In the following essay I will critically discuss on one hand, the requirements to be satisfied by the commission for its claims of violation of article 101 to succeed, and on the other hand, the extent to which the practices in the question above may be objectively justified or exempted under article 101 (3).
First I will discuss the outline of article 101 (ex article 81 TEC), then I will apply each requirement that needs to be satisfied in order to say that an undertaking has been involved in anti-competitive prices, fulfilling article 101, whilst examining any issues that arise concerning the application of article 101.
Then I will examine if there are any exemptions under article 101 (3) that can be applied to the question and if not any justifications that could redeem any possible concerted practices. Furthermore, I will do all of this supporting any arguments with relevant case law and journal articles.
Article 101 requirements
Outline of Article 101 TFEU
(ex Article 81 TEC)
1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which 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.
2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.
3. 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 or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.
Above is an outline of article 101. In summary article 101 prohibits any and all agreements between undertakings, decisions by associations of undertakings, and concerted practices, which may, in turn, affect trade between Member States. The purpose of the article is to protect the single internal market so it can continue to work in an normal competitive manner.
These agreements, decisions and concerted practices, have as their object or effect the prevention, restriction, or distortion of competition within the internal market. All three elements must be proved by the European commission in order for article 101 to be capable or making an agreement, concerted practice or decision void.
The first requirement, that I will discuss, that must be satisfied by the European Commission after announcing the inspection of the premises of a number of banks concerning online access to bank account information by competing service providers, is the meaning of undertakings.
The treaty does not define this any where in the European Commission Treaty. Therefore, it has been up to the European Courts to attempt to give the word some meaning. The European Courts omitting to give the term a written definition is an important issue to discuss as in order to determine if there is a violation under article 101 you must be able to identify what an undertaking is, as it is a huge part of article 101. The European Courts of Justice has provided some meaning to the term undertaking through case law.
For example, in Höfner v Macrotron 1991 it was said that, “the concept of an undertaking encompasses every entity engaged in an economic activity, regardless of legal status of the entity and the way in which it is financed.”
The courts in the case of Pavlov then went on further to add, “It has also been consistently held that any activity consisting in offering goods or services on a given market is an economic activity.”
They then went on to define what does not fall under the scope of the meaning of undertaking in the case of Wouters v Algemene Raad van de Nederlandsche Orde van Advocaten, it was said in this case that competition rules in the Treaty, “do not apply to activity which, by its nature, its aim and the rules to which it is subject does not belong to the sphere of economic activity…”
So it can be said from these 3 definitions that an undertaking is any legal or natural persons engaged in any form of economic or commercial activity. It also can be deduced that the critical question for the commission is whether or not an entity is engaged in economic activity. This can be seen in the case of Spanish Courier Services, where the commission held that a Spanish Post Office, providing services of some economic value, was acting as an undertaking. The Advocate General Jacobs also supports this stating” …Provided that an activity is of an economic character, those engaged in it will be subject to Community competition law.”
Issues have arised on whether it is necessary to consider if entities performing public services should be deemed undertakings, it was held in the case of SAT v Eurocontrol 1994
Article 101 does not apply to the conduct of a single entity
Furthermore, the case of Pegler v Commission supports the commissions findings on what isn’t regarded as an undertaking, the General court in this case held that a ‘dormant’ company not offering any goods or services with no assets or employees was not acting as an undertaking.
Article 101 also applies to an “association of undertakings”, Article 101 may be applicable to decisions of an association. Where an association is an undertaking, any agreement made between the association and any other undertakings may fall under article 101 (1)
The European Commission has to prove, using the case law to support their findings, that the Banks they will be inspecting are undertakings engaged in economic activities and that the associations representing them are “associations of the undertakings”. More over, “The Court suggests three cumulative elements of economic activity: the offer of goods or services; the bearing of economic or financial risk; and the potential to make profit”, must be identified for the bank and the associations to be held as undertakings. Okeoghene Odudu, provides some good analyses on the concept of undertakings and states that, too broad a conception of economic activity ‘would represent an unlimited extension of the scope of competition law.’ the question the commission needs to be able to answer is whether the effects of the activity are those that competition law is meant to protect against
Agreements, Decisions and Concerted Practices
The next requirement that has to be satisfied by the commission is whether there is an agreement, decision or concerted practice which affect trade between Member. The notion of an agreement is often defined in a broad manner, this is because undertakings will attempt to defend themselves against a finding of anti-competitive behaviour, therefore, if the definition is broad this will prevent undertakings from escaping liability. As a result, an agreement does not need to be legally binging, it can be an informal agreement or a formal written agreement as well as, an oral agreement.
In the case of Bayer v Commission, the General Court stated that the concept, “centres around 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 parties’ intention”. From this it can be said that the European Commission’s main aim is to be able to identify the intention of the undertakings. It does not matter if a party or parties entered into the agreement unwillingly, there is little way for a party to escape liability. The distinction between agreements and concerted parties is not a clear one, it can be said this is because of complex cartel arrangements that can some times consist of agreements over a duration of years. Undertakings in previous case law have put forward the that the Commission must be able to identify the existence of each agreement. This was rejected and the Commission in the case of PVC held, “In the context of a complex infringement which involved many producers seeking over a number of years to regulate the market between them, the commission cannot be expected to classify the infringement precisely, for each undertaking and for any given moment… both those forms of infringement are covered by Article 101”
Article 101 also applies to decisions of associations of undertakings a case where this is shown is, IAZ International Belgium NV v Commission.
The European Court of Justice’s dentition of a concerted practice was defined in the case of Dyestuffs 1972, “A form of coordination between undertakings which, without having reached the staged where an agreement properly so called has been concluded, knowingly substitutes a practical cooperation between them for risks of competition. The questions that give cause for concern are, what is the meaning of practical cooperation? And how do you prove it?
The definition of concerted practices can be found in the case of Dyestuff, in this case the European Commission held that the Imperial Chemical Industries and certain aniline dye producers, had fixed their prices through concerted practices. The producers argued against this saying their prices were a result of an “oligopolistic market” a form of “parallel behaviour”. The Court of Justice in this case not only defined what a concerted practise and stated that parallel behaviour was “strong evidence” of such conduct, “but parallelism as such does not suffice”
*Add Dyestuff article here
Restrictions on competition- De Miniuns
The case of Volk v Vervaecke made it clear that the restriction must have appreciable effect on the competition of the internal market. The case concerned an exclusive distribution deal for washing machines between a German Manufacturer and a Distributor in Belguim and Luexbourg. The German company had under 1% of the German market and less than 1% of the European Union market. The court held that an exclusive distribution agreement could fall outside article 101, “when it has only an insignificant effect on the markets, taking into account the weak position which the persons concerned have on the market of the production in question.”
A question can arise on as to where the courts draw the line. The Courts have responded with the understanding that the more serious the restriction on competition the less of a market share the undertakings have to have- de minimis. This test is a factual test, it is one that relies on the commission to assess the etxtent of the impact of the agreement, concerted practice or decision on the internal market. It can be argued that the de minimis notice doesn’t comply with the idea of “perfect competition”.
Restrictions on competition
Horizontal or vertical agreement
Held in the case of Alianz Hungaria that vertical agreements could potentially be less harmful than horizontal agreements.
In order for the competition to understand if an agreement restrictions competition they must identify if it does so by object or effect.
Firstly, to determine if an agreement restrictions competition by effect, the commission must analyse the aims of the agreement taking into account the economic context of that agreement, its object and its aims. intention is not necessarily required.
Vertical agreement- restrictions by object include fixed prices, minimum resale price maintenance and restrictions providing absolute territorial protection.
Horizontal agreements- restrictions by object include price fixing, output limitation or sharing markets and customers.
There are examples and guidelines given in article 101 (3) however the the European court of Justice has said the examples do not constitute an exhaustive list, meaning that the scope of liability is actually quite wide.
The conduct by the banks could fall within restrictions of sharking markets and customers in a horizontal agreement.
The starting point for the commission is to compare the market with the agreement and the market without the agreement. Potential effects of the agreement can also be taken into account. This was held in the case of European Night Service case
Agreements which have as their effect the restriction of competition
Disadvantages of restriction on competition
What constitutes a restriction? Article 101 (1) does not give many signposts (give much information. Only talks about agreements, draws a distinction between those with the object of restricting competition and those that have the effect of restricting competition and gives five examples of agreements which it sees as restricting competition.