Competition Law and the Restriction of Investment Activities: Protecting the Consumer Interest
Satvinder Juss
Law - kings College London - Kings College London University
Abstract
Abstract - (A) Introduction Investment activities are all very well in what is an uncertain and fast-changing world around us. But do they protect the consumer interest of the ordinary man on the street? This Essay looks at the controls imposed by EU Competition law in ensuring that on the one hand market forces are fostered through competition of businesses, but on the other hand, the consumer is not cheated or otherwise taken advantage of. The Treaty on the Functioning of the European Union (TFEU) provides for a single internal market with free movement of goods and services throughout the European Union (EU). To that end, competition within the EU must not be restricted or distorted. This can happen through cartels or anti-competitive agreements, through abuses of market power, or through certain mergers and acquisitions or unfair State aid, all of which are discouraged. In this way, European competition rules, which are designed to prevent this, also help protect consumer interests. These rules have the force of law throughout the European Economic Area (EEA), and are enforced by the European Commission. They are often incorporated by the Member States’ into their national competition authorities (NCAs). In fact, domestic competition rules are modelled on them. (B) The Main Pillars of Competition Law It is in Articles 101 and 102 TFEU that the EU’s general antitrust rules are set out. Article 101(1) at prohibits any agreement or concerted practice, whether it be formal or informal, written or unwritten, which is made between two or more ‘undertakings’ (independent businesses), that may affect trade between Member States and that has the object or effect of preventing, restricting or distorting competition. For its part, Article 102 makes it illegal for dominant companies to abuse their market power in a way that may affect trade between Member States. There is an obvious tension between market and consumer interests. Undertakings may enjoy a dominant position on a relevant market. However, the market can be defined narrowly. The main pillars of competition law rest on the twin prohibitions of, first, agreements or arrangements between two or more enterprises which may restrict or distort competition; and second, on unilateral conduct by an enterprise in a dominant position that amounts to the abuse of that dominance. These are increasingly referred to as antitrust law – a US term that in the European context Sir Philip Roth considers unfortunate. The question is whether these twin prohibitions can preserve both the internal market and the consumer interest. (C) Fixing Prices & Dividing up the Market Let us begin with the use of anti-competitive agreements. This is the most common practice encountered in competition law. Nicola Laver refers to it, as an agreement “where two or more companies operating as competitors in the same market agree to co-operate”. She gives examples of, “fixing prices or dividing up the market”. Both legally and ethically this is pressing issue. Indeed, the British governments Competition & Markets Authority in its ‘Cheating or Competing’ campaign explains how consumer interests are imperilled when, “Businesses that collude with their competitors are cheating consumers and other businesses by inflating prices, reducing choice, and eroding trust in the markets. ” Accordingly, this cannot be allowed to become commonplace. It would destroy the single internal markets and cause consumers to effectively get scammed into worse deals by these companies. That would adversely impact on consumer welfare and consumer trust. This is where Article 101 TFEU comes in to play. Section 1 focuses on, “all agreements between undertakings.” An ‘undertaking’ is defined by the European Commission as “any entity engaged in an economic activity, that is an activity consisting in offering goods or services on a given market, regardless of its legal status and the way in which it was financed. ” This is of great relevance in the business environment of today, as it covers such dominant conglomerates as Apple and Google, as well as the smallest family run high street store. Consumer interests, prima facie, would appear to be well protected, given the focus on the “prevention, restriction or distortion of competition within the internal market. ” A simple example is seen in Van den Bergh Foods v Commission involving a free supply of freezer cabinets to ice cream retailers, but on condition that these freezer cabinets would only store Van den Bergh’s own ice creams. The restriction discouraged retailers from purchasing other maker’s ice creams, so other ice cream producers were not able to compete with Van den Bergh. This resulted in there being less choice for consumers. Article 101 in this way prevented the malpractice of an anti-competitive agreement between Van den Bergh and ice cream retailers and managed to protect consumer interests whilst maintaining a ‘competitive’ single market. (D) Concerted Practices, Cooperation, & Coordination Article 101 (1) TFEU also targets anti-competitive agreements known as a ‘concerted practice’. These are informal anti-competitive agreements which consist of “a form of coordination between undertakings which without having been taken to a stage where an agreement properly so-called has been concluded, knowingly substitutes for the risks of competition practical cooperation between them. ” In SIA VM Remonts v Konkurences padome the ECJ held that an undertaking might, in principle, be held liable for a concerted practice, where an independent service provider supplied it with services, provided that one of three conditions were met, namely, (i) the service provider was in fact acting under the direction or control of the undertaking concerned; or (ii) that undertaking was aware of the anti-competitive objectives and intended to contribute to them by its own conduct; or (iii) that undertaking could reasonably have foreseen the anti-competitive acts of its competitors and the service provider and was prepared to accept the risk which that entailed. In this case, since condition (ii) was satisfied this established that an undertaking may never turn a blind eye to anti-competitive agreements because it will deemed as equally liable to the malpractice of the violating party. So far, so good, but consumers rights may still fall short. Articles 101 and 102 may still fail to provide redress for alleged infringements. A troubling instance can be found in the 2017 case of Confederation Europeenne des Associations d’horlogers Reparateurs (CEAHR) v European Commission. CEAHR was an alliance of nine national associations of independent watch repairers. They lodged a complaint with the Commission against several Swiss watch manufacturers, who were refusing to supply spare parts to independent repairers. The Commission decided not to pursue the complaint. There was ‘insufficient EU interest’ in it, even though the Swiss watch manufacturers had each set up authorised repair and maintenance networks for their products, and spare parts were supplied to them only by a manufacturer authorised in their repair network. Nevertheless, the Commission decided that the Swiss watch manufacturers satisfied three conditions of the case-law, making their practice: (i) objectively justified, (ii) non-discriminatory and (iii) proportionate. Before the ECJ the CEAHR argued that in order for a selective repair system to escape Article 101(1), a fourth condition needed to be met, and this the Commission had overlooked. This was that the system must not eliminate all competition. The ECJ rejected this argument, finding that the Commission's approach was consistent with the Metro case-law . Whether the repair system eliminated all competition was not examined by it. Yet, it is clear that stricter rules have been applied by the Commission in the motor vehicle sector, which the ECJ could have advocated, where authorised repairers have been required to sell to independent repairers even in the context of a selective repairer system. The CEAHR Case wrongly got through the net of Article 101. It unjustifiably and inconsistently reduced the impact of EU competition law. In its Coty judgment the ECJ confirmed that selective distribution systems designed to preserve luxury image of products comply with Article 101(1) TFEU. However, emerging new distribution formats are challenging traditional brick-and-mortar chains. In 2018, the EC fined branded clothing manufacturer Guess €40 million for anti-competitive restrictions in its selective distribution agreements, for breaching EU competition rules by blocking its authorised retailers from online advertising and from making cross-border sales to consumers within the EEA. (E) Benefitting the Consumer ? Yet, not all anti-competitive agreements are unlawful. An exception to rule in Article 101(1) TFEU is Article 101(3) TFEU. This allows for the prohibition in Article 101(1) TFEU to be inapplicable, where agreements contribute to improving the production or distribution of goods or to promoting technical or economic progress, so long as they allow consumers a fair share of the eventual benefits. Moreover, restrictions must not be imposed which are not indispensable to the achievement of this principle. Furthermore, undertakings must not eliminate competition in a substantial part of the products concerned. Thus, it can be in the company’s best interests to restrict competition, in order to maximise its own efficiency, and this will then be a lawful practice, provided that the consumer is also benefiting from these efficiency gains. Such an exemption helps to provide an adequate balance in competitivity and consumer welfare. However, the assumption that the decentralized enforcement regime of EU competition law leads to a uniform administration of the law, because there is an obligation to apply the same Treaties, is questionable. This is because very different interpretations of the law have been followed, by the Commission, the EU courts and the five national competition authorities, when Article 101(3) TFEU has been applied. This exposes the vulnerability of consumer rights in EU Competition law. Indeed, Pablo Ibáñez Colomo has argued that although agreements aimed at partitioning national markets are in principle, held to be restrictive of competition, given that market integration is an objective of Article 101 TFEU, the methodological approach followed by the Court of Justice changes in an unprincipled fashion, when market integration considerations are at stake. (F) The Abuse of Dominant Position Let us now consider the abuse of dominance by companies. These cases are difficult to detect. As one court said, “competition cases have …the special feature that any documents relating to anti-competitive behaviour, …, are likely to be in the possession of the party engaged in that behaviour. Anti-competitive agreements or practices will be kept secret.” Consumer rights are protected only if the relevant product or service market is sufficiently interchangeable with the product or service in question, in terms of (i) objective characteristics, (ii) conditions of competition and (iii) structure of supply and demand. If so, then Article 102 TFEU prohibits, “any abuse by one or more undertakings of a dominant position within the internal market”, as it “may affect trade between Member States. ” But, in deciding this, a “complex economic analysis ” is required. An undertaking is in a position of dominance when “it is able to prevent effective competition and act to an appreciable extent independently of its competitors and consumers. ” The ability to act anti-competitively is not the question. What is needed is an actual anti-competitive act. Given this balance, companies are allowed to achieve dominant positions in their respective markets and are not demotivated from doing so. They have every incentive to be the best company in their field. This maintains the goal of conserving competitivity in the internal single market. Anything else is counterproductive. Where the ‘abuse’ occurs, it must be in the relevant market because the, “abuse of dominance cannot exist in isolation and market power can only apply in relation to the demand and supply. ” So, the products or services concerned must be identified from both the supply and demand perspectives. (H) Predatory Pricing, Competitors, and Consumers A useful case in understanding this is the 1991 case of AKZO Chemie BV v Commission of the European Communities , a case of predatory pricing found unlawful. Here a company having a dominant position, had fixed prices lower than the market price, specifically with the aim of removing competitors. Unilateral pricing conduct by dominant firms is perhaps the most vexing area to enforcers of competition law. Under-enforcement against pricing schemes can foreclose efficient rivals from an opportunity to compete, perpetuating the dominant firm’s power. Predatory pricing therefore needs identifying through (i) costs and prices of the dominant undertaking; (ii) the possibility to recoup losses; (iii) intent; and (iv) objective justifications. But Moisejevas believes competition authorities should also pay more attention to evaluation and to whether pricing will cause elimination of competitors and damage to consumers, and Alavi suggests a model closer to the US as better controlling predatory pricing behaviour of undertakings. Clearly, there is recognition here that consumer rights are vulnerable. In fact, although Akzo confirms how a presumption of a predatory intent arises in pricing matters, Arkin demonstrates that even in a case in which pricing is below average variable cost, the need to prove abusive or eliminatory intent is not displaced. What will happen is that the burden will shift to the dominant undertaking to disprove eliminatory intent. Having said that, generally speaking it will be the case that prices below variable costs whereby a dominant undertaking seeks to eliminate a competitor must be regarded as abusive. This is because a dominant undertaking has no interest in applying such prices except that of eliminating competitors. Indeed, in Akzo Advocate General Lenz explained that the law “does not require that the dominant undertaking in the market should have used its economic power to bring about the abuse,” although it is worth noting that the position in New Zealand is different. Article 102 TFEU also catches a situation where a customer agrees to buy all its supplies from the dominant undertaking because this can freeze out other suppliers. Therefore, a buyer cannot be forced to purchase goods or services exclusively from the dominant undertaking, which can strengthen its dominant position in the upstream market, by foreclosing outlets in the downstream market, to its upstream competitors. This too safeguards consumer interests. The ECJ has rejected the argument that foreclosing the downstream market in this way was not abusive, because the part of the market left free from constraint, was sufficient to accommodate a limited number of competitors. When in 2009, Intel was found to have abused its dominant position by means of exclusivity rebates and direct payments to its customers, this decision was said to have implications for the modernisation of Article 102 of the TFEU and the future of the effects-based approach. Tomra Systems ASA v European Commission in 2010 illustrates this further. Here a Norwegian company Tomra, a producer of reverse vending machines, was found liable for having abused its dominant position, by engaging in exclusivity agreements, quantity commitments and retroactive rebate schemes with its clients. Potentially, the agreements were held as restricting market entry of competitors. If regard was had to Hoffmann-La Roche, Michelin I , II and British Airways judgements, it was clear that these individualized retroactive rebate schemes were no different to tying schemes and exclusivity agreements, and they could only have been justified in exceptional circumstances. (I) Conclusion To conclude, some flaws remain in the layout and enforcement of the articles. Lesser cases are not being pursued because of the requirement of ‘sufficient EU interest.’ Some anti-competitive agreements still slip through the net. Yet, safeguards exist. It is these which enable EU competition law to retain its vitality and vibrancy because it facilitates of both efficient forms of trade and the best consumer welfare mechanisms in an EU Internal single market. Professor Satvinder S. Juss , PhD (Cantab.), FRSA King’s College London, LONDON Bibliography: - Sir Philip Roth, “The Continual Evolution of Competition Law”, Blackstone Lecture, delivered at Pembroke College Oxford, on 9th November 2018, at p.2. - Nicola Laver LLB for in Brief.co.uk (2016) - HM Government: Competition and Markets Authority: ‘Cheating or Competing’ - European Commission: Commission Notice on the concept of undertakings concerned under Council Regulations (EEC) No 4064/89 on the control of concentrations between undertakings - Article 101 of TFEU. - Van den Bergh Foods Ltd v Commission of the European Communities (T65/98) - Case C-199/92 P Hüls AG v Commission [para 158] - Case C-542/14 SIA VM Remonts (formerly SIA DIV un KO) v Konkurences padome (21 July 2016) - Case T-712/14 Confederation Europeenne des Associations d’horlogers-Reparateurs (CEAHR) v European Commission - Judgment of 25 October 1977, Metro I, Metro SB-Großmärkte v Commission, 26/76, EU:C:1977:167 (see esp. paras 24 and 29). - Judgment of 6 December 2017, Coty Germany GmbH vs Parfümerie Akzente GmbH, C-230/16, EU:C:2017:941 - Case AT.40428. According to the Commission's press release (IP/18/6844) - Brook, “Struggling with Article 101(3) TFEU: Diverging Approaches of the Commission, EU Courts, and Five Competition Authorities” CMLR (vol. 56, 2019) at pp 121-156 - Pablo Ibáñez Colomo, “Article 101 TFEU and Market Integration” Journal of Competition Law Economics, (2016, vol. 12, issue 4) at pp. 749-779 -Ryanair v. Aer Rianta [2003] 4 IR 264, at pp. 277-278. - Case 31/80 L'Oreal[1980] ECR 3775, paragraph 25; Case 22/81 Michelin v. Commission [1983] ECR 3461, para37; Case - C- 62/86 AKZO Chemie BV v ECR I-3359, para 51; Case T-30/89 Hilti v. Commission [1991] ECR II-1439, para 64, and - Case T-83/91 Tetra Pak v. Commission [1994] ECR II-755, para 63). - Article 102 of the Treaty on the Functioning of the European Union - “Abuse of Dominant Position” by Ilan Sherr (29th July 2019) Section 5 - “Sport: Competition Law” by Andrea Cattaneo (16th November 2018) - “Abuse of Dominant Position” by Ilan Sherr (29th July 2019) Section 6 - Europemballage Corp v Commission of the European Communities (6/72) [1973] E.C.R 215 - C-62/86 AKZO Chemie BV v Commission of the European Communities - Paul Craig, EU Administrative Law, (3rd edn, 2018, OUP) at p. 364 - Raimundas Moisejevas, “Predatory Pricing: A Framework for Analysis”, Baltic Journal of Law & Politics (2017, vol.10, Issue 1) at pp. 124-155. - Hamed Alavi, “Abuse of dominant Market Position by Predatory Pricing: The Valio Case”, Hasanuddin Law Review (2016, Vol. 2, Issue 1) at 24-37 - Arkin v, Borchard Lines Ltd and Others [2003] 2 Lloyd's Law Reports 225 - See also, Tetrapak International SA v EC Commission [1997] 4 CMLR 662; and Compagnie Maritime Belge NV and Dafra Lines v Commission of the European Communities (29/10/98 Joined Cases C-395/96P and C-396/96P). - Carter Holt Harvey Building Products Group Ltd v The Commerce Commission (New Zealand) [2004] UKPC 37 at para 63 - Case 85/76 Hoffmann-La Roche v. Commission [1979] ECR 461. - Ahmet Fatih Ozcan, “The Intel judgment: The Commission threw the first stone but the EU courts will throw the last” European Competition Journal, (vol. 11, 2015, Issue 1) at pages 69-85. See also Graciela Miralles, “Tomra: Exclusive Dealing and Rebates in the Light (and Shadows) of Dominance”, European Journal of Risk Regulation, (vol. 2, Issue 1, March 2011) at pp. 129-133 - C-549/10 P Tomra Systems ASA v European Commission - Hoffmann-La Roche v Commission [1979] ECR 461, at paragraph 91. - Nederlandsche Banden-Industrie-Michelin v. Commission (‘Michelin I’) [1983] ECR 3461 at paragraph 73 - Michelin v. Commission (‘Michelin II’) [2003] ECR II-4071 - British Airways v Commission [2007] ECR I-2331, ~~~~~~~~~~
Keywords
completion law, Article 101 and Article 102, EU Law, Anti-Competitive Agreements, Abuse of Dominant Position, Consumer Interests'
