Since May 2004, the European Commission and national competition authorities (NCAs) have applied the EU competition provisions in parallel. Nowadays, almost 90% of antitrust investigations are carried out by NCAs. This decentralised enforcement regime builds on the assumption that the obligation to apply the same competition provisions is sufficient to ensure the uniform administration of the law.
This paper, available here, argues that this assumption does not hold, as least as regards efficiency justification/defences. Since the application of the EU competition provisions involves a wide margin of discretion, national, economic and political traditions risk leading to the fragmented application of competition law. The paper presents empirical evidence that the Commission, EU courts and five national competition authorities have followed very different interpretations of Article 101(3) TFEU, which regulates efficiency justification/defences in Europe.
The paper is structured as follows:
Section 2 outlines the study’s empirical methodology.
The paper uses a database comprising: (i) all European Commission and court decisions until 2017; (ii) decisions adopted by the NCAs of five representative Member States (France, Germany, Hungary, the Netherlands, and the UK) since the entry into force of Regulation 1/2003 decentralising competition enforcement in May 2004 until 2017. The database specifies, for each case in which Article 101(3) TFEU is mentioned, the type of benefits that were examined in the decision and whether such benefits justified the relevant practice being justified.
Benefits are divided into three types, in line with a UK’s ‘Office of Fair Trading study on ‘Article 101(3) –A Discussion of Narrow versus Broad Definition of Benefits’: (a) direct economic benefits, i.e. cost and qualitative efficiencies that are enjoyed by users of the product or service covered by the agreement; (b) indirect economic benefits, i.e. cost and qualitative efficiencies that do not occur or have a direct impact in the market in which the agreement takes place (e.g. in two-sided markets); (c) non-economic benefits, i.e. benefits are not directly related to the characteristics of the product or service in question, such as cultural interests, environmental benefits, financial stability, or the promotion of national or international interests.
Section 3 describes how Article 101(3) TFEU is expected to work in the EU.
Article 101(3) TFEU stipulates that the prohibition on anti-competitive agreements may be inapplicable where an agreement contributes “to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit”. Two main questions arise regarding this formula. The first is what types of benefits can be taken into account in this context. The second is who the relevant beneficiaries should be. The provision does not specify, for instance, whether only direct benefits to direct consumers can be considered; or whether indirect benefits to consumers in other markets or to society as a whole could also play a role. Moreover, the provision does not stipulate when such benefits should be realised. This gap in the law only had limited implications in the past. Prior to 2004, the Commission had the exclusive power to apply Article 101(3) in public enforcement proceedings, with the result that only the Commission could determine what types of benefit could be considered under Article 101(3), subject to the scrutiny of the EU courts. After 2004, however, different authorities gained the power to apply Article 101(3), allowing different views on its scope to emerge.
Section 4 introduces empirical findings on the Commission’s practice regarding Article 101(3) TFEU.
Supported by the EU courts, the European Commission adopted a broad reading of Article 101(3) prior to 2004, incorporating both economic and non-economic benefits. Initially, Article 101(3) pertained almost exclusively to direct economic benefits. The prospect of including broader types of benefit was first formally established in 1977 by the ECJ landmark judgment in Metro I, where the Court concluded that non-economic benefits related to stabilising employment justified granting an exemption under Article 101(3) TFEU. Following this, the Commission broadened the types of benefits that could serve as a justification for exemptions. In addition to direct and indirect economic benefits, the Commission also accepted exemptions on the basis of non-economic benefits such as environmental benefits, energy efficiency, the development of sports, and the allocation and supply of scarce national resources among States. The Commission also referred to non-economic benefits to specify or add weight to Article 101(3) exemptions that were mostly based on economic grounds; this practice was especially common when considering environmental, employment and industrial policy benefits.
Regulation 1/2003 decentralised competition enforcement, empowering national competition agencies to apply European competition law in parallel with the Commission. Since the system seeks to achieve uniform enforcement throughout the EU, the NCAs have to apply the EU competition law provisions whenever an agreement affects trade between Member States. Nevertheless, from the very beginning the Commission was concerned that decentralised enforcement would result in the incorporation of national interests in the application of Article 101(3). To avoid this, the Commission adopted soft law instruments (guidance) which framed Article 101(3) TFEU as an “objective” tool restricted to economic assessments. The Commission explained that Article 101(3) is intended to provide a legal framework for the economic assessment of restrictive practices, and not to allow the competition rules to be set aside because of political considerations. Moreover, the Commission’s guidance limited the scope of the exemptions’ relevant beneficiaries by holding that, in principle, only direct economic benefits can be taken into account. It is difficult to evaluate the degree to which the Commission implemented its new approach in practice, however, since the Commission has not accepted a single Article 101(3) defence following entry into force of Regulation 1/2003.
Section 5 demonstrates that not all NCAs have adhered to the Commission’s new approach.
Regulation 1/2003 empowered NCAs to apply Article 101(3). As such, it delegated the decision on what types of benefit can be considered under this provision – and who can be the beneficiaries – to the national level, absent an intervention from the European Commission to the contrary.
The first group of NCAs accepted the Commission’s new approach, and restricted Article 101(3) to direct economic benefits. The UK NCAs, for example, declared that it would only take into account such benefits in accordance with the Commission’s Guidelines. Even when the UK NCA examined an agreement that might have generated other types of benefit, it focused on narrow economic benefits. Similarly, the Hungarian NCA held that non-economic benefits – such as employment, price stability, diversity of literature, promotion of research and education, fight against unlicensed software or freedom of the press – could not be incorporated under Article 101(3), and has only accepted Article 101(3) defences concerning direct economic benefits.
The second group of NCAs interprets Article 101(3) TFEU as taking indirect and non-economic benefits into account. In line with the pre-2004 approach of the Commission and EU courts, such authorities have taken into account a variety of benefits and beneficiaries, including society as whole and even future generations. For example, the possibility of incorporating sustainability concerns under Article 101(3) was confirmed by the Dutch NCA, e.g. to limit overfishing. According to the Dutch NCA’s interpretation, Article 101(3) covers indirect and non-economic benefits resulting from environment-friendly or animal-friendly production methods and the efficient allocation of scarce resources. The NCA looks at both short- and long-term benefits for future generations, and at benefits occurring in other markets. The French NCA follows a similar approach. It maintains that non-economic benefits – such as the protection of jobs, living standards, fair trade rules, price stabilisation, and protecting culture and SMEs – are relevant in the context of Article 101(3) TFEU. Despite recent public statements that would seem to limit the types of benefits it is ready to consider, the French NCA has continued to examine non-economic benefits under Article 101(3) TFEU, such as those related to public health, environmental considerations, and the development of rural areas.
The third model adopts an intermediate approach. In line with the first group, the German NCA has limited the nature of the benefits it is prepared to consider and declared that it bases its decisions on market-based criteria alone. The agency has refused to consider other types of benefit such as avoiding risky investments, combating a decrease in healthcare providers, or indirectly improving R&D efforts. At the same time, the German NCA has not restricted the type of beneficiaries under Article 101(3) TFEU. Similarly, to the second group of competition authorities, the German NCA has interpreted the provision so as to cover industry-wide benefits related to the security of supply, bargaining power, the functioning of online platforms and the elimination of “white spots” in internet access. Thus, while the German NCA restricted the nature of benefits, it did not limit the relevant beneficiaries. Furthermore, the German NCA has also invoked Article 101(3) to justify agreements that formed an inherent part of implementing a national scheme.
Section 6 focuses on the practice of the EU courts.
The diverging approaches of the Commission and NCAs prove that the obligation to apply the same provisions – Article 101 TFEU – is insufficient to ensure the uniform administration of the law on its own. The fall-back, as with all EU law, is for the EU courts to clarify and define the applicable legal regime, thereby resolving some of this fragmentation while strengthening the uniformity and legal certainty of enforcement. However, there are only a limited number of court judgments on the application of Article 101(3) in general, and on the types of benefits that are relevant under this provision in particular. The Commission has not adopted any decision under Article 101(3) since 2004, preliminary references are rare, and the court has often used general and ambiguous wording in the few judgments in which it had the opportunity to examine the application of Article 101(3) TFEU since decentralisation. By not taking a clear stand on those matters, the EU courts have ignored the opportunity to harmonise the interpretation of the provision throughout the EU and to increase legal certainty.
Section 7 identifies the main implications of these findings.
The Commission, NCAs and EU courts have adopted conflicting interpretations to one of the core notions of Article 101(3) TFEU, namely the types of benefit that can justify an otherwise anti-competitive agreement. The lack of a single standard defining the types of relevant benefits under the provision poses a serious risk to the very aims of the decentralised enforcement system, such as effectiveness, uniformity and legal certainty.
This is a very interesting article that touches on one of the trickiest topics in competition law – what efficiences and defences to prima facie anticompetitve conduct are acceptable. I particularly enjoyed how the author demonstrates that the answer to such questions is not purely normative – i.e. economic v. non-economic, assuming you believe that this distinction is watertight –, but depends instead on how institutional decision-makers behave and on the decision-making frameworks in which they operate. I would have liked a bit more discussion on the practical implications of the observed divergence in national approaches – e.g. how this relates to different national traditions, and may even be something we should welcome as reflecting national autonomy within the EU – but this in no way detracts from the value of the paper, which is one of the most interesting things I have read in the past year.