Agency Name: Office of Competition and Consumer Protection, Poland Date: December 16, 2008 Tying & Bundled Discounting

Transcription

1 Agency Name: Office of Competition and Consumer Protection, Poland Date: December 16, 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. Paragraph 2 point 4 of Article 9 of the Competition and Consumer Protection Act specifically prohibits requiring that the other party to the contract accepts or supplies a good or service, which is not customarily tied to object of the contract Paragraph 2 point 5 of Article 9 of the Competition and Consumer Protection Act specifically prohibits counteracting formation of conditions necessary for the emergence or development of competition. 1

2 General provisions of Article 9 of the Competition and Consumer Protection Act (i.e. paragraph 1) prohibiting any anti-competitive abuse of dominant position, can be used. Are tying and bundled discounts a civil and/or a criminal violation of your jurisdiction s antitrust laws? They are civil violations, no criminal sanctions are foreseen in the Law. Do these provisions apply only to dominant firms or to other firms as well? The above provisions apply to dominant firms only. In addition, Article 6, paragraph 1 pt. 5 prohibits anti-competitive agreements requiring that the third party to the contract accepts or supplies a good or service, which is not customarily tied to object of the contract. However, we believe the above provision should not be construed as preventing any act of tying, it is aimed rather at agreements among competitors, who, acting in concert, practice tying. 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 practice so far has been that tying by dominant firms is treated as per-se violation, provided that they are not a customary practice (see pt. 8 below). Bundling as such is not prohibited, unless facts of the case show it can be at least potentially harmful to competition or consumers. Previous court decisions can be used, but are not binding. No policy statements have been issued. 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). All in-depth investigations conducted by the OCCP must conclude with an administrative decision. Due to technical constraints, we have only considered the OCCP cases reviewed over the last 4 years. They are cases where open at the beginning of 2004 and closed by November We have not reviewed cases that are currently open, since the descriptions are often unavailable. The results are presented below. Tying cases reviewed: 4 Bundling cases reviewed: 2 All of these investigations have been prompted by a competitor or customer complaints. 2

3 There is also one bundling case still under review, where a settlement between the parties to the proceedings has been reached. The great majority of the cases reviewed as potential violations of Paragraph 2 point 4 of Article 9 of the Act (tying), have in fact been exploitative in nature. (As an example, a water management company required that their new customers buy and install some equipment, which the company itself did not supply). The numbers presented here refer to the cases identified as exclusionary tying practices. 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. Tying cases found unlawful: 2 In both cases potential exclusionary effects have been demonstrated. Bundling cases found unlawful: 2 In one case the actual exclusionary effect has been found, but the practice was accompanied by other illegal practices. In the other the effect was only potential. 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. Tying cases: both appealed, one upheld, the other upheld by the Court of First Instance and appealed to the Appeals Court Bundling cases: 1 appealed and upheld 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. Please state whether any of these cases were brought under a criminal antitrust law. Not applicable. 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. 3

4 No official English summaries are available. The leading tying case was the case against TP SA, the Polish fixedline telecom operator. The operator was tying the purchase of broadband Internet (DSL) with the purchase of fixed-line telephone subscription. The case is now being reviewed by the Appeals Court. In an interesting bundling case, a ski-lift operator, with a dominant position in the market for ski-lift services in the region, also owned a ski-rental booth. The operator was charging an extra fee for ski-lift services from those who rented ski equipment from a competing rental booth. The bundle of the two services was therefore cheaper if bought from the operator. The case has been appealed and upheld by both instances. 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. Such possibility exists, however, due to practical difficulties, no private lawsuits based on Competition Act violations have been filed. If private lawsuits are filed in the future, they will almost certainly be follow-on suits. 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? No. 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 main concern is foreclosure of the tied-product market (exclusion of competition) and maintaining dominance. These may lead to exploitation of consumers (or customers) in both (the tying good and the tied good) product markets. However, the potential for consumer harm is not analyzed. Price discrimination concerns are analyzed separately, e.g. see the discussion of loyalty rebates below. As mentioned in pt. 3, one should, however, keep in mind that the great majority of the cases reviewed as potential violations of Paragraph 2 point 4 of Article 9 of the Act, have in fact been exploitative in nature. We believe that these cases do not constitute examples of tying, as defined in this questionnaire. 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? We can find tying only if by custom the products or services are, or may be, offered for sale separately. In order to decide whether this condition is satisfied, we would analyze the history of the relevant markets and other geographical markets, and look at economic rationales for tying the 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? a. What specific types of effects must be shown, e.g. market distortion, market foreclosure, harm to consumer welfare? A foreclosing effect must be demonstrated. Tying must foreclose potential competition from an equally or efficient firm or must distort or exclude existing competition. b. What degree of proof is required? Must the effect be actual, likely, or potential? Potential effect are sufficient, however, typically there is evidence of actual market distortion. 10. Does intent play a role, and if so what role and how is it demonstrated? It is not necessary to prove intent. Any proof of intent would be used as supplemental evidence. Intent, even indirectly proven, has an impact on the amount of fine. 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? The term bundled discounting is not officially used in our jurisdiction. 12. 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. Same as in pt 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. Price-cost comparisons are not necessary, but can be used as supplemental evidence of exclusionary effects. Recoupment potential is not analyzed. 5

6 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? a. What degree of proof is required? Must the effects be actual, likely, or potential? Same as pt. 9 above 15. Does intent play a role, and if so what role and how is it demonstrated? Same as pt. 10 above 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. No. 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. 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? Policy 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. The defendant would have to show that the practice is a normal business practice, i.e. that the tying or bundling is customary or there are convincing efficiency justifications for the behaviour in question. 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. Same as above. 18. What policy considerations does your jurisdiction consider with respect to tying and bundled discounts? 6

7 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? Our jurisdiction recognizes that tying and bundling are common practices and generally pro-competitive. However, with respect to dominant firms we take a very strict approach, especially in case of tying, assuming that the practice has harmful effects unless convincing evidence to the contrary exists. 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. We do not foresee any major changes in the policy regime. 7

8 Agency Name: Office of Competition and Consumer Protection, Poland Date: December 16, 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 loyalty 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? Paragraph 2 point 3 of Article 9 of the Competition and Consumer Protection Act specifically prohibits applying dissimilar conditions in equivalent transactions with third parties, which create diversified conditions of competition for these parties Paragraph 2 point 5 of Article 9 of the Competition and Consumer Protection Act specifically prohibits counteracting formation of conditions necessary for the emergence or development of competition. General provisions of Article 9 of the Competition and Consumer Protection Act (i.e. paragraph 1) prohibiting any anti-competitive abuse of dominant position, can be used. 8

9 Are loyalty discounts a civil and/or a criminal violation of your jurisdiction s antitrust laws? They are civil violations, no criminal sanctions are foreseen in the Law. Do these provisions apply only to dominant firms or to other firms as well? The above provisions apply to dominant firms only. In addition, Article 6, paragraph 1 pt. 4 prohibits anti-competitive agreements applying dissimilar conditions to equivalent transactions with third parties, which create diversified conditions of competition for these parties. Some discounting agreements, may therefore also be illegal. 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). Cases reviewed: 5 Due to technical constraints, we have only considered the OCCP cases reviewed over the last 4 years. They are cases where open at the beginning of 2004 and closed by November We have not reviewed cases that are currently open, since the descriptions are often unavailable. 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 informally as well as those that led to a formal decision. If your agency has found any loyalty discounts and rebate programs to be unlawful, please describe the anticompetitive effect and the circumstances that led to the finding. Cases found unlawful: 5 In all cases, the practice raised entry barriers in the downstream market, i.e. it hindered or excluded competition between the customers of the dominant firm which granted the rebates. 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. Cases appealed: 3 Cases upheld: 2 upheld by the Court of First Instance, one still under review by Court of First Instance 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 9

10 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. Please state whether any of these cases were brought under a criminal antitrust law. Not applicable. 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. No official translations are available. 4 out of 5 cases dealt with solid waste dumpground operators. They were using quantity discounts which favoured large suppliers of waste (waste management companies), which created entry barriers for new competitors and excluded existing smaller competitors. 4. Does your jurisdiction allow private parties to challenge loyalty discounts and rebates in court? Yes/No. If yes, please provide a short description of representative examples of these cases. If known, indicate the number of cases brought (or an estimate thereof) by private parties. See the answer to the Tying and Bundling questionnaires. 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. 6. What are your jurisdiction s criteria for evaluating the legality of loyalty discounts and rebates? 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? Rebates must have an exclusionary effect. b. Does intent play a role, and if so what role and how is it demonstrated? It is not necessary to prove intent. Any proof of intent would be used as supplemental evidence. Intent, even indirectly proven, has an impact on the amount of fine. 10

11 c. Does price-cost comparison play a role? If so, please describe the comparison(s) used and the role that it plays. 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. Tests based on costs are not necessary. Pricing above cost does not prove legality. For rebates to be illegal, it is enough that they are significantly discriminatory, i.e. there are large differences between the rebates applicable and the highest threshold can be reached (under reasonable conditions) only by one (usually large incumbent) or very few customers, giving them unfair advantage. Presumptions and Safe Harbors 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. No. 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. 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. Efficiency defense could be used, but was never seriously attempted. Policy 10. What policy considerations does your jurisdiction consider with respect to loyalty discounts and rebates? 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 11

12 any, are generally associated with loyalty discounts and rebates in your jurisdiction? Our jurisdiction recognizes that loyalty discounts and rebates are common practices and generally pro-competitive. However, with respect to dominant firms we take a very strict approach, if we receive complaints from competitors or customers and they result in serious distortion of competition in the downstream market 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. Our experience with rebates so far has been unorthodox: we have dealt with cases, where the dominant firms were not threatened by entry and were evidently not intending to exclude competition in their own market. In other words, the rebates did not have a loyalty-enhancing intent or effect. Instead, the rebates were creating unfair advantages for one or more or their customers, some of whom may have had formal or informal ties with the dominant firm. Therefore in some cases the practice resembled a price squeeze in the downstream market. 12