The Notion of ‘Undertaking’

An entity is subject to the Treaty provisions on competition law, if it is an ‘undertaking’ in the meaning of these provisions. The concept of ‘undertaking’ is not defined in the Treaty. Instead the definition is to be derived from the Court’s case law according to which ‘the concept of undertaking encompasses every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed’.[1] An activity is economic in nature if it consists of ‘offering goods or services on a market’[2] which can, in principle, be done commercially. All entities engaged in such activities are thus undertakings, irrespective of whether or not the goods or services have actually been offered commercially. In particular, it does not matter if the entity is profit-making or not, nor whether or not it forms part of the state’s administration. It also does not have to have legal personality, as the legal form is irrelevant for the definition. Therefore, third sec- tor[3] and public sector organisations can be regarded as undertakings even if they do not make a profit and, in the case of public organisations, are financed from taxes or social insurance contributions. Obviously, this broad definition leaves very few activities outside the competition law regime, as it seems hard to imagine an activity that could not, at least in principle, be conducted commercially.[4]

However, the Court has acknowledged two exceptions: the exercise of sovereign power and the offering of services governed by the principle of solidarity. The sovereignty exception applies when an entity acts in the service of the state’s prerogatives to conduct acts of official authority, irrespective of whether this authority is executed by a public or private entity.[5] The principle of solidarity[6] exception has been found to apply to national schemes, such as health, pension and accident at work insurance schemes, if contributions were disproportionate to the risks and the benefits paid to the beneficiaries had no relation to the amount of the contribution. The schemes thus involved an element of cross-subsidy where insured persons with higher incomes or constituting lower risks supported those with lower incomes or those suffering from higher risks. Additionally, the Court took aspects such as the public nature and necessity of compulsory schemes to ensure their financial equilibrium into consideration when employing this exception.[7] Without the principle of solidarity, entities operating in such national schemes could be regarded as undertakings.[8] The concept of an undertaking is relative ‘in the sense that a given entity might be regarded as an undertaking for one part of its activities while the rest fall outside the competition rules’.[9] Therefore, the CJEU does not consider a whole entity as an undertaking per se, but uses a functional approach to differentiate between its tasks. Only for the economic activities, does the undertaking (as it is then defined), have to comply with the competition rules, unless it is exempted by Article 106(2) TFEU. However, if activities are not severable from the main non-economic activity (such as purchasing inputs for that activity),[10] they might equally be regarded as non-economic.[11]

In addition to these two exceptions, it also worth mentioning that employees, are generally not considered undertakings.[12] However, it is debated if this applies to employees who do not act as such (i.e. have a certain amount of independence from their employer, bear financial risks and are subject to rivalry). Such employees may potentially be regarded more like the self-employed and thus in consequence as undertakings in some cases.[13]

In summary, for an entity (which is not merely an employee) not to fall under the competition rules, it has to conduct an activity that is, per se, not economic in nature, is part of the state’s prerogatives or is organised on the basis of solidarity. Demonstrating the former seems nearly impossible, as it is difficult to imagine which activities might not theoretically be offered on a market. Regarding the exceptions, it appears from case law that the more commercial elements an entity or a system adopts, the more likely it becomes that it will be regarded as an undertaking.

  • [1] C-41/90 Hofner (Judgment of 23 April 1991, EU:C:1991:161) para 21.
  • [2] 118/85 Commission v Italy (Judgment of 16 June 1987, EU:C:1987:283) para 7.
  • [3] Most commonly defined as neither the public nor the private sector, the third sector (also referredto as, for example, voluntary sector or community sector) is made up of organisations with specificcharitable goals which operate on a not-for profit basis. See Wendt and Gideon 2011, p. 255.
  • [4] On the concept of ‘undertaking’ see Steyger 2002, p. 276; Sauter 2008, p. 181 seq; Swennen2008/2009, p. 263 seq, 278 seq; Aicher et al. 2009, para 51, 56 seq, 67 seq; Sauter and Schepel2009, p. 75 seq, 80 seq, 95, p. 124 seq; Chalmers et al. 2014, p. 999; Jones and Sufrin 2014,p. 127 seq; Sauter 2015, p. 117.
  • [5] C-364/92 Eurocontrol (Judgment of 19 January 1994, EU:C:1994:7) para 19 seq, in particularparas 30 and 31, C-343/95 Diego Cali v SEPG (Judgment of 18 March 1997, EU:C:1997:160)para 16 seq, C-113/07 P SELEX (Judgment of 26 March 2009, EU:C:2009:191) para 65 seq,C-138/11 Compass (Judgment of 12 July 2012, EU:C:2012:449), SA.34646 The NetherlandsE-procurement platform TenderNed para 67 (the latter is currently being challenged in front ofthe General Court (T-138/15 Aanbestedingskalender)).
  • [6] For more on the principle of solidarity in competition law see Boeger 2007; Ross 2007, p. 1067 seq.
  • [7] C-159, 160/91 Poucet et Pistre (Judgment of 17 February 1993, EU:C:1993:63) para 18seq, C-218/00 Cisal (Judgment of 22 January 2002, EU:C:2002:36) para 38 seq, C-264, 306,354, 355/01 AOK Bundesverband (Judgment of 16 March 2004, EU:C:2004:150) para 45 seq,C-205/03 P FENIN (Judgment of 11 July 2006, EU:C:2006:453) para 25 seq, CommissionDecision 2015/248/EU Measures implemented by Slovak Republic for Spolocna zdravotnapoist’ovna, a. s. and Vseobecna zdravotna poist’ovna, a. s. OJ [2015] L 41/25.
  • [8] C-244/94 FFSA and others (Judgment of 16 November 1995, EU:C:1995:392) para 15 seq, inparticular para 22, C-67/96 Albany (Judgment of 21 September 1999, EU:C:1999:430) para 77seq.
  • [9] Opinion of the Advocate General in C-475/99 Ambulanz Glockner (Judgment of 25 October2001, EU:C:2001:577) para 72.
  • [10] C-205/03 P FENIN, Decision 2015/248/EU para 93.
  • [11] On the exceptions and the functional approach see Steyger 2002, p. 276; Baquero-Cruz 2005,p. 179 seq; Sauter 2008, p. 182 seq; Swennen 2008/2009, p. 263 seq, 278 seq; Aicher et al. 2009,paras 52, 61, 70 seq; Sauter and Schepel 2009, p. 79 seq, 83 seq, 95; Prosser 2010, p. 319 seq;Chalmers et al. 2014, Chapter 25 (online resource), p. 14 seq; Jones and Sufrin 2014, p. 129 seq;Sauter 2015, pp. 18, 111, 118 seq; Szyszczak 2015, p. 681 seq.
  • [12] C-22/98 Becu (Judgment of 16 September 1999, EU:C:1999:419) para 26. That then alsomeans that trade unions are not associations of undertakings and, more generally, competitionlaw does not apply to collective agreements (C-67/96 Albany para 59).
  • [13] Lucey 2015.
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