Source: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62003A0340:EN:NOT
Timestamp: 2014-03-11 03:31:15
Document Index: 785481310

Matched Legal Cases: ['Art. 21', 'Art. 44', 'Art. 82', 'Art. 82', 'Art. 82', 'Art. 82', 'Art. 82', 'Art. 82', 'Art. 15', 'Art. 15', 'Art. 81', 'Arts 11']

10. B-07.03.02.09.02 European Community (EEC/EC) / Competition / Implementation of the competition rules / Procedure for the application of the competition rules by the Commission
12. B-07.03.02.09.02 European Community (EEC/EC) / Competition / Implementation of the competition rules / Procedure for the application of the competition rules by the Commission
Tassis, Spyros: Dikaio Meson Enimerosis & Epikoinonias 2007 p.137-139
Confirmed by 62007CJ0202 Instruments cited in case law:
1. Competition – Administrative procedure – Statement of objections – Necessary content 2. Procedure – Application initiating proceedings – Formal requirements (Statute of the Court of Justice, Art. 21, first para.; Rules of Procedure of the Court of First Instance, Art. 44(1)) 3. Competition – Administrative procedure – Decision establishing an infringement – Obligation to state the reasons on which the decision is based – Scope (Art. 82 EC) 4. Competition – Fines – Principle of the individualisation of sanctions 5. Competition – Dominant position – Relevant market – Delimitation (Art. 82 EC) 6. Competition – Dominant position – Holding of a very large market share an indicator (Art. 82 EC) 7. Competition – Dominant position – Abuse – Below cost pricing with the aim of eliminating a competitor (Art. 82 EC) 8. Competition – Dominant position – Abuse – Below cost pricing with the aim of eliminating a competitor (Art. 82 EC) 9. Competition – Dominant position – Obligations on the dominant undertaking (Art. 82 EC) 10. Competition – Fines (Council Regulation No 17, Art. 15(2)) 11. Competition – Fines – Amount – Determination – Criteria – Actual market impact (Council Regulation No 17, Art. 15(2); Commission Notice 98/C 9/03) 12. Competition – Fines – Amount – Determination – Non-imposition or reduction of the fine in return for the cooperation of the undertaking concerned (Art. 81 EC; Council Regulation No 17, Arts 11(4) and (5) and 14(2) and (3); Commission Notice 98/C 9/03) Summary
2. It is not for the Court to search through, and identify from, the annexes to the application the information on which the application could be based. Under Article 21 of the Statute of the Court of Justice and Article 44(1)(c) of the Rules of Procedure of the Court of First Instance an application must indicate the subject-matter of the proceedings and include a brief statement of the grounds relied on. The information given must be sufficiently clear and precise to enable the defendant to prepare his defence and the Court of First Instance to decide the case, if appropriate without other information.
5. For the purposes of investigating the possibly dominant position of an undertaking on a given product market, the possibilities of competition must be judged in the context of the market comprising the totality of the products or services which, with respect to their characteristics, are particularly suitable for satisfying constant needs and are only to a limited extent interchangeable with other products or services. Moreover, since the determination of the relevant market is useful in assessing whether the undertaking concerned is in a position to prevent effective competition from being maintained and to behave to an appreciable extent independently of its competitors and, in this case, of its service providers, an examination to that end cannot be limited solely to the objective characteristics of the relevant services, but the competitive conditions and the structure of supply and demand on the market must also be taken into consideration. If a product could be used for different purposes and if these different uses are in accordance with economic needs, which are themselves also different, there are good grounds for accepting that this product may, according to the circumstances, belong to separate markets which may present specific features which differ from the standpoint both of the structure and of the conditions of competition. However, this finding does not justify the conclusion that such a product, together with all the other products which can replace it as far as concerns the various uses to which it may be put and with which it may compete, forms one single market. The concept of the relevant market in fact implies that there can be effective competition between the products which form part of it and this presupposes that there is a sufficient degree of interchangeability between all the products forming part of the same market.
7. For the purpose of determining whether, through the rates of recovery of costs, there is an abuse of a dominant position resulting from predatory pricing, a distinction should be made between the application of the method of determining the rates of recovery of costs and the calculations proper, which are no more than mathematical operations. Since the choice of method of calculation as to the rate of recovery of costs, unlike the calculations themselves, entails a complex economic assessment on the part of the Commission, the Commission must be afforded a broad discretion. The Court’s review must therefore be 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 a misuse of powers.
Facts and procedure 1. In the context of the development of high-speed internet access, the Commission decided, in July 1999, to launch a sectoral inquiry within the European Union pursuant to the powers conferred on it by Article 12(1) of Regulation No 17 of the Council of 6 February 1962: First Regulation implementing Articles [81] and [82] of the Treaty (OJ, English Special Edition 1959-1962, p. 87), which focused in particular on the provision of local loop access services and use of the residential local loop. Against this background, in the light of the information gathered the Commission decided to take a close look at the prices which Wanadoo Interactive SA (‘WIN’) charged its residential customers in France for high-speed internet access. To this end, it launched proceedings of its own initiative in September 2001.
3. The Commission sent WIN a first statement of objections on 19 December 2001 (‘the first statement of objections’) and a supplementary statement of objections on 9 August 2002 (‘the supplementary statement of objections’), to which WIN replied on 4 March and 23 October 2002 respectively. 4. On 16 January 2003, the Commission sent WIN a letter setting out facts (‘the letter on the facts’) giving it access to the file which served as the basis for drafting that letter. WIN in fact had access to the file on 23 and 27 January 2003. By letter of 26 February 2003, WIN asked the Commission to clarify a number of aspects of the letter on the facts. The Commission replied by letter of 28 February 2003 and WIN then submitted a document in reply to the letter on the facts on 4 March 2003.
7. According to the decision, in the case of Wanadoo ADSL, at the material time, the customer had to pay a monthly subscription to France Télécom for supplying the service, renting the ADSL modem from France Télécom, together with a subscription to WIN as its internet service provider (‘ISP’). In the case of the eXtense service, the modem was bought by the user who paid only a monthly subscription to WIN corresponding to the service supplied by France Télécom and the flat-rate unlimited internet access. 8. Having looked into various elements, including the market shares (recitals 211 to 222 in the preamble to the decision) and the effects of the ‘link-up’ with France Télécom (recitals 223 to 228), the Commission concludes that WIN occupied a dominant position on the relevant market. It then concentrates on showing that the below-cost pricing applied by WIN formed part of a deliberate strategy of predation aimed at ‘pre-empting’ the market and thereby constitutes an abuse of a dominant position within the meaning of Article 82 EC (recital 254).
9. The decision fixes the starting date of the infringement as 1 March 2001 and the end as 15 October 2002, the date on which the remedy put forward by France Télécom in March 2002 entered into force. The variable costs were not covered by the prices charged from March to August 2001 and the full costs were not covered from August 2001 (Article 1 of the decision, see paragraph 5 above). 10. That decision was notified to WIN on 23 July 2003 and, by document lodged at the Registry of the Court of First Instance on 2 October 2003, WIN sought annulment of the decision.
Forms of order sought 12. The applicant claims that the Court should:
Law I – The claim for annulment of the decision 14. In support of its claim for annulment, the applicant puts forward a number of procedural pleas, breach of the principle that penalties must be specific to the offender and breach of Article 82 EC.
A – The plea alleging breach of the rights of the defence and of essential procedural requirements 1. Arguments of the parties
In the course of the investigation, it has become apparent that [WIN] has, since the beginning of 2001, undertaken pricing practices in relation to the services in question which are below cost and capable of being classified as predatory and a breach of Article 82 [EC].’ 23. In that statement of objections, the Commission concludes, at the end of its analysis, as follows: ‘[At this stage,] the policy of predatory pricing pursued by [WIN] since the beginning of 2001 constitutes an abuse of a dominant position [within the meaning of] Article 82(a) and (b) [EC]. The practice in question took place at a critical stage in the development of the market for high-speed internet access for residential users, at the same time as the roll-out of ADSL in France. It gave [WIN] a significant lead over its competitors or prevented them from entering, or maintaining their position on, that market.’
31. As regards the different division of the periods analysed, the only information referred to in the application in support of the claim that the cost recovery test was modified was that the decision in fact shortened the period in which variable costs were not recovered and lengthened that in which full costs were not recovered. However, the complaint that costs were not recovered, as is the case with the statement of objections, covers the whole period of the infringement. In addition, the fact that the starting date of the infringement in the statements of objections, January 2001, was changed to March 2001 in the decision is in WIN’s favour. Furthermore, the Commission cannot be criticised for taking account of WIN’s observations in its reply to the supplementary statement of objections. According to those observations, the Commission’s conclusion that the variable costs were not recovered between August and October 2001 was simply based on an error in the calculation. In the decision, the Commission therefore recorded the period in which variable costs were not recovered as ending in August 2001. 32. Even assuming that, by that argument, the applicant pleads that the periods in the analysis of variable costs were modified, it should be pointed out that, in the decision, the third period no longer ceases on 31 December 2001, but continues until 15 February 2002. According to the Commission, that modification was made in order to ensure that the time periods chosen better reflected the evolution of the costs incurred by WIN. It contends that that change merely entails a simplification of the calculations, without any change to the Commission’s general findings in the supplementary statement of objections.
33. It should be observed that WIN has not disputed that justification and fails to explain why the extension of the third period is detrimental to its interests. 34. In addition, the letter on the facts invites WIN to submit observations on that letter and offers it the possibility of having access to all the documents on file.
37. It is clear from the foregoing that the argument that a third statement of objections was necessary cannot be upheld. In addition, WIN was able to exercise its rights of defence in this respect and did not fail to do so. In fact, by letter of 26 February 2003, it asked the Commission to provide clarification on a number of aspects of the letter on the facts, to which the Commission replied by letter of 28 February 2003. The applicant then sent the Commission a document in response to the letter on the facts. Furthermore, WIN in fact had access to the file on 23 and 27 January 2003. WIN has therefore not established that, by sending the letter on the facts, the Commission infringed essential procedural requirements and its rights of defence. 38. For the sake of completeness, if it were held that it is for the Court itself to carry out a detailed comparison of the letter on the facts and the statements of objections by looking for information capable of substantiating the action, it should be pointed out that the facts detailed in the letter on the facts supplemented or developed information already contained in the statements of objections. The assessment, in the letter on the facts, of the actual average revenue and the theoretical revenue at the start of 2002 extends the calculations made in the supplementary statement of objections by taking into account WIN’s letter of 13 December 2002. In addition, the price of band width charged by France Télécom in the context of the routing service was already discussed in the first statement of objections and in the supplementary statement of objections. The letter on the facts takes into account in this regard the information provided by France Télécom on 3 May and 21 November 2002. Similarly, the cost of international ‘connectivity’ was addressed in the first statement of objections. The letter on the facts seeks to take into account the explanations provided on this point by France Télécom in its letter of 13 November 2002. Finally, a preliminary estimate of the foreseeable costs for new subscribers and an estimate of the full costs had already been set out in the supplementary statement of objections.
39. In addition, certain matters in the letter on the facts are clearly provided for information purposes in reply to WIN’s comments. Therefore, following WIN’s letter of 27 September 2002, the Commission refers, in the letter on the facts, to the costs arising from subscribers’ moving house and points out that it does not intend to incorporate those costs into its calculations. As regards the effects of sales dynamics, the Commission points out in the letter on the facts that this does not lead to a finding of predation, but may be used in the context of the discussion on the proposal, put forward by WIN in its document in reply of 23 October 2002, to study each new generation of subscribers separately, independently of the previous or subsequent generations. The arguments, set out in the letter on the facts, with regard to WIN’s expenditure on advertising or promotional material are intended to confirm the fact that it is included in the variable costs in the supplementary statement of objections, a matter which WIN disputed in its reply to that document. 40. The only information which may be regarded as indicating a change in the application of the methodology used by the Commission is, first, the different division of the periods analysed, and, secondly, the calculation of the weighted average of cost recovery according to the revenue generated by the total subscriber base for the two services in question. 41. In relation to the division of periods, reference should be made to paragraphs 31 to 33 above.
48. It should be pointed out that WIN did not dispute the starting date of the infringement and the fact that, between the statement of objections and the decision, the Commission changed the date from January to March 2001. 49. As regards the extension of the duration of the infringement from July to 15 October 2002, clearly, although both statements of objections set the starting date of the infringement as January 2001, neither document stated that the infringement had come to an end. On the contrary, both documents stated that the Commission proposed to take a decision inviting WIN to ‘bring the infringement to an end’. Such wording implies unequivocally that, according to the Commission, the infringement in question had not yet been terminated. Admittedly, the first statement of objections referred to facts covering a duration of 12 months and the supplementary statement of objections a duration of 18 months. That temporal limitation of the evidence, and not of the duration of the infringement, to a period that has elapsed does not call into question the express finding in those two documents. By way of illustration, the supplementary statement of objections states:
‘Following its analysis, the Commission takes the view at this stage that the policy of predatory pricing pursued by [WIN] since the beginning of 2001 constitutes an abuse of a dominant position … For the reasons set out above, the Commission proposes to take a decision requiring [WIN] to bring the infringement to an end …’ 50. It is clear that each statement of objections set out the duration established by the Commission on the basis of information which was available to it at the time of drawing up those documents (see, to that effect, Joined Cases 100/80 to 103/80 Musique Diffusion française and Others v Commission [1983] ECR 1825, paragraph 15), since the infringement was not at an end. Moreover, WIN did not claim that it had taken specific measures which brought the alleged infringement to an end. It is only in the decision that the Commission states that ‘the abuse came to an end on 15 October 2002, when the remedy presented by France Télécom in March 2002 came into effect’.
B – The plea in law alleging failure to state reasons 1. Arguments of the parties
55. The Commission, on the other hand, takes the view that it suffices to refer to recitals 314 to 331 of the decision to establish that the plea alleging defective reasoning in this regard is manifestly unfounded. 2. Findings of the Court
C – The plea alleging breach of the principle that penalties must be specific to the offender 1. Arguments of the parties
61. According to WIN, the Commission manifestly infringed the principle that penalties must be specific to the offender by holding against it matters which the Commission imputes to the France Télécom group and on which neither WIN nor France Télécom were able to submit their observations. The Commission confuses practices alleged against WIN with those of France Télécom. It describes them as the implementation of a concerted action or a single strategy defined by the France Télécom group. However, the procedure is only directed at WIN. This therefore amounts to a ‘serious procedural anomaly’. 62. In support of its argument, WIN refers in its application to a number of passages from the decision and the supplementary statement of objections.
65. The Commission’s response is that reference need only be made to the operative part of the decision to establish that the only undertaking to which the decision applies is WIN. The decision was not addressed to France Télécom because it was not accused of any abuse of a dominant position. The Commission accepts, on the other hand, that the decision frequently refers to France Télécom on account of its key position as operator of the telephony network and of its capacity as the major shareholder in WIN. Those facts are relevant to understanding the context of the market during the infringement period. 2. Findings of the Court
68. The references to France Télécom are therefore justified by the description of the context of the market in question. France Télécom occupies a special position on the market in question since the majority of internet service providers have no choice but to use its services. France Télécom is the incumbent telecommunications operator in France. It operates long-distance networks in France which are used to carry internet traffic. It is the owner of the local telecommunications access network linking all telephone subscribers to its network. At that time, the use of France Télécom’s local access network was essential in order to provide an ADSL service (recital 231 of the decision). France Télécom charges its customers for its services, including WIN (recitals 42 to 59 of the decision). The lowering of France Télécom’s prices therefore has an impact on WIN’s costs. Moreover, its key position and its capacity as WIN’s majority shareholder led France Télécom to participate in the administrative procedure. 69. Furthermore, the Commission takes care to explain that although the contextual matters ‘can be imputed to [WIN] only in part and although they are not the subject of objections made against [WIN]’ they are very important for an understanding of the case (recital 145 of the decision) and that ‘[i]n order better to assess the scope of [WIN]’s policy and how it fits into an overall plan, the subsidiary’s behaviour may usefully be viewed against the background of that of the France Télécom group as a whole’ (recital 285 of the decision), while adding that the matters described in recitals 286 to 290 are ‘not a list of objections directed against [WIN]’ but that ‘the strategy pursued by the subsidiary cannot be completely dissociated from the objectives of the parent company’. 70. It is therefore clear from the decision, in which the Commission always took care to state clearly that the background matters were not a list of objections directed against the applicant, that the Commission did not impute to WIN conduct pursued by France Télécom. 71. The plea alleging breach of the principle that penalties must be specific to the offender must therefore be rejected.
D – Breach of Article 82 EC 72. According to WIN, the Commission infringed Article 82 EC in several respects. In relation to dominance, the Commission used the wrong market definition and was incorrect in considering WIN to be dominant. As regards abuse of a dominant position, the Commission applied a cost recovery test which was contrary to Article 82 EC in respect of both the costs taken into account and the method used; furthermore, it made gross errors of calculation. In connection with the test of predation, the Commission denied WIN its fundamental right to align its conduct on that of its competitors. It also made an error of law, combined with a manifest error of assessment, by finding that there was a plan of predation and maintaining that it was not necessary to prove recovery of losses.
76. Finally, according to the Commission’s established previous decisions, a mere difference in the degree of comfort or quality is not sufficient to distinguish between separate relevant markets when the nature of the use is similar. It is apparent from a survey carried out by WIN that, in 80% of cases, subscribers use the same type of applications and functionalities. 77. The Commission refers in turn to its explanations in the decision (recitals 169 to 204) as to the distinction between high-speed and low-speed access. It claims to have shown the differences in usage, technical specificities and performance as well as differences in the price of the services and income per subscriber requiring the two markets to be distinguished. As regards the degree of substitutability, the Commission contends that the only substitution found is entirely asymmetrical, since it works only in one direction, namely from low-speed to high-speed. The Commission further considers that the distinction between high-speed and low-speed is universally recognised today. Findings of the Court
78. According to settled case-law (Case 322/81 Michelin v Commission [1983] ECR 3461, paragraph 37; Case T-65/96 Kish Glass v Commission [2000] ECR II-1885, paragraph 62; and Case T-219/99 British Airways v Commission [2003] ECR II-5917, paragraph 91), for the purposes of investigating the possibly dominant position of an undertaking on a given product market, the possibilities of competition must be judged in the context of the market comprising the totality of the products or services which, with respect to their characteristics, are particularly suitable for satisfying constant needs and are only to a limited extent interchangeable with other products or services. Moreover, since the determination of the relevant market is useful in assessing whether the undertaking concerned is in a position to prevent effective competition from being maintained and to behave to an appreciable extent independently of its competitors and, in this case, of its service providers, an examination to that end cannot be limited solely to the objective characteristics of the relevant services, but the competitive conditions and the structure of supply and demand on the market must also be taken into consideration. 79. If a product could be used for different purposes and if these different uses are in accordance with economic needs, which are themselves also different, there are good grounds for accepting that this product may, according to the circumstances, belong to separate markets which may present specific features which differ from the standpoint both of the structure and of the conditions of competition. However, this finding does not justify the conclusion that such a product, together with all the other products which can replace it as far as concerns the various uses to which it may be put and with which it may compete, forms one single market. 80. The concept of the relevant market in fact implies that there can be effective competition between the products which form part of it and this presupposes that there is a sufficient degree of interchangeability between all the products forming part of the same market in so far as a specific use of such products is concerned (Case 85/76 Hoffmann-La Roche v Commission [1979] ECR 461, paragraph 28).
82. It must be stated that there is not a mere difference in comfort or quality between high- and low-speed access. It is clear from the evidence provided by the Commission (recital 175 of the decision), which was not contradicted by WIN, that some applications available with high-speed access are simply not feasible with low-speed access, including, for example, the downloading of very voluminous video files or interactive network games. WIN also confirmed, in its reply of 4 March 2002 to the first statement of objections, that there are ‘audiovisual/multimedia activities … more specific to ADSL’. In addition, the study undertaken by the Centre de recherche pour l’étude et l’observation des conditions de vie (Research Centre for the Study and Monitoring of Living Standards) (Crédoc) on behalf of WIN which it presented in an annex to its application also describes new uses developed on the internet by the eXtense service and which are specific to high-speed access, that is, playing network games, listening to radio online, watching a video online and shopping online. According to that study, moreover, the subscriber with high-speed access goes online far more often and, on average, for considerably longer than the low-speed access user. 83. As regards the differences in technical features and performances, it is clear from the Commission’s contentions (recitals 181 to 187 of the decision), which have not been denied by the applicant, that an important technical feature of high-speed internet access is the specific nature of the modems used. A high-speed internet access modem cannot be used for low-speed internet access and vice versa (recital 181 of the decision). In addition, in the case of high-speed access, the connection is always on and the telephone line always available for making calls. 84. In addition, in the case of the French market, it should be pointed out that, for the period investigated, the offers of high-speed access involved download speeds in the region of 512 kbits/s (recital 185 of the decision). The offers of traditional low-speed access (limited to 56 kbits/s) and of ISDN (integrated services digital network) (64 or 128 kbits/s) only allowed speeds of 4 to 10 times less. The ADSL offers with download speeds of 128 kbits/s, which, according to the applicant, bear witness to the continuity between low-speed and high-speed, only became available at the end of the period covered by the decision. In addition, even in the case of an offer of 128 kbits/s, the difference between low-speed and high-speed access is considerable. The difference in performance was therefore considerable during the period investigated.
86. As regards the degree of substitutability, it is appropriate to recall, in addition to the case-law cited in paragraph 78 above, the criteria laid down by the Commission in its Notice on the definition of the relevant market for the purposes of Community competition law (see paragraph 81 above). 87. According to that notice, the assessment of demand substitution entails a determination of the range of products which are viewed as substitutes by the consumer. One way of making this determination can be viewed as a speculative experiment, postulating a hypothetical small but lasting change in relative prices and evaluating the likely reactions of customers to that increase. In paragraph 17 of the notice, the Commission states ‘[t]he question to be answered is whether the parties’ customers would switch to readily available substitutes … in response to a hypothetical small (in the range 5 to 10%) but permanent relative price increase in the products and areas being considered’.
88. In recital 193 of the decision, the Commission admits that low-speed and high-speed access indeed present some degree of substitutability. It adds in recital 194, however, that the operation of such substitutability is extremely asymmetrical, the migrations of customers from offers of high-speed to low-speed access being negligible compared with the migrations in the other direction. However, according to the Commission, if the products were perfectly substitutable from the point of view of demand, the rates of migration should be identical or at least comparable. 89. It should be pointed out, in this respect, that, first of all, it is clear from the information gathered by WIN and reproduced in Table 7 of the decision that the migration rates of high-speed subscribers to integral low-speed offers were very low during the period covered, in spite of the difference in price between those services, which should have prompted numerous internet users to turn to low-speed access. This large discrepancy in the rates of migration between low-speed and high-speed access and between high-speed and low-speed access does not lend credence to the argument that those services are interchangeable in the eyes of consumers. In the application, WIN also failed to adduce any evidence to cast doubt on that analysis.
90. Secondly, it transpires that, according to a survey carried out on behalf of the Commission and presented by WIN in an annex to its application, 80% of subscribers would maintain their subscription in response to a price increase in the range 5 to 10%. According to paragraph 17 of the Notice on the definition of the relevant market for the purposes of Community competition law (see paragraph 87 above), this high percentage of subscribers who would not abandon high-speed access in response to a price increase of 5 to 10% provides a strong indication of the absence of demand-side substitution. 91. Consequently, on the basis of all the foregoing, it should be held that the Commission was right to find that a sufficient degree of substitutability between high-speed and low-speed access did not exist and to define the market in question as that of high-speed internet access for residential customers.
95. WIN accuses the Commission of failing to take this in to account and of only analysing its market share on the high-speed segment of the market between 31 December 2000 and 31 August 2002. However, the fall of more than 10 percentage points in its market share between August 2002 and March 2003 attests to the competitive and evolving nature of the market. 96. In addition, WIN also submits that the fact of belonging to a group with significant financial resources and an extensive distribution network cannot be assessed without looking to the situation of the competitors. However, the Commission did not undertake an in-depth assessment of the situation of AOL, T‑Online/Club-Internet and Tiscali, which are ‘linked up’ with large groups enjoying exceptional financial power as well as having a wide distribution network.
98. The Commission disputes the emerging nature of the market in question during the period investigated. It contends that WIN’s market share increased in a sustained manner during the period at issue. It takes the view that WIN has not challenged any aspect of the analysis contained in the decision of the synergies and advantages accruing to WIN from its technical, logistical and commercial ‘link-up’ with the France Télécom group. Findings of the Court
101. Even the existence of lively competition on a particular market does not rule out the possibility that there is a dominant position on that market, since the predominant feature of such a position is the ability of the undertaking concerned to act without having to take account of this competition in its market strategy and without for that reason suffering detrimental effects from such behaviour ( Hoffmann-La Roche v Commission , paragraph 80 above, paragraph 70; see also, to that effect, Case 27/76 United Brands v Commission [1978] ECR 207, paragraphs 108 to 129). Thus, the fact that there may be competition on the market is a relevant factor for the purposes of ascertaining whether a dominant position exists, but it is not in itself a decisive factor in that regard. 102. It should be examined whether, according to those criteria, as the Commission contends, WIN has a dominant position on the market in question.
104. With regard to the fall in market shares between August and October 2002, a decline in market shares which are still very large cannot in itself constitute proof of the absence of a dominant position (see, to that effect, Joined Cases T-24/93 to T-26/93 and T-28/93 Compagnie maritime belge transports and Others v Commission [1996] ECR II-1201, paragraph 77). Even by proceeding on the basis of the figure put forward by WIN, WIN’s market share was still in fact very high at the end of the infringement period. 105. WIN submits, however, that market shares are not a reliable indicator in the context of an emerging market which still has few customers.
106. The Court considers that, according to the information on the market situation set out in recital 218 of the decision and which is not contested by WIN, by March 2001, the starting date of the infringement according to the Commission, the market concerned had certainly gone beyond the launch or experimental phase. In fact, the high-speed access market began its development in France from 1997. WIN’s ADSL services and the first offers of its competitors were launched on a commercial basis at the end of 1999. At the end of June 2000, the market for high-speed internet access for residential customers in France already numbered around 100 000 subscribers, and, by the end of 2000, this figure exceeded 180 000. In the first four months of 2001, the market gained more than 5 000 new subscribers per week. By dating the infringement back only to March 2001, as indicated in recital 71 of the decision, because it took the view that the market had until then ‘not … developed sufficiently for a test of predation to be significant’, the Commission duly excluded the start-up phase from its analysis. 107. This was admittedly a fast-growing market, but this fact cannot preclude application of the competition rules, in particular Article 82 EC.
110. WIN submits, however, that such a market should be looked at from a dynamic perspective by assessing not only actual but also potential competition. 111. In that regard, it suffices to point out that, according to its own prospective analyses dating from March 2001, WIN would have a share of 55% of the overall market at the end of 2004. In June 2001, WIN itself re-evaluated those forecasts as to the penetration of the market. It then considered that it would hold over three quarters of the ADSL segment at the end of 2004 and at least 60% of the residential high-speed market (recital 220 and footnote 255 of the decision). Such evidence shows that WIN itself considered potential competition to be limited. As a result, the situation of the relevant market does not support the view that the market shares are an unreliable indication.
114. First of all, as regards WIN’s claim that the competing groups have a wide distribution network, it should be pointed out that, on French territory, the only territory covered by the decision, it was in any event far from being the size of France Télécom’s, the incumbent telecommunications operator in France. 115. Of the commercial advantages enjoyed by WIN, which it does not moreover dispute, it is appropriate to mention, above all, the network of France Télécom’s shops which distributed WIN’s products all over France. 116. Secondly, WIN also does not dispute the technical advantages which, according to the Commission, stemmed from its ‘link-up’ with France Télécom. The Commission argued, without demur on the part of WIN, that the latter enjoyed preferential treatment for the whole of 2000 and the first seven months of 2001, in the form of a bespoke offer considerably less restrictive than that offered to its competitors and real-time access to files on convertible lines.
119. The last piece of evidence presented by the Commission in its assessment of WIN’s position on the market in question is that of the benefits accruing to the Wanadoo group from its presence on the market for directories. It contends that the very lucrative activities on that market are such as to lessen considerably the impact on the group of WIN’s loss-making sales on the market for high-speed internet access. 120. It should be pointed out in that regard that the Commission’s assessment relates to a different market from that of supply of high-speed internet access. On that basis, as WIN argues, the presence of the Wanadoo group on the market for directories does not conclusively confirm WIN’s dominant position on the market in question. 121. Accordingly, in the light of all the above considerations, it must be held that the Commission was right to consider WIN to have a dominant position on the market in question during the period covered by the investigation.
Error as to the method of calculating the rate of cost recovery – Arguments of the parties
124. As regards the costs to be taken into account, WIN submits that, in order to determine whether the costs are in fact covered, the Commission is under an obligation to look at all the information at its disposal on the date of the decision, provided it recognises the validity of that information. However, all the accepted cost reductions, between entering into a subscription and October 2002, were ignored by the Commission, or, more precisely, the Commission took into account the cost reduction in respect of subscribers after that date, but not in order to update the recurrent costs of those who subscribed before then. Taking the example of a customer subscribing to its services on 1 June 2001, WIN submits that the Commission attributed to it an initial recurrent cost of EUR 54.39 per month until the end of May 2005 (that is, over 48 months), while that cost no longer corresponds to the actual cost from August 2001 onwards, since, according to Annex 3 to the decision, from that date onwards the cost does not go above EUR 34.72 per month. 125. WIN submitted to the Commission results based on the method of discounted cash flows in order to calculate the discounted net value (‘the DNV’) of subscribers. That method consists of listing in respect of each subscriber all the costs and revenues generated by that subscriber, of discounting them by applying a discount rate given by the financial markets and adding the discounted cash flows thus obtained. The cost of the product is made up of the acquisition cost initially paid to which is added the recurrent monthly costs. WIN submits that that method, the only reliable one in economic terms, is universally accepted and accords with the economic calculations of investments made by economists and financial operators. That method was applied by the French Conseil de la concurrence and its validity was recognised in the report produced by Oxera for the Office of Fair Trading (United Kingdom). It shows that WIN’s full costs – save those relating to March 2001 where the level of recovery is only at 98 or 99% depending on the product – and, a fortiori, its variable costs are covered for the whole of the period.
127. In applying its methodology, the Commission claims that it derived all the figures used from information provided by WIN. The figures were therefore established on an ex post basis. No cost heading is fictitious. The Commission states that, in respect of all subscribers, it took full account of the cost reductions at the precise moment when they occurred. 128. The Commission also disputed the correctness of the recourse in the present case to the discounted cash-flows method advocated by WIN. In its view, that method does not allow any conclusion as to predation. WIN also did not in practice use the DNV calculations at the material time in respect of the products in question. The use of the discounted cash-flows method in the present case is also not supported by Community case-law or by the Commission’s previous decisions. In any event, the method proposed by the applicant is not the traditional method, since WIN proposes dividing up the various influxes of new customers into ‘cohorts’ and, in respect of each of them, analysing whether the discounted cash flow is positive over a period of five years. WIN also integrates into its analysis the increase in profitability as a result of the termination of the infringement. – Findings of the Court
140. First of all, it should be stated that, contrary to what WIN has alleged, the Commission did not apply a test of static recovery, which would have been considerably more unfavourable to WIN (see paragraph 134 above). 141. It is clear from the decision (recitals 76 and 77) that, for the purposes of taking into account the fact that, in the case of subscriptions, the costs and revenues generated by subscribers are spread over a long period of time, the Commission decided to spread the costs of acquiring clients over 48 months.
143. On the contrary, it is clear from reading the decision and its annexes that the Commission integrated, in respect of each period of infringement investigated and of all subscribers, the successive reductions in tariffs occurring during the period at issue. It even structured its analysis according to those reductions. 144. In fact, the end, namely 31 July 2001, of the first period taken into account by the Commission for the purposes of analysing the adjusted variable costs (Table 3 of the decision) coincides with the reduction in tariffs for national and regional routing of traffic. The second period takes into account that reduction in costs by applying the new tariffs. The end of the second period, namely 15 October 2001, coincides with the start of a period in which activation services, for which France Télécom normally charges suppliers, were offered free of charge. In that case as well, the resulting reduction in costs was taken into account. Finally, the date dividing the third and fourth periods, 15 February 2002, is marked by the change in pricing for the international ‘connectivity’ service and the restoration of charges for activation services by France Télécom.
146. In addition, it is clear inter alia from a comparison of Annexes 1, 3, 5 and 7 of the decision, in respect of the eXtense service, and Annexes 2, 4, 6 and 8 of the decision, in respect of Wanadoo ADSL, that for each period the new tariffs and other cost components are not only applied to the subscriptions running from the beginning of the infringement, but are also reflected across the entire accumulated subscriber base. 147. If a comparison is made, for example, between the recurrent variable costs contained in the table concerning the eXtense service attached in Annex 1 to the decision and relating to the period from 8 January to 31 July 2001 with those of the same type contained in Annex 3 covering the period from 1 August to 15 October 2001, it is apparent that from one period to the other the price of national or regional routing of traffic dropped from FRF 151 to 52.43 and the price of the ADSL access service from FRF 185 to 140. Those reductions in prices were indeed taken into account, not only for the subscriptions entered into from the beginning of the infringement period (Table 3.2 of Annex 3 to the decision), but also for the entire accumulated subscriber base (Table 3.1 of that annex).
148. Similarly, it is clear from a comparison of Annexes 2 and 4 to the decision in respect of Wanadoo ADSL’s adjusted variable costs that the price of national or regional routing of traffic, in relation to the entire accumulated subscriber base, fell between the first and second period from FRF 151 to 52. 149. In addition, the free activation service for new subscribers to the eXtense service (Table 5.2 of Annex 5 to the decision), from 15 October 2001 onwards, resulted in a reduction in activation charges for the entire accumulated customer base (Table 5.1 of that annex) from EUR 53.40 to 27.16. Conversely, those costs increased to EUR 32.37 (Table 7.1 of Annex 7 to the decision) when the activation charges for new subscribers to the eXtense service were reinstated as from 15 February 2002 (Table 7.2 of that annex).
154. To conclude, WIN has not proved that, in using the data recorded in WIN’s accounts and correcting it in favour of WIN to take account of the particular context of the market in question, while complying with the requirements for an assessment under Article 82 EC, the Commission applied an unlawful test of recovery of costs in the present case. 155. For the sake of completeness, it must be held, first, that it is not apparent from the case-law that use of the method of discounted cash flows was necessary in the present case, and, secondly, that WIN has not advanced any argument establishing that the Commission committed a manifest error of assessment in this regard.
159. In addition, according to the Commission, WIN does not go so far as to claim that correction of those errors would have led to a different result, as the rate of recovery was still below 100%. That plea is therefore, in any event, ineffective. 160. In its reply, WIN stated that as only the detail of the errors of calculation appeared in the annex, the plea, set out in a precise manner in the application, was admissible. In its view, it is not ineffective either. In fact, that plea shows that the rates of recovery of full costs moved from a margin of 90 to 91% to a margin of 98 to 99%. However, the Commission took the view that a rate of recovery of 99.7% did not amount to an infringement. 161. In its reply, WIN disputed the inclusion of advertising in the variable costs and the calculation of the average rates of cost recovery in respect of the two services in question. – Findings of the Court
165. In that respect, the fact that the Commission, in exercising its discretion, accepted that a rate of recovery of variable costs of 99.7% did not amount to an infringement cannot require it to take the same approach to a rate of recovery of full costs of 98 or 99%, as the case may be. That plea must therefore be rejected as being ineffective. 166. For the sake of completeness, as regards the alleged inadmissibility of that plea, under Article 21 of the Statute of the Court of Justice and Article 44(1)(c) of the Rules of Procedure of the Court of First Instance an application must indicate the subject-matter of the proceedings and include a brief statement of the grounds relied on. The information given must be sufficiently clear and precise to enable the defendant to prepare his defence and the Court of First Instance to decide the case, if appropriate without other information (see the order in Case T-56/92 Koelman v Commission [1993] ECR II-1267, paragraph 21).
171. According to WIN, the right of any operator to align its prices in good faith on those previously charged by a competitor is at the very heart of the competitive process. That right is recognised by the Commission itself in its previous decisions, in the case-law of the Court and in the unanimous teachings of academic literature and economic analysis. The fact that the prices charged by competitors correspond to prices which are below cost for the undertaking concerned is of no relevance in this respect. 172. For that reason, in Decision 83/462/EEC of 29 July 1983 relating to a proceeding under Article [82 EC] (IV/30.698 – ECS/AKZO: interim measures (OJ 1983 L 252, p. 13), the Commission itself expressly permitted the dominant undertaking concerned to charge prices below cost for the purpose of aligning those prices, in good faith, on those previously charged by its competitors. The Court of Justice, in turn, in the appeal against that decision, held precisely that the Commission cannot, as a matter of principle, call into question the right of a dominant undertaking to align its conduct on that of its competitors and thereby clearly laid down this principle.
176. It must be pointed out first of all that the Commission is in no way disputing the right of an operator to align its prices on those previously charged by a competitor. It states in recital 315 of the decision that ‘[w]hilst it is true that the dominant operator is not strictly speaking prohibited from aligning its prices on those of competitors, this option is not open to it where it would result in its not recovering the costs of the service in question’. 177. WIN takes the view, however, that the Commission thereby disregards its previous decisions and the case-law of the Court of Justice.
182. It is therefore not possible to assert that the right of a dominant undertaking to align its prices on those of its competitors is absolute and that it has been recognised as such by the Commission in its previous decisions and in the relevant case-law, in particular where this right would in effect justify the use of predatory pricing otherwise prohibited under the Treaty. 183. In the present case, the Commission takes the view that a dominant undertaking should not be permitted to align its prices where the costs of the service in question would not be recovered by the dominant undertaking.
184. It is therefore appropriate to examine whether that restriction is compatible with Community law. 185. It should be recalled that, according to established case-law, although the fact that an undertaking is in a dominant position cannot deprive it of the right to protect its own commercial interests if they are attacked and such an undertaking must be allowed the right to take such reasonable steps as it deems appropriate to protect those interests, such behaviour cannot be countenanced if its actual purpose is to strengthen this dominant position and abuse it ( United Brands v Commission , paragraph 101 above, paragraph 189; Case T-65/89 BPB Industries and British Gypsum v Commission [1993] ECR II-389, paragraph 117; and Compagnie maritime belge transports and Others v Commission , paragraph 104 above, paragraph 146).
191. The Commission also committed a manifest error of assessment by considering to be predatory prices which were perfectly rational in the context of robust competition, which contributed to the development of the market and are the reason for the robust competition which exists today. Consumers, in any event, never suffered because they had the benefit of low prices. 192. Finally, according to WIN, the strategy which it adopted can in no way be regarded as indicating any predatory intention. The Commission simply pointed to various aspects designed to prove WIN’s supposed intention to eliminate its competitors, but failed to produce any actual plan of predation. The essence of the Commission’s argument relating to the alleged predatory intention is based on an arbitrary and biased selection of internal documents found at WIN’s premises. 193. The Commission considers in turn that demonstrating the specific effects of WIN’s predatory pricing is not decisive for the purposes of finding the infringement in question. It contends that Article 82 EC must be applied where there is a risk of eliminating competition, without having to wait for the object of driving out competition to be achieved. 194. As regards the plan of predation, the Commission argues that it is clear from the case-law that intent can be presumed where prices are lower than average variable costs and must be proved on the basis of sound and coherent evidence where prices are below average total costs but above average variable costs. The Commission considers that it set out in its decision sound evidence proving that the undertaking had deliberately engaged in a strategy of ‘pre-empting’ the market and restraining competition.
195. As regards the conditions for the application of Article 82 EC and the distinction between the object and effect of the abuse, it should be pointed out that, for the purposes of applying that article, showing an anti-competitive object and an anti-competitive effect may, in some cases, be one and the same thing. If it is shown that the object pursued by the conduct of an undertaking in a dominant position is to restrict competition, that conduct will also be liable to have such an effect. Thus, with regard to the practices concerning prices, the Court of Justice held in AKZO v Commission , paragraph 100 above, that prices below average variable costs applied by an undertaking in a dominant position are regarded as abusive in themselves because the only interest which the undertaking may have in applying such prices is that of eliminating competitors, and that prices below average total costs but above average variable costs are abusive if they are determined as part of a plan for eliminating a competitor. In that case, the Court did not require any demonstration of the actual effects of the practices in question (see, to that effect, Case T-203/01 Michelin v Commission [2003] ECR II‑4071, paragraphs 241 and 242). 196. Furthermore, it should be added that, where an undertaking in a dominant position actually implements a practice whose object is to oust a competitor, the fact that the result hoped for is not achieved is not sufficient to prevent that being an abuse of a dominant position within the meaning of Article 82 EC ( Compagnie maritime belge transports and Others v Commission , paragraph 104 above, paragraph 149, and Case T-228/97 Irish Sugar v Commission [1999] ECR II-2969, paragraph 191).
198. In the present case, the Commission established that WIN had a dominant position, and, in Article 1 of the decision, found that it was unable to cover its variable costs until August 2001 or to recover its full costs from that date until October 2002. In respect of the period in which WIN did not recover its full costs, the Commission was therefore required, in order to establish the infringement, to provide sound evidence of the existence of a strategy of ‘pre-emption’ of the market. 199. In recital 110, the decision refers to a number of documents, relating to the whole period at issue, which attest to the existence of WIN’s strategy of ‘pre-emption’ for the high-speed market, in particular:
– an electronic mail of July 2000 relating to a discussion on the appropriate level of prices stating: ‘we will have difficulty in pre-empting this market if our prices are too high’; – the framework letter for 2001 containing the following wording: ‘our pre-emption of the ADSL market is imperative’;
– the strategic plan for 2002 to 2004 reiterating the robust development of high-speed access for the period from 2001 to 2003 and the objective of ‘pre-empting a market considered to generate value’. 200. In addition, WIN’s documents prove that it was seeking to acquire and then hold onto very significant market shares. The framework letter for 2001 states, for example, that ‘70% … 80% of the ADSL market should accrue to [WIN]’. A presentation by the CEO of WIN to the board of France Télécom dated June 2001 refers to a market share of 80% over the entire period 2001 to 2004 in the segment of ‘“dissociated” offers, like Wanadoo ADSL’ and a market share increasing by an average of 50% in 2001 to 72% in 2004 in the segment of ‘“packaged” offers, like eXtense’.
201. It is true that WIN disputed the scope of those documents and, in particular, the significance of the term ‘pre-emption’ which they contain. According to WIN, such informal and spontaneous, even unconsidered words, are merely a reflection of the dialectics of the decision-making process. They bind only their authors and not the undertaking. 202. It should be pointed out, however, that those words come from management-level staff within the undertaking and that some of them were expressed in the context of formal presentations for the purpose of taking a decision or of a very detailed framework letter. Their spontaneous and unconsidered nature thus appears to be questionable.
203. In addition, in its application and above all in certain annexes to its application, WIN submitted that the majority of allegedly incriminating documents and statements were taken out of context and that the Commission knowingly failed to take into account a number of exculpatory statements. 204. It must be stated that, in its application, WIN merely argued that the Commission uses a number of extracts of internal documents that it fails to put in their proper context. Such a vague assertion does not enable the defendant to prepare his defence and the Court to give a ruling, if appropriate, without other information in support ( Koelman v Commission , paragraph 166 above, paragraph 21). To allow the annexes to provide the detail of an argument which is not presented in a sufficiently clear and precise manner in the application would be contrary to their purely evidential and instrumental function.
208. The phrase ‘70% … 80% of the ADSL market should accrue to [WIN]’ is not in fact disputed. WIN merely asserts that no mention is made of a possible recourse to low prices and that there is therefore no link between the prices set and WIN’s objectives as regards market share. However, the fact that nothing is mentioned as to the way in which the 70 to 80% share of the ADSL market will be obtained does not detract from the objective pursued. 209. In any event, those statements, which are contained in internal company documents, are an indication of the existence of a plan of predation and reinforced by other evidence. 210. According to recital 279 et seq. of the decision, the intention of restraining competition is also apparent from the fact that WIN knew that its non-profitable pricing strategy combined with high sales volumes was not economically sustainable for its competitors. 211. In an electronic mail to the CEO of WIN, dated end of April 2001 (recital 279 of the decision and footnote 319), the person in charge of ADSL services refers to the competitors which either do not sign up to the offer of service support from France Télécom or are ‘on their way out’. 212. WIN also knew that the impossibility of matching its retail prices without suffering losses prevented AOL’s entry on the high-speed market. Indeed, an electronic mail from France Télécom to WIN’s director of strategic marketing dated 29 June 2001 attaches a statement from the CEO of AOL France, worded as follows (footnote 321 of the decision): ‘[I]n the days when we were owned by Cégétel, we launched an offer with Monaco Telecom and had 500 subscribers. We did not launch in France as France Télécom’s ADSL retail offer is not a money-maker for us. Technically, we are ready, but we are not in the business of losing money.’ 213. It is also clear from a document entitled ‘Note of analysis – Telecoms – Particular issues of internet regulation in France’ of 20 July 2001 that WIN had analysed in detail the advantages which it enjoyed as market leader (recital 280 and footnote 322 of the decision). It is apparent from that document that a competitor with less traffic than WIN would enjoy margins on the network costs several points lower than those envisaged for WIN. 214. It is clear from the foregoing that the announcement by WIN in 2001, and at the beginning of 2002, of its rather ambitious commercial objectives, which a non-dominant undertaking could have difficulty in achieving in the unfavourable profit-margin conditions at that time, had the effect of discouraging rival undertakings. This stemmed from WIN’s objective of eliminating competition. 215. On the basis of all the foregoing considerations, it must be held that the Commission furnished solid and consistent evidence as to the existence of a plan of predation for the entire infringement period. The logic which that strategy follows is clear from a note of WIN’s strategic management of December 2001 stating:
‘The high-speed and ADSL market will, for the next few years, continue to be conquest-driven, the strategic objective being to gain a dominant position in terms of market share, the period of profitability only coming later.’ 216. In accordance with AKZO v Commission , paragraph 100 above, and the Tetra Pak cases, paragraph 130 above, the Commission therefore established the two elements required in order to prove predatory pricing below average full costs by a dominant undertaking. 217. The arguments advanced by WIN as to the economies of scale and learning effects in order to justify its pricing below cost are not such as to call into question the finding made by the Court. An undertaking which charges predatory prices may enjoy economies of scale and learning effects on account of increased production precisely because of such pricing. The economies of scale and learning effects cannot therefore exempt that undertaking from liability under Article 82 EC. 218. It follows that the complaint based on the absence of a predation plan cannot be upheld.
219. WIN submits that the recoupment of losses is entirely separate from the test of predation and the Commission must provide evidence of it. It takes the view that, if an undertaking in a dominant position cannot reasonably expect to reduce long-term competition with a view to recouping its losses, in particular because it is easy to enter the market in question, it is not rational for that undertaking to engage in a policy of predatory pricing. In that situation, the policy of low prices applied by the undertaking must be explained otherwise than by a strategy of predation. 220. According to WIN, that view is supported by all the economic and legal literature as well as by a number of courts and competition authorities, including those of the United States and several Member States of the European Union. The need to prove this has never been ruled out under Community case-law.
221. However, the conditions of competition on the market for high-speed internet access are completely different from those on which the Court of First Instance and the Court of Justice have had to rule in previous cases on predation. The barriers to entry on this market are low, growth is robust, the competitive situation is not frozen and there are numerous actual and potential new entrants. The Commission thus seriously errs in law in maintaining that it is not necessary to prove recoupment of losses. 222. Furthermore, according to WIN, the Commission committed a further manifest error of assessment, coupled with an error of law, by considering that it had furnished evidence of a possibility to recoup losses. 223. The Commission contends that proof of recoupment of losses is not a precondition to making a finding of predatory pricing contrary to Article 82 EC. It considers that the case-law is clear on this point. In the alternative, the Commission points out that the recoupment of losses in the present case is made plausible by the structure of the market and the related revenues which thus can be expected in the future.
‘42 For sales of non-aseptic cartons in Italy between 1976 and 1981, [the Court of First Instance] found that prices were considerably lower than average variable costs. Proof of intention to eliminate competitors was therefore not necessary. In 1982, prices for those cartons lay between average variable costs and average total costs. For that reason, in paragraph 151 of its judgment, the Court of First Instance was at pains to establish – and the appellant has not criticised it in that regard – that Tetra Pak intended to eliminate a competitor. 43 The Court of First Instance was also right, at paragraphs 189 to 191 of the judgment under appeal, to apply exactly the same reasoning to sales of non-aseptic machines in the United Kingdom between 1981 and 1984.’
‘[I]t would not be appropriate, in the circumstances of the present case, to require in addition proof that Tetra Pak had a realistic chance of recouping its losses. It must be possible to penalise predatory pricing whenever there is a risk that competitors will be eliminated. The Court of First Instance found, at paragraphs 151 and 191 of its judgment, that there was such a risk in this case. The aim pursued, which is to maintain undistorted competition, rules out waiting until such a strategy leads to the actual elimination of competitors.’ 227. In line with Community case-law, the Commission was therefore able to regard as abusive prices below average variable costs. In that case, the eliminatory nature of such pricing is presumed (see, to that effect, Case T-83/91 Tetra Pak v Commission , paragraph 130 above, paragraph 148). In relation to full costs, the Commission had also to provide evidence that WIN’s predatory pricing formed part of a plan to ‘pre-empt’ the market. In the two situations, it was not necessary to establish in addition proof that WIN had a realistic chance of recouping its losses.
230. It is therefore appropriate to reject all the pleas in law advanced in support of the application for annulment of the decision. II – The alternative claims for the cancellation or reduction of the fine 231. In the alternative, WIN disputes the amount of the fine which was imposed on it and requests that that penalty be cancelled or reduced very substantially. In support of its claims, it alleges breach of the principles that penalties must be specific to the offender and that they must have a proper legal basis, that the practices in question had no effect, that the determination of the duration of the infringement was wrong and that there was a breach of the principle of proportionality.
A – Breach of the principles that penalties must be specific to the offender and have a proper legal basis 1. Breach of the principle that penalties must be specific to the offender
232. According to WIN, by basing its findings on the conduct of France Télécom in order to penalise WIN, the Commission infringed the principle that penalties must be specific to the offender. First, the Commission admitted that it was action on the part of France Télécom that brought the infringement to an end. Secondly, the Commission took into account the conduct of France Télécom in assessing whether the infringement allegedly committed by WIN was intentional. 233. The Commission rejects that plea in essence by referring to its reply to the same plea advanced by WIN in its main claim for annulment. The Commission adds that WIN’s intention to foreclose the market is fully substantiated by the undertaking’s internal documents, the occasional references to France Télécom being in no way decisive. (b) Findings of the Court
234. This plea in law is to a large extent very similar to that relied on by WIN in its main claim for annulment. It is therefore appropriate to refer to paragraphs 66 to 71 above. 235. In addition, determining the end of WIN’s infringement as the date on which the prices charged by France Télécom were reduced does not mean that the Commission penalised WIN on the basis of France Télécom’s conduct. The infringement in question is very clearly attributed to WIN and not France Télécom. WIN could have ceased the infringement itself before France Télécom took action and in the absence of such action. The fact that the end to the infringement was not the result of WIN’s conduct does not in any way detract from the infringement. The infringement is directly linked to the level of costs. As certain costs are derived directly from the prices fixed by the suppliers, the end of the infringement can in certain cases be the logical result of the conduct of those suppliers. 236. The Court must therefore reject the argument alleging breach of the principle that penalties must be specific to the offender.
2. Breach of the principle that penalties must have a proper legal basis (a) Arguments of the parties
237. According to WIN, the decision penalised it on the basis of two new legal rules. First, the question of alignment entailed a complete reversal by the Commission of its previous practice. Secondly, the Commission applied a test of predation that was unprecedented and unpredictable. 238. There is no precedent for predatory pricing on an emerging market. The Commission applied for the first time the method of calculation used in this case by defining it in the course of the procedure. According to the method adopted by a number of national competition authorities, WIN takes the view that it could legitimately consider its prices not to be predatory. 239. The Commission in turn argues that Article 82 EC and Article 15(2) of Regulation No 17 constitute the only legal bases for the imposition of the fine in the present case and that there is nothing novel about those provisions. It relies on established case-law that its previous practice does not by itself serve as a legal framework for imposing fines in the field of competition. 240. The Commission adds, for the sake of completeness, that predatory pricing has already been classed as an infringement of Article 82 EC in the case-law. (b) Findings of the Court
243. Furthermore, predatory pricing has already been classed as an infringement of Article 82 EC. It was sanctioned by the Commission and gave rise to AKZO v Commission , paragraph 100 above, and the Tetra Pak cases, paragraph 130 above, in which a test of predation was applied based on the distinction between variable costs and full costs, as was applied in the present case. 244. However, in the present case, the Commission adapted that test by spreading the costs of acquiring customers, in a way that was favourable to WIN, so as to take account of the features of the market in question. 245. In that regard, it must be pointed out that the application of the method used in those cases could, in any event, have enabled WIN to foresee that it might incur liability under Article 82 EC. WIN cannot rely on the fact that an adjustment to the method, which was favourable to it, was unforeseeable. 246. It also does not follow from the Commission’s previous practice or from the case-law that WIN could legitimately expect that its right to align its prices on its competitors would be accepted in the circumstances of the present case (see paragraphs 176 to 187 above) or that the method of discounted cash flows would be applied (see paragraphs 153 and 156 above) or that the margins after the end of the infringement would be taken into account (see paragraph 152 above). The market was also no longer in a start-up phase during the period investigated (see paragraph 106 above).
248. In that case, the complainant alleged that Deutsche Post AG was using revenue from the profitable letter-post monopoly in its reserved area to finance below-cost sales in the commercial parcel services sector with a view to driving out competitors in that sector. In its decision, the Commission penalised Deutsche Post’s granting of fidelity rebates and imposed on it a fine of EUR 24 million. However, the fine was not imposed in respect of the parcel services provided at below incremental costs. 249. It should be pointed out that the Deutsche Post case exhibited very particular characteristics. The undertaking was engaged in activities which, depending on the circumstances, related to its monopoly based on its public interest tasks or were open to competition. That case thereby raised the problem of defining the relevant measure of cost recovery for an operator benefiting from a reserved area and likely to cover its losses in another sector open to competition with the aid of the profits made in that area. In such a context, the undertaking in question could be uncertain as to the rules to be applied. However, the situation of WIN, which only operated on a competitive market, cannot be compared to that of Deutsche Post and in that regard is more akin to that of AKZO and Tetra Pak.
252. Consequently, the Commission did not infringe the principle that penalties must have a proper legal basis. B – Absence of effects of the conduct in question 1. Arguments of the parties
254. WIN submits that the Commission itself contends in its decision that WIN’s market share will remain at around 50%, while it reached 72% in October 2002, the date on which the infringement ended, being a reduction of one third in only nine months. This suffices to show that the market structures were not affected on a sustained basis by WIN’s alleged anti-competitive conduct. 255. In addition, even during the period at issue, competition on the market for internet access was very healthy. In September 2002, there were over 70 retail offers. New ISPs entered the market, while the prices of offers fell under the influence of competitors. The development of competition was not hindered and the disappearance of Mangoosta is not attributable to WIN. 256. WIN takes the view in this regard that the Commission’s contention that WIN’s alleged conduct profoundly affected the structure of the market is no more than a presumption unsupported by any specific fact illustrating the actual difficulties experienced by WIN’s competitors. 257. The Commission disputes the data provided by WIN, contending that they relate either to the entire supply of internet access, both high-speed and low-speed, or the particular segment of the supply of high-speed ADSL internet access, depending on what suits WIN’s arguments best.
258. The Commission contends that a comparison of the increase in sales of the various players on the market in the course of 2001 until autumn 2002 clearly shows that WIN’s strategy enabled it to contain competition and strengthen its position. For example, there were no new significant entries on the market during the period at issue. 2. Findings of the Court
264. Fourthly, WIN’s conduct had a deterrent effect on the ability of competitors to enter the market and to develop. Several of them in fact confirmed that they were unable to align their prices on those of WIN, given the costs involved, without incurring losses (see recital 379 and footnote 451 of the decision). The number of new entries on the market was also marginal. WIN referred to the cases of Dixinet and Net pratique. However, at the end of August 2002, Dixinet only had 10 subscribers to its ADSL and telephony services, while Net pratique, which did not launch its service until the summer of 2002, that is, at the end of the infringement, had no more than 1 400 subscribers six months later. 265. In that regard, WIN’s argument attributing the slow progress of certain competitors to a strategic choice and the desire to concentrate on the low-speed segment to the detriment of ADSL, which was regarded as not being viable, is not convincing. Even if certain competitors may have doubted, at the outset, the development of high-speed access, it cannot be presumed that they persisted in this belief in the face of the significant growth of this market. The action brought by T-Online, which supplied internet access under the name Club-Internet, before the French competition authority would seem rather to indicate the contrary. Similarly, the statement of the CEO of AOL France, referred to in paragraph 212 above, leads to the assumption that the reason for that undertaking’s absence from the high-speed market was at that time linked to the losses which it suffered because of WIN’s large-scale supply rather than its desire to confine its activities to the low-speed segment. 266. As regards WIN’s argument that consumers were not harmed by its pricing but, on the contrary, benefited from it, it should be recalled that the Court of Justice has held that Article 82 EC is not only aimed at practices which may cause damage to consumers directly, but also at those which are detrimental to them through their impact on an effective competition structure ( Europemballage and Continental Can v Commission , paragraph 242 above, paragraph 26).
C – Duration of the infringement wrongly determined 1. Arguments of the parties
270. The Commission’s answer to the latter argument is that the statements of objections cannot be read as restricting the duration of the infringement when the infringement was still ongoing. 271. As regards the argument based on France Télécom’s delay in reducing its prices owing to the process of tariff rebalancing ordered by ART, the Commission takes the view that this argument cannot be relied on. 2. Findings of the Court
D – Breach of the principle of proportionality 1. Arguments of the parties
275. In the first place, WIN submits that when setting the amount of the fine, no account was taken of its cooperation and openness. Secondly, it criticises the fact that the Commission ignored the gradual end to the infringement both when setting the basic amount of the fine and in relation to the mitigating circumstances. The scale of the infringement was reduced as from August 2001 on account of France Télécom’s reduction in wholesale tariffs, even before the latter was informed of the Commission’s investigation. France Télécom’s willingness to resolve as quickly as possible the problem identified by the Commission was unstinting. 276. The Commission considers that there are no mitigating or aggravating circumstances in the present case.
279. In its application, WIN submits that the Commission failed to take account of the fact that it cooperated fully in the proceeding and that it conducted itself entirely openly. WIN goes on to state that it was on its invitation that the Commission visited its premises and took copies of documents relating to costs and the development of its commercial offers. Neither its application nor its reply contains any further details on that cooperation. 280. It must be stated that WIN has not presented any evidence such as to invalidate the argument that it was merely complying with its obligations under Regulation No 17. WIN fails to establish, in particular, that it invited the Commission to its premises before the investigation was opened. In fact, the Commission contends, in its defence, that the applicant cannot infer a mitigating circumstance from the fact that the Commission merely carried out its onsite investigation on the basis of Article 14(2) of Regulation No 17 ‘by making an appointment with the undertaking to visit its premises’. 281. In the alternative, even if it were the case, the fact that it invited the Commission itself to visit its premises without waiting for the Commission to order investigations by way of a decision does not suffice to establish such close cooperation as to be able to warrant taking this into account for the purposes of mitigating circumstances. Article 14 of Regulation No 17 provides that, in carrying out the duties assigned to it by Article 81 EC, the Commission may undertake all necessary investigations into undertakings. Its authorised officials may enter any premises and take copies of business records. The Commission’s investigations may be conducted on the basis of a simple authorisation (Article 14(2)) or ordered by decision (Article 14(3)). The fact that the Commission did not order a decision in this case does not in itself mean that ‘effective cooperation by the undertaking in the proceedings’ existed within the meaning of the Guidelines on the method of setting fines imposed pursuant to Article 15(2) of Regulation No 17 and Article 65(5) of the ECSC Treaty.
Costs 285. Under Article 87(2) of the Rules of Procedure of the Court of First Instance, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since the applicant has been unsuccessful and the Commission has applied for costs, it must be ordered to pay the costs.
1. Dismisses the action; 2. Orders the applicant to pay the costs. Top