“revolvers” and “transactors”
“1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.”
“89. ……if a given operation or activity is not covered by the prohibition rule laid down in Article [101(1)], owing to its neutrality or positive effect in terms of competition, a restriction of the commercial autonomy of one or more of the participants in that operation or activity is not covered by that prohibition rule either, if that restriction is objectively necessary to the implementation of that operation or that activity and proportionate to the objectives of one or the other… 90. Where it is not possible to dissociate such a restriction from the main operation or activity without jeopardising its existence and aims, it is necessary to examine the compatibility of that restriction with Article [101] in conjunction with the compatibility of the main operation or activity to which it is ancillary, even though, taken in isolation, such a restriction may appear on the face of it to be covered by the prohibition rule in Article [101(1)]. 91. Where it is a matter of determining whether an anticompetitive restriction can escape the prohibition laid down in Article [101(1)] because it is ancillary to a main operation that is not anti-competitive in nature, it is necessary to inquire whether that operation would be impossible to carry out in the absence of the restriction in question. Contrary to what the appellants claim, the fact that that operation is simply more difficult to implement or even less profitable without the restriction concerned cannot be deemed to give that restriction the ‘objective necessity’ required in order for it to be classified as ancillary. Such an interpretation would effectively extend that concept to restrictions which are not strictly indispensable to the implementation of the main operation. Such an outcome would undermine the effectiveness of the prohibition laid down in Article [101(1)].”
“The provisions of paragraph 1 may, however, be declared inapplicable in the case of: - any agreement or category of agreements between undertakings, - any decision or category of decisions by associations of undertakings, - any concerted practice or category of concerted practices, which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.”
“11. …Community law prohibits the making by national courts of decisions which contradict decisions of Community institutions on the same subject matter between the same parties, and strongly discourages the making by national courts of decisions which may be inconsistent with decisions which may yet be made by Community institutions on the same subject matter between the same parties. But it does not, as the analysis of the relevant authorities by my noble and learned friend, Lord Hoffmann shows, go the length of requiring national courts to accept the factual basis of a decision reached by a Community institution when considering an issue arising between different parties in respect of a different subject matter…. 12. The judge had either to accept the commission’s assessment, which (unless required) would have been an abdication of the judicial function, or form his own opinion, giving such weight to the commission’s assessment as in his judgement the evidence merited….”
“…The correct position is that, when there is no question of a conflict of decision in the sense which I have discussed, the decision of the commission is simply evidence properly admissible before the English court which, given the expertise of the commission, may well be regarded by that court as highly persuasive. As a matter of law, however, it is only part of the evidence which the court will take into account. If, upon an assessment of all the evidence, the judge comes to the conclusion that the view of the commission was wrong, I do not see how, consistently with his judicial oath, he can say that as a matter of deference he proposes nevertheless to follow the commission. Only a rule of law, in the nature of an issue estoppel which obliges him to do so, could produce such a result and the Court of Appeal accepted that there was no such rule.”
“6. The standards set forth in the present guidelines must be applied in light of the circumstances specific to each case. This excludes a mechanical application. Each case must be assessed on its own facts and the guidelines must be applied reasonably and flexibly.” “Read across”
“107 As regards the objective necessity of a restriction ….. it would be wrong, when classifying ancillary restrictions, to interpret the requirement for objective necessity as implying a need to weigh the pro and anti-competitive effects of an agreement. Such an analysis can take place only in the specific framework of Article 85(3) of the Treaty. 108 That approach is justified not merely so as to preserve the effectiveness of Article 85(3) of the Treaty, but also on grounds of consistency. As Article 85(1) of the Treaty does not require an analysis of the positive and negative effects on competition of a principal restriction, the same finding is necessary with regard to the analysis of accompanying restrictions. 109 Consequently, as the Commission has correctly asserted, examination of the objective necessity of a restriction in relation to the main operation cannot but be relatively abstract. It is not a question of analysing whether, in the light of the competitive situation on the relevant market, the restriction is indispensable to the commercial success of the main operation but of determining whether, in the specific context of the main operation, the restriction is necessary to implement that operation. If, without the restriction, the main operation is difficult or even impossible to implement, the restriction may be regarded as objectively necessary for its implementation.” (my emphasis) 166.It concluded: “120 It must, however, be observed, first of all, that the fact that the exclusivity clause would be necessary to allow [the partnership] to establish itself on a long-term basis on that market is not relevant to the classification of that clause as an ancillary restriction, 121 As has been set out in paragraph [106] above, such considerations, relating to the indispensable nature of the restriction in the light of the competitive situation on the relevant market, are not part of an analysis of the ancillary nature of the restrictions. They can be taken into account only in the framework of Article 85(3) of the Treaty…”
“110 Thus, in the judgment in REMIA v. E.C. COMM1SSION, the Court of Justice held that a non-competition clause was objectively necessary for a successful transfer of undertakings, inasmuch as, without such a clause, “and should the vendor and the purchaser remain competitors after the transfer”, it is clear that the agreement for the transfer of the undertaking could not be given effect. The vendor, with his particularly detailed knowledge of the transferred undertaking, would still be in a position to win back his former customers immediately after the transfer and thereby drive the undertaking out of business.”
“89 As [Metropole] shows, examination of the objective necessity of a restriction is a relatively abstract exercise. Only those restrictions which are necessary in order for the main operation to be able to function in any event may be regarded as falling within the scope of the theory of ancillary restrictions. Thus, considerations relating to the indispensable nature of the restriction in the light of the competitive situation on the relevant market are not part of an analysis of the ancillary nature of the restriction (see, to that effect, [Metropole] at [121]). 90 Accordingly, the fact that the absence of the MIF may have adverse consequences for the functioning of the MasterCard system does not, in itself, mean that the MIF must be regarded as being objectively necessary, if it is apparent from an examination of the MasterCard system in its economic and legal context that it is still capable of functioning without it.”
“94 In ruling, in [89] of the judgment under appeal, that: “[o]nly those restrictions which are necessary in order for the main operation to be able to function in any event may be regarded as falling within the scope of the theory of ancillary restrictions,” and in concluding, in [90] of the judgment under appeal, that: “the fact that the absence of the MIF may have adverse consequences for the functioning of the MasterCard system does not, in itself mean that the MIF must be regarded as being objectively necessary, if it is apparent from an examination of the MasterCard system in its economic and legal context that it is still capable of functioning without it,” the General Court did not, therefore, err in law.”
“The juxtaposition of clauses of this type results in a kind of market partitioning between the franchisor and the franchisees or among the franchisees and thus restricts competition within the network.”
“213. The Court does not have to make a finding that Visa’s MIF would be constrained (or how it would be constrained); it need only work on the counterfactual assumptions that (a) the MasterCard and Visa schemes are very similar (b) they are direct competitors with approximately the same market share and (c) that, therefore, if one scheme is unlawful it is more likely than not that the other will be too.”
“258. We find that: (1) Unsurprisingly, sophisticated Issuing Banks like HSBC and RBS do not look only at one factor. The Interchange Fee they are likely to be paid will, obviously, be a significant factor – but, at the end of the day, it is just one consideration amongst many. (2) In this case, the significance of the Interchange Fee differential between MasterCard’s offering and that of Visa was complicated by two additional factors: (i) MasterCard’s offering was based on two products (Maestro and Debit MasterCard), with different Interchange Fee rates. As we have noted, the difference between Maestro’s Interchange Fee and that of Visa was significant (see paragraph 250 above). But – as the MIF rates in paragraph 206 above demonstrate – the MIF for Debit MasterCard was significantly higher than that for Maestro, and so correspondingly closer to the Visa debit MIF. Although we appreciate that Table 8 above sets out the “blended”
“33. The aim of the Community competition rules is to protect competition on the market as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources. Agreements that restrict competition may at the same time have pro-competitive effects by way of efficiency gains. Efficiencies may create additional value by lowering the cost of producing an output, improving the quality of the product or creating a new product. When the pro-competitive effects of an agreement outweigh its anti-competitive effects the agreement is on balance pro-competitive and compatible with the objectives of the Community competition rules. The net effect of such agreements is to promote the very essence of the competitive process, namely to win customers by offering better products or better prices than those offered by rivals. This analytical framework is reflected in Article 81(1) and Article 81(3). The latter provision expressly acknowledges that restrictive agreements may generate objective economic benefits so as to outweigh the negative effects of the restriction of competition.”
“54. The causal link between the agreement and the claimed efficiencies must normally also be direct. Claims based on indirect effects are as a general rule too uncertain and too remote to be taken into account. A direct causal link exists for instance where a technology transfer agreement allows the licensees to produce new or improved products or a distribution agreement allows products to be distributed at lower cost or valuable services to be produced. An example of indirect effect would be a case where it is claimed that a restrictive agreement allows the undertakings concerned to increase their profits, enabling them to invest more in research and development to the ultimate benefit of consumers. While there may be a link between profitability and research and development, this link is generally not sufficiently direct to be taken into account in the context of Article 81(3).”
“(1) We consider that an “exemptible”
“[A]ny transfer which results from a restriction of competition must be more than compensated by benefits for somebody else other than the undertakings participating in the restrictive arrangements. The increase of sales volumes in MasterCard’s scheme is clearly to the advantage of MasterCard’s member banks [ie qua issuers, as they then were]. An increase of system output only contributes to appreciable objective advantages if parties other than the organisation’s member banks benefit from it.”
“The concept of ‘fair share’ implies that the pass-on of benefits must at least compensate consumers for any actual or likely negative impact caused to them by the restriction of competition found under Article 81(1). In line with the overall objective of Article 81 to prevent anti-competitive agreements, the net effect of the agreement must at least be neutral from the point of view of those consumers directly or likely affected by the agreement. If such consumers are worse off following the agreement, the second condition of Article 81(3) is not fulfilled. The positive effects of an agreement must be balanced against and compensate for its negative effects on consumers. When that is the case consumers are not harmed by the agreement. Moreover, society as a whole benefits where the efficiencies lead either to fewer resources being used to produce the output consumed or to the production of more valuable products and thus to a more efficient allocation of resources.”
“75. The first test contained in the third condition of Article 81(3) requires that the efficiencies be specific to the agreement in question in the sense that there are no other economically practicable and less restrictive means of achieving the efficiencies. In making this latter assessment the market conditions and business realities facing the parties to the agreement must be taken into account. Undertakings invoking the benefit of Article 81(3) are not required to consider hypothetical or theoretical alternatives. The Commission will not second guess the business judgment of the parties. It will only intervene where it is reasonably clear that there are realistic and attainable alternatives. The parties must only explain and demonstrate why such seemingly realistic and significantly less restrictive alternatives to the agreement would be significantly less efficient.” … 80. The assessment of indispensability is made within the actual context in which the agreement operates and must in particular take account of the structure of the market, the economic risks related to the agreement, and the incentives facing the parties…”
“51. All efficiency claims must therefore be substantiated so that the following can be verified: (a)The nature of the claimed efficiencies; (b)The link between the agreement and the efficiencies; (c)The likelihood and magnitude of each claimed efficiency; and (d) How and when each claimed efficiency would be achieved.”
“16. It is impossible to know with certainty how a market would have exactly evolved in the absence of the infringement of Article 101 or 102 TFEU. Prices, sales volumes, and profit margins depend on a range of factors and complex, often strategic interactions between market participants that are not easily estimated. Estimation of the hypothetical noninfringement scenario will thus by definition rely on a number of assumptions. In practice, the unavailability or inaccessibility of data will often add to this intrinsic limitation. 17. For these reasons, quantification of harm in competition cases is, by its very nature, subject to considerable limits as to the degree of certainty and precision that can be expected. There cannot be a single ‘true’ value of the harm suffered that could be determined, but only best estimates relying on assumptions and approximations. Applicable national legal rules and their interpretation should reflect these inherent limits in the quantification of harm in damages actions for breaches of Articles 101 and 102 TFEU in accordance with the EU law principle of effectiveness so that the exercise of the right to damages guaranteed by the Treaty is not made practically impossible or excessively difficult.”
“The limits and implications of such assessment of a hypothetical situation have been recognised by the Court of Justice (in the context of quantifying loss of earnings in an action for damages against the European Community in the agricultural sector): ‘the loss of earnings is the result not of a simple mathematical calculation but of an evaluation and assessment of complex economic data. The Court is thus called upon to evaluate economic activities which are of a largely hypothetical nature. Like a national court, it therefore has a broad discretion as to both the figures and the statistical data to be chosen and also, above all, as to the way in which they are to be used to calculate and evaluate the damage’, see joined cases C104/89 and C-37/90 Mulder and others v Council and Commission[2000] ECR I-203 , 79.” practically impossible or excessively difficult.”
“The concept of “consumers” encompasses all direct or indirect users of the products covered by the agreement, including producers that use the products as an input, wholesalers, retailers and final consumers, i.e. natural persons who are acting for purposes which can be regarded as outside their trade or profession. In other words, consumers within the meaning of Article 101(3) are the customers of the parties to the agreement and subsequent purchasers.” (Emphasis added.)
“…it is the beneficial nature of the effect on all consumers in the relevant markets that must be taken into consideration…”
“The payment guarantee is also important in cases of fraud and Cardholder default. Fraud is a problem in the case of both credit and debit cards. Where a card is only ostensibly valid (i.e. is a “clone” or forgery) or where the card is valid, but has been stolen from the Cardholder, the Cardholder typically does not pay. As between the Issuing Bank and the Merchant, this loss is typically borne by the Issuing Bank, to the obvious benefit of the Merchant.”
“(ii) Some of the main benefits to Merchants, which we consider they would perceive and value, are… (a) Merchants benefit from customers being able to purchase goods and pay next month at no cost – which is the facility which the interest-free period provides. Moreover, Merchants do not have to bear the costs of setting up their own credit facility for their customers. …. (b) For the Merchant, the benefit is not only that the Merchant receives payment now, whereas the Cardholder pays later, but also, there are some transactions that either would not take place at all absent the provision of a creditfree period or which would take place, but in a manner less advantageous to the Merchant. By way of example, we have seen that the average transaction value in a Sainsbury’s store using a MasterCard credit card is nearly£6 higher than what is spent using a Maestro debit card, and there is a similar differential between Visa credit and Visa debit cards.” (a) Merchants benefit from customers being able to purchase goods and pay next month at no cost – which is the facility which the interest-free period provides. Moreover, Merchants do not have to bear the costs of setting up their own credit facility for their customers. …. (b) For the Merchant, the benefit is not only that the Merchant receives payment now, whereas the Cardholder pays later, but also, there are some transactions that either would not take place at all absent the provision of a creditfree period or which would take place, but in a manner less advantageous to the Merchant. By way of example, we have seen that the average transaction value in a Sainsbury’s store using a MasterCard credit card is nearly£6 higher than what is spent using a Maestro debit card, and there is a similar differential between Visa credit and Visa debit cards.”
“F.5 A MIT-compliant level of MSCis equal to the difference between a merchant’s incremental costs of processing a cash payment, on the one hand, and a card payment, on the other. Such costs are sometimes referred to generally as “costs of payment” or “incremental cost”
“provided the insight that buyers’ incentives to use payment cards may not be aligned with merchants’ interests. Merchants may benefit when a buyer pays with a card instead of cash. Yet it is the buyer who makes the choice of which payment instrument to use for a given transaction. If the merchant does not charge the buyer different prices for the goods or services purchased depending on the choice of payment instrument, the buyer will not take into account the merchant’s benefits of the various payment alternatives. The buyer will only take into account his or her own costs and benefits, which (except by coincidence) will not be the same as the merchants’. The result is that the buyer may fail to choose the payment instrument that is optimal for the merchant and buyer jointly. On the basis of this insight, Baxter concluded that the proportion of purchases paid for by card could fall below the level at which the joint benefits of merchants and buyers would be maximised. This provides an economic rationale for an interchange fee (including a MIF): a subsidy, directed from the merchant to the cardholder, paid in the form of a MIF via the Acquirer and Issuer, could in principle address this problem by aligning buyers’ incentives when choosing between payment instruments with merchants’ benefits of accepting each method of payment.”
“Thus offering credit allows an individual merchants (sic) to make sales that they otherwise would not make. The ability to make these sales is, we think, the major reason explaining why merchants accept credit cards and indeed are willing to pay higher fees to do so compared to the fees paid to accept debit cards, and why prior to the widespread use of credit cards, store credit was much more widely used than today (Evans and Schmalensee, 2005, pp 48-51)”