Market abuse: Commission announces Guidelines and changes enforcement priorities
On 27 March 2023 the European Commission ("EC") has launched a package of two initiatives dealing with the enforcement of the prohibition of abuses of a dominant position under Art 102 TFEU: (i) a Call for Evidence by 24 April 2023 launching the process of establishing Guidelines on exclusionary abuses of dominant position announced for 2025 ("Guidelines"), and (ii) a Communication and Annex amending the Guidance on enforcement priorities from 2008 ("Amending Guidance").
Art 102 TFEU prohibits the abuse of a dominant position which may affect trade within the EU and prevent or restrict competition.
So far, there have been no guidelines on the application of Art 102 TFEU. Only Guidance on enforcement priorities in the application of Art 102 TFEU (Art 82 EC Treaty) were available as means for interpretation (from the EC's point of view). Now the process of summarizing the European case law and EC’s experience into guidelines has been launched. Guidelines are not legally binding, but are "soft law" opinions of the EC, which the EC publishes in order to ensure uniform application of the law in areas of exclusive EU competence.
Pending the adoption of the final version of the Guidelines, the Amending Guidance supplements explanations on enforcement priorities. In these, the EC explains its methodology for selecting which cases it intends to pursue as a matter of priority under Art 102 TFEU. The aim of these explanations is to provide greater clarity and predictability as to the circumstances in which the EC will pursue cases of exclusionary conduct cases. The following is a description of the relevant changes introduced by the Amending Guidance published on 27 March 2023.B
B. Essential innovations of the Amending Guidance
1. Market foreclosure
The Amending Guidance clarifies and extends the concept of anti-competitive foreclosure described in para 19. It now covers not only situations in which the conduct of the dominant undertaking may lead to full exclusion or marginalisation of competition but also cases where the competition may be weakened, thereby affecting the competitive structure of the market to the advantage of the dominant undertaking and to the detriment of consumers.
The second major innovation is that the EC has clarified that the profitability of a dominant undertaking's conduct will not to be used as a criterion in the EC's enforcement priorities. In the light of the EC's previous enforcement practice and the case law of the Union Courts, priority will be given not only to cases where the dominant undertaking profitably maintains excessive prices or profitably influences other parameters of competition such as production, innovation, variety or quality of goods or services, but also to cases where the dominant undertaking manipulates the various parameters of competition in its favour and to the detriment of consumers.
The As Efficient Competitor Test ("AEC-Test") is intended to serve as one of several possible methods for determining the existence of a restrictive effect, as is evident from the decision-making practice of the Union Courts. The application of the AEC-Test is optional and may be inappropriate depending on the nature of the conduct concerned or the relevant market conditions. Therefore, a generalised application of the AEC-Test to prioritise price-based exclusionary conduct is not justified.
In particular, in markets characterised by strong network effects and high barriers to entry (eg multi-sided platforms), the EC would also like to examine conduct by dominant undertakings that is likely to harm competitors that are not yet as efficient as the dominant undertaking. Thus, conduct by dominant undertakings that does not harm "as-efficient competitors" (but others) will also be considered as an enforcement priority. Indeed, under certain circumstances, effective competition may also come from companies that are (for the time being) less efficient than a dominant undertaking in terms of their cost structure. This amendment is particularly relevant in digital markets, where (for the moment) less efficient competitors can nevertheless exert competitive pressure on the currently dominant undertaking, and should be protected from exclusionary abuses in the process.
3. Constructive refusal to supply
The Amending Guidance now distinguishes more clearly between a complete refusal to supply (simply not supplying) and cases where a dominant undertaking imposes unfair conditions on access to a particular input or resource (so-called "constructive refusal to supply"). The Commission has now decided – in the light of Slovak Telekom v European Commission (C-165/19) - that in the case of constructive refusals to supply, the indispensability criterion established in Bronner (C-7/07), i.e. the indispensability of the refused services/products or infrastructure) does not need to be examined. However, the implementation in the Amending Guidance is questionable, as exclusively all previous explanations on constructive refusals to supply are deleted and the latter are now no longer mentioned in the entire document.
4. Margin squeeze
The Amending Guidance adds a section on margin squeeze, clarifying that this behaviour is not a form of refusal to supply, but an abuse in its own right, as already established in 2011 in the TeliaSonera Sverige case (C-52/09). A margin squeeze can occur in situations where a dominant undertaking is active on both the upstream (eg wholesale) and the downstream (eg the retail market) markets, but the competitors on the downstream market purchase the (upstream) products of the dominant company. Margin squeeze occurs when there is such a small difference between the price the dominant undertaking charges for its upstream product and the price it charges itself on the downstream market that an (equally efficient) competitor cannot resell the product downstream at a profitable price. The Amending Guidance also emphasises that margin squeeze cases will not only be prosecuted if the products or services in question are objectively necessary for effective competition on the retail market.
C. Summary and prospects
Overall, it is apparent that the EC intends to place an even greater emphasis on an effects-based approach in the future. This is certainly also reflected in the case law of the Union Courts on which the Amending Note is based. However, this also raises a number of new questions and thus an increased degree of legal uncertainty for those subject to the law (eg the addition of "weakening" as a lower threshold compared to restriction), as numerous clarifications and delimitations have been removed from the explanations.
In terms of content, the approach to cases of market foreclosure and constructive refusal to supply is particularly relevant. In the area of the AEC-Test, the EC recognises that less efficient competitors may also be of importance in maintaining or enhancing effective competition. The extension of the control over pricing conduct that harms competitors that are not only "as efficient" but are in the process of entering or expanding the market is particularly suited to the dynamic nature of digital markets.
Art 102 TFEU has been the focus of important EC decisions in the past, eg in the markets for online research and trading, operating systems, processors, telecommunications, etc. Now the EC has made its priorities clear in the Amending Guidance and is currently seeking comments on its planned guidelines. In particular, the increasing market concentration is leading to new cases of application of Art 102 TFEU. The structure of the future guidelines is not yet foreseeable. However, it is clear that, against the background of the increasing complexity of the competition situation and the case law, a comprehensive development of guidelines on the application of Art 102 TFEU will be necessary (and welcome).
Please note: This blog merely provides general information and does not constitute legal advice of any kind from Binder Grösswang Rechtsanwälte GmbH. The blog cannot replace individual legal consultation. Binder Grösswang Rechtsanwälte GmbH assumes no liability whatsoever for the content and correctness of the blog.