The construction of the EU Internal Market has been the central project of the EU. Discuss how Articles 101 and 102 TFEU have played an important role in curbing business practices that would jeopardise the Internal Market.

Instructions on how to answer this Question:

1. This brief is a 1750 words EU Law Question: You shouldn't write more than 1750 words (including Headlines).
2. Related information to answer the Question is in this Word Doc & the attached PPT slides.
3. Please look at the table of contents and index as well as the footnotes of the Reading List on (pages 2 & 3). It will help you find more sources to support your answer to the question.

Suggested Structure to Answer the Q:

1. Explain briefly what the internal market consists of
2. What businesses practices harm the internal market
3. How the competition rules contributed to the internal market (Freedom of movement of goods)?
4. Plus any other aspect you identify when reading the literature on this topic.

Competition Law: The topic is concerned with the policy behind the competition law provisions (the goal of competition law). The reason for this coursework is to stimulate research to identify the relationship between set of rules and their broad rationale.

Recommended Platforms to find Sources:

1. Law Trove (Books)
2. WestLaw (Case Law)
3. Cambridge Uni Press (Books)
4. Lexis Nexis (legislation; Legal journals, Cases, EU Law)
5. HeinOnline (Legal Journals and it has a Good European Law Scholarship)
6. Social Science Research Network (Academic Journals)
7. Kluwer Law Online (Law Journals)

Reading List:

Books: (All accessible via Law Trove) except Lorenz Book: via Cambridge Uni Press.

• P. Craig and G. De Búrca, EU Law, UK version (OUP, 2020, 7th edition), Read Chapters: 18, 19, 29, 27 and 28, or anyother textbooks discussing Article 101 and 102 TFEU.
• Jones & Sufrin's EU Competition Law: Text, Cases, and Materials (7th edn), Read Ch: 1, 4, 5, 6, 7 & Pages 40 to 45

• Matthew J. Homewood, EU Law Concentrate (7th edn, OUP 2020), Ch: 5 (Free movement of goods) & Ch: 8 (EU competition law: Article 101 and 102 TFEU)

• Lorenz M, An Introduction to EU Competition Law (Cambridge University Press 2013), Read Pages: 1 to 241 .

Legislations:

• • Article 26 Treaty on the Functioning of the European Union
  • Article 81(3) of the Treaty (Guidelines on the application)
  • Article 101 Treaty on the Functioning of the European Union
  • Article 102 Treaty on the Functioning of the European Union
  • Council Regulation (EC) No 1/2003 the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty [2003] OJ L1/1.
  • Consolidated version of the Treaty on the Functioning of the European Union Read Article: 101 and 102

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:12012E/TXT

• • Protocol 27 of the Treaty on European Union

Case Law:

-Case T-41/96 Bayer AG v Commission (definition of anticompetitive agreement);

-Case C-199/92 P Hüls AG v Commission (definition of concerted practice);

• Case T-65/98 Van den Bergh Foods v Commission (anticompetitive agreement ‘by effect’);

-Case C-85/76 Hoffmann-La Roche v Commission (abuse of dominant position);

• Cases 56 and 58/64 Consten and Grundig v Commission (protection of the internal market);

-Cases C-468/06 to C-478/06 Sot. Lelos kai Sia EE (protection of the internal market).

• Case C-501/06 GlaxoSmithKline v Commission (goals of competition law).

• Case C-453/99 Courage and Crehan (private enforcement of competition law)

This lecture is an introduction to the main concepts of competition law; it explains the main principles

of the market economy and a type of market failure (collusion and abusive market conduct), which is addressed by the EU competition law provisions (Articles 101 and 102 TFEU).

Meaning of competition:

It is a rivalry among businesses (EU competition law uses the term ‘undertaking’ to refer to economic operators who are subject to the competition law provisions), the effect of which is to trigger a process of reduction of prices. This benefits consumers.

Economists prefer a different concept of competition, which relies on measurement of costs and sale price, in order to understand whether a marker is competitive.

For example, in the figure below in the 1^st market structure there are 20 companies, but the average price of the produce they sell is £10. In the 2^nd market structure there are only four companies, the average price of the product they sell is £3. At first sight the second market structure is preferable because of the lower price. However, it is not said that in the long term those four companies will compete vigorously. In fact, when there are fewer companies on the market, it is easier to conclude an anticompetitive agreement.

A first classification of anticompetitive agreements distinguishes between price-fixing and output limitation.

Example of price-fixing: smartphone companies’ directors agree that they will not sell for less than a certain price (£ 540). The agreed price of smartphones will be higher than it would be in the absence of an anticompetitive agreement.

Example of output limitation: smartphone companies’ directors agree about the maximum number of items they will produce over a certain period of time (e.g. each smartphone company will not produce every month more than 1,000 units in the UK).

Effects of price-fixing or output limitation: consumers pay higher prices (loss of consumer welfare).

The first pillar of EU competition law: prohibition of anticompetitive agreements

A preliminary clarification

(Anticompetitive) agreement in competition law is different from agreement in contract law Agreement under contract law: offer and acceptance, first step to establish the existence of a contract. Anticompetitive agreement: agreement between two or more economic operators (undertakings) which has the object or the effect in restricting competition among them.

Typical example of anticompetitive agreement: price-fixing agreement (also: cartel).

The only purpose of an anticompetitive agreement is to agree to fix prices to stop competition among the economic operators concluding such anti-competitive agreement.

However, in some cases, there is an overlap between anticompetitive agreements and contracts:

A supplier and a retailer enters into an ordinary distribution agreement (governed by contract law) where the retailer buys goods from the supplier in order to resell them to consumers.

However, some distribution agreements may provide some clauses according to which the buyer undertakes to resell the supplier’s products only in certain territories, or for a minimum price. Such particular clauses are considered ‘anticompetitive’ and fall under the prohibition of anticompetitive agreement.

The meaning of agreement under EU competition law

Meaning of agreement under competition law:

‘a concurrence of wills between economic operators on the implementation of a policy, the pursuit of an objective, or the adoption of a given line of conduct on the market’

Case T-41/96 Bayer AG v Commission [para 173]

Meaning of anticompetitive

The agreement must have the object of effect of preventing, restricting or distorting competition within the Internal Market (from the text of Article 101 TFEU). In short: higher prices for consumers.

Anticompetitive agreements ‘by object’ and ‘by effect’

Distinction of agreements whose object is to restriction competition and whose effect is to restrict competition.

Restrictions of competition ‘by object’: they are those that by their very nature have the potential of restricting competition (para 21 of the Commission Notice, Guidelines on the application of Article 81(3) of the Treaty) - Example, price-fixing agreement - cartel.

Restrictions of competition ‘by effect’: they are those that result in negative effects on prices, output, innovation or the variety or quality of goods and services (para 24 of the Commission Notice, Guidelines on the application of Article 81(3) of the Treaty)

Example: distribution agreements containing clauses restricting competition.

Case T-65/98 Van den Bergh Foods v Commission

Facts: Van Den Bergh supplied ice-cream retailers with freezer cabinets free of charge provided that the cabinets were used to contain only Van Den Bergh’s ice creams.

The effects of such restriction (cabinets to be used to store only Van Den Bergh’s ice creams):

• discouraging retailers who chose to be supplied by Van Den Bergh to purchase ice creams from other ice cream makers;
• consequently: no or less price competition among ice cream producers; and
• less choice for consumers.

Concerted practice (Article 101(1) TFEU)

It consists 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.’

Case C-199/92 P Hüls AG v Commission [para 158].

Concerted practice may consist of ‘direct or indirect contact between [economic operators], the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor  or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market, where the object or effect of such contact is to create conditions of competition which do not correspond to the normal conditions of the market in question.’ Case C-199/92 P Hüls AG v Commission [para 160].

Exempting conditions (101(3) TFEU)

Even if an agreement is anticompetitive (ie it restricts competition), it may be considered lawful if four conditions are met. These conditions are found in Article 101(3):

The anticompetitive agreement results is:

1. Efficiency gains [see above: production or distribution of goods or to promoting technical or economic progress]
2. The efficiency gains are passed-on to consumers [see above: allowing consumers a fair share of the resulting benefit]
3. The restriction of competition which is present in the agreement is indispensable to achieve the efficiency gains [[see above letter (b): restrictions which are not indispensable …]
4. The restriction of competition which is present in the agreement does not eliminate competition

between the economic operators concluding this agreement [see above letter (a)].

The second pillar of EU competition law: prohibition of abuse of dominant position

Important points on abuse of dominant position

An abuse of dominant position is normally committed by just one company who holds a dominant position (market power) in respect of a product / service (it is a unilateral conduct);

It presupposes the economic operator (undertaking) has market power (high market shares are normally indicative of market power);

What is prohibited is to abuse a dominant position, not being in a dominant position.

Examples of abuse of dominant position

1st example: exclusive supply: a customer agrees to buy all its supplies from the undertaking in a dominant position (the supplier).

Effect of exclusive supply: the other suppliers on the market will have fewer chances to sell their products as the prospective customers committed to buying all the supplies from the dominant undertaking.

Case C-85/76, Hoffmann-La Roche v Commission [para 90]

‘Obligations of this kind to obtain supplies exclusively from a particular undertaking, whether of not they are in considerations of rebates of the granting of fidelity rebates intended to give the purchaser an incentive to obtain his supplies exclusively from the undertaking in a dominant position, areincompatible with the objective of undistorted competition within the common market, because, unless there are exceptional circumstances which may make an agreement between undertakings in the context of Article 85 [now 101 TFEU] and in particular of paragraph (3) of that article, permissible

– they are not based on an economic transaction which justifies this burden or benefit but are designed to deprive the purchaser of or restrict his possible choices of sources of supply and to deny other producers access to the market’.

2nd example: predatory pricing: a dominant business sells its products below costs, its competitors cannot sell below costs, thus they will be driven out of business. Once the dominant business is the only one in the market, it will charge very high prices to recover the losses incurred when it was selling below costs.

Effect (beneficial in the short term): consumers buy at lower prices; Effect (negative in the medium/long term): consumers will pay more;

Effect (negative): competitors of the dominant undertaking will be driven out of the market;

Internal market and competition law: the problem

The TFEU provisions that guarantee freedom of movement of goods (for example, prohibition of QR  or MEQR) are addressed to the Member States, not to private parties.

However, private parties (i.e. businesses) might put in place commercial practices which result in the restriction of freedom of movement of goods.

EU competition law has been relied on to fill this gap: it is primarily directed to companies to prevent them from carrying out commercial practices that restrict freedom of movement of goods (or services).

Anticompetitive agreements harmful to the Internal Market: market allocation

An example:

A UK company, a French company, a German company, and a Spanish company agree that they will sell their products only in their respective country.

Effect of this (anticompetitive) agreement: goods sold by these companies will not be exported in other countries, thus their ‘movement’ is restricted by that anticompetitive agreement. This jeopardises the internal market (restriction of freedom of movement of goods).

Anticompetitive agreements harmful to the Internal Market: restrictions of resale of goods between manufacturers and distributors

A German manufacturer and its French distributor (retailer) agree that:

• the French distributor will distribute the German producer’s goods only in France;
• the German producer will prohibit its Spanish, UK, Italian, etc. distributors to resell its products in France.

Effect of the distribution agreements containing these anticompetitive clauses: German manufacturer’s goods will be sold by each distributor in their own country. Thus, their movement is restricted. This jeopardises the internal market (freedom of movement of goods).

Cases 56 and 58/64, Consten and Grundig v Commission

‘Finally, an agreement between producer and distributor which might tend to restore the national divisions in trade between Member States might be such as frustrate the most fundamental objective of the Community. The Treaty, whose preamble and content aim at abolishing the barriers between states, and which several provisions gives evidence of a stern attitude with regard to their reappearance, could not allow undertakings to reconstruct such barriers. Article 85(1) [now 101(1) TFEU] is designed to pursue this aim, even in the case of agreements between undertakings placed at different levels in the economic process.’

Abuse of dominant position harmful to the Internal Market

Facts: GlaxoSmithKline was holding a dominant position in respect of some types of pharmaceuticals in the Greek market. The Greek distributors asked for large quantities of pharmaceuticals in order to re- sell part of them to other Member States, not just Greek. GlaxoSmithKline wanted to stop this practice and in 2001 limited the supply of such pharmaceuticals to the Greek distributors.

Held: GlaxoSmithKline abused its dominant position by drastically limiting the supply of pharmaceuticals. Cases C-468/06 to C-478/06 Sot. Lelos kai Sia EE.

[para 70] ‘in order to appraise whether the refusal by a pharmaceuticals company to supply wholesalers involved in parallel exports constitutes a reasonable and proportionate measure in relation to the

threat that those exports represent to its legitimate commercial interests, it must be ascertained whether the orders of the wholesalers are out of the ordinary’

[para 71] Thus, although a pharmaceuticals company in a dominant position, in a Member State where prices are relatively low, cannot be allowed to cease to honour the ordinary orders of an existing customer for the sole reason that that customer, in addition to supplying the market in that Member State, exports part of the quantities ordered to other Member States with higher prices, it is none the less permissible for that company to counter in a reasonable and proportionate way the threat to its own commercial interests potentially posed by the activities of an undertaking which wishes to be supplied in the first Member State with significant quantities of products that are essentially destined for parallel export.

The three policy goals of competition law

1. Consumer welfare: low prices;

Price-fixing agreement / cartels result in higher prices for consumers. Consumer welfare is the basic objective of competition law.

Guidelines on the application of Article 81(3) of the Treaty [now Article 101(3)].

[Para 21] ‘Restrictions by object such as price fixing and market sharing reduce output and raise prices, leading to a misallocation of resources, because goods and services demanded by customers are not produced. They also lead to a reduction in consumer welfare, because consumers have to pay higher prices for the goods and services in question.’

2. Protection of the competitive process: preserving a market environment where small businesses have a chance to compete.

Case C-85/76, Hoffmann-La Roche v Commission: the effect of exclusive agreements of supplies of vitamins was that competitors of the dominant business Hoffmann-La Roche found it difficult to sell to other suppliers).

Case T-65/98 Van den Bergh Foods v Commission: the clause providing that freezer cabinets could store only Van den Bergh Foods’ ice creams meant that other suppliers of ice-creams would find it difficult to sell their ice creams to small shops).

3. Protection of the internal market (by allowing parallel imports)

Manufacturer’s prohibition upon distributors to resale in other markets (Cases 56 and 58/64, Consten and Grundig v Commission) and the pharmaceutical company’s limitation of supply to Greek distributors (Cases C-468/06 to C-478/06 Sot. Lelos kai Sia EE.) resulted in distributors being unable to resell in other Member States, which amounts to a restriction of freedom of movement of goods, thus harming the Internal Market. Such practices fell under the prohibition of anticompetitive agreements (Article 101 TFEU) and abuse of dominant position (Article 102 TFEU).

Cases C-468/06 to C-478/06 Sot. Lelos kai Sia EE

[para 65] – [referring to anticompetitive agreements] ‘In relation to the application of Article 85 [now Article 101 TFEU] of the EEC Treaty, the Court has held that an agreement between producer and distributor which might tend to restore the national divisions in trade between Member States might  be such as to frustrate the objective of the Treaty to achieve the integration of national markets through the establishment of a single market. Thus on a number of occasions the Court has held agreements aimed at partitioning national markets according to national borders or making the interpenetration