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Archive for January 29th, 2021

Capability and likelihood of anticompetitive effects: why the difference exists, and why it matters

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What's the difference between a Concordance and a Cross Reference ? – Olive  Tree

For a practice to amount to an infringement, should it be likely to restrict competition? Is capability enough? Do capability and likelihood have the same meaning? These are basic questions that, for some reason, keep coming back. I was reminded of them when going through Lithuanian Railways. In its judgment, the GC refers to the European Commission’s view, according to which there is a single threshold of effects in the case law, to which the capability/likelihood label applies. Pursuant to this interpretation, capability and likelihood would be synonymous (even though the plain meaning of the words is obviously different).

A close examination of the case law, however, shows that there are indeed two thresholds in the case law, one of capability and one of likelihood. This conclusion is apparent when one pays attention not only to what the Court says but to what it does. It is apparent, in other words, when one looks beyond the words and focuses on how the analysis is actually performed. This is something I explained in my paper on effects, but it is worth devoting a post to the matter and start, hopefully, an exchange.

A threshold of capability is relevant when the practice is prima facie prohibited irrespective of its impact (that is, it is a ‘by object’ infringement, whether under Article 101 or 102 TFEU). Capability means that anticompetitive effects are a plausible outcome of the implementation of the practice. Accordingly, it is a threshold that is easily satisfied. The Court was explicit on this point in T-Mobile, where it held that, for by object conduct to amount to an infringement, it ‘must simply be capable’ of restricting competition. In doing so, it rejected the view of the referring court, which suggested a higher threshold of effects to establish a breach of Article 101(1) TFEU.

AKZO provides a wonderful example of the practical operation of this (relatively low, easy to meet) threshold. Predatory pricing within the meaning of that judgment is prohibited as abusive without it being necessary to engage in a case-by-case analysis of its effects. As explained by the Court in para 72 of the ruling, below-cost prices are capable of excluding equally efficient rivals. They are not necessarily likely, let alone certain, to do so. However, capability is enough when predatory pricing à la AKZO is at stake. Why? Because either the below-cost prices have no plausible purpose other than the exclusion of rivals (pricing below AVC) or because the anticompetitive object is established by the claimant or authority.

A threshold of likelihood, on the other hand, is necessary when ‘by effect’ conduct is at stake. Accordingly, it is not sufficient to show that anticompetitive effects are a plausible outcome of the implementation of the practice. Something more, to be established in light of the features of the relevant market, is required. This conclusion is apparent when one examines Deutsche Telekom and Post Danmark II.

In Deutsche Telekom, the European Commission argued – not unreasonably – that a margin squeeze provides, in and of itself, sufficient evidence of an abuse. This argument would be correct if a threshold of capability were enough in relation to this conduct. It is no doubt plausible that a ‘margin squeeze’ leads to the exclusion of equally efficient rivals. However, the Court of Justice did not follow the Commission and held that the exclusionary impact of a ‘margin squeeze’ will have to be assessed by reference to, inter alia, the extent of the dominant position, the features of the market and the nature of the practice. Irrespective of the label, the threshold is appreciably higher than in AKZO (and appreciably higher than the threshold of plausibility suggested by the Commission in its Deutsche Telekom decision).

Consider now the facts at stake in Post Danmark II. The case concerned the behaviour of an incumbent in a partially liberalised industry. The practice, moreover, involved a scheme of retroactive rebates calculated over a one-year period. Such a scheme is, at the very least, capable of having anticompetitive effects. The exclusion of equally efficient rivals is more than plausible. However, plausibility was not deemed enough in the case. Thus, the Court held that the analysis must consider other factors, including the coverage of the practice. Call the threshold what you will, it is higher than the plausibility threshold embraced in AKZO.

The judgment that perhaps best shows that there are two thresholds in the case law, each with a distinct scope of application, is Post Danmark I. As in AKZO, the practice at stake involved below-cost pricing. And, as mentioned above, we know since AKZO that below-cost pricing is capable of excluding equally efficient rivals. The threshold that was considered sufficient in AKZO was not considered sufficient in Post Danmark I. Why? The object of the practice was not anticompetitive (there was no evidence of an exclusionary plan, and the prices were not below AVC, or an equivalent measure).

Accordingly, the evaluation of the effects in Post Danmark I had to dig deeper into the features of the relevant market and the impact of the conduct therein. It was not sufficient to show that exclusion was plausible; it was necessary to establish that it was likely. In this sense, the Court noted that its main rival had not been excluded. In fact, it had been able to gain two customers back from the dominant undertaking. Against this background, the Court strongly signalled to the referring court that the behaviour was not abusive.

I look forward to your comments. In line with what was suggested above, the key lesson is that, in the continental tradition, paying careful attention to what courts actually do (how the analysis is performed, what factors are considered) is as important, if not more, as meticulously scrutinising what they say.

Written by Pablo Ibanez Colomo

29 January 2021 at 10:25 am

Posted in Uncategorized