European Union Law. Article 81(3)

The quote expresses two sentiments. The first is that in satisfying Article 81 of the EC Treaty a “sophisticated …. legal analysis” is required. The second is that since Regulation 1/2003 , there has been an “increased burden” on the undertakings that may lead to “uncertainty and unpredictability”.

These questions will be addressed in turn, beginning with the substantive tests before examining the effects of the Article being directly applicable.

ARTICLE 81

The purpose of Article 81 is to level the playing field between undertakings that operate in the EU by prohibiting any agreements that inhibit competition. Specifically Article 81(1) states that “all agreements which have as their object or effect the prevention, restriction or distortion of competition” shall be prohibited. Article 81(3) provides for 81(1) to be declared inapplicable if the agreement contributed to the “production or distribution of goods or to promoting….progress”. Over time, the Commission built up a body of case law which was applied to the undertakings very strictly.

The reason for this body of law being so apposite was a Regulation that was passed. This required an undertaking to notify the Commission of any agreement that was affected by Article 81. The Commission would then issue a ruling on whether it was permissible. Over time the Commission also set out a number of ‘block exemptions’ in order to expedite the process of notification.

Over time the scheme grew impractical and following a White Paper in 1999 , Regulation 1/2003 was brought into effect which de-centralised the implementation of Article 81. The greatest effect has been felt in three main areas.

ESTIMATES REPLACING CERTAINTIES

A fundamental purpose of Regulation 17 was to provide certainty. While it was inconvenient for a company to file notification with the Commission whenever they entered into an agreement, the quid pro quo was that the undertaking would have a legal guarantee that Article 81 was not violated. Thus there would be no barriers to entering into a commercial transaction based upon the agreement.

Regulation 1/2003 altered this. Undertakings are now required to assess the legality themselves. If they choose to proceed, and anyone chooses to object, the company will have to face an action in a domestic court. This reduced certainty and stability in two ways.

The first is inherent in the loss of the guarantee provided by the Commission. Armed with the required notification, there was a certainty that no longer exists. Further, instead of leaving an interpretation to the Commission, they have to rely on their own legal advice to determine whether or not the agreement complies with Article 81; as the test above demonstrates this can be a complicated and uncertain procedure. Indeed simply to determine if the test is breached requires four different questions to be answered, all of them with potential for ambivalence and uncertainty.

It is of course arguable that this is what the lawyers are paid for. From a practical perspective though, the company seeks a clear definitive answer and not a matrix of possibilities, probabilities and hypotheticals.

This is compounded by the second strand of uncertainty. Under Regulation 17 there was one law; now there is the potential for each EC state to have a different set of laws. The head of the ‘Confederation of British Industry’ noted after the Regulation was passed that “the proposals are (in)sufficiently robust to avoid EU competition law developing in 16 different directions” . Clearly this means that even if the past jurisprudence is clear and certain, there is no real prospect of this situation continuing because eventually each state will move in their individual direction. Even though the Commission have made it clear that the European laws are supreme this will not necessarily prevent minor changes being made that over time could spawn greater changes. Certainly for the company lawyer it will mean that the law of other states will have to be considered as they asses the legality of any proposal by an undertaking.

LOCATION, LOCATION, LOCATION…BUT WHICH ONE?

Under Regulation 17, the issue of jurisdiction never arose. Because all nations were bound by the Commission’s monopoly of Article 81, any disputes were determined by that body and using their own laws and jurisprudence. The dawn of Regulation 1/2003 has changed this.

There is nothing to prevent multiple actions arising out of the same facts. So for, example, an undertaking may face a legal challenge from two individuals; one British and one Danish, each filing in their own jurisdictions. Previously they would have been heard by the Commission, now the undertaking would have to face the prospects of separate actions in separate courts. While there is a statement in the Regulation that concerns duplicitous cases, astonishingly there is no duty to avoid it. It is mere an expression of intent with no thought being given to which state should have priority.

In a similar vein, each state within the EU has the potential for separate procedural rules. Chief among the concerns here is the question of confidentiality. While most legal systems have a basic foundation of lawyer-client privilege, implementation is non-uniform. As such it is suggested that the Regulation will cause uncertainty that will undermine the possibility of lawyers giving adequate legal advice.

A FINANCIAL QUESTION

Thus far, the difficulties have arisen out of the procedural rules or the substantive tests. There is another element that is of importance to an undertaking since Article 81 became directly applicable. This is the consequences of failing to comply with Article 81.

The system under Regulation 17 was fairly straightforward. Now however, each jurisdiction has its own analysis on what the penalty should be. Zinsmeister writes that;

“Companies will have difficulty assessing the nature and amount of the sanctions they might be exposed to, they will not be able to predict whether criminal or administrative laws will apply and will therefore not know what procedural rules are applicable”

The effect is as simple as this suggests. Because each of the states has its own national system, and there is no way to predict which state the company will have to deal with, there is no way of predicting any potential penalty. This leads to uncertainty, not merely within the undertaking, but also with regard to the validity of the Regulation. Zinsmeister suggests that the uncertainty is so pronounced as to potentially violate the European Convention on Human Rights.

ANCILLARY ARGUMENTS

The three reasons that have been given in the body of this essay are very much the core points demonstrating the lack of certainty when dealing with Article 81. However there are a number of points that are ancillary to these points.

The fundamental point is that in spite of the policy of de-centralisation inherent in the Regulation, the Commission are still involved. Significantly, they still have a power to halt and case proceeding in the national courts . The national courts also have a duty to report individual cases to the Commission. This is yet another factor that an undertaking will have to consider when assessing the validity of a particular agreement.

The second point is speculative, hence not one of the main arguments. However, there is an argument that because the changes in effect altered the whole approach of Article 81, it was not sufficient to use a Regulation and that there should have been an official Amendment to the Treaty. It is therefore conceivable that the entire process could b challenged in the future, an action which would certainly lead to uncertainty within the interpretation of the Article.

CONCLUSION

It is clear that the test of Article 81 does require a complicated analysis, if nothing else because of the need to weigh both Article 81(1) and Article 81(3). Further, there can be little doubt that while Regulation 1/2003 has bequeathed benefits to undertakings, Article 81 has become shrouded in uncertainty.

 

 

BIBLIOGRAPHY

‘EC Competition Law’ (4th Edition) DG Goyder
(Oxford University Press)

‘Cases and Materials on EU Law’ (7th Edition) Stephen Weatherill
(Oxford University Press

‘Competition Laws of Europe’ Julian Maitland-Walker
(Lexis-Nexis)

‘A Guide to European Union Law’ (8th Edition) PSRF Mathijsen
(Sweet/Maxwell)

‘Competition Law Sanctioning in the EU’ G Dannecker
(European Monographs) O Jansen

Article 81 of the European Community Treaty
Council Regulation 17/62
Council Regulation (EC) No 1/2003
White Paper 1999

Wilhelm v Bundeskartellamt (14/68) 1969 CCR 1
Consten SA and Grundig GmbH v Commission (58/64) (1966)

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