The European Union Competition Law

Introduction

The European Union competition law only applies to ‘undertakings’. In Article 101, 102 (ex Article 82 EC) and 106(ex Article 86 EC) of the TFEU there was no specific definition of undertakings, this lead to a question relating to the scope of competition law, that is, deciding what particular activities are regulated by the rules on competition.

The European Courts have struggled in deciding whether or not an entity is an undertaking this also leads to the inability to decide whether or not there is a competition issue to discuss in a particular case. For example; how far should an agreement relating to healthcare, welfare benefits, regulation of professions and their regulation of sport be subject to the rules on competition law and how far should they be decided on other grounds?

The theory of undertakings

The basic definition of undertakings was given by the European Court of Justice (ECJ) in the Hofner case which states that:

‘In the context of competition law…..the concept of undertakings encompasses every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed. [1]

In the case of Pavlov and others, it was stated that: ‘any activity consisting in offering goods and services on a given market is an economic activity [2] ’

In the definition stated in the Hofner case, the first point that could be noted is that the legal status of the entity is not relevant. Hence individuals may be undertakings, [3] as partnerships, cooperatives and other forms of private sector business organisations. The entity does not have be profit making or be part of the private sector. Although entities which are part of the state may be undertakings provided that they engage in economic activities. [4] What is also clear about the case law is that an entity need not be an undertaking for all its activities; it may be subject to competition law in relation to some of its activities but not in relation to others which is typically an issue in relation to public sector organizations but may be difficult to decide e.g. Eurocontrol. Therefore the vital issue is whether or not an entity is engaged in an economic activity. Economic activity would appear to mean engaging in transactions on a market, that is, buying and selling of goods and services, where the price is determined by the market. [5] It should be noted that simply paying money is not an indication of a market transaction. Public bodies usually finance their activities by levying charges on the consumer of their goods or services. A charge for a licence or planning permission is determined by the public authority, on a range of probable bases but it is not determined by demand or supply.

The exercise of public powers or an official authority

There is a general principle which states that the competition rules are not related to activities in the use of official authority, whether or not these are carried out by public bodies. Such activity is:

‘’a task in the public interest which forms part of the essential functions of the state’ and whether that activity is concerned by its nature, its aim and the rules to which it is subject with the exercise of powers which are typically those of a public authority’ [6]

The principle above can be illustrated by two cases SAT v Eurocontrol and the Diego Cali case. In the Sat v Eurocontrol [7] case, Eurocontrol an international organisation was accountable for air traffic control in Northern Europe and levied route charges on its users. SAT challenged the scale of those route charges under Article 102 TFEU and the matter arose as to whether or not Eurocontrol was an undertaking. The ECJ held that Eurocontrol’s services were linked to the exercise of powers in relation to the control and supervision of airspace which were naturally those of a public authority and were not of an economic nature justifying control by competition law. [8] In the Diego Cali [9] case, a private limited company SPEG conducted antipollution surveillance activities for which it charged users of the port. The charges levied by it were challenged by one of the users as an abuse of a dominant position. The ECJ decided that the tasks that SPEG was liable for were tasks of the public interests which created one of the important functions of the state. The Advocate General had a view that such surveillance activities could not be undertaken by private companies on a market basis.

Health and Social services

The number of cases arising in the area of social security schemes, and the provision of health care and associated activities has been considered to be more problematic.

In relation to these categories, the courts have developed the notion of ‘solidarity’ in order to indicate what sort of operations should be excluded from the rules on competition.

In the case of Poucet and Pistre [10] , two people challenged the requirement to make compulsory payments to a sickness and maternity scheme and the old age pension scheme. The issue in this case was whether or not these schemes were undertakings (whether they engaged in economic activity). The ECJ held that they were not as they fulfilled an exclusively social function and were based on the principle of solidarity. The indicators of solidarity were that in the sickness and maternity scheme, the scheme was financed by contributions relative to the income of the persons making them, and there was some condition for exemption of payments while the benefits were identical to all those who received them, which also shows that there was an aspect of redistribution in the scheme. In the old age scheme, the indicators of solidarity were that contributions paid by active workers financed the pension of retired workers. Those social security schemes with a surplus contributed to financing those with structural financial difficulties. This can be contrasted with FFSA [11] case which involved a challenge by insurance companies to the working of an optional insurance for farmers. The ECJ held that there was an undertaking. The schemes was firstly financed on the basis of capitalisation, that is, the payments made were collected together, capitalized and invested in the financial products and consequently the amounts of benefits paid out depended on both the contributions which were made and the success or failure of the investment. The fund thus carried out an economic activity in competition with life assurance companies. Secondly though there were elements of solidarity and social purpose in this fund they were limited and did not prevent the fund from being an undertaking for the purpose of Article 101 TFEU.

The Albany case [12] makes it easier to identify whether an activity is performed out of solidarity or not. In this case, the ECJ noted that any act (in this case fund) done on the basis of capitalisation is an undertaking and as a result the benefits depended on the financial results of investments. In the Bettercare case [13] , the appellants provided nursing home and residential care under contract to the North and West Belfast Health and Social Service Trust and the Trust also provided its own residential care through directly owned care homes. The Appellant complained to the activity being done as an undertaking and it being in breach of chapter II prohibition in the competition Act 1998. The CAT held that the Trust was an undertaking because it was engaged in what could be regarded as economic activity in the market. Although, the OFT then remunerated the idea of competition law being in place to prevent abuse of market power and even though the Trust was involved in economic activity it did not abuse its powers to do so, hence the OFT did not find the Trust as an undertaking.

Conclusion

In conclusion, we can only decide using the facts of a case at hand whether something is an undertaking or not. The basic test is to discover whether or not an entity is engaged in an economic activity and in many instances, the answer will be clear-cut but the difficulty arises in a case where the provision for public services is done using the mixture of private (capitalist) and public (society first) sector techniques, thus not falling clearly within the scope of an official authority. The question to ask is whether or not an activity is dominated by concerns of solidarity, and solidarity only is the main barrier that indicates to the European courts what is an undertaking and what a public power is. For example, if the schemes with a surplus transfer the resources to other schemes with a deficit, this is an indicator of solidarity.