Abuse of dominance

Definition of abuse of dominance

How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?

The preparatory works for the Competition Act refer to EU law as a guiding point in determining whether certain behaviour constitutes ‘abuse’ within the meaning of competition law. Consequently, as under EU law, ‘abuse’ is an objective concept relating to the conduct of a dominant undertaking which, through recourse to methods differing from those governing normal competition, has potential to restrict competition in the relevant market.

In order to determine whether a dominant undertaking has abused its position, it is necessary to consider every circumstance of the case and to examine whether the undertaking’s conduct is prone e.g. to hinder competitors’ entry into the market or to strengthen the undertaking’s dominant position by distorting competition. Section 11 applies to conduct which is detrimental to the preservation of effective competition regardless of the means or methods used by the dominant undertaking. Thus, in general, the Danish competition authorities follow an effects-based approach in dominance cases.

In accordance with EU case law, to conclude that the prohibition on abuse of dominance has been infringed, it is sufficient that an anti-competitive effect of the conduct is probable, meaning there is no need to show that the anti-competitive effect is of serious or appreciable nature (as established in 2015 by the European Court of Justice in case C-23/14, Post Danmark II).[CP1] 

As only the actual or potential harm to the structure of a given market is covered by section 11, a dominant undertaking’s subjective intent with a certain conduct is principally immaterial in determining abuse. However, malicious intent may be taken into account by the competition authorities when assessing whether a given conduct may be capable of having anti-competitive effects.

Section 11(3)(i)–(iv) of the Competition Act lists the following examples of abusive conduct:

  • directly or indirectly imposing unfair purchase or selling prices or other unfair trading terms and conditions;
  • imiting production, sales or technical development to the detriment of consumers;
  • applying dissimilar conditions to services of equal value with trading partners, consequently placing them at a competitive disadvantage; or
  • conditioning the conclusion of a contract upon the other contracting party’s acceptance of supplementary services, which by their nature or according to customary trade practice have no connection with the services subject to the contract.

 

The list essentially corresponds to that of article 102 of the TFEU. The list is non-exhaustive, meaning that other types of abuse may be caught by section 11. In a decision from January 2019, the Council found that Falck, Denmark’s largest provider of ambulance services, abused its dominant position by deciding and implementing a business strategy aimed at excluding Falck’s competitor, BIOS, from the market. The purpose of the strategy was to create uncertainty about BIOS as a supplier and workplace and to make it difficult for BIOS to recruit ambulance rescuers in the Region of Southern Denmark. The strategy was implemented through a number of activities which included, among other things, negative mention of BIOS in the press. In December 2019, the City Court of Copenhagen sentenced Falck to pay a fine [CP3] of 30 million kroner, which is the largest fine ever issued in Denmark for violation of the Competition Act.

Exploitative and exclusionary practices

Does the concept of abuse cover both exploitative and exclusionary practices?

As under EU competition law, Danish competition law operates with three main categories of abuse: exploitative practices, exclusionary practices and discriminatory 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?

As under EU competition law, there is no requirement for a causal link between holding a dominant position on a market and abuse. The concept of abuse does not solely include conduct that can only be exercised through a dominant position, but also conduct that does not necessarily require any market power (eg, conclusion of exclusive agreements). Conduct by a dominant undertaking may thus be abusive even if the conduct has been instigated upon the initiative of a non-dominant trading partner of the dominant undertaking.

As under EU competition law, section 11 equally applies to abusive conduct that has a negative effect on an adjacent market to the market where the undertaking concerned holds a dominant position.

Defences

What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?

The Competition Act does not provide for any express exemptions from the prohibition against abuse of a dominant position. However, it is the common conception that conduct which is wholly insignificant to the competition on a given market should not necessarily be pursued by the competition authorities as abusive, as public resources must be used as effectively as possible. What should specifically be considered ‘insignificant’ may be interpreted in the light of Danish and EU case law, including the European Court of Justice’s judgment from 2015 in case C-23/14, Post Danmark II, and judgment from 2018 in C-525/16, MEO.

A dominant undertaking may also plead that its conduct is either a direct or necessary consequence of public regulation, objectively justifiable owing to, for example, health or safety reasons related to the nature of the product, or that the conduct creates efficiency gains that also benefit consumers. In regard to the latter, it is – in accordance with EU case law, cf case C-23/14, Post Danmark II – for the dominant undertaking to show:

  • that the efficiency gains, which are likely to result from the conduct under consideration, counteract any likely negative effects on competition and consumer welfare in the affected markets;
  • that those gains have been, or are likely to be, brought about as a result of that conduct;
  • that such conduct is necessary for the achievement of those gains in efficiency; and
  • that it does not eliminate effective competition, by removing all or most existing sources of actual or potential competition.

Specific forms of abuse

Types of conduct

Rebate schemes

Rebate schemes may be considered abusive under section 11(3)(i) or (iii) of the Competition Act. So far, Danish competition authorities have laid down a strict approach regarding rebates. However, it is expected that the Danish competition authorities will continuously interpret section 11 in the light of EU case law, including the European Court of Justice’s judgment from 2017 in case C-413/14 P, Intel Corporation Inc

Retroactive rebates are largely considered a ‘per se abuse’, regardless of whether the thresholds applied in the rebate scheme are set generally or individually for each customer, and whether the rebate only affects a small percentage of the market. In a case from 2009 (the direct mail case), the Danish Competition and Consumer Authority (the DCCA) found that Post Danmark had abused its dominant position on the market for distribution of bulk mail by granting a general (non-individual) retroactive rebate. The rebate scheme was implemented in respect of direct mail in 2003, at a time when there was no competition on the market for distribution of bulk mail and when the monopoly on distribution of letters applied to all letters weighing up to 100 grams. The rebate scale rated from 6 per cent to 16 per cent and all customers were entitled to receive the same rebate based on their aggregate purchases over the reference period of one year. Post Danmark brought the competition authorities’ decision on direct mail before the Danish courts, which in turn referred preliminary questions on the matter to the European Court of Justice (cf case C-23/14). Upon delivery of the Court’s judgment on 6 October 2015, Post Danmark discontinued the Danish court case.

In continuation of the direct mail case, the Council decided in May 2017 on an older case concerning Post Danmark’s rebate scheme on the market for distribution of magazines. This case, concerning retroactive individual fidelity rebates to certain large customers in 2007–2009, had been pending the European Court of Justice’s judgment on the direct mail rebate system. The Council found that the individual rebates in 2007–2009 also constituted an abuse.

In a judgment from March 2011, the Danish Supreme Court found that TV2/Danmark’s retroactive turnover-related rebate violated section 11 of the Competition Act and article 102 of the TFEU, as the rebate was prone to have a loyalty-enhancing (lock-in) effect. The rebate was calculated based on the customers’ expected annual turnover at TV2, and the rebate scale rated from 4.7 per cent to 19.3 per cent.

In August 2018, the Council decided that Teller (now Nets) abused its dominant position from 2012 to 2016 by using conditional rebate schemes and provisions regarding exclusivity to its largest customers. During the relevant period, Teller was the largest acquirer of international payment cards in Denmark and, according to the Council, dominant on the Danish market for merchant acquiring services and mobile payment solutions for POS payments. The Council found that Teller offered its customers the rebate schemes on the condition that the customers used Teller solely or to a large extent. The Council’s decision was upheld by the Tribunal in September 2019. Nets has appealed the Tribunal’s decision, and the case is pending before the Danish Maritime and Commercial High Court. In May 2020, in a separate proceeding regarding confidentiality of the Tribunal’s decision, the Danish Maritime and Commercial High Court found that Nets’ interest in exempting information from publication did not exceed the public interest of publication nor the fundamental principle of transparency in regard of the Council’s decisions.

Incremental rebate schemes are also generally considered problematic, unless either the rebates offered are cost-justifiable under a strict standard, or the rebate spread does not exceed 6–7 per cent and is calculated and paid out on a quarterly basis. The burden of proof that these conditions are met lies with the dominant undertaking.

 

Tying and bundling

Tying and bundling may constitute an abuse of a dominant position under section 11(3)(iv) of the Competition Act.

In a case from 2008, Unimerco offered free maintenance services for power fastening tools (nail guns, nailers and staplers) on the condition that the customers only used original fasteners (nails and staplers). In addition, Unimerco applied security warnings to their products warning customers against using fasteners produced by others that Unimerco and further informed customers that usage of non-original fasteners would make the warranty void. The case was closed with commitments by Unimerco to alter its trading terms and sales materials.

The most high-profile abuse cases in Denmark the recent years have undoubtedly been in the postal sector (cf the respective Post Danmark cases). The market for the distribution of unaddressed mail has however been declining in recent years, while the market for advertisement on digital platforms has been growing. The two markets are connected in the sense that a large proportion of advertisers are customers in both markets. Hence, the DCCA has had an increased focus on abusive conduct on digital platforms. In June 2020, the Council found that FK Distribution had abused its dominant position by tying distribution of unaddressed mail to promotion on FK Distribution’s digital platforms. When customers bought distribution of unaddressed mail from FK Distribution, it was a condition that they also bought display on FK Distribution's digital platforms, including minetilbud.dk. The Council found that the behaviour could create entry barriers and exclude competitors from the growing market on advertisement (of newspapers etc.) on digital platforms.

Exclusive dealing

Exclusive dealing, including the conclusion of exclusivity clauses and non-compete clauses, may amount to abuse of a dominant position under section 11 of the Competition Act.

The Council closed a case regarding an exclusivity clause between the Danish news agency Ritzau and the newspaper MetroXpress with a commitment decision in 2012. The Council concluded in its preliminary assessment that Ritzau possessed a dominant position on the Danish market for news services and that the exclusivity could amount to an abuse. Ritzau offered commitments to not bind future owners to purchase general news services from Ritzau, and to shorten the term of the agreement with MetroXpress regarding delivery of Ritzau’s news services.

In April 2020, the Council found that Godik Aps had abused its dominant position from 2014 to 2018 by requiring the majority of its customers to rent mobile lavatories exclusively from Godik. Godik Aps was a rental company of mobile lavatories and other items and accessories for festivals, sports events etc, and the Council found that Godik held a dominant position on the Danish market for rental of mobile lavatories for events. According to the Council, Godik’s standard agreements contained exclusivity clauses of at least three years duration without a right to termination. The Council considered that the exclusivity clauses hindered competing rental companies in accessing the Danish market for rental of mobile lavatories for events and that Godik’s exclusivity clauses may have led to higher prices for customers.

Predatory pricing

Predatory pricing by a dominant undertaking throughout a longer period with the purpose of driving out weaker competitors is considered abusive pursuant to section 11(3)(i) of the Competition Act. In order to constitute abuse, the low prices may not be a result of large-scale production efficiencies but must be attributed to significant market power.

In a decision from 2002 (MetroXpress Danmark A/S v Berlingske Gratisaviser A/S), the Council decided that a dominant undertaking is allowed to set lower prices when a competitor sets its prices below the dominant undertaking’s average variable costs with the purpose of meeting competition and maintaining customers. In a decision from 2011 concerning Post Danmark’s rebates for distribution of magazines, however, the Danish Competition Appeals Tribunal (the Tribunal) specified that a very dominant position on a market must result in a particularly narrow application of the ‘meeting the competition defence’. Moreover, in order to successfully plead the ‘meeting the competition defence’ in such a case, the conduct may not have had the purpose of strengthening and abusing the dominant position, it must have been justified by efficiency gains, and it must be in accordance with general consumer interests.

In a decision from 2004, the Council found that Post Danmark held a dominant position on the market for distribution of unaddressed mail in Denmark but found no predatory pricing abuse. According to the complainant, the abuse consisted in Post Danmark charging certain customers selective low prices for mailing services. While the average net prices were not below the average incremental costs (AIC), some of the lowest prices were below the average total costs (and in one situation even slightly below AIC). However, as the estimation of Post Danmark’s costs was very discretionary, and as the Council could not demonstrate any intent to eliminate competitors, the Council rejected the predatory pricing abuse charge.

In 2013, the DCCA informally examined whether a campaign by a dominant electricity supplier offering one month of free electricity to consumers entering into a six-month electricity supply contract with the dominant firm was compliant with Danish competition law. The DCCA stated in its advisory opinion that a campaign by a supplier, who has historically had a supply obligation in the area, may potentially affect competition negatively due to the previously established relations with consumers in the area. However, in that particular case, the DCCA’s immediate assessment was that the campaign did not amount to abusive pricing.

Price or margin squeezes

Price squeeze (or margin squeeze) may amount to abusive conduct under section 11(3)(i) of the Competition Act.

A vertical margin squeeze may occur when a dominant undertaking on an upstream market is vertically integrated, and charges prices for wholesale inputs to downstream competitors, leaving downstream competitors with an unreasonable profit margin. In effect, downstream competitors are unable to compete effectively in that particular market.

In a case from 2013, the telecom company TDC offered a number of commitments in order to relieve the DCCA’s concerns regarding a possible margin squeeze on the market for retail broadband products. TDC, which held a dominant position on the upstream market for copper infrastructure and had an obligation to deliver wholesale broadband products to its competitors on the retail broadband market, was selling the wholesale products to competitors at a price close to TDC’s own prices on retail broadband products to consumers. This possibly prevented TDC’s competitors from competing effectively on the downstream market for retail broadband. TDC committed to documenting to the DCCA that the wholesale prices did not amount to illegal margin squeeze, that is, by altering and clarifying calculation methods in calculating profitability and securing transparency in the company’s assessment of revenue and costs.

Finally, in a case from 2014 the Danish payment service provider, Nets, offered a number of commitments in order to relieve the DCCA’s concerns regarding a possible margin squeeze on the market for front-end acquirer processing services.

 

Refusals to deal and denied access to essential facilities

Refusal to deal and denying access to essential facilities may constitute abuse of a dominant position pursuant to section 11(3)(ii) of the Competition Act.

In a decision from 2013, the Council found that Deutz, a German engine manufacturer, had abused its dominant position by refusing to deliver spare parts to renovate 400 IC3 train engines produced by Deutz to any spare part distributors outside of Deutz’ own network. Deutz thereby prevented DSB, a public undertaking operating passenger services on the Danish state’s rail network, from ordering spare parts from distributors competing with Deutz. An argument that the refusal to supply was for resale and thus not abusive, was not exculpatory in the assessment. The Tribunal subsequently upheld the decision. In January 2021, the Danish Maritime and High Court upheld the Council’s decision and stated that Deutz had abused its dominant position by consistently and systematically preventing parallel trade and by initiating refusal to supply.

 

Predatory product design or a failure to disclose new technology

Predatory product design and failure to disclose new technology are not explicitly prohibited in the Competition Act, and to our knowledge, there are no cases under Danish law having dealt with this specific form of abuse. However, as section 11(3) is not exhaustive, predatory product design and failure to disclose new technology may be considered abusive insofar as they constitute exploitative, exclusionary or discriminatory conduct and have a negative effect on competition.

Price discrimination

According to section 11(3)(iii) of the Competition Act, the application of dissimilar terms to services of the same value, thereby placing certain trading partners at a competitive disadvantage, may constitute abuse of a dominant position in breach of section 11(1) of the Competition Act.

In a decision from 2004, the Council found that Post Danmark abused its dominant position by charging selective lower prices to former customers of Post Danmark’s competitor, Forbruger-Kontakt, than to Post Danmark’s own customers without being able to justify the differences in prices and discounts. According to the Council, the discrimination had an exclusionary effect on the market. The Council’s decision was upheld by the Tribunal in 2005 and by the High Court of Eastern Denmark in 2007. The case was brought before the Danish Supreme Court which referred preliminary questions on the matter to the European Court of Justice (cf case C-209/10). Upon delivery of the European Court of Justice’s preliminary ruling, the Supreme Court concluded that Post Danmark had not abused its dominant position. The Supreme Court considered that Post Danmark’s price to one customer was below the average total costs (ATC), but above the average incremental costs (AIC). This meant that exclusionary abuse could be present if Post Danmark’s price behaviour towards the customer led to the likely elimination of Forbruger-Kontakt from the market to the detriment of effective competition. However, as Post Danmark’s average prices to all customers were above ATC, and Post Danmark’s customers were able to terminate their agreements with Post Danmark on the distribution of unaddressed mail with short notice, Forbruger-Kontakt had the opportunity to compete with Post Danmark’s prices if Forbruger-Kontakt was as effective as Post Danmark.

In a case from 2011, the Council concluded that CPH had applied discriminatory access criteria for the use of a new low-cost part of a terminal in Copenhagen Airport, thereby abusing its dominant position on the market for flight terminal services. The Council stated that the access criteria to the low-cost part of the terminal de facto limited the use of that part of the terminal to certain carriers. Carriers who could not satisfy all the conditions had to use the regular – and more expensive – terminal facilities. Accordingly, CPH had applied dissimilar conditions to equivalent transactions with other trading parties in breach of section 11 of the Competition Act and Article 102 of the TFEU. The Council issued an order for CPH to revoke the three conditions, which were found to be discriminatory.

In another case, which was closed by an informal guidance letter from the DCCA in 2013, the DCCA stated that KMD’s price discrimination, as a starting point, is good for competition and that all companies, including a dominant company, have a right to grant individual rebates or discounts to its customers. Further, the DCCA stated that unless there are indications that the dominant company’s rebates lead to an elimination of competition, the price discrimination will not be considered to constitute an abuse by itself. The DCCA then noted that, in any event, it is a precondition for abuse to be established that the dominant company’s customers are competitors and thus can be put in a disadvantageous situation on the downstream market as a result of the price discrimination. This guidance letter could be interpreted as an effects-based approach to the price discrimination subject, see also the European Court of Justice's judgment from 2018 In C-525/16, MEO.

Exploitative prices or terms of supply

According to section 11(3)(i) of the Competition Act, exploitative pricing and application of exploitative trading terms by a dominant firm may be considered abusive.

When assessing whether pricing by a dominant undertaking is excessive, it is essential to determine whether the undertaking imposes prices onto the market or achieves profits that clearly could not have been achieved on a market with effective competition.

In 2007, the Council declared that Elsam A/S (now Ørsted) abused its dominant position on the wholesale market for electricity in Western Denmark in 2005 and 2006 by imposing excessive prices (the Elsam III-case ). Elsam appealed the decision, which was upheld by the Danish Maritime and Commercial High Court in August 2016. The Court stated that there was no reasonable connection between the prices and the costs, and that the prices exceeded those that could have been achieved on a market with effective competition. In May 2018, the High Court of Western Denmark acquitted Elsam of the charges for abuse of a dominant position, as the High Court found that the competition authorities had not proved, with a sufficient degree of certainty, that Elsam’s prices were excessive and that Elsam had abused its dominant position in the relevant period. In October 2018, the Danish Appeals Permission Board denied the Council access to appeal the case to the Danish Supreme Court.

In 2005, the Council had decided that Elsam also abused its dominant position on the wholesale market for electricity in Western Denmark in 2003 and 2004 by imposing excessive prices (the Elsam II case). This decision was upheld by the Tribunal in 2006. In the light of the High Court’s decision of May 2018 in the Elsam III case, the competition authorities entered into a settlement with Elsam in September 2019, whereby the competition authorities acknowledged that they had not demonstrated with a sufficient degree of certainty that Elsam abused its dominant position by charging excessive prices in 2003 and 2004. The competition authorities admitted that the High Court’s decision in the Elsam III case (concerning 2005 and 2006) was an expression of applicable law relevant to the assessment of the Elsam II case (concerning 2003 and 2004), as the two cases dealt with the same undertakings and particular market conditions and thus the same legal investigations and analyses.

In a case from 2013, Nets (a provider of payment, card and information services) was found to have violated section 11 by charging excessive fees from web shops, when consumers paid by credit card. The Council ordered Nets to lower the fees to a reasonable level, and the decision was upheld by the Tribunal.

In November 2018, the Tribunal upheld a decision from the Council in which it ruled that CD Pharma abused its dominant position by charging unfair prices for the drug Syntocinon. According to the Council, the prices were also prone to have an exclusionary effect on the market. In 2020, the decision was upheld by the Danish Maritime and Commercial High Court.

Abuse of administrative or government process

Misuse of an administrative or judicial procedure is not explicitly listed as an abuse under Section 11 of the Competition Act. However, in a case from 2005, the Council decided that Toyota had abused its dominant position on the market for authorised service of Toyota cars by forcing an authorised Toyota service mechanic to accept a damage claim without the possibility of having the claim assessed by an impartial third party, and by threatening to terminate his contract, should he not accept. The Tribunal stated that enforcement of contractual rights and remedies and instigation of legal proceedings in this regard would not amount to abusive conduct, unless it could be demonstrated that the legal actions were not instigated on a well-founded basis with a justifiable aim, but on questionable grounds and with an objective to restrict competition rather than with the regular aim of such proceedings. On this basis, the Tribunal repealed the Council’s decision.

Mergers and acquisitions as exclusionary practices

Structural abuse in the form of mergers and acquisitions of competing undertakings as exclusionary practices is covered by section 11 of the Competition Act.

Mergers and acquisitions are generally governed by the rules in Chapter 4 of the Competition Act. In approving mergers between and acquisitions of competing undertakings, the competition authorities assess whether the balance of the market will shift in such a way as to create an unwanted dominant position that may be abused.

Other abuses

The examples of abusive conduct listed in section 11(3) of the Competition Act are not exhaustive. Thus, any exploitative, exclusionary or discriminatory conduct having a negative effect on competition may constitute an abuse of a dominant position within the meaning of the Competition Act.

An interesting case in this regard is the Falck/BIOS case from January 2019. The Council found that Falck had abused its dominant position on the Danish market for ambulance services by attempting to exclude Falck’s competitor, BIOS, from the market. The abuse consisted in Falck’s pursuit of a business strategy that was aimed at damaging the image of Falck’s competitor, BIOS, by creating uncertainty about BIOS as a supplier and workplace. The abuse was considered a very serious violation of the Competition Act and resulted in large fine of 30 million kroner to Falck.

 

Law stated date

Correct as of

Give the date on which the information above is accurate.

13 January 2021