Case T-398/07

Kingdom of Spain

v

European Commission

‛Competition — Abuse of dominant position — Spanish broadband internet access markets — Decision finding an infringement of Article 82 EC — Price-fixing — Margin squeeze — Sincere cooperation — Ultra vires application of Article 82 EC — Legal certainty — Protection of legitimate expectations’

Summary of the Judgment

So far as concerns relationships formed in the context of proceedings conducted by the Commission pursuant to Articles 81 EC and 82 EC, the rules for the operation of the duty of sincere cooperation which stems from Article 10 EC and which binds the Commission in its relationships with the Member States have been stated in, inter alia, Articles 11 to 16 of Regulation No 1/2003, in Chapter IV headed ‘Cooperation’. Those provisions do not impose an obligation on the Commission to consult the national regulatory authorities, nor do they provide for the Commission being able to undertake joint action with them in proceedings conducted by the Commission pursuant to Articles 81 EC and 82 EC. (see para. 47)

In the absence of express derogation to that effect, competition law is applicable to regulated sectors. Further, the applicability of the competition rules is not ruled out where the sectoral provisions concerned do not preclude undertakings from engaging in autonomous conduct which prevents, restricts or distorts competition. In any event, even if a sectoral regulation derives from European Union secondary legislation, in view of the principles governing the hierarchical relationship of legal rules such secondary legislation could not, in the absence of any enabling provision in the Treaty, derogate from a provision of the Treaty, in this case Article 82 EC. (see paras 50, 55)

In the context of determining whether the competition rules have been complied with in the telecommunications market, ex ante regulation by a national regulatory authority and ex post review by the Commission have distinct purposes and objectives, the competition rules laid down by the Treaty supplementing, by ex post review, the legislative framework adopted by the European Union legislature for ex ante regulation of those markets. Further, the assessments made by the Commission are based on the specific facts of each case and decisions in other cases can be indicative only, since the facts of cases are not identical. Consequently, assessments made by the Commission based on the facts of previous cases cannot be transposed from one case to another, where the facts are not the same. (see paras 56-57)

Although as a general rule the Courts of the European Union undertake a comprehensive review of the question whether the conditions for applying the competition provisions are met, their review of complex economic appraisals made by the Commission is necessarily limited to verifying whether the relevant rules on procedure and on the statement of reasons have been complied with, whether the facts have been accurately stated and whether there has been any manifest error of appraisal or misuse of powers. Likewise, in so far as a decision of the Commission is the result of complex technical appraisals, those appraisals are in principle subject to only limited judicial review, which means that the Courts of the European Union cannot substitute their own assessment of matters of fact for the Commission’s. However, while the Courts of the European Union recognise that the Commission has a margin of appreciation in economic matters, that does not mean that they must decline to review the Commission’s interpretation of such data. The Courts of the European Union must not only establish whether the evidence put forward is factually accurate, reliable and consistent but must also determine whether that evidence contains all the relevant data that must be taken into consideration in appraising a complex situation and whether it is capable of substantiating the conclusions drawn from it. (see paras 60-62)

In order to determine whether a dominant undertaking has abused its position by the pricing practices it applies, it is necessary to consider all the circumstances and to investigate whether the practice tends to remove or restrict the buyer’s freedom to choose his sources 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. In particular, a pricing practice adopted by a vertically integrated dominant undertaking which is unfair because it effectively squeezes the margins of its competitors on the retail market, because of the spread between the prices of its wholesale products and the prices of its retail products, may constitute an abuse of a dominant position contrary to Article 82 EC. A margin squeeze, in view of the exclusionary effect which it may create for competitors who are at least as efficient as the dominant undertaking, in the absence of any objective justification, is in itself capable of constituting an abuse within the meaning of Article 82 EC. (see paras 66-68)

Article 82 EC applies only to anti-competitive conduct engaged in by undertakings on their own initiative. If anti-competitive conduct is required of undertakings by national legislation or if the latter creates a legal framework which itself eliminates any possibility of competitive activity on their part, Article 82 EC does not apply. In such a situation, the restriction of competition is not attributable, as that provision implicitly requires, to the autonomous conduct of the undertakings. On the other hand, Article 82 EC may apply if it is found that the national legislation preserves the possibility that undertakings may engage in autonomous conduct which prevents, restricts or distorts competition. Notwithstanding such legislation, if a dominant vertically integrated undertaking has scope to adjust even its retail prices alone, the margin squeeze may on that ground alone be attributable to it. (see paras 70-72)

The conditions to be met in order to establish that a refusal to supply is abusive do not necessarily also have to apply when assessing the abusive nature of conduct which consists in supplying services or selling goods on conditions which are disadvantageous or on which there might be no purchaser. Such conduct may, in itself, constitute an independent form of abuse distinct from that of refusal to supply. An interpretation to the contrary would amount to a requirement that before any conduct of a dominant undertaking in relation to its terms of trade could be regarded as abusive the conditions to be met to establish that there was a refusal to supply would in every case have to be satisfied, and that would unduly reduce the effectiveness of Article 82 EC. (see paras 74-75)

In prohibiting the abuse of a dominant position, in so far as trade between Member States is capable of being affected, Article 82 EC refers to the conduct of a dominant undertaking which, on a market where the degree of competition is already weakened precisely because of the presence of the undertaking concerned, through recourse to methods different from those governing normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition. That effect does not necessarily relate to the actual effect of the abusive conduct complained of. For the purposes of establishing an infringement of Article 82 EC, it is sufficient to show that the abusive conduct of the undertaking in a dominant position tends to restrict competition or, in other words, that the conduct is capable of having, or likely to have, that effect. The pricing practice concerned must have an anti-competitive effect on the market, but the effect does not necessarily have to be concrete, and it is sufficient to demonstrate that there is an anti-competitive effect which may potentially exclude competitors who are at least as efficient as the dominant undertaking. Since Article 82 EC thus refers not only to practices which may cause damage to consumers directly, but also to those which are detrimental to them through their impact on competition, a dominant undertaking has a special responsibility not to allow its conduct to impair genuine undistorted competition on the common market. It follows that Article 82 EC prohibits a dominant undertaking from, inter alia, adopting pricing practices which have an exclusionary effect on its equally efficient actual or potential competitors, that is to say practices which are capable of making market entry very difficult or impossible for such competitors, and of making it more difficult or impossible for its co-contractors to choose between various sources of supply or commercial partners, thereby strengthening its dominant position by using methods other than those which come within the scope of competition on the merits. From that point of view, therefore, not all competition by means of price can be regarded as legitimate. (see paras 89-90, 92-93)