Administration in International Organizations PUBLIC COMPETITION LAW Class III , 20 th Oct 2014

1. Administration in International OrganizationsPUBLIC COMPETITION LAWClass III, 20th Oct 2014 Krzysztof Rokita

2. Anti-competitive agreements Article 101 TFEU 1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practiceswhich 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, and in particular those which: (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.

3. Anti-competitive agreements The concept of agreement Basic definition: „…the concept of an agreement within the meaning of Article [101(1)]of the Treaty centresaround the existence of a concurrence of wills between at least two parties, the form in which it is manifested being unimportant so long as it constitutes the faithful expression of the parties' intention.” Case T-41/96, Bayer AG v Commission, para. 69 „It is also clear from the case-law in that in order for there to be an agreement within the meaning of Article [101](1) of the Treaty it is sufficient that the undertakings in question should have expressed their joint intention to conduct themselves on the market in a specific way” Case T-41/96, Bayer AG v Commission, para. 67

4. Anti-competitive agreements The concept of agreement • common intention to behave in a certain way on the market • Anoffer by one party and anacceptance of thatoffer by another party • No specified form of expressingparties’ intentions (may be in writing, oral, tacit – inferred from conduct) • Not importantwhetheranagreementmay be classified as a contractundernational law • Not importantwhetheritisintended to be legallybinding • Not importantwhethersanctionsareprovided for a breach • Motivation of the parties for concludinganagreementare not decisive

5. Anti-competitive agreements Vertical agreement and unilateral conduct Unilateral conduct v.Apparently unilateral conduct

6. Anti-competitive agreements Sandoz (C-277/87) – unilateral conduct or agreement? Bayer AG v. Commission (T-41/96) – unilateral conduct or agreement? wholesalers in Spain and France started exporting Adalat to the UK Bayer reduced the quantity of Adalat supplied to the Spanish and French wholesalers wholesalers continued the commercial relationship between them and Bayer AG, did not protest some of them continued to try to obtain extra quantities of Adalat for export through different channels Bayer claimedthat the export ban was a unilateralconduct on part of thatcompany • each distributor received the same standard invoice after each order • invoice contained words “export prohibited” • distributors did not protest to that practice • they continued to purchasemedicines from Sandoz • Sandoz claimed that the export prohibition was a unilateral conduct on part of thatcompany

7. Anti-competitive agreements Concerted practice • “Article 85 draws a distinction between the concept of 'concerted practices' and that of 'agreements between undertakings' or of 'decisions by associations of undertakings'; the object is to bring within the prohibition of that article a form of coordination between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition.” • “By its very nature, then, a concerted practice does not have all the elements of a contract but may inter alia arise out of coordination which becomes apparent from the behaviour of the participants.” Case 48/69, Imperial Chemical Industries Ltd v Commission

8. Anti-competitive agreements Concerted practice • requires some form of cooperationbetweenundertakingswhich, taken as a whole, removes strategic uncertainty about each other’s future conduct on the market (and itiscontrary to the notioninherent in the TFEU thatevery economic operator must determine independently the policy which he intends to adopt on the common market)

9. Anti-competitive agreements Concerted practice Elements constituting aconcerted practice (according to the CJ in Hüls C-199/92): • undertaking concerting with each other(a common intention of the undertakings to lessen the competitive pressure between them; market players involved want to pursue the same goal; there must be some contact between the undertakings, e.g. meetings, discussions, participation at professional conventions and conferences); • subsequent conduct on the market (the concertation by undertakings involved has been implemented on the market; thereis a rebuttablepresumptionthatundertakingstaking part in the concertedpractice and remainingactive on the market takeaccount of the informationexchanged with theircompetitors for the purposes of determiningtheirconduct on the market); • a relationship of cause and effect between the two(measures implemented on the market by the undertaking involved in the concerted practice must be the direct result of the already planned coordination of their market conduct).

10. Anti-competitive agreements Decisions by associations of undertakings Anymeasure undertaken by an association which coordinatesits members’ actions: • articles of association and other rules and regulations governing its constitution; • common resolutions; • decisions binding upon the members; • non-binding recommendations (if in practiceundertakingscomply with them); • codes of conduct.

11. Anti-competitive agreements Single overall agreement/single continuous infringement • The concept of a ‘single, overall agreement’ has been developed by the Commission in order to facilitate the enforcement of Article 101 TFEU against complex cartels of a long duration; • a complex of practices adopted by various parties in pursuit of a single anti-competitive economic aimconstitutes single overallagreement • an infringement which results from a series of acts or from continuous conduct forming part of an overall plan, with the same object of distorting competition • Anundertakingmay be heldliable for the whole single continuousinfringement, evenifitparticipatedonly in some of the constituentelements of the infringement (whenit was aware of the plan and commonobjectivespursued by otherundertakings)

12. The object or effect of preventing, restricting or distorting competition Where an agreement has as its object the restriction of competition, it is unnecessary to prove its anti-competitive effects “It must be recalled that, to come within the prohibition laid down in Article 81(1) EC, an agreement must have ‘as [its] object or effect the prevention, restriction or distortion of competition within the common market’. It has, since the judgment in Case 56/65 LTM [1966] ECR 235, 249, been settled case-law that the alternative nature of that requirement, indicated by the conjunction ‘or’, leads, first, to the need to consider the precise purpose of the agreement, in the economic context in which it is to be applied. Where, however, an analysis of the clauses of that agreement does not reveal the effect on competition to be sufficiently deleterious, its consequences should then be considered and for it to be caught by the prohibition it is necessary to find that those factors are present which show that competition has in fact been prevented or restricted or distorted to an appreciable extent.” “In deciding whether an agreement is prohibited by Article 81(1) EC, there is therefore no need to take account of its actual effects once it appears that its object is to prevent, restrict or distort competition within the common market…” C-209/07 - Beef Industry Development and Barry Brothers

13. The object or effect of preventing, restricting or distorting competition Object restraints “The distinction between ‘infringements by object’ and ‘infringements by effect’ arises from the fact that certain forms of collusion between undertakings can be regarded, by their very nature, as being injurious to the proper functioning of normal competition.” C-209/07 - Beef Industry Development and Barry Brothers, para 17

14. The object or effect of preventing, restricting or distorting competition Object restraints • so likely to be harmful to competition that they are automatically assumed to restrict competition • One has to lookat the content of anagreement, objectivesitseeks to ascertain, and the economic and legal context of which it forms part. • In principle, the followingrestrictionsarehighlylikely to be found to restrictcompetition by object: • Agreements between competitors to fix prices or to limit output or share markets; • Information exchanges between competitors designed to fix purchase or selling prices; • Vertical price fixing agreements (resale price maintenance – imposingfixedor minimum prices on a dealer); • Vertical restraints conferring absolute territorial protection on a distributor or aimed at partitioning national markets. • Anangreementwhichappears to restrictcompetitionmay be deemedlawful in light of the legitimateobjectives of suchanagreement (see C-309/99 Wouters)

15. The object or effect of preventing, restricting or distorting competition Agreements that have as their effect the prevention, restriction or distortion of competition • an extensive analysis of its effect on the market isnecessary • in-depth examination of the economic market conditions (see C-234/89 Delimitis) • Analysis of inter-brand (competition between suppliers of competing products) and intra-brandcompetition (competitionbetweendistributors of the same product), impact on existing and potentialcompetition • The need to establish a counter-factual: itisnecessary to consider what the position would have been in the absence of the agreement and thencomparetwosituations

16. The object or effect of preventing, restricting or distorting competition Ancillary restraints Restrictiveprovisions of broaderagreement (agreementwhich do not haveanobjectoreffect of preventingcompetition) thatarenecessary for the executionorachievement of the goal of thatagreementwillalso be compatible with Article 101 TFEU (ancillaryrestraints). Twoconditionsmust be satisfied: • the restriction must be objectively necessary for the implementation of the main operation; • the restriction in question must be proportionate. Example: a non-competeclause in anagreementconcerning sale of business/enterprise.

17. De Minimis doctrine and the effect on trade between Member States “in order to come within the prohibition imposed by Article 85, the agreement must affect trade between Member States and the free play of competition to an appreciable extent.” Case 22/71, para 16 • COMMISSION NOTICE –Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty (2004/C 101/07) • COMMUNICATION FROM THE COMMISSION –Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union (De Minimis Notice) (2014/C 291/01)

18. De Minimis doctrine and the effect on trade between Member States An appreciable effect on trade between Member States • EU Competition law is applicable only if an agreement has an appreciable effect on trade between MS; • The term trade does not only mean traditional exchange of goods and services across borders, it is a wider concept and catches all cross-border economic activity; • the agreement or practice may have influence, direct or indirect, actual or potential, on the pattern of trade between MS; • It is sufficient that the agreement or practice is capable of having an effect: it is not necessary to prove that it actually will do so; • an increase in trade also means that it has been influenced; • Market share and the value of turnoverareimportant in the assessment

19. De Minimis doctrine and the effect on trade between Member States The restriction of competition must be appreciable The prohibition from Article 101 TFEU applies if an agreement restricts competition appreciably. Consequently, if there is no appreciable impact on competition, such an agreement is not prohibited by Article 101 TFEU. See: Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union (De Minimis Notice) (2014/C 291/01)

20. Article 101(3) TFEU: legal exception to the prohibition The provisions of paragraph 1 may, however, be declared inapplicable in the case of: — any agreement or category of agreements between undertakings, — any decision or category of decisions by associations of undertakings, — any concerted practice or category of concerted practices, which contributes to improving the production or distribution of goods orto promoting technical or economic progress, while allowing consumers afair share of the resulting benefit, and which does not: (a) impose on the undertakings concerned restrictions which are notindispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition inrespect of a substantial part of the products in question.

21. Article 101(3) TFEU: legal exception to the prohibition Improvement in the production or distribution of goods or in technical or economic progress • The improvementcompensates for the disadvantages the agreementproduces • a causal link between the agreement and the claimed benefits • Examples: cost reduction, development of new production technologies and methods, economies of scale, better production planning, or improvement in the quality and choice of goods and services • Are the partiesallowed to rely on broader policy issues to benefit from the exemption? Controversial.

22. Article 101(3) TFEU: legal exception to the prohibition Allowing consumers a fair share of the resulting benefit • a pass-on of the benefits resulting from an agreement to consumers; • Consumer is interpreted broadly to include not only final consumers (end-users) but also intermediate consumers, including wholesalers and retailers that purchase products in the course of their trade or business; • Not every individual consumer must derive benefit from particular agreement, it is rather an overall effect on consumers that need to be taken into account; • the pass-on of benefits must at least compensate consumers for any actual or likely negative impact caused to them by the restriction of competition; • the net effect of the agreement must at least be neutral from the point of view of those consumers directly or likely affected by the agreement

23. Article 101(3) TFEU: legal exception to the prohibition Indispensable restriction • A restriction is indispensable if its absence would eliminate or significantly reduce the efficiencies that follow from the agreement or make it significantly less likely that they will materialise • Restrictionswill not be indispensable if the efficiencies specific to the agreement can be achieved by other less restrictive means

24. Article 101(3) TFEU: legal exception to the prohibition The agreement must not afford the parties the possibility of eliminating competition • the agreement as a whole must not lead to the elimination of competition • In Guidelines on the application of Article 81(3) of the Treatythe Commission argues that “Ultimately the protection of rivalry and the competitive process is given priority over potentially pro-competitive efficiency gains which could result from restrictive agreements.”

25. Article 101(3) TFEU: legal exception to the prohibition The agreement must not afford the parties the possibility of eliminating competition Guidelines on the application of Article 81(3) of the Treaty: “Whether competition is being eliminated within the meaning of the last condition of Article 81(3) depends on the degree of competition existing prior to the agreement and on the impact of the restrictive agreement on competition, i.e. the reduction in competition that the agreement brings about. The more competition is already weakened in the market concerned, the slighter the further reduction required for competition to be eliminated within the meaning of Article 81(3). Moreover, the greater the reduction of competition caused by the agreement, the greater the likelihood that competition in respect of a substantial part of the products concerned risks being eliminated.” • Anundertakingneeds to provethat the competitionwill not be eliminated (thisinvolveseconomicanalysis)

26. Article 101(3) TFEU: legal exception to the prohibition Block exemptions • Agreements falling within the ambit of one of the block exemptions are automatically exempt from Article101(1) on the grounds that they satisfy Article101(3); • Most block exemptions now contain market share thresholds; • Most block exemptions contain a list of hardcore restraints; • The Commission may withdraw the benefit of any Commission block exemption when it finds that in any particular case an agreement to which exemption regulation applies has certain effects which are incompatible with Article 101(3)– Article 29 of Regulation 1/2003 • NCAs have the power to withdraw the benefit of any Commission block exemption where an agreement has effects which are incompatible with Article 101(3) in the territory of a MS, or in part thereof, which has all the characteristics of a distinct geographic market - Article 29 of Regulation 1/2003