Anti-Competitive Agreements: knowing your ‘object’ from your ‘appreciable’

Angus MacCulloch

In October 2012 Christopher Brown posted an interesting blog on AG Kokott’s opinion in Case C-226/11 Expedia. The full judgment was delivered on 13 December 2012 and it seems appropriate to look at whether the Court followed the same line; or whether there was an ‘appreciable’ difference.

In brief the case was a preliminary ruling reference from the French Cour de cassation asking whether a National Competition Authority (NCA), or presumably a domestic court, could impose penalties in relation to an agreement or anticompetitive practice which fell within the terms of the European Commission’s de minimus Notice. The question arose in the context of proceedings brought by the Autorité de la concurrence (the French NCA) against a joint venture ‘Agence VSC’ between SNCF (the French Rail operator) and Expedia (the online travel company) which was to operate travel agency services. There was no dispute before the Cour de cassation that the agreement had the object of distorting competition, potentially contrary to Article 101 TFEU, but there was argument that the agreement fell below the market share thresholds set out in the Commission’s de minimus Notice.

The Court’s judgment and the AG’s Opinion both cover two main issues: the impact of the Commission Notice on the enforcement activity of an NCA, and the whether an ‘object’ agreement under Article 101 TFEU also has to have an ‘appreciable’ effect on competition before it can be considered to be an infringement.

The Notice and the NCAs

The Court followed the AG’s Opinion that the NCAs were not bound by the Commission’s Notice, but it did so in a subtly different way. The AG, at [38], suggested that the NCAs had a ‘duty’ under Art 4(3) TFEU to take ‘due account’ of the Notice when applying the competition rules. The Court did not go so far. It stressed that the Commission Notice was, from its own wording and from its publication in the ‘C’ series of the Official Journal, not intended to be binding. At [31] it went on to say:

‘in order to determine whether or not a restriction of competition is appreciable, the competition authority of a Member State may take into account the thresholds established in paragraph 7 of the de minimis notice but is not required to do so. Such thresholds are no more than factors among others that may enable that authority to determine whether or not a restriction is appreciable by reference to the actual circumstances of the agreement.’

The Court therefore gives the NCAs and the domestic courts a much wider leeway in utilising the de minimis Notice, if it finds it useful, but not to require it to give it any particular attention. The Court stressed that the de minimis Notice is not legally binding, and that the binding prohibition stemmed directly from the primary law of the Treaty. The NCAs role is to enforce Art 101 TFEU.

The Court’s formulation also side-steps the complexities which would have been introduced if the AG’s ‘cryptic’ comments about special markets in Member States had gained traction with the Court.

‘Object’ Agreements and ‘Appreciability’

The more interesting question in Expedia is the question relating to the relationship between the existence of an agreement which has the ‘object’ of restricting competition and the requirement to show than an agreement has an ‘appreciable’ effect on competition. Essentially if you can show that an agreement falls in the ‘object box’ (see Mahtani (2012) 8(1) ECJ 1) do you need to show appreciability; or, is that only necessary for ‘effect’ type agreements?

Previous case law of the Court, notably Case C-260/07 Pedro IV Servicios and T-199/08 Ziegler v Commission, had indicated that it may have been necessary to bring evidence to support and an appreciable effect on competition even for ‘object’ agreements. The AG’s approach in Expedia was that appreciability could be presumed in object agreements and there was no need to adduce further evidence [48].

The Court’s judgment on this issue was terse in the extreme. It pointed to settled case-law that there was ‘no need to take account of the concrete effects of an agreement’ when it has the object of restricting competition [35]. It went on to stress, at [36]:

‘the Court has emphasised that the distinction between ‘infringements by object’ and ‘infringements by effect’ arises from the fact that certain forms of collusion between undertakings can be regarded, by their very nature, as being injurious to the proper functioning of normal competition’.

The Court did not feel the need to expand its reasoning any further.

It is interesting that, on the same day the Court delivered it judgment in Expedia, AG Kokott revisited the appreciability issue in her Opinion on the Ziegler appeal (Case C-439/11 P). The Ziegler case does not deal with the object/appreciablity question, but it does indicate the impact of a Commission notice on the Commission’s task when seeking to find an infringement. It was required to show that the market had been properly defined and that the market shares were above the 5% de minimis threshold before they had to go on to show that the agreement had an appreciable effect on trade between Member States. The Commission Notice was a ‘self-imposed commitment which it must observe’ [56]. No such commitment falls on the Member States; their concern is not the thresholds, only appreciability.

The final issue of note in Expedia is the phrasing that the Court used in relation to the rationale behind the different treatment of ‘object’ agreements. It set out that an object agreement constitutes ‘by its nature and independently of any concrete effect that it may have’ an appreciable restriction on competition. In 2012 Bailey set out three reasons for the specific treatment of object agreements (see Bailey, (2012) 49 CMLRev 559); does the judgment give any indication as to which the Court might be using? The three rationales suggested were: i) the likelihood/presumption of harm, ii) legal certainty, or iii) provision of an analytical framework. The use of ‘by its nature’ being ‘injurious’ doesn’t give us much to go on, but it does seem to cast doubt on the second and third options. I don’t have space here to go into a detailed analysis of Bailey’s argument; however, I suggest that the ‘nature’ of an agreement being ‘injurious’ tends to suggest the Court may be operating an approach more similar to his first category. It is the ‘nature’ of that type of agreement to be likely to produce negative effects on the market (pp 562-563). That alone is sufficient for the application of Art 101 TFEU.

Conclusions

The Court’s conclusion at [37] that ‘an agreement that may affect trade between Member States and that has an anti-competitive object constitutes, by its nature and independently of an concrete effect that it may have, an appreciable restriction on competition’ makes it very clear that appreciability is not an issue for object agreements. This is no doubt good news for the NCAs – they are not bound by the Commission de minimis Notice and do not have to deal with appreciable effects on competition for object agreements. This will make it easier to prove the existence of an infringement, but it does not release them from all their evidential burdens. They will still have to examine the effect of the agreement to show there is an appreciable effect on trade between Member States, and when imposing fines they will have to examine the effects of an agreement to make a case relating to the extent and gravity of the unlawful restriction.

One thought on “Anti-Competitive Agreements: knowing your ‘object’ from your ‘appreciable’

  1. Even though I tend to agree with the content of the decision – after all, the usefulness of the “restriction by object” doctrine will be of limited use if the parties then have to pursue an effects-based assessment, particularly since the Commission’s Guidelines on this matter are not binding on the ECJ nor, it now seems, on NCA’s or national courts – I query whether the conclusion that for object restrictions appreciability does not matter is as definitive as it seems.

    The de minimis doctrine was first developed by the Court in Volk v Vervaecke, where it was held that the granting of absolute territorial protection (clearly, an object restriction) did not infringe Art 101 (1) TFEU because it had only an insignificant effect on the market. The present case does not seem to have overturned this earlier precedent (or C-260/07 Pedro IV Servicios, for that matter).

    I think there is still, at the very least, the possibility to distinguish the present case from situations such as the granting of absolute territorial protection or the setting of minimum resale prices on the basis of earlier precedent. Furthermore, appreciability may leave through the door only to re-enter through the window, since the same facts that are used to establish appreciability can arguably also be used in discussions on whether an agreement has an effect on trade between Member States.

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