Administration in International Organizations PUBLIC COMPETITION LAW Class

Administration in International Organizations PUBLIC COMPETITION LAW Class V, 3 rd Nov 2014 Krzysztof Rokita

Abuse of a Dominant Position Article 102 TFEU 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.

Abuse of a Dominant Position 1. The concept of abuse of a dominant position 2. Exploitative abuses 3. Exclusionary abuses 4. Defences in Article 102 cases

Abuse of a Dominant Position Abuse of a dominant position according to the CJ (C-85/76 Hoffmann-La Roche v Commission, para 91): “The concept of abuse is an objective concept relating to the behaviour of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened and which, through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition. ”

Abuse of a Dominant Position The concept of abuse of a dominant position: • It is an objective concept* (no fault of undertaking needs to be estabslihed; it does not depend upon the subjective intent of the dominant undertaking; *See AKZO); • Competition on the merits is permitted (for example lowering prices, improving quality of products and services, providing better service to consumers, introducing new products) even if it leads to the exclusion of less efficient undertakings from the market; • Practices which go beyond competition on the merits and bring harm to consumers are not allowed.

Abuse of a Dominant Position The concept of abuse of a dominant position: • Exploitative abuses (conduct whereby the dominant undertaking takes advantage of its market power to exploit its trading partners); • Exclusionary abuses (conduct whereby the dominant undertaking prevents or hinders competition by excluding competitors from the market); • Exploitative and exclusionary abuses are not mutually exclusive (conduct may be exploitative and lead to exclusion)

Abuse of a Dominant Position • • Abusive exclusionary conduct: Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings; When should one classify the exclusion of a firm from the market as natural result of sound competitive proces and thereby as legitimate practice and when an exclusion should be understood as anti-competitive behavior and prohibited? Different tests are employed in order to determine whether particular behaviour is anti-competitive (e. g. the as-efficient-competitor test). Commission uses the benchmark of anti-competitive foreclosure (See Commission’s guidance paper)

Exploitative abuses Excessive prices (see Article 102(a): „directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions”): • stringent policy of combating high prices may result in competition authorities becoming price regulators; • High prices may act as a signal to attract new competitors; • What constitutes an unfair price? • According to the CJ, charging a price which is excessive because it has no reasonable relation to the economic value of the product supplied is an abuse (a two-stage test: firstly, determination whether the difference between the cost of production and the price charged is excessive; secondly, is the price in itself excessive? Is it excessive in comparison with competitors’ prices? )

Exclusionary abuses 1. 2. 3. 4. 5. AKZO Chemie BV v Commission (C-62/86) How, in light of the facts of the case, did AKZO abuse its dominant position? What is predatory pricing? Why are prices below average variable costs considered to be abusive? Are there any circumstances in which such practice may be justified? Does the anti-competitive intent of dominant undertaking play any role in finding that such undertaking is involved in predatory pricing? Did AKZO have anti-competitive intent? Is it possible for an undertaking to be engaged in predatory pricing on markets on which it is not dominant? How is recoupment connected with predatory pricing?

Exclusionary abuses Intel Corporation v Commission (T-286/09) 1. What categories of rebates were distinguished by the Court? Which ones are considered to be illegal (when given by a dominant undertaking)? Why are exclusivity rebates considered to be abusive? 2. How, in light of the facts of the case, did Intel abuse its dominant position? 3. What are naked restrictions? Was Intel involved in naked restrictions?

Exclusionary abuses 1. 2. 3. 4. 5. 6. 7. Microsoft Corp v Commission (T-201/04) How, in light of the facts of the case, did Microsoft abuse its dominant position? What was the remedy imposed on Microsoft by the Commission? What is tying (bundling)? How can it be assessed that the tying product and the tied product are distinct (separate) from each other? How did Microsoft benefit from the tying practices (why was it detrimental for other producers of media players)? How did network effects benefit Microsoft? What was the objective justification of such practices pleaded by Microsoft? Was there any other case of tying by Microsoft? How was it resolved?

Predatory pricing • Predatory pricing is a practice whereby an undertaking sets the prices of goods or services which it provides to a loss-making level in an attempt to drive its competitors out of the market • The idea behind predatory pricing is that after a period of making losses and excluding other competitors, the dominant undertaking will increase prices to monopoly levels and recoup its losses • Barriers to entry must exist (otherwise the practice is not rational)

Predatory pricing in EU Competition law • Prices below avarage variable costs are abusive; • Prices above avarage variable costs but below avarage total costs are abusive if anti-competitive intent of undertaking engaged in such practices is proved • There is no need to prove the possibility of recouping the losses the dominant undertaking incurred

Tying and bundling According to the Commission’s guidance paper: • Tying usually refers to situations where customers that purchase one product (the tying product) are required also to purchase another product from the dominant undertaking (the tied product); • Technical tying occurs when the tying product is designed in such a way that it only works properly with the tied product (and not with the alternatives offered by competitors); also physical integration; • Contractual tying occurs when the customer who purchases the tying product undertakes also to purchase the tied product (and not the alternatives offered by competitors)

Tying and bundling According to the Commission’s guidance paper: • Bundling usually refers to the way products are offered and priced by the dominant undertaking; • pure bundling - the products are only sold jointly in fixed proportions; • mixed bundling - products are also made available separately, but the sum of the prices when sold separately is higher than the bundled price

Tying and bundling According to the Commission’s guidance paper: Requirements that need to be fulfilled in order for the tying and bundling be prohibited: 1. The tying and the tied goods are two separate products; 2. The undertaking concerned is dominant in the tying product market; 3. The tying is likely to lead to anti-competitive foreclosure.

Rebates and discounts (exclusive purchasing transactions) • Quantity (volume) rebates: reductions given to a purchaser who buys a certain objective quantity of products; may be granted by dominant undertakings; • Loyalty (fidelity) rebates: rebates given in return for exclusivity, whereby the supplier gives a rebate to a customer who purchases all (or nearly all) of its requirements for the product from that supplier; • Target rebates – rebates given to customers who buy more than a target (threshold) amount in a certain period. The target may be set according to the customer’s perceived capacity to absorb the goods. A target rebate which do not expressly require exclusivity, but is structured to that effect is considered to be loyalty-inducing rebate and thereby illegal (when given by a dominant undertaking)

Defences in Article 102 cases • Objective necessity (external factors) • Efficiency: 1. the efficiencies have been, or are likely to be, realized as a result of the conduct; 2. the conduct is indispensable to the realization of those efficiencies; 3. the likely efficiencies brought about by the conduct outweigh any likely negative effects on competition and consumer welfare in the affected markets; 4. the conduct does not eliminate effective competition, by removing all or most existing sources of actual or potential competition; • Protecting undertaking’s own commercial interests/Meeting competition (any action taken by dominant undertaking must be reasonable and proportionate)