Chillin'Competition

Market integration: why it matters in cases like Ping

Market integration considerations are essential to understand EU competition law. Articles 101 and 102 TFEU exist, after all, as part of a wider project that seeks to remove barriers to trade and create an internal market.

Thus, one cannot be surprised that, from the outset, market integration was treated differently under Article 101(1) TFEU. In Consten-Grundig, the Court expressed concern about the risk that firms recreate the very barriers that the Treaty sought to bring down.

How is the special status of market integration manifested in practice? In a stricter, treatment of practices aimed at restricting cross-border trade within the EU. The topic is dear to my heart and I discussed it in a number of papers and at this year’s GCLC conference (see here for the slides).

Earlier this month I commented on Budapest Bank (here) and, more generally, the principles of the case law (here). There is a long line of case law suggesting that, as soon as the Court finds a plausible pro-competitive rationale for an agreement, the ‘by object’ categorisation can be ruled out. Budapest Bank is valuable in that it states, in para 83, that ‘serious indicia’ about the pro-competitive effects of the agreement are conclusive in this regard.

The Court departs from these principles, alas, when market integration is at stake. It is, as I have explained elsewhere (for instance here), one of the outliers in the case law (and one for which I think there are good reasons: my own view is that the symbolic dimension of market integration would alone justify this stricter legal treatment).

Accordingly, conduct aimed at restricting cross-border trade (for instance, an export ban or absolute territorial protection) is in principle restrictive by object even if it is known to be a plausible source of efficiency gains (by the way: if you were wondering how paras 52 and 83 in Budapest Bank can be reconciled, this is, I believe, part of the answer).

If the parties to an agreement aimed at restricting cross-border trade want to avoid the ‘by object’ qualification they can, as the Court held in Murphy (para 140). However, they would have to overcome higher hurdles than usual. They would need to show either that the restraints are objectively necessary to achieve a pro-competitive aim or that they are not capable of restricting competition (which would for instance be the case if there were ‘insurmountable barriers’ to cross-border trade).

The legal analysis in Ping and the conspicuous absence of market integration

You may be wondering what the above may have to do with the Ping ruling of the Court of Appeal of England and Wales, decided earlier this year.

The case involved a ban on online sales à la Pierre Fabre. Against the background of the above, the case seems straightforward. Online sales bans are problematic in EU competition law insofar as they limit passive sales. And limiting passive sales is, as recent action by the Commission since the e-commerce inquiry shows, inimical to market integration. The Internet is a most powerful tool to promote cross-border trade.

Accordingly, a ban on online sales is restrictive by object unless the parties can show that it is objectively necessary and/or it is incapable of restricting competition in its economic and legal context.

If you read the Court of Appeal ruling in Ping (as well as the CAT ruling and the CMA decision), you will realise two things: (i) the outcome is the same as above (the online sales ban is restrictive by object) and (ii) the reasoning is infinitely more convoluted.

The CMA, the CAT and the Court of Appeal all reached the same conclusion about the legal status of the ban. As the law stands, this conclusion seems uncontroversial. However, all three bodies struggled with a key aspect of the case: the online sales ban is at least plausibly pro-competitive.

If one reads the facts in both Ping and Pierre Fabre, it is difficult to avoid the impression that the ban was probably all about brand image and the creation of an aura of exclusivity and prestige around the products. Why, otherwise, would a firm want to limit the exposure, and thus the sales, of its products?

How to reconcile the fact that the ban is a plausible source of pro-competitive gains and its status as a restriction by object? Market integration, as seen above, provides the easy, straightforward answer.

Since market integration was never seriously considered in the analysis, the CMA, CAT and Court of Appeal could not avoid some legal contortions to reach the desired (and correct) outcome. The CMA went as far as to suggest that a restraint amounts to an object infringement unless it is objectively necessary (this position, at odds with the case law, was discussed on the blog here). The CAT, in turn, suggested that a plain vanilla cartel like the one in BIDS was plausibly pro-competitive (see here).

Finally, the Court of Appeal had to engage with AG Bobek’s Opinion in Budapest Bank, which summarised the relevant case law. Now that we have the judgment, it seems to me that the Court of Appeal departed from the Court’s interpretation of Article 101(1) TFEU in some important respects.

In particular, the Court of Appeal seems to require more than ‘serious indicia’ about the pro-competitive gains resulting from the agreement; in addition, it limited the scope of Cartes Bancaires as relating to two-sided markets alone (as opposed to pro-competitive gains more generally, which is the interpretation Generics and Budapest Bank would confirm).

Market integration and restrictions by object: more clarity needed

Market integration has enjoyed a special status in the EU system from the very early days. It is difficult to see that reality changing. More importantly, there is no reason why it should. Accordingly, clauses that would be typically unproblematic in other legal systems (including a post-Brexit UK?), such as online sales bans, are in principle restrictive by object.

The Ping judgment, on the other hand, suggests that it may perhaps be a good idea if some aspects about the special status of market integration were made explicit in the case law. This move would avoid the confusion of methodologies that we observe in the Court of Appeal ruling (and, as the example of Glaxo Spain case shows, this is not the first time we witness this situation).