How do I Know Whether My Company is Abusing its Dominant Position in the European Union?

Jarod BonaPartner, Bona Law PC

Luis Blanquez is an antitrust attorney at Bona Law with fifteen years of competition experience in different jurisdictions within the European Union such as Spain, France, Belgium and the UK. He lives in San Diego and is in the process of becoming a member of the California bar. He will be one of the very few attorneys in the world with significant actual experience in both US and EU competition law.

You can read our article about the elements for monopolization under U.S. antitrust law here. We also wrote about monopolization on the Bona Law website.

Article 102 TFUE

In the European Union, the Directorate General for Competition of the European Commission (“the Commission”) together with the national competition authorities, directly enforces EU competition rules, Articles 101-109 of the Treaty on the Functioning of the European Union (TFEU).

Article 102 TFEU prohibits abusive conduct by companies that have a dominant position in a particular market.

Here is the language:

Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of  consumers; (c) applying  dissimilar  conditions  to  equivalent  transactions  with  other  trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to  commercial usage, have no connection with the subject of such contracts.

First, article 102 TFEU applies to “undertakings,” which is defined by EU case law as including every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed. (C-41/90 Höfner and Elsner v Macrotron [1991] ECR I-1979).

Natural persons, legal persons, and even states are included in the interpretation of undertakings. (So, as in the United States, governments in Europe might violate the competition laws).

Second, to qualify as an undertaking, the entity must be also engaged in an economic activity, i.e. offering goods and/or services within a relevant market.

Third, to fit within Article 102 TFUE’s prohibition, the conduct must have a minimum level of cross-border effect between member states within the EU.

The concept of dominance under EU antitrust rules

As explained above, article 102 TFEU prohibits abusive conduct by companies that have a dominant position in a particular market.

 

Similar to the question of monopoly in the United States, the Commission’s first step in an Article 102 TFEU investigation is to assess whether the undertaking concerned is dominant or not.  Again, similar to US antitrust law, a dominant position can only exist in a particular market. This is the main reason why defining the relevant product and geographic market is essential for the Commission to assess dominance.

First, the relevant product market includes all products and/or services that consumers consider to be a substitute for each other due to their characteristics, their prices and their intended use.

Second, the relevant geographic market is the area in which the conditions of competition for a given product are somewhat homogenous.

Under EU law, a dominant position is a scenario where the economic power held by a company allows it to hinder competition in the relevant market by behaving to an appreciable extent independently of its competitors and consumers. (C-85/76 Hoffman-La Roche v Commission [1979] ECR 461). In other words—being able to maintain high prices. (T-321/05 AstraZeneca v Commission [2010] ECR II-2805).

For the Commission, market shares are a useful first indication of the importance of each firm in the market in comparison to the others.  The Commission’s view is that the higher the market share, and the longer the period of time over which it is held, the more likely it is to be a preliminary indication of dominance.

Under EU law, a dominant position is a scenario where the economic power held by a company allows it to hinder competition in the relevant market by behaving to an appreciable extent independently of its competitors and consumers. (C-85/76 Hoffman-La Roche v Commission [1979] ECR 461). In other words—being able to maintain high prices. (T-321/05 AstraZeneca v Commission [2010] ECR II-2805).

For the Commission, market shares are a useful first indication of the importance of each firm in the market in comparison to the others.  The Commission’s view is that the higher the market share, and the longer the period of time over which it is held, the more likely it is to be a preliminary indication of dominance.

If a company has a market share of less than 40%, it is unlikely to be dominant. (Although that has not always stopped the Commission from finding the existence of a dominant position. See, for example, T-219/99 British Airways plc v Commission [2003] ECR II-5917, [2004] 4 CMLR 1008).

A market share above 50%, however, creates a presumption of dominance, and the company subject to investigation will bear the evidentiary burden of establishing that it is not dominant. (C-62/86 AKZO Chemie v Commission [1991] ECR I-3359).

The Commission also takes other factors into account in its dominance assessment, including the barriers to entry; the countervailing buyer power; the overall size and strength of the company and its resources; as well as whether the undertaking is vertically integrated and thus present at several levels of the supply chain.

If a dominant position exists, what qualifies as an abuse under EU antitrust rules?

Under EU antitrust rules, holding a dominant position is not in itself unlawful. Only when the company abuses such position does it breach EU antitrust rules. A dominant company is entitled to compete on the merits, just like any other company. But a dominant company has a special responsibility to ensure that its conduct does not distort competition. This is the second step in the Commission analysis under article 102 TFEU: whether the company concerned has abused its existing dominant position.If a dominant position exists, what qualifies as an abuse under EU antitrust rules?

Examples of unilateral conduct within a relevant market which might be considered as an abuse by the Commission under EU Antitrust rules are as follows:

  • Exclusive or fidelity rebates: Article 102 TFEU applies when a company holding a dominant position offers special rebates or discounts to its customers in return for an increased stake of their business. The Commission may consider this as abusive if the rebate unfairly excludes one as efficient competitor (“AEC”) from the market.
  • Predatory pricing: predatory pricing policies involve the unfair establishment of prices below average avoidable costs (AAC) when there is also an intent to exclude a competitor from the relevant market.
  • Refusal to supply: The Commission requires companies holding a dominant position to have some reasonable and fair commercial objective justification for cutting off supplies to a customer. For example, a shortage of a product or the creditworthiness of a customer.
  • Tying practices: Article 102 TFEU prohibits a dominant company to enter into a contract subject to supplementary obligations which have no connection with the subject matter of the contract, such as ancillary products or services that are not indispensable or that could be reasonably provided by another company. (Here is more on tying under US antitrust laws).
  • Discrimination: When a company holding a dominant position applies materially different terms to equivalent transactions, it might be considered as an abuse by the Commission in the absence of an objective justification.
  • Excessive pricing: High prices may be found abusive by the Commission if there is no reasonable relationship to the economic value of the goods involved.

Conclusion and Summary

In order to know whether a company is abusing its dominant position under EU antitrust rules, the Commission must first determine whether a dominant position exists.  Only if such a position exists will the Commission analyze the existence of an abuse.

Under EU law, holding a dominant position is not in itself illegal.  A dominant company is entitled to compete on the merits as any other company in the market.  But a dominant company has a special responsibility to ensure that its unilateral conduct does not distort competition.  In other words, that it does not abuse its dominant position.