Communication from the Commission — Notice — Guidelines on the application of Article 81(3) of the Treaty (Text with EEA relevance)
Date: 2004-04-27
Institutions: European Commission
Subjects: application of EU law, competition law

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COMMUNICATION FROM THE COMMISSION

Notice

Guidelines on the application of Article 81(3) of the Treaty

(2004/C 101/08)

(Text with EEA relevance)

1. INTRODUCTION

1. Article 81(3) of the Treaty sets out an exception rule,
which provides a defence to undertakings against a
finding of an infringement of Article 81(1) of
the
Treaty. Agreements, decisions of associations of under-
takings and concerted practices (1) caught by Article
81(1) which satisfy the conditions of Article 81(3) are
valid and enforceable, no prior decision to that effect
being required.

2. Article 81(3) can be applied in individual cases or to
categories of agreements and concerted practices by
way of block exemption regulation. Regulation 1/2003
the competition rules laid
on the implementation of
down in Articles 81 and 82 (2) does not affect
the
validity and legal nature of block exemption regulations.
All existing block exemption regulations remain in force
and agreements covered by block exemption regulations
are legally valid and enforceable even if
they are
restrictive of competition within the meaning of Article
81(1) (3). Such agreements can only be prohibited for the
future and only upon formal withdrawal of the block
exemption by the Commission or a national competition
authority (4). Block exempted agreements cannot be held
invalid by national courts in the context of private liti-
gation.

and

technology

agreements

3. The existing guidelines on vertical restraints, horizontal
transfer
cooperation
agreements (5) deal with the application of Article 81 to
various types of agreements and concerted practices. The
purpose of
the
guidelines
Commission's
assessment
the
criteria applied to the various types of agreements and
practices.

those
view of

to set out

substantive

is

4. The present guidelines set out the Commission's interpre-
tation of the conditions for exception contained in Article
81(3). It thereby provides guidance on how it will apply
Article 81 in individual cases. Although not binding on
them, these guidelines also intend to give guidance to the
courts and authorities of
the Member States in their
application of Article 81(1) and (3) of the Treaty.

5. The guidelines establish an analytical framework for the
application of Article 81(3). The purpose is to develop a
methodology for the application of this Treaty provision.
This methodology is based on the economic approach
already introduced and developed in the guidelines on

restraints, horizontal co-operation agreements
vertical
and technology transfer agreements. The Commission
will follow the present guidelines, which provide more
application of
detailed guidance on the
four
than the guidelines on
conditions of Article 81(3)
vertical
restraints, horizontal co-operation agreements
and technology transfer agreements, also with regard to
agreements covered by those guidelines.

the

6. The standards set forth in the present guidelines must be
applied in light of the circumstances specific to each case.
This excludes a mechanical application. Each case must
be assessed on its own facts and the guidelines must be
applied reasonably and flexibly.

7. With regard to a number of issues, the present guidelines
outline the current state of the case law of the Court of
Justice. However, the Commission also intends to explain
its policy with regard to issues that have not been dealt
with in the case law, or that are subject to interpretation.
is without
The Commission's
prejudice to the case law of the Court of Justice and
the Court of First Instance concerning the interpretation
of Article 81(1) and (3), and to the interpretation that the
Community Courts may give to those provisions in the
future.

however,

position,

2. THE GENERAL FRAMEWORK OF ARTICLE 81 EC

2.1. The Treaty provisions

8. Article 81(1) prohibits all agreements between under-
takings, decisions by associations of undertakings and
concerted practices which may affect
trade between
Member States (6) and which have as their object or
effect
restriction or distortion of
competition (7).

the prevention,

9. As an exception to this rule Article 81(3) provides that
the prohibition contained in Article 81(1) may be
declared inapplicable
in case of agreements which
contribute to improving the production or distribution
of goods or
economic
progress, while allowing consumers a fair share of the
resulting benefits, and which do not impose restrictions
which are not indispensable to the attainment of these
objectives, and do not afford such undertakings the possi-
bility of
a
substantial part of the products concerned.

eliminating competition in respect of

to promoting technical or

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10. According

to Article 1(1) of Regulation 1/2003
agreements which are caught by Article 81(1) and
which do not satisfy the conditions of Article 81(3) are
prohibited, no prior decision to that
effect being
required (8). According to Article 1(2) of the same Regu-
lation agreements which are caught by Article 81(1) but
which satisfy the conditions of Article 81(3) are not
prohibited, no prior decision to that
effect being
required. Such agreements are valid and enforceable
from the moment that the conditions of Article 81(3)
are satisfied and for as long as that remains the case.

11. The assessment under Article 81 thus consists of two
parts. The first step is to assess whether an agreement
between undertakings, which is capable of affecting trade
between Member States, has an anti-competitive object or
actual or potential (9) anti-competitive effects. The second
step, which only becomes relevant when an agreement is
found to be restrictive of competition, is to determine the
pro-competitive benefits produced by that agreement and
to assess whether these pro-competitive effects outweigh
the anti-competitive
effects. The balancing of anti-
competitive and pro-competitive effects is conducted
exclusively within the framework laid down by Article
81(3) (10).

resources
market promotes an efficient allocation of
throughout the Community for the benefit of consumers.

14. The prohibition rule of Article 81(1) applies to restrictive
agreements and concerted practices between undertakings
and decisions by associations of undertakings in so far as
they are capable of affecting trade between Member
States. A general principle underlying Article 81(1)
which is expressed in the case law of the Community
Courts is that each economic operator must determine
independently the policy, which he intends to adopt on
the market (12). In view of this the Community Courts
have defined ‘agreements’, ‘decisions’ and ‘concerted prac-
tices’ as Community law concepts which allow a
distinction to be made between the unilateral conduct
of an undertaking and co-ordination of behaviour or
collusion between undertakings (13). Unilateral conduct
is subject only to Article 82 of the Treaty as far as
Community competition law is concerned. Moreover,
the convergence rule set out in Article 3(2) of Regulation
1/2003 does not apply to unilateral conduct. This
provision applies only to agreements, decisions and
concerted practices, which are capable of affecting trade
between Member States. Article 3(2) provides that when
such agreements, decisions and concerted practices are
not prohibited by Article 81, they cannot be prohibited
by national competition law. Article 3 is without
prejudice to the fundamental principle of primacy of
that
Community
agreements and abusive practices that are prohibited by
Articles 81 and 82 cannot be upheld by national law (14).

law, which entails

in particular

12. The assessment of any countervailing benefits under
Article 81(3) necessarily requires prior determination of
the restrictive nature and impact of the agreement. To
place Article 81(3) in its proper context it is appropriate
to briefly outline the objective and principal content of
the prohibition rule of Article 81(1). The Commission
guidelines on vertical restraints, horizontal co-operation
agreements (11)
agreements
contain substantial guidance on the application of
types of agreements. The
Article 81(1)
present guidelines are therefore limited to recalling the
basic analytical framework for applying Article 81(1).

and technology

to various

transfer

2.2. The prohibition rule of Article 81(1)

2.2.1. General remarks

13. The objective of Article 81 is to protect competition on
the market as a means of enhancing consumer welfare
and of ensuring an efficient allocation of
resources.
Competition and market
integration serve these ends
since the creation and preservation of an open single

15. The type of co-ordination of behaviour or collusion
between undertakings falling within the scope of Article
is that where at least one undertaking vis-à-vis
81(1)
another undertaking undertakes
to adopt a certain
conduct on the market or that as a result of contacts
between them uncertainty as to their conduct on the
market is eliminated or at least substantially reduced (15).
It follows that co-ordination can take the form of obli-
gations that regulate the market conduct of at least one
of the parties as well as of arrangements that influence
the market conduct of at least one of the parties by
causing a change in its incentives.
is not required
that co-ordination is in the interest of all the under-
concerned (16). Co-ordination must also not
takings
necessarily be express.
It can also be tacit. For an
agreement to be capable of being regarded as having
been concluded by tacit acceptance there must be an
invitation from an undertaking to another undertaking,
whether express or implied, to fulfil a goal jointly (17). In
certain circumstances an agreement may be inferred from
and imputed to an ongoing commercial relationship
between the parties (18). However, the mere fact that a
measure adopted by an undertaking falls within the
context
not
of
sufficient (19).

on-going

relations

business

is

It

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16. Agreements between undertakings are caught by the
prohibition rule of Article 81(1) when they are likely
to have an appreciable adverse impact on the parameters
of competition on the market, such as price, output,
innovation.
product
Agreements
appreciably
this
reducing rivalry between the parties to the agreement
or between them and third parties.

can have

product

and
by

quality,

variety

effect

to an agreement are actual or potential
parties
competitors the economic and legal context must
be taken into account. For instance,
if due to the
financial risks involved and the technical capabilities
of the parties it is unlikely on the basis of objective
factors that each party would be able to carry out on
its own the activities covered by the agreement the
parties are deemed to be non-competitors in respect
is for the parties to bring
of
forward evidence to that effect.

that activity (22).

It

2.2.2. The basic principles for assessing agreements under Article

81(1)

17. The assessment of whether an agreement is restrictive of
competition must be made within the actual context in
which competition would occur in the absence of the
agreement with its alleged restrictions (20).
In making
this assessment it is necessary to take account of the
likely
inter-brand
competition (i.e.
competition between suppliers of
competing brands) and on intra-brand competition (i.e.
competition between distributors of
the same brand).
Article 81(1) prohibits restrictions of both inter-brand
competition and intra-brand competition (21).

agreement

impact

the

on

of

18. For the purpose of assessing whether an agreement or its
inter-brand competition
individual parts may restrict
and/or intra-brand competition it needs to be considered
how and to what extent the agreement affects or is likely
to affect competition on the market. The following two
questions provide a useful framework for making this
assessment. The first question relates to the impact of
the agreement on inter-brand competition while the
second question relates to the impact of the agreement
on intra-brand competition. As restraints may be capable
of affecting both inter-brand competition and intra-brand
it may be necessary to
competition at the same time,
analyse a restraint in light of both questions before it
can be
competition is
restricted within the meaning of Article 81(1):

concluded whether or not

(1) Does

it

the agreement

In making this assessment

restrict actual or potential
the
competition that would have existed without
agreement? If so, the agreement may be caught by
Article 81(1).
is
necessary to take into account competition between
the parties and competition from third parties. For
instance, where two undertakings established in
different Member States undertake not
to sell
products in each other's home markets,
(potential)
competition that existed prior to the agreement is
restricted. Similarly, where a supplier imposes obli-
gations on his distributors not
to sell competing
products and these obligations foreclose third party
access to the market, actual or potential competition
the
that would have existed in the absence of
the
In assessing whether
agreement

is restricted.

(2) Does

is

accepted

the agreement

restricted. Such restrictions

that nature (23). Such exclusion of

restrict actual or potential
competition that would have existed in the absence
of the contractual restraint(s)? If so, the agreement
may be caught by Article 81(1). For instance, where
a supplier restricts its distributors from competing
(potential) competition that could
with each other,
the
have existed between the distributors absent
restraints
include
resale price maintenance and territorial or customer
restrictions between distributors. However,
sales
certain restraints may in certain cases not be caught
by Article 81(1) when the restraint
is objectively
necessary for the existence of an agreement of that
the
type or
application of Article 81(1) can only be made on
the basis of objective factors external to the parties
themselves and not the subjective views and charac-
teristics of the parties. The question is not whether
the parties in their particular situation would not
restrictive
conclude
have
agreement, but whether given the nature of
the
agreement and the characteristics of the market a
less
restrictive agreement would not have been
concluded by undertakings in a similar setting. For
instance,
in an agreement
restraints
between a supplier and a distributor may for a
certain period of time fall outside Article 81(1),
if
the restraints are objectively necessary in order for
a new market (24).
the distributor
Similarly, a prohibition imposed on all distributors
not to sell to certain categories of end users may
not be restrictive of competition if such restraint is
objectively necessary for reasons of safety or health
related to the dangerous nature of the product in
question. Claims that in the absence of a restraint
the supplier would have resorted to vertical
inte-
gration are not sufficient. Decisions on whether or
not to vertically integrate depend on a broad range
of complex economic factors, a number of which are
internal to the undertaking concerned.

to penetrate

territorial

less

to

a

19. In the application of the analytical framework set out in
the previous paragraph it must be taken into account
that Article 81(1) distinguishes between those agreements
that have a restriction of competition as their object and
those agreements that have a restriction of competition
as their effect. An agreement or contractual restraint is
only prohibited by Article 81(1) if its object or effect is to
restrict
intra-brand
competition.

competition and/or

inter-brand

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20. The distinction between restrictions by object and
restrictions by effect is important. Once it has been estab-
lished that an agreement has as its object the restriction
of competition, there is no need to take account of its
concrete effects (25). In other words, for the purpose of
applying Article 81(1) no actual anti-competitive effects
need to be demonstrated where the agreement has a
restriction of competition as its object. Article 81(3), on
the other hand, does not distinguish between agreements
that restrict competition by object and agreements that
restrict competition by effect. Article 81(3) applies to all
agreements
the four conditions contained
therein (26).

fulfil

that

23. Non-exhaustive guidance on what constitutes restrictions
by object can be found in Commission block exemption
regulations, guidelines and notices. Restrictions that are
black-listed in block exemptions or identified as hardcore
in guidelines and notices are generally
restrictions
considered by the Commission to constitute restrictions
agreements
by object.
restrictions of competition by object
include price
limitation and sharing of markets and
fixing, output
customers (28). As
the
category of restrictions by object includes, in particular,
fixed and minimum resale price maintenance
and
restrictions providing absolute
territorial protection,
including restrictions on passive sales (29).

case of horizontal

agreements

In the

regards

vertical

the potential of

21. Restrictions of competition by object are those that by
their very nature have
restricting
competition. These are restrictions which in light of the
objectives pursued by the Community competition rules
have such a high potential of negative effects on
competition that it is unnecessary for the purposes of
applying Article 81(1) to demonstrate any actual effects
on the market. This presumption is based on the serious
nature of the restriction and on experience showing that
restrictions of competition by object are likely to produce
negative effects on the market and to jeopardise the
objectives pursued by the Community competition
rules. Restrictions by object such as price fixing and
market sharing reduce output and raise prices,
leading
to a misallocation of
resources, because goods and
services demanded by customers are not produced.
They also lead to a reduction in consumer welfare,
because consumers have to pay higher prices for the
goods and services in question.

22. The assessment of whether or not an agreement has as its
the restriction of competition is based on a
object
number of factors. These factors include,
in particular,
the content of the agreement and the objective aims
pursued by it. It may also be necessary to consider the
context in which it is (to be) applied and the actual
conduct and behaviour of the parties on the market (27).
In other words, an examination of the facts underlying
the agreement and the specific circumstances in which it
operates may be required before it can be concluded
whether a particular restriction constitutes a restriction
competition by object. The way in which an
of
a
agreement
restriction by object even where the formal agreement
does not contain an express provision to that effect.
Evidence of subjective intent on the part of the parties
to restrict competition is a relevant
factor but not a
necessary condition.

implemented may

actually

reveal

is

of

there

effect

effects.

anti-competitive

competition by

to be restrictive by effect

24. If an agreement is not restrictive of competition by object
it must be examined whether it has restrictive effects on
competition. Account must be taken of both actual and
potential effects (30). In other words the agreement must
In the case of
have likely anti-competitive effects.
is no
restrictions of
presumption
an
For
it must affect
agreement
actual or potential competition to such an extent that
on the relevant market negative effects on prices,
output,
innovation or the variety or quality of goods
and services can be expected with a reasonable degree
of probability (31). Such negative effects must be appre-
ciable. The prohibition rule of Article 81(1) does not
apply when the identified anti-competitive effects are
insignificant (32).
economic
test
approach which the Commission is applying. The
prohibition of Article 81(1) only applies where on the
basis of proper market analysis it can be concluded that
the agreement has likely anti-competitive effects on the
market (33). It is insufficient for such a finding that the
market shares of the parties exceed the thresholds set out
in the Commission's de minimis notice (34). Agreements
falling within safe harbours of block exemption regu-
lations may be caught by Article 81(1) but this is not
necessarily so. Moreover, the fact that due to the market
shares of the parties, an agreement falls outside the safe
harbour of a block exemption is in itself an insufficient
basis for finding that the agreement is caught by Article
81(1) or that it does not fulfil the conditions of Article
81(3). Individual assessment of the likely effects produced
by the agreement is required.

reflects

This

the

25. Negative effects on competition within the relevant
market are likely to occur when the parties individually
or jointly have or obtain some degree of market power
and the agreement contributes to the creation, main-
tenance or
that market power or
allows the parties to exploit such market power. Market

strengthening of

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power is the ability to maintain prices above competitive
levels for a significant period of time or to maintain
output in terms of product quantities, product quality
and variety or innovation below competitive levels for
a significant period of time. In markets with high fixed
costs undertakings must price significantly above their
to ensure a
marginal costs of production in order
that
competitive return on their investment. The fact
undertakings price
is
above
therefore not in itself a sign that competition in the
market
is not functioning well and that undertakings
have market power that allows them to price above the
competitive level. It is when competitive constraints are
insufficient to maintain prices and output at competitive
levels that undertakings have market power within the
meaning of Article 81(1).

their marginal

costs

26. The creation, maintenance or strengthening of market
power can result
from a restriction of competition
between the parties to the agreement. It can also result
from a restriction of competition between any one of the
parties and third parties, e.g. because the agreement leads
to foreclosure of competitors or because
raises
competitors' costs,
limiting their capacity to compete
effectively with the contracting parties. Market power is
a question of degree. The degree of market power
normally required for the finding of an infringement
under Article 81(1) in the case of agreements that are
restrictive of competition by effect is less than the degree
of market power required for a finding of dominance
under Article 82.

it

the parties,
the market position of buyers,

27. For the purposes of analysing the restrictive effects of an
agreement it is normally necessary to define the relevant
market (35). It is normally also necessary to examine and
assess, inter alia, the nature of the products, the market
the market position of
position of
competitors,
the
existence of potential competitors and the level of entry
barriers. In some cases, however, it may be possible to
show anti-competitive effects directly by analysing the
conduct of the parties to the agreement on the market.
It may for example be possible to ascertain that an
agreement has led to price increases. The guidelines on
horizontal
and on vertical
restraints set out a detailed framework for analysing the
competitive impact of various types of horizontal and
vertical agreements under Article 81(1) (36).

cooperation agreements

2.2.3. Ancillary restraints

28. Paragraph 18 above sets out a framework for analysing
the impact of an agreement and its individual restrictions
on inter-brand competition and intra-brand competition.
If on the basis of those principles it is concluded that the
is not
main transaction covered by the agreement

restrictive of competition, it becomes relevant to examine
whether individual restraints contained in the agreement
are also compatible with Article 81(1) because they are
ancillary to the main non-restrictive transaction.

If an agreement

its object or effect

a main non-restrictive

29. In Community competition law the concept of ancillary
restraints covers any alleged restriction of competition
which is directly related and necessary to the implemen-
transaction and
tation of
proportionate to it (37).
in its main
parts, for instance a distribution agreement or a joint
venture, does not have as
the
restriction of competition, then restrictions, which are
directly related to and necessary for the implementation
transaction, also fall outside Article 81(1) (38).
of that
These related restrictions are called ancillary restraints.
A restriction is directly related to the main transaction
if it is subordinate to the implementation of that trans-
action and is inseparably linked to it. The test of necessity
implies that the restriction must be objectively necessary
for the implementation of the main transaction and be
proportionate to it. It follows that the ancillary restraints
test is similar to the test set out in paragraph 18(2)
above. However, the ancillary restraints test applies in
all cases where the main transaction is not restrictive of
competition (39).
limited to determining the
impact of the agreement on intra-brand competition.

is not

It

30. The application of the ancillary restraint concept must be
distinguished from the application of the defence under
Article 81(3) which relates to certain economic benefits
produced by restrictive
and which are
balanced against the restrictive effects of the agreements.
The application of the ancillary restraint concept does
not involve any weighing of pro-competitive and anti-
reserved for
effects. Such balancing is
competitive
Article 81(3) (40).

agreements

activity,

transaction or

in the specific context of

31. The assessment of ancillary restraints is limited to deter-
the main
mining whether,
non-restrictive
a particular
restriction is necessary for the implementation of that
transaction or activity and proportionate to it. If on the
basis of objective factors it can be concluded that without
the restriction the main non-restrictive transaction would
be difficult or impossible to implement, the restriction
its
may be
implementation and proportionate to it (41).
for
example, the main object of a franchise agreement does
not restrict competition,
then restrictions, which are
necessary for the proper functioning of the agreement,
such as obligations aimed at protecting the uniformity
and reputation of the franchise system, also fall outside
Article 81(1) (42). Similarly,
if a joint venture is not in
itself restrictive of competition, then restrictions that are
the agreement are
necessary for

regarded as objectively necessary for
If,

the functioning of

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to be

deemed to be ancillary to the main transaction and are
therefore not caught by Article 81(1). For instance in
TPS (43) the Commission concluded that an obligation
involved in companies
on the parties not
television
engaged in distribution and marketing of
programmes by satellite was ancillary to the creation of
the joint venture during the initial phase. The restriction
was therefore deemed to fall outside Article 81(1) for a
period of three years. In arriving at this conclusion the
Commission took account of the heavy investments and
commercial risks involved in entering the market
for
pay-television.

2.3. The exception rule of Article 81(3)

32. The assessment of restrictions by object and effect under
Article 81(1) is only one side of the analysis. The other
side, which is reflected in Article 81(3), is the assessment
of the positive economic effects of restrictive agreements.

(b) Consumers must receive a fair share of the resulting

benefits,

(c) The

restrictions must be

indispensable

to the

attainment of these objectives, and finally

(d) The agreement must not afford the parties the possi-
bility of eliminating competition in respect of a
substantial part of the products in question.

When these four conditions are fulfilled the agreement
competition within the
enhances
relevant market,
because it
leads the undertakings concerned to offer
cheaper or better products to consumers, compensating
the latter for the adverse effects of the restrictions of
competition.

33. The aim of

the

and of

ensuring

lowering

additional

value by

consumer welfare

the Community competition rules is to
protect competition on the market as a means of
enhancing
an
efficient allocation of resources. Agreements that restrict
competition may at the same time have pro-competitive
effects by way of efficiency gains (44). Efficiencies may
cost of
create
improving the quality of
producing an output,
the
a new product. When the
creating
product or
pro-competitive effects of an agreement outweigh its
anti-competitive effects the agreement
is on balance
pro-competitive and compatible with the objectives of
the Community competition rules. The net effect of
such agreements is to promote the very essence of the
competitive process, namely to win customers by offering
better products or better prices than those offered by
rivals. This analytical framework is reflected in Article
81(1) and Article 81(3). The latter provision expressly
acknowledges that restrictive agreements may generate
objective economic benefits
to outweigh the
negative effects of the restriction of competition (45).

so as

34. The application of the exception rule of Article 81(3) is
subject to four cumulative conditions, two positive and
two negative:

(a) The agreement must contribute to improving the
production or distribution of goods or contribute to
promoting technical or economic progress,

35. Article 81(3)

can be

applied either

to individual
agreements or to categories of agreements by way of a
is
block exemption regulation. When an agreement
covered by a block exemption the parties
to the
restrictive agreement are relieved of their burden under
Article 2 of Regulation 1/2003 of showing that their
individual agreement satisfies each of the conditions of
Article 81(3). They only have to prove that the restrictive
agreement benefits
from a block exemption. The
application of Article 81(3) to categories of agreements
by way of block exemption regulation is based on the
presumption that restrictive agreements that fall within
their scope (46)
the four conditions laid
down in Article 81(3).

fulfil each of

36. If in an individual case the agreement is caught by Article
81(1) and the conditions of Article 81(3) are not fulfilled
the block exemption may be withdrawn. According to
Article 29(1) of Regulation 1/2003 the Commission is
empowered to withdraw the benefit of
a block
exemption when it finds that in a particular case an
agreement covered by a block exemption regulation has
certain effects which are incompatible with Article 81(3)
of the Treaty. Pursuant to Article 29(2) of Regulation
1/2003 a competition authority of a Member State may
also withdraw the benefit of a Commission block
exemption regulation in respect of its territory (or part
of its territory), if this territory has all the characteristics
of a distinct geographic market. In the case of withdrawal
it is for the competition authorities concerned to demon-
strate that the agreement infringes Article 81(1) and that
it does not fulfil the conditions of Article 81(3).

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37. The courts of

the Member States have no power to
withdraw the benefit of block exemption regulations.
Moreover, in their application of block exemption regu-
lations Member State courts may not modify their scope
by extending their sphere of application to agreements
not covered by the block exemption regulation in
question (47). Outside the scope of block exemption regu-
lations Member State courts have the power to apply
Article 81 in full (cf. Article 6 of Regulation 1/2003).

3. THE APPLICATION OF THE FOUR CONDITIONS OF
ARTICLE 81(3)

38. The remainder of these guidelines will consider each of
the four conditions of Article 81(3) (48). Given that these
four conditions are cumulative (49) it is unnecessary to
examine any remaining conditions once it is found that
one of the conditions of Article 81(3) is not fulfilled. In
individual cases
it may therefore be appropriate to
consider the four conditions in a different order.

39. For the purposes of

these guidelines it

is considered
appropriate to invert the order of the second and the
third condition and thus deal with the issue of indispen-
sability before the issue of pass-on to consumers. The
analysis of pass-on requires a balancing of the negative
and positive effects of an agreement on consumers. This
analysis should not include the effects of any restrictions,
which already fail the indispensability test and which for
that reason are prohibited by Article 81.

3.1. General principles

40. Article 81(3) of the Treaty only becomes relevant when
an agreement between undertakings restricts competition
In the case of
within the meaning of Article 81(1).
non-restrictive agreements there is no need to examine
any benefits generated by the agreement.

41. Where in an individual case a restriction of competition
within the meaning of Article 81(1) has been proven,
Article 81(3) can be invoked as a defence. According to
Article 2 of Regulation 1/2003 the burden of proof
under Article 81(3) rests on the undertaking(s) invoking
the benefit of the exception rule. Where the conditions of
Article 81(3) are not satisfied the agreement is null and
void, cf. Article 81(2). However, such automatic nullity
only applies to those parts of the agreement that are
incompatible with Article 81, provided that such parts
are severable from the agreement as a whole (50). If only
it is for the
part of the agreement

is null and void,

applicable national
thereof for the remaining part of the agreement (51).

law to determine the consequences

42. According to settled case law the four conditions of
Article 81(3) are cumulative (52),
i.e. they must all be
fulfilled for the exception rule to be applicable. If they
are not, the application of the exception rule of Article
81(3) must be refused (53). The four conditions of Article
the
81(3) are also exhaustive. When they are met
exception is
be made
dependant on any other condition. Goals pursued by
other Treaty provisions can be taken into account to
the extent that they can be subsumed under the four
conditions of Article 81(3) (54).

and may not

applicable

43. The assessment under Article 81(3) of benefits flowing
from restrictive agreements is in principle made within
to which the
the confines of each relevant market
agreement
relates. The Community competition rules
have as their objective the protection of competition
on the market and cannot be detached from this
the condition that consumers (55)
objective. Moreover,
the benefits implies in
must receive a fair share of
general
that efficiencies generated by the restrictive
agreement within a relevant market must be sufficient
to outweigh the anti-competitive effects produced by
the agreement within that same relevant market (56).
Negative
in one geographic
market or product market cannot normally be balanced
against
for
consumers in another unrelated geographic market or
two markets are
product market. However, where
related, efficiencies achieved on separate markets can be
taken into account provided that the group of consumers
affected by the restriction and benefiting from the effi-
ciency gains are substantially the same (57).
in
some cases only consumers in a downstream market
are affected by the agreement in which case the impact
of the agreement on such consumers must be assessed.
This
instance so in the case of purchasing
is
agreements (58).

effects on consumers

compensated

by positive

Indeed,

effects

and

for

in time. The assessment

44. The assessment of restrictive agreements under Article
81(3) is made within the actual context in which they
occur (59) and on the basis of the facts existing at any
given point
is sensitive to
material changes in the facts. The exception rule of
Article 81(3) applies as long as the four conditions are
fulfilled and ceases to apply when that is no longer the
case (60). When applying Article 81(3) in accordance with
these principles it is necessary to take into account the
initial sunk investments made by any of the parties and
the time needed and the restraints required to commit
and recoup an efficiency enhancing investment. Article
81 cannot be applied without taking due account of such
ex ante investment. The risk facing the parties and the
sunk investment that must be committed to implement

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the agreement can thus lead to the agreement falling
fulfilling the conditions of
outside Article 81(1) or
Article 81(3), as the case may be,
for the period of
time required to recoup the investment.

47. Any claim that restrictive agreements are justified because
they aim at ensuring fair conditions of competition on
the market
is by nature unfounded and must be
discarded (65). The purpose of Article 81 is to protect
effective competition by ensuring that markets remain
open and competitive. The protection of fair conditions
of competition is a task for the legislator in compliance
with Community law obligations (66) and not for under-
takings to regulate themselves.

agrees

to revive

each party

a project once

agreement whereby

45. In some cases the restrictive agreement is an irreversible
event. Once the restrictive agreement has been imple-
mented the ex ante situation cannot be re-established. In
such cases the assessment must be made exclusively on
the basis of the facts pertaining at the time of implemen-
tation. For instance, in the case of a research and devel-
opment
to
abandon its respective research project and pool its capa-
it may from an
bilities with those of another party,
objective point of view be technically and economically
impossible
it has been
abandoned. The assessment of the anti-competitive and
pro-competitive effects of the agreement to abandon the
individual research projects must therefore be made as of
the time of the completion of its implementation. If at
that point
is compatible with
Article 81, for instance because a sufficient number of
third parties have competing research and development
projects, the parties' agreement to abandon their indi-
vidual projects
remains compatible with Article 81,
even if at a later point in time the third party projects
fail. However, the prohibition of Article 81 may apply to
other parts of the agreement in respect of which the issue
of irreversibility does not arise. If for example in addition
to joint
agreement
provides for joint exploitation, Article 81 may apply to
this part of the agreement if due to subsequent market
restrictive of
the agreement becomes
developments
(any longer)
competition and does not
satisfy the
conditions of Article 81(3)
taking due account of ex
ante sunk investments, cf. the previous paragraph.

research and development,

in time the agreement

the

restrictions

as hardcore
and notices. Agreements of

46. Article 81(3) does not exclude a priori certain types of
agreements from its scope. As a matter of principle all
restrictive agreements that fulfil the four conditions of
Article 81(3) are covered by the exception rule (61).
However, severe restrictions of competition are unlikely
to fulfil the conditions of Article 81(3). Such restrictions
are usually black-listed in block exemption regulations or
in Commission
identified
guidelines
this nature
the two first conditions of
generally fail
Article 81(3). They neither create objective economic
benefits (62) nor do they benefit consumers (63). For
to fix prices limits
example, a horizontal agreement
It also
leading to misallocation of resources.
output
transfers value from consumers to producers, since it
leads to higher prices without producing any counter-
vailing value to consumers within the relevant market.
Moreover, these types of agreements generally also fail
the indispensability test under the third condition (64).

least)

(at

3.2. First condition of Article 81(3): Efficiency gains

3.2.1. General remarks

48. According to the first condition of Article 81(3)

the
restrictive agreement must contribute to improving the
production or distribution of goods or to promoting
technical or economic progress. The provision refers
expressly only to goods, but applies by analogy to
services.

49. It follows from the case law of the Court of Justice that
only objective benefits can be taken into account (67).
This means that efficiencies are not assessed from the
subjective point of view of the parties (68). Cost savings
that arise from the mere exercise of market power by the
parties cannot be taken into account. For instance, when
companies agree to fix prices or share markets they
reduce output and thereby production costs. Reduced
competition may also lead to lower sales and marketing
expenditures. Such cost reductions are a direct conse-
quence of a reduction in output and value. The cost
any
reductions
produce
pro-competitive effects on the market.
In particular,
they do not lead to the creation of value through an
integration of assets and activities. They merely allow
the undertakings concerned to increase their profits and
are therefore irrelevant from the point of view of Article
81(3).

question

not

do

in

50. The purpose of the first condition of Article 81(3) is to
define the types of efficiency gains that can be taken into
account and be subject to the further tests of the second
and third conditions of Article 81(3). The aim of the
analysis is to ascertain what are the objective benefits
created by the agreement and what
is the economic
importance of such efficiencies. Given that for Article
81(3) to apply the pro-competitive effects flowing from
the agreement must outweigh its anti-competitive effects,
it is necessary to verify what is the link between the
agreement and the claimed efficiencies and what is the
value of these efficiencies.

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51. All efficiency claims must therefore be substantiated so

that the following can be verified:

(a) The nature of the claimed efficiencies;

(b) The link between the agreement and the efficiencies;

(c) The likelihood and magnitude of each claimed effi-

ciency; and

(d) How and when each claimed efficiency would be

achieved.

52. Letter (a) allows the decision-maker to verify whether the
claimed efficiencies are objective in nature, cf. paragraph
49 above.

53. Letter (b) allows the decision-maker to verify whether
there is a sufficient causal
link between the restrictive
agreement and the claimed efficiencies. This condition
normally requires that the efficiencies result from the
economic activity that forms the object of the agreement.
Such activities may,
take the form of
for example,
distribution, licensing of technology, joint production or
joint research and development. To the extent, however,
that an agreement has wider efficiency enhancing effects
within the relevant market, for example because it leads
to a reduction in industry wide costs, these additional
benefits are also taken into account.

the anti-competitive effects of

the third condition of Article 81(3) must be balanced
against
the agreement,
see paragraph 101 below. Given that Article 81(1) only
applies in cases where the agreement has likely negative
effects on competition and consumers (in the case of
hardcore restrictions such effects are presumed) efficiency
claims must be substantiated so that they can be verified.
Unsubstantiated claims are rejected.

56. In the case of claimed cost efficiencies the undertakings
invoking the benefit of Article 81(3) must as accurately
as reasonably possible calculate or estimate the value of
the efficiencies and describe in detail how the amount
has been computed. They must also describe
the
method(s) by which the efficiencies have been or will
be achieved. The data submitted must be verifiable so
that there can be a sufficient degree of certainty that
the
likely to
materialise.

efficiencies have materialised or

are

57. In the case of claimed efficiencies in the form of new or
improved products and other non-cost based efficiencies,
the undertakings claiming the benefit of Article 81(3)
must describe and explain in detail what is the nature
of the efficiencies and how and why they constitute an
objective economic benefit.

58. In cases where the agreement has yet to be fully imple-
mented the parties must substantiate any projections as
to the date from which the efficiencies will become oper-
ational so as to have a significant positive impact in the
market.

3.2.2. The different categories of efficiencies

54. The causal link between the agreement and the claimed
efficiencies must normally also be direct (69). Claims
rule too
based on indirect effects are as a general
uncertain and too remote to be taken into account. A
direct causal link exists for instance where a technology
transfer agreement allows the licensees to produce new
or improved products or a distribution agreement allows
lower cost or valuable
products to be distributed at
services to be produced. An example of indirect effect
would be a case where it is claimed that a restrictive
agreement
to
increase their profits, enabling them to invest more in
to the ultimate benefit of
research and development
consumers. While there may be a link between profit-
ability and research and development,
link is
generally not
taken into
to be
account in the context of Article 81(3).

sufficiently direct

undertakings

concerned

allows

this

the

55. Letters (c) and (d) allow the decision-maker to verify the
value of the claimed efficiencies, which in the context of

59. The types of efficiencies listed in Article 81(3) are broad
categories which are intended to cover all objective
is considerable overlap
economic efficiencies. There
between the various categories mentioned in Article
81(3) and the same agreement may give rise to several
kinds of efficiencies.
It is therefore not appropriate to
draw clear and firm distinctions between the various
categories. For
a
distinction is made between cost efficiencies and effi-
ciencies of a qualitative nature whereby value is created
in the form of new or
improved products, greater
product variety etc.

these guidelines,

the purpose of

60. In general, efficiencies

to achieve what

stem from an integration of
economic activities whereby undertakings combine their
assets
they could not achieve as
efficiently on their own or whereby they entrust
another undertaking with tasks that can be performed
more efficiently by that other undertaking.

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61. The

and

research

production

development,

and
distribution process may be viewed as a value chain
that can be divided into a number of stages. At each
stage of this chain an undertaking must make a choice
between performing the activity itself, performing it
together with (an)other undertaking(s) or outsourcing
the activity entirely to (an)other undertaking(s).

62. In each case where the choice made involves cooperation
on the market with another undertaking, an agreement
within the meaning of Article 81(1) normally needs to be
concluded. These agreements can be vertical, as is the
case where the parties operate at different levels of the
value chain or horizontal, as is the case where the firms
operate at
the value chain. Both
categories of agreements may create efficiencies by
allowing the undertakings in question to perform a
particular task at lower cost or with higher added value
for consumers. Such agreements may also contain or lead
the
to restrictions of
prohibition rule of Article 81(1) and the exception rule
of Article 81(3) may become relevant.

competition in which case

the same level of

63. The types of efficiencies mentioned in the following are
only examples and are not intended to be exhaustive.

3.2.2.1. C o s t e f f i c i e n c i e s

64. Cost efficiencies flowing from agreements between under-
takings can originate from a number of different sources.
One very important source of cost savings is the devel-
opment of new production technologies and methods. In
general, it is when technological leaps are made that the
greatest potential
is achieved. For
instance, the introduction of the assembly line led to a
very substantial reduction in the cost of producing motor
vehicles.

for cost

savings

materials per unit of output. Synergies are created if by
establishing a production joint venture combining the
production assets of A and B the parties can attain a
level of output per hour with a low(er) input
high(er)
if one
of raw materials per unit of output. Similarly,
undertaking has optimised one part of the value chain
and another undertaking has optimised another part of
the value chain, the combination of their operations may
lead to lower costs. Firm A may for instance have a
highly automated production facility resulting in low
production costs per unit whereas B has developed an
efficient order processing system. The system allows
production to be
demand,
ensuring timely delivery and reducing warehousing and
obsolescence costs. By combining their assets A and B
may be able to obtain cost reductions.

to customer

tailored

it

is

almost

undertakings

empty, half-full or

66. Cost efficiencies may also result from economies of scale,
i.e. declining cost per unit of output as output increases.
To give an example: investment in equipment and other
assets often has to be made in indivisible blocks. If an
undertaking cannot fully utilise a block, its average costs
will be higher than if it could do so. For instance, the
cost of operating a truck is virtually the same regardless
full.
of whether
Agreements whereby
their
logistics operations may allow them to increase the
vehicles
the number of
load factors
employed. Larger
scale may also allow for better
division of
labour leading to lower unit costs. Firms
may achieve economies of scale in respect of all parts
of the value chain, including research and development,
production,
Learning
economies constitute a related type of efficiency. As
experience is gained in using a particular production
process or in performing particular tasks, productivity
may increase because the process is made to run more
efficiently or because the task is performed more quickly.

and marketing.

and reduce

distribution

combine

65. Another very important source of efficiency is synergies
resulting from an integration of existing assets. When the
parties to an agreement combine their respective assets
they may be able to attain a cost/output configuration
that would not otherwise be possible. The combination
of two existing technologies that have complementary
strengths may reduce production costs or lead to the
production of a higher quality product. For instance, it
may be that the production assets of firm A generate a
high output per hour but require a relatively high input
of
the
raw materials per unit of output, whereas
production assets of firm B generate lower output per
raw
hour but

require a relatively lower

input of

cost

67. Economies of scope are another source of cost efficiency,
savings by
which occur when firms achieve
producing different products on the basis of the same
input. Such efficiencies may arise from the fact that it
is possible to use the same components and the same
facilities and personnel to produce a variety of products.
Similarly, economies of scope may arise in distribution
when several types of goods are distributed in the same
vehicles. For instance, a producer of frozen pizzas and a
producer of frozen vegetables may obtain economies of
scope by jointly distributing their products. Both groups
of products must be distributed in refrigerated vehicles
and it is likely that there are significant overlaps in terms
of customers. By combining their operations the two
producers may obtain lower distribution costs per
distributed unit.

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reducing

68. Efficiencies in the form of cost reductions can also follow
that allow for better planning of
from agreements
production,
the need to hold expensive
inventory and allowing for better capacity utilisation.
Efficiencies of this nature may for example stem from
the use of ‘just in time’ purchasing,
i.e. an obligation
on a supplier of components to continuously supply
the buyer according to its needs thereby avoiding the
need for the buyer to maintain a significant stock of
components which risks becoming obsolete. Cost
savings may also result from agreements that allow the
parties to rationalise production across their facilities.

3.2.2.2. Q u a l i t a t i v e e f f i c i e n c i e s

69. Agreements between undertakings may generate various
efficiencies of a qualitative nature which are relevant to
the application of Article 81(3). In a number of cases the
main efficiency enhancing potential of the agreement is
not cost reduction; it is quality improvements and other
efficiencies of a qualitative nature. Depending on the
individual case such efficiencies may therefore be of
equal or greater importance than cost efficiencies.

70. Technical and technological advances form an essential
and dynamic part of the economy, generating significant
benefits in the form of new or improved goods and
services. By cooperating undertakings may be able to
create efficiencies that would not have been possible
without the restrictive agreement or would have been
possible only with substantial delay or at higher cost.
source of
Such efficiencies constitute an important
economic benefits covered by the first condition of
Article 81(3). Agreements capable of producing effi-
ciencies of
in particular, research
and development agreements. An example would be A
and B creating a joint venture for the development and, if
successful,
joint production of a cell-based tyre. The
puncture of one cell does not affect other cells, which
means that there is no risk of collapse of the tyre in the
event of a puncture. The tyre is thus safer than traditional
tyres. It also means that there is no immediate need to
change the tyre and thus to carry a spare. Both types of
efficiencies
constitute objective benefits within the
meaning of the first condition of Article 81(3).

this nature include,

71. In the same way that the combination of complementary
assets can give rise to cost savings, combinations of assets
may also create synergies that create efficiencies of a
qualitative nature. The combination of production assets
may for instance lead to the production of higher quality

the

case

licence

agreements,

products or products with novel features. This may for
instance be
and
for
agreements providing for joint production of new or
improved goods or services. Licence agreements may,
in particular, ensure more rapid dissemination of new
technology in the Community and enable the licensee(s)
to make available new products or to employ new
production techniques that lead to quality improvements.
Joint production agreements may,
in particular, allow
new or improved products or services to be introduced
on the market more quickly or at lower cost (70). In the
telecommunications
for example, cooperation
agreements have been held to create efficiencies by
making available more quickly new global services (71).
that
In the banking sector cooperation agreements
made available improved facilities for making cross-
border payments have also been held to create effi-
ciencies falling within the scope of the first condition
of Article 81(3) (72).

sector,

72. Distribution agreements may also give rise to qualitative
efficiencies. Specialised distributors, for example, may be
able to provide services
tailored to
customer needs or to provide quicker delivery or better
quality assurance throughout the distribution chain (73).

that are better

3.3. Third condition of Article 81(3): Indispensability of
the restrictions

impose

agreement must not

73. According to the third condition of Article 81(3) the
restrictive
restrictions,
which are not indispensable to the attainment of the
efficiencies created by the agreement in question. This
condition implies a two-fold test. First,
the restrictive
agreement as such must be reasonably necessary in
order to achieve the efficiencies. Secondly, the individual
restrictions of competition that flow from the agreement
must also be reasonably necessary for the attainment of
the efficiencies.

74. In the context of the third condition of Article 81(3) the
decisive factor is whether or not the restrictive agreement
and individual restrictions make it possible to perform
the activity in question more efficiently than would
likely have been the case in the absence of
the
agreement or the restriction concerned. The question is
not whether
the restriction the
agreement would not have been concluded, but
are produced with the
whether more
agreement or restriction than in the absence of
the
agreement or restriction (74).

in the absence of

efficiencies

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Official Journal of the European Union

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and less

75. The first test contained in the third condition of Article
81(3) requires that
the efficiencies be specific to the
agreement in question in the sense that there are no
other
restrictive
economically practicable
In making this
means of achieving the efficiencies.
latter assessment
the market conditions and business
realities facing the parties to the agreement must be
taken into account. Undertakings invoking the benefit
of Article 81(3) are not required to consider hypothetical
theoretical alternatives. The Commission will not
or
second guess the business judgment of the parties.
It
will only intervene where it
is reasonably clear that
there are realistic and attainable alternatives. The parties
must only explain and demonstrate why such seemingly
realistic and significantly less restrictive alternatives to the
agreement would be significantly less efficient.

It

is estimated that

these economies will
developed.
reduce production costs by a further 5 %. The output
of the joint venture is sold independently by A and B.
In this case the indispensability condition necessitates an
the benefits could be
assessment of whether or not
substantially achieved by means of a licence agreement,
which would be likely to be less restrictive because A and
B would continue to produce independently.
In the
circumstances described this is unlikely to be the case
since under a licence agreement the parties would not
be able to benefit in the same seamless and continued
way from their respective experience in operating the
two technologies,
learning
economies.

in significant

resulting

explain

undertakings

concerned must

76. It is particularly relevant to examine whether, having due
regard to the circumstances of the individual case, the
parties could have achieved the efficiencies by means of
another less restrictive type of agreement and, if so, when
they would likely be able to obtain the efficiencies. It may
also be necessary to examine whether the parties could
have achieved the efficiencies on their own. For instance,
where the claimed efficiencies take the form of cost
reductions resulting from economies of scale or scope
the
and
substantiate why the same efficiencies would not be
likely to be attained through internal growth and price
competition. In making this assessment it is relevant to
consider, inter alia, what is the minimum efficient scale
on the market concerned. The minimum efficient scale is
the level of output required to minimise average cost and
exhaust economies of scale (75). The larger the minimum
efficient scale compared to the current size of either of
the parties to the agreement, the more likely it is that the
efficiencies will be deemed to be
to the
agreement.
that produce
substantial synergies through the combination of comple-
mentary assets and capabilities the very nature of the
efficiencies
the
agreement is necessary to attain them.

In the case of agreements

to a presumption that

specific

give

rise

77. These principles can be illustrated by the following hypo-

thetical example:

A and B combine within a joint venture their respective
production technologies to achieve higher output and
lower raw material consumption. The joint venture is
respective
granted
licence
exclusive
production technologies. The parties
their
existing production facilities to the joint venture. They
also transfer key staff in order to ensure that existing
exploited and further
learning

economies

can be

transfer

their

an

to

78. Once it

is found that

the agreement

in question is
necessary in order to produce the efficiencies, the indis-
pensability of each restriction of competition flowing
from the agreement must be assessed. In this context it
restrictions are
must be assessed whether
reasonably necessary in order to produce the efficiencies.
The parties to the agreement must substantiate their
claim with regard to both the nature of the restriction
and its intensity.

individual

79. A restriction is

indispensable if

its absence would
eliminate or significantly reduce the efficiencies
that
follow from the agreement or make it significantly less
likely that they will materialise. The assessment of alter-
native solutions must take into account the actual and
potential improvement in the field of competition by the
elimination of a particular restriction or the application
of a less restrictive alternative. The more restrictive the
restraint the stricter the test under the third condition (76).
Restrictions that are black listed in block exemption regu-
lations
in
Commission guidelines and notices are unlikely to be
considered indispensable.

restrictions

identified

hardcore

or

as

80. The assessment of indispensability is made within the
actual context
in which the agreement operates and
must in particular take account of the structure of the
market, the economic risks related to the agreement, and
the incentives facing the parties. The more uncertain the
success of the product covered by the agreement, the
more a restriction may be required to ensure that the
efficiencies will materialise. Restrictions may also be
indispensable in order to align the incentives of
the
parties and ensure that they concentrate their efforts on
the implementation of the agreement. A restriction may
for instance be necessary in order to avoid hold-up
problems once a substantial sunk investment has been
made by one of
instance a
relationship-specific
supplier has made a substantial

the parties. Once for

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investment with a view to supplying a customer with an
input, the supplier is locked into the customer. In order
to avoid that
this
the
dependence to obtain more favourable terms, it may be
necessary to impose an obligation not to purchase the
component from third parties or to purchase minimum
quantities of the component from the supplier (77).

customer

ex post

exploits

81. In some cases a restriction may be indispensable only for
a certain period of time, in which case the exception of
Article 81(3) only applies during that period. In making
this assessment it is necessary to take due account of the
period of time required for the parties to achieve the
efficiencies justifying the application of
the exception
rule (78). In cases where the benefits cannot be achieved
without
in
particular, be taken of the period of time required to
ensure an adequate return on such investment, see also
paragraph 44 above.

account must,

considerable

investment,

82. These principles can be illustrated by the following hypo-

thetical examples:

frequent

relatively

deliveries

P produces and distributes frozen pizzas, holding 15 % of
the market
in Member State X. Deliveries are made
directly to retailers. Since most retailers have limited
capacity,
storage
are
leading to low capacity utilisation and use of
required,
relatively small vehicles. T is a wholesaler of
frozen
pizzas and other frozen products, delivering to most of
the same customers as P. The pizza products distributed
by T hold 30 % of the market. T has a fleet of larger
vehicles and has excess capacity. P concludes an exclusive
distribution agreement with T for Member State X and
undertakes to ensure that distributors in other Member
States will not sell
into T's territory either actively or
passively. T undertakes to advertise the products, survey
consumer tastes and satisfaction rates and ensure delivery
to retailers of all products within 24 hours. The
agreement
leads to a reduction in total distribution
costs of 30 % as capacity is better utilised and duplication
of routes is eliminated. The agreement also leads to the
consumers.
provision
Restrictions on passive sales are hardcore restrictions
under
the block exemption regulation on vertical
restraints (79) and can only be considered indispensable
in exceptional circumstances. The established market
position of T and the nature of the obligations imposed
on it indicate this is not an exceptional case. The ban on
active selling, on the other hand,
is likely to be indis-
pensable. T is likely to have less incentive to sell and
if distributors in other Member
advertise the P brand,

additional

services

to

of

States could sell actively in Member State X and thus
get a free ride on the efforts of T. This is particularly
so, as T also distributes competing brands and thus has
the possibility of pushing more of the brands that are the
least exposed to free riding.

S is a producer of carbonated soft drinks, holding 40 %
of the market. The nearest competitor holds 20 %. S
concludes supply agreements with customers accounting
for 25 % of demand, whereby they undertake to purchase
exclusively from S for 5 years. S concludes agreements
with other customers accounting for 15 % of demand
whereby they are granted quarterly target rebates,
if
their purchases exceed certain individually fixed targets.
S claims that the agreements allow it to predict demand
more accurately and thus to better plan production,
reducing raw material storage and warehousing costs
and avoiding supply shortages. Given the market
the
position of S and the combined coverage of
restrictions,
the restrictions are very unlikely to be
considered indispensable. The exclusive purchasing obli-
gation exceeds what is required to plan production and
the same is true of the target rebate scheme. Predictability
of demand can be achieved by less restrictive means. S
could, for example, provide incentives for customers to
order large quantities at a time by offering quantity
rebates or by offering a rebate to customers that place
firm orders in advance for delivery on specified dates.

3.4. Second condition of Article 81(3): Fair share for
consumers

3.4.1. General remarks

83. According to the second condition of Article 81(3)
consumers must receive a fair share of the efficiencies
generated by the restrictive agreement.

84. The concept of

‘consumers’ encompasses all direct or
indirect users of the products covered by the agreement,
including producers that use the products as an input,
i.e. natural
wholesalers, retailers and final consumers,
persons who are acting for purposes which can be
regarded as outside their trade or profession. In other
words, consumers within the meaning of Article 81(3)
are the customers of the parties to the agreement and
subsequent purchasers. These customers can be under-
takings as in the case of buyers of industrial machinery
or an input for further processing or final consumers as
for instance in the case of buyers of impulse ice-cream or
bicycles.

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85. The concept of ‘fair share’

the net

effect of

agreements,

implies that the pass-on of
benefits must at
least compensate consumers for any
actual or likely negative impact caused to them by the
restriction of competition found under Article 81(1). In
line with the overall objective of Article 81 to prevent
anti-competitive
the
agreement must at least be neutral from the point of
view of those consumers directly or likely affected by
the agreement (80).
If such consumers are worse off
second condition of
following the
Article 81(3) is not fulfilled. The positive effects of an
agreement must be balanced against and compensate for
its negative effects on consumers (81). When that is the
case consumers are not harmed by the agreement.
Moreover, society as a whole benefits where the effi-
ciencies lead either to fewer resources being used to
produce the output consumed or to the production of
more valuable products and thus to a more efficient
allocation of resources.

agreement,

the

86. It is not required that consumers receive a share of each
and every efficiency gain identified under
the first
condition. It suffices that sufficient benefits are passed
the negative effects of
on to compensate for
the
In that case consumers obtain a
restrictive agreement.
the overall benefits (82).
fair share of
If a restrictive
agreement is likely to lead to higher prices, consumers
must be fully compensated through increased quality or
other benefits.
If not, the second condition of Article
81(3) is not fulfilled.

87. The decisive factor is the overall impact on consumers of
the products within the relevant market and not
the
impact on individual members of
this group of
consumers (83). In some cases a certain period of time
may be required before the efficiencies materialise. Until
such time the agreement may have only negative effects.
The fact that pass-on to the consumer occurs with a
certain time lag does not in itself exclude the application
of Article 81(3). However, the greater the time lag, the
greater must be the efficiencies to compensate also for
the loss to consumers during the period preceding the
pass-on.

88. In making this assessment it must be taken into account
that the value of a gain for consumers in the future is not
the same as a present gain for consumers. The value of
saving 100 euro today is greater than the value of saving

the same amount a year later. A gain for consumers in
fully compensate for a
the future therefore does not
loss to consumers of equal nominal size.
present
In
to allow for an appropriate comparison of a
order
to consumers with a future gain to
present
consumers, the value of future gains must be discounted.
The discount
the rate of
inflation,
if any, and lost interest as an indication of
the lower value of future gains.

rate applied must

reflect

loss

89. In other cases the agreement may enable the parties to
obtain the efficiencies earlier than would otherwise be
possible. In such circumstances it is necessary to take
the likely negative impact on consumers
account of
within the relevant market once this
lead-time has
lapsed. If through the restrictive agreement the parties
obtain a strong position on the market, they may be
able to charge a significantly higher price than would
otherwise have been the case. For the second condition
of Article 81(3) to be satisfied the benefit to consumers
of having earlier access to the products must be equally
significant. This may for instance be the case where an
agreement allows two tyre manufacturers to bring to
market three years earlier a new substantially safer tyre
but at the same time, by increasing their market power,
allows them to raise prices by 5 %. In such a case it is
likely that having early access to a substantially improved
product outweighs the price increase.

90. The second condition of Article 81(3)

if

incorporates a
sliding scale. The greater the restriction of competition
found under Article 81(1) the greater must be the effi-
ciencies and the pass-on to consumers. This sliding scale
approach implies that
the restrictive effects of an
agreement are relatively limited and the efficiencies are
substantial it is likely that a fair share of the cost savings
will be passed on to consumers.
is
therefore normally not necessary to engage
in a
detailed analysis of
the second condition of Article
81(3), provided that the three other conditions for the
application of this provision are fulfilled.

In such cases it

91. If, on the other hand,

the restrictive effects of

the
savings are
agreement are substantial and the cost
relatively insignificant,
the
second condition of Article 81(3) will be fulfilled. The
impact of the restriction of competition depends on the
intensity of the restriction and the degree of competition
that remains following the agreement.

is very unlikely that

it

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92. If the agreement has both substantial anti-competitive
effects and substantial pro-competitive effects a careful
analysis is required. In the application of the balancing
test in such cases it must be taken into account that
long-term driver of effi-
competition is an important
ciency and innovation. Undertakings
are not
that
to effective competitive constraints – such as
subject
firms – have less incentive to
for instance dominant
maintain or build on the
efficiencies. The more
substantial the impact of the agreement on competition,
the more likely it is that consumers will suffer in the long
run.

93. The following two sections describe in more detail the
analytical framework for assessing consumer pass-on of
efficiency gains. The first section deals with cost effi-
ciencies, whereas the section that follows covers other
types of efficiencies such as new or improved products
framework, which is
(qualitative
developed
particularly
important in cases where it is not immediately obvious
that
to
the competitive harms exceed the benefits
consumers or vice versa (84).

efficiencies). The
in

sections,

these

two

is

consumer pass-on may occur. In assessing the extent to
which cost efficiencies are likely to be passed on to
consumers and the outcome of
the balancing test
contained in Article 81(3) the following factors are in
particular taken into account:

(a) The characteristics and structure of the market,

(b) The nature and magnitude of the efficiency gains,

(c) The elasticity of demand, and

(d) The magnitude of the restriction of competition.

94. In the application of the principles set out below the
Commission will have regard to the fact that in many
cases it is difficult to accurately calculate the consumer
types of consumer pass-on.
pass-on rate and other
Undertakings are only required to substantiate their
claims by providing estimates and other data to the
extent reasonably possible, taking account of the circum-
stances of the individual case.

All factors must normally be considered. Since Article
81(3) only applies in cases where competition on the
market is being appreciably restricted, see paragraph 24
residual
there can be no presumption that
above,
competition will ensure that consumers receive a fair
share of the benefits. However, the degree of competition
remaining on the market and the nature of
this
competition influences the likelihood of pass-on.

3.4.2. Pass-on and balancing of cost efficiencies

95. When markets, as is normally the case, are not perfectly
competitive, undertakings are able to influence the
market price to a greater or lesser extent by altering
their output (85). They may also be able to price
discriminate amongst customers.

96. Cost efficiencies may in some circumstances lead to
increased output and lower prices
the affected
consumers. If due to cost efficiencies the undertakings
in question can increase profits by expanding output,

for

subject

97. The greater the degree of residual competition the more
likely it is that individual undertakings will try to increase
their sales by passing on cost efficiencies. If undertakings
compete mainly on price and are not
to
capacity constraints, pass-on may occur
significant
relatively quickly. If competition is mainly on capacity
and capacity adaptations occur with a certain time lag,
pass-on will be slower. Pass-on is also likely to be slower
when the market
to tacit
collusion (86).
likely to retaliate
against an increase in output by one or more parties to
the agreement, the incentive to increase output may be
tempered, unless the competitive advantage conferred by
the efficiencies is such that the undertakings concerned
have an incentive to break away from the common
policy adopted on the market by the members of the
oligopoly. In other words, the efficiencies generated by
the agreement may turn the undertakings concerned into
so-called ‘mavericks’ (87).

structure
competitors

conducive

is
are

If

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27.4.2004

is

two

each

revenue

produce

set, pricing

equals marginal

98. The nature of the efficiency gains also plays an important
role. According
theory undertakings
to economic
maximise their profits by selling units of output until
marginal
cost. Marginal
revenue is the change in total revenue resulting from
selling an additional unit of output and marginal cost is
the change in total cost resulting from producing that
additional unit of output. It follows from this principle
that as a general rule output and pricing decisions of a
profit maximising undertaking are not determined by its
fixed costs (i.e. costs that do not vary with the rate of
production) but by its variable costs (i.e. costs that vary
fixed costs are
with the rate of production). After
incurred and capacity
and output
decisions are determined by variable cost and demand
conditions. Take for instance a situation in which two
companies
two
production lines operating only at half their capacities.
A specialisation agreement may allow the two under-
takings
the two
to specialise in producing one of
products and scrap their second production line for the
other product. At the same time the specialisation may
allow the companies
to reduce variable input and
stocking costs. Only the latter savings will have a direct
effect on the pricing and output decisions of the under-
takings, as they will
influence the marginal costs of
production. The scrapping by each undertaking of one
of their production lines will not reduce their variable
costs and will not have an impact on their production
costs.
It follows that undertakings may have a direct
incentive to pass on to consumers in the form of
higher output and lower prices efficiencies that reduce
marginal costs, whereas
they have no such direct
incentive with regard to efficiencies that reduce fixed
costs. Consumers are therefore more likely to receive a
fair share of the cost efficiencies in the case of reductions
in variable costs than they are in the case of reductions in
fixed costs.

products

on

100. It must also be taken into account that efficiency gains
often do not affect the whole cost structure of the under-
takings concerned. In such event the impact on the price
to consumers is reduced. If for example an agreement
allows the parties to reduce production costs by 6 %,
but production costs only make up one third of the
costs on the basis of which prices are determined, the
impact on the product price is 2 %, assuming that the full
amount is passed-on.

101. Finally, and very importantly, it is necessary to balance
the two opposing forces resulting from the restriction of
competition and the cost efficiencies. On the one hand,
any increase in market power caused by the restrictive
agreement gives the undertakings concerned the ability
and incentive to raise price. On the other hand, the types
of cost efficiencies that are taken into account may give
the undertakings concerned an incentive to reduce price,
see paragraph 98 above. The effects of
these two
opposing forces must be balanced against each other. It
the consumer pass-on
is recalled in this regard that
scale. When the
condition incorporates
agreement
reduction in the
competitive constraint facing the parties, extraordinarily
large cost efficiencies are normally required for sufficient
pass-on to occur.

sliding
substantial

causes

a

a

99. The fact that undertakings may have an incentive to pass
on certain types of cost efficiencies does not imply that
the pass-on rate will necessarily be 100 %. The actual
pass-on rate depends on the extent to which consumers
respond to changes in price, i.e. the elasticity of demand.
The greater the increase in demand caused by a decrease
in price, the greater the pass-on rate. This follows from
the fact that the greater the additional sales caused by a
price reduction due to an increase in output the more
likely it is that these sales will offset the loss of revenue
caused by the lower price resulting from the increase in
output.
In the absence of price discrimination the
lowering of prices affects all units sold by the under-
taking, in which case marginal revenue is less than the
price obtained for the marginal product. If the under-
takings concerned are able to charge different prices to
different customers,
i.e. price discriminate, pass-on will
normally only benefit price-sensitive consumers (88).

3.4.3. Pass-on and balancing of other types of efficiencies

102. Consumer pass-on can also take the form of qualitative
efficiencies such as new and improved products, creating
sufficient value for consumers to compensate for the anti-
competitive effects of the agreement,
including a price
increase.

this nature. However,

103. Any such assessment necessarily requires value judgment.
It is difficult to assign precise values to dynamic effi-
ciencies of
fundamental
objective of the assessment remains the same, namely
to ascertain the overall impact of the agreement on the
consumers within the relevant market. Undertakings
claiming the benefit of Article 81(3) must substantiate
that consumers obtain countervailing benefits (see in
this respect paragraphs 57 and 86 above).

the

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104. The

in price

improved

availability

of new and

caused by the

products
constitutes an important source of consumer welfare.
As long as the increase in value stemming from such
improvements exceeds any harm from a maintenance
restrictive
or an increase
agreement, consumers are better off than without the
agreement and the consumer pass-on requirement of
Article 81(3)
In cases where the
likely effect of the agreement is to increase prices for
it must be
consumers within the
carefully assessed whether the claimed efficiencies create
real value for consumers
to
compensate for the adverse effects of the restriction of
competition.

is normally fulfilled.

relevant market

in that market

so as

3.5. Fourth condition of Article 81(3): No elimination of
competition

105. According to the fourth condition of Article 81(3) the
agreement must not afford the undertakings concerned
the possibility of eliminating competition in respect of a
substantial part of the products concerned. Ultimately the
protection of rivalry and the competitive process is given
priority over potentially pro-competitive efficiency gains
which could result from restrictive agreements. The last
condition of Article 81(3) recognises the fact that rivalry
between undertakings is an essential driver of economic
efficiency, including dynamic efficiencies in the shape of
innovation. In other words, the ultimate aim of Article
81 is
competitive process. When
competition is eliminated the competitive process is
brought to an end and short-term efficiency gains are
outweighed by longer-term losses stemming inter alia
from expenditures
to
incurred by
maintain its position (rent seeking), misallocation of
resources, reduced innovation and higher prices.

to protect

incumbent

the

the

106. The

it

concept

this concept

in Article 81(3) of

elimination of
competition in respect of a substantial part of
the
products concerned is an autonomous Community law
concept specific to Article 81(3) (89). However,
in the
application of
is necessary to take
the relationship between Article 81 and
account of
Article 82. According to settled case law the application
of Article 81(3) cannot prevent the application of Article
82 of the Treaty (90). Moreover, since Articles 81 and 82
both pursue the aim of maintaining effective competition
on the market, consistency requires that Article 81(3) be
interpreted as precluding
this
provision to restrictive agreements that constitute an
abuse of a dominant position (91) (92). However, not all
restrictive agreements concluded by a dominant under-
taking constitute an abuse of a dominant position. This is
for instance the case where a dominant undertaking is
party to a non-full function joint venture (93), which is
found to be restrictive of competition but at the same
time involves a substantial integration of assets.

application of

any

and on the

impact of
the
i.e.

107. Whether competition is being eliminated within the
meaning of the last condition of Article 81(3) depends
to the
on the degree of competition existing prior
the
agreement
restrictive
reduction in
agreement on competition,
competition that the agreement brings about. The more
competition is
in the market
already weakened
concerned,
the slighter the further reduction required
for competition to be eliminated within the meaning of
the greater the reduction of
Article 81(3). Moreover,
competition caused by the agreement, the greater the
likelihood that competition in respect of a substantial
part of the products concerned risks being eliminated.

108. The application of the last condition of Article 81(3)
the various sources of
the level of competitive
to the
the agreement on this
and potential

requires a realistic analysis of
competition in the market,
constraint
that
agreement and the impact of
competitive
competition must be considered.

they impose on the parties

constraint. Both actual

109. While market shares are relevant,

the magnitude of
remaining sources of actual competition cannot be
assessed exclusively on the basis of market share. More
extensive qualitative and quantitative analysis is normally
called for. The capacity of actual competitors to compete
and their incentive to do so must be examined. If, for
example, competitors face capacity constraints or have
relatively higher costs of production their competitive
response will necessarily be limited.

110. In the assessment of the impact of the agreement on
competition it is also relevant to examine its influence
on the various parameters of competition. The last
is not
condition for exception under Article 81(3)
fulfilled, if the agreement eliminates competition in one
of its most important expressions. This is particularly the
case when an agreement eliminates price competition (94)
or competition in respect of innovation and development
of new products.

111. The actual market conduct of the parties can provide
insight into the impact of the agreement.
If following
the conclusion of the agreement the parties have imple-
mented and maintained substantial price increases or
engaged in other conduct indicative of the existence of
a considerable degree of market power, it is an indication
that the parties are not subject to any real competitive
pressure and that competition has been eliminated with
regard to a substantial part of the products concerned.

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the impact of

112. Past competitive interaction may also provide an indi-
cation of
the agreement on future
competitive interaction. An undertaking may be able to
eliminate competition within the meaning of Article
81(3) by concluding an agreement with a competitor
in the past has been a ‘maverick’ (95). Such an
that
agreement may change the competitive incentives and
capabilities of the competitor and thereby remove an
important source of competition in the market.

113. In cases involving differentiated products,

the

that

offer

constraint

competitive

undertakings

sold by the parties

i.e. products
that differ in the eyes of consumers, the impact of the
agreement may depend on the competitive relationship
between the products
to the
differentiated
agreement. When
individual
products
products impose on each other differs according to the
degree of substitutability between them. It must therefore
be considered what
is the degree of substitutability
between the products offered by the parties, i.e. what is
they impose on each
the competitive constraint
other. The more the products of
the parties to the
agreement are close substitutes the greater the likely
restrictive effect of the agreement. In other words, the
more substitutable the products the greater the likely
in terms of
change brought about by the agreement
restriction of competition on the market and the more
likely it is that competition in respect of a substantial
part of the products concerned risks being eliminated.

that

114. While sources of actual competition are usually the most
important, as they are most easily verified, sources of
potential competition must also be taken into account.
The assessment of potential competition requires an
analysis of barriers to entry facing undertakings that are
not already competing within the relevant market. Any
assertions by the parties that there are low barriers to
market entry must be supported by information ident-
ifying the sources of potential competition and the
parties must
sources
also substantiate why
constitute a real competitive pressure on the parties.

these

subsequently exits the market. The higher the sunk
costs the higher the commercial risk for potential
entrants.

rate of output where

(iii) The minimum efficient scale within the industry, i.e.
the
are
minimised. If the minimum efficient scale is large
compared to the size of the market, efficient entry
is likely to be more costly and risky.

average

costs

the

(iv) The competitive strengths of potential entrants.
Effective entry is particularly likely where potential
entrants have access to at least as cost efficient
other
technologies
or
competitive
allow them to
compete effectively. When potential entrants are
on the same or an inferior technological trajectory
compared to the incumbents and possess no other
significant competitive advantage entry is more
risky and less effective.

incumbents
that

as
advantages

(v) The position of buyers and their ability to bring
onto the market new sources of competition. It is
irrelevant that certain strong buyers may be able to
extract more favourable conditions from the parties
to the agreement than their weaker competitors (96).
The presence of strong buyers can only serve to
counter a prima facie finding of elimination of
competition if
in
question will pave the way for effective new entry.

the buyers

likely that

is

it

(vi) The likely response of

incumbents to attempted
new entry. Incumbents may for example through
past
reputation of
aggressive behaviour, having an impact on future
entry.

conduct have

acquired a

115. In the assessment of entry barriers and the real possibility
it is relevant to

for new entry on a significant scale,
examine, inter alia, the following:

(vii) The economic outlook for the industry may be an
indicator of its longer-term attractiveness. Industries
that are stagnating or in decline are less attractive
candidates for entry than industries characterised by
growth.

(i) The regulatory framework with a view to deter-

mining its impact on new entry.

(viii) Past entry on a significant scale or the absence

thereof.

(ii) The cost of entry including sunk costs. Sunk costs
are those that cannot be recovered if the entrant

116. The above principles can be illustrated by the following
intended to

examples, which are not

hypothetical
establish thresholds:

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Firm A is brewer, holding 70 % of the relevant market,
comprising the sale of beer through cafés and other
on-trade premises. Over
the past 5 years A has
increased its market share from 60 %. There are four
other competitors in the market, B, C, D and E with
market shares of 10 %, 10 %, 5 % and 5 %. No new
entry has occurred in the recent past and price changes
implemented by A have generally been followed by
competitors. A concludes agreements with 20 % of the
on-trade premises representing 40 % of sales volumes
whereby the contracting parties undertake to purchase
beer only from A for a period of 5 years. The agreements
raise the costs and reduce the revenues of rivals, which
are foreclosed from the most attractive outlets. Given the
market position of A, which has been strengthened in
recent years, the absence of new entry and the already
weak position of competitors it is likely that competition
in the market is eliminated within the meaning of Article
81(3).

tariffs.

Following the

Shipping firms A, B, C, and D, holding collectively more
than 70 % of the relevant market, conclude an agreement
whereby they agree to coordinate their schedules and
the
their
agreement prices rise between 30 % and 100 %. There
are four other suppliers, the largest holding about 14 %
of the relevant market. There has been no new entry in
recent years and the parties to the agreement did not lose
significant market share following the price increases.
The existing competitors brought no significant new

implementation of

the market position of

capacity to the market and no new entry occurred. In
light of
the parties and the
absence of competitive response to their joint conduct
it can reasonably be concluded that the parties to the
agreement are not subject to real competitive pressures
and that the agreement affords them the possibility of
eliminating competition within the meaning of Article
81(3).

A is a producer of electric appliances for professional
users with a market
share of 65 % of a relevant
national market. B is a competing manufacturer with
5 % market share which has developed a new type of
motor that is more powerful while consuming less elec-
tricity. A and B conclude an agreement whereby they
establish a production joint venture for the production
of the new motor. B undertakes to grant an exclusive
licence to the joint venture. The joint venture combines
the new technology of B with the efficient manufacturing
and quality control process of A. There is one other main
competitor with 15 % of the market. Another competitor
with 5 % market share has recently been acquired by C, a
competing electric
major
technologies. C
appliances, which itself owns efficient
has thus far not been active on the market mainly due
to the fact that local presence and servicing is desired by
customers. Through the acquisition C gains access to the
service organisation required to penetrate the market. The
entry of C is likely to ensure that competition is not
being eliminated.

international producer of

(1) In the following the term ‘agreement’ includes concerted practices and decisions of associations of undertakings.

(2) OJ L 1, 4.1.2003, p. 1.

(3) All existing block exemption regulations and Commission notices are available on the DG Competition web-site: http://www.europa.eu.int/comm/

dgs/competition

(4) See paragraph 36 below.

(5) See Commission Notice on Guidelines on vertical restraints (OJ C 291, 13.10.2000, p. 1), Commission Notice on Guidelines on the application of
Article 81 of the Treaty to horizontal cooperation agreements (OJ C 3, 6.1.2001, p. 2), and Commission Notice on Guidelines on the application
of Article 81 of the Treaty to technology transfer agreements, not yet published.

(6) The concept of effect on trade between Member States is dealt with in separate guidelines.

(7) In the following the term ‘restriction’ includes the prevention and distortion of competition.

(8) According to Article 81(2) such agreements are automatically void.

(9) Article 81(1) prohibits both actual and potential anti-competitive effects, see e.g. Case C-7/95 P, John Deere, [1998] ECR I-3111, paragraph 77.

(10) See Case T-65/98, Van den Bergh Foods, [2003] ECR II . . ., paragraph 107 and Case T-112/99, Métropole télévision (M6) and others, [2001] ECR
II-2459, paragraph 74, where the Court of First Instance held that it is only in the precise framework of Article 81(3) that the pro- and
anti-competitive aspects of a restriction may be weighed.

(11) See note above.

(12) See e.g. Case C-49/92 P, Anic Partecipazioni, [1999] ECR I-4125, paragraph 116; and Joined Cases 40/73 to 48/73 and others, Suiker Unie,

[1975] ECR page 1663, paragraph 173.

(13) See in this respect paragraph 108 of the judgment in Anic Partecipazioni cited in the previous note and Case C-277/87, Sandoz Prodotti, [1990]

ECR I-45.

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(14) See in this respect e.g. Case 14/68, Walt Wilhelm, [1969] ECR 1, and more recently Case T-203/01, Michelin (II), [2003] ECR II . . ., paragraph 112.

(15) See Joined Cases T-25/95 and others, Cimenteries CBR, [2000] ECR II-491, paragraphs 1849 and 1852; and Joined Cases T-202/98 and others,

British Sugar, [2001] ECR II-2035, paragraphs 58 to 60.

(16) See to that effect Case C-453/99, Courage v Crehan, [2001] ECR I-6297, and paragraph 3444 of the judgment in Cimenteries CBR cited in the

previous note.

(17) See in this respect Joined Cases C-2/01 P and C-3/01 P, Bundesverband der Arzneimittel-Importeure, [2004] ECR I . . ., paragraph 102.

(18) See e.g. Joined Cases 25/84 and 26/84, Ford, [1985] ECR 2725.

(19) See in this respect paragraph 141 of the judgment in Bundesverband der Arzneimittel-Importeure cited in note.

(20) See Case 56/65, Société Technique Minière, [1966] ECR 337, and paragraph 76 of the judgment in John Deere, cited in note 9.

(21) See in this respect e.g. Joined Cases 56/64 and 58/66, Consten and Grundig, [1966] ECR 429.

(22) See in this respect e.g. Commission Decision in Elopak/Metal Box – Odin (OJ 1990 L 209, p. 15) and in TPS (OJ 1999 L 90, p. 6).

(23) See in this respect the judgment in Société Technique Minière cited in note 20 and Case 258/78, Nungesser, [1982] ECR 2015.

(24) See rule 10 in paragraph 119 of the Guidelines on vertical restraints cited in note above, according to which inter alia passive sales restrictions —
a hardcore restraint — are held to fall outside Article 81(1) for a period of 2 years when the restraint is linked to opening up new product or
geographic markets.

(25) See e.g. paragraph 99 of the judgment in Anic Partecipazioni cited in note 12.

(26) See paragraph 46 below.

(27) See Joined Cases 29/83 and 30/83, CRAM and Rheinzink, [1984] ECR 1679, paragraph 26, and Joined Cases 96/82 and others, ANSEAU-

NAVEWA, [1983] ECR 3369, paragraphs 23-25.

(28) See the Guidelines on horizontal cooperation agreements, cited in note, paragraph 25, and Article 5 of Commission Regulation 2658/2000 on

the application of Article 81(3) of the Treaty to categories of specialisation agreements (OJ L 304, 5.12.2000, p. 3).

(29) See Article 4 Commission Regulation 2790/1999 on the application of Article 81(3) of the Treaty to categories of vertical agreements and
concerted practices (OJ L 336, 29.12.1999, p. 21) and the Guidelines on Vertical Restraints, cited in note, paragraph 46 et seq. See also Case
279/87, Tipp-Ex, [1990] ECR I-261, and Case T-62/98, Volkswagen v Commission, [2000] ECR II-2707, paragraph 178.

(30) See paragraph 77 of the judgment in John Deere cited in note 9.

(31) It is not sufficient in itself that the agreement restricts the freedom of action of one or more of the parties, see paragraphs 76 and 77 of the
judgment in Métropole television (M6) cited in note10. This is in line with the fact that the object of Article 81 is to protect competition on the
market for the benefit of consumers.

(32) See e.g. Case 5/69, Völk, [1969] ECR 295, paragraph 7. Guidance on the issue of appreciability can be found in the Commission Notice on
agreements of minor importance which do not appreciably restrict competition under Article 81(1) of the Treaty (OJ C 368, 22.12.2001, p. 13)
The notice defines appreciability in a negative way. Agreements, which fall outside the scope of the de minimis notice, do not necessarily have
appreciable restrictive effects. An individual assessment is required.

(33) See in this respect Joined Cases T-374/94 and others, European Night Services, [1998] ECR II-3141.

(34) See note 32.

(35) See in this respect Commission notice on the definition of the relevant market for the purposes of Community competition law (OJ C 372,

9.12.1997, p. 1).

(36) For the reference in the OJ see note 5.

(37) See paragraph 104 of the judgment in Métropole télévision (M6) and others, cited in note 10.

(38) See e.g. Case C-399/93, Luttikhuis, [1995] ECR I-4515, paragraphs 12 to 14.

(39) See in this respect paragraphs 118 et seq. of the Métropole television judgment cited in note 10.

(40) See paragraph 107 of the judgment in Métropole télévision judgement cited in note 10.

(41) See e.g. Commission Decision in Elopak/Metal Box – Odin cited in note 22.

(42) See Case 161/84, Pronuptia, [1986] ECR 353.

(43) See note 22. The decision was upheld by the Court of First Instance in the judgment in Métropole télévision (M6) cited in note 10.

(44) Cost savings and other gains to the parties that arise from the mere exercise of market power do not give rise to objective benefits and cannot be

taken into account, cf. paragraph 49 below.

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(45) See the judgment in Consten and Grundig, cited in note 21.

(46) The fact that an agreement is block exempted does not in itself indicate that the individual agreement is caught by Article 81(1).

(47) See e.g. Case C-234/89, Delimitis, [1991] ECR I-935, paragraph 46.

(48) Article 36(4) of Regulation 1/2003 has, inter alia, repealed Article 5 of Regulation 1017/68 applying rules of competition to transport by rail,
road and inland waterway. However, the Commission's case practice adopted under Regulation 1017/68 remains relevant for the purposes of
applying Article 81(3) in the inland transport sector.

(49) See paragraph 42 below.

(50) See the judgment in Société Technique Minière cited in note 20.

(51) See in this respect Case 319/82, Kerpen & Kerpen, [1983] ECR 4 173, paragraphs 11 and 12.

(52) See e.g. Case T-185/00 and others, Métropole télévision SA (M6), [2002] ECR II-3805, paragraph 86, Case T-17/93, Matra, ECR [1994] II-595,

paragraph 85; and Joined Cases 43/82 and 63/82, VBVB and VBBB, [1984] ECR 19, paragraph 61.

(53) See Case T-213/00, CMA CGM and others, [2003] ECR II . . ., paragraph 226.

(54) See to that effect implicitly paragraph 139 of the Matra judgment cited in note 52 and Case 26/76, Metro (I), [1977] ECR 1875, paragraph 43.

(55) As to the concept of consumers see paragraph 84 below where it is stated that consumers are the customers of the parties and subsequent buyers.

The parties themselves are not ‘consumers’ for the purposes of Article 81(3).

(56) The test is market specific, see to that effect Case T-131/99, Shaw, [2002] ECR II-2023, paragraph 163, where the Court of First Instance held
that the assessment under Article 81(3) had to be made within the same analytical framework as that used for assessing the restrictive effects, and
Case C-360/92 P, Publishers Association, [1995] ECR I-23, paragraph 29, where in a case where the relevant market was wider than national the
Court of Justice held that in the application of Article 81(3) it was not correct only to consider the effects on the national territory.

(57) In Case T-86/95, Compagnie Générale Maritime and others, [2002] ECR II-1011, paragraphs 343 to 345, the Court of First Instance held that
Article 81(3) does not require that the benefits are linked to a specific market and that in appropriate cases regard must be had to benefits ‘for
every other market on which the agreement in question might have beneficial effects, and even, in a more general sense, for any service the
quality or efficiency of which might be improved by the existence of that agreement’. Importantly, however, in this case the affected group of
consumers was the same. The case concerned intermodal transport services encompassing a bundle of, inter alia, inland and maritime trans-
portation provided to shipping companies across the Community. The restrictions related to inland transport services, which were held to
constitute a separate market, whereas the benefits were claimed to occur in relation to maritime transport services. Both services were demanded
by shippers requiring intermodal transport services between northern Europe and South-East and East Asia. The judgment in CMA CGM, cited in
note 53 above, also concerned a situation where the agreement, while covering several distinct services, affected the same group of consumers,
namely shippers of containerised cargo between northern Europe and the Far East. Under the agreement the parties fixed charges and surcharges
relating to inland transport services, port services and maritime transport services. The Court of First Instance held (cf. paragraphs 226 to 228)
that in the circumstances of the case there was no need to define relevant markets for the purpose of applying Article 81(3). The agreement was
restrictive of competition by its very object and there were no benefits for consumers.

(58) See paragraphs 126 and 132 of the Guidelines on horizontal co-operation agreements cited in note 5 above.

(59) See the Ford judgment cited in note 18.

(60) See in this respect for example Commission Decision in TPS (OJ L 90, 2.4.1999, p. 6). Similarly, the prohibition of Article 81(1) also only applies

as long as the agreement has a restrictive object or restrictive effects.

(61) See paragraph 85 of the Matra judgment cited in note 52.

(62) As to this requirement see paragraph 49 below.

(63) See e.g. Case T-29/92, Vereniging van Samenwerkende Prijsregelende Organisaties in de Bouwnijverheid (SPO), [1995] ECR II-289.

(64) See e.g. Case 258/78, Nungesser, [1982] ECR 2015, paragraph 77, concerning absolute territorial protection.

(65) See in this respect e.g. the judgment in SPO cited in note 63.

(66) National measures must, inter alia, comply with the Treaty rules on free movement of goods, services, persons and capital.

(67) See e.g. the judgment in Consten and Grundig cited in note 21.

(68) See in this respect Commission Decision in Van den Bergh Foods (OJ 1998 L 246, p. 1).

(69) See in this respect Commission Decision in Glaxo Wellcome (OJ 2001 L 302, p. 1).

(70) See e.g. Commission Decision in GEAE/P&W (OJ 2000 L 58, p. 16); in British Interactive Broadcasting/Open (OJ 1999 L 312, p. 1) and in

Asahi/Saint Gobain (OJ 1994 L 354, page 87).

(71) See e.g. Commission Decision in Atlas (OJ 1996 L 239, p. 23), and in Phoenix/Global One (OJ 1996 L 239, p. 57).

(72) See e.g. Commission Decision in Uniform Eurocheques (OJ 1985 L 35, p. 43).

(73) See e.g. Commission Decision in Cégétel + 4 (OJ 1999 L 88, p. 26).

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(74) As to the former question, which may be relevant in the context of Article 81(1), see paragraph 18 above.

(75) Scale economies are normally exhausted at a certain point. Thereafter average costs will stabilise and eventually rise due to, for example, capacity

constraints and bottlenecks.

(76) See in this respect paragraphs 392 to 395 of the judgment in Compagnie Générale Maritime cited in note 57.

(77) See for more detail paragraph 116 of the Guidelines on Vertical Restraints cited in note 5.

(78) See Joined Cases T-374/94 and others, European Night Services, [1998] ECR II-3141, paragraph 230.

(79) See Commission Regulation No 2790/1999 on the application of Article 81(3) of the Treaty on categories of vertical agreements and concerted

practices (OJ 1999 L 336, page 21).

(80) See in this respect the judgment in Consten and Grundig cited in note 21, where the Court of Justice held that the improvements within the
meaning of the first condition of Article 81(3) must show appreciable objective advantages of such a character as to compensate for the
disadvantages which they cause in the field of competition.

(81) It is recalled that positive and negative effects on consumers are in principle balanced within each relevant market (cf. paragraph 43 above).

(82) See in this respect paragraph 48 of the Metro (I) judgment cited in note 54.

(83) See paragraph 163 of the judgment in Shaw cited in note 56.

(84) In the following sections, for convenience the competitive harm is referred to in terms of higher prices; competitive harm could also mean lower

quality, less variety or lower innovation than would otherwise have occurred.

(85) In perfectly competitive markets individual undertakings are price-takers. They sell their products at the market price, which is determined by
overall supply and demand. The output of the individual undertaking is so small that any individual undertaking's change in output does not
affect the market price.

(86) Undertakings collude tacitly when in an oligopolistic market they are able to coordinate their action on the market without resorting to an explicit

cartel agreement.

(87) This term refers to undertakings that constrain the pricing behaviour of other undertakings in the market who might otherwise have tacitly

colluded.

(88) The restrictive agreement may even allow the undertakings in question to charge a higher price to customers with a low elasticity of demand.

(89) See Joined Cases T-191/98, T-212/98 and T-214/98, Atlantic Container Line (TACA), [2003] ECR II-. . ., paragraph 939, and Case T-395/94,

Atlantic Container Line, [2002] ECR II-875, paragraph 330.

(90) See Joined Cases C-395/96 P and C-396/96 P, Compagnie maritime belge, [2000] ECR I-1365, paragraph 130. Similarly, the application of
Article 81(3) does not prevent the application of the Treaty rules on the free movement of goods, services, persons and capital. These provisions
are in certain circumstances applicable to agreements, decisions and concerted practices within the meaning of Article 81(1), see to that effect
Case C-309/99, Wouters, [2002] ECR I-1577, paragraph 120.

(91) See in this respect Case T-51/89, Tetra Pak (I), [1990] ECR II-309, and Joined Cases T-191/98, T-212/98 and T-214/98, Atlantic Container Line

(TACA), [2003] ECR II-. . ., paragraph 1456.

(92) This is how paragraph 135 of the Guidelines on vertical restraints and paragraphs 36, 71, 105, 134 and 155 of the Guidelines on horizontal
cooperation agreements, cited in note 5, should be understood when they state that in principle restrictive agreements concluded by dominant
undertakings cannot be exempted.

(93) Full function joint ventures, i.e. joint ventures that perform on a lasting basis all the functions of an autonomous economic entity, are covered by

Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings (OJ 1990 L 257, p 13).

(94) See paragraph 21 of the judgment in Metro (I) cited in note 54.

(95) See paragraph 97 above.

(96) See in this respect Case T-228/97, Irish Sugar, [1999] ECR II-2969, paragraph 101.