MERGER CONTROL
European Union level
Court of Justice confirms ex-post application of abuse of dominance rules to non-notifiable mergers
On 16 March 2023, the Court of Justice (ECJ) issued a preliminary ruling in case C-449/21, Towercast SASU v. Autorité de la concurrence and others ("Towercast") finding that concentrations that are not subject to any ex-ante notification requirement under national or EU merger control rules may nonetheless be subject to an ex-post abuse of dominance review by a national competition authority pursuant to Article 102 TFEU.
The ruling arose from a question posed to the ECJ by the Paris Court of Appeal, which was considering a complaint to the French Competition Authority (FCA) lodged in 2017 by Towercast, a television transmission service provider. Towercast's rival, TDF Infrastructure (TDF), had acquired Itas, the only other competitor active on the market, in a deal that did not trigger either EU or French national merger control notification requirements. Towercast complained that by acquiring Itas, TDF had abused its already dominant position in violation of Article 102 TFEU.
Specifically, Towercast sought to rely on the ECJ's judgment in the 1973 Continental Can case, in which the Court held that a company could abuse a pre[1]existing dominant position under Article 102 by further strengthening this position through an acquisition. The FCA, however, took the view that Continental Can was no longer relevant. That case was decided before the introduction of a comprehensive merger control regime at EU level, which implemented EU competition law (including Article 102) in the context of merger control. Because the EU Merger Regulation (EUMR) had introduced a system for the ex-ante review of concentrations, the FCA concluded that it could not also continue to apply Article 102 in an ex-post assessment of a merger and rejected the complaint. On appeal, the Paris Court asked the ECJ whether it was possible for the FCA to apply Article 102 to concentrations falling outside EU or national merger control notification thresholds.
The ECJ confirmed the position taken by Advocate General Kokott in her opinion, in which she took the view that Article 102 could indeed still be applied in this context (see VBB on Competition Law, Volume 2022, No. 10). The ECJ noted that, although the EUMR gave exclusive ex-ante merger control powers to the Commission, this legislation had not rendered the ex-post application of Articles 101 and 102 void with regard to all concentrations not captured by the EUMR. As a consequence, the ECJ concluded that concentrations that are not subject to ex-ante review under the EUMR or national merger control thresholds may be subject to a review under Art. 102.
Consistent with Continental Can, the ECJ stated that an infringement of Art. 102 would require the national competition authority to establish that the acquirer already held a dominant position on the relevant market and that its acquisition of another undertaking on that market substantially impeded effective competition on that market. Effectively, the market would be left with "only undertakings whose behaviour depends on the dominant undertaking." Unlike under an ex-ante merger control review, it would not be sufficient to merely show that the acquisition strengthened the already dominant position.
Notably, this ruling in favor of the continued application of Continental Can runs counter to a recent decision of an Italian Administrative Court in 2022 (see VBB on Competition, Volume 2022, No. 5). More broadly, the Commission has already increased the reach of the EU merger control process by expanding the use of Art. 22 EUMR to accept a merger referral from Member States lacking original jurisdiction which ask that the Commission review the transaction at issue (see VBB on Competition Law, Volume 2022, No. 7). This ruling is notable as it confirms yet another tool that competition authorities may use to review transactions falling outside of the normal merger control process. Given the high bar to finding an abuse of dominance, it is not yet clear whether this process will be used often in practice, although the Belgian Competition Authority has already indicated that it intends to review Proximus' acquisition of rival Edpnet in light of the ECJ's Towercast ruling.
ABUSE OF DOMINANT POSITION
European Union level
Commission's initiative on Article 102 TFEU guidelines acknowledges the central role of an effects-based approach in abuse of dominance cases, while retracting from a consumer welfare-based, rigorous economic effects analysis
On 27 March 2023, the European Commission ("Commission") launched a new legislative and policy initiative which aims to replace the Commission's 2008 guidance on its enforcement priorities in Article 102 cases involving allegedly exclusionary conduct (the "2008 Guidance Paper") with formal Article 102 Guidelines that would be binding on the Commission and should, in principle, provide greater legal certainty to market participants ("Guidelines"). In the context of this initiative, the Commission has also made a few, but highly relevant and immediately applicable changes to the 2008 Guidance Paper which foreshadow the approach in the forthcoming Guidelines. A policy brief provides useful explanations for the modifications to the 2008 Guidance and the proposed Guidelines ("Policy Brief").
The initiative to adopt Article 102 Guidelines marks a significant step in EU antitrust law. It is an acknowledgement of the recent case-law of the EU Courts, which has created solid support for an effects[1]based analysis across all Article 102 cases alleging anti[1]competitive foreclosure.
Yet, the – immediately effective – changes to the 2008 Guidance Paper also signal that the Commission is to some extent retracting from the ambitious goal of creating a coherent and predictable analytical framework for exclusionary 102 cases that is solidly grounded in the consumer welfare model and committed to a rigorous analysis of economic evidence. These changes provide a first (though not necessarily promising) indication on the direction of travel, as the Commission embarks on the Guidelines project.
The Troubled History and Ultimate Validation of the 2008 Guidance Paper
The 2008 Guidance Paper marked the Commission's first attempt to introduce a consistent, evidence-based effects analysis in exclusionary abuse of dominance cases. It was based on the central theme that conduct should be considered a competition law violation only if it excluded equally efficient competitors. It thus moved away from a largely formalistic approach which the European Court of Justice ("ECJ") had upheld on several occasions and on which the Commission had relied in its enforcement practice.
This was a controversial move at the time. The compromise was to adopt only a non-binding policy paper on enforcement priorities, rather than legally more meaningful guidelines, and there were at times rumours that even the policy paper should be retracted as it set the bar for finding an infringement too high, beyond what was required by the case-law.
Reflecting this controversy and compromise, the Commission's 2009 Intel decision based the finding that Intel's loyalty rebates infringed Article 102 TFEU on a formalistic per se approach, as supported by Hoffmann-La Roche and other judgments. The decision nevertheless included an as-efficient competitor ("AEC") test, which applied the 2008 Guidance Paper and purported to show that Intel's loyalty rebates were capable of excluding equally efficient rivals, but emphasized that this was done solely "for completeness" and without legal relevance for the outcome of the case.
ABUSE OF DOMINANT POSITION
European Union level
The ECJ, however, subsequently annulled the Intel decision, declaring that the Commission's legal reasoning was insufficient and that the Commission was required to address, through an economic analysis, Intel's arguments about the lack of capability of its rebates to foreclose (Case C-413/14 P).
Subsequent ECJ judgments such as Servizio Elettrico Nazionale and Others (C-377/20) and Unilever (C-680/20) have solidified support for the effects-based approach to exclusionary conduct cases, and repeatedly emphasized that conduct that may eliminate less efficient rivals will normally not be considered a competition law violation. They have thus broadly validated the principles promoted in the 2008 Guidance Paper for both pricing and non[1]pricing conduct.
Amendments to the 2008 Guidance Paper and the Future Guidelines
The ECJ's endorsement of a more disciplined effects[1]based approach has created unease within the enforcement community. This is clearly reflected in the Policy Brief's warning that "an overly rigid implementation of the effects-based approach could set the bar for intervention at a level that would render enforcement [...] unduly burdensome or even impossible." Consistent with these concerns, the changes to the 2008 Guidance Paper signal that the Commission, as it contemplates the adoption of legally more meaningful Guidelines, seeks to protect the flexibility to use a less rigorous approach in Article 102 cases.
This is highlighted in the Policy Brief, which explains that the focus on economics-based consumer welfare goals should be replaced with a range of policy goals which would include consumer welfare, but also much more amorphous objectives such as protecting fairness, a level playing field, plurality, and democracy. How these additional objectives can be made operational in competition analysis and determine case outcomes, however, remains unclear.
The most notable changes in the 2008 Guidance Paper include:
- The notion of anti-competitive foreclosure is widened to encompass situations where the dominant undertaking's conduct is capable of adversely impacting the competitive structure of the market, without a need to show that market access for competitors has been undermined and that the dominant undertaking is able to profitably raise
- When examining whether an as efficient competitor likely would be foreclosed, the Commission no longer commits that it "will" examine economic data, but merely "may" do so. Related statements in the Policy Brief suggest that the Commission generally would not run an AEC test where it is not compelled by the case law to do so, such as in the case of exclusivity Of course, Intel compels the Commission to objectively examine an AEC test submitted by the defendant. Thus, the changes signal that the Commission would take a more legalistic approach and, where possible, rely on a presumption of unlawfulness while putting the burden of proving the absence of the capability to foreclose on the defendant. Along the same lines, the Commission is no longer willing to commit that it would likely not intervene if a data-driven AEC test shows that equally efficient competitors are not excluded by the dominant firm's pricing conduct.
- Taking advantage of the judgments in Slovak Telekom (Case C-165/19 P) and TeliaSonera (Case C-52/09), the Commission explains that, when a dominant firm supplies its customers while imposing allegedly unreasonable supply conditions (known as "constructive" refusal to supply), there can be an Article 102 infringement even if the product or service supplied is not "indispensable." In other words, the strict conditions of the Bronner case law to identify an unlawful refusal to supply are only relevant in cases of an outright refusal.
ABUSE OF DOMINANT POSITION
European Union level
These changes find some support in the relevant case law. But they deviate from the more ambitious and coherent approach the Commission was willing to promote in 2008.
Observations
The Commission itself acknowledges that EU case-law on exclusionary abuse of dominance has now reached a level of maturity and clarity which calls for the adoption of guidelines that are legally binding on the Commission. From that perspective, the Commission's initiative is a welcome development.
Yet, the recent changes to the 2008 Guidance Paper send a clear signal that the Commission is retracting from the Guidance Paper's aspiration to consistently follow an effects-based approach grounded in solid competition economics to distinguish lawful from unlawful conduct.
Thus, the forthcoming Guidelines will – and, in fact, must – acknowledge that an effects-based test is required in Article 102 cases. But they likely will also seek to retain maximum flexibility, within the confines of relevant case[1]law, on what an effects-based analysis actually means. Critics have welcomed the Commission's changes to the 2008 Guidance Paper, claiming that they will make the enforcement of Article 102 TFEU less demanding and more "workable." But this view misses the very point of the role of guidelines. Guidelines are not a tool to make competition law enforcement "workable" by maintaining maximum flexibility in finding an infringement whenever a competition authority "does not like" market outcomes. Instead, they should make enforcement predictable and consistent with a clearly identified policy goal. The ECJ has repeatedly emphasized that EU competition law protects equally efficient rivals against anti-competitive foreclosure and in principle does not protect less efficient competitors. Thus, if there is evidence that a dominant firm's conduct is not likely to eliminate equally efficient competitors (even though it may affect those that are less efficient), it should be very demanding for a competition authority to nevertheless establish an infringement.
Solid guidelines must enable market participants to distinguish ex ante between unlawful and lawful conduct, and to anticipate how they can engage in competitive conduct that will most likely not result in enforcement action and the risk of quasi-criminal fines. It remains to be seen to what extent the forthcoming Guidelines will effectively serve this purpose. There will probably be Guidelines in a few years, but there is a risk that the useful guidance that they will provide to market participants will in fact be limited.
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