European Union (EU) competition law prohibits "[…] all agreements between undertakings […] which may affect trade between [EU] Member States and which have as their object or effect the prevention, restriction or distortion of competition within the [EU's] internal market […] (the Prohibition).
The Prohibition, as has been widely proclaimed, captures a broad range of commercial arrangements and infringements of the Prohibition can result in the imposition of severe administrative fines, entire agreements being rendered void and – with increasing frequency – civil claims for damages.
The De Minimis Safe Harbor
Over the years, a number of "safe harbors" have been designated, which exempt agreements meeting certain criteria from the application of the Prohibition. On June 25, 2014, the European Commission (the Commission) issued an updated version of one of the most important such safe harbors, known as the De Minimis Notice (the Notice), which applies to arrangements deemed to have minor competitive importance.1 While the basic coverage of the exception remains little changed, the new version does make some subtle, but nevertheless important, changes to the scope of the safe harbor and its underlying legal logic. These are explained in more detail below.
By way of background, EU case law has long established the sensible principle that agreements must have an appreciable effect on competition in order for them to be caught by the Prohibition. If an agreement does not appreciably affect competition, it simply falls outside the ambit of EU competition law.
The Notice spells out the narrow confines of that safe harbor. Agreements are not caught by the Prohibition if:
- in the case of horizontal agreements (i.e., agreements between actual or potential competitors), the combined market share of the parties on any market affected by the agreement does not exceed 10percent; or
- in the case of vertical agreements (i.e., agreements between parties operating at different levels of the supply chain), the individual market share held by each party on any market affected by the agreement does not exceed 15 percent.
If either of the above criteria is met, the agreement will be deemed not to appreciably affect competition, and the Commission will not institute proceedings in relation to it. Further, even if the thresholds are exceeded, the Commission will not impose administrative fines if the parties can demonstrate that they assumed in good faith that the market share thresholds were not exceeded.
Outside the De Minimis Safe Harbor
Falling outside of the safe harbor does not mean that the agreement in question is per se illegal. Unless other safe harbors are available, it does, however, mean that the agreement will need to be analyzed using a balancing exercise under Art. 101(3) TFEU, which examines whether the anticompetitive effects of the agreement are outweighed by its benefits; similar – but distinct in several respects – to a U.S. rule of reason analysis.
This is especially important for so-called by object or hardcore restrictions, which cannot benefit from the de minimis safe harbor. Such restrictions include:
- in the case of horizontal agreements: price fixing, output limitations, market sharing, bid rigging, collective boycott agreements, and exchanges of certain types of competitively sensitive information; and
- in the case of vertical agreements: resale price maintenance, restrictions of so-called passive distributor sales outside the contract territory, and Internet sales bans.2
Case law and applicable guidance demonstrate that such restrictions only very rarely survive the above referenced balancing exercise. These restrictions are deemed to be so obviously injurious to competition that they will always appreciably affect competition, regardless of the market position of the parties. The Notice unequivocally states that such restrictions cannot benefit from the safe harbor.
While this has been known to be the Commission's position since time immemorial, the updated Notice leaves no room for doubt in this respect, and thereby reflects recent case law of the EU Court of Justice on this point.
The essential elements of the former Notice have been retained and preserved in the new version (e.g., the use and level of the key market share thresholds). The closed list of black list exceptions to the safe harbor has been removed from the text and a statement regarding the nature of restrictions that will never be acceptable has been put in its place. To assist in compliance, the Commission also has provided a catalogue of examples of those restrictions in a separate document.3 Henceforward, smaller businesses that enter into agreements that include restrictions will have to ensure that they satisfy the core elements of the Notice and have not agreed to something identified in the catalogue. Only then will they obtain the benefit of the safe harbor.
Another Safety Net?
As indicated above, it is now beyond doubt that "hardcore" restrictions cannot benefit from the de minimis safe harbor, and it is well-known that such restrictions very rarely satisfy the strict requirements of the Art. 101(3) balancing exercise.
However, as recognized by the Notice, there remains one potential safe harbor that might shield an agreement containing a "hardcore" restriction: the Prohibition only applies to agreements that may appreciably affect trade – as opposed to competition – between EU Member States. EU competition law has no role to play in respect of agreements incapable of doing so.4
The standard effect on trade test developed by the EU courts implies that it must be possible to foresee with a sufficient degree of probability, on the basis of objective factors of law or fact, that the agreement may have an influence, direct or indirect, actual or potential, on the pattern of trade between EU Member States. The Commission has issued detailed guidance on each of the elements of that test. In particular, the Commission considers that agreements are not capable of appreciably affecting trade between EU Member States if:
- the combined market share of the parties on any relevant market within the EU affected by the agreement does not exceed 5 percent, and
(i) in the case of horizontal agreements, the combined annual EU-wide turnover of the companies concerned in the products covered by the agreement does not exceed €40 million; or
(ii) in the case of vertical agreements, the combined annual EU-wide turnover of the supplier in the products covered by the agreement does not exceed €40 million.
It follows that if an agreement meets the above criteria, it is exempt from EU competition law even if it contains "hardcore" restrictions.5
Further, if the above thresholds are exceeded, the agreement will not automatically be deemed to appreciably affect trade between EU Member States. Each agreement has to be assessed on a case-by-case basis. In practice, however, the EU courts have set the bar relatively low when it comes to establishing EU jurisdiction under the effect on trade concept.
Conclusion
The fact that the Commission has issued a new updated version of the de minimis safe harbour Notice, and the accompanying compilation of "hardcore" restrictions is to be welcomed.
The Notice also contains useful clarifications regarding the interplay between the "effect on competition" safe harbor and the "effect on trade" safe harbor, thereby confirming the analysis used by practitioners for some time.
While the Notice contains a number of minor tweaks, it does not shift the goalposts in any meaningful way. That said, the document does serve to provide practitioners and in-house counsel a useful reminder of the availability and narrow scope of the existing safe harbors.
1Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union (TFEU). C(2014) 4136 final. UP
2The classic types of such restrictions are well understood. By way of guidance, the Commission has also recently issued a compilation, summarizing the types of restrictions that have previously been held by the EU courts to fall within this category: Commission Staff Working Document Guidance on restrictions of competition "by object" for the purpose of defining which agreements may benefit from the De Minimis Notice. The Commission intends to update this document regularly. UP
4Such agreements may, however, be caught by the national competition laws of the EU Member States, many of which are modeled on EU competition law and outlaw the same types of restrictions classified as "hardcore" in EU competition law. UP
5Commission Notice – Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty. OJ C 101, 27.4.2004, p. 81–96. UP