On December 5, 2024, the Court of Justice delivered a preliminary ruling in a case involving KIA Auto and its parent company Tallinna Kaubamaja Grupp on the required standard of proof to demonstrate restrictions by effect under Article 101(1) TFEU.[1]
The Court of Justice found that, to characterize a practice as a restriction of competition by effect, national competition authorities do not necessarily have to demonstrate the existence of specific and actual effects on competition. In line with existing case law, including Article 102 TFEU, the Court of Justice confirmed that it is sufficient for competition authorities to demonstrate the existence of potential anticompetitive effects, provided that they are sufficiently appreciable.[2]
Background
The case concerned a vertical agreement between KIA Auto, the sole authorized importer of KIA cars in Latvia, and its authorized dealers and repairers (the “authorized representatives”). For the warranty to remain valid, KIA Auto and its authorized representatives imposed conditions that required KIA car owners to have (i) all routine maintenance planned by KIA; (ii) repairs not covered by the warranty performed by authorized representatives; and (iii) only original KIA spare parts used for any repairs and replacements.[3]
On August 7, 2014, the Latvian Competition Council found that this conduct constituted a restriction of competition by effect on the relevant markets[4] and imposed a fine of €134,514.43 on KIA Auto and its parent company Tallinna Kaubamaja Grupp (together the “KIA companies”).[5]
The KIA companies contested the decision before the Regional Administrative Court of Latvia. They argued that KIA cars could be serviced at non-KIA service centers and would only later need to be inspected, free of charge, at an authorized representative to maintain the validity of the warranty. On March 10, 2017, the Regional Administrative Court dismissed the action, confirming the Latvian Competition Council’s decision.[6]
The KIA companies appealed the judgment and on December 22, 2021, the Latvian Supreme Court found that the Regional Administrative Court erred in its assessment by relying on inaccurate criteria to determine whether the Latvian Competition Council had rightly concluded to the existence of a restriction of competition by effect. The Supreme Court remanded the case back to the Regional Administrative Court for reconsideration.[7]
On remand, the Regional Administrative Court deemed the Supreme Court’s ruling to be inconsistent with the case law of the European courts. In particular, the Regional Administrative Court noted that in the Google Shopping case (which concerned an Article 102 TFEU infringement), the General Court found that the European Commission was only required to demonstrate potential adverse effects on competition, without having to show that these effects had actually materialized.[8] In light of this, the Regional Administrative Court decided to stay the proceedings and referred two questions to the Court of Justice for a preliminary ruling.
The Court of Justice’s judgment
The questions referred to the Court of Justice sought clarification on (i) whether the Latvian Competition Authority must prove “actual and real restrictive effects on competition” to find that a practice infringes Article 101(1) TFEU, and (ii) whether the sole existence of potential restrictive effects on competition suffices for such a finding.[9]
The Court of Justice first referred back to the wording of Article 101 which distinguishes between anticompetitive ‘‘object’’ and ‘‘effect’’. The Court of Justice ruled that, in evaluating whether the agreement restricted competition ‘‘by effect’’, the Latvian Competition Council did not have to prove specific and actual anticompetitive effects, finding that it was sufficient to show the potential for such effects, provided that they are sufficiently appreciable.
The Court of Justice first reiterated that to conclude on the existence of anticompetitive effects, it is essential for competition authorities to conduct a counterfactual assessment. This counterfactual assessment requires competition authorities to adopt a “realistic and credible” approach, to take into account the legal and economic context in which the agreement is situated, and determine how the market and its players would operate, and be structured, in the absence of the agreement in question.[10]
The Court of Justice then found, however, that conducting this counterfactual assessment does not prevent competition authorities from considering the purely potential effects of an agreement when determining whether it restricts competition by effect, as long as these effects are “sufficiently appreciable”, in line with previous case law.[11]
The Court of Justice concluded that potential effects suffice to meet the standard of proof under Article 101(1) TFEU, highlighting that such an interpretation “corresponds to that of Article 102 TFEU” and is in line with other past cases.[12]
Key takeaways and implications
Interestingly, the Court of Justice’s judgment did not examine the circumstances under which selective distribution agreements in aftermarkets, specifically related to warranty terms, can result in a “by effect” infringement of competition. In particular, it did not address the application of the Vertical Block Exemption Regulation (“VBER”)[13] or the Motor Vehicle Block Exemption Regulation (“MVBER”),[14] nor did it assess their potential compatibility with Article 101 TFEU in specific circumstances.[15]
The Court of Justice focused its assessment on the legal principle by focusing on the required standard of proof, and in that regard provided important clarifications to the interpretation of what constitutes restrictions of competition by effect under Article 101(1) TFEU. Although the case concerned a vertical agreement between undertakings in relation to warranty conditions imposed on car owners, the same reasoning can be applied mutatis mutandis to any agreements or concerted practices between undertakings.
This conclusion is particularly important in two aspects:
- Timely intervention. In the event that the Court of Justice had required evidence of actual and real anticompetitive effects to find an infringement of Article 101(1) TFEU, competition authorities would be unable to intervene and conclude to the existence of anticompetitive practices until such effects were fully materialized (which in some cases, could be irreversible).
- Convergence with legal standard for Article 102 TFEU. The Court of Justice’s ruling aligns the standard of proof under Articles 101 and 102 TFEU. For both types of infringements, while the standard of proof remains high since the regulator must conduct a realistic assessment of the factual background and the relevant market, it is sufficient to demonstrate potential anticompetitive effects, capable of potentially excluding equally efficient competitors.[16] This is a welcome clarification for the purposes of legal certainty, considering that Article 102 TFEU, contrary to Article 101 TFEU, does not contain the notion of “by object” or “by effect” restrictions; it is now clear that this notion is to be interpreted in the same way under both provisions.
[1] Tallinna Kaubamaja Grupp and KIA Auto (Case C-606/23) EU:C:2024:1004 (“KIA Judgment”), available here.
[2] Ibid., para. 37.
[3] Ibid., para. 6.
[4] The Latvian Competition Council found that this conduct impeded competition on two grounds: first, by limiting access to independent repair services in the Latvian market, and second, by limiting access to independent producers of spare parts.
[5] KIA Judgment, para. 5.
[6] Ibid., para. 9.
[7] Ibid., paras. 10 and 11.
[8] Google and Alphabet v Commission (Google Shopping) (Case T‑612/17) EU:T:2021:763, paras. 377 and 378 and also Google Shopping (Case C‑48/22) EU:C:2024:726, paras. 165 and 167.
[9] KIA Judgment, para. 14.
[10] Ibid., paras. 29–31.
[11] Ibid., para. 32. See also Commission v Servier and Others (Case C‑176/19 P) EU:C:2024:549, paras. 345–353.
[12] In particular, Post Danmark v Danish Competition Authority (Case C‑23/14) EU:C:2015:651, paras. 65–66. See also Cleary EU Competition Quarterly Report, October–December 2015, available here. See KIA Judgment, paras. 35 and 36.
[13] See Commission Regulation (EU) 2022/720 of May 10, 2022 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, available here.
[14] See Commission Regulation (EU) No 461/2010 of May 27, 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 in the motor vehicle sector, available here.
[15] See Supplementary guidelines on vertical restraints in agreements for the sale and repair of motor vehicles and for the distribution of spare parts for motor vehicles, available here, para. 69.
[16] Post Danmark v Danish Competition Authority (Case C‑23/14) EU:C:2015:651, paras. 65–66. See also TeliaSonera Sverige (Case C‑52/09) EU:C:2011:83, para. 64.