European Union Law:

Substantive law
Competition Law

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 W6 – Competition Law: Agreements; Monopolies &
Enforcement
Competition Law: Intro
Competition → rivalry between market participants
• In capitalist theory → competition is good for the market because it represents a strive
of market participants to be the best – idea is that it helps optimizing the allocation of
resources through the market itself
• In an economic point of view → resources are limited, and they must be allocated in
a certain way – A lot of efforts to make this race and competition continue and make
people not cheat

Competition law is basically the rules of the game which create the playing field → idea is to
take all the barriers between Member States to be able to create one big level playing field
for market participants
• It is closely linked to internal market law which is the rules on how the playing field
looks whereas competition law are the rules on the game that the players must adhere
to when they’re on such playing field

Competition law is needed to keep this situation ongoing where there is conflict
between market participants and thus helping the market work as it does

Competition law in the European Union → strives towards a workable competition

• Article 3 TEU → competition law in the main toolkit union to achieve the political
goals in Article 2

Article 3 TFEU → the EU has exclusive competence regarding competition

• The MS do not have any sovereignty regarding competition law
• This is also found in Article 119 TFEU

The European Commission plays a central role regarding competition

• The primary addressees of competition law rules are market participants (instead of the
MS)

5 branches in European competition law:

1. Article 101 TFEU → Prohibition on collusion, on working together, on agreements

and other forms of collusion

This is avoiding market participants to undermine the benefits of competition

by working together

2. Article 102 TFEU → prohibition on abuse of a dominant market position

3. The merger control regulation → Where the commission tries to control companies
merging into larger entities which would then become more powerful/dominant on

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 that market which they would probably start to abuse –addressed to the market
participants themselves

Not in the treaty; purely secondary legislation – precursor to Article 102 TFEU

4. Article 106 TFEU → deals with the role of the state; public undertaking – how
companies, entities, legal persons owned by the government should behave in
competition law

5. Articles 107 and 108 TFEU → deal with the role of the state; state aid – these free
market processes and trying to undercut the beneficial side effects of competition

Scopes of Application
Three scopes of application:
• Personal scope
• Material scope
• Territorial scope

PERSONAL SCOPE → Articles 101 and 102 TFEU and the Merger Control Regulation
– addressed to undertakings
• Undertakings → specific term for legal persons or persons exercising economic
activity – they are the subjects of competition law

Höfner (Case C-41/90) → established that an undertaking encompasses every

entity engaged in an economic activity regardless of the legal status of the
entity and the way it is financed
▪ Thus, if an entity (natural or legal person) exercises an economic
activity, then this entity is an undertaking for the purposes of Article 101
and 102 TFEU

Wouters (Case C-300/99) → interpreted widely since even natural persons and
individual lawyers can be seen as undertakings

Meca-Medina (Case C-519/04P) → court said that professional sports players

(in this case swimmers) were undertaking in the scope of Article 101 and 102
TFEU

• If the objective is purely social and not economic → the court rules it is not an
undertaking

Examples in case law:

▪ Poucet (Case C-159/91)
▪ Eurocontrol (Case C-364/92)

MATERIAL SCOPE → To which areas of the economy does the competition law apply:
• General rule → every aspect of the economy falls within the competition law rules
except when it is expressly exempted in the treaty (e.g., international arms trade)

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TERRITORIAL SCOPE → the EU takes the right under the lotus principle (unlimited
jurisdiction) to prescribe rules that may also be valid outside its own territory
• Every economic activity implemented in the EU is caught by the European Competition
Rules

Woodpulp (Cases 89, 104, 116, 117 and 125 to 129/85) → European rules
apply irrespective of where the undertaking is established – even if it is
outside the EU but exercise economic activity within the EU

• The problem is in the enforcement – this is because the EU, with its exclusive
competence in competition law, does not have any sovereignty to enforce outside its
own territory

Enforcement outside the territory (i.e., investigative enforcement or

enforcement of decision of fines imposed) depends on bilateral agreements
between the EU and third states
▪ E.g., agreement between the US and EU to mutually apply and enforce
each-others competition law rules (also with Canada, Japan, EEA
countries, etc.)

Article 101 TFEU: Prohibition of Cartels

Article 101 TFEU → prohibition of cartels: prohibition on market participants to cooperate
in a way that would undercut the beneficial side effects of competition

According to the definition on Article 101 TFEU, there are a number of conditions which must
be fulfilled:
1. More than one undertaking → this is because it talks about collusion
2. There needs to be a type of collusion → article talks about agreements/decisions of
associations of undertakings or concerning practices
3. Union dimension → affect trade between MS
4. Rationale behind it → must have as their object or effect the prevention, restriction, or
distortion of competition

If all four conditions are fulfilled, according to Article 101 TFEU, these agreements, decisions
or concerted practices will be prohibited as incompatible with the internal market
• Article 101(2) TFEU → consequence of the prohibition is that such agreements,
decisions or concerted practices will be automatically void (never existed)

Article 101(3) TFEU → there might be exemptions

Closer look into the four conditions on Article 101 TFEU:

MORE THAN ONE UNDERTAKING → undertakings are every entity that is exercising
economic activity according to the definition on the Höfner case
• Important to test whether it is an undertaking (why yes/no)

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MUST ENGAGE IN A TYPE OF COLLUSION → they must cooperate in a certain way –
there’s three ways described by the article:

• Agreements → arrangement that deals struct between at least two undertakings

(contract)

Quinine Cartel (Case 41/69) and Polypropylene (Case C-199/92P) → there

are no formal requirements regarding agreements, does not have to be a written
contract (can also be an oral agreement) – what is needed is proof a meeting of
the minds
▪ Burden of proof is on the Commission

If an undertaking is willingly and knowingly trying to breach Article 101 and

maliciously is trying to violate European competition law, it is usually not
written down → thus agreements are characterized as a meeting of the minds

• Decisions of associations of undertakings → when undertakings set up an

organization which governs their behavior – these organizations can factually or legally
influence the behavior of the undertakings of such association (e.g., bar association)

• Consulting practices → contact but no contract; Situations where an agreement has

not been reached – also catches behavior that falls short of an agreement by accident
or on purpose

Dyestuffs (Case 48/69) and Sugar Cartel (Cases 40 to 48, 50, 54 to 56, 111,
113 and 114/73) → a concerted practice is a form of coordination between
undertakings which without having reached the states where and agreement
properly so-called has been concluded knowingly substitutes practical
cooperation between then for the risks of competition
▪ Limiting the risks coming from competition by exchanging
information

Burden of proof is on the Commission → must prove contact and

implementation on whatever it was about on the particular market

Woodpulp II (Cases 89, 104, 114, 116, 117 and 125 to 129/85) → Situations
where the suspicion of a consulting practice is so high that the burden of proof
is reversed – undertaking has then to disprove it

UNION DIMENSION → it may affect trade between MS

• STM (Case 56-65) → it had to directly or indirectly, actually or potentially hit trade
between Member States

THE RATIONALE BEHIND MUST HAVE AS ITS OBJECT THE PREVENTION,

RESTRICTION OR DISTORTION OF COMPETITION
• There is intent → this criterion is enough, and the effect is irrelevant

STM (Case 56-65) and Consten & Grundig (Cases 56 and 58/64) → the
participants involved argued that even though they had the intent to violate
competition law it did not have that effect – the court said it is irrelevant

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 ▪ If the object is proven, you don’t have to look at the effect at all

• There is no intent → the effect must be looked at

Making an economic analysis of the market to see what the effect of the
particular form of collusion is
▪ Then must be decided whether that is the effect of to prevent, restrict or
distort competition

When it is the effect to prevent, restrict or distort competition → There must be

an appreciable effect – effect must be big enough to be felt on the European
market

Agreements & Concerted Practices

CONCERTED PRACTICES → covers two things:

• Agreements that can’t be proven → gives the commission a second chance when they
suspect there is an agreement but can’t find it, they may try and cover this as a
concerted practice
• Concentric circles: situations that would never be an agreement as such → Even if
there is evidence – market participants exchange information to lower their collective
risk of competition

Proving concerted practices → The commission looks at the economic data

• Contact must be proven and then unexplained parallel market behavior →
participants that you’ve proved contact between are behaving in a way on that market
that isn’t logical (done by economists)

Oligopoly → a market in which little numbers of market participants participate

• The smaller the market the larger may be the enticement or seduction to actually get
into these concerted practices
• The more oligopolistic becomes, the probability of a concerted practice becomes
larger and the harder it is to prove a logical parallel market that wasn’t caused by a
concerted practice

De Minimis – Appreciable Effect

Appreciable effect → belongs to the third requirement of Article 101 – the form of collusion
must have the object or effects to prevent, restrict or distort competition
• When there is object/intent → condition is fulfilled
• When there is no object/intent → must look at whether there was effect – if yes, then
it must have an appreciable effect on the market as such

De minimis notice → The resources of the commission law are limited – thus they lay down
a notice (not binding) on agreements of minor importance which do not appreciably restrict
competition under Article 101

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 • The de minimis notice is the commission organizing its own work → establishes that if
there is a collusion, not created with mal intent but it may have that effect, they only
want ‘the big fish’

Such an agreement has an appreciable effect on intra community competition if it fulfils the
conditions of the de minimis notice
• This is defined through an economic analysis of how big the impact of this agreement
of concerted practices is to decide whether it is a ‘big fish’ or not

Article 101(3) Exemptions

Article 101(3) TFEU → provides for exemptions in a several different number of situations

These exceptions cannot be applied in a detailed manner

Before 2003 → Article 101(3) had no direct effect

• It was necessary to apply with the Commission for an exemption and the commission
would then apply the conditions as laid down in the article and would decide, based on
those conditions, whether there were exceptions → this brought the idea of block
exemptions

Block exemptions → situations laid down in secondary legislation – if certain

practices fall within the limit of such criteria, then it does not have to apply to
the commission for an exemption, but it would get the exemption based on this
block exemption (like a pre-determined criteria)

Since 2003 (introduction of new regulation) → court concluded that Article 101(3) had direct
effect – Possible to rely on the article directly
• It became a complete system of self-assessment → an undertaking will self-assess the
criteria of Article 101(3) to decide whether they fall under it

Commission Regulation 330/2010 → on vertical agreements and concerted practices

• Block exceptions still exist → if an agreement or a concerted practice falls within the
confines of these criteria, then possible to rely on the fact that the criteria of Article
101(3) are fulfilled

Possible to continue the agreement of concerted practice without worrying that

it is violating Article 101

• Vertical agreement → block exemption of agreement between undertakings/entities

in different links in the production or column of a product

Less problematic because these are not competitors → the companies when
making these arrangements are arranging the effective way of producing the
product and not competing

Staying on the confines of the block exception, then it is safe to make these
arrangements between these vertical agreements

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Article 2 Regulation 330/2010 → lays down the exemption

Article 3 Regulation 330/2010 → provides for a market share threshold – no need to worry
about applying the vertical restraints regulation themselves

Article 4 Regulation 330/2010 → blacklist of provisions – when these are included in the
agreement then the regulation / the exception will not apply

Article 5 Regulation 330/2010 → grey list – restrictions that aren’t allowed themselves but
that will not entirely invalidate the agreement as such, or the application of the vertical
restrains regulation to the rest of the agreement
• Thus, only a specific part of the agreement would fall outside the scope of the regulation

Article 6 Regulation 330/2010 → gives the commission the opportunity to revoke the
benefits of the regulation in other circumstances

Article 102 TFEU: Abuse of a Dominant Market Position

Dominant market position → when undertakings are in a position where it looks like they are
going to win the competition

Article 102 TFEU → “Any abuse by one or more undertakings of a dominant position
within the internal market or in a substantial part of it shall be prohibited as incompatible with
the internal market in so far as it may affect trade between Member States”
• The article establishes the prohibition of a dominant market position and gives 4
examples of what kind of abuse there may be

Closer look into the conditions on Article 102 TFEU:

1. MORE THAN ONE UNDERTAKING

2. DOMINANT MARKET POSITION WHICH IS ABUSED IN A WAY THAT MAY

AFFECT TRADE BETWEEN MS → dominance and abuse of that dominance is what
must be looked at
• United Brands (Case 27/76) → dominance is a position of economic strength
enjoyed by an undertaking which enabled it to hinder the maintenance of effective
competition on the relevant market by allowing it to behave in an appreciable extent
independently of its competitors, customers and ultimately of consumers

Three elements that must be looked at to define the relevant market:

• Relevant product markets → the market can be limited by a certain product

Cross elasticity → used to decide whether the product has a separate market
or whether there’s a larger product market of which the product is a part of

SSNIP test → applied by the Commission – small but significant non-transitory

increase in price test

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 ▪ The price of the product is increased, and consumer behaviors is
predicted – If consumers switch to another product, then it belong to
the same product market

• Relevant geographical market → market can be limited by a certain place

Default situation → the market is the entire EU unless there are reasons to
believe that the geographical marker should be smaller
▪ The smaller the market the more likely a dominant position will result

The geographical market can be confined in one MS

• Relevant temporal or seasonal market → market can be limited by a certain time

Default situation → the market is the whole year (the 365 days p/y) unless it
is shorter (e.g., shorter for certain agricultural produce)

If the market has been defined (the three aspects have been established) → the dominance /
market power as such must be assessed:
• Market share: assessment of market power → Looking at the position of the
competitors – where there is one particular market participant that has a significantly
larger market share, then that’s an indication for a dominant market position

• There are also other criteria used by the commission and the court to look at
dominance:

Duration of the market position → is there a tradition of this particular market

participant being in that situation
▪ Does the market participant have access to certain financial or technical
resources that might make it easier to maintain / solidify this position?

How many barriers of entry are there → how easy is it for a new participant
to jump in and take a significant chunk of that particular market

If then the decision on wither there is a dominant market position is taken according to the
court’s definition in United Brands case in itself is not problematic
• The abuse of this market position is what’s problematic

Article 102 TFEU → gives 4 examples of what the abuse of a dominant market position
may be:
(a) Abuse in pricing
o “Directly or indirectly imposing unfair purchase or selling prices or other unfair
trading conditions”

(b) Limitations of market in any shape or form

o “Limiting production, markets or technical development to the prejudice of
consumers”

(c) Unfair conditions (e.g., unfair discounts)

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 o “Applying dissimilar conditions to equivalent transactions with other trading
parties, thereby placing them at a competitive disadvantage;”

(d) Tie-ins – only the company’s product works with the company’s machine (e.g.,
Nespresso capsules and machine – prohibited even if the tie-in is free)
o “Making 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”

THERE ARE NO EXCEPTIONS TO ARTICLE 102 TFEU → However, the court

sometimes allows for objective justifications
• Court allows sometimes for companies to bring forward justifications as to why they
would be abusing a dominant market position

Merger Control Regulation

Regulation 139/2004 on merger control
• Not mentioned in the treaty

The regulation somehow links into Article 102 → Sooner or later a dominant market position
will be abused and then there is a problem with Article 102 thus, there’s an incentive for the
Commission, if it has a say about it, to prevent the emergence of a dominant market provision
• Commission has a say when it comes to merger control

Merger control → When undertakings seek to merge or join legally in any way, shape or
form, to concentrate – they will have to ask for permission from the European Commission
if they are of a certain size
• Test applied by the Commission: Whether a concentration significantly impedes
effective competition in the internal market

Commission will answer yes → if it leads to establishment or the

strengthening of a dominant market position so it lacks the need for abuse
per se
▪ Commission tries to prevent that dominant market position from coming
to existence or from becoming even stronger through this concentration

Commission may say no to the concentration → rare – usually the concentration

is allowed with a lot of requirements imposed by the commission

Enforcement
The commission is the primary investigator of competition law infringement
• It does it with the help of national competition authorities

Regulation 1/2003 → Rules what the Commission can and cannot do, its powers, burden of
proof, etc.
• The Commission has far-reaching powers in case of searching premises of an
undertaking or associated with the undertaking and including the private homes of
administrators of an undertaking

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• Commission can also impose fines
o These fines are open to judicial review by the General Court by means of Article
263 TFEU – based on decisions addressed to the person, there’s standing even
as a non-privileged applicant there
o Up to 10% of gross annual turnover
o The Commission is the beneficiary of those
o Not cooperating with the Commission also amounts to a fine

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 W7 – Competition Law: State Aid
Competition Law and the State: 106 &107 TFEU
Article 106 TFEU → covers situations with public undertakings: when an entity is active in
exercising economic activity but in some shape or form it is the State
• (1) The general rule is that competition law shall apply
• (2) Whenever these undertakings must do something that is in the general economic
interest, then there might be excepted from competition rules – necessity requirement

Definition of services of general economic is problematic → there are different

definitions coming from different institutions and MS having their own ideas
about this (this complication lies in the exceptions)

Article 107 TFEU → the involvement of the State through giving out state aid it is
incompatible with the internal market
• There are possible justifications

Requirements on Article 107 TFEU:

There must be aid → ‘financial’ transfer of benefits from the state to an undertaking –
anything given by the state that would help evading risks of competition
• Not always money, e.g., direct subsidies, tax exemptions, preferential interest rates,
favourable loan guarantees, etc.

The standard is that it must be artificial compared to the market:

• Market investment test is applied by the Commission → whatever the state gives, is
it in any way shape or form artificial compared to the market?

If something isn’t obtainable at the market or at the same rates/costs (i.e.,

artificial), then deemed aid

There must be some sort of paper trail that can be followed back to the State or a State
entity
• Even though aid is granted by the Member State through State resources, and it can be
set through very intricate systems of transferring aid which is hard to identify

Must apply selectively → there must be a selective element

• Must be for a particular company/group of companies and it may not just be a general
measure that a government can take in a specific MS

The aid that is transferred by a Member State through its resources must threaten to distort
competition or distort competition all together
• Looks at the size of the aid → is the aid big enough to threaten competition or distort
competition on the EU level?

System of de minimis applies: Regulation 1407/201 → lays down an amount

of aid that falls outside the scope of EU rules on state aid

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 ▪ if aid amount is less than 200.000 euros over 3 years or 100.000 for road
transports, then is not big enough

If it does not fall under de minimis regulation → court looks at whether the
recipient of the aid was put in a more advantageous position

Must affect trade between Member States → was the financial position of the undertaking
strengthened by the aid?

If the conditions are fulfilled, then the aid is incompatible with the internal market →
except for the two systems of justifications:

Article 107(2) TFEU → automatic justifications – will be compatible with the internal
market (no discretionary power):
• Aid with a social character → granted to individual consumers provided that it is
granted without discrimination related to the origin of the product
• Aid to make good the natural disaster or an exceptional circumstance →
exceptional circumstances probably don’t apply when they’re man-maid (e.g.,
economic crisis)
• Aid to Germany because of its division

Article 107(3) TFEU → possible justifications – aid may be deemed compatible (there’s
discretionary power):
• Aid to promote the economic development of areas where the standard of living is
abnormally low or where there is serious unemployment → this is judged in a union
context
• Aid to promote the execution of an important project of common European
interest or to remedy a serious disturbance
o Serious disturbance → Actions taken because of the financial crisis were
justified here
o Important project of common interest → things like HD television or 5G
internet, etc.
• To facilitate the development of certain economic activities or of certain economic
areas, where such aid does not adversely affect trading conditions to an extent contrary
to the common interest → regional aid, can be used in regions of richer MS
• To promote culture and heritage conservation
• Other categories of aids:

Block exemption regulation 651/2014 → provides for a large number of

specific categories of aid exempted under this article

Regulation 994/98 → for strategic shipbuilding yards

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 State Aid: The Procedure
Article 108 TFEU → Lays down the procedure regarding State Aid (provides the framework)
• Regulation 2015/15/89 → The detailed rules are worked out in this regulation

The mechanics of Article 108 TFEU:

There is a distinction between new aids and existing aids:

Article 108(1) TFEU – existing aids → these are:

• Aids that predate the treaty
• Aids that were declared compatible by the Commission → didn’t fulfil the conditions
of articles 107(1)
• Individual aid fitting in an approved scheme,
• Aids exempted under either article 107(2) or 107(3) TFEU
• Aid notified to the Commission, but it the Commission didn’t take any further action

The Commission shall keep existing aids under constant review → if they
feel that something has changed, then the existing aid can be put back of the
queue and be put back in the system of new aid

Article 108(3) TFEU – new aids → If the state wants to give aid in any way shape or form, it
shall first notify the Commission of this intent
• The commission must come with a preliminary view within two months where it may
request more info (informal part of the procedure)

If the commission has doubts as to what this view should be, it then it goes to
the formal procedure in Article 108(2) TFEU

Article 108(2) TFEU – formal procedure → requires a publication of the intention to give an
aid in the official journal of notice inviting third parties to submit comments
• The Commission will then decide whether it is compatible, incompatible or
compatible but subject to conditions
• The council may override that decision → must act unanimously and upon the request
of the MS (probably the one who has gotten a no on their request)
• Then falls under existing aid and the commission must keep an eye on it (Article 108(1))

Aid falling under the block exemptions → doesn’t have to be notified

Regulation 215/15/89 → non-notification will result in illegal/unlawful aid but not

necessarily incompatible aid – in this case, the commission:
• Can give an injunction to suspend
• It may give an injunction to recover (before decision on what type of aid is)
• May ask to repay the money already paid in situations where there is an urgency in a
serious risk of irreparable damage to the competitor (going into bankruptcy)

When there is unlawful aid that was incompatible → must be repaid and an even
bankruptcy of the undertaking is not a defense against repaying

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▪ Only escape is if repayment is absolutely impossible (e.g., when despite
the aid the company and undertaking has gone into bankruptcy and the
money is gone)

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