Chillin'Competition

Last week, the Court of Justice delivered its much-awaited judgment in Google Shopping. The ruling comes across as carefully crafted. The case raised a number of novel and complex points of law, for which the Court finds clean, elegant solutions.

This outcome was not a given. Google Shopping is undoubtedly a landmark in EU competition law, and it is well known what received wisdom has to say about so-called great cases.

What stands out, above all, is the balance that the Court strikes between coherence and effective enforcement.

Ensuring that there is a coherent approach to the interpretation and application of Articles 101 and 102 TFEU is a must when private enforcement is very much on the rise (reshaping the legal and institutional landscape in the process). Effective enforcement by competition authorities, on the other hand, is as important as ever.

The Court achieves this balance mainly by placing workable demands on the Commission, all while offering the opportunity to the dominant firm to provide additional evidence in the course of the proceedings. The technique to achieve this balance is, in essence, the one relied upon in Intel.

This post will focus on the four most salient aspects of the judgment, namely (i) indispensability; (ii) competition on the merits; (iii) causality and the counterfactual; (iv) the ‘as-efficient competitor’ test.

Indispensability

The discussion around indispensability was probably one of the most awaited aspects of the judgment (even more so, one could argue, after the General Court’s ruling, which had introduced a number of innovations, none of which have made the cut).

The Court’s reasoning does not depart from the orthodoxy encapsulated in Slovak Telekom and ensures the survival of the Bronner doctrine. Thus, evidence of indispensability is required where intervention would interfere with a firm’s right to property and freedom of contract (para 91).

This approach acknowledges something that has always been apparent from the case law: the outcome of intervention (that is, a remedy mandating the dominant undertaking to deal with third parties) is inextricably linked to the question of whether there is an infringement in the first place.

The Court applies the case law to the facts of the case and concludes that the discriminatory conduct at stake was not one that involved a duty to deal with third parties, and was therefore not subject to the indispensability condition (para 99).

It also notes that the remedies imposed by the Commission did not require Google to deal with rivals (that is, give access to the ‘shopping boxes’). Instead, the authority required the dominant undertaking to apply the same processes and methods to third parties (para 98).

There is more to write on the future of indispensability (and the Court’s choices in the judgment), which requires a longer entry (or set of entries), along with an analysis of Android Auto (which is potentially more consequential in this sense).

Competition on the merits

The victory of the broad understanding of the concept of abuse

The notion of competition on the merits is, as explained elsewhere, an irritant in the case law. It is the bridge that connects the original and the current understandings of the concept of abuse. As such, it is bound to create frictions and give rise to misunderstandings.

Google Shopping illustrates well why competition on the merits has made an unlikely comeback after more than a decade confined to irrelevance. As the case shows, the notion may be used strategically as a shield by dominant undertakings. By claiming that only ‘improper’ or ‘abnormal’ conduct falls within the scope of Article 102 TFEU, it was hoped that proving an abuse would be made more difficult.

This narrow understanding of the concept of abuse has been unambiguously rejected in Google Shopping. On this point, the Court held that the categorisation of a practice as not falling within the scope of competition on the merits can rely on a number of extrinsic factors, including the market(s) covered by it and the dynamics of competition (para 166).

Whether or not a practice falls within the scope of competition on the merits, in other words, is a context-specific exercise that can rest on considerations other than the conduct itself. The concept of abuse, by the same token, encompasses practices that are not inherently ‘improper’ or ‘abnormal’.

For instance, the Court is careful to clarify that discriminatory conduct is not inherently at odds with competition on the merits (para 186). There is no such thing as a principle of ‘equality of opportunity’ applying across the board to private undertakings.

Accordingly, discrimination (which may be manifested in a number of ways) may or may not amount to an abuse depending on the circumstances of the case.

Competition on the merits in practice

Google Shopping provided an opportunity for the Court to address an additional, related question: is it necessary to show that a practice departs from competition on the merits in every instance? The Court answers in the negative in para 165:

‘In order to find, in a given case, that conduct must be categorised as “abuse of a dominant position” within the meaning of Article 102 TFEU, it is necessary, as a rule [en règle générale], to demonstrate, through the use of methods other than those which are part of competition on the merits between undertakings, that that conduct has the actual or potential effect of restricting that competition by excluding equally efficient competing undertakings from the market or markets concerned, or by hindering their growth on those markets, although the latter may be either the dominated markets or related or neighbouring markets, where that conduct is liable to produce its actual or potential effects‘ (emphasis and translation added).

Accordingly, there may be instances in which it is not necessary to show that the practice departs from competition on the merits and, similarly, instances where it is not necessary to demonstrate the actual or potential effects on competition (that is, ‘by object’ infringements).

The judgment goes on to explain why one need not demonstrate, always and everywhere, that the practice is not an expression of competition on the merits. As the Court points out in para 166, the issue of competition on the merits is sometimes subsumed into the legal test (or ‘analytical template’).

By showing, for instance, that the Bronner conditions are met, an authority or claimant will have shown (implicitly) that the practice departs from competition on the merits, without the need to clear any additional hurdle.

Causality and counterfactual

Questions around the need to establish a causal link between the practice and any actual or potential effects are particularly likely to give rise to tensions between coherence and effective enforcement.

On the one hand, establishing a causal link between the practice and its alleged impact makes it necessary to identify, by definition, the ‘but for’ world that would have unfolded in its absence (this is a point expressly acknowledged by the Court in the Servier saga).

On the other hand, requiring an authority to define the relevant counterfactual may occasionally represent a significant burden.

The Court solves this tension by ruling, first, that the ‘causal link [between the practice and any actual or potential effects] is one of the essential constituent elements of an infringement of competition law‘ (para 224); and, second, that the dominant undertaking may rely on the counterfactual to dispute the findings of the authority (para 227).

In so doing, the Court distinguishes between the legal burden of establishing the causal link, which lies with the authority or claimant, and the evidential burden of putting forward a counterfactual showing the absence of such a link, which lies with the dominant undertaking.

This solution follows the logic of Intel (and, one assumes, operates in the same way in practice, thereby triggering an obligation on the authority when the dominant undertaking provides ‘supporting evidence’ to the requisite legal standard).

The ‘as-efficient competitor’ test

Finally, the Court makes it clear that it is not necessary to evaluate whether the rivals of a dominant firm are as efficient as the dominant firm when demonstrating the exclusionary effects of a practice (para 264).

The Court’s conclusion on this point is difficult to dispute. The idea that the analysis of the exclusionary effects involves (or requires) assessing the relative efficiency of rivals does not capture what the ‘as-efficient competitor’ test is really about (and, similarly, the purpose it serves).

The rationale behind that test is to ascertain whether the dominant firm would be able to withstand its own practice if it were subject to it (for instance, whether it would be forced to sell at a loss if it were subject to its own wholesale prices or to its own conditional rebate schemes), not whether third parties are as efficient it is.

Crucially, nothing in this section of the judgment (and, indeed, the rest thereof) appears to question the relevance of the ‘as-efficient competitor’ principle. It is expressly upheld in para 263 (which refers, in turn, to paras 163-167) and, above all, implicitly endorsed in the passages that expressly acknowledge the need to establish a causal link between the practice and any actual or potential effects.