Once More unto the ‘Object Box’

Case C-345/14 Maxima Latvija (ECLI:EU:C:2015:784)

The Court of Justice of the EU has once again handed down a judgment which discusses ‘object’ agreements under Art 101(1) TFEU in Case C-345/14 Maxima Latvija. It adds a little clarity to some of the potential confusion that comes from different forms of wording in previous judgments such as Allianz Hungária and Cartes Bancaires.

The facts of the case are interesting in themselves – there aren’t that many cases in which competition law has an impact on land law. Maxima Latvija operates large food retail hypermarkets across the Baltic States. In 12 of its 119 premises in Latvia it was the ‘anchor tenant’ in a multi-tenant shopping centre. An anchor tenant in such a development is usually secured early the development process to occupy one of the largest units. The presence of a well-known retailer as an ‘anchor’ is designed to attract other subsidiary retailers as tenants and, ultimately, customers to the development. One clause of the anchor tenant’s lease was of concern to the Konkurences padome (the Latvian Competition Council), whereby the anchor tenant had a veto over the development owner leasing premises in the development to third parties. This would allow them to effectively block a direct competitor from taking up retail space in the development.

The question referred to the CJEU was whether such term could be one that has the ‘object’ of restricting competition. It has been clear since Expedia that vertical agreements, such as this one, can be object agreements, but it is unusual; most verticals are considered under ‘effects’ analysis.

The current concerns in this area stem from the inconsistent wording used by the CJEU in as series of judgments. In Expedia, at para 36, the Court set out that:

“certain forms of collusion between undertakings can be regarded, by their very nature, as being injurious to the proper functioning of normal competition”.

In Allianz the Court reiterated, at [35], that object agreements are “by their very nature, … injurious to the proper functioning of normal competition” but also suggested, at [34], that an object agreement would have to “reveal a sufficient degree of harm to competition”, and that this should follow “a concrete and individual examination of the wording and aim of those agreements and of the economic and legal context of which they form a part” [51]. There was speculation that this reference to “sufficient harm” within “the economic and legal context” may have required some form of ‘quick look’, or abridged, analysis of the particular context of an agreement in order to establish that it was an actual ‘object’ agreement.

The most recent contribution by the Court came in Carte Bancaires, which seemed to adopt a position somewhere between Expedia and Allianz. At [50] it set out a new formulation:

“certain types of coordination between undertakings can be regarded, by their very nature, as being harmful to the proper functioning of normal competition”.

It also added, at [57], that there must be a “sufficient degree of harm”. This test appeared to draw on both the formulations set out about, with the “sufficient degree of harm” from Allianz replacing the use of “injurious” in Expedia. As to examination of “the legal an economic context” the Court added, at [53]:

“regard must be had to the content of its provisions, its objectives and the economic and legal context of which it forms a part. When determining that context, it is also necessary to take into consideration the nature of the goods or services affected, as well as the real conditions of the functioning and structure of the market or markets in question”.

This was seen as being a step back from an examination of the agreements impact on the market itself and led to further discussion as to whether the Court had ever intended the adoption of quick look analysis in Art 101 object cases.

So where does the Court go in Maxima Latvija?

The judgment of the Fourth Chamber in Maxima Latvija, very much follows that of the Third Chamber in Cartes Bancaires. An object agreement, at [18], covers “certain types of coordination between undertakings which reveal a sufficient degree of harm to competition that it may be found that there is no need to examine their effects” as they can be regarded, “by their very nature, as being harmful to the proper functioning of normal competition”.

As to the examination of the context the Court also echoed CB saying at [23]:

“Taking account of the economic context in which agreements, such as those at issue in the main proceedings are to be applied, the analysis of the content of those agreements would not, in the light of the information provided by the referring court, show, clearly, a degree of harm with regard to competition sufficient for those agreements to be considered to constitute a restriction of competition ‘by object’ within the meaning of Article 101(1) TFEU”.

This was the case as the presence of that term in 12 commercial leases might have the effect of limiting the access of Maxima Latvija’s competitors to some shopping centres, but it did not follow that such terms would necessarily restrict competition on the wider food retail market in any locality. When compared to the example of the horizontal price-fixing – which the Court argued, at [19], were “by their nature likely to have negative effects” – you can clearly see that a narrow vertical restriction in a relatively small number of Maxima Latvija’s own commercial leases, never mind the total number of such leases overall, was far less likely to cause a sufficient degree of harm to competition.

Once it had established that the agreement was not an object agreement the Court went to set out the analysis that the Latvian court should undertake to establish whether the existence of a network of vertical restrictions of this nature and the “specifies of the relevant market” [28] could result in access to that market being restricted, and the contribution each agreement makes to that “closing-off effect”.

What does this mean going forward?

It is pretty clear that the Court has settled on a formulation of the ‘Object Box’ criteria following Cartes Bancaires. It also appears that the adoption of a US style ‘quick look’ analysis in these cases was not the policy the Court was pushing towards. I suggest that the position has moved on form the classic taxonomy approach whereby certain categories of agreement were classified as either ‘object’ or ‘effect’ agreements. The likelihood of an agreement causing a “sufficient degree of harm to competition” is now the guiding factor. The question is therefore how do we assess whether an agreement is likely to do so without examining its effects?

I take the current position as that the Court must assess the nature of the agreement and the nature of market in which is to operate, and then decide whether there is a real likelihood of the agreement in itself causing competitive harm. To me this looks be a requirement that the party challenging the agreement must be able to clearly indicate a convincing theory of harm in relation to the agreement in that context. Being able to delineate a convincing theory which shows that harm is likely, rather than simply possible, is still a relatively high bar which will only catch agreements which are, to look at it from the other side, unlikely to have any legitimate commercial purpose. The addition of the context requirement moves the analysis on from looking at an agreement solely within its own abstract context, and requiring that the analysis takes places within a somewhat wider frame, but not, as Allianz suggested, that it go so far as “a concrete and individual examination” which requires an analysis of the specific market in question.

Vertical agreements are classic examples where the impact of a single agreement is less likely to cause sufficient harm, but that is not to say that such an agreement cannot cause a sufficient degree or harm in any context. The door is open for an object case to be made out beyond the well accepted examples of horizontal agreements but that is not to say that it will be easy.

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