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Elements of Art. 81

Extracts from this document...

Introduction

Art. 81 * Art. 81 is a fundamental provision which is essential for the accomplishment of the tasks entrusted to the Community and, in particular, the functioning of the internal market. * Single market concerns have played a crucial part in the development of the Court's jurisprudence and sometimes this formalistic approach has been to the detriment of economic efficiency considerations. * In interpreting the provision the Court adopts a teleological approach construing Community acts in accordance with the broad system of Treaty aims and objectives set out in Art 2 and 3. * An appreciation of the tension between market integration and economic efficiency, and the close relationship between competition rules and the free movement of goods begins with the Court's seminal judgment in Etablissements Consten SA and Grundig v Commission. It confirms that market integration lies at the heart of art. 81. Art 81 does not only apply to horizontal but also to vertical agreements. Critics of the judgment consider that the existence of market power ids the real issue and argue that inter-brand competition would prevent Grundig's products from being sold at a high price. In Societe Technique Miniere the Court confirmed that market analysis is not necessary where the object of the agreement is clearly to restrict competition. Elements of Art. 81 Undertakings * This will include any natural or legal person carrying on a commercial activity in the goods and services sector. The Court has consistently held that the term has the same meaning in both 81 and 82 (i.a. Flat Glass). * Hoefner and Elser v Macroton: "every entity engaged in an economic activity regardless of the legal status of the entity and the way in which it is financed", even in the absence of a profit motive. * The definition does extend to public authorities if the entity does carry out functions of an economic nature or performs an essential function of the state. ...read more.

Middle

(Consten and Grundig). By contrast the Court has shown more of a readiness to consider economic justifications for vertical restriction (e.g. Nungesser). The Commission's hostile attitude has been almost universally criticised by industry, economists and legal practitioners. Vertical restraints can * restrict intra-brand competition (particularly in selective and exclusive distribution systems where such restraints can lead to a reduction in consumer choice and higher prices) * stimulate inter-brand competition, encouraging the entry of new products on the market and enhancing consumer welfare. Proponents of the Chicago School (Bork and Posner) advocate a non-interventionist approach on the free rider rationale. Vertical restraints and Article 81(1) 81(1) provides the basic framework for the treatment of vertical restraints in Community law (82 has a limited role in this field). Consten & Grundig illustrates the Community's concern to preserve parallel trade at the expense of economic and pro-competitive considerations. Court has held that only two types of clauses will be considered to have as their object the restriction of competition: * those granting a distributor absolute territorial protection (Consten) and * those imposing a minimum resale price on the distributor. In all other cases, an examination of the agreement's effects is necessary. Exclusive distribution agreements now fall under the umbrella of block exemption 2790/99. The Court developed its "ancillary restraints doctrine" countenancing some restrictions based on an economic analysis of the effects of an agreement, provided the restrictions did not go beyond what was necessary to secure the commercial viability. In Nungesser .......... * Franchise agreements are now covered by Regulation 2790/99. * Selective distribution agreements tends to be limited to branded products which are either highly technical and require qualified staff to advise customers or are luxury goods which demand protection. The legal framework applicable to selective distribution was established in Metro (No 1); they are now covered by Regulation 2790/99. Metro: "Although price competition is so important that it can never be eliminated it does not constitute the only effective form of competition or that to which absolute priority must in all circumstances be accorded." ...read more.

Conclusion

Regulation 17 * procedural simplification * decentralising the application of Art 81(3) o allocation the power to provide exemptions to the appropriate national competition authority on the basis of a centre of gravity test or o allocating the exemption cases to the national competition authorities on the basis of turnover thresholds both solutions are not viable because of the danger of re-nationalisation and challenges to the uniform application of E.C. competition law * revising the Commission interpretation of Art 81(1) WESSELING The Commission's favourite solution, abolishing the authorisation system requires numerous flanking measures to ensure uniformity. Shift to direct applicability of Art 81(3) and the abolition of the Commission's monopoly are the cornerstones of the modernisation and mark a "revolution in the Commission's thinking. However, the case law is not as straightforward as the Commission suggests in its White Paper. Revision of interpretation of Art 81: * Application of an 'economic rule of reason' under art 81(1) and of a 'policy rule of reason' under 81(3). Only agreements for which a "policy exemption" would be sought would require notification. Does Art 81(3) lend itself to direct application? * 81(1) and (3) have been declared by the Court as indivisible and to be applied as a whole (De Geus v Bosch). On the other hand the Court has said that the Commission has a monopoly over the granting of exemptions (BRT v Saban). * Until now: National courts may declare agreements infringing 81(1) void (81(2)), if they are manifestly incapable of fulfilling the conditions of art 81(3) (Delimitis). Courts may examine whether an agreement fulfils the conditions of block-exemptions and thus apply 81(3) indirectly to agreements which fall within the block exemption. * Court held that 81(1) prohibits agreements which upon a comprehensive assessment of the effects have a "net" negative effect on competition (Voelck v Vervaeke). * _____________________________________________ "Comfort letter paradox" (agreement can be void under 81(2) before a national court despite a comfort letter! * Leveraging * Conglomerate mergers * IP/Licensing etc. * Airtours * Schneider * Cartels * Enso/Stora on Buyer power * Market definition (demand side/supply side) 1 ...read more.

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