European court ruling doubts the application of competition law to procurement by public bodies

A recent ruling of the European Court of First Instance limits the situations in which EU competition rules apply to public bodies acting in their capacity as purchasers. This ruling will have particular relevance to procurement by public sector hospitals. It also takes a different approach to the recent UK decision (Bettercare) which suggested that UK competition law could apply to a public entity which was simply a purchaser.

In a case involving the Spanish health authorities, the Court of First Instance ruled that where a body or organisation purchases 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) it may not be regarded as an undertaking for the purposes of EU competition law (Case T-319/99, FENIN).

In doing so the Court took a different view from that reached in an earlier UK case (Bettercare). In Bettercare, the UK Competition Commission Appeals Tribunal found that the activity of buying may in itself involve commercial contracts which are sufficiently economic in nature to characterise the buyer as an undertaking for the purposes of competition law.

In FENIN, the Court held that the important fact was the purpose for which the purchase was made. To be an undertaking, the body concerned had to offer goods or services of an economic nature pursuant to the purchase – the act of purchasing was not enough. In fact, in FENIN, the Court noted that since the Spanish health authorities did in fact offer certain services for remuneration, they might be considered economic undertakings. However, the Court was merely considering an appeal from a European Commission decision. At the time of making its decision, the Commission was not aware of these particular circumstances. Therefore, on the facts before it the Commission had decided correctly that the Spanish authorities were buying for a purely social purpose.

Bettercare was good news for companies selling to government bodies. It broadened the circumstances in which such bodies had to follow the competition rules. However, following FENIN Bettercare may no longer apply where it cannot clearly be shown that a government body provides goods or services on commercial terms as a result of its purchasing activities.

For further information, please contact David Marks at [email protected] or on +44 (0) 20 7367 2136.