This article is written by Sushant Kandwal,  pursuing a Certificate Course in Competition Law, Practice And Enforcement from Lawsikho.com.

Introduction

The Tetra Pak case concerned the legal interpretation of the European Community’s two fundamental rules of competition, Article 85 and Article 86 of the Treaty of Rome. Article 85(1) forbids all the agreements which prevent, restrict, or are capable of adversely affecting the competition within the Common Market. Article 85(2) voids any contract or license containing anti-competitive clauses. Article 85(3) empowers the Commission to grant exemptions to the entire categories of anti-competitive agreements, if they enhance “the production or distribution of goods,” promote “technical or economic progress,” and benefit consumers. The other major provision dealing with competition is Article 86 which prohibits any “abuse” of a dominant position by a firm occupying a dominant market position if it adversely affects the trade among the Member States. 

In Tetra Pak, the subject matter of Article 86, namely, abuse of dominant position, overlapped with Article 85(3), exemption from general proscriptions of anti-competitive behaviour. Under Article 86, Tetra Pak was a “dominant” firm, holding a ninety per cent share of the market affected by the patent. Therefore, the acquisition of the new exclusive license by Tetra Pak was declared to be the “abuse” of dominance position by the Commission. On the other hand, the patent license indisputably qualified for an exemption under Article 85(3), the legal issue arose as to the applicability of Article 86 to the license which is entitled to have an exemption under Article 85(3). 

Although Tetra Pak focuses on a patent license, the holding has significance outside the field of intellectual property, ‘Block exemptions,’ the official derogations of the Community from its competition law, exclude categories of agreements covering a variety of subjects, including patent licensing., know-how licensing franchising, motor-vehicle distribution and servicing, specializations, maritime transport, and research and development. This Note will demonstrate that once the firm has abused its dominant position and activated Article 86, the offending agreement loses its block-exemption protection and further it will demonstrate complete analysis of the European Court of Justice concentrated on a single issue, and the arguments took place before European Commission and the Court of First Instance regarding extension of Article 86 where an exception has been granted under Article 85(3). 

 About Tetra Pak

Tetra Pak is registered in Switzerland and a privately owned company which is leading the world in the food processing and packaging industry. It is also the world’s largest producer of paper cartons for packaging milk and other liquids which also provides safe, innovative and environmentally sound products that each day to meet the needs of hundreds of millions of people in more than 160 countries. Moreover, it specialises in complete solutions for the processing, packaging and distribution of food products. Furthermore, the solutions are specifically designed to be in such a way that it will be economical with resources as well. Some of the examples of the products that can be processed or packaged in its packaging lines are Dairy products, beverages, ice cream, cheese, food, pet foods and vegetables. At the time of the Commission decision, Tetra Pak had subsidiaries in all Member States of the EC except Greece and Luxembourg.

In 1985, Tetra Pak had a market share of 89.1 per cent of sterilized cartons sold and 91.8 percent of sterilized packaging machines leased or sold and still operating within the community market. Tetra Pak’s packaging method originally involved sterilizing continuous rolls of the material before it was shaped into containers.

 Facts of the case

Tetra Pak, a Swiss-based company of Swedish origin, is the world’s largest supplier of liquid packaging machinery and cartons, with a near-monopoly of the Community market for aseptic liquid packaging (“long-life” liquid products mainly preserved through UHT processing) and a considerable share of the Community market for non-aseptic packaging(used to store fresh liquids, often involving pasteurisation). Tetra Pak had a consolidated turnover of some 3.6 bn ECU in 1990 out of roughly half of which was in the Community. The carton market generates around 90% and about 10% of its turnover in the market for packaging machines and related activities. Following a complaint from Elopak, one of its competitors, that Tetra Pak has carried out a deliberate policy aiming to eliminate actual or potential competitors in the aseptic and non-aseptic markets in machinery and cartons.

The Elopak Group made a complaint on 26 June 1986 under Article 3 of Regulation No. 17 of the Council of 6 February 1962 and alleged that Tetra Pak had infringed Article 85 & 86 of the EEC treaty. Following a statement of objections by the Commission on 3 March 1987 and a hearing on 25 July 1987, Tetra Pak informed the Commission, by letter dated 26 November 1987, that it had abandoned all claims of exclusivity in the BTG licence. Even though the infringement to which the objection was raised it was brought to an end in the course of the administrative procedure, the Commission considered that the finding of infringement should be made by a formal decision with a view, inter alia, to clarifying its position on the relevant point of law. The Commission in its decisions in turns considers the application of Article 85 and Article 86. Also, the Commission is entitled to withdraw the exemption on the ground sets out under Article 85 from the exclusive license if it cause an infringement of Article 86. Tetra Pak has abused its dominant position by acquiring [BTG] license, concluded by the Commission after completing the discussion on Article 86, further distorted the existing competition and making it more difficult for the new players to enter into the market(point 60 of the Decision).

Held: The Commission has concluded that Tetra Pak has carried out a deliberate policy aiming to eliminate actual or potential competitors in the aseptic and non-aseptic markets in machinery and cartons, in persistent breach of the Article 85 and 86 of Treaty of Rome(i.e European Economic Community). Almost all the products manufactured by Tetra Pak have been involvedhave involved in infringements and have adverselyhaveinfringements have had adversely impacted the competition in all EC Member States. Therefore, the European Commission imposed a fine of 75 million ECU for abusing its dominant market power in Western Europe. 

Appeal: Aggrieved by the decision of the Commission, Tetra Pak appealed to the Court of first instance—after a three-year debate (Court of Justice, 6/10/1994)—rejected the petition presented by the firm3. 

EEC Competition Law Structure

Articles 85 and 86 of the EEC competition law enjoy privilege over national legislation. The Court of Justice held that Articles 85(1) and 86 are the direct rights which the national courts must safeguard. Since it is tended by their very nature to produce direct effects in relations between individuals. National authorities, then, create a “procedural and administrative framework” within which the rules of the competition are to be applied. Thus it is clear that Articles 85 and 86 are directly applicable law within the Member States, and, further, that they create direct effects within the national legal systems. Competition law must, therefore, be viewed as Community-wide legislation.

Article 189 of the Treaty explicitly states that the Regulation ‘binds in every aspect and is directly applicable to each Member State,’ and that the decision of the Councilor to the Commission ‘binds the addressees named therein in every respect. Therefore, the secondary legislation issued by the council and the Commission is equally binding. The decisions of the Court are binding in respect of the case in question, including an action for annulment under Article 173, which allows an individual to bring an action before the Council or the Commission. Besides, Article 5 requires Member States to “[ensure] the performance of the obligations arising from the acts of the Community institutions.

Article 85 

It prohibits ‘any agreements between undertakings, any decisions taken by associations of undertakings and any concerted practices which are likely to hurt trade between Member States and which have as their object or result in the prevention, restriction or distortion of competition within the common market.’ Article 85(2) provides that:

‘[a]n any agreement or decision contrary to this Article shall be null and void. However, Article 85(3) empowers the Commission to make exceptions to Article 85(1) by allowing the latter to be “inapplicable” to agreements that “contribute[i] to the enhancement of the production or delivery of products or [ii] to the promotion of technological or economic development [iii] while at the same time providing users with a reasonable share of the benefit arising therefrom. Nevertheless, the Commission’s authority to make exceptions to Article 85(1) is conditional, for an agreement not being able to qualify for an exception if it either [i] ‘impose on the undertakings concerned certain conditions that are not indispensable to the achievement of [EEC competition policy] objectives,’ or [ii] gives such undertakings the possibility of ‘[eliminating] competition in respect of a significant proportion of the objectives of the [EEC competition policy].’

Block exemption and individual exemption

In 1962 the Council adopted Council Regulation 17, which legislatively brings Articles 85 and 86 into force, and which enables the Commission to grant individual exemptions to qualified agreements, provided that the agreement was notified by the parties to the Commission. Three years later, the Council expanded the Commission’s powers of exemption by promulgating Regulation 19/65, which enables the Commission, through legislation, to exclude certain types of agreements and concerted activities from the restrictions laid down in Article 85(1). The Council ‘s decision was the opening of the block exception, and the Commission has regularly proposed new exemptions for types of agreements.

The Patent Licensing Block exemption

Exemptions under Regulation 19/65 included patent-licensing block exemption, arrangements incorporating the licensing of patents and patent-licensing arrangements. Under the Patent licensing and Block exemption Regulation, Tetra Pak exclusive license agreement with BTG qualified for exemption. All forms of patent agreements referred to in Article 85(1) are qualified for Patent- licensing block exemption under Article 1. In Article 3, the blacklist defines the types of patent agreements which remain explicitly prohibited, as is typical of other block exemptions. Metonymically, the list of agreements that do not infringe EEC law is referred to as the “white list” set out in Article 2.

Article 4 provides for an “opposition method” in which a firm notifying the Commission of an agreement and hearing no objections within six months may, by implication, be exempted from Article 85(1). The patent-licensing exemption reflects the Commission’s experience with thousands of applications and notifications. However, the Commission makes it clear that other forms of arrangements, including joint ventures, mutual licensing, mutual licensing and plant breeders’ rights and patent pools are not included in the block exemption because “the evidence collected so far is inadequate” to justify their exemption. Article 5 omits these forms of agreements for a patent license from the categorical exemptions.

Commission power to withdraw exemption

Any and every exemption from the requirements of Article 85(1), Through an individual exemption from Regulation 17 or a block exemption from Regulation 19/65, the Commission must do so of its own volition, since neither the Council nor the Court of Justice can establish an exemption. Besides, the secondary law of the EEC allows for the cancelation of exemptions at any time. The Commission can withdraw block exemption as per the patent licensing exemption if it finds that an agreement exempted by this Regulation nevertheless has certain consequences which are contrary to the conditions laid down in Article 85(3) of the Treaty, in particular where the licensed goods or services rendered by a licensed mechanism are not subject to effective competition in the licensed territory.

Like one would suspect, the Commission remains cautious of what it has bestowed. This definition of the Commission’s power to remedy the exemption is complemented by a short outline of Article 85, the first skein of EEC competition law. The parties before the Court of First Instance had to contend with the intertwining of the patent-licensing block exemption with the second major feature of EEC competition law, Article 86, which deals with the misuse of a dominant position.

Article 86

In the light of the Commission’s decision that Tetra Pak directly infringed Article 86 on the acquisition of an exclusive patent license through its acquisition of Liquipak Int’l. Article 86 prohibits any abuse of dominant position within a substantial or common part of the market which is incompatible with the common market in so far as it may affect trade between the Member States.

What are relevant markets

To ascertain the abuse of domination by the dominating entity requires a proper definition of the relevant product markets which has two components: the product market and the geographic market. In the Tetra Pak case, the different definition has been used to identify Relevant Product markets and Relevant geographic markets.

Relevant product market

“A relevant product market comprises all those Goods and/or services which are deemed interchangeable or substitutable by the customer based on their prices, intended usage and characteristics of the goods.”

Now we will try to delineate the relevant product market from three perspectives:

a) European Commission: it determined the relevant market products into the four categories the aseptic cartons, the supply of machines used for filling aseptic cartons, non-aseptic cartons, and the machines that fill them. 

b)Tetra Pak: claimed that the market is defined as the market of packaging, including carton, glass, plastic, etc.

c) Consumers: According to the consumers the activity of Tetra Pak includes two main sectors, the aseptic—free from infection—and the non-aseptic—used for packaging of fresh products.

Relevant geographic markets 

“The relevant geographic market comprises of the region in which the undertakings concerned are engaged in the production and demand of goods or services, in which the conditions of competition are fairly homogeneous and which can be distinguished from neighbouring regions since the conditions of competition in those regions are considerably different.”

Assessment of the geographic market by the commission

The Commission took an initial view of the scope of the geographic market based on broad indications regarding the distribution of market shares between an undertaking or several undertakings and their competitors. An initial analysis of pricing and differences in price at the national level as well as EC or EEA (European Economic Area) level will as well be executed. At this stage, the initial view is essentially a “working hypothesis” to gather the enquiries which the Commission has to establish a definition of the geographic market.

This hypothesis will be checked against an analysis of the characteristics demanded. For instance, the importance regarding national or local preference, the costumers’ present pattern of purchase, differentiation in products or differentiation in brands. This is done to establish if undertakings in different areas constitute an alternative source of supply for consumers. For instance, the importance regarding national or local preference, the costumers’ present pattern of purchase, differentiation in products or differentiation in brands. This is to be done to establish if undertakings in different areas constitute an alternative source of supply for consumers.

Relevant geographic market defined by the commission

The Commission defined the relevant geographic market to be the whole EC (European Community) for three main reasons, and the CFI agreed with the Commission’s assessment. Firstly, the demand for Tetra Pak’s products was stable, even though it varied in intensity between the Member States, throughout the EC. Secondly, customers could acquire supplies in the other Member States, for this reason, the local distribution was only necessary to install, maintain and repair machines. Thirdly, very low transportation costs made it easy to trade between the Member States. In this case alleged consumer preferences, as argued by Tetra Pak, regarding the type of milk and packaging, did not affect the conditions of competition which were the same for all manufacturers within the EC. Consequently, the relevant geographic market in the case was the whole Community. 

EC jurisdictions over Non-EC firms

Neither party was a Common Market firm in the Tetra Pak case. Tetra Pak was Swedish and complainant Elopak was Norwegian. Nevertheless, the European Community has jurisdiction over agreements between non-EC companies which have an effect on competition within the common market. Article 85 specifically prohibits agreements which have as their object or result in the avoidance, limitation or distortion of competition within the common market. Similarly, Article 86 prohibits violations by dominant firms within the common market or a significant part thereof in so far as they may affect trade between the Member States.

The term ‘within the common market’ means that the Community has regional jurisdiction over any agreement which has an impact within the common market. Relatively early on, the Commission clarified that EC law applies to any restriction of competition which may “produce effects within the scope of the Common Market referred to in Article 85(l). The Court of Justice has recently clarified the jurisdictional investigation by adopting the “qualified results” principle, first stated in the case of Dyestuffs by the Advocate General. Under this principle, the EC may exercise its authority over foreign enterprises if there is a direct and immediate, reasonably foreseeable and significant impact of anti-competitive conduct within the Community. This jurisdictional criterion is generally accepted under international law.

Enforcement and procedure

Article 85(2) states that “any agreements or decisions contrary to this Article will be invalid and void. Article 86 states that any “actions to take unfair advantage of a dominant position shall be forbidden hereby. The Treaty also calls on the Council to impose fines and penalties to enforce compliance with competition provisions. Regulation 17 empowers the Commission, by releasing Decisions, to terminate agreements that infringe Articles 85 and 86. The Commission may begin an enforcement action either “upon its initiative, or in practice, the Commission will usually investigate all but the most unfounded allegations. Tetra Pak’s issues with the Commission started when Elopak made two requests under Article 3 of Regulation 17, in which Elopak alleged that Tetra Pak had violated Articles 85 and 86.

EC Competition law enforcements in National Courts

The ECJ held that denying national courts jurisdictions to implement directly applicable provisions of Community law would deprive individual citizens of the EC Member States of the rights provided by the Treaty. The ECJ’s further proscription is contrasted with this finding that ‘[t]he imperative force of the Treaty cannot differ from State to State by the impact of internal steps.

As a result, Articles 85 and 86, including the clause in Article 85(2) for unconditional nullity of violation agreements are applied by both the Community and national authorities. As a result, Articles 85 and 86, including the clause in Article 85(2) for unconditional nullity of violation agreements, are applied by both the Community and national authorities. However, the Court has consistently held that whenever Community competition laws are in clash with the national legislation, Community law takes precedence. Decisions of national courts enforcing EC law do not bind either the Courts or the Community Commission.

Factors contributed to the infringements of Article 85 & 86

Restrictive Contracts

Tetra Pak constrained its customers, especially industries dealings in dairy products, from dealing with the products of its competitors through the use of restrictive clauses in its contracts. Those restrictive clauses also imposed a mandatory condition for its users to buy the cartons made by Tetra Pak or which is directly supplied under its control. This restricts the competitors of Tetra Pak from conducting their business with its users and also assures the loyalty of its customer artificially, thereby securing the revenue on the sale of cartons for as long as each machine is in operation. This together with other aspects of its policy (for instance the fact that distribution of its products to dairies and other customers in the Community is performed exclusively by companies within the Tetra Pak group), had the effect of prohibiting its users from dealing with the competing brands. 

Equipment Configuration 

Tetra pak restrictive clauses were not confined to the usage of its packaging machines but it also had absolute control over the equipment configuration, especially in Italy, by prohibiting their customers from modifying the machine by adding or removing anything to or from it. Moreover, Tetra Pak also reserved the exclusive rights to maintain and supply spare parts for its machines, both those it sold and those it rented out.

Inspections

Two clauses were meant to concerned with monitoring the purchasers compliance pertaining to its contractual obligations, the first one is:

1. That the purchaser is required to submit a monthly report;
2. The second one is that the Tetra Pak is entitled to carry investigations at any time without prior notice.

Both the conditions above were exclusively for Italy.

Transfer of ownership or use of equipments

The two clauses in the contract imposed the purchaser’s rights to resell or transfer equipment to third parties.

1.  The clause states that the purchaser will have to obtain the permission from Tetra Pak before selling or transferring its equipment to the third parties as to the condition, and Tetra Pak also reserves the rights to repurchase the said equipment at a predetermined price.
2.  The second clause maintains that all the obligations of Tetra Pak would be met by the purchaser to whom he resells the equipment.

Guarantee

It was applicable to the equipment only if either the purchaser has fulfilled all the contractual obligations or at the very least use the only cartons provided by the Tetra Pak.

Payment conditions and rent fixing

At the time the machine is placed a “base rent” is mandatory to be deposited to the leaseholder. The amount needs not to be necessary to be less than the selling price of the machine and in some cases, it becomes more than 98% after including both the present and future rental payments. 

(b) Annual rent to be payable quarterly in advance; 

(c) Monthly supply rental, the volume of which decreases based on the number of cartons used on all Tetra Pak machines of the same kind. It eliminates the sliding scale of charges — set at a similar point · — for part of the operating costs incurred in the case of sale. Non-payment of the fee in some countries (Germany, France, Portugal) within the prescribed period may result in the imposition of penalty.

Conditions for the supply of cartons

The Standard supply contract is mandatory if a client purchases a machine rather than leases it, especially in Greece, Ireland, Italy, Spain and the United Kingdom.

Discriminatory and Predatory pricing

Tetra Pak’s restrictive use of contracts enabled it to segment the European market and thereby charge prices which varied from one member state to another up to about 300% for machines and up to about 50% for cartons. The same is applicable in the case of the initial rental fee of a packaging machine. Evidence accumulated by the commission during the inquiry also shows that at least in Italy and the United Kingdom, Tetra Pak sold its “Rex” non-aseptic products at a discounted price for a long time to get rid of its competitors, and utilised the proceeds from its sales of “Brik” aseptic cartons to subsidise the losses. Tetra Pak sold its Rex cartons for several years in Italy at up to 34 % below cost price and sometimes at less than the cost of the raw materials used for its manufacture. This predatory pricing policy had serious consequences on Tetra Pak’s competitors, notably Elopak, which was obliged to close a new production facility in Italy.

Other Practices

In other cases, Tetra Pak bought competing machines with the express intention of removing them from the market, and on the other side, it obliged commitments from its users to refrain from using such machines or to restrict their usage within their premises. In Italy, Tetra Pak also sought an exclusive commitment from One journal not to carry competing publicity for at least a year to prevent its competitors from advertising. 

Issue

The application was confined to contesting the decision of the Commission of 26 July 1988 on the sole ground of question of law about the applicability of Article 86 where an exemption has been granted under Article 85(3). Besides, the applicant has specifically stated at the hearing that the application was intended primarily to settle a question of law and that it was inappropriate to address the evidence underlying the conclusion in the decision that the applicant had violated a dominant position.

Tetra Pak defense before the Commission

At the time of its oral hearing before the Commission, Tetra Pak had already relinquished its exclusive patent license for BTG ‘s patent ultraviolet sterilization technology. Although both BTG and Tetra Pak preferred an exclusive agreement. However, both the parties(i.e Tetra Pak and Elopak) were negotiating with BTG for non-exclusive licenses. In its defence, Tetra Pak argued, first, that it did not hold any dominant position in the relevant market and therefore did not commit any abuses contrary to Article 86, and, secondly, its patent license fell within the Patent-Licensing Block Exemption. Tetra Pak also contended that “further improvement in the basic technology” covered under the BTG license would require significant financial investment on its part.

Article 86 Infringement

The Commission rejected all the arguments of Tetra Pak and concluded the abuse of dominant position by Tetra Pak in the relevant market. Further, the Commission described the product market as ‘ machines and technology for filing cartons under aseptic conditions with UHT- treated liquid particularly milk, while describing the geographical market as the entire EC. Although, demands vary from state to state, however, there are substantial markets for all types of packaging and filling machines in each State and, second, transport rates have not erected barriers along national boundaries. The Commission backed its supported finding supremacy by citing five factors:

(1) Tetra Pak ‘s significant market share of 91.8% for aseptic filling machines for UHT products;

(2) Early development of UHT technology by Tetra Pak ‘s, and patent protection;

(3) Market entry barriers for new players;

(4) BTG technology exclusive access to Tetra Pak’s, which would further strengthen Tetra Pak’s foundation by providing technology advantage to it against its Rivals thereby, eliminating the Competition;

(5) Maturity for market demand of milk has left little room for expansion. The Commission found that the Tetra Pak had exploited its market supremacy (i.e. abuse of dominant position) through unfair means, and by acquiring the exclusive patent, the Tetra Pak had not only strengthened its supremacy but also prevented and delayed the entry of the new players in the relevant market. By relying upon the Continental Can case, the Commission stated that Tetra Pak infringed Article 86 because of the following reasons:

1) Tetra Pak was a dominating entity in the Relevant Market.

2) It exploited the exclusive patent providing competitive advantages disproportionate to its legitimate business interests.

3) Abuse of a dominant position by Tetra Pak adversely affected the trade between the member states.

Article 85 Infringement 

 It was decided by the Commission that the exclusivity of the license falls within the ambit of Article 85(1). Further, the agreement between Tetra Pak and BTG confirmed the specific restriction with the “white list” of the Patent Licensing Block Exemption. However, Tetra Pak failed to fulfil the mandatory conditions required under Article 85(3) for getting exemption of the agreement, the Commission would have revoked the exemption. Exclusivity under Article 85(1) may be exempted only if it is ‘appropriate to promote competition, but in other market circumstances if it has an adverse effect on competition then it must fall within the ambit of Article 85(1).

The license agreement failed to comply with the terms and conditions laid down in Article 85(3) because of non-availability of products and services within the geographical boundaries which are capable of competing with Tetra Pak. The violation of Article 85 was very obvious as Tetra Pak failed to comply with the conditions laid down in Article 85(3), the exemption was revoked and the license agreement entered into by Tetra Pak under Article 85(1) was invalidated by Article 85(2). Because the license will continue to have as its “source” or as a result of the avoidance, limitation or manipulation of competition within the Common Market, it was “automatically invalid.”

Arguments by Tetra Pak before the Court of First Instance

The Court of First Instance dismissed the application Of Tetra Pak, ruled that the arguments were without merit and upheld the Commission Decision. However, it has also acknowledged that the Court of Justice had never considered the issue of reconciling Art 86 with block exemption. 

“Schematic” Defense

Tetra Pak: “Tetra Pak argued that, because Articles 85 and 86 pursue the same objective-the preservation of undistorted competition within the Common market-they should not be viewed in contradiction of each other. They further added that by giving effect to Article 86, even though an agreement had been exempted under Article 85(3), the Commission would contradict itself by allowing the same conduct under Article 85(3), while at the same time banning the same behavior under Article 86. Consequently, until the Commission has acted to withdraw the exemption, an express block exemption under Article 85(3) should imply a concurrent exemption from the requirements of Article 86”.

Commission response: The Court’s first step in reconciling the application of Article 86 to an agreement to which the Commission granted a group exemption was to turn to a teleological interpretation of the Treaty: Articles 85 and 86 are complementary rules on the common objective laid down in Article 3(f) that competition should not be distorted. 

“Tetra Pak had urged that, even though Treaty provisions allowing for exemptions do not explicitly mention Article 86, the “implied exemption in respect of abuse of dominant position” demanded a two-step analysis similar to that under Article 85: (i) does the conduct in question have the “object or effect of preventing, restricting or distorting competition within the common market,” and (ii) “if so, does the conduct nevertheless have overall a pro-competitive effect because it contributes to promoting technical or economic progress. The Court, however, found this two-step approach unsuitable for Article 86, because of the absolute bar against abusive conduct.

The CFI also rejected the claim that Article 86 should operate only after the Commission’s positive action of withdrawing an exemption, on the grounds that this approach would be tantamount to creating a concurrent exemption from the prohibition of market-dominant abuse. The Court raised an additional ultra vires objection rooted in the hierarchy of legal rules of the European Community. Because the Treaty of Rome mandates the prohibition of abuse of dominant position, and since the Council has never promulgated secondary legislation allowing the Commission to make exceptions to Article 86, no secondary legislation would justify a derogation from Article 86. Thus, the CFI found Tetra Pak’s theory of “implied exemption” constitutionally untenable.

The CFI also raised practical objections to Tetra Pak’s arguments of implied or concurrent exemption. When the Commission investigates an application for individual exemption under Article 85(3), it will, in practice, consider compliance with Article 86. The same is not true for block exemptions, which, by definition, involve no case-by-case “positive assessment” of the conditions laid out in Article 85(3). As a result, abusive conduct is to be assessed strictly within the confines of Article 86, without reference to Article 85(1) and its permissible derogations. Thus, market dominance is irrelevant to an agreement’s qualification for group exemption; under EEC law, the Commission will not deny a block exemption to a market-dominating firm. However, the block exemption does not shield the allegation of abuse”.

Legal Certainty defense

Tetra Pak: In its Legal Certainty Defense Tetra Pak also argued that the principle of legal certainty precluded application of Article 86 to prohibit conduct that was exempt under Article 85(3). Tetra Pak sought to persuade the CFI that as long as the Commission had taken no positive action to withdraw an exemption, there was a legitimate expectation that an agreement was lawful. Tetra Pak argued further that “negative clearance,” the procedure under which the Commission may specifically approve an agreement, could not assure legal certainty for several reasons. First, one of the “primary functions” of block exemption is to enable firms to enter agreements without having to consult the Commission; the negative clearance application requirement would “undermine the efficacy” of the exemption. Second, negative clearance does not protect an undertaking from incurring fines between the time of application and decision. Third, negative leeway may not be enforceable in national courts pending a Commission examination. Finally, negative clearance has no binding effect in national courts. 

Commission response: Unsatisfied with the arguments placed by Tetra Pak before the CFI on legal certainty and replied that the block exemption was simply meant to provide legal certainty. The exemption does not preclude the responsibility of a dominant firm not to misuse its dominant position. Consequently, no firm can credibly justify its coercive behavior by arguing the supposed “unpredictability of the operation of Article 86”.

Uniform Application of Law Defense 

Tetra Pak: Finally, Tetra Pak argued that if Article 86 misuse of a dominant position extends to agreements eligible for a block exemption under Article 85, the national courts are then allowed to prohibit conduct specifically authorized by the EC Commission. As this usurpation by a municipal court will negate the concept of uniform implementation of Community law, Tetra Pak also urged the Court to find, for the sake of continuity, that the implementation of Article 86 is inconsistent with the safeguards provided by block exemptions.

Commission response: Similarly, the CFI was unmoved by Tetra Pak’s arguments concerning the uniform application of Community law. The Court referred to a clear line of ECJ cases demonstrating that Article 86 has a direct impact and confers rights on national courts. However, this principle of primacy and uniformity of EC law is not at all affected by whether or not the agreement of a dominant firm qualifies for a block exemption.

Conclusion

The Court of First Instance upheld the decision of the Commission and therefore, dismissed the application and also ordered the Applicant to pay the cost. Tetra Pak is a landmark case and new dawn, not because the judgment was unexpected but because it filled a breach in the law of the EC. The complete analysis of the European Court of Justice concentrated on a single issue, regarding extension of Article 86 where an exception has been granted under Article 85(3). Based on ‘stare decisis’ of the Court of Justice, the Advocate General has convincingly demonstrated that Articles 85 and 86 are equally applicable.

Nevertheless, Tetra Pak’s application to the Court to overturn the Commission’s interdiction on the exclusive patent license arrangement was not arbitrary, since the issue had not previously been specifically determined by the EC Courts. When a contract falls within the scope of a block exemption, a company may attempt to comply with its agreement on the white list of block exemption regulations or may request the approval of its gray clauses by means of an opposition procedure.

Where a company could infringe Article 86, negative clearance and comfort letters could offer some cover, but the Commission requires market-dominant companies to conduct their business affecting the competition adversely. Tetra Pak therefore also claims that the disputes between legal but private monopolies and Community law should be resolved in favor of the terms of the Treaty of Rome. Such an arrangement that is accepted as the driving force behind technological development and the commonwealth will be the creator because it distorts competition within the European Union.

References

1. https://www.tetrapak.com/about/tetra-pak-in-brief
2. https://ec.europa.eu/commission/presscorner/detail/en/IP_91_715
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9. https://europa.eu/european-union/about-eu/institutions-bodies/court-justice_en
10. http://curia.europa.eu/juris/showPdf.jsf;jsessionid=9ea7d2dc30d52d23522fd6f440f19f068200e88e4ba6.e34KaxiLc3qMb40Rch0SaxuSbxv0?text=&docid=102718&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=256916
11. https://www.wipo.int/edocs/lexdocs/laws/en/eu/eu025en.pdf

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