FENIN –procurement alone does not make an ‘undertaking’
On 11 July 2006 the European Court of Justice dismissed an appeal against the Court of First Instance’s judgment in FENIN. The CFI decided in FENIN that public sector bodies are not undertakings subject to EU competition law where they purchase goods for use in connection with an activity which is not economic in nature, for instance one which involves no remuneration and is purely social such as provision of health care services under a national social security system (click here to view our earlier law-now on the CFI judgment).
The ECJ’s dismissal of the appeal will come as a relief to public sector bodies, particularly national social healthcare providers. Prior to this case, these bodies had generally understood that they were not undertakings for the purposes of competition law when carrying out activities of a purely social character.
On the other hand, the dismissal of the appeal is unlikely to be welcomed by companies selling to dominant public sector bodies such as national social healthcare providers, as these bodies will not be able to challenge such bodies on the basis of breach of competition law.
The ECJ confirmed that an undertaking is any entity engaged in an economic activity regardless of the legal status of that entity and the way it is financed. When considering what is an “economic activity”, the characteristic feature is “the activity consisting in offering goods and services on a given market”, not the business of purchasing as such. The CFI had explained that as a result, “an organisation which purchases goods – even in great quantity – not for the purposes of offering goods and services as part of an economic activity but in order to use them in the context of a different activity, such as one of a purely social nature, does not act as an undertaking simply because it is a purchaser in a given market. Whilst an entity may wield very considerable economic power, even giving rise to a monopsony, it nevertheless remains the case that, if the activity for which that entity purchases goods is not an economic activity, it is not acting as an undertaking for the purposes of Community competition law and is therefore not subject to the prohibitions laid down in Article 81(1) EC [prohibition on restrictive agreements] and 82 EC [prohibition on abuse of dominance].”
For the text of the ECJ’s dismissal of the appeal, please click here and for the text of the CFI’s judgment, please click here.
