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Archive for May 13th, 2019

Persistent myths in competition law (I): ‘the pro-competitive aspects of an agreement can only be considered under Article 101(3) TFEU’

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EU competition law keeps busy a growing number of officials, practitioners and academics. It is fascinating that, with so many professional lives devoted to it, with so many specialised conferences and journals, there are still many myths that refuse to die. Some received ideas are incredibly powerful. They keep being repeated as uncontroversial truths even when they are patently at odds with the case law.

I thought it would be a good idea to do something more than simply express my fascination: identify what these myths are and explain why they are unfounded.

The idea of writing a series of posts on myths in EU competition law came when I thought about the statement you find in the title. To this day, some people remain convinced that the pro-competitive aspects of agreements can only be evaluated under Article 101(3) TFEU. It is perhaps the most popular myth around.

According to this view, claims about the ways in which the agreement could create (or improve the conditions of) competition would have no role to play under Article 101(1) TFEU.

This mantra may be very popular. For better or worse, it is unambiguously contradicted by a consistent line of case law.

The pro-competitive aspects of an agreement play, and have always played, a central role under Article 101(1) TFEU

The abovementioned line of case law dates back to the very early days. In Societe Technique Miniere, the Court already ruled that an agreement that is ‘really necessary’ for a supplier to enter a new market is not restrictive of competition, whether by object or effect.

Another one of my favourite examples is Asnef-Equifax. You will remember that the case was about an information exchange system available to credit providers. The point of the system was to allow the said providers to figure out the likelihood of repayment by potential borrowers.

The Court concluded that the system was not restrictive by object. As part of the reasoning, it noted that information exchange mechanisms of that kind ‘are in principle capable of improving the functioning of the supply of credit’ (para 55) and ‘of increasing the mobility of consumers of credit’ (para 56). I do not believe the reasoning can get much more explicit than this.

A similar example (and another all-time favourite) is Gottrup-Klim. A group of competitors decide to buy an input in common. Cartel arrangement? Could be (buyers’ cartels do exist and are sanctioned as such), but not in the specific circumstances of this case. The joint purchasing agreement at stake in Gottrup-Klim was different from a cartel and thus not restrictive by object. Crucially, the Court noted, in this regard, that the agreement in question may ‘make way for more effective competition’ (para 32).

I could go on for a while, but it makes sense that I mention two relatively more recent cases.

Pierre Fabre is arguably as explicit at Asnef-Equifax. The Court held that clauses in an agreement that would otherwise be restrictive by object fall outside Article 101(1) TFEU if there is an ‘objective justification’ for them (para 39 of Pierre Fabre).

How do we figure out if an agreement is objectively justified within the meaning of Pierre Fabre? By ascertaining (para 40) whether the agreement in question aims at the ‘attainment of a legitimate goal capable of improving competition’ (in other words: by identifying its pro-competitive aspects).

Our last station in this overview has to be Cartes Bancaires. Just remember (para 74) that the crucial factor to rule out the ‘by object’ characterisation was the fact that the Court accepted that the contentious clauses could be understood as a means to tackle free-riding issues.

If the pro-competitive aspects of the agreement count under Article 101(1) TFEU, what is the role of Article 101(3) TFEU?

The above examples make it sufficiently clear that the pro-competitive aspect of an agreement are not only relevant, but crucial under Article 101(1) TFEU – and have always been. If there is anyone disputing this conclusion in spite of the examples given, please leave us a comment. I would really love to know your thoughts.

I believe I understand why the myth is so persistent in spite of the overwhelming evidence to the contrary. Article 101(3) TFEU is the forum in which the pro-competitive aspects of an agreement are balanced against its anticompetitive aspects. Would Article 101(3) TFEU not be completely devoid of purpose if the former were also considered in the first paragraph of the provision?

To which my answer is: no. And this, for two reasons.

First, the exercise conducted under, respectively, the first and the third paragraphs of Article 101 TFEU, is different. For the same reasons, the pro-competitive aspects of the agreement are considered for very different purposes too under each paragraph.

In the context of Article 101(1) TFEU, the pro-competitive aspects of an agreement are indispensable to figure out its object. Put differently: it is simply impossible to evaluate the objective purpose of an agreement (i.e. what it can objectively achieve, irrespective of the subjective intent of the parties) without considering whether it is a plausible source of pro-competitive gains.

This is something that the Court understood from the outset, and that has emerged as a pillar of the case law.

Second, the intensity of the analysis is very different under the first and the third paragraph. The pro-competitive aspects of an agreement are considered in two stages.

Asnef-Equifax, Pierre Fabre and Cartes Bancaires (as well as others like Delimitis or Pronuptia) all tell you that the analysis of the pro-competitive aspects of an agreement is relatively superficial under the first paragraph.

Under Article 101(1) TFEU, the question is whether the agreement is a plausible source of pro-competitive gains. A cursory analysis suffices, and no quantification is needed. The General Court in MasterCard (2012 judgment) made a similar point (para 80).

The analysis is much deeper under Article 101(3) TFEU (once the burden of proof shifts). Then, it is for the parties to show that it is likely that the pro-competitive gains generated by the agreement will weigh more than the anticompetitive effects resulting from it.

As can be seen, there is a role for the two paragraphs: they fulfil a different role and the intensity of the analysis is also very different.

If you ask me: the case law makes a lot of sense.

It makes sense for the the Court to say (as it does): if the agreement is a plausible source of pro-competitive gains, then it can only be prohibited if the authority or claimant establish that it is likely to have appreciable effects on competition. And it makes sense to engage in a full-blown balancing of the pro- and anticompetitive once the latter are shown.

It is also sensible that the burden of proof shifts when the agreement is not a plausible source of pro-competitive gains. Want to claim that a cartel is on balance pro-competitive? Well, experience and economic analysis tell us that such a claim is implausible, but the possibility of claiming the implausible exists under Article 101(3) TFEU. Just think of BIDS, another key judgment where this point is made.

Written by Pablo Ibanez Colomo

13 May 2019 at 2:25 pm

Posted in Uncategorized