What is an undertaking?
This term is not defined in the Treaties but its meaning is reasonably settled as a result of case law.
The Commission published the following two definitions on DG Competition’s web-site at:
http://ec.europa.eu/comm/competition/general_info/u_en.html#t62
Undertaking
For the purpose of EU antitrust law, any entity engaged in an economic activity, that is an activity consisting in offering goods or services on a given market, regardless of its legal status and the way in which it is financed, is considered an undertaking. To qualify, no intention to earn profits is required, nor are public bodies by definition excluded. The rules governing concentrations speak of "undertakings concerned", that is the direct participants in a merger or in the acquisition of control.
Public undertaking
An undertaking over which the public authorities directly or indirectly exercise dominant influence by virtue of their ownership, financial participation, or the rules which govern it. A dominant influence of public authorities is in particular presumed when they: a) hold the major part of the undertaking's subscribed capital, b) control the majority of the votes attached to shares issued by the undertaking or c) are in a position to appoint more than half of the members of the undertaking's administrative, managerial or supervisory body.
Annex
Here is a typical legal analysis conducted for a group of companies that wished to understand whether their businesses fell within the scope of the competition rules:
Central to the potential application of article 82 to the market conduct is the judicial interpretation of the term "undertaking". The EC Treaty, while making reference to the term in several places, does not define the concept. Historically, the supranational courts have sought to impose a broad definition of the notion of undertaking, thereby enabling the Community to maximise its competence over all markets falling within the parameters of the EC Treaty. Advocate General Roemer proffered a useful early definition of the term in Italy v Council [Case 32/65] stating that "apart from legal form or the purpose of gain, undertakings are natural or legal persons which take part actively and independently in business and are not, therefore, engaged in a purely private activity".
In cases involving private economic operators, the Court of Justice has not been reluctant to interpret the term expansively, embracing within its ambit any collection of resources established to carry out economic activities, including companies, partnerships, sole traders or associations. In Van Landewyck (Heintz) Sarl v Commission [Case 209-215/78], the Court of Justice held that any entity engaged in commercial activity is capable of fulfilling the definition of an undertaking, even in the absence of the pursuit of profit.
Judicial identification of those public bodies which are "undertakings' subject to the competition rules is more challenging. In Hofner and Elser v Macrotron GmBH [Case C-41/90], the Court of Justice considered any entity engaged in an economic activity to be an undertaking for the purposes of the competition rules irrespective of its legal status and the way in which it is financed. This definition is helpful. It is necessary, however, to look more closely at the judicial criteria used to identify which public bodies are within or outside the ambit of article 82.
In earlier times, the Court of Justice's approach focused on the market activities of state bodies qua regulators and qua economic operators. The judgment in Commission v Italy [Case 118/85] recognises that "the State may act either by exercising public powers or by carrying on economic activities of an industrial or commercial nature by offering goods and services on the market".
To enable the enforcement of article 82 against any public body, a finding that the body had engaged in activities of a commercial or economic character is pivotal. In consequence, where public bodies exercise state authority for the purpose of market regulation, the case law reflects that those bodies will fall outside the scope of article 82 so long as they do not participate or compete in the market. Thus, in Diego Cali and Figli Srl v Servizi Ecologici Porto di Genova SpA [Case 343/95], activities which form part of the essential functions of a member state will never constitute economic activities within the meaning of Community competition law.
It follows that the classification under article 82 of any public entity as an undertaking depends entirely on the economic nature of the activity performed by it. Community jurisprudence reveals that the courts will treat the activities of a public body which are economic in nature as falling under article 82 while, concurrently, treating conduct by the same body which is non-economic or regulatory in nature as outside the remit of the competition provisions. Lawyers acting for or against public bodies where article 82 is pleaded should ensure appropriate reliance on expert legal and economic evidence to establish to the satisfaction of the courts the precise extent of the economic and non-economic activities carried out by those public bodies.
Advocate General Maduro in FENIN v Commission [Case C-205/03 P] opines that the Community courts' traditional approach for establishing whether or not a public body is an undertaking within the scope of article 82 turns on the concurrent application of two tests: the comparative criterion and market participation tests.
The comparative criterion test focuses on whether or not the activity of a public body is capable of being performed by private operators, for the purposes of determining if that activity is economic in nature or not. Where an activity can only be carried out by a public body and that activity cannot be performed by a private entity, that body cannot be considered to be an undertaking within the meaning of article 82. In Hofner and Elser, an activity was held to be an economic activity since "employment procurement has not always been, and is not necessarily, carried out by public entities", while in Firma Ambulanz Glockner v Landkreis Sudwestpfalz [Case C-475/99], public health organisations providing services in the market for emergency and ambulance services were held to be undertakings subject to the competition rules on the basis that "such activities have not always been, and are not necessarily, carried out by such organisations or by public authorities".
Sole reliance, however, on the comparative criterion test is problematic. Advocate General Maduro states that: "Comparative criterion would, literally applied, enable any activity to be included within the scope of competition law. Almost all activities are capable of being carried on by private operators." As a result, it has been necessary for the courts to delimit the scope of the test by the concurrent application of the market participation test. Under the market participation test, it is not the mere fact that, in theory, private operators may carry out economic activities on a given market which is decisive. Rather, it is the fact that those activities are actually carried on in a member state under market conditions which determines the application of article 82. Such market conditions are distinguished by conduct which is undertaken with the objective of capitalisation, as opposed to activities pursued solely pursuant to the principle of solidarity.
In Commission v Italy [Case C-35/96], it was not contested that the public body participated in the market inasmuch as it actually "offered goods and services on the relevant market". The Court of Justice held that public bodies are undertakings for the purposes of the competition rules where they "offer for payment, services [...] relating in particular to the importation, exportation and transit of goods, as well as other complementary services such as services in monetary, commercial and fiscal areas". In certain cases, a clear link between participation in the market and the carrying out of the economic activity is required. In Hofner and Elser, however, the court has shown itself willing to imply the economic nature of the activity engaged in by the public body where the member state allows private undertakings to participate in the same relevant market.
It is fair to say that the comparative and market participation tests in a number of more recent cases have been honed. In Ambulanz Glockner, it was held that "any activity consisting in offering goods and services on a given market is an economic activity" for the purposes of Community competition law. In FFSA and Others v Commission [Case T-106/96], the mere fact that an entity "is a non-profit-making body does not deprive the activity which it carries on of its economic nature since [...] that activity may give rise to conduct which the competition rules are intended to penalise".
These latter judgments are in line with the court's approach in Van Landewyck. Even where no profit-making activity is carried out by a public entity, there may be market participation capable of undermining the objectives of competition law.
The EC Treaty itself provides limited guidance to those activities which may be considered economic or non-economic for the purposes of article 82. Articles 30, 45 and 46 of the EC Treaty set out the list of non-economic grounds upon which member states may rely to justify state obstacles to intra- Community trade in goods and services Among the grounds identified is the protection of public health. The exercise by member states of the right under articles 30 or 46 to restrict interstate trade in goods and services on this ground, however, is subject to the superior requirements of Community law. The right is subject to the Community's doctrine of proportionality and can never operate as a justification for arbitrary discrimination or the imposition of disguised restrictions on trade in breach of the superior requirements of articles 28, 29 or 49. Similarly, while article 152(5) requires the Community in the field of public health provision to respect the responsibility of member states for the organisation and delivery of health services and medical care, it does not follow that public health bodies may engage with impunity in abusive behaviour which distorts competition in upstream and downstream markets in clear violation of the spirit and superior requirements of article 82.