Chillin'Competition

Advocate General Rantos’s Opinion in Servizio Elettrico Nazionale is this month’s highlight. It seems fitting to say a word about it before the year comes to an end. The first post on the Opinion (see here) addressed the general approach to the notion of abuse and the way in which it codified the body of case law that has developed in recent years.

This second post focuses on two specific points addressed by Advocate General Rantos (the Opinion is particularly rich and there are other aspects that might be discussed in the future). The first is the role of actual, observable market developments when assessing potential effects. The second relates to the applicable threshold of effects.

The assessment of potential effects and actual market developments

It has long been established that EU competition law (including Article 102 TFEU) is concerned not only with actual effects but also with potential effects. One could even argue that potential effects are the primary concern, since the fundamental goal of the system is to preserve the competitive process rather than to sanction the exclusion of rivals.

When it comes to the assessment of potential effects, one question inevitably comes to mind: what is the role of actual market developments when evaluating them? If there is evidence that rivals have retained their ability and incentive to compete in spite of the practice, is this evidence relevant when the analysis is prospective in nature?

Advocate General Rantos gives an answer that is not only reasonable but also in line with the case law. Where the analysis is based on the potential effects of a practice, but the latter has been going on for a while, its actual impact is a relevant indicator of the likely consequences further down the line (para 119 of the Opinion).

In other words: the absence of actual effects can lead to the conclusion that the practice is incapable of having a potential impact on competition.

The Court of Justice had already hinted at this conclusion in Post Danmark I. It invited the national court to evaluate the anticompetitive effects of the below-cost price campaign at stake in the case.

In that judgment, the Court was careful to note (para 39), that the available evidence suggested that the rival had not lost its ability and incentive to compete (so much so, in fact, that it had gained back the two relevant customers). That evidence, along with the fact that an as efficient competitor would be able to cover the bulk of the cost attributable to the supply of the relevant goods (para 38), would be sufficient to conclude that the practice is unlikely to produce potential effects.

Advocate General Rantos’s clarification, even if eminently reasonable and straightforward, was particularly necessary. Occasionally, evidence pertaining to actual market developments is dismissed as irrelevant when the case revolves around potential effects. The fact that the analysis is prospective, in other words, is occasionally used as a pretext to ignore the reality of the economic and legal context of which the conduct is a part.

By concluding, in line with Post Danmark I, that actual market developments can be a factor when evaluating the potential impact of practices, Advocate General Rantos confirms that the assessment under Article 102 TFEU cannot be carried out in the abstract or in a hypothetical manner. The relevant economic and legal context, and thus ‘all the circumstances’, must be considered.

The threshold of effects

The Opinion also touches upon another crucial question that has not been addressed explicitly by the Court of Justice. As a matter of substantive law, what is the relevant threshold of effects? Is it sufficient for the authority or claimant to show that anticompetitive effects are a plausible outcome of the implementation of the practice? Or is it necessary to show, as suggested by Advocate General Kokott in her Opinion in Post Danmark II, that effects should be more likely than their absence?

The letter of the relevant judgments is not particularly illuminating in this regard. As noted by Advocate General Rantos (and previously, by Judge Wahl during his tenure as Advocate General), the words ‘capability’ and ‘likelihood’ have been used interchangeably in the case law.

When looking at this question, it is important to consider not only what the Court says, but also to what it does (as explained here). The meaning of the words ‘capability’ and likelihood’ is best understood when one pays attention to how the analysis is actually carried out in the judgments.

And if one pays attention to what the Court does, two conclusions can be drawn. First, there is a difference between abuses ‘by object’ (say, pricing below average variable costs) and abuses ‘by effect’ (say, a ‘margin squeeze’). The threshold is lower in the case of the former (judgments like AKZO suggest that plausibility is enough in ‘by object’ cases).

Second, as far as abuses ‘by effect’ are concerned, the threshold seems higher than that of plausibility. It is sufficient to read judgments like Deutsche Telekom, Post Danmark I and TeliaSonera to realise that the Courts demands more than the mere plausibility of an anticompetitive effect.

Advocate General Rantos appears to reach a similar conclusion in his Opinion. He suggests, in line with the above, that the threshold may vary depending on the nature of the conduct and the specific circumstances of each case (para 118). The more egregious the conduct, the lower the threshold, which, again, seems eminently reasonable (and is also compatible with the case law).

More importantly, Advocate General Rantos points out that any evaluation must be carried out by reference to specific factors, such as the length of the practice and its coverage (which, again. would go to suggest that the mere plausibility of anticompetitive effects would not be enough).