Legitimate aims and restrictions by object (I): Sports, Wouters and Meca Medina
A couple of months have passed since Superleague and ISU (as well as Royal Antwerp). One of the most recurrent issues in the stimulating commentary that followed the delivery of the rulings related to the interpretation of Wouters and Meca Medina.
The Court held that a practice that amounts to a restriction by object cannot escape Article 101(1) TFEU under the Wouters–Meca Medina doctrine. In the words of the Court (in ISU):
‘113. By contrast, the case-law referred to in paragraph 111 of the present judgment [Wouters and Meca Medina] does not apply either in situations involving conduct which, far from merely having the inherent ‘effect’ of restricting competition, at least potentially, by limiting the freedom of action of certain undertakings, reveals a degree of harm in relation to that competition that justifies a finding that it has as its very ‘object’ the prevention, restriction or distortion of competition. Thus, it is only if, following an examination of the conduct at issue in a given case, that conduct proves not to have as its object the prevention, restriction or distortion of competition that it must then be determined whether it may come within the scope of that case-law […]’.
The Court’s position has been widely discussed. The interest in this aspect of the saga is not something I would have anticipated. As I understand it, Superleague and ISU are fully in line with the preceding case law. Contrary to what has been suggested, it does not seem to me that they reduce the scope of the Wouters–Meca Medina doctrine. If anything, they streamline and clarify it.
It is true that the preceding case law had not expressly spelled out what Superleague and ISU did. Arguably, the idea that Wouters and Meca Medina are only relevant where the practice is not a ‘by object’ infringement was already implicit in the relevant judgments. Some leading experts have taken a different view, but it always seemed to me like the most reasonable understanding of the doctrine.
To understand the Court’s position, one must remember the basic premise of the doctrine: where a restraint is justified by the ‘pursuit of one or more legitimate objectives in the public interest‘, it falls outside the scope of Article 101(1) TFEU altogether (that is, it does not restrict competition, whether by object or effect).
By definition, a restraint that is ‘genuinely necessary‘ to attain a set of regulatory goals that are not in and of themselves anticompetitive does not have, as its object, the restriction of competition.
In other words, if the restraint seeks, in a proportionate manner, to attain a one or more ‘legitimate objectives in the public interest‘, the object of the said restraint cannot be anticompetitive. It is in the nature of things: the object of the (legitimate) regulatory goals and the object of the ancillary restraint are one and the same. If the former is not restrictive by its very nature, neither is the latter.
The Court’s position (which, as explained above, is uncontroversial and expected) is particularly useful to illustrate, more broadly, its consistent approach to restrictions by object, which has been clarified in the past few years.
A first key idea one can draw from the case law is that restrictions by object are not abstract categories.
‘Price-fixing’ and ‘market sharing’ are not necessarily restrictive by object. In fact, these categories say very little about the nature of a practice in and of themselves. The Court has never been formalistic when ascertaining the object of agreements (for an extensive discussion, see here).
In a given economic and legal context, ‘price-fixing’ and ‘market sharing’ may even fall outside the scope of Article 101(1) TFEU altogether (which would be the case, for instance, if they relate to a transaction that pursues a legimate aim).
We are not short of examples in the case law showing that ‘price-fixing’ and ‘market sharing’ arrangements may escape the prohibition. Price-fixing (and coordinated output restrictions, no less) can very well fall outside the scope of Article 101(1) TFEU where they are part of the activities of a copyright collecting society. Think, in this sense, of the venerable judgment in Tournier.
Using language that reminds one of ISU and Superleague, the Court held in Tournier (para 31) that ‘[c]opyright-management societies pursue a legitimate aim when they endeavour to safeguard the rights and interests of their members vis-à-vis the users of recorded music. The contracts concluded with users for that purpose [which necessarily provide for price-fixing] cannot be regarded as restrictive of competition for the purposes of Article [101] unless the contested practice exceeds the limits of what is necessary for the attainment of that aim‘.
A more recent (and thus less venerable) example was provided by the Court in the recent judgment in EDP. In this ruling, the Court expressly held that a market sharing arrangement may fall outside the scope of the prohibition where it is ancillary to the main transaction (paras 87-94).
The second key idea is that the case law on restrictions by object is perhaps less obscure than assumed.
What ISU and Superleague show is that the question of whether a practice restricts competition by object is simpler than we tend to assume. The plain meaning of the word object (that is, the objective purpose or aim of an restraint) takes us a long way when evaluating whether an agreement is caught by Article 101(1) TFEU by its very nature. It is, by some distance, the single more reliable indicator.
In more precise terms, if a practice, objectively speaking, is a means to attain a legitimate regulatory objective (which in the sports arena may be to achieve competitive balance or to preserve the integrity of the competition) and is ancillary to it, it cannot be said to have an anticompetitive object.
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Chillin'Competition 
Top marks for including a photo of David Meca Medina!
Stijn Huijts
27 February 2024 at 5:42 pm
You appear to be the only one who expected the ECJ to rule on this point in they way it ruled, even if my impression is that the judgments do not really reflect your prior views on the matter.
In any event, how do you reconcile your position that pursuing a legitimate objective takes the agreement out of the “by object” box, in the light of the more recent judgment in C-438/22, §§ 50-54, where the ECJ applies Superleage/ISU and considers that an agreement on minimum fees by lawyers is a restriction by object, despite the finding by the referring court that the measures pursued the objective of ensuring quality of services by lawyers? (§43). Is it enough, to get out “by object” box, to “claim” that it pursues a legitimate objective? (as you sometimes appear to suggest) Or is it subject to a proportionality analysis? But if the measure is proportionate, is it not out of 101(1) (by object or effect)?
By the way, despite your constant attempts to claim that price-fixing may somewhat easily get out of the “by object” box, the ECJ does not appear so convinced (§51).
Lucano
27 February 2024 at 10:09 pm
Thanks very much for taking the time to share your thoughts with us. Really appreciated
That judgment appears to reiterate a long and wholly uncontroversial line of case law. The key paragraph is taken from Cartes Bancaires and captures the importance of both experience and economic analysis (which shows, in turn, that ‘by object’ infringements are not abstract categories).
That price-fixing between competitors is not always (or not necessarily) a restriction by object is not controversial. Tournier, which I mention in the post and Gottrup-Klim, which I have cited many times in past posts, are very good examples. Budapest Bank, cited by the Court in the judgment to which you refer, is yet another one.
More interestingly, you ask whether it is enough to claim that the agreement pursues a legitimate aim. Certainly not. We know that since BIDS and then Generics. Any claims in this sense must be substantiated.
Crucially, Generics provides a good example illustrating the broader point. It is open to the parties to show, in the context of the evaluation of the relevant economic and legal context, that the agreement is a source of pro-competitive gains.
The possibility to advance evidence in this sense is always possible at the ‘by object’ stage, and therefore further confirms that price-fixing is not necessarily restrictive by its very nature.
Pablo Ibanez Colomo
27 February 2024 at 10:54 pm
Thanks for clarifying. When your LinkedIn post said that “where conduct relates to a legitimate aim in the public interest” I had understood that a simple “relationship” was enough to escape the “by object” box. The simple fact that the measure in C-438/22 “related” to a legitimate aim was certainly not enough.
Pro-competitive gains, when substantiated and specific, may cast doubt on the “by object” qualification, but for time being it seems that the ECJ has been quite restrictive about that, both in HSBC and EDP. I wonder if that opening is more rethorical than real.
Lucano
28 February 2024 at 7:37 am
Thanks again for taking the time to share your thoughts
I will leave merely semantic issues aside and focus on the two key points that follow from our exchange.
All the cases we have been discussing show that the formal features of an agreement are not enough for an authority (or claimant) to discharge its legal burden of proof.
As EDP shows, even a supposedly egregious restraint such as market sharing can escape Article 101(1) TFEU in a given economic and legal context (either because it is ancillary to the main transaction or because it is a source of pro-competitive gains).
On Generics: time will tell. Again, the central conclusion to draw is that form alone does not cut it (and remember that all the parties to an agreement need to do is cast reasonable doubt when they argue that the agreement is a source of pro-competitive gains).
Pablo Ibanez Colomo
28 February 2024 at 8:19 am
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CeCo | Fines legítimos y restricciones por objeto
6 March 2024 at 7:42 pm
Dear Pablo, thanks very much for your views, as always. I am late in the game, but I am not sure I would agree with your position according to which Wouters means that “where a restraint is justified by the ‘pursuit of one or more legitimate objectives in the public interest‘, it falls outside the scope of Article 101(1) TFEU altogether (that is, it does not restrict competition, whether by object or effect).“
In Wouters the Court found that “the national legislation in issue in the main proceedings had an adverse effect on competition” (paras 86-94). According to the Court, what nonetheless matters is to determine whether “the consequential effects restrictive of competition are inherent in the pursuit of th[e] [overriding] objectives” (para 97). And then it concludes that the relevant legislation “does not infringe Article 85(1) of the Treaty, since that body could reasonably have considered that that regulation, despite the effects restrictive of competition that are inherent in it, is necessary for the proper practice of the legal profession, as organised in the Member State concerned” (para 110).
So to me Wouters does not mean that the legislation does not restrict competition and therefore does not breach Art. 101 TFEU. Rather it means that it is not covered by Art. 101 TFEU even if it does restrict competition. But apologies if I missed something.
Better late than never
18 March 2024 at 7:21 pm
Thanks for the insightful comment. It really enriches the conversation (and it certainly does not come late!).
I do not see the Wouters-Meca Medina doctrine as being fundamentally different from the ancillary restraints doctrine.
What do I mean by that? That in the two instances the Court accepts that a parameter of competition is affected without the agreement having restrictive effects. As the Court puts it in Wouters: ‘not every agreement between undertakings or every decision of an association of undertakings which restricts the freedom of action of the parties or of one of them necessarily falls within the prohibition laid down in Article 85(1) of the Treaty‘
You will remember Metro II, where the Court accepts that a selective distribution systems pushes prices upwards (and even concedes that it decreases price competition) but in spite of this fact they are deemed compatible with Article 101(1) TFEU where the Metro I conditions are met.
I very much hope it makes sense. Thanks very much again for sharing your thoughts
Pablo Ibanez Colomo
19 March 2024 at 9:25 am