Chillin'Competition

The Court has just delivered another key ruling on restrictions of competition (see here for the French version). The judgment, just like AG Bobek’s Opinion in the case, is valuable in that it clarifies all the remaining controversies around the notion. The principles of the case law have been confirmed in an explicit way that does not seem to leave much scope for ambiguity. In addition, the judgment provides a template of how the analysis is to be conducted in practice.

The fundamental contributions of the judgment are the following (some of the points are explained at length below):

• The analysis of the counterfactual is relevant at the ‘by object’ stage (and the ‘by effect’ stage too): This question has been widely discussed (including in this blog) in recent years. While the case law was sufficiently clear already, Budapest Bank is valuable in that it provides a concrete example of how the counterfactual may be relevant to rule out that an agreement is restrictive by object or effect (and thus not caught by Article 101(1) TFEU). Paras 82 and 83 deserve particular attention in this regard (and they probably raise the single most relevant points of the judgment).
• The ‘by object’ category is only appropriate where there is sufficient experience about a practice: Budapest Bank fleshes out the contribution made in Cartes Bancaires. If there is no consensus about a practice (its nature, its pro- and anticompetitive effects), the Court explains, the ‘by object’ category is not appropriate.
• The analysis of the object of the agreement is a case-by-case, context-specific inquiry: It is not unusual to hear that the ‘by object’ category is a ‘shortcut’ aimed to make it easier and/or faster to establish restrictions. Budapest Bank shows that this characterisation does not reflect the reality of the case law. The inquiry is context-specific and makes it necessary to consider the peculiarities of the economic and legal context, and this in light of a series of indicators (including the counterfactual, the pro-competitive effects that the agreement is capable of achieving and the regulatory context).
• The objective purpose of the agreement needs to be effectively established: The judgment gives a clear answer to a key question: what if the agreement pursues two or more objectives simultaneously? What is the object of the agreement? What counts, the Court explains, are the objectives that are effectively established, not the objectives that are invoked (para 69). This is in line with Paroxetine.

Establishing the object of an agreement is a case-by-case, context-specific inquiry

It has become commonplace to characterise the ‘by object’ category as a ‘shortcut’. According to this view, it is sufficient to check whether the agreement is on the ‘list’ of ‘by object’ infringements to establish a restriction. Thus, it would be enough to take a ‘quick look’ to conclude that it is prima facie prohibited.

Budapest Bank shows that this characterisation of the case law (that seems to apply the logic of the US system to the EU legal order) has little to do with the way in which the ECJ conducts (and has always conducted) its analysis. The evaluation of the object of an agreement can be very detailed (the analysis of the question covers no fewer than 35 paragraphs) and can be as complex as showing that the same agreement has anticompetitive effects.

Accordingly, it is not sufficient to show that some clauses are suspicious (or that they are ‘on the list’). For instance, the Court explains that even an agreement that eliminates competition on a large fraction of the costs of two undertakings (or that sets a ceiling on the level of commissions to be paid) is not necessarily restrictive by object (paras 77 and 78).

Once again, the Court points out that the analysis is not complete without an evaluation of the relevant economic and legal context. The context is taken so seriously that, at several stages of the analysis, it explains that, without all the relevant information, it cannot come to a conclusion about whether the agreement has, as its object, the restriction of competition.

What sort of evidence is relevant at the ‘by object’ stage?

Unlike some judgments delivered in the context of a preliminary reference, Budapest Bank sets out in detail how the analysis is to be conducted in practice. The analysis complements Paroxetine very effectively.

In Paroxetine, the Court outlined what an authority needs to show to discharge its legal burden of proof: that the agreement has no plausible purpose other than the restriction of competition. Budapest Bank, in turn, is explicit about the sort of evidence that the parties may put forward to show that the agreement does not amount to a ‘by object’ infringement. The relevant factors in this regard are:

• Economic analysis: The parties may show, in light of formal economic analysis, that the object of the agreement is not anticompetitive. In this regard, Budapest Bank builds on Cartes Bancaires (which acknowledged that the two-sided nature of a market can shed light on the rationale of a practice).
• Experience (or, rather, the lack of experience): In Budapest Bank, the Court holds that the ‘by object’ category is only appropriate where there is robust and reliable (‘solide et fiable’) experience about the nature of the agreement (para 76). In this sense, the Court suggests that there should be a consensus about the status of the practice (see also para 79). Absent a consensus, the analysis of its effects becomes necessary.
• The pro-competitive effects of the agreeement: Paroxetine (in line with AG Bobek and Kokott) made it clear that the pro-competitive effects of an agreement are relevant as part of the evaluation of the economic and legal context. Budapest Bank confirms this point. Thus, the idea that these effects can only be considered under Article 101(3) TFEU can finally be put to rest. The pro-competitive dimension is also a factor when ascertaining whether there is a restriction in the first place (para 82).
• The counterfactual: Even if it was implicit in the preceding case law, it is useful to see the Court explain how the counterfactual (that is, the conditions of competition that would have existed in the absence of the agreement) can be considered. The parties claimed that the agreement was not restrictive by object because, in its absence, the conditions of competition would have been worse. The Court clarifies that evidence in this sense is acceptable (paras 82-83). It makes sense to copy these two paragraphs below[1] (in French for the moment). If there was any doubt, the Court also points out that the counterfactual is also relevant at the ‘by effect’ stage (see, in addition to para 82, paras 55 and 75).

Paragraphs 82 and 83 also show that the applicable threshold is one of plausibility (as suggested in Paroxetine too). It would be enough for the parties to establish that there are, a priori, serious indications that the agreement is capable of improving the conditions of competition that would otherwise have existed. If the evidence meets this threshold, the agreement is not restrictive by object and an analysis of effects is necessary.

[1] ’82. Dans l’hypothèse où la juridiction de renvoi devrait également constater l’existence, a priori, d’indications sérieuses de nature à démontrer que l’accord CMI a entraîné une telle pression à la hausse ou, à tout le moins, d’éléments contradictoires ou ambivalents à cet égard, ces indications ou éléments ne sauraient être ignorés par ladite juridiction dans le cadre de son examen portant sur l’existence, en l’occurrence, d’une restriction « par objet ». En effet, contrairement à ce qui semble pouvoir être déduit des observations écrites de la Commission à cet égard, le fait que, en l’absence de l’accord CMI, le niveau des commissions d’interchange résultant du jeu de la concurrence aurait été plus élevé est pertinent aux fins de l’examen de l’existence d’une restriction résultant de cet accord, une telle circonstance ayant précisément trait à l’objet anticoncurrentiel reproché audit accord s’agissant du marché de l’acquisition en Hongrie, à savoir que ce même accord a limité la réduction des commissions d’interchange et, par voie de conséquence, la pression à la baisse que les commerçants auraient pu exercer sur les banques d’acquisition afin d’obtenir une réduction des commissions de service.

83. Qui plus est, s’il devait exister des indications sérieuses que, si l’accord CMI n’avait pas été conclu, il s’en serait suivi une pression à la hausse sur les commissions d’interchange, de telle sorte qu’il ne saurait être soutenu que cet accord a été constitutif d’une restriction « par objet » de la concurrence sur le marché de l’acquisition en Hongrie, il conviendrait de procéder à un examen approfondi des effets dudit accord, dans le cadre duquel, conformément à la jurisprudence rappelée au point 55 du présent arrêt, il y aurait lieu d’examiner le jeu de la concurrence si cet accord n’avait pas existé afin d’apprécier l’incidence de ce dernier sur les paramètres de concurrence et de vérifier ainsi si celui‑ci a effectivement entraîné des effets restrictifs de la concurrence’.