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Is the counterfactual relevant under Article 102 TFEU? How could it not?

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Is the counterfactual relevant when evaluating the effects of a potentially abusive practice? This is a post I did not anticipate I would write. Until recently, I thought it was self-evident that the evaluation of the counterfactual is required under Article 102 TFEU (as is true of Article 101 TFEU and EU merger control). I have come to understand (in part thanks to the lively and thoughtful discussions on this blog) that not everybody is of the same view.

There are several reasons why I assumed that the definition of the relevant counterfactual is a necessary step in the evaluation of potentially abusive behaviour. Some of these reasons relate to what we know about Article 102 TFEU. Other reasons have to do with what we know about EU competition law more generally.

Effects must be ‘attributable’ to the practice under Article 102 TFEU

As already explained before on the blog (see here), actual or potential effects must be ‘attributable’ to a practice for Article 102 TFEU to come into play. This is a principle that derives from Post Danmark II and that the General Court does not question in Google Shopping (in fact, in makes repeated references to attributability; see, inter alia paras 441, 456, 518, 541 and 543 of the judgment).

Establishing that any actual or potential effects are attributable to a practice means, in concrete terms, showing that there is a causal link flowing from the latter to the former (the Cambridge Dictionary defines ‘attributable’ as ’caused by’; if you are curious, the French word is imputable, which essentially gets you to the same place).

How does the EU competition law system go about establishing a causal link between practice and actual or potential effects? By evaluating the counterfactual, that is, the conditions of competition in the absence of the contentious behaviour.

It is not surprising, in fact, that the European Commission embraced this technique in its Guidance Paper on exclusionary abuses. In para 21 of the instrument, it explained that the assessment of anticompetitive effects (‘foreclosure’) ‘will usually be made by comparing the actual or likely future situation in the relevant market (with the dominant undertaking’s conduct in place) with an appropriate counterfactual, such as the simple absence of the conduct in question or with another realistic alternative scenario, having regard to established business practices’.

Do the terms ‘competition’ and ‘effects’ have different meanings depending on the provision?

A second reason that pleads in favour of considering the counterfactual under Article 102 TFEU has to do with established principles and practice under Article 101 TFEU and EU merger control. In these two contexts, this exercise has long been the standard technique to establish a causal link between the relevant practice (or transaction) and any actual or potential effects.

Take for instance the Visma case, decided by the Court a couple of weeks ago (see here). In para 74 of the ruling, the ECJ announces, uneventfully, that the analysis of the restrictive effects must consider the conditions of competition which would exist in the absence of the agreement. This is a long-standing principle that dates back to Société Technique Minière and that has determined the outcome of some landmark Article 101 TFEU rulings (see here for an exhaustive analysis).

As far as EU merger control is concerned, the ‘failing firm defence’, addressed in the Guidelines on horizontal mergers, is the most obvious example. That instruments captures the essence of the relevant case law and explains that the doctrine applies ‘where the competitive structure of the market would deteriorate to at least the same extent in the absence of the merger‘ (that is, where the evaluation of the counterfactual reveals the absence of a causal link between the concentration and any likely effects).

Arguing that the counterfactual is relevant under Article 101 TFEU and EU merger control but not under Article 102 TFEU amounts, in essence, to claiming that the notions of ‘competition’ and ‘effects’ have a different meaning under the latter provision.

I cannot think of a valid reason why the analysis of effects would be conducted differently under Article 102 TFEU. It is occasionally argued that the difference may be justified by the fact that dominant firms have a ‘special responsibility’.

It is undeniable that dominant firms have such a special responsibility. What this argument fails to acknowledge, however, is that Article 101 TFEU and EU merger control sometimes apply to dominant firms, which do not have any less of a ‘special responsibility’ when the latter two are enforced against them.

Generics, which engaged extensively with the counterfactual, is one case in which Article 102 TFEU was also at stake. Nowhere did the Court hold that the evaluation of the counterfactual under Article 101 TFEU changes depending on whether the firm is dominant.

Similarly, Kali+Salz, in which the Court accepted the ‘failing firm defence’ (and thus embraced counterfactual analysis in EU merger control), was about a transaction creating no less than a de facto monopoly in the German market (see here for the original decision). Tetra Laval and Microsoft/Skype are other examples of EU merger control applying to (super-)dominant firms.

The counterfactual in Google Shopping

In Google Shopping, the General Court dealt with the counterfactual. Paras 377-378 are perhaps the most interesting bits of this aspect of the judgment.

I am particularly intrigued by the claim that ‘identifying the events that would have occurred in the absence of the practices that are being examined and identifying the situation that would have resulted, may, in a situation such as that of the present case, be an arbitrary or even impossible exercise if that counterfactual scenario does not really exist for a market that originally had similar characteristics to the market or markets in which those practices were implemented‘.

I am not sure what to make of these passages, which (as much as large parts of the ruling) seemed confined to the specific arguments raised and the specific circumstances of the case, but which (if interpreted in some ways) could have far-reaching and paradoxical outcomes. Suffice it to say that there is scope for reasonable disagreement about this dimension of the ruling.

What matters, in any event, is that arguments relating to the counterfactual have now been raised in an explicit manner and that the Court may have the opportunity to answer crucial questions pertaining to the burden of proof (is it for the claimant or authority to establish the effects by reference to the counterfactual, as is true under Article 101 TFEU?) and the substance of Article 102 TFEU (are the notions of ‘competition’ and ‘effects’ defined in the same way across the board in EU competition law or are they defined differently depending on the applicable provision?).

PS: To those who have submitted an abstract for the Special Issue on Google Shopping – how great! We are both grateful and overwhelmed by the interest shown and the task ahead of us.

Written by Pablo Ibanez Colomo

3 December 2021 at 2:19 pm

Posted in Uncategorized