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Archive for December 10th, 2021

AG Rantos’s Opinion in Case C-377/20, Servizio Elettrico Nazionale: a clean framework capturing the essence of the case law (I)

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Advocate General Rantos’s Opinion Case C-377/20, Servizio Elettrico Nazionale, was published yesterday (see here for the French version). It is notable for two reasons. First, it effectively captures the essence of the case law following the contributions made by the Court from Post Danmark I to Generics. Second, it creates a framework that brings together all the pieces in a way that completes the picture and addresses some misunderstandings.

The Opinion is also a reminder that the pace of the law is not the pace of policy. The law moves in an incremental way that has little to do with the swings (occasionally dramatic) in enforcement. As Advocate General Kokott once memorably put it, the law, as interpreted by the Court, is not driven by the zeitgeist, but by a more stable undercurrent.

The questions asked by the Consiglio di Stato provide the Court with a great opportunity to engage with some questions that had not been expressly addressed so far. The Opinion is incredibly rich and I do not feel I would do it justice in a single post.

Thus, I will start my discussion with the question of whether an abuse of a dominant position involves an element of ‘impropriety’ or ‘abnormality’. Are practices caught by Article 102 TFEU inherently against competition on the merits? Can ‘normal’, ‘widespread’ or ‘commonplace’ conduct be prohibited as abusive?

Advocate General Rantos suggests an elegant answer, and one that is consistent with the case law. Whether a practice departs from competition on the merits and is qualified as abusive depends on a number of considerations, which vary based on the circumstances of each case and its peculiarities. One size does not fit all.

At one end of the spectrum (see para 62), there are practices that are inherently against competition on the merits, in the sense that they can only be rationalised as a means to exclude rivals (pricing below average variable cost is the perfect example in this sense; Advocate General Rantos adds Lithuanian Railways, in which the anticompetitive object of the conduct is also apparent).

Most potentially abusive practices, in any event, can be rationalised on pro-competitive grounds (and thus can be explained for reasons other than exclusion). They are, in that sense, ‘normal’. In such circumstances, the analysis of the anticompetitive effects becomes the central consideration to determine the legality of the behaviour. By the same token, the question of whether the said behaviour departs from competition on the merits and that of whether it has anticompetitive effects collapse into one and the same issue.

Concerning the analysis of anticompetitive effects (which is understood to mean ‘foreclosure’, or éviction), the Opinion addresses a number of important points (some of which will be discussed in a second post).

First, Advocate General Rantos confirms the principle according to which Article 102 TFEU is about equally efficient rivals. In this sense, the Opinion explains that, absent other circumstances, a practice that can be replicated by an equally efficient competitor is not abusive (para 69). This principle applies irrespective of whether the practice is price-based (say, a set of standardised rebates) or not (say, a refusal to deal).

Thus, there is a difference between ‘foreclosure’ and ‘anticompetitive foreclosure’. This point reflects the idea, introduced in Post Danmark I, whereby ‘not every exclusionary effect is necessarily detrimental to competition‘.

In the same vein, the ‘as efficient competitor test’ is considered to be an expression of that principle (but different from it and thus not to be conflated with it). There are circumstances in which the ‘as efficient competitor test’ is wholly inappropriate (as is true of the specific circumstances of Servizio Elettrico Nazionale or of Post Danmark II).

Second, a finding of abuse presupposes that the practice is capable of having anticompetitive effects, which is a point made explicit in Generics. It has long been clear that there is no such thing as a per se infringement in the EU legal order (para 55). We know from the case law, however, that effects need not be established by the authority or claimant in relation to all practices (AG Rantos mentions loyalty rebates in para 54; pricing below average variable costs is another example).

Third, substance trumps form (para 55). This is a theme that cuts across the case law in EU competition law (and, I would add, EU law at large). From the notions of undertaking and agreement to that of abuse, formal considerations are never decisive from a legal standpoint. The underlying substantive aspects are what truly matters.

Fourth, the evaluation of the anticompetitive effects of potentially abusive conduct is not carried out in the abstract and is not purely hypothetical. It must consider the relevant economic and legal context of which the practice is a part.

In fact, it is sufficient to read the application of the principles to the facts of the case (paras 75-81) to realise how far the analysis goes. The Court invites the Consiglio di Stato to consider, in particular, the following elements:

  • (i) the importance and extent of the competitive advantage afforded by the practice (the greater the competitive advantage, the more likely the anticompetitive effects).
  • (ii) whether the advantage can be replicated by rivals, in the sense that they can still compete effectively with the dominant firm.
  • (iii) the existence of a causal link between the practice and the anticompetitive effects: thus, if the competitive advantages can be effectively replicated, any actual or potential effects would not be attributable to the practice).

The nature of the analysis is entirely consistent with that introduced in cases like Deutsche Telekom, TeliaSonera and Post Danmark I and II. It is also consistent with that conducted in the context of Article 101 TFEU (Delimitis springs to mind when reading the Opinion) and merger control.

The above said, the framework proposed by the Advocate General is invaluable, as there are still few examples in the case law in which the issue is presented in such a thorough manner.

Written by Pablo Ibanez Colomo

10 December 2021 at 2:39 pm

Posted in Uncategorized