Judgment of the Court (Fifth Chamber) 15 December 1994
In Case C-250/92, REFERENCE to the Court under Article 177 of the EEC Treaty by the Østre Landsret for a preliminary ruling in the proceedings pending before that court between
THE COURT (Fifth Chamber), composed of: G. C. Rodriguez Iglesias, President, acting as President of the Chamber, J. C. Moitinho de Almeida and D. A. O. Edward (Rapporteur), Judges, Advocate General: G. Tesauro, Registrar: H. v. Holstein, Deputy Registrar,
after considering the written observations submitted on behalf of: Gøttrup-Klim Grovvareforening and Others, by M. R Vesterdorf, Legal Adviser, and B. Jacobi, of the Copenhagen Bar, Dansk Landbrugs Growareselskab AmbA, by A. Spang-Hanssen and S. Werdelin, of the Copenhagen Bar, the Commission of the European Communities, by H. R Hartvig, Legal Adviser, and B. J. Drijber, of its Legal Service, acting as Agents,
having regard to the Report for the Hearing,
after hearing the oral observations of:
Gøttrup-Klim Grovvareforening and Others, represented by B. Jacobi, assisted by M. R Vesterdorf,
Dansk Landbrugs Growareselskab AmbA, represented by A. Spang-Hanssen and S. Werdelin, assisted by J. Fejø, Advokat,
the Commission of the European Communities, represented by H. R Hartvig, Legal Adviser, and B. J. Drijber,
at the hearing on 16 December 1993,
after hearing the Opinion of the Advocate General at the sitting on 16 June 1994,
gives the following
Judgment
Applicability of Regulation No 26/62
Restriction of competition
Abuse of a dominant position
Effect on intra-Community trade
Jurisdiction of the national court
Costs
1. By order of 20 March 1991 and by decision of 10 April 1992, both received at the Court on 1 June 1992, the Østre Landsret (Eastern Regional Court) referred to the Court for a preliminary ruling under Article 177 of the EEC Treaty a number of questions on the interpretation of Articles 85 and 86 of the EEC Treaty and of Council Regulation No 26/62 of 4 April 1962 applying certain rules of competition to production of and trade in agricultural products (OJ, English Special Edition 1959-1962, p. 129).
2. Those questions were raised in proceedings between 37 local cooperative associations specializing in the distribution of farm supplies (hereinafter the plaintiffs) and Dansk Landbrugs Growareselskab AmbA (Danish cooperative association distributing farm supplies, hereinafter DLG). The plaintiffs in the main proceedings are all members of the Landsforeningen af den Lokale andel, known until 1991 as the Landsforeningen af Andels Grovvareforeninger (National Union of cooperative associations specializing in the distribution of farm supplies, hereinafter LAG). The main proceedings concern the lawfulness and the economic consequences of an amendment which was made by DLG to its statutes and which led to the exclusion of the plaintiffs.
3. DLG is a cooperative society with limited liability which has existed in its present form since 1969. Its object is to provide its members with farm supplies, including fertilizers and plant protection products, at the lowest prices. In addition, it offers its members certain services, particularly in the areas of finance and insurance, undertakes to negotiate the best prices for its members' produce and gives them access to logistical resources and research facilities. It has members throughout Denmark.
4. DLG's members fall into four categories: A, B, C and D. B members are local associations or other cooperatives whose object is trading in and/or producing goods appearing in the range of products offered by DLG. Before they were excluded, the plaintiffs were B members and, because they belonged to that category, they were entitled to some extent to take part in DLG's management.
5. LAG was formed in 1975 by the B members of DLG. During the 1980s, some B members, dissatisfied with the prices charged by DLG on the sale of fertilizers and plant protection products, took the initiative and began themselves to import those products. As a result, they started to cooperate amongst themselves within LAG.
6. On 9 June 1988 DLG amended its statutes because of increasing competition from LAG, in spite of opposition from the B members.
7. Paragraph 7 of the statutes was amended as follows:
8. At the same time, the rules governing withdrawal and resignation were amended so that DLG membership now lasts for five, instead of ten, years.
9. It was subsequently decided that, if it proved necessary to exclude B members, they would be treated as members resigning lawfully. As a result, they would obtain repayment over a period of ten years of their registered cooperative share capital, consisting of any original contribution and of a share in subsequently declared and undistributed surpluses, but would have no claim to a share in the undistributed assets, that is to say a proportional share of DLG's net worth, after deduction of share capital.
10. By letter of 29 December 1988, DLG submitted that amendment of its statutes to the Commission in order to obtain negative clearance as provided for in Article 2 of Council Regulation No 17/62 of 6 February 1962, the First Regulation implementing Articles 85 and 86 of the Treaty (OJ, English Special Edition 1959-1962, p. 87) or, alternatively, a declaration that the rules on competition are inapplicable under Article 4 of that regulation.
11. In that notification, DLG explained the objectives pursued in amending its statutes as follows:
12. Some of the B members refused to comply with the amendments to the statutes, with the result that 37 local associations which were B members were excluded from DLG as of March 1989.
13. The Commission has still not answered DLG's letter of notification of 29 December 1988.
14. During 1989, the amendments to the statutes of DLG were examined by the Monopoltilsynet (Danish Monopolies Office) and the Monopolråd (Danish Monopolies Board), the national competition authorities. Neither considered that any national competition rules had been infringed. Their examination did not take into account Articles 85 and 86 of the Treaty.
15. On 1 December 1989, those B members which had been expelled from DLG brought an action against that association before the Østre Landsret for the annulment of the amendments to the statutes, an order prohibiting DLG from applying the new articles and an order that the defendant should pay a sum totalling DKR 200000000 and compensation for the damage and disadvantages sustained as a result of their exclusion, plus interest on those sums. In support of their arguments, the plaintiffs in the main proceedings claim in particular that, by closing the Danish market to a wide variety of foreign suppliers, the amendment to DLG's statutes is contrary to Articles 85 and 86 of the Treaty.
16. By order of 20 March 1991 the Østre Landsret, taking the view that a ruling on the interpretation of Articles 85 and 86 of the Treaty was necessary in the proceedings pending before it, decided to refer the matter to the Court.
17. On 10 April 1992, it referred the following questions to the Court for a preliminary ruling:
18. In its order for reference, the Østre Landsret proceeds on the basis that DLG in essence sought to induce all the B members to stop purchasing fertilisers and plant protection products outside DLG, so that within the cooperative sector in Denmark there would be just one large association purchasing supplies on behalf of Danish farmers.
19. Some figures regarding the state of the relevant markets have been provided in the order for reference, the observations submitted to the Court and the written replies to the questions put by the Court to DLG and the plaintiffs. It is apparent that in 1988, when it amended its statutes, DLG held about 36% of the Danish fertilizer market, while about 23% was held by Korn & Foderstof A/S (a limited company), about 14% by Superfos A/S (a limited company) and about 10% by LAG. Furthermore, DLG held about 32% of the Danish market in plant protection products. After their exclusion, the plaintiffs succeeded, operating within LAG, in competing so strongly with DLG on the Danish market in farm supplies that in 1990 they held a market share similar to DLG's. It is also apparent from these figures that around 60% of total fertilizer consumption in Denmark is met by imports, both from the Member States and from nonmember countries. Danish consumption of plant protection products is met almost entirely by imports.
20. The 17 questions referred by the national court can be grouped under five main heads, which can best be treated in the following order:
21. In its first set of questions, the national court seeks to ascertain whether fertilizers and plant protection products come within the scope of the derogation from the competition rules laid down in Article 42 of the Treaty and Regulation No 26/62.
22. Pursuant to Article 42 of the Treaty, the provisions of the chapter relating to rules on competition are to apply to production of and trade in agricultural products only to the extent determined by the Council. Article 38(3) of the Treaty provides that the products subject to the provisions of Articles 39 to 46 inclusive of the Treaty are listed in Annex II to the Treaty. It adds that the Council may, within two years of entry into force of the Treaty, add other products to that list.
23. According to consistent case-law (see in particular the judgment of the Court in Case 61/80 Coöperatieve Stremsel-en Kleurselfabriek v Commission [1981] ECR 851, the rennet case, paragraph 21, and of the Court of First Instance in Case T-61/89 Dansk Pelsdyravlerforening v Commission [1992] ECR II-1931, paragraphs 36 and 37), it was in accordance with those provisions of the Treaty that the scope of Regulation No 26/62 was restricted by Article 1 thereof to production of and trade in the products listed in Annex II to the Treaty. That regulation cannot therefore be applied to trade in a product which does not fall within Annex II even if it is a substance ancillary to the production of another product which itself falls within that annex. In order for the regulation to apply to fertilizers and plant protection products, those products would themselves have to fall within Annex II to the Treaty, which they do not.
24. It follows that Regulation No 26/62 does not apply in this case, and that Articles 85 and 86 of the Treaty are fully applicable.
25. That conclusion is not called into question by the fact that Directive 91/414 (cited above) was adopted specifically on the basis of Article 43 of the Treaty.
26. Suffice it to note that Article 42 is a derogating provision, the scope of which, as of Regulation No 26/62, cannot implicitly be widened by adoption of measures based on Article 43 of the Treaty, a provision which confers on the Council the power to adopt measures for the purpose of implementing the common agricultural policy.
27. The answer to the first set of questions must therefore be that fertilizers and plant protection products do not fall within the scope of the derogation from the competition rules which is laid down in Article 42 of the Treaty and Regulation No 26/62.
28. In the second set of questions, the national court seeks to ascertain whether a provision in the statutes of a cooperative purchasing association, the effect of which is to forbid its members to participate in other forms of organized cooperation which are in direct competition with it, is caught by the prohibition in Article 85(1) of the Treaty.
29. The plaintiffs in the main proceedings claim that the object or effect of such an amendment to the statutes is to restrict competition, inasmuch as the objective pursued was to put an end to B members purchasing through LAG in competition with DLG, and thus to acquire a dominant position on the markets concerned.
30. A cooperative purchasing association is a voluntary association of persons established in order to pursue common commercial objectives.
31. The compatibility of the statutes of such an association with the Community rules on competition cannot be assessed in the abstract. It will depend on the particular clauses in the statutes and the economic conditions prevailing on the markets concerned.
32. In a market where product prices vary according to the volume of orders, the activities of cooperative purchasing associations may, depending on the size of their membership, constitute a significant counterweight to the contractual power of large producers and make way for more effective competition.
33. Where some members of two competing cooperative purchasing associations belong to both at the same time, the result is to make each association less capable of pursuing its objectives for the benefit of the rest of its members, especially where the members concerned, as in the case in point, are themselves cooperative associations with a large number of individual members.
34. It follows that such dual membership would jeopardize both the proper functioning of the cooperative and its contractual power in relation to producers. Prohibition of dual membership does not, therefore, necessarily constitute a restriction of competition within the meaning of Article 85(1) of the Treaty and may even have beneficial effects on competition.
35. Nevertheless, a provision in the statutes of a cooperative purchasing association, restricting the opportunity for members to join other types of competing cooperatives and thus discouraging them from obtaining supplies elsewhere, may have adverse effects on competition. So, in order to escape the prohibition laid down in Article 85(1) of the Treaty, the restrictions imposed on members by the statutes of cooperative purchasing associations must be limited to what is necessary to ensure that the cooperative functions properly and maintains its contractual power in relation to producers.
36. The particular features of the case at issue in the main proceedings, which are referred to in the questions submitted by the national court, must be assessed in the light of the foregoing considerations. In addition, it is necessary to establish whether the penalties for noncompliance with the statutes are disproportionate to the objective they pursue and whether the minimum period of membership is unreasonable.
37. First of all, the amendment of DLG's statutes is restricted so as to cover only fertilizers and plant protection products, the only farm supplies in respect of which a direct relationship exists between sales volume and price.
38. Furthermore, even after DLG has amended its statutes and excluded the plaintiffs, it is open to nonmembers of the association, including the plaintiffs, to buy from it the whole range of products which it sells, including fertilizers and plant protection products, on the same commercial terms and at the same prices as members, except that nonmembers are obviously not entitled to receive a yearly discount on the amount of the transactions carried out.
39. Finally, DLG's statutes authorize its members to buy fertilizers and plant protection products without using DLG as an intermediary, provided that such transactions are carried out otherwise than through an organized consortium. In that context, each member acts individually or in association with others but, in the latter case, only in making a one-off common purchase of a particular consignment or shipload.
40. Taking all those factors into account, it would not seem that restrictions laid down in the statutes, of the kind imposed on DLG members, go beyond what is necessary to ensure that the cooperative functions properly and maintains its contractual power in relation to producers.
41. As regards the penalties imposed on the plaintiffs as a result of their exclusion for infringing DLG's rules, these would not appear to be disproportionate, since DLG has treated the plaintiffs as if they were members exercising their right to withdraw.
42. So far as concerns the membership period, this has been reduced from ten to five years, which does not seem unreasonable.
43. It is significant, in the last analysis, that after their exclusion, the plaintiffs succeeded, through LAG, in competing vigorously with DLG, with the result that in 1990 their market share was similar to DLG's.
44. The other matters mentioned in the second set of questions referred by the national court are not such as to affect the analysis of the problem.
45. The answer to the second set of questions referred by the national court must therefore be that a provision in the statutes of a cooperative purchasing association, forbidding its members to participate in other forms of organized cooperation which are in direct competition with it, is not caught by the prohibition in Article 85(1) of the Treaty, so long as the abovementioned provision is restricted to what is necessary to ensure that the cooperative functions properly and maintains its contractual power in relation to producers.
46. In the third set of questions, the national court seeks to ascertain whether a provision in the statutes of a cooperative purchasing association, the effect of which is to prohibit its members from participating in other forms of organized cooperation which are in direct competition with it, may constitute an abuse of a dominant position contrary to Article 86 of the Treaty.
47. The concept of a dominant position is defined in settled case-law as a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers. In general the existence of a dominant position derives from a combination of several factors which, taken separately, are not necessarily decisive (see, in particular, the judgments in Case 27/76 United Brands v Commission [1978] ECR 207, paragraphs 65 and 66, and Case T-30/89 Hilti v Commission [1991] ECR II-1439, paragraph 90).
48. It is true that in certain cases the fact that an undertaking holds a large market share may be considered to be a strong indication of the existence of a dominant position. According to the national court, at the time when DLG amended its statutes in 1988, it held around 36% of the Danish fertilizer market and 32% of the Danish market in plant protection products. While an undertaking which holds market shares of that size may, depending on the strength and number of its competitors, be considered to be in a dominant position, those market shares cannot on their own constitute conclusive evidence of the existence of a dominant position.
49. So far as concerns the concept of abuse of a dominant position, the first point to note is that neither the creation nor the strengthening of a dominant position is in itself contrary to Article 86 of the Treaty.
50. As pointed out above (paragraph 32), the activities of cooperative purchasing associations may encourage more effective competition on some markets, if the conditions imposed on the members are limited to what is necessary to ensure that the cooperative functions properly and maintains its contractual power in relation to producers.
51. It does not appear that restrictions laid down in the statutes, such as those imposed on DLG members in the dispute in the main proceedings, exceed those limits (see paragraphs 36 to 42 above).
52. The answer to the third set of questions referred by the national court must therefore be that even if a cooperative purchasing association holds a dominant position on a given market, an amendment of its statutes prohibiting its members from participating in other forms of organized cooperation which are in direct competition with it does not constitute an abuse of a dominant position contrary to Article 86 of the Treaty, so long as the abovementioned provision is limited to what is necessary to ensure that the cooperative functions properly and maintains its contractual power in relation to producers.
53. In its fourth set of questions, the national court asks whether intra-Community trade is affected, within the meaning of Articles 85(1) and 86 of the Treaty, since the transactions involving the purchase of basic products are in part concluded directly with producers established in nonmember countries.
54. The Court has consistently held that, in order that an agreement between undertakings may affect trade between Member States, it must be possible to foresee with a sufficient degree of probability on the basis of a set of objective factors of law or fact that it may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States, such as might prejudice the realization of the aim of a single market in all the Member States (see Case 42/84 Remia v Commission [1985] ECR 2545, paragraph 22). Accordingly, the effect on intra-Community trade is normally the result of a combination of several factors which, taken separately, are not necessarily decisive.
55. It is for the national court, where appropriate, to undertake the economic analysis required, in accordance with the criteria laid down in the case-law cited above. However, in view of the answers given to the previous questions, such an analysis would not seem to be necessary in the dispute in the main proceedings.
56. The answer to the fourth set of questions must therefore be that intra-Community trade may be affected, within the meaning of Articles 85(1) and 86 of the Treaty, even where the basic products concerned by a provision in the statutes are in part imported from nonmember countries.
57. In its fifth and final question, the national court seeks to ascertain what are the powers of the national court where an agreement has been notified to the Commission in order to obtain negative clearance or exemption pursuant to Regulation No 17/62.
58. If the conditions for application of Article 85(1) are clearly not satisfied so that there is scarcely any risk of the Commission taking a different decision, the national court may continue the proceedings and rule on the agreement in issue (see the judgment in Case C-234/89 Delimitis v Henninger Bräu AG [1991] ECR I-935, paragraph 50).
59. In the dispute in the main proceedings, the Commission stated, in reply to a question from the Court, that in its view the amendment to DLG's statutes is not caught by the prohibition laid down in Article 85(1) of the Treaty.
60. The answer to the fifth question must therefore be that a national court has jurisdiction to rule on the lawfulness of an agreement notified to the Commission where that court considers that the conditions for application of Article 85(1) of the Treaty are clearly not satisfied.
61. The costs incurred by the Commission of the European Communities, which has submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the proceedings pending before the national court, the decision on costs is a matter for that court.
On those grounds, THE COURT (Fifth Chamber), in answer to the questions referred to it by the Østre Landsret by order of 20 March 1991 and by decision of 10 April 1992, hereby rules:
1 Fertilizers and plant protection products do not come within the scope of the derogation from the competition rules laid down in Article 42 of the Treaty and Council Regulation No 26/62 of 4 April 1962 applying certain rules of competition to production of and trade in agricultural products.
2 A provision in the statutes of a cooperative purchasing association, forbidding its members to participate in other forms of organized cooperation which are in direct competition with it, is not caught by the prohibition in Article 85(1) of the Treaty, so long as the abovementioned provision is restricted to what is necessary to ensure that the cooperative functions properly and maintains its contractual power in relation to producers.
3 Even if a cooperative purchasing association holds a dominant position on a given market, an amendment of its statutes prohibiting its members from participating in other forms of organized cooperation which are in direct competition with it does not constitute an abuse of a dominant position contrary to Article 86 of the Treaty, so long as the abovementioned provision is limited to what is necessary to ensure that the cooperative functions properly and maintains its contractual power, in relation to producers.
4 Intra-Community trade may be affected, within the meaning of Articles 85(1) and 86 of the Treaty, even where the basic products concerned by a provision in the statutes are in part imported from nonmember countries.
5 A national court has jurisdiction to rule on the lawfulness of an agreement notified to the Commission of the European Communities where that court considers that the conditions for application of Article 85(1) of the Treaty are clearly not satisfied.
1 Language of the case: Danish.