US and European Competition Law Essay Example UK
Here is an example of a first class US and European competition law essay example that was written by an undergraduate student from the leading university in the UK.
Compare and critically evaluate the approach to the regulation of a refusal to supply under s.2 Sherman Act and Article 82 of the EC Treaty.
Refusal to Supply (R.T.S.) has a double existence, namely general refusal to deal and essential facilities. In cases where there are two markets and an undertaking refuses to deal with competitors in one of them is marked as refusal to deal cases. Whereas, cases that concern only one relevant market and where the complainant requires access to the facility which does not amount to a separate market should be pronounced as essential facility cases. Under the EC Treaty undertakings generally have a duty to deal in two-market situations save cases that are objectively justified. Conversely, The United States supports freedom of contract through its Colgate doctrine. This ‘right’ is not unqualified and refusal to supply can sometimes constitute anti-competitive behaviour and violate s.2 of the Sherman Act. The leading cases of Aspen and Verizon accept the Chicago School inspired ‘sacrifice of profits’ test and allow inference as to the intent of the undertaking to be drawn from its conduct. This inference is then balanced against any objective justifications undertaking may have. There is a discourse as to whether these refusal to supply cases have formed a bedrock for the chequered ‘essential facilities doctrine’. Or is the so called doctrine a ‘bunch of mostly disconnected decisions, [not] a doctrine, but an economic idea of circumstantially justified joint use of facilities and infrastructures’. Whatever is the status of the ‘essential facilities’ idea, both US and EC courts share the view that the essential facility must be indispensable to competition. The heightened test for the idea of essential facilities by US and EC courts can be best explained by the courts fearing that access to an essential facility has the effect of reducing competition in the long term. This view can be best explained in the light of the objectives of competition law in both Europe and US. Essential facility idea revolves around the view that ‘you must even take your new rival in and share the facility’[1]. This goes against the efficiency and consumer welfare objective since the concept of essential facility interferes with the free market and is this contrary to the ‘requirement of independence[2]’ for the goal of efficiency and resultantly consumer welfare to be successfully achieved.
US
Concept of monopolisation is defined as: (1) the possession of monopoly power in the relevant market and (2) the wilful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”[3] In US there is a preservation of the freedom of contract: permission to ‘freely to exercise [one’s] own independent discretion as to parties with whom he will deal’[4]. This freedom is only curtailed when an undertaking endeavours to monopolise.
Verizon[5] is currently the leading US case on the refusal to supply. However, it is important to examine the case of Aspen[6] to get a better overview to how the Courts have arrived to the current state of affairs in Verizon. In Aspen the complainant alleged that Ski Co. Had monopolized the market for downhill skiing services at Aspen in Violation of s.2 of the Sherman Act. Jury had to consider whether ‘Aspen Skiing Corporation wilfully acquired, maintained, or used that power by anti-competitive or exclusionary means or for anti-competitive or exclusionary purposes.’ Significantly, Aspen has adopted a Chicago School stance by adopting Bork’s test of ‘exclusion on some basis other than efficiency’. The Supreme Court considered the necessity in considering the impact of refusal to supply on consumers and maintains that ‘If a firm has been attempting to exclude rivals on some basis other than efficiency, it is fair to characterise its behaviour as predatory’[7]. In the case of ‘monopolization’ evidence of intent is merely relevant to the question whether the challenged conduct is fairly characterised as ‘exclusionary’ or ‘anticompetitive’. In the judgment it was noted that ‘no monopolist monopolizes unconscious of what he is doing’[8]. This suggests that purpose is inferred from the conduct, especially when there is a shift from a profitable state of affairs to an unprofitable one without ‘valid business reasons’. Aspen elected to argue that its valid justifications for the refusal to supply were its loss of money, unreliability of surveys done by students and damage to its brand image. However, its business reasons were not accepted at face value but were rather balanced against monopolistic purpose. In this case it was clear that the consumers demonstrably preferred 4 mountains to 3 and it was clear that Aspen Skiing Corporation intended ‘to forego these short-run benefits because it was more interested in reducing competition in the Aspen market over the long run by harming its smaller competitor’[9].
In Verizon the Supreme Court reiterated that the Sherman Act ‘does not restrict the long recognized right of a trader or manufacturer...freely to exercise his own independent discretion as to parties with whom he will deal’[10]. However this right is not unqualified and sometimes refusal to cooperate can constitute anti-competitive behaviour and violate s.2 of the Sherman Act. Supreme Court placed Aspen ‘at or near the boundary of s.2 liability’[11]. The Supreme Court also appears to have accepted the Aspen test for monopolisation where the ‘unilateral termination of a voluntary course of dealing suggested a willingness to forsake short-term profits to achieve an anti-competitive end’[12]. In Verizon the defendant’s prior conduct does not shed any light upon its motivation of its refusal to deal, it was compelled to interconnect by statutory regulation.
In Verizon Justice Scalia articulates that the Supreme Court has never recognised the ‘essential facilities’ doctrine, which has been invented by ‘some lower courts’. MCI Communications[13] establishes the criteria for the essential facilities doctrine. It must be satisfied that there is control of an essential facility by a monopolist, competitors inability to practically or reasonably to duplicate, denial of the use of the facility and feasibility of providing the facility. Hecht[14] explains that the facility need ‘not be indispensable; it is sufficient if duplication of the facility would be economically infeasible’[15].. In 2004, the ‘essential facilities’ doctrine was finally addressed in the Supreme Court. The Supreme Court confined the ‘essential facilities’ doctrine to cases where there is ‘unavailability of access to the ‘essential facilities’; where access exists the doctrine serves no purpose’[16]. Verizon however takes a somewhat cynical view to the ‘essential facilities’ doctrine as it maintains that ‘compelling such firms to share the source of their advantage is in some tension with the underlying purpose of anti-trust law, since it may lessen the incentive for the monopolist to invest in those economically beneficial facilities’[17]. This view reflects the historical view that most essential facilities were privately built.
EC Law
In EC law there appears to be a general duty to supply imposed on dominant undertakings in two-market situations except where there exists an objective justification. The Court of Justice (ECJ) is reluctant to accept this concept whereas the Commission acclaims the existence of such a duty. Nevertheless, the ECJ adopts the same stance as the Commission through its jurisprudence. Both US and EC jurisdictions are slow to accept the ‘essential facilities doctrine’.
In EC it is accepted that there is a duty to supply in two-market situations. This duty first appeared in the judgment of Polaroid/SSI Europe where the Commission made it clear that “as a general principle an objectively unjustifiable refusal to supply by an undertaking holding a dominant position on a market constitutes an infringement of Article 82“[18] Notwithstanding the Commission’s decision, ECJ approaches the problem in a different manner. ECJ maintains that a general duty to supply arises only in cases where the refusal has an adverse effect on competition[19]. ECJ draws a distinction between refusals to supply customers and competitors. Refusal to deal with competitors arises in Commercial Solvents[20] where the ECJ established that “an undertaking which has a dominant position in the market in raw materials and which, with the object of reserving such raw material 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.”[21] The first case involving a customer was United Brands[22]. United Brand was dominant in banana production market. United Brands refused to supply its Danish Distributor who began favouring bananas of another producer. The ECJ held that United Brand ”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.”[23] Thereafter the ECJ accepted objective justification that dominant undertaking has an unqualified right to ‘protect its own commercial interests if they are attacked’[24]. The response to the attack in this case was held to be disproportionate. This points to the idea that the ECJ may have come to accept that there is a general duty to supply except where the refusal can be reasonably justified[25]. The results of both the Commission and the ECJ differ in form but in substance they lead to the same result. It is thus evident that the Commission accepts that there is a general duty to supply save refusals that can be objectively justified. ECJ however only recognises a general duty to supply in cases involving a restriction of competition. ECJ examined the issues within competition restricting effects. The Commission examined issues within the framework of objective justification. Although both concepts differ semantically, in practice they overlap.
In EC law the term ‘essential facility’ was first used Stena Sealink[26]. The case suggested that the rationale for the ‘essential facility’ doctrine is to ensure that an owner of an essential facility does not use is power in one market to strengthen its position in another thus ‘imposing a competitive disadvantage on its competitor’[27]. Bronner[28] is the landmark case vis-a-vis a refusal to supply. Bronner has laid down a test for refusal to supply cases. Firstly, it must be satisfied that the refusal must be likely to eliminate all competition in the relevant market; secondly, the service in itself must be indispensable to carrying on that person’s business; thirdly, it must be economically unviable for competitors to replicate the asset; and fourthly, the refusal must be incapable of being objectively justified[29]. The case involved two newspaper publishers: Mediaprint and Bronner. Mediaprint refused Oscar Bronner access to its exclusive home delivery scheme built up in Austria. Bronner claimed that it could not build a similar scheme or find alternative method of distribution and that such a delivery service was vital for its survival. The Advocate General argued that ‘intervention [under] an application of the essential facilities doctrine...can be justified in terms of competition policy only in cases in which the dominant undertaking has a genuine stranglehold on the related market’[30]. However, Bronner had various other options open to it, and to allow it to succeed in this case would be ‘anti-competitive in the longer term and indeed would scarcely be compatible with a free market economy’[31]. The Court followed the Advocate’s General Opinion and paid emphasis that ‘it does not appear that there are any technical, legal or even economic obstacles capable of making it impossible for any other publisher to establish its own nationwide delivery system’[32]. The test established by ECJ consists of a situation where access to the facility must be indispensible, not possible to replicate the facility, even by an undertaking of the same size.
In conclusion, EC jurisprudence reveals that there is a general duty to supply in two-market situations where the refusal to supply is likely to lead to elimination of all competition in the market. The ECJ and the Commission appear to have reached a half-way line that the only ‘get-out-of-jail card’ for undertakings refusing to supply is objective justification. US approach to refusal to supply cases, however, adopts a ‘profit sacrifice test’ whereby intent is inferred from the monopolist’s conduct. Similarly, US jurisprudence also requires objective justification to mitigate monopolist’s predatory actions. The objective justification is then carefully balanced against the undertaking’s conduct.
As regards the essential facilities doctrine, it is important to conclude with the precept that the Supreme Court never intended to form a specific doctrine, the ‘decisions are not based on each other’[33]. To best understand the status of the ‘essential facilities’ doctrine is to quote the citation of Neale in Hecht decision whereby it is logically proposed that the Hecht decision is the birthplace of different Supreme Court decisions which share the same common antitrust problem and similar legal remedies[34]. The doctrine was developed and refined by the lower courts where the current test is found in the decision of MCI v AT & T[35]. The case Supreme Court in the case of Verizon best expresses the position of the ‘essential facilities’ doctrine as that which should be restricted to cases where there is an unavailability of access to an ‘essential’ facility. All in all, the Supreme Court has a cynical view of the compulsion to share as it may effectively stifle monopolists’ incentive to invest in economically beneficial facilities. Professors Areeda and Hovenkamp provide a Chicago School based critique of the doctrine on the ground that requiring a firm to offer its competitors access to a key upstream asset generally does not help consumers, because price and output generally remain the same while the right to share in the monopoly reduces the incentive of competitors to develop competing upstream assets[36] To sum up the US position on ‘essential’ facilities doctrine the final word should go to Ridyard who helpfully underscores that there is no case that provides a consistent rationale for the doctrine that explores ‘social costs and benefits...of requiring the creator of an asset to share it with a rival’. Perhaps it is ‘less a doctrine than an epithet indicating some exceptions to the right to keep one’s creation to oneself, but not telling us what those exceptions are’[37]. Under the EC law, in the judgment of Bronner, Advocate General Jacobs adopted a somewhat cautious view of the ‘essential facilities’ doctrine. Advocate General quite rightly warns one from losing sight of the purpose of Article 82, which boils down to ‘safeguard[ing] the interests of consumers-rather than to protect the position of particular competitors’[38]. This caution is supplemented with arguments against allowing access to essential facilities, namely stifled innovation. Henceforth, Advocate General calls for the undertaking to have a ‘genuine stranglehold on the related market’. A ‘genuine stranglehold’ test is satisfied when refusal to grant access to the facility will eliminate all competition, duplication of facilities is indispensable to operation of the competitor and are ‘impossible or extremely difficult’[39] to create. The duplication of facilities must be unviable for an undertaking of the same size as the dominant undertaking. The decisions of the Court of First Instance and the ECJ, especially Oscar Bronner indicate that the treatment of the ‘essential facilities’ principle by US and European courts is converging ‘in the direction of a requirement that the facility in question be virtually indispensable to competition’[40] in the relevant downstream market. To save the concept of an essential doctrine disintegrating in a Chicago School limelight it is important to consider that the doctrine does achieve efficiency to a certain extent as it prevents ‘unnecessary duplication of facilities’[41]. This idea has nothing to do with the essentiality of one facility but with the lacking efficiency of multiple facilities for the same purpose. This original view adopted in the Terminal Railroad[42] fits in very well with the contemporary objective of US and EC law of consumer welfare. When discussing the ‘essential facilities’ doctrine it is advisedly important to bear in mind its limited historical basis, uncertain rationales, and diffuse premises: all signalling that ‘essential facilities doctrine’ never existed. But as Dr. Ulf Müller suggests, the ‘essential facility idea’ might survive with due limitations.
[1] Neale, The Antitrust Laws of the United States of America (1970), pp.66-70, 127-133.
[2] John Deere Ltd v Commission of the European Communities (C-7/95 P) [1998] E.C.R. I-3111 at [86]; Coöperatieve Vereniging “Suiker Unie” UA v Commission of the European Communities (40-48, 50, 54-56, 111, 113 and 114-73) [1975] E.C.R. 1663 at [173]; A. Ahlström Osakeyhtiö v Commission of the European Communities (C-89/85, C-104/85, C-114/85, C-116/85, C-117/85 and C-125/85-C-129/85) [1993] E.C.R. I-1307 at[59].
