Chillin'Competition

In its proposed Vertical Guidelines, the Commission’s interpretation of the concept of a “hardcore restriction” at §43 seems somewhat at odds with (i) the letter and spirit of Article 81 EC and (ii) traditional case-law:

“Including such a hardcore restriction in an agreement gives rise to the presumption that the agreement falls within Article 81(1). It also gives rise to the presumption that the agreement is unlikely to fulfil the conditions of Article 81(3), for which reason the block exemption does not apply. However, this is a rebuttable presumption which leaves open the possibility for undertakings to plead an efficiency defence under Article 81(3) EC in an individual case. In case the undertakings substantiate that likely efficiencies result from including the hardcore restriction in the agreement and that in general all the conditions of Article 81(3) are fulfilled, this will require the Commission to effectively assess – and not just presume – the likely negative effects on competition before making the ultimate assessment of whether the conditions of Article 81(3) are fulfilled“.

Four points here.

First, in essence, firms are now deemed guilty before being proven innocent. Whilst this may be ok in so far as clearcut hardcore restrictions are at stake (e.g., market sharing), the case-law shows – and the vertical guidelines contain – many examples of non-direct, hardcore, restrictions, which can only (or not) be deemed to be hardcore so following a careful, first, assessment under Article 81(1) EC: dual pricing, rebates conditioned on observance of recommended price, etc. Now, here’s my question: how can one  reconcile the need for such a preliminary assessment under Article 81(1) EC, with the Commission’s assertion that Article 81(3) EC comes first?

Second, under the applicable 81(3) EC principles, efficiencies must be quantified and meet many other drastic conditions. This, in practice, implies that under the current standards, no firm can seriously  articulate an efficiency defense, so that the principle that you can save hardcore restrictions will, de facto, remain dead letter. See here for more on this.

Third, saying that the appraisal process under Article 81 EC is binary (Article 81(3) EC for defendant, then Article 81(1) for Commission) is overly simplistic. As a matter of principle, there are at least five steps: (1) Commission proves 81(1) EC; (2) Defendent challenges 81(1) EC; (3) Commission meets objections and proves 81(1) EC; (4) Defendent proves 81(3) EC; (5) Commission dismisses/accepts the 81(3) EC defense. The Guidelines recognize this… in a footnote: “What is described here as two distinct legal steps may in practice be an iterative process where the parties and authority in several steps enhance and improve their respective arguments”. As nicely coined by A. Font Galarza at Wednesday’s conference, does the method whereby important principles are relegated to footnotes meet the EC standards of “Better Regulation”?

Fourth, is this also true from a self-assessment perspective (the Commission’s perspective here is about administative proceedings), that firms must go first through the lengthy, cumbersome, Article 81(3) EC assessment?

Will come back with more on another intriguing issue: buyer-related vertical restraints.

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