COMPETITION • EUROPEAN LAW • RESTRICTIVE AGREEMENTS
Since the end of the 1970s EU law has developed an approach to assessment that is extremely favorable to certain restrictions on competition and this has become known as the rule of reason, after the American rule of reason doctrine. Identical in its principle, the scope of the rule of reason was very different to its American counterpart, since it was not of general application but was limited to certain specific cases.
The rule of reason granted preferential treatment to some anticompetitive practices by only assessing their effects within the context of Article 101(1) TFEU, and thereby removing the need to first subject practices to the prohibition before being able to obtain an exemption on the basis of Article 101(3). This shortcut was however only possible where it was very clear that the harm to competition found was offset by the beneficial effects of the agreement and also on the condition that the agreement contained no obvious restrictions of competition such as price-fixing, market-sharing or the control of outlets.
The General Court, recently approved by the Court of Justice, appeared to be putting the brakes on any development of the rule of reason when it asserted that “the existence of such a rule has not, as such, been confirmed by the EU courts“. According to the Court, recognition of the rule of reason would call into question the rules prescribed by Article 101 and the provision in paragraph 3 would lose much of its effectiveness and the examination of the objectively necessary character of a restriction cannot include the weighing up of the pro and anticompetitive effects of an agreement, which can take place only in the specific framework of Article 101(3) TFEU. Thus, the rule of reason, which seems to have been applied in the case law, has in fact been relied on for the actual assessment of agreements, which implies going further than an analysis of the clauses and taking account of the actual context in which the agreements would produce their effects. The so-called rule of reason is thus reduced to a consideration of economic and legal context.
The Court’s assertion does not reflect the reality of the matter. Apart from the fact that a contextual appraisal of the restriction may in itself already be seen as a manifestation of the rule of reason, there is no doubt that such a rule has been consecrated by the EU authorities who have not hesitated to exonerate restrictions on competition on the basis of the theory of ancillary restraints, an unavoidable necessity, the public interest or economic balance.
Under the doctrine of ancillary restraints, if the main transaction covered in an agreement is not restrictive of competition, it is no longer necessary to examine the compatibility of individual restraints contained in the agreement insofar as they are ancillary to it.
According to the Commission Guidelines No 2004/C 101/08 on the application of Article 101(3) TFEU, “[a] restriction is directly related to the main transaction if it is subordinate to the implementation of that transaction and is inseparably linked to it. The test of necessity implies that the restriction must be objectively necessary for the implementation of the main transaction and be proportionate to it“. The Court of Justice has held that the main transaction must be impossible to carry out not simply more difficult to implement or less profitable without the ancillary restraint. In order to contest the ancillary nature of a restriction, the Commission may rely on a “counterfactual hypothesis” which consists in verifying the existence of realistic alternatives that are less restrictive of competition than the restriction at issue. The duration, subject-matter and geographical field of application should not exceed what the implementation of the main operation reasonably requires. Thus, a non-compete clause, which is necessary for the transfer of the commercial value of an undertaking or during the period deemed necessary to start up a joint venture and which is limited in time and space constitutes an ancillary restriction. The same goes for exclusivity or priority clauses. On the other hand, a restriction on competition arising from a system of national territorial limitations is neither objectively necessary nor inherent to the protection of copyright where other methods allowing the grant of multi-repertoire licenses are possible. Similarly, a non-compete clause cannot be characterized as an ancillary restriction when it subsists in spite of the renunciation by the parties to implement the main operation or is not necessary for its realization due to a sufficiently protective legal context. Lastly, conduct adopted by two competitors several years after the main agreement was concluded, and not in the agreement itself or upon its conclusion, cannot be regarded as ancillary to that agreement.
Moreover, the European courts seemed to accept in some cases that a defensive strategy implemented by an undertaking placed in a state of necessity may constitute grounds for exemption. In principle, a cartel could not be justified solely by the anticompetitive behavior of competitors. But it could be justified by the existence of a state of necessity, which, like self-defense, presupposes a situation of urgency, the threat of present or imminent danger and the response to that threat by a necessary and proportionate act. The undertaking must be under a real threat and its survival must be impossible to ensure by any other means. The competition authorities were more reticent when it came to crisis cartels, which were only able to be exempted within the context of an individual exemption but could not constitute an attenuating circumstance for the imposition of the fine.
Finally, the rule of reason could only be implemented insofar as it is very clear that the harm to competition found was compensated by its beneficial effects. The specific assessment of an agreement, which consists in analyzing the competitive situation in the absence of the agreement and verifying its actual impact on competition, should be seen in this context. More specifically, to assess the positive or pro-competitive effects which would justify the practice, the EU authorities sometimes carried out an actual economic assessment, especially for vertical agreements. According to the principles traditionally applied for the establishment of an economic assessment, the more serious the harm to competition, depending in particular on the market share of the group in question and its anticompetitive practices, the more tangible must be the contribution it claims to make to economic progress. The Court of Justice thus held that the granting of an open exclusive license which neither prohibits parallel imports nor licenses in other territories, and promotes the dissemination of a new technology, was not in itself incompatible with the Treaty and that all restrictive clauses included in a franchise agreement to ensure the protection of communicated know-how or the preservation of the identity and the reputation of the network, do not constitute restrictions of competition within the meaning of Article 101(1) TFEU. Similarly, the creation of a joint venture between non-competing operators has been held not to restrict competition if the restrictions are no more than what is necessary to ensure the starting up and proper functioning of the business. In any event, favorable assessment by the supervisory authorities was justified by the fact that the restriction to competition was a means of allowing the emergence of new competitors on the market and remained clearly ancillary compared to the legitimate objective that could be achieved due to the restriction.