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Archive for December 14th, 2016

Capability vs likelihood in the context of Articles 101 and 102 TFEU: the difference exists, and matters

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Many of you will remember the post I wrote on AG Wahl’s Opinion in Intel. One of the questions that were examined in the Opinion related to the standard of effects that applies in the context of Article 102 TFEU. Are potentially abusive practices prohibited when they are capable of having exclusionary effects? Or is it necessary to show, in addition, that they are likely to have an anticompetitive effect? Is there a difference between capability and likelihood? Does it matter?

If you have read the opinion, you will remember that, according to the Commission, there is a difference between capability and likelihood, and the difference matters. According to AG Wahl, such difference does not exist (and thus it does not matter). In addition, the Opinion defends that the bar is very high. AG Wahl suggests that the standard of capability/likelihood is met when it can be shown that, in all likelihood, a practice will have anticompetitive effects.

It seems to me that the Commission is right on this point of law. There is a difference between capability and likelihood, and this difference is a relevant one in practice. As the Commission seems to be arguing in Intel, it would be desirable to make the difference more explicit in the case law. This is in fact what I explained with Alfonso in our paper on the notion of restriction of competition.

When does the standard of capability apply? The standard of capability applies to restrictions of competition by object. As the law stands, this category includes, inter alia, cartels, pricing below average variable costs and exclusivity obligations imposed by a dominant firm.

It is not necessary to show that a practice is capable of restricting competition. When a practice is qualified as restrictive by object, the assessment of capability is implicit. If an authority concludes that an agreement amounts to a cartel, there is no point in showing, in addition, that it is capable of restricting competition. A cartel, by definition, can have anticompetitive effects.

What does capability mean? The case law suggests that the standard of capability is fairly low. As I understand the relevant judgments, it is sufficient that anticompetitive effects are plausible for the prohibition to apply. Even when the probability of anticompetitive effects is not very high, the practice will still be prohibited.

A clear example in this sense is Bananas. There is no doubt that the practices at stake in the case were not particularly likely to have anticompetitive effects. This is something that Alfonso (rightly) pointed out, and what Dole argued in its appeal. True, the exchange of information in question might not have affected prices in the end. As I understand the case law, however, this does not matter. After all, it is certainly plausible that an exchange such as the one examined by the Court in Bananas has anticompetitive effects. Therefore, there is every reason to prohibit it as restrictive by object under Article 101(1) TFEU.

Another example is found in Article 102 TFEU case law. It is plausible that an exclusivity obligation has anticompetitive effects when applied by a dominant firm, even though it covers a small part of the market. After all, Article 102 TFEU comes into play in instances where the conditions of competition are already weakened. What if the coverage of the practice is limited? It does not matter, as the Court pointed out in Tomra.

Tomra and Bananas have been criticised, but seem to be entirely consistent with the case law and with the way in which the EU courts understand the notion of capability.

Is it possible to show that a practice is NOT capable of having restrictive effects? When a practice is restrictive by object, it is not necessary to show that it has restrictive effects on competition. Is it possible to escape the prohibition? Several examples from the case law suggest that it is indeed possible. For instance, the parties can show that the agreement does not restrict competition that would have existed in its absence (i.e. in light of the counterfactual).

Take an example inspired from E.On Ruhrgas. A market sharing agreement between competitors is, very often, restrictive by object. It is possible to think of instances, however, when such an agreement is not capable of having restrictive effects on competition and is thus not restrictive by object. This would be the case when market entry is precluded by a (de iure or de facto) legal monopoly. In such circumstances, the agreement would fall outside the scope of Article 101(1) TFEU altogether.

When does the standard of likelihood apply? The standard of likelihood seems to apply to practices that are not restrictive by object. The category includes, inter alia, exclusive dealing (in the context of Article 101 TFEU) and (in the context of Article 102 TFEU) ‘margin squeeze’ abuses, selective price cuts – Post Danmark I – as well as standardised rebate schemes – Post Danmark II.

What does likelihood mean? I agree with the Commission that the standard of likelihood is higher. However, the meaning of the concept is not entirely clear from the case law. I am inclined to agree with AG Kokott. My impression is that the standard of likelihood is satisfied when it can be shown that it is more likely than not that the behaviour will have an anticompetitive effects. In other words, it would be necessary to show that the probability of an anticompetitive effect is above 50%.

Is it possible to show that a practice is NOT likely of having restrictive effects? The case law provides plenty of interesting hints of the instances in which a practice does not satisfy the standard of likelihood. It would be necessary to examine the issue by reference to several indicators. If the coverage of a practice is limited (<30-40%?) it is unlikely to have restrictive effects (see in this sense Post Danmark II). The same is true when the duration of the agreements is short (<3-6 months?), or when there is evidence suggesting that rivals have been able to remain on the market and gain back some customers (as in Post Danmark I).

Written by Pablo Ibanez Colomo

14 December 2016 at 6:44 pm

Posted in Uncategorized