In its recent judgment in Cartes Bancaires, the Court of Justice of the EU (CJEU) sends a strong message on the correct interpretation of restriction of competition 'by object' under Article 101(1) TFEU (the prohibition on anti-competitive agreements). The Court makes it clear that the concept of restriction by object must be interpreted restrictively and can only apply to conduct that in itself reveals a sufficient degree of harm to competition. This requires the relevant restrictions to be assessed in context, taking into account not only the content of the provisions in question, but also their objectives and the economic and legal context of which they form part.
The ruling will be expected by some to turn the recent tide of expansion of the "object" category by the Commission, the General Court and national competition authorities and should limit the number of cases brought on the basis of a restriction by object (which minimises the burden on the authorities as they do not have to carry out a full effects based analysis). Instead, only those cases involving the most serious restrictions of competition which harm competition by their very nature should be brought under
Restriction of competition by object
Article 101(1) TFEU prohibits agreements which have as their object or effect the prevention, restriction or distortion of competition. "Object" and "effect" are alternative requirements and the distinction, which has developed in the CJEU's case law, has important implications, in particular in respect of the burden of proof for the competition authorities.
Where an agreement is found to have as its object the restriction of competition, there is no need for the competition authorities to demonstrate that the agreement has anti-competitive effects on the market. Instead the burden of proof then shifts to the parties to demonstrate that the agreement meets the Article 101(3) TFEU exemption criteria. Where an agreement does not have the object of restricting competition, it is up to the competition authorities to demonstrate, with a reasonable degree of probability, that an agreement has an appreciable effect on competition. Such an effects based analysis must be carried out taking into account the conditions in which the agreement operates, the economic context, the products or services and the structure of the market concerned and clearly places a greater burden on the competition authorities.
Restrictions of competition by object are those which have such a high potential for negative effects on competition that it is unnecessary to demonstrate any actual or likely effects on the market. But determining whether an agreement amounts to a restriction by object involves a two-step approach, and in addition to identifying the type of restriction it is also necessary to consider the economic and legal context in which the restriction operates. This is not to be confused with the full effects based analysis for restrictions by effect, but is more in the nature of a 'sense check' to avoid the competition authorities focusing on agreements which are not harmful to competition, despite containing a particular type of restriction, something that may occur when adopting a purely form-based approach.
In the Cartes Bancaires ruling the CJEU reminds the Commission and the General Court, who over recent years have become rather expansive in their "by object" approach, of the key elements of a restriction of competition by object:
- The concept of restriction by object must be interpreted restrictively
- It can only apply to conduct that in itself reveals a sufficient degree of harm to competition
- In order to establish whether there is a sufficient degree of harm it is necessary to consider the relevant restrictions in context, taking into account their content, objectives and the economic and legal context of which they form part
Background to the Cartes Bancaires case
In December 2002 Groupement des Cartes Bancaires (Cartes Bancaires), a French association of banks that manages the Cartes Bancaires payment cards system, notified a series of new operational rules for the association to the Commission under the previous EU competition enforcement regime.
Under these measures a new tariff was introduced under which members only issuing payment cards were required to pay a higher fee than members who also had merchant acquiring businesses. In addition there was a change in the membership fee which resulted in higher fees for new members as well as a fee for dormant members to encourage them to become more active on the acquiring side of the market.
According to Cartes Bancaires, the measures were introduced in order to balance the issuance and acquiring functions of its members. They responded to the need to stimulate merchant acquiring and the installation of ATMs, which generates more benefits to the system than card issuing. The measures also prevented new entrants from “free riding” on the investments made by the other members.
The Commission concluded that the measures had the object of restricting the competitive advantage of some of the members (in particular the banking arms of large retailers and online banks) who were new entrants in the market for issuing cards, to the benefit of the traditional banking members of the association. The price measures prevented cards being issued at competitive rates by certain member banks, which kept the price of payment cards artificially high to the benefit of the major French banks. No fines were imposed as the measures had been notified to the Commission and Cartes Bancaires had suspended the measures in 2004 pending conclusion of the Commission’s investigation.
Cartes Bancaires appealed the Commission’s decision before the General Court, arguing that the measures should not have been classified as a restriction by object because they had a legitimate objective of preventing free riding by new members.
The General Court however upheld the Commission’s decision, finding that such possible legitimate objectives do not prevent a measure from restricting competition by object, and can only be taken into account when justifying a case under Article 101(3) TFEU.
The CJEU’s judgment
The CJEU concluded that the General Court made a series of errors in its legal assessment of the relevant measures as a restriction by object, by failing to have regard to the CJEU's established case law, thereby misinterpreting and misapplying Article101(1) TFEU:
- The General Court was wrong in finding that the concept of restriction of competition by object must not be interpreted restrictively. The concept of restriction of competition by object can only be applied to those types of coordination which reveal a degree of harm to competition sufficient that there is no need to examine their effects. Otherwise the Commission would be exempt 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;
- The General Court had taken the view that the restrictive object of the measures could be inferred from their wording alone, but did not explain in what respect that wording could be considered to reveal the existence of a restriction of competition by object. The General Court was, at the most, entitled to infer that the measures had as their object the imposition of a financial contribution on those members of the group which benefit from the efforts of the other members, for the purpose of developing the merchant acquisition side of the system. Such an object cannot be regarded as being, by its very nature, harmful to the proper functioning of normal competition;
- The General Court also misapplied Article 101(1) TFEU by failing to consider the measures in their relevant economic and legal context. In response to Cartes Bancaires' arguments that the measures at issue were designed to achieve an optimal balance between issuing and acquisition activities and should therefore be assessed in that context, the General Court wrongly held that this analysis could not be carried out under Article 101(1) TFEU because the relevant market was not that of payment systems in France, but the market for issuing payment cards in France. When examining conduct in a two-sided market such as the payment card system at issue, it is necessary to consider the relevant measures in the context of both sides of the market, in this case card issuing and acquisition.
The CJEU also criticised the General Court's lack of adequate judicial review, referring in this context to the fundamental right of access to a fair hearing by an independent and impartial tribunal (set out in Article 47 of the Charter of Fundamental Rights). In order to ensure that the EU competition regime complies with these fundamental rights it is essential that the General Court carries out the full and unrestricted review, in law and in facts, that is required of it. In carrying out such a review the General Court cannot rely on the Commission's margin of discretion in making complex economic assessments as an excuse for dispensing with a detailed review of the law and the facts.
The CJEU set aside the ruling under appeal and referred the case back to the General Court for it to consider whether the measures have as their effect a restriction of competition under Article 101(1) TFEU.
The CJEU's ruling in this case can be expected to impact on some of the pending cases such as the appeal in the Lundbeck "pay-for delay" patent settlement decision in which the Commission categorised the conduct at issue as an infringement by object.