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

Abuse

i Overview

The CPC and Bulgarian courts have acknowledged that it is the abuse and not the dominant position itself that is prohibited.

Abuse of dominance is defined as unilateral behaviour of a dominant undertaking that may prevent, restrict or impede competition in a relevant market, as well as affect consumer interest. In order to establish abuse, the CPC is required to prove the existence of:

  1. an undertaking;
  2. the dominant position of such undertaking in a relevant market;
  3. unilateral behaviour; and
  4. actual or potential anticompetitive effect of the behaviour also affecting consumer interest.

Article 21 of the CPA mirrors Article 102 of the TFEU to a great extent, by listing the most common forms of abuse, which is non-exhaustive:

  1. the direct or indirect imposition of purchase or selling prices or other unfair trading conditions;
  2. the limitation of the production, trade or technical development to the detriment of consumers;
  3. the application of different conditions to certain clients for equivalent transactions, thereby placing them at a competitive disadvantage;
  4. concluding contracts subject to acceptance by the other party of supplementary obligations or to the conclusion of additional contracts that, by their nature or according to common commercial usage, have no connection with the object of the main contract or with its performance; and
  5. the unjustified refusal to supply goods or to provide services to actual or potential customers in order to impede their economic activity.

The CPC's understanding of 'unilateral' behaviour is somewhat flexible. In Bulgartransgaz, the CPC took the view that the contracts for gas transportation and supply were not unilaterally imposed by the dominant company because the draft contracts were published on its website and the clients were provided with the opportunity to provide comments on them. This was sufficient for the CPC to reject the allegations against Bulgartransgaz, regardless of the fact that not all proposals for changes were accepted and included in the individual contracts. The CPC justified the refusal of the dominant company to accept some of the proposals with the need for the dominant company to ensure equal treatment of all clients, restricting its ability to include different terms and conditions in the contracts with different clients. In previous cases, the CPC qualified contracts in a unified form (often as general terms and conditions), drafted by the dominant party, as unilaterally imposed. In CEZ group, the CPC qualified the behaviour of the exchange of information between companies within the same economic group as unilateral.

Even if the behaviour meets all the criteria for abuse, it cannot be prohibited if the dominant company provides 'objective justification'.

The CPC often refers to the classic definition for abuse as the objective concept developed by the Court of Justice of the European Union in Hoffmann La Roche. However, the CPC and courts do not have a consistent understanding of the meaning of this notion. The CPC relies on the objective concept in order to reject the relevance of the subjective intentions behind the behaviour, while the court refers to it in the context of the requirement for a link between the behaviour of the dominant undertaking and the negative impact on competition and consumers to exist.

The CPC does not make a clear difference between a restriction of competition by-object and an effects-based approach in its practice, and has applied the as-efficient-competitor test (AEC test) only once – in a case relating to fidelity rebates and, in general, tends to follow a stricter form-based approach without a developed coherent theory of harm and with less economic evidence.

In order to qualify certain behaviour as abusive, the CPC is not required to prove an actual negative effect on competition; rather, it is sufficient to establish a potential for competition to be distorted.

Abuse of a stronger bargaining position is defined as acting in bad faith (i.e., without objective economic justification) to the detriment of the interests of the weaker party and consumers. The CPA gives examples closely resembling some of the forms of abuse of dominance:

  1. an unjustified refusal to supply;
  2. the imposition of unreasonably burdensome or discriminatory conditions; and
  3. an unjustified termination of business relations.
ii Exclusionary abuses

The CPC defines exclusionary abuse as unilateral behaviour aimed at distorting effective market competition by executing competitive foreclosure, creating barriers to entry in order to limit potential competition or to limit competitors' expansion, or imposing competitive constraint on the dominant company.

The CPC has little practice in predatory pricing, which can be attributed to the existence of a similar prohibition in Chapter VII of the CPA on unfair competition, which is applicable to all undertakings, regardless of the degree of their market power. Under Bulgarian law, selling below cost can be a violation of the prohibition of abuse of dominance and a special form of unfair competition, at the same time. In investigating unfair competition, the CPC is not required to prove a dominant position and therefore it is used by competitors as a shortcut to making a complaint.

One of the very few cases in this area is regarding the alleged predatory pricing of the ground-handling services of Sofia Airport EAD, which started in 2012 following a complaint by the company's competitor, Swissport Bulgaria. The case is currently pending in court for a second time.

Despite the lack of recent precedents, the CPC acknowledges 'margin squeeze' as one of the possible forms of pricing abuse through the imposition of high prices. However, the CPC generally tends to address the issue of high prices as exploitative excessive pricing rather than as an exclusionary abuse.

In the past decade, the CPC faced fidelity rebates in two cases without finding infringements. In bTV v. Nova, the CPC sent an SO to bTV, a leading national free-to-air TV operator, for applying retroactive rebates to its TV advertising clients in consideration for a guarantee of a 100 per cent share of their TV advertising budget (a form of exclusive dealing). In this case, the CPC applied the AEC test for the first time, in order to prove that bTV's behaviour could foreclose a competitor as efficient as the dominant company. Eventually, the CPC changed its view on bTV's market position because of the oligopolistic structure of the market, and therefore found no abuse.

Liberalisation of the energy markets at retail level was the focus of a landmark antitrust case initiated in 2013 and completed in 2017. The CPC sanctioned the local companies of the CEZ and EVN groups for applying a strategy aimed at leveraging their market position as incumbents of the regulated market to the competitive retail market, which has freely negotiated pricing. The on-going liberalisation of the energy markets allows clients to switch from the regulated to the free market by replacing their public supplier with a trader. Once the client enters the free market, it can choose its supplier from almost 90 licensed retailers. Both CEZ and EVN were present in the regulated and free electricity markets. According to the CPC, both groups discriminated traders outside the group by refusing them access to historical data about clients' hourly consumption, which the groups had collected during their operations on the regulated market, and which was at the disposal of the traders within the group. Further, it was alleged that the groups also applied various practices aimed at preventing clients from switching to the free market or at least delaying such a process. The CPC did not apply the doctrine of the single economic entity, and, owing to the difference in the geographic dimensions of the markets (the free market was national, while the regulated market was limited to the licensed area), failed to prove dominance of the groups' traders operating in the broader market. Therefore, it sanctioned only the incumbents – the network operators, CEZ Razpredelenie Bulgaria AD (CEZ group) and EVN Bulgaria Elektrorazpredelenie EAD (EVN group), and the companies supplying electricity at a regulated price, CEZ Electro Bulgaria AD (CEZ group) and EVN Bulgaria Electrosnabdyavane EAD (EVN group), which were found liable for an abuse benefiting related traders and, therefore, reaffirming the understanding that the abuse may take place in a market different from the market in which competition is affected. However, the theory of harm in this case was not completely consistent: the companies were sanctioned for applying a strategy aimed at keeping their clients in the regulated market, and, at the same time, benefiting the traders within the group operating in the free market (the two aims excluding each other).

Against the background of the pending investigation, in 2016, the CPC began another investigation into the same companies on the basis of similar allegations but related to a later period of time. Both investigations were run in parallel and finished with contradictory decisions.

iii Discrimination

The provision of Article 21(c) of the CPA explicitly lists discrimination (i.e., applying dissimilar terms to equivalent transactions) as a possible form of abuse of dominance. Similarly, Article 37a, Paragraph 1 of the CPA provides that imposition of discriminatory conditions on the weaker party can be an abuse of stronger bargaining position. The practice shows that the CPC tends to apply this rule too broadly, encompassing not only transactions with companies that are competitors, placing some of them at a competitive disadvantage, but also contracts with end consumers, as well as various forms of factual behaviour.

iv Exploitative abuses

Exploitative abuses remain the most common type of abuse in the practice of the CPC, even though sometimes the difference between exclusionary and exploitative abuse is not obvious. In ViK Dobrich v. Energo-Pro, the CPC sanctioned the electricity supplier Energo-Pro Sales for termination of supplies to one of its business customers – a water-supply and sewage company, ViK Dobrich. Regardless of the fact the case appeared as a classic example of 'refusal to supply' conduct, the CPC analysed the behaviour of the dominant company within the framework of an exploitative abuse given the absence of competition in the downstream market (water supply within a given territory) that might be affected (ViK Dobrich was a monopolist in that market).

In another case, the CPC sanctioned an electricity distribution network operator (being an essential facility) for delaying a client's access to its network and consequently to the downstream market, delaying the production of energy from renewables. The CPC mostly qualified the behaviour of the dominant company (i.e., impeding the accession to the network) as an imposition of unfair trading conditions (a kind of exploitative abuse) rather than as constructive refusal to supply. According to the CPC, the network operator exploited its monopoly in order to achieve non-justified financial benefits by transferring expenses, which they would normally bear, to the clients. The CPC went further by stating that such behaviour may also prevent potential competitors from entering the market as an indirect result and, therefore, may also have exclusionary effects.

Recently, the CPC approved commitments offered by the local heating company Toplofikatziya Sofia to address allegations of imposing unfair trading conditions regarding the connection of clients to its heating network. The contractual clauses alleged to be unfair required the clients to construct the facilities necessary to connect to the network at their own cost and thereafter to allow the heating company to use such facilities for free for the purpose of providing its service. Once the ownership of the connection facilities was transferred to the heating company, the latter compensated the clients for by delivering heating energy of the same value to them. Such set-off mechanism was not acceptable to the construction companies, which were not able to benefit from the free heating energy delivered to the inhabitants of the completed buildings.

In the past five years, the CPC has sanctioned several companies for excessive pricing:

  1. a cemetery's sole provider of funeral services;
  2. the owner and exclusive operator of a bus station; and
  3. three operators of electricity distribution networks.

Aurubis Bulgaria, a local subsidiary of the world leader in copper recycling, was also investigated for excessive pricing in the production and wholesale of sulphuric acid market; however, after considering the objections against the SO, the CPC expanded the geographic market and could not, therefore, prove a dominant position.

The approach of the CPC depends on the particular product or service in question. Investigating bus station services, the CPC analysed whether the pricing factors applied by the owner of the bus station (transport scheme and time of service) were relevant for the costs of the service. With regards to the rental price of energy distribution network pylons, the CPC investigated whether the costs for maintenance and service of the pylons were fully accounted as costs for the regulated service and, as such, were covered by network charges or appropriately allocated between various activities (regulated and non-regulated services). In all cases concerning excessive pricing, the accounting of the investigated undertaking is of great importance because this is necessary in proving the particular costs included in the price of a product or service and the relevance of those costs. The lack of objective pricing methodology or using irrelevant pricing factors by themselves may lead to a finding of infringement.

Relying on the common understanding that the competition authorities should not act as price regulators, the CPC often orders undertakings to terminate the infringement without specific remedies or further guidelines on how to comply. This creates significant uncertainty and difficulty in achieving post-decisional compliance. Sanctioned companies asked for clarification of the reasons underlying such CPC decisions, but these were not provided. While the sanctioned companies were waiting for the CPC to provide the requested clarifications, the court reversed the infringement decisions.