Handout 4

Seminar 4: State Action and EU competition Law (25 October 2012)

 This seminar focuses on the scope of the doctrines of anticompetitive state action, with a special focus on the overlap between them and the rules applicable to the internal market. It is the reverse side of the issues we looked at in seminar 3.


 Case C-2/91 Meng [1993] ECR I-5791 (plus AG Tesauro’s Opinion)

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

 Case C-323/93 La Crespelle [1994] ECR I-5080

 Case T-169/08 Greek Lignites judgment of 20 September 2012

 Cruz ‘The State Action Doctrine’ in Amato & Ehlermann (eds) EC Competition Law – A Critical Assessment (2007)

 Edward and Hoskins “Article 90, [now Art 106] deregulation and EC Law” [1995] 32 Common Market Law Review 157

 For Discussion

 1. The first two cases and the Cruz article address one theory by which EU competition law applies to state action. Points to consider are: (a) what is the scope of this doctrine? (b) what is the effect of this doctrine: on liability (who is liable: the state, the undertakings?); on the effect of a finding of breach? (c) what happens when a state measure falls outside the scope of this rule, is it necessarily caught by the internal market rules? (d) reversing the question, why have this doctrine when we have rules regulating state measures in the internal market rules?

 2. The next two cases deal the role of Article 106(1) read together with Article 102. Edward and Hoskins try and explore the theoretical basis of the early case law; I have selected one odd case (Crespelle) and the newest judgment (Greek Lignites). Consider: (a) given the scope of the state action doctrine in Q.1, why do we need Article 106(1)? Could we not just slot these cases under state action? (b) when Art 106(1) cannot apply, like in the two cases extracted, what is the scope for the free movement rules? (c) if you were the Commission, how would you deal with the Greek Lignites case? Can you still challenge the state measure?

 3. More abstractly, is there a gap in the regulatory framework when it comes to anticompetitive state action?  Do we have an incomplete economic constitution?

 Further Reading

 If you are new to this, most general EU Law books have some discussion. Mine is in Chalmers et al European Union Law: Text and Materials 2nd ed (2010) ch.24. See also Dashwood et al Wyatt and Dashwood’s European Union Law 6th ed (2011) ch.26 parts XI and XIII,

 Pescatore “Public and Private Aspects of European Competition Law” (1987) 10 Fordham International Law Journal 373

Marenco “Competition Between National Economies and Competition between business: a reply to Judge Pescatore” (1987) 10 Fordham International Law Journal 163

Marenco “Government action and anti-trust in the US: What lessons for Community law?” (1987) 14 LIEI 1

Gagliardi “United States and European Union antitrust versus state regulation of the economy: is there a better test?” (2000) 25 European Law Review 353

Szoboszlaj Delegation of State Regulatory Powers to Private Parties – Towards an Active Supervision Test (2006) 29 World Competition 73

Sauter and Schepel  State and Market in European Union Law (Cambridge University Press, 2009) chs.4 and 6. You can also download the working paper on which this book is based at: Sauter, Wolf and Schepel, Harm, ‘State’ and ‘Market’ in the Competition and Free Movement Case Law of the EU Courts (August 2007). TILEC Discussion Paper No. 2007-024. Available at SSRN: http://ssrn.com/abstract=1010075


7 comments on “Handout 4

  1. Emma says:

    Hi everyone,
    It seems that both copies of the book EC Competition Law – A Critical Assessment (for the Cruz article) are already on loan and I can’t find the article online anywhere. If someone has the book (or has already photocopied from it) and is at the EUI could you let me know so I can try and make a copy of the article?
    Thanks, Emma

  2. Jotte says:

    If the free movement and competition rules (hereafter together referred to as economic constitution) can be perceived as communicating vessels that embody different rules but strive towards a shared ultimate goal, then state action that negatively affects competition unveils most of the main challenges to ensure homogeneity. The challenge to homogeneity arises as soon as one of the sets of rules stops applying and another takes over. This is the moment where gaps may arise. These arise if the rules of the economic constitution fail to achieve to pick up state or private behavior that, looking at the aims of the economic constitution as a whole, should be captured or at least monitored. The “should” in the last sentence indicates that, as a first step, it is necessary to establish the main aims of the economic constitution. This is subject to some debate but I think in general you could roughly posit that the EU economic constitution aims for an internal market without barriers, with undistorted competition, where both states and undertakings can conditionally intervene in free movement rights and undisturbed competition provided that the interventions are based on coherent rational behavior and/or legitimate concerns (close to the limited competition approach as described in Edward and Hoskins). So why have different rules for intervening actions of Member States and the actions of undertakings? There are several but one of the compelling reasons is that decisions of Member States have democratic legitimacy that generally will reflect genuine public policy concerns whereas the actions of private undertakings, as a rule, are concerned with self-interest (Cruz, p.551). As such it makes sense to have different frameworks for the assessment of anticompetitive behavior of Member States or undertakings. Generally, behavior of Member States in pursuit of public objectives is assessed marginally and the anticompetitive behavior of undertakings is subject to a more substantive intense review.
    There arises an interesting mix of these frameworks of assessment in state action situations where the origin of anticompetitive effects can shift and move between public and private spheres. The case law of the courts has developed some tests to establish when state measures loose their public character and become subject to the competition rules (e.g. Arduino). The case law requires a link between the state action and an – autonomous – full infringement of the competition rules before state measures can be declared unlawful. Cruz’s analysis of the case law that addresses these situations identifies some problems. Especially, he argues that, the requirement of a direct link of state action with fully fledged anti-competitive conduct on the part of undertakings may not always lead to good outcomes and lead to ‘gaps’ or over enforcement. In particular, he identifies that the presence of an infringement of Articles 101 or 102 TFEU automatically entails the unlawfulness of the state measure, without assessing its merits and possible justifications. I question whether this is correct. The state action test as it currently stands in the case law requires that there is a complete infringement of 101. I would say that this means that if anticompetitive behavior is necessary and inherent to achieve a legitimate goal, there is no infringement to begin with and the state measure is not unlawful to begin with (take the Wouters case). The other problem he identifies is that the absence of an infringement of Articles 101 or 102 on the part of undertakings automatically implies the lawfulness of the State measure in question, even if it only furthers private interests. In this situation I would say that the free movement rules can still apply and assess whether state measures are adopted consistently and coherently in view of the pursued objectives. The gambling case law of the court demonstrates that the free movement rules can be used perfectly to assess and address legal monopolies.
    Gap issues may arise when the free movement rules do not apply to purely internal situations or in situations where the free movement rules do not capture the anticompetitive behavior because of an absence of barriers to trade. Whether this is a purely academic issue or whether this leads to real gaps in the economic constitution requires further considerations that fall outside the scope of this response statement.

  3. Karin Floistad says:

    There is a gap between how competition law applies to undertakings and how it applies to state measures. The gap also seems to be increasing rather that decreasing something it seems to me can be concluded from the cases mentioned. I believe there is a good reason for this gap, namely as pointed out in our reading materials, the undertaking is considered as an actor promoting its own interests and the state is considered as an actor generally promoting the general interest. In addition there is the element of democratic control of measures taken by a state which does not exist for behavior of undertakings.

    I agree with the view taken by several in our reading material namely that the way forward to close the gap (if this is the will of the parties involved) must be taken through legislative means and harmonization procedures. Only this way can there be a proper balancing act of all the interest involved when evaluating state measures. Thus, a court developed extensive review of state measures seems very hard to develop in a satisfying manner.

  4. Argyri says:

    Under Meng, the doctrine forms as follows: Competition law applies to undertakings’ conduct and not state conduct, unless state conduct (legislative or regulatory measures) renders the competition rules ineffective and there is a link with conduct on the part of undertakings of the kind referred to in article 101(1). As Advocate General Tesauro stated it, competition law applies to state action only where state measures allow private undertakings to escape the constraints of article 101 offering them legal cover or giving the undertakings the task of regulating the market (the mere fact that a measure has anticompetitive effect is not enough).
    The rationale is that these state actions are within the scope of competition law exactly because they aim at circumventing it.

    A link that could prove such circumvention could not be found in Meng (although there had been agreements of the same nature in the life insurance sector, the fact that there had not been such agreements in the health and legal expenses insurance sectors seemed to be decisive). The question of liability is not very clear in this case. I would expect that if the measure was to be found anti-competitive it would be attributable to the state authority.

    Consorzio Industrie Fiammiferi was a more complex case of a system that had started from being a regulated state-monopoly, a system of allocation of quotas for production of matches, to a system where the legal framework continued to require anticompetitive conduct of undertakings. In this case, the issue of liability seems to me more clearly examined from the Court:

    If anti-competitive conduct is required of undertakings by national legislation or if the latter creates a legal framework which itself eliminates any possibility of competitive activity on their part, Articles 81 EC and 82 EC do not apply. In such a situation, the restriction of competition is not attributable, as those provisions implicitly require, to the autonomous conduct of the undertakings (para 40).
    On the other hand, if a national law merely encourages, or makes it easier for undertakings to engage in autonomous anti-competitive conduct, those undertakings remain subject to Articles 81 EC and 82 EC and may incur penalties, including in respect of conduct prior to the decision to disapply that national law (para 56).

    As regards the question why is competition law employed in these cases when there are internal market rules regulating state measures, I think – also following the discussion under session 3 – that the rules are considered by the Court as complementary. There are also practical reasons for that. First, especially in cases when state measures not only breach but aim at circumventing competition rules, they are caught by competition. Also, when the cross-border trade dimension is not clear or easy to argue, while the distortion of the market seems more obvious in a case, competition rules might seem easier to apply.

    In general, one could see a functional rationale behind the Court’s decisions, that the ultimate goal of both sets of rules is the functioning of the common market.
    At the same time, we saw that the choice of rules in each particular case is usually dictated by the particular facts as well as parties’ strategy.

    What is part of a bigger discussion, however, is the issue of the EU rules as a system and whether it is currently sufficient or rather incomplete to form an economic constitution. I would go as far as saying that if these rules are deemed incomplete in their application then it is not just a gap in a theoretically existing EU economic constitution; there is simply no such economic constitution.
    If an existing gap is being filled only by the Court and not by the Treaty, then legitimacy problems arise. Which might mean that the gap is still only legitimately filled at the Member State level, with all the implications that has to harmonization.

  5. Chloé says:

    The State action doctrine applies in the EU when Member States measures are restricting competition. More particularly, the doctrine applies when private undertakings and/or a single private undertaking act(s) in breach of either Article 101 or Article 102 TFEU, due to State action or State requirements.
    The State action doctrine, which originated in the US, has initially been established to fill the gap in the personal scope of the competition rules which, in principle, apply only to private undertakings. Following a constant formula, a State measure will be considered as restricting competition if it deprives or is able to deprive the EU competition rules of their ‘effet utile’ by depriving private undertakings from adopting an autonomous conduct compliant with Articles 101 to 109 TFEU or by requiring, favouring ir reinforcing an anti-competitive behaviour by private undertakings. There must therefore be a very close link between State measures and the anti-competitive private behaviour for the State action doctrine to apply. In this respect, I would agree with the proposal of AG Jacobs to require direct link of State action with an already identified breach of the competition rules applicable to undertakings; position which has not been followed by the Court and which gives to the State action doctrine a very broad scope.
    The doctrine applies also to both Articles 101 and 102 TFEU, although the Court elaborated two different tests.

    The CIF case has clarified the effect of the doctrine on liability with respect to violations of Article 101 TFEU. Should a State measure be held as requiring, facilitating or reinforcing anti-competitive corporate behaviour, national authorities (i.e. organs of the State, including administrative authorities) would have to disapply the national legislation at stance. With respect to past conduct, undertakings may not be subject to penalties if the undertakings could not adopt an autonomous conduct and were required to follow the specific anti-competitive conduct by the national legislation. Conversely, undertakings may be subject to penalties if the past conduct was merely facilitated or encouraged by the national legislation. Also, once the decision has become definitive, penalties may be imposed on the undertakings concerned should they continue to infringe the EU competition rules.

    In GB-Inno-BM, the Court of Justice emphasised the fact that national measures leading to anti-competitive practices would generally be incompatible with the free movement rules (§35). In such a case, one may wonder whether the State action doctrine is necessary. I think that the two sets of rules are very different.
    Firstly, the fee movement provisions and the State action doctrine as developed by the Court of Justice case law do not have the same objectives. The free movement rules are aimed at prohibiting obstacle or restriction hindering the completion of the internal market. Conversely, the State action doctrine prohibits State action measures distorting competition in the EU. Therefore, an anti-competitive practice may be declared compatible with the EU internal market rules and vice versa.
    In the same view, some concepts, such as the purely internal situation, are not caught by the internal market rules.
    Secondly, the free movement rules and the State action doctrine do not have the same result since the State action doctrine may lead as mentioned above to penalties imposed on the private undertakings concerned.
    Similarly, Crug mentioned in his article that the Court, in applying Article 34 TFEU in the Leclerc case, declared only a part of the national legislation incompatible with the Treaty e.g. the part which affects trade between Member States. On the contrary, should the State action doctrine and the competition rules have been declared applicable, the whole regulation would have been declared incompatible with the Treaty.
    Thus the free movement provisions cannot in my view replace the State action doctrine. Those two sets of rules are rather complementary to each other.

    It has been proposed by some authors “to extend the approach followed under Article [106 TFEU] to the State action” (Crug, p.556). One may therefore ask whether Article 106(1) is really necessary, given the broad scope of the State action doctrine or vice versa whether the State action doctrine could adopt the approach followed under Article 106. Certainly, both sets of rules concern the relation between State measures and the application of competition law to private undertakings. The rules are, however, very different in their personal scope, their methods and also address different concerns.
    The State action doctrine is addressed to State measures affecting the conduct of any private undertaking. Article 106 refers to three specific types of undertaking: ‘public undertakings’, ‘undertakings to which Member States grant special or exclusive rights’, and undertakings ‘entrusted with the operation of services of general economic interest’. Only Article 106 can therefore deal with these special categories of undertakings. Should the two sets of rules be merely different on this aspect, I would conclude that Article 106 should be regarded as a lex specialis to the State action doctrine and hence it would be possible to slot Article 106(1) under State action.
    Nevertheless, major divergences remain between the two. Under the State action doctrine, the Court will merely look at whether the specific State measure deprives private undertakings from complying with the EU competition rules. In particular, the Court will first look for an agreement among undertakings or an abuse of dominant position and then try to determine whether the national provisions required or favoured such conduct or reinforced its effect. Under Article 106(1), the Court will go much further (especially if it follows the Limited Competition approach as explained in Edward and Hoskins). Starting from the presumption that the creation of a legal monopoly restricts competition and thus is illegal, the Court will analyse whether the existence of a legal monopoly can be justified for reasons of public interest and whether such a restriction of competition is necessary and proportionate to ensure the public interest requirements. In brief, the Court will have to balance on the one hand the proper enforcement of the competition rules and on the other hand the protection of other public interests. Such balancing work is not present under the State action doctrine. The latter cannot be justifiable on public interest grounds, although there has been some proposals to do so (in particular AG Jacobs in Pavlov).

    I think that there is a gap in the regulatory framework when it comes to anti-competitive state action for several reasons: lack of clarity and predictability of the State action doctrine (for instance with the notion of ‘delegation’), confusion between the application of the State action doctrine, the free movement rules and Article 106(1).

  6. Emma says:

    The state action doctrine, developed through case law to fill a gap, aims to compliment, not substitute, the treaty provisions (Cruz).One of the things that came across from last week was the search for a ‘seamless web’ of EU law, without gaps. Unforeseen behaviour not covered by the Treaty has left some gaps, for example the internal market rules are limited in that they only apply to internal situations and do not protect against a MS discriminating against its own nationals, , the scope of 106 is limited in its addressees (public undertakings or undertakings granted special or exclusive rights, both terms which themselves been elaborated upon by case law) and the competition provisions themselves do not address anticompetitive behaviour attributable to MS. One difficulty of this doctrine is however that it is difficult to close the gap fully when the questions before the court appear on a case-by-case basis.

    Also, there is an important difference in objectives between the doctrine and the overall purpose of the treaty, in particular is that the doctrine is not based on efficiency outcomes or market integration. The doctrine shows that the Court shows some flexibility in situations where behaviour is not necessarily competitive in the market context, or which hinders integration, but which was adopted by the State for policy reasons or otherwise. Subsidiarity goes some way to explaining this – the Treaty is not a ‘catch all’ (although it is aruguably moving toward this) and was originally aimed only achieving economic unity. This reading necessarily leaves scope for states to take action in their own interests which do not reflect the aims of the Treaty. Indeed, State and private actors have different objectives and there is a need to ensure that undertakings tasked with functions that are essentially public policy objectives do not act unduly in their own interests. Rightly I think, the case law has evolved away from the Court being the actor reponsible for this balancing, which is a role for the legislator.

    Although the scope of this doctrine started off wide but has been narrowed by subsequent case law. As Cruz puts it, it now only applies to ‘limited situations in which the State directly impairs the effectiveness of the competition rules’. By reducing the scope of the doctrine to requires a direct link between the anticompetitive behaviour and the action of the state, the purpose of filling a gap and not replacing the Treaty provisions is fulfilled.

  7. giorgiomontigiorgio says:

    This is Karin’s message

    > In Norway, Article 36 of the general contract law dating back to the 1930’s gives a party to a contract the possibility to declare the contract null and void. This Article is a general clause based on the unreasonableness of upholding or enforcing the contract. It is clear that this clause cannot be invoked by a party to a contract because it turns out over time that he has entered into a contract not particularly favourable to him. It is equally impossible to invoke this Article because a party regrets having entered into a specific contract.
    > The Article is perceived as a saving clause in the unlikely event that a contractual obligation cannot be imposed on a party due to specific circumstances. These can be of a surrounding character that not related to the behaviour of the strong party in the agreement and is often a combination of events which makes it unreasonable in a qualified manner to uphold the contract. It is fare to say that the clause har been invoked in many courtcases but it has rarerly been accepted by the court.
    > An example would be consumercases.
    > I do not recall instances where market failure/competition law arguments have been used in Article 36 cases. The law is regarded as something concerning the situation of parties to a contract and not general concerns of the society such as failures of the market. In light of the readings this week and the discussion I will reinvstigate cases in national law in order to explore if this could have been possible.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s