CJEU 'consolidates' market access test in the enforcement of Art 34 TFEU (C-639/11 & C-61/12)

In its Judgments of 20 March 2014 in cases C-639/11 Commission v Poland and C-61/12 Commission v Lithuania, the Court of Justice of the European Union (CJEU) has found that both countries infringed their obligations under Art 34 TFEU by making registration in their territory of passenger vehicles having their steering equipment on the right-hand side, whether they are new or previously registered in other Member States, dependent on the repositioning of the steering wheel to the left-hand side. In my view, this case is interesting for at least two reasons.

 

Firstly, the CJEU has 'consolidated' the so-called 'market access test' in the enforcement of Art 34 TFEU by recasting the traditional 'Dassonville' formula and focussing the assessment on hindrances to market access. Indeed, in the 'new' (re)formulation of the test, the CJEU considers that

In view of the Court’s settled case-law, the contested legislation constitutes a measure having equivalent effect to quantitative restrictions on imports within the meaning of Article 34 TFEU, in so far as its effect is to hinder access to the Polish [sic, Lithuanian (oh, the joys of copy and paste!)] market for vehicles with steering equipment on the right, which are lawfully constructed and registered in Member States other than the Republic of Lithuania (see, concerning the origins of that case-law, Case 8/74 Dassonville [1974] ECR 837, paragraph 5; Case 120/78 Rewe Zentral, ‘Cassis de Dijon’ [1979] ECR 649, paragraph 14; and, more recently, Case C‑110/05 Commission v Italy [2009] ECR I‑519, paragraph 58) (C-61/12 at para 57 emphasis added and, equally, C-639/11 at para 52, correction needed in the English version of the C-61/12 Judgment but not in other linguistic versions].

This may be seen as a relatively welcome development, as it continues in the line of clarification already initiated in C-110/05 Commission v Italy (mopeds) and consolidates a more encompassing test that allows for the harmonious assessment of potential restrictions to free movement of goods under a single, unified (and probably more functional) test.

 

Secondly, the case is important in that the CJEU deviates significantly from C-110/95 in applying a much more stringent test of (strict) proportionality to the measures adopted by Poland and Lithuania (basically, requiring a repositioning of the steering wheel prior to registration of the motor vehicles) than it did to the measures adopted by Italy (an outright ban of a specific type of trailers to be towed by motorbikes and other vehicles) on the grounds of road safety [see C-61/12 paras 63-69 and C-639/11 paras 58-65].

 

In my view, the application of such a stringent proportionality test (with which the CJEU seems to revitalise the pro-integrationist agenda in the enforcement of Art 34 TFEU) will create frictions with Member States for two main reasons.

 

Firstly, the 'consolidation' of the new (re)formulation around hindrance of market access indicates an effective substitution of the underlying rationale in internal market rules (art 34 TFEU particularly) from a producers’ freedom (push market) to a consumers’ right (pull market). This will be problematic unless free movement rules further converge with (effective) consumer protection and safety and similar concerns receive a common treatment throughout the EU (ultimately, the goal of the CJEU, particularly when it uses the argument that in 22 of the 28 Member States registration would not have required changing the wheel location).

 

And, secondly, because the new (re)formulation of the case law creates a dangerous test leading to a (very, too broad) Dassonville-like formula limited only by (subjective) proportionality analysis carried out by the CJEU, which can result in an encroachment of domestic regulatory powers if the CJEU adopts a tough stance, as it has done against Poland and Lithuania (and differently from its previous, more timid approach in the case against Italy).

 

In the future, it will be interesting to see if the CJEU does not find itself under the same amount of criticism as when it first adopted the Dassonville fomula and, consequently, whether the next round of evolution of the law on free movement of goods does not initiate a new restriction of the rules under a new version of Cassis de Dijon. All in all, the development of the law in this area of the internal market seems to evolve in cycles.

Keep amassing your brand or it will be eaten up (C-409/12)

In its Judgment of 6 March 2014 in case C-409/12 Backaldrin Österreich The Kornspitz Company (Kornspitz), the Court of Justice of the EU (CJEU) has declared that a trademark is liable to revocation if, as a consequence of acts or inactivity of the proprietor, it has become the common name for the product from the point of view solely of end users of the product. The case interprets Article 12(2)(a) of Directive 2008/95 on the approximation of the laws of the Member States relating to trade marks (Codified version), which indicates that a trade mark is liable to revocation if "in consequence of acts or inactivity of the proprietor, it has become the common name in the trade for a product or service in respect of which it is registered". The contentious part of the provision concerned the interpretation of the term "trade".

 

In the case at hand, the professionals (intermediaries) in the Austrian baking sector are aware that 'Kornspitz' referred to a specific trademark for ‘flour and preparations made from cereals; bakery goods; baking agents, pastry confectionery, also prepared for baking; pre-formed dough … for the manufacture of pastry confectionery’. However, given that the owner of the brand (Backaldrin) produces a baking mix which it supplies primarily to bakers and then allows bakers and foodstuffs distributors to use the term 'kornspitz' in the sale of the bread rolls made with the trade marked mix, it was argued that consumers appreciate no distinctive character in the term 'kornspitz', which has become the standard name for a given mix of flours and seeds. Hence, one of Backaldrin's competitors challenged the 'Kornspitz' trade mark and applied for its revocation.

 

The CJEU accepted the argument and clarified that:

19 […] Article 12(2)(a) of Directive 2008/95 addresses the situation where the trade mark is no longer capable of fulfilling its function as an indication of origin (see, to that effect, Case C‑371/02 Björnekulla Fruktindustrier [2004] ECR I‑5791, paragraph 22).

20 Among the various functions of a trade mark, that function as an indication of origin is an essential one (see, inter alia, Joined Cases C‑236/08 to C‑238/08 Google France and Google [2010] ECR I‑2417, paragraph 77, and Case C‑482/09 Budějovický Budvar [2011] ECR I‑8701, paragraph 71). It serves to identify the goods or services covered by the mark as originating from a particular undertaking, and thus to distinguish those goods or services from those of other undertakings (see, to that effect, Case C‑12/12 Colloseum Holding [2013] ECR, paragraph 26 and the case-law cited). That undertaking is, as the Advocate General stated at point 27 of his Opinion, that under the control of which the goods or services are marketed.
[… 22] […] Article 12(2)(a) of the directive relates to the situation where the trade mark has become the common name and has therefore lost its distinctive character, with the result that it no longer fulfils that function (see, to that effect, Björnekulla Fruktindustrier, paragraph 22). The rights conferred on the proprietor of that mark under Article 5 of Directive 2008/95 may then be revoked (see, to that effect, Case C‑145/05 Levi Strauss [2006] ECR I‑3703, paragraph 33).

23 In the case described by the referring court [...] the end users of the  [...] bread rolls known as ‘KORNSPITZ’, perceive that word sign as the common name for that product and are not, therefore, aware of the fact that some of those bread rolls have been made using a baking mix supplied under the trade mark KORNSPITZ by a particular undertaking.

24 [...] that perception on the part of end users is due, in particular, to the fact that the sellers of the bread rolls made using that mix do not generally inform their customers that the sign ‘KORNSPITZ’ has been registered as a trade mark.

25 [...] the sellers of that finished product do not generally, at the time of sale, offer their customers assistance which includes an indication of the origin of the various goods for sale.

26 Clearly [...] the trade mark KORNSPITZ does not, in the trade in respect of the bread rolls known as ‘KORNSPITZ’, fulfil its essential function as an indication of origin and, consequently, it is liable to revocation in so far as it is registered for that finished product if the loss of its distinctive character in respect of that product is attributable to acts or inactivity of the proprietor of that trade mark (C-409/12 at paras 19-26, emphasis added).

 

The CJEU then goes on to assess whether the loss of distinctive character is attributable to the owner of the brand and finds that an insufficient insistence on the use of the term 'kornspitz' as a trade mark by bakers and foodstuffs distributors would be sufficient to trigger the revocation of the trade mark (paras 31-36). Indeed, the CJEU cleary stressed that

in a case [...] in which the sellers of the product made using the material supplied by the proprietor of the trade mark do not generally inform their customers that the sign used to designate the product in question has been registered as a trade mark and thus contribute to the transformation of that trade mark into the common name, that proprietor’s failure to take any initiative which may encourage those sellers to make more use of that mark may be classified as inactivity within the meaning of Article 12(2)(a) of Directive 2008/95 (C-409/12 at para 34, emphasis added).

Therefore, the standards of 'duty of care' or 'vigilance' applicable to trade mark owners are high and they will always be required to take (appropriate) positive steps to protect the distinctive character of the signs that they use to brand their products [for a law and economics discussion on the requirement of distinctiveness and the ensuing 'trade mark policying' obligations imposed on their owners, see Landes & Posner, 'Trademark Law: An Economic Perspective' (1987) 30 J.L. & Econ. 265, 287-288].

US GAO reports on test commercial items program for #publicprocurement

In a recently published report, the US Government Accountability Office (GAO) assessed the status of a test program for the acquisition of commercial items and services--i.e. are those that generally available in the commercial marketplace in contrast with items developed to meet specific governmental requirements.

 

The report is interesting, and it highlights that US federal agencies are conducting around 2% of their procurement through this program and that, overall, the "test program reduced contracting lead time and administrative burdens and generally did not incur additional risks above those on other federal acquisition efforts for those contracts GAO reviewed." Therefore, there seems to be scope for further use of the commercial items acquisition program.

 

Importantly too, GAO warns that, however, a significant number of these contracts were "awarded noncompetitively [and that, w]hile these awards were justified and approved in accordance with federal regulations when required, GAO and others have found that noncompetitive contracting poses risks of not getting the best value because these awards lack a direct market mechanism to help establish pricing." Consequently, GAO has recommended the interested federal agencies to look in more detail into the use of the program and to take measures to ensure that thorough market research is conducted before a commercial items contract is awarded noncompetitively.

 

In my view, the emphasis that GAO places on the collection and analysis of data in order to determine the benefits and success of the commercial items program offers valuable insights to procurement regulators in other jurisdictions--and, particularly, in the EU, where Member States should start considering procurement reform in view of the imminent publication of the new Directives in the Official Journal.

CJEU clearly indicates total lack of will to effectively become EU's constitutional court (C-206/13)

In its Judgment of 6 March 2014 in case C-206/13 Siragusa, the Court of Justice of the EU has continued developing its case law on the lack of applicability / jurisdiction to interpret the Charter of Fundamental Rights of the EU (CFREU) in purely domestic situations (which it had, amongst other instances, already indicated in Romeo).

In my view, the approach adopted by the CJEU is prone to create potential situations of reverse discrimination and may end up creating multiple (and possibly conflicting) standards of protection of fundamental rights in the EU with significant constitutional implications.

 

In the case at hand, the CJEU was presented with a question on the interpretation of the right to property recognised in article 17 CFREU and, more specifically, on whether it could be constructed as a limit against certain landscape protection rules applicable in Italy. The issue was raised by an Italian court hearing a dispute between an Italian citizen and an Italian public authority. Despite the efforts in trying to connect the situation with the (indirect) application of EU environmental law, the CJEU was not persuaded that there was a sufficient connection and, therefore, rejected to provide a substantive interpretation. The main argument of the CJEU was indeed that

30 [...] there is nothing to suggest that the provisions of Legislative Decree [...] fall within the scope of EU law. Those provisions do not implement rules of EU law [...].

31 It is also important to consider the objective of protecting fundamental rights in EU law, which is to ensure that those rights are not infringed in areas of EU activity, whether through action at EU level or through the implementation of EU law by the Member States.

32 The reason for pursuing that objective is the need to avoid a situation in which the level of protection of fundamental rights varies according to the national law involved in such a way as to undermine the unity, primacy and effectiveness of EU law (see, to that effect, Case 11/70 Internationale Handelsgesellschaft [1970] ECR 1125, paragraph 3, and Case C‑399/11 Melloni [2013] ECR, paragraph 60). However, there is nothing in the order for reference to suggest that any such risk is involved in the case before the referring court.

33 It follows from all the foregoing that it has not been established that the Court has jurisdiction to interpret Article 17 of the Charter (see, to that effect, Case C‑245/09 Omalet [2010] ECR I‑13771, paragraph 18; see also the Orders in Case C‑457/09 Chartry [2011] ECR I‑819, paragraphs 25 and 26; Case C‑134/12 Corpul Naţional al Poliţiştilor [2012] ECR, paragraph 15; Case C‑498/12 Pedone [2013] ECR, paragraph 15; and Case C‑371/13 SC Schuster & Co Ecologic [2013] ECR, paragraph 18) (C-206/13 at paras 30-33, emphasis added).

In my view, this line of reasoning (acknowledgedly, rather in line with art 51 CFREU and art 6 TEU) is clearly problematic. To begin with, because it clearly disconnects (implicitly, at least) the protection of the CFREU rights from EU citizenship (art 20 TFEU, coupled with the general prohibition of discrimination on the grounds of nationality in art 18 TFEU). The CJEU has clearly considered it insufficient that EU citizens can be granted different levels of protection of their CFREU rights at domestic level as a result of the application of the domestic laws as sufficient justification for intervention (i.e. to assume jurisdiction and provide legal interpretation). By restricting the goal of a common level of protection of CFREU rights to cases in which 'the unity, primacy and effectiveness of EU law' is affected and excluding its competence, the CJEU seems to forget that the CFREU is in itself EU law and, consequently, that it should be afforded the same treatment as the other Treaty provisions.

 

Secondly, the CJEU is laying down too strong foundations for unresolved problems of reverse discrimination. If the claimant in Siragusa had not been Italian and, consequently, a (very loose) connection to free movement rights could be established, the CJEU may have been willing to assess the intervention by the Italian State on the property of a (moving) EU citizen under a different light (worse still, that challenge could be easier for corporate claimants than for individuals, at least if they do not engage in an economic activity, since 'corporate citizens' could also be potentially protected by freedom of establishment).

 

In such a case, the trigger for the application of the CFREU would be equally unrelated to the content of the rights of the CFREU themselves and, sometimes, the trigger for CJEU intervention may simply result from the fact that the EU citizen affected exercised or not free movement rights--which, in my view, continues to create an unjustifiable discrimination between moving (proper) EU citizens and non-moving (unaware) EU citizens that can only continue to erode the potential development of the EU.

 

 

Finally, this line of reasoning may end up creating a situation where the (constitutional) courts of the Member States may be obliged to enforce at the same time conflicting standards of substantive protection for a given fundamental right, depending on the 'sorce of law' that controls it in a given situation. And that will surely be difficult to understand. How could 'my' right to private property be different under 'my' domestic constitutional law protection or under 'my' CFREU protection, depending on factors unrelated to me, my property, or the rules (primarily) applicable? Surely the compatibility between the CFREU and competing (superior) standards of protection (those derived from the European Convention on Human Rights) have (somehow) been ironed out in art 52(3) CFREU. However, the situation is not the same with (lower-ranking?) domestic standards of protection [art 52(4) CFREU is clearly insufficient for that task] and, in my view, the CJEU approach is not helpful in that regard either.

 

Therefore, the continued rejection of its role as a constitutional court of the EU and the increasing restriction of the scope of application of the CFREU in which the CJEU is engaged are, in my view, undesirable developments in EU law.

A first reaction to AG Kokott's KONE Opinion (C-557/12)

AG Kokott's Opinion of 30 January 2014 in case C-557/12 KONE is generating significant debate (see the very interesting criticism in EUTopia) as it deals with a very complicated and controversial issue that could either spur or restrict the scope of damages actions following on from cartel violations (and, more generally, competition law infringements).

 

The case is concerned with the possibility to claim so called "umbrella damages"--that is, as per the description provided by the referring Austrian Supreme Court, whether "any person may claim from members of a cartel damages also for the loss which he has been caused by a person not party to the cartel who, benefiting from the protection of the increased market prices, raises his own prices for his products more than he would have done without the cartel (umbrella pricing)". In my view, the Opinion of AG Kokott deserves some criticism in its support for such claims.

 

As a preliminary point, I think that it is interesting to see how AG Kokott redrafted the issue, and considered that the case concerns "umbrella pricing [which takes place] when undertakings that are not themselves party to a cartel, benefiting from the protection of the cartel’s practices (operating ‘under the cartel’s umbrella’, so to speak), knowingly or unknowingly set their own prices higher than they would otherwise have been able to under competitive conditions. Does European Union law require that customers of undertakings not party to the cartel should be able to claim compensation for the inflated prices charged by those undertakings from the members of the cartel before the national courts? Or, conversely, may such an obligation to award compensation be excluded in national civil law on the ground that the loss suffered is indirect and too remote?" (emphasis added).

 

Already at this stage, I would submit that the framework for analysis is flawed. If the "outsider" to the cartel is fully innocent (i.e. is not aware of the existence of the cartel), its behaviour is indeed reflective of competitive conditions (distorted, but still competitive) and therefore that specific increase in prices should not be taken into account for the purposes of the design of competition law rules and their enforcement.

 

On the contrary, if the "outsider" is not innocent (i.e. knows about the cartel), then the increase in prices makes it guilty of at least a (unilateral?) concerted practice by adhering to the cartelised mechanics of the market and, consequently, the damages derived from the raise in prices should be borne by such "outsider" as the infringer of competition rules--and only by the "insiders" in the cartel if they then incorporate the "outsider's" behaviour as part of the distorted market mechanism.

 

In my view, any extension of this general framework would probably be too remote in terms of causality and the allowance for "umbrella damages" claims would create a system of excessive private antitrust enforcement which net contribution to aggregate welfare would be doubtful [more generally, on the doubtful desirability of an overgrowth of damages claims based on indirect or disperse competition damages, see Marcos and Sánchez Graells, "Towards a European Tort Law? Damages Actions for Breach of the EC Antitrust Rules: Harmonising Tort Law Through the Back Door?": http://ssrn.com/abstract=1028963].

 

For these reasons, I generally disagree with her Opinion on its substance. However, more detailed criticism will require some further thoughts.

Coauthored paper with @pacomarcos: “Human Rights” Protection for Corporate Antitrust Defendants: Are We Not Going Overboard?

There seems to be a clear trend of increased protection of ‘corporate human rights’ and, more specifically, due process rights (or procedural fairness) in the field of enforcement of competition law. To a large extent, that trend is based on the uncritical extension of human rights protection to corporate defendants by a process of simple assimilation of corporate and individual defendants.

 

This new coauthored paper briefly explores the rationale behind the creation of due process rights when the individual is the beneficiary of such protection. It then goes on to critically assess if the same need exists for the extension of those protections to corporate defendants, particularly in the field of competition law or antitrust enforcement. It concludes with some warnings concerning the diminishing effectiveness of competition law prohibitions and of human law protection that can result from an overstretched conception of due process protection in this area of EU economic law.

From a substantive perspective, this paper submits that the extension of human rights to corporations cannot be uncritical and should not be completely symmetrical to that for human beings; but that it rather needs to be necessarily adapted to their circumstances. To put it more bluntly, it is suggested that in the field of the enforcement of economic law, administrative law procedures should be sound and there should clearly be a strong system of judicial review in place, but corporations should not have access to broader constitutional or human rights protections and any perceived shortcomings in the design and application of those procedures should remain within the sphere of regulatory reform.

 

Sánchez Graells, Albert and Marcos, Francisco, “Human Rights” Protection for Corporate Antitrust Defendants: Are We Not Going Overboard? (February 2, 2014). University of Leicester School of Law Research Paper No. 14-04. Available at SSRN: http://ssrn.com/abstract=2389715.

New Paper: A critical assessment of the new health care procurement rules in the UK

The recently adopted UK National Health Service (Procurement, Patient Choice and Competition) (No. 2) Regulations 2013 include an interesting (and somehow unsettling) provision authorising anti-competitive behaviour in the commissioning of health care services by the National Health Service (NHS), if that is in the (best) interest of health care users.

As briefly discussed here, generally, it seems that under the new public procurement and competition rules applicable to the NHS, whatever is considered in the “interest of patients” could trump pro-competitive requirements and allow the commissioning entity to engage in distortions of competition (either directly, or by facilitating anti-competitive behaviour by tenderers and service providers)—as long as a sort of qualitative cost-benefit analysis shows that net advantages derived from the anti-competitive procurement activity. The apparent oddity of such general “authorisation” for public buyers to engage in anti-competitive procurement of health care services deserves some careful analysis, which this new paper carries out.

The paper assesses Regulation 10 of the NHS Procurement, Patient Choice and Competition Regulations 2013 and the substantive guidance published by the UK's health care sector regulator (Monitor) from the perspective of EU economic law (and, more specifically, in connection to public procurement and competition rules). The paper claims that there is a prima facie potential incompatibility between Regulation 10 of the 2013 NHS Procurement, Patient Choice and Competition Regulations and both EU competition law and public procurement law—which are, in principle, opposed to any anti-competitive or competition restrictive behaviour in the conduct of public procurement activities. Consequently, there is a need for an EU law compliant, restrictive interpretation and enforcement of the provision—at least where there is a cross border effect on competition and/or a cross border interest in tendering for the health care contracts, which triggers the application of both EU competition law and public procurement law.

 

Sánchez Graells, Albert, New Rules For Health Care Procurement in the UK. A Critical Assessment from the Perspective of EU Economic Law (February 2, 2014). University of Leicester School of Law Research Paper No. 14-03. Available at SSRN: http://ssrn.com/abstract=2389719.

AG Mengozzi on extension of "in-house" to "public house" procurement exception (C-15/13)

In his Opinion of 23 January 2014 in case C-15/13 Datenlotsen Informationssysteme (not available in English), Advocate General Mengozzi advocated for an extension of the "in-house" public procurement exception beyond its current boundaries under the so-called Teckal doctrine.

 

The AG proposed that the CJEU declares that

A contract concerned with the provision of services which beneficiary, being a contracting authority within the meaning of Directive 2004/18, does not exercise over the entity that provides the services a control similar to that exercised over its own services, but where both entities are subject to the control of an institution that can be classified as a contracting entity within the meaning of that directive, and where both the recipient of the services and the provider thereof conduct the essential part of their activities for the institution that controls them, is a public contract to the extent that it is a written contract between the contractor and the recipient of the services, always provided that such contract has an object which would qualify as the provision of services within the meaning of the directive.

Such a contract is not entitled to an exception to the application of procurement procedures under the EU rules on public procurement unless the controlling entity exercises in an exclusive manner a control similar to that exercised over its own departments both on the beneficiary of the services and on the providing entity, and where both of those entities carry out the essential part of their activities for that controlling entity, or in the case where that contract meets all the requirements for the the exception for public-public cooperation (own translation from Spanish and French).

Therefore, AG Mengozzi suggests a test whereby, if all of the entities involved in the contract would independently qualify for the "in-house" exception in case they were engaged in a vertical contract with the ultimate controlling entity, they can then also benefit from the "public house" exception in their horizontal contractual relationships.

 

If the CJEU follows the approach suggested by AG Mengozzi, it will be extending the "in-house" exception beyond its current limits (where a direct control is required on the part of the contracting entity over the awardee of the contract) and creating a "public house" exception in public procurement--which was anticipated and discussed by Dario Casalini, 'Beyond EU Law: the New "Public House"', in Risvig Hansen et al (eds), EU Procurement Directives--modernisation, growth & innovation (Copenhagen, DJOF, 2012) 151-178.

 

It is also interesting to stress that such "public house" exception has also been created for the future by the new Public Procurement Directive (bound to be transposed by early 2016), which article 12(2) frames it in slightly different terms, indicating that the "in-house" exception:

also applies where a controlled legal person which is a contracting authority awards a contract to its controlling contracting authority, or to another legal person controlled by the same contracting authority, provided that there is no direct private capital participation in the legal person being awarded the public contract with the exception of non-controlling and non-blocking forms of private capital participation required by national legislative provisions, in conformity with the Treaties, which do not exert a decisive influence on the controlled legal person (emphasis added).

It is important to stress that the requirements concerning private capital participation deviate from the standard "in-house" exception and (if adopted) from the "public house" exception, which may create some interpretative difficulties in the future. For now, I guess we need to wait and first see if the CJEU supports the "public house" exception as a first step, before worrying about the confines of a (private)-public house exception...

CJEU consolidates functional approach to customs nomenclature interpretation (C-380/12)

In its Judgment of 23 January 2014 in case C-380/12 X, the Court of Justice of the European Union (CJEU) was presented with a request for a preliminary reference on the proper interpretation of certain headings of the applicable customs nomenclature.

 

The case is riddled with technical (biochemical) complications but, in my best understanding of it, the key issues focussed on whether certain washing processes altered or not the molecular structure of a specific type of earth used to decolour edible oils. In the end, the dispute was concerned with a reclassification of that type of (washed) decolourising earth from a heading applicable to natural clays [which included those that had been washed (even with chemical substances eliminating the impurities, without changing the structure of the product)] to a heading applicable to activated natural mineral products (such as activated carbons, which structure has been altered). The impact of such a reclassification based on the alteration of the natural molecular structure of the product was the application of a higher tariff of 5.7% in customs duties. And, consequently, it was litigated.

 

In its Judgment, the CJEU follows its standard approach to this type of (fiendish) issue and makes it clear that it is for domestic courts to reach the final decision on nomenclature classification, but it aims to provide some general criteria to guide their decision.

 

In my view, the indication towards the need for a functional approach, based on the intended use of the products (rather than simply following a strict consideration of the production or treatment processes) seems worth highlighting. Indeed, in its Judgment, the CJEU indicated that:

39 [...] the intended use of a product may also constitute an objective criterion for classification if it is inherent to the product, and that inherent character must be capable of being assessed on the basis of the product’s objective characteristics and properties (see [Case C-183/06 RUMA [2007] ECR I‑1559], paragraph 36; Case C‑123/09 Roeckl Sporthandschuhe [2010] ECR I‑4065, paragraph 28; and [C-568/11 Agroferm [2013] ECR I-0000], paragraph 41).

40 It is apparent from the order for reference that the treatment applied to the products at issue in the main proceedings, batches of decolourising earth, consists in effecting a structural replacement of calcium ions with hydrogen ions in order to increase their adsorption capacity, which makes them suitable for purifying and decolourising edible oils. It is, furthermore, apparent from the observations put forward by the Commission at the hearing – without being contradicted on the point – that that treatment rules out the possibility of decolourising earth for purposes other than the purification and decolouration of edible oils (C-380/12, paras 39-40, emphasis added).

That does not mean that the issue of the actual change of the molecular structure of the product becomes irrelevant. As the CJEU also indicated:

46 [...] the treatment at issue in the main proceedings involves the use of chemical substances, more specifically sulphuric acid, which it is nevertheless for the referring court to verify. Accordingly, assuming that treatment does entail the elimination of impurities, which it is also for the national court to verify in the light of the answer to the first question referred, the decisive criterion for determining whether, under Note 1 to Chapter 25 of the CN, the products at issue must remain classified under CN tariff heading 2508, is whether their structure is changed.

48 The [International Convention on the Harmonised Commodity Description and Coding System, concluded at Brussels on 14 June 1983] Explanatory Notes, [...] despite their lack of binding force, are an important means of ensuring the uniform application of the Common Customs Tariff and, as such, may be regarded as useful aids to its interpretation (Case C‑173/08 Kloosterboer Services [2009] ECR I-5347, paragraph 25, and Agroferm, paragraph 28).

49 In that regard, the HS Explanatory Notes relating to heading 3802 state that ‘[c]arbon and mineral substances are said to be activated when their superficial structure has been modified by appropriate treatment (with heat, chemicals, etc.) in order to make them suitable for certain purposes, such as decolourising, gas or moisture adsorption, catalysis, ion-exchange or filtering’. Those same notes state that heading 3802 does not cover ‘[n]aturally active mineral products (e.g., fuller’s earth), which have not undergone any treatment modifying their superficial structure (Chapter 25)’.

50 Consequently, as rightly pointed out by the Commission, Note 1 to Chapter 25 of the CN, interpreted in the light of the HS Explanatory Notes relating to heading 3802, rules out the possibility that products which have undergone treatment modifying their superficial structure may be classified under CN tariff heading 2508, with the result that they must be classified under CN tariff heading 3802 (C-380/12, paras 46-50, emphasis added).

 

In my view, and if I understood the (technical) reasoning properly, the emphasis on the functional (i.e. intended-use) approach can help overcome truly difficult technical considerations (such as to what extent has the structure actually been modified or not), because the ultimate objective of the treatment given to the decolourising earths was to increase their decolourising properties and made them useless otherwise. Consequently, the CJEU seems to be advocating (in rather convoluted and implicit terms) for an application of the same nomenclature classification to products which are aimed at the same use (i.e., truly competing products).

 

If that is correct, this seems the right approach in order to minimise competitive distortions resulting from the interpretation and application of customs rules. Hence, I think that the functional approach that the CJEU has continued to consolidate in its Judgment in X (decolourising earths) should be welcome, unless I have gotten lost at molecular level disquisitions...

Principle of competition finally consolidated into public procurement directives

The provisional text of the new public procurement Directives has been made available by the European Parliament. In the final version of 15 of January, the principle of competition is finally consolidated in article 18 of the new general Directive in the following terms:

Article 18 - Principles of procurement

1. Contracting authorities shall treat economic operators equally and without discrimination and shall act in a transparent and proportionate manner. The design of the procurement shall not be made with the intention of excluding it from the scope of this Directive or of artificially narrowing competition. Competition shall be considered to be artificially narrowed where the design of the procurement is made with the intention of unduly favouring or disadvantaging certain economic operators.

The explicit inclusion of the principle must be welcome, even if its drafting creates some interpretative uncertainties--particularly in regards to the intentional element ("with the intention of  [...] artificially narrowing competition") or the way in which the presumption linking (intended) discrimination with an actual distortion of competition.

 

In my view, these interpretative uncertainties deserve some clarification and there are sufficient interpretative criteria in the "pre-consolidated" case law concerned with competition in public procurement as to drive the clarification process [Sanchez Graells (2009) 'The Principle of Competition Embedded in EC Public Procurement Directives'). The teleological and functional interpretation of the principle still has to go in the direction of acknowledging that it requires that: public procurement rules have to be interpreted and applied in a pro-competitive way, so that they do not hinder, limit, or distort competition. Contracting entities must refrain from implementing any procurement practices that prevent, restrict or distort competition.

 

At any rate, the explicit consolidation of the principle seems likely to strengthen the use of pro-competitive arguments in public procurement litigation and, hopefully, will drive legal changes. It will be an interesting process to follow closely.

Free movement (of gold) meets consumer protection (C-481/12)

In its Judgment of 16 January 2014 in case C-481/12 Juvelta, the Court of Justice of the EU has issued an interesting decision concerned with the delicate balance between free movement of goods under Article 34 TFEU and the protection of consumers.

In the case at hand, gold jewellery was imported into Lithuania. The golden products had been stamped with the Polish hallmark to indicate their quality and fineness. The Polish and Lithuanian hallmarks differed in that Lithuanian rules require the express indication of the per thousand purity of the gold, whereas the Polish hallmark functions on a scale basis. Aware of such a divergence, the importer of the jewellery had complemented the Polish 'official' hallmark with a 'private mark' that expressly indicated the additional information necessary for Lithuanian consumers to understand the quality of the products. However, Lithuanian authorities were not willing to accept the validity of such 'private' second hallmark and required the products to be 'officially' marked again to comply with Lithuanian standards. The importer considered this an unjustified restriction of its free movement of goods rights and challenged the decision.

The CJEU framed the case within the standard Dassonville formula for the assessment of measures of equivalent effect to quantitative restrictions and offered some interesting insights into the limitations that consumer protection may introduce in that analytical framework. It is worth noting that, according to the CJEU,

23 In order to determine whether an indication of a standard of fineness not provided for by legislation of a Member State provides consumers with equivalent and intelligible information, the Court must take into account the presumed expectations of an average consumer who is reasonably well-informed and reasonably observant and circumspect (see, to that effect, Commission v Ireland, paragraph 32).

24 With regard to the proceedings [...] it should be noted that [...] the articles at issue in the main proceedings were stamped with hallmarks by an independent assay office authorised by the Republic of Poland, in accordance with that State’s legislation.

25 Likewise, [...] it is not disputed that the hallmark stamped on those articles shows their standard of fineness by means of the mark consisting of the numeral ‘3’ and that, in Poland, that mark is intended to denote articles of precious metals whose standard of fineness, expressed as the number of parts by weight of the precious metal in 1 000 parts by weight of the alloy, is 585.

26 It follows that the information provided by that mark is, as far as the articles of precious metal stamped with a hallmark in Poland are concerned, equivalent to that provided by the numerals ‘585’ on a hallmark stamped by an independent assay office authorised in Lithuania, in accordance with that State’s legislation.

27 That said, consideration must also be given to whether the marking of the numeral ‘3’ on the hallmarks stamped on the articles at issue in the main proceedings provides information intelligible to an average Lithuanian consumer who is reasonably well-informed and reasonably observant and circumspect.

28 In that regard, it must be held that it is probable that that mark is not intelligible to such a consumer, since such a person is not, in principle, deemed to know the Polish system of indicating standards of fineness for articles of precious metal.

29 However, although the restrictive effects of the legislation at issue can thus be justified by the objective of ensuring effective protection for Lithuanian consumers, and providing them with information relating to standards of fineness for articles of precious metal imported into Lithuania which are intelligible to them, such justification can be accepted only if that legislation is proportionate to the objective pursued, that is to say if, while appropriate in order to fulfil that objective, it does not go beyond what is necessary to attain it (C-481/12 at paras 23-29, emphasis added).

 

In Juvelta, then, the CJEU seems to have inserted an intermediate test of adequacy for consumer protection purposes that may need to be applied before the rule of reason analysis of the restrictive measure and in a cumulative manner. Hence, it seems that in situations where the application of free movement rules may leave consumers unprotected, the CJEU may be willing to set a limitation on the standard criteria of mutual recognition.

 

In general, then, it seems that the additional consideration of consumer protection/expectations comes to consolidate a 'suitability check' applied to the free movement rules (not to the measure having equivalent effect, which is still subjected to the traditional proportionality analysis) and, in that regard, seems fit for the purpose of ensuring overall consistency of the EU internal market rules--which, ultimately, should aim to protect consumers as well as allowing them to benefit from the increased efficiency that market competition brings about.

 

It may be that Juvelta does not create a revolution in the way free movement rules are applied (as such considerations had already occasionally been taken into account by the CJEU to a certain extent), but it may have spelled out more clearly the analytical path through which measures having equivalent effect against free movement of goods need to be assessed. In my view, this is a positive (incremental) development.

"National brands" and State aid: AG Whatelet on investing in "State branding" (C-533 & 536/12)

In his Opinion of 15 January 2014 in joined cases C-533/12 P and C-536/12 P SNCM v Corsica Ferries France, Advocate General Whatelet has addressed an interesting (and creative) argument concerning the protection of a "national brand" as a justification for the granting of public support that would otherwise constitute illegal State aid under Article 107 TFEU.

In the case at hand, and as part of a privatisation process, the French Republic had allegedly agreed to assume the costs of payment of excessive compensations for termination of employment and retirement of certain employees of a public undertaking. Regardless of the fact that the existence of such excessive compensations was also challenged, the French Republic claimed the protection of the national brand (ie, the reputation of French business conglomerates) as a justification for such public support to the privatised undertaking (or, rectius, its new owners). France considered that any social unrest derived from severance and pension payments within the context of the privatisation process would trigger significant strikes that would, in turn, create the image that the French State and its industrial conglomerates are not a reliable trading partner. As the argument goes, the protection of future business by French companies (or companies more closely linked to the French State) would justify such a (reputational) investment under the private investor test and, consequently, would exclude the existence of illegal State aid under Article 107 TFEU. More specifically, the French arguments were as follows:

72 . Furthermore, the French Republic considers that the payment of additional compensations is necessary to protect the brand image of the state. In support of his thesis, it refers to the risk that sympathy strikes would spread throughout the public sector and would have the effect of paralyzing the economic activity of enterprises in this sector.

73 . In this context, the French Republic claims that an epidemic of strikes would generate serious economic losses to the state. It refers to the abrupt disruption of contractual relationships between the companies at strike and their suppliers and customers, as well as to payment and supply difficulties that would force non-professional clients of public companies to switch to competing private companies.

74 . The French Republic therefore claims to have considered the avoidance of these dire economic consequences as the indirect material benefit that the state wished to obtain from the payment of additional compensations (Opinion in C-533 & 536/12 P, own translation from Spanish).

AG Whatelet disagrees with this argument very clearly and presents a set of very interesting remarks in paragraphs 76 to 96 of his Opinion. In short summary, I think that the most remarkable points of AG Whatelet's wrap-up of the (limited) existing case law concerned with the existence and protection (through investment) of a "national brand" are the following: 

1. In the absence of specific circumstances and a specially compelling motivation, protecting the brand image of the state as a global investor in the economy cannot be a sufficient justification to demonstrate the long-term economic rationality of the assumption of additional costs such as additional employment and retirement-related compensation (para 78).
2. As AG Jacobs and CJEU made clear in joined cases C-278/92, C-279/92 and C-280/92 Spain v Commission, it is difficult to accept that a state holding would worry so much about the damage that its global image would suffer as a result of the failure of one of its companies (or as a result of social unrest related to its winding up or bankruptcy) so as to offer, just for that reason, huge sums as an incentive for a private company to take charge of it (paras 83-86).
3. The same position was held by the GC in joined cases T-129/95 Neue Maxhütte Stahlwerke and Lech-Stahlwerke v Commission, where it also considered that "It is not credible that Bavaria have been obligated to pay a sum of money to a private company [...] to entice it to restructure [the company in question] in order to prevent that the bankruptcy of the latter could harm severely the reputation of the Land" (paras 87-90).

Hence, AG Whatelet concludes that, in the case at hand,

the General Court did not commit any error of law in concluding that "in the absence of special circumstances and without a particularly compelling motivation, the protection of the brand image of a Member State as a global investor in a market economy cannot constitute sufficient justification to demonstrate the long-term economic rationality of the assumption of additional costs such as additional severance pay" (Opinion in C-533 & 536/12 P, at para 91, own translation from Spanish).

And, as a matter of general principle, clearly indicates that 

I find it highly unlikely that the considerations made so far by the States on their brand image as global investors in a market economy can eventually circumvent the qualification of their decisions as State aid in light of the private investor test [...] the concerns raised by the Member States in relation to their brand image as global investors in a market economy, however noble they may be for other reasons, are far from those of a private investor, whether they relate to 'political costs' (in addition to the economic and social costs) of closing a business, "trade union or political pressure", the location of the failing firm in "in an area in social crisis" or, as in this case, the risk of sympathy strikes that would spread throughout the public sector. These considerations are absent of any prospect of profitability, even in the long term (Opinion in C-533 & 536/12 P, at paras 92 and 94, footnotes omitted and own translation from Spanish).

Ultimately, the rationale for this line of thought is that State aid rules' effectiveness would be significantly impaired if Member States can justify their public support decisions on the basis of the construction of their own "national brand". In my view, this is a very interesting Opinion and it is to be hoped that the CJEU will follow it and consolidate a very restrictive approach towards this type of justifications in the field of EU State aid law.

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Vote for the Antitrust Writing Awards & Ranking 2014

After a pre-selection of candidates, the time to vote for the 2014 AWA has arrived. If you want to participate and help decide which academic and business papers published in 2013 deserve some recognition, have a look at http://awards.concurrences.com/. 

Happy holidays and all best wishes for 2014!

What's left of the 'new limb' of Art 263(4) TFEU after Inuit and Telefonica? (C-274/12 P)

In its Judgment of 19 December in case C-274/12 P Telefonica v Commission, the CJEU has continued to define (and minimise) the scope of Article 263(4) TFEU and, particularly, the 'new' third limb introduced by the Treaty of Lisbon according to which 'Any natural or legal person may [...] institute proceedings against [...] a regulatory act which is of direct concern to them and does not entail implementing measures.'

 

The restrictive approach adopted in the interpretation of this provision is largely based on the (substitutive) potential reliance on requests for a preliminary ruling under Article 267 TFEU against the measures not susceptible of a direct challenge by 'non-qualified' applicants. Therefore, the CJEU has now (almost) completed the reinterpretation of the post-Lisbon mechanisms for judicial review, where it seems clear that Article 263(4) TFEU, and particularly its last limb, is bound to have (or continue having) a marginal role.

 

In Inuit, the CJEU made it clear that legislative measures are not covered by the concept of 'regulatory act'. However, that negative approach to the definition of 'regulatory act' left some questions unanswered (are those only legislative measures derived from the ordinary legislative procedure as the GC had found, or are there all legislative measures, independently from their ultimate legal basis?). It was also not considered what 'implenting measures' meant. This has now been addressed in Telefonica.

 

The arguments provided by the CJEU are worth reading carefully:

27 As the Advocate General has observed in points 40 and 41 of her Opinion, the concept of a ‘regulatory act which … does not entail implementing measures’, within the meaning of the final limb of the fourth paragraph of Article 263 TFEU, is to be interpreted in the light of that provision’s objective, which, as is clear from its origin, consists in preventing an individual from being obliged to infringe the law in order to have access to a court. Where a regulatory act directly affects the legal situation of a natural or legal person without requiring implementing measures, that person could be denied effective judicial protection if he did not have a direct legal remedy before the European Union judicature for the purpose of challenging the legality of the regulatory act. In the absence of implementing measures, natural or legal persons, although directly concerned by the act in question, would be able to obtain a judicial review of that act only after having infringed its provisions, by pleading that those provisions are unlawful in proceedings initiated against them before the national courts.

28 It should be explained in this regard, first, that where a regulatory act entails implementing measures, judicial review of compliance with the European Union legal order is ensured irrespective of whether those measures are adopted by the European Union or the Member States. Natural or legal persons who are unable, because of the conditions governing admissibility laid down in the fourth paragraph of Article 263 TFEU, to challenge a regulatory act of the European Union directly before the European Union judicature are protected against the application to them of such an act by the ability to challenge the implementing measures which the act entails.

29 Where responsibility for the implementation of such acts lies with the institutions, bodies, offices or agencies of the European Union, natural or legal persons are entitled to bring a direct action before the European Union judicature against the implementing acts under the conditions stated in the fourth paragraph of Article 263 TFEU, and to plead in support of that action, pursuant to Article 277 TFEU, the illegality of the basic act at issue. Where that implementation is a matter for the Member States, those persons may plead the invalidity of the basic act at issue before the national courts and tribunals and cause the latter to request a preliminary ruling from the Court of Justice, pursuant to Article 267 TFEU (Case C-583/11 P Inuit Tapiriit Kanatami and Others v Parliament and Council [2013] ECR I-0000, paragraph 93).

30 Second, as the Advocate General has observed in point 48 of her Opinion, the question whether a regulatory act entails implementing measures should be assessed by reference to the position of the person pleading the right to bring proceedings under the final limb of the fourth paragraph of Article 263 TFEU. It is therefore irrelevant whether the act in question entails implementing measures with regard to other persons.

31 Third, in order to determine whether the measure being challenged entails implementing measures, reference should be made exclusively to the subject-matter of the action and, where an applicant seeks only the partial annulment of an act, it is solely any implementing measures which that part of the act may entail that must, as the case may be, be taken into consideration (C-274/12 P at paras 27 to 31, emphasis added).

The Judgment could be criticised in view of the fact that it includes implementing measures to be adopted by the Member States within the definition of 'regulatory acts...' in Article 263(4) TFEU--which (under a more generous approach) could have been limited to acts that require implementing measures by the European Institutions, but not those that require implementation by the Member States. However, the logic of the Judgment is clear and the strong push to 'redirect' litigation towards Article 267 TFEU is clear and consistent.

 

It is also clear from the Inuit and Telefonica Judgments that the CJEU is keeping the 'Plaumann test' alive and kicking when it comes to the interpretation of 'direct and individual concern' under the second limb of Article 263(4) TFEU.

 

Finally, it is also cleat that the CJEU sees no violation of Articles 6 and 13 of the European Convention on Human Rights or Article 47 of the Charter of Fundamental Rights of the EU as a result of its restrictive interpretation of the locus standi criteria in Article 263(4) TFEU (see paras 56 to 61, where the CJEU stresses once again that 'Judicial review of compliance with the European Union legal order is ensured, as can be seen from Article 19(1) TEU, by the Court of Justice and the courts and tribunals of the Member States. To that end, the FEU Treaty has established, by Articles 263 TFEU and 277 TFEU, on the one hand, and Article 267 TFEU, on the other, a complete system of legal remedies and procedures designed to ensure judicial review of the legality of European Union acts, and has entrusted such review to the European Union judicature', at 57).

 

Bottom line, the CJEU is clearly stressing that domestic courts of the Member States are EU courts for all purposes. In my view, from the perspective of the design and manageability of the system, this is certainly the only sensible and viable strategy.

CJEU follows AG Jääskinen in revisiting PreussenElektra and minimising Doux Elevages' requirements for State imputability of aid measures (C-262/12)

In its Judgment of 19 December 2013 in case C-262/12 Vent De Colère and Others, the Court of Justice of the EU has largely followed AG Jääskinen's Opinion (commented here) and confirmed that, under Article 107(1) TFEU, a mechanism for offsetting in full the additional costs imposed on undertakings because of an obligation to purchase wind-generated electricity at a price higher than the market price that is financed by all final consumers of electricity in the national territory constitutes an intervention through State resources and, consequently, is under the general prohibition of State aid.

 

This Judgment must be welcomed, particularly because the CJEU follows the submission made by the AG, who considered that consumer contributions amounted to the existence of 'State resources', due to 'the fact that these resources constantly remain under public control and, therefore, are available to the competent national authorities, [which] suffices to qualify them as State funds to finance the measure, which then falls within the scope of Article 107(1) TFEU' (para 34 of his Opinion, own translation from Spanish).

 

Indeed, the CJEU has reviewed the characteristics of the body administering the funds paid by consumers (a public body under effective State supervision) and has stressed that

33 […] the sums thus managed by the Caisse des dépôts et consignations must be regarded as remaining under public control.

34 All those factors taken together serve to distinguish the present case from that which gave rise to the judgment in PreussenElektra, in which the Court held that an obligation imposed on private electricity supply undertakings to purchase electricity produced from renewable sources at fixed minimum prices could not be regarded as an intervention through State resources where it does not lead to any direct or indirect transfer of State resources to the undertakings producing that type of electricity (see, to that effect, PreussenElektra, paragraph 59).

35 As the Court has already had occasion to point out – in paragraph 74 of the judgment in Essent Netwerk Noord and Others – in the case which gave rise to the judgment in PreussenElektra, the private undertakings had not been appointed by the Member State concerned to manage a State resource, but were bound by an obligation to purchase by means of their own financial resources.

36 Consequently, the funds at issue [in PreussenElektra] could not be considered a State resource since they were not at any time under public control and there was no mechanism, such as the one at issue in the main proceedings in the present case, established and regulated by the Member State, for offsetting the additional costs arising from that obligation to purchase and through which the State offered those private operators the certain prospect that the additional costs would be covered in full.

37 Accordingly, Article 107(1) TFEU must be interpreted as meaning that a mechanism for offsetting in full the additional costs imposed on undertakings because of an obligation to purchase wind-generated electricity at a price higher than the market price that is financed by all final consumers of electricity in the national territory, such as that resulting from Law No 2000-108, constitutes an intervention through State resources (C-262/12 at paras 33 to 37, emphasis added).

In my view, the Vent De Colère Judgment advances in the functional approach to State aid and consolidates a general criterion of State control that should reduce the uncertainty surrounding the imputability to the State of (indirect) support measures through consumer contributions. The distinction with PreussenElektra is also rather clear now.

 
The only hurdle that remains in the way of such truly functional approach is the issue of imputability as addressed in Doux Élevages particularly in relation with (pseudo)fiscal measures (something that AG Jääskinen had addressed in  paras 50-54 of his Opinion but the CJEU felt no need to discuss in Vent De Colère). Hopefully, the CJEU will also minimise Vent De Colère on that point some time soon.

 

CJEU: vertical effect of Directives goes both ways (C-425/12)

The Judgment of the CJEU of 12 December 2013 in case C-425/12 Portgás may appear to be of interest only for public procurement aficionados (and, even then, only for hardcore ones), as it deals with the potential applicability of the old 1993 utilities procurement Directive (no longer current) to a company entrusted with a gas distribution concession in Portugal. Hardly a topic bound to spur heated debates. Hence, it seems a case doomed to receive very little attention amongst EU lawyers...

 

However, it contains one of the very few potential (r)evolutions in the theory of Directives' direct effect since Mangold and Kücükdeveci by holding that their vertical direct effect goes both ways (i.e. both up and down). In my view, Portgás should become the new Foster and claim a main spot in general EU law (text)books.

 

I think that the Portgás Judgment indeed develops the existing law on Directives' vertical effect. Implicitly, that theory was always concerned with upwards vertical effect, in the sense of allowing particulars to claim EU law protection against the infringing Member State. The theory has clearly been conceptualised on the basis of an (implicit) bottom up claim.

 

However, it is not at all clear whether a downwards application of the theory is at all possible. In general terms, however, the canon (as an extension of the no-horizontal direct effect declared in Marshall) would dictate that such a vertical direct effect cannot go down because the infringing Member State cannot rely on the (non-transposed or deffectively transposed) Directive to affect the legal position of particulars (just as one particular cannot do it against another one).

 

The Foster line of extension of the "standard" upwards vertical direct effect of Directives started to tackle what we may now call 'mezzanine' situations, where a particular did not want to claim protection against the State itself, but against one of its 'emanations' (as a way to circumvent the harshness of the no-horizontal direct effect dogma). In that case, the CJEU was clear to stress that the upwards dimension of Directives' direct effect reaches such a mezzanine situation and declared, as is well known, that particulars can rely on EU law protection under certain circumstances.

 

In Portgás the situation is the opposite. The CJEU was asked to determine whether in a comparable 'mezzanine' situation, the State could claim downwards direct effect of a non-transposed Directive against one of its Foster-emanations. The first bet may be that the principle of legitimate expectations may prevent such an extension of the doctrine. However, such a position has now been rejected by the CJEU.

 

In the passages that deserve more attention in the Portgás Judgment, the CJEU analyses the possibility for the Portuguese government to claim financial recovery of amounts paid to Portgás to finance the acquisition of equipment (gas meters) due to the fact that the undertaking did not tender the contract in accordance with the requirements of the 1993 utilities procurement Directive. However, at the time of the purchase of the equipment, Portugal had not implemented the Directive. Consequently, Portgás raised the defence that Portugal cannot require compliance with a set of rules it had not itself transposed. The CJEU, however, takes a different approach based on the effet utile of EU law and argues that:

33 [...] although the Court has held that unconditional and sufficiently precise provisions of a directive may be relied on by individuals against a body which has been given responsibility, under the control of the State, for a public-interest service and which has, for that purpose, special powers (see, to that effect, Foster and Others, paragraphs 18 and 20, and Dominguez, paragraphs 38 and 39 and the case-law cited), the case in the main proceedings has arisen in a context different from the context of that case-law.

34 In the context of the present case, it should be recalled that, according to the case-law of the Court, the obligation on a Member State to take all the measures necessary to achieve the result prescribed by a directive is a binding obligation imposed by the third paragraph of Article 288 TFEU and by the directive itself. That duty to take all appropriate measures, whether general or particular, is binding on all the authorities of the Member States (see Case C‑129/96 Inter-Environnement Wallonie [1997] ECR I‑7411, paragraph 40 and the case-law cited) as well as on bodies which, under the control of those authorities, have been given responsibility for a public-interest service and which have, for that purpose, special powers. It follows that the authorities of the Member States must be in a position to ensure that such bodies comply with the provisions of Directive 93/38.

35 It would be contradictory to rule that State authorities and bodies satisfying the conditions set out in paragraph 24 of the present judgment [Foster conditions] are required to apply Directive 93/38, while denying those authorities the possibility to ensure compliance, if necessary before national courts, with the provisions of that directive by a body satisfying those conditions when that body must itself also comply with Directive 93/38.

36 Furthermore, the Member States would be able to take advantage of their own failure to comply with European Union law in failing correctly to transpose a directive into national law if compliance with the provisions of Directive 93/38 by such bodies could not be ensured on the initiative of a State authority.

37 Lastly, that approach would make it possible for a private competitor to rely on the provisions of Directive 93/38 against a contracting entity which satisfies the criteria set out in paragraph 24 of the present judgment [Foster conditions], whereas State authorities could not rely on the obligations flowing from that directive against such an entity. Consequently, whether or not such a contracting entity would be required to comply with the provisions of Directive 93/38 would depend on the nature of the persons or bodies relying on Directive 93/38. In those circumstances, Directive 93/38 would no longer be applied in a uniform manner in the domestic legal system of the Member State concerned.

38 It follows that a private undertaking, which has been given responsibility, pursuant to a measure adopted by the State, for providing, under the control of the State, a public-interest service and which has, for that purpose, special powers going beyond those which result from the normal rules applicable in relations between individuals, is obliged to comply with the provisions of Directive 93/38 and the authorities of a Member State may therefore rely on those provisions against it (C-425/12 at paras 33-38, emphasis added).

I think that it is plain to see that Portgás is somehow the mirror image of Foster. Its practical implications may seem small in that the number of Foster-emanations that Member States hold is probably relatively small. However, in the area of public procurement and, more generally, of EU economic law, it is not hard to imagine a relatively important number of potential 'Portgás' entities that can see their rights and (financial) interests compromised as a result of the 'sandwich' situation that this latest CJEU Judgment creates. And this may be a situation that triggers litigation on the basis of the protection of legitimate expectations, rights to property or other fundamental rights by those companies (which stresses the relevance of rethinking the current trends of granting of 'corporate human rights'--see some discussion here).

 

What may be more controversial is to claim, as I would, that this is the last frontier before the full recognition of Directives' direct effect. All in all, as the law currently stands, there is a very limited field where Directives are not directly effective (after their period of transposition) and that, by itself, may justify a simplification (repeal?) of the no-horizontal direct effect dogma. It remains to be seen if the CJEU will ever be willing to cross that bridge.

CJEU rubber stamps Italian minimum tariffs for certification in public procurement, subject to proportionality (C-327/12)

In its Judgment of 12 December 2013 in case C-327/12 Soa Nazionale Costruttori, the Court of Justice of the EU has followed rather closely AG Cruz Villalon's Opinion (commented here) and declared that a scheme of compulsory minimum tariffs for certification services supplied to undertakings seeking to participate in procedures for the award of public contracts is not per se contrary to EU competition and free movement rules, always provided that it is not disproportionate (which determination it referred back to the domestic courts).

 

One of the remarkable features of the Judgment is the level of detail in which the CJEU has summarised its State action doctrine. In this useful reminder, the CJEU has stressed that

37 [...] although it is true that Articles 101 TFEU and 102 TFEU are concerned solely with the conduct of undertakings and not with laws or regulations emanating from Member States, those articles, read in conjunction with Article 4(3) TEU, which lays down a duty of cooperation between the European Union and the Member States, none the less require the latter 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 (see Joined Cases C‑94/04 and C‑202/94 Cipolla and Others [2006] ECR I‑11421, paragraph 46, and Case C‑393/08 Sbarigia [2010] ECR I‑6337, paragraph 31).

38 Articles 101 TFEU or 102 TFEU, read in conjunction with Article 4(3) TEU, are infringed where a Member State requires or encourages the adoption of agreements, decisions or concerted practices contrary to Article 101 TFEU or reinforces their effects, or where it divests its own rules of the character of legislation by delegating to private economic operators responsibility for taking decisions affecting the economic sphere, or requires or encourages abuses of a dominant position (see, to that effect, Cipolla and Others, paragraph 47) [C-327/12 at paras 37-38, emphasis added].

Further than this, and after dismissing the applicability of the State action doctrine on the basis of a lack of evidence of the existence of such effects--which is at least questionable where we are in presence of a de facto agreement on minimum prices between certification entities--the CJEU rejects the application of Art 106 TFEU on the basis that the authorisation given by the Italian State to the certification entities is not an exclusive or special right because there is no numerus clausus of authorisations. On this point, the CJEU must be praised for sticking to its stated case law in Ambulanz Glockner and not accepting the rather counterintuitive remarks made by the AG in his Opinion (criticised here).

 

Finally, and looking at the compatibility with freedom of establishment rules (art 49 TFEU), in the Soa Nazionale Construttori Judgment, the CJEU has followed very closely the Opinion of the Advocate General and accepted some premises for the existence of mandatory public procurement certification schemes subject to (non-disproportionate) minimum tariffs that I find objectionable. In particular, I think that the CJEU should have avoided declaring such a system adequate to protect a public interest in the following terms:

59 A restriction on the freedom of establishment may be justified where it serves overriding requirements relating to the public interest, is suitable for securing the attainment of the objective which it pursues and does not go beyond what is necessary in order to attain it (see DKV Belgium, paragraph 38).

60 Unionsoa and the Italian Government consider that the national legislation at issue in the main proceedings seeks to ensure the independence of SOAs and the quality of the certification services which they supply. Competition between SOAs at the level of tariffs negotiated with their customers and the possibility of fixing those tariffs at a very low level would risk compromising their independence with respect to those customers and having a negative impact on the quality of the certification services.

61 In that regard, it must be observed that the public interest in the protection of recipients of services can justify a restriction on the freedom of establishment (see Case C‑451/03 Servizi Ausiliari Dottori Commercialisti [2006] ECR I‑2941, paragraph 38).

62 In this case, first, SOAs are entrusted with certification of undertakings, receipt of an appropriate certificate being a necessary condition in order for the undertakings concerned to participate in public works contracts. In that context, the Italian legislation seeks to ensure the lack of any commercial or financial interest such as to result in unimpartial or discriminatory behaviour on the part of SOAs with regard to those undertakings.

63 Secondly, as is apparent from the order for reference, SOAs may only carry out certification activities. Moreover, they are required, in accordance with national legislation, to have resources and procedures suitable for ensuring that their services are carried out effectively and in good faith.

64 It is with a view to protecting the recipients of the services that the independence of SOAs vis-à-vis the specific interests of their customers is particularly important. A certain restriction of the possibility to negotiate the prices of services with those customers is likely to strengthen their independence.

65 In those circumstances, it must be held, as the Advocate General essentially stated in point 58 of his Opinion, that the setting of minimum tariffs for the supply of such services is intended, in principle, to ensure the quality of those services and it is suitable for attaining the objective of protecting the recipients of those services [C-327/12 at paras 59-65, emphasis added].

In my view, the CJEU's position is exceedingly lenient. Particularly if one takes into consideration that the ultimate "beneficiaries" of the certification services (i.e.the Italian contracting authorities) cannot impose the provision of those certificates to all entities willing to participate in their tenders for public contracts. Under Art 52(5) of Directive 2004/18 (the same provision that allows for the creation of certification entities such as the Italian SOAs) it is clearly stated that 'economic operators from other Member States may not be obliged to undergo such registration or certification in order to participate in a public contract. The contracting authorities shall recognise equivalent certificates from bodies established in other Member States. They shall also accept other equivalent means of proof' (emphasis added). So, even if only in relation to non-national undertakings, it is clear that contracting authorities need to retain independent capacity to assess alternative methods of proof of suitability of tenderers. Moreover, under Art 52(4), contracting authorities can challenge the certifications (or the information derived therefrom) as long as they have a sufficient reason to distrust it. Therefore, their reliance on the certificates (of domestic) tenderers is not intended to be acritical or necessarily automatic if there are reasons that justify a request for further information.

 

Consequently, the creation of systems of mandatory certification seem to protect a weak public interest inasmuch as they are simply a mechanism of administrative simplification (or red tape reduction). If this is borne in mind, the reasoning based on the independence of the certifying entities and the need to set minimum prices in order to preserve it so that contracting authorities' interests are sufficiently protected seems to fade away rather quickly.

 

Moreover, the CJEU's lukewarm approach to the proportionality of the Italian minimum certification tariffs (which is limited to indicate that 'It is for the referring court to determine whether, in the light of, inter alia, the method of calculating the minimum tariffs, particularly in the light of the number of categories of work for which the certificate is drawn up, that national legislation goes beyond what is necessary to attain that objective', para 69) does not establish a sufficiently clear indication of the lack of proportionality of a system that, effectively, forces (!) certification entities to charge larger sums for exactly the same amount of work depending on the number of contracts the certified undertaking wants to tender for. In this regard, the Opinon of Advocate General Cruz Villalon is much more detailed and convincing.

 

All in all, in my view, this is a formally correct and substantially very deficient Judgment of the CJEU, and one that keeps a very formal approach to restrictions on free movement (as the CJEU has only looked at restrictions on the freedom of establishment, forgetting completely about the implications of the system on the free movement of goods and free provision of services subjected to the EU public procurement rules). A more holistic and funcional approach would have been preferable.

Is the CJEU engaging in 'Judicial Abstinence'? Or, where do we go from here?

The CJEU has released the ebook of the May 2013 conference that celebrated 50 years of its Van Gend en Loos Judgment. The book contains many interesting contributions and, in my view, one of the most thought-provoking is Prof Catherine Barnard's 'Van Gend en Loos to(t) the future'.

 

Prof Barnard reflects about the future role of the CJEU in a changed and changing EU and identifies a trend of 'Judicial Abstinence' that 'leaves the uncomfortable impression that the Court is reneging on its key function, first articulated in Van Gend en Loos, that EU law must be effective' (p. 122).

 

Her analysis is relevant and expands well beyond the area of labour law, where she focusses. In my view, recent Judgments in other (even more fundamental?) areas such as the legal position and effectiveness of the Charter of Fundamental Rights of the EU also show the judicial abstinence the CJEU is (selectively) engaging in (for instance, in case C-313/12). And that leaves us with the difficult question of why is the CJEU (suddenly) so averse to (continuying to) act as constitutional court at EU level?

 

Pessimists could say that we are witnessing a deflation of the EU law supremacy balloon, and that the 'golden age' of the CJEU lasted 50 years and is already over. However, Prof Barnard offers a positive outlook as long as the CJEU departs from 'hardcore' judicial abstinence and opts for a medium-ground strategy (which she terms 'Old-Rules Lite'). As she stresses,

The EU of 2013 is infinitely more complex and any solutions will have to reflect that. There will be no Van Gend en Loos II. However, this does not mean the end of the Court of Justice and its influence. Quite the contrary. It means a repositioning of the Court from standard bearer of EU integration to ensuring that the EU is able to function in its new, more fragmented reality. This paves the way for the Court to develop a new kind of doctrine of effectiveness, one that might mean endorsing the devolution of more decision-making power to the Member States or other actors (p. 122, emphasis added).

The next few years will show if the CJEU is up to the task.

CJEU strengthens Commission's enforcement monopoly in State aid (C-111/10) and jeopardises its consistent enforcement with other EU policies (C-272/12)

In two recent Judgments of 4 December 2013 (C-111/10, Commission v Council) and 10 December 2013 (C-272/12, Commission v Ireland and Others), the CJEU has ruled on the distribution of powers between the Council and the Commission in the area of State aid enforcement. In one of the cases (C-111/10), the CJEU made a substantive finding and upheld the Council authorisation of State aid for agricultural support in Lithuania. In the other case (C-272/12) the CJEU refused to engage in an analysis of the distribution of competences between the institutions due to a procedural flaw (the GC had raised the issue of its own motion, in breach of art 21 of the Statute of the Court of Justice of the European Union), but stressed the same underlying principles.

 

It is worth highlighting that, in both Judgments, the CJEU clearly stressed the exceptional powers that the Council holds in the area of State aid enforcement--which, in my view, comes to further strengthen, consolidate and perpetuate the monopoly of State aid enforcement held by the Commission.

 

This is particularly clear in certain passages of the reasoning followed by the CJEU, which:

39 [...] held, after recalling the central role which the FEU Treaty reserves for the Commission in determining whether aid is incompatible with the internal market, that the third subparagraph of Article 108(2) TFEU covers an exceptional and specific case, meaning that the power conferred upon the Council by that provision is clearly exceptional in character (see, to that effect, Case C‑110/02 Commission v Council [2004] ECR I‑6333, paragraphs 29 to 31) and, accordingly, that the third subparagraph of Article 108(2) TFEU must necessarily be interpreted strictly (see, by analogy, Case C‑510/08 Mattner [2010] ECR I‑3553, paragraph 32, and Case C‑419/11 Česká spořitelna [2013] ECR I‑0000, paragraph 26)

72 [...] the power granted to the Council under the third subparagraph of Article 108(2) TFEU applies only within the limits indicated by that provision, namely where exceptional circumstances exist (see, to that effect, Case C‑122/94 Commission v Council [1996] ECR I‑881, paragraph 13) [C-111/10 at paras 39 and 72, emphasis added].

And further stressed that:

48 As the Court held in paragraphs 29 to 31 of Case C‑110/02 Commission v Council [2004] ECR I‑6333, the intention of the EC Treaty, in providing through Article 88 EC for aid to be kept under constant review and monitored by the Commission, is that the finding that aid may be incompatible with the common market is to be arrived at, subject to review by the General Court and the Court of Justice, by means of an appropriate procedure which it is the Commission’s responsibility to set in motion. Articles 87 EC and 88 EC thus reserve a central role for the Commission in determining whether aid is incompatible. The power conferred upon the Council in the area of State aid by the third subparagraph of Article 88(2) EC is exceptional in character, which means that it must necessarily be interpreted strictly (see also, to that effect, the judgment of 4 December 2013 in Case C‑111/10 Commission v Council [2013] ECR I‑0000, paragraph 39) [C-272/12 at para 48, emphasis added].

This renewed emphasis on the (almost) exclusive powers of the European Commission in the area of State aid policy and enforcement is probably a necessity in terms of ensuring institutional balance and the proper working of the EU institutions (as the CJUE stresses in para 47 of C-111/10: 'That interpretation seeks to maintain the coherence and effectiveness of European Union action'), but it can also create difficulties when it comes to ensure the proper integration of State aid enforcement with policy in other areas of EU economic law where the balance of powers between EU Institutions, or between the EU and Member States, is different.

 

This is something that case C-272/12 clearly brings to light. In that case, there was a tension between the Decisions adopted by the Council in the area of national fiscal legislation and the Commission's powers in State aid enforcement. The tension derived from the circumstance that the Council could authorise Member States to provide tax exemptions from the excise duty for mineral oils used for the production of alumina. Such exemptions could (at least theoretically, although this was challenged in C-272/12 but the CJEU declined to provide an answer on the basis of the ultra petita argument mentioned before) constitute State aid. In order to try to sort out that potential conflict, recital 5 of the relevant instrument (Council Decision 2001/224) indicated that

that decision was without prejudice ‘to the outcome of any procedures relating to distortions of the operation of the single market that may be undertaken, in particular under Articles [107 TFEU] and [108 TFEU]’, and that it did not override ‘the requirement for Member States to notify instances of potential State aid to the Commission under Article [108 TFEU]’.

Such 'coordination' provision was bound to create difficulties, despite the fact that the European Commission was involved in the assessment of the Member States' requests for authorisation to provide exemptions. The GC had sought to create a functional balance that could overcome the difficulties of subjecting the Council authorisation (and, consequently, the Member States' exemptions) to a second analysis by the European Commission under the State aid rules (despite the wording in recital 5 of Decision 2001/224). Indeed,

the General Court held, first, that, in the light of the fact that the rules governing the harmonisation of national fiscal legislation and the rules on State aid have a shared objective, namely to promote the proper functioning of the internal market, by combating, inter alia, distortions of competition, the concept of distortion of competition had to be regarded as having the same scope and the same meaning in both those areas, in order to ensure the consistent implementation of those rules. The General Court stated, in that regard, that Article 8(4) and (5) of Directive 92/81 confers in particular on the Commission, which submits a proposal, and the Council, which enacts a measure, the responsibility for assessing whether there is any distortion of competition, in order to decide whether or not to authorise a Member State to apply or continue to apply an exemption from the harmonised excise duty and that, if the assessments differ, the Commission has the option of bringing an action for annulment of the Council’s decision [C-272/12 at para 39, emphasis added].

The implications of this reasoning would be, rather clearly, that the European Commission should not have a second bite of the cherry under the State aid rules because it would have already expressed its views on the (absence of a) distortion of competition derived from the excise duty exemption within the fiscal harmonisation mechanism. However, the CJEU had none of this and declared that

46 It must be borne in mind that Directive 92/81 was adopted on the basis of Article 99 of the EEC Treaty (which became Article 99 of the EC Treaty, which itself became Article 93 EC [and is now art 113 TFEU]) which conferred on the Council the power to adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that that harmonisation was necessary to ensure the establishment and functioning of the internal market.

47 The authorisation decisions were adopted pursuant to Article 8(4) of Directive 92/81, which granted to the Council, acting unanimously on a proposal from the Commission, the power to authorise any Member State to introduce exemptions or reductions other than those laid down by that directive ‘for specific policy considerations’. The purpose and the scope of the procedure laid down in that article differ from those of the rules established in Article 88 EC.

48 As the Court held in paragraphs 29 to 31 of Case C‑110/02 Commission v Council [2004] ECR I‑6333, the intention of the EC Treaty, in providing through Article 88 EC for aid to be kept under constant review and monitored by the Commission, is that the finding that aid may be incompatible with the common market is to be arrived at, subject to review by the General Court and the Court of Justice, by means of an appropriate procedure which it is the Commission’s responsibility to set in motion. Articles 87 EC and 88 EC thus reserve a central role for the Commission in determining whether aid is incompatible. The power conferred upon the Council in the area of State aid by the third subparagraph of Article 88(2) EC is exceptional in character, which means that it must necessarily be interpreted strictly (see also, to that effect, the judgment of 4 December 2013 in Case C‑111/10 Commission v Council [2013] ECR I‑0000, paragraph 39).

49 Consequently, a Council decision authorising a Member State, in accordance with Article 8(4) of Directive 92/81, to introduce an exemption of excise duties could not have the effect of preventing the Commission from exercising the powers conferred on it by the Treaty and, consequently, setting in motion the procedure laid down in Article 88 EC in order to review whether that exemption constituted State aid and on the conclusion of that procedure, if appropriate, to adopt a decision such as the contested decision [C-272/12 at paras 46 to 49, emphasis added].

Moreover, the CJEU went as far as to expressly exclude any estoppel-like argument by stressing that

53 [...] the concept of State aid corresponds to an objective situation and cannot depend on the conduct or statements of the institutions (Commission v Ireland and Others, paragraph 72). Consequently, the fact that the authorisation decisions were adopted on a proposal from the Commission could not preclude those exemptions being classified as State aid, within the meaning of Article 87(1) EC, if the conditions governing the existence of State aid were met. That fact however had to be taken into consideration in relation to the obligation to recover the incompatible aid, in the light of the principles of protection of legitimate expectations and legal certainty, as was done by the Commission in the contested decision when it declined to order the recovery of aid granted before the date of publication in the Official Journal of the European Communities of the decisions to initiate the procedure laid down in Article 88(2) EC [C-272/12 at para 53, emphasis added].

In my view, the final caveat clearly indicates that the problems derived from the extreme protection of Commission's powers in which the CJEU has engaged are intractable. The requirements of the principles of protection of legitimate expectations and legal certainty will almost always deactivate any legal effects of the Commission's second analysis of the situation under the State aid rules--so one can wonder if it would not be preferable to create a framework where the powers of the Commission under State aid rules could be restricted in order to promote a better integration of different EU/Member States economic policies and different areas of EU economic law.

 

Otherwise, the 'dominance' of State aid enforcement could significantly diminish the effectiveness of other policies and, as long as those policies are designed and implemented with due regard for the competitive distortions they can create (as was clearly the case in C-272/12, where the Commission was itself entrusted with that analysis), that would be a superior working framework. This is not to say that State aid (or competition) should rank as a secondary consideration. To the contrary, this advocates for an integration of competition concerns at the phase of policy design and implementation, rather than as an ex post (re)analysis of the situation that can create significant disruptive effects--eventually (luckily) barred by the principles of protection of legitimate expectations and legal certainty.

 

All these considerations are clearly relevant in the area of integration of State aid and public procurement rules, particularly in the financing of Services of General Economic Interest (SGEI), where the Almunia package creates a dual relationship between procurement and State aid rules by stressing that only certain procurement procedures will be acceptable under State aid rules and, at the same time, stressing that State aid exemptions do not alter the obligations created by public procurement rules themselves in the first place. If no clear criterion is established to prefer State aid analysis over procurement enforcement, or otherwise, the enforcement landscape looks rather complicated [for further discussion, see my "The Commission’s Modernization Agenda for Procurement and SGEI"].