On 26 November 2015, the European Court of Justice ("ECJ") handed down its judgment in a request for a preliminary ruling in the proceedings between Maxima Latvija, a Latvian entity carrying out business predominantly in the food retail trade, and the Latvian Competition Council.

By way of context, the Latvian Competition Council had imposed a fine of LVL 25,000 (approximately EUR 35,770) on Maxima Latvija for entering into several commercial lease agreements with shopping centres in Latvia which contained an "anchor tenant" clause in effect giving Maxima Latvija the right to prevent the shopping centres from renting to Maxima Latvija's competitors commercial space that had not been let to Maxima Latvija. The Latvian Competition Council held that these agreements had as their object the prevention, restriction or distortion of competition and it was therefore not necessary to examine their effects and demonstrate that these agreements in fact made the entry of a particular operator onto the market difficult. The Regional Administrative Court rejected Maxima Latvija's subsequent appeal, holding that, in view of the market power held by Maxima Latvija on the retail market, the purpose of the agreements at issue was to prevent competition and that it was therefore unnecessary to demonstrate any effects on competition. On further appeal, the Latvian Supreme Court referred the matter to the ECJ.

The ECJ noted that the concept of restriction by object must be interpreted restrictively and only applied to those agreements which reveal in themselves a sufficient degree of harm to competition for it to be considered that it is not appropriate to assess their effects. As such, the ECJ noted that, even if the restriction at issue potentially limited competitors of Maxima Latvija from operating in certain shopping centres, this did not mean that the restriction by its very nature restricts competition on the retail market on which Maxima Latvija and its competitors operate.

The ECJ did not conclude that the agreements were not anti-competitive as such. Rather, its reasoning suggests that the Latvian Competition Council should have conducted a two-step analysis to thoroughly analyse: (i) whether the cumulative effects of these and other similar lease agreements concluded between other parties made access to the market difficult when viewed in their relevant legal and economic context, including the specificities of the relevant market, and, if so, (ii) whether the specific agreements to which Maxima Latvija was party made an appreciable individual contribution to the closing off of the market.

The ECJ notes that, in assessing first the extent of cumulative foreclosure effects, account needs to be taken of all factors that determine access to the market, such as: (i)whether there are real concrete possibilities for a new competitor to establish itself having regard to the availability and accessibility of commercial land in the affected catchment areas despite the restrictions in the lease agreements; and (ii) the existence of economic, administrative or regulatory barriers to entry for new competitors in those areas. Account also needs to be taken of the conditions under which competition operates on the market, including the number and size of operators present on the market, the degree of concentration of the market, and customer fidelity to existing brands and consumer habits.

The ECJ went on to indicate that the extent of the individual contribution made to any cumulative foreclosure effect by the individual agreements concluded by Maxima Latvija should be determined on the basis of, in particular, the market position of the parties to the agreements and their duration.

This judgment marks the most recent of a number of occasions on which the ECJ has been asked in recent years to rule on the contentious distinction between a restriction by object and a restriction by effect (see, e.g., Cartes Bancaires, VBB on Competition Law Volume 2014, No. 9, available at www.vbb.com). As the restriction at issue in this case amounted to a (limited) form of exclusivity in a vertical agreement (in favour of the buyer), the ECJ's finding that this did not amount to a restriction by object is to be welcomed and is consistent with the ECJ's Delimitis case law with respect to non-compete obligations concluded in favour of suppliers in vertical agreements. Furthermore, the method of determining the possible foreclosure effects of the lease restrictions advocated by the ECJ is itself based on the same case law.

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