European Court of Justice Decision Underscores Low Threshold for Antitrust Violations, Increases Risk of Competitor Information Exchanges, and Highlights Importance of Effective Antitrust Compliance Programs

15 June 2009 Publication
Authors: Howard W. Fogt Sophie Lignier

Legal News Alert: Antitrust

On June 4, 2009, the European Court of Justice (ECJ) — the European equivalent of the U.S. Supreme Court — issued an important competition policy and enforcement decision in a Dutch mobile telephone case that held, among other things, that a single meeting between competitors during which competitively sensitive information was exchanged may constitute a violation of European Community competition law. While standing alone, a ruling that a single meeting/exchange between/among competitors could violate European law might not appear surprising, the ECJ coupled this relatively “self-evident” proposition with several corollary rules and presumptions that lower the threshold for establishing a violation and increase the burden on those accused, sometimes conclusively, leaving the accused only the recourse to seek to minimize possible fines or damage payments. 

According to the ECJ, information exchanges among competitors will presumptively violate Article 81 (1) if the exchange — of any kind or duration — is capable of reducing or removing the degree of uncertainty about future competitive conduct by market participants. Moreover, according to the ECJ, neither an “agreement” nor an adverse “effect” on competition is required for an Article 81 (1) violation to occur. It is sufficient that “practical cooperation” between competitors “is substituted for the risks of competition.” Moreover, the ECJ emphasized that the presence of market effects is only relevant as a predicate to determine the amount of any fine to be imposed or damages to be assessed. It is the burden of the market participants accused of the violation to establish that their conduct and market competition were not affected by the alleged concerted practice.

In 2001, five Dutch telephone operators met on one occasion to discuss reducing the standard reimbursements for post-paid subscriptions payable to their respective mobile telephone dealers. The Dutch competition authority brought a proceeding contending that the telephone operators had engaged in a concerted practice in violation of European Community competition rules — Article 81 (1) of the Treaty of Rome. The Dutch authority found a violation, holding that a violation did not depend on proof that the telephone operators had “agreed” to reduce the reimbursement amount or proof that the concerted practice had any anti-competitive effect on consumers.

An appeal from the fines imposed was heard by the Dutch Administrative Court of Trade and Industry. In a procedure common in Europe but totally at odds with the “case or controversy” requirement for federal court jurisdiction under U.S. constitutional rules, the Dutch Administrative Court asked the ECJ for an “advisory opinion” on several European competition questions: 1) the criteria to be applied in determining whether there was a concerted practice; 2) whether national courts were required to presume (consistent with European competition case law) that there was a causal connection between the concerted practice and the market conduct of the participants; 3) whether this presumption of illegality is required when concerted practice is the result of a single meeting of competitors; and 4) whether consumer harm was required to be established.

The ECJ Ruling
In answering the questions of the Dutch Administrative Court, the ECJ stated that Article 81 (1) is presumptively violated when competitors exchange or disclose information about their future conduct. It is not necessary for a national competition authority, the European Commission, or a private litigant to prove that there was an “agreement.” An “object” to restrict competition is sufficient to hold the participants to the discussion liable. Further, the ECJ emphasized that any exchange of information between competitors pursues an anti-competitive object if the object of the discussions may remove uncertainties as to the “anticipated conduct” of the parties. It is sufficient that the restrictive practice or exchange of information “be capable, having regard for the specific legal and economic context, of resulting in the prevention, restriction or distortion of competition within the Common Market.” Moreover, there is a presumption that the restrictive conduct or exchange of information did restrict competition and affect the market conduct of the parties to the practice even if the result of only one meeting or one exchange of information. Further, parties to the exchange or concerted practice are deemed, as long as they remain market participants, to have acted in the future consistent with the object of the concerted activity. It is not necessary for a violation to demonstrate that the consequence of the concerted practice restricted market competition or consumer welfare. 

Perhaps the decision in the Dutch mobile telephone case once again proves the old adage that “bad cases make bad law.” Commentators have focused their attention on the portion of the ruling by the ECJ that states that a violation could occur based on conduct that took place at a single meeting. Certainly, it does not take a great deal of imagination or experience to see how market discussions of competitors taking place at a single meeting could have market-distortive effects. If this were the only focus of the ECJ, this case would not be very remarkable.

However, the ECJ’s opinion contains much more fundamental implications for companies seeking to achieve compliance with European competition rules. First, the ECJ reminds us that Article 81 (1) does not require an agreement be made for a violation to occur. That notion is consistent with Section 1 of the U.S. Sherman Antitrust Act, which prohibits “contracts, combinations or conspiracies” in restraint of trade. But second, and very different from U.S. principles, the ECJ underscores that an Article 81 (1) violation can result from either of two disjunctive and independent elements: 1) as the result of an object to restrain trade or 2) following from a restrictive trade effect itself. In other words, under European competition rules, there is a focus on whether conduct had an “object” or an “effect” to restrict competition. Either is sufficient.

Moreover, the ECJ emphasizes that not only can a violation occur based on a one-off meeting or an “object to restrain trade” but as well that European law poses a very low threshold for establishment of the elements of a violation. There is a presumption that parties to a concerted practice will act in the future pursuant to that restrictive object and that the burden is on the participant to prove that the conduct was not “capable” of affecting the competitive conduct of the participants and that it did not do so, in fact.

As if this were not problematic enough, the ECJ establishes very vague standards for assessing whether the elements of a violation (and all the attendant presumptions) are present. It would be one thing if, as in the Dutch mobile telephone proceeding, the conduct challenged involved explicit agreements between and/or among competitors on pricing or allocation of customers/bid rigging and other per se illegal activities. This Dutch mobile telephone decision, however, is particularly problematic since it appears to sweep up and declare illegal less clearly problematic “information exchanges” among competitors, particularly in the context of an oligopolistic, concentrated market. 

While the ECJ does acknowledge that European law recognizes that “economic operators” may “adapt themselves intelligently to the existing or anticipated conduct of their competitors,” the ECJ admonishes that European law:

[S]trictly precludes any direct or indirect contact between such operators by which an undertaking may influence the conduct on the market of its actual or potential competitors or disclose to them its decisions or intentions concerning its conduct on the market where the object or effect of such contact is to create conditions of competition which do not correspond to the normal conditions of competition … [T]he Court therefore held that on a highly concentrated oligopolistic market … the exchange of information was such as to enable traders to know the market positions and strategies of their competitors and thus to impair appreciably the competition that exists between traders. It follows that the exchange of information between competitors is liable to be incompatible with the competition rules if it reduces or removes the degree of uncertainty as to the operation of the market in question with the result that competition between undertakings is restricted. (Emphasis added.)

Read literally, the ECJ’s decision casts a broad net that has wide implications for competitor contacts and, perhaps equally problematic, participation in information programs organized and administrated by trade associations. This decision poses substantial risk unless the association has adopted very well-conceived rules of practice and procedure to preclude even indirect competitor contact that can influence future market conduct. However, even with the most sophisticated trade association rules, it would be virtually impossible to rule out that “indirect” competitor conduct could have the market-distortive effects condemned in the Dutch mobile telephone decision. Companies would be well advised to weigh carefully in advance the risks and rewards of competitor information exchanges. Where is the line drawn in terms of whether an information exchange reduces or removes the required degree of uncertainty in the market place to avoid a charge of collusion? Under European law, the burden of proof rests on the alleged restrictive trade participants to rebut the inference that their market behavior was affected by the practice or information exchanged and that the presumed anti-competitive market effect did not occur. Even then, such a rebuttal only serves to mitigate the fine or reduce the damages. It does not avoid a finding of a violation. Sophisticated competition counsel must work with their clients to identify potential problems in advance lest unwitting conduct becomes problematic. The risks are not insubstantial. 

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. If you have any questions about this update or would like to discuss this topic further, please contact your Foley attorney or the following:


Howard W. Fogt, Jr.
Washington, D.C.

Sophie Lignier
Of Counsel

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