Competiton Law: Article 101

Article 101(1) of the TFEU identified that all agreements, decisions and concerted practices between undertakings, which may affect trade and have as their objective or effect, to prevent, distort or restrict trade within the single market.

This is a long definition and therefore must be broken down. All competition law is monitored by the Competition Markets Authority (CMA) who have the power to investigate companies who are suspected to be taking part in anti-competitive practices.

 

Undertakings

The case of ‘Hofner and Elser’ identified that undertakings can be seen to be all legal persons. This includes Individuals, as well as businesses, which are engaged in commercial activity for the provision of goods or services.

 

Agreements, Decisions and Concerted Practices

The difference between all three is not too important. It is important that there is some sort practice that is anti-competitive. The definition includes all 3 words to make it ias wide as possible to include most business activity that could be anti-competitive.

Agreements can be seen to be formal agreements like contracts between two legal entities, or even less formal. Less formal agreements may be seen to be gentlemen’s agreements and could happen at all levels of a company. They may happen between managers on a local level or they may happen at the high end with directors making an agreement with each other.

These are known as cartels, and the CMA and EU Competition law have a very strict policy prohibiting all cartels. This is where two or more companies bind together in order to lessen competition from which they will both benefit. This is an example of a horizontal agreement.

Consten and Grundig allowed Article 101 to also apply to vertical agreements (ones which operate at different levels of the supply chain).

Concerted practices are when 2 or more companies form a co-operation. This does not go as far as being an agreement between the companies, or an agreement hasn’t quite been concluded between them, but there is steps been put in place to mitigate the competitive behavior between the companies (Dyestuffs). This widens the amount of agreements further than only agreements. It includes any anti-competitive cooperation between undertakings.

Decisions widen this even further. This is in relation to the business decisions that a business makes. For example, if businesses have no agreement or concerted practices in place, but both set their prices high, this can also be seen to be an infringement of Article 101 (the case of ‘Wooters’). It widens this even further to include any anti-competitive behavior which is based off of each-others business decisions.

 

Which may affect trade within the single market

For the purpose of EU law, the CMA will only be concerned with agreements that hinder trade between member states. If there is a cartel which strictly only operates within one member state, they will not deal with it, however the national competition authorities will. For example, in the case of Essex Estate Agents which all set their commission price at the same price, this was a cartel, but only looked at by the national authority.

The case of ‘Société Technique’ states that there must be a real degree of probability, on the basis on objective factors which may influence, directly or indirectly, actually or potentially trade between member states. Going on this basis, there does not even have to be an effect on trade yet, only the possibility that it will affect trade.

The case of ‘Consten Contd’ states that it did not matter the effect on trade. It could be a positive effect or a negative one, as long as trade is affected in some way, it will satisfy these criteria. Even though there is more trade, it doesn’t mean that all the effects will be positive as it is still potentially harmful to the consumer as it may not give them the most amount of choice for the best price, which is the EU’s aim in regard to competition law.

 

With its Object or Effect to Prevent, Restrict or Distort Competition

The case of STM concluded that the agreement can have as an ‘object or effect’ the restriction of competition. Both need not be present. Thinking laterally about this, it is possible to have an agreement that does not have as its objective the aim to restrict trade but dies have that effect. But it would be hard to have an agreement with its aim to restrict trade, but not have that effect, unless the agreement hasn’t been implemented yet.

The terms prevent, restrict and distort are all covered under the list of practices defined under Article 101(1)(A-E):

(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.

These restrictions may be exempt if they are covered under the list of exemptions under Article 101(3) (improvement of distribution of goods or to promote technical or economic progress). However, this is unlikely if they include hardcore restrictions.

 

NATT, NAOMI and VERB

If a company is found to have been engaging in Anti-competitive behaviour, there may be some ways in which it could be justified, however it dies very much depend on their market share. Market share might sometimes be obvious, and sometimes it is harder to identify. In order to identify the market share, identifying the market it important and for this the Relevant Product Market and the Relevant Geographic Market must be identified.

 

Relevant Product Market

The product market is looking and the interchangeability and substitutability (Hilti) of the products that the agreement was made on. For example, in the case of United Brands, the product market was specified as ‘Bananas’. They said that if a consumer wanted a banana, they would not be satisfied with any other fruit other than a banana, therefore the market could not be anything other than bananas.

The SNIPP test was also developed in relation to this. It held that if the price of the product was increased from 5-10% on a permeant basis, would the consumer still pay for that product or simply substitute it for something else? If they substitute it, the RPM is bigger, if they would pay the difference, then that is the RPM.

 

Relevant Geographic Market

This is also important to look at as a company’s market share was taken from all similar businesses from around the world, but they only operated in one member state.

RGM looks at where the conditions of competition are ‘homogenous’ (United Brands). Where it operates, does their market share differ in different places?

The starting point is that the RGM is the EU. However, looking at the countries that they operate in gives a more in-depth picture.

For example, the case of Burnham Estate agents where once again their commission was a set rate as they were in a cartel, the relevant geographic market was only Burnham.

However, on the other hand, the case of Hilti, regarding a port which delivered to countries all over the world, their RGM was a lit wider.

 

NATT- No Appreciable Effect on Trade

Some businesses may escape being investigated by the CMA if their market share is below 5%. This is why it is important to work out their RPM and RGM.

However, this does not mean that these agreements are Legal. It means that they have such a little effect on EU trade that the Eu competition authority will overlook it. These companies may still be investigated by the national competition authorities.

 

NAOMI- Notice on Agreements of Minor Importance 2014

This was a document produced by the EU as a list of rules giving rise to the De Minimis principles. This is along the same lines as NATT. However, NATT is not making it legal, it is only omitting the EU competition authority from acting on such an insignificance. However, NAOMI is a list of rules that Smaller businesses can use which justifies the use of some Anti-competitive behaviour.

If the businesses has a market share of 10% or less aggregate of all the businesses in the agreement for horizontal agreements, they will be able to use NAOMI. For Vertical agreements he market share is 15% or less. This is stated in Article 8 of NAOMI.

Article 13 of NAOMI states that hardcore restrictions, which are price fixing, price limiting and allocations of market or customers (restricting trade with certain places) are always restricted. Other types of anti- competitive behaviour may be allowed.

 

VERB- Vertical Block Restraints Exemption

The VERB is governed by the 330/2010 regulation. This is only available to vertical agreements and allows certain agreements to be accepted even if they contain anti-competitive clauses.

Article 1(1) states that vertical agreements are ones that operate at different levels of the supply chain.

Both parties must not have an market share that exceeds more than 30%- article 3(1)

Article 4 states that hardcore restrictions will never be exempt, which are identifies as passive sales and Price Fixing.

If the agreement contains restrictions that are contained in clause 5, the individual clauses are removed, but the rest of the agreement may stand. For example, in the ‘chemicals’ case, some of the clauses were removed but the agreement as a whole was still able to be used by both parties.

 

101(3) TFEU

If their businesses market share is more than 30%, the business will not have the benefit of using VERB. They will have to rely on Article 101(3). They do not get the guidance to their agreement that would be given if their market share is under 30%.

Article 101(3) states that the clause will be valid if it:

  1. Improves distribution
  2. Gives consumers a fair share of the benefit
  3. Does not restrict too far that is not necessary
  4. Does not restrict competition within the single market.

If these criteria are satisfied, the agreement will be valid.

 

Consequences of a Breach

If it is found that there has been an agreement that has breached Article 101, that agreement will then be Void- 101(2).

The EU commission or national competition authority will investigate the companies and cam impose a fine of up to 10% of annual world-wide turnover. This is a huge margin and could quite easily make some companies insolvent. Note that it is of turnover and not profit. Many businesses work within that margin as it is, so this could lead to the end of the business.

3rd parties will also be able to take action in their national courts against the company who has breached 101 if they have suffered a loss as a result of the breach. Article 101 satisfies the Van Gend criteria and therefore has direct effect.

It will also potentially cause a loss to the business in reputation and customers

Individuals could also personally suffer from breaching article 101. They will suffer loss of reputation, loose their job, be disqualified from their profession. It is a criminal offence as well, and there is the possibility of facing prison time for the breach.

 

By Woodrow Cox

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