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COMPETITION POLICY
EUs competition policy supplements the aims of EUs policies on the four
fundamental freedoms. Both intend to create a freer, more open trading
environment across the EU and help Europes economy become more competitive.
The purpose of the competition policy is to ensure companies in one-member state
are not prohibited or discouraged from doing business across the EU.
The key function of EU competition law is to help establish a single Union-wide
market while:

promoting economic efficiency

having efficient allocation of resources
enhancing consumer welfare
promoting the structure of the market

Primary competition law of the EU relating to companies is set out in ARTICLES 101
102 OF THE TFEU. These Articles regulates anti-competitive behaviour between two
or more undertakings.
The ECJ defines an undertaking in HOFNER AND ELSER as:
any entity engaged in an economic activity regardless of the legal status
of that entity and the way in which it financed.
The definition focuses on the economic activity providing goods and services: based
on this, an undertaking would include private entities, but will not include public
bodies who act for social or welfare purposes as in FENIN.
Parents and subsidiaries within the same corporate group will regarded as one
single undertaking: CENTRAFARM.

Article 101 of the TFEU

Three conditions must be satisfied to trigger the application of this Article:
1. collusive conduct between undertakings
2. it must effect trade between Member States
3. the object or purpose must be to distort competition

Collusive Conduct
A collusive conduct is a collusion between two or more independent undertakings. It
takes three forms:

Agreement:
It is a concurrence of will between two or more parties having faithful expression of
intentions. The court has interpreted this broadly for it can be either written, oral or
a tacit acquiesce (implied agreement) as seen in ACF V COMMISSION and VOLKSWAGEN V
COMMISSION.
Moreover, an agreement can happen over a period of time, rather than being
agreed all at once: see HERCULES CHEMICALS V COMMISSION.
The burden of proof lies on the undertaking to prove it did not intend to participate
in the implementation of the agreement as in COMMISSION V ANIC.
An agreement can be either:
1. Vertical Agreements: agreements made between non-competitors i.e.
between a manufacturer, distributer and retailer as in ALLIANZ HUNAGARIA.
They pose less of a threat to EUs competition policy and often can enhance or
encourage competition. They are economically beneficial as they permit the
penetration of new products into areas where they have not previously been sold.
It was originally thought that ARTICLE 101 only applied to horizontal agreements.
However, the ECJ has since then determined that it also controls vertical agreement
as seen in CONSTEN AND GRUNDIG.
2. Horizontal Agreements: agreements made between competitors i.e.
between undertakings at the same level in the supply chain.

Decisions by Associations of Undertakings:

An association of undertakings is usually some kind of professional body or group of
companies that issues codes of practice, decisions or recommendations to its
members. In this context, these decisions do not have to be binding, but there must
be evidence that members do tend to comply with them as in IAZ INTERNATIONAL; and
MASTERCARD V COMMISSION.

Concerted Practice:
An oligopoly market where there are only a small number of producers/suppliers, it
makes it very difficult for new producers to enter the market as all the companies
control the market.
Concerted practices are recognised in ICI V COMMISSION (DYESTUFFS) as co-ordination
between undertakings which have not reached the stage of agreement, but in which
nevertheless the undertakings have contacted one another and have knowingly
substituted the practical cooperation between them for the risks of competition as
in SUGAR CARTEL.
This practice is slightly difficult to prove for the European Commission. The
Commission will try to establish that there has been a contact between the parties if
it cannot prove that the parties have made contact. However, if this fails the
Commission can also try to indicate that the parallel behaviour e.g. the sudden
increase in prices in a given market can only plausibly explained by the fact that
there has been a concerted practice between the parties as in RE WOODPULP.

Effect Trade between Member States

The ECJ gave a broad interpretation to this requirement in the ZUCKNER CASE. It holds
that: it must be possible to foresee on a balance of probabilities of fact that the
agreement or practice may have an influence, direct or indirect, actual or potential
on the pattern of trade between Member States.
This requirement is very easy to prove due to its low threshold. This is because of
the fact that an agreement extending to the whole of one Member State only
complies with this condition since, such an agreement is considered to reinforce the
compartmentalization / division of the market.

Object or Effect to Distort Competition

Either the object or the effect of the undertakings must be to distort competition:
CONSTEN AND GRUNDIG.

purpose of the undertaking must be to distort competition as in T-MOBILE

NETHERLAND BV; or
effect on competition must be appreciable and recognizable as evidenced in
CEMENTHANDELAREN.

The Commission will not investigate situations in which the market share of
horizontal undertakings is less than 10%. The same applies in the case of vertical,

with the exception of minimum market share being 15%. However, this does not
apply in situations of hard core restrictions such as price fixing and market sharing.

The Per Se Prohibition v The Rule of Reason Test

The Commissions broad interpretation of ARTICLE 101 has meant that a vast array of
ordinary commercial agreements such as franchises, exclusive purchase
agreements, exclusive supply agreements or distribution agreements are illegal
under EU law.
In the real world, however, businesses cannot function without such agreements.
Agreements prohibited under ARTICLE 101(1) OF THE TFEU can be exempted under
ARTICLE 101(3). However, in order for the exemptions to apply under this provision it
was considered necessary to weigh the pro and anti-competitive effects of the
agreements concerned. Under such a system there is a two-step process whereby
an agreement must first be considered as prohibited by ARTICLE 101(1) before it can
be considered for an exemption under ARTICLE 101(3) through an analysis of it pro
and anti-competitive effect.
This two stage process can be contrasted with the U.S. rule of reason approach,
which balances the pro and anti-competitive consequences of an agreement before
a finding of an infringement is made. The General Court confirmed the two stage
test and rejected the rule of reason approach in M6 V COMMISSION.

De Minimus Rule
The VOLK CASE established the de Minimus rule which states that certain breaches
of ARTICLE 101 will be disregarded if the companies involved are relatively small and
the effect of their activities on the overall competitive situation on the market is
negligible.
The most recent reformulation of the precise parameters for the application of de
Minimus rule can be found in Commission Notice on Agreements of Minor
Importance (2001). According to this Notice, whether an agreement decision on
concerted practice has appreciable effect depends solely on the market shares of
the undertakings involved. In case of a combination of both vertical and horizontal
agreement s or where it is difficult to classify the agreement as either one, the 10%
threshold applies.
This notice also sets out the hard core restrictions which will always be prohibited
under ARTICLE 101 and which if included within the agreement will make the
application of the de Minimus rule invalid.

Ancillary Restraints
Restrictions which are objectively necessary to the main agreement, but are not an
essential for its operation will be considered not infringe ARTICLE 101 as seen in
WOUTERS CASE.

Article 101(3) of the TFEU: Exceptions

The prohibition of ARTICLE 101(1) is not absolute. ARTICLE 101(3) OF THE TFEU contains
the possibility of an exception. The prohibition in ARTICLE 101(1) may be declared
inapplicable provided two conditions are met:
1. The agreement contributes to words improving the production or distribution
of goods or to promote technical and economic progress
2. allowing consumers, a fair share of the resulting benefit
And which does not:
1. impose on the undertakings concerned such restrictions which are not
absolutely necessary to the attainment of these objectives
2. it must not afford such undertakings, the possibility of eliminating
competition in respect of a substantial part of the products in question
In practice, the undertakings have to assess whether ARTICLE 101(3) OF THE TFEU
applies. This self-assessment is further subject to review by authorities regulating
competition policy.
It is important to keep in mind that the prohibition in ARTICLE 101(1) OF THE TFEU is to
be interpreted widely and the exemptions under ARTICLE 101(3) have to be
interpreted strictly. Hence, it is not easy to justify the prohibitions of ARTICLE 101(1)
once the conditions are satisfied.

Regulation 2790/99: Block Exemptions for Vertical

Agreements
In order to reduce the quantity of the application for exemption, the Commission
issued a number of block exemptions. These were regulations that set out a number
of requirements and prohibited clauses for contracts which when fulfilled
automatically lead to exemptions from the application of ARTICLE 101(1).
However, following the criticisms of these regulations, the Commission initiated a
reform, most important outcome of which being the general block exemptions on
vertical agreements and concerted practices, REGULATION 2790/99. This regulation
replaces the separate block exemptions and covers all types of vertical restraints
including selective distribution agreements.

It represents a more market oriented and economics based approach in which

eligibility for exemption is based on a 30% market share threshold. Recognizing that
the behaviour of the companies with little market power has little significant impact
on competition in the market.
It however, allows companies which do not have market share to benefit from a safe
haven within which they are no longer obliged to assess the validity of their
agreements under the EU Competition rules. However, as with de Minimus rules,
there are some clauses which are excluded. Therefore, the regulation is
accompanied by guidelines on vertical restraints designed to help undertakings to
carry out their own assessment of their position in respect of ARTICLE 101.
This regulation was revised in 2010, which contains a notable departure stating that
bans on passive sales one of the hardcore restrictions under the block exemptions
may not fall within the scope of ARTICLE 101(1) OF THE TFEU, for the first two years
of operation of a new exclusive distributorship.
There are block exemptions for horizontal agreements under REGULATION 1217/2010,
relating to categories of research and development agreements.

Article 101(2) of the TFEU: Sanction

If all the requirements are satisfied, then the collusive behaviour is automatically
void. The nullity of this agreement cannot generate any effect. The entire
agreement is void unless certain aspects can be saved from the rest.

Enforcement of Regulation 1/2003

REGULATION 1/2003 was enforced to modernize the enforcement procedure of ARTICLE
101.

Decentralization
It decentralized the enforcement of competition law, which meant that apart from
the European Commission, the National Competition Authorities (NCAs) and the
National Courts were increasingly involved in the enforcement of competition policy.
The Regulation provides that the whole of ARTICLE 101 OF THE TFEU is directly
effective. Hence, not only the European Commission but also the NCAs and the
National Courts could grant individual exemptions. There was thus, an increased cooperation between the national enforcement authorities and the European
Commission amongst others by increasing the exchange of communication.

In principle, there is a parallel competence between the European Commission and

the national enforcement authorities. However, the European Commission remains
to be the most important player in this respect. When the Commission has already
started or initiated proceedings the NCAs are relieved from doing so. The NCAs
cannot take decisions against earlier Commission decisions and when the
Commission wants to investigate an affair that is already under investigation by the
NCA, it can do so after consultation with the national authorities.

Extra-Investigative Power
Besides, decentralization, REGULATION 1/2003 also considerably extends the
investigative powers of the Commission. This was inspired by the fact that after all
relatively few cartels were being discovered by the European Commission.
The extended investigative power of the Commission involved amongst others the
possibility to request for information, the right to take statement from people
involved in allegedly ant-competitive practice and extended rights of inspection.
The Commission has the right to enter into the premises of an undertaking
suspected of engaging in ant-competitive conduct. It may examine all the relevant
books and records regarding the said conduct. If it is deemed necessary, it may
even enter the private homes of the directors of the Company. The important aspect
in this regard is that the undertakings must in principle co-operate with the
Commission.

Action by the Commission

The European Commission can initiate an action on its own initiative. It can also
start an action on the basis of a complaint by an undertaking with a legitimate
interest or by a Member State. Subsequently, the Commission has a duty to
consider the complaint and to decide within a reasonable time what to do with it. It
has no obligation to take the case i.e. the Commission has the discretion to decide
what to with the complaint.

Penalties
Article 23 24 of the Regulation provides with penalties for breaches of Article 101
such as imposition of fines up to 10% of the total turnover in the previous business
year or increasing periodic penalty payment to a maximum of 5% of the average
daily turnover in the previous business year, and increasing fine for misleading
information to 1% of the total turnover in the previous business year.

Article 102 of the TFEU

ARTICLE 102 OF THE TFEU states:
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.
In such a situation, one is dealing with unilateral conduct of a dominant
undertaking. Dominance as such is not prohibited. It is only the abuse of dominance
that triggers the application of ARTICLE 102 OF THE TFEU.

Aspects of Article 102

To establish the relevant market on which this undertaking is
active
The definition of relevant market is a necessary pre-condition for any judgment on
anti-competitive behaviour. This is the crucial factor of ARTICLE 102 investigation.
The European Commission will always come to a small relevant market whereas, the
undertaking that is accused of abusing the dominant position will claim the market
to be as wide as possible to avoid any possible conclusion of dominance. The
relevant market is divided into:

Product Market
This is an investigation into which products are considered to be falling within one
and the same product market. In order to research this one has to look at the
interchangeability or substitutability of the product i.e. the cross-elasticity of
demand. The Commission assess the product market using the SSNIP Test.
SSNIP Test: what happens if a price of a product increases by 5%? Will consumers
stick to that product or are they going to change to another product. If they change
to another product, they are considered to fall within the same market, otherwise
the product may be different. A good illustration is found in the UNITED BRANDS CASE.
They look at the products:

price
main characteristics
intended use
varying views of substitution

Geographic Market
It is a clearly defined geographic area within an internal market or a substantial
thereof. Products belong to the same geographic market when there are
homogenous conditions for competition e.g. increased transport cost may lead to
the conclusion that products belong to different geographical area. The
geographical market must be distinguished from neighbouring areas because
conditions for completion are different.

Temporal Market
In a relevant market, for certain products there may be limited production times
e.g. seasonal fruit. Once the relevant market has been defined subsequently one
has to assess whether any given company has a dominant position in that market.

Establishing the Market Power / Dominance of the Undertaking

What is dominance?
Dominance was defined in the UNITED BRANDS CASE as:
Position of economic strength which enables an undertaking to behave
to an appreciable extent independently of its customers, competitors,
and consumers.
It is important to bear in mind that dominance as such is not prohibited per se. The
company which is dominant in a specific market has the special responsibility not to
engage in an abusive behaviour.
In practice, this means that certain behaviour which is allowed as long as the
undertaking is not dominant may no longer be acceptable when an undertaking has
become dominant in a certain market.

Assessment of Dominance?
How does one assess whether a certain undertaking has market power / dominance
over a relevant market?
The ECJ has indicated that dominance may derive from several factors which when
taken together can lead to the conclusion of dominance.
Market Share: if the market share is above 5% there is an automatic presumption
of dominance but if it is below 50% other barriers to trade are taken into account:

financial resources i.e. deep pockets CONTINENTAL CAN CO INC.

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Economies of scale UNITED BRANDS

technical and commercial advantages such as intellectual property rights

MICHELIN
market share of the undertakings competitors
collective dominance - FLATGLASS

Establishing whether the undertaking abuses that power

The concept of abuse is defined by the ECJ in HOFFMAN LA ROCHE is an objective
concept that relates to the behaviour of an undertaking in a dominant position
which influences the structure of the market to weaken the competition by resorting
to methods that normal companies would not which has the effect of hindering the
maintenance of the degree of competition or the growth of competition in the
market.
Two categories can be distinguished in the context of abuse:

Exploitive abuse that effects consumers

excessive pricing UNITED BRANDS CASE

discriminatory pricing
selective pricing IRISH SUGAR V COMMISSION
tying i.e. purchase of a product made conditional on the purchase of anther
product MICROSOFT V COMMISSION

Exclusionary abuse that has anti-competitive effects

Refusal to Supply: is an abuse for a dominant supplier of raw materials to

cut off supplies to a company which uses those materials to make another
product, so that the dominant company can start making that product itself
without competition from that other company as seen in the case of
COMMERCIAL SOLVENTS V COMMISSION.

It is also an abuse to refuse to supply a distributor in order to punish them for

promoting a competitors products as in the UNITED BRANDS CASE. Moreover, the ECJ
held in BPB INDUSTRIES CASE that a refusal to supply a long-standing customer who
abides by normal commercial practice or even a new customer as held in RTE, BBC
& ITP V COMMISSION will also be considered an abuse.
The Court in IMS HEALTH held that for a refusal to supply to be abusive, three
cumulative conditions had to be fulfilled:
1. the refusal must prevent the emergence of a new product for which there was
a potential consumer demand
2. the refusal must be unjustified

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3. the refusal must exclude any competition on the secondary market.

A good illustration of the implementation of these conditions can be found in
MICROSOFT V COMMISSION.

Predatory Pricing: if a rich undertaking at some point wants to drive the

competitors out of the market which are less wealthy, and does this by
lowering the prices of a certain product to an unacceptable level.

This could as a result prevent the competitors from sustaining their position. In
these circumstances the company that has abused tries to recoup their losses by
increasing the prices. Under certain conditions this war on prices may be considered
abusive.

Investigation of Article 102 of the TFEU

Once the collusive conduct meets the requirements of ARTICLE 102 OF THE TFEU, it is
found to be contrary to the Treaty and no exemptions are made available for the
breach of ARTICLE 102.
However, recently a more flexible approach is adopted in this context. Objective
justification argument may prevent certain conduct to be abusive. In this context a
balancing act is performed and if the negative effects are outweighed by positive
ones, the conduct will no longer be abusive.

Compensation
To increase the possibility of detecting more cartels EU gives the opportunity to
speak up and reveal the existence of a cartel in return for which they may be
eligible for immunity from fines or at least significant reduction from fines.
This system is heavily regulated. Total immunity from fines can only be given to an
undertaking that speaks up as the first undertaking and that discloses information
about which the Commission had no knowledge before. Parties that subsequently
gives additional information can only be considered for a reduction in fines.
Immunity from fines can be given to only one company engaged in the cartel.
It is important that the parties that are willing to disclose information must disclose
all of it. They must remain available at all times to help the Commission whenever
they can in the investigation. The party that has instigated the cartel is not eligible
for an immunity from fines. Otherwise, it would be too straightforward and easy to
lure the competitors into a cartel and then subsequently hand them over to the
enforcement agencies. A good example of such whistle blowers is seen in DUTCH
BEER CARTEL CASE.

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This whistle blowing system whereby, parties that have engaged in anti-competitive
behaviour in the so called white-collar crime is subject to severe criticism that why
allow criminal parties to receive immunity or reduction.