Amended guidance and upcoming guidelines on exclusionary abuses – more enforcement and less clarity?

August 2023  |  SPECIAL REPORT: COMPETITION & ANTITRUST

Financier Worldwide Magazine

August 2023 Issue

On 27 March 2023, the European Commission (EC) published an amending communication bringing immediate changes to the 2008 ‘Guidance on priorities in enforcing exclusionary abuse of market dominance’, signalling one of the most significant policy changes in almost 15 years. The initiative heralds significant changes, with potentially overwhelming consequences for the standard of proof and legal certainty in abuse of dominance cases. Major updates include the items outlined below.

Playing hide and seek. While the EC’s main declared aim is to account for the evolution of case law, it also looks like this initiative is an occasion of somewhat retracting from the rigorous economic effects analysis it had previously advocated.

Expansion of the foreclosure standard. The EC suggests that the existing test based on the ability to profitably increase prices will be dropped and replaced by a “negative influence”. This will significantly widen the applicable test by shifting from anticompetitive foreclosure to the mere weakening of an effective competitive market structure.

As efficient competitors (AEC) are no longer the primary benchmark to determine abuse of dominance. In order to determine whether a conduct is abusive, the test in the 2008 Guidance was whether such practice would be profitable for a company with a similar cost base (i.e., the “as efficient competitor” test. The EC signals a shift away from this standard: pursuing price-based abuses on the basis of the AEC test is no longer a priority, while entertaining cases of foreclosure of “less efficient” competitors now becomes one.

Background

In 2008, the EC sought to move away from the European Court of Justice’s (ECJ) formalistic approach to the enforcement of article 102 of the Treaty on the Functioning of the European Union (TFEU) – based on a per se criteria – and to adopt an effects-based approach, taking into account potential anticompetitive effects of alleged abuses and all facts and circumstances of each case. The EC decided to adopt a non-binding guidance on enforcement priorities in applying article 102 of the TFEU to abusive exclusionary behaviours by dominant undertakings – instead of proper guidelines (which are legally binding on the EC) as it did in other fields of EU competition law.

In March 2023, the EC modified the 2008 Guidance and launched in parallel the elaboration of proper guidelines to replace the Guidance as of 2025. The EC explains this shift by the fact that its priorities have evolved over time and should reflect the case law from the ECJ as well as changes within the economy (e.g., digitalisation).

Some argue the EC is actually seeking to revisit its own tool to ensure smoother enforcement of article 102 of the TFEU. This would explain why the EC implemented few but significant changes, paving the way to the new 2025 guidelines. Although the EC will likely not turn back from the effect-based approach it promoted, it will definitely seek to introduce more flexibility, as it already did through the amending communication.

Clarification of EC enforcement priorities

Against this backdrop, and until the adoption of new guidelines, the EC has updated the 2008 Guidance, as outlined below, to take account of developments in case law and market conditions since 2008.

A less focused approach. As highlighted in the EC’s policy brief, the effect-based approach sets a high bar for intervention. The EC now suggests taking into consideration not only economics-based consumer welfare, but also more general policy goals such as fairness, a level playing field, plurality and democracy.

A widened notion of anticompetitive foreclosure. Until now, in order to decide whether a practice could be investigated, the EC needed to show that market access for competitors had been undermined and the dominant company was able to profitably raise prices. However, the amending communication now clearly indicates that the dominant firm’s profitability is no longer a condition. As such, anticompetitive foreclosure now refers not only to the complete exclusion or marginalisation of competitors, but also to practices that weaken a competitive market structure.

The AEC test as an option. Taking advantage of the ECJ case law, the EC explains that when examining whether an as efficient competitor likely would be foreclosed, it will no longer be a priority to undertake an AEC test. As indicated in the policy brief, this means that the EC would likely only run an AEC test when it is compelled to do so by case law (e.g., in case of exclusivity rebates, if the defendant produces its own AEC test). This means that the EC will take a more legalistic approach and to the extent possible put the burden of proof on the defendant by relying on the presumption of unlawfulness.

Constructive refusal to supply distinct from outright refusal. The EC removed from the 2008 Guidance any reference to “constructive refusal” (i.e., where the dominant undertaking degrades conditions of – but does not as such refuse to – supply a product or service). This does not mean that constructive refusal to supply is not the EC’s priority anymore, but rather that the standard of proof will be different – likely lower – than for outright refusal to supply. An undertaking may be forced to give a competitor access to a good or service at fair conditions even where there is an actual or potential substitute for it. There is no guidance in relation to the criteria applied to qualify unlawful constructive refusal to supply, increasing legal uncertainty for undertakings.

Margin squeeze as an independent abuse. Margin squeeze is now formally treated as an independent infraction from refusal to supply. Consistent with ECJ case law, the EC considers that the condition of indispensability does not apply. However, the amended communication does not mention that the indispensability of the product is still relevant in assessing the anti-competitive effects of the squeeze. The amended communication also does not mention the existence of two types of squeezes. On the one hand, when the margin of the dominant firm is negative, exclusionary can be considered likely. On the other hand, when the margin remains positive, an actual or potential negative effect of the behaviour on as effective competitors must be demonstrated. Doing so has the effect of actually diminishing the level of guidance provided to companies.

Next steps

The EC has now initiated a long consultation process with the aim of adopting proper (binding) guidelines on exclusionary abuses. Both the ultimate aim (further legal certainty for companies) and the path used (an actual consultation of stakeholders, unlike for the amended communication) are commendable.

However, while these new guidelines will undoubtedly bring greater clarity for companies, they may well also have the effect (and even the object?) of easing the EC’s burden of proof in traditionally difficult exclusionary cases.

 

Adrien Giraud is a partner and Romain Perrois and Juliette Raffaitin are associates at Latham & Watkins. Mr Giraud can be contacted on +33 (1) 4062 2025 or by email: adrien.giraud@lw.com. Mr Perrois can be contacted on +32 (2) 788 6199 or by email: romain.perrois@lw.com. Ms Raffaitin can be contacted on +33 (1) 4062 2118 or by email: juliette.raffaitin@lw.com.

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BY

Adrien Giraud, Romain Perrois and Juliette Raffaitin

Latham & Watkins

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