Chillin'Competition

Last week’s post discussed a quintessential example of a ‘by object’, namely disparagement strategies. By the end of the entry, I pointed out that, for some reason, there is some reluctance to call a spade a spade or, more precisely, to call abuses by object by their name. A number of potential alternative labels have been floated, such as ‘naked restrictions’.

It is not immediately obvious to understand the reticence to accept this category. Abuses by object are neither an academic theory nor a policy proposal: they are a creation of the Court of Justice.

A cursory overview of the case law reveals that there are some practices (say, pricing below AVC à la AKZO) that are prohibited (i) without the need to show anticompetitive effects precisely because (ii) they have no plausible explanation other than the exclusion of a rival.

What is more, Superleague dissipated any doubts that might have existed about the existence of abuses by object in the world of positive law.

If abuses by object are very much a thing, what explains, then, the reluctance to embrace a concept which brings not just clarity and consistency but which, moreover, dispenses with the need to establish the exclusionary impact of some practices?

Reading some commentary here and elsewhere, I believe I have come to understand, the mystery behind this counterintuitive attitude.

The reluctance appears to be based on a misunderstanding of the concept and operation of ‘by object’ infringements. According to this (mis)understanding, this category of infringement would be incompatible with some features of the case law interpreting the notion of abuse.

The Court made it clear in Intel that, even when the anticompetitive effects of a practice are presumed, it is always possible for the dominant firm to produce evidence showing that the said practice is incapable of having an exclusionary impact.

This is where, the argument goes, Article 102 TFEU departs from ‘by object’ infringements. According to this view, it is not possible to rebut a finding that an agreement restricts competition by object under Article 101(1) TFEU by showing that it is incapable of having anticompetitive effects.

The only problem is that this interpretation of Article 101(1) TFEU is, as the law stands, incorrect. Not only is it possible to rebut a finding of a ‘by object’ infringement on the basis of the absence of effects, this argument has been successfully invoked in a number of cases.

The judgment of the Court of Justice in Servier made this point clear, and arguably more explicitly than preceding ones (AG Kokott’s Opinion in Generics articulated this idea very effectively too). An agreement can only infringe Article 101(1) TFEU, whether by object or effect, where there is (actual or potential) competition to restrict in the first place.

By the same token, the agreement will escape the prohibition where it appears that competition would have been impossible (which would be the case, for instance, there are regulatory barriers to entry that prevented such competition irrespective of the behaviour of the parties).

Again, this is not such a theoretical possibility. As mentioned a few times here, this very question led to the partial annulment of the Commission decision in E.On Ruhrgas. It was also raised (unsuccessfully) in Toshiba, which was a plain-vanilla cartel case.

What matter for the purposes of this discussion is that, had the members of the cartel, proved that regulatory barriers to entry made competition between European and Japanese producers impossible, there would have been no infringement. This conclusion is clear from the appeal judgment in the case.

Against this background, there is nothing in the Article 101(1) TFEU case law that is at odds with Intel. When a practice is abusive by object, the possibility to rebut the presumption of effects exists, just like it does under Article 102 TFEU.

As far as ‘by object’ conduct is concerned, however, the bar to rebut the presumption is very high, as the Commission rightly explains in its Draft Guidelines. The dominant firm would have to show that competition would have been impossible in the relevant economic and legal context. The bar may be high, but the possibility exists nonetheless.

Relying on ‘abuse by object’ as a category, as opposed to ‘naked restriction’, has an additional advantage. It seems to me that the former is broader than the latter. There is conduct that is prohibited as a ‘by object’ infringement even though it can be plausibly explained other than as a means to restrict competition.

Conduct aimed at partitioning the internal market, at issue in cases like ABInbev, is the example that comes to mind immediately. It may be true that sometimes price discrimination can be rationalised as a pro-competitive strategy.

To the extent that it goes against the overarching objective of market integration, however, it is prohibited by object under Article 101(1) TFEU. And, coming back to the theme that motivated this post, it stands to reason that it is also prohibited as such under Article 102 TFEU.

Which takes me to the conclusion: it would be immensely beneficial if the codification exercise underpinning the Guidelines streamlined the fundamental issues and called ‘abuses by object’ by their name.