Chillin'Competition

The world of sport was shaken a few weeks ago when a number of clubs announced a breakaway tournament, the SuperLeague. The follow-up suggests that the consequences for sport will not be immediate (and might never be manfiested). From a competition law perspective, however, the implications may not take long to unfold: it appears that last week, a Spanish judge has referred some questions to the Court of Justice for a preliminary ruling concerning the compatibility of UEFA and FIFA regulations with EU competition law (see here).

The submission, arguably inevitable, could not be more timely: the ISU judgment (see here) was rendered by the General Court in December of last year and has since been appealed to the Court of Justice (see here). Some of the fundamental issues raised by the two cases are identical.

In essence, ISU was about a non-compete obligation imposed on athletes taking part in competitions organised by the International Skating Union and its members. The practical consequence is that participants in competitions not authorised by the ISU would face a lifetime ban (with all the dramatic consequences that follow).

The similarities are obvious with any disciplinary action that football governing bodies might take against teams having taken part in the organisation of the SuperLeague (or at least those that have not given up on the idea).

Interestingly, the public perception was not the same. While there was a great deal of sympathy vis-a-vis athletes facing a ban from the ISU, many thought football governing bodies would be right to take disciplinary action against the teams forming a breakaway league.

From a competition law perspective, howevever, I fail to see any differences between the two. In both cases, there is a (de iure or de facto) non-compete obligation imposed by the association setting up the tournament. Accordingly, whether or not the said obligation amounts to a restriction of competition (by object or effect) should be assessed in accordance with the same principles.

Which takes me to the General Court’s judgment in ISU. I already explained, when the Commission decision came out (see here), that I struggle to see how a non-compete obligation such as the one at stake in the case can be seen as a restriction by object. Moreover, I explained why a finding of a ‘by object’ infringement in the case is difficult to reconcile with, inter alia, Cartes Bancaires and Maxima Latvija (the first crucial in relation to free-riding considerations and the second on non-compete obligations).

That post still reflects my views on the case. I fail to see why an association investing in the development of a competition and giving visibility to athletes would be infringing Article 101 TFEU, by object, when taking measures against free riding by competing organisations.

Alas, the General Court came to a different conclusion. The first instance judgment, however, seems to be at odds, in some crucial respects, with the case law on restrictions by object. In this sense, it provides a test for the case law developed in the past few years and illustrates where the potential difficulties might arise in practice in the coming years.

The points on which to focus (and the issues in which there seems to be some tension between the General Court judgment and the established case law), are the following:

• First, the conflation of the ancillary restraints doctrine (whereby some agreements escape Article 101(1) TFEU altogether) and the question of whether a practice is restrictive by object.
  • Contrary to what the judgment appears to suggest, a disproportionate measure is not necessarily restrictive by object.
  • The General Court relies on case law dealing with ‘by effect’ infringements to assess the restrictive object of an agreement; there is therefore a mismatch between the case law cited and the conclusions drawn from it.
• Second, the allocation of the burden of proof.

Ancillary restraints and restrictions by object: why they tend to be conflated (or object and effect in Ordem dos Técnicos Oficiais de Contas) 

The judgment is valuable in that it reveals that there are two tests that tend to be conflated in practice: the ancillary restraints doctrine, on the one hand, and the assessment of whether an agreement is restrictive by object, on the other.

Under the ancillary restraints doctrine, the question is whether some clauses are ancillary to a pro-competitive transaction and thus whether they fall outside the scope of Article 101(1) TFEU altogether. Where a restriction is found to be ancillary, there is no restriction of competition, whether by object or effect.

The ancillary restraints doctrine has an illustrious history in EU competition law: salient examples include Metro I (on selective distribution) and Pronuptia (on franchising). When it comes to non-compete obligations, Remia is an excellent example.

These cases define the conditions under which the clauses are ancillary and thus escape the prohibition altogether. Typically, these conditions include a proportionality assessment: only where the measure is proportionate does it escape Article 101(1) TFEU. What if one or several of the conditions, including proportionality, are not fulfilled? In that case, it would still be necessary to assess whether the agreement is restrictive by object or effect.

This is the stage at which errors arise. Every now and then, courts and authorities wrongly conclude that, because the ancillary restraints doctrine is not applicable (for instance, because the measures go beyond what is necessary), the agreement is restrictive by object. In other words: the test under the ancillary restraints doctrine and the assessment of the restrictive object of the agreement are sometimes conflated.

A clear example of this conflation is provided by Ping (see here for my analysis). In that case, the UK CMA concluded that the clauses in the agreement were restrictive by object insofar as they were not objectively necessary to attain the pro-competitive aims of the agreement. In other words: the CMA conflated objective necessity and restrictive object. The CAT identified this error of law on appeal (see here).

I notice a similar conflation in the ISU case. It is well-established case law that, in certain circumstances, sporting rules fall outside the scope of Article 101(1) TFEU altogether. In cases like Meca Medina, the Court of Justice referred to key ancillary restraints judgments such as Wouters and Gottrup-Klim. More precisely, the Court ruled, in para 47 of Meca Medina, that any restrictions must be proportionate for them to fall outside Article 101(1) TFEU.

It does not follow from that case law, however, that the agreement is necessarily a restriction by object if it goes beyond what is necessary to attain a legitimate objective. Quite the opposite, in fact. Para 47 of Meca Medina expressly refers to the potential restrictive effects of the agreement (as opposed to its object) where the clauses in question are found to be disproportionate.

There is clear tension between this line of case law and paras 100-114 of the ISU judgment, where the General Court suggests, in contradiction with the abovementioned rulings, that a measure that pursues a legitimate objective is restrictive by object if it goes beyond what is necessary (see in particular paras 103 and 110). In the same vein, Wouters and Meca Medina are not capable of substantiating the conclusions drawn from them.

The General Court makes abundant references to Ordem dos Técnicos Oficiais de Contas. This judgment is relied upon to justify a finding of a restriction by object, even though (just as Meca Medina) the Court did not treat the restraints in that case as ‘by object’ infringements (in fact, the Court of Justice expressly ruled that they did not amount to a ‘by object’ prohibition).

That judgment exemplifies, perhaps better than any other, that, contrary to what the General Court suggests, measures that go beyond what is necessary to attain a pro-competitive aim (for instance, because they provide for penalties that are too severe) are not necessarily restrictive by object.

Conflating the ancillary restraints doctrine (or, more generally, objective necessity) and the question of whether an agreement is restrictive by its very nature could have major consequences in practice. It would substantially expand the ‘by object’ category and would thus run counter to the principle whereby the said category is to be interpreted restrictively.

I guess this point will be central in the assessment before the Court of Justice.

Burden of proof and restrictions by object: what the authority needs to prove

If I look back at the landmark cases of the past few years, it appears that the rules governing the allocation of the burden of proof are at the heart of most disputes. It would seem that, very often, administrative action is quashed for reasons pertaining to the allocation of the burden of proof. From State aid to merger control, the issue cuts through key judgments.

ISU might well be the next on the list. It is unquestionable that the Commission bears the burden of showing that an agreement amounts to a restriction by object. One would be forgiven for reaching a different conclusion when reading ISU. The judgment goes over the content of the non-compete obligations and their objectives, and rules that they go beyond what is necessary (even if the legitimate objectives were to be accepted).

What seems to be missing, however, is the following step (that is, the evaluation of the evidence showing, to the requisite legal standard, that the object of the agreement is restrictive of competition). That step is crucial: it is still necessary for an authority to show that the contentious measures are caught by Article 101(1) TFEU by their very nature.

Contrary to what one may infer from ISU, it is one thing to rule out some potential justifications for the agreement and another one to evaluate whether the agreement in question is restrictive by object. The second does not follow, logically and inevitably, from the former. As already pointed out, this second step was missing in the judgment.

Here and there, the judgment gives the impression that it is for the parties to show that the agreement is not restrictive by object. This conclusion is inescapable when one reads the evaluation, by the General Court, of the objectives pursued by the contentious rules (paras 84-89). The tension between the judgment and the rules governing the allocation of the burden of proof also transpires from an analysis of paras 110-114.

The General Court, while accepting that the economic nature of the restraints cannot be a reason to conclude that their object is anticompetitive, relies on Ordem dos Técnicos Oficiais de Contas to rule that the ISU did not behave in a manner consistent with its duty to ensure undistorted competition. As pointed out above, it is sufficient to take a look at the Ordem dos Técnicos Oficiais de Contas judgment to realise that this fact alone is insufficient to substantiate the claim that an agreement is restrictive by object.

It remains to be seen how these points will be addressed by the Court in the appeal. In any event, ISU provides an excellent illustration of the areas, concerning the interpretation of Article 101(1) TFEU, in which tension between the case law and the administrative practice are likely to arise.

I very much look forward to your comments (as ever, nothing to disclose).