Chillin'Competition

AG Szpunar Opinion in FIFA v BZ was delivered yesterday. The opinion is remarkable, from the perspective of an EU competition lawyer for several reasons.

It stands out, first, because of how categorical the Advocate General is when interpeting the law. It is unusual that, in the context of a preliminary reference, an Opinion states unambiguously that a practice amounts to a restriction of competition by object and that, in addition, it does not meet the conditions set out in Article 101(3) TFEU.

In principle, it is for the referring court (which has all the necessary information) to apply EU law to the facts of the case.

The Opinion is also remarkable because of how it approaches the question of whether the rules at stake have, as their object, the restriction of competition. Anyone familiar with the relevant case law will realise that the methodology followed by AG Szpunar departs from the principles laid down in Cartes Bancaires and the judgments that followed.

The preliminary reference submitted by the Cour d’appel de Mons concerned some aspects of FIFA’s Regulations on the Status and Transfer of Players (‘RSTP’). These rules foresaw a system of sanctions (in addition to compensation) applicable to the clubs that sign players that have terminated the contract without just cause.

In essence, the regulations seek to disincentivise the signing of players that are in breach of their contractual duties and they also seek to disincentive some aggressive practices by clubs (the latter may feel tempted to induce players to terminate their contracts abruptly).

Do these rules have, as their object, the restriction of competition? The abovementioned case law makes it clear than an answer to this question must consider the content of the rules, their aim and the economic and legal context of which they are a part.

According to the Opinion, the European Commission had taken the view, in its submission, that the relevant provisions of the RSTP were not anticompetitive by their very nature. It is not difficult to see how the Commission might have reached this conclusion.

One could plausibly argue that the purpose of the system of sanctions at stake in the case is to prevent the sort of buccaneering conduct that could negatively affect the integrity of competitions and could easily escalate (and would typically benefit wealthier clubs). If that is the case, the object of the regulations would not be the restriction of competition, but a different one.

It is imperative to bear in mind, in this regard, that clubs taking part in organised sports are not mere competitors (and thus not competitors in the usual sense). They cooperate as much as they compete, and cooperation involves, by necessity, restricting their freedom of action at least to some extent so that their common objectives can be attained.

AG Szpunar did not take into account these factors, which are key to make sense of the relevant economic and legal context. Instead of relying on the criteria laid down in the case law, the Opinion focuses on the impact of the rules.

More precisely (para 53), the Advocate General sees the ‘consequences’ of a termination without cause as ‘draconian’. In the same vein, he argues that the rules are designed to have a ‘deterrent effect’.

By focusing on the consequences of a breach, the Opinion infers an anticompetitive object from the effects of the rules. In other words, AG Szpunar relies on their impact to conclude that they are restrictive by their very nature.

By blurring the line between object and effect, the Opinion embraces a methodological approach that departs from the one laid down in the case law.

Under the methodology consistently followed by the Court, the question is not whether the relevant regulations have a deterrent effect (which they undeniably do). The question, instead, is what the object of this deterrent is.

If it turns out that the disincentive pursues an aim that is not anticompetitive, then it is not prohibited as a restriction by object (but could well have, as the European Commission argued in this case, restrictive effects).

And the experience of decades shows that, in the context of cooperative joint ventures (such as organised football), these disincentives often do not have an inherently restrictive object, but one that ensures the adequate functioning of the co-opetitive arrangement (Cartes Bancaires is an example that comes to mind again; Gøttrup-Klim is another one).

The reference to cooperative joint ventures takes me to the third reason why the Opinion is remarkable. By adopting an expansive interpretation of the notion of ‘by object’ infringement, Advocate General sees competition law as a discipline that has a frequent and proactive role to play in the regulation of such ventures.

This position would have involve a major departure from the position that the Court has taken so far. After all, Wouters was an acknowledgement that Article 101 TFEU is ill-suited to second-guess the decisions taken by governance bodies on co-opetitive structures and thus will only intervene in exceptional circumstances.

The trio of judgments issued last December did not fundamentally change this balance. As I explained here, these judgments only interfere at the margins with governing bodies.

This long-standing position would change fundamentally if the scope for the application of the Wouters doctrine were significantly reduced (as would be the case if the notion of restriction by object where interpreted in the way suggested by AG Szpunar).

(As ever, I have nothing to disclose).

I am delighted to announce that the Comisión Nacional de los Mercados y la Competencia will host an event around The New EU Competition Law on 28th May (the reception will start at around 3.30pm and the event as such, at 4.30pm).

You can register for it here.

Presenting the book in my hometown, and at the competition authority, will be a highlight of the book tour. I am really grateful to the staff at the CNMC for making it happen. I am also grateful to the speakers who have managed to make some time for the occasion:

Cani Fernández, President of the CNMC, will deliver the opening address at 4.30pm.

Her speech will be followed by a round table discussion with Beatriz de Guindos (AECID), Javier García-Verdugo (CNMC) and Alfonso Lamadrid (Garrigues and, to be sure, Chillin’).

Marisa Tierno, Director for Competition at the CNMC, will share some thoughts at the end.

If you happen to be in Madrid on the day, please pass by!

The Journal of European Competition Law & Practice (of which I am the Joint General Editor with Gianni De Stefano) is proud to announce that it will be publishing, later this year, a Special Issue devoted to EU merger control (and the changes it is undergoing).

Major developments are taking place on every front, from the jurisdictional to the substantive. We would be delighted to consider proposals on any major topic, including, but not limited to, the following:

• Market definition, and the impact of the recent Commission notice on the field.
• The application of Article 102 TFEU to merger control following the Towercast judgment.
• The meaning and scope of Article 22 of the EU Merger Regulation.
• Ecosystem theories of harm in the wake of Booking/eTraveli.
• Remedies in EU merger control.
• 20 years of the ‘oligopoly gap‘: where do we stand after the appeal in CK Telecoms?
• Judicial review in EU merger control.
• Interaction between EU merger control and other systems.

If you have an idea for a paper, please email Gianni (Gianni.De-Stefano@ec.europa.eu) and/or myself (P.Ibanez-Colomo@lse.ac.uk) by Friday of next week (3 May) with your proposal.

This proposal should take the form of an abstract of max. 250 words in which you outline:

• The issue you would like to address;
• The angle you intend to take;
• The contribution your piece is expected to make; and
• Whether you have any actual or potential conflicts of interest.

If your abstract is accepted (we will let you know immediately), we expect the final article (of around 7,000-10,000 words) to be submitted by mid-June at the latest.

We will select abstracts to maximise diversity and balance in the Special Issue. We are, as ever, keen to give a voice to new authors and different approaches. If there was any doubt: we welcome legal and economic perspectives (and, to be sure, papers that combine both).

In the meantime, do not hesitate to get in touch with any questions or suggestions!

Super Bock was one of the major developments of the past year. It is not immediately obvious to draw this conclusion. On its face, the judgment is brief and an Advocate General Opinion was not even deemed necessary.

The substance of the ruling is not any more auspicious: the Court does little more than reiterate the consistent line of case law since Cartes Bancaires (and subsequently refined, inter alia, in cases like Maxima Latvija, Generics and Budapest Bank).

Alas, the significance of Super Bock has to do precisely with the fact that the Court held, unceremoniously, that resale price maintenance is examined in accordance with the orthodox methodology that applies to the rest of agreements.

One should bear in mind that, before Super Bock, vertical price-fixing was deemed restrictive of competition always and everywhere (that is, irrespective of the economic and legal context and irrespective of the aims of the agreement at hand).

Such was the position taken by the Court in Binon. One of the consequences of this sui generis line of case law was that the pro-competitive benefits resulting from the agreement could only be considered under Article 101(3) TFEU.

In this regard, Binon was at odds with contemporary case law, where the pro-competitive potential of an agreement is crucial in the analysis. It is, in fact, the single most relevant factor allowing the Court to identify agreements with a restrictive object.

For instance, the fact that the contentious restraints sought to address free-riding concerns was central in Cartes Bancaires. In Budapest Bank, the Court went further, in the sense that it held that evidence that the agreement is capable of improving the conditions of competition means that its object is not anticompetitive.

If anything, the ECJ was more explicit in Generics, where it held that the parties may rely on the pro-competitive effects of a practice to cast a ‘reasonable doubt’ on its object. Such effects must be ‘demonstrated, relevant and specifically related to the agreement concerned‘.

Crucially, this aspect of the case law was reiterated in Super Bock.

In fact, Generics is particularly important in relation to resale price maintenance. Unlike cartels, which lack any redeeming virtues, vertical price-fixing is known to be potentially pro-competitive. As a result, it is at least possible for the parties to an agreement to argue that, in the relevant economic and legal context, it leads to pro-competitive gains.

An example of what such evidence may look like in practice was provided by a paper by Rhys J. Williams and recently published in the Journal of Competition Law & Economics (available in Open Access here). The study, initially conducted on behalf of DG Comp, finds that regulation fixing the price of books leads to increased sales (without having a noticeable impact on price levels).

Where evidence in this sense is produced in a given case, it would be sufficient to cast doubts about the object of the agreement. As a result, an authority would only be able to establish an infringement within the meaning of Article 101(1) TFEU by considering its actual or potential effects in the relevant market.

One must remember that, if the agreement is capable of improving the conditions of competition, it is (at the very least) questionable that it pursues an anticompetitive object (for how can its objective purpose be restrictive, if it improves the competitive process?).

To sum up, the significance of Super Bock is twofold. It departs from prior case law in that the Court held that resale price maintenance is not necessarily, or not always, restrictive by object. Second, the pro-competitive effects of the practice may lead to the conclusion that, in a particular economic and legal context, its object is not restrictive.

In Superleague, the Court held that ‘Articles 101 and 102 TFEU must be interpreted consistently’. It is difficult to claim that this statement is novel or groundbreaking. After all, both provisions are parts of a ‘system ensuring that competition is not distorted’.

It is therefore only natural that the various components of the legal order are construed in the same way: if they were not, there would not even be a system worthy of the name. In this sense, the EU treaties require the consistent interpretation of Articles 101 and 102 TFEU.

This idea may well be evident, but its implications are not discussed particularly often in EU competition law circles. Fortunately, it was addressed at the beginning of the month during the annual conference of the Global Competition Law Centre.

One of the implications that was discussed in Bruges is one that has been touched upon relatively regularly on this blog, which is the fact that some practices are abusive by object under Article 102 TFEU.

This conclusion is apparent not only when one considers the reality of the case law, but as a matter of consistency. If, in a given economic and legal context, a practice is found to restrict competition by its very nature under Article 101(1) TFEU, it would make little (or no) sense to require an analysis of its effects under Article 102 TFEU.

A second implication of the consistent application of Articles 101 and 102 TFEU follows from the first one. ‘By object’ conduct is presumed to be capable of having restrictive effects.

This presumption can be rebutted. This point was made explicit in Murphy (as far as Article 101(1) TFEU is concerned) and Intel (and then Servizio Elettrico Nazionale and Unilever; as far as Article 102 TFEU is concerned).

A third implication relates to the methodology to assess anticompetitive effects. Again, it would make little sense to follow a different approach (or to rely on different benchnmarks) to evaluate the impact of a practice.

In the context of Article 101 TFEU, it is well established that the effects of an agreement must be assessed by reference to the relevant counterfactual (the Court’s judgment in Generics addressed this requirement at some length).

It would be difficult to justify the application of a different methodology under Article 102 TFEU. There are, after all, practices that can be assessed under either Article 101 or 102 TFEU and (as Generics itself shows), in some instances, both provisions can apply together to the same set of facts.

This is a point that was addressed by Advocate General Kokott in her Opinion in Google Shopping. The Opinion identified an erroneous interpretation of Article 102 TFEU in the first-instance judgment (see para 172).

The General Court, Advocate General Kokott explained, incorrectly conflated the temporal dimension of the analysis (actual vs potential effects) and the issue of the counterfactual. This is so insofar as the first-instance judgment claimed that assessing anticompetitive effects against the counterfactual is tantamount to requiring evidence of actual effects.

Advocate General Kokott, by contrast, did not question, generally speaking, the relevance of the counterfactual when assessing effects under Article 102 TFEU.

She simply noted (wholly uncontroversially) that Google’s argument artificially focused on one aspect of the analysis and was therefore incapable of substantiating the claim that the General Court had erred in law.

A fourth implication has to do with the very meaning of the notion of effect. Landmark Article 101 TFEU rulings such as Delimitis make it clear that a restrictive effect is more than a competitive disadvantage and more than a limitation of a firm’s freedom of action.

As already suggested, it would be very difficult to justify construing the notion of effect differently under Article 102 TFEU (by arguing, for instance, that a mere competitive disadvantage is sufficient to trigger the prohibition).

A fifth implication is one that captures well the central idea behind this entry. The Court has repeatedly held that, in an Article 102 TFEU case, a dominant firm can show that the efficiency gains resulting from a practice outweigh any actual or potential anticompetitive effects.

This possibility is not supported by the letter of Article 102 TFEU, but makes perfect sense if one considers that it mirrors Article 101(3) TFEU, thereby suggesting, in line with the above, the idea that both provisions, which are part of the same system, must be interpreted consistently.

LSE Law School is looking for a two-year post-doc (LSE Fellow) in the field of competition law. Further particulars can be found here (you have until 14th April to apply).

You would be joining a growing team of competition law specialists, which includes Niamh Dunne, Ayse Gizem Yasar and yours truly. You would also be a full-fledged member of a most inspiring and dynamic institution.

The LSE Fellows scheme is designed to create the perfect conditions for you to flourish as an academic. The teaching load is light and you would have no administrative responsibilities.

It really is a great opportunity for early-career scholars. Some of the academics who started out as fellows and who went on to achieve great things include Michèle Finck, Andriani Kalintiri and Stavros Makris.

I would be more than happy to answer any questions you might have. Just let me know.

I took stock of the recent case law on the relationship between EU competition law and sports at the Institut d’études européennes (ULB) earlier this week, in the context of the illustrious mardis du droit de la concurrence.

The presentation can be accessed here. It focuses on the three judgments delivered by the Court of Justice in December of last year (ISU, Royal Antwerp and Superleague).

The fundamental point made in the presentation is that these rulings are best understood as a corrective mechanism, at the margins, of the relationship between governance bodies and participants in sports competitions (that is, teams or athletes).

Economic and non-economic dynamics favour the emergence of pyramid structures in professional sports. As a result, governing bodies may have, de facto, quasi-regulatory functions. In the same vein, may enjoy a very substantial degree of market power vis-a-vis participants and other actors in the system.

The Court signals that the quasi-regulatory functions of these bodies must be exercised in a manner that reflects the degree of market power they enjoy. Accordingly, the discretionary use of these powers, or their exercise in a manner that is not objective, transparent and non-discriminatory will amount to a breach of Articles 101 and 102 TFEU.

On the other hand, the Court does not question, in and of itself, the governing bodies’ ability to introduce rules concerning the prior approval of (and/or eligilibity in) sports competitions (this is the key issue addressed in Superleague and ISU) or concerning the use of ‘home-grown’ players (at stake in Royal Antwerp).

The three judgments, in fact, expressly acknowledge that the organisation of sporting activities demands, by definition, the limitation of participants’ freedom of action in several respects (including those mentioned above). In the same vein, the Court did not enter into the legality of some practices. It just ruled on the exercise by governing bodies of their quasi-regulatory functions.

To mention a clear example, the Court did not challenge the lawfulness of joint licensing of media rights as such (which does not necessarily restrict competition and may escape Article 101(1) TFEU altogether). It merely questioned how the issue was regulated by governing bodies in the specific factual scenario at stake in Superleague.

The rulings are also valuable in that they clarified a number of issues concerning the interpretation of Articles 101(1) TFEU and 102 TFEU.

First, the Court confirmed how important the evaluation of the economic and legal context is when assessing whether an agreement restricts competition by object under Article 101(1) TFEU. In this sense, it made it clear that the degree of market power (in particular when it is very substantial) is a key factor in this assessment.

Second, it held that the Wouters–Meca Medina doctrine does not apply to ‘by object’ infringements. This interpretation of the doctrine is consistent with its original understanding. It is also consistent with other aspects of the case law, such as the fact that the ‘by object’ category is to be interpreted restrictively.

This Court’s position is only natural: where a restraint escapes Article 101(1) TFEU pursuant to the Wouters–Meca Medina doctrine, it also means that it does not restrict competition by object. Since the regulatory aim to which it relates is legitimate, the object of the said restraint must also be legitimate (that is, it does not fall within the scope of Article 101(1) TFEU by its very nature).

The Court leaves us with three important lessons for the future of the relationship between EU competition law and sports.

One of these lessons is that context is everything in EU competition law. The aim of a particular restraint (achieving competitive balance, addressing free-riding, preserving the integrity of the competition) can only be figured out if the relevant economic and legal context context is considered.

A second lesson, which follows logically from the first one, is that the formal features of an agreement are a very poor guide of its object. The experience of decades shows (and some recent judgments confirm) that a price-fixing or market sharing arrangement is not necessarily restrictive of competition (let alone by its very nature).

A third lesson is that the fact that a particular parameter of competition is affected by a restraint does not mean that the said restraint amounts to a restriction of competiton, whether by object or effect. As the analysis in the three judgments shows, a whole range of other factors must be considered.

Last week’s post discussed (here) the ‘as-efficient competitor principle’, which is key to make sense of the case law of the past decade. It also briefly pointed out that it tends to be conflated with the ‘as-efficient competitor test’, which has a much narrower scope of application.

The ‘as-efficient competitor test’ is relevant only in a very specific scenario, which is that of conditional rebates. In that context, it might be useful as a more or less accurate filter allowing authorities to spot the schemes that are more likely to cause anticompetitive effects.

The logic of the test is not difficult to grasp. It aims to identify those rebate schemes that work, in practice, as an exclusivity obligation (in the sense that rivals would only be in a position to supply customers benefitting from the rebates at a loss and can therefore be deemed to put the said customers out of their reach).

One of the issues that was abundantly commented at the GCLC conference was that of whether the test is necessary to establish an abuse. There should be little doubt that, as a matter of positive law, the Court has repeteadly and consistely rejected the idea that it is a pre-requisite for a finding of abuse.

What is more, Unilever clarified that a competition authority is not required to conduct the test where a dominant firm seeks to prove that a scheme is incapable of restricting competition on the basis of the test. On the other hand, the authority is under a duty to assess its ‘probative value‘.

In the end, it looked like there was wide agreement at the conference room about the above (given the clarity of the case law, consensus on this point is not so surprising). If anything, there was some scope for discussion around whether, generally speaking (or as a rule), an authority must rely on the test (on this point, there appear to be conflicting readings of the relevant judgments).

There is another point that was not mentioned during the conference and that could have usefully clarified the place and value of the ‘as-efficient competitor test’ in the case law. It is important to emphasise not only that the test is not necessary to establish an abuse, but also that it is insufficient to do so.

In other words, it is not because the test shows that an equally efficient rival would be forced to supply its products at a loss that the rebate scheme is necessarily abusive.

It is necessary to complete the assessment by evaluating other criteria. Some of the criteria such as the extent of the dominant position and, in particular, the coverage of the practice, shed light on whether the scheme is capable of causing anticompetitive effects.

Other criteria would shed light on the object of the conduct (in this sense, evidence of an anticompetitive strategy, mentioned back in AKZO and reiterated in Intel, would be a key consideration).

Absent these other factors, which would confirm the anticompetitive object and/or the effect of the practice, an abuse would not be established to the requisite legal standard.

This point, while seemingly obvious, tends to be forgotten, even though Intel makes it clear that the test is just a filter (the Guidance treated it in the same way: the Commission never suggested in that document that the administration of the test makes is unnecessary to consider other factors).

The question about the ‘as-efficient competitor test’ is why it acquired its mythical status, when it was never meant to be anything other than an imperfect filter with a narrow scope of application.

The Global Competition Law Centre‘s annual conference took place last Friday and Saturday in Bruges. The best measure of how much of a success it was is that I came back home full of ideas, having learnt a great deal from other speakers.

Instead of sharing my presentation, I thought it more interesting to engage with some of the points that were made (in particular those that were recurring issues) and some particularly valuable contributions by the rest of participants.

One of the recurring topics was, unsurprisingly, the (much misunderstood) ‘as-efficient competitor principle’ (which has been discussed on this blog, including here, and which is to be distinguished from the so-called ‘as-efficient competitor test’ itself).

While a considerable part of the discussion focused on the meaning of the principle and its implications, I found it refreshing that some participants challenged the consensus and suggested that it may be nothing other than a tautology or a rhetorical device.

The principle is best understood as a necessary consequence that follows from the need to show that any actual or potential effects are attributable to the practice. It is, put differently, an aspect of the causality assessment.

Thus, there would be no abuse where the exclusion of a rival is attributable to the fact that it is less efficient or less attractive in terms of, inter alia, price, quality and innovation.

What does the principle involve in concrete terms? The implications are best illustrated, I think, by reference to the practices that are deemed lawful under Article 102 TFEU.

We have known since Hoffmann-La Roche (as Post Danmark II would later confirm) that genuine quantity rebates do not amount to an abuse of a dominant position.

According to the case law, these rebates (‘linked solely to the volume of purchases‘) escape the prohibition because the lower prices merely reflect the cost savings that the dominant firm can make as a result of the increase in the volume supplied.

Thus, any exclusion of a rival would not be attributable to the quantity rebates, but to the fact that it the dominant firm is more efficient.

Think now of unconditional pricing. It was implied in AKZO, and confirmed in Post Danmark I, that above-cost prices are not predatory within the meaning of the former judgment.

Again, an equally efficient rival would be able to sustain aggressive pricing that remains above cost. If the rival leaves the market in such circumstances, the outcome would not be attributate to the pricing campaign, but to the fact that it is less efficient than the dominant firm.

Commentators tend to focus on paragraph 22 of Post Danmark I, which enunciates the ‘as-efficient competitor’ principle (‘[…] [c]ompetition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation‘).

Paragraph 38, however, is more illuminating about it, in the sense that it reveals its concrete role in practice. In the words of the Court:

’38. […] a dominant undertaking sets its prices at a level covering the great bulk of the costs attributable to the supply of the goods or services in question, it will, as a general rule, be possible for a competitor as efficient as that undertaking to compete with those prices without suffering losses that are unsustainable in the long term‘.

According to this paragraph, below-cost pricing is not necessarily abusive. This is so, generally speaking, where an equally efficient rival would be able to sustain a campaign that allows it to cover ‘the great bulk‘ of the relevant costs.

Another point that is worth emphasising, having followed the discussions at the conference, is that the ‘as-efficient competitor principle’ does not cease to apply merely because a practice is deemed abusive by its very nature (or, if you prefer, by object).

No participant seriously questioned the idea that some practices are abusive by object. The most recent case law makes it clear that Article 102 TFEU can be triggered where exclusion is the only plausible explanation for the conduct.

However, this ‘by object’ category of conduct raises an interesting question: where Article 102 TFEU applies because the strategy is deemed to serve an exclusionary purpose, is the principle relevant?

The answer to this question is to be found in AKZO (and, more precisely, in para 72). Where it is shown that below-cost pricing is part of an exclusionary strategy, the practice will be abusive without it being necessary to show anticompetitive effects. If the restrictive object is established, such effects are presumed.

Hovewer, the ‘as-efficient competitor principle’ remains relevant in such circumstances. As explained by the Court, below-cost pricing is problematic precisely because it ‘can drive from the market undertakings which are perhaps as efficient as the dominant undertaking‘.

The points discussed above are also useful to clarify another common misconception: the ‘as-efficient competitor principle’ does not imply that it is necessary to evaluate the relative efficiency of individual rivals.

The previous instalment of this series (see here) dealt with the relationship between the Wouters-Meca Medina doctrine and the notion of restricition by object. I explained why, as I understand the law, it is in the nature of things that a practice that is is genuinely necessary to the attainment of a legitimate public interest goal does not have an anticompetitive object.

This second instalment deals with the relationship between the ancillary restraints doctrine and restrictions by object. More precisely, it deals with the application of Article 101(1) TFEU to selective distribution agreements.

We have known since the Metro I judgment of 1977 that purely qualitative selective distributions agreements escape Article 101(1) TFEU altogether (that is, they do not restrict competition, whether by object or effect) where certain conditions are fulfilled.

These conditions are well known: (i) the product demands a selective distribution system (for instance, a luxury handbag); (ii) the (qualitative) criteria to join the system are objective and applied without discrimination; and (iii) they do not go beyond what is necessary to attain the legitimate aims pursued by the supplier.

What if a selective distribution system does not meet one or several of these conditions? What if, for instance, the system concerns running shoes, instead of luxury handbags? What happens where the system is not purely qualitative and introduces a quantitative element?

Some commentators have argued that, where one or several of the Metro I conditions are not met, the selective distribution system is restrictive by object.

This reading of Metro I is based on a single passage in Pierre Fabre, where the Court held that:

’39.  As regards agreements constituting a selective distribution system, the Court has already stated that such agreements necessarily affect competition in the common market (Case 107/82 AEG‑Telefunken v Commission [1983] ECR 3151, paragraph 33). Such agreements are to be considered, in the absence of objective justification, as “restrictions by object”‘.

As you can see from this passage, the Court does not expressly state that agreements that do not meet the Metro I conditions are restrictive by object (AEG-Telefunken does not state anything of the kind, either). The above reading is a (reasonable) interpretation of a paragraph that could be construed in more ways than one.

The question is whether the abovementioned interpretation of Pierre Fabre is the most reasonable one.

My view has always been that it is not. One argument in this sense is such an interpretation is at odds with the case law, which emphasises the need to consider the relevant economic and legal context.

A second argument is that selective distribution is known to be a source of pro-competitive gains for various reasons (it typically promotes, rather than restricts, competition). And it is clear, at least since Generics, that the pro-competitive potential of a practice is a central consideration when ascertaining the object of a practice.

All in all, one can conclude that an agreement that does not meet the Metro I conditions is not necessarily restrictive by object. In fact, most of the time it will escape scrutiny altogether.

Suppose that the selective distribution system is set up to sell running shoes, as opposed to luxury handbags. Why would that difference mean, in and of itself, that the agreement is restrictive by its very nature?

Often, the aim of the selective distribution system is to convey and preserve a certain brand image. Brand image is particularly important for luxury products. But it is crucial for other manufacturers too.

This point is accepted in the case law on franchising agreements, where the preservation of the uniformity and reputation of the system is accepted as a legitimate aim, irrespective of whether the franchise relates to the sale of fast food or high-end cars.

Against this background, it appears that one cannot simply assume that the object of the agreement changes simply because the nature of the product changes. If the object of the agreement (say, the preservation of the brand image) is the same, the conclusion must also be the same: the agreement will not restrict competition by its very nature.

Suppose now that the selective distribution system introduces a quantitative element, which would for instance be the case if there was a limitation in the number of outlets entitled to sell the product.

It is not necessarily the case that such a restraint has an anticompetitive object. It may well be linked to the preservation of a brand image (the image that a supplier seeks to convey may suffer if there are outlets in every corner) or may instead seek to tackle free-riding concerns (another legitimate aim, and the key one in Cartes Bancaires).

Again, it would be necessary to evaluate the objective purpose of the quantitative restraint in the relevant economic and legal context. One cannot mechanically conclude that it is restrictive by its very nature on the basis of a single paragraph in Pierre Fabre, without due regard to the overall case law.

As is true of the previous instalment, one can draw two lessons from this discussion.

The first lesson is that the ancillary restraints doctrine is a safe harbour that allow firms to escape the prohibition altogether. It is just the first, early stage of the analysis under Article 101(1) TFEU, not the end of it.

Thus, if the doctrine does not apply (for instance, because the Metro I conditions are not met), the analysis must continue in the usual way: that is, by ascertaining whether the restraint has, as its object or effect, the restriction of competition.

The second lesson to draw is that one must always consider the relevant economic and legal context when evaluating the object of agreements. One cannot conclude that a clause restricts competition by its very nature on the basis that it does not meet the Metro I conditions.

One must bear in mind, on this last point, that there were several ambiguous passages in Pierre Fabre and that Coty already clarified some of them. The ambiguity in paragraph 39 will soon be addressed, too.