Competition law and economic crisis. Which is the stronger?

Article paru in Liber amicorum Christian Larroumet, textes recueil- lis par Sarah Bros et Blandine Mallet-Bricout, Economica, 2007, p. 465 et s.


There’s more to be done for the automobile industry than examining whether State aid is compatible with the rules of market competition". That is how the President of the Republic, Nicolas Sarkozy, very recently sacrificed competition law on the altar of politics. Competition rules are less readily accepted than others perhaps because the harm they avert remains general and diffuse. Businesses invoke their financial difficulties in an attempt to escape competition rules being applied even when those difficulties are not related to a general or industry-wide state of crisis. But the competition authorities generally remain deaf to such calls, especially when they take the form of defensive cartels designed to avoid the harmful consequences of the anticompetitive behaviour of other businesses.


‘There’s more to be done for the automobile industry than examining whether State aid is compatible with the rules of market competition[1]’. That is how the President of the Republic, Nicolas Sarkozy, very recently sacrificed competition law on the altar of politics. Competition rules are less readily accepted than others perhaps because the harm they avert remains general and diffuse[2]. Businesses invoke their financial difficulties in an attempt to escape competition rules being applied even when those difficulties are not related to a general or industry-wide state of crisis[3]. But the competition authorities generally remain deaf to such calls, especially when they take the form of defensive cartels designed to avoid the harmful consequences of the anti-competitive behaviour of other businesses[4].

The competition authorities resist demands from businesses for more flexibility depending on the scale of the crisis and the nature of the rules in question. The more businesses that are affected, the more receptive the control authorities become; correlatively, the difficulties of any given business seldom influence their judgement. Moreover, the better established the autonomy of the competition rules, the less impact the crisis will have on their application. The rules on State aid, which in their current configuration are not justified by price theory but simply prevent unfair behaviour by States[5], are more malleable in times of crisis than are rules on restrictive agreements and abuse of dominant position.

Economists answer equivocally. At first sight, to modify the application of competition rules in times of crisis is to sacrifice the long term to the short term. But closer scrutiny brings out a distinction between efficiency and solvency[6]. While everyone deems it irrational to favour inefficient businesses by exempting them from complying with competition rules or granting aid to them, things are different for efficient businesses that are simply insolvent. Besides, efficiency is only one ground among others for exemption under European laws and an end-purpose outside of competition, such as safeguarding jobs, would be enough to justify some degree of flexibility.

In the face of economic crises, competition law waivers: should it adapt, and if so, how?


Economic doctrine and case law are ambivalent in their appraisal of the effects of economic crises.

1.1 The ambivalence of doctrine

Some commentators think crises are beneficial as they weed out the businesses that perform most poorly[7]. Crises are inherent in the market. To keep the competitive mechanism running smoothly, economic crises must be left to develop their full effects. This positive appraisal has repercussions for competition policy: it must be kept in place as far as possible despite crises.

The competition authorities will not apply the rules on State aid more flexibly because the State does not assign resources any better than the market does. They will not authorize anti-competitive mergers more liberally since the market power such mergers generate will be exercised to the detriment of consumers. Lastly, they will not accept abuses of dominant position or cartels more widely so as to prevent businesses from passing on the difficulties they encounter to their customers[8].

Others maintain the exact opposite opinion. For them, ‘saving Alstom does not necessarily reduce competition in Europe[9]’. In certain mergers, protecting a competitor does not harm competition. In an interview in 2001, Alexander Schaub, then Director General of Competition with the Commission, summarized this viewpoint perfectly when he declared that Community competition policy needed to pursue three objectives: to allow the market economy to operate, to support the creation of the common market, and to ensure economic and social progress[10].

1.2 The ambiguity of case law

In all legal systems, the control authorities have adapted the competition rules in times of crisis[11].

In the United States, the Supreme Court made an emblematic decision in the 1933 Appalachian Coals case[12]. The coal mining industry had been in difficulty for some years because of competition from new power sources. The difficulties had worsened after the 1929 crisis which had led to enormous production surpluses being sold off at very low prices. To put an end to such ‘destructive competition’, producers had created an exclusive agency for buying and selling. The Supreme Court accepted that the ‘combination’ was within the rule of reason as it benefited consumers, maintained wages and jobs, and sustained competition with gas and petroleum producers.

Closer to home, in its Stichting Backsteen decision[13], the Commission exempted a ‘reorganization’ agreement among brickmakers in the Netherlands to reduce capacity notably by putting in place a system of private fines for failure to abide by their commitments. In justifying its decision, the Commission asserted that the coordinated closures would enable restructuring under acceptable social conditions and would facilitate the redeployment of employees.

France’s Conseil de la concurrence adopted a similar position in its Marché du sel (salt market) decision: ‘The need to ensure the survival of businesses subject to major unforeseeable variations in output justifies production being grouped within a single organization […], the setting of a common production price being part of the mission of such an organization’[14].

By contrast, other decisions have resolutely opposed any modulation in the application of competition law. In the United States, Appalachian Coals remains an exception and US case law unanimously condemns any agreement to limit output or fix prices[15]. Likewise, the EU authorities generally oppose crisis cartels, which they examine in the context of an individual exemption only[16].

The position is identical in French law: the Marché du sel decision contrasts with the Marché du miel (honey market) decision[17], in which the Conseil de la concurrence replied to the businesses that were invoking the constant fall in prices within the bee-keeping industry, that ‘maintaining loss-making businesses could not be likened to an objective of economic progress’. More generally in its more recent decisions, the Conseil has considered that a crisis in an industry does not vindicate any collusion and the difficulties of any one business never create a state of necessity justifying a cartel[18].

Even in the domain of State aid, crises do not attenuate but on the contrary they accentuate the stringent enforcement of the rule. By virtue of the private investor theory, prohibited aid includes any increase in the capital of a business whose economic structures preclude all hope of a good return on investment[19], any investment in a sector characterized by a low rate of profitability[20], or the buying back of shares and granting of an interest-free loan to avoid the closure of a production plant and the jobs related to it[21]. Moreover, in the course of the State aid procedure, the State can never argue that the businesses receiving aid have ceased trading or gone bankrupt to evade its obligation to recover the aid[22].

In principle, the control authorities invariably proclaim their hostility to any amendment of the competition rules in times of crisis. But, they do make those rules more flexible in certain instances. The law is sometimes weaker in times of crisis.


A legal system can react to an economic crisis in one of two ways: either it excludes the crisis from the scope of its usual operation and applies special rules to it; or it accommodates the crisis and changes the application of its ordinary rules.

2.1 By way of exemption

All systems of competition law operate on the principle of prohibition/exemption: a prohibited restrictive agreement may, under certain circumstances, be authorized. Now, it is quite possible to foresee special cases of exemption for covering economic crises.

Article 6 of the GWB was until recently the best example, since this text, which was aimed specifically at crisis cartels, exempted any ‘agreement among undertakings intended for the coordinated and planned adaptation of production capacity to demand’. Article 6 was abrogated by the seventh Novelle of the GWB of 1 July 2005.

Even if it symbolizes a degree of autonomization of competition law with respect to economic policy, the legislative modification does not mean that crisis cartels are no longer likely to benefit from exemption in German law, but only that such exemption would now be granted by virtue of the general exemption clause of article 1 of the GWB[23].

French law makes it perfectly possible to deal with crises in the context of exemption without changing the normal operation of competition rules. Article L. 420-4, I, 2o of the Code de commerce grants exemption to those engaging in prohibited practices ‘who can prove that they have the effect of ensuring economic progress, including by creating or maintaining jobs’. One of the only two block exemption decrees passed refers specifically to surplus capacity in farming[24]. In the context of concentration control, to authorize anti-competition concentration, the minister may invoke ‘creating or maintaining employment’ among the reasons of general interest.

Similarly, in October 2008, the British government relied on section 42 of the Competition Act to authorize the merger between HBoS and Lloyds Bank in the name of ‘general interest considerations’. Yet, that provision mentioned only two interests justifying such intervention: national security and the plurality of media ownership. The letter of the law did not stop the executive, from adding ‘maintaining the stability of the UK financial system’.

2.2 By way of relaxation

Procedural or substantive rules may be relaxed. While relaxation of procedural rules is naturally part of the working of the legal system, relaxation of substantive rules greatly disrupts it.

Failure to allow for a crisis situation when an offense is created can be easily accounted for when it comes to the sanction. The degraded financial situation of a company may lessen the fine or entail a stay of execution.

In EU law, the negative financial position of the undertaking does not in principle lessen the fine[25]. The guidelines do specify, though, that the fine might be reduced if the firm proves that its levy would endanger the firm’s economic viability and would strip its assets of any value[26].

Likewise, although financial harm does not fulfil the condition of irreparable harm allowing the granting of a stay of execution, things are different when the company’s existence is at stake[27].

French law adopts a more absolute position: the financial situation weighing on the company is one of the main factors lessening the fine[28] and the stay of execution is in principle always granted in the event of insufficient resources when the undertaking cannot pay the fine without endangering its survival[29].

Sometimes relaxation is not limited to the rules of procedure but affects substantive law. In this case, anti-competitive behaviour is judged lawful not because it is exempted but because the control authority considers that in times of crisis, the actual prohibition does not apply.

The failing company doctrine, which is accepted in US, EU and French law, allows an anti-competitive merger to be authorized under certain circumstances whenever the target firm is in difficulty. This doctrine is not based on the idea of exemption but is part of a purely competition-based line of reasoning: a merger – even if anticompetitive – must be authorized if it is proven that the target company would have gone out of business anyway, since there is then no causal link between the merger and the infringement of competition. Construed liberally, this theory would render the merger control devoid of substance. But all legal systems have used it only very sparingly, even outside of times of crisis[30]. In fact, the most dangerous provisions for the legal system are those which, while not intended for application in exceptional circumstances, concern firms in difficulty. In times of crisis they form a point of entry into the legal system from which operation of the doctrine may be completely undermined.

If the state of necessity were to be recognized in the context of the rule of reason, not only would an economic crisis become in itself a cause of exemption, but prohibition would finally lose its absolute character and all manner of justification, equally or more legitimate than the state of crisis, would have to be accepted. Conversely, where the crisis is clearly identified as a case of exemption, it may be made subject to conditions, such as the necessity to contribute sufficiently to efficiency, and the risk of any spread to other situations will be excluded. Exceptional means are far preferable to ordinary relaxations, which are ultimately extremely dangerous. Exceptional relaxation isolates the problem outside of the legal system: this is essential where substantive rules are concerned. Only the adaptation of the rules of implementation can be tolerated, since they form an autonomous body of rules whose application does not interfere with substantive considerations.

The Commission took account of the exception/adaptation distinction when it ruled on aid measures adopted by some member States to meet the financial crisis[31]. The competition authority did not rely on the ordinary texts governing aid to firms in difficulty – rescue aid, restructuring aid – that it would have had to substantially distort to make into effective anti-crisis instruments. On the contrary, it resorted to an exceptional test so far little used and aimed at ‘aid for remedying serious disruption of a member State’s economy’. It thus set aside excessively strict rules in view of the global character of the crisis, while at the same time limiting the scope of the derogations accepted. Provided they remain exceptional, the legal system can readily tolerate adaptations. The law is weakened when it makes concessions in times of economic crisis without admitting it has done so; on the other hand, the law is strengthened and prevails when it is able to accommodate the situation openly.

[1] Cited by Jenny, ‘Le droit de la concurrence, obstacle ou remède à la crise’, Les Echos, 19 March 2009.

[2] L. Vogel, European Competition Law, Paris, LawLex, 2011, no 4.41; French Competition Law, Paris, LawLex, 2011, no 40.23.

[3] Fasquelle, ‘L’incidence des difficultés des entreprises sur l’application des règles de concurrence’, Mélanges en l’honneur d’Yves Serra (Paris : Dalloz, 2006) p. 159.

[4] See esp. Competition Council decision No 97-D-20 of 25 March 1997, LawLex200202458JBJ; see also Competition Commission opinion of 14 March 1985, on central purchasing departments and their groupings, which excludes self-defence from validating anti-competition practice; no 03-D-36 of 29 July 2003, LawLex200300003008JBJ, excluding price agreements among producers from being justified by the unlawful actions of certain distributors; no 94-D-54 of 25 October 1994, LawLex200202942JBJ; no 97-D-20 of 25 March1997, LawLex200202458JBJ; no 02-D-57 of 19 September 2002, LawLex200202141JBJ; no 07-D-26 of 26 July 2007, LawLex200700001085JBJ; no 07-D-21 du 26 juin 2007, LawLex200700001086JBJ; no 07-D-26 of 26 July 2007, LawLex200700001185JBJ; no 91-D-56 du 10 décembre 1991, LawLex200203323JBJ.

[5] L. Vogel, European Competition Law, Paris, LawLex, 2011, no 22.01.

[6] Benzoni, La politique de relance, facteur de concurrence ? Atelier de la concurrence ‘Le droit de la concurrence à l’épreuve de la crise économique’, 27 April 2009,

[7] Perrot, ‘Politique de la concurrence, faillites bancaires et théorie économique’, speech to the International Chamber of Commerce, 20 March 2009.

[8] Encoua, ‘Une politique de la concurrence est-elle pertinente en période de crise ?’, Atelier de la concurrence, 27 avril 2009 (n 5).

[9] Encoua and Guesnerie, Politiques de la concurrence, Rapport du Conseil d’analyse économique (La Documentation française, 2006) p. 132.

[10] Schaub, ‘La politique européenne de concurrence : objectifs et règles’, Petites affiches, 5 nov. 2001, p. 11.

[11] Montalcino, ‘La crise au travers des décisions de la concurrence’, Atelier de la concurrence, 27 avril 2009, (n 5).

[12] 288 US 344, 53 S.CE. 471 (1933).

[13] Commission Decision 94/296/EC of 29 April 1994, OJ 1994 No. L131, 26 May 1994, LawLex200500004786JBJ.

[14] Competition Council decision No 88-D-20 of 3 May 1988, BOCC of 28 May 1988, LawLex200202275JBJ.

[15] Fasquelle, Droit américain et droit communautaire des ententes, GLN Joly, 1993, no. 45.

[16] Commission Decision 84/405/EEC of 6 August 1984, Zinc Producer Group, LawLex200500004388JBJ; Commission Decision 2003/600/EC of 2 April 2003, French beef, LawLex200500004520JBJ; ECJ, 15 October 2007, Limburgse Vinyl Maatschappi NV (LVM), Case C-238-99 P, LawLex200500004845JBJ; RTD com., 2003, 393, obs. Pollot-Peruzetto; Europe, 2002, no 423, obs. Idot; Petites affiches, 23 December 2002, Chron., 12, obs. Idot.

[17] Competition Council decision of 5 December 1995, BOCC of 12 Feb. D96 LawLex200202834JBJ, Contrat Conc. Consom. 1996, no 61, obs. Vogel.

[18] Competition Council decision No 91-D-31 of 5 June 2001, LawLex200202341JBJ; no 5-D-47 of 28 July 2005, LawLex200500008930JBJ; no 05-D-19 of 12 May 2005, LawLex200500006067JBJ.

[19] Commission Decision 96/614/EC of 29 May 1996, Measures by Italy in favour of Breda Fucine Meridionali SpA, LawLex200500004765JBJ: repeat loans, capital contributions and funds granted to a public concern via public holdings are not normal behaviour by a private investor when the concern, which has never made a profit, should have been dissolved because of losses that absorbed all of its corporate capital, its level of debt ruling out any return to profitability even in the long term; Commission Decision 97/81/EC of 30 July 1996, Austrian government aid to Head Tyrolia Mares, LawLex200500004783JBJ, Europe, 1997, no 85, obs. Idot: injections of capital into a private firm in difficulty by a public company and financed out of profits made by the public company and not distributed to the public authorities are State aid within the meaning of article 87 EC paragraph 1 when made without any prospect of return on investment; 97/271/ECSC of 18 December 1996, ECSC steel/Forges de Clabecq, LawLex200500004781JBJ: there is a presumption of State aid being involved when a public contribution is made to an undertaking whose structure and volume of indebtedness hold out no expectation of a normal return – in dividends or value – of the capital invested within a reasonable timescale; 2001/856 of 4 October 2000, State aid in favour of Verlipack–Belgium, LawLex200500004729JBJ; 2004/339 of 15 October 2003, measures in favour of RAI SpA, LawLex200500004541JBJ, a State that increases the capital of an undertaking while its economic prospects and the evolution of the market provide no hope of a good return and it has no sound, realistic and reasonable economic plan confirming its prediction as to the return on the capital invested is not behaving like a private investor in a market economy.

[20] Commission Decision 94/653/EC of 27 July 1994, Notified increase in capital of Air France, LawLex200500004789JBJ: the injection of public capital into an undertaking is State aid when its enormous indebtedness, negative cash flow, accumulation of substantial losses and the specificities of the relevant sector, characterized by a low level of profitability, is not likely for a private investor, basing its decision on rational criteria, to produce a sufficient return even over the long term.

[21] Commission Decision 2006/900/EC of 20 October 2005, Componenta Oyj, LawLex20070000566JBJ, see also Case 92/321/CE of 25 March 1992, SA, LawLex200500004684JBJ: repeated capital contributions in the form of increases in capital to maintain an undertaking in business without the slightest result in terms of investment profitability constitute State aid insofar as such financing could not have been obtained on private capital markets.

[22] ECJ 27 June 2000, Portuguese Republic, case C-404/97, LawLex200500004963JBJ, Europe, 2000, no 268, obs. Idot; Europe, 2000, no 250, obs. Kauff-Gazin; 2 July 2002, Kingdom of Spain, case C-499/99, LawLex200500004859JBJ, Europe 2002, no 293, obs. Idot; 17 June 100, Kingdom of Belgium, case C-75/97, LawLex200500005080JBJ, Europe, 1999, no 304, obs. Idot; 14 September 1999, Kingdom of Spain, case C-42/93, LawLex200500005057JBJ; 23 October 1993, Italian Republic, Technische Glaswerke Ilmenau GmbH, case C-349/93, LawLex200500005137JBJ, Europe 1995, no 127 and 149, obs. Gazin and Lagondet; CFI, 8 July 2004, Technische Glaswerke Ilmenau GmbH, case T/198/01, LawLex200500008218JBJ, Petites affiches, 18 April 2005, 14, obs. Arhel; Europe, 2004, no 299, obs. Idot; 19 October 2005, Freistaat Thüringen, Case T-38/06, Europe, 2005, no 415, obs. Idot; Gaz. Pal., 15-16 Feb. 2006, 10, obs. Gunther and Philippe; Petites affiches, 10 avr. 2006, 12, obs. Arhel; ECJ 6 December 2007, Italian Republic, case C-290/05, LawLex20090000371JBJ; Petites affiches, 11 Feb. 2008, 11, obs. Arhel; Concurrences, 1-2008, 157, obs. Chérot; Contrats, conc., consom., 2008, no 3, obs. Beaux.

[23] Immenga and Mestmäcker, Wettbewerbsrecht, 4th edn, Munich, Beck, 2007, 197 ff.

[24] D. 96-500 du 7 juin 1996, JO du 11 juin 1996 ; Contrats, conc., consom. 1996, 25, obs. Vogel.

[25] CFI, 19 May 1999, BASF Coatings (AG), T-279/02, LawLex200700001980JBJ.

[26] EC Commission communication 2006-C 210/02 of 1 September 2006, pt 35.

[27] CFI, 26 October 2001, IMS Health Inc., case T-184/01 R, LawLex200500003901JBJ; 28 May 2001, Poste Italiane SpA, case T-53-01 R, LawLex200500003883JBJ; ECJ 14 December 1999, HFB E.A., case C-335/99 P(R), LawLex2006000039JBJ.

[28] L. Vogel, French Competition Law, Paris, LawLex, 2011, no 5.60.

[29] Paris, 20 décembre 1990, LawLex200202589JBJ; 24 février 1995, LawLex200202586JBJ, BOCC, 6 avril 1995, 95; Paris, 26 juin 1996, LawLex200202588JBJ, BOCC, 20 août 1996, 407; CA Paris, 9 August 2002, LawLex2002000350JBJ, for a case where payment of the penalty was liable to entail the bankruptcy of the firm and to have external repercussions in the wider local community.

[30] See Fasquelle, ‘L’incidence des difficultés des entreprises sur l’application des règles de concurrence’ (n 2), p. 175 ff.

[31] EC Commission Notice of 13 October 2008 on the application of State aid rules to measures taken in relation to financial institutions in the context of the current global financial crisis; OJ C 270 of 25 October 2008; EC Commission communication 2009-C 10-03 of 15 January 2009, on the recapitalization of financial institutions in the current financial crisis: limitation of aid to the minimum necessary and safeguards against undue distortion of competition; EC Commission communication C 72-01 of 26 March 2009 on the treatment of depreciated assets in the European banking sector, OJ C-072 of 26 March 2009, 1; OJ C 10 of 15 January 2009, 2. EC Commission communication C-83-01 of 7 April 2009, OJ C 83 of 7 April 2009, 1. See Bazex, ‘Les aides d’État, instrument de régulation économique’, Atelier de la concurrence, 27 April 2009, (n 5).