Abuse of Dominance: Elements and Competition Law

Abuse of Dominance: Elements and Context

• Competition law aims to protect the competitive process
• It prevents markets from becoming saturated, encourages innovation, and promotes new entrants
• Dominance is connected to privatization, liberalization, and the digital economy, including Intellectual Property rights
• Abuse of dominance includes dominance, abuse, and elements of prohibition

Competition Law: Key Processes

• Focuses on anticompetitive agreements, merger reviews, and abuse of dominance
• Market definition and analysis are crucial steps,dynamic efficiencies are also considered
• Anticompetitive agreements that restrict competition may lead to fines or imprisonment
• Mergers leading to a "Significant Lessening of Competition" (SLC) or "Significant Impediment of Effective Competition" (SIEC) may be blocked
• Abuse of dominance investigations determine if a dominant position has been abused, resulting in fines or structural and behavioral remedies

Abuse of Dominance: The Basics

• Three elements must be proven: a dominant position in a market, an abuse of that position, and an effect on trade between member states
• Even the conduct of a port operator can satisfy the trade requirement due to its role in maritime import/export operations
• Merci Convensionali Porto di Genova (1991): Granted exclusive rights to port companies led to unfair prices and conditions, distorting competition

Dominant Position vs. Prohibited Abuse

• A dominant position is not inherently illegal, only the abuse of it is prohibited
• Dominant firms have a special responsibility not to abuse their position

TFEU Art 102: Abuse Definition

• Abuse by one or more undertakings of a dominant position within the common market is prohibited if it affects trade between member states
• Examples of abuse include:
  • Imposing unfair purchase or selling prices or unfair trading conditions
  • Limiting production, markets, or technical developments to the prejudice of consumers
  • Applying dissimilar conditions to equivalent transactions, placing trading parties at a competitive disadvantage
  • Making contracts subject to acceptance of supplementary obligations unrelated to the contract's subject

Parallel Imports: Article 101 vs. 102

• Cartels partitioning the common market restrict competition by object under Article 101, requiring at least two undertakings
• Bayer v Commission (2000): Article 101 didn't apply (needed 2 undertakings) and the Commission should have brought the case under Article 102, which they didn't
• Parallel Import: Pharmaceutical company sells drug at different prices in different countries; parallel importers buy where it is cheap and sell where it is expensive

Bayer v Commission (2000) - Facts and Outcome

• Bayer AG restricted supplies to wholesalers in Spain and France to prevent exports to the UK, causing a DM 230 million loss for its UK subsidiary
• The European Commission fined Bayer under Article 81(1) EC, alleging anti-competitive agreements to prevent parallel imports
• The Court of First Instance annulled the Commission's decision, finding insufficient evidence of an agreement between Bayer and wholesalers

Defining Dominance

• Legal definition in EU law came from ECJ case 27/76, United Brands
• Dominance: An undertaking with economic strength that can behave independently of competitors, customers, and consumers
• Market definition tips: Consider substitutability and use the SSNIP test

Defining the Relevant Market

• Define relevant product and geographic market
• Apply an objective test rather than a subjective one
• United Brands case (bananas): Bananas satisfy the needs of the very young, old, and sick
• Market definition notice (2024): Include products customers consider interchangeable or substitutable based on characteristics, prices, and intended use

Market Assessment

• Large market shares alone can prove dominance (Hoffman-La Roche, 1979)
• 50% market share: Sufficient to establish dominance (AKZO, 1993; Michelin, 2002)
• 70% or more: Absolute certainty of dominant position (British Leyland v Commission, 1986)
• 50-70%: Presumption of dominance
• Below 40%: Dominance unlikely without other evidence
• Even a relatively low market share can lead to dominance in a fragmented market.
• Virgin British Airways (2000): BA's 39.7% market share in the UK in 1998 considered dominant

Other Factors Indicating Dominance

• Barriers to entry: Market power due to financial/technological resources or IP rights
• Vertical integration: Blocking competitors via foreclosure
• Conduct: If egregious, the undertaking would not be able to engage in abusive conduct unless it were dominant

Joint or Collective Dominance

• Concerted practices in oligopolies can be abused as collective dominance under TFEU Art 102(1)
• Airtours (2002): Conditions for collective dominance: Market transparency, mechanism of retaliation, and lack of competitive pressure from outsiders
• Laurent Piau (2005): AffirmsAirtours conditions

Further Refinements

• Sony/BMG (2008): Confirms Airtours conditions, refines test for market transparency and refines the test for retaliation
• Collective Dominance: Undertakings collectively hold a dominant position and collectively abuse it
• Visa/Mastercard: Parallel exclusionary behavior

Defining "Abuse"

• Any abuse incompatible with the common market (TFEU Art 102)
• Two ways to classify abuses:
  • Exploitative: Dominant firm exploits its position
  • Discriminatory: Discriminates among consumers or in favor of a distributor

Types of Abuses

• All abuses caught by Article 102 are anticompetitive by definition
• Exclusionary abuses prevent or weaken competition
• Price abuses: unfair pricing
• Non-pricing abuses: refusal to deal/supply, essential facilities, exclusive purchase/tie-in sales, abusive use of IP rights

Exclusionary practices overview

• Refusal to deal:
  • A firm refuses to supply a downstream rival with input
  • A firm refuses to supply an upstream rival with distribution

Further Exclusionary Practices

• Margin squeeze: vertically integrated firm sets upstream and downstream prices so rivals can't compete
• Predation: a firm prices below cost to exclude a rival
• Bundling/tying: A firm bundles a "must-have" product with a competitive product to exclude a rival
• Exclusivity/loyalty rebates: a firm makes purchase/distribution conditional on not dealing with competitors, or provides discounts to exclude rivals

Pricing Abuses

• Firms may be attacked for pricing too high, too low, or setting different prices
• It is highly dependent on the specific circumstances
• Anti-competitive practices include: Pricing too high or low and setting different prices for different customers

Exclusionary vs. Exploitative Conduct

Discounts and Rebates

• Can be justified, if not in a dominant position.

Types of Rebates

- **Quantity Rebates:**Depend on sales volume, where there is high economy of scale
- **Exclusivity rebates**: Granted to customers who buy only from the dominant supplier
 -(‘fidelity' or 'loyalty');*Hoffman la rocher 1979*= no real justification here
- **Conditional**: Customers engage in a certain behaviour

Further Types of Rebates

- **Unconditional** Awarded to specific customers, regardless of their behaviour
- **Individualized** Rebate x situation, may be quantity
- **Standardized** rebate

Hoffman La Roche [1979]

• Fidelity discounts by Roche obliged customers to buy all or most of their vitamin requirements exclusively.
• 'English clause' lets customers ask Roche to reduce its prices
• Agreements let purchasers buy at the lowest price - not exploitative
• The customers' commercial freedom was limited, which gave roche a competitive freedom

Non-Pricing Abuses

• Refusal to Supply in the EU: 'as a general principle an objectively justifiable refusal to supply by an undertaking holding a dominant position on a market constitutes an infringement of article 102′
• 'Commercial solvents': an undertaking that starts manufacturing the derivative product may face being in competition with its former customer

Hugin Kassaregister [1979]

• Hugin, Swedish co., challenged commision decision. Found that it had infringed [art 102] by refusing to supply spare parts that repaired/serviced hugin registers with lipton, a british co.
• The court found only the spare parts that could be used were hugin spare parts
• Relevant product = market for hugin spare parts

Cases on Foreclosure

- **Orange polska (2016)**: Blocked unbundled access to local loop, it prevents Aos from using infrastructure, where the former companies monopolists to compete with

Essential Facilities Doctrine

• Facilities are essential if it is vital to the competitive viability (competitors cannot compete effectively)
• Developed in the U.S under MCI's 4 requirements
• Control of essential facility by a monopolist
• Competitors were unable to duplicate
• Denial of use to competitor
• Feasibility of providing facility

Cases for Essential Facilities

- **Oscar Bronner:** reference to court of justice, a smaller publisher that claimed that it needed Mediaprint's home delivery service 
- AG: Intervention can only be justified if the dominant undertaking has a stranglehold on the related market and the essential function it provides
- Access must be indispensable; must exist no alternative. 

Tie ins

- **Michelin (1981)**: purchase of light tyres linked to heavy tyres
 - **Hilti (1988)**: nail runs, leaves customer no choice of nail source. Abusively exploited him

Other Key Cases on Tie Ins

- **Tetra Pak (1992)**: 'airtight system' used without possibility of purchasing one another
- **Microsoft 2004**: GC 2007 Conditions to be met
- Tying + tied products should separate

• Undertaking must be dominant in product market
• Customers must be denied a chance to obtain product without tied product
• Competition was foreclosed

Google and Recent Abuses In Digital Economy

• Google Android (2018): Google play store was available to people who preinstalled apps (Google Maps)- Abuse of dominance
• Broadcom (2019): dominant co. imposes exclusive purchasing + clauses on customers, interim measures: cease activity, not agree on provisions.

Regulation 1/2003 (Art 101 and 102) and fines

• Imposes fines for breaches on law
• Fine can total 10% undertaking w/ preceding business law
• Infringement fine cannot exceed 10% activity sum

Challenging EU Decision

• EU Commision (DG Comp)=Primary Enforcer
• Parties can appeal decision to the general court and CJEU
• EU Member states have authority as well
• Courts affect decisions
• National Courts = suspension procedure + referal