Are public sector bodies undertakings in EU competition law?

United Kingdom

The Advocate General’s opinion in the case of FENIN (Federación Española de Empresas de Technología Sanitaria) was published on 10 November 2005. This opinion is the latest step in a case which is being closely followed by public services organisations generally and health services in particular as it will clarify when they are subject to EU competition law. Whether they are covered remains in doubt. The judgment of the European Court of Justice (ECJ) is still some time off.

FENIN is an association of businesses which market medical goods and equipment used in Spanish hospitals. It originally complained to the European Commission that a number of public bodies (including certain Spanish government ministries) which run the Spanish national health system were abusing a dominant position by paying sums invoiced to them only after an average 300 day delay.

The Commission rejected FENIN’s complaint on the basis that the organisations in question were not undertakings in the meaning understood in EU competition law, so could not be subject to EU competition law. FENIN appealed to the Court of First Instance (CFI), arguing that by purchasing goods, the organisations were involved in economic activity, so were undertakings subject to competition law. The CFI disagreed. It stated that purchasing goods cannot in itself be an economic activity: purchasing goods can only be an economic activity where the subsequent use to which those goods are put itself involves an “economic activity”. The CFI considered that the key characteristic of “economic activity” is the offering of goods and services on a given market. In this case, the organisations operated according to the principle of solidarity in that they were funded from social security and state contributions and provided free of charge services on the basis of universal cover, so were found not to be engaging in economic activity. On that basis, the CFI decided that their purchasing could not be an economic activity either and the organisations therefore could not be undertakings subject to EU competition law.

Advocate General Maduro’s opinion agrees with the CFI’s view that purchasing is not in itself an economic activity and that the act of purchasing goods cannot be dissociated from the subsequent use to which those goods are put.

However, AG Maduro believes that in order to determine whether the provision of health care by the Spanish national health system should be subject to competition law, it is necessary to establish whether the state intended to exclude all market considerations from the provision of health care by the Spanish national health system, by entrusting the activity exclusively to state bodies which would be guided solely by the principles of solidarity. He believes that the CFI judgment did not consider this point. He added that even if the CFI were to find that the provision of health care by the Spanish national health system does constitute an economic activity and therefore there is an undertaking for the purposes of competition law, it would still be necessary to be satisfied that the organisations about which FENIN complained are the medium through which the Spanish health service provides health care services. The CFI did not consider this point. Therefore, AG Maduro believes that the ECJ should remit this part of the case to the CFI to make a finding of fact.

AG Maduro’s opinion suggests the route which the ECJ should take when it gives its final judgment in this case, but the opinion is not binding on the ECJ. Public service organisations will follow closely the ECJ’s verdict, but they are likely to have to wait at least a year for it.

If the ECJ follows AG Maduro’s opinion and refers back part of the case to the CFI, we can expect an even longer wait for a final view on whether an undertaking involved in purchasing and provision of health care as part of a national health service is subject to competition law.

If the ECJ also focuses on whether the state excludes all market considerations from the provision of health care by national health systems, we envisage difficulties in applying this approach in practice, particularly in countries such as the UK where the distinction between public and private sector is becoming increasingly blurred. For example, in the UK health sector, the state encourages public entities to include market considerations and privately paid services in their business plans. In the meantime, a long wait for a definitive resolution to this case will be extremely frustrating, particularly for the competition authorities of Member States of the EU and for the European Commission if faced with similar complaints.

The UK’s Office of Fair Trading (OFT) stated in August 2004 following the FENIN judgment of the CFI that it was “for the time being, unlikely to take forward cases involving public bodies which are engaged in a mixture of purchasing and direct provision of goods and services for non economic purposes, for example purposes which are purely social, environmental or national security related”. Until a definitive conclusion is reached in the FENIN case, we do not expect this approach to change. While public authorities may be happy with this, parties doing business with them may not.

For the full text of AG Maduro’s opinion, please click here.