Chillin'Competition

Last week’s post focused on the tripartite categorisation of practices in the Draft Guidelines on exclusionary abuses. It concluded that, while the categorisation is sound and finds support in the case law, it misses a fourth family of practices (that of presumptively lawful conduct).

‘Naked restrictions’ in the Draft Guidelines

This week’s post zooms into a sui generis category, which the Commission labels ‘naked restrictions’ in the Draft Guidelines. Practices falling within this group share two distinctive features. First, they lack redeeming virtues (that is, they can only be explained as a device to exclude actual or potential rivals). This feature is the one that makes them stand out from the rest.

Second, ‘naked restraints’ are prohibited as abusive without the need to consider their effects on competition. Contrary to what is true in the default scenarios, such effects can be safely presumed. Which makes sense. It is reasonable to expect that a practice that pursues no plausible purpose other than the restriction of competition is (at least) capable of exclusion.

‘Naked restrictions’ as a reality and a necessity

The first point to make about ‘naked restrictions’ is that they are both a reality and a necessity. That they are a reality need not be explained at length. There are concrete examples in the case law showing that these practices are an integral aspect of the legal landscape.

Predatory pricing within the meaning of AKZO is one mentioned last week, but not the only one. For instance, providing objectively misleading information to regulatory authorities, which was at issue in AstraZeneca (and is topical again in the context of the Teva decision) is also abusive by its very nature.

‘Naked restrictions’ are also a necessity. According to a well-established doctrine, a practice can be subject, either alternatively or cumulatively, to both Articles 101 and 102 TFEU.

If the behaviour under consideration is restrictive by object under Article 101(1) TFEU, it stands to reason that it is also prohibited without the need to show effects under Article 102 TFEU. Reverse payment settlements, which may amount to a ‘by object’ infringement and have been scrutinised under the two provisions (including in Generics), illustrate this point particularly eloquently.

‘Naked restrictions’ or ‘by object’ abuses?

The second point relates to the labelling of practices. While a relatively minor issue in a field that places substance above form, it makes sense to say a word about it.

The question, in essence, is whether to label these practices ‘naked restrictions’ or ‘by object’ abuses. It seems to me that the latter (‘by object’) is preferable (and the one that the final version of the Guidelines would ideally adopt).

This is so, to begin with, because it is the label that the Court has consistently used since Generics (and then Superleague, and then Google Shopping). The reiteration of the formula suggests that it is now part of the acquis on Article 102 TFEU.

A second reason why the ‘by object’ label would be preferable is that its scope of application is very similar, if not identical, to the scope of ‘by object’ infringements within the meaning of Article 101(1) TFEU.

The Court has reiterated since Generics (most recently in the Servier saga and Banco BPN), that an agreement is restrictive by object under Article 101(1) TFEU when it cannot be explained other than as a means to restrict competition.

As the Court put it in para 56 of Banco BPN: ‘[…] [A]n exchange of information which, although not formally presented as pursuing an anticompetitive object, cannot, in the light of its form and the context in which it occurred, be explained other than by the pursuit of an objective contrary to one of the constituent elements of the principle of free competition must be regarded as constituting a restriction by object‘.

It is sufficient to compare and contrast the Court’s position in Banco BPN with the definition of ‘naked restriction’ given in the Draft Guidelines (in turn borrowed from para 71 in AKZO) to realise that they both concern the same range of practices. The case law would be cleaner and easier to navigate if the same phenomenon were labelled identically irrespective of the provision.

Rebutting the presumption of anticompetitive effects: ‘real and concrete possibilities’

The third, related issue concerns the rebuttal of the presumption of anticompetitive effects underpinning the qualification of a ‘naked restriction’ as an abuse of dominance. The Draft Guidelines point out that it should only be possible to rebut this presumption in rare, if not exceptional circumstances.

It seems to me that this point of principle cannot be disputed. Where the Draft Guidelines could be more specific is in relation to the (exceptional) instances where the presumption can be rebutted.

The currrent version of the document helpfully (and rightly) mentions that the bar is significantly higher than in Intel-type scenarios. However, it does not elaborate much further and leaves a great deal of scope for speculation.

The most elegant solution, and the one that is wholly aligned with the existing body of judgments, would be to draw inspiration straight from the case law on restrictions by object under Article 101(1) TFEU. One should bear in mind, in this sense, that ‘Articles 101 and 102 TFEU must be interpreted consistently‘.

The recent Servier saga has helpfully clarified (in light with the preceding cases and with AG Kokott’s own analysis in her Opinion in Generics) that there is no restriction, whether by object or effect, where there is no actual or potential competition in the relevant economic and legal context (that is, where there are no ‘real and concrete possibilities‘ of entry).

There would be no ‘real and concrete possibilities’ of entry, for instance, where the regulatory regime prevents actual or potential competition (an example at stake in E.On Ruhrgas and cited with approval by AG Kokott in the abovementioned Opinion to make this very point). The same would be true where no other firm has the ability or incentive to enter the market (for instance, because none has not taken the requisite preparatory steps to place competitive pressure on actual competitors).

As far as ‘naked restrictions’ are concerned, it is submitted that the presumption of anticompetitive effects should only be rebuttable in these same (and very narrow) scenarios. These are, incidentally, the scenarios where (as in E.On Ruhrgas) the presumption of effects underpinning a ‘by object’ infringement has been successfully rebutted by the parties in Article 101(1) TFEU disputes.

As it happens, the case law on exclusionary abuses already provides scenarios where there were no ‘real and concrete possibilities‘ of entry (and thus no abuse). One of these scenarios is found in the BEH ruling, where the General Court found that the regulatory context precluded actual or potential competition. An example of the second scenario can be found in Qualcomm (exclusivity). In that case, the customers of the dominant undertaking had no realistic alternatives.

Refining the Guidelines to make it explicit that the presumption of anticompetitive effects underpinning a ‘naked restriction’ can only be rebutted where the dominant undertaking can show that there are no ‘real and concrete possibilities‘ of entry in the market affected by the practice and therefore no actual or potential competition would greatly contribute to the clarification of the existing law of exclusionary abuses.