Article 101 of the Treaty on the Functioning of the European Union prohibits cartel

Cartel

A cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products...

s and other agreements that could disrupt free competition

Competition

Competition is a contest between individuals, groups, animals, etc. for territory, a niche, or a location of resources. It arises whenever two and only two strive for a goal which cannot be shared. Competition occurs naturally between living organisms which co-exist in the same environment. For...

 in the European Economic Area

European Economic Area

The European Economic Area was established on 1 January 1994 following an agreement between the member states of the European Free Trade Association and the European Community, later the European Union . Specifically, it allows Iceland, Liechtenstein and Norway to participate in the EU's Internal...

's common market. Article 101 reads,

1. The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which: directly indirectly fix purchase or selling prices or any other trading conditions; limit or control production, markets, technical development, or investment; share markets or sources of supply; apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

2. Any agreements or decisions prohibited pursuant to this article shall be automatically void.


3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:

any agreement or category of agreements between undertakings,

any decision or category of decisions by associations of undertakings,

any concerted practice or category of concerted practices,

which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:

(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;

(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

Businesses who infringe these rules can be subjected to large fines by the European Commission

European Commission

The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....

 or national competition authorities.

Prison is not available as a punishment under Article 101 itself.
Some countries within the European Union

European Union

The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

 have laws that impose criminal sanctions, including prison, for participation in anti-competitive agreements or practices.

Goals

Article 101 EC

Treaty of Rome

The Treaty of Rome, officially the Treaty establishing the European Economic Community, was an international agreement that led to the founding of the European Economic Community on 1 January 1958. It was signed on 25 March 1957 by Belgium, France, Italy, Luxembourg, the Netherlands and West Germany...

's goals are unclear. There are two main schools of thought. The predominant view is that only consumer welfare considerations are relevant there. However, a recent book argues that this position is erroneous and that other Member State and European Union public policy goals (such as public health and the environment) should also be considered there. If this argument is correct then it could have a profound effect on the outcome of cases as well as the Modernisation process as a whole.

Undertakings

Under EC law cartels are banned by Article 101 TFEU. Art. 101 TFEU makes clear who the targets of competition law are in two stages with the term agreement between "undertaking". This is used to describe almost anyone "engaged in an economic activity", but excludes both employees, who are by their "very nature the opposite of the independent exercise of an economic or commercial activity", and public services based on "solidarity" for a "social purpose".

Collusion

Undertakings must then have formed an agreement, developed a "concerted practice", or, within an association, taken a decision. Like US antitrust, this just means all the same thing. According to Advocate General Reischl in Van Landewyck [1980] there is no need to distinguish an agreement from a concerted practice, because they are merely convenient labels. Any kind of dealing or contact, or a "meeting of the minds

Meeting of the minds

Meeting of the minds is a phrase in contract law used to describe the intentions of the parties forming the contract. In particular it refers to the situation where there is a common understanding in the formation of the contract...

" between parties could potentially be counted as illegal collusion

Collusion

Collusion is an agreement between two or more persons, sometimes illegal and therefore secretive, to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage...

. Covered therefore is a whole range of behaviour from a strong handshakes, written or verbal agreement to a supplier sending invoices with directions not to export to its retailer who gives "tacit acquiescence" to the conduct.

This includes both horizontal (e.g. between retailers) and vertical (e.g. between retailers and suppliers) agreements, effectively outlawing the operation of cartels within the EU. Article 101 has been construed very widely to include both informal agreements (gentlemen agreements) and concerted practices where firms tend to raise or lower prices at the same time without having physically agreed to do so. However, a coincidental increase in prices will not in itself prove a concerted practice, there must also be evidence that the parties involved were aware that their behaviour may prejudice the normal operation of the competition within the common market. This latter subjective requirement of knowledge is not, in principle, necessary in respect of agreements. As far as agreements are concerned the mere anticompetitive effect is sufficient to make it illegal even if the parties were unaware of it or did not intend such effect to take place.

Trade between Member States

Article 101 states that agreements that fall under it should affect trade between Member States. This has been interpreted in a non-restrictive way, for example, several agreements amongst firms with no production in the EU have been considered to affect trade between Member States. In the Webb-Pomerene case, EU law was applied to a US cartel

Cartel

A cartel is a formal agreement among competing firms. It is a formal organization of producers and manufacturers that agree to fix prices, marketing, and production. Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve homogeneous products...

 with no production in the EU.

Exemptions

Exemptions to Article 101 behaviour fall into three categories. First, Article 101(3) creates an exemption where the practice is beneficial to consumers, e.g., by facilitating technological advances (efficiencies), but does not restrict all competition in the area. In practice very few official exemptions were given by the Commission and a new system for dealing with them is currently under review. Secondly, the Commission has agreed to exempt 'Agreements of minor importance' (except those fixing sale prices) from Article 101. This exemption applies to small companies, together holding no more than 10% of the relevant market in the case of horizontal agreements and 15% each in the case of vertical agreements (the de minimis condition). In this situation as with Article 102 (see below), market definition is a crucial, but often highly difficult, matter to resolve. Thirdly, the Commission has also introduced a collection of block exemptions for different types of contract and in particular in the case of vertical agreement

Vertical agreement

A vertical agreement is a term used in competition law to denote agreements between firms at different levels of the supply chain. For instance, a manufacturer of consumer electronics might have a vertical agreement with a retailer according to which the latter would promote their products in...

s. These include a list of permitted contract terms, and a list of those banned in these exemptions (the so-called hardcore restrictions).

See also

• Article 102 of the Treaty on the Functioning of the European Union
• Competition law
  Competition law
  Competition law, known in the United States as antitrust law, is law that promotes or maintains market competition by regulating anti-competitive conduct by companies....
  
  
• United States antitrust law