Abuses ‘by object’: a follow-up on last week’s post
The post on abuses by object I prepared last week has received a number of really interesting comments (see here). I realise I would not do justice to the points raised if I simply addressed them one by one. So here we are:
Formalism and justification
Jia Rong Low started strong, and with an excellent point. Can one say that pricing below AVC is restrictive by object without considering the relevant economic and legal context? Would such a claim not be at odds with AG Bobek’s opinion in Budapest Bank? Kevin Coates and Peter suggested that there may be good reasons for pricing AVC, and that a blanket prohibition is unwarranted.
My reaction: I think I have insisted many times (on the blog and in my papers) that a restriction by object can never be established in the abstract; the qualification is always context-dependent. My point on pricing below AVC is in line with this position. You will see that I wrote that pricing below AVC is in principle (or prima facie) irrational, not that it always is.
It is always possible for a firm to try and come up with an explanation for price levels that seem irrationally low. In this sense, Kevin and Peter are right. I will simply add: this is one of the instances in which it makes sense to reverse the burden of proof. It is entirely sensible to prohibit prima facie conduct which, experience and economic analysis suggest, is irrational. Up to the dominant firm to come up with an explanation.
AG Bobek’s two-step test is not at odds with this approach. In his view (which I share) there are practices which, experience and economic analysis suggest, tend to amount to a ‘by object’ infringement. Does it mean that they always do? No. As the Court held in Murphy, it is always possible for the parties to an agreement to show why, in light of the economic and legal context, the practice is not liable to restrict competition and thus not restrictive by object. As Intel illustrates, the same principle applies in the context of Article 102 TFEU.
Jia Rong Low, in the same vein, asks how this mechanism operates . To which I answer: I tried my best in this article (comments certainly welcome).
Makis and Andrew Leyden come up with two great examples of by object abuses that I did not mention. Thanks a lot! One of them (Makis’) is AB-Inbev, which relates to market integration. It has long been clear that practices aimed at restricting cross-border trade are prohibited irrespective of their effects. The logic of Consten-Grundig applies in the context of Article 102 TFEU (for how could it be otherwise?).
Andrew mentions an even better one (and dating back from the 1980s), Racal Decca. This is about a case in which a firm introduced changes in the transmission of signals with the sole purpose of causing a rival’s product to malfunction. Definitely very Lithuanian Railways. There is every reason to prohibit this conduct prima facie irrespective of its effects.
So where does this leave us?
In light of the above, I could tentatively try a more exhaustive list of by object abuses.
I can think of (i) pricing below AVC (AKZO); (ii) the ‘Lithuanian Railways abuse’; (iii) the ‘AstraZeneca abuse’; (iv) the ‘Racal Decca abuse’; and (v) those related to market integration. I would add (vi) exclusive dealing and loyalty rebates (even after Intel), even though not everybody agrees with the point (the letter of the judgment seems unambiguous to me).
Happy to expand the list if more examples come to mind! But I guess the main message is clear: the object/effect divide exists in the context of Article 102 TFEU.
On restorative remedies
Makis was the one to touch upon restorative remedies. I agree with him it may not always be clear what we mean by the word ‘restorative’. I have in mind remedies the purpose of which is not simply to bring the infringement to an end but to recreate the market conditions that would have existed in the absence of the practice.
The underlying idea is to import into Articles 101 and 102 TFEU the logic of remedial action in the field of State aid (which is to restore, via recovery, the conditions of competition that existed prior to the award of the aid).
As I promised, I will write about this more extensively, but I do not mind anticipating, to get the discussion going, that I fail see what the legal basis for restorative remedies may be in the area of EU antitrust.
Chillin'Competition 
Hi Pablo,
A further reflection on Racal-Decca. I think we both agree it should be categorised alongside (but not as beinf identical to) the Lithuanian Railways case.
You correctly put them in distinct categories of potential “by object” abuses. I would like to elaborate on the nuance between those two distinctions, because I think it is very important.
If one were to create a more abstract set of terminology to categorise these sets of abuses, one would put “Lithuanian Railways” in the “outright destruction with no possible justification” category (for want of a better term). Ripping up railroad. Daniel Plainview of “There Will Be Blood” would be proud. There is zero justification for this – it is almost comical.
Racal-Decca, on its facts was similar but subtly different. On its facts it was just as bad, but the type of behavior at issue raises questions that require careful consideration. Specifically, it elides into the category of “product design.” On the facts of that case there is no question that what the dominant company was doing was clearly motivated by anticompetitive intent. But the category of “product design” merits careful scrutiny. In the messy world of facts there can be product designs that adversely affect competitors or consumers, but are nonetheless taken for legitimate business reasons.
To take a cartoonish example: in 2016, Apple abolished the headphone jack on its phones. This hurt competitors (rival suppliers of wired headphones) and consumers (those who relied on wired headphones). But it is not in the same category as Racal-Decca because Apple’s decision was (at least plausibly) motivated by other design and efficiency considerations.
I raise this point to contradict myself and to remind myself that economic life is messy. I agree with your and other commentators’ points that the notion of a “by object” abuse under Article 102 should be considered to be a strong presumption, but one that can in fact be rebutted by countervailing evidence. Categorical reasoning has its merits, but we need to be aware of the need to rebut those strong presumptions where appropriate.
Great set of posts. Thank you.
Andrew
Andrew Leyden
19 January 2020 at 3:46 am
We are exactly on the same page, Andrew! It is important that you emphasise context and that a restriction can never be established in the abstract. It is what I do when I have the occasion. The plausibility of an efficiency rationale (as the Apple innovation shows) is a key consideration in that regard.
We look forward to your comments!
Pablo Ibanez Colomo
20 January 2020 at 9:30 am