C-198/01

OPINION OF MR JACOBS — CASE C-198/01

O P I N I O N OF ADVOCATE GENERAL JACOBS delivered o n 30 January 2003 1

Introduction otherwise enjoy on the basis of the State action defence. An additional issue is whether a national regulatory framework that substantially interferes with the work- ing of competition leaves any room for autonomous conduct on the part of the undertakings concerned that could restrict competition in the relevant market even 1. This case concerns the scope of a prin- further. ciple firmly established in Community law, the so-called 'State action defence'. Under that principle, undertakings charged with an infringement of the competition rules in Articles 81 or 82 EC can claim that their conduct falls outside the scope of those 3. Those questions arise in proceedings in rules where it was required by national which a consortium of Italian match manu- legislation or where the national legal facturers challenge a decision of the Italian framework itself eliminated any possibility competition authority, Autorità Garante of competitive activity on their part. della Concorrenza e del Mercato ('the Autorità Garante' or 'the Authority'), in which the latter declared the legislation establishing and governing the operation of the consortium contrary to Articles 10 and 81 EC, found that the consortium and its members had infringed Article 81 through the allocation of production quotas, and ordered the consortium and its members to 2. What is mainly at issue in the present terminate the infringements found. case is whether Community law empowers, or even obliges, a national competition authority which is investigating the conduct of certain undertakings to disapply — as itself being contrary to the Treaty — national legislation that requires those undertakings to engage in anti-competitive The legislation governing the manufacture conduct, and thereby to remove — retro- and sale of matches in Italy actively and/or for the future — the immunity from penalties which they would

7. The 1992 agreement did not signifi- cantly alter the price-fixing aspects of the system. By Decree-Law N o 331 of 30 August 1993 ('Decree-Law No 331'), 3 however, the Italian legislature adopted 6. Under Article 4 of the latest version of new rules on excise duties and other indi- the agreement between the CIF and the rect taxes. Article 29 of that Decree-Law Italian State (the '1992 agreement'), 2 provides that the manufacturer and the which regulates the operation of the con- importer are directly liable for payment of sortium, production quotas are still to be the manufacturing duty. According to the allocated among member undertakings by a referring court, that rule abolished the special committee ('the Article 4 commit- fiscal monopoly of the consortium. With

2 — Implemented by Decree of the Ministry of Finance of 3 — Subsequently converted into law by Law N o 4 2 7 of 5 August 1992. 29 October 1993.

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respect to the commercial monopoly, it extended to cover in particular an agree- seems that it was abolished as early as 1983 ment between the CIF and one of the main when the prohibition on non-members of European match manufacturers, Swedish the consortium manufacturing and selling Match SA, under which the CIF had matches in Italy was lifted. Membership of allegedly undertaken to purchase from the consortium remained compulsory, Swedish Match a quantity of matches however, at least until the fiscal monopoly corresponding to a pre-determined percen- was abolished in 1993. There are however tage of Italy's domestic consumption. different views as to the compulsory or voluntary nature of membership of the CIF even after that date for those match manu- facturers who were already members before the fiscal monopoly ended.

pation in the CIF was voluntary rather than 15. The Authority subsequently stated that compulsory 4 and the conduct of its 'in any event', that is to say regardless of members had thus to be regarded as the any determination as to the impact of the result of autonomous business choices for regulatory framework in force, the conduct which they could be held accountable. of the members of the CIF, and in par- ticular the power to allocate production among them, could be assessed under Article 81 EC. Thus it observed that the annual programmes prepared by the CIF committee and the consortium manage- ment, fixing total production and members' individual quotas, were contrary to Article 81(1) EC. Further the application 13. By contrast, with regard to the period of Article 81(1) EC to the operation of the prior to 1994 the analysis was more com- Article 4 committee could not be excluded plex. The regulatory framework had, by because, although Article 4 of the 1992 limiting and controlling production and Agreement prescribed an obligation to market outlets, itself restricted compe- allocate production, it did not indicate the tition. Further, by requiring the CIF to criteria and procedures to be followed. allocate production quotas among its Elements such as the composition of the members, it had required the CIF to take Article 4 committee, the fact that it took decisions contrary to Article 81(1) EC. decisions by a majority vote and the actual content of the decisions, which apparently corresponded to the requests put forward by the industry representatives, all showed that the decisions were attributable to the CIF and, in particular, to its members. Finally, the fact that all production allo- cation decisions were notified to and auth- orised by the Italian State did not prevent competition law from being applied. 5 14. The Autorità Garante then held that (i) prior to 1994 the regulatory framework, in so far as it required participation in the consortium in order to produce and sell matches in Italy, constituted a 'legal shield' ('copertura legale') to conduct (of the CIF and its members) otherwise prohibited; (ii) such regulatory framework had 'to be disapplied by any judge or public adminis- t r a t i o n ' since it was c o n t r a r y to Articles 3(g), 10 and 81(1) EC; (iii) that disapplication 'would imply' ('impliche- 16. The Authority went on to analyse rebbe') the removal of the legal shield. whether the criteria used by the CIF to allocate production quotas could effectively 4 — However the Italian Ministry of Finance in a Note of 24 November 1999 had stated that participation in the consortium continued to be compulsory until expiry of the 5 — The Authority refers to Case 123/83 BNIC v CLAIR [1985] 1992 Agreement in 2001. ECR 391, paragraph 23 of the judgment.

(c) the CIF and Swedish Match SA had 17. On those grounds, the Autorità Gar- entered into an agreement concerning ante decided inter alia that: the allocation of match production and product distribution between them through the CIF, which constituted anti-competitive conduct in breach of Article 81(1);

'(a) the existence and operation of the CIF, as governed by Royal Decree No 560 of 11 March 1923 and by the agree-

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(e) the CIF, its member undertakings and cation of national law, but not for Swedish Match SA must terminate direct control of the compatibility of implementation and continuation of national law with Community law. the infringements found, and abstain from any agreement similar in object or effect...'

(2) The Authority misinterpreted Article 29 of Decree-Law No 331 which did not alter the compulsory nature of CIF membership. The conduct of CIF The main proceedings and the order for members, even after the entry into reference force of that rule, could therefore not be attributed to business choices made in complete independence and the dis- tinction drawn by the Authority between the period before and after 18. The CIF brought an action for the the entry into force of the Decree-Law annulment of the Authority's decision had to be regarded as unfounded. before the Tribunale Amministrativo Regionale del Lazio ('Tribunale Amminis- trativo Regionale').

not only national courts but also adminis- fore referred the following questions for a trative authorities should normally dis- preliminary ruling: apply national legislation which conflicts with Articles 10 and 81 EC, the Tribunale Amministrativo Regionale none the less doubts whether in the specific circum- stances of the present case the Authority had the power to disapply the legislation governing the CIF. That is because, in its view, the disapplication was done in the exercise of its law-enforcement powers ('potestà repressiva'). Moreover, the dis- ' 1 . Where an agreement between under- application was made in tnalam partem, takings adversely affects Community that is to say in a manner disadvantageous trade, and where that agreement is to the undertakings concerned. According required or facilitated by national legis- to the referring court, in such a situation (i) lation which legitimises or reinforces the disapplication of national legislation is those effects, specifically with regard to not a basis for the protection of rights the determination of prices or market- conferred on individuals by Community sharing arrangements, does Article 81 law, (ii) the undertakings 'shielded' by the EC require or permit the national legislation in question may have acted in competition Authority to disapply that good faith, (iii) a disapplication in malam measure and to penalise the anti-com- partem in the exercise of law-enforcement petitive conduct of the undertakings or, powers may conflict with the principle of in any event, to prohibit it for the legal certainty, and (iv) the only way for the future, and if so, with what legal undertakings concerned to avoid the risk of consequences? sanctions, or, in any event, of investigation by the Authority, would be to refuse, on their own initiative, to comply with an obligation imposed by national legislation, conduct that, with all its risks and uncer- tainties, would appear problematic.

23. The main arguments put forward by the CIF rely on the principles laid down in the Ladbroke judgment. 6In that judgment 24. For the CIF those statements are fully the Court held that 'Articles 85 and 86 transposable to the present case, which [now 81 and 82] of the Treaty apply only involves the decentralised application of to anti-competitive conduct engaged in by Community competition rules by national undertakings on their own initiative'. Con- competition authorities. Hence the CIF versely, 'if anti-competitive conduct is argues, first, that the conduct of the under- required of undertakings by national legis- takings under investigation, being required lation or if the latter creates a legal by national legislation, was not auton- framework which itself eliminates any omous and thus was not caught by possibility of competitive activity on their Article 81 EC; moreover those undertak- part, Articles 85 and 86 do not apply. In ings could not be obliged to disregard such a situation, the restriction of compe- binding national legislation which was still tition is not attributable, as those provi- in force. Secondly, the Authority should sions implicitly require, to the autonomous have limited its assessment of the Italian conduct of undertakings... Articles 85 and legislation to the question whether that 86 may apply, however, if it is found that legislation prevented the CIF and its the national legislation does not preclude

7 — Paragraphs 33 and 34 of the judgment. 6 — Joined Cases C-359/95 P and C-379/95 P Commission and 8 — Paragraph 31 of the judgment. France v Ladbroke Racing [1997] ECR I-6265, in para- graphs 30 to 35 of the judgment. 9 — Paragraph 35 of the judgment.

25. The Autorità Garante submits that the power, and even the obligation, to make a finding that the legislation governing the 26. The Authority also underlines that it CIF is contrary to Articles 10 and 81 EC did not 'condemn' the CIF and its members derives from the principles of direct effect for the conduct covered by the national and primacy of Community law as devel- regulatory framework but only for those oped in the case-law, in particular in the restrictions of competition which were Fratelli Costanzo decision. 10 It underlines additional to those resulting from the that, in making such a finding, it did not legislation governing the CIF. Observing exercise direct control of the legislation at that it is an inherent feature of the adminis- issue. The declaration of incompatibility of trative enforcement of competition rules — that legislation with Articles 10 and 81 EC and, more generally, of any form of was incidental, in the context of an inves- administrative enforcement — that the tigation of the conduct of the CIF and its national competition authority's primary members. The assessment of the relevant task is to ensure not the protection of rights regulatory framework was however necess- conferred on individuals, but rather the ary because of its direct impact on the 'public interest' in the effectiveness of those conduct of the undertakings concerned. rules, the Authority addresses the referring The Authority submits that the declaration court's preoccupations concerning the it made does not strictly amount to a breach of good faith and legal certainty, disapplication. Nor, a fortiori, does it and the disapplication of national legis- lation in malam partem summarised above. First, the Authority observes that, in the 10 — Case 103/88 [1989] ECR 1839. large majority of cases of disapplication of

national legislation incompatible with EC can, when it is investigating the conduct Community law, adverse effects are a of undertakings, assess, and, if necessary, logical and frequent consequence of such disapply national legislation that is incom- disapplication. 1 1Analogously, as to the patible with Articles 10 and 81 EC. concern for legal certainty, the Authority points out that the situation is identical to the cases in which a national court declares national legislation contrary to Community law and disapplies it. Finally, the Authority underlines that it did not fail to take due account of the good faith of the undertak- ings concerned, by 'condemning' only the conduct that was not shielded by the legislation in issue, and, in any event, by not imposing any penalties on them. 29. The Commission suggests that, pur- suant to the direct effect and primacy of Community law, a national competition authority is empowered to disapply national legislation that conflicts with Articles 10 and 81 EC. Like the referring court, however, it seems to regard the adverse consequences of such disappli- 27. The Autorità Garante, however, also cation as the main problem in this case. suggested at the hearing that, even though Nevertheless it believes it possible to dis- an assessment that national legislation is tinguish this case, in which the application incompatible does not necessarily imply of directly effective Treaty provisions is at any liability on the part of the undertakings issue, from the case-law that denies that under investigation for the conduct directives may impose obligations on indi- shielded by that legislation, it might recon- viduals. 12 In particular, the Commission sider the decision not to penalise those considers that no rule of national or undertakings if they continued with the Community law prevents obligations and anti-competitive conduct despite its assess- liabilities for individuals from deriving ment. from Community rules which are directly applicable erga omnes. That principle has been expressly endorsed by the Court as regards regulations and must a fortiori apply with Treaty provisions such as Articles 10 and 81 EC. As to the legal effects of those provisions in this case, the Commission considers that they are limited 28. The conclusion of the Authority is that to the addressees of the decision since the a national competition authority entrusted Authority did not seek to deprive the with the application of Articles 81 and 82 national legislation of its legal effects. Further, the Commission seems to suggest

34. In paragraph 175 of its decision the Autorità Garante stated in general terms that such legislation had 'to be disapplied Clarification of the relevance and scope of by any judge or public administration' the question referred without stating what it would itself do or would have to do in the present case. In fact, in paragraph 176, it used the con- ditional mood and stated that the disappli- cation of the legislation 'would imply' ('implicherebbe') the removal of the legal 3 1 . The referring court asks whether 'cover' granted by the legislation. Further, Articles 10 and 81 EC require or permit a in the operative part, point (a) simply states national competition authority to disapply that the national legislation is contrary to national legislation which imposes or Articles 10 and 81 EC without spelling out favours an agreement between undertak- the consequences of that conflict either for ings (which itself is contrary to Article 81 the decision or for future litigation or

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36. Moreover, no penalties seem to have 39. In any event, under the Court's estab- been imposed on the undertakings con- lished case-law Article 234 EC is based on a cerned, the only order being the ter- clear separation of functions between the mination of the infringements established. national courts and the Court of Justice. Hence it is further doubtful whether the Under that separation of functions it is not reference in the question to the power to for the Court of Justice, but for the national penalise is not hypothetical. court, to ascertain the facts which have

13 — See paragraphs 25, 27 and 28. 14 — See paragraph 27.

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given rise to the dispute and to establish the petitive conduct of undertakings which consequences which they have for the would in principle be shielded by that judgment which it is required to deliver. 15 legislation. Moreover, it is also solely for the national court before which the dispute has been brought to determine both the need for a preliminary ruling and the relevance of the questions which it submits to the Court. 16 41. Before embarking on those questions it is however necessary to identify the root of the problem in the present case.

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82 EC, read in isolation, relate only to the conduct by undertakings under Article 81 conduct of undertakings and do not cover EC, could find, if that conduct were measures adopted by Member States by imposed by national legislation, that the legislation or regulation, those provisions, legislation was contrary to, or incompatible read in conjunction with the duty of with, Article 10 EC read together with cooperation under Article 10 EC, require Article 82 EC. the Member States not to introduce or maintain in force measures, even of a legislative or regulatory nature, which may render ineffective the competition rules applicable to undertakings. 18 That would be the case if inter alia a Member State were to require or favour the adop- 46. However, the central question in the tion of agreements, decisions or concerted present case is not whether a national practices contrary to Article 81 EC or to competition authority can make such a reinforce their effects, or to deprive its own finding of incompatibility, but whether it legislation of its official character by del- can thereby expose undertakings to the risk egating to private traders responsibility for of penalties for conduct which is required taking decisions affecting the economic by the national legislation. sphere. 19

44. It therefore seems clear that at least the 47. Here it is useful to distinguish between national courts would be competent, or in the possible imposition of penalties for the appropriate circumstances obliged, to set past and for the future. aside a provision of national legislation where, for example, that legislation pre- vented a party in civil or administrative proceedings from exercising the rights con- ferred by Article 81 EC, either against another private party or against the public authorities.

52. The same principles must apply in my view whether the penalties which might be imposed by the national authorities for breach of the Community competition rules in question are classed as criminal or 50. It is true that undertakings which administrative. Where undertakings are chose, of their own initiative, to disregard exposed to the risk of substantial fines for the national legislation would, if pros- breach of the competition rules, and where ecuted, be able to rely, by way of defence, the purpose of the fines is retributive and on the incompatibility of that legislation deterrent, the same fundamental principles with Treaty provisions which have direct must apply, whether the proceedings lead- effect. But, for all the reasons just given, ing to the imposition of the fines are they cannot in my view be required, as a administrative or criminal in nature. matter of legal obligation, to disregard such legislation so long as it remains in force and has not been repealed by the legislature. The principles of the direct effect and primacy of Community law cannot be

53. Those principles must prevail over any 20 — Cited above in note 6. argument based on the effectiveness of EC I - 8072

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58. While a national competition authority may well be empowered to declare the national legislation incompatible with Community law, I do not consider that such a declaration would resolve the situ- Penalties for the future ation of legal uncertainty for the undertak- ings concerned. They would still be caught between Scylla and Charybdis, in the form of two conflicting legal obligations,

55. The above considerations on legal cer- tainty and on the State action defence apply 21 — See paragraph 27 above.

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infringement of either of which could The second question expose them to adverse consequences.

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case only in so far as that is necessary to Nazionale Spedizionieri Doganali v Com- provide a useful answer to the question put misson. 23 After underlining that the State by the referring court. My concern will action defence, inasmuch as it excludes mainly be to clarify those principles of anti-competitive conduct from the scope of Community law, as developed in the case- Article 81(1) EC, has been applied restrict- law of the Court, which may help the ively by the Community judicature, 24 that Tribunale Amministrativo Regionale in the Court considered that what must be deter- resolution of the issues before it. mined under the Ladbroke test is whether the restrictive effects on competition orig- inate solely in the national law or, at least to an extent, in the applicant's conduct. 25

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67. Moreover I would underline, as the criteria and procedures whereby that allo- referring court also does, that the allocation cation should be carried out, the competi- of production quotas represents a particu- tive process can indeed, at least hypotheti- larly serious infringement of the compe- cally, be affected differently depending on tition rules. the allocation actually carried out and can, in any event, be distorted further than is done by the statutory obligation itself. That was confirmed in Consiglio Nazionale Spedizionieri Doganali: there the Court of First Instance found that where national legislation requires an association of under- 68. In my view there is no reason to assume takings, constituted of representatives of that, as a matter of principle, the possibility the relevant industry who act and take of any room for competitive activity is decisions in their exclusive interest, to excluded by the pre-determination of prices adopt a tariff but does not determine either by the State. Indeed price competition 'does specific price levels or ceilings or the not constitute the only effective form of criteria to be taken into account in estab- competition or that to which absolute lishing the tariff, the possibility that a priority must in all circumstances be certain degree of competition is left open accorded'. 26 Although limited, competition by the legislation at issue, which is then may still focus on factors such as, for capable of being distorted, cannot be example, the quantity and/or quality of the excluded. 27 products or services at issue. Evidently, however, that is an issue for the national court to decide, considering the actual market and product.

71. It must also be underlined that the fact production quotas, did leave room for that the anti-competitive arrangements are competition which is capable of being communicated to and subject to authori- hindered, restricted or distorted by the sation by a public authority is not necess- autonomous conduct of the undertakings arily a decisive factor. In BNIC v Clair, 29 concerned. the Court held that, by its very nature, an agreement fixing a minimum price for a product (an infringement which is com- parable in seriousness to production- and market-sharing) and submitted to the pub- lic authorities for the purpose of obtaining approval for that minimum price, so that it becomes binding on all traders on the market in question, is intended to distort competition on that market. The Court 73. In that regard, I would only observe went on to hold that the adoption of a that in the case at issue it seems that the measure by a public authority making an undertakings concerned, individually and agreement binding on all the traders con- through the various bodies of the consor- cerned, even if they were not parties to the tium, determined plans, criteria, procedures agreement, cannot remove the agreement and levels of production with a view to from the scope of Article 81(1) EC. Those allocating the quotas of production among conclusions are all the more relevant when themselves. It appears from the file that it is considered that the State action defence they also concluded a production- and has been applied restrictively 30 and when, market-sharing arrangement with a major as is suggested by the Autorità Garante, the foreign competitor whereby the undertak- scrutiny actually exercised by the State ings agreed to reduce their own individual Monopolies Board does not seem to be production quotas to allow that competitor very intense. 31 to enter the Italian market, conduct that appears to have no legal basis in the statutory obligation to allocate production quotas among the members of the con- sortium.

(2) Where under national legislation the retail prices of a product are fixed by the national authorities and the allocation of production among undertakings is assigned to a consortium to which the relevant producers are required to belong, those undertakings remain subject to Article 81(1) EC in respect of any autonomous conduct allowed by the legislation. It is for the national court to determine, on the basis of all the facts, whether, within the national regulatory framework, there remains room for competition which is capable of being hindered, restricted or distorted by the autonomous conduct of those undertakings.

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