European Union: AG Wahl Issues Opinion On Requirements To Establish Price Discrimination By A Dominant Undertaking, Endorsing The Necessity Of Carrying Out A Concrete Assessment Of All The Circumstances

On 20 December 2017, Advocate General ("AG") Nils Wahl issued an opinion holding that investigations of price discrimination under EU competition law should assess all the circumstances of the practice, including its impact and context.

AG Wahl delivered his opinion in response to a request for a preliminary ruling from the Portuguese Tribunal for Competition, Regulation and Supervision in a dispute between MEO (a branch of Portugal Telecom) and the Portuguese Competition Authority ("PCA"). MEO had filed a complaint with the PCA alleging that it paid higher rates for use of audiovisual content licensed by GDA, a collecting society that manages the performing rights of its members in Portugal. MEO argued that GDA's pricing practices amounted to unlawful discrimination in breach of Article 102(c) TFEU.

The PCA rejected MEO's complaint on the grounds that the imposition of discriminatory prices by a dominant company does not, in and of itself, breach Article 102 TFEU. It further held that the price difference was so small as to be absorbed in the normal course of business. MEO appealed this decision, urging the Portuguese Tribunal to refer a series of questions to the Court of Justice of the European Union ("ECJ") for guidance. In essence, the referring Tribunal asked for clarification on the meaning of the phrase "competitive disadvantage" contained in Article 102(c) TFEU, and in particular whether this concept requires an examination of the effects of the dominant company's behaviour and the seriousness of the discriminatory trading conditions on the competitive position of the disadvantaged client.

At the outset, AG Wahl made two interesting preliminary comments. First, he noted that although GDA is the only undertaking in Portugal managing collective rights of authors or performers, that circumstance alone did not mean that it effectively holds a dominant position, as it does not seem to have market power enabling it to act independently from its commercial partners. Second, he questioned GDA's interest in imposing discriminatory prices, noting that GDA is not itself active on the downstream market. AG Wahl thus considered that GDA should normally be expected to have every interest in ensuring the existence of a very competitive downstream market with a plurality of market participants, as this would help it maintain its negotiating power as the seller of the services concerned.

Turning to the questions referred to the ECJ, AG Wahl recalled that a discriminatory pricing policy is not, in itself, anticompetitive. Indeed, such a policy may well stimulate competition, not least by permitting sales to a greater numbers of customers.

Instead, AG Wahl noted that the imposition of differentiated pricing by a dominant undertaking is an abuse "if and only if" it gives rise to a "competitive disadvantage" between competitors and, in doing so, distorts competition between the "favoured" company and those companies which enjoy allegedly less advantageous conditions. According to AG Wahl, an analysis of the competitive disadvantage should concretely examine all the circumstances of the case. Of particular interest are: (i) the nature and magnitude of the price difference; and (ii) the cost structures of the businesses concerned.

AG Wahl emphasised that a "competitive disadvantage" within the meaning of Article 102(c) TFEU must concern the relationship between actual competitors. A discriminatory pricing system will be contrary to competition rules if it concretely affects the capacity of one party to compete effectively with another (favoured) party. Because the PCA had found that the additional costs borne by MEO were not significant and could be absorbed in the ordinary course of business, AG Wahl questioned whether the price discrimination affected MEO's position on the market vis-à-vis its competitor. In this regard, AG Wahl stressed the difference between profitability and competitiveness: MEO's business may be less profitable because of its pricing disadvantage, but this does not necessarily imply that it is less able to compete against other, more favoured operators on the market.

Ultimately, as AG Wahl noted, the concrete assessment of the existence of any competitive disadvantage must be undertaken by the national court.

AG Wahl's opinion does not bind the ECJ, which is expected to hand down its judgment in the case in the coming months.

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