Services of general economic interest are only valid where the public service obligation is clearly and precisely defined

Judgment
C-91/17P & C-92/17P
26.04.2018
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Preliminary rulingCellnex Telecom SA and Telecom Castilla-La Mancha, SA v European CommissionCourt of Justice ninth ChamberK. JürimäeE. SharpstonState aid – Service of general economic interest
KeywordsAppeal - State aid - Digital Television - Deployment of terrestrial digital television in areas remote and less urbanized of the Comunidad autonomous of Castilla - La Mancha (autonomous community of Castile - La Mancha, Spain) - Grant for the digital terrestrial television platform operators - Decision declaring partially measures of aid incompatible with the internal market - Service of general economic interest (“SGEI”) - Definition
Significant pointsBy judgment on April 26, 2018, the Court of Justice put an end to proceedings concerning a measure of support for the development of digital television in a region of Spain with a low level of urbanisation. As a result of this judgment, the development in question cannot be considered a SGEI due to the lack of a clear definition of the service provided.

In 2016, the Commission considered that this measure amounted to State aid and that it was incompatible with the internal market. In its reasoning, the European Commission considered that, in the absence of both a sufficiently precise definition of terrestrial platform exploitation as a public service and an act awarding the public service contract to an operator of a designated platform, the measure in question could not fall into the ambit of Article 106(2) TFEU relating to SGEI.

An appeal against this decision was lodged before the General Court notably on the ground that the European Commission had infringed Articles 106 and 107 TFEU as well as its obligation to state reasons. The General Court rejected the appeal and upheld the European Commission’s decision, confirming notably that the definition of the SGEI by the Spanish authorities was not clear.

Considering that the Commission’s control over the way in which a Member State defines a SGEI should be limited to verifying that the Member State had not committed a manifest error, the applicants argued that the General Court was mistaken when it found that the definition of the SGEI by the Spanish authorities was not clear enough.

In its judgement, the Court of Justice first recalled that, in principle and subject to the manifest error of assessment, Member States have a wide discretion regarding the scope and organisation of the SGEI that they decide to implement in their territory.

However, the Court also recalled that the power of the Member States concerning the definition of the SGEI was not unlimited. This is because the first Altmark condition is essentially intended to determine whether, first, the recipient undertaking actually has public service obligations to discharge and, second, whether those obligations are clearly defined in national law.

The Court considered in this respect that this requirement implies meeting at least the following minimum criteria: the existence of one or more acts of public authority specifying the nature, duration and scope of the public service obligations.

In that respect, a law identifying telecommunications services, including broadcast radio and television networks as a service of general interest is too general to conclude that terrestrial network operators are responsible for the execution of public service obligations clearly defined within the meaning of the first criterion of Altmark.

In addition the Court of Justice pointed out that the definition of a SGEI can be included in an act that is different from the act by which the public authority entrusts a company with the execution of the SGEI.
NoteworthySince the definition of SGEIs forms part of the first Altmark condition, it leaves real room for its judicial review.

The judgement of the Court of Justice is in line with the judgement dated 20 December 2017 (C-66/16P to C-69/16 P) according to which the definition of a SGEI has to be clear and meet minimum listed requirements.

This judgement confirms that the review of the EU Commission and of the EU courts in SGEI matters is not limited to the mere control of manifest errors in any respect. Distinctions have to be made. For example, the requirements for a clear definition of the SGEI and its public service obligations (“PSO”) and for an entrusting act (which form parts of the first criterion) as well as the need for objective, transparent and prior parameters of the compensation (second criterion) are subject to an in-depth scrutiny. More generally, it seems to us that the trend is towards a more stringent control by the EU Commission and the EU courts of the actions of the Member States in SGEI matters, however without jeopardizing their room for political manoeuvre. The EU Commission and the EU Courts only ensure that once a Member State decides to pursue an objective of general interest by setting up a SGEI, it designs it in a correct, serious and – to some extent - efficient way. This entails that the objective of general interest as well as PSOs must be genuine, the undertaking in charge of the SGEI must be capable of fulfilling the objectives assigned (that is to say being economically viable), there must be a genuine market failure, no overcompensation can be paid, the proceeding by which the undertaking is chosen has to be carefully designed and implemented, …. Fulfilling all of these conditions requires serious and significant preparation by the Member States and the other national and subnational public bodies involved. Public authorities should therefore adequately design their SGEI taking into consideration the decision-making practice of the EU Commission and the principles laid down in the EU courts’ case law. Otherwise, the SGEI may be subject to criticism and annulment by the EU Commission and the undertakings allegedly assigned with a SGEI risk being forced to pay back all the money granted by public bodies.

The ECB’s growing interpretation of EU banking regulation. The same person may not occupy at the same time the post of chairman of the board of directors and that of ‘effective director’ in credit institutions subject to prudential supervision.

Judgment
T-133/16
24.04.2018
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Preliminary rulingCaisse régionale de crédit agricole mutuel Alpes ProvenceGeneral CourtSecond ChamberM. Prek /Economic and monetary policy — Prudential supervision of credit institutions
KeywordsPrudential supervision of credit institutions — Person effectively directing the business of a credit institution — Article 13(1) of Directive 2013/36/EU and the second paragraph of Article L. 511-13 of the French monetary and financial code — Prohibition on combining the role chairman of the management body of a credit institution in its supervisory function with the role of chief executive officer of the same establishment — Article 88(1)(e) of Directive 2013/36 and Article L. 511-58 of the French monetary and financial code
Significant pointsCrédit Agricole is a non-centralised French banking group which is comprised, inter alia, of regional agricultural credit union branches. Four of those regional branches wished to appoint the same persons as chairman of the board of directors and as ‘effective directors’. The European Central Bank (ECB), which is responsible for the prudential supervision of Crédit Agricole, approved the appointment of the persons concerned as chairmen of the board of directors but objected to them carrying out at the same time the function of ‘effective directors’.

The ECB considered that the functions enabling a person to obtain approval as ‘effective directors’, in accordance with French and EU law, were executive functions (such as those of the chief executive officer), distinct from the functions entrusted to the chairman of the board of directors. In principle, according to the ECB, there has to be a separation between the exercise of executive and, non-executive functions within a management body.

The four regional branches brought proceedings before the General Court for the annulment of the ECB’s decisions. In essence, they argued that the ECB had not correctly interpreted the concept of ‘effective director’ by limiting it to members of the senior management with executive functions.

In its judgment, the General Court rejected the appeals of the four regional branches and confirmed the approach taken by the ECB.

The General Court analysed the concept of ‘effective director’ of a credit institution in the light of Article 13 of Directive 2013/36/EU on the prudential supervision of credit institutions (CRD IV). On the basis of a textual, historical, teleological and contextual interpretation of Article 13 of Directive 2013/36/UE, the General Court ruled that the concept of « effective director » refers to the members of the management body who are part of the senior management of the credit institution. In particular, the General Court referred to the objective pursued by the EU legislature concerning good governance. That objective involves effective oversight of the senior management by the non-executive members of the management body, necessitating checks and balances within the management body. The effectiveness of this supervision could be jeopardised if the chairman of the board of directors in its supervisory function, while not formally occupying the role of chief executive officer, was also responsible for the effective direction of the business of the credit institution.

The General Court considered that the ECB also correctly applied Article 88 of Directive 2013/36/EU, which provides that the chairman of the management body in its supervisory function of a credit institution (such as the chairman of the board of directors) may not exercise at the same time, unless by express authorisation of the competent authorities, the function of chief executive officer in the same institution.

Lastly, the General Court observes that the ECB also correctly applied the provisions of the Code monétaire et financier français (French monetary and financial statute), as interpreted by the French Conseil d’État. In that regard, the General Court noted that Article L. 511-58 of the CMF is broader in scope than Article 88(1) (e) of Directive 2013/36 in that it precludes not only the ‘chief executive officer’ but also ‘a person carrying out equivalent management duties’ from chairing the board of directors. It stressed that the broader scope of Article L. 511-58 of the CMF does not mean that it is incompatible with Article 88(1)(e). As the ECB correctly pointed out in the contested decisions, recital 54 of Directive 2013/36, allows the Member States to introduce extra principles and standards to ensure effective oversight by the management body. Furthermore, the extension of the prohibition on combining the functions of chairman of the board of directors with those of chief executive officer to a ‘person carrying out equivalent management duties’ was judged consistent with the objectives of Directive 2013/36, namely, the objective of effective oversight of the senior management by the non-executive members of the management body, which involves a balance of powers within the management body.
NoteworthyThis case shows how the ECB is progressively developing its interpretation of various provisions of EU banking law when exercising its supervisory powers and under the judicial review of the EU courts.

In this case, the ECB considered that the same person may not occupy at the same time the post of chairman of the board of directors and that of ‘effective director’ in credit institutions subject to prudential supervision. Its view has been confirmed by the EU General Court.

By finding this, the ECB has complied with the clear wording of Article 88 (1) e) of the CRD IV Directive. I fully agree with this interpretation as stated in my book on EU banking and financial law (Droit bancaire et financier européen, 2e éd., Larcier, 2016, p. 437, paragraph 734). Such requirement has been implemented into Luxembourg law in advance by the CSSF Circular 12/552 on central administration, internal governance and risk management in 2012 (see point 32).

The ECB has also supported the idea that CRD IV is, as a general rule, a directive of minimal harmonization and that the Home Member State of a credit institution is allowed to impose more stringent requirements, therefore. This was the case here as French Law extended the incompatibility prohibition laid down in CRD IV to any executive mandate for the chairman of the board of directors within the same bank.

Beyond these two statements, the case sheds some light on the ECB’s power of interpretation of EU banking and financial law. This is of relevance not only for banks subject to its direct supervision but also to banks of EU Member States not belonging to the EUROZONE as well to other financial operators. For example, the governance rules laid down in CRD IV under Article 88 (1) e) are applicable not only to credit institutions but also to investment firms. In addition, some provisions applicable to banks and thereby falling within the scope of the powers of supervision of the ECB have inspired rules applicable to other financial institutions.

The judgment of the General Court is excessively long in light of the clear wording of Article 88 (1) e) of CRD IV. The long developments on the alleged ratio legis of Article 13 could have been avoided. For reasons of clarity and simplicity, the judgment could have been limited to two statements, one on the scope of Article 88, paragraph 1, under e) of CRD IV and one on the possibility for the home member State to set requirements going beyond those of the Directive.

However, the stress put by the General Court on the good governance of credit institutions and investment firms shows that those new rules must be considered as of the utmost importance for credit institutions. It can thereby be deducted that violations of those rules could justify severe administrative sanctions and ever result in civil liability for banks and investment firms.

How to assess whether a practice of differential pricing by a dominant undertaking is capable of distorting competition on a downstream market and amounts to an abuse of dominance: some further guidance from the CJEU but not the end of the road of the effects-based approach under Article 102 TFEU

Judgment
C-525/16
19.04.2018
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Preliminary rulingMEO – Serviços de Comunicações e Multimédia / Autoridade da ConcorrênciaCourt of Justice Second ChamberA. PrechalN. WahlCompetition law – Abuse of dominance – Discriminatory prices
KeywordsReference for a preliminary ruling — Competition — Abuse of dominant position — Article 102, second paragraph, point (c), TFEU — Concept of ‘competitive disadvantage’ — Discriminatory prices on a downstream market — Cooperative for the management of rights relating to copyright — Royalty payable by domestic entities which provide a paid television signal transmission service and television content
Significant pointsFacts

This preliminary ruling arose following a complaint lodged with the Portuguese Competition Authority by Serviços de Comunicações e Multimédia SA (“MEO”) alleging that GDA, a non-profit-making collecting cooperative which manages the rights of artists and performers, had abused its dominant position on the market. The alleged abuse concerned, notably, discriminating in the amount of royalty which GDA charged MEO for its television broadcasting services compared to another customer.

Legal issue

The CJ was asked whether or not the concept of discriminatory pricing placing a trading partner at a ‘competitive disadvantage’, for the purposes of subparagraph (c) of the second paragraph of Article 102 TFEU, must be interpreted as requiring an analysis of the specific effects of the differentiated prices on the competitive situation of the undertaking affected and, as the case may be, whether or not the seriousness of those effects should be taken into account.

Court’s position

- First, the Court stated the mere presence of an immediate disadvantage affecting operators who were charged more, compared with the tariffs applied to their competitors for an equivalent service, does not mean that competition is distorted or is capable of being distorted within the meaning of Article 102 TFEU (paragraph 26). It is only if the behavior of the undertaking in a dominant position tends to lead to a distortion of competition between those business partners, having regard to all the circumstances of the case, that the discrimination between partners which are in a competitive relationship may be regarded as abusive (paragraph 27).

- Secondly, the CJ noted that fixing an appreciability (de minimis) threshold for the purpose of determining whether or not there is an abuse of a dominant position is however not justified (paragraph 29).

- Thirdly, the Court judged that, in order for the differential pricing to be capable of creating a competitive disadvantage, the price discrimination must affect or be capable of affecting the interests of the operator which was charged higher tariffs compared with its competitors (paragraph 30).

This potential or actual effect must be analysed by looking at all the relevant circumstances of the case (such as the negotiating power of the customers, the duration and amount of the discrimination and whether there is a strategy to exclude as-efficient trading partners from the downstream market) to decide whether or not that behaviour has an effect on the costs, profits or any other relevant interests of one or more of the trading partners. In this case, the CJ noted that MEO had a certain amount of negotiating power vis-à-vis GDA, that the prices offered had been set following arbitration proceedings, that the prices represented a “relatively low” percentage of MEO’s costs and that GDA had no interest in trying to exclude MEO from the downstream market.
NoteworthyArt 102, paragraph 2 c), TFEU states that discriminatory pricing by a dominant undertaking constitutes an abuse of dominance. Its wording implies that as soon as a dominant company applies “dissimilar conditions to equivalent transactions with other trading parties”, there is an abuse as that conduct places the trading party(ies) at a competitive disadvantage.

However, previous case law has in effect extended the wording of that provision in Article 102 by establishing that differential pricing does not automatically constitute an abuse: it must be shown also that trading parties are in fact placed at a competitive disadvantage (C-95/04 British Airways and T-301/04 Clearstream).

This judgment repeats this principle but in our opinion tries to push the analysis of a “competitive disadvantage” further by imposing a comprehensive effects-based analysis looking at all the relevant circumstances of the practice in order to determine whether there is substantial disadvantage created. This approach follows the CJ’s recent case law in abuse of dominance cases where it has strived to move away from “per se” abuses and placed the focus on the potential or actual effects that the conduct may have, as recently exemplified by the Intel judgment last September (C-413/14).

In this case, which concerned the prices charged by a supplier to downstream service providers, the Court stated that an effect on the competitive situation of one or more undertakings (a so-called competitive disadvantage) must be proven by looking at the effect on costs, profits or any other relevant interest of the trading partner. This is of course confusing since charging different prices to customers is bound by nature to impact the costs of undertakings placing the undertaking(s) paying higher prices against those paying lower prices thereby putting them in a competitive disadvantage. However, what the CJ tried to allude to (in less than clear reasoning) is the need, in order for differential pricing to be abusive, for a significant effect on a trading partner’s competitive position. This statement was made by the CJ despite recalling its previous case law according to which there is no quantitative threshold for determining what amounts to a (potential or actual) anticompetitive effect. In applying the principles to the case at hand, it observed that the costs involved for the complainant were not significant in proportion to its total costs, thus implying that the differential pricing involved did not amount to an abuse.

In addition, the CJ stated that establishing the anticompetitive effect involves looking at all of the relevant circumstances of the case. This is a principle taken from the recent Intel judgment, which concerned rebates. Although in line with the CJ’s previous case law and the practice of competition authorities focusing more and more on the effects of unilateral conduct, this creates very vague guidance on assessing when differential pricing is in fact discriminatory and therefore abusive. The judgment will trigger problems, therefore, for dominant undertakings offering different pricing to its customers to know what price differences may be considered as significant such that they cause a competitive disadvantage within the meaning of Article 102, second paragraph c), and are thereby abusive.

The CJ did correctly reaffirm that the restriction of competition only needs to be potential in order to amount to an abuse and no actual anticompetitive effect needs to be proven.