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Archive for January 10th, 2020

Persistent myths in competition law (V): ‘there is no such thing as an abuse by object (or by effect) under Article 102 TFEU’

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What a better way to start blogging in 2020, I tell myself, than writing a new instalment of a series that kept me busy last year (see here, here, here and here). As three of the posts were devoted to Article 101 TFEU, it strikes me as a good idea to move to abuses this time around.

You have probably heard this one many times: ‘the object vs effect divide does not exist in the context of Article 102 TFEU; there is no such thing as an abuse by object (or by effect)’.

One of the reasons that are given to defend this view is that the letter of Article 102 TFEU does not make an explicit reference to the object/effect divide. Any moderately attentive student of EU law (and more precisely the Court’s approach to the interpretation of the TFEU) knows well that this argument is not particularly persuasive.

It is sufficient, in fact, to take a look at the relevant case law to realise that, indeed, some practices are treated as infringements by object – in the same way that others are examined pretty much like ‘by effect’ agreements.

What does it mean, to begin with, that a practice is abusive ‘by object’? It means – and I am aware it may sound tautological – that its objective purpose is anticompetitive; in other words, that it has no plausible explanation other than the restriction of competition. In such circumstances, there is no point in establishing its effects (a key question about which the GC was explicit in Michelin II).

I can think of three practices that are clearly abusive by object under Article 102 TFEU – if I have missed other, I would very much welcome your contribution:

Pricing below average variable costs: As the Court explained in AKZO, it is in principle irrational for a firm (dominant or not) to price below its average variable costs. Why? Because it would be better off not producing at all (it loses more money by producing than by not producing).

If there is a dominant firm pricing at a prima facie irrational level, we can safely presume (as the Court did in 1991) that the behaviour only makes sense as an attempt to exclude rivals. We can safely presume, in other words, that the object of a practice is anticompetitive.

In such circumstances, I agree with the Court that it would not be necessary (even more, it would not make sense) to require a claimant or authority to show anticompetitive effects to establish an abuse. Pricing below average variable costs can be deemed capable of restricting competition. And that is all we need to trigger the prohibition.

The ‘Lithuanian Railways abuse’: We have discussed Lithuanian Railways previously on the blog. I suggested that it may well be the most straightforward abuse case ever. The facts of the case are nothing short of extraordinary. The incumbent railway operator in Lithuania dismantled 19 kilometres of track after it learnt that a rival could be using it to serve one of its customers.

In other words: the case is not about a refusal to give access to an infrastructure but the destruction (!) of an infrastructure to eliminate competition.

As a result, the sort of arguments that are invoked in refusal to deal cases (counterfactual, ex ante incentives to invest and so on) would not be relevant. In fact, it is a case where the firm devotes resources to dismantle, not to build, an infrastructure. Such a profit sacrifice can be safely deemed to have an anticompetitive rationale (or object).

I have no doubt a practice of this kind should be deemed prima facie unlawful and heavily fined. Thus, I fail to see anything surprising or unusual in the Commission decision in that respect. More controversial, however, is the question of the remedy. What remedy is possible once the infrastructure has been dismantled?

The Commission decision toys with the idea of the (now fashionable) restorative remedies, which is a question that deserves a post (or more than one), and most probably a paper. Spoiler alert: as the law stands, I do not believe the Commission (or any other competition authority) can impose restorative remedies; there is simply no legal basis for it.

In case you were wondering: the 19-kilometre stretch has been rebuilt – in fact, it was completed a few days ago, as you can read here.

The ‘AstraZeneca abuse’: AstraZeneca provides the third example of which I can think. Providing misleading information to a patent authority does not seem to serve any purpose other than the restriction of competition (via the extension of the protection).

This conclusion, in fact, is confirmed by the Hoffmann-La Roche ruling of 2018 (see here for my discussion of the case). If providing misleading information by means of an agreement is deemed to have as its object of the case, I fail to see how it would be possible to reach a different conclusion under Article 102 TFEU (and the analysis in AstraZeneca by the EU courts only confirms this point).

I look forward to your thoughts. And Happy 2020 (+weekend) everyone!

Written by Pablo Ibanez Colomo

10 January 2020 at 7:39 pm

Posted in Uncategorized