#3204 - Competition Law - Commercial and IP

Why is competition law important?

• Agreements can be void / unenforceable if found to be anti-competitive

• Substantial fines [e.g. 10% turnover]

• Creates bad publicity

• Waste of management time

What does competition law try to achieve?

• Single market throughout EU

• Free movement of goods

• Enforcement at both EU and MS level

Article 101 Treaty of the Functioning of the European Union [TFEU]

Art 101 Criteria to satisfy =

1. Anti-competitive agreements

• Prohibits… “agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between MS and which have as their object or effect the prevention, restriction or distortion of competition within the internal market”.

2. There must be an appreciable effect on trade between member states

• UK law: S.2(1) Competition Act 1998 / Chapter I prohibition: applies the same restrictions as Art.101 but dealing with affected trade within the UK [the effect on trade must be within the UK].

OFT can choose to enforce EU or UK law [either Art.101 or Chapter I. However, where the agreement’s impact is felt solely in the UK then the OFT must apply CA 1998 and not Art 101.

3. The object or effect of the agreement is to prevent, restrict or distort competition within the internal market.

• UK equivalent = S.2(1) CA 1998: prevention, restriction or distortion of competition within the United Kingdom”.

• “Object infringements” for Vertical relationships =

Fix minimum resale prices; and

Impose export bans

If there is an object infringement = no need to prove that the agreement had the desired effect. The mere existence of the infringement is enough to establish liability.

• “Effect infringements” - the competition authorities must show that the infringement has an appreciable effect on competition before liability can be imposed.

Agreements that will not breach Art.101:

1. Not capable of appreciably affecting trade” – [NAAT]

(See above)

2. No appreciable effect: Notice on Agreements of Minor Importance [NOAMI]:

If this applies – the agreement will be saved and Art.101 will not apply:

3. Art. 101(3): Exemption will apply to undertaking’s agreements whose benefits outweigh the anti-competitive effects.

• RISKY to reply on this exemption – the parties cannot be sure they will fall within the exemption. It has to make its own assessment and cannot apply to the powers that be to be certain if they benefit from the Art.101(3) exemption.

4. Vertical Restraints Block Exemption [VRBE]:

Applies to vertical agreements entered into on / after 1^st June 2010. Agreement is then safe [BUT NOT if a hard-core restriction applies].

Criteria:

• It must be a vertical agreement [i.e. 2 undertakings at different stages of the production / distribution chain. Not in competition] (Defined in Art 1(1)(a) of the exemption)

• Market share thresholds: [“the entry requirements” – Article 3]:

1. Identify relevant market to determine MARKET SHARE of the supplier

2. If EITHER party’s market share is more than 30% - the Block exemption will not apply [so consider Art.101 & 102]

3. If both parties hold 30% or below = block exemption can apply – but subject to hard-core restrictions.

Hard Core Restrictions

• Article 4

• Whole agreement will loose protection of block exemption and Art.101 will find it anti-competitive

1. Price fixing by the supplier / “Resale price maintenance” (allowing supplier to set a minimum sale price for distributor to sell at. Setting a maximum sale price is allowed.

2. Territorial restrictions: stopping distributor selling in certain areas.

Exceptions:

Non-Hard core restrictions

• Article 5

• The block exemption can still apply – but not to that particular offending obligation – so long as the infringing restrictions are severable from the “legitimate” parts of the agreement.

  • There should be no direct or indirect “Non-compete restrictions” in the agreement which exceed 5 years or last for indefinite periods. [Art.5(1)(a)]

  • The non-compete obligation can be renewed before the 5 year limit period with the effect that the obligation lasts longer than 5 years. This is allowed so long as there is negotiation and the obligation does not simply automatically roll-over.

  • For Post-termination non-compete obligations: general rule is that they cannot be longer than one year from termination [but additional conditions can apply – Art 5(3)]

  • Definition of “non-compete” = Art 1(1)(d).

The Sanctions [If Agreement is in breach of Art.101]

• Fines – up to 10% of undertaking’s worldwide turnover. Substantial amount!!!

• UK law – S.36 CA 1998 = limited immunity for small agreements. [parties joint turnover does not exceed 20million]

Article 102 Treaty of the Functioning of the European Union [TFEU]

• Abuse of dominant position

• UK: S.18 CA 1998 – Chapter II prohibition

• By ONE undertaking only

• 2 elements:

1. Test for dominance:

United Brands v Commission - undertaking has a position of economic strength, which allows it to behave independently from its competitors, customers and consumers.

Presumptions:

2. Abuse:

Saving the agreement:

• The conduct of the firm is objectively necessary [i.e. what is does is reasonably necessary to protect its commercial interests]

• S.40 CA 1998 = provides limited immunity for breaches of Chp.II prohibitions for conduct of minor significance! [Undertakings with turnover under 50million immune from fines]