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GC Judgment in Case T‑814/17, Lithuanian Railways – Part I: object and indispensability

with 6 comments

Lietuva bendrai „Rail Baltica“ valdymo įmonei skyrė 2,1 mln. eurų - LRT

On 18 November, the General Court delivered the long-awaited ruling in Lithuanian Railways. The interest of the case did not lie in the outcome, which was widely anticipated. As I explained here, it is perhaps the most blatant abuse that the European Commission has ever considered.

Lithuanian Railways is valuable in that it engages with some of the key aspects underpinning Article 102 TFEU analysis. First (and most unusually), the case concerns a practice that could well be (and arguably should be) abusive by object. Second, it defines the conditions in which indispensability is an element of the legal test. Third, it engages with the analysis of effects.

In this first part I will address the first two points (abuse by object and indispensability). While the outcome is uncontroversial (and the thorough analysis of effects particularly valuable), the reasoning seems to deviate in some respects from the Court’s case law (and, indeed, from AG Saugmandsgaard Øe’s Opinion in Slovak Telekom).

As explained below, the GC suggests that, if there is regulation imposing an access obligation on a firm, indispensability would not be required under Article 102 TFEU. This position, which amounts to importing the standards and objectives of another regime, is not obvious to reconcile with TeliaSonera.

An abuse by object: why were effects considered?

Lithuanian Railways is a rare example in competition law. As the facts presented by the GC show, the removal of the track, in the economic and legal context of the case, had no plausible purpose other than the restriction of competition.

In other words: dismantling 19 kilometres of railway had, as its object, the restriction of competition. None of the reasons alleged by the applicant before the Commission and the GC change this conclusion. In this regard, the behaviour was similar to pricing below average variable costs, which is prima facie abusive irrespective of its effects (AKZO).

Against this background, the first question raised by the case relates to the legal test. Arguably, the fact that the removal of the track had no purpose other than the restriction of competition should have been enough to declare that it amounts to a breach of Article 102 TFEU.

Since the practice is inherently anticompetitive, it should be deemed prima facie abusive without it being necessary to carry out an analysis of effects (just like cartels and predatory pricing within the meaning of AKZO).

This approach is in line with the case law, which recognises a category of abuses ‘by object’ (most recently in Generics; see also here). It is also the most sensible way forward. Since Articles 101 and 102 TFEU can sometimes apply to the very same practice, it would be difficult to justify why effects would be evaluated under one provision but not the other.

The GC does not consider, as a matter of law, whether the practice should have been deemed prima facie unlawful irrespective of its effects. It simply notes that the authority had concluded that the behaviour was capable of having such an impact (paras 219 and 220; see also paras 82-85).

The review of the analysis of effects by the GC made the judgment ‘Intel-proof’ (remember that a firm can provide evidence showing that a practice is incapable of having anticompetitive effects even when it is prima facie abusive). I will address this review in Part II of this series.

On indispensability

The legal test issue was not addressed in relation to the abusive object of the practice. However, it was thoroughly considered when evaluating whether indispensability should have been assessed by the Commission.

I understand why the applicant might want to raise the issue of indispensability, even though the removal of a track has little to do with the issues at stake in Bronner (that is, whether a refusal to grant access to an infrastructure amounts to an abuse). It is therefore unsurprising that the argument was rejected.

Much more interesting is the question of why it was rejected. The GC advances two reasons, each of which sufficient to conclude that indispensability is not an element of the legal test (para 91).

One of the reasons is that, in the context of the case, there was a regulatory obligation to give access to third parties. Another reason relates to the fact that the infrastructure had been developed with public funds and/or under a statutory monopoly.

Regulatory obligations in light of TeliaSonera and Slovak Telekom

The GC holds, in para 92, that ‘[w]here there is a legal duty to supply, the necessary balancing of the economic incentives, the protection of which justifies the application of the exceptional circumstances developed in the judgment of 26 November 1998, Bronner (C‑7/97, EU:C:1998:569), has already been carried out by the legislature at the point when such a duty was imposed‘.

The GC does not provide any judgment in support of this position (other than its own in Slovak Telekom, under appeal). One should note, in this regard, that the Court has never given any weight to the legal obligations in place when considering whether indispensability should be an element of the legal test.

There was no such regulatory obligation in TeliaSonera. This factor, however, did not have any impact on the outcome of the case. Similarly, AG Saugmandsgaard Øe did not give any weight to the obligations imposed under sector-specific regulation in Slovak Telekom.

It is not wholly uncontroversial to state that legal obligations imposed under another piece of legislation should determine the relevance of indispensability under Article 102 TFEU.

Regulation imposing access obligations does not necessarily share the objectives of Article 102 TFEU. For instance, access obligations under the EU telecoms regime can be imposed under conditions that are considerably less stringent. Why? Because the objective of that regime is to eliminate dominant positions (unlike Article 102 TFEU, the objective of which is to prevent the abuse of such positions).

Thus, if we accept that the EU telecoms regime can or should determine whether indispensability is required under Article 102 TFEU, we would be accepting that EU competition law can be used as a vehicle to attain the objectives of sector-specific regulation (eliminate dominance), not its own (prevent abuses). We would also be accepting that the objectives of competition law may change whenever it overlaps with a sector-specific regime.

The consequences of Article 102 TFEU embracing the objectives of other regulatory regimes can hardly be overstated. Almost inevitably, this interpretation of the provision would lead to inconsistent enforcement and the fragmentation of the EU competition law system.

Such outcomes would be all the more controversial if one considers that Article 102 TFEU is primary EU law and sector-specific regulation is either secondary EU law or national law.

Fortunately, it will not take long before the Court addresses this point in Slovak Telekom.

I very much look forward to your comments. I will address effects next week.

Written by Pablo Ibanez Colomo

1 December 2020 at 12:34 pm

Posted in Uncategorized

6 Responses

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  1. It seems to me that the Court in this case was inspired by the Commission’s Guidance on Article 102 TFEU which provides in para. 82:
    In certain specific cases, it may be clear that imposing an obligation to supply is manifestly not capable of having negative effects on the input owner’s and/or other operators’ incentives to invest and innovate upstream, whether ex ante or ex post. The Commission considers that this is particularly likely to be the case where regulation compatible with Community law already imposes an obligation to supply on the dominant undertaking and it is clear, from the considerations underlying such regulation, that the necessary balancing of incentives has already been made by the public authority when imposing such an obligation to supply. This could also be the case where the upstream market position of the dominant undertaking has been developed under the protection of special or exclusive rights or has been financed by state resources. In such specific cases there is no reason for the Commission to deviate from its general enforcement standard of showing likely anti-competitive foreclosure, without considering whether the three circumstances referred to in paragraph 81 are present.

    Pavel

    1 December 2020 at 5:10 pm

  2. I found paragraph 95 of the decision to be quite interesting. It seems to suggest that there is a link between the relevant test to be used for assessing anti-competitive effects and the scope of the exclusive property rights enjoyed by the dominant undertaking. In the case at hand, there was no need to consider the elements of the enhanced effects test since the dominant undertaking was not enjoying “unfettered exercise” of its property rights anyways and this prevented the undertaking to use its property rights in a way that would reward investments and innovation. Hence, the argument follows (at least this is what I understand), the negative impacts of imposing a further restriction over the dominant undertaking’s already limited property rights (this time through Article 102) is inconsiderable and therefore using the enhanced effects test is not required. I think this approach may be significant for two reasons. First, it suggests that enhanced effects test need not constitute a safeguard to ensure that property rights are not unduly restricted and it is solely related with the protection of incentives to invest and innovate (this conclusion would not be uncontroversial as one might argue that property rights deserve additional protection even if such protection does not affect the incentives to invest and innovate). Second, it should follow, a contrario, that enhanced effects test must come into play in case the remedy that is required to terminate the breach involves imposing a restriction on the property rights of undertakings that do enjoy unfettered exercise of an exclusive property right.

    Baris Yuksel

    2 December 2020 at 2:12 pm

  3. If we accept that the EU telecoms regime can or should determine whether indispensability is required under Article 102 TFEU, could we merely be accepting that such regime should be part of the assessment of the economic and legal context / counter-factual?

    Kay

    10 December 2020 at 4:31 pm

  4. […] of para. 82 of the Article 102 Guidance Paper, although commentators have raised some persuasive arguments against. In any event, the teleology behind this argument has nothing to do with cases where the […]


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