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Fenin (CFI, ECJ)

Federación Nacional de Empresas de Instrumentación Científica, Médica, Técnica y Dental (FENIN)
v Commission of the European Communities
Court of First Instance (EC), Case T-319/99
CFI judgment of 4 March 2003 (about 10 pages) (from EUR-Lex)

Court of Justice of the European Communities, Case C-205/03
ECJ case documents, Advocate General opinion of 10 November 2005 (from EUR-Lex)
Judgment of 11 July 2006 (about 5 pages) (from EUR-Lex)

Concept of undertaking; Article 82
Article numbers refer to the 1997 consolidated version of the EC Treaty.

In Fenin the Court of First Instance upheld a decision by the European Commission rejecting a complaint alleging abuse of a dominant position by 26 bodies or organisations (including three ministries of the Spanish Government) which run the Spanish national health system.

The Commission had rejected the complaint on the grounds that these bodies were not acting as undertakings in their dealings with suppliers, and were not therefore subject to the Article 82 prohibition irrespective of the existence or otherwise of competitive constraints and anti-competitive effects of their conduct.

The complainants appealed the CFI decision to the European Court of Justice, which dismissed the appeal, confirming the Commission's and the CFI's view that a purchasing activity is only subject to competition law if it is undertaken for an economic purpose, such as a supply of goods or services on a market, rather than for a purely social purpose.

The Advocate General had suggested sending the case back to the CFI for a determination of whether the relevant health service bodies were, in fact, intended by the Spanish State to act as "economic" service providers entrusted with the management of the healthcare system, including through commercial sub-contracting of service delivery, even if this was done for the purpose of delivering a "social" health service. The court dismissed this claim as inadmissible, accepting a submission that it could not be considered by the ECJ since it had not been canvassed in the CFI proceedings.

The concept of undertaking in EC competition law

The prohibitions in Article 81, Article 82 and (at least to some extent) Article 87 are limited to "undertakings". What constitutes an undertaking is therefore a significant element of EC competition law.

The CFI's findings on this point are explained at paragraphs 36-37 of its judgment:

"[...] it is the activity consisting in offering goods and services on a given market that is the characteristic feature of an economic activity [...] not the business of purchasing, as such. [...] it would be incorrect, when determining the nature of that subsequent activity, to dissociate the activity of purchasing goods from the subsequent use to which they are put. The nature of the purchasing activity must therefore be determined according to whether or not the subsequent use of the purchased goods amounts to an economic activity."

"Consequently, an organisation which purchases goods — even in great quantity — not for the purpose of offering goods and services as part of an economic activity, but in order to use them in the context of a different activity, such as one of a purely social nature, does not act as an undertaking simply because it is a purchaser in a given market. Whilst an entity may wield very considerable economic power, even giving rise to a monopsony, it nevertheless remains the case that, if the activity for which that entity purchases goods is not an economic activity, it is not acting as an undertaking for the purposes of Community competition law and is therefore not subject to the prohibitions laid down in Articles 81(1) EC and 82 EC."

This was endorsed by the European Court of Justice at paragraph 26 of its judgment:

"The Court of First Instance rightly deduced, in paragraph 36 of the judgment under appeal, that there is no need to dissociate the activity of purchasing goods from the subsequent use to which they are put in order to determine the nature of that purchasing activity, and that the nature of the purchasing activity must be determined according to whether or not the subsequent use of the purchased goods amounts to an economic activity."

The Commission's argument summarised at paragraph 24 of the ECJ judgment (and accepted by the court) makes the point in a concise way:

"[It is] the act of placing goods or services on a given market which characterises the concept of economic activity and not purchasing activity as such."

Relationship to UK Bettercare II case

The Fenin judgment came out a short time after a UK Competition (Commission) Appeal Tribunal ruling in a case known as Bettercare II, which involved the conduct of a local authority in Northern Ireland in procuring nursing home places from private companies whilst also providing some places itself. In its judgment (PDF, 95 pages), the Tribunal found that the local authority was acting as an undertaking in its purchasing activities, and rejected earlier theories of the OFT (the relevant competition authority whose decision was being appealed) which amounted to splitting the activities in question between "economic activities" and "non economic activities" on the basis of a distinction between provision and purchasing, or according to the source of funding used by each resident.

In a note published after the Fenin and Bettercare II judgments (PDF, 9 pages) the OFT appears to try and emphasise the differences between the reasonings of the two tribunals (see e.g. paragraph 13).

The most significant of the differences highlighted by the OFT seems to be that the UK tribunal considered that a central question was whether the entity concerned was in a position to generate the effects which the competition rules seek to prevent (in the words of Advocate General Jacobs in Cisal), so that a possible interpretation of the CAT judgment would be that the definition of undertaking should be geared towards ensuring that conduct that can lead to these kinds of effects is caught. By contrast, the CFI in Fenin simply determined whether an activity is the act of an undertaking by considering the purpose of that activity, specifically whether it was connected with offering goods or services in a market (as opposed to, in the case of Fenin, implementing a health care "solidarity" scheme).

The CFI's approach is currently the strongest precedent available, but is subject to the appeal to the ECJ. If the CFI judgment is substantially upheld, then State action based on purposes such as solidarity and which does not entail intervention in "normal" markets for goods and services will be relatively unconstrained by the competition law prohibitions, even if it causes the sort of effects that competition law would seek to prevent if they were caused by the actions of undertakings.

To relate this to the CAT Bettercare II decision, this would mean that the ability to generate the effects that the competition rules seek to prevent is a necessary but not a sufficient condition for an activity to be that of an undertaking.

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Last changed by 92.251.3.158 at 10:08 AM on Wednesday 6 May 2009.

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