Department of Law

Abuse of Dominance Under Art 102
Towards multiple standards?
Giorgio Monti
9 July 2011

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Article 102
Any abuse by one or more undertakingsof a dominant position within thecommon market or in a substantial partof it shall be prohibited as incompatible
with the common market insofar as it
may affect trade between Member
States.

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Outline• What is the significance and role of theGuidance Paper on Exclusionary abuse?
• What lessons can we derive from recent caselaw and Commission decisions as to thesignificance and role of the Guidance Paper?

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Summary of conclusions• Multiple standards applied:– Guidance Paper standards– Case Law of the Courts• Divergence from Commission• Differences among judges– New directions by Commission• Regulatory decisions• Novel concepts
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International Context
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••
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DOJ Competition and Monopoly: Single-Firm Conduct Under Section 2of the Sherman Act (September 2008 – December 2008)
Guidance on the Commission’s enforcement priorities in applying
Article [102 TFEU] to abusive exclusionary conduct by dominant
undertakings (December 2008)
Canadian Competition Bureau Draft Updated Enforcement Guidelines
on the Abuse of Dominance Provisions (Original 2001, consultation
January 2009)
American Antitrust Institute The Next Antitrust Agenda (July 2008)
International Competition Network (2006 - ongoing)• Workbook on Dominance (May 2011)

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Background• 1978-2011: concern that COM/ECJ apply Art 102 to conductthat harms competitors, but does not harm competition (e.g.
British Airways)• 2004-2008: review of Art 102– EAGCP Report (July 2005)– DG Comp ‘Discussion Paper’ (2005)– British Airways; Microsoft judgments• 2009: Guidance on the Commission’s Enforcement Priorities in
Applying Article [102] to abusive exclusionary conductDepartment of Law

DG Comp’s first attempt (2005):
Guidelines• Soft law’s hard basis:– Guidelines are bound by relevant primary/secondarylaw (which they interpret; clarify) (AG Kokott in BritishAirways)• So overruling past cases impossible!

– Soft law creates entitlements to equal treatment; legalcertainty; legitimate expectations– Soft law is justiciable under the standards fixed inprimary/secondary law (e.g. fining guidelines)

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Second time round:enforcement priorities?
••••‘focus on those types of conduct that are most harmful to consumers.’(¶5)‘Commission will normally intervene where... conduct is likely to lead toanticompetitive foreclosure. (¶20)
Refusals to supply – enforcement priority if: (1) the refusal relates to a
product that is objectively necessary to compete effectively downstream;(2) the refusal is likely to lead to the elimination of effective competition
downstream; (3) the refusal is likely to lead to consumer harm (¶81)
Other descriptions:– ‘general enforcement principles’ (¶8)– ‘general enforcement standard’ (¶82, referring to ¶20)

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Guidance on enforcement
priorities?
• More latitude? (e.g. reject line of attack taken in the past)• Justiciable?

– Can Commission turn down a complaint identifying abuse which
is an enforcement priority?
– Can Commission reject a complaint identifying abuse which is
not a priority but where facts show abuse under the case law?
– Can Commission apply different abuse standards than thosedeveloped (and ratified) by the ECJ?

• Is this document less than ‘soft law’ but potentially morepowerful?

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Possible Commission Agenda• ‘Enforcement priorities’– GP one of several indicators of the Community
interest; so a statement of prosecutorial discretion.

• Short term impact– Technical abuses outside GP framework notinvestigated (and so doctrine fades away)– GP raises enforcer’s own standard of proof (e.g.
rebates; tying)• Long term impact– GP de facto (de jure?) changes the constitutive
elements of abuseDepartment of Law

GP in outline• Parts I and II: mood music• Part III: overall approach to dominance; abuse;
efficiency defence• Part IV: detailed application of part III toselected abusesDepartment of Law

Part III(A): Market Power‘an undertaking which is capable of profitably increasing prices above
the competitive level for a significant period of time [normally twoyears] does not face sufficiently effective competitive constraints andcan thus generally be regarded as dominant.’ (GP ¶ 11)••••

Focus on power to exploit & durability
Dominance = Significant Market Power (SMP)
Policy shift in line with themes in Guidance Paper
Narrower definition than under the case law? (Would Michelin,United Brands, British Airways still be dominant under this test?)

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Re-formation of abuse doctrine• GP section III.B & C– Anticompetitive foreclosure ¶19– Of a rival as efficient as the dominant firm ¶23– Which allows the dominant player to increase prices tothe detriment of consumers ¶¶19; 27• Support of [23] from Vickers; PosnerDepartment of Law

Partial application••••••Anti-competitive foreclosure is inferred (seven indicators suggested(¶20))
A not-yet-as-efficient competitor may be worth protecting (¶24)
The as-efficient competitor test is not applied in simple tying (it is formulti-product rebates) and refusals to deal
The as-efficient competitor test is applied only if data is available (¶¶41, 67)
Ability to raise prices... But no likely recoupment test in predatory
pricing/rebate situations!
Per se abuses (eg ¶ 82)

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Summary• GP is the first document outlining a major competition
authority’s position on abuse of dominance• GP focuses enforcement away from ECJ case law:– Higher dominance threshold– Effects-based approach (focusing on foreclosure causing
exit of as-efficient competitor) – as an enforcement
principle, not a legal standard?
– GP part of criteria to determine prosecutorial discretionDepartment of Law

After the Guidance Paper
1.
2.

Application of Guidance in rebates? (Tomra/Intel)‘New’ abuses:
••

3.
4.
5.

price squeeze (Deutsche Telekom; Telia Sonera)
Google

ECJ case law (Sot Lelos; Telia Sonera)
New principles (Intel)
Commitment decisions: new theories of abusea)b)c)

Strategic underinvestment & divestiture (ENI)
Patent ambush/excessive pricing (Rambus)
Long-term contracts (E.ON)

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Rebates – what reform strategy?
•Old law– ‘rebates tend to remove or restrict the buyer's freedom to choose hissources of supply, to bar competitors from access to the market, to apply
dissimilar conditions to equivalent transactions with other trading parties
or to strengthen the dominant position by distorting competition’Michelin 2 (¶60)•New principle/priority case– Distinguish between non-contestable and contestable market of DomCo– Allocate all discount to contestable share– Is such discount predatory?

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Intel & Tomra• Intel (COM, 2009)– First part carries out traditional analysis to find abuse– Second part applies new standard as set out inGuidance Paper (appeal (T-286/09) challenges thedetailed findings here – why?)• Tomra (COM,2006)– Supplements conventional appraisal with economic
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Case T-155/06 Tomra• Yes to an effects analysis – of sorts:– ‘For the purposes of establishing an infringement of [Art 102] it is notnecessary to show that the abuse under consideration had an actual
impact on the relevant markets. It is sufficient to show that the abusive
conduct... Is capable of having that effect’ [Tomra, 288]

• An attempts doctrine too?

– When a dominant company implements a margin squeeze ‘with thepurpose of driving [competitors] from the market, the fact that thedesired result, namely the exclusion of those competitors, is not
ultimately achieved does not alter its categorisation as abuse[TeliaSonera, 65]Department of Law

Price Squeeze in TeliaSonera
ADSL wholesaleOwn Retail Broadband

Competitors’ RetailBroadband

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Two theories of harm
• Retail price of DomCo is predatory• Wholsesale price set by DomCo to downstream firm isso high that it cannot compete with DomCodownstream– ‘constructive’ refusal to deal
– Wholesale price means that the incremental cost of theretail product of the competitor is higher than that ofDomCo (i.e. Price squeeze excludes an as-efficientcompetitor)Department of Law

Price Squeeze as a distinct abuse?
Yes Case C-52/09 TeliaSonera‘A margin squeeze, in view of the exclusionary effectwhich it may create for competitors who are at least as
efficient as the dominant undertaking is... in itself capableof constituting an abuse. [31]‘... Although the competitors may be as efficient as thedominant undertaking, they may be able to operate on
the retail market only at a loss or at artificially reduced
levels of profitability.’ [33]

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No: Pacific Bell et al v LinkLine(2009)‘If there is no duty to deal at the wholesalelevel and no predatory pricing at the retaillevel, then a firm is certainly not required toprice both of these services in a manner that
preserves its rivals’ profit margins.’ Roberts J.

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GoogleDepartment of Law

Non Sponsored links (natural, algorithmic Sponsored linkssearch results)
Pen Shop

Google andPenleverage
Shop

Google Shopping
Pens 4U
Pen and Pencil...
...
Which Pen? (vertical search service)Pens R Us

Department of LawLeverage••

From on-line search market (80% market share) to vertical searchmarkets
How– Preferential treatment to its vertical search engines; unfavourable
treatment of competitors– Exclusivity obligations on advertising sites•

Why?

– Offensive leverage: vertical search engines are a new market withadditional profits (Microsoft EU)– Defensive leverage: vertical search markets can kill off on-line searchmarket (Microsoft US)

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When is leverage an abuse?
•Anticompetitive foreclosure– Large market share allows for exclusion; no buyer power; high entrybarriers•

Of a competitor as efficient as DomCo– ‘No economic sense better test?

– E.g. Case T-321/05 AstraZeneca (2010) [824-828]– E.g. GP ¶ 22•

Causing likely consumer harm

– Higher advertising costs with a monopsony– Less consumer choice for vertical search– Reduced innovation in vertical searchDepartment of Law

Regulatory antitrust• ENI (2010)– abuse: ‘strategic underinvestment’– agreed remedy: divest pipelines (including TAG)

• New type of abuse• Structural unbundling goes beyond Directive
2009/73 (even beyond Art 7 Reg 1/2003?)• Commitment decision (remedy ‘proposed’ byparties)
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Post GP: new principles• GP’s potential: reformulate abuse doctrine• Decision-making practice more relevant– New abuses – price squeeze (TeliaSonera); leveraging Google)– New principles – single and continuous infringement ;anticompetitive object; meeting competition defence (Intel);– Other priorities – regulated industries (9 energy decisions);
excessive pricing (Rambus)– Other enforcement styles – settlement (‘nudge’) over prohibition(Cf. C-441/07 Alrosa)

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Why apply Article 102?
• COM ‘will focus on those types of conduct that are
most harmful for consumers’ (GP ¶8)• ‘The function of [Art 102] is precisely to prevent
competition from being distorted to the detrimentof the public interest, individual undertakings andconsumers, thereby ensuring the well-being of theEuropean Union.’ (Case C-52/09 TeliaSonera [22])