European Union: Article 82 And Public Health Bodies Considered

Last Updated: 29 September 2008
Article by Tom Carney and Sinéad O'Loghlin

Most Read Contributor in Ireland, September 2019

In deciding whether or not to impugn national public health bodies for abusive anti-competitive practices under article 82 of the EC Treaty, national and supranational courts are required to balance the need for effective competition in the internal market against a requirement to respect member state sovereignty in areas falling outside the full competence of the Community. Article 14(2) of the EC Treaty commits the Community to the establishment of an internal market which "shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured" in accordance with the requirements of the treaty, including its competition provisions.

Bearing in mind the respective competences of the member states and the Community under the EC Treaty, it is necessary to revisit the EU's case law to examine the extent to which supranational judicial enforcement of article 82 is constrained in those markets where public health bodies participate. To do so requires, first, to explore whether or not public health bodies enjoying dominant positions in domestic markets fall outside the scope of article 82; and, secondly, to consider whether or not article 152(5) of the EC Treaty entitles member states, through their public health bodies, to engage with impunity in abusive conduct injurious to competition in violation of the requirements of articles 10, 3(g) and the competition provisions of the EC Treaty.

Article 82 and public health bodies

Community case law reflects that article 82 is an instrument of ex post competition management which is designed to control abusive exploitation by one or more undertakings of a position considered dominant in a relevant market of the European Union. Inherent in the effective application of the Community's competition rules is an appreciation that economic operators can undermine the goals of the internal market through anti-competitive behaviour as readily as state measures impugned by articles 25, 28 or 49 of the EC Treaty.

Articles 81 and 82, as a general statement, complement the free movement provisions of the EC Treaty, insofar as their proper enforcement against private and public entities ensures the viability of an internal market characterised by the abolition, as between the 27 member states, of all obstacles to intra-Community trade.

The requirements of article 82 are clear, precise and unconditional. They are capable of engendering in private individuals legal rights upon which they may rely before the national courts. Reliance upon article 82 by private citizens and competition enforcement agencies against dominant undertakings enables the punishment before the courts of anti-competitive behaviour by private or public bodies. Prima facie, any undertaking that enjoys a position of dominance in a relevant market and through its conduct towards competitors, customers or consumers abuses that position, behaves in violation of the requirements of article 82.

The precise application of the Community's competition rules to dominant public health bodies is determined by a constantly evolving teleological judicial interpretation of article 82 which has regard to all provisions of the EC Treaty. Among these provisions is article 152(5) which provides that Community action in the field of public health must fully respect the responsibilities of the member states for the organisation and delivery of health services and medical care. It is undisputed that public health bodies hold a position of special responsibility in national health markets. In many cases, they enjoy a position of dominance in domestic health markets through the intervention of state legislators and governments. All dominant undertakings are subject to special responsibilities. Indeed, the Court of Justice has held in Nederlandsche Banden-Industrie Michelin v Commission [Case 322/81] that "a finding that an undertaking has a dominant position is not in itself a recrimination but simply means that, irrespective of the reasons for which it has such a dominant position, the undertaking concerned has a special responsibility not to allow its conduct to impair genuine undistorted competition on the common market".

Interpretation of "undertaking"

Central to the potential application of article 82 to the market conduct of public health bodies is the judicial interpretation of the term "undertaking". The EC Treaty, while making reference to the term in several places, does not define the concept. Historically, the supranational courts have sought to impose a broad definition of the notion of undertaking, thereby enabling the Community to maximise its competence over all markets falling within the parameters of the EC Treaty. Advocate General Roemer proffered a useful early definition of the term in Italy v Council [Case 32/65] stating that "apart from legal form or the purpose of gain, undertakings are natural or legal persons which take part actively and independently in business and are not, therefore, engaged in a purely private activity".

In cases involving private economic operators, the Court of Justice has not been reluctant to interpret the term expansively, embracing within its ambit any collection of resources established to carry out economic activities, including companies, partnerships, sole traders or associations. In Van Landewyck (Heintz) Sarl v Commission [Case 209-215/78], the Court of Justice held that any entity engaged in commercial activity is capable of fulfilling the definition of an undertaking, even in the absence of the pursuit of profit.

Judicial identification of those public bodies which are "undertakings' subject to the competition rules is more challenging. In Hofner and Elser v Macrotron GmBH [Case C-41/90], the Court of Justice considered any entity engaged in an economic activity to be an undertaking for the purposes of the competition rules irrespective of its legal status and the way in which it is financed. This definition is helpful. It is necessary, however, to look more closely at the judicial criteria used to identify which public bodies are within or outside the ambit of article 82.

In earlier times, the Court of Justice's approach focused on the market activities of state bodies qua regulators and qua economic operators. The judgment in Commission v Italy [Case 118/85] recognises that "the State may act either by exercising public powers or by carrying on economic activities of an industrial or commercial nature by offering goods and services on the market".

To enable the enforcement of article 82 against any public body, a finding that the body had engaged in activities of a commercial or economic character is pivotal. In consequence, where public bodies exercise state authority for the purpose of market regulation, the case law reflects that those bodies will fall outside the scope of article 82 so long as they do not participate or compete in the market. Thus, in Diego Cali and Figli Srl v Servizi Ecologici Porto di Genova SpA [Case 343/95], activities which form part of the essential functions of a member state will never constitute economic activities within the meaning of Community competition law.

It follows that the classification under article 82 of any public entity as an undertaking depends entirely on the economic nature of the activity performed by it. Community jurisprudence reveals that the courts will treat the activities of a public body which are economic in nature as falling under article 82 while, concurrently, treating conduct by the same body which is non-economic or regulatory in nature as outside the remit of the competition provisions. Lawyers acting for or against public bodies where article 82 is pleaded should ensure appropriate reliance on expert legal and economic evidence to establish to the satisfaction of the courts the precise extent of the economic and non-economic activities carried out by those public bodies.

Advocate General Maduro in FENIN v Commission [Case C-205/03 P] opines that the Community courts' traditional approach for establishing whether or not a public body is an undertaking within the scope of article 82 turns on the concurrent application of two tests: the comparative criterion and market participation tests.

The comparative criterion test focuses on whether or not the activity of a pubic body is capable of being performed by private operators, for the purposes of determining if that activity is economic in nature or not. Where an activity can only be carried out by a public body and that activity cannot be performed by a private entity, that body cannot be considered to be an undertaking within the meaning of article 82. In Hofner and Elser, an activity was held to be an economic activity since "employment procurement has not always been, and is not necessarily, carried out by public entities", while in Firma Ambulanz Glockner v Landkreis Sudwestpfalz [Case C-475/99], public health organisations providing services in the market for emergency and ambulance services were held to be undertakings subject to the competition rules on the basis that "such activities have not always been, and are not necessarily, carried out by such organisations or by public authorities".

Sole reliance, however, on the comparative criterion test is problematic. Advocate General Maduro states that: "Comparative criterion would, literally applied, enable any activity to be included within the scope of competition law. Almost all activities are capable of being carried on by private operators." As a result, it has been necessary for the courts to delimit the scope of the test by the concurrent application of the market participation test. Under the market participation test, it is not the mere fact that, in theory, private operators may carry out economic activities on a given market which is decisive. Rather, it is the fact that those activities are actually carried on in a member state under market conditions which determines the application of article 82. Such market conditions are distinguished by conduct which is undertaken with the objective of capitalisation, as opposed to activities pursued solely pursuant to the principle of solidarity.

In Commission v Italy [Case C-35/96], it was not contested that the public body participated in the market inasmuch as it actually "offered goods and services on the relevant market". The Court of Justice held that public bodies are undertakings for the purposes of the competition rules where they "offer for payment, services [...] relating in particular to the importation, exportation and transit of goods, as well as other complementary services such as services in monetary, commercial and fiscal areas". In certain cases, a clear link between participation in the market and the carrying out of the economic activity is required. In Hofner and Elser, however, the court has shown itself willing to imply the economic nature of the activity engaged in by the public body where the member state allows private undertakings to participate in the same relevant market.

It is fair to say that the comparative and market participation tests in a number of more recent cases have been honed. In Ambulanz Glockner, it was held that "any activity consisting in offering goods and services on a given market is an economic activity" for the purposes of Community competition law. In FFSA and Others v Commission [Case T-106/96], the mere fact that an entity "is a non-profit-making body does not deprive the activity which it carries on of its economic nature since [...] that activity may give rise to conduct which the competition rules are intended to penalise".

These latter judgments are in line with the court's approach in Van Landewyck. Even where no profit-making activity is carried out by a public entity, there may be market participation capable of undermining the objectives of competition law.

The EC Treaty itself provides limited guidance to those activities which may be considered economic or non-economic for the purposes of article 82. Articles 30, 45 and 46 of the EC Treaty set out the list of non-economic grounds upon which member states may rely to justify state obstacles to intra- Community trade in goods and services Among the grounds identified is the protection of public health. The exercise by member states of the right under articles 30 or 46 to restrict interstate trade in goods and services on this ground, however, is subject to the superior requirements of Community law. The right is subject to the Community's doctrine of proportionality and can never operate as a justification for arbitrary discrimination or the imposition of disguised restrictions on trade in breach of the superior requirements of articles 28, 29 or 49. Similarly, while article 152(5) requires the Community in the field of public health provision to respect the responsibility of member states for the organisation and delivery of health services and medical care, it does not follow that public health bodies may engage with impunity in abusive behaviour which distorts competition in upstream and downstream markets in clear violation of the spirit and superior requirements of article 82.

Advocate General Maduro in FENIN appears to recognise that entire segments of national health markets fall outside the scope of the Community's competition rules. Implicit in his reasoning is an understanding that those segments remain within the exclusive competence of the member states' governments where solidarity predominates in those markets. The Grand Chamber of the Court of Justice in FENIN confirms that the definition of undertaking in article 82 covers any public entity engaged in an economic activity, regardless of its status and method of financing, underlining that it is the activity of offering goods or services on the market that is the characteristic feature of an economic activity. The court went on to hold, however, that in considering the application of article 82 to Spanish public health bodies, the purchasing activities of those bodies should not be divorced from the subsequent use to which the goods or services were put by the member state. It found that the nature of the purchasing activity must be determined according to whether or not the subsequent use of the purchased goods or services amounts to an economic activity. Where goods or services are purchased by a public body and those goods or services are subsequently put to a solely non-economic public health use, article 82 cannot be applied to that body.

Given the procedural exclusion of key arguments raised by the appellant, the decision in FENIN must be regarded in the national courts of the member states as having restricted application. It is emphasised that the Court of Justice limited its decision to situations where public health bodies purchase goods from suppliers and subsequently use those goods solely for a non-economic purpose in accordance with the principle of solidarity. The Court of Justice did not consider what its finding might have been if the subsequent use to which the goods were put was in whole or in part an economic use.

Most member state health markets comprise both public and private medical treatment. Where public health bodies purchase goods or services from suppliers and subsequently use those purchases in whole or in part for an economic purpose, the ruling in FENIN should not apply. Put otherwise, where public health bodies purchase goods or services on the market and permit those goods subsequently to be used for an economic or part-economic purpose, article 82 should apply if those public bodies engage in abusive conduct.

Articles 10, 3(g) and 82 and national health markets

In Community law, public health bodies may be considered to be emanations of state by reference to the degree of control exercised over them by domestic governments or parliaments. In situations where a dominant public health body is considered not to fall within the direct scope of article 82 by reference to the decision of the Court of Justice in FENIN, article 10 of the EC Treaty requires member states to abstain from any measure which could jeopardise the attainment of the objectives of the Community's competition rules.

Article 10 obliges member states, including their emanations of state, to take all appropriate measures, whether general or particular, to ensure fulfilment of the obligations arising out of the EC Treaty. Member states are required to give full effect to the obligations, duties and Community tasks provided for under the EC Treaty, including those flowing from Articles 3(g) and the competition provisions. Article 10, when read in conjunction with article 3(g), specifically commits all member states and their public health bodies to "a system ensuring that competition in the internal market is not distorted".

In Community law, pharmaceutical goods, medical equipment and the services of doctors and pharmacists have long been held to benefit from the free movement provisions of the internal market. In line with the judgments of the Court of Justice in Wolf W Meng [Case C-2/91], Leclerc [Case 229/83] and Ohra [Case C-245/91], member states are not entitled as a matter of Community law to engage in any activity (regulatory or economic) which would facilitate or reinforce the distortion of competition in the internal market for these goods or services.

Conclusions

First, where a public health body purchases goods or services and the ultimate use to which that public body puts those goods or services is an entirely non-economic use, the conduct of that public body will not fall to be assessed under article 82.

Secondly, where the ultimate use to which goods or services purchased by a public health body are put is wholly or partially economic in nature, abusive conduct by that undertaking may be assessed by reference to the requirements of article 82.

Finally, regardless of whether or not the conduct of public health bodies is directly subject to the requirements of article 82, member states must at all times dutifully ensure that competition in upstream or downstream markets is not distorted by their emanations of state in contravention of the requirements of articles 3(g), 10 and the competition provisions of the EC Treaty.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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