COMPETITION LAW – ARTICLE 102: ABUSE OF A DOMINANT

POSITION
Dominance in itself isn’t prohibited, just the abuse of a dominant position. May include:

 Using a dominant position to weaken or drive out small competitors

 Preventing potential competitors from entering the market
 Using position to exploit customers

Remember Regulation 1/2003 empowered National Competition Authorities and national courts to
deal with anti-competitive behaviour.

1. ARTICLE 102 TFEU

See Statue book but basically abuse which effects trade between MS is banned, examples:

a) Unfair purchase or selling prices

b) Limiting production and development to the detriment of consumers
c) Treating companies differently from one another
d) Unfairly manipulating the conclusion of contracts

WE NEED TO ESTALBISH THE FOLLOWING FOR AN INFRINGEMENT TO BE FOUND:

 A dominant position in a market (need to determine the relevant market first)

 The conduct is an abuse
 The abuse may effect trade between Member States

2. WHAT IS A RELEVANT MARKET

 Product market, geographical market, relevant time frame
 From these it can determine economic constraints
 Defined in Notice on the Definition of Relevant Market for the Purposes of Community
Competition Law
 Analyse RPM (relevant product market) RGM (geographic) and maybe RTM (temporal)

3. THE RELEVANT PRODUCT MARKET

 RPM consists of the products and services which are in competition
 Definition of the RPM is often highly contentious as could determine if dominant position

HILTI v COMMISSION

 Nail guns were their own market (according to the Commission and the Court) and not a
part of a wider market of industrial fasteners (as Hilti wanted it to be)

3.1. Interchangeability of Products

 Basically just look at supply and demand
 Demand looks at from consumer side (demand substitutability)
 Supply looks at from manufacturer side (supply substitutability)
 E.g. substituting a Mars Bar for a Snickers
 3.2. Demand Substitutability
 If the consumer will readily switch from one product to another, they will both from part of
the same market (product characteristics, price, intended use)

UNITED BRANDS v COMMISSION

Facts:

 United Brands had small share of overall fruit market but 45% share of banana market
 Are bananas their own market or part of wider fruit market?
 Did bananas have any features which prevented it from being interchanged with other fruit?
 Bananas were available year round
 They are soft, seedless, easy to handle which makes them good for the young and old
 Bananas therefore in constant demand and sales unaffected by seasonal fluctuations
 Bananas were found to be their own market

Principle: Look at any features which might prevent interchangeability

Cross Elasticity of Demand and SSNIP test

 How much does demand for one product change in response to a change in price of another
 If demand rise in line with increasing price of another, high cross-elasticity
 SSNIP test – Small but Significant (5-10%) Non-transitory Increase in Price
 If so many consumers switch products upon a price rise that the rise becomes unprofitable,
there will be high cross-elasticity and the products will be interchangeable

3.3. Supply Substitutability

 How easy is it for rival manufacturers to switch production so to produce competing goods
 If it’s easy, unlikely that a dominant position will be found

EUROEMBALLAGE CORN AND CONTINENTAL CAN

 Continental Can acquired a company which gave it a dominant position in three markets for
light containers of fish, meat and glass
 The nature of the acquisition was deemed to be an abuse of a dominant position
 Court held that the three markets were basically the same market
 Court held also that the Commission hadn’t proved other manufacturers weren’t in a
position to alter production so as to compete and act as a counterweight

MICHELIN v COMMISSION

 Michelin argued heavy and light tyres were part of one overall tyre market
 Court disagreed, no demand substitution – average consumer doesn’t want a lorry tyre
 Also no elasticity of supply since production plant would need considerable investment so as
to switch product from light tyre to heavy tyre
 Michelin abused this position by offering uncertain financial rewards which put pressure on
dealers and prevented them from choosing more favourable options from other suppliers

MICROSOFT

 Three markets
  Establish the market: PC Operating System, Work Server OS, Streaming Media Player were
their own markets
 Low supply substitutability due to considerable amount of investment needed for research
and development and commercial risk
 Dominant position: Microsoft were held to have a dominant position in each of the markets
 Abuse: Microsoft had abused its position in the Operating System market by including
Windows Media Player with the OS, this induced users to rely on their media player
 Abuse: Abused Work Server OS by refusing to provide another software provider with the
info they needed to integrate into Windows networks
 497 million euro fine!

The Commission only needs to prove either demand or supply substitutability to find that products
fall within the same market

3.4. Aftermarkets
 When determining RPM, need to consider whether complementary products (e.g. ink
cartridges) form part of the main market (primary) or are an aftermarket (secondary)
 An undertaking which isn’t dominant in the primary market may be dominant in the
aftermarket
 E.g. in HILTI, Hilti-compatible nails and cartridges were needed to fire the nails

HUGIN KASSAREGISTER v COMMISSION

 Separate market for spare parts for Hugin’s cash registers

 Hugin refused to supply spare parts to firms which hired out and maintained its registers
 This was an abuse of dominance in a secondary market

4. RELEVANT GEOGRAPHIC MARKET (RGM)

 The relevant market must be within ‘the common market or a substantial part of it’
 Where the product is marketed and where competition is homogenous enough to draw
conclusions
 In UNITED BRANDS, the RGM was six MS because the conditions of competition were
effectively the same for all traders there (France, Italy and UK were excluded because they
had special arrangements for overseas banana trade)
 This can result in a single MS forming the RGM – MICHELIN (Holland was the RGM)

ALSATEL v NOVASAM

 Alsatel’s operations were mainly in the Alsace-Lorraine region of France

 Novasam argued that the region was therefore the RGM (in which Alsatel would have had a
dominant position in the telephone installations market)
 But Alsatel’s authorisations extended to all of France. France was therefore the RGM.

Principle: A region of a country unlikely to be classed as a RGM.

B&I LINE v SEALINKS HARBOURS AND SEALINK STENA

 A ‘substantial part’ of the EU can relate to areas which have a high volume of trade, e.g. sea
ports, airports
  Sealink ran the busy port of Holyhead in North Wales and changed the shipping schedule to
favour its own interests
 B&I’s docking of its ferries was adversely affected
 Sealink had abused their dominant position

Customer behaviour is also important in determining RGM

MICHELIN

 The market was found to be the Netherlands

 One of the reasons was because dealers established in Holland obtained their supplies only
from suppliers operating in the Netherlands

NESTLE/PERRIER

 RGM for mineral water was found to be France

 Because French consumers mainly bought French products, despite integration of European
market

Impact of transport costs and restrictions

 Heavy products with low value might be expensive to transport around

 A products which is small and light might be easier to transport
 In UNITED BRANDS, transport costs didn’t preclude six MS being considered a single market
 In HILTI, the market was the entire EU as nothing to stop nail guns being transported around

5. RELEVANT TEMPORAL MARKET

 Treated as part of the RPM and RGM

BP v COMMISION (ABG Oil)

 OPEC oil crisis, Arab states put an embargo on the Netherlands which caused an oil shortage
 This transformed the market in petrol in a particular month
 BP was later accused of abusing its dominance by cutting supplied to ABG more sharply than
it had to other customers
 Commission held that time was a factor (although BP got off with it)

6. ESTABLISHING DOMINANCE
 Establish RPM, RGM and RTM then establish dominance
 What is dominance? Defined in UNITED BRANDS:

“A position of economic strength which enables it to behave … independently of competitors and

customers”

6.1. Collective dominance

 Most cases deal with individual dominance, can also have collective
 Such undertakings can be part of the same business entity or corporate group
 In exceptional circumstances they can be independent of one another
 SOCIETA ITALIANA VETRO v COMMISSION (Italian Flat Glass) is the key case
 Just need strong economic links and perhaps other stuff where undertakings had been
presented as one single entity
 6.2. Factors for establishing dominance
 Market share
- 50% or over is evidence in itself of a dominant position (AKZO CHEMIE)
- TETRA PAK RAUSING v COMMISSION (91.8%)
- INTEL CORPORTATION (70%)
- UNITED BRANDS only had 40-45% but the market was fragmented, its nearest
competitor only had 9% so it was still found to have a dominant position
 Intellectual property rights
- Protective effect of IP rights
- HUGIN: Design for its cash registers was patented so was the only company which could
supply spare parts
- TETRA PAK: Exclusive patent license over design of relevant cartons made entering
market difficult
- MICROSOFT: one of the penalties was to break its IP protection to allow competition
 Superior technology
- Superior tech can have insulating effect from market forces
- HOFFMAN-LA ROCHE v COMMISSION (vitamins) and MICHELIN both had better
technology which provided evidence of a dominant position
 Wealth of capital as a barrier to entry
- e.g. cut prices to drive out smaller competition is predatory pricing
- AKZO CHEMIE: Akzo produced chemical for flour and plastics industries. One of its flour
competitors was making the move to plastics so Akzo cut the cost of the flour chemical
to below the average variable cost to drive them out. Predatory pricing; prohibited.
- Distinguish predatory pricing from efficiency driven reductions in price (easy to spot)
 Vertical integration
- i.e. controlling the end to end process of manufacture to sale
- Makes it difficult for rivals to enter the market
- UNITED BRANDS controlled the whole chain so could distribute its bananas across the
world and into the hands of its European distributors quickly
 Sophisticated distribution and sales network
- Variation of vertical integration
- HOFFMAN LA ROCHE: an innocuous clause in a contract enabled Hoffman to always be
able to match their distributors’ deals with other suppliers
- This effectively closed the market to other suppliers, Hoffman would always be able to
match the lower prices offered by other suppliers (evidence of dominance)
 Brand identification
- Consumers associating a brand name with a product
- Become unwilling to try other products
- UNITED BRANDS: consumers associated with bananas with their Chiquita trademark

7. ABUSIVE BEHAVIOUR
 Dominance in itself isn’t prohibited, abusing the position is
 Article 102 details unfair pricing, limiting production, contractual discrimination and
imposing supplementary obligations but anything which is an abuse will be banned
 Abusive behaviour can seek to reduce competition or create unfair competition or both

INTEL CORPORATION
  Intel gave rebates to its computer manufactures in return for them buying all or nearly all of
their chips from Intel instead of their rival AMD
 They also paid stores on the condition that they only stocked Intel devices
 AMD offered the stores one million of its chips for free but the store refused because it
would lose the Intel money, which was greater than the value of the million chips
 The conduct resulted in a reduction in choice to consumers
 Intel had a 70% share in the market so rebates which are conditional on buying less of a
rival’s product or none at all will be abusive unless justified otherwise (they weren’t)
 Intel were fined over a billion euros

Examples of abuse:

 Refusal to supply
- COMMERCIAL SOLVENTS v COMMISSION: Refusal to supply a competitor with a
material necessary for the manufacture of an end product was found to be an abuse
- Needs to be objectively justified, e.g. supplying a company which isn’t creditworthy
- UNITED BRANDS told their distributors they couldn’t sell their bananas to other
companies until they had a very short shelf life (Green Bananas clause)
- i.e. refusal to supply a company because they sell your rivals products is banned
 Essential facility doctrine
- B&I LINE v SEALINK HARBOURS AND SEALINK STENA
- Sealink controlled a harbour and itself operated out of the harbour, it applied unfair pr
actises which discriminated against its competitors docking at peak times
- Need to grant access to competitors on the same terms of own services
 Predatory pricing
- Charging excessively low prices to drive rivals out of the market
- TETRA PAK and AKZO
- When price is pushed below cost price or where intention is to remove competition
 Excessive prices
- Charging a price which has no relation to the economic value of the product
- BRITISH LEYLAND v COMMISSION
- The price of the left hand drive metro in continental Europe was less than RHD in UK
- Market for re-imported LHD metros was established
- BL increased price of a conformity certificate from £25 to £150 for LHD cars
- RHD cars remained at £25; increase placed on LHD cars was excessive
 Discounts and rebates
- Not banned itself, only if it has the effect of stopping competitors from entering market
- HOFFMAN LA ROCHE gave fidelity (loyalty) rebates in return for sole supply
- Fidelity rebate designed to prevent customers from obtaining their supplies from
competing producers (unlike quantity rebates which linked to volume of purchases)
 Tie-in agreements
- HILTI and MICROSOFT both found to have infringed Article 102 for doing this
- MICROSOFT established four criteria necessary for “bundling” to be an abuse:
i) Tying (printer) and tied (ink) goods must not be within the same product market
ii) Undertaking must be dominant in the tying (printer) product market
iii) Customers get no choice to accept the tied product with the tying product
iv) The tying closes out competition
- MICROSOFT’s tying of their media player fulfilled the above criteria
  Unfair terms
- Remember the undertaking needs to be in a dominant position
- BRT v SABAM
- SABAM was a monopolistic association of authors, composes etc. which administered,
managed and commercially exploited the rights of its members
- Its contracts required members to sign over all rights without categorisation of the
different types of right for a period of five years after they left the association
- Held that SABAM had abused its dominant position by imposing unfair conditions
- Objective of SABAM was to protect its members from broadcasters and record
companies but its measures were disproportionate in doing so
- In particular, no need to hold their rights for so long and not categorise

8. MAY AFFECT INTER-STATE TRADE

 Final requirement under Article 102
 BRITISH LEYLAND: Just need to establish an abuse may effect trade
 British Leyland was held to have acted in a way that was liable to affect trade between
Member States
 HUGIN:
- The UK Company servicing cash registers only operated in a small area around its
commercial base
- Hugin was based in Sweden which wasn’t a member of the EEC at the time
- The company would be unlikely to contact the subsidiary of another MS to obtain a
spare part so there would be no impact on trade between MS

9. FINES AND DAMAGES

 Fines come under Regulation 1/2003 like in the previous chapter on breaching Article 101

Infringement

 10% of previous business year’s revenue; 5% fine per day of last year’s average daily revenue
until abuse is put to an end

Failure to Cooperate

 1% of turnover

Damages

 Dispensable by national courts

 SMEs with less than 5% market share are exempt when the damage would jeopardise their
economic viability (but still liable to reimburse purchasers)
 Cooperating can help to get better relief but again one is still liable to reimburse purchasers