Administration in International Organizations PUBLIC COMPETITION LAW Class II, 13th Oct 2014 Krzysztof Rokita

Anti-competitive agreements: basic concepts of Article 101 and the mechanism of its application Article 101 TFEU 1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. 2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void. 3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of: — any agreement or category of agreements between undertakings, — any decision or category of decisions by associations of undertakings, — any concerted practice or category of concerted practices, which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

Anti-competitive agreements: basic concepts of Article 101 and the mechanism of its application Article 101 TFEU: 1.Prohibition 2.Nullity 3.Legal exception

Undertaking and associations of undertakings Article 101 TFEU 1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which…

Undertaking and associations of undertakings Basic definition (functional approach/functional definition): C-41/90 - Höfner and Elser v Macrotron „It must be observed, in the context of competition law, first that the concept of an undertaking encompasses every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed…”

Undertaking and associations of undertakings Why is it called a functional approach? C-264/01 - AOK-Bundesverband and Others, opinion of Advocate General Jacobs delivered on 22 May 2003: „[...]the Court's general approach to whether a given entity is an undertaking within the meaning of the Community competition rules can be described as functional, in that it focuses on the type of activity performed rather than on the characteristics of the actors which perform it … Provided that an activity is of an economic character, those engaged in it will be subject to Community competition law”.

Undertaking and associations of undertakings Economic activity: offering of goods or services on the market potential to make profits (could it be carried on by a private undertaking in order to make profits? No neccesity of making profits or even to have a profit-making motive) Some consider there is a third feature: bearing the financial risk

Undertaking and associations of undertakings Non-economic activities: 1. Activities by entities fulfilling social function (exclusively social function, the principle of solidarity, subject to State supervision) The principle of solidarity: inherently uncommercial act of involuntary subsidization of one social group by another. Participation in the redistributive/social scheme is compulsory Contributions are regulated by the State Benefits received by a participant to a scheme are not proportionate to contributions Benefits may be given even though contribution has not been paid 2. Activities connected with the exercise of the powers of a public authority are not economic exercise of the sovereign powers of the State, tasks performed in public interest or administrative functions are not economic (tasks undertaken in the public interest which form part of the essential function of the State and are connected by their nature, aim and the rules to which they are subject with the exercise of powers which are typically those of a public authority are not considered economic) 3. Purchasing that is ancillary to a non-economic activity is not economic

Undertaking and associations of undertakings Notion of an undertaking is a relative concept, in that a given entity might be regarded as an undertaking for one part of its activities while the rest fall outside the competition rules. Employees and Trade unions are not undertakings for the purposes of the competition rules

Undertaking and associations of undertakings C-67/96 – Albany, opinion of Advocate General Jacobs delivered on 28 January 1999: „Dependent labour is by its very nature the opposite of the independent exercise of an economic or commercial activity. Employees normally do not bear the direct commercial risk of a given transaction. They are subject to the orders of their employer. They do not offer services to different clients, but work for a single employer. For those reasons there is a significant functional difference between an employee and an undertaking providing services.”

Undertaking and associations of undertakings Advocate General Colomer, Case C-22/98, Jean Claude Becu: „[i]t is that ability to take on financial risks which gives an operator sufficient significance to be capable of being regarded as an entity genuinely engaged in trade, that is to say to be regarded as an undertaking. In other words, recognition as an ‘undertaking’ requires, at least, the existence of an identifiable centre to which economically significant decisions can be attributed. For that reason, employees do not constitute undertakings”

Undertaking and associations of undertakings “Single Economic Entity/Unit” doctrine: An undertaking may be comprised simply of a natural person or a legal person, but it may also be comprised of several natural or legal persons which together may create a single economic unit. T-11/89 - Shell v Commission: Single economic unit is a “unitary organization of personal, tangible and intangible elements which pursues a specific economic aim on a long-term basis and can contribute to the commission of an infringement” Several legal or natural persons who constitute together single economic unit are considered to be one undertaking

Undertaking and associations of undertakings Example: Parent and a subsidiary company constitute a single economic unit if the subsidiary enjoys/has no economic independence or has no real freedom to determine its course of action (carries out the instructions issued by the parent company controlling it)

Parker Pen Ltd (parent company) Subsidiary company A (Germany) Subsidiary company C (Italy) Subsidiary company B (the UK) Undertaking and associations of undertakings C-73/95 P - Viho v Commission - an agreement between Parker and its companies is nothing more than allocation of tasks within that group of companies

Undertaking and associations of undertakings What is the rationale behind this doctrine? “…the principal reason for this is the fact that, in a case such as the present, there can be no competition between the parent company and its subsidiaries. Independent, economic competitive measures by the subsidiaries are inconceivable where the parent company determines and controls their conduct completely, as it does here. Consequently, Article 85 is not applicable because there is no competition between the group companies which needs to be protected. In that context it should be noted above all that in such a case the parent company could achieve the same result by issuing instructions or by the exercise of other means of control.” OPINION OF ADVOCATE GENERAL LENZ delivered on 25 April 1996, C-73/95 P - Viho v Commission

Undertaking and associations of undertakings What are the consequences? It affects substantive reach of Article 101: Article 101(1) does not apply to agreements between two or more entities that form part of single economic entity, because they together comprise a single undertaking and so there is no agreement between undertakings A mechanism for attribution of liability: the conduct of a subsidiary which has infringed the competition rules can be imputed to the parent company which forms part of the same undertaking (single economic unit)

Undertaking and associations of undertakings Application of the doctrine: where a parent holds 100 per cent of shares in a subsidiary, a rebuttable presumption applies that the parent does in fact exercise decisive influence over the commercial policy and conduct of its subsidiaries In other cases, it has to be established that there was ability to influence the subsidiary and that the decisive influence was in fact exercised

Undertaking and associations of undertakings Associations of undertakings: C-309/99 - Wouters and Others, OPINION OF ADVOCATE GENERAL LÉGER delivered on 10 July 2001: „The concept of an association of undertakings does, however, play a particular role in Article 85(1) of the Treaty. It seeks to prevent undertakings from being able to evade the rules on competition on account simply of the form in which they coordinate their conduct on the market. To ensure that this principle is effective, Article 85(1) covers not only direct methods of coordinating conduct between undertakings (agreements and concerted practices) but also institutionalised forms of cooperation, that is to say, situations in which economic operators act through a collective structure or a common body.” An association of undertakings usually consists of undertakings of the same general type and makes itself responsible for representing and defending their common interests (trade associations)

Undertaking and associations of undertakings What was the body/entity in question? Was it a private or public body? What were its activities? What was it responsible for? What was the conclusion of the Court? Was the body considered to be an undertaking or not? What were the arguments?