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EU law – Topic 10 – EU Competition Law

Law (Cardiff University)

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EU law – Topic 10 – EU Competition Law: Taking on the Giants

Lecture Schedule

 Today
o Introduction to EU Competition Law - Articles 101 & 102 TFEU
 24th February:
o Article 101 TFEU – Restrictive Practices
nd
 2 March:
o Article 102 TFEU – Abuse of a Dominant Position
 3rd March:
o Article 102 TFEU - Abuse of a Dominant Position

Lecture Outline

 Definitions of competition and competition law

 What economic theories underpin competition law?
 The EU competition law framework
 What are the policy objectives of competition law? What should they be?

Importance of Competition Law

 Adopted in over 130 jurisdictions – recently countries such as India and China.
 Important to firms, States, consumers
 The EU model is one of the most important in the world
o Impact on national competition laws of the 28 Member States of the EU & EEA
o Extra-territorial application! – It may apply outside of the EU.
 Brexit Implications for UK Competition Law

EU Competition Law

 €899m fine for non-compliance with 2005 Commission Decision – Microsoft

o Related to a Commission decision which required Microsoft to provide access to technical
data so other companies could make software compatible with their operating system. And
the second aspect was that there was a tying between windows media player and the
operating system which was found to be problematic
 €1.06bn fine for breach of A102 TFEU – Abuse of its Dominant position –Intel
o They were abusing their dominant position by giving certain exclusivity rebates to customers.
 €13bn Apple
o They were paying very little tax in Ireland, the corporate tax rate there is low but they were
paying less than that because of a deal they made with the government.

Group Exercise

 In groups of 4, read one of the newspaper articles.

 As a group, consider whether and why EU competition law should regulate the business activities
described in these real-life scenarios.

Definitions

 What is Competition
o “…struggle or contention for superiority, [which] in the commercial world…means striving
for the custom and business of people in the market place.” (Whish, 2009, p. 3)
o No definition in the original EC Treaty or TEU + TFEU (which replaced the EC Treaty)

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o UK – definition of the Competition Commission

 “...a process of rivalry between firms...seeking to win customers’ business over time”
(see inter alia Merger References: Competition Commission Guidelines – June 2003,
CC2, para. 1.20)
 What is Competition Law?
o Law which seeks to “…protect the process of competition in a free market economy – that is,
an economic system in which the allocation of resources is determined solely by supply and
demand in free markets and is not directed by government regulation.” (Jones & Sufrin,
2008, p. 1).
o Competition law regulates:
 Agreements and collusion between firms
 The unilateral behaviour of firms with a certain degree of market power
 The behaviour of oligopolies and other uncompetitive market structures
 Mergers and acquisitions
 State aid (EU level)

Economic Theories

 Model of Perfect Competition

o Large number of small buyers and sellers on the market
o Homogenous products
o Easy entry/exit to/from the market
o No market power (price taker)
o Perfect information for consumers
o (There are very few markets in reality that would satisfy this)
 Advantages of Perfect Competition
o Economic efficiency
 Goods and services supplied in exactly form and quantities desired by consumers and
at the lowest cost possible
o Social welfare and consumer welfare is maximised
o Innovation is stimulated
 Monopoly
o One firm
o Unique product
o Market power - price maker
o High and long-term barriers to entry
 Disadvantages of Monopoly
o Economically inefficient
 Controls the relationship between supply and demand and therefore price = monopoly
profit
o To maintain profit, monopolist will
 Limit supply
 Raise prices
 No incentive to innovate.
 Economic Reality: Market Structures:

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 EU & UK: “Effective Competition”

o “Effective competition does connote the idea…that firms should be subject to a reasonable
degree of competitive constraint, from actual and potential competitors and from customers,
and that the role of a competition authority is to see that such constraints are present on the
market.” (Whish, 2015, p. 18).
 Benefits of Competition
o Economic efficiency
o Lower prices for consumers
o Consumer choice
o Innovation

EU Competition Law: The Legal Framework

 Stages of Economic Integration

Economic and Monetary Union

Common (Internal/ Single)

Market

Customs Union
Free Trade
Area

 EU Competition Law
o EU competition rules = remove obstacles to trade arising from restrictive agreements between
business organisations and from the behaviour of powerful firms
o Complements free movement of goods
o Aim is to create a level playing field in the internal market
 Original EEC/EC Treaty
o Article 3 (1) (g) EC- a system ensuring that competition in the internal market is not
distorted…”
o Article 4 (a) EC – “…the adoption of an economic policy… in accordance with the principle
of an open market economy with free competition.”
 The Treaty of Lisbon Amendments
o Area of exclusive competence (Article 3 TFEU)
o Removal of reference to
o “free and undistorted competition” as an objective of the EU as proposed by the Draft
Constitutional Treaty
o Protcol (No 27) on the Internal Market and Competition attached to the Lisbon Treaty
 Protocol No. 27 (same legal force as the Treaties)
o The High Contracting Parties,
o Considering that the internal market as set out in Article 3 of the TEU includes a system
ensuring that competition is not distorted,
o Have agreed that:

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o To this end, the Union shall, if necessary, take action under the provisions of the Treaties,
including under Article 352 of the TFEU
 Class Exercise
o Read Title VII, Chapter 1 - Articles 101-109 TFEU.
o Broadly, what behaviour do they regulate?
o Which Treaty provision would apply to our earlier scenarios?
 EU Competition Provisions
o Area of exclusive competence (Article 3 TFEU)
o Articles 101 TFEU – prohibition of restrictive practices
o Article 102 TFEU – prohibits abuse of a dominant position
o Article 106 TFEU – public undertakings
o Articles 107- 109 TFEU – State aid
o Merger control

Competition Policy

 Definition of Competition Policy

o “…the way in which governments (…supranational organisations) take measures to promote
competitive market structures and behaviour. Competition policy will therefore encompass
within it a system of competition law.”
o (Jones & Sufrin, 2008, p. 2).
 Objectives of Competition Policy?
o Welfare and economic efficiency?
o or
o Are there other (competing) goals?
o What happens if there is a conflict of these other goals?
 Other (Competing) Objectives of Competition Law
o Liberal democracy
 Prevent creation of excessive private power
 Rupert Merdoch
o Protecting (small) competitors and fair competition
 Other Goals of Competition Law
o Socio-political objectives
 social, employment, industrial, environmental, regional policy, e.g. financial crisis
o Market integration (EU)
 EU Competition Policy
o No consensus – multi-faceted concept
o Market integration
o Economic efficiency = consumer welfare (for the CM since mid 2000s)
o Maintenance of the E.U.’s competitive position vis-à-vis its main economic rivals (US and
Asia)
o Stability of markets

Article 101 TFEU – Restrictive Practices

Scheme of Article 101 TFEU (ex Article 81, ex Article 85 EEC)

 Article 101 (1) TFEU – prohibition of anti-competitive agreements/decisions of

associations/concerted practices which affect trade between MS
 Article 101 (2) TFEU – such agreements are automatically void
 Article 101 (3) TFEU – agreements may be exempt if four conditions are satisfied

Article 101(1) TFEU

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 Agreement between undertakings or a decision by an association of undertakings or a concerted

practice
 Affect trade between Member States
 Object or effect is to prevent, restrict or distort competition

Concept of an “undertaking”

 No definition in the Treaty and a broad concept because there may be different ways of establishing
yourself as a company in various EU jurisdictions.
 Functional approach – looks as what the entity does.
 “…the concept of an 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” Case C-41/90 Höfner
 “...any activity consisting in offering goods or services on a given market is an economic activity.”
Case C-180/98 Pavlov
 Competition law rules “do not apply to activity which, by its nature, its aim and the rules to which it
is subject does not belong to the sphere of economic activity...or which is connected with the
exercise of the powers of a public authority” Case C-309/99 Wouters
 When is a local authority an undertaking for the purposes of competition law? – This is why the
courts adopt a functional approach to catch public authorities etc.
 Includes
o non-profit making bodies e.g. FIFA
o undertakings in the public sphere providing services on the open market e.g. post office
offering courier services (Spanish courier services decision)
o Professions e.g. lawyers, opera singers
 Excludes
o Activities connected with the exercise of power by public authorities e.g. funeral services
(Bodson)
o Activities based on “solidarity” such as social security, health care, health insurance
o Procurement that is ancillary to a non-economic activity e.g. health care (FENIN)
o Employees and trade unions (Albany)
 Includes
o Undertakings related by succession
 “functional and economic continuity between the original infringer and the undertaking
into which it was merged” (PVC Decision [1989] OJ L 74/1).
o Parent and a subsidiary may be regarded as a single undertaking “single entity doctrine”

Agreement

 Defined broadly
 Includes informal agreements, oral agreements, a gentleman’s agreement (agreement based on trust),
vertical (i.e. between manufacturer and distributor different stages of supply chain) and horizontal
agreements (same level of production process), agreements concluded outside the EU
 Excludes agreements between a parent and its subsidiary

Decisions by associations of undertakings

 Defined broadly
 Trade association itself may be liable
 Includes
o The Constitution of a trade association
o Agreements entered into by the trade association
o Non-binding recommendations of a trade association

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Concerted Practice

 In the absence of an agreement, undertakings may be caught by Article 101 (1) TFEU if they have
engaged in a “concerted practice”.
 Broad concept
 Designed to catch the devious behaviour of some undertakings.

Case 48/69 ICI v Commission (Dyestuffs)

 Concept was first defined

 Manufacturers of dyestuffs and they increased their prices uniformly at the same time and this
happened several times the manufacturers denied there was any kind of illegal activity going on the
Commission looked at the timing of the increases, the fact there was evidence of instructions being
sent to subsidiaries and the fact there was informal contact between the firms so the Commission
issued its decision which was appealed to the ECJ at the time who confirmed the Commission’s
decision.
 Concerted Practice - “a form of co-ordination between undertakings which, without having reached
the stage where an agreement is properly so-called has been concluded, knowingly substitute
practical co-operation between them for the risks of competition.” (para. 64).


Case 40/73 Suiker Unie v Commission

 Sugar Cartel case.

 Defence was raised that there was no plan/ agreement but this argument was rejected and the court
stated that…
 “...any direct or indirect contact between such operators, the object or effect whereof is either to
influence the conduct on the market of an actual or potential competitor or to disclose to such a
competitor the course of conduct which they themselves have decided to adopt or contemplate
adopting on the market.”
 Covers direct and indirect contact with

Concerted Practice

 Whish and Bailey

o “…there must be a mental consensus whereby practical cooperation is knowingly substituted
for competition; however the consensus need not be achieved verbally, and can come about
by direct or indirect contact between the parties.”
o (Competition Law, 2012, p. 113).
o Mental consensus – broad term.
 If interpreted too broadly, the term “concerted practice” may catch parallel pricing in oligopolistic
markets. These are markets which have:
o Few sellers
o High barriers to entry
o Homogenous products
o Price Transparency
 Problem: Similar conduct may be the result of the market structure rather than collusion.
 Cases 89,104, 114, 116-117 and 125-129/85 A Ahlström Oy v. Commission [1993] ECR I-1307
(Woodpulp)
o Commission decisions was annulled because the Commission had not produced enough
evidence of parallel conduct.
 It is necessary “…to distinguish between situations in which an undertaking acts intelligently in
response to another’s conduct (which is quite lawful), and acts with knowledge of another’s conduct
(which may be in breach of [Article 101 (1) TFEU]).” (Furse, 2008, p. 173).
 There is a rebuttable presumption that

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 “undertakings taking part in the concerted action remaining active on the market take account of the
information exchanged with their competitors for the purposes of determining their contact on the
market.” (Cases C-199/92 P Hüls).
 Example - Attendance at meetings may be sufficient (C-8/08 T-Mobile)
o Here phone operators got together and decided what commission they would pay to their
dealers and T-Mobile said that they didn’t want to be involved but the fact that they were
present at the meeting and had knowledge was enough to show.
 “a concerted practice...is caught by Art [101 (1) TFEU], even in the absence of anti-competitive
effects on the market” (Cases C-199/92 P Hüls)

“Object or effect of preventing, restricting, or distorting competition”.

 All trading agreements may contain restraints on behaviour

 An agreement may have both pro- and anti-competitive effects
 Are they all caught by Article 101 (1)?

Consten & Grundig

 G granted an exclusive dealership to C for its products in France.

 C had to stock a minimum amount of the product, provide publicity and after-sales service and not
sell competing products.
 C assigned G’s trademark (GINT) which C could use against unauthorized sales in France.
 G agreed to supply only C in France and made dealers outside France agree not to sell in France or to
French customers. C agreed not to re-export goods outside France.
 UNEF bought G products in Germany and sold them in France at a lower price.
 C brought an action against UNEF for breach of its trademark.
 UNEF counter-claimed that the agreement between G and C infringed Article 101 (1).

ECJ – Costen & Grundig

 Dismissed argument that rule of reason approach should be adopted for vertical agreements
 Held that C derived ABSOLUTE TERRITORIAL PROTECTION from competition on the French
market from other suppliers of G products.
 The object of the agreement was anti-competitive. No need to consider its effect.
 ECJ introduced a “per se” rule.
 [Compare to Case 56/65 STM)

EU approach: “Object or Effect”

 Alternative NOT cumulative requirements

 Two-stage test (Case 56/65 STM case)
o 1. Assess “object” of the agreement.
o 2. If the “object of the agreement is not anti-competitive, assess its “effect” inter alia
 “Object” = “...regard must be had to the content of its provisions, the objectives it seeks to attain and
the economic and legal context of which it forms a part” (Case C-501/06 P GlaxoSmithKline, para.
58).
 Article 101(1)(a)-(e) TFEU gives examples.

“Object or effect of preventing, restricting, or distorting competition”

 Traditionally, Commission adopted a wide interpretation of Article 101 (1) was criticised for being
too broad.
 Commission also had a monopoly over Article 101 (3) TFEU. This led to mass notifications and an
overburdened Commission.

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 Since Reg. 1/2003, Commission has narrowed its approach towards both Article 101 (1) and (3)
TFEU.
 Commission no longer has a monopoly over Article 101 (3) TFEU.

US – Rule of reason approach

 Article 1 of the Sherman Act – every contract, combination, or conspiracy in restraint of trade is
illegal.
 Standard Oil v. US (1911) - Apply a standard of reason and only undue or unreasonable restraints
should be condemned – balancing of pro and anti competitive effects of an agreement = rule of
reason
 Led to development of per se offences e.g. horizontal price-fixing, market sharing

Has the EU adopted a rule of reason approach?

 Korah has claimed that the Commission’s approach has been too formalistic and it should follow the
US approach.
 The ECJ has adopted some per se rules (e.g. Consten & Grundig) and applied the rule of reason to
ancillary restraints/ “commercial ancillarity” (e.g. STM, Metro, Pronuptia)
 Whish & Sufrin – rule of reason approach is inappropriate for EU Competition law

Should the EU adopt the rule of reason approach?

 T-112/99 Métropole Télévision (M6)

 GC: “the existence of a rule of reason in [Union] law is doubtful” (para. 72)
 Craig & de Burca argue that the ECJ has engaged in a balancing approach under Article 101 (1). In
their view, this can be beneficial and still leave a role for Article 101 (3).

‘Effect’

 If the object of the agreement is not anti-competitive, its “effect” must be assessed in its factual, legal
and economic environment. (Case 234/89 Delimitis)
 In establishing whether or not the “effect” of an agreement is anti-competitive, it is necessary to
consider the “counter-factual” Q: what would have happened in the absence of the agreement? (Case
T-328/03 O2 (Germany) GmbH)

“Affect trade between MS”

 Jurisdictional boundary between EU law and national law.

 Traditionally, it has been broadly interpreted by the Commission and the EU Courts (e.g. STM case)
to enable them to enforce Art. 101/102 TFEU.
 The significance of this test has changed since decentralisation of enforcement by Reg. 1/2003.
 Reg. 1/2003 allows NCAs and national courts to apply Art. 101/102 TFEU and has led to the
creation of the European Competition Network (ECN). (see later in the module)
 “It must be possible to foresee with a sufficient degree of probability on the basis of a set of
objective factors of law or of fact that the agreement in question may have an influence, direct or
indirect, actual or potential, on the pattern of trade between Member States.” (Case 56/65 STM case)
 See also Commission Guidelines on the effect on trade concept [2004] OJ C 101/81.

De minimis doctrine

 Recognition that some agreements do not have an appreciable effect on competition or inter-state
trade and should fall outside the scope of Article 101 (1) TFEU
 Case 5/16 Volk v. Vervaecke
 Commission Notice on Agreements of Minor Importance 2014

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 Where OBJECT is anti-competitive, de minimis doctrine will not apply (Case C-226/11 Expedia)

Commission Notice 2014: Market share thresholds

 Notice sets out a safe harbour for agreements below the market thresholds where EFFECT may be
anti-competitive.
 Horizontal agreements with an aggregate market share of less than 10% do not fall within the scope
of Article 101(1) TFEU
 Vertical agreements where the market share of each of the parties is less than 15% do not fall within
the scope of Article 101 (1) TFEU

Article 101(2) TFEU

 Any agreement or decisions prohibited pursuant to this Article shall be automatically void.

Article 101(3) TFEU

 Exemption from Article 101(1) TFEU on fulfilment of four cumulative conditions.

 Balancing of pro- and anti-competitive effects of an agreement.
 Individual exemptions from the Commission are NO LONGER AVAILABLE!
 Article 101 (3) TFEU can be applied by the Commission, NCAs and national courts.
 Block exemptions are available.

Article 101(3) TFEU: Four Conditions

 Improve production/distribution of goods or promote technical/economic progress

 Fair share of benefits for consumers
 Only indispensable restrictions
 Must not eliminate competition

Article 101(3) TFEU

 Q: Should the application of Article 101 ((3) TFEU be based on economic objectives only or should
other (competing) objectives be taken into account?
 See Commission Guidelines on the application of Art. 101 (3) TFEU) OJ [2004] C 101/97.Q

Article 102 TFEU – An Overview

An overview of Article 102 TFEU

 Role and Scope of Article 102 TFEU

 Commission’s Review of Article 102 TFEU
 Analysis of key elements
o Undertakings
o Establishing Single Dominance/Collective Dominance
o “Internal Market or Substantial Part of It”
o “Affect trade between Member States”
o Abuse
o Defences
Role of Article 102 TFEU

 Monopoly – one firm controls the market for a particular product – no close substitutes – long term
barriers to entry
 Monopolists can raise prices, limit supply, and have no incentive to innovate = monopoly profits +
economically inefficient

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 BUT pure monopoly is rare

 Article 102 TFEU seeks to regulate the unilateral behaviour of undertakings with significant market
power

Article 102 TFEU: The Prohibition

 “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.”
 Article 102 (a) – (d) TFEU - Examples of abuse

Scope of Article 102 TFEU

 A dominant position is not unlawful in itself. It is the abuse of this position which is prohibited.
 Abuse has been construed widely by the Commission and Union courts to include:
o exploitative abuse (exploits customers/consumers);
o exclusionary (anti-competitive) abuse (excludes competitors from the market);
o single market abuse.

Commissioner’s Review of Article 102 TFEU

 Criticism of Commission and Courts application of Article 102 TFEU

o Controversy over findings of dominance
o Adoption of a formalistic rather than an effects based approach
o Unclear and inconsistent policy objectives
 e.g. Should Article 102 TFEU be used to protect consumers, competitors or both? See
criticisms of its 2004 Microsoft decisions
 2005 – Commission conducted a review of the law and practice of Article 102 TFEU as it applied to
exclusionary abuse (see 2005 Discussion paper)
 Dec 2008 – Commission published its Guidance on its Enforcement Priorities in Applying Article
102 TFEU to Abusive Exclusionary Conduct by Dominant Undertakings

Commissioner’s Guidance on Exclusionary Abuse 2008

 1. Confirms that Article 102 TFEU is to protect consumers rather than competitors but this involves
protecting the competitive process from foreclosure
 2. Economics of abuse sufficiently complex - formalistic or per se rules are inappropriate –
behaviour should only be condemned where it has had/likely to have a serious anti-competitive
effect on the market
 3. CM willing to consider “efficiency gains” which could outweigh anti-competitive effects
 For those seeking a more economic-effects approach, the Guidance does not go far enough BUT it is
recognised that it is difficult to convert an effects-based approach into administrable rules (Vickers)
 It is not legally binding and does not change the jurisprudence of the EU courts – although it could
influence future decisions – see recent case law

Judgments of the Union Courts post – Guidance

 1.Courts have stressed importance of protecting the process of competition for the benefit of
consumers:
 “Article [102 TFEU] prohibits a dominant undertaking from, inter alia, adopting pricing practices
which have an exclusionary effect on its equally efficient actual or potential competitor.”
o C-280/08 P Deutsche Telekom AG v. Commission, para. 177. See also C-52/09
TeliaSonera; C-209/10 Post-Danmark.
 2. The Courts have adopted an effects-based approach.
o C-280/08 P Deutsche Telekom AG v. Commission [2010] ECR I-9555.

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o C-52/09 TeliaSonera [2011] ECR I-527.

 3. The CJEU has confirmed the use of efficiencies as a defence: Post-Danmark.

Article 102 TFEU: The Key Elements

Any abuse by one or more undertakings

 Undertaking – same broad meaning as applied to Article 101 TFEU

 Case C-41/90 Höfner “…the concept of an 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”
 Includes
o Undertakings with monopolies created by statute
 Does it include joint or collective dominance by one of more independent undertakings in an
oligopolistic market?
 No – Case 85/76 Hoffman-La Roche
 Yes - T-68, 77-78/89 Re Italian Flat Glass – three Italian producers of flat glass who held between
79-95% of the Italian market between them.

Joint or Collective Dominance: Conditions

 Case T-193/02 Piau v. Commission: [2005] ECR II-209, para. 111.

 Each member of dominant oligopoly is aware of how others are behaving so that they can align
common behaviour;
 Such tacit coordination is sustainable over time, i.e. no incentive to depart from common behaviour;
 The foreseeable reaction of competitors/consumers must not jeopardise the results expected from the
common behaviour.

(Single Firm) Dominance

 Test: “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.”
 Case 27/76 United Brands (para. 65)

Two-stage test for dominance

 1. What is the relevant market?

o Relevant product market?
o Relevant geographical market?
 2. Does the undertaking have a DP in that market?

Stage One: Relevant Product Market

 Cross-elasticity of demand
 Q: Are products interchangeable from the consumer’s perspective and therefore in the same product
market?
 A: If so, cross-elasticity of demand is high and the products are in the same market.
o Data, price, physical characteristics of the product

Case 27/76 United Brands

 United Brands produced bananas and argued that bananas were part of the wider fruit market, the
produced studies to show there is a high elasticity of demand between bananas and other fruits but
the commission argued otherwise arguing bananas had specific qualities and were an important part
of the diet for certain consumers and the court agreed with the commission.

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 ‘The banana has certain characteristics, appearance, taste, softness, seedlessness, easy handling, a
constant level of production which enable it to satisfy the constant needs of an important section of
the population consisting of the very young , the old and the sick.’
 – Case 27/76 United Brands [para 31]
 Court and commission focused on the physical characteristics of the product and the potential
consumers.
 Subsequent case law has moved a little bit away from this

Relevant Product Market

 Cross-elasticity of supply
 Q: Are products interchangeable from the supplier’s perspective and therefore in the same product
market?
o In the event of a small but permanent change in price, can suppliers switch production easily?

Case 6/72 Continental Can

 Surrounded a US firm which manufactured metal packaging, through a subsidiary it tried to buy a
controlling interest in a Dutch company. It was held Continental Can had a dominant position in
Europe for certain types of metal packaging and that there had been abuse in their attempt to acquire
this company.
 The court said that the relevant product market had been incorrectly defined because of this issue of
cross elasticity of supply. Existing suppliers could switch very easily to different methods of product
ion of light metal containers.
 So you need to examine cross elasticity issues from both the demand and supply side.

1997 Commission Notice on Market Definition

 A more systematic approach

 Identifies the main competitive restraints as demand substitutability, supply substitutability and
potential competition.
 Demand substitutability has the greatest significance

Demand Substitution: SSNIP Test

 “Small but Significant and Non-transitory Increase in Price”

 ‘a relevant market is the narrowest range of products such that a hypothetical monopolist in the
relevant product area would find it both possible and worthwhile to institute an SNNIP.’ (Craig and
deBurca)
 The essence of the test is that if a monopolist can do this and raise the price without negative
consequences then consumers don’t have the ability to turn to substitutes and therefore the product
market is defined.
 Small part of the test is normally taken to be 5-10%
 Non-transitory element is often taken to be a year.

1997 Commission Notice on Market Definition

 It is not legally binding (soft law) but EU courts have referred to it in the case law
 It does not overrule existing CJEU case-law
 It may not be possible to apply it (lack of data, new products/markets)
 “Cellophane fallacy”
o Notice assumes that the market is competitive.
o If market already monopolized, test would give wrong result = if in a monopoly, a price
increase would lead to a switch to inferior substitutes and RPM would be wide (high degree
of substitutability).

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Relevant geographical market

 “an area where the objective conditions of competition applying to the product in question must be
the same for all traders” (United Brands, para. 44)
o Cost and ease of transportation
o Purchasing behaviour and preferences of customers
o Geographical limitations of use of good/service
 Whole EU - Case C-53/92P Hilti
 UK – Decision 82/861 BT
 Great Britain - Decision 88/518 Napier Brown-British Sugar
o Issue of transport costs influenced the commission here.
o Imports were seen as complementary to the British product rather than substitute for it.
 Ireland and Northern Ireland - Cases C-241-242/91P RTE v. CM (Magill) case
 Ferry route between Holyhead and Dun Laoghaire - Sealink/B&I – Holyhead (Interim Measures)
o Can be very specific.

Stage Two: Is the undertaking dominant in the relevant market?

 Does the undertaking have substantial market power?

 Three issues to consider - Guidance – para 12
o Constraints from actual competitors (market positions)
o Constraints from potential competitors (expansion and entry)
o Constraints from customers (countervailing buyer power)
 Actual competitors
o Market share (C-82/86 Akzo) – central to considerations of market power.
 In United Brands the court held 40-45% to be sufficient.
 Akzo – 50%
o Duration of market position
 How long have you held the market position?
o Fragmented markets
 What kind of market share do your competitors have?
 If there are many competitors with a decent marker share the commission has
suggested that 20-30% could constitute dominance.
 Potential competitors
o Legal barriers
o Barriers to entry/expansion
o Financial and technical resources
o Costs and network effects
o Degree of vertical integration
o Economies of scale and scope
o Conduct (Case 522/81 Michelin)
 Countervailing buyer power
o This is where customers have sufficient bargaining power to constrain a dominant
undertakings behaviour.

Internal market or a substantial part of it

 “Substantial part” – not the same as the relevant geographic market which relates to an undertakings
market power – more like the de minimis doctrine under Art 101 TFEU
 “the pattern and volume of the production and consumption of the said product as well as the habits
and economic opportunities of vendors and purchasers” (Case 40/73 Suiker Unie)

“May Affect” Trade Between Member States

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 Same meaning as for Article 101 TFEU

 See Commission Guidelines on inter-state trade OJ [2004] C 101/81.
 Cases 6 & 7/73 Commercial Solvents – satisfied where conduct brings about an alteration the
structure of competition in the [internal] market.

Abuse

 Pricing
o Predatory pricing
o Price discrimination
o Discounts and rebates
o Margin squeeze
o Exploitative high pricing
 Non-Pricing
o Exclusive dealing
o Tying
o Refusal to supply

Objective justification

 No equivalent of Article 101(3) TFEU

 BUT the behaviour may be objectively justified if proportionate (C-468/06 Sot. Lelos)
 Guidance (para 29) – factors external to the dominant undertaking, e.g. health and safety

Efficiency Defence (Guidance para. 30)

 The efficiencies would have to be realised, or likely to realised, as a result of the conduct;
 The conduct would have to be indispensable to the realisation of those efficiencies;
 The efficiencies would have to outweigh any negative effects on competition and consumer welfare
in the affected markets;
 The conduct must not eliminate all effective competition.

Overview of Lecture

 Recap of role and key elements of Article 102 TFEU

 Concept of Abuse and some examples
o Types of abuse – exploitative, exclusionary, single market abuse
o Some examples of abuse – tying, refusal to supply and the essential facilities doctrine
 Consequences of a breach

Role of Article 102 TFEU

 Regulates the unilateral behaviour of firms with significant market power

 It does not prohibit monopoly/market power per se BUT prohibits an ABUSE of market power
 Otherwise this would mean that an undertaking would be legally penalised for being the most
efficient.

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 common market in so far as it may
affect trade between Member States.”

Concept of Abuse

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 Issues to consider
o What kind of behaviour is abusive? How do we distinguish this from normal competitive
behaviour?
o Should Article 102 protect consumers, competitors, or both?
o Dominance, abuse and effects of abuse may be in different markets
 Paris Airports case
 Article 102 (a) – (d) TFEU is a non-exhaustive list of abusive practices
 ECJ – Case 85/76 Hoffman-La Roche (para. 91).
o 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…”
o “…different from those which condition normal competition in products and services on the
basis of the transaction 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.”

Types of Abuse: Exploitative

 Article 102 clearly includes exploitative abuse

o Article 102 (a) – unfair pricing
o Monopolist reduces output and increase prices to exploit consumers. Refrains from
innovation.

Exploitative Abuse

 Unfair pricing
o Case 27/76 United Brands
o Case 226/84 British Leyland
 Unfair trading conditions
o Case 27/76 United Brands
o World Cup Decision [1999] OJ L5/55
 General public if they wanted to buy tickets for the world cup had to provide a French
address and it was argued that a dominant undertaking through this action had
prejudiced the interests of the consumers notwithstanding the absence of the effect on
the structure of the market.
 Price discrimination
o Case 27/76 United Brands
o Case T-219/99 British Airways
 Refusal to supply
o Case 27/76 United Brands

Types of Abuse: Exclusionary

 Article 102 also includes exclusionary abuse (Case 6/72 Continental Can)
 Behaviour which prevents the development of competition and endangers the competitive market
structure.
 See Commission Guidance

Case 6/72 Continental Can

 ECJ
o Exclusionary abuses are included in Article 102 – where primary injury is to competitors (up-
stream or downstream).

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o No need for a causal link between the dominance and the behaviour alleged to amount to an
abuse.

Exclusionary Abuse

 Tying
o Case T-201/04 Microsoft
 Discounts
o Case 85/76 Hoffman-La Roche
o T-286/09 Intel Corp v. Commission (on appeal)
 Predatory pricing
o C-62/86 Akzo
 Akzo and another firm made organic peroxides which could be used in relation to
flower and in relation to plastics. The second company was in the flower market but
decided to move to plastics and Akzo wasn’t happy with this so met with the
company and threatened that if they didn’t withdraw from the plastics market they
would take action against them in relation to the flower market
 Akzo then targeted certain customers of their competitors and sold to them low cost,
they subsidized this with money from the plastics side of their business and the other
company was damaged as a result.
 Held to have violated Art 102 in this offering below cost.
 Refusal to supply
o Cases 6 & 7/73 Commercial Solvents
o C-242 &242/91P RTE v. Commission (Magill)
o C-7/97 Oscar Bronner GmbH v. Mediaprint)
o Case T-201/04 Microsoft

Abuse

 Pricing
o Predatory pricing
o Price discrimination
o Discounts and rebates
o Margin squeeze
o Exploitative high pricing
 Non-Pricing
o Exclusive dealing
o Tying
o Refusal to supply

Non-Pricing: Tying

 Is it an abuse for a supplier of product A (the tying product) to require a buyer to also purchase
product B ( the tied product)?
 e.g. Microsoft sold Windows with Media Player
 Commission: Technical tying = abuse.
 Confirmed by General Court in Case T-201/04 Microsoft

Non-Pricing: Refusal to Supply

 Can refusal to supply a customer amount to an abuse?

 Cases 6 & 7/73 Commercial Solvents
o CS held a DP in the market for amino-butanol and refused to supply Zoja.

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o Zoja could no longer make a drug used to treat TB.

o Did CS’ behaviour amount to an abuse?
o Held that it was an abuse. Held that it was refusal to supply even where it is by a desire by a
dominant firm to integrate vertically.

Refusal to Supply

 Refusal to supply existing customers by an undertaking in a dominant position will infringe Article
102 unless objectively justified, e.g. shortage of supplies, debts.
 Does the same obligation apply to NEW customers? – Lack of clarity may be objectively justified
but is difficult test to satisfy this.

The “Essential Facilities” doctrine

 “An undertaking which owns or controls a facility that is necessary for a business, but which could
not practically be reproduced by a competing entity or a potential competing entity, has an essential
facility.” (Whish)
 Cases C-241 & 242/91 P RTE & ITP v. Commission (Magill) [1995] ECR I-743.
o Related to TV guides, RTE had reserved from themselves an exclusive right to publish
weekly TV schedules, Magill magazines irrespective of this went ahead and published one
and RTE sued for copyright infringement.
o Held: RTE’s exclusive right to reproduce stopped the emergence of a competing product and
this was a breach of Art 102
 Sealink/B&I (Holyhead) (Interim Measures) [1992] 5 CMLR 255.
o Related to the ownership of the Port of Holyhead.
 There have been later more restrictive decisions on this i.e. Ladbrook

Scope of the “Essential Facilities” Doctrine

 Refusal to supply will only amount to an abuse in “exceptional circumstances” (C-7/97 Oscar
Bronner GmbH v. Mediaprint)
 Narrowed the scope and added 4 conditions:
 1) Access must be indispensable for the other person carrying on its business;
 2) There is demonstrable consumer demand for the (new) product;
 3) There is no objective justification for the refusal to supply;
 4) Refusal to supply would eliminate all competition in the secondary market.

Case T-201/04 Microsoft.

 Microsoft refused to supply its competitors with interoperability information at a reasonable rate.
o Product was indispensable to exercise of activity on a neighbouring market;
o Refusal would prevent appearance of a new product for which there is consumer demand;
o Refusal would exclude any effective competition.
o Refusal was not objectively justified.
 Held that only in exceptional circumstances will refusal to license be abusive.
 “New product?”
 = includes a restriction of technical development as laid down in Article 102 (b) TFEU.
o Consumers were increasingly locked into Microsoft’s platform at the work group server level
o Competitors were prevented from developing operating systems which were distinguishable
from the Windows system already on the market.
 Microsoft required to make the info available on fair, reasonable and non-discriminatory terms
(FRAND).

Pricing Practices – Rebates

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 Can the offer of rebate amount to an abuse?

 Hoffman-La Roche v. Commission
 Case T-286/09 Intel Corp v. Commission EU:T:2014:547 (on appeal).
 Quantity v. loyalty rebates
 Loyalty/fidelity/exclusivity rebates – discounts conditional on the customer obtaining all or most of
its requirements from the undertaking in a DP
 Intel –applied to 80%
 of products
 may be objectively
 justified

Consequence of a Breach of Article 102 TFEU

 Public enforcement
o Commission can impose fines, orders to cease behaviour, orders to adopt positive measures
to bring breach to an end, orders to sell assets or break up an undertaking – see Regulation
1/2003
 Private enforcement
o Article 102 TFEU has horizontal direct effect + private litigants can sue for damages
(Courage).

EU Competition Law and Policy and Brexit

 Continuing relevance of EU law

 Competition Act 1998 - Section 60
 Potential duplication of investigation
 UK will leave the European Competition Network (ECN) and would no longer be able to influence
EU competition law and policy
 Implications for UK/London based firms

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