Chillin'Competition

It has taken us more than usual to discuss AG Saugmandsgaard Øe’s Opinion in Case C-179/16, which is the most recent Hoffmann-La Roche in town (and we had very good reasons to do so, as you will see below!). But here we are.

Above all, the Opinion is valuable due to the approach that the Advocate General follows to identify restrictions by object. Not because it introduces any innovations – he just follows the case law – but because of how clean the analysis is.

The dispute at stake in the case is useful to illustrate the way in which the Court goes about the divide between restrictions by object and effect. An excellent candidate for classroom discussions.

The venerable Consiglio di Stato referred five questions to the ECJ. The most interesting one concerned the lawfulness of a concerted practice aimed at emphasising that a medicinal product is ‘less safe or less efficacious’ than another one. According to the Italian competition authority, this concerted practice sought to artificially differentiate between two medicinal products and thus share markets.

The referring court mentions a valuable aspect pertaining to the ‘scientific context’ of the practice: the Consiglio di Stato adds that, at the time, there was no reliable scientific evidence either to support or refute the claim about the relative safety and efficacy of the product.

Is a concerted practice (or agreement) of this kind caught by Article 101(1) TFEU insofar as its object is to share markets?

How to identify restrictions by object: AG Saugmandsgaard Øe gives a concise and elegant answer

Commentators struggle to define the criteria to draw the line between restrictions by object and effect. The Opinion shows that the task should not be difficult.

AG Saugmandsgaard Øe’s approach captures the essence of the case law in a concise and elegant way. As he explains in para 148 of the Opinion, understanding the object of an agreement is all about making sense of its ‘economic function’, that is, of its objective rationale.

When making sense of the economic function of an agreement or concerted practice, it is useful to examine whether the conduct is a plausible means to achieve a pro-competitive objective. This is something that Alfonso and I emphasised in a piece we published last year, and to which the Advocate General refers in the Opinion (at footnote 96).

When there is a plausible pro-competitive explanation for the practice, the agreement or concerted practice is not restrictive by object. This is a point that has been confirmed very many times by the Court (Cartes Bancaires is just a recent and particularly obvious example). In any event, it is useful that the Advocate General engages with this question explicitly (as many judgments address it only implicitly).

The application of the framework to the facts at hand

How does the Advocate General apply the principles of the case law to the facts at hand? The question of whether the concerted practice restricts competition depends, in his view, on whether the information provided by the parties to the concerted practice is misleading.

• The concerted practice would be restrictive by object if the information about the efficacy and safety of the medicinal product is misleading.
• If the information turns out not to be misleading, the concerted practice would not be restrictive of competition (that is, it would fall outside the scope of Article 101(1) TFEU).

The Opinion makes a lot of sense to me. I fail to see how providing misleading information about a product can serve a pro-competitive rationale. This practice can only be plausibly explained as an attempt to reduce demand for one product (that is, as an attempt to restrict competition). The ‘by object’ label is thus entirely justified. This practice would be similar to the exchanges of information at stake in T-Mobile and Bananas.

Where the parties convey information that is not misleading, on the other hand, it makes sense to leave the concerted practice outside the scope of Article 101(1) TFEU. As the Advocate General points out in para 181, such a concerted practice would improve, rather than restrict, the conditions of competition prevailing on the relevant market. If that is so, it would be a plausible means to achieve a pro-competitive objective. In this sense, the practice would be similar to the exchange of information at stake in Asnef-Equifax, which was also found to escape the prohibition.

Lessons from the Opinion: effects-based approach and ‘object box’

Three ideas came to mind when reading the Opinion:

• The Court’s approach to the identification of ‘by object’ infringements is, and has always been, very ‘effects-based’.
• Human ingenuity is much larger than the ‘object box’ will ever be.
• The ‘effects-based’ approach is compatible with the ‘by object’ treatment of some practices

The concerted practice at stake in this case did not fall within any of the categories that are traditionally associated with ‘by object’ infringements (price-fixing, market sharing and so on).

Does this fact exclude the qualification of the agreement as restrictive by object? Of course not. As rightly explained in the Opinion – at para 150 – the form of a practice has never been enough to decide whether an agreement amounts to a ‘by object’ infringement.

The Court, by emphasising the need to consider the nature of the agreement, its content, and the economic and legal context of which it is part, has always placed substance above form (Allianz Hungaria, among many others, comes to mind). In other words, the Court has always rejected the ‘form-based’ approach to the analysis of ‘by object’ infringements.

I tell myself that ‘effects-based’ approach is perhaps a misnomer. I would rather call it the ‘substance-over-form’ approach.

An important consequence of the approach followed by the Court: the famous ‘object box’ is both over-inclusive and under-inclusive.

The ‘object box’ is over-inclusive in the sense that even price-fixing or market sharing can, in a given economic and legal context, fall outside the scope of Article 101(1) TFEU (e.g. Tournier and Ideal Standard). The Court has consistently held, since Societe Technique Miniere, that a restriction of competition cannot be established in the abstract (i.e. it has never ever been enough to cry ‘price fixing’).

The ‘object box’ is under-inclusive in the sense that ‘by object’ infringements can take many new forms – never underestimate the ingenuity of companies that are determined to restrict competition! F Hoffmann La Roche v AGCM is a wonderful example in this regard.

Against this background the question is: should we keep expanding the ‘object box’ with every new case that does not fit within existing categories or should we throw the box away as an imperfect and potentially misleading proxy? Discuss.

Finally: for some people, the ‘effects-based’ (‘substance-over-form’, I mean) approach means the demise of ‘by object’ infringements. I cannot disagree more.

The ‘substance-over-form’ approach is certainly compatible with the ‘by object’ treatment of some practices. If it turns out that an agreement serves no pro-competitive objective, there is no point in requiring anticompetitive effects. I would say more: requiring evidence of anticompetitive effects in such a case would make no sense.