Relaxing whilst doing Competition Law is not an Oxymoron

NEW PAPER | Indispensability and abuse of dominance: from Commercial Solvents to Slovak Telekom and Google Shopping

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Under certain circumstances, Article 102 TFEU can only be triggered if it can be shown that an input or platform is indispensable for competition on a neighbouring market. There is some controversy, however, about what these circumstances are. Sometimes (e.g. CBEM-Telemarketing, Bronner) indispensability is required; sometimes, it is not (e.g. Telefonica, TeliaSonera).

The question is so intriguing that I have written a paper on it (available on ssrn, see here). Many of you will be familiar with my take: the case law is clearer than most commentators tend to concede. As I have explained in past papers, it is all about the remedy.

Where intervention under Article 102 TFEU would demand the administration of a proactive remedy (either a structural remedy or a prescriptive obligation that necessitates monitoring), indispensability becomes an element of the legal test (and thus a precondition for intervention).

Why the remedy determines whether indispensability is an element of the legal test

Support for this position can be found in the case law. In fact, the EU courts were explicit about the point in Van den Bergh Foods. According to this ruling, indispensability would be an element of the legal test where intervention would require the firm to ‘transfer an asset or enter into agreements with persons with whom it has not chosen to contract’.

The case law makes a lot of sense. Proactive remedies are notoriously difficult to design, implement, and monitor – the experience with Microsoft I and Microsoft II is there for all to see. Therefore, it makes sense to limit to exceptional circumstances the instances in which competition law institutions (courts, authorities) are exposed to this particular stressor.

This is all the more sensible if one considers, in addition, that weighing the ex ante and ex post dimensions of competition is as difficult an exercise, if not more.

From an ex post perspective, any refusal to deal restricts competition. Why is a refusal to start dealing typically abusive only in exceptional circumstances, then? Because the ex ante dimension of competition – the counterfactual, again – also matters. In this regard, indispensability is a valuable proxy to avoid a difficult balancing exercise (even if one ignores the difficulties, mentioned above, around the design, implementation and monitoring of proactive remedies).

Implications for ‘grey area’ cases

Indispensability is a controversial issue in some pending ‘grey area’ cases. What is interesting about these is that they come across as being somewhere in between two lines of case law.

Slovak Telekom is one of these cases. Some of the practices at stake in the case were labelled as a refusal to supply. Does it follow that indispensability should be required? Not necessarily, the Commission argued. I concur with it (and the General Court, which has already examined the question).

Why? In the circumstances of Slovak Telekom, the infringement could be brought to an end without resorting to proactive remedies. The usual reactive intervention (a cease-and-desist order) was more than enough.

The issue arose again in Google Shopping. Unlike Slovak Telekom, the infringement could only be brought to an end by means of proactive remedies (in essence, a redesign of Google’s products). The difficulties that come with the design, implementation and monitoring of such measures have become apparent in the aftermath of Google Shopping (and as far as I can tell, these difficulties have not yet been solved; see here).

In Google Shopping, the Commission refers to the principle laid down in Van den Bergh Foods.

Why does it conclude that indispensability is not required? It is all about its interpretation of the principle.

Google Shopping suggests that, so long as the Commission does not formally mandate a proactive remedy, indispensability is not an element of the legal test. According to this view, if the Commission simply requires that the infringement be brought to an end, Van den Bergh Foods would not be relevant.

As I explain in the paper, I am not sure this is the most reasonable interpretation of Van den Bergh Foods, and this, for two main reasons.

First, the interpretation advanced in Google Shopping would give the Commission the discretion to decide when indispensability is an element of the legal test and when it is not.

In other words, this interpretation would turn an issue of law (the conditions to establish an infringement), subject to full judicial review, into one left to the discretion of the authority (and thus subject only to limited review).

Second, the EU courts have always placed substance above form. As a result, I fail to see how the relevance of indispensability can depend on what a decision formally requires – as opposed to what it entails in substance.

It remains to be seen whether the case law will prove resilient. The pressure to circumvent and/or abandon the consistent doctrine since Commercial Solvents is strong. I claim in the paper that, if the case law is to survive, the underlying principles would probably have to be spelled out more clearly.

Before I forget: I am delighted to clarify that, in accordance with the ASCOLA declaration of ethics, I have nothing to disclose.

I really look forward to your comments!

Written by Pablo Ibanez Colomo

16 December 2019 at 11:05 am

Posted in Uncategorized

4 Responses

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  1. Thank you for the interesting article. The analysis is based on the premise that Commercial Solvents and CBEM-Télémarketing (concerning terminations of supply) required the same level of “indispensability” that was required in Magill, Bronner and IMS Health (for a de-novo refusal to deal, i.e. the refusal to sell products for the first time). My reading of the case law is that there are (at least) two different levels of “indispensability”. In Commercial Solvents / Télémarketing it was sufficient that the input was indispensable for the particular competitor requesting a continuation of supplies and that any refusal would preclude competition from this requesting company. The Commission even found that there were alternative methods to produce the final product (CS, para. 25; TM, para. 26 f.). In contrast, (only) in Bronner and IMS, the court required that the input must be indispensable for any company (also in cooperation with others) to compete and that the refusal must prevent any competition (not that just from the requesting party) (para. 28). This is a much higher legal threshold reflecting the market-opening element of a duty to commence supplying an input for the very first time. The higher threshold may (also) have been linked to the fact – pointed out by you – that in Bronner and IMS a (first) duty to supply would have required the authority to pro-actively determine terms and conditions in their remedy. Such determining of conditions, however, is neither necessary in scenarios of a termination of supply (Commercial Solvents/Télémarketing) nor in cases of a margin squeeze. In both cases a cease-and-desist is sufficient as the dominant company is fully aware of the terms and conditions it used prior to the condemned conduct and to which it is merely obliged to revert. Assuming that Commercial Solvents involved a pro-active remedy is therefore the second premise that I do not see. The same applies to Google Shopping: The current inefficiency of Google’s compliance mechanism does not follow from the lack of a pro-active remedy but from Google’s failure to implement the cease-and-desist remedy rightly imposed by the Commission. As you correctly point out, Google Shopping is akin to a termination of supplies (not a de-novo refusal to deal as in Bronner/IMS). Like in a case of a termination of supplies, the dominant company knows exactly about the previous terms and conditions of the supply. Hence, (unlike in a de-novo situation), a remedy to cease a termination of supplies does not have to pro-actively impose any new terms or conditions. Google Shopping therefore appears to be fully in line with the distinctions drawn in the case law of the CJEU. See in greater detail Hoppner, CoRe 2017, 208 et sub.

    Thomas Höppner

    16 December 2019 at 2:38 pm

  2. Thanks, Thomas, for taking the time to share your thoughts! It is very much appreciated.

    Your analysis, I believe, does not address a crucial aspect of the case law. You do not appear to mention that, in Bronner, the Court engages with Commercial Solvents and Telemarketing, and clarifies that indispensability was an element of the legal test in both. What is more, the Bronner doctrine is derived directly from these two precedents.

    Accordingly, I am not convinced your understanding of the case law is tenable following Bronner (and its interpretation both of the relevant case law and the notion of indispensability).

    In Commercial Solvents, the Commission prescribed not only the quantities to be supplied but also the prices at which the products had to be supplied. I do not believe a remedy can get much more proactive (or prescriptive, if you will) than that.

    Thanks a million again!

    Pablo Ibanez Colomo

    17 December 2019 at 12:30 pm

    • Thanks, Pablo for sharing your views.

      Bronner mentioned Commercial Solvents and Télémarketing as one group of cases and Magill as another. It then only assessed whether the stricter Magill requirements (for a de novo refusal) should also apply to tangible property. Commercial Solvents and Télémarketing were not mentioned again. Thus, already Bronner (1998) drew a distinction as regards the level of required “indispensability”.

      The most relevant judgment on indispensability is of course IMS (2004). The case involved no leveraging from one market to another because the requested input had never been sold separately. As highlighted by the Commission, the case was about whether “a dominant undertaking must not merely refrain from anti-competitive action but must actively promote competition by allowing potential competitors access to the facilities which it has developed” (NDC Health/IMS Health, para. 63). The Court confirmed such obligation – but only under a higher threshold: the “strict” indispensability criterion (see previous post) first mentioned in Bronner and then further tightened in IMS. Tellingly, IMS does not mention Commercial Solvents or Télémarketing at all. Thus, the Court clearly distinguished between a leveraging case and a market-opening case and required a strict indispensability only for the latter. The 2008 judgment Sot Lélos/GlaxoSmithKline confirmed this distinction and upheld the independent Commercial Solvents-leveraging doctrine (para. 34: “where … that conduct is liable to eliminate a trading party as a competitor”). Thus, and here we are fully aligned :), I am not convinced your understanding of the case law is tenable following Bronner.

      Regarding the remedy, like the EU Special Advisors’ Report, for me a “pro-active” remedy is one that does not stop at telling the company to cease a conduct, and how to, but imposes an additional obligation to undo the anti-competitive effects the conduct has had on a market, i.e. to actively restore competition. A remedy such as in Commercial Solvents simply spelling out the only option to bring the identified abuse to an end, e.g. by prescribing specifically which terminated supplies need to be continued and at what price, is not “pro-active”. Neither does such a remedy merit additional substantive hurdles for the finding of an abuse.
      In contrast, you appear to consider any remedy that prescribes what the undertaking shall do and that requires some monitoring as “pro-active”. Your article suggests that whenever the Commission intends to impose such remedy, it would first have to demonstrate the “strict” indispensability criterion. I do not see this link between imposed remedy and abuse, though. Whether an authority can prescribe a particular conduct as a remedy and the need for monitoring depend on the available options to cease the identified abuse. If there is only one option (e.g. the continuation of supply to a particular customer at the previous terms and conditions), the Commission can impose a specific conduct because this does not limit the company’s freedom more than necessary. The scope of the available options to cease an abuse, however, says little about the seriousness of the underlying abuse. The option for an authority to impose a precise remedy, should not impact the legal criteria to find an abuse in the first place. Otherwise the indispensability criterion would become relevant in many cases where it should play no role at all. It would even mean that the more technically complex a case, the higher the legal hurdle for the finding of an abuse.

      You argue that in Bronner (and even Commercial Solvents) indispensability was required because the respective remedy would have presupposed a “pro-active” remedy in the sense that it “cannot be administered on a one-off basis and thus requires monitoring” (at 2.2.6). Then you show that Courts have not required indispensability in margin-squeeze cases and support that finding (3.2.1). Yet, to effectively bring a margin squeeze to an end, requires much more monitoring (and thus a pro-active remedy by your definition) than, for instance, a mere obligation to continue supplies at terms that were previously agreed upon or are applied to third parties.

      You mention yourself that making the conditions for an abuse dependent on the remedy (rather than the other way around) would “would turn an issue of law (the conditions to establish an infringement), subject to full judicial review, into one left to the discretion of the authority (and thus subject only to limited review)”. Then why do you try to establish and promote exactly such a link?

      The strict Bronner and IMS criterion for “indispensability” reflected the exceptional circumstances of the “essential facilities doctrine”: a company that has done nothing but to insist on its property rights is obliged to grant access to facilities that it has developed, only to promote competition against itself. That is why Van den Bergh Foods the Court rightly finds that the strict indispensability criterion is (only) required if a company is to “transfer an asset or enter into agreements with persons with whom it has not chosen to contract”, i.e. a de-novo refusal to deal scenario. This has nothing to do with the remedy being positive or negative in nature, if such a distinction exists at all (a negative remedy to cease an abusive refusal to supply amounts to a positive obligation to supply). As rightly pointed out in Teléfonica and TeliaSonera, it would overly reduce the scope of Article 102 AEUV to adopt the strict indispensability criteria to cases where the company is not just passive but actively hinders rivals.

      I should stop here.
      Thanks again and congrats on the great blog! Discussions like these just show how much sense such a blog makes. Therefore: chapeau!

      Thomas Höppner

      18 December 2019 at 11:15 am

    • Thanks a million again, Thomas!

      I agree with you: discussing the posts with our readers is the best bit of the blog!

      You are 100% right that the Court identified two lines of case law in Bronner. I do not dispute that. The point is that the Court held that the behaviour would not have been abusive under either of them (in fact, the analysis under Magill is an obiter dictum – ‘even if’, the Court starts). What is more, there is an explicit effort on the part of the Court to clarify the meaning of both Commercial Solvents and CBEM-Telemarketing.

      The main objection I have with your understanding of Bronner is that the word ‘indispensability’ would not only have two meanings in the case law, but that the Court would have insisted in Bronner that it has two meanings. It is difficult for me to read Bronner like that (your contribution is valuable, inter alia, because it is, I believe, the first time I read the idea that indispensability means two different things in the case law).

      I have always read Bronner the other way: as an ostensible attempt to unify and streamline the case law. The clarification that indispensability was an element of the legal test, even if implicit, in both Commercial Solvents and CBEM-Telemarketing, is in fact one of the most valuable contributions of the judgment.

      On the idea that bringing a margin squeeze infringement to an end necessarily requires positive obligations: the evidence from the many cases decided until now shows the opposite. I remember reading the national judgment in TeliaSonera (thanks, online translation!) and if my memory serves me right, the Court simply declared an infringement and imposed a fine. If your argument were correct, then predatory pricing cases would also require positive obligation to bring the infringement to an end, and we know from experience this is not true in the overwhelming majority of cases (I am tempted to say all, but never say never).

      Pablo Ibanez Colomo

      18 December 2019 at 1:15 pm

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