The Price is Not Right: Italian Troubles with Road Haulage and Tobacco Pricing

Angus MacCulloch, Lancaster University Law School

Two recent judgments handed down by the CJEU show how difficult it can be for a Member State to involve itself in fixing minimum prices for products. Given the ongoing challenge to minimum alcohol pricing in Scotland it is interesting that in both these cases the Court ruled against the fixing of prices, but for very different reasons. Neither case is directly analogous to the Scots alcohol MUP referred to the Court in Case C-333/14, but there are perhaps lessons that can be learnt.

Road Haulage

The first of the Italian cases is the least similar to the ongoing UK dispute, but it does indicate an important aspect of the wider problem with Member States interfering in markets. Cases C-184, 187, 194, 195 & 208/13 API and Others (ECLI:EU:C:2014:2147) concern a request for a preliminary ruling regarding the Italian Ministry for Infrastructure and Transport’s measures which fix minimum operating costs for carriage of goods by road. Charges payable by road haulage customers in Italy could not be lower than the minimum operating costs, and they therefore operated as a minimum price for services. The legislative provisions delegated the setting of the minimum operating costs to the Osservatorio; a group drawn from State, industry and stakeholder representatives. Its role was to ‘ensure the protection of road safety and the proper functioning of the market in the road haulage of goods’. The question the Court addressed was whether the fixing of prices by the Osservatorio could be compatible with EU law on the ground that it ensured road safety standards.

The Court first considered the nature of the measure itself – was it a public law measure, or a private arrangement? This is central to the applicability of EU competition law to the measure in question. Art 101 TFEU, when read in conjunction with Art 4(3) TFEU, applies where a Member State ‘requires or encourages’ anti-competitive agreements, or where it ‘divests its own rules of the character of legislation by delegating to private operators responsibility for taking decisions affecting the economic sphere’ [29]. Competition law does not apply to the legislative action of a Member State, as the Court makes clear in para [30]:

“where legislation of a Member State provides for road-haulage tariffs to be approved and brought into force by the State on the basis of proposals submitted by a committee, where that committee is composed of a majority of representatives of the public authorities and a minority of representatives of the economic operators concerned and in its proposals must observe certain public interest criteria, the fixing of those tariffs cannot be regarded as an agreement, decision or concerted practice between private economic operators”.

Even if the private parties were a majority on such a committee it would not affect the public nature of a measure ‘provided that the tariffs are fixed with due regard or the public-interest criteria defined by law’ [31]. However, on the evidence, it was clear that the Osservatorio was, in effect, a type of trade association. Eight of the ten members were industry representatives taking decisions by majority of its members; the State having no right of veto or casting vote [32-33]. The criteria upon which the Osservatorio operated were also problematic; its ‘guiding principles’ didn’t feature ‘any provision such as to prevent the representatives of the professional organisations from acting in the exclusive interest of the profession’ [35]. As to the road safety justification, the Court noted the legislation, ‘makes vague reference to the protection of road safety and, moreover, leaves a very large margin of discretion and independence to the members of the Osservatorio’ [37]. It therefore concluded, at para [38], that:

“In those circumstances, the national legislation at issue in the main proceedings does not contain either procedural arrangements or substantive requirements capable of ensuring, that, when establishing minimum operating costs, the Osservatorio conducts itself like an arm of the State working in the public interest”.

Having established that Art 101 TFEU applied to the measure, the Court turned to its potential for justification under Art 101(3). It rejected application of the Art 101(3) exception on the basis that while road safety may be a legitimate objective the fixing of costs was not ‘appropriate, either directly or indirectly, for ensuring that the objective is attained’ [51]. The measures also went beyond what was necessary as they did not allow carriers to prove that, although they charged lower prices, they fully complied with safety provisions [55]. The fixing of minimum costs could therefore not be justified.

Tobacco

The second case turns away from direct price fixing to a more indirect route: the taxation of tobacco products. In Case C-428/13 Yesmoke Tobacco (ECLI:EU:C:2014:2263) the Court considered the compatibility of the Italian rules setting excise duty on cigarettes. Those cigarettes with a lower retail price lower than brands in the most popular price category were charged a duty at 115% of the basic amount. This meant that the cheapest cigarettes, when compared with the most popular brands, were charged a slightly higher level of excise duty. With this higher level of duty their comparative price advantage was, at least partially, removed. It will not be a surprise to anyone that tobacco products are highly regulated in the EU, and that the protection of public health plays a significant role in that regulation. The relevant EU law is found in Directive 2011/64/EU which governs excise duty on tobacco products. The purpose of that Directive is to ensure the proper functioning of the internal market and neutral conditions of competition [23]. This reference to ensuring ‘neutral competition’ on the tobacco market became crucial to the rest of the judgment. The Directive draws a distinction between different types of tobacco product, for instance cigars and cigarettes, but treats all cigarettes as a single category without distinction. The Court made it clear, at para [31], that Member States, when imposing an excise duty, should not act in way which ran ‘counter to the objectives of that directive’:

“The establishment of different minimum tax thresholds according to the characteristics or price of cigarettes would lead to distortions of competition as between different cigarettes and would therefore be contrary to the objective pursued by Directive 2011/64 of ensuring the proper functioning of the internal market and neutral conditions of competition”.

Italy tried to rely on the public health objective to justify the imposition of the duty. The Court noted that the Directive already takes into account public health, at recitals 2, 14, and 16, and that the framework put in place by the Directive ‘does not prevent the Member States from taking measures to combat smoking and to ensure a high level of protection for public health by levying excise duties’ [36]. In that light the Court therefore ruled that the Directive precluded the setting of a differential rate of excise for a class of cigarettes based on their retail price.

It was clear in this case that the EU legislation took into account the health concerns in relation to tobacco and allowed the imposition of excise duty likely to discourage the consumption of tobacco; the Directive therefore did ‘not prevent’ health protection. But the Directive was also designed to ensure ‘neutral competition’ within the remaining market for tobacco products. The differential tax rate, which attempted to subvert normal price competition, was clearly then contrary to the purpose of the Directive.

Lessons for Minimum Alcohol Pricing

It is clear that the Scots MUP measure is not a disguised cartel, where the drinks industry’s attempts to set prices is given the protection by the State through legislation. But that does not mean that the API & Others is irrelevant to the ongoing SWA case. There is a clear connection between all three cases.

One of the questions raised in SWA regards the compatibility of MUP with Regulation 1308/2013 which governs, inter alia, the common market in wines. Art 167(1)(b) of the Regulation is particularly relevant as it prohibits Member States from laying down market rules which ‘allow for price-fixing’. On the face it of this could mean that the Scottish Parliament are constrained from introducing a minimum price for wine, in the same way as the Italian State was in relation to the imposition of a differential excise duty in Yesmoke. But if one considers Art 167 in context there is an argument that the apparently stark prohibition is more nuanced. The Regulations recitals make it clear that Producers Organisations and Interbranch Organisations (made up of producers and other industry stakeholders), as recognised in the Regulation, are to play a role in the organisation of the market; much as the Osservatorio did in Italian road haulage. It is not a surprise that the Regulation is clear that the rules in the common market, perhaps promulgated by way of a decision taken by an interbranch organisation (see Art 167(1)), should not relate to pricing. When read in this context it is not clear that the Regulation intends a bar on Member States adopting pricing controls unrelated to the common market organisation rules; i.e. where they are put in place for an entirely separate purpose.

Another interesting distinction between the Yesmoke and the SWA case is the fact that the tobacco Directive clearly has public health concerns at its forefront, and as the Directive had taken those concerns into account Italy was required to stay clearly within the terms of Directive. That is not the case in relation to the common market in wines. Health is mentioned in the Regulation, but only in relation of the production of foodstuffs, not in the wider public health concern that stems from the ‘hazardous and harmful’ consumption of alcohol. It would appear therefore that the Scottish Government may be able to argue that their separate concern for public health is outwith the terms of the Regulation and should be handled under the free movement provisions of the TFEU.

Right-Hand, or Wrong-Hand, Drive? Market Access and Proportionality

Angus MacCulloch, Lancaster University Law School

On 20 March 2014 the Court of Justice of the EU (CJEU) handed down two separate, but connected, judgements in Case C-639/11 Commission v Poland and Case C-61/12 Commission v Lithuania. Both cases involve the Commission challenging the Member States’ refusal to register right-hand drive cars within their jurisdiction. Both MSs argued that their refusal to allow the registration of right-hand drive cars was a safety measure as the driver of a right-hand drive car has a field of vision considerably reduced when the traffic is on the right-hand side of the road. It is rather contrary to the usual UK political debate on EU migration, but this issue is essentially a problem caused when former UK residents move to Poland or Lithuania and attempt to register their right-hand drive cars in those States (AG [102]). The owners of right-hand drive vehicles would have to go through the expensive process of moving the vehicle controls to the left in order to properly register their vehicle in either MS. In the rest of this post references will be to Case C-639/11 unless specifically indicated.

The judgment concerns two separate issues. The first, the registration of new vehicles, is of less general interest and I shall deal with it very briefly. The second, the registration of vehicles previously registered in another MS, is of wider application and I shall deal with it more fully.

New Vehicles

The registration process for new vehicles in the EU is comprehensively governed by Type Approval Directives (Directive 70/311/EEC and Directive 2007/46/EC) which are designed to “replace the Member States’ approval systems with a Community approval procedure based on the principle of total harmonisation” (Dir 2007/46, Recital 2). The type approval procedure was amended when the UK and Ireland became members of the, then, Community to make no distinction between left and right-hand drive cars. Both the Directives are internal market measures, but ensure within them a high degree of road safety. Art 2a of Directive 70/311/EC requires MSs not to prohibit the registration of vehicles “on grounds relating to their steering equipment” if the vehicles satisfies the requirements of the Directive. It was therefore not surprising that as the EU harmonising measure had already taken into account the safety issues arising from the differences between the type approval of new left and right-hand drive vehicles it was not possible for an individual MS to require further pre-registration changes through moving the steering equipment from right to left [47].

Vehicles Previously Registered in other MSs

As the Directives only apply to approval of new vehicles they were not relevant to the registration of vehicles which had previously been registered in other MSs. That question was governed by the Treaty principles on the free movement of goods, namely Articles 34 and 36 TFEU. Both Poland and Lithuania argued that the use of a right-hand drive vehicle in situations where traffic circulated on the right hand side of the road presented a risk to road safety such as to necessitate the refusal of registration. The Polish Government argued that there was no indirect discrimination in the measure, as right-hand drive vehicles manufactured in Poland were equally effected. Both the Polish and Lithuanian Governments argued that even if the measure was a quantitative restrict on imports, in the terms of Art 34 TFEU, it was justified on the basis of the protection of road safety. The Commission argued that the measure was contrary to Art 34 TFEU, and that the refusal of registration was not suitable for attaining the road safety objective pursued, and the measure was disproportionate.

The most interesting aspect of the findings of the Court in these cases was not the eventual decision. It was not surprising that, given the EU harmonisation provisions in place, the CJEU was resistant to the MSs attempt to restrict the import of vehicles from other MSs. However, the way in which they approach the question is interesting in two regards. First the test the Court used to decide whether the national measures fell within Art 34 TFEU, and second, the issues it took into account in deciding the proportionality question. Continue reading

Nintendo vs Modchips: Score Draw in the CJEU

Angus MacCulloch

The Court of Justice of the EU handed down its judgment in Case C-355/12 Nintendo v PC Box on 23 January 2014. It is the first of two cases concerning the legality of modchips for videogames consoles to come before the Court (Case C-458/13 is remains pending). The judgment doesn’t finally decide on the legality of modchips, but it sets out the factors that courts across Europe should address when deciding on an individual device’s legality.

In a previous post I commented on AG Sharpston’s Opinion, which was delivered in September 2013. The Court essentially adopts a similar approach, but before going into the judgment itself it is worth explaining the technology and legislation that underlies the dispute. If you have been following the case you can skip the next paragraph. Continue reading

The Copyright Directive, Modchips and DRM

800px-Xenium_ICE_in_XBOXAngus MacCulloch

There have been questions surrounding the legality of videogame console ‘modchips’ for many years. We may be about to see some authoritative answers for the first time as a number of cases come before the EU Courts. Two cases, stemming from legal actions instigated by Nintendo in Italy (Case C-355/12) and Germany (Case C-458/13), have been referred to the Court of Justice of the EU for preliminary references. AG Sharpston delivered her Opinion in the first of those cases, Nintendo v PC Box Srl, on 19th September 2013.

Before I look at the Opinion in detail I’ll set out a few background issues – on the technical background of modchips for the lawyers, and their legal background for the technicians. For the last few videogame console generations there have been on-going skirmishes between the console manufacturers who use technical ‘locks’ in their console hardware and software to stop console owners running ‘unauthorised’ software. Unless each game disc or cartridge carries the correct encrypted key it will not run on the console. For the manufacturer this has two benefits; it means that pirate copies of their software will not function on standard hardware, and also that software publishers must get a licence, after paying an appropriate fee, to make their software available to the public. Modchips are pieces of hardware which effectively disable those ‘locks’ allowing pirated software, and legitimate, but unlicensed, ‘homebrew’ software to run on consoles. EU Law protects copyright holders efforts to protect their work through ‘technological protection measures’ (TPMs); such as these encrypted codes or other forms of DRM. All EU Member States are to give adequate legal protection against ‘circumvention of any effective technological measures’, by Art 6(1) of Directive 2001/29. Art 6(2) of the Directive requires MS to give legal protection against the manufacture or sale etc. of any device which (a) has the purpose of circumventing a TPM, (b) has a limited commercially significant purpose other than such, or (c) is primarily designed to do so. We don’t have time for a for a detailed examination of the issues with the Directive in this piece but you can read a lengthy comment on the UK’s implementation and case law which I wrote with David Booton in 2012. Continue reading

Alcohol Pricing, EU Law and the Court of Session

Angus MacCulloch

There has been debate about the legality of minimum per-unit (MPU) alcohol pricing in the UK, since the SNP-led Scottish Government first suggested adopting such a measure back in 2009. I contributed to the debate on several previous occasions, but now there is a little more substance to be discussed after the Outer House of the Court of Session, on 3 May 2013, handed down its judgment in The Scotch Whisky Association and Ors, Re Judicial Review of the Alcohol (Minimum Pricing)(Scotland) Act 2012 [2013] CSOH 70. The judgment answers some of the questions posed, but, sadly, it leaves yet more unanswered. I doubt this will be the last that we see of minimum alcohol pricing before the courts.

The SWA petitioned the court challenging the legality of the Alcohol (Minimum Pricing)(Scotland) Act 2012 and a proposed Order under that Act which would have set the minimum price at 50p per unit. Under that Order the minimum price for a product would be set using the formula: MPU x strength x volume in litres x 100. For one of my favourite red wines this would mean a minimum price of £5.62 per bottle (£0.50 x 15% x 0.75 x 100). For a can of Stella Artois the minimum price would be £1.14 (£0.50 x 5.2% x 0.44 x 100). Continue reading

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. Continue reading

Minimum Alcohol Pricing and EU Law Update – 26 July 2012

Angus MacCulloch

Since the original post, on 28 March 2012, it has become clear that drinks industry organisations are likely to use litigation to challenge any attempt by to introduce minimum alcohol pricing in either Scotland or England.

While competition law is still likely to be a factor in such litigation it has also become apparent that there are specific provisions in some sectors which will probably play an important role in any proceedings. Where an individual sector or industry is subject to detailed European regulation the general Treaty provisions are less likely to be decisive.

An example of this in relation to minimum pricing was seen in Case C-197/08 Commission v France. In this case the French Government were attempting to set a minimum price for tobacco products at 95% of the average price. This was challenged, not as being contrary to the free movement or competition provisions, but as being proscribed by Art 9(1) of Directive 95/59/EC on taxes which affect the consumption of manufactured tobacco. Art 9(1) sets out that manufacturers, of tobacco products, ‘shall be free to determine the maximum retail selling price for each of their products’. The French scheme was deemed to be incompatible with Art 9(1) as it undermined the competition, on the basis of costs, which the Directive was designed to protect [37-38]. The Court made it clear that the France could seek to protect health by increasing the duty on all tobacco products [52].

Continue reading

The CJEU, Copyright, and the ‘First Sale’ Doctrine

Angus MacCulloch (Lancaster University Law School)
& Albert Sánchez Graells (Law School, University of Hull)

The Court of Justice of the EU delivered a controversial judgment on the 3rd July 2012 in Case C-128/11 UsedSoft v Oracle. The case will have a significant impact on a number of developing business models in digital software distribution. The case also highlights to growing tensions in the IP world between those who see greater restrictions as necessary to protect against the ease of digital copyright infringement and those who wish to maintain the ‘traditional’ balance between right-holders and the consumer/public. The two authors hold rather different views and we shall attempt to express both positions.

UsedSoft v Oracle

The case stems from a dispute between UsedSoft, a company specialising the sale of ‘pre-owned’ software licenses, and Oracle, a software company that sold licences and software online. Oracle’s EULA (End User Licence Agreement) barred any transfer of the licence to a third party, but UsedSoft would sell a licence which was no longer being used by one of Oracle’s direct customers onto third parties. Pre-owned software markets are common, and lucrative, in relation to software sold via optical media but are heavily restricted when software is sold directly via digital distribution. Software publishers are increasingly turning to digital distribution as it reduces costs (by reducing packaging and distribution costs and cutting out the retailers’ margin) and allows them to eliminate secondary markets, and therefore increase primary sales, through the EULA. That benefit may be reduced in the EU following this judgment.

Continue reading

Pulling their Punches: The British Boxing Board of Control under double threat from Luxembourg

Angus MacCulloch

British Boxing has never been a place for the feint hearted and it looks to be entering into a new era of internal strife. The announcement that Frank Warren intends to promote a bout between disgraced heavyweights David Haye & Derek Chisora in July 2012 has resulted in threats of disciplinary and legal action.

Fight fans’ interest in a showdown between the two men was whetted by an unscheduled, and unseemly, brawl at a post-fight press conference after Chisora’s defeat by Vitali Klitschko. Boxing has never been slow to capitalise on pre-fight antagonism between boxers and this feud looked too good a commercial prospect to miss. The main problem for any promoter was the fact that neither boxer has a license issued by British boxing’s governing body; the British Boxing Board of Control (BBBC). Haye’s licence lapsed after he announced his retirement in 2011, and Chisora’s licence was indefinitely ‘withdrawn’ after the events surrounding the Klitschko fight.

Frank Warren’s approach to this problem was to look to the EU for a solution. The fight is to go ahead in July sanctioned by the Luxembourg Boxing Federation. The BBBC response to this challenge to their control over boxing in the UK was immediate. They published a Notice stating that any involvement by a UK boxing licence holder in the Luxembourg backed fight would be deemed to be a ‘repudiation’ of the BBBC’s Constitution and would be considered a ‘termination’ of their membership and licence. Any attempt to remove Warren’s BBBC licence, or any other person involved in servicing or supporting the fight, could well result in legal action.

Continue reading

Minimum Alcohol Pricing and EU Law

Angus MacCulloch

The announcement regarding minimum alcohol pricing on Friday 22nd March was unusual in a number of respects. The UK Govt does not usually make significant announcements on Friday, as most MPs are away from Westminster on constituency business, but it also indicated a reversal of their previous policy. Plans for the introduction of a minimum price per unit are already well advanced in Scotland but the Westminster Govt is a more recent convert. As soon as the proposal was announced it was clear the implementation of the policy was likely to come under legal challenge from the drinks industry. The Telegraph, The Guardian and the Daily Mail all indicate that the drinks industry had ‘legal advice’ that the minimum pricing would be contrary to EU Law.

But does this claim stand up to scrutiny, or is this simply the familiar use, or abuse, of EU law as a non-specific political bogeyman?

The media reporting lays the basis of these claims at the door of the EU competition rules, but the wording also suggests a health justification of the sort seen in the Treaty’s free movement provisions. I’ll consider both of those possibilities.

Continue reading