Case law

Judgment of the Judicial Court of Lisbon of 03 October 2016 (Tribunal Judicial da Comarca de Lisboa - Instância Central de Lisboa - 1ª Secção Cível - J20)

PROCESS: 1774/11.9TVLSB

DATE: 03/10/2016

THEMATIC: Abuse of Dominant Position

LEGISLATION AT ISSUE::
ARTICLE 10 LAW NO. 18/2003 [PRESENT, ARTICLE 11 LAW NO. 19/2012]; ARTICLE 82 TCE [PRESENT, ARTICLE 102 TFEU]

DECISION SUMMARY:

I – It has been concluded that the Plaintiff failed to prove the elements necessary to demonstrate a negative margin between the wholesale price and the retail price or even a positive margin but insufficient to meet the costs, and, as a consequence, it failed to demonstrate that the provision of the (wholesale) price established in clause 7 of the agreement translated a margin squeeze. Therefore, the Plaintiff failed to demonstrate that the immediate object of the price clause breaches the rules of competition law.

II- The obligation not to abuse of a dominant position is not a contractual obligation and its infringement is not a legal ground to an action for contractual liability, laid down in Article 798 of the Portuguese Civil Code.

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

"Optimus Comunicações, S.A.", now called "Nos Comunicações, S.A.", sued "Portugal Telecom, SGPS, S.A.", now called "Pharol, SGPS, S.A.", and "PT Comunicações, S.A.", now called "Meo - Serviços de Comunicações e Multimédia, S.A.", for the sum of €11.273.000,00 plus interest, for the damages caused by the alleged abuse of their dominant market position.

In 2000, the Defendant "Portugal Telecom" launched a contractual offer for access to services and basic telecommunications network (broadband data transmission over its telephone lines) for other operators, called “ADSL.PT Network” ("Rede ADSL.PT"). In March 2001, the Plaintiff started to use this network access service, after the conclusion of a non-written “ADSL.PT Network” service agreement with “Portugal Telecom”.

In July 2002, the “Portugal Telecom Group”, through “Telepac”, launched the first broadband offer under the “SAPO ADSL.PT” brand. At that moment, the Plaintiff began to lose customers and decided to launch a commercial broadband offer for residential customers ("Clix Turbo") in September 2002, using the new access service provided by the Defendant “Portugal Telecom”.

Although the price charged by "Portugal Telecom" to the Plaintiff was higher than the price charged to "Telepac" (through discounts that only “Telepac” benefited from), the Plaintiff was obliged to accept the conditions, otherwise it would disappear from the market. According to the Plaintiff, it operated with negative margins due to the contractual conditions imposed by the Defendants and this practice was considered an abuse of dominant position, which was corroborated by the Portuguese Competition Authority, which in August 2009 imposed sanctions to the Defendants for this anticompetitive practice.

The Plaintiff requested the annulment declaration of the price clauses, the refund of the money overpaid between September 2002 and April 2005, in the amount of €2,761,000.00 plus interest, and the compensation for the damages caused by the abuse of dominant position, in the amount of €8,603,000.00 plus interest.

REGARDING THE RELEVANCE FOR COMPETITION LAW ENFORCEMENT, THE COURT ESSENTIALLY EXAMINED THE FOLLOWING QUESTIONS:

(1) IDENTIFICATION OF THE PRICE CLAUSE (CLAUSE 7 -"PRICES OF THE SERVICE" AND ANNEX 6 -"PRICES AND DISCOUNTS" OF THE "ADSL.PT NETWORK" OFFER);

(2) COMPATIBILITY OF THE IMMEDIATE OBJECT OF THE PRICE CLAUSE WITH THE RULES ON THE ABUSE OF DOMINANT POSITION BY MARGIN SQUEEZE;

(3) SINCE THE PRICE CLAUSE WAS CONSIDERED NULL, WHETHER THE OVERPAID PRICE (PAID BETWEEN SEPTEMBER 2002 AND APRIL 2005) SHOULD BE REFUNDED BY THE DEFENDANT "PORTUGAL TELECOM";

(4) WHETHER THE OBLIGATIONS NOT TO ALTER UNLAWFULLY THE CONTRACT AND NOT TO USE THE CONTRACT AS A VEHICLE TO ABUSE THE DOMINANT POSITION AROSE FROM THE CONTRACT, AND WHETHER THE BREACH OF SUCH OBLIGATIONS RESULTED IN THE OBLIGATION TO COMPENSATE THE AUTHOR FOR DAMAGES; AND

(5) IN CASE OF A NEGATIVE ANSWER TO THE PREVIOUS QUESTION, WHETHER THIS WAS A CASE OF NONCONTRACTUAL LIABILITY.

(1) Concerning the price clause, the Court considered that the discounts provided for in the contractual offer of "PT ADSL Network" (and that only "Telepac" benefited from) depended on the operator's number of final customers, the period of validity of the Agreement with “Portugal Telecom”, and the conclusion of such agreement in writing, which was not the case with the Plaintiff. Accordingly, the Court held that if the discounts were not part of the contract, they did not have any legal existence in the relationship between the parties and, therefore, there were no legal grounds to declare them null.

(2) About the compatibility of this clause with the rules of competition law, the Court made the following considerations:

a) Taking into account that "Portugal Telecom, SA" and "PT Comunicações, S.A.” were 100% owned by Portugal Telecom, SGPS SA” and “Telepac, S.A.” was 100% owned by “PT Comunicações, S.A.”, those four undertakings were a single undertaking, under the terms and for the purposes of Article 2(2) and Article 10(1)(b), first line, of Law No. 18/2003 (Law on Competition in force at the time of the facts);

b) This single undertaking was vertically integrated in the market, since "Portugal Telecom" operated in the wholesale market and "Telepac" operated in the retail market;

c) Portugal Telecom's relevant product market was defined as follows: (i) on the one hand, the upstream/wholesale market for access to the "Portugal Telecom" network and, in particular, the "ADSL Network .PT ", which aimed to enable other companies to offer broadband Internet access services to final consumers; and (ii) on the other hand, the downstream/retail market for the provision of broadband Internet access services, based on the basic telecommunications network and, more specifically, the "ADSL.PT Network" platform.

d) The relevant geographic market of Defendant "Portugal Telecom" extended to the whole national territory, inasmuch as the Defendant’s basic telecommunications network had national coverage;

e) “Portugal Telecom” was in a dominant position in the wholesale market because it was the sole supplier of broadband access to operators and the commercial terms and conditions of the "ADSL.PT Network" offer were, until June 2003, freely formed by the Defendant, without intervention of the sector regulator.

Faced with this factuality, the Court was required to state that the author had no alternative but to use the "ADSL.PT Network" platform in order to enter the retail market for the provision of broadband Internet access services.

(3) After the Plaintiff’s revenues and costs, the Court concluded that it did not prove a negative margin between the wholesale price and the retail price, nor a positive margin but insufficient to cover the costs. Consequently, the Court considered unfounded the claim for the refunding of the price that the Plaintiff allegedly overpaid for the service.

(4) Regarding the contractual liability of the Defendants, the Court stated that the duty of nonabuse of a dominant market position is a general duty of abstention and respect and not a contractual duty. For that reason, its breach could not lead to contractual liability, under article 798 of the Portuguese Civil Code.

(5) According to the Court, the compensation of damages could not be justified under noncontractual liability, because the abuse of dominant position by margin squeeze was not proved by the Plaintiff.

As a result, the Court ruled in favour of the Defendants and considered the present action totally unfounded.

Lisbon's Appeal Court Decision of 04 October 2011

PROCESS: 107/2001.L1

REDACTOR: TOMÉ GOMES

DATE: 04/10/2011

THEMATIC: Abuse of Dominant Position

LEGISLATION AT ISSUE::
ARTICLE 4, DECREE-LAW NO. 371/93, OF 29TH OCTOBER 1993, REPLACED BY LAW 18/2003, OF 11TH JUNE 2003 [NOW, LAW 19/2012, OF 8 TH MAY 2012]; ARTICLE 102 TFEU

DECISION SUMMARY:

1. Within the scope of successive commercial purchase and sale transactions recorded in the current accounting process, in accordance with article 342, no. 1 and 2, of the Civil Code, it is the Plaintiff’s responsibility to prove each transaction through credit notes as constitutive facts of the plea, while the Defendant has to prove the extinctive facts of such plea, such as the partial or whole sum of those entitlements, as well as the modifying facts that lead to the reduction of the set prices, through credit notes that qualify the respective invoices.

2. The characteristic features of indirect, integrated commercial distribution agreements are the legal independence of the retailer with regard to the supplier and the binding instructions and orientations set out by the supplier concerning the execution of the business policy that must be respected by the retailer, whereas the retailer is subject to the control and monitoring of the supplier, in a sustainable or long lasting cooperation framework; the distributor is usually obliged to promote the supplier’s businesses, in respect to the goals and guidelines set out by the supplier, in spite of doing so with private autonomy.

3. However, the integration of the retailer in the supplier’s commercial network may take on different modes and densities, depending on the form and level of cooperation set out by both parties, including the commercial concession framework contract.

4. Since the commercial concession contract is, per nature, an untypical legal distribution agreement, the agency contract must be applied by analogy, since it involves a similar activity and an analogous set of tasks in a stable and cooperative relationship and a common goal. Yet, that assimilation must be decided in each individual case, considering the specific characteristics of each contract.

5. The party that intends to exercise the right to cancel the concession contract must invoke and prove the facts resulting in the other party’s nonobservance of main, ancillary or even minor contractual obligations but only when considered particularly severe or frequently repeated and capable of undermining the subsistence of the contract. In other words, the right to cancel the contract must only be exercised in presence of a justified cause to terminate such agreement; such conditions are instated in respect to the usual extended duration of such contracts and their economic and social purpose.

6. When assessing the gravity of the legally relevant default, the following must be taken into account: “the importance of the default per se in the general framework of the contract in hands; the continuation or repetition of the situation of default; the time lapse since the closing of the contract and the moment in matter; the way that other relationships between the parties have transpired.

7. Under article 813 of the Civil Code, the creditor’s lack of cooperation towards the debtor in the realization of the payment legitimates the debtor to suspend the agreed payment.

8. Since the Plaintiff overlooked such cooperation obligation by not clarifying the Defendant about which invoices were in due, as well as their exact amount, and the Defendant has done everything within its power to determine the due amounts, the latter has the right to suspend the payments.

9. In a situation of illegal resolution of the concession contract by the grantor, considering that the invoked justified grounds are not proven, under article 34/a) of Decree-Law 178/86, of 3rd July, that resolution becomes an irreversible situation of contract termination, portraying the consolidation of a definitive default of the contract with the resulting obligation to repair the damages, comparable to a situation of contract termination without advance notice, namely in terms of the right to compensation for loss of costumers under article 33 of the same legal diploma.

10. According to our legal regime, the “compensation for loss of costumers” is not meant to indemnify the concessionaire for the damages resulting from the loss of fees caused by the cessation of the contract, but to provide him a compensation for the capital gains that the grantor will obtain out of the raised customers, whose loyalty has been gained through the work developed by the concessionaire.

11. To determine the amount of compensation, under article 34 of Decree-Law no. 178/86, of 3rd July, in the version established by Decree-Law 118/93, of 13th April, a criterion of equity will be used, buoyed by a maximum limit (plafond) equal to a compensation calculated from the commercial agent’s average annual remuneration over the past five years or, in case the contract has not lasted that long, from the commercial agent’s average annual remuneration for the period of time it lasted.

12. It is a formal criterion of decision, equity, which leads us to ponder the specific circumstances of the case, not only having a purely subjective criterion, but a directive criterion of ponderation and appraisement of the concrete circumstances.

13. Considering that the compensation for the loss of costumers aims at compensating the concessionaire for the capital gains obtained by grantor through the work of the concessionaire on gaining the fidelity of the costumers while the contract produced its legal effects, the maximum limit mentioned works as a ceiling that aims at hindering the cost it represents to the grantor’s financial capacity, portrayed by the average of the effective gains of the concessionaire during the time being of the contract.

14. When calculating the compensation, such limit shall not be taken into consideration as a descending starting point, but only when the amount calculated, in the light of equity, surpasses the cipher obtained by the application of such legal formula, in other words, through the method of prime tabulation of the obtained capital gain, calculated having in consideration the date of cessation of the contract by the grantor, taking into account the activity developed by the concessionaire, and only then confining it’s result to the legal maximum limit.

15. The legal institute of abusive exploitation of the “state of economic dependence”, also known as “relative dominant position”, is relevant in Competition Law, aiming at sanctioning anticompetitive practices that translate into abusive exploitation of an undertaking by another, given the fact that the latter is in a position of supremacy in terms of producing or in terms of distribution of goods, therefore concerning a vertical relation, whether it’s in an ascendant (v.g. retailer/supplier) or descending point of view (v.g. supplier/retailer).

16. Competition Law envisions to guarantee, concerning the framework of a free market economy system, the equality of opportunities for economic agents, an essential condition for the free expression of personality in socio-economic life, as enshrined in articles 2, 61, no. 1, 81/f) and 99/a) to c) and e) of the Constitution of the Portuguese Republic.

17. In the Portuguese legal order, as well as in the European Union legal order, the workable competition model prevails, inspired in the idea of competition as a necessary means to a balanced economic development; thus, under article 4 of Decree-Law no. 371/93, of 29th October – meanwhile revoked and replaced by Law no. 18/2003, of 11th June (Competition Act), a violation of competition law will only occur if the abusive exploitation of economic dependence affects the functioning of the market or the structure of competition..

18. In most dependent contracts, economic dependence may result from three cumulative factors: the existence of a contractual relationship; the importance of the contract for the weakest party’s activity; the constancy of the commercial relation by which one of the parties organizes its respective activities.

19. The criteria that have been usually used to appraise the existence of economic dependence are: a) the brand’s notoriety; b) the supplier’s market share; c) the relevance of the supplier’s products in the distributor’s business volume; d) the availability of the latter to find an equivalent alternative for the goods or services supplied by the providing undertaking.

20. In spite of the concessionaire’s legal autonomy towards the grantor, a case of economic dependence may occur, which can lead to the application of the legal institute of abusive exploitation of “the state of economic dependence”.

21. All of the relevant components of the economic dependence legal type are constitutive facts of the established prohibition and the corresponding civil sanction, wherefore it is the party that intends to apply it that has the burden of proof, as enshrined in article 342, no. 1 of the Civil Code, even though it might be able to prove it through mere evidence.

22. As for the contract of commercial concession, in order to assess the degree of economic dependence, the importance of the brand’s notoriety criterion will be as relevant as the notoriety and the reputation that such brand has in the market, but that factor cannot be appraised solely, so it must be assessed considering the brand’s importance in the concessionaire’s business volume.

23. As to the supplier’s market share, even though this is a quite relevant criterion when it comes to abuse of dominant position, it loses some of its importance when it comes to cases of economic dependence, since what matters is to determine if the share that the supplier holds in the relevant market makes it a “mandatory partner” for its competing distributors.

24. As to how much the products of the supplier represent in the distributor’s business volume, what is important is to evaluate the significance that the product at issue has in the concessionaire’s business and in if its business structure organization is directed or confined to marketing that product.

25. Regarding the “equal alternative evaluation”, what is imperative to assess are the conditions that the concessionaire has at its disposal to find an alternative solution within the market and the costs associated with necessary business organization adjustments to integrate new solutions. The contractual cessation regime has to be taken into account in the process of evaluation, especially the respect of the period of prior notice to terminate such contract by the grantor.

26. In the case in hands, given it was not proven that the defendant did not have any equal alternative within the market to arrange the provision of the type of products supplied by the Plaintiff, it has to be concluded that there was no state of economic dependence.

27. Even though the existence of a state of economic dependence is irrelevant in terms of Competition Law, it might lead to contractual or extracontractual liability, if the respective legal preconditions are observed.

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

The proceedings take into consideration the existence of a contract of commercial concession in which the Defendant was contractually obliged to buy a certain amount of products supplied by the Plaintiff so it could resale them in Portuguese territory. In addition, the Defendant was bound to promote the product and to assure after-sales service.

The Defendant, claiming the existence of an exclusivity clause between the parties, claimed to have asked a review of the prices of the supply contract numerous times, given the fact there were competing retail undertakings selling the same products through a parallel market. Since the Plaintiff did not respond to any of such requests and the Defendant considered that the Plaintiff’s profit margins enabled such review, the Defendant decided to suspend the payment of the invoices.

The delay in payment, which culminated with the termination of the contract by the Plaintiff, constituted, according to the Defendant, an abuse of the Defendant’s position of economic dependence towards the Plaintiff, infringing article 4 of the Decree-Law no. 371/93, of 29th October (revoked and replaced by Law no. 18/2003, of 11th June, which was later revoked and replaced by Law no. 19/2012, of 8th May).

Lisbon’s Civil Trial Court considered the Plaintiff’s compensation plea totally unfounded, acquitting the Defendant. Conversely, it found the Defendant’s counterclaim partially wellfounded, ordering the Plaintiff to pay a compensation to the Defendant in the global amount of $ 579.720,96 (escudos) for unlawful resolution of the contract, a compensation for the loss of costumers, a compensation for the Defendant’s expenses caused by costumers’ complaints, a compensation for transportation expenses of the F… product and a compensation for marketing expenses, as well as added possible interests to be calculated since the notification of the counterclaim/judicial challenge.

Unhappy with the ruling, the Plaintiff filed an appeal, denying the existence of such exclusive distribution and commercialization clause concerning the F… tires between both parties, given that the Defendant used to sell other products as well.

Furthermore, even though the Plaintiff might have had the possibility to review the pricing of the supply contract, it claimed that the first instance ruling did not show that that unwillingness to reduce prices had been deliberate and aimed to push the Defendant off the supply contract, so that the Plaintiff could sell the F… tires by its own means.

The Defendant also filed an appeal, claiming that it was its reputation that had enabled the introduction and development of the F… brand in the Portuguese tire market, acquiring the customers’ loyalty.

In addition, the Defendant claimed that the Plaintiff never showed any willingness to discuss the violation of the exclusivity clause. Moreover, after the termination of the contract, the Defendant claimed that the Plaintiff reduced the price of its products in the Portuguese retail market, whilst during the contract it continuously increased such pricing, leading to the expulsion of the Defendant from this commercial relationship because of the accumulated losses.

So, considering the worldwide notoriety of the Plaintiff’s brand in the tire market and given the fact that the Defendant was allegedly in a state of economic dependence towards the grantor (it represented 1/3 of the Defendant’s business volume, therefore a considerate part of its accounting results depended on the pricing set out by the Plaintiff) and the fact that there was no equal alternative on the Portuguese market or on the foreign market (without prejudice of the unlawful resolution of the contract, given the violation of the minimum period of notice), the Defendant claimed that the Plaintiff had abused the Defendant’s state of economic dependence towards it.

THE LISBON COURT OF APPEAL DECIDED UPON SOME RELEVANT QUESTIONS RELATED TO COMPETITION LAW ENFORCEMENT:

(1) DEFINITION OF ABUSE OF ECONOMIC DEPENDENCE – RELATIVE DOMINANT POSITION

(2) ABUSE OF ECONOMIC DEPENDENCE - SPECIFIC PREREQUISITES

(1) The legal institute of Abuse of Economic Dependence, also known as abuse of “relative dominant position”, exists under Competition Law to sanction practices that might undermine the functioning of the workable competition and refers to “practices carried out by an undertaking that abusively exploits another undertaking which economically depends on the first in terms of the production or the distribution of products, therefore concerning vertical relations, whether in an ascending point of view (v.g. retailer/supplier) or in a descending point of view (v.g. supplier/retailer).”

Even though the legal institute of Abuse of Economic Dependence is not expressly regulated in the European Union Treaty or in the Treaty on the Functioning of the European Union, it appeared in the Portuguese legal order inspired in the French legislation, in article 4 of Decree-Law no. 371/93, of 29th October – revoked and replaced by Law no. 18/2003, of 11th June and, afterwards, by Law no. 19/2012, of 8 th May (Competition Act). Its field of application are the cases where the legal institute of Abuse of Dominant Position cannot be applied (“Absolute Dominant Position”, article 3 of the same legal diploma).

This is to say that this legal institute is meant to sanction an undertaking which is in a position of economic dominance over another economic agent in spite of not having the dominance of a product’s or service’s specific market, and uses that relative statute to abusively exploit that economic agent in a way that affects the functioning of the market or the structure of competition.

(2) For the analysis in hand, it is important to note that the concessionaire (Defendant) “works under its own name and risk, acquiring the products and taking on the risk of their sale, which means its profit originates from the difference between how much it costs the concessionaire to buy the products from the grantor and the resale price, when it comes to sell them to the public, minus the commercialization costs.” Having this in consideration, the Appeal Court started by analyzing whether this was a case of economic dependence, under article 4 of the Decree-Law no. 371/93, even though the concessionaire had legal autonomy.

Thus, the first step to address the existence of a situation of abusive exploitation of economic dependence by one undertaking towards another is to assess the existence of economic dependence of one undertaking towards another.

Given the fact that the legal provision does not state the prerequisites to evaluate the existence of a situation of economic dependence, the Court resorted to doctrine:

“a) brand’s notoriety;

b) supplier’s market share;

c) the significance of the supplier’s products in the distributor’s business volume;

d) the possibility to obtain «equivalent products» from other suppliers.”

These prerequisites were, in principle, already implicit in the legal provision, resorting to teleological and systematic evaluation (as to forbidden practices that are prone to hinder, distort or restrict market competition).

a) Regarding the precondition of the brand’s notoriety is concerned, the evaluation cannot be merely objective, for the conclusion would solely be that the level of economic dependence would be as high as the brand’s reputation or notoriety in hand. Conversely, the Court considers that a relative/subjective evaluation must be undertaken, assessing the importance that that brand has in the business volume of the undertaking that is in a supposedly state of economic dependence.

b) As to the criterion of the grantor’s share of the relevant market, the Court considers that it must be measured if such market share means such economic agent is a “mandatory supplier” of its competing distributors.

c) As to the significance of the supplier’s products in the distributor’s business volume, what matters is to evaluate the importance that the product at issue has in the concessionaire’s business and if its business structure organization is directed or confined to marketing that product.

d) Regarding the “equal alternative evaluation”, what is important to assess are the conditions that the concessionaire has at its disposal to find an alternative solution within the market and the costs associated with necessary business organization adjustments to integrate new solutions.

Moreover, taking into account that there is a commercial concession contract, the termination regime must be considered, given that a fixed-term contract gives the party, in general, the time necessary to consider the options at its disposal in case the contract is terminated. Conversely, if the contract is of indefinite duration (like the one in hand) it must be considered whether the way the contract was terminated allowed the other party to adjust to that decision, even though the concessionaire cannot hope that the contract is ad eternum.

Therefore, the Appeal Court deliberated that “(…) every piece of evidence points to the direction that the product over which the contract was celebrated was protected by a well-renowned brand in its relevant market (the tire market, brand “F…”), that that product represented about 1/3 of the Defendant’s business volume and the Defendant was the brand’s exclusive representative in the agreed territory (…).

It can be also verified that, even though the products “F…” supplied by the Plaintiff only represent 1/3 of the Defendant’s business volume, these were essential for its image in the market, which lead the undertaking to not give up on their commercialization in spite of the sacrifice of its economic results, which were of the Plaintiff’s knowledge. Besides, F… was the only brand that produced jeep tires and radial construction trucks, which the Defendant used to sell until the termination of the contract (…)

Given the Plaintiff’s inflexibility to review the pricing, the Defendant kept the interest in the concession contract, even though it kept on pushing for a revision (…)

It was also proven that there were other undertakings in the market selling the “F…” products at a lower price than the ones that the Plaintiff defined for the Defendant, even though the Defendant warned the Plaintiff about such fact, and even though the Plaintiff had the possibility to review the pricing, it decided not to. However, the proven facts do not attest the Plaintiff was a part of that parallel distribution.

Under these circumstances, the question in hand is whether the Defendant had an equivalent alternative within the market for the agreement it had set out with the Plaintiff; in other words, whether the Defendant could have had access to the type of products the Plaintiff supplied resourcing to other suppliers, in similar or even better conditions, without a considerable investment to adapt to the new reality in a reasonable period of time. Having this in consideration, what we can conclude from the proven factuality is that the Defendant was not hindered from commercializing the Plaintiff’s competing brands and even after the end of the contract it arranged supplies from other brands (…) It was also not proven that the Defendant had to undertake a serious adaptation to its business structure to adjust to that new reality, given that 2/3 of its business activity related to other brands. And even though the “F…” products were essential for the Defendant’s market image, it was not proven that such image was affected by the end of the contract (…)

Therefore, according to the proven factuality, faced with the existence of parallel distribution of the “F…” tires, the Defendant opted to pressure the Plaintiff to review the pricing, instead of looking for an alternative solution within the market, which nothing proves were inexistent, at least since the sales started to fall, back in 1997.”

The Appeal Court concluded that there was no state of economic dependence, given that the Defendant was unable to prove that it did not have an equivalent alternative within the market for the type of product the Plaintiff supplied. Therefore, under article 4 of Decree-Law no. 371/93, the Plaintiff’s behaviour did not constitute an abusive exploitation prone to restrict competition.

Based on all the facts exposed above, the judges of Lisbon’s Appeal Court found the Plaintiff’s appeal partially admissible, whereas the Defendant’s appeal was found totally inadmissible, counterbalancing the Defendant’s credit against the Plaintiff’s credits.

Portuguese Supreme Court of Justice Decision of 20 June 2013

PROCESS: 178/07.2TVORT.P1.S1

REDACTOR: SERRA BAPTISTA

DATE: 20/06/2013

THEMATIC: Abuse of Dominant Position

LEGISLATION AT ISSUE::
ARTICLE 7 (1) OF LAW NO. 18/2003 AND ARTICLE 81 (3) OF CE TREATY (PRESENT ARTICLE 101)

DECISION SUMMARY:

1. Notwithstanding the primacy of European Union Law over National Law, the truth is Commission Regulation (EC) No 1400/2002 of 31 July 2002 on the application of Article 81(3) of the Treaty on European Union to certain categories of vertical agreements and concerted practices in the motor vehicle sector only applies as European Law when cross-border relations are at stake.
According to Articles 85 and 86 of the Treaty, European Competition Law only regulates competition prohibitions if they are susceptible of affecting commerce between Member States. These legal regulations do not apply to contracts with legal strength in a national geographical area only.

2. If the national court considers that the dispute should be decided on a national law basis, it is not obliged, according to the Treaty, to a preliminary ruling before the CJEU.

3. The commercial concession contract, a consensual contract (article 219 Civil Code) can be understood as a frame-contract which contributes to the emergence of a complex obligationoriented legal relationship between parties, in which the grantor, undertakes to sell its products to the concessionaire and the concessionaire undertakes to buy from the grantor, for reselling purposes, a certain amount of goods, accepting certain requirements – in what concerns their organization, commercial policy and costumer assistance – and submitting to the control and monitoring of the grantor.
The main features of the contract are: (i) bond stability; (ii) obligation to sell products at the responsibility of the grantor; (iii) obligation to acquire at the responsibility of the concessionaire; (iv) obligation to resell; (v) concessionaire’s actions on its behalf and responsibility; (vi) autonomy; (vii) exclusivity; (viii) area of practice.

4. The commercial concession contract, being atypical, does not benefit from juridical rules of its own; therefore, although typically social, it should be regulated by the provisions agreed between the parties, and, by analogy, by the regulations stipulated for agencies

5. Resolution is a mechanism used to extinguish the contractual relationship validly created between parties and is activated in a posterior act by one of them. Its basis can be accorded between the parties. The party that wants to activate this mechanism has to plead and prove the basis on which it justifies the unilateral extinction of the contract. This resolution can be effective on an extra-judicial environment, but has to be based on certain grounds. The parties cannot plead the contract’s resolution if no violation of the contract has occurred prior to its exercise, nor any situation contrary to the bona fide principle and it can be considered an abuse of law.

6. The illegal resolution of the contract implies the duty to pay the damages caused.

7. Abuse of economic dependence can be understood as a company’s illicit use of power (dominance) over another company which is dependent on it for having no equivalent alternative for the supply of the goods or services at issue.

8. Abuse of economic dependence – not directly foreseen in European Union Law, although there are similar figures in other legal orders of Member States – is a prohibited practice which restricts competition. It is laid down in the Competition Act (Article 7 of Law no. 18/2003 of 11 June, revoked by Law no. 19/2012, of 8 May) and refers to situations in which there is an abuse of power (dominance) of one company over another susceptible to affect market functioning or competition structure.

9. Damages related to customers constitute a compensation in favour of the smaller company, after the contract termination, for the profits the bigger company continues to make from the clients that the first raised.
What should be considered are the proportional benefits of the smaller company, the agent, which, in the life of the contract, were common profit and after its termination, will become a unilateral profit in favour of the bigger company.

10. The clause including a waiver of the right to damages in the event of a contract extinction has to be considered null since it constitutes an advanced waiver to the damages of clientele.

11. The court, in the majority of its case law, considers admissible the possibility of non-material damages refunding in what concerns contractual responsibility. In conclusion, it is possible to acknowledge this type of damages to undertakings.

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

During these proceedings there was a concession contract in analysis. The Defendants ended the contract with the Plaintiff, thereby abusing of its economic dependence towards them. The Plaintiff incurred in losses due to the termination of the contract and came to ask for their payment in Court. The Court of First Instance considered the facts proven and the Defendants were condemned to pay for the damages caused. Unsatisfied with the decision, the latter lodged an Appeal before the Oporto Appeal Court. Having found the Defendants’ plea unfounded and the Plaintiff’s plea partially unfounded, this Court rose the amount to be payed to the Plaintiff for client compensation. Still not resigned as to the Court’s decision, both Plaintiff and Defendants pleaded to the Supreme Court of Justice.

THE SUPREME COURT OF JUSTICE ADDRESSED THE FOLLOWING QUESTIONS RELATED TO COMPETITION LAW ENFORCEMENT:

(1) VALIDITY OF EUROPEAN COMPETITION LAW IN SITUATIONS THAT DO NOT COMPROMISE COMMERCIAL RELATIONS BETWEEN MEMBER-STATES

(2) DEFINITION OF ECONOMIC DEPENDENCE ABUSE AND IN CASU SITUATION ANALYSIS

(1)The Court, confirming previous decisions, acknowledges the primacy of European Union Law over National Law, assuring that Commission Regulation (EC) no. 1475/95 of 28 June 1995, now replaced by Commission Regulation (EC) no. 1400/2002 of 31 July 2002, on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices in the motor vehicle sector, only applies, as European Law, to cross-border relations between MemberStates.

(2) The Court understands Abuse of Economic Dependence as the big undertakings’ illegal use of power over small undertakings in a dependent position due to the inexistence of an equivalent offer for the supply of goods or service provisions needed. This is a prohibited practice since it restricts competition, according to Article 7 of Law no. 18/2003.
The Court specifies various characteristic elements of abuse of economic dependence: (i) the abuse of economic dependence only happens when there is a vertical connection between undertakings; (ii) the aggrieved undertaking has to be in a position of economic dependence towards the dominant undertaking, meaning there should be no similar alternative available for the former; (iii) there must have been damaging actions by the dominant undertaking directed to the aggrieved undertaking; and lastly, (iv) the abuse of this economic dependence has to be susceptible to affect market functioning or market competition. In conclusion, the Court found the Defendants’ actions illegal.

Portuguese Supreme Court of Justice of 24 April 2002

PROCESS: 01B4170

REDACTOR: FERREIRA DE ALMEIDA

DATE: 24/04/2002

THEMATIC: Abuse of Dominant Position

LEGISLATION AT ISSUE::
ARTICLES 6, NO. 1, 7, NO. 1, 13 AND 14, NO. 1 AND NO. 3 OF DECREE-LAW NO. 422/83 OF 3 RD DECEMBER; ARTICLES 2, NO. 1, 4, 7, NO. 2 AND 14, NO. 2 AND NO. 3 OF DECREE-LAW NO. 371/93 OF 29TH OCTOBER

DECISION SUMMARY:

I- A letter in which the subscriber clearly expresses its intention to terminate a supply contract, invoking as basis the fact that the other party agreed lower prices with other clients to supply the same services, is not suitable to embody a termination declaration.

II- “Equivalency”, for the purposes of article 7, no. 1 of Decree-Law no 422/83, of 3/12, does not solely respect the existence of replaceable products or services within the market, since its notion portraits a wider scope of application, being able to assess the existence of economic dependence.

III- What is relevant here is the essential error, the one that led the party to close the contract, and not just how the contract was closed.

IV- Both duty to inform and pre-contractual duty of allegiance bound parties during the negotiation of a contract, and do not apply to previously closed contracts with third parties.

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

Reuters and Mundiglobo closed a financial information supply contract. However, Mundiglobo stopped paying the agreed consideration, so Reuters filed a lawsuit for compensation.

The Defendant was sentenced to pay compensation by both the First Instance Court and the Appeal Court, so it filed an appeal to the Supreme Court.

The Defendant claimed, inter alia, that it had communicated the contract nullity through a termination letter grounded on the Plaintiff’s abuse of dominant position and restrictive competition practices during the contract negotiation, under articles 14, no. 1 and 13 no. 1, point d) of Decree-Law no. 422/83 of 3rd December.

The Defendant, now Appellant, claimed it stopped paying the negotiated fee because the Plaintiff had allegedly negotiated supply contracts of the same services with other clients at a lower price than the one it had proposed, which sufficiently substantiated the Defendant’s claim of contract nullity.

The Plaintiff argued the settled factuality was insufficient to conclude that its actions consubstantiated an abuse of dominant position or a restrictive competition practice.

It claimed that nothing precludes an undertaking from increasing services supply prices for future clients.

Furthermore, the alleged error concerning the concluded deals could not undermine the party’s intention to close the contract, given that the Defendant always knew the price negotiated between both parties.

The Court found the Defendant’s claims concerning the alleged abuse of dominant position as sufficient ground to declare the supply contract null inadmissible.

Therefore, the Court applied the institute of “economic dependence state” or “abuse of relative dominant position” to the present case, resorting to French doctrine to explain it encompasses situations in which undertakings oppose “(…) suppliers or costumers, in other words upstream or downstream undertakings part of the product production or distribution process (…) concerning horizontal relationships – v.g. between either production undertakings or distribution undertakingsin the same branch or segment of the market, as well as vertical relationships, either in an ascending or descending point of view (distribution undertakings in relation to suppliers or producers and/or manufacturers or supplying undertakings or costumers in relation to producers or manufacturers).”, according to article 4 of Decree-Law no. 371/93 of 29th October.

Thus, an undertaking would be precluded of abusing the economic state of dependency of a certain undertaking or of a client in relation to it, given the undertaking or client does not have an equivalent alternative within the relevant market, namely when such abuse is subsumable to one of the points of article 2, no. 1 of the legal diploma previously mentioned.¹

Thereunder, the expression “equivalent services” under article 7 no. 1 of Decree-Law 422/83 referred to identical or similar products or services inasmuch as they would be similar in terms of essential commercial characteristics – in other words, they would be suitable to replace other products or services without affecting production or commercialization costs.

The Court considered “It becomes necessary to assess if there are sufficient alternatives, as well as to evaluate if those alternatives are reasonable under assessment criteria of objective nature.

Identifying an «equivalent solution» (…) will result of multiple factors, such as brand reputation and notoriety, supplier’s market share, the extension of its relationship with clients, the period of time needed to find alternatives and also the existence of permutable products within a certain market, therefore gauging the cost of shifting suppliers, in order to assess if the «equivalent solution” exists…or not».”

Furthermore, the Court reminded that under article 7, no. 2 of Decree-Law 422/83, products and services are not considered equivalent if a lasting price modification or selling conditions alteration occurs between different conclusion dates.

Thus, the Defendant had to present evidence of the necessary requirements for the existence of an abuse of (relative) dominant position to be assessed, given the Defendant claimed its existence (as a result of article 342, no. 2 of the Portuguese Civil Code).

Thus, it had to prove that the undertakings who signed a supply contract with the Plaintiff were its competitors, as well as that those relationships were objectively equivalent to its own contract.

The Court found the produced evidence not only insufficient to determine the existence of objective equivalence – only then would it be admissible to compare the essential commercial characteristics of the contracts –, but also deficient in showing that the Defendant and the other mentioned undertakings were competitors.² Contrarily, the Court considered it was proven the Plaintiff had already started providing its services to the other undertakings before negotiating with the Defendant.

So, the Court concluded the relevant market was not defined, that it had not been proven the Plaintiff had a relative dominant position in this case, nor that it had acted in a way that discriminated the Defendant. Firstly, because the contracts were not closed at the same time. Secondly, and correlated to the previous consideration, because the functioning and specific rules of the market allow the Plaintiff to increase the pricing by which it obliges itself to provide its services.

¹ One of the forbidden practices takes place when an undertaking directly or indirectly sets the purchase or selling price, or interferes in its determination by the market’s normal functioning, therefore inducing it artificially (article 2, no. 1, point a) of Decree-Law no 371/93).
In the same sense, whenever an undertaking systematically or occasionally sets out the price, leading to a situation of discriminatory pricing conditions in relation to similar situations, as portrayed by articles 13 and 6, no. 1 of DecreeLaw no. 422/83 of 3rd December. 

² The Court stressed that it is not sufficient for the Defendant to claim that it provides the same services as the other undertakings to conclude that they are competitors.

Guimarães' Appeal Court Decision of 20 November 2012

PROCESS: 1/08.0TBVNC.G1

REDACTOR: FERNANDO FERNANDES FREITAS

DATE: 20/11/2012

THEMATIC: Cartels | Agreements, concerted practices and decisions by associations of undertakings

LEGISLATION AT ISSUE::
ARTICLE 81, 1 TEC (PRESENT ARTICLE 101 TFEU)

DECISION SUMMARY:

I – As a consequence of the loyalty principle, present within the commitment of Member-States of the European Community, the primacy of European Law over National Law results in the nonapplication of National Law when it is incoherent with European Law.

II – Articles 101 and 102 TFEU aim to protect market competition amongst Member-States, preventing undertakings from restricting competition among themselves or regarding third parties through coordination between them.

III – Therefore, an exchange of information that creates a concerted practice which is susceptible to affect trade between Member-States is prohibited by Article 101 TFEU. Considering the primacy of European Law, this prohibition prevails over National Law; so, the provision of an information right as it was invoked by the undertaking’s shareholder – which is present in the market as a direct competitor – is ineffective.

IV – The transfer prices folder includes precise information on the production costs, so anyone who accesses it also accesses information on the profit margins of the undertaking. Considering the confidentiality of this information and its key importance in the undertaking’s activity it is legitimate to block its access to a shareholder that is in direct competition with the company, on the grounds of Article 290 (2) of the Portuguese Commercial Societies Code.

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

The proceedings take into consideration the annulment of a corporate resolution of the First Defendant of which the Plaintiff is a shareholder. The Plaintiff claims that it did not receive the information that it asked for and that according to Portuguese Law (Commercial Societies Code) the Defendant is obliged to provide. The First Defendant refused to provide this information because the Plaintiff is its competitor and this exchange of information would be damaging for the First Defendant.
The Plaintiff also plead for the Second Defendant to be condemned to pay damages that would emerge from the findings in trial and that would correspond to the difference of profit that the Plaintiff did not receive of its social share.

THE GUIMARÃES COURT OF APPEAL DECIDED UPON SOME RELEVANT QUESTIONS RELATED TO COMPETITION LAW ENFORCEMENT:

(1) PRIMACY OF EUROPEAN COMPETITION LAW OVER NATIONAL LAW

(2) FRAMING OF THE SITUATION AS ABUSE OF DOMINANT POSITION

(3) EXCHANGE OF INFORMATION AS A CONCERTED PRACTICE PROHIBITED BY COMPETITION LAW

(1) The Court begins by acknowledging the primacy of European Competition Law over National Law, which means that if there is a conflict between Law no. 18/2003, of 11 June (Competition Law) and European Law, the latter prevails. The Court also clarified that Regulation (EC) 1/2003, on the implementation of the rules on competition laid down in Articles 81 and 82 of the EC Treaty (present Articles 101 and 102 TFEU), standardises the implementation of these Articles into Member-States’ legal systems. Yet, this does not prevent Member-States from putting into practice more restrictive measures, e.g., such as prohibiting undertakings’ unilateral acts.

(2) The Abuse of Dominant Position is considered under Article 82 of the EC Treaty (present Article 102 TFEU); however, the proceedings in hand do not fit into this legal figure because, according to European Commissions’ investigations, the undertakings in this particular situation, in spite of being important players on the market, are not market leaders.

(3) Focusing on the question whether “information exchange between competitors, even when unilateral, i.e., when only one competitor provides information to another, should be considered an «agreement», under the provisions of Article 81 of the EC Treaty”, the Commission responded that “if a unilateral exchange of information occurs on a continuous contact base resulting from the participation of a competitor in the corporate decision process – for also being this undertaking’s shareholder – and if the exchange of information allows the undertaking to change its behaviour according to the data received, this practice may be considered as an “agreement” or a “concerted practice” under Article 101 TFEU”.
Exchange of Information is included under Article 101 TFEU when it results in conditions different from the ordinary, through causal connection, i.e., it is enough if it results in the decrease of the uncertainty level in which competition is based. Therefore, the Court examined the influence on competition under objective factors. As a consequence, the knowledge of the Defendants’ structure on production costs, as it is considered a sensitive matter, should be surrounded by the highest level of secrecy possible. It is, thus, certain that if the Plaintiff had this knowledge it could modify its own prices, using the information to its benefit.
In conclusion, the Court decided that in this particular case, the exchange of information is a concerted practice susceptible to affect trade between Member-States on the grounds established in Article 101 TFEU. This provision prevails over National Law, where Article 290 (2) of the Commercial Societies Code establishes shareholders’ right to information.

Lisbon's Appeal Court Decision of 05 March 2009

PROCESS: 686/2009-6

REDACTOR: GRANJA DA FONSECA

DATE: 05/03/2009

THEMATIC: Cartels | Agreements, concerted practices and decisions by associations of undertakings

LEGISLATION AT ISSUE::
ARTICLE 1, NOS. 1 AND 2 OF DECREE-LAW NO. 370/93 OF 29THOCTOBER, ARTICLE 4, NOS. 1, POINT E), AND 2 OF LAW NO. 18/2003 OF 11TH JUNE.

DECISION SUMMARY:

1 – “C” is a limited liability company, given it aims at making profit by providing a certain activity (animal slaughter, industrialization and commercialization of derived product), and that was what its founding shareholder’s intended it to be, which shows “C” is not a collaborative company.

2 – Shareholders agreements are covenants signed by all or some of the shareholders regarding the functioning of the company, exercising company rights or shares, or stocks transactions.

3 – Thus, neither the company’s management and nor its supervision can be regulated in a shareholders agreement, which is why clauses intended to control company administrators’ conduct and supervision power are forbidden by law and must be declared null.

4 – To assess whether a certain shareholders agreement clause constraints, limits or determines management’s exclusive powers and respects article 17, no. 2 of the Portuguese Commercial Company Act, the competence of the company’s governing bodies must be also assessed.

5 – Regarding limited companies, managers are in charge of the company’s management and representation, practicing the necessary or convenient acts to fulfil the company’s statutory goals in accordance with the shareholders’ resolutions, which means the company’s management encompasses all the company’s material and legal actions which are not legally restricted to other company bodies.

6- The pricing table in Clause 1 of the shareholders agreement is null and void because it not only violates free competition legislation, but also overlaps the management body’s exclusive competence.

7 – Clause 2 of the shareholders agreement is also null and void for the same reason – for overlapping the management body’s exclusive competence area.

8 – Clause 9 of the same agreement is also null and void for clearly violating article 17, no. 2 and article 64, both of the Portuguese Commercial Company Act.

9 – The Plaintiff’s conduct does not constitute a venire contra factum proprium type of abusive use of entitlement when invoking the nullity of some of the shareholders agreement clauses several years after they signed it, even though they were co-signatures.

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

The judicial proceeding in hand was based in a shareholders agreement between a slaughterhouse’s shareholders and a meat processing company. Such agreement set out rules regarding shareholder’s votes in general assemblies concerning numerous types of issues.

One of the regulated issues was the price fixing of the slaughterhouse service. Such rule (clause 1) aimed at creating a calculation system to assure equality between the major shareholder (that used to slaughter more animals) and the minor shareholders (that used to slaughter fewer animals).

The rule intended, therefore, to establish maximum price gaps shareholders would be deemed to pay for the slaughterhouse’s services, as well as to grant preferential treatment to shareholders in relation to other clients regarding equivalent services.

The Plaintiffs claimed such clause not only infringed national competition legislation, but also jeopardized the management bodies’ exclusive area of competence.

Therefore, the Plaintiffs sought certain shareholders agreement clauses (of which they were also signatories) to be declared null and void (including clause 1), besides judicially ensuring that conducts foreseen in those clauses were not put into practice, even in case of annulment.

One of the Defendants claimed the Plaintiffs lacked legal interest to act judicially and that they were procedurally illegitimate; moreover, the lawsuit constituted a venire contra factum proprium type of abusive use of entitlement.

Given that the Plaintiffs’ claims were deemed well-founded, the Defendant’s appeal claimed, regarding what concerns our analysis, clause 1 and the other impugned clauses did not infringe any law, so the First Instance Court had misapplied article 17, no. 2 and 64 of the Portuguese Commercial Company Act and article 335 of the Portuguese Civil Act.Considering the Defendant’s conclusions and remaining evidence, the Court deliberated “(…) the prices determined in light of the shareholders agreement mechanism due by shareholders for company C’s services[could] lead to different prices between shareholders and non-shareholders regarding the same services”.Therefore, Lisbon Appeal Court considered there was a Competition Law infringement, according to article 1 of Decree-Law no. 370/93 of 29th October and article 4, no. 1, point e) of Law no. 18/2003 of 11th June, due to the existence of discriminatory sale conditions for equivalent services (according to no. 2 of the same article referenced above as “(…) similar products or services that do not sensitively diverge in their essential commercial characteristics (…)”), which could not be justified by their supply or service costs - in other words, thereby breaching the national provision equivalent to article 101 TFEU.

In view of the considerations above, the Court declared clause 1 of the shareholders agreement null and void according to article 4, no. 2 of Law no. 18/2003, given the prices determined under that clause could lead to different prices for equivalent services, violating the equality principle under Competition Law.

Lisbon's Appeal Court Decision of 07 June 2011

PROCESS: 3855/05.9TVLSB.L1-7

REDACTOR: ANA RESENDE

DATE: 07/06/2011

THEMATIC: Cartels | Agreements, concerted practices and decisions by associations of undertakings

LEGISLATION AT ISSUE::
ARTICLE 85, NOS. 1 AND 3, EEC TREATY (PRESENT ART. 101, NOS. 1 AND 3 OF TFEU), COUNCIL REGULATION (EC) NO. 1/2003 OF 16 DECEMBER; DECREE-LAW NO. 371/93 OF 29TH OCTOBER; ARTICLE 4 OF LAW NO. 18/2003 OF 11 JUNE (REVOKED AND SUBSTITUTED BY LAW NO. 18/2003 OF 11TH JUNE, WHICH WAS LATER REVOKED AND SUBSTITUTED BY LAW NO. 19/2012 OF 8 TH MAY)

DECISION SUMMARY:

1. While reevaluating the case’s factual basis with the necessary critical scrutiny of the evidence, given that it is important for the appellant to invoke evidence that undeniably supports its plea, the Appeal Court must act under further caution, given the lack of immediacy and oral statements, on which the Court cannot, as a rule, rely to reach a ruling on the contested facts.

2. The mere inclusion of an exclusivity clause in a contract which, for tacit contract renewals aimed at reaching a certain goal, surpasses the five year-deadline does not necessarily translate into an anticompetitive practice leading to contract nullity.

3. The right to cancel a contract is like an potestive termination right subject to the existence of a ground. Therefore, the default or not complying party has no contract termination legitimacy in bilateral contracts.

4. A judge has the power to reduce, but not to invalidate or suppress a clearly unreasonable penal clause. Therefore, any judicial intervention depends on a substantial, evident disproportion between caused damages and the stipulated penalty. The Court cannot conduct such act, so the debtor must ask for its reduction, directly or indirectly, contesting the calculated amount on grounds of its overt excessiveness.

(Redactor’s Summary)

PROCEEDING’S RELEVANCE IN COMPETITION LAW ENFORCEMENT:

These legal proceedings resulted from a supposed contractual default of D., Lda (Defendant), which led S., SA (Plaintiff) to plea upon the Trial Court to declare the contract cancelled and the Defendant to be sentenced to pay it a compensation.

The Plaintiff claimed a supply contract had been concluded between both parties (after C assigned its contractual position to the Plaintiff, as supplier), in which the Defendant obliged itself to buy fabricated or commercialized products from the Plaintiff to be resold at its commercial establishment, regardless of who the supplier was. Furthermore, during the validity of the contract, the Defendant was not allowed to buy, sell, nor tout, by itself or resorting to an intermediary, products similar to the ones object of the agreement.

Having that in consideration, the Plaintiff claimed the Defendant started to acquire and commercialize similar products from another suppliers, ceasing to comply with the contract. So, after heckling the Defendant, the Plaintiff issued a registered letter to cancel the contract.

The Defendant contested that it had only stopped acquiring one of the Plaintiff’s products because the latter had ceased to provide technical assistance to the necessary equipment, but claimed that it kept selling the other supplied products. The first instance ruling found the Plaintiff’s claims well-founded, declaring the contract cancelled since 2004 and sentencing the Defendant to pay a compensation under the penal clause contractually defined by the parties, as well as interests. The Defendant appealed to Lisbon’s Appeal Court, claiming that, in what Competition Law was concerned, the contested decision had wrongly applied Commission Regulation (EEC) no. 1984/83 of 22 June 1983 on the application of Article 85 (3) of the Treaty to categories of exclusive purchasing agreements, because the contract validity period had not been taken into account.

In response, the Plaintiff claimed the Regulation was not applicable, given the nature and business volume did not affect the commerce between EU Member-States.

It also claimed Law no 18/2003 of 11 June (Portuguese Competition Act) was not applicable either, since neither the contract’s object, nor its effect were to prevent, restrict or distort competition within the national relevant market.

The Appeal Court considered Regulation (EEC) no. 1984/83 of 22 June 1983 should not be applied to the contract cancelation issue.

The Court also ruled upon the exclusivity clause’s supposed nullity in light of the mentioned Community legislation. In that context, regarding the exemption regime under article 85, no. 3 of the EEC Treaty (now, article 101 (3) TFEU), Regulation (EEC) no. 1984/83 established, under article 6, “no. 1 of article 85 of EEC Treaty is not applicable to agreements where there are only two undertakings and one of them, the retailer, obliges itself towards the other, the supplier, in return for concession of special economic and financial advantages, to only acquire products from such supplier, from an undertaking connected in any way to the supplier or from an intermediary responsible for distributing the supplier’s products, concerning beers and contractual specified beverages, even though such exemption is applicable, under article 8, if it is an indefinite contract or its validity period exceeds 5 years, inasmuch as the obligation of exclusive buy concerns certain beers and other determined beverages, so a contract will be considered as concluded for an undefined period, for a 10 year period, when the acquisition only concerns certain beers, subparagraphs c) and d). 3 | It follows from the foregoing that the mere inclusion of an exclusivity clause in a contract which, for tacit contract renewals towards reaching a certain goal, surpasses the five year-deadline does not necessarily translate into an anti-competitive practice leading to contract nullity.”

Therefore, even though there was an agreement between two undertakings in which there was an exclusivity clause, no evidence proved the existence of the remaining conditions, like affecting commerce between EU Member States or restricting competition, under article 81 of EC Treaty (previously, article 85 EEC Treaty; now, article 101 of TFEU) and Council Regulation (EC) No. 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty.

The Court also found the evidence insufficient to find the invoked clause able to relevantly restrict free competition within the national relevant market, under article 2 of Decree-Law no. 371/93 of 29th October and article 4 of the Portuguese Competition Act.

As Lisbon’s Appeal Court stressed, the procedural party (in this case, the Defendant) has the burden of proof if it intends to prove the existence of a Competition Law infringement. In other words, the procedural party has to, in the proper moment, present facts necessary to assert and prove the existence of any situation undermining competition within the relevant market.

In conclusion, the Appeal Court found the Defendant’s appeal inadmissible.

Lisbon's Appeal Court Decision of 10 November 2009

PROCESS: 4292/1999.L1-7

REDACTOR: ABRANTES GERALDES

DATE: 10/09/2009

THEMATIC: Cartels | Agreements, concerted practices and decisions by associations of undertakings

LEGISLATION AT ISSUE::
ARTICLE 101 (1), (3) OF TFEU

DECISION SUMMARY:

1. UEFA is a private organization governed under Swiss legal order whose regulatory authority only binds natural or legal persons which integrate that organization.

2. Neither Article 14 of the UEFA Statutes, in effect in September 1997 and concerning television broadcasting of football matches, nor the Television Broadcasting Regulation, drafted in accordance with such statutory regulation, bind third parties, namely undertakings operating in the industry of television broadcasting.

3. Therefore, the broadcasting of a football match by a television undertaking outside that regulatory framework does not constitute an unlawful fact, which means this cannot be used by another club, as Plaintiff, as legal grounds to plea a compensation right for being hampered by such event.

4. In terms of the application of Competition rules under the EC Treaty, UEFA is considered an undertaking.

5. UEFA’s football television broadcasting regulation in effect in September 1997 and notified to National Federations and football clubs belonging to such organization infringed competition rules under article 85, no 1 of the time (now article 81, no. 1) of the EC Treaty, therefore being considered null. 6. The nullity of such regulation would always preclude the club from pleading compensation for being hampered by the undertaking’s football television broadcast. (Redactor’s Summary, A.S.A.G.)

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

Vitória Sport Clube (VSC) and Federação Portuguesa de Futebol (FPF) brought legal proceedings against Rádio Televisão Portuguesa (RTP) to settle a dispute over television broadcasting rights.

The Plaintiff plead that the Defendant was sentenced to pay a compensation for broadcasting a football match without the necessary authority to do so under UEFA Regulations, between the teams of Benfica and Bastia on the 16th September 1997, which ended 15 minutes before the beginning of another football match (the rule was 45 minutes), between the Plaintiff VSC and Lazio, which resulted in many people not attending the VSC’s stadium.

The Defendant claimed that its activity was not bound to those regulations and that they even infringed the EC Treaty and the EEA Agreement (EEAA), in the matter of competition rules.

Given the fact the Trial Court ruled that the Defendant had to pay a compensation to the Authors, the Defendant appealed to Lisbon’s Appeal Court claiming, in short, that article 14 of the mentioned Statutes and the Regulation on UEFA Broadcastings (under which radio and television broadcasting of football matches happening within UEFA’s territory was regulated) infringed the EC Treaty and the EEA Agreement by restricting competition.

The Defendant claimed that, regarding competition matters, UEFA should be considered an “undertaking”, given its economic activity directed to produce profit. Thereby, resourcing to the case law of the Court of Justice of the European Union, it claimed UEFA should be subject to Competition Law.

Lisbon’s Appeal Court’s understanding was that any regulation issued by UEFA, whilst being a membership body and subject to private law, would solely bind entities that were a part of it and since said regulations were meant to regulate economic activities within the European Union, Competition Law must be observed.

Besides, the Statutes were null and did not produce any legal effect regarding EU Competition Law, including article 14, which the European Commission found to be susceptible to substantially restrict competition, under article 81, no. 1 of the EC Treaty (now article 101, no. 1 of TFEU), for which it was not susceptible of being exempted under no. 3 of the same article, for it was not essential to ensure football matches’ quality, nor the live audience.

Resourcing to European Commission decisions, the Court showed that competition rules should be respected when it comes to selling television rights (football television rights, in this case), since it is was a commercial activity that allowed national football associations, affiliated leagues and clubs to obtain considerable economic gains, fomenting competition among them.

Having all of this in consideration, the Appeal Court considered UEFA (as well as National Federations and the clubs that are part of them) to be an economic agent or “undertaking” under Competition Law, namely when it comes to regulations emanated from UEFA, which should be considered as “undertaking agreements”.

Furthermore, considering the “communitarian relevance” of sports television broadcasts, the Court stressed that this is a “relevant market”, subject to Competition Law, since there were significant economic interests involved.

So, bearing in mind the existence of these three preconditions (“undertaking agreements”, “communitarian interest” and “relevant market”), the Court considered that UEFA’s Regulation on Broadcasting undermined the functioning of competition within the European Union, under article 81, no. 1 of EC Treaty, given that for an entity to broadcast a football match it depended on an authorization from another entity, UEFA.

Therefore, Lisbon’s Appeal Court ruled the appeal admissible, because the regulation was not binding to the Defendant, besides being legally null for violation of Community competition law, which it makes it impossible to resort to it as basis to any plea.

The proceedings continued on in the Supreme Court of Justice that adopted the decision found here: http://www.dgsi.pt/jstj.nsf/954f0ce6ad9dd8b980256b5f003fa814/151a603895ac43148025771 4004fef3c?OpenDocument

Lisbon's Appeal Court Decision of 24 November 2005

PROCESS: 6882/2005-8

REDACTOR: ANTÓNIO VALENTE

DATE: 24/11/2005

THEMATIC: Cartels | Agreements, concerted practices and decisions by associations of undertakings

LEGISLATION AT ISSUE::
ARTICLES 2, NO. 1 AND NO. 2, AND 5 OF DECREE-LAW NO. 371/93 OF 29TH OCTOBER; ARTICLE 4-A, NO. 1 AND NO. 2 OF DECREE-LAW NO. 370/93 OF 29TH OCTOBER

DECISION SUMMARY:

It is an abusive negotiation practice to impose obligations to a supplier without a justifiable compensation or service, or if nothing justifies their large sum.
Thus, a contract is null if a major commercial centre demands its supplier several payments that do not have any objective connection to the supplies.

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

Regarding two supply contracts set out by Carrefour (Portugal) Sociedade de Exploração de Centros Comerciais, S.A and Orex Dois – Comércio e Representações, Lda., the first filed a lawsuit against the latter seeking compensation.

The claim was grounded on the Defendant’s alleged failure to pay the promotional services rendered, besides payment for Carrefour’s Centralized Payment integrated services.

The Defendant filed a counterclaim, arguing the Plaintiff had never issued any debit notes regarding such promotional activity, besides having started to be supplied by a Defendant’s competitor while the second contract signed was still in force. Therefore, the Defendant claimed there was no room for compensation, since the supply contract, which was the Defendant’s service offset, was not maintained in force.

Similarly, the discounts, an investment effort demanded by the Plaintiff so the suppliers could place their products in those commercial centres, depended on the Plaintiff not resorting to other undertaking’s supplies, which did not happen.

The First Instance Court deemed both claims partly founded, so the Defendant was sentenced to an € 85,00 compensation, whereas the Plaintiff was sentenced to a compensation of € 50.000,00.

In its appeal, the Plaintiff claimed that it was not contractually obliged to order products from the Defendant. The Court refused such claim, adding that resorting to a Defendant’s direct competitor for the supply of products of the same type and nature implied an unlawful unilateral revocation of the contract, given it had clearly precluded the contract’s execution, in accordance to article 236 of the Portuguese Civil Code.

The Court also stated promotional services were invoiced to the Defendant – at the same time the contract was revoked – for the opening of a supermarket that would only sell a direct competitor’s products, which constituted a clear abuse of contractual good faith by the Plaintiff.

Regarding the Defendant’s contract nullity claim, it was grounded on the contractual imposition to pay “referencing” and “opening rappel” charges. Evidence proves the Plaintiff demanded the acceptance of that clause to close the contract, even though it did not contemplate any justifiable compensation or service and the demanded amount was too high.

Given such evidence, the Court considered article 2, no. 1, point 7 of Decree-Law no. 371/93 of 29th October and article 4-A, no. 1 and 2 of Decree-Law no. 370/93 of 29th October to be applicable (the national equivalent of article 101, no. 1 of TFEU) because of the contract’s abusive nature, namely for imposing the Defendant to comply with certain obligations without any type of compensation or retribution.

Therefore, the contract would be, in fact, null, according to article 2, no. 2 of Decree-Law no. 371/93 (notwithstanding article 280, no.1 of the Portuguese Civil Code), given the Plaintiff was unable to prove that one of article 5 of that legal diploma’s exemptions was applicable. The Plaintiff was thus sentenced to pay compensation amounting to all the sums the Defendant had paid under those contracts because of the retroactive effect resulting from the contracts being declared void and null, according to article 289, no. 1 of the Portuguese Civil Code.

Oporto's Appeal Court Decision of 03 November 2009

PROCESS: 572/07.9TBVLC.P1

REDACTOR: RODRIGUES PIRES

DATE: 03/11/2009

THEMATIC: Cartels | Agreements, concerted practices and decisions by associations of undertakings

LEGISLATION AT ISSUE::
LAW 18/2003 OF 11 JUNE (REPLACED BY LAW 19/2012 OF 8 MAY)

DECISION SUMMARY:

I – If, in a Loan Agreement, the borrower fulfils the obligation it is compelled to, paying the amount owed and correspondent interest, there is no place for compensation and, consequently, the penalty clause is excluded.

II - Adding to a Loan Agreement a clause which obliges the borrower so sell the whole of its milk production violates Article 4 (1) (c), (g) of Law 18/2003, of 11 June, which approves the Competition Law Act. Therefore, and according to Article 4 (2), this clause should be considered void.

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

The Plaintiff presented a declarative action before the Court to condemn the Defendant to pay €5000 plus interest.

The Plaintiff and the Defendant had a 10-year-long commercial relation in which the Defendant would buy milk from the Plaintiff. At the first request of the proceedings, the Plaintiff argued that it sold milk to the Defendant amounting to €8263,10, but only received €2923,10 as payment.

In its initial petition, the Defendant brought to the knowledge of the Court that, between both parties, there was a Loan Agreement in which the Defendant borrowed €15000 to the Plaintiff. This loan was to be returned in 20 payments of €750 each. In this contract, it was established that if the Plaintiff failed to complete one of these payments, it would be bound to sell its entire milk production to the Defendant. Failing to do that, the Plaintiff would have to pay a penalty of €5000.

OPORTO’S APPEAL COURT DECIDED UPON THE FOLLOWING RELEVANT QUESTIONS RELATED TO COMPETITION LAW ENFORCEMENT:

- LEGAL VALIDITY OF THE EXCLUSIVITY CLAUSE ACCORDING TO LAW 18/2003, OF 11 JUNE, WHICH APPROVES THE COMPETITION LAW ACT

The Court begins by analysing Article 4 (1) (c) and (g) – “Agreements between undertakings, (…) which have as their object or effect the prevention, distortion or restriction of competition in the domestic market, in whole or in part, and to a considerable extent, are prohibited, in particular those which:
(…)
c) Limit or control production, distribution, technical development and investment;
(…)
g) Make the conclusion of contracts subject to the other parties’ acceptance of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.” – and Article 7 (1) – “It is prohibited for one or more undertakings to abuse the economic dependence under which any of its suppliers or customers may find themselves as a result of the inexistence of an equivalent alternative , to the extent that such a practice affects the way the market or competition operate.”

Considering the exclusivity clause within the loan contract in hand, it implicates a time-limited restriction for the Plaintiff to obtain the best selling price for its milk within the market and also that “other buyers are restricted to compete to buy the Plaintiff´s milk production”.
In this analysis, the Court also clarified that this exclusivity clause has no connection with the subject of the loan contract and should therefore be considered void, since it violates Article 4 (1) (c) of Law 18/2003.

As a consequence, the penalty clause should also be considered void as it was supposed to be activated by the non-compliance with the exclusivity clause.

To rebut these arguments, the Defendant contributed with two arguments – both immediately discarded by the Court. First, that the clauses were valid under compulsion of Article 405 (1) of the Civil Code, which establishes the freedom to contract; and, second, that the Appeal Court should not appraise this argument due to the lack of a possibility of pronouncement by the Court of First Instance.

Regarding the freedom to contract, the Court clarified that this freedom is always limited to legal boundaries, which is why the limits established within the Competition Act and in accordance with European Law do not allow the loan contract to have an exclusivity clause which is not connected with the subject of the contract.
As for the appraisal of the argument by the Appeal Court, the Court observed that the appeal regime is one of revision and reconsideration, which is why the appeal court should not appraise arguments not considered by the first instance court. However, there are exceptions considered under the law in which this particular situation is included. As the exclusivity clause constitutes a direct violation of Article 4 of Law 18/2003, it is a matter which the Court is obliged to consider even if it was not considered in first instance or raised by the parties.

Oporto's Appeal Court Decision of 09 March 2004

PROCESS: 0326904

REDACTOR: ALBERTO SOBRINHO

DATE: 09/03/2004

THEMATIC: Cartels | Agreements, concerted practices and decisions by associations of undertakings

LEGISLATION AT ISSUE::
DECREE 371/93 OF 29 OCTOBER (REPLACED BY LAW 18/2003 OF 11 JUNE, THEN REPLACED BY LAW 19/2012 OF 8 MAY)

DECISION SUMMARY:

1- A commercial concession contract is an innominate contract according to which an independent trader (concessionaire) obliges himself to buy from other trader (licensor) a certain amount of goods from a specific brand to re-sell to general public in a certain geographical area, usually with an exclusivity clause.

2- Restrictive legislation or regulation in general contractual clauses (Decree 446/82 of 22 October) are only applicable regarding clauses that are not previously negotiated and accepted by both parties, where one party simply agrees to comply with a clause previously redacted without the possibility of intervening in its drafting.

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

At the center of the proceedings there is a commercial concession contract between the Plaintiff, as a concessionaire, and the Defendant, which obliges himself to “sell in exclusivity, in its establishment, a certain brand of coffee and to consume a minimum amount monthly”. For the Plaintiff, the non-compliance with the contract by the Defendant sustains the end of the contract and the activation of the agreed penalty clause.

In the first instance, the Court decided in favour of the Plaintiff, condemning the Defendant to pay 5932,80€, plus interest.

The Defendant appealed, alleging the change of facts, the voidance of the contract and, consequently, the derogation of the Court’s decision.

REGARDING THE ALLEGATION OF THE CONTRACT’S NULLITY, OPORTO’S APPEAL COURT DECIDED UPON THE FOLLOWING RELEVANT QUESTIONS RELATED TO COMPETITION LAW ENFORCEMENT:

(1) DETERMINATION OF THE EXISTENCE OF AN AGREEMENT OR CONCERTED PRACTICES BY UNDERTAKINGS:

a. BY ANALYSING THE EXCLUSIVITY CLAUSE

b. BY ANALYSING THE MINIMUM AMOUNT OF PURCHASE CLAUSE

Considering the decisions by both the Judicial Court and the Appeal Court, there is a consensus upon the rejection of the argument implying there is a violation of competition law.

The Court enlightens that competition law (as explained in Decree 371/93 of 29 October, in force on the date of the signing of the contract), forbids agreements and concerted practices amongst undertakings which may “prevent, forge or restrict competition widely or in a more restricted area of the national market”. Restrictive practices prohibition aims “to contribute to the creation of freedom of both supply and demand regarding market access to balance trade relations between all economic agents, to strengthen competitiveness and to protect consumer’s interests.”

After clarifying the objectives of competition law, the Court underlined that antitrust practices could, in the abstract, exist, which is why, in order to determine the existence of such situation, it was necessary to evaluate the circumstances concretely.

Regarding the alleged voidance of the contract, the Court decided that the contract should remain valid, since, when the Defendant signed the contract, it was obliged to purchase only the Plaintiff’s products, not being allowed to sell other competitors’ products.

Considering competition law, the Court concluded that: “Neither the exclusivity clause nor the quota clause restrict nor limit the free market game; therefore, there is no antitrust practice”.

Portuguese Supreme Court of Justice Decision of 03 April 2014

PROCESS: 627/09.5TVLSB.L1.S1

REDACTOR: BETTENCOURT DE FARIA

DATE: 03/04/2014

THEMATIC: Cartels | Agreements, concerted practices and decisions by associations of undertakings

LEGISLATION AT ISSUE::
ARTICLE 4 (1) OF LAW NO. 18/2003, OF 12 JUNE AND ARTICLE 81 (1) TEC (PRESENT ARTICLE 101 TFEU)

DECISION SUMMARY:

I - Free competition can be defined as the competition in a market where there are equal opportunities for all producers and unlimited possibilities of choice for all consumers.

II - This definition is valid according to both European and National Law.

III – Therefore, all practices resulting either in the decrease of one or more producers’ opportunities or in the decline of consumers’ choices are considered practices which violate market rules.

IV - The concession contract clause which providesthat the concessionary can only commercialize the product in a certain geographic area does not violate free competition, since it does not constitute market sharing.

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

During these proceedings there was a concession contract in analysis where there was an exclusivity clause which obliged the Plaintiff to buy products only from the Defendant, to resell them. In the same contract, it was established that the Plaintiff could only practice its activity in a delimited geographical area. The Plaintiff considered this part of the contract discriminatory since it did not inhibit the Defendant from contracting with third parties in the same terms in that delimited geographical area.

THE SUPREME COURT OF JUSTICE DECIDED UPON SOME RELEVANT QUESTIONS RELATED TO COMPETITION LAW ENFORCEMENT:

(1) DEFINITION OF COMPETITION

(2) CONSIDERATIONS ON THE RESTRICTIVENESS OF PROHIBITED PRACTICES IN COMPETITION LAW AND EU LAW

(3) DEFINITION OF MARKET SHARE AND ANALYSIS OF THE SITUATION.

(1) The Court understands that the objective of competition law is strictly connected with the assurance of a free competition where actions restricting it are forbidden. Therefore, it is understandable that “market competition where there are equal opportunities to all producers and non-restricted possibility of choice to all consumers” be a theoretical definition accepted by both Portuguese Law (Law no. 18/2003, of 11 June, in force at the time of the case’s contract ending, and revoked by Law no. 19/2012, of 8 May) and EU Law – Article 81 EC Treaty (present Article 101 TFEU).

(2) The prohibited practices foreseen in both national (Article 4 of Law no. 18/2003) and EU law (Article 81 EC Treaty, present article 101 TFEU) are not restrictive, but merely indicative, i.e., prohibited practices are those which could endanger free competition. In these proceedings, practices resulting in the decreasing of opportunities for one or more producers or of the possibility of choice for consumers should be considered prohibited practices.

(3) Considering Article 4 (1) (d) of Law no. 18/2003 and also Article 81 (1) (c) CE Treaty (present Article 101 (1) (c) TFEU), we are in the presence of an illegal practice: market sharing. The court considers market sharing situations in which «producers collude in ways to separate their offers, so that, at a certain point, consumers only find products of one of them, therefore restricting their possibility to choose and, consequently, the competition between producers themselves». The Court also analysed if the concession contract at issue would constitute Market Sharing: according to Article 2 (2) of Law no. 18/2003 (present Article 3 of Law no. 19/2012) «[a] group of undertakings is deemed to be a single undertaking, even if the undertakings themselves are legally separate entities, where such undertakings make up an economic unit (…)». The court considered that the Defendant and each one of its concessionaires constituted a single market offer, having found no place for competition. Therefore, the clause that limited the action of the Plaintiff to a delimited geographical area was not considered illegal, since it did not constitute market sharing.

Portuguese Supreme Court of Justice Decision of 13 January 2005

PROCESS: 04B4031

REDACTOR: ARAÚJO BARROS

DATE: 13/01/2005

THEMATIC: Cartels | Agreements, concerted practices and decisions by associations of undertakings

LEGISLATION AT ISSUE::
DECREE 371/93 OF 29OCTOBER (REVOKED AND REPLACED BY LAW 18/2003 OF 11 JUNE, LATER REVOKED AND REPLACED BY LAW 19/2012 OF 8 MAY) AND REGULATION 1984/83

DECISION SUMMARY:

1. According to the adversarial principle, established in Article 3 (3) of the Civil Procedural Code, surprise-decisions are not admitted, i.e., a decision based on an argument that was not brought up by either party on the process.

2. The violation of the adversarial principle set in the general clause about procedural voids (Article 201 (1) Civil Procedural Code) is not a void that the Court can establish on its own initiative. Therefore, it is settled as remedied if it is not brought up by an interested party within 10 days after an intervention that is relevant for it in the proceedings (Article 203 (1), 205 (1) of the Civil Procedural Code).

3. According to Article 713 (5) of the Civil Procedural Code, the Appeal Court cannot, by merely referring to the arguments made on the first instance decision, expect to distance itself from its constitutional duty to substantiate its decisions.

4. Therefore, the Appeal Court’s decision cannot substantiate itself on the appealed decision when there are either arguments referred for the first time, there was no opportunity for the party to bring them up earlier, or if they result from the application of the appealed decision.

5. The Appeal Court’s decision is considered void on the basis of omission of pronunciation (Article 668 (1) (d) Civil Procedural Code).

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

The Plaintiff, Central de Cervejas, sued its retailer (relation based on a commercial contract) for the violation of the exclusivity clause and of the minimum purchase clause agreed upon.

In the first stage of the proceedings, the seller called upon violation of Article 101 TFEU and a block exemption regulation (Regulation 1984/83). The Court considered that the contract was void not under European law, but under national law.

In the Appeal Court’s decision, the first instance’s decision was validated.

In its turn, the Supreme Judicial Court deliberated that not having considered the questions brought up by the appellant, the Appeal Court’s decision did not pronounce about the relevant questions, therefore violating Article 660 (2) of the Civil Procedural Code.

In this particular case, the Supreme Court of Justice justifies the existence of omission of pronunciation based on the following claim: in contracts such as this, taking into account the small impact on the relevant market, there is no possibility of affecting competition rules and, as such, there is no irregularity that can justify the void of an exclusivity clause as agreed in the contract in discussion. This exclusivity clause is in no position to prevent, restrain or forge competition in the relevant market.

Therefore, the Supreme Court of Justice overwrote the appealed decision and determined that the proceedings ought to move forward in Lisbon’s Court of Appeal, if possible with the same judges that could redact a new decision considering their knowledge on the arguments already risen by the parties that were not dwelled upon.

Portuguese Supreme Court of Justice Decision of 17 May 2012

PROCESS: 3855/05.9TVLSB.L1.S1

REDACTOR: GRANJA DA FONSECA

DATE: 17/05/2012

THEMATIC: Cartels | Agreements, concerted practices and decisions by associations of undertakings

LEGISLATION AT ISSUE::
ARTICLE 85 (1) OF CE TREATY (PRESENT ARTICLE 101 TFEU); LAW NO. 18/2003, OF 11 JUNE; ARTICLES 6 AND 8 OF REGULATION (EC) NO. 1984/83

DECISION SUMMARY:

I - The final decision on the contract expiry, which is the subject of the present case, has been definitively ruled out in the preliminary order and the judicial power in this matter is exhausted.

II - But even if that were not the case, Regulation (EC) No. 1984/83 of 22/06/1983, of the Commission, could not be applied to the present proceedings since the contract in question did not have the potential to affect, due to its nature and the business’s volume involved, the market between the Member States of the European Union by restricting its influence to the national market.

III - Furthermore, this contract and all other contracts of a similar nature that were concluded by the Defendant with points of sale in the "XXX" sector are not subject to the application of Law No, 18/2003, of 11 June, since, in order for those agreements to subsume the impositions of such law, they must have as their object or effect the prevention, distortion or restriction of competition in whole or in part of the national beer market, which is not the case in these contracts concluded by the Plaintiff, in view of the fact that they are of little importance to the national beer market and cannot, therefore, have a significant effect on competition in that market.

IV - However, even if it were understood that this contract was under Community law, it has not been shown that such contract could be a restriction of free competition; therefore, there is no nullity to it.

V - The evidence produced by the Plaintiff related to the non-fulfilment of the non-acquisition of the contracted litres cannot be censored by the Supreme Court of Justice, since there is no provision requiring expressly specific evidence for this event, nor the requirement of a document.

VI - On the other hand, none of the facts that the Defendant intends to see re-examined offends the express provision of the law that establishes the force of certain evidence.

VII - There is also no reason to refer the case to the court a quo, since there are no contradictions in the decision on the facts.

VIII - Due to the fact that the agreement was in force at the time the Defendant ceased to acquire the Plaintiff's draft beer and started to acquire barrelled beer of the "Y" brand, the Plaintiff ended the contract effectively.

IX – Taking into consideration that the compensation for the contract resolution was required and the Defendant had a period of ten days, from the receipt of the resolution letter, for the payment of the penalty clause, the Defendant is in default since the end of such period.

X - In the light of the terms of the proceedings established by the Plaintiff – invoking the resolution of the contract and the payment of the corresponding compensation due as a penalty clause, as agreed by the parties –, it is not apparent that the Defendant has, directly or indirectly, pleaded the reduction of the clause at issue. Thus, it must be understood that the disproportionality of the penalty clause, insofar as it can be understood as a request for its reduction, is a new question invoked in the course of the appeal.

XI - If the alleged disproportionality of the penalty clause was a new issue for the Lisbon Court of Appeal, it will also be a new issue for the Supreme Court of Justice. Therefore, it is not necessary to analyse whether the clause is manifestly excessive or disproportionate. There is no ground for reducing the compensation.

XII - Therefore, since Article 812 of the Portuguese Civil Code is not applicable to the present case, it cannot be claimed that the interpretation given to this article breaches the principle of proportionality, enshrined in Article 18 of the Portuguese Republic Constitution.

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

“CC”, a company currently incorporated in company “AA”¹ (Author and Appealed in the present case), entered into an agreement with “BB” (Defendant and Appellant in the present case), on 21/04/1995, under which it was obliged, on the one hand, to purchase from any supplier certain products manufactured or traded by “CC”, for resale at the establishment of beverages called "O Díficil da Alameda" and, on the other hand, not to purchase or sell similar products on its premises and to prevent third parties from doing so or to advertise such practice. The contract also entailed the obligation, in case of the commercial business’s transfer, to insert a clause in the contract in the same terms, forcing “CC” to deliver a certain amount and 24 barrels of beer per year (free of charge and two per month). This agreement would remain in force until the Defendant acquired 100.000 litres of the stipulated products.

However, since September 2003, the Defendant stopped buying the products and started to trade similar products of competing companies before making up the 100.000 litres contracted. As a result, the Plaintiff ended the contract in February 2004.

The present case was settled by the First Instance Court and an appeal was lodged against that judgment before the Lisbon Court of Appeal. Following this one, a second appeal was lodged before the Supreme Court of Justice, which had the opportunity to examine such exclusivity clause.

The Supreme Court of Justice considered that Regulation (EEC) No. 1984/83, on the application of Article 85 (3) of the Treaty EEC [now Article 101 TFEU] to categories of exclusive purchasing agreements, is not applicable to the present case because that Regulation was only applicable to contracts under Community Competition Law, which was not the case of the present contract, since it was not able, either by its nature or by the volume of business at issue, to affect the market between the Member States of the European Union.
The Supreme Court of Justice also declared that in the competition law context, the only legislation potentially applicable to this contract would be the Portuguese Competition Act, namely Law No. 18/2003 of 11 June [now Law No. 19/2012]. However, the Supreme Court of Justice concluded that such national legislation was not applicable, since the contract at issue did not have as object or effect the prevention, distortion or restriction of competition on all or part of the national beer market.

In addition, as the Plaintiff only pleaded the breach of the national and European Competition Law and did not provide any evidence to fulfil the conditions for the application of that legislation, the Supreme Court of Justice stated that the contract was not null.

In addition, the Court clarified that, even if the contract in question were under the aegis of European Union law that would not mean that it was an anti-competitive practice. In fact, Article 6 of Regulation (EEC) 1984/83 provided that, as regards beer supply agreements, Article 85 (1) of the EEC Treaty was not applicable to those involving only two undertakings and in which the dealer undertakes before the supplier to buy only from the latter, a related undertaking or a third undertaking which has been in charge of the distribution of its products in exchange of special economic and financial advantages and for the purpose of reselling certain beers or drinks specified in the agreement at a beverage shop specified in the agreement as well.

However, under Article 8(c) and (d) of such Regulation, if the agreement is concluded for an unlimited period or for a period exceeding five years, such inapplicability would be ruled out, insofar as the exclusive purchasing obligation relates to certain beers and other specified beverages, just as if the agreement is concluded for an indefinite duration or for a period of more than 10 years and the exclusive purchasing obligation relates only to specified beers. Therefore, the Supreme Court of Justice concluded that the fact that the exclusivity clause exceeds, due to tacit renewals, the period of five years, does not necessarily constitute an anti-competitive practice and, for that reason, the clause was not null. Consequently, the Supreme Court of Justice dismissed the appeal lodged by the Defendant (“BB”).

¹ “Sociedade Central de Cervejas” [“Central Beer Company”].

Portuguese Supreme Court of Justice Decision of 24 January 2012

PROCESS: 39/2000.L1.S1

REDACTOR: FONSECA RAMOS

DATE: 24/01/2012

THEMATIC: Cartels | Agreements, concerted practices and decisions by associations of undertakings

LEGISLATION AT ISSUE::
REGULATION (EC) NO. 1475/95, OF 28 JUNE 1995; ARTICLE 85(3) OF THE EEC TREATY [NOW, ARTICLE 101 TFEU]

DECISION SUMMARY:

I) - Since the commercial concession contract is a commercial cooperation and distribution agreement, presupposing integration of organizational efforts for the implementation of goods, stability and continuity – its long-lasting, durable character – assume particular importance, as without them its economic profitability strand would be difficult to achieve.

II) –Compensation for loss of costumers is based on the assumption of the concession contract termination (by analogous application of the legal regime of the agency agreement) and, it has, according to Article 33(1) (a), (b) and (c) of Decree-Law No. 178/86, the following cumulative legal requirements: (i) the concessionaire has raised new customers for the grantor or substantially increased the turnover with existing customers; (ii) the grantor will considerably benefit, after the end of the contract, from the activity carried out by the concessionaire; (iii) and the concessionaire no longer receives any remuneration per contract.

III) – The grounds for compensation for loss of costumers is the idea of justice (and the criterion of its determination is equity), based on the consideration that if the concessionaire has contributed to a significant increase in grantor’s number of clients, the grantor will benefit "substantially" from that increase in terms of turnover and, therefore, the concessionaire must be compensated for the effort.

IV) – In the contract at issue, Clause 17 establishes the grantor’s right of termination, which is a right that can be exercised ad nutum. However, its exercise needs to safeguard the rule of good faith, especially in the case of a long-term contract, as well as a reasonable period of notice for the contract termination. This Clause excludes any compensation, and the parties agreed that the period of notice for the contract termination (two years) could be extended for one more year.

V) – Regulation (EC) No. 1475/95 of 28 June 1995, already replaced by Regulation (EC) No. 1400/2002 of 31 July 2002, concerned the application of Article 85(3) of the EEC Treaty [now, Article 101 TFEU] to certain categories of motor vehicle distribution and servicing agreements where cross-border relationships are involved. Its Article 5 provided the right of the supplier to end the contract by means of a period of notice of at least one year in the event of the need to reorganize all or a substantial part of the distribution network.

VI) – Those Community rules on the motor vehicle distribution sector are not applicable here because the present case is not about cross-border business relationships, but about a contract in a very restricted area of Portuguese territory. On the other hand, that Community legislation 2 | essentially seeks to regulate and discipline competition and, above all, to protect the concessionaires.

VII) –Clause 17 of the contract, which allows the grantor to end the contract in any situation and without the duty to any compensation is a clause that accentuates the congenital fragility of the concessionaire, with the encumbrance of disregarding the posterior analysis of a situation which may breach the rules of good faith. Therefore, it should be considered null for violating cogent precepts and also equivalent to an early waiver of the concessionaire's right, regardless of any degree of guilt, thereby breaching Article 809 of the Portuguese Civil Code.

VIII) – Considering that client compensation is established on grounds of equity, the long period of cooperation of the concessionaire in the structure and commercial organization of the grantor must be taken into account. In the present case, the concessionaire cooperated with the grantor for about 18 years, where the former went through periods of greater or less consumerist glow, with the inherent repercussion in the level of sales of motor vehicles and in the investments made by the concessionaire to reach the goalstargeted in the contract. The economic increase (clients) that the grantor may benefit from with the contract termination should also be considered.

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

The Plaintiff, "AA - Sociedade de Automóveis da Maia, Lda.", is engaged in the commercialization of motor vehicles, automotive parts and accessories, and in the repair of these vehicles. The Defendant, “Renault Portuguesa - Sociedade Comercial, S.A.”, is engaged in the import of Renault motor vehicles, automotive parts and accessories.

The Plaintiff, by concession contract concluded with the Defendant on 1981, acquired facilities and equipment and admitted staff. Afterwards, the parties concluded other contracts and it was established that the Plaintiff would commercialize Renault motor vehicles and accessories, acquired from the Defendant, and would provide assistance services to these vehicles, operating exclusively in Maia (Porto, Portugal). It was also agreed between the parties that the Plaintiff could sell in the Oporto area.

The last contract between the Plaintiff and the Defendant was concluded for an undetermined period, with the possibility of resolution at any time, provided that the one-year notice of termination of the contract was respected.

On 30 July 1997, the Defendant communicated to the Plaintiff the resolution of the contract effective from 31 July 1999. On 10 April 2000, the Plaintiff brought proceedings before the Judicial Court of Lisbon against the Defendant, seeking for payment of compensation for the loss of costumers (in the amount of about € 2,564,392.23, plus interest), under the terms of Article 34 of Portuguese Decree-Law No. 178/96, of 3 June, on grounds of unjust enrichment.

The Judicial Court of Lisbon dismissed the Plaintiff's plea. Faced with that decision, the Plaintiff lodged an appeal before the Lisbon Court of Appeal, which annulled that decision and ordered the Defendant to pay the sum of € 1000,000.00, plus interest, to the Plaintiff.

Both parties lodged an appeal regarding the Lisbon Court of Appeal’s judgment before the Supreme Court of Justice. The appeal of the Plaintiff was grounded on the amount of compensation and the Defendant’s appeal was based on the argument that no costumers compensation was due, since, on the one hand, the parties had agreed, in the contract, that no compensation would be payable on termination of the contract and, on the other hand, that this compensation would be contrary to European Union Law.

The Supreme Court of Justice examined, in the context of Competition Law, the application of Regulation (EC) No. 1475/95, of 28 June 1995 (in force at the time of the facts), on the application of Article 85(3) of the EEC Treaty [now Article 101 TFEU] to categories of motor vehicle distribution and servicing agreements where cross-border relationships are involved. Article 5 of that Regulation provided that the supplier was entitled to terminate the contract by giving at least a one-year notice in case of the need to reorganize all distribution network or a substantial part of it. Consequently, the Defendant claimed that the exclusion of compensation was aligned with that legislation.

Nevertheless, the Supreme Court of Justice pointed out that European Union rules on the motor vehicle distribution sector were not applicable because, first of all, in this case there were no cross-border business relationships at stake, but a contract in a very restricted Portuguese territorial area.

In addition, the Supreme Court of Justice stated that such Regulation, which allowed for exemption from certain rules and procedures – which were not allowed, in the name of the competition protection in the internal market – was aimed at regulating competition and protecting traders.

Therefore, since Competition rules were not applicable and customers compensation could not be precluded in advance, because it could virtually affect the weaker contractual party and, as such, have the potential to undermine the rules of good faith and the contractual balance, or provide the grantor an unjust enrichment, the Supreme Court of Justice concluded that such EU legislation was not applicable in the present case. The Court maintained the condemnation of the Defendant to pay the sum set by the Lisbon Court of Appeal.

Portuguese Supreme Administrative Court Decision of 10 February 1999, appendix of 04 May 2001

PROCESS: 028316

REDACTOR: AZEVEDO MOREIRA

DATE: 10/02/1999

THEMATIC: State Aids

LEGISLATION AT ISSUE::
DECREE-LAW NO. 422/83 OF 3 RD DECEMBER (PRESENT LAW NO. 19/2012 OF 8 MAY); ARTICLES 85, 87, 90 AND 92 OF THE EEC TREATY (PRESENT ARTICLES 101, 103, 106 AND 108 OF TFEU)

DECISION SUMMARY:

Vila Nova de Gaia’s Fortified Douro Wine Depot’s “private” nature, that is to say, its exclusive assignment to store and explore this kind of wine as established in article 1 of Decree no. 12.007, did not change because of subsequent legislation coming into effect, namely Decree-Laws nos. 422/83 of 3 December and 86/86 of 7 May and the Rome Treaty.

PROCEEDINGS’ RELEVANCE IN COMPETITION LAW ENFORCEMENT:

Butler Nephew, Plaintiff, now Appellant, had requested the Defendant, Secretary of State for Food, to assess the absence of any obstacle in the usage its own facilities in Vila Nova de Gaia’s Fortified Douro Wine Depot concerning storing, bottling and commercialization of grapeseed wine.

The application was dismissed on grounds that such space had been legally established in Vila Nova de Gaia solely and exclusively for Douro wine to store and export wine from the Douro demarcated region, according to Decree no. 12 007 of 31 July of 1926.

The Plaintiff filed an appeal arguing that, inter alia, maintaining the interdiction on installing grapeseed wine warehouses in Vila Nova de Gaia Depot, given its private and unique nature, was illegal, infringing not only national competition law (specifically, Decree-Law no. 422/83 of 3 of December), but also EU competition law (namely, articles 85, 87, 90 and 92 of the Rome Treaty).

The Appellant claimed the existence of an imbalanced situation given the fact that other undertakings (which were already grapeseed wine commercial facilities owners inside the Depot by the time Decree no. 12 007 was issued) had been granted the right to continue commercializing their products there, under the special regime set out by article 2 of Decree no. 16 330.

Even though the Supreme Administrative Court acknowledged that a series of legal amendments had caused the unique nature of Vila Nova de Gaia’s Depot to end, it also concluded that its private nature had remained intact, contrarily to what had been argued by the Appellant.

The Court explained that Decree-Law no. 422/83 did not preclude the existence of an area allocated to a certain type of commerce or industry – the Depot in hand is an example of that, as set out by Decree no 12 007. It added that such interdiction, created in respect of public interest, did not jeopardize the principle of free competition, since all undertakings were given the same conditions to develop their economic operations.

Therefore, the Supreme Administrative Court concluded that neither national, nor EU competition law was applicable, since its application “(…) would only impose, in a logical reasoning, the elimination of the privilege under Decree no. 16 330 that originated such inequality and never a tacit revocation or expiration of the private regime as the appellant intended.” As a matter of fact, “(…) considering the facts description presented by the appellant, the competition freedom was caused not by the private nor the exclusivity regime legally invoked in the judicially contested order, but by the opposed normative exemption to which that act is completely unaware of”.

In conclusion, whereas article 85 of the Rome Treaty was simply not applicable, the Court decided that, regarding article 90, the law in question did not grant any kind of exclusive or special rights to any undertaking since the Depot is solely an area in which any undertaking may develop its economic activity, provided that all the legal requirements are fulfilled by the undertaking in respect of the Depot’s specific purpose.