On 25 January 2011, the Irish Competition Authority (the “Authority”) won its long drawn out civil action, which alleged that the Beef Industry Development Society (“BIDS”) had infringed Article 101 of the Treaty on the Functioning of the European Union (“TFEU”).
In June 2003, the Authority initiated legal proceedings in the Irish High Court against BIDS. The proceedings challenged the proposed rationalisation of the beef processing industry, organised by a group of leading beef processors, which the Authority believed would result in anticompetitive effects including increased beef prices to consumers. The BIDS rationalisation arrangements involved members being divided into two types i.e. “stayers”, these being members of BIDS that would not exit the industry and “goers”, these being members that agreed to exit the industry. It was the Authority’s contention that some of BIDS activities constituted a breach of section 4(1) of the Competition Act 2002 (the “Act”) and Article 81(1) EC (now Article 101(1) TFEU). The High Court considered the case under Article 101(1) TFEU only.
The High Court first considered whether any or all of the features of the BIDS arrangements, which called for (i) a reduction in production capacity; (ii) the imposition of a levy on the “stayers”; and (iii) restrictive covenants imposed on the “goers”, would have as their object the prevention, restriction or distortion of competition within the common market.
It concluded that, in the absence of price fixing, output limitation or market sharing - the hardcore restrictions listed under Article 101(1)(a) to (c) - the proposed arrangements did not restrict competition by object. The Court concluded that the Authority’s action must fail as the Authority had not demonstrated, through credible evidence, that the objectionable features of the arrangements were likely to have appreciable anticompetitive effects.
The Authority appealed this decision to the Irish Supreme Court. On 8 March 2007, the Supreme Court decided to make a reference to the Court of Justice of the European Union (“ECJ”) in order to obtain an interpretation of Article 101(1) TFEU. The question referred was whether or not the BIDS arrangements had as their object (as distinct from effect) the prevention, restriction or distortion of competition within the meaning of that Article.
In its judgment of 20 November 2008, the ECJ held that such agreements have as their object the prevention, restriction or distortion of competition within the meaning of Article 101(1) and that it was not necessary to demonstrate that such agreements had anticompetitive effects. In reaching its decision, the ECJ noted that the BIDS arrangements pursued two main objectives: to increase the degree of concentration in the sector and to eliminate almost 75 per cent of excess production capacity.
It held that such an arrangement “conflicts patently with the concept inherent in the [TFEU] provisions relating to competition, according to which each economic operator must determine independently the policy which it intends to adopt on the common market.”
The ECJ also noted that the fact that the restrictions were limited in time was only relevant to an examination under Article 101(3). The case was referred back to the Irish Supreme Court to apply the ECJ’s ruling.
On 3 November 2009, the Supreme Court delivered its judgment and held that the BIDS agreements infringed Article 101(1). The Supreme Court remitted the case to the High Court to decide whether the “efficiency conditions” set out in Article 101(3) were satisfied. However, before the High Court had an opportunity to reach any decision on this issue, BIDS withdrew its claim.
The decision demonstrates that an agreed once-off reduction in excess capacity can fall within the category of hardcore restrictions of competition law prohibited by section 4(1) of the Act/Article 101(1) of the TFEU and, further, that such restrictions are typically considered as being restrictive of competition by object without the need to consider their effects. In such circumstances, it will then fall to the parties defending the conduct in issue to establish that the efficiency conditions in section 4(5) of the Act/Article 101(3) are satisfied.