Source: https://globalcompetitionreview.com/insight/the-european-middle-eastern-and-african-antitrust-review-2019/1171098/european-union-abuse-of-dominance
Timestamp: 2019-04-19 22:39:12+00:00

Document:
Has the Commission’s Guidance been saved from going the way of the dodo?
The European Commission’s (the Commission) ‘Guidance on the Commission’s enforcement priorities in applying article 82 of the Treaty1 to abusive exclusionary conduct by dominant undertakings’ (the Guidance Paper)2 has, at best, had mixed success. The long-awaited paper advocated a more ‘economic’ approach to the enforcement of article 102 of the Treaty on the Functioning of the European Union (article 102). While some within the Commission may have used the Guidance Paper internally to screen cases and not investigate pricing practices that arguably could have fallen foul of older more restrictive case law, the EU courts and the Commission’s own legal service showed reluctance and even hostility towards the Guidance Paper and continued to apply the older and at times inconsistent case law. This led practitioners to question the value of the Guidance Paper and arguably it risked becoming irrelevant. However, much appears to have changed with the September 2017 judgment in Intel v Commission3 in which the Grand Chamber of the Court of Justice of the European Union (CJEU) seemingly resuscitated the approach advocated in the endangered Guidance Paper. Nonetheless, while the Grand Chamber judgment emphasises a more economic approach to enforcing article 102, it leaves important questions unresolved.
Practitioners and companies needed guidance on article 102; in particular, EU law on rebates, grounded in a handful of mostly fairly old judgments of the CJEU, diverged markedly from US law and practice. The enforcement of article 102 had long been criticised for being too formalistic and legalistic and for placing greater emphasis on characterising particular kinds of conduct rather than examining their actual effects on the market.8 In response to this criticism, the Guidance Paper states that the purpose of enforcement is to ‘protect an effective competitive process and not simply competitors’.9 Moreover, the Guidance Paper states the Commission will intervene under article 102 only where, on the basis of cogent and convincing evidence, the conduct is likely to lead to anti­competitive foreclosure.10 ‘Anticompetitive foreclosure’ is defined as when ‘effective access of actual or potential competitors to supplies or markets is hampered or eliminated as a result of the conduct of the dominant undertaking whereby the dominant undertaking is likely to be in a position to profitably increase prices to the detriment of consumers’.11 The Guidance Paper states that the Commission will act only if it is proved that the effect of conduct is actual or likely harm to consumers. Moreover, the Commission will take into account the economic context rather than the exact form of the conduct. The Guidance Paper therefore advocates a more ‘economics’ or ‘effects-based’ approach (albeit for some economists and lawyers the Guidance Paper may not have gone far enough)12 rather than a traditional ‘formalistic’ or ‘per se illegality’ based approach.
To bolster its conclusion, the Commission claims to have ‘completed its analysis . . . by considering the likely effects of Tomra’s practices’;20 however, this additional analysis was mainly an examination of Tomra’s stable market shares during the period in which its rebates were in force rather than a more thorough analysis such as that required under an AEC test. Moreover, before the EU courts on appeal, the Commission’s Legal Service appears to have distanced itself from the effects analysis and instead emphasised that its decision was consistent with the courts’ case law.
Nonetheless, while noting that this was ‘not indispensable’ the Commission seeks to demonstrate that Intel’s exclusivity rebates were capable of causing or likely to cause anticompetitive foreclosure.24 In particular, the Commission (almost bashfully) notes that an AEC analysis was ‘one possible way’ of examining whether the rebates were capable of foreclosing a hypothetical competitor who was as efficient as Intel. Using a modified version of the Guidance Paper’s AEC test, the Commission concluded that this efficient competitor would have had to offer its products at a price that was below its AAC to compete against Intel’s rebates, which would not be viable.25 Again, however, before the General Court on appeal, the Commission’s Legal Service de-emphasised this aspect of its decision.
This Commission’s approach in Intel is similar to what it did in previous cases, such as Wanadoo,26 Microsoft27 and Telefónica,28 where the Commission examined the impact of conduct on the market only after having stated that there was no requirement for it to demonstrate that the abuse in question had concrete effects on competition or the market. In effect, the Commission covers all its bases and concludes that either under the EU courts’ case law or under an economics-based approach, the conduct infringed article 102. One can hardly imagine that, having found an infringement based on the EU courts’ formalistic approach, the Commission’s economic analysis could subsequently reach the opposite conclusion that conduct already condemned as abusive would in fact be unlikely to adversely impact the market. The usefulness of conducting an economic analysis under these circumstances is therefore questionable.
The Guidance Paper itself recognises that it is not intended to be a statement of the law on article 102 and that it is without prejudice to the European courts’ interpretation of article 102.31 This follows from the principle of separation of powers and the EU courts’ prerogative to interpret EU law. Nonetheless, if the Guidance Paper is to be of optimal use to companies and their advisers, it would seem appropriate for the courts to uphold the Commission’s methodology in the Guidance Paper; this was not what happened. Instead, the courts mostly remained attached to the earlier rebates case law, which often does not require an economic analysis proving damage to competition or consumers.
Turning to the Commission’s AEC analysis, the General Court reiterated that for exclusivity rebates there was no requirement to show an anticompetitive effect and therefore no need to use an AEC test.38 Furthermore, the General Court stated that an AEC test is not required even if the rebates do not require exclusivity provided ‘the mechanism for granting the rebate’ has a ‘fidelity-building effect’;39 this directly contradicts the Guidance Paper’s endorsement of the AEC test. Moreover, even if an AEC test is applied and it shows that an equally efficient competitor could compete with the dominant company, the General Court considered that this would not be conclusive evidence of article 102 not being infringed.40 This last statement effectively meant that dominant companies could not rely on the Guidance Paper to determine if their conduct complies with article 102; there was no safe harbour. While the General Court correctly noted that the Commission was not required to follow the Guidance Paper in the Intel case (and therefore leaves open the possibility that the courts could endorse the Commission’s approach in future cases) the broad nature of the criticism of the AEC test did not augur well for this possibility.
Perhaps because there were no relevant older precedents, in cases concerning margin squeeze and selective price cutting, the courts adopted an approach and tenor that was more aligned with the Guidance Paper albeit without endorsing it expressly. The judgments in Intel and Post Danmark II thus sit somewhat uneasily with three CJEU judgments concerning margin squeeze and selective price cutting.
In Deutsche Telekom, the CJEU endorsed the Commission (and General Court’s) application of an AEC test to assess the legality of an alleged margin squeeze.47 TeliaSonera also concerned an alleged margin squeeze.48 Here the CJEU again emphasised that article 102 prohibits pricing practices that could potentially exclude equally efficient competitors from the market.
The relevant section of the CJEU’s judgment54 begins by stating that article 102 does not prohibit the exclusion of less efficient competitors.55 In contrast, the judgment states that article 102 prohibits dominant firms from adopting pricing practices that have an exclusionary effect on competitors that are as efficient as the dominant firm.56 Already, this echoes the prominent theme in the Guidance Paper.
The judgment then recalls the CJEU’s older Hoffmann-La Roche57 case law holding that a dominant firm infringes article 102 if it ties purchasers by exclusivity requirements or implements loyalty rebates (‘discounts conditional on the customer’s obtaining all or most of its requirements . . . from the undertaking in a dominant position’). Then – in its key paragraphs – the judgment states that this existing case law ‘must be further clarified’ if a company under investigation submits evidence to the Commission ‘that its conduct was not capable of restricting competition and, in particular, of producing the alleged foreclosure effects’.58 In these circumstances, the Commission – and the EU courts on appeal – are obliged to analyse all relevant circumstances to determine if the rebates infringe article 102.59 This analysis should include considering the extent of the dominant position, the market share affected by the rebate, the conditions applicable to the rebate, its duration and amount and whether there is evidence of a strategy aimed at excluding as efficient competitors.
Similarly, the CJEU holds that the Commission (or court on appeal) should analyse the intrinsic capacity of conduct to foreclose as efficient competitors.60 This requires analysing all relevant circumstances. Since in the Intel decision the Commission carried out an AEC test, the General Court was required to consider all of Intel’s arguments concerning that test.61 The General Court had not done this so the CJEU ruled that its judgment should be set aside and that the General Court should re-examine all of Intel’s arguments.
While the CJEU suggests that it is merely clarifying its existing case law, this judgment does far more than that. Like the Guidance Paper, it emphasises the centrality, under article 102, of analysing whether rebates foreclose as efficient competitors.
Nonetheless, the CJEU’s judgment leaves a number of questions open (not least for Intel).
First, it remains unclear what a dominant company must do to require the Commission to consider all relevant circumstances. As noted, the judgment states that the company must provide evidence that ‘its conduct was not capable of restricting competition and, in particular, of producing the alleged foreclosure effects’. But this does not clarify whether the dominant company must present a complete analysis of the conduct’s effect or just satisfy some lower threshold that would shift the burden of proof back on to the Commission to prove – taking account of all relevant circumstances – that the conduct would likely exclude as efficient competitors.
Second, the judgment does not explicitly require the Commission to carry out an AEC test in all cases. In practice, however, it is likely to have to do this unless the company under investigation does not adduce evidence to contest the finding that its conduct was capable of foreclosing as efficient competitors.
Third, it would appear that even if a company’s rebate system would allow an as efficient competitor to compete, this will not necessarily be a safe harbour. This would seem to follow from the requirement that the Commission analyse the potential existence of a strategy designed to exclude as efficient competitors. In other words, even if a company carries out an elaborate AEC test before implementing a new rebate scheme and concludes that the system would not exclude as efficient rivals, it may still infringe article 102 if the Commission were later to discover ‘bad’ documents suggesting that the company planned to foreclose as efficient competitors.
Fourth, while the key paragraph 138 of the judgment refers to ‘that case law’ – and this most directly refers to Hoffmann-La Roche mentioned in the preceding paragraph and that case concerns rebates – arguably the CJEU’s ‘clarification’ of article 102 could apply to any potentially exclusionary conduct and not just rebates. Notably, paragraph 136 of the judgment refers to ‘pricing practices that have an exclusionary effect’ and Post Danmark I and not only rebates.
Lastly, while the CJEU judgment refers to concepts such as as efficient competitors and the potential need to analyse whether such competitors are foreclosed, it does not openly endorse the Guidance Paper. As noted, this may just be a question of timing since the Intel investigation preceded the Guidance Paper. Companies and their advisers must therefore review rebate systems in light of both the Guidance Paper and the CJEU’s judgment.
One of the Guidance Paper’s purposes was to provide greater clarity and predictability to potentially dominant companies.62 Until now, one certainly could not say this had been achieved.
To a degree, companies could look to the Guidance Paper for reliable guidance on whether their proposed strategies comply with article 102.
When, however, it came to rebates, the situation was very different and potentially dominant companies could not just rely on the Guidance Paper. Faced with divergence between the Commission (or at least DG Comp), which stated that it will normally only intervene when there is concrete proof of harm to competition (albeit leaving room to intervene in other exceptional cases) and the EU courts (apparently spurred on by the Commission’s own Legal Service),65 which seemingly disregarded the Guidance Paper and continued to apply their well-­established case law, dominant companies continued to lack the necessary legal certainty when devising rebate programmes. If they satisfied the Guidance Paper’s AEC test, they could be reasonably confident that the Commission was unlikely to open a formal investigation or fine them. However, since national competition authorities and national courts are not bound by the Guidance Paper and national courts – in particular – would be slow to disregard the EU courts’ adherence to its case law, prudent dominant companies had no alternative but to ensure that they complied with the courts’ case law. This risked companies deciding not to introduce rebates that may actually be pro-competitive, which chills competition. The CJEU’s Intel judgment is a huge step away from earlier case law but, as noted above, it still leaves questions open and it may take other judgments (most immediately the General Court’s judgment when it reconsiders Intel’s appeal) or a greater body of Commission decisional practice to clarify fully the extent to which the Commission must take account of all relevant circumstances and the extent to which dominant companies can rely on an AEC test or other economic evidence.
Meanwhile, the Commission needs to commit wholeheartedly to the economics-based approach. The ‘have your cake and eat it’ approach in cases like Intel (although again that investigation admittedly was initiated pre-Guidance Paper) – where, on the one hand, the Commission demonstrates that rebates are unlawful under the courts’ case law and, on the other, purports to apply an AEC test while making it clear it feels such a step is not necessary – is all too comfortable with the Commission all but ensuring that it will win either way. Moreover, such an approach perpetuates the relevance of the older case law. If it believes in the Guidance Paper’s approach to rebates, the Commission should act consistently and, in a suitable case, only apply an AEC test to find an infringement of article 102 and defend its findings in court based on this sole approach. This would appreciably increase the confidence that companies could place in the Guidance Paper as a whole and would also encourage national authorities and national courts to apply the AEC test to rebates.
1 Now article 102 TFEU.
2 Communication from the Commission, ‘Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings’ issued in December 2008,  OJ C45/7.
3 Case C-413/14 P, Intel v Commission, 6 September 2017 and rectification order Case C-413/14 P-REC, 19 September 2017.
4 See, eg, Guidelines on Vertical Restraints  OJ C291/1; Guidelines on the Assessment of Horizontal Mergers under the Council Regulation on the Control of Concentrations Between Undertakings  OJ C31/5; Guidelines on the Application of article 81 of the Treaty to Technology Transfer Agreements  OJ C101/2; Guidelines on the Application of article 81(3) of the Treaty  OJ C101/97; Guidelines on the Assessment of Non-Horizontal Mergers under the Council Regulation on the Control of Concentrations Between Undertakings  OJ C265/6.
5 Guidance Paper, paragraph 2. The original idea was for the Commission to issue guidelines on the type of conduct likely to infringe article 102. However, the sponsors faced considerable pushback, both from inside the Commission and from certain National Competition Authorities that were opposed to the use of a more economic approach to constrain enforcement action in the field of article 102.
6 Id. The Guidance Paper only covers exclusionary abuses and not exploitative abuses such as alleged supra-competitive pricing.
8 See, eg, Kallaugher and Sher, Rebates Revisited: Anticompetitive Effects and Exclusionary Abuse Under Article 82,  E.C.L.R. 263, 268.
9 Guidance Paper, paragraph 6.
12 See, eg, Geradin, Is the Guidance Paper on the Commission’s Enforcement Priorities in Applying Article 102 TFEU to Abusive Exclusionary Conduct Useful? (12 March 2010), available at SSRN: http://srrn.com/abstract=1569502.
13 See, eg, Guidance Paper paragraphs 23 and 27.
14 Id, paragraphs 37 to 45.
16 Case COMP/E-1/38.113, Prokent-Tomra, 29 March 2006. It should be noted, however, that within DG Comp, the case was seen, at least by some, as ‘an important step towards the envisaged reform of the application of [article 102 TFEU]’, see ‘Maier-Rigaud and Vaigauskaite, Prokent/Tomra, a textbook case? Abuse of dominant position under perfect information?’, Competition Policy Newsletter 2006, No. 2 Summer 2006, pp 19–24, at p 24.
17 Case T-203/01, Michelin v Commission, 30 September 2003.
18 Case COMP/E-1/38.113, Prokent-Tomra, paragraph 285 citing Case T-203/01, Michelin II, paragraph 239.
19 Case COMP/E-1/38.113, Prokent-Tomra, paragraph 333.
21 Case COMP/C-3 /37.990, Intel, 13 May 2009.
23 Id, paragraphs 923, 925.
26 Case COMP/38.233, Wanadoo, 16 July 2003.
27 Case COMP/C-3/37.792, Microsoft, 24 March 2004.
28 Case COMP/38.784, Telefónica, 4 July 2007.
29 Case COMP 402220, Qualcomm, 24 January 2018.
30 Commission Press Release IP/18/421 available at http://europa.eu/rapid/press-release_IP-18-421_en.htm.
31 Guidance Paper, paragraph 3.
32 Case C-549/10 P, Tomra e.a. v Commission, 19 April 2012.
33 Id, paragraph 68. Intel has appealed the General Court’s judgment to the CJEU.
36 Case T-286/09, Intel v Commission, 12 June 2014, paragraphs 85 to 87.
37 Id, paragraphs 86 and 143.
39 Id, paragraphs 144 to 154.
40 Id, paragraphs 150 to 151.
41 Case C-23/14, Post Danmark II, 6 October 2015.
42 Id, paragraph 59. Arguably indeed, the potential structural disadvantages faced by new entrants on a number of former legal monopoly markets in the EU constitute circumstances that are not discussed in detail in the Guidance Paper. Yet, the Guidance Paper offers sufficient flexibility to include these factors in the analysis without there being a need to jettison its economic approach.
44 Id, paragraphs 57 and 62.
45 Id, paragraphs 58 and 61. See Petit, ‘Rebates and Article 102 TFEU: The European Commission’s duty to apply the guidance paper’, Competition Law & Policy Debate, Volume 2, Issue 1, March 2016, p 4 where the author argues that the AEC test is ‘unscathed’ by either Intel or Post Danmark II. See also Whish, ‘Intel v Commission: Keep Calm and Carry on!’, (2014) 5 Journal of European Competition Law & Practice, 603.
46 Opinion of Advocate General Kokott in Case C-23/14, Post Danmark II, paragraph 4.
47 Case C-280/08P, Deutsche Telekom, 14 October 2010.
48 Case C-52/09, TeliaSonera Sverige, 17 February 2011.
49 Case C-209/10, Post Danmark I, 27 March 2012.
51 Id, paragraphs 37 to 38. The EU courts have also repeatedly used price/cost comparators when assessing the legality of alleged predatory pricing.
53 Opinion of 20 October 2016 in Case C-413/14 P. The Advocate General did not consider that the Commission must always conduct the AEC test, as advocated by the Guidance Paper. Instead, he mainly relies on the fact that, in its Intel decision, the Commission did conduct an AEC analysis.
54 The judgment also contains important rulings on the Commission’s jurisdiction to apply article 102 to conduct outside the EU that nonetheless affects competition in the EU and on the correct procedure for recording investigatory interviews.
55 Paragraphs 133 and 134.
57 Case 85/76, Hoffmann-La Roche v Commission, 13 February 1979.
60 Paragraphs 140 and 141.
61 Paragraphs 142 to 144.
62 Guidance Paper, paragraph 2.
63 Guidance Paper, paragraphs 59 to 61.
64 Case COMP/C-3/37.792, Microsoft (24 March 2004) and Case T-201/04, Microsoft v Commission (17 September 2007).
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