In a landmark European Court of Justice (ECJ) judgment, the Court overturned a Commission Decision and General Court judgment on the grounds that it had wrongly classified a restriction as a restriction “by object”. The Court held that the Commission had not carried out an appropriate market analysis to prove that the effect of the restriction in question had had an appreciable effect on competition.
The EU Commission has over the years adopted an increasingly generous interpretation of what constitutes “by object” clauses under the EU competition rules (Article 101(1) TFEU). Under Article 101(1), clauses which by their very nature cause serious harm to competition are regarded as restrictions by object. In these cases the Commission can find the parties guilty of a breach of Article 101(1) without investigating the effect on competition on the market. Classic cartel behaviour such as price fixing and market sharing between competitors are regarded as restrictions by object but recently the concept has been extended to a wider range of restrictions by the Commission anxious to avoid the need of delving into and proving the effect those restrictions actually have on the relevant markets.
To try to clarify the concepts of restrictions “by object” and those which require a market assessment of their effect, the Commission recently published a revised De Minimis notice and certain policy papers in June 2014. Please see our earlier post on this development found here.
Following this development, the ECJ has recently delivered a landmark judgement in respect of the case of Groupement Des Cartes Bancaires (“GCB”) against a decision by the General Court (“GC”) that pricing measures it had implemented in relation to its payments card system had the “object” of restricting competition.
GCB is an economic interest group established under French law. It comprises of 148 banks and was established to manage a system for bank card payments and withdrawal. The system allowed bank card users to make payments to all affiliated merchants and withdrawals from ATMs within the group. Over 75% of bank card payments in France were administered via this scheme. The disputed measures were fees adopted by GCB (in principle applicable to all its members) which had the effect of preventing smaller banks issuing cards at a lower price than the larger banks within the group. GCB claimed that these fees had been introduced in order to encourage new competitors to acquire merchants, install ATMs and prevent “free-riding” on investments made by the main member banks.
The European Commission (“EC”) found that the measures constituted a “by object” restriction under Article 101(1) TFEU, as their purpose was to keep the price of payment cards artificially high to the detriment of new entrants/smaller banks within the group. Accordingly, the EC ordered GCB to abolish the fees. GCB challenged this decision before the GC. The GC held that EC had been right to conclude that the fees had the restriction of competition as their “object”. Further, the GC determined that it was not required to examine the pleas which contested the analysis in the decision of the effects of the measures. GCB appealed to the ECJ submitting that the GC had erred in applying the restriction of competition by “object” test.
The ECJ agreed with GCB, demanding a strict approach to the restriction by “object” test. Unless it is clear that the restriction in question, by its very nature, harms competition, the EC must show the restriction’s likely effect on competition. Demonstrating that a measure is only capable of restricting competition does not cross the threshold required to determine that it is an “object” restriction, except where it is clear cut.
In the case of agreements involving complex measures in which no relevant precedents exist, the condensed analysis adopted under the “by object” approach is not appropriate. A detailed effects-based investigation must take place in such cases. In the case of two-sided markets (like payment systems), the effect of the restrictions in issue on both sides of the market should form part of this investigation.
This judgment therefore confirms that the concept of restrictions by object should be reserved for only those types of clauses which by their very nature cause serious harm to competition. The ECJ was critical of the way the Commission had sought to widen the concept of restrictions by object to other types of behaviour.
It is our belief that this case can sit beside the recent EC paper stipulating by object clauses mentioned above but that this case will temper the EC’s prosecutorial stance. The by object list will need to be interpreted narrowly and the EC will still need to prove a sufficient degree of harm to competition. Just as crucially, where a precedent does not exist in complex cases, the EC will need to conduct a detailed effects-based investigation to prove the competitive harm of the restriction in question.
The ECJ’s judgment in the present case can be found here.