Concerted Practice and Article 101 of the TFEU - Essay Example

Concerted Practice and Article 101 of the TFEU Table of Contents I. Introduction 3 II. Competition Law of the EU- Theory of Purpose, Scope 5 III. Article 101- Analysis of Elements 8 IV. Concerted Practices, Relevant Cases 12 V. Conclusion 15 Bibliography 17 I. Introduction This paper undertakes a critical discussion of the statement relating to concerted practice in relation to Article 101 of the TFEU - how concerted practice, among the different Article 101 categories, is deemed as being the most vague. 1 The third paragraph of that Article pertains to conditions or qualifications that make the stipulations on concerted practices in the first paragraph inapplicable. The first paragraph on the other hand explicitly makes a prohibition of concerted practices as being not compatible with the European internal market, because of the way those distort and restrict competition within the EU. 2 With regard to paragraph three and exceptions to the prohibitions in paragraph one of Article 101, those relate to what the law determines as contributing to society either through economic development, technical development, and improvements in the way goods are produced or distributed 3 Under the law, moreover, the European Commission has the power to impose the law, to investigate infringements relating to the violation of the prohibitions in Article 101, and to impose penalties and sanctions. 4 To this end, the Commission may compel suspected parties to share information. 5 There is some consensus that it is difficult to pin down the existence of concerted practice, as reflected in case law. 6 For instance, in cases where increases in prices occur in tandem among a group of players, the price increases themselves may not be sufficient to prove concerted practice. In some cases, for instance, as in Case c-47/09 involving the Netherlands T-Mobile business entity, just one meeting among parties was deemed sufficient to establish concerted practice. In 40/73 involving Sulike Unie, the ruling was that concerted practice may be direct or it may be indirect too, and that no written or verbal communication is necessary to establish concerted practice. In the first instance of consideration of concerted practice in case law, or Case 48/69 involving firms operating in a market that is oligopolistic in nature, the Court of Justice ruled that the presence of parallel price increases amounted to the existence of concerted practice, even if the parties to the case made a formal challenge to that ruling. This case involved Imperial Chemical Industries, in the industry involved in dyes. In this instance the Court of Justice established a definition of concerted practice as thus: “…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”. 7 The rest of the paper explores the merits of the assertion with regard to the overall vagueness of the concept of concerted practices in Article 101 of the TFEU8 II. Competition Law of the EU- Theory of Purpose, Scope The provisions of law that are fundamental to competition and anti-trust are to be found in the Treaty on the Functioning of the European Union or the TFEU. Following the TFEU, several other regulations were also put into effect by the European Commission and/or the European Council. Apart from the legal documents at the disposal of the regulatory authorities, several other documents which are classified as non-regulation, such as guidelines and notices, have been put into effect. The purpose of these other documents include explaining and fleshing in greater detail European Commission details relating to issues of procedure, issues of interpretation, and the like, as those issues pertain to cases of antitrust and competition rules. 9 Regarding legislation on to the enforcement of competition rules in Europe, the relevant TFEU articles are Articles 101, 102, 103, 104, 105 and 106. 10 Important regulations center around Regulation 1/2003 and the various implementing rules governing competition as they were laid down in prior Treaty Articles 81 and 82 of the EU. 11 In terms of framework, purpose and scope, the European Commission adopts the fundamental position that competition is conducive to the creation of ideal conditions for the creation of products and services by entities/firms. The essence of Article 101 is that two or more entities in the market are not allowed to enter into agreements that subvert the spirit of competition and the operation of market forces. Vertical arrangements can occur for instance between manufacturers of products and their suppliers or the members of the distribution aspects of that manufacturing line of business. 12 Horizontal arrangements on the other hand can occur among manufacturers and/or marketers within an industry. An obvious case of agreements that amount to the restriction of healthy competition is the formation of cartels, of which the Commission has established precedents and mechanisms for remedying and correcting their existence within the bounds of the law. 13 In industries that have a dominant player, there are rules too that relate to making sure that that entity does not abuse its position of dominance, including charging prices that are too high. These latter rules are embodied in Article 102 of the TFEU. Council Regulation 1/2003 further fleshes out regulations on competition as discussed above. Elsewhere, the law also gives power to so-called National Competition Authorities or the NCA’s to make sure that competition is healthy and that players abide by the competition rules. The national courts too have been enlisted to help enforce anti-trust legislation, with the European Commission tasked to work with the national courts for the resolution of relevant cases. 14 The essence of Article 101, securing healthy competition in European markets reflects the purposes of competition law in the EU in general. Those purposes refer to the way competition law foster greater economic efficiencies, the democratization of markets, the securing of fair rules for a single European market, fair trading and market rules, the notion that competition should be free and unfettered, and the protection of consumers from the harm caused by actors circumventing competitive market forces. The purpose of helping achieve the integration of different European markets into a single market has economic and political aspects, and that purpose is aided by competition law and Article 101. the literature notes that the markets integration process in Europe requires functional and fair competition laws, to make sure that different players are given the best environment to compete and to thrive based on free market rules. The purpose of consumer protection on the other hand leverages insights into such concepts as “consumer harm” in the form of the negative side effects of unfair competition, such as those that arise from concerted practices, including fewer alternatives and choices and elevated prices for goods and services. 15 III. Article 101- Analysis of Elements Focusing on Article 101 of the TFEU, one sees from the preceding discussion that this Article forms one of the pillars of competition legislation in the European Union, and relates to the forging of agreements among entities in markets that result in the distortion of competition or the restriction of competition, which in effect are modes of the distortion and restriction of the operation of healthy market forces. The underlying wisdom is that such practices undermine public welfare, where the premise is that healthy competition and the healthy operation of market forces lead to the optimal production of goods and services and their provision to end-consumers. These in turn lead to optimal conditions of trade within markets and between and among markets and countries in general. This article 101, as also discussed, apply to industries in general that have healthy levels of competition, and where no one entity has exclusive control of the market via the presence of a monopoly or a dominant market position, For this latter set of realities, article 102 applies. 16 Going back to the provisions of Article 101 of the TFEU, there are three paragraphs, the first outlining the activities that are not allowed for the way those activities or agreement among players in the market harm competition and the natural market forces, and those activities or agreements relate to five sets of conditionalities in the agreements: the fixing of buying and selling prices of goods, either via direct or indirect mechanisms; the capping of levels of production, levels of investment, technical research and development, and markets; the sharing of supplies and markets among players; the application of different conditionalities for transactions among different entities, to effect the creation of undue disadvantages to some players and undue advantages to others; the imposition of conditionalities to the successful conclusion of agreements/contracts that are of no relation to the subject matter of the contracts. The second paragraph on the other hand relate to the declaration of the agreements that are disallowed by Article 101 as void. The third paragraph, on the other hand, relate to those agreements that are exempted, and are not disallowed by the law, by the principle of the benefits of the agreements to the general welfare exceeding the damage to the natural operation of competitive and market forces. Article 101, in all three paragraphs, have application for concerted practices, as already discussed in some detail earlier in this paper. 17 Meanwhile, there is a lively debate with regard to the level of broadness and applicability of Article 101 of the TFEU, and the general wisdom of its wording and crafting versus the realities of business undertakings and the impact of the law versus the overall level of wellness of the European economy. There are objections to Article 101 for instance on the grounds that the provisions are overly vague and do not advance the economic interests of various parties and of the EU in general. There are objections and criticisms too relating to how Article 101 fails to adequately balance market and economy needs and the needs of the market for fair competition. Moreover, there are objections to the soundness of the crafting of Article 101 too, with regard to the need to balance out the restrictions in 101 (1) with the exclusions and exemptions that are outlined in 101 (3). There are discussions too relating to how developments in world markets, and the subsequent wisdom gained from regulating competition in those world markets, fail to be adequately addressed by the implementing rules and regulations, as well as case law, relating to Article 101 in general. As an example, a review of the EC decisions finding the presence of violations in agreements relating to Article 101 has found that such decisions have focused on so-called object restrictions, or restrictions in law based on the objective presence of violations, to the detriment of so-called effects restrictions, or those aspects of the agreements pertaining to their overall negative or positive impact to the EU economy and the EU public in general. This latter finding or criticism ties back to the discussion on the need to forge a balance between restricting agreements that limit competition or otherwise distort market forces on the one hand, and allowing for agreements and undertakings that benefit the economy in general. 18 IV. Concerted Practices, Relevant Cases A review of the literature suggests that the concept of concerted practices has some roots in American common law relating to competition, even as in Europe France is found to have promulgated a competition law in 1953 that had reference to concerted practices. In terms of case law, on the other hand, the concept of concerted practices entered jurisprudence literature in 1969, a case that was decided by the European Court of Justice or ECJ, involving the Dyestuffs. In that case, the ECJ notes that Article 101 makes explicit reference to three kinds of realities, one of them being concerted practices, and the others being agreements forged between undertakings, one, and those decisions made by undertakings groupings or associations, two. These distinctions, according to the ECJ, were made so as to pinpoint a set of undertakings known as concerted practices that amounted to a mode of coordination among parties where they do not enter into a formal agreement, but nevertheless, with knowledge, replace competition with cooperative practices among the parties or undertakings. The essence of the Dyestuffs ruling, also known as ‘Imperial Chemical Industries v. Commission’, is that it establishes the bounds of concerted practices as including parallel behaviors that are done with intent, more so when the parallel behavior is done with contact among parties, even when the contact is non-direct. 19 In 1975, the ECJ made further refinements to what is included within the scope of concerted practices, ruling that an essential element in concerted practices is the presence of contact among players, either in a direct or indirect fashion, with the purpose of influencing other competitors, both actual and potential, to act in ways that they themselves want to. This is in reference to ECJ ruling in 1975 on the so-called Sugar cases. This is also known as the European Sugar Cartel Cases. In this particular case the ECJ affirmed its decision in the Dyestuffs case against parallel behaviors that are undertaken with direct or indirect communication among competitors. the 1977 ruling in the “Vegetable Parchment” case again echoes the same judgment from the ECK with regard to the extent to which parallel behavior constitutes concerted practices under the law.20 On the other hand, parallel behavior in and of itself has been ruled to not automatically indicate that concerted practices apply. In the Ahlstrom or Wood pulp case, for instance, the ruling is that parallel behavior does not constitute concerted practice unless the sole remaining plausible reason for such behavior is concerted practice, or knowing collusion among the parties. 21 Parallel behavior in itself then can only be construed as violating the law under concerted practices when the impact on the market is one where market dynamics become abnormal, or when resulting market conditions are such that they would not occur if markets were healthy, as ruled in the Dyestuffs case. 22 This is also reflected in such cases as ‘Campagnie Royale Austurienne des Mines v Commission’. The bounds and applicability of concerted practices are explored in other cases that establish that the burden of proving the existence of concerted practice lies with the the European Commission, who must then rely on jurisprudence and development sin case law. 23 That said, over time, case law has established a large body of tests, arguments, evidence qualifications, and so-called ‘smoking guns’ that can establish the occurrence of concerted practices among firms. Those include Zuchner v Bayerische Vereinsbank AG (Case 172/80 [1981] ECR 2021, [1982] 1 CMLR 313), the Wood Pulp case as discussed earlier (Cases 89/85 etc A Ahlstrom Oy v Commission [1993] ECR I-1307, [1993] 4 CMLR 407), the Cement Appeals case (Cases T-25/95 etc Cimenteries CBR SA v Commission [2000] ECR II-491, [2000] 5 CMLR 204), and the ‘Propylene, PVC and LdPE’ case. In all of these cases, the courts recognized that there are many permutations of circumstances that fall within the ambit of concerted practices, even when there are no formal agreements, and the law has become wise to those. 24 V. Conclusion Exploring the concept of concerted practices, its inclusion in Article 101 of the TFEU, its relationship to the whole framework of competition law in the EU, and case law, one can glean a large amount of ambiguity that is inherent to the concept itself. Case law has come to acknowledge that the range of activities that can be construed as concerted practices is wide, and that in many areas there are thin lines between what is legal and what can be flagged as violative of Article 101 and prohibitions against concerted practices. 25 1 Bibliography Andriychuk O, ‘Rediscovering the Spirit of Competition: On the Normative Value of the Competition Process’, (European University Institute Department of Law 2011) Amodine Z, ‘EU Competition Law: Article 101 of the TFEU’ (The Student Lawyer 18 July 2013) Accessed 1 December 2014 Avery E et al. ‘Competition law policy review- replacing the price signaling laws with concerted practices- fit for purpose or a foreign concept? (Gilbert Tobin/Lexology 10 October 2014) Accessed 1 December 2014 Büllesbach A, Concise European IT Law (Kluwer Law International 2010) 607-610 Colino S, Competition Law of the EU and the UK. (OUP Oxford 2011). 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