FH Joanneuminternational Laweu Competition Law

FH JoanneumInternational LawEU Competition Law

Satu PitkänenCases

CASES

Nordic Wood

Nordic Wood is a marketing association of Finnish and Swedish paper companies. Its target is to promote the trade of its members. A meeting of the association approved a program to arrange a marketing campaign to foreign customers and to collect and register information of the concluded deals (size of deliveries, customers, prices etc.). The aim of the campaign was to make the members of the association better known in the European market.

The association also formulated standard contract terms to provide on delivery terms, notifications, quality standards, exemption clauses, choice of law and forum clauses.

Also the price level and the mutual pricing principles where discussed on. The members agreed on aiming at decreasing mutual competition and improving co-operation. These discussions were not recorded.

Some time after the meeting a member of Nordic Wood increased its prices by 20%. In a few months all the member companies had increased their prices to the same level. Discuss the activities.

Case Etablissements Consten SARL and Grundig-Verkaufs-GmbH v. Commission [1966] ECR 299, [1966] CMLR 418

Grundig granted to Consten a sole distributorship for its electronic products in France. Consten had an obligation to take a minimum amount of the product; it had to provide publicity and after sales service; and it undertook not to sell the products of competing manufacturers. Moreover, the French territory was in effect insulated, in the sense that there was absolute territorial protection: Consten undertook not to sell the goods outside the contract territory; a similar prohibition existed on other Grundig distributors in other counties; and Grundig assigned to Consten its trade mark, GING, which Consten could use against any unauthorized sales in France.

In 1961 a company called UNEF bought Grundig goods from sellers in Germany and sold them in France more cheaply than Consten. The latter brought an action for infringement of its trade mark, and UNEF contended that the whole agreement between Grundig and Consten violated Art [now]101. – Your opinion?

Case Bayer and Gist-Brocades NV ([1976] OJ L30/13, [1976] 1 CMLR D98)

Bayer and Gist-Brocades (GB) made a specialization agreement whereby the former made 6-APA, an intermediate penicillin product, and GB made raw penicillin. Prior to the agreement both firms had made both products. There were minor companies manufacturing these products but Bayer and GB were the biggest. The specialization agreement was supported by reciprocal supply contracts, under which each firm agreed to supply the requirements of the other: Bayer would supply 6-APA to GB, and GB would supply raw penicillin to Bayer. Analyze the case.

United Brands Company and United Brands Continental B.V. v. Commission (Case 27/76)

The United Brands Company (UBC) was the largest group on the world banana market. Its European subsidiary, United Brands Continental B.V. was responsible for coordinating banana sales in all the Member States except the UK and Italy.

By a decision, the Commission claimedthat the UBC has infringed Art [now]102 of the TFEU

- by requiring its distributors in the Belgo-Luxembourg Economic Union, Denmark, Germany, Ireland and the Netherlands to refrain from reselling its bananas while still green;

- by, in respect of its sales of Chiquita bananas, charging trading parties dissimilar prices for equivalent transactions;

- by imposing unfair prices for the sale of Chiquita bananas on its customers in the Belgo-Luxembourg Economic Union, Denmark, the Netherlands and Germany.

The UBC denied and appealed to the European Court of Justice. Arguments of the UBC and the Commission:

UBC:

The company does not have a dominant position since there are other producers of fresh fruit.

As far as the product market is concerned, bananas are an integral part of the fresh fruit market, because they are reasonably interchangeable by consumers with other kinds of fresh fruit such as apples, oranges, grapes, peaches, strawberries, etc. Bananas compete with other fresh fruit in the same shops, on the same shelves, at prices which can be compared, satisfying the same needs: consumption as a dessert or between meals. Statistics produced show that consumer expenditure on the purchase of bananas is at its lowest between June and December when there is a plentiful supply of domestic fresh fruit on the market.

The Commission:

The banana is to be regarded as forming a market which is sufficiently differentiated from other fruit markets, therefore the UBC has a dominant position in the market.

UBC:

The geographic market where an undertaking's economic and commercial power is taken into consideration should only comprise areas where the conditions of competition are homogeneous.

The Commission:

The Federal Republic of Germany, Denmark, Ireland, the Netherlands and the BLEU should be taken as the geographic market and it is in respect of this market that it is necessary to consider whether UBC has the power to hinder effective competition.

France, Italy and the UK must however be excluded because of the special circumstances. The French market owing its national organization is restricted upstream by a particular import arrangement (French overseas territories) and obstructed downstream by a retail price monitored by the Administration. The UK market enjoys ‘Commonwealth preferences’. On the Italian market, since the abolition in 1965 of the state monopoly responsible for marketing bananas, a national system of quota restrictions has been introduced, the ministry for shipping and the exchange control office supervising the imports and the charterparties relating to the foreign ships which carry the bananas. Analyze the case.

Whintorp I

Whintorp was a leading manufacturer of cartons for foodstuffs in the European Union. Its market share was 80%. In addition to cartons it also made filling machines that could be used in filling Whintorp cartons. These filling machines were not however necessary, since they could easily be replaced by other corresponding equipment.

A Danish company which had used Whintorp packages for a long time bought a new filling machine from another manufacturer. According to its business policy, Whintorp only delivered cartons to customers who used Whintorp filling machines. Therefore Whintorp refused to deliver cartons to the Danish company any more. Analyse the case.

Whintorp II

Whintorp got a serious competitor. Therefore it decided to decrease the prices of the competed products under the manufacturing costs for a while. Was this acceptable?

SOLUTIONS

Nordic Woods

Art 101: agreements between companies affecting trade between Member States are forbidden

1)Mutual marketing campaigns are generally accepted

2)Collecting and registering information on the concluded deals, prices etc.

increases parallel marketing behaviour and unique contract terms

may be against art 101

3) Standard contract terms are accepted as long as they don't distort competition

4)Agreements on price level and pricing principles and

5) Agreements on decreasing mutual competition are against art 101

6)Increasing prices to the same level within a short time violates art 101 unless there is an objective reason

The Commission may intervene by inspecting the facts of the case and if necessary, prohibiting the activities under penalty of fine

Case Consten – Grundig

ECJ:

A sole distributorship contract may, without involving an abuse of a dominant position, affect trade between the member states and at the same time have as its object or effect the prevention, restriction or distortion of competition, thus falling under the prohibition of Art. 101(1). For the purpose of the application of article 101(1) there is no need to take account of the concrete effects of an agreement when it has as its object the prevention, restriction or distortion of competition .

The situation as ascertained above results in the isolation of the French market and makes it possible to charge for the products in question prices which are sheltered from all effective competition. In addition, the more producers succeed in their efforts to render their own makes of product individually distinct in the eyes of the consumer, the more the effectiveness of competition between producers tends to diminish. Because of the considerable impact of distribution costs on the aggregate cost price, it seems important that competition between dealers should also be stimulated. The efforts of the dealer are stimulated by competition between distributors of products of the same make. Since the agreement thus aims at isolating the French market for Grundig products and maintaining artificially, for products of a very well-known brand, separate national markets within the community, it is therefore such as to distort competition in the common market .

It was therefore proper for the contested decision to hold that the agreement constitutes an infringement of article 101(1 ).

Case Bayer and GB

The Commission:

individual undertakings
have made an agreement which
affects several EU Member States
distorts competition because the companies are competitors
and has effect in the EU

The agreement is an infringement against Art 101

but

Since the agreement

contributes to the improvement of production
promotes technical progress by enabling rational use of resources
is proportionate as to the aim pursued

and

does not eliminate competition entirely

and

greater number of end-products will be in the market, therefore prices will decrease, and consumers receive a fair share of the benefits, the agreement falls within the conditions of Art 101(3) and can be excempted from the scope of Art 101(1).

Case United Brands

The ECJ:

The question was, whether the UB had a dominant position. Only if it had, its activities could be examined to decide whether they constituted abuse of a dominant position.

1) Product market, temporal market

As the Commission maintained, the banana is to be regarded as forming a market which is sufficiently differentiated from other fruit markets since there are special features distinguishing it from other fruits. Therefore it is only to a limited extent interchangeable with them. There is no significant long term cross-elasticity any more than there is any seasonal substitutability in general between the banana and all the seasonal fruits. The banana has certain characteristics, appearance, taste, softness, seedlessness, easy handling, a constant level of production which enable it to satisfy the constant needs of an important section of the population consisting of the very young, the old and the sick. Consequently the banana market is a market which is sufficiently distinct from the other fresh fruit markets.

2) Geographic market

As to the geographic market, the ECJ distinguished between the markets of France, UK and Italy, and the rest of the six Member States:

France, Italy and the UK must be distinguished because of the special circumstancesrelating to import arrangements and trading conditions and the fact that bananas of various types and origin are sold there. The effect of the national organization of these three markets is that the applicant's bananas do not compete on equal terms with the other bananas sold in these states which benefit from a preferential system, and the commission was right to exclude these three national markets from the geographic market under consideration.

On the other hand the six other states constitute markets which are completely freealthough the applicable tariff provisions and transport costs are of necessity different but not discriminatory, and in which the conditions of competition are the same for all. From the standpoint of being able to engage in free competition these six states form an area which is sufficiently homogeneous to be considered in its entirety.

=> UB had a dominant position in the 6 states.

Whintorp I

Art 102: Abuse of a dominant position is prohibited.

Whintorp has a dominant position.

W. abuses its dominant positionby making the conclusion of contracts subject to acceptanceby its customers (buyers of cartons) of obligation (to buy filling machines) which has no connection with the subject of the contract, so called tying clause.

Whintorp II

Art 102 applies:

W. has a dominant position.

Abuses its dominant position by selling its products under production costs for the obvious purpose to eliminate its competitors by causing financial problems to them

Afterwards, with less competition the company could increase its prices to a much higher level

The activities were in violation of Art 102.