Anticompetitive objet or effect

 

Author Definition

 

Definition

Article 101(1) TFEU prohibits agreements that have as their object or effect the restriction of competition; such agreements are forbidden unless they satisfy the criteria in Article 101(3). Many other systems of competition law, in the EU and beyond, are formulated in a similar manner. Economic analysis is required to show that an agreement has the effect of restricting competition. However some agreements – for example secret price-fixing or market-sharing agreements between competitors – are so obviously pernicious that they are held to restrict competition by object: no further analysis of their economic effect is required for them to be unlawful.

 

Commentary

Article 101(1) prohibits agreements that have as their object or effect the restriction of competition.

In Société Technique Minière v Maschinenbau Ulm (1966) the Court of Justice stated that the words ‘object or effect’ were to be read disjunctively; this means that where an agreement has as its object the restriction of competition it is unnecessary to prove that it will produce anticompetitive effects: only if it is not clear that the object of an agreement is to restrict competition is it necessary to consider whether it might have the effect of doing so. It is still controversial, after more than 50 years of EU competition law, what constitutes a restriction of competition by object. The Court of Justice has stated, for example in Cartes Bancaires v Commission (2014, paragraph 57), that the essential legal criterion for ascertaining whether coordination between undertakings restricts competition by object is the finding ‘that such coordination reveals in itself a sufficient degree of harm to competition’. The term ‘object’ in Article 101 means the objective meaning and purpose of the agreement considered in the economic context in which it is to be applied; it is not necessary to prove that the parties have the subjective intention of restricting competition when entering into the agreement.

However, subjective intention may be a relevant factor in assessing whether the object of an agreement is anticompetitive (Cartes Bancaires, paragraph 54). The concept of a restriction of competition by object should be interpreted restrictively (Cartes Bancaires, paragraph 58). In order to decide whether an agreement restricts competition by object, ‘regard must be had to the content of [the agreement’s] provisions, its objectives and the economic and legal context of which it forms a part. When determining that context, it is also necessary to take into consideration the nature of the goods or services affected, as well as the real conditions of the functioning and structure of the market or markets in question’ (Cartes Bancaires, paragraph 53).

Advocate General Kokott’s Opinion in T-Mobile (2009) includes an interesting discussion of why Article 101(1) makes a distinction between object and effect restrictions. First, the classification of certain types of agreement as restrictive by object ‘sensibly conserves resources of competition authorities and the justice system’ (T-Mobile Opinion, paragraph 43). The fact that a competition authority does not need to demonstrate, for example, that a horizontal price-fixing agreement produces adverse economic effects relieves it of some of the burden that would otherwise rest upon it. Secondly, the Advocate General pointed out that the existence of object restrictions ‘creates legal certainty and allows all market participants to adapt their conduct accordingly’ (T-Mobile Opinion, paragraph 43) adding that, although the concept of restriction by object should not be given an unduly broad interpretation, nor should it be interpreted so narrowly as to deprive it of its practical effectiveness (T-Mobile Opinion, paragraph 44). Thirdly, she pointed out that, just as a law that forbids people from driving cars when under the influence of alcohol does not require, for a conviction, that the driver has caused an accident—that is to say proof of an effect—so, in the same way, Article 101(1) prohibits certain agreements that have the object of restricting competition, irrespective of whether they produce adverse effects on the market in an individual case (T-Mobile Opinion, paragraph 47); such agreements will be permitted, therefore, only where the parties can demonstrate that they will lead to economic efficiencies of the kind set out in Article 101(3), and that a fair share of those efficiencies will be passed on to consumers. A competition authority is entitled to conclude that an agreement restricts competition both by object and by effect (Hungarian Banks, paragraphs 33 to 44).

Section 1 of the US Sherman Act 1890 characterises some agreements as per se illegal, whereas others are subject to so-called ‘rule of reason’ analysis. Where there is a per se infringement it is not open to the parties to the agreement to argue that it does not restrict competition: it belongs to a category of agreement that has, by law, been found to be restrictive of competition. There is an obvious analogy between an agreement that is per se illegal under the Sherman Act and one that is restrictive of competition by object under Article 101(1). However there is an important difference between section 1 of the Sherman Act and Article 101 TFEU in that, even if an agreement has as its object the restriction of competition, that is to say that it infringes Article 101(1) per se, the parties can still attempt to justify it under Article 101(3). This possibility does not exist in US law, since there is no equivalent of Article 101(3) in that system. In this sense a judgment such as that of the US Supreme Court in Leegin (2007), in which it determined that minimum resale price maintenance should be analysed under the rule of reason rather than being per se illegal, brings US law into alignment with that of the EU: it has always been possible to argue that resale price maintenance satisfies Article 101(3), even though it is classified as having as its object the restriction of competition for the purpose of Article 101(1).

 

Bibliography

Bailey, D. and John, L.E., (eds), Bellamy and Child: European Union Law of Competition, 8th Edition, Oxford University Press, 2018, ch 2.

Faull, J. and Nikpay, A. (eds), The EU Law of Competition, 3rd Edition, Oxford University Press, 2014, ch 3.

Whish, R. and Bailey, D., Competition Law, Oxford University Press, 9th Edition, 2018, ch 3.

Hovenkamp, H., ‘The Rule of Reason’, University of Pennsylvania Institute for Law & Econ, Research Paper No 17-28, 2016

Author

  • King’s College (London)

Quotation

Richard Whish, Anti-competitive object or effect, Global Dictionary of Competition Law, Concurrences, Art. N° 86412

Visites 9890

Publisher Concurrences

Date 1 January 1900

Number of pages 500

 

Institution Definition

According to the Commission’s Guidelines on the application of Article 81(3) of the Treaty:

"The distinction between restrictions by object and restrictions by effect is important. Once it has been established that an agreement has as its object the restriction of competition, there is no need to take account of its concrete effects. In other words, for the purpose of applying Article 81(1) no actual anti-competitive effects need to be demonstrated where the agreement has a restriction of competition as its object. Article 81(3), on the other hand, does not distinguish between agreements that restrict competition by object and agreements that restrict competition by effect. Article 81(3) applies to all agreements that fulfil the four conditions contained therein.

Restrictions of competition by object are those that by their very nature have the potential of restricting competition. These are restrictions which in light of the objectives pursued by the Community competition rules have such a high potential of negative effects on competition that it is unnecessary for the purposes of applying Article 81(1) to demonstrate any actual effects on the market. This presumption is based on the serious nature of the restriction and on experience showing that restrictions of competition by object are likely to produce negative effects on the market and to jeopardise the objectives pursued by the Community competition rules. Restrictions by object such as price fixing and market sharing reduce output and raise prices, leading to a misallocation of resources, because goods and services demanded by customers are not produced. They also lead to a reduction in consumer welfare, because consumers have to pay higher prices for the goods and services in question.

The assessment of whether or not an agreement has as its object the restriction of competition is based on a number of factors. These factors include, in particular, the content of the agreement and the objective aims pursued by it. It may also be necessary to consider the context in which it is (to be) applied and the actual conduct and behaviour of the parties on the market. In other words, an examination of the facts underlying the agreement and the specific circumstances in which it operates may be required before it can be concluded whether a particular restriction constitutes a restriction of competition by object. The way in which an agreement is actually implemented may reveal a restriction by object even where the formal agreement does not contain an express provision to that effect. Evidence of subjective intent on the part of the parties to restrict competition is a relevant factor but not a necessary condition.

Non-exhaustive guidance on what constitutes restrictions by object can be found in Commission block exemption regulations, guidelines and notices. Restrictions that are black-listed in block exemptions or identified as hardcore restrictions in guidelines and notices are generally considered by the Commission to constitute restrictions by object. In the case of horizontal agreements restrictions of competition by object include price fixing, output limitation and sharing of markets and customers. As regards vertical agreements the category of restrictions by object includes, in particular, fixed and minimum resale price maintenance and restrictions providing absolute territorial protection, including restrictions on passive sales.

If an agreement is not restrictive of competition by object it must be examined whether it has restrictive effects on competition. Account must be taken of both actual and potential effects. In other words the agreement must have likely anti-competitive effects. In the case of restrictions of competition by effect there is no presumption of anti-competitive effects. For an agreement to be restrictive by effect it must affect actual or potential competition to such an extent that on the relevant market negative effects on prices, output, innovation or the variety or quality of goods and services can be expected with a reasonable degree of probability. Such negative effects must be appreciable. The prohibition rule of Article 81(1) does not apply when the identified anti-competitive effects are insignificant. This test reflects the economic approach which the Commission is applying. The prohibition of Article 81(1) only applies where on the basis of proper market analysis it can be concluded that the agreement has likely anti-competitive effects on the market. It is insufficient for such a finding that the market shares of the parties exceed the thresholds set out in the Commission’s de minimis notice. Agreements falling within safe harbours of block exemption regulations may be caught by Article 81(1) but this is not necessarily so. Moreover, the fact that due to the market shares of the parties, an agreement falls outside the safe harbour of a block exemption is in itself an insufficient basis for finding that the agreement is caught by Article 81(1) or that it does not fulfil the conditions of Article 81(3). Individual assessment of the likely effects produced by the agreement is required."© European Commission

See also Effect on competition

 
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