Contributed by Aryan Sharma

Introduction

Over the years, the European Union’s (EU) competition rules have played an important role in safeguarding the competitive process. In 2008, the European Commission (EC) adopted its Guidance on enforcement priorities in applying Article 102 TFEU (Art 102) to abusive exclusionary conduct by dominant firms. Since then, the Guidance has served as a compass guiding antitrust enforcement actions, providing insight into the requisite level of probability concerning anticompetitive effects. A key component of this change was emphasizing how potentially abusive behavior affected consumers and the competitive process.

The Guidance emphasized a significant departure from the formalistic notion of per se abuses for analysis under Article 102 TFEU. Since then, several landmark judgments have upheld the core elements of this effects-based approach to identify abusive conduct by dominant firms, which says that the competition authorities and EC should focus on a comparatively higher threshold of standard of proof.

To know what abuse is, it is imperative to understand that abuse of dominance happens when a dominant company’s actions weaken competition by using methods beyond normal competition, hindering the maintenance of fair market conditions. Therein, a differentiation is entailed between ‘competition on merits’ and simply outright abusive conduct.

In light of these changes within the EU legal framework, this article studies what should be the right way of identifying abusive behavior by dominant firms, particularly looking at the significance of proper market analysis, evaluating discriminatory pricing, and examining the effects on innovation.

Conduct of Dominant Undertaking as a Determinant of Abuse

Art 102 does not state that holding a dominant position is forbidden. Neither holding a dominant position nor competing on merits is unlawful and “a dominant firm may take proportionate measures to protect its legitimate commercial interest against the threat it faces.”

CJEU opines that to allege infringement of Art 102 by a firm, it is “advisable to take into account the facts put forward as acts amounting to abuses without necessarily having to acknowledge that they are abuses.” The behavior of a firm should be considered as an indicator of dominance, but not as sole decisive criteria.

The mere conduct of a dominant undertaking cannot be relied upon as a substitute for broader market analysis, as it would lead to circular reasoning. For instance, in cases of higher prices, such an approach would lead to the conclusion that the undertaking shows abusive conduct because it can control prices, and in turn, it can only do the latter because it is dominant. Rather, a broader market analysis should be done by considering necessary and relevant factors of price, cost, etc. This market analysis is highly necessary and should not be carried out formally or abstractly.

Examining Indicators of Price Discrimination

Levying higher prices is a form of discriminatory pricing contrary to Art 102 where “the transactions are equivalent, and only if it places the trading parties at a competitive disadvantage.”

Exclusionary behavior by levying differentiated prices does not amount to abusive conduct per se. It is not a requirement that all trading parties benefit from the same price. A firm formulates its pricing policy by taking into consideration various factors, predominantly economic and competitive conditions of the market where it operates, including the nature and characteristics of the product, costs of supply, and market conditions. Moreover, Art 102 covers only conduct capable of distorting competition.

In MEO, it was held that the presence of a short-term disadvantage, by itself, would not amount to such capability. Even the fact that a dominant firm’s subsidiary may not have been charged higher prices does not necessarily indicate price discrimination if a thorough examination of all relevant circumstances has not been carried out. It must be determined that the dominant undertaking’s conduct is not only discriminatory but also has the potential to damage competitive relationships. More specifically, the assessment must establish that the impact of price discrimination has distorted the competition.

Analysing Impact on Innovation

Slovak Telekom established that “a dominant undertaking may be forced to give a competitor access to infrastructure that it has developed for the needs of its own business only where such access is indispensable to the business of such a competitor, namely where there is no actual or potential substitute for that infrastructure.” It also held that “if access to a production, purchasing, or distribution facility were granted too readily, competitors would lack the incentive to develop their competing facilities.” When a dominant firm is required to supply its product to any entity that requests it, without any discretion or negotiation power, it can disincentivize innovation and lead to over-reliance. Therefore, allowing dominant undertakings that compete on merits to have contractual freedom in choosing who they conduct business with, creates a competitive environment where firms are incentivized to innovate and improve their offerings. It is not at all an act that distorts competition. It enables the dominant firm to strategically allocate its resources and form partnerships that maximize its competitive advantage.

Demonstration of Actual Anti-competitive Effects

As far as the extent of probability of proving the effects of anti-competition is concerned, that is necessary to trigger intervention by the competition authorities, it must be shown that the alleged abusive conduct has produced anti-competitive effects, by conducting a broad market analysis. This is compatible with the more modern economics-based approach that the EU endorses. According to this approach, the EC must provide evidence that demonstrates with a strong probability that the infringing undertaking’s conduct is abusive.

During the assessment, the Commission “must establish in particular all the facts enabling the conclusion to be drawn that an undertaking participated in such an infringement and that it was responsible for the various aspects of it.” The requisite standard is thus more than mere plausibility or likelihood. There can be a finding of infringement of Art 102 only if there are actual anticompetitive foreclosure effects attributed to the dominant firm’s practices, which cannot be objectively justified. The ECJ has held that the alleged conduct is not abusive unless it is demonstrated that anti-competitive effects are caused.

Establishment of a Strong Probability

The threshold of the standard of proof must be by the requirement that the assessment should not be conducted in a theoretical manner. The EC must meet a specific standard of proof to establish an infringement and impose a penalty.

Demonstration of ‘strong probability’ is the correct proof standard that has to be established by the EC to prove and allege abusive conduct, especially in cases wherein significant fines are imposed. In its antitrust enforcement capabilities, not only does the EC enjoy wide investigative powers, but it is also empowered to enforce its decisions by levying penalties. To do so correctly with an economic justification, the EC should produce “precise and consistent evidence” to support its assertion that the infringement happened because the onus concerning the existence of infringement falls upon it. The ECJ has held this standard to be that of a firm conviction flowing from precise and consistent evidence.

A firm conviction can be understood to be a higher standard than “a balance of probabilities”, but not as demanding as beyond reasonable doubt; thereby equating it to an extent with strong probability. Because forecasts of anti-competitive effects in the relevant market necessitate more thorough analysis and substantiation, the EC must be able to prove its analysis with a similarly higher degree of certainty.

Conclusion

Therefore, in light of the new changes in the EU antitrust domain, potentially abusive conduct under Art 102 by a dominant undertaking can be identified by checking for impact on innovation, and discriminatory pricing and looking at the conduct of the undertaking itself as well. To establish these cases, the burden on EC should be to prove that anti-competitive effects have occurred. And for this exact reason, in cases involving the imposition of significant fines, the standard of a strong probability must be met, rather than the balance of probabilities. This methodology will not only safeguard fair market conditions but also encourage innovation and healthy competition.