Judgment of the Court of Justice in Allianz Hungária, C-32/11

 

Svetlana Chobanova^*

 

Introduction

Wholly internal situations and restrictions by object – the interpretation of two fundamental notions of European Union (‘EU’) law are at stake in this preliminary reference procedure before the Court of Justice of the European Union (‘ECJ’ or ‘the Court’), concerning both the admissibility and the merits of the dispute. While in terms of outcomethe case might not be ground-breaking in either of these areas, the differences in reasoning between the Advocate General (‘AG’) and the Court pinpoint some specific issues that have sparkled numerous discussions and appeals for a revision of the jurisprudence on the part of both academics and practitioners. In summarising the state of the art, the present case note may pose more questions than it will answer but will endeavour to achieve some clarity in anticipation of the next pronouncements of the ECJ.

Factual and legal background

The judgment finds its origin in a preliminary referencefrom the Hungarian Supreme Court concerning the interpretation of Article 101 of the Treaty on the Functioning of the European Union (‘TFEU’)and more precisely the qualification as restrictions by object of certain agreements, concluded between insurance companies (Allianz and Generali) and individual authorised dealers, also acting as car repairers (or their nationalassociation GÉMOSZ). The agreementssubjected the increase of hourly repair charge paid by the insurance company to the repairer to the numberof insurance policies sold by the latter on behalf of the insurerand expressed as a percentage of the dealer’s total policies’ sales. The question arose in the context of proceedings relating to the validity of adecision of the Hungarian national competition authority (‘NCA’), declaring these agreements as incompatible with national competition law.

A specific feature of the agreements was that the car dealersacted both as ‘brokers’ and repairers forAllianz and Generali, offering insurance with the latter to their customers and at the same time repairing damaged vehicles already insured by them. The Hungarian competition authority ruled in particular that the following agreements, “taken as a whole or individually”, had as their object the restriction of competition on the markets both for insurance contracts and for car repair services:

–          A number of individual agreements concluded between the dealers and either of the insurance companies between 2003 and 2005 and containing the aforementioned clause to the effect that the repair shops’ hourly repair chargeswould depend on the percentage of insurance policies sold by them on behalf of the insurer;

–          Various agreements of Allianz and Generali with certain insurance brokers, including clauses with similar effect;

–          Three decisions of the national association GÉMOSZ in the same period, establishing ‘recommended prices’ for the repairs of damaged vehicles;

–          2004 and 2005 framework agreementson hourly repair chargesbetween Allianz and GÉMOSZ.

The NCA based its decision exclusively on national competition rules, since the agreements had no impact on trade between Member States, a finding that was not challenged by any of the parties. The Hungarian law on the prohibition of unfair market practices and the restriction of competition, adopted in 1996, includes several references to the EU law:

–          The preamble, declaring that the law is adopted “in view of the requirement to approximate European Community legislation and the traditions of Hungarian competition law”[1];

–          Paragraph 1(2), according to which it would apply to practices governed by the now Articles 101 and 102 TFEU, in case that the matter falls within the jurisdiction оf the NCA or the Hungarian courts;

–          Paragraph 11(1) of the chapter ‘Prohibition of agreements restricting competition’, containing a prohibition worded similarly to Article 101 TFEU;

–          The Explanatory memorandum, justifying the legislative amendments in the light of the need to harmonise national law with Article 101.

Opinion of Advocate General Cruz Villalón

Insofar as the Opinion of the Advocate Generalseems to differsubstantially from the judgment on certain points, it is necessary to examine in more detail his reasoning on both the admissibility of the reference and the substance of the dispute.

Admissibility

It is the conclusion of the AG that, in the absence of a ‘direct and unconditional reference’ by the national legislation on the protection of competition to EU law, the preliminary question should be held inadmissible.

The AG starts byrecalling the long-standing jurisprudence in Dzodzi, met by strong opposition in a number of subsequent AG opinions. This case established that where the national legislator has chosen to refer to EU law for the determination of rules applicable to purely internal situations, “it is manifestly in the interest of the [EU] legal order that, in order to forestall future differences of interpretation, every [EU] provision should be given a uniform interpretation irrespective of the circumstances in which it is to be applied”[2].

The AG then goes through the case law in order to list and clarify the conditions attachedto the admissibility of such type of questions, namely that the reference to EU law in the national provision must be direct and unconditional. To his mind the condition hasbeen applied strictly and consistently, the crucial element being that the EU legislation is directly and unconditionally made applicable in a purely internal context.‘Direct’ means that the reference in national law should be “express and unambiguous” and ‘unconditional’ – that is should be “to the whole of the legislation concerned”.[3]The purpose of meeting this threshold would be to establish clear and precise situations in which national courts should strive to adhere to the interpretation given by the EU courts, should consistently refer preliminary rulings, and should necessarily abide by the latter’s reply.

Crucially:

“(…) a single reference by the national legislature to a particular provision taken from the EU legislation cannot suffice, since the application of the Court’s case-law in such a case and, ultimately, the reply to the question referred for a preliminary ruling, would run the risk of being dysfunctional.”[4]

In applying this testto the facts at stake and drawing parallels with the Court’s rationale inCicala[5], the AG concludes that such a reference to EU law,limited to the preamble of the national legislation, phrased in rather general terms (moreover inserted at a stage in time when Hungary was still aspiring to become part of the EU) and of indeterminate legal consequences, taken together with a preliminary question, which seeks interpretation of an excessively broad notion of primary EU law (restriction by object in the meaning of Article 101), cannot give rise to a clear interest in maintaining uniform interpretation of the EU law provision at issue.

The Commission, while also admitting that the case is not one concerning direct application of EU law, argued that the special relationship between Paragraph 11 of the national law and Article 3 of Regulation 1/2003 validated the jurisdiction of the Court. The AG points out the fact that, first, under the same Article 3 national rules on competition only apply in conjunction with Articles 101 and 102 TFEU in case of a potential effect on intra-EU trade and, second, Member States retain certain legislative powers in the field, which remain outside the scope of EU law primacy. In conceding the ‘Europeanisation’ of national competition laws, notably in the case of the new Member States[6], he refuses to accept that this tendency should serve as a justification for case law induced harmonisation, notwithstanding the necessity to forestall future differences in the interpretation of concepts of EU law referred to in national context. In his view:

“(a) contrary conclusion would render entirely ineffective the defining condition for an effect on trade between Member States and would constitute undue interference in the area of sovereignty which was intended to be reserved exclusively to the Member States.”[7]

The AG goes on to analyse, in the alternative, the substance of the proceedings.

Merits

The sole question of the referring court is whether bilateral agreements between an individual car repairer (or a professional association) and an insurance company,such as those at issue in the main proceedings, constitute agreements which have as their object the restriction of competition within the meaning of Article 101(1) TFEU.

The AG starts his analysis with some preliminary observations on the factual and legal background of the dispute, concluding that because the essential intricacy of the case comes from the connection between activities belonging to the two separate markets – insurance and car repair services – the potential restrictions on these markets should be distinguished. Although the reference concerns only the effect of the bilateral agreements in question, the AG considers it unavoidable to analyse them together with the GÉMOSZ decisions and the agreements with the insurance brokers.

As to the concept of restriction by object, the AG reiterates the well-established jurisprudence on the alternative nature of the concepts of ‘object’ and ‘effects’ restriction, defining the former as certain forms of agreements which may be regarded “by their very nature, as being injurious to the proper functioning of normal competition”[8]. He explains the presumption of existence of negative effects, as defined in the Commission Guidelines on the application of Article 101(3) TFEU[9], to conclude that the notion should be interpreted strictly and only applied to cases with inherent and critical potential for negative effects. In accordance with the case law, he proceeds with an examination of the content and objectives of the agreements, as well as the economic and legal context of which they form part.

The first problem as to the agreements’ content and purpose is the existence of a genuine vertical relationship between the insurers and the dealer-repair shops. Drawing on the extensive definition of vertical agreements in Regulation 330/2010[10], the AG points out that since the parties operate at different levels of the distribution chain and the agreements relate to the conditions under which services are provided by the dealers to the insurers (and indeed the stipulated form of remuneration is at the centre of the preliminary question), the agreements are vertical ones. With regard to the agreements’ nature as object restrictions, it is recalled that such type of clauses, subjecting the amount of an hourly repair charge to the sale of a specified percentage of an insurer’s products, is not prohibited by competition law simply because it may be aimed at increasing one of the parties’ market share. The AG compares the clauses to ‘single branding’ or non-compete obligations which, within certain time limitsare not considered harmful to competition[11]. He then looks at the list of hard-core restrictions in Article 4 of Regulation 330/2010, in conjunction with the findings in thejurisprudence, and on that basis reaches the conclusion that the capacity of the agreements at issue to restrict competition is not as high as those previously considered to constitute restrictions by object and even lower than those deemed capable of producing anti-competitive effects.

Moving on to the legal and economic context, the AG reminds that an object restriction may exist even in the absence of an express provision to that effect, given the facts and the specific circumstances surrounding it[12]. These include the nature of the GÉMOSZ decisions as horizontal agreements between dealers andthe consolidating effect which the agreements with Allianz and Generali had on them, the insurers collectively holding more than 70% of the market in question.As regards the car insurance market, it is only in the event that an agreement or a concerted practice between the insurers is found that the vertical agreements could be so injurious to competition, as to give rise to restrictions by object. The AG looks in detail at the circumstances for determination of a concerted practice (concurrence of wills, subsequent conduct and causal link) and advises that parallel conduct is normally not in itself sufficient proof thereof. On the repair services market the vertical agreements under which the insurers acceptedthe repair charges agreed within GÉMOSZ, are seen as a proxy for the inherently anti-competitive horizontal agreementinside the dealers’ association:

“For that reason, the whole arrangement (and not just the horizontal agreement) is unlawful and the conduct of the insurers must be censured in addition to that of the dealer-repair shops.”[13]

The AG concludes that if the national court were to establish, given in particular the number of dealers bound by a horizontal agreement on charges between them, that the latter was genuinely anti-competitive, this would entail a finding ofa restriction of competition on the car repair services market, consolidated by the agreements between the insurers, on the one hand, and GÉMOSZ or the individual dealers, on the other hand.

Judgment of the Court

Admissibility

The Court makes a distinction between admissibility and questions of jurisdiction[14]and examines, at this point, its jurisdiction, not admissibility.[15]The same holds for the remainder of the article.

On this question, the Court refers to the same line of jurisprudenceas the AG but rather insisting on the discretion of the national courts to determine the necessity to refer, as well as the relevance of the preliminary questions, and on the need for uniform interpretation of EU law. The balance is shifted towards the idea of national provisions “rendered applicable by domestic law, which adopted, for internal situations, the same approach”[16] as that in EU law, instead of the reference to thecriterion of ‘direct and unconditional’ reference. Article 101(1) TFEU being“faithfully” reproducedin the national legislation and the “clearly apparent” intension of the legislator to harmonise domestic law with that of the EU, coupled with the conviction of the referring court as to the identical interpretation of the relevant provisions, are deemed sufficient to confer jurisdiction on the Court to answer the preliminary question.[17]Тhe conclusion is also based on the explanatory memorandum to the national law which refers to the aim to prohibit “in accordance with Article [101 TFEU], everything which distorts competition”[18].

Merits

The Court also starts by restating the case law and underlines the need to interpret the purpose of the agreement in its precise economic context, taking into account also the nature of the services and the actual structure and functioning of the relevant market. The crucial consideration in determining whether the agreements can be by their very nature injurious to competition is the link established,via the remuneration stipulated in the agreements, between two normally independent economic activities – car repair services and insurance brokerage. This would be the case in particular if independence between the two activities is required for the proper functioning of competition, taking into account the object of the agreements on both markets at issue.

The Opinion is followed in the context of the car repair service market, based on an analysis of the nature and scope of the GÉMOSZ decisions establishing ‘recommended prices’. As to the car insurance one, the Court also concurs with the AG on the need to determine an agreement or a concerted practice between Allianz and Generali aimed at market partitioning which would vitiate the vertical agreements that implement it.However, it does not limit itself to this conclusion but goes on to state that a restriction by object on that market could also exist in other particular circumstances. This may be the situation, first, where the national legislation requires insurance brokers to act independently from the insurance companies and in the interest of the policy holder, so as to be in a position to offer him the best suited insurance policy. In such circumstances it would be for the national court to analyse whether the proper functioning of the car insurance market is liable to be considerably disrupted by the agreements. Secondly, restriction by object could also occur where “it is likely that, having regard to the economic context, competition on that market would be eliminated or seriously weakened following the conclusion of those agreements [having regard to] the structure of that market, the existence of alternative distribution channels and their respective importance and the market power of the companies concerned”[19].

Analysis

Admissibility

On the issue of admissibility, the AG Opinion and the subsequent judgment seem to nicely fit within the well-established practice of Advocates General opposing to the ECJ’s consistent case law asserting jurisdiction wherethe national legislaturehas decided to rely on EU provisions for the regulation of matters purely within the scope of domestic law.[20]The question is whether the present case containsa different nuance.

The Dzodzi line of jurisprudence has often been concerned with situations where national legislation, in order to avoid reverse discrimination of nationals, distortion of competition or simply to ease implementation by national authorities, provides for the application of EU rules also in case of purely internal situations (seee.g.Dzodzi itself, as well as Leur-Bloemwhere the concept ‘merger by exchange of shares’ from an EU directive was incorporated into the domestic law transposing it and was extended to similar, purely internal, situations).The Court inKleinwort Benson established arelatively narrow test, subjecting the admissibility to a ‘direct and unconditional’ reference by the national law to the EU provision. Furthermore,the latter judgment concluded that the national court should be clearly bound by the application of EU law, as interpreted by the ECJ.[21]This is natural, precisely given the interest of the EU to prevent differences in the interpretation of EU rules and so the Court’s reply should not be“purely advisory and without binding effect”[22].

In its case law however the Court has not consistently followed this test, notwithstanding the continuous urges from AGs to the contrary. As to the first criterion, preliminary questions have been accepted in cases where arguably there was not even an indirect reference to the EU legislation.[23]As to the second, the Court seems to have established a sort of presumption under which if a national court refers a question, it is deemed to hold itself bound by the ECJ interpretation.[24] This is based on the aim of the Article 267 procedure, which implies cooperation between the ECJ and national courts. They would therefore be trusted to determine the effect of the reference to EU law in the national legislation and the need for a preliminary question. Moreover, it would be again for the referring court to decide whether and how EU law should be specifically applied to the facts at stake. Consequently:

“Consideration of the limits which the national legislature may have placed on the application of [EU] law to purely internal situations is a matter for domestic law and consequently falls within the exclusive jurisdiction of the courts of the Member State (…).”[25]

The Court has referred to the Kleinwort Benson test to justify the absence of jurisdiction, in more sensitive cases.[26]It remains however, that there is an inherent tension betweenthe requirement of a binding effect of the Court’s interpretation, on the one hand, and the non-interference with the assessment of the referring court, on the other hand, which may ultimately prejudice the initial goal of ensuring consistent interpretation of EU law norms.[27]Moreover, it could prove difficult for the Court to provide a useful answer in abstracto, “irrespective of the circumstances” in which EU law is to apply.[28]The argument is linked to another ground of inadmissibility: the need for the referring court to sufficiently explain the context of the main proceedings; however, the ECJ has chosen to deal with these issues separately.

Authors[29] have drawn parallels between the Dzodzi principle and the jurisprudence on purely internal situations in internal market cases, arguing that starting from Guimont, the Court has adopted a more lenient approach and has accepted preliminary references in the rather abstract situation where the reply “might be useful”[30] to the referring court in the event that the national law would prohibit reverse discrimination (without having verified if this is actually the case). The appeals for a narrower approach in this case may be explained by the fear that disregarding the rule on non-application of EU law in wholly internal situations would lead to deregulation and would disproportionately interfere with the variety of national rules pursuing legitimate policy objectives.[31]

In view of the foregoing, it seems that the Advocates General have raisedlegitimate concerns about the risk of delivering a partial and not necessarily useful interpretation, in the absenceof asufficient knowledge about the circumstances of application of the legal rule.Moreover, such a ruling might not, depending on the national law, be binding upon the referring court and thus may prejudice the principle of primacy of EU lawby subjecting the jurisdiction of the ECJ to the choice of the national legislator. Do these same considerations hold true in the case at stake?

Jurisdiction has been consistently upheld, as the AG admits, in the field of competition law, where it is often clarified in the travauxpréparatoires to the national legislations that they should be interpreted in line with EU law.[32] In the present case the explanatory memorandum indeed extensively refers to Article 101 TFEU. It does not seem surprising therefore, even taking into account the limited references to EU competition law in the body of the national legislation itself, that the Court confirms rather briefly its previous case law as well as its jurisdiction.[33]

Moreover, the fear of deregulation related to the abandonment of the wholly internal situation rule has occurred primarily in the field of the internal market where the situation is different. Competition law comes within the exclusive powers of the EU and there is little question here of adverse effects coming from negative harmonisation, i.e. abolishing barriers to trade. Hence preoccupations of a power-balance shift towards the EU are far lesser than in the case of the internal market where the competence is shared. Competition is also the only vertically integrated (from policy to enforcement) area of EU powers.

More generally, the assertion of jurisdiction is not surprising in view of the ECJ’s quest to attaining ‘constitutionalisation’ of the Treaties: it seems to view the national and EU legal orders as a unitary system and places more emphasis on encouraging the application of EU rules on national level, than on the actual binding effect of its rulings, which inevitably is weaker where purely national law is applied.[34]Themissionto ensure consistency is particularly important in the case of the newly-acceding Member States, which have less experience in interpreting EU law.

Finally, it is worth examining the competition law-specific argument, based on the purpose of Article 3 of Regulation 1/2003[35] which introduces the so-called convergence rule. Under the latter, where trade betweenMember States may be affected, they cannot adopt stricter national competition laws prohibiting agreements or concerted practices which do not restrict competition within the meaning of Article101(1), or which fulfil the conditions of Article 101(3) or a block exemption regulation.Admittedly, Article 3 should not be allowed to serve as a self-standing provision conferring jurisdiction on the ECJ to interpret national competition laws. Theprovision was inserted in order to create consistency in the decentralised enforcement system of Regulation 1/2003 and only regulates the enforcement of EU competition rules by national competition authorities. A broader interpretation would, as explained by the AG, empty the provision of its raison d’être – namely to ensure prevalence of EU law over national law in well-defined situations only. No legal harmonising obligation to that extent existed for the new Member States in the Copenhagen criteria or in the Association Agreements either. However,Article 3 has de facto been an incentive for themto model their competition legislations after that of the EU, in order to facilitate their parallel application.[36] In the present case the explanatory memorandum itself recognised that “[t]he main reason for the changes is the harmonisation of the law”[37].

But is this ‘Europeanisation’ process sufficient in order to alleviate the concerns of the AG? Probably not, because in reality “the black letter of the law and its active enforcement”[38] are two distinct issues, leading to divergent results. For one thing, a body of national rules of procedure exists in the new Member States that are not harmonised but which appreciably affect the enforcement process and may lead to very different outcomes than those on the EU level. Thus, national legal contexts remain sufficiently divergent from one Member State to the other and even if the national court would feel obliged to comply with the interpretation provided by the ECJ, that does not necessarily aidthe process of forestalling existing or future interpretative differences.

In the same context of ensuring uniform interpretation across the EU, a question arises as to the approach of the Court in case of a preliminary question coming from one of the ‘old’ Member States which have not undertaken such purposive harmonisation in the field of competition (although admittedly they avail themselves of more experience in the field and their national practices may be much more aligned with these of the EU). Does the latter fact entail the conclusion that the jurisdiction of the ECJ, together with the scope of EU law, would be broader in the new Member States only, and is that justified? By the words of AG Ruiz-Jarabo in Kofisa:

“Making the Court’s jurisdiction dependent on the legislation of each Member State also means that it may vary widely between the different Member States. It is difficult to accept that the scope of a fundamental rule of [EU] law, such as Article [267 TFEU], should be determined in part by the various national legal systems.”[39]

As a transition to the merits of the dispute, it is interesting to take note of the legislative background. In 1996 Hungary, which accorded a ‘rule of reason’ treatment to vertical agreements (prohibiting only resale price maintenance), was under an obligation to align its competition legislation with that of the EU, which at the time prohibited these agreements as a matter of principle. The introduction of such a blanket ban (accompanied by block exemptions) constituted “the largest change Hungary has had to make in its law in order to approximate to EU norms”[40] After the reform on EU level in 2002the state also introduced the general block exemption regulation for vertical restraints but the previous amendments were considered to be a step back in the economic analysis already in place in that field. Moreover, it seems that while the Hungarian courts have wide powers to review administrative decisions, they tend to exercise rather limited judicial review. It has even been suggested in the literature that given the extent of convergence with EU competition law, the courts should be encouraged to make references to the ECJ and profit from its experience.[41]These circumstances may very wellbe part of the underlying rationale for both the rather broad questionof the Hungarian Supreme Court and the eagerness of the Court of Justice to provide an answer – if national legislative traditions were disrupted in favour of harmonisation with EU law, would it be logical to leave then the national courts with no guidance as to the interpretation of the new regime in place?

Merits

The reasoning of the Court appears consistent with its traditional stance towards object restrictions. I might however be going further.

The approach was born in a line of cases starting from Société Technique Minière[42] at a time when the European Commission was applying a formalistic analysis based on the type of therestriction, rather than on its concrete economic impact – this was theex ante notification system, prior to the broad review and modernisation of its Article 101 policy[43], focusing on the economic effects of the undertakings’ market behaviour. The latter reform aimed, inter alia, at establishing a clear distinction between the object and effect restrictions, the first of the two groups applying to agreements that should be (rebuttably) presumed illegal, thus putting a lesser burden of proof on the competition authorities. An abridged evaluation ofthe restrictionswould still be necessary, taking into account their objectives and context.[44]These are opposed to the broader category of agreements which require a more in-depth assessment given the particular circumstances in each case, in order to determine their pro- or anti-competitive nature. Thecriteria established by the early jurisprudence for the evaluation of the restrictions by objectemphasise on their assessment in the proper legal and economic context of the agreement, besides its aim and content. The fact that the Court’s analytical approach did not simply resort to a pre-defined and rigid list of practices was considered as progressive and as anticipating the Commission’s later move towards a more market- and effects-based enforcement.[45]

The fundamental question here concerns the notion and purpose of a restriction of competition by object. Should this be a restricted concept, only applicable to narrowly and clearly defined “serious nature” offences which from “experience” are “likely to produce negative effects on the market and to jeopardise the objectives pursued by [EU] competition rules”[46] – a definition which favours legal certainty and predictability for economic operators? Or should one expand this category to potentially include any restriction, which, given the specific context in which it is applied, shows a sufficiently high potential for negative effects? And if one were to accept that it is not simply an ‘object box’, reserved for a limited category of ‘naturally’ restrictive agreements, what about the precise place for effects-based, economic analysis?

Some authors[47] consider that the Commission is guilty of excessive formalism, as could be seen from its Guidelines on the application of Article 101(3), when limiting the notion of an object restriction to a predefined category of particularly pernicious practices and not relying enough on the specific features of the market in which the restriction is applied. At the same time the Court, while still consistently articulating the argument that there are certain agreements which are “by their very nature injurious to the proper functioning of normal competition”, is said to adopt a rather analytical approach in assessing the agreement’s legal and economic context. For example, in the present case, in order to discard the possibility of an object restriction, the AG relies predominantly on a comparison with other types of vertical agreements, considered as hard-core or effects restrictions[48], whereas the Court insists on the specific competition problems that could emerge on the market at stake, in view of the link created between the two independent activities or of other market conditions[49].

Other authors however point out that the Commission is very precise in defining the basic characteristics of the object offence (essentially high potential of occurrence of serious negative effects and experience that justifies the presumption applied to them) and this is the only way to draw a clear line between the two categories of restrictions – a broad, open-ended understanding of an object restriction, requiring in-depth investigation into the legal and economic circumstances of the case would make this notion entirely dependent on the notion of restriction by effect and so, deprived of any substance.[50] This is all the more so in the context of vertical agreements, which traditionally involve controversies regarding their treatment under competition law.[51] Moreover, while the Court’s analytical approach may appear at first to serve as an escape for some prima-facie restrictions by object, its jurisprudence shows that the legal and economic context criterion has rather been used to justify the categorisation of certain agreements as object offences.[52]

Thus, some recent ECJ judgments[53] have been criticised for simply ‘recycling’ the jurisprudence (which is no longer reliable, on account of the unclear differentiation between object and effects restriction prior to the modernisation process), not providing any substance to the notion of restriction by object but limiting themselves to a laconic and general analysis, not giving sufficient attention to legitimate arguments raised by the defendants, and ultimately for creating legal uncertainty. Thus, in BIDSthe Court indeed refused to accept a contention, to the effect that the concept should be narrowly interpreted and that only “agreements as to horizontal price‑fixing, or to limit output or share markets, agreements whose anti-competitive effects are so obvious as not to require an economic analysis come within that category”[54]. However, arguably the analysis remained at a very theoretical level (a simple repetition of the principle that “each economic operator must determine independently the policy which it intends to adopt on the common market”), while a more profound analysis of the facts would have been easily achievable.[55]On the other hand, AG Trstenjak in this case undertakes an analysis of the effects of the agreement on the market conditions to conclude that it is by their object that they restrict competition, and ultimately expresses her doubts as to the usefulness of the categorisation of restrictions:

“The content of an agreement must always be examined against the background of its legal and economic context. (…)an approach whereby an agreement is compared with typical serious restrictions of competition is not always pertinent and may fail to address the question of when a restriction of competition by object exists. (…) Rather, from a legal point of view it is sufficient that they are subsumed under the general wording of Article [101](1).”[56]

It should be noted that indeed all the Court’s judgments in the last years concern object restrictions.[57]So does it really matter in the end? In fact the distinction has a crucial impact, since the presumption of illegality of certain practices within the meaning of Article 101(1) shifts the burden of proof to the undertaking for establishing the demanding conditions ofArticle 101(3) and to a great extent facilitates the finding of a violation for the Commission or the NCAs.[58]The objective consequence of which are certainly the severe sanctions of quasi criminal nature that often apply[59].

Coming back to the judgment at issue, these questions remain unanswered. The AGassesses in a rather abstract manner the capacity of the agreements to restrict competition, by comparing them to the already ‘black listed’ restrictions in the area of vertical agreements (namely resale price maintenance and absolute territorial protection) and to the approach towards other vertical restraints influencing the contractual freedom of the supplier (such as single branding and non-compete clauses). In the same manner, as regards the legal and economic context, the AG concludes that the particular aspects of the market are not sufficient to give rise to an object restriction but does not explain his precise reasons. This approach is more in line with the definition in the Commission Guidelines and may also be compared to the one of the General Court in European Night Services which insists on the limited role of economic analysis in the determination of an object restriction, reserved instead for the appraisal of Article 101(3).[60]

The Court, on the contrary, does engage in a discussion of the particular circumstances that may determine the existence of a restriction by object, relying on the specific link between two independent activities that may give rise to a conflict of interest concerns, but also on an analysis of the situation on the market. Such a thorough assessment appears to be more helpful to the national court. Also, engaging in a more in-depth analysis to demonstrate the capacity of an agreement to restrict competition by its very object indeed takes account of the complex and dynamic nature of the notion of restriction and allows for a much more flexible approach, without resorting to pre-defined categories and absolute presumptions of anti-competitive effects. However, it ultimately blurs the line between the two categories and undermines legal certainty by not clearly defining those types of restrictions for which the anti-competitive analysis could be ‘abridged’.

The outcome ofthe case may thus be far-reaching – if such an extensive analysis of the agreements’ context is required to prove their pernicious character, including aninvestigation into themarket structure, the alternative distribution channels, and the market power of the parties, how can they be by their very nature anti-competitive? More particularly, is it at all necessary and justified to regard the breach of a statutory obligation of independence as a factor giving rise to a per se restriction on competition?

One might go so far as to ask whether the reasoning of the Court does not amount to a new approach.[61] Indeed para. 36 of the judgment, which elaborates on the criteria to determine whether an agreement involves a restriction by object, is not supported by the jurisprudence. It refers to Expedia[62] and the case law cited there,inter aliapara. 49 of Asnef-Equifax[63]. This is what the comparison of the two paragraphs amounts to:

Allianz Hungária, para. 36:

“In order to determine whether an agreement involves a restriction of competition ‘by object’, regard must be had to thecontent of its provisions, its objectives and

 

–          the economic and legal context of which it forms a part (…).

When determining that context, it is also appropriate to take into consideration

–          the nature of the goods or services affected, as well as

–          the real conditions of the functioning and structure of the market or markets in question (…).”

(emphasis added)Asnef-Equifax, para. 49:

“(…) the appraisal of the effects of agreements or practices in the light of Article [101 TFEU] entails the need to take into consideration the actual context to which they belong, in particular

–          the economic and legal context in which the undertakings concerned operate,

–          the nature of the goods or services affected, as well as

–          the real conditions of the functioning and the structure of the market or markets in question (…).”

So where precisely is the borderline between an effects-led examination of the agreement’s object and the analysis of its effects?

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Линк към статията на български език: ОПРЕДЕЛЕНИЯТА ЗА KОМПЕТЕНТНОСТ „ПО ПРЕПРАЩАНЕ“ И ОГРАНИЧЕНИЕ НА КОНКУРЕНЦИЯТА „ПО СВОЯТА ЦЕЛ“: „ЕВРОПЕИЗАЦИЯТА“ НА КОНКУРЕНТНОТО ПРАВО ОЗНАЧАВА ЛИ ЯСНОТА ПРИ ТЪЛКУВАНЕТО МУ?

***

 

*Teaching Assistant at the College of Europe (Bruges), svetlana.chobanova@coleurope.eu.

[1]Opinion, para. 8.

[2]Joined cases C-297/88 and C-197/89 Dzodzi, para. 37.

[3] Opinion, para. 29.

[4]Ibid.

[5] Case C‑482/10 Cicala.

[6]Eight new Member States from Central and Eastern Europe acceded to the EU in 2004 and two more – Bulgaria and Romania – in 2007.

[7] Opinion, para. 46.

[8]Ibid., para. 63.

[9]Communication from the Commission – Guidelines on the application of Article 81(3) of the Treaty, OJ C 101 of 27.4.2004.

[10]According to Article 1(1)(a) of Regulation 330/2010 on the application of Article 101(3) TFEU to categories of vertical agreements and concerted practices (OJ L 102 of 23.4.2010): “‘vertical agreement’ means an agreement or concerted practice entered into between two or more undertakings each of which operates, for the purposes of the agreement or the concerted practice, at a different level of the production or distribution chain, and relating to the conditions under which the parties may purchase, sell or resell certain goods or services”.

[11] I.e. non-compete obligations shorter than one year and entered into by non-dominant undertakings (Commission Guidelines on Vertical Restraints (OJ C 130 of 19.05.2010), para. 133)and those shorter than five years, if the market shares of both parties to the agreement do not exceed 30% on the relevant markets (exempted under Regulation 330/2010).

[12]Guidelines on the application of Article 81(3), op.cit., para. 22.

[13]Opinion, para. 97.

[14]For the difference, see e.g. А. Корнезов, ПреюдициалнотозапитванедоСъдана ЕС, 2-о изд.Сиби, 2012, стр. 154

[15]SeeJudgment, para. 17-23.

[16]Judgment, para. 20.

[17]Ibid., para. 21.

[18]Ibid., para. 5. Interestingly, the Court cites a different translation than this provided in the facts, referring to “in applicationof” rather than to “in accordance with”.

[19]Ibid., para. 48.

[20]See e.g. AG Jacobs in case C-28/95 Leur-Bloem, AG Ruiz-Jarabo in case C-1/99 Kofisa Italia.

[21] Case C-346/93 Kleinwort Benson, paras. 20-23.

[22]Ibid., paras. 24.

[23]Case C-267/99 Adam. See Opinion of AG Tizziano, para. 27 et seq.

[24] Case C‑48/07 Les Vergers du Vieux Tauves (para. 25) : “It is true that, in the context of the present proceedings, the referring court does not explicitly state whether and to what extent the judgment of the Court would bind it with regard to the outcome of the main proceedings. However, the fact that that court has referred a question to the Court of Justice for a preliminary ruling and that it establishes, in that question, a connection between the national legislation and Directive 90/435 leads to the conclusion that that judgment will bind the national court.”

[25] Case C-28/95 Leur-Bloem, para. 33.

[26] E.g. case C-186/07 Club Náutico de Gran Canaria or case C-583/10Nolan: the first concerned the application of VAT provisions to the territory of the Canari Islands and the second – the application of a directive to an US army employee in the UK.

[27]In the words of AG Jacobs in Leur-Bloem (para. 61): “(…) it cannot be denied that the principle that the Court’s rulings are binding on national courts is fundamental in ensuring the uniform application of [EU] law. That the Court should accept that a national court is in practice free to ignore its rulings in certain categories of cases on grounds of the different context would seriously undermine that principle.”

[28]Ibid. (paras. 50-51): “(…) Moreover it is not easy to see how any legal rule can be interpreted out of its context (…) the Court has placed more emphasis on the need to give a ruling within the context of the factual situation of the case and has accordingly been more strict in demanding that national courts clearly specify the factual and legislative context in which a ruling is sought.”

[29] C. Ritter, “Purely internal situations, reverse discrimination, Guimont, Dzodzi and Article 234” (2006) 31 European Law Review 690.

[30] Case C-448/98 Guimont, para. 23.

[31] This same fear has been expressed by AG Tesauro in his Opinion to the case C-292/92, Hünermund.

[32]M. Broberg and N. Fenger, Preliminary References to the European Court of Justice (Oxford University Press, 2010) 146.

[33]Indeed in C-280/06 ETI only Title I of the Italian law on the protection of competition was to be interpreted in accordance with the principles of EU competition law and no obligation for the national courts to apply ECJ’s interpretation existed. The Court dismissed the argument by stating that there was no suggestion “in the wording of [the national law], the order for reference, or the other documents before the Court that the reference to [EU] law”was subject to any condition whatsoever (para. 25).

[34]T.Tridimas, “Knocking on Heaven’s Door: Fragmentation, Efficiency and Defiance in the Preliminary Reference Procedure”, (2003) 40(1)Common Market Law Review 36.

[35] Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1/1 from 4.1.2003.

[36]K. Cseres, “The Impact of Regulation 1/2003 in the New Member States”, (2010) 6(2) Competition Law Review161-162.

[37]SeeJudgment, para. 5.

[38]Cseres, 146.

[39]Opinion of AG Ruiz-JaraboColomer in case C-1/99 Kofisa Italia, para. 39.

[40] OECD Reviews of Regulatory Reform: Regulatory Reform in Hungary,“Governance” 2000, 179.

[41]Cseres, 175.

[42] Case C-56/65.

[43] Starting in 1997 with the “Commission Green Paper on Vertical Restraints in EC Competition Policy” where it acknowledged with regard to vertical agreements that: “Vertical restraints 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.”

[44] D. Waelbroeck and D. Slater, “The Scope of Object vs Effect under Article 101 TFEU”, in: J. Bourgeois and D. Waelbroeck (eds.) Ten Years of Effects Based Approach in EU Competition Law: State of Play and Perspectives (Bruylant, 2013) 135.

[45]D. Gerard, “The Effects-Based Approach under Article 101 TFEU and Its Paradoxes: Modernisation at War with Itself?”, in: J. Bourgeois and D. Waelbroeck (eds.) Ten Years of Effects Based Approach in EU Competition Law: State of Play and Perspectives (Bruylant, 2013) 23. In Société Technique Minière for instance a number of factors needed to be taken into consideration for the purposes of determining both the object and effects of an agreement: “(…) in order to decide whether an agreement containing a clause ‘granting an exclusive right of sale’ is to be considered as prohibited by reason of its object or of its effect, it is appropriate to take into account in particular the nature and quantity, limited or otherwise, of the products covered by the agreement, the position and importance of the grantor and the concessionnaire on the market for the products concerned, the isolated nature of the disputed agreement or, alternatively, its position in a series of agreements, the severity of the clauses intended to protect the exclusive dealership or, alternatively, the opportunities allowed for other commercial competitors in the same products by way of parallel re-exportation and importation.”

[46]Guidelines on the application of Article 81(3), op.cit., para. 21.

[47]S. King, “The Object Box: Law, Policy or Myth?” (2011) 7(2) European Competition Journal.

[48]SeeOpinion,paras. 74-81.

[49]SeeJudgment,paras. 46-48.

[50]Waelbroeck and Slater 144-146.

[51]See e.g. B. E. Hawk, “System Failure: Vertical Restraints and EC Competition Law” (1995) 32 Common Market Law Review 973.

[52]Jones and Sufrin 211.

[53] C-501, etc./06 P GlaxoSmothCline, C-8/08 T-Mobile, C-209/07 BIDS, C-439/09 Pierre Fabre.

[54] Case C-209/07 BIDS, paras. 22-23.

[55]Gerard37.

[56]Opinion of AG Trstenjak inBIDS, para. 104.

[57] Gerard 38. The same appears to be true for the Commission decisions, most of which are framed in object terms.

[58]A. Jones and B. Sufrin, EU Competition Law: Text, Cases and Materials, fourth edition (Oxford University Press, 2011) 202.

[59]As confirmed by the recent judgment of the European Court of Human Rights Menarini Diagnostics v. Italy, ECHR, 27.09.2011 (para. 42): « A la lumière de ce qui précède et compte tenu du montant élevé de l’amende infligée, la Cour estime que la sanction relève, par sa sévérité, de la matière pénale. »

[60] Joined cases T-374/94, T-375/94, T-384/94 and T-388/94 (para 136): “(…) account should be taken of the actual conditions in which [the agreement] functions, in particular the economic context in which the undertakings operate, the products or services covered by the agreement and the actual structure of the market concerned (…), unless it is an agreement containing obvious restrictions of competition such as price-fixing, market-sharing or the control of outlets (…). In the latter case, such restrictions may be weighed against their claimed pro-competitive effects only in the context of Article [101](3) of the Treaty, with a view to granting an exemption from the prohibition in Article [101](1).” (emphasis added)

[61]Seehttp://competitionlawblog.blogspot.be/2013/03/how-to-decide-when-agreement-has-object.html

[62]CaseC-266/11.

[63]CaseC-238/05.