Not So Safe "Safe Harbors"

February 15, 2013

A recent ruling by the European Court of Justice (ECJ) has clarified that Member States’ national competition authorities (NCAs) do not have to defer to the safe harbor provided in the European Commission’s (EC’s) de minimis notice.  This means that conduct that may fall under Article 101(1) TFEU, but which the EC will not prosecute because the combined market share of the parties involved in the potentially anti-competitive conduct is 10% or less, may still be subject to prosecution by an NCA.

In case C-226/11, Expedia and SNCF created a joint subsidiary, currently called Agence VSC, which provides travel over the internet and online travel agency services.  The French NCA found that the partnership that created the joint subsidiary infringed Article 101 TFEU (and Article L. 420-1 of the Commercial Code) in that Expedia and SNCF were competitors in the market for online travel agency services and the object and effect of the partnership was to promote travel agency services for leisure travel to the detriment of competitors in that service market.   As a result, the parties were fined. 

Expedia challenged the French NCA’s decision before the Cour d’appel (Paris) because the combined market share of Expedia and SNCF was less than 10%.  The reason that Expedia made this argument is:

  • The EC has the de minimis notice, which states that it will not start proceedings in cases where the combined market share of the undertakings to a horizontal agreement that may be construed as infringing Article 101(1) TFEU is 10% or less
  • Article L -464-6-1 of the French Commercial Code says that the competition authority may decide not to pursue inter alia an Article 101(1) TFEU case where the parties’ combined market share is less than that listed in the EC’s de minimis notice

The Cour d’appeal ruled against Expedia, which then appealed to the Cour de cassation.  The Cour de cassation stayed proceedings and referred a question to the ECJ asking whether Article 101(1) TFEU and Article 3(2) of Regulation 1/2003 preclude an NCA from bringing proceedings (and imposing penalties) pursuant to Article 101(1) TFEU and the national competition law for anti-competitive conduct that does not reach the 10% threshold.

After revisiting case law on when and how NCAs should apply Article 101 TFEU and Regulation 1/2003, the ECJ finally gets to the heart of the matter—the de minimis notice is not binding on NCAs or Member States’ courts.  An NCA may take into account the 10% threshold when determining whether or not a restriction on competition is appreciable, but if it does, the market share is just one factor among others that the NCA will consider when making its determination.

Certain conduct that could fall under Article 101 TFEU, but which falls under the ”safe harbour” threshold of the de minimis notice is not fully protected from prosecution.  Similar to Pfleiderer, the ECJ has identified a legislative loophole in the sense that Commission notices are not binding on NCAs and national courts.  While the EC has decided by notice that certain conduct is safe harbored, NCAs are not prevented from initiating proceedings against the same conduct and imposing fines.  This means that many companies who have felt assured that their agreements (like Expedia’s and SNCF’s) were safe, are exposed.  Therefore, what is the value of the de minimis notice if it is of such limited value at the national level?  Do companies now need to dig out all of their old agreements believed to be safe-harbored and conduct fresh risk assessments?  For now, the answer may be yes.  As in Pfleiderer, some coherence and harmonisation in approaches may be needed—particularly here where the matter goes to the substance of what constitutes an infringement of competition law.

NB:  the new de minimis notice was published in August 2014.