Abuse of dominanceDefinition of abuse of dominance
How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?
Article 11(1) of the new Competition Act, Law No. 19/2012 of 8 May (the Act), does not give an express legal definition of abuse. It states that ‘the abusive exploitation, by one or more undertakings, of a dominant position in the national market or a substantial part of it is prohibited'. It is, therefore, an open clause, with a potentially broad scope of application.
Nonetheless, article 11(2) of the Act gives examples of abusive practices, as follows:
- directly or indirectly fixing purchase or sale prices or other unfair trading conditions (article 11(2)(a));
- limiting production, distribution or technical development to the prejudice of consumers (article 11(2)(b));
- applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage (article 11(2)(c));
- making the signing of contracts conditional on the 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 (article 11(2)(d)); and
- refusing to provide, upon appropriate remuneration, access to an essential network or other essential infrastructures controlled by the dominant undertaking to any other undertaking, when without such access this latter undertaking cannot, for factual or legal reasons, compete with the dominant undertaking in the upstream or downstream markets, unless the dominant undertaking demonstrates that, for operational or other reasons, the access is reasonably impossible (article 11(2)(e)).
At the EU level, despite the criticism that used to be made that both the Commission and the EU Courts had a very formalistic approach to article 102, it is undeniable that the Commission has for some time expressly adopted an effects-based approach (see Guidance on the Commission’s enforcement priorities in applying article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (2009)), as to which the Commission stated its ‘determination to prioritise those cases where the exclusionary conduct of a dominant undertaking is liable to have harmful effects on consumers’ (Commission Press Release IP/08/1877, 3 December 2008). The EU Courts have also increasingly adopted an effects-based approach (see, eg, decisions in Deutsche Telekom (C-280/08) and Telia Sonera (C-52/09) cases, in which the European Court of Justice (ECJ) considered that potential competitive effects must be found for a margin squeeze to be punished). In Intel, the ECJ judgment and the subsequent judgment of the General Court (C-413/14P and T-286/09 RENV, respectively) also follow an effects-based approach, clarifying the Hoffmann-La Roche case law (85/76). In the recent judgment in Google Shopping (T-612/17), the General Court also took an effects-based approach, having stated that the Commission was obliged to show – at least potential – effects attributable to the sanctioned conduct in restricting or eliminating competition in the relevant markets. The Authority, which follows as a rule, at least in theory, the positions of the Commission and the case law of the EU courts, is in line with the evolution detected. For example, in one of its latest decisions on abuse of dominance, the Authority tried to assess the existence of effects on the market concerned to declare unlawful an alleged margin squeeze by the ANF Group on the market for studies based on pharmacies’ data. Furthermore, in the most recent national decision – EDP Produção (2019) – the Authority assessed the effect of the condemned practice on the Electric National System and in consumer harm.Exploitative and exclusionary practices
Does the concept of abuse cover both exploitative and exclusionary practices?
The examples mentioned in article 11(2) of the Act include examples of both exploitative and exclusionary practices.Link between dominance and abuse
What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?
Under the competition regime in place prior to the former Competition Act, there was considerable debate on whether a causal link had to be established between the dominant position and the abuse. In a 1996 statement, the Competition Council (one of the former competition authorities) seemed to consider that such a test had to be met, although more recent decisions showed some dissension within the Council on that subject.
In the 1995 Multifrota case, the Competition Council decided that a company that was dominant in the tachograph equipment market was abusively taking advantage of that position in order to get better results in the market for tachograph paper, a market where it was not dominant. This type of approach has been followed by the Authority in subsequent cases.Defences
What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?
In principle, defences based on objective justifications (such as objective necessity or meeting competition) or efficiencies may be discussed under the Act, which, as stated, closely follows article 102 of the TFEU. If exclusionary intent is shown it shall be more problematic to raise defences particularly because the burden of proof for such an objective justification or efficiency defence remains with the dominant company.
Specific forms of abuseTypes of conduct
Rebate schemes may be caught under the open clause of article 11(1) of the new Competition Act, Law No. 19/2012 of 8 May (the Act). In addition, article 11(2)(c) of the Act prohibits the application of dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage. Although retroactive rebates are more likely to have foreclosure effects, any rebate scheme, particularly its economic effect, must be assessed on a case-by-case basis. It cannot be excluded that an incremental rebate scheme may be considered anticompetitive having taken into account its specific circumstances. The decision of the former Competition Council in Martini (1987) sanctioned the application of a discriminatory rebate scheme to certain classes of customers.
Tying and bundling
Article 11(2)(d) of the Act prohibits making the signing of contracts conditional on the acceptance of supplementary obligations that, by their nature or according to commercial usage, have no connection with the subject of the contracts.
In Via Verde (2002), the former Competition Council decided that the service under discussion – the issuing of receipts to users – and the identification and prosecution of infringers on the automatic toll payment of the Lisbon bridges involved tying; the provider of the service of automatic toll payment was subsequently fined for abuse of a dominant position.
Exclusive dealing issues may be caught by the general prohibition of abusive exploitation of a dominant position in the national market established in article 11(1) of the Act. Former Competition Council decisions concerning these issues include:
- Moraes & Wasteels (1987) on the exclusive purchase obligation and purchase-price fixing regarding certain train tickets for groups of students or emigrant workers supplied by Wasteels Expresso to national travel agencies;
- Luso (1987) regarding market partitioning between distributors of the same brand, which results from the existence of price lists and freight bonuses that rendered the purchase prices equal, coupled with recommended retail prices followed in practice by all the distributors, thereby eliminating any motivation for the search of alternative sources of supply, even for passive sales, by potential buyers; and
- Tabaqueira I (1988) concerning the imposition of an exclusive purchase obligation on tobacco wholesalers, which resulted, it was found, from an abuse of the negotiating strength that Tabaqueira’s market power granted to it, closing the market to actual or potential competitors.
Article 11(2)(a) of the Act applies to predatory pricing. The decision of the former Competition Council in RAR (1988), concerning a sugar refiner and packager, punished predatory pricing in the packed sugar market. RAR was punished for abusing its dominant position in the market of white sugar in bulk by using it and putting into practice a price reduction in the white sugar in sachets market, having consequently affected the economic balance of its competitors’ packaging companies.
Price or margin squeezes
Article 11(2)(a) and (c) of the Act should apply to price or margin squeezes. In the decision adopted in Portugal Telecom (PT) (the then telecoms incumbent) Group/ZON Group (2009), the Competition Authority (the Authority) punished the PT Group and the ZON Group for margin squeeze. In addition, in the decision in National Association of Pharmacies (ANF) (2015), the Authority also fined the ANF and its affiliated companies for alleged margin squeeze. In this latter case, for example, the Authority found an abuse of dominant position through a margin squeeze by the ANF Group to the extent the price imposed by the latter regarding pharmacies’ data upstream when compared with the prices imposed by the Group in the downstream market for the studies based on pharmacies’ data did not permit an equally efficient competitor to obtain a margin sufficient to cover the remaining production costs.
Refusals to deal and denied access to essential facilities
Article 11(2)(e) of the Act expressly outlaws the refusal to facilitate access to a network or to essential facilities. The decision of the former Competition Council in Auto-Sueco (1995) stated that the dominant importer of heavy lorries abusively tried to prevent an operator in a downstream market (urban waste disposal vehicles) from entering the market by refusing to deal with it.
Further, one of the decisions so far adopted by the Authority regarding the abuse of a dominant position concerns the refusal, by PT Comunicações (PTC), a then Portugal Telecom subsidiary, to grant access to its underground conduits network, which was considered an essential facility by PTC’s competitors TvTel and Cabovisão. Nonetheless, the Lisbon Court of Commerce annulled this condemning decision, based on the Authority’s failure to provide sufficient proof that there had been an unjustified or discriminatory refusal of access to an essential facility. The annulment was subsequently confirmed by the Appellate Court of Lisbon.
Predatory product design or a failure to disclose new technology
Theoretically and depending on the facts at issue it is conceivable that the open clause of article 11(1) of the Act may apply to predatory product design or a failure to disclose new technology.
Article 11(2)(c) of the Act refers to the application of dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage. The Authority’s decisions in PT Comunicações (2008) and in PT Group/ZON Group (2009) punished, respectively, PT Comunicações and PT Group and ZON Group for discriminatory conditions regarding equivalent services. Likewise, in the Sport TV decision (2013), the practice in question was the consistent application of discriminatory conditions to equivalent transactions (the system of remuneration in agreements for distribution of the Sport TV Portugal channels).
An interesting case that is worth mentioning is case C-525/16, MEO v Autoridade da Concorrência, decided by the ECJ on 19 April 2018. GDA is a non-profit-making collecting cooperative that manages the rights of artists and performers. In 2014, PT Comunicações, the predecessor in law of MEO, lodged a complaint with the Competition Authority alleging that GDA had abused its dominant position, which arose from the fact that GDA had been charging excessive prices for rights related to copyright and that GDA had also been applying to MEO different terms and conditions from those that it had applied to NOS Comunicações, SA, a competitor to MEO in the telecoms sector.
The Authority, having opened an investigation decided to take no further action on the grounds that there was no evidence of sufficient probative value of an abuse of dominant position. The Authority found that over a number of years GDA applied different tariffs to certain customers. However, relying on the costs, income and profitability structures of the retail offerings of the television signal transmission service and television content, the Authority considered that tariff differentiation had no restrictive effect on MEO’s competitive position.
In ruling on a referral received from the Specialised Court, which had been hearing an appeal by MEO against the above Authority’s decision, the ECJ decided that:
[t]he concept of ‘competitive disadvantage’, for the purposes of subparagraph (c) of the second paragraph of Article 102 TFEU, must be interpreted to the effect that, where a dominant undertaking applies discriminatory prices to trade partners on the downstream market, it covers a situation in which that behaviour is capable of distorting competition between those trade partners. A finding of such a ‘competitive disadvantage’ does not require proof of actual quantifiable deterioration in the competitive situation, but must be based on an analysis of all the relevant circumstances of the case leading to the conclusion that that behaviour has an effect on the costs, profits or any other relevant interest of one or more of those partners, so that that conduct is such as to affect that situation.
Exploitative prices or terms of supply
The open clause of article 11(1) of the Act excludes any forms of exploitation, including exploitative prices or terms of supply. The decision of the former Competition Council in Tabaqueira II (1997) punished discriminatory minimum purchase obligations under the competition regime in force before the former Competition Act. In this decision, the former Competition Council concluded that, for entities with a dominant position in the market, the imposition of minimum acquisition quantities that progressively leads to the reinforcement of the quantities at issue and the removal of the players in that or other markets amounts to abusive behaviour.
Abuse of administrative or government process
Although there is no known case in Portugal of an investigation of abuse by misuse of administrative or government process, it cannot be excluded that article 11(1) of the Act may apply to such cases.
In terms of judicial procedure, specific provisions apply in the case of bad faith litigation, which comprises the abuse of judicial procedure, where fines are applied by the court and damages awarded when proved by the other party.
Mergers and acquisitions as exclusionary practices
Mergers may be scrutinised by the Authority under the merger control provisions of the Act, and a merger shall be prohibited if it creates significant impediments to effective competition in the Portuguese market or in a substantial part of it, in particular if such impediments result from the creation or strengthening of a dominant position.
There is no known case in Portugal in which mergers or acquisitions have been investigated as abuses.
Article 11(1) of the Act constitutes an open clause with a potentially broad scope of application. Accordingly, types of abuse not covered by the previous questions may theoretically be sanctioned under the Act. For instances, in its recent decision in EDP Produção (2019), the Authority fined this company for an abuse of its dominant position by means of restricting or limiting production.
Law stated dateCorrect as of
Give the date on which the information above is accurate.
2 February 2021.