University of Amsterdam, Faculty of Law Master Thesis Final Version
The Combined Application of Article 106 (1) and Article
102 TFEU: A reference rule without reference?
By James O’Neill
European Competition Law and Regulation 11148519
Supervised by: dhr. M.A.H. Aart Loubert 29th July 2016
Abstract
Article 106 TFEU is a peculiar provision contained in the treaty because of its unique renvoi status, that is to say it does not have independent application but must apply in conjunction with a second treaty article. The nature or Article 106 has been described as needing to satisfy a reference rule. Most frequently the second Article that is referenced alongside it is Article 102. Recent history has shown the test formulated when applying these two provisions in conjunction no longer requires abusive behavior as one would ordinarily expect when first assessing Article 102. The reality of this development provokes the question has the combined interpretation of each Article extended beyond the limit of its logic and in doing so, failed to honor the renvoi status of Article 106. The thesis in exploring this question uses a doctrinal method where EU case law is critically analyzed and evaluated. Forming the root of the interpretational problem is the fact each provision addresses opposite recipients. The result of the research indicates that the European Courts have struggled to conquer the immediate conceptual issues that arise because of this and ultimately what has been created is an oscillation of preference shifting between varying legal tests. In 2014 the European Court Justice were granted an opportunity to clarify the interpretation to be given and chose to endorse a legal test that permitted the application of Article 106 in absence of any abusive conduct whatsoever. On analyzing this decision it is evident despite the Court claiming to invoke Article 106 in partnership with Article 102, it is more realistically functioning independently. The conclusion that is drawn from this observation is that indeed Article 106 is functioning beyond the limit of its logic and not only is it illogical but sets a dangerous precedent that is vulnerable to abuse at the expense of EU credibility and National Sovereignty.
Introduction...4
Chapter I: Finding an Infringement by combining Articles 106 and 102 TFEU...6
Chapter II: The Oscillation between Theories...8
2.1 Dominant Position...8
2.2 Behavioral Theory...8
2.2.1. Demand Limitation Doctrine...10
2.2.2. Conflict of Interest Doctrine...12
2.3 Effects Theory...14
2.3.1. Extension of Dominance Doctrine...14
2.4 Automatic Infringement...17
2.5. Conclusion...18
Chapter III: A Struggling Triumph for the Effects Theory?...18
3.1 DEI: The General Court’s Preference of the Behavior Theory...18
3.2 European Court of Justice: Clarity at last?...21
Chapter IV: A Satisfying Conclusion in Favor of the Effects Theory?...23
4.1 Critique of the Greek Lignite Saga...23
4.2 An overstated need for An Inequality of Opportunity Doctrine...25
4.3 The “Cold feet” of Advocate General Wahl...29
4.4 The possibility of State Liability...32
Chapter V: Article 106 (2) No need to panic?...33
Conclusion...36
Introduction
Since the birth of Competition Law in the European Union, its philosophy and ambition has been welcomed with open arms. Since the 1990s a better inclusion of economics has formed part of the assessment of competition rules and has contributed to the view that open competitive markets are best for the economy and for total welfare to thrive. With Competition Law provisions well developed under Articles 101 and 102, directed at undertakings, it was equally important to incorporate safeguards preventing member states from circumventing Treaty provisions and distorting competition through their status as non-undertakings. The most prominent solution has been the application of Article 106 TFEU in combination with Article 102 TFEU. Despite its existence, Article 106 TFEU for a long time lived a quiet life
attracting little attention from the media and academics. For lawyers well versed in Competition Law it represented a provision of the Treaty that was uninteresting and infrequently used.
Article 106 TFEU has been described as the provision with the “greatest unexploited potential in EU Competition Law.”1 Although this statement may have carried weight five years ago, since the judgment of DEI2 in 2014 the picture that emerges is an Article 106 that is
fully exploited, so much so that it invites the question, has it been excessively so. Any Competition Lawyer will tell you the importance of proving the second condition of infringing Article 102, namely that the dominant undertaking has “abused” its position. Nevertheless, the judgment in DEI states that Article 106 in combination with Article 102 can be infringed in absence of an abuse. If Article 106 had not caught Competition Lawyers attention before this case, it certainly had now.
The difficulty of applying these two provisions in conjunction is that each provision is directed at opposite recipients, one being member states and the other being undertakings. The conceptual problems of applying them in conjunction demands that the substantive content and very logic of each provision is altered.3 This alternation explains the extraordinary outcome of
DEI. The question that has challenged the Courts is to what extent should the natural meaning
of Article 102 change in order to allow it to function effectively alongside Article 106. This question has led to two opposite views illustrated through the Behavioral and Effect theories.
The distinction between each theory is important and marks either a preference in favor of national sovereignty or guaranteeing the full effectiveness of the objectives of Competition Law. It is a balancing act which has led to an incredibly inconsistent application of EU Law. Naturally this attracts attention and begs the question where should the line be drawn. Along these lines, the present research paper aims to assess the legal framework that exists for the combined application of Article 106 and 102. More precisely, it intends to answer the question, is the current interpretation of Article 106 in conjunction with Article 102 satisfactory or has it been stretched beyond the limit of its logic by ignoring the renvoi status of Article 106. To
1 A. Lamadrid, ‘Hotch Potch’ (Chillin’ Competition 2014) < https://chillingcompetition.com/2014/07/09/hotch-potch/> accessed 17 June 2016.
2 Case C-553/12 P, Commission v DEI, EU:C:2014:2083.
3 J.L. Buendia Sierra, Exclusive Rights and State Monopolies under EC Law, Article 86 (Former Article 90) of the EC Treaty (OUP 1999) 148.
answer the research question, the doctrinal method is used, whereby the existing case law is critically evaluated.
The structure of this research is as follows: Chapter one will outline the conditions of applying Article 106 in conjunction with Article 102 and the immediate conceptual challenges that exist in doing so. Chapter two will illustrate the inconsistent application of these conditions and the gradual evolution of its scope oscillating back and forth between two core theories. Chapter three will assess the standoff between the General Court and European Court of Justice (here in after ECJ) regarding these opposite approaches. Chapter four evaluates the ultimate victory of the effects theory and more specifically the birth of the inequality of opportunity doctrine. Ultimately in the paper’s conclusion an answer is provided to the original question deriving from the observations of the research, determining if indeed the current interpretation of Article 106 (1) marks an over exploitation of the provision.
Chapter I: Finding an Infringement by combining Articles 106 and 102 TFEU
Article 106 (1) TFEU provides that “In the case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any measure contrary to the rules contained in the Treaties, in particular to those rules provided for in Article 18 and Articles 101 to 109.”4 The provision is specifically addressed to member states, prohibiting the granting of any rights that would infringe other Treaty provisions with special reference to the competition rules. It is important to note at this point that Article 106 is a so-called “renvoi” provision, meaning it is an “empty norm that only gets substance when it is read in conjunction with another Treaty provision.”5 Thus, its legal content depends on the provision it is applied in combination with and must satisfy a reference rule.6 Before commencing an analysis of its partner provision, what must first be satisfied in every case is that the special measure or exclusive right in question is granted to an undertaking; public or privileged. Public undertakings include “any undertaking over which the public authorities may exercise, directly or indirectly, a dominant influence by virtue of their ownership of it, their financial participating therein, or the rules which govern it.”7 Privileged undertakings are those, which although not controlled or owned by the state, nevertheless, are the beneficiary of special or exclusive rights. Only on satisfying this preliminary condition does an assessment of Article 106 in combination with a second article begin. If they are not satisfied then Article 106 has not been infringed.
The purpose of Article 106 is to limit the ways in which member states hinder the operation of the treaty through granting special measures and rights. Therefore, its function is not limited to competition rules despite its position in the treaty.8 Nevertheless, it does make specific reference to the competition rules and in practice the most frequent combination and forming the remainder of this paper is with Article 102. Article 102 provides that “any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it
4 Article 106 (1) TFEU.
5 H. Vedder, ‘The Appeal in Greek Lignite: Clarification of the Law or Jumpstarting Article 106 TFEU?’ (European Law Blog 2014)<http://europeanlawblog.eu/?p=2492#sthash.Dp7Pzlx1.dpuf> accessed 17 June 2016. 6 J. L. Buendia Sierra, ‘Article 106 - Exclusive or Special Rights and Other Anti-Competitive State Measures’ in J. Faull, A. Nikpay (eds) The EU Law of Competition (3rd edn, OUP 2014) 822.
7 R. Whish, D. Bailey, Competition Law (8th edn, OUP 2015) 235. 8 A. Jones, B. Sufrin, EU Competition Law (5th edn, OUP 2014) 603.
may affect trade between Member States.”9 Contrary to Article 106, this provision is directed exclusively at undertakings.
The immediate conceptual issues of applying each provision in conjunction have proved problematic. Buendia explains that because the internal logic of Article of 102 is not designed with state measures in mind, the interpretation of its substantive content changes when applied in unity with Article 106.10 What the change in substantive content should look like creates divided opinion. The need to flexibly deviate from the default application of Article 102 is unquestioned; to rigidly continue applying Article 102 in its ordinary sense would render the combined application impossible. This is explained by the fact Article 102 prohibits the autonomous decision of an undertaking that leads to an abuse. Such autonomy could not be established when the reason for such abusive behavior was in fact caused by the legal measures adopted by Member States, who more accurately represent the responsible and controlling mind of such conduct. Therefore, it is uncontroversial to accept that the meaning of Article 102 must change. However, the difficulty remains in deciding what legal test should replace it. Two prominent issues have challenged the Courts regarding this matter. Firstly, what causal link must exist between the measure and the abuse and secondly, is it strictly necessary to establish an abuse at all or is it sufficient to demonstrate that the measure causes effects that are similar to an abuse. The second question has more frequently been split into two categories of preference; the behavioral and effects theory.
The behavioral theory is the view that state measures concerning a public or privileged undertaking will infringe Article 106 (1) in combination with Article 102 when they lead an undertaking in a dominant position to either actually abuse its dominance or create a potential to lead the undertaking to abuse its position. The point to emphasize here is that an assessment concerning the behavior of the undertaking is necessary; very much like the assessment that would occur when applying Article 102. In contrast, the effects theory is satisfied that an infringement exists when state measures granted to public or privileged undertakings produce effects that are not abusive or potentially abusive but nevertheless have similar consequences. The theory the Court adopts in turn determines the scope of Article 106. This is not the only vicinity of law that has struggled to determine the degree of involvement member states should
9 Article 102 TFEU
be granted to intervene with the economy. Similar struggles can be seen in the context of state aid and the interpretation to be given to Article 107.
For many years the challenging questions concerning the interpretation of Article 106 were ignored but in a remarkable string of case law beginning in 1991, the ECJ tackled the issue head on and has since created an oscillation of preference not only between the behavioral and effects theories but also the several doctrines that have emerged within these opposing theories. The doctrines, as will be seen, were created on an ad-hoc basis representing varied applications of each theory and their overall evolution.
Chapter II: The Oscillation between Theories
2.1 Dominant Position
Despite the initial differences between the two alternative legal theories, what is settled is that the undertaking in question must satisfy the condition of dominance contained in Article 102. Within the context of Article 106 this will usually be obvious and a direct consequence of exclusive rights eliminating all possible competition.11 Nevertheless, the presence of dominance is a factual question, whereby the economic power within its own market must be demonstrated. A useful way to assess this question is once ascertaining exclusive rights, to then apply a rebuttable presumption that they are dominant.12 However, as the Commission’s guidelines on applying 102 states, dominance is not in itself an infringement of Article 102.13 There is no justified reason why this should not also be true in combination with Article 106 and has always in principle been treated the same14. It is only at the stage of having established dominance that the behavioral and effects theory prefer different legal tests.
2.2 Behavioral Theory
11 Buendia Sierra, Exclusive Rights and State Monopolies under EC Law (n 2) 153. 12 Ibid 156.
13 Commission, ‘Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings’ (Communication) [2009] OJ C45/7 para 1.
14 Case 41/90, Hofner v Macrotron, EU:C:1991:161, para 29. (Although the extension of dominance cases undermine this general principle)
The behavioral theory represents the original choice of the ECJ. Initially it was satisfied that an infringement existed when a public or privileged undertaking held a dominant position, had engaged in abusive behavior and such behavior had been imposed on the undertaking by a public measure.15 The key point here is that there must actually be abusive conduct that was famously defined in Hoffman- La Roche to mean:
“an objective concept relating to the behavior of an undertaking in a dominant position which … has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition.”16
This starting point requiring an abuse is logical because without abusive conduct, the competitors and end users, at least in theory, will lack any vested interest to complain. Its application is exemplified in Port of Genova.17 The Italian State granted Merci (the privileged undertaking) the exclusive right to organize dock work in the port of Genova.18 The Court named no fewer than four types of abuses committed by Merci including excessive prices and discriminatory prices.19 This application of the Treaty rules is advantageous in the respect that it clearly identifies abusive conduct and represents very closely the process for finding an infringement of Article 102 giving its combined application credibility. Disappointingly, the case did not vocally establish a causal link between the measure and abuse, a process paramount in order to correctly ascertain blame. This process has the pivotal function of establishing if Article 106 should apply or if the undertaking, despite the exclusive right, acted beyond its powers and therefore, should consume total responsibility. If so, the legal assessment more appropriately should be concerned solely with Article 102. The view of the Court was that the particular abuses in the case, because of their nature, were an inevitable consequence of the exclusive rights. The conclusion that can be drawn from the Court is that it could be presumed that a causal link existed.20 Although clarity on this point would have been desirable, in principal there is no reason to outright prohibit implied casual links when the facts and gravity of the abuses lend themselves to such assessments. The facts in this case did and
15 Buendia Sierra, Exclusive Rights and State Monopolies under EC Law (n 2) 152 16 Case 85/76, Hoffmann -La Roche v Commission, EU:C:1979:36, para 6.
17 Case C-179/90, Merci Convenzionali Porto di Genova SpA v Siderurgica Gabrielli SpA, EU:C:1991:464. 18 Ibid 5.
19 Whish, Bailey (n 6) 240.
20 Buendia Sierra, ‘Article 106 - Exclusive or Special Rights and Other Anti-Competitive State Measures’ (n 5) 828.
consequently allowed for an uncontroversial application of the Treaty rules, which appear well-founded and effective.
The above test has not always been practically useful since requiring proof of an actual abuse is rigid and ineffective when no abuse has been committed at the time of the hearing. In fact, this limitation was already acknowledged in Port of Genova as the test cited was that Article 106 in combination with 102 would be infringed when “the undertaking in question, merely by exercising the exclusive rights granted to it, cannot avoid abusing its dominant position (citing Höfner) or when such rights are liable to create a situation in which that undertaking is induced to commit such abuses (citing ERT).” 21 Citing two cases, the ECJ
accepted that it was not strictly necessary for actual abuses to exist. It was simply serendipitous that abuses in Port of Genova had been committed in supporting the view that an infringement existed. Consequently, the ECJ without abandoning the behavioral theory adjusted the requirement of an actual abuse to also include potential abuses. This change can be seen in what some academics have labeled the demand limitation doctrine and conflict of interest doctrine.
2.2.1. Demand Limitation Doctrine
In Hofner v Macrotron GmbH, Germany had granted the German Federal Labour office the exclusive right to provide employment agency services. However, the entity was not capable of satisfying the existing levels of demand in that market. The Court hearing the case stated “that a Member State is in breach of the prohibition contained in those two provisions only if the undertaking in question, merely by exercising the exclusive right granted to it, cannot avoid abusing its dominant position”.22 This was held to include the inability to meet demand because the exclusive right rendered impossible the ability of private undertakings filling the void. Such an artificial arrangement would inevitably have led the federal labor office becoming incapable of meeting levels of demand with no alternative amounting to a failure to supply. This failure to supply as Advocate General Jacobs submitted would amount to an abuse and is confirmed when reading Article 102 (b), which prohibits ‘limiting production, markets or technical development to the prejudice of consumers.’ Appreciating the
21 Port of Genova (n 16) para 17; citing Hofner (n 13) para 29 and Case C-260/89, Elliniki Radiophonia
Tiléorassi (ERT), EU:C:1991:254, para 37.
inevitable nature of the abuse that would occur either immediately or in the future, the adjusted legal test to include potential abuses demonstrates welcomed common sense treating the cause before having to treat the effects of a future abuse that would eventually satisfy the purist behavioral theory anyway. It is submitted that the extension in scope of Article 106 to include inevitable potential abuse, is a second justified relaxation of the ordinary application of Article 102 in addition to the usual requirement desiring autonomy.23
This view was confirmed by the ECJ more recently in Slovak Posta.24 In Slovakia the delivery of hybrid mail involving a customer sending mail electronically to the postal service who then prints and delivers the mail accordingly, was open to competition. However, in 2007 the Slovakian government intended to pass legislation, which in effect would re-monopolize the Slovakian Posta by reserving it the right to provide the above service. In doing so it was argued that the achievement of a universal service would be “jeopardized or, at the very least, could not have carried out under acceptable conditions.”25 This was because only private undertakings could provide additional services including tracking and seven days a week delivery.26The Commission argued that the track-and-trace service was of vital importance to consumers when choosing a postal company, a function that would ordinarily be available in a competitive market.27
The Court considered this argument and stated “the applicant has not adduced evidence to prove that it offered a track-and-trace service, such as that described by the Commission in the contested decision, nor even that it offered a similar type of service in the context of hybrid mail. In addition, it has failed to substantiate its assertions that it was capable of offering that service.”28 The absence represented an inability to meet the previous standards. Therefore, the Court proceeded to hold that the Commission did not err in these suggestions. Consequently, it had been proved that the Slovak Posta, like Hofner, had been forced into a position in which it could not help abusing its position of dominance. Interestingly, had the absent qualities in postal service been guaranteed by Slovak Posta, it is arguable the outcome would have been different. How difficult it would have been to provide a tracking system and 7 days delivery is unclear but surely possible with the correct technology and infrastructure.
23 See chapter I paragraph 2 of the present paper. 24 Jones, Sufrin (n 7) 610.
25 Case T-556/08, Slovenská pošta v Commission, EU:T:2015:189, para 32 26 Ibid 324
27 ibid 28 Ibid 348
2.2.2. Conflict of Interest Doctrine
The ERT case established the conflict of interest doctrine. This approach compared to
Hofner, was slightly different and deserves attention for its more questionable interpretation of
Article 106 and 102. The Greek government granted exclusive rights to Greek radio and television (ERT) to provide original broadcasting and then provided them with the right of retransmitting programs in Greece. Dimotiki Etairia Pliroforissis, a second television station set up called “TV 100”, challenged the exclusive rights.29 The Court held that “Article 106 prohibits the granting of an exclusive right to retransmit television broadcasts to an undertaking which has the exclusive right to transmit broadcasts, where those rights are liable to create a situation in which that undertaking is led to infringe Article 102 by virtue of a discriminatory broadcasting policy which favors its own programs.”30 To distinguish this legal test from
Hofner, which concerned unavoidable infringements, the possible abuses alleged in ERT
concerning a discriminatory broadcasting policy were avoidable. The situation created in ERT merely made it possible and tempting for the undertaking to abuse its position. Prohibiting possible abuses that are not inevitable because of a conflict of interests begins to illustrate a lax application of Article 106 and creates difficulty when considered in conjunction with Article 102. This is explained by the fact Article 102 ordinarily is not concerned with potential abuses that may never materialize.
The case effectively extends the scope of Article 106 by assessing not only the manner in which the monopoly is exercising its privileges but also the way in which the monopoly is structured.31 Despite by default accepting monopolies to be compatible with the Treaty, the judgment held that because of their favorable position on the market, monopolies depending on their structure are to be held incompatible with Union law. The general acceptance of dominance has in effect been conditioned and as a direct consequence, the judgment confuses its own case law. Damien Chalmers observes “whilst holding monopolies as a general concept to be compatible with Community law, has ruled, in effect, that certain forms of statutory monopoly may, in fact, be incompatible with Community law.”32
29 D. Chalmers, ‘Competition and Industrial Property: Television and the Court of Justice’ (1992) 17 European Law Review 248.
30 ERT (n 20) para 37.
31 Chalmers, ‘Competition and Industrial Property: Television and the Court of Justice’ (n 28). 32 Ibid.
When attempting to make sense of this contradiction, it becomes clear “this reasoning also places statutory monopolies paradoxically in a worse position under Article 86 EEC (Article 102) than private companies who have achieved a dominant position in the common market or a substantial part of it by reason of their economic strength.”33 Dominant undertakings functioning without exclusive or special rights will always experience a conflict of interest that stimulates the possibility of abuse. Nevertheless, Article 102 treats such circumstances as legal up until the moment an abuse in fact occurs. The only distinguishing factor that presumably inspired an opposite outcome is that Article 106 cases unlike isolated Article 102 cases consider undertakings that have not earnt their position on the market through economic strength. In other words, dominant undertakings that do not benefit from exclusive rights have earned the right to function on markets with a conflict of interest because of the nature in which they achieved it.
This difference in treatment is striking when one remembers Article 106 is a renvoi provision and in this context cannot apply without having satisfied an infringement of Article 102. Consequently, the ERT judgment is accused of either changing the meaning of Article 102 by including a precautionary test that does not exist or granting Article 106 independent application. The argument that the conflict of interest doctrine is a further justified derogation from Article 102 because of the natural conceptual difficulties is unconvincing. Unlike the demand limitation doctrine, the conflict of interest argument prevents what may never happen. Hans Vedder defends this extension in scope in his comments on the DEI facts by stating “even if there is no actual abuse, the state has created a situation that is too good to be true for the public undertaking and the risk of abuse is all but imaginary.”34 If the abuse were in fact only imaginary, then what we would be discussing would be not a conflict of interest but rather something equivalent to the inability to meet demand doctrine, something that was inevitable. To exaggerate the effects of a conflict of interest is misleading and although the “but imaginary” possibility of abusive conduct may be true in some cases, in many it represents an unfair presumption against the integrity of the undertaking and the sound judgment of the member state in choosing that undertaking. There is a risk of removing unnecessarily potential infringements that may never materialize and even if they did, could be dealt with at the
33 Ibid.
moment they occur. This would allow Member States and privileged undertakings the opportunity to prove intent to function responsibly and in compliance with competition rules.
Therefore, the acceptance of a conflict of interest doctrine creates a “Torrid” time for the public sector.35 The conclusion that is drawn is that the scope of Article 106 is extended at the cost of weakening its renvoi status; a status that the ECJ nevertheless, suggest is being honored by referring to Article 102.
2.3 Effects Theory
2.3.1. Extension of Dominance Doctrine
The interpretation of Article 106 outlined above demonstrates that the Courts, when faced with different factual circumstances, have gradually developed the legal test concerning the need to establish an abuse or future abuse. Although the conflict of interest doctrine arguably stretches the behavioral doctrine unnecessarily, it nevertheless maintains to include the all-important assessment of abuse, even if that may never occur. Departing even further from a need to acknowledge an abuse, the ECJ have floated into the territory of an effect based test abandoning any need to show abusive or future abusive conduct.
In GB-INNO-BM (RTT) Belgium rules required that all telephones sold on the Belgium market must be approved by the telecommunication monopoly RTT who additionally were functioning as sellers on the telephone market. RTT initiated legal proceeding against GB-INNO-BM seeking an injunction to prevent the sale of telephones until they had obtained RTT’s approval. The exclusive right granted to RTT was argued by GB-INNO-BM not to be compatible with community law.36 It was argued that because RTT were also functioning on the telephone market as a seller, they were in an unfair position to decide if its competitors should be connected to the network or not.37 What was a concern regarding the fear of RTT restricting the circulation of goods was treated by the Court from the perspective of Articles 90 (1) and 86 (now Articles 106 (1) and 102).38 This strategy actively choosing against the free
35 Chalmers, ‘Competition and Industrial Property: Television and the Court of Justice’ (n 28). 36 Case C-18/88, RTT v GB-Inno-BM SA, EU:C:1989:131, para 4.
37 Buendia Sierra, Exclusive Rights and State Monopolies under EC Law (n 2) 169. 38 Ibid, 169.
movement provisions is noteworthy and will be explained below. The Court referring to the
Telemarketing case39, (an Article 102 case) stated that “an abuse within the meaning of Article 86 (now 102) is committed where, without any objective necessity, an undertaking holding a dominant position on a particular market reserves to itself an ancillary activity which might be carried out by another undertaking as part of its activities on a neighboring but separate market, with the possibility of eliminating all competition from such undertaking.”40 The ancillary activity in this case was the neighboring and separate market of selling phones. The ECJ presumed that this power running parallel with the exclusive right to approve phones automatically would lead RTT to utilize this power to exclude competitors and thus, extend its position of dominance. This not being legally certain was more than likely the truth.41
The difficulty with the facts was that RTT had not abused its dominance by freely reserving the ancillary activity of selling phones and excluding competitors. This was instead the automatic consequence of the state measure, rendering impossible the argument that RTT’s extension in dominance was a product of the undertakings behavior. A key ingredient in establishing the abuse referred to in Telemarketing case. As Buendia submits “the judgement did not claim that the exclusive or special rights were leading the undertaking to commit that abuse because the exclusive or special rights were making it unnecessary. They were not encouraging the abuse, they were replacing it.”42 With no abuse existing limited by its definition demanding behavior of undertakings but identical consequences, the Court accepted that the situation was instead one that created identical effects of the abuse.
Misunderstanding these arguments, RTT submitted, that the extension of dominance did not necessarily mean that the undertaking would behave abusively. An argument against the conflict of interest doctrine, exactly the argument this paper used in advocating the ERT decision was problematic. The argument implies they had not truly understood it was an effect based argument and not an argument concerned with actual abuse. The Court clarified this point by holding “it is sufficient to point out in this regard that it is the extension of the monopoly in the establishment of operation of the telephone network to the market in telephone equipment, without any objective justification, which is prohibited … where the
39 Case 311/84, Telemarketing, EU:C:1985:394. 40 RTT (n 35), para 18.
41 Buendia Sierra, Exclusive Rights and State Monopolies under EC Law (n 2) 170.
42 Buendia Sierra, ‘Article 106 - Exclusive or Special Rights and Other Anti-Competitive State Measures’ (n 5) 830, section 6.75.
extension results from a measure adopted by a State.”43 This marked the birth of the extension of dominance doctrine forming the first example of an effects theory. It was not the potential abusive behavior of such a structure that was prohibited but rather the effects of the structure that would be identical to the abusive conduct established in Telemarketing case.
Returning to the point that the case invited an argument concerning the circulation of goods and therefore the free movement provisions, demonstrates the problem was not limited to using Article 106 in combination with Article 102. In ignoring the free movement provisions the ECJ were offered an opportunity to widen the scope of Article 106. This observation is supported by Buendia who points out the same result could have been achieved using the conflict of interest doctrine established in ERT by arguing a temptation would have been created to behave in a discriminatory way, constituting a potential future abuse in the form of future discriminatory approval, for example. The already existing conflict of interest doctrine accepted by the Court in ERT would also explain RTT’s mistaken anticipated defense. The choice to extend Article 106 to include anticompetitive effects as well as abusive conduct was therefore articulated carefully and provides an outcome more serious than ERT.
In the absence of showing an abuse is present, future or even potential, the application of Article 106 removes every possible link except dominance with Article 102, which ordinarily cannot function without an abusive conduct. The difficulty for the ECJ is that exclusive rights granted in cases like RTT do create a situation that is identical in effect to a legally recognized abuse. If the language of Article 102 was not limited to the behavior of undertakings, there is little doubt Article 102 would have also developed to capture the anticompetitive effects experienced in the extension of dominance cases as a consequence not of the undertakings original dominance but because of the intervention of the state. The failure of the Articles to adequately capture this circumstance is a reasonable lack of foresight. It would have been unreasonable to expect the Treaty drafters to have foreseen such a technical arrangement. Consequently, what has been found is a loophole. The question that ultimately arises from this observation is whether the well-founded concern of equivalent effects should be rejected because the wording of Article 102 requires an abuse and not effects that have similar consequences.
Although the limitation of the two provisions functioning in this way is formalistic and understandably side stepped by the Court, by extending its scope using intuitive reasoning, the Court invite accusations of politically motivated attacks that aim not to ensure the effectiveness of Article 102 as they claim but rather intend to liberalize markets at whatever the cost. Suspicion is further fueled when acknowledging the legitimate alternatives that existed to capture the same conduct as demonstrated in RTT where the free movement provisions could have applied. Nevertheless, despite what the intentions of the aggrieved parties and ECJ the fact of the matter is, what has been recognized is an arrangement that is in effect identical to an abuse and on this basis alone, it is reasonable to accept although going beyond the scope of the legal framework of Article 106 and 102, it was logical based on the facts in this case to do so.
2.4 Automatic Infringement
RTT demonstrates that the Court felt satisfied that exclusive rights create the same
effect as recognized abuses and thus should be treated the same, with the effect of widening the scope of Article 106 yet again. The evolving scope of Article 106 is epitomized in Corbeau44,
which in fact took a step further, and by some has been more appropriately described as not the evolution but revolution of Article 106 TFEU.45 The importance is less interested with the application of the behavioral or effects theory but rather the causal link that must be established for both. The Court immediately began an assessment of Article 106 (2) to determine if the measures could be justified. Not once did the Court establish an infringement of Article 106 (1) that was thought to be necessary for an infringement to exist in the first place. The Court’s reasons for skipping this stage of assessment are silent and create much speculation. To be optimistic would be to interpret the case as the Court being satisfied that they could presume the test in either the behavioral or effects theory was satisfied but more likely represented a reversion of the burden of proof.
An outcome that some support, mainly from the point of view that it provides complete clarity and certainty. It is no secret that having addressed above the difference in doctrines and their inconsistent application, the Court have found it difficult to create a firm test that consequently floats between a behavioral and effects theory. By reversing the burden of proof,
44 Case C-320/91, Corbeau, EU:C:1993:198.
such discrepancies are made redundant and the law is provided with a certain starting point. The difficulty with accepting such a stance is contractual; this simply is not what the drafting of the treaty intended and, therefore, not what the member states agreed to. If it were, Article 106 (1) would not exist. As Komnino submits a “systematic interpretation of the Treaty does not support that there is general prohibition of all State measures that may even indirectly impact on competition and business activities.”46Although the removal of assessing Article 106 (1) would reduce state intervention by limiting their involvement to granting rights which satisfy Article 106 (2), it is doubtful this alone is enough to justify blindly applying the Treaty Articles at the expense of member state sovereignty. To ignore the existence of Article 106 (1) and its relationship with Article 102 would be contra legem.47
Unsurprisingly, the judgment was short lived and the automatic abuse theory abandoned. The change in attitude was witnessed in La Crespelle,48 where the Court confirmed
that the idea that an exclusive right would automatically be considered in breach of Article 106 (1) was incorrect and that abusive conduct must be proved at least potentially.
2.5. Conclusion
Three theories can be identified out of this maze of case law: the behavioral theory, the effects theory and a short lived automatic infringement theory. The problems outlined in this chapter concerning the unconvincing link between Articles 106 and 102 as a consequence of employing the conflict of interest doctrine and inclusion of an effects theory in the form of extending dominance remain unsettled issues even over 20 years later. More recently the issues were called into question in the Greek Lignite Saga, which interestingly conflicted opinion between the General Court49 and ECJ.50 The contention confirms the complexity of Article 106 when combined with Article 102 and the challenges lawyers face when interpreting it. The case presented the ECJ with an opportunity to finally clarify its interpretation and determine a preference in favor of either theory and why.
46 M. Komninos, ‘Case T-169/08 PPC v Commission’ (Chillin’ Competition 2012) < https://chillingcompetition.com/2012/11/26/menage-a-trois-part-iii-makis-komninos-case-t-16908-ppc-v-commission/> accessed 17 June 2016.
47 V. Brisimi, The Interface between Competition and the Internal Market. Market Separation under Article 102
TFEU (Hart Publishing 2014).
48 Case C-323/93, Société Civile Agricole du Centre d'Insémination de la Crespelle, EU:C:1994:368. 49 Case T-169/08, DEI v Commission, EU:T:2012:448.
Chapter III: A Struggling Triumph for the Effects Theory?
3.1 DEI: The General Court’s Preference of the Behavior Theory
DEI was a former state monopoly created in 1950 that the Greek State continued to hold a majority ownership in. The change in their status from a monopoly to being dominant was a consequence of liberalization measures taken at European and National level.51 However, despite this unbundling DEI remained firmly at the forefront of the Greek energy market enjoying an 85% market share at the wholesale level.52 Additionally, DEI was granted the rights to explore and mine roughly half the lignite (coal) reserves in Greece amounting to 2 200 million tonnes,53 the cheapest source of energy, while the majority of the remaining reserves (2 000 tonnes) accessible to DEI’s competitors.54 The Greek State technically had not granted the exclusive right to mine lignite but by refusing to give access the remaining reserves had created the equivalent effect. This contributed to a market share of 97% in the market of supplying lignite.55 DEI’s competitors who wanted to continue using lignite to generate electricity were therefore forced to either purchase lignite from DEI or import it at an additional expense.
The Commission argued that giving DEI, in effect, the exclusive right to mine lignite provided it with the cheapest means of fueling power stations on the electricity market affording it an advantage over its competitors. This, as a result created an inequity of opportunity on the wholesale market in which DEI also operated and had the potential to distort competition and reinforce its dominant position. Consequently, the Commission decided that such an arrangement infringed Article 106 in combination with Article 102 TFEU.56
DEI appealed this decision and the case was referred to the General Court. DEI argued that in order to infringe Article 106 (1) TFEU there had to be proof of an abuse, actual or potential of a dominant position and that neither had been shown. The General Court agreed and held “By
51Commission Decision of 5 March 2008 on the granting or maintaining in force by the Hellenic Republic of rights in favour of Public Power Corporation S.A. for extraction of lignite, para 188.
<http://ec.europa.eu/competition/antitrust/cases/dec_docs/38700/38700_517_3.pdf> accessed 17 June 2016 52 J. Rivas ‘Article 106(1) TFEU ready for duty again; the CJEU’s judgment in the DEI case’ (European Law Blog 2014) <https://blogs.kcl.ac.uk/kslreuropeanlawblog/?p=753#.V49vexJzU5s> accessed 17th June 2016.
53 Case C-553/12 P, Commission v DEI, Opinion of AG Wathelet, EU:C:2013:807, para 6. 54 ibid
55 J. Rivas (n 51)
56 C. Graham, ‘Abuse of Dominant Position in the Context of Exclusive Rights Granted by Authorities’ (2013) 4 Journal of European Competition Law& Practice 144.
finding simply that the applicant, a former monopolistic undertaking, continues to maintain a dominant position on the wholesale electricity market by virtue of the advantage conferred upon it by privileged access to lignite and that that situation creates an inequality of opportunity on that market between the applicant and other undertakings, the Commission has neither identified nor established to a sufficient legal standard to what abuse, within the meaning of Article 82 EC, the state measure in question has led or could lead the applicant.”57 The Court appreciated that previous case law had frequently referred to an inequality of opportunity but warned the Commission that this was not to be read in isolation of its context.58 For instance, when referring to the Connect Austria,59 the Court explained that although it was
true that inequality of opportunity was used as an argument in establishing an infringement, the submission was coupled with the fact the public undertaking would find itself in a position which would “lead it, inter alia, to offer reduced rates, in particular to potential subscribers … and to carry out intensive publicity campaigns.”60 Therefore, the infringement was established based on a future potential abuse and not the inequality of opportunity itself. In other words, the conflict of interest was the infringement and the inequality of opportunity complimented this finding. The reasoning is logical but just as the General Court accused the Commission of committing the offence of reading the case law out of context, paragraph 84 of Connect Austria suggests the General Court was guilty of the same offence. Paragraph 84 unequivocally states
“If inequality of opportunity between economic operators, and therefore distorted competition,
results from a State measure, such a measure constitutes an infringement of Article 86(1) EC in
conjunction with Article 82 EC.”61 Therefore, despite the attempt of the General Courts at
dismissing inequality of opportunity as an infringement in its own right, it is doubtful that their interpretation of Connect Austria supports this conclusion.
Furthermore, when the General Court addresses the Commissions reliance on the RTT judgment, the Court’s reasoning is vague and further unconvincing.62 Unlike their comments on the Connect Austria, they fail to evidence a finding of a potential abuse. As this paper indicated in chapter 2.3.1, the Court were very clear in RTT at paragraph 24 in stating that it was not the existence of any future abuse that was proved but rather the structure of the exclusive right and extension of dominance which not abusive per se but having the equivalent
57 General Court judgment in DEI (n 48) para 93 58 Ibid, para 113.
59 Case C-462/99, Connect Austria für Telekommunikation GmbH, EU:C:2003:297. 60 General Court judgment in DEI (n 48) para 111.
61 Connect Austria (n 58) para 84
effect that was prohibited.63 For this reason, it must be conceded that by rejecting the existence or application of an effect theory (including inequality of opportunity) the judgment was not entirely consistent with its previous case law. Unfortunately, the Court in doing so missed an opportunity to acknowledge that inequality of opportunity did exist as an infringement of Article 106 but that it was now time to scrutinize the appropriateness of its use.
Despite this shortfall in their assessment, the view of the Court supports not only a reluctance to embrace an inequality of opportunity doctrine but also the effects theory more generally. The Court was clearly uncomfortable applying Article 106 in conjunction with Article 102 in absence of considering abusive conduct. The failure of the judgment to make this rejection of an effects theory comprehensible appears cowardly. The impression is given that the General Court believes in the need for an assessment of abuse and a nexus with Article 102 but instead of stating so in clear terms and choosing to dismiss the effects theory established in RTT and extended in Connect Austria, they chose to ignore its very existence. Consequently, the Commission lost the case on the basis of failing to submit that a potential abuse existed; the ability of which is contested. Buendia believes this potential to have existed, while Davilla argues that because the market was already regulated as a consequence of its liberalization, no abuse in practice could have occurred, not even potentially.64 The Commission, being left frustrated and justifiably confused by this outcome, inevitably appealed the judgment.
3.2 European Court of Justice: Clarity at last?
The Advocate General Wathelet considering the appeal stated “If there was a requirement to establish specific conduct constituting abuse within the meaning of Article 82 EC alone in the event of the extension of a dominance, which has been made possible by the state measure, it would be difficult to know what scope would remain for the application of Article 82 EC in conjunction with article 86 (1) EC.”65This neatly reminds us of the fully accepted and reasonable observation that the conceptual meaning of Article 102 must change
63 RTT (n 35) para 24.
64 M. Davilla, ‘The General Court’s Judgment in Case T-169/08 PPC v Commission’ (Chillin’ Competition 2012) < https://chillingcompetition.com/2012/11/20/menage-a-trois-the-general-courts-judgment-in-case-t-16908-ppc-v-commission/> accessed 17 June 2016.
slightly if both Articles are to ever apply in conjunction. The AG continued by disagreeing with the General Court believing that what was necessary was not an abuse or potential abuse but instead actual or potential anticompetitive conduct that abuses were merely examples of. The AG states “without claiming at this stage that the Commission has actually established the existence of a specific conduct constituting an abuse by DEI, I consider that it has identified anticompetitive effects that might result from the state measure at issue.”66 The AG was seemingly suggesting what the Commission in fact did, which was submitting an effects based argument that contrary to the view of the General Court, is a proper and accepted way to apply the Articles. Ultimately, the AG advocated that the ECJ should annul the General Courts decision.
On 17th July 2014 the ECJ delivered a much awaited judgment that would determine the future and direction of Article 106 (1). The Court wasted no time and quickly stated “a system of undistorted competition, such as that provided for by the Treaty, can be guaranteed only if equality of opportunity is secured as between the various economic operators”67 and therefore “if inequality of opportunity between economic operators, and thus distorted competition, is the result of a State measure, such a measure constitutes an infringement of Article 86 (now 106).”68 The view of the Court is bold. Unlike the judgment in RTT, which established the extension of dominance doctrine prohibiting exclusive rights which have the same effect as a legally recognized abuse, the ECJ in DEI were holding that Article 106 in combination with Article 102 prohibits anticompetitive effects which are the same as the anticompetitive effects deriving from an abuse. This was not the same as arguing the effects were the same as the abuse itself. The argumentation was therefore that inequality of opportunity distorts competition, which is what the Treaty more generally aims to prevent.
Interestingly, the ECJ in its concluding remarks state that such an infringement can thus be established “by allowing the public undertaking or the undertaking which was granted special or exclusive rights to maintain (for example by hindering new entrants to the market), strengthen or extend its dominant position over another market, thereby restricting competition, without it being necessary to prove the existence of actual abuse.”69 The decision indicates an overwhelming choice in support of the effects theory, whilst simultaneously making reference
66 Ibid, para 67.
67 ECJ judgment in DEI (n 2) para 44. 68 Ibid.
to the act of maintaining, strengthening or extending dominance. All terms requiring some kind of behavior that is more commonly considered when applying the behavioral theory. When one remembers that the idea behind effects theory is to capture anticompetitive effects that do not require any behavior, it becomes clear that the reference to some kind of act reverses the clarity first offered. Therefore, the illusion of clarity the case gives in support of the effects theory, on a closer reading, in fact provides an answer that is not entirely cutting ties with the behavioral theory. Thus, it is unclear if the judgment clarifies the law at all, other than strongly suggesting Article 106 (1) will be easier than ever to apply.
Chapter IV: A Satisfying Conclusion in Favor of the Effects Theory?
4.1 Critique of the Greek Lignite Saga
The final outcome of DEI by analogy represents the seeds of an effects theory that were planted in RTT being harvested over 20 years later, which now has fully blossomed, not only applying to the extension of dominance but inequality of opportunity more generally. When looking at the underlying objective of Article 102, it is clear that its function is to prevent exactly the kind of consequences the effects theory allows Article 106 to capture and without it, the state would be capable of creating uneven playing fields. On this basis, it is understandable why the ECJ accepted that Article 106 could function in this way despite the limitations of Article 102. After all “Given the increasing level of political integration and proliferation of legislation witnessed in the last 10 years of the European Union (EU), it is natural that many of the obligations imposed by the union have not arisen from meticulously detailed legislation.”70 The problem remains that the legal reasoning ignores the requirement of abusive practices. By ignoring the relationship between the exclusive right and the undertakings behavior, Article 106 cannot be said to be functioning alongside Article 102. If Article 106 is not functioning together with Article 102 then it fails to function in the capacity of a renvoi provision. If Article 106 is not functioning as a renvoi provision, then it must be concluded that the legal framework adopted by the Commission and ECJ in support of its conclusion is neither adequate nor existing.
70 N. Zingales, ‘Member State Liability vs National Procedural Autonomy: What Rules for Judicial Breach of EU Law’ (2010) 11 German Law Journal 419.
Furthermore, inequality of opportunity is a natural consequence of special or exclusive rights, which in practice makes it difficult to imagine any case that would not by this definition distort competition. This is different to the extension of dominance doctrine which, although severing a link with Article 102, is limited to prohibit cases that very much have identical effects to a named and recognized abuse. Marixenia Davilla states, “endorsing a quasi-automatic infringement of Articles 106(1)/102 TFEU, akin to a by object infringement under Article 101 TFEU, the Court of Justice has effectively crippled Article 102 when applied with Article 106 (1).”71 Indeed, if inequality of opportunity is to be interpreted as existing as soon as a special or exclusive right is granted, then not only does it cripple Article 102 but it in effect implicitly repeals Article 106 (1) TFEU.72 If these observations are to be accepted, then what has reemerged is effectively an automatic infringement theory in the disguise of an effects theory.
In light of this bold outcome, it is interesting to consider the Commission’s motivation to attempt what has previously been held to be an incorrect automatic infringement of Article 106. Komninos, a legal counsel close to the case stated that DEI was “a test case against a carefully selected target.”73 Despite the regulatory effort experienced in the Greek electricity market, DEI continued to exercise considerable dominance on both the supply and wholesale markets. It needed further unbundling as it was believed that DEI was using its “dominant position on the upstream lignite market as leverage with a view to extending or maintaining its position on another markets closely linked to the first, situated vertically downstream, the electricity production market, thereby excluding the entry of new competitors to that downstream market and thus restricting competition.”74 These concerns are supported by the fact that DEI even after 10 years of liberalization maintained their dominant position.75 With the effectiveness of the regulatory framework proving limited, the facts of DEI presented a perfect opportunity to utilize the inequality of opportunity doctrine to complete the job the liberalization legislation could not. Had the case not had such a direct effect on the
71 M. Davilla, ‘Commission v DEI: the Law on Public Companies or Companies with Special or Exclusive Rights That Are Led to Abuse Their Dominant Position’ (2015) 6 Journal of European Competition Law& Practice 30. 72 L. Calzolari, ‘The “Clear Obscurity” Strikes Back: the Application of Articles 102 and 106 (1) TFEU According to the Opinion of Advocate General Wahl in the Gullotta Case’ (Eurojus.it rivista, 2015) < http://rivista.eurojus.it/the-clear-obscurity-strikes-back-the-application-of-articles-102-and-1061-tfeu-according-to-the-opinion-of-advocate-general-wahl-in-the-gullotta-case/#> accessed 17 June 2016.
73 Komninos (n 45).
74 Case C-497/12, Davide Gullotta and Farmacia di Gullotta Davide & C. Sas v Ministero della Salute and Azienda Sanitaria Provinciale di Catania, Opinion of AG Wahl, EU:C:2015:168, para 73
liberalization of the Greek electricity market, it is doubtful that the case would have existed at all. This is supported by the fact that it was the first time the Commission issued a decision on Article 106. The ultimate conclusion is that despite the good intentions of the ECJ the mentality adopted is one that believed the ends justified the means and consequently, what has been set is a “dangerous precedent by permitting the Commission to attack market structures it dislikes by invoking the vague concept of “inequality of opportunity.”76
The first stage in solving any problem is realizing one exists. What should have been arguments by DEI and the General Court challenging the legitimacy of the inequality of opportunity doctrine were incorrect attempts at arguing the doctrine did not exist. The defendants failed to recognize that the problem, consequently allowing the Commission to submit a pre-existing legal basis rather than justified basis that is evidently challengeable.
The Commission succeeded and as Commissioner Almunia stated, the outcome of the saga “could be an important development for competition enforcement in the future as regards this kind of State-owned undertakings.”77 Papadopoulos and Kiorktsidou interpret this statement to “depict the willingness of the commission to ensure that the process of liberalization of energy sector is not hampered by state measures which preserve the super dominance of former public monopolies.”78 This, once again supports the view that the application is primarily about liberalization and secondarily about distortions of competition. Article 106 gained a new lease of life but the legal validity of such life was ignored.
4.2 An overstated need for An Inequality of Opportunity Doctrine
The problems acknowledged with the decision of the ECJ to treat inequality of opportunity as an infringement of Article 106 evidently places a strain on its renvoi status, a strain that has been submitted to have reached breaking point. This is legally problematic but the question that remains is whether the benefits of ignoring the renvoi status of Article 106 outweigh the theoretical dissatisfaction.
76 Komninos (n 45)
77 J. Almunia, ‘Looking Back at Five Years of Competition Enforcement in the EU’ (European Commission Press Release Database, Speech at the Global Antitrust Enforcement Symposium (Georgetown), Washington 2014) < http://europa.eu/rapid/press-release_SPEECH-14-588_en.htm> accessed 17 June 2016.
78 A. Papadopoulos, T. Kiorktsidou, ‘The CJEU Appeal in the Greek Lignite Case: Setting the Evidentiary Burden for the Establishment of an Infringement under Article 106 in Conjunction with Article 102 TFEU’ (2014) 4 European Networks Law and Regulation 291, 296.
As previously stated Article 107 TFEU has shared similar difficulties determining the scope its application should have. Although it has an exclusively different function to Article 106 and is not limited by a renvoi status, their nature is incredibly similar. They both act to prevent member states behaving in a way that undermines competition through either granting exclusive rights or state aid. An equally defining case concerning the scope to be given to Article 107 TFEU was experienced in Elektra.79 The point in question was the interpretation to be given to the language “any aid granted by a member state or through state resources in any form whatsoever.”80
On one hand, it could be argued that “through state resources” includes measures financed through public funds, and “aid granted by a member state” encapsulates all remaining measures that are not caught by state resources.81 An extensive reading would have treated any measures that conferred an economic advantage on an undertaking that was attributable to the state as constituting aid irrespective of any financial burden.82 On the other hand, the language could be read as stating aid that must be financed through state resources and the distinction between each term is to capture not only aid granted directly by the state but also aid granted through public and private bodies established by the state.83 The challenge was one of linguistic compatibility and mimics to an extent the challenge of interpreting Article 106 and 102, which effectively both boil down to a choice in favor of either a narrow reading (behavioral theory) or a wide reading (effects theory).
Advocate General Jacobs in his opinion lists convincing arguments against a wider reading. Arguments that are particularly transferable to the context of Article 106, which adds weight to the view that the adoption of an inequality of opportunity doctrine is neither convincing nor sensible. First he disputes the argument that a wide reading is necessary to ensure a meaningful contribution towards eliminating distorted competition by pointing out that the failure to provide financial aid to an undertaking could in turn, develop into a burden on its competitors which has potential to hinder competition in worse ways than aid granted. This also rings true in the context of Article 106. The refusal to permit exclusive rights which do not lead to an abuse but have the consequence of an anticompetitive effect, has potential to
79 Case C-379/98, PreussenElektra, EU:C:2001:160. 80 Article 107 (1) TFEU
81 Case C-379/98, PreussenElektra, Opinion of AG Jacobs, EU:C:2000:585, para 115 82 Ibid, para 115
prohibit measures which are less anticompetitive than the effect on the market had they not existed. For instance, if the price DEI charged for the lignite to its competitors was lower than the expense it would cost its competitors to mine it themselves; it is arguable that the market is in a more competitive position when exclusive rights are permitted.
Second, AG Jacobs submitted: “there is a fundamental problem with the teleological argument developed by the supporters of an extensive reading of article 92 (1) (now 107). When defining the objective of the state aid rules they run the risk of assuming what has to be proved, namely that the rules are intended to apply to all state measures. In light of the heading of the relevant section of wording of article 92 (1) (now 107) it could equally be argued that the state aid rules are intended to protect competition only from state measures which are financed through public funds and not from all types of state measures.”84 It is submitted that an identical teleological argument can be seen by the ECJ in DEI at paragraph 44. The judgment of DEI assumes because undistorted competition cannot be guaranteed with inequality of opportunity on a market that Article 106 (1) must apply to remove it. But just as AG Jacobs observed in Elektra, it could equally be submitted that Article 106 (1) was intended to protect competition only from measures, which lead to an abuse, and not all measures that have similar effects; an alternative that in light of its combination with Article 102 is more appropriate linguistically.
Third, inequality of opportunity stimulates uncertainty.85 The application of this concept expects judges to correctly assess the effects of measures, a task exceeding the well-established experience of the Court of finding abusive practices. This not only provides a basis for unpredictable results but also opens the floodgates. It is not difficult to imagine arguments alleging that a measure in question is anticompetitive one way or another; it may even result in an effects doctrine functioning in isolation of an inequality of opportunity. As the previous assessment of DEI outlined, the reality of the effects theory is as good as the automatic infringement doctrine.
Against this backdrop, one last concluding point deserves discussing. AG Jacobs in
Elektra warned that views in favor of a wide interpretation should be wary of over stating the
circumstances in which a narrow interpretation would allow measures to “escape the
84 PreussenElektra, Opinion of AG Jacobs (n 80) para 155. 85 Ibid, para 157.
Commission’s control.”86 In his opinion, many of the concerns were exaggerated. The solution of the Commission and the ECJ, choosing to develop inequality of opportunity in response to anticompetitive effects also shows signs of exaggeration. The ECJ in DEI stated that a system of undistorted competition cannot be guaranteed unless equality of opportunity is guaranteed, and when this is the consequence of a state measure, it must be treated as infringing Article 106 (1).87 The comments of the ECJ are misleading. The impression given is that prohibiting inequality of opportunity is the only way of removing the anticompetitive effects of a state measure. This simply is not always true. Article 106 (1) has a “double function,”88 which means it can also be applied in conjunction with other rules contained in the Treaty such as the free movement provisions. As has already been demonstrated in the RTT judgment, alternative lines of argument were available. For instance, applying the conflict of interest doctrine or applying the free movement provisions. The recent Visnapuu judgment demonstrates nicely the ability of the Court to use the free movement articles, even in cases when at first sight alternative provision appear to apply.89
Buendia, an academic who firmly supports the outcome of the ECJ in DEI, concedes himself that in light of the alternative action that exists, a narrow interpretation of Article 106 (1), which suggests a higher deference towards member states is little more than an optical illusion. As he puts it “what article 106 (1) cannot do with its right hand (art 102), it does with its left hand (the free movement rules).”90 This observation is interesting for two reasons. First, it dilutes the exaggerated need for an inequality of opportunity doctrine. Second, in spite of this dilution, Buendia nevertheless continues to support the inequality of opportunity doctrine. On reading his comments before the DEI judgment of the ECJ, it appears the reason for this contradiction is not because he believed the effects theory to be an appropriate or needed use of Article 106 but instead because previous case law had already held that it was.91
The narrow interpretation of Article 107 delivered in Elektra welcomes two responses: one is that the Court showed some sensitivity to national policy measures. Deciding otherwise
86 Ibid, para 158.
87 ECJ judgment in DEI (n 2), para 44.
88 Buendia Sierra, ‘Article 106 - Exclusive or Special Rights and Other Anti-Competitive State Measures’ (n 5) 836, section 6.98.
89 Case C-198/14, Valev Visnapuu, EU:C:2015:751.
90 Buendia Sierra, ‘Article 106 - Exclusive or Special Rights and Other Anti-Competitive State Measures’ (n 5) 834, section 6.89.
91 J.L. Buedia, ‘Case T-169/08 PPC v Commission (… and Jules v Jim)’ (Chillin’ Competition 2012) <
https://chillingcompetition.com/2012/11/26/menage-a-trois-part-ii-jose-luis-buendia-case-t-16908-ppc-v-commission-and-jules-v-jim/> accessed 17 June 2016.
