Effects of Brexit in Construction Industry

Effects of Brexit in Construction Industry

CONSTRUCTION LAW UK

EFFECTS OF BREXIT ON CONSTRUCTION INDUSTRY

Tahmidur Rahman, Senior Associate

20 September 2019

The impending effects of Brexit on Construction Industry:

 

Government statistics indicate that over 3.5 million foreign employees were employed in the UK in the final quarter of last year, two-thirds of them from the EU. “The most significant move an employer can take is to encourage any EU employee to apply for settled status and be proactive in the provision of necessary data,” Cole said.

“Settled status means that after Brexit, the rights of EU citizens living in the UK will remain the same. “Applicants will need to show that they have been settled in the UK for at least five years, so assisting them through this phase by offering ancient employment-related records, such as pay slips and letters of appointment, can be really helpful.”

In some industries, global employees presently account for a substantial percentage of the general workforce. For instance, in building, the National Statistics Office discovered that 10% of employees come from outside the UK–with that figure in London as high as 35%. Rebecca Palmer, head of building of Prettys, said that any limitation on the employment of overseas employees would be a significant challenge for the industry.

“If we were to lose our valued global employees for whatever reason, I believe it would really harm the building sector in the UK,” she said. “Inevitably, as part of our role as consulting organizations in the building sector, our team frequently engages with global employees.

“Whether its contractors, developers, consultants, subcontractors or others with whom we interact, it is evident that the strengths shown by people to deliver good projects on a day-to-day basis are not exclusive to national employees, but as prevalent (and sometimes even more so) in global employees as they are.

“The dedication, versatility and adaptability we experience is a major driver of change and we really need them in the industry.” Cole called on the government to do more to prepare businesses to deal with any shortage of post-Brexit abilities.

“Training is essential and it will certainly help to make the learning path as easy as possible. Many employers still do not use their complete distribution of apprenticeship tax and the government could do more to promote this, “he said.

Palmer added that one of those for whom skill shortages have long been recognized as a pressing challenge is the building sector. “One of the greatest problems facing the UK is its gap in productivity. Our productivity remains behind much of the remainder of Europe, and there is a general feeling of dependence on labour, rather than considering technology-related innovation to fix issues. So, the solution is for the state to look at how it encourages companies to invest in long-term alternatives that will make the decreased labor pool as profitable as the bigger labor pool is at present. “

 

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Immediate ramifications:

According to an article released by the Guardian on April 14, this is what could happen in the months leading up to Brexit:

No Deal:

Brexit could formally commute.

May’s Deal:

Brexit could occur sooner if the House of Commons voted to recognize the Brexit agreement of Prime Minister May, potentially on May 22.

In any case, we can work on the understanding, and possibly very soon, that Brexit will happen. That implies that what will happen in the months to follow is the true key to strong preparing.

 

The transitional period:

 

Regardless of what date goes down in history as the official Brexit Day, a transitional period (end of December 2020) has already been created, offering the sector a reasonable quantity of time to gage real impacts on the global financial scene as well as in the UK.

For the building sector, this is a welcome bit of “breathing space” and an opportunity to influence beneficial change wherever we can. It will also provide access to concrete facts for building experts, a luxury that we have not often enjoyed when debating this subject. Because of instant uncertainty, to be honest, continuing projects could feel temporary pressure, and big upcoming projects with timelines stretching into 2021 will probably involve cautious negotiation and planning. But, all in all, as long as we take complete advantage of it, this transition period is a beneficial thing for the sector.

Ahead of this shift, here are the main challenges that we will have to face as an industry:

The challenges construction pros must face going forward

 

The challenges facing building experts in the UK in a post-Brexit globe will have to develop practical approaches to address some very true problems. In reality, many of the following problems have already had an effect on the sector, merely because of the ambiguity surrounding Brexit:

Construction materials imported from the EU:

About 64 percent of the construction materials used in the UK. Similarly, about 63 percent of UK-exported construction products go to EU members. Existing free trade agreements with the EU would vanish after Brexit, probably leading in obligations, volume constraints, and delays at different boundaries, all of which could mean greater overall material expenses.

Skills/Labor shortage:

 

The UK construction industry presently depends strongly on foreign labor to fill qualified and unqualified positions, and even as an EU member, the sector has long been plagued by severe skill shortages. This skill shortage is likely to be exacerbated with the removal of the right to free motion among EU members. As many as one third of construction employees presently engaged in building projects in and around London are migrant workers from EU nations, according to one research.

With 28% of London building employees migrating from EU nations, it is no secret that the domestic building sector is highly dependent on migrant labor. After the eventual withdrawal from the EU, however, migrant workers will be stripped of their right to freedom of motion and consequently of their automatic right to work in the UK. In an effort to fulfill the wishes of hard-Brexiters, Prime Minister Theresa May announced government plans to concentrate a post-Brexit immigration policy favoring’ high-skill’ employees, with the exception of announcing the end of a free labor movement. As a consequence, some may contend that this could result in a skill shortage leading to greater project expenses, with demand for labor outweighing the capacity to supply.

 

Financing for infrastructure:

 

A change in partnership with the European Investment Bank (EIB) and the European Investment Fund (EIF) will require rethinking of prepared access to financing for large-scale infrastructure projects. These connections may be shielded by post-Brexit negotiations, but that is not certain. Of course, delays in the launch of infrastructure projects or the need to reduce their size and budgets will have a direct impact on the UK construction industry without sufficient funding.

“Companies should be prepared to engage in pre-matter planning and partner with the client to handle the matter in the best possible way. Particularly when operating off a fixed fee framework”

 

Housing crisis:

 

With labor supply likely to be unable to satisfy its demand, a knock-on effect is probable to occur, with house builders unable to fulfill government housing goals. As a result, house prices and project expenses would increase.

Alternatively, Brexit could lead foreign investors to withdraw their funds from the UK property industry, leading to lower rates and increased accessibility of initial investment assets. Yet, while this may sound like a light at the end of the tunnel, the uncertainty of financial instability implies that the Bank of England will become progressively apprehensive about borrowers ‘ capacity to repay, thereby changing their requirements for poor credit payments, guarantor loans and other private loan choices, thereby reducing credit availability.

Material costs: After British withdrawal, it is not just the free movement of employees that will be revoked; the free movement of products between the UK and the EU will also stop.

With the Business, Innovation and Skills Department stating that nearly two-thirds of building products have been imported from Europe, greater tax rates and post-Brexit quantities of imported products could be catastrophic for the construction industry.

While some may celebrate a subsequent enhanced focus on British goods manufacturing, consequential tariffs enforced on British products across Europe could spell additional difficulty for British sector and UK businesses. It is in such circumstances that it becomes essential for Theresa May to create a fair withdrawal agreement with the EU that protects British trade and the right to free motion of products–an agreement that becomes an progressively unlikely prospect at the moment of writing.

 

Cuts in funding:

 

The UK benefits from investments worth € 7.8 billion from the European Investment Bank and the European Investment Fund in significant infrastructure projects. These institutions also lend over € 500 m annually to British SMEs.

The loss of these income streams could have a significant effect on the sector, including the capacity to perform on large-scale infrastructure projects like HS2. Although some have suggested that this money could be substituted by that saved from EU membership charges, it is progressively unlikely that infrastructure would see any important investment in the face of continuous governmental reductions and reassessment of the budget across all industries.

 

 So, how does the Construction Industry deals with the Brexit?

 

All things considered, we are now at the threshold of UK leaving the EU, still largely uncertain of what the full impacts will be. With that in mind, Sir Winston Churchill’s popular phrases— so often cited, they have become mainly clichés at this stage — seem suitable for professionals in the building sector jointly confronting this monumental event: “Success is not final, failure is not deadly: it is the courage to continue that counts.” Maybe that’s the best advice that experts in the building sector can take at this stage.

While it sounds all doom and gloom, we can’t tell for sure how Brexit will impact the construction industry objectively without first setting out a definite exit strategy. With Theresa May and her Conservative government still having to negotiate an agreement with EU officials effectively, it is no exaggeration to declare that the construction industry’s future still hangs very much in the balance.

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Vertical agreements under Article 101(1) TFEU and Regulation 330/2010

Vertical agreements under Article 101(1) TFEU and Regulation 330/2010

Vertical agreements under Article 101(1) TFEU and Regulation 330/2010

Article: LA2024/SG10/BC14-28/AN04

The economic interpretation of Article 101(1) TFEU relates primarily to vertical agreements. The notion of vertical agreements has been described by the Commission in its Vertical Restrictions Guidelines (hereinafter referred to as the Vertical Guidelines) as’ contracts or concerted procedures concluded between two or more firms, each of which works at a distinct stage of the manufacturing or delivery chain for the purposes of the contract and relating to the circumstances under thereof.

It should be noted that only vertical agreements with significant effect on trade between Member States fall within the scope of Article 101 TFEU. Furthermore, the ECJ held in Case C-260/07 Perdo that vertical agreements pursuant to Article 101(1) TFEU should not be assessed if they meet the requirements of Regulation 330/2010 or fall within the scope of the de minimis rule.

The Vertical Guidelines of the Commission provide the methodology for assessing whether a vertical agreement infringes Article 101(1) TFEU and, if so, whether it can be justified in accordance with Article 101(3) TFEU.2840 Paragraph 110 of the Vertical Guidelines sets out nine factors relevant to the assessment under Article 101(1) TFEU. They are:

  • the nature of the agreement;
  •  the current position of the sides;
  • the market position of the rivals;
  • the position of the consumers of the contract goods;
  • entry obstacles;
  • the strength of the market;
  • the level of trade impacted by the agreement;
  • the nature of the product;

The Vertical Guidelines provide clarification on the implementation of Article 101(1) TFEU to ten kinds of vertical contracts, i.e. single branding, exclusive distribution, exclusive client allocation, selective distribution, franchising, exclusive supply, up-front access payment, category management contracts, limitations on binding and resale. Analyzing them all is outside the scope of this book. However, as is the ECJ’s stance on export bans, the most common kinds of vertical agreements, i.e. selective distribution contracts, franchise agreements and exclusive buying agreements are discussed below.

Direct and indirect export bans in Vertical Agreements Article 101 TFEU

Only in the exceptional circumstances specified in paragraphs 60-4 of the Vertical Guidelines will the direct or indirect export ban imposed on distributors be permitted under Article 101(1) TFEU or benefit from the derogation provided for in Article 101(3) TFEU. The imposition of bans restricts competition by item and is therefore contrary to an integrated market goal as it avoids parallel imports and divisions of the internal market.

Selective distribution agreements in Vertical Agreements Article 101 TFEU

A provider agrees to sell products or services directly or indirectly only to a distributor chosen on the grounds of particular criteria in a selective distribution contract and the distributor undertakes not to sell such products or services to unauthorized retailers.

Manufacturers of high-tech or luxury branded products usually use selective distribution contracts. The very nature of distribution contracts means that such contracts can adversely influence business circumstances by enabling collusive behavior between providers and retailers, by decreasing or eliminating intra-brand competition (this refers to competition between retailers of a specified brand, for instance, between retailers of Rolex watches), by foreclosing access However, selective distribution contracts can also have pro-competitive impacts, such as ensuring higher distribution effectiveness and thus providing advantages to all interested parties, including customers.

In Case 26/76 Metro, the ECJ examined the implementation of Article 101(1) TFEU to selective distribution contracts.

THE FACTS:

Saba, an electrical and electronic equipment manufacturer, rejected Metro’s application to access its selective distribution network in Germany. The products of Saba outside Germany were marketed directly to single retailers dealing solely with authorized specialist retailers serving the public. The German selective distribution scheme was open to wholesalers who sold goods bought from Saba to authorized specialist retailers whose turnover had to be derived from the sale of electrical and electronic products. Metro served distributors and the public as a money and self-service company based in Germany. This was the primary reason for Saba’s rejection, although Metro did not meet other Saba’s demands in that it was not suitable to manage extremely advanced electronic products with its trading premises, its turnover or its staff’s technical skills. Metro complained to the Commission that the Saba selective distribution scheme in particular did not infringe Article 101(1) TFEU. Saba was entitled to ban direct supplies to customers by wholesalers or sole retailers, although specific provisions such as the prohibition of wholesalers, sole retailers and specialized dealers from exporting to other EU nations or the prohibition of “cross-supplies” (wholesalers to wholesalers or retailers to retailers) were condemned. Metro tried to annul the judgment of the Commission.

Held:

The ECJ held that a selective delivery scheme such as that established by Saba did not infringe Article 101 TFEU in so far as resellers were chosen’ on the grounds of objective qualitative criteria pertaining to the technical qualifications of the reseller and his employees and the suitability of his premises and that such terms were evenly laid down for all pots.

This is called the Metro test.

The Metro test is restated by the Vertical Guidelines. They distinguish between purely qualitative selective contracts and quantitative ones. Purely qualitative selective contracts are outside the prohibition of Article 101(1) TFEU given that three requirements are met:

  • the nature of the item concerned requires a selective distribution scheme (but this is no longer needed by Regulation 330/2010).
  • Resellers shall be selected on the grounds of objective qualitative criteria.
  • Objective criteria must not go beyond what is required.

With respect to the first condition, the ECJ indicated in Metro that selective distribution contracts were justified in “the industry covering high-quality manufacturing and technically sophisticated consumer durables.” The ECJ verified in subsequent instances that other kinds of products such as luxury or branded products and newspapers (due to their exceptionally brief lives) justified selective distribution apart from technically advanced products. It is essential to note that Regulation 330/2010 removed the requirement for a selective distribution scheme to be established for the item concerned.

With regard to the second situation, it needs dealers to be chosen on the grounds of objective qualitative critics that are consistently established for all prospective distributors and implemented in a non-discriminatory way. He should be prepared to become a dealer when a prospective dealer meets the qualitative requirements. It is not always simple to distinguish between qualitative and quantitative requirements. Nonetheless, quantitative restrictions ‘ more directly restrict the prospective amount of dealers by, for example, requiring minimum or maximum sales, setting the amount of dealers, etc.’ In Metro, the ECJ discovered that constraints on the reseller’s and his staff’s technical skills and the suitability of the reseller’s premises were qualitative.

With regard to quantitative restrictions, the following clauses were considered as such and were therefore in breach of Article 101(1) TFEU: in Metro, a clause requiring dealers to keep particular inventory quantities, to support the product of the manufacturer and to store a whole variety of products; in Case 31/80 L’Oréal and in Givenchy, a requirement that the distributor ensure a minimum quantity of products

Regarding the third condition, the ECJ made it clear in Metro that “qualitative criteria” should not go beyond what is necessary to preserve the quality of the goods or to ensure that they are sold under proper conditions. What is needed relies on the product’s nature. This is demonstrated in Case T-19/91 Vichy, where the requirement that Vichy’s cosmetics be sold in retail pharmacies where a skilled pharmacist was present in all EU nations except France (where this was not needed) was deemed disproportionate, taking into consideration the goals that Vichy wished to accomplish outside France (i.e. enhancing the quality of both of its goals). In Ideal-Standard, conditions imposed on wholesalers specialising in the sale of plumbing fittings and sanitary ware, and having a specialised department for their sale, were regarded unjustified on the floor of the product’s nature, i.e., plumbing fitting systems were not technically adequately sophisticated. In Case C-439/09 Pierre Fabre the ECJ ruled that in the context of the selective distribution of its cosmetic and personal care products, the de facto ban of internet sales enforced by a producer of dermo-cosmetic products could not be justified by the need to provide individual guidance to clients or by the protection of the brand image. Indeed, for the sale of its products, the producer needed a skilled pharmacist’s physical presence and thus de facto forbidden the sale of Internet.

Selective distribution contracts that fail the Metro test may be exempted under Regulation 330/2010 if they meet their market share requirements and do not contain the’ hard-core constraints’ laid down in Article 4 or the limitations laid down in Article 5. Regulation 330/2010 relates to these contracts irrespective of the nature of the products and the selection criteria. Furthermore, under Article 101(3) TFEU, a selective distribution contract not covered by Regulation 330/2010 may be justified.

Franchising contracts in Vertical Agreements Article 101 TFEU

Vertical contracts or agreements under Article 101(1)

Vertical contracts or agreements under Article 101(1) | Law Firm in Dhaka

The essence of franchising contracts is that they contain licenses for trademarks, symbols or know-how of IPRs for the use and distribution of products and services, and that the franchisor provides the franchisee with technical and commercial help during the existence of the contract. The franchisee shall practice the privileges in question and the franchisee shall pay a franchise fee in return for the use of the business method in question. Franchising contracts generally involve a mixture of distinct vertical restrictions on how to distribute the goods.

The leading case for franchise contracts is Case 161/84 Pronuptia.

THE FACTS WERE:

Pronuptia de Paris, specializing in the sale of wedding clothes and other wedding access-ories, concluded a franchise agreement with Mrs Schillgalis. In exchange for the exclusive right to use the trademark “Pronuptia de Paris” in three areas of Germany–Hamburg, Olden-burg and Hanover–Mrs Schillgalis was obliged to purchase 80% of the clothes she intended to sell directly from Pronuptia and a certain percentage of other clothes from sup-pliers approved by the franchisor in order to make the sale of wedding clothes her main business act Pronuptia pledged to refrain from opening any other Pronuptia store in the land covered by the contract and give its help from personnel training to marketing in all aspects of the company.

When Pronuptia sued Mrs Schillgalis for failing to pay “royalties,” she asserted that the franchise agreement was null and void contrary to Article 101(1) TFEU. A preliminary issue on the implementation of Article 101(1) TFEU to franchising contracts was referred to the ECJ by the German Supreme Court.

Held:

The ECJ held that the limitations enforced by the franchisor are outside the reach of Article 101(1) TFEU if they fulfil two circumstances: firstly, the lawful interests of the franchisor should be protected under EU law, that is, the franchisor should be shielded from the danger of using the know-how and the aid it provides to the franchisees to benefit their competitors. As a result, there was no breach of Article 101(1) TFEU of a clause preventing the franchisee from opening a shop selling the same or similar items outside its territory during and after the termination of the agreement and the requirement for the franchisor to approve a proposed transfer of the shop to another party.

Secondly, the franchisor has the right to safeguard its network’s reputation and identity and therefore maintain some control in this regard. Specifically, the shop’s location specifications, the shop’s layout and decoration, the proportion of clothes bought and supply sources were valid.

Price suggestions were not in violation of Article 101(1) TFEU if the franchisee was able to set its own rates and therefore there was no concerted practice on rates between the parties.

A clause limiting the franchisee from opening a second store in its exclusive land without the franchisor’s approval was in violation of Article 101(1) TFEU, having regard to the possibility of dividing the land of a Member State into a number of closed regions. Furthermore, this limitation would stop the franchisee from benefiting from its investment, bearing in mind that “a potential franchisor would not risk becoming part of a chain, investing his own cash, paying a comparatively large entry fee and having to pay a significant annual royalty, unless he could hope, thanks to a degree of competition protection on the part of the franchisee.

Such a clause should therefore be examined in accordance with Article 101(3) TFEU.

The EU organizations have taken a liberal attitude to constraints enforced by franchise contracts by considering their general positive impact on trade and the benefits offered to both the franchisee and the franchisee. Even a clause condemned in Consten and Grundig to ensure utter terrible protection may fall outside the prohibition of Article 101(1) TFEU if it is deemed necessary to cause the franchisee to conclude the contract.

 

Exclusive supply and buy contracts

As they enhance inter-brand competition, exclusive contracts between producers and distributors or between producers and distributors are usually legal. Potentially both sides profit from them. Manufacturers can calculate the demand for their product for the length of the contract and adjust their output accordingly; manufacturers and distributors receive advantageous rates, technical aid, supply preferences and so on in return for their commitment. However, if one party to an exclusive contract is in a dominant place on the relevant market, the arrangement can foreclose the market and discourage development of tiny undertakings, thereby harming customers. For instance, with regard to exclusive purchase contracts, i.e. contracts requiring multiple separate distributors each to buy all their individual demands from one supplier, a fresh supplier will not be able to get its products into sufficient stores with the consequence that customers will not be able to benefit from wider product selection and better prices. For this purpose, when evaluating exclusive contracts, the Commission takes into account whether the contract in question is part of a network of comparable agreements and, if so, assesses its cumulative impact on trade between Member States, i.e. assesses whether the cumulative impact of foreclosing the relevant market has. This is illustrated in Brasserie de Haecht (No. 1) Case 23/67.

THE FACT:

The owners of a café in Esneux, Belgium, promised to purchase all their beer, lemonade and other beverages from that brewery for the length of the loan and two more years in return for a loan produced by a brewery in Belgium. When the brewery sued the café owners for violation of the contract, they asserted that the arrangement infringed Article 101(1) TFEU as it limited trade between Member States by restricting the stores for breweries from other Member States in Belgium.

Held:

The ECJ held that, in its financial and legal context, the agreement should be evaluated, in specific whether there was only one agreement or whether the agreement was component of a network of comparable contracts. Its impact on trade between Member States was insignificant if it was a distinct arrangement. However, if it was part of a network of contracts, its general effect could lead in the opening of fresh stores making it hard or even impossible for new undertakings to join the market.

Comment:

Exclusive purchase contracts shall not fall within the range of Article 101(1) TFEU if the impact of such an arrangement has no “blocking” impact on prospective rivals, either separately or as part of a network of several comparable contracts.

It should be observed that the market share of the parties is not the only factor to be taken into consideration when evaluating an employee exclusive supply / purchase contract. Indeed, regardless of whether or not an individual contract contributes substantially to the cumulative foreclosing impact and therefore infringes Article 101(1) TFEU, its length may in itself be in violation of Article 101(1) TFEU if it is excessive compared to the average length of the contracts reached on the relevant market.

 

Concerted practices & Article 101 TFEU

Concerted practices & Article 101 TFEU

Concerted practices & Article 101 TFEU

Article: LA2024/SG10/BC14/AN03

The concept of Concerted Practices stems from the very nature of a concerted exercise that it does not have all the components of a con-tract, but represents a type of casual cooperation between undertakings.

Concerted procedures are hard to prove, given that they are implicit, secret arrangements that the participating undertakings will at all costs attempt to conceal from the public perspective. The significance of a concerted exercise has been described by three instances decided by the EU judiciary. Below, they’re discussed.

Case 48/69 ICI (Dyestuffs)

The ECJ ruled that a concerted practice referred to a type of collaboration between undertakings which, without having reached the phase where a correctly so-called contract was concluded, would knowingly replace the danger of practical collaboration between them in competition. Therefore, co-ordinationand collaboration between undertakings is an important characteristic in determining whether or not they were involved in a concerted exercise.

Suiker Unie:

The ECJ ruled that:'[ T]he co-ordinationand co-operation criteria must be understood in the context of the notion of competition intrinsic in the Treaty provision that each financial operator must separately determine the strategy he plans to implement on the Common Market.’ Such autonomy is called into question when competing undertakings exchange data deliberately, directly or indirectly, in order to impact the behavior of real or potential rivals or to reveal an adopted or envisaged course of behavior to such rivals.

No actual plan is required, but for a concerted practice to exist it is necessary that undertakings have direct or indirect contact, the object or effect of which is either to influence the behavior of an actual or potential competitor or to disclose to such a competitor the course of action that the colluding undertakings have agreed to adopt or envisage adopting on the relevant market.

Joined CasesT-25 to 104/95 The GC first distinguished between passive data reception and active data reception. It indicated that there must be an intention to transmit data to the other party to be a concerted exercise, and the latter must be conscious that it is getting such communication not accidentally, but purposefully. Information exchange must go beyond mutual understanding of what the other party is doing on the basis of ordinary sources of data, such as the terms and conditions provided to clients, which are simple to acquire and which will impact rates and policies taken by rivals.

Secondly, the GC indicated that:’ a concerted practice involves, in addition to joint undertakings, conducting on the market in accordance with these collusive methods and a cause-and-effect relationship between the two.’

The case law above can be summarized as follows.

In order for there to be a concerted practice, there must be direct or indirect contact between competing undertakings that influence the behavior of an real or potential competitor on the market, the object or impact of such interaction is’ to produce circumstances of competition that do not correspond to the ordinary circumstances of the market in question’ and a connection between cause and effect.

Any direct or indirect contact between rivals that undermines the independence requirement–that is, the requirement that each financial operator should separately determine the strategy it plans to implement on the appropriate market–is forbidden.

Article 101 TFEU - concerted practice

CONCERTED PRACTICE- EU COMPETITION LAW

This requirement raises two issues that are discussed below.

  1. What kind of data between competing undertakings can be exchanged without infringing Article 101(1) TFEU?

Information can be exchanged directly through rivals (e.g. during a conference, by telephone), or indirectly through a common organization such as a trade association, or through a third party such as market research organizations, distributors, or distributors.

In its Guidelines on the Applicability of Article 101[ TFEU] to Horizontal Cooperation Agreements, the Commission’s stance on the exchange of data between undertakings is set out. The Guidelines reiterate the case law on this issue. They state, on the one side, that data exchange can produce different kinds of efficiency benefit (for instance, by benchmarking against each other’s best practices, it can enhance the inner effectiveness of undertakings) and, on the other, that data exchange can be detrimental to competition, as it can promote collusive behavior and lead to anti-competitive foreclosure.

The Guidelines recognize that data can be exchanged, for instance in the context of R&D or specialization contracts, in different situations. Such data exchange may be essential and essential for the execution of contracts and may therefore benefit from the applicable block exemption regulation (see Previous Article (Tahmidurrahman.com) No.9). It can also promote an illegitimate cartel, however, in which case it will be illegitimate.

The Guidelines set out two variables that will determine whether an data exchange can generate anti-competitive results:

1.  Market properties–whether the market is extremely focused, stable, transparent, complicated, symmetrical, etc.; and

2.  Types of information exchanged–that is, strategic data such as real orpro-priced rates, discounts, client lists, cost of manufacturing, quantity, turnover, sales, towns, characteristics, marketing plans, risks, investments, technology and R&D programs and their outcomes.

The Commission believes that data relating to rates and quantities is the most strategic in terms of the kinds of data exchanged, followed by data on expenses and request. However, if businesses compete in R&D programs, the most strategic for competition may be technology information. Data’s strategic utility relies on whether it is indi-vidualized or aggregated. If individualized, an anti-competitive result is more probable than aggregated information. Other significant variables are the information age (historical data exchange is unlikely to result in a collusive result), the market context, exchange frequency, and whether the information is public or non-public.

Information exchange may limit item or impact competition (see Previous Article(Tahmidurrahman.com) No.4). It restricts object-by-object competition when rivals exchange strategic data. The Guidelines state that the exchange of data on intended future prices or quantities should be con-sided with a restriction of competition by subject-matter which is unlikely to be exempted under Article 101(3) TFEU.2763 In Case C-286/13P Dole the ECJ discovered that the exchange of pre-pricing information between the three primary manufacturers of bananas occurred on a regular basis over a period of two years on Thursday. One of the manufacturers, Dole, asserted that the pre-pricing data could not eliminate uncertainty about the real prices, among other things. The ECJ held that the information exchanged on quotation prices was relevant to the market as it served as a market signal for the intended development of actual banana prices, i.e. as strategic information, as it reduced uncertainty about the predictable pricing strategy of other participants for each undertaking The ECJ also found that, in some cases, the actual prices were directly linked. Thus, the ECJ verified that in a comparatively focused industry such as the banana industry, not only the exchange of data pertaining to real or future rates or quantities, but also that relating to pricing variables may limit competition by item.

With regard to the restriction of competition by effect, the Guidelines provide that the economic divisions of the relevant market and the nature of the exchanged information will determine whether the’ pure exchange’ of information between competitors in itself infringes Article 101(1) TFEU.
  1. Will it be adequate to participate in competitive conferences to demonstrate the presence of a concerted exercise?

In some instances where the Commission was unable to establish the existence of any contract based on an undertaking’s involvement in an anti-competitive conference, it nevertheless had sufficient proof to demonstrate that a concerted practice existed. The GC ruled that the Commission was right in classifying a conference as either an arrangement or a concerted exercise in PVC Cartel.

The ECJ in Case C-8/08 T-Mobile eld that finding a concerted practice does not require customers to meet frequently over a period of time; a single meeting between rivals may provide them with a adequate basis to coordinate their business behaviour. The amount, frequency and type of conferences is therefore meaningless; what matters is whether a conference enables or enables the participating undertakings to take into account data exchanged with their rivals in order to impact future behavior on the relevant market. Obviously, when undertakings are regularly engaged in a concerted exercise over a lengthy period of time, the presumption is powerful.

Conduct on the basis of direct or indirect contact and the cause-and-effect relationship between a consultation and market behavior The first is that concertation is followed by anti-competitive behavior if an undertaking participating in the consultation remains active on the relevant market. It is almost impossible to disprove this presumption, bearing in mind that the GC indicated in AC-Treuhand that Article 101(1) TFEU does not require that the relevant market on which the undertaking which is the “perpetual rator” of competition limitation is active be precisely the same as that on which that limitation is considered to materialise. Therefore, as long as the appropriate undertaking exists, liability for involvement in a cartel is unlikely to escape. In T-Mobile Case C-8/08. The ECJ ruled that, when applying Article 101 TFEU, this presumption is substantive rather than procedural and must therefore be implemented by domestic judiciary.

Secondly, a concerted practice (as well as an agreement or a decision) falls within the scope of Article 101(1) TFEU, even in the lack of anti-competitive market impacts. It is not essential for the Commission to demonstrate anti-competitive impacts when a concerted practice imposes constraints on competition by item (see Previous Article(Tahmidurrahman.com) No.4.1); a potential adverse effect on competition will suffice.

The burden of evidence The burden of evidence in instances pertaining to cartels is particularly hard to discharge, bearing in mind that participating undertakings are conscious of their anti-competitive behavior and therefore organize their meetings in distant locations, falsify records and use contemporary technology to ensure that their operations are undetected. The leniency program is one of the primary ways of uncovering cartels. In exchange for self-reporting and co-operation in the Commission’s subsequent investigation, this offers immunity to undertakings participating in a cartel, or smaller fines than would have been imposed had the Commission discovered the cartel. The Commission is currently discovering most cartels through the leniency programme. As a consequence, in most instances the burden of demonstrating the presence of Commission-based cartels has been significantly alleviated (see Chapter 31.2.8).

It is always necessary for the Commission to demonstrate an alleged breach. The required legal standard consists of three requirements2781–i.e., the Commission must demonstrate I that there is a forbidden type of collaboration between undertakings, (ii) that has as its object or impact the avoidance, limitation or distortion of competition (a requirement examined in the preceding Article(Tahmidurrahman.com) No.4) and (iii) that has a significant impact on trade within the framework of that requirement.

The first requirement is for all types of forbidden co-operation to be captured. The dependence on the leniency program and the presence of presumptions attenuates the Commission’s need to infer from complex factual proof the presence of cartels. In Case C-199/92P Hüls(one of the instances of the Cartonboard Cartel), the ECJ ruled that it was the Commission’s job to create that Hüls took part in the conferences where price initiatives were decided, organized and controlled. However, it was Hüls responsibility to demonstrate that if that was the case, they had not sub-scribed to those projects. Consequently, the burden of evidence was not reversed. The ECJ stressed that one of the basic values of the EU legal order is the right to be presumed innocent and, as such, applies to competition processes.

The GC given significant clarifications in Case T-442/08 CISAC on the burden of evidence imposed on the Commission.

Facts:

The International Confederation of Authors’ and Composers ‘ Societies (CISAC–this abbreviation derives from its name in French, i.e. Confédération Internationale des Sociétés d’Auteurs et Compositeurs), a non-profit non-governmental organization whose primary mission is to promote mutual representation among gathering societies around the globe, brought trials before it.

Collecting societies handle the copyright of their members in their respective countries ‘ musical works. Each collecting society acquires the appropriate privileges, either through a direct transfer from the initial owners, or through a transfer from another collecting society of the same rights classifications in another nation. The collecting societies ‘ management of copyright implies that they enjoy the exclusive right to grant business users exploitation licenses, such as broadcasting undertakings and live show organizers. The cost of these licenses is the origin of the royalties for copyright owners after deducting the costs of the appropriate collecting society. Each collecting society pays to the owner of the works whose copyright it holds, regardless of the land in which those rights are utilized, the royalties for the exploitation of works.

In 1936, CISAC prepared a non-binding model agreement to effectively manage copyright, which was modified many times (“the model con-tract”). Collecting societies have adjusted this model to Reciprocal Representation Agreements (RRAs) whereby, for the purpose of their exploitation in the land of each collecting society, they confer on each other the right over their repertoires. Accordingly, each collecting society can offer business users a global portfolio of musical works, but only for use in their territory, thus limiting the capacity to participate in multi-territorial licensing (the domestic territorial restriction laid down in the RRAs). The RRAs cover both traditional copyright exploitation (i.e. concerts and radio) and exploitation through Internet, satellite or cable broadcasting.

Following complaints by radio and television broadcasting groups that members of the CISAC refused to grant them a license covering the entire territory of the EU for their music broadcasting activities, the Commission found, inter alia, that the national territorial limitation contained in the RRAs was the result of a concerted practice that restricted competition in the EU and was capable of restricting competition in the EU. The Commission’s opinion was that the presence of a concerted practice was evidenced, inter alia, by: omnipresent discussions between collecting societies on the standardization of their model agreements within the framework of the operations of CISAC; and omnipresent the presence of the Santiago Agreement, resulting from discussions between collecting societies.

The Commission had exempted the Santiago Agreement pursuant to Article 101(3) TFEU. However, on the grounds of the Commission’s objections, the exemption had not been renewed upon its expiry in 2004, resulting in the collecting societies having since returned to their domestic territorial constraints. The Commission had regarded in the disputed judgment that the abandonment of the Santiago Agreement showed that the collecting societies had coordinated their behavior regarding the granting of Internet licenses.

Furthermore, the Commission ruled that collusion was the only plausible explanation of the parallel behavior of the collecting societies in relation to territorial domestic constraints to which the collecting societies had returned after the expiry of the Santiago Agreement.

Held:

The GC held that a concerted practice had not been proven by the Commission.

Comments:

The GC confirmed that to establish the presence of an infringement, the Commission must provide accurate and coherent proof. The Court, however, took into consideration the Commission’s evidence-based problems in trying to demonstrate the presence of collusive behaviour. It held that:[ I]t is not essential for each item of proof generated by the Commission to meet those requirements with respect to every aspect of the breach. It is sufficient if the set of indicia on which the Commission has relied, viewed as a whole, meets that requirement. “The GC stressed the importance of the presumption of innocence principle, which requires the Court to interpret any doubt as to the evidence of an infringement in favor of the alleged perpetrator.

The GC indicated that it was necessary to distinguish between a scenario in which the Com-task seeks to demonstrate the presence of concertation based on papers in its possession and a situation based on a mere finding of parallel behavior.

In a situation where allegations of infringement are based on documents produced by the Commission, it is the burden on the applicants’ not merely to provide a further explanation of the facts found by the Commission, but to challenge the existence of those facts established on the basis of documents produced by the Commission.’ The GC ruled that any doubt on its part as to the presence of an infringement “must benefit the undertaking to which the decision finding an infringement has been addressed. It is argued that this state of affairs does not imply that the Commission must establish, beyond any reasonable doubt, the existence of an infringement if its evidence is based exclusively on parallel behavior, but indicates that the infringement.

It is not surprising, in view of this, that the GC did not discover that CISAC was involved in a practice that was con-certain. The Court accepted CISAC’s explanations that the national territorial limitations were necessary to ensure, first, that the fight against unauthorized use of musical works was effective and, second, that the amount of royalties received by the authors did not decrease. The Court discovered that the Commission’s proof did not make these explanations unplausible.

With respect to papers generated by the Commission, the GC discovered that neither the collecting societies ‘ conversations within the context of CISAC operations, nor the presence of the Santiago Agreement, provided proof of consultation on domestic territorial constraints. With respect to the collecting societies ‘ debates as part of the operations of CISAC, the GC established that they were essential to address significant problems jointly and did not have an anti-competitive goal. With respect to the Santiago Agreement, the GC found, inter alia, that the national territorial limitations were again applicable to the collecting societies after the expiry of the Agreement. The Court stressed that the col-lecturing societies did not return to domestic territorial constraints, contrary to the Commission’s claims, but returned to the status quo ante–that is, the scenario prior to the Santiago Agreement’s existence. The GC indicated that the collecting societies could not apply the domestic territorial constraints after 2004 in the lack of proof that the collecting societies acted in

Overview of Article 101 of TFEU EU Competition Law

Overview of Article 101 of TFEU EU Competition Law

Article: LA2024/SG10/BC14/AN02

Overview of Article 101 of TFEU EU Competition Law

 Article 101:

Violation of the prohibition laid down in Article 101(1) TFEU happens when an entity recognized as an undertaking enters into an agreement with another undertaking whose object or impact is the prevention, limitation or distortion of competition within the internal market and which is capable of having, or has, a significant impact on trade between Member States.

According to Article 101(2) TFEU, agreements and judgments infringing Article 101(1) TFEU that are not eligible for exemption under either a block exemption regulation or Article 101(3) TFEU are automatically void and as such unenforceable from the outset. The term “automatically” means that no decision is required by EU institutions or national courts to that effect. Concerted practices are not mentioned in Article 101(2) TFEU because they are informal arrangements and cannot be made void as such.

If it is feasible to sever offending provisions without destroying the substance of the contract, it is not appropriate to declare the entire agreement or decision null and void. Whether this can be done or not is a matter for domestic courts to decide.EU institutions sometimes help domestic courts in this assignment. For instance, the ECJ cut off the offending provisions of the contract in Joined Cases Grundig & Consten, which were those providing complete territorial protection. National judiciary have jurisdiction to apply Article 101(3) TFEU since the entry into force of Regulation 1/2003.

Overview of Article 101 - UOL first Class Articles

Agreement, Concerted

Agreements, decisions and concerted practices

Meaning of the word Undertaking: any organization conducting a business or business activity (e.g., business, partnership, sole trader, cooperative) is subject to the laws of competition.

However, the EU judiciary have made it clear that state bodies purchasing products from government resources for use in Member States ‘ public health schemes are not undertakings and are therefore not subject to action pursuant to Article 101. In C-205/03 P FENIN[ 2006] ECR I-6295 the Court found that the purchase of goods is not an economic activity as defined in Höfner and Elserwhen the goods are not offered for resale but are used for public purposes (such as social welfare). The Court instead indicated that’ it is the activity of providing products and services on a specified market which is the distinctive feature of an economic activity.’

Parents and subsidiaries are also considered as a’ single venture’ within the same corporate group. In Joined Cases C-628/10 P and C-14/11 P Alliance One International and Standard Commercial Tobacco v Commission[ 2012],the Court ruled that the mere fact that, during a certain period of time, a parent business and its subsidiary exercised joint control over the subsidiary that committed the violation could fulfill a finding that those businesses created a business. This is given, however, that the parent businesses actually exercised decisive impact over the subsidiary’s commercial policy that committed the breach.

Article 101 involves either an agreement between undertakings, a decision by an association of undertakings, or a concerted exercise between undertakings in relation to the first requirement for breach.

Meaning of the word Agreement: a broad and flexible interpretation has been provided to this notion. In CasesC-56 and 58/64 Consten and Grundig v Commission[ 1966] ECR 299 [Facts : Grundig, a large German manufacturer of electrical equipment, entered into an exclusive distribution agreement with a French distributor, Consten, according to which Consten was appointed as Grundig’s exclusive distributor in France, Corsica and the Saar region. Under the contract Consten agreed not to sell outside its territory. Grundig undertook not to compete itself, not to deliver to third parties, even indirectly, products intended for the ter- ritory assigned to Consten, and to obtain assurances from its distributors in other Member States that they would not sell to buyers from outside their exclusive territories. This “air- tight” exclusive distribution agreement was reinforced by a clause allowing Consten to use the Grundig trademark “GINT” and emblem in its promotions. On the basis of this author- ity, Consten registered the Grundig trademark in France.

A French competitor imported a number of Grundig products from Germany and attempted to sell these in the French market. Consten raised an action for trademark infringement against this rival, relying on the earlier registration of the trademark. The Com- mission objected to these proceedings and commenced an investigation into the function- ing of the exclusive distribution agreement. The Commission found that the agreement was contrary to Article 101(1) TFEU, being an agreement which had the object of distorting competition within the EU by restricting trade. It found that the agreement could not be exempted under Article 101(3) TFEU as it failed to satisfy the condition that consumers should receive a fair share of benefits resulting from the agreement. Consten and Grundig brought an action before the ECJ contesting these findings. ] it was stated that the word should apply only to contracts between businesses working at the same point in the production / distribution chain (i.e.’ horizontal agreements’) as between competing television producers. The Court saw no reason to restrict its scope in this manner and held that it also applied to’ vertical contracts,’ i.e. agreements between parties working at distinct rates, such as between a television manufacturer and its distributor. There is no necessity for a contract to be concluded in writing or legally enforceable. This implies that an unofficial’ gentlemen’s agreement’ is covered in order to prevent businesses from evading Article 101 by, for instance, orally agreeing stuff. For example, see Cases 41, 44 and 45/69 NV v Commission[ 1970] ECR 661.

A deal does not necessarily need to be a one-off occurrence. It can also lead from a long-lasting process. In Polypropylene[ 1988] 4 CMLR 347 (maintained on appeal in C-51-92 Hercules Chemicals v Commission[ 1999] ECR I-4235), the Court ruled that the petrochemical cartel dealings were part of a single general contract. All 15 companies concerned were part of this contract, even those not attending every cartel conference.

See Case C-49/92 Commission v Anic Partecipazioni[ 1999]ECR I-4125 on the burden of proof, in which the Commission established that an agreement had been concluded at a meeting. The Court discovered that the burden of evidence was on the undertaking in question to demonstrate that it had no intention of participating in the execution of the contract.

The problem often occurs where a company unilaterally imposes on its distributors anti-competitive terms. Therefore, the Court must consider whether the distributors could be said to have tacitly’ agreed’ with the terms by merely continuing to cope with the supplier. The Court’s position is that if they (i.e. the distributor) consented to and continued to cope with the manufacturer, an arrangement exists (see Commission Decision IV/35.733 Volkswagen upheld in T-62/98 Volkswagen v Commission[ 2000] ECR II-2707.)

Article 101(1) TFEU prohibits all arrangements between undertakings capable of distorting competition within the internal market. It lists three types of arrangement:

  • agreements between undertakings;
  • decisions by associations of undertakings; and
  • concerted practices.

The EU Treaties do not define any of the above arrangements. The ECJ, when confronted with the need to define them, has embraced an expansive and flexible approach, rather than a narrow, legalistic one. It stated in Case C-49/92P Commission v Anic Partecipazioni SpA [1999] ECR I-4125, [3]; see also: Case T-62/98 Volkswagen AG v Commission [2000] ECR II-2707 that although Article 101 TFEU distinguishes between “concerted practices”, “agreements between undertakings” and “decisions by associations of undertakings”, its objective is to catch different forms of co-ordination and collusion between undertakings and, therefore, the GC had been correct in considering that “patterns of conduct by several undertakings were a manifestation of a single infringement, corresponding partly to an agreement and partly to a concerted practice”. Therefore the two concepts are not incompatible and certain conduct may be qualified as being, in the first place, a concerted practice, and, in the second place, an agreement, or as being at the same time an agreement and a decision of associations. Accordingly, under EU law, a joint classification is in conformity with the objectives that Article 101(1) TFEU seeks to achieve – that is, to distinguish between conduct of an undertaking on the relevant market that is collusive and thus prohibited, and that which is independent and thus lawful. The Commission stated in its Polypropylene decision:2700

“The importance of the concept of a concerted practice does not thus result so much from the dis- tinction between it and ‘an agreement’ as from the distinction between forms of collusion failing under Article [101(1) TFEU] and mere parallel behaviour with no element of concertation.”2701

The approach based on distinguishing between collusive and non-collusive conduct rather than on a formal distinction between various forms of collusion ensures that conditions of competition in the internal market are not distorted by collusive conduct of undertakings, irrespective of the form such conduct takes. Further, this expansive approach responds to the probatory difficulties of the Commis- sion in meeting the requisite legal standard to prove the existence of complex cartels of considerable duration involving many undertakings. It resulted in the establishment of the concept of a “single, overall agreement”. As the Commission stated in British Sugar plc, Tate and Lyle plc, Napier Brown and Co Ltd, James Budgett Sugars Ltd [1999] OJ L76/1.  in respect of complex cartels it would be artificial and unrealistic to subdivide continuous conduct, having one and the same overall objective, into several distinct infringements.

Notwithstanding this, each of “agreement”, “decision” and “concerted practice” has been defined, albeit, as the ECJ held in Case C-8/08 T-Mobile, those definitions “are intended, from a subjective point of view, to catch forms of collusion having the same nature which are distinguishable from each other only by their intensity and the forms in which they manifest themselves”. These definitions are examined below.

Unilateral Conduct:

One undertaking acting alone cannot be in breach of Article 101(1) TFEU. However, until the judgment of the GC in Case T-41/96 Case T-41/96 Bayer AG v Commission [2000] ECR II-3383. the concept of an agreement was being broadly interpreted so that even unilateral conduct could conceivably have come within it, for example, unilateral anti- competitive measures adopted by a manufacturer vis-à-vis its dealers, without account being taken of the actual conduct of the dealers with regard to those measures. The signature of the dealership con- tract was regarded as tacit acquiescence in subsequent anti-competitive initiatives of the manufacturer regardless of subsequent conduct adopted by the dealers [Case C-277/87 Sandoz Prodotti Farmaceutici SpA v Commission [1983] ECR 3151. ]

The GC in Bayerstated that the mere existence of a dealership agreement and a measure imposed unilaterally does not suffice. The Commission must establish to the requisite legal standard that such a measure has the express or implicit acquiescence of the other party. Find the Facts and Judgement of Bayer Case

THE FACTS WERE:

Bayer AG, one of the most important chemical and pharmaceutical groups in Europe, which has subsidiaries in all the Member States, brought proceedings before the GC challenging Decision 96/478/EC of the Commission in Adalatin which Bayer was found in breach of Article 101(1) TFEU.

Under the trademark “Adalat” or “Adalate” Bayer AG had manufactured and marketed a range of medicinal preparations designed to treat cardio-vascular disease. In a number of Member States the price for “Adalat” was directly determined by the national health authorities. Between 1989 and 1993 in France and Spain the price was 40 per cent lower than the price in the UK. The price difference had encouraged parallel imports of “Adalat” from France and Spain to the UK. According to Bayer, sales of “Adalat” by its British subsidiary fell by almost half between 1989 and 1993. In order to recover the lost profit Bayer AG decided to cease fulfilling all of the increasingly large orders placed by wholesal- ers in Spain and France with its Spanish and French subsidiaries. Some French and Spanish wholesalers complained to the Commission. Following its investigations the Com- mission found that Bayer AG was in breach of Article 101(1) TFEU. The Commission decided that the prohibition of the export to other Member States of “Adalat” from France and Spain agreed between Bayer France and its wholesalers since 1991, and between Bayer Spain and its wholesalers since 1989, constituted a breach of Article 101(1) TFEU. Bayer AG argued that the Commission went too far in its interpretation of the concept of an agreement and that in fact Bayer’s unilateral conduct was outside the scope of that Article.

Held:

The GC ruled that in order to establish whether or not there was an agreement between the parties, two elements should be considered:

  • the intention of Bayer to impose an export ban; and
  • the intention of the wholesalers to adhere to Bayer’s policy designed to reduce parallel imports.

In the light of the evidence submitted the GC held that the Commission had failed to prove to the requisite legal standard that an agreement existed.

The Court emphasised that:

“The proof of an agreement between undertakings within the meaning of [Article 101(1) TFEU] must be founded upon the direct or indirect finding of the existence of the sub- jective element that characterises the very concept of an agreement, that is to say a concurrence of wills between economic operators on the implementation of a policy, the pursuit of an objective, or the adoption of a given line of conduct on the market, irre- spective of the manner in which the parties’ intention to behave on the market in accordance with the terms of that agreement is expressed.”

Comment:

It was clear from the facts that there was no “concurrence of wills”, between the whole- salers and Bayer, bearing in mind that the wholesalers had tried by all means to obtain extra supplies whilst Bayer was trying to restrict them.

UK & EU competition Law Article 101

Law Articles – University of London EU Prep

Article 101 TFEU states:

“1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings, and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which:

  1. (a)  directly or indirectly fix purchase or selling prices or any other trading conditions;
  2. (b)  limit or control production, markets, technical development, or investment;
  3. (c)  share markets or sources of supply;
  4. (d)  apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
  5. (e)  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.
  6. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.
  7. The provisions of paragraph one may, however, be declared inapplicable in the case of:
    • any agreement or category of agreements 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:
      1. (a)  impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;
      2. (b)  afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.”

 

Article 101 applies to both horizontal and vertical agreements. The difference between them is explained below.

A horizontal agreement

This is an agreement entered into by undertakings that compete with each other at the same level of the production/distribution chain, for example, agreements between producers, manufacturers or retailers. Horizontal agreements which are in breach of Article 101 TFEU are the most harmful to competition because rival undertakings, instead of competing with each other, collude and therefore can act as one undertaking in the relevant market. An arrangement between rival undertakings is called a cartel. In a cartel participating undertakings considerably increase their market power and, in some cases, can monopolize the relevant market. As a result, they can reduce output to increase prices and are not subjected to pressure to improve the products they sell, to create new products or to find new ways of commercialization of such products. Thus, cartels stifle creative innovation, impose higher prices for lower quality goods and narrow the choice of products. Additionally, they harm consumers, who have to pay cartel prices. Further, they dampen opportunities for new undertakings to enter the relevant market. In short, the existence of cartels runs counter to the objectives of competition law, and adversely affects the competitiveness of the economy as a whole.

A vertical agreement

This occurs when two or more undertakings which operate at different levels of the production or distribution chain enter into an agreement, for example, agreements between producers and retailers. The under- takings involved do not in any event compete with each other because they operate at different levels of the market. The most popular vertical agreements are distribution agreements and franchising agreements.

Initially, there were some doubts as to whether Article 101 applies to vertical agreements, taking into consideration that the parties to such agreements are not on an equal footing. This question was examined by the ECJ inJoined Cases 56 and 58/64 Consten and Grundig. [Judgement : The ECJ confirmed that vertical agreements are within the scope of Article 101 TFEU in the following words:

“Article [101 TFEU] refers in a general way to all agreements which distort competition within the Common Market [internal market] and does not lay down any distinction between those agreements based on whether they are made between competitors operating at the same level in the economic process or between non-competing persons operating at different levels. In principle, no distinction can be made where the Treaty does not make any distinction.”

The ECJ considered it irrelevant that sides to a vertical agreement were not equivalent in terms of their economic situation and function. The Court upheld the judgment of the Commission that the arrangement did not meet the requirements laid down in Article 101(3) TFEU. Vertical agreements are handled less heavily under EU competition law than horizontal contracts. They are obviously less anti-competitive in particular than horizontal contracts. This is because, independently of any rival, each party to such an arrangement exercises its authority. Under Article 102 TFEU, if any party is in a dominant position and abusses that position, the matter will be dealt with. The only anti-competitive impact of such contracts is usually when there is inadequate inter-brand competition [Inter-brand competition relates to competition among competing brand providers. Competition within the brand concerns competition between the same brand’s retailers. ]. Many economists (especially those associated with the Chicago School) stress that vertical agreements give many competitive advantages. This is also the Commission’s present perspective, which, pursuant to Regulation 330/2010, introduced a rebuttable presumption of vertical agreements compatibility with Article 101(1) TFEU where each party to the vertical agreement has a share of less than 30 per cent in the appropriate product market. This is subject to certain exceptions and a restricted amount of “hard-core” constraints laid down in the Regulation.

Decisions by associations of undertakings The aim of Article 101(1) TFEU is to guarantee that undertakings do not escape the implementation of EU competition law in the manner in which they coordinate their anti-competitive behavior. That is why Article 101 TFEU includes not only direct forms of coordination, i.e. contracts and concerted procedures by undertakings, but also institutionalized forms of their collaboration, i.e. when they behave through a collective framework.

Trade associations can either engage actively in members ‘ collusive behavior or can be used as a means for members to exchange data on rates, outputs and other issues that will allow companies to be conscious of their rivals ‘ market situation and strategy and thus boost or even promote the likelihood of collusion. In such conditions, behavior of members of an enterprise association may be recognized as an arrangement or a concerted practice. However, Article 101(1) TFEU also catches behavior which is described as a “decision”–that is, behavior which can not be recognized as an arrangement or a concerted exercise in the strict sense.

Under EU law, both the “association” concept and the “decision” concept have been widely interpreted. Regarding the notion of an association, whether or not a group of undertakings is registered as an association is unimportant for the implementation of EU law; what matters is whether the group is an entity created to achieve its members ‘ financial goals. Accordingly, according to EU law, the notion of association covers: agricultural cooperatives; professional associations, including a statutory body with public tasks, whose members are designated by the government; international organizations such as the International Railway Union; groups such as the European Broadcasting Union, which coordinates the Eurovision scheme; In Case 123/83 BNIC the ECJ ruled that an agreement between two groups of traders must be considered as’ an agreement between undertakings or undertaking associations.’ Also within the prohibition of Article 101(1) TFEU is a choice taken by a federation-type organization–that is, an organization whose members are themselves associations.

The MasterCard organization asserted in Case C-382/12P MasterCard that after 2006 it was not an association of undertakings. Until that date, affiliated banking organizations owned and administered the MasterCard organization. It became a stock exchange-listed corporation after that date and stopped being owned by those organizations. After 2006, the board of the MasterCard consisted of a significant majority of people who had no affiliation with any financial institutions and followed their shareholders ‘ interests. MasterCard argued that an entity can not be categorized as an association of undertakings unless it consists of a majority of members of the undertakings involved and is free to take its choices in their exclusive interest in accordance with relevant domestic legislation. In his Opinion, A-G Mengozzi stressed that MasterCard’s criteria clash with the wide interpretation of the notion of “association” created by the case law. He stated that an entity should be considered as an association of undertakings’ if it constitutes the framework within which, or the instrument through which, the undertakings concerned coordinate their conduct on the market, provided that the public authorities do not impose coordination or the results achieved.’  The wide interpretation was maintained by the ECJ. It argued that MasterCard was an association on two basis: After 2006, banks involved in the MasterCard payment system continued to have decision-making powers, although not over MasterCard’s contested decision to impose cross-border multilateral interchange fees (MIFs), which the ECJ condemned as having an anti-competitive impact and which amounted to a decision within the MasterCard

The purpose of the notion of a decision is to capture all types of forbidden cooperation organized by an organization with respect to its members. These may include, but are not limited to, binding association resolutions, binding regulations on the operation of a certification system and an association’s written constitution. In Case 8/72 Cementhandelaren, the ECJ regarded whether a non-binding suggestion could amount to a decision within the significance of Article 101(1) TFEU.

Facts: The Dutch trade association, of which most Dutch cement retailers were members, recommended a price adjustment for the sale of cement in the Netherlands. The trade association effectively governed the Netherlands cement sector, as it imposed comprehensive trade regulations on its members (for instance, the duty to notify any change in leadership), oversaw its members ‘ accounts, needed them to sell to each other (and thus eliminated the chance of third parties building up cement stocks) and was empowered to expel its members.

Held: The ECJ held that Cementhandelaren’s decision to recommend target rates had a major effect on price levels: first, its participants were in fact complying with the recommendation and, second, it removed the uncertainty about prices to a large extent, as almost all retailers were charging the same price as each other. The recommendation was therefore considered to be a choice within the significance of Article 101(1) TFEU.

Comment: It follows from this situation that the word “decision” includes non-binding suggestions, casual choices, circulars, etc., if it can be demonstrated that such non-binding measures made by an organization have affected or may impact (in which respect its members ‘ previous behavior will be taken into consideration) the behavior of its members on the relevant market arising in a restriction of competition. Concerted methods It follows from the very nature of a concerted exercise that it does not have all the components of a treaty, but is a type of casual cooperation between undertakings.

Concerted procedures are hard to prove, given that they are implicit, secret arrangements that the participating undertakings will at all costs attempt to conceal from the public perspective. The significance of a concerted exercise has been described by three instances decided by the EU judiciary. Below, they’re debated.

Case 48/69 ICI (Dyestuffs) The ECJ ruled that a concerted practice referred to a type of collaboration between undertakings which, without having reached the phase where a correctly so-called contract was concluded, would knowingly replace the danger of practical collaboration between them in competition. Therefore, co-ordination and collaboration between undertakings is an important characteristic in determining whether or not they were involved in a concerted exercise.

In Suiker Unie, The ECJ ruled that:'[ t]he co-ordination and co-operation criteria must be understood in the context of the notion of competition intrinsic in the Treaty provision that each financial operator must separately determine the strategy which he plans to implement on the Common Market.’ Such autonomy is called into question when competing undertakings exchange data deliberately, directly or indirectly, in order to impact the behavior of real or potential rivals or to reveal an adopted or envisaged course of behavior to such rivals.

No actual plan is required, but for a concerted practice to exist it is necessary that undertakings have direct or indirect contact, the object or effect of which is either to influence the behavior of an actual or potential competitor or to disclose to such a competitor the course of action that the colluding undertakings have agreed to adopt or envisage adopting on the relevant market.

Joined CasesT-25 to 104/95 The GC first distinguished between passive data reception and active data reception. It indicated that there must be an intention to transmit data to the other party to be a concerted exercise, and the latter must be conscious that it is getting such communication not accidentally, but purposefully. The exchange of data must go beyond mutual understanding of what the other party is doing on the basis of ordinary data sources, such as the terms and conditions cited to clients, which are simple to acquire and which will affect rates and policies taken by rivals.

Secondly, the GC indicated that:’ a concerted practice involves, in addition to joint undertakings, conducting on the market in accordance with these collusive methods and a cause-and-effect relationship between the two.’

It is possible to summarize the case law above as follows. In order for there to be a concerted practice, there must be direct or indirect contact between competing undertakings that influence the behavior of an real or potential competitor on the market, the object or impact of such interaction is’ to produce circumstances of competition that do not correspond to the ordinary circumstances of the market in question’ and a connection between cause and effect.

The Aims of EU Competition Law

The Aims of EU Competition Law

EU COMPETITION LAW

Name: The Aims of EU Competition Law

Article: LA2024/SG10/BC14/AN01

Since the inception of EEC (European Economic Committee) competition policy has always been considered an integral element towards the aim of creating a seamless internal market. It’s evident from the consecutive articles 2,3 of EC, which contained the provision ‘a system ensuring that competition in the internal market is not distorted’. Although in times of the drafting of Lisbon Treaty, due to the complaints of then French President Nicolas Sarkozy, article 3(3) TEU now states that, ‘The internal market shall shape up to be a highly competitive social market’, while earlier remarks now relegated to a Protocol on the internal market annexed to the treaties. Although, Article 51 TEU states that Protocols to the treaties shall form an integral part of the treaties thereof. Market Integration has always been a significant feature of EU law In, Grundig v Commission (1966)’ Court of Justice stated that, “Agreements which might tend to restore the national division in trade between Member States might be such as to frustrate the most fundamental object of the community”. While maintaining the competitiveness of the Union’s industries in the global market (Article 173 TFEU(ex Article 157 EC)), in its notice of the application of Article 81(3) EC on Article 101(3) stated that the objectives of Article 101 is to protect competition on the market as a means of enhancing consumer welfare and an efficient allocation of resources.

Overview of Treaty Articles 101 & 102 TFEU(ex 81, 82 EC):

  • Article 101(1) prohibits anti-competitive collaboration between undertakings, which prohibits competition within the EU.
  • Article 102 prohibits abuse of dominant position by one or more undertakings.

For both these to apply there must be the possibility of an effect on trade between member states. 101(3) provides for the possibility of exemption for behavior caught by Article 101(1) where an agreement (or other collusive behavior), despite its uncompetitive effect, fulfills certain conditions. If no exemption is granted under article 101(3), then the agreement is void under Article 101(2). Article 102 TFEU contains no possibility of exemption within the wording of Treaty Articles but the CJ ( Case Hilti) has developed the principle of objective justification, i.e., when behavior is objectively justified, it will not constitute an abuse.

Aims of EU Competition law_ University of London

Competition law first class

Where undertakings infringe these provisions, they get fined up to 10% of annual turnover. They are also liable to damages actions brought by parties harmfully affected by their anti-competitive behavior. After being alerted by a complaint or as a result of its own enquiries, the Commission carries out the initial investigation. And then it issues a statement of objections. The undertakings have the right to access to the Commissions file (Article 27(2), Regulation 1/2003) to respond to all possible ground for an infringement. After an initial hearing, where both complainant and undertakings are present, if commission decides there’s an infringement, it is framed as a formal decision (Article 288 TFEU, ex Article 249 EC). The commission must include the full reasons for the findings (Article 296 TFEU). The decision then commenced by the agreement of whole commission on a written procedure. And if it is contentious, during a meeting of the College of Commissioners.

The undertaking can opt for judicial review. For individual applicants in general court (previously the Court of First Instance). And, for undertakings the action will be brought in Court of Justice. If commission finds breach of Competition law, the undertakings will have automatic standing under Article 263 TFEU, as do complainants. (Metro (1977)). The majority of the cases are reviewed to the quantum of fines. Within 2 months, the judgement of the General Court can be appealed only to the Court of Justice on the basis of Judicial review. This can result into a waiting of 4 or more years to receive the final resolution due to the backlog of cases in both general court and CJ. NCA and Private complainant cases can result in a reference under Article 267 TFEU to the CJ. In Treaty of Nice, provision was made for the possibility of the General Court taking references from national courts under Article 267 in certain (unspecified) areas. But Competition law was not included as one of areas.

Economic Context:

The recent shift in economic thinking did influence the application of competition law in EU. In its Green paper on Vertical Restraints shows the benevolent approach to the vertical agreements (between entities at different levels of the supply chain, such as manufacturer and distributor) by the commission as the undertakings concerned have very little market power. The paper stated,

“Vertical restrains are no longer regarded as per se suspicious or per se pro-competitive. Economists are less willing to make sweeping statements. Rather, they rely more on the analysis of the facts of a case in question”.

In British Airways V Commission (2003) case, the GC stated clearly, “The protection of competition is not an aim in itself. As a a means of both enhancing consumer welfare, and of ensuring an efficient allocation of resources, competition helps to prevent other welfare-reducing effects. Society as a whole, including consumers, in this way benefits from Competition”.

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