Administration in International Organizations PUBLIC COMPETITION LAW Class V , 3rd Nov 2014

1. Administration in International OrganizationsPUBLIC COMPETITION LAWClass V, 3rdNov 2014 Krzysztof Rokita

2. Abuse of a Dominant Position Article 102 TFEU Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

3. Abuse of a Dominant Position • The concept of abuse of a dominant position • Exploitativeabuses • Exclusionaryabuses • Defences in Article 102 cases

4. Abuse of a Dominant Position Abuse of a dominant positionaccording to the CJ (C-85/76 - Hoffmann-La Roche v Commission, para 91): “The concept of abuse is an objective concept relating to the behaviour of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened and which, through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition.”

5. Abuse of a Dominant Position The concept of abuse of a dominant position: • It isanobjectiveconcept* (no fault of undertakingneeds to be estabslihed; itdoes not depend upon the subjectiveintent of the dominant undertaking; *See AKZO); • Competition on the meritsispermitted (for exampleloweringprices, improvingquality of products and services, providingbetter service to consumers, introducingnew products) evenifitleads to the exclusion of less efficientundertakings from the market; • Practiceswhich go beyondcompetition on the merits and bringharm to consumersare not allowed.

6. Abuse of a Dominant Position The concept of abuse of a dominant position: • Exploitativeabuses (conduct whereby the dominant undertaking takes advantage of its market power to exploit its trading partners); • Exclusionaryabuses (conduct whereby the dominant undertaking prevents or hinders competition by excluding competitors from the market); • Exploitative and exclusionaryabusesare not mutuallyexclusive (conductmay be exploitative and lead to exclusion)

7. Abuse of a Dominant Position Abusiveexclusionaryconduct: • Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings; • When should oneclassify the exclusion of a firm from the market as natural result of sound competitive proces and thereby as legitimatepracticeand when anexclusion should be understood as anti-competitive behavior and prohibited? • Differenttestsareemployed in order to determinewhetherparticularbehaviourisanti-competitive(e.g. the as-efficient-competitor test). • Commissionuses the benchmark of anti-competitiveforeclosure (SeeCommission’sguidancepaper)

8. Exploitative abuses Excessiveprices(see Article 102(a): „directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions”): • stringent policy of combating high prices mayresult in competition authorities becoming price regulators; • High pricesmayact as a signal to attractnewcompetitors; • Whatconstitutesanunfairprice? • According to the CJ, charging a price which is excessive because it has no reasonable relation to the economic value of the product supplied is an abuse (a two-stage test: firstly, determinationwhether the differencebetween the cost of production and the pricechargedisexcessive; secondly, is the price in itselfexcessive? Isitexcessive in comparison with competitors’ prices?)

9. Exclusionary abuses AKZO Chemie BV v Commission (C-62/86) • How, in light of the facts of the case, did AKZO abuseits dominant position? Whatispredatorypricing? • Whyarepricesbelowaveragevariablecostsconsidered to be abusive? Arethereanycircumstancesin whichsuchpracticemay be justified? • Does the anti-competitiveintent of dominant undertakingplayany role in findingthatsuchundertakingisinvolved in predatorypricing? Did AKZO haveanti-competitiveintent? • Isitpossible for anundertaking to be engaged in predatorypricing on markets on whichitis not dominant? • How isrecoupmentconnected with predatorypricing?

10. Exclusionary abuses Intel Corporation v Commission (T-286/09) • Whatcategories of rebatesweredistinguished by the Court? Whichonesareconsidered to be illegal(whengiven by a dominant undertaking)? Whyareexclusivityrebatesconsidered to be abusive? • How, in light of the facts of the case, did Intel abuseits dominant position? • Whatarenakedrestrictions? Was Intel involved in nakedrestrictions?

11. Exclusionary abuses Microsoft Corp v Commission (T-201/04) • How, in light of the facts of the case, did Microsoft abuseits dominant position? What was the remedyimposed on Microsoft by the Commission? • Whatistying (bundling)? • How canit be assessedthat the tyingproduct and the tiedproductaredistinct (separate) from eachother? • How did Microsoft benefit from the tyingpractices (why was itdetrimental for otherproducers of media players)? • How did network effects benefit Microsoft? • What was the objectivejustification of suchpracticespleaded by Microsoft? • Was thereanyothercase of tying by Microsoft? How was itresolved?

12. Predatory pricing • Predatory pricing is a practice whereby an undertaking sets the prices of goods or services which it provides to a loss-making level in an attempt to drive its competitors out of the market • The idea behind predatory pricing is that after a period of making losses and excluding other competitors, the dominant undertaking willincrease prices to monopoly levels and recoup its losses • Barriers to entrymustexist (otherwise the practiceis not rational)

13. Predatory pricing in EU Competition law • Pricesbelowavaragevariablecostsareabusive; • Pricesaboveavaragevariablecostsbut belowavaragetotalcostsareabusiveifanti-competitiveintent of undertakingengaged in suchpracticesisproved • Thereis no need to provethe possibility of recouping thelosses the dominant undertakingincurred

14. Tying and bundling According to the Commission’sguidancepaper: • Tying usually refers to situations where customers that purchase one product (the tying product) are required also to purchase another product from the dominant undertaking (the tied product); • Technical tying occurs when the tying product is designed in such a way that it only works properly with the tied product (and not with the alternatives offered by competitors); alsophysicalintegration; • Contractual tying occurs when the customer who purchases the tying product undertakes also to purchase the tied product (and not the alternatives offered by competitors)

15. Tying and bundling According to the Commission’sguidancepaper: • Bundling usually refers to the way products are offered and priced by the dominant undertaking; • pure bundling - the products are only sold jointly in fixed proportions; • mixed bundling - products are also made available separately, but the sum of the prices when sold separately is higher than the bundled price

16. Tying and bundling According to the Commission’sguidancepaper: Requirementsthatneed to be fulfilled in order for the tying and bundling be prohibited: • The tying and the tied goods are two separate products; • The undertaking concerned is dominant in the tying product market; • The tying is likely to lead to anti-competitive foreclosure.

17. Rebates and discounts (exclusive purchasing transactions) • Quantity (volume) rebates: reductions given to a purchaser who buys a certain objective quantity of products; may be granted by dominant undertakings; • Loyalty (fidelity) rebates:rebates given in return for exclusivity, whereby the supplier gives a rebate to a customer who purchases all (or nearly all) of its requirements for the product from thatsupplier; • Target rebates – rebates given to customers who buy more than a target (threshold) amount in a certain period. The target may be set according to the customer’s perceived capacity to absorb the goods. A target rebatewhich do not expresslyrequireexclusivity, but isstructured to thateffectisconsidered to be loyalty-inducingrebate and therebyillegal (whengiven by a dominant undertaking)

18. Defences in Article 102 cases • Objectivenecessity(externalfactors) • Efficiency: • the efficiencies have been, or are likely to be, realized as a result of the conduct; • the conduct is indispensable to the realization of those efficiencies; • the likely efficiencies brought about by the conduct outweigh any likely negative effects on competition and consumer welfare in the affected markets; • the conduct does not eliminate effective competition, by removing all or most existing sources of actual or potential competition; • Protecting undertaking’s own commercial interests/Meeting competition(anyactiontaken by dominant undertakingmust be reasonable and proportionate)