The Treaty On The Functioning Of The European Union - Essay Example

? A comparative analysis of two article 101 cases A comparative analysis of two article 101 cases Introduction The aim of the paper is to conduct a comparative analysis of two article 101 cases of the Treaty on the Functioning of the European Union (TFEU). The paper includes brief information of the background relating to competition policy without going into any details of the history or structure of the EU or any other institution. It also explains article 101 of the Treaty on the Functioning of the European Union briefly. Two cases that relate to article 101 of the Treaty on the Functioning of the European Union have been selected for comparison in this paper. One case is related to pharmaceutical industry while other is related to the use of the internet. The cases have been selected from different sectors to present a better understanding of the course. The cases selected in the paper have been decided by the Commission and reached the European Courts and the decisions of the cases have been made by the respective courts. The cases selected are not very old or rather they are recent cases. The facts and decisions of both the cases are presented separately and the decisions of both the cases are analyzed considering their significance, the implications of the decision including academic and political opinion on the case. Formerly Article 101 and Article 102 of the Treaty on the Functioning of the European Union (TFEU) were Article 1 and Article 82 of the EC Treaty respectively before the enforcement of the Lisbon Treaty in December 2009. Before the Lisbon treaty the General Court was also called the Court of First Instance (CFI). Background information relating to competition policy Competition is necessary for any market as it is the basic mechanism of any economy encouraging businesses to offer their products and services to consumers on favorable terms. It is also essential to improve efficiency, to encourage innovation and to reduce prices. The competition can only be effective if companies act independently under the competitive pressure which is exerted by other companies. According to the Treaty on the Functioning of the European Union there are two central rules which are the foundation of the European antitrust policy: First, the Article 101 of the Treaty prohibits any agreement between two or more independent companies which restricts competition. This provision of the Article 101 is applicable to both horizontal agreements (between competitors which operate at same level of the supply chain) and vertical agreements (between companies which operate at different levels, i.e. agreement between a producer and its dealer). There are only a few limited exceptions from the provisions of the Article 101. The most reprehensible example which infringes Article 101 is the introduction of a ‘cartel’ which an illegal conduct involving price-fixing or / and market sharing. Second, the Article 102 of the treaty prohibits companies from holding and abusing its dominant position on a particular market. The most infringing examples are by charging inappropriate prices, by reducing the amount of production, or by not innovating as per the prejudice of the customers (Cseres, 2010). The Treaty has empowered the Commission for applying these rules of prohibition and investigating the violations of the rules of prohibition. The commission is given a number of powers to investigate those ends by inspecting their premises, both business and non-business and writing for seeking information from them. It is also empowered for imposing penalties on businesses violating the antitrust rules of the European Union. The main rules and the procedures of applying the rules of Articles 101 and 102 of TEFU are described in Council Regulation (EC) 1/2003. The National Competition Authorities (NCA) were given authorities and powers to apply Articles 101 and 102 of the Treaty in May 2004 so that the distortion or restriction of competition can be ensured. The Treaty also provides individual rights to citizen which are protected by the national courts which also have the power to apply provisions of Article 101 and 102. The Commission has devised and enforced a policy to apply EU competition law as a part of overall EU competition law to ensure recovery for damages by the actions of companies before national courts. The Commission works together with national courts for ensuring that the EU competition rules are applied within the member states coherently. The EU competition rules have eliminated the obstacles of free movement of services and goods and protected the consumers as well as member states. An overall view of the EU competition rules is that it has empowered both consumers and the companies by providing them bargaining powers (Schaub, 1999). Article 101 of the Treaty on the Functioning of the European Union Article 101 is the fundamental principle in the Treaty on the Functioning of the European Union (TEFU) covering competition law. The Article 101 has become more effective as it can be enforced in national courts of all the member states of the EU and a framework for secondary legislation is provided by it. Before Competition Law the businesses were governed by neoclassical model which was ineffective in controlling monopoly and were a barrier to free trades. This paved the way for Competition Law to encourage fair competition among the businesses of the countries of the European Union. The Article 101 is relevant in the sense that it controlled cartels which have become a common practice among businesses; it also restricted the dominant position of the companies which provided them power to abuse the market using their position and squeezing out competitors. Two cases that relate to article 101 of the Treaty on the Functioning of the European Union Case 1 In September 2008, the European Court of Justice (ECJ) made a decision in the appeal involving Greek Competition Council and GlaxoSmithKline (GSK) and its Greek wholesalers regarding the abuse of the dominant position under Article 101 of the Treaty on the Functioning of the European Union (TFEU). The court ruled that the refusal in meeting ‘ordinary’ orders from wholesalers for preventing parallel imports is abuse of the dominant position. The ECJ left the definition of ‘ordinary orders’ on the requirements of the market and old patterns of orders. The facts of case 1 The dispute between GSK and its Greek wholesalers involved supply of three special medicines used to treat asthma, migraine and epilepsy. The Greek Competition Council referred the dispute to ECJ in 2003. The dispute became more controversial in 2004 when Advocate General Jacobs gave his opinion about the dispute that justified the restrictions in supply by the company and he further added that since pharmaceutical industry is highly regulated under special conditions they need their ability of determining price and supply to be assessed considering their special conditions and they cannot be assessed as general companies. The ECJ found that the Greek Competition Council was not a competent authority to render the situation for assessment (Stephan, 2010). The decision of case 1 The judgment of the ECJ in the case involving GlaxoSmithKline and its Greek wholesalers, underlines various key concepts concerned with the issue of manipulation of supply for dissuading parallel trade. The ECJ concludes that refusal of meeting orders outright by a dominant pharmaceutical company is not justified irrespective of the fact that the wholesalers who placed the order are engaged in parallel trade. The dominant company must not abuse its position and take "reasonable and proportionate steps" to "protect its own commercial interests" when it gets orders which are "out of the ordinary" in any terms be it quantity and the trading history of the past. The ECJ left the definition of "out of the ordinary" order on the jurisdiction of the Greek court to consider (Treneman, 2007). The ECJ also concluded on the issue related to regulating price at national level that the normal constraints of pricing are demand and supply and the pricing of pharmaceutical products cannot be removed from it but the regulatory constraints need to create conditions profitable for parallel trade. The Court also concluded that a dominant company has rights for protecting its commercial interests but it should be done in a proportionate manner meeting orders and not ceasing its supply in a low priced market. The judgment of the ECJ dismissed the common argument of the pharmaceutical industry that parallel trade is not beneficial for consumers, and concluded that grey imports or parallel trade is beneficial for consumers as it offers an extra supply-source at affordable cost to consumers (Odudu, 2010). Analysis of the decision Pharmaceutical companies invest substantially in R&D and innovation and they believe that their returns on these investments are marginalized by parallel trade. The decision of the ECJ provided them some freedom for curtailing parallel trade and it is more like a compromise to protect both the pharmaceutical companies and parallel trade. Albers (2008) competition partner at Linklaters, said: "The judgment is largely a compromise, and is likely to prove a mixed blessing for the R&D based pharmaceutical industry. Although it gives dominant companies some degree of freedom to protect their interests when faced with orders aimed at export from lower price countries, the concept of "ordinary" order introduces new uncertainty, making it difficult for pharmaceutical companies to introduce coherent policies." Case 2 The European Court of Justice (“ECJ”) declared it illegal to ban online sales which are contained in selected distribution agreements under Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”) considering it an act of restricting competition.  This judgment is in confirmation with the view of the European Commission and sets a new guideline for vertical restraints “every distributor must be allowed to use the internet to sell products” (Henry, 2005). Though a ban on online sales has the “object” of restriction of competition, the ECJ left open a possibility that such restrictions can be legal if there is a justified objective. The facts of case 2 The case arose when the French Competition Council (the “Council”) investigated the distribution systems of personal care and cosmetics products to find that there was a hardcore ban on online-sales restricting and contravening competition rules of the EU. Many manufactures of cosmetics and personal care products which were found in the investigation offered their commitments to the French Competition Council for removing any clauses restricting competition by ‘object’ under Article 101(1) of the TFEU except one manufacturer, Pierre Fabre Dermo-Cosmetique (“Pierre Fabre”), and the Council fined €17,000 to ‘Pierre Fabre’ for violating Article 101(1) of the TFEU. ‘Pierre Fabre’ sold its product through a distribution system requiring sales to be “made exclusively in a physical space, in which a qualified pharmacist must be present”.  This meant an effective ban on online sales of the products of Pierre Fabre. ‘Pierre Fabre’ justified the restriction on online sales by arguing that the sale of its products required a qualified pharmacist. However, the Council believed that banning online sales was limiting commercial freedom of both the consumers and the distributers and fined the company for €17,000. Pierre Fabre moved to the cour d’appel de Paris (the “Court of Appeal”). The Court of Appeal sought the consideration of the ECJ on the following question: “Does a general and absolute ban on selling goods via the internet, imposed on authorized distributors in the context of a selective distribution network, in fact constitutes a “hardcore” restriction of competition by object for the purpose of Article 101(1) TFEU which is not covered by the block exemption provided for by Regulation No 2790/1999 but which is potentially eligible for an individual exemption under Article 101(3) TFEU?” (Albers, 2008) The decision of case 2 The ECJ concluded that using a selective distribution system is beyond the jurisdiction of Article 101(1) TFEU if resellers are selected by specific objective criteria without any discrimination, the quality and proper use of the product are ensured and the criteria imposed is within necessity. Since the resellers were selected by specific objective criteria, the ECJ decided about the limit of the restriction imposed and the legitimate aim of the selective distribution system. The argument of the ‘Pierre Fabre’ was rejected by the ECJ concluding the necessity of the clause in preserving the image of the products as selling products online possibly could not damage the brand image of the company and above all, legitimately, the trade cannot be restricted in the name of maintaining a brand image is not a legitimate aim for restricting trade. The ECJ held the clause requiring physical presence of a qualified pharmacist in selling a product of ‘Pierre Fabre’. The ECJ also accepted that it did not have sufficient information for assessing the clause which prohibits online sales and there was a possibility of ‘individual exemption’ (Riley, 2005). Analysis of the decision The judgment of the ECJ is in confirmation with the view of the European Commission, but the European Court has not considered it yet that a ban on online sales is the object of restricting competition. The judgment of the ECJ also left the possibility of individual exemption as and when required as the court did not have adequate information and an absolute ban on online sales is not outlawed by the ECJ for safety and health reasons. Many questions are left unanswered by the court on the verdict of suppliers but suppliers might be reluctant in testing the bounds of the decision (Kent, 2008). Comparison of the two cases Case 1 is selected from the pharmaceutical industry while case 2 is selected from the sector engaged in manufacturing of production of cosmetics and personal care products. The first case is related to abusing of the dominant position of the pharmaceutical company while the other is related to restricting competition by the manufacturing company by prohibiting online sales. Both the cases were appealed to the ECJ and the decision of the ECJ in both the cases went in favor of the consumers as in the first case the court encouraged parallel trading of pharmaceutical products so that it can be made available at affordable costs while in the second case the ESJ held the clause which restricted the sale of cosmetics and personal care products in the presence of a qualified pharmacist encouraging the online sales of the products of ‘Pierre Fabre’. In both the case, some experts believe that the decision of the ECJ was more like a compromise paving the way to control restriction on competition without harming either of the parties (Lane, 2000). Conclusion Article 101 has proved to be an important tool in encouraging competition and decreasing monopoly in the economy of European Union and it has been also useful in controlling the negative impacts caused by such factors which restrict competition. The European Commission and the national courts of the European Union have been given enough powers to control any effort of the undertakings meant to restrict competition. There are many instances on which the Article 101 has been influential enough to encourage fair competition for the benefit of consumers. For example, in the cases discussed above the arguments of the GSK and ‘Pierre Fabre’ were meant to restrict competition but the decision of the ECJ went in favor of consumers. The quantity of cases undertaken by the Commission, the national courts of the European Union and the ECJ suggest that the Article 101 has been helpful in handling cartels, stopping practices restricting competition and imposing fines for the violations. Though there are many criticism of the system developed under the Treaty on the Functioning of the European Union (TFEU), such as the fines charged by the Commission is much lower than the fines charged in similar circumstances in the US, its success cannot be denied in encouraging competition in the European market. Reflective journal I learnt different aspects of Article 101 of the Treaty on the Functioning of the European Union (TFEU) from producing the coursework and the role of the article in encouraging competition in the European Union. The selection of cases from two different industries, pharmaceutical industry and cosmetics and personal care industry provided me better insight. I used qualitative research technique for the course and planned my schedule and time in a manner to spare adequate time to go through the literature available on the topic and I felt that going through the literature deeply was quite motivating factor for me. Though I encountered certain problems in completing the assignment and the biggest problem was finding appropriate cases for the paper and other key problems were searching for the required literature and sparing extra time to study a wide range of literature for building up concrete idea about the topic. I wanted to adopt the teaching strategies which I learnt in my class to present a good standard of paper and this not only consumed a lot of time but also was problematic on occasions. If I am given the opportunity to write a paper like this again I would try to do it differently by managing my time more appropriately so that I can study more literature to gain a better insight which would have enabled me to do a better job. When completing the assignment, the learning outcomes which I found the easiest was the knowledge about competition rules in the European Union and I feel that I have performed best at that. The competition rules were described in such a manner in the literature I consulted that I feel I grabbed it thoroughly. On the contrary, when completing the assignment, the learning outcomes I found most difficult and I feel I performed worst at understand the judgments of the courts. I had to read it several times to draw a conclusion and I still feel that I could not do it in the best possible manner. I honestly feel that I have performed to the best of my ability, but at the same time I also feel that whatever I have done is not the best. References Albers, M. (2008). Final report of the Hearing Officer in the Carglass Case COMP/39.125 — PO/Carglass. [WWW] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:200 9:173:0009:0010:EN:PDF (31 March 2011). Cseres, K. J. (2010). Impact of Regulation 1/2003 in the New Member States. The Competition Law Review, 6 (2), pp. 145-182. Henry, D. (2005). The EC Fining Policy for Violations of Competition Law: An Empirical Review of the Commission Decisional Practice and the Community Courts’ Judgements. [WWW] http://collegeofeurope.net/content/gclc/documents/GCLC%20WP%2003-05.pdf (21 March 2011). Kent, P. (2008). Law of the European Union. 4th edn. Essex: Pearson Education Limited. Lane, R. (2000). EC Competition Law. Essex: Pearson Education Limited. Odudu, O. (2010). The Wider Concerns of Competition Law. Oxford Journal of Legal Studies, 30 (3), pp. 599-613. Riley, A. (2005). The Consequences of the European Cartel-Busting Revolution. Irish Journal of European Law, 12 (1), pp. 3-52. Schaub, A. (1999). Modernisation of EC Competition Law: Reform of Regulation No.17. Fordham International Law Journal, 23 (3), pp. 752-777. Stephan, A. (2010). Reforming EU Competition Law. The Competition Law Review, 6 (2), pp. 139-143. Treneman, A. (2007). A Few Last Words of Triumphant Nonsense. http://thetimes.co.uk/tto/news/politics/article2023461.ece (21 March 2011). Word count = 2980 Read More