Article 102TFEU ESTABLISHING DOMINANCE

Transcription

1 Article 102TFEU ESTABLISHING DOMINANCE

2 Lecture Objectives To understand the context of Article 102 TFEU; Be aware of the main Commission documents in relation to Article 102TFEU including the Commission's Guidance; To know the constituent parts of Article 102 TFEU; Have knowledge of the definition of dominance; Have good understanding of the test to establish dominance in the new framework.

3 Important Documents The Guidance on the Commission s Enforcement Priorities; Discussion Paper on the application of [Article 102TFEU] to Exclusionary Abuses; Commission Notice on the Relevant Market.

4 Lecture Structure 1 Rationale of dominance and its importance to the EU; 2 Elements of Article 102TFEU; 3 Definition of dominance; 4 Establishing dominance; 5 Effect of being a dominant undertaking.

5 Behind 102TFEU

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7 The Early Years The Commission s enforcement of Article 102 TFEU was practically nonexistent in the years following the adoption of the EC Treaty. This is generally thought to have reflected two considerations. 1 First, the practical application of Article 102 TFEU was unclear: the concept of abuse of a dominant position was not defined in the text of the EC Treaty; nor did any national competition law system explain how the concept should be interpreted or applied. 2 While several European countries, such as France, Belgium, and Germany, had established national legislation based on the abuse principle, enforcement was extremely limited. Likewise, at the time Article 102 TFEU was enacted, Article 66(7) ECSC had never been applied either. The absence of defined criteria led some commentators to fear that Article 102 TFEU would ultimately become a dead letter.

8 Developing the Framework [1970s] Case Continental Can Commercial Solvents Suiker Unie United Brands Hoffmann-La Roche Framework Principle (1) The examples of abuses in the Treaty are not exhaustive; (2) abuse covered not only direct harm to competition, but also indirect harm in the form of conduct that adversely affects the structure of competition. A dominant supplier of an essential raw material may have a duty to deal with a downstream customer that depended on it (This case forms the basis of the current principles on refusal to deal under Article 102 TFEU). Widened the range of abusive practices. First major case of abuse that affected market integration. Laid out the Court s basic definition of an exclusionary abuse.

9 Case 40/73 Coöperatieve Vereniging Suiker Unie The Court of Justice dealt with a wide range of abusive practices, including exclusive contracts, payments in return for not dealing with rival firms, discrimination under Article 102(c), and limiting production under Article 102(b). The first case in which the Court of Justice found that a conditional rebate was abusive; Non-competition clauses imposed by the dominant enterprise on its agents may constitute an abuse within the meaning of Article 86.

10 Developing the Framework [1980s] Throughout the 1980s and 1990s, the Commission, backed by the EU Courts, developed a number of rules for specific examples of abusive conduct. Michelin I [fidelity rebates] and [special responsibility]; AKZO [predatory pricing]; Napier Brown/British Sugar [price squeeze]; Volvo [responsible use of IP].

11 Road to Reform The Commission s expansion of the concept of an abuse had became increasingly controversial over time. Some of that controversy stemmed from the inherent difficulty of distinguishing the type of exclusion that competition law encourages legitimate competition and unlawful exclusion and the wide discretion of the Commission. the law was unclear in important respects and certain ill-considered statements by the Commission, particularly on pricing abuses; the Commission had not attempted to develop any kind of general or comprehensive statement on abusive behaviour. Instead, the Commission and the EU Courts dealt with individual cases that were said to raise questions of abuse; The Commission practice ran the risk of protecting competitors at the expense of competition; the influence of economics had not been felt as strongly under Article 102 TFEU as it has been under Article 101 TFEU and EU merger control law.

12 The Discussion paper [2005] The Commission announced in 2003 that it would undertake a review of policy under Article 102 TFEU The position and office of Chief Economist within DG Competition was created in 2003; Economic Advisory Group on Competition Policy (EAGCP) set out a paper for an economic approach to Article 102 TFEU; consultation with the national competition authorities (NCAs); The principal idea behind the modernisation of Article 102 TFEU was to bring it more in line with the type of economic analysis routinely applied under Article 101 TFEU and EU merger control; in other words, to apply sound economic assessment.

13 The Guidance Paper In late 2008 the Commission published the Guidance Paper, or Communication from the Commission Guidance on the Commission s enforcement priorities in applying Article [102 to abusive exclusionary conduct by dominant undertakings; The Guidance Paper is not merely policy- or enforcement-based: it has clear substantive and normative content. It is plainly a considered effort to effect substantive change to a number of areas of Article 102 TFEU; Reorientation of objectives; Assessment of dominance; Framework for exclusionary abuse; As efficient competitor test; Defences.

14 Article 102TFEU

15 Market Power From the outset it is important to clarify that market power is not a negative thing per se. Often companies obtain market power in entirely legitimate ways, for example by producing more efficiently than other players, by making better quality products, or by being more innovative in short by providing benefits to consumers. Consequently, competition policy is not concerned with market power as such. Rather, it is concerned with the ways in which market power may be obtained, maintained, or enhanced (and subsequently exercised) through anti-competitive means, that is, to the detriment of consumers. While this in principle requires an individual analysis for each case, this does not preclude antitrust policy from relying upon certain presumptions regarding the effects once a certain degree of market power has been established.

16 Article 102 TFEU 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.

17 Is there an undertaking? Is it dominant within the internal market? Is dominance been abused? Is there an affect on the internal market? Can it be objectively justified?

18 Undertaking Case Höfner and Elser Pavlov Wouters MOTOE Definition The concept of an undertaking encompasses every entity engaged in an economic activity regardless of the legal status of the entity and the way in which it is financed. It has also been consistently held that any activity consisting in offering goods or services on a given market is an economic activity. Does not apply to activity which, by its nature, its aim and the rules to which it is subject does not belong to the sphere of economic activity... or which is connected with the exercise of the powers of a public authority. The classification as an activity falling within the exercise of public powers or as an economic activity must be carried out separately for each activity exercised by a given entity.

19 Dominance [Definition] Article 102 applies only where one undertaking has a dominant position or where two or more undertakings are collectively dominant. The Court of Justice in United Brands v Commission laid down the following test of what is meant by a dominant position: The dominant position thus referred to by Article [102] 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 affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers.

20 Dominance [Definition] Guidance Paper 10: as a position of economic strength enjoyed by an undertaking, which enables it to prevent effective competition being maintained on a relevant market, by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of consumers Case law cited: Case 322/81 Nederlandsche Banden Industrie Michelin (Michelin I) v Commission [1983] ECR 3461, paragraph 57; Case T-83/91 Tetra Pak v Commission (Tetra Pak II) [1993] ECR II-755, paragraph 114; Case T-111/96 ITT Promedia v Commission [1998] ECR II-2937, paragraph 139; Case T-228/97 Irish Sugar v Commission [1999] ECR II-2969, paragraph 112; and Case T-203/01 Michelin v Commission (Michelin II) [2003] ECR II-4071, paragraph 97

21 Case 27/76 United Brands Company 10 In order to determine whether UBC has a dominant position on the banana market it is necessary to define this market both from the standpoint of the product and from the geographic point of view. 11 The opportunities for competition under article 86 of the treaty must be considered having regard to the particular features of the product in question and with reference to a clearly defined geographic area in which it is marketed and where the conditions of competition are sufficiently homogeneous for the effect of the economic power of the undertaking concerned to be able to be evaluated.

22 Relevant Market

23 Market Share The market position of the undertaking itself and its competitors. The market shares of the allegedly dominant undertaking and of its competitors provide a common starting point for the analysis. They provide an indication of the degree of actual competition on the relevant market. The importance of market shares may vary from one market to another, although the possession of a very large market share over time can be, save in exceptional circumstances, evidence of the existence of a dominant position. Guidance Paper 13.

24 Case 85/76 Hoffmann-La Roche 41 Furthermore although the importance of the market shares may vary from one market to another the view may legitimately be taken that very large shares are in themselves, and save in exceptional circumstances, evidence of the existence of a dominant position. An undertaking which has a very large market share and holds it for some time, by means of the volume of production and the scale of the supply which it stands for - without those having much smaller market shares being able to meet rapidly the demand from those who would like to break away from the undertaking which has the largest market share - is by virtue of that share in a position of strength which makes it an unavoidable trading partner and which, already because of this secures for it, at the very least during relatively long periods, that freedom of action which is the special feature of a dominant position.

25 Guidance Paper 13 Market shares provide a useful first indication for the Commission of the market structure and of the relative importance of the various undertakings active on the market The assessment of dominance will take into account the competitive structure of the market, and in particular the following factors: constraints imposed by the existing supplies from, and the position on the market of, actual competitors (the market position of the dominant undertaking and its competitors), constraints imposed by the credible threat of future expansion by actual competitors or entry by potential competitors (expansion and entry), constraints imposed by the bargaining strength of the undertaking's customers (countervailing buyer power).

26 Test for Dominance

27 Case T-321/05 AstraZeneca In which the GC upheld the Commission s reliance on the following relevant indicators of market power: not only sustained high market share (in both absolute and relative terms) (paras ); but also the relatively high price charged by the dominant company (paras ); the existence and use of intellectual property rights (paras ); first-mover status and incumbency (paras ); and; superior financial resources (paras ).

28 Market Shares & Economic Effect Although a static market evaluation, i.e. the here and now of the market and the place of the encumbered undertaking; Guidance Paper 11 The Commission considers that an undertaking which is capable of profitably increasing prices above the competitive level for a significant period of time does not face sufficiently effective competitive constraints and can thus generally be regarded as dominant.» What is a significant period of time will depend on the product and on the circumstances of the market in question, but normally a period of two years will be sufficient.

29 Barriers to Expansion and Entry The Commission s Market Definition Notice [ 24, 28-31] suggests that potential competition will generally not be considered in the context of market definition but rather as part of the analysis of dominance, but adds that the Commission may also treat barriers to entry as relevant to the geographic market assessment. Barriers to Expansion is not a limited list, Guidance Paper [ 16-18], includes; Economies of scale and fixed costs; Technical Barriers; IP ownership; Structural barriers.

30 Barriers [Examples] Case Intel Telefónica de España Tetra Pak II Hoffmann-La Roche France Télécom Barrier The Commission noted not only that lower costs depended on high factory capacity use but that the levels of production needed to achieve competitive cost levels were high, relative to the overall size of the market. The General Court upheld the Commission s decision that Telefónica s dominant position in the regional wholesale market partly derived from economies of scale and scope of a magnitude that was not available for alternative operators. The General Court found that Tetra Pak had artificially limited competition to the sale of machines in which it had the greatest technological lead and where entry barriers were therefore at their highest. Both the Commission and the Court of Justice held that Roche s possession of technological advantages was a relevant consideration in the assessment of dominance. The General Court upheld the Commission s assessment that Wanadoo s strength on the market for high-speed internet access was reinforced by the logistical advantages which it enjoyed from its link-up to France Télécom s distribution network.

31 Countervailing Market Power One aspect of the wider issue of whether there are significant actual or potential competitors who may be able, in the particular circumstances of the market in question, to provide effective competition to the leading firm and thereby enable it to rebut any presumption of dominance that might arise on the basis of a simple consideration of market shares. Countervailing buyer power refers to the bargaining position of one or more buyers and their ability to constrain the behaviour of a supplier, for example by making a credible threat to switch to competing suppliers or to sponsor market entry. 18 Guidance Paper

32 Guidance Paper 18 of the Guidance Paper explains that competitive constraints may be exerted not only by actual or potential competitors, but also by customers if they have sufficient bargaining strength; such power may result from a customer's size or its commercial significance for a dominant firm. However buyer power may not amount to an effective competitive constraint where it ensures only that a particular or limited segment of customers is shielded from the market power of the supplier.

33 Finding of Dominance According to the case-law, holding a dominant position confers a special responsibility on the undertaking. Case 322/81 (Michelin I). View 1 View 2 The special responsibility imposes particular obligations on the dominant undertaking. In particular: oblige a dominant undertaking not to: engage in any conduct that is capable of harming competitors market shares, incentives to innovate, or profitability; or An effective competitive process requires competition on the merits through which some undertakings will gain and some will lose. It stands to reason, therefore, that the prohibition of abusive conduct should not be viewed as synonymous with prohibiting competition on the merits. engage in any pricing practices that would result in the dominant firm earning profits greater than those that would be earned if the market were characterized by more effective competition Article [102 TFEU] prohibits abuses of a dominant position. It is not in itself illegal for an undertaking to be in a dominant position. However, the undertaking concerned has a special responsibility not to allow its conduct to impair genuine undistorted competition on the common market.

34 It is an undertaking (undertakings) Same test as under 101TFEU; Same case law is applicable; More recent 102 cases including Selex (ECJ decision). Identification of Relevant Market Starting point will be Commission Notice; Relevant Product Market Relevant Geographic Market Cellophane fallacy (102) Dominance Market Share Guidance Paper indicative High market share is still presumptive; Length of market share remains a consideration; Particulars of the market. Guidance Paper Barriers; Countervailing market power; Includes competitive and buyer power. Effect of Dominance Not a crime, Activates Special Responsibility Doctrine; Activity still needs to be assessed for abusive behaviour.

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