EU COMMERCIAL LAW
Joint Venture and Competition
By
Lung-Tan Lu
Smashwords Edition
Copyright 2012 Lung-Tan Lu
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Chapter 1 FREE MOVEMENT OF GOODS: MARKETING PRODUCTS FROM CASSIS DE DIJON, KECK TO GOURMET
Chapter 1 INTRODUCTION
This article addresses the previous criticism relating to Article 30 EEC (now, after amendment, 28 EC). The article analyzes case law from Cassis de Dijon, Keck and Mithouard to Gourmet, and calls for a clearer taxonomy for Article 30 EEC. The first section will briefly introduce the facts and judgments of the cases relating to Article 30 EEC. A short discussion will then follow considering whether these cases belong to the Free Movement of Goods and Services. In the third section, the issues relating to the interpretation of Article 30 EEC, such as obstacles to trade, non-discrimination, harmonization, justification, product characters, advertisement, and selling arrangements are critically discussed. In the final section, a new case taxonomy classified by marketing methods and markets is introduced and categorizes the cases discussed in the first section.
THE FACTS AND JUDGMENTS OF THE CASES RELATING ARTICLE 30 EEC
Case 120/78 Cassis de Dijon
The case of Cassis de Dijon1 concerned a French businessman, who intended to import a kind of alcoholic beverage called “Cassis de Dijon”, which was produced in France and was intended for sale in Germany. The applicant argued that a German regulation placed the imported products in a disadvantageous position in German markets, because it required that the minimum alcohol contents for marketing “Cassis de Dijon” be twenty-five percent. The same product was freely sold in France with an alcohol content between fifteen and twenty percent. Such a regulation, therefore, had an effect equivalent to a quantitative restriction on imported goods, which was contrary to Article 30 EEC.
The German authority argued that this regulation related to both consumer protection and public health in order to resist unfair competition. The argument rested upon the contention that the lower alcohol content would obtain a competitive advantage over the higher alcohol content, since the latter was more expensive. Prohibition by national law may be justified, because of mandatory requirements, such as consumer protection, public health, environmental protection, and so on. However, the Court was not convinced and stated that “the consumer can obtain on the market an extremely wide range of weakly or moderately alcoholic products, and, furthermore, a large proportion of alcoholic beverages with a high alcohol content freely sold on the German market are generally consumed in a diluted form.” 2
The Court ruled that, since “they have been lawfully produced and marketed in one of the member states, alcoholic beverages should not be introduced into any other member state.”3 Therefore, the minimum requirement of content for the sale of alcoholic beverages regulated by a single state established an obstacle to interstate trade, which was incompatible with Article 30 EEC.
Case 286/81 Oosthoek
In the case of Oosthoek4, the Dutch company offered a dictionary, a universal atlas, or a small encyclopedia, which were produced in Belgium, as free gifts to all of its press subscribers. Dutch law prohibited an offer of give free gifts in all commercial activities, unless the gift and the purchased products were to be used at the same time and the gift had a visible mark indicating clearly that it was for promotion and that its value did not exceed four percent of the purchased product’s price. In this case, the Dutch authority claimed that national legislation relating to this issue did not impact interstate trade and therefore was not governed by Article 30 EEC. Oosthoek argued that the Dutch law would add extra costs to the company by forcing it to implement different sales promotion programs in different Member States.
With regard to Article 30 EEC, the Court stated that “Legislation which restricts or prohibits certain forms of advertising and certain means of sales promotion may … … constitute an obstacle to imports even if the legislation in question applies to domestic products and imported products without distinction.”5 The obstacle to imported goods lay in rejecting a specific marketing method. The Dutch prohibition against offering free gifts was inconsistent with Article 30 EEC, unless it could be justified under the so-called “Cassis rule”. The Court considered that this kind of marketing method may misinform consumers regarding the real price of a product and may twist fair competition when a company freely offers high-value gifts. In applying the Cassis rule, accordingly, the Court ruled that the national measure was justified on the ground of consumer protection and fair-trading.
Case 382/87 Buet
The case of Buet6 concerned Mr. Buet, a manager of a French company whose salespersons sold teaching material in English by visiting the homes of prospective customers and promoting their material. The French law prohibited this method of selling, upon which the company relied for ninety percent of its earnings. Buet argued that the national rule was contrary to the provisions of Article 30 EEC, because the company was forced to give up an effective marketing method for their imported products in the French market.
In this case, the Court ruled that, in prohibiting the trader from using the marketing method, the national law was incompatible with Article 30 EEC. The Court relied expressly upon its judgment in the Oosthoek case that a national law “may constitute an obstacle to imports even if the legislation in question applies to domestic and imported products without distinction.”7 However, the Court stated that the national regulation must match the principle of proportionality and accepted that the restriction was justified on the ground of consumer protection, since, the Court held, having a cancellation right was not sufficient to protect consumers.
Case C-362/88 GB-INNO-BM
This case concerned a Belgian company, GB-INNO-BM8, which operated supermarkets in Belgium near the Belgian-Luxembourg border. GB-INNO-BM distributed its advertising leaflets in both Belgium and Luxembourg. A non-profit-organization (NPO) filed suit against the company in a Luxembourg court seeking to stop it from sending its advertising brochures into Luxembourg. The NPO claimed that the content of the leaflets included a short-term price cut without stating the duration and prior prices, a violation of a Luxembourg regulation.
GB-INNO-BM argued that the contents of the advertising leaflets were consistent with applicable Belgian regulations. It, therefore, would be contrary to Article 30 EEC if its advertising activities were prohibited by the Luxembourg regulations. The Luxembourg authority declared that the prohibition is for the purpose of consumer protection, because consumers could be confused between special sales and biannual sales and would not check the previous price. However, the Court did not accept this argument and claimed that a national regulation denying the consumer access to certain kinds of information cannot be justified by mandatory requirements concerning consumer protection.
The Court considered that the advertising restriction was governed by Article 30 EEC. Regarding mandatory requirements, the Court found that the advertising restriction was related to the marketing in Luxembourg, not to the product’s access to the Luxembourg market, and ruled that a national regulation declining the consumer access to certain kinds of information can not be justified by consumer protection.
Joined Cases C-267 & 268/91 Keck & Mithouard
The joined cases of Keck & Mithouard9 (hereafter, Keck) were a milestone with regard to the application of Article 30 EEC to restrictions on marketing products. Keck concerned the resale by two businessmen of their products at lower-than-cost prices, which was prohibited by French law. The defendants claimed that the ban on this promotion method was incompatible with Article 30 EEC.
The Court claimed “it necessary to re-examine and clarify its case-law on this matter”10 and recited the so-called “Cassis rule”, which applies without distinction to all imported and domestic products, unless their restriction can be justified under the consideration of public interest. The Court stated that Article 30 EEC does not apply to the “national provisions restricting or prohibiting certain ’selling arrangements’ and the national restrictions apply to all relevant traders operating within the national territory and so long as they affect in the same manner, in law or in fact, the marketing of domestic products and those from other Member States.”11 The Court also listed some requirements, “such as those relating to designation, form, size, weight, composition, presentation, labeling, and packaging.”12
The Court ruled that Article 30 EEC does not apply to the national rule of imposing a prohibition on lower-than-cost reselling, since this restriction was not intended to regulate interstate trades in products.
Case C-292/92 Hunermund
The case of Hunermund13 concerned a German regulation on a pharmacist’s advertising. The regulation prohibited advertising activities of non-medicinal products outside of pharmacy stores. Hunermund argued that the German rule that prohibited advertising quasi-pharmaceutical products outside of the pharmacy was incompatible with Article 30 EEC.
The Court found that this prohibition satisfied the Keck test and, therefore, was not a measure having the same effect as the quantitative restriction within the meaning of Article 30 EEC. The Court observed that the prohibition may not impede interstate trades of the same products and stated that the prohibition did not affect the right of traders other than pharmacists to advertise those products. The Court admitted that the German rule may restrict the selling quantity of the quasi-pharmaceutical products, because the promotion methods were limited. The Court ruled, nevertheless, that the national rules on the sale of imported products were not intended to stop their market access and that, therefore, Article 30 EEC did not apply.
Case C470/93 Mars
The case of Mars14 concerned a German regulation that prohibited importing ice-cream snacks, because the quantity of each unit was increased and the wrapping was marked “+10%” during a short-term promotion across several Member States. These products were imported from France, where they were legally produced and packaged for selling in other European countries. The German law, however, prohibited the type of promotion in order to control the use of misleading information. The applicant, an association for combating unfair competition, argued that the consumer would not incur a price increase solely because of the mark of "+ 10%".
The Court found that the German regulations required that the labeling of this imported product, lawfully manufactured and marketed in another Member State, be changed only in the German market. Such a requirement would increase the promotion costs and, therefore, presented an obstacle prohibited by Article 30 EEC. The Court also found that the Cassis rule was not available in this case, since there was no justification on the ground of consumer protection.
Case C-412/93 Leclerc-Siplec
The case of Leclerc-Siplec15 concerned a French law that prohibited the Leclerc-Siplec from broadcasting television advertisements of their unleaded fuel, which was imported and distributed by their supermarkets at significantly lower prices than their competitors’. The national court asked the Court of Justice whether such prohibition on imports can be classified as a measure having the equivalent effect of a quantitative restriction regulated by Article 30 EEC.
The Court found that the national regulation excluding the distribution sector from using television advertisements was not for the purpose of regulating interstate trade of goods and did not ban the use of other advertising methods. The Court stated that Article 30 was held to be the correct Treaty provision to apply, because “such a prohibition may, admittedly, restrict the volume of sales, and hence the volume of sales of products from other Member States, in so far as it deprives distributors of a particular form of advertising their goods.”16 The Court used the Keck test and classified it as a selling arrangement, since it excluded a kind of promotion form and a particular marketing method. The Court finally decided that this obstacle was not prohibited by Article 30 EEC.
Case C-368/97 Verlag
The case of Verlag17 concerned a newspaper publisher in Germany, who was selling newspapers by offering customers the opportunity to participate in games with prizes in both German and Austrian markets. However, Austrian law prohibited this kind of marketing method. An Austrian competitor petitioned a court to order the German publisher to stop selling newspapers with this promotion in Austria. The Austrian authority argued that the objective of the national regulation was to protect press diversity and to impose an overriding requirement.
The Court of Justice agreed with the national court’s assumption that the interstate sale of a newspaper related to the free movement of goods. Offering the games for prizes was simply a marketing method employed by the newspapers, and, therefore, the prohibition was not covered by Article 30 EEC and may be classified as a selling arrangement under the Keck test. However, the Court found that, in this case, the prohibition affected the content of the newspaper. The games were an essential part of the newspaper, so that the restriction may not be classified as a selling arrangement, but rather as access to the Austrian market. Applying the Cassis rule, the Court found that the national restriction may be justified on the ground of public interest, but returned the case to the national court to decide whether the Austria prohibition was proportionate to the legal objective.
Case C-405/98 Gourmet
Gourmet18 was a magazine that included three advertising pages of alcoholic beverages, which appeared only in the edition for subscribers. Swedish law prohibited advertising beverages containing more than 2.25% of alcohol by volume on radio, on television or in publications, which may involve unwelcome ways of encouraging customers to drink alcoholic beverages. The national regulations introduced a two-tier approach to advertising alcoholic beverages in the press. Advertising was banned when directly aimed at consumers, but was legal if it targeted traders, such as manufacturers and restaurateurs. Gourmet argued that the national prohibition may have a larger impact on imported products than domestic products.
The Court recited its judgment in Keck that, “if national provisions restricting or prohibiting certain selling arrangements are to avoid being caught by Article 30 of the Treaty, they must not be of such a kind as to prevent access to the market by products from another Member State or to impede access any more than they impede the access of domestic products.”19 In Gourmet, the advertising restriction on radio, television, and direct mailing magazines had a greater impact on the access of imported goods to the host market, since consumers are more familiar with domestic goods. The Court asserted that the national restriction on advertising not only prohibited a marketing form, but also stopped the imported products from being known by consumers and, therefore, presented an obstacle in violation of Article 30 EEC. However, this obstacle may be justified by the protection of public health.
GOODS OR SERVICES: CAUGHT BY ARTICLE 30 OR ARTICLE 49?
The EC Treaty does not distinguish between the four freedoms, and the Court has not harmonized its interpretation in case-law.20 The “goods”, in economics, can be defined as physical objects, which can be used or which can increase effectiveness, and can be valued at certain prices in markets. In business management, products can be referred to as things offered in markets that might satisfy customers’ wants or needs. The term “goods” is normally used in abstracting from the details of a given product. The term “product” is usually used in examining the details and richness of a specific market offering. Products are comparable with goods. In business management, “providing services” can be referred to as economic activities, which are processes creating benefits by helping customers to have some changes, either in their physical or intangible assets. In a narrower view, service can be referred to as the quality of customer assistance. However, it is not easy to dichotomize “goods” and “service”, because these are not separate categories. Most business researchers view them as a range with pure service on one side and pure goods on the other, and the majority of products are between these two ends. For instance, a coffee shop provides physical products (coffee), but also provides services in the form of serving the coffee, clearing the table, washing dishes, and so on. In the business world, the majority of products fall into the gray range, making it difficult to decide whether they are goods or service, or both. This can explain why the Court’s judgments relating to Article 30 EEC have not been consistent and its classification of the “measures” which have equal effect, has been criticized.
ISSUES RELATING TO INTERPRETATION OF ARTICLE 30 EEC
A criticism of the Court’s judgment is its confusing interpretation of Article 30 EEC. The judgment stated that mandatory requirements could not be met by measures less restrictive of interstate trade. The Court appears to apply the Cassis rule and the Keck rule together in one test for the national court to determine whether certain measures taken by Member States to restrict television advertising were subject to Article 30 EEC. In other words, the national court not only has to consider whether the Keck rule is met, but also has to ensure that the Cassis rule is satisfied.
Obstacle to trade
A fundamental issue in the content of Article 30 EEC is whether the national measure causes an obstacle to interstate trade. The Court intruduced a refinement in this issue in Keck. Article 30 EEC would not apply only when the case is considered as a “method of sales promotion.” In Gourmet, the test of market access progressed in that the Court considered that the requirement stated in Keck was no more than a tautological statement. The requirement relating to selling arrangements can allow national regulations to avoid the application of Article 28 EEC, because they are non-discriminatory.21
Non-discrimination
A national measure may show the characters as a selling arrangement, but Article 30 EEC may still be applied if the imported products have not been influenced more than domestic ones. In Mars, the Court recited its judgment in Keck that “obstacles to the free movement of goods that are the consequence of applying to goods coming from other Member States where they are lawfully manufactured and marketed, rules that lay down requirements to be met by such goods, such as those relating, for example, to their presentation, labeling and packaging, are prohibited by Article 30 EEC, even if those rules apply without distinction to national products and to imported products.”22 Interestingly, the judgments of Leclerc-Siplec, delivered by the Court in the same year with Mars, had different views. It stated that “a provision such as that at issue in the main proceedings concerns selling arrangements, since it prohibits a particular form of promotion (televised advertising) of a particular method of marketing products (distribution).”23
In Mars, the point is the packaging with “+10%”, which was the obstacle not allowed by Article 30 EEC. In Leclerc-Siplec, however, the fundamental issues related to a type of promotion forms and a kind of marketing methods considered to be selling arrangements. This kind of classification by the Court is difficult to understand. In Gourmet, the Court focused on the Keck rule that national regulations relating to selling arrangements must have equal treatment between domestic and imported goods. Therefore, the requirement relating to selling arrangements can let national regulations avoid the application of Article 28 EEC, because they are non-discriminatory.
Harmonization
In Gourmet, the Court seems to have failed its role as a final adjudicator, because its ruling did not solve the conflict between national restrictions and the free movement of goods, but rather handed over to the national court a very complicated task. In this judgment, the Court first confirmed that the advertising is to be considered a selling arrangement in applying the Keck rule. The second issue relating to the application of the proportionality test on the public interest is more cultural and sensitive in Gourmet. Some researchers contend that the Court finally acknowledged and sought to protect the diverse values within Member States,24 but, for others, the Court seems not to have displayed enough courage to criticize the double standards prevalent in some Member States.25
Justification
Since Cassis de Dijon, two distinct issues have dominated the development of the case law. Firstly, what type of trade barrier can be called a justification, which the regulating state has to show and which is consistent with EC law? Secondly, the justification process should be considered under the advantages of trade integration before supporting national regulations.26 The case of “Cassis de Dijon” can be a good example in explaining how a technical setting may hinder cross-border trade. The German rule required alcoholic beverages to have a minimum of twenty-five percent alcohol, but the alcoholic product was permitted to be sold have between fifteen percent and twenty percent alcohol in France. The Court judged that the minimum requirement of content for imported alcoholic beverages, regulated by a single state, was controlled by Article 30 EEC. In Keck, the Court took a step back in dealing with the submission that French rules forbidding resale of foods at a loss fell within Article 30 EEC. The Court also rejected the operation of the free movement of goods in circumstances which were far away from the mission of constructing an integrated market. The Court went so far as to declare previous rulings overruled, but did not name them.27
The regulating State has a responsibility to justify its own practices when a barrier of cross-border trade is launched. This is very difficult for the burdened State. In most of the previous cases, the Court was highly distrustful of the justifications presented before it, as is well demonstrated by the case of Cassis. Regulatory diversity among the Member States is respected in principle, but a regulating State, in practice, must persuade the Court that its regulations are supported by a sufficient justification. However, it will be very difficult when other Member States show no similar matters on this issue.
Product characters
It seems that the form of marketing involved is an important factor in determining whether the Cassis or Keck rules apply. When the marketing method is an inseparable component of the product, such as the Court’s judgment described in Mars, then the Cassis rule applies; whereas, when the marketing method can be distinguished from the product, the Keck rule applies. When product characters are under the consideration of national rules, the measures may not be selling arrangements, and then Article 30 EEC analysis must occur. It is suggested that the Court needs to clear the content of selling arrangement and utilize a consistent terminology.28 Developing a mechanism, which can effectively distinguish the characters of products, would help the Court to judge whether to apply Article 30 EEC.
An essential argument relating product characters is whether the Court of Justice has jurisdiction. In the case of Gourmet, the imported products, alcoholic beverages containing more than 2.25% of alcohol, could not use a magazine as the method for marketing distribution. In contrast, is it possible to apply Article 30 EEC if the alcoholic beverages advertised in the magazine are domestic products? If not, will it be a kind of discrimination for domestic products? If the answer is yes, does the jurisdiction belong to the national court?
The Advertisement and Selling Arrangement
The concept of “selling arrangement” was first introduced in the case of Keck, but its content and form lacked clarity. Although it seemed to be doing well in applying the context of the advertisement in the beginning, the dynamic concept changed as rapidly as the business activities. This concept of “widening to the advertising” was not apparent at once, although it was verified as a selling arrangement in Keck. In Keck, the Court stated that such rules are allowed to restrict the selling quantity of imported products by restricting some promotion methods. In Leclerc-Siplec, the Court claimed that the obstacle was a selling arrangement, which was subject to Article 30 EEC. The ban on television advertising had limited effect on the distribution of fuel, since it was only a kind of advertising method. In the first case, Hunermund, the Court applied the concept of a selling arrangement, in which the national prohibition on quasi-pharmaceutical products did not affect the right of traders other than pharmacists to promote these products. The restriction on marketing methods in Hunermund was applied to imported and domestic products without distinction, but the characters of the national regulation were still a measure having equivalent effect.
In Gourmet, the Court of Justice focused on the Keck rule that national regulations relating to selling arrangements must have equal treatment between domestic and imported goods when these products access the host market. When national regulations apply to domestic and imported products without distinction, then they are non-discriminatory. However, it is not an easy task to judge whether the national rules have factual discrimination and very difficult to prove it by using quantitative methods. The Court found the national restriction to be “affecting the marketing of products from other Member States more heavily than the marketing of domestic products and as therefore constituting an obstacle to trade between Member States caught by Article 30 EC of the Treaty.”30 However, this obstacle may be justified by the protection of consumer protection.
The Court’s judgments reflect a lack of understanding regarding the functions of marketing methods. Promotion, pricing and distribution activities are considered a part of brand identity, which not only encourage consumers to buy more such products, but also try to convince consumers to change brands. However, in Gourmet, the national legislation forced the advertiser engaged in cross-border advertising to follow the host-state rules, which were more restrictive than the rules in other Member States. The Court, however, focused on consumer protection and did not give the free movement principle proper weight.31
The approach followed by the Court in applying Article 30 EEC on restrictions of product marketing can be summarized as follows. Firstly, when the marketing restriction is essential to the products, such as in Mars, it affects the free movement of goods and is governed by Article 30 EEC. The national restriction will be tested by the Cassis rule, in which the prohibition could be justified under mandatory requirements, such as consumer protection, public health, environmental protection, and so on. However, the Court ruled that the prohibition was not justified in Mars. In Verlag, the Court handed the obligation of determining whether the prohibition was justified over to the national court. This approach is not a responsible way for a court with status of a Supreme Court to apply the law.
Secondly, the Court utilized a similar approach to interpret Article 30 EEC in those cases in which the marketing prohibitions were applied without regard to the nature of the particular products involved. The Court had not distinguished between internal and external marketing in cases such as Oosthoeck, Buet and GB-INNO-BM until first recognizing the distinction in Keck in 1993. However, the Court applied the Keck rule to cases such as Hunermund and Leclerc-Siplec, which involved external marketing restrictions that were not governed by Article 30 EEC. Finally, the Court applied Article 30 EEC and classified the case as a selling arrangement, such as in Leclerc-Siplec, when the television advertisements were shown in a single Member State. However, when the television advertisements were shown in intrastate markets, the case was classified as market access and controlled by Article 59 EEC (now after amendment 49 EEC).32
CASE TAXONOMY: MARKETING METHODS AND MARKETS
In the field of business management, it is quite common that marketing methods can be divided into the so-called “4Ps” of marketing management: product, price, place (distribution), and promotion. According to the characters of trade, markets can be divided into two clusters: an interstate market and a home-state market. The interstate market refers to products produced in on one Member State and prohibited from sale in other Member States. The home-state market refers to products produced and sold in one Member State only. In this section, we attempt to utilize the 4ps of marketing management as a matrix to classify cases relating to Article 30 EEC and to observe whether the judgments given by the Court have consistency (see Table 1-1).
In the row entitled “Product”, two cases appear in the column entitled “Interstate Market”: Cassis de Dijon and Verlag. Article 30 EEC was found to be applicable in the first case, although not on the basis of consumer protection and public health. The Court did not apply Article 30 EEC in Verlag. In the row entitled “Price” and the column entitled “Home-State Market”, the joined cases Keck and Mithouard appear, although the Court did not apply Article 30 EEC in either case. The third row relating to “Place (i.e. distribution)” contains a case, GB-INNO-BM, within the Home-State Market column. The classifications “Promotion” and ”Interstate Market” contain five cases: Oosthoek, Buet, Mars, Leclerc-Siplec, and Gourmet. Article 30 EEC was applied in all of those cases, except in Leclerc-Siplec. Article 30 EEC was not applied in Oosthoek, Buet, and Gourmet, because of consumer protection or fair trading.
Article 30 EEC should have applied to all of the cases within the classifications of “Product” and ”Interstate Market”, because those cases related to “quantitative restriction on imports and all measures having equivalent effect shall be prohibited between Member States.”33 Cases in other classifications of marketing methods, such as price, place, promotion, and interstate market should be classified as selling arrangements, because these marketing methods are not part of the products and are “not such as to hinder directly or indirectly, actually or potentially, trade between Member States within the meaning of the Dassonville judgment.”34 The cases that fall within the Home-State Market column should have been dismissed by the Court of Justice and left to the national courts, since the restrictions are not “between Member States.”35
In Verlag, the Court found that the regulation under consideration “bears on the actual content of the products, in so far as the competitions in question form an integral part of the magazine in which they appear.”36 This raises the important question of whether a minor change, removing the puzzle game, would seriously affect the content of this magazine? If not, it might not be regarded as a part of this product and, therefore, Article 30 EEC would not apply. A minor change could have an effect on the content, but not necessarily have a significant influence on the entire product. Under the Court’s judgment and my classification, Verlag may be subject to Article 30 EEC. Cases in the classifications of Price, Place and Promotion (3Ps) may be classified as selling arrangements, if the Keck rule is applied, or they may be subject to the provisions of Article 49 EEC, because these 3Ps pertain to providing services. Activities considered in the cases in the classification entitled Home-State Market did not relate to other Member States. There should be room for national courts to rule on the issues that arose in those cases. For that reason, the joined cases of Keck and Mithouard, as well as Hunermund, should not have been considered by the Court of Justice and should have been left to the national courts.
CONCLUSION
In Cassis, the Court of Justice tried to harmonize the differences between community law and national legislation, but did not quite succeed. The issue of “measures” on the national restrictions created tensions between the Court of Justice and the national courts. The Court intended in Keck to “re-examine and clarify” the case law on Article 30 EEC, and then established a principle of selling arrangement. However, Keck also led the case law into a dangerous situation, in which the Court focused on factual and legal equality of market access. In Gourmet, the Court changed its judgment in Keck and handed over the responsibility to the national court regarding the issue of advertising. The dichotomy in Keck was not modified, but was clarified. National restrictions, from Gourmet, relating to selling arrangements must make sure that no factual and legal discrimination on imported products is permitted. In this article, a new taxonomy was introduced to classify these cases relating to Article 30 EEC. It is found that Article 30 EEC should not be applied to cases in the classification of 3Ps Interstate Market, because they should not be classified as selling arrangements. In other words, Article 49 EEC should be applied, since they are “providing service” in nature.
Footnotes
1. Case 120/78 Rewe-Zentral AG v Bundesmonopolverwaltung für Branntwein [1979] E.C.R 949.
2. Ibid. at para. 11 of the judgment.
3. Ibid. at para. 14 of the judgment.
4. Case 286/81 Criminal proceedings against Oosthoek's Uitgeversmaatschappij BV [1982] E.C.R. 4575.
5. Ibid. at para. 15 of the judgment.
6. Case 382/87 R. Buet and Educational Business Services (EBS) v Ministère public [1989] E.C.R. 1235.
7. Ibid. at para. 15 of the judgment.
8. Case 362/88 GB-INNO-BM v Confédération du commerce luxembourgeois [1990] E.C.R. I-667.
9. Joined cases C-267/91 and C-268/91 Criminal proceedings against Bernard Keck and Daniel Mithouard [1993] E.C.R. I-6097.
10. Ibid. at para. 14 of the judgment.
11. Ibid. at para. 16 of the judgment.
12. Ibid. at para. 15 of the judgment.
13. Case C-292/92 Ruth Hünermund and others v Landesapothekerkammer Baden-Württemberg [1993] E.C.R. I-6787.
14. Case C-470/93 Verein gegen Unwesen in Handel und Gewerbe Köln e.V. v Mars GmbH [1995] E.C.R. I-1923.
15. Case C-412/93 Société d'Importation Edouard Leclerc-Siplec v TF1 Publicité SA and M6 Publicité SA [1995] E.C.R. I-179.
16. Ibid.at para. 20 of the judgment.
17. Case C-368/95 Vereinigte Familiapress Zeitungsverlags- und vertriebs GmbH v Heinrich Bauer Verlag [1997] E.C.R. I-3689.
18. Case C-405/98 Konsumentombudsmannen (KO) v Gourmet International Products AB [2001] E.C.R. I-1795.
19. Supra note 9, para. 17.
20. See Enchelmaier “Four Freedoms, How Many Principle?” 24 Oxford Journal of Legal Studies (2004) 155-172.
21. See Kaczorowska “Gourmet Can Have His Keck and Eat It!” 10 European Law Journal (2004) 479-494.
22. Supra note 9 at judgment para. 15.
23. Supra note 15 at judgment para. 22.
24. See, for instance, Szyszcrak, “Free Trade as a Fundamental Value of the E.U.”, in K. Economides et al. (eds.), Fundamental Values, (2000).
25. Stuyck, “European Consumer Law after the Treaty of Amsterdam: Consumer Policy in or beyond the Internal Market?” 37 Common Market Law Review (2000) 367-400.
26. See McMahon, “Current Development: European Community Law.” (2001) 50 International and Comparative Law Quarterly, (2001) 158-186.
27. See, for instance, Case C-470/93 Verein gegen Unwesen in Handel und Gewerbe Koln eV v. Mars GmbH [1995] E.C.R. I-1923.
28. See Connor, “Accentuating The Positive: The ‘Selling Arrangement’, The First Decade, and Beyond.” 54 International and Comparative Law Quarterly (2005) 127 – 156.
29. See Zimmerman (2004) “A Theoretical Analsis of Alcohol Regulation and Drinking-Related Economic Crime” European Journal of Law and Economics 18: 169-190.
30. Supra note 18 at para 25 of the judgment.
31. See Biondi, “Advertising Alcohol and the Free Movement Principle: The Gourmet Decision” 26 European Law Review (2001) 616-622.
32. See Case C-275/92 Her Majesty's Customs and Excise v Gerhart Schindler and Jörg Schindler [1994] E.C.R. I-1039; Case Case C-384/93 Alpine Investments BV v Minister van Financiën [1995] E.C.R. I-1141.
33. Article 30 EEC (now after amendment, Article 28 EEC).
34. Supra at the judgment of para. 16.
35. Supra note 33.
36. Supra note 17 at the judgment para. 11.
Chapter 2 REGULATION 1/2003: MODERNIZATION OF EC COMPETITION LAW ENFORCEMENT UNDER ARTICLES 81 AND 82 OF THE EC TREATY
Chapter 2 INTRODUCTION
The centralized system of competition law enforcement governed by Regulation 17/62 provided a substantial degree of legal certainty to undertakings in the European Community for over four decades. However, the European Commission (hereafter: the Commission) could not deal with the agreements referred to it within a reasonable period of time or with individual exemptions upon which it was asked to adjudicate. A need to change the centralized enforcement of EC competition law was the root cause of reform, which is designed to cope with the enlargement of the European Union on May 1, 2004, and to strengthen the Commission’s position as the “competition watchdog” in the enlarged EU. The reforms have been known as the “modernization” of EC competition law. In 1999, the Commission published its White Paper on the Modernization of the Rules1 (hereafter: the White Paper), which proposed a thorough overhaul of the existing enforcement system. The EU Member States agreed to undertake a fundamental reform of the enforcement rules.
The Council of Ministers adopted Council Regulation (EC) No 1/20032 (hereafter: Regulation 1/2003) on December 16, 2002, which provided for the implementation of the rules on competition in Articles 81 and 82, previously Articles 85 and 86, of the EC Treaty.3 Regulation 17/62 was replaced by a decentralized system, Regulation 1/2003. Under Regulation 1/2003, national competition authorities (NCAs) and national courts of Member States and undertakings take more responsibility for enforcement. All documents in this reform are referred to collectively as “the Modernization Package.”4 Modernization brings challenges for the system and imposes greater responsibility on undertakings in their agreements.
This article is structured as follows. Section two starts with a brief discussion of Articles 81 and 82 EC with EC competition rules applied in a centralized system, and introduces the Commission’s White Paper. Section three discusses how Regulation 1/2003 introduces five major changes to the enforcement of the competition rules of the EC Treaty: (1) abolition of notification and implementation of self-assessment; (2) decentralization of enforcement; (3) supremacy of EC law; (4) broader investigation powers for the Commission; and (5) the new relationship between the Commission and national authorities in the European Competition Network (ECN). In the forth section, this article discusses and analyzes some practical issues created by Regulation 1/2003: (1) self-assessment; (2) potential problems with multiple enforcement authorities, such as forum shopping, languages, and expert procedural advices; (3) the legal basis of damage actions and practical problems, (4) the legal basis of damage actions; and (5) the different procedural possibilities. Finally, section five closes this article by drawing its conclusions.
ARTICLES 81 AND 82 EC, REGULATION 17/62, AND THE WHITE PAPER
EC Treaty and Regulation 17/62
It is useful to review the structure of Articles 81 and 82 EC and of Council Regulation No 17/625 (hereafter: Regulation 17/62) before analyzing the modernization reform. Article 81(1) EC states that “all agreements between undertakings, decisions, associations of undertakings, and concerted practices6 which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market … shall be prohibited.” It follows a non-complete list of such restrictive practices: (a) price-fixing or fixing of trading conditions; (b) quantitative restrictions; (c) market share; (d) discrimination of undertakings in order to reduce their competitiveness; and (e) tying agreements. According to Article 81(2) EC, such agreements are automatically void. Article 81(3) EC states that Article 81(1) EC may be declared inapplicable to an individual or a category of restrictive practices when the following conditions are met: (a) the result is an improvement of the production or distribution of goods or of technical or economic progress; (b) consumers are allowed a fair share of the benefits; (c) the restrictions are necessary in order to obtain the benefits; or (d) the restrictions do not enable the undertakings substantially to eliminate competition. It is worth pointing out that Article 81(3) EC does not mention who may declare the provisions of paragraph 1 to be unsuitable. Regulation 17/62 empowered the Commission’s monopoly to apply to Article 81(3) EC and to request prior notification for the agreements.
Regulation 17/62 had two main components that are regarded as a centralized system: (a) the notification procedure for agreements, which requires that the Commission be notified whether an agreement infringed Article 81(1) EC or an exemption decision under Article 81(3) EC was solely governed by the Commission; (b) the procedure of investigating and sanctioning violations of the EC competition rules. The notification procedure results form the implementation of Article 81 EC through a system of prohibition with the reservation of exemptions by approval. The Commission must be notified of all agreements potentially falling within Article 81(1) EC for assessment if they are to benefit form a negative clearance or an exemption under Article 81(3) EC. Regulation 17/62 also specified several kinds of decisions that the Commission may make: (a) a negative approval decision if there is no infringement of Article 81(1) EC; (b) an infringement decision when undertakings are found in violation of Article 81(1) EC; (c) an exemption decision when a restrictive agreement is found to fall within the scope of Article 81(1) EC, but the conditions for an exemption pursuant to Article 81(3) are met; and (d) a decision to impose a fine for infringing Article 81(1) EC. However, it should be pointed out that the EC Treaty does not use the term “exemption.” Article 81(3) provides that Article 81(1) “may be declared inapplicable” to agreements which fulfill its measures without using the label “exemption.”
The Commission held exclusive power in applying Article 81(3) EC under the previous system, but it could not cope with the volume of notifications, simply because of the administrative burden. As a result, undertakings suffered extended delays before receiving a negative clearance or an exemption decision. The Commission was unable to produce sufficient numbers of individual decisions. Although the Commission had the power to grant individual exemptions, it rarely used that power. The practice of issuing ¡§comfort letters¡¨ was introduced, in which the Commission would state either that an agreement appeared not to infringe Article 81(1) EC or that it appeared to satisfy the terms of Article 81(3) EC. In either case, the Commission would state that it was closing its file.7 These comfort letters were not, however, a sufficient substitute for adopting a formal decision. This situation created a certain degree of legal uncertainty. The enlargement to twenty-five Member States on May 1, 2004, made the problem of maintaining this centralized system more critical.
The Commission’s White Paper
There was much debate between 1998 and 1999 among researchers, lawyers, industry, and the Member States about whether granting exemptions under Article 81(3) EC should be decentralized to the competition authorities of the Member States. The Commission, in 1999, published its White Paper implementing Articles 81 and 82 EC, which refocused the reform debate. In the White Paper, the Commission summarized problems relating to the practical enforcement of Articles 81 and 82 EC and set out reasons why the reform was important for competition enforcement. The white Paper, which was an important step in the direction of a major reform of the institutional framework of EC competition policy, led to the introduction of four proposals.
The first proposal discussed was the introduction of a ¡§rule of reason¡¨ into the assessment of an agreement under Article 81(1) EC. In the Commission’s view, this change would steadily lead to Article 81(3) EC being cast aside and would succeed in bringing about significant changes only after many years. The second option, the key point of this reform, was the decentralization of the application of Article 81(3) EC from the Commission to NCAs. The Commission proposed to give up its monopoly power to give exemptions and to abolish the notification system. In such a system, undertakings would have to make a self-assessment of their agreements in order to determine whether they satisfy the conditions of Article 81(3) EC. Under this scheme, a sizeable part of the Commission’s workload would be transferred to the NCAs. The third option involved a widening of the scope of application of Article 4(2) of Regulation 17/62, which permitted an exemption decision under Article 81(3) EC to take effect in certain cases. The final option, however, rejected by the Member States and other EU institutions, was to simplify the current notification procedures. Several measures were suggested in the proposal, such as abolishing the requirement for translation of decisions into all Community languages, simplifying Advisory Committee procedures, and so on.
REGULATION 1/2003
The adoption of Regulation 1/2003 represented the end of the reform debate. Regulation 1/2003 entered into force on January 24, 2003, but it did not apply until May 1, 2004. One of the main goals of Regulation 1/2003 is to allow the Commission to “refocus its activities on the most serious infringements of Community law in cases with a Community interest.”8 Regulation 1/2003 achieves this goal in two ways. First, it releases the Commission’s resources by decentralizing the enforcement of Article 81 EC by abolishing the system of prior notification and the Commission’s sole power over Article 81(3) EC. Secondly, it lessens the role of national competitive law and strengthens the enforcement powers of the Commission. The Commission also published several notices and guidelines relating to the application of Regulation 1/2003.9
One main force behind the reform is to transfer some of the Commission’s previous enforcement responsibilities to NCAs and national courts by allowing them to apply Article 81 EC fully. Regulation 1/2003 modifies the competition system from one of prior control, in which agreements were prohibited unless undertakings received permitted notification, into self-assessment. Moreover, the Commission may share the burden of administration with NCAs, so that it can focus on key issues, such as main infringements of Article 81 EC, abuses of dominant positions, liberalization and deregulation. This sharing of the burden of administration diversifies control to a certain degree and results in the decentralization of the enforcement of Articles 81 and 82 EC. The decentralization of enforcement will be achieved through the following principal revisions: (a) abolition of notification and implementation of self-assessment; (b) decentralization of enforcement; (c) supremacy of EC law, and (d) broader investigation powers for the Commission. These changes have several main effects.
Abolition of notification and implementation of self-assessment
The Commission abandoned its monopoly position of applying Article 81(3) and the notification system. Article 81(3) has become directly applicable by NCAs and national courts. Article 81(3) EC applies automatically to exempt from Article 81(1) EC all agreements falling within its scope, without the need for an official decision to be adopted by the Commission or any other authority.10 According to Article 1 of Regulation 1/2003, an agreement that violates Articles 81(1) or 82 EC is automatically prohibited without requiring a formal decision to that effect. However, an agreement that infringes Article 81(1) EC will nevertheless be automatically permitted if it satisfies the conditions for exemption in Article 81(3) EC. Article 81(3) EC becomes directly applicable by NCAs and national courts, which is a major change, as NCAs may take the analysis of agreements through to its final conclusion. Commentators suggested that the principle of legal certainty was infringed by the abolition of notification and the protection of undertakings from being fined,11 although others have opposed this suggestion.12
Under the previous system, undertakings were concerned only with the procedures of the Commission when being investigated for infringing Articles 81 and 82 EC. However, in the current system, national procedural law determines how NCAs apply Articles 81 and 82 EC. The current system imposes a burden of self-dependence on undertakings to determine whether their arrangements satisfy the criteria for exemption. The Commission published several so-called Commission notices and guidelines on the block exemption regulations in order to support the self-assessment by undertakings. These notices and guidelines may help undertakings to evaluate their agreements to determine whether they fall outside the scope of Article 81(1) or satisfy the measures of Article 81(3). However, the current system creates legal uncertainties, which may cause undertakings to examine more carefully the way agreements are arranged. Some commentators have argued that the need to arrange self-assessment for undertakings may reduce legal certainty,13 while others consider this argument to be less compelling than it seems.14
Decentralization of enforcement
The current enforcement system increases the roles of NCAs and national courts for the enforcement of Articles 81 and 82 EC.15 NCAs and national courts may apply Articles 81 and 82 EC when an undertaking is deemed to “affect trade between Member States.”16 For NCAs and national courts, the standard of an “effect on trade” is not only a jurisdictional obligation of applying EC competition law, but also a rule of conflict between EC and national laws. Article 3(2) of Regulation 1/2003 provides that the application of national competition law to agreements, which “may affect trade between Member States,” may not lead to prohibition if the application does not restrict competition within the scope of Article 81 EC.17
NCAs may apply their own procedural law and may make the following decisions: (a) order that an infringement be terminated; (b) order interim measures; (c) accept commitments from the infringing parties; and (d) impose fines or other penalties as provided in their national laws. 18 However, the Commission has retained an important role and may take up cases on its own initiative, respond to complaints, and play a key consultation role in NCA proceedings. NCAs and national courts will use their own national procedural rules, their own language, and their own cultural values in adjudicating cases. National courts can request the Commission to forward to them any relevant information in its possession regarding economic or legal matters.19 Meanwhile, the Member States have obligations to send a copy of all written judgments of the national courts to the Commission. The national courts are permitted to participate in cases from both the Commission and NCAs in terms of the submission of written or oral observations.20
NCAs and national courts are also required to ensure that their decisions are consistent with the Commission’s decisional practice.21 The NCAs have to give the Commission at least thirty days prior notice before adopting decisions to terminate infringements, accept commitments, or withdraw the benefit of a block exemption22 for ensuring consistent application of decisions.23 On the other hand, the Commission may investigate a particular matter by starting proceedings,24 which will immediately exclude the NCAs from any further action in that particular infringement. Regulation 1/2003 also confirms that the national courts are permitted to ask the Commission for its opinion on the application of EC competition law.25
Decentralization has created two problems. First, decentralization can lead to inconsistent application of EC law, which may result for several reasons. Commission Notices may be extended by some, but not all, of the NCAs or national courts. The Member States have no experience in using civil courts, rather than criminal courts. Lastly, Member States have no previous experience in applying competition rules and are vulnerable to the practice of forum shopping. The second problem concerns the role of the NCAs and national courts. The NCAs, which represent the competition authorities of Member States, are well subordinated to the Commission under Article 11 of Regulation 1/2003. The non-binding nature of Commission Notices and the obligation to cooperate with the Commission allow the NCAs to interpret and apply Commission Notices strictly.26
Supremacy of EC law
One of the goals of the modernization plan was to make EC competition law the uniformly applicable competition law system in all twenty-five Member States. The uniform application is ensured by: (1) rules governing the relationship between Articles 81 and 82 EC and national competition rules; (2) the burden of proof, the resolution of conflicts; and (3) provisions governing cooperation between NCAs and national courts and the Commission.27 NCAs are required to apply Articles 81 and 82 EC to agreements, which “may affect trade between Member States”28 so that the supremacy of EC competition law may be ensured. In practice, an effect of these provisions is to encourage that Member States harmonize their own law with EC law. It will be difficult to distinguish national from EC law cases under the current system. Some Member States, notably Germany, consider such harmonization is necessary.
Although Regulation 1/2003 establishes the supremacy of Community law over national law, the relationship between Community and national competition laws was not entirely resolved. Article 3 of Regulation 1/2003 cannot guarantee that the Commission, NCAs and national courts will similarly apply Article 81 EC, but requires them to apply the same independent laws. EC Competition law will have to be applied when a case has “effect on trade between Member States.” NCAs and national courts are obliged not to render decisions that may conflict with a considered decision by the Commission.29 When a case falls within the scope of Articles 81 and 82 EC, NCAs and national courts cannot make decisions that are based only on their national law. As a result, NCAs must be more concerned to stay within the boundaries of EC law, since the standard of “effect on inter-state trade” separates national competition law form EC competition law and has not proven to be an effective filter in practice. Undertakings can never quite be sure whether an arrangement might be found to affect inter-state trade. An effect is to encourage Member States to harmonize further their own laws with EC law.
Broader investigation powers for the Commission
The Commission continues to have broad powers of investigation, which have been expanded to cover the right to seal premises, to take statements, and to conduct on-site inspections in a broad range of premises.30 The Commission’s powers of investigation and to impose penalties are set out in Chapters V and VI of Regulation 1/2003, in which two main provisions for requesting information and conducting inspections are included.31
Regulation 1/2003 strengthens the Commission’s powers in several ways. First, the Commission can make a simple request or render a decision to ask undertakings in providing necessary information, although the undertakings are obliged to respond only to a decision.32 Second, Commission officials will be permitted to ask undertakings’ stuff for explanations or documents. The potential fines for failure to respond to the requests and for supplying incorrect or misleading answers have been increased to a maximum of one percent of the earnings in the preceding year.33 Third, the Commission’s officials are empowered to enter the undertaking’s buildings to examine all business-related records.34 The Commission also can, by decision, command an inspection of “any other premises … including the homes of directors, managers and other members of staff of the undertakings.”35 Forth, Regulation 1/2003 empowers the Commission to seal any business premises, books, or records for a period in order to manage the inspection, subject to the powers set out in Regulation 17/62.36 Undertakings may be fined up to one percent of their total earnings in the preceding year if the seals are broken.37 The Commission can impose a fine of up to one percent of the undertakings’ earnings in the proceeding business year if the undertakings do not provide correct information in time.38 Finally, the Commission is empowered to impose a fine on undertakings if they violate Article 81 or 82 EC, disobey a decision ordering provisional measures under Article 8 of Regulation 1/2003, or refuse to fulfill a commitment according to Article 9 of Regulation 1/2003.39
The ECN: New relationship between the Commission and national authorities
The Commission adopted a Commission Notice40 that established a system with a new quality of close cooperation called the European Competition Network (hereafter: ECN). The ECN aims to ensure an effective and consistent application of EC competition rules. Some of the major issues are covered by Regulation 1/2003,41 but the Notice may address others. Regulation 1/2003 provides for: (a) exchanging information between NCAs regarding the application of Articles 81 and 82 EC;42 (b) sharing important documents collected by the Commission with NCAs when the Commission pursues an investigation;43 (c) justifying the rejection of a complaint or suspension of proceedings by the Commission or an NCA when another authority is dealing with it;44 and (e) the possibility that the Commission may take a case back form an NCA.45