I went to the play-off between Pontypridd RFC and Llanelli RFC at Sardis Road last night. My side, Pontypridd, did not win, but I was speaking to one of the fans about the circumstances leading to that game and the information she gave me led me to believe there was a breach of Competition Law.
First I would like to look at the legal status of the Welsh Rugby Union and the Scarletts/Llanelli.
The WRU has 100% of the rugby market in Wales and under Article 106 of the EU Treaty this means they are a monopoly and have a dominant market position. The Scarletts are one of only 4 teams that can compete in Wales and therefore they are an oligopoly and have a dominant market position.
In competition law there is the term, ‘concentration’. Two companies that want to merge are a concentration. Also, two companies wanting to commit to a joint venture are also concentration. By being a ‘concentration’ they must be treated as a single company.
The Scarletts and Llanelli could be considered a concentration if this definition covers them: “combination of companies pursuant to which one or more companies may directly or indirect exercise an influence over another company which is substantial as regards competition.” This could apply if for example one club or the other can request or share players from the other.
Scarletts and Llanelli
Before going on to look at abuses of dominant positions I would like to look at some rules under Article 101 of the EU Treaty which Llanelli and the Scarletts may have breached if they were separate clubs. If they are considered a ‘concentration’ then we should ask which league do they want to play in – the regional or local premiership?
Exclusive distribution agreements
The European Court of Justice has ruled that where an exclusive distribution agreement was designed to restrict competition impermissibly so breached Article 101. Since Consten and Grundig, a block exemption has been passed by the European Commission to allow certain exclusive distribution agreements between two undertakings for the exclusive supply of certain goods for resale. However, if the Scarletts are refusing to supply their players to any club other than Llanelli this is exclusive distribution agreement, even if is just a gentleman agreement. So if at the Premiership play-off match at Sardis Road last night they had supplied Scarlett players to Llanelli and not offered any to Pontypridd RFC then that falls within Article 101 and is a breach of EU law.
Market Sharing
Like production quotas and price fixing, market sharing has the outcome of restricting competition between undertakings. Often market sharing agreements take the form of agreements to restrict trading to certain territories. In the Soda-Ash case, two firms, namely Solvay and ICI, were found to be operating a market sharing agreement, which was referred to as the ‘Page 1000’ agreement, which had been in operation since the 1870s and renewed in the 1940s. Motta (2004) points out that what is noticeable about this case is that each firm admitted that it had no intention of invading the other’s home market, but simply because it feared retaliation if it had done so, which they argued justified a collusive outcome as the result of independent decisions that made sense from a business viewpoint. Therefore, Llanelli/Scarletts can be seen to be sharing markets in terms of rugby players and falling foul of Article 101.
Now I have established that the WRU and the Scarletts have a dominant market position and raised the question whether Scarletts/Llanelli are a concentration I shall consider whether they have abused that dominant position.
First the WRU. I would say they could have abused their dominant position in the following ways – which is most of the ways in which it is possible to!:
Market partitioning
Where a dominant undertaking imposes upon its customers obligations that bring about a partitioning of the markets, this constitutes an abuse within the meaning of Article 102, so much so that a clause prohibiting distributors from reselling bananas when they are still green was condemned as abusive by the European Court of Justice. So the WRU by stating that there should be only 4 regional teams they are partitioning the Welsh rugby market and inhibiting competition.
Refusal to deal
The refusal to deal with a supplier or a customer can amount to an abuse of dominant position even where it does not lead to a deterioration of the competitive structure, so much so that where a dominant firm stops, without valid reason, supplying a well-established customer abiding by commercial custom and whose orders do not have any abnormal character, this constitutes an abuse (Stuyck & Vogelaar, 2000). The WRU could fall within the due to it refusing to deal with the owners of the Celtic Warriors and London Welsh or anyone else wanting a regional side in maintaining that there should be only four regions.
The first European case to consider refusal to deal was Joined Cases 6/73 & 7/73 Commercial Solvents v. Commission of the European Communities [1974] E.C.R. 223; [1974] 1 C.M.L.R. 309, hereafter referred to as Commercial Solvents. In this case, there was a refusal to supply nitropropane or its derivative, aminobutanol, a raw material for the manufacture of ethambutol. The European Commission found that the supplier had “a dominant position in the common market for the raw material necessary for the manufacture of ethambutol†by virtue of its “world monopoly in the production and sale of nitropropane and aminobutanolâ€, and that the refusal to supply constituted an abuse under Article 102. The ECJ confirmed the European Commission’s finding of a dominant position and their finding of abuse. A refusal to deal may also occur where an undertaking with a dominant position at one stage of production establishes a subsidiary to supply their product to and then refuses to supply undertakings competing with that subsidiary that are dependent on them for a particular product. Indeed, the ECJ said in the United Brands case that an undertaking in a dominant position for the purpose of marketing a product cannot stop supplying a long standing customer who abides by a regular commercial practice, if orders placed by that customer are in no way out of the ordinary. Therefore the WRU by refusing to deal with those wanting to keep/re-found the Celtic Warriors or any other regional side is refusing to deal and abusing their dominant position.
Unfair trading conditions
The imposition of unfair trading conditions is also prohibited by Article 102. In the Tetra Pak II case, the Court of First Instance considered that, where a supplier of packaging machines requires its lessee to pay to it, at the time of delivery of the machine or shortly thereafter, an initial rental amounting to the entire value of the rented machine, this constitutes the imposition of unfair conditions since the lessee does not benefit from the legal advantages deriving from the right of ownership although his position is economically comparable to that of an owner. Also in the Tetra Pak II case it was upheld that the practice of tying the sale of packaging to the sale of the machines also breeched Article 102. Tying the products of one particular undertaking as was done in the Tetra Pak II case can be seen in trading conditions where the customer is required to purchase a less critical product from the same undertaking in order to purchase the critical product or where the customer is required to purchase an unrelated product in order to receive the product they want. An example of this sort of tying is in Case T-201/04 Microsoft Corporation v. Commission of the European Communities [2005] 4 C.M.L.R. 5, [2005] Info. T.L.R. 179, [2005] E.C.D.R. 19, where the undertaking concerned, which offers e-learning technology, was found to be tying the sale of their operating system to the sale of their software for playing multimedia files, something which has been referred to as compulsory licensing. Therefore I would regard the WRU to have abused its dominant position by requiring that clubs who want to play in the premiership agree to a playoff rule probably not used elsewhere. Also, by only having four regional teams they are applying dissimilar conditions to the other clubs in Wales and London Welsh.
Exclusive purchasing agreements
Exclusive purchasing agreements enable the supplier to plan sales with greater precision, ensure that their customers’ requirements are met upon a regular basis and allow both to limit risk owing to disruption to market conditions.
However, while the European Commission has indicated that whereas non-exclusive contracts for the supply of fixed quantities of industrial raw material which do not last longer than two years are permissible under Article 102, an exclusive supply agreement of such products for five years amounts to a restraint of trade within the meaning of the Article. By the WRU forcing the regions to only take players from certain clubs they are forcing them into exclusive purchasing agreements which is an abuse of their dominant position.
Selective distribution agreements
Selective distribution agreements are characterised by supplier selectivity in granting distributorships whereby the potential for reduced competition arises because the criteria used to choose distributors may, either intentionally or unintentionally, have the effect of limiting the number of outlets for the product in question meaning that those distributors who are selected by the producer would to some degree be insulated from rivals carrying the same goods. The WRU by distributing resources and rights to only the 4 regions is falling foul of Article 101 by reducing competition in rugby.
