More Objects and Effects under Article 101 Case C-228/18 Gazdasagi Versenyhivatal (Hungarian Competition Authority) v Budapest Bank and others

06.04.2020

On 2 April 2020 the Court of Justice of the European Union handed down its judgment in the Budapest Bank case (C-228/18) (the “Judgment”). The Judgment and Advocate General Bobek’s Opinion  (published on 5 September 2019) is the latest in a series explaining how a ‘by object’ infringement  may be identified in practice. Analyses of the differences between ‘by object’ and ‘by effect’ infringements are coming thick and fast. Our recent post on the CJEU’s Paroxetine judgment also dealt with this distinction – and it is very likely that the forthcoming Judgments in other cases dealing with the settlement of patent litigation in the pharma sector (such as Lundbeck and Servier) will also be relevant.

Just to recap, restrictions of competition by object and by effect are directly referred to in Article 101(1) of the TFEU, which (like the Chapter 1 prohibition in domestic law) prohibits agreements, concerted practices or decisions “[…] which have as their object or effect the prevention, restriction or distortion of competition within the internal market […]” (emphasis added). Agreements containing restrictions of competition by object (or effect) will infringe competition law unless they benefit from an exemption under Article 101(3) TFEU.

It is sometimes said that competition authorities tend to favour ‘by object’ cases because reaching a conclusion that a practice is a by object infringement requires a less detailed assessment of whether specific conduct affects competition than a finding of a ‘by effects’ restriction: once it is established that the practice in question is one which is by its very nature generally harmful to competition it is not necessary to show that the particular agreement has actual adverse effects on competition. However, as explained below, this judgment demonstrates that assessing whether a particular practice is a restriction by object can also require a careful review of the circumstances surrounding the agreement and is not an exercise of simple abstract reasoning.

Background

On 28 August 1996 seven banks adopted an agreement which introduced a uniform Multilateral Interchange Fee (‘MIF’) applicable to both Visa Europe Ltd and MasterCard Europe SA’s credit card systems (the ‘MIF Agreement’).  MIFs are the fees charged by the card holder’s bank (the issuing bank) to the merchant’s bank (the acquiring bank) for each credit card transaction.

Several years later the Hungarian Competition Authority found that the MIF Agreement constituted both a restriction of competition by object and a restriction of competition by effect, issuing fines of around 5.2 million Euros.

Visa and six of the banks appealed the decision to the High Court of Hungary, which held that the MIF Agreement did not constitute a restriction of competition by object. The Hungarian Competition Authority appealed the High Court’s decision to the Supreme Court of Hungary, which referred the following questions about the application of Article 101 (1) to the CJEU for a preliminary ruling:

  1. Can the same conduct restrict competition by both object and effect?
  2. Does an agreement such as the MIF agreement constitute a restriction by object?
  3. Can Visa and MasterCard be considered parties to the agreement if they were not directly involved in defining the content of the MIF agreement but facilitated its adoption, accepted and implemented it?
  4. Is it necessary to differentiate between participation in the MIF agreement and acting in concert with the banks that participated in the MIF agreement?

The Judgment

The Court first held that the same conduct can infringe Article 101(1) TFEU by having both the object and the effect of restricting competition.  The Court explained that the use of “or” in the text of Article 101(1) TFEU means that it is necessary first to consider whether the agreement restricts competition by object, if such a restriction is found then there is no need to examine the agreement’s effect. However, the Court was clear that it is also possible to examine the agreement from both angles at the same time if that makes sense, for example, for reasons of procedural efficiency.

At paragraphs 29 and 30 of his Opinion the AG had pointed out that if a competent authority or court chooses to assess the object and effect of an agreement at the same time it is still obliged to ‘adduce the necessary evidence for both types of restriction’ and then ‘evaluate and clearly assume that evidence under the appropriate legal categories’. Unsurprisingly, the Court agreed (paragraph 43, Judgment).

When addressing Question 2, the Court stressed that the concept of restriction by object must be ‘interpreted restrictively’ and applied to practices only if they ‘reveal a sufficient degree of harm to competition to consider that it is unnecessary to investigate its effects’.

The Court described a two-step assessment:

  1. Evaluate the content and nature of the agreement to determine whether experience indicates that the category of agreement in question is, by its very nature, harmful to competition;
  2. If so, assess the economic and legal context, taking into account the nature of the goods or services affected, the real conditions of operation on, and the structure of, the markets in question and, where relevant, the parties’ intention.

The Court held that a finding of restriction by object needs to be supported by “robust and reliable” experience demonstrating that the practice in question will generally have an adverse effect on competition; in the absence of such experience a by effect assessment will be required. The Judgment confirms that a restriction by object can never be established in the abstract; each inquiry is case-specific and the agreement must be assessed in its legal and economic context.

The Judgment indicates that the counterfactual (i.e. the scenario which would have existed but for the agreement) is relevant when considering the existence of a by object restriction. In the particular circumstances of the case, the Court explained that if the referring court establishes that in the absence of the MIF agreement there would have been an upward pressure on the interchange fees then the MIF agreement cannot be classified as restrictive by object and an effects assessment should be carried out. The finding that ambivalent or pro-competitive effects of an agreement are relevant to a ‘by object’ assessment under Article 101(1) TFEU is consistent with the recent Paroxetine judgment (C‑307/18).

 As a response to Questions 3 and 4 was not necessary to resolve the dispute , the Court concluded that those questions were inadmissible as they were hypothetical.

Key takeaways

  • A practice can restrict competition by both object and effect, and an assessment of both questions may be carried out simultaneously, applying the appropriate legal tests.
  • A restriction by object can never be established in the abstract; there must be assessment of the economic and legal context in which the agreement operates.
  • To hold that a practice is restrictive ‘by object’ requires “robust and reliable” experience that the category of agreement in question is, by its nature, harmful to competition.
  • The pro-competitive effects of an agreement and the counterfactual are relevant even at the by object stage of the analysis.

If in doubt as to when a full-fledged effects assessment is needed, the following metaphor, courtesy of the AG, may be of use:

“Simplified to a metaphorical extreme, if it looks like a fish and it smells like a fish, one can assume that it is fish. Unless, at the first sight, there is something rather odd about this particular fish, such as that it has no fins, it floats in the air, or it smells like a lily, no detailed dissection of that fish is necessary in order to qualify it as such. If, however, there is something out of the ordinary about the fish in question, it may still be classified as a fish, but only after a detailed examination of the creature in question.”

Pat Treacy

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Kathryn Hambly

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