Module 1: Article 101 TFEUera.intAcademyofEuropeanLawTranscriptEU Competition Law for national judgesCourse co-financed by the European Commission's DG CompetitionContent Introduction .......................................................................................................................................... 2 What is the scope of Article 101 of the TFEU? ............................................................................. 2 Is the concept of undertaking under article 101 TFEU any different from the term as it is generally understood in civil/company law? ................................................................................ 2 When does conduct affect trade between Member States? ..................................................... 3 When are the criteria of Article 101(3) TFEU satisfied? ............................................................. 4 Is there any other exception to the application of the prohibition contained in Article 101(1) TFEU? ......................................................................................................................................... 5 What are the consequences of infringement? ............................................................................. 6 Can national judges apply Article 101 TFEU directly?................................................................ 6 Introduction The European Union is based on the principle of an open market economy with free competition. The underlying economic credo is that effective competition leads to efficiency and innovation and also leads to a reduction in prices. In order to be effective, competition requires companies to act independently of each other, but subject to the competitive pressure exerted by the others. However, by agreeing between themselves to replace such pressure by arrangements on price, quality or output, rival companies can earn higher profits than would otherwise be possible in an effectively competitive market. Article 101 of the Treaty on the Functioning of the European Union prohibits agreements between two or more independent market operators which restrict competition. This provision covers both horizontal agreements (between actual or potential competitors operating at the same level of the supply chain) and vertical agreements (between firms operating at different levels, i.e. agreement between a manufacturer and its distributor). Only limited exceptions are foreseen in the general prohibition.What is the scope of Article 101 of the TFEU? Article 101 is really a key provision of our arsenal of competition tools, because it targets illegal practices from companies when they get together and agree on how to behave on the market thereby restricting competition and it is very important to bear in mind that it is one of the two main tools that we have for competition purposes in the Treaty concerning the conduct of private firms.102 relates to the abuse of monopoly power while Article 101 is about the illegitimate obtainment of monopoly power by means of collusion. By that we mean when companies get together, sit at the table, decide to agree on how they will behave on the market for the purpose of being in a position to raise prices above the level to which the normal interplay of supply and demand would have normally led.Is the concept of undertaking under article 101 TFEU any different from the term as it is generally understood in civil/company law? Well, it is an important notion. It is a notion that should be interpreted and given a meaning autonomously from what national law might provide in contexts that are competition related or not competition related. So it is an autonomous notion of European law and what Article 101 targets is the conduct of private entities. As opposed to the State, undertakings we mean by that entities that have a commercial, an economic activity and so that is a notion that will be used in interpreting in applying Article 101 in order to distinguish the conduct of the State from the conduct of private entities. For example lets say we have a system/an entity which is part of the national health service of a given country and which is charged with a series of tasks directly concerning the management of hospitals. In the course of these activities this entity will purchase or even maybe sell services on the market.The question can come up if this entity is an undertaking or is it part of the State and therefore immune from the reach of competition law because it is not an undertaking. We have examples in the case law of situations like that where the Court was able to provide a series of criteria on the basis of which it can distinguish what is and undertaking from what is not an undertaking.Another example is sport, where we have FIFA agents, people who make their living out of organising the transfer of football players from one club to another. This relates to an activity which is economic. There is a lot of money involved, but it also relates to sports. So in a case like that what would you say? That this is an undertaking because the activity is economic? Or is it sports related and therefore should not be considered as being within the reach of the antitrust law. Through the notion of undertaking,in a case like a FIFA agent for example, the Courts said: now here we are really talking about an economic activity and therefore the activity of sports agents is falling within the scope of Article 101, as opposed to purely sporting rules (for example rules concerning substances that are used for doping purposes and are maybe banned from the use by athletes).When does conduct affect trade between Member States? Perhaps we should step back a second and recall one key thing about Article 101, which is that it functions with three blocks that are paragraph one, paragraph two and paragraph three. Paragraph one contains the prohibition and the prohibition is articulated around five criteria, four of which are written in the black letter of the Treaty, the fifth one being judge made.The criteria that are prohibited by Article 101 are: agreements which affect trade among Member States, among undertakings, and which have the object or effect of restricting competition in the market. The fifth criteria, which is not in the Treaty, is that only agreements which exceed a level which we call de-minimis will be caught by the prohibition.The particular condition relating to trade among Member States; it is very important, if you are handling Article 101 from a national perspective, to always bear in mind the purpose of this condition. The purpose is not for the enforcer- either a national competition authority or a Court - to try to assess quantitatively whether trade among Member States has been impacted by a given practice or given agreement, but rather to decide whether European Union law applies or whether national law applies. So it is really a jurisdictional clause or a choice of law clause if you will. The Courts have always given a very broad interpretation of the notion of trade among the Member States and the level of effect that is required. Actual effect is not required in every instance. Potential effect is sufficient. So what we are looking at is the possibility for Article 101 to apply even though the situation in dispute is not a trans-boundary one. Agreements which only concern the territory of a Member State, either by covering the entirety of the territory of the Member State or just a small fraction of it, can be covered if potentially they may impact trade among Member States. Now, about a year or two ago we had a big controversy in France over that criteria, when the question came up of existence of trade among Member States, when the competition authority was looking at a cartel among companies that were selling jet fuel at the airport on an island owned by France in the Indian Ocean. So a very small territory andan airport which received mostly airlines coming from France. The decision makers initially, the competition authority, said: Well, yes trade is affected because potential effect is sufficient. The Court of Appeals reversed saying: No. Why should it be? We are only talking about a small island. It is not something that affects the main land of the continent of Europe. We are thousands and thousands of kilometers away - I am exaggerating, but that is roughly the idea -and the market is too small anyway. On appeal the Supreme Court reversed the filing of the Court of Appeals saying: In accordance with European law - in particular by implicit reference to the Commission notice on effect on trade - well here we do have, if we apply correctly the case law from the Court of Justice, the situation that we have an impact on trade among Member States,given the volume of trade involved andgiven the fact that the airport is frequented by aircrafts that come not exclusively from France. So you can see that this is an example of a situation which is purely internal to a Member State, confined to a very small territory and nonetheless the national judge, in that case the Supreme Court of France, was able to conclude that Article 101 was applicable. When are the criteria of Article 101(3) TFEU satisfied? There are in total four conditions in order for Paragraph 3 to apply and for an illegal agreement to be able to escape from nullification under Paragraph 2. The agreement must have some redeeming properties. It must promote technical progress, economic progress or lets say the redeeming properties can be found in the fulfillment of objectives which would be considered as generally desirable. The restrain on competition, the cause for the illegality of the agreement must be indispensable for the realisation of this goal.A fair share of the benefits must accrue to the customers, the consumers. The idea being that if we have an agreement in restrain of competition it will operate as a transfer of welfare from consumer to the benefit of producers. Thats what Paragraph 1 targets. And in Paragraph 3 the idea is that only those agreements where in the medium to long run, a certain portion of that welfare transfer will be shifted back to consumers; will be eligible for an exemption. Finally, and that is probably the most important of all these criteria, the level of competition remaining on the market must remain meaningful.And the way the Treaty is drafted, the Treaty says that the agreement must not eliminate competition in its entirety on the market. So there must remain some sort of competition on the market. In other words, if you have an agreement among companies that are hyper dominants, with 85-95% market shares, it is very unlikely that this condition will be met.When a national Court, a national competition agency applies 101 Paragraph 3, it is also a key thing to bear in mind that these four conditions are cumulative. So if only one of them fails there is no need to examine the others. The agreement will not be able to escape nullification under Paragraph 2. Is there any other exception to the application of the prohibition contained in Article 101(1) TFEU? Yes and no. The normal answer would be to say: no, there are no other grounds. The Court has refused it, so at least we have some case law indicating that under Paragraph 1 there is no scope for balancing of interests among the various policy goals: competition policy on the one hand, and other types of social or economic policy objectives that might be relevant in the context of Paragraph 3. All this analysis, the balancing act, needs to take place within Paragraph 3 exclusively.But at the same time it is true that either through taking a narrow reading of the notion of undertaking the Court has been able to say that certain types of agreements involving entities, for example, relating to the State or performing solidarity based functions on behalf of or for the State, would not be undertaking and therefore Article 101 Paragraph 1 would not apply.In other circumstances the Court has made a policy judgment that when it comes to a certain area - and I am thinking in particular about labour relations, collective bargaining agreements - that these sorts of agreements among social partners, representatives of the employers and trade unions on the other side, are not by nature covered by Article 101 because as a policy measure we think that this should not be covered by the antitrust rules. There is one last very minor point which is important, it is a purely judge made creation, it is a case that now dates back to about ten years ago, called Wouters, in which the Court - and this is the only time to my knowledge that the Court of Justice has done so - found in Article 101 Paragraph 1 analysis that an agreement which fulfills all of the five criteria that would have made it illegal and therefore null and void under Paragraph 2, could nonetheless be deemed to be legal without having recourse to any of the four conditions under Paragraph 3.Here the overall policy objective that was taken into account by the Court was the sound administration of justice, because the agreement in question was a ban in the Netherlands against multi-disciplinary partnerships, thats partnerships between lawyers and non-lawyers. So, in that case the Court recognised that justice is the justification for the agreement which otherwise, through a classical analysis, would have been illegal. So it is possible. What are the consequences of infringement? The only thing I would say is that if an agreement is illegal and cannot benefit from an exemption then what happens it is null and void. The agreement cannot be enforced. And very often, when you think about 101, you think about public enforcement; the commission imposing fines against cartel members or a national competition authority applying directly Article 101 for the purpose of imposing fines or requiring commitments or pushing companies into a settlement discussion. But you also have private enforcement and what is generally called the Euro-Defence. When in the course of the contract during dispute, a partysubject to a lawsuit for an action for damages would, on basis of the contract, raise as a defense the fact that the contract in question contains clauses which are illegal under Article 101 and therefore are null and void. So the consequence of being caught by the prohibition under Paragraph 1 can appear in the context of public enforcement but also before national courts and it is usually the context in which these things come up before national courts. Can national judges apply Article 101 TFEU directly? They have to apply it! Because the national courts are of course the prime judges of European Union Law. We are not in a federal system where we have two separate court systems: national courts and then courts of the European Union. Each national judge is responsible for the application of the entirety of European Union law including Article 101.It was not always the case because under the enforcement regime we had from 1962 until 2004 the Commission was exclusively competent for the application of Article 101 Paragraph 3.So in other words, only the Commission had the authority to grand exemptions under 101 Paragraph 3. We had a completely different system from what we have now. It was a highly centralised system where the national courts could only rule on 101 Paragraph 1, 101 Paragraph 2 but were not allowed to grant exemptions.In 2004 the idea was that this system had shown its limits. It was to a large extent the victim of its own success. The Commission was swamped with notifications and after decades of experience we had reached a stage where we knew enough about competition law that we were in fact ready to accept the consequence of a decentralised enforcement system which may mean in certain cases that we would not have a similar level of coherence among the various decisions rendered by a multitude of national courts from what you can have if you only have one body responsible for applying the exemption mechanism. So now it is very clear that since the last eight years we are under a regime where it is the duty of national courts to apply 101 in its entirety. Academy of European LawMetzer Allee 4D-54295 TrierRue Belliard 159B-1040 BrusselsTel +49 651 93737 0Fax +49 651 93737 773info@era.intwww.era.intERA is funded with support from the European Commission.This communication reects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.