Relaxing whilst doing Competition Law is not an Oxymoron

From Guidance to Guidelines: Article 102 TFEU and the new EU competition law

with 6 comments

The European Commission is seeking feedback on the adoption of a set of Guidelines on exclusionary abuses (see here). At the same time, it has announced the amendment of the existing Guidance on its enforcement priorities and has published a most valuable Policy Brief outlining the novelties.

The significance of this moment is not to be underestimated. When the Commission issued its enforcement priorities, it made it very clear that they were not a statement of the law, and that the document was without prejudice to the interpretation of Article 102 TFEU by the Court of Justice. The point of the Guidance was simply to indicate how, as an administrative authority, the Commission intended to exercise its discretion.

By contrast, the ambition behind the new initiative is to codify the case law based on the Commission’s own understanding of Article 102 TFEU. What is more, the press release is explicit that the point of the exercise is to provide legal certainty to national courts and authorities, in addition to undertakings. It is intended, in other words, as a document that will assist the competition law community when navigating, and making sense of, the growing body of judgments.

This initiative is also highly symbolic. It marks the end (if not the end, at least the terminal decline) of the ‘more economics-based approach’ to competition law. The Policy Brief embraces objectives other than consumer welfare. While the new vocabulary will not have consequences as such (words are just words), it is a reliable indicator that times are changing. The new EU competition law is here to stay and will permeate every aspect of policy-making.

It is not easy to anticipate the scale and consequences of the initiative. This said, the Policy Brief is already informative and gives a sense of the direction of travel. There is much to unpack, but I can offer the thoughts that follow for the time being. I would very much welcome yours.

What is sensible in the Brief? A solid attempt to define the notion of anticompetitive foreclosure

As I have had the chance to mention in the past (see here), we are missing a definition of anticompetitive effects (or foreclosure) in the case law. The Policy Brief adds a great deal of common sense to the discussion. First, because it does not abandon foreclosure as the relevant benchmark of exclusionary effects. Second, because it explains at length that foreclosure within the meaning of the case law can exist even when rivals have not been fully excluded or marginalised.

The relevant question, under the case law, is not whether rivals are or may be driven out of the market, but whether rivals’ ability and incentive to compete are (or may be) affected to such an extent that the dominant firm’s competitive constraints are (or would be) reduced.

The definition proposed by the Commission captures effectively this idea and is very much in line with it. More precisely, anticompetitive foreclosure is defined, in the Brief and the amended Guidance, as a ‘a situation where the conduct of’the dominant undertaking adversely impacts an effective competitive structure, thus allowing the dominant undertaking to negatively influence, to its own advantage and to the detriment’of consumers, the various parameters of competition, such as price, production, innovation, variety or quality of goods or services‘.

What is confusing? The conflation of the threshold of effects (likelihood) and the temporal dimension (actual vs potential effects)

Another issue that needs to be further clarified in the case law pertains to the relevant threshold of effects (as a matter of substantive law, which is different from the standard of proof). This is not an academic or esoteric matter. It is crucial in practice and has major consequences for the scope of Article 102 TFEU.

It is one thing to require from an authority that effects be likely (probability of >50%) and a very different one that they be plausible (probability of >10%). In the latter scenario, it would be considerably easier to establish foreclosure (in fact, anticompetitive effects could be deemed established in pretty much every Article 102 TFEU case under a plausibility standard).

As the Commission rightly points out, the Court tends to use capable and likely indistinctly. The Guidance, in its original incarnation, referred to ‘likely’ effects. To the extent that this term was indicative of a >50% probability of harm, it is the right one as a matter of positive law. An attentive reading of the case law makes it clear that (irrespective of the terms used) the Court requires, in substance, more than mere plausibility of harm (this is a point made by AG Kokott in her Opinion in Post Danmark II).

The Brief, by contrast, relies on a different substantive threshold, that of ‘potential effects’. This reference is confusing and will give rise to debates (which is very much welcome, and the very point of the exercise). Contrary to what is suggested in the document, the divide between actual or potential effects does not refer to the probability of harm, but to the temporal dimension of the analysis (that is, whether we are looking at harm that has occurred or, instead, at harm that may occur further down the line).

When the Court (uncontroversially) holds that Article 102 TFEU comprises both actual and potential effects, it holds, in essence, that the provision encompasses not only past foreclosure but the prospect of exclusion. A cursory look at any dictionary confirms that the word ‘potential’ refers to something that may happen in the future given the appropriate conditions.

One needs to look no further than Servizio Elettrico Nazionale (paras 49-58) to realise that the actual vs potential divide in the case law is indeed about the temporal dimension of the analysis (as opposed to the substantive threshold of effects). In fact, this judgment is useful in a crucial sense that I presume the future Guidelines will incorporate: past evidence of actual effects (or their absence) is a relevant consideration when evaluating the potential of a practice to do harm.

What is missing? Causality and attributability of effects

Finally, there is an aspect that is not discussed at length in the Brief and that is equally crucial (and equally underdeveloped). Both EU courts have consistently referred, in the past few years, to the need to establish a causal link between the potentially abusive practice and any actual or potential effects (or, if one prefers, that foreclosure be attributable to the behaviour of the dominant undertaking).

If foreclosure would have happened anyway (that is, the anticompetitive effects are not attributable to the dominant firm), the practice cannot be said to be abusive. While this point is uncontroversial, it needs to be fleshed out. The Court has only sketched the principle, and it may take a while before some aspects are fully clarified. The discussion that the Brief has already triggered will hopefully shed light on this point.

Written by Pablo Ibanez Colomo

27 March 2023 at 9:17 pm

Posted in Uncategorized

6 Responses

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  1. While I very much appreciate Pablo’s detailed and insightful comments on the Commission’s amendments to the Guidance paper and the other issues it raises for new draft Guidelines, I do not agree with his overall comment (as I can see,largely unsubstantiated in his paper) that these new proposals signal a ‘terminal decline’ in the application of more economic and effects-based approach to the application of article 102. In my view, the Commission’s amendments and proposals rightly reflect the reality (also recognised by the Courts) that there are conducts and contractual restrictions which on the basis of historical empirical evidence have been shown to be consistently abusive and anticompetitive and therefore do not require EU competition authorities to prove their effects in specific cases. Apart from this category of abuse, the requirement for assessment of effects is underlined strongly throughout the Commission’s papers, notwithstanding the other issues for debate which Pablo highlights in his paper

    Philip Lowe

    28 March 2023 at 10:21 am

    • Thanks for sharing your thoughts, Philip!

      Pablo Ibanez Colomo

      28 March 2023 at 10:26 am

  2. I tend to agree with Pablo. Maybe it is too soon to declare the ‘terminal decline’ in the application of a more economic and effects-based approach to the application of Article 102. But reading the amendments to the Guidance and the Policy Brief, one gets the unequivocal impression that the Commission feels that their introduction in interpreting Article 102 TFUE, and that of the corollary AEC test, have backfired and significantly increased the risk of its prohibition decisions being annulled.
    I think that Philip’s argument is at odds with the timing of the Commission’s amendment, which is being introduced following Judgments of the Court annulling, at least partially, high-profile Commission decisions sanctioning new types of conducts, such as self-preferencing, that had not been previously “shown to be consistently abusive and anticompetitive and therefore do not require EU competition authorities to prove their effects in specific cases”.
    Thus, I agree with Pablo that the Commission is trying, if not to kill the more economic approach to Article 102, at least to bridle its interpretation and effects, and to return to its many happy years where the Court systematically endorsed all its prohibition decision, mounting on the mantra of the special responsibility.

    Rafael Allendesalazar

    10 April 2023 at 8:19 pm

    • Thanks very much, Rafa! Really thoughtful, as always.

      Where I think we see eye to eye: the ‘more economics-based approach’ is much more than the analysis of effects of practices. It is an approach to enforcement that goes well beyond that particular manifestation.

      The analysis of effects may survive (at least in some shape or form) even if the Commission turns its back completely on the ‘more economics-based approach’. Whether or not this will happen is something we do not know at present, to be sure.

      I look forward to your thoughts in the next instalments on this debate!

      Pablo Ibanez Colomo

      11 April 2023 at 11:10 am

  3. […] and I have concluded that the Commission’s plans to issue Guidelines codifying the law of exclusionary abuses is important enough to set up, at long […]

  4. […] de la Unión Europea (“TFUE”), en materia de abusos exclusorios (la Guía), junto con un “Policy Brief”. La guía anterior en esta materia es del año […]

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