Source: http://lawmantra.co.in/essential-facilities-doctrine-meaning-and-application-as-per-the-us-and-ec-laws/
Timestamp: 2019-04-25 22:26:38+00:00

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There is no statutory definition of Essential Facilities Doctrine. In fact there are debates over whether it should be referred as a doctrine or not. Taking the safe ground of it being a doctrine, the Essential Facilities Doctrine (EFD) traces its roots to America. Though United States V. Terminal Railroad Association of St. Louis is often cited to be the case wherein we find the reference to EFD, it can be argued that the logic that there should be fair use of natural monopolies was there ever since Standard Oil Company case. In fact one of the goals of US Congress in drafting the Antitrust Law was to prevent Standard Oil from denying other Oil refineries the use of pipeline and rail transportation facilities necessary to compete in a product market. Other than that EFD can be traced to Section 2, Sherman Act which prohibits an undertaking to monopolize or attempt to monopolize or combine or conspire with any other person, to monopolize any part of trade or commerce among the several States. EFD is also known as the “Exception to the Colgate Defense”. In US V. Colgate it was held that in absence of any purpose to create a monopoly, the Sherman Act does not restrict the long recognized right of traders or manufacturers engaged in entirely private business to exercise his own independent discretion. It is also known as the “bottleneck doctrine” on account of those essential facilities acting as bottleneck for other competitors to compete effectively. While the definition of EFD will wary across jurisdictions it can be defined as a dominant enterprise/ monopoly controlling an infrastructure or facility that is necessary for accessing the market and which is neither easily reproducible at a reasonable cost in the short term nor interchangeable with other product/ services, bringing upon the liability upon the enterprise to share such resources with its competitors at reasonable cost unless sound justification exists for contrary behavior.
The rationale for EFD exists from the tug of war between EFD being cited as a restriction on freedom of contract, an infringement of property rights which will hamper the essential facility owner’s incentive to innovate  increasing the problem of free riders to being useful for preventing anti- competitive practices and being contrary to anti- trust law.
As already mentioned EFD traces its roots to US but today it is no longer confined to US rather finds its application over various jurisdictions. This paper aims to analyze its application over to such jurisdictions i.e., the US approach and the EC approach in the light to the difference between the two predicting that India is more likely to stick to the EC approach due to certain reasons elaborated upon later in the paper. The first section deals with the way the doctrine has been handled in the US. The second section elaborates upon the EC approach to it. The third section points out the differences in approach across the two major jurisdictions while the fourth section looks into how Indian Competition law authorities will deal with it.
EFD cases flow out mostly from Section 2 of the Sherman Act and partially from Section 1. Though there is no express reference to EFD but if we look at the way the Courts have gone on to interpret Section 2 of the Sherman Act, we do find reference to the doctrine. Under US law, EFD is a subset of refusal to deal cases. The first important case in this regard was United States V. Terminal Railroad Association of St. Louis wherein a group of railroads controlled all the bridges and connection from and towards St. Louis which was an important railroad injunction. The Court passed an injunction for open and equal access to allow other railroads to join the combination or to use the facilities in a non-discriminatory manner. The second important case was of Associated Press V. United States wherein there was a joint venture of 1200 newspapers with the bye- laws prohibiting service of Associated Press news to nonmembers, and empowered members to block membership applications of competitors and also imposed fines and penalties on members who breached its bye-laws. The Court held that the bylaws of the defendant association, constituted restraints of trade and the defendant association could not discriminate against competitors in its admissions policy. However both the Transit Association case and the Associated Press case were cases relating to restraint of trade covered under s. 1 of the Sherman Act and not as abuse of monopoly power case.
Otter Tail Power Company V. United States is described to be the first monopoly case under Section 2 of the Sherman Act which can be distinguished from the restraint of trade cases. Otter Tail Power Company distributed electric power in 465 towns in Minnesota, North Dakota and South Dakota. In towns where Otter Tail distributed at retail, it operated under municipally granted franchises which are limited from 10 to 20 years. When some of the franchises expired, the relevant towns wanted to replace Otter Tail with their own municipal electricity distribution system. Otter Tail attempted to prevent towns from replacing it with a municipal distribution system and so refused to sell power at wholesale to proposed municipal systems in the communities where it had been retailing power. The Court held the actions of Otter Tail to be in violation of Section 2, and held that Otter Trail had used its monopoly power to foreclose competition or gain competitive advantage, or to destroy a competitor. The US Supreme Court held that Otter Tails refusal to supply would be counted as general monopolization under Section 2. It went on to decide the case on the basis of Section 2 rather than EFD but this case is widely cited as an EFD case.
In Aspen Skiing Co. v. Aspen Highlands Skiing Corp, Aspen Skiing Co. (Aspen) owned three mountains and Aspen Highlands Skiing Corp. (Highlands) owned one mountain in the Aspen area. The two companies used to offer a four mountain ski ticket, allowing skiers access to all four mountains. In 1978, Aspen cancelled the collaboration with Highlands, with the result that Highlands attracted fewer skiers. Both the Court of Appeals and The Supreme Court held Aspen’s cancellation to infringe Section 2 of the Sherman Act. The Court of Appeals relied both on EFD as well as on section 2 of the Sherman Act to come to its judgment. The Supreme Court affirmed the liability solely on Section 2 but came to the same judgment. It held that Ski Co.’s decision to refuse cooperation was based on sacrifice of immediate profits to reduce competition in the Aspen market over the long run. This was followed by MCI V. AT & T wherein the seventh Circuit made express reference to EFD. AT & T controlled local phone system and faced competition from MCI’ and hence did not interconnect MCI’s long distance traffic to local phone systems. MCI alleged violation of section 2 of the Sherman Act. AT & T argued that refusal to interconnect was justified based on technological incompatibility besides various other factors. Seventh Circuit affirmed liability under EFD. It was held that a monopolist may be required to assist rivals by sharing a facility if the monopolist can “extend monopoly power from one stage of production to another” and the following four elements are found: (1) control of the essential facility by a monopolist; (2) a competitor’s inability practically or reasonably to duplicate the essential facility; (3) the denial of the use of the facility to a competitor; and (4) the feasibility of providing the facility. This case is stated as one of the most important one in laying down the EFD in express terms.
However In 2004 the United States Supreme Court in the case of Verizon Communications Inc. v. Law Offices of Curtis V. Trinko was skeptical about liability under Section 2 of the Sherman Act for unilateral refusals to deal. Justice Scalia stated: “…“The complaint alleges that Verizon denied interconnection services to rivals in order to limit entry. If that allegation states an antitrust claim at all, it does so under §2 of the Sherman Act, 15 U. S. C. §2, which declares that a firm shall not “monopolize” or “attempt to monopolize.”.. It is settled law that this offense requires, in addition to the possession of monopoly power in the relevant market, “the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” United States v. Grinnell Corp., 384 U. S. 563, 570-571 (1966). The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices–at least for a short period–is what attracts “business acumen” in the first place; it induces risk taking that produces innovation and economic growth. To safeguard the incentive to innovate, the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct.” The Court went on to further hold that essential facility claims should be denied where a state of federal agency has effective powers to compel sharing and to regulate its scope and terms.
Under EU Law, EFD has evolved mainly from Article 82 (formerly Article 86) of the EC Treaty cases involving an abuse of dominant position. One of the first cases to come up in this regard was ICI and Commercial Solvents v Commission in which a manufacturer of a raw product was found to have abused a dominant position by refusing to continue to supply a downstream competitor. This was followed by United Brands v Commission of the European Communities wherein United Brands abused its dominant position by cutting off supplies to a Danish distributor for advertising bananas of competitor. Another very important case in this regard is Radio Telefis Eireann and others v. Commission (Magill),  wherein it was held that under certain exceptional circumstances simple refusal to license an IPR to a third party by a dominant firm would violate Article 82. In Magill, three television stations (RTE, ITV and BBC) broadcasting in Ireland and Northern Ireland (U.K.) refused to license their copyright on the information contained in their respective program listings to the Irish publisher Magill TV Guide Ltd. (Magill.). The Commission condemned the three broadcasters for abusing their dominant positions by preventing the publication and sale of a comprehensive weekly TV guide.
Though the doctrine traces its roots to the US law we find it more deeply rooted under the EC law.US law advocates a more restricted use of EFD partly because of the influence of the Chicago School of Thought which believes in market being a self correcting thought and partly upon the legal provisions. While the EC law casts a duty on the dominant firms to share as well as supply, the US law has no such aspirations.Section 2 of the Sherman Act prevents monopolization and attempt to monopolize which has helped the courts to carve out EFD as an exception to the general rule that firms are under no obligation to share. The EC law is based on achieving the goal of integration- integration throughout the European Union. Also the recent breakup of State monopolies in the EU makes EFD lucrative. The Commission uses EFD as an instrument to prevent dominant companies from abusing their position. Given all these it can very well be summed up that US laws are more concerned with going for an restricted interpretation of EFD while the EC has been more liberal in its use, though it seems that EC might catch up with the US approach looking at the cautious approach it has started advocating.
Indian approach to EFD can be nothing more than predictions. It has nothing to do with the utility of EFD but more with the nascent stage the Indian Law finds itself in to be. Already authorities are coming across situations wherein reference is made to EFD but nothing in the form of case laws has still come up. In India EFD cases would come up as abuse of dominant position in the form of denial of market access. Section 4(2) (C) of the Competition Act 2002 warns dominant firms against indulging in practices resulting in denial of market access. Further Section 4 of the said act defines dominance in terms of position of strength in relevant market in India which enables it to operate independently of the competitive forces prevailing in the relevant market or affects its competitors or consumers or relevant market in its favor. Relevant market has been defined with reference to relevant product market or relevant geographic market or both. Section 19 (4) lists down the factors to be taken into consideration while determining dominance. These include interalia market share, size, resource, importance of competitor, dependence of consumer, market structure etc. Factors to be taken into consideration for determining relevant geographic market or relevant product market are defined under Section 19 of the Act. If we look at the way Indian Law is worded we find close resemblance to EC law. Especially the insistence on markets be it product or geographic makes it akin to EC law. US law on the contrary treads a different path restricting monopolization or attempt to monopolize both having recognition under the Indian Law and the EC Law. Both these jurisdictions accept dominant position and are against abuse of that position unlike US Law which looks upon the mere existence of dominant position with contempt. So we might predict that Indian Law as and when it evolves is likely to follow the EC path rather than the US path.
While arguments have been given both for and against the utility of EFD and also these arguments have defined the treatment meted to it under different jurisdictions, in this case specially referring to the US and EU approach , the mere fact we are still debating the utility of the doctrine goes on to prove that it is still working. It need not be provided in express terms in law but seems to be working behind the machinery of law. It appears as a saving clause to be operated upon when the full force of the market structure could lead to undesirable consequences. With time limitations have come up especially in the area of intellectual property rights and the right to license but even those limitations are sought to be interpreted around the four corners of EFD. While it would be a tall statement to make that EFD has an overriding effect over such form of properties it would also be incorrect to say that these limitations are so powerful as to make EFD totally subservient to it. Both exist, which again highlights the usefulness of EFD. EC appears to be more liberal in its use of EFD and India seems likely to take that path while US lives to its capitalist image by subscribing to the Chicago School of thought and a much more restricted use of EFD, preferring to deduce it from Sherman Act rather than express mention to it.
3) Whish.Richard, competition law, Oxford University Press 2009 6th edition New York.
2) Robert Pitofsky, “The Essential Facilities Doctrine Under United States Antitrust Law”, This paper was submitted to the European Commission in support of National Data Corporation in its essential facilities case against IMS.
 Sherman Antitrust Act, 1890, hence after known as the Sherman Act.
 For details refer Massadeh, Ali A., The Essential Facilities Doctrine Under Scrutiny: EU and US Perspective (January 11, 2011). UEA Law Working Paper No. 2011-AM-1.
 Diathesopoulos, Michael D.,Essential Facilities Doctrine in Relation to Incentives to Invest (December 29, 2010).
 See “OECD Roundtables on Competition Policy: The Essential Facilities Concept”, OCDE/GD (96)113, Organisation for Economic Co-operation and Development Paris 1998.
 As per the OECD Commentary, the term “essential facilities doctrine” originated in commentary on United States antitrust case law and now has multiple meanings, each having to do with mandating access to something by those who do not otherwise get access. There have been various interpretations of the doctrine by various jurists under both US and EU; some see it as an appropriate instrument for liberalizing markets, while others see it as an assault on the legitimate property rights of successful firms. However, it is only in Australia that this doctrine is statutorily recognized and has been incorporated under the provisions of the Trade Practices Act, 1974 following the enactment of the Competition Policy Reform Act, 1995.
The United States Supreme Court has never actually recognized a distinct EFD. However, lower federal courts in the United States have found that Supreme Court’s opinions consistent with the view that the denial of an essential facility can, under certain circumstances, constitute an antitrust violation. See “OECD Roundtables on Competition Policy: The Essential Facilities Concept”, OCDE/GD (96)113, Organization for Economic Co-operation and Development Paris 1998, pg. 87.
 Case C-7/97  4 CMLR 112.
 A general trend in analysis of US case material on ESD is the lower Courts deciding a case on the rationale of EFD and the Superior Courts coming up with the same conclusion in appeal on the basis of Section 2 of the Sherman Act thus shying away from direct reference to it. Also after Trinko case the grounds for evoking EFD have been narrowed down making it almost impossible to evoke this doctrine expressly.
 The European Commission has never been directly influenced by Chicago School of Thought.
 See Richard A. Posner, The Chicago School of Antitrust Analysis, 127 U. PA. L. REV. 925, 938-44 (1979).
 For details refer Emmanuel P. Mastromanolis, Insights from U.S. Antitrust Law on Exclusive and Restricted Territorial Distribution: The Creation of a New Legal Standard for European Union Competition Law, 15 U. PA. J. INT.L BUS. L. 559, 562 (1995).
‘The essential facilities doctrine’ by Amitabh Kumar.
 This can be termed as the implicit recognition of the doctrine.
 Explanation to Section 4 provides: Explanation.—For the purposes of this section, the expression— (a) “dominant position” means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to— (i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market in its favour.
 Section 2 (t) provides “relevant product market” means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use.
 Section 19 (4) The Commission shall, while inquiring whether an enterprise enjoys a dominant position or not under section 4, have due regard to all or any of the following factors, namely:— (a) market share of the enterprise; (b) size and resources of the enterprise; (c) size and importance of the competitors; (d) economic power of the enterprise including commercial advantages over competitors; (e) vertical integration of the enterprises or sale or service network of such enterprises; (f) dependence of consumers on the enterprise; (g) monopoly or dominant position whether acquired as a result of any statute or by virtue of being a Government company or a public sector undertaking or otherwise; (h) entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers; (i) countervailing buying power; (j) market structure and size of market; (k) social obligations and social costs; (/) relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position having or likely to have an appreciable adverse effect on competition; (m) any other factor which the Commission may consider relevant for the inquiry.
 Section 19 (6) and 19 (7) provides: S.19 (6) The Commission shall, while determining the “relevant geographic market”, have due regard to all or any of the following factors, namely:— (a) regulatory trade barriers; (b) local specification requirements; (c) national procurement policies; (d) adequate distribution facilities; (e) transport costs; (f) language; (g) consumer preferences; (h) need for secure or regular supplies or rapid after-sales services. (7) The Commission shall, while determining the “relevant product market”, have due regard to all or any of the following factors, namely:— (a) physical characteristics or end-use of goods; (b) price of goods or service; (c) consumer preferences; (d) exclusion of in-house production; (e) existence of specialised producers; (f) classification of industrial products.

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