On 6 April 2016, Advocate General ("AG") Wahl gave an opinion advising the European Court of Justice ("ECJ") on the criteria to determine whether a Latvian royalty collecting society had abused its dominant position by charging excessive prices in breach of Article 102(a) TFEU. The matter came before the ECJ by way of a request for a preliminary ruling from the Latvian Supreme Court.
The national court issued the request in the context of a dispute between the Latvian Competition Authority ("LCA") and the collecting society, AKKA/LAA, which possesses the exclusive right to issue licenses for the public performance of musical works in commercial premises and service centres in Latvia. In April 2015, the LCA fined AKKA/LLA for charging retailers and venue owners excessively high rates - between 50-100% higher than the EU average - for those licenses.
In his opinion, AG Wahl set out the twofold "United Brands" test used to establish the existence of unfair pricing. The first step requires a determination of whether there is an excess between the price charged by the dominant undertaking and the price which the undertaking would have charged had there been effective competition in the market (the "benchmark price").
The AG said that there are many different methodologies to determine the benchmark price, but each of these had its own inherent limitations. To minimise the risk of error, he recommended that multiple methodologies be used in combination wherever possible. However, in cases where only one method was suitable, he emphasised the need to take into consideration additional indicators, such as the negotiating position of customers, which could corroborate the initial results.
In the present case, the LCA had opted to make a comparison with the prices charged by societies in neighbouring countries and other EU Member States to determine whether the Latvian fees were excessive. The AG described this approach as appropriate subject to the national court's verification that: (i) there were no other suitable methods available which the authority could have also employed; and (ii) it was implemented correctly, meaning that the comparison was carried out according to objective, appropriate criteria and took due account of relevant economic differences between countries (the use of a purchasing power parity index based on GDP may be one tool that would be appropriate to apply in this context).
To qualify as excessive, AG Wahl said that prices need to be "significantly and persistently" above the benchmark price, and that authorities should only intervene where the price difference is "of such a magnitude that almost no doubt remains as to [the price's] abusive nature."
As regards the second step of the United Brands test, the AG said that the onus is on the undertaking to show the fair nature of the prices, once they are determined to be excessive. The AG said that in order to do so, undertakings may, in particular, refer to higher production or marketing costs or the fact that the products or services they supply are economically more valuable.
Moreover, in the AG's view, before an undertaking's conduct can be qualified as an abuse, it must be established that the undertaking's ability and willingness to exercise market power even when abusive presents the only rationale economic explanation for charging excessive prices.
Interestingly, the AG also suggested that excessive pricing should only be considered unlawful in regulated markets, such as the one concerned in the present case in which he considered there was a legal monopoly. In his view, where there is a sector regulator, investigations for excessive pricing should therefore focus on cases where the sector's regulator has erroneously failed to intervene.
The opinion represents an important contribution to the limited judicial guidance on excessive pricing, and, if followed, would significantly restrict the scope of the abuse. The ruling of the Court will be eagerly awaited.
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