Book European Competition Law-2

7/23/2019 Book European Competition Law-2

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European Competition Law

EEBL

3rd semester 2012


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CASES

Overlapping regimes:

Deutsche Telekom

Paul Corbeau

Honeywell

Definition oft he market:

United Brands (Chquita Bananas)

Continental

Commissions notice on the definition of the relevant market

Abuse of dominant position

Microsoft

Commercial solventes

Oscar Bronners

British Airways

Azko

Commissions guidance on implementation abusive exclusionary conduct

Restrictive practices

Meca Medina

Viho

Constein &Gruding

Mergers

Tetra-Laval vs Commission (2005)

Gencor vs Commission (1996)

Airtours vs Commission (2002)

COUNCIL REGULATION (EC) No 139/2004

Liberalization

Council directive

Council directive 95/18/ec

Directive 2001/14/ec of the European Parliament and of the Council

Directive 2002/21/ec of the European Parliament and of the Council


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Enforcement

Chrean

Manfredi

Regulation 2003

White Paper

States aids

Austria case

Commission Communication 2008

Commission communication 2009


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When the European Community was created, the main activity of the ECJ was dedicated tothe foundation of the Single Market. Competition was one of the three instruments torealize the Single Market (1. Four Freedoms, 2. Competition Law, 3. State Aids).

Competition and Regulation are two di!erent forms of intervention used to regulate theeconomic exchange. However, they must be distinguished. The first one requires aneutral intervention by the State while the second one consists in a political interventionin the economic sector since it substitutes the old intervention by the State.

Competition law establishes rules regarding three main fields: abuse of dominantposition, restrictive practices and mergers.

In a"rming the Single Market, in 1990 some specific sectors were excluded by theapplication of competition law, such as postal, electronic communication, gas, electricity,

rail and air transport. Originally, they were controlled by monopolists, afterwards theywere liberalised. Therefore, these sectors are not anymore reserved to a closed number ofoperators. Liberalisation of a market is a juridical concept that means open opportunitiesto enter a sector through the elimination of legal barriers. In law, monopoly is calledexclusive right. This right in specific sectors is regulated by art. 102 of the TFEU (ex-art90).

The next three cases we are going to analyze (Deutsche Telekom, Corbeau case,

Honeywell) regard problems with overlapping regimes, rules & derogations etccompetition and its exceptions, EU and global competition. The key point is :boundaries.


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DEUTSCHE TELEKOM

FACTS

Deutshe Telekom (D.T.) was the incumbent operator in the German telecommunicationssector. It was originally a public entity owned by the State. Before the liberalisation of thesector it enjoyed a legal monopoly, meaning the exclusive right decided by thelegislation. The applicant o!ered access to its local network to other operators by fixingsome tari!s in order to access infrastructures. The price for the access must be subject tothe approval of the German Regulatory Authority (it has a broader objective in the marketsurveillance while the Commission may not take into account some importantconsiderations about the sector).

Between 18 March and 20 July 1999, the Commission received complaints from 15companies which were competitors of the applicant, challenging the applicants pricing.

According to the Commission, the applicant has infringed Article 82 EC by operatingabusive pricing in the form of a margin squeeze by charging its competitors prices forwholesale access that are higher than its prices for retail access to the local network(recitals 1, 57, 102 and 103 to the contested decision).

A margin squeeze exists if the charges to be paid to [the applicant] for wholesale accessare so expensive that competitors are forced to charge their end-users prices higher thanthe prices [the applicant] charges its own end-users for similar services. If wholesalecharges are higher than retail charges, [the applicants] competitors, even if they are atleast as e"cient as [the applicant], can never make a profit, because on top of thewholesale charges they pay to [the applicant] they also have other costs such asmarketing, billing, debt collection, etc.

Deutsche Telekom asked the CFI for the annulment of a decision issued by theCommission of the European Communities. It regarded the undertaking responsible foran abuse of dominant position. Being the Commission the public administrationresponsible for the implementation of competition policy, its decisions are administrative

ones and consist in issuing sanctions.

There are some di!erences between intervening through regulation and competition law.The first considers a broader range of interests then the second. Another problem to riseis the di!erent time of intervention: the regulator (German Authority) intervenes inadvance, while the Commission ex-post. Even the type of intervention makes thedi!erence: the Commission puts sanctions, the regulator establishes rules.

After the abuse of dominant position was declared, D.T. claimed the Regulator hadauthorized it, thus the principle of legitimate expectation had been infringed (it imagined

its behaviour was lawful). Moreover, it requested for a reduction of the fine in line withthe principle of proportionality. Another problem is that of legal certainty, because of theoverlapping of regulation. The latter constitutes a very actual and controversial problem,


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because there are two di!erent legal orders (national and European one) both with arationale.

Liberalization refers to the structure of the market, while privatization concerns theproperty. The Community asked for the first one, even thought in both systems only free

competition matters.

DISCUSSION

The general problem in the case of Deutsche Telekom (DT) deals with overlappingregimes: the same object can be considered within two separate legal frameworks. Fixingsome tari!s for access to infrastructures can be considered as two di!erent behaviorsunder legal perspective. Under the regulators perspective, theres an ex anteauthorization, whereas under the commissions perspective it can be compatible or not

with EU law. Economic choices underline such decisions.

How to establish tari!s and charges are the result of economic choices. What problemsmay arise from this? They can be part of both sector-specific regulator and competitionauthoritys discipline. Theres some kind of rationale behind this, since the regulator hasbeen given di!erent tasks by competition and antitrust authorities. Choices which may beok with either one of them, might be breaking the other ones principles.

Pleas in law raised by DT were mainly three

1. There was an infringement of article 82 EC

2. The contested decision is defective,

3. Misuse of power: breach of proportionality, legal certainty and legitimateexpectations

The economic part of the decision is not under question, howeverwhat we put underquestion is if the commission followed the requirement for administrative proceedings intaking the actions against DT.

An abuse of power(dominant position) is considered by the antitrust authority, but what

is put under challenge is the administrative decision itself.Pleas in law, from par. 68 par 268

Definition of Misuse of power: an administrative act may have e!ects on entities towardswhich its action isnt directed. When someone removes a civil servant from its position fordisciplinary reasons, the misuse of power is given by using the transferral act, whichresults in positioning public resources in a place where they arent needed ( so we have amisuse of power when a specific act is adopted for an end which is not the end for whichthat kind of act is chosen to adopt)

The Commission was trying to correct the German authoritys use of administrativepower. It is important to bear in mind:


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Par .270: In the third place, as regards the applicants complaint that theCommission misused its powers, it must be observed that a measure is onlyvitiated by misuse of powers ifit is evident, on the basis of objective, relevantand consistent evidence, that it was taken with the exclusive or main purposeof achieving an end other than that stated.

One possible solution could be an infringement procedure against the national authorityinstead of against DT. Legitimate expectations towards the fact that DTs behavior waslawful since it is based on a lawful act, is the companys argument. We are however not examining the question under an economic perspective. Once we come to thecontroversial phase, we face an administrative problem. Under the economic perspective,the argument could potentially be infinite.

There always are in the first examined cases (in class) right of defense (par 274),stating reason, misuse of power (par 284), legitimate expectations (my behavior was

wrong, but I could assume that I was behaving well) etc Par .274 The applicant submits that the Commission infringed Article 19(1) of

Regulation No 17 in relation to the rights of defenceby failing in its statement ofobjections of 2 May 2002 and in its supplementary letter of 21 February 2003 tocarry out a factual or legal analysis as to whether the alleged infringement hadbeen committed intentionally or negligently. In order to be reasonably able todefend itself, the applicant should have been informed during the administrativeprocedure of the facts on the basis of which the Commission was accusing it ofsuch fault or negligence.

It must be noted as a preliminary point that the obligation to state reasons laiddown under Article 253 EC is an essential procedural requirement, unlike thequestion whether the reasons given are correct, which goes to the substantivelegality of the contested measure. From that point of view, the statement ofreasons required by Article 253 EC must be appropriate to the act at issue andmust disclose in a clear and unequivocal fashion the reasoning followed by theinstitution which adopted that measure in such a way as to enable the personsconcerned to ascertain the reasons for it and to enable the competent court to

exercise its power of review (C-17/99 France v Commission [2001] ECR I-2481,paragraph 35).

The argument provided by the Commission states that, even if authorized by the NRA, DTshould have known that they were going too far by applying to high prices for wholesaleand retail providing, thus inhibiting competition.

The decision was never put under challenge, never modified. It continued to be lawful,but the decision hadnt the legal basis (you should have known that you were going toofar).

We do have overlapping regulations. There are other needs for regulation, which doesntlead to coincidence between regulation and competition law. Thus, what to do? Morecompetition? Allowing regulators to rise questions?


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PAUL CORBEAU CASE

FACTS

Paul Corbeau is a businessman from Liege, in Belgium. He set up a company for maildelivery and other services. He was brought in front of the criminal court of Liege, hencea criminal proceeding against him. He chose to perform an economic activity in the postalsector. The exclusive rights in the postal sector was granted to Rgie de Poste, an entityof public law, considered as an undertaking by the ECJ.

A Belgian law of 1957 grants delivering of any kind of mail product towards Rgie dePoste. Paul Corbeau was collecting and distributing mail, hence something close, yet withan added value to the traditional postal service: he was actually granting a better andexpecially a faster service.

DISCUSSION

This activity of Paul Courbeau was harmful, by overlapping of tasks, towards, Rgie dePoste. Rgie de Poste isnt subject to competition and it sometimes works in non-remunerative areas/conditions. (Cream-skimming or cherry picking is the expressionused for entering the most profitable segments of a given sector). The revenue of thepublic undertaking in some areas is justified by its public service at political/social pricesin other areas. These quality and conditions, tari!s and territory, can create towards anarea the appetite for exploiting most profitable areas. So if you provide an essentialpublic service you have to imply the same tari!for all the areas where you perform, atthe same conditions.

The question referred to the ECJ follow a preliminary ruling. The main questions:

Can a national monopoly be justified?

Which is the limit to the application of limitations towards competition?

Rules of competition: art. 106 TFEU (ex art 90), a specific art.

Par1 In the case of public undertakings and undertakings to

which Member States grant special or exclusive rights,Member States shall neither enact nor maintain inforce any measure contrary to the rules contained inthe Treaties, in particular to those rules provided for inArticle 18 and Articles 101 to 109.

This means that we (EU) dont care whether the undertaking is private or public.Special or exclusive rights=legal monopoly, in economic terms. The last part mayseem a contradiction, since exclusive rights per se are contrary to competition.However, one can have two forms of competition, namely within and for the

market. Ex: railway infrastructure: As a state, I need to grant management ofrailways to one single undertaking and if I decide to do so towards someone whosnot a direct entity of public law, I need to give it to the best competitor. In some


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cases, the state needs to assign exclusive rights. For instance, a tender may beissued.

Par2: Undertakings entrusted with the operation of services ofgeneral economic interest or having the character of arevenue-producing monopoly shall be subject to therules contained in the Treaties, in particular to the ruleson competition, in so far as the applications of such rulesdoes not obstruct the performance, in law or in fact, ofthe particular task assigned to them. The development oftrade must not be a!ected to such an extent as would becontrary to the interests of the Union.

A concession may be considered contrary to competition only if theres nocompetition in the preliminary phase. It is possible to give exclusive rights, but it

is no possible to infringe competition. There are cases in which we have to grantexclusive rights, but promotion of competition prevails always.

Par3: The Commission shall ensure the application of theprovisions of this Article and shall, where necessary,address appropriate directives or decision to MemberStates.

From the case:

Par 12 Thus Article 90(1) provides that in the case of public undertakings to whichMember States grant special or exclusive rights, they are neither to enact nor to maintainin force any measure contrary to the rules contained in the Treaty with regard tocompetition.

Par 14: That latter provision thus permits the Member States to confer on undertakings towhich they entrust the operation of services of general economic interest, exclusive rightswhich may hinder the application of the rules of the Treaty on competition in so far asrestrictions on competition, or even the exclusion of all competition, by other economicoperators are necessary to ensure the performance of the particular tasks assigned to theundertakings possessed of the exclusive rights.

Par 15 As regards the services at issue in the main proceedings, it cannot be disputedthat the Rgie des Postes is entrusted with a service of general economic interestconsisting in the obligation to collect, carry and distribute mail on behalf of all usersthroughout the territory of the Member State concerned, at uniform tari!s and on similarquality conditions, irrespective of the specific situations or the degree of economicprofitability of each individual operation.(this is a public service)

Par 16 The question which falls to be considered is therefore the extent to which arestriction on competition or even the exclusion of all competition from other economicoperators is necessary in order to allow the holder of the exclusive right to perform itstask of general interest and in particular to have the benefit of economically acceptable

conditions.


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Analyzing this case is competition respected in Belgium? It was the first time that thefirst par1 of art 106 had been read in conjunction with par2. A legal monopoly could onlybe justified if given by the necessity to ensure certain tasks to certain undertaking.

The necessity test is what the ECJ calls economic equilibrium. This concept means

that in general you shouldnt go to the part of the service which ensures extra-profitsto a given competitor. Moreover, the ECJ claimed that a service with an additional valuefor consumers shouldnt be considered as ensuring an extra-profit. Corbeau was o!eringa di!erent service that Rgie de Poste, delivering mail by a quick service within a certainnumber of hours. The discipline which we are referring to, existing at the time inBelgium, was in fact contrary to competition. This is the notion of universal service( exclusive rights are only for the base services and not for everythnig9)

The EU legislator started to liberalize all sectors of public utilities after this turning-pointcase. Every time we have exclusive rights, they can only be referred to the essential partnecessary for enjoying a universal service. In the following years of the 90s, many similarcases were presented in front of the ECJ.

The political message to be learned is given by the ECJ. Without it, we couldnt have giventhe floor to liberalization. They are justified only to the limit called economic equilibrium.Through the necessity test, we manage to open a breach in state monopolies andexclusive rights given by art 106.


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CASE GENERAL ELECTRIC VS HONEYWELL

FACTS

The case is about the merger between Honeywell and GE, brought in front of the Courtof First Instance. Honeywell and GE notified the EU-Commission about the operation. Theadministrative procedures was made to decide whether to authorize the merger or not,but the Commission opposed the merger, but government of U.S not.

The case is important since we have a long analysis by EU Commission, prohibiting themerger, whereas the US antitrust authority authorized it. The issue is that the relevantmarket is larger in the US and hence the merger wouldnt have granted Honeywell adominant position whereas it would have done so in Europe. It was the first decision inwhich the ECJ a!ected a foreign market to the EU. Starting from the economic concept of

the antitrust discipline of the relevant market, we can consider it either in a static ordynamic way.

DISCUSSION

What is the problem behind the case and the possible solution? No international antitrustauthority. Without a global antitrust authority we will always find similar problems ofcompetition, monopoly etc. .

Verizon vs Trinko by the Supreme Court of Justice regards a similar case to DeutscheTelekom vs. Commission. A problem of interpretation of competition law shouldnt arisewithin the EU, since National Authorities and the Commission are applying andimplementing competition law jointly, whereas very few cases at the time are reservedexclusively to the Commission.

Our national law in competition (Italian), law n287/1990, establishes the Italian Autoritgarante della concorrenza e del mercato. If something against competition law happensin Italy, it is subject to this authority. Italian discipline, however, is interpreted in thelight of EU law. We do have notices adopted by the commission on how to interpret therelevant market. There are some instruments for coordination within our legal framework,and moreover theres a network of competition authorities. The administrative modelis similar to Interpol.

At the global level however theres no single legal order, thus resulting in manyproblems. Economics is a global phenomenon, law isnt. a more integrated cooperationis hence needed. The ICN is the International Competition Network. It is an informalcreature which gathers most of the national competition authoritys work. It is aninformal body. It works through consensus (everybody must agree on the decisions), itisnt based on any specific juridical framework, it isnt founded by a treaty. This bodydoesnt have a premise, treaty or its own civil servants. What is relevant for us is that itsdecisions arent legally binding.

It provides a series of documents, suggestions. It is sort of a lobby, since people incharge of implementing national policy are seating in it. This might in the future give

birth to convergence, at international level, of competition policy. The G20 has a similarkind of arrangement. It has to work together with other organs such as OECD andUNCTAD.


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In the EU most antitrust functions are decentralized to national level, with surveillance bythe Commission. Within the EU we do have something similar to the ICN: the EuropeanCompetition Network.

Commission Notice on cooperation within the Network of Competition Authorities

(with EEA Relevance)1. Council Regulation (EC) No 1/2003 of 16 December 2002on the implementation of the rules on competition laiddown in Articles 81 and 82 of the Treaty (1) (hereafter theCouncil Regulation) creates a system of parallelcompetences in which the Commission and the MemberStates' competition authorities (hereafter the NCAs) (2) can apply Article 81 and Article 82 of the EC Treaty (hereafterthe Treaty). Together the NCAs and the Commission forma network of public authorities: they act in the publicinterest and cooperate closely in order to protectcompetition. The network is a forum for discussion and

cooperation in the application and enforcement of ECcompetition policy. It provides a framework for the cooperationof European competition authorities in cases where Articles 81 and 82of the Treaty are applied and is thebasis for the creation and maintenance of a commoncompetition culture in Europe. The network is calledEuropean Competition Network (ECN).

It hence is a forum of discussion similar to the ICN. This is lobbying. Di!erent nationalbodies are in charge of competition law. This has become important/relevant within thevery last years, since competition law is being implemented by more or less formal/

independent national authorities. From a mixed set of authorities, problems ofcoordination can most certainly arise.

Some examples (just for reading) of problems which may arise:

10. It follows that a single NCA is usually well placed to dealwith agreements or practices that substantially a!ectcompetition mainly within its territory.

Example 1: Undertakings situated in Member State A areinvolved in a price fixing cartel on products that are mainlysold in Member State A.

The NCA in A is well placed to deal with the case.

11. Furthermore single action of an NCA might also be appropriatewhere, although more than one NCA can beregarded as well placed, the action of a single NCA issu"cient to bring the entire infringement to an end.

Example 2: Two undertakings have set up a joint venture inMember State A. The joint venture provides services inMember States A and B and gives rise to a competitionproblem. A cease-and-desist order is considered to be

su"cient to deal with the case e!ectively because it canbring an end to the entire infringement. Evidence is locatedmainly at the o"ces of the joint venture in Member State A.


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The NCAs in A and B are both well placed to deal with thecase but single action by the NCA in A would be su"cientand more e"cient than single action by NCA in B orparallel action by both NCAs.

12. Parallel action by two or three NCAs may be appropriatewhere an agreement or practice has substantial e!ects oncompetition mainly in their respective territories and theaction of only one NCA would not be su"cient to bringthe entire infringement to an end and/or to sanction itadequately.

Example 3: Two undertakings agree on a market sharingagreement, restricting the activity of the company located inMember State A to Member State A and the activity of thecompany located in Member State B to Member State B.The NCAs in A and B are well placed to deal with the case

in parallel, each one for its respective territory.

Conclusions: Regulation needs to be regarded as one of the limits to competition law.Usually the intervening authority is prevailing. Another limit to competition law, existingsince the nineties, is the need for exclusive rights for both social (quality, public service)and economic (natural monopolies, even after introduction of competition) reasons.We learned that we can restrict the notion of exclusive rights to a minimum, just like inCorbeau. It should be limited to such resources which are scares, such as in the railwaycase. We then focused on the limits of competition discipline in di!erent legal orders. TheICN provides some info about international relations among competition law, whereas theECN is something similar on European (EEA) level.


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Definition of the relevant market

The next cases and documents we are going to analyze (United Brand, Continental,

Commissions notice) deal with the definition of the relevant market.

One case is the leader case: Banana-Chiquita. The other one is Continental case that isimportant for historical reasons. Continental case is important also because there is aparticularity: at that time there wasnt the merger regulation to refer to, so Continentalcase gives a look on how the Commission introduced the first elements of EU competitionpolicy, especially on abuse of dominant position.

The first part of our course, competition law (the second is regulation), deals with oneofinstruments of market-integration. It is regarded as a necessary tool in building thesingle market. Competition law somehow prevents companies from setting their ownrules and behavior, which in many cases could be considered unfair under a competitiveperspective. When we talk about completion law we are referring to di!erent possibletypes of unfairness: either single undertakings or a trend within a single member state toact in a protectionist manner, thus favoring the activity of one business rather thananother.

Competition is mainly conceived an instrument for creating the single market, it shouldbe considered as a neutral instrument. In Italy, we find it at the beginning of our antitrusthistory. We do not have a very long antitrust tradition.

Also, in intervening through competition instruments, many other aims can be achieved,for instance making a specific sector stronger. Also in the trend which we examined in EUinstitutions, we can detect sort of an interventionist trend in a or specific to a certain aimor sector. Who says that competition should be completely neutral, prefers the marketoriented approach. The alternative approach, is the structural one, that refers to certainindustries or sectors, economic areas. In most cases, if we have to look for some kind ofinterventions other than the pure neutral instruments of competition, we find more usefulinformation in the procedural for the definition of relevant market.

Everything starts in understanding which market we are talking about. Defining the

relevant market is the beginning of any antitrust investigation, even structurally thisis the first step: which market are we talking about?

Strong divergences can be found in the fact that sometimes a market perimeter is definedthrough economic tools or more subjective tools like consumer preferences etc. However,the choice of a specific instrument for defining the relevant market, is not neutraltowards the result. Usually, the more the instrument is the economic one, the more thedefinition of the relevant market appears to be neutral (some do not agree). From acertain year onward, for answering to criticism which were raised against its decision, thecommission decided to issue a notice.

Theres only one solution (for the definition of relevant market) only if we apply thepurely economic perspective, but the more other aspects are included, the more aspecific market might be favored.


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Over the years, whatever method the Commission used to apply, they always got to anarrow market-definition (commission always adopted decision that sow markets verynarrowed). In this way, since the market is narrowly defined, each firm possesses a largershare of it and it is easier to assess the dominant position. So a narrow definition meansa better and easier control for the commission.

On the contrary, undertakings will be prone to prove the opposite: a larger relevantmarket. So here its the problemdi!erent interpretation.

The competition authority should be impartial in the adoption of the right instruments.This ambiguity has been widespread across Europe. This led to another consequence:once in front of the ECJ, we find it becoming the final referee (arbiter) for what is theactual relevant market. This judgment is not about procedural aspects, but perhapsrather about technical opinions. It may hence happen where the divergence ininterpretation in economic analysis-tools have been strong when defining the relevant

market.The ambiguity is that commission uses a distorted vision in order to narrow definition ofthe market, and the real problem is that sometimes we have di!erent definitions insimilar cases. When this happens it means that a structural approach is chosen in orderto favor a specific sector, even if it should be better to adopt a market oriented approach.The antitrust should be neutral (market oriented approach). Commission is not aprotections actor, but there can be divergences in interpretation. These di!erences canbe explained with the hidden aim to protect a specific sector.

The commission adopted the notice to clarify this ambiguity, and to defend itself from

the criticism. When the Commission issue a notice, it is done for granting a reason to thecase law, the methodology used. We can find all the steps the Commission has followedin order to define the relevant market.


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UNITED BRANDS (Chiquita) VS. COMMISSION

FACTS

The "United Brands Company" (hereinafter referred to as "UBC") of New York, was formedin 1970. UBC is at the present time the largest group on the world banana market andaccounted for 35% of world exports in 1974. Its European subsidiary, United BrandsContinental B.V. (hereinafter eferred to as "UB"), whose registered o"ce is in Rotterdam,is responsible for co-ordinating banana sales in all the Member States of the EEC.

On 19 March 1975 the Commission decided, pursuant to Article 3 (1) of Regulation No17/62 of 6 February 1962, to initiate a procedure for infringement of Article 86 of theEEC Treaty against UBC following complaints made to it by other competitors.

On 11 April 1975 the Commission notified UBC that in its opinion it was engaging in anabuse of a dominant Position.

DISCUSSION

This case deals with an application for annulment of a Commissions decision, whichstated that banana trade, in the way in which it was practiced by United Brands, violatedwhat is today art. 102 TFEU (ex art 86). Three behaviors were contested:

1. Di!erent conditions being applied to equivalent transactions. ( charged itsdistributor/ripeners in the various Member States prices which di!ered

considerably, without any objective justification, for bananas of the same quality,even though the conditions of the market were to all intent and purposes thesame; - applied to its distributor/ripeners di!ering prices, the di!erencesometimes amounting to 138%);

2. Imposing that certain retailers didnt have to sell their products at certain times.( required its distributor/ripeners not to sell bananas while still green);

3. Refusing to sellproducts to certain companies. (refused to supply the Danishfirm Olesen with bananas of the Chiquita brand on the ground that thisundertaking had taken part in an advertising campaign for bananas of a competingbrand). Remember this part of refusal to supply with discrimination because it willcome back in other cases.

Every book citing this case, refers to it as the leading case when defining the relevantmarket.

In order to explain the facts of this case the Commission begins by describing the

structure of the banana market viewed as a whole and then describes the position andconduct of UB and its subsidiary on this market.


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10 - In order to determine whether UBC has a dominant position on the banana marketit is necessary to define this market both from the standpoint of the product and fromthe geographic point of view.

11 - The opportunities for competition under Article 86 of the Treaty must be considered

having regard to the particular features of the product in question and with reference to aclearly defined geographic area in which it is marketed and where the conditions ofcompetition are su"ciently homogeneous for the e!ect of the economic power of theundertaking concerned to be able to be evaluated.

Before assessing dominance and abuse of dominance, we have to define the relevantmarket, which is highly controversial. The main factors which help us in defining therelevant market are: geographical factors and product prospects (that is to say demand &supply side substitability). In this case we deal with consumer preferences andgeographical references.

The Commission states that bananas are a special product which doesnt have directsubstitutability, whereas the argument provided by United Brands is that it simplybelongs to the larger fruit market. How can someone assess whether banana-eatersmight be interested in other types of fruit? (Even the period of the year is importantbecause in summer there is more variety of fruits).

Price is one factor that is used to answer to the previous question. Also SSNIP testsmight be useful: they have been introduced in order to give more objective content to therelevant market definition. In general, we look at prices and try to see whether there hasbeen a price increase compared to other fruit.

Another profile, a timing profile, is to see whether this only happens in certain periods ofthe year. Market is di!erent from period to period. Definition of relevant market takesinto account even future prospective. Even the mergers are analyzed taking inconsideration what can happen in the future.

18 - The applicant concludes from these findings that bananas and other fresh fruitform only one market and that UBC's operations should have been examined in thiscontext for the purpose of any application of Article 86 of the Treaty.

19 - The Commission maintains that there is a demand for bananas which is distinct

from the demand for other fresh fruit especially as the banana is a very important part ofthe diet of certain sections of the community.

Preferences are di"cult to be read in dataset. According to the supply-sidesubstitutability, according to the Commission the product was available all-year long,whereas according to United Brands, being in competition with other products at certaintimes, it was better to keep it from marketing.

Certain countries of Europe have been considered competitive markets, whereas inothers, such as Italy, there was a state monopoly. Under a geographical perspective,around the community territory, there isnt that much of a di!erence. The commissionincluded six countries out of nine in the geographical market, excluding Italy, France and


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UK (6 out of 9 of EEC). Here the definition is given by regulation, namely legal conditionswhich constrained economy: a certain form of protectionism.

36 - The Commission has taken the Federal Republic of Germany, Denmark, Ireland, theNetherlands and the BLEU as the geographic market and it is in respect of this market

that it is necessary to consider whether UBC has the power to hinder e!ectivecompetition.

38 - The other Member States -of the Community (France, Italy, the United Kingdom)must however be excluded from this geographic definition of the market notwithstandingthe significant presence of UBC in these States, because of the special circumstancesrelating to import arrangements and trading conditions and the fact that bananas ofvarious types and origin are sold there.

There were countries where there was a specific form of protectionism. U.K. was excludedbecause there was an agreement with old coloniesit enjoys "Commonwealth preferences"

system,. It wasnt the moment for , it wasnt the task of, the Commission to fightprotectionism: it was considering the regulatory framework as given for granted. Sincethere is no competition we dont talk about that part of the market. For this reason wetalk about six countries out of nine. In other situations, the regulator will command theerosion of certain state monopolies.

57 - It follows from all these considerations that the geographic market as determinedby the Commission which constitutes a substantial part of the common market must beregarded as the relevant market for the purpose of determining whether the applicantmay be in a dominant position. Bananas are a product of agriculture, and the European

policy of agriculture is essential.

Most of competition-arousing problems stem from the agricultural field.Todays economy is clearly not based on agriculture, but still mostproblems in competition stem from this field, both in WTO and the EU.Milk quotas were another big issue: should someone buy spare productsin order to attain more favorable prices?

The applicant was challenging the Commissions definition of the relevant market:

12 - As far as the product market is concerned it is first of all necessary to ascertain

whether, as the applicant maintains, bananas are an integral part of the fresh fruitmarket, because they are reasonably interchangeable by consumers with other kinds offresh fruit such as apples, oranges, grapes, peaches, strawberries, etc. or whether therelevant market consists solely of the banana market which includes both brandedbananas and unlabelled bananas and is a market su"ciently homogeneous and distinctfrom the market of other fresh fruit.

13 - The applicant submits in support of its argument that bananas compete with otherfresh fruit in the same shops, on the same shelves, at prices which can be compared,satisfying the same needs: consumption as a dessert or between meal (according to theapplicant there is no di!erence for consumers between banans and other fruits.

Approach of the Court:


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The ECJ starts with economic evidence: using statistics andstudies by the Food and Agriculture Organization (FAO). The SSNIPtest wasnt fully developed at the time of the case These arepredictable factors.

The court starts using economics evidence, but then it interpretsthem, so it uses non-predictable factors.

Finally, the Court uses consumer preferencesin order to definethe relevant market. This is a much less specific and unscientificapproach.

31 - The banana has certain characteristics, appearance, taste, softness, seedlessness,easy handling, a constant level of production which enable it to satisfy the constant needs

of an important section of the population consisting of the very young, the old and thesick.

34 - It follows from all these considerations that a very large number of consumershaving a constant need for bananas are not noticeably or even appreciably enticed awayfrom the consumption of this product by the arrival of other fresh fruit on the market andthat even the personal peak periods only a!ect it for a limited period of time and to avery limited extent from the point of view of substitutability.

35 - Consequently the banana market is a market which is su"ciently distinct from theother fresh fruit markets.

The main criticism on this case is that economic evidence was put aside in favor of verysubjective evaluation. The risk is inconsistency of market-definition.

For instance, the merger between Nestl and Perrier stressed comparisons betweenbottled water and other beverages such as tea, obviously depending on the geographicalmarket which we are referring to. In all these cases, the definition relied on unpredictable

consumer preferences, putting firms in conditions of uncertainty.


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CONTINENTAL CAN VS COMMISSION

FACTS

Continental Can Company Inc. (Continental) of New York (USA), is a companymanufacturing metal packages, packaging materials of paper and plastic and machinesfor manufacturing.

On 16 February 1970, it was agreed that Continental would set up in Delaware (USA) acompany (subsequently called Europemballage Corporation) to which it would transfer its

interests in SLW (Schmalbach-Lubeca-Werke AG );During the same year, Continental contemplated the formation, with The Metal BoxCompany Ltd (MB) of London, of a European holding company for packaging, in which thelicensees of Continental in the Netherlands and in France, Thomassen & Drijver-VerblifaN.V (TDV) would be invited to participate.

On 8 April 1970, Europemballage carried out the purchase of the shares and debenturesof TDV o!ered up to that date, thus bringing the initial share of Continental in TDV to 91.07 %.

On 9 April 1970, the Commission decided to open of its own motion a procedure againstContinental and its subsidiary Europemballage concerning the acquisition by the latter ofthe majority of the shares in TDV.

It is found that Continental Can Company, which holds through the medium of itssubsidiary, Schmalbach-Lubeca-Werke AG of Brunswick, a dominant position over asubstantial part of the Common Market on the market for light packaging for preservedfood, has abused this dominant position by the purchase made in April 1970 by itssubsidiary Europemballage Corporation of approximately 80 % of the shares of the Dutchundertaking Thomassen & Drijver-Verblifa N.V.. This purchase has had the e!ect ofpractically eliminating competition in the above mentioned packaging products oversubstantial part of the Common Market.

DISCUSSION

Europemballage was not Continental Can, but was a subsidiary. What are the pros andcons of considering the company independently or as the holding? Usually the acquiredcompany is considered jointly with the mother company in order to subject it tocompetition/antitrust law.


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An undertaking with legal personality performs its activities legally independently,however, on a company level, direction is probably imposed by the top. Even if acompany is abroad it can be subject to European law. If it werent like that manycompanies would separate all the time to avoid problems with antitrust.

The origin of real antitrust draws back to a contract between a trusteeand other parties; performed activity is referable to the trust itself,without any formal arrangement. The wider meaning of competition andprotection of the market was added later on. This way, a lot of di!erentlegal implications were de facto avoided.

Is legal personality su"cient to say that we are talking about di!erent subjects? From alegal perspective, it usually would be. However, in this case we need to consider thewhole company. Even if you have legal personality but yoa are a subsidiary yau can be

involved in the facts of your mother company.

14 - The applicants argue that according to the general principles of international law,Continental, as an enterprise with its registered o"ce outside the Common Market, isneither within the administrative competence of the Commission nor under thejurisdiction of the Court of Justice. The Com- mission, it is argued, therefore has nocompetence to promulgate the contested decision with regard to Continental and todirect to it the instruction ontained in Article 2 of that decision. Moreover, the illegalbehaviour against which the Commission was proceeding, should not be directlyattributed to Continental, but to Europemballage.

Another (negative) aspect is the one through which we have the ECJ ruling, in contrastwith the Commissions decision. We are now working on competition law, however, at EUlevel, the main problems arise from administrative procedures, establishing fines,penalties and so on.

The ECJ ruled that the Commission didnt succeed at correctly defining the relevantmarket, in defining each canning market for di!erent foodstu!s as a di!erent market(fish cans, meat cans etc.). The canning industry should be considered as a single

relevant market. Which are the factors which led to defining separate canning markets?This is also relevant. There has been no actual explanation by the Commission on thismatter. These must hence be considered separately. More explications and clarificationsare needed.

34 - Besides, there are in the decision itself indications which make one doubt whetherthe three markets are to be considered separately from other markets for light metalcontainers, indications which rather lead one to conclude that they are parts of a largermarket. [..] that the production of metal cans for meat and fish cannot be considered

separately from the production of metal cans for other purposes and that, whenconsidering the production of metal closures, crown corks must not be left out.


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33 - In this context recitals Nos 5 to 7 of the second part of the decision deal in turn witha 'market for light containers for canned meat products', a market for light containers forcanned seafood', and a 'market for metal closures for the food packing industry, other

than crown corks', all allegedly dominated by SLW and in which the disputed mergerthreatens to eliminate competition. The decision does not, however, give any details ofhow these three markets di!er from each other, and must therefore be consideredseparately. Similarly, nothing is said about how these three markets di!er from thegeneral market for light metal containers, namely the market for metal containers forfruit and vegetables, condensed milk, olive oil, fruit juices and chemico-technicalproducts. In order to be regarded as constituting a distinct market, the products inquestion must be individualized, not only by the mere fact thatthey are used for packingcertain products, but by particular characteristics of production which make themspecificially suitable for this purpose.Consequently, a dominant position on the market

for light metal containersfor meat and fish cannot be decisive, as long as it has not beenproved thatcompetitors from other sectors of the market for light metal containers arenot in a position to enter this market, by a simple adaptation, with su"cient strength tocreate a serious counterweight.

The commisiion has to explain why you considerd the three markets di!erent from theothers. Demand and supply side substitutability and geographical dimensions need to beassessed in order to define the relevant market. How far can other competitors competeby entering the market, is also relevant. The incumbent or other factors might providebarriers to entry.

QUICK SUM UP:

The definition of the relevant a market is important to understand if there is an abuse ofdominant position or not, but defining relevant market is quite di"cult. We can use threemain tools to define a market.

- Supply side substitutability: it os referd to the competitors, how far can reallyothers compete potentially with an undertaking, which are the real possibilities forthirds to compete in that markets (Barriers to entry, organizational andinfranstruction needs and so on)

- Demand Side substitutability: prospects of consumers

- Geographical factor: it makes reference to transport costs, but also to nationaltechnical and juridical standard, legal framework. Also national preferences aretaken into account.

When criteria are vaguely defined, usually the ECJ is the final referee to the case.Commission receind accuses for the definition of market in many cases. ECJ uses thesecriteria: Economic evidence and consumer perceptions


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COMMISSIONS NOTICE ON THE DEFINITION OF THE RELEVANT

MARKET

The notice is an interpretation test in order to facilitate the comprehension of somenorms. Is not legally binding, in fact, even if the Commission acts di!erently from thenotice it doesnt have to motivate its behavior.

This Notice it is sort of a guideline for the Commissions definition of the relevant

market. Moreover, after all criticism, the Commission simply claimed increasedtransparency of its policy. But Commission didnt change it attitude


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This notice and decision are strongly economically-oriented. One problem: beingnon-binding, the Notice isnt subject to judicial review (principle of legality).

There was no o"cial consultation in preparing the Notice (legislation with less

safeguards), but participation is important. This is a legislation is without safeguards. Thefact that this isnt binding, also puts the ECJ in a more di"cult position.


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The following paragraphs to 13 define the SSNIP test and supply-side substitutability:

Geographic dimension:


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Gathering evidence in business premises:


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PD:

Additional considerations (!):


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On the Abuse of Dominant Position

Art 102 TFEU regulates abuse of dominant position, in the internal market or in asubstantial part of it. It may regard one or more undertakings. The article refers to adominant position, which is evaluated on the basis of which market we are talking about,namely mainly an economic notion, but also regulated by ECJ case-law. We have alreadydiscussed the Commission Notice.

A dominant position in the market should refer to a strong market power, hence not asynonym of monopoly. The concept of dominance is more frequent than a monopoly,which only arises in natural monopoly or state-granted special rights. Dominance is amuch wider concept, meaning that an undertaking has the power to undermine thecompetitive process. Hence, the undertaking is able to harm both consumers andcompetitors.

When we talk about dominance we usually make reference to market share or otherfactors. Market share is not only determined by the quota of the market, but also byother factors like entry barriers (legal, economic or technical). Hence, also a smallermarket share could constitute a dominance within a specific market.

A barrier for entry can also be intellectual rights like in the Microsoft case and others,which makes it di"cult for other undertakings to penetrate the market.Supply-side substitutability is also another instrument, it is used to define the relevantmarket: other competitors might enter the market.

Moreover, dominance is not per se prohibited, at least not in our legal order. If it isgained by legal purposes, instruments and e"ciency, it is not against the law. We mighthave a legal order in which dominance is prohibited in itself, for instance in the US oneundertaking acquiring a dominant position might be obliged to divide itself into smallercompanies (ex. AT&T for telephones).

So it is prohibited the abuse of dominant position and not the dominant position itself .But dominant undertakings must perform in a responsible way. A regime of special


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responsibility means that also behaviors which can be accepted by companies which donot have a dominant position, might be unlawful for undertakings who do have apreeminent market share.

Another key concept in our preliminary analysis are two types of abuse:

1. Exploitative behavior, more relatedtowards consumers. A!ects moreconsumers.

2. Exclusionary behavior, a!ecting mostof all other competitors.

Both have an e!ect on the market in general, hence it isnt a meaningful distinction interms of e!ects, but only in descriptive terms.

Art 102 TFEU talks about di!

erent ways of abusing a dominant position:Article 102(ex Article 82 TEC)

Any abuse by one or more undertakings of a dominant position within the internalmarket or in a substantial part of it shall be prohibited as incompatible with theinternal market in so far as it may a!ect trade between Member States.

Such abuse may, in particular, consist in:

(a) directly or indirectly imposing unfair purchase or selling prices or other unfairtrading conditions;

(b) limiting production, markets or technical development to the prejudice ofconsumers;

(c) applying dissimilar conditions to equivalent transactions with other tradingparties, thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to acceptance by the other parties ofsupplementary obligations which, by their nature or according to commercial usage,have no connection with the subject of such contracts.

It is not an exclusive list. It provides examples, but we could integrate it with any otherabusive behavior, for instance in Continental Can mergers had not yet been regulated.

We will also analyze two cases that represent abusive behaviors developed throughpricing mechanisms (British Airways and Azko)


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COMMISSION VS MICROSOFT

FACTS

Microsoft Corp., a company established in Redmond, Washington (United States), designs,develops and markets a wide variety of software products for di!erent kinds ofcomputing devices. Those software products include, in particular, operating systems forclient personal computers (client PCs'), operating systems for work group servers andstreaming media players. Microsoft also provides technical assistance for its variousproducts.

On 15 September 1998, Mr Green, a Vice-President of Sun Microsystems, Inc. ('Sun'), acompany established in Palo Alto, California (United States) which supplies, in particular,servers and server operating systems, wrote to Mr Maritz, a Vice-President of Microsoft,

as follows:

'We are writing to you to request that Microsoft provide [Sun] with the completeinformation required to allow Sun to provide native support for COM objects on Solaris.

We also request that Microsoft provide [Sun] with the complete information required toallow [Sun] to provide native support for the complete set of Active Directory technologieson Solaris.

By letter of 6 October 1998, Mr Maritz replied to the letter of 15 September 1998. In hisletter, he said:

[..]Regarding the Active Directory, we have no plans to "port" [it] to Solaris. However, tosatisfy our mutual customers there are many methods with varying levels of functionalityin order to interoperate with the Active Directory. For example, you can use the standardLDAP to access the Windows NT Server Active Directory from Solaris.

On 10 December 1998, Sun lodged a complaint with the Commission

In the contested decision, the Commission finds that Microsoft infringed Article 82 ECand Article 54 of the Agreement on the European Economic Area (EEA) by twice abusing adominant position.

The Commission first identifies three separate worldwide product markets and considersthat Microsoft had a dominant position on two of them. It then finds that Microsoft hadengaged in two kinds of abusive conduct. As a result it imposes a fine and a number ofremedies on Microsoft.

First of all, if we went to the Commission now, we wouldnt have the same results, sinceonce Microsoft was in a dominant position, whereas today Apple is a larger competitorthan Microsoft. Also the size of the European market is relevant.

One could also wonder whether the twodi!erent alternatives actually belong to


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the same market in terms of personalsatisfaction and price

Microsoft was in a dominant position. The (very long) case can be summed up into twomain questions:

1. Microsoft refused to supply andintegrate interoperability.

2. Tying products.

Our investigation will focus on these two elements. The refusal to supply was motivatedby Microsoft based on their copyright. The e!ect was preventing competitors fromentering the market.

The copyright issue is big, especially when dealing with high-tech and scientific products.

What is behind this is the necessity to protect the copyright. A copyright is a disciplinewhich provides an added value to the innovating company. The discipline of copyrightscovers all new inventions, with the aim of protecting products and investments,stimulating R&D investments assuring a su"cient revenue through all the investors thatput money in the activity. There is the need to be a good balance within competitionfunctioning and copyright protection.

Giuliano Amato, former president of the Italian antitrust authority, thought itd be fair torecognize intellectual property to Microsoft, hence protecting their result, but at the sametime stimulating them to find new solutions: probably today without Microsoft wewouldnt have Apple as an active competitor. Competition is not harmful for propertyrights, sometimes it helps competitors to find new solution to innovate and win themarket.

This is a controversial issue, which can be seen as a positive factor in the development ofcompetition and R&D stimulation. One could also say that the Microsoft decline startedafter this case. So, completion is good or bad for undertakings? It depends.

DISCUSSION

Three arguments brought by Microsoft:

1. Wrong assessment of interoperability

2. Wrong interpretation of copyright law

3. Broken principle of proportionality

An example: we are in the broad category of refusal to supply, which usually contains abig category of behaviors, namely those related to the essential facilitiesdoctrine. Afirst abusive behavior is when a company has the control (exclusive) of an essential

facility, which, despite of its market share, obliges to supply it to other competitors. Onlya small number of facilities could be requested by one or more firms.


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Deutsche Telekoms behavior was slightly di!erent but could be compared to thiscase.

Theres a di!erent treatment of competitors owning essential facilities to others. This isthe reason why di!erent phone operators charge di!erent charges (higher) when calling

from one to another user belonging to di!erent companies.

In Microsoft we are talking about a producer which without a doubt possesses anessential facility as a result of a specific activity, namely R&D investments. It hence makessense that the access to this resource is limited. In which kind of conditions do we findthe right balance between active competition and copyright?

Case law:

Commercial Solvents, IMS Health and Magill.

From the case:331- It follows from the case-law cited above that the refusal by an undertakingholding a dominant position to license a third party to use a product covered by anintellectual property right cannot in itself constitute an abuse of a dominant positionwithin the meaning of Article 82 EC. It is only in exceptional circumstances that theexercise of the exclusive right by the owner of the intellectual property right may giverise to such an abuse.

This is the core of this decision.

Play attention on the fact that what the CFI judges can try to challenge is whether theprocedure has been followed in an orthodox way under an administrative point of view.This is a big administrative procedure. The judge has just to see if the rules wererespected, toy do not review the decision itself, you just check if that decision could betaken.

The Commission could be judged on the method used in taken the decision.

What did Microsoft said against this solution? It said that its technology was notindispensable and that there were other competitors.According to Microsoft theCommission failed in the assessment. It failed the definition of the product of the market.

Microsoft failed in demonstrating the errors of the commission.

The CFI refused to adopt a new definition of the market, claiming it involves complexeconomic assessment. It needs to be assessed based on accurate, reliable and coherentevidence. The CFI will not proceed to a new consideration of economic analysis. It willonly analyze whether the Commission respected those criteria.

332 - It also follows from that case-law that the following circumstances, in particular,must be considered to be exceptional:

in the first place, the refusal relates to a product or service indispensableto theexercise of a particular activity on a neighbouring market;


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in the second place, the refusal is of such a kind as to exclude any e!ectivecompetition on that neighbouring market; ( when we talk about property rights, a refusalis considered as capable to exclude completely competition in the market)

in the third place, the refusal prevents the appearance of a new product for which

there is potential consumer demand We say that the judge has a limited power to syndicate what has been previously

assessed, in our legal framework (Italy): has the method in reaching the conclusionbeen followed correctly?

CFI also stated that Microsofts competitors were few and weak. What we have so fardiscussed mainly refers to the firms refusal to supply. From one day to another, a firmmay refuse to sell their products to active or potential competitors for some reason.

Refusal to supply is refusal to deal. It can be abusive (remember Chiquita case refusal to

deal to the Danish company). Refusal to deal can be considered as a barrier to entry notonly for actual, but even for potential competirors.

Example: If we consider the electronic and telecommunication market, made up by aninfrastructure and the service, the refusal to deal with certain competitors is even worsewhen theres an operator working both in upstream and downstream markets. This is thecase in Rete Ferroviaria Italiana, being a di!erent company from Trenitalia.

If you have an essential facility you have a dominant position.

The second plea in law refers to the tying agreement. This refers to subjecting the

agreement to one product to accepting to use also another product. Microsoft claimedthat it regarded Windows Media player, being included into the whole software packageand for consumers it was normal to have such software included in the package.Consumers could object that they are worried about hidden costs in the price. Microsoftstated that consumers didnt pay for the Media Player being included in the package.

Hence we need to focus on whether the price is justified. The CFI assessed whether thetying and the tied products are part of two separate markets. The company might bedominant in the tying market and use the tied product to get dominant in that marketalso. (I use dominance in one market to get dominance in the other).

Ex. You are an Apple customer, buying an iPad and I provide you the choice oftying it with an iPhone, theres no argument. If the two products are always soldtogether, there is a tying agreement which might be abusive.If I oblige you to buyan Ipad to have an IPhone is illegal.

If there are meaningful consequences with the e!ect of limiting competition in the tying,theres an abusive practice being carried out.

Problem of tying agreements is for both consumers and competitors.you cannot have ane"cient solution, so price or qualities may get worst.


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The CFIs conclusions were that there had been an infringement of art 102 TFEU bothunder the perspective of an abusive practice concerning the tying and the refusal to

supply.

Microsoft case arose from the two next cases (Commercial solvent; Oscar Bronner)


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COMMERCIAL SOLVENTS VS COMMISSION

FACTS

Commercial Solvents Corporation (CSC) is a company incorporated under the law of theState of Maryland, having its principal o"ce in the City and State of New York, UnitedStates of America. The company manufactures and sells among other things productsbased on nitropara"nes.

In 1962 CSC acquired a 51 % of the voting stock in Istituto Cbemioterapico ltaliano SpA(Istituto), a company incorporated under Italian law having its principal o"ce in Milan.At present CSC has a 50 per cent representation in the 'Consiglio di amministrazione' Board of Directors (5 out of 10) and in the 'Comitato Esecutivo' Executive Committee (3 out of 6).

Until 1970 Istituto acted as a reseller of aminobutanol produced by CSC in the UnitedStates of America. A customer of Istituto for aminobutanol was Laboratorio ChemicoFarmaceutico Giorgio Zoja SpA (Zoja), to whom Istituto began selling the product in 1966.

At the end of 1970 Istituto informed CSC that Zoja had placed a new order foraminobutanol and asked whether this intermediary product could again be supplied forresale to Zoja. CSC replied that none was available.

After further attempts to obtain supplies of aminobutanol on the world market had failedas the search for the product inevitably led to one possible source of supply, namely CSC,

Zoja, by letter dated 8 April 1972, applied to the Commission for the institution ofproceedings against CSC and Istituto,

(Sum up of the story: It was the first case concerning refusal to supply. It regards anAmerican chemical company controlling an Italian chemical company. This latter refusedto supply certain chemical products to a firm of which it once was the main supplier.Istituto Chemioterapico refused to supply ethanbutol to Zoja, which was an essential itemfor Zoja. In fact, Zoja tried without success to find the same product elsewhere.)

DISCUSSION

This is the first case on refusal to supply. There is also the argument of intellectualproperty right, even if the question is not raise.

If they do not supply ethanbutol they kick out from the market a competitor.

22 - Contrary to the arguments of the applicants it is in fact possible to distinguish themarket in raw material necessary for the manufacture of a product from the market onwhich the product is sold. An abuse of a dominant position on the market in rawmaterials may thus have e!ects restricting competition in the market on which thederivatives of the raw material are sold and these e!ects must be taken into account in

considering the e!ects of an infringement, even if the market for the derivative does notconstitute a self-contained market (it does not arrive directly to consumers). The


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arguments of the applicants in this respect and in consequence their request that anexpert's report on this subject be ordered are irrelevant and must be rejected.

Here we are talking about link markets.

This case is relevant because refusal to supply cases always refer to Commercial Solvents,Magill and IMS.

OSCAR BRONNER VS MEDIAPRINT

FACTS

An organization can be an essential example in providing a service: this is almost alwaystrue. For instance, in the postal service the network externalities of delivery service andso on makes the di!erence.

We have a newspaper company and one of the competitors who also possesses a deliveryservice. Oscar Bronner wants to use Mediaprints delivery service, which didnt agree.Bronner argues that the delivery service was essential in order to carry on its activity.Mediaprint replied that the home post delivery scheme required great administrative andfinancial investments. Having dominat postion doesnt mean taking care of competitors.

DISCUSSION

(Remember that refusal to supply, expecially dicriminatoion in refusal to supply is also inBanana case)

Oscar Bronner claimed discrimination: another company was accepted in the delivery net.However, Mediaprint claimed that the relationship between the two companies wasdi!erent. Discrimination is another problem behind refusal to supply.

Concluding, the Court ruled that there was a dominant position by Mediaprint but noabuse in refusing to supply to Bronner:

45 - It should be emphasised in that respect that, in order to demonstrate that thecreation of such a system is not a realistic potential alternative and that access to theexisting system is therefore indispensable, it is not enough to argue that it is noteconomically viable by reason of the small circulation of the daily newspaper or

newspapers to be distributed.

46 - For such access to be capable of being regarded as indispensable, it would benecessary at the very least to establish, as the Advocate General has pointed out at point68 of his Opinion, that it is not economically viable to create a second home deliveryscheme for the distribution of daily newspapers with a circulation comparable to that ofthe daily newspapers distributed by the existing scheme.

47 - In the light of the foregoing considerations, the answer to the first question mustbe that the refusal by a press undertaking which holds a very large share of the dailynewspaper market in a Member State and operates the only nationwide newspaper home-delivery scheme in that Member State to allow the publisher of a rival newspaper, whichby reason of its small circulation is unable either alone or in cooperation with other


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publishers to set up and operate its own home-delivery scheme in economicallyreasonable conditions, to have access to that scheme for appropriate remuneration doesnot constitute abuse of a dominant position within the meaning of Article 86 of theTreaty.


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BRITISH AIRWAYS VS COMMISSION

FACTS

We see BA on one side and Virgin on the other.

We are talking about the agreement made by BA with travel agent for the distributionstage.

3 - BA, which is the largest United Kingdom airline, concluded agreements withtravel agents established in the United Kingdom and accredited by theInternational Air Transport Association (IATA), which included not only a basiccommission system for sales by those agents of tickets on BA flights ('BA tickets')but also three distinct systems of financial incentives: 'marketing agreements',

'global agreements', and, subsequently, a 'performance reward scheme', applicablefrom 1 January 1998.

4 - The marketing agreements enabled certain travel agents, namely those with at leastGBP 500 000 in annual sales of BA tickets, to receive payments in addition to their basiccommission, in particular a performance reward calculated on a sliding scale []BA is thelargest British airline. It concluded agreements granting strong financial incentives andfacilitations to travel agents selling a certain amount of BA tickets. Virgin airways directeda complaint to the Commission to this regard. BA renewed its compensation scheme andVirgin sent a new complaint to the Commssion. The Commission found that BA was

abusing its dominant position and issued the contested decision. BA presented severalpleas in law. In the appeal judgment only the alleged abuse of dominant position is atstake.

The CFI stated that in the case the abuse of dominant position consisted in applyingdissimilar conditions to equivalent transactions, seriously limiting the competition amongtravel agents who sold products of di!erent airlines. In addition, the CFI found that suchfidelity-building incentives had an exclusionary e!ect on competition. BA claimed itscompetitors could have established a similar bonus scheme, but the CFI stated theydidnt have the financial means to do so. The CFI concluded that BAs bonus schemeswere not economically justifiable and had the only purpose of exponentially increasing(which they did) BAs customer basis.

Hence BA now seeks that:

The contested decision be annulled.

The fine be annulled or reduced.

The Commission seeks that:

The application be dismissed

Virgin intervenes.


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This is an appeal judgment. In 2003, BA applied to the CFI for the annulment of aCommissions decision. The application was rejected. Now, BA applies to the ECJ forreversing the decision and consequent 6.8 million $fine for abuse of dominant positionin the air transport market. Virgin is a competitor of British Airways, acting in support ofthe Commission.

DISCUSSION

The behavior under scrutiny are agreements with travel agents, favoring the sale of BAstickets. These are agreements for distribution. We are not properly talking aboutagreements, but about an abuse of dominant position: a system of reward scheme anddistribution which is considered abusive. What is found abusive in the special behavior ofBA, as many times happens have the issue of being based on rebates.

On one side theres the discriminatory e!ect of the measures, on the other side theexclusionary behavior. These agreements are discriminatory towards travel agents but

also towards other competitors.

Here we are talking about a reward scheme for travel agents, thus other airlines mightfind more di"culties in competing with the dominant firm since they cannot develop suchagreements. Airlines have been long considered a public utility. Usually in the airtransport market there only was one national company. Active competition wasintroduced only later on in the air transport sector.

Flying from Rome to Paris, only Alitalia and Air France had available flights, sincethey were the flagship companies of the respective countries. Other airways could

stop in Paris only on longer flights, for instance from NY to Bangkok.This system collapsed after Curbeau vs. Regie de poste, granting rights for essentialservices also to other competitors (exclusive rights were limited).

The problem connected to entering a liberalized market might be several. In this specificway, slots (places in the airport) are relevant: they connect the landing/departing area tothe interior of the airport. The usage of the airport at a certain time of the day isconnected to the slot issue. For instance, low-cost airlines only find available slots atterrible times.

The electronic mechanism for ticket booking used a unified system, in order to checkseat availability. When considering all the problems a system like this might create, it isalso referred to the technical side. Some travel agents ( in the case) might not be able tosell non-BA tickets just as easily. This is a barrier to entry. Nowadays, examining themarket we would see that most tickets are sold through the internet.

Could we imagine a reward scheme for consumers? Developing fidelity with consumers ispossible, but not necessarily abusive (Each company could do something like that). Thekind of remuneration given to BAs travel agents was at stake.

Relay attention on the profile that many times those kind of agreements are considered

unlawfully because they are keeping out the competitors from the market. The two pointsto consider are the discriminatory e!ect and on the other side the exclusionary e!ect.


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We have to look the cost: BA they brought many considerations and what we can say isthat the exclusive and discriminatory e!ect are related to the price for the service. If it islower than what necessary to have profit the strategy pricing is considerate abusive.

So, when theres no profit probably the behavior or the agreement are abusive.

In fact the prices were the issue in the BA case. Competition is a good way in regulatingeconomy when dealing with prices. There must be an economic justification in the bonusscheme. The exclusionary and discriminatory component in this case is detected throughprices. Here the relationship was between BA and its travel agents. BA brought manyconsiderations to the case. The exclusionary and discriminatory e!ect is proved by thefact that prices result lower than what is necessary for BA in order to have profit. The bigpocket theory tells us that a larger incumbent in the firm can dump prices and supplyuntil smaller competitors are forced to exit the market.

Another factor in the predatory conduct, which operate in the mechanism of price, is the

time and moreover the long or short term in which the pricing is related to.

The period of time is relevant: for how long is the competitor allowed to survive by theincumbents behavior in economic terms?

BA tried to attract travel agents, thus stimulating demand of their own tickets. Thereward/bonus scheme was considered abusive (market and global agreements were notconsidered abusive). The practice of rationalizing (second agreement) distribution wasnot considered abusive. Some travel agents were selected because they were favoringBAs ticket policy.

The compensation scheme would apply in economic terms to consumers as well: are lowprices justified by economic e"ciency or predation? This is the important point.

In any case one deals with competition we need to consider the relevant market, theaddressee and their market power.

The same behaviors toward consumers is considered legal if you have this behavior withagencies, theres a problem.

The European Founding Fathers believed in a market with fair prices. When an incumbentfirm establishes unreasonably low prices with the sole purpose of eliminatingcompetitors, law needs to limit economics. Quality and e"ciency may lead to a dominantposition, whereas other practices such as predation and mergers which artificially allowto reach such position are prohibited.

84 - Discounts or bonuses granted to its co-contractors by an undertaking in adominant position are not necessarily an abuse and therefore prohibited by Article82 EC. According to consistent case-law, only discounts or bonuses which are notbased on any economic counterpart to justify them must be regarded as an abuse


43/102

AKZO VS COMMISSION

FACTS

Its an action for annulment. The applicant is the Danish private undertaking AkzoChemie BV, the defendant is the EU Commission. The object of the trial is a Commissionsdecision against the private undertaking on ground of art. 106 TFEU. The Danishcompany had allegedly tried to force one of its active competitors out of the market: ECSLtd.

1 By application lodged at the Court Registry on 5 March 1986, AKZO Chemie BVbrought an action under the second paragraph of Article 173 of the EEC Treaty forthe annulment of Commission Decision 85/609/EEC of 14 December 1985 relatingto a proceeding under Article 86 of the EEC Treaty (IV/30698 ECS/AKZO

Chemie, O"cial Journal 1985 L 374, p. 1).

2 By that decision the Commission found that AKZO had infringed Article 86 of theTreaty by pursuing against a competitor, Engineering and Chemical Supplies(Epsom and Gloucester) Ltd ('ECS'), a course of conduct intended to damage ECS'sbusiness and/or to secure its withdrawal from the EEC organic peroxides market(Article 1).

9 The Commission found in particular (Article 1 of the decision) that AKZO: (i) hadmade direct threats to ECS at meetings in late 1979 with the aim of securing ECS's

withdrawal from the market for organic peroxides for the 'plastics' application;The Commissionfound that Akzo:

directly threatened ECS to exit the market on one occasion.

Sold products to ECSs customers at unreasonably low prices, maintaining usualprices for their own usual customers.

Applied bait prices for certain products and kept others at suspiciously low prices.

Followed an exclusionary commercial policy in systematically underbidding ECSs

prices.

And hence imposed a 10.000.000 ECU fine on Akzo.

Akzo contested the Commissions decision claiming that:

The administrative procedure has been vitiated.

It did neither occupy a dominant position in the market nor consequently violate it.

The European Court of Justice found that:

1. FIRST PLEA: VITIATED ADMINISTRATIVE PROCEDURE


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The first vice of the administrative procedure asserted by Akzo, namely theimpossibility of accessing its file, must be rejected. The undertaking had beensu"ciently informed.

The Incomplete Investigationallegedly carried out by the Commission does not

per se constitute a vice, and hence must be rejected.

Even though Akzo found that it didnt have the opportunity to make its point ofview known, with a consequent breach of the right to be heard, such claim isunfounded and must be rejected.

2. SECOND PLEA: INFRINGEMENT OF (now) ART 102 TFEU

The definition of the relevant market carried out by the Commissionas the

organic peroxides market is sensible: the plea that Akzo didnt belong to it mustbe rejected.

The assessment of Akzos dominant position in the aforementioned marketcarried out by the Commission is supported by evidence. The plea must berejected.

The elimination of competition by an undertaking through other means thanquality are considered abusive when carried out by the dominant firm in themarket. In this case, the abuse consists in predatory pricing below averagevariable costs. In addition, Akzos managers threatened ECSto exit the market

but it did not use selective (lower) pricing with ECSs usual customers. Summingup, the plea that Akzos practices had not been abusive must be rejected.

Some of the measures imposed by the Commission appear excessive with the aimof preventing the companys abusive behavior. This part of the plea must beaccepted.One paragraph of the decision has been annulled and the fine reducedto 7.500.000 ECU.

DISCUSSION

Akzo is a leading case with the problem of administrative procedure, and in particular

with the access to the file. all the case about the access to the file in the EU is a problemof competition. but why? which kind of competition is related to the access to files? whichkind of problem get controversial this issue? and which are the interest besides? forinstance pepsi want to know the coca-cola formula..but here we are talking about filesthat need policies of regarding and privacy. considering that they are controversialbecause usually file are deviated in the administrative procedurebut the publicadministration sometimes gives file to get a decision even if this file contain importantand private data. a company could ask for an access to a specific file and maybesometimes they have the access even if they couldnt have it. here is really controversialbecause the info could damage and give confidential info about economic data that could

influence the future behavior of a given competitor


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The Akzo case is a landmark for both predatory prices cases and administrativeprocedures: access to file. The particular problem connected to the access to file issue incompetition matters, regards the danger of competitors accessing private information ofa given firm. Files might be covered by industrial secret/private information. Files mightbe provided by other competitors to the Commission in order to get to a decision, but

usually also contain info about essential policies for the competitor providing the files.Several paragraphs of the ruling confirm that not always files might be accessible to allcompetitors, for good reason.

A Access to the file

15 - AKZO claims, firstly, that despite repeated requests it did not obtain accessto all the investigation reports drawn up by the Commission's inspectors, whenthose documents could have contained evidence that might have enabled it todefend itself and to confirm that the position it had adopted was justified. That

refusal of access to the file conflicts with the line of conduct that the Commission,in its reports on competition policy, has declared that it intends to follow.

19 [..]The Commission's defence shows that, in adopting its decision, it tookthis document into account for the purpose of determining Diaflex's productioncosts.

21 - In that respect it must be held that since the reply of Steetley Chemicals wasnot disclosed to AKZO, although the Commission drew conclusions from it, theinformation contained in that document cannot be used in the presentproceedings..

The second point under discussion is connected to the fact there was an infringement ofthe treaty, about the resistance of dominant position.

In this case theres an economic test in order to assess whether prices are compatiblewith the market.

The substantial point of the decision deals with an infringement of the Treaty. Twoissues: the relevant market and the assessment of a dominant position.

The object of the trial is a Commissions decision against the private undertaking on

ground of art. 102 TFEU. The Danish company had allegedly tried to force one of itsactive competitors out of the market: ECS Ltd.

64 - According to the Commission, Article 86 does not make costs the decisivecriterion for determining whether price reductions by a dominant undertaking areabusive (point 77). Such a criterion does not take any account of the generalobjectives of the EEC competition rules as defined in Article 3(f) of the Treaty andin particular the need to prevent the impairment of an e!ective structure ofcompetition in the common market. A mechanical criterion would not giveadequate weight to the strategic aspect of price-cutting behaviour. There can bean anti-competitive object in price-cutting whether or not the aggressor sets itsprices above or below its own costs, whatever the manner in which those costs areunderstood (point 79).


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65 - The exclusionary consequences of a price-cutting campaign by a dominantproducer might be so self-evident that no evidence of intention to eliminate acompetitor is ne

Book European Competition Law-2

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