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Unpacking Australia’s new merger control legislation
On 10 October 2024, the Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024 (the Bill) was introduced into Parliament.
Global | Publication | November 2024
On 01 August 2024, the European Commission (EC) launched a public consultation on the draft text of the Guidelines on the application of Article 102 TFEU to abusive exclusionary conduct by dominant undertakings (the draft Guidelines).
Currently, there are no guidelines that clarify the application of Art. 102 TFEU making it one of the few areas of EU competition law where this is the case. The draft Guidelines aim to provide legal certainty and predictability at EU and national level by systemising the rich and complex case law on Article 102 TFEU. Similarly, the EC aims to support undertakings in self-assessing whether their conduct constitutes an exclusionary abuse under Article 102 TFEU and give non-binding guidance to Member State courts and competition authorities. Upon adoption of the new guidelines, the EC plans to withdraw the existing 2008 Guidance on enforcement priorities in applying Art. 102 TFEU, as amended in March 2023.
The 2008 Guidance reflects the EC’s efforts in the early 2000s to reorient the enforcement of Article 102 TFEU away from a formalistic approach to an effects-based approach (putting more weight on economic analysis, e.g., the “as-efficient competitor test” and consumer welfare). Restricted by rather formalistic case law, issuing substantive guidelines was not an attractive option as such guidelines offer an interpretation of the law that must respect the case law of the EU courts. However, the EC was free to adopt guidance on its own enforcement which allowed it to prioritize cases where harm to consumers seemed most likely. The EU Courts’ interpretations of Article 102 TFEU have departed from the 2008 Guidance in key cases. While the EU Courts have recognised the merits of a “more economic” approach in judgments like Post Denmark I and II and Intel, the EC has acknowledged that an overly rigid implementation of the effects-based approach would render enforcement against exclusionary abuses unduly burdensome.1 As a result, in March 2023, the EC launched a long-term initiative to adopt guidelines and, in the interim, revised the 2008 Guidance to ensure its alignment with the case law.2
The draft Guidelines promote a “workable” effects-based approach that tries to strike a balance between economic analysis and effective enforcement of Article 102 TFEU. The most notable changes introduced by the draft Guidelines are of formal nature aiming to tighten enforcement. A new two-step test to assess abusive exclusionary conduct paired with the introduction of several legal presumptions classifying certain categories of conduct as harmful, formalizes the assessment and shifts the burden of proof onto dominant undertakings.
Exclusionary conduct can be broadly defined as practices directed at actual or potential competitors of a dominant undertaking to hamper or eliminate their access to supplies or markets, and includes predatory pricing, exclusive purchasing obligations, certain rebates, refusal to deal, margin squeeze and price discrimination.
According to the draft Guidelines, three cumulative conditions must be met to determine that an undertaking has engaged in abusive exclusionary conduct:
The draft Guidelines set out various factors relevant to the assessment of a dominant position, such as the market position, barriers to expansion and entry, and countervailing buyer power. Particularly relevant for digital markets, the draft Guidelines discuss data-driven advantages and network effects.
The draft Guidelines also address the conditions for establishing the existence of collective dominance, i.e., a type of dominance produced by two or more economic entities that are legally independent of each other but act together on a particular market as a collective entity from an economic point of view.
To determine whether the conduct of a dominant undertaking may constitute an exclusionary abuse under Article 102 TFEU, the draft Guidelines set out a new two-step test that asks whether the conduct departs from competition on the merits and whether the conduct has the capability to produce exclusionary effects. The draft Guidelines set out differing standards of proof and legal presumptions depending on the category of conduct the dominant undertaking engaged in (see below (a) – (d)).
(a) Conduct subject to general principles
The two-step test is applied in line with general principles where the conduct does not fall under the following categories: conduct subject to a specific legal test, conduct qualifying as a naked restriction or conduct which is not subject to a specific legal test but for which the EU Courts have provided guidance.
To demonstrate that conduct departs from competition on the merits, the Commission must base itself on the specific circumstances of the case. The following factors are relevant for this assessment:
The EC needs to demonstrate that the conduct is at least capable of producing exclusionary effects based on the elements laid out in para. 70 of the draft Guidelines. While the effects must be more than hypothetical, the EC does not need to prove that the conduct
(b) Conduct subject to specific legal tests
The draft Guidelines lay out specific legal tests for exclusive supply or purchasing agreements, rebates conditional upon exclusivity, predatory pricing, margin squeeze in the presence of negative spreads, and certain forms of tying.
Conduct which satisfies the requirements of a specific legal test is deemed to depart from competition on the merits.
Once it is established that the relevant conduct fulfils the requirements of a specific legal test laid out in section 4.2 of the draft Guidelines, it is presumed that this conduct has the capability of producing exclusionary effects. A dominant undertaking can rebut the probative value of the presumption by submitting, based on supporting evidence, that the conduct is not capable of having exclusionary effects, e.g., by showing that the circumstances of the case are substantially different from the background assumptions upon which the presumption is based.
(c) Conduct qualifying as a naked restriction
This category applies to conduct that has no economic interest for the dominant undertaking, other than restricting competition, for example:
Conduct that has no economic interest for the dominant undertaking, other than restricting competition, is deemed to depart from competition on the merits.
In “very exceptional cases,” the dominant undertaking may be able to prove that its conduct was not capable of having exclusionary effects.
(d) Conduct with no specific legal test
This category applies to specific types of conduct for which no specific legal test has been developed, but for which the EU Courts provided guidance on how to apply the general legal principles set out under (a), i.e., conditional rebates that are not subject to exclusive purchase or supply requirements, multi-product rebates, self-preferencing, and access restrictions different from refusal to supply.
The EC provides guidance on the application of both limbs of the test in Section 4.3 of the draft Guidelines.
The draft Guidelines conclude with general principles to assess whether an abusive exclusionary conduct may escape the prohibition of Article 102 TFEU because it is objectively justified. The dominant undertaking must prove that the conduct is objectively necessary (“objective necessity defence”) or that it produces efficiencies outweighing the negative effects of the conduct on competition (“efficiency defence”). The draft Guidelines suggest that the standard for the burden of proof is high, especially where the conduct qualifies as a naked restriction or is presumptively harmful.
Although the draft Guidelines are an attempt to close the gap between the 2008 Guidance and the EU Courts’ application of Article 102 TFEU, the EC’s efforts to partially roll back the effects-based approach may lead to a renewed disconnect with the EU Courts’ jurisprudence.
Particularly in cases where allegedly abusive conduct is presumed to have exclusionary effects, the draft Guidelines diminish, and in some cases relieve, the EC of the initial burden of demonstrating the exclusionary effects and are at odds with the case law which obligates the EC to demonstrate the existence of exclusionary effects. Whether the EU Courts will agree that they have “[…] developed tools which can be broadly described and conceptualised, for the purpose of [the draft Guidelines] as presumptions” that allow the shifting of the burden of proof to the dominant undertakings, remains to be seen.
Moreover, while the draft Guidelines aim to strike the right balance between legal formalism and economic analysis, they reflect the EC’s desire to retain maximum discretion when taking an effects-based approach. In some cases, this may jeopardize the intended legal certainty. An example is the treatment of tying and bundling, where the draft Guidelines fail to give clear directions as to when exclusionary effects can be presumed. The draft Guidelines conclude that whether “tying is capable of having exclusionary effects depends on the specific circumstances of the case”. In cases where the guidelines fail to provide the intended legal certainty, the dominant undertaking’s ability to defend itself against claims of exclusionary abuse will be adversely affected, especially when the burden of proof lies with the dominant undertaking.
Similarly, even though a key intended outcome of the Guidelines is to foster ex-ante compliance3, the lack of legal certainty will reduce the dominant undertaking’s ability to self-assess whether its behaviour constitutes as exclusionary abuse. It remains to be seen whether the public consultation will lead to further clarification.
Finally, while EC guidelines are non-binding under EU law, they may significantly influence the behaviour of Member States competition authorities and business practice.
Stakeholders had the opportunity to comment on the draft Guidelines until 31 October 2024. The adoption of the final Guidelines is planned for the fourth quarter of 2025.
Publication
On 10 October 2024, the Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024 (the Bill) was introduced into Parliament.
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