08/27/2024 | News release | Distributed by Public on 08/28/2024 19:04
The European Commission's draft guidelines on exclusionary abusive conduct by dominant firms under Article 102 TFEU (the "Draft Guidelines") were published on 1 August 2024. They show a marked change from the 2009 Article 82 [now Article 102] Enforcement Priorities Guidance (the "Priorities Guidance"): economic concepts have largely been replaced with the Commission's interpretation of the European Courts' caselaw.
The consultation on the Draft Guidelines is open until 31 October 2024. Practical suggestions rooted in and developing the caselaw appear more likely to influence the Commission's final version of the Draft Guidelines than statements of economics.
Like the Priorities Guidance before it, the Draft Guidelines cover exclusionary conduct that the Commission views as concerning - conduct that benefits the dominant firm by excluding competitors from the market - and not exploitative conduct which benefits the dominant firm by exploiting its market power such as excessive pricing or the use of unfair trading conditions. Though in a departure from the Priorities Guidance, the Draft Guidelines do note overlaps between exclusionary and exploitative analysis: "the principles relevant to the assessment of dominance (section 2) and the justifications based on objective necessity and efficiencies (section 5) are also relevant for the assessment of other forms of abusive conduct, such as exploitative abuses" (paragraph 11 of the Draft Guidelines) and "the same conduct by a dominant undertaking may have both exclusionary and exploitative effects" (footnote 17 of the Draft Guidelines).
The Draft Guidelines also now cover collective dominance and not only single dominance, of which more below.
The Draft Guidelines are important because they signal not only how the Commission intends to apply Article 102 to dominant companies - arguably it is already doing so - but also how the Commission interprets the European Courts' caselaw since the Priorities Guidance was adopted, and how the Commission wishes to influence the development of the caselaw in the future. In the period since the publication of the Priorities Guidance in 2009, the concepts set out in the Priorities Guidance have had mixed success in front of the European Courts. Some examples:
The Draft Guidelines in numbers
The Draft Guidelines are a much longer read than the Priorities Guidance - around two and a half times as long - totalling over 33,000 words in place of 13,000. They are also more densely footnoted, with 367 footnotes compared to the previous 62: allowing for the Draft Guidelines being much longer, this is still more than double the rate of footnotes per 1000 words.
As expected, the Draft Guidelines focus more on the European Courts' caselaw and less on economic concepts, with references to caselaw around three times as often as the Priorities Guidance: the Draft Guidelines cite caselaw more than 500 times, referencing more than 100 individual cases; the Priorities Guidance refers to only around 30 individual cases, around 70 times in total. Per 1000 words, that is around 15 cases in the Draft Guidelines compared to only around five cases in the Priorities Guidance.
The most frequently cited case is a relatively recent one: Case C-377/20, the preliminary ruling from May 2022 in Servizio Elettrico Nazionale, which is cited 35 times. Allowing for the fact that there have been around 30 relevant judgments issued by the European Courts since the Priorities Guidance in 2009, and the Draft Guidelines cite 70 additional cases, it is also clear that the Draft Guidelines cite more to the pre-Priorities Guidance caselaw as well.
Looking past the numbers, you can get a sense of the different direction that the Draft Guidelines take compared to the Priorities Guidance by looking at the language used - and the language not used.
The dog(s) that didn't bark in the nighttime
Some concepts heavily relied on in the Priorities Guidance are downplayed or not to be found in the Draft Guidelines. For example:
The phrase "anti-competitive foreclosure" was defined at paragraph 19 of the Priorities Guidance as "a situation where effective access of actual or potential competitors to supplies or markets is hampered or eliminated as a result of the conduct of the dominant undertaking whereby the dominant undertaking is likely to be in a position to profitably increase prices to the detriment of consumers". It was a key concept and used heavily - a total of 20 times throughout the Priorities Guidance, with an additional 15 references to foreclosure. Neither "anti-competitive foreclosure" nor "foreclosure" is mentioned at all in the Draft Guidelines.
Similarly absent from the Draft Guidelines are the terms "consumer welfare" - mentioned three times in the Priorities Guidance and absent from the Draft Guidelines (though "welfare of consumers" is mentioned once in paragraph 5) - and "sacrifice" (in the sense of profit sacrifice) which was used 11 times in the Priorities Guidance, and is also absent from the Draft Guidelines.
These changes certainly show a difference in the drafting, and suggest a difference in the Commission's thinking about Article 102. But it is perhaps also worth noting that, while the European Courts have recognised that not all foreclosure is anti-competitive, the phrase "anti-competitive foreclosure" has not been used by the European Courts in the 15 years and 30 Article 102 cases since the Priorities Guidance was published. Anti-competitive foreclosure has essentially only been used by applicants referring to the Priorities Guidance. The term profit sacrifice has similarly been absent from European Court caselaw during the same period.
The word "foreclosure" has a longer pedigree in EU competition law and is used more widely in the caselaw, so it is a little surprising that it is not mentioned in the Draft Guidelines. Perhaps counter-balancing this absence of reference to foreclosure, however, the term "exclusionary" is used frequently; it appeared only 15 times in the Priorities Guidance, but 136 times in the Draft Guidelines - allowing for the different lengths of the documents, nearly four times more often.
So although the word "foreclosure" is notable by its absence, the word "exclusionary" is notable by its presence, which is arguably a signal that the Commission is shifting its focus from the exclusion of as efficient competitors (discussed further below) and towards a focus on the impact of conduct on the structure of competition on the market.
There are other notable additions.
The dog(s) that did bark
On dominance, the Priorities Guidance indicated that market shares were only a "useful first indication" of the relative importance of the undertakings on the market and that companies with low market shares - below 40% - were unlikely to be dominant. The Draft Guidelines take a rather different tone: "the existence of very large market shares… are in themselves - save in exceptional circumstances - evidence of the existence of a dominant position. This is the case in particular where an undertaking holds a market share of 50% or above" (paragraph 26, footnotes omitted). The soft safe harbour has been reduced from 40% to 10%, and dropped to a footnote (41): "… Market shares below 10 % exclude the existence of a dominant market position save in
exceptional circumstances…"
The Priorities Guidance confined itself to undertakings with "a single dominant position". By contrast, the Draft Guidelines discuss collective dominance at length. EU law uses collective dominance to refer to a situation where two or more independent economic entities jointly hold a dominant position in a market. The Draft Guidelines devote nearly 1000 words and 23 footnotes to a discussion of it. The mere fact that collective dominance is covered at all is a significant shift and may signal that the Commission intends to end its twenty-year hiatus on pursuing collective dominance cases. The cases cited in the footnotes highlight the lack of any development of this concept at EU level in these years: the most recent case cited is the Court of Justice judgment in Impala from 2008, which itself related to a Commission merger decision from 2004.
The concept of abuse has been framed differently in the Draft Guidelines, and is presented in two stages: (i) does the conduct depart from competition on the merits, and (ii) is the conduct capable of having exclusionary effects (paragraph 45).
While the Priorities Guidance and the Draft Guidelines both affirm that dominant companies were entitled to compete on the merits, the Priorities Guidance then mentioned "other means than competing on the merits" only once, while the concept of conduct departing or deviating from "competition on the merits" appears 34 times in the Draft Guidelines. Again, this may be reflecting the frequent reference to the concept in the caselaw.
The Commission expands on the concept of actions that are not "competition on the merits" by collating a range of examples from the caselaw, including preventing consumers from exercising choice, misleading regulatory authorities, discriminatory treatment favouring itself over its competitors, and whether a hypothetical as efficient competitor would be unable to adopt the same conduct (paragraph 55).
Then in looking at what conduct is capable of having exclusionary effects (section 3.3), the Draft Guidelines distinguish three scenarios (which seem easier to understand in the reverse of the order that they are presented in the Draft Guidelines):
Moving from general concepts to specific conduct…
On predation itself - which relates to a dominant firm setting prices below cost - the Draft Guidelines are substantially altered compared to the Priorities Guidance and no longer mention the concept of profit sacrifice. That the European Courts have several times ruled that there is no need for recoupment under EU law has been moved out of a footnote (footnote 6 on page 11 of the Priorities Guidance) and into the body of the document (paragraph 113 in the predation section and 127 of the margin squeeze section of the Draft Guidelines).
In perhaps the least surprising change, the Commission has moved the concept of margin squeeze from the section on refusal to supply (where it appears in the Priorities Guidance) to the section immediately following predation in the Draft Guidelines. This appears to reflect the Court's ruling in Telia Sonera that a margin squeeze can constitute an abuse of dominance even in circumstances where a refusal to supply might not.
The Priorities Guidance relied heavily on the concept of an as-efficient competitor. The as-efficient competitor principle assesses whether a dominant firm's conduct would exclude a hypothetical competitor that is as efficient as the dominant firm itself. The Priorities Guidance made clear that enforcement should only concern itself with the protection of "as efficient" competitors. The Court of Justice inIntel accepted the as-efficient competitor test - namely specific economic analysis aiming at assessing the capability of the dominant firm's practices to exclude as efficient rivals - as something that needed to be analysed by the Commission if raised, a position affirmed in other cases includingPost Danmark II and Unilever Italia. The General Court in Qualcomm (Rebates)also extended the test's potential use beyond direct price abuses, to exclusivity clauses in contracts.
At the same time, the European Courts have suggested that the as-efficient competitor test might not always be required to find a violation. For example, in the Unilever Italia preliminary ruling (at paragraph 39), the Court of Justice stated: "Thus, abuse of a dominant position could be established, inter alia, where the conduct complained of produced exclusionary effects in respect of competitors that were as efficient as the perpetrator of that conduct … or where that conduct was based on the use of means other than those which come within the scope of 'normal' competition, that is to say, competition on the merits". In addition, the Court of Justice in Post Danmark II (paragraphs 59 and 60), opined that where we are dealing with an effects analysis "even a less efficient competitor may also exert a genuine constraint on the dominant undertaking".
The Commission has woven these considerations into the Draft Guidelines, concluding that in some circumstances, less efficient competitors can restrain dominant firms and that a finding that particular conduct is not competition on the merits is an alternative to the as efficient competitor test.
Conclusions
The Priorities Guidance-always intended to be more than about prioritisation-sought to ground Article 102 enforcement in economic concepts such as anti-competitive foreclosure, the as-efficient competitor principle, and profit sacrifice.
The Draft Guidelines have moved away from this approach, and, more generally the pendulum of antitrust policy has swung in favour of more presumptions, albeit rebuttable ones (at least in theory).
The consultation runs until the end of October 2024.
The author is a former DG Competition head of unit and in 2008/9 participated in the drafting of the Priorities Guidance.