European Law Report - Production-restricting deals
The European Court of Justice (ECJ) recently declared in a preliminary ruling that it is illegal under EU competition law for competitors to form agreements that restrict the production of food products. The preliminary ruling was given further to a...
The European Court of Justice (ECJ) recently declared in a preliminary ruling that it is illegal under EU competition law for competitors to form agreements that restrict the production of food products.
The preliminary ruling was given further to a referral made to the ECJ by the Irish Supreme Court before which was pending a case instituted by the the Irish Competition Authority against the Beef Industry Development Society.
The market situation in beef production was afflicted by oversupply which meant that there was no market for all the processed beef that the processors could have been producing. For this reason, the Society devised a scheme intended to streamline the Irish beef processing industry in view of the substantial overcapacity in the sector. The Society proposed that the number of processors be cut down, with the result that some processors had to leave the market.
In addition, a rationalisation plan was drawn up to reduce annual capacity by 25 per cent of throughput in a bid to curb overproduction by processors.
The Irish Competition Authority challenged the scheme introduced by the Society and made an application to the Irish High Court, which dismissed its application. The Irish Competition Authority appealed this decision to the Irish Supreme Court which in turn referred the matter to the ECJ.
The latter was called upon to decide on the legality of the scheme adopted by the Society and whether agreements with features such as those of the scheme were to be regarded, by reason of their object alone, as being anti-competitive or whether, on the other hand, it was necessary, in order to reach such a conclusion, first to demonstrate that such agreements had anti-competitive effects.
In its ruling, the European Court judged the scheme as amounting to a restrictive business practice which infringed the European competition rules enshrined in the EU Treaty. The Court went on to consider whether the scheme constituted an infringement by object or an infringement by effect.
The Court found that the scheme was anti-competitive in its object since its purpose was to restrict competition on the market and so, by its very nature, the scheme was injurious to the proper functioning of normal competition.
Therefore an assessment of the scheme's actual effects was not needed in order to hold the scheme incompatible with EU competition rules once it appeared that its object was to prevent, restrict or distort competition within the common market.
The Society argued that the scheme had the object of remedying the effects of a crisis in their sector. In dismissing this argument, the ECJ held that an agreement might be regarded as having a restrictive object even if it did not have the restriction of competition as its sole aim but also pursued other legitimate objectives.
The ECJ ruling is important because it confirms that agreements between competitors to restrict capacity or production are hardcore restrictions of competition which very often harm consumers.
Dr Grech is an associate with Guido de Marco & Associates and heads its European law division.
The preliminary ruling was given further to a referral made to the ECJ by the Irish Supreme Court before which was pending a case instituted by the the Irish Competition Authority against the Beef Industry Development Society.
The market situation in beef production was afflicted by oversupply which meant that there was no market for all the processed beef that the processors could have been producing. For this reason, the Society devised a scheme intended to streamline the Irish beef processing industry in view of the substantial overcapacity in the sector. The Society proposed that the number of processors be cut down, with the result that some processors had to leave the market.
In addition, a rationalisation plan was drawn up to reduce annual capacity by 25 per cent of throughput in a bid to curb overproduction by processors.
The Irish Competition Authority challenged the scheme introduced by the Society and made an application to the Irish High Court, which dismissed its application. The Irish Competition Authority appealed this decision to the Irish Supreme Court which in turn referred the matter to the ECJ.
The latter was called upon to decide on the legality of the scheme adopted by the Society and whether agreements with features such as those of the scheme were to be regarded, by reason of their object alone, as being anti-competitive or whether, on the other hand, it was necessary, in order to reach such a conclusion, first to demonstrate that such agreements had anti-competitive effects.
In its ruling, the European Court judged the scheme as amounting to a restrictive business practice which infringed the European competition rules enshrined in the EU Treaty. The Court went on to consider whether the scheme constituted an infringement by object or an infringement by effect.
The Court found that the scheme was anti-competitive in its object since its purpose was to restrict competition on the market and so, by its very nature, the scheme was injurious to the proper functioning of normal competition.
Therefore an assessment of the scheme's actual effects was not needed in order to hold the scheme incompatible with EU competition rules once it appeared that its object was to prevent, restrict or distort competition within the common market.
The Society argued that the scheme had the object of remedying the effects of a crisis in their sector. In dismissing this argument, the ECJ held that an agreement might be regarded as having a restrictive object even if it did not have the restriction of competition as its sole aim but also pursued other legitimate objectives.
The ECJ ruling is important because it confirms that agreements between competitors to restrict capacity or production are hardcore restrictions of competition which very often harm consumers.
Dr Grech is an associate with Guido de Marco & Associates and heads its European law division.