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Chapter 6 Article 102 Abuse Of A Dominant Position Notes

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Article 102 - Abuse of a Dominant Position

By having a dominant position or the mere ow nership of advantages i.e. IP rights or essential facilities (w hether single firm dominance/ collective dominance) is not unlaw ful.

It is the abuse of a dominant position that results in an infringement of Article 102 and the range is likely to expand and develop in future ( due to the evolving nature of EU law in this area)

Article 102 sets out a non-exhaustive list of examples of abuse:

Abuse

Type of Abuse

Description

(A) Pricing and discounting

Excessive pricing

unfairly high charging prices

Predatory pricing

Unfairly low setting prices w ith the intention of eliminating a competitor

Discriminatory pricing

Charging different prices to similarly placed customers / the same prices to differently placed customers

Fidelity pricing (/
discounting)

Making the prices of goods/ services / the availability of discounts, dependent on retaining all or part of a customer's business

Refusal to supply

Refusing to supply goods / services (or refusing to supply them except on clearly unacceptable terms)

Refusal to supply (essential facilities)

Refusing to allow competitors access to an essential facility (or refusing to allow them access except on discriminatory terms)

Tying

Making the purchase of one product w hich the buyer w ants conditional on the purchase of another unconnected product

(B) Refusals to supply

(C) Tying

General considerations

General points considering w hether there is an abuse under Article 102:

M ichelin v Commission - ECJ: concept of abusive behaviour is "[Article 102] covers practices which are likely to affect the structure of a market where, as a direct result of the presence of the undertakings in question, competition has already been weakened and which, through recourse to methods different from those governing normal competition in products or services based on traders' performance, have the effect of hindering the maintenance or development of the level of competition still existing on the market"

The concept of abuse is objective and conduct may be abusive even in the absence of any intent to exploit customers /exclude competitors. But Commission claims to adopt a more effects-based approach in applying Article 102.

Continental Can Inc v Commission - ECJ: It w as abusive of Continental Can's dominant position to extend that position by acquiring a competitor, despite the absence of any evidence that Continental Can intended to engage in abusive conduct after making the acquisition. There is no need for a causal link betw een the dominant position and the abuse. Continental Can did not use its dominant position to effect the acquisition w hich w as examined in that case. Tetra Pak II- There is no need for a causal link betw een the dominant position and the abuse. The dominance and abuse w ere in different markets AKZO v Commission- evidence of an abusive intent may be evidence of abuse. ECJ held that selling at below average total cost w ith the intent of eliminating a competitor to be abusive predatory pricing.

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Industries v Commission & Case Irish Sugar - the Commission imposed severe fines in respect of pricing practices designed to maintain the very high (over 50%) market shares of UK and Irish home producers in the face of imports from elsew here in the EU. Volvo v Veng- a dominant co is not obliged to sit back helplessly w hile competitors erode its position. It may innovate w ithout necessarily being obliged to license its resulting IP rights to competitors. It may also reduce its prices to meet competitive attack but it w ill need to take extreme care not to engage in predatory pricing/ price discrimination. For a dominant co, draw ing the line betw een legitimate competitive conduct and conduct abusive under Article 102 can be extremely difficult.

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(A) PRICING AND DISCOUNTING

Many Article 102 cases have concerned pricing. These potential abuses are as follow s:

Excessive pricing

Predatory pricing

Although this is a clear abuse of Article 102 (Article 102(a) specifically mentions "imposing unfair...selling prices" is an abuse), there have been surprisingly few decided cases concerning excessive pricing. Recent examples have included investigations in several member states for mobile telephone calls and the Waste recovery case. Purpose is to undercut a rival (i.e. a new entrant to the market). In the short term, the dominant co may suffer reduced profit/ incur losses but in long run, its purpose is to eliminate the rival. Wanadoo- Commission relied on internal documents to show the intent to eliminate competition. Once that has been achieved, the dominant firm can raise prices again. Commission introduced a concept of "sacrifice" (deliberately incurring losses/ foregoing profits in the short term) so as to foreclose rivals w ith a view to strengthening / maintaining its market pow er.

Discrim inatory prices

Article 102 clarifies only pricing below long run average incremental cost is capable of anti-competitive foreclosure of an as-efficient competitor and if other factors are present that may reduce the likelihood that rivals w ill compete (eg, if the dominant co is better informed about costs or other market conditions or can distort market signals about profitability, it may predate so as to influence the expectations of potential entrants and, thereby, deter entry).

Commission only needs to show that the dominant co is likely to "benefit" in some w ay w hen the predatory pricing ends; no need to show that competitors have exited the market / the dominant co is likely to recoup profits lost as a result of the predatory pricing strategy.

This is charging different prices to similarly placed customers/ charging the same prices to differently placed customers.

United Brands- it w as held an abuse to charge "w hat the market w ould bear" w ith the result that prices in some parts of the EU w ere very much higher than in others. A firm w hich is dominant (or becomes dominant through organic grow th or through acquisition) should review its prices regularly as part of a competition law compliance programme.

This involves making the prices of goods / services/ the availability of discounts, dependent on retaining all or part of a customer's business, so discouraging him from placing business w ith a competitor. It has been held to be abusive.

Intel v Commission - Commission imposed a record fine of EUR1.06 billion on Intel for such illegal abusive conduct, intended to exclude competitors from the market for x86 central processing units (CPUs). Specifically Intel granted loyalty or fidelity rebates to computer manufacturers on condition that they bought all, or almost all, of their requirements for x86 CPUs from Intel. It also made payments to a major retailer on condition that they stock only computers w ith Intel x86 CPUs. In addition, Intel made direct payments to computer manufacturers to halt or delay the launc h of certain products containing competitors' x86 CPUs and to limit the sales channels available to these products. Intel lodged an appeal against the Commission's decision.

General Court upheld Commission's decision. This case is pending appeal to the ECJ. In 2016, the Advocate General considered that the General Court had erred in finding that exclusivity rebates w ere in a category that w ere per se abusive, and that only a presumption of unlaw fulness applied.

Difficulty is to w hat extent a dominant firm can reduce its prices in response to a new entrant to the market, especially if the new entrant targets only some customers of dominant firm.

Crosssubsidisation.

This is the subsidising of prices in activities w hich are subject to competition, w ith excessive profits from activities w hich are not subject to competition - Deutsche Post case.

Exclusive dealing obligations.

These are obligations to purchase exclusively from a dominant co & are most likely to result in anticompetitive foreclosure:

Fidelity pricing (or discounting)

(i) (ii)

w here the dominant co is an unavoidable trading partner; or w here they are of such long duration that customers face difficulties in sw itching supplier.

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