Chillin'Competition

A few posts ago we decided to follow the Commission’s example and launched a reform aimed at working less.  Our plan is to do so by opening this blog to comments on recent Judgments on the part of three experts: one writes a “standard post” on the Judgment, and two others comment on it. As anticipated, our first ménage à trois deals with the Greek Lignite case (concerning the inteface between Arts. 106 and 102 TFUE). Our three inaugural guests are three good friends of this blog: two of them (Marixenia Davilla -Shearman&Sterling- and Makis Komninos -White&Case- and were actually involved in the case (on the winning side) and the third (José Luis Buendía -Garrigues-) is the author of the bible on Article 106 (of which a new edition is on the pipeline). Marixenia has written an excellent post to get the ball rolling. Comments will follow soon. Enjoy! 

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First things first…Many thanks to Chillin’ Competition for ambushing  giving me the opportunity to participate in my first ever platonic ménage a trois. This is so exciting that I am contemplating making an addendum to my curriculum. I am certain it will boost my chances of being promoted before I turn 50.

Let’s move on to the juicy stuff now, namely, the PPC judgment rendered by the General Court on 20 September 2012. Having worked on this case whilst at Howrey (RIP), I am particularly pleased to see PPC winning a very difficult battle.

This case concerns Article 106 TFEU, a provision that cannot be implemented on its own, but must be combined with another EU law provision, in this case Article 102 TFEU. Article 106 can also be described as a sort of transgender hybrid enforcement tool, existing in limbo somewhere between antitrust and state aid law, without really being any of the two. Commission decisions under Articles 106/102 are addressed to member states, but are not state aid decisions. They make findings regarding actual or potential abuse of dominance, yet the level of analysis required in such cases to prove an infringement is notably lower compared to that required for establishing a “pure” abuse of dominance under Article 102. Pursuant to Article 106(1)/102 case law, the Commission is not required to show that the company in question abused its dominance, but that it can be led to committing an abuse merely by exercising the state measure in question. In other words, Article 106 is not a bird, is not a plane, but does (still) fly, and has been a pretty handy weapon for the Commission, particularly in cases concerning network industries.

But the fun does not end there. The case law developed in relation to Articles 106(1)/102 predominantly comprises preliminary rulings by the Court of Justice, which are neither consistent with each other, nor that easy to categorise. That said, a broad categorisation is possible, and in PPC’s case the Commission relied upon the so-called “inequality of opportunity” case law (Raso and Others, France v Commission, GB-Inno-BM, and Connect Austria). According to the Commission, based on that case law, there is no need to identify a specific type of abuse; suffice to show that the state measure in question leads to an inequality of opportunity between market operators. Haha, piece of cake! Prove that, dear Commission official, and you’re done, you can close the shop and go on holiday!

This interpretation is somewhat unsatisfactory. In its appeal against the contested decision of March 2008 PPC invited the General Court to clarify this issue, and the latter bravely took on that challenge.

Having analysed the factual, legal and regulatory background underlying the case law on Articles 106(1)/102 (first, the more general case law, and second the case law on “inequality of opportunity”), the General Court observed that the Court of Justice did not assess the relevant state measures in a vacuum, but taking into account, either expressly or implicitly, the actual or potential abuse these state measures led or could lead the companies in question. The General Court concluded that it does not suffice for the Commission to establish that a state measure leads to the creation of “inequality of opportunity” for it to find an infringement; rather, the Commission must also identify the actual or potential abuse which the state measure in question led or could lead the dominant company.

This finding was absolutely crucial in PPC’s case, also taking into account the General Court’s findings on the facts, namely that: (i) approximately half of the Greek exploitable lignite resources were still free for exploitation by third parties, while Greece’s failure to grant PPC’s competitors lignite exploitation rights cannot be imputed on PPC which enjoyed its exploitation rights prior to the liberalisation of the electricity markets; and (ii) PPC sells electricity in the downstream compulsory daily market for the wholesale of electricity in line with the conditions determined by the applicable regulatory framework, the effectiveness of which the Commission had never questioned. Against this background, had the Commission tried to construct a theory of actual or possible abuse (which it clearly failed to do), it would have found that PPC was unable to manipulate the downstream market merely by exercising its lignite exploitation rights.

It seems that the Commission’s five-year long (sic!) investigation was based on a false interpretation of the case law. This perhaps explains why the Commission did not attempt to establish in PPC’s case a pure Article 102 theory of harm, unlike its other recent decisions in the energy sector (namely, the RWE, ENI, GDF, E.ON, EDF and the Swedish interconnectors cases, which followed the Commission’s 2007 report on its energy sector inquiry and resulted in the adoption of Article 9 commitments), and why it sought refuge in the hybrid system of Articles 106/102.

Now, the General Court’s judgment may seem a little too bold to some, especially the Commission. It is true, as the General Court recognized, that not all of the preliminary rulings referred to in the contested decision make an explicit finding of an actual or potential abuse stemming from the state measure in question. Nevertheless, to interpret the preliminary rulings accurately, one must read them entirely, and not focus on isolated passages.

Whether the Commission will appeal the PPC judgment is still under internal discussion, but I would not be surprised if they did. It would be interesting to hear the Court of Justice’s interpretation of its own preliminary rulings. I do hope, however, that the Court of Justice will realise the danger in permitting the Commission’s unsatisfactory interpretation of its case law to prevail, and that the views of the two EU Courts will meet.