Article 101 (1) TFEU prohibits agreements, vertical or horizontal, “which have as their object or effect the restriction or distortion of competition.” Competition lawyers in the European Union are brought up on the idea that there are two types of competition law offences under Article 101 TFEU: restrictions by object and restrictions by effect. In layman’s terms, restrictions by object are those that are by their very nature so deleterious to competition that their negative effect on the market can be presumed.
Underpinning their basic belief is the European Court of Justice’s 1966 ruling in Société Technique Minière v. Maschinenbau Ulm1 that the words object and effect must be read disjunctively. Where a restriction is found to be by object, it is not necessary for the authority or the court to prove that the restriction had anti-competitive effects.
Not surprisingly, over the decades of evolving decisional practice and case law, those restrictions that were intuitively “hardcore” were found to be restrictions by object: naked price fixing, geographic market allocation, output limitations – all of which are horizontal restrictions – but also certain vertical practices that are obviously harmful to competition, such as territorial restrictions in distribution agreements or export bans.
The “object box” has evolved over time, and some forms of conduct may from time to time be downgraded from object restriction to effect restriction. However, of much bigger concern to companies and practitioners is that in recent years the European Commission has tended to fold an increasing number of restrictions into the object box – rather more restrictions than one may intuitively have expected, thus avoiding the need for it to carry out a detailed effects analysis while increasing the burden on the companies to prove countervailing efficiencies.
It is thus a welcome development that the ECJ, in Groupement des cartes bancaires (CB),2 made it clear that restriction by object class must remain somewhat exclusive. We can compare it to entering a VIP lounge at the airport. Indeed, even before the ECJ’s recent ruling, Advocate General Nils Wahl had already made that point in his conclusions delivered in March 2014.
AG Wahl acknowledged that classifying conduct on the basis of a standardised approach, rather than on a case-by-case basis, saves valuable enforcement resources and increases predictability as well as deterrence. But these advantages, he noted, can only materialize where the object restrictions are clearly defined. Over the years case law has blurred the distinction between restriction by object and restriction by effect. The increasing use of quantification methods in the process of qualifying conduct has generated confusion between the identification of object restrictions and the effects analysis that needs to be carried out for all other cases. This, Wahl pointed out, could lead to inconsistencies: a conduct qualified as sufficiently deleterious to competition based on economic theory could thus be prohibited even when in a particular case it did not appreciably restrict competition according to the same economic theory (e.g. horizontal price fixing between companies with tiny market shares).
Wahl said: “Nonetheless, and despite the fact that, to some extent, case-law has contributed to blurring the boundary between the concepts of restriction by object or restriction by effect, I take the view that recourse to that concept must be more clearly defined.” He continued, “Because of these consequences, classification as an agreement which is restrictive by object must necessarily be circumscribed and ultimately apply only to an agreement which inherently presents a degree of harm. This concept should relate only to agreements which inherently, that is to say without the need to evaluate their actual or potential effects, have a degree of seriousness or harm such that their negative impact on competition seems highly likely. Notwithstanding the open nature of the list of conduct which can be regarded as restrictive by virtue of its object, I propose that a relatively cautious attitude should be maintained in determining a restriction of competition by object.”
The ECJ followed AG Wahl’s recommendations. It recalled that “certain types of coordination between undertakings reveal a sufficient degree of harm to competition that it may be found that there is no need to examine their effects,” because “certain types of coordination between undertakings can be regarded, by their very nature, as being harmful to the proper functioning of normal competition”. To qualify conduct as a restriction 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”. The “essential legal criterion for ascertaining whether coordination between undertakings involves such a restriction of competition ‘by object’ is the finding that such coordination reveals in itself a sufficient degree of harm to competition.”
The ECJ went on to state that the “concept of restriction of competition ‘by object’ can be applied only to certain types of coordination between undertakings which reveal a sufficient degree of harm to competition that it may be found that there is no need to examine their effects, otherwise the Commission 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. The fact that the types of agreements covered by Article 81(1) EC do not constitute an exhaustive list of prohibited collusion is, in that regard, irrelevant.” The ECJ also confirmed that the methodology used to qualify the conduct at issue must not overlap with the effects analysis to be conducted where a restriction does not meet the by-object standard.
It remains to be seen whether this ruling will have a significant impact on the Commission’s future practice. In recent years, the Commission has stretched the concept of object-restriction significantly, and its Staff Working Document on “by object” restrictions of 25 June 2014 lists some cases as examples that actually do not belong in that class. But this should not discourage us; one should never exclude the hope that things can change for the better.