An extract from The Dominance and Monopolies Review - Edition 9

Abuse

i OverviewAbuse of a dominant position

Section 19(1) of the ARC contains a general prohibition of the abuse of a dominant position similar to Article 102 of the TFEU, which addresses exclusionary conduct, exploitative abuse as well as discrimination. Section 19(2) of the ARC lists non-exhaustive examples of specific types of abusive conduct. Prohibited are, inter alia, the following types of conduct:

  1. unfair hindrance of competitors (exclusionary conduct) and discrimination (Section 19(2), No. 1 ARC). Typical types of exclusionary conduct under this provision are refusal to deal scenarios, lack of admission into the distribution system or termination of distribution agreements, exclusivity provisions or loyalty rebates, bundling/tying and predatory pricing. Section 19(2), No. 1 of the ARC also captures discrimination of trading partners (i.e., treating an undertaking, directly or indirectly, differently from other similar undertakings without objective justification);
  2. exploitative abuses such as excessive prices or terms and conditions, notably 'imposing prices or other trading conditions that differ from those likely to exist on a market with effective competition' are also captured (Section 19(2), No. 2 ARC). To determine which prices or business terms would have applied hypothetically on a competitive market, the situation on other comparable markets with effective competition is taken into account. In particular, an extreme difference between production costs and revenue, but also a price that exceeds the average prices of other comparable enterprises for similar products or services,31 can be regarded as an indication of this prohibited exploitative conduct. Exploitative abuses may further arise under the more general provision of Section 19(1) of the ARC. The FCO's Facebook decision shows that inappropriate contractual terms and conditions may also constitute an exploitative abuse under the general provision of Section 19(1) of the ARC. In Facebook, the FCJ also held that a strict causal link between dominance and the abusive conduct is not required to establish an exploitative abuse – which has now also been clarified in the 10th Amendment to the ARC.32 An exploitative abuse thus no longer requires a finding that the conduct was only possible as a result of dominance (see further Section IV.ii);
  3. price or margin squeezes, if a vertically integrated dominant company sells products to its downstream competitors at a (wholesale) price that is either higher than the price that it charges itself on the downstream market, or so high that its downstream competitors are left with a profit or margin that is too small to effectively compete with the dominant company's product on the downstream market. Price or margin squeezes are considered an abuse under Section 19(2), No. 1 of the ARC. Under Section 20(3), No. 3 of the ARC, such behaviour is also expressly prohibited for vertically integrated undertakings with relative market power with respect to small or medium-sized undertakings;
  4. access to essential facilities (Section 19(2), No. 4 ARC), if a dominant company refuses to grant another company access to its data, network or other infrastructure entirely, or only in exchange for unreasonably high fees, if the facility constitutes an essential facility. A facility is essential if, without access, 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 and there is a risk of elimination of upstream or downstream competition. Access to an essential facility may, however, be refused if the joint use is impossible for practical reasons due to limited capacity or for legal reasons; for example, a necessary public authorisation is not granted. Where the possibility of joint use of an essential facility by both parties is unclear, the dominant enterprise bears the burden of proof.33 The 10th Amendment to the ARC clarified that refusal to grant access to data, platforms and interfaces could constitute an abuse of dominance under the 'essential facilities' doctrine; and
  5. abuse of buyer power by asking for unjustified commercial conditions (Section 19(2), No. 5 ARC), notably by 'inviting or causing other undertakings to grant it advantages without objective justification'. German courts have, historically, been very reluctant to find that a dominant purchaser abused its market position by asking suppliers for advantages, such as special rebates. The FCO, however, intervened against food retail chain Edeka based on Article 19(2), No. 5 of the ARC, because Edeka had, inter alia, insisted on suppliers retroactively granting it the same preferential conditions and benefits that they had previously granted to another retail chain that Edeka had acquired ('wedding rebates').34 While the DCA overturned the FCO's decision,35 the FCJ reinstated it in key points, agreeing in particular that Edeka's retroactive demand for more favourable price components of certain products without regard to the price structures otherwise in use ('cherry picking' of rebates that had previously been granted) was abusive.36 In the same vein, the FCO intervened against furniture retailer XXXLutz for requesting unjustified wedding rebates in 2018 and anniversary rebates in 2020. In both cases, the FCO dropped its proceedings after XXXLutz had committed to abandon its demands for such rebates and to negotiate the rebate with each of its suppliers on an individual basis.37
Abuse of 'relative' dominance and 'superior market power'

As noted above, Section 20(1) of the ARC extends the prohibition of exclusionary and discriminatory conduct of Section 19 (2), No. 1 of the ARC to companies with 'relative' dominance. Section 20(3) of the ARC further enlarges the scope of the abuse of dominance legal framework to companies that do not even qualify for relative market power, but that have particular power over certain smaller but not all rivals and prohibits exclusionary conduct such as tying/bundling, predatory pricing and margin squeeze.38

As a general rule, the FCO or plaintiff have to prove the market power and the abuse and the company accused has to advance possible justifications for its conduct. However, in administrative proceedings, the ex officio investigation rule applies, which means that the FCO still has to investigate possible justifications for the relevant conduct, but the company has a duty to cooperate and in the event of a non liquet on the justification, the conduct is found to be abusive.

Conduct by companies with paramount cross-market significance that the FCO can prohibit

As noted above, the 10th Amendment to the ARC has introduced an entirely new regulatory approach, thereby extending the prohibition of certain conduct, in particular for large gatekeepers and intermediaries in digital markets, significantly, and providing the FCO with a tool to pre-emptively intervene against large platforms even in markets where they are not yet dominant, but could become dominant quickly.

The FCO needs to formally establish a company's paramount cross-market significance (Section 19a(1) ARC) to have a legal basis for a prohibition decision with respect to certain types of specifically listed practices. The FCO can join the declaratory order and the prohibition order in one decision. There is no need for the FCO to prove competitive harm of the conduct, but it can prohibit the conduct ex ante. The company concerned bears the burden of proof to show that its conduct is objectively justified. The application of Section 19a of the ARC does not exclude the parallel application and issuance of fines under the traditional abuse of dominance rules, and non-compliance of an order under Section 19a is also subject to fines.

Section 19a(2) provides for an exclusive list of prohibited conduct, which includes:

  1. self-preferencing when providing access to procurement and sales markets, in particular the preferential display of proprietary offers (Section 19a(2), No. 1, letter a, ARC) or the exclusive pre-installation on own devices, as well as other integrations into own products or services (Section 19a(2), No. 1, letter b, ARC); examples are the European Commission's investigation against Google Shopping and Google Android, to which – despite still being under appeal – the explanatory notes to the 10th Amendment explicitly refer;
  2. hindering other companies (which do not need to be competitors) in their access to procurement or sales markets, in particular by taking measures that lead to an exclusive pre-installation or integration of the undertaking's own products (Section 19a(2), No. 2, letter a, ARC) or by hindering other companies from advertising their offers or reaching customers through channels not operated by the company concerned (Section 19a(2), No. 2, letter b, ARC); the latter is inspired by the lawsuit in the United States between Apple and Epic Games;39
  3. hindering competitors in adjacent markets in which the undertaking could rapidly expand its position because of competitive advantages (even without being dominant), in particular by automatic bundling of a product with another product without offering sufficient choice to the user (Section 19a(2), No. 32, letter a, ARC) or by making the use of one offer conditional on the use of another offer (Section 19a(2), No. 3, letter b, ARC);
  4. impeding competitors or raising barriers to market entry for other companies by using certain data processing strategies, in particular by conditioning the use of one service upon the user's consent to the processing of data from another service of the company or a third-party provider (Section 19a(2), No. 4, letter a, ARC) or by processing competitively relevant data received from other companies for purposes not necessary for the provision of its own services (Section 19a(2), No. 4, letter b, ARC); this provision is based on the FCO's Facebook decision (see Section IV.ii.);
  5. refusing or impeding the interoperability of products or services or the portability of data, thereby hindering competition (Section 19a(2), No. 5 ARC);
  6. providing other companies with insufficient information about the scope, quality or success of services provided or commissioned or making the assessment of the value of the service more difficult by other means (Section 19a(2), No. 6 ARC); and
  7. demanding unreasonable or disproportionate benefits for the treatment of another company's offer, in particular by demanding the transfer of data or rights that are not strictly necessary for this purpose (Section 19a(2), No. 7, letter a, ARC) or by making the quality of the presentation of the offer conditional upon the transfer of data or rights that are disproportionate to the service provided (Section 19a(2), No. 7, letter b, ARC).

Immediately after the new Section 19a of the ARC entered into force, the FCO opened its first proceedings under the new provision. In January 2021, the FCO expanded its abuse of dominance proceedings against Facebook (for requiring users of its Oculus virtual reality glasses to have a Facebook account) to proceedings under Section 19a of the ARC where the burden of proof would be lower. As there is not yet guidance on the application of the new provision, it is unclear whether it will really lead to faster proceedings and more effective enforcement. Nonetheless, as noted above, German, European and US case law (even cases that are still under appeal) under traditional dominance rules have obviously inspired the types of conduct prohibited pursuant to Section 19a(2) of the ARC and can therefore provide guidance on the legislator's intent. In any case, it can be expected that the FCO will swiftly make use of its significantly extended enforcement powers against digital companies (for the – unclear – relationship between Section 19a of the ARC and the DMA, see Section VIII).

ii Illustrative cases

Because the lists of abusive conduct in Sections 19 and 20 of the ARC (abuse of 'absolute' and 'relative' dominance) are not exhaustive, there are also other kinds of abuses. For example, German courts have found that the intentional and deceptive failure to disclose intellectual property rights (essential patents) during a standard-setting procedure might lead to an abuse (patent ambush). An abuse, however, occurs only if an undertaking actually claims royalties for the use of the intellectual property after the intellectual property is incorporated in the standard. This is because the undertaking does not hold a dominant position at the time of its failure to disclose, but only achieves dominance once its intellectual property is (deceptively) incorporated into the standard.40 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.41 In its first application of the European Court of Justice's Huawei judgment, the FCJ recently clarified the requirement of the patent user's willingness to license. According to the FCJ, a potential licensee has to clearly and unambiguously declare his or her unconditional willingness to conclude a licence agreement on fair, reasonable and non-discriminatory terms and contribute to the negotiation process. The FCJ held that the intention to negotiate and counter-offer being dependent on the patent being found valid and infringed in a court decision would not suffice in this respect.42

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).

An illustrative example of a discrimination case is the FCO investigation into Google's refusal to pay for news snippets in its search engine. 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 (i.e., '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 2014,43 and issued a formal rejection decision in September 201544 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.

Exploitative abuses

An illustrative example of an exploitative abuse is the recent FCO's Facebook case, even though it did not concern pricing, but the use of certain contractual terms and conditions.45 Specifically, the FCO found Facebook's terms and conditions exploitative because they violated European and German data protection rules.46 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. Upon Facebook's appeal, the DCA suspended the FCO's decision in interim proceedings, expressing 'serious doubts' about the prohibition decision's legality. In particular, it disagreed with the FCO's finding of a competitive harm caused by Facebook's conduct and criticised the normative causality standard applied by the FCO under which any infringement of provisions other than competition law by a dominant company would constitute an abuse.47 The court held that for an exploitative abuse, there must be a strict causal link between dominance and the conduct and found that the FCO had failed to establish the existence of such a causal link between Facebook's dominance and its far-reaching data collection practices (and thus the alleged infringement of the European data protection rules). Upon the FCO's appeal, the FCJ overturned the DCA's interim decision and reinstated (the enforceability of) the FCO's decision. While the FCJ found that there was 'no serious doubt' that Facebook had a dominant position and abused it through the relevant user conditions, the FCJ expressly deviated from the FCO's conclusion of an abuse based on a data protection law infringement, but instead examined Facebook's data usage exclusively under competition law. The FCJ thus found Facebook's data collection practices to be an abusive exploitation of consumers in terms of abusive conditions because Facebook did not offer users any choice regarding access to the platform, namely between a more personalised user experience based on the combination of data from different sources or an experience based solely on the data disclosed on facebook.com. The FCJ also held that a strict causal link between dominance and the abusive conduct is not required to establish an exploitative abuse (now also clarified in the 10th Amendment to the ARC).48 In the hearing in the main proceedings on 24 March 2021, the DCA referred several questions about the GDPR and the relationship between competition authorities and data protection authorities to the Court of Justice of the European Union.49

The FCO had also opened an investigation into Amazon's terms and conditions with retailers on its German marketplace platform http://www.amazon.de and the case was closed with commitments, because Amazon undertook to change its contractual framework.50 As with Facebook, the FCO considered that inappropriate business terms imposed by a dominant company can constitute an exploitative abuse. Even though not every single clause of the terms and conditions that is potentially disadvantageous to or burdensome for the retailers raised competition concerns,51 the FCO took the view, that, on the basis of an overall assessment, Amazon's application of possibly inadequate contractual terms and conditions could hinder retailers on Amazon's marketplace or even make their activity on the marketplace impossible, particularly due to a lack of means to enforce Amazon's compliance with main contractual obligations. In instances where Amazon's imposition of these business terms could be considered as a request for benefits for no objective reason, the FCO considered also an abuse by demanding unjustified benefits or commercial conditions from the retailers. In addition, the FCO assessed whether certain terms and conditions (in particular, the cancellation and blocking of seller accounts, rights of use and parity requirements, product reviews and seller ratings or European delivery schemes) also constituted an exclusionary abuse. The FCO took into account that Amazon as the operator of the marketplace could use its business terms to improve the position of Amazon Retail on the corresponding retail markets. The FCO also took the preliminary position that some terms led to a pull effect towards Amazon marketplace to the detriment of other sales channels (e.g., due to uniform product descriptions across sales channels as stipulated in the parity requirement).

A different example of an exploitative abuse is the FCO's 2019 commitment decision against the German Olympic Sports Confederation (DOSB) and the International Olympic Committee (IOC) regarding certain advertising restrictions that they imposed on athletes (prohibiting athletes participating in the Olympic Games from using their person, name, picture or information on their performance during the Olympic Games – and some days before and after – for advertising purposes). According to the FCO's preliminary view, these restrictions constituted an abuse of the DOSB's and the IOC's dominant positions (as the athletes – who are performers at the games – do not profit directly from the very high advertising revenues generated by the official Olympic sponsors). After evaluating, and market testing, proposals by the DOSB and the IOC to reduce the scope of the restrictions, the FCO and the two sports federations reached an agreement to amicably resolve the case by commitments.52 Under the sports federations' new rules, athletes now have more freedom to engage in advertising activities with their own sponsors during the duration of Olympic Games insofar as these constitute generic advertising.