INTRODUCTION

How far can businesses go in pursuit of profits and market share? I always wonder. They are always pushing for greater market freedom and yet they still want the law to take its cause. Article 101 of the Treaties of the Functioning of European Union (TFEU) which pertains to rules applying to undertakings gives a glimpse of just how complex governing businesses can be. The article indicates agreements or undertakings which are prohibited as well as the exemptions to the agreements. The prohibited actions are; 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 (1). These agreements or decisions arising from the above said actions therefore become void. The exemptions to this may be caused by any agreement or category of agreements between undertakings, decisions or category of decisions by associations of undertaking or any concerted practice or category of concerted prices.

To have a better insight and understanding of article 101, knowing the object v effect concept will be essential. Object agreements are a type of agreement that out rightly by their very nature are seen to be restrictive to competition (Egervari, 2011). These are agreements that are likely to have adverse effects on competition if implemented. Effect agreements on the other hand do not have obvious restrictions; however they should be investigated for such effects. The agreement is assessed in its market context as well as from an economic perspective.

Article 101’s provisions have over the period of its existence come under scrutiny, various interpretations as non written exemptions. One of the key non written exemptions has been the De minimis doctrine. A product of the case of Volk v Vervaecke, the provision states that an “an agreement falls outside the prohibition in Article 101(1) where it has only insignificant effect on the market, taking into account the weak position which the persons concerned have on the market of the product in question” ( Whish, 2012 ).

The De minimis doctrine also indicates below what threshold the doctrine applies. The first provision is if the aggregate market share held by the parties involved in the agreement is not more than 10% on any of the relevant markets which are affected by the agreement where the agreement is between undertakings which are actual or potential competitors in any of the markets under scrutiny (Whish, 2012). The second condition is in reference to an agreement between undertakings which are not actual or potential competitors in any of the markets and states that “if the market share held by each of the parties to the agreement does not exceed 15% on any of the relevant markets affected by the agreement” (Whish, 2012). However this safe harbor does not apply to horizontal agreements to fix prices, to allocate markets or customers or limit output or sales and vertical agreements to impose export bans or restrict sales.

It is also important to note that Article 101 (1) applies to both horizontal and vertical agreements. Horizontal agreements involve undertakings within the same level of the production/distribution chain such as retailers and manufacturers (Amodine, 2013). Vertical agreements on the other hand involve undertakings which operate at different levels such as a distribution agreement between a manufacturer and distributor (Amodine, 2013).

This paper seeks to identify the various provisions of Article 101 under which it possible for Cartels to be legally established and run.

Wouters Case

Wouters v Algemene Rad Van de Netherlands is marked as an important case in the European Court of Justice, it is actually the most referred to case in EU competition law and the ruling set precedents which have been used to develop the law. The case provided a clear understanding concerning competition law and the freedom of establishment. Headed by Judge Rodriguez Iglesias, the European court of Justice held the verdict that restrictions could be justified but only on the grounds of legitimate public policy. In this case, the European Court was required to consider the compatibility with Article 81 EC of a Dutch rule which foreclosed the creation of multi-disciplinary partnerships involving lawyers and accountants. The Court’s verdict was that the national rule had an adverse effect on competition and trade between Member States would be affected (para 86). It was possible to offer a wider range of services from   multi-disciplinary partnership as well as benefit from economies of scale generating cost reductions. The prohibition was therefore liable to limit production and technical development within the meaning of (what is now) Article 81(1)(b) EC.

The Court went on to state that for the sake of application of Article 101 an account must be taken of the overall context in which the decision of the association of undertakings was taken or produced its effect. This was after it apparently found that the ‘rules restrict competition’ (para94). The main purpose of the rules prohibiting partnerships between barristers and accountants was to guarantee the independence and loyalty to the client of members of the Bar as part of a broader concern to secure the sound administration of justice. Though there were –the Court repeated – ‘effects restrictive of competition’ (para 110) they did not go beyond what was necessary in order to ensure the proper functioning of the legal profession in the Netherlands. The jury explicitly stated that “ the Treaty rules on competition do not apply to activity which, by its nature, its aim and the rules to which it is subject does not belong to the sphere of economic activity … or which is connected with the exercise of the powers of a public authority” and therefore Article 101 was not breached.

Meca-Medina Case Appeal

An appeal to the complete judgment of the European Court of Justice (ECJ) against the reasoning of the Court of First Instance of the ECJ in the case of David Meca-Medina and Igor Majcen v Commission of the European Communities (Case T-313/02; Judgment 30 September 2004), which concluded that doping was a sporting not an financial problem, has been partly upheld in a reasoning of the ECJ passed down on 18 July, 2006.

The appellants had desired to have the reasoning of the ECJ Court of First Instance set aside, disagreeing, inter alia, that the Court had gone astray in law when it concluded that the anti-doping guidelines at issue did not drop within the scope of Content 49, 81 and 82 of the EC Agreement. On this floor alone, the appellants were effective, but they did not have the original commission’s decision of 1 Aug 2002 set aside.

The European Court as opposed to the viewpoint of the Advocate General, P. Lιger, of changing the decision of the Court of First Instance (T-313/2002) and decided that the simple proven reality that a regulation is simply sporting in nature does not have the impact of eliminating from the scope of the Agreement the individual engaging in the action governed by that concept or the whole body which has set it down. If the sporting action in query falls within the scope of the Agreement, the circumstances for engaging in it are then subject to all the responsibilities which arise from the various provisions of the Agreement. It follows that the guidelines which regulate that activity must fulfill the specifications of those provisions, which, in particular, aim to assure the freedom of movement for employees, freedom of establishments, freedom to offer services, or competitors. Therefore, even if those guidelines do not represent limitations on freedom of movement because they issue concerns of simply sporting attention and, as such, have nothing to do with business activities, that reality indicates neither that the sporting action in query actually falls outside the scope of Content 81 EC and 82 EC nor that the guidelines do not fulfill the particular specifications of those articles.

LEGAL CARTELS

French Enlightenment writer Francois-Marie Arouet better known as Voltaire once said that, “it’s forbidden to kill; therefore all murderers are punished unless they kill in large numbers and to the sound of trumpets.” Confusing, is it? That’s the nature of law, a cartel comes into existence when businesses agree to work together rather than competing against each other for an anti-competitive purpose. A successful cartel will raise the of all the firms involved, maintain the market position of each party involved  and achieve price stability or increased prices (Jones & Sufrin, 2011).  Cartels can rise from various provisions of the law, necessities, through government involvement or take advantage of already set precedents. Article 101 provides for cartels to arise from restriction by object or effect, concerted practice, crisis cartels or classic cartels.

Cartels From Undertaking

The first important aspect of each unique situation that determines its consideration for investigations very simple is there proof of existence of an undertaking, an agreement and an interstate element. One of the most important cases in the determination of what exactly constitutes an undertaking was the Hofner case. The case of Hofner and Elser v Macrotron GmbH involved recruitment consultant (Hofner and Elser) who sued the company (Macrotron) after the company rejected a candidate as a sales director who had they had placed by the company as it was the tradition. In the judgment, the European Court of Justice held that the Bundesanstalt though a public body could be subject to competitive laws and therefore the placing constituted an “undertaking”. Therefore its exclusive right to placement resulted to abuse of dominant position. So what exactly constitutes an undertaking? An undertaking encompasses every entity engaged in an economic activity regardless of its legal status and its mode of financing (Rodgers, MacCulloch & Galloway, 2009).

The first instance where provisions of Article 101 provide for the existence of a legal cartel is in entities carrying out activities which are based on the principle of solidarity. The case of Cisal company provided that provision of an occupational scheme was not carrying out an economic activity and the same ruling was passed in the case of AOK Bundeverband. This however does not mean that the two companies which offered insurance and sickness funds did not have making profits among their top priority. These ruling provide a loophole where the government and the companies may collude to exploit the citizens since the activity does not fall within the competitive rules of Article 101. Under the same category the Meca- Medina case which involved an entire non-economic public policy area in the name of sports. This provides a loophole for the collusion of player agents and clubs and for doping since sports is essentially and not an economic act yet it’s becoming one of the most profitable businesses for the World’s richest with sporting clubs having massive turnovers in terms of profits.

Cases involving companies contracted by the government or local authorities provide another provision for the creation of legal cartels. The case of Eurocntrol, an organization that maintained and improved air traffic safety, its activities were said to be connected by their nature with the exercise of the powers of public authority and therefore not economic activities. The same case was applied to a company that was contracted to set tariffs to carry out pollution surveillance. This another avenue where the government can collude with a specific company to lower or increase the cost of the ‘undertaking’ since its an exemption under Article 101.

            Restriction by Effect

The Economic Court of Justice has been called on numerous times to resolve issues regarding anti-competitive practices. In the T-mobile case, the court indicated that if an agreement was found to have an anti competitive object, it was presumed to be illegal and no economic analysis was required. This approach was applied in the GlaxoSmithKline case where by virtue of definition of boundaries the practice was termed as uncompetitive. This approach was however not used in the case of O2. In this case O2 and T mobile entered into a roaming agreement where O2 was given access to T mobile network while the latter constructed its own network. The commission found existence of restrictive effect competition but did not act on that assumption but rather decided that the agreement was subject to exemption under Article (101) (3) TFEU.

            Mixed Restrictions

The Mixed inherent restrictions approach which focuses on the necessity for general interest provides a number of avenues for the creation of legal cartels. This is in effort to address the rules set up by the Bar of the Netherlands which prohibit multi-disciplinary partnerships which have pro-competitive advantages (Wouters v Algemene Rad Van de Netherlands). The mixed inherent restrictions states that not every agreement which restricts the freedom of action of the parties necessarily is prohibited by Article 101 (1). According to the provision what matters is the overall context in which the decision was taken or the effects which it produces. Under this context therefore parties can form a multi-disciplinary cartel which however has pro-competitive advantages subject to the interpretation of the court.

Other than providing for the provision of the possibility of existence of a body to pursue certain objectives, Wouter’s case opens an avenue for exploitation of other practices outside the said scope. It will be used as the basis and point of reference for the justification of activities that deal with the general interest such as the protection of the environment, consumer protection among others. This forms the perfect environment for cartels to prevail as it provides a legal loophole which is subject to exploitation. It is however important to note that the only thing that can be inferred from this case law is that Article 101 (1) cannot be inferred blindly.

The Woulter’s case which is monumental in the competitive law studies and a land mark reference point for most cases is subject to interpretation by one of the prominent European Law authors, Whish. He believes that nothing in Wouter’s case explicitly limits its application to rules relating to the legal profession, he actually concludes by noting that the case opens the way for broad interpretation of Article 101 and is therefore plausible to application in non-economic policy objectives (Whish, 2012). Almost a similar opinion is taken by Monti who argues that the case gives a strong hint that European style rule of reason can be applied in competition law cases and they are henceforth not only limited to the Article 101 restrictions. The arguments by the two law experts is a clear indication that individuals who are part of a cartel can argue their case out in the ECJ and have the cartel as a provision of the law. More over the suggestion by Monti of the European style rule of reason may end up providing a provision of a case such as the GlaxoSmithKline.

            Cartels under Exemptions (Article 101(3).

Before indulging into the discussion on the voidness of the Article 101(3) it’s important to note that for an agreement to be exempted under this article, all the four conditions provided have to be fulfilled. The four conditions can be summarized to imply that the consumers have to get a fair share of the benefits, there must be a contribution towards the improvement of distribution or production of goods, there should be no substantial elimination of competition and the proportionality principle should be applied (Badham, 2011). It is important to note that as indicated in the case of Metropole Television that if one of the conditions is not satisfied, the exemption is not applicable.

The rule of exemption has on various occasions been subject to interpretation in favor of public interest. In another case involving Metropole Television in 1996, the ECJ suggested that the commission may ‘base itself on considerations connected with the pursuit of public interest.” The trend has been consistent as the same approach was used in the case of ford/Volkswagen and Stiching Baksteen cases where the commission took a decision which put into consideration the maintenance and improvement of level of employment. The most notable decision in reference to the exemption rule was the exemption offered to an agreement between manufacturers of washing machines who made an agreement to stop the production of energy in efficient machines. The commission noted though the participants limited their freedom to manufacture and market certain types of washing machines which in effect restricted the level of competition according to Article 101, this agreement would have lots of benefits and considerable savings for consumers more specifically the reduction of pollutant emissions. The commission stated that the decision was taken after taking into consideration the positive contribution to the EU’s environmental objectives (Cseres, 2005).

CONCLUSION

The European Law Article 101 aims at ensuring fair competition which is paramount to successful trade within and between the various member states. However, for a law that applies to various nations one of them having no written constitution (British) the aspect of generalization has to arise. Its therefore out of this generalization that the Cartels thrive not to exploit the consumers but to exploit the opportunities. Some of the cartels have been established out of necessity while others have exploited the opportunity set by loopholes in the article to strategically position themselves. The ruling on Woulter case was essential in the establishment of these cartels and is essential in the development of the law and future rulings.

            REFERENCE

1. Amodine, Z. (2013) EU Competition Law: Article 101 of the TFEU. Students Lawyer. Retrieved from http://thestudentlawyer.com/2013/07/18/eu-competition-law-article-101-of-the-tfeu/
2. Egervari, P. (2011). Is the idea of object or effect agreements in Art 101 TFEU sufficiently clear?. The Student Journal of Law ,2(1), 1. Retrieved May 10, 2014, from http://www.sjol.co.uk/issue-2/is-the-idea-of-object-or-effect-agreements-in-art-101-tfeu-sufficiently-clear
3. Jones, A., & Sufrin, B. E. (2008). EC competition law: text, cases, and materials(3rd ed.). Oxford: Oxford University Press.
4. MacCulloch, A., Rodger, B., & Galloway, j. (2009). Cases and materials on UK and EC competition law(2nd. ed.). Oxford: Oxford University Press.
5. Østerud, E. (2011). Cartels and Other Horizontal Agreements. Department of Private Law. University of Oslo
6. Van Hess, S. R.W. (2011). A Sustainable Competition Policy for Europe. Universiteit Utrecht.
7. Whish, R. (2012). New competition jurisdictions: shaping policies and building institutions. Cheltenham, UK: Edward Elgar.

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