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Thursday, 21 March 2013

How to decide when an agreement has the object of restricting competition

In Case C-32/11 Allianz Hungária Biztosító Zrt, v Gazdasági Versenyhivatal, judgment of 14 March 2013, the CJEU appears to have suggested a very different approach to determining when agreements have the object of restricting competition. This case was a preliminary reference from the Hungarian Supreme Court in relation to a dispute between the Hungarian competition authority and two insurance companies and the Hungarian association of authorised car dealers (GÉMOSZ) who also act as repair shops. The two major insurance companies had entered into contracts with the dealers whereby the rate of payment that the dealers received for repairs was linked to the amount of insurance that they sold. The question was whether or not these, vertical, agreements had as their object the restriction of competition? Although there are a number of issues in the case, this note just focuses on one of them.


 

In para. 36 of the judgment the court said:
"In order to determine whether an agreement involves a restriction of competition 'by object', regard must be had to the content of its provisions, its objectives and the economic and legal context of which it forms a part … When determining that context, it is also appropriate to take into consideration the nature of the goods or services affected, as well as the real conditions of the functioning and structure of the market or markets in question …" The court went on to say that the agreements would amount to a restriction of competition by object in the event that the referring court found that it is likely that, having regard to the economic context, competition on that market would be eliminated or seriously weakened following the conclusion of those agreements. In order to determine the likelihood of such a result, that court should in particular take into consideration the structure of that market, the existence of alternative distribution channels and their respective importance and the market power of the companies concerned. This would seem to licence a much broader inquiry into the factual circumstances then has been common in the past. Once a court, or competition authority, needs to examine market structure, or market power, it must make some attempt to define the market, something which may well be controversial and time consuming. In order to consider issues of market power, it is necessary not only to consider the market as it exists, but also question of how the market might develop, that is, what are the possibilities of entry? If the court has to understand alternative distribution channels, it must consider what they are and their effectiveness.


 

If this does represent a change in approach, it raises some difficult questions. Will it require a re-evaluation of previous case-law? Would the agreements in Consten & Grundig, for example, fall foul of this new test? Alternatively, this test is not meant to disrupt previous case law but should only be applied to agreements which seem problematic but do not fall within the established categories of object agreements, such as absolute territorial protection. What type of agreements would fall to be treated thus could be a difficult question. As the Advocate General noted, the agreements in question were not ones that, in the absence of a dominant position, competition law had previously established as being obviously problematic. On a technical level, the second sentence of para. 36 is not supported by the case cited (Case C-226/11 Expedia).


 

The decision suggests that there are some disagreements within the Court of Justice on how to approach object agreements and it increases the uncertainties in this area. Since there seem to be a steady stream of these cases at the moment, it is unlikely to be the last word.


 

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