EC Laws on Anti-competitive Business Behaviour

Question One

Anti-competitive behaviour is generally discouraged under EC law. Article 81^[1](1) of the Treaty Establishing the European Community (the EC Treaty) prohibits and renders void (subject to exemptions under Article 81(3) any agreement between undertakings, or a decision by an association of undertakings^[2] or a concerted practice, which may affect trade between Member States and which must have, as its object or effect, the prevention, restriction or distortion of competition within the common market^[3].

In Imperial Chemical Industries Ltd v Commission^[4], there were three almost simultaneous uniform price increases by a number of leading producers on aniline dyes which related to the same products. The Commission issued a decision that the plaintiffs were engaged in price –fixing and fined them. The plaintiffs sought an annulment of the decision on the basis that the price increases were mere indicative of parallel increases which are common in oligopolistic situations. The Court rejected the argument and held that although parallel behaviour does not in itself constitute a concerted practice, it provides strong evidence of such practice if it leads to conditions of competition which do not correspond to the normal conditions of the market. The argument has been criticised on the ground that if decisions are based on the normal conditions of market, oligopolies would be very vulnerable and normal parallel pricing would be held to be concerted effort.^[5]

In the case of Ahlstrom OY v Commission (Re Wood Pulp), a case with similar facts, the European Court of Justice held concertation is not the only plausible explanation for parallel conduct and that a simultaneous price increase could be explained by oligopolistic tendencies of the market.

With due respect, I do not agree with the decision of the court in the ICI case. However, the position in the Ahlstrom case should not be applied absolutely. My reason for this is that even where there has been concerted effort, undertakings will always be able to claim that there was not and claim paralel conduct especially as the resultant effects would be the same.

Another requirement under Article 81(1) is that the acts must have as their object or effect, the prevention, restriction or distortion of competition within the common market. In Societe Technique Miniere v Maschinenbau Ulm GmbH^[6] it was held that for this condition to be satisfied, it must be possible to foresee with a sufficient degree of probability on the basis of a set of objective factors of law or fact, that the agreement in question may have an influence, direct or indirect, actual or potential on the pattern of trade between states.

One problem of this requirement is that one agreement may contain both features that would enhance and features that would restrict competition. The intention of the parties may be to promote competition but then the clauses in the agreement also somehow restrict competition. There is an academic debate within the EU as to whether to adopt the rule of reason approach like the US to resolving the problem. This approach stipulates that only undue and unreasonable restraints should void an agreement.^[7] This approach would weigh the object against the possible anti-competitive tendencies.

In the case of Miniere, there was an exclusive supply contract between the parties whereby the plaintiff had the exclusive right to certain equipment which the defendant (a German entity), manufactured in France. In a dispute between the two parties, the plaintiff sought to avoid the contract by declaring it void by reason of illegality under Article 81.

Another problem is that all provisions in a trade agreement will essentially restrict trade in one way or the other. All agreements can not be held to go against competition at least not to a considerable extent. Therefore, it makes sense that the de minimis principle should be applied. The principle was introduced in Volk v Etablissements Vervaecke Sprl ^[8]. In this case, Volk was a small-scale manufacturer of washing machines in Germany and Vervaecke was a Dutch distributor. Volk agreed with Varvaecke that they would block parallel imports of their machines to Belgium and Denmark. The agreement was referred to the Court to rule on the legality of the agreement under EC law. The court held that for an agreement to fall under Article 81(1), the provisions of the agreement must affect or be capable of affecting competition substantially and that in considering whether or not an agreement fell under this provision, the court must take into account, the state of affairs with regards to the product in question. It was held in the particular case that the effect of the agreement on the washing machine market in Belgium and Luxembourg was negligible.

Therefore, under the de minimis principle, even the most blatantly obvious anti-competitive clauses would not render the agreement void under Article 81(1).

In Centrafarm BV v Sterling Drug Inc^[9], it was held that when a member state attempts to exercise its national intellectual property rights as well as sell its product outside the state, it would be incompatible with the law of market integration.

In the case at hand, I do not believe that the simultaneous increase in price by the three companies shows evidence of concerted effort on its own especially as it was just one increase. The increase would not in not opinion, likely be held to be a contravention of EU competition law. However, other factors should be considered in a bid to ascertain that there was indeed no concerted effort rather than apply the rule in the Ahlstrom case blindly.

Providing in an agreement that it would only supply to distributors that reached a particular turnout would not necessarily go against the EC Treaty. However, the effect of the measure should also be considered. If the measure as is the case in the case of Electropoint makes it difficult for rival companies to sell their own products that that might be considered a restriction on competition. This would also apply to Electropoint threatening to stop supplying to Carlos.

Electropoint has a right to protect and exercise its national intellectual property rights. However, if it sells its products in states other than where the right is exercisable. It may be argued that it forfeits the rights.

The agreement between the three companies would be in accordance with the market principle of maximum advantage and according to the principle would create a near perfect market. However, if this agreement would serve to reduce the sales of other producers, it may be argued that it falls under the rule in Article 81.

Having said the above, the court would also consider the situation before Electropoint sought to take all these measures. Since it already held such a large percentage of the market, the courts might apply the de minimis principle and hold that the measures are not prohibited.

Question Two

Article 28 of the EC Treaty provides that Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between member states. Article 29 provides that the same should apply for exports. Under Article 30 the provisions of Articles 28 and 29 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or security; protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. These limitations may not be used as a means of arbitrary discrimination or as disguised restriction on trade between member states.

A quantitative restriction is a restriction on the import or export of a given product by amount or by value. In Geddo v Ente Nationale Risi^[10], it was held that the prohibition on quantitative restrictions covers measures which amount to a total or partial restraint of, according to the circumstances, imports, exports, or goods in transit.

The article also prohibits measures that would have the same effect as quantitative restrictions. In Procureur du Roi v Dassonville^[11], the court considered the scope of Article 28 in relation to measures having equivalent effect to quantitative restrictions and prescribed the ‘Dassonville Formula’. The formula provided inter alia that measures having equivalent effect included all trading rules enacted by a Member State which are capable of hindering, directly or indirectly, actually or potentially, intra-community trade. From the definition in the case, it is obvious that the crucial element in proving the existence of such a measure is its effect and a discriminatory intent is not necessary. The Dassonville Formula provides a wide definition and this is indicative if the Court of Justice’s attitude towards measures. Very few measures will be permitted that would hinder the free movement of goods between members states.^[12]

In December 1969 the EEC issued Directive 70/50/EEC which was intended to provide guidance on the kinds of acts and activities which constituted measures infringing Article 28 of the EC Treaty which were in existence when Treaty came into force. Even though it was supposed to be of temporary application, it is representative of the EEC’s view of the scope of Article 28 and the Court of Justice still refers to it on occasion. Under Article 2 of the Directive, there is a non exhaustive list of what measures would constitute measures having equivalent effect to quantitative restrictions. They include the making of access to markets in the importing state dependent upon having an agent there; subjecting only imported products to conditions in respect of shape, size, weight, composition, presentation and identification, or subjecting imported products to conditions which are different from those for domestic products and more difficult to satisfy and requiring for imported goods only, the giving of guarantees or the making of payment on account.

The Court of Justice has also developed a number of general principles about measures which specifically affect imported goods and which constitute measures having equivalent effect to quantitative restrictions. These measures include import and export restrictions; promotion of domestic goods; and price fixing regulations. In Rewe-Zentralfinanz v Landwirtchaftskammer^[13], where phyto-sanitary checks were required for imported apples and no such checks were required of domestically grown ones, it was held that the measure was contrary to Article 28. In Lucien Ortscheit GmbH v Eurim-Oharm GmbH^[14], that a German law that prohibited the advertising of foreign medical products which had not been authorised for sale in Germany fell within the scope of Article 28 as the law did not affect marketing of national medical products and imported medical products equally.

Under Article 3 of Directive 70/50, there may also be measures that apply both to imports and domestic goods but which affect imports more severely. These measures are equally applicable to domestic and imported products but the restrictive effect of such measures on the free movement of goods exceeds the effects intrinsic to trade rules. In the case of Rewe-Zentrale AG v Bundesmonopolverwaltung ^[15], It was held that when German authorities restricted the importation of French liquor because it did not have a high enough alcohol content to be sold in Germany, the measure was contrary to Article 28 even though it was essentially up to the measure states to regulate on matters which are not governed by any common community rules.

In Conegate Ltd v HM Customs and Excise^[16], it was held that a member state may not rely on rounds of public morality in order to prohibit the importation of goods from other member states when its legislation contains no prohibition on the manufacture or marketing of the same goods in its territory.

In the case at hand, the requirement that the tablets should be packed in tamper proof bottles may be argued to be a measure to protect human health. This would possibly render it valid and not a contravention of the EC Treaty. However, Welby may argue that it is just an excuse to restrict its market.

The requirement that the cough syrup contains different ingredients from those required under German legislation would appear to go against the provisions of the Treaty. However the requirement that recyclable packaging be used would apply to public morality so the courts would consider whether the need to respect public morality outweighs the possible motive of simply to restrict Welby’s market.

Banning the importation of the contraceptives on the ground that the safety is questionable would only be ‘legal’ is the same safety tests would apply to Austrian contraceptives. I doubt that the morality argument would stand unless contraceptives are not sold at all in Austria.

The banning of Welby’s advertisement campaign would appear to go contrary to the Treaty as would the requirement that the drug be available only on prescription because this would require Welby to have an agent in Spain .

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Footnotes

^[1] Formerly Article 85 but used throughout this piece to refer to both Article 85 in appropriate cases and 81 otherwise.

^[2] defined broadly to include any legal or natural person engaged in sime form of economic or commercial activity, whether in the provision of goods or services.- Steiner, J and Woods, L. “Textbook on EC Law” (8th Edition) (2003) Oxford: Oxford University Press. Page 405.

^[3] Ibid

^[4] Case 48/49

^[5] Supra Note 1. Page 408

^[6] Case 56/65 [1966] ECR 235

^[7] Craig, P. and De Burca, G. “EU Law: Text, Cases and Materials” (2nd Edition) (1998) Oxford: Oxford University Press. Page 903

^[8] Case 5/69

^[9] Case 15/ 74

^[10] Case 2/73

^[11] Case 8/74

^[12] Fairhurst, J. Law of the European Union” (5^th Edition) (2006) England: Pearson Education Limited

^[13] Case 4/ 75

^[14] Case C-320/ 93

^[15] Case 120/78

^[16] Case 121/ 85