Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

On the application of competition law to State measures and on the apparent inapplicability of Art. 101(3). (ECJ’s Judgment in Joined Cases C‑184/13 to C‑187/13, C‑194/13, C‑195/13 and C‑208/13)

with 6 comments

Over the weekend I was able to catch up with some readings (notably on two-sided markets in anticipation of this conference), but also on recent case-law that I hadn’t yet had the chance to read. Thanks to this exercise I was able to become aware, among other things, of the content of an ECJ Judgment of 4 September 2014 on which I have read no comment whatsoever. This may be understandable because the case only deals with interesting legal issues, and not with high-stakes matters where the law is seemingly absent, which are lately the only ones grabbing commentators’ attention…

The Judgment at issue – Anonima Petroli Italiana (“API”)– is a preliminary ruling responding to questions posed by an Italian Court in relation to an Italian law pursuant to which the price of road haulage services for hire and reward cannot be lower than minimum operating costs, which are in turn fixed by a body composed mainly of representatives of the economic operators concerned.

The Italian Court asked, in essence, whether any such legislation was compatible with Article 101 read in conjunction with Article 4(3) TEU as well as with the Treaty provisions on free movement of services.

As some of you may recall, the possibility of applying Article 101 to State behavior  pursuant to its joint application with other Treaty rules was born in Inno Attab in 1977 [btw, I just found this little jewel commenting on the earlier case law on the subject]. The reasoning used back then by the Court was that Art. 4(3) TEU (at the time 10 TCE) prohibited Member States from depriving Treaty rules of their effet utile; given that former Article 3.g) (deleted from the Lisbon Treaty at the behest of Mr. Sarkozy; remember?) established undistorted competition as one of the goals of the EU, it was held that Member States could not adopt measures depriving competition rules of their effect utile. This doctrine was considered potentially huge at the time, but never lived up to its promise due in part to the restrictive interpretation endorsed by the Court in the November Revolution of 1993 in the Reiff, Ohra and Meng cases), according to which a State measure could not by itself run counter the Treaty rules in the absence of a certain behavior on the part of the undertakings (unlike, by the way, what happens with Art. 106 as recently re-stated in the Greek Lignite case).

The ECJ’s recent Judgment concludes that by delegating the power to fix minimum tariffs on a committee composed of a majority of representatives of the economic operators who are not bound to observe public interest criteria in their (non-reviewable) decisions, the legislation at issue runs counter the effet utile of Article 101 by preventing undertakings from setting lower tariffs (the Court doesn’t however clarify whether the restriction is “by object” or “by effect”).

My 3 comments:

  • The Judgment shows that this doctrine is well alive, even if it isn’t kicking, and this regardless of the elimination of former Article 3.g). A lot could be done with this doctrine if competition authorities took it seriously. But instead of using the well-developed tools at their disposal (like this one or like Art. 106), competition authorities are busy stretching the interpretation of others (like the one of selectivity in State aid, as seen in the recent openings of proceedings in relation to tax rulings).
  • Regarding possible justifications, that the ECJ seems to apply the “objective justification” test developed in Wouters, Meca Medina, etc. very naturally and not as anything exceptional, very particularly when it deals with conduct adopted by regulatory or quasi regulatory authorities (albeit not only in those cases, as shown by Pierre Fabre). Some of you may legitimately observe that this fits oddly with the Judgment in Irish Beef, where the ECJ held that “[i]t is only in connection with Article [101(3)] that [other legitimate interests] may, if appropriate, be taken into consideration for the purposes of obtaining an exemption from the prohibition laid down in Article[101(1)]”.
  • Quite strikingly, the ECJ does not include a single mention to Article 101(3) (and this despite the fact that the questions referred to it cited Article 101 in its entirety and not to 101(1) alone). It basically states that since the measure falls within 101(1) TFEU then Article 101 prohibits it. In my view, under normal circumstances, and in proper application of the Court’s case law, the Court should have said that it was up to national Courts to assess whether the conduct at issue could benefit from Article 101(3), the assessment of which is mandatory. This error bypassing of Article 101(3), not only at the practical but also at the theoretical level (and on the part of the only institution that took it seriously in the wake of Regulation 1), further confirms the point I made some time ago (and have subsequently cited many times) about the slow death of this provision.

Written by Alfonso Lamadrid

27 October 2014 at 6:48 pm

Posted in Uncategorized

6 Responses

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  1. Good point on the removal of Art 3(g).
    I looked at the case in a slightly different light …
    http://eutopialaw.com/2014/10/21/the-price-is-not-right-italian-troubles-with-road-haulage-and-tobacco-pricing/

    Angus MacCulloch

    28 October 2014 at 10:38 am

  2. Many thanks, Angus; the comparison with the other cases you mention is very interesting.

    I agree with your summary of the case except for the last part, in which you write the following:

    “the Court turned to its potential for justification under Art 101(3). It rejected application of the Art 101(3) exception on the basis that while road safety may be a legitimate objective the fixing of costs was not ‘appropriate, either directly or indirectly, for ensuring that the objective is attained’. The measures also went beyond what was necessary as they did not allow carriers to prove that, although they charged lower prices, they fully complied with safety provisions. The fixing of minimum costs could therefore not be justified”

    My main comment regarding this Judgment is that the Court (very surprisingly and also wrongly) didn’t even bother to mention the possible applicability of Article 101(3) (the provision is in fact not quoted at all in the Judgment). The justification analysis you’re referring to is in fact aimed at assessing only whether the measure at issue falls within the scope of Art. 101(1) (as acknowledged by the Court in para 46 of the Judgment).

    Admittedly Art. 101(3) would hardly have been able to exempt the measures at issue from the prohibition (as nowadays seems to be always the case when a BER doesn’t apply…) but Art. 101 is a provision that shall be applied as a whole, there being abundant case law on the obligation to consider Art. 101(3) in all circumstances, also with regard to restrictions by object.

    The fact that the ECJ itself does not do this is, in my humble opinion, a very significant conceptual mistake (or more likely reveals an issue of quality control…).

    Alfonso Lamadrid

    28 October 2014 at 10:55 am

  3. Thanks for bringing this case up, just a few thoughts:

    First, on the question of justification it has never been clear how far one could apply Article 101(3) in cases where one is condemning the state for facilitating an anti-competitive agreement. Under Regulation 17 the difficulty arose because the notification/exemption provisions did not appear to apply to States. Then Wouters came along and created a defence that allowed one to bypass the procedural bifurcation and we have been stuck with two defences since, at least on the books.

    Second, there is an additional defence in these kinds of cases that we don’t find in other Article 101 cases applicable to undertakings: a procedural public interest defence (see paras 33 to 35): if one delegates the decisions to a body that takes the public interest into account, then there is no infringement. In this case the procedural safeguards were lacking, as you noted. why have a special defence for state action?

    The provision imposing liability on the basis of Art 4(3) and Arts 101 or 102 is under-used even by National Competition Authorities, thsi was noted in the Commission’s Regulation 1 report issued in July 2014. Ostensibly these cases could also be challenged under the internal market rules (they were here but the Court decided not to address those arguments), so one wonders whether one still needs the Article 4(3) + 101 doctrine now that the scope of the internal market rules is wider.

    All issues that suggest that the Court’s decision to rule without an Opinion by the Advocate General is a missed opportunity to clarify this area of law, or to bury it.

    If anyone wants further reading, see chapter 25, free on line pages 3-8 at this link:

    http://www.cambridge.org/gb/academic/subjects/law/european-law/european-union-law-text-and-materials-3rd-edition

    giorgiomonti

    28 October 2014 at 4:08 pm

    • Just a few thoughts as well.
      I wonder if a case where the ECJ considers that, very clearly, none of the conceivable “defences“ applied can be a “missed opportunity“. If the ECJ had questioned the case law as it is, instead of examining whether that case law applied in this case (it did not apply), it would have been deciding a different case. The ECJ will normally overrule its case law in a situation where the conditions of application for such perceived “bad” case law would be met. This was not the case.
      On the proposal to “clarify” or “bury” case law, it is not clear what such “burial” would imply, and what we would have in the alternative.
      Why a “procedural public interest defence”? Well, it is not really a defence, but rather a delimitation of the scope of competition rules. For an explanation of “why” the best thing is to read Elhauge, “The Scope of Antitrust Process,” 104 Harvard Law Review 668 (1991). This case may have been decided without AG’s Opinion, but the issue has been thoroughly examined by several AGs before. For example, AG Leger in Wouters showed some concern about the reality of state control over private conduct at issue (concern that I largely share). By the way, if there is no AG Opinion in this case is because the AG considered that it was not necessary, i.e. he probably agreed with the outcome. So I am not sure that having his written opinion would have taken us any further.
      This “defence” is not found in other cases simply because in those other cases the State has not set up the procedure in question. This procedure tends to exist in the context of professional associations (and will be rare outside it) because historically the state has tended to grant them certain regulatory functions. Even if the application in some borderline cases may have been a bit “naive” on the side of the ECJ (the ex post control may have been just “too light” in certain cases, and the procedural guarantees may exist only on paper), the principled position is clear. One may disagree with it, and certainly wonder if it has been well applied in some judgments or can be refined, but that’s another matter.
      What about applying article 101(3) to measures which are “facilitated”? Well, I see no real obstacle or lack of clarity here. If judgments say nothing it is probably because it was never argued by the undertaking concerned. The ECJ is a bit in a hurry and will not reply to arguments which are not made. Quite obviously the national judge can examine it, if raised by the parties. Regulation 17 was certainly no obstacle since an “anti-competitive agreement” which is simply “facilitated” can still be notified by the undertakings which conclude the agreement in question. To the extent that the measure in question does not fall into article 101(1) for a different reason (for the “Wouters’ defence” – which does not imply that the measure is a state measure- or for being a state measure), quite obviously the application of article 101(3) does not even arise, under Regulation 17 or any other conceivable regulation that the Council may one day adopt under competition rules.
      As to the “Wouters defence” linked to “legitimate objectives”, it is certainly “judge made” and the rationale may be subject to some controversy (one can say that it is there to ensure the pursuance of certain non-economic objectives which are not covered by article 101(3), and yes, Alfonso, Irish Beef forgot that line of case law, which does not mean that it does not exist), but it is also true that instances of application of such “defence” are few and far between. Of course, this does not mean that we should not try to find a suitable legal basis and rationale for it.
      Yes Alfonso, Pierre Fabre does mention something similar, but refers back to AEG or Metro, not to Wouters. If article 101(3) died and AEG or Metro are the example, it died decades ago. I am sure it is now in heaven, not tortured by judges and creative practitioners and academics. The question is whether the sort of “public interest” defence in Wouters belongs to the same conceptual category as AEG/Metro. I don’t know.
      As to the call for the application of internal market rules, I entirely agree, and several recent cases have also dealt with this type of measures under such rules. However, the fact that internal market rules are “wider” does not appear to be a reason to “clarify” or “bury” the case law on 4(3)+101. Internal market rules apply precisely when there is a state measure, so 4(3)+101 continues to apply in cases where the public authority facilitates/encourages/reinforces anticompetitive agreements (and the undertakings concerned continue to be liable for their own conduct under art 101). There can be some overlapping (measures of associations which can be, despite being private in nature, captured by internal market rules in certain cases (since Walrave, and later Bosman or Angonese); or an encoragement by the state could also be seen as a state measure covered by internal market rules, even if the private conduct is still covered by competition rules). Both sets of rules can live side by side in perfect coexistence, each one having its own “main” field of application, with some degree of limited overlapping that allows some discretion on how to approach certain cases. In any event, dealing with such measures under internal market rules will not avoid the application of a “Wouters’ defence”, since Member States may justify such measures for overriding reasons. Dealing with encouragement/facilitation/reinforcement under 101+4(3) still makes sense since dealing with it under internal market rules could raise issues of consistency, since the possible justifications can be different and lead to diferent outcomes: if Wouters’ defence was not apply to the private conduct, one could find that the state measure encouraging a conduct can be justified for “overriding reasons” under internal market rules, but that the private conduct that is encouraged would be against 101, as it cannot rely on the same legitimate reasons.
      All this to say that judges and AGs have thought about this before for the last two decades, and that it seems to me that the case law is the result of reflection, not coincidence or intellectual laziness. And since everybody appears to be suggesting readings, here you have one by a friend of mine ‘State Action Defence in EC Competition Law’ (2005) 28 World Competition, Issue 4, pp. 407–431

      Joan

      11 November 2014 at 8:44 am

  4. Besides the very interesting points all of you have raised, I would add that the case which resulted in the TAR Lazio’s request for preliminary ruling, is actually the first of its kind where the Italian Competition Authority enforced its new power under the Italian Competition Act to challenge before the TAR Lazio general administrative acts, regulations or decisions by any public or local administration (including companies acting as public concessionaries), if such acts are deemed to be contrary to competition law principles.

    Gabriele

    28 October 2014 at 4:56 pm

  5. Here’s another literature reference that follows up on the absence of an A-G opinion and the possible connection with judicial mishaps. It’s obviously not a competition case, although competitiveness concerns were relevant. In Salzburger Flughafen (Case C-244/12) the Court appears to have overturned/widened its previous caselaw on the prohibition of inverse vertical direct effect of directives to the effect that one branch of the government can rely on the EIA Directive against a private party (the airport of Salzburg in this case) to correct an earlier implementation deficit. Perhaps a learned opinion would have helped the Court to spot the misreading of its own caselaw by the Austrian government and the airport.
    Following up on Alfonso’s comments: I really like and appreciate the discussions here, but the fact that we have such discussions at times worries me. Sure, the Court is not in the business of writing textbooks, but a bit more clarity and consistency would be welcome. For the interested: the case note appeared in RECIEL available at: http://onlinelibrary.wiley.com/doi/10.1111/reel.12063/abstract

    Hans

    14 November 2014 at 2:15 pm


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