European Commission Tightens Application Of 'De Minimis' Safe Harbour

EU competition law prohibits agreements, decisions or concerted practices between two or more undertakings that are capable of affecting trade within the EEA and that have as their object or effect the restriction of competition (Article 101(1) of the Treaty on the Functioning of the European Union).

Restrictions of competition "by object" (as distinct from "by effect") are those which are regarded as so serious that, by their very nature, they are capable of restricting competition; in these circumstances, actual effects need not be considered. Price-fixing, market-sharing and limiting output, as well as vertical 'hard-core' restrictions such as resale price maintenance and certain sales and territorial restrictions, are the most common forms of 'object' restriction - although the concept has been interpreted even more widely than this over the years.

By contrast, restrictions "by effect", a category which covers any potentially restrictive agreement etc that is not classified as being "by object", will only infringe Article 101(1) if, following a full factual and economic analysis of the relevant markets, it is shown that the restrictions have concrete anti-competitive effects.

The distinction between "object" and "effect" is of considerable practical importance in competition investigations and in the enforcement of commercial agreements. Once a restriction is classified as being by "object", the burden of proof shifts from the competition authority, which would otherwise have to demonstrate concrete anti-competitive effects, to the parties, who must show positive benefits flowing from the agreements and the restrictions contained within it. "Object" restrictions are furthermore usually hard to justify by reference to economic efficiencies. Similarly, a party seeking to enforce an "object" restriction against the counter-party (e.g. enforcing territorial restraints in a distribution agreement) can face an uphill struggle to defend a restriction if it is classified as by "object".

EU case-law has established that only agreements etc that are capable of appreciably restricting trade and competition in the EEA fall within the scope of Article 101(1). In the case of restrictions by effect the appreciability test is a factual one of assessing the extent of the impact of the agreement and the restriction it contains on the market. But in the case of "object" restrictions, the question of appreciability is more controversial: should there be...