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

Abuse

Abuse of a dominant position is defined in Article 1, Paragraph 1(b) and Articles 10 and 11 of the Act on the Protection of Competition.

Abuse of a dominant position can be committed by one competitor or by several competitors acting in concert. Dominant position is defined as a market power that enables any competitor to behave to an appreciable extent independently of its customers and consumers. Dominant position must be proved and is presumed that, until proven otherwise, market share below 40 per cent rules out dominant position.

i Overview

Abuse of dominant position falls under two distinct legislative instruments. The first is the Act on the Protection of Competition, which targets behaviour that has disrupted or could disrupt competition, regardless of whether this is engaged in collectively or individually. The second is the Act on Significant Market Power, which is applied in a slightly different way (see below).

ii The Act on the Protection of Competition

The Act on the Protection of Competition follows the EU's definition of abuse of dominant position, providing a general clause and six typical types of abuse.

The Competition Authority relies heavily on the guidelines and case law of the European Union and cites them in most of its decisions, in which it also applies EU principles. While a per se approach may have been more common several years ago, today, the Competition Authority claims to embrace this effects-based approach.

Exclusionary abusesExclusionary pricing

With the exception of the above-mentioned landmark case Student Agency v. Asiana, very few cases have been initiated in relation to predatory pricing. In short, the Competition Authority takes a more holistic and effects-based approach to this behaviour and tries to assess its impact. In this respect, where a sales price is below the cost price, this alone is not sufficient to disrupt competition, rather the impact of the entire period in which these prices are maintained would also have to be measured. Predatory pricing can therefore be a legitimate tool in competition.

Czech case law on margin squeezes is still immature. However, a few investigations have been conducted by the Competition Authority in the field of telecommunications and energy. In these cases, the Competition Authority has cited the guidelines and case law of the European Union.

Exclusive dealing

In line with EU law, Czech domestic law deems that exclusive dealing and rebates may be anticompetitive where enforced by a dominant competitor. Anticompetitive exclusive dealing is rare. The most thorough decision can be found in relation to Telefonica Czech Republic. In this decision from 2004, which was finally confirmed by the Supreme Administrative Court in 2012, the Competition Authority provides clarification on the subject of rebates, and attempts to draw a distinction between permitted forms of quantity discounts as compared with unlawful rebates, in which it cites EU case law. The biggest issue encountered by the Competition Authority in relation to this case was that exclusive discounts were tied to the length of the contract and the length of the consumers' future undertaking, whereas the actual volume of the services used by the consumer was disregarded. In this case, termination of the contract before a certain date was made particularly difficult.

Refusal to deal

The Competition Authority has ruled on several cases where a dominant competitor has refused to deal with a consumer or suddenly terminated a contract to gain an advantage in a limited market. No rules have been established to regulate this issue and such cases are decided on a case-by-case basis. However, certain conclusions can be drawn. First, as has been confirmed in the courts, the Competition Authority must take into account both sides of the contract, primarily to assess their dependence on one another more thoroughly. Market power is used as a marker in these cases only sparingly. Similarly, when a transportation company that provides 100 per cent of the public transport in a city decides to terminate a contract owing to the city council having grossly breached its contract, it may do so, but must do so in a way that does not cause harm to the city or to consumers.

Another, quite distinct, issue is the essential facilities doctrine. The basic requirement for such cases was set in a 2001 decision of the High Court. Where this doctrine is invoked, the Competition Authority must prove that an essential facility exists. If it is proven to exist, then abuse of dominant position may occur both by refusing access to the facility or by setting burdensome barriers to its access. Moreover, the essential facilities doctrine may be invoked even if such facility is not a prerequisite for the existence and activity of the competitor, but where refusal of access to the facility makes it difficult for it to compete with a vertically integrated competitor.

Discrimination

Discrimination is a broad area characterised by different forms of behaviour that often overlap with the abuses described above. Unlike the practice of the EU, where discrimination in competition alone is not deemed to constitute an abuse of dominant position, the Competition Authority has tended to adopt a per se approach in its early cases, stating that, if a dominant competitor enforces discriminatory conditions that would be lawful if they were applied by a non-dominant competitor, but if this conduct causes harm to another competitor, then such conduct constitutes an abuse of dominant position.

If a competitor has a dominant position in a vertically integrated market, an abuse of dominant position may also exist where different conditions are placed on other competitors as compared with those placed on its own subsidiary. Similarly, in its decision made in the case involving RWE Supply & Trading CZ, a.s., the Competition Authority ruled that different contractual terms and conditions may be applied for a dominant competitor, provided that such differences do not bar consumers from competing with the dominant competitor's concern in a downstream market.

Also of interest is the ongoing case involving České dráhy, a.s., in which the Supreme Administrative Court reversed a previous decision on the grounds of insufficient evidence. However, this highlighted the shift from a per se approach to assessing abuses of dominant position, as per the standard set in the AKZO decision, to a more holistic method whereby the Competition Authority employs an effects-based approach to the assessment of such cases, and explains why – in the case in question – the prices below cost were exclusionary for competitors and how they disrupted competition, which serve to exemplify this shift in approach.

Exploitative abuses

The most important decision in this regard is the decision reached in the case involving Intergram, in which the Competition Authority elaborated on the issue of excessive pricing and how it should be assessed, in which it cited EU case law. Where it is not possible to compare the price against the consideration (the monopolist performs operations that are delegated to it by the state), then the Competition Authority shall compare similar pricing in other jurisdictions, assuming that the regulatory frameworks and practice of these jurisdictions are similar.

iii Abuse of significant market power in the food industry

Since 2017, the legal framework and practice of the Competition Authority have provided for the absolute conception together with a corrective mechanism. Where a purchaser is assumed to have significant market power (see above) and the Competition Authority initiates proceedings against it, the purchaser can raise the objection in such proceedings that it cannot be considered to have significant market power with respect to other suppliers because, for instance, it is the weaker party in its relationship with them. The Competition Authority might then find that the purchaser holds and has abused significant market power in its relationship with some suppliers and not with others.

The types of conduct that constitute abuses of significant market power can be grouped into:

  1. disproportionate contractual terms and conditions between the supplier and the purchaser, primarily with regard to pricing;
  2. the enforcement of pricing, provision of services or any other consideration not included in the contract between the parties;
  3. discrimination between suppliers for comparable goods without fair reason;
  4. auditing or control of the supplier; or
  5. disregard of the outcomes of inspections carried out by public authorities.

Moreover, contracts between the purchaser and suppliers must meet special requirements relating to form, content and term, as stipulated in Article 3a of the Act on Significant Market Power.