European Union Competition Law - Coursework Example

Running Head: EU Competition Law European Union Competition Law of the of the The spirit of free trade and restricted practices among the companies, firms and other conglomerates in the Member States is supervised by Article 81 EC. The main objective of this article is to contain restrictive agreements and other practices that exist between independent firms because of horizontal and vertical relationships1. Some of these prohibited practices are price fixing; limiting or controlling production, markets, technical development or investment; sharing markets or sources of supply; etc. Operation of Article 81(1)2 EC requires comprehensive economic analysis because of the fact that it hinders the agreements that affect economic freedom3. Nevertheless, Article 81 EC permits anti-competitive practices whose pro-competitive results predominate over their anti – competitive consequences4. The national authorities can ban vertical agreements that disregard Article 81(3), in respect of the benefit of exemption.5 In the case of vertical agreements that are competitive and that include fifty percent or more of a specific market, the Commission has the power to cancel the exemption and apply Article 81(1) in its totality. In respect of cases of undue advantage of a dominant position, Article 82 EC prohibits the abuse of a dominant position insofar as it may affect trade between Member States6 The agreements in the field of supply and distribution of goods comply with the new Block Exemption Regulation.7 Previously the EC had undertaken a formalistic approach that had construed any restriction of commercial freedom to be restrictive of competition. Further, the Commission had a monopoly in respect of implementing Article 81(3) and Article 81(1) had been given a wide interpretation, as it had to be enforced uniformly in all the Member States8. In Métropole Télévision (M6) et al. v. Commission9, the Court of First Instance or CFI held that an approach based on an economic perspective was essential while reviewing the agreements of anti – competition as stipulated by the provisions of Article 81(3) EC10. Article 81(1) EC differentiates between the different types of concerted agreements as agreements between undertakings where the notion of agreement is broader in sense which includes a contract11; decisions by associations of undertakings where the associations can be business associations or other organizations and concerted practices, which include varieties of cooperation, that are more inchoate than a conventional agreement12. The UK based Electropoint plc manufacture electrical goods. Their EU market share is 30 per cent for washing machines, 20 per cent for refrigerators and 5 per cent for dishwashers. Massife SA is a French and Grosse AG a German electrical company, which manufacture goods that are akin to what Electropoint does and who trade with other EU countries. In the Irish Sugar case, the Irish Sugar plc was enjoying monopoly in Ireland, as it was the only sugar producer in that country. It had a market share of ninety percent and occupied a dominant position. The company had abused this dominant position by restricting small domestic sugar packers from producing sugar and by opposing imports from France and Northern Ireland. In addition to this, the company was in the habit of offering biased prices and discounts which was tantamount to unfair trade practices towards the customers of the French importer. This activity suppressed the spirit of competition. The unfair trade practices undertaken by the company led to rifts and unseen trade barriers between the Member States. The flexibility of the market was adversely affected and as a result, the Commission imposed a penalty of € 8.8 million on Irish Sugar plc13. Electropoint entered into agreements with retailers that they would supply goods only if their sales turnover reached a hundred thousand Euros over a three – month period. Article 81(1) EC forbids agreements, concerted trade practices, and decisions of undertakings which may influence commercial transactions between Member States and which aim to influence the prevention, restriction, or distortion of competition. Article 81(2) EC thus renders such agreements or decisions as invalid. Article 81(3) empowers the Commission to state publicly and officially that the prohibition in Article 81(1) is inappropriate if certain requirements are fulfilled. Hence, agreements entered by Electropoint constitute a violation of Article 81(2) EC and therefore these agreements are invalid. Carlos had been appointed as Electropoint’s sole distributor in Spain. The distribution agreement prohibited Carlos from importing rival products. However, Electropoint discovered that Carlos has been importing and distributing Massife products in Spain and has accordingly threatened to terminate his distribution agreement. Electropoint also discovered that Manuel, another Spanish company, has been importing Electropoint goods into Spain and selling them at a lower price than that charged by Carlos. Electropoint brought a breach of trademark action against Manuel who pleads that he is entitled to compete against Carlos. Agreements that are formed with an aim to prevent, restrict or distort the spirit of competition, need not establish anti – competitive behaviour and such agreements will prima facie violate Article 81 (1) EC. In spite of this, there exist agreements that have pro – competitive or anti – competitive characteristics and thus it becomes more difficult to identify agreements that violate Article 81(1) EC. Since he is the sole distributor of Electropoint goods, he cannot sell goods manufactured by Electropoint’s competitors. Carlos’ act amounts to a breach of contract, which permits Electropoint to rescind the contract if necessary. Electropoint can terminate the distribution agreement with Carlos. According to the EU Block Exemption Regulation under Article 81(3) EC, certain restrictions such as exclusivity are valid if the market share of the supplier does not exceed thirty percent. Since, the market share of Electropoint does not exceed thirty percent; it is not anti – competitive for it to prevent Carlos from selling similar goods manufactured by other companies14. In the case of Levi Strauss v. Tesco, Levi had won the right to limit imports from outside the EU, and by extension, the European Court’s decision means trademark holders can stop businesses importing their products from outside the EU and then selling them without the trademark holder’s consent. The ECJ stated that the trademark holder must give explicit permission to a retailer to let them sell grey goods. Therefore, Tesco was prohibited from importing Levi jeans from the US and selling them in the UK. In this case, the trademark holder Levi Strauss Co was allowed to continue the monopoly that had been enjoyed all along15. Similarly, in Arsenal v. Reed, Reed had been unofficially selling Arsenal souvenirs for three decades. The ECJ opined that Reed had infringed Arsenal’s trademarks16. Thus, it can be contended that Manuel had infringed the trademark and EC laws, because he had imported and sold goods at a lesser price than what the manufacturer was selling for. Accordingly, Electropoint can sue Manuel for these infringements. Electropoint, Massife and Grosse arrived at an agreement according to which they will each specialise in making certain washing machine parts and sell them to each other. Their contention is that this will reduce costs. However, Finewash Ltd, a small British rival producer, contends that this agreement is illegal under EU Law. It was decided in the ICI v. Commission (Dyestuff), that parallel behaviour combined with something more like communication, price announcement, phone calls, secret meetings, etc, would amount to a restriction of competition17. However, Electropoint, Massife and Grosse had decided to manufacture only certain components of the washing machine, in order to reduce the overall price. This would benefit the consumers, as the cost of production would come down and the consumer would benefit from this pricing structure. Therefore, such a venture would be exempted under Article 81(3) and the UK rival Finewash Ltd’s complaint to the Commission though resulting in an investigation, would produce an outcome that would be favourable to these three companies. PART 2 Articles 28 to 30 EC contain the principle of mutual recognition in the EC treaty. This principle countermands Member State laws or administrative procedures that do not conform to it. However, this principle is inapplicable if public health, the environment and culture are endangered. In order to claim that the principle had overridden its interests, the Member State has to establish that the product fails to satisfy the extant standards and that it had not applied strict measures in proving the allegation. Under these circumstances, the Member State should not oppose the import of these goods. The imported goods may be labelled in an appropriate manner by the importer before distributing them in the local market. If a Member State finds that a product was improperly labelled, it has to insist upon the exporting Member State to label the goods properly, however it is precluded from abruptly preventing the import of those goods. The following cases reveal that restrictions between Member States, curtailing the free movement of goods are invalid. In the case of Keck and Mithouard, it was contended that Article 28 had been contravened by the French law. It was the considered opinion of the ECJ that Article 28 does not permit quantitative restrictions and measures having equivalent effect between Member States. In this connection, the ECJ held that a measure had equivalent effect on quantitative restriction if it thwarted intra-Community trade18. In Procureur du Roi v. Benoit and Gustave Dassonvile19, Rewe – Zentral (Cassis de Dijon)20 and Franzein21 cases the Court held that trade restrictions operated by the member states violated Article 28 EC as they hindered the free movement of goods and were construed to be restrictions on the inter – community market. In the case of EC Commission v. Denmark (Re Returnable Containers Case)22, the Danish Government had authorized the national environment protection agency, by legislation, to approve the packing of beer and soft drinks that were to be sold in Denmark. The Court held that such restrictive approval was a breach of Article 30 EC. It further stated that such acts were unjustifiable under public policy requirements. In Commission v UK (Re excise duty on wine), 23 the United Kingdom Authorities had levied higher taxes on wines in comparison to beer. Most of the wines in the United Kingdom are imported, whereas beer is brewed locally. The European Court of Justice held that the United Kingdom had infringed the EC Treaty by imposing a higher tax on other member state products, as it constituted a restriction on the free movement of goods within the internal market. In Commission v Italy (Re Export tax on Art Treasures)24 the Italian Government had levied heavy taxes on the export of valuable art objects with an aim to curb export of such art pieces. The Commission initiated action against the Italian Government stating that this tax was tantamount to a prohibition and that such a restriction was in violation of the EC Treaty Provisions. In Commission v UK25 the UK government banned the import of poultry products, in order to benefit local poultry farmers. The reason given by the UK Government for this ban was that such imports were against public policy, in as much as these imports could result in the poultry disease infecting domestic fowls. The European Court of Justice held that this was unjustified because there were several other options available to the United Kingdom Government that were less restrictive in nature. The UK pharmaceutical company, Welby plc, recently expanded its trade with other EU countries, however, it has encountered the following problems; it manufactures a painkilling tablet, Welfen which is used as a painkiller. These tablets are produced in flatpacks, which though legal in the U.K are not acceptable in France, where such products have to be sold in small bottles with childproof tops. In the German Beer case the ECJ held that Germany had breached Article 28 as it had made it mandatory for the word Bier to be used only when a specific combination of ingredients were utilized while manufacturing beer. The other Member States had not used this all of those ingredients. Germany argued that some of the ingredients used by other Member States have been harmful. The ECJ had arrived on a decision that the manufacturers of beer have to display the contents and ingredients used in preparing the beer on the container. This would enable the consumer to be aware of the ingredients and the decision is left to the consumer whether to consume the beer or not with the provision of the facts. Hence, German law had infringed the principle of proportionality and it could not seek an exemption under Article 30. In a similar manner in the German Sausages case, German law had banned the sale of certain sausages in Germany. Since, the additives in these sausages had not been proscribed in the country of their origin; the ECJ decided that German law had infringed Article 28. Therefore, it is unlawful to prohibit Welby’s painkilling tablets, because these tablets have been lawfully produced in the UK and hence, the other Member States have to accept these tablets. The packaging requirement of France has to be communicated to Welby; however, these tablets have to be imported. Moreover, Welby produce a cough mixture in a plastic bottle, which was not accorded permission for sale in Germany because it was not in glass bottles and because it did not contain the ingredients required by German legislation. In order to function adequately the EEC Treaty requires the proper implementation of the principle of equivalence and the Rule of Reason principle. The principle of equivalence stipulates that all the member states have to harmonise their law which guarantees the free movement of goods. Under the principle of Rule of Reason the goods can be rejected from free movement if there is a risk to public health, the commercial transactions are unfair or the consumer is subjected to risk. However, this is applicable only if relevant Community legislation is absent. The principle of equivalence, which requires the harmonization of the law in the Member States and consequently the free movement of goods, has become the established practice, subsequent to the decision in Keck and Mithouard. In the case of United Kingdom v. European Parliament and Council26, the United Kingdom had requested the European Commission to rescind Regulation No 2065/2003 EC for the reason that the regulation deals with granting sanctions to smoke flavourings for food instead of harmonisation and thus Regulation 2065/2003 EC had to be adopted under Article 308 EC and not under Article 95 EC. The Court did not accept this contention and decided that the variation in the national laws in respect of smoke flavourings was proving to be detrimental to their free movement. Therefore, Germany cannot object to the import of the cough mixture because it did not contain the ingredients required by its laws. The cough mixture had been accepted by the UK authorities. In respect of the packaging, if the German authorities are insistent that the bottles should be made of glass, then such requirements can be communicated to Welby. However, there cannot be an abrupt discontinuance of such imports. Further, Welby produced a contraceptive drug that was not allowed to be imported into Austria as the latter was sceptical of its safety as it was felt that this would encourage immoral behaviour. In Commission of the European Communities v. Italian Republic,27 the Italian Government restricted the import of a caffeinated beverage, because its caffeine content was above the permissible limit. However, the Italian Government was unable to establish that such a limit was required for safeguarding public health. The court held that the Italian Republic had not been successful in discharging its duties under Articles 28 and 30 EC. A similar judgment was delivered in Commission v. Germany28 and Commission v. Belgium29. Therefore, if Austria had any reservations regarding the safety or morality of this medication, then it has to establish that its actions were justified because of the danger posed to public health and morality. Finally, Welby manufactured a slimming tablet, which was to be advertised by mail order in magazines. However, Spanish law requires slimming tablets to be sold only by prescription and it prohibits the sale of slimming tablets by mail order. The Spanish authorities refused to make Welbys slimming tablet available on prescription. The requirement of Spanish law is that slimming tablets have to be sold only by a doctor’s prescription. However, the Spanish Authorities refused to allow Welby’s tablets even by prescription. This constitutes a restriction on the free movement of goods in the EU. Since, these slimming tablets had been lawfully produced and recognized by the authorities in another Member State, Spain cannot restrict its import. As such, Spain will be infringing Articles 28 and 30 of the EU if it prohibits the import and sale of these tablets. Bibliography 1. Arsenal Football Club Plc v. Matthew Reed. 2003.ECWA Civ 96. 2. Bernard, “Sunday Trading: A Drama in Five Acts”, (1994), 57 MLR 449. 3. Bourgeois and Bocken. Guidelines on the Application of Article 81(3) of the EC Treaty or How to Restrict a Restriction. 32 Legal Issues of Economic Integration 111 (2005), pp. 112-113. 4. Case T-112/99, Métropole Télévision (M6) et al. v. Commission, [2001] ECR II-2459. 5. Case T 228/97, Irish Sugar plc v. Commission (1997) 6. Case C-66/04 United Kingdom v. European Parliament and Council (2005) ECR I-10553. 7. C – 420/01. Commission of the European Communities v. Italian Republic (2003) ECR I-6445. 8. C – 476/98. Commission v. Germany. 9. C – 122/02. Commission v. Belgium. 10. C – 8/74. Procureur du Roi v. Benoit and Gustave Dassonvile. 11. C – 120/78 Rewe – Zentral (Cassis de Dijon). 12. C – 189/95 Franzein. 13. C – 302/86 Commission v. Denmark (Re Returnable Containers Case). 14. C – 170/78. Commission v UK (Re excise duty on wine). 15. C – 7/68. Commission v Italy (Re Export tax on Art Treasures). 16. C – 40/82. Commission v UK. 17. Competition Law and Distribution in Europe. September 2005. Retrieved on April 21, 2007 from http://www.lpalaw.com/tele/publication/LPA_distributionineurope2005_ENCH.pdf 18. Commission Regulation (EC) No 1400/2002 of 31 July 2002, retrieved from http://eur-lex.europa.eu/LexUriServ/site/en/oj2002 /l_203/l_20320020801en00300041.pdf . 19. Commission Regulation (EC) No 2790/1999 of 22 December 1999 on the applications of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices, OJL 336/21, 29.12.1999. 20. Council Regulation No 19/65/EEC of 2nd March 1965. OJ 36.6.3.1965p.533. 21. Dabbah, Maher M. 2004. EC and UK Competition Law: Commentary, Cases and Materials. Cambridge University Press. P. 56. ISBN: 0521604680. 22. EU Treaty Article 81 (1), available at www.europa.eu.int/comm/competition/legislation/treaties/ec/art81_en.html. 23. Guidelines on the Application of Article 81(3) of the Treaty. Communication from the Commission. Official Journal of the European Union. 27th April, 2004. pp. C 101/97-98. Retrieved from http://europa.eu.int/eur-lex/pri/en/oj/dat/2004/c_101/c_10120040427en00970118.pdf 24. ICI v Commission (1972) ECR 619 (Dyestuffs). 25. Keck & Mithouard, Joined Cases C-267 & 268/91, (1993) ECRI-6097. 26. Komninos, Assimakis 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. Pp. 3, 5, 10. Retrieved from http://www.competition-law.ox.ac.uk/lawvle/users/ezrachia/CCLP%20L%2008-05.pdf 27. Levi Strauss & Co v. Tesco Stores Ltd. 2003. RP C 18. 28. McCullough, .The Continuing Search for Greater Certainty: Suggestions for Improving US and EEC Antitrust Clearance Procedures. 6 Nw.JInt.lL & Bus. 803 (1984). P.892. 29. Quinine Cartel ACF Chemiefarma NV v. Commission (Case 41, 44 and 45/69) [1970] ECR. Read More