It is well-established that under EU competition rules, anticompetitive arrangements are categorised as either “by object” or “by effect”. This categorisation is significant because, in the case of by object infringements, there is no requirement on the enforcing authority to establish anticompetitive effects in the relevant markets to find an infringement – and impose potentially severe penalties. Recent cartel investigations in sectors as diverse as TV/computer monitor tubes, automotive bearings, and interest rate derivatives have led to very high levels of penalties, with total cartel fines imposed by the EU reaching just under €2 billion in each of 2012, 2013 and 2014.
By contrast, in by effect cases, the authority must demonstrate that the arrangements in question led to an actual anticompetitive effect in the relevant market, for example through price increases which would not have occurred absent the arrangements in question (i.e., in what is commonly referred to as the counterfactual).
The justification for this dichotomy is that there are procedural inefficiencies in requiring the authority to establish detailed economic effects arising from conduct which is clearly anticompetitive. In such cases the authority should be able to cut through the process and impose a penalty in order to punish the infringing parties and to deter similar future behaviours, without being waylaid by complicated arguments around establishing the actual effects of the conduct in question.
It has long been recognized that the most serious types of competition law infringement - such as price fixing, market or customer allocation, and bid-rigging – will be treated as amounting to by object infringements. Indeed, the EU has issued guidelines confirming that these categories of behaviour will be treated as infringements by object – and so their actual effects are not relevant to the existence of a competition law infringement.
So far so good.
Over the years, the case law of the European courts, and the decisional practice of the European Commission, has been required on many occasions to identify whether particular behaviours qualify as by object infringements, or whether they are insufficiently obvious infringements of competition law such that they should be treated as illegal only if an anticompetitive effect can be demonstrated. This is to be expected as there will always be a need to define boundaries to any legal concept.
Of particular importance to businesses is the point at which exchanges of information - i.e. discussions around market conditions or gathering of market intelligence, either directly between competitors or indirectly via suppliers or customers - might be considered so obviously anticompetitive as to constitute an infringement by object. The categorisation of conduct in this area is critical, as by object arrangements are treated as tantamount to cartels, incurring the most serious penalties and having no ability to argue that there was an absence of competitive harm in their defense. However, it is equally recognised that there will be necessary and productive exchanges on certain points between competitors (e.g. common innovations to improve industry standards) which should not be prevented through fear of competition sanctions.
Arrangements which fall outside the “by object box” face a higher evidential hurdle from the regulators’ perspective in that the competition authority must show an anticompetitive effect as a direct result of the conduct in question. Consequently, conduct which falls under the by effect categorisation has proven less likely to be investigated at all given the greater challenges the competition authority faces in demonstrating an anticompetitive effect.
All of this goes to the critical question for modern business of the correct compliance standards to impose: legal uncertainty as to what constitutes a by object infringement will lead to either overly restrictive or overly permissive compliance standards, neither of which are of broader benefit to economic welfare.
Two European Court judgments over the past year are important to consider - Cartes Bancaires and, more recently, Bananas. We consider below what light these cases shine on the definition of the object infringement - and the lessons for businesses in terms of the level of interaction which is permissible with competitor entities.