Abuse of a dominant position in the spotlight

Both the Netherlands Authority for Consumers and Markets (“ACM”) and the European Commission (the “Commission”) have recently imposed record fines on companies on the grounds of abuse of their position of economic strength. On the basis of the NS, Google, Intel and Qualcomm cases, this blog addresses the special responsibilities of dominant companies. These cases demonstrate that ACM and the Commission do not shy away from testing the limits of the prohibition of abuse of a dominant position. 

Prohibition of abuse of a dominant position

Under Section 24 of the Dutch Competition Act and Article 102 of the TFEU, companies that have a position of economic strength are prohibited from abusing that dominant position. In established case law of the European Court of Justice, a dominant position is defined as a position of economic strength that allows an undertaking to behave to an appreciable extent independently of its competitors and customers and ultimately of its consumers. As a general rule, a dominant position is presumed if a company has a market share of more than 50%. The term “abuse” is an open standard. Abuse may consist of the imposition of unreasonably high prices, a refusal to supply or charging extremely low prices (“predatory pricing”) to force competitors off the market.

NS – loss-making offer

In June 2017, ACM imposed a fine of EUR 41 million on NS (Dutch Railways). The case related to a tendering procedure for a train and bus transport concession in the province of Limburg. The Limburg concession was viewed as a “pilot project” for possible further decentralisation of the railways. ACM therefore believed that NS, the concessionaire of the Main Rail Network, considered it essential to win the Limburg concession. Losing it would jeopardise its monopoly on the main rail network in the long term. In ACM’s opinion, NS abused its dominant position in two ways with regard to the Limburg concession. First, ACM argued that NS abused its position by means of predatory pricing. Secondly, ACM fined NS for a combination of related practices. In ACM’s opinion, the objective of both of these practices was to win the Limburg concession at any cost. 

A remarkable aspect of ACM’s decision is that in this case the predatory pricing assessment framework (usually applied on the basis of an ex-post evaluation) was applied to a future situation. It is a daring approach of ACM to base a case of abuse of a dominant position on an ex-ante evaluation, since such an analysis is, by necessity, based on certain assumptions and the related uncertainties. ACM is also testing the limits by classifying different practices as “a complex of practices” and using this as a basis to rule that the prohibition of abuse of a dominant position has been breached. It will have to be established in the objection procedure and appeal proceedings whether ACM’s approach stands up to scrutiny.

Google – giving illegal advantage to its own products and services

In June 2007, the Commission fined Google EUR 2.42 billion. The Commission found that Google had abused its dominant economic position as a search engine on the markets for general internet search services since 2008 by giving its own price comparison product (Google Shopping) a more prominent position in the search results than those of its competitors. As a result, the Commission found that internet traffic was being redirected from competitors to Google Shopping, which resulted in suppression of competition. In the Commission’s opinion this led to reduced freedom of choice of consumers and less innovation on the market.

The Commission’s detailed decision was recently published and will undoubtedly give rise to debate. Google will, among other things, raise the question to what extent the freedom of choice of consumers is actually being reduced in light of the many possibilities available to them in online shopping. Google will also presumably ask the fundamental question why a company should not be allowed to favour its own products over those of others if it has not been proven that that results in (partially) foreclosure of competitors (for instance in the case of an essential facility). It is also remarkable that the Commission has not specifically categorised Google’s practices as abuse, but is relying on Google’s special responsibility as a dominant company.

Intel – exclusivity rebates

In 2009, the Commission fined Intel EUR 1.06 billion. In the Commission’s opinion, Intel abused its dominant position on the world market for x86 processors by giving rebates to various computer manufacturers, provided that they purchased all (or almost all) their x86 processors from Intel (known as “exclusivity rebates”). 

Although the Commission did not consider it necessary to investigate all the circumstances, it nevertheless investigated whether the exclusivity rebates made it impossible for an equally efficient competitor to compete with Intel (the as-efficient-competitor test). On appeal, Intel argued that the Commission had made errors in performing the as-efficient-competitor test. The Commission took the position that the test had been performed for the sake of completeness and therefore did not affect the material assessment. Although the General Court accepted that argument, the Court of Justice ruled otherwise. The Court of Justice found that the as-efficient-competitor test had been an important factor in the Commission’s assessment. The General Court should therefore have investigated all of Intel’s arguments on that point. 

The exact meaning of the judgment rendered by the Court of Justice is debatable. In our opinion, the presumption that exclusivity rebates have a negative impact on competition still appears to be valid. But if a company presents a reasoned rebuttal of that presumption, the Commission is required to investigate the foreclosure effects in more detail, it will at least have to substantiate why that company has not refuted the presumption. In light of the high fines, it is worthwhile for companies in this type of cases to always refute that exclusivity rebates have a negative impact on competition. 

Qualcomm – paying for exclusivity 

On 24 January 2018, the Commission imposed a fine of EUR 997 million on Chipmaker Qualcomm because, in the Commission’s opinion, it had abused its dominant position by paying Apple not to buy chips for iPhones and iPads from competitors of Qualcomm. The Commission found that as a result of those payments current or potential competitors of Qualcomm did not have access to Apple as a customer, while at the time of the breach Apple accounted for one-third of the total demand for the chips in question. In the Commission’s opinion, it was apparent from the file that Apple had seriously considered switching to a different supplier, but had decided not to do so due to the fees paid by Qualcomm.

This case is remarkable because, unlike the Intel case, it does not involve a market-wide practice of Qualcomm, but rather one specific vertical agreement between Qualcomm and Apple. But the Commission opted not to treat the case as an agreement between a supplier and a buyer in breach of the cartel prohibition. Commissioner Vestager has explained in a general sense that this case concerned Qualcomm’s practices, not those of Apple. The line of reasoning appears to have been that, due to Qualcomm’s dominant position, Apple was left with no other choice. All the same, the Commission could most likely also have fined Qualcomm on the grounds of the cartel prohibition. But the Commission is not yet done with Qualcomm: another investigation is pending as to whether Qualcomm is guilty of predatory pricing. The Commission is investigating whether Qualcomm sold chips below cost with the objective of pushing competitor Icera off the market.

What’s in store?

It is apparent from the cases addressed above that ACM and the Commission do not shy away from testing the limits of the prohibition of abuse of a dominant position. In light of the high fines that such abuse carries, it is a favourable development that the ECJ is drawing in the reins in the Intel judgment and appears to be forcing supervisory authorities to take a closer look at the effect of practices. It remains to be seen how the judges will react with regard to the fines imposed on NS, Google and Qualcomm. 

Information on dawn raids by ACM and the European Commission can be found at invalacm.nl

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