Liza Lovdahl Thesis

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King’s College London

Thesis submitted for PhD in law

Liza Nette Lovdahl Gormsen

0224334

Is there a tension between the goals of protecting

economic freedom and the promotion of consumer

welfare in the application of Article 82 EC?

Supervised by

Professor Richard Whish

David Bailey

London, 20 July 2007

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Acknowledgements

The seeds for this thesis were sown during my LL.M. at King’s College

London in 2002-2003 where I was taught competition law by Professor

Richard Whish and David Bailey who later became my supervisors.

My intellectual indebtedness derives from various sources in particular

my main supervisor Professor Richard Whish. His intellectual reputation

is immense and it is impossible to capture the impressiveness of his

capacity and logic in a few lines. In short, it would have been more

difficult to write without his probing questions and rigorous criticism. On

a personal level, I admire him for his integrity and fine personality.

I am also intellectually indebted to my second supervisor David Bailey

who has been a helpful mentor and friend throughout the process. His

meticulous corrections were always given with incredible sensitivity and

intelligent understanding.

A number of friends took the time to review, discuss and improve parts

of the thesis, including Dr Chris Townley, Anne Aylwin and Francesca

Maria Jennings Gibbons. I am also grateful for the many and interesting

discussions I have had with Professor Margaret Bloom, Dr Oke Odudu,

Professor Alison Jones and all the bright people I have met on my way.

I am fortunate to have been a part of the enormous intellectual capacity

surrounding the Centre for European Law at King’s College London.

Thanks to my dear friend Dr Melanie Smith for wise counselling,

encouragement, emotional support and endless conversations about the

Freiburg School, legitimate democracy and fundamental human rights.

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I wish to acknowledge with gratitude the financial support from the

Competition Law Scholar Forum and the Office of Fair Trading.

Above all, I thank my partner Fanis who has given me emotional and

financial support throughout the three and a half years it has taken me

to finish this project. I am grateful for his endless patience and his

company. Without him the thesis would have been less fun.

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Abstract

Article 82 is traditionally analysed as a tool to integrate and liberalise the

European Single Market and to protect competition from distortion. As

such there is no comprehensive discussion of the tensions that lie at the

centre of the objective of protecting competition in the current

rethinking of Article 82. With regard to exclusionary abuses, DG

Competition has articulated that the main objective of Article 82 is the

protection of competition in the market as a means of enhancing

consumer welfare and of ensuring an efficient allocation of resources.

This statement may conflict with some of the case law protecting the

economic freedom of the market players derived from ordoliberalism.

The latter is a well respected German legal tradition that holds both that

government needs to be restrained from abuse of power, and that the

free market has its limits. Economic rights deserve protection and

vigilance is needed to ensure economic power is not misused or abused,

not only in the interests of consumer welfare, but also in the interests of

the economic liberty of the individual. This thesis considers the tension

between the goals of protecting economic freedom and the promotion of

consumer welfare in the application of Article 82. Presupposing that

economic freedom and consumer welfare are in opposition to one

another, such tension is only set to intensify and must be given

appropriate weight in considering the extent to which DG Competition

can or should try to move to a consumer welfare standard. Changing the

interpretation of protection of competition from economic freedom to

consumer welfare within Article 82 can undermine a fundamental right if

economic freedom is considered a fundamental right in the Community

legal order. However, consumer welfare can also be seen as an

opportunity, if properly debated or agreed to by the ECJ, to adopt a

more economics-based approach to Article 82.

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ACKNOWLEDGEMENTS ............................................................................................................ 2

ABSTRACT ...................................................................................................................................... 4

CHAPTER 1 THESIS INTRODUCTION .............................................................................. 8

INTRODUCTION .............................................................................................................................. 8

1. TOOLS AVAILABLE FOR REFORMING ARTICLE 82 ..................................................15

2. RESEARCH MOTIVATION ..................................................................................................17

3. RESEARCH QUESTION .......................................................................................................26

4. THE RESEARCH PUZZLE ...................................................................................................29

5. RESEARCH APPROACH ......................................................................................................31

6. RESEARCH METHOD ...........................................................................................................33

7. THESIS STRUCTURE ...........................................................................................................33

PART I .............................................................................................................................................36

CHAPTER 2 ORDOLIBERAL ECONOMIC FREEDOM..................................................39

INTRODUCTION .............................................................................................................................39

1. ORDOLIBERALISM ...............................................................................................................39

1.1 ORDOLIBERAL IDEOLOGY ................................................................................................40 1.2 ORDOLIBERAL COMPETITION POLICY .............................................................................45 1.3 COMPLETE COMPETITION ................................................................................................48 1.4 SUMMARY .........................................................................................................................50

2. GERMAN COMPETITION LAW ..........................................................................................52

2.1 THE ORDINANCE AGAINST THE MISUSE OF ECONOMIC POWER ...................................53 2.2 THE ACT AGAINST RESTRAINTS OF COMPETITION ........................................................57

2.2.1 The Josten draft ................................................................................................59 2.2.2 The Government draft ....................................................................................60

2.3 THE APPLICATION OF THE ARC ......................................................................................61 2.4 SUMMARY .........................................................................................................................66

CONCLUSION ..................................................................................................................................67

CHAPTER 3 ECONOMIC FREEDOM IN ARTICLE 82: THE EARLY

JURISPRUDENCE OF THE EUROPEAN COURT OF JUSTICE ................................68

INTRODUCTION .............................................................................................................................68

1. ORDOLIBERAL INFLUENCE ON THE EC TREATY ......................................................68

1.1 THE SPAAK REPORT .........................................................................................................70 1.2 EXPLOITATIVE AND EXCLUSIONARY CONDUCT ..............................................................72

2. THE APPLICATION OF ARTICLE 82 ...............................................................................79

2.1 CONTINENTAL CAN ..........................................................................................................79 2.1.1 Facts of the case ...............................................................................................79 2.1.2 The Commission’s decision ...........................................................................80 2.1.3. The ECJ’s judgment .........................................................................................82

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2.1.4 Analysis of the ECJ’s judgment ...................................................................86 2.2 COMMERCIAL SOLVENTS .................................................................................................87

2.2.1 Facts of the case ...............................................................................................87 2.2.2 The Commission’s decision ...........................................................................88 2.2.3 The ECJ’s judgment .........................................................................................89 2.2.4 Analysis of the ECJ’s judgment ...................................................................91

2.3 HOFFMANN-LA ROCHE ....................................................................................................97 2.3.1 Facts of the case ...............................................................................................97 2.3.2 The Commission’s decision ...........................................................................98 2.3.3 The ECJ’s judgment .........................................................................................99 2.3.4 Analysis of the ECJ’s judgment .................................................................101

2.4 UNITED BRANDS............................................................................................................108 2.4.1 Facts of the case .............................................................................................108 2.4.2 The Commission’s decision .........................................................................109 2.4.3 The ECJ’s judgment .......................................................................................111 2.4.4 Analysis of the ECJ’s judgment .................................................................115

2.5 MICHELIN I ....................................................................................................................117 2.5.1 Facts of the case .............................................................................................117 2.5.2 The Commission’s decision .........................................................................118 2.5.3 The ECJ’s judgment .......................................................................................120 2.5.4 Analysis of the ECJ’s judgment .................................................................122

2.6 SUMMARY .......................................................................................................................125

CONCLUSION ................................................................................................................................127

PART II .........................................................................................................................................129

CHAPTER 4 CONSUMER WELFARE .................................................................................131

INTRODUCTION ...........................................................................................................................131

1. EFFICIENCY AND THE CLASSICAL ECONOMIC MODELS OF MONOPOLY AND PERFECT COMPETITION ...........................................................................................................134

1.1 DYNAMIC, ALLOCATIVE AND PRODUCTIVE EFFICIENCY ...............................................135 1.2 PERFECT COMPETITION .................................................................................................138 1.3 MONOPOLY SITUATION ..................................................................................................140 1.4 THE CORRELATION BETWEEN EFFICIENCY AND WELFARE STANDARDS ......................142

2. THE CHICAGO SCHOOL’S DEFINITION OF CONSUMER WELFARE .................144

2.1 THE THEORETICAL FOUNDATION OF THE CHICAGO SCHOOL .....................................147 2.2 MAIN CRITIQUE OF THE CHICAGO SCHOOL ................................................................149

3. THE COMMUNITY WELFARE STANDARD ...................................................................152

3.1 CONSUMER WELFARE ....................................................................................................152 3.2 THE MEASUREMENT OF CONSUMER HARM ....................................................................156 3.3 MICROSOFT ....................................................................................................................159

3.3.1 Facts of the case .............................................................................................159 3.3.2 The Commission’s decision .........................................................................160 3.3.3 Analysis of Commission’s decision ...........................................................162

3.4 WANADOO ......................................................................................................................172 3.4.1 Facts of the case .............................................................................................172 3.4.2 The Commission’s decision .........................................................................173 3.4.3 The CFI’s judgment .......................................................................................175 3.4.4 Analysis of CFI’s judgment .........................................................................178

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4. EFFICIENCY CONSIDERATIONS UNDER ARTICLE 82 ..........................................181

4.1 THE STRUCTURE OF ARTICLE 82..................................................................................182 4.2 EFFICIENCIES AS A DEFENCE ........................................................................................185 4.3 BALANCING EFFICIENCIES ............................................................................................188

CONCLUSION ................................................................................................................................192

PART III .......................................................................................................................................194

CHAPTER 5 ECONOMIC FREEDOM IN THE COMMUNITY LEGAL ORDER...196

INTRODUCTION ...........................................................................................................................196

1. THE CONSTITUTIONALITY OF THE EC TREATY ......................................................199

1.1 THE ORDOLIBERAL ECONOMIC CONSTITUTION ............................................................204

2. THE GENERAL PRINCIPLES OF THE EU .....................................................................207

2.1 ECONOMIC FREEDOM AS PART OF THE GENERAL PRINCIPLES OF THE EU .................211 2.1.1 Freedom of competition .............................................................................213

3. THE GERMAN CONSTITUTION ......................................................................................217

4. SUMMARY .............................................................................................................................220

CONCLUSION ................................................................................................................................221

CHAPTER 6 THE RELATIONSHIP BETWEEN ECONOMIC FREEDOM & CONSUMER WELFARE ...........................................................................................................222

INTRODUCTION ...........................................................................................................................222

1. ECONOMIC FREEDOM AS UNDERSTOOD BY ORDOLIBERALS ..........................222

2. ECONOMIC FREEDOM DOES NOT EQUAL CONSUMER WELFARE ....................227

3. PROTECTING ECONOMIC FREEDOM INTRINSICALLY OR INSTRUMENTALLY.......................................................................................................................233

3.1 CHOICE .........................................................................................................................237

4. ECONOMIC FREEDOM IN THE EC TREATY ...............................................................240

CONCLUSION ................................................................................................................................246

CHAPTER 7 THESIS CONCLUSION .................................................................................248

1. SUMMARY OF FINDINGS ................................................................................................248

2. ELABORATION OF FINDINGS ........................................................................................250

3. CONSEQUENCES OF ADOPTING A CONSUMER WELFARE STANDARD .........255

4. GUIDELINES ........................................................................................................................258

5. CONTRIBUTION TO THE ARTICLE 82 DISCUSSION .............................................261

BIBLIOGRAPHY ........................................................................................................................263

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Chapter 1 Thesis Introduction

Introduction

Article 82 EC (formerly Article 86)1 is the mechanism used in the

European Community (the ‘EC’)2 to control the abuse of a dominant

position. The provision is aimed at eliminating abusive conduct by

prohibiting any abuse by one or more undertakings of a dominant

position in a market in so far as it affects trade between Member States.

It forms part of the competition provisions established by the Treaty of

Rome in 1957 (the ‘EC Treaty’),3 along with Articles 81 EC and 83-89

1 For simplicity this thesis will refer to Article 82 throughout notwithstanding that some of the cases

mentioned in the thesis refer to Article 86 as the article was numbered before the enactment of the

Treaty of Amsterdam on 1 May 1999. Quotations will remain in their original form.

2 In the 1950s, Germany, France, Italy and the Benelux Countries (the Netherlands, Belgium and

Luxemburg) decided to establish a system of joint decision-making on economic issues. They

formed the European Coal and Steel Community (ECSC), the European Atomic Energy Community

(Euratom) and the European Economic Community (EEC). These three communities – collectively

known as the European communities – formed the basis of what is today the European Union (the

‘EU’). The European Community, which is the most important of the three European communities,

was originally founded on 25 March 1957 by the signing of the Treaty of Rome under the name of

European Economic Community. The ‘Economic’ was removed from its name by the Maastricht

Treaty in 1992, which also established the EU. The Maastricht Treaty effectively made the European

Community the first of three pillars of the EU, called the Community (or Communities) pillar. The

first pillar corresponds to the European Community, the second comprises the common foreign and

security policy (CFSP) and the European security and defence policy (ESDP) and the third consists of

police and judicial cooperation in criminal matters. The establishment of the EU in 1992 did not

cause the European Community to disappear. It remains part of the EU under the designation

‘European Community’. In keeping with the prevailing practice and the ordinary scope of the Court

of Justice's jurisdiction, this thesis will mainly refer to ‘Community’ or ‘EC’ law, rather than

‘European Union’ or ‘EU’ law, notwithstanding the formation of the EU in 1992. The European Court

of Justice, for its part, continues to be known as the Court of Justice of the European Communities.

Community law is defined as ‘[t]he law governing the structure, organs, and functioning of the

Council of Europe and other European organizations or institutions; further the law contained in the

conventions and agreements of the Council of Europe and the instruments of other European

organizations or institutions’, see Frits Willem Hondius, ‘The New Architecture of Europe and ius

commune earopaeum’ in Bruno de Witte and Caroline Forder (eds), The Common Law of Europe and

the Future of Legal Education (Deventer, 1992) page 215.

3 It is the consolidated version of the EC Treaty which is referred to in this thesis.

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EC.4 Article 82 is at the pinnacle of this study, with discussion of the

other provisions included only where relevant. The text of Article 82 is as

follows:

Any abuse by one or more undertakings of a dominant position

within the common market or in a substantial part of it shall be

prohibited as incompatible with the common market in so far as it

may affect trade between Member States.

Such abuse may, in particular, consist in:

(a) directly or indirectly imposing unfair purchase or selling prices

or other unfair trading conditions;

(b) limiting production, markets or technical development to the

prejudice of consumers;

(c) applying dissimilar conditions to equivalent transactions with

other trading parties, thereby placing them at a competitive

disadvantage;

(d) making the conclusion of contracts subject to acceptance by

the other parties of supplementary obligations which, by their

nature or according to commercial usage, have no connection

with the subject of such contracts.

Article 82 is a framework provision and the central terms ‘dominance’

and ‘abuse’ are inherently vague. Neither the concept of abuse nor that

of dominance is defined in the EC Treaty. The European Commission (the

‘Commission’) has not sought to publish general secondary legislation or

practical guidance.5 Although the travaux préparatoires were released in

the 1990s, the European Court of Justice (the ‘ECJ’) and the European

4 The provisions in the EC Treaty will be referred to hereinafter by simple number alone rather than

providing the full reference. The complete reference will be included when referring to articles for

the first time, or when referring to provisions from other Treaties.

5 Even though the Commission has published guidance in specific sectors such as postal services

and telecommunications. Some insight into the identification of market power can be gained by

analogy from OJ [2002] C165/03 Commission Guidelines on Market Analysis and Assessment of

Significant Market Power under the Community Regulatory Framework for Electronic

Communications Networks and Services, paragraph 70, and EC Directive 2002/21 on a Common

Regulatory Framework for Electronic Communication Service (the Framework Directive) Article

14(2) where significant market power is equated with dominance under Article 82. Commission

Issues Market Power Assessment Guidelines for Electronic Communications, press release of 9 July

2002 IP/02/1016. Available at:

http://europa.eu/rapid/pressReleasesAction.do?reference=IP/02/1016&format=HTML&aged=1&lang

uage=EN&guiLanguage=en.

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Court of First Instance (the ‘CFI’)6 rarely focus on the intent of the

drafters of the EC Treaty.

The meaning of the concepts of dominance and abuse has been left to

emerge from the case law and practice of the Commission and the

Community Courts. This allows the concepts to develop to fit the

contours of a particular decision and new learning to be integrated into

the case law in an ever-changing economy. A systematic approach to

the interpretation of Article 82 also requires that the analysis of the

provision is constantly updated, as interpretations that seemed adequate

years ago may no longer be suitable. An explicit definition of each of the

concepts in the EC Treaty could have a limiting effect on its

interpretation, because every decision or judgment would have to fit

within the definition. However, the lack of general guidance as to what

does and does not constitute an abuse has led to an ad hoc process,

swayed by the specific facts that come before the authorities or the

courts. It is hard to see a single unifying theory underpinning the

interpretation of Article 82.7 The law of Article 82 seems to be the

function of the cases brought before the Community Courts. This has led

to legal uncertainty resulting from the way in which the provision is

being applied in practice and the way in which the legal framework is

written.

This uncertainty may create a feeling of discontent amongst dominant

undertakings – having to regard the special responsibility8 – resulting in

6 For the sake of clarity, the thesis will refer to the ECJ or CFI individually where appropriate. The

term ‘Community Courts’ will be used when referring to the CFI and the ECJ when they are

discussed together.

7 Dabbah highlights that the ECJ has created a jurisprudence under Article 82 which makes it

difficult to understand the real aim of Article 82, see Maher M Dabbah, ‘Conduct, Dominance and

Abuse in “Market Relationship”: Analysis of Some Conceptual Issues under Article 82’ 21(1)

European Competition Law Review (2000) 45.

8 Case 322/81 Nederlansche Banden-Industrie Michelin NV v Commission [1983] ECR 3461, [1985]

1 CMLR 282, paragraph 57.

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less aggressive competition in the market. However, formalistic rules, as

to what does and does not constitute an abuse in the market, are not

helpful or desirable either. It may not be appropriate to rely on case law

decided decades ago in today’s markets which are characterised by very

rapid technological changes, creation and exploitation of intellectual

property rights and a high degree of technical complexity.9 In general,

concepts like dominance and abuse cannot be applied mechanically in

today’s economic environment and many of the traditional presumptions

do not hold in this context.

Article 82 is a legal provision, and one that has been shaped by the

interpretation of the Community Courts. The Community is not a static

legal environment and the EC Treaty is a ‘living instrument’, where the

interpretation of text is always evolving. While the Community legal

system has changed enormously since Article 82 was conceived, the

provision itself has remained unchanged since 1957.10

At the 8th annual conference of the European University Institute in

Fiesole in June 2003 Mario Monti, then the Competition Commissioner,

announced that the Commission had started an internal review of its

policy on abuse of a dominant position.11 One of the primary reasons for

initiating the review was a greater appreciation of micro-economic

theory on the part of the policy-makers and the need to ensure that the

9 Christian Ahlborn, ‘Competition Policy in the New Economy: Is European Competition Law up to

the Challenge’ 22(5) European Competition Law Review (2001) 156; Michele Messina, ‘Article 82

and the New Economy: Need for Modernisation?’ 2(2) Competition Law Review (2005).

10 There have been some procedural changes to Article 82, for example, OJ [2003] L1/1 Council

Regulation 1/2003 On the Implementation of the Rules on Competition Laid Down in Article 81 and

82 of the Treaty. Council Regulation 1/2003 has been in force since 1 May 2004, repealing Council

Regulation 17/62 OJ special edition 1962, No 204/62, page 87 as amended by Council Regulation

(EC) 1216/1999, OJ [1999] L148/5. This thesis will only consider procedural issues where relevant,

for example in chapter four where efficiency as a defence is discussed.

11 That an internal review was initiated was confirmed in October 2003 by DG Competition’s

Director General Philip Lowe at the annual conference of the Fordham Corporate Law Institute,

speech available at: http://europa.eu.int/comm/competition/speeches/text/sp2003_040_en.pdf.

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rules under Article 82 are sufficiently responsive to sound economics.

One of the overall conclusions from the annual conference in Fiesole was

that the concept of abuse does not lend itself easily to per se rules, and

that a rule of reason approach is normally preferable. Another conclusion

was that legal formalism should be abandoned in favour of the analysis

and evaluation of economic effects.12 The initiation of the policy review

came after growing criticism of the application of Article 82 and, in

particular, the insufficient attention to economic principles and the rigour

of the Commission's policy in this area of law.13 The great intellectual

confusion over the proper standard of liability governing allegedly

exclusionary conduct in practice and case law under Article 82,14 led DG

Competition to publish its Discussion Paper on the Application of Article

82 of the Treaty to Exclusionary Abuses in December 2005 (the

‘Discussion Paper’).15 While DG Competition published the Discussion

Paper, as it is responsible for competition policy, the Commission will be

responsible for applying the principles described in the Discussion Paper

if these principles are later adopted in a Notice.16

12 Claus-Dieter Ehlermann and Isabela Atanasiu (eds), European Competition Law Annual – What is

an Abuse of a Dominant Position? (Hart, 2006).

13 The debate is not new and has been going on for years, but the latest case law and the

modernisation program, in force since 1 May 2004, have intensified the debate.

14 This is no criticism, as it is probably the most difficult question in competition law to determine

what conduct is ‘competition on the merits’ and therefore legal, and what is ‘anti-competitive

conduct’ and therefore illegal, as the two kinds of conduct often look identical in practice. According

to Arthur Hadley ‘to control the abuses without destroying the industries is a matter of the utmost

difficulty’ see Hadley in Frederic M Scherer, Competition Policies for an Integrated Work Economy

(The Brookings Institution Washington DC, 1944) page 19, and according to Franz Böhm ‘[i]t is

easier to hold a greased pig by the tail than to control a firm for abuse of a dominant position’ see

Böhm in Frederic M Scherer, ibid. page 70.

15 DG Competition Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary

Abuses (December, 2005). Available at:

http://www.europa.eu.int/comm/competition/antitrust/others/discpaper2005.pdf. DG Competition

has received 107 replies to the public consultation on the Discussion Paper, these are available at:

http://www.europa.eu.int/comm/competition/antitrust/others/article_82_contributions.hml.

16 DG Competition is the policy branch within the Commission. The main responsibility of DG

Competition is making competition policy and the main responsibilities of the Commission are fact-

finding, taking action against the infringement of the law and imposing penalties. For a detailed

http://www.europa.eu.int/comm/competition/antitrust/others/discpaper2005.pdf

13

The Discussion Paper sets out DG Competition’s agenda for developing

and explaining theories of harm to consumers on the basis of a sound

economic assessment of the most frequent types of abusive behaviour.17

The Discussion Paper focuses upon four general themes: dominance,

general principles, abusive practices and defences. Through its general

framework,18 DG Competition pinpoints the way in which exclusionary

conduct may lead to the foreclosure of rivals, and proposes a two-step

analysis for assessing whether a particular conduct is exclusionary. The

specific conduct in question (1) must be capable of foreclosing the

market, but (2) will only be considered abusive where it can be

established that the conduct has a market-distorting foreclosure effect.

The latter is a new development compared to the case law, but more

importantly, DG Competition declares:19

With regard to exclusionary abuses the objective of Article 82 is

the protection of competition on the market as a means of

enhancing consumer welfare and of ensuring an efficient

allocation of resources.

Whilst DG Competition embraces the objective of consumer welfare, its

success in practice depends on whether DG Competition can reconcile

the objective of consumer welfare with other possible conflicting

objectives pursued under Article 82.

Besides the possible conflict with other objectives, choosing a consumer

welfare standard will require the Commission to assess whether the

exclusionary conduct is likely to produce anti-competitive effects in the

description of the difference between DG Competition and the Commission, see Richard Whish,

Competition Law (LexisNexis Butterworth, 5th ed, 2003) pages 53-54.

17 Commission Discussion Paper on Abuse of Dominance - Frequently Asked Questions, MEMO of

19 December 2005 MEMO/05/486. Available at:

http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/05/486&format=HTML&aged=1&l

anguage=EN&guiLanguage=en.

18 Discussion Paper, supra note 15, section 5.

19 Ibid. paragraphs 4 and 54.

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market, which harm consumers directly or indirectly.20 Depending on the

standard of proof, where it is required to demonstrate adverse effects on

consumers the enforcement of Article 82 is likely to create more ‘type I

errors’ or fewer ‘type II errors’.21 A type I error is where a given

hypothesis, i.e. that an undertaking has committed an infringement, is

rejected although it is true. A type II error is where a hypothesis is

accepted, but an alternative hypothesis, i.e. that an undertaking has not

committed the infringement, is true.22 In the first situation the

competition authorities have substantial confidence in the robustness of

markets to withstand abuse of a dominant position and do not intervene

although intervention would have been justified. The boundary of public

power is set as far ahead as possible to see whether the market can take

care of itself and thereby accept the risk of private power. In the second

situation the competition authorities have little faith in the robustness of

the market and seek to prevent the risk of private power emerging –

and thereby run the risk of intrusion by public power – by activating

intervention in the markets earlier.23 Competition authorities intervene in

circumstances where intervention is not justified. When enforcing Article

82, the Commission has been criticised for being too intrusive to prevent

20 Harm to interim buyers will be presumed to harm end consumers.

21 These are sometimes also known respectively as false negatives and false positives.

22 Some scholars have identified a ‘type III error’ which occurs when you get the right answer to

the wrong question. In competition law terms, this can be equated with wrong enforcement priority

decisions. Type III errors risk over-enthusiastic enforcement activities and can give rise to spurious

or speculative complaints from competitors. This in turn gives rise to a form of regulatory drag

which is, in principle, just as harmful as unnecessary regulation, wasting resources ultimately to the

detriment of consumers. It is also problematic in terms of business planning and strategy, since

enforcement which is unpredictable has a cooling effect on commercial behaviour. See Report from

IBC conference on Advanced EC Competition Law (4-5 May, 2006) pages 64-65.

23 Former Competition Commissioner Mario Monti has said: ‘[E]nshrined in the Treaty is …an open

market economy with free competition…. Personally I believe that an open market economy does

not imply an attitude of unconditional faith with respect to the operation of market mechanisms’ see

Mario Monti, ‘European Competition Policy for the 21st Century’ in International Antitrust Law and

Policy (Fordham Corporate Law Institute, 2000) page 257.

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the risk of private power from emerging.24 In other words, the

Commission has been criticised for making type II errors.

1. Tools Available for Reforming Article 82

Reforming Article 82 is not a simple matter and the tools available are

limited. Reform of Article 82 is different from the reform of Article 81,

because there is no general secondary legislation or practical guidance

on the application of Article 82.25 Moreover, Article 82 does not, unlike

Article 81, allow the possibility of exemption. The absence of a provision

like Article 81(3) means that it is not easy, even though theoretically

possible given Article 83 EC, to adopt block exemptions on certain types

of conduct, thereby making that type of conduct permissible.

Amendments of the text of Article 82 are unlikely. The Treaty

Establishing a Constitution for Europe maintained the original text of the

provision.26 Although the Treaty Establishing a Constitution for Europe

has been abandon, it will be introduced into the existing Treaties, which

remain in force.27 The text of Article 82, however, remains the same28

and, unless the Treaty is amended, reform of Article 82 will depend upon

the ECJ reconsidering its case law and/or the Commission changing its

enforcement policy.

It is unlikely that earlier case law will be overruled to the effect that

those who would like to see a reorientation of the law were disappointed

24 A criticism acknowledged by DG Competition’s Director General Philip Lowe, ‘New Challenges in

Europe’, speech given on 24 June 2005, King’s College London.

25 Apart from the guidance in specific sectors mentioned above, supra note 5.

26 The Treaty Establishing a Constitution for Europe is available at:

http://europa.eu.int/constitution/en/lstoc1_en.htm.

27 See the Presidency Conclusions of the Brussels European Council, Annex I page 15. European

Council Document No 11177/07 of 21-22 June 2007. Available at:

http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ec/94932.pdf.

28 Ibid.

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that the Community Courts did not take the opportunity in British

Airways29 and Michelin II.30 Although the ECJ’s judgment in British

Airways contains some promising indications, such as the need to

establish some form of competitive impact and an appreciation of

economic benefits, these judgments confirm that reform of Article 82 is

not going to happen immediately. It is a reminder that if the

Commission’s enforcement policy is to become more economics-based,

the impetus cannot be expected to come from the Community Courts

alone. It will have to come from the Commission itself and from the

national competition authorities, whether through future enforcement

decisions or through guidelines. Although guidelines are not legally

binding,31 they would help create a unified body of decisions, rather than

a set of individual ad hoc and inconsistent measures. As a result, the

underlying objectives are more likely to be realised.32

The Commission is not precluded from regarding a more economics-

based approach simply because the ECJ has endorsed its old form-based

approach. However, the Commission must use its prosecutorial

discretion within the framework of Community case law. This was

highlighted by Advocate General Kokott in her Opinion of 23 February

2006:33

[E]ven if its [the Commission] administrative practice were to

change, the Commission would still have to act within the

framework prescribed for it by Article 82 EC as interpreted by the

Court of Justice.

29 Case C-95/04P British Airways plc v Commission.

30 Case T-203/01 Manufacture Française des Pneumatiques Michelin v Commission (Michelin II).

31 According to Article 249 EC only regulations, directives and decisions are legally binding

measures in the Community. 32 Commission Report on the Action Plan for Consumer Policy 1999-2001 and on the General

Framework for Community Activities in Favour of Consumers 1999-2003 COM(2001) 486, pages 17-

19.

33 Advocate General Kokott in her Opinion in British Airways, supra note 29, delivered on 23

February 2006, paragraph 28.

17

2. Research Motivation

The traditional approach to Article 82 has been criticised, as it is

supposedly not sufficiently effects-based and in general not founded on

sound economics.34 It is argued that the interpretation of Article 82 is

still influenced by old-fashioned formalistic and legalistic principles

attributed to ordoliberalism.35 This criticism goes to the heart of the

objective of economic freedom, which played a central role in the

ordoliberal conception of competition policy.36

Many commentators believe that the underlying principles of Article 82

could be clearer,37 and some observers point out that the Commission

and the Community Courts often place too much emphasis on the ‘form’

34 For example, John Ratliff, ‘Abuse of Dominant Position and Pricing Practices – A Practitioner’s

Viewpoint’ and Derek Ridyard, ‘Article 82 Price Abuses – Towards a More Economic Approach’ in

Ehlermann and Atanasiu (eds), supra note 12; Dennis Waelbroeck, ‘Michelin II: A Per Se Rule

against Rebates by Dominant Companies?’ 1(1) Journal of Competition Law & Economics (2005)

149, page 151.

35 John Kallaugher and Brian Sher, ‘Rebates Revisited: Anti-Competitive Effects and Exclusionary

Abuse Under Article 82’ 5 European Competition Law Review (2004) 263, page 268; see also David Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus (Clarendon Press

Oxford, 1998); Wernhard Möschel, ‘Competition Policy from an Ordo Point of View’ in Alan Peacock

and Hans Willgerodt (eds), German Neo-Liberals and the Social Market Economy (Macmillan, 1989)

page 142.

36 Not all share the view that case law and practice do not, or even should in all respects, reflect

modern economic thinking. Professor Eilmansberger is one of them even though he criticises the

lack of a clear coherent conceptual basis in decisions concerning exclusionary abuses, see Thomas

Eilmansberger, ‘How to Distinguish Good from Bad Competition under Article 82 EC: in search of

Clearer and More Coherent Standards for Anti-competitive Abuses’ 42 Common Market Law Review

(2005) 129, page 131.

37 Eilmansberger, supra note 36; Sir John Vickers, ‘Abuse of Market Power’ 115 The Economic

Journal (2005) F244; Brian Sher, ‘The Last of the Steam-Powered Trains: Modernising Article 82’ 25

European Competition Law Review (2004) 243, who argues that there is no internal consistency of

application, and that there is no longer any coherent policy basis for applying Article 82; Sven

Völcker, ‘Developments in EC Competition Law in 2003: An Overview’ 41 Common Market Law

Review (2004) 1027, page 1048 arguing that Article 82 currently lacks a coherent overall approach

and remains largely untouched by the increasing focus on economic analysis that has characterised

the development of the law and practice under Article 81.

18

of the conduct, and too little on the economic impact, or the ‘effects’ of

the conduct on the market.38 This was also the view presented by the

EAGCP, an economic advisory group on competition policy to the

Commission, in its report An Economic Approach to Article 82 EC

published on 21 July 2005.39 The report suggests that an economics-

based approach to Article 82 must be adopted in order to avoid a

confusion of the two objectives ‘protection of competition’ and

‘protection of competitors’.40 In this context, an economics-based

approach is understood to be an approach that ‘requires a careful

examination of how competition works in each particular market in order

to evaluate how specific company strategies affect consumer welfare’.41

The schism between ‘protection of competition’ and ‘protection of

competitors’ presents an interesting paradox which will remain as long

as the meaning of ‘protection of competition’ is not clear.42 On the one

hand, Mestmäcker argues that ‘protection of competition’ means the

protection of undertakings’ economic freedom.43 On the other hand,

Competition Commissioner Neelie Kroes argues:44

My own philosophy on this is fairly simple. First, it is competition,

and not competitors, that is to be protected. Second, ultimately

the aim is to avoid consumers harm. …I like aggressive

competition – including by dominant companies - and I don’t care

if it may hurt competitors – as long as it ultimately benefits

consumers. That is because the main and ultimate objective of

38 See for example, Ratliff and Ridyard respectively in Ehlermann and Atanasiu (eds), supra note

12; Kallaugher and Sher, supra note 35, page 268; Waelbroeck, supra note 34, page 151.

39 EAGCP Report on An Economic Approach to Article 82 EC (July 2005). Available at:

http://europa.eu.int/comm/competition/publications/studies/eagcp_july_21_05.pdf.

40 This was also suggested in the OECD Report on Competition Law and Policy in the European

Union (October, 2005) page 30. Available at: http://www.oecd.org/dataoecd/7/41/35908641.pdf.

41 EAGCP Report, supra note 39, page 2.

42 Gerber, supra note 35, section 2 of the preface.

43 Ernst-Joachim Mestmäcker, Europäisches Wettbewerbsrecht (München Beck, 1974).

44 Neelie Kroes, ‘Preliminary Thoughts on Policy Review of Article 82’, speech given on 23

September 2005 at the Fordham Corporate Law Institute New York, speech available at:

europa.eu.int/comm/competition/speeches.

http://europa.eu.int/comm/competition/publications/studies/eagcp_july_21_05.pdf

19

Article 82 is to protect consumers, and this does, of course,

require the protection of an undistorted competitive process on

the market.

This view, in favour of protection of competition to protect the welfare of

consumers,45 is supported in early legal scholarship on Article 82. A

study by Joliet in the late 1960s argued that the protection of

competition means prohibiting exploitative behaviour,46 which harms

consumers.47 Joliet specifically argued that it did not mean preventing

competitors’ exclusion from the market.48 This view was contradicted in

the case law where the ECJ has confirmed that Article 82 can be applied

to prohibit conduct affecting the structure of the market.49 In Continental

Can the ECJ held:50

The provision [Article 82] is not only aimed at practices which

may cause damage to consumers directly, but also at those which

are detrimental to them through their impact on an effective

competition structure, such as is mentioned in Article 3(1)(g) of

the Treaty.

45 This view is also supported by Advocate General Jacobs in his Opinion in Case C-7/97 Oscar

Bronner GmbH & Co KG and Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co KG,

Mediaprint Zeitungsvertriebsgesellschaft mbH & Co KG, Mediaprint Anzeigengesellschaft mbH & Co

KG [1998] ECR I-7791, delivered on 28 May 1998, paragraph 58: ‘[I]n assessing this issue [access

to a competitors’ facility] it is important not to lose sight of the fact that the primary purpose of

Article 86 [Article 82] is to prevent distortion of competition - and in particular to safeguard the

interests of consumers - rather than to protect the position of particular competitors’.

46 René Joliet, Monopolization and Abuse of Dominant Position (Martinus Nijhoff, 1970) pages 250-

251.

47 A ‘consumer’ may not only mean a member of the public who purchases goods for personal use

but also those who purchase goods in the course of their trade, see Whish, supra note 16, page

156.

48 Joliet’s study was comparative in scope – in particular a comparative analysis of Section 2 of the

Sherman Act and Article 82 – and consisted of three parts: American law on single-firm monopolies,

a survey of the national laws of the Common Market countries and of Great Britain and lastly, an

analysis of the system of abuse of dominant position under Article 82.

49 Case 85/76 Hoffmann-La Roche AG v Commission [1979] ECR 461, [1979] 3 CMLR 211,

paragraph 91 and Michelin, supra note 8, paragraph 70.

50 Case 6/72 Europemballage Corpn and Continental Can Co Inc v Commission [1973] ECR 215,

[1973] CMLR 199, paragraph 26.

20

Neither economic freedom nor consumer welfare is defined in the EC

Treaty, and the Community Courts rarely articulate these objectives. The

uncertainty about whether the protection of competition means

consumer welfare, economic freedom or something else is hardly

surprising given that neither the EC Treaty, nor the Community Courts,

nor the Commission has defined the protection of competition with

certainty. This is not a criticism of any of these institutions or the

drafters of the EC Treaty as the meaning and interpretation of protection

of competition may change over time given that the economy changes

over time. It is nevertheless essential to understand the meaning of

protection of competition for at least two reasons. First, Article 82 has

been and continues to be interpreted in the light of the objective of

protection of competition; and second, in order to give the provision an

adequate level of predictability and consistency in its application so that

undertakings can understand how Article 82 is applied by national courts

and competition authorities.

Traditionally, the Community Courts have interpreted the basic objective

of protection of competition by adopting a teleological interpretation, as

opposed to a literal, historical or contextual interpretation.51 The ECJ has

used this method of interpretation under Article 82 since Continental

Can,52 where the Court interpreted Article 82 in the light of Article

3(1)(g).53 The teleological interpretation has given the Community

Courts an opportunity to develop the law and implement suitable

51 For a general explanation of the different methods of interpretation, see Stephen Weatherill and

Paul Beaumont, EU Law (Penguin Books, 3rd ed, 1999) page 184ff. The ECJ has been accused of

being rather political in its purposive interpretation and has been criticised by Paul Joan George

Kapteyn and Pieter Verloren Van Thematt in Lawrence W Gormley (ed), Introduction to the Law of

the European Communities after the Coming into Force of the Single European Act (Graham &

Trotman, 2nd ed, 1990) pages 169-173; Hjalte Rasmussen, ‘Between Self-Restraint and Activism: A

Judicial Policy for the European Court’ 13 European Law Review (1988) 28, pages 28-29 and 37.

52 Continental Can, supra note 50.

53 Article 3(1)(g) ‘A system ensuring that competition in the internal market is not distorted’.

21

objectives,54 and according to the Court it has been ‘indispensable for

the achievement of the Community’s tasks’.55 The protection of

competition against distortion is necessary to promote a high degree of

competitiveness; however promoting competition is not an end in

itself,56 but a means of achieving the broader objectives of the EC

Treaty.57 The aim of promoting a high degree of competitiveness is to

guarantee freedom of action, as stated by the Commission in Report on

Competition Policy in 1971 ‘competition is the best stimulant of

economic activity since it guarantees the widest possible freedom of

action to all’.58

Gerber identifies four basic conceptions of what it means to protect

competition in Community competition law. These are economic

freedom, economic efficiency, prevention of economic power and finally,

the reduction or elimination of obstacles to economic change and

development.59 Protecting competition by reducing or eliminating the

obstacles to economic change and development is fundamental to the

broader political aim of the Community, which is the process of

54 The Community Courts continue to apply a teleological interpretation of the competition rules,

for example, Case T-83/91 Tetra Pak International SA v Commission [1994] ECR II-755, [1997] 4

CMLR 726, paragraph 114: ‘Article 86 of the Treaty must accordingly be interpreted by reference to

its object and purpose as they have been described by the Court of Justice, …in accordance with the

general objective set out in Article 3(f) [Article 3(1)(g)] of the Treaty as it was then worded’.

55 Continental Can, supra note 50, paragraph 23.

56 Karel Van Miert, ‘Competition Policy in the 1990’s’, speech given on 11 May 1993 to the Royal

Institute of International Affairs, speech available at: europa.eu.int/comm/competition/speeches;

Mario Monti in his foreword to the Commission’s 33rd Report on Competition Policy (2003).

57 Under Article 2 EC, the Community has as its task to promote a ‘harmonious, balanced and

sustainable development of economic activities, a high level of employment and of social protection,

equality between men and women, sustainable and non-inflationary growth, a high degree of

competitiveness and convergence of economic performance, a high level of protection and

improvement of the quality of the environment, the raising of the standard of living and quality of

life, and economic and social cohesion and solidarity among Member States’. One of the means of

obtaining these goals is by ensuring that competition in the common market is not distorted.

58 1st Report on Competition Policy (1971), page 11.

59 Gerber, supra note 35, section 2 of the preface.

22

integration in economic unions and free trade areas. This goal is

articulated in the EC Treaty60 as well as being judicially recognised.61

Broadly speaking, these conceptions of protecting competition can be

divided into three main categories of goals:

1. socio-economic goals, which include economic freedom;

2. economic goals, which include economic efficiency in the form of

consumer welfare; and

3. political goals, for example, market integration.

It is hard to avoid generalisations in categorising the goals of Article 82.

Each of the three categories concerns issues other than the ones falling

under their headlines, and Article 82 applies to some situations, besides

the mentioned categories, which are not easily categorised. For

example, Article 82 has been used as a tool in the Commission’s broader

effort to liberalise markets in sectors which were previously monopolies,

one example is the postal sector.62 Liberalisation is not easily

categorised because it is a process for achieving an open market by

allowing undertakings the economic freedom to enter markets, and a

process for enhancing competition, which may in turn ensure consumer

welfare.

When assessing exclusionary abuses, DG Competition has said that the

protection of competition will be interpreted as a means of enhancing

consumer welfare.63 This economic efficiency objective runs counter to

the non-economic objective of economic freedom as understood by

60 Articles 2 and 3 EC.

61 For example, Case 226/84 British Leyland plc v Commission [1986] ECR 3263, [1987] 1 CMLR

185; Case 26/75 General Motors Continental NV v Commission [1975] ECR 1367, [1976] 1 CMLR

95; Case 27/76 United Brands Company v Commission [1978] ECR 207, [1978] 1 CMLR 429. These

are just a few of the cases where market integration considerations had an influence on the

outcome.

62 Deutsche Post AG OJ [2001] L331/40, [2002] 4 CMLR 598.

63 Discussion Paper, supra note 15, paragraphs 4 and 54.

23

ordoliberals. For ordoliberals the aim of competition policy was a

limitation and control of private power, or at least its harmful effects,64

to protect the economic freedom of undertakings in the market in the

interest of a free and fair political and social order.65 According to one of

the founding fathers of ordoliberalism Franz Böhm:66

The real motives behind the enactment of antitrust law were …

not economic efficiency and the effectiveness of economic

control, but social justice and civil liberties which were held to be

threatened by monopolies.

Set against this search for how best to protect competition, the one-

dimensional view focusing on maximising economic efficiency in form of

consumer welfare, as defined in this thesis, raises a myriad of problems.

First, consumer welfare may conflict with fairness and the protection of

individual competitors, values which are expressed in the language of

the Treaty itself.67

Second, consumer welfare is not entirely in tune with Community case

law. An exclusive dedication to the objective of consumer welfare is a

departure from the jurisprudence analysed in chapter three. Amongst

other objectives, the ECJ has interpreted the protection of competition in

the market as protection of the economic freedom of market

participants. As between economic freedom and consumer welfare, the

former has clearly received the most emphasis in Europe. The

Commission and Community Courts have tended to equate an abuse

with a restriction of economic freedom, by which is meant restrictions on

the rights and opportunities of market operators. This is evident in, for

64 Gerber, supra note 35, page 251.

65 Möschel, supra note 35, page 146.

66 Franz Böhm, ‘Democracy and Economic Power’ in Cartel and Monopoly in Modern Law (CF Muller

Karlsruhe, 1961) page 28.

67 Barry E Hawk, ‘Article 82 and Section 2’ in OECD Report on Competition on the Merits (March,

2006). Available at: http://www.oecd.org/dataoecd/7/13/35911017.pdf.

24

example, those cases where the dominant undertaking prevented firms

from sourcing relevant products from other suppliers.68

Third, focusing on economic efficiency in the form of consumer welfare

may not, as argued by Cruz, be in tune with the normative structure of

the Community competition rules:69

As the law now stands, however, the competition rules contained

in the Treaty have a constitutional status and may be interpreted

as shaping a law of economic liberty from restraints of

competition and abuses of private economic power, not only a law

of economic efficiency. Thus, an efficiency-orientated approach to

the Community competition rules may not be in tune with the

current normative structure.

Fourth, a focus on consumer welfare arguably runs counter to the

ordoliberals’ understanding of competition law as illustrated by Franz

Böhm, quoted above. For ordoliberals competition is best protected by

protecting the economic freedom of undertakings’ access to the market

and their economic freedom in the market as a fundamental right. The

theory of ordoliberalism as defined in this thesis cannot be ignored as it

has had a considerable influence on Community competition law.70

68 Continental Can, supra note 50, paragraph 26; Hoffmann-La Roche, supra note 49, paragraphs

89ff and 125; Case T-219/99 British Airways plc v Commission [2003] ECR II-5917, paragraph 244;

Joined Cases 40-114/73 Cooperative Vereniging ‘Suiker Unie’ U.A. and Others v Commission [1975]

ECR 1663, [1976] 1 CMLR 295, paragraph 518; Michelin, supra note 8, paragraph 71; Case T-

65/89 BPB Industries v Commission [1993] ECR II-389, paragraph 120; Case T-228/97 Irish Sugar

v Commission [1999] ECR II-2969, [1999] 5 CMLR 1300, paragraph 232.

69 Julio Baquero Cruz, Between Competition and Free Movement, The Economic Constitutional Law

of the European Community (Hart, 2002) page 1.

70 Philip Lowe, ‘Consumer Welfare and Efficiency – New Guiding Principles of Competition Policy?’,

speech given on 27 March 2007 at the 13th International Conference on Competition and 14th

European Competition Day, page 2, speech available at:

http://ec.europa.eu/comm/competition/speeches/text/sp2007_02_en.pdf; David Evans,

‘Roundtable Discussion about the US Supreme Court’s decision in Verizon v Trinko’ Global

Competition Review (2004) page 26; OECD paper on Competition on the Merits, supra note 67,

page 253; David Gerber, ‘Constitutionalizing the Economy: German Neo-liberalism, Competition Law

and the “New” Europe’ 42 American Journal of Comparative Law (1994) 25, page 73.

http://ec.europa.eu/comm/competition/speeches/text/sp2007_02_en.pdf

25

Even if economic freedom is a key objective in the analysis of Article 82,

there are clear reasons why the Commission is keen to depart from this

approach. The aim of DG Competition’s policy review of Article 82 is to

bring the law in line with ‘mainstream economics’.71 Whether DG

Competition is willing to depart from past decisions in order to

accommodate the objective of consumer welfare is far from certain.

When asked whether it is prepared to depart from earlier decisions, DG

Competition replies:72

There is nothing in the discussion paper that calls into question

any of the Commission’s past decisions. At the same time, the

Commission must always work to improve its decisions and its

policies. The review is about a better focus and a better

argumentation in future cases. Furthermore, the fact that if the

discussion paper leads to a more refined economic analysis, the

Commission would in future argue a case in a different way than

in the past, does not mean that the decision taken in a past case

was wrong, only that the argumentation would today have been

different.

In the late 1990s, when the Commission was discussing the reform of

Article 81, a leading academic in competition policy said:73

[T]he reasons why reform or modernization in this area [Article

81] is such a delicate task is the temptation to adjust the rules in

light of past disappointments and to open a Pandora’s box of new

interest and power balancing.

A similar concern can be advanced about the review of Article 82, as it is

not unthinkable that some may be tempted to argue that the

Commission and the ECJ were pursuing an objective of consumer welfare

in the early cases in order to defend DG Competition’s commitment to

71 Philip Lowe ‘DG Competition’s Review of the Policy on Abuse of Dominance’ in Barry E Hawk

(ed), Annual Proceedings of the Fordham Corporate Law Institute: International Antitrust Law &

Policy (New York: Juris, 2004) page 165.

72 MEMO/05/486, supra note 17.

73 Ernst-Joachim Mestmäcker, ‘The EC Commission’s Modernization of Competition Policy: A

Challenge to the Community’s Constitutional order’ 1 European Business Organization Law Review

(2000) 401, page 413.

26

consumer welfare.74 The challenge to the policy review of Article 82

comes where economic freedom which is related to fairness conflicts

with the efficiency-maximising consumer welfare goal highlighted by

Hawk:75

The major policy issue concerns the possible tension between

efficiency considerations on the one hand and the Article 86 [now

Article 82] market integration and fairness policies on the other

hand. To date that tension has largely been resolved in favour of

the latter. Whether this will continue may depend on the EEC's

willingness to acknowledge the tension and resultant possible

trade-offs between allocative efficiency (or consumer welfare

according to many economists) and protection of individual firms

(or distributive concerns according to many economists).

Despite comprehensive discussions of the review of Article 82, there is a

lack of thorough debate about the potential conflict a focus on consumer

welfare may create. If the consumer welfare agenda and a more

economics-based approach to Article 82 are to be taken seriously, the

first step must be to examine whether consumer welfare conflicts with

economic freedom. Furthermore, it need not be the case that the

protection of economic freedom and promoting consumer welfare are

seen as polar opposites, even though they do not necessarily have to be

polar opposites to be in conflict.

3. Research Question

The thesis does not purport to explain how Article 82 applies generally or

to discuss all possible objectives pursued under the provision, but

74 See for example Neelie Kroes, ‘European Competition Policy in a Changing World and Globalised

Economy: Fundamentals, New Objectives and Challenges Ahead’, speech given on 5 June 2007 at

GCLC/College of Europe Conference on "50 years of EC Competition Law" Brussels, speech available

at: europa.eu.int/comm/competition/speeches. This is however contradicted by Director General

Philip Lowe who argues that case law and decisional practice have been influenced by

ordoliberalism, see below page 69.

75 Barry E Hawk, ‘The American (Anti-trust) Revolution: Lessons for the EEC’ 9(1) European

Competition Law Review (1988) 53, page 81.

27

questions whether there is a tension between the two objectives of

protecting economic freedom and the promotion of consumer welfare in

the application of Article 82. The aim is to assess the legitimacy of DG

Competition’s current aspirations of consumer welfare.

There are various concepts and doctrines within Article 82, but this

specific focus has been chosen in order to assess the legitimacy of DG

Competition’s commitment to consumer welfare in its policy review on

Article 82. Even though the Commission and Community Courts have

interpreted case law in the light of many objectives (for example, market

integration, efficiency, economic freedom and liberalisation) this thesis

focuses on the objectives of economic freedom and consumer welfare

only. Market integration and liberalisation will not be discussed as they

are arguably intermediate objectives;76 they are not an end in

themselves. When assessing whether market integration is effected it is

arguably to assess whether consumer welfare and an efficient allocation

of resources are enhanced. Market integration is believed by some

scholars to be a rationale for efficiency.77 This view is supported by

Waelbroeck who believes that the original focus on the free movement of

goods in the Spaak Report,78 prepared by the Intergovernmental

Committee on European Integration, was ‘a means of increasing

competition, which itself was seen as a means of enhancing economic

76 Market integration is an intermediate objective, see Case T-168/01 GlaxoSmithKline v

Commission, paragraph 118 and OJ [2000] C291/1 Commission Guidelines on Vertical Restraints,

paragraph 7.

77 Roger Van Den Bergh, ‘Modern Industrial Organisation versus Old-fashioned European

Competition Law’ 17(2) European Competition Law Review (1996) 75, pages 76-80.

78 Rapport des Chefs de Délégation aux Ministres des Affaires Etrangères (in English: Report of the

Heads of Delegation of the Governmental Committee) set up by the Messina Conference, named

after Paul-Henri Spaak, then the Belgian prime minister, was presented on 21 April 1956 and led to

the Treaty of Rome of 1957. Available at:

http://aei.pitt.edu/archive/00000995/01/Spaak_report.pdf.

28

efficiency’.79 Liberalisation is arguably also a means to an end, as it is a

process for achieving an open market and allowing other competitors

access to the market to ensure economic freedom as well as enhancing

competition.

The discussion of objectives is not new, but it is necessary, as pointed

out by Giuliano Amato:80

[I]t requires a frank discussion [discussion of goals of

competition], because it is doubtful that we all agree on the goals

of competition. Generally, however, we refrain from discussing it

openly, and ambiguities remain.

Economic freedom and consumer welfare will not be examined in a legal

vacuum. The former will be considered in the light of ordoliberalism,

German competition law and, where appropriate, Community case law.

The latter will be examined in the light of DG Competition’s policy review

of Article 82. The main research question, outlined above, is approached

by asking the following questions:

What is the theory behind the objective of economic freedom?

What is the theory behind the objective of consumer welfare?

Which of the two objectives actively shaped the law and policy of

Article 82?

And has this theory influenced judicial decision-making under Article

82 in the early judgments where the law of Article 82 is to be found?

How does this theory fit with DG Competition’s current aspirations of

ensuring consumer welfare?

79 Michel Waelbroeck, ‘Competition, Integration and Economic Efficiency in the EEC from the Point

of View of the Private Firm’ in Festschrift zu Ehren von Eric Stein (Nomos Verlagsgesellshaft, 1987)

page 302.

80 Panel discussion on Competition Policy Objectives in Claus-Dieter Ehlermann & Laraine L Laudati

(eds), European Competition Law Annual – The Objectives of Competition Policy (Hart, 1998) page

3.

29

4. The Research Puzzle

This study will contribute to the scholarly discussion of Article 82 by

starting from the basic standpoint of questioning the legitimacy of DG

Competition’s priority of consumer welfare, given the impact

ordoliberalism has had on Article 82.

This study begins from the proposition that the objective of protection of

competition encompasses many different conceptions, two of which are

economic freedom and consumer welfare. It evaluates whether there is a

tension between the protection of economic freedom and the promotion

of consumer welfare, as any tension must be identified and explored

before a useful evaluation of the legitimacy of DG Competition’s aims

can be undertaken.

Some contemporary literature under Article 82 identifies this tension,

but does not deal with it comprehensively.81 Although analysis has

expanded to consider the role of economics within the scope of Article

82,82 which is also apparent in the policy review of Article 82,83

historically the centre of most academic debate on the subject and the

bedrock of Article 82 scholarship is legal analysis of the wording of the

EC Treaty and the case law of the Community Courts.84

To comprehend whether there is a tension between protecting economic

freedom and promoting consumer welfare, it is essential to fully

understand the fundamentally different values consumer welfare and

economic freedom are trying to achieve. By defining each concept it

81 Robert O’Donoghue and A Jorge Padilla, The Law and Economics of Article 82 EC (Hart, 2006).

82 EAGCP Report, supra note 39; O’Donoghue and Padilla, supra note 81.

83 Ehlermann and Atanasiu (eds), supra note 12.

84 For example, Joliet, supra note 46; Samkalden and Druker, ‘Legal problems relating to Article 86

of the Rome Treaty’ Common Market Law Review (1965) 158; Vogelenzang, ‘Abuse of Dominant

Position in Article 86; The problem of Causality and Some Applications’ 13 Common Market Law

Review (1976) 63; Eilmansberger, supra note 36.

30

becomes clear that consumer welfare takes a neo-classical position

whereas economic freedom, as derived from ordoliberalism, values

individual economic freedom in the market as a fundamental right.

Despite the conceptual difference, it is essential to assess whether

economic freedom is considered a fundamental right in the Community

legal order or is used to enhance consumer welfare. If economic freedom

is considered a fundamental right in the ordoliberal sense, then DG

Competition is replacing a fundamental right with a utilitarian goal of

consumer welfare. This would be a violation of a fundamental right. If

economic freedom is used to enhance consumer welfare then economic

freedom is a means to the end of consumer welfare. A third possible

outcome is that economic freedom is an end in itself without being a

fundamental right in the Community legal order. The legitimacy of DG

Competition’s decision to give priority to consumer welfare depends on

which of these outcomes applies.

Seeking to protect the economic freedom of undertakings may give rise

to competitor concerns. This inevitably brings competition authorities

into conflict with their goal of protecting consumer welfare and creates a

dilemma: which category of rights to protect at the expense of which

other rights. To what extent should the manner in which a large firm

exerts its market power to the detriment of competitors, as opposed to

the detriment of consumer welfare (or competition) at large, be the

concern of competition authorities? Indeed, it is a fine distinction,

because by protecting competition and the competitive process,

competitors, who make up the fabric of competitive markets, are in fact

being protected. If there are no competitors, there is no competitive

process to protect. Importantly, these views are reflected in decisions

and case law where the Commission and the Community Courts

continuously have held that conduct by dominant undertakings

31

constitutes an abuse where it hinders the production of competitors, i.e.

hinders their economic freedom in the market.85

5. Research Approach

The potential tension between economic freedom and consumer welfare

can only be understood by defining these concepts and understanding

that they are quite distinct. This study does not analyse the evolution of

case law under Article 82, as it is a conceptual study of two potentially

conflicting objectives under Article 82. Judicial practice and case law will

be considered only where it is necessary in order to assess whether

economic freedom and consumer welfare have been pursued by the

Commission and the Community Courts. This study is a conceptual

thesis involving discussions of economics, politics and law. It will touch

upon economic history, politics and some contemporary economic

thinking, but is written from a legal perspective.

This study seeks to move academic discussions about the individual

abuses within Article 82 to an examination of some of the concepts of

the provision, given DG Competition’s commitment to consumer welfare.

The research approach is illustrated below in figure one.

85 Case 6-7/73 Istituto Chemioterapico Italiano SpA and Commercial Solvents Corporation v

Commission of the European Communities [1974] ECR 223, [1974] 1 CMLR 309, paragraph 25;

Case 53/87 Consorzio Italiano della Componentistica di Ricambio per Autoveicoli and Maxicar v

Régie Nationale des Usines Renault [1988] ECR 6039, [1990] 4 CMLR 265, paragraph 16; Case

238/87 AB Volvo v Erik Veng (UK) Ltd [1988] ECR 6211, 4 CMLR 122, paragraph 9; Cases C-241-

242/91P Radio Telefis Eireann (RTE) and Independent Television Publications Ltd v Commission

[1995] ECR I-743, [1995] 4 CMLR 718, paragraph 54; Irish Sugar PLC OJ [1997] L258/1, [1997] 5

CMLR 666, paragraph 134; British Midland v Aer Lingus OJ [1992] L96/34, [1993] 4 CMLR 596,

paragraph 25; Decca Navigator System OJ [1989] L43/27, [1990] 4 CMLR 627, paragraph 97ff.

32

Figure 1: An illustration of the research approach.86

Intellectual

framework

Empirical

investigation

and analysis

Inquiry: How does the objective of economic freedom fit with DG Competition’s current

aspirations of consumer welfare?

Research aim: To examine whether there is a tension between economic freedom and consumer

welfare in order to assess DG Competition’s legitimacy of prioritising consumer

welfare.

Examines: Whether economic freedom is a fundamental right in the Community legal order

and whether economic freedom is a means to the end of consumer welfare.

Carried out: Chapter five and chapter six.

Inquiry: What is the theory of consumer welfare?

Research aim: To identify the concept of consumer welfare.

Examines: The Chicago School’s understanding of consumer welfare; the concepts of

allocative, productive and dynamic efficiency, and the Commission’s

understanding of consumer welfare. Relevant Community case law.

Carried out: Chapter four.

Inquiry: Has ordoliberalism influenced jurisprudence under Article 82?

Research aim: To establish which legal doctrine influenced the development of Article 82.

Examines: Relevant case law, the Spaak Report and Reports on Competition Policy.

Carried out: Chapter three.

Inquiry: What is the theory of economic freedom?

Research aim: To identify the concept of economic freedom.

Examines: Ordoliberalism and its competition law model and its influence on German

competition law.

Carried out: Chapter two.

86 I have drawn inspiration for the format of this model from Dorte Sindbjerg Martinsen, European

Institutionalisation of Social Security Rights: A Two-layered Process of Integration (European

University Institute, Florence, PhD Thesis, 2004) page 13.

33

6. Research Method

The primary research method employed in this study is examination and

analysis of primary and secondary documentary material. In order to

evaluate the appropriate legal context, the approach of the Community

Courts has been evaluated including, where appropriate, specific

judgments of the Community Courts. The political context, and in

particular the initiative of the policy review of Article 82, has been

analysed in some parts with reference to DG Competition’s Discussion

Paper.87

The Discussion Paper provides useful information on DG Competition’s

current thinking on Article 82. This primary research material is however

necessarily one-sided as it presents Article 82 from the perspective of

DG Competition alone. In order to uncover another perspective on the

approach to Article 82, specific judgments of the Community Courts

have been analysed.

The secondary documentary material comprises scholarly works in the

disciplines of law, politics and economics.

7. Thesis Structure

The thesis is divided into seven chapters. Chapter one introduces the

thesis puzzle and explains the research approach and motivation. It

contextualises the study in the broader perspective of Article 82.

Chapter two begins the examination of ordoliberalism that affected the

development of German competition law, focusing on the ordoliberal

conception of competition policy. It analyses the ordoliberal

understanding of economic freedom and explores how German

competition law has been influenced by ordoliberal orthodoxy. The

87 Discussion Paper, supra note 15.

34

analysis of German competition law is necessary as it has had an impact

on Community competition law and the interpretation of Article 82. The

analysis of ordoliberalism is essential as the concept of economic

freedom is derived from ordoliberalism. The analysis is necessary for the

discussion of early case law in chapter three and for the comparison with

the concept of consumer welfare in chapter six.

Chapter three continues the examination of ordoliberalism. It analyses

how ordoliberalism can be traced in the Spaak Report.88 It considers

whether the Commission and the ECJ were pursuing an objective of

economic freedom in some of the fundamental cases decided under

Article 82 in the 1970s and 1980s. Chapter three relies on case law as

there is no general secondary legislation or practical guidance under

Article 82. The law of Article 82 is therefore to be found in the case law

of the Community Courts and, in particular, the early cases analysed in

chapter three.

Chapter four attempts to provide a definition of consumer welfare and

explains the concepts of allocative, dynamic and productive efficiency.

This is essential for the thesis question and for the analysis in chapter

six where it is considered whether economic freedom is a means to the

end of consumer welfare. Even though DG Competition has declared that

consumer welfare is the main objective when considering exclusionary

abuses under Article 82, it has not assigned a precise meaning to the

objective in its Discussion Paper. The chapter identifies the Chicago

School’s definition of consumer welfare and the Commission’s perception

of the concept. It considers some recent practice to examine whether

the Commission and the Community Courts are adopting an analysis

which focuses on economic efficiency.

88 The Spaak Report, supra note 78.

35

Chapter five explains how economic freedom and consumer welfare are

conceptually quite distinct. It examines whether the EC Treaty is based

on the ordoliberal economic constitution. Moreover, whether economic

freedom forms part of the general principles of the EU by looking at the

European Convention on Human Rights, the Charter of Fundamental

Rights of the European Union and the German Constitution.

Chapter six questions whether economic freedom is considered an aim in

itself or a means to the end of consumer welfare. This is essential to

assess the legitimacy of DG Competition’s move to consumer welfare as

the main aim when assessing exclusionary abuses under Article 82.

Chapter seven outlines the findings and conclusions of the thesis. Based

on the findings, it presents an answer to the research question.

36

PART I

Part I of this thesis consists of two chapters: chapter two Ordoliberal

Economic Freedom and chapter three Economic Freedom in Article 82:

the Early Jurisprudence of the European Court of Justice.

Chapter two considers the German legal tradition of ordoliberalism.1 The

ideology behind Germany’s post-war social market approach was

ordoliberalism (also associated with the Freiburg School). This ideology

asserted that individual economic rights deserve protection, and that

vigilance is needed to ensure economic power is not misused or abused

in the interests of the economic liberty of the individual. Chapter two

describes the ordoliberal competition law model which it contrasts with

the competition law model that was derived from Germany’s first but

non-sustainable competition law, the Ordinance against the Misuse of

Economic Power of 1923 in German Verordnung gegen Missbrauch

wirtschaftlicher Machtstellungen.2 The contrast between the two models

shows that German competition law developed from an abuse system to

a prohibition system which is the system adopted in the current German

competition law Act against Restraints of Competition in German Gesetz

gegen Wettbewerbsbeschränkungen.3 It also examines how the German

equivalent provision to Article 82 has been applied in some German

cases.

1 There is no definition of the term ‘ordoliberalism’, but the term ‘ordo’ was chosen by Walter

Eucken (a leading exponent of the theory) to establish the link between the German neo-liberal

concept of economic order and the medieval idea of ‘ordo’, that is the ‘natural and harmonious state

of affairs to be detected by scholarly discussion and to be approached in reality by appropriate

policies’ see Herbert Giersch, Karl-Heinz Paque and Holger Schmieding, The Fading Miracle: Four

Decades of Market Economy in Germany (Cambridge University Press, 1992) page 26, footnote 30.

2 Verordnung gegen Missbrauch wirtschaftlicher Machtstellungen, 1923 Reichsgesetzblatt [RGB1.] I

1067 (2 November 1923). An English translation can be found in Robert Leifman, Cartels, Concerns

and Trusts (London, Methuen & Co Ltd, 1932) pages 351-357.

3 Gesetz gegen Wettbewerbsbeschränkungen [GWB], 1957 Bundesgesetsblatt [BGB1.] I 1081

(West Germany). An English translation can be found in the German journal Wirtschaft und

Wettbewerb (Düsseldorf, Handelsblatt).

37

Chapter three examines whether ordoliberalism is a doctrine which has

had an influence on Article 82 by analysing the Spaak Report, the EC

Treaty and the case law. It establishes that, in addition to the well-

known market integration objective,4 the protection of the individual

economic freedom of competitors has been of central concern to the

Commission and Community Courts.5 The Community Courts rarely

embrace the language of economic freedom, but prohibit conduct that

interferes with the structure of markets.6 The accessibility and openness

of markets have been seen as necessary tools to achieve greater

individual economic freedom, by increasing the opportunities for market

participants. The conduct of dominant undertakings, which detracts from

the openness of markets, has in some cases been condemned by the

Community Courts under Article 82.7 Moreover, an undertaking with a



95; Case 27/76 United Brands Company v Commission [1978] ECR 207, [1978] 1 CMLR 429, are

just a few of the cases where market integration considerations had an influence on the outcome.

Market integration does no longer seem to be the over-arching goal in the Community as pointed

out by the CFI in Case T-168/01 GlaxoSmithKline v Commission, paragraph 118. It is however

worth noting that there are four appeals against the CFI judgment (Case C-501/06 GlaxoSmithKline

v Commission, Case C-513/06 Commission v GlaxoSmithKline, Case C-515/06 European Association

of Euro Pharmaceutical Companies and Case C-519/06 Asociación de exportadores españoles de

productos farmacéuticos) so this point is far from certain.

5 Merit E Janow, ‘International Perspectives on Abuse of Dominance’ in OECD paper GD(96)131 on

Abuse of Dominance and Monopolisation 1996, page 34. 6 As recently emphasised by Advocate General Kokott in her Opinion in Case C-95/04P British

Airways plc v Commission, delivered on 23 February 2006, paragraph 73: ‘Article 82 EC, like the

other competition rules of the Treaty, is not designed only or primarily to protect the immediate

interests of individual competitors or consumers, but to protect the structure of the market and thus

competition as such (as an institution), which has already been weakened by the presence of the

dominant undertaking on the market’.

7 For example, Case 6/72 Europemballage Corpn and Continental Can Co Inc v Commission [1973]

ECR 215, [1973] CMLR 199; Case T-83/91 Tetra Pak International SA v Commission [1994] ECR II-

755, [1997] 4 CMLR 726.

38

dominant position has ‘a special responsibility not to allow its conduct to

impair genuine undistorted competition in the common market’.8

Chapter three goes on to argue that the focus on damage to the

competitive market structure is inherent in the very definition of abuse,

as articulated by the ECJ in Hoffmann-La Roche.9 The aim of protecting

the structures within which firms compete, is that effective competition

amongst competitors is maintained so that no firm or firms become too

influential.10 The chapter examines some of the early cases under Article

82 which laid down the foundation of the provision. It shows that the

Commission and the Community Courts have required prohibition

whenever the market freedom of market participants was endangered.

This understanding of competition law may be viewed as protecting

smaller competitors from the aggregation of economic power.11

8 Case 322/81 Nederlansche Banden-Industrie Michelin NV v Commission [1983] ECR 3461, [1985]

1 CMLR 282, paragraph 57. 9 Case 85/76 Hoffmann-La Roche AG v Commission [1979] ECR 461, [1979] 3 CMLR 211. 10 Janow, supra note 5, page 33ff.

11 Giuliano Amato, Antitrust and the Bounds of Power (Hart, 1997) page 69; Eleanor Fox,

‘Monopolization and Dominance in the United States and the European Community: Efficiency,

Opportunity, and Fairness’ 61 Notre Dame Lawyer (1986) 981.

39

Chapter 2 Ordoliberal Economic Freedom

Introduction

The argument advanced in chapter two is that German competition law

took a different turn after World War II, namely a turn away from a law

based on administrative measures, towards a law based on judicial

measures protecting individual economic freedom as a fundamental right

due to ordoliberalism.

Section one conducts a theoretical analysis of ordoliberalism and its

competition law model. This is done in a legal vacuum. The aim of section

one is to understand the ordoliberal conception of competition law and its

main objective of individual economic freedom as a fundamental right.

Section two describes the Ordinance against the Misuse of Economic

Power of 1923. This represents a different competition law model from

the ordoliberal competition law model, in that it is based on

administrative measures pursuing an objective of public interest. Section

two examines the main, and current, German competition law: the Act

against Restraints of Competition, which is based on the ordoliberal

competition law model. It discusses how the abuse provision of the Act

against Restraints of Competition has been interpreted in some German

cases.

1. Ordoliberalism

The ideas of ordoliberalism took shape in response to the economic,

political and social crises starting with the fall of the Weimar Republic in

1933 and the rise of Nazi Germany.1 One of the greatest European

calamities resulted from the totalitarian Nazi regime misusing the

1 Nazi economic policy was not concerned with protecting the process of competition but with the

elimination, or at least marginalisation, of it.

40

powerful iron and steel industry (the German Schwerindustrie)2 by

turning private economic power into political power. Well-run cartels3

and monopolies resulted in powerful economic concentration in

conjunction with great accumulation of political power, which led to the

abandonment of democratic principles.4 Ordoliberals disliked both

totalitarianism and socialism, because they considered that these

ideologies were contrary to the principles of private property, free-

market economy, and paid little attention to the rule of law.5

Ordoliberals rejected notions of both totalitarianism and socialism, and

developed the idea of the ‘social market economy’ (Soziale

Marktwirtschaft).

1.1 Ordoliberal ideology

Ordoliberalism is an ideology developed in the 1930s and 1940s by a

group of neo-liberals at Freiburg University in Germany.6 Their ideologies

were grouped together under the term ordoliberalism, which became

shorthand for the underlying set of ideas behind the social market

economy.7

2 Wilhelm Röpke, German Commercial Policy (Longmans, 1934) pages 24-27.

3 Especially the chemical cartel ‘Interssen Gemeinschaft Farben’ (I.G. Farben), from which the

major source of Hitler's power derived. Germany processed large quantities of coal and a German

scientist discovered the process of converting coal into gasoline in 1909, but the technology was not

completely developed during World War I. In August 1927, the US company Standard Oil agreed to

embark on a cooperative program of research and development of the hydrogenation process to

refine the oil and on 9 November 1929, Standard Oil and IG Farben signed a cartel agreement, see

Joseph Borkin, The Crime and Punishment of I.G. Farben (London: Deutsch, 1979).

4 Röpke, supra note 2, pages 24-27.

5 Svetozar Pejovich, ‘From Socialism to the Market Economy: Post-war West Germany versus Post-

1989 East Bloc’ 1 The Independent Review (2001) 27. 6 The founders of the Freiburg School were economist Walter Eucken, lawyer Franz Böhm and

lawyer Hans Grossmann-Doerth. Some protagonists of ordoliberalism were Wilhelm Röpke,

Alexander Rüstow, Alfred Müller-Armack and Leonhard Miksch.

7 Herbert Giersch, Karl-Heinz Paque and Holger Schmieding, The Fading Miracle: Four Decades of

Market Economy in Germany (Cambridge University Press, 1992) page 31.

41

If we trace the theoretical roots of the social market

economy, we find that the idea originated from neoliberal

economics, in other words, the new study of economics that

drew attention to the important function of competition

while trying to create a competitive order that deviated from

paläoliberalism and was in line with the ideas of Walter

Eucken and Franz Böhm.8;9

In developing the social market economy, Eucken advanced the idea of

order-based policy (‘Ordnungspolitik’) which consisted of two

fundamental ‘orders’. One was the transaction economy

(verkehrswirtschaft) and the other was the administered economy

(zentralverwaltungswirtschaft). According to the first order (the

transaction economy) economic conduct was organised through private

transactional decision-making. Private companies could act on the basis

of incentives and disincentives created by economic competition.

According to the second order (the administered economy) economic

activity was organised according to criteria external to the economic

system.10 These two fundamental orders were incompatible, as the

transaction economy would be harmed by governmental intervention

and the administered economy would be harmed without governmental

intervention. According to Eucken, the failure to recognise the

incompatibility of the two orders was a major problem of the twentieth

century.11 In order to avoid the repetition of history and to prevent

private economic power turning into political power, it was imperative for

the ordoliberals to establish the appropriate economic order, protected

by the appropriate legal framework.

8 Alfred Müller-Armack, Wirtschaftslenkung und Marktwirtschaft (Hamburg, 1946) translation from

German to English is taken from: http://admin.fnst.universum.de/uploads/900/MarketEconomy.pdf.

9 Paläoliberalism is a term used by Wilhelm Röpke to describe the failures of nineteenth century

economic liberalism, see Erich Mende, ‘Studien und Berichte der Katholischen Akademie in Bayern’

in Eric Voegelin et al. Christentum und Liberalismus (Karl Zink, 1960) page 149ff.

10 David Gerber, ‘Constitutionalizing the Economy: German Neo-liberalism, Competition Law and

the “New” Europe’ 42 American Journal of Comparative Law (1994) 25, page 42.

11 Ibid. page 43.

http://admin.fnst.universum.de/uploads/900/MarketEconomy.pdf

42

The government’s policies should be designed to create and maintain the

chosen economic order through Ordnungspolitik.12 If the economic

constitution calls for a transaction economy, then the Ordnungspolitik

must ensure the creation of conditions within an industrialised economy,

which allow the development of a functioning and humane economic

order.13 The task of the Ordnungspolitik is to search for a normative

order.14 The ordoliberal approach is a ‘program of freedom’ embedded in

and subordinated to a constitutionally theoretical set of conditions where

order becomes a prerequisite for freedom.

Ordoliberalism was dedicated to achieving an economic order – a

competitive order – which was able to control private economic power

and political power in order to ensure a prosperous and humane society

which guaranteed individual economic freedom and price stability.15 Price

stability was seen as essential for a society where long-term contracts

would act as the cement for civil society, whilst the competitive order

was seen as necessary both to prevent the accumulation of private

economic power in too few hands and to sustain economic

development.16 The higher the level of competition in the economy, the

more effectively the system functioned.

The social market economy became the name for the economic order,

the competitive order, underlying the transaction economy. The

individual characteristics of the transaction economy were private

property, the protection of economic freedom and low barriers to entry

12 David Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus

(Clarendon Press Oxford, 1998) page 246.

13 Walter Eucken, ‘Die Wettbewerbsordnung und ihre Werwirklichung’ 2 ORDO 1949, page 21. (An

English translation of this article can be found in 2(2) Competition Policy International (2006) 219. This thesis will be referring to the original German article).

14 Walter Eucken, Grundsätze der Wirtschaftspolitik (Tübingen, 1952) page 14.

15 Ibid. page 290ff.

16 Ray Barrell and Karen Dury, ‘Choosing the Regime: Macroeconomic Effects of UK Entry into EMU’

NIESR Discussion Paper No 168 (2000) page 5.

43

into markets. These characteristics tended to reinforce each other and

thereby increase the effectiveness of the system as a whole.17 The social

market economy advocated by ordoliberals, became the actual economic

system created in (the then) West Germany by Ludwig Erhard.18

The social market economy represented the ordoliberal vision of society,

where individual economic freedom and competition were sources of

political freedom, and represented the ‘economic constitution’ of society.

Ordoliberals intertwined legal and economic perspectives and discourses

by arguing that the characteristics and effectiveness of the economy

depended on its relationship with the political and legal systems. This

view is based on a belief that the economic order was formed through

political and legal decision-making. Ordoliberals believed that the

institutional framework that constituted a well-functioning market could

not be expected to arise naturally, but rather was a matter of adequate

constitutional choice. The economic constitution emphasised the need for

competition laws to control the economic power of private firms and

prohibit conduct by firms with power, which would otherwise interfere

with the process of competition.19

The economic constitution was by definition not political as it was not

subject to political intervention. It was committed to economic rationality

and a system of undistorted competition implemented and protected by

a legal framework. The legal framework would regulate and limit the

emergence of private economic power by prohibiting cartels, the growth

of economic power and contracts that created unjustified limits on the

competitive autonomy of firms. From the ordoliberal perspective, private


18 Niels Goldsmith & Arnold Berndt: ‘Leonhard Miksch (1901-1950) – A Forgotten Member of the

Freiburg School’ Freiburg Discussion Paper on Constitutional Economics No 3 (2002).

19 This concept of economic power is one of the features of German and European competition law

thinking that most clearly distinguishes it from US antitrust law analogues, see Gerber, supra note

10, page 51.

44

economic power threatened the competitive process, so the primary

function of competition law was to eliminate private economic power in

order to protect the process of competition. When a system had chosen

a transaction economy in its economic constitution, then that choice

required the government to make the system function effectively. In

order to function effectively the government should adopt an order-

based policy as suggested by Eucken, with the legal system, constructed

in such a way that it could maintain conditions of complete

competition.20 Complete competition exists in a market where no firm

has the power to coerce conduct of other firms.21 A firm with market

power would have the power to hinder the performance of its rivals and

that was structurally inconsistent with complete competition. Therefore

the conduct of a firm with economic power was to be limited so as not to

harm its competitors or society in general.22 Complete competition will

be described in more detail in section 1.3 below.

Competition law was the main pillar of the social market economy and

was represented as constitutional in scope.23 Competition was viewed as

the most ‘ingenious instrument of deprivation of power in history’ and

needed to be protected by law.24 Ordoliberals saw competition as a

process whereby market actors participate in the economy without being

disproportionately constrained by either private or public power. Under

the ordoliberal competition law model the aim is ‘the protection of

individual economic freedom of action as a value in itself, or vice versa,

the restraint of undue economic power’.25 Ordoliberals would prefer a

20 Gerber, supra note 12, pages 246-247. 21 Eucken, supra note 13, page 23.


23 Gerber, supra note 12, pages 277 and 282.

24 Eucken, supra note 13, page 23.

25 Wernhard Möschel, ‘The Proper Scope of Government Viewed from an Ordoliberal Perspective:

the Example of Competition Policy’ 157 Journal of Institutional and Theoretical Economics (2001) 3;

Wernhard Möschel, ‘Competition Policy from an Ordo Point of View’ in Hans Willgerodt & Alan

Peacock (eds), German Neo-liberals and the Social Market Economy (Macmillan, 1989) page 146.

45

state of inefficiency coupled with freedom rather than a totalitarian, but

efficient, state.26 Effectively every power – whether political or economic

– must be associated with checks, constraints and countervailing forces.

When it comes to political and economic power, ordoliberals argue

strongly for representative democracy and against the economic power

of firms as their conduct could hinder the performance of rivals. Their

dislike of power was due to their belief that individual economic freedom

was eroded from within by the rise of private economic power. The

deprivation of power was one of the core ideas of ordoliberalism:27

The one who has power has no right to be free and the

one who wants to be free should have no power.

Ordoliberals believed that the accumulation of power resulted from the

inability of the legal system to prevent the creation and misuse of

private economic power.28 They alleged that both the lack of adequate

safeguards against the rise of private economic power and the weakness

of the state ultimately replaced economic and political freedom with an

unrestrained dictatorship, which became unstoppable and led to World

War II.29

1.2 Ordoliberal competition policy

The theory of ordoliberalism breaks competition policy down to four

main points. First, the primary goal of competition policy is individual

economic freedom. Second, the state retains a strong role in protecting

the basic parameters of the system of competition, but with strict limits

26 Christian Watrin, ‘Germany’s Social Market Economy’ in Alastair Kilmarnock (ed), The Social

Market and the State (The Social Market Foundation, 1999) pages 91-95.

27 Franz Böhm, ‘Stenographische Berichte des 2. Deutschen Bundestages’ 76 Sitzung Bonn (Bonn:

Hans Heger 1955) page 4217; Ernst-Joachim Mestmäcker, ‘Competition Policy and Antitrust: Some

Comparative Observations’ 136 Zeitschrift für die gesamte Staatswissenschaft’ (1980) page 387.


29 Giersch, Paque and Schmieding, supra note 7, pages 27-28.

46

on more direct intervention. Third, competition policy is shaped by the

rule of law rather than by ad hoc political decision-making. Fourth,

competition policy is embedded in the economic order of a free and open

society.30

The theory has two basic starting points: first, that individual economic

freedom is an essential accompaniment to political freedom and second,

that competition is necessary for the economic liberty of the individual.31

In the so-called ordoliberal view of society, individual economic freedom

and competition are the source not only of prosperity, but also of

political freedom. Thus, the legal framework, the economic constitution,

should include basic principles to counteract any tendencies that

neutralise competition. It should regulate and limit the emergence of

private economic power by prohibiting cartels, the growth of single firm

economic power and contracts that create unjustified limits on the

competitive autonomy of firms.

The legal framework should protect the competitive order by allowing

‘liberal state intervention’ (but without intervening to achieve particular

results).32 Intervention should control the accumulation of economic

power to prevent the hindrance of competition, and thereby individual

economic freedom, from being endangered. Ordoliberalism did not

regard capitalism (pure economic liberalism) as a self-generating, self-

equilibrating, and self-correcting system, but believed that the state

should intervene to cure market failures. Eucken was concerned with

securing and maintaining the competitive order and argued in favour of

state intervention ‘directed at securing the order of the economy, not at

30 Möschel, ‘Competition Policy from an Ordo Point of View’, supra note 25, page 142.

31 Friedrich A Hayek, New Studies in Philosophy, Politics, Economics and the History of Ideas

(University of Chicago Press, 1978) pages 179–190.

32 The idea of liberal state intervention makes ordoliberalism decidedly different from other liberal

strands, see Niels Goldsmith & Arnold Berndt, supra note 18, page 12.

47

the steering of the economic process’.33 Eucken declared that ‘the

economic system cannot be left to organize itself’,34 and Röpke called

pure economic liberalism ‘undiluted capitalism’ and regarded it as

intolerable.35 They argued that a free economic market is good in theory

but may have undesirable outcomes in practice. Röpke was concerned

with the undesirable social consequences of the pure market

mechanism, despite being pro-market.36 He argued in favour of state

intervention to correct the outcome of the market process through, for

example, direct transfers and subsidies.37 However, he argued against

interference with the market mechanism itself, for example, he was not

in favour of fixing prices and quantities.38 Miksch argued that a ‘free

economy can only be an economy which is organized by the state

according to liberal principles’. Thus, competition is a ‘game that is

regulated by the state’.39

Ordoliberal theorists acknowledged that both individuals and society

need to be protected from the misuse of power. Thus, the framework

assigned a positive role to the state in the form of power to intervene in

the market to protect the autonomy of the individual, and to guarantee

private contractual autonomy, freedom of occupation and trade,

individual property rights and free movement of persons, by imposing

restrictions on cartels and abusive behaviour by dominant companies.40

Besides imposing restrictions on the players in the market, the legal

framework should impose restrictions on the political system in order to


34 Walter Eucken, The Unsuccessful Age (Edinburgh: William Hodge, 1951) page 93.

35 Wilhelm Röpke, Social Crisis of Our Time (London: Thames and Hudson, 1958) page 119. 36 Wilhelm Röpke, Civitas Humana. Grundfragen der Gesellschafts- und Wirtschaftsreform

(Erlenbach-Zurich, 1944). 37 Wilhelm Röpke, Die Gesellschaftskrisis der Gegenwart (Erlenbach-Zürich, 1942) pages 252-258.

38 Giersch, Paque and Schmieding, supra note 7, page 31.

39 Leonhard Miksch, Wettbewerb als Aufgabe. Grundsätze einer Wettbewerbsordnung (Godesberg,

2nd ed, 1947) page 9.

40 Philip Manow, ‘Ordoliberalismus als ökomische Ordnungstheologie’ in Leviathan (2001) page 179.

48

protect the free market against political intrusion.41 The legal framework

should be respected both by the political system, to avoid opportunism

under the pressure of socio-economic forces exerted by political parties,

and by private cartels and undertakings with economic power.

Whilst traditional liberalism maintained that the rule of law was mainly

to protect the individual against government coercion (political power),42

ordoliberalism attached equal importance to safeguarding individual

economic freedom from intrusion by private undertakings’ economic

power. Ordoliberalism thereby differentiates itself from traditional

classical liberalism in two respects: first, that an unregulated free

market is not the most efficient means of allocating resources, and

second, that individual economic freedom needs to be protected from

both political power and the misuse of private economic power.

Ordoliberalism considers free enterprise and free competition as being

inseparable from the concepts of liberty and prosperity.

1.3 Complete competition

The competitive order underlying the transaction economy, was the only

economic order ordoliberals considered capable of achieving the

beneficial result of a democratic and humane society. They considered

that only complete competition could produce this beneficial outcome.

Where complete competition exists, therefore certain kinds of behaviour

which could potentially amount to an abuse, such as predatory pricing or

loyalty rebates, would not constitute an abuse. Instead, such behaviour

would constitute performance competition, as the firm engaging in

pricing below cost or offering the rebate would not have power to

41 Franz Böhm, Wirtschaftsordnung und Staatsverfassung (Tübingen Mohr, 1950).

42 Bruno Leoni, Freedom and the Law (Liberty Fund, 3rd ed, 1991).

49

foreclose competition.43 Complete competition could be achieved through

competition on both the supply and demand sides of the market.44 To

have competition on both sides of the market would require that no

market player on either the supply or the demand side of the market

was restricted by foreclosure in their freedom to compete. It was

therefore imperative to protect the individuals’ freedom to compete.

The complete competition model has similarities with the model of

perfect competition,45 but the complete competition model is different

from the neo-classical price theory based on perfect competition,46 as

complete competition requires that no firm has the power to coerce

other firms.47

43 The term ‘competition on the basis of performance’ or ‘performance competition’ is interrelated

with the term ‘competition on the merits’. Some scholars think that it is no more than a semantic

difference, but the ECJ seems to mean that it is the same in substance, for example in Hoffmann-La

Roche, supra note 9, paragraph 91 where the text discusses competition ‘on the basis of commercial

operators’. This is a poor translation of the authentic German version in which the Court used the

term ‘leistungswettbewerbs auf der grundlage der leistungen der marktbürger abweichen’ where

‘leistungswettbewerb’ is the legal concept of ‘competition on the basis of performance’. A better

translation would therefore have been ‘competition on the basis of performance’. In Case 62/86

AKZO Chemie BV v Commission [1991] ECR-I 3359, [1993] 5 CMLR 215, paragraph 70 the text

mentions ‘competition on the basis of quality’ whereas in the original French version the term

‘concurrence par les mérites’ was used. A better translation therefore would have been ‘competition

on the merits’.


45 An explanation of the model of perfect competition can be found in chapter four.

46 The term ‘complete competition’ in German is ‘vollstandiger Wettbewerb’. It is generally

translated as ‘perfect competition’. However, as noted by Möschel: ‘the scholars of ordoliberalism

have also used economic models for the description of their ideas, for instance, the model of perfect

competition as it was developed in the traditional theory of competition. Such models, however,

served only for the description of general effects of a market system, illustrating them in what

might be called a chemically pure form. That did not imply, however, that those partly unreal

premises were to be integrated as goals into practical competition policy. Any attempts to disprove

or ridicule the ordoliberal concepts of competition as unrealistic miss the point’ see Möschel,

‘Competition Policy from an Ordo Point of View’, supra note 25, page 146.

47 Möschel, ‘Competition Policy from an Ordo Point of View’, supra note 25, page 157 footnote 16.

50

Where an individual firm has economic power it must be controlled, as it

is otherwise capable of obstructing social justice. An independent

competition authority should impose a positive obligation on such a

dominant undertaking in order for it to conduct itself ‘as-if’ it were faced

with complete competition.48 It was believed that the dominant

undertaking would thereby be forced to compete on performance in

order to be profitable, rather than use its power to gain an unfair

advantage over rivals.49 The dominant undertaking would therefore have

an obligation not to impair its rivals’ freedom and right to compete.

Ordoliberals assumed that the ‘as-if’ standard would provide clear

guidelines for applying the abuse concept by basing it on the proposition

that economic science could effectively use perfect competition as a

model against which to measure actual economic behaviour.50

1.4 Summary

The origin of ordoliberalism was in humanist values rather than

economic efficiency.51 The ordoliberal theorists set out to create a

tolerant and humane society that would protect human dignity and

personal freedom. To protect individual freedoms from the public power

of government as well as from the power of private companies,

ordoliberals advanced a political and legal framework, the economic

constitution. This constitution had to guarantee an efficient functioning

of the competitive order by allowing liberal state intervention to correct

market failure. The economic constitution should achieve a market which

functioned in a way that all members of society perceived as fair, and

48 Dieter Schmidtchen, ‘German Ordnungspolitik as Institutional Choice’ 140 Zeitschrift für die

gesamte Staatswissenschaft (1984) 60.

49 The use of the ‘as-if’ standard requires a comparison between markets with and without players

having market power. According to Miksch such a comparison could be made by using the

equilibrium-theoretical analyses of Alfred Marshall and Léon Walras, see Goldsmith & Berndt, supra

note 18, page 4.



51

provided equal opportunities for participation. To achieve this objective,

political power and private economic power had to be limited by

establishing a competitive order based on a model of complete

competition in order to protect individual economic freedom as a value in

itself.

By emphasising individual economic freedom as the overriding

normative principle,52 ordoliberals connected competition law to

fundamental rights.53 The latter point will be elaborated in chapter six.

They viewed competition law as a matter of rights and individual

freedoms. They believed that competition within the economy provided

the basis for the economic order they envisioned: a free market

economy. They also believed that competition provided the best way to

organise social change.54 The ordoliberals encouraged open access to the

market, as they believed that this would be the best control of private

and political power. In their view the aim of competition policy was not

economic efficiency, but rather the limitation and control of private

power, or at least of its harmful effects,55 in order to protect individual

economic freedom in the interest of a free and fair political and social

order.56 For ordoliberals the economic constitution had constitutional

status and should protect the individual's freedom to compete.

Competition law was a part of the social market economy, which

represented the ordoliberal vision of society, where economic freedom


53 Ordoliberals saw individual economic freedom as a fundamental right. Economic freedom has

been important for others than ordoliberals, see for example the US Supreme Court in US v Topco

Assocs [405 US 596 1972] page 610: ‘Antitrust laws in general… are the Magna Carta of free

enterprise. They are as important to the preservation of economic freedom and our free-enterprise

system as the Bill of Rights is to the protection of our fundamental personal freedoms. And the

freedom guaranteed each and every business, no matter how small, is the freedom to compete…’.




52

and competition were sources of political freedom, and represented the

economic constitution of society. Ordoliberal theorists intertwined legal

and economic perspectives and discourses by arguing that the

characteristics and the effectiveness of the economy depended on its

relationship to the political and legal system.

2. German Competition Law

Germany’s competition law – inspired and developed primarily by

ordoliberals – has led European, if not world, developments in

combatting restraints on competition.57

Given the influence from German competition law, it will be explored in

some depth in this section in order to examine how it was influenced by

ordoliberalism and in turn influenced EC competition law. That German

competition law has played an essential role in the evolution and shaping

of Community competition law has been acknowledged by former

Competition Commissioner Karel Van Miert:58

We all know now what a success story it [German competition

law] has been. It has been a successful export too. The fact

that the competition rules were made a cornerstone of the

EEC Treaty from the very beginning was due not least to the

influence of Germany, where the same subject was occupying

minds at the same time. It is largely thanks to Germany,

therefore, that the EEC attached so much importance to

competition from the outset, to the point where it became

almost a constitutional principle. Again and again since then

German politicians and competition specialists have taken a

leading role in the shaping and practical development of the

European competition rules.

Before exploring the principal and current German competition

law the Act against Restraints of Competition (the ‘ARC’)


58 Karel Van Miert, ‘The Future of European Competition Policy’, speech given on 17 September

1998 at the Ludwig Erhard Foundation in Bonn (speech/98/1351), speech available at:

europa.eu.int/comm/competition/speeches.

53

Germany’s first competition law the Ordinance against the

Misuse of Economic Power (the ‘Abuse Regulation’) will be

discussed.59

2.1 The Ordinance against the misuse of economic power

The Abuse Regulation has historical significance because it was modelled

and was the first initiative in Germany to control the private economic

power of undertakings. It was also the first general competition

legislation in Europe which was specifically aimed at protecting the

competitive process.60

The Abuse Regulation relied on administrative measures which

authorised officials to control the conduct of economically powerful firms

to avoid harm to the public interest. This objective gave the German

Federal Cartel Office (the ‘FCO’)61 power to exercise discretionary

authority in the name of public interest. This is, as discussed below,

fundamentally different from the objective of individual economic

freedom pursued under the ARC.

During industrialisation in the late nineteenth century, the number of

cartels and powerful businesses in Germany increased, in particular in

the steel and coal industries. At the beginning of the twentieth century,

restraints on competition in the form of cartels were deemed legitimate.

World War I gave an additional impetus to cartelisation (so-called war

59 Verordnung gegen Missbrauch wirtschaftlicher Machtstellungen, 1923 Reichsgesetzblatt [RGB1.]

I 1067 (2 November 1923).

60 OECD Report, The Role of Competition Policy in Regulatory Reform, prepared for the OECD

Review of Regulatory Reform in Germany (July 2004) page 8.

61 For a general discussion of the German Federal Cartel Office, see Andre R Fiebig, ‘The German

Federal Cartel Office and the Application of Competition Law in Reunified Germany’ 14 University of

Pennsylvania Journal of International Business Law (1993) 373.

54

cartels) because of government rationing policy. Germany became the

country of cartels.62

Historically, cartels were regarded very positively; cartels had long

shown themselves to be a valuable means of stabilising economic

development. They were also politically useful, as the government used

cartels to control industry. The government found it easier to control the

activity of a relatively small number of cartels than a large number of

independent firms. For politicians, cartels were necessary for the

economy to recover from hyper-inflation.63 By pursuing an objective of

public interest, the government could still allow cartel activity if it turned

out to be beneficial for its policies.

The German use of the term cartel referred to any kind of agreement

between competitors about production or distribution that involved or

affected competition.64 The term cartel covered agreements used to

protect cartel members from the impact of inflation by agreeing that the

prices charged by the cartel members should automatically be increased

in response to an increase in the price of the goods or services they

purchased. As a result, producers were able to shift the burden of

inflation to their purchasers and, ultimately, to consumers. Thus, cartels

were highly desirable for German industries.

German industry’s positive view of cartels changed slightly after World

War I when cartels became associated with the potentially harmful

effects of big businesses. The years after World War I were characterised


63 Hyper-inflation is a term used to describe levels of inflation that are very high. This was the case

in Germany in the period 1919–1923.

64 An analysis of the German use of the term ‘cartel’ is offered by Theodore F Marburg,

‘Government and Businesses in Germany: Public Policy towards Cartels’ 38(1) The Business History

Review (1964) 78. He argues that the German use of the term ‘cartel’ was broader then than it is

today under Article 81.

55

by political instability and hyper-inflation. As inflation accelerated,

cartels became recognised as being harmful as it was believed that they

contributed to inflation. The pressure for legislation to control cartels

increased. Since 1920, small businesses and consumer interests had

been demanding legislation. A cartel advisory committee was set up in

1922 as hyper-inflation reached catastrophic heights, with devastating

results.65 The Abuse Regulation was enacted in 1923 as a response to

big businesses’ cartel agreements66 and the post-World War I hyper-

inflation. By enacting the Abuse Regulation, the Weimar Government67

hoped to free the economy from unproductive restraints, increase

production and thereby control inflation in the interest of the public

welfare.68

The Abuse Regulation was ratified by the Weimar Government, but was

not approved by the Parliament. It lacked democratic legitimacy, which

impaired its effectiveness.69 Chancellor Gustav Stresemann,70 who

promulgated the Abuse Regulation, had been a pre-war advocate of

controls on large-firm abuse in order to protect small businesses, but at

the time of its enactment, the Weimar Government only had limited

power. In order to avoid too much resistance from German industry,

Stresemann described the Abuse Regulation in liberal terms. He argued

that by removing the restraints imposed by cartels, production would

increase and inflation would be reduced.

65 Detlev J K Peukert, The Weimar Republic (Penguin Books, 1993) page 249.

66 OECD Report, supra note 60, page 6.

67 Named after the town of Weimar where meetings of the elected National Assembly were held.

68 Wilhelm Röpke, Welfare, Freedom and Inflation (University of Alabama Press, 1964) page 9;

Gerber, supra note 12, pages 123-124.


70 German politician and statesman during the Weimar Republic and one of the first to talk about

European economic integration.

http://en.wikipedia.org/wiki/Weimar_Republic

56

The objective of the Abuse Regulation was to protect public interest.71 To

fulfil that purpose, it contained provisions to control the conduct of

cartels and reduce the coercive power of cartels that harmed public

interest. However, it did not prohibit cartel agreements directly, but

could reduce the power of the cartels indirectly by giving members of

the cartel the possibility to withdraw from the cartel arrangement.72

Paragraph 4 in conjunction with paragraph 10 of the Abuse Regulation

authorised administrative enforcement measures to be taken

prospectively against any conduct of a cartel which endangered the

public interest, by suggesting changes to that conduct. The objective of

public interest made it acceptable to violate the economic rights of the

individual; if cartels turned out to be beneficial for public interest then

they would be allowed regardless of the violation of the individual’s

economic rights. Thus, the Abuse Regulation was a weak legislative

measure from an ordoliberal perspective.

The Abuse Regulation was annulled by the Nazi regime in the 1930s. It

was not in line with Nazi totalitarian economic legislation, for example,

price fixing, rationing of consumer goods, central allocation of labour,

raw materials and major commodities.73 Despite the fact that the Abuse

Regulation was repealed, it became central to the discourse of

competition law in Germany as well as Europe, after World War II.74

In the years after World War II, competition law took a new turn in

Germany, one that was to play a key role in the process of European

integration and which was to have extraordinary consequences for the

71 Abuse Regulation, supra note 59, paragraph 4.

72 Abuse Regulation, supra note 59, paragraph 8 sought to reduce the power of the cartel over its

members by allowing the cartelists to get out of the cartel agreement, if they had an urgent cause.



57

course of post-war European history.75 Germany fundamentally changed

its conception of competition law by linking competition law with political

responsibility and fundamental rights.76

2.2 The Act against restraints of competition

The purpose of the ARC is to protect freedom of competition and to

eliminate economic power whenever it impairs effectiveness of

competition.77 This is in essence the core of the ordoliberal competition

model described above in section one. As will be explained in this

section, the underlying principles of the ARC were heavily influenced by

the ordoliberal concept of competition policy. According to Gerber:78

Enactment of the GWB [ARC] probably ranks as the most

important political victory for ordoliberalism.

The preparation of the ARC had already started in 1948, but Germany

had to wait until 1957 before the ARC was enacted.79 The enactment

was the result of an intense battle between two possible models of

competition law. One model was the one known from the Abuse

Regulation, which was based on a model of administrative control where

conduct by economically powerful firms could be controlled, but not

prohibited, in order to protect public interest. The other model was the

ordoliberal competition law model, which the ARC rely on. It represented

a hybrid between an administrative competition law model known from

the Abuse Regulation and a judicial competition law model. It is

75 Manfred E Streit, ‘Economic Order, Private Law and Public Policy: the Freiburg School of Law and

Economics’ 148 Journal of Institutional and Theoretical Economics (1992) 675.

76 Wolfgang G Friedman, Anti-trust Laws: A comparative symposium (London: Stevens, 1956) page

233.

77 Bundesgerichtshof [BGH], Ölfeldrohre, WuW/E BGH 1276 (1973).

78 Gerber, supra note 10, page 66. 79 For a detailed description, see Rudolf Mueller, Martin Heidenhain and Hannes Schneider, German

Antitrust Law: An Introduction to the German Antitrust Law with German Text and Synopsis

(Frankfurt am Main: Fritz Knapp, 1981) page 189ff.

58

administrative in that an administrative authority, the FCO, is

responsible for enforcing it. It is judicial in that the FCO’s decisions can

be appealed to the ordinary courts operating according to judicial

principles and procedures.80 The ordinary courts have the power to apply

the ARC and where the courts’ interpretation is inconsistent with that of

the FCO, the courts can overturn the decisions made by the FCO.81 Like

the ordoliberal competition law model, the ARC is based on a prohibition

system and operates according to judicial principles rather than

administrative discretion, in order to protect the individual’s freedom to

compete.

The preparation of the ARC started as a response to the Nazi totalitarian

system, which built on ineffective administrative allocation of resources,

illegal markets and excess liquidity in the face of rigidly fixed prices,

giving rise to widespread inefficient production, very high transaction

costs and a very unfavourable ratio of stocks to output in an economy

desperately short of raw materials.82 After this totalitarian system

collapsed there was a need to protect the general market order of the

economy. The traumatic experience of Nazism had shown that political

freedom and economic freedom are inseparably linked, and that

maintaining competition and fighting restraints of competition not only

gives individuals freedom to compete, but also secures political freedom.

The battle for the ARC will be discussed in the following section. It is

interesting, because as a leading German economic official Otto Schlecht

has argued:83

80 David Gerber, ‘The Transformation of European Community Competition Law’ 35 Harvard

International Law Journal (1994) 97, page 98.

81 David Gerber, ‘Two Models of Competition Law’ in Hanns Ullrich, Comparative Competition Law:

Approaching an International System of Antitrust Law (Nomos, 1998) page 113. 82 Giersch, Paque and Schmieding, supra note 7, page 21.

83 Otto Schlecht, ‘Macht und Ohnmacht der Ordnungpolitik – Eine Bilanz nach 40 Jahren Sozialer

Marktwirtschaft’ 40 ORDO (1989) 303.

59

Without the battle for GWB [ARC] there would probably never

have been the prohibition of cartels or the abuse supervision in

the EC Treaty.

2.2.1 The Josten draft

The first draft of the ARC was the Draft of an Act to Protect Competition

Based on Performance and an Act Concerning the Monopoly Office.84 In

German the draft was known as the Josten-Entwurf as it was prepared

by Paul Josten.85 Josten had previously been the head of the cartel

section of the Economic Ministry where he worked with one of the

founding fathers of ordoliberalism, Franz Böhm. Böhm was a member of

the Josten committee and had a huge impact on the draft,86 which

represented an elaboration of ordoliberal competition policy.

The Josten Draft proposed a total ban on cartels. The ordoliberal

theorists preferred a total ban on cartels because they believed the

individual’s freedom to compete was limited by cartel activity. This

proposal was a dramatic change from the Abuse Regulation, which did

not contain a total ban on cartels, but merely tried to indirectly reduce

the coercive power of cartels over their members. German industry was

opposed to a total ban on cartels and preferred an administrative control

competition law model as in the Abuse Regulation;87 it preferred an

abuse system enforced by administrative officials to a prohibition system

enforced by the court.88

84 Entwurf zu einem Gesetz zur Sicherung des Leistungswettbewerbs und zu einem Gesetz uber das

Monopolamt (Bundeswirtschaftsminister publication, Bonn, 1949).

85 In English the draft is known as the Josten Draft. This is the name that will be used in the

thesis.

86 Knut W Norr, Die Leiden des Privatrechts (Tubingen, 1994) page 163.


88 In contrast with a prohibition system where conduct can be prohibited, an abuse system does

not prohibit conduct, but rather investigates conduct. Changes can be put in place prospectively, but

not prohibited.

60

On 5 July 1949, the Josten Draft was presented to the Federal Minister

of Economics, Ludwig Erhard. He supported the idea of the social market

economy,89 but his philosophy was not entirely identical to those of the

Freiburg School.90 Erhard was a determined opponent of cartels,91 but

decided against the Josten Draft as he saw the total ban as too

controversial at the time. He was a newly appointed minister and his

position was far from stable.92 Having decided against the Josten Draft,

Erhard gave Roland Risse,93 the head of the ‘Price and Decartelisation

Department’ in the Economic Ministry, the responsibility for the

continuing drafting of the ARC.

2.2.2 The Government draft

Risse was not as hostile towards cartels as the ordoliberals and tried to

outline a more politically acceptable draft by incorporating some

exemptions to the cartel prohibition. Risse submitted the so-called

‘Government Draft’ in 1952. It was a watered-down version of the Josten

Draft, but it was still influenced by ordoliberalism with the aim of

achieving complete competition. It contained the ordoliberal ‘as-if’

standard and a ban on cartels.94 Equally responsible for the Government

Draft was Eberhard Günther,95 who had the same attitude towards

cartels as the ordoliberals.


90 Volker Rolf Berghahn, The Americanisation of West Germany Industry (Leamington Spa, 1986)

page 159.

91 Volker Rolf Berghahn, Modern Germany: Society, Economy and Politics in the Twentieth Century

(Cambridge University Press, 2nd ed, 1987) page 156.

92 Dr Gerrit Meijer, ‘Some Aspects of the Relationship between the Freiburg School and the Austrian

School’ (1999) page 13. Available at: http://www-edocs.unimaas.nl/abs/rm99001.htm.

93 In 1950, Risse was the German delegate in the Schuman Plan negotiations leading to the ECSC

Treaty. For further information see: http://www.eu-history.leidenuniv.nl/index.php3?m=&c=54.

94 Volker Rolf Berghahn, ‘Ideas into Politics: the case of Ludwig Erhard’ in RJ Bullen, H Pogge von

Strandmann, and AB Polonsky (eds), Ideas into Politics: Aspects of European History, 1880 to 1950

(London: Croom Helm, 1984) pages 159-161.

95 Günther was later to become the first president of the BundesKartellAmt.

61

The Government Draft was fiercely attacked by German industry which

was very powerful. Erhard tried to negotiate the different interests as he

needed support from industry in order to remain in politics in the longer

term. A major debate took place on 24 and 31 March 1955 where the

central question discussed was whether cartels and other restrictive

practices were to be regarded as bad in principle, or only because of

specific objectionable behaviour.96 A compromise was reached. German

industry accepted the cartel prohibition and in return Erhard agreed to

accept some exemptions such as rationalisation cartels, crises cartels

and export cartels. The Government Draft was accepted and the final

version of what became the ARC97 was ratified on 27 July 1957 and

came into force on 1 January 1958.98

2.3 The application of the ARC

As shown in previous section, the underlying principles of the ARC are

heavily influenced by ordoliberalism. The main objective of the ARC is

the protection of economic freedom,99 as will be shown in the brief

summary of the following cases.

The Vitamin B12 case concerned excessive pricing where vitamins in

Germany were sold at prices above those in the countries around

Germany.100 The German Supreme Court emphasised that the abuse

provision in section 22 of the ARC (now section 19) could be used to

determine whether prices above the competitive price level were

abusive. The Supreme Court concluded that the abuse provision was

violated as prices were excessive and upheld the FCO’s decision

96 Friedman, supra note 76, page 190.

97 The ARC contained provisions on horizontal restraints, vertical restraints and abuse of market-

dominating position. Merger control was not added until 1973. 98 Gesetz gegen Wettbewerbsbeschränkungen [GWB], 1957 Bundesgesetsblatt [BGB1.] I 1081

(West Germany). 99 Ölfeldrohre, supra note 77.

100 BGH Vitamin B-12, WuW/E BGH 1435 (1976).

62

requiring the defendant to reduce its prices to the competitive price

level. According to the Supreme Court, this requirement to reduce prices

did not interfere with the defendant’s economic freedom; it merely

established a limit beyond which prices could be considered abusive.

In order to establish that the prices were abusive, the FCO had

compared German prices with prices in the neighbouring countries. The

Supreme Court held that in comparing prices, it is necessary to assess

what the prices would have been, if the dominant undertaking had

behaved ‘as-if’ it were constrained by complete competition. To make a

comparison between the actual market conditions and the market

conditions which would prevail if substantial competition existed is very

difficult. The difficulties in determining exploitative abuses resulted in

few cases reaching the German courts and a widespread belief in

Germany that the concept of exploitative abuse was ill-conceived and ill-

adapted to judicial application.101

Besides exploitative abuses, the abuse provision is used to prohibit

exclusionary abuses or, in other terms, impediment competition. The

main objective when considering impediment competition is to protect

freedom of competition by protecting the process of competition. Priority

is given to the process of competition, and this is an exact replica of

ordoliberal thinking, where the benefit of competition is a market

characterised by a desirable process, and the end result does not

matter. This objective could be achieved by preventing dominant

undertakings from using their power to harm competitors and other

market participants. This objective makes it difficult to distinguish

between impediment competition and performance competition, as also

performance competition can exclude rivals. Thus, early cases

concerning impediment competition struggled to find an effective


63

analysis to distinguish between impediment competition and

performance competition.102

Professor Peter Ulmer of the University of Heidelberg suggested a test to

analyse impediment competition, which was adopted by the German

courts. Ulmer proposed a cumulative two-step test, which was heavily

inspired by ordoliberalism. First, the conduct must constitute non-

performance competition and second, the conduct must restrict the

remaining competition in the dominated market.103 The key to the

application of Ulmer’s test is whether or not the conduct can be linked to

the undertaking’s performance.104 Conduct such as offering lower prices,

better quality and other forms of consumer benefits is not automatically

performance competition; the benefits to the consumer must be linked

to the undertaking’s performance. If the court finds that a certain

conduct is based on the economic power of a company, which endangers

the economic freedom of rivals, then the conduct is considered non-

performance competition. Conduct based on economic power can be

condemned only where there is not complete competition in the market.

If the first limb of the test is satisfied, it is necessary to consider the

second limb of the test, which is whether the conduct restricts the

remaining competition in the dominated market, that is to say the

structure of the market.

Several factors indicate that Ulmer’s performance-based competition test

was modelled upon the ordoliberal notion of competition law. First,

competition on the basis of performance was central for ordoliberals,

who linked the notion of performance competition with complete

competition by arguing that complete competition will ensure

102 Ibid. page 313.

103 Peter Ulmer, Schranken zulässigen Wetttbewerbs marktbeherrschender Unternehmen (Nomos-

Verlagsgesellschaft, 1977) page 147.

104 John Kallaugher and Brian Sher, ‘Rebates Revisited: Anti-Competitive Effects and Exclusionary

Abuse under Article 82’ 5 European Competition Law Review (2004) 263, page 271.

64

performance-based competition as no firm has economic power and thus

cannot use its power to impede economic freedom of rivals. In the

ordoliberal view complete competition exists in a market in which none

of the players has any economic power to coerce the conduct of other

firms. Second, one of the founders of ordoliberalism, Franz Böhm,

decades before Ulmer, had provided a theoretical basis for applying the

abuse provision based on the distinction between impediment

competition and performance competition.105 This distinction was

perceived by scholar Hans Carl Nipperdey,106 who used it in applying the

German statutes against unfair competition. According to Böhm, it would

be impediment competition if the conduct in question was designed to

for example impede a rival’s capacity to perform. Where a firm with

economic power used its power to impede the performance of a rival, for

example, by excluding the rival from the market, this would be an

interference with the competitive process and such conduct should be

prevented.107

Ulmer’s test was applied in the Combination Price Schedule case.108 A

publishing company in Berlin owned two different newspapers. One

newspaper was dominant in the market and the other was struggling

financially to stay in that market. The publishing company listed the

advertising fees for the two newspapers in combination. Any potential

customers wanting to advertise in the dominant newspaper was bound

also to advertise in the struggling newspaper for the combined price.

The FCO argued that it was a tying agreement, which interfered with

advertisers’ freedom to advertise in the dominant newspaper only, as

they were bound to advertise in the other non-dominant newspaper as

well. This tying constituted an abuse and infringement of the abuse

provision, section 22 of the ARC.

105 Franz Böhm, Wettbewerb und Monopolkampf (Berlin Heymann, 1933) page 253.

106 Hans Carl Nipperdey, ‘Wettbewerb und Existenzvernichtung’ 28 Kartell-Rundschau (1930) 127.


108 BGH Kombinationstarif WuW/E OLG 1767 (1977).

65

The infringement decision was appealed to the Supreme Court. The

Court held that the first step of Ulmer’s test was fulfilled, as the

combined price schedule improved sales of the tied product (the

struggling newspaper) by using the power of the tying product

(dominant newspaper) rather than through improved performance. It

was not competition based on performance, but conduct which was

possible only due to economic power. The Court found that the first step

of Ulmer’s test was met. However, the Court did not consider that the

second step of Ulmer’s test was met, as the conduct had not been

substantial enough to significantly foreclose and alter the structure of

the market. The Court emphasised that undertakings with economic

power should be subject to a standard of conduct higher than that of

firms without power. However, it required that abuse should be found

only where the conduct led to the destruction, or serious impairment, of

the market structure.109 According to the Court, this meant that there

must be a detrimental change in the structure of the market and that

was not the case in this particular situation. The Court held that only

conduct which seriously impaired the remaining competition in the

market should be prohibited. This is to avoid interfering with a dominant

undertaking’s right to use its power in the market.110

This case indicated that pursuing an objective of economic freedom

meant that the Court would find an abuse only where the economic

freedom of other market participants had been impaired by foreclosure

which seriously changed the structure of the market. Focusing on

foreclosure and the structure of the market involves considering whether

the competitive process actually reduces the capacity of firms to coerce

the behaviour of other firms.

109 Ibid. page 1772.


66

2.4 Summary

After World War II German competition law moved in a new direction

that would fundamentally alter the path of competition law in Europe.111

Germany adopted the ordoliberal competition law model according to

which competition law should operate as a fundamental protection of the

competitive process and of the economic freedom of individual market

players.112

According to ordoliberal ideas, competition law should have

constitutional status and play a leading role in promoting fundamental

rights, such as individual economic freedom. It should protect structures

within which firms compete so that effective competition amongst

competitors is maintained and no firm or firms become too influential.113

By adopting the ordoliberal competition law model, competition law was

given constitutional status in Germany. Competition law ‘should promote

basic values and protect fundamental rights’.114 It should operate

according to judicial and constitutional principles rather than

administrative discretion.

The application of the abuse provision of the ARC, in early cases

concerning impediment competition, was based on a test suggested by

Professor Ulmer. Ulmer’s test was heavily inspired by ordoliberalism. In

applying the test, the Court focused on the impairment of the structure

of the market. This meant that only conduct which led to serious

structural impairment of the remaining competition in the market, would

be considered a violation of the abuse provision.

111 Ibid. page 266.


113 Merit E Janow, ‘International Perspectives on Abuse of Dominance’ in OECD paper GD(96)131

on Abuse of Dominance and Monopolisation 1996, page 33ff.


67

Conclusion

Chapter two concludes that ordoliberalism holds both that government

needs to be restrained from abuse of power, and that the free market

has its limits.

Ordoliberalism has played a key role in the adoption of German

competition law and that has influenced the process of European

integration and has had extraordinary consequences for the course of

post-war European history.115

The ARC is based on the ordoliberal competition law model. The model’s

focus is on the protection of economic freedom and on the market’s role

as an integrative aspect in society rather than a creator of aggregate

wealth. It is fundamentally different from the competition law model that

was adopted by Germany before World War II, which was based on the

objective of public interest. Unlike the Abuse Regulation, which was

based on administrative discretion, the ARC is based on judicial

principles. This was considered appropriate by ordoliberals, for whom

competition law was the main pillar of the social market economy.

115 Streit, supra note 75.

68

Chapter 3 Economic Freedom in Article 82: the Early

Jurisprudence of the European Court of Justice

Introduction

This chapter discusses the extent to which Article 82 protects economic

freedom by protecting the competitive structures of a market as a goal

derived from the ordoliberal tradition. The chapter contains two sections.

Section one examines whether ordoliberalism has had a profound

influence on the structure of Article 82. This entails looking at the

distinction between exploitative and exclusionary abuses. Section two

considers whether cases such as Continental Can, Commercial Solvents,

United Brands, Hoffmann-La Roche and Michelin I reflect an emphasis on

rivalry apparently without rigorous inquiry into relative efficiency, as in

the ordoliberal approach.

1. Ordoliberal Influence on the EC Treaty

The idea that ordoliberalism has had a profound influence on Community

competition law is relatively uncontroversial1 and is supported by the

structure of the competition provisions in the EC Treaty.2 According to

Gerber, the ordoliberal creation of competition law ‘has evolved into the

European concept of competition law, and without it [ordoliberalism] the

1 David Evans, ‘Roundtable discussion about US Supreme Court’s decision in Verizon v Trinko’

Global Competition Review (2004) page 26; Barry E Hawk ‘Article 82 and Section 2’ in OECD paper

on Competition on the Merits, page 253. Available at: http://www.oecd.org/dataoecd/7/13/

35911017.pdf; David Gerber, ‘Constitutionalizing the Economy: German Neo-liberalism, Competition

Law and the “New” Europe’ 42 American Journal of Comparative Law (1994) 25, page 73.

2 Articles 81 and 82 are not a replica of ordoliberal thought, but their structure bears the imprint of

ordoliberal political philosophy, see Karel Van Miert, ‘The Future of European Competition Policy’,

speech given on 17 September 1998 at the Ludwig Erhard Foundation in Bonn (speech/98/1351),

speech available at: europa.eu.int/comm/competition/speeches; David Gerber, Law and

Competition in Twentieth Century Europe: Protecting Prometheus (Clarendon Press Oxford, 1998)

chapter 9.

http://www.oecd.org/dataoecd/7/13/35911017.pdf

http://www.oecd.org/dataoecd/7/13/35911017.pdf

69

development of the European Community is unimaginable’.3 Judicial

practice has been influenced by ordoliberalism as acknowledged by DG

Competition’s Director General Philip Lowe:4

The case-law of the European courts and also the decisional

practice of the Commission were initially influenced by ordoliberal

thought which has its origin in the so-called Freiburg School.

Their members advocated a strict legal framework and a strong

role for the state in protecting the basic parameters of

competition. Competition was understood as a process of

economic coordination on the basis of freedom of action. The

protection of individual economic freedom – as a value in itself –

was regarded as the primary objective of competition policy.

Despite this, there is little discussion in the legal literature about how

ordoliberal theory influenced the EC Treaty and in particular the

jurisprudence of Article 82.5 Traces of ordoliberalism can be found in the

report prepared by the Intergovernmental Committee on European

Integration, which unofficially is referred to as the Spaak Report.6 This

report gives an interesting insight to the historical background and the

influence of ordoliberal ideas which will be discussed briefly in the

following section. The point of the section is not to given an exhaustive

analysis of the Spaak Report, but to show briefly that this document,

predating the Treaty, bears imprint of ordoliberalism.





http://ec.europa.eu/comm/competition/speeches/text/sp2007_02_en.pdf. 5 There is plenty of literature which discusses ordoliberalism, but little discussion about the

influence of the doctrine on Community law and specific cases under Article 82.

6 The Spaak Report – Rapport des Chefs de Délégation aux Ministres des Affaires Etrangères (in

English: Report of the Heads of Delegation of the Governmental Committee) set up by the Messina

Conference, named after Paul-Henri Spaak, then the Belgian prime minister. Paul-Henri Spaak was

the chairman of the preparatory committee in charge of its preparation. The Report was presented

on 21 April 1956 and led to the Treaty of Rome of 1957, which came into force 1 January 1958.

Available at: http://aei.pitt.edu/archive/00000995/01/Spaak_report.pdf.

http://ec.europa.eu/comm/competition/speeches/

70

1.1 The Spaak report

By 1955 the idea of moving toward economic integration and

establishing a European Economic Community (EEC) led to delegates

from France, Italy and Germany drafting a report on the common

European market.7 The Spaak Report still relevant if we want to

understand ordoliberal influences on the EC Treaty. Even if the Spaak

Report was drafted so many years ago it paved the way for the EC

Treaty and is one of the public documents predating the EC Treaty. The

Spaak Report can be seen as a kind of ‘white paper’. Also, as pointed out

by Ludwig von Mises: ‘if we wish to understand contemporary events,

we would do well to read the books written 20 or 30 years ago’.8

The Spaak Report had two main objectives: one political and one

economic. The political objective was to reduce the possibility of conflicts

and wars.9 The economic objective was to increase prosperity in Europe

by reducing barriers to trade between the European states.10 To ensure

the establishment of a common market and ensure economic rights and

freedoms in the form of the freedom to provide services, free movement

of goods and freedom of establishment, barriers to trade had to be

abolished and undistorted competition ensured. The free movement

should be ensured by enforcing rules opening the markets between

Member States, and rules on competition to make sure that private

undertakings did not close the markets again by distorting competition.

7 Prior to the formation of the EEC, the European Coal and Steel Community (ECSC) was

established between (the then) West Germany, France, Italy and the Benelux countries (Belgium,

the Netherlands and Luxembourg) by the Treaty of Paris, ratified in April 1951 and in force from

July 1952. The formation of the ECSC arose from an increasing need for European integration to

secure lasting peace between European countries after World War II. The ECSC was a significant

achievement in organising the coal and steel market, but further integration was considered

necessary.

8 Quoted by Ludwig Von Mises in ‘Democracy and Economic Power’ in Cartel and Monopoly in

Modern Law (CF Müller Karlsruhe, 1961) page 36.

9 Spaak Report, supra note 6, page 5.

10 Ibid. page 8.

71

There was a general agreement that the elimination of barriers would

not be achieved if private agreements or economically powerful firms

were permitted to manipulate, or not prevented from manipulating, the

flow of trade. The Spaak Report highlighted the need for the EC Treaty

to prevent monopolies or monopolistic practices from impeding the

fundamental aims of the common market.11 However, this was never

implemented in the Treaty which prohibits an abuse of dominance.

Some of the key delegates preparing the text of the EC Treaty strongly

believed in ordoliberalism. One of the German delegates, Walter

Hallstein, a law professor from University of Frankfurt who later became

the first President of the Commission,12 espoused the ideas of

ordoliberalism.13 The chairman of the common market Group, Hans von

der Groeben, strongly believed in ordoliberalism, in particular that the

abuse of power must be prohibited.14 This view was echoed by another

delegate, the German Professor in economics, Alfred Müller-Armack, who

represented the German Federal Government as chief negotiator for the

EC Treaty.15

As a concept ordoliberalism appeared suitable to integration. The basic

principles laid down in the EC Treaty, for example, the four freedoms,16

11 Spaak Report, supra note 6, pages 44-45. 12 A critique of Walter Hallstein as the Commission’s first president can be found in John

Gillingham, European Integration, 1950-2003: Superstate or New Market Economy? (New York:

Cambridge University Press, 2003) page 74.

13 Gerber, supra note 2, page 343; Manfred E Streit, ‘Economic Order, Private Law and Public

Policy: the Freiburg School of Law and Economics in Perspective’ 148 Journal of International and

Theoretical Economics (1992) 675.

14 Note of 26 October 1956 by Hans Von der Groeber, Council Archives CM3/NEGO/217, Document

MAE468 f/56.

15 Mémo interne, 7 September 1956, Fascicule 5, Council Archives CM3/NEGO/236, Document

MAE/Sec. 29/56; Christian Joerges and Florian Rödl, ‘“Social Market Economy” as Europe’s Social

Model?’ EUI Working Paper Law No 2004/8 (2004) page 14.

16 Free movement of goods: Article 28; free movement of workers: Article 39; free right of

establishment: Article 43; and free movement of capital: Article 56.

72

the non-discrimination principle17 and the system of undistorted

competition matched ordoliberal conceptions of the economic order they

proposed for the market system as described in chapter two. The

protection of economic liberties in the form of freedom of trade

supported by competition and non-discrimination rules,18 matched the

ordoliberal view of protecting competition in the market and free access

to the market in order to maintain a stable liberal market economy and

to guarantee individual economic freedom.

1.2 Exploitative and exclusionary conduct

It has been argued that the competition provisions of the EC Treaty,

Articles 81 and 82, bear the imprint of ordoliberal political philosophy.19

This section will assess this argument in relation to Article 82 in

particular.20

In terms of Article 82(1), any abuse by one or more undertakings in a

dominant position within the common market or in a substantial part of

it shall be prohibited. Article 82(2) lists some examples of conduct by

dominant undertakings which may be considered abusive. The list

contains different categories of abuses: exploitative, exclusionary and

discriminatory, meaning that the prohibition covers both exploitative and

exclusionary abuses. The distinction between exploitative and

exclusionary conduct is not expressly made in the Treaty, perhaps

17 The general non-discrimination principle is set out in Article 12.

18 Gráinne De Búrca, ‘The Constitutional Challenge of New Governance in the European Union’

28(6) European Law Review (2003) 814, page 817; Philip Manow, Armin Schafer and Hendrik Zorn

‘European Social Policy and Europe’s Party-Political Center of Gravity, 1957-2003’ MPIFG Discussion

Paper No 6 (October 2004) page 20.

19 See Gerber, supra note 2, chapter 9 and Van Miert, supra note 2.

20 A similar assessment in relation to Article 81 has been made by Giorgio Monti, ‘Article 81 EC and

Public Policy’ 39 Common Market Law Review (2002) 1057, page 1061.

73

because most exclusionary practices are indirectly exploitative.21 Unlike

Article 81(1), Article 82 contains no reference to the anti-competitive

effects of the practice referred to as conduct will be regarded as abusive

only if it restricts competition.22 The reason is that if such a requirement

had been inserted, only exclusionary abuses would have been

considered abusive under Article 82, because there is nothing inherent in

exploitative abuses, for example, excessive pricing to a final consumer

to distort the process of competition.23

Exploitative abuse is where the dominant undertaking takes excessive

advantages of its market power and obtains a benefit by placing an

unfair burden upon its customers or consumers. This is only possible

because there are not many alternative undertakings to which the

consumer can turn for supply. Exploitative abuses are prohibited directly

in Article 82(2)(a) and (b), and indirectly in Article 82(2)(c) and (d).

Indent (a) concerns exploitative abuses, where the dominant

undertaking takes excessive advantage of its market power; indent (b)

concerns limitation of production, markets or technical development to

the prejudice of consumers; indent (c) concerns discriminatory abuses,

where the dominant undertaking differentiates seriously and

unjustifiably between companies with which it is contracting; and indent

(d) concerns tying, where the dominant undertaking makes one

obligation subject to a supplementary obligation in circumstances where

the obligations have no connection.

21 This argument was put forward by Eleanor Fox, ‘What is Harm to Competition? Exclusionary

Practices and Anti-Competitive Effect’ 70 Antitrust Law Journal (2002-2003) 371, and reiterated by

Advocate General Kokott in her Opinion in Case C-95/04P British Airways plc v Commission,

delivered on 23 February 2006, paragraph 68.

22 Case T-203/01 Manufacture française des pneumatiques Michelin v Commission [2003] ECR II-

4071, paragraph 237.

23 Duncan Sinclair, ‘Abuse of Dominance at a Crossroads: Potential Effect, Object and Appreciability

under Article 82 EC’ 25(8) European Competition Law Review (2004) 491, page 493.

74

René Joliet (later to become a judge at the ECJ)24 argued a couple of

years before the ECJ reached its judgment in Continental Can25 that

Article 82 should be interpreted to catch exploitative behaviour only,

which directly harms consumers. His reason for wanting to leave out

exclusionary conduct from the scope of Article 82 was that preventing

competitors’ exclusion from the market goes beyond the objective of

protecting the competitive process.26 Joliet’s argument has some merits

if it is accepted that most exclusionary abuses are exploitative. Joliet

argued that exclusionary conduct will eventually be caught by prohibiting

exploitation because the point of driving competitors out of the market is

that the dominant undertaking can acquire the market power necessary

to charge monopoly profits. The very question of whether exclusionary

abuses are captured by Article 82 was considered by Advocate General

Roemer in his Opinion in Continental Can:27

The only question of interest in the present case…is purely

whether Article 86 [now Article 82] also applies if an

undertaking in a dominant position on the market, by means of

the acquisition of another undertaking reinforces its position on

the market, to such an extent that ‘in practice’ nothing remains

in the way of competition of economic significance.

By using the word ‘also’, Advocate General Roemer assessed whether

Article 82, in addition to practices where the undertaking uses its power

(exploitation), applies to practices where the undertaking simply

strengthens its dominant position (for example by exclusion). Advocate

General Roemer argued that Article 82 was not the appropriate tool for

controlling mergers and concluded that there was no legal basis in

Article 82 for such an interpretation. He based his answer on several

24 René Joliet served on the ECJ between 1984 and 1995.

25 Case 6/72 Europemballage Corpn and Continental Can Co Inc v Commission [1973] ECR 215, [1973] CMLR 199. 26 René Joliet, Monopolization and Abuse of Dominant Position (Martinus Nijhoff, 1970) pages 250-

251.

27 Opinion of Advocate General Roemer in Continental Can, supra note 25, delivered on 21

November 1972, page 254.

75

observations including that Article 82 does not distinguish between

different degrees of dominance. Further, that it does not contain a

provision such as the merger provision in Article 66 of the ECSC Treaty,

that ‘effective competition’ must not be hindered. Finally, unlike Article

81(3)(b), Article 82 does not state that there must be no possibility of

eliminating competition in respect of a substantial part of the products in

question.

Advocate General Roemer’s final observation emphasises that the

dominant undertaking cannot abuse its position and then be exempted,

if its behaviour increases efficiency, by arguing that its behaviour does

not eliminate ‘competition in respect of a substantial part of the

products’. This reflects ordoliberal concern about the accumulation of

economic power.

Advocate General Roemer’s interpretation that Article 82 ‘does not

contain a provision that effective competition must not be hindered’

seems to be in tune with the ordoliberal view and the intentions of some

of the drafters of the Treaty. For example, Alfred Müller-Armack and

Hans Von der Groeben held that the hindrance of competition should not

be prohibited,28 only the abuse of a dominant position:29

With regard to monopolies, on the one hand, the more complete

the monopoly, the less probable is it that any competition likely

to be compromised or eliminated will exist. As a result, what

should be prohibited in the case of monopolies is not the

28 ‘Monopolies and oligopolies are not necessarily…incompatible with the competition regime. What

must be abolished …[are] the abuses to which certain monopolistic situations might lead…’. Ian S

Forrester, ‘The Modernisation of EC Antitrust Policy: Compatibility, Efficiency, Legal Security’ in

Claus-Dieter Ehlermann and Isabela Atanasiu (eds), The Modernisation of EC Antitrust Policy (Hart

publishing, 2001).

29 Document MAE468 f/56, supra note 14.

76

hindrance of competition but only abuse of a dominant position in

the market.30

Von der Groeben is saying that hindrance of competition is acceptable,

but abuse must be prohibited. This supports Advocate General Roemer’s

interpretation even though it is not entirely clear whether the term

‘abuse’ only refers to exploitation. Even if he meant exploitation only,

which is unclear, then what about exclusionary conduct which indirectly

leads to exploitation?

An answer to this question was given in Continental Can.31 The ECJ held

that not only exclusionary conduct which directly harms consumers

(exploitation), but also conduct which indirectly harms consumers

(exclusion) is prohibited:32

[T]he condition imposed by Article 86 is to be interpreted

whereby in order to come within the prohibition a dominant

position must have been abused. The provision states a certain

number of abusive practices, which it prohibits. The list merely

gives examples, not an exhaustive enumeration of the sort of

abuses of a dominant position prohibited by the treaty. As may

further be seen from letters (c) and (d) of Article 86(2), the

provision is not only aimed at practices which may cause damage

to consumers directly, but also at those which are detrimental to

them through their impact on an effective competition structure,

such as is mentioned in Article 3(f) of the Treaty. Abuse may

therefore occur if an undertaking in a dominant position

strengthens such position in such a way that the degree of

dominance reached substantially fetters competition, i.e. that

only undertakings remain in the market whose behaviour depends

on the dominant one.

The ECJ decided that the scope of Article 82 would be limited, if it could

be used only to address practices where the concerned undertaking used

its dominant position and not practices where the undertaking

30 ‘En revanche, en ce qui concerne les monopoles, ce n’est pas le fait d’entraver la concurrence,

mais bien seulement l’abus de la position dominante sur le marché qui pourra faire l’objet d’une

interdiction…’. Translation from Ian S Forrester, supra note 28.

31 Continental Can, supra note 25.

32 Ibid. paragraph 26.

77

strengthened its dominance. Thus, not only conduct which harms

consumers directly, but also conduct which harms consumers indirectly,

by altering the structure of the market, is prohibited by Article 82. This

is presumably because the restriction of competition by altering the

structure and dynamics of the market can limit intra-brand or inter-

brand competition.

A possible consequence of prohibiting an alteration of the market

structure or foreclosure only, which may or may not lead to indirect

consumer harm, may be protection of the competitive opportunities of

another firm. If the aim of the Court was not only to protect consumers

indirectly, but also to ensure that the exercise of power does not impair

competitors’ ability to compete, then that goes back to the ordoliberal

concern that competition should be protected by making sure that no

firm becomes powerful enough to impair the competitive process. That

the main goal of Article 82 is to protect the competitive process is an

assumption supported by Professor Thomas Eilmansberger.33

DG Competition’s Director General Philip Lowe is also willing to protect

the competitive process, but only as an outcome and not in itself:34

[C]onsumer welfare and efficiency are the new guiding principles

of EU competition policy. Whilst the competitive process is

important as an instrument, and whilst in many instances the

distortion of this process leads to consumer harm, its protection is

not an aim in itself. The ultimate aim is the protection of

consumer welfare, as an outcome of the competitive process.

33 Thomas Eilmansberger, ‘How to Distinguish Good from Bad Competition under Article 82 EC: in

Search of Clearer and More Coherent Standards for Anti-competitive Abuses’ 42 Common Market

Law Review (2005) 129, page 133; Thomas Eilmansberger, ‘Dominance – the Lost Child? How

Effects-Based Rules Could and Should Change Dominance Analysis’ European Competition Journal (2006) 15, page 18.

34 Lowe, supra note 4, page 9.

78

Lowe has argued elsewhere that Article 82 does not prevent dominant

undertakings from competing on the merits.35 Without having a precise

definition of ‘competition on the merits’, Lowe’s argument is taken to

mean that he is only willing to protect the outcome of the competitive

process rather than the process itself.

This is far removed from the ordoliberals’ reasons for protecting the

process of competition. As established in chapter two, ordoliberals focus

on the need to protect the conditions of competition rather than its

short-term consumer welfare. The competitive process should be

protected whether or not it is inefficient, as efficiencies are rejected in

principle. Put simply, the difference is whether the competitive process is

protected as an end in itself or protected as a means to an end. It is also

a question of whether the conduct in question is considered in a short-

term or long-term perspective. Ordoliberals take a long-term

perspective.36 To ensure competition in the long-run, protecting

competitors is more important than protecting efficiencies in the short-

term.

The question is whether some of the decisions of the Commission and

the ECJ take the long-term perspective with an emphasis on rivalry

without apparently rigorous inquiry into their relative efficiency, which

reflects the ordoliberal approach. This question will be addressed by

analysing fundamental cases decided under Article 82 such as

Continental Can, Commercial Solvents, United Brands, Hoffmann-La

Roche and Michelin I. These cases are chosen because the law on Article

82 is to be found in the early cases.

35 Philip Lowe at the thirteen Annual Conference on International Antitrust Policy, speech given on

23 October 2003 at the Fordham Antitrust Conference in Washington, page 5, speech available at:

http://ec.europa.eu/comm/competition/speeches.



79

2. The Application of Article 82

Over time, the conduct of dominant undertakings has been assessed in

the light of the overall objectives of the EC Treaty,37 in particular, the

creation of a single European market. Apart from this well-known market

integration goal,38 Article 82 has been applied to achieve a variety of

other objectives; most importantly, the objective of protecting

competition from distortion.39 In some of the cases however, it is very

difficult to assess whether the Community Courts think competition is

best protected from distortion by protecting the process of competition

and thereby the economic freedom of the market participants, or by

protecting consumer welfare. This difficulty arises because the ECJ has

decided that Article 82 is not only ‘aimed at practices which may cause

damage to consumers directly, but also at practices that are detrimental

to consumers through their impact on an effective competitive

structure’.40

2.1 Continental Can

2.1.1 Facts of the case

The American metal-packing company Continental Can, the world’s

largest producer of metal containers,41 acquired 91 per cent interest in a

Dutch metal can manufacturer – Carnaud of France and Thomassen &


Commission of the European Communities [1974] ECR 223, [1974] 1 CMLR 309, paragraph 32;

Continental Can, supra note 25, paragraphs 24 and 26; Case 27/76 United Brands Company v

Commission [1978] ECR 207, [1978] 1 CMLR 429, paragraph 183; Case 85/76 Hoffmann-La Roche AG v Commission [1979] ECR 461, [1979] 3 CMLR 211, paragraph 90.



95; United Brands, supra note 37. These are a few of the cases where market integration

considerations had a large impact on the outcome.

39 Continental Can, supra note 25. See also Eilmansberger, supra note 33, page 132ff.


41 Founded in 1904 and incorporated in New York in 1913.

80

Drijver-verblifa NV (‘TDV’) through its holding company Europemballage

Corporation (‘Europemballage’). Continental Can had transferred its 85

per cent share of a Germany company Schmalbach-Lubeca-Werke AG

(‘SLW’) to Europemballage to buy the shares of TDV.

2.1.2 The Commission’s decision

The Commission opened proceedings against the merger in April 1970

on its own initiative.42 The Commission found that Europemballage held

a dominant position in the markets for light metal open-top containers

for meat and fish and lids for glass jars. In December 1971, it concluded

that the merger with TDV constituted an abuse of a dominant position

and thus violated Article 82.43 The Commission argued that

Europemballage had rendered any future competition between TDV and

SLW impossible and thereby distorted competition in West Germany and

the Benelux countries, which represented a substantial part of the

common market.44 Its decision was based on five points:

1. the very large market share already held by SLW;

2. the weak position of the remaining competitors;

3. the weak position of the buyers compared to the strength of the

merged company;

4. the numerous ties already existing between Continental Can and

potential competitors; and

5. the financial and technical problems of entering this highly

concentrated market.45

42 Paul W Johnson, ‘Use of Article 86 to Invalidate Mergers’ 15 Harvard International Law Journal

(1974) 333, page 336.

43 At the time that this case and the other cases subject to analysis in this section were decided,

Article 82 was numbered Article 86. To avoid confusion Article 82 will be used throughout, except in

quotations.

44 Continental Can OJ [1972] L7/25; 2 CCH Comm. Mkt. Rep. 8171 (1973).

45 Ibid. page 8301.

81

The Commission’s Report on Competition Policy in 1971,46 which was

written in the same year as the Commission reached its decision in

Continental Can, seemed concerned with consumer welfare:

Through the interplay of decentralised decision-making

machinery, competition enables enterprises continuously to

improve their efficiency, which is the sine qua non for a steady

improvement in living standards and employment prospects

within the countries of the Community. From this point of view,

competition policy is an essential means for satisfying to a great

extent the individual and collective needs of our society….

Competition policy…encourages the best possible use of

productive resources for the greatest possible benefit of the

economy as a whole and the benefit, in particular, of the

consumer.

Whilst the Commission’s Report on Competition Policy seemed concerned

with the welfare of consumers, its decision did not reflect that concern.

The Commission based its conclusion on academic literature47 and on a

Commission Memorandum from 1966: A Problem of Concentration in the

Common Market.48 According to the memorandum, a merger of an

enterprise holding a dominant position with another enterprise, so that a

monopoly situation is brought about by the removal of any remaining

competition on the market, may in itself constitute an abuse within the

meaning of Article 82.49 This is based on the assumption that the closer

the merging undertakings are to holding a monopoly, the more likely it

is that the merger will violate Article 82, as suggested by Hans von der

Groeben, one of the drafters of the EC Treaty, in 1965.50 This

46 1st Report on Competition Policy (1971), pages 11-12.

47 Ernst-Joachim Mestmäcker, ‘Die Beurteilung von Unternehmenszusammenschlüssen nach Artikel

86 des EWG-Vertrages’ in Festschrift für Walter Hallstein zu seinem 60: Probleme des Europäischen

Rechts (1966); Verloren Van Themaat, ‘Zusammenschlüsse Über die Grenze im Rahmen des EWG-

Bereichs’ Conference Paper of the 4th International Conference on European Law (Rome, 1968).

48 Commission of the EEC, Le Problemé De La Concentration Dans Le Marché Commun 21 (1966).

49 Ibid. page 26.

50 Hans von der Groeben, ‘Competition Policy within the Framework of the Common Market’ (16

June 1965) European Parliament docs. No 79, page 107.

82

assumption operates more against monopolies than mergers and seems

to be a concern about size and large concentrations of economic

power.51 If the Commission’s prime concern was the size of Continental

Can, then that explains why the Commission did not consider the effects

of the merger on competition. On 9 February 1972, Continental Can

appealed the decision to the ECJ seeking annulment.

2.1.3. The ECJ’s judgment

On 21 February 1973, the ECJ handed down its judgment.52 On appeal,

Continental Can put forward the following arguments in relation to the

substantive points:

1. the very wording of the statute, especially when compared to the

ECSC Treaty, reveals a legislative intention that Article 82 does not

bar mergers;

2. because Article 82 does not prohibit the existence of a dominant

position, but only the abusive exploitation thereof, even a monopoly

is permitted;

3. a mere increase in market share is permissible;

4. reference to general provisions of the EC Treaty is not permissible;

5. a broad interpretation would leave Article 82 meaningless, since any

type of conduct could be abusive;

6. a causal relationship must exist between the market dominance and

the abusive exploitation thereof; and

7. the appropriate policy consideration is to enable Community

enterprises to compete with those from third party states.

The Commission put forward the following arguments:

51 Robert S Singley, ‘Abuse of a Dominant Position by Acquisition in the Common Market: the

Continental Can Cases’ 12 The Columbia Journal of Transnational Law (1973) 359, page 386.

52 A comment on the case can be found in WMH Haubert II, ‘Continental Can – New Strength for

Common Market Anti-Trust’ 11 San Diego Law Review (1973-1974) 227.

83

1. the basic aim of the Treaty is to ensure competition;

2. Article 82(2)(b) together with Article 3(1)(g) constitutes a broad

mandate to prohibit the effect of prejudice to consumers;

3. a change in the structure of competition which reduces the

consumer’s market alternatives is an effect which is prohibited as

prejudicial; and

4. because it is the effect of reducing competition that is abusive,

neither the type of conduct nor the existence of a causal relationship

between the dominance and that conduct is relevant to proving an

abuse.

Broadly speaking, the ECJ had to assess whether a dominant position

realised through a merger falls within the scope of Article 82. This would

require the Court to examine whether the word ‘abuse’ could refer also

to changes in the structure of an undertaking, which led to the

disturbance of competition in the common market.53 A merger is a

structural change that often strengthens the position of an undertaking,

but it is not necessarily intended directly to eliminate competition.

The first argument put forward by Continental Can was that, since the

EC Treaty does not contain a merger provision like that of the ECSC

Treaty, the drafters of the EC Treaty deliberately chose not to prohibit

mergers. This is in essence an attempt to discern the legislative intent of

the drafters of the Treaty. The ECJ avoided basing its reasoning on

legislative intent, and held that the question could not be solved by

comparing Article 82 to the provisions of the ECSC Treaty.54

The second point put forward by Continental Can was that dominance is

not in itself prohibited by Article 82 therefore it must be permitted

indirectly. Moreover, the provision does not distinguish between different



84

degrees of dominance, a point also put forward by Advocate General

Roemer,55 thus even a monopoly is permitted. The consequence of the

second point is, that the effect of a merger is an increase in the

undertaking’s dominance (its market share) and that such an increase is

not an abuse (Continental Can’s third point). The Court responded by

relying on a teleological interpretation. It interpreted Article 82 in the

light of Article 3(1)(g),56 according to which it must be ensured that

competition is not distorted.57 Interpreting Article 82 in the light of the

general principle of undistorted competition meant that examining

whether there is an abuse of a dominant position cannot be done in

isolation. Such an interpretation implies that a merger can, by its

effects, become an abuse prohibited by Article 82.

In relation to Continental Can’s fourth point, the Court dismissed the

argument that it is not permissible to refer to the general provisions of

the Treaty. It rightly held that the requirement of ensuring that

competition in the common market is not distorted is essential, as

without it numerous provisions in the Treaty would be pointless.58

With its fifth argument, Continental Can tried to encourage the Court to

take a narrow interpretation of Article 82, a view that was supported by

Advocate General Roemer.59 The Court rejected a narrow interpretation

of Article 82. It emphasised that ‘abuse’ was not limited to conduct

which is likely to cause harm to consumers directly, but also to conduct

which is detrimental to consumers indirectly, because its effect on the

55 Opinion of Advocate General Roemer, supra note 27.

56 Continental Can, supra note 25, paragraph 23. 57 The Community Courts continue to apply a teleological interpretation of the competition rules,

see for example Case C-95/04P British Airways plc v Commission, paragraph 143 and Joined Case

C-147/97 and C-148/98 Deutsche Post AG and Gesellschaft für Zahlungssysteme mbH (GZS),

Citicorp Kartenservice GmbH [2000] ECR I-825, paragraph 60.


59 Opinion of Advocate General Roemer, supra note 27. See also section 1.2 above page 77 setting

out Advocate General Roemer’s grounds for adopting a narrower interpretation of Article 82.

85

competitive structure of actual competition may be harmful.60 The Court

held that:61

If it can, irrespective of any fault, be regarded as an abuse if an

undertaking holds a position so dominant that the objectives of

the treaty are circumvented by an alteration to the supply

structure which seriously endangers the consumer's freedom of

action in the market, such a case necessarily exists, if practically

all competition is eliminated. Such a narrow precondition as the

elimination of all competition need not exist in all cases. But the

Commission, basing its decision on such elimination of

competition, had to state legally sufficient reasons or, at least,

had to prove that competition was so essentially affected that the

remaining competitors could no longer provide a sufficient

counterweight.

By referring to the counterweight of competitors, the Court confirmed

that Article 82 does not require absolute dominance by an undertaking,

but rather a strong economic position relative to its competitors such

that a competitive counterweight is no longer present.

In relation to Continental Can’s sixth argument about causality, the ECJ

held that when it comes to strengthening the position of an undertaking,

there may be an abuse if the effect is to prevent effective competition.62

The Court did not comment upon the seventh argument put forward by

Continental Can.

In conclusion, the ECJ supported the Commission’s legal interpretation of

Article 82 that both exploitative and exclusionary conduct can constitute

an abuse of dominance. However, the Court criticised the Commission’s

market definition in that the Commission had not fully shown how the

three markets (light metal open-top containers for meat and fish and lids

for glass jars) were distinguished from the market for light metal

containers generally. Consequently, the Court found that the




86

Commission’s market definition was faulty and found in favour of

Continental Can.63

2.1.4 Analysis of the ECJ’s judgment

The Court seemed concerned with prejudice to consumers. Interpreting

Article 82 in the light of Article 3(1)(g) meant that conduct of a

dominant undertaking is abusive if it runs counter to the purpose of

protecting competition in the common market from distortions.

Accordingly, Article 82 is also designed to protect the structure of the

market and competition as such, which is an important step towards

protecting competition. The Court held that by protecting the structure

of competition, consumers would be protected indirectly, presumably

because where competition is impaired, disadvantages for consumers

are also to be feared. At first sight, it may appear that the ECJ is

concerned about consumer welfare, but the Court does not enter into an

analysis of efficiencies. Instead, it talks of ‘an alteration to the supply

structure which seriously endangers the consumer's freedom of action in

the market’.64 This highlights the Court’s concern for the consumer’s

competitive freedom. This does not necessarily mean the final consumer

as defined in chapter four, but may concern both the purchaser on the

wholesale level (a customer) and the consumer of a product on the retail

level (final consumer) in downstream markets. Regardless of whether

the Court was concerned about the final consumer or the customer, it is

clearly concerned about the consumer’s freedom of action and, arguably,

Article 82 could be used to keep the power of Continental Can in check

and thereby protect the freedom of other market participants from the

misuse of such power. Thus, it is not entirely clear whether the Court

was addressing consumer welfare or individual economic freedom.

63 The Court’s judgment was at the time described as ‘arguably the most important test case in

EEC legal history’ by The Times under the headline: Continental Can wins European Court Appeal

against the Commission, 22 February 1973.


87

2.2 Commercial Solvents


Commercial Solvents Corporation (‘CSC’), an American corporation,

produced 1-nitropropane (‘nitropropane’) and a derivative thereof, 2

amino-1-butanol (‘aminobutanol’), an intermediate product for the

production of ethambutol. The latter was a compound used in the

treatment of pulmonary tuberculosis. CSC supplied aminobutanol to

customers in the common market through its Italian subsidiary, Instituto

Chemioterapico Italiano SpA Istituto (‘ICI’) of which it owned 51 per cent

of the shares.65

At the time, the three main producers of ethambutol in the common

market were the American company Cyanamid Company (acting through

its Italian subsidiary Cyanamid Italia), CSC/ICI (ICI acted as a re-seller

for CSC in the common market) and an Italian company Laboratorio

Chimico Farmaceutico Giorgio Zoja (‘Zoja’). To successfully produce

ethambutol, aminobutanol is an essential material. CSC used to have a

patent in the method of production of nitropropane for the use of

producing aminobutanol. The patent had expired, but CSC held a de

facto monopoly due to its know-how and high barriers to entry to the

market in the form of high costs and the complexity of the necessary

equipment.

From 1966 to November 1969, Zoja got its aminobutanol, for its

ethambutol production, from CSC/ICI. Due to a price increase for

aminobutanol charged by CSC/ICI, Zoja found alternative suppliers for

aminobutanol. These suppliers used aminobutanol for paint, not for

pharmaceuticals. In 1970, these alternative suppliers would no longer

65 CSC acquired 51 per cent of the voting shares in ICI in 1962.

88

supply Zoja as CSC had commanded them not to.66 When Zoja tried to

get supply from other suppliers, Zoja was told that CSC had ceased to

deliver or forbidden them to sell the raw material for pharmaceutical

use.67 Zoja, which used to be the main customer of ICI, returned to ICI

for supply, but ICI then refused to supply it.

Zoja complained to the Commission that CSC and ICI had infringed

Articles 81 and 82. On 25 April 1972, the Commission opened an

investigation against CSC/ICI alleging an infringement of Article 82.


Broadly, the Commission had to decide whether CSC/ICI had abused its

dominant position contrary to Article 82 by refusing to supply an existing

customer Zoja, one of the principal producers of ethambutol in the

common market, with aminobutanol.68

The Commission found that the CSC group, which included ICI (a

question on appeal was whether CSC/ICI belonged to the same

economic entity, a question which will not be dealt with here) had a

dominant position in the market for the raw materials (nitropropane and

aminobutanol) in the common market. The basis of this finding was that

CSC enjoyed a world monopoly in the production and supply of

nitropropane and aminobutanol.

CSC was found to have abused its dominant position in ceasing to supply

Zoja with aminobutanol for the production of ethambutol in the common

market, as the conduct led to the elimination of Zoja and so to a

66 Eleanor Fox, ‘Monopolization and Dominance in the United States and the European Community:

Efficiency, Opportunity, and Fairness’ 61 Notre Dame Lawyer (1986) 981, page 994.

67 Valentine Korah, ‘Instituto Chemioterapico Italiano SpA and Commercial Solvents Corporation v

Commission of the European Communities’ 11 Common Market Law Review (1974) 248, page 249.

68 Instituto Chemioterapico Italiano SpA and Commercial Solvents Corporation OJ [1972] L299/51.

89

reduction in competition. As a remedy, the Commission ordered CSC/ICI

to supply Zoja with a specific quantity of aminobutanol at a price which

was no higher than the maximum price charged to other customers. The

Commission also imposed a fine on CSC/ICI.

On 17 February 1973, both CSC and ICI appealed the decision to the

ECJ seeking annulment of the Commission’s decision. The ECJ assessed

both cases together and issued a single judgment.

2.2.3 The ECJ’s judgment

On 6 March 1974, the ECJ handed down its judgment.

On appeal, the appellants CSC and ICI had put forward the following

arguments in relation to the substantive issues:69

1. the relevant market for ethambutol did not exist, since

ethambutol was only a part of a larger market in anti-tuberculosis

drugs;70

2. the CSC group did not hold a dominant position in the common

market for the raw materials necessary for the manufacture of

ethambutol;71

3. refusal to supply Zoja with aminobutanol was not an abuse, but a

change in commercial policy;72

4. trade between Member States was not affected as Zoja sold 90

per cent of its products outside the common market;73 and


Commission of the European Communities [1974] ECR 223, [1974] 1 CMLR 309.


71 Commercial Solvents, supra note 69, paragraphs 9-10.


73 Commercial Solvents, supra note 69, paragraph 30.

90

5. CSC was not responsible for ICI’s conduct and vice versa, as CSC

and ICI did not form an economic unit because they acted

independently of each other.74

The ECJ rejected all the arguments put forward by CSC/ICI and upheld

the Commission’s decision almost in its entirety, but reduced the fine

imposed by the Commission by 50 per cent.

In considering the question of abuse, the ECJ found that the evidence

showed that in 1970, ICI started manufacturing its own product based

on aminobutanol. To facilitate its own access to the market for that

product, CSC decided not to supply Zoja when it reapplied for supply.75

CSC was able to leverage its market power on the upstream market to

eliminate one of ICI’s competitors (Zoja) on the downstream market.76

By cutting off the supply to Zoja, CSC improved ICI’s position and

indirectly its own position in Europe on the downstream market. The

latter was a market with extremely low supply-side substitutability.

Thus, the ECJ specifically rejected claims that other nascent technologies

in the trial stage were substitutes for CSC’s raw materials.77 Instead, the

Court held the refusal to supply risked eliminating all competition on the

part of Zoja:78

[A]n undertaking being in a dominant position as regards the

production of raw material and therefore able to control the

supply to manufacturers of derivatives cannot, just because it

decides to start manufacturing these derivatives (in competition

with its former customers), act in such a way as to eliminate their

competition which, in the case in question, would have amounted



76 One must be careful not to use Commercial Solvents as authority for the proposition that Article

82 may be applied to an act committed by a dominant company on a market separate from the

market of dominance, because the abuse – the refusal to supply raw materials – took place in the

market where CSC was dominant.



91

to eliminating one of the principal manufacturers of ethambutol in

the common market . . . [A]n undertaking which has a dominant

position in the market in raw materials and which, with the object

of reserving such raw material for manufacturing its own

derivatives, refuses to supply a customer, which is itself a

manufacturer of these derivatives, and therefore risks eliminating

all competition on the part of this customer, is abusing its

dominant position within the meaning of Article 86.


The ECJ found there had been an abuse, based on the observations

made in paragraph 25 as quoted above, and held that:

1. CSC was a vertically integrated firm;

2. CSC controlled an essential raw material (an indispensable

derivative);

3. CSC eliminated all competition on the market on the part of Zoja;

4. there was no objective justification for its behaviour; and

5. it reserved the downstream market in its entirety.

In essence the Court was saying that refusal to supply Zoja was harmful,

as it eliminated all competition on the part of Zoja. The question is

whether the refusal to supply was considered harmful because it could

damage the consumer welfare of tubercular patients directly or

indirectly, as held by the ECJ in Continental Can?

If the Court was concerned about consumer welfare, then it should have

examined whether the elimination of competition on the part of Zoja

harmed consumers either by an increase in price, lowering product

quality or lack of choice. Did the Court do that?

Arguably, the Court did not consider whether consumer welfare was

harmed. It did not engage in an explicit analysis of the economic

efficiencies that might have arisen from vertical integration in great

detail. Basically, it did nothing more than point out that CSC’s conduct

92

had been adopted to reserve the raw material to itself. Was that harmful

for consumer welfare? It would only be bad for consumer welfare if

tubercular patients could not get their drugs equally efficiently and

readily at a similar price and quality from CSC/ICI.

First, would CSC’s conduct be likely to limit consumer choice? The

refusal to supply meant that ICI replaced Zoja in the downstream

market. From that point of view, CSC’s conduct would not have given

consumers more or less choice. If the Court assumed that CSC/ICI

would have entered the downstream market anyway, even if there had

been no refusal to supply, then arguably consumers would have had

more choice. However, the Court did not examine the likelihood of CSC’s

successful entrance on the downstream market while supplying Zoja. In

fairness to the Court, CSC did not argue that a continued supply to Zoja

would have imposed inefficiency upon CSC, for example, in the form of

lost economies of scale in distribution.79 Moreover, CSC did not challenge

the Commission’s finding that the refusal to supply could not be justified

due to insufficient productive capacity to supply Zoja.80 This might

indicate that CSC would have been able to supply Zoja while entering

the downstream market, but would CSC/ICI’s entry on the downstream

market have been equally successful? If so, then why did CSC/ICI not

enter the market before?

Second, would CSC’s conduct have caused a likely price increase to the

detriment of consumers? Unless CSC/ICI’s vertical integration itself

raised barriers to entry, the price charged to consumers after the

integration was likely to be no higher than the price to consumers before

79 Economies of scale is a phase describing the changes in unit costs that result from operating a

process at differing outputs, see Jack Hirshleifer, ‘The Firm’s Cost Function: A Successful

Reconstruction’ 35 The Journal of Business (1962) 235.


93

the integration.81 Economists usually argue that vertical integration does

not increase barriers to entry to the market, because it is often a means

of exerting greater quality control over suppliers.82 Moreover, it is

argued that vertical integration gets rid of protracted bargaining costs by

reducing opportunism; it involves economies of information or

observational economies arising out of a need for only a single set of

observations or data for a related series of production stages, which

makes self-evaluation by a company of its performance less costly and

more reliable.83 According to the Commission’s decision, there were high

barriers to entry in the form of high costs and the complexity of the

necessary equipment and industry know-how. These barriers were

however not established because of the integration – they already

existed before the integration. The most likely hindrance caused by

CSC’s conduct would have been that trading parties were unable to get

the essential raw material to produce ethambutol. According to Stigler’s

definition of a barrier to entry this conduct would not have ‘qualified’ as

a barrier to entry.84 In any case, the Court did not decide whether this

acted as a barrier to entry in the first place, perhaps because the

Commission had already presupposed barriers to entry by finding

dominance.85

It would be for CSC/ICI to prove that this was the most efficient supply

structure in the market and that its integration would not increase price

to the detriment of consumers. For example, it could have argued that

81 Fox, supra note 66, page 1002.

82 George Joseph Stigler, The Organization of Industry (RD Irwin, 1968); Basil Selig Yamey,

Economies of Industrial Structure (Harmondsworth: Penguin Education, 1973).

83 Anand S Pathak, ‘Articles 85 and 86 and Anti-Competitive Exclusion in EEC Competition Law:

Part 1’ 10(1) European Competition Law Review (1989) 74, page 81.

84 Stigler, supra note 82, page 67 defines a barrier to entry as ‘a cost of producing (at some or

every rate of output) which must be borne by a firm which seeks to enter an industry but is not

borne by firms already in the industry’.

85 CW Baden Fuller, ‘Article 86 EEC: Economic Analysis of the Existence of a Dominant Position’ 4

European Law Review (1979) 423, page 428.

94

given that ICI was CSC’s subsidiary, CSC would have sold aminobutanol

more cheaply to ICI than it had done to Zoja. A lower cost price could

mean a lower retail price, to the benefit of consumers. Given that CSC

used to have a patent on nitropropane, and still more or less held a de

facto monopoly in the production and sale of nitropropane and

aminobutanol even after its patent expired, this showed that CSC had

market power both before and after ceasing to supply Zoja.86 In 1968,

CSC increased its price, which was the reason for Zoja seeking

alternative suppliers in the first place. This price rise demonstrated that

CSC was willing to use its market power, which creates a presumption

against CSC lowering its prices to the benefit of consumers.

Finally, would CSC’s conduct be likely to have lowered product quality?

The Court did not consider the likelihood of this. In the light of the above

considerations, the Court was probably right in finding an abuse of a

dominant position,87 but what goal did the Court pursue in reaching its

conclusion?

As discussed above, it is difficult to see that the Court pursued an

objective of consumer welfare as it did not consider the economic

efficiencies that might have arisen from vertical integration in great

detail. Instead, the Court, at best, based its judgment on assumptions of

consumer harm. One may question whether it is wrong to base a

judgment on an assumption of consumer harm. Assumptions are

necessary, but they must, at the very least, be based on well-

documented theory indicating likely consumer harm. Unfortunately, this

86 OJ [2004] C101/97 Commission Notice Guidelines on the Application of Article 81(3) of the

Treaty, paragraph 25 defines market power as the ability to maintain prices above competitive

levels for a significant period of time or to maintain output in terms of product quantities, product

quality and variety or innovation below competitive levels for a significant period of time. 87 One might wonder why the Court did not consider Article 81 as CSC had made an agreement

with its customers in the paint market not to resell nitropropane and aminobutanol to Zoja. Such a

clause, prohibiting resale of nitropropane and aminobutanol, could have been considered a

restriction of competition.

95

was not the case in this judgment. By pointing out that CSC’s conduct

would eliminate all competition on the part of Zoja, without considering

the likely effect on consumers, the Court did no more than point out that

there was a restriction of Zoja’s economic freedom. If the Court was

pursuing an objective of economic freedom then this is a perfectly

reasonable conclusion. Judge Pescatore, then President of the ECJ, later

confirmed in a speech that the Court had intended to protect a small

firm, rather than free competition.88 While this is an interesting insight

and it could indicate that the ECJ reached its conclusion by pursuing the

objective of economic freedom, one ought to be careful not to put too

much emphasis on such statements. That said, some commentators

have supported Judge Pescatore’s viewpoint89 and so has the

Commission.

In the Commission’s Report on Competition Policy in 1978, it appeared

to be the Commission’s view that it had to attack dominant companies

which refused to supply long-standing customers.90 This was in order to

guarantee equality of opportunity, freedom of access to business and

freedom of choice within the common market.91

With regard to the ECJ’s upholding the Commission’s decision, it is not

unlikely that this was because Zoja was economically dependent on CSC,

meaning that Zoja did not have other sufficient and reasonable

possibilities to find another supplier. At the time that the ECJ reached its

judgment in Commercial Solvents, Article 82 was a provision rarely used

so case law was sparse. Thus, it is not implausible that the judges of the

ECJ looked to the Member States with more developed national

88 Valentine Korah, ‘The Interface between Intellectual Property Rights and Antitrust: the European

Experience’ 69 Antitrust Law Journal (2002) 801, page 808.

89 Pathak, supra note 83, page 88.

90 8th Report on Competition Policy (1978), page 9.

91 Ibid.

96

competition law.92 At the time, Italy did not have a competition

statute,93 but Germany and France did,94 and the concept of ‘economic

dependency’ was incorporated in both German and French competition

law.95 Germany had section 26 of the ARC, which was applicable to firms

on which other firms were dependent.96 The section applied particularly

to dominant enterprises vis-à-vis small and medium-sized enterprises

lacking reasonable opportunities to change to other suppliers, as was the

case in Commercial Solvents. France had Ordinance n° 45-1483 of 1945,

provision 36-2, according to which refusals to sell between commercial

entities were per se anti-competitive. A supplier who refused to sell to a

distributor or a customer would have to justify its refusal to supply by

identifying an objective motive, such as the unusual character of the

order or the existence of exclusive, quasi-exclusive or selective

distribution networks.97 In 1986, Ordinance n° 45-1483 of 1945,

provision 36-2 was replaced by Ordinance n° 86-1243 of 1986, provision

36-5,98 but the concept of ‘economic dependency’ was kept.99

92 At the time, the Community consisted of the Netherlands, Belgium, Luxemburg, Italy, Germany

and France. These original signatories of the EC Treaty were all part of the civil law tradition.

93 Italy did not enact its first competition statute until 1990: Act of 27 September 1990, Law No

287/1990 Norme par la tutela della concorrenza e del mercato OJ No 240 of 13 October 1990 (in

English: Provisions for the Protection of Competition and the Market).

94 Germany had Gesetz gegen Wettbewerbsbeschränkungen [GWB] and France had Ordinance n°

45-1483 of 1945.

95 Dominique Brault, Politique et pratique du droit de la concurrence en France (LGDJ, 2004); the French Competition Commission’s decision ‘Avis de la Commission de la concurrence du 14 Mars

1985 sur les Super-Centrales d'Achat’ and section 26 of the ARC.


97 Melanie Thill-Tayara, ‘Developments in French Competition Law’ 18(2) European Competition

Law Review (1997) 113.

98 French competition law underwent a major overhaul in 1986 when its main statutory component,

Ordinance n° 45-1483 of 1945, was abrogated by Ordinance n° 86-1243 of 1986, Journal Officiel

de la République Française of 9 December 1986. Decret d’application No 86-1309 of 29 December

1986.

99 The French Competition Council had been reluctant to apply the concept of economic

dependency, which caused the French legislature to transfer and incorporate the competition rule of

abuse of economic dependency to Title IV in Chapter II of the French Code of Commerce, see

Brault, supra note 95, page 104. According to Article L 442-6 I of the French Code of Commerce,

97

2.3 Hoffmann-La Roche


Hoffmann-La Roche & CO AG (‘HLR’), a multinational group whose

parent company was based in Basel in Switzerland, manufactured and

sold bulk synthetic substances belonging to 13 groups of vitamins: A,

B1, B2, B12, C, D, E, K, PP, pantheotic acid (B3), biotin (H) and folic

acid (M). HLR is the world’s leading vitamin manufacturer and at the

time was the largest pharmaceutical group. HLR’s customers would

process the vitamins for use in feeding-stuffs and food and only a small

percentage of the vitamins would not be processed, but sold as vitamins

for end consumers.

HLR had entered into about 30 contracts (some being renewals) with 22

large purchasers of vitamins under which the purchasers contracted to

buy all or most of their requirements of vitamins or of certain vitamins

from HLR in return for a rebate. The duration of most of these contracts

was for an indefinite period, either according to the terms of the contract

or because of the operation of a clause providing for renewal by tacit

agreement.

The Commission’s investigation was initiated after a former employee of

HLR, Stanley Adams, wrote to the Commission in April 1973 alleging that

HLR was in breach of the competition rules by virtue of their pricing

practices within the Community.100

formerly provision 36-5 of the 1986 Ordinance, an undertaking may be guilty an abuse if it suddenly

decides to discontinue supplies where the distributor is economically dependent on the supply, with

no written advance notice.

100 TJ Bennett, ‘Hoffmann-La Roche: Abuse of Dominance on the Vitamins Market Confirmed’ 4


98


On 9 June 1976, the Commission issued its decision.101 It found that

there were separate product markets for a number of different groups of

vitamins and that HLR had a dominant position in seven of the eight

markets of vitamins in which it was active.

In finding dominance, the Commission relied on HLR’s market share in

each individual market, its wide range of vitamins compared to that of

its competitors, that HLR was the world’s largest manufacturer of all

vitamins, that its turnover exceeded all the other producers’ turnover, its

technical and commercial advantages, and the financial and technical

barriers to entry for new competitors.102

The Commission found that the aim of the contracts was to tie the most

important buyers of bulk vitamins to HLR and thus to prevent its main

competitors from supplying them to these customers.

The substantive issue in the decision was whether the granting of fidelity

rebates was incompatible with the common market. The Commission

relied on the ECJ’s judgment in the Sugar cases103 where the Court had

found that fidelity rebates, which may reinforce dominance, are

incompatible with Article 82.

On 27 August 1976, HLR appealed, seeking annulment of the decision.

101 Vitamins OJ [1976] L223/27, [1976] 2 CMLR D25.

102 Ibid. recitals 5-6 and 21.

103 Joined Cases 40-114/73 Cooperative Vereniging ‘Suiker Unie’ U.A. and Others v Commission

[1975] ECR1663, [1976] 1 CMLR 295.

99


On 13 February 1979, the ECJ confirmed the Commission’s decision in all

its essential points, but reduced the fine by one third.104

On appeal, the appellant HLR put forward the following arguments:

1. by imposing a penalty the Commission had infringed the fundamental

principle that rules relating to penalties must be certain and

foreseeable;

2. the decision had several formal defects as a result of irregularities in

the administrative procedure upon which the conclusion relied;

3. the Commission had inaccurately applied the concepts of a dominant

position and of the abuse of a dominant position which may affect

trade between Member States; and

4. the Commission had infringed Article 15(2) of Regulation no 17/62 by

imposing a fine, as the alleged infringements, insofar as they might

be found to exist, were not committed either intentionally or

negligently.

Only the substantive point (point three) will be dealt with here. The

Court upheld the Commission’s market definition.105 It also upheld the

Commission’s finding of dominance in all but one of the relevant

markets.106 The Court considered whether the Commission was correct

in finding that HLR had abused its dominant position.

The Court noted in its preliminary observations that the Commission had

found about 30 contracts with 22 large purchasers of vitamins under

which either the purchasers contracted to buy all or most of their

requirements of vitamins or of certain vitamins from HLR or under which

104 Hoffmann-La Roche, supra note 37. 105 Ibid. paragraph 30.

106 Hoffmann-La Roche, supra note 37, paragraph 79.

100

the purchasers had an incentive to do so due to ‘the promise of a

discount which the Commission classifies as a fidelity rebate’.107 The

Court divided these contracts into three categories.108

First, those contracts which contained a specific undertaking by the

purchaser to obtain exclusively from HLR either:

1. all or almost all of its requirements of bulk vitamins manufactured by

HLR; or

2. all its requirements of certain vitamins (expressly mentioned in the

contract); or

3. a percentage stipulated in the contract of its total requirements

(either 75 or 80 per cent); or

4. the ‘major part’ of its requirements of vitamins or certain vitamins.

Second, those contracts leave as is the purchaser undertook to give

preference to HLR or expressed its intention to obtain its supplies

exclusively from HLR or agreed to recommend to its subsidiaries to do

the same, either in respect of all their vitamin requirements or of certain

vitamins therein specified, or in relation to a fixed percentage of their

total requirements (for example 80 per cent).

Third, the contracts between HLR and Merck, and HLR and Unilever,

respectively, had special features and the Court therefore examined

them separately.

The ECJ held that the duration of most of these contracts in all three

categories was for an indefinite period, either according to the terms of

the contract or because of the operation of a clause providing for

renewal by tacit agreement, and they were clearly designed to establish



101

trading relations for several years.109 All the contracts in question,

except for those with Unilever, contained provisions granting to the

purchaser ‘discounts or rebates calculated on the total purchases …

during a given period usually of a year or six months’.110 In relation to

six of the customers, the percentage of the rebates was not fixed but

increased, generally from one to three per cent, according to the

amounts purchased every year.

The Court considered whether, by entering into these contracts, HLR had

abused its dominant position on the relevant markets. It held that HLR

had abused its dominant position both by entering into exclusive

purchasing agreements with some of its customers and also by offering

them loyalty rebates. The Court stated that if a dominant undertaking

‘ties purchasers … to obtain all or most of their requirements exclusively

from [the dominant undertaking]’ then that is an abuse under Article 82,

‘whether the obligation in question is stipulated without further

qualification or whether it is undertaken in consideration of the grant of

a rebate’.111


The Court held that the distortion of competition was due to the fact that

the fidelity rebates given were conditional upon exclusivity or near

exclusivity to HLR:112

Obligations of this kind to obtain supplies exclusively from a

particular undertaking… are incompatible with the objective of

undistorted competition within the common market, because…

they are not based on an economic transaction which justifies

this burden or benefit but are designed to deprive the purchaser

109 Ibid. paragraph 86. 110 Hoffmann-La Roche, supra note 37, paragraph 87. 111 Ibid. paragraph 89. 112 Hoffmann-La Roche, supra note 37, paragraph 90.

102

of or restrict his possible choices of sources of supply and to

deny other producers access to the market.

The reasoning that the rebates were not based on an economic

transaction is based on the fact that HLR’s rebate was fixed not merely

with regard to the quantity purchased from HLR, but also the quantity

not purchased from it. But the reasoning that the rebates were designed

to deprive the purchaser of or restrict his possible choice of source of

supply is more difficult to comprehend. It could be argued that since

purchasers were not forced to get their supply from HLR, their choice

was not restricted, but this was not the approach taken by the Court.

Those customers who entered into HLR’s rebate agreements were paid

for their loyalty, but were not harmed by the agreements. Even if they

would be better off buying their vitamins from other suppliers, they were

free to do so and forego the rebates. Even those customers who had

entered into contracts obliging them to purchase a specified percentage

of their requirements from HLR could purchase elsewhere. Their only risk

was losing the rebate. Since HLR did not pay the rebates in advance, the

customers never had to refund HLR. However, the Court found that a

dominant position can also be abused even where the customers are not

obliged to obtain all their supplies from the dominant undertaking, but

are induced to take supply by means of fidelity rebates.113

The Court further held:114

[T]he effect of fidelity rebates is to apply dissimilar conditions to

equivalent transactions with other trading parties in that two

purchasers pay a different price for the same quantity of the

same product depending on whether they obtain their supplies

exclusively from the undertaking in a dominant position or have

several sources of supply.

113 Eric L White, ‘Some Important Aspects of the Hoffmann-La Roche Judgment’ 77 The Law

Society’s Gazette (1980) 246.


103

For Article 82(2)(c) to be violated the supplier must apply dissimilar

conditions to equivalent transactions with other trading parties to place

them at a competitive disadvantage. It is difficult to see how other

trading parties are placed at a competitive disadvantage if HLR did not

apply dissimilar conditions to equivalent transactions. The Court argued

that HLR applied different conditions to equivalent transactions as two

purchasers would pay a different price for the same quantity. However,

the Court did not consider the point that the price is only different

because one of the purchasers gets a rebate and the other one does not,

but again this is because the purchaser that gets the rebates gets

vitamins in return for exclusivity whereas the other purchaser just gets

vitamins. It would only place HLR’s trading parties at a competitive

disadvantage if both purchasers got the same quantity of vitamins in

return for exclusivity, but only one of them got the rebate. The Court did

not engage in an analysis of the competitive situation downstream, as

required under Article 82(2)(c), in order to examine whether the

appellant’s trading parties (its 22 customers) had been placed at a

competitive disadvantage. Instead the Court held:115

[S]ince the course of conduct under consideration is that of an

undertaking occupying a dominant position on a market where for

this reason the structure of competition has already been

weakened, within the field of application of article 86 any further

weakening of the structure of competition may constitute an

abuse of a dominant position.

The ECJ's reference to the weakening of the structure of competition on

the market confirms that the Court was concerned with primary-line

discrimination. This means discrimination used to expand or maintain a

dominant position to the disadvantage of its competitors. This indicates

that the Court was concerned about the fate of smaller competitors

faced with a powerful dominant undertaking, reflecting the objective of

fairness in the market place. Pursuing the objective of fairness was


104

clearly important at the time as highlighted in the Commission’s Report

on Competition Policy in 1979:116

[T]he competition system instituted by the Treaty requires that

the conditions under which competition takes place remain

subject to the principle of fairness in the market place. In the

Commission’s view, this principle is of prime importance.

The Court further held:117

The concept of abuse is an objective concept relating to the

behaviour of an undertaking in a dominant position which is

such as to influence the structure of the market where, as a

result of the very presence of the undertaking in question, the

degree of competition is weakened and which, through recourse

to methods different from those which condition normal

competition in products or services on the basis of commercial

operators has the effect of hindering the maintenance of the

degree of competition still existing on the market or the growth

of that competition.

This reasoning is opaque as it is not clear what is meant by ‘normal

competition’. It has been suggested that it is fair to assume that ‘normal

competition’ is the same thing as ‘competition on the merits’.118

However, the latter terminology is not really helpful as no one really

knows what ‘competition on the merits’ means either. The terminology is

not used descriptively to indicate common or usual practices, but

normatively. But what are the norms of the Court and Commission?

Perhaps normal competition is competition without fidelity rebates and

exclusive contracts. The latter form of contract contains ‘a sufficient

incentive to reserve to Roche the sole right to supply the purchaser for

them to be, for this reason alone, an abuse…’.119 Maybe normal

competition is competition without any exclusive contact, as ‘where

exclusivity has been formally accepted the granting or not of a rebate is



118 OECD paper, supra note 1, page 22.


105

in the final analysis irrelevant…’.120 Perhaps, normal competition cannot

exist between two parties where one of them is dominant. In that case,

‘competition on the merits’ is close to the ordoliberal concept of

‘complete competition’, described in chapter two. The Court also

condemned reciprocal dealing between HLR and Merck,121 which implies

that any contract or sales method which provides an incentive for

purchasers to buy exclusively from the dominant firm is abusive.

Finally, the Court challenged conduct hindering the maintenance or

growth of competition. But how did the Court define ‘competition’? In

discussing the so-called ‘English clause’122 contained in most of HLR’s

rebate agreements, the Court said that HLR had the power to decide

whether it would permit competition.123 This indicates that for the Court,

competition meant the instances of commercial rivalry in which the non-

dominant competitor gets the business. If the dominant undertaking

wins, for example, by offering a better price than its competitors, what

has taken place is not competition, but anti-competitive conduct.

This is not to say that the outcome of the judgment is not correct, as the

across-the-board fidelity rebates offered by HLR may have had

significant anti-competitive effects by foreclosing sales by other vitamin

manufacturers, but if that is the case it is hard to follow the Court’s

reasoning. Even if the Court was pursuing the objective of consumer

welfare, it would have been insufficient to examine how much of the

market is foreclosed. It is not enough to point to market foreclosure; the

Court would require to assess whether the foreclosure harms consumer


121 Hoffmann-La Roche, supra note 37, paragraphs 114-115.

122 An English clause is a contractual agreement in the context of single branding arrangements

between a supplier and its customer (for example a retailer), allowing the latter to purchase a good

from other suppliers on more favourable terms, unless the ‘exclusive’ supplier accepts to supply the

good on the same advantageous conditions.

123 Hoffmann-La Roche, supra note 37, paragraphs 107-108.

106

welfare if it were serious about consumer welfare. This is because

foreclosure does not necessarily cause competitive harm. The Court did

not examine whether the loyalty-enhancing effect led to competitive

harm for consumers. Instead, the Court’s reasoning was based on the

conduct’s effect on the structure of the market and HLR’s ability to

hinder the maintenance of the degree of competition still existing on the

market.124 This focus on HLR’s ability to coerce the behaviour of other

firms in the market shows the Court’s concern with preserving

competitors’ economic freedom in order to protect the remaining

competition in the market. The Court’s test for abuse that the dominant

undertaking’s conduct must be ‘different from those which condition

normal competition in products or services on the basis of the

transactions of commercial operators’ and must have ‘the effect of

hindering the maintenance of the degree of competition still existing on

the market or the growth of that competition’. This is a replica of

Professor Ulmer’s ordoliberal-inspired test,125 which focus on foreclosure

only and not anti-competitive foreclosure, adopted by the German

Supreme Court in the Combination Price Schedule case.126

Perhaps, the Court was influenced by German ordoliberal decision-

making practice on fidelity rebates. Why would the ECJ concern itself

with German competition law?

Most of HLR’s subsidiaries were in Germany and HLR itself referred to

section 22 of the ARC to argue that the abusive conduct of an

undertaking in a dominant position is not per se punishable by a fine.127


125 Professor Ulmer’s test is described in detail in chapter two, section 2.3.

126 BGH Kombinationstarif, WuW/E OLG 1767 (1977).

127 Section 22 of the ARC, at the time, provided:

1. Insofar as an enterprise has no competitor or is not exposed to any substantial

competition in a certain type of goods or commercial service, it is market-dominating

within the meaning of this Law.

107

Advocate General Reischl also referred to German competition law to

argue that fidelity rebates are regarded very critically in national

competition law.128 It is not unlikely that the Court was aware that

fidelity rebates were prohibited under German competition law, as it

argued that HLR ought to have considered the probability or at least the

possibility that Article 82 could apply to fidelity rebates, since these were

prohibited under the law of some Member States, including Germany.129

Furthermore, the ECJ’s judgment came just after the German Supreme

Court had decided the Combination Price Schedule case,130 which was

arguably based on Professor Ulmer’s ordoliberal-inspired test. The ECJ’s

reasoning, that fidelity rebates which are not based on an economic

transaction are abusive, seems to be an adoption of the first part of

Ulmer’s test that the conduct must constitute ‘non-performance

competition’ to be abusive. The fact that the rebates were linked to

exclusivity or near exclusivity meant that the ECJ considered the rebates

to be based on non-performance, which can drive even efficient

competitors out of the market. The Court’s reasoning in paragraph 91,

quoted above, that behaviour which influences the structure of the

market has the effect of hindering the maintenance of the degree of

competition still existing on the market or the growth of that

competition, seems to be an adoption of the second part of Professor

Ulmer’s test. Such conduct results in the remaining competition being

restricted in the dominated market where the structure of the market

affects conduct, which in turns affects performance. The ECJ reiterated

that once a dominant position has arisen, the market structures will

2. Two or more enterprises are deemed market-dominating insofar as, in regard to

certain types of goods or commercial service, no substantial competition exists in fact

between them in general or in specific markets, and they jointly meet the

requirements of subsection (1).

128 Opinion of Advocate General Reischl in Hoffmann-La Roche, supra note 37, delivered on 19

September 1978, page 587.


130 A summary of the case is set out in chapter two.

108

change and the effectiveness of competition as a market regulator will

be lost.131 Thus, the dominant undertaking should compete on

performance, not on measures to hinder its rivals. Whether the Court did

rely on Professor Ulmer’s test or whether it was nothing but a

remarkable coincidence remains unknown, but what is clear is that the

Court was concerned with protecting the remaining competition in the

market and the restraint of undue economic power.

2.4 United Brands


A merger between United Fruit Company (the developer of the

Cavendish/Valery variety of bananas) and AMK Corporation (American

Seal-Kap), a major meat producer, resulted in United Brands Company

(‘UBC’). At the time of the proceedings, UBC was the largest seller of

bananas in the world. It was a conglomerate, which derived 20 per cent

of its total turnover from the sale of bananas.

UBC was unique in that it packed its bananas in boxes at the plantation

to enable wholesalers to employ more scientific ripening procedures and

produce more uniformly ripened bananas. UBC sold its bananas under

the brand name Chiquita. It was the first producer to brand its bananas,

but other banana companies followed suit.

UBC’s main ports for delivery of Chiquita bananas within the Community

were Bremerhaven, Rotterdam, Antwerp and Hamburg. From these ports

distributors would transport the bananas to their ripening facilities

throughout the common market. The prices charged by each distributor

depended upon the country in which the distributor operated, for

131 Samkalden and Druker, ‘Legal Problems Relating to Article 86 of the Rome Treaty’ Common

Market Law Review (1966) 158, page 167.

109

example, the price charged in Ireland was the lowest and the prices

charged in Belgium and Denmark were the highest.

Following two complaints against UBC in spring 1974, one from Olesen in

Denmark and one from Tropical Fruits in Ireland, on 19 March 1975 the

Commission initiated proceedings against UBC.


On 17 December 1975, the Commission issued its decision.132 It found

that the relevant product market consisted of bananas of all varieties,

whether branded or unbranded, and the geographic market was the

Benelux countries, Denmark, Germany, and Ireland. It held that UBC

was dominant on that market.

The Commission gathered data which showed that there were

substantial differences of 30-50 per cent between the highest and lowest

prices charged to customers in the various Member States during some

weeks. The largest difference of 138 per cent was between the price

paid by customers in Ireland and that paid by customers in Denmark.

The Commission argued that all the bananas marketed by the brand

name Chiquita on the relevant market had the same geographical origin,

belonged to the same variety and were of almost the same quality. They

were unloaded in two main ports, Rotterdam and Bremerhaven, where

unloading costs differed only by a few cents on the dollar per box of 20

kilograms, and were resold, except to Ireland, subject to the same

conditions of sale and terms of payment. The costs of carriage from the

unloading ports to the ripening installations and the amount of any duty

payable under the Common Customs Tariff were borne by the

purchasers except in Ireland. The price charged varied in accordance

with the destination of the product. The way in which UBC controlled the

132 Chiquita OJ [1976] L95/1.

110

arbitrage between the high-priced and low-priced Member States was by

having a clause in its contracts with distributors prohibiting the resale of

green bananas.133

The Commission found that prices charged for the substantial quantities

sold to customers in Germany, Denmark, and the Benelux countries

were considerably higher, sometimes by as much as 100 per cent, than

the prices charged to customers in Ireland, and accordingly produced a

very substantial profit. It held that UBC's prices were excessive in

relation to the economic value of the product supplied.134 The

Commission’s conclusion was based on a price comparison between

Chiquita bananas and UBC's unbranded bananas and between Chiquita

and other companies' brands of bananas. According to the Commission,

the difference in quality between Chiquita bananas and UBC's unbranded

bananas was insignificant. Considering both the quality difference and

UBC's extra cost of advertising the Chiquita brand, the Commission

found that only half of the price difference was objectively justified.135

The Commission did not consider the extra costs of selecting, branding,

and ripening, which UBC alleged were incurred to produce consistently

higher quality Chiquita bananas.

In October 1973 UBC informed the Danish ripener/distributor Olesen

that its supplies of Chiquita bananas were to be discontinued, because it

had taken part in a campaign mounted by Castle and Cooke to promote

Dole bananas. Olesen tried to obtain Chiquita bananas from some of

UBC's other ripener/distributors in Denmark and from a company in

Germany called Scipio, but without success. The Commission held that

UBC's refusal to supply Olesen would discourage other

133 This is in effect an export ban, because once bananas are yellow they are perishable and soft,

which means that it is impossible to transport them without damaging them. It is slightly surprising

that the Commission did not consider the export ban under Article 81.

134 Chiquita, supra note 132, recital 3 (c).

135 Ibid. recital 3 (c).

111

ripener/distributors from actively promoting competing brands. UBC

argued that Olesen, which had been a major customer of UBC since

1967, had become the exclusive distributor of Dole bananas in 1969,

and thereafter sold fewer Chiquita bananas and had taken less trouble in

ripening them than it took with bananas of other brands.

The Commission found UBC guilty of violating Article 82 in four ways:136

1. UBC had required its ripeners/distributors in the relevant Member

States to refrain from reselling green bananas (export ban) which it

had supplied to them;

2. with regard to its Chiquita brand of bananas UBC had charged other

trading parties dissimilar prices in respect of equivalent transactions;

3. UBC had charged unfair prices for Chiquita bananas; and

4. from 10 October 1973 to 11 February 1975, UBC had wrongfully

refused to supply bananas to its former longstanding customer, the

Danish ripener/distributor Olesen.

On 15 March 1975, UBC and its Belgian subsidiary United Brands

Continentaal BV appealed the decision to the ECJ.


On 14 February 1978, the ECJ handed down its judgment.137 On appeal

UBC and its subsidiary put forward the following arguments in relation to

the substantive part of the decision:

1. the Commission’s analysis of the relevant product market and the

geographic market was wrong;

2. UBC did not hold a dominant position on the relevant product and

geographic market;

136 Chiquita, supra note 132, article 1 of the decision.

137 United Brands, supra note 37.

112

3. the clause relating to the conditions of sale of green bananas was

justified by the need to safeguard the quality of the product sold to

the consumer;

4. UBC’s refusal to supply Olesen was justified;

5. it did not charge unfair prices; and

6. it did not charge discriminatory prices.

The Court upheld the Commission’s market definition. Like the

Commission it found that UBC was dominant, but developed the

Commission definition on dominance.138

UBC stated that the purpose of the clause prohibiting distributors from

reselling green bananas was to protect its brand name. The latter would

be protected by ensuring that the quality of the products was exemplary

by allowing only experienced ripeners who had ripening installations to

carry the brand name.139 Distributors without these installations would

be unable to guarantee the quality of UBS’s bananas to the consumer

and that would ‘lead to the collapse of its entire commercial policy’.140

The ECJ did not deny the possibility of pursuing a policy of quality, but

held that such a practice could only be justified where it did not raise

obstacles which went beyond the objective to be attained. The Court

found that that was not the case.141

UBC’s justification for refusing to supply Olesen in Denmark was that the

refusal did not affect the actual competition on the Danish market.142

This was rejected by the Court, which held that although UBC was

allowed to protect its own commercial interests by taking reasonable

steps to protect its interests, such steps could not interfere with the


139 United Brands, supra note 37, paragraph 142.


141 United Brands, supra note 37, paragraphs 158-159.


113

independence of ‘small and medium-sized firms in their commercial

relations with the undertaking in a dominant position…’.143 The part of

the judgment concerning refusal to supply is slightly different from the

way in which refusal to supply was dealt with in Commercial Solvents. In

the latter, the Court found an abuse where there was elimination of a

competitor from the market and therefore a threat to the structure of

competition, whereas in United Brands the Court found the refusal to

supply Olesen abusive, because it had the potential, if repeated, to drive

other firms from the market. Regardless of this difference, arguably the

key issue in United Brands was UBC’s power and the protection of

smaller customers’ economic freedom.

The ECJ reversed the Commission's finding that UBC’s prices were unfair

under Article 82(2)(a). The Court did not criticise the Commission's

understanding of the law, but its methodology.144 The Court found that

the main deficiency in the Commission's decision was its reliance upon

the comparison between Continental European prices and Irish prices to

support its finding that Continental prices were unfair.

In reversing the Commission’s finding of excessive pricing, the Court

based its conclusion partly on the test for unfair pricing it had laid down

in General Motors.145 It held that ‘charging a price which is excessive

because it has no reasonable relation to the economic value of the

product’ is a violation of Article 82.146 The first step in considering

whether a price is unfair is to compare ‘the selling price of the product in

question and its cost of production’ to determine the dominant firm's

profit margin. This margin ‘objectively’ determines whether the price



145 Case 26/75 General Motors Continental NV v Commission [1975] ECR 1367, [1976] 1 CMLR 95.


114

charged by the dominant firm is excessive.147 If the margin is excessive

then it must be determined whether the excessive price was unfair

either ‘in itself or when compared to competing products’.148 The Court

did not explain when an excessive price would be ‘unfair in itself’. In the

light of the ECJ’s test for excessive pricing, it was clear that the

Commission had not carefully considered UBC’s profit margin, which

meant that the factual basis for considering whether UBC’s prices were

unfair was insufficient.

The Court upheld the Commission’s finding that UBC had violated Article

82(2)(c) by pricing differently in different Member States and required

UBC to discontinue that practice.149 UBC argued that it was justified due

to anticipated changes in the market price.150 The ECJ rejected this

justification and held in paragraph 228:

Once it can be grasped that differences in transport costs,

taxation, customs duties, the wages of the labour force, the

conditions of marketing, the differences in the parity of

currencies, the density of competition may eventually culminate

in different retail selling price levels according to the member

states, then it follows those differences are factors which UBC

only has to take into account to a limited extent since it sells a

product which is always the same and at the same place to

ripener/distributors who - alone - bear the risks of the

consumers' market.151

This indicates that UBC can only to a limited extent rely on these factors,

since UBC did not bear the risk of these factors.



149 ‘Price discrimination is a term that economists use to describe the practice of selling the same

product to different customers at different prices even though the cost of sale is the same to each of

them. More precisely, it is selling at a price or prices such that the ratio of price to marginal costs is

different in different sales…’. Richard Posner, Antitrust Law (University of Chicago Press, 2nd ed, 2001) pages 79-80.

150 United Brands, supra note 37, paragraphs 218-220.

151 Italics added by the author.

115


In upholding the Commission’s finding that UBC’s prices were

discriminatory, the ECJ held:152

Although the responsibility for establishing the single banana

market does not lie with the applicant, it can only endeavour to

take ‘what the market can bear’ provided that it complies with the

rules for the regulation and coordination of the market laid down

by the Treaty.

These discriminatory prices, which varied according to the

circumstances of the member states, were just so many obstacles

to the free movement of goods and their effect was intensified by

the clause forbidding the resale of bananas while still green and

by reducing the deliveries of the quantities ordered.

A rigid partitioning of national markets was thus created at price

levels, which were artificially different, placing certain

distributor/ripeners at a competitive disadvantage, since

compared with what it should have been competition had thereby

been distorted.

For ripener/distributors to be placed at a competitive disadvantage there

must be dissimilar conditions, which are applied to equivalent

transactions. Even though the Court recognised that UBC did not bear

the responsibility for establishing a single banana market, it held that

UBC’s conduct of discriminatory pricing would partition national markets.

Arguably, the transactions are not equivalent from the

ripener/distributors’ viewpoint as they evaluate the transactions in terms

of resale opportunity in the different markets. The Court did not consider

this, which made one commentator, Lucio Zanon, argue that the Court

appears more inclined to protect existing competitors rather than

competition and that the Court did not make consumers better off, nor

did it pursue efficiency.153

152 United Brands, supra note 37, paragraphs 227 and 232-233.

153 Lucio Zanon, ‘Price Discrimination under Article 86 of the EEC Treaty: the United Brands Case’

31 International and Comparative Law Quarterly (1982) 36, pages 50-51.

116

The consequence of this judgment is that a dominant undertaking has to

adopt the same prices in different Member States with due allowance for

differences in cost. The question is whether this benefits consumers. The

answer is that it benefits the wealthier consumers but not the poorer

consumers. Before, UBC could charge high prices in high-income

countries, for example Denmark and Germany, and lower prices in low-

income countries for example Ireland. Because UBC could no longer do

this, but would have to charge a similar non-discriminatory price, the

price would probably be an average price between the lowest and the

highest price of the discriminatory price it could charge. In that case, the

price in the higher-income countries would be lower than when UBC

could discriminate, and some consumers, who did not buy bananas

before, might start buying bananas at the lower price. Thus, consumers

in high-income countries such as Germany and Denmark would be better

off than before. However, the price in the lower-income countries such

as Ireland, would be higher than when UBC could discriminate if the

assumption of the average price holds. Some Irish consumers might no

longer want to buy bananas because of the price increase, and the ones

still buying bananas would have to pay a higher price for the same

quality as before. These consumers would be worse off than before the

judgment. The distributional effect is that income is distributed away

from a poorer part of Europe to a wealthier part of Europe. This has led

one commentator, William Bishop, to argue that a ban on geographic

price discrimination can lead to undesirable distributive consequences.154

154 William Bishop, ‘Price Discrimination under Article 86: Political Economy in the European Court’

44 The Modern Law Review (1981) 282, pages 287-288.

117

2.5 Michelin I


Nederlansche Banden-Industrie-Michelin NV (‘Michelin’), a Dutch

subsidiary of the French Michelin group, manufactured and supplied

tyres for trucks, cars and buses.

Michelin supplied heavy vehicle new replacement tyres to tyre dealers

who sold both Michelin tyres and competing brands. It ran a fixed

invoice discount and a cash discount for early payment, which were the

same for all dealers. Michelin also offered a discount linked to an annual

sales target, but did not require its dealers to purchase all or most of

their requirements from it. Each dealer’s target was personal to that

dealer. A proportion of this discount was paid in advance, initially every

month and then every four months, as an advance on the annual sum.

The full sum became payable only if the dealer attained a pre-

determined sales target. A Michelin sales representative fixed the target

for each dealer at the beginning of each year. The discount was basically

geared to turnover and to the proportion of Michelin tyres sold and the

aim was to ensure that the dealer sold more Michelin tyres than in the

previous year although sometimes it was equal to the prior year’s sales.

Towards the end of each sales year Michelin’s sales representatives

would urge the dealer to place an order large enough to obtain the full

discount.

In 1977, the Commission received a complaint regarding Michelin from a

Dutch tyre dealer.155 The complaint concerned firstly, Michelin’s takeover

of a tyre retailing company and secondly, its policies towards tyre

dealers, especially its system of discounts and bonuses. The Commission

155 WL Snijders, ‘Nederlansche Banden-Industrie Michelin v Commission’ 23 Common Market Law

Review (1986) 193.

118

opened an investigation into the second part of the complaint regarding

Michelin’s discounts and bonuses.


On 7 October 1981, the Commission issued its decision.156 It found that

Michelin’s bonus scheme infringed Article 82 and imposed a fine of

680,000 ECU.157

The Commission found that the relevant product market was that of new

replacement tyres for trucks, buses and similar vehicles and the

geographic market was the Netherlands.158 It found that Michelin held a

dominant position on this market.159 In finding dominance, the

Commission relied on Michelin’s market share and that of its

competitors, plus the technical advances made by Michelin.160

The Commission found Michelin’s annual bonus plan was abusive on two

grounds. First, it tended to tie the dealers to Michelin, thereby

foreclosing Michelin's competitors. Second, it constituted discrimination

having adverse secondary-line effects. In addition, the Commission

condemned a special 5 per cent bonus on the combined purchases of

truck and automobile tyres in 1977. Because the 1977 bonus could only

be earned by meeting a target for the purchase of car tyres, the

Commission characterised it as using Michelin's stronger position in the

156 Bandengroothandel Frieschebrug BV/NV Nederlansche Banden-Industrie-Michelin OJ [1981]

L353/33.

157 Ibid. recital 63.

158 Michelin, supra note 156, recitals 31 and 34.

159 The Commission did not discuss barriers to entry and it is interesting to see that the

Commission’s appreciation of dominance is not that of an economist. For further discussion see

Josephine Shaw ‘Competition and Industrial Property’ European Law Review (1984) 116, page 120.

160 Michelin, supra note 156, recitals 35-36.

119

bus and truck tyre market to promote sales of its automobile tyre

market.161

The Commission cited the requirements of discrimination in Article

82(2)(c) and held that each of them was satisfied.162 It reiterated that

discrimination between dealers strengthened Michelin’s dominant

position, and because the difference in the bonuses was not negligible, it

found an adverse effect on competition.163 In assessing the effects on

competition, the Commission held that Michelin’s conduct ‘distorts the

competition between tyre producers’ and impedes ‘access to the

Netherlands market for [Michelin’s] competitors’.164 The Commission was

concerned with primary-line discrimination by finding that discrimination

between dealers strengthened Michelin’s dominant position.

Finally, the Commission argued that it was clear that ‘a discount system

under which, through financial benefits, an undertaking in a dominant

position attempts to prevent supplies being obtained from competitors is

in conflict with Article 86 [Article 82]’.165 This is a very broad test and it

basically means that most discount systems would violate Article 82,

since no rational firm would adopt a discount system that it did not

expect would increase its sales, necessarily preventing those supplies

being obtained from its competitors.

On 28 December 1981, Michelin appealed the decision to the ECJ

seeking annulment or at least reduction of the fine imposed.


162 Michelin, supra note 156, recital 41.


164 Michelin, supra note 156, recital 49.


120


On 9 November 1983, the ECJ handed down its judgment.166 The Court

upheld the Commission’s finding that Michelin had infringed Article 82 by

tying Dutch tyre dealers to it through a bonus scheme, as this foreclosed

the market for competitors and helped Michelin maintain its dominant

position. The Court, however, followed Advocate General VerLoren van

Themaat’s Opinion and determined that the Commission had not

established discrimination under Article 82(2)(c). It rejected the

Commission’s attack on the 1977 bonus,167 and reduced the fine by

more than 50 per cent.

In examining whether Michelin had abused its position, the ECJ began its

analysis by stating that:168

A finding that an undertaking has a dominant position is not in

itself a recrimination but simply means that, irrespective of the

reasons for which it has such a dominant position, the

undertaking concerned has a special responsibility not to allow its

conduct to impair genuine undistorted competition on the

common market.

The Court continued by holding that it was necessary to investigate

whether:169

[T]he discounts tend to remove or restrict the buyer’s freedom to

choose his sources of supply, to bar competition from access to

the market, to apply dissimilar conditions to equivalent

transactions with other trading partners or to strengthen the

dominant position [of Michelin] by distorting competition.

166 Case 322/81 Nederlansche Banden-Industrie Michelin NV v Commission [1983] ECR 3461,

[1985] 1 CMLR 282.


168 Michelin, supra note 166, paragraph 57.


121

The Court noted that Michelin’s discount system was based on an annual

reference period and stated that: 170

[A]ny system under which discounts are granted according to the

quantities sold during a relatively long reference period has the

inherent effect, at the end of that period, of increasing pressure

on the buyer to reach the purchase figure needed to obtain the

discount … in this case the variations in the rate of discount over

a year as a result of one last order, even a small one, affected the

dealer’s margin of profit on the whole year’s sales of Michelin

heavy-vehicle tyres.

The ECJ also stated that the ‘wide divergence between Michelin’s market

share and those of its main competitors’ meant that if a competitor

wished to induce a dealer to place an order, especially at the end of the

year-long reference period, the competitor had to give a much higher

percentage discount than Michelin’s discount.171

Another factor was the ‘lack of transparency’ of Michelin’s discount

system. The rules of the system had changed on several occasions and

neither the scale of the discounts nor the sales targets or discounts

relating to them were communicated in writing to the dealers. This

meant that the dealers were ‘left in uncertainty and on the whole could

not predict with any confidence the effect of attaining their targets or

failing to do so’.172

The Court considered that restricting the buyer’s freedom to choose his

sources of supply, a long reference period and the lack of transparency

meant that the discount system would put dealers under considerable

pressure, especially towards the end of the year, to attain Michelin’s

sales’ targets or else lose the discount. It held that competitors would

not be able to make offers that would compensate for this loss of

discount easily.




122


The Court held that Michelin’s conduct was abusive as it limited the

dealers’ choice of supplier and made access to the market more difficult

for competitors without any countervailing advantages which could be

economically justified.173 The ECJ stated that ‘neither the wish to sell

more nor the wish to spread production more evenly can justify such a

restriction of the customer’s freedom of choice and independence’.174

The Court concluded that the system operated to put pressure on the

dealers, to make them more dependent upon Michelin, and to foreclose

Michelin's competitors.175

The Court did not say that foreclosure should only be condemned where

clear harm to consumers is shown. The Court did not examine what

percentage of the market and of incremental demand was effectively

foreclosed by Michelin’s conduct. Neither did it assess the size necessary

for a producer to achieve an efficient scale of production. For the Court,

anti-competitive foreclosure was certainly not the thing that mattered;

instead foreclosure in itself was seen as interference in the competitive

process with regard to the degree to which competition, access and

opportunities were foreclosed. This could indicate that the Court was

concerned to preserve the competitive process, the economic freedom of

other market participants and freedom of competition for smaller

competitors in the market.

Looking at the Commission’s Report on Competition Policy in 1981,

written as the Court reached its judgment, it is clear that there were

concerns at the time about protecting small and medium-sized

companies:176


174 Michelin, supra note 166.



123

To the extent that it really makes it possible to maintain or re-

establish a competitive structure, competition policy helps

create a legal and economic environment in which SME [small

and medium-sized enterprises] can compete, if not on equal

terms, at least with the maximum chance of success, with

large firms, both private and public, national and

multinational, operating in the same market.

Moreover:177

[W]here they [small and medium-sized enterprises] depend

for their growth, if not their survival, on the behaviour of

undertakings in a dominant position, SME also benefit from

action by the Commission to put an end to abusive practices

such as discriminatory pricing, refusals to sell, or attempts

to maintain a dominant position by various ploys designed

to retain customers (fidelity rebates, differential discounts,

etc).

The Court held that Michelin (a dominant undertaking) had a special

responsibility to ensure that its conduct did not undermine effective and

undistorted competition in the common market. This is because its

unilateral behaviour carried an inherent risk for the market structure,

competitors, customers and ultimately consumers, since its impact

determined the level of competition in the market. The special

responsibility prohibits dominant undertakings from certain kinds of

conduct that would have been unobjectionable if done by non-dominant

undertakings.178 Besides this distinction between dominant and non-

dominant undertakings, the Community Courts have not specified the

scope or meaning of the special responsibility, but said that the actual

scope of the special responsibility ‘must be considered in the light of the

specific circumstances of each case’.179 This statement is not entirely

satisfactory and several questions arise in relation to the meaning of the

177 Ibid. page 35.

178 Case T-111/96 ITT Promedia v Commission [1998] ECR II-2937, [1998] 5 CMLR 491,

paragraph 139.

179 Joined Cases C-395-396/96P Compagnie Maritime Belge Transport v Commission [2000] ECR

1365, [2000] 4 CMLR 1076, paragraph 114 and Case C-333/94P Tetra Pak International SA v

Commission [1996] ECR I-5951, [1997] 4 CMLR 662, paragraph 24.

124

special responsibility. Firstly, does the special responsibility imposed on

a dominant firm have the effect of protecting competitors? Secondly, to

whom is the dominant undertaking responsible? Thirdly, is the special

responsibility progressive with the growth of an undertaking’s

dominance? And finally, can the behaviour of a dominant firm be

categorised as abusive if it ignores/neglects its special responsibility?

The point is not to answer theses questions, but to highlight that such a

statement is not particularly helpful.180

On the special responsibility, it has been suggested that it builds on the

belief that once an undertaking has a dominant position in the market,

the market structures will change and the effectiveness of competition

as a market regulator will be lost.181 The idea here is that in the absence

of effective competition dominant undertakings have a degree of

mobility and freedom to decide their market policy independently of the

market. By imposing a special responsibility on a dominant undertaking,

the Court imposes an obligation not to negatively affect an already

weakened competitive structure.

The special responsibility can be linked to the ordoliberal ‘as if’ standard,

where dominant undertakings must conduct themselves ‘as if’ they were

faced with complete competition.182 This suggests that dominant

undertakings must refrain from any conduct that impairs undistorted

competition, including conduct that could harm competitors. The idea

behind the ‘as if’ standard was to make dominant companies ‘compete

on performance’ rather than use their power to gain an unfair advantage

180 It is worth noting that the Discussion Paper on the Application of Article 82 of the Treaty to

Exclusionary Abuses (December, 2005) does not mention the special responsibility. According to a

Commission official this is not an omission, but a positive decision not to deal with special

responsibility, because some in the Commission believe that it is nothing but a normal

responsibility for a dominant undertaking.

181 Samkalden and Druker, supra note 131, page 167. 182 Dieter Schmidtchen, ‘German Ordnungspolitik as Institutional Choice’ 140 Zeitschrift für die

gesamte Staatswissenschaft (1984) page 60.

125

over rivals. ‘Non-performance competition’ was seen as inconsistent with

a competitive economy as it allowed dominant undertakings to use their

power to distort the competitive process.183

2.6 Summary

Continental Can concerned a merger. The Court held that eliminating

competition by acquiring a competing firm was an abuse. Rather than

limiting the concept of abuse to exploitative abuses only, the ECJ

adopted the broader concept, which is concerned with conduct leading to

changes in market structure. The Court reached that conclusion by

relying on a teleological interpretation where Article 82 was interpreted

in the light of Article 3(1)(g). According to the latter, it must be ensured

that competition in the common market is not distorted, and the ECJ

interpreted ‘distortion’ as meaning any change in the market structure

that lessened competition.

Commercial Solvents concerned refusal to supply a long-standing

customer with the raw material aminobutanol, for which the Court held

that there was no commercially available substitute. As in Continental

Can, the ECJ adopted a teleological interpretation. It held that Article 82

must be interpreted and applied in the light of Article 3(1)(g). The Court

invoked Articles 82 and 3(1)(g) to protect the economic freedom of Zoja

and did not attempt an examination of the possible economic effects on

the consumer.

United Brands concerned excessive pricing of bananas, discriminatory

prices between Member States and refusal to supply. The latter point

was dealt with in a slightly different way than the refusal to supply in

Commercial Solvents. In Commercial Solvents the Court found an abuse

183 David Gerber, ‘Law and the Abuse of Economic Power in Europe’ 62 Tulane Law Review (1987)

57, page 74.

126

where there was an elimination of a competitor from the market and

thus a threat to the structure of competition. In United Brands the Court

found that the refusal to supply a customer (Olesen) was abusive,

because it had the potential, if repeated, to drive other firms from the

market. This arguably showed a concern with UBC’s power and the

protection of a smaller customer’s economic freedom.

Hoffmann-La Roche concerned rebates the granting of which was, for the

most part, expressly linked to the condition that the customer was to

cover all its requirements for particular vitamins, or at any rate the

predominant part of those requirements, with Hoffmann-La Roche during

a reference period – normally a year or half a year. The Court held that

fidelity rebates, unlike quantity rebates exclusively linked with the

volume of purchases from the producer concerned, are designed,

through the grant of a financial advantage, to prevent customers from

obtaining their supplies from competing producers. The Court regarded

such a rebate system as an abuse of a dominant position because its

purpose was to give the purchaser an incentive to obtain its supplies

exclusively from the undertaking in a dominant position, and that is

incompatible with the objective of undistorted competition within the

common market.

Michelin I also concerned the granting of rebates, but unlike in

Hoffmann-La Roche, the customers of Michelin were not obliged to

obtain all, or a specified part, of their supplies from that undertaking.

Nevertheless, the annual rebates granted by Michelin took the form of

target rebates. To enjoy the latter, Michelin’s customers had to attain

individual sales targets, which were determined according to the

turnover in Michelin tyres which the customer had achieved the previous

year. The Court imposed a special responsibility on dominant

undertakings and regarded the rebate system as an abuse of a dominant

market position by relying on a series of factors such as a relatively long

127

reference period of one year, the non-transparent way in which the

system functioned, and the ratio between Michelin’s market shares and

that of its main competitors taken together.

Conclusion

The analysis of the fundamental cases decided under Article 82 in the

early days found that the ECJ interpreted Article 82 as part of a system

designed to protect competition in the common market from distortion.

The Court made sure that it was understood that Article 82 was not

intended only or primarily to protect the immediate interests of

individual competitors or consumers, but to protect the structure of the

market and thus competition as such, which is weakened by the very

presence of the dominant undertaking on the market. As a result of that

weakness, the dominant company has a special responsibility towards

competition in the market. The cases show that the Court has

interpreted Article 82 to protect economic freedom, freedom of

competition and the process of competition, which are all cornerstones

of ordoliberalism. The essence of the competitive process is to allow

competitors to enter the market to compete within the market. When

competitors exit the market, the competitive pressure on the dominant

undertaking is less, which is harmful for competition in the market.

The Court did not reach its conclusions by considering the wording of

Article 82 alone, but by adopting a teleological interpretation centred on

the needs and objectives of the Community in order to support the

Commission’s enforcement action.

The Commission and the ECJ did not analyse the welfare implications of

the conduct in question on the consumer in form of consumer welfare

loss. They did not engage in any efficiency analyses. It appears,

therefore, that little thought was given to economic reasoning and

128

analysis in the cases in which the law on Article 82 is to be found. These

cases are however still referred to and relied upon by the ECJ.

129

PART II

Part II of this thesis consists of one chapter: chapter four Consumer

Welfare.

The chapter is divided into four sections: section one discusses efficiency

and the classical economic models of monopoly and perfect competition,

section two examines the Chicago School’s definition of consumer

welfare, section three assesses the Community consumer welfare

standard and section four reflects on the efficiency considerations under

Article 82.

Part I of the thesis showed that Article 82, as interpreted by the

Commission and the ECJ, demands that economic freedom should be

considered within the provision although DG Competition’s recent policy

statement implies otherwise.

Whilst DG Competition’s policy statement, that exclusionary abuses

within Article 82 should be interpreted mainly to protect competition on

the market as a means of enhancing consumer welfare and of ensuring

an efficient allocation of resources, may be in line with economic theory,

it marginalises non-efficiency objectives such as economic freedom.

Given that the consideration of economic freedom has been a significant

objective in the jurisprudence of Article 82 in the fundamental cases as

well as its potential in future case law, it may conflict with DG

Competition’s current aspirations for consumer welfare unless economic

freedom is the means to the end of consumer welfare.

Before it can be considered whether economic freedom is an objective

used to enhance consumer welfare, it is necessary to clarify what is

meant by consumer welfare. Neither the EC Treaty nor DG Competition’s

130

Discussion Paper has assigned a specific meaning to the concept of

consumer welfare and its meaning is not entirely clear, which underlines

the need for research in this area.

Part II of the thesis will examine what welfare standard is adopted by

the Commission and whether this is the same welfare standard as the

one advanced by the Chicago School. These sections of chapter four are

relatively descriptive, but they are necessary for the discussion in part

III of the thesis.

The idea that consumer welfare has a place within Article 82 is not

denied, but the way in which it is implemented without a proper debate

as to its consistency with economic freedom is contested.

131

Chapter 4 Consumer Welfare

Introduction

Section one describes three types of efficiency and uses the classical

economic models to show market outcomes where efficiency is achieved

and where it is not. It explains the correlation between the different

types of efficiency and the various welfare standards. Section two

outlines the Chicago School’s definition of consumer welfare, its

theoretical foundation and the main criticism of the Chicago School. The

aim is to show that the Chicago School defines consumer welfare as total

welfare. This is important for section three, which defines the

Community welfare standard and shows the divergence between the

welfare standards espoused by the Chicago School and the Community.

Having distinguished the total welfare standard from the consumer

welfare standard, section four argues that adopting a consumer welfare

standard requires an analysis of effects and efficiencies as both effects

and efficiencies are tied to the analysis of the conduct’s competitive

effects on consumers. It analyses whether there is scope for efficiencies

within Article 82 and if so, questions whether efficiencies should be

advanced as a defence to a challenge under Article 82. It considers how

to balance efficiencies given that Article 82 does not contain an

exemption provision.

For the Commission, consumer welfare has been on the agenda at least

since Sir Leon Brittan became Competition Commissioner in 1989. The

introduction to the Commission’s Report on Competition Policy in 1990

specifically highlights the importance of an efficient allocation of

resources and economic growth, which will maximise consumer welfare.1

Moreover, it states that Member States must develop along the lines


132

dictated by economic efficiency.2 Despite this, former Competition

Commissioner Mario Monti said in his foreword to the Commission’s

Report on Competition Policy in 2000:3

While it is generally understood that competition policy

improves overall economic efficiency, it is surprising that its

most evident effect, that on consumers, is often neglected.

Consumers should be better informed of, more closely taken

into account and more directly involved in competition matters.

In turn, this helps competition policy to focus more clearly on

actions, which are ultimately beneficial to consumers’ interests.

Specifically in relation to Article 82, the current Competition

Commissioner Neelie Kroes has said:4

My own philosophy on this is fairly simple. First, it is competition,

and not competitors, that is to be protected. Second, ultimately

the aim is to avoid consumers harm…. I like aggressive

competition – including by dominant companies – and I don’t

care if it may hurt competitors – as long as it ultimately benefits

consumers. That is because the main and ultimate objective of

Article 82 is to protect consumers, and this does, of course,

require the protection of an undistorted competitive process on

the market.

There is no precise definition of the term ‘consumer welfare’. The EC

Treaty has not assigned a specific meaning to the concept of consumer

welfare, or other variants of welfare, and its meaning is not entirely

clear. The term consumer welfare has several interpretations and it has

sometimes been misunderstood in competition law analysis.5

Consequently and in order to answer the research question, the term

‘consumer welfare’ requires clarification and more precise definition.

2 Ibid. page 12.


4 Neelie Kroes, ‘Preliminary Thoughts on Policy Review of Article 82’, speech given on 23 September

2005 at the Fordham Corporate Law Institute New York (speech/05/537), speech available at:


5 Joseph F Brodley, ‘The Economic Goals of Antitrust: Efficiency, Consumer Welfare and

Technological Progress’ 62 New York University Law Review (1987) 1020, page 1032.


133

Consumer welfare is an economic term, but is increasingly used in the

legal sphere including the sphere of Community competition law, where

the Commission has devoted itself to a more ‘economic approach’ in

respect of competition law.6 The marrying of economics and law is not

new, but can be found in the work of, for example, Posner and Bork.7

These scholars, among others, are concerned with welfare economics8

(or normative economics)9 and aim to identify situations where

efficiencies are not achieved and to prescribe corrective solutions.

According to one commentator ‘[i]n antitrust, the beginning of all

wisdom is understanding the true nature of consumer welfare’10 and by

‘true’ he meant the way in which the Chicago School has articulated

consumer welfare. Before discussing the Chicago School and the

different welfare standards, three types of efficiency will be explained

and illustrated by the classical economic models of monopoly and perfect

competition.

6 Commission’s White Paper on Modernisation of the Rules Implementing Articles 85 and 86 of the

EC Treaty, point 78. Available at:

http://ec.europa.eu/comm/competition/antitrust/wp_modern_en.pdf; the EAGCP Report on An

Economic Approach to Article 82 EC (July 2005) has suggested an economics-based approach to

Article 82; note on the EAGCP Report available at:

http://ec.europa.eu/comm/competition/publications/studies/note_eagcp_july_05.pdf.

7 Richard Posner, Antitrust Law (University of Chicago Press, 2nd ed, 2001); Robert Bork, The

Antitrust Paradox: A Policy at War with Itself (The Free Press, 1993).

8 Welfare economics view the social desirability of alternative arrangements of economic activities

and allocation of resources. It is, in effect, the analysis of the optimal behaviour of individual

consumers rather than of society as a whole. For an in-depth definition see Graham Bannock et al.,

Dictionary of Economics (Bloomberg Press, 4th ed, 2003) page 302.

9 As opposed to positive economics, which views economics exclusively as an empirical science, i.e.

without reference to value judgements.

10 Charles F (Rick) Rule, ‘Consumer Welfare, Efficiencies, and Mergers’, speech given on 17

November 2005 at the hearing of the Antitrust Modernization Commission, page 14.

http://ec.europa.eu/comm/competition/antitrust/wp_modern_en.pdf

134

1. Efficiency and the Classical Economic Models of

Monopoly and Perfect Competition

This section describes three different types of efficiency: allocative,

productive and dynamic efficiency. It analytically illustrates, with the

model of perfect competition, how economic resources are most

efficiently allocated in order to maximise the consumer surplus, which is

the aggregate measure of surplus of all consumers,11 and allocate

products to consumers who value them most. It also illustrates, with the

model showing a monopoly situation, how a non-competitive market

achieves neither allocative nor productive efficiency. The models of

monopoly and perfect competition present two extreme market

outcomes, which bear little relation to reality, but they are theoretically

useful to illustrate a situation of economic efficiency and one of economic

inefficiency.

Efficiency and consumer welfare are discussed together in this chapter,

because they are closely related. Depending on which welfare standard

(consumer surplus, producer surplus or total surplus) a system is

seeking to pursue, the different types of efficiency can explain whether

welfare is increased or not. It is believed that an economy is operating

at maximum efficiency when society is squeezing the greatest value –

the highest level of welfare – out of its scarce resources.12

11 ‘Consumers’ surplus on each unit consumed is the difference between the market price and the

maximum price the consumer would pay to obtain the unit. The total consumers’ surplus is

therefore the sum of all individual consumers’ surplus’ see for example Richard Lipsey, An

Introduction to Positive Economics (Weidenfeld and Nicolson, 7th ed, 1989) page 90; Massimo

Motta, Competition Policy: Theory and Practice (Cambridge University Press, 2004) page 18.




http://ec.europa.eu/comm/competition/speeches/text/sp2007_02_en.pdf.


135

1.1 Dynamic, allocative and productive efficiency

One type of efficiency is allocative efficiency.13 It refers to the way in

which competition serves to allocate resources to their highest and best

use by creating incentives for producers to compete to expand output in

a market until the cost of the last unit of output (marginal cost MC)14

equals the price consumers are willing to pay for the product (marginal

revenue MR).15 At that point, the market is allocating the optimal

amount of society’s total resources to production of that market’s good

or service.16

As shown in figure 1 below, allocative efficiency is harmed when

producers agree directly or indirectly to raise a price from the price

consumers are willing to pay for a given product – the competitive price

(Pc) to a monopoly price (Pm). Allocative efficiency is also harmed when

a producer with market power reduces market output (Q) from the

quantity it would have produced under competition (Qc) to the quantity

produced where output is restricted (Qm) in order to keep the price

above competitive levels. Producers engaging in such conduct expect to

obtain more surplus from consumers than would be possible if

competition prevailed, as they shift surplus from the market’s consumers

to themselves. This will lead to allocative inefficiency, which in economic

terms is called the ‘dead weight loss’ as illustrated by the triangle (A) in

13 In the broad sense allocative efficiency encompasses efficient pricing on both the input and the

output side of the market; in the narrow sense it focuses solely on the seller’s behaviour in output

markets.

14 The increase in the total costs of a firm caused by increasing its output by one extra unit. If all

costs are fixed, the marginal cost of the first unit of output will be very high, but all subsequent

units can be made for nothing.

15 Bork, supra note 7, page 91.

16 According to Bork, supra note 7, allocative efficiency is not well suited as a policy guideline, since

it is difficult to achieve in practice.

136

figure 1 below. The dead weight is the cost to society of a market which

does not operate efficiently.17

Figure 1: An illustration of deadweight loss.18

17 The ‘dead weight loss’ refers to the amount above costs that consumers would be willing to pay

for the lost output. In other words, the marginal cost of producing a good is less than the marginal

willingness of consumers to pay for it, see Dennis W Carlton and Jeffrey M Perloff, Modern Industrial

Organization (Pearson: Addison Wesley, 4th ed, 2005) pages 71-72.

18 I have drawn inspiration for the format of this model from Carlton and Perloff, supra note 17,

page 72.

137

Another type of efficiency is productive efficiency. It refers to the

effective use of resources by a particular firm, meaning that a given set

of products is produced at the lowest possible cost, given the current

technology.19 Productive efficiency is generated when production is

improved to produce the same level of output using fewer resources or

to produce more valuable output of better quality using the same

resources. Unlike allocative efficiency, which is a static concept that is

maximised when the price consumers are willing to pay equals marginal

cost and cannot be improved beyond that point, productive efficiency is

a dynamic concept that can always be improved and never maximised. If

technical progress is improved, productive efficiency will improve by

freeing up resources to expand the economy’s output and providing the

means for deriving more value from the existing use of resources.20

A third type of efficiency is dynamic efficiency. This type of efficiency

refers to the extent to which a company introduces new products or new

processes of production.21 An undertaking has the possibility to adopt a

process of innovation if it can produce at a lower marginal cost

compared to the current cost by paying a fixed cost.22 If the undertaking

does not innovate, because it has no incentive either because it has a

monopoly or because competition is too strong, it will lead to dynamic

inefficiency and result in a welfare loss. If competition is too strong it

can reduce the incentive to innovate in that a system pursuing a

consumer welfare standard is trying to improve allocative efficiency by

forcing prices down to marginal cost.23 This may reduce the possibility

19 Simon Bishop and Mike Walker, The Economics of EC Competition Law (Sweet & Maxwell, 2nd

ed, 2002) page 20.


21 Bishop and Walker, supra note 19, pages 36-39; Motta, supra note 11, pages 55-64.

22 Motta, supra note 11, page 56.

23 Once produced, an idea can be used by an infinite number of people indefinitely with little or any

additional cost. As the cost of producing the idea remains fixed, regardless of how many people

consume it, there is a zero marginal cost in allowing additional consumption. Hence, if marginal cost

138

of appropriating the results of the investment. To avoid dynamic

efficiency being undermined over time, it is important that a system

favouring a consumer welfare standard is balanced between the long-

term need for innovation and short-term loss in allocative efficiency. In

the short-term, there may be loss in allocative efficiency if prices rises

above marginal cost in order to pay for the investment, but in the long-

term, allocative benefits may increase due to the innovation.

Allocative and productive efficiency are predicated on the static

economic model of perfect competition,24 which will be explained in the

following sub-section. Allocative efficiency occurs when price (P) is equal

to marginal cost (MC), at which point the good or service is available to

the consumer at the lowest possible price. Productive efficiency occurs

when the firm produces at the lowest point on the average cost curve

(AC),25 implying it cannot produce the goods any more cheaply. This

would be achieved in perfect competition, since if a firm was not

producing at a lower price another firm would be able to undercut it by

selling products at a lower price.

1.2 Perfect competition

The model of perfect competition, as illustrated in figure 2 below, is a

useful theoretical model.26 It is based on the assumption that

competitive markets achieve efficiency and it can be used to measure

whether a market, operating under a given set of assumptions, is

pricing were enforced in relation to ideas, the cost of producing the idea could never be recovered

and there would be no incentive to come up with it.

24 Bishop and Walker, supra note 19, page 20.

25 Total production costs per unit of output (total fixed costs plus total variable costs divided by

number of units produced).

26 In short, in perfect competition demand and supply is satisfied, there is an equilibrium:

everyone is satisfied. An in-depth description of perfect competition can be found in Graham

Bannock et al., Dictionary of Economics (Bloomberg Press, 4th ed, 2003) page 295ff.

139

competitive.27 With the model of perfect competition, it can be shown

analytically how economic resources are most efficiently allocated so as

to maximise the consumer surplus and allocate products to consumers

who value them most. It can also analytically show when a firm

produces at the lowest point on the average cost curve (AC) and

productive efficiency occurs.

In a market characterised by perfect competition,28 there are many

players acting in the market to buy and sell homogeneous products. The

theory is that there are no barriers to entry or exit and, because of the

free entry of other firms, competition amongst firms will push prices (P1)

down to the lowest point in each firm’s average cost (AC) curve. This is

the level of output where average cost (AC) and marginal cost (MC)

meet.

Figure 2: An illustration of perfect competition.29

27 It is important to notice that the theory of perfect competition does not indicate whether specific

markets are efficient, only that a market operating under a set of assumptions is.

28 The model of perfect competition was developed in the nineteenth century by neo-classical

authors like Augustin Cournot and Alfred Marshall, see Lynne Pepall, Daniel Richards and George

Norman, Industrial Organization: Contemporary Theory and Practice (South Western, 1999) page

236ff.


page 59.

Marginal

costs (MC)

Average

costs (AC)

Quantity

Price

Q1

P1 P=MR

140

In a market characterised by perfect competition, production methods

and prices are transparent. Because of transparency, any firm that is

able to lower its average cost of production will, in the short term, earn

a ‘supernormal profit’.30 Any firm that is able to lower its average cost of

production in the longer term will earn ‘normal profit’,31 as it is assumed

that other firms will copy its new production method and bid the price

down to the new lowest point on the average cost curve. In a market

which is assumed to be perfectly competitive there will be no divergence

between average cost and marginal revenue, because no firm can

restrict output and set output short of the lowest point.

1.3 Monopoly situation

The opposite to the model of perfect competition is the model of a

monopoly situation.32 This model is a useful tool to show a non-

competitive market where neither allocative nor productive efficiency is

achieved. The model, as shown in figure 3 below, shows a downward

sloping demand curve, which indicates that the incumbent is able to

influence price via output restrictions. The rationale behind limiting

output is that the incumbent wants to maximise profit. To maximise

profit in the short term, the incumbent will set output at the profit

maximising point where marginal cost (MC) meets marginal revenue

(MR). The consequence of restricting output is that price will be above

marginal cost, and therefore higher, and output lower, than would be

the case under perfect competition.33 In this situation, there will

necessarily be a divergence between average cost (AC) and marginal

30 Any profit over and above normal profit.

31 Opportunity cost for the entrepreneur, i.e. the minimum amount necessary to attract the

entrepreneur to an activity or to provide the incumbent with an inducement to remain in it.

32 An in-depth description of perfect competition can be found in Graham Bannock et al., Dictionary

of Economics (Bloomberg Press, 4th ed, 2003) page 262ff.

33 Edward H Chamberlin, The Theory of Monopolistic Competition (Harvard University Press, 7th ed,

1956); Joan Robinson, The Economics of Imperfect Competition (Cambridge University Press,

1933).

141

revenue (MR).34 An incumbent that is able to limit output will earn

monopoly profit in the long run, provided that there are barriers to

entry. This profit is a pure surplus, serving no efficiency purpose.

Figure 3: Illustration of a monopoly situation.35

The examination of the different types of efficiency, and the economic

models upon which they rely, is useful information for considering the

relationship between these efficiencies and the different welfare

standards. Knowing the different benefits of the various types of

efficiency, the question is which welfare standard to pursue. The answer

depends on an assessment of whether it is more important to protect

the interests of consumers or producers or both. This will be explored in

the following sub-section.

34 The increase in the total revenue received by a firm from the sale of one extra unit of its output.


page 91.

Marginal

cost (MC)

Average

cost (AC)

Marginal

revenue (MR)

Profit Max

Output MR-MC

Monopoly

Profit

Price

Quantity

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1.4 The correlation between efficiency and welfare standards

Competition law systems favouring the total welfare standard, which is

defined by most economists as the sum of producer surplus and

consumer surplus,36 will choose to protect productive and dynamic

efficiency more than allocative efficiency.37 This is because these

systems believe that improvements in productive and dynamic

efficiency, either by an increase in output in the market where the asset

is deployed, or by freeing up resources in order to increase output in

other markets, will lead to an increase in total welfare. Even if an

improvement in efficiency leaves price unchanged and end consumers

(i.e. consumers in that particular market) do not benefit directly, end

consumers will benefit indirectly. This is because those consumers are

able to consume incremental goods and services produced in other

markets from the freed-up resources. A system believing in total welfare

opposes exclusionary conduct,38 because it reduces production and

innovative efficiency by raising the costs or lowering the return of rival

firms with no offsetting benefits to society.

In a competition law system favouring the consumer welfare standard in

the form of consumer surplus, productive efficiencies are irrelevant

unless they translate into lower prices and are converted into consumer

surplus. Gain in producer welfare would only be acceptable under the

36 W Kip Viscusi, Joseph M Vernon and Joseph Emmett Harrington, Economics of Regulation and

Antitrust (The MIT Press England, 2nd ed, 1995) page 63; Bishop and Walker, supra note 19, pages

23-27; Posner, supra note 7, page 23; and Motta, supra note 11, page 20.

37 One commentator has argued that productive and innovative efficiency, not allocative efficiency,

should be the first priority, as the aim is to force prices closer to marginal cost and thereby increase

allocative efficiency through increased output, see Brodley, supra note 5, page 1025.

38 Exclusionary conduct is defined in DG Competition’s Discussion Paper on the Application of

Article 82 of the Treaty to Exclusionary Abuses (December, 2005), paragraph 1, as action to deny

rivals access to the market or expansion in the market without offsetting benefits to consumers:

‘[b]y exclusionary abuses are meant behaviours by dominant firms which are likely to have a

foreclosure effect on the market, i.e. which are likely to completely or partially deny profitable

expansion in or access to a market to actual or potential competitors and which ultimately harm

consumers’.

143

consumer welfare standard, if there were sufficient competition to force

the producers to pass such benefits on to consumers. For systems

pursuing a consumer welfare standard, reductions in allocative efficiency

are unacceptable, because consumers suffer. Thus, unless producer

welfare is translated into lower prices or gains which are passed on to

consumers, the beneficial effect on producer welfare is irrelevant.

However, as argued above, focusing on allocative efficiency gains in the

short-term can risk reducing the scope for investment in research and

development long-term as prices fall to marginal cost. Thus, it is

important to balance long-term gain in dynamic and productive

efficiency with short-term loss in allocative efficiency, as consumers may

favour a reduction in allocative efficiency in the short-term in order to

achieve dynamic efficiencies in the long-term. In a competitive market,

producers will in the long-term be forced to pass on any cost savings to

consumers.

The consequence of consumer welfare is that the gain in consumer

surplus is not a gain to society as a whole, because it comes at the

expense of a corresponding loss in producers’ profits. Proponents of the

producer welfare standard and the total welfare standard argue that

there is no economic reason for favouring a dollar in the hands of

consumers of the products over a dollar in the hands of the producers or

their shareholders, who are, after all, also consumers.39 Moreover, they

argue that the consumer welfare standard does not discriminate among

consumers, i.e. between relatively poor and relatively well-off

consumers, therefore profit may end up in the pockets of consumers

that are already wealthy.40

Having introduced the different welfare standards and their correlation

with the different forms of efficiency, the following section will describe

39 Charles F (Rick) Rule, supra note 10, page 6.

40 Critics of the total welfare standard argue that it treats consumers and shareholders alike even

when they are different.

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the Chicago School’s definition of consumer welfare as it was the

Chicago School which originally promoted the economic welfare

approach in antitrust law.41

2. The Chicago School’s Definition of Consumer Welfare

The Chicago School’s antitrust ‘mantra’ is that the ultimate goal of US

antitrust law is the maximisation of consumer welfare.42 The Chicago

School’s definition of consumer welfare cannot be ignored as it made its

way into US antitrust,43 a system to which the Commission pays

attention. The US Supreme Court implemented the Chicago School

philosophy generously during the 1970s, 1980s and 1990s.44 It even

cited Robert Bork, a leading articulator of the Chicago School’s view of

antitrust, in Reiter v Sono-tone.45

Bork said in his famous book The Antitrust Paradox:46

[T]he whole task of antitrust can be summed up as the effort to

improve allocative efficiency without impairing productive

41 ‘Competition law’ is the usual term for this form of law in many legal systems. In the US, it is

known as ‘antitrust law’.

42 Fox and Sullivan have pointed out that consumer welfare in the Chicagoan sense is not consumer

welfare at all, see Eleanor Fox and Lawrence Sullivan, ‘Antitrust – Retrospective and Prospective:

Where are we coming from? Where are we going?’ 62 New York University Law Review (1987) 936,

page 946.

43 United States’ submission to OECD The Objectives of Competition Law and Policy,

CCNM/GF/COMP (2003); Hovenkamp in Claus-Dieter Ehlermann & Laraine L Laudati (eds),

European Competition Law Annual – The Objectives of Competition Policy (Hart, 1998) page 328.

The Chicago School started in the 1960s and culminated in the 1970s and 1980s. Besides Bork,

some of its originators are Stigler, Demsetz and Brozen.

44 For example, Continental TV Inc v GTE Sylvania Inc 433 US 36 (1977) pages 50-59 and

footnote 21; Illinois Brick Co v Illinois 431 US 720 (1977) pages 731-744; Brooke Group Ltd v

Brown & Williamson Tobacco Corporation 509 US 209 (1993).

45 Reiter v Sono-tone Corporation 442 US 330 (1979) page 343 ‘Congress designed the Sherman

Act as a “consumer welfare prescription”’ followed by citing Bork’s The Antitrust Paradox.

46 Bork, supra note 7, page 91 and page 427.

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efficiency so greatly as to produce either no gain or a net loss in

consumer welfare.47

The argument of this book [The Antitrust Paradox], of course, is

that competition must be understood as the maximization of

consumer welfare, or, if you prefer, economic efficiency.

Bork discussed maximisation of consumer welfare or economic efficiency

which he equated with consumer welfare. He identified consumer welfare

as improving allocative efficiency without impairing productive efficiency.

Consumer welfare is explicitly concerned with consumer gain.48 Thus, to

avoid any conceptual confusion, it must be stressed that when Bork

speaks about improving allocative efficiency without impairing

productive efficiency, he is concerned about total welfare and not

consumer welfare.49 This is because, if the goal is to maximise consumer

welfare, then this standard seeks to maximise consumer surplus only.

Systems which favour consumer surplus are not concerned with

productive efficiencies as they are irrelevant, unless they translate into

lower prices and are converted into consumer surplus. Thus, identifying

consumer welfare as improving allocative efficiency without impairing

productive efficiency (or economic efficiency) is strictly speaking a

contradiction.50

The difference between consumer welfare and total welfare must be

made clear in order to understand that Bork was talking about total

welfare. A competition law system favouring the consumer welfare

47 Bork reiterated this in Robert Bork, ‘Legislative Intent and The Policy of The Sherman Act’ 9

Journal of Law & Economics (1966) 7.

48 Richard Whish, Competition Law (LexisNexis Butterworth, 5th ed, 2003) page 3; Brodley, supra

note 5, pages 1020-1021.

49 See discussion and critique of Bork’s definition of consumer welfare in Robert H Lande, ‘The Rise

and (Coming) Fall of Efficiency as the Rule of Antitrust’ 33 Antitrust Bulletin (1988) 429, pages 433-

435.

50 It is one thing to believe that it is best for consumers if both allocative and productive welfare

(i.e. total welfare) is protected and quite another to equate consumer welfare with allocative and

productive efficiency.

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standard takes the view that competition is protected for the benefit of

consumers and that consumer's benefit from low prices. According to

this standard, which focuses on allocative efficiency, the law should

prohibit conduct that results in increased prices.

On the contrary, a system which favours productive efficiency cares

about producer welfare (producer surplus), which is the aggregated

measure of the surplus made by all producers. Bork cares about total

welfare which implicitly takes the view that the identity of the winners

and losers is unimportant as long as it is ensured that there are more

gains than losses.51 Thus, Bork does not favour productive efficiency

over allocative efficiency, but is concerned about improving allocative

efficiency without impairing productive efficiency. This is about favouring

both consumer and producer surplus or, in other terms, total welfare. A

total welfare standard is concerned with increasing the gains for society

as a whole. It does not consider the issue of income distribution between

consumers and producers, nor anything giving preference to consumers

over producers or vice versa.52 Thus, believing in improving allocative

efficiency without impairing productive efficiency can be equated with

economic efficiency, which is based on the total welfare standard that

seeks to maximise total surplus.

It is important to distinguish between total welfare and consumer

welfare, because the implication of the choice of welfare standard is

significant. For example, an exclusive buying arrangement that lowers

the price of a good or service to the end consumer by £10, but raises a

51 One critique is that the total welfare standard ignores marginal utility. Marginal utility describes

the additional benefit derived from an additional unit of wealth, and after a point diminishes with

each additional unit.

52 Motta, supra note 11, page 18; Bork, supra note 7, page 111; Frederic M Scherer, ‘Antitrust,

Efficiency, and Progress’ 63 New York University Law Review (1987) 998, pages 998-999; Oliver E

Williamson, ‘Economies as an Antitrust Defense Revisited’ 125 University of Pennsylvania Law

Review (1977) 699, page 710.

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rival’s cost by £30 would be lawful under a consumer surplus standard

but not necessarily under a total welfare standard.

After this initial clarification of the difference between total welfare and

consumer welfare and their connection with the different types of

efficiency, the following sub-section will succinctly highlight some points

of the theoretical foundation of the Chicago School in order to explain

how the School linked behaviour in the market place with efficiency.

2.1 The theoretical foundation of the Chicago School

The Chicago School rejected the structuralist approach, which was the

prevailing approach in US antitrust during the 1950s and 1960s,

advocated by the so-called Harvard School.53 The Harvard School

believed that high concentration enables the exercise of market power

and high profits. In rejecting this line of thinking, the Chicago School

argued that existing market structure reflects efficiency. Higher profits

are due to the lower costs of larger firms, because they have economies

of scale. Even if dominant undertakings had the ability to leverage their

market power, they would have no interest in doing so as there is only a

single monopoly profit. Persistent market concentration is the result of

53 The Harvard School developed a mono-causal and mono-dimensional relationship between

structure, conduct and performance. The structure-conduct-performance paradigm states that

market structure determines companies’ market behaviour, which in turn determines market

performance while conduct is not really taken into account. The competitive ideal was the concept of

‘workable competition’. The Harvard School relied on empirical studies and rejected the model of

perfect competition. It believed in multiple goals for antitrust because there is scope for other

values than efficiency as favourable economic results could be obtained in terms of efficiency, equity

and progress. Antitrust must preserve the competitive process as such; prescribe norms of fair

conduct; and restrict the growth of large firms. Antitrust authorities should have large discretionary

powers because markets are fragile and prone to failure; firms can be expected to collude in

concentrated markets; and there are many and high barriers to entry. This led to a very

interventionist competition law embracing per se rules and divestitures in highly concentrated

markets, see Leonard W Weiss, ‘The Structure-Conduct-Performance Paradigm and Antitrust’ 127

University of Pennsylvania Law Review (1979) 1104, page 1105; Joe S Bain, Industrial Organization

(Wiley, 2nd ed, 1968) pages 462-463.

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minimum efficient firm size. Moreover, there are no or few artificial

barriers to entry, thus private monopoly can only be temporary.54

The Chicago School believed that the basic tenets of firms were

rationality and profit maximisation.55 For example, firms would engage in

vertical price fixing to avoid free-riding. Vertical price fixing should not

be prohibited, as it guarantees better services to consumers. In relation

to predation, the Chicago School believed that aggressive prices are

generally pro-competitive and enhance consumer welfare, except in rare

situations where the predator has sufficient market power to recoup its

losses through long-term, supra-competitive prices achieved after its

rivals have been eliminated.56 Thus, rational firms will not engage in

predatory pricing since they cannot be successful and hence, it should be

of no concern for competition policy. Finally, the Chicago School believed

that collusion is difficult to enforce for market players and thus unlikely,

except in regulated industries.

The Chicago School reviewed business practices in terms of their effects

on efficiency and prices. It relied on the neo-classical price theory, which

developed models of perfect competition and monopoly, to explain firms’

behaviour and practices in real-life markets.57 Bork argued that it was

only workable to view markets from an economic efficiency point of

view, since the social-political framework was so amorphous.58 Indeed,

54 Michael S Jacobs, ‘An Essay on the Normative Foundations of Antitrust Economics’ 74 North

Carolina Law Review (1995) 219, pages 228-232.

55 The Chicago School relied on neo-classical economics which relies on three assumptions: people

have rational preferences among outcomes that can be identified and associated with a value;

individuals maximise utility and firms maximise profits; and people act independently on the basis

of full and relevant information.

56 The Chicago School’s economic analysis of predation was accepted by the US Supreme Court in

1992 in Brook Group, supra note 44.

57 Jacobs, supra note 54, pages 228-229.

58 The proponents of one single objective (that of economic efficiency) do not all necessarily mean

to imply any disparagement of other objectives, such as more equitable distribution of income and

http://en.wikipedia.org/wiki/Rational_choice_theory

http://en.wikipedia.org/wiki/Utility_maximization

http://en.wikipedia.org/wiki/Profit_maximization

149

Bork even pronounced all contrary views as being so incapable of use as

to be ‘unconstitutional’.59 The Chicago School’s focus on making the law

effective made Judge Easterbrook rename it ‘The Workable Antitrust

Policy School’.60 Like the Chicago School, Easterbrook also favoured the

single goal of economic efficiency.61

The assumptions upon which the Chicago School built its theory have led

to some criticism.62 The main points of this criticism will be elaborated in

the following section in order to highlight some of the drawbacks of the

theory.

2.2 Main critique of the Chicago School

The Chicago School relied on neo-classical economics in order to make

the enforcement of competition law objective and to exclude political

values from competition law. Neo-classical economics have been

criticised for relying on unrealistic assumptions,63 which fail to explain

strategic behaviours taking advantage of market imperfections, where

firms can make profits without being efficient.64 This and the Chicago

the diffusion of economic power. They simply believe that a competition policy concentrated on the

efficiency objective is likely to be applied more consistently and effectively.

59 Robert Bork, ‘The Role of the Courts in Applying Economics’ 54 Antitrust Law Journal (1985) 21,

page 24.

60 Frank H Easterbrook, ‘Workable Antitrust Policy’ 84 Michigan Law Review (1986) 1696, page

1700.

61 This is supported by William Baxter (former Assistant Attorney General in Antitrust Division,

DOJ) who said that ‘the sole goal of antitrust is economic efficiency’ in the Wall Street Journal on 4

March 1982, page 28, but opposed by Hans B Thorelli who concluded that, in the absence of a

single-minded legislative intent to pursue efficiency goals, antitrust should manifest concern for

other social values, see Hans Birger Thorelli, The Federal Antitrust Policy (Johns Hopkins Press,

1955).

62 The so-called Chicago School critique, see for example the Report by the EACGP, supra note 6.

63 See supra note 55.

64 Herbert Hovenkamp, ‘Antitrust Policy after Chicago’ 84 Michigan Law Review (1985) 213, page

261.



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School’s philosophy that antitrust should only protect economic

efficiency have led to some criticism.65

First, applying economic theory only and excluding political values when

assessing possible competition law problems is hardly desirable or

possible,66 because economics itself is arguably not value-neutral, as it

reflects political preference. Second, it is illogical to have economic

efficiency as the only goal as economic efficiency is not verifiable.67

Third, the Chicago School adopted the concept of economic efficiency

without defining it in such a way that it could be quantified. Bork

acknowledged that economic performance is difficult if not impossible to

measure scientifically:68

[T]he real objection to performance tests and efficiency defenses

in antitrust law is that they are spurious. They cannot measure

the factors relevant to consumer welfare, so that after the

economic extravaganza was completed we should know no more

than before we began.

Thus, Bork applied Stigler’s definition of ‘competitive effectiveness’ to

assess whether total welfare was increased. By applying competitive

effectiveness, it would be possible to find the most efficient firm in the

market by examining which firm had the most success in the market

place without collusion or predation.69 Finally, the confusion between

consumer and total welfare, as highlighted above, is exaggerated.70

65 For example, Robert H Lande, ‘Wealth Transfers as the Original and Primary Concern of

Antitrust: the Efficiency Interpretation Challenged’ 34 Hastings Law Journal (1982) 65; James May,

‘Antitrust in the Formative Era: Political and Economic Theory in Constitutional and Antitrust

Analysis, 1880-1918’ 50 Ohio State Law Journal (1989) 257, page 260; Rudolph J Peritz, ‘A

Counter-History of Antitrust Law’ 1990 Duke Law Journal 263, pages 272-274.

66 Robert Pitofsky, ‘The Political Content of Antitrust’ 127 University of Pennsylvania Law Review

(1979) 1051.

67 Hovenkamp, supra note 64, page 234.


69 Ibid. page 192.

70 Brodley, supra note 5, page 1033.

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The Chicago School applied the neo-classical model of perfect

competition and relied on price theory.71 The Chicagoan line of thinking

relied on price only, which excludes the phases of production of goods

and services by considering exclusively the exchange between suppliers

and consumers.72 This reduces the importance of enforcement to

measure welfare in terms of economics only, and excludes the specific

interests of the firm, which would normally be considered a part of the

legal analysis. This was no coincidence, as the Chicago School wanted to

make competition law enforcement objective by excluding political

values. But, as said above, it is questionable whether such a model of

welfare is value neutral. Hovenkamp, for example, has argued that

‘wealth maximization must include everything to which people assign a

value’.73

Section two has outlined the Chicago School’s definition of consumer

welfare, its theoretical foundation and the main criticism of the School. It

is clear that the Chicago School relied on a total welfare standard. The

question of which welfare standard is the best one for a given system

depends on an assessment of whether it is more important to protect

the interests of consumers, or producers, or both. This in turn depends

on which efficiencies are considered most beneficial.

Having described the Chicago School’s definition of consumer welfare

(which is important as the School promoted the economic welfare

approach) it is essential to acknowledge that the Chicago School’s model

of competition law does not need to concern itself with creating a single

market. Rather, it presupposes the existence of an integrated market.74

71 Richard Posner, ‘The Chicago School of Antitrust Analysis’ 127 University of Pennsylvania Law

Review (1979) 925.

72 Paul McNulty, ‘Economic Theory and the Meaning of Competition’ 82(4) The Quarterly Journal of

Economics (1968) 639, page 646.

73 Hovenkamp, supra note 64, page 242.

74 Lowe, supra note 12, page 3.

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The following section will examine how the concept of consumer welfare

is defined and applied at Community level, as it is different from the way

in which the Chicago School defined the concept.

3. The Community Welfare Standard

3.1 Consumer welfare

Most jurisdictions embracing competition law clearly state that the

objective is to improve consumer welfare.75 This is also an objective in

Community competition law,76 where there is a general agreement that

competition policy should strive to maintain a competitive market.77

There is a great deal of debate about which welfare standard is the

best.78 The Community Courts have determined that the best welfare

standard under Community law is consumer welfare in form of consumer

gain.

In GlaxoSmithKline, the CFI confirmed that consumer welfare is the

objective of Article 81(1):79

In effect, the objective assigned to Article 81(1) EC, which

constitutes a fundamental provision indispensable for the

achievement of the missions entrusted to the Community…

is to prevent undertakings, by restricting competition

75 UNCTAD, ‘Objectives of Competition Law and Policy: towards a Coherent Strategy for Promoting

Competition and Development’ page 4 submitted for the OECD in 2003. Doc. CCNM/GF/COMP/WD (2003)31.

76 Merit E Janow, ‘International Perspectives on Abuse of Dominance’ in OECD paper GD(96)131 on

Abuse of Dominance and Monopolisation (1996) page 34; OJ [2004] C101/97 Commission Notice

Guidelines on the Application of Article 81(3) of the EC Treaty, paragraph 33; OJ [2000] C291/1

Commission Notice Guidelines on Vertical Restraints, paragraph 7; Mario Monti, ‘Comments to the

speech given by Hew Pate, Assistant Attorney General, US Department of Justice, at the Conference

“Antitrust in a Transatlantic Context”’, speech given on 7 June 2004 in Brussels, page 7, speech

available at: http://ec.europa.eu/comm/competition/speeches/text/sp2004_005_en.pdf.


78 For example, Bishop and Walker, supra note 19, pages 25-27; Motta, supra note 11, pages 18-

22; Whish, supra note 48, pages 18-20.

79 Case T-168/01 GlaxoSmithKline Services Unlimited v Commission, paragraph 118.

153

between themselves or with third parties, from reducing the

welfare of the final consumer of the products in question….

The Commission emphasised on a number of occasions that

it was from that perspective that it had carried out its

examination in the present case, initially concluding that the

General Sales Conditions clearly restricted the welfare of

consumers, then considering whether that restriction would

be offset by increased efficiency which would itself benefit

consumers.

The CFI specified that it is the welfare of the final consumer which must

be considered. Before continuing discussing the Community welfare

standard it is questioned who the final consumer is?

The term ‘consumer’ is not defined in the EC Treaty. The Commission

has attempted to clarify the position in its Guidelines on the Application

of Article 81(3) of the Treaty where it states in paragraph 84:80

The concept of ‘consumers’ encompasses all direct or indirect

users of the products covered by the agreement, including

producers that use the products as an input, wholesalers,

retailers and final consumers, i.e. natural persons who are acting

for purposes which can be regarded as outside their trade or

profession. In other words, consumers within the meaning of

Article 81(3) are the customers of the parties to the agreement

and subsequent purchasers.

According to this statement, consumers are all direct and indirect users

of the product covered by the agreement and the final consumer is a

natural person who is acting for purposes which can be regarded as

outside his/her trade or profession.81 Thus, in downstream markets the

final consumer can be both the purchaser on the wholesale level82 and

80 Guidelines on the Application of Article 81(3) of the EC Treaty, supra note 76.

81 This is also supported in OJ [1975] L222/34 Kabel unde Metallwerke Neumeyer AG and

Etablissements Luchaire SA Agreement.

82 Most cases on the Community level concern the wholesale level.

154

the consumer of a product on the retail level,83 but not the output

producer. This is a clear commitment to the consumer welfare standard.

Specifically in relation to Article 82, the ECJ held in British Airways that

in order to determine whether a system must be regarded as an abuse,

the benefit to consumers must be considered:84

It has to be determined whether the exclusionary effect arising

from such a system, which is disadvantageous for competition,

may be counterbalanced, or outweighed, by advantages in terms

of efficiency which also benefit the consumer. If the exclusionary

effect of that system bears no relation to advantages for the

market and consumers, or if it goes beyond what is necessary in

order to attain those advantages, that system must be regarded

as an abuse.

The ECJ makes clear that when considering efficiencies consumers must

benefit, but without specifying who the consumer is. Given that

consumers include purchasers on both the wholesale and retail level, but

not the output producer, in stating that consumers must benefit, the ECJ

dedicates itself (theoretically) to the consumer welfare standard and not

total welfare. This is in line with the policy statement coming from DG

Competition in its Discussion Paper on the Application of Article 82 of the

Treaty to Exclusionary Abuses:85




allocation of resources. Effective competition brings benefits to

consumers, such as low prices, high quality products, a wide

83 According to the Commission’s Report on Competition Policy (2005) consumers can be both

individuals and businesses, point 727 page 191: ‘the Competition DG’s guiding principles as regards

enforcement will continue to be prioritisation of enforcement actions according to the degree of

harmfulness of anti-competitive practices vis-à-vis consumers, both business and individuals.

Priority will be given to those actions that address competition problems with the highest negative

impact on consumer welfare, account being taken of the volume of spending affected by the anti-

competitive practice and the nature of the conduct. The existence of a significant impact on the

competitive process (market foreclosure) can be used as a proxy for consumer harm’.

84 Case C-95/04P British Airways plc v Commission, paragraph 86.

85 Discussion Paper, supra note 38, paragraph 4.

155

selection of goods and services, and innovation. Competition and

market integration serve these ends since the creation and

preservation of an open single market promotes an efficient

allocation of resources throughout the Community for the benefit

of consumers. In applying Article 82, the Commission will adopt

an approach which is based on the likely effects on the market.

The statement makes clear that between total welfare and consumer

welfare, in the form of consumer surplus, consumer welfare will prevail.

Although the Discussion Paper does not offer an explicit definition of

consumer welfare, DG Competition makes it clear that it considers

allocative efficiency to be more important than productive or dynamic

efficiency.

Despite this, one commentator has said ‘it is difficult to say whether

competition authorities and courts favour in practice a consumer welfare

or total welfare objective’.86 According to the Chicago School, this is

because a policy of maximising total welfare will most effectively

accomplish the goal of protecting consumers’ interests. Whilst this may

be true where monopolies are easily broken up or unstable, this is not

the case for markets characterised by stable monopolies. In a society

with stable monopolies, a competition policy pursuing a total welfare

standard87 would mean that it would be legitimate for a monopoly to

keep the gain of any cost savings even though consumers would have to

pay higher prices while the producer would gain. By choosing to pursue

a consumer standard as opposed to a total welfare standard, DG

Competition has made it clear that the aim of its competition policy is

the interests of consumers, and thus it favours consumers over

producers.88

86 Motta, supra note 11, page 19.

87 Recalling that, when pursuing an objective of total welfare, it does not make a difference

whether producers or consumers gain from wealth maximisation as long as society as a whole is

better off.

88 This is also a politically wise choice in order to get popular support for competition policy, which

could dissolve if consumers did not think that the law protected their interests. The consumer

156

The chosen welfare standard in Community competition policy is

consumer welfare in the form of consumer gain, which is not

synonymous with economic efficiency in the Chicagoan sense. The

question is whether consumer harms are measured in terms of output

only, meaning that consumers are harmed where price increase and

output are restricted, or whether non-price considerations, such as

choice, quality and innovation, are also taken into account. This will be

analysed in the following section.

3.2 The measurement of consumer harm

Consumer welfare measured solely in terms of output, measures

whether consumers benefit by protecting market mechanisms that

ultimately generate lower prices. Consumer harm is measured in terms

of increased price and restricted output. Measuring consumer harm in

the form of price only may end up allowing exclusionary conduct that

drives rivals, selling similar products at higher prices but better quality,

out of the market without violating competition law if consumers enjoy

lower prices. Consumer welfare judged by measures other than price

includes non-price considerations such as quality, choice and innovation.

Measuring consumer harm in this way goes beyond output and is

extended to harm to the competitive process.

DG Competition explains that consumers must benefit in the form of

lower prices, high quality products, a wide selection of goods and

welfare standard seems to be a better standard in a society where consumers are less wealthy than

producers, because if consumers are wealthier than producers then society would be better off with

a total welfare standard. The latter standard allows wealth transfers from consumers to producers

and does not cause problem for society, because neither consumers nor producers are the better off

group to begin with. In countries with a deprived economy it matters less where the wealth is

transferred to as long as it benefits society as a whole. In a situation where a company has market

power, in theory, the firm is better off than the consumers, thus in the Article 82 regime a

consumer welfare standard is preferable to a total welfare standard.

157

services, and innovation.89 Former Competition Commissioner Monti

recognised:90

[T]he goal of competition policy, in all its aspects, is to protect

consumer welfare by maintaining a high degree of competition in

the common market. Competition should lead to lower prices, a

wider choice of goods, and technological innovation, all in the

interest of the consumers.91

The practice of the Commission also supports this position.92 Price

competition is not the only form of competition worthy of protection,

competition which relates to other factors is also worthy of protection.93

According to the Commission’s Guidelines on the Application of Article

81(3) of the Treaty, consumer benefits must include other efficiencies

than lower price.94 The guidelines provides that ‘consumer pass-on can

also take the form of qualitative efficiencies such as new and improved


90 Mario Monti, ‘The Future for Competition Policy in the European Union’, speech given on 9 July

2001 at Merchant Taylor's Hall London (speech/01/340), speech available at:

http://europa.eu.int/rapid/pressReleasesAction.do?reference=SPEECH/01/340&format=HTML&aged

=0&language=EN&guiLanguage=en.

91 Mario Monti continued his consumer crusade in a speech given less than a year later where he

gave various examples of how the Commission defends the consumer interest; see Mario Monti,

‘Competition and the Consumer: What are the Aims of European Competition Policy?’, speech given

on 26 February 2002, European Competition Day in Madrid, speech available at:

http://ec.europa.eu/comm/competition/speeches. In another speech Monti said: ‘The Commission is

committed to a proactive, modern and effective competition policy. Not only will this ensure that the

market functions in such a way as to maximise benefits for consumers, but it also gives consumers

an unparalleled opportunity to participate in the fight against violations of the competition rules’ see

Mario Monti, ‘Proactive Competition Policy and the Role of the Consumer’, speech given on 29 April

2004, Competition Day in Dublin, speech available at:


92 For example, in the Microsoft decision, the Commission engaged in a balancing process between

Microsoft’s interests in protecting its investment in IPRs and the benefits (in terms of innovation)

that would be derived from mandating Microsoft to give access to the information requested, see

Commission decision of 24 March 2004 in Microsoft, COMP/C-3/37.792, paragraph 783.

93 Case 26/76 Metro SB-Großmärkte GmbH & Co KG v Commission [1977] ECR 1875, [1978] 2

CMLR 1, paragraph 21.

94 Guidelines on the Application of article 81(3) of the EC Treaty, supra note 76, paragraph 96 and

point 3.4.3. of paragraph 102.

http://europa.eu.int/rapid/pressReleasesAction.do?reference=SPEECH/01/340&format=HTML&aged=0&language=EN&guiLanguage=en

http://europa.eu.int/rapid/pressReleasesAction.do?reference=SPEECH/01/340&format=HTML&aged=0&language=EN&guiLanguage=en



158

products, creating sufficient value for consumers to compensate for the

anti-competitive effects of the agreement, including a price increase’.95

Even though the Commission recognises that qualitative efficiencies can

be difficult to measure, it clearly states that ‘[t]he availability of new and

improved products constitutes an important source of consumer

welfare’.96

The Guidelines on the Assessment of Horizontal Mergers under the

Council Regulation on the Control of Concentrations between

Undertakings97 provide that ‘the relevant benchmark in assessing

efficiency claims is that consumers will not be worse off as a result of the

merger’98 and a part of that assessment is whether research and

development, and innovation, are among the resulting efficiency gains.99

Measuring consumer harm beyond price considerations can complicate

things. For example, a potential conflict can arise between price on the

one hand and choice on the other. According to Lande, such a conflict

can be resolved by giving priority to choice.100 The argument is that

where consumers have choice they have the power to define their own

wants and the ability to satisfy these wants at competitive prices, and

where there is no choice there are probably neither competitive prices

nor quality.101 Simply put, Lande is arguing that lower prices and better

quality follow from the existence of consumer choice. This argument will

be challenged in chapter six.


96 Guidelines on the Application of article 81(3) of the EC Treaty, supra note 76, paragraph 104.

97 OJ [2004] C31/5 Guidelines on the Assessment of Horizontal Mergers under the Council

Regulation on the Control of Concentrations between Undertakings.


99 Guidelines on the Assessment of Horizontal Mergers, supra note 97, paragraph 80.

100 Robert H Lande, ‘Consumer Choice as the Ultimate Goal of Antitrust’ 62 University of Pittsburgh

Law Review (2001) 503.

101 Ibid.

159

There is no doubt that the Commission is keen to adopt an objective of

consumer welfare. The consequence of this welfare standard is that the

Commission must examine the effects of a specific conduct on

consumers. However, it is one thing to commit to a consumer welfare

objective in theory and another to adopt such a welfare standard in

practice, since it requires a close examination of the effects of the

conduct. In order to examine how the Commission is engaging in an

analysis of effects, the following section provides a short analysis of the

Commission’s decision in Microsoft102 followed by an analysis of the

Wanadoo case.103 These two cases are chosen because they started

when Competition Commissioner Mario Monti was responsible for

competition enforcement at the Commission. As described in the

beginning of this chapter, Mario Monti argued in favour of a consumer

welfare approach. An analysis of the cases will reveal whether the

Commission actually pursued an objective of consumer welfare.

3.3 Microsoft


The Microsoft Corporation (‘Microsoft’) was founded in 1975. It is based

in Redmond, in the state of Washington, USA. It is the worldwide leader

in software, services and solutions.

In August 2000, the Commission formally started an investigation

against Microsoft.104 The Commission’s action followed a complaint

received in December 1998 by another American software company Sun

102 Microsoft, supra note 92.

103 Case T-340/03 Wanadoo Interactive SA v Commission.

104 Commission Opens Proceedings against Microsoft's Alleged Discriminatory Licensing and Refusal

to Supply Software Information, press release of 3 August 2000 IP/00/906. Available at:

http://europa.eu/rapid/pressReleasesAction.do?reference=IP/00/906&format=HTML&aged=0&langu

age=EN&guiLanguage=en.

http://europa.eu/rapid/pressReleasesAction.do?reference=IP/00/906&format=HTML&aged=0&language=EN&guiLanguage=en


160

Microsystems.105 The latter alleged that Microsoft breached Article 82 by

engaging in discriminatory licensing and by refusing to supply essential

information on its Windows operating systems. Following the launch of

the investigation, announced in August 2000, the Commission sent its

first statement of objections alleging that Microsoft was abusing its

dominant position in the market for personal computer operating

systems (‘PC OS’) software by leveraging its power into the market for

server software. In August 2001, a subsequent statement of objections

was sent to Microsoft expanding the formal proceedings to include

concerns about the effects of the tying of Microsoft's Windows Media

Player (‘WMP’) with Windows 2000. In August 2003, the Commission

issued an additional statement of objections, giving Microsoft a final

chance to comment on the results of its investigation and to consider a

package of proposed remedies.106 Microsoft and the Commission were

unable to settle without a formal decision,107 so the Commission issued a

formal decision on 24 March 2004.108


The decision found that Microsoft had infringed Article 82 by leveraging

its dominant position in the PC OS market into the market for work

group server operating systems and into the market for WMP. The

105 The investigation launched in August 2000 was merged with an investigation initiated by the

Commission ex officio in February 2000 alleging abuse of dominance linked to Microsoft’s Windows

2000 software. Commission Examines the Impact of Windows 2000 on Competition, press release of

10 February 2000 IP/00/141. Available at:

http://europa.eu/rapid/pressReleasesAction.do?reference=IP/00/141&format=HTML&aged=0&langu

age=EN&guiLanguage=en.

106 Commission Gives Microsoft Last Opportunity to Comment Before Concluding its Antitrust

Probe, press release of 6 August 2003 IP/03/1150. Available at:



107 There have been settlements without formal decisions, see for example, Olifiat, 17th Report on

Competition Policy (1987), page 77 and Digital Equipment Corporation, 27th Report on Competition

Policy (1997), page 34.

108 Microsoft, supra note 92.



161

Commission imposed a financial penalty of Euro 497 million and some

behavioural remedies.109 It ordered Microsoft to disclose interface

information to rivals110 and to offer a version of its Windows operating

system without its WMP. Broadly speaking, the decision was based on

five points:

1. Microsoft’s very large market share, which was persistently above 90

per cent in the client PC OS;

2. Microsoft’s refusal to supply interface information between Windows

PCs and non-Microsoft work group server operating systems;

3. the link between Microsoft's interoperability advantage and the

increase in its market share;

4. Microsoft’s ability to eliminate competition in the market for work

group server operating systems;

5. Microsoft’s foreclosure of the market for media player software to

competitors by the tying of its WMP to its Windows 2000 PC OS.

In order to bring the abuses to an end and to establish clear principles

for the future conduct of the company, the Commission imposed two

behavioural remedies on Microsoft. First, Microsoft had to disclose

complete and accurate interface information necessary to allow non-

Microsoft work group servers to achieve full interoperability with

Windows PCs and servers, excluding the Windows source code.111 The

Commission emphasised that the disclosed information must be updated

each time Microsoft introduces new versions of its products. Interface

109 This is the highest fine ever imposed by the Commission on an individual company for breach of

the Community competition rules and is over six times larger than the largest previously imposed

for breach of Article 82, which was a fine of 75 million Euro on Tetra Pak in 1996 for abusive tying

and predatory pricing.

110 Interface information is information about how software and hardware elements interact and

such information is needed to implement compatible interfaces between software and hardware.

111 Source code refers to the "before" version of a computer programme that is compiled before it

is ready to run in a computer. The source code consists of the programming statements that are

created by a programmer with a text editor or a visual programming tool and then saved in a file.

162

information protected by intellectual property rights in the EEA also had

to be disclosed in return for reasonable remuneration.112 Second,

Microsoft was required to offer a version of its Windows client PC OS

without WMP to manufacturers of its PCs, although Microsoft retained its

right to offer a version including WMP.113 The Commission prohibited

Microsoft from offering any terms that made the unbundled version less

attractive or offering discounts conditional on purchasing the combined

package.

In relation to the first remedy, the Commission believed that it would

enable competitors to develop rival work group server operating systems

on a level playing field. In relation to the second remedy, the

Commission believed that PC manufacturers would be able to put

together a package of operating systems and media player software that

best meets their customers’ needs and demands.

3.3.3 Analysis of Commission’s decision

The Microsoft decision falls into two parts. The first part of the decision

concerns refusal to supply interface information, recitals 547 to 791, and

the second part of the decision concerns tying of WMP, recitals 793 to

993. In relation to the first part of the decision concerning the refusal to

supply, the Commission decided that Microsoft was abusing its dominant

position ‘by refusing to supply Sun and other undertakings with the

specifications for the protocols used by Windows work group servers in

order to provide file, print and group and user administration services to

Windows work group networks, and allow these undertakings to

implement such specifications for the purpose of developing and

distributing interoperable work group server operating system

112 Microsoft, supra note 92, article 5 of the decision.

113 Ibid. article 6 of the decision.

163

products’.114 In relation to the second part of the decision concerning

tying of WMP with Windows, the Commission found that ‘Microsoft

infringes Article 82 of the Treaty, in particular paragraph (d) thereof, by

tying Windows Media Player (‘WMP’) with the Windows PC operating

system’.115

Only the second part of the decision will be subject to analysis in this

section, as it illustrates the point being made, which is whether the

Commission does engage in a more detailed examination of the likely

effects of the tying practice. The second part of the decision is also

interesting as it was argued in terms of consumer choice. Before

examining the Commission’s analysis of effects, the main arguments

advanced by the Commission and by Microsoft will be highlighted.

The Commission’s analysis of tying started by outlining four

requirements necessary for tying to violate Article 82:116

Tying prohibited under Article 82 of the Treaty requires the

presence of the following elements: (i) the tying and tied goods

are two separate products; (ii) the undertaking concerned is

dominant in the tying product market; (iii) the undertaking

concerned does not give customers a choice to obtain the tying

product without the tied product; and (iv) tying forecloses

competition.

The Commission found that Microsoft’s conduct fulfilled all the conditions

for tying in Article 82(2)(d).117 In relation to the first condition, Microsoft

argued that WMP is an integral part of Windows and not a product

distinct from Windows products. Products that are not distinct cannot be

tied in a way that is contrary to Article 82.118 To support its argument,

Microsoft claimed that it had tied WMP to Windows since 1992, but the

114 Microsoft, supra note 92, recital 546.





164

fact that the Commission had not pursued the conduct before 1999

showed that the Commission accepted that WMP was an integrated part

of Windows. If that argument was not accepted, then the tying of a

streaming media player with the operating system was normal

commercial practice.119

The Commission rejected this argument and concluded that ‘client PC

operating systems and media players are distinct products for the

purposes of Community competition law’.120 To support this conclusion,

the Commission referred to evidence of other suppliers providing media

players separately and evidence which showed a separate consumer

demand for media players, distinguishable from the demand for client PC

operating systems.121 The Commission argued this point by referring to

the ECJ’s judgments in Tetra Pak II and Hilti.122 The Commission further

rejected the argument that the two products were an integrated product,

because it had not pursued the infringement before 1999. If such an

argument was accepted, any dominant company could distort

competition in adjacent markets simply by not becoming the target of

enforcement action for long enough to establish a track record.123

Finally, the Commission rejected the argument that tying was normal

commercial practice as other suppliers independently supplied their

media players or made them removable.124

In relation to the second condition, the Commission argued that

Microsoft used its dominance in the client PC OS market by tying WMP

119 Ibid. section 5.3.2.1.2.2, page 217.

120 Microsoft, supra note 92, recital 825. 121 Ibid. recitals 801-804.

122 Case C-333/94 Tetra Pak International SA v Commission [1996] ECR I-5951, [1997] 4 CMLR

662; Case C-53/92 Hilti AG v Commission [1994] ECR I-667, [1994] 4 CMLR 614.


124 Ibid. recitals 822-823.

165

with Windows and by distributing Windows only together with WMP.125

The dominance part of the case will not be subject to analysis here, as it

is less relevant to the point being made on effects.

As to the third condition, consumer choice, the Commission argued that

Microsoft did not give customers the choice of obtaining Windows

without WMP. According to Microsoft, consumers did not have to pay

extra for having the WMP as they got it for free.126 The Commission

rejected this argument by referring to the fact that the wording of Article

82(2)(d) does not include a reference to ‘paying’. Moreover, connecting

tying to a payment would limit the application of Article 82 to tying cases

where customers had to buy something extra. According to the

Commission, such an interpretation suggests the absence of competitive

harm if customers do not have to spend money for the tied product, and

that would conflate the coercion and foreclosure of competition elements

of tying.127 In relation to the latter point, the Commission said:128

[T]hat the harmful effects on consumers from tying WMP (also)

derive from undermining the structure of competition in media

players which is liable to result in deterrence of innovation and

eventual reduction in choice of competing media players.

In particular, it will be shown that inasmuch as tying risks

foreclosing competitors, it is immaterial that consumers are not

forced to ‘purchase’ or ‘use’ WMP. As long as consumers

‘automatically’ obtain WMP - even if for free - alternative

suppliers are at a competitive disadvantage.

Harmful effect on competition relates to the fourth condition for tying.

The Commission argued that Microsoft’s tying of WMP foreclosed

competition in the market for media players.129 In dealing with

foreclosure, the Commission referred to the ECJ’s judgment in




128 Ibid. recitals 832-833.

129 Microsoft, supra note 92, section 5.3.2.1.4, page 220.

166

Hoffmann-La Roche,130 to show that the ECJ found that the rebate

scheme offered by Hoffmann-La Roche constituted an abuse even where

Hoffmann-La Roche did not contractually force its customers to purchase

anything extra. The Commission also referred to the CFI’s judgment in

Van den Bergh Foods,131 to establish that foreclosure does not have to

reach the level of complete foreclosure as long as the foreclosure is not

insignificant, and to CFI’s judgments in Michelin II132 and British

Airways133 to stress that foreclosure effects do not have to be concrete

foreclosure effects.134 Microsoft contended that its conduct had negative

effect on competition.135

In the Questions and Answers on the Commission Decision, the

Commission alleged that it had applied a ‘rule of reason’ approach to its

assessment of whether WMP should be unbundled by considering

whether the anti-competitive effects of the tie outweighed any possible

pro-competitive benefits.136 The Commission did not employ the term

‘rule of reason’ in its decision, but said in paragraph 841:

There are indeed circumstances relating to the tying of WMP

which warrant a closer examination of the effects that tying has

on competition in this case. While in classical tying cases, the

Commission and the Courts considered the foreclosure effect for

competing vendors to be demonstrated by the bundling of a

separate product with the dominant product, in the case at issue,

users can and do to a certain extent obtain third party media

players through the Internet, sometimes for free. There are

therefore indeed good reasons not to assume without further

130 Case 85/76 Hoffmann-La Roche AG v Commission [1979] ECR 461, [1979] 3 CMLR 211.

131 Case T-65/98 Van den Bergh Foods v Commission [2003] ECR II-4653.

132 Case T-203/01 Manufacture française des pneumatiques Michelin v Commission [2003] ECR II-

4071.

133 Case T-219/99 British Airways plc v Commission [2003] ECR II-5917.



136 Microsoft – Questions and Answers on Commission Decision, MEMO of 24 March 2004

MEMO/04/70. Available at:

http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/04/70&format=HTML&aged=0&la

nguage=EN&guiLanguage=en.

167

analysis that tying WMP constitutes conduct which by its very

nature is liable to foreclose competition.

The Commission acknowledged that tying WMP to Windows could not

automatically be assumed to foreclose competition, so a closer

examination of effects was necessary. It recognised that a detailed

analysis of effects required examination of whether the efficiencies

arising from tying WMP to Windows outweighed any possible anti-

competitive effects from tying WMP.137 This is a development compared

to the approach in Tetra Pak II and Hilti, referred to above, where the

Commission found an abuse where consumers were deprived of the

choice of buying the tied product from other suppliers.

One of the efficiencies advanced by Microsoft was the lowering of

transaction costs for consumers, to reduce time and confusion by having

a set of default options in a personal computer.138 The reduction of

transaction costs consisted in the economies made by a tied sale of two

products, which saves resources otherwise spent on maintaining a

separate distribution system for the second product. The Commission

rejected the possibility of distributive efficiency by stating that such

costs are insignificant in software licensing.139 Another efficiency

advanced by Microsoft was that WMP was an indispensable condition for

simplifying the work of applications developers.140 This argument was

also rejected, because the Commission claimed that Microsoft was

unable to substantiate it with evidence. Ultimately, the Commission

concluded that the efficiencies advanced by Microsoft could not outweigh

the distortion of competition. This does not necessarily mean that the

Commission does not accept any efficiencies, but it could mean that the

Commission is unlikely to accept efficiency gains, where a company has





168

a market share persistently over 90 per cent. In cases where a company

approaches a near-monopoly, it is likely that the Commission is giving

the process of rivalry priority over possible pro-competitive efficiency

gains.141

The remedy requiring Microsoft to offer to manufacturers of PCs a

version of its Windows client PC operating system without WMP raises

the question of the implications of this remedy for consumers. It is

unclear whether consumers would actually benefit from this remedy. It

does not appear from article 6 of the decision whether consumers would

have to pay more for the bundled version than for the version without

WMP. If it is assumed that they have to pay a higher price for the

bundled version, then consumers are potentially disadvantaged. Before

the decision, consumers could get at least one media player for free –

the WMP. At that time, the consumers had the choice of other media

players as well, but these were not free. Following the decision,

consumers would have to pay to get a media player whether it was WMP

or any other media player. Had consumer welfare been measured solely

on the basis of price, then this remedy would harm consumers.

However, as noted above, the measure of consumer harm is extended

beyond price considerations. In that case, did the remedy benefit

consumers if consumer welfare includes non-price considerations such as

choice?

Before the decision, consumers could choose to buy other media players,

so they did have the choice to switch to another supplier. Perhaps they

were reluctant to use their choice, as they would have to pay if they

chose to install another media player than WMP, but they had the

choice. If the purpose of the remedy was to avert a lack of consumer

choice in the future (because all other manufacturers of media players

would have left the market eventually) insofar as Microsoft continued to

141 This is also DG Competition’s stance in its Discussion Paper, supra note 85, paragraph 91.

169

tie its WMP to its Windows software, then that potential future lack of

choice would have been the situation consumers preferred. The

Commission seems to see Microsoft's conduct as effectively foreclosing

consumers’ opportunity to make a reasoned choice in the marketplace,

but it was a choice they had already made.

The consumer choice in this case was a choice between purchasing

Windows with WMP and Windows without WMP. If the above

presumption is correct and consumers would have to pay more for the

bundled version than for the version without WMP then the situation

created by the Commission is more expensive for consumers. Before the

Commission’s decision consumers could get WMP for free. After the

Commission’s decision consumers would have to purchase a media

player whether that being WMP or any other media player. While this

may result in consumers actually considering which media player to buy

instead of ‘just’ using WMP out of convenience, because it is pre-

installed in Windows, it is doubtful whether this is consumer welfare.

If the above presumption is incorrect and consumers do not have to pay

a higher price for the bundled version, then what difference does the

remedy make? The only difference would be that consumers have the

choice of getting Windows software without a WMP, but does that choice

really matter if the price is the same? Following the decision, Microsoft

said in its press release: ‘we [Microsoft] believe that the Commission's

decision would actually reduce consumer choice and hurt European

software developers’.142

The WMP part of the decision was argued in terms of consumer choice,

which illustrates that choice is emerging as an explicit paradigm for

142 Microsoft Says Proposed Settlement Would Have Been Better For European Consumers,

Microsoft press release of 24 March 2004. Available at:

http://www.microsoft.com/presspass/press/2004/mar04/03-24ECRemedyPR.mspx.

170

Community competition law. This raises the question whether the

Commission was protecting choice to protect the welfare of consumers,

or to protect the process of competition and thereby competitors?143

According to the Commission:144

Under Community competition law an undistorted competition

process constitutes a value in itself as it generates efficiencies

and creates a climate conducive to innovation.

If the Commission believes that protecting the process of competition is

a value in itself, because it generates efficiencies, then it needs to create

a framework on how to protect the process of competition to the point

where it generates efficiencies without protecting competitors. As will be

explained in chapter six, protecting the process of competition does not

necessarily guarantee efficiencies to the benefit of consumers.

Guaranteeing efficiencies requires that the process of competition is

protected only to the point where it is productively and allocatively

beneficial to do.

On efficiencies, the Commission said that Microsoft had not submitted

adequate evidence that tying WMP was objectively justified by pro-

competitive effects that would outweigh the distortion of competition,

caused by it.145 Thus, it concluded that Microsoft’s tying of its WMP to its

Windows 2000 PC OS was not indispensable for the developer and

consumer benefits, that it artificially reduced competitors’ incentives to

develop competing software,146 and therefore that competition in the

media player market was considerably weakened.147

143 When asked whether the Commission was seeking to protect competitors, the Commission’s

answer was: ‘the Commission does not look at the specific interests of individual companies, but is

charged with ensuring that competition on the merits is safeguarded. This creates an environment

where consumers can benefit and where innovation can flourish’. MEMO/04/70, supra note 136.





171

This is not to say that the Commission does not appreciate efficiencies

that can lead to lower prices and better quality for consumers, but that

the Commission found that Microsoft’s competitors would not be able to

compete with an efficient Microsoft. As data showed the increasing

importance of media player software and technology in consumer

choices, the Commission was concerned that the linkage between WMP

and Windows would result in the market being tipped definitively in

Microsoft's favour.148 The Commission said that this would enable

Microsoft to obtain control of related markets in the digital media sector.

Although the Commission talked about effects and efficiencies in its

decision, it is still unclear whether the legal test is harmful effects on

consumers or on competitors. This may be clarified on appeal.149


149 Case T-201/04 Microsoft Corporation v Commission (judgment pending). On appeal in relation

to the interoperability part of the decision, Microsoft claims that the Commission erred in finding

that it infringed Article 82 by refusing to supply communications protocols to competitors and to

allow the use of that proprietary technology in competing work group server operating systems. It

argues that the technology which it is ordered to license is not indispensable to achieve

interoperability with Microsoft PC operating systems. Moreover, that the refusal to supply the

technology did not prevent the emergence of new products on a secondary market, and did not

have the effect of excluding competition on a secondary market. The conditions for imposing

compulsory licensing on a dominant company are not therefore met. Microsoft claims that the

Commission wrongly denied that Microsoft could rely on its IPR as an objective justification for its

alleged refusal to supply the technology and instead advanced a new and legally defective balancing

test invoking public interest in disclosure. In relation to the media player part of the case, Microsoft

argues that the Commission erred in determining that Microsoft infringed Article 82 by making the

availability of its PC operating systems conditional on the simultaneous acquisition of media

functionality. It claims that the Commission's decision is based on a speculative foreclosure theory,

which is inconsistent with the Commission's own decision in OJ [2001] L268/28 AOL/Time Warner.

Microsoft argues that Windows and its media functionality are not two separate products, see OJ

[2004] C179/18.

172

3.4 Wanadoo


In September 2001, the Commission launched an investigation under

Article 82 into Wanadoo Interactive SA’s (‘Wanadoo’) pricing practices.

On 19 December 2001, it sent a statement of objection to Wanadoo.150

On 9 August 2002, a subsequent statement of objection was sent.151 At

the time, Wanadoo was a 72 per cent owned subsidiary of France

Télécom, the incumbent operator, which operated nearly all ADSL lines

in France.152 No other cable operator was in a position to compress a

national network comparable to France Télécom’s ADSL facilities.

The Commission reached its decision on 16 July 2003.153 It adopted a

decision against Wanadoo finding that it had violated Article 82 by

marketing its ADSL services, known as Wanadoo ADSL and eXtense, at

prices below average variable costs (‘AVC’) from the end of 1999 to

October 2002. Moreover, that Wanadoo was unable to cover its average

total costs (‘ATC’) from August 2003 onwards, as part of a plan to pre-

empt the market in high-speed internet access during a key phase in its

development. The Commission imposed a financial penalty of Euro 10.35

million.

150 High-speed Internet Access: Commission Suspects Wanadoo (France) of Abusing its Dominant

Position, press release of 21 December 2001 IP/01/1899. Available at:



151 Wanadoo Interactive COMP/38.233, recital 156.

152 ADSL is an abbreviation of ‘asymmetric digital subscriber line’ and is the main available

technology in France for the provision of high-speed internet access to residential and small

office/home office customers. It allows the provision of broadband services over the traditional

telephone copper pair linking local exchanges to the customers’ premises.

153 Wanadoo, supra note 151; High-speed Internet: the Commission Imposes a Fine on Wanadoo

for Abuse of a Dominant Position, press Release of 16 July 2003 IP/03/1025. Available at:



173


The decision reiterated two possible tests for finding an abuse in the

form of predatory pricing.154 The first is where AVC is not covered and

the second is where AVC is covered, but the pricing forms part of a plan

to eliminate competitors.155 If prices are below AVC they are assumed to

be abusive whereas intention must be shown if prices are above AVC.

The Commission carried out adjustments to costs and revenue so as to

take account of the characteristics of a strongly growing market.156 It

found that the prices charged by Wanadoo were well below AVC until

August 2001.157 Hereafter the prices were approximately equivalent to

AVC, but significantly still below ATC. It found that Wanadoo suffered

substantial losses as a result of this practice and meanwhile France

Télécom, which at that time held a virtual monopoly in the market for

wholesale ADSL services for internet service providers, was anticipating

considerable profits on its own wholesale ADSL products. In addition, the

Commission found intention.158

Wanadoo claimed that by selling its services below full cost, it had acted

in a rational manner, with the objective of developing a new market and

to reach profitability in the medium term.159 Wanadoo submitted

calculations designed to prove that for each new subscriber the

discounted cash flows of the services sold at a loss would be positive

over a period of less than five years. However, the Commission found

that even if the discounted cash-flows generated by a single subscriber

were to be admitted as positive in the medium term, the ongoing

154 Wanadoo, supra note 151, recitals 81 and 256.

155 Case 62/86 AKZO Chemie BV v Commission [1994] ECR I-3439, paragraphs 71-72.

156 Wanadoo, supra note 151, recital 73ff. The AVC costs were also adjusted by spreading

customer acquisition costs, see recital 81.


158 Wanadoo, supra note 151, recital 278ff.


174

volume of acquisition costs on an expanding market were such that the

whole activity might well continue for a long time to be unprofitable. The

Commission did not accept that the calculations submitted by Wanadoo

were a relevant tool in assessing whether the behaviour of a dominant

company did or did not amount to predatory pricing.

The Commission argued that the recoupment of initial losses over a

certain period of time is, in the most common settings, the very

objective of predatory pricing behaviour. The firm expects, after evicting

or disciplining its rivals, to be in a position to increase its profit margin in

order to make up for the losses incurred during the predatory pricing

period.160 Demonstrating that acquiring an ADSL customer is rational,

since it provides a positive deflated income over five years, simply shows

that the predatory pricing strategy will pay off. Admitting Wanadoo’s

reasoning in this respect would have led to the conclusion that in

essence predatory pricing simply cannot exist. Another reason for the

Commission to reject Wanadoo’s contention was linked to the specific

facts of the case. What matters for the firm and its shareholders are not

necessarily the individual net revenues produced by a single subscriber,

but perhaps the overall assessment of the financial situation of the

activity at stake.161

Juergen Mensching from the Commission said in a speech following the

decision:162

Wanadoo’s predatory pricing strategy was designed to take the

lion’s share of the market for ADSL services in France, at the

expense of other competitors. The Commission intervened against

160 Wanadoo, supra note 151, recital 293.


162 Juergen Mensching, ‘Competition Policy: Commercial and Consumer Paybacks. The European

Dimension’, speech given on 30 September – 1 October 2003 at the International Institute of

Communications 34th annual conference, page 7, speech available at:

http://ec.europa.eu/comm/competition/speeches/text/sp2003_026_en.pdf.

175

these foreclosure practices even if there was a risk that final

customers might suffer in the short term. However in the case, a

remedy was found – reduction of France Telecom’s wholesale

rates – that benefited both Wanadoo’s competitors and the final

customer.

On 2 October 2003, Wanadoo appealed the Commission’s decision

to the CFI.163 Whilst the Commission’s decision did not endorse an

objective of consumer welfare, it is worth examining whether the

CFI supported a consumer welfare approach.

3.4.3 The CFI’s judgment

On 30 January 2007, the CFI dismissed the appeal and upheld the

Commission’s decision.164 In upholding the decision and the fine imposed

by the Commission, the CFI reaffirmed previous ECJ case law on

predatory pricing.

On appeal, the appellant Wanadoo advanced the following substantive

arguments:165

1. the Commission used the wrong market definition and was incorrect

in finding Wanadoo to be dominant;

2. in finding an abuse, the Commission applied the wrong cost recovery

test and incorrectly calculated costs;

3. in concluding that Wanadoo's prices were predatory, the Commission

denied Wanadoo the right to align its prices with those of its

competitors; and finally

4. the Commission wrongly found a plan of predation and wrongly

maintained that it was not necessary to prove recoupment of losses.

163 OJ [2003] C289/34.

164 Wanadoo, supra note 103.


176

In relation to the first point, the Commission's finding of dominance, the

CFI observed that Wanadoo's very high market share proved, save in

exceptional circumstances, that it had a dominant position, consistent

with previous case law.166 From January 2001 to September 2002,

Wanadoo’s market share rose by nearly 30 per cent to between 65-75

per cent of the market and resulted in Wanadoo having a dominant

position.

As regards the second point on cost recovery, Wanadoo argued that a

discounted cash-flow method should be used in calculating rates of cost

recovery.167 The CFI noted that the assessment represented a complex

economic assessment in which the Commission must be allowed a broad

discretion and the Court should limit its review to traditional judicial

review grounds.168 The CFI accepted the principle in Wanadoo's

argument that a discounted cash-flow method should be used in

calculating rates of cost recovery, but held that this did not show a

manifest error in the Commission's chosen method.

On the substantive test of predation, the appeal raised three significant

issues: the right to align prices with competitors (the ‘meeting

competition’ defence), the need to show a predatory strategy, and the

relevance of recoupment of losses.

In relation to the meeting competition defence, the Commission had

decided that a dominant operator was not entitled to align its prices with

those of a competitor, if this would result in costs not being recovered.

Wanadoo argued that the Commission denied it a fundamental right to

align its conduct with that of its competitors.169 The CFI did not use the

terminology of a fundamental right, but used the term ‘absolute right’. It

166 Wanadoo, supra note 103, paragraph 100.




177

held that there was no absolute right to align prices,170 this conduct

being impermissible where it was aimed not only at protecting the

undertaking’s commercial interests, but also at strengthening and

abusing its dominant position:171

[Wanadoo] cannot therefore rely on an absolute right to align its

prices on those of its competitors in order to justify its conduct.

Even if alignment of prices by a dominant undertaking on those of

its competitors is not in itself abusive or objectionable, it might

become so where it is aimed not only at protecting its interests

but also at strengthening and abusing its dominant position.

On the need to show predatory strategy, the CFI reiterated the principles

set out in Akzo, Compagnie Maritime Belge and Tetra Pak II.172 These

principles are that prices below AVC are abusive in themselves, because

the only interest in applying such prices can be the elimination of a

competitor; that prices above AVC but below ATC are abusive if they are

determined as part of a plan for eliminating a competitor; and that

failure to achieve the predatory object is not sufficient to prevent the

conduct from being an abuse.173

On the point of recoupment, the Commission found that Wanadoo had

not covered AVC until April 2001 or ATC until October 2002. Therefore,

Wanadoo was obliged, in respect of the latter period, to provide sound

evidence that its conduct was not part of a strategy of pre-empting the

market. Wanadoo claimed that the Commission had erred in law by

maintaining that it was not necessary to prove recoupment.174 The

170 This conclusion on price alignment is not wholly out of line with the Discussion Paper, supra

note 38, which suggests that a ‘meeting competition’ defence would not normally be available for

pricing below average avoidable cost.


172 AKZO, supra note 155, paragraphs 71-72; Tetra Pak II, supra note 122; Joined Cases C-395

and 396/96P Compagnie Maritime Belge Transport v Commission [2000] ECR 1365, [2000] 4 CMLR

1076.



178

Commission rejected the argument that it had to prove recoupment.175

This was upheld by the CFI, which recognised that the Commission was

‘right to take the view that proof of recoupment of losses was not a

precondition to making a finding of predatory pricing’.176 Contrary to the

legal position in the US,177 there is no recoupment requirement in

relation to predatory pricing under Article 82.178

In order to justify its pricing below cost, Wandoo claimed that by

charging prices below cost it would enjoy economies of scale and

learning effects on account of increased production. The CFI held that

the economies of scale and learning effects could not exempt Wanadoo

from liability under Article 82. This is because an undertaking which

charges predatory prices may enjoy economies of scale and learning

effects on account of increased production precisely because of pricing

below costs.179

3.4.4 Analysis of CFI’s judgment

On appeal, the Commission claimed that demonstrating the specific

effects of Wanadoo’s predatory pricing is not decisive for the purposes of

finding the infringement in question. Moreover, that Article 82 ‘must be

applied where there is a risk of eliminating competition, without having

to wait for the object of driving out competition to be achieved’.180 This

contrasts with the signal sent out by DG Competition in its Discussion

Paper, according to which the Commission will adopt an approach based

on the likely effects on the market when applying Article 82.181 This

favours an approach to the enforcement of Article 82 based on sound



177 Brooke Group, supra note 44.

178 Tetra Pak, supra note 122.




179

economic analysis of the effects of the conduct in question, including the

effects on consumers.

While the Discussion Paper tries to encourage a move away from the

rigid rules based on the form of the conduct and the protection of

competitors, this judgment represents no change in the established

analysis of predatory pricing under Article 82. The CFI endorsed every

aspect of the Commission’s decision, especially on recoupment and

meeting competition. The CFI continues to focus to a considerable extent

upon the intentions of the dominant undertaking, rather than the effects

of its conduct. Although the Discussion Paper does not abandon the

concept of presumptions based upon the relationship between a

dominant undertaking’s prices and costs, it does recognise the possibility

that such pricing may not always have exclusionary effects. Where

prices are above AVC but below ATC, emphasis is placed upon the need

for objective evidence that the strategy will have foreclosure effects and

the possibility of a defence based upon objective justification is

accepted.182 If DG Competition's objective is to adopt an economic

approach rooted in consumer welfare, then this case merely serves to

demonstrate the extent to which the CFI's approach must also alter, if

such a transformation in the application of Article 82 is to be successful.

A mechanical application of price and cost comparisons, may lead to the

paradoxical result that a company breaches Article 82, just because it

did not properly anticipate the level of demand for a new product and

therefore gained a dominant position in the market.

Whether Article 82 ought to have a recoupment requirement is an issue

which has been debated often. This thesis will not revisit this debate, but

will briefly highlight some of the arguments for and against taking

recoupment into consideration. As seen above, Bork argued that there

was no reason to condemn predatory pricing, because offering prices

182 Ibid. paragraph 112ff.

180

below cost will create losses for the predator while practising predation,

but benefit the consumers.183 The predator has to raise prices again later

– recoup – and at that point there will be room for competition.184 Article

82 condemns predatory pricing, because prices below cost can eliminate

a significant number of competitors in the market, with the result that

there will be no room for competition when raising price, because there

are no competitors left. Arguably, in trying to recoup, a firm raises

prices, which might encourage potential competitors to enter the

market. However, there may be high barriers to entry or even no

potential competitors. Even if there are potential competitors, they may

be unwilling to enter the market if the incumbent has established a

reputation for predation. In any case, according to the Discussion Paper

the possibility of recoupment is assumed where dominance is proven:185

It will in general be sufficient to show the likelihood of

recoupment by investigating the entry barriers to the market, the

(strengthened) position of the company and foreseeable changes

to the future structure of the market. As dominance is already

established this normally means that entry barriers are

sufficiently high to presume the possibility to recoup. The

Commission does therefore not consider it is necessary to provide

further separate proof of recoupment in order to find an abuse.

Neither the Commission’s decision nor the CFI’s judgment was about

consumer welfare. While the Competition Commissioner at the time of

the decision, Mario Monti, was arguing in favour of consumer welfare,

the actual decision, which was upheld by the CFI, was not about the

consumer welfare at all. This may not be the final outcome as France

Télécom has appealed the judgment on 16 April 2007.186

183 See section 2.1 above.

184 Giuliano Amato, Antitrust and the Bounds of Power (Hart publishing, 1997) page 21.


186 Case C-202/07P France Télécom SA v Commission. On appeal France Télécom claims that CFI

failed to comply with its duty to provide reasons both as regards the possibility for recoupment and

as regards the right to align prices with those of competitors. It infringed Article 82 by refusing

Wanadoo the right, enshrined in both EC and French law, to align its prices, in good faith, with those

181

4. Efficiency Considerations under Article 82

The wording of Article 82 is silent on efficiencies and there is no

secondary legislation or other legislative document embracing

efficiencies under Article 82. This is not to say that efficiencies have

been ignored in the analysis of Article 82, but rather that efficiency

concerns have been considered less important and have not been

considered an aim in themselves.187 This is probably because of the

historical concern with preventing increases in industrial concentration

and the possible political ramifications of conjoining economic and

political power.188 However, in a system which favours consumer

welfare, the question whether the effects of the particular conduct harm

consumers must be assessed. Examining the impact of the effects on

consumers naturally requires a consideration of efficiencies. If

recognisable efficiency gains are so large that the conduct can no longer

be said to harm consumers, then the Commission must be prepared to

accept the conduct. In this way, the analysis of efficiencies is directly

tied to the analysis of the conduct’s competitive effects on consumers.

of its competitors. The CFI infringed Article 82 by failing to find fault with the Commission's method

for calculating cost recovery, which involved a distortion of the test of predation required by the

ECJ. The method which the Commission used made it impossible to know whether the Wanadoo

subscribers generated a profit or loss for that business during their subscription period. The CFI

misconstrued both Article 82 and its duty to provide reasons when deciding that the costs and

revenues subsequent to the period of the alleged infringement should not be taken into account.

The CFI infringed Article 82 and its duty to give reasons by holding that a price may be predatory

even when it is accompanied by a considerable reduction in the market share of the relevant

undertaking. The CFI distorted the facts and the evidence submitted for its consideration in relation

to the alleged plan of predation. The CFI infringed Article 82 in holding that proving the possibility

for recoupment of losses was not a pre-requisite for finding predatory pricing and also in confusing

the Commission's evidence on the possibility of recoupment of those losses with the relevant

undertaking's evidence on the impossibility of recoupment of those losses.

187 Eleanor Fox, ‘Monopolization and Dominance in the United States and the European

Community: Efficiency, Opportunity, and Fairness’ 61 Notre Dame Law (1986) 981, page 985;

Thomas Eilmansberger, ‘How to Distinguish Good from Bad Competition under Article 82 EC: in

Search of Clearer and More Coherent Standards for Anti-Competitive Abuses’ 42 Common Market

Law Review (2005) 129, page 136.

188 As described in chapter two.

182

Section four considers briefly how, and the extent to which, efficiencies

should be taken into account in competition analysis under Article 82. It

also questions whether efficiencies should be advanced as a defence to

an abuse. It considers how to balance efficiencies against abuse given

that Article 82 does not contain an exemption provision.

4.1 The structure of Article 82

Whereas Article 81 contains a framework for the assessment of possible

efficiency benefits,189 Article 82 does not do so explicitly. Article 82 is not

bifurcated like Article 81,190 as explained by the ECJ in Continental

Can:191

Article 86 [Article 82] does not contain the same explicit provisions,

but this can be explained by the fact that the system fixed there for

dominant positions, unlike Article 81(3), does not recognise any

exemption from the prohibition.

189 Article 81(3):

The provisions of paragraph 1 may, however, be declared inapplicable in the case of:

— any agreement or category of agreements between undertakings,

— any decision or category of decisions by associations of undertakings,

— any concerted practice or category of concerted practices,

which contributes to improving the production or distribution of goods or to promoting technical or

economic progress, while allowing consumers a fair share of the resulting benefit, and which does

not:

(a) impose on the undertakings concerned restrictions which are not indispensable to the

attainment of these objectives;

(b) afford such undertakings the possibility of eliminating competition in respect of a substantial

part of the products in question.

190 If an agreement restricts competition and therefore violates Article 81(1), the undertaking

must, in order to assess whether the agreement creates any efficiencies examine whether the

agreement has economic benefits. The party must prove that the agreement restricting competition

improves production, distribution or technical and economic progress and does not impose

unnecessary conditions, and that consumers get a fair share of the benefits, and that the agreement

does not eliminate competition. The notification for agreements for individual exemption was

abandoned after 1 May 2004 so there is no longer any such thing as an individual exemption. The

undertakings must now conduct their own ‘self-assessment’ of the application of Article 81(3), see

Whish, supra note 48, page 168.


[1973] CMLR 199, paragraph 25.

183

This was further elaborated by the CFI in Atlantic Container Line AB and

others (TACA):192

[I]t must be noted at the outset that there is no exception to the

principle in Community competition law prohibiting abuse of a

dominant position. Unlike Article 85 of the Treaty [now Article 81],

Article 86 of the Treaty [now Article 82] does not allow

undertakings in a dominant position to seek to obtain exemption

for their abusive practices…. Furthermore, according to the case-

law, dominant undertakings have a special responsibility not to

allow their conduct to impair genuine undistorted competition on

the common market…. Consequently, there can be no exceptions to

the prohibition of abuse by dominant undertakings.

It is clear that Article 82 does not contain a statutory or a case law-

developed exemption provision like that of Article 81. The question is

whether efficiency considerations are excluded from Article 82, simply

because the provision does not contain a specific exemption provision. In

other words, can there only be an efficiency defence if there is a specific

exemption provision?

According to Competition commissioner Neelie Kroes the answer is

probably no:193

Article 82 does not expressly foresee the possibility of ‘exempting’

abusive behaviour under Article 82 because of efficiencies.

However, we must find a way to include efficiencies in our

analysis. We must take into account that the same type of

conduct can have efficiency-enhancing as well as foreclosure

effects. This should be reflected in our analytical framework.

According to this policy statement, efficiencies do have a place in Article

82 even though Article 82 does not contain an exemption provision. This

is not an unreasonable position to take as the notion of objective

justification has made its way into the Article 82 analysis through the

192 Joined Cases T-191/98 and T-212-214/98 Atlantic Container Line AB and others v Commission

(TACA), paragraph 1109.

193 Neelie Kroes, supra note 4, page 5.

184

notion of abuse.194 Moreover, it would be peculiar if efficiencies were not

recognised to some extent under Article 82, as efficiencies are

recognised under both Article 81 and in the European Merger Control

Regulation.195 While this may be a reasonable position to take, it is

ultimately for the Community Courts to decide whether or not there is

scope for efficiencies within Article 82.

While the case law referred to above makes clear that Article 82 does

not contain a case law developed exemption provision, it does not

appear, in theory, to exclude the possibility of assessing efficiencies as

one of the factors to be considered in the main assessment of abuse. In

Irish Sugar,196 the CFI held that a dominant undertaking is allowed to

protect its commercial position197 where it is based on economic

efficiency and in the interest of consumers:198

[E]ven if the existence of a dominant position does not deprive an

undertaking placed in that position of the right to protect its own

commercial interests when they are threatened…, the protection

of the commercial position of an undertaking in a dominant

position with the characteristics of that of the applicant at the

time in question must, at the very least, in order to be lawful, be

based on criteria of economic efficiency and consistent with the

interests of consumers.

In British Airways,199 the CFI reiterated that economic efficiency can be

taken into consideration.200 That said, the Community Courts have never

194 Case 27/76 United Brands Company v Commission [1978] ECR 207, [1978] 1 CMLR 429; Case

311/84 Centre Belger d’Etudes de Marche Telemarketing v CLT and IPB [1985] ECR 3261, [1986] 2

CMLR 558, paragraphs 25-27; Case T-30/89 Hilti AG v Commission [1991] ECR I-1439, [1992] 4

CMLR 16, paragraphs 105-107; Case C-333/94 Tetra Pak International SA v Commission [1996]

ECR I-5951, [1997] 4 CMLR 662, paragraph 79.

195 OJ [2004] L24/1 Council Regulation No 139/2004 on the Control of Concentrations Between

Undertakings.

196 Case T-228/97 Irish Sugar plc v Commission [1999] ECR II-2969, [1999] 5 CMLR 1300.

197 If it does not interfere with the independence of a small customer, see United Brands, supra

note 194, paragraphs 189-194.

198 Irish Sugar, supra note 196, paragraph 189.

199 Case T-219/99 British Airways plc v Commission [2003] ECR II-5917.

185

justified an exclusionary conduct on the grounds of efficiency gains and

the concept has been interpreted by the Community Courts very

narrowly.201 In some cases, quantity rebates have been considered

lawful where based on a genuine cost saving for the supplier.202

However, the cost saving itself reflects the efficiency gains and

economies of scale made by the dominant undertaking and thus this is

not considered a justification.203

Having established that there is scope for considering economic

efficiencies within Article 82, the following section will consider whether

it is correct to regard efficiencies as a ‘defence’ before considering a

possible way to balance efficiencies.

4.2 Efficiencies as a defence

DG Competition’s Discussion Paper suggests including efficiencies in

Article 82 as a defence.204 Although it has no legal status and is

therefore not binding, it reveals DG Competition’s thinking on the


201 Telemarketing, supra note 194, paragraphs 25-27; Case C-418/01 IMS Health GmbH & Co OHG

v NDC Health GmbH & Co KG [2002] ECR I-3401, [2002] 5 CMLR 44, paragraph 38; Hilti, supra

note 194, paragraphs 105-107; Tetra Pak, supra note 194, paragraph 79; However, the

Commission has justified exclusionary behaviour based on economic grounds in its decision of 26

April 1989 in Filtrona/Tabacalera, where it rejected a complaint under Article 82 based on economic

grounds from a Spanish cigarette filter producer against the Spanish tobacco monopoly holder. The

latter had increased its own production of cigarette filters from 44 to 100 per cent, but justified its

behaviour in vertical integration on the economic grounds that producing all its filter requirements

would allow it to achieve economies of scale and generally reduce its production costs.

202 Luc Gyselen, ‘Rebates: Competition on the Merits or Exclusionary Practices?’ in Claus-Dieter

Ehlermann and Isabela Atansiu (eds), The European Competition Law Annual 2003: What Is an

Abuse of a Dominant Position? (Hart Publishing, 2006).

203 Case T-203/01 Nederlansche Banden-Industrie Michelin v Commission, paragraph 58; Case C-

163/99 Portuguese Republic v Commission [2001] ECR I-2613, [2002] 2 CMLR 1319, paragraphs

50-52.

204 Discussion Paper, supra note 38, section 5.5.

186

issue.205 The evidential burden of proving a possible defence lies on the

dominant undertaking, as stated in the Discussion Paper: ‘[i]n relation to

the efficiency defence the dominant company must be able to show that

the efficiencies brought about by the conduct concerned outweigh the

likely negative effects on competition resulting from the conduct and

therewith the likely harm to consumers that the conduct might otherwise

have’.206

The use of the term ‘defence’ gives rise to a procedural issue regarding

the burden of proof.207 DG Competition says that it is for the dominant

undertaking to prove that there will be efficiencies as a defence to its

behaviour, which seems to reverse the burden of proof. Regulation

1/2003 Article 2 establishes that it should be for the authority or the

party alleging an infringement of Articles 81(1) and 82 to prove the

infringement and there is no legal basis for reversing the legal burden of

proof. It is important to distinguish between the legal and the evidential

burden of proof, as only the latter can switch between the parties

whereas the legal burden of proof will always be on the party alleging an

infringement. This raises the question whether ‘defence’ refers to a

rebuttal presumption of a first order inference from a portion of the

evidence (meaning that the presumption is based on reality) that the

conduct is anti-competitive, or whether it is a defence to a final

conclusion. In the light of Regulation 1/2003, it is not enough that the

Commission establishes a series of presumptions, and thereafter

requires the dominant undertaking to disprove these presumptions, but

rather the Commission must prove the alleged infringement. In order to

205 The conditions proposed in the Discussion Paper paragraph 84 are clearly modelled upon Article

81(3) – although not in the same order.


207 For a general discussion of the burden of proof within the scope of Article 82 see Renato

Nazzini, ‘The Wood began to Move: An Essay on Consumer Welfare, Evidence and Burden of Proof in

Article 82’ 31(4) European Law Review (2006) 518, page 523ff.

187

clarify the issue, acting deputy director for DG Competition Emil Paulis

has said:208

A defence to a violation of a statute is not only an express

defence stated in the law or in the text book. Any countervailing

factor such as objective justifications or efficiencies which render

Article 82 inapplicable can qualify as a defence, for which the

burden of proof normally has to be on the person invoking such

defence. The fact that the countervailing factor has to be brought

forward by the defending party does not preclude a global

integrated assessment and balancing of all effects under Article

82. It does not either change the fact that the authority has the

burden of proving the ultimate violation of Article 82. This means

that if the defendant comes forward with sufficient evidence of

facts which contradict the facts alleged by the authority or which

outweigh or neutralise the negative effects identified by the

authority, the authority/plaintiff either accepts this outcome or

has to prove with further evidence that the evidence put up by

the dominant firm is not sufficient to outweigh the negative

effects shown by the authority.

Paulis acknowledges that the authority has the burden of proof, but also

that it is for the party advancing efficiencies to neutralise the negative

effects identified by the authority. It is assumed that the word ‘identified’

means ‘proved’ otherwise it is nothing more than a presumption that

reverses the burden of proof. Paulis does not talk about creating a

framework where efficiencies are considered a defence and thereby

creating a two-stage analysis, but does refer to a global integrated

assessment. This is similar to the framework for analysing objective

justifications suggested by Advocate General Jacobs in his Opinion in

Syfait:209

I would add that the two-stage analysis suggested by the

distinction between an abuse and its objective justification is to

my mind somewhat artificial. Article 82, by contrast with Article

81 EC, does not contain any explicit provision for the exemption

of conduct otherwise falling within it. Indeed, the very fact that

208 Emil Paulis, ‘The Burden of Proof in Article 82 Cases’, speech give on 13 September 2006 at the

Fordham Corporate Law Institute New York, page 5, speech available at:


209 Advocate General Jacobs’ Opinion in Case C-53/03 Synetairismos Farmakopoion Aitolias &

Akarnanias (Syfait) and others v GlaxoSmithKline AEVE, delivered on 28 October 2004, paragraph

72.


188

conduct is characterised as an ‘abuse’ suggests that a negative

conclusion has already been reached, by contrast with the more

neutral terminology of ‘prevention, restriction, or distortion of

competition’ under Article 81 EC. In my view, it is therefore more

accurate to say that certain types of conduct on the part of a

dominant undertaking do not fall within the category of abuse at

all.210

Case law has dealt with objective justifications by making them a part of

the overall assessment of conduct.211 There is no reason why efficiencies

should be treated any differently. Thus, where the efficiencies outweigh

the conduct in question, an abuse ought not be found in the first

place.212

Although DG Competition speaks of a ‘defence’, it is not as a defence to

a final conclusion that conduct is anti-competitive. Rather, the ‘defence’

terminology refers to the rebuttal of a first-order inference from a

portion of the evidence that proves the conduct is anti-competitive and

violates Article 82. It is a defence to a prima facie case, not a defence to

a final conclusion. This requires that the abuse analysis, for which the

legal burden of proof is on the competition authority, should be a

balancing act of efficiencies.

4.3 Balancing efficiencies

If efficiencies should be considered as a part of the overall assessment

of abuse, how should this be done?

210 This was also the view of Advocate General Kokott in her Opinion in British Airways, supra note

84, delivered on 23 February 2006, paragraphs 42-43, which consider an objective justification as a

part of showing unlawful conduct not as a defence.

211 For example, Case T-83/91 Tetra Pak International SA v Commission [1994] ECR II-755,

[1997] 4 CMLR 726; Case C-333/94 Tetra Pak International SA v Commission [1996] ECR I-5951,

[1997] 4 CMLR 662; Irish Sugar, supra note 198; Portuguese Republic, supra note 203; Michelin,

supra note 203; Case T-65/98 Van den Bergh Foods v Commission [1998] ECR II-2641, [1998] 5

CMLR 475; Microsoft, supra note 92; Hilti, supra note 194. Objective justifications not discussed on

appeal to the ECJ Case C-53/92P Hilti AG v Commission [1994] ECR I-667, [1994] 4 CMLR 614.

212 See for example Commission decision of 26 April 1989 in Filtrona/Tabacalera, supra note 201.

189

In British Airways, the ECJ tied the analysis of efficiencies directly to the

analysis of the conduct’s competitive effects on consumers:213

It has to be determined whether the exclusionary effect arising

from such a system [discount system], which is disadvantageous

for competition, may be counterbalanced, or outweighed, by

advantages in terms of efficiency which also benefit the

consumer. If the exclusionary effect of that system bears no

relation to advantages for the market and consumers, or if it goes

beyond what is necessary in order to attain those advantages,

that system must be regarded as an abuse.

The ECJ acknowledged that the discount that may foreclose may bring

efficiencies, which is a step towards a more economics-based approach.

Even though an economics-based approach naturally lends itself to a

rule of reason approach to competition policy,214 the Court does not

employ the language of a rule of reason and it appears that the Court is

trying to adopt a similar analysis to the one adopted in Article 81. The

Court requires a balance between anti-competitive effects and

efficiencies, where the Commission must consider efficiencies as part of

their assessment of the competitive effects of the conduct.

Accordingly, if the recognisable efficiency gains are so large that the

conduct can no longer be said to harm consumers, then the Commission

must be prepared to accept this conduct. In this sense, efficiency gains

must ‘cleanse’ the conduct in order for the conduct not to be deemed

anti-competitive in the first place. In this fashion, the analysis of

efficiencies is directly tied to the analysis of the conduct’s competitive

effects on consumers. Only when the Commission is convinced that the

negative effects have been eliminated will it decline to prohibit the

conduct. Having said that, measuring efficiency gains can be a difficult

task, as Posner acknowledges:215

213 British Airways, supra note 84, paragraph 86.

214 EAGCP Report, supra note 6, page 3.

215 Posner, supra note 7, page 29.

190

[I]t is very difficult to measure the efficiency consequences of a

challenged practice. And so throughout this book [Antitrust Law

2001] we shall be continually be searching for ways of avoiding

prohibiting efficient, albeit noncompetitive, practices without

having to compare directly the gains and losses from a challenged

practice.

The difficulty arises because balancing anti-competitive effects and

efficiencies clearly involves a trade-off between gains in efficiency and

the effects of the anti-competitive conduct. It raises the matter of

incommensurability. The Commission will have to make a judgment

between the effects of anti-competitive conduct, on the one hand, and

gains in efficiency, which are real savings to consumers, on the other

hand. These are not comparable, because one involves a redistribution

of income whereas the other involves real gains in terms of the savings

of resources. What is to be done about this trade-off?

The Economic Advisory Group for Competition Policy, the EAGCP, admits

that trade-offs involve an element of redistribution between groups of

consumers. It suggests that when faced with such trade-offs, which

require making a choice, the competition authority must exercise its

judgment, which necessarily involves a certain element of subjectivity.

The latter should however ‘not absolve the competition authority from

the requirement to be clear about the trade-offs themselves and to

indicate precisely what consumer welfare effects are relevant to its

decision’. 216

The consequence of deciding that the main objective of Article 82 is

consumer welfare is that DG Competition has decided that consumers

are more deserving than producers.217 The dominant undertaking must

show that the conduct in question creates efficiencies, which outweigh

the negative effects on competition and that these efficiency benefits are

216 Ibid. page 10.

217 Fox, supra note 187, footnote 138.

191

passed on to consumers. Passing on is needed in order to ensure that

consumers are not harmed by the effects of the anti-competitive conduct

and is thereby directly tied to the analysis of the conduct’s competitive

effects on consumers. Passing on is one of the four cumulative criteria218

that DG Competition has suggested for efficiency gains to be realised:219

The Community competition rules protect competition on the

market as a means of enhancing consumer welfare and of

ensuring an efficient allocation of resources. This requires that the

pass-on of benefits must at least compensate consumers for any

actual or likely negative impact caused to them by the conduct

concerned. If consumers in an affected relevant market are worse

off following the exclusionary conduct, that conduct can not be

justified on efficiency grounds.

Unlike Article 81(3), there is no requirement that consumers must get a

‘fair share’, but just that the efficiencies must benefit consumers. This

makes it hard to know how much it takes to benefit consumers, in

particular, because the Community Courts have never justified

exclusionary conduct on the grounds of efficiency gains within Article 82.

Getting a fair share implies that the passing on benefits must at least

compensate consumers for any actual or likely negative impact caused

to them by the restriction of competition found under Article 81(1).220

Although, there is no ‘fair share’ requirement, it must be assumed that

consumers’ benefits cannot be negative, meaning that they must gain

more than they lose by the anti-competitive conduct.221 This is of course

not much comfort given the Commission has a lot of discretion. Only

time will show how the Commission will exercise its discretion in

218 The other three are that efficiencies are realised or are likely to be realised as a result of the

conduct concerned; that the conduct concerned is indispensable to realise these efficiencies; and

that competition in respect of a substantial part of the products concerned is not eliminated, see

Discussion Paper, supra note 38, paragraph 84.


220 Guidelines on the Application of Article 81(3) of the EC Treaty, supra note 76, paragraph 85.

221 See an analogy to mergers in the Guidelines on the Assessment of Horizontal Mergers, supra

note 97, paragraph 79.

192

assessing the passing on criterion as well as the other criteria for

assessing efficiencies under Article 82.

Conclusion

Chapter four addressed three questions. Is consumer welfare an

objective in Article 82? If so, how is that welfare standard defined by the

Commission? And what are the consequences of adopting a consumer

welfare standard?

The answer to the first question was that Community competition policy

invariably has a welfare objective and it is that of consumer welfare in

the form of consumer surplus. No judgment under Article 82 has clearly

articulated the objective or used the terminology of consumer welfare.

Before the second question, how does the Commission define consumer

welfare, was answered a theoretical analysis explaining the difference

between the total welfare standard and consumer welfare standard was

conducted. The Chicago School’s theory of consumer welfare was used

as a starting point. The chapter established that consumer welfare in the

Chicagoan sense means total welfare. A theoretical examination was

then conducted of the correlation between the different welfare

standards and the various efficiencies. The chapter found that

proponents of consumer welfare consider allocative inefficiency

unacceptable, because consumers suffer. In general, proponents of

consumer welfare want more competition, which forces producers to sell

close to marginal costs. It also found that proponents of the producer

welfare standard are concerned with productive and dynamic efficiency,

which relate to gains to producers. It concluded that the Community

welfare standard is defined as consumer welfare in the form of consumer

surplus, which must ensure efficient allocation of resources. This

definition extends beyond price and takes non-price considerations into

193

account. It found that the Community welfare standard is not measured

solely in the form of price, but also in the form of higher quality, choice

and innovation.

The third question considered the consequences of adopting a consumer

welfare standard. It concluded that one of the consequences of a system

favouring consumer welfare is that the question whether the effects of

the particular conduct harm consumers must be assessed. It conducted

an analysis of the Commission’s decision in Microsoft and the CFI’s

judgment in Wanadoo to examine whether the Commission and/or the

CFI did examine effects. It found that the WMP part of the Microsoft case

was argued in terms of consumer choice, which illustrates that choice is

emerging as an explicit paradigm for Community competition law.

Moreover, the Commission believes that protecting the process of

competition is a value in itself, because it generates efficiencies.

However, the Commission did not create a framework for how to protect

the process of competition to the point where it generates efficiencies

without protecting inefficient competitors. In Wanadoo, it found that the

CFI continues to focus to a considerable extent upon the form of the

dominant’s undertaking conduct, rather than the effects of its conduct.

An examination of the effects on consumers naturally requires a

consideration of efficiencies. The chapter found that the structure of

Article 82 does not contain an exemption provision, but that that does

not prevent efficiencies being considered under Article 82. The chapter

questioned whether efficiency gains should be advanced as a defence to

a conclusion of abuse. The chapter argued against such a methodology,

as it would be an implementation of an exemption provision, and not

supported by case law. Instead it concluded that efficiencies must be

considered as a part of the overall assessment of abuse.

194

PART III

Part III of this thesis consists of two chapters: chapter five Economic

Freedom in the Community Legal Order and chapter six The Relationship

between Economic Freedom & Consumer Welfare.

Part III of the thesis considers the status of economic freedom in the

Community legal order and the purpose of economic freedom as

interpreted by the Community Courts respectively.

Economic freedom is considered a fundamental right by ordoliberals. By

understanding ordoliberalism and its ideology of economic freedom, one

will come a great deal closer to understanding that Article 82 (at least in

the past) was not about economic efficiency. This is vital for the

assessment of the legitimacy of DG Competition’s giving priority to the

objective of consumer welfare. If economic freedom is considered a

fundamental right in the ordoliberal sense in the Community legal order,

then a change from economic freedom to consumer welfare would

undermine a fundamental right. Besides violating a fundamental right, it

would be a departure from the case law which protects economic

freedom. This would require support from the Community Courts.

Chapter five considers whether economic freedom is considered a

fundamental right in the ordoliberal sense in the Community legal order

and therefore is to be protected as a right of a higher rank.1 In contrast

to chapter two which examined ordoliberalism and the ordoliberal

competition law model in general, this chapter specifically analyses the

status of economic freedom in Community law. It examines whether the

EC Treaty is based on the ordoliberal economic constitution as described

in chapter two. If the EC Treaty is based on the ordoliberal economic

1 Jason Coppel and Aidan O’Neill, ‘The European Court of Justice: taking Rights Seriously?’ 29

Common Market Law Review (1992) 669, page 682.

195

constitution where economic freedom has status as a fundamental right,

it becomes difficult to argue that economic freedom should not have a

similar status at Community level. Chapter five shows that fundamental

rights form part of the general principles of the EU and examines

whether economic freedom is considered a part of those general

principles. This is done by considering the European Convention on

Human Rights (the ‘ECHR’)2 and the Charter of Fundamental Rights of

the European Union (the ‘Charter’)3 and the German constitution. Case

law is considered where relevant.

Chapter six considers whether economic freedom is used to enhance

consumer welfare by explaining how economic freedom is perceived by

ordoliberal theorists. Their understanding of the objective of economic

freedom is then compared with the objective of consumer welfare.

Chapter six examines whether the two objectives overlap and finds that

there is a certain overlap when it comes to choice. Choice can improve

the competitive process, but the question is whether the competitive

process is to be protected intrinsically or instrumentally.

2 The European Convention for the Protection of Human Rights and Fundamental Freedoms, signed

in Rome on 4 November 1950 and enforced in 1953. It is legally binding for the European Court of

Human Rights. Available at: http://conventions.coe.int/treaty/en/Treaties/Html/005.htm. 3 The Charter of Fundamental Rights of the European Union, 2000/C 364/01. Available at:

http://www.europarl.europa.eu/charter/pdf/text_en.pdf.

http://www.europarl.europa.eu/charter/pdf/text_en.pdf

196

Chapter 5 Economic Freedom in the Community Legal Order

Introduction

The argument advanced in chapter five is that if economic freedom is

considered a fundamental right in the Community legal order, then a

change from economic freedom to consumer welfare would

undermine a fundamental right and be a violation of the Community

legal order. Consumer welfare is a utilitarian rule so the scenario is

not that DG Competition is giving priority to one fundamental right

over another fundamental right in the normative hierarchy of laws. If

economic freedom has status as a fundamental right in the

Community legal order, then DG Competition’s suggestion of adopting

consumer welfare as the main objective when assessing exclusionary

abuses under Article 82 is a change from a fundamental rights-based

approach to a utilitarian approach. This would have to be properly

debated and require support from the Community Courts, as it would

be a constitutional change. Even if a constitutional change would be

acceptable, meaning that such a change would be possible from a

Community perspective, it would have to be recognised as such.

The case law analysis carried out in chapter three showed that original

case law doctrines about abuse of dominance rested on the concept of

‘distortion’ of competition, from Article 3(1)(g) EC. Thus, the acquisition

of a competitor could be a prohibited abuse because the dominant

position distorted the market structure.1 A refusal to supply a competitor

might be treated as adversely affecting the structure of the market by


[1973] CMLR 199.

197

destroying the competitor’s capacity to compete effectively.2 The United

Brands case focuses on how the dominant firm’s strategies limited the

independence of a smaller business, implying that coercion could

demonstrate abuse regardless of the actual effect on the competitive

process.3 It condemned restraints that ‘limit markets to the prejudice of

consumers’. The Hoffmann-La Roche4 and Michelin I5 cases banned

fidelity rebates that pressurised firms into dealing with a dominant firm

unless there was ‘economic equivalency’ in the transactions and there

was no significant effect on the structure of competition. The approach

implied by the ECJ concerned preserving the positions and economic

freedom of customers and competitors. Despite this, DG Competition

states in its Discussion Paper:6

With regard to exclusionary abuses the objective of Article 82

is the protection of competition on the market as a means of



This policy statement indicates that DG Competition believes that

competition is best protected by protecting consumer welfare and by

ensuring an efficient allocation of resources in terms of Article 82. As

noted, this runs counter to some of the case law analysed, which saw

competition best protected by protecting the process of competition in

order to protect the economic freedom of the market participants.

This one-dimensional view focusing on maximising economic efficiency

arguably excludes a focus on, for example, the non-efficiency objective


Commission of the European Communities [1974] ECR 223, [1974] 1 CMLR 309. 3 Case 27/76 United Brands Company v Commission [1978] ECR 207, [1978] 1 CMLR 429. 4 Case 85/76 Hoffmann-La Roche AG v Commission [1979] ECR 461, [1979] 3 CMLR 211. 5 Case 322/81 Nederlansche Banden-Industrie Michelin NV v Commission [1983] ECR 3461, [1985]

1 CMLR 282. 6 Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses (December

2005), paragraph 4.

198

of economic freedom, unless the latter has an impact on consumer

welfare. Consumer welfare takes a neo-classical position which values

welfare without any consideration of the position of individuals in its

utilitarian calculus.7 According to this utilitarian majoritarian value,

safeguarding economic freedom is not a relevant consideration.8

Instead, the test of legality is whether the effects of the undertaking’s

behaviour contribute to improving consumer welfare. This is contrary to

the ordoliberals’ understanding of competition law. Ordoliberals believed

that competition was best protected by protecting economic freedom in

the market as a fundamental individual right. Ordoliberalism cannot be

disregarded, as it has had an impact on the Community institutions’

interpretation and application of Article 82 as argued in chapter three.9

It can be seen from chapter two and chapter four that economic freedom

and consumer welfare pursue fundamentally different values. A potential

and serious conflict can arise between the two objectives where the

protection of effective competition amongst competitors does not benefit

allocative efficiency (the type of efficiency that DG Competition is

suggesting should be pursued), or where conduct benefiting consumer

7 Wernhard Möschel, ‘Competition Policy from an Ordo Point of View’ in Hans Willgerodt & Alan

Peacock (eds), German Neo-liberals and the Social Market Economy (Macmillan, 1989) pages 148-

149.

8 The rule of utility is that good is whatever brings the greatest happiness to the greatest number of

people. Since utilitarians judge all actions by their ability to maximise good consequences, any harm

to one individual can always be justified by a greater gain to other individuals. This is true even if

the loss for the one individual is large and the gain for the others is marginal, as long as enough

individuals receive the small benefit. Some critics reject utilitarianism on the basis that it seems to

be incompatible with human rights. For example, if slavery or torture is beneficial for the population

as a whole, it could theoretically be justified by utilitarianism. Utilitarian theory thus seems to

overlook the rights of the individual, see Jeremy Waldron, ‘Rights’ in Robert E Goodin and Philip

Pettit (eds), A Companion to Contemporary Political Philosophy (Blackwell Publishing, 1995) page

581.

9 This has also been argued elsewhere. See for example Liza Lovdahl Gormsen, ‘Article 82 EC:

where are We Coming From and Where are We Going To?’ 2(2) Competition Law Review (2005);

Christian Ahlborn and Carsten Grave, ‘Walter Eucken and Ordoliberalism: an Introduction from a

Consumer Welfare Perspective’ 2(2) Competition Policy International (2006).

199

welfare does not protect the economic freedom of the market

participants. For example, the exclusion of some small and medium-

sized companies, which lack economies of scale and thus will be unlikely

to guarantee consumer welfare, would not harm consumer welfare.

However, it could harm the economic freedom of small and medium-

sized companies, which must be protected if the aim is to protect the

process of competition in the long-run. The conflict becomes even more

serious if economic freedom is a fundamental right, as argued by

ordoliberals, and not merely a legal concept used to assess whether the

conduct in question reduces allocative efficiency. It is therefore

important to understand why economic freedom is pursued. Is it for

example to protect a fundamental right in the ordoliberal sense or is it to

enhance consumer welfare in form of allocative efficiency?

1. The Constitutionality of the EC Treaty

Section one examines whether the EC Treaty has constitutional status

and that naturally leads to considering what kind of constitution it is.10

The section does not seek to engage in a significant constitutional

debate, however interesting. Instead, it hopes to provide some basic

answers useful for the wider debate about the status of economic

freedom in the Community legal order. Before assessing the status of

economic freedom, it is necessary to narrow down the focus from ‘the

Community legal order’ generally to some key elements characterising a

constitution. This is needed as it cannot automatically be assumed that

the EC Treaty has constitutional status, because the Community is

10 The term ‘constitution’ has always been politically sensitive due to its connotations of potential

federal statehood. Inherent in the German Maastricht decision was the premise that the basic

documents of the Community remain international treaties of which the Member States are the

‘masters’. This reflects the deeply entrenched understanding within the mindset of national

constitutional law that the notion of a constitution is inherently bound to the nation-state, which

renders inappropriate its use in the context of the Community. See Anneli Albi and Peter Van

Elsuwege, ‘The EU Constitution, National Constitutions and Sovereignty: an Assessment of a

“European Constitutional Order”’ 29 European Law Review (2004) 741.

200

neither a federal state nor similar to one.11 It has no independent

sovereignty and is not self-sufficient but complements the Member

States.12 The Community is a supranational13 organisation authorised by

the Member States and it gains its legitimacy by validation – ratification

by its Member States – rather than by its people.14 However, there is

some debate as to whether the Community is an international

agreement or a federal type of organisation.15 The Community has a

supreme legal order, which binds the Member States in relation to EC

law, and subjects them to the jurisdiction of a supranational authority

(the ECJ) should the Member States not fulfil their obligations under the

Treaty. This is different from the traditional format of international

agreements based on the consent of sovereign actors, characterised as

intergovernmental co-operation.16 Some policy sectors however remain

intergovernmental in nature; they are non-binding areas of political co-

operation.17 There has not been a simple progression from an

international collaboration of Member States to a supranational entity

and the so-called variable geometry has to some extent always been

present.18 The state of integration of different actors, institutions and

11 Hjalte Rasmussen, EU-Ret i Kontekst (GadJura, 3rd ed, 1998) page 365ff.

12 Edward T Swaine, ‘Subsidiarity and Self-Interest: Federalism at the European Court of Justice’ 41

Harvard International Law Journal (2000) 1, page 10.

13 Supranational means government above, or beyond, the state level of government where states

do not wield individual vetoes.

14 Joseph Weiler, ‘The Transformation of Europe’ 100 Yale Law Journal (1991) 2403, pages 2423

and 2433.

15 There have been numerous attempts to understand and explain the constitutional reflection of

the Community stretching from a functionalist perspective, to neo-functionalism and the

intergovernmental/supranational dichotomy, to contemporary debates about the multi-level

governance, see Paul Craig and Gráinne De Búrca, EU Law Text, Cases and Materials (Oxford

University Press, 3rd ed, 2003) pages 5-12. See generally Weiler, supra note 14.

16 Intergovernmental means international co-operation based solely on the consent of each state

involved.

17 Mainly found in the second pillar comprising the common foreign and security policy (CFSP) and

the European security and defence policy (ESDP).

18 The phrase variable geometry relates to the opt-in or opt-out policy sectors contained in the

Treaties allowing some Member States to co-operate without all Member States agreeing to new

201

policy sectors has been, and continues to be, variable.19 This debate will

not be elaborated further here, instead this chapter takes the view that

the Community is a unique system – sui generis – and has no model as

such to be compared with.

EC law does have important elements which are to be found in a

constitution defined in the broader sense as, ‘the basic principles and

laws of a nation, state, or social group that determine the powers and

duties of the government and guarantee certain rights to the people’.20

For example, the Community has exclusive competence in a wide range

of matters and the EU institutions do have functions comparable to those

of a government.21 The EU institutions are limited by the rule of law,

which is a basic idea of constitutionalism. Moreover, the ECJ has helped

to constitutionalise the Community by establishing the supremacy of EC

law in fundamental cases such as Costa v ENEL,22 Simmenthal23 and

Factortame.24 The ECJ has also established the direct effect of

Community law in Van Gend en Loos.25 Both the doctrine of supremacy

and that of direct effect are keystones of European constitutionality.26

policy initiatives. See John A Usher, ‘Variable Geometry or Concentric Circles: patterns for the EU’

46 International and Comparative Law Quarterly (1997) 243.

19 Joseph Weiler, ‘The Community System: the Dual Character of Supranationalism’ in Yearbook of

European Law (Oxford University Press, 1981). 20 David M Walker, The Oxford Companion to Law (Clarendon Press, 1980).

21 Sionaidh Douglas-Scott, Constitutional Law of the European Union (Longman, 2002) page 516.

22 Case 6/64 Costa Flaminio v ENEL [1964] ECR 585, [1964] CMLR 425.

23 Case 106/77 Amministrazione delle Finanze dello Stato v Simmenthal SpA [1978] ECR 629,

[1978] 3 CMLR 263.

24 Case C-213/89 R v Secretary of State for Transport, ex Parte Factortame Ltd [1990] ECR I-2433,

[1990] 3 CMLR 1.

25 Case 26/62 Van Gend en Loos v Administratie der Belastingen [1963] ECR 1.

26 Douglas-Scott, supra note 21, page 517; Joerges disagrees, he thinks it is insufficient to point to

direct effect and supremacy as core elements of EC law to characterise the system as constitutional,

see Christian Joerges, ‘What is Left of the European Economic Constitution?’ EUI Working Paper Law

No 2004/13 (2004) page 9. This paper is also published in a shorter version in 30(4) European Law

Review (2005) 461.

202

Another step in its constitutionality has been the adoption of the

Charter, albeit legally non-binding.27 However, Eeckhout argues:28

[T]here can be little doubt that counsel for parties involved in

litigation with a human rights dimension before the European

Courts will try to find support for their case in the text of the

Charter. They will not argue that the Charter applies as such, but

they will refer to it in support of their arguments. Although the

Charter is not legally binding the courts can use it as confirmation

of rather than the legal basis of their rulings on fundamental

rights issues. And it is well-known that courts are very able at

playing with those notions; in other words it is relatively easy for

courts to characterise an element of law as mere confirmation of

the court’s reasoning whereas that element was effectively the

basis for the Court’s decision.

The CFI frequently refers to the Charter, but until now the ECJ has only

done so once in the family reunification case.29

27 The Charter of Fundamental Rights of the European Union, 2000/C 364/01 will have the same

legal value as the Treaties, see the Presidency Conclusions of the Brussels European Council, Annex

I page 25. European Council Document No 11177/07 of 21-22 June 2007. Available at:

http://www.consilium.europa.eu/ueDocs/cms_Data/docs/pressData/en/ec/94932.pdf.

28 Piet Eeckhout, ‘The Proposed EU Charter: some Reflections on its Effects in the Legal Systems of

the EU and of its Member States’ in Kim Feus (ed), The EU Charter of Fundamental Rights (London:

Federal Trust for Education and Research, 2000) pages 104-105.

29 Case C-540/03 European Parliament v Council of the European Union [2006] ECR I-5769.

According to the European Parliament, the Council adopted Council Directive 2003/86/EC of 22

September 2003 on the Right to Family Reunification without consulting the Parliament, thereby

infringing this essentially procedural requirement. The European Parliament was not given the

opportunity to examine the new version of the Directive or to present its comments and

observations. This was the first instance in which the judicial procedure specified in Article 230 was

going to be used to deal with human rights issues. Of relevance to the question discussed in this

chapter, the ECJ held in paragraph 38: ‘the Charter was solemnly proclaimed by the Parliament, the

Council and the Commission in Nice on 7 December 2000. While the Charter is not a legally binding

instrument, the Community legislature did, however, acknowledge its importance by stating, in the

second recital in the preamble to the Directive, that the Directive observes the principles recognised

not only by Article 8 of the ECHR but also in the Charter. Furthermore, the principal aim of the

Charter, as is apparent from its preamble, is to reaffirm “rights as they result, in particular, from the

constitutional traditions and international obligations common to the Member States, the Treaty on

European Union, the Community Treaties, the [ECHR], the Social Charters adopted by the

Community and by the Council of Europe and the case-law of the Court … and of the European

Court of Human Rights”’.

203

Returning to the discussion of the constitutionality of the EC Treaty, Cruz

argues that the EC Treaty is not a constitution in the normal sense,30

even though he adds that the rules on free movement and the rules on

competition have constitutional status.31 The EC Treaty is not a

constitution in the normal sense because the constitutionalisation of the

EC Treaty derived from the ECJ’s development of the doctrines of

supremacy and direct effect.32 Moreover, the Court has adopted a wide

interpretation of the four freedoms, including the exemption provision

Article 30 (formerly Article 36).33 Cruz defends his position by arguing

that the rules on free movement and the rules on competition are

ensured through directly applicable treaty provisions, while the other

objectives outlined in Article 3 are announced in the EC Treaty by

provisions conferring competence on EU institutions through secondary

legislation.34 Even if the EC Treaty is not a constitution in the traditional

sense, it is generally accepted that the EC Treaty, as interpreted by the

Community Courts, forms the constitution of the EU.35 This is also

supported by the ECJ in the Les Verts case, where the ECJ called the EC

30 The ECJ has called the EC Treaty ‘the constitutional charter of a community based on the rule of

law’, see Ernst-Joachim Mestmäcker, ‘Can there be a European law?’ 2 European Review (1994) 1,

page 6.

31 Julio Baquero Cruz, Between Competition and Free Movement, the Economic Constitutional Law

of the European Community (Hart, 2002) page 79.

32 Mestmäcker argues that the four freedoms and the rules of competition would not have been

incorporated in the EC Treaty by Member States had they foreseen the pervasive effects these

rules, as interpreted by the ECJ, were going to have on the political and economic order of Member

States, see Ernst-Joachim Mestmäcker, ‘The EC Commission’s Modernization of Competition Policy:

a Challenge to the Community’s Constitutional Order’ 1 European Business Organization Law

Review (2000) 401, pages 413-414.

33 Cruz, supra note 31, page 40.

34 Ibid. page 78.

35 Joseph Weiler, ‘The Reformation of European Constitutionalism’ 35(1) Journal of Common Market

Studies (1997) 97; Christian Joerges, ‘The Law in the Process of Constitutionalising Europe’ EUI

Working Paper Law No 2002/4 (2002) page 9; Theodor Schilling, ‘The Autonomy of the Community

Legal Order: an Analysis of Possible Foundations’ 37 Harvard International Law Journal [1996] 389,

page 392.

204

Treaty ‘the basic constitutional charter’ of the Community.36 If it is

accepted that the EC Treaty is a constitution, then what kind of

constitution is it? Is it a constitution based on the ordoliberal economic

constitution where competition law is the key part of that order?

1.1 The ordoliberal economic constitution

The answer to this question is necessary for the overall discussion of the

status of economic freedom in the Community legal order. If the

Community legal order is based upon an ordoliberal economic

constitution, competition is considered a value in its own right. This goes

beyond considerations of efficiency, as the economic constitution serves

to guarantee equality of individuals as economic subjects, private law is

backed up by public authority, and civil liberties must be protected.37 A

core element of the ordoliberal constitutional message was that the

economic constitution should respect the interdependence of a system of

undistorted competition, individual economic freedoms and the rule of

law. It should protect these principles and rights against discretionary

politics.38 Another implication of the EC Treaty being an ordoliberal

economic constitution is that elaborating any policy outside the

parameters of the economic constitution, for example consumer welfare,

is considered illegitimate.39

Before continuing, it is important to distinguish between, on the one

hand a Treaty being considered an economic constitution in general,40

36 Case 294/83 Parti écologiste ‘Les Verts’ v European Parliament [1986] ECR 1339, paragraph 23.

37 Wolf Sauter, Competition Law and Industrial Policy in the EU (Clarendon Press Oxford, 2003)

page 28.

38 According to Joerges, supra note 26, page 13.

39 Ulrich Immenga, ‘Wettbewerbspolitik contra Industriepolitik nach Maastricht’ 14 Europaische

Zeitschrift fur Wirtschaftsrecht (1994).

40 For a definition of the term ‘economic constitution’ see Manfred E Streit, ‘The Economic

Constitution of the European Community: from “Rome” to “Maastricht”’ 1(1) European Law Journal

(1995) 5, pages 5-7.

205

because it consists of rules dealing with economic matters,41 and, on the

other hand a Treaty being considered an economic constitution founded

on the ordoliberal tradition.

According to Gerber, the interpretation of the EC Treaty as a constitution

has channelled the evolution of the Community and this interpretation

undoubtedly owes much to ordoliberal thought.42 Sauter agrees that

ordoliberals have made a major contribution to the constitutional theory

of the EU.43 Mestmäcker goes further and argues that the Community

legal order is founded on the ordoliberal economic constitution, because

competition is the guiding principle of the economic constitution of the

Community.44 Despite this, only a few lawyers outside Germany have

systematically used the concept of economic constitution.45 Also a

majority of scholars of constitutional law and administrative law in

Germany have not taken the ordoliberal constitutionalisation of the

economy seriously.46

Important in the debate about the economic constitution is the fact that

the German Federal Constitutional Court (Bundesverfassungsgericht)

has denied economic liberalism constitutional status in Germany.47 The

German Federal Constitutional Court is not the only body to reject the

concept of the economic constitution, others have rejected it too.48



(Clarendon Press Oxford, 1998) page 264, footnote 106.

43 Sauter, supra note 37, page 49.

44 Ernst-Joachim Mestmäcker, ‘Sur Anwendung der Wettbewerbsregeln auf die Mitgliedstaaten und

auf die Europaischen Gemeinschaft’ in Jurgen F Baur, Peter-Christian Muller-Graff and Manfred

Zuleeg (eds), Europarecht, Energierecht, Wirtschaftsrecht: Festschrift fur Bodo Borner sum 70.

Geburstag (Koln: Carl Heymanns Verlag, 1992).

45 Sauter, supra note 37, page 30; Joerges, supra note 35, page 6.

46 Joerges, supra note 35, page 13.

47 Wolf Sauter, ‘The Economic Constitution of the European Union’ 4 Columbia Journal of European

Law (1998) 27, pages 48-49.


206

Some even argue there is not much left of the economic constitution

anyway whether it was ordoliberal or not.49 This, in conjunction with the

ECJ’s dictum in Van Gend en Loos that ‘the Community constitutes a

new legal order’,50 makes it unlikely that the EC Treaty is based on the

ordoliberal economic constitution. This conclusion however does not

deny the considerable influence of ordoliberalism.

If the finding had been that the Community legal order was based on the

ordoliberal economic constitution, it would have been safe to argue that

economic freedom in the Community is a fundamental right in the

ordoliberal sense. The fact that the Community legal order is not based

on the ordoliberal economic constitution necessarily prompts the

question whether that excludes economic freedom from having status as

a fundamental right in the Community legal order.

The answer is in the negative. Regardless of its constitutional deficit, if

economic freedom is being considered a fundamental right in Germany

and respected by the German Federal Constitutional Court as a

fundamental right, then it could possibly be a fundamental right in the

Community legal order too. Such an argument was advanced by

Advocate General Warner in his Opinion in Société IRCA v

Amministrazione delle Finanze dello Stato:51

[A] fundamental right recognised and protected by the Constitution

of any Member State must be recognised and protected also in the

Community. The reason lies in the fact that, as has often been held

by the Court… Community law owes its very existence to a partial

transfer of sovereignty by each of the Member States to the

Community. No Member State can …be held to have included in

that transfer of power for the Community to legislate in

infringement of rights protected by its own Constitution. To hold

otherwise would involve attributing to a Member State the capacity,

49 Joerges, supra note 26, page 8.

50 Van Gend en Loos, supra note 25, II B.

51 Opinion of Advocate General Warner in Case 7/76 Société IRCA (Industria romana carni e affini

SpA) v Amministrazione delle Finanze dello Stato, delivered on 22 June 1976, page 1237.

207

when ratifying the Treaty, the power to flout its own Constitution,

which seems to me impossible.

If Advocate General Warner’s thesis is accepted,52 then that allows

economic freedom to be protected in the Community legal order if the

German constitution (Grundgesezt) protects it. Before analysing the

German constitution, it will be considered whether economic freedom is

protected in the ECHR or the Charter, as a discussion of the German

constitution only becomes necessary insofar as economic freedom is not

already protected by either the ECHR or the Charter. This will be

discussed in the following section.

2. The General Principles of the EU

The original EC Treaty did not contain any explicit reference to basic

fundamental rights and values,53 but around 1969, the ECJ recognised

that it too might have to protect fundamental rights.54 In the absence of

any treaty provisions, it was prepared to resort to general principles of

52 Hartley argues that the Community Courts have never accepted this thesis, see Trevor C Hartley,

European Union Law in a Global Context: Text, Cases and Materials (Cambridge University Press,

2004) page 299.

53 The Treaty of Amsterdam has strengthened the constitutional basis for the protection of

fundamental rights by the Union itself. Article 46 (formerly Article L) TEU has extended the exercise

of the Court's powers to Article 6 (formerly Article F) (2) of that Treaty ‘with regard to action of the

institutions, in so far as the Court has jurisdiction under the Treaties establishing the European

Communities and under this Treaty’. Article 6(2) provides that ‘the Union shall respect fundamental

rights, as guaranteed by the European Convention for the Protection of Human Rights and

Fundamental Freedoms signed in Rome on 4 November 1950 and as they result from the

constitutional traditions common to the Member States, as general principles of Community law’.

54 One commentator has said: ‘the European Court of Justice deserves immense credit for

pioneering the protection of fundamental human rights within the legal order of the Community

when the Treaties themselves were silent on this matter. It has been the Court that has put in place

the fundamental principles of respect for human rights which underlie all subsequent developments’,

see The European Union and Human Rights: Final Project Report on an Agenda for the Year 2000,

cited by Anthony Arnull, The European Union and its Court of Justice (Oxford University Press,

1999) page 223.

208

law.55 The general principles include, but are not limited to, human

rights principles.56

The Stauder case57 affirmed that fundamental rights form an integrated

part of the general principles of Community law.58 The case was an

Article 234 reference from Germany. It concerned a claim that the

implementation of a provision of Community legislation constituted an

infringement of the applicant’s right to dignity. The ECJ was able to

provide an interpretation which resolved the difficulty, and for the first

time recognised the issue of fundamental rights if only in a significant

obiter dictum:59

Interpreted in this way the provision at issue contains nothing

capable of prejudicing the fundamental human rights enshrined in

the general principles of Community law and protected by the

Court.

Having established that fundamental rights were a part of the general

principles of Community law, the ECJ decided that for this purpose it

would draw inspiration from the Member States’ constitutional traditions.

55 Advocate General Jacobs has said: ‘confusion can be caused here by the concept of "general

principles of law". Different general principles may have different functions, they may have different

effects, and they may differ in their scope. While the ECJ made a great advance years ago by

including the protection of fundamental rights within the scope of general principles of law, and thus

ensuring such protection in the absence of any Treaty provisions, the time may now have come to

recognise the very diverse character and scope of the different general principles’, see Francis G

Jacobs, ‘Human Rights in the European Union: the Role of the Court of Justice’ 26(4) European

Competition Law Review (2001) 331, page 337.

56 The most established general principles are those that protect fundamental (human) rights, legal

certainty, including the concept of legitimate expectations, proportionality, and equality in the form

of non-discrimination, but also administrative principles such as the right to a fair hearing and

transparency are part of the general principles.

57 Case 29/69 Stauder v City of Ulm [1969] ECR 419, paragraph 7.

58 For a discussion of the evolution of the general principles of EU law, see Trevor C Hartley, The

Foundations of European Community Law (Oxford University Press, 5th ed, 2003) and Craig and De

Búrca, supra note 15.

59 Stauder, supra note 57, paragraph 7.

209

That said, the ECJ made clear that those traditions would be considered

within the framework of the Community structure and objectives:60

Recourse to the legal rules or concepts of national law in order to

judge the validity of measures adopted by the institutions of the

community would have an adverse effect on the uniformity and

efficacy of community law. The validity of such measures can

only be judged in the light of Community law. In fact, the law

stemming from the Treaty, an independent source of law, cannot

because of its very nature be overridden by rules of national law,

however framed, without being deprived of its character as

community law and without the legal basis of the community

itself being called in question. Therefore the validity of a

community measure or its effect within a member state cannot

be affected by allegations that it runs counter to either

fundamental rights as formulated by the constitution of that state

or the principles of a national constitutional structure.

[R]espect for fundamental rights forms an integral part of the

general principles of law protected by the Court of Justice. The

protection of such rights, whilst inspired by the constitutional

traditions common to the Member States, must be ensured within

the framework of the structure and objectives of the Community.

It must therefore be ascertained, in the light of the doubts

expressed by the Verwaltungsgericht, whether the system of

deposits has infringed rights of a fundamental nature, respect for

which must be ensured in the Community legal system.

This was too much for the German Federal Constitutional Court, which in

1974 introduced a restriction on the effectiveness of Community law on

German soil in the so-called Solange I case.61 The Court held that as

long as integration within the Community had not resulted in a catalogue

of fundamental rights approved by a parliament, set in force and

adequate to the catalogue of fundamental rights of the German

constitution, a German court had to refuse the application of a relevant

Community provision in case of a collision with the fundamental rights

60 Case 11/70 Internationale Handelsgesellschaft mbH v Einfuhr- und Vorratsstelle für Getreide und

Futtermittel [1970] ECR 1125, paragraphs 3-4.

61 Judgment of 29 May 1974, 37 BVerfGE 271 Solange I (1974). An English comment on the case

can be found at: http://www.ucl.ac.uk/laws/global_law/german-cases/cases_bverg.shtml/-

29may1974.

210

protected by the German constitution.62 The decision was severely

criticised.63 The main argument against the decision was that a national

court might needlessly jeopardise the uniform application of Community

law in the Member States.64 Some years later, the German Federal

Constitutional Court revised its position in the Solange II case.65

Ordoliberals would have supported the position taken in Solange I, as

they believed that fundamental rights and competition impose strict

constitutional constraints on Community policy,66 meaning that

Community policy cannot infringe fundamental rights and competition,

which enjoy national constitutional protection.

One may wonder why the German Federal Constitutional Court in

Solange I felt the need to object. The ECJ had already developed

guarantees at EU level equivalent to those of German constitutional law,

and had especially safeguarded fundamental rights so that protection at

state level was no longer necessary.67 Moreover, the ECJ acknowledged

in Nold Kohlen68 that fundamental rights, which are protected in the

different Member States’ constitutions, must be safeguarded by ending

measures incompatible with those fundamental rights:69

62 For a detailed discussion of the case see Manfred Zuleeg, ‘The European Constitution under Constitutional Constraints: the German Scenario’ 22(1) European Law Review (1997) 19, pages 24-

25.

63 Jochen Frowein, ‘Europaisches Gemeinschaftsrecht und Grundgesetz’ in Christian Starck (ed),

Bundesverfassungsgericht und Grundgesetz (Paul Siebeck, 1976) pages 188, 205 and 213.

64 Craig and De Búrca, supra note 15, page 291.

65 Judgment of 22 October 1986, 73 BVerfGE 339 Solange II (1986). That case stated that as long

as the EU, and especially ECJ case law, guarantee an effective protection of fundamental rights

against the power of the EU in general, and this protection is in its essential parts equivalent to the

fundamental rights of the German Constitution, the Federal Constitutional Court would no longer

review the acts of the EU institutions using the fundamental rights of the Constitution as a measure.

66 Sauter, supra note 37, pages 43-44.

67 Internationale Handelsgesellschaft, supra note 60, page 1135.

68 Case 4/73 Nold Kohlen v Commission [1974] ECR 491, [1974] 2 CMLR 338.


211

As the Court has already stated, fundamental rights form an

integrated part of the general principles of law, the observance of

which it ensures.

In safeguarding these rights, the Court is bound to draw

inspiration from constitutional traditions common to the Member

States, and it cannot therefore uphold measures which are

incompatible with fundamental rights recognised and protected

by the constitutions of those states.

Having concluded that Community legislation must respect fundamental

rights, the Court went on to limit the scope of fundamental rights to

property rights. It held that fundamental rights must be subject to

limitations laid down in accordance with the public interest.70

Unlike the general principles of EU law, which are regarded as a primary

source of law, the common constitutional traditions of the Member

States and the international treaties for the protection of human rights,

to which the ECJ resorts as sources of inspiration, do not constitute a

primary source of law in the Community legal order. They are mere

sources of recognition of law,71 which offer inspiration and guidance and

can help to ascertain the fundamental rights of the Community legal

order. The Community’s protection of fundamental rights is,

nevertheless, autonomous in the sense that its interpretation has to be

consistent with the framework of the structure and objectives of the

Community.72

2.1 Economic freedom as part of the general principles of the

EU

The above section outlined how fundamental rights became a part of the

general principles of the Community legal order. It is now appropriate to

70 Nold Kohlen, supra note 68, paragraph 14.

71 Manfred Dauses, ‘The protection of Fundamental Rights in the Community Legal Order’ 10


72 Takis Tridimas, The General Principles of EC Law (New York: Oxford University Press, 1999) page

4.

212

consider in more detail whether economic freedom forms part of the

general principles of the Community legal order. This is to provide an

illustration of the type of right present in order to compare it with

consumer welfare in chapter six.

The fundamental rights of EC law are not restricted to those contained in

the ECHR,73 but the ECHR is a significant source:

[F]undamental rights form an integral part of the general

principles of Community law whose observance it ensures. For

that purpose, the Court draws inspiration from the constitutional

traditions common to the Member States and from the guidelines

supplied by international treaties for the protection of human

rights on which the Member States have collaborated or of which

they are signatories. The ECHR has special significance in that

respect.74

In addition to the ECHR, the Charter provides a convenient point of

reference to identify what rights are fundamental, although they are not

legally binding.75 As noted above, the ECHR acts as a source of

inspiration for the ECJ,76 when deciding what fundamental rights are

protected as part of the general principles of Community law. An

example is the Hauer case,77 where the ECJ specifically referred to the

EHCR.78 The case regarded a Council regulation, which prohibited the

new planting of vines for a period of three years, the aim of which was

to control wine surpluses. Mrs Hauer appealed to the German

Administration Court (Verwaltungsgericht) arguing that the Council

73 Case 36/75 Rutili v Minister for the Interior [1975] ECR 1219.

74 Case C-299/95 Friedrich Kremzow v Republik Österreich [1997] ECR I-2629, paragraph 14.

75 Essentially the Charter, supra note 27, includes a full catalogue of the classical civil and political

rights; social and economic rights; and under the heading "Citizens' rights" the specific fundamental

rights granted by EC law to citizens of the Community.

76 Craig and De Búrca, supra note 15, page 327.

77 Case 44/79 Liselotte Hauer v Land Rheinland-Pfalz [1979] ECR 3727.


213

regulation was incompatible with the German constitution,79 as the

regulation infringed fundamental rights, specifically the right to property

and the right to trade.80 The German Administrative Court made an

Article 234 reference to the ECJ, which accepted that there was an

interference with property rights, but found that the interference was

justified.81

The fact that economic freedom is not listed as a fundamental right in

the ECHR does not mean that the ECJ automatically refuses legal status

to that right.82 Moreover, the Charter does not directly protect economic

freedom either, but it does protect the right to choose an occupation, to

conduct a business and the right to property, which are all economic

freedom rights.83

While economic freedom is not mentioned in the EC Treaty, the ECHR or

the Charter, freedom of competition (or free competition) is a principle

of the EC Treaty. The question is whether freedom of competition is

considered a fundamental principle in the Community legal order. If the

answer is affirmative, then a subsequent question is whether freedom of

competition can be equated with economic freedom so that economic

freedom can be considered a fundamental principle in the Community

legal order.

2.1.1 Freedom of competition

The ECJ has said that freedom of competition is a general principle of

Community law and, as shown above, fundamental rights form an

79 The Grundgesetz, promulgated by the Parliamentary Council on 23 May 1949. English version

available at: http://www.bundestag.de/htdocs_e/parliament/function/legal/germanbasiclaw.pdf.

80 The Grundgesetz, Article 14(2).

81 Hauer, supra note 77, paragraph 19.

82 Case 155/79 AM & S Europe Ltd v Commission [1982] ECR 1575, [1982] 2 CMLR 264.

83 The Charter, supra note 27, Articles 15-17.

214

integrated part of the general principles. The ECJ held in Procureur de la

République v Association de Défense des Brûleurs d'Huiles Usagées:84

The national court asks whether the system of permits is

compatible with the principles of free trade, free movement of

goods and freedom of competition, but does not elaborate

further. In that connection it should be borne in mind that the

principles of free movement of goods and freedom of

competition, together with freedom of trade as a fundamental

right, are general principles of community law of which the Court

ensures observance.

Freedom of competition has also been considered a fundamental

principle specifically in relation to Article 82. For example, in Michelin I,

the ECJ held:85

[A]part from the extra bonus granted in 1977, the discount

system had an adverse effect on free competition within the

common market, which is a fundamental principle of the Treaty,

even though the variation in the discount was relatively slight

and it has not been proved that the system was applied in a

discriminatory manner.

It is however controversial to consider freedom of competition a

fundamental principle and Coppel and O’Neill have pointed out:86

The invocation of the idea of fundamental rights by the European

Court does not set essential limits to lawful executive action,

because executive action which has as its object the promotion of

the four market freedoms is itself, in the vocabulary of the

European Court, instantiating a fundamental right. A claim to

violation of certain fundamental human rights, hence, ceases to

be a trump-card against executive action. It is no longer possible

to speak of a validation of a lower norm by a higher norm.

Instead two norms of equal qualitative significance are balanced

against the other.

84 Case 240/83 Procureur de la République v Association de Défense des Brûleurs d'Huiles Usagées

(ADBHU) [1985] ECR 531, paragraph 9.

85 Michelin I, supra note 5, paragraph 113.

86 Jason Coppel and Aidan O’Neill, ‘The European Court of Justice: Taking Rights Seriously?’ 29

Common Market Law Review (1992) 669, page 690.

215

Let alone being controversial, the ECJ seems to accept that freedom of

competition can be restricted by other Community objectives. For

example, in ITP v Commission the CFI held:87

[I]n order to resolve the conflict … between copyright on the one

hand and the rules on, inter alia, freedom of competition on the

other, the proper approach is … to identify in each particular case

the ‘specific subject-matter’ of the intellectual property right,

which alone merits special protection within the Community legal

order and thereby justifies certain encroachments on the

Community rules.

The CFI engaged in a balancing act between the protection of the right,

an intellectual property right, on the one hand, and the protection of free

competition, on the other hand. The CFI held that the intellectual

property right, in this case a copyright, enjoyed special protection, and

that the right must be balanced against freedom of competition. It

concluded:88

[A]lthough the programme listings were at the material time

protected by copyright as laid down by national law, which still

determined the rules governing that protection, the conduct at

issue [denial of access to the basic information which is the raw

material indispensable for the compilation of a TV guide] could

not qualify for such protection within the framework of the

necessary reconciliation between intellectual property rights and

the fundamental principles of the Treaty concerning the free

movement of goods and freedom of competition. The aim of that

conduct was clearly incompatible with the objectives of Article 86

[Article 82].89

Even though the CFI held that the free movement of goods and freedom

of competition are fundamental principles of the Treaty, the ECJ

specified in the IMS Health case,90 that as between the protection of the

87 Case T-76/89 Independent Television Publications Ltd v Commission [1991] ECR II-575,

paragraph 28.


89 This conclusion was reiterated in Case C-241/91P RTE and ITP v Commission [1995] ECR I-743,

[1995] 4 CMLR 718, paragraph 31.

90 Case C-418/01 IMS Health GmbH & Co OHG v NDC Health GmbH & Co KG [2002] ECR I-3401,

[2002] 5 CMLR 44.

216

intellectual property right and free competition, it was only willing to

give priority to free competition, if consumers would otherwise be

harmed. In reaching this conclusion, the Court referred to Advocate

General Tizzano’s Opinion91 and held:92

[T]hat condition [emergence of a new product] relates to the

consideration that, in the balancing of the interest in protection of

the intellectual property right and the economic freedom of its

owner against the interest in protection of free competition, the

latter can prevail only where refusal to grant a licence prevents

the development of the secondary market to the detriment of

consumers.

In a question between the interest of the owner of an intellectual

property right and the protection of free competition, the Court appears

to be willing to give priority to free competition only if there would

otherwise be harm to consumers. If this means that free competition

requires the likelihood of consumer detriment in order to ‘trump’ an

intellectual property right, then freedom of competition does not seem to

have reached the status of being a fundamental right. Instead, it

appears to be no more than a right to be balanced against other rights.

Sauter even calls free competition a political right as oppose to a legal

right.93

Free competition appears in several provisions of the EC Treaty,94 so it is

difficult to disregard the concept. However, these provisions are

explicitly linked to provisions on economic and monetary union and form

91 Advocate General Tizzano’s Opinion in IMS Health, supra note 90, delivered on 2 October 2003,

paragraph 62: ‘[e]ven where those circumstances obtain, in weighing the balance between the

interest in protection of the intellectual property right and the economic freedom of its owner, on

the one hand, and the interest in protection of free competition, on the other, the balance may in

my view come down in favour of the latter interest only if the refusal to grant the licence prevents

the development of the secondary market to the detriment of consumers’.



94 Articles 4, 98 and 105.

217

political principles which cannot be invoked directly by individuals

against the Member States.

Besides being controversial, it is not entirely clear that freedom of

competition is actually considered a fundamental right. Given this

finding, it is not necessary to examine whether freedom of competition

equates to economic freedom. Given that it cannot safely be concluded

that freedom of competition or economic freedom enjoys constitutional

status in the Community legal order, it is necessary to examine whether

economic freedom is protected in the German constitution. The ECJ is

prepared to protect fundamental rights in the Community legal order,

which are recognised and protected by the constitutions of the Member

States.95 This leaves economic freedom to be protected in the

Community legal order if it is protected by the German constitution,

unless Germany is the only Member State which protects economic

freedom, as it is unlikely that a right which is protected by just one

Member State would be recognised as a fundamental right in Community

law.96 The next section will examine whether economic freedom is

considered a fundamental right in the German constitution.

3. The German Constitution

Neither economic freedom nor freedom of competition is directly

protected in the German constitution, but a general right to liberty is

guaranteed.97

95 It must be emphasised that the general principles of the Community neither retain the same

function and definition that they once did in the original Member States, nor are they applied in the

same manner.

96 Joseph Weiler, The Constitution of Europe (Cambridge University Press, 1999) chapter 3.

97 Robert Alexy, A Theory of Constitutional Rights (Oxford University Press, 2002) page 223.

218

The German Federal Constitutional Court has interpreted the right to

free development of personality protected in the German Grundgesezt

Article 2,98 commonly known as the Basic Law, as a right to general

freedom of action.99 The question addressed in this section is whether

economic freedom is an implied liberty included in the general right to

liberty. If the general right to liberty in the German constitution only

includes freedom of competition then such a finding would not be

conclusive for the overall analysis of the status of economic freedom as

a fundamental right, unless freedom of competition equates to economic

freedom. This section assumes that freedom of competition equates to

economic freedom as ordoliberals equated freedom of competition to

economic freedom. This assumption is far from certain, but if it is right

then that would be a strong argument for giving economic freedom

constitutional status if freedom of competition has constitutional status

in the German constitution.

As shown in chapter two, freedom of competition is deeply rooted in

ordoliberalism and ordoliberal theories were applied in the German

constitution.100 If that is accepted, then perhaps the general right to

liberty guaranteed in the German constitution includes the ordoliberal

‘programme of freedom’. This programme meant that intervention in the

market should be allowed to protect the autonomy of the individual, to

protect individual economic freedom, to guarantee private contractual

autonomy, to guarantee freedom of occupation and trade, individual

property rights and free movement of persons.

98 German Basic Law Article 2:

‘(1) Every person shall have the right to free development of his personality insofar as he does not

violate the rights of others or offend against the constitutional order or the moral law.

(2) Every person shall have the right to life and physical integrity. Freedom of the person shall be

inviolable. These rights may be interfered with only pursuant to a law’.

99 6 BVerfGE 32 Elfes (1957), which regarded the refusal of a passport as an interference with the

right to free movement. A translation of the case from German to English can be found on:

http://www.iuscomp.org/gla/judgments/tgcm/velfes.htm.


219

From a constitutional point of view, it was important for ordoliberals that

competition was not confined to its functional relevance as a discovery

procedure. Competition also had to be a controlling device for economic

power, which they saw as inseparable from the evolutionary market

process. As a consequence, competition contributes to the general

acceptance of private autonomy as a constitutional principle.101

According to ordoliberal theory, competition law should have

constitutional status and play a leading role in promoting individual

fundamental rights, such as economic freedom. German competition law

was the main pillar of the social market economy and was represented

as constitutional in scope.102 If this view is accepted, then freedom of

competition, which ordoliberals equate to economic freedom, is an

integrated part of the general right to liberty and a constitutional

principle in its own right. However, the problem with that is that any

limitations on general freedom of action may end up being prohibited.

This is far-reaching and can have undesirable consequences for

competition in the market because almost any action in the market, in

particular in a very competitive market, may have a limiting effect on

someone’s freedom in the market. Instead of freedom of action, which is

a constitutional right in Germany, one should really only speak of

freedom from the interference of abusive conduct, which does not have

constitutional status. That point aside, the German Federal

Constitutional Court has adopted an extremely wide and subjective

interpretation of the general right to liberty.103 It is therefore likely that

it also protects freedom of competition.

101 Streit, supra note 40, page 9.


103 Alexy, supra note 97, page 224.

220

4. Summary

Chapter five discussed whether economic freedom is considered a

fundamental right in the Community legal order with a view to assessing

whether a change from economic freedom to consumer welfare would

undermine a fundamental right and thereby violate the Community legal

order, which will be discussed in chapter six.

Section one examined whether economic freedom is protected in the EC

Treaty, but found that economic freedom is not even mentioned in the

EC Treaty. It analysed whether the EC Treaty was based on the

ordoliberal economic constitution where economic freedom is protected

as a fundamental individual right. It found that whilst Community

competition law is influenced by ordoliberalism, it is not an

implementation of ordoliberalism and the EC Treaty is not a Treaty

based on the ordoliberal economic constitution. Following from this

finding, economic freedom could be considered a fundamental right in

the Community legal order only if it formed part of the general principles

of the EU either directly or indirectly via the German constitution.

In order to examine whether a given principle forms part of the general

principles of the EU, the ECJ draws inspiration from the ECHR, the

Charter and the common constitutional traditions of the Member States.

While these are not a primary source of law, they are sources of

inspiration for the Community Courts. Section two examined whether

economic freedom was protected by the ECHR and/or the Charter and

therefore a part of the general principles of the Community legal order.

A negative answer required an analysis of the German constitution, as

economic freedom may be considered a fundamental right in the

Community legal order if it is protected as such in the German

constitution. This was examined in section three which found that the

German constitution protects a general right to liberty and it is likely

that economic freedom falls within this general right to liberty.

221

Conclusion

The EC Treaty is not based on the ordoliberal economic constitution

although it does not deny the considerable influence of ordoliberalism.

Economic freedom is not protected in the EC Treaty, the ECHR or the

Charter. While the German constitution protects a general right of

liberty, which most likely includes individual economic freedom, this is

not enough in itself to include economic freedom in the general

principles of the EU.

Based on this conclusion, a change from economic freedom to consumer

welfare may be contrary to case law, but would not undermine a

fundamental right and thereby violate the Community legal order.

Whether such a change is in tune with case law depends on whether

economic freedom is a means to the end of consumer welfare. This will

be examined in chapter six.

222

Chapter 6 The Relationship between Economic Freedom &

Consumer Welfare

Introduction

The core argument advanced in this chapter is to what extent DG

Competition can give priority to a utilitarian goal of consumer welfare

given that economic freedom, regardless of its constitutional deficit,

is considered an important objective in Article 82 jurisprudence. The

finding in chapter five that economic freedom is unlikely to be a

fundamental right in the Community legal order does not answer the

question whether economic freedom is a means to the end of

consumer welfare. It is therefore necessary to consider the

underlying purpose of economic freedom as the primary purpose may

be to improve, for example, allocative efficiency. This is not to argue

that only if economic freedom is a means to the end of consumer

welfare is it legitimate to give priority to consumer welfare. However,

if it is, the change to the interpretation of Article 82 proposed by DG

Competition is not a departure from case law and is thus more

acceptable. If however the underlying purpose of economic freedom

is far removed from economic efficiency then a change to the goal of

consumer welfare requires support from the ECJ, as only the ECJ can

decide whether its jurisprudence should change. Only if the ECJ

decides to support DG Competition’s move away from economic

freedom and overrule earlier case law will this happen.

1. Economic Freedom as Understood by Ordoliberals

The assessment of the underlying purpose of economic freedom starts

by analysing whether economic freedom, as derived from ordoliberalism,

is a legal concept used to assess whether the conduct in question

reduces economic efficiency.

223

The ordoliberal competitive order, described in chapter two, connected

competition law to fundamental rights by making individual freedom and

competition the backbone of the economic constitution of society.

Ordoliberals viewed competition law as a matter of rights and individual

freedoms and believed that competition within the economy provides the

basis for the economic order they envision: a free market economy.1

Ordoliberalism remains the dominant school on the economic order in

Germany. It describes the relations between the public and private

spheres of the economy in terms of an economic constitution.2 To the

extent that ordoliberalism seeks to combine open markets and individual

freedom with social justice, it is distinct from neo-liberalism, totalitarian

corporatism and classic liberalism articulated, for example, by David

Hume,3 Adam Smith4 and John Stuart Mill.5


economic efficiency.6 The aim of competition law was the limitation and

control of private power, or at least its harmful effects,7 to protect

individual freedom in the interest of a free and fair political and social

1 Ordoliberals defined the free market economy as an economic system that dispenses with any

official control and instead entrusts control of the interplay of economic forces to a mechanism [the

market price system] which discharges its control functions automatically, see Franz Böhm,

‘Democracy and Economic Power’ in Cartel and Monopoly in Modern Law (CF Muller Karlsruhe, 1961)

page 25.

2 Mel Kenny, ‘Constructing a European Civil Code: quis Custodiet Ipsos Custodes?’ 12 Columbia

Journal of European Law (2006) 775, page 783.

3 David Hume, A Treatise on Human Nature (1739, republished by Oxford University Press in 1978).

4 Adam Smith, The Wealth of Nations (1776).

5 John Stuart Mill, On Liberty (1859). 6 David Gerber, ‘Constitutionalizing the Economy: German Neo-liberalism, Competition Law and the

“New” Europe’ 42 American Journal of Comparative Law (1994) 25, page 36.


(Clarendon Press Oxford, 1998) page 251.

224

order.8 According to one of the founding fathers of ordoliberalism Franz

Böhm:9





Ordoliberals were not against the free market economy, but held that

the free market must be liberated from economic power. If that is not

possible, then the holders of economic power must be placed under the

control of the state and thereby prevented from abusing their dominant

positions, otherwise only a system of anarchic welfare will prevail:10

[I]f the law and the government are unable or unwilling to

prevent the development of such dominant positions, and if such

positions are used by their holders without due regard to the will

of the people for any kind of purpose, most of all, however, for

their own exclusive material benefit, and nobody exists who can

compel them or is competent to compel them to exercise their

powers with due regard to the will of the people, then we shall be

faced with a situation, which every sensible citizen may consider

and must consider a threat to social justice and civil liberties.

Such a situation has all the characteristics of an arbitrary system,

a system of anarchic welfare.

Böhm believed that the scope of private law made it possible to consider

economic power from two different angles, which he called microcosm

and macrocosm.11 The former he called a primitive and direct one and

the latter he called a complicated and indirect one. The question asked

differs depending upon from which angle economic power is

considered.12

8 Wernhard Möschel, ‘Competition Policy from an Ordo Point of View’ in Hans Willgerodt & Alan

Peacock (eds), German Neo-liberals and the Social Market Economy (Macmillan, 1989) page 146.

9 Böhm, supra note 1, page 28.

10 Ibid. page 30.

11 Böhm, supra note 1, pages 30-31.

12 Ibid. pages 32-33.

225

The microcosm perspective sees the rise of power within the framework

of the free market economy and asks the question: does the economic

process caused by the emergence of economic power result in plus and

minus or just an aliud of economic efficiency?

The answer to the question will depend on whether the economic power

will result in economic advantages or disadvantages, and if both are the

case, then whether the advantages outweigh the disadvantages.

The macrocosm perspective sees the rise of power within a socio-

political framework and asks the question: shall we, as citizens of a

democratic state and members of a free system of society, embedded in

the rights of the individual, hand over the power to serve to our fellow

citizens?

Even though Böhm acknowledged that private law made it possible to

assess economic power from both a macrocosm and a microcosm

perspective, he argued that economic power should be assessed from

the macrocosm point of view.13 This was because economic theory was

only a means to develop a free order.14 The free order should liberate

humanitarian values from their threatened encirclement by chaotic,

anarchic and collectivistic forces.15 The battle for a free order for the

economy and for society did not emerge from economic theory, but was

a battle for the eternal truths of humanity.

It is essential to comprehend that ordoliberalism relied on humanist

values rather than efficiency or other purely economic concerns.16 They

13 Böhm, supra note 1, pages 32-33.

14 An ‘ordnung’ provides a framework for a functional free-market mechanism, which not only

accommodates development and change, but also ensures human dignity and freedom.

15 Leonard Miksch, ‘Walter Eucken’ 4 Kyklos (1950) 279.

16 As mentioned in chapter two, economic freedom has been interpreted differently in US antitrust law in US v Topco Assocs [405 US 596 1972] page 610: ‘Antitrust laws in general… are the

226

believed that Adam Smith's laissez faire economy does not ensure a

competitive economy, and will evolve into monopolistic practices,

interventionism, and distortions of price relationships. Instead, structural

and regulating principles would facilitate a functionally competitive

economy with a compatible social policy, characterised by a flexible price

mechanism and stable policies.17

The economic constitution, which decides the legal structure of the

economic system, should guarantee individual freedom and competition

as fundamental rights. The economic constitution should establish a

related system of principles that binds economic policy. The state has to

protect this economic order by enforcing the economic constitution.

Individual rights set out in the economic constitution were directly

enforceable.18

In summary, economic freedom, as derived from ordoliberalism, is a

fundamental individual right protected by the economic constitution:19

Competition policy [ordoliberal competition policy] serves to

protect the evolutionary process of competition as such, and to

prevent the concentration of private power to the detriment of

the competitive and the political processes. Consequently,

competition constitutes a value in its own right, which goes well

beyond efficiency considerations. In this view, the economic

constitution serves, first, to guarantee the basic equality of

individuals as economic subjects; second, to back up the private

law society by public authority; and third, to protect civil liberties.

Magna Carta of free enterprise. They are as important to the preservation of economic freedom and

our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal

freedoms. And the freedom guaranteed each and every business, no matter how small, is the

freedom to compete…’.

17 Siegfried G Karsten, ‘Eucken's 'Social Market Economy' and its Test in Post-War West Germany.

The Economist as Social Philosopher Developed Ideas that Paralleled Progressive Thought in

America’ 44(2) American Journal of Economics and Sociology (1985) 169.

18 Wolf Sauter, Competition Law and Industrial Policy in the EU (Clarendon Press Oxford, 2003)

page 47.

19 Ibid. page 47.

227

Ordoliberals’ emphasis on the interdependence between economic

structures and human values meant that they sought a path to

dependable economic strength that was compatible with maximum

personal freedom and improved social conditions. Some argue that this

objective remains central to social and political thought in Europe.20 If

this is accepted, then it becomes even more important to see whether

economic freedom and consumer welfare can be reconciled.

2. Economic Freedom Does Not Equal Consumer Welfare

The question addressed in this section is whether the goal of economic

freedom is a means to the end of consumer welfare.

As shown in the previous section, economic efficiency was not the goal

of ordoliberal competition policy. Ordoliberals placed competition law in a

wider, socio-political perspective because limitation and control of

private power was in the interest of a free and fair political and social

order.21 It was essential to protect the conditions of competition, rather

than explicitly focusing on the direct results of competition because their

main goal was the limitation of private power to guarantee individual

economic freedom. Ordoliberals saw economic efficiency as a generic

term for growth and for the encouragement and development of

technical progress and for allocative efficiency, but only as an indirect

and derived result of individual freedom.22 This opinion is not only

shared by ordoliberals, it is also echoed by Adams and Brock, who

believe that economic freedom is the main objective of competition

policy in US anti-trust:23


21 Gerber, supra note 7, pages 244-251.

22 Möschel, supra note 8, page 146.

23 Walter Adams and James W Brock, ‘Antitrust and Efficiency: a Comment’ 62 New York University

Law Review (1987) 1116.

228

The primary purpose of antitrust is to perpetuate and preserve a

system of governance for a competitive, free enterprise economy.

Efficiency and consumer welfare constitute ancillary benefits that

are expected to flow from a system of economic freedom.

Brodley has argued that there is a unity between economic efficiency

and the goal of economic freedom.24 This is supported by Elzinga who

argued that economic efficiency and equity goals are not always

mutually exclusive.25 However, for Brodley and Elzinga the ultimate

objective was not consumer welfare in the form of consumer surplus and

allocative efficiency, but total welfare.

The answer to the question addressed in this section, which is whether

the goal of economic freedom is the same as that of advancing

consumer welfare, is probably no, as economic freedom is not the same

as advancing consumer welfare in economic terms. Standard economics

states that by protecting a competitor through the act of curtailing the

power of the near monopolist, the consumer may benefit through

increased choice and a reallocation of profits from the monopolist to

alternative competitors. As these competitors will not have the ability to

reap monopoly profits, these profits would be expected to be passed

back to the consumer through reduced prices. If these effects outweigh

the value of any above-cost discount offered by the near monopolist,

consumers would gain from overall price reductions. While the move to

protect suppliers may increase choice and potentially improve allocative

efficiency through lower prices,26 this is not guaranteed. Nor is it

24 Joseph F Brodley, ‘The Economic Goals of Antitrust: Efficiency, Consumer Welfare, and

Technological Progress’ 62 New York University Law Review (1987) 1020, page 1021.

25 Kenneth G Elzinga, ‘The Goals of Antitrust: other than Competition and Efficiency, What Else Counts?’ 125 University of Pennsylvania Law Review (1977) 1191, page 1193.

26 Allocative efficiency, as used here, refers to the way in which resources are allocated to the

production of the goods and services that society (consumers) most values as defined in chapter

four.

229

guaranteed that dynamic movements towards productive efficiency27 will

be facilitated best in this way.28 In some circumstances, it is plausible

that the protected market players will become efficient over time.

However, it is also possible that the most productive way of supplying

customers will be through one single supplier, particularly when

economies of scale are great. Depending on which of these effects is the

greatest the consumer could then actually gain or lose from such

measures.29

DG Competition’s Director General Philip Lowe has argued that the aim

of Article 82 is to ensure that the remaining competitors in the market

are not prevented from competing on the merits.30 This is taken to mean

that the economic freedom of efficient competitors must be protected in

order to protect their ability to compete on the merits, but not the

economic freedom of inefficient competitors. If this understanding is

correct, then it could be argued that economic freedom is a means to

the end of consumer welfare. According to Lowe’s argument, economic

freedom is protected only where it benefits consumer welfare, as it is

assumed that only efficient competitors can provide efficiencies to the

benefit of consumers whereas inefficient competitors cannot. This is, in

some aspects, inconsistent with the position taken by DG Competition in

its Discussion Paper where it remarks that ‘it may sometimes be

necessary in the consumers’ interest to also protect competitors that are

not (yet) as efficient as the dominant firm’.31 DG Competition seems to

be of the opinion that protecting ‘not yet as efficient competitors’ means

27 Productive efficiency refers to the effective use (produced at the lowest cost) of resources as

defined in chapter four.

28 Dennis W Carlton and Jeffrey M Perloff, Modern Industrial Organization (Pearson, 4th ed, 2005).

29 Sir John Vickers, ‘Abuse of Market Power’ 115 The Economic Journal (2005) F244, page F256.

30 Philip Lowe at the Thirteenth Annual Conference on International Antitrust and Policy, speech

given on 23 October 2003 at the Fordham Antitrust Conference in Washington, page 5, speech

available at: http://ec.europa.eu/comm/competition/speeches.

31 Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses (December

2005), paragraph 67.


230

there will be more firms in the market. This could potentially mean more

competition in the long run, driving prices down and increasing allocative

efficiency to the benefit of consumers.32 This argument may however

involve a loss of economies of scale which is productively inefficient.33

Thus, this section argues that pursuing an objective of economic

freedom cannot be tweaked to include efficiencies to the benefit of

consumer welfare. When pursuing an objective of economic freedom, the

process is of intrinsic value and it excludes a change of the overarching

principle to protect competitors only to the point where it is productively

and allocative efficient to do so.

It is not denied that if consumer welfare matters then process matters to

a certain degree.34 However, it is important to distinguish between

protecting the process of competition in itself and protecting the

competitive process only to the extent that it will benefit consumer

welfare. As explained above, when pursuing an objective of economic

freedom, it is not possible to protect the process of competition only to

the point where it is productively and allocative efficient to do so,

because the underlying purpose of economic freedom is protection of the

process of competition in itself, regardless of that process being

inefficient.

When trying to use economic freedom as a means to the end of

consumer welfare there is a real risk that the result is the protection of

32 This is however not only a complicated analysis, but the concept ‘not yet as efficient competitor’

also gives the competition authority huge discretion in assessing whether and when a company will

be ‘as efficient’ as the dominant company.

33 Frederic M Scherer, ‘Antitrust, Efficiency, and Progress’ 63 New York University Law Review

(1987) 998, pages 1002-1003.

34 The argument being that consumer welfare should be read in conjunction with harm to the

process of competition. This argument does find some support, see Victoria Mertikopoulou, ‘DG

Competition’s Discussion Paper on the Application of Article 82 of the EC Treaty to Exclusionary

Abuses: the Proposed Economic Reform from a Legal Point of View’ 28(4) European Competition

Law review (2007) 241, page 242.

231

competitors. It becomes incredibly difficult to know when the protection

of economic freedom benefits consumer welfare and when it protects

competitors. Competitors should be protected only to the point where it

is productively and allocative efficient to do so, but this principle is

excluded when pursuing economic freedom where the process of

competition is of intrinsic value. In welfare terms, if less efficient firms

are protected or subsidised, it can prevent market competition from

selecting the best firms, which will actually result in higher prices and

lower welfare.35

This is not to say that economic efficiency is not relevant in legal

systems pursuing the objective of economic freedom, but that such an

objective focuses on the need to protect the process of competition in

the long term rather than competition’s short-term results. Many of the

EC judgments and decisions under Article 82 take a long-term

perspective and protect the present competitors instead of short-term

efficiencies in order to ensure that there will be competitors in the long

run.36

Long-term protection of competition also seems to be at the root of DG

Competition’s approach in protecting a ‘not yet as efficient competitor’.

It appears that DG Competition believes that competition in the long run

can be protected by protecting ‘not yet as efficient competitors’. This is

not necessarily a bad idea when pursuing an objective of economic

freedom, and it may even be a good idea when liberalising a market

dominated by a former state monopoly. In such a market, the former

state monopoly will undoubtedly have a huge market share and it can

take a couple of years for other competitors to gain a foothold in the

market. For example, state monopolies in the telecommunication sector

35 Massimo Motta, Competition Policy: Theory and Practice (Cambridge University Press, 2004)

page 51.

36 Barry E Hawk, ‘Article 82 and Section 2’ in OECD paper DAF/COMP(2005)27 on Competition on

the Merits, page 253.

232

have established themselves in the market through the benefit of

taxpayers’ money and gained ‘first mover advantages’ from benefits that

no other company has. Thus, when liberalising a market it may seem

sensible to keep a ‘not yet as efficient competitor’ alive in the market if

the aim is economic freedom.

A practical problem with this approach is that it would require

competition authorities to produce a timeframe for the period they are

willing to protect the ‘not yet as efficient competitor’, as well as a

strategy for the various ways of protecting it. The ‘not yet as efficient

competitor’ test signals that DG Competition is keen to increase the

opportunities for other competitors in the market. It is however

questionable whether these ‘not yet as efficient competitors’ will actually

generate any efficiency to the benefit of consumer welfare, for example,

in the form of innovation. If they do not innovate it may not only be

detrimental for consumers, but also for the incumbent’s incentive to

innovate. This issue was pointed out by Advocate General Jacobs in his

Opinion in the Bronner case,37 where he explained in paragraph 57:38

In the long term it is generally pro-competitive and in the interest

of consumers to allow a company to retain for its own use

facilities which it has developed for the purpose of its business.

For example, if access to a production, purchasing or distribution

facility were allowed too easily there would be no incentive for a

competitor to develop competing facilities. Thus while

competition was increased in the short term it would be reduced

in the long term. Moreover, the incentive for a dominant

undertaking to invest in efficient facilities would be reduced if its

competitors were, upon request, able to share the benefits. Thus

the mere fact that by retaining a facility for its own use a

dominant undertaking retains an advantage over a competitor

cannot justify requiring access to it.

37 Case C-7/97 Oscar Bronner GmbH & Co KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH

& Co KG [1998] ECR I-7791, [1999] 4 CMLR 112.

38 Opinion of Advocate General Jacobs in Oscar Bronner, supra note 37, delivered on 28 May 1998.

233

This section showed that economic freedom is conceptually and

theoretically distinct from consumer welfare. It found that from a

theoretical point of view economic freedom is not a means to the end of

consumer welfare. This finding is however not conclusive, as the

practical application of economic freedom may be different. It is

necessary to assess whether economic freedom has been interpreted

under Article 82 as an end in itself or in the fashion suggested by Lowe.

This will be examined in the subsequent section.

3. Protecting Economic Freedom Intrinsically or

Instrumentally

Chapter three argued that the Commission and the ECJ pursued the

objective of economic freedom in Commercial Solvents, Hoffmann-La

Roche, United Brands and Michelin I and possibly also in Continental

Can. However, it did not establish whether economic freedom was

considered an intermediate aim of consumer welfare, as defined in

chapter four, or an aim in itself. This will be considered in this section.

Chapter three established that the fundamental cases analysed required

prohibition whenever the market freedom of market participants was

endangered by an alteration of the competitive market structure.

Damage to the competitive market structure is imbued in the very

definition of abuse, articulated by the ECJ in Hoffmann-La Roche. In

general, by protecting the structure of competition, priority is given to

the process of competition not to the outcome. If, by protecting the

process of competition, consumers are indirectly protected, then that is

a bonus, but not the main aim.39 This is an exact replica of ordoliberal

thinking, where the benefit of competition is a market characterised by a

desirable process, and the end result does not matter. Ordoliberals

39 Highlighted by Advocate General Kokott in her Opinion in Case C-95/04P British Airways plc v

Commission, delivered on 23 February 2006, paragraph 68.

234

would prefer a state of inefficiency coupled with freedom to an efficient

but totalitarian state.40 Under the ordoliberal model, the aim of

competition policy is ‘the protection of individual economic freedom of

action as a value in itself, or vice versa, the restraint of undue economic

power’.41 Thus, ‘the protection of competition against restrictions is

intended to safeguard competition as an institution or to guarantee the

freedom of the individual’.42 This philosophy also underpins Advocate

General Kokott’s Opinion in British Airways, in particular her reference to

competition as an ‘institution’.43 In her view, the primary beneficiaries of

Article 82 are other firms. Priority is given to the process of competition,

and if this ‘indirectly’ protects consumers, then this is a bonus, but not

an aim.

If the Court was pursuing economic freedom only to promote consumer

welfare in the form of economic efficiency in Hoffmann-La Roche or

Michelin I, then it ought to have assessed whether the discounts would

likely have led to a decrease or an increase in consumer welfare. For

example, would the alteration of the market structure likely have

resulted in an increase in price and/or lowering of quality? It is hard to

say a priori whether a given form of discount or price discrimination

increases or decreases welfare. The response to this question may

indeed depend on which type of welfare standard (producer, consumer

or total welfare) is actually pursued. An increase in price may well result

in an increase in total welfare, but a decrease in consumer welfare.

Consumer welfare would likely fall in absolute terms if consumers’ share

of it fell relative to the producers’ increase in welfare. However, the

40 Christian Watrin, ‘Germany’s Social Market Economy’ in Alastair Kilmarnock (ed), The Social

Market and the State (Social Market Foundation, 1999) pages 91-95.

41 Wernhard Möschel, ‘The Proper Scope of Government Viewed from an Ordoliberal Perspective:

the Example of Competition Policy’ 157 Journal of Institutional and Theoretical Economics (2001) 3.

42 Arved Deringer, The Competition Law of the European Economic Community: a Commentary on

the EEC Rules of Competition (Articles 85 to 90) Including the Implementing Regulations and

Directives (New York: Commerce Clearing House, 1968) page 14.

43 Opinion of Advocate General Kokott in British Airways, supra note 39, paragraph 69.

235

conduct could potentially benefit consumer welfare, if there were

economies of scale to gain. It is not automatic that such benefits will

accrue to customers, as they could equally accrue to shareholders. As

shown in chapter three, neither the Commission nor the Court

considered any of these consequences in detail in the early cases under

Article 82.

In addition, prohibiting conduct where firms are seeking to use their

economic power to undermine the market’s competitive structures,

without considering whether such behaviour is likely to harm consumer

welfare, may be viewed as nothing more than protecting smaller

competitors from aggregation of economic power.44 As explained, the

focus on the competitive structure concentrates on the process as

accentuated by ordoliberals, who emphasised the need to protect the

conditions of competition, rather than the direct results of competition.

The question is whether the Commission and the Community Courts

have interpreted the process of competition intrinsically like ordoliberals

or instrumentally.

In the light of DG Competition’s policy review and its questionable

commitment to consumer welfare, it is not unthinkable that some are

tempted to argue that the Commission and the ECJ were pursuing an

objective of consumer welfare in Commercial Solvents, Hoffmann-La

Roche, United Brands and Michelin I. Given past disappointments this is

a tempting argument even though it is difficult to follow, in particular,

given the lack of efficiency analysis in these cases. The argument that

the Court prohibits conduct which restricts economic freedom only to

protect consumer welfare (an argument advanced by Philip Lowe), by

assuming consumer harm whenever the economic freedom of market

44 Giuliano Amato, Antitrust and the Bounds of Power (Hart Publishing, 1997) page 69; Eleanor

Fox, ‘Monopolization and Dominance in the United States and the European Community: Efficiency, Opportunity, and Fairness’ 61 Notre Dame Lawyer (1986) 981.

236

participants is restricted, is not convincing. This is not to say that the

Commission cannot base its decisions on assumptions of consumer harm

or should show consumer harm explicitly when pursuing an objective of

consumer welfare, but if it does, then these assumptions must be based

on either evidence or well-documented theory indicating that such

consumer harm is likely to follow. Otherwise, it appears to be nothing

more than a protection of economic freedom. If the Commission and the

ECJ never intended to protect the economic freedom of the market

participants as an aim in itself, but only to the extent it was benefiting

consumer welfare, then it is paramount that the Commission changes its

methodology by incorporating an analysis of efficiencies. Otherwise, the

legitimacy of the judgments is undermined.

In Continental Can, Hoffmann-La Roche and Michelin I the Commission

and the ECJ equated an abuse with a restriction on the rights and

opportunities of market operators.45 For example, in Michelin I the ECJ

held ‘the discount tends to remove or restrict the buyer's freedom to

choose his sources of supply’.46 There was no serious analysis of anti-

competitive effects, because as stated by the ECJ in Hoffmann-La Roche

‘…the course of conduct [rebates] under consideration is that of an

undertaking occupying a dominant position on a market where for this

reason the structure of competition has already been weakened, within

the field of application of Article 86 [Article 82] any further weakening of

45 These cases are not the only cases under Article 82 where the Community Courts have been

concerned about the dominant undertaking preventing firms from sourcing the relevant products

from other suppliers. Other cases with a similar concern are Joined Cases 40-114/73 Cooperatieve

Vereniging ‘Suiker Unie’ U.A. and Others v Commission [1975] ECR 1663, [1976] 1 CMLR 295,

paragraph 518; Case T-65/89 BPB Industries and British Gypsum Ltd v Commission [1993] ECR II-

389, [1993] 5 CMLR 32, paragraph 120; Case T-219/99 British Airways plc v Commission [2003]

ECR II-5917, paragraphs 244-245 and Eurofix-Bauco/Hilti OJ 1985 L65/19, paragraph 79.

46 Case 322/81 Nederlansche Banden-Industrie Michelin NV v Commission [1983] ECR 3461,

[1985] 1 CMLR 282, paragraph 73; similar language was used in Case 85/76 Hoffmann-La Roche AG v Commission [1979] ECR 461, [1979] 3 CMLR 211, paragraph 106 and in Case 6/72

Europemballage Corpn and Continental Can Co Inc v Commission [1973] ECR 215, [1973] CMLR

199, paragraph 29.

237

the structure of competition may constitute an abuse of a dominant

position’.47 At most, the ECJ held that the conduct in question would

endanger the customers’ choice.48 This naturally leads one to ask

whether the Court was trying to protect consumer welfare by protecting

choice.49

3.1 Choice

Perhaps the Court was trying to protect consumer welfare by protecting

choice, but by protecting choice it is even more likely that the ECJ was

trying to protect economic freedom, as choice is an overriding goal if one

is pursuing an objective of economic freedom.50 Choice means more

participants in the market, which therefore improves the process

regardless of that process being inefficient, for example because small

and medium-sized companies are likely to lack economies of scale.

These companies may lack economies of scale and thus will be unlikely

to guarantee consumer welfare in the form of lower prices.

When it comes to protecting choice, it is admittedly difficult to assess

whether the aim is to protect economic freedom or consumer welfare as

the two objectives do overlap to a certain degree. This is not to argue

that choice is the overriding goal of consumer welfare, but it is a part of

the definition as shown in chapter four. In order for there to be

economic freedom or a process of competition there must be choice and


48 A similar argument was adopted by the Commission in its decision in Eurofix-Bauco/Hilti, supra

note 45. The Commission concluded that Hilti had abused its dominant position by adopting

commercial behaviour designed to prevent or limit the entry of new competitors into the nail

market.

49 Choice is not only a concern of the Court, but also a concern of the Commission as an attempt

to squeeze competitors out of the market will deprive consumers of choice, see 17th Report on

Competition Policy (1988), page 77.

50 Wolfgang G Friedman, Anti-trust Laws: a Comparative Symposium (London: Stevens, 1956)

page 233.

238

in order to have choice there must be competitors. This comes down to

whether choice is considered valid intrinsically or instrumentally.51

Ordoliberals would argue that choice should be protected for its own

sake as it is intrinsically valuable and constitutes economic freedom for

the customer and consumer. By contrast, the Chicago School considers

choice from an instrumental point of view, meaning that it is to be

protected as a part of preserving the fruits of a competitive process.

Choice must be effective so that customers can move from one supplier

to another, even though they would not necessarily use that choice, but

at least it would be available to them. From a welfare point of view,

choice is only valued if it leads to a better and more efficient outcome

for consumers in the form of lower prices and better quality. If choice

does not have these benefits, then consumer welfare is not concerned

with choice. For example, in a market which is characterised by a natural

monopoly there would be no choice. If the natural monopoly is the most

efficient supply structure and thus leads to the best outcome for

consumers, then it would be totally acceptable from a consumer welfare

perspective. From an economic freedom perspective a natural monopoly

would not be favoured at all, regardless of the outcome, as there would

be no process of competition.

Because choice is important when pursuing both an objective of

economic freedom and an objective of consumer welfare, it can be

difficult to distinguish between which of the two objectives the

Commission is pursuing when arguing a case in terms of choice. Due to

the difficulties involving choice, the Commission must rely on more than

choice when pursuing an objective of consumer welfare. There must be a

plausible theory of consumer harm. If the Commission convincingly

wants to pursue an objective of consumer welfare, choice cannot be the

51 This is not a distinction the Commission or the Community Courts have adopted within the scope

of Article 82, the only point here is to bear this distinction in mind.

239

only reference point, as choice is also an overriding goal when pursuing

an objective of economic freedom. In the absence of any theory on how

consumers will be harmed directly or indirectly through an alteration of

an effective competitive structure, will look like nothing more than a

protection of economic freedom.

This section rejects the idea that the Court was aiming to protect

consumer welfare when it stated that ‘the discount tends to remove or

restrict the buyer's freedom to choose his sources of supply’.52 The

Commission and the ECJ did not analyse the welfare implications of the

conduct in question or engage in any efficiency analyses. It is therefore

difficult to argue that these institutions were concerned with the

instrumental value of the process, as they did not treat the restriction of

choice synonymously with the restriction on the competitive outcome.

Given this argument, the aim of assigning priority to consumer welfare

appears to be in conflict with the case law where economic freedom is

pursued as an aim in itself. The commitment to consumer welfare in the

Discussion Paper could be dismissed by referring to the fact that it is not

a legislative document which is legally binding, but at most contains

some legally binding principles. If this point is disregarded for the

moment, as it is likely that the ECJ will decide to commit to consumer

welfare in due course, the implication of giving priority to consumer

welfare could be contrary to the wording of Article 82(2)(c). This

provision seems to protect the economic freedom of other trading

parties. Although DG Competition has the freedom to decide its

enforcement policy, it cannot ignore the wording of the Treaty. The

wording of Article 82(2)(c) will be analysed in the following section.

52 Supra note 46.

240

4. Economic Freedom in the EC Treaty

Economic freedom is not explicitly incorporated in Article 82, but indent

(c) of Article 82 reads: ‘applying dissimilar conditions to equivalent

transactions with other trading parties, thereby placing them at a

competitive disadvantage’. The question is whether the expression in

Article 82(2)(c) ‘thereby placing them at a competitive disadvantage’

has an independent content, or whether it is merely in the nature of an

explanatory addition with declaratory effect. This question will be

examined in this section. Strictly speaking, DG Competition’s

commitment to the objective of consumer welfare only applies to

exclusionary abuses, which could exclude Article 82(2)(c).53 However, in

practice, it can be difficult to make a clear divide between exploitative

and exclusionary abuses, as discriminatory practices may have an

exclusionary effect.54 Therefore, it is still relevant to examine Article

82(2)(c).

Three conditions have to be fulfilled before Article 82(2)(c) is violated:

1. there must be dissimilar conditions, which

2. are applied to equivalent transactions, and

3. other trading parties must be placed at a competitive disadvantage.

The Commission and the Community Courts generally assume dissimilar

conditions are applied to equivalent transactions without much

analysis,55 but what about the third condition?

53 Discussion Paper, supra note 31, paragraph 1. DG Competition is also reviewing its policy

towards exploitative and discriminatory abuses. The latter process is not yet at the stage of public

consultation.


55 Damien Geradin and Nicolas Petit, ‘Price Discrimination under EC Competition Law: the Need for

a Case-by-Case Approach’ GCLC working paper 07/05, page 8; Ivo Van Bael & Jean-Francois Bellis,

Competition Law of the European Community (Kluwer Law International, 2005) pages 915 and 917.

241

The third condition was one of the issues in Deutsche Post AG.56 The

Commission held that the term ‘trading partner’ must be given a slightly

different interpretation because Deutsche Post held a monopoly in

Germany. It argued that Deutsche Post was to be considered a trading

partner of both the UK senders, contracting with the British Post Office

(‘BPO’), and with BPO directly. The Commission argued that both

customers and a competitor of Deutsche Post were put at a competitive

disadvantage.57 This shows that the Commission was considering both

primary-line and secondary-line discrimination. The former means

discrimination used to expand or maintain a dominant position to the

disadvantage of competitors of the discriminator by applying different

prices to its own customers.58 The latter means discrimination imposed

on one of several customers of the dominant firm as against one or

several other customers.59

After finding that Deutsche Post was behaving in a discriminatory

manner by charging different prices to equivalent transactions to the

disadvantage of trading parties,60 the Commission said that even in the

absence of negative effects on trading parties indent (c) of Article 82

was violated where consumers are harmed.61 In reaching that

conclusion, the Commission referred to the ECJ’s judgment in Deutsche

Post AG v Citicorp.62 Here, the Court concluded that discriminatory

treatment of different mail categories may constitute an abuse under

Article 82 without addressing the question whether the sender was a

56 Deutsche Post AG OJ [2001] L331/40, [2002] 4 CMLR 598.


58 Fox, supra note 44, page 1008.

59 Alison Jones and Brenda Sufrin, EC Competition Law (Oxford University Press, 2nd ed, 2004)

page 411.

60 Deutsche Post, supra note 56, recital 127.


62 Joined Cases C-147-148/97 Deutsche Post AG v Gesellschaft für Zahlungssysteme mbH and

Citicorp Kartenservice GmbH [2000] ECR I-825.

242

trading partner of Deutsche Post AG or not.63 By referring to Deutsche

Post AG v Citicorp, which did not address the third condition of Article

82(2)(c), it is not entirely clear whether the Commission considered it

unnecessary to examine whether trading parties are placed at a

competitive disadvantage. If so, then the Commission is basically saying

that it is not necessary to apply strictly the conditions imposed by Article

82(2)(c).64 This interpretation has been supported by Advocate General

Van Gerven in his Opinion in Corsica Ferries Italia Srl v Corpo dei Piloti

del Porto di Genova:65

It appears implicitly from the Community case-law, ...that the

Court does not interpret that phrase [other trading parties,

thereby placing them at a competitive disadvantage] restrictively,

with the result that it is not necessary, in order to apply it, that

the trading partners of the undertaking responsible for the abuse

should suffer a competitive disadvantage against each other or

against the undertaking in the dominant position.

If it is not strictly necessary to apply the conditions imposed by Article

82(2)(c) it means that indent (c) can be applied to dominant firms’

pricing practices, which have little to do with putting their trading parties

at a competitive disadvantage. In that case, one may wonder what

competitive disadvantage means. If it means that discrimination, in

itself, necessarily implies some kind of competitive disadvantage for the

trading parties which are discriminated against, then the question

remains why the drafters of the EC Treaty included a requirement of

competitive injury if it adds nothing to the essence of discrimination?

In Deutsche Post AG the third condition of indent (c) was fulfilled as

there was evidence of direct harm to both trading parties and

63 The Court did not address the two other conditions in Article 82(2)(c). Ibid. paragraphs 59-60.

64 Santiago Martinez Lage and Rafael Allendesalazar, ‘Community Policy on Discriminatory Pricing:

a Practitioner's Perspective’, paper presented at the 2003 Annual EU Competition Law and Policy

Workshops - What is an Abuse of a Dominant Position? (Florence) page 15.

65 Opinion of Advocate General Van Gerven in Case C-18/93 Corsica Ferries Italia Srl v Corpo dei

Piloti del Porto di Genova, delivered on 9 February 1994, paragraph 34.

243

consumers. The Commission made clear that it would have found a

violation of Article 82(2)(c) even in the absence of harm to trading

parties, if there was harm to consumers. The Commission thereby

ensured that in future cases where it is not possible to prove direct harm

to trading parties, Article 82(2)(c) is violated if consumer harm can be

proven. This is a deviation from the wording of indent (c).66

Unlike indent (b) of Article 82,67 indent (c) does not mention consumers,

but trading parties. If it is not necessary to show that trading parties are

placed at a competitive disadvantage to breach indent (c), even where

trading parties are directly mentioned in the wording, then perhaps it is

not necessary to show prejudice to consumers under indent (b) either.

The Community Courts have, since Continental Can, held that not only

conduct which harms consumers directly, but also conduct which harms

consumers indirectly, by altering the structure of the market, is

prohibited by Article 82.68 Neither the Community Courts nor the

Commission have held that Article 82(2)(b) is violated in the absence of

effects (direct or indirect) on the consumer, but only that it is not

necessary to show effects on the competitive structure where there is

direct prejudice to consumers:69

While the application of Article 82 often requires an assessment of

the effect of an undertaking's behaviour on the structure of

competition in a given market, its application in the absence of

such an effect cannot be excluded. Consumers' interests are

protected by Article 82, such protection being achieved either by

prohibiting conduct by dominant undertakings which impairs free

and undistorted competition or which is directly prejudicial to

consumers. Accordingly, and as has been expressly recognised by

the Court of Justice, Article 82 can properly be applied, where

66 There is an argument that if consumer harm can be proven then it should be possible to prove

harm to trading parties, as it is assumed that it is more difficult to prove consumer harm than harm

to trading parties. This argument will be considered later in this section.

67 Article 82(2)(b) ‘limiting production, markets or technical development to the prejudice of

consumers’.

68 This was recently reiterated in Case C-95/04P British Airways plc v Commission, paragraph 104.

69 1998 Football World Cup OJ [2000] L5/55, recital 100.

244

appropriate, to situations in which a dominant undertaking's

behaviour direct prejudices the interests of consumers,

notwithstanding the absence of any effect on the structure of

competition.

The question is whether the Commission intended to get a similar

message across in Deutsche Post AG, meaning that it is not necessary in

indent (c) to prove that trading parties are placed directly at a

competitive disadvantage, but it is enough to show that trading parties

are placed at a competitive disadvantage indirectly. In that case, why

did the Commission not distinguish between direct and indirect harm to

trading parties, let alone prove that in most situations trading parties

may be placed at a competitive disadvantage indirectly where

consumers are harmed. Instead, the Commission said that in the

absence of negative effects on trading parties, indent (c) is violated

where consumers are harmed.

The Commission’s finding in Deutsche Post AG that it would have found

a violation of Article 82(2)(c) even in the absence of harm to trading

parties was refined by the ECJ in British Airways.70 British Airways’ fifth

ground of appeal was that the Commission had not done enough to show

that the third condition of Article 82 ‘competitive disadvantage’ between

travel agents resulting from the reward schemes, was violated.71 The

ECJ held:72

[I]n order for the conditions for applying subparagraph (c) of the

second paragraph of Article 82 EC to be met, there must be a

finding not only that the behaviour of an undertaking in a

dominant market position is discriminatory, but also that it tends

to distort that competitive relationship, in other words to hinder

the competitive position of some of the business partners of that

undertaking in relation to the others.

70 British Airways, supra note 68, paragraph 142.


72 British Airways, supra note 68, paragraphs 144-145.

245

In that respect, there is nothing to prevent discrimination

between business partners who are in a relationship of

competition from being regarded as being abusive as soon as the

behaviour of the undertaking in a dominant position tends, having

regard to the whole of the circumstances of the case, to lead to a

distortion of competition between those business partners. In

such a situation, it cannot be required in addition that proof be

adduced of an actual quantifiable deterioration in the competitive

position of the business partners taken individually.

The Court said that discrimination alone is not enough, it must also be

shown that the competitive position of the business partners is distorted.

This does not have to be an actual quantifiable deterioration of the

business partners. It is enough to demonstrate that the reward schemes

tend to lead to a distortion of competition between travel agents, and

additional proof of an actual quantifiable deterioration is not required. It

is sufficient to prove that other trading parties are placed at a

competitive disadvantage indirectly. The Court did not link competitive

disadvantage to consumer harm, but said that Article 82(2)(c) does not

require actual quantifiable competitive disadvantage. This is nothing

more than indicating that Article 82(2)(c) is violated where there is an

indirect competitive disadvantage on trading parties. This is also the

position taken under Article 82(2)(b) where it is enough to show indirect

prejudice to consumers.

This section has examined whether the expression ‘thereby placing them

at a competitive disadvantage’ has an independent content or just a

declaratory effect. The ECJ made clear in British Airways that Article

82(2)(c) is violated where the competitive position of the business

partners of the dominant undertaking have been hindered by the

discrimination. Despite there being no requirement of actual harm, the

third condition of Article 82(2)(c) does have an independent content.

The EC Treaty gives competition authorities and courts a direct route to

condemn discrimination where it hinders the competitive position of

business partners. This has led some to argue that ‘the self-made

246

Commission/Court abridged version of Article 82(2)(c) might best be

seen in terms of an underlying tendency to seek to preserve an existing

market structure, a kind of policy of protecting towards the distributor….

If so, this is not a policy that is connected with competition or consumer

welfare’.73

The Court has determined that Article 82(2)(c) is already infringed when

the discriminatory behaviour tends to distort competition between

trading parties. If competition authorities ignore this and delay

intervention in the market until they have evidence of likely consumer

harm, they run the risk of complaints about failure to act from third

parties. The failure to act being the lack of enforcement of Article

82(2)(c) where there is evidence of competitive distortion to trading

parties.

Conclusion

This chapter found that economic freedom is not used to enhance

consumer welfare, because individual economic freedom is an end in

itself. The finding is based on five observations. First, economic freedom

is conceptually and theoretically distinct from consumer welfare. Second,

the ECJ has not interpreted the protection of the competitive process

instrumentally by treating the restriction of choice synonymously with

the restriction on the competitive outcome. Third, the Court has not

protected the economic freedom of the market participants only to the

point that it is productively and allocative efficient to do so in order to

benefit consumer welfare. Fourth, the Court has interpreted the process

of competition intrinsically to protect competition in the long term. Fifth,

the wording of Article 82(2)(c) requires trading parties to be protected

against discrimination from dominant undertakings.

73 Brian Sher, ‘Price Discounts and Michelin 2: what Goes Around, Comes Around’ 23(10) European

Competition Law Review (2002) 482, pages 487-488.

247

These main findings lead to an overall conclusion that only if the ECJ

decides to support DG Competition’s move away from economic freedom

and overrule earlier case law will DG Competition’s move to consumer

welfare be a reality. The Commission certainly has the freedom to decide

its enforcement policy, but if its administrative practice were to change,

the Commission would still have to act within the framework prescribed

for it by Article 82 as interpreted by the ECJ,74 unless the Community

Courts support the Commission’s move towards consumer welfare.

74 This was highlighted by Advocate General Kokott in her Opinion in British Airways, supra note

39, paragraph 28.

248

Chapter 7 Thesis Conclusion

1. Summary of Findings

This thesis discussed whether there is a tension between protecting

economic freedom and the promotion of consumer welfare in the

application of Article 82. The aim of the research question was a

consideration of the legitimacy of DG Competition’s embracing consumer

welfare when considering exclusionary abuses within the terms of Article

82.

In order to answer the research question, the thesis considered the

theory behind the objective of economic freedom and the theory behind

the objective of consumer welfare. It assessed which objective shaped

the development of the early jurisprudence where the law of Article 82 is

to be found. It finally examined how this fits with current aspirations for

consumer welfare. Based on these considerations, the thesis found:

1. the origin of economic freedom, as a concept in the sphere of

competition law, is mostly attributable to the theory of ordoliberalism

which valued individual economic freedom as a fundamental right;

2. ordoliberalism influenced German competition law which in turn

inspired Community competition law;

3. despite influence of ordoliberal theory, Article 82 is not an

implementation of ordoliberalism as the EC Treaty is not based on the

ordoliberal economic constitution;

4. the case law analysis in this thesis found that Article 82 has been

interpreted by the Commission, and upheld by the Community

Courts, in such a way as to protect the economic freedom of both

customers and competitors;

249

5. economic freedom is not considered a fundamental right in the

Community legal order as economic freedom is protected by neither

the EC Treaty nor the general principles of the EU;

6. economic freedom and consumer welfare pursue fundamentally

different values. While economic freedom aims at protecting the

individual undertaking’s economic freedom, consumer welfare takes a

neo-classical position which values welfare without giving any

consideration to the position of individuals;

7. pursuing an objective of economic freedom focuses on the process of

competition, whereas pursuing an objective of consumer welfare

focuses on the outcome of competition;

8. pursuing an objective of consumer welfare requires the competition

authority to focus on the effects of the conduct on consumers;

9. the Discussion Paper talks about consumer welfare in the form of

consumer surplus and allocative efficiency, which is distinct from total

welfare where producer and consumer surplus are of equal

importance;

10. the practices of the Commission show that it still focuses to a

considerable extent upon the form of the dominant undertaking’s

conduct, rather than the effects of its conduct;

11. economic freedom has not been interpreted as a means to the end

of consumer welfare; and

12. the Commission and the Community Courts have not protected the

economic freedom of the market participants only to the point where

it is dynamically, productively and allocative efficient to do so in order

to benefit consumer welfare.

These findings were fundamental to assessing whether there is a tension

between protecting economic freedom and the promotion of consumer

welfare in the application of Article 82 and in assessing the legitimacy of

the Commission’s current aspirations of consumer welfare.

250

Based on the findings, the thesis demonstrated that there is such a

tension. Given this, it is concluded that if the Commission decides to

follow DG Competition’s policy statement of consumer welfare when

enforcing Article 82, then it is departing from jurisprudence such as

Commercial Solvents, Hoffmann-La Roche, United Brands and Michelin I,

case law on which the Community Courts still rely heavily. Economic

freedom is considered to be an objective under Article 82, because it has

not been interpreted as a means to the end of consumer welfare.

Departing from the jurisprudence requires support from the ECJ. The

Commission certainly has the freedom to decide its enforcement policy,

but if its administrative practice were to change, the Commission would

still have to act within the framework prescribed for it by Article 82 as

interpreted by the ECJ.

2. Elaboration of Findings

In order to come to the first finding, chapter two looked at

ordoliberalism and its competition law model and argued:1

Ordoliberals encouraged open access to the market, as they

believed that this would be the best control of private and political

power. In their view the aim of competition policy was not

economic efficiency, but rather the limitation and control of

private power, or at least of its harmful effects, in order to protect

individual economic freedom in the interest of a free and fair

political and social order.


economic efficiency. For ordoliberals the economic constitution

had constitutional status and should protect the individual's

freedom to compete.

It also found that the main objective of the ARC was the protection of

economic freedom. German competition law, which influenced

Community competition law, was influenced by ordoliberalism.

1 See chapter two, pages 50-51.

251

While many Community competition scholars and practitioners would

agree that ordoliberalism has influenced EC competition law, they argue

that, in order to make Article 82 more economics-based, the time has

come to depart from the protection of individual economic freedom of

action as a value in itself as articulated by ordoliberals. This view has

been embraced by DG Competition in its Discussion Paper which states: 2





Consumer welfare has received some support from the Community

Courts when interpreting Article 81,3 but less so under Article 82 where

the Commission and the CFI still focus to a considerable extent upon

foreclosure only and not anti-competitive foreclosure and the intentions

of the dominant undertaking, rather than the effects of its conduct.

The Discussion Paper is predicated on the idea that the law is clear and

there is no ambiguity as to the goals of Article 82, but, as shown in

chapter three, the objective of consumer welfare is not entirely in tune

with the case law of Article 82:4

The cases show that the Court has interpreted Article 82 to

protect economic freedom, freedom of competition and the

process of competition, which are all cornerstones of

ordoliberalism. The essence of the competitive process is to allow

competitors to enter the market to compete within the market.

Embracing the objective of consumer welfare as the main goal when

assessing exclusionary conduct within Article 82 would be a departure

from the jurisprudence and according to ordoliberal scholars would

2 Discussion Paper on the Application of Article 82 of the Treaty to Exclusionary Abuses (December,

2005) paragraphs 4 and 54.

3 Case T-168/01 GlaxoSmithKline Services Unlimited v Commission, paragraph 118.

4 See chapter three, page 127.

252

violate a fundamental right. It would require support from the ECJ as

only the Court can decide whether its case law is in need for change and

the Commission must act within the framework of the case law.

To find support for the Commission’s change, many Community lawyers

and, in particular, economists argue that economic freedom and

consumer welfare do not always contradict each other. The view that

economic freedom could be an intermediate objective of economic

efficiency in the form of consumer welfare is opposed by a leading

ordoliberal scholar who argues:5





Those who argue that economic freedom and economic efficiency do not

necessarily conflict usually assess economic efficiency in the form of

total welfare as articulated by the Chicago School. Chapter four showed

that the welfare standard suggested by the Commission is not the total

welfare standard because the welfare of the output producer is not taken

into account:6

Given that consumers include purchasers on both the wholesale

and retail level, but not the output producer, in stating that

consumers must benefit, the ECJ dedicates itself to the consumer

welfare standard.

Having considered the theory behind the objective of consumer welfare

as well as that of economic freedom, it became clear that the two

objectives pursued fundamentally different values. While economic

freedom aims to protect the individual undertaking, consumer welfare

takes a neo-classical position which values welfare without taking into

5 Franz Böhm, ‘Democracy and Economic Power’ in Cartel and Monopoly in Modern Law (CF Muller

Karlsruhe, 1961) page 28.

6 See chapter four, page 154.

253

consideration the position of individuals. Whilst consumer welfare may

ignore the position of the individual undertaking in the market, chapter

six considered whether economic freedom could be tweaked to include

efficiencies in such a way that economic freedom could be said to

enhance consumer welfare. It found:7

Standard economics states that by protecting a competitor

through the act of curtailing the power of the near monopolist,

the consumer may benefit through increased choice and a

reallocation of profits from the monopolist to alternative

competitors. As these competitors will not have the ability to reap

monopoly profits, these profits would be expected to be passed

back to the consumer through reduced prices. If these effects

outweigh the value of any above-cost discount offered by the

near monopolist, consumers could gain from overall price

reductions. While the move to protect suppliers may increase

choice and potentially improve allocative efficiency through lower

prices, this is not guaranteed. Nor is it guaranteed that dynamic

movements towards productive efficiency will be facilitated best

in this way. In some circumstances, it is plausible that the

protected competitors will become efficient over time. However, it

is also possible that the most productive way of supplying

customers will be through one single supplier, particularly when

economies of scale are great. Depending on which of these effects

is the greatest the consumer could then actually gain or lose from

such measures.

This led to the finding that there exists a tension between protecting

economic freedom and promoting consumer welfare because:8

[P]ursuing an objective of economic freedom cannot be tweaked

to include efficiencies to the benefit of consumer welfare. When

pursuing an objective of economic freedom, the process is of

intrinsic value and it excludes a change of the overarching

principle to protect competitors only to the point where it is

productively and allocative efficient to do so.

Although this finding established the tension between the two objectives,

it was not conclusive as to the status of economic freedom in the

Community legal order. Given that chapter two showed that ordoliberal

scholars considered economic freedom to be a fundamental right,

7 See chapter six, page 228.

8 Ibid. page 230.

254

chapter five had to examine whether the objective of economic freedom

had a similar status in the Community legal order. If economic freedom

could be considered a fundamental right in the Community legal order,

the promotion of consumer welfare would not only be a departure from

the jurisprudence, given that economic freedom is not used to enhance

consumer welfare, but would also be a violation of a fundamental right in

the ordoliberal sense.

The analysis of the status of economic freedom in the Community legal

order started by examining the EC Treaty and led to the finding:9

[W]hilst Community competition law is influenced by

ordoliberalism, it is not an implementation of ordoliberalism and

the EC Treaty is not a Treaty based on the ordoliberal economic

constitution.

This finding made clear that Article 82 is not a direct replica of

ordoliberal ideology, but it did not exclude the possibility of economic

freedom being a fundamental right in the Community legal order, where

it formed part of the general principles of the EU. Thus, chapter five had

to examine the different sources where the ECJ finds inspiration for the

general principles of the EU: the ECHR, the Charter and the constitutions

of the Member States. The examination found that neither the ECHR nor

the Charter protects economic freedom.

The ECJ does not automatically refuse legal status to rights which are

not expressly protected in the ECHR or the Charter. Thus, it was

necessary to examine whether economic freedom was protected in the

German constitution, as the ECJ is prepared to protect fundamental

rights in the Community legal order if these are recognised and

protected by the constitutions of the Member States.

9 See chapter five, page 220.

255

Analysing the German constitution, the so-called Basic Law, revealed

that economic freedom is not directly protected. Instead the Basic Law

protects a general right of liberty. It established that it is most likely that

economic freedom is covered by the general right of liberty, as this right

has been interpreted broadly. Despite this finding, chapter five

concluded that economic freedom is unlikely to have status as a

fundamental right in the Community legal order. This conclusion was

based on the knowledge that the ECJ is unlikely to elevate a right to

have status as a fundamental right, if it is protected only in one Member

State’s constitution.10

3. Consequences of Adopting a Consumer Welfare Standard

The need to protect individual economic freedom grew after World War

II. Historically this is not surprising as such a right could not be taken for

granted during World War II. Today some argue in favour of a divorce of

economic issues such as efficiency and wealth creation from non-

economic issues within the area of competition law.11 In the light of this,

the ordoliberal ideology, which emphasises the interdependence between

economic structures and human values, may seem less than ideal now

compared to how it appeared in a devastated Germany after World War

II.

Whilst DG Competition’s policy must be credible, effective and legitimate

and therefore be dynamically shaped to reflect the prevailing market

characteristics of the EU at any one point in time, since it is apparent

that the successful adoption and application of a particular competition

10 This thesis did not consider other Member States’ constitutions, not because it would be

irrelevant, but because the argument that economic freedom is considered a part of the general

principles of the EU would be even harder to make given the finding that the German constitution

only protects economic freedom indirectly via the general right of liberty.

11 See for example Simon Bishop and Mike Walker, The Economics of EC Competition Law (Sweet &

Maxwell, 2nd ed, 2002); Okeoghene Odudu, The Boundaries of EC Competition Law (OUP, 2006).

256

policy is a question of context-specific economic conditions, the

ordoliberal influence on Community competition law cannot be denied.

Ordoliberalism continues to be a well-respected legal tradition. It holds

both that government needs to be restrained from abuse of power, and

that the free market has its limits. Economic rights deserve protection,

and vigilance is needed to ensure economic power is not misused or

abused.

Besides ignoring the objective of economic freedom and departing from

Article 82 jurisprudence, to focus mainly on consumer welfare would

require the application of economic theory to factual situations

measuring adverse effects on the market. This would necessitate a case-

by-case analysis and it would mean that every case would turn on its

own merits. A departure from economic freedom is significant and not

merely cosmetic: it can reduce considerably the scope of the abuse

concept which may lead to more of the type I errors defined in chapter

one.12

A legal system's approach to resolving conflicts between objectives is

usually determined by a combination of political preferences and

intuitions about the ability of government and markets to correct

competitive failures. Successive schools of thought have exercised

considerable influence over these questions. In the US, the legal

approach has been influenced by the Chicago School, described in

chapter four. The Chicago School has substantial confidence in the

robustness of markets to withstand and correct monopolistic distortion

and little faith in the ability of governments to intervene in a way that

improves upon market outcomes. In that framework, the risk of type I

errors is preferable to the risk of type II errors. As noted, by adopting an

objective of consumer welfare the Commission enforcement of Article 82

12 See chapter one, page 14.

257

is likely to move slightly towards a system where the risk of type I errors

is preferable to the risk of type II errors.

Once it is accepted that economic freedom is not a means to the end of

consumer welfare within Article 82, a substantive test for exclusionary

conduct cannot be based on the likely adverse effect of the conduct on

consumers. Such a test would be incompatible with the protection of the

economic freedom of undertakings, as conduct by dominant

undertakings is not regarded as unlawful unless it can be shown to have

likely adverse effects on consumers. A test based on likely adverse

effects on consumers would ignore the aim of economic freedom, as

economic freedom can be restricted without it necessarily having

adverse effects on the consumer.

DG Competition has already announced in its Discussion Paper that

consumer welfare will be the overarching objective when pursuing

exclusionary abuse under Article 82. This is nothing more than a policy

statement in a discussion paper, which is legally non-binding and has no

legal status capable of creating legitimate expectations.13 DG

Competition has not committed itself or given any assurance as to the

application of the analytical approach described in the Discussion

Paper.14 Even so, it is an indication of the Commission’s current thinking.

If consumer welfare is to be accepted as the main objective when

examining exclusionary abuses, it is imperative for its success that the

Community Courts support the Commission in its application of this

objective.

Until – and if – the Commission gets support from the Community

Courts, it is suggested that the Commission should arrive at a clear and

13 According to Article 249 EC only regulations, directives and decisions are legally binding

measures in the EU.

14 Discussion Paper, supra note 2, paragraph 2; Case T-209/01 Honeywell International INC v

Commission, paragraph 100.

258

consistent internal position on how to enforce Article 82 and should issue

guidelines. While it may be difficult to produce guidelines on the law

compared to guidelines on prosecutorial policy, this is necessary if the

Commission wants to change its enforcement on Article 82 to promote

consumer welfare. While the adoption of guidelines will not alter the fact

that the Commission needs support from the Community Courts, it will

show that the Commission is determined to adopt a more economics-

based approach to Article 82. If the Commission does not issue

guidelines, it might send the signal that the Commission is not itself

ready to commit to a policy of pursuing a consumer welfare objective.

A Commission official has stated that if the Commission is going to issue

guidelines on Article 82 it will not be guidelines on its prosecutorial

discretion, but guidelines on the substance of the law.15

4. Guidelines

Some argue that it is unacceptable for the Commission to derogate from

older case law by means of soft law such as guidelines.16 However, as

argued in chapter one, the Community Courts rarely articulate their

stand as to the objectives, so ambiguities remain. Given these

ambiguities, it is perfectly reasonable for the Commission to take a view

by issuing guidelines. If the Community Courts disagree with the

Commission’s view, they can overturn it in future judgments.

Having suggested that guidelines would be a possible way forward, the

Commission would be under no obligation to issue guidance and it is still

15 Joint CLF-ECA meeting on 19 April 2005, London. The identity of the official cannot be revealed

as the meeting was held under the Chatham House rule.

16 Francis Snyder, ‘Soft Law and Institutional Practice in the European Community’ in Martin (ed),

The Construction of Europe, Essays in Honour of Emil Noel (1994) pages 199–201.

259

unknown whether guidelines will be issued at a later stage.17 However, if

guidelines are issued they would bind the Commission.18

Guidelines will be difficult to produce, but this is exactly what drives the

imperative for them. Guidelines would be desirable given that the

Commission does not regard itself as being bound by its previous

decisions.19 Moreover, chapter one found that the tools available for

reforming Article 82 are limited and there is no secondary legislation

under Article 82, and suggested the possibility of guidelines. Guidelines

should seek to ensure that businesses have sufficient information to

arrange their affairs in such a way that the risks of unintentional

infringement are minimised as are the costs of unnecessary enforcement

action or misconceived complaints.

Guidelines would acknowledge the general principle of legal certainty

under Community law, which requires that firms should, to the greatest

possible extent, be able to judge whether their conduct is legal or not

when they decided to engage in it.20 Guidelines would provide greater

transparency and predictability in the form of legal certainty to European

companies and their advisers.21 Legal certainty is important as it is vital

for the undertakings in the market – dominant or not – to know the legal

17 Commission Discussion Paper on Abuse of Dominance - Frequently Asked Questions, MEMO of

19 December 2005 MEMO/05/486. Available at:

http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/05/486&format=HTML&aged=1&l

anguage=EN&guiLanguage=en.

18 Case C-189/02 Dansk Roerindustri A/S and Others v Commission [2005] ECR I-5425, paragraph

211.

19 Case T-210/01 General Electric v Commission [2005] ECR II-5575, paragraph 118. 20 Takis Tridimas, The General Principles of EC Law (New York: Oxford University Press, 1999)

pages 165-166.

21 John Temple Lang, ‘Legal Certainty and Legitimate Expectations as General Principles of Law’ in

Ulf Bernitz and Joakim Nergelius (eds), General Principles of European Community Law (Kluwer Law

International, 2000) pages 163-184.

260

framework within which they can operate.22 Decisions on innovation and

investment involve business risks and undertakings are less likely to be

willing to take these risks if they cannot calculate the risk of future legal

sanctions. Enhancing legal certainty reduces the legal risks, facilitating

innovation and investment.23 For competition policy to be effective it will

need support from the business community, which will only happen

when businesses understand the Commission’s policy.

While guidelines would not minimise the tension between the protection

of economic freedom and the promotion of consumer welfare, they

would make it more likely for the underlying objectives (whether that is

consumer welfare or something else) to be realised, as noted in chapter

one. Guidance is particularly important in this regard as the national

courts and competition authorities of the Member States cannot take

decisions running counter to Commission decisions.24

Regardless of the difficulties, it would be advisable for the Commission

to issue guidelines if national authorities and courts are to achieve a

similar outcome with Community practice in future cases as they will

need to know what the Commission is trying to achieve. Moreover, when

national courts are called upon to apply Community competition law,

they can seek guidance in the case law of the Community Courts or in

Commission regulations, decisions, notices and guidelines applying the

competition rules.25 Where these tools do not offer sufficient guidance,

22 Case T-51/89 Tetra Pak Rausing SA v Commission [1990] ECR II-309, [1991] 4 CMLR 334,

paragraph 36; Joined Cases 212/80 to 217/80 Amministrazione delle Finanze dello Stato v Srl

Meridionale Industria Salumi and others; Ditta Italo Orlandi & Figlio and Ditta Vincenzo Divella v

Amministrazione delle finanze dello Stato [1981] ECR 2417, paragraph 10; Cases 209/84 to 213/84

Ministère Public v Asjes and Others (Nouvelles Frontières), paragraph 64.

23 OJ [2003] L1/1 Council Regulation on the Implementation of the Rules on Competition Laid

Down in Article 81 and 82 of the Treaty, recital 38.

24 Ibid. recital 22 and Article 16.

25 OJ [2004] C101/54 Commission Notice on the Co-operation between the Commission and the

Courts of the EU Member States in the Application of Articles 81 and 82 EC, recital 27.

261

the national court may ask the Commission for its opinion on questions

concerning the application of Community competition law. The national

court may ask the Commission for its opinion on economic, factual and

legal matters.26 The courts of the Member States may also ask the

Commission to ‘transmit to them information in its possession or its

opinion on questions concerning the application of the Community

competition rules’.27 Given that the Commission has not sought to

publish general secondary legislation or practical guidance under Article

82, apart from in some specific sectors,28 the number of requests from

national courts is likely to increase if the national courts are given

insufficient information about how to assess exclusionary conduct by

dominant undertakings. Besides asking the Commission for its opinion

on economic, factual and legal matters, national courts may refer

questions to the ECJ under Article 234 procedure.

5. Contribution to the Article 82 Discussion

Competition law is supposed to protect competition and not competitors,

but the Commission has been criticised for protecting the latter more

than the former when enforcing Article 82. It has been suggested that

the adoption of a more economics-based approach to Article 82 would

ensure that the provision was enforced to protect competition instead of

26 Case C-234/89 Stergios Delimitis v Henninger Bräu AG [1991] ECR I-935, paragraph 53; Joined

Cases C-319/93, C-40/94 and C-224/94 Hendrik Evert Dijkstra v Friesland (Frico Domo) Coöperatie

BA and Cornelis van Roessel and others v De coöperatieve vereniging Zuivelcoöperatie Campina

Melkunie VA and Willem de Bie and others v De Coöperatieve Zuivelcoöperatie Campina Melkunie BA

[1995] ECR I-4471, paragraph 34. 27 Council Regulation 1/2003, supra note 23, Article 15.

28 Such as postal services and telecommunications, OJ [2002] C165/03 Commission Guidelines on

Market Analysis and Assessment of Significant Market Power under the Community Regulatory

Framework for Electronic Communications Networks and Services, paragraph 70, and EC Directive

2002/21 on a Common Regulatory Framework for Electronic Communication Service (the

Framework Directive).

262

competitors.29 To move towards a more economics-based approach, the

DG Competition has suggested that the main objective of Article 82

when assessing exclusionary abuses should be consumer welfare. That

suggestion appears to ignore the fact that economic freedom has also

been an objective pursued in Article 82 jurisprudence.

By revealing that a tension between the protection of economic freedom

and the promotion of consumer welfare exists, because the two

objectives pursue fundamentally different values, it was possible to

clarify that those who think that Article 82 has always been about

economic efficiency are mistaken. This does not take away the possibility

that the Commission may change its enforcement policy towards Article

82, if it believes that Article 82 should be about economic efficiency in

the form of consumer welfare. However, the Commission needs to

acknowledge that economic freedom rooted in the ordoliberal tradition

has a place in Article 82 and that it must reconcile the tension between

the two objectives in order for the policy review of Article 82 to be

successful.

It would be a mistake to think that the finding that there is a tension

between the two objectives also clarifies the conflict between them

within the scope of Article 82, but it is hoped that the discussion has

moved a great deal closer to understanding that such a tension exists.

There is still much work to do. As noted, the Commission must issue

guidelines in order to provide a minimum level of clarity in this area of

law.

29 This was suggested in the OECD Report on Competition Law and Policy in the European Union

(October, 2005) page 30. Available at: http://www.oecd.org/dataoecd/7/41/35908641.pdf.

263

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White, Eric L ‘Some Important Aspects of the Hoffmann-La Roche Judgment’

77 The Law Society’s Gazette (1980) 246

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Zanon, Lucio ‘Price Discrimination under Article 86 of the E.E.C. Treaty: The

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The German Scenario’ 22(1) European Law Review (1997) 19

Working & Conference Papers

B

Barrell, Ray and Dury, Karen ‘Choosing the Regime: Macroeconomic Effects

of UK Entry into EMU’ NIESR Discussion Paper No 168 (2000)

G

Geradin, Damien and Petit, Nicolas ‘Price Discrimination under EC

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(July, 2005)

Geradin, Damien; Hofer, Paul; Louis, Frederic; Petit, Nicolas and Walker,

Mike ‘The Concept of Dominance’ GCLC Research Papers (July, 2005)

Goldsmith, Niels & Berndt, Arnold ‘Leonhard Miksch (1901-1950) – A

forgotten Member of the Freiburg School’ Walter-Eucken-Institute, Freiburg

Discussion Papers on Constitutional Economics No 3 (2002)

J

Joerges, Christian ‘The Law in the Process of Constitutionalising Europe’ EUI

Working Paper Law No 4 (2002)

Joerges, Christian and Rödl, Florian ‘“Social Market Economy” as Europe’s

Social Model?’ EUI Working Paper Law No 2004/8 (2004)

Joerges, Christian ‘What is Left of the European Economic Constitution?’ EUI

Working Paper Law No 13 (2004)

277

L

Lage, Santiago Martinez and Allendesalazar, Rafael ‘Community Policy on

Discriminatory Pricing: A Practitioner's Perspective’ presented at the 2003

Annual EU Competition Law and Policy Workshops - What is an Abuse of a

Dominant Position? (Florence, 2003)

M

Manow, Philip; Schafer, Armin and Zorn, Hendrik ‘European Social Policy

and Europe’s Party-Political Center of Gravity, 1957-2003’ MPIFG Discussion

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Meijer, Gerrit ‘Some Aspects of the Relationship between the Freiburg School

and the Austrian School’ EconPapers (1999)

T

Temple Lang, John ‘Fundamental Issues Concerning Abuse under Article 82’

presented at the Annual Competition Policy Conference, Oxford, 12 July 2005

Themaat, Verloren Van ‘Zusammenschlüsse über die Grenze im Rahmen des

EWG-Bereichs’ presented at the 4th International Conference on European Law

(Rome, 1968)

Conference Reports

IBC conference Report on Advanced EC Competition Law (4-5 May, 2006)

Speeches

K Kroes, Neelie ‘Preliminary Thoughts on Policy Review of Article 82’, 23

September 2005, Fordham Corporate Law Institute New York (speech/05/537)

Kroes, Neelie ‘European Competition Policy in a Changing World and

Globalised Economy: Fundamentals, New Objectives and Challenges Ahead’, 5

June 2007, GCLC/College of Europe Conference on "50 years of EC Competition

Law" Brussels (speech/07/364)

L

Lowe, Philip ‘The Thirteen Annual Conference on International Antitrust and

Policy’, 23 October 2003, Fordham Antitrust Conference in Washington

Lowe, Philip ‘New Challenges in Europe’, 24 June 2005, King’s College London

278

Lowe, Philip ‘Preserving and Promoting Competition: A European Response’,

11 May 2006, ST Gallen Competition Law Forum

Lowe, Philip ‘Consumer Welfare and Efficiency – New Guiding Principles of

Competition Policy?’, 27 March 2007, 13th International Conference on

Competition and 14th European Competition Day

M

Mensching, Juergen ‘Competition Policy: Commercial and Consumer

Paybacks. The European Dimension’, 30 September – 1 October 2003, the

International Institute of Communications 34th annual conference

Monti, Mario ‘The Future for Competition Policy in the European Union’, 9 July

2001, Merchant Taylor's Hall (speech/01/340)

Monti, Mario ‘Competition and the Consumer: What are the Aims of European

Competition Policy?’, 26 February 2002, Madrid Casino de Madrid

(speech/02/79)

Monti, Mario ‘Proactive Competition Policy and the Role of the Consumer’, 29

April 2004, Dublin Castle (speech/04/212)

Monti, Mario ‘Comments to the Speech given by Hew Pate, Assistant Attorney

General, US Department of Justice, at the Conference “Antitrust in a

Transatlantic context”’, 7 June 2004, Brussels

P

Paulis, Emil ‘The Burden of Proof in Article 82 Cases’, 13 September 2006,

Fordham Corporate Law Institute New York

R

Riviere y Marti, Juan Antonio ‘Competition Enforcement and Consumers’ 29

April 2004, Dublin Castle

Rule, Charles F ‘Consumer Welfare, Efficiencies, and Mergers’, 17 November

2005, the hearing of the Antitrust Modernization Commission

V

Van Miert, Karel ‘Competition Policy in the 1990’s’, 11 May 1993, the Royal

Institute of International Affairs

Van Miert, Karel ‘The Future of European Competition Policy’, 17 September

1998 (speech/98/1351)

279

W

Wolf, Dieter ‘Competition Policy in Germany - Experiences and Reform

Tendencies’, 24 November 1997, South Korea

Non-Community Legislation, Guidelines, Court Judgments

and Reports

United States

Continental TV Inc v GTE Sylvania Inc 433 US 36 (1977)

Illinois Brick Co v Illinois 431 US 720 (1977)

United States v Topco Associates Inc 405 US 596 (1972)

Reiter v Sono-tone Corporation 442 US 330 (1979)

Brooke Group Ltd v Brown & Williamson Tobacco Corporation 509 US 209

(1993)

France

Ordinance n° 45-1483 of 1945

Ordinance n° 86-1243 of 1986

Loi n° 2001-420 du 15 mai 2001 relative aux Nouvelles Régulations

Economiques, JO n° 113 du 16 mai 2001 page 7776

French Competition Commission’s decision ‘Avis de la Commission de la

concurrence du 14 mars 1985 sur les super-centrales d'achat’

Germany

The Grundgesetz, promulgated by the Parliamentary Council on 23 May 1949

The Draft of an Act to Protect Competition Based on Performance and an Act

Concerning the Monopoly Office (Bundeswirtschaftsminister publication, Bonn

1949)

Verordnung gegen Missbrauch wirtschaftlicher Machtstellungen,

Reichsgesetzblatt [RGB1.] I, 1067 (2 November 1923)

Gesetz gegen Wettbewerbsbeschränkungen [GWB], 1957 Bundesgesetsblatt

[BGB1.] I 1081 (West Getmany)

6 BVerfGE 32 Elfes (1957)

37 BVerfGE 271 Solange I (1974)

WuW/E BGH 1276 Ölfeldrohre (1973)

WUW/E BGH 1435 Vitamin B12 (1976)




280

WUW/E OLG 1767 Kombinationstarif (1977)

WUW/E OLG 1983 Rama-Mädchen (1978)

73 BVerfGE 339 Solange II (1986)

OECD Reports

OECD Report on Market Power and the Law (1970)

OECD Report on Abuse of Dominance and Monopolisation (1996)

OECD Report on The Objectives of Competition Law and Policy (2003)

OECD Report on The Role of Competition Policy in Regulatory Reform (2004)

OECD Report on Competition on the Merits (2005)

OECD Report on Competition Law and Policy in the European Union (2005)

UNICTAD

UNICTAD, Objectives of Competition Law and Policy: Towards a Coherent

Strategy for Promoting Competition and Development (OECD, 2003)

UNICTAD, Model Law on Competition (United Nations, 2004)

Community Legislation

EC Treaties

Treaty establishing the European Coal and Steal Community (ECSC Treaty)

Treaty establishing the European Community (EC Treaty) consolidated version

[2002] OJ C325/33

The Treaty of Amsterdam OJ [1997] C340/1

Treaty on European Union, consolidated version OJ [2002] C325/5

Treaty establishing a Constitution for Europe OJ [2004] C310/1

EC Directives

EC Directive 2002/21 on a Common Regulatory Framework for Electronic

Communication Service (the Framework Directive)

Council Regulations (chronological)

OJ Special Edition [1962] No 204/62 Council Regulation No 17/62 First

Regulation Implementing Articles 81 and 82 of the Treaty

281

OJ [1999] L336/21 Commission Regulation No 2790/1999 on the Application

of Article 81(3) to Categories of Vertical Agreements and Concerted

Practices

OJ [2003] L1/1 Council Regulation No 1/2003 of 16 December 2002 on the

Implementation of the Rules on Competition Laid Down in Articles 81 and 82

of the Treaty

OJ [2004] L123/11 Commission Regulation No 772/2004 of 27 April 2004 on

the Application of Article 81(3) of the Treaty to Categories of Technology

Transfer Agreements

OJ [2004] L24/1 Council Regulation No 139/2004 on the Control of

Concentrations between Undertakings

Conventions and Agreements

OJ [2000] C364/1 Charter of Fundamental Rights of the European Union

Commission Notices & Guidelines (chronological)

OJ [1997] C372/5 Commission Notice on the Definition of the Relevant

Market for the Purpose of Community Competition Law

OJ [2000] C291/1 Commission Notice Guidelines on Vertical Restraints

OJ [2001] C3/2 Commission Notice Guidelines on the Applicability of Article

81 of the EC Treaty to Horizontal Co-Operation Agreements

OJ [2002] C165/6 Commission Notice Guidelines on Market Analysis and

Assessment of Significant Market Power under the Community Regulatory

Framework for Electronic Communications Networks and Services

OJ [2004] C31/5 Commission Notice Guidelines on the Assessment of

Horizontal Mergers under the Council Regulation on the Control of

Concentrations between Undertakings

OJ [2004] C101/2 Commission Notice Guidelines on the Application of Article

81 of the EC Treaty to Technology Transfer Agreements

OJ [2004] C101/43 Commission Notice on Co-Operation within the Network

of Competition Authorities

OJ [2004] C101/54 Commission Notice on the Co-operation between the

Commission and the Courts of the EU Member States in the Application of

Articles 81 and 82 EC

OJ [2004] C101/65 Commission Notice on the Handling of Complaints by the

Commission under Articles 81 and 82 of the EC Treaty

OJ [2004] C101/78 Commission Notice on Informal Guidance Relating to

Novel Questions Concerning Articles 81 and 82 of the EC Treaty that Arise in

Individual Cases

282

OJ [2004] C101/97 Commission Notice Guidelines on the Application of

Article 81(3) of the EC Treaty

Commission Press Releases & Memos (chronological)

MEMO of 22 July 1999 MEMO/99/42, Fidelity bonuses by dominant

companies are simply not on

Press release of 10 February 2000 IP/00/141, Commission examines the

impact of Windows 2000 on competition

Press release of 3 August 2000 IP/00/906, Commission opens proceedings

against Microsoft's alleged discriminatory licensing and refusal to supply

software information

Press release of 21 December 2001 IP/01/1899, High-speed Internet

Access: Commission Suspects Wanadoo (France) of Abusing its Dominant

Position

Press release of 9 July 2002 IP/02/1016, Commission issues Market Power

Assessment Guidelines for Electronic Communications

Press Release of 16 July 2003 IP/03/1025, High-speed Internet: the

Commission Imposes a Fine on Wanadoo for Abuse of a Dominant Position

Press release of 6 August 2003 IP/03/1150, Commission gives Microsoft Last

Opportunity to Comment before Concluding its Antitrust Probe

Press Release of 24 Marts 2004 IP/04/382, Microsoft

Press Release of 19 December 2005 IP/05/1626, Competition: Commission

Publishes Discussion Paper on Abuse of Dominance

MEMO of 19 December 2005 MEMO/05/486, Commission Discussion Paper

on Abuse of Dominance – Frequently asked Questions

Press Release of 29 March 2006 IP/06/398, Prokent/Tomra

MEMO of 24 March 2004 MEMO/04/70, Microsoft – Questions and Answers

on Commission Decision

Community Reports

Commission General Report on Activities of the European Communities

(1966)

1st Report on Competition Policy (1971)

8ht Report on Competition Policy (1978)

9th Report on Competition Policy (1979)




283




33rd Report on Competition Policy (2003)

Spaak Report – The Brussels Report on the General Common Market (June

1952)

EAGCP Report An economic Approach to Article 82 EC (July, 2005)

Commission Report on the Action Plan for Consumer Policy 1999-2001 and

on the General Framework for Community Activities in Favour of Consumers

1999-2003 COM(2001) 486

European Parliament and Community Documents

Competition Policy within the Framework of the Common Market, European

Parliament Document No 79/107 of 16 June 1965

Commission Memorandum to the Governments of the Member States:

Concentration of Enterprises in the Common Market (December 1965),

[1966] CMLR 26, page 8

Survey, Competition series, No 3, Brussels 1966

Competition Policy Newsletter, No 2 (summer 2006)

Commission of the EEC, Le Probleme De La Concentration Dans Le Marche

Commun No 21 (1966)

Note of 26 October 1956 by Hans Von der Groeber, Council Archives,

CM3/NEGO/217, Document MAE468 f/56

Mémo interne of 7 September 1956 by Alfred Müller-Armack, Council

Archives, CM3/NEGO/236, Document MAE/Sec. 29/56

DG Competition Discussion Paper on the Application of Article 82 of the

Treaty to Exclusionary Abuses (December 2005)

Commission White Paper on Modernisation of the Rules Implementing

Articles 85 and 86 of the EC Treaty OJ [1999] C132/1

The Presidency Conclusions of the Brussels European Council, European

Council Document No 11177/07 of 21-22 June 2007

Cases from European Court of Justice (chronological)

Case 26/62 Van Gend en Loos v Administratie der Belastingen [1963] ECR 1

Case 6/64 Costa Flaminio v ENEL [1964] ECR 585

Case 29/69 Stauder v City of Ulm [1969] ECR 419

Case 11/70 Internationale Handelsgesellschaft mbH v Einfuhr- und

Vorratsstelle für Getreide und Futtermittel [1970] ECR 1125

Case 6/72 Europemballage Corpn and Continental Can Co Inc Continental

Can v Commission [1973] ECR 215

284

Case 4/73 Nold Kohlen v Commission [1974] ECR 491

Case 6/73 Istituto Chemioterapico Italiano SpA and Commercial Solvents

Corp v Commission [1974] ECR 223

Case 40-114/73 Cooperatieve Vereniging ‘Suiker Unie’ UA and Others v

Commission [1975] ECR 1663

Case 26/75 General Motors Continental NV v Commission [1975] ECR 1367

Case 36/75 Rutili v Minister for the Interior [1975] ECR 1219

Case 26/76 Metro SB-Großmärkte GmbH & Co KG v Commission [1977] ECR

1875

Case 27/76 United Brands Co v Commission [1978] ECR 207

Case 85/76 Hoffmann-La Roche & Co AG v Commission [1979] ECR 461

Case 77/77 Benzine en Petroleum Handelsmaatschappij BV v Commission

[1978] ECR 1513

Case 106/77 Amministrazione delle finanze dello Stato v Simmenthal SpA

[1978] ECR 629

Case 22/78 Hugin Kassaregister AB and Hugin Cash Registers Ltd v

Commission [1979] ECR 1869

Case 44/79 Liselotte Hauer v Land Rheinland-Pfalz [1979] ECR 3727

Case 155/79 AM & S Europe Ltd v Commission [1982] ECR 1575

Joined Cases 212/80 to 217/80 Amministrazione delle finanze dello Stato v

Srl Meridionale Industria Salumi and others; Ditta Italo Orlandi & Figlio and

Ditta Vincenzo Divella v Amministrazione delle finanze dello Stato [1981]

ECR 2417

Case 322/81 Nederlandsche Banden-Industrie Michelin NV v Commission

[1983] ECR 3461

Case 7/82 GVL v Commission [1983] ECR 483

Case 240/83 Procureur de la République v Association de défense des

brûleurs d'huiles usagées (ADBHU) [1985] ECR 531

Case 294/83 Parti écologiste ‘Les Verts’ v European Parliament [1986] ECR

1339

Cases 209/84 to 213/84 Ministère public v Asjes and Others (Nouvelles

Frontières)

Case 311/84 Centre Belger d’Etudes de Marche Telemarketing v CLT and IPB

[1985] ECR 3261

Case 62/86 AKZO Chemie BV v Commission [1991] ECR-I 3359

Case 66/86 Ahmed Saeed Flugreisen and Silver Line Reisebüro [1989] ECR

803

Case 53/87 Consorzio italiano della componentistica di ricambio per

autoveicoli and Maxicar v Régie nationale des usines Renault [1988] ECR

6039

Case 238/87 AB Volvo v Erik Veng (UK) Ltd [1988] ECR 6211

Case C-213/89 The Queen v Secretary of State for Transport, ex parte:

Factortame Ltd and others [1990] ECR I-2433

285

Case C-234/89 Stergios Delimitis v Henninger Bräu AG [1991] ECR I-935

Case C-241-242/91P Radio Telefis Eireann (RTE) and Independent Television

Publications Ltd v Commission [1995] ECR I-743

Case C-53/92 Hilti AG v Commission [1994] ECR I-667

Joined Cases C-319/93, C-40/94 and C-224/94 Hendrik Evert Dijkstra v

Friesland (Frico Domo) Coöperatie BA and Cornelis van Roessel and others v

De coöperatieve vereniging Zuivelcoöperatie Campina Melkunie VA and

Willem de Bie and others v De Coöperatieve Zuivelcoöperatie Campina

Melkunie BA [1995] ECR I-4471

Case C-333/94P Tetra Pak v Commission [1996] ECR I-5951

Case C-299/95 Friedrich Kremzow v Republik Österreich [1997] ECR I-2629

Case C-395-396/96P Compagnie Maritime Belge Transport v Commission

[2000] ECR 1365

Case C-7/97 Oscar Bronner GmbH & Co KG v Mediaprint Zeitungs- und

Zeitschriftenverlag GmbH & Co KG [1998] ECR I-7791

Joined Cases C-147-148/97 Deutsche Post AG v Gesellschaft für

Zahlungssysteme mbH and Citicorp Kartenservice GmbH [2000] ECR I-825

Case C-163/99 Portuguese Republic v Commission [2001] ECR I-2613

Case C-418/01 NDC Health Corp and NDC Health GmbH & Co KG v IMS

Health Inc[2002] ECR I-3401

Case C-189/02 Dansk Roerindustri A/S and Others v Commission [2005]

ECR I-5425

Case C-540/03 European Parliament v Council of the European Union [2006]

ECR I-5769

Case C-501/06 GlaxoSmithKline v Commission

Case C-513/06 Commission v GlaxoSmithKline

Case C-515/06 European Association of Euro Pharmaceutical Companies

Case C-519/06 Asociación de exportadores españoles de productos

farmacéuticos

Case C-202/07P France Télécom SA v Commission

Advocate Generals Opinions (chronological)

Opinion of Advocate General Roemer in Case 6/72 Continental Can delivered

on 21 November 1972

Opinion of Advocate General Warner in Case 7/76 Amministrazione delle

finanze dello Stato delivered on 22 June 1976

Opinion of Advocate General Reischl in Case 85/76 Hoffmann-La Roche

delivered on 19 September 1978

Opinion of Advocate General Van Gerven in Case C-18/93 Corsica Ferries

delivered on 9 February 1994

286

Opinion of Advocate General Jacobs in Case C-97/7 Oscar Bronner delivered

on 28 May 1998

Opinion of Advocate General Fennelly in Joined Cases C-395-396/96

Compagnie Maritime Belge Transport delivered on 29 October 1998

Opinion of Advocate General Tizzano in Case C-418/01 IMS Health delivered

on 2 October 2003

Opinion of Advocate General Jacobs in Case C-53/03 Synetairismos

Farmakopoion Aitolias & Akarnanias (Syfait) and others v GlaxoSmithKline

AEVE delivered on 28 October 2004

Opinion of Advocate General Kokott in Case T-95/04P British Airways plc

delivered on 23 February 2006

Cases from the European Court of First Instance

(chronological)

Case T-30/89 Hilti AG v Commission [1991] ECR I-1439

Case T-65/89 BPB Industries and British Gypsum Ltd v Commission [1993]

ECR II-389

Case T-76/89 Independent Television Publications Ltd v Commission [1991]

ECR II-575

Case T-83/91 Tetra Pak International Sa v Commission [1994] ECR II-755

Joined Cases T-24-26 and 28/93 Compagnie Maritime Belge Transports NV v

Commission [1996] ECR II-1201

Case T-111/96 ITT Promedia NV v Commission [1998] ECR II-2937

Case T-228/97 Irish Sugar plc v Commission [1999] ECR II-2969

Case T-65/98 Van den Bergh Foods Ltd v Commission [1998] ECR II-2641

Joined Cases T-191/98 and T-212/98 to 214/98 Atlantic Container Line AB

and others v Commission (TACA) [2003] ECR II-3275

Case T-219/99 British Airways plc v commission [2003] ECR II-5917

Case T-168/01 GlaxoSmithKline Service Unlimited v Commission

Case T-203/01 Manufacture française des pneumatiques Michelin v

Commission ECR II-4071

Case T-209/01 Honeywell International INC v Commission

Case T-210/01 General Electric v Commission [2005] ECR II-5575

Case T-340/03 France Télécom SA v Commission

Case T-328/03 O2 (Germany) GmbH & Co OHG v Commission [2006] ECR

II-1231

Case T-201/04 Microsoft Corporation v Commission

Case T-155/06 Tomra Systems ASA and others v Commission

287

Community Commission Decisions (chronological)

GEMA, OJ [1971] L134/15

Continental Can, OJ [1972] L7/25

General Motors Continental NV, OJ [1975] L29/14

Kabel unde Metallwerke Neumeyer AG and Establissements Luchaire SA

Agreement, OJ [1975] L222/34

Vitamins, OJ [1976] L223/25

Bandengroothandel Frieschebrug BV/NV Nederlansche Banden-Industrie-

Michelin, OJ [1981] L353/33

ECS/AKZO, OJ [1985] L374/1

Eurofix-Bauco/Hilti, OJ [1988] L65/19

Decca Navigator system, OJ [1989] L43/27

Magill TV Guide/ITP, BBC and RTE, OJ [1989] L78/43

Soda-Ash-Solvay, OJ [1991] L152/21

British Midland v Aer Lingus, OJ [1992] L96/34

Irish Sugar PLC, OJ [1997] L258/1

Alpha Flight Service/Aeroports de Paris, OJ [1998] L230/10

Virgin/British Airways, OJ [2000] L30/1

1998 Football World Cup, OJ [2000] L5/55

AOL/Time Warner, OJ [2001] L268/28

Deutsche Post AG, OJ [2001] L331/40

Manufacture française des pneumatiques Michelin, OJ [2002] L143/1

Prokent/Tomra, COMP/38.113

Microsoft, COMP/C-3/37.792

Newspaper Articles and other Materials (chronological)

The Times, Continental Can wins European Court Appeal against the

Commission, 22 February 1973

Wall Street Journal, Attorney General William Baxter, Antitrust Division at

the US DOJ, 4 March 1982

Martinsen, Dorte Sindbjerg European Institutionalisation of Social Security

Rights: A Two-layered Process of Integration (European University Institute,

Florence, PhD Thesis, 2004)

Microsoft Says Proposed Settlement Would Have Been Better for European

Consumers, Microsoft press release of 24 March 2004

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