Overview of Article 101 of TFEU EU Competition Law
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.
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  ECR I-4125, ; see also: Case T-62/98 Volkswagen AG v Commission  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  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.
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  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  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.
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.”
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.
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:
- (a) directly or indirectly fix purchase or selling prices or any other trading conditions;
- (b) limit or control production, markets, technical development, or investment;
- (c) share markets or sources of supply;
- (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
- (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.
- Any agreements or decisions prohibited pursuant to this Article shall be automatically void.
- 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:
- (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;
- (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.