European Law - UU - Practice exam 2011/2012

Open questions

Question 1

Bloemella is the main producer of liqourice and treacle waffles in the Netherlands. Its shops can mainly be found in Dutch train stations. Their success is due to the way the liqourice and treacle waffles are produced and distributed: each shop has a system of unique small boxes, which keep the candy and cookies fresh and delicious up to the moment that they are sold. Bloemella decides to expand its business activities in other European countries, namely Germany, Italy and Spain. Bloemella concludes several distribution agreements with local retailers in these countries, which aim at becoming Bloemella’s official distributors. Bloemella requires the applicant distributor to satisfy two conditions:

• One of the employees of the applicant distributor should attend a three-week course in Utrecht to learn Bloemella’s business model.

• The distributor is required to introduce the system of small boxes that is used by Bloemella in the Netherlands in order to safeguard the freshness of the flowers in these countries.

Vilanova is a store placed in Barcelona Central station which sells cookes and candy. Vilanova would like to become one of the official distributors of Bloemella. However, it does not have the system of small boxes requested by Bloemella. In addition, Vilanova is not sure if its clients would like to buy the liqourice and waffles. Finally, Vilanova believes that its employees know how to sell their products, without the need to pay for a training course in Utrecht to learn how to do it. Therefore, Vilanova does not consider such investments necessary. Vilanova submits a complaint to the Spanish Competition Authority arguing that the distribution agreement that Bloemella intends to conclude with its distributors is in breach of the competition law rules. At the same time, German and Italian shops submit similar complaints to their national competition authorities. The European Commission is informed of the proceedings in the different Member States. The European Commission would like to avoid national competition authorities reaching different outcomes in the assessment of the compatibility of Bloemella’s network of agreements with competition law.

Question 1a

On what legal basis can the European Commission rely in order to claim jurisdiction over the case?

The European Commission obtains jurisdiction over the case and it opens formal investigations. The European Commission defines the product market as the market for the production of liqourices and treacle waffles. This product market has a local geographic dimension. The average market share of Bloemella in these relevant markets is 70-80% in the Netherlands, and 30-40% in Germany, Italy and Spain.

Question 1b

What would be the Commission’s assessment on the compatibility of the agreement with the EU competition law rules?

Question 2

Madeleine is a citizen of the United Kingdom who has worked as a sex worker in Liverpool for several years. After meeting her Italian boyfriend, she decides to start an escort agency in Italy. However, prostitution is an illegal activity in Italy and therefore the Italian Chamber of Commerce – which is part of the Italian Ministry of Economic Affairs –rejects the registration of her agency in Rome.

Question 2a

Explain which fundamental economic freedom Madeleine could invoke in order to have her agency registered in Italy by the Italian Chamber of Commerce. Please note that you are not asked to discuss the compatibility of the Italian rejection with this fundamental economic freedom

Even though she has been refused registration of her agency, Madeleine decides to open the doors of her facilities without permission. When the Spanish police finds out about this, the premises are entered. Juan, a Spanish citizen and one of the clients, is arrested for taking part in illegal activities in Madeleine’s agency. At the time of his arrest, Juan is applying for a job at the Chamber of Commerce in Rome. The Chamber of Commerce does not want to hire Juan and is looking for grounds to reject his candidacy that are EU law proof. One ground that is considered is the public service exception, as the Chamber of Commerce forms part of the Ministry of Economic Affairs.

Question 2b

Discuss the possibility to reject Juan’s candidacy on the basis of the public service exception.

The Commission has sent a letter wherein it formally notified Italy about the Commission’s doubts regarding the compatibility of the Italian prohibition. Subsequently, the Italian Parliament, in which there is a progressive majority, considers to adopt a law that allows for the registration of escort agencies run by EU citizens, but only under the strict condition that all employees of the agency are over 21 years of age. It is argued by the progressive parties that the proposed law would not violate European law, since the condition that all employees of the agency should be over 21 years of age concerns a selling arrangement.

Question 2c

Discuss whether the argument of the progressive parties in the Italian parliament is valid.

During a routine visit to the main hospital of Rome, Madeleine finds out that the waiting lists for knee operations in Italy are much shorter than they are in the United Kingdom. Madeleine's mother, Violet, still lives in the United Kingdom. As Violet urgently needs a knee operation due to a car accident, she flies to Italy and has the knee surgery there. When Violet asks for reimbursement of the costs of the operation, the National Health Service (NHS) refuses to reimburse Violet on the ground that she did not have prior authorization for the operation.

Question 2d

Discuss whether the system of prior authorization for medical treatment in a hospital in another Member State to be paid for by the NHS is compatible with European law.

Multiple choice questions

Question 1

Bloemella is a leading producer and distributor of liqourice and treacle waffles in the Netherlands. After having received a complaint from a group of competitors of Bloemella, who argued that Bloemella has abused its dominant position, the Commission opens an investigation on a potential breach of Article 102 TFEU. The preliminary question that the Commission has to answer is how to define the product market.

Which of the following elements will be relied on by the Commission to define the product market?

1. Liqourice and treacle waffles are sold within the same store.
2. Liqourice is sold in the Netherlands.
3. Interchangeability between liqourice and treacle waffles
4. Liqourice and treacle waffles are sold under the same selling arrangements.

Question 2

Statement I: If a measure fulfils the four conditions laid down in Altmark, it will not constitute an advantage within the meaning of Article 107(1) TFEU. The measure will, therefore, not constitute State aid.

Statement II: Due to the economic crisis many local shops in the municipality of Utrecht are facing financial problems. Therefore, the municipality decides to grant a loan to these local shops. If a private investor would have entered into the transaction on the same conditions as the municipality of Utrecht, the measure will not constitute State aid within the meaning of Article 107(1) TFEU.

Pick the right answer:

1. Both statement I and II are correct.
2. Statement I is correct. Statement II is incorrect.
3. Statement I is incorrect. Statement II is correct.
4. Both statement I and II are incorrect.

Question 3

Deirdra Lak is a company producing aseptic packages. Such aseptic packages are mainly used in the milk industry. The product market for aseptic packages is regarded to be different from other packages. Deirdra Lak has a 20% market share in the EU. Green-pak, a competitor of Deirdra Lak, also produces aseptic packages. Green-pak has a market share of 15% in the EU. Deirdra Lak starts a hostile takeover and decides to buy all the shares of Green-pak. Therefore, through this acquisition Deirdra Lak would obtain a market share of 35% but, taking other factors into account, would not have a dominant position. Taking notice of the Merger Regulation, Deirdra Lak first notifies the intention to takeover Green-pak to the Commission.

Is there a possibility that the hostile takeover of Deirdra Lak will be declared incompatible with the internal market?

1. No. Hostile takeovers and other acquisitions do not fall within the scope of the Merger Regulation.
2. No. Deirdra Lak has not created a dominant position.
3. No. According to Article 4(1) of the Merger Regulation Deirdra Lak has correctly notified the takeover to the Commission.
4. Yes. Deirdra Lak might significantly impede effective competition after the hostile takeover.

Answers

Open questions

Question 1a

Art 102 TFEU. Abuse of dominance position. It is prohibited for a company to abuse its dominant position on the market. Due to the effect on the‘’the interstade trade’’ it would be better if the European Commission would study this case.

Question 1b

Art 102 TFEU, the prohibition of abuse of the dominant position must be seen in the light of several elements. It is prohibited for:

1. One or several undertakings

2. that hold a dominant position

3. to abuse this position

4. when this effect interstate trades.

First of all, we use the term undertaking when speaking of an entitity engaged in economic activity, providing goods or searches on the market (Höfner case). Therefore, Bloemella is an undertaking as it is a Dutch company which offers goods on the market, namely candy and cookies.

To determine if Bloemella holds a dominant position, one had to study the relevant market (Market definition). Therefore, it is important what the good/ service entails and what the geographical market is. To assess the product market it is important to look at the interchangeability of the product (Commision notice para 7) and the demand and supply side of the market (Commission notice para. 15-22). The geographical market must constitute a region where there are ‘homegeneous conditions of competition ‘(United Brands).

The next question is if there is a dominant position on the market. Their marketshare in the Netherlands is more than 50%, and in the other 3 countries it is below 40%. Therefore, it has to be assumed that they hold a dominant position in the Netherlands, but this is unlikely in the other three countries (Hoffman la Roche 39-41). Furthermore, it is important to take into account other factors as mentioned in Hoffman par. 48. It is a possibility to mention vertical integration, as Bloemella is an undertaking that operation from production to the actual sale.

Thirdly one has to determine if the proceedings of Bloemella qualify as an abuse. Several options are give in the article, but these are not limitative (par. 91 Hoffman). One can argue that the abuse falls within the scope of art 102 sub a TFEU. It is an ‘exclusionary’ measure which makes it hard to enter the market.

Finally, there must be an effect ont he interstate trade. As this case concern trade between serval member states, this requirement is fulfilled.

Question 2a

Madeleine could invoke the right of ‘freedom of establishment’ as described in article 49 TFEU. For this, it is necessary that there is an ‘Actual pursuit of an economic activity through a fixed establishment in another member state for an indefinite period.’(Viking Case p. 70)

Question 2b

The exception was laid down in article 45(4) TFEU. To invoke the exception there must be 'a direct or indirect exercise of the powers that are public law’ and ‘Duty designed to safeguard general interest of the state’ (Lawry case para. 27). Juan presumably has no direct opportunity to exercie public law duties and if this nonetheless would be the case it would not concern the general interest of the state. Which is not easily adopted (this follows from the Lawry case)

Question 2c

It is a‘’measure that is indistinctly applicable’’, and thus ‘Rule of Reason exceptions’ are applicable. This means that the Gerbhard criteria apply (par. 37). There should be a legitimate aim, that is suitable and necessary.

Question 2d

This question can be answered based on the Watts case. See paragraph 86-90 for the ‘scope’ of art 56 (Medical services fall within the scope of the freedom to provide services. This also includes the freedom for a recipient of this medical service to go to another member state and receive medical treatment there. (par. 86 + 87)). To determine whether it can be seen as an restriction, see par. 94-98. Subsequently one must determine whetere justification is possible, see paragraph 102 and further.

Article 56 TFEU does not prohibit this, even though medical treatment falls within the scope of prior authorization. However, this has to be done objectively, based on the medical condition, history the most likely cause and severity of the pain experienced by the patient.

Multiple choice

Question 1

C.

Question 2

B. The first statement is correct. The second statement is incorrect, because it falls under state aid.

Question 3

A. The hostile takeover falls outside the scope of the Merger Regulation.