Competition Rules (Applicability)

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by Reinhard Ellger

The competition rules of the Treaty on the Functioning of the European Union (TFEU) aim at protecting and maintaining effective competition in the European internal market. The functioning of the internal market depends to a large extent on the personal (see 1. below), substantive (see 2. below) and territorial (see 3. below) reach of the competition rules as well as on the legal exceptions from the application of the competition rules (see 4. below).

1. Personal scope of application: undertakings as addressees of the TFEU competition rules

The personal range of application of the competition rules is determined by the concept of ‘undertakings’ as used in Arts 101–106 TFEU; consequently, Part I of Chapter 1 of Title VII of the Treaty (Competition Rules) is introduced by the heading: Provisions for Undertakings. The concept of an undertaking is of fundamental importance for the application and reach of the competition rules; nevertheless, the makers of the treaty have abstained from including a definition of the term undertaking in the Treaty. In the administrative practice of the European Commission and the jurisprudence of the Union courts, a functional concept of undertaking has prevailed: ‘according to settled case-law, in Union competition law the concept of an undertaking covers any entity engaged in an economic activity, regardless of its legal status and the way in which it is financed’ (ECJ Case C-41/90 – Höfner and Elser [1991] ECR I-1979 para 21; ECJ Case C‑309/99 – Wouters [2002] ECR I-1563 para 46; GC Case T-319/99 – FENIN [2003] ECR II-357 para 35; GC Case T-155/04 – Eurocontrol [2006] ECR II‑4797 para 50). On the basis of this definition, the delineation of undertakings from other institutions of social life, which are not subject to the competition rules of the TFEU, depends on whether the respective unit is engaged in an ‘economic activity’ or not. In distinguishing economic from non-economic activities, the aim and purpose of the concept of undertaking as used by the competition rules of the TFEU has to be taken into account: on the one side, acts of the Member States through which they perform their sovereign and administrative functions shall be excluded from the reach of the competition rules of the TFEU. Articles 45(4), 51(1) and 62 TFEU indicate that the TFEU shall not apply to sovereign and administrative acts of the Member States. On the other side, the definition of the concept of undertaking is designed to keep the private (final) consumer outside the scope of applicability of the competition rules. One aim of competition (among others) is to make sure that consumers are met by a supply of goods and services in the market which corresponds to their preferences and offers a favourable price-performance ratio. The private end-consumer shall be protected by the competition rules of Arts 101, 102 TFEU. Consequently, the private end-consumer does not qualify as an undertaking within the meaning of these provisions through his demand activity (ECJ Joined Cases C‑180/98 to C-184/98 – Pavlov [2000] ECR I-6451 paras 75–81). Moreover, other activities of a non-economic nature are also excluded from the scope of the competition rules because these provisions aim at the protection of economic competition. According to the jurisprudence of the ECJ and the General Court, economic activity is characterized by the supply of goods and services in a particular market. The concept of undertaking does not require economic activity of a certain duration. As a general rule, goods and services are offered in a market in exchange for money. However, the fact that particular goods or services are exceptionally offered for free in a market does not impair the nature of the supplier as an undertaking, as long as these goods and services are usually supplied for consideration. Furthermore, it is irrelevant for the definition of the term undertaking whether a supplier of goods or services intends to derive a profit from the marketing of his goods or services. The jurisprudence of the Union courts as well as the administrative practice of the Commission is to look in the first instance to the supply of goods and services in the market when investigating the criterion of economic activity; the demand for such goods and services is only characterized as economic activity if the purchased goods and services are, in turn, sold as part of an economic activity in other markets.

a) Examples

If goods and services are purchased in order to use them for non-economic purposes, eg for wholly social goals, the demand is to be qualified as non-economic activity, even if the demand is satisfied by very large-scale purchase operations (GC Case T-319/99 – FENIN [2003] ECR II-357 para 37). A non-economic activity is pursued by institutions in the field of social security, eg statutory health insurance and statutory old-age pension schemes, as far as these activities are of an exclusively social character, are determined by the principle of national solidarity and are entirely non-profit in design, as the benefits paid by the insurance are fixed by law and the amount of benefits bears no relation to the amount of contribution paid by the insured persons (ECJ Case C-244/94 – Fédération française des sociétés d’assurances [1995] ECR I-4013 para 22; ECJ Joined Cases C-264/01, C-306/01, C-354/01 and C-355/01 – AOK-Bundesverband [2004] ECR I-2524 para 47; GC Case T-319/99 – FENIN [2003] ECR II-357 para 37 (statutory health insurance scheme); ECJ Case C-67/96 – Albany International [1999] ECR I-5751 paras 60 ff (statutory old-age pension scheme)). The exclusion of the systems of social security from the concept of undertaking as used by Union law leaves the design of these institutions to the domestic law of the Member States. Additionally, employed persons are not undertakings within the meaning of the term as used in the competition rules of the TFEU. In contrast, collective bargaining agreements between labour unions and employers’ associations setting wages and other work conditions fall within the ambit of the competition rules (ECJ Joined Cases C-115/99 to C-117/99 – Albany [1999] ECR I-5863 paras 60 ff; ECJ Case C-67/96 – Albany International [1999] ECR I-5751 para 63).

Professionals such as attorneys-at-law, medical doctors or customs brokers offer their services to markets; they pursue, therefore, an economic (or commercial) activity and are characterized as undertakings within the meaning of Arts 101 ff TFEU. Commercial agents are self-employed entrepreneurs who distribute goods for a principal, acting in the name of the principal or in their own name. As far as a commercial agent is integrated in the sales organization of his principal in a way which relieves him of any risk for the deals he makes for the principal (other than the risk relating to his commission), he does not qualify as an undertaking in the sense of the competition rules (genuine commercial agent). If the commercial agent, however, carries his own economic risk with regard to the sale of the principal’s goods (non-genuine commercial agent), for instance, where the commercial agent has to pay for the storage or the transport of the principal’s goods, the commercial agent has to be characterized as an undertaking. Self-employed artists, inventors and professional sportsmen have to be conceived of as undertakings within the meaning of Arts 101 ff TFEU, to the extent that they engage in business activities by marketing their services. Professional sports, in particular, form a part of commercial life and, therefore, are subject to the competition rules.

b) Public undertakings

As to their applicability, the competition rules of the TFEU do not distinguish between public or private undertakings: both kinds of entities are subject to the competition rules of the treaty. Public undertakings are enterprises over which the state exercises a dominant influence, be it through an equity investment or otherwise (eg through appointments to managerial and supervisory boards) (see ECJ Joined Cases 188/80 to 190/80 – Transparency Directive [1982] ECR 2545 para 12). The characterization of such entities as undertakings does not depend on the legal form which the respective state has chosen for the economic activities in question: the organization of such activities under forms of private law or forms of public law is irrelevant. The same holds true for the shaping of legal relations between a public undertaking and its clients: here, too, the cloaking of such relations in a public law form does not preclude the activity of the state-run entity from being economic and, hence, qualifying as an undertaking. The ECJ, in this context, has ruled that even the stipulation of the conditions of use for a public telecommunications enterprise’s network—carried out by a regulation adopted by the enterprise pursuant to delegated legislative power—has to be assessed as an economic activity and that the telecommunications supplier consequently acted as an undertaking within the meaning of Arts 101, 102 TFEU (which, in the case at hand, abused its dominant market position) (ECJ Case 41/83 – British Telecom [1985] ECR 873 paras 17 ff). It is irrelevant for the applicability of the competition rules whether a public undertaking possesses a legal personality distinct from the state or whether the state or one of its subdivisions acts directly itself for economic purposes. In such a case, the Member State itself qualifies as an undertaking and is subject to the competition rules. In order to be applied, those rules always require that the state or its institution pursue an economic activity. The economic activity of public undertakings as well as the state as entrepreneur must be distinguished from the exercise of sovereign or administrative power. The notion of undertaking as used in Arts 101 ff TFEU is a concept of Union law which has to be construed autonomously from the legal systems of the Member States; the legal characterization of certain acts by the Member States as economic or sovereign/administrative does not prejudice the classification under Union law. Otherwise, the Member States would be capable of determining the reach of the competition rules of the Treaty through the classification of an activity as economic or not in their own legal system, thereby removing certain sectors of the economy from the application of those provisions. However, in framing the distinction between economic and administrative acts of public entities, Union law has to take into consideration the different legal traditions of the Member States. Thus, it is recognized that certain crucial state functions like national defence, public security and social security cannot be classified as economic activities. Thus, an international entity which has been founded by the EU Member States to further the cooperation of the Member States in the fields of research, planning and education of personnel for the purposes of air traffic control and flight safety and to carry out certain functions in the sector of air traffic control for some Member States does not pursue an economic activity and does not qualify as an undertaking within the meaning of Arts 101, 102 TFEU (ECJ Case C-364/92 – Eurocontrol [1994] ECR I-43 paras 22 ff). Also, the control of harbour basins for purposes of environmental protection is to be classified as administrative, non-economic activity, even if fees are charged for those services (ECJ Case C-343/95 – Diego Cali & Figli [1997] ECR I-1547 paras 16 ff). In contrast, in quite a number of opinions the ECJ has not hesitated to assess activities as economic which were carried out in some Member States through public undertakings or, respectively, state entities. Thus, employment procurement by a state-run entity (ECJ Case C-41/90 – Höfner and Elser [1991] ECR I-1979 paras 22 ff), the supply of ground handling services for remuneration by a public undertaking which was running an airport belonging to the state on behalf of the state (ECJ Case C-82/01 P – Aéroports de Paris [2002] ECR I-9297 paras 74 ff), as well as the collection of refuse and packaging materials through a municipal garbage disposal enterprise for a fee (Comm., Eco-Emballages, [2001] OJ L233/37, 45 para 70) are all to be characterized as economic activities. The entities entrusted with the supply of these services are undertakings within the meaning of Arts 101 ff TFEU.

c) Requirement of legal capacity?

Legal authors discuss the question whether the ‘entities’ which pursue an economic activity and which therefore qualify as undertakings need to have legal capacity. One has to consider that legal capacity is not a necessary requirement for applying the substantive competition rules to entities; following the purpose of the competition rules, the provisions encompass every entity with or without legal capacity as long as such entity is capable of being a party to an anti-competitive agreement or abusing a market dominant position. The question, however, also relates to a procedural aspect, namely against whom the competition authorities should direct a decision, eg prohibiting an anti-competitive agreement. The correct addressee of such a decision is—if the concerned undertaking itself lacks legal capacity—the owner of this undertaking with legal capacity. Cases in which the organizational unit pursuing economic activity and the entity having legal personality over that unit are not identical have come up in the field of corporate groups and with regard to state action in the economic sector.

d) Associations of undertakings

Article 101(1) TFEU also designates, besides undertakings, associations of undertakings as addressees of the prohibition of anti-competitive agreements in order to fill a gap for the protection of competition. Such a gap would exist if undertakings had the opportunity to conclude anti-competitive agreements through such associations without violating Art 101(1) TFEU. Associations of undertakings are combinations of undertakings which serve the purpose of furthering the interests of their members, for instance, for the representation of the interests of a certain economic sector to the public. The applicability of Art 101 TFEU does not depend on the internal structure of the association of undertakings. By the same token, Art 101 TFEU does not distinguish between associations of undertakings organized under private law on the one hand and public law on the other hand.

2. The substantive scope of application of the competition rules: the interstate effects clause

The applicability of Art 101(1), 102 TFEU requires—other than that the entities involved in economic activities qualify as undertakings—that the anti-competitive measures adopted by such undertakings are capable of affecting trade between the Member States. On the one side, the function of this so-called interstate effects clause is to distinguish the scope of application of the competition rules of the TFEU from that of the Member States’ statutes against restraints of trade. On the other side, the prejudice to intra-Union trade forms a substantive requirement of Arts 101, 102 TFEU. Thus, the provision has a dual function. The interstate effects clause has been of great importance for the development of EU competition law and policy. From the outset, the ECJ has made it clear beyond a reasonable doubt that the interstate effects clause has to be interpreted to the broadest possible extent in order to grant the EU competition rules a scope of applicability as large as possible and to effectively attain the integration-oriented goals of the Treaty (especially the establishment of a Common Market) (ECJ Case 56/65 – Société technique minière [1966] ECR 282, 303; similarly ECJ Case 56/64 – Consten and Grundig [1966] ECR 322, 389) (For the delimitation of the ambits of EU competition law and the statutes against restraint of trade of the Member States, competition law (relationship between European and national law)). In 2004, the European Commission adopted its ‘Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty’ ([2004] OJ C101/81). Not binding upon Union and Member State courts or Member State competition authorities, they nevertheless offer considerable support for the interpretation of the interstate effects clause because they closely adhere to the requirements as to the construction of the clause developed by the Union courts.

The concept of ‘trade between Member States’ has to be construed broadly and covers all trans-border economic activities within the internal market. It does not presuppose that the restrictive measures have to take effect directly in the territory of at least two Member States. An indirect effect is sufficient to comply with the interstate effects clause. Moreover, the interstate effects clause requires that the measure in question be capable of affecting trade between the Member States. The Union courts have decided that a measure (agreement or concerted practice of undertakings or decision of associations of undertakings according to Art 101(1) TFEU or abuse of a dominant position as prohibited by Art 102 TFEU) has the potential to ‘affect trade between the Member States’ if it is 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 or practice may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States’ (Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty, no 23; see also ECJ Case 172/80 – Züchner [1981] ECR 2021 para 18; ECJ Joined Cases 240/82 and others – Stichting Sigarettenindustrie [1985] ECR 3831 para 48; GC Joined Cases T-25/95 and others – Cimenteries CBR [2000] ECR II-491 para 3930). In order to determine whether the objective legal and factual situation makes it appear sufficiently probable that trade between Member States is affected, all the circumstances of the particular case have to be taken into account such as the nature of the agreement or behaviour, the goods or services in question as well as position and importance of the concerned undertakings. In order to establish that trade between the Member States is affected it is not necessary to calculate (assess) the level of commerce between Member States; it suffices if the capability of the measure to do so can be shown. The concept of trade is neutral. Trade can be affected within the meaning of Art 101(1) TFEU and Art 102 TFEU if the measure in question has caused an increase in the level of trade and not only if, as a consequence of the measure, the trade level has decreased. The interstate effects clause opens up the way for the application of Union competition law if, through the measure, trade between the Member States as affected by the agreement or behaviour has developed differently from the situation which would have existed without the measure. For the impact on trade, direct and indirect as well as actual and potential, effects of the measure have to be taken into account. Direct effects relate to goods and services, which are the object of a restrictive agreement or abusive behaviour, while indirect effects might affect products that are closely related to such goods which are covered by an agreement or behaviour, eg goods that are used to produce other products.

It is self-evident that agreements or abusive conduct which relate to several Member States or are practised in several Member States are—as a matter of principle—capable of affecting trade between the Member States. Beyond that, the requirements of the interstate effects clause are also fulfilled by cartels which cover the whole territory of a Member State and abusive acts of undertakings having a dominant position which encompass the whole territory of a Member State. Horizontal or vertical agreements for the cooperation of undertakings which cover only the territory of a single Member State do not generally comply with the requirements of the interstate effects clause but require closer examination as to their effects on interstate trade. Finally, cartels or abusive conduct covering only part of a Member State can also be capable of affecting trade between Member States if the part of the concerned Member State forms a significant part of the Common Market. The extraordinary wide reach of the interstate effects clause is limited by the unwritten criterion of the appreciability of a measure as to the effects on trade between the Member States. This requirement forms an integral part of the interstate effects clause and has to be clearly distinguished from the criterion of appreciability that is applied as an unwritten prerequisite with regard to the concept of restriction of competition as contained in Art 101(1) TFEU (prohibition of restrictive agreements and exemptions). Both criteria of appreciability contain different requirements. Within the framework of the interstate effects clause, the criterion of appreciability aims to eliminate such restrictive agreements and abusive behaviour from the scope of application of Art 101(1) TFEU, which—because of the weak market position of the undertakings involved—only affect the relevant product markets to a very minor extent. To achieve this goal, the Commission has developed a range of quantitative criteria under which trade between the Member States is generally not affected. These quantitative criteria encompass two elements which apply cumulatively, namely a (relative) market share threshold and an (absolute) turnover threshold. An agreement or abusive conduct does not appreciably affect trade between the Member States if the market share of the concerned undertakings does not exceed 5 per cent and, in the case of horizontal agreements, the aggregated annual turnover of all concerned undertakings in the Union does not go beyond €40 million (in the case of vertical agreements, the annual turnover of the supplier in the Union must not exceed €40 million). If these limits are surpassed, a detailed examination has to show whether an agreement or abusive behaviour has an appreciable effect on trade between the Member States. The very broad interpretation of the interstate effects clause has led to the result that only agreements and abusive conduct which have merely regional or local effects fall within the ambit of Member States statutes against the restraint of competition, whereas all restrictive measures of some importance are subject to the competition rules of the TFEU.

3. The territorial reach of the competition rules

The territorial reach of the competition rules covers the territory of the 27 Member States of the European Union. Furthermore, those rules of Union law—as contained in Arts 53 and 54 EEA Treaty—are effective in the EFTA Member States which have concluded the Treaty on the European Economic Area with the Union of 2 May 1992 which entered into force on 1 January 1994. Since the former EFTA Member States of Austria, Finland and Sweden have acceded to the European Union, the EEA Treaty is effective for the relationship of the Union to Norway, Iceland and Liechtenstein. Switzerland has signed the EEA Treaty but has failed to ratify it. The territorial reach of the competition rules of the TFEU needs to be distinguished from the question of whether and to what extent the competition rules apply to agreements and abusive conduct that are concluded or practised within the territory of third countries, but which nevertheless have effects within the Union (competition law (international)).

4. Exceptions from the application of the competition rules

Unlike the German Act against the restraint of competition of 1957, which provided for an extensive list of economic sectors (which have eventually been removed from the Act) for which it should have no or only limited applicability, the EC Treaty from the outset did not include such a list. Thus, the TFEU encompasses only a very few provisions which under certain conditions exclude or limit the applicability of the competition rules.

a) Services of a general economic interest

According to Art 106(2) TFEU, undertakings which supply services of general economic interest or have the character of revenue-producing monopolies (which have not gained practical importance within the framework of this provision) are exempted from the rules contained in the TFEU, in particular from the competition rules, if certain narrowly worded requirements are complied with. Primarily, services of general economic interest are rendered by undertakings that are obliged to offer universal services. These are services which are provided by an undertaking in a Member State for the benefit of all citizens with complete territorial coverage, high quality, affordable prices and universal access even when the offering of such services might in the individual case not be profitable (see Commission Communication, Services of general interest in Europe, [2001] OJ C17/4 para 10). Such universal services are rendered, for instance, by energy supply enterprises which are entrusted with guaranteeing the supply of electricity or gas in a certain area of a Member State for all users at uniform prices and conditions (ECJ Case C-393/92 – Almelo [1994] ECR I-1477 para 51; ECJ Case C-158/94 – French Energy Monopolies [1997] ECR I-5815 paras 55 ff), by enterprises offering postal services (ECJ Case C-340/99 – TNT Traco [2001] ECR I-4109 paras 53 ff) as well as undertakings rendering certain telecommunications services. Undertakings which provide services of general economic interest in the field of rescue and emergency services can also be subject to the exemptions of Art 106(2) TFEU. This article requires that the concerned undertakings are entrusted by statute or another act of public law of a Member State with the provision of services of general economic interest. Article 106(2) TFEU operates on the assumption that the provisions of the Treaty and, hence, the competition rules generally apply to undertakings rendering services of general economic interest. These undertakings are only exempted from the application of the competition rules if such application would obstruct, in fact or in law, the performance of the particular tasks assigned to the undertakings. However, such an exemption is only granted under Art 106(2) TFEU if it does not affect the development of trade to an extent as would be contrary to the interests of the Union.

b) Agriculture

According to Art 42 TFEU, the competition rules of the treaty apply to the production of and the trade in agricultural goods only to the extent determined by the Council following the procedure provided for by Art 43 TFEU and taking account of the objectives for a common agricultural policy laid down in Art 39 TFEU. The Council has used this power vested in it to adopt Reg 26/62. This regulation has been replaced by Reg 1184/ 2006 of 24 July 2006 applying certain rules of competition to the production of, and the trade in, agricultural products, which now regulates the details of the application of the competition rules in the agricultural sector.

Literature

Daniel G Goyder, EC Competition Law (3rd edn, 1998); Laurence Idot, Droit Communautaire de la Concurrence (2004); Ernst-Joachim Mestmäcker and Heike Schweitzer, Europäisches Wettbewerbsrecht (2nd edn, 2004); Eugen Lange and Hermann-Josef Bunte (eds), Kommentar zum deutschen und europäischen Kartellrecht, vol 2: Europäisches Kartellrecht (10th edn, 2006); Volker Emmerich, Kartellrecht (10th edn, 2006); Thorsten Mäger, ‘§ 16: Kartellrecht’ in Reiner Schulze and Manfred Zuleeg (eds), Europarecht. Handbuch für die deutsche Rechtspraxis (2006); Jonathan Faull and Ali Nikpay, The EC Law of Competition (2nd edn, 2007); Ulrich Immenga and Ernst-Joachim Mestmäcker (eds), Wettbewerbsrecht EG, parts 1 and 2 (4th edn, 2007); Peter Roth and Vivien Rose (eds), European Community Law of Competition (6th edn, 2008).

Retrieved from Competition Rules (Applicability) – Max-EuP 2012 on 03 December 2022.

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