The story goes something like this. Ireland is a big beef producing country but there was an overcapacity in the slaughterhouses. In 1998 the Irish Government and industry representatives commissioned a market study on that overcapacity. A "Beef Task Force" was then established by the Minister for Agriculture and Food which made a further report in 1999. That report recommended to the industry that it should reduce its overcapacity.
To do just that, certain meat processors formed the Beef Industry Development Society Ltd ("BIDS"). The members of BIDS produce about 93% of the beef sold in Ireland. The object of BIDS is to implement the reductions in the overcapacity of the slaughterhouses (‘the BIDS arrangement’). Its aim was to achieve a reduction of overcapacity of 25% within one year. In particular, the arrangement provided that some of the processors which are members of BIDS (‘goers’) undertake to leave the processing industry, to decommission their processing plants and to respect a two-year non-compete clause (‘exit agreements’). In exchange, goers are to be compensated by BIDS by means of compensation payments to be financed by the members of BIDS which stay in the processing industry (‘stayers’).
The Irish Competition Authority considered the BIDS arrangement to be restrictive of competition and sought orders from the Irish High Court restraining BIDS from implementing the arrangement. The High Court dismissed the claims of the Competition Authority which then appealed to the Irish Supreme Court. Both the High Court and the Supreme Court held that the BIDS arrangements had an effect on trade between member States because most Irish beef is exported. The Supreme Court considered also that the BIDS arrangement had the effect of restricting competition within the meaning of Article 81 (1) EC but was uncertain whether the arrangement had the object of restricting competition. Consequently, it asked the Court of Justice whether such an arrangement had the object of restricting competition within the meaning of Article 81 §1 EC.
The Court of Justice held that such an arrangement did indeed have the object of restricting competition within the meaning of Article 81 §1 EC.
The Court recalled that, to come within the prohibition laid down in Article 81 §1 EC, an agreement must have ‘as [its] object or effect the prevention, restriction or distortion of competition within the common market’. It has been settled caselaw since the judgment in Case 56/65 LTM that the alternative nature of that requirement, indicated by the conjunction ‘or’, leads, first, to the need to consider the precise purpose of the agreement, in the economic context in which it is to be applied. Where, however, an analysis of the clauses of that agreement does not reveal the effect on competition to be sufficiently deleterious, its consequences should then be considered and for it to be caught by the prohibition it is necessary to find that those factors are present which show that competition has in fact been prevented or restricted or distorted to an appreciable extent.
It also recalled that in deciding whether an agreement is prohibited by Article 81 §1 EC, there is no need to take account of its actual effects once it appears that its object is to prevent, restrict or distort competition within the common market (Joined Cases 56/64 and 58/64 Consten and Grundig v Commission, and Case C‑105/04 P Nederlandse Federatieve Vereniging voor de Groothandel op Elektrotechnisch Gebied v Commission, paragraph 125). That examination must be made in the light of the agreement’s content and economic context (Joined Cases 29/83 and 30/83 Compagnie royale asturienne des mines and Rheinzink v Commission, paragraph 26, and Case C‑551/03 P General Motors v Commission, paragraph 66). The distinction between ‘infringements by object’ and ‘infringements by effect’ arises from the fact that certain forms of collusion between undertakings can be regarded, by their very nature, as being injurious to the proper functioning of normal competition.
The Court analysed the BIDS arrangement and found that it was clearly intended to enable several undertakings to implement a common policy of encouraging some of them to withdraw from the market and to reduce the overcapacity which affects their profitability by preventing them from achieving economies of scale.
It found that such an arrangement conflicts patently with the concept inherent in the rules on antitrust in the EC Treaty, according to which each economic operator must determine independently the policy which it intends to adopt on the common market. It recalls that Article 81 §1 EC is intended to prohibit any form of coordination which deliberately substitutes practical cooperation between undertakings for the risks of competition.[The Eur-Lex website is working now. Probably not for long. But links have been added.]