Module 2: Article 102 TFEUera.intAcademyofEuropeanLawTranscriptEU Competition Law for national judgesCourse co-financed by the European Commission's DG CompetitionContent Introduction .......................................................................................................................................... 2 What are the key concepts underlying Article 102 TFEU? ......................................................... 2 When is it possible to identify a collective dominance? ............................................................ 3 Are there any objective justifications which could serve as a defence to an abusive conduct? ................................................................................................................................................ 4 What are the consequences of the infringement of Article 102 TFEU? ................................. 4 Can national judges directly apply Article 102 TFEU? ................................................................ 5 Introduction Whereas Article 101 TFEU deals with agreements between competitors, Article 102 TFEU focuses on monopoly positions and market power. In particular, Article 102 TFEU prohibits anti-competitive behaviour by undertakings which are not sufficiently restrained by other competitors operating on the market (i.e. undertakings which hold a dominant position). The application of such a provision has often been controversial, due to the difficulties linked with assessing dominance.What are the key concepts underlying Article 102 TFEU? The objective of Article 102 is very clear. It is to prohibit the abusive conduct of undertakings which are in a dominant position. So it focuses on unilateral conducts of undertakings. It complements Article 101 which focuses on bilateral or multilateral agreements what we call cartels, most of them. Article 102 prohibits the abuse, not the dominance itself. But one of the crucial issues for either the competition authorities or a Court is to ensure that the dominance of the undertaking is established. If you are not dominant you can abuse as much as you like. The focus must be on determining dominance. Now dominance is determined first of all by making sure that a relevant market is identified.The relevant market has two aspects:It has the product, finding a product market, and also finding a geographical market.The product market is found by applying two tests. The first one is a mere substitution one. You try to examine whether the consumer/buyer would substitute another product for the one which the dominant undertaking is providing. But there is now a more sophisticated test: it is an economic based test which is called SSNIP. Basically, what the test does is to imagine- if the price of the product being manufactured by the company in dominant position is increased by up to 10% -.what would happen as far as the consumer is concerned. Would the consumers switch to another product? If they do, then that other product must be brought in the relevant product market you are examining. If the consumer does not switch then it does mean that the product produced by the undertaking concerned is the relevant product market. You need also to look at the geographical market and that is because companies tend to cooperate over a number of Member States, but sometimes the conditions of these markets are not homogeneous.Once you have established the relevant market you still don't have dominance. Dominance has to be established by looking at the economic power that the undertaking possesses in that relevant market you have just defined.What does economic power mean? The most obvious thing that we will quote is market shares. But market shares by themselves can be a danger. You may have an undertaking who has a market share of 50% but you need to ask the next question: what market share does the nearest competitor hold? If the nearest competitor holds, let's say, 45% or 48%. Then you may have a different market situation. Not one of dominance but one we call a duopoly. There are other factors you should take into account as well, apart from market shares. You should ask and find out whether the companies hold any intellectual property rights, Whether they have advantages, commercial advantages perhaps, developed by efficiency, whether they have distribution networks which operate well. There is a series of questions to be asked.To establish dominance is not an easy task. But if the company is dominant, that still does not mean that Article 102 has been breached. What is important is the conduct, to examine the conduct. Article 102 itself provides a list of examples. Most of the examples concern pricing. Clearly if an undertaking in a dominant position discriminates on price amongst the buyers then it is going to cause a problem for the buyers to be able to compete with each others. This sort of conduct has been examined often, both by the European Commission as a competition authority and by the European Court of Justice. One of the most popular conducts which has caused real issues is when a company or undertaking in a dominant position refuses to supply. There is an issue here, because one of the basics of contract law is that you have a right to say no if you don't want to supply. Under EU competition law if you have established as a dominant undertaking then that freedom of contract is not necessarily applied to you. When is it possible to identify a collective dominance? The concept of collective dominance is of recent origin. And it has arisen under Article 102 because of the difficulty of sometimes establishing dominance of one undertaking. There has been a conduct which is clearly abusive in nature, which restricts competition, which affects trade in Member States but when you look at the market structure your a probably dealing more with a kind of oligopoly, a number of few players and if we look at the market shares of each one, they are quite close.Recently we have tested the concept of collective dominance under Article 102, because Article 102 expressly states that it is an abuse of one or more undertakings. I don't believe that the final definition of collective dominance has actually emerged, but in 2002 the European Court of Justice delivered a very important judgment in a merger case involving Airtoursand First Choice .And basically what the Court had said is confirmed: that the collective dominance exists , it can exist, under Article 102 but there must be three factors. First of all the market where the companies are operating must be transparent; that means that the costs of manufacturing the products, the margins of profits, are so limited that they are clear to all the players. Secondly, there must be evidence that there are deterrents, adequate deterrents. This means that if one of the companies involved in the joint collective dominance decide that they will leave that group, then they will be punished in some form or another.And the third criteria, which comes from this decision of the General Court, is that the national Court must be convinced that any current or future competitors will not be able to enter the market and actually upset that collective dominance by becoming a competitor in themarket.Are there any objective justifications which could serve as a defence to an abusive conduct? There are no expressed provisions in Article 102 which exempt or except conduct which is determined to be abusive of an undertaking in a dominant position. This article is very different from Article 101 which deals with cartels, bilateral agreements, with arrangements and which expressly provides, in Article 101 Paragraph 3, the conditions for exceptions to the prohibition.However, under Article 102, in determining whether the conduct is of such a nature as to be an abusive conduct, a national court or competition authority will be looking at some factors which some would call objective justifications.For example, if you are in a dominant position and you refuse to supply an undertaking and the reason why you refuse to supply that undertaking is that the undertaking actually has failed in the past to pay you for the products they bought, or the undertaking is going bankrupt then, that would matter, which would legitimately can be taken into account to actually determine that no abuse has taken place by the refusal. What are the consequences of the infringement of Article 102 TFEU? A quick answer is fines. The competition authorities investigating such cases have the authority to impose a fine up to 10% of the annual turnover of the company. And for the company, in the case of a multi-national company, it will involve turnover of all the companies of the group. The other direct consequence is that such decision from the competition authority or even a judgment will enable very easily f a private party - which has suffered damages as a result of the abusive conduct of an undertaking in a dominant position -to bring an action for damages beforethe national Court.In terms of proving the case, if there is a decision of a competition authority that there has been an abuse, it will facilitate the litigant to prove the case under national procedural rules.The third consequence, which is not a monetary one, is the loss of reputation. Very large multi-nationals operate globally and being deemed to be infringing competition rules - in some countries competition rules have also criminal penalties, not under European Competition law - But there could be a damage to their reputation, particularly if the undertakings had repeatedly being found to behave in an abusive manner in the marketplace.Can national judges directly apply Article 102 TFEU?The answer to that question is yes. It is yes and in fact national courts had been able to apply Article 102 since 1974 after the decision of the European Court of Justice on (BAT v. Sabam). Why there haven't been many actions is that only really until 2004 we have the development of decentralising. The enforcement of the competition rules. The Commission itself has always encouraged national litigation for the obvious reasons that it is in the national market, in the national environment that the parties, the complainant or any other party actually has knowledge or the ability to secure the evidence. The difficulties that have happened to prevent the development of private enforcement eye actions directly before the national courts. In context of Article 102, it may well be, that the individual party who has suffered the damage finds it difficult to fight an action against a very large company which has access to resources both financial and legal resources which smaller undertakings are just unable to secure. Academy of European LawMetzer Allee 4D-54295 TrierRue Belliard 159B-1040 BrusselsTel +49 651 93737 0Fax +49 651 93737 773info@era.intwww.era.intERA is funded with support from the European Commission.This communication reects the views only of the author, and the Commission cannot be held responsible for any use which may be made of the information contained therein.