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EU: Landmark Court of Justice ruling pans General Court, Commission analysis

 |  September 15, 2014

The European Court of Justice issued a ruling late last week that reprimanded the General Court for adopting a too liberal interpretation of when a case can be decided solely by reference to restriction of competition “by object” and for not having considered whether the agreement in question—one reach by a French bank association– had the effect of restricting competition. It remanded the decision to the General Court to undertake the complex questions of fact concerning the impact of the agreement on competition. The ruling is also noteworthy because of its discussion of two-sided markets and their relevance for analyzing competitive effects.

Case background

The French association notified a change in its rules to the Commission in 2007; those revisions included certain pricing measures that introduced new fees applicable to “dormant” members, new members, and a fee under the “mechanism for regulating the acquiring function.”

In 2007, the Commission found that those pricing measures restricted competition “by object.” The General Court upheld the Commission’s decision on appeal after the French group argued the Commission conducted errors of law in its interpretation of the concept of restriction of competition “by object.”

Restriction of Competition ‘By Object’

European Commission released a working document earlier this year offer guidance on “by object” restrictions of competition, defining the concept as actions “that by their very nature have the potential to restrict competition.”

In its working paper, the Commission said it defines “by object” restriction by analyzing factors including the content of the provisions, its objectives, as well as the economic and legal context in which they exist. Further, the Commission said, it could take into account the parties’ intentions through the provisions.

Restriction of competition “by object” differs from restricting competition “by effect,” according to officials, as restriction “by effect” results from anticompetitive behavior that, by its very nature, is considered harmful to competition. Actions such as price-fixing and other collusive agreements are considered anticompetitive “by effect.”

When the nature of such behavior is not considered, by nature, to harm competition, officials agree that its actual effects on competition must be properly analyzed.

The Court of Justice’s Findings

In its ruling, the Court of Justice found that the General Court failed to properly analyze those effects on competition caused by the Groupement’s pricing rules, stressing that not all agreements, even if they affect pricing, can be presumed to harm competition. Further, it disagreed with the General Court’s liberal interpretation of restriction of competition “by object.”

The Court concludes its decision with a stern message to the Commission and the General Court, declaring that their erroneous decisions represented “a general failure of analysis…and therefore reveal the lack of a full and detailed examination of the argument of the appellant and of the parties which sought the annulment of the decision at issue.”

It added, “the General Court failed to review, even though required to do so, whether the evidence used by the Commission in the decision at issue enabled it correctly to conclude that the measures at issue, in the light of their wording, objectives and context, displayed a sufficient degree of harm to competition to be regarded as having their object a restriction of competition” as defined by law.

Impact of the Court’s Decision

According to reports, many experts will likely applaud the Court of Justice’s decision, as the Commission has largely been criticized for what some consider an overreaching interpretation of the concept of “by object.” Critics of broadening the limits of the concept argue that doing so cuts the need to properly analyze market effects of a behavior.

In addition, the ECJ explicitly discussed the importance of two-sided markets in analyzing anticompetitive effects.

Reports say such overextension of the concept could now fall by the wayside at the Commission, especially as it readies to welcome a new competition chief, Margrethe Vestager.

Full content: Shearman & Sterling

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