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Archive for September 5th, 2019

AG Bobek in Case C-228/18, Budapest Bank (or the art of consolidating and clarifying the case law on restrictions by object)

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Budapest Bank

AG Bobek’s Opinion in Case C-228/18, Budapest Bank has just come out (see here). It is interesting, first and foremost, because of the clarifications it brings to the notion of restriction of competition by object.

The Opinion will be widely discussed for three reasons.

First, it provides a clear, lucid and comprehensive overview of the existing case law. It discusses every major aspect relating to the notion, and does so in an orderly (and occasionally outright funny) way that is easy to follow. It is a gift for the classroom, as I told a colleague right after reading it. Alfonso and I tried our best in an article that is cited by AG Bobek (see here), but I will from now on choose the Opinion over my own work for my students.

Second, the Opinion provides fundamental clarifications on the practical application of the notion (what needs to be considered in the analysis and what the parties need to show).

Third, the Opinion suggests that the case law will prove resilient. The principles to evaluate the object of agreements have been clear for a long time. This orthodoxy has been questioned in recent years: there are persistent myths about the notion (see here, here and here). So far, however, the Court has not departed from its consistent case law. It is less likely to do so after the Opinion and the structure and lucidity it brings.

The case is yet another one concerning credit cards, and more precisely multilateral exchange fees. The single most interesting aspect of the case is that the banks involved introduced a uniform fee for the two main credit card systems (Visa and MasterCard).

The orthodoxy consolidated

AG Bobek’s Opinion consolidates the case law in the two senses of the verb. Thus, (i) it discusses the disparate aspects of the notion in a single text that brings all the pieces together and, by doing so, (ii) it makes it stronger.

The Opinion addresses, one by one, the main principles:

First, AG Bobek explains that a restriction by object can never be established in the abstract (paras 45-48). This is something that we have regularly emphasised on the blog. Figuring out the object of an agreement is a case-specific inquiry that needs to consider the economic and legal context of which it is a part.

Very sensibly, the Opinion infers a two-step test from the case law (paras 41-43). The first step would be an evaluation of the content and nature of the agreement. The second step focuses on the relevant economic and legal context.

The second step takes account of, and is modulated by, the experience accumulated over the years (which may in turn be informed by economic analysis). A hard-core cartel that reaches an authority via a leniency application does not require the same degree of analysis as other practices.

Second, AG Bobek clarifies a major point: evaluating the economic and legal context of an agreement to establish its object is not the same as analysing its effects (paras 49-51). Identifying the object of an agreement is a different exercise. It is true that the same elements may be relevant at both the object and the effect stages. There is not, however, an overlap between them. The said elements fulfil a different purpose at each stage.

The conclusion that an agreement restricts competition by object follows, always and everywhere, the analysis of the nature and context of the agreement, not the other way around. Object restrictions are not abstract categories (indeed, treating them as categories in the first place is misleading, as I sought to explain here).

The evaluation of the relevant factors in the Opinion is exemplary (see in particular paras 63-73). First, AG Bobek considers the nature and content of the agreements at stake in the case and examines what the experience acquired over the years, and economic analysis, says about them.

Reasonably, AG Bobek comes to the conclusion that there is not enough experience (and, importantly, very little economic analysis) supporting the suggestion that an in-depth evaluation of the economic and legal context is not necessary.

Third, the evaluation of the object of the agreement is about establishing its objective purpose or economic rationale (paras 74-82). There is much confusion about this point, and it is important that AG Bobek clarifies that the question is less esoteric than it may seem: it is all about trying to understand what the agreeement is about (that is, what its economic rationale is).

In addition to providing several case law-based illustrations of this point, the Opinion hints at the crucial aspect of the inquiry: where an agreement is capable of having ambivalent effects on competition (where it is capable of producing positive and negative effects on competition), it is not restrictive by object (to use AG Bobek’s exact expression in para 81: any time an agreement appears to have ambivalent effects on the market, an effects analysis is required).

If this point is understood, everything else follows (thankfully for the general interest, the argument is presented very clearly in the Opinion; to further clarify the point, AG Bobek includes an intriguing metaphor involving a fish and a lily).

Fourth, and this is a related point, the pro-competitive aspects of an agreement are of course relevant to make sense of the object of an agreement (para 81). The moment the Court concludes in its analysis that an agreement is capable of generating pro-competitive gains (and thus ambivalent effects), it is not restrictive by object.

In that regard, AG Bobek explains that it is incorrect to claim that the pro-competitive aspects of an agreement are only relevant under Article 101(3) TFEU (I explained the issue and discussed the extensive case law at length here).

The orthodoxy clarified

The Opinion is particularly valuable in that it sheds light on the practical operation of the analysis of restrictions under Article 101(1) TFEU.

If one reads the case law (I particularly recommend, Delimitis, Asnef-Equifax and Cartes Bancaires) one realises that the analysis of whether the agreement is capable of generating pro-competitive gains is relatively brief or ‘abstract’ (to use the GC’s expression in MasterCard).

The threshold is low, one of plausibility (para 82). Put differently: once the Court is persuaded that the agreement is at least a plausible source of pro-competitive gains, it concludes that it is not restrictive by object. The pro-competitive gains need to be quantified at a later stage (under Article 101(3) TFEU, once anticompetitive effects are established).

By the same token, it is open to the parties in competition law proceedings to put forward evidence, supported by experience and/or economic analysis, suggesting that there is a plausible pro-competitive rationale for the practice.

This is, indeed, the analysis undertaken by the Court in Cartes Bancaires. You will remember (paras 74-75 of Cartes Bancaires) that the Court concluded that the contentious clauses in that case were a plausible mechanism to address free-riding. Once it reached this conclusion, the finding that the agreement did not have, as its object, the restriction of competition was inevitable.

Other aspects

There are other many interesting aspects about the Opinion. I will just mention a couple of them. The first is straightforward if one pays careful attention to the case law, but I do not believe it had been spelled out so clearly by an Advocate General before.

The need to consider the economic and legal context applies not only to the analysis of restrictions under Article 101 TFEU; it also applies under Article 102 TFEU. The analysis of abusive conduct, in other words, is contextual as well. I made this point at Oxford’s antitrust symposium a couple of years ago (see here).

This conclusion is clear in light of judgments like Michelin I or British Airways. I would say more: it cannot be otherwise. The meaning of ‘competition’ has to be the same under Articles 101 and 102 TFEU. And we know since Societe Technique Miniere that competition means ‘(actual or potential) competition that would have existed in the absence of the practice’.

And, finally, what I see as a minor point: AG Bobek holds, reasonably that a practice can be found to restrict competition both by object or effect. Finding that an agreement has both as its object and effect the restriction of competition is in fact something that the Commission routinely did in the early days of Regulation 17.

Written by Pablo Ibanez Colomo

5 September 2019 at 3:58 pm

Posted in Uncategorized