Competition law is usually applied to companies due to their own anticompetitive behaviour (i.e. cartels, abuse of dominance and merger control). However, there exists a provision in the Treaty on the Functioning of the EU (“TFEU”), and relevant case law of the Court of Justice of the EU (“CJEU”), that addresses cases where the distortion of competition originates from the State. This article aims to shed light on the less explored, and even less understood, Article 106 TFEU and CJEU jurisprudence on the duty of sincere cooperation of Member States (Article 4(3) of the Treaty on the EU).

Understanding Article 106 TFEU

Article 106 TFEU is a complex provision.[1] Article 106(1) prohibits Member States from adopting measures concerning public undertakings or undertakings with special or exclusive rights that would lead to an infringement of other Treaty rules, including Articles 101 and 102 TFEU. 

An exclusive right is a right granted by a Member State to an undertaking, allowing it to engage in an economic activity on an exclusive basis. In other words, exclusive rights create a monopoly within a defined territory for a specific economic activity. An example would be a Member State adopting legislation permitting only one undertaking to generate electricity across the country.  

Special rights refer to two scenarios. Firstly, they cover rights to engage in an economic activity in a given territory granted by a Member State only to a limited number of undertakings (i.e. an oligopoly). Secondly, they also include situations where a Member State grants legal advantages only to certain undertakings that are active in a market open to competition. Here, the Member State does not restrict the number of operators but rather gives some of them a form of legal privilege, implying a competitive advantage. A typical example is the postal service sector, where a State may grant the national postal operator the right to provide specific types of postal services.  

Article 106 TFEU can be infringed in conjunction with Article 102 TFEU when measures granting special or exclusive rights “lead the licence holder, merely by exercising the preferential rights, to abuse its dominant position or are liable to create a situation in which the undertaking is led to commit such abuses”, as highlighted by the CJEU (see cases C-49/07, MOTOE; C-179/90, Merci; and C-510/22, Romaqua). 

Recent Developments

Several examples of such conduct have emerged in recent years. In September 2023, the CJEU issued a preliminary ruling stating that the Romanian legislation granting the public undertaking SNAM the possibility of obtaining, without a competitive tender, an extension of its exclusive right of exploitation of mineral water resources for successive periods of five years was incompatible with Article 106 and Article 102 TFEU.[2]

More recently, in June 2024, the European Commission (“Commission”) expressed its preliminary view that the Czech Republic’s appointment of EKO-KOM as the sole authorised entity for the collection and recovery of packaging waste over two decades could infringe Articles 106 and 102 TFEU, as it creates significant entry barriers for competitors. Similarly, in the same month, a Greek company filed a complaint with the Commission against the Greek government and the public undertaking PPC for alleged infringement of Articles 106 and 102 TFEU, for denying competitors access to the electricity market in certain Greek non-interconnected islands.[3] 

The Derogation Under Article 106(2) TFEU

Article 106(2) TFEU provides a potential derogation from the Article 106(1) prohibitions if preferential treatment is necessary to achieve a purpose of general economic interest. Whilst Article 106(2) states that the entrustment of a service of general economic interest (“SGEI”) is subject to competition rules and cannot be contrary to the interest of the Union, it is still a vague concept that gives Member States a wide margin of discretion. In certain circumstances, it can even involve State aid, depending on the compensation provided for the provision of such a SGEI. 

Beyond Special and Exclusive Rights

Finally, CJEU case law also recognizes scenarios where anticompetitive conduct originates from State action, rather than from the granting of special or exclusive rights or the provision of a SGEI (see case C-198/01, CIF). According to this jurisprudence, a Member State infringes both Article 4(3) of the Treaty on the EU (“TEU”) and Article 101 TFEU if national legislation “imposes” a given anticompetitive conduct on the undertaking(s) or merely “facilitates” or “reinforces” the effects of such practices.[4]

If national law imposes a certain behaviour and prevents the undertaking(s) from engaging independently in anticompetitive conduct, the undertaking(s) cannot be held liable for anticompetitive behaviour until the national legislation's infringement of EU law has been established. 

However, if the national law merely encourages or simplifies such autonomous anticompetitive conduct, the undertaking remains subject to competition rules and may face sanctions. In this case, while anticompetitive practices cannot be justified, the national legal framework may serve as a mitigating factor when evaluating the sanction levels.

Practical Considerations

The distinction between the State “imposing” or merely “encouraging” the anticompetitive conduct of an undertaking is often a blurry line. Companies and their advisors must therefore exercise caution in such situations to avoid infringing EU competition law. 

At the same time, companies which consider that they have been treated unfairly or denied market access due to the granting of special or exclusive rights to competitors, or because of national regulations, can file a complaint with the Commission. Such complaints may prompt investigations into whether a Member State and, where applicable, the company benefiting from the preferential treatment have infringed EU competition rules. Furthermore, national courts and administrations are obliged to ensure compliance with EU law and guarantee the rights of companies and citizens in this respect.

For more information or further guidance in this area, please contact Jose Rivas and Álvaro López de Ochoa García. 

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[1] Advocate General Tesauro in his Opinion in Case C-202/88, France v Commission (telecommunications terminal equipment), referred to “the clear obscurity of Article [106]”.

[2] Case C-510/22, Romaqua, para 36.

[3] MLex report of 24 October 2024, Greece’s PPC faces dominance complaint at EU Commission over access to network, available here.

[4] Article 4(3) TEU states: “Pursuant to the principle of sincere cooperation, […] Member States shall […] refrain from any measure which could jeopardise the attainment of the Union's objectives.”