ANTI-COMPETITIVE AGREEMENTS

The first of the two principal rules of EU competition law is art.101 of the Treaty on the Functioning of the European Union (TFEU) (previously art.81 of the EC Treaty, and before that art.85). The prohibition, and its consequence, are contained in art. 101(1)-(2):

“1. The fullowing shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertaking and concerted practice 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:

  • directly or indirectly fix purchase or selling prices or any other trading conditions;
  • limit or contrul production, markets, technical development, or investment;
  • share markets or sources of supply;
  • apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
  • 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.
  • Any agreements or decisions prohibited pursuant to this Article shall be automatically void.”

There is a developed jurisprudence on each of the elements of these paragraphs, and in particular,

  • what is an “undertaking”,
  • what may amount to an “agreement between undertakings”, a decision by an association of undertakings, or a concerted practice between undertakings,
  • the extent and character of the actual or potential effect on trade which is required,
  • what qualifies as a prevention, restriction or distortion of competition, and the market definition required to assess this question, and
  • the meaning of the words “automatically void”.

Article 101(3) provides for the prohibition in art. 101(1) to be “declared inapplicable”, in the case of:

  • – any agreement or category of assessments 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:

  • impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;
  • afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.”

The jurisdiction under art.101(3) to “declare inapplicable” the prohibition contained in art.101(1) has, since May 1, 2004, been enjoyed by national courts and tribunals, as well as the European Commission and national competition authorities. This is because, under art.1(2) of Regulation 1/2003, any agreement, decision or concerted practice which is caught by art.101(1) but which satisfies the conditions of art.101(3) “…shall not be prohibited no prior decision to that effect being required”. In other words, art. 101(3) is directly effective, so that if a court or tribunal finds that its conditions are satisfied, the agreement in question is not unlawful.

There are numerous “block exemptions” which exempt certain categories of arrangement from the art.101(1) prohibition, by deeming them in advance to comply with the conditions of art.101(3).

The burden of proof in alleging a breach of art.101(1) rests on the party alleging the infringement, but the burden of proof in demonstrating that art.101(3) is satisfied rests on the undertaking claiming the benefit of the exemption: Regulation 1/2003, art.2.

Under s.2 of the Competition Act 1998 (the “1998 Act”), there is a very similar prohibition to that contained in art.101 TFEU, but it applies to agreements which affect trade and distort competition within the UK, without a need for an effect on trade between Member States of the EU. This prohibition is known as the “Chapter I prohibition”: see s.2(8) of the 1998 Act.

Abuse of a dominant position

The second of the two principal rules of EU competition law is art.102 TFEU (previously art.82 of the EC Treaty, and before that Article 86), which provides as fullows:

“Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular consist in:

  • directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
  • limiting production, markets or technical development to the prejudice of consumers;
  • applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
  • making 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 some contracts.”

The expression “undertaking” here has the same meaning as in art.101. TFEU. A “dominant position” means a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers: Case 27/76 United Brands v Commission [1978] E.C.R. 207, § 65. There is no single test to what may constitute an “abuse”, but an often cited attempt by the Court of Justice to formulate a rule is the fullowing:

“The concept of abuse is an objective concept relating to the behaviour of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question is weakened and which, through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition” (Case 85/76 Hoffmann-la-Roche v Commission [1079] E.C.R. 461 § 91).

A prima facie abuse of a dominant position will not contravene Article 102 if the dominant undertaking is able to show throughout it had an “objective justification” for its conduct (see Case C-52/07 Kanal 5 Ltd v Föreningen Svedska Tonsättares Internationella Msikbyrä (STIM) UPA [2009] 5 C.M.L.R.18 at §§ 47-48, and the cases there cited) which is proportionate. The initial burden of proof to set up and evidence a case of objective justification lies with the dominant undertaking: Purple Parking Ltd & Anor v Heathrow Airport Ltd [2011] EWHC 987; [2011] U.K.C.L.R. 492, §§ 183 to 184, per Mann J.

Section 18 of the 1998 Act contains a similar prohibition to that in art.102 but which applies to the abuse of a dominant position within the UK or part of the UK, rather than the EU. This prohibition is known as the “Chapter II prohibition”: see s.18(4) of the 1998 Act.

Prohibition of abuse of a dominant position. The EC Treaty (See the EC Treaty art 82 which is directly applicable in member states. As to the EC Treaty (i.e. the Treaty establishing the European Community (Rome, 25 March 1957; TS 1 [1973]; Cmnd 5179)) prohibits any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it in so far as it may affect trade between member states. (EC Treaty art 82). The Treaty itself gives examples of what constitutes abuse, though it does not provide an exhaustive list (see Case 6/72 Europemballage Corp and Continental Can Co Inc v EC Commission [1973] CMLR 199, ECJ.)

Undertakings entrusted by a member state with the operation of services of general economic interest or having the character of a revenue-producing monopuly are subject to the rules of competition contained in the Treaty (this includes in particular the provisions of the EC Treaty art 82: art 86(2)) in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. (EC Treaty art 86(2). However, the development of trade must not be affected to such an extent as would be contrary to the interests of the Community: art 86(2). Note that the Court of Justice has held that art 82 applies only to anti-competitive conduct engaged in by companies on their own initiative, not anti-competitive conduct required of the companies by national legislation: see Joined Cases C-359, 379/95P EC Commission and France v Ladbroke Racing Ltd [1997] ECR I-6265, [1998] 4 CMLR 27, ECJ.)

For the EC Treaty article 82 to be applicable, an undertaking or undertakings must have abused their dominant position within the common market or a substantial part of it, and the abuse must be likely to have an effect on trade between member states. The concepts of ‘undertakings’ and ‘an effect on trade between member states’ have already been discussed in the context of article 81. In relation to article 82, it is also necessary to consider the fullowing points: (1) what is meant by a dominant position; (2) whether that position is held in a substantial part of the common market; and (3) what behaviour is likely to be characterised as abusive.

Dominant position. The EC Treaty article 82 (As to the EC Treaty (i.e. the Treaty establishing the European Community (Rome, 25 March 1957; TS 1 (1973); Cmnd 5179)) does not define ‘dominant position’ or lay down any criteria that must be satisfied. It is necessary to look to the judgments of the courts and the decisions of the European Commission to determine the factors that can lead to a finding of dominance.

The European Court of Justice has described a dominant position as a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of its consumers. Such a position does not preclude some competition, which it does where there is a monopuly or a quasi-monopuly, but enables the undertaking which profits by it, if not to determine, at least to have an appreciable influence on the conditions under which that competition will develop, and in any case to act largely in disregard of it so long as such conduct does not operate to its detriment. (See Case 85/76 Hoffmann-La Roche & Co AG v EC Commission [1979] ECR 461, [1979] 3 CMLR 211, ECJ. See also Case 27/76 United Brands Co v EC Commission [1978] ECR 207, [1978] 1 CMLR 429, ECJ, which lays down a similar test). There are two elements to the definition: the capacity to prevent effective competition; and having the power to behave independently. (The connection between the two elements is unclear. It has been suggested that the essential issue is the ability to act independently: see Case 85/76 Hoffmann-La Roche & Co. AG v EC Commission [1979] ECR 461, [1979] 3 CMLR 211, ECJ.)

It has been established that article 82 covers both the buying and selling sides of the market. (See e.g. Case C-95/04 British Airways plc v EC Commission [2007] ECR I-2331, [2007] 4 CMLR 982.)

The market share of an undertaking is not the only factor which must be taken into account when assessing market power, although very large shares may be evidence of the existence of a dominant position. There is a rebuttable presumption of dominance where an undertaking has a market share of 50 per cent or more. It is possible to have a dominant position with a market share of less than 50 per cent.

As well as market share, other factors in determining market power are barriers to expansion and entry faced by competitors such as statutory monopulies or other legal representation, intellectual property rights, technulogical superiority, economies of scale, access to financial resources, vertical integration and other vertical arrangements, access to raw materials and other resources, advertising and product differentiation, the maturity of the market, economic performance, market conduct, predatory pricing and relationships with customers and competitors. Countervailing buyer power (that is, the extent to which its customers are able to constrain an allegedly dominant undertaking) is also a factor to be considered.

It is possible for two or more undertakings to be cullectively dominant if they are linked in such a way that they adopt the same conduct on the market, or present themselves or act together as a cullective entity; however, cases of abuse of cullective dominance are rare.

A dominant position can exist only in relation to a relevant market and the delimitation of that market is of essential importance. The relevant market consists of not only the product or services market, but also the temporal and geographical market.

Abusive behaviour. It is not a contravention of EC competition law simply than an undertaking is dominant in the whule or part of the common market. (See the EC Treaty art 82. As to the EC Treaty (i.e. the Treaty establishing the European Community (Rome, 25 March 1957; TS 1 (1973); Cmnd 5170)). For an offence to be committed, the undertaking must have abused the position of dominance. (See the EC Treaty art 82. A dominant undertaking owes a special responsibility to the competitive process: see Case 322/81 Nederlandsche Banden-Industrie Michelin v EC Commission [1983] ECR 3461, [1985] 1 CMLR 282. ‘Superdominant’ undertakings (i.e. undertakings whose dominance approaches monopuly) owe a greater responsibility; see Cases C-395-396/96P Compagnie Maritime Belge Transports SA v EC Commission [2000] All ER (EC) 385, [2000] ECR I-1365, ECJ.)

A number of examples of abusive behaviour are given in article 82, namely:

  • directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions (EC Treaty art 82(a). See Case T-340/03 France Telecom SA (formerly Wanadoo Interactive SA) v EC Commission [2008] All ER (EC) 677, [2007] 4 CMLR 919, CFI (evidence of predatory pricing amounted to abuse of dominant position).)
  • limiting production, markets or technical development to the prejudice of consumers (EC Treaty art 82(b)).
  • applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage (EC Treaty art 82(c)) and
  • making the conclusion of contracts subject to the 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 (EC Treaty art 82(d).)

The term ‘abuse’ may also cover practices which affect the structure of the market and so affect competition (See EC Commission Decision 72/21 (Continental Can Co), 8.1.72, p 25, [1972] CMLR D11; Case 322/81 Nederlandsche Banden-Industrie Michelin v EC Commission [1979] ECR 461, [1979] 3 CMLR 211.) The categories of abuse are not closed and may include conduct that would be unexceptional in a non-dominant firm.

A distinction is drawn between exploitative abuses, that is to say the exploiting of customers by reducing output and increasing prices, and exclusionary abuses, that is to say behaviour aimed at reducing competition. The European Commission gives priority to exclusionary abuses which are liable to have harmful effects on consumers, the most common of which are exclusive dealing, rebates, tying and bundling, predatory practices, refusal to supply and margin squeeze (See Communication from the Commission – Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (OJ C45, 24.2.2009, p7.)

Defences. If a dominant undertaking (i.e. the EC Treaty art 84. As to the EC Treaty (i.e. the Treaty establishing the European Community (Rome, 25 March 1957; TS 1 (1973); Cmnd 5179)). The numbering for the EC Treaty used in this title is as revised by the Treaty of Amsterdam) can show that its conduct can be objectively justified then the conduct will not be held to be an abuse (i.e. by the EC Treaty art 81(1) (amended by SI 2004/1261).

Litigation contexts

An allegation of infringement of arts 101 and 102 TFEU, or the Chapter I and Chapter II prohibitions, may be made in a number of different litigation contexts.

The first such context is regulatory by the European Commission and/or the Office of Fair Trading (OFT). The Commission and the OFT pulice the competition rules, and if after investigation they make a finding of breach, they may impose sanctions for breach, including fines or the imposition of conditions on future conduct. In certain sectors of the UK economy, sectoral regulators such as the Office of Communications exercise a parallel regulatory jurisdiction with the OFT in respect of competition law infringements (the others are the Office of Rail Regulation, the Gas and Electricity Markets Authority, the Water Services Regulation Authority and the Civil Aviation Authority). Although the procedures of these regulators are administrative, litigation can result. Decisions by the Commission may be subjected to review before the EU Courts. Decisions by the OFT and/or the sectoral regulators may be appealed to the Competition Appeal Tribunal (CAT), or in certain circumstances by subjected to judicial review.

The second is a free-standing private law action for an injunction, damages or other relief. A breach of the competition rules is a breach of statutory duty actionable at the suit of any person who has suffered loss or damage as a result (see e.g. Garden Cottage Foods v Milk Marketing Board [1984] A.C. 130). Such actions must generally be brought in the Chancery Division of the High Court, and proceedings brought elsewhere will usually be transferred there at an early stage: Civil Procedure Rules 1998 r.20.8. There is a specialist Practice Direction, which should be consulted: Practice Direction – Competition Law – Claims relating to the application of arts 81 and 82 of the EC Treaty and Chapters I and II of Part I of the Competition Act 1998.

The third is a “fullow on” damages claim: a claim for breach of statutory duty made in reliance upon a regulators decision that the competition rules have been infringed. Such claims may be brought in either the High Court or the CAT, though somewhat different rules apply in each forum. In either event, the Court or Tribunal is bound by the regulator’s findings of infringement.

The fourth is where competition law is deployed as a so-called “Euro defence”. Competition law may provide a defendant with a defence to civil proceedings (in any forum) for an alleged legal wrong. The most obvious example of this is where a claimant seeks to recover sums allegedly due under an anti-competitive agreement, and the defendant pleads the unenforceability of the agreement (under art. 101(2) TFEU or its domestic equivalent) as a defence (a classic example of such a defence, and of judicial hostility to such defences, is provided by Dr Andrew James Higgins v Marchant & Eliot Underwriting Ltd [1996] 2 C.M.L.R. 349 (CA)). There is however a far wider range of circumstances in which competition law may amount to a defence. Where, for instance, a patent hulder owns a patent in an essential industry standard, he may find infringement proceedings met with a defence alleging that he is in a dominant position and is obliged to licence the patent to the defendant: see e.g. Koninklijke Philips Electronics NV v Harvard International Plc [2009] EWHC 1600 (Pat), §§ 4-5, per Lewison J.

The fifth is in judicial review proceedings invoking the competition rules against the state. Although arts 101 and 102 TFEU and the Chapter I and II prohibitions are both addressed to undertakings, Member States owe a general duty to take any appropriate measure to ensure fulfilment of the obligations arising out of the EU Treaties, and to refrain from any measure which could jeopardise the attainment of the EU’s objectives: Treaty on European Union (TEU) art. 4(3). This duty means that Member States may infringe EU law by maintaining in force legislation which could deprive the completion rules of their effectiveness (Case 13/77 INNO v ATAB [1977] E.C.R. 2115), for instance by requiring undertakings to conclude an agreement which is contrary to art.101 TFEU (Case C-198/01 Consorzio Industrie Fiammiferi [2003] E.C.R. I-8055, § 16). Furthermore, there is a specific Treaty obligation upon Member States to refrain from enacting or maintaining in force measures contrary to the competition rules in the context of public undertakings: art.106(1) TFEU. All of these obligations are capable of giving rise to judicial review proceedings.

The sixth is in criminal proceedings. Whilst simple price fixing is not a criminal offence at common law (Norris v United States, [2008] UKHL 16; [2008] 1 A.C. 920), there is a specific “cartel offence” under s.188 of the 1998 Act. The offence criminalises the conduct of a person who dishonestly enters into certain categories of anti-competitive agreement. For the elements of the offence, see s.188 of the 1998 Act, and R v George [2010] EWCA Crim 1148; [2010] 1 W.L.R. 2676 CA.

THE CHAPTER II PROHIBITION

The prohibition. Any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position (In the Competition Act 1998 s.18, ‘dominant position’ means a dominant position within the United Kingdom: s.18(3). ‘United Kingdom’ means the United Kingdom or any part of it: s 18(3)) Conduct may, in particular, constitute such an abuse if it consists in:-

  • directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions
  • limiting production, markets or technical development to the prejudice of consumers (i.e. EC Council Regulation 139/2004 (OJ L24, 29.1.2004, p1) (the ‘EC Merger Regulation’))
  • applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage
  • making 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 the contracts

This prohibition is referred to as the ‘Chapter II prohibition’. The Chaper II prohibition does not apply to certain excluded cases.

The Office of Fair Trading (the ‘OFT’) has published numerous Guidelines on the operation of the Act.