REVIVING AN OLD DEBATE:

THE RULE OF REASON UNDER ARTICLE

101

SELEN YERSU ŞAHİN

LL.M. IN COMPETITION LAW

KING’S COLLEGE LONDON

2013

2

Adı-Soyadı Selen Yersu ŞAHİN

Referans No. JM- 164EN Sözleşme No. TR2009/0135.02-03/07

Başvuru Yaptığı Sektör

(Kamu-Üniversite-Özel Sektör)

Kamu

Başvuru esnasında Bursiyerin Bağlı

Olduğu Kurum

Rekabet Kurumu

Bursiyerin Bağlı Olduğu Kurumun İli Ankara

Başvuru esnasında Bursiyerin Bağlı

Olduğu Kurumdaki Unvanı

Rekabet Uzmanı

Çalıştığı AB Müktesebat Başlığı Rekabet Politikası

Öğrenim Gördüğü Ülke Birleşik Krallık

Şehir Londra

Yabancı Dil İngilizce

Üniversite King’s College London

Fakülte Hukuk

Bölüm Rekabet Hukuku

Program Adı Rekabet Hukuku Master Programı (LL.M. in

Competition Law)

Programın Başlangıç/Bitiş Tarihleri (örn.

Ekim 20…./Eylül 20….)

24.09.2012/30.09.2013

Öğrenim Süresi (ay) 12 ay

Tez/Araştırma Çalışmasının Başlığı Reviving An Old Debate: The Rule Of Reason

Under Article 101 (Eski Bir Tartışmayı

Canlandırmak: 101. Madde Bağlamında Haklı

Sebep

Danışmanının Adı/Soyadı Prof. Richard WHISH

Danışmanının E-posta Adresi richard.whish@kcl.ac.uk

3

Name/Surname

Selen Yersu SAHIN

Reference No. JM – 164EN Contract No. TR2009/0135.02-03/07

Applied From

Public Sector/University/Private Sector

Public

Institution on the date of application Turkish Competition Authority

City of the Institution on the date of

application

Ankara

Title Competition Expert

Related EU Acquis Chapter Competition Policy

Country of Host Institution United Kingdom

City of Host Institution London

Language of the Programme English

Name of the Host Institution King’s College London

Faculty Law

Department Competition Law

Name of the Programme LL.M. in Competition Law

Start/End Dates of the Programme

(i.e.September 20…./October 20….)

24.09.2012/30.09.2013

Duration of the Programme (Months) 12 Months

Title of the Dissertation/ Research Study Reviving An Old Debate: The Rule Of

Reason Under Article 101

Name of the Advisor Prof. Richard WHISH

E-mail of the Advisor richard.whish@kcl.ac.uk

4

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CONTENTS

1. INTRODUCTION.............................................................................................. 9

2. DEFINING THE RULE OF REASON............................................................ 11

2.1. Introduction ...................................................................................................... 11

2.2. Rule of reason in the US .................................................................................. 11

2.3. Rule of reason in the EU .................................................................................. 14

3. EVALUATION UNDER ARTICLE 101(1) ................................................... 17

3.1. Introduction ...................................................................................................... 17

3.2. The economic approach ................................................................................... 18

3.3. Ancillary restraints ........................................................................................... 24

3.4. Public policy considerations ............................................................................ 26

3.5. The counterfactual ............................................................................................ 29

3.6. Other arguments ............................................................................................... 31

3.7. Exclusion of a Prima Facie Finding of a Restrictive Object ........................... 32

3.8. Conclusion for the Evaluation Under Article 101(1) ....................................... 34

4. BOUNDARIES OF THE ANALYSIS UNDER ARTICLE 101(1) ................ 38

5. POSSIBLE CONSEQUENCES OF A RULE OF REASON APPROACH

UNDER ARTICLE 101(1) ....................................................................................... 42

5.1. Introduction ...................................................................................................... 42

5.2. Efficiency ......................................................................................................... 42

5.3. Legal certainty .................................................................................................. 43

5.4. Burden of proof ................................................................................................ 45

6. CONCLUSION ................................................................................................ 47

7. BIBLIOGRAPHY ............................................................................................ 50

6

I am truly and utterly grateful for the love and support of my family and friends. I would

also like to thank the Jean Monnet Scholarship Programme for providing an invaluable

support for my graduate study at King’s College London.

7

ÖZET

Bu çalışma, AB rekabet hukukunun en eski tartışma alanlarından birini oluşturan, AB’nin

İşleyişi Hakkında Antlaşma’nın 101(1). maddesi kapsamında “haklı sebep” analizinin

mevcut ve istenir olup olmadığı konusuna açıklık getirmeyi amaçlamaktadır. “Haklı

sebep” kavramının ABD ve AB hukuku bağlamında tanımlanmasının ve Komisyon,

Genel Mahkeme ve Avrupa Birliği Adalet Divanı kararlarının incelenmesinin ardından,

her ne şekilde adlandırılırsa adlandırılsın, 101(1). madde altında, rekabeti sınırlayıcı

olabilecek nitelikteki anlaşmaların olumlu ve olumsuz etkilerini kıyaslamaya yönelik bir

analizin, AB rekabet hukukunda halihazırda mevcut olduğu düşünülmektedir. 101(1).

madde kapsamında yapılacak “haklı sebep” analizinin sınırları ve muhtemel sonuçları

değerlendirildiğinde, bir anlaşmanın rekabeti kısıtlayıp kısıtlamadığını belirlemek üzere

ilk aşamada 101(1). madde çerçevesinde yapılacak bir dengelemenin gerçekte arzu edilir

olabileceği görülmektedir.

Bununla birlikte, rekabeti kısıtlama potansiyeline sahip anlaşmaların etkin bir rekabet

hukuku incelemesine tabi tutulabilmesi bakımından, 101(1). madde bağlamında

yapılacak “haklı sebep” analizinin unsurlarının, Komisyon ve AB mahkemeleri

tarafından açık şekilde belirlenmesi gerektiğine inanılmaktadır.

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ABSTRACT

This study aims to discuss one of the oldest debates of the EU competition law, on

whether a rule of reason under Article 101(1) does exist and is favourable. After defining

the rule of reason in the US and the EU contexts and going through the case law of the

Commission and the judgments of the General Court and the Court of Justice, it is

concluded that, no matter how it is called, there seems to exist an analysis under Article

101(1), including a weighing up of the pro- and anti-competitive effects of the agreements

that might be in restriction of competition. The assessment of the boundaries of Article

101(1) and the possible consequences of a rule of reason analysis under Article 101(1)

shows that it might actually be favourable to do an initial balancing exercise under Article

101(1), in order to conclude that an agreement does restrict competition.

Nevertheless, it is believed that the Commission and the EU courts should clearly set the

elements of a rule of reason analysis and state how and when an agreement will fall out

of Article 101(1), in order to provide legal certainty for all of the parties involved, in

particular, the parties to the agreement. If such a clarification is provided, a rule of reason

under Article 101(1) is seen as favourable for an efficient competition law analysis of

potentially restrictive agreements.

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1. INTRODUCTION

There is a long lasting debate on whether the “rule of reason” exists and should be used

in the European Union (EU) competition law as it is used in the United States (US) when

evaluating agreements that might be in restriction of competition. In the US, according to

the Section 1 of the Sherman Act, “every contract (...) in restraint of trade or commerce

(...) is declared to be illegal (...)” and there is no legal exception to this prohibition. In

order not to deem every agreement as illegal, the US courts have adopted per se and rule

of reason analysis. This way, certain agreements which are considered to be very likely

to be anti-competitive are automatically found to be illegal and for other types of

agreements, the anti-competitive and pro-competitive aspects of the agreement are

weighed up before an agreement is condemned as illegal. Unlike the US antitrust law

legislation, Article 101 of the Treaty on the Functioning of the European Union (TFEU)

involves both prohibition and exemption provisions for agreements in restriction of

competition, in Article 101(1) and Article 101(3) respectively. Thus, some commentators

argue that the US-style rule of reason should not be adopted by the EU1, which is an

approach that was accepted in many EU court decisions and is in line with the

Commission’s approach. On the other hand, as Jones and Sufrin notes, some

commentators suggest a different balance between Article 101(1) and Article 101(3), such

as conducting a more detailed analysis under Article 101(1) and thereby confining the

role of Article 101(3).2 Verouden, for instance, states that from an economist’s point of

view, verifying whether an agreement is anti-competitive is not very meaningful without

also looking at the possible pro-competitive effects of the agreement under Article

101(1).3 Some views even hold that a kind of balancing under Article 101(1) of the pro-

and anti-competitive effects of an agreement is unavoidable in certain situations.4 As

these various views and discussions suggest, the application of rule of reason under

Article 101(1) has raised a great deal of controversy, since the adoption of different

1 WHISH, R., B. SUFRIN (1987), “Article 85 and the Rule of Reason”, 7 YEL 1-38. 2 JONES, A., B. SUFRIN (2010), EU Competition Law: Text, Cases and Materials, Oxford University

Press, USA, p.191-192. 3 VEROUDEN, V. (2003), “Vertical Agreements and Article 81(1) EC: The Evolving Role of Economic

Analysis”, 71 Antitrust Law Journal 2, 525-575, p.575. 4 NICOLAIDES, P. (2005), “The Balancing Myth: The Economics of Article 81(1) & (3)”, Legal Issues of

Economic Integration, Volume 32, Issue 2, 123-145, p.124-125.

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approaches to the issue will result in widely different outcomes for the competition

authorities, courts, undertakings and consumers. Therefore, the debate on the applicability

of the rule of reason in terms of Article 101(1) and the finding of the right balance between

Article 101(1) and Article 101(3) remains an important and intriguing issue to be

addressed. In the pursuit of a solution, this study will try to discuss the above-mentioned

different approaches in this context and make suggestions for the optimum use of the rule

of reason under Article 101, by analysing different points of view by many commentators

and discussing relevant competition law cases and court decisions.

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2. DEFINING THE RULE OF REASON

2.1. Introduction

In this section, the concept of rule of reason will be defined, starting with the US antitrust

law and application, where the notion originally came from. In the following sub-section,

the implications of the concept on the EU competition law legislation and practice will

be briefly described, before conducting a detailed analysis in the following section.

2.2. Rule of reason in the US

Rule of reason is the accepted standard for testing whether a practice restrains trade in

violation of Section 1 of the Sherman Act of 1890.5 Section 1 provides that, every

contract, combination in the form of a trust or otherwise, or conspiracy, in restraint of

trade or commerce is declared to be illegal.6 Although the language of Section 1 does not

contain a legal exception to this prohibition, the Supreme Court has repeated time and

again that Section 1 outlaws only unreasonable restraints.7 The Court has consistently

distinguished the unreasonable restraints on the basis of impact on competition.8

Rule of reason analysis is said to have been influenced by the Chicago School, which

concludes that an agreement will not be in restriction of competition if its pro-competitive

effects are found to outweigh its anti-competitive effects, after a detailed analysis of the

5 Leegin Creative Leather Prods., Inc v PSKS Inc 551 US 877 (2007). 6 The Sherman Act has aimed to display the general principles, and leave the authority to make the

distinction between legality and illegality to the courts. KINTNER, E. W. (Ed.) (1978), The Legislative

History of the Federal Antitrust Laws and Related Statutes, Chelsea House Publishers, USA, p.282. 7 State Oil Co. v. Khan, 522 U.S. 3, 10 (1997). 8 WERDEN, G. J. (2013), “Antitrust's Rule of Reason: Only Competition Matters”,

http://ssrn.com/abstract=2227097, p.1. Werden notes that some commentators interpreting the Supreme

Court decisions find indications that the rule of reason is a welfare standard. These purely economic

approaches are associated with Bork and Posner. Werden 2013, p.29. For further information on economic

efficiency approach, see BORK, R.H. (1966), “The Rule of Reason and the Per Se Concept: Price Fixing

and Market Division”, 75 YALE L.J. 373, 391–429; POSNER, R.A. (1975), “Antitrust Policy and the

Supreme Court: An Analysis of the Restricted Distribution, Horizontal Merger and Potential Competition

Decisions”, 75 COLUM. L. REV. 282, 292–93. Odudu suggests that Article 101(1) considers allocative

efficiency, and Article 101(3) considers productive and dynamic efficiency. ODUDU, O. (2006), The

Boundaries of EC Competition Law: The Scope of Article 81, Oxford University Press, USA. Articles

101(1) and 101(3) having different efficiency considerations can be interpreted as there being a room for a

rule of reason under Article 101(1).

12

market.9 In this context, the maximisation of consumer welfare has been perceived as the

only legitimate goal of the US antitrust law.10

The first juristic effort for a rule of reason has been brought by Justice White, in the Trans-

Missouri Freight Association11 judgment of the Supreme Court, where he argued that

there needs to be “reasonableness” in the interpretation and application of Section 1.12

Justice White’s interpretation of reasonableness was based on the premise that “it is not

the existence of the restriction of competition, but the reasonableness of that restriction”.13

Standard Oil14, American Tobacco15 and Nash16 decisions of the Supreme Court are seen

as the first judgments articulating the rule of reason in US antitrust law.17 In these

decisions, the Court mainly stated that, when making an assessment of agreements under

Section 1, pro- and anti-competitive effects should be taken into account and balanced.18

The first substantial description for the application of rule of reason has been made by

Justice Brandeis in the 1918 Chicago Board of Trade19 decision. Here, Justice Brandeis

stated that, in order to determine whether the restraint imposed merely regulates and

promotes competition or whether it may suppress competition, the court must consider

the facts peculiar to the relevant business and its condition before and after the restraint

was imposed, alongside the nature of the restraint and its actual or probable effect.20

The Supreme Court did not say much about the rule of reason until its Sylvania21 decision

in 1977, which quoted Justice Brandeis by saying that, the factfinder should weigh all of

the circumstances of a case in deciding whether a restrictive practice should be prohibited

as imposing an unreasonable restraint on competition.22 That means that, when

9 ATA, Ç. D. (2010), Rekabeti Kısıtlayıcı Anlaşmalara Olumlu Yaklaşım: Rule of Reason Işığında Roma

Antlaşması 81.Madde ve Muafiyet, Rekabet Kurumu Uzmanlık Tezi, Ankara, p.62. 10 BORK, R.H. (1978), “The Antitrust Paradox: A Policy at War with Itself”, Free Press, New York, p.376. 11 United States v. Trans-Missouri Freight Association, 166 U.S. 290 (1897), para.350-352. 12 See KOLASKY, W. (2010), “Chief Justice Edward Douglass White And the Birth of the Rule of Reason”,

Antitrust, Vol. 24, No. 3, American Bar Association, Summer 2010. 13 Bork 1978, p.22. 14 Standard Oil Co. v. United States, 221 U.S. 1 (1911). 15 United States v. Am. Tobacco Co., 221 U.S. 106, 179 (1911). 16 Nash v. United States, 229 U.S. 373, 376 (1913). 17 Werden 2013, p.17-18. 18 Ata 2010, p.173. 19 Chicago Board of Trade v. United States, 246 U.S. 231, 238 (1918). 20 Chicago Board of Trade, para.238. 21 Cont’l T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977). 22 Werden 2013, p.20.

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determining whether an agreement is in restraint of trade under Section 1, it is necessary

to balance the pro- and anti-competitive effects of the agreement, and where the latter

outweighs the former, the agreement will be unlawful.23 This judgment is seen as

important since it accepted the rule of reason as the general rule, and per se as an

exception.24

In Professional Engineers25, the Supreme Court argued that the rule of reason focuses

directly on the impact on competitive conditions. In Copperweld26, the Court described

the rule of reason as an inquiry into market power and market structure designed to assess

the actual effect of the restraint. In NCAA27, the Court explained that there is often no

clear line separating per se from rule of reason analysis and what matters is whether or

not the restraint in question enhances competition.28 Similarly, in Indiana Federation of

Dentists29 and Discon30 decisions, the Court focused on how the restraints affected the

competitive process.31

It can be concluded from these Court judgments that, under the rule of reason analysis in

the US antitrust law, before condemning an agreement as illegal, the facts that surround

the agreement in question, the counterfactual and the nature and effect of the restraints

must be considered, and the pro- and anti-competitive aspects of the agreement must be

weighed up.

The main criticism raised against the rule of reason approach in the US is that, since this

approach makes a case-by-case examination necessary, the fact that no clear and simple

criteria is involved in the assessment brings about a legal uncertainty. Furthermore, the

ambiguous nature of the economic methods that are used in the analysis tends to add more

to this uncertainty.32 Therefore, it is discussed whether the rule of reason puts the rule of

law in danger, for it usually does not show a clear and simple way to the undertakings

23 Whish and Bailey 2012, p.134. 24 Ata 2010, p.14. 25 National Soc’y of Professional Engineers v. United States, 435 U.S. 679 (1978). 26 Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768 (1984). 27 NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 104 & n.26 (1984). 28 Werden 2013, p.21-22. 29 FTC v. Ind. Fed’n of Dentists, 476 U.S. 447 (1986). 30 NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998). 31 Werden 2013, p.29. 32 STUCKE, M. E. (2009), “Does the Rule of Reason Violate the Rule of Law?”, 42 U.C. Davis Law

Review 5, 1375-1490, p.1422.

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and leads to legal uncertainty.33 On the other hand, courts in the US have preferred the

rule of reason to per se rule, since markets evolve with a pace which is impossible to

regulate with rigid rules, and hence, a more flexible and economic approach is needed.34

2.3. Rule of reason in the EU

Article 101 of the TFEU is found to be similar to the US antitrust law and application, in

the way that some agreements are characterised as per se infringements, whereas others

are subject to a rule of reason analysis. However, the important difference in EU law is

that, even if an agreement has as its object the restriction of competition, in other words,

it is a per se infringement, the parties to the agreement can still ask for an exemption

under Article 101(3).35 This position derives from the bifurcated structure of Article 101,

which is fundamentally different from Section 1 of the Sherman Act, and it necessitates

clarification of the relationship between Article 101(1) with Article 101(3).36

Although Article 101 does not contain a per se rule, restrictions of competition that can

be qualified as “hardcore” are found very unlikely to meet the Article 101(3) criteria.37

There seems to be a widespread consensus in economics that some agreements are so

likely to be harmful, that their harmful effect can be presumed.38 Although an object

agreement with hardcore restrictions will very probably have a lower chance of getting

an exemption, Article 101(3) can be applied to all kinds of agreements, whether they have

33 Stucke 2009, p.1417, 1466. 34 Ata 2010, p.26. 35 WHISH, R., D. BAILEY (2012), Competition Law, Oxford University Press, USA, p.121. Whish states

that there still seems to be a widespread belief that object restrictions will never meet the conditions under

Article 101(3). See WHISH, R. (2012), “How efficient are the EU competition rules at analysing

efficiencies?”, Presentation to DG COMP, 26 November 2012, Brussels. 36 Ata 2010, p.27-28. 37 FAULL, J., A. NIKPAY (2007), The EC Law of Competition, Oxford University Press, USA, p.294. The

authors note that, agreements involving hardcore restrictions, such as price fixing, generally fail at least the

first two conditions if Article 101(3): they neither create objective economic benefits nor benefit consumers.

These commentators also indicate that, hardcore restrictions generally fail the indispensability test under

the third condition as well. Nevertheless, they suggest that the absence of a per se rule introduces a useful

check on hard-core lists by way of re-classifying the restrictions according to the result of the individual

assessment of such agreements. 38 BAILEY, D. (2012), “Restrictions of Competition by Object Under Article 101 TFEU”, Common Market

Law Review 559, p.560.

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the restriction of competition as their object or effect. There is no such possibility in the

US antitrust law, since an equivalent of Article 101(3) does not exist.39

In its Leegin40 judgment, the US Supreme Court concluded that, minimum resale price

maintenance should be analysed under rule of reason, instead of being subject to a per se

rule. Whish and Bailey express that this decision brings the US antitrust law into

alignment with that of the EU, in which every agreement can potentially satisfy the Article

101(3) criteria.41 Therefore, it is said that if the US rule of reason is relevant at all, it is

more appropriate to compare it with Article 101(3), rather than Article 101(1).42

Stressing on the pre-modernisation procedural framework where exemptions were

granted exclusively by the Commission, the ambiguous goals of Article 101 and the

different approaches suggested in different cases, Jones and Sufrin state that, determining

the kind of agreements that are prohibited by Article 101 and the analysis required under

Article 101(1) and Article 101(3) are problematic.43

Whish and Sufrin argue that a less formalistic and more economic approach is required

under Article 101, especially under Article 101(1), but they see little virtue in adopting

the term “rule of reason” borrowed from the US system, which is likely to do more to

confuse than clarify.44 These authors claim that “the competition policy cannot be

determined in isolation but integrated with economic, industrial and social policy of the

Community” and therefore cannot “solely be applied in order to maximise economic

efficiency in a narrow sense”.45

Looking at the Commission’s application, it can be observed that its interpretation of

Article 101 has evolved considerably over time. In its early application, the Commission

adopted a formalistic approach under Article 101(1), prohibiting many agreements, unless

39 Whish and Bailey 2012, p.121. 40 Leegin Creative Leather Products Inc v PSKS Inc 551 US 877 (2007). 41 Whish and Bailey 2012, p.121. Matra Hachette v Commission, Case T-17/93 [1994] ECR II-595. 42 GOYDER, J., A. ALBORS-LLORENS (2009), Goyder’s EC Competition Law, Oxford University Press,

USA, p.156. The authors also claim that while the US courts can consider all the pro- and anti-competitive

effects of an agreement, as well as its context, the Commission must operate within a rigid framework that

requires the agreement to meet four cumulative criteria. Goyder and Albors-Llorens 2009, p.156. 43 JONES, A., B. SUFRIN (2010), EU Competition Law: Text, Cases and Materials, Oxford University

Press, USA, p.189. 44 Whish and Sufrin 1987, p.36. 45 Whish and Sufrin 1987, p.13.

16

exempted under Article 101(3).46 This approach of the Commission in which the

economic examination of agreements was done solely under Article 101(3) has been

widely criticised.47 As part of the modernisation process of EU competition rules, the

Commission has shifted its way of assessment of competition law cases to a more

economic understanding. Now, the Commission is ready to accept that a more complex

analysis should be conducted, focusing on the effects of the agreement, before an

agreement is found to infringe Article 101.48 This shift can be observed from the White

Paper on the Modernisation of the Rules Implementing Articles 85 and 86 of the EC

Treaty (White Paper on Modernisation)49, the Regulation 1/200350 and the Guidelines on

the Application of Article 81(3) of the Treaty51 (Guidelines). This change in the

Commission’s approach inevitably raises the question of whether this can be interpreted

as a signal of the adoption of rule of reason in EU competition law.

In its White Paper on Modernisation, the Commission specifies that it has already adopted

the rule of reason approach to a limited extent and has carried out an assessment of the

pro- and anti-competitive aspects of some restrictive practices under Article 101(1), and

that this approach has been endorsed by the European Court of Justice (ECJ). On the other

hand, the Commission also explicitly states its view that a rule of reason analysis under

Article 101(1) would in practice cast aside Article 101(3) which already contains all the

elements of such an analysis.52

Regulation 1/2003 abolished the Commission’s exclusive right over the assessment of an

agreement under Article 101(3), rendering Article 101(3) directly applicable as a legal

exception to Article 101(1).53 Although the Commission has also accepted that a less

formalistic and more economic analysis of agreements is required under Article 101(1)

46 Jones and Sufrin 2010, p.191. 47 WESSELING, R. (2001), “The Modernisation of EC Antitrust Law”, Hart Publishing, USA, p.82. 48 Jones and Sufrin 2010, p.191. 49 White Paper on the Modernisation of the Rules Implementing Articles 85 and 86 of the EC Treaty [1999]

OJ C132/1. 50 COUNCIL REGULATION (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on

competition laid down in Articles 81 and 82 of the Treaty, OJ 2003, L1/1. Regulation 1/2003 became

effective on 1 May 2004. 51 Guidelines on the application of Article 81(3) of the Treaty [2004] OJ C 101/97. 52 White Paper on Modernisation, para.57. 53 Pasaoglu suggests that, the efforts of the courts to conduct some part of the balancing exercise under

Article 101(1) has been a result of the practical considerations in the period when the Commission had the

exclusive right to give exemption under Article 101(3). Pasaoglu 2001, p.33.

17

and Article 101(3), it has not recognised that a rule of reason style analysis under Article

101(1) would provide the solution.54 On the other hand, the judgments that will be

discussed in the following sections raise the question of whether the EU courts have

adopted a rule of reason under Article 101(1). The following sections aim to address,

from a positive perspective, whether a rule of reason already exists under Article 101(1);

and from a normative perspective, whether such an approach should be adopted.

3. EVALUATION UNDER ARTICLE 101(1)

3.1. Introduction

There is almost no debate on the view that the aim of Article 101 is to identify and prohibit

agreements that harm competition on the market and thereby harm consumers. What

stands as a matter of discussion is the relationship between Article 101(1) and Article

101(3), and whether Article 101(1) allows for a rule of reason analysis.

Most commentators argue that, it is only after analysing both Article 101(1) and Article

101(3) that one can decide if an agreement is anti-competitive. According to this view,

Article 101(1) and Article 101(3) contain all the necessary elements of a rule of reason

analysis, with the anti-competitive effects examined under Article 101(1) and the pro-

competitive effects assessed and balanced against the anti-competitive effects under

Article 101(3). In that sense, it is claimed that there is no balancing of the overall effects

of an agreement under Article 101(1).55

Maintaining the right balance between Article 101(1) and Article 101(3) is important to

ensure that pro-competitive agreements are left untouched, while agreements in

restriction of competition are effectively caught under Article 101. It is suggested that the

Guidelines seek to achieve this balance by combining the narrow scope of Article 101(1)

with a similarly narrow interpretation of Article 101(3).56 According to the Guidelines,

“the prohibition of Article 101(1) only applies where on the basis of proper market

54 Jones and Sufrin 2010, p.197. 55 FAULL, J., A. NIKPAY (2007), The EC Law of Competition, Oxford University Press, USA, p.293. 56 Faull and Nikpay 2007, p.293.

18

analysis it can be concluded that the agreement has likely anti-competitive effects on the

market”, and the likely negative effects occur when “on the relevant market negative

effects on process, output, innovation or the variety or quality of goods and services can

be expected with a reasonable degree of probability”.57

According to Faull and Nikpay, Article 101(1) involves an economic analysis to see if

the agreement has any likely anti-competitive effects on the market, and this analysis is

one-way, rather than a kind of balancing which should be done solely under Article

101(3).58 On the other hand, Korah says that, the Commission should follow the clear

rulings of the ECJ, and take into account under Article 101(1), the economic context of

the agreement and whether, without the restrictions in question, the activity would be

commercially sensible. According to this view, the fact that the Commission often finds

an infringement raises the question whether the agreement should have been cleared

rather than being exempted.59

3.2. The economic approach

The Commission and the EU courts have adopted a more economically sophisticated

approach to Article 101(1) with the start of the modernisation process of EU competition

rules. Jones and Sufrin claim that the Commission was urged to take such an approach

because of three main reasons. Firstly, undertakings could not understand why a

restriction on the conduct of the parties to the agreement amounted to a restriction of

competition. Secondly, until the Regulation 1/2003 came into force, negative procedural

consequences resulted for both the parties to the agreement and the Commission under

the system of notification for exemption. Thirdly, a broad approach to Article 101(1)

leaves a more important role for Article 101(3).60

57 Guidelines, para.24. 58 Faull and Nikpay 2007, p.293. Monti supports the view that Article 101(3) does provide the main forum

for authorizing agreements, from an ordoliberal point of view. He argues that the conditions under Article

101(3) reflect the ordoliberal concern over the gathering of economic power, based on both values of total

efficiency and distributive justice. Monti 2002, p.1061. For more information on the ordoliberal conception

of competition, see MONTI, G. (2007), EC Competition Law, Cambridge University Press, USA. 59 Korah 2007, p.86-87. 60 Jones and Sufrin 2010, p.194.

19

The economic approach under Article 101(1), which is said to have been carried out

mostly in respect of vertical restraints61, can be described as the appraisal of the market

and the assessment of the effect of the agreement on actual or potential competition.

It is acknowledged that no agreement is automatically restrictive by object and that all

agreements must be assessed in their legal and economic context.62 The question is

whether this assessment can be fully done under Article 101(1) or the analysis of the pro-

competitive effects should be left to a secondary assessment under Article 101(3). It is

argued that, typically, object restrictions are those which, prima facie do not have any

significant beneficial effects, but “have such a high potential of negative effects on

competition that it is unnecessary for the purposes of applying Article 101(1) to

demonstrate any actual effects on the market63”.64 However, since the designation of

object restrictions involves the assessment of whether the agreement has any significant

pro-competitive effects in comparison with the potential anti-competitive effects, one can

easily argue that such an analysis under Article 101(1) involves a balancing that may be

defined as rule of reason.65 This view will be discussed later on, in more detail.

By the same token, for the analysis of restriction by effect under Article 101(1), an

agreement should be appraised in its legal and economic context. Effect cases require a

much more comprehensive market analysis, since there is no presumption of a restriction

of competition.66 This analysis might potentially include a weighing up of the positive

and negative effects on competition to conclude that the agreement has a net negative

effect.

In Société La Technique Miniére v Maschinenbau Ulm GmbH (STM)67, the ECJ

mentioned for the first time the relevance of the legal and economic context of the

61 KACZOROWSKA, A. (2008), European Union Law, Routledge-Cavendish, USA, p.781. 62 Faull and Nikpay 2007, p.223. 63 Guidelines on the application of Article 81(3) of the Treaty [2004] OJ C 101/97, para 21. 64 Faull and Nikpay 2007, p.223. 65 It has to be mentioned here that in Consten and Grundig, one of the arguments of the parties was that the

Commission had improperly applied Article 101(1) by disregarding the rule of reason and the effects of the

agreement. Here, the ECJ considered that the analysis of the effects of the agreement was not necessary

since its object was the restriction of competition. Verouden 2003, p.545-546. Consten and Grundig, Cases

56 and 58/64 [1966] ECR 299. 66 Bailey 2012, p.583. 67 Société La Technique Miniére v Maschinenbau Ulm GmbH, (56/65), [1966] ECR 235.

20

agreement, and this was reaffirmed in Delimitis68 and Brasserie de Haecht69 where the

ECJ stressed the requirement that a full analysis of the agreement in its market context

must be carried out before it is possible to determine whether its effect is to restrict

competition.70 After these judgments, it was clear that in order to understand and evaluate

the economic context of an agreement, it is necessary to define and analyse the market.

Some commentators interpret this approach of the ECJ as an example of rule of reason.71

The General Court annulled the Commission’s decision in European Night Services72 for

the failure to give adequate reasons for its selection of the relevant market in proceedings

under Article 101(1)73, saying that, account must be taken of “the economic context in

which the undertakings operate, the products or services covered by the agreement and

the actual structure of the market concerned”.74 Then again, the Court also stated that the

pro- and anti-competitive effects of an agreement can only be balanced under Article

101(3).75

Similarly, in Langnese76, the Commission postponed its appraisal of the market until

conducting the assessment under Article 101(3); but the General Court held that it should

have done so under Article 101(1). In contrast, in Whitbread77, the Commission reviewed

an exclusive purchasing obligation, taking many market factors into account under Article

101(1).78 In the recent MasterCard case, with regard to the criticisms of the applicants

68 Delimitis v Henninger AG, Case C-234/89 [1991] ECR I-935. Delimitis is seen as an important judgment

also since the ECJ’s focus shifted from restrictions on intra-brand competition to restrictions on inter-brand

competition. See AMATO, G. (1997), Antitrust and the Bounds of Power, Hart Publishing, USA, p.51-52. 69 SA Brasserie de Haecht v Consorts Wilkin-Janssen, Case 23/67 [1967] ECR 407. 70 Korah 2007, p.77-78; Whish and Bailey 2012, p.126-127. 71 Kaczorowska 2008, p.786. Pasaoglu claims that the wording of the ECJ in its STM judgment sounds like

a rule of reason approach, in particular, where it explains how a restriction of competition should be

understood within the meaning of Article 101(1). Pasaoglu also states that Consten and Grundig judgment

of the ECJ which was taken only shortly after STM seems to be in conflict with the former decision. The

author goes on to explain that, because of the absolute territorial protection in the agreement, the Court has

rejected to conduct a rule of reason analysis. PASAOGLU, M. O. (2001), The Modernization in EC

Antitrust Enforcement: A Step Towards Rule of Reason?, Non-Published Dissertation Submitted in Partial

Fulfilment of The MSc in Economic Regulation and Competition, Department of Economics, City

University, London, p.24-26. 72 European Night Services, Case T-374/94 ECR II-3141. 73 Korah 2007, p.79. 74 European Night Services, para.136. 75 European Night Services, para.137. 76 Langnese-Iglo GmbH & Co KG, 93/406/EEC, OJ 1993, L183/19, [1994] 4 CMLR 51; Langnese-Iglo

GmbH & Co KG v Commission (T-7/93), [1995] ECR II-1533. 77 Whitbread, [1999] 5 CMLR 118. 78 Korah 2007, p.87.

21

that the Commission has failed to take the nature of the product market into account in its

reasoning, the General Court stated that the applicants tried to highlight the economic

advantages that result from the restriction in question, which entails a weighing up of the

restrictive effects with the economic advantages that can only be done under Article

101(3).79

However, some commentators argue that in Delimitis and Brasserie de Haecht, no

assessment regarding the likely effect of foreclosure or weighing up of the pro- and anti-

competitive effects was required, but the focus was on whether the agreements hindered

entry of potential competitors or the expansion of existing players. It is suggested that a

similar conclusion can be drawn from European Night Services in which the General

Court held, referring mainly to Delimitis, “that the examination of conditions of

competition is based not only on existing competition between undertakings already

present on the relevant market but also on potential competition80”, as well as Van den

Bergh Foods81 in which the Court prioritised the impact of the agreement on the ability

of entry and expansion of the competitors.82

It is stated that the General Court took a similar approach in Métropole Télévision v.

Commission (Métropole)83, and upheld the Commission’s finding that the exclusive

supply clause in the agreement infringed Article 101(1). Here, it was concluded that,

supply was not essential for the market and exclusivity prevented access to the market,

thus creating a foreclosure effect that brought the agreement within the scope of Article

101(1).84

In both Métropole and Van den Bergh Foods appeals, the applicants argued that, since a

restriction of rivalry is not in itself sufficient for an agreement to fall within Article

101(1), and agreements must be assessed in their specific market context, agreements

should be held to infringe Article 101(1) only where a weighing up of the pro- and anti-

competitive effects show that there is a net negative impact on competition.85 In both

79 MasterCard v Commission, 24 May 2012, Case T-111/08, para.168, 181-182, 190. 80 European Night Services, para.137. 81 Van den Bergh Foods v Commission, Case T-65/98 [2003] ECR II-4653. 82 Faull and Nikpay 2007, p.232-233. 83 Métropole Télévision SA v Commission, Case T-112/99 (2001) ECR II-2459. 84 Faull and Nikpay 2007, p.233. 85 Faull and Nikpay 2007, p.252-253.

22

cases, the Court rejected this “rule of reason” argument of the applicants, stating that the

existence of a rule of reason is not accepted in EU competition law and that an

interpretation of Article 101(1) as such is difficult to reconcile with the structure of the

rules established by Article 101.86

In Métropole, the General Court expressly said that the pro- and anti-competitive aspects

of a restriction may be weighed up exclusively in the precise framework of Article

101(3).87 Although the Court acknowledged that, in a number of judgments, the ECJ and

the General Court have favoured a more flexible interpretation of the prohibition under

Article 101(1), it stated that these judgments cannot be interpreted as establishing the

existence of a rule of reason in Community competition law.88 The Court emphasised that

this approach in the recent cases does not mean that it is necessary to weigh up the pro-

and anti-competitive effects of an agreement when determining whether the prohibition

laid down in Article 101(1) applies.89 In Van den Bergh Foods, the Court went on to

explain that if the weighing up of pro- and anti-competitive effects has already been done

under Article 101(1), Article 101(3) would lose much of its effectiveness.90 In that sense,

Métropole and Van den Bergh Foods decisions give a strong signal on the General Court’s

approach to a possible rule of reason under Article 101(1).

86 Métropole, para.72-73; Van den Bergh Foods, para.106. 87 Métropole, para.74. 88 Métropole, para.75-76. 89 Métropole, para.77. 90 Van den Bergh Foods, para.107.

23

On the other hand, relying mostly on Metro I91 and Metro II92, Nungesser93, Coditel94,

Pronuptia95, Gøttrup-Klim96, European Night Services, Wouters97 and O298 cases, some

commentators state that the question of whether Article 101(1) requires a balancing

exercise has not been settled by Métropole and Van den Bergh Foods judgments99, and

that these “effect” cases require the drawing up of a competition balance sheet under

Article 101(1).100 Faull and Nikpay summarise the argument as in these cases the EU

Courts found restrictive clauses to fall outside Article 101(1) either because they were

necessary for the application of a legitimate commercial or public policy purpose

(ancillary restraints doctrine) or for the supply of goods and services under the

commercial risks involved (necessity for supply doctrine). A balancing of the pro- and

anti-competitive effects is inherent in both approaches, in the sense that, while in an

ancillary restraints case, the net effect of the whole agreement on the competition in the

market will be looked at, in a vertical necessity for supply case, a balancing of increased

inter-brand competition against reduced intra-brand competition might be performed.101

These doctrines will be explained and analysed a bit more detailed below, under the

relevant sub-sections.

91 Metro v Commission I, Case 26/76 [1977] ECR 1875. Metro I is known to be the first judgment in which

the ECJ addressed the economic effects of the agreement for concluding on a restriction of competition

under Article 101(1). Ata 2010, p.33. 92 Metro v Commission II, Case 75/84 [1986] ECR 3021. 93 Nungesser v Commission, Case 258/78 ECR 2015 (1983). In Nungesser, the ECJ conducted an effects-

based analysis and looked at the economic context of the licence in question, instead of concluding that

exclusivity provisions automatically infringed Article 101. GÖZLÜKAYA, F. (2005), Teknoloji Transferi

Sözleşmelerine İlişkin Rekabet Hukuku Uygulaması, Rekabet Kurumu Uzmanlık Tezi, Ankara, p.14. 94 Coditel, (262/81), [1982] ECR 3381. Here, the granting of exclusive rights in itself was not regarded as

an infringement of competition, but the national court was suggested to take into account the specific

characteristics of the market, when deciding whether the agreement is in restriction of competition. Coditel,

para.20. 95 Pronuptia de Paris GmbH v Pronuptia de Paris, Irmgard Schillgalis (161/84) 29 January 1986, [1986]

1 CMLR 414, CMR 14245. 96 Gøttrup-Klim, Case C-250/92 [1994] ECR I-5641. 97 Wouters, Case C-309/99 [2002] ECR I-1577. 98 O2 (Germany) GmbH & Co. v Commission, Case T-328/03 (judgment of 27 September 2006). 99 Faull and Nikpay 2007, p.253. 100 Jones and Sufrin 2010, p.195. 101 Faull and Nikpay 2007, p.253.

24

3.3. Ancillary restraints

EU courts have time and again decided that, restrictions which are necessary to enable

the parties to the agreement to achieve a legitimate commercial purpose will not have the

effect of restricting competition, and therefore, will fall outside Article 101(1).102

Ancillary restraints doctrine was developed from STM, in which the ECJ ruled that, if the

dealer would not have made the necessary investments unless protected from free riders

with an exclusivity clause, that restraint will not infringe Article 101(1). Therefore,

provided that restraints are necessary for the operation of the transaction and no wider

than they need to be, the agreement will fall outside of Article 101(1).103 Since balancing

is inherent in the assessment of ancillary restraints, they are sometimes interpreted as rule

of reason under Article 101(1).

Remia and Nutricia104, Pronuptia and Gøttrup-Klim judgments of the ECJ are seen to

have formed the foundation of the “ancillary restraints doctrine” on which the

Commission relies. The ECJ ruled in Remia and Nutricia that, a reasonable non-compete

clause in an agreement made for the successful transfer of an undertaking would not

restrict competition; in Pronuptia that, provisions necessary for successfully operating a

franchising distribution agreement did not restrict competition; and in Gøttrup-Klim that,

restraints necessary for the parties to create an effective group purchasing association did

not restrict competition.105 While Faull and Nikpay admit that Gøttrup-Klim can be read

as an example of a rule of reason approach under Article 101(1), they also stress that it

can be dangerous to overly rely on it as a precedent for such an approach, since the case

102 Whish and Bailey 2012, p.129. It is argued that it is not easy to identify whether or not a particular

restraint in an agreement is “ancillary” to the operation of the agreement and therefore, the doctrine may be

hard to apply in practice. Jones and Sufrin 2010, p.231. Jones states that the ancillary restraints doctrine

has been utilised by the courts in the US as a mechanism for enabling severe restraints, ordinarily

condemned as illegal per se, to be analysed under the rule of reason. JONES, A. (2010), “Left Behind by

Modernisation? Restrictions by Object Under Article 101(1)”, European Competition Journal, Vol. 649.

Kaczorowska says that the concept of the ancillary restraints as adopted by the ECJ is similar to the rule of

reason in the US. Kaczorowska 2008, p.780. 103 KORAH, V. (2007), An Introductory Guide to EC Competition Law and Practice, Hart Publishing,

USA, p.80-81. 104 Remia BV and Verenidge and Nutricia v Commission, Case 42/84 [1985] ECR 2545, [1987] 1 CMLR

1. 105 Jones and Sufrin 2010, p.227-231.

25

should rather be understood as one in which the ancillary restraints doctrine was applied

in a market context where the parties did not have much economic power.106

The Commission defines “any restriction which is directly related and necessary to the

implementation of a main operation” as an ancillary restraint.107 The General Court in

Métropole used the same definition, but went on to state that there should be no balancing

between competitive benefits and harm under Article 101(1), saying that any benefits

should be considered under Article 101(3). The Court interpreted the concept of ancillary

restraints narrowly, to be applied in a relatively abstract manner108, specifying that it

would be wrong to read the requirement for objective necessity109 as implying a need to

weigh up the pro- and anti-competitive effects of an agreement110. Korah says that this

narrow interpretation of ancillary restraints might be easier for the Commission to apply,

but will produce some kind of legal uncertainty and a higher burden of proof for the

parties to the agreement. In that case, important agreements may not be enforceable even

if they are pro-competitive in the overall sense.111

In the recent MasterCard112 case, the Commission was concerned about a pricing

arrangement that fixed a minimum price which merchants would have to pay for

accepting MasterCard credit cards.113 It conducted a rule of reason-like analysis by

discussing whether the pricing arrangement could be regarded as an ancillary restraint,

and decided that it is not objectively necessary for the operation of the payment scheme.

Finally, the Commission concluded that there was restriction by effect and that the

conditions set out in Article 101(3) were not fulfilled.

In the application for annulment of the MasterCard decision, applicants argued that the

pricing arrangement was objectively necessary to the operation of the Mastercard system

and that the Commission was wrong to find a restrictive effect.114 Applicants also

106 Faull and Nikpay 2007, p.255. 107 Commission Notice on Restrictions Directly Related and Necessary to Concentrations, 2005/C 56/03. 108 Korah 2007, p.82. 109 The General Court stated that the Commission has correctly asserted that, if, without the restriction, the

main operation is difficult or even impossible to implement, the restriction may be regarded as objectively

necessary for its implementation. Korah 2006, p.62. See Remia and Nutricia. 110 Korah 2006, p.62. 111 Korah 2007, p.83. 112 MasterCard, Case COMP/34.579, 19 December 2007, 2009 OJ C 264/8. 113 Bailey 2012, p.584-585. 114 MasterCard v Commission, para.73-74.

26

complained that the Commission failed to analyse the pricing arrangement in its legal and

economic context.115

In its MasterCard judgment, the General Court explored to see if the restriction is directly

related and necessary for the implementation of the main operation.116 The Court openly

rejected a rule of reason analysis under Article 101(1), stating that, “as regards the

examination of the objective necessity of a restriction, it must be observed that inasmuch

as the existence of a rule of reason cannot be upheld, the requirement for objective

necessity cannot be interpreted as implying a need to weigh up the pro- and anti-

competitive effects of an agreement”.117 The Court went on to say that, although it is clear

from settled case law that in examining the restrictive effects under Article 101(1), the

actual conditions, and particularly, the economic and legal context of the agreement

should be taken into account, this does not mean that it is necessary to consider the

advantages of the pricing arrangement for the payment system, in order to determine

whether it is objectively necessary.118 The Court stressed that such a balancing would fall

solely within the scope of an analysis under Article 101(3).119

3.4. Public policy considerations

Wouters is seen as an important judgment, since it clearly shows that, in certain cases, it

is possible to balance non-competition objectives against a restriction of competition, and

to conclude that if the former outweighs the latter, the agreement will fall outside of

Article 101(1).120

In Wouters, the ECJ carefully analysed non-competitive justifications under Article

101(1), without referring to the General Court’s Métropole judgment. ECJ concluded that

the rule of the Dutch Bar forbidding lawyers to enter into multi-disciplinary partnerships

with accountants might be reasonable in order to exclude the risk of a conflict of interest

and ensure the independence of the Bar, and therefore, cleared the rule as not infringing

115 MasterCard v Commission, para.84. 116 MasterCard v Commission, para.77. Here, the General Court cited Métropole, para.104. 117 MasterCard v Commission, para.80. 118 MasterCard v Commission, para.87-88. 119 MasterCard v Commission, para.80, 101. ECJ’s response in the MasterCard appeal remains to be seen. 120 Whish and Bailey 2012, p.131.

27

Article 101(1). Commentators suggest that Wouters can be interpreted to overrule the

refusal in Métropole to balance the pro- and anti-competitive effects under Article

101(1)121, and that it can be considered as an example of rule of reason.122

Although the ECJ appears to have conducted a weighing up under Article 101(1), Faull

and Nikpay claim that, since the judgment focused on whether the prohibition was

necessary for the proper practice of the legal profession, rather than whether its pro-

competitive benefits outweigh its anti-competitive harm, from a rule of reason type of

view, Wouters can at most be an authority for the suggestion that public policy

considerations may outweigh harm to competition.123

Some commentators suggest that Wouters is a case in which the ancillary restraints

doctrine was applied on public interest grounds124, while others argue that although the

concept used in Wouters has not been fully classified, it is not an example of an ancillary

restraint. Some even consider that the judgment was wrong, claiming that it should not

be possible for the public interest in avoiding lawyers’ conflict of interest to outweigh the

loss of efficiency of multi-disciplinary partnerships.125 Whish and Bailey suggest that the

rule of the Bar was outside Article 101(1) because it amounted to reasonable regulation.126

Other commentators, however, consider that Wouters should be explained as a separate

exception to Article 101(1), which is based on national public interest grounds.127

The most obvious alternative solution in Wouters which could have been to hold that the

rules infringed Article 101(1) but satisfied Article 101(3), was not possible during the

time when a decision under Article 101(3) could only be made by the Commission upon

notification.128 Therefore, it is not possible to know whether the ECJ would have chosen

this alternative, instead of concluding that the agreement fell outside of Article 101(1).

121 KORAH, V. (2007), An Introductory Guide to EC Competition Law and Practice, Hart Publishing,

USA, p.83. 122 Faull and Nikpay 2007, p. 255, 257. 123 Faull and Nikpay 2007, p.256-257. 124 Faull and Nikpay 2007, p. 255, 257. Whish and Bailey also make a distinction between commercial and

regulatory ancillarity and argue that Wouters judgment is different from other ancillary restraints cases in

which the restrictions in agreements fall outside Article 101(1) where they are necessary to enable a

commercial activity. Whish and Bailey 2012, p.130, 132. 125 Korah 2007, p.83-84. 126 Whish and Bailey 2012, p.131. 127 Korah 2007, p.84. 128 Whish and Bailey 2012, p.133.

28

In the previous Albany decision129, Albany, who ran a textile business, wanted to leave

the compulsory pension scheme for textile workers and subscribe to a private scheme

with more generous payments. ECJ, stating that the supplementary pension scheme fulfils

an essential social function within the Dutch pension system130, held that the national

social objective trumped Article 101.131 Wouters is different from Albany in the way that,

in Wouters, the restraints in question were seen as necessary for the proper practice of the

profession, whereas in Albany, reasonable rules regulating professional services were

considered to fall outside of Article 101(1) altogether.132

The reasoning in Wouters is said to have been adopted by the Commission in its dismissal

of the complaint in Meca-Medina.133 In its Meca-Medina134 judgment, ECJ stated that,

competition rules do not apply in so far as the rules concern questions of purely sporting

interest, and have nothing to do with an economic activity, provided that they remain

limited to what is necessary to carry out their proper objective.135 Meca-Medina judgment

is interpreted as a confirmation that the Wouters doctrine can apply to other regulatory

rules.136

Jones and Sufrin conclude that the case law of the ECJ in Wouters and Meca-Medina

suggests that broader objectives may be relevant under both Article 101(1) and Article

101(3) and that Article 101(1) may play a wider role than the Commission envisages.137

Nazzini similarly argues that, given the narrower definition of the positive effects of an

agreement that may be taken into account under Article 101(3), social welfare defences

are acceptable under Article 101(1).138

129 Albany International BV v Stichting, Bedrijfspensioenfonds Textielindustrie and others (C-67/96 etc),

[1999] ECR I-5751. 130 Albany, para.105. 131 Korah 2007, p.85-86. 132 Jones and Sufrin 2010, p.237. 133 Korah 2007, p.84. 134 David Meca-Medina and Igor Majcen v. Commission, Case T-313/02 ECR 2004 II-3291 and David

Meca-Medina and Igor Majcen v. Commission, Case C-519/04 P ECR 2006 I-6991. 135 Meca-Medina, Case C-519/04, para.25. 136 Whish and Bailey 2012, p.132. 137 Jones and Sufrin 2010, p.189, 239. 138 NAZZINI, R. (2011), The Foundations of European Union Competition Law – The Objective and

Principles of Article 102, Oxford University Press, USA, footnote 147. Komninos claims that, Article 101

as a whole can be balanced against non-competition objectives. KOMNINOS, A. P. (2005), “Non-

competition Concerns: Resolution of Conflicts in the Integrated Article 81 EC”, The University of Oxford

Centre for Competition Law and Policy, Working Paper (L) 08/05, p.10-14.

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3.5. The counterfactual

When determining whether an agreement has a restrictive effect on competition, it is

necessary to consider how the competitive conditions would have been in the absence of

the agreement.139

The adoption of the concept of the counterfactual is seen as a major change of view, since,

in its earlier application, the Commission usually refused to analyse markets carefully

under Article 101(1), and instead concluded that, contractual restrictions on the economic

freedom of the parties to the agreement constituted a restriction of competition, even

when they were necessary to foster investment.140

According to the concept of “the counterfactual”, as used in the STM judgment of the

ECJ, agreements should be assessed in their economic and legal contexts, and the position

after the agreement should be compared with the position that would have arisen without

the agreement.141 The key point to consider here is that, the counterfactual is not the

transaction without the restrictive provisions, but without the whole transaction including

the restrictive provisions.142

In its O2 judgment, the General Court decided that the Commission should have taken

into account “the counterfactual” when it conducted its assessment under Article 101(1).

Here, the Court focused on the actual and potential effects of the agreement on the amount

of competition in the market, concluding that the roaming agreement in question was

capable of enabling the smallest operator to compete with the major players and even the

dominant operators.143 The General Court ruled that the Commission decision suffered

from insufficient analysis of the issue under Article 101(1), since it did not take into

139 Whish and Bailey 2012, p.127. 140 Korah 2007, p.87-88. Korah adds that there have been occasional decisions taking another view, such

as Odin, where a joint venture was cleared despite the restraints on the parties who were considered by the

Commission not to be actual or potential competitors. Odin-Elopak/Metal Box-Odin Developments Ltd,

[1991] 4 CMLR 832. 141 Korah 2007, p.78. 142 Korah 2007, p.81. 143 O2, para.109.

30

account the counterfactual and demonstrate, in concrete terms, that in the context of the

specific market conditions, the agreement has restrictive effects on competition.144

O2 is perceived as a potentially significant development in the General Court’s case

law145, since the Court relied under Article 101(1) on factors normally considered under

Article 101(3).146 O2 judgment stated that, the examination carried out by the

Commission under Article 101(3) showed that, O2’s competitive situation on the 3G

market would probably not have been secure without the agreement.147 The Court went

on to hold that “an examination in this respect was necessary not only for the purposes of

granting an exemption but, prior to that, for the purposes of the economic analysis of the

effects of the agreement on the competitive situation determining the applicability of

Article 101”.148

In this respect, it can be stated that the O2 judgment of the General Court establishes more

clearly that a thorough economic analysis under Article 101(1) which involves the

assessment of the counterfactual is necessary before conducting a further balancing under

Article 101(3).

The General Court mentioned the need for examination of the counterfactual also in its

recent MasterCard judgment, saying that, for the assessment of a restrictive effect,

“competition in question should be assessed within the actual context in which it would

occur in the absence of the agreement”.149

Niels et al. argue that, from an economic perspective, considering the counterfactual

makes sense as part of the assessment under Article 101(1), and they interpret this

counterfactual analysis in recent case law as a weighing up of the restrictive effects with

potential beneficial effects, which is done when assessing whether an agreement restricts

competition in the first place.150

144 O2, para.116. 145 Faull and Nikpay 2007, p.233. 146 Faull and Nikpay 2007, p.249. 147 O2, para.114. 148 O2, para.79. 149 MasterCard v Commission, para.98. 150 NIELS, G., H. JENKINS, J. KAVANAGH (2011), Economics for Competition Lawyers, Oxford

University Press, USA, p.286, 298, 322.

31

3.6. Other arguments

In both Metro I and II, ECJ held that, selective distribution systems based only on

qualitative and non-discriminatory criteria, which are proportionate and no wider than

necessary, did not fall within the scope of Article 101(1), although they might restrict the

freedom of conduct of dealers and have a negative effect on price competition.151

According to the Commission decision in Reuter/BASF152, which was confirmed by the

ECJ in Remia BV and Verenidge and Nutricia v Commission153, agreements with

restrictive clauses may fall outside Article 101(1), so long as they satisfy the principle of

proportionality, in the sense that they are properly limited in time, space and subject

matter.154

Some commentators argue that, the kind of balancing that was conducted in the ECJ

judgments should be regarded as sui generis, since it is not possible to reach to a clear

conclusion from these judgments, regarding how and where to draw the line between

Article 101(1) and Article 101(3). It is also suggested that, according to the particular

facts of these cases, it can be claimed that the agreements fell outside Article 101(1) since

there was no foreclosure effect.155

Another argument for agreements to fall out of Article 101(1) is the “necessity for supply

doctrine”, which is developed in STM, Nungesser156 and Erauw-Jacquery Sprl v. La

151 Faull and Nikpay 2007, p.257. Korah emphasises the fact that, although there is considerable case law

establishing that selective distribution does not infringe Article 101(1), it does not amount to an ancillary

restraint. Korah 2007, p.85. The ECJ has based its assessment on the “maintenance of workable

competition”, which can be defined as the degree of competition that is necessary to meet the basic

requirements and objectives of the TFEU, and that lays down an approach which may be reasonably sought

by a competition authority for the evaluation of agreements. GREEN, N., A. ROBERTSON (1997),

Commercial Agreements and Competition Law: Practice and Procedure in the UK and EC, Kluwer Law

International, UK. 152 Reuter/BASF, OJ [1976] L 254/40, [1976] 2 CMLR D44. 153 Remia BV and Verenidge and Nutricia v Commission, Case 42/84 [1985] ECR 2545, [1987] 1 CMLR

1. 154 Whish and Bailey 2012, p.128-129. 155 Faull and Nikpay 2007, p.257-258. 156 In Nungesser, the ECJ stated that the restriction of the economic freedom of the parties which resulted

from the exclusivity provisions were necessary in order to compensate the risks that the licensor takes, so

that the agreement can be made. Ata 2010, p.34.

32

Hesbignonne Société Coopérative157 judgments of the ECJ.158 In the Guidelines, referring

to these cases, the Commission states that, territorial restraints or intra-brand customer

sales restrictions may not be caught by Article 101(1), when the restraint is objectively

necessary for the existence of an agreement of that type or nature.159

3.7. Exclusion of a Prima Facie Finding of a Restrictive Object

Although it is stated that, arguments to show that object agreements may also have pro-

competitive effects will not be considered under Article 101(1)160, looking at the EU case

law, one can observe that some agreements with prima facie object restrictions have been

concluded not to be restrictive at all. Hence, although in this study the focus is mainly on

agreements that might have a restriction of competition as their effect, in this sub-section,

agreements that seem to be restrictive by their object which are found not to infringe

Article 101(1), will be examined.

Prima facie finding of a restrictive object reminds the “quick look” rule of reason

analysis161 of the US courts, which applies when “an observer with even a rudimentary

understanding of economics could conclude that the arrangements in question would have

an anticompetitive effect on customers and markets162”. Even though some restrictions

seem to be restrictive by object under a prima facie examination, they can be found to fall

out of Article 101(1) after a more elaborate assessment.

Factors that are relevant to the assessment of an object restriction are listed in the

Guidelines as “the content of the agreement and the objective aims pursued by it”, and

also, “the context in which it is (to be) applied and the actual conduct and behaviour of

157 Erauw-Jacquery Sprl v. La Hesbignonne Société Coopérative, Case 27/87 [1988] ECR 1999. 158 Jones and Sufrin 2010, p.226. 159 Guidelines, para.18(2). 160 Faull and Nikpay 2007, p.223. 161 The “quick look” approach of the US courts is seen to be a kind of rule of reason, which is much more

limited than a full-blown rule of reason analysis. CALKINS, S. (2000), “California Dental Association:

Not A Quick Look But Not the Full Monty”, Antitrust Law Journal, Vol.67, No.3. Some commentators

argue that, “quick look” should not be accepted as a separate mode of analysis, in order to have clearer

boundaries between agreements assessed under per se rule and rule of reason. MEESE, A.J. (2000),

“Farewell to the Quick Look: Redefining the Scope and Content of the Rule of Reason”, 68 Antitrust Law

Journal 461. 162 California Dental Association v. Federal Trade Commission, 526 U.S. 756 (1999), p.757.

33

the parties on the market”.163 Similarly, the ECJ held in GlaxoSmithKline that, for the

assessment of a restriction by object, “regard must be had inter alia to the content of its

provisions, the objectives it seeks to attain and the economic and legal context of which

it forms a part”.164

Mahtani argues that, the examination of the “context” and the “facts underlying the

agreement”, as suggested by the Commission and the ECJ, requires a substantive analysis

that goes well beyond determining the content of the agreement and may involve a

consideration of the relevant market conditions. The author adds that, although it is

relevant, the role of the “context” in an object analysis is not exactly clear.165

Since object must be assessed within the legal and economic context of the agreement, it

is important to know when the context can exclude a prima facie finding of a restrictive

object.

Bailey gives the Erauw-Jacquery judgment of ECJ and Visa International166 decision of

the Commission as examples in which clauses that are generally expected to constitute a

restriction by object might not, in fact, be restrictive of competition at all and can be

concluded to be outside Article 101(1).167

In Erauw-Jacquery, although the effect of the clause in question was clearly to prohibit

exports of the basic seeds, ECJ concluded that it fell outside Article 101(1) since the

export ban arose from the plant breeders’ intellectual property rights.168

In Visa International, the Commission found that the pricing arrangement did not have

the restriction of competition as its object, although it kept the banks from deciding on

their own pricing policies. Despite the fact that the pricing arrangement restricted

competition prima facie, the Commission decided that its objective was “to increase the

stability and efficiency of operation of that system, and indirectly to strengthen

163 Guidelines, para.22. 164 GlaxoSmithKline Services Unlimited v. Commission, Joined Cases C-501, 513, 515 & 519/06 P, [2009]

ECR I-9291. A similar approach was adopted by the ECJ in more recent cases. See Bailey 2012, p.576. 165 MAHTANI, M.R. (2012), “Thinking Outside the Object Box: An EU and UK Perspective”, European

Competition Journal, April 2012, Vol.8 No.1, p.6. 166 Visa International – Multilateral Interchange Fee, Case COMP/29.373, 2002 OJ L 318/17. 167 Bailey 2012, p.583. 168 Bailey 2012, p.583.

34

competition between payment systems169”. Therefore, the Commission stated that this

arrangement did not infringe Article 101(1) as its object, but had an appreciable anti-

competitive effect which could satisfy Article 101(3) if subject to certain

modifications.170

In MasterCard171, the Commission was concerned that the pricing arrangement may have

the restriction of competition as its object, since it fixed a minimum price which

merchants would have to pay for accepting MasterCard credit cards. Nevertheless, in

contrast with Visa International, the Commission chose not to reach a definitive

conclusion as to whether the restriction was by object, since it was positive that there was

a restriction by effect.172

Considering the case law in which some prima facie restrictions are found not to infringe

competition by object, a rule of reason-like analysis under Article 101(1) seems to apply

to object cases, as well as effect cases.

3.8. Conclusion for the Evaluation Under Article 101(1)

From the analysis of the relevant case law and court judgments, it is seen that the

Commission and the General Court has an approach against conducting a rule of reason

kind of analysis under Article 101(1), and that they are almost consistent on the need for

doing such a weighing up solely under the conditions of Article 101(3). Although the O2

decision of the General Court can be interpreted as a potentially significant development

since the Court relied under Article 101(1) on factors normally considered under Article

101(3), the majority of the Court’s judgments seem to openly refuse a balancing under

Article 101(1). Métropole judgment of the General Court might be the most recent and

obvious expression of this point of view.

On the other hand, ECJ seems to have a different view, especially when looked at

judgments like STM, European Night Services, Gøttrup-Klim, Wouters and Meca-

169 Visa International, para.69. 170 Bailey 2012, p.584. 171 MasterCard, Case COMP/34.579, 19 December 2007, 2009 OJ C 264/8. 172 Bailey 2012, p.584-585.

35

Medina. These judgments, in which the ECJ considered the legal and economic contexts

of the agreement, the counterfactual and the nature and effect of the restraints, in order to

decide whether the agreement in question is in restriction of competition under Article

101(1), have a clear resemblance to the US-style rule of reason approach. ECJ’s approach

in these judgments involves a balancing under Article 101(1), which is clearly not in line

with that of the Commission and the General Court, and this situation is obviously

problematic.

When the relevant literature is reviewed, it can be observed that different commentators

have fairly diverse views on the different approaches of EU institutions to a possible rule

of reason under Article 101(1).

Jones and Sufrin argue that, although the Commission and the General Court express that

neither the ancillary restraints doctrine, nor other arguments imply a need to weigh up the

pro- and anti-competitive effects of an agreement under Article 101(1), it is hard to say

that the relevant case law of the ECJ does not involve any weighing up and balancing.

These authors express that according to the case law, in some situations, Article 101(1)

analysis goes beyond an evaluation of whether there is a restriction of competition, and

in such a case, the anti-competitive restraints are permitted only if they are ancillary to

some pro-competitive objective.173

Wouters and Meca-Medina judgments are the most obvious examples in the case law,

showing the need for a weighing up and balancing under Article 101(1). The divergence

in these cases from the Commission’s and the General Court’s view is very clear, since,

even though the anti-competitive effects of the agreement were obvious, ECJ took into

account the justifications raised by the parties under Article 101(1), instead of Article

101(3).174

In Wouters, Advocate General Léger referred to the “competition balance-sheet method”

of the US courts, and argued that “(…) the Court has made limited application of the ‘rule

of reason’ in some judgments. Confronted with certain classes of agreement[s] (...), it has

drawn up a competition balance-sheet and, where the balance is positive, has held that the

173 Jones and Sufrin 2010, p.231-232. 174 Jones and Sufrin 2010, p.237.

36

clauses necessary to perform the agreement fell outside the prohibition laid down by

Article [101(1) TFEU].”175 As can be seen from this opinion, Advocate General Léger

accepted the existence of a rule of reason under Article 101(1), in the sense that when it

is necessary to achieve a positive result, a restrictive clause will not be held to infringe

Article 101(1).

Nevertheless, some commentators offer different explanations for ECJ’s “rule of reason-

like” approach in Wouters. Goyder and Albors-Llorens argue that the ECJ operated

Article 101(1) and Article 101(3) as if they were a single provision.176 Whish and Bailey

state that the ECJ simply applied the ancillary restraints doctrine, without doing a kind of

balancing with pro-competitive objectives, but with the “reasonableness” of regulatory

rules adopted for non-competition purposes.177 Jones and Sufrin differ from these views,

saying that the ECJ dealt only with Article 101(1), the regulatory rules in question were

not truly ancillary and the analysis involved a weighing up against the benefits.178 Odudu

argues that, Wouters is explicable by the fact that the rule was adopted not by an

undertaking but by an association of undertakings.179 Monti and Cseres suggest a different

explanation, from a public policy view, that in Wouters, ECJ applied a “European-style

rule of reason” which has initially been developed in the free movement field, and applied

to competition cases so that “an anti-competitive agreement which is necessary to

preserve a domestic mandatory requirement of a public policy is allowed to escape the

application of Article 101”.180

Regarding the ECJ judgments, Pasaoglu states that, these decisions have stimulated the

idea that Article 101(1) actually provides a framework for a rule of reason analysis, even

175 Opinion of Advocate General Léger delivered on 10 July 2001, Case C-309/99, J.C.J. Wouters, J.W.

Savelbergh, Price Waterhouse Belastingadviseurs BV v Algemene Raad van de Nederlandse Orde van

Advocaten, para.103. 176 Goyder and Albors-Llorens 2009, p.115-116. 177 Whish and Bailey 2012, p.136. 178 Jones and Sufrin 2010, p.238. 179 Odudu 2006, p.53. 180 MONTI, G. (2002), “Article 81 EC and Public Policy”, 39 CMLRev 5, 1057-1099, p.110-113; CSERES,

K. J. (2005), Competition Law and Consumer Protection, Kluwer Law International, The Netherlands. This

“European-style rule of reason” is said to have been developed with the Cassis de Dijon judgment of the

ECJ. See NISTOR, L. (2011), “Public Services and the European Union”, Asser Press, The Netherlands,

p.183, 187, 188; Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein, Case 120/78 [1979] ECR

649, [1979] 3 CMLR 494. For more information on the relationship between free movement rules and

competition rules, see MORTELMANS, K. (2001), “Towards Convergence in the Application of the Rules

on Free Movement and on Competition”, CMLRev 613.

37

though it is a limited one.181 Steindorff similarly interprets the ECJ decisions as a

suggestion of a “partial rule of reason”.182

Ata states that, in the ECJ judgments that have been discussed in this study, although the

Court has adopted a more flexible and economic approach when compared to the

Commission, it is different from the US-style rule of reason analysis. Even though the

ECJ has examined the vertical restrictions and economic arguments in each case, it has

not done a full and detailed analysis such as the one in the US system and therefore, has

not made a weighing up of the pro- and anti-competitive effects on competition.183

Whish and Bailey also claim that these judgments do not amount to a US-style rule of

reason, and suggest that such an approach should not be adopted, because of the “single

market imperative” and “conventional competition law concerns”, as well as the

bifurcation of Article 101(1) and Article 101(3).184 The authors agree with the General

Court’s approach in Métropole, in the sense that, being “reasonable” when applying

Article 101(1) does not mean that the method of analysis adopted in the different context

of the US law should be imported.185

Kaczorowska, on the other hand, argues that, although the debate on whether a US-style

rule of reason is possible under Article 101(1) has lost much of its practical importance

after the adoption of Regulation 1/2003, with which the system of notification was

abolished, the flexible approach used by the EU institutions does include a weighing up

of the pro- and anti-competitive effects of the agreements under Article 101(1), instead

of Article 101(3), and therefore, is similar to the US rule of reason application.186

While it can be argued that the balancing done under Article 101(1) is not equivalent to

the one in the US antitrust law, and rather, is limited and partial, it is hard to hold such a

view that no rule of reason exists under Article 101(1). Therefore, as a result of looking

at the relevant case law and court decisions, and after the appraisal of the views of

181 Pasaoglu 2001, p.29. 182 STEINDORFF, E. (1984), “Article 85 and the Rule of Reason”, Common Market Law Review, 21, 639-

646, p.646. 183 Ata 2010, p.34. 184 Whish and Bailey 2012, p.134. 185 Whish and Bailey 2012, p.136. 186 Kaczorowska 2008, p.775.

38

different commentators, it is believed that a weighing up of pro- and anti-competitive

effects of a restrictive agreement under Article 101(1) actually exists and is necessary to

conclude on a restriction of competition. This balancing is conducted mainly through the

economic assessment of the relevant market and the legal and economic context of the

agreement, and by way of considering ancillary restraints, public policy needs and the

counterfactual.

4. BOUNDARIES OF THE ANALYSIS UNDER ARTICLE 101(1)

Until the first steps towards modernisation of EU competition law, the Commission used

to be criticised for its failure to hold an adequately realistic economic interpretation of

Article 101(1). In its old approach, the Commission did not conduct a thorough economic

analysis when assessing whether or not an agreement is in restriction of competition.

Rather, relying on a formalistic assessment, it concluded that many agreements had anti-

competitive effects under Article 101(1), but exempted most of them under Article 101(3)

in the end. Jones and Sufrin argue that the Commission used to conduct much of the

economic analysis when making the assessment to see if the agreement meets Article

101(3) criteria, rather than doing it earlier under Article 101(1) when determining whether

or not the agreement restricted competition at all.187

Verouden states that the increased role for economic analysis in the application of Article

101 includes the consideration of the possible pro-competitive effects and a balancing of

the pro- and anti-competitive effects of the agreement under Article 101(1), which

amounts to a rule of reason type of approach that looks beyond the negative effects of the

agreement in the analysis under Article 101(1).188

187 Jones and Sufrin 2010, p.192. These commentators suggest that the broad interpretation of Article 101(1)

strengthened the Commission’s central role in the development of EU competition policy because of its

exclusive right to apply Article 101(3) through the system of exemption upon notification, and its

contribution to the uniform interpretation of competition rules. Jones and Sufrin 2010, p.193. 188 Verouden 2003, p.539.

39

Economic interpretation of Article 101 calls for a clarification of the relationship between

Article 101(1) and Article 101(3), and the extent of the economic analysis that needs to

be performed for the assessment under each Article.

Monti claims that the bifurcated structure of Article 101 fits in with the ordoliberal view

to competition law.189 The ordoliberal perspective has affected the Commission’s view

until recently, and the Commission has interpreted the “restriction of competition” as the

“restriction of the economic freedom of the parties to the agreement”.190

The structure of Article 101 is said to have been initially influenced by the Freiburg

School, while the US-style rule of reason has been influenced by the Chicago School.

Freiburg School has set the protection of the economic freedom of individuals in the

centre of the competition law analysis, so that, agreements which are in restriction of the

economic freedom of the parties have been concluded to infringe Article 101.191

STM preliminary decision of the ECJ is known to be the first judgment in which the

economic effects of an agreement was taken into account when conducting an analysis

under Article 101(1). In addition, with this ruling, ECJ is seen to have adopted a more

flexible approach to the view that, agreements which restrict the economic freedom of the

parties shall also restrict competition.192

Prior to Métropole, the Commission is said to have the view that Article 101(1) prohibits

any restriction of conduct that is significant on the market.193 The General Court

expressed in Métropole that the purpose of the market analysis is to prevent Article 101(1)

from “extending wholly abstractly and without distinction to all agreements whose effect

is to restrict the freedom of action of one or more of the parties”.194 Thereby, the Court

189 Monti 2002, p.1060. Monti also argues that, from a neo-classical perspective, the inclusion of Article

101(3) does not make any economic sense since, if the pro-competitive benefits are outweighed by the anti-

competitive harms, the agreement will not be in restriction of competition at all. Therefore, under the neo-

classical view, the whole analysis can be done under Article 101(1). 190 Ata 2010, p.30. 191 Ata 2010, p.62. 192 Ata 2010, p.31. 193 Korah 2007, p.454. 194 Métropole, para.77.

40

has clearly stated that a restriction of freedom cannot, by itself, be a sufficient condition

for the finding of an infringement under Article 101.195

In Wouters, the ECJ restated that, not every agreement between undertakings which

restricted the freedom of action of the parties necessarily fell within the prohibition of

Article 101(1), and that account should be taken of the objectives of the restrictions and

the overall context of the agreement.196 Although in Métropole the General Court has

accepted the first part of this statement, it did not elaborate on how an agreement with

restrictions can be held not to infringe Article 101(1) without conducting a kind of

weighing up with its pro-competitive effects under Article 101(1).

In its earlier application, the Commission usually took into account under Article 101(3),

factors that it should have considered under Article 101(1). Consequently, many ancillary

restraints that were actually necessary and pro-competitive have been held to restrict

competition, since they limited the freedom of conduct of the parties to the agreement and

had significant effects on the market. The Commission assessed the justifications raised

by the parties under Article 101(3) and granted exemption to the restraints it described as

necessary and reasonable for the operation of the transaction.197 In the end, economic

effects of the ancillary restraints were considered under Article 101(3), rather than being

taken into consideration under Article 101(1).

Nicolaides suggests that some kind of balancing which is usually associated with Article

101(3) needs to be performed under Article 101(1), especially for economic effects

agreements, also arguing that the balancing in Article 101(3) is actually not in the

economic sense.198 Other commentators share a similar view, expressing that the

Commission has actually taken into account non-competition concerns when applying

Article 101(3).199 However, there is another point of view suggesting that the Commission

decisions which look as if non-competition concerns have been taken into account under

195 Nazzini 2011, p.152. 196 Wouters, para.97. 197 Korah 2007, p.454. 198 Nicolaides 2005, p.127. 199 Pasaoglu 2001, p.35.

41

Article 101(3), actually involve an economic analysis where the net contribution to

society’s economic welfare has been assessed.200

Pasaoglu suggests that Article 101(3) involves all elements of a consumer welfare

approach, which has dominated the US antitrust analysis for the last few decades, and

discusses what kind of role will be left for Article 101(3) if a rule of reason is accepted

under Article 101(1).201 Steindorff proposes to adopt a narrow rule of reason under Article

101(1) in order to establish the infringement with a detailed economic analysis, and a

broader rule of reason under Article 101(3) for balancing the pro- and anti-competitive

effects of the agreement.202 However, the discussion is said to go beyond that, to an

extreme in which the restriction of competition can only be decided after a detailed

economic analysis under Article 101(1), and the assessment under Article 101(3) is solely

about public policy considerations, rather than a weighing up of the economic effects of

the agreement.203

Another point to be stressed is that, Jones and Sufrin argue that the objective(s) of Article

101 is crucial when trying to define the relationship between Article 101(1) and Article

101(3). According to these commentators, one has to know if Article 101 is intended

merely to prevent agreements that harm consumer welfare or if it also aims to prevent

agreements that restrain economic freedom or harm EU public policy concerns, such as

the single market objective or other EU objectives.204 About this, Pasaoglu claims that

since the objectives and roles that have been assigned to competition law have changed

in time, the role and extent of the rule of reason is also subject to a change, according to

the economic, political and social needs of the society.205 Therefore, the extent of the rule

of reason analysis that is to be done under Article 101(1) and Article 101(3) might have

to be reconsidered over time, according to the status quo.

200 Pasaoglu 2001, p.35-42. Wesseling gives the example of CECED, in which the Commission took into

account the environmental benefits of the agreement when conducting the balancing under Article 101(3).

Wesseling 2001, p.370-371. CECED, [2000] OJ L187/47. 201 Pasaoglu 2001, p.36-38. 202 Steindorff 1984, p.646. 203 Pasaoglu 2001, p.29-30. 204 Jones and Sufrin 2010, p.189. 205 Pasaoglu 2001, p.49.

42

5. POSSIBLE CONSEQUENCES OF A RULE OF REASON APPROACH

UNDER ARTICLE 101(1)

5.1. Introduction

In order to have a solution to the debate on whether a rule of reason under Article 101(1)

is actually favourable, one has to try to foresee the possible consequences of such an

approach. The assessment to be conducted under Article 101(1) and Article 101(3) is

important to determine the role and scope of each article, decide where to place the burden

of proof and evaluate the perceived risks of an agreement.206

Jones and Sufrin suggest that, since a possible rule of reason analysis under Article 101(1)

does not appear to fit well with the current Article 101 scheme, the adoption of such an

analysis would require some procedural and legislative changes.207 For instance, since the

current block exemption regulations do not apply to object agreements, they would seem

redundant in effect cases, where the weighing up of the pro- and anti-competitive effects

of an agreement has already been done under Article 101(1).208

In the below sub-sections, the possible consequences of a rule of reason approach under

Article 101(1) on efficiency, legal certainty and burden of proof will be discussed.

5.2. Efficiency

Some commentators criticise Article 101(1) for being applied to an excessive number of

agreements. Therefore, they argue for the adoption of a rule of reason that would result

in fewer agreements being caught under Article 101(1) and even fewer agreements being

assessed for exemption under Article 101(3).209 As a result of a rule of reason approach,

the narrower interpretation for the restriction of competition under Article 101(1) will

limit the role played by Article 101(3).210 Accordingly, the Commission will be able to

206 Jones and Sufrin 2010, p.191. 207 Jones and Sufrin 2010, p.239. 208 Jones and Sufrin 2010, p.240. 209 Whish and Bailey 2012, p.134; Niels et al. 2011, p.331. 210 Jones and Sufrin 2010, p.191.

43

save its resources to deal with more serious competition law infringements, instead of

conducting an analysis under Article 101(3) for agreements with an overall pro-

competitive nature.211

On the other hand, in the White Paper on Modernisation, the Commission delivered its

view that a US-style rule of reason approach would render Article 101(3) redundant in

practice, since it could then only be used to authorize restrictive agreements that are found

to have an object restriction or that result in non-economic benefits.212 Taking into

account the fact that in Wouters, the ECJ concluded that the public policy considerations

outweighed harm to competition and hence, there was no Article 101(1) infringement in

the first place, the scope of application of Article 101(3) will become even narrower.

Additionally, the exclusion of a prima facie finding of a restrictive object under Article

101(1) will further limit the scope of Article 101(3). Nevertheless, conducting a balancing

under Article 101(1) in order to spot the agreements that restrict competition will not

result in the redundancy of Article 101(3), but rather efficiency, for decreasing the number

of cases to be assessed for exemption.

5.3. Legal certainty

It is claimed that a narrow interpretation of Article 101(1) does not appear to fit with the

broad wording of Article 101(3), and if it results in other public policy considerations

being taken into account under Article 101(3), that will make the exemption process

politically charged and controversial.213

Some commentators argue that the legal rules followed by the Commission under Article

101(1) were overbroad and did not provide sufficiently defined and practical criteria to

determine which agreements restricted competition. In this respect, agreements that in

fact did not restrict competition have been held to infringe Article 101(1), and the analysis

has been further pursued under Article 101(3). An important example is that, in granting

an exemption, the Commission often recognised that the parties faced potential

211 Jones and Sufrin 2010, p.195. 212 Jones and Sufrin 2010, p.198, 239. 213 Jones and Sufrin 2010, p.239.

44

competition, which is the type of factor that should have been relied upon to demonstrate

that the agreement did not have a restrictive effect at all. In short, the Commission and

the General Court have taken into account, under Article 101(3), factors that should have

been considered under Article 101(1).214

Korah indicates that, with the adoption of Regulation 1/2003, the wide interpretation

given to Article 101(1) matters less since the same institutions now also apply Article

101(3).215 However, the implications of having a further assessment under Article 101(3)

of a pro-competitive agreement, needs to be taken into consideration. Since it is unclear

how the Commission will assess whether an agreement is in restriction of competition,

and as the Commission might take into account the justifications raised by the parties to

the agreement under Article 101(3), rather than Article 101(1), agreements that are in fact

pro-competitive might be deterred because of the unlikelihood of being granted an

exemption.216 While there is criticism for the ambiguity on the factors that are used to

find an infringement under Article 101(1), it is also not always clear on what grounds the

Commission and the EU courts have concluded that the agreements do not have a

restrictive effect on competition.217

In its White Paper on Modernisation, the Commission expressed its view that the adoption

of the rule of reason would not constitute a solution to the problems of enforcement and

procedure that it had identified.218 In particular, it stated that a rule of reason under Article

101(1) would “run the risk of diverting Article [101(3)] from its purpose, which is to

provide a legal framework for the economic assessment of restrictive practices and not to

allow application if the competition rules to be set aside because of political

considerations219”. Taking into account these statements in the White Paper on

Modernisation, it can be argued that a possible rule of reason under Article 101(1) is seen

to carry a risk of challenging legal certainty in favour of concerns other than competition.

Legal certainty is important for the parties to the agreement since, if the Commission and

the EU courts decide that the agreement in question does not infringe Article 101(1) at

214 Jones and Sufrin 2010, 194-195. 215 Korah 2007, p.467. 216 Jones and Sufrin 2010, 194-195. 217 Korah 2007, p.86. 218 Whish and Bailey 2012, p.135. 219 White Paper on Modernisation, para.57.

45

all, the parties will not be expected to show that the agreement fulfils the conditions under

Article 101(3). For that reason, it is important that the Commission and the EU courts

clearly state how and when an agreement will fall outside of Article 101(1) and the details

of the rule of reason analysis involved, in order to save time, financial resources and

energy of the parties to the agreement and of the parties alleging illegality. The parties

will definitely know the perceived risks of an agreement, and be able to decide whether

or not to proceed with the agreement. This legal clarity and certainty will also reduce the

possible appeals to the Commission decisions and therefore, result in efficiency for all

the parties and institutions involved.

5.4. Burden of proof

The decision of whether an agreement is caught by Article 101(1) is important, as under

Article 101(1) the burden of proof is on the person alleging illegality, whereas under

Article 101(3) it is on the person claiming legality.220 A possible rule of reason approach

under Article 101(1) will result in different types of burden of proof for object and effect

cases. In object cases, apart from the cases where a prima facie finding of a restrictive

object is excluded from being held as an infringement under Article 101(1), any

justification for the agreement will be considered only under the conditions of Article

101(3). However, in effect cases, justifications will be raised and considered under Article

101(1).221 If the object of the agreement is found not to restrict competition, the burden

of proof regarding its restrictive effect on competition lies with the Commission or with

the party alleging the breach. Only where the effect has been established under Article

101(1), the burden will shift onto the parties to the agreement to show that the conditions

for exemption under Article 101(3) are met.222

220 Korah 2007, p.86. Some commentators criticise the fact that the burden of proof under Article 101(3) is

on the person claiming legality, and argue that the person alleging illegality should also prove that Article

101(3) conditions are not met. ERSOY, C. (2003), “Avrupa Toplulugu Rekabet Usul Hukuku Reformu”,

Rekabet Dergisi - Competition Journal, Vol.16, 3-42. This view will not be dwelled upon, since it is out of

the scope of this study. 221 Jones and Sufrin 2010, p.240. 222 Jones and Sufrin 2010, p.202; Korah 2007, p.91.

46

It is argued that, in its Wouters judgment, ECJ was unwilling to interfere with the Bar

Council’s assessment of the need for and the content of the rules in question. This clearly

shows how the assessment of an infringement under Article 101(1) is in contrast with the

analysis under Article 101(3) where the burden of proof to raise economic efficiency

justifications rests on the undertakings defending the agreement.223 Thus, the choice of

conducting a rule of reason-like analysis under Article 101(1) has important implications

regarding the burden of proof on the parties and the institutions involved.

223 Whish and Bailey 2012, p.131.

47

6. CONCLUSION

One of the oldest debates of EU competition law has been, whether there is and there

should be a US-style rule of reason under Article 101(1) of the TFEU. Although the view

that the need for a solution to this debate has lost some of its practical importance after

the adoption of Regulation 1/2003 is reasonable, looking at the different approaches of

the Commission, the General Court and the ECJ, it is believed that there is still room for

discussion and an open need for clarification on this issue.

It is obvious that the antitrust law and application of the US and the EU are different on

many levels and therefore, it is impossible to expect a parallel application of rule of reason

in these jurisdictions. However, it is worth discussing whether the weighing up of pro-

and anti-competitive effects can be done exclusively under Article 101(3), or if it is

possible and favourable to do some of this balancing under Article 101(1). This study has

been focused on this discussion.

All agreements that have restricted the economic freedom of the parties to an agreement

used to be interpreted as a restriction of competition in the earlier EU competition law

application. Recently, restriction of competition has been differentiated from restriction

of the freedom of the parties, and the initial formalistic approach to agreements that might

harm competition, has left its place to a more economic approach. These developments

and advancements have raised the question whether this amounts to a rule of reason

analysis under Article 101(1).

The evaluation of the relevant case law and judgments shows that, although the

Commission and the General Court have clearly rejected the possibility of a rule of reason

under Article 101(1), ECJ has adopted a more flexible approach, including a weighing up

of pro- and anti-competitive effects of agreements under Article 101(1). The decisions

and judgments that have been examined show that, a more economic approach has been

adopted in EU competition law, which involves the assessment of the relevant market,

the economic and legal context of the agreement, and the effect of the agreement on actual

and potential competition. The ancillary restraints doctrine, public policy considerations

and the counterfactual, among other concepts, have been utilised as tools for conducting

the balancing of the pro- and anti-competitive effects of agreements under Article 101(1).

48

After having reviewed the relevant case law and court judgments, it can be concluded that

there actually is a kind of balancing of the pro- and anti-competitive effects of agreements

under Article 101(1), apart from the weighing up which is done under Article 101(3).

In order to reach a conclusion on whether a rule of reason-like approach under Article

101(1) is favourable or not, the possible consequences of such an approach have been

reviewed.

First of all, an initial balancing that is done under Article 101(1) will decrease the role

played by Article 101(3), which will result in efficiency as less time and effort will be

spent by the Commission, the courts and the parties to the agreement. On the other hand,

it might render Article 101(3) unnecessary, since there will be no need to consult Article

101(3) anymore, for agreements that have been found to have a restrictive effect on

competition but with economic benefits.

Secondly, a rule of reason-like balancing under Article 101(1) has some implications in

terms of legal certainty. Adopting the rule of reason might decrease the amount of Type

1 errors, so that, agreements that do not restrict competition will be saved from being held

as infringing Article 101. However, it is important that the Commission and the courts

clearly state how and when an agreement will fall out of Article 101(1), in order to provide

legal certainty for all the parties involved, in particular, the parties to the agreement. One

other criticism on legal certainty grounds is that, a rule of reason under Article 101(1)

may divert Article 101(3) from its purpose, and result in a focus on considerations other

than the economic assessment of the competitive conditions of agreements. Therefore, if

a rule of reason approach under Article 101(1) is to be adopted, the details of the analysis

under Article 101(1) and Article 101(3) should be set clearly by the Commission and the

courts, in order to reduce the legal uncertainty as much as possible.

Lastly, the choice of conducting the balancing of the pro- and anti-competitive effects of

an agreement under Article 101(1) has important consequences on the burden of proof. A

rule of reason analysis under Article 101(1) will shift the burden of proof from the parties

to the agreement, to the Commission and the alleging parties, whereas if the weighing up

of the pro-competitive effects of the agreement is done solely under Article 101(3), the

burden will be on the parties to the agreement. The placement of the burden of proof

49

would be decisive for the parties when resolving whether or not to conduct the agreement

in the first place.

As a result of this study, it can be stated that there already is a rule of reason-like approach

under Article 101(1), be it called the “European-style rule of reason”, that takes into

account the pro-competitive aspects of agreements, alongside the anti-competitive ones.

After assessing the possible consequences of this approach and considering its merits, it

can be argued that it is favourable to conduct a balancing under Article 101(1), before

pursuing a more detailed analysis under Article 101(3), in order to decrease the number

of agreements to be examined for exemption, lessen the burden of proof that is on the

parties to the agreement and consequently, support the agreements which are inherently

pro-competitive.

50

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