However, conduct having significantly sufficient pro-competitive effects is not caught under the ‘by object’ label. In such cases, the competition authority will need to resort to a fully-fledged effects analysis to establish an antitrust infringement. Companies should therefore keep an eye out for mislabelling of their conduct, particularly if the conduct is ‘atypical’ or has potential pro-competitive effects.
Object or effect: what’s the difference?
The importance of determining whether conduct can be labelled as a restriction of competition ‘by object’ or ‘by effect’ mainly lies with the level of analysis a competition authority must carry out before being able to establish an antitrust infringement. In ‘by object’ cases, the competition authority can stop short of carrying out an extensive and lengthy analysis of the effects of an agreement. However, after its prelude in UK Generics (see our February 2020 newsletter), the European Court of Justice’s ruling in Budapest Bank confirms that labelling a particular type of conduct as a ‘by object’ restriction is no picnic either.
The case relates to the Hungarian Supreme Court’s reference for a preliminary ruling to obtain guidance on whether the Hungarian competition authority had correctly qualified an agreement between banks (concerning a multilateral interchange fee for transactions using Visa and MasterCard credit cards) as a ‘by object’ restriction. Interchange fees are charged by a cardholder's bank (the issuing bank) to a merchant's bank (the acquiring bank) for the processing of card payments.
Guidance from the European Court of Justice
The European Court of Justice (ECJ) provided the Hungarian court with the following pointers on the assessment of ‘by object’ restrictions.
The ECJ started by recalling that the concept of a restriction ‘by object’ can be applied only to certain types of coordination between companies which reveal "in itself a sufficient degree of harm to competition”. To determine this, there should be “sufficiently solid and reliable experience” available showing that the conduct is commonly regarded as being inherently anti-competitive. This experience may, for instance, follow from widespread and consistent practice of the European competition authorities and courts, or from independent economic studies or reports. Furthermore, in assessing a ‘by object’ restriction, regard should also be had to the conduct’s objectives, its content and the economic and legal context of which it forms part, such as the nature of the goods or services affected and the functioning and structure of the market. If this assessment shows that the conduct has sufficiently significant pro-competitive effects, then the conduct can no longer be characterised as a ‘by object’ restriction.
The ECJ has clarified that a competition authority will need to rely on solid and reliable experience before being able to classify conduct as a ‘by object’ restriction of competition. As a result, it will be a challenge for competition authorities to qualify new or less ‘straightforward’ conduct – such as complex multilateral interchange fees arrangements relating to multi-sided markets – as a ‘by object’ infringement. In addition, companies may be able to rebut a ‘by object’ qualification by demonstrating that their conduct has sufficiently significant pro-competitive effects.
This article was published in the Competition Newsletter of May 2020. Other articles in this newsletter: