Chillin'Competition

As evidenced by the many conversations it has initiated, the Draft Guidelines on exclusionary abuses issued back in the summer provide a good basis to think systematically about Article 102 TFEU and the evolution of the case law over the past couple of decades.

This post is the first of a weekly series engaging with the points addressed by the Commission in the document and discussing whether, and how, the review exercise can contribute to making enforcement both more effective and more predictable.

The Draft Guidelines are rich and offer a number of angles to take. It seemed to me that the obvious starting point is the tripartite categorisation of conduct, if only because much of the document (and many assumptions underpinning the analysis) revolves around it.

I assume every reader knows that the Commission identifies three broad families of potentially abusive practices: (i) so-called ‘naked restrictions’; (ii) those where the anticompetitive effects are presumed and (iii) those that require a case-by-case assessment of their impact.

The tripartite distinction makes sense and faithfully captures the essence of the case law. From an enforcement standpoint, it is consistent with the ambition of favouring the administrability of Article 102 TFEU.

That some practices are abusive by their very nature (whether we call them ‘naked restrictions’ or abuses by object) cannot be seriously disputed. It is an integral feature of the case law, and a useful one at that: if it did not exist today, the Court would create it.

By definition, conduct that cannot be explained other than as a means to restrict competition falls (and should fall) within the scope of Article 102 TFEU. There is no need for an authority or claimant to show any actual or potential anticompetitive effects in such instances.

My only suggestion about this first category is that predatory pricing within the meaning of AKZO, even though not qualified as such in the Draft, is emphatically a ‘naked restriction’. Arguably, it is the single most prominent example of the category.

It is sufficient to compare and contrast para 71 of AKZO and the definition of ‘naked restriction’ given by the Commission: the former is the direct inspiration of the latter. It would be illogical not to treat it as abusive by its very nature.

It is also difficult to dispute that the anticompetitive effects of some practices are presumed and thus that the creation of a specific category necessarily in relation to these practices is warranted.

Loyalty rebates (that is, rebates conditional upon exclusivity) feature prominently in this category. The Intel judgment of 2017 made a fundamental contribution to the case law in that it clarified that the presumption of anticompetitive effects underpinning Hoffmann-La Roche can be rebutted (it may be rebuttable, but it remains a presumption).

There is also a presumption of anticompetitive effects (and this is another good example in the Guidelines) where ‘margin squeeze’ conduct leads to negative spreads (that is, where the wholesale price the dominant firm charges to its downstream rivals is higher than the retail price it charges to end-users)

I would argue that the fundamental (and, I would add, necessary) contribution that the Draft Guidelines make to the above is that they acknowledge the difference between, respectively, ‘naked restrictions’ and Intel-type scenarios. The latter cannot be treated as ‘naked restrictions’, if only because they can be rationalised on pro-competitive grounds.

It is no less valuable that the Commission clarifies that the bar would be relatively higher if a dominant undertaking were to argue that a ‘naked restriction’ should not be prohibited as abusive in a particular instance. The question of where exactly one should place the bar in relation to these practices is one that I will address in the second post of this series.

The main comment I would make about the tripartite distinction is that it is missing a fourth category, that of presumptively lawful conduct.

The case law is unequivocal about the existence of this family of practices. Acknowledging its existence in the final version of the Guidelines would not only complete the codification exercise but would also contribute to the declared goal of enhancing legal certainty.

It has been clear since Hoffmann-La Roche that the category of presumptively lawful conduct encompasses a rebate that is genuinely conditional on the volume supplied (that is, ‘a simple quantity rebate linked solely to the volume of purchases‘).

The scope of this category would be clarified in Post Danmark II, where the Court held that it comprises rebates that are granted ‘in respect of each individual order‘ and which therefore correspond ‘to the cost savings made by the supplier‘. It is admittedly a narrow range of practices, but a range nonetheless.

Following Post Danmark I, moreover, there should be little doubt that above cost unconditional prices are presumptively lawful. If anything, the Court went further in its judgment, as it suggested that unconditional prices are unlikely to have anticompetitive effects where they would allow to cover ‘the great bulk of the costs attributable to the supply of the goods or services in question‘.

By extension, a practice cannot be qualified as an abusive ‘margin squeeze’, where the margin between the wholesale and the retail prices would not force the downstream division of the dominant firm to sell at a loss (in the sense that the spread between the former and the latter prices give the downstream division a sufficient margin to sell above cost).

The four categories in the case law are summarised in the table below. Next week, I will say a more detailed word about ‘naked restrictions’ (including whether it is more appropriate to call them abuses by object). In the meantime, I very much look forward to your comments.

Category	Rationale	Examples	Case law
Presumptively lawful	Expressions of ‘on the merits’ competition	Prices x>ATC Volume rebates	Post Danmark I Post Danmark II
Case-by-case analysis of effects	Ambivalent effects on competition	Standard rebates Tying in tech	Post Danmark II Android
Anticompetitive effects presumed	Likely to have negative effects	Loyalty rebates Negative spread	Intel TeliaSonera
‘Naked restrictions‘	Only explanation is exclusionary	Predatory pricing Sham litigation	AKZO ITT Promedia