Antitrust Law (3) - Abusive Conducts PDF

LESSON 5 ANTITRUST LAW(3): ABUSIVE CONDUCTS 1. Dominant position 2. Abuse 3. More frequent abusive conducts 4. Sanction for infringement 1 ...

LESSON 5 ANTITRUST LAW(3): ABUSIVE CONDUCTS 1. Dominant position 2. Abuse 3. More frequent abusive conducts 4. Sanction for infringement 1  Article 102 TFUE “Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.” Communication from the Commission — Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (2009/C 45/02) à currently under review: 2024 Guidelines on the application of Article 102 of the TFUE to abusive exclusionary conduct by dominant undertakings 2  Article 2 LDC “1. Any abuse by one or more undertakings of their dominant position in all or part of the national market is prohibited. 2. The abuse may, in particular, consist in: a) The direct or indirect imposition of prices or other unfair trading or services conditions. b) The limitation of production, distribution or technical development to the unjustified prejudice of undertakings or consumers. c) The unjustified refusal to satisfy the demands of purchase of products or provision of services. d) The application, in trading or service relationships, of dissimilar conditions to equivalent transactions, thereby placing some competitors at a disadvantage compared with others. e) The subordination of the conclusion of contracts to acceptance of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of these contracts. 3. The prohibition set out in this article shall apply in cases in which the dominant position in the market of one or more undertakings has been established by legal provisions.” 3  1. Dominant position A) Concept Jurisprudence concept: by ECJ in case United Brands (1978 ECR 207, §65): “The dominant position referred to in article 86 relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers” Two main elements in this definition: to prevent effective competition in the relevant market power to behave independently: this is the clue, what economist call“market power” Michelin (1983 ECR 3461), §57: “special responsibility” of dominant undertakings “A finding that an undertaking has a dominant position is not in itself a recrimination but simply means that, irrespective of the reasons for which it has such a dominant position, the undertaking concerned has a special responsibility not to allow its conduct to impair genuine undistorted competition on the common market” 4  1. Dominant position B) Criteria used to assess dominance 1) Market structure: 1.a) Market share: % of sales in the relevant market made by the undertaking (the higher it is, the more likely a dominant position is found) EC: dominance not likely below 40% (Guidelines art. 102, § 14) à not in 2024 Proposal ECJ practice: above 50% rebuttable presumption of dominance (Akzo v Commission, C-62/86, §60.) above 70% high likelihood, clear indication of dominance (e.g. Hilti v Commission, T-30/89,§ 92 ) Usually, study with complementary criteria except in cases of super-dominance The difference with market shares of competitors is very important 5  1. Dominant position 1.b) Potential competition: Competitive pressure can come from undertakings not being yet in the market but willing to enter if conditions are interesting à connected to the existence of Barriers to entry: conditions for entering the relevant market (the lower the barriers, the easier to enter for outside undertakings and vice versa) Examples of barriers to entry accepted by E.U. Commission and ECJ Legal barriers: administrative authorisation, IP rights (e.g. a patent)… Financial barriers: necessary cost to start an economic activity Economies of scale: cost advantage that arises with increased output of a product Economies of scope: decrease in the average total cost of production as a result of increasing the number of different goods produced Opportunity costs: benefit that a person could have received, but gave up, to take another course of action (alternative given up when a decision is made) Difficulties to access raw materials Consumer preferences (consumer loyalty) 6  1. Dominant position 1.c) Countervailing buyer power: Competitive pressure may come, not only from actual or potential competitors, but also from customers with countervailing buyer power Concept: ability of customers to switch quickly to competing suppliers, to promote new entry or to vertically integrate, or at least the ability to credibly threaten to do so That type of buyer power may result from the customers’ size or their commercial significance for the undertaking concerned. Less likely to exist if the undertaking faces a large number of dispersed buyers, or when switching away from the undertaking is subject to significant difficulties Buyer power, which only ensures that a particular or limited segment of customers is shielded from the market power of the undertaking, cannot be considered a sufficiently effective constraint to rule out dominance 7  1. Dominant position 2) Undertaking´s structure: vertical integration financial strength technical superiority better pre/post sales services 8  1. Dominant position C) Collective (or joint) dominance Case Società Italiana Vetro (1992 ECR II-1403, § 358): “There is nothing, in principle, to prevent two or more independent economic entities from being, on a specific market, united by such economic links that, by virtue of that fact, together they hold a dominant position vis-à-vis the other operators on the same market. This could be the case, for example, where two or more independent undertakings jointly have, through agreements or licenses, a technological lead affording them the power to behave to an appreciable extent independently of their competitors, their customers and ultimately of their consumers.” Compagnie Maritime Belge Transports v Commission, Joined Cases C-395/96 P and 396/96 P: §36: A finding of collective dominance requires that two or more economic entities that are legally independent of each other present themselves or act together on a particular market as a collective entity from an economic point of view §41-41: To establish collective dominance, it is necessary to examine the economic links or factors giving rise to a connection between the undertakings concerned that enable them to act together independently of their competitors, their customers and consumers (§41 and 42) §44-45: Such a connection may result from the nature and terms of an agreement between the undertakings concerned or from the implementation of such agreement, or it may result from structural or other links (e.g. personal ties) 9  2. Abuse A) Concept Jurisprudence concept: by ECJ in cases Hoffman La Roche (1979 ECR 461, § 91) and Michelin (1983 ECR 3461 § 70). “The concept of abuse is an objective concept relating to the behaviour of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened and which, through recourse to methods different from those governing normal competition in products or services based on trader’s performance, have the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition” 10  2. Abuse B) Characteristics Objective concept: the undertaking’s intention is irrelevant (but legitimate response in contractual relationships is admitted: e.g. termination of contract due to breach of contract) Objective standard: “competition based on trader’s performance” = “competition on the merits” The correct way to compete is to be more efficient than competitors (in price, quality, innovation, services to consumers…) ECJ’s case law has developed specific analytical frameworks to establish whether certain types of conduct by dominant undertakings infringe Article 102 TFEU à “specific legal tests” for specific types of conduct: e.g. Guidelines art. 102, for specific conducts 11  2. Abuse C) Defence: objective justification Conduct that is liable to be abusive may escape the prohibition of Article 102 TFEU where the dominant undertaking can demonstrate to the requisite standard that such conduct is objectively justified. To be objectively justified, the conduct must be objectively necessary (“objective necessity defence”) or produce efficiencies that counterbalance, or even outweigh, the negative effect of the conduct on competition (“efficiency defence”): Objective necessity defence (behaviour objectively necessary to achieve a certain aim): legitimate commercial considerations (e.g. protection of the dominant undertaking against unfair competition, or placing of orders by the customer are out of the ordinary, or customer’s conduct is inconsistent with fair trade practices…) technical justifications: e.g. to maintain or improve the performance of the undertaking’s product Efficiency defence: requires to prove 4 cumulative conditions: efficiency gains of the conduct counteract any likely negative effects on competition and of consumers; those gains have been, or are likely to be, brought about as a result of the conduct; the conduct is necessary for the achievement of those efficiency gains; and the conduct does not eliminate effective competition 12  2. Abuse C) Exploitative abuse vs Exclusionary abuse (…) these categories are not mutually exclusive: an exploitative abuse may also exclude competitors of the market Exploitative: any conduct that directly causes harm to the customers of the dominant undertaking: e.g. art. 102.a) TFUE: imposing unfair prices or trading conditions à charging excessively high prices Exclusionary: behaviour designed, or that might have the effect, of preventing the development of competition (e.g. harming competitors, either actual or potential à e.g. exclude competitors, market foreclosure) This is the category that has had more attention by the EC à Guidelines art. 102 set the priorities of the EC and they focus on this type of abuses The EC must show that the conduct is capable to produce exclusionary effects, but for some types of conduct there is a presumption of such effects (e.g. exclusive supply or purchasing agreements; rebates conditional upon exclusivity133; predatory pricing; margin squeeze, certain forms of tying… à see Guidelines art. 102 13  3. More frequent abusive practices List of examples in Art. 102 TFUE (same in art. 2 LDC): (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. 14  Specific forms of abuse: Guidelines art. 102 (exclusionary conducts) Enforcement priorities of the EC: related to the more frequent exclusionary conducts Communication from the Commission — Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (2009/C 45/02)] à see also 2024 Proposal Needs proof of abuse (conduct against competition on the merits) and, as a general rule, that of exclusionary effects à BUT: Presumption of exclusionary effects (conducts with a high potential to produce exclusionary effects): exclusive supply or purchasing agreements; rebates conditional upon exclusivity133; predatory pricing134; margin squeeze; certain forms of tying à Once the factual existence of the relevant conduct is established (if need be under the conditions established in the specific legal test), its exclusionary effects can be presumed. Naked restrictions: conduct that have no economic interest other than that of restricting competition (they are by their very nature capable of restricting competition): e.g. payments to customers conditional on the customers postponing or cancelling the launch of products of competitors; agreement with distributors to swap a competing product with its own under the threat of withdrawing discounts benefiting the distributors; or actively dismantling an infrastructure used by a competitor 15  Specific forms of exclusionary abuses: Guidelines art. 102 TFUE Enforcement priorities of the EC: related to the more frequent exclusionary conducts Communication from the Commission — Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (2009/C 45/02)] 2024 Proposal of Guidelines on the application of Article 102 TFUE to abusive exclusionary conduct by dominant undertakings: Conducts with specific legal tests: Exclusive dealing; Tying and bundling; Refusal to supply; Predatory pricing; Margin squeeze Conducts with no specific legal test: Conditional rebates not subject to exclusive purchase or supply requirements; Multi-product rebates; Self-preferencing; Access restrictions 16  Specific forms of exclusionary abuses: Guidelines art. 102 TFUE Exclusive dealing: §§32-46 exclusive purchasing obligations conditional rebates (retroactive or incremental rebates) 2024 Proposal,§78-83 Tying and bundling: §§ 47-62 Tying: customers that purchase one product (the tying product) are required also to purchase another product from the dominant undertaking (the tied product). Bundling: the products are only sold jointly in fixed proportions (pure bundling) or they are also made available separately, but the sum of the prices when sold separately is higher than the bundled price (mixed bundling, multi-product rebate). 2024 Proposal,§84-95 17  Specific forms of exclusionary abuses: Guidelines art. 102 TFUE Predation: §§ 63-74 deliberately incurring losses or foregoing profits in the short term, so as to foreclose actual or potential competitors 2024 Proposal, §§107-120 Refusal to supply and margin squeeze: §§ 75-90 refusal to supply covers: refusal to supply products to existing or new customers, refusal to license intellectual property rights, or refusal to grant access to an essential facility or a network 2024 Proposal, §§ 96-106 margin squeeze: to charge a price for the product on the upstream market which, compared to the price it charges on the downstream market, does not allow even an equally efficient competitor to trade profitably in the downstream market on a lasting basis 2024 Proposal, §§121-136 18  Specific forms of exclusionary abuses: Guidelines art. 102 TFUE Other conduct in the 2024 Proposal: §§138-166 Conditional rebates not subject to exclusive purchase or supply requirements: system of rebates or other advantages (monetary or not) granted to customers, to reward them for a particular purchasing behaviour, but not conditional on them purchasing all or most of their requirements from the dominant undertaking: usually, the customer is given a rebate or advantage if its purchases over a defined reference period exceed a certain threshold (quantity rebates) Multi-product rebates: marketing two or more separate products together and offer the buyer a certain inducement, such as a rebate (“multi-product rebate”), compared to the case in which it purchases the products separately on a standalone basis (also known as “mixed bundling” or “bundled rebates) Self-preferencing: dominant undertaking actively giving preferential treatment to its own products compared to those of competitors, mainly by means of non-pricing behaviour. Access restrictions: imposition of restrictions on access to an input that are different from a refusal to supply 19  4. Sanction for infringement Abusive practices cannot be exempted (≠ Restrictive agreements): Absolute prohibition Sanction for infringement: Order for cessation: also possible, order to adopt positive measures to bring the infringement to an end Fines: Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003 (OJ 2006/C210/2, of 1.09.2006) Structural remedies (divestiture of assets or breaking up an undertaking) are also possible ex art. 7 Regulation 1/2003, BUT they have never been imposed as sanctions until now (in some cases they have been accepted as legally-binding commitments ex art. 9 Regulation 1/2003) 20