European Union Competition Law - Anti-competitive State Regulation

Anti-competitive State Regulation

EU Member states must not allow or assist businesses ("undertakings" in EU jargon) to infringe European Union competition law.

Article 106 of the Treaty on the Functioning of the European Union provides that:

"1. In the case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any measure contrary to the rules contained in the Treaties, in particular to those rules provided for in Article 18 and Articles 101 to 109.

2. Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in the Treaties, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Union.

3. The Commission shall ensure the application of the provisions of this Article and shall, where necessary, address appropriate directives or decisions to Member States."

Companies affected by this provision may be state owned or privately owned companies which are given special rights such as near or total monopoly to provide a certain service. The leading case in 1991, 'Régie des Télegraphes et des Téléphones (RTT) v. GB-Inno-BM (GB), which involved a small telephone equipment maker, GB and the Belgian state telephone provider, RTT, which had the exclusive power to grant approved phones to connect to the telephone network. GB was selling its phones, which were unapproved by RTT, and at lower prices than RTT sold theirs. RTT sued them, demanding that GB inform customers that their phones were unapproved. GB argued that the special rights enjoyed by RTT under Belgian law infringed Article 86, and the case went to the European Court of Justice (ECJ). The ECJ held that,

"To entrust to an undertaking which markets telephone equipment the task of drawing up specifications for such equipment, of monitoring their application and granting type-approval in respect thereof is tantamount to conferring on it the power to determine at will which equipment can be connected to the public network and thus gives it an obvious advantage over its competitors which is inimical to the equality of chances of traders, without which the existence of an undistorted system of competition cannot be guaranteed. Such a restriction on competition cannot be regarded as justified by a public service of general economic interest..."

The ECJ recommended that the Belgian government have an independent body to approve phone specifications, because it was wrong to have the state company both making phones and setting standards. RTT's market was opened to competition. An interesting aspect of the case was that the ECJ interpreted the effect of RTT's exclusive power as an "abuse" of its dominant position, so no abusive "action" as such by RTT needed to take place. The issue was further considered in Albany International Albany was a textile company, which found a cheap pension provider for its employees. It refused to pay contributions to the "Textile Trade Industry Fund", which the state had given the exclusive right to. Albany argued that the scheme was contrary to EU Competition law. The ECJ ruled that the scheme infringed then Article 86(1), as "undertakings are unable to entrust the management of such a pension scheme to a single insurer and the resulting restriction of competition derives directly from the exclusive right conferred on the sectoral pension fund." But the scheme was justified under then Article 86(2), being a service of general economic interest.