ABUSE OF A DOMINANT POSITION - Advocatennet

Brussels Bar, Flemish Section
3rd International Competition Conference
23 November 2007
ABUSE OF A DOMINANT POSITION
- The EC case law on Art 82 EC as it stands today -
Luc Gyselen
Partner
Arnold & Porter LLP, Brussels

Overview
• Art. 82 EC: general issues
– Typology of abuses
– Causality between abuse and dominance
– Interaction with Art. 81 EC
– Remedies
• Exclusionary abuses: analytical framework for assessment
– Hoffmann-La Roche (1979)
– Commission’s Discussion Paper (2005)
– British Airways and Microsoft (2007)
• Exclusionary abuses: post-Discussion Paper pricing cases
– Loyalty y rebates (Tomra)
– Margin squeeze (Telefonica)
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• Continental Can
I. Art. 82 EC: general issues (1)
- typology of abuses -
– 26. “The provision is not only aimed at practices which may cause damage to
consumers directly, but also at those which are detrimental to them through their
impact on an effective competition structure (…). Abuse may therefore occur if
an undertaking in a dominant position strengthens th such position in such a way
that the degree of dominance reached substantially fetters competition, i.e. that
only undertakings remain in the market whose behavior depends on the
dominant one.”
– Typology
• Exclusionary abuses: focus on distortion of competitive process
• Exploitative abuses: focus on direct customer / consumer harm
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I. Art. 82 EC: general issues (2)
- Causality between abuse and dominance -
• Continental Can
– 27. “The question of the link of causality raised by the applicants which in their
opinion has to question exist between the dominant position and its abuse, is of
no consequence, for the strengthening of the position of an undertaking may be
an abuse and prohibited under article 86 of the treaty, regardless of the means
and procedure by which it is achieved, if it has the effects mentioned above.”
– Causality
• In most cases, the abuse implies the anti-competitive use of substantial market power
• Other cases
– Structural: e.g. Continental Can
– Behavioral: e.g. AstraZeneca
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I. Art. 82 EC: general issues (3)
- interaction with Art. 81 EC -
• If exemption Art. 81-3 EC, no abuse under Art. 82 EC – Atlantic Container
1456. “Where the Commission grants an individual exemption pursuant to Article 81(3) of
the Treaty in respect of agreements notified by undertakings holding a dominant position, it
indirectly bars itself, in the absence of a change in the facts or the law, from considering that
the same agreements I
constitute t abuses contrary to Article 82 of the Treaty”.
• Simultaneous application of Art. 81 EC and Art 82 EC prohibitions - CMB
33. “It is clear from the very wording of Articles 81 (a), (b), (d) and (e) and 82 (a) to (d) of the
Treaty that the same practice may give rise to an infringement of both provisions.
Simultaneous application of Articles 81 and 82 of the Treaty cannot therefore be ruled out a
priori.”
i 5

• Antitrust remedies
I. Art. 82 EC: general issues (4)
- remedies -
– Art. 7 decisions: prohibition, cease-and-desist order, fines
• fines inappropriate, except when conduct makes no economic sense but for
an exclusionary strategy?
– Art. 9 decisions: commitments
• Cf. Coca Cola (2005), De Beers (2006) and Distrigaz i (2007)
• Regulatory remedies
– closure of Vodafone, O2 and T-Mobile 82 roaming cases (2007)
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II. Exclusionary abuses: analytical framework (1)
- Hoffmann-La Roche -
• Dominance
– 38. “The dominant position (…) 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, its customers and ultimately of the consumers.”
• Abuse
– 91. “The concept of abuse is an objective concept relating to the behavior 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 which condition
normal competition in products or services on the basis of the transactions of commercial
operators, has the effect of hindering the maintenance of the degree of competition still
existing in the market or the growth of that competition.”
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II. Exclusionary abuses: analytical framework (2)
- Hoffmann-La Roche -
• Residual competition (“Restwettbewerb”)
t ttb b”)
• An in-built bias against dominance?
• Methods different from those which condition normal competition
(“Leistungswettbewerb”)
ttb b”)
• The smaller-but-equally-efficient equally efficient competitor as benchmark… but “it
may sometimes be necessary in the consumers’ interest to also
protect competitors that are not (yet) as efficient as the dominant
company” (point 67 COM discussion paper). p 8

II. Exclusionary abuses: analytical framework (3)
- Michelin I -
• A dominant company’s “special responsibility”
– 57. “ 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.”
• Assessment a dominant company’s conduct in light of “all the
circumstances”
– 73. “In deciding whether Michelin abused its dominant position in applying its discount
system it is therefore necessary to consider all the circumstances, particularly the criteria and
rules for the grant of the discount, and to investigate whether, in providing an advantage not
based on any economic service justifying it, the discount tends to remove or restrict the
buyer's freedom to choose his sources of supply, to bar competitors from access to the
market, to apply dissimilar conditions to equivalent transactions with other trading parties or
to strengthen the dominant position by distorting competition. ”
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II. Exclusionary abuses: analytical framework (4)
- Commission’s Discussion Paper -
• A two-prong legality test
– Foreclosure: market distorting effect (points 58-59 COM discussion paper)
• Capability to foreclose (nature or form of conduct),
• Incidence, i.e. market coverage of conduct, network effects
• Degree of market power – very similar to Delimitis in Art. 81-1
– Consumer harm: no defenses (points 77-79 COM discussion paper)
• Objective justifications: objective necessity, meeting competition
• Efficiencies: balancing anti-competitive and pro-competitive effects
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II. Exclusionary abuses: analytical framework (5)
- Commission’s Discussion Paper -
• Efficiencies: burden of proof
– Art. 2 Regulation n°1/2003
– but see Glaxo Wellcome
• Efficiencies: standard of proof
– Proportionality test (cf. § 90 discussion paper; cf. § 79COMnoticeonArt on Art. 813 81-3
EC)
– No substantial lessening of competition (cf. § 91 discussion paper; cf. § 105
COM notice on Art. 81-3)
– but see Glaxo Wellcome
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II. Exclusionary abuses: analytical framework (6)
- British Airways -
• Foreclosure: amalgamating “fidelity-building effect” and “exclusionary effect”
– 90. “The Court of First Instance did not (…) make any error of law in holding that
the bonus schemes at issue had a fidelity-building effect [and)] that they
therefore produced an exclusionary effect (…)”.
– 98. “ (…) The Court of First Instance was able to conclude, without committing
any error of law, that the bonus schemes at issue had a fidelity-building effect. It
follows that BA’s plea accusing the Court of not examining the probable effects of
those schemes is unfounded.”
– 145. “(…) There is nothing to prevent discrimination between business partners
who are in a relationship of competition from being regarded as being abusive as
soon as the behavior of the undertaking in a dominant position tends, having
regard to the whole of the circumstances of the case, to lead to a distortion of
competition between those business partners. In such a situation, it cannot be
required in addition that proof be adduced of an actual quantifiable deterioration
in the competitive position of the business partners taken individually.”
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II. Exclusionary abuses: analytical framework (7)
- British Airways -
• Justification
– 69. “It then needs to be examined whether there is an objective economic
justification for the discounts and bonuses granted. In accordance with the
analysis carried out by the Court of First Instance (…), an undertaking is at liberty
to demonstrate that its bonus system producing an exclusionary effect is
economically justified.”
– 86. “Assessment of the economic justification for a system of discounts or
bonuses established by an undertaking in a dominant position is to be made on
the basis of the whole of the circumstances of the case (…). It has to be
determined whether the exclusionary effect arising from such a system, which is
disadvantageous for competition, may be counterbalanced, or outweighed, by
advantages in terms of efficiency which also benefit the consumer. If the
exclusionary effect of that system bears no relation to advantages for the market
and consumers, or if it goes beyond what is necessary in order to attain those
advantages, that system must be regarded as an abuse.”
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II. Exclusionary abuses: analytical framework (8)
- Microsoft -
• Foreclosure: market distorting effect?
– Refusal to deal: diluting the Magill and IMS conditions?
• The degree of lessening competition
• The degree of novelty of the products whose emergence is prevented
– Tying: diluting the Hilti and Tetrapak conditions?
• Foreclosure is not the primary issue
• Foreclosure depends on behavior of third parties (content providers)
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II. Exclusionary abuses: analytical framework (9)
- Microsoft -
• Justifications: “special responsibility” of the dominant company
– Refusal to deal: weighing the incentives for innovation (paragraphs 697 – 710)
• those for Microsoft not chilled?
• those for competitors taken for granted?
– Tying: integrating new functionalities into existing product (paragraph 1150)
• adding functionalities is fine, but tying product must also be offered on stand-alone basis, even if there
is only limited demand for it.
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III. Exclusionary abuses: recent pricing cases
-two post-Discussion Paper cases -
• Loyalty rebates: Tomra (2006)
– Fidelity-building: the so-called suction effect (challenged by Tomra)
– Exclusionary effect: empirical evidence (e.g. stability of Tomra’s market share, no successful
market entry, more sales during the period where more exclusionary practices were at play).
• Margin squeeze: Telefonica (2007)
– The benchmark: the smaller-but-equally-efficient competitor
– Exclusionary effect: empirical evidence (e.g. Telefonica’s growth rates surpassing by far that
of its competitors) and harm on consumers (e.g. Spanish broadband access costs 20%
more than the EU-15 average.
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