Chillin'Competition

AG Saugmandsgaard Øe’s Opinion in Slovak Telekom came out earlier this week (see here). Those interested in the outcome of cases will not see anything particularly remarkable. As expected, the Opinion concludes that indispensability should not be an element of the legal test in the circumstances of the case (I suggested this is the most probable outcome here). Those interested in drastic changes in the law will also fail to find anything remarkable. The Opinion sticks to the letter and spirit of both Bronner and TeliaSonera and shows that the two judgments can be easily reconciled.

The Opinion is important insofar as it addresses and explains some key issues and hints at a meaningful analytical framework. In particular, AG Saugmandsgaard Øe explains when and why indispensability is an element of the legal test. In addition, he introduces a useful distinction between (i) a refusal to make available and (ii) the terms of an agreement when it comes to the application of Article 102 TFEU.

There are other issues that are not explicitly addressed in the Opinion and that will have to wait for future developments as a result. In any event, AG Saugmandsgaard Øe’s provides a useful framework for the clarification of these points.

When is indispensability an element of the legal test? And why? The ‘make available’ doctrine

It has long been known that, in certain circumstances, indispensability is a precondition for the application of Article 102 TFEU. According to the case law, indispensability is an element of the legal test, inter alia, in cases like Magill, Bronner and IMS Health.

When is indispensability an element of the legal test?

The case law suggests, and the Advocate General confirms, that the abovementioned judgments concern a ‘refusal to make available, which amounts to requiring a firm to conclude an agreement’ (para 68). Thus, the key seems to be whether intervention would involve mandating a firm to deal with third parties with which it has not chosen to deal.

This position is not surprising in light of the judgments cited in the Opinion, including TeliaSonera and Van den Bergh Foods. It is an approach to the question that places substance above form (as the Court has always done). It matters little how the practice is labelled (AG Saugmandsgaard Øe is rightly wary of labels). What matters is what intervention involves. Finally, this conclusion shows how intimately linked remedies and legal tests are (which is a question to which I have devoted a few thoughts, as you can see here).

Why is indispensability an element of the legal test in ‘refusal to make available’ cases?

The second crucial question addressed in the Opinion is why indispensability is an element of the legal test in refusal to make available cases. In this regard, AG Saugmandsgaard Øe builds on AG Jacobs’ memorable Opinion in Bronner.

Experience and economic analysis suggest that forcing firms to deal with rivals can be expected to have a negative impact on firm’s incentives to invest and innovate and thus on long-run competition.

AG Saugmandsgaard Øe also mentions that the right to property is generally recognised as a fundamental right. As I see it, this is another way of expressing the same idea. If the right to property has a special status, this is precisely because it is widely understood to be an essential ingredient to achieve freedom and prosperity.

When is indispensability NOT an element of the legal test?

The Opinion distinguishes between ‘refusal to make available’ cases and ‘unfair contract terms’ ones. Indispensability would not be an element of the legal test in the case of the latter.

This position is in line with TeliaSonera and Van den Bergh Foods and as such not surprising. It also provides the key to the outcome in Slovak Telekom. The dominant firm in the case ‘imposed unfair conditions on undertakings wishing to access it’ (para 100). Therefore, one cannot argue that indispensability should have been established by the European Commission.

AG Saugmandsgaard Øe’s concludes that the concept of a ‘constructive’ or ‘implicit’ refusal to deal is not particularly useful. This position is in line with his general wariness of formal labels, in particular those that would lack clear boundaries or explanatory power.

Whether or not there is sector-specific regulation imposing a duty to deal is not a relevant consideration, according to the Advocate General (paras 110-111). This is a sensible position and one that is unsurprising. One should bear in mind that the Court attached no importance to this factor in TeliaSonera.

Sector-specific regulation may impose access obligations in circumstances where competition law would not. The objectives of the ex ante regime may be compatible with competition law, but not necessarily identical. Thus, the fact that the former imposes access obligations cannot be decisive.

Open questions after the Opinion

There are some issues that did not come up in Slovak Telekom. Accordingly, one can only speculate how the logic underpinning the Opinion may apply to them. For definitive answers, however, we will have to wait for future cases.

What if the behaviour is unilateral?

AG Saugmandsgaard Øe distinguishes between a refusal to make available and unfair contract terms cases. There is a scenario that is not contemplated in the Opinion: what if the behaviour is strictly unilateral? What, for instance, if the case is about the design of a complex product (think of the integration of two products, as in the example of the camera and the smartphone)?

Even though not expressly addressed, the Opinion provides, in my view, sufficient elements to give an answer to the question.

If intervention in the case would interfere with the firm’s right to deal with whom it pleases (and thus to conclude an agreement with third parties with whom it has not chosen to deal), then indispensability would be an element of the legal test.

What about a structural separation (or an obligation to close a division)? ‘Reverse refusals to make available’

It is not often mentioned, but cases like Bronner or Magill can be remedied in three different (and equally effective) ways. One approach is to force the firm to deal with third parties on the adjacent market. A second remedy is to impose a structural separation and split the upstream and downstream divisions of the firm. A third way is to require the firm to close its upstream or downstream division.

Since all three remedies are interchangeable, and since they would all interfere with the firm’s right to property, it seems inevitable to conclude that indispensability would also be a precondition where intervention would require a firm to sell some of its assets (or otherwise dispose of them by closing a division). Arguably, Van den Bergh Foods already provides the answer in this regard (it makes an explicit reference to the sale of assets).

What about principles-based remedies? What if the authority’s decision leaves the choice of the remedy to the firm?

A final question, not addressed in the Opinion, has to do with authorities’ decisions that take a ‘principles-based’ approach to remedies. This technique seems to be on the rise. Since the remedy (‘requiring an undertaking to conclude an agreement’) is typically the key to understand whether indispensability is an element of the legal test, a ‘principles-based approach’ can be used by an authority to circumvent the stricter legal test.

There are two possible responses to this conundrum: the ‘substance’ response and the ‘form’ response. I have already explained why we should place substance above form in this (and every other) regard.

What matters is what intervention involves in substance, not what the authority formally requires. Accordingly, if intervention amounts in effect to ‘requiring an undertaking to conclude an agreement’ (or, I would add, a structural separation, or an obligation to close a division) then indispensability would be an element of the legal test. It is irrelevant that this obligation is concealed behind a ‘principles-based’ approach.

If we were to rely on what the decision formally requires, it would be very easy for any authority to circumvent the indispensability condition. In a case like Magill, for instance, the Commission could avoid the indispensability threshold by asking the firms to bring the infringement to an end without specifying how. This does not come across as the most reasonable way to interpret the case law (if only because it would turn an issue of law into one of discretion).