“The cfi in glaxo collapses the concepts of object and effect. this is contrary to the existing case law and is disastrous for the commission.” discuss.

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Restriction of competition by object or effect is probably the most important condition to be met for an agreement to infringe Article 81(1) EC. The concept of restriction by object was first introduced in the landmark case Consten and Grundig , where the European Court of Justice (ECJ) held that all agreements limiting parallel trade between Member States were in principle regarded asrestrictive of competition by object . Moreover, it was found there is no need to take account of the concrete effects of an agreement once it appears that it has as its object the restriction of competition . The ECJ adopted this view due to the great importance placed on the single market objective of the EC Treaty, despite the fact that trade was actually increased and had it not been for the agreementGrundig would not have been able to penetrate the market at all. This reasoning was followed in almost all subsequent case-law of the European Courts, until the unexpected and controversial decision of the Court of First Instance (CFI) in GlaxoSmithKline v Commission .
The case started when Glaxo, under the old system of notification procedure , notified the Commission of its ‘General salesconditions of pharmaceutical specialities to authorised wholesalers’. The contract introduced dual pricing for pharmaceuticals sold in Spain with the aim to prevent parallel exports to the UK where the same products were sold more expensively. Glaxo argued that in order to invest money into the development of new drugs, it needed to retain the profits from the parallel trade, as in the pharmaceuticalsindustry the real competition is not in price but in innovation.The Commission´s findings – that there was restriction by object and the infringement under Article 81(1) was not eligible for an exemption under Article 81(3) – resulted in Glaxo challenging the decision before the Court of First Instance (CFI).
The CFI found that the agreement was a restriction by effect and ordered the Commissionto conduct the Article 81(3) analysis again. Despite previous case-law supporting the Commission´s decision, it was held that in its finding of a restriction by object, the Commission could not merely rely on the fact that the agreement intended to limit parallel trade or to partition the common market (paras. 117, 119). In addition, according to the CFI, regard must be held for the welfare ofthe final consumer: “the objective of Article 81(1)... is to prevent undertakings, by restricting competition between themselves or with third parties, from reducing the welfare of the final consumer” (Glaxo, para. 118).
Although it might seem the notion of final consumer welfare has never been used by European Courts before, there is actually some support for the proposition in the case-law. InÖsterreichische Postsparkasse , a cartel case decided only a few months before Glaxo, the CFI held that “the ultimate purpose of the rules that seek to ensure that competition is not distorted in the internal market is to increase the well-being of the consumers” (para 115). The CFI also bases its judgment on a rather unconvincing reading of Consten and Grundig, alleging that the ECJ, “contrary tothe Commission’s contention in its written submissions, did not hold that an agreement intended to limit parallel trade must be considered by its nature, that is to say, independently of any competitive analysis, to have as its object the restriction of competition” (para. 120).
This reading is not only contrary to the Commission´s contention, but also to the general opinion of academics, judgesand practitioners built up throughout the years since 1965. CFI´s judgment was “disastrous” for the Commission in that it introduced uncertainty into a long-time principle of Community law. The Commission now faced another burden in addition to its regular duties of deciding various cases – the question of whether to follow the traditional single-market objective principle, or the new, final...
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