Chillin'Competition

This third part of our inaugural ménage à trois discussion on the Greek lignite Judgment features  (see part I and part II ) another good friend of this blog: Assimakis Komninos. Makis is a great guy, a partner at White & Case, and was a successful co-counsel in the case we’re they are discussing, so he was an obvious candidate for our triad of guests. As you will see, Makis sides with Marixenia Davilla in praising the Judgment. In doing so, he replies to José Luis Buendía’s more critical views.

To illustrate Makis’ post we have chosen the image of another famous lignite-related (look at gift in the middle) ménage à trois.  🙂

First of all, it is such a great pleasure to be invited to comment on the Greek lignites case. I should disclose at the outset that I represented, as co-counsel, the Hellenic Republic in its intervention in support of PPC during the written proceedings stage.

My personal view is that the General Court did the right thing and annulled a decision that was going a step too far. There is no doubt also, in my view, that the Commission was using this as a kind of “test case” against a carefully selected target.

The intellectual starting point is, I think, the very nature of Article 106 TFEU. This is a rather curious provision and I certainly agree with José Luis that it is essentially about State measures, but the sure thing is that the Treaty fathers wanted to give it a carefully circumscribed scope. A systematic interpretation of the Treaty does not support that there is general prohibition of all State measures that may – even indirectly – impact on competition and business activities. Article 106 TFEU restricts the behaviour of Member States only by reference to the scope of some other Treaty provisions, such as Article 102 TFEU. This is the provision that the Commission chose to rely on by reference.

Then, if one reads the Commission’s decision, one fails to see how Article 102 TFEU would come into play here, albeit by reference. Would the theory of harm refer to a leveraging abuse, to a refusal to supply, to a failure to satisfy demand (exploitation), to discriminatory treatment on the part of PPC? Not clear at all. The Commission thought that it did not have to specify this. By the way, I am not suggesting that in Article 106 TFEU cases, the Commission need to show anti-competitive effects etc. This is not what I argue. Instead, I submit that the Commission should be able to demonstrate with a sufficient degree of intellectual clarity that the State measures are connected with a specific kind of actual or potential abusive behaviour by the undertaking in question. This is all the Court says and I fully agree with Marixenia.

With respect, I do not agree that the previous case law gave the Commission leeway in not being obliged to identify a specific kind of actual or potential abusive behaviour. On the contrary, if we look at RTT and even Connect Austria, while we see references to “equality of opportunity” and to RTT’s “obvious advantage over its competitors”, that by no means leads to the conclusion that the mere existence of inequality of opportunity is sufficient for an Article 106 TFEU violation. In both cases, the Court spoke about specific anti-competitive phenomena. In Connect Austria, the problem was that the undertaking in question was allowed (through the inequality of opportunity) to expand its dominant position onto a related market and, in RTT, the Court is very clear and explicit as to the kind of abuse of dominance that was at stake: “an abuse within the meaning of Article [102] is committed where, without any objective necessity, an undertaking holding a dominant position on a particular market reserves to itself an ancillary activity which might be carried out by another undertaking as part of its activities on a neighbouring but separate market, with the possibility of eliminating all competition from such undertaking”.

In the PPC case, the Commission seemed to build its case on the grounds that PPC’s lignite rights are not sufficiently counter-balanced by significant deposits of its competitors, even though lignite is not an essential input to compete downstream. I am actually being kind to the Commission, when I say this, because this theory is not clearly articulated within the txt of the decision. The Commission then identified a remedy: PPC’s competitors needed to gain access to 40% of the total exploitable lignite reserves. In a nutshell, the Commission was seeking to use competition law to unbundle the Greek electricity generation market. However, this instrumentalisation of the law, in order to redesign a market structure, lacked both a legal and a sound economic basis. Moreover, it would lead to a dangerous precedent by permitting the Commission to attack market structures it dislikes by invoking the vague concept of “inequality of opportunity”.

The Commission misinterpreted the case law and its decision deserved to be annulled. I do not think this is the end of Commission enforcement under Article 106 TFEU, as some commentators have argued. It will only have to do a better job next time and articulate also a clear theory of harm that refers to an actual or potential abuse of dominance by a public undertaking or an undertaking with special or exclusive rights, as a result of certain State measures.