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The parties' position on the relevant market is important in respect of both Articles 85 and 86 in that it sheds light on whether the agreement or conduct may noticeably alter the conditions of competition for third parties and consumers or on whether a firm is dominant. This is important as not all anti­ competitive conduct is caught by Article 85 (1) or Article 86. For Article 86 to apply, the party involved must be dominant and the delimitation of the relevant product market is therefore of crucial importance^®. For article 85 (1) to apply, the actual or intended effects on competition and on trade between Member States must be appreciable*^. Again, the relevant market and the firm's share of it are helpful in determining this appreciability.

The calculation of market shares in respect of both Article 85 and 86 is complex, never straightforward and often arbitrary. Until recently, the calculation of market shares was based primarily on consumer preference, i.e. equivalence in terms of quality, price and intended use and on homogenous conditions of

justifications for high prices. In deciding whether there are excessive charges, the Court held that it may be necessary to compare with charges made in other markets, see also Lucazeau v SACEM, case 110/88 [1989] E.C.R. 2521 at para 25. Korah noted that this comparison may prove difficult as conditions (such as labour or fuel costs) are frequently so varied in different parts of Europe that foreign experience may prove of limited value. EC Competition Law and Practice. 6th ed, 1997, p 112.

Continental Can v Commission, case 6/72 [1973] E.C.R. 215, [1973] C.M.L.R. 199 at para 32.

competition as expressed in the Community definitions of the relevant product market and the relevant geographic market.

The relevant product market comprises all those products and/or services which are regarded interchangeable or substitutable by the consumer by reason of the products' characteristics, their price and their intended use.

The relevant geographic market comprises the area within which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogenous, and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different there.

Over the years, the Commission has shown a tendency towards defining the market narrowly in order to ensure a wide application of Article 85 (1)*^ and, especially, 86. As to Article 86, for example, spare parts for a firm's product have been held to constitute a separate market in which that firm has a monopoly**. Bananas were considered a separate market as they were found interchangeable with oranges and with apples only to a limited extent, despite evidence of banana prices and sales figures dropping during the seasons for summer fruit and oranges*®.

On 3 October 1997, the Commission adopted a Notice on the definition of the relevant market for the purposes of Community competition law**. The Notice is aimed at providing guidelines on how to define the relevant market. Although it cites the

*’ See 2.2.8, 2.3.2. and 2.3.3. under C supra, and 5.5.3.1., 5.5.4. and 6.3. below on its narrow interpretation of markets and, more generally, its wide interpretation of the scope of Articles 85 and 86.

** Huain v Commission, case 22/78 [1979] E.C.R. 1869, [1979] 2 C.M.L.R. 345.

*® United Brands. case 27/76 [1978] E.C.R. 207 para 22. See for an analysis on the practice of defining the relevant market before the adoption of the new Notice on Market Definition: Kauper, The Problem of Market Definition under EC Competition Law, [1996] Fordham Corporate Law Institute, p 239.

aforementioned established product -, and geographic market definitions as practised habitually by the Commission and formulated in forms A/B and CO^^, it somewhat downplays the importance of the characteristics and intended use of the products concerned. Instead, it assigns an important, albeit non­ exclusive, role to the analysis of what economists refer to as a SSNIPS test” : what would be the effects of a small but significant non-transitory increase in prices on demand (and/or supply) substitution. As designed for EC competition law, this test is based on substitutes almost entirely on the demand side. The Notice is discussed further at 6.3.3.1. below. Suffices to state at this place that the determination of the relevant market, necessary to calculate market power, is a task predominantly economic in nature. For national judges, not being economists, this may be a difficult exercise. The Commission has a large margin of discretion and it is hard to predict how it would approach a particular case.

Section A below, concentrates on market shares in the context of Article 85, whilst those relating to Article 86 will be discussed at section B.

A. Article 85 (1)

The Community Court confirmed the condition of appreciability for the application of Article 85 (1) in Volk v Vervaecke” . Volk produced washing machines in Germany and enjoyed a market share of less than 1%. The Court ruled that even absolute territorial protection granted to its exclusive distributors in Belgium and Luxembourg would not infringe article 85 (1) because it did not

” Section II, para 1.

” See the papers of Venit, The Commission's Notice on the Definition of the Relevant Market for the Purposes of Community Competition Law, and Korah, Article 86: Is there still a safe Harbour for Competition on the Basis of Performance? Both papers were delivered at IBC's 4th Annual Advanced Conference on EC Competition Law, 4 and 5 November 1997, Radisson Hotel, Brussels.

noticeably restrict competition and affect inter-state trade. As early as in 1968, the Commission issued a Notice on agreements of minor importance^* with a de minimis rule consisting of a market share ceiling and a turnover threshold below which conduct may be regarded as not having an appreciable effect on trade. In the version of 1994, the market share ceiling for an appreciable effect was fixed at 5% of the relevant market and the turnover threshold was 300 million ECU aggregate annual turnover.

The Notice was revised in October 1997” . The new Notice provides for the abolition of the turnover threshold and makes a distinction between horizontal and vertical agreements. The market share threshold for horizontal agreements (those made between parties operating at the same level of trade, for example two manufacturers of competing products) has remained at 5% and for vertical agreements (those operating at different economic levels, for example, a supplier and distributor) the threshold has been raised to 10%. See for more details on this new Notice 6.3.3. b e l o w .

The Notice is not binding on national courts or the Community Court and should not be relied on by national courts in isolation. National courts tend to follow the Commission's Notices” but it should be kept in mind that the Community Court has on some occasions regarded agreements involving smaller market shares than those set out in the Commission's Notice as having an appreciable effect on trade” . This can be the case in

* Commission Notice concerning agreements of minor importance which do not fall under Article 85 (1) of the EEC Treaty, O.J. C 75, 29.2.1968, p 3, corrected in [1968] O.J. C 84, p 14. The Notice was revised in 1986, O.J. C 231/2 of 12.09.86, in 1994, O.J. C 368/20 of 23.12.94. and, most recently, in 1997 see next footnote.

” O.J. C 273/13 of 9.12.97.

” Schroter, Antitrust Analysis under Article 85 (1) and (3), [1987] Fordham Corporate Law Institute, p 676.

” See for example Musique Diffusion Française v Commission, joined cases 100-103/80, 1983 E.C.R. 1825, para 84-87 and Hasselblad (G.B.) Ltd v Commission, case 86/82, 1984 E.C.R. 883,

special circumstances, for example, where the market is fragmented. A party holding a relatively small market share but considerably larger than that of the other competitors may then still be in a position perceptibly to influence the market.

The Community Court has never ruled on the merits of the de minimis Notice^®. The Commission seems to have derived the justification for the Notice from the aforementioned Volk Judgment but the underlying idea behind that judgment was to allow the small German washing machine manufacturer to penetrate the Belgium/Luxembourg market with the aid of an equally small exclusive distributor. In such cases, the Court and the Commission have adopted an economic approach whereby certain agreements that only serve to strengthen competition are not prohibited by Article 85 (1) .

The value of the Notice on agreements of minor importance lies mainly in the Commission's practice of following it when vetting notified agreements and in the fact that it limits the Commission's discretionary powers to intervene as a public authority. It may therefore serve as a general guideline for business and national courts to establish which agreements the Commission generally considers to be of minor importance and thus outside the scope of Article 85 (1) .

The Commission has tended to define the relevant market narrowly in order to ensure a wide application of Article 85

(1)” and it is not expected to change this practice overnight. As a result, there may be differences between the interpretation

of the Notice by firms and by the Commission. When the Notice is being relied upon before a national court, the judge may again

para 20-22 .

Moreover, Advocate Generals have been noted to tell the Court to ignore the Notice and the Court has done so, for example, in gucrar: Coopérât ieve Vereniaina Suiker Unie UA v Commission, cases 40-48, 50, 54-56, 111 & 113-114/73, [1975] E.C.R. 1663, [1976] 1 C.M.L.R. 295, where one of the fines imposed by the Commission was quashed. The firm might have thought it was covered by the Notice on agency agreements. See also footnote 60 below.

adopt another market definition.

Finally, whilst the Notice may be of some guidance in determining whether an agreement or practice may be cleared for lack of appreciable effect, it should not be relied upon in isolation in concluding that an agreement or concerted practice containing restrictions is within the scope of the prohibition of Article 85 (1) . In establishing whether the agreement or practice restricts competition, an economic assessment of the market is necessary. Market shares constitute only a part of such

assessment*^.

In isolation, an agreement may not fall within the scope of Article 85 (1) but under the theory of cumulative effects, networks of agreements are taken together in order to permit a realistic evaluation of their impact on competition or trade. The result may be that the cumulative effect of the agreement does infringe Article 85 (1) because it is found to restrict competition^. The theory of cumulative effects has been applied by the Community Court to exclusive purchasing agreements where the question is whether sufficient outlets are to remain, or will soon become available, to enable new entry or expansion by other firms. The extent to which this theory may catch small firms that are part of a larger distribution or franchise network depends on whether the analysis of "restriction of competition" is effected realistically.

See 5.6.4.1. for criticism in respect of the Commission's