sou · GWB338d2 · 2009-01-01 00:00:00 — the Swedish Tenancy Act, is indicative of the existence of an agreement, decision or concerted practice within the meaning of Art. 81 EC between the public housing companies. 41.This is not the case here. The similar rent levels among apart- ments offered by public and private housing companies are the result of the utility value system prescribed by Sect. 55 of the Swedish Tenancy Act and not of any kind of agreement or collusion among the companies. The combination of the utility value system and the prime cost principle effectively limit the possibilities for the companies to compete against each other on the basis of price but this cannot be adduced to an agree- ment or any other type of cooperation. 42.As neither Art. 81 EC nor Art. 81 in conjunction with Art. 10, 3(g) EC is applicable in the present case due to the absence of an agreement or collusion among the parties, it is necessary to examine the Swedish rent setting system according to the rules on unilateral conduct, i.e. Art. 82 EC. 49Case C-2/91 Criminal proceedings against [1993] ECR I-5751. 50Case C-245/91 Criminal proceedings against Ohra Schadeverzekering NV [1993] ECR I- 5851. 51Case C-185/91 Bundesanstalt für den Güterfernverkehr v . [1993] ECR I-5801. 52Whish, Competition , 5th edition, (2003) , p. 53Ibid, p. Compatibility of the rent setting system with Art. 82 EC 43.Contrary to Art. 81 EC, Art. 82 EC covers unilateral (and not collusive) conduct of dominant undertakings which act in an abusive : abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a)directly or indirectly imposing unfair purchase or selling prices or unfair trading conditions; (b)limiting production, markets or technical development to the prejudice of consumers; (c)applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d)making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. 44.The elements which can be derived from this provision and which have to be fulfilled in order for Art. 82 EC to be applicable are: (1)one or more undertakings holding a dominant position (which requires a definition of the market in which the undertaking is alleged to be dominant); (2)abuse; (3)the dominant position must be held within the common market or a substantial part of it; and (4)it affects trade between Member States. 45.These conditions will be addressed in the following. It will quickly emerge, however, that especially the first two conditions require a special analysis. The question arises whether the public housing companies should be considered dominant because of independent market conduct or because of the Swedish rent setting rules regulating the market. In the latter case, Art. 82 would not be applicable on its own but only in conjunction with Art. 10, 3(g) EC or, more frequently, in conjunction with Art. 86 EC. a.Abuse by one or more undertakings holding a dominant position 82 EC applies only where one or more undertakings occupy a dominant position within the relevant product and geographic market. In the case United Brands v Commission, the ECJ defined the concept of dominance as follows: the dominant position thus referred to by Article [82] relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, and ultimately of its consumers.54 47.In its further case law, the Community Courts and the Com- mission set out the criteria according to which an undertaking could be held to occupy a dominant position. If the under- taking does not hold a statutory monopoly, which does not immunise it from the application of Art. 82 EC, the following criteria help to establish the degree of market power of an under- taking: market shares,55 barriers to entry such as legal provisions, access to capital, vertical integration, product differentiation, size and strength of the company within the relevant market, and the conduct of the alleged dominant firm. 48.With respect to the case at issue, it could be argued that the conduct of the public housing companies indicates a dominant position as the utility value system gives the public housing com- panies the power to determine the market conduct of private, for profit, housing companies, which, in turn, could deter entry of other private housing companies as they are limited in the 54Case 27/76 United Brands v Commission [1978] ECR 207, para 65. 55Market Shares have been held to be an important indicator of dominance by Commission in its decision making practice so far. As such, a market share of or above creates a presumption of dominance according to Case C-62/86 AKZO v Commission [1991] ECR I-3359. If the market shares are below that threshold, other factors are considered to be significant, such as the market shares of the next biggest competitor: the smaller the shares of the competitors, the likelier the Commission will conclude that the largest firm is dominant. rents they can charge and hence the profit they earn. This could be interpreted as a sign of dominance pursuant to Art. 82 EC. 49.However, the conduct at issue, namely the setting of rents by public housing companies which indirectly determines the rental level charged by private companies, is the consequence of a legal rule, the Swedish Tenancy Act, and not of any free will. Thus, it should be the , in this case , which should be held liable for a possible infringement of competition rules through the adoption of a legislative act and not the undertakings implementing the rule. 50.The same applies when assessing the issue of abuse. Abusive behaviour can be subdivided into exclusionary and exploitative abuses. Exclusionary abuse (with horizontal effects) refers to conduct that raises barriers to entry or eliminates competitors. Exploitative abuse (with vertical effects) refers to conduct where the undertaking exploits its economic power for instance by charging excessive prices to its . In the present case, the utility value system may constitute a barrier to enter the Swedish housing market or it may force competitors already present on the market to exit. It can thus be characterised as exclusionary abuse. 51.In this context, it needs to be highlighted that it is neither necessary that the dominant company deliberately abuses its dominant position nor is it required that the purpose or objective of its conduct is anticompetitive as long as the anticompetitive effect is established. It is established case law of Court of that it is irrelevant for the purposes of Art. 81 and 82 EC whether a certain conduct has an anticompetitive object or effect. Both cases are considered incompatible with the Treaty rules on competition. In the context of Art. 82 EC, the Court ruled that the concept of abuse has to be read objectively, i.e. behaviour can be abusive even where the domi- nant undertaking had no intention of infringing Art. 82 EC.56 Thus, conduct may be harmful to the structure of the market whether it was intended to be harmful or not. Moreover, it has become clear from the jurisprudence of the Court57 that it is not necessary for the dominance, the abuse and the effects of the abuse all to be on the same market. 56Case 85/76 v Commission [1979] ECR 461. 57See e.g. Case 6/73 etc Commercial Solvents [1974] ECR 223. 52.It is therefore irrelevant for the assessment of Art. 82 EC if it is argued that the anticompetitive effect of the normative role is unintentional because the costs of individual apartments, which serve as benchmarks for the rent levels, are difficult to determine. It is also irrelevant if the objective of the conduct (or in our case the legislation) is not distortive.58 For Art. 82 EC to apply, it is sufficient to determine the anticompetitive effect of the conduct. 53.However, any abusive conduct which could e.g. consist in setting the level of rents too low and thus engage in under- pricing to the detriment of private housing companies is based on the application of the utility value system. As in the case of Art. 81 EC, this would lead to the application of Art. 82 in com- bination with Art. 10, 3(g) EC. Yet, when looking at the case law of Courts, it is noticeable that State measures that could lead to abusive behaviour pursuant to Art. 82 EC are usually assessed in the context of Art. 86(1) EC rather than pursuant to Art. 82, 10, 3(g) EC.59 As the ECJ stated in the case RTT v GB-Inno-BM SA:60 []Article [82] applies only to anti-competitive conduct engaged in by undertakings on their own initiative, not to measures adopted by States. As regards measures adopted by States, it is Article [86(1)] that applies.61 3 of the memo of . A different reasoning applies in the second case that is mentioned in the memo, where there is excess supply of rental housing on the market which could lead to rents below the self costs of the apartment. Here, the rent level is determined by market forces and not by wilful behaviour or legislation. If the market is such that the rents have to be set below the costs of the apartment, it does not constitute an abuse according to Art. 82 EC but simply a response to market supply and demand. 59There has been only one case which mentions the possibility of applying Art. 82 in con- junction with Art. 10 EC. This is the case (Case 66/86 v Zentrale zur Bekämpfung unlauteren Wettbewerbs e.V. [1989] ECR 803) dealing with the approval by aeronautical authorities of air tariffs fixed by agreement by airlines. It was held that these agreements were contrary to Art. 81 and Art. 82 EC as they constitute the formal measure setting the seal on an economic reality characterized by the fact that an undertaking in a dominant position has succeeded in having the tariffs in question applied by other undertakings. 37) As the wording indicates the basis for the simultaneous application of Art. 81 and Art. 82 EC formed an agreement which was formally approved by the public authorities and hence led to the application of Art. 10 EC with both provision. 52) As there is no agreement or collusion in the present case, and as Art.10 EC is predominantly concerned with the liability of Member States for infringements of Art. 81 EC, there is no clear basis in the case law of the Community Courts for applying Art. 82 in conjunction with Art. 10 EC. 60Case C-18/88 RTT v [1991] ECR I-5973. 61Ibid, para. 54.It is therefore necessary to examine the compatibility of the Swedish rent setting system pursuant to Art. 86(1) in conjunc- tion with Art. 82 EC. However, before proceeding with the analysis of Art. 86(1) EC, it remains to be seen whether the other conditions of Art. 82 EC are fulfilled, i.e. whether the dominant position of the public housing companies is held in a substantial part of the common market and whether trade between Member States is affected by the conduct at issue. b.Substantial part of the common market 55.The dominant position must be held in a substantial part of the common market. This, however, is not necessarily related to the delimitation of the relevant geographic market. The re- quirement of dominance in a substantial part of the common market is in a sense the equivalent of the de miminis doctrine under Art. 81 EC, according to which agreements of minor importance are not caught.62 56.Furthermore, the term substantial part of the common market does not only mean substantial in geographic terms. It can be defined in geographic terms, i.e. a Member State63 or parts of Member States64 are likely to be a substantial part of the Com- mon Market, but it can also be determined on the basis of volume of production or the habits and economic opportunities of sellers and purchasers.65 Similarly, in the area of transport, the Commission has held relatively small areas like airports or sea ports to be substantial parts of the Common Market be- cause of the importance of a transport connection between two different destinations66 or the volume of traffic handled.67 57.Last but not least, the ECJ has held that, where national law confers a contiguous series of monopolies within a which, taken together, cover the entire territory of that State, 62Whish, Competition , 5th edition, (2003). 63Case 226/84 British Leyland plc v. Commission [1986] ECR 3263. the south-east of in Case 22/78 and . V. Commission [1979] ECR 1869. 65Cases 40/73 etc. Coöperatieve Vereniging Suiker Unie UA v. Commission [1975] ECR 1663. Here, the ECJ compared the volume of sugar production in , , and southern to that of Community production overall. 66Sea . V. , OJ 1994, L15/8. 67Case C-179/90 Merci Convenzionali di SpA v. Siderurgica [1991] ECR I-5889. that law creates a dominant position in a substantial part of the common market.68 A similar argument was used in Almelo where the Court held: Although the conclusion cannot automatically be drawn that a dominant position is held in a substantial part of the common market by an undertaking which, like IJM, has a non-exclusive concession covering only part of the territory of a , a different assessment must apply where that undertaking belongs to a group of undertakings which collectively occupy a dominant position.69 58.Coming back to the present case, the requirement of sub- stantial part of the common market is fulfilled on two levels. First of all, the normative rule laid down by the Swedish Tenancy Act applies to all public housing companies in . Even though the individual public housing companies may only be dominant on a local level, the fact that the normative rule covers the entire territory of a suffices to find dominance in a substantial part of the common market, namely . 59.Secondly, constitutes an attractive investment oppor- tunity for investors from other Member States given the rela- tively high income level. Large municipalities like , and are seat to several public housing companies with very significant turnovers which may attract companies willing to invest in housing from abroad. Addi- tionally, may attract demand and supply from due to the connecting . It can therefore not be excluded that the three big municipalities by themselves constitute a substantial part of the common market. c.Effect om trade between Member States 60.The condition effect on trade between Member States con- stitutes a jurisdictional criterion confining the scope of Art. 82 EC to conduct having a minimum level of cross-border effect within the Community. , the practice must appreciably affect trade between Member States. Since the requirement is merely viewed as a jurisdictional matter, it has been interpreted 68Case C-323/93 La Crespelle [1994] ECR I-5077. This reasoning was applied by the Commission in, e.g., Portuguese Airports, OJ 1999 L69/31. 69Case C-393/92 Almelo [1994] ECR I-1477, para. broadly by Court of (Court) in its case law.70 61.The Commission Notice on the concept of effect on trade be- tween Member States71 sets out and clarifies the principles deve- loped by the Court and determines when a certain conduct may be considered to appreciably affect trade between Member States. Therefore, trade between Member States is considered to be affected by anticompetitive conduct if it is possible to foresee with a sufficient degree of probability on the basis of a set of objective factors of law or of fact that the agree- ment in question may have an influence, direct or indirect, actual or potential, on the pattern of trade between Member States.72 62.This pattern of trade test developed by the Court of contains the following elements: (1)a sufficient degree of probability on the basis of a set of objective factors of law or fact; (2)an influence on the pattern of trade between Member States; (3)a direct or indirect, actual or potential influence on the pattern of trade.73 63.The first element refers to the issue that the abusive practice in question does not actually have to affect trade. It is sufficient that the practice is capable of having such an effect. In this context, the factors to be taken into account are the nature of the abusive practice, the nature of the products covered by the practice and the importance of the undertakings concerned. With respect to the second factor, the nature of the products covered by the abusive practice, it is necessary to determine, inter alia, whether the product at issue is important for under- takings to enter or expand their activities in other Member States from the point of view of cross-border or whether 70Jones and Sufrin, law, 2nd edition, (2004) , p. 71Guidelines on the effect on trade concept contained in Articles 81 and 82 of the Treaty, OJ 2004 C 101 (hereinafter Commission Notice). 72Ibid, para. Even though the quoted passage refers to an agreement, the analysis of the concept effect on trade with respect to Art. 81 and 82 EC is the same. 73Ibid, para. it allows the expansion of the economic activity carried out from such place of establishment.74 64.The second element refers to the question whether trade be- tween Member States is likely to develop differently with the abusive practice compared to the way in which it would pro- bably have developed in the absence of the practice.75 65.The third element of the Courts pattern of trade test indicates that not only direct and actual effects on trade within Art. 81 and 82 EC fall under this concept but also indirect and poten- tial effects. Potential effects are defined as effects that may occur in the future with a sufficient degree of probability. In other words, foreseeable market developments must be taken into account.76 66.From the above explanations, it emerges clearly that the abusive conduct is the decisive element to determine whether trade between Member States is affected. As explained above, the abusive behaviour in the present can be characterised as exclu- sionary. Whereas exclusionary abuse generally affects trade be- tween Member States as it is likely to foreclose national markets and make it more difficult for competitors to penetrate the market, exploitative abuse like price discrimination generally does not affect trade between Member States.77 67.As to the question whether trade is affected appreciably, the Commission developed a set of factors relating to the position and importance of the relevant undertakings. Thus, an appre- ciable effect on trade can be assumed if the aggregate market share of the parties on any relevant market within the Com- munity exceeds and if the turnover of the undertakings exceeds the threshold of 40 million Euro.78 74Ibid, paras 25 et seq. It is therefore irrelevant for the present purposes whether the product itself is immovable (e.g. a ) and therefore cannot be traded across borders, as argued by Prof. It is sufficient that foreign undertakings are restricted from expanding their housing activities into due to e.g. the utility value system to assume an effect on trade between Member States. 75Commission Notice, paras 33 et seq. 76Ibid, para. This is to the exclusion of hypothetical effects which are so remotely con- nected to the abusive practice that they cannot establish Community jurisdiction. (See for an example para. 43 of the Commission Notice). 77Ibid, paras 73 et seq. and 93 et seq. 78Ibid, paras 44 et seq. In this respect, the Commission does not consider it necessary that relevant markets be defined and market shares calculated. The sales of an undertaking in absolute terms may be sufficient to support a finding that the impact on trade is appreciable. 68.In conclusion, trade between Member States is capable of being appreciably affected according to Art. 82 EC if the abusive conduct of an undertaking makes it more difficult for compe- titors from other Member States to gain access to the market or to expand their activities. However, trade may not be capable of being appreciably affected if the abuse is purely local in nature or involves only an insignificant share of the sales of the domi- nant undertaking.79 69.When applying the above principles to the present case, it needs to be determined whether the behaviour of the public housing companies could result in an appreciable effect on trade between and other Member States pursuant to Art. 82 EC. The abusive behaviour of the public housing com- panies which consist in the implementation of the utility value system prescribed by legislation represents a disincentive for foreign companies to invest in the Swedish housing market. As it is exclusionary, it is at the outset more likely to affect trade between Member States. Furthermore, has to be capable to appreciably affect trade either directly or indirectly, actually or potentially. This represents a very low threshold which, in the present case, can be considered to be fulfilled as it is very likely that without the utility value system and the risk of having to charge rents below the prime costs of the , foreign investment in this market would be more attractive. Therefore the rent setting practice is at least capable to affect cross-border trade and investment. 70.Indeed, according to the information available to me, it seems that although investment in the Swedish real estate market is high, foreign investment in the housing market is still very limited. Thus, according to the pattern of trade test of the Court, it is very probable that trade would have developed differently if the Swedish housing market was unregulated. 71.As to the question whether trade is affected appreciably, I only have information on market shares and turnover for three public housing companies seated in the municipalities of , and . Based on this information, all three public housing companies have a market share above and a 79 Ibid., paras 97 et seq. turnover that largely exceeds the threshold of 40 million Euro.80 So already in the case of these three municipalities, it can be concluded that trade is affected appreciably. Additionally, due to the legislation in force, the abusive conduct is carried out by all public housing companies in . The anticompetitive conduct therefore covers the whole of the con- cerned which also argues strongly in favour of an appreciable effect on trade. 72.It could be argued that the ruling of the of Appeal constitutes a mitigating factor in this respect given that the risk that private (Swedish or foreign) housing companies have to charge rents below costs has to a large extent been abolished. This might also increase the incentives for invest- ment in the Swedish housing market and diminish the effect on trade. It is doubtful, however, whether the ruling will eliminate all effect on trade as extensive market regulation in the form of e.g. the utility value system is still in force which does not leave much room for private investors to charge free market rents and obtain high profits. 73.It can therefore be concluded that despite the ruling, the practice of the public housing companies which is dictated by Swedish legislation, is very likely to affect trade between Member States, particularly in view of the low threshold estab- by the Court in its pattern of trade test. Consequently, Art. 82 EC can be held to be applicable.