EU High Court adopts narrow interpretation of “by object” restrictions and boosts effects-based approach with significant implications for cooperation/joint venture agreements.

The European Court of Justice has provided much awaited clarification of the notion of “by object” restrictions of competition under EU competition law in granting an appeal by the Groupement des Cartes Bancaires “CB”. In a landmark and welcome ruling, the Court confirmed that the European Commission (the Commission) needs to abandon its simplistic use of the “by object” restriction notion in cases that are not obviously harmful to competition and focus on the actual effects of the conduct. The Court also emphasized the obligation on the General Court to ensure a full judicial review, including a detailed and thorough analysis of the arguments of the parties and of the evidence on which the decision relies. Latham & Watkins represented the Groupement des Cartes Bancaires “CB”.

On 11 September 2014, the European Court of Justice quashed the judgment of the General Court that had previously upheld the European Commission’s decision finding that certain pricing measures adopted by the Groupement des Cartes Bancaires “CB” (CB Group) were “by object” restrictions of competition.1 The CB measures in question were aimed at balancing the issuing and acquiring activities within the CB payment system in France. The Court of Justice held that for an agreement to restrict competition by object it must by its very nature be sufficiently harmful to the proper functioning of normal competition. The Court of Justice held that the elements relied on by the General Court did not support that conclusion. The judgment marks a significant turning point in EU competition law. In recent years, the Commission expanded the category of “by object” restrictions to avoid having to show likely adverse effects on competition. There are now clear limits on doing so in cases that do not involve hardcore restrictions. The judgment signals a welcome return to normality where agreements involving integration of economic activity are caught by Article 101(1) TFEU only when they have potential restrictive effects on competition.