An extract from The Dominance and Monopolies Review - 7th edition

Abuse

i Overview

Section 19(1) of the ARC contains a general prohibition of the abuse of a dominant position. Sections 19 and 20 of the ARC contain non-exhaustive examples of specific types of abusive conduct. Section 20(2) of the ARC extends the prohibition of exclusionary and discriminatory conduct to companies on which small or medium-sized companies depend, and Section 20(3) of the ARC prohibits exclusionary conduct by companies that enjoy superior market power compared with their small and medium-sized competitors.

The most significant specific types of abuse are discussed in subsections IV.ii to IV.iv. There are no per se abuses, as all relevant unilateral conduct may, at least in principle, be justified by means of a comprehensive analysis of all relevant circumstances and a balancing of the conflicting interests. As a practical matter, however, once the FCO has concluded that the type of conduct at issue is generally abusive, it will not conduct an in-depth economic effects analysis. Instead, it is – according to Section 20(4) of the ARC – up to the companies concerned to demonstrate an objective justification for their conduct (e.g., cost efficiencies as justification for rebates).

ii Exclusionary abuses

German antitrust law prohibits exclusionary conduct, including predatory pricing, and notably offers below cost. Section 20(3) of the ARC lays out how to calculate cost. The (somewhat dated) FCO notice on below-cost pricing provides further guidance.

Another form of exclusionary abuse is exclusive dealing, including strategies such as exclusivity or loyalty rebates. As a general rule, dominant companies may not grant rebates that create an incentive for customers to purchase their entire, or almost-entire, demand for the products or services at issue from the dominant enterprise.

In November 2015, the FCO initiated proceedings in this regard against Apple and Amazon's subsidiary Audible.com. They had entered into an exclusive long-term agreement regarding Apple's purchase of digital audiobooks from Audible for resale on the iTunes store. The FCO has meanwhile closed these proceedings.

German antitrust law also prohibits leveraging a dominant position, such as through contractual or economic tying and bundling. Case law is scarce here, and the German practice is similar to the EU practice.

An abuse may also occur if a dominant enterprise refuses to grant another enterprise access to its networks or other infrastructure for a reasonable fee if it is impossible for the other enterprise, for legal or practical reasons, to be active on the upstream or downstream market as a competitor of the dominant enterprise (essential facility).

Upon referral from the Düsseldorf District Court, the European Court of Justice has specified certain perceived discrepancies between German case law and the position that the European Commission took on the conditions under which the holders of standard essential patents may seek an injunction against users of their standard essential patents without committing an abuse.

iii Discrimination

Section 19(2) No. 1 of the ARC prohibits discrimination (i.e., treating an undertaking, directly or indirectly, differently from other similar undertakings without objective justification).

After the German legislator introduced an ancillary copyright for news publishers in 2013, the collecting society VG Media (representing several German news publishers) adopted a new tariff for the use of news publishers' online content and raised monetary claims against Google for the display by Google of small text excerpts ('snippets') from their websites. Google refused to pay, and announced it would discontinue the display of snippets from VG Media members unless they agreed to the display of their snippets without payment. VG Media filed a complaint with the FCO, arguing that Google abused its allegedly dominant position by refusing to pay for the display of snippets. The FCO informally rejected the complaint in August 2014, and issued a formal rejection decision in September 2015 holding that Google did not engage in discriminatory conduct. In particular, the FCO considered Google's conduct justified by its interest to preserve its business model and to reduce the risk of liability for damages. These interests would outweigh those of VG Media.

iv Exploitative abuses

Section 19(2) No. 2 of the ARC prohibits exploitative abuses, notably 'imposing prices or other trading conditions that differ from those likely to exist on a market with effective competition'. To determine whether prices are excessive, the FCO and the German courts follow the EU law approach of comparing the dominant company's prices with prices charged on comparable markets with functioning competition, its competitors' prices and the dominant company's costs. The FCO followed this approach, for instance, in its proceedings against suppliers of district heating, where it compared the average revenues that several suppliers of district heating had generated throughout a certain period of time in different regions and found that the revenues of certain suppliers were significantly higher than those of suppliers in comparable markets. Based on this comparison, the FCO concluded, at least preliminarily, that these suppliers had engaged in excessive pricing. These proceedings were initiated based on the FCO's earlier sector inquiry into the district heating sector in which the FCO had identified significant differences in revenues of district heating.

Another typical exploitative abuse scenario concerns the request by powerful buyers that their suppliers grant 'wedding rebates' following the merger of the buyer with other retailers. For example, the FCO intervened against furniture retailer XXXLutz for requesting unjustified wedding rebates (XXXLutz asked suppliers to retroactively grant discounts to purchases that Möbel Buhl had made before it had been acquired by XXXLutz) from its suppliers. The FCO did not launch a formal investigation, but closed the file after XXXLutz committed to stop demanding such rebates.

An exploitative abuse may not only concern pricing, but also the use of certain contractual terms and conditions by a dominant company can be exploitative under Section 19(1) or 19(2) No. 2 of the ARC. In its recent Facebook decision, the FCO relied on this theory of harm. Specifically, the FCO found Facebook's terms and conditions exploitative because they violated European and German data protection rules. In the FCO's view, a key objective of European data protection law is to protect the fundamental right of informational self-determination and, hence, users' control over how and for what purposes private networks, such as Facebook, use their personal data. The FCO found that Facebook's terms and conditions provided it with access to vast amounts of personal user data, as users were practically unable to reject Facebook's data collection if they wanted to join and access its network (under Facebook's terms of service, users could only join the social network if they also agreed to Facebook collecting and matching user data obtained from sources other than their core platform, including not only other Facebook-owned platforms, but also third-party websites). In addition, users lacked viable alternatives to Facebook's private network because of Facebook's dominant market position. In the FCO's view, users' consent to Facebook's data collection could not be considered as freely given – which is the key requirement for the consent's validity under the GDPR. The FCO therefore imposed limitations on Facebook's current practice of collecting and processing user data, and prohibited the use of the relevant terms of service.