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Article 102 TFEU - Abuse of dominant position
ARTICLE 102 TFEU
The big question in this field is whether abuse of dominance is based on an economic approach or a rules-based formalistic approach - companies would prefer a rules-based approach for certainty purposes (although they could plausibly hire economists to muddy the waters where the burden of proof is on EC). EC will often prefer a rule-based approach too - shorter process to a finding of abuse of dominance.
Article 102 TFEU can be broken down into four questions:
1. Is there a dominant undertaking (DU) or dominant group of undertakings?
I. Is there an undertaking?
II. If so, does the undertaking occupy a dominant position?
2. Is this dominant position within the internal market or a substantial part of it?
3. Is this dominance being abused?
I. Is there an abuse of dominance?
II. Can this abuse be justified by:
a. An objective justification; or b. Efficiencies?
4. Could this abuse of dominance affect trade between Member States?
Article 102 TFEU is concerned with unilateral conduct on the part of DU.
1 - Dominant undertaking?
U must be dominant for Article 102 TFEU to apply. The shift to abuse of dominant position is easily done by DU when they don't realise they are dominant.
1.1 - Undertaking?
The EU legislator did not define 'undertaking'- it is an ambiguous concept.
The Court has adopted a functional definition of 'undertaking' - is the entity active on the market?
Hofner : 'Undertaking' encompasses every entity engaged in economic activity,
regardless of legal status of entity and way it is financed.
o Functional definition relies on nature of activity rather than form of entity.
In SAT , Euro-control financed by contributions of Member States which established it, carrying out public/state tasks in the public interest -
activities were not of an economic nature.
o Offering goods and services on a given market is characteristic of economic activity
Distinguish between (a) economic act of selling, and (b) buying and distributing - only (a) indicates that X is an undertaking.
- Nature of the purchasing activity must be determined according to the subsequent use of the purchased goods.
AG Maduro: We should establish whether the State-owned organisation would be guided solely by considerations of solidarity, intended to exclude all market considerations - if so,
not an undertaking.
The fact firm X is state-owned will not matter where X is engaged in economic activity. The functional approach requires each activity to be evaluated in its context (SELEX ) - while
Euro-control did not constitute an 'undertaking' in SAT  in relation to airspace management,
Euro-control could be an 'undertaking' in relation to other activities.
o Conduct of employees is incorporated into employer's economic unit -
employees do not constitute undertakings in themselves (Jean Claude Becu ).
o Conduct of subsidiary can be imputed to the parent company, even if the subsidiary has a separate legal personality (Telefunken ).
Particularly so where subsidiary does not decide independently on its own conduct, but carries out parent company's instructions.
- Viho : Parker Pen and its subsidiaries a single economic unit -
subsidiaries did not enjoy real autonomy in determining course of action on the market.
o Where parent company has 100% shareholding in a subsidiary, there is a rebuttable presumption of decisive influence over subsidiary's conduct (AKZO
Parent company must show that its subsidiary acts independently on the market to avoid liability.
NOTE: Analytically in an Article 102 TFEU PQ, it makes sense to deal with the issue of whether there is an undertaking first - without an undertaking, there cannot be an abuse of dominant position, and thus even questions of jurisdiction and market definition wouldn't arise.
1.2 - Dominant position?
Dominance is about market power - we care about market power once U 'has the ability to act independently of normal competitive pressures to an appreciable extent' (United Brands
). This means that market definition is very important.
Where U's market share exceeds 50%, there is a rebuttable presumption of U holding a dominant position (AKZO  - although also see Hoffmann-La Roche  for a qualification of that).
Commission Guidance on its enforcement priorities in applying [Article 102 TFEU] to abusive exclusionary conduct by dominant undertakings ('Article 102 TFEU Commission Guidance' = 102CG)
gives a number of factors to consider in assessing a possible dominant position:
i. Market position of DU and its competitors:
o United Brands  - market conditions:
Consumers showed preferences for UB bananas despite price differences between labelled and unlabelled bananas.
Strength and number of U's competitors a key consideration; UB's market share was several times greater than its closest competitors.
Was significant that, whatever losses UB made, customers continued to buy goods from them.
o Market share provides a useful first indication of market structure, however EC
interprets market shares in light of relevant market conditions.
AKZO  presumption of dominance if market share is 50%+.
Dominance unlikely if market share is below 40% - Virgin/BA the only case of dominant position being found with a sub-40% market share.
Hoffmann-La Roche : Very large market shares sustained for some time, save in exceptional circumstances, are evidence of dominance.
- Particularly relevant in dynamic/fast-developing markets.
NOTE: Thus, a high market share (even one engaging the AKZO
presumption) would probably not be enough if only temporary.
Expansion or entry (i.e. potential competitors):
o U can be deterred from increasing price if expansion of entry is timely, likely and sufficient.
- Sufficiently profitable for competitor or entrant, considering barriers to expansion/entry, likely reactions of DU competitors, and risks and costs of failure.
- Sufficiently swift to deter or defeat existence of substantial market power.
- Not merely small-scale entry, but of a magnitude able to deter any attempt to increase prices.
o Barriers to entry or exist may take various forms:
Legal barriers (e.g. tariffs/quotas);
Advantages, specifically enjoyed by DU (e.g. economies of scale);
- In Michelin , M had a network of commercial representatives, not matched by its competitors, giving M access to tyre users at all times.
Costs and other impediments;
DU's own conduct.(e.g.
- United Brands : UB made significant investments which entrants would have to match e.g. large capital investments required to run banana plantations.
- Michelin : M had advantages over its competitors in investment and research and a special extent of product range.
Countervailing buyer power:
o May result from customers':
Commercial significance for DU;
Ability to switch quickly to competing suppliers;
Ability to promote new entry or vertically integrate;
Ability to credibly threaten any of the above.
o Buyer power not sufficiently effective constraint if it only ensures that a particular or limited segment of customers is shielded from market power of DU.
The definition of the market has a significant impact on the conclusion of dominance - in Hugin
, H controlled most, if not all, of the production and supply of parts to be used in cash registers.
The fact that spare parts (i.e. a complementary product) was a separate market meant that H
occupied a dominant position.
Short-term profitability is not a massively key determinant - per Michelin , existence of dominant position is not disproved by temporary unprofitability or losses.
A finding of dominance matters to DU - it means that DU must worry about how it conducts itself, only the threshold of 'abuse' now separating it from violating Article 102 TFEU.
o This gives rise to internal approval procedures and investigations in markets distinct from the one in which DU was found to be dominant.
o Thus, DU tends to fight a finding of dominance.
Do not forget to consider individual national markets if a conclusion from the market definition was that it is possible for the market to be nationally segmented (e.g. if PQ sets out that X
benefits from large market share and long-term consumer contracts in Germany).
1.2.1 - Collective dominance?
Collective dominance can be established where 2+ Us are a collective entity from an economic point of view.
Their joint policies or activities subsequently enable them to behave to a considerable extent independently of competitors, customers and consumers.
Collective dominance can be found in the absence of an agreement or other links in law
(Compagnie Maritime Belge ).
o Must examine the economic links or factors giving rise to a connection between
U1 and U2.
o Mere fact that U1 and U2 are linked by an agreement, decision of associations or a concerted practice (within meaning of Article 101 TFEU) does not of itself constitute sufficient basis for finding collective dominance.
Where these agreements, concerted practice or decision of associations have been implemented, this may result in U1 and U2 being linked in the relevant way.
Airtours : Three conditions necessary for finding of collective dominance -
1. Market transparency allowing U1 to be aware of how U2, U3 etc. are behaving in order to monitor whether they are adopting the common policy.
2. Tacit coordination sustainable over time - incentive not to depart from common policy on the market.
Means that U1 must be aware that competitive action to increase market share would provoke identical action by U2, U3 etc.
- The importance of (1) and (2) emphasised in Sony  - tacit coordination can emerge if U1, U2, U3 etc. can easily arrive at a common perception as to how the coordination should work.
3. Foreseeable reaction of current and future competitors, as well as consumers, would not jeopardise results expected from common policy.
Collective dominance might be established by structural or behavioural links between undertakings
(e.g. agreements, shared directors etc.).
1.2.2 - Discussion: Should unilateral practices of a non-dominant undertaking be subject to review?
i. Competition law's general objective is consumer welfare as opposed to protecting effective competition on the market in all instances;
o ECJ has recognised certain practices as violating Article 102 TFEU despite them having no effect, direct or indirect, on competitors.
Excessive pricing impacts only the dominant undertaking's customers -
existence of excessive pricing as a prohibited practice cannot be explained by an image of EU Competition law founded on the objective of promoting effective competition in all cases.
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