Agency Name: The Office for the Protection of Competition, Czech Republic Date: 17 th October 2008 Tying & Bundled Discounting

Transcription

1 Agency Name: The Office for the Protection of Competition, Czech Republic Date: 17 th October 2008 Tying & Bundled Discounting This part of the questionnaire seeks information on ICN members analysis and treatment of tying and bundled discounting. The information provided will serve as the basis for a report that is intended to give an overview of law and practice regarding tying and bundled discounting in the respective jurisdictions. Unless otherwise stated, the questions concern unilateral conduct by a dominant firm or firm with significant market power. For the purposes of this questionnaire, tying is defined as a dominant firm (or firm with substantial market power) selling one product (the tying product) only on the condition that the buyer also purchases a different (or tied) product, or agrees that it will not purchase the tied product from another supplier. It also includes the sale of products or services that could be viewed as separate but are sold only together as a bundle. For the purposes of this questionnaire, bundled discounting is defined as discounts or rebates based on a buyer s purchase of two or more different products or services. Unlike tying, bundled discounting arrangements do not prevent buyers from purchasing individual products separately, although the aggregate price of the individual components is typically higher than the price of the bundle. This part of the questionnaire covers only tying and bundled discounting, and not other practices such as exclusive dealing, single branding, and single-product loyalty discounts and rebates. Your responses should therefore not address these practices unless they have a clear and relevant connection to the analysis and treatment of tying and bundling. You should feel free not to answer questions concerning aspects of your law or policy that are not well developed. Answers should be based on agency practice, legal guidelines, relevant case law, etc., rather than speculation. Experience 1. Please state the statutory provisions or legal basis for your agency to address tying and bundled discounts. Are tying and bundled discounts a civil and/or a criminal violation of your jurisdiction s antitrust laws? Do these provisions apply only to dominant firms or to other firms as well? To bundle the conclusion of a contract with the requirement that the other contracting party shall purchase other goods which are not related to the object of the contract, neither pertinently, nor according to commercial usage, represents abuse of dominant position named in demonstrative enumeration in the Act on the Protection of Competition (hereinafter referred to as the Act ), Article 11, paragraph 1b. Czech law is divided into civil law and public law. The characteristic of public law is unequal legal relationship corresponds to the relationship citizen country and the decision is an administrative act. Citizen could appeal to the court. The civil law is 1

2 characterized by equality of the parties, the parties have equal rights. The public is divided into criminal law and administrative law. Tying and bundled discounts are violation of the public administrative law and this provision is applied only to dominant firms (please see answer below). 2. If your jurisdiction has specific criteria for analyzing tying or bundled discounting, please describe them and state their source. (e.g., legislation, court decisions, or agency policy statements). The Office s for the Protection of Competition (hereinafter referred to as the Office ) investigation is usually initiated on the basis of a complaint made by the competitors of the incumbent, who feel to be threatened by its conduct. Firstly a preliminary analysis is always conducted to verify the presumption that the undertaking in question is in dominant position in the relevant market and whether the complaint is based on true information. Further, the Office assesses potential justifying reasons for such conduct including the possible regulatory measures. The Office usually demands all contracts (or at least sufficiently representative sample, eventually contracts with greater customers), business conditions, system of discount setting, reasons for which the products cannot be offered separately and other supporting documents necessary for a preliminary assessment. The Office has to prove the actual (not potential) harm to the competitors or to the consumers. The harm includes all harmful consequences, which has casual relationship with the bahaviour of dominant. Beside the material harm, the Office considers as harm: loss of consumers, loss of the position on the market, coping with barriers on the market, which were caused by the bahaviour of dominant. If there is a suspicion that the conduct is related to the dominant undertaking in the market and that there are no justifiable reasons for tying the Office initiates the administrative proceedings in order to prove all the facts detected in the preliminary investigation and complete the evidence so that there is no doubt that the Act has been infringed. The purpose of the proceedings is to prohibit the dominant undertaking s conduct and to order termination of the anticompetitive behavior in the market. While assessing the tying of services the Office examines whether the dominant operator offers the products from the package of services also separately, on nondiscriminatory and not less-favorable conditions. While assessing prohibited tying of services the Office takes account only of the behavior in the markets where the undertaking is in dominant position, respectively assesses if there is prohibited product tying of products from dominant and non-dominant market among each other. In case the undertaking is not dominant in any of the assessed markets such behavior is out of the scope of the Act and it is allowed. 3. How many in-depth investigations (i.e., beyond a preliminary review) of tying arrangements and (separately) of bundled discounting arrangements has your agency conducted during the past ten years? Please describe what prompted the investigations (e.g., competitor complaints). 0 investigations 2

3 4. State the number of tying arrangements and the number of bundled discounting arrangements your agency found to be unlawful over the past ten years (1999 to date); include cases resolved informally as well as those that led to a formal decision. If your agency has found any tying and bundled discounting arrangements to be unlawful, please describe the anticompetitive effect and the circumstances that led to the finding. The Office conducted 1 case concerning tying and 0 cases of bundled discounting arrangements in the past ten years. For administrative systems (i.e., the agency issues its own decisions on the legality of the conduct, which may be appealable in court), please state the number of agency decisions finding a violation or settlements that were challenged in court and, of those, the number upheld and overturned. 1 decision was upheld by court 0 decisions was overturned by court For judicial systems (i.e., the agency challenges the legality of the conduct in court and the court issues a decision), please state the number of cases your agency has brought that resulted in a final court decision that the program violates the competition law or a settlement that includes relief. Also state the number of cases that resulted in a final court decision that the conduct did not violate the competition law. 0 Please state whether any of these cases were brought under a criminal antitrust law. No, it was not. (Please see answer to the question 1). Please provide a short English summary of the leading tying and bundleddiscounting cases in your jurisdiction, and, if available, a link to the English translation, an executive summary, or press release. The administrative proceeding conducted with the company Český Telecom nowadays Telefónica O2 (hereinafter referred to as ČTc ) concerned tying of services. In November 2005, the Chairman of the Office imposed a penalty of CZK 205 million on ČTc for the breach of Article 82 of the EC Treaty. Since 2002, ČTc had offered price plans intended for households and small entrepreneurs, which contained call credits or free minutes as a part of a monthly lump. By tying services together, ČTc prevented the development of competition, progress of existing alternative operators and as a consequence it limited the possibilities of consumers to obtain better services on competitive prices. The breach of competition rules concerned a larger number of price plans. The abuse of dominant position of the ČTc consisted in tying services together, i.e. the monthly lump offered on markets where it has a substantially dominant position and services offered on markets where competitive environment continually develops. ČTc thus ensured a fixed minimal part of income from call charges and access to the 3

4 internet for itself in advance, regardless of the fact whether the customers with the price plans in question really used the services. An important fact is that customers by purchasing a price plan containing a call credit or free minutes obtained certain calls for free, whereas these price plans were more advantageous for them. In case a customer telephoned less than the call credit or free minutes were, he or she had to pay the full monthly flat rate nonetheless, and the amount of payment did not reflect the fact that the call credit (free minutes) had not been fully used. The structure of the price plans in question did not enable customers to divide the payment into call charge and lease of the telephone line. Customers were for this reason less willing to call through other operators, because they did not want to lose something they obtained for free as part of the monthly flat rate. By this conduct, competition in telecommunication services was restricted. The competition in this market would have been more developed if it had not been for the anticompetitive tying of services. million-czk-upon-the-cesky-telecom-company/ 5. Does your jurisdiction allow private parties to challenge tying or bundled discounting in court? Yes/No. If yes, please provide a short description of representative examples of these cases. If known, indicate the number of cases (or an estimate thereof) brought by private parties. Generally the Czech legal order admits the private parties to challenge tying or bundled discounting in court, but the Office does not have any experience. Evaluation of Tying Arrangements 6. In your jurisdiction, is the term tying used in a manner different from the definition in the introductory paragraphs above? If so, how? The Czech jurisdiction does not make a difference in terms tying and bundling, which are according to the Act defined as making the conclusion of contracts subject to acceptance by the other party of supplementary performance, which by its nature or according to commercial usage has no connection with the object of such contracts. But in decision making practice of the Office are these terms distinguish form each other according to the definition in the introductory paragraphs. While assessing such behavior the Office proceeds pursuant to the practice of the European Commission and European Court of Justice 7. Please explain the competitive concern(s), if any, generally associated with tying in your jurisdiction, e.g. maintaining dominance/substantial market power in the tying market, distortion of or harm to competition in the tied product market, exploitation of consumers, exclusion of competitors, price discrimination, other. The conduct has to be related to the undertaking, that has dominant position on the tying market and also harm to competitors or harm to consumer welfare must be proven. 4

5 8. What specific tests, if any, are applied to determine under the competition law whether two products or services are separate rather than a single integrated product? In the case mentioned above the Office applies general test. It always depends on specific criteria of the tying and tied products. 9. In what market(s) e.g., the tying or the tied market must effects, if any, be shown to demonstrate an illegal tie? The effect is proven on the tied market. a. What specific types of effects must be shown, e.g. market distortion, market foreclosure, harm to consumer welfare? The undertaking must have dominant position on the tying market and on the tied market must be proven actual distortion of competition or harm to the other competitors or harm to the consumer welfare. b. What degree of proof is required? Must the effect be actual, likely, or potential? The effect must be actual. 10. Does intent play a role, and if so what role and how is it demonstrated? No, the intent does not play a role. The intent is considered while the fine is calculated. The intent influences the seriousness of delinquency. Evaluation of Bundled Discounting 11. In your jurisdiction, is the term bundled discounting used in a manner different from the definition in the introductory paragraphs above? If so, how? Please see answer to the question Please explain the competitive concern(s), if any, generally associated with bundled discounting in your jurisdiction, e.g. maintaining dominance/ substantial market power, distortion of or harm to competition, exploitation of consumers, exclusion of competitors, price discrimination, other. The conduct has to be related to the dominant undertaking in the market and there are no justifiable reasons for bundling, expect the general conditions (i.e. competitor must have dominant position, actual harm to the competitors or consumers). 13. Does price-cost comparison play a role in the evaluation of bundled discounting? Yes/No. If yes, please describe the comparison used and the role that it plays. Please also indicate if recoupment plays a role and, if so, what role it plays. In case which is mentioned above we used price cost comparison, we compared prices in the tying market and in the non-tying market. 5

6 The Office has experience only with one case, in which the recoupment does not play a role. 14. What sort of effects, if any, must be shown to demonstrate an illegal bundled discount? For example, must market distortion, market foreclosure, harm to consumer welfare or any other effect be shown? The conduct has to be related to the dominant undertaking; harm to competitors or harm to consumer must be proven. a. What degree of proof is required? Must the effects be actual, likely, or potential? The effect must be actual. 15. Does intent play a role, and if so what role and how is it demonstrated? Please see answer to the question 10. Presumptions and Safe Harbors 15. Are there circumstances under which tying or bundled discounting is presumed illegal? Yes/No If yes, please explain, including whether the presumption is rebuttable and, if so, what must be shown to rebut the presumption. The condition to presume tying or bundled discounting illegal is in case when the undertaking has on the market dominant position (market share at least 40%). The presumption is rebuttable. 16. Are there any circumstances under which there is a safe harbor? Are there any circumstances under which there is a presumption of legality? Please explain the terms of any presumptions or safe harbors. No, there are not. Justifications and Defenses 17. What justifications or defenses, if any, are permitted (e.g., reduced manufacturing or distribution costs, meeting competition, product reputation, technological linkages) for tying or bundled discounting? Meeting competition and technological linkages can be considered as a justification form abuse of dominant position. a. Please specify the types of justifications and defenses that your agency considers in the evaluation of tying arrangements, the role they play in the competitive analysis, and who bears the burden of proof. We do not have any experience. 6

7 b. Please specify the types of justifications and defenses that your agency considers in the evaluation of bundled discounts, the role they play in the competitive analysis, and who bears the burden of proof. We do not have any experience. Policy 18. What policy considerations does your jurisdiction consider with respect to tying and bundled discounts? The Office is generally focused on detecting the most serious infringements and these are not only horizontal price agreements, but also abuse of dominant position with significant impact on the extensive group of consumers bundling and tying or single-product loyalty discounts and rebates could be also classified as serious infringement. You may wish to address the following sorts of issues: Are tying and bundled discounting common? Does your jurisdiction generally consider them to be procompetitive? Does your answer depend on whether the firm is dominant? Does your jurisdiction view tying and bundled discounting by a dominant firm as generally anticompetitive? What competitive concern(s), if any, are generally associated with tying and bundled discounts in your jurisdiction? 19. Please provide any additional comments that you would like to make on your experience with tying and bundled discounting and enforcement in your jurisdiction. This may include, but is not limited to, whether there have been or whether you expect there to be major developments or significant changes in the criteria by which you assess tying and bundled discounting. 7

8 Agency Name: The Office for the Protection of Competition, the Czech Republic Date: 17 th October 2008 Single-Product Loyalty Discounts and Rebates This part of the questionnaire seeks information on ICN members analysis and treatment of loyalty discounts and rebates. The information provided will serve as the basis for a report that is intended to give an overview of law and practice regarding loyalty discounts and rebates in the respective jurisdictions. Unless otherwise stated, the questions concern unilateral conduct by a dominant firm or firm with significant market power. For this questionnaire, loyalty discounts and rebates are defined as discounts or rebates on units purchased of a single product, conditioned upon the level or share of purchases. This part of the questionnaire concerns only treatment of single-product discounts rather than pricing practices involving multiple products (bundling, tying, and related practices). You should feel free not to answer questions concerning aspects of your law or policy that are not well developed. Answers should be based on agency practice, legal guidelines, relevant case law, etc., rather than speculation. Experience 1. Please state the statutory provisions or legal basis that allow your agency to address loyalty discounts and rebates. Are tying and bundled discounts a civil and/or a criminal violation of your jurisdiction s antitrust laws? Do these provisions apply only to dominant firms or to other firms as well? The provision of loyalty rebates by the undertaking in dominant position is generally deemed prohibited, if no objectively justifiable reasons of such conduct are proved. As the approach of the Office to the application of Article 82 of the EC Treaty is the same as to the Act, the Office, while assessing such behavior, proceeds pursuant to the practice of the European Commission and European Court of Justice. Czech Jurisdiction has not specific criteria for analyzing loyalty discounts and rebates. 2. How many in-depth investigations (i.e., beyond a preliminary review) of loyalty discount and rebate programs has your agency conducted during the past ten years? Please describe what prompted the investigations (e.g., competitor complaints). 0 investigations 3. State the number of loyalty discounts and rebate programs that your agency found to be unlawful over the past ten years (1999 to date); include cases resolved 8

9 2 (please see answer below). For administrative systems (i.e., the agency issues its own decisions on the legality of the conduct, which may be appealable in court), state the number of agency decisions finding a violation or settlements that were challenged in court and, of those, the number upheld and overturned. 1 decision upheld by Regional Court Brno, but the decision of the Court was cancelled by Supreme Administrative Court 1 decision overturned, the Office is expecting new decision of Court For judicial systems (i.e., the agency challenges the legality of the conduct in court and the court issues a decision), state the number of cases your agency has brought that resulted in a final court decision that the conduct violates the competition law or a settlement that includes relief. Also state the number of cases that resulted in a final court decision that the conduct did not violate the competition law. 0 Please state whether any of these cases were brought under a criminal antitrust law. No, these cases were not bought under a criminal antitrust law. Please provide a short English summary of the leading loyalty discount and rebate cases in your jurisdiction, and, if available, a link to the English translation, an executive summary, or press release. In autumn 2002 the Office received several complaints in relation to a possible breach of the Act by the company ČESKÝ TELECOM, a.s. (hereinafter referred to as ČTc ) connected with offers of preferential tariff plans. Within the framework of the administrative proceeding, it was established that the company concludes contracts with the customers on the provision of tariff plans in the wording of the General Conditions for Provision of Tariff Plans in which it commits the customers to making a monthly fixed minimum amount of telephone calls - a socalled contractual telephone charge. This commitment was defined in such a way that in case the amount of actual outgoing telephone calls is lower than the contractual telephone charge fixed by the relevant contract on the provision of a tariff plan, the customer is charged not only the price of the actual telephone calls but also the difference between the amount of the contractual telephone charge and the price of the actual calls. Such behavior is just what was deemed as loyalty rebates for the customer was contractually bound to pay the previously set amount including prepaid telephone charge no matter if he had utilized the whole amount of the telephone charge during the past month or not. As a result the customer was motivated to utilize the whole 9

10 amount because he would have to pay it anyway. Hence the customer had not even a reason to shift part of his calls to an alternative operator while such change would have been financially unfavorable. The anticompetitive impacts of it were intensified through the fact that some contracts concluded by ČTc with its customers, in the wording of the above mentioned business conditions, contained a commitment that the given contract on provision of a tariff plan would not be cancelled by any of the contractual parties before a fixed date or that customers would use exclusively the services of the company ČTc for voice telephone traffic from all their fixed lines. Apart from the abovementioned facts, it was also established that ČTc applied, when concluding the relevant contracts, individual conditions different from the conditions contained in the abovementioned business conditions or that it created plans applied with the aim to gain or maintain a customer to the detriment of competitors, on the basis of which it adjusts the conditions for concluding contracts to a particular customer s individual needs. Due to the described practices, the company ČTc created a barrier to the development of competition on the market of provision of public telephone services to businesses via fixed telecommunications networks. It thus abused its dominant position on the market, for which it was sanctioned by the Office that imposed a fine amounting to 81.7 million CZK and it was ordered to leave out the provisions committing customers to using the full amount of the contractual telephone charge, provisions limiting the possibility to cancel the contract on provision of a tariff plan before a fixed date and provisions committing the customer to using only the services of ČTc for all fixed lines from the relevant contracts. Second case is concerning abuse of dominant position of company Linde Gas a.s. (hereinafter referred to as Linde ). In 2008 chairman of the Office imposed a fine amounting to 12 million CZK to the company for abusing its position on the market of technical gas cylinder delivery. The Office was dealing with the behaviour of Linde already in 2002 and fine was imposed in October The decision was canceled by the Regional Court in Brno in July 2007 because of procedural reasons; this was corrected in new proceeding. The Office came into similar the conclusion as in Linde applied different price terms to the comparable categories of customers. Agreed price terms with customers, who had similar gas offtake, were differing in price up to the amount threefold. Behaviour of the Linde caused damage to the customers who paid the price higher then customers with similar gas offtake. And the damage was also indirectly caused to other competitors on the market. Within administrative proceeding the Office came into conclusion, that the Linde broke the law on purpose. Offering low prices to the customers was intended by maintaining the customers in case they will gain preferable offer from other undertakings. The low prices were offered at the expense of the high prices, which were paid by other customers of Linde. 4. Does your jurisdiction allow private parties to challenge loyalty discounts and 10

11 Generally the Czech legal order admits the private parties to Single-Product Loyalty Discounts and Rebates in court, but the Office does not have any experience. Evaluative Criteria 5. In your jurisdiction, is the term single-product loyalty discounts and rebates used in a manner different from the definition in the first paragraph above? If so, how? No, it does not differ. 6. What are your jurisdiction s criteria for evaluating the legality of loyalty discounts and rebates? When the dominant undertaking applies loyalty rebates, which results into distortion of competitors or harm to consumers, it is considered as abuse of dominance. For evaluating the legality of loyalty discounts and rebates must be objectively justifiable reasons proven. a. What anticompetitive effects or other criteria make loyalty discounts and rebates abusive? Must the practice exclude or threaten to exclude rivals from the market? If only threatened exclusion is required, how is it determined? If neither actual nor threatened exclusion is required, what other factors are considered? According to the decision making practice of the Office, as anticompetitive effect, which makes loyalty discounts and rebates abusive can be considered hindered operation on the relevant market to the other undertakings. b. Does intent play a role, and if so what role and how is it demonstrated? No, it does not. c. Does price-cost comparison play a role? If so, please describe the comparison(s) used and the role that it plays. No, it does not. In your answer, you may wish to address the following sorts of issues: What cost measures are used (e.g., average variable cost, average avoidable cost, average total cost)? Are price and cost compared with respect to all of a firm s sales to a particular customer or only with respect to incremental sales? How significant a role does the cost test play (e.g., is pricing below the relevant cost measure required or a pre-requisite to prove illegality? Does pricing above cost prove legality)? Please also indicate if recoupment plays a role and, if so, what role it plays. Presumptions and Safe Harbors 11

12 7. Are there circumstances under which loyalty discounts or rebates are presumed illegal? Yes/No If yes, please explain, including whether the presumption is rebuttable and, if so, what must be shown to rebut the presumption. The condition to presume loyalty discounts or rebates are illegal is in case when the undertaking has on the market dominant position. The presumption is rebuttable. 8. Has your jurisdiction developed any safe harbors governing loyalty discounts or rebates? Yes/No If yes, please explain the terms of the safe harbor. No, it has not. Justifications and Defenses 9. What types of justifications and defenses, if any, are available to the dominant firm (e.g., efficiencies, meeting competition)? Please specify the role they play in the competitive analysis and who bears the burden of proof. Meeting competition can be considered as a justification for abuse of dominant position. The Office is obliged to prove fault as well as innocence and the undertaking is obliged to provide the Office with all proofs. Policy 10. What policy considerations does your jurisdiction consider with respect to loyalty discounts and rebates? Please see answer to the question 18 (tying and bundled discounting). You may wish to address the following sorts of issues: Are loyalty discounts and rebates common? Does your jurisdiction generally consider them to be procompetitive? Does your answer depend on whether the firm offering the discounts is dominant? Does your jurisdiction view loyalty discounts and rebates by a dominant firm as generally anticompetitive? What competitive concern(s), if any, are generally associated with loyalty discounts and rebates in your jurisdiction? 11. Please provide any additional comments on your experience with loyalty discounts and rebates. You may wish to address whether there are significant policy and/or practical considerations that may lead to greater or lesser agency enforcement against loyalty discounts and rebates pursuant to your unilateral conduct rules, e.g., concern with the risks of false positives/false negatives and/or the presence or lack of evidence of consumer harm. 12