition rules and has the power to grant exceptions in this field • From 2004 National Competition Authorities within Member States have been conferred the competence to directly apply relevant provisions of EU Competition Law, in agreement with the European Commission

6. Competition law: sectors • Competition law is composed by the following sectors: • Competition law applying to undertakings (art. 101 and art. 102 TFEU + Reg. 139/2004) • Competition law which applies to States (Aids granted by States) (art.107-109)

7. Competition law applicable to firms • Competition law applicable to undertakings is based on the following 3 pillars: • Prohibition of agreements between undertakings, decisions by associations of undertakings and concerted practices (art. 101 TFEU) • Prohibition of abuse of a dominant position (art.102 TFEU) • Mergers’ control (Reg. 139/2004)

8. Concept of undertaking • The application of competition law is based on the concept of ‘undertaking’. The Treaty does not define such a concept • The Court of Justice defined ‘undertaking’ as ‘any subject– natural or legal person – which performs a relevant economic activity by offering goods and services in a relevant market’ • The objective nature of the performed activity is relevant, while the subjective nature of the operator is not (functional approach)

9. Art. 101 TFEU • Art. 101 TFEU states that ‘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 shall be prohibited as incompatible with the internal market.’

10. Object of the ban: agreements • Art. 101 TFEU bans all agreements between firms at the same level of the economic process (horizontal relationship) or at different levels (vertical relationship) • They can be considered agreements all those behaviourscarried on by 2 or more firms aiming at realizing initiatives likely to affect fair competition • Horizontal agreements: among firms working at the same economic, industrial or commercial level • Vertical agreements: among firms working at different levels

11. Types of agreements under art. 101(1) TFEU • The following 3 types of agreements are banned under art. 101(1) TFEU: • agreements • decisions by associations of undertakings • concerted practices

12. 1) Agreements • By ‘agreement’ among undertakings is meant any manifestation of a common intention of two or more independent firms to behave in a given and agreed way on the market • The agreement can be oral or written • What is relevant is the content of the behaviour, the form does not matter • E.g.: oral agreements, inter-professionals agreements, letters sent by the producer to his/her distributors, etc.

13. 2) Decisions by associations of undertakings • ‘Decisions by associations of undertakings’ refer to all decisions, also non-binding ones, undertaken by groups of firms or professionals towards their associates and having the effect to distort or affect competition • E.g.: recommendation of trade unions to their associates; statutes’ rules of certain associations

14. 3) Concerted practices • ‘Concerted practices’ refer to any behaviour agreed by firms which is not an official agreement, but represents a conscious cooperation between them and is likely to distort competition • E.g.: direct or indirect contacts between firms which have as object or effect to influence their behaviours on the market (see ICI case)

15. Effect of the prohibition • The prohibition applies to all agreements having potential anti-competition effects • Therefore, the object of the agreement is not relevant: all agreements that produce or may produce distortive effects on competition are banned • The prohibition is limited to agreements which affect the European internal market, while agreements exclusively affecting national markets are not subjected to the prohibition (they can, however, be subjected to national rules on competition)

16. Conditions to apply the prohibition • Two conditions to apply the prohibition: • The first condition is to affect trade between Member States (prejudice to intra-community trade) • The second condition is the prevention, restriction or distortion of competitionwithin the internal market

17. Prejudice to intra-community trade(I) • The first condition to apply the prohibition is that the agreement can affect trade between Member States • Agreements which can have direct or indirect, actual or potential, effects on trade between Member States, such as to hinder the achievement of the objectives of the Treaty, are likely to be a prejudice for intra-community trade

18. Prejudice to intra-community trade(II) • This criterion is composed by3 elements: • Trade among Member States: agreements or practices only affecting national markets are not relevant (e.g. Genoa’s harbour) • ‘Potential’ effect: it is sufficient the potential direct or indirect effect on competition • Relevant impact: it must be assessed on a case by case basis with respect to market’s shares involved

19. Distortion of competition’s conditions of the internal market (I) • The prohibited agreement must also have as object or effect to prevent, restrict or distort competition within the internal market • A two-phases analysis is envisaged to determine the existence of such a condition: • the fist step tests whether the object of the agreement leads to restriction of competition • if the object is not anti-competitive, the second step tests the effect on competition

20. Distortion of competition’s conditions of the internal market (II) • De minimis rule: an agreement will not be caught by the prohibition of art. 101(1) if it does not have a relevant impact on competition or on inter-State trade • The benchmark is determined on the basis of the market share held by the undertakings involved in the agreement • The EU Commission differentiated the benchmarks according to these criteria: firms competing on a relevant market (10%); agreements among non competing firms (15%)

21. Specific cases of prohibited agreements • Specific cases of prohibited agreements are listed in art. 101(1) TFEU: • directly or indirectly fix purchase or selling prices or any other trading conditions; • limit or control production, markets, technical development, or investment; • share markets or sources of supply; • apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; • 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.

22. Distribution Agreements • The EU Commission and the European Court of Justice paid special attention to distribution agreements that can artificially divide markets • Since the Consten and Grundig case, concerning a distribution agreement in France, the Court of Justice affirmed that ‘an agreement aiming at creating artificially a system of national markets within a common market is likely to distort competition and therefore is banned by 101(1) TFEU’

23. Individual exemptions (I) • Art. 101(3) TFEU statesthatagreementsbanned under art. 101(1) may, however, be declared inapplicable when they contribute 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 when they do 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.

24. Individual exemptions(II) • The competence on individual exemptions, previously reserved to the Commission, has been extended by Reg. 1/2003 also to national authorities for competition and national judges • This regulation also replaced the previously system of notification and authorization of agreements (based on the ‘constitutive’ decision of the Commission) with a system of legal exemptions establishing only an ex post-assessment • There is no more need of a previous authorization to apply those agreements falling under art. 101(1) TFEU, but matching with the conditions for individual exemptions of art. 101(3)

25. Exemptions for certain categories • By the adoption of specific regulations by the Commission, certain types of agreements falling under art. 101(1) can be exempted also for an entire category: ‘block-exemption’ • The agreements falling under a given category are automatically exempted • E.g.: exemptions for vertical restrictions; exemptions for agreements distributing cars; exemptions for the transfer of technology, etc.