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 some assessment of the impact of the agreement/restrictions before classifying a restriction as "by object" or should restrictions that are classified as being "by object" be treated as a virtually per se violation of Article 101(1)? Older case law suggested that some, albeit limited, analysis of market impact was possible/required in the case of "object" restrictions. This has, however, been clarified (or overruled) by the Court of Justice of the EU (CJEU) in the Expedia judgment – see further below.

To assist businesses to self-assess whether Article 101(1) applies to their agreements, the EU Commission's 2001 'De Minimis' Notice set out market share thresholds under which certain agreements were presumed not to appreciably restrict competition. These are:

  • in the case of 'horizontal' agreements between competitors, where the combined market share of the parties did not exceed 10% on any affected market; or
  • in the case of 'vertical' agreements between companies at different levels of the supply chain, where the market share of each party did not exceed 15% on any affected market.

The 2001 Notice provided a defined list of restrictions on competition which, if included in an agreement and irrespective of market shares, excluded the application of the de minimis exemption. These consisted of the most common types of "object" restrictions, as listed above, but did not cover all potential "object" restrictions. The implication, therefore, was that provided the market share thresholds were not exceeded and the agreement did not contain any of the listed restrictions, the agreement could nevertheless benefit from the de minimis safe harbour even if it contained "object" restrictions that were not listed in the 2001 Notice.

In 2012, the CJEU gave an important ruling on the concept of "object" restrictions in Case C-226/11 Expedia. It held that an agreement that has any anti-competitive object and that may affect trade between EU Member States constitutes, by its nature and independently of any concrete effect, an appreciable restriction on competition. Given that the concept of 'object' has expanded over the years (to include more than simply the restrictions listed in the 2001 Notice), the Court's ruling in Expedia meant that the 2001 Notice was out of sync with the law in relation to the appreciability of "object" restrictions.

In the light of this, in June 2014, the EU Commission adopted a revised De Minimis Notice which clarifies that the safe harbour will not apply to any restrictions of competition by 'object' or restrictions listed as 'hard-core' in any current or future block exemption. The EU Commission takes the view that these restrictions are automatically considered appreciable (and in practice infringing Article 101(1) unless justified under Article 101(3)), regardless of the size of the parties, the market coverage of the agreement and its economic realities, or any concrete effects on the market.

The practical effect of the revised De Minimis Notice is to remind smaller companies that they are not immune from competition law by reason of their small size. The same is true for larger companies who engage in limited anti-competitive conduct. Whilst this may come as little surprise in the context of cartels where it is widely, if not universally, understood that price fixing or market sharing with competitors is prohibited irrespective of the size of the parties, it ups the ante for legal compliance in relation to non-cartel restrictions in commercial agreements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.