EU Competition

Dominance

Defined by the ECJ is a position of economic strength, sometimes referred to as ‘market power’, which allows an undertaking to prevent effective competition in the relevant market. It can do this because its economic strength allows it to behave independently of both its customers and its competitors – this is the true test of dominance.

• RPM
• The ECJ decided that bananas were sufficiently distinct from other fresh fruits so as to form a separate market.

The ECJ considered a number of factors, including the prices and physical characteristics of bananas. It suggested that banana prices were largely unaffected by the prices of other fruits.

The Court also concluded that its combination of physical characteristics (eg, appearance, taste, softness and seedlessness) were sufficiently unique that consumers did not think that they were interchangeable with other fruits such as apples, oranges, grapes, etc. In coming to this conclusion, the ECJ rejected the defendant’s assertions that bananas ‘compete with other fresh fruits in the same shops, on the same shelves, at prices which can be compared, satisfying the same needs: consumption as a dessert or between meals’.

RGM

It indicated that the relevant geographic market is the area of the common market (now internal market) where conditions of competition are homogeneous, ie the conditions of competition are the same for everyone operating within that market.

As with product market definition, a variety of factors may be taken into consideration in determining the precise geographic boundary of the market. For instance:

1. Transportation costs – What are transportation costs over specified distances, and how do those costs compare with the overall price of the product? If the costs of transportation are high, producers in a distant geographic area may not be able to compete effectively because of the high price of their products.

2. Product characteristics – Is a particular product capable of being transported? In some cases, the fragility or perishability of a product may prevent shipment over significant distances.

3. Shipment patterns – Where are the relevant products currently being sold? Significant shipments of the relevant product from one area into the area under consideration will generally suggest that the second area is in the relevant market.

4. Locations of plants – Where are manufacturing facilities located? If producers make identical products at a wide range of factories, this may suggest relatively small geographic markets: producers would otherwise be expected to capture the economies of scale available in producing in a single central plant and transporting the product to customers.

Market share

An undertaking here with a 40–45% share of the market was found to have a dominant position where there was evidence of a strong position in the market to the extent that it was difficult for anyone else to enter. The nearest competitors held market shares of 16% and 10%.

Length of time was also held to be significant in decided that United Brands had a dominant position.

Abuse

1. It refused to supply bananas to a particular distributor in retaliation for that distributor helping to promote a rival brand (abuse)

- The ECJ ruled that a dominant undertaking ‘cannot stop supplying a long-standing customer who abides by regular commercial practice if the orders placed by that customer are in no way out of the ordinary’. Although dominant firms are entitled to protect their commercial interests, United Brands had acted abusively; its conduct would deter its other customers from dealing in competitors’ bananas and so would entrench its dominance.

2. It imposed different selling prices for different Member States. (abuse)

3. It charged unfair prices, ie prices which were too high in relation to the economic value of the bananas. (not proven by Commission, annulled by ECJ)

Article 102; dominance; RPM

The issue was whether the product market was cash registers in general or spare parts for Hugin cash registers.

Hugin was a Swedish manufacturer of cash registers. Liptons was a company based in London which serviced cash registers, including Hugin’s. Hugin decided it wanted to start servicing its own machines, and so stopped supplying Liptons with spare parts for its own machines.

Consequently, Liptons could no longer service Hugin registers. The ECJ ruled that the product market was spare parts for Hugin cash registers; a fi rm servicing Hugin cash registers could not use spare parts made by anyone else because only Hugin spare parts could be used in Hugin registers.

Article 102; dominance; market share; discount/ rebate policies

The ECJ has stated that ‘very large market shares are in themselves, and save in exceptional circumstances, evidence of the existence of a dominant position’

Abusive discount

Suppliers may try to establish a rebate policy so that customers are effectively forced (through financial incentive) to purchase greater and greater amounts of goods or services from that supplier to the detriment of other would-be suppliers; for example, a supplier offers a 30% discount if a buyer buys 90% of its needs for a product from that supplier. Such activity by a dominant supplier may amount to an abuse of that dominant position under Article 102 TFEU.

It is of course normal commercial practice to allow discounts in return for larger volume orders; however, this is only acceptable if the discounts are linked purely to volume. If they are linked to a proportion of the buyer’s needs for a particular product, then they will be abusive.

Article 102; dominance; market share; abuse

The ECJ stated that there is a presumption of dominance where the market share is 50% or more.

Also abuse was found in the form of excessively low 'predatory' pricing and it was their 'avowed intention to eliminate a competitor' (ie not just normal pricing)

Article 102 TFEU; dominance; market share

The Commission found that three Italian companies which produced flat glass jointly enjoyed a degree of independence from competitive pressures such that they were able to impede effective competition.

Although the Commission’s decision was overturned on appeal (on other grounds), the CFI (now the General Court) confirmed that ‘[t]here is nothing, in principle, to prevent two or more economic entities from being, on a specific market, united by such economic links that, by virtue of that fact, together they hold a dominant position vis-à- vis the other operators on the same market’

Article 102; dominance; market share

Article 102 TFEU requires that an undertaking must be dominant ‘within the internal market or in a substantial part of it’ .

This may in geographical terms be very small.

Here the Commission decided the port of Holyhead was a substantial part of the internal market due to its economic significance; it was a major gateway between Great Britain and the Republic of Ireland.

Article 102; abuse

What constitutes abuse under Art. 102 may not be an abuse for an undertaking with a small market share.

The ECJ stated that a firm in a dominant position ‘has a special responsibility not to allow its conduct to impair undistorted competition on the common [now internal] market’.

Article 102; abuse; tying- 102(d)

Hilti made nail cartridges, a market in which it was dominant. It forced buyers of its nail cartridges to buy its own nails, even though nails made by its competitors were compatible with its nail cartridges. Hilti’s defence – that the tie was objectively justifi able for reasons of safety and reliability – was dismissed by the ECJ

Article 102; effect on trade

The ECJ held that it would be satisfied wherever conduct under examination brought about an alteration in the structure of competition in the common (now internal) market.

Article 101 TFEU; 'agreement'

An agreement may be informal for the purposes of Art. 101.

Article 101 TFEU; vertical agreements; object and effect a restriction on competition

Confirmed that Article 101 TFEU applies to vertical as well as horizontal agreements.

Grundig had promised not to sell its goods to third parties if they intended to sell into France. Grundig had then reinforced this by banning all its distributors and its German wholesalers from exporting Grundig products. This is known as an export ban.

The ECJ upheld the Commission’s decision – there had been a breach of Article 85(1) (now Article 101(1)). The agreement (which according to the ECJ resulted ‘in the isolation of the French market ... for Grundig products ...’) granted Consten absolute territorial protection. A French retailer wanting to stock Grundig products could acquire them only from Consten. Consten was the only distributor of Grundig’s products in France; Grundig had agreed not to sell direct to French retailers; and it had imposed an export ban on its distributors in other Member States.

The agreement precluded all possibility of parallel imports. (Parallel imports result from trade in products which take place outside a fi rm’s offi cial distribution system. For example, a parallel importer based in a Member State where a particular product is expensive may import the product from a low-cost Member State instead of paying the higher local prices.) A fundamental aim of EU Competition Law is to ensure that there is always the possibility of parallel imports.

In this case Consten was the only business in France that was able to import Grundig products; on the other hand it was banned from selling Grundig products in any other Member State. Thus the agreement clearly affected patterns of trade in the internal market.

Object or effect

 Consten and Grundig makes it clear that an agreement which confers absolute territorial protection and partitions the EU market by preventing parallel trade has by its very nature the object of restricting competition.  Finding an effect is, therefore, unnecessary

Article 101 TFEU; agreement between associations of undertakings

The ECJ held that regulatory rules promulgated by professional bodies potentially came within the scope of Article 101(1) TFEU.

Article 101 TFEU; concerted practice & parallel conduct

The ECJ defines 'concerted practice' as a form of co-ordination between businesses which falls short even of an informal agreement, but which ‘knowingly substitutes practical co- operation between them for the risks of competition’.

Parallel conduct in itself is not concerted practice, but it may well be strong evidence of one.

Parallel conduct will be evidence of a concerted practice if, having regard to the specific features of the market concerned, it can be concluded that the conditions of competition, including the prices charged, are different from that which would normally be expected in that type of market.

If the market is a true oligopoly, that is, a market where the bulk of the market is in the hand of just a few businesses, that market may well be very transparent. This means that the businesses operating on the market may quite legitimately know a lot about each other’s terms and conditions, including their pricing strategies. If this is the case, price competition will play a very limited role on the market.

The ECJ found that the dyestuffs market was not an oligopoly and therefore concluded that the spontaneous nature of the parallel conduct in respect of prices could only be explained by the existence of a concerted practice.

Article 101 TFEU; concerted practice & parallel conduct

The ECJ concluded that the woodpulp market was an oligopoly and, as such, the co-ordinated pricing strategy could be explained by factors other than the existence of a concerted practice.

Article 101 TFEU; effect is restriction on competition

Areements must be judged in their economic context, which involves looking at the market in which the agreement will operate and at the power and role of the parties to the agreement in that market.

The following factors are listed in the judgment:

(a) the nature and quantity, limited or otherwise, of the products concerned;

(b) the position and size of the parties on the market for the products concerned;

(c) the isolated nature of the agreement or its position in a series (this factor was also taken into account in  Brasserie de Haecht v Wilkin). A network of similar agreements is more likely to distort competition than an isolated agreement);

(d) the severity of the clauses; and

(e) the opportunities allowed for other commercial competitors in the same products by way of parallel re-exportation and importation.

Applying these factors, the ECJ held that the distribution agreement between MU and STM did not have anti-competitive effect. The parties did not have high market shares, the agreement was not part of a network, nor did it preclude the possibility of parallel imports.

Article 102 TFEU; object or effect a restriction on competition

If the terms of the agreement themselves are deemed to have an anti-competitive object, then the agreement will be caught. If they are not, then the effects of the agreement will be considered.

Here, a price-fixing cartel was judged to be in breach of Article 101 TFEU although there was little evidence of any anti-competitive effect.

Article 101 TFEU; effect on trade between MSs

Where the relevant product or service affected is easily traded across borders, it is likely to affect trade between Member States.

Dairy producers in The Netherlands agreed to buy their raw materials for cheese-making from each other. This meant that non-Dutch producers could not enter the Dutch market for cheese-making products

Article 101 TFEU; sanctions

It may be possible to ask a particular national court if it is prepared to sever any offending clauses, leaving the rest of the agreement intact. Whether or not this is possible will depend on the laws of the national court in which the agreement is being challenged.

Under English law, such clauses can be severed if the remaining agreement still reflects accurately the agreement originally reached by the parties

If an agreement is covered by the Notice:

(a) the Commission will not take proceedings against the parties to the agreement;

(b) the Commission will not impose fines;

(c) national courts and national competition authorities are invited to apply the Notice when enforcing Article 101 TFEU.

• Thresholds
• The relevant thresholds are as follows:

(a) For agreements between competitors (usually horizontal), the Notice will protect agreements if the aggregate market share held by the parties to the agreement does not exceed 10% on any of the relevant markets affected by the agreement.

(b) For agreements between non-competitors (usually vertical), the Notice will protect agreements if the market share held by each of the parties to the agreement does not exceed 15% on any of the relevant markets affected by the agreement where the agreement is made.

The threshold for networks of agreements is set at just 5%, whoever is party to the agreements.

• Hardcore restrictions (para 11)
• Inclusion of any of the listed terms shall mean that the Notice will not protect the agreement – no matter how small the parties to the agreement. These terms are known as ‘hardcore restrictions’.

It provides that there will be no appreciable effect on trade where the market share and the turnover of the undertakings involved are low.

• Thresholds
• The thresholds set out in the Notice are as follows: for both horizontal and vertical agreements, the aggregate market share of the parties on any relevant market affected by the agreement should not exceed 5%.

In addition, for horizontal agreements, the aggregate turnover of the parties should not exceed €40 million.

For a vertical agreement, the turnover of the supplier should not exceed €40 million.

Moreover, the NAAT Notice may apply even if the agreement in question contains hard-core restrictions; however, national competition authorities are then likely to take action under national competition laws.

- Article 2(1) of the Regulation exempts vertical agreements from Article 101(1) TFEU.

• - Article 1(1)(a) defines a vertical agreement as:
• ■ an agreement or concerted practice
• ■ between two or more undertakings
• ■ each operating, for the purposes of the agreement, at a  different level of the production or supply chain
• ■ relating to the purchase and/or sale and/or resale of goods  and/or services.

One of the main types of vertical agreements is distribution agreements (as in C & G) 

-Article 3(1) provides that the market shares of the parties to the agreement in their respective relevant markets must not exceed 30%.

- Article 4(b) prohibits restrictions on the territory into which the buyer (ie distributor) may sell the goods in question. If a term merely banned active sales into territories allocated to another distributor or reserved to the supplier, then it would be allowed under the first exception to Article 4(b).

However, as if it bans passive sales as well as active, it goes too far. A general ban on active sales will also not be outlawed under this Regulation.

Article 4(a) prohibits price-fixing.

National courts

Can be sued for damages or seek an injunction since Articles 101 & 102 TFEU have direct effect

Investigation Under

Regulation 1/2003 the give Commission following powers:

- Power to launch an investigation (Art. 17)

- Request for information (Art. 18) - fine if incorrect

- Interview any person who may have useful infor (Art. 19)

Dawn raids

- Can carry out ‘dawn raid’ and demand computers records, anything (Art. 20)

- Can enlist help of national competition authorities (Art. 20)

- If reasonable suspicion can inspect other premises, vehicles including homes of Directors etc. (Art 21)

Fines

• -10% of global turnover (Art. 23)
• - As high as 1billion EUROs for Intel for Article 102 TFEU
• - 900million for Saint Gobain for breach of Article 101 TFEU

Leniency Notice

For cartels, the first whistleblower can receive immunity from fines provided the undertaking did not coerce other undertakings to join the cartel and co-operates fully with the Commission’s investigations.

- In Hoffman La Roche, main whistleblower (Aventis) were granted full immunity but     HLR had to pay over 400million EUROs.

Reductions in fines also possible for other cartel members that who provide evidence of ‘significant value’

'Object' are agreements which ‘by their very nature are injurious to the proper functioning of normal competition