Competition Law Notes - Article 82: Abuse of Market Power

• Art 82 - EC Treaty

Abuse by one or more of a dominant position

• imposing unfair purchase or selling prices or other unfair trading conditions
• limiting production..
• applying dissimilar conditions to equivalent transactions
• making the conclusion of contracts subject to acceptance of supplementary obligations
• Undertaking
• Entity carrying on economic activity
• Covers companies, partnerships, trade associations, nationalised industries, state bodies in commercial activity
• Dominance - United Brands - ECJ

...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

• Importance of market shares?
• AKZO – 50% or more
• 40-45% other factors
• No of competitors
• Strength of competitors
• Gap between dominant firm and next best competitor
• Barriers to entry most important factor

• Problem of oligopoly
• Because only a few sellers all sellers recognise that they are largely interdependent. Therefore each seller accounts for its rivals reactions when setting output and prices. Oligopolies will not drop prices to gain market share because they expect the others will drop their prices immediately with similar price cuts and all sellers will end up with original market shares but at a lower price.  Pricing decisions are determined not just by oligopolies’ cost but also estimate of rivals pricing strategies.  Game theory is used to predict outcomes.
• There are advantages to co-ordination on price – if they could collude they could raise price above a competitive level and earn monopoly profits.
• Often prices in oligopoly markets are similar – is this the result of collusion or how the market operates?
• Collective Dominance

“one or more undertakings”

Italian Flat Glass

Nothing in principle ‘to prevent two or more independent economic entities from being on a specific market, united by such links that, by virtue of that fact, together they hold a dominant position vis a vis the other operators on the same market’

• Compagnie Maritime Belge Transports v Commission

“whether economic links exist which enable them to act independently of their competitors”

- existence of an agreement in law is not indispensable to a finding of collective dominance

-structure of the market important

• Joint or Collective Dominance

CFI cases in Gencor (1999) and Airtours (2002)  - Par. 41.

Three conditions necessary for coordination to be sustainable:

• Firms must be able to monitor whether terms of coordination are being adhered to
• Credible deterrent mechanism can be activated if deviation is detected
• Reactions of outsiders: current and future competitors, customers, should not be able to jeopardise the results expected from the coordination.
• Super dominance

Compagnie Maritime Belge v Commission [2000]

“position of such overwhelming dominance verging on monopoly....particularly onerous special obligation affecting such a dominant undertaking not to impair further the structure of the feeble existing competition...” can not exploit that power to preclude the emergence of either a new or additional competitor

• Monopolization: the abuse not the mere possession of market power
• J Learned Hand in US v Aluminum (1945) (US)

“[Alcoa] may not have achieved monopoly; monopoly may have been thrust upon it” or “a single producer may be the sole survivor out of a group of active competitors, merely by virtue of his superior skill, foresight and industry… the Act does not mean to condemn the resultant of those very forces which it is its prime object to foster.. The successful competitor, having been urged to compete, must not be turned upon when he wins”.

• Hoffmann-La Roche

The concept of abuse is an objective concept… the degree of competition is weakened…through recourse to methods different from those which condition normal competition in products or services

• Michelin v Commission(1983)

A firm in a dominant position “has a special responsibility not to allow its conduct to impair undistorted competition in the common market”

• Role of intent
• Rose Acre Farms (7th 1989)

Judge Easterbrook:

Intent does not help to separate competition from attempted monopolisation and invites juries to penalise hard competition.  It also complicates litigation.  Lawyers rummage through business records seeking to discover titbits that will sound impressive (or aggressive) when read to a jury. Traipsing through the warehouses of business in search of misleading evidence both increases the costs of litigation and reduces the accuracy of decisions…

…Stripping intent away brings the real economic questions to the fore at the same time as it streamlines antitrust litigation.  Although reference to intent in principle could help disambiguate bits of economic evidence in rare cases, the cost (in money and error) of searching for these rare cases is too high - in large measure because the evidence offered to prove intent will be even more ambiguous than the economic data it seeks to illuminate....

• Categories of abuse

Exploitative: e.g. pricing practices which can exploit customers, suppliers

Exclusionary: directed at excluding a competitor, deterring new entry

• Types of abuse

Excessive pricing

Refusal to supply, refusal to license IP

Denial of access to an essential facility

Predatory pricing

Price squeeze

Price discrimination; loyalty rebates

Tying

“within the Common Market or a substantial part of it”

“effect on trade between Member States”

No need for actual effect, only that capable of affecting trade, pattern of trade between Member States such as might prejudice the aim of a single market

• Refusal to Supply

United States v Colgate (1919)

...A firm “generally has a right to deal, or refuse to deal, with whomever it likes, as long as it does so independently”

• Raising rivals costs
• Induce rivals to exit the industry by raising their costs
• higher cost rival quickly reduces output allowing the predator to immediately raise price or market share
• Leverage theory of monopoly

Use of monopoly position at one level of the market to gain a competitive advantage in another (downstream) market where the monopolist has no market power

• United Brands

The European Court of Justice found that there was an abuse of a dominant position:

...an undertaking in a dominant position for the purpose of marketing a product - which cashes in on the reputation of a brand name known and valued by the customers - cannot stop supplying a long standing customer who abides by regular commercial practice, if the orders placed by that customer are in no way out of the ordinary

• United Brands - ECJ

The ECJ found that the refusal to sell...

“would limit markets to the prejudice of consumers and would amount to discrimination which might in the end eliminate a trading party from the relevant market”

• Disruption of previous supply
• No Objective Justification

Quality defence against a wayward distributor could not be countenanced if its purpose was to strengthen the dominant position.  The action complained of must also be "proportionate to the threat taking into account the economic strength" of the competition

• Objective Justification
• Action must be proportionate
• Poor credit record; safety
• Promotion of rival
• Scarce resources
• Commercial Solvents v Commission (1974)

...an undertaking which has a dominant position in the market in raw materials and which, with the object of reserving such raw materials for manufacturing its own derivatives, refuses to supply a customer, which is itself a manufacturer of these derivatives, and therefore risks eliminating all competition on the part of this customer, is abusing its dominant position.

• EC Article 82 Review (2005)
  Refusal to supply an input (para 9.2.2)
• The behaviour is properly a refusal to supply
• The refusing undertaking is dominant
• The input is indispensable
• The refusal is likely to have a negative effect on competition
• The refusal is not objectively justified
• Indispensability
• ‘Indispensability’, as defined as ‘there is no realistic actual or potential substitute to it’
• Essential Facility Doctrine
  MCI Communications v AT & T
• control of the essential facility by a monopolist
• competitors inability practically or reasonably to duplicate
• denial of the use of the facility
• feasibility of providing the facility
• US caselaw
• United States v Terminal Railroad Association 224 US 383 (1912)
• Otter Tail Power Co v US 410 US 366 (1973)
• Associated Press v United States 326 US 1 (1945).
• Hecht v Pro-Football Inc (1977)

[The facility] need not be indispensable; it is sufficient if duplication of the facility would be economically infeasible and the denial of its use inflicts a severe handicap on potential market entrants

• Hecht v Pro-Football Inc (1977)

Antitrust laws do not require that an essential facility be shared if such sharing would be impractical or would inhibit the defendant’s ability to serve its customers adequately.

Only one EC Commission decision has mentioned the term: Sea Containers v Stena Sealink – Interim measures OJ 1994

• EC decisions (EF type cases)
• Sealink - Holyhead (1992) EC Commission
• Radio Telefis Eirann v Independent Television Publications (Magill) [1995]
• Tierce Ladbroke v Commission [1997] 5 CMLR 309
• Oscar Bronner v Mediaprint [1998] ECR I-7791
• In Sealink/B & I Holyhead: Interim Measures, (1992)

…the construction or the features of the facility are such that it is not possible to alter one competitor’s service in the way chosen without harming the other’s…even if the latter’s actions make, or are primarily intended to make its operations more efficient.. such an undertaking is under a duty not to impose a competitive disadvantage upon its competitor in the use of a shared facility without objective justification

• Oscar Bronner v Mediaprint

ECJ: 1. the refusal must be likely to eliminate all competition in the relevant market; 2. the service in itself must be indispensable to carrying on that person’s business (inasmuch as there is no actual or potential substitute); 3. it must be economically unviable for competitors to replicate the asset; and 4. the refusal must be incapable of being objectively justified.

• Oscar Bronner v Mediaprint ECJ

‘..in order to demonstrate that the creation of such a system is not a realistic potential alternative and that access to the existing system is therefore indispensable, it is not enough to argue that it is not economically viable by reason of the small circulation of the daily newspaper or newspapers to be distributed..’

• Oscar Bronner v Mediaprint ECJ

‘..For such access to be capable of being regarded as indispensable, it would be necessary at the very least to establish…it is not economically viable to create a second home-delivery scheme for the distribution of daily newspapers with a circulation comparable to that of the daily newspapers distributed  by the existing scheme..’

• Oscar Bronner

‘Moreover, it does not appear that there are any technical, legal or even economic obstacles capable of making it impossible, or even unreasonably difficult, for any other publisher of daily newspapers to establish, alone or in co-operation with other publishers, its own nationwide home-delivery scheme and use it to distribute its own daily newspapers’

• Abuse of IP under Article 82

Refusal to license

• Renault [1990] 4 CMLR 265
• Volvo v Erik Veng [1989] 4 CMLR 122
• Radio Telefis Eirann v Independent Television Publications (Magill) [1995] 4 CMLR 718
• IMS Health v NDC Health [2004] 4 CMLR 28
• EC: Microsoft decision (2004) and (2007) CFI
• Abuse of IP rights

Assessment of whether the IP right is no longer being exercised according to its essential function but is being used instead to achieve an anticompetitive purpose.  i.e. refusal to licence involves some leverage and foreclosure of the downstream market

• Refusal to supply IP - Magill

‘Exceptional circumstances’ are required before a ‘refusal to supply’ will be abusive.  The material: was the indispensable raw material for compiling a weekly television guide. It prevented the appearance of a new product for which there was consumer demand and eliminated all competition in this secondary market, for which there was no justification.

• IMS Health v NDC Health

IMS Health, which collected data on pharmaceutical sales and prescriptions, refused to licence to competitors its copyrighted format (‘brick structure’) for processing regional pharmaceutical sales data to enable them to compete in the same data provision market.

• IMS Health

On a reference from a German Court under Article 234, the European Court confirmed that the Magill requirements, including the condition that it prevented the appearance of a ‘new product’, were cumulative elements of a refusal to licence under Article 82

• IMS – ‘new product’

‘new product’ was defined as arising where an undertaking ‘does not intend to limit itself essentially to duplicating the goods or services already offered on the secondary market … but intends to produce new goods or services not offered by the owner of the right and for which there is a potential consumer demand’

• Tying

Art 82(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 nature of such contracts.

• Test (ref para 794 - MS EC)
• The tying and the tied products are two separate products
• The undertaking is dominant in the market for the tying product
• No choice to obtain the tying product without the tied product (coercion)
• Forecloses competition in the tied market
• Tetra Pak II

   Tetra Pak required the customers to whom it supplied machines to use only Tetra Pak cartons and to obtain them from Tetra Pak

Found an abuse under art 82 even though the tying took place in a market where  TP was not dominant

• Objective Justification

Can look at whether the tying or bundling amounts to efficiencies

Burden on undertaking claiming efficiencies

- efficiencies likely to be realized

- conduct necessary to achieve the efficiencies

- the efficiencies benefit consumers

• Exclusive Dealing
• buyer contracts to obtain all or most of its requirements (in some ways just another formulation of a tie in) from the dominant supplier
• Hoffmann-La Roche

Obligations to buy a firm’s total requirements or a large part of them and loyalty discounts forecloses competition by making it difficult for a smaller makers of vitamins, who cannot supply a large percentage of a large customer’s requirements to compete

• Art 82(c)

- applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage

- two purchasers pay a different price for the same quantity of the same product depending on whether they obtain their supplies exclusively from the undertaking in a dominant position or have several sources of supply

• Hoffmann-La Roche

The number of customers offered loyalty rebates was only 22% and only 2% of the market was foreclosed – insufficient for an Article 81(1) infringement but breach of Article 82 because it was conduct undertaken by a firm with a dominant position

• Requirements contracts

An obligation to purchase all of one’s requirements from a dominant firm may be a breach of Art 82 (cf Hoffmann-La Roche). The extent and duration of the agreement are the decisive factors

• Van den Bergh Foods [1998] 5CMLR 530

Breach of Art 82 for Van den Bergh to provide freezer cabinets free of charge to retail outlets on condition that they were to be used exclusively for the storage of its ice-cream products