Market elements in universities: Potential conflict with EU competition law? Europe of Knowledge

Andrea Gideon

Education and research policy have developed at the European level over recent decades. In particular the Bologna Process and the Lisbon/Europe 2020 Strategy have played a significant role.[i] If one, however, examines the actual competences to create legislation for these policy matters at EU level, one finds that these are limited. The EU has only a complementary competence for education which means that the EU essentially can only enact programmes supporting the Member States.[ii] For the policy area of research, the EU and the Member States share competences since the entry into force of the Treaty of Lisbon allowing the EU to pass legislation beyond the Framework Programmes/Horizon2020 in order to achieve the European Research Area.[iii] Prior to that, the EU also only had a supporting role to play and, even since, there has been no significant harmonisation of national research policies. The Member States are, therefore, still mainly responsible for research and higher education policies affecting universities. However, universities can be affected by EU law in other areas, for example, by EU competition law.

Increased competition with private sector

The Member States, potentially encouraged by developments at the EU level,[iv] have increasingly brought market elements such as fees, research for the private sector and business style management into their universities. Universities now engage in intellectual property right exploitation, set up spin-offs and conduct more applied research or research with impact thereby competing increasingly with private sector entities. Public research funding is equally increasingly distributed in a competitive fashion.[v] Also, the financial crisis has left its mark with some Member States increasing and others significantly cutting funding for universities;[vi] the latter of which requires universities even more to look for alternative income. The boundaries between the private and the public as regards universities have therefore become less clear.

These developments might have a side-effect, though. If universities become more commercial, they might fall under the more commercial provisions of EU law and, if they would breach them, this might require universities to change their behaviour. As an example, we shall look at the provisions on competition law (Article 101-109 TFEU) here.[vii] Competition law regulates the conduct of companies when competing with each other in the Internal Market. However, the entities captured by competition law, are indeed broader than just companies, as Article 101 TFEU refers to ‘undertakings’. The Court has defined such an ‘undertaking’ as ‘every entity engaged in an economic activity’.[viii] An economic activity consists of ‘offering goods or services on a market’.[ix] Therefore, if universities are offering goods or services on a market, they would equally conduct an economic activity and thus be an ‘undertaking’ at least for those activities. For example, higher education ‘sold’ for high tuition fees or contract research could amount to an economic activity. Therefore, the more commercial universities become in their activities, the likelier it gets that they are ‘undertakings’.

Potential consequences of EU competition law for universities

If universities fall under competition law, this might create problems for them.[x] For example, if universities agree on common tuition fees or common overhead rates for research contracts, they might be seen as being engaged in price fixing, the behaviour of accreditation agencies or bodies distributing study places could potentially amount to market foreclosure or the coordination of activities along subject lines could constitute market division. All of this is behaviour prohibited by Article 101 (1) TFEU which aim it is to prevent collusions (cartels). Article 102 TFEU only applies to dominant ‘undertakings’ prohibiting them to abuse their dominance. A university would therefore have to have a certain economic strength in an area to be considered dominant.[xi] This might be possible, in particular in rarer subjects. If a university is a dominant undertaking and offers research or education for a very low price, it might be accused of predatory pricing, student number controls could be regarded as a limitation of outputs or cooperation only with certain partners to the exclusion of others could equally amount to an abuse of the university’s dominance captured by Article 102 TFEU.

Finally, Article 107 (1) prohibits state aid. Universities might get into conflict with this provisions if, in an area of economic activity, they do not charge full costs plus profit for their activities,[xii] as they could otherwise be regarded as providing or receiving state aid. If the state is ‘contracting’ universities to conduct teaching or research services, in an area of economic activity, one might even wonder if this needs to be commissioned through a public procurement procedure in which private and foreign providers could equally tender in order to avoid infringing Article 107 (1) TFEU.

Should universities come into conflict with competition law as described above, there is, of course, the possibility that they could utilise the exemptions provided in Article 101 (3) TFEU, 107 (2), (3) TFEU and secondary legislation. Furthermore, Article 106 (2) TFEU provides exemptions for services of general economic interest. It would depend on the individual case in how far universities could make use of these exemptions. If none of them applies, the universities might be required to change their behaviour or they might even be subject to fines. EU competition law effects could therefore be an ‘accidental’ consequence of the less clear boundaries between the public and the private as regards universities which universities should be aware of.[xiii]

Andrea Gideon is a research assistant for the Jean Monnet Action ‘Economic and Social Integration in the EU and Beyond – Interdisciplinary Perspectives’, Teaching Assistant and PhD Researcher at the School of Law, University of Leeds, UK.

Bibliography

F Amato and K Farbmann, ‘Applying EU competition law in the education sector’ (2010) 6 IJELP 7

DJ Beech, ‘The European Research Area: Beyond Market Politics‘ Europe of Knowledge (5 October 2013) accessed 7 October 2013

H Connell, ‘The growing significance of the research mission to higher education institutions’ in H Connell (ed) University Research Management (OECD, Paris 2004)

A Corbett, ‘Education and the Lisbon Strategy’ in P Copeland and D Papadimitriou (eds), The EU’s Lisbon Strategy: evaluating success, understanding failure (Palgrave MacMillan, Basingstoke 2012)

S Croché, ‘Bologna Network: a new sociopolitical area in higher education’ (2009) 7 Globalisation, Societies and Education 489

E De Weert, ‘Organised Contradictions of Teaching and Research: Reshaping the Academic Profession’ in J Enders and E de Weert (eds), The changing face of academic life (Palgrave Macmillan, Basingstoke/New York 2009)

E Deiaco, M Holmen and M McKelvey, ‘From social institution to knowledge business’ in M McKelvey and M Holmen (eds), Learning to Compete in European Universities (Edward Elgar, Cheltenham/Northampton 2009)

EUA, EUA’s Public Funding Observatory (Spring 2013) (EUA, European University Association, 2013)

A Gideon, ‘Higher Education Institutions and EU Competition Law’ (2012) 8 Competition Law Review 169

Å Gornitzka, ‘Bologna in Context: a horizontal perspective on the dynamics of governance sites for a Europe of Knowledge’ (2010) 45 European Journal of Education 535

P Maassen and C Musselin, ‘European Integration and the Europeanisation of Higher Education’ in A Amaral et al (eds), European Integration and the Governance of Higher Education and Research (Springer, Dordrecht/London 2009)

Office of Fair Trading, Call for information on the undergraduate higher education sector in England (Office of Fair Trading, London 2013)

D Palfreyman and T Tapper, ‘Structuring Mass Higher Education ‘(Routledge, New York/London 2009)

JG Wissema, Towards the Third Generation University (Edward Elgar, Cheltenham/Northampton 2009)

[i] See, for example, S Croché, ‘Bologna Network: a new sociopolitical area in higher education’ (2009) 7 Globalisation, Societies and Education 489, Å Gornitzka, ‘Bologna in Context: a horizontal perspective on the dynamics of governance sites for a Europe of Knowledge’ (2010) 45 European Journal of Education 535, A Corbett, ‘Education and the Lisbon Strategy’ in P Copeland and D Papadimitriou (eds), The EU’s Lisbon Strategy: evaluating success, understanding failure (Palgrave MacMillan, Basingstoke 2012). [ii] Articles 165-166 TFEU. [iii]Article 4 TFEU, Article 179-190 TFEU. [iv] The aim of the Europe2020 Strategy is, inter alia, ‘to promote knowledge partnerships and strengthen links between education, business, research and innovation […] and to promote entrepreneurship’ (Communication from the Commission ‘Europe 2020 – A strategy for smart, sustainable and inclusive growth’ COM(2010) 2020 final). See also the blog entry by Diana Beech ‘The European Research Area: Beyond Market Politics‘ (Europe of Knowledge 2013) 5th October 2013. [v] See further, in these developments, for example, Connell H, ‘The growing significance of the research mission to higher education institutions’ in Connell H (ed), University Research Management (OECD 2004) p. 17 seq, 21 seq, Deiaco E, Holmen M and McKelvey M, ‘From social institution to knowledge business’ in McKelvey M and Holmen M (eds), Learning to compete in European Universities (Edward Elgar 2009), Wissema JG, Towards the Third Generation University (Edward Elgar 2009) p. 17 seq, 34 seq, Maassen P and Musselin C, ‘European Integration and the Europeanisation of Higher Education’ in Amaral A et al (ed), European Integration and the Governance of Higher Education and Research (Springer 2009), Palfreyman D and Tapper T, ‘What is an ‘Elite’ or ‘Leading Global’ University?’ in Palfreyman D and Tapper T (eds), Structuring Mass Higher Education (Routledge 2009), De Weert E, ‘Organised Contradictions of Teaching and Research: Reshaping the Academic Profession’ in Enders J and de Weert E (eds), The changing face of academic life (Palgrave Macmillan 2009). [vi] For an overview of reactions to the financial crisis to HEI funding see European University Association, EUA’s Public Funding Observatory (2012). [vii] See for a more extensive analysis Gideon A, ‘Higher Education Institutions and EU Competition Law’ 8 Competition Law Review 169. [viii] See case C-41/90 Höfner para 21. [ix] See case 118/85 Commission vs Italy para 7. [x] See for a more extensive analysis with examples of national competition cases Gideon (n 7). [xi] This is determined by market definition. See further Gideon (n 7) and Amato F and Farbmann K, ‘Applying EU competition law in the education sector’ 6 IJELP 7. [xii] See case C-280/00 Altmark. [xiii] The Office of Fair Trading has in fact recently opened an enquiry into the higher education sector. Office of Fair Trading, Call for information on the undergraduate higher education sector in England (Office of Fair Trading, London 2013).