EU's Competition Law

Competition is necessary because it produces efficiency, low prices, innovations and freedom of action.

The EU's competition law was designed to protect and promote competition in a free market economy. It limits the freedom of the market players in order to protect the process of competition; yet at the same time it preserves freedom of others (e.g. by enabling market entry or preserving choice for customers and ultimate consumers).

This post will focus on Article 101 and Article 102 of Treaty on the Functioning of of the European Union (TFEU).

Both Article 101 and Article 102 seek to achieve the same aim, namely the maintenance of effective competition within the internal market, on different level: Case 6/72 Continental Can v Commission (1973).

Article 101 prohibits agreements or concerted practices between undertakings which restrict competition.

Article 102 prohibits undertakings that hold dominant position to abuse their market power.

Both Article 101 and Article 102 have direct effect: Case C-127/73 BRT v SABAM (1974).

You can download TFEU here: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:12012E/TXT

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Article 101 TFEU

Article 101(1) states:

The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: 

(a) directly or indirectly fix purchase or selling prices or any other trading conditions; 

(b) limit or control production, markets, technical development, or investment; 

(c) share markets or sources of supply; 

(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; 

(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

Article 101 is concerned with the conduct of undertakings and not legislation or regulations adopted by Member States: Case C-267/86 Van Eycke v ASPA (1988)

There are four requirements to prove a violation of Article 101:

1. Agreements, decisions or concerted practices
2. An effect on trade between Member States
3. The agreement or decision or concerted practice has the object or effect of preventing, restricting or distorting competition within the internal market, to an appreciable extant
4. The agreement, decision or concerted practice has prevented, restricted or distorted competition within the internal market to an appreciable extent (the de minis rule)

The possible conducts which may trigger Article 101 include:

• Price fixing: Cases C-89 etc/85 Re Woodpulp (Ahlstrom Oy v Commission) (1994)
• Limitation of production: Case T-41/96 Bayer v Commission (not to resell customers located in other territories)
• Market-sharing: Case C-41/69 ACF Chemiefarma NV v Commission (The Quinine Cartel Case) (1970)
• Market-allocation: Case C-56 & 58/64 Consten and Grundig v Commission (1966)
• Unfair trading terms: Case C-95/04 British Airways v Commission (2007)
• Exclusive distributorship: Case 56/65 STM v Maschinenbau Ulm (1966)

Article 101(2) provides that any agreements prohibited pursuant to Article 101(1) are automatically void.

Article 101 TFEU - Agreement between undertakings

For there to be a violation of Article 101, one of the following must exist:

1. an agreement between undertakings
2. a decision of an association of undertakings
3. a concerted practice between undertakings

According to Case C-41/90 Höfner and Elser (1991), ‘the concept of undertaking encompasses every entity engaged in an economic activity regardless of the legal status of the entity and the way in which it is financed’.

Hence, any entity conducting a commercial or economic activity (e.g. company, partnership, sole trader, cooperative) is subject to the competition rules.

However, state bodies which purchase goods from public funds for use in the public health systems of the Member States are not undertakings and are therefore not subject to action under Article 101.

• In Case C-205/03P FENIN v Commission (2006), the CJEU found that the purchasing of goods is not an economic activity as defined in Case C-41/90 Höfner and Elser (1991) when the goods are not offered for resale but used to perform a public function (such as social welfare). Rather, the Court stated that ‘it is the activity consisting in offering goods and services on a given market that is the characteristic feature of an economic activity’.

Parents and subsidiaries within the same corporate group are regarded as a ‘single undertaking’: Case 15/74 Centrafarm v Sterling Drug (1974).

• In Joined Cases C-628/10 P and C-14/11 P Alliance One International and Standard Commercial Tabacco v Commisison (2012), the Court held that the mere fact that a parent company and its subsidiary exercised, during a certain period, joint control of the subsidiary which has committed the infringement can satisfy a finding that those companies formed an undertaking. However, this is provided the parent companies did, in fact, exercise decisive influence over the commercial policy of the subsidiary which committed the infringement.

Both vertical and horizontal agreement are caught: Case C-56 & 58/64 Consten and Grundig v Commission (1966).

• In Case C-56 & 58/64 Consten and Grundig v Commission (1966), a German radio manufacturer G and a French distributor C agreed to make C the sole distributor of G’s radios in France and limited how the radios would be imported and exported. The vertical agreement was held to be anti-competitive.
• In Case C-32/11 Allianz Hungária (2013), the Court held that agreements concerning the price of repairs of insured vehicles concluded between insurance companies and repair shops have an anti-competitive object and are therefore prohibited under Article 101.

A violation to Article 101 does not requires a formal agreement:

• There is no requirement that there must be a written or legally enforceable contract for there to be an agreement. In Case C-41/69 ACF Chemiefarma NV v Commission (1970), nothing had been committed to paper as the collusion was based upon a ‘gentleman’s agreement’. The CJEU held that such a 'gentleman's agreement' was sufficient for Article 101 to operate.
• There is no requirement of 'formality' and a single casual meeting may suffice. In Case C-8/08 T-Mobile Netherlands and Others v NMa (2009), the CJEU held that a single meeting between competitors constitutes a sufficient basis on which to implement the anti-competitive object which the participating undertakings aim to achieve’.The burden of proof was on the undertaking concerned to prove that it did not participate in the implementation of the agreement: Case C-49/92 Commission v Anic Partecipazioni (1999).
• In Case C-51/92 Hercules Chemicals v Commission (1999), the CJEU confirmed that an agreement need not necessarily be a ‘one-off’ event. It can be the result of a process lasting years.

The issue often arises where a manufacturer unilaterally imposes anti-competitive terms on its distributors. The position of the court used to be if the recipient of the unilateral agreement have acquiesced and continued to deal with the manufacturer, there is an agreement. However, in the following cases the Court confirmed that there is no agreement if there is no ‘common interest’ between the issuer and the recipient:

• Case T-41/96 Bayer v Commission (2000), the Bayer groups, one the main European chemical and pharmaceutical groups, produces and market a medical products ‘Adalat’. It had reduced its supplies of the ‘Adalat’ to French and Spanish wholesalers who were re-exporting the drugs (‘parallel imports’) to the UK where prices were at least 40 per cent higher. Bayer wanted to keep these markets separate so that it could maintain the higher price level in the UK. The Commission decided that there was an agreement between the wholesalers and Bayer not to export to the UK, even though there was evidence that the wholesalers had in fact done their utmost to obtain supplies for re-export to ‘get round’ the restrictions imposed by Bayer.
• The Court annulled the Commission’s decision against Bayer on the grounds that it had not established that there was an agreement. According to the Court, for an agreement to be capable of being regarded as having concluded by tacit acceptance, it is necessary that the manifestation of the wish of one of the contracting parties to achieve an anti-competitive goal constitute an invitation to other party, whether express or implied, to fulfill that goal jointly. The mere fact that a measure adopted by the manufacturer, which has the object or effect of restricting competition, falls within the context of continuous business relations between the manufacturers and its wholesalers, is not sufficient for a finding that such an agreement exists.
• This was confirmed by the Court in Case T-62/98 Volkswagen AG v Commission (2000). The court made it clear that where there is no concurrence of wills between the issuer and recipient of such unilateral instructions, there is no agreement.

Article 101 TFEU – Decisions by associations of undertakings

The term ‘decisions’ encompasses decisions, recommendations and codes of practice – even if they are not formally binding on the members – where it is shown that members have tended to comply with them: Case 92/82 IAZ International v Commission (1983).

Restrictive rules of professional bodies can be considered as ‘decisions by association of undertaking’.

• In Case C-309/99 Wouters (2002), the rules of the Dutch bar association preventing lawyers from entering partnerships with other professionals such as accountants was capable of breaching Article 110. The individual member of the Dutch bar association were considered as ‘undertakings’ and the bar association was an ‘association of undertakings’. However, the Court held that the rule would only breach Article 110 only if it ‘beyond what was necessary in order to ensure the proper practice of the legal profession’ which, in this case, it did not.
• In Case T-111/08 MasterCard v Commission (2012), the Commission found that the MIFs (multilateral interchange fees, the proportion of the price of a payment card transaction that is retained by the card-issuing bank) had the effect of setting a floor under the costs charged to merchants and thus constituted a restriction of price competition. The Court found that the adoption of MIFs was decision by association of undertakings, since the MasterCard payment organisation was an association of undertakings before the Intellectual Property Office. The adoption of MIFs was a decision by MasterCard payment organisation before the Intellectual Property Office.
• In Case 1/12 Ordem dos Técnicos Oficiais de Contas (2013), the Court held that a regulation adopted by a professional association putting into a system of compulsory training for chartered accountants to guarantee the quality of their services constituted a restriction under Article 101.

Article 101 also covers decisions of ‘associations of associations’: Decision 94/815 Cement (1994).

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Article 101 TFEU – Concerted practice

Some basic knowledge relating to oligopoly market is required, in order to understand concerted practice.

An oligopoly market is one in which there is a small number of producers/suppliers. This small number leads to ‘interdependence’ between the members of the oligopoly and thus makes it is very difficult for any new producer to enter. According to this theory there is little point in trying to increase market share by lowering prices since the other members will promptly respond by lowering their prices too, depressing profits all round.

On the other hand, an independent price rise runs the risk of customers switching to another suppliers. The result, it is argued, is a practice of ‘price following’ in which, as soon as the ‘price leader’ raise its prices, the others immediately follow suit, enabling them all to retain their existing market shares but at a more profitable price. In this scenario, simultaneous price increases are not evidence of collusion by the companies, but merely a rational response to the market structure (‘conscious parallelism’).

A question then arises: Is the simultaneous increase in price between the undertakings in an oligopoly market considered as a concerted practice?

In Case 48/69 ICI v Commission (Dyestuffs) (1972), concerted practice was defined as ‘co-ordination between undertakings which, without having reached the stage where an agreement properly so called has been concluded, knowingly substitutes practical co-operation between them for the risks of competition’.

In Case 40/73 Suiker Unie (Sugar Cartel) (1975), the Commission had decided that a number of sugar producers had engaged in ‘concerted practices’. The producers appealed, arguing that there was no actual plan to restrict competition. The Court held that it was not necessary to prove that there was an actual plan, since Article 101 strictly precludes any direct or indirect contract which the object or effect is to either to influence the conduct on the market of an actual or potential competitor, or disclose to such an actual or potential competitor the course of conduct on the market which they themselves have decided to adopt.

Following Case 40/73 Suiker Unie (Sugar Cartel) (1975), there is concerted practice, if there is some contract between the companies concerned, and some conscious cooperation. Bilateral agreement is not required.

Exchanging commercially useful or sensitive information can, in itself, amount to a concerted practice when it enables competitors to see what strategy other competitors are pursuing and to respond accordingly.

• This includes the mere unilateral or reciprocal exchange of individualised commercially sensitive information (e.g. pricing): Case C-49/92 Commission v ANIC (1999).
• In Joined cases T-202/98, T-204/98 and T-207/98 Tate & Lyle and Others v Commission (1999), a number of companies attended a meeting with an-competitive purpose. Despite the fact that only British Sugar gave information on its future prices, it did not prevent there from being a concerted practice between undertakings for the purpose of Article 101.

It is not necessary for the Commission to prove the actual effects of the concerted practice on the market: Case C-199/92P Huls AG v Commission (1999)

However, in order to prove a concerted practice for the purpose of Article 101, it must be proven beyond reasonable doubt that concerted practice is the only plausible explanation for parallel conduct:

• In Cases C-89 etc/85 Re Woodpulp (Ahlstrom Oy v Commission) (1994), the only evidence the Commission could rely on to support its finding of concerted practice between woodpulp producers was that of simultaneous price increases, despite the fact that the producers were based in different parts of the world. The Court held that the price announcements in advance did not, per se, constitute an infringement of Article 101. The price announcements served the need of customer desiring the information to plan the cost of their paper conducts, and this provided a plausible alternative explanation for the parallel behaviour, in particular the price following in an oligopoly market.

Hence, in the absence of any evidence pointing toward concerted practice, a simultaneous price increase in an oligopoly market may not be considered as concerted practice for the purpose of Article 101, but it may fall within the realm of Article 102: Joined Case C-395/96P and C-396/96P Compagnie maritime Belge v Commission (1996).

An agreement to exclude a competitor is in breach of Article 101 even when the competitor is operating unlawfully on the market: Case C-68/12 Protimonopolný úrad Slovenskej republiky v Slovenská sporiteľňa (2013).

A little bit of extra knowledge on 'whistle-blowing'

Notice of the Competition Council on immunity from fines and reduction of fines in cartel cases (the ‘Leniency Notice’) offer companies involved in a cartel – which self-report and hand over evidence – either total immunity from fines or a reduction of fines which the Commission would have otherwise imposed on them.

In order to obtain total immunity under the leniency policy, a company which participated in a cartel must be the first one to inform the Commission of an undetected cartel by proving sufficient information to allow the Commission to launch an inspection at the premises of the companies allegedly involved in the cartel. If the Commission is already in possession of enough information to launch an inspection or has already undertaken one, the company must provide evidence that enables the Commission to prove the cartel infringement. In all cases, the company must also fully cooperate with the Commission throughout its procedure, provide it with all evidence in its possession and put an end to the infringement immediately. The cooperation with the Commission implies that the existence cannot be disclosed to any other company. The company may not benefit from the immunity if it took steps to coerce other undertakings to participate in the cartel.

Companies which do not qualify for immunity may benefit from a reduction of fines if they provide evidence that represents "significant added value" to that already in the Commission’s possession and have terminated their participation in the cartel. Evidence is considered to be of a "significant added value" for the Commission when it reinforces its ability to prove the infringement. The first company to meet these conditions is granted 30 to 50% reduction, the second 20 to 30% and subsequent companies up to 20%. 

Article 101 TFEU – An effect on trade between Member States

Similar to the free movement principles, the Union law will only be triggered by cross border element.

In Case C-56 & 58/64 Consten and Grundig v Commission (1966), the Court found that if an agreement, decision or concerted practice does not affect trade between Member States then it will fall within the relevant national competition rules and not EU law. It does not matter whether the effect is positive or negative.

Article 101 TFEU – The object or effect of preventing, restricting or distorting competition

It must be shown that the agreement, decision or concerted practice has the prevention or distortion of competition as either its object or effect.

The ‘object’ relates to its purpose; the effect relates to its consequence or impact.

The wording ‘object or effect’ suggests that it is disjunctive. This has been confirmed by CJEU in Case C-8/08 T-Mobile Netherlands and Others v NMa (2009). Hence, when anti-competitive object is established, there is no need to consider the actual effects.

The wording ‘preventing, restricting or distorting competition’ suggests that these requirements are alternative, not cumulative. This has been confirmed by CJEU in Case C-56 & 58/64 Consten and Grundig v Commission (1966).

In Case C-403 and 129/08 Football Association Premier League (2011), the CJEU stated that when the analysis of the content of the agreement does not reveal a sufficient degree of impairment of competition, then the consequences of the agreements must be considered. In addition, it must be showed that the competition has in fact been prevented, restricted or distorted to an appreciable extent.

A potential effect may be sufficient. However, a potential effect must have ‘a degree of probability which is objectively grounded in fact and law’: Case 56/65 STM v Maschinenbau Ulm (1966).

According to Case 56/65 STM v Maschinenbau Ulm (1966), in determining the effect on competition, one must compare it with the competition situation had the agreement not been implemented, and reference could be made to a number of factors, including:

• The nature and quantity of the products covered by the agreement
• The position and importance of parties on the product market concerned
• The isolated nature of the disputed agreement of its position in a series of agreements
• The severity of the clauses intended to protect the exclusive dealership
• The opportunities allowed for other commercial competitors in the same products by way of parallel re-exportation and importation

In Case 56/65 STM v Maschinenbau Ulm (1966), although there was an exclusive distributorship, but there was no attempt in the contract to blockade the allocated territory by grant of trademarks or by export bans. Thus, the agreement did not have the object of preventing, restricting or distorting competition. Neither it has the effect, as granting an exclusive territory to enable a distributor to enter a new area with no prohibition on exports, did not satisfied the degree of probability which is objectively grounded in fact and law.

Even if the parties are all within one Member State, there will likely be an effect on trade between Member States where the arrangement makes market penetration more difficult for companies from other Member States: Case 8/72 Cementhandelaren v Commission (1972).

Article 101 TFEU – The de minimis rule

The de minimis rule is not contained in the text of Article 101 but was established by the Court in Case 5/69 Volk (1969). Under the de minimis rule, certain breaches of Article 101 will be disregarded if the companies involved are relatively small and the effect of their activities on the overall competitive situation on the market is negligible.

According to Commission Notice on Agreements of Minor Importance (2001), whether an agreement, decision or concerted practice has an ‘appreciable effect’ depends solely on the markets shares of the undertaking involved:

• In case of vertical agreements between undertakings, 15 per cent threshold applies.
• In case of horizontal agreements between undertakings, 10 per cent threshold applies.
• In case of a mixed horizontal/vertical agreement or where it is difficult to classify the agreement as either horizontal or vertical, 10 per cent threshold applies.

The Notice states that agreement between small and medium-sized enterprises are in general de minimis and rarely capable of appreciably affecting intra-Union trade.

Furthermore, the Notice identified that hard core restrictions, which are price fixing and market sharing cartels, import and export bans and similar naked restrictions, are always prohibited irrespective of the market share.

The 'per se prohibition' versus the 'rule of reason' approach, and the justification to ancillary restraints

Restrictions which are objectively necessary to the main agreement and essential for its operation will not bring about a distortion of competition if it is ancillary to such clauses in an agreement that do not restrict competition but are beneficial to consumers and competition.

In Case C-519/04 Meca-Medina v Commission (2006), a case dealing with anti-doping sanctions, the Court held that the economic objective to ensure the organisation and proper conduct of competitive sport precluded the application of Article 101.

The Court has extended this rule to encompass non-economic objectives in the Case C-309/99 Wouters (2002).

In Case C-309/99 Wouters (2002), the rules of the Dutch bar association preventing lawyers from entering partnerships with other professionals such as accountants was capable of breaching Article 110. It was claimed that such rule was justified to avoid any risk of conflict of interest and to observe strict professional secrecy. This was accepted by the Court, despite ‘the effects restrictive of competition that are inherent in it as it was necessary for the proper practice of the legal profession, as organised in the Member State concerned’.

It has been argued that the Court is adopting a sort of ‘rule of reason’ test balancing the protection of certain public aims against the preservation of fair competition.

The term ‘per se prohibition' is refers to the two-stage test, whereby an anti-competitive behaviour that are prohibited under Article 101 can be exempted under Article 101(3). In order to permit exemption under this provision, it is necessary to weigh up the pro- and anti-competitive effects of the agreement concerned. Under such an approach, it must first be considered whether there is an agreement, decision or concerted practice fall within the ambit of Article 101(1) before it can be considered for exemption under Article 101(3) through an analysis of its pro- and anti-competitive effects.

This two-stage process can be contrasted with the US ‘rule of reason’ approach which balances the pro- and anti-competitive consequences of an agreement before a finding of infringement is made.

In Standard Oil Company of New Jersey v United States (1911), White CJEU stated that a standard of reason had to be applied to determine whether a restraint was within the ambit of Sherman Act 1890 (American competition legislation), and only undue or unreasonable restraint should be condemned.

The CJEU confirmed the two-stage test approach and rejected the ‘rule of reason’ alternative in Case T-112/99 Metropole Television (M6) v Commission (2001). The Court stated that those cases where the court had shown a flexible approach to the application of Article 101 ‘cannot be interpreted as establishing the existence of a rule of reason in Community competition law’. However Article 101 could not be applied, ‘wholly abstractly and without distinction’ to any agreement restricting freedom of action of one or more parties. Therefore a certain measure of economic analysis can take place in the initial application of Article 101(1) but ‘it is only in the precise framework of [Article 101(3)]’ that the pro and anti-competitive aspects of a restriction may be weighed’.

Professor Richard Whish has suggested that such justifications are conceptually similar to those cases which are concerned with ‘commercial ancillarity’ where ‘restrictions necessary to achieve a legitimate commercial purpose fall outside Article [101(1)]’.

Horspool and Humphreys notes that Case C-309/99 Wouters (2002) and Case C-519/04 Meca-Medina v Commission (2006) concern ‘regulatory’ ancillarity where by the restrictions are ancillary to the legitimate objectives pursued by the regulatory body and hence do not infringe Article 101.

Exemptions under Article 101(3) TFEU – Individual exemptions

Article 101(3) TFEU provides that agreements that satisfy two positive requirements and two negative requirements are not void.

The positive requirements are:

1. The restriction contributes to improving the production or distribution of goods or to promoting technical or economic progress
2. Consumers receive a fair share of the resulting benefit from the restriction

The negative requirements are:

1. The restriction on competition must be indispensable to achieve (the improvement or distribution of goods or the promotion of technical or economic progress)
2. The restriction must not put the parties in a position to eliminate competition ‘in respect of a substantial part of the products in question’.

Hence, it applies to those agreements between individual firms which may be anti-competitive in the short term but pro-competition in the long term.

In Commission decision 00/475 in case CECED (2000), an individual exemption was granted to a manufacturers’ association of washing machines that had signed an agreement to improve the energy efficiency of machines. This would have been anti-competitive under Article 101(1) but that it offered long-term benefits to consumers in the form of cheaper bills; the efficiencies used the least restrictive option possible and competition still existed because consumers could choose between model based upon price and design.

Exemptions under Regulation 330/2010 – Block exemption for vertical agreements

The block exemption is designed to reduce the burden on the Commission. While individual exemptions are assessed on a case-by-case basis, the block exemptions automatically leads to the exemption from the application of Article 101(1) – there is no need to notify the Commission.

The original system of block exemption worked on a very simplistic basis. Two lists were created:

1. Those on the ‘white list’ were acceptable and could be inserted into agreements;
2. Those on the ‘black list’ would lead to refusal of exemption.

The simple categorisation was found to be flawed. Following the criticisms of the original rule, the Commission initiated a reform in 1999, which is Regulation 2790/1999. The Regulation allows companies to benefit from a ‘safe haven’ within which they are no longer obliged to assess the validity of their agreements under the EU competition rules.

Under the Regulation 330/2010 on Vertical agreement, together with the Commission’s Guidelines on Vertical Restraints in EC Competition Policy (2000), a presumption of compatibility is possible where the vertical agreement satisfies the terms laid out in Article 101(3), involves retailers with less than 50 million euros annual turnover and less than 30 per cent market share, and does not include use of any hardcore restrictions such as pricing fixing or market allocation.

Regulation 330/2010 covers all types of basic vertical agreements, for example exclusive and non-exclusive distribution agreements, selective distribution agreements, franchising, and so on.

There are also block exemptions for horizontal agreements:

1. Regulation 771/2004 relates to categories of technology transfer
2. Regulation 1217/2010 relates to categories of research and development agreements
3. Regulation 1218/2010 relates to categories of specialization agreements

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Article 102 TFEU

Article 102 states:

Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. 

Such abuse may, in particular, consist in: 

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; 

(b) limiting production, markets or technical development to the prejudice of consumers;

(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; 

(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

Article 102 prohibits undertaking that hold dominant position to abuse their market power. Being dominant itself is not an offence, but it is the abuse of the dominant position that is prohibited by Article 102 TFEU.

There are four requirements to prove a violation of Article 102:

1. Undertakings
2. Dominant position within the internal market or in a substantial part of it
3. Abuse
4. An effect on trade between Member States

Article 102 TFEU - Dominance

Dominance is a key concept – a firm engaging in abusive behaviour will not attract Article 102 if it is not dominant.

In Case 27/76 United Brands v Commission (1978), the Court defined a dominant position as ‘a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers’

Hence, the question of whether an undertaking possesses a dominant position requires a detailed economic analysis. There are a number of factors to be considered, including:

The relevant market: the product, geographic and temporal market

• Market share
• Barriers to entry
• Dominance – The relevant market

A market can be defined by specific products, but also by geography (the territory over which goods are made available) and time (the seasons in which goods are made available).

The existence of product market depends on the ‘interchangeability’ of the product. A product within a product market is ‘interchangeable’ by consumers by reason of its characteristic, price and intended use. The CJEU in Case 27/76 United Brands v Commission (1978) explained that a relevant product is dominant if it is ‘interchangeable’, or in economic term, the cross elasticity of demand is high, in the event of rising of price.

Following the Commission Notice on the Definition of the Relevant Market for the Purposes of Community Competition Law (1997), if there is a ‘small but significant non-transitory increase in price’ (‘SSNIP’), the relevant product would not be ‘dominant’ if it is not interchangeable, meaning that customers would still continue to buy the relevant product despite the price rise.

In Case 27/76 United Brands v Commission (1978), the bananas were found to be not interchangeable with other kinds of fruits, as it fulfills specific consumer needs and are in a product market of their own. The consumers would still continue to buy the bananas even if there is significant increase in price. Consequently an increase in price is unlikely to impact upon customer behaviour and not fall within the ambit of Article 102.

The cross elasticity of supply is also one of the factors to be considered. If the suppliers of other products can quickly and easily switch to make the product in question, the substitutability of supply is high, then the relevant product in question is likely to be ‘dominant’ in the relevant market.

In Case 6/72 Continental Can v Commission (1973), the Commission decision that Continental Can was dominant on the market for light metals for meat and fish, was annulled because, inter alia, it could not be shown that the cans in question can be easily manufactured.

In Case 322/18 Michelin v Commission (1983), it was not easy to switch from producing tyres for cars to producing tyres for heavy goods vehicles so there was no elasticity of supply between them. They were therefore in separate product market.

The geographical market requires identification of ‘a clearly defined geographical area in which it is marketed and where the conditions of competition are sufficiently homogenous for the effect of the economic power of the undertaking concerned to be evaluated’: Case 27/76 United Brands v Commission (1978).

The question of geographical market is a practical one, and the references are made to the:

• Empirical evidence of consumption
• Production patterns
• Volume
• Purchasing habits

The geographical market may be global and local. In Case C-95/04 British Airways v Commission (2007), the geographical market was identified in the territory of the UK; In Case T-30/89 Hilti v Commission (1991), it covered the whole EU; In Cases C-89 etc/85 Re Woodpulp (Ahlstrom Oy v Commission) (1994), it covered the whole globe.

Certain products have its temporal market because by its nature there may be limited production times

• For example, the selling time of tickets for the World Cup football matches held in France in 1998 was limited: Commission Decision 1998 Football World Cup (2000).
• However, the temporal market for bananas is the whole agricultural year, since bananas are ripened throughout the years: Case 27/76 United Brands v Commission (1978).

Dominance – Market Share

The market share must have been held for a period of time: Case 85/76 Hoffmann-La Roche v Commission (1979).

The CJEU held that a company with a 50 per cent share or above will normally be dominant: Case 62/86 AKZO Chemie v Commission (1991).

However, it is also important to compare the market shares of other companies on the market. In Case C-95/04 British Airways v Commission (2007), the CJEU found British Airways to be dominant on the market for air travel agency services, where it had a share of 39.7 per cent. The Court took into account the fact that the nearest rival, Virgin, had only a 5.5 per cent share.

Dominance – Barriers to entry

In assessing the dominance of an undertaking, barriers to the access to the market of new companies must be taken into account. This requires an assessment of the prevailing barriers to entry for potential competitors which might enter the market.

Possible ‘barriers to entry’ include:

• Legal provisions: Case 333/94P Tetra Pak Int SA v Commission (1996)
• Superior technology: Case 322/18 Michelin v Commission (1983)
• Deep pocket: Case 27/76 United Brands v Commission (1978)
• Economies of scale, vertical integration and well-developed distribution systems: Case 27/76 United Brands v Commission (1978)
• Product differentiation/brand image: Case 27/76 United Brands v Commission (1978)

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Article 102 TFEU - Collective dominance

Two or more independent undertakings can be regarded as collective dominance and thus capable of breaching Article 102 TFEU: Case T-68/89 and T-77-78/89 Società Italiana Vetro SpA v Commission (Flat Glass) (1992).

In Case C-393/92 Municipality of Almelo and Others v Energiebedrijf IJsselmij NV (1994), the CJEU held that ‘in order for collective dominance to exist, the undertakings in the group must be linked in such a way that they adopt the same conduct on the market’.

There must be ‘links’ or ‘other factors which give rise to a connection between the undertakings concerned’, which ‘enable them to act together independently of their competitors, their customers and consumers’: Joined Case C-395/96P and C-396/96P Compagnie maritime Belge v Commission (1996).

The existence of an agreement or concerted practice between the undertakings does not necessarily create such economic linked. However, an agreement or concerted practice between the undertakings can ‘result in the undertakings concerned being so linked as to their conduct on a particular market that they present themselves on the market as a collective entity vis-à-vis their competitors’: Joined Case C-395/96P and C-396/96P Compagnie maritime Belge v Commission (1996).

The ‘parallel behaviour’ of oligopolies, which is legal under Article 101, may be caught by Article 102 to see whether it constitutes collective dominance: Joined Case C-395/96P and C-396/96P Compagnie maritime Belge v Commission (1996).

In Case C-497/99P Irish Sugar v Commission (2001), the Commission’s finding of ‘vertical’ collective dominance between Irish Sugar and a distributor of sugar, Sugar Distributor Ltd, was upheld by the Court. Factors that contributed to its decision were the structure of policy-making between the companies and the direct economic ties between them. The Court also held that it is possible to establish abuse of a dominant position in a case of collective dominance whether there has been ‘point’ or ‘individual’ abuse. That is, it is only necessary for one of the companies to have carried out the abuse.

Article 102 TFEU - Substantial part of the internal market

Article 102 requires that an undertaking must be dominant ‘within the internal market or in a substantial part of it’. This has been interpreted as a de minimus threshold.

In Case 40/73 Suiker Unie (Sugar Cartel) (1975), it was held that a dominant position in Southern Germany was a ‘substantial part of the internal market’.

Article 102 TFEU – Abuse

The CJEU in Case 85/76 Hoffmann-La Roche v Commission (1979) has defined ‘abuse’ as behaviour which has ‘the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition’.

A ‘competition on the merits’, such as offering better quality products or lower prices than your competitors, is not an abuse. An abuse is where the dominant company uses other means to outflank or exclude competition.

Both ‘exploitative’ abuses and ‘anti-competitive’ abuses are caught by Article 102. The former refers to abuses which exploit customers (e.g. excessive prices), the latter refers to abuse which affect the competitive structure of the market by excluding actual or potential competitors.

In Case 322/18 Michelin v Commission (1983), the CJEU states that a dominant company has a ‘special responsibility’ not to act in a way that will lead to a decrease of competition on the market.

Abuse can take many forms. Different forms of abuse are subject to different tests.

Abuse – Excessive prices

Using power on the market to grant an excessively high price is an abuse, albeit difficult to prove.

The CJEU suggested that it is necessary to work out the difference between the production costs and the selling price to see if the company is making ‘super-profits’: Case 27/76 United Brands v Commission (1978).

On the other hand, economists argued that the market price of goods is not just a question of production costs but also of supply and demand.

Abuse – Predatory pricing

Predatory pricing refers to the practice whereby an undertaking prices it product so low in the sense that the competitors cannot survive and are driven from the market. Once the competitors are excluded from the market the undertaking then increase the price in order to recoup its losses.

It is not easy to decide whether the lower price is the result of ‘fair’ competition, or whether it is a below-cost price to exclude competitors from the market, as the dominant company may simply be more efficient and able to produce the goods more cheaply.

In Case 62/86 AKZO Chemie v Commission (1991), the CJEU decided that pricing below ‘average variable costs’ was automatically an abuse because the only reason a company would charge less for a product than the cost of the materials/labour used, would be to drive out competitors. While the primary objective of economic entities is profit maximisation, the only explanation to prices below variable costs is to eliminate competitors.

While the test appears to be over-simplistic, it has been suggested that evidence of an actual plan to drive out competitors had to be shown.

Abuse – Selective pricing

The term selective pricing is refers to the act of setting different prices for the same product or service in different market.

In Case T-228/97 Irish Sugar v Commission (1999), Irish Sugar offered lower prices to its competitors’ customers while maintaining higher prices for its regular customers. The Court held this policy of selective pricing was abuse.

Abuse – Fidelity discounts (Loyalty rebate)

In Case 85/76 Hoffmann-La Roche v Commission (1979), it was held that offering discounts in return for customers agreeing to buy all their vitamins from the dominant company was condemned as abuse. It deprived competitors of the opportunity of selling to those customers.

This is to be contrasted with a straightforward ‘volume’ discount, whereby the customer obtain a bigger discount if they but a large quantity of the goods. Such discount is not an abuse because it is simply a way of passing on to the customer some of the savings in transaction costs. This type of discount does not exclude competitors a priori as they are free to compete for that customer’s order.

If the discount in question limited the dealer’s choice of supplier and made access to the market more difficult for competitors, it would be considered as an abuse. For example, in Case 322/18 Michelin v Commission (1983), the discounts in question are granted according to the quantities sold during a relatively long reference period, with a result that it creates the pressure on the side of the buyer to increase the purchase in order to obtain the discount.

In Case C-95/04 British Airways v Commission (2007), British Airways abused its dominant position in the air travel agency market by offering travel agents loyalty payments and commissions which were not related to increased efficiency. These policies tied travel agents to British Airways. The Court upheld the Commission’s finding that the incentive schemes offered were also contrary to Article 102(c) since travel agents who sold the same number of tickets received different commission rates.

In Case C-209/10 Post Denmark (2012), Deutsche Post offered discount to certain former customers of a competitor. The Court made it clear that such a policy cannot be considered as an exclusionary abuse merely because the price the dominant undertaking charged was lower than the average costs of the activity concerned. Instead, it was necessary to consider whether the pricing policy produced an actual or likely exclusionary effect, to the detriment of competition and, thereby, consumers’ interest.

Abuse – Tying (Mixed bundling)

It is an abuse for a dominant obliges customers to buy another product as a condition of supplying the ‘main product’. It has the effect of extending the dominance from the main product market to the second product.

In Case 333/94P Tetra Pak v Commission (1996), Tetra Park insisted that buyers of its primary product (‘aseptic packaging machines’) should buy the secondary products from them as well. This was an abuse because there were other manufacturers of the secondary products, who were thereby excluded from the competition.

In Case T-201/04 Microsoft v Commission (2007), whose decision was later upheld in Case T-167/08 Microsoft Corp v Commission (2012) the Court upheld the Commission’s decision that Microsoft engaged in the abusive bundling of its media player with the Windows operating system. The Court has given four conditions to support the Commission’s finding, which are all present in the Microsoft’s case:

1. The undertaking must have a dominant position on the market for the bundling product
2. The bundling product and the bundled product must be two separate products
3. Consumers must not have a choice to obtain the bundling product without also obtaining the bundled product
4. The practice must foreclose the competition

Abuse – Refusal to supply

It is an abuse for a dominant supplier of raw materials to cut off supplies to a company which uses those materials to make another product, so that the dominant company can start making that product itself without competition from that other company: Case 6 & 7/73 Commercial Solvents v Commission (1974).

It is also an abuse to refuse to supply a distributor in order to punish them for promoting a competitor’s product.

In Case 27/76 United Brands v Commission (1978), United Brands refused to supply goods to existing customers, which in the first case, a distributor was to start a rival business and, in the second, because the distributor’s conduct was disloyal with regard to United Brands. Such refusals constitute abuses.

In Case 310/93P BPB Industries and British Gypsum v Commission (1995), the CJEU condemned BPB for giving priority, in a time of short-age, to those “loyal customers”, who were almost exclusively buying BPB’s products over those who were normally buying plasterboard from BPB’s competitors.

Abuse – Refusal to supply ‘essential facilities’

In Case T-69 etc/89 RTE, BBC & ITP v Commission (1991), the Court states that an abuse does not only arise where the refusal to supply is against a ‘long-standing’ customer. Refusing to grant a copy licence to a new customer was also an abuse since it prevented the emergency of a new product for which there was customer demand.

A refusal to supply ‘essential facilities’ may constitute abuse, but the court has adopted a cautious approach.

In Case 7/97 Bronner v Mediaprint (1998), the Court laid down the strict test that the facility must be indispensable and that there are ‘technical, legal or even economic obstacles capable of making it impossible, or even unreasonably difficult’ to compete without access to the facility concerned.

Case 418/01 IMS Health (2004) concerned a refusal to grant a licence for a data system which was protected by copyright. The Court held that for a refusal to supply to be abusive, three cumulative conditions had to be fulfilled:

1. The refusal must prevent the emergence of a new product for which there was a potential consumer demand
2. The refusal must be unjustified
3. The refusal must exclude any competition on the secondary market

According to Case T-201/04 Microsoft v Commission (2007), while the ‘refusal by the owner of an intellectual property right to grant a licence, even where it is the act of an undertaking in a dominant position, cannot in itself constitute an abuse of a dominant position, the exercise of the exclusive right by the owner might, in exceptional circumstances, give rise to abusive conduct’. For the exceptional circumstances to apply, the three IMS conditions must be fulfilled.

It was also not necessary that the refusal to supply eliminated all competition; rather, ‘what is required is that the refusal to supply the licence…is liable, or is likely to, eliminate all effective competition on the market’. By refusing to license the interoperability information, Microsoft was effectively able to eliminate competition in the relevant market: Case T-201/04 Microsoft v Commission (2007)

In 2004 Commission Decision, Microsoft was found to abuse its dominant position by refusing to supply interoperability information to rivals on the market for work group server OS operating systems, and tying Media Player software with Window OS. It was fined € 497 million. The decision also ordered Microsoft to supply the information to its competitors for which it would be entitled to ‘reasonable remuneration’ for licensing its software. When Microsoft failed to comply, a further decision was taken in November 2005 in which the Commission warned Microsoft that it would impose a daily fine of up to € 2 million under its powers in Article 24(1) Regulation 1/2003. In July 2006, Microsoft was fined € 280 million for its failure to comply.

In Case T-201/04 Microsoft v Commission (2007) the Court upheld the Commission’s 2004 decision. Although the Court found that the refusal to supply did not prevent the appearance of new product, but the Court stated that the appearance of new product was not the only decisive factor in determining whether a refusal to license an intellectual property right is capable of causing prejudice to consumers for the purpose of Article 102. It was sufficient that the refusal to supply ‘limited technical development to the prejudice of consumers’.

Article 102 TFEU – Objective justification

In Case C-209/10 Post Denmark (2012), the Court ruled that it is open to an undertaking in a dominant position to provide justification for behaviour liable to be caught by the prohibition laid down in Article 102 either by demonstrating that its conduct was objectively necessary or that the exclusionary effect produced may be counterbalanced or outweighed by advantages that also benefit consumers.

According to Case T-201/04 Microsoft v Commission (2007), it is for the dominant undertaking concerned to raise any plea of objective justification and to support it with arguments and evidence.

The objective justification is subject to the principle of proportionality: Case 27/76 United Brands v Commission (1978).

The possible objective justifications include:

• Efficiency defence
• Objective Necessity Defence (e.g. the protection of public health or safety)
• Reasonable steps by a dominant firm to protect its commercial interests

According to Case C-95/04 British Airways plc v Commission (2007), efficiencies can only be taken into account as an objective justification if the exclusionary effect arising from the conduct that is disadvantageous for competition may be counterbalanced or outweighed by advantages in terms of efficiency that also benefits the consumer.

According to the guidance published by the Commission, for the efficiency defence to operate it must be proven that:

1. Efficiencies will be achieved because of certain actions, for example, improvement of the quality of products;
2. Certain actions are necessary in order to increase efficiencies, i.e. it is not possible to rely on the other, not so anti-competitive actions;
3. Increased efficiencies compensate negative effect on competition and consumers;
4. Actions should not limit competition, since competition is the source of economic effectiveness.

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