Seminar 9: State Action and Competition Law (5 December 2013)

In this and the last seminar I want to look at state policy and EU competition law. One of the questions I want to raise is how far we are still able to speak of state policy, but before we get there the aim is to work out how EU competition law applies to state action. The seminar is run in a slightly different way because we start with a presentation on the US judgment which restates the state action doctrine; we then use that background to look at the EU rules. NB there are two sets of rules in the two cases: the CIF judgment looks at the combined reading of Art 4(3) TEU and Art 101 TFEU, while the Greek Lignites judgment looks at the combined reading of Arts 106(1) and 102 TFEU.


Gerard ‘EU Competition Policy after Lisbon: time to Review the State Action Doctrine? (2010) 1(3) Journal of European Competition Law and Practice 202

Case C-198/01 Consorzio Industrie Fiammiferi [2003] ECR I-8055

Case T-169/08 Dimosia Epicheirisi Ilektrismou AE (DEI) v Commission judgment of 20 Sept 2012 (the Commission has appealed, see here.

FTC v Phoebe Putney 568 US ___ (2013)


10 comments on “Seminar 9: State Action and Competition Law (5 December 2013)

  1. Samantha Palladino says:

    I understand the importance of federalism in US law but I was surprised when I did the reading to find out that states are exempt from federal antitrust law! It seems like a major loophole in thwarting anti-competitive behavior to allow state-sanctioned anti-competitive behavior. It seems very odd to me that a state-run cartel would be okay. I realize that this has been the law for a long time and is well engrained in US jurisprudence (Parker was decided in 1943) but I had no idea so I am still quite shocked. I am interested to see how state action immunity plays out going forward because commentary seems to agree that FTC v. Phoebe tightened the standards for finding immunity, which will mean less immunity going forward. This seems like a logical step to me, as I find state immunity bizarre in the first place, but I am wondering what people more versed in the topic think about it; I understand that there can be arguments made sometimes that restricting competition in certain ways actually fosters it in other ways, so perhaps tightening up on immunity will not only have the effect of barring anti-competitive state sanctioned behavior.

    Damien Gerard’s article suggests a move away from the state action doctrine in EU competition law in favor of assessing restraints of competition under the EU internal market rules. I imagine that Gerard is far from the only one to question the doctrine and I would be interested in hearing how people suggest the process should work in either or both the EU and the US. This inquiry relates to the above because I find that I cannot quite comprehend that there is such a large loophole in combating anti-competitive behavior.

  2. Sara Perez says:

    My first comment relates to the relationship between the EU ‘state-action doctrine’ and Article 106 TFEU as seen in Greek Lignite. Both the EU state action doctrine and Article 106 apply to private undertakings that have been granted special rights by member states which lead to seemingly anticompetitive conduct. First, if the state action doctrine and Article 106 essentially cover the same contexts (where we have private undertakings and member state measures), why are courts using both? Obviously, both rules employ different tests and have some differences in which type of private undertakings they could apply to. The state action doctrine is a bit broader in scope as it pertains to member state measures that can lead to anticompetitive behavior of any private undertaking. More limited in scope, Article 106 (1) only refers to “public undertakings” and “undertakings to which Member States grant special or exclusive rights,” while Article 106(2) refers to “Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly.”
    Another general issue that I noticed with the state action doctrine is how it applies to member states vs. private undertakings affected by member states’ anticompetitive measures. It appears that private undertakings have a stronger defense when they engage in anticompetitive behavior as a result of state regulations that grant special or exclusive rights, but member states themselves are more vulnerable for these regulations. In the US, the state action doctrine appears to be the opposite – states have a near-guaranteed immunity from anticompetitive state action, but nonstate actors only have immunity from federal antitrust laws under limited circumstances. To be quite honest, I’m not sure what system I favor better. I agree with the US system in that it is important to uphold the public interests of the state as well as their sovereignty, but I also agree with the EU that member states should not be entirely protected when engaging or promoting anticompetitive behavior.

  3. Delphine Defossez says:

    As it has always been clear from the ruling of the CJEU, competition law has been added after the free movement rules. Therefore it is not surprising that whenever the Court has the opportunity to refer to the free movement rules, above free movement of goods, it actually prefers doing so. For instance in the case INNO and Leclerc. That concept is embodied in the idea that State measures limiting competition would mostly be considered as incompatible with the internal market rules.
    The approach taken by the Court seems to work pretty well. One of the reasons for choosing this approach might be because if the CJEU took the US approach mostly based on competition rules, then it would have less discretionary power to adapt the outcome. In other words, by basing itself on the internal market arguments, the CJEU makes sure that it can still adapt the outcome and be sure that the Member States will accept its rulings. As an example; in Doulamis, if the Court would have only relied on the competition rules, it is pretty certain that it will have found that the Belgian rules were anti-competitive. However, by using the internal market approach, the Court could find a justification of the rules imposed by the Belgian legislator and therefore finding it lawful. One should bear in mind that within the Union there are still some struggle of power between the Member States and the Union on certain topics. The Member States are rather unwilling to give more power to the Union and if the CJEU finds often infringement of competition, then these battles will be even greater.
    Furthermore, article 4(3) TFEU acts as a safeguard, allowing the Court to opt for this approach. The Member States are under the obligation to respect the principle of sincere cooperation.
    This approach should be extended to all cases and not as it is now, only applied time to time.

    Lastly, I found the European apporach much more logical than the US one. The fact that private undertakings should be more protected against state actions seems more fair than the opposite, as it is the case in the US.

  4. Marita Szreder says:

    I might be missing something here, but I find Gerard’s article completely unpersuasive. Not least because of the apparent terminology problem. From what I understood the author uses the term ‘state action doctrine’ to cover two very different approaches. While under EU law States are bound by the duty of loyal cooperation (article 4(3) TFEU), which precludes them from passing measures legitimising anti-competitive conduct (e.g. CIF), in the US a ‘state action doctrine’ was developed to allow States to legislate in departure from federal competition law on public policy grounds (even if the doctrine has been narrowly construed in later cases, as illustrated by the recent judgment in FTC v Phoebey Putney). Thus, to my mind to use the term ‘state action doctrine’ to cover both situations can only generate confusion.

    As for the substantive argument, which is that the approach combining articles 101/102 with article 4(3) should be replaced by an assessment under the internal market provisions, I must say that I find it not only unrealistic, but also unsatisfactory. It is true that in some respects internal market provisions and competition rules overlap, but they are not entirely coincidental. Just because there are some cases which might be difficult to classify should not suggest that the CJEU might be willing to depart from the loyal cooperation approach as combined with competition rules. The point made by Gerard as to the complementarity of objectives of competition and internal market rules (this being allocative efficiency) is overly simplistic. Even under the consumer welfare approach, competition policy is not solely about static efficiency. To my mind, to disregard the role of dynamic efficiencies would be very harmful for the competition system.

    Even if at a normative level it is decided that public policy should play a role in saving some conduct from being found anti-competitive (and I’m not sure if this is desirable), the approach proposed by Gerard is still implausible. To allow States a second bite at competition policy through internal market rules would potentially go further than the ‘state action doctrine’ under the US law. I am also concerned about the destabilising effect on competition law of this back-door approach. If public policy is to play a role in competition policy, surely the limits of acceptable justifications should be examined as a matter of competition law, not internal market law. Also, Gerard’s article does not explain if his conception would extend to situations where the Commission has already issued a decision against the undertakings – could Member States continue to legislate to legitimate such activity on public policy grounds in such cases? An additional rule would be required to stop them from doing so under Gerard’s framework of analysis. However, in absence of such rule the consequences for the effectiveness of competition law and the reputation of the Commission would be quite dramatic.

  5. Jonas von Kalben says:

    I am a little less critical towards Gerard’s article; though I was confused as well that he did not present state action as a defense for undertakings (I guess in that sense it is similar in the EU and the US), but rather from the perspective of the states.
    Regarding the question whether “public restraints”/state measures restricting competition should be subject to the competition rules (Art. 4 (3) TFEU and Art. 101, 102 TFEU) or subject to the internal market rules, my first impression was that Gerard’s arguments (in favour of the latter) are persuasive. The current approach does not seem to be very consistent and comprehensive. The Dimosia Epicheirisi Ilektrismou AE (DEI) v Commission judgment appears to be a good example for the problem, that not all State measures restricting competition mandate anticompetitive conduct on the part of the undertakings (Gerard at p. 205, 207). As a solution, Gerard suggests a strict distinction of private practices (subject to the competition rules and justifiable on purely economic efficiency grounds) and state measures irrespective of their nature (subject to EU internal market rules and justifiable on public interest grounds). This approach appears to be much clearer with a view to the system of economic freedoms in the treaty (internal market rules protecting economic freedoms against the state, competition rules protecting economic freedoms against private parties, and Art. 106 TFEU as a special approach towards public undertakings); however, I was missing a clear explanation on how to distinguish between “private” and “state”. What are the criteria? This appears to be the crucial question under Gerard’s approach and this is not only controversial in the context of the internal market rules (e.g. Angonese-Case) but also concerning competition law.

  6. Céline Estas says:

    This week I would like to share two thoughts.

    First, I noticed a difference in the level of protection offered by the “state-action immunity” in the US and in the EU. My first impression was that it would be difficult to obtain the immunity under this principle in the EU, while in the US it would be easier. This impression is based on the level of proof required: as stated in Gerard’s article, the US burden of proof is lower than the EU because the principle can also apply without a proof of an anticompetitive agreement (Gerard, p. 204).
    But this first impression does not seem to be right because the EU approach does not encompass all national measures. Therefore, did the Commission want the EU case-law to broaden its scope and in some ways follow the US approach? (Gerard, p.207; Opinion AG Poiares Maduro in Cipolla, C-94/04 §27).
    In addition, I wonder whether the difference between the US and the EU doctrines is based on different concerns. In FTC v. Phoebe, the Court says that the doctrine aims at respecting “the sovereign capacity of the States to regulate their economies”. Where, in the EU, the examination of national measures with regard to Art. 4 and 101 TFEU assesses if the Member States respect the effet utile of EU law (Opinion AG Poiares Maduro in Cipolla, C-94/04, §31). The two seem quite different to me.

    Second, the proposition made by Gerard should take into account the aim of the measures. It is difficult for me to understand how it is possible to replace the application of competition rules by sole the application of internal market rules because, in my opinion, the aim of these provisions is not the same. It is true that Gerard states a common aim for both provisions (“the internal market rules and the rules on competition both aim to protect market participants by empowering them to challenge impediments to the opportunity to compete in the common market, in pursuance of a common objective, namely allocative efficiency” (p. 208)).
    I might be wrong, but in my opinion the purpose of these rules is different and it is the reason why Gerard can say further that they are (only) “complementary” (p.208). However, replacing the test based on competition rules by a test solely based on the internal market rules seems strange with regard to the change occurred in the aim of competition rules: as we already said, at first, competition rules were used to build the internal market; but now, the two have been more distinguished. Therefore, I doubt that Gerard’s reasoning provides a useful answer for the legal uncertainty surrounding this area of competition law.

  7. Sylvi says:

    I found Gerard’s article confusing because he used the U.S. “state action doctrine” to describe the manner in which EU competition law applies to state policy, which I felt was problematic. He writes that “while the state action doctrine in the USA appears to be an exception to a general rule prohibiting ‘every contract or conspiracy in restraint of trade or commerce among the several states,’ rooted in a deference to the states, the doctrine as construed in the EU, combining Articles 4(3) TEU and 101 TFEU, is a real ‘stretch.’” However, reading the cases, I did not view them as “construing” the U.S. state action doctrine, but rather addressing the question of anti-competitive state policy under the EU rules. It seems incorrect to characterize this as an interpretation of the U.S. doctrine given the wide disparities between the positions – I don’t think it’s even possible to compare the two approaches.
    However, I agreed with Gerard’s arguments proposing the assessment the compliance of state action restricting competition with the EU free movement rules. In addition to all of Gerard’s sophisticated claim in its favor, I was convinced simply because I do not think the competition rules as they are written provide enough flexibility in this regard. I find it difficult to see how any state measure restricting competition would not violate TEU Article 4(3), which requires members states “not to introduce or maintain in force measures, even of a legislative or regulatory nature, which may render ineffective the competition rules applicable to undertakings,” yet as Gerard points out, under EU law “not every State measure limiting the freedom to compete is subject to Articles 10 and 81 EC.” I think that the language of Article 4(3) is so conclusive that it is difficult for me to find in it an “exception” for state measures that are not linked with an anticompetitive conduct. Yet practically, I understand that not all state policies that restrict competition can be illegal, and so it is necessary to create some room for permissible measures – but since it is so hard for me to justify that given the language of the competition rules, the internal market rules might make the distinction more plausible.

  8. Itsiq Benizri says:

    In my opinion, there is simply no way to talk about the so called “doctrine” without considering the totally different approach Courts have in the US and the EU.

    In the EU, the Court decided that the “effet utile” of EU law and its primacy as well involve the application of EU law beyond any national legislation. In the US, the Court rather considered that “nothing in the language of the Sherman Act or in its history suggested that Congress intended to restrict the sovereign capacity of the state to regulate their economies”.

    So, obviously the ECJ goes further than the US Supreme Court does, wich is striking since the US are a federal State, while it is not the case for the EU.

    Therefore, the key has probably to be found in the differences between European and American vision of “union”.

    Thus, rather than making any other comment, I would just like to emphasize on this difference and to address the following question: since I don’t know enough the American vision of federalism, and since this is, in
    My opinion, the core of the distinction between the European and the American approach, what is this American vision, and how could it explain a judgment as the one we red this week?

  9. Mariajo says:

    I absolutely agree with Marita’s and Silvi’s comments on the confusion in D. Gerard’s article by the use of the “state-action-doctrine” describing two fundamentally different approaches in the US and the EU. I was quite surprised, as Samatha, that in the US (“antitrust-über-alles-country”) the States, and private entities empowered by them, were immune from antitrust enforcement as long as they just stated clearly that they wanted to behave in an anticompetitive way. The US approach is exactly the opposite of the Court’s approach in CIF, which shows that there is no immunity for undertakings acting anticompetitively, even if Member States have adopted legislation facilitating that kind of behavior.

    The definition of “state-action-doctrine” by Gerard seems to simply be the application of antitrust laws (and possible immuntiy from them) to state conduct (also in delegated form) in contrast to the application of antitrust laws to ‘proper’ private parties.

    If I understood Gerard correctly, the formal result of shifting toward scrutiny of anticompetitive conduct by Member States (or private entities authorized by Member States to do so) to internal market rules, there would be total immunity for MS from competition law. In my opinion this would be a desirable approach to keep EU competition law ‘pure’, in the sense that competition law is concerned with ‘efficiency’. Competition law seems to be designed to be applied to undertakings, i.e. economic actors that have as their sole purpose and reason of being the maximization of profit. Member States’ behavior generally falls outside this paradigm, thereby making all tools developed for competition law analysis somewhat useless. Applying EU competition law to MS action would potentially lead to different applicable standards and scrutiny, depending on whether the subject in question is a State, an undertaking, or some animal in between (arguably, the animals in between remain a problem, no matter which set of rules applies – I agree with Jonas here). As discussed in Session 4, we get into the messy debate of what constitutes an ‘objective justification’ next to efficiency. A strict separation of applicable rules would avoid this problem.

  10. Theodosia Stavroulaki says:

    Following review of the material I would like to refer to the following issues:
    -After I read the Case C-198/2001 regarding the Italian Consortium I realized that the guidance the Court provided regarding the state action doctrine is unclear and inadequate. I would like to refer to the following Court’s statement: “The National Competition Authority may not impose penalties in respect of past conduct on the undertakings concerned when the conduct was required by national legislation. The Court may impose penalties on the undertakings concerned in respect of past conduct where the conduct was merely facilitated or encouraged by the national legislation whilst taking due account of the specific features of the legislative framework in which the undertakings acted”. I consider that the Court’s analysis is unsatisfactory taking into account that it would be extremely difficult for both National Competition Authorities and the undertakings involved in the agreement to assess when a conduct is required by law and when it is facilitated by law. I consider that the Court does not provide enough guidance on this issue and as a result it creates legal uncertainty.
    -I do agree with the General Court’s approach regarding the DEI case T-169/08 taking into account that the fact that in this case article 106 .2 applies in parallel with article 102 TFEU should not change the way article 102 TFEU applies. Article 102 TFEU applies when an undertaking has a dominant position and when its behavior in the relevant market is abusive. If the criterion of the abusive behavior is not met I cannot find any legitimate reason for the application of article 102 TFEU. The fact that the application of a national law facilitates the creation of a dominant position in the market does not necessarily mean that the dominant undertaking is involved in abusive behavior. In this particular case I consider that the Court should focus on whether the State is liable according to the free movement rules and not according to EU competition rules.

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