Advocate General Rantos’ Opinion In Autoridade Da Concorrência and ECP (Case C-331/21) On The Notion Of Potential Competition And The Distinction Between Restrictions “By Object” And “By Effect”

By Xavier Quer Zamora on April 14, 2023

On March 2, 2023, Advocate General Rantos delivered his opinion on the questions referred to the Court of Justice by the Lisbon Court of Appeals (referring court) in Autoridade da Concorrência and EDP.[1] The referring court seeks clarification on whether an association agreement between undertakings operating in different product markets can constitute an agreement with an anticompetitive object for the purposes of Article 101 TFEU,[2] and subject to what conditions.

The case gives the Court of Justice the opportunity to address the circumstances under which two undertakings can be considered potential competitors, including in light of its recent judgment in Generics (UK).[3] The case should also provide further clarity on whether proof of anticompetitive effects is needed for a non-compete agreement between potential competitors to qualify as an infringement. On these points, Advocate GeneralRantos advised the Court of Justice to rule that the standard to establish “potential competition” is not heightened where undertakings operate in separate product markets, and that the non-compete agreement at issue should be regarded as an infringement “by object.”

Background

The gradual liberalization of the market for the supply of electricity in Portugal was set to conclude from July 2012 to January 2013, with the expiry of regulated tariffs for the supply of low-voltage electricity to end consumers (small businesses and households).[4] In this context, in January 2012, Energias de Portugal SA(“EDP”), the former statutory monopolist and largest player in the markets for the production, distribution and supply of electricity, entered into an association agreement withMCH, a large food retailer part of the Sonae group. The agreement would enable MCH’s customers with a loyalty card to benefit from a 10% reduction on their consumption of EDP-supplied electricity. Importantly, the association agreement between EDP and MCH contained an “exclusivity” clause that prevented MCH and any other Sonae companies from engaging in the supply of electricity and gas in Portugal until December 31, 2013.[5]

In May 2017, acting on an alert from the Ministry of the Economy, the Portuguese Competition Authority (Autoridade da Concorrência, “AdC”) imposed fines totalling €38 million on EDP and MCH. It alleged the parties had entered into a market-sharing agreement by way of the non-compete clause in the association agreement – which the AdC characterized as an infringement by object of Article 101 TFEU. The AdC held that the implementation of the agreement in the midst of the liberalization of the market for the supply of electricity strengthened the anticompetitive nature of the agreement.

The fines were reduced on appeal in first instance, but both EDP and the AdC appealed the ruling before the referring court, which submitted eleven questions to the Court of Justice. In his opinion, Advocate GeneralRantos grouped the questions around the following four issues.

Clarification of the notion of “potential competition” between undertakings present on different product markets for the purposes of Article 101 TFEU

By its third to seventh and ninth questions, the referring court asks what evidence is relevant in establishing whether MCH and EDP were potential competitors on the market for the supply of electricity.[6] Advocate GeneralRantos observed that, in so doing, the referring court seeks to ascertain the scope of Generics (UK), and whether the evidence examined in that case should be taken as a general criterion in assessing the existence of potential competition.[7]

Advocate GeneralRantos confirms the relevance of the recent case law related to “pay-for-delay” agreements in the pharmaceutical sector,[8] but argues that the standard of proof required to demonstrate a potential competitive relationship between undertakings operating in different product markets is the existence of “real and concrete possibilities” of market entry,[9] a standard already defined by the case-law,[10] to be established by reference to factual evidence or an analysis of the structures of the relevant market. Accordingly, Advocate GeneralRantos rejects EDP’s submission that the Court of Justice departed in Generics (UK) from its previous case-law by raising the applicable legal test in establishing potential competition,[11] and defining three cumulative evidentiary conditions to that end, namely that: “(i) the undertaking concerned must have a real and concrete possibility of entering the market concerned; (ii) it must have the firm intention and the inherent ability to enter that market; and (iii) it must have taken sufficient preparatory steps to enter that market within a short period of time.[12] Rather, the Advocate Generalconsiders that, in Generics (UK), these elements were simply part of the Court of Justice’s assessment, in view of the particular attributes of the pharmaceutical market.[13] As such, they can provide useful guidance as to the various items of evidence that may establish a situation of potential competition, but cannot be characterized as “conditions” required to establish the existence of “potential competition.”[14]

As regards the specific questions from the referring court, the Advocate Generaladvised the Court of Justice to rule that, inter alia, the following factors might be relevantto establish the competitive relationship between two undertakings in different product markets:

an undertaking’s intention to enter a market, as evidence of its ability to effectively enter that market;[15]
the preparatory steps taken to enter a market, particularly regarding any constraints to start operating in a given market, which may reveal the ability of the undertaking to enter the market within a given timeframe (in this case, corresponding to the duration of the non-compete clause);[16]
the perception of the undertaking present on the other relevant market, supported by other factors relating to the reality of the market;[17]
any activities of other undertakings in the same group on adjacent product and geographic markets outside of the scope of the non-compete clause;[18]
the activities of the parties in the market object of the non-compete clause, insofar as such activities may confer an advantage to the undertaking in entering that market. Specifically, Advocate GeneralRantos found that undertakings present in the value chain are “often potential operators which are in a good position to enter a new market, including in the electricity and gas sector, in particular where those markets are vertically integrated.”[19]

On the legal characterization of the association agreement and the existence of an ancillary restriction

The eleventh question referred to the Court of Justice asks whether the association agreement should be characterized as an “agency agreement” or, failing that, a “vertical” agreement within the meaning of Article 1(a) of the Vertical Block Exemption Regulation (“VBER”).[20] The Advocate General views the objectives and attributes of the association agreement as different from those of an agency or vertical agreement, mainly because MCH and EDP act at the same level of the production chain because they both supply end-consumers.[21]

The Advocate General instead considers that the relevant question as to the anticompetitive nature of the agreement in this case is not the categorization of the overall agreement but rather whether the non-compete clause is ancillary in nature.[22] In that regard, Advocate General Rantos finds that the file does not reveal that the non-compete clause was “objectively necessary” for the implementation of the agreement and “proportionate” to the stated ends of protecting commercially sensitive information, as adduced by EDP.[23]

On the existence of a restriction of competition “by object”

Finally, the Advocate General addressed the referring court’s remaining questions, which concerned whether a non-compete clause preventing the entry of another party into the market, where one of the parties is a major player, can be regarded as a restriction “by object.”[24] His opinion recalls that, in order to determine whether an agreement can be considered anticompetitive “by object,” regard must be had to the content and objectives of the provision, and the legal and economic context of which it forms part.[25]

On this basis, in so far as it is not considered ancillary to the agreement, Advocate General Rantos invites the Court of Justice to rule that the non-compete clause ought to be characterized as a market sharing agreement, constituting a “by object” infringement of Article 101(1) TFEU.[26] Notably, the Advocate General considers that the application of the clause in the specific context of the liberalization of the market for the supply of electricity in Portugal would further reinforce the anticompetitive nature of the clause, and that while any procompetitive effects should be taken into account in characterizing the agreement as a restriction “by object,” to the extent that the clause is not deemed ancillary to the association agreement, no consumer benefits can be attributed to the non-compete clause alone and cannot therefore be relied on as a justification.[27]

Conclusion

Advocate General Rantos’ opinion brings welcome clarification on the relevance and applicability of the case-law in “pay-for-delay” cases to the assessment of “potential competition” between undertakings outside of the pharmaceutical sector. However, this necessarily limits the certainty brought by the developments of the test in those cases. The opinion also highlights the importance of the legal and economic context of relevant markets in assessing the anticompetitive nature of a given conduct, particularly in recently liberalized sectors. It remains to be seen whether and to what extent the Court of Justice will endorse the opinion.

[1] Autoridade da Concorrência, EDP – Energias de Portugal SA, EDP Comercial – Comercialização de Energia SA, Sonae MC SGPS SA, formerly Sonae Investimentos and Sonae MC – Modelo Continente SGPS, Modelo Continente Hipermercados AS, other party: Ministério Público (“Autoridade da Concorrência and EDP Opinion”) (Case C‑331/21), opinion of Advocate General Rantos, EU:C:2023:153.

[2] Treaty on the Functioning of the European Union, OJ 2012 C 326.

[3] Generics (UK) and Others (Case C‑307/18) EU:C:2020:52. In that judgment, the Court of Justice found a manufacturer of originator medicines holding a disputed patent for an active ingredient in the public domain, and a manufacturer of generic medicines preparing its entry into the market for the medicine containing said active ingredient, to be potential competitors where it is established that the manufacturer of generic medicines has a firm intention and the inherent ability to enter the market, and that the market does not present insurmountable barriers to entry.

[4] Since 1995, the regulatory framework applicable to the marketing of electricity in Portugal simplified the legal requirements to access and operate in the market for the supply of electricity to favor the entry of independent operators. As of 2006, consumers were allowed to choose between providers operating in the regulated market and in the liberalized market, and in January 2011, regulated tariffs for the supply of very high, high and medium voltage electricity to end consumers expired. The expiry of regulated tariffs for the supply of low voltage electricity to end consumers took place between July 2012 and January 2013, leading up to the conclusion of the liberalization in 2013.

[5] The clause also prevented EDP from concluding partnerships with other energy suppliers in Portugal, and contained corresponding obligations for EDP in the food retail market (the “non-compete clause”).

[6] Autoridade da Concorrência and EDP Opinion, paras. 35-36.

[7] Ibid., para. 37.

[8] Ibid., paras. 49-51.

[9] Ibid., para. 53.

[10] See, e.g., Lundbeck v Commission (Case C‑591/16 P) EU:C:2021:243, para. 54 and case-law cited.

[11] Autoridade da Concorrência and EDP Opinion, para. 52.

[12] Ibid., para. 41.

[13] Ibid., paras. 54-55.

[14] Ibid., paras. 55-56.

[15] Ibid., paras. 63-66.

[16] Ibid., paras. 67-70.

[17] Ibid., paras. 71-74.

[18] Ibid., paras. 75-80.

[19] Ibid., paras. 83-85.

[20] Commission Regulation (EU) No 330/2010, on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ 2010 L 102, pp. 1-7.

[21] Autoridade da Concorrência and EDP Opinion, paras. 91-99.

[22] Ibid., para. 98.

[23] Ibid., paras. 107-113.

[24] Ibid., paras. 107-113.

[25] Ibid., para. 116.

[26] Ibid., para. 117.

[27] Ibid., paras. 118-119.