The Journey toward an Effects-Based Approach under Article 101 TFEU—The Case of Hardcore Restraints
| Date | 01 December 2010 |
| DOI | 10.1177/0003603X1005500405 |
| Published date | 01 December 2010 |
| Subject Matter | Article |
The journey toward an effects-based
approach under Article 101 TFEU—
The case of hardcore restraints
BY ALISON JONES*
This article charts the journey that the European Commission has
taken to “modernize” the interpretation and application of Article 101.
It starts by analyzing the Commission’s initial formalistic approach to
Article 101 and examining why change was necessary. It then
considers how, and the extent to which, reform has occurred, focusing
on the treatment of hardcore restraints. The article notes that, in spite
of the significant change that has followed the modernization program,
there has been little evolution in the EU in the treatment of hardcore
restraints, which are still treated on a strict and inflexible basis. Indeed,
it concludes that the process of modernization may have made it less
likely that firms will be willing to incorporate hardcore restraints in
their agreements, even where they consider them to be indispensable
to the working of a procompetitive arrangement.
I. INTRODUCTION
In 1996, the European Commission (the Commission) embarked on a
long and ambitious journey to reform the interpretation and applica-
tion of the EU competition law rules. It commenced with the review
and overhauling of the working of Article 101 of the Treaty on the
*
Professor of Law, King’s College London; Solicitor, Freshfields Bruck-
haus Deringer.
© 2010 by Federal Legal Publications, Inc.
784 : T H E A N T I T R U S T B U L L E T I N : Vol. 55, No. 4/Winter 2010
Functioning of European Union (TFEU),1 before moving on to review
the functioning of the EU Merger Regulation2 and its approach to
abusive exclusionary conduct by dominant undertakings under Arti-
cle 102 TFEU.3 The core objectives of each set of reforms were to
ensure that there was a shift from rules based on form to rules
focused on the economic effects of the conduct at issue and to rein-
force the Commission’s growing view that the central goal of the EU
competition rules should be the protection of competition on the mar-
ket as a means of enhancing consumer welfare.4
This article charts the journey that the Commission has taken to
“modernize” Article 101. It commences in section II by briefly ana-
lyzing the Commission’s initial formalistic approach to Article 101
and why reform was necessary. Section III then considers how, and
the extent to which, reform has occurred, focusing on the treatment
of hardcore restraints. It examines what constitutes a hardcore
restraint and whether, and if so how, Article 101 provides sufficient
flexibility to allow the effects of such restraints to be analyzed. In
section IV some conclusions are drawn. In particular, it is noted that
although significant change has occurred, there has been little evolu-
tion in the treatment of hardcore restraints, which are still treated on
a formalistic basis.
1
See infra section II.
2
On May 1, 2004, a new EU Merger Regulation introduced significant
jurisdictional, procedural and substantive changes to the merger rules.
Commission Regulation 139/2004, 2004 O.J. (L 24/1).
3
See Directorate-General for Competition, Discussion Paper on the
Application of Article 82 [now 102] of the Treaty to Exclusionary Abuses
(Dec. 2005), available at http://ec.europa.eu/competition/antitrust/art82
/discpaper2005.pdf, and Guidance on the Commission’s Enforcement
Priorities in Applying Article 82 EC [now 102 TFEU] to Abusive Exclusionary
Conduct by Dominant Undertakings, C(2009) 864 final, 2009 O.J. (C 45/7).
4
Over the years the Commission has “slowly but surely come to think
that the ‘competition’ that competition policy is supposed to protect is best
viewed as a process, the outcome of which is welfare, with welfare being the
aim.” Philip Lowe, Consumer Welfare and Efficiency—New Guiding Principles of
Competition Policy? (13th Int’l Conference on Competition and 14th European
Competition Day, Mar. 27, 2007).
H A R D C O R E R E S T R A I N T S : 785
II.
THE JOURNEY TOWARD AN EFFECTS-BASED
APPROACH
Article 101 TFEU, like section 1 of the Sherman Act of 1890 in the
United States, seeks to prohibit anticompetitive agreements between
independent firms. While section 1 simply prohibits contracts which
are in “unreasonable”5 restraint of trade, Article 101 is divided into
parts, with substantive appraisal of an agreement being divided
between Article 101(1) and Article 101(3).6 Article 101(1) prohibits
agreements7 between undertakings8 that have as their object or their
effect the restriction of competition and that affect trade between
Member States, while Article 101(3) provides that the Article 101(1)
prohibition does not apply to agreements that meet four criteria: that
they produce specified benefits, allow consumers a fair share of the
benefits, contain only indispensable restrictions, and do not lead to an
elimination of competition.
In the past, both the U.S. courts and EU authorities have been
criticized for taking too formalistic an interpretation of these respective
provisions. During the 1950s–1970s the U.S. courts, being skeptical of
their ability to examine and weigh competing economic effects under
the rule of reason, made extensive use of the rule of per se illegality to
provide a clear rule, and patent deterrent, against practices that
experience suggested would be condemned under a rule of reason
5
Standard Oil Co. (N.J.) v. United States, 221 U.S. 1 (1911).
6
Article 101(2) renders agreements prohibited pursuant to the article
void. The European Court of Justice (ECJ) has held that the nullity affects
only the clauses in the agreement prohibited by the provision, so that the
agreement as a whole is void only if the prohibited clauses cannot be severed
from the remaining terms. Case 56/65, Société La Technique Minière v.
Maschinebau Ulm GmbH, 1966 E.C.R. 234.
7
It also prohibits concerted practices between undertakings and
decisions by associations of undertakings. In this article, unless the context
otherwise requires, the word “agreement” is used as shorthand to cover
agreements, decisions, and concerted practices.
8
“Undertaking” is an EU concept that comprises any entity engaged in
economic activity. Case C-41/90, Höfner & Elser v. Macroton GmbH, 1991
E.C.R. I-1979, ¶ 21.
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enquiry.9 Per se analysis was thus used to condemn many types of
restraints, including horizontal price fixing and other naked horizontal
restraints,10 collective boycotts,11 tying,12 and vertical intrabrand
nonprice and price restraints.13 The expansive use of the rule, however,
brought it into disrepute and led to widespread complaint that the
approach was over-inclusive, overly formalistic and was wrongly
condemning many procompetitive agreements. From the 1970s,
therefore, and following a recognition that the goal of the Sherman Act
is consumer welfare,14 the Supreme Court began to reconsider its
approach and has dramatically narrowed the circumstances in which
the rule of per se illegality applies. In particular, not only has the
Supreme Court drawn in and rethought the boundaries of the category,
confining it to a small group of agreements it considers to have, or to be
likely to have, a “pernicious effect on competition” and to be “lacking
any redeeming virtue”—essentially naked horizontal cartel
arrangements15—but it has also condoned a side-stepping of the per se
rule in cases where the severe “restraint at issue potentially could create
an efficiency enhancing integration to which the restraint is ancillary.”16
9
The per se rule simplifies the task of the plaintiff and ensures that
precious resources are not wasted in having to establish anticompetitive harm
or rebutting justifications for obvious restraints.
10
See United States v. Socony Vacuum Oil, 310 U.S. 150 (1940).
11
See Nw. Wholesale Stationers, Inc. v. Pac. Stationery & Printing Co.,
472 U.S. 284 (1985).
12
See Int’l Salt Co. v. United States, 332 U.S. 392 (1947); Standard Oil Co.
(Cal.) v. United States, 337 U.S. 293 (1949).
13
Dr. Miles Med. Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911);
Keifer-Stewart Co. v. Joseph E. Seagram & Sons Inc., 340 U.S. 211 (1951);
Albrecht v. Herald Co., 390 U.S. 145 (1968); and United States v. Arnold,
Schwinn & Co., 388 U.S. 365, 376 (1967).
14
Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979).
15
FTC v. Superior Court Trial Lawyers Ass’n, 493 U.S. 411, 433–35
(1990); Texaco Inc. v. Dagher, 547 U.S. 1 (2006).
16
Nat’l Bancard Corp. v. Visa U.S.A. Inc., 779 F.2d 592, 599 (11th Cir.
1986) (citing Robert H. Bork, The Rule of Reason and the Per Se Concept: Price
Fixing and Market Division, 75 YALE L.J. 373, 474 (1966)). See Broad. Music, Inc.
v. Columbia Broad. Sys., Inc, 441 U.S. 1 (1979) and NCAA v. Bd. of Regents
Univ. Okla., 468 U.S. 85 (1984).
H A R D C O R E R E S T R A I N T S : 787
The presumption now is that agreements should be analyzed under the
rule of reason, the “standard traditionally applied for the majority of
anticompetitive practices challenged under §1 of the Act.”17 Because of
the inherent uncertainties and difficulties involved in such analysis,
however, the courts have devised short cuts to avoid, where feasible,
the need for full and costly rule of reason enquiry. Since the end of the
1970s there has, therefore, been a sea change, a shift from rules based
on form to rules grounded in economics and away from a “dichoto-
mous approach—under which every restraint of trade is either unlawful
per se and not susceptible to justification, or...
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