Rule of Reason

Competition Law and Antitrust principle first articulated by the United States Supreme Court in the 1911 Standard Oil case and repeatedly reiterated under the same name, but in varying and not necessarily consistent ways since. The basic premise of the rule of reason is that an agreement or business arrangement that on its face appears to conflict with competition law may be treated as legal if its actual effect is to promote competition or the public welfare and the gains thereby outweigh any anti-competitive impact. Generally the applicability of the rule of reason is determined by a three-part test

  1. does the agreement or arrangements under examination, prima facie, reduce or restrain some aspect of competition?
  2. does the agreement or arrangements have “pro-competitive” (or other) benefits that outweigh the harm resulting from 1?
  3.  are the agreement or arrangements the least restrictive or anticompetitive way to achieve the benefits identified at 2 or it there a “less restrictive alternative”?

The European equivalent of the Rule of Reason is sometimes referred to as the “Appreciability Test,” i.e., that a restraint on competition and its effects on commerce within the EU must be ‘appreciable’ for it to violate Article 101 TFEU. The appreciability test is not absolutely equivalent to the Rule of Reason, but it does examine the overall effect on economic activity. It could also be said that the Article 101(3) conditions for exemption are essentially the same as the Rule of Reason.

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