The Court of Justice of the European Union (CJEU) has given much needed clarification on the question of when agreements can be considered illegal because they are deemed to have an anti-competitive “object”. In a landmark ruling handed down on September 11, 2014 in the Cartes Bancaires case, the CJEU appears to have checked moves in recent years to take an expansive view of so-called “by object” restrictions. Such moves had been criticized for allowing investigators a short-cut to finding the existence of infringements (and imposing fines) without conducting an analysis of the real-world effects of agreements or behavior. As the Cartes Bancaires judgment seems set to bring more rigorous economic analysis to a broader range of competition law investigations in the EU, it will likely be welcomed by industry. But the judgment is no cure-all. Indeed, aspects of the judgment seem to blur, rather than clarify, what constitutes a “by object” restriction.
Article 101(1) TFEU prohibits agreements which have as their "object" or "effect" the restriction of competition. Where an agreement has the restriction of competition as its object, a competition authority does not have to prove any actual (or potential) adverse effects on competition (which can, of course, be a complex, time-consuming and controversial exercise). Although a restrictive approach to what constitutes a restriction by object has long been advocated, in recent years, the European Commission had taken an ever-more expansive approach to what might constitute a restriction by object. The EU Courts had even appeared to support the European Commission’s approach in this regard, also taking an expansive approach to the concept in recent judgments, such as the 2013 judgment in Allianz Hungaria1.
In a 2013 judgment in Cartes Bancaires, the EU’s lower General Court confirmed the validity of a European Commission Decision concerning an agreement relating to a card payment system which would require organizations issuing payment cards to pay higher fees than organizations accepting cards. The European Commission had found that the agreement constituted an infringement because it had as its "object" the "prevention, restriction or distortion" of competition, and its approach in this regard was approved by the EU’s General Court.
In the ruling handed down on September 11, 2014, the CJEU overruled the General Court’s earlier approval explaining that: "[t]he concept of restriction of competition ‘by object’ can be applied only to certain types of coordination […] which reveal a sufficient degree of harm to competition that it may be found that there is no need to examine their effects" and that a restrictive approach to the by object category is needed because: "otherwise the Commission [or a national competition authority in an EU Member State] would be exempted from the obligation to prove the actual effects on the market of agreements which are in no way established to be, by their very nature, harmful to the proper functioning of normal competition."
Thus, only agreements that are clearly and sufficiently injurious to competition should be classed as being anti-competitive by object. All other agreements will need to be assessed by reference to their actual (or potential) effects on competition.
However, for all the welcome clarity in this part of CJEU’s judgment, there are other aspects of the judgment that are less clear.
By way of example, at paragraph 53, the CJEU explains that: "in order to determine whether an agreement […] reveals a sufficient degree of harm to competition that it may be considered a restriction of competition ‘by object’ […], regard must be had to the content of its provisions, its objectives and the economic and legal context of which it forms a part. When determining that context, it is also necessary to take into consideration the nature of the goods or services affected, as well as the real conditions of the functioning and structure of the market or markets in question […]."
While the first sentence of paragraph 53 finds much support in the case law on restrictions of competition by object, assessing "the real conditions of the functioning and structure of the market or markets in question" (as mandated by the second sentence) would appear to take a competition authority squarely into territory reserved for the review of the effects of an agreement. The danger here is that, instead of conducting a full effects analysis and proving that an agreement has had anti-competitive effects, a competition authority could instead conduct what amounts to a kind of “sniff test” (i.e., briefly looking at the "the real conditions of the functioning and structure of the market or markets in question" without having to prove in concrete terms any adverse effects on competition), and then conclude that the agreement constitutes a restriction of competition by object.
The CJEU’s judgment in Cartes Bancaires is certainly helpful in clarifying that the concept of restriction of competition by object must be interpreted “restrictively”. This represents a welcome return to the traditional approach to what might be classed as a restriction of competition by object and marks an apparent check on more recent expansive approaches adopted by competition authorities and courts. However, on closer inspection, aspects of the judgment continue to blur the distinction between restrictions by object and restrictions by effect. With multiple cases on precisely this issue currently before the European Commission and the EU courts (including pending cases on patent settlement agreements in the pharmaceutical sector), the CJEU’s judgment in Cartes Bancaires seems unlikely to be the last word.
1 See, in this regard, the article by Sidley’s Patrick Harrison titled: "The Court of Justice’s Judgment in Allianz Hungária is Wrong and Needs Correcting".
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