On September 11, 2014, the EU Court of Justice (CoJ) issued its much-awaited judgment on the Groupement des cartes bancaires appeal.  The judgment reverses the findings of the General Court (GC) and sheds more light on the concept of “restriction of competition by object.”  In particular, the CoJ affirms that the concept should be interpreted restrictively – a finding that is expected to halt the alarmingly widespread use of “by object” approaches to antitrust investigations by both the European Commission (EC) and national competition authorities (NCAs).

Background to the Dispute

The Groupement des cartes bancaires (the Groupement) was set up to achieve interoperability of the payment and cash withdrawal systems for bank cards issued by its members in France.  In 2002, the Groupement notified to the EC a number of fee measures that were aimed at incentivizing the development of acquisition activities of banks that were more active on the issuing side of the card payment market.  For example, banks were called upon to pay a fee if their share of total acquiring in the Groupement was too small.  The Groupement justified such measures as a means to avoid the problem of free riding.

In 2007, the EC issued a decision by which it found that such measures constituted a restriction of competition by object and therefore infringed Article 101(1) TFEU.  The EC noted that, in reality, the measures were aimed at countering the threat posed by the arrival of new entrants on the French market.  The measures would leave new entrants with two options: either (i) develop acquisition activities; or (ii) limit the issuance of cards.  In practice, new entrants were faced with major obstacles in trying to develop acquisition activities.  As a result, they would be obliged to either reduce their issuance activity, or pay the fees for not being active enough on the acquiring side.  The payment of such fees would impose additional costs on the new entrants and, therefore, limit their ability to offer cards at significantly lower prices than those of the Groupement’s main members.

The Groupement contested the EC’s decision, arguing that the EC erred in law in the examination of the object of the measures at issue, among other things.  At first instance, the GC confirmed the EC’s position – holding in particular that the concept of restriction by object should not be given a strict interpretation.  The Groupement took the case before the CoJ, alleging errors in law in the GC’s application of the concept of restriction of competition by object.

Criteria to Assess the Existence of a Restriction of Competition by Object

In its judgment, the CoJ explained how to determine whether there is a restriction of competition by object.  It noted that:

  • The essential legal criterion is the finding that the conduct reveals “in itself" a sufficient degree of harm to competition.  Horizontal price fixing is an example of a conduct that is harmful “by its very nature” to the proper functioning of normal competition. Experience shows that such conduct almost always leads to falls in production and price increases. According to the CoJ, it is therefore redundant to prove the conduct’s actual effects on the market.
  • In determining whether an agreement between undertakings or a decision by an association of undertakings reveals a sufficient degree of harm to competition, regard must be had to:
  • The content of its provisions.
  • Its objectives.
    • The fact that the coordination pursues a legitimate objective does not preclude it from being regarded as being restrictive of competition by object.
  • The economic and legal context of which it forms a part.
    • The nature of the goods or services affected, and the real conditions of the functioning and structure of the market(s) in question must be taken into account.
    • These “contextual” considerations are wider than and should not be confused with the definition of the relevant product and geographic markets under investigation.  This is even more so where there are close interactions between the two facets of a two-sided system (such as the one of issuing and acquisition activities as regards bank cards).
  • Account may be taken of the parties’ intention(s) – but there is no obligation to do so.

Importantly, contrary to the GC’s findings, the CoJ stressed that the concept of restriction of competition by object must be interpreted restrictively: it should apply only to certain types of coordination between undertakings that reveal such a sufficient degree of harm to competition that it may be found that there is no need to examine their effects.  Otherwise, the EC would be exempted from the obligation to prove the agreement’s actual effects on the market, when the agreement does not appear, by its very nature, to be harmful to the proper functioning of normal competition.

In this case, the CoJ concluded that the GC had committed errors in law that vitiated its characterization of the measures at issue as being restrictive by object.  In particular, the CoJ found that while the GC set out the reasons why the measures are capable of restricting competition under Article 101(1) TFEU, it failed to explain in what way such restriction reveals a sufficient degree of harm in order to be characterized as a restriction by object.  In the CoJ’s view, the GC was entitled (at most) to infer that the measures had as their object the imposition of a financial contribution on those Groupement members who benefit from the acquiring efforts of other members, with a view to further developing the acquisition side of the system.  However, such an object cannot be regarded as being, by its very nature, harmful to the proper functioning of normal competition.

The CoJ did not rule out the possibility that the measures could hinder competition by new entrants.  It noted, however, that such a finding falls within the examination of the effects of those measures on competition – and not of their object.  It therefore set the judgment aside and referred the case back to the GC for a ruling.  Given that the EC also examined the measures’ anticompetitive effects in its decision and the Groupement also contested the EC’s analysis in that regard before the GC, the referral is expected to focus on them.

More Ammunition for Investigated Companies

The EC and NCAs have been criticized for expanding the concept of restriction of competition by object, in order to avoid embarking on the more challenging effects-based analysis.  Such an analysis normally requires constructing a counter-factual that details how the market would have evolved in the absence of the restrictive conduct.

The trend of extending the concept of restriction of competition by object has been running counter to the more economic effects-based approach articulated by the EC in the exemption rules and guidelines on the application of Article 101 TFEU.  Those rules and guidelines are built on the premise that the practice and experience to date has demonstrated that certain types of conduct ought to be treated as so-called “hard-core” restrictions of competition, because they harm competition by their very nature.  The list of such hard-core restrictions has been carefully drawn up to avoid an open-ended interpretation.

The stance taken by the CoJ on the boundaries of the concept of restriction of competition by object has generated sighs of relief: it affirms that the concept should be interpreted narrowly.  According to the CoJ, a by object classification must be based on such adequate experience that an examination of the conduct’s actual effects on the market is redundant.  One could deduce from this that the concept of restriction of competition by object should not be used in investigations dealing with untested theories of harm or complex factual patterns, i.e. where the negative effects on competition are unclear.

Following the CoJ’s judgment, when in doubt, the EC and NCAs would be well-advised to think twice before classifying and prosecuting conduct as a restriction of competition by object.  It is not enough to merely assert that the anti-competitive effects of the conduct are obvious (see also, in this regard, the CoJ’s ruling in MasterCard).