«The Notion of Ancillary Restraints Under EC Competition Law F. Enrique Gonz´ lez D´az∗ a ı ∗ Copyright c 1995 by the authors. Fordham ...»
Fordham International Law Journal
Volume 19, Issue 3 1995 Article 8
The Notion of Ancillary Restraints Under EC
F. Enrique Gonz´ lez D´az∗
Copyright c 1995 by the authors. Fordham International Law Journal is produced by The Berkeley Electronic Press (bepress). http://ir.lawnet.fordham.edu/ilj
The Notion of Ancillary Restraints Under EC
F. Enrique Gonz´ lez D´az
This Article examines the scope of the so-called ancillary restraints doctrine under European Community (“EC”) competition law and the legal consequences of its implementation in light of the administrative practice of the European Commission and the case-law of the European Court of Justice (“Court of Justice” or “Court”).
THE NOTION OF ANCILLARY RESTRAINTS
UNDER EC COMPETITION LAWF. Enrique Gonzdlez Diaz*
INTRODUCTIONThis Article examines the scope of the so-called ancillary restraints doctrine under European Community ("EC") competition law and the legal consequences of its implementation in light of the administrative practice of the European Commission and the case-law of the European Court ofJustice ("Court ofJusice" or "Court").
Article 85(1) of the EC Treaty1 prohibits, as incompatible with the common market, all agreements between undertakings, decisions by associations of undertakings, and concerted practices which may affect trade between Member States that have as their object or effect the prevention, restriction, or distortion of competition within the common market. 2 Article 85(3), however, may declare Article 85(1) inapplicable to agreements or concerted practices that contribute to improving the production or distribution of goods or promote technical or economic progress provided that the agreements or practices allow consumers a fair share of the resulting benefit, do not impose restrictions on the undertakings that are not indispensable to the attainment of these objectives, and do not afford such undertakings the possibility of eliminating competition with respect to a substantial * Member of the Legal Service, European Commission. A version of this Article will appear in 1995 FORDHAM CORP. L. INST. (Barry Hawk ed., 1996). Copyright © Transnational Juris Publications, Inc., 1996. The author wishes to thank Mr. Danil Jowell.
1. Treaty Establishing the European Community, Feb. 7, 1992,  1 C.M.L.R.
573 [hereinafter EC Treaty], incorporatingchanges made by Treaty on European Union, Feb. 7, 1992, OJ. C 224/1 (1992),  1 C.M.L.R. 719, 31 I.L.M. 247 [hereinafter TEU]. The TEU, supra, amended the Treaty Establishing the European Economic Community, Mar. 25, 1957, 298 U.N.T.S 11, 1973 Gr. Brit. T.S. No.1 (Cmd. 5179-II) [hereinafter EEC Treaty], as amended by Single European Act, O.J. L 169/1 (1987),  2 C.M.L.R. 741 [hereinafter SEA], in TREATIES ESTABLISHING THE EUROPEAN COMMUNITIES [EC Off'l Pub. Off. 1987).
2. Id. art. 85(1),  1 C.M.L.R. at 626.
952 FORDHAMINTERNATIONALLAWJOURNAL [Vol. 19:951 part of the products in question. 3 The power to apply Article 85(1) is shared between the Commission, national courts, and national authorities entrusted with the task of applying the competition rules of the Treaty at the national level. 4 Only the Commission, however, is empowered to grant an exemption under Article 85(3). 5 The Commission's exclusive right to grant exemptions under Article 85(3), coupled' with the obligation placed on undertakings to file a notification with the Commission as a legal condition for obtaining an exemption,6 prompted an important debate in EC competition law shortly after the EC Treaty entered into force. What was and still is at issue is whether all restraints on the freedom of action of undertakings that have an appreciable effect on market conditions should be regarded as a violation of Article 85(1) or whether an examination of the overall impact of the restriction on competition should be made before finding a violation of Article 85(1). Under the first approach, the assessment of the overall competitive impact of restricting the freedom of action of undertakings to determine their commercial behavior, and/or their possible merits in furthering other Treaty objectives, must only be assessed in the context of Article 85(3). The second approach advocates that the competitive impact of a restriction should be appraised according to the first paragraph of Article 85(1), and views the third paragraph as a provision essentially designed to exempt restric- 7 tions having an overall anti-competitive impact on the market.
Generally, the Commission has followed the first approach, while the Court of Justice has not adhered to either approach.At the risk of oversimplification, however, it may be said that the Court has distinguished between vertical and horizontal reId. art. 85(3),  1 C.M.L.R. at 627.
4. See BRT v. SABAM, Case 127/73,  E.C.R. 51,  2 C.M.L.R. 238. With regard to national authorities, however, Article 9(3) states that as long as the Commission has not initiated any procedure under Article 2 or Article 3 the authorities of the Member States shall remain competent to apply Article 85(1) and Article 86 in accordance with Article 88 of the Treaty. Council Regulation No. 17 J.O. 204/62, at 64 (1962), o.J. Eng. Spec. Ed. at 87 (1959-62) [hereinafter Regulation 17].
5. Regulation 17, supra note 4, art. 9(1).
6. See id. art. 4(1). Article 4(2) of Regulation 17 provides for a limited exception to this notification obligation. Id. art. 4(2).
7. For an excellent analysis of this debate see RENPJOLIET, THE RULE OF REASON IN ANTrrUST LAW (1967).
1996] ANCILLARY RESTRAINTS 953 straints, hard-core and non-hard-core restraints, and, like the Commission, ancillary and non-ancillary restraints. With respect to judicial review of vertical and horizontal restraints under Article 85(1), the Court has been more willing to accept a more detailed analysis of the overall competitive, impact of vertical restraints than it has been with horizontal restraints.' When reviewing cases involving vertical restraints under Article 85(1), however, the Court has been stricter with respect to hard-core restrictions, such as absolute territorial protection,9 resale price maintenance, 10 and concerted refusals to deal than with milder restrictions of intra-brand competition. 1 ' Finally, in Article 85(1) proceedings, both the Court and the Commission have permitted a significant number of milder restrictions on both intra-brand and inter-brand competition, as well as some hardcore vertical and horizontal restrictions, such as non-competition clauses' 2 and/or concerted refusals to deal,13 by resorting explicitly or implicitly to the doctrine of ancillary restraints.
I. THE NOTION OF ANCILLARY RESTRAINTS 1N EC
COMPETITION LAWThe first formulation of the doctrine of ancillary restraints in modern antitrust law can be traced back to Judge.William
8. See Delimitis v. Henninger Brau, Case 234/89,  E.C.R. 1-935,  5 C.M.LR. 210 (ruling on exclusive purchasing); Erauw Jacquery v. La Hesbignonne, Case 27/87,  E.C.R. 1919,  4 C.M.L.R. 576 (concerning exclusive licensing of intellectual property rights); Nungesser v. Commission, Case 258/78,  E.C.R.
2015,  1 C.M.L.R. 278 (involving exclusive right to produce and distribute); Brasserie de Haecht v. Wilkin, Case 48/72,  E.C.R. 77,  C.M.L.R. 287 (discussing exclusive purchase obligation); Soci&6 Technique Minire v. Ulm, Case 56/65,  E.C.R. 235,  C.M.L.R. 357 (discussing exclusive dealing).
9. See Nungesser,  E.C.R. 2015,  1 C.M.L.R. 278; Consten & Grunding v. Commission, Case 56 & 58/64,  E.C.R. 299,  C.M.L.R. 418.
10. See Distillers v. Commission, Case 30/78,  E.C.R. 2229,  3 C.M.L.R. 121.
11. See supra note 8 and accompanying text (discussing cases involving vertical and horizontal retstraints).
12. See Remia V.Commission, Case 42/84,  E.C.R. 2545,  1 C.M.L.R.
1; Commission Decision No. 75/95/EEC, O.J. L 38/14 (1975),  1 C.M.L.R. D68 [hereinafter SHV/Chevron]; Commission Decision No. 64/502/EEC, J.O. 2287/64 (1964),  C.M.L.R. 505 [hereinafter Nicholas/Vitrapo].
13. In the context of selective distribution and franchising see Metro II v. Commission, Case 75/84,  E.C.R. 3021,  1 C.M.L.R. 118; Pronuptia v. Schigalis, Case 161/84,  E.C.R. 353,  1 C.M.L.R. 414; Metro I v. Commission, Case 26/76,  E.C.R. 1875,  2 C.M.L.R. 1.
954 FORDHAMINTERNATIONALLAWJOURNAL [Vol. 19:951
Taft's decision in United States v. Addyston Pipe & Steel Co. 14 According to Judge Taft:
No conventional restraint of trade can be enforced unless the covenant embodying it is merely ancillary to the main purpose of a lawful contract and necessary to protect the covenantee in the full enjoyment of the legitimate fruits of the contract, or to protect him from the dangers of an unjust use of those fruits by the other party. 15 In current U.S. antitrust practice, the notion of ancillary restraints is used essentially as an instrument allowing the application of the rule of reason to restrictions, namely horizontal restrictions, otherwise falling within the scope of the per se rule.16 With respect to EC competition law, there are essentially two schools of thought regarding ancillary restraints. 7 According to the first school, the term refers to any clause or restriction in an agreement that is appreciable and is considered to fall outside of Article 85(1). 18 The second school, however, contends that the term ancillary restraints should be used in a more
14. United States v. Addyston Pipe & Steel Co., 85 F. 271 (6th Cir. 1898), aff'd as modified, 175 U.S. 211 (1899).
15. Id. at 282. Taft offered the following examples of ancillary restraints:
(1) by the seller of property or business not to compete with the buyer in such a way as to derogate from the value of the property or business sold;
(2) by a retiring partner not to compete with the firm;
(3) by a partner pending the partnership not to do anything to interfere, by competition or otherwise, with the business of the firm;
(4) by the buyer of property not to use the same in competition with the business retained by the seller; and (5) by an assistant, servant or agent not to compete with his master or employer after the expiration of his time of service.
16. On the notion of ancillary restraints in U.S. antitrust law see Robert H. Bork, The Rule of Reason and the PerSe Concept: PriceFixingand Market Division, 74 YALE L.J. 775 (1965); Martin B. Louis, Restraints Ancillary to Joint Ventures and LicensingAgreements: Do Sealy and Topco Logically Survive Sylvania and Broadcast Music?, 66 VA. L. REv. 879 (1980);
Robert H. Bork, Ancillary Restraints Under the Sherman Act In Sale-of-Business Cases and Know-How Licenses, AMEaiIUC PATENT LAw AssOcIATION BULLETIN 293 (1960). For an example of the current use of the ancillary restraints doctrine by U.S. courts see Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210 (D.C. Cir. 1986), cert.
denied, 479 U.S. 1033 (1987).
17. In this Article, unless otherwise indicated, the second, more restrictive approach to the use of the term ancillary restraints will be employed. Ancillary restraints will be regarded as simply one category among several categories of restrictive agreements not falling within Article 85(1).
18. See VALENTINE KoAH, EC COMPETrIoN LAw 148-49 (5th ed. 1994).
1996] ANCILLARY RESTRAINTS limited set of circumstances.1 9 According to this view, agreements that do not fall within Article 85(1) can be sub-divided into several different categories. 20 Ancillary restraints are simply one category of such agreements or restrictions. Other notable categories are those relating to commercial risk and to selective distribution systems. 1 Commercial risk cases involve agreements conferring exclusivity on a downstream commercial operator such as a licensee, franchisee, or distributor. These agreements are considered necessary in view of the risks undertaken by those downstream operators who create the market or undertake the investment.
With respect to this category of restrictions, the Court tends to be more liberal than the Commission and has established a truncated rule of reason to assess the legality of commercial risk provisions under Article 85(1).22 Some scholars who adhere to the stricter definition of ancillary restraints regard them as merely an ad hoc collection of terms considered "objectively necessary" for the performance of certain contracts that do not fall within the "commercial risk" reasoning. 23 There is, however, another way of analyzing them.
There is a common thread that binds most of these various restrictions referred to as ancillary restraints. More specifically, the ancillary restraints doctrine is essential to justify restrictions that are necessary for the full preservation or transfer of value in certain types of transactions.
The theory that ancillary restraints are restrictions necessary to preserve or transfer value in a particular transaction is supported by the following examples. In a know-how licensing agreement, 4 the licensor wishes to be able to transfer the full value of his know-how to his licensee while preserving its value for himself or future licensees after the expiry of the licensing
19. See RICHARD WHISH, COMPETITION LAW 210-15 (1993) (categorizing agreements falling outside Article 85(1)).
20. Id. at 210-11.
21. Id. at 214.
22. See supra note 8 and accompanying text (discussing cases involving vertical and horizontal restraints).
23. WHISH, supra note 19, at 210-11.
24. These are agreements whereby one undertaking, the licensor, agrees to communicate know-how (technical information that is secret, substantial, and identified in appropriate form) to another undertaking, the licensee, for explotation in a given territory.