Abuse of Dominance: EU & UK Law

Abuse of Dominance

• Competition law aims to protect the competitive process, encouraging innovation and market entry.
• Abuse of dominance is relevant in privatization, liberalization, the digital economy, and intellectual property rights.
• EU law addresses abuse of dominance under TFEU Art. 102.
• UK law addresses abuse of dominance under CA 1998 Ch II.
• Three elements constitute abuse of dominance: a dominant position in a market, an abuse, and an effect on trade between member states.
• The effect on trade requirement is easily satisfied, even by the conduct of a port operator (Merci Convensionali Porto di Genova).
• Exclusive rights granted to certain port companies led to abuses of dominant positions, allowing them to impose unfair prices and conditions, distorting competition.
• A dominant position itself is not inherently illegal; the abuse of that position is prohibited.
• Dominant firms have a 'special responsibility' not to abuse their position.
• TFEU Art. 102 lists examples of abuse.
• Directly or indirectly imposing unfair prices or trading conditions.
• Limiting production, markets, or technical development to the detriment of consumers.
• Applying dissimilar conditions to equivalent transactions, thus creating a competitive disadvantage.
• Requiring acceptance of supplementary obligations unrelated to the contract's subject.

Parallel Imports

• The creation of a common market is a fundamental goal of the EU.
• Cartels that partition the common market are restrictions by object under Art. 101, requiring at least two undertakings (Pierre Cardin Case).
• In Bayer v. Commission (2000), no agreement was found, so Article 101 did not apply.
• The ECJ determined unilateral conduct did not constitute an anti-competitive agreement in Bayer v Commission (2000).
• In practice, the Commission now pursues parallel import cases on an alternative basis.
• Parallel importers buy drugs in lower-priced countries and sell them in higher-priced ones, bypassing authorized distributors.
• Bayer AG altered its distribution strategy for Adalat in response to parallel imports, restricting supplies to wholesalers in Spain and France to prevent exports to the UK.
• The Court of First Instance annulled the Commission’s decision, ruling there was insufficient evidence of an agreement between Bayer and its wholesalers to restrict parallel exports.

Defining Dominance

• Legal definition of dominance per United Brands v. Commission.
• A position of economic strength allowing an undertaking to behave independently of competitors, customers, and consumers.

Market Definition

• Define the relevant market: consider substitutability.
• Refer to the SSNIP test (Small but Significant and Non-transitory Increase in Price) from the 2024 Commission Notice.
• Define the relevant product and geographic market using an objective test.
• United Brands Co. v. Commission (Chiquita bananas).
• Bananas were considered distinct due to characteristics catering to specific needs.
• Products are substitutable based on characteristics, prices, and intended use.
• The SSNIP test is used for market definition.

Market Assessment

• Large market shares can prove dominance (Hoffman-La Roche).
• 50% market share can be sufficient to establish dominance (AKZO, Michelin).
• Market share thresholds:
  • 70% or more: almost certain dominance (British Leyland plc v. Commission).
  • 50-70%: presumption of dominance.
  • Below 40%: dominance unlikely without other evidence.
• Market structure: even a relatively low market share may indicate dominance in a fragmented market.
• Dominance can occur even without a dominant market share (Virgin/British Airways).
• British Leyland plc: British Leyland sought to discourage imports by charging unfair prices for approval certificates for imported left-hand-drive vehicles.

Factors Indicating Dominance

• Barriers to entry such as market power due to financial or technological resources or ownership of IP rights.
• Ownership of intellectual property rights like patents or copyrights.
• Vertical Integration can foreclose rivals, especially in privatized or liberalized markets.
• Refusal to supply can be a factor.
• An undertaking's ability to engage in abusive conduct can suggest dominance.

Joint or Collective Dominance

• Concerted practices are similar to collective dominance in oligopolies.
• TFEU Art. 102(1) refers to 'one or more undertakings'.
• Test for collective dominance established by the Court of Justice.
• Merger case Airtours (2002): conditions were not met because the market for package holidays was seasonal.
• Conditions for collective dominance:
  • Market transparency via common understanding.
  • Retaliation mechanisms are in place.
  • Lack of competitive pressure from outside the oligopoly.
• Laurent Piau (2005): The Airtours conditions apply under Art 102 TFEU.
• Sony/BMG (2008) refines the tests for market transparency (taking into account monitoring mechanisms) and retaliation (credible deterrent mechanism is sufficient).
• The Commission's 2005 discussion paper focused on the collective entity and Airtours conditions.
• The Commission's 2008 guidance paper did not mention collective dominance. The new guidance, now in draft, talks again about collective dominance.

Abuse of Dominance

• Undertakings collectively hold and abuse a dominant position.
• Visa/Mastercard serve as examples of parallel exclusionary behavior.
• Past Commission decisions often involved undertakings with legal or structural links.
• Challenge: how to tackle abusive behaviour due to an oligopolistic market structure in which there is tacit collusion between market players.
• Art. 102 prohibits "any abuse".

Types of Abuse

• Exploitative (raising prices).
• Discriminatory (amongst consumers or vertical relationship and in favour of distributor).
• Exclusionary.
• All abuses are anticompetitive.
• Exclusionary abuses prevent or weaken competition.

Price Abuses

• Involve unfair pricing.

Non-Pricing Abuses

• Refusal to deal/supply.
• Essential facilities issues.
• Exclusive purchase/tie-in sales.
• Abusive use of IP rights.

Exclusionary Practices

• Refusal to deal: firm refuses supply to downstream rival with input or firm refuses to supply upstream rival with distribution.
• Margin squeeze: prices are set to make it impossible for rivals to compete.
• Predation: prices are below cost to exclude rivals.
• Bundling/Tying: firm bundles product with competitive product to exclude rivals.
• Exclusivity/Loyalty rebates: purchases conditional on not dealing with competitors; discounts on additional purchases exclude rivals.

Pricing Abuses

• Firms can be challenged for pricing too high, too low, or differently for different customers.
• Whether these actions are anti-competitive depends on the circumstances.

Discounts and Rebates

• Quantity rebates are based on volume.
• Exclusivity rebates are for customers buying only from the dominant supplier.
• Conditional rebates are awarded for specific behaviours.
• Unconditional rebates are awarded to specific customers.
• Individualized rebates are easier to justify than standardized ones.
• Hoffman-La Roche: fidelity discounts that obliged customers to buy most or all of their vitamin requirements from Roche were abusive and limited customers’ commercial freedom.
• Hoffman La Roche customers’ freedom was limited and Roche’s access to rival pricing policies allowed quick reactions that undermine competition.

Refusal to Supply

• Objectively unjustifiable refusal to supply by a dominant undertaking is an infringement of Article 102.
• Commercial Solvents: firms cannot eliminate competition by refusing supply.
• Manufacturers cannot foreclose competition by unreasonably denying spare parts to independent service companies (Hugin Kassaregister).
• Hugin Kassaregister: the relevant product was the market for Hugin spare parts since they were not substitutable with those of other cash registers.
• Orange Polska (2016): blocked unbundled access to local loops.

Essential Facilities Doctrine

• A facility is essential if competitors cannot compete effectively without access.

Four MCI Requirements In The US:

• Control of facility by a monopolist.
• Competitors cannot duplicate the facility.
• Denial of use to a competitor.
• Feasibility of providing the facility.
• Oscar Bronner case.
• Access must be genuinely indispensable.
• It is not possible to replicate the facility.
• Oscar Bronner: the case lost.

Tie-Ins

• Michelin (1981): Purchase of light tyres linked to heavy tyres.
• Hilti (1988): nail gun, cartridges, and nails.
• Hilti’s policies left consumers no choice over the source of nails and abusively exploited them.
• Tetra Pak (1992): Unjustified 'airtight system'.
• Microsoft (2004): Windows Media Player tied to Microsoft OS.
• GC 2007 Conditions for unlawful bundling:
  • Tying and tied products should be separate.
  • Undertaking dominant in the tying product market.
  • Customers denied choice to obtain the tying product without the tied product.
  • Competition was foreclosed.

Digital Economy Cases

• Google Android (2018): Google Play Store available only if manufacturers preinstalled other Google apps.
• Broadcom (2019): Imposed exclusive purchasing and tying clauses.

Regulation 1/2003

• Basis for fines for breaches of competition law (Art. 23(2)).
• Fines cannot exceed 10% of total turnover in the preceding business year.
• National competition authorities can end infringements, order interim measures, accept commitments, and impose fines.
• The Commission can investigate, terminate infringements, order interim measures, and impose fines/penalties.
• Remedies can be behavioral (regulating future conduct) or structural (changing the market's structure).

Challenging EU Decisions

• The EU Commission (DG COMP) is the primary enforcer.
• Parties affected can appeal to the General Court in Luxembourg.
• Further appeals can be made to the CJEU.

Challenging National Authority Decisions

• National competition authorities can enforce Art. 101 and 102 TFEU.
• Parties affected can appeal through national courts.
• National courts can refer questions of interpretation to the CJEU.