Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Recent Article 102 TFEU Case-law

with 10 comments

Today, my ex-Howrey colleagues invited me to give a presentation on recent developments on EU competition law at Shearman & Sterling. I was very honoured.

It gave me the opportunity to read  the recent judgments in Telefónica v Commission, Post Danmark and Tomra v Commission.

On my own arbitrary scale, the ranking of those judgments is as follows:

  1. CJEU, Post Danmark, C-209/10
  2. CJEU, Tomra v Commission, C 549/10 P
  3. GC, Telefónica v Commission, T-336/07

A word of explanation is in order: amongst those three judgments, the Grand Chamber of the Court should  first be praised for its ruling in Post Danmark. The judgment dissipates the uncertainty generated by Compagnie Maritime Belge in clarifying that selective price cuts are presumably legal when prices > average incremental costs. But this is not all. The Court makes very explicit – and this is right in my opinion – that dominant firms can compete on the merits even if this forces rivals off the market (§22). In so doing, it recognises that not all foreclosure is unlawful, but only that “anticompetitive foreclosure” matters under Article 102 TFEU. Last, but not least, the judgment upholds the unnamed “Article 102(3) TFEU defense” that the Commission had plugged in §30 of its Guidance Paper (see §42).

The second judgment on my podium is Tomra. It comes second because the dicta that dominant firms should be able to compete on the merits for the entire market is wholly unfortunate (§42). It is first non-sensical from an economic standpoint. But as we wrote here, it is also inconsistent with the approach followed in other areas of competition law . A similar comment applies to the unconvincing assertion that a “suction effect” can be established without any need to run a price-cost analysis (§79). Not all in Tomra is bad though. In particular, the judgment encapsulates a subtle message of hope at §81 when it implies, a contrario, that the Guidance paper will have increased relevance in future Article 102 TFEU cases:

As the Advocate General observes in point 37 of his Opinion, the Guidance, published in 2009, has no relevance to the legal assessment of a decision, such as the contested decision, which was adopted in 2006

The worst of those three judgment is, by far and large, Telefónica v Commission. In this judgment, the General Court obediently implements the perplexing standards set by the Court in Konkurrensverket v TeliaSonera Sverige AB (C-52/09). To me, it is beyond common sense, conventional wisdom, reason, logic, honesty, intellectual sanity to consider that a dominant firm can abusively squeeze its rivals through high prices, meanwhile being under no duty to deal with them (see §180). In the language of driving metaphors (I love them), this is akin to forbidding someone from driving at 130 km/h, meanwhile explicitly entitling him to drive at 200 km/h.

I should, however, be very grateful to the Court. The release of those rulings comes at a perfect time, with our Brussels School of Competition conference on “Costs in EU competition law” scheduled on 9 May. The number of participants keeps increasing, and yesterday, the General Counsel of one of the 3 firms involved in those cases registered :).

Written by Nicolas Petit

24 April 2012 at 10:03 pm

Posted in Case-Law, Uncategorized

10 Responses

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  1. As regards the Telefónica Case, I do not share your view: the issue of duty to deal was not decisive, and in fact there was an explicit regulatory duty to deal (see § 179). The GC did not “obediently implement” TeliaSonera in that respect, it just added an (obiter) reference to it, as evidenced by the language of § 180, starting with (no English translation available) “En outre”/”Además”/”Im Übrigen”.

    hp lehofer

    25 April 2012 at 10:19 am

    • A bit off-topic but still.. It’s always the same issue with regard to the quality of interpreting and/or translation in EU matters.. my experience tells me that for ex. the ‘simultaneous interpreting’ within the Council is on a inconsistent level due probably to the fact that there is a lack of specialization among the interpreters as it regards the topics they cover on a daily basis.. meaning the same person will be in charge at 8am of ‘agriculture’, at 10am of ‘intellectual property’ and at 2pm of ‘competition’… this results sometimes in akward situations where long explanations are given by the national delegate who is still asked by the chairman at the end “are you in favor or against it ?”.. 🙂 and then everybody switches to the modern lingua franca.

      ABC

      25 April 2012 at 12:43 pm

    • You are very right, I should have written the GC “obediently restated TeliaSonera”, thereby confirning that the existence of a regulatory duty in the case was all but relevant.

      Nicolas Petit

      25 April 2012 at 2:21 pm

  2. Since my (not very good) comment from yesterday evening appears to have been eaten by the spam filter, let me try again:

    A margin squeeze is a combination of two morally dubious actions that, when taken together, add up to something that is even more morally dubious. Whether the ECJ was right – in Deutsche Telekom and later in TeliaSonera – to accept margin squeeze as an acceptable theory of abuse is an open question, but it is clear that there was no logical reason why it should have to break the theory down into its component parts, the way the US Supreme Court did in Pacific Bell v. Linkline. Just because your anticompetitive refusal to deal doesn’t rise to the level where it makes you culpable/liable under the competition laws, doesn’t mean that that behaviour doesn’t become abuse when combined with an almost-but-not-quite case of predatory pricing downstream.

    martinned

    25 April 2012 at 2:29 pm

  3. Thanks! It is indeed a good comment.

    Refusing to deal is not a matter of degree. Either you refuse or you dont, and you may do this in several ways: stop supplies or charge a 30000% price hike. If the theory of harm behind a margin squeeze is that it excludes just like a refusal to supply, then you should prove that it has equivalent anticompetitive effects. And this can just not happen if the facility is not indispensable. Thinking otherwise is simply condemning something different, that is something that makes the life of competitors harder. And here, we are a further cry from the general principle that firms should in principle free to choose with whom they are dealing.

    Nicolas Petit

    25 April 2012 at 3:54 pm

  4. How is a 30000% price hike the same thing as a refusal to deal? It clearly isn’t. (If we’re going to be formal about it.) And if it is the same, what about 3000%, or 300%, or 30%? What you seem to be proposing as an answer to this is “equivalent anticompetitive effects”, but what does that mean? If it means that it makes effective competition essentially impossible, just like an actual refusal to deal would, then you’re proposing the same as the margin squeeze theory: the combination of too high wholesale prices and too low retail prices prevent effective competition in a manner that the competition courts have decided not to tolerate.

    (Incidentally, that last point is key of course. They could have also been more pragmatic and let the telecoms regulators sort this out.)

    martinned

    25 April 2012 at 5:42 pm

  5. Thanks for your comment. On your first question => I would call such a hike, as many others, a “constructive” refusal to supply. More generally, I still fail to understand how a firm can charge a 30000% hike (or even a 30% one) to its rivals if it does not possess sthing that is “indispensable” to them. Now: isn’t this the first Bronner condition? Besides this, from a business perspective, why would a firm bother to engage into complex, dubious price tactics to eliminate rivals, if it can simply, and lawfully, cut off access? A last remark. The assessment of those cases is eventually a matter of standard. If the standard is logic, then TeliaSonera and Telefonica are nonsense. But if the standard is moral – yet I fail to understand what it concretely means – you may be right. After all, moral is a very subjective thing.

    Nicolas Petit

    26 April 2012 at 11:17 am

  6. Indispensible is a lawyer question. (Just like market and “significant market power”.) In economics, there are only demand curves that are steep or less steep. The higher the price elasticity of demand, the lower the rents associated with market power. (That’s the Lerner condition.) Everything is a matter of degree.

    That said, I’m going to stop talking now, because the entire question is purely academic. In practice, margin squeezes will always involve a (near-) monopoly in the upstream market (i.e. over and above the market power that is legally required for art. 102 TFEU to be applicable). Moreover, in practice this stuff will almost always come up in highly regulated markets like telecoms, where upstream natural monopolists compete in the downstream market against their own customers. As long as no one can come up with a good hypothetical case that does not involve these ingredients, a conversation like this brings out the worst in lawyers. 😉

    martinned

    26 April 2012 at 3:02 pm

  7. These discussions do not necessarily bring the worst in lawyers: they also spur bright and interesting comment such as yours!

    Nicolas Petit

    26 April 2012 at 6:03 pm

  8. Many things can be said about Tomra however allow me a couple of comments on this judgment.

    First of all, in assessing the argument concerning the degree of foreclosure, the GC in paras. 238 to 246 is referring to all of Tomra’s practices including, therefore, exclusivity agreements, quantity commitments and rebate schemes.

    I think it is important not to read this part of the judgment as if the Court was considering only Tomra’s rebate schemes. Actually Tomra’s case is more about exclusivity agreements that about rebate schemes.

    Secondly, the General Court makes it clear at the beginning of para. 241 that “the foreclosure by a dominant undertaking of a substantial part of the market cannot be justified by showing that the contestable part of the market is still sufficient to accommodate a limited number of competitors”. It is only immediately afterwards that the Court indicates that “the customers on the foreclosed part of the market should have the opportunity to benefit from whatever degree of competition is possible on the market and competitors should be able to compete on the merits for the entire market and not just for a part of it”. The Court then reiterates that the foreclosed portion of the market was considerable (two fifths) in the present case. The ECJ’s reasoning follows the same order.

    As a consequence, it is difficult to extrapolate from this reasoning that from now on a de minimis foreclosure imposed by a dominant company will be automatically illegal.

    This is also confirmed, if needed, by the fact that both Courts stress that only an analysis of the circumstances of the case allows to establish whether the practices of a dominant firm are capable of excluding competition.

    Finally, it should not come as a surprise that the GC has not taken into account the Commission’s guidance paper when assessing Tomra’s decision. In 2006, when the decision was issued, the discussions about the guidance paper were just starting so the guidance paper could have no impact whatsoever on the legality of the decision. Moreover and in general, in my view, the Luxembourg Courts should not “obey” to any Commission’s guidance paper or guidelines. These documents are not pieces of legislation and, even if the Commission is bound by them this does not automatically imply that the EU Courts are subject to the same obligation.

    Jerry

    30 April 2012 at 5:13 pm


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