Concerted practices & Article 101 TFEU
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.
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.
This requirement raises two issues that are discussed below.
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.
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.
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.
The GC held that a concerted practice had not been proven by the Commission.
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