Anticompetitive conduct can be both a by-object and by-effect infringement under EU competition law, the European Court of Justice has ruled.
The ECJ today issued a preliminary reference ruling, finding that EU rules against anticompetitive agreements must be interpreted as meaning that certain conduct can be considered to have both the purpose and the effect of restricting competition.
The court was responding to questions from Hungary’s Supreme Court regarding an appeal against the national competition authority’s decision that an alleged interchange fee cartel infringed EU law by-object and by-effect.
However, the ECJ left it to the Supreme Court to determine if the cartel constituted a by-object effect.
In 2009, Hungary’s Competition Authority fined seven national banks and card providers Visa and Mastercard over €7 million for engaging in a cartel. The authority found that the banks agreed to an interchange fee cap on Mastercard and Visa transactions, with the credit card companies assenting to the agreement though they were not present at the meeting.
The enforcer said the cartel constituted a by-object and by-effect infringement of EU competition law.
The seven banks – OTP Bank, Budapest Bank, MKB Bank, CIB Bank, Erste Bank, K&H Bank and ING Bank – received combined fines of 968 million forints (€3.5 million), while Visa and Mastercard were each fined 477 million forints (€1.75 million).
All companies’ – apart from CIB Bank – appealed the decision, which reached Hungary’s Supreme Court in 2018. The court requested a preliminary reference from the ECJ on whether the enforcer had erred in finding the infringement constituted both a by-object and by-effect infringement of Article 101 of the Treaty on the Functioning of the European Union.
In addition, the court asked if the alleged cartel was a by-object infringement and if it is necessary to differentiate between the companies that participated in the agreement and the companies that facilitated the agreement.
The court also questioned whether Visa and Mastercard can be considered as participating in the cartel despite not being “directly involved in defining the content of the agreement, but facilitated its adoption and accepted and implemented it”.
In September, advocate general Michal Bobek said in an opinion that EU law does not prevent a competition authority from finding both a by-object and a by-effect infringement of Article 101 in the same decision.
The ECJ’s judgment today states that in complex cases competition authorities and the European Commission support their decisions by finding that conduct is a by-object and by-effect infringement.
However, the court noted that Article 101 refers to conduct that has the “object or effect” of reducing competition, so it can be inferred that it is not possible for conduct to qualify as both.
The court said its case law outlines that it is not necessary to review the effects of an anticompetitive agreement in by-object cases, while it is necessary to examine the effects of an agreement if it is not sufficiently clear that it harms competition.
But, the ECJ said that finding a by-object restriction does not in any way imply that an authority or court cannot examine the effects of an infringement where appropriate. Authorities and courts must provide necessary evidence to show that conduct falls into both types of infringements, the judgment states.
The court did not answer whether the cooperation between the banks, Visa and Mastercard in the present case was a by-object infringement. Hungary’s Supreme Court itself should assess if the purpose of the agreement was to restrict competition, the court said.
Case law outlines that an agreement can be a by-object infringement even if it does not intend to restrict competition, the court held, but by-object must be interpreted restrictively and only applied to agreements that show a sufficient degree of harmfulness.
The ECJ found that the two questions regarding whether it is necessary to differentiate between companies that participate and facilitate a cartel agreement were inadmissible. The court found that the questions were hypothetical and not necessary for the national court to rule on the case.
A European Commission spokesperson said the judgment is “in line” with its arguments and confirms that the same conduct can have “both the object and the effect of restricting competition in the internal market”.
James Killick, a partner at White & Case in Brussels, said the court “confirmed that a counterfactual analysis is relevant to assessing the existence of a sufficient degree of harm – which is the key criterion for ‘by object’”.
Competition authorities and courts “must take into account” elements that “cast doubt on the degree of harm, such as possible pro-competitive or ambivalent effects”, he said.
Bas Braeken, a partner at bureau Brandeis in Amsterdam, said the judgment is “more an evolution, rather than a revolution in the existing case law” and builds on “the landmark Cartes Bancaires judgment, which also dealt with two-sided markets”.
He said the judgment “clarifies that if an analysis of the counterfactual indicates that the fees [would not have] arisen without the agreements, it is unlikely to qualify as an object restriction and it is advisable to analyse the effects”.
“In my view the significance of the judgment is most likely to be confined to two sided markets,” he added.
István Réczicza, managing partner at Dentons in Budapest, said the case is “one of the longest-running competition law cases in Hungary” and the judgment “makes it clear” that an agreement can be both a by-object and by-effect infringement.
He said it is “very comforting” that the court clarified that authorities and courts “must provide sufficient evidence and reasoning for both accounts and clearly indicate which evidence supports which type of assessment”.
The judgment “does not seem to widen the boundaries of by-object restrictions”, but the court could have “ruled more explicitly” if the agreement between the banks, Visa and Mastercard is a by-effect, rather than by-object infringement, Réczicza said.
“It is important that the ‘by-object’ box does not become unduly wide, thereby effectively shifting the burden of proof on the parties,” he added.
Péter Vörös, a partner at Kinstellar in Budapest, said: “The ECJ again decided that agreements that are not typical hardcore restrictions can qualify as a restriction by object, although the agreement in this case is likely not a restriction by object.”
He said the judgment has “wide reaching consequences” on how by-object infringements can be proven and “how an authority or a court can decide whether an agreement – in light of its content, goals and context – shows a sufficient degree of harm on competition”.
The court’s first finding “is correct” and the “difference between restrictions object and effect essentially is the burden of proof on the authority”, Vörös said.
The ECJ’s ruling “may induce competition authorities to find more restrictions by-object that are not among the typical hardcore restrictions, but the test for proving such non-hardcore object-type restrictions remain unclear in my view”, Vörös said.
Attila Kőmíves, a senior associate at Allen & Overy and counsel to ING, said the “key question” in the case was whether the infringement “was plain price fixing and hence an infringement by object”.
Kőmíves said the banks argued that without the agreement, competition between the banks places an “upward pressure” on interchange fees and leads to higher prices. The banks said the agreement was therefore not a by-object infringement and the authority should have examined the effects, he said.
“The judgement is a clear victory for the banks and Visa and Mastercard, because the ECJ instructed the Hungarian Supreme Court to take into account such upward pressure when determining if the conduct is an infringement by object,” he said.
The ruling is “one of the rare cases” where the ECJ clarifies what an infringement by-object is. The court confirmed that an agreement must be “solid and reliable” to be a by-object infringement.
Counsel to Hungary’s Competition Authority
Agents Attila Kőhalmi and Monika Nacsa
Counsel to Budapest Bank
Germus & Partners Attorneys at Law
Partner Ákos Kékuti in Budapest
Counsel to ING Bank
Allen & Overy
Senior associate Attila Kőmíves in Budapest
Counsel to OTP Bank
Réti, Várszegi & Partners
László Réti and Péter Mezei in Budapest
Counsel to K&H Bank
Partner Zoltán Hegymegi-Barakonyi in Budapest
Counsel to MKB Bank
Senior counsel Szabolcs Szendrő in Budapest
Counsel to Erste Bank
Counsel Lajos Wallacher in Budapest
Counsel to Visa
Partner Zoltán Marosi in Budapest
Counsel to MasterCard
Lakatos Köves and Partners
Partner Eszter Ritter in Budapest
Greg Olsen in London assisted by Jennifer Storey
Counsel to the European Commission
Agents Maria Flores Castilla Contreras, Viktor Bottka and Ivan Zaloguin