#17314 - Article 101 Tfeu - Competition Law

Article 101 TFEU – Vertical & Horizontal Agreements

To begin, cartels are rather unstable:

• If firm X wants to start a cartel, they will be apprehensive about whether they can trust firm Y and firm Z.

• Also difficult for X to police the other firms’ output and pricing strategies to ensure they aren’t undercutting the agreed price.

• However, the internet has made this easier – maximum transparency of prices of available products online, as cartel leaders can create algorithms to monitor the price of other colluding firms.

• Can even perhaps add a provision punishing deviants by making cartel leader drop their price in response to deviations from cartel agreement.

• Often when you see a price war, it indicates a cartel – firms may be cheating on each other, or firms may be punishing each other by undercutting price.

• Big way of disincentivising cheating is by threatening to drop price.

• Colluding firm thus lose their incentive to cheat – stabilising tool.

• X also has to eliminate branding discrepancies – if customers like firm Y because of their branding, it is not a homogenous product.

Competition authorities do not want to have to deal with cartels after they have been effective – they want to find out about them to destabilise them.

ARTICLE 101 TFEU

Article 101 TFEU can be broken down into four questions:

1. Is there an agreement, decision of association or concerted practice between undertakings?

2. It its object or effect to prevent, restrict or distort competition?

3. Does it appreciably affect trade between Member States?

4. Is there an individual exemption under Article 101(3) TFEU or a relevant block exemption?

Article 101 TFEU is concerned with multilateral conduct on the part of 2+ undertakings.

Article 101(2) TFEU renders any agreement prohibited pursuant to Article 101 TFEU automatically void – however, this only applies to the parts of the agreement subject to the agreement, or the whole if the parts are not severable from the whole agreement.

1 – Agreement, decision of association or concerted practice between undertakings?

1.1 – Undertaking?

The EU legislator did not define ‘undertaking’– it is an ambiguous concept.

The Court has adopted a functional definition of ‘undertaking’ – is the entity active on the market?

• Hofner [1991]: ‘Undertaking’ encompasses every entity engaged in economic activity, regardless of legal status of entity and way it is financed.

• Functional definition relies on nature of activity rather than form of entity.

• In SAT [1994], Euro-control financed by contributions of Member States which established it, carrying out public/state tasks in the public interest – activities were not of an economic nature.

• Offering goods and services on a given market is characteristic of economic activity (FENIN [2006]).

• Distinguish between (a) economic act of selling, and (b) buying and distributing – only (a) indicates that X is an undertaking.

• Nature of the purchasing activity must be determined according to the subsequent use of the purchased goods.

• AG Maduro: We should establish whether the State-owned organisation would be guided solely by considerations of solidarity, intended to exclude all market considerations – if so, not an undertaking.

The fact firm X is state-owned will not matter where X is engaged in economic activity.

The functional approach requires each activity to be evaluated in its context (SELEX [2009]) – while Euro-control did not constitute an ‘undertaking’ in SAT [1994] in relation to airspace management, Euro-control could be an ‘undertaking’ in relation to other activities.

1. Employees:

• Conduct of employees is incorporated into employer’s economic unit – employees do not constitute undertakings in themselves (Jean Claude Becu [1999]).

2. Subsidiaries:

• Conduct of subsidiary can be imputed to the parent company, even if the subsidiary has a separate legal personality (Telefunken [1983]).

• Particularly so where subsidiary does not decide independently on its own conduct, but carries out parent company’s instructions.

• Viho [1996]: Parker Pen and its subsidiaries a single economic unit – subsidiaries did not enjoy real autonomy in determining course of action on the market.

• Where parent company has 100% shareholding in a subsidiary, there is a rebuttable presumption of decisive influence over subsidiary’s conduct (AKZO [2009]).

• Parent company must show that its subsidiary acts independently on the market to avoid liability.

1.2 – Agreement, decision of association or concerted practice?

1.2.1 – Agreement?

Generally, it is sufficient that 2+ have expressed a joint intention to conduct themselves in a specific way on the market. The concept of an agreement centres on the existence of a concurrence of wills between the parties, the form it is manifested in being insignificant.

General understandings, non-legally-binding agreements, oral agreements, and non-enforceable agreements are all applicable under Article 101 TFEU. EC and European Courts have consistently stretched the idea of an agreement.

The Court will deem mere participation in system of anticompetitive behaviour an agreement where there is tacit or express acceptance by the contracting parties of a policy adopted where that policy is anticompetitive (Telefunken [1983]). This is particularly so where there are contractual relations between the parties.

• Ford [1985]: Ford UK charged more than Ford Germany due to higher costs of production. Clients in Ireland realised that FG’s right-hand drive cars were cheaper than FUK’s left-hand drive car. Clients thus asked FG to ship right-hand drive cars to UK. FUK complained to Ford HQ about this; Ford HQ had an interest in keeping FUK happy. Ford HQ told German Ford dealers that it would no longer accept their orders for right-hand cars; all such cars would have to be purchased from a UK Ford dealer or FUK subsidiary. EC said this was an anticompetitive agreement between Ford HQ and its distributors to limit the sale of goods in the MS. Ford HQ said the decision to stop supplies was unilateral and wasn’t subject to Article 101 TFEU.

• Held: Ford HQ and FG breached Article 101 TFEU.

• Decisions of this kind do not constitute, on the part of U, a unilateral act; rather they form part of contractual relations between U and its dealers.

• Admission to Ford HQ dealer network implies acceptance by contracting parties of Ford’s policy with regard to models to be delivered to German market.

NOTE: Similarly to Telefunken [1983], then, the activity formed part of an ongoing relationship between defendants and distributors. Ford [1985] and Telefunken [1983] can be distinguished by fact that T’s policies benefitted its own distributors, while Ford HQ’s did not benefit FG. So, Ford [1985] is an extension of Telefunken [1983] – not necessary that the conduct operates to distributors’ advantage for conduct to form part of an agreement between manufacturer and distributor.

This idea of tacit acceptance is consistent through the case law:

• Sandoz [1990]: S tried to deter imports to countries where prices of its pharmaceuticals products not controlled by adding ‘export prohibited’ to invoices sent to distributors. Often, company receiving the imports never intended to sell the goods. EC said that companies agreed to limit trade between Member States and hence it was anticompetitive agreement under Article 101 TFEU.

• Held: S and its distributors breached Article 101 TFEU.

• Distributors tacitly accepted S’s wish by placing repeated orders and making successive payments without contesting the restrictive conditions.

• Agreement need not be a valid and binding contract under national law.

• Whole and continuous commercial relations, of which ‘export prohibited’ formed an integral part, established between S and its distributors, were governed by pre-established general agreement applicable to numerous individual orders for S’s products.

• Volkswagen [2006] qualifies this –

• The form of any apparent concurrence is not itself decisive.

• EC must prove a concurrence of wills, otherwise it would contravene the presumption of innocence.

• Inferring a concurrence of wills solely from clauses in a dealership agreement is inadequate – compliance/non-compliance with contractual clauses is not necessarily decisive.

However, while tacit acceptance is sufficient to engage Article 101 TFEU, there must be a meeting of minds. Active resistance against the new policy will undermine the existence of a convergence of wills.

• Per Bayer [2000], there must be at least acquiescence by the other partners for it to constitute an agreement – active resistance against a policy adopted by one party to the alleged agreement will disprove any concurrence of wills.

• It appears that the Court will create what is in effect a presumption of a concurrence of wills – one party must create something to establish it is not a meeting of minds.

1.2.2 – Decision?

Article 101 TFEU prevents the use of associations as a vehicle to coordinate and promote anticompetitive activities.

A measure may be categorised as a decision of an association of Us for the purposes of Article 101 TFEU even if it is not binding on its members concerned, at least to the extent that the members to whom the decision applies comply with its terms (Chrysler [2005]).

• Chrysler [2005]: Mercedes Belgian and Belgian Mercedes dealers’ association agreed to limit discounts on vehicles.

• Held: MB and BMDA breached Article 101 TFEU.

• MB did not publicly distance itself from the discussions; it led other participants to believe it accepted the decisions...