October 20, 2014
October 19, 2014
October 18, 2014
European Court of Justice (ECJ) Eliminates Noticeability Test in Regard to Restriction of Competition by Object
The European Court of Justice (ECJ) on 13 December 2012 issued a remarkable ruling. By the present ruling the ECJ has now simplified sanctioning anti-competitive behavior. Noticeability of the restriction of restrictive agreements that may affect trade between Member States does no longer have to be proven. This ruling has far reaching consequences.
In a case between Expedia and the French national Competition Authority (Case C-226/11), the ECJ clarified the effect of the de minimis notice of the EC. This EC notice determines the thresholds, identifying when a contractual restriction between commercial undertakings is capable of affecting competition. The ECJ ruled:
“article 101(1) TFEU (Treaty on the Functioning of the European Union) and Article 3(2) of Regulation No1/2003 … [do not preclude] a national competition authority from applying Article 101 (1) TFEU to an agreement between undertakings that may affect trade between Member States, but that does not reach the thresholds specified by the Commission in its de minimis notice, provided that that agreement constitutes an appreciable restriction of competition within the meaning of that provision.”
This means that any contract with an effect on international trade within the EU including an anti-competitive object, constitutes an appreciable restriction on competition per se. Ergo, clauses with such anti-competitive object are banned, and it is not necessary to investigate whether the restriction in such clauses is capable of affecting competition.
What is the practical consequence of this ruling? It is advisable to review all existing contracts for clauses that are vulnerable to the applicability of this ruling. Also, in new contracts clauses with an object to restrict competition, even in cases of marginal effect in the marketplace, are to be avoided.
Expedia and the French state railway company SNCF wanted to expand the sale of train tickets and travel over the internet. To that end in 2004 the parties created the joint subsidiary Agence VSC. The French Competition Authority found that this constituted an infringement on article 101(1) TFEU. In appeal Expedia alleged that the market shares of the parties were overestimated and that they did not exceed the threshold as stipulated in the de minimis notice. The French Supreme Court asked the ECJ whether or not it should be possible for a national competition authority to bring proceedings against undertakings that may affect trade but that do not reach these thresholds.
The ECJ confirmed that the de minimis notice has a non-binding nature for both competition authorities and the courts of the Member States. The notice gives transparency and guidance to the courts and authorities in their application of the competition law articles. In order to determine whether or not there is a restriction on competition all relevant factual circumstances must be assessed (Cadillon1) as well as the content of the provisions, the objectives, and the economic and legal context (GlaxoSmithKline2). Novelty is the ruling that such thresholds are no more than factors among others that may enable that authority to determine whether or not a restriction is appreciable by reference to the actual circumstances.
The ECJ thus changes its previous case law (Völck v. Vervaecke3) in which it stated that any agreement that restrict competition by object or effect does not infringe article 101(1) TFEU in case the effect on the markets was insignificant. In that case the combined market share of the parties involved was found to be below 1%. There was never any guidance offered as to when the effect on competition would be appreciable. The present de minimis notice states as the Commisison’s policy that combined market shares of less than 10% (as regards competing undertaking) or 15% for non-competitors are deemed not noticeable. In the preceding de minimis notice,4 it was not expressly stated that the thresholds (in that version 5% and 10%) did not apply to hardcore restrictions, nor was a clear definition of the term hardcore restriction provided.5 Earlier it had already been decided by the ECJ in the cases Pittsburgh Corning Europe and Industrieverband Solnhoferer Natursteinplatten6 that given the serious nature of the contemplated restriction of competition, it - even with a market share well below 5% - was capable in infringing competition.
The Pittsburgh and Völck Vervaecke case law has been superseded by this recent Expedia ruling. As stated before, a review of existing contracts and a different approach to new agreements with an effect on competition is advisable. The severe sanctions for not complying with EU competition law do not allow for a neglect of contract management.
1 ECJ re Société anonyme Cadillon v Firma Höss, Maschinenbau KG, ECR 1971, p. 351; 6 May 1971 (C 1/71).
2 ECJ re GlaxoSmithKline Services Unlimited v Commission of the European Communities, ECR 2009, p. 1-09291; 6 October 2009 (Joined Cases C-501/06 P, C-513/06 P, C-515/06 P and C-519/06).
3 ECJ re Franz Völk v S.P.R.L. Ets J. Vervaecke, ECR 1969, p. 00295; 9 July 1969 (C 5-69).
4 1970 de minimis notice, OJ C 64/1; 2 June 1970
5 Resulting in debates e.g. as to whether an excessive ancillary restraint like a 5 year post acquisition non-compete, was to be considered a non-exempted market segregation and thus a hard core restriction.
6 ECJ re Pittsburgh Corning Europe, OJ L 2270/35; December 5 1972 and ECJ Industrieverband Solnhoferer Natursteinplatten, OJ L 318/33; November 26, 1980.