The draft Guidelines
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 undertaking holds a dominant position in the relevant market;
- The conduct of the undertaking is liable to be abusive by,
- departing from competition on the merits; and
- being capable of producing exclusionary effects.
- The conduct is not objectively justified.
Dominant position
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.
Abusive exclusionary conduct
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 dominant undertaking prevents consumers from exercising their choice based on the merits of the products, including product quality.
- The dominant undertaking provides misleading information to administrative or judicial authorities or other bodies or misuses regulatory procedures to prevent competitors from entering, or to make it more difficult to enter the market.
- The dominant undertaking violates rules in other areas of law and thereby affects a relevant parameter of competition, such as, price, choice, quality, or innovation.
- The dominant undertaking’s conduct consists of, or enables, biased or discriminatory treatment that favours itself over its competitors.
- The dominant undertaking changes its prior behaviour in a way that is considered as abnormal or unreasonable considering the market circumstances, such as an unjustified termination of an existing business relationship.
- A hypothetical competitor as efficient as the dominant undertaking would not be able to adopt the same conduct, notably because that conduct relies on the use of the resources or means inherent to the holding of the dominant position, particularly to leverage or strengthen that position in the same or another market.
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
- has produced actual exclusionary effects,
- caused direct harm to consumers by influencing, to the detriment of consumers, prices or other parameters of competition such as output, innovation, variety or quality of goods or services,
- was capable of having exclusionary effects on actual or potential competitors that are as efficient as the dominant undertaking,
- had an appreciable detrimental impact on competition (no de minimis threshold).
(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:
- payments by the dominant undertaking to customers that are conditional on them postponing or cancelling the launch of products based on products offered by the dominant undertaking’s competitors;
- the dominant undertaking agreeing with its distributors that they will swap a competing product with its own under the threat of withdrawing discounts benefiting the distributors; or
- the dominant undertaking actively dismantling an infrastructure used by a competitor.
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.
Objective justification
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.
Initial conclusions
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.