On 3 December 2008, the European Commission finally published the long awaited guidance on its enforcement priorities when applying the EC rules on abuse of dominance (Article 82 EC Treaty) to exclusionary abusive behaviour by dominant undertakings (i.e. behaviour which aims to deliberately exclude competitors from expanding or from entering a market).

The publication of the guidance marks a helpful but cautious first step by the Commission towards a modernised approach to the application of Article 82. The guidance paper emphasises a commitment to an economics-driven, effects-based approach to the analysis of exclusionary abuses by dominant undertakings, prioritising enforcement in circumstances where there is a risk of harm to consumers.

Comment

The guidance paper represents a useful aid to understanding the Commission's approach to this complex and contentious area of EC competition law. Although expressed as enforcement priorities (rather than fully fledged detailed guidelines), the paper is likely to be very influential in the application of abuse of dominance rules not only at EC level but also by national authorities and courts throughout Europe.

The Commission identifies the following five key principles which will underpin its effects-based approach:

  • Competing effectively: the Commission will encourage fair and undistorted competitive behaviour (this includes such behaviour by dominant undertakings).
  • Consumer protection paramount: the Commission will place consumer protection (not competitor protection) at the heart of enforcement policy.
  • Convincing evidence of likely (not actual) harm: the Commission does not need to establish actual harm to competition – rather the key consideration is the presence of convincing evidence of the likelihood of harm as a result of the dominant undertaking's conduct.  
  • Focus on the "as efficient" competitor: the Commission's examination of pricing conduct abuses will focus on whether the conduct is likely to prevent competitors that are as efficient as the dominant undertaking from expanding on or entering the market.  
  • Pleading efficiencies: due consideration will be given to claims put forward by dominant undertakings that their conduct is justified on efficiency grounds.  

The Commission's enforcement priority will be to ensure that it is protecting competition and consumer welfare. In doing so, the Commission will seek to distinguish between competition on the merits, which has beneficial effects for consumers and should therefore be promoted, from competition that is liable to lead to foreclosure that is likely to harm consumers.

Despite the Commission's emphasis on an effects-based analysis, in the absence of comprehensive guidelines akin to those available for Article 81 and merger control, businesses and their advisers will be unable to approach the analysis of exclusionary abuse with the same confidence which has emerged as a result of the practical guidelines underpinning these other areas of competition policy.

Background

Following the adoption of the revised Merger Control Regulation, and a series of guidelines and notices on the application of Article 81, guidelines on Article 82 were the last piece in the jigsaw required to complete a modernised EC competition regime.

The law on abuse of dominance affects common, every day business practices such as bundling and tying, discounts and loyalty rebates. It is a complex area of competition law and has become increasingly unclear over the years, making it very difficult for companies with market power to know what they can and cannot do in practice. National competition authorities and courts also require guidance to assist them in the application of Article 82 in order to ensure a consistent enforcement of this prohibition throughout the EU.

The publication of the guidance paper marks a helpful albeit cautious first step by the Commission towards a modernised approach to the application of Article 82. The paper is limited in scope and can therefore be seen as a compromise coming out of the protracted process of the Article 82 policy review which began in 2003 with the Commission's internal review of Article 82 and climaxed in December 2005 with the publication of DG Competition's more ambitious staff discussion paper.

Key features of the guidance paper

The guidance paper provides a short exposition of the enforcement priorities that will guide the Commission's actions in applying Article 82 to the most common types of exclusionary conduct in single dominance cases. Collective dominance (where a dominant position is held by two or more undertakings) falls outside the remit of the guidance paper. Conduct which is directly exploitative of consumers (such as excessive pricing) is also not examined in the guidance paper.

Framework for analysing exclusionary abuses

The substantive part of the guidance paper has a two-part structure. The first part sets out the Commission's general approach to exclusionary conduct and the second part discusses specific exclusionary practices which the Commission considers to be its enforcement priorities.

General framework to analyse exclusionary abuses

The general framework covers well-trodden ground such as:

  • the meaning of market power;
  • the factors relevant to an assessment of anticompetitive foreclosure: (namely, the position of the dominant undertaking; the conditions of the relevant market; the position of the dominant undertaking's competitors; the position of the customers or input suppliers; the extent of the allegedly abusive conduct; possible evidence of actual foreclosure; and direct evidence of any exclusionary strategy;  
  • the Commission's approach to price-based exclusionary conduct: the Commission notes that it will normally only intervene where pricing abuses hamper competition from competitors who are as efficient as the dominant undertaking (the 'as efficient competitor' test);  
  • finally, the Commission examines the objective justifications and efficiency arguments which could be utilised by a dominant undertaking to justify conduct leading to the foreclosure of competitors.  

Objective justification and efficiencies

Under Article 82 there is no equivalent to Article 81(3) which allows for an exemption from the prohibition on restrictive practices on the basis of efficiencies. In line with existing case law, the guidance paper, echoing the December 2005 discussion paper, recognises that abusive conduct may escape the prohibition of Article 82 where the dominant undertaking can provide an objective justification for its behaviour or can demonstrate that its conduct produces efficiencies which outweigh the negative effects on competition.

The efficiency defence will require the dominant company to establish that the following four cumulative conditions, which mirror the exemption criteria under Article 81(3), are satisfied:

  • the efficiencies are realised or likely to be realised as a result of the conduct concerned;
  • the conduct concerned is indispensable to achieve these efficiencies;
  • the efficiencies benefit consumers; and
  • competition in respect of a substantial part of the products concerned is not eliminated.  

Guidance on specific abuses

The second part of the framework analysis then examines specific forms of abuses such as:

  • exclusive dealing arrangements (exclusive purchasing and conditional rebates)
  • tying and bundling;
  • predatory conduct (involving the dominant undertaking deliberately incurring losses or foregoing profits in the short term in order to foreclose actual or potential competitors with a view to strengthening or maintaining market power; and  
  • refusal to supply and margin squeeze. Refusal to supply will be an enforcement priority where the conduct:  
  • relates to a product or service that is objectively necessary to be able to compete effectively on a downstream market;  
  • is likely to lead to the elimination of competition on the downstream market; and  
  • is likely to lead to consumer harm.

In each case the Commission examines the likely justifications which could be proffered by the dominant undertaking. Although these abuses are listed as the Commission's enforcement priorities, this does not mean that the Commission will ignore other types of abuses if they are potentially harmful to consumers.

The road ahead

The guidance paper is intended to provide stakeholders with a document on how the Commission articulates its effects-based approach to exclusionary conduct and its enforcement priorities in relation to this single area of Article 82 policy. The paper does not provide detailed guidance on the law of Article 82 but rather sets outs a general framework of enforcement priorities. Further guidance will be provided as the Commission develops its practice and through further developments in the case law, with the European courts hopefully also embracing an effects-based approach.

Click here to access the Commissions' guidance paper