Abuse of dominance in European Union

Abuse of dominance

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

Holding or acquiring a dominant position is not unlawful under EU competition law. A dominant company infringes article 102 of the TFEU only if it abuses its dominance to restrict competition.

Article 102 of the TFEU does not define the concept of abuse. Instead, it lists four categories of abusive behaviour:

• article 102(a) prohibits directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
• article 102(b) prohibits limiting production, markets or technical developments to the prejudice of consumers;
• article 102(c) prohibits applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; and
• article 102(d) prohibits making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations that, by their nature or according to commercial usage, have no connection with the subject of such contracts.

Broadly, the categories of abuse can be grouped into (i) exclusionary abuses (where a dominant company strategically seeks to exclude its rivals and thereby restricts competition), and (ii) exploitative abuses (where a dominant firm uses its market power to extract rents from consumers). Exclusionary abuses are by far the most common type of abuse (although the Commission and national authorities have recently begun to pursue more exploitative abuse cases).

The definition of abuse has largely grown out of the case law and been fleshed out in the Guidance Paper. The classic formulation of an abuse is behaviour ‘which, through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operator, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition’ (Hoffmann-La Roche, paragraph 91).

Not all conduct that negatively affects rivals is anticompetitive. It is a normal and desirable part of the competitive process that companies that have less to offer customers leave the market. Accordingly ,the Courts have emphasised that ‘not every exclusionary effect is necessarily detrimental to competition. Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient’ (case C-209/10 Post Danmark I ECLI:EU:C:2012:172 (Post Danmark I), paragraph 22, case C-413 Intel EU:C:2017:632 (Intel), paragraph 134). This is because competition rules do not ‘seek to ensure that competitors less efficient than the undertaking with the dominant position should remain the market’ (Intel, paragraph 133).

The challenge for agencies and undertakings alike in abuse of dominance cases is therefore to distinguish between abusive conduct and vigorous competition on the merits.

Case law qualifies certain categories of conduct as ‘by nature’ abuses (such as exclusive dealing). The Intel judgment brings important clarity to the treatment of these abuses: by nature abuses remain presumptively unlawful, but if a dominant firm submits evidence that its conduct is not capable of restricting competition, the Commission must assess all the circumstances to decide whether the conduct is abusive. This entails, in particular, an assessment of rivals’ efficiency because competition law does not seek to protect inefficient rivals. In addition, even if the conduct does produce exclusionary effects, the Commission (or Court) must determine whether those effects ‘may be counterbalanced, or outweighed, by advantages in terms of efficiency which also benefit the consumer’ (Intel, paragraph 140). Accordingly, by nature abuses are not the same as per se infringements.

Outside the ‘by nature’ exceptions, the Commission has to perform a fully-fledged effects analysis. This will apply, for example, to tying, product design, pricing abuses and refusals to supply. An effects analysis for exclusionary conduct requires proving at least the following four elements.

First, the dominant company’s abusive conduct must hamper or eliminate rivals’ access to supplies or markets (Guidance Paper, paragraph 19). In other words, the abusive conduct must create barriers to independent competition (case T-201/04 Microsoft ECLI:EU:T:2007:289 (Microsoft), paragraph 1088).

Second, the abusive conduct must cause the anticompetitive effects (case C-23/14 Post Danmark II ECLI:EU:C:2015:651 (Post Danmark II), paragraph 47). Causation should be established by comparing prevailing competitive conditions with an appropriate counterfactual where the conduct does not occur (Guidance Paper, paragraph 21).

Third, the anticompetitive effects must be reasonably likely (Microsoft, paragraph 1089). If conduct has been ongoing for some time without observable anticompetitive effects, that suggests the conduct is not likely to cause anticompetitive effects in the first place (case T-70/15 Trajektna luka ECLI:EU:T:2016:592, paragraph 24).

Fourth, the anticompetitive effects must be sufficiently significant to create or reinforce market power (Guidance Paper, paragraph 11, 19). In the recent Servier judgment, the General Court found that it would be paradoxical to permit the Commission to limit its assessment to likely future events in a situation where the alleged restrictive conduct has been implemented and its actual effects observed (case T-691/14, Servier, EU:T:2018:922). While those findings relate to article 101 of the TFEU, the same reasoning should apply to article 102 of the TFEU because the concept of a restriction of competition is the same, as the English High Court found in Streetmap v Google [2016] EWHC 253.

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

Yes. As explained in response to question 10, article 102 of the TFEU covers both exclusionary abuses (such as tying, refusal to supply, or exclusive dealing) and exploitative abuses (such as excessive pricing or imposing unfair trading conditions).

The Commission’s enforcement activity over the past decade has focused almost wholly on exclusionary abuses, and the Guidance Paper sets enforcement priorities only for exclusionary conduct. There are, however, indications that the Commission would like to increase its caseload on exploitative abuses (in May 2017, the Commission opened an investigation into whether Aspen Pharma committed an exploitative abuse by allegedly imposing sudden price increases for cancer medicine of up to several hundred per cent). National authorities in the UK, Italy, France, and Germany are also pursuing - or have pursued - exploitative abuse cases, mostly in the pharmaceutical sector.

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?

There is case law suggesting that it is unnecessary to show a causal connection between dominance and the abuse (case 6/72 Continental Can ECLI:EU:C:1973:22 paragraph 27). These cases are quite old, however, and it is generally expected today that the Commission must demonstrate a connection between the dominant position and the abusive conduct. Indeed, in Tetra Pak II, the Court held that article 102 of the TFEU ‘presupposes a link between the dominant position and the alleged abusive conduct’ (case C-333/94 Tetra Pak ECLI:EU:C:1996:436 (Tetra Pak II), paragraph 27).

In exceptional circumstances, an abuse may occur on an adjacent market to the dominant market (Tetra Pak II). For this to apply, there must be ‘close associative links’ between the adjacent market where the conduct occurs and the dominant market. More generally, in leveraging abuses (such as tying or refusal to supply), the abuse occurs on the dominant market, but produces effects on a neighbouring (usually non-dominant) market.

Irrespective of the above, the Commission must still prove causation in fact. In particular, it must show that the abusive conduct actually causes the posited anticompetitive effects (as noted in response to question 10, usually by reference to an appropriate counterfactual). In AstraZeneca, the Court confirmed that ‘a presumption of a causal link . . . is incompatible with the principle that doubt must operate to the advantage of the addressee of the decision finding the infringement’ (case C-457/10 AstraZeneca ECLI:EU:C:2012:770, paragraph 199).

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

Even if conduct is found to constitute an abuse and to restrict competition, a company can always attempt to show that its conduct is objectively justified. This applies for all abuses, including ‘by nature’ abuses.

The dominant company bears the evidentiary burden to substantiate an objective justification. It is then for the Commission to show that the arguments and evidence relied on by the undertaking cannot prevail and, accordingly, that the ‘justification put forward cannot be accepted’ (Microsoft, paragraph 688). In Intel, the Court of Justice recently confirmed that the Commission must examine whether the benefits the conduct at issue creates outweigh its alleged restrictive effects (Intel, paragraph 140).

Conduct may be justified if it is either objectively necessary or produces efficiencies that outweigh the restrictive effects on consumers (Post Danmark I, paragraph 41; Guidance Paper, paragraph 28). The Guidance Paper notes that ‘the Commission will assess whether the conduct in question is indispensable and proportionate to the goal allegedly pursued by the dominant undertaking’ (Guidance Paper, paragraph 28). The EU Courts have also held that a dominant company may justify its conduct based on legitimate ‘commercial interests’ (United Brands, paragraphs 189 to 191). In Motorola and Samsung, for example, the Commission accepted that it is legitimate for a holder of standard essential patents to seek injunctions against patent users that are not ‘willing licensees’ (case AT.39985 Motorola, 29 April 2014; and case AT.39939 Samsung 29 April 2014).

The Guidance Paper sets out four requirements for a company to justify abusive conduct that forecloses its rivals (paragraph 30):

• first, the conduct must cause efficiencies; these efficiencies are not confined to economic considerations in terms of price or cost, but may also consist of technical improvements in the quality of the goods (Microsoft, paragraph 1159; Guidance Paper, paragraph 30);
• second, the conduct must be indispensable to realising those efficiencies;
• third, the efficiencies must outweigh the negative effects on competition; and
• fourth, the conduct must not eliminate effective competition by removing all or most existing sources of actual or potential competition.

As to exclusionary intent, this is not a necessary element of an abuse because an abuse is ‘an objective concept’ (Hoffmann-La Roche, paragraph 91). That said, evidence as to the company’s intent may be useful in interpreting its conduct (Guidance Paper, paragraph 20). As the Court of Justice held in Tomra, ‘the existence of any anticompetitive intent constitutes only one of a number of facts which may be taken into account in order to determine that a dominant position has been abused’ (case C-549/10 P Tomra ECLI:EU:C:2012:221, paragraph 20).