A Tale of Legal Contortions: Articles 101 and 102: from ‘economic entity’ to ‘implementation’ (3/5)

This is part III of a series of blog posts on the topic of the unilateral application of EU Competition Law beyond the confines of EU territory.

Go to: Introduction -> Part II -> Part III -> Part IV -> Conclusion

Articles 101 and 102 TFEU have a wide territorial ambit as they apply insofar as an agreement or conduct has a direct or indirect, actual or potential, appreciable effect on intra-state trade. They do, however, remain silent as to the matter of their extra-territorial scope15. Unsurprisingly, this has proven to be a ‘controversial question’1.

A) The single economic doctrine: a stop-gap solution?

In Dyestuffs, the Commission, investigating alleged price fixing amongst three non-EEC producers of dyes, relied upon the effects doctrine, holding that its jurisdiction could be based on the effects of the concerted practice in the EEC2. One of the undertakings appealed the decision. The Commission, in its reply, relied not only on the effects doctrine but also on the claim that the EEC subsidiaries were ‘mere extensions’ of the foreign undertaking3.

Advocate General Mayras recommended the adoption of the effects doctrine in cases where the restriction of competition was ‘direct, substantial and foreseeable’4. The ECJ was silent on the AG’s application of this qualified effects doctrine. Instead, it considered the EEC subsidiaries as part of a single economic entity under the control of their parent companies5.

This doctrine is now well established and has been frequently relied upon by both the ECJ and the Commission6. It does, however, present a considerable limitation, as it may only arise if the foreign undertaking has a subsidiary in the internal market7.

It has been posited that, faced with two options, the ECJ simply adopted the least controversial, and that by not disapproving of the effect doctrine it tacitly encouraged the Commission to rely on it. Commentators have been critical of the fact that the test looks at whether the parent was able to control the subsidiary, not whether it actually did so8, and that this doctrine disregards the characterisation of the subsidiary as a separate legal entity9.

B. ‘Implementation’: a sui generis criterion

Wood Pulp involved alleged price-fixing in the wood pulp industry, in which all producers were incorporated outside of the EC, but nevertheless had some form of presence within the EC10. Upon appeal, AG Darmon, echoing Mayras’ position, recommended that the Community should adopt a qualified effects based approach to jurisdiction11.

The ECJ, cleaving to the territoriality principle, adopted an ‘implementation’ test – according to which the decisive factor was not where the agreement was formed, but where it was implemented12. The location of the parties, or where the agreement was made, was, therefore, immaterial13.

The court made it clear that direct sales into the internal market are sufficient to trigger the implementation test, regardless of the lack of recourse to marketing or sales organisations within the EC14. Certain commentators have, whilst accepting the concept of implementation, criticised the court’s finding on the basis that there is not a sufficient nexus for direct sales to fall under the territoriality principle15.

C) ‘Implementation’ vs effects

Is ‘implementation’ merely an ‘effects doctrine in disguise’16, or are there substantive limitations involved in the reliance on ‘implementation’? At first sight, the test seems analogous to the effects doctrine insofar as where an agreement is implemented in the EU, it clearly has an effect there17 – although the reverse will not necessarily be true.

What of a collective refusal to supply customers within the EU by foreign undertakings? It has been argued that ‘implementation’ could include such negative conduct18. The preponderant view does, however, seem to be that this would not be covered by the ‘implementation’ criterion19, whereas it would be covered under the effects doctrine20.

Similarly, let us consider a cartel which is formed outside the EU by non-EU producers of a raw material, which is then processed outside the EU by an unaffiliated and bona fide non-EU intermediary21. This cartel surcharge would result in higher prices within the EU, yet it is hard to see how this original cartel can be said to be ‘implemented’ (as a result of remoteness), whereas this would certainly be ‘direct and produce effects’ within the EU22.

The Commission’s Guidelines on ‘the effect on trade concept’23 unambiguously state that articles 101 and 102 may be applied extraterritorially, provided the conduct or agreement produce effects inside the EU24. These guidelines, whilst being a non-regulatory document, provide welcome guidance as to what constitutes an ‘effect’ and can be taken as a clear endorsement of the effects doctrine by the Commission25.

As such, if confronted with one of the above scenarios it is likely that the Commission would simply rely on the effects criterion26, as it has previously done, yet how the ECJ would respond remains an open question.

D. Enforcement as a limiting factor

Besides the question of prescriptive jurisdiction, the practical matter of enforcement must be considered. Once one goes beyond the ‘economic entity’ doctrine, and, therefore, beyond the powers of coercion of the EU territory, enforcement becomes a factor inhibiting assertions of jurisdiction27.

Indeed, attempting to recover a fine outside of the EU would be “the exercise of power… in the territory of another State”28 which is prohibited under international law and was recognised as so by the AGs in ICI and Wood Pulp29. Nevertheless, one may posit that few undertakings will be willing to forfeit access to the EU market, which may be “too big to give up”((Chie Sato, ‘Extraterritorial Application of Competition Law – Is It Possible for Japanese Companies to Steer Clear of EU Competition Law?’ [2010] 11 Keio Journal of Political Science and Sociology at 40; Robert Lane, EC Competition Law (Longman 2001) at 290)). Perhaps the biggest obstacle lies in the Commission’s ability to investigate30 and serve decisions31, for which it will have to rely on the assistance of the third party State32.

  1. Mark Furse (ed), Butterworths Competition Law Service/Division XII Extra-territoriality [2011] at [116] [↩]
  2. Commission Decision 69/243/EEC [1969] OJ L 195/11 [↩]
  3. Richard Wish, Competition Law (6th ed. Oxford University Press 2008) – Chapter 12: The International Dimension of Competition Law – at [12.27] [↩]
  4. ICI Ltd EC Commission (‘Dyestuffs’) Case 48/69 [1972] ECR 619 at 696 [↩]
  5. Ibid. at [130]-[140]; Brenda Sufrin, ‘Competition in a Globalised Marketplace: Beyond Jurisdiction’ in Patrick Capps, Malcolm Evans and Stratos Konstadinidis (eds), Asserting Jurisdiction (Hart Publishing 2003) at 110 [↩]
  6. For eg. Continental Can Co Inc [1972] CMLR D11; Commercial Solvents [1974] ECR 223 [↩]
  7. Leigh Davison and Debra Johnson, ‘The EU’s Evolving Stance on the International Dimension of Competition Policy: A Critical Commentary’ [2002] 37 Intereconomics at 250 [↩]
  8. Joanna Goyder and Albertina Albors-Llorens, Goyder’s EC Competition Law (5th ed, Oxford University Press 2008) at 582; Acevedo, ‘The EC Dyestuffs Case: Territorial Jurisdiction’ [1973] 36 MLR at 317 [↩]
  9. Brenda Sufrin, ‘Competition in a Globalised Marketplace: Beyond Jurisdiction’ in Patrick Capps, Malcolm Evans and Stratos Konstadinidis (eds), Asserting Jurisdiction (Hart Publishing 2003) at 111 [↩]
  10. Alison Jones and Brenda Sufrin, EU Competition Law (4th ed, Oxford University Press 2010) at 1243 [↩]
  11. A Ahlström Oy v EC Commission Case 89/85 [1988] 4 CMLR 901 at 923 [↩]
  12. Ibid. at [16] [↩]
  13. Christopher Bellamy, European Community Law of Competition (5th ed. Sweet & Maxwell 2001) at [2.156] [↩]
  14. A Ahlström Oy v EC Commission Case 89/85 [1988] 4 CMLR 901 at [17]; Robert Lane, EC Competition Law (Longman 2001) at 285 [↩]
  15. Walter Van Gerven, ‘EC Jurisdiction in Antitrust Matters: The Wood Pulp Judgement’ [1989] Annual Proceedings of the Fordham Corporate Law Institute at 470 [↩]
  16. Jurgen Basedow, ‘International Antitrust: From Extraterritorial Application to Harmonization’ [2000] 60 Louisiana Law Review at 1040 [↩]
  17. Leigh Davison and Debra Johnson, ‘The EU’s Evolving Stance on the International Dimension of Competition Policy: A Critical Commentary’ [2002] 37 Intereconomics at 250 [↩]
  18. Jose Perez Santos, ‘The Territorial Scope of Article 85 of the EEC Treaty’ [1989] Annual Proceedings of the Fordham Corporate Law Institute at 571; Florian Wagner von Papp, ‘Competition Law, Extraterritoriality & Bilateral Agreements’ [2012] at 29 [↩]
  19. See Gencor Ltd v EC Commission [1999] 4 CMLR 971 at [87]; Walter Van Gerven, ‘EC Jurisdiction in Antitrust Matters: The Wood Pulp Judgement’ [1989] Annual Proceedings of the Fordham Corporate Law Institute at 451 [↩]
  20. Furse M, Butterworths Competition Law Service/Division XII Extra-territoriality [2011] at [120] [↩]
  21. Robert Lane, EC Competition Law (Longman 2001) at 288 [↩]
  22. Florian Wagner von Papp, ‘Competition Law, Extraterritoriality & Bilateral Agreements’ [2012] at 29 [↩]
  23. Guidelines on the effect on trade concept contained in Article 81 and 82 of the Treaty (2004/C 101/07), OJ C 101/81, para. 37-43 [↩]
  24. Ibid. paras 100-101 [↩]
  25. Chris Noonan; Chie Sato, ‘Extraterritorial Application of Competition Law – Is It Possible for Japanese Companies to Steer Clear of EU Competition Law?’ [2010] 11 Keio Journal of Political Science and Sociology at 39 [↩]
  26. Joseph Griffin, ‘Extraterritoriality in US and EU Antitrust Enforcement’ [1999] 67 Antitrust Law Journal at 187 [↩]
  27. Robert Lane, EC Competition Law (Longman 2001) at 289 [↩]
  28. S.S. Lotus (Fr. v. Turk.), 1927 P.C.I.J. (ser. A) No. 10 at 18 [↩]
  29. Brenda Sufrin, ‘Competition in a Globalised Marketplace: Beyond Jurisdiction’ in Patrick Capps, Malcolm Evans and Stratos Konstadinidis (eds), Asserting Jurisdiction (Hart Publishing 2003) at 111; Mark Furse (ed), Butterworths Competition Law Service/Division XII Extra-territoriality [2011] <www.lexisnexis.com/uk/legal/> at [128] [↩]
  30. Articles 18 and 20 of Regulation 1/2003; articles 11 and 13 of Regulation 139/2004 [↩]
  31. But see: Europemballage and Continental Can v Commission Case 6/72 [1973] CMLR 199 [↩]
  32. Van Bael & Bellis (firm), Competition law of the European Community (5th ed. Kluwer Law International 2010) at 135 [↩]

Related posts:

  1. A Tale of Legal Contortions: The Regulation of Mergers: unlimited extraterritorial jurisdiction (4/5)
  2. A Tale of Legal Contortions: The Extraterritorial Application of EU Competition Law in the Global Economy (1/5)
  3. A Tale of Legal Contortions: The concept of extraterritoriality: bases of jurisdiction and the effects doctrine (2/5)
  4. A Tale of Legal Contortions: The Extraterritorial Application of EU Competition Law in the Global Economy: Conclusion (5/5)