Academy of European Law

EU Competition Law
for national judges
Module 1:
Article 101 TFEU
Transcript
era.int

Course co-financed by the European Commission's DG Competition

Content
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 and an 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 and given 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 party subject 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.

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