EU Competition Law: Prohibitions, Unfair Practices & Directives

Posted on May 8, 2025 in Law

EU Competition Law: Core Concepts

European Union (EU) competition law addresses various conducts and market structures to ensure fair competition. Key areas include:

Prohibited and Controlled Conducts

Prohibited Conducts:

  • Collusion: Governed by Article 101 of the Treaty on the Functioning of the European Union (TFEU) and Article 1 of the Ley de Defensa de la Competencia (LDC – Spanish Competition Act).
  • Abuse of Dominant Position: Governed by Article 102 TFEU and Article 2 LDC.

Controlled Conducts:

  • Mergers: Regulated by Regulation (EC) No 139/2004 and Articles 7-10 LDC.
  • State Aids: Governed by Articles 107-109 TFEU and Article 11 LDC.

The Relevant Market (RM)

The definition of the Relevant Market is crucial in competition law. The European Commission’s Notice on the definition of the Relevant Market for the purposes of Community competition law provides guidance. This concept is also applied in national cases. A Relevant Market is defined along two main dimensions:

  1. Product/Service Market: According to the Commission Notice, a relevant product market comprises all those products and/or services which are regarded as interchangeable or substitutable by the consumer, by reason of the product’s characteristics, their price, and their intended use. The three basic criteria are:

    • Characteristics
    • Prices
    • Intended use

    Complementary criteria also include the structure of the demand side, consumer preferences, and supply-side substitutability.

  2. Geographical Market: The Commission Notice states that the relevant geographical market comprises the area in which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous, and which can be distinguished from neighboring areas due to the different competition conditions in those areas.

The Concept of an Undertaking

The definition of an “undertaking” does not appear in the Treaty but has been defined by the European Court of Justice (ECJ), based more on its economic nature than its legal form. The concept of an 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.
  • Secondly, an employment procedure is considered an economic activity.

Antitrust Law: Focus on Collusion

General Prohibition under Article 101 TFEU

Article 101 TFEU prohibits agreements between undertakings, decisions by associations of undertakings, or concerted practices that are capable of affecting trade between Member States and that have as their object or effect the prevention, restriction, or distortion of competition within the common market. These include:

  1. Agreements: This term has a broad definition and includes agreements between independent undertakings.

    • Contracts: Very common in vertical relationships, such as distribution contracts.
    • Gentleman’s Agreements: Oral agreements, more common in horizontal relationships (e.g., cartels).

  2. Decisions by Associations of Undertakings: These occur when associations send instructions to their members regarding how to operate in the market. Some of these instructions may affect the competitive behavior of these undertakings and would fall under this prohibition.

  3. Concerted Practices: These are more difficult to identify and refer to a coordinated course of action aimed at eliminating uncertainty as to how competitors will behave in the market, thereby eliminating the very risk of competing.

These are considered restrictions on competition.

The Role of Competition in a Market Economy

Resources in the world are limited, but demand for them is not. In socialist economies or during wartimes, resources have often been allocated by officials and through rationing. The free market solution is to ration resources through price. The economic system is based on a market economy where prices are determined by supply and demand.

On the supply side, firms that are good at producing things people want to buy will flourish and have more to invest than those less adept at doing so. This has the advantage that the market encourages firms to produce efficiently what people want to buy. In this sense, the consumer is king. Even if one firm is so successful that it expands and produces most of a particular product, its profits may be noticed or guessed at by other firms, which are then encouraged to produce something similar and enter the market.

Competition also works on the demand side of the market. Many firms appear to have market power, meaning they can raise their prices without losing much trade. Economists frequently assume a period of time long enough to build new production facilities. Consequently, in the absence of regulation or state ownership, they tend to perceive most markets as competitive.

Most economists welcome the “invisible hand” of competition to allocate scarce resources in accordance with consumer choice, to avoid waste in acquiring market power, and to stimulate efficiency in other ways. The Community lacks the governmental resources to regulate many markets, so it is particularly important that resources are allocated by the market.

However, real markets do not always match the theoretical model. This means that real markets do not work as well as theoretical models predict, which is why regulation is needed. Competition law is one such form of regulation.

Advantages and Protection of Competition

Competition is a basic principle for the correct functioning of markets. The existence of competition within markets is normally considered by economists to confer real advantages, including:

  1. Allocative Efficiency: Competition plays a part in allocating resources in the direction preferred by consumers. This has the benefit of reducing the risk that goods or services produced will not be wanted, or not wanted at the price at which they are offered.
  2. Dynamic Adjustment and Innovation: The constant process of dynamic adjustment to continual changes in consumer preferences is an incentive for producers to invest in research and development and to innovate. This leads to the survival and growth of companies that make the necessary changes in good time, while those that fail to do so inevitably fall behind.
  3. Cost and Price Reduction: Competition exerts continual pressure on all producers and sellers in the market to keep down costs, and therefore prices, for fear of losing custom to other sellers who find ways to attract business, either by general price cuts or by special discounts to favored buyers.

Competition also needs protection against enterprises. The motivation of any undertaking acting in the market is to reach market power. Undertakings with market power will be able to gain monopolistic benefits. This is why undertakings tend to avoid competition, and why competition needs protection against undertakings’ conducts that harm it.

Defining Competition and the Spanish Legal Framework

Competition is basically the relationship between a number of undertakings that sell goods or services of the same kind at the same time to an identifiable group of customers. Each undertaking, having made a commercial decision to place its goods or services on the market by utilizing its production and distribution facilities, will by that act necessarily bring itself into a relationship of potential contention and rivalry with other undertakings in the same geographical market. The limits of this market may be a single shopping precinct, a city, a country, or the entire Community.

Competition Law in Spain

In Spain, Article 38 of the Constitution recognizes free enterprise within the framework of a market economy. The public authorities guarantee and protect its exercise and the defense of productivity in accordance with the demands of the general economy. The Spanish constitutional system establishes a market economy, and competition is one of its basic principles. Therefore, the authorities protect the existence of competition as a necessary institution for the correct functioning of the market economy. The freedom of enterprise is also recognized for all citizens.

Key Spanish laws include:

  • Antitrust Law: Law 15/2007, Ley de Defensa de la Competencia.
  • Unfair Competition Law: Law 3/1991, Ley de Competencia Desleal (modified by Law 29/2009).

Understanding Unfair Competition Law

Historical Origins of Unfair Competition Law

The origins of the law against unfair competition can be traced as far back as the second half of the 19th century in Europe, triggered by the introduction of free trade. Developments varied across countries:

  • France: As early as 1791, on the basis of the general tort law clause in Article 1382 of the Civil Code, case law quickly and flexibly developed what became known as the action en concurrence déloyale. This guaranteed business persons legal protection against risks such as confusion and imitation.
  • Germany: Declined to follow the path taken by France for systematic reasons. As a result, at the turn of the century, German legislators were forced to enact a special law on competition.
  • England: Pursued a completely different direction, concentrating on familiar possibilities of claims under equity and common law, particularly the claim against “passing off.”

Other countries also had a harder time including such acts of unfair competition within the law of torts.

Core Principles and Definitions

Despite their differences, all European countries have developed mechanisms based on the principle of fairness to control commercial activities. The use of the term “unfair competition” is based on the fact that it has long been the expression used at international and European levels.

  • International Level: Article 10bis of the Paris Convention.
  • EU Level: Article 14(2) of Council Regulation (EC) No 40/92 on the Community trade mark expressly reserves the application of national laws against unfair competition. The ECJ occasionally refers to legislation on unfair competition.

The term “unfair competition” initially only described a specific constellation of facts involving commercial or business conduct that does not satisfy the generally accepted requirements of fairness. Unfair competition deals with competitive conducts that do not meet a correctness standard; it establishes certain limits as to the way economic agents compete.

Directive 2005/29/EC, in its Article 5(2), describes unfair commercial practices as practices that are contrary to the requirements of professional diligence and are capable of distorting the economic behavior of the average consumer.

Unfair competition is regulated by general rules on unfair commercial practices and also by rules on unfair advertising. Key EU Directives include:

  • Directive 2005/29/EC on unfair commercial practices.
  • Directive 2006/114/EC on misleading and comparative advertising.

In Spain, Law 3/1991 on Unfair Competition (Ley de Competencia Desleal) and Law 34/88 General Law on Advertising (Ley General de Publicidad), both modified by Law 29/2009, follow these EU directives.

Directive 2005/29/EC: Unfair Commercial Practices

Directive 2005/29/EC constitutes a general regulatory framework for firm actions towards consumers in the marketplace. Its main aims are:

  • To harmonize all national legislation on unfair commercial practices.
  • To improve the functioning of the European internal market in goods and services.
  • To achieve a high level of consumer protection, enabling them to make informed choices.
  • To make it easier for companies to market their products across Europe with the same rules, standards, and protection, facilitating cross-border trade.

This directive aims to reduce barriers to free trade in the EU while simultaneously providing a high level of consumer protection.

Key Provisions of Directive 2005/29/EC

Article 5.1: Prohibition of Unfair Commercial Practices.

The general clause for unfairness appears in Article 5.2, which states that a commercial practice shall be unfair if:

  • (a) It is contrary to the requirements of professional diligence.
    • The concept of “professional diligence” (Article 2.h) means the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers, commensurate with honest market practices and the general principle of good faith.
  • (b) It materially distorts or is likely to materially distort the economic behavior with regard to the product of the average consumer whom it reaches or to whom it is addressed.
    • This refers to impairing the consumer’s ability to make an informed decision.
    • A “transactional decision” (Article 2.k) means any decision taken by a consumer concerning whether, how, and on what terms to purchase, make payment for, retain, or dispose of a product, or to exercise a contractual right in relation to the product.

The ECJ developed the standard of the “average consumer” as a consumer who is reasonably well-informed, reasonably observant, and circumspect, considering social, cultural, and linguistic factors.

Article 5.3 addresses consumers in particularly vulnerable situations due to infirmity, credulity, or age.

Practices considered unfair under Article 5.4 are prohibited according to Article 5.1. These can be actions or omissions.

Misleading Actions (Article 6): An action is misleading if it contains false information and is untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct. It is also a misleading omission when a trader hides or provides material information in an unclear or ambiguous manner, or when there is non-compliance by the trader with codes of conduct by which they have undertaken to be bound. In both cases, it is required that the action causes or is likely to cause the average consumer to make a transactional decision that they would not have taken otherwise.

Further Prohibitions under Directive 2005/29/EC

Misleading Omissions (Article 7.1): A commercial practice is considered misleading if it omits material information that the average consumer needs, according to the context, to take an informed transactional decision. It is also misleading if it:

  • Hides or provides material information in an unclear, unintelligible, or ambiguous manner.
  • Fails to identify the commercial intent of the practice if not already apparent from the context.

Examples of material information include the main characteristics of the product and the geographical address of the trader. Misleading omissions are considered unfair under Article 5.4(b).

Aggressive Practices (Article 8): A commercial practice is aggressive if, through harassment, coercion (including the use of physical force), or undue influence, it significantly impairs or is likely to significantly impair the average consumer’s freedom of choice or conduct concerning the product, thereby causing them to take a transactional decision that they would not have taken otherwise.

Article 9 outlines factors to consider in determining if a commercial practice uses harassment, coercion, physical force, or undue influence, including:

  • Its timing, location, nature, or persistence.
  • The use of abusive language or behavior.

Directive 2006/114/EC: Misleading & Comparative Advertising

Directive 2006/114/EC concerns misleading and comparative advertising. It replaces Directive 84/450/EEC and has a more limited scope of application than Directive 2005/29/EC.

Article 1: Purpose. The purpose of this Directive is to protect traders against misleading advertising and its unfair consequences, and to lay down the conditions under which comparative advertising is permitted.

Article 2: Definitions. Key definitions include:

  • Advertising (Article 2a): The making of a representation in any form in connection with a trade, business, craft, or profession in order to promote the supply of goods or services, including immovable property, rights, and obligations.
  • Misleading Advertising (referring to Articles 2b and 3): Advertising which in any way, including its presentation, deceives or is likely to deceive the persons to whom it is addressed or whom it reaches and which, by reason of its deceptive nature, is likely to affect their economic behavior. Advertising is considered misleading if any information it contains is false or in any way deceives or is likely to deceive concerning:
    • The characteristics of goods and services, such as their composition or nature.
    • The price or the manner in which the price is calculated.
  • Comparative Advertising (referring to Articles 2c and 4): Advertising which explicitly or by implication identifies a competitor or goods or services offered by a competitor.

This Directive is known to be under review. Currently, the Commission aims to achieve more detailed regulation of unfair practices on a business-to-business (B2B) basis, not limited to just advertising.