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Archive for May 11th, 2023

Why coverage is central to the analysis of anticompetitive effects in the case law

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The most recent Article 102 TFEU case law has emphasised the need to consider the coverage of a practice when ascertaining whether it has actual or potential anticompetitive effects. There should be little doubt that this criterion is, and has always been, central to the assessment of the restrictive impact of potentially abusive conduct.

Coverage: a key condition from the early days of competition law

Coverage as a requirement has a long and illustrious history in competition law, dating back to the very early days of the discipline. In Brasserie de Haecht, the Court held that the analys of the cumulative impact of similar exclusivity obligations on competition is a factor pertaining to the economic and legal context of an agreement and, as such, relevant when evaluating its restrictive effects under Article 101(1) TFEU.

Coverage also features prominently in the structured test laid down in Delimitis. Under the first prong of that test, it is necessary to consider the coverage of parallel networks of exclusivity agreements. Article 101(1) TFEU may come into play where the coverage of these parallel networks leads, or can lead, to market foreclosure.

It was only a matter of time before this criterion would feature in Article 102 TFEU cases. Van den Bergh Foods is one where coverage was central to the assessment. Unsurprisingly, the General Court concluded that a set of de facto exclusivity agreements implemented by a dominant firm and covering 40% of the market constitutes an abuse of a dominant position.

Tomra is another judgment where coverage was front and centre of the evaluation of the abusive nature of the practices. The Commission explained in the proceedings that there the dominant firm’s practices covered a substantial part of the internal market, amounting to 39%. Given that level of coverage, the Court held that it would not be warranted to consider whether or not rivals would still have the chance to compete on the merits (which, again, comes across as reasonable).

This brief overview of the case law suggests that there was nothing new or revolutionary in the Court judgment in Intel: coverage had always been there. It was bound to feature, sooner or later, in any case dealing with the lawfulness of loyalty rebates under Article 102 TFEU

Why coverage is indispensable when assessing anticompetitive effects under Article 102 TFEU

The prominene of coverage in the assessment of anticompetitive effects is unsurprising. It is simply not possible to evaluate the impact of a practice on competition without considering how much of the relevant market is covered by the practice. It is a necessary, but not sufficient, condition to establish its potential to cause harm.

Where the coverage is not of sufficient entity, the practice is incapable of displaying anticompetitive effects. Put differently, such effects are only plausible where the coverage is significant.

To explain why the evaluation of the coverage of a practice is so important, let me take a classic from the US, International Salt. This case involved a tying strategy implemented by a firm that had developed a technology for adding salt for food processing purposes. The company made the lease of its machines conditional upon the supply of salt (in other words, customers were required to buy both the machine and the salt from the company).

Did this tying strategy have the potential to restrict competition on the tied market? Emphatically not. The proportion of the tied market that the practice would encompass was always bound to be minuscule. No matter how successful the company and how much in demand the machines, the coverage of the practice would always be infinitesimal. Salt has so many uses and there are so many producers that exclusion would not be a plausible prospect under any realistic definition of the tied market.

I can think of another example drawn from the Commission’s recent practice. Earlier this year, the Commission sent a Statement of Objections to Apple in which it clarified its concerns. The key clarification comes from the fact that the authority would no longer be looking into the exclusionary aspects of the case.

I was not surprised by the Commission’s announcement. As I explained a while ago (see here), the exclusionary claims in the case were not obvious to reconcile with the case law. The modest coverage of the practice is one of the reasons why arguments pertaining to the restrictive potential of the in-app purchasing requirement were difficult to square with the principles laid down by the Court over the years.

These two examples are useful in another sense. The assessment of the coverage of a practice is relevant across the board. It is not confined to rebates or to practices aimed at strengthening a dominant position. The assessment of the coverage may come into play when leveraging conduct is at stake (such as a tying case a la International Salt) or in relation to non-price conduct (as in the abovementioned investigation into Apple’s requirements).

Following Servizio Elettrico Nazionale and Unilever, it seems clear that the Court regards Intel as an arrêt de principe. Therefore, the framework introduced in it (including the five criteria to assess anticompetitive effects, of which coverage is one) appear to apply in all Article 102 TFEU cases.

How about appreciability and de minimis? That is the second prong of Delimitis, not the first

I almost hear some readers reacting (entirely reasonably) to the above by asking: did the Court not hold in Post Danmark II that there is no such thing as a de minimis doctrine in Article 102 TFEU, and that there is no need to assess the appreciability of the effects under that provision?

The above is correct, but is not in any way at odds with the need to evaluate the significance of the coverage of a practice.

Coverage is, as mentioned above, part of the first prong of the Delimitis test, which seeks to ascertain the impact of parallel networks of exclusivity agreement on competition. The second prong of the test is about appreciability: do the agreements concluded by the supplier under consideration make an appreciable contribution to foreclosure?

What the Court held in Post Danmark II is that this second prong is not relevant in the context of Article 102 TFEU. Which, if you ask me, makes perfect sense and is difficult to dispute. If the effects of a practice implemented by a dominant firm have been established to the requisite legal standard, we can assume that such effects are appreciable. Appreciability would follow logically and inevitably from the fact that the firm enjoys substantial market power.

However, effects needs to be established in the first place. And, at that earlier stage, coverage is a key component of the assessment.

Written by Pablo Ibanez Colomo

11 May 2023 at 8:55 pm

Posted in Uncategorized