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Market Abuse and Affected Trade

Info: 3730 words (15 pages) Law Essay
Published: 17th Jul 2019

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Jurisdiction(s): UK LawEU Law


Article 82 is directed towards the unilateral conduct of dominant firms which act in an abusive manner [1] . The EC Competition rules try to prevent conduct by a dominant undertaking which risks weakening competition and harming consumers [2] . Article 82 of the EC Treaty provides that:

“Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States. Such abuse may, in particular, consist in:

(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;

(b) limiting production, markets or technical development to the prejudice of consumers;

(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which…have no connection with the subject of such contracts.”

It must be noticed that Article 82 does not prohibit the existence of a dominant position but the abuse of such position [3] . The CFI in Bayer v Commission [4] :

[180] “…under Article 82 refusal to supply…is prohibited only of it constitutes an abuse. The case law of the Court of Justice indirectly recognizes the importance of safe-guarding free enterprise…it expressly acknowledges that even an undertaking in a dominant position, may in certain cases, refuse to sell…”

The main types of abuse include: excessive pricing, predatory pricing, refusal to supply, tying in, abuse of intellectual property rights and vexatious litigation. The issue of refusal to supply/deal in relation to essential facilities and intellectual property rights will now be analyzed.

Refusal to supply or to deal is the practice whereby a supplier refuses to supply goods to a dealer. Activities that amount to supply without reasonable justification may be prohibited under Article 82. In general, there is the view that firms should be allowed to contract with any competitor they wish. However, when an undertaking becomes dominant, this freedom can be restricted because of the special responsibility placed upon dominant firms.

Usually the issue of abuse arises when a vertically integrated undertaking – one that operates in both downstream and upstream market- controls some asset without which it is impossible for a competitor to enter a downstream market [5] . The Discussion Paper examined the law from three perspectives. First termination of an existing supply relationship, second the refusal of a new supply relationship and finally refusal to license intellectual property rights or to provide information needed for interoperability. The same analysis will follow here.

A) Refusal to supply an existing customer

Concerning termination of an existing customer the term refusal includes a constructive refusal, for example, the charge of unreasonable prices or the imposition of unfair trading conditions for the supply in question or the treatment of a particular customer in a discriminatory manner [6] .

The Commercial Solvents case

The first European case involving a refusal to supply was Commercial Solvents v Commission [7] in 1974. The Commission decided that abuse of dominant position existed since refusal to supply would eliminate Zoja (the competitor) from the downstream market. The ECJ upheld the Commission’s decision and held that refusal to supply could amount to an abuse of dominant position in certain circumstances. According to the ECJ:

[para25] “…an undertaking which has a dominant position in the market in raw material and which with the object of reserving such raw material for manufacturing its own derivatives, refuses to supply a customer, which is itself a manufacturer of these derivatives, and therefore risks eliminating all competition on the part of this customer, is abusing its dominant position”.

This case is important because it was not the ‘mere’ refusal to supply that infringed Article 82 but the refusal which ‘would amount to eliminate one of the principal manufacturers in the common market’ [para25]. The requirement is not the elimination of all competition but only of one. However, the Court did not consider whether the Commercial Solvent’s strategy could produce efficiencies and there was no discussion in the judgment about the possible benefits to the consumer. It appears that the competition authorities try to protect the situation of the ‘small’ competitor and so it might have been significant that Zoja was a small Italian firm [8] .

The United Brands case

A dominant firm which intends to stop supplying a customer should give a reasonable period of notice. In United Brands v Commission [9] the Commission held that the UBC had abused its dominant position by refusing to continue supplying to its Danish distributor, Olesen. The ECJ upheld the Commission’s decisions by saying that there was no objective justification to the refusal. In fact the Court stated in [para182] that a dominant undertaking could not stop supplying a regular customer who ‘abides by regular commercial practice’. However, given Olesen’s conduct it is not clear what the Court meant [10] .

B) Refusal to supply a new customer – Essential Facilities Doctrine

In Commercial Solvents it was decided what would happen in the case of an existing customer so, the next step for the court was to decide the position in the case of a new customer. Concerning new customers, the considerations taken for existing customers do not apply. A refusal will only amount to an abuse when the goods or services in question are ‘indispensable’ for a firm to operate on a downstream market. Here, the principle of ‘essential facilities’ arises since decisions concerning new customers were related to the grant of access to some kind of facility or resource controlled by a dominant undertaking and did not concern that supply of products.

The doctrine was first expressed in the US Anti-trust. The term is usually used in a case where an undertaking seeks access to a physical infrastructure such as a port, airport, railway network or a pipeline [11] . According to the Commission “…a dominant undertaking which both owns or controls and itself uses an essential facility i.e. a facility or infrastructure without access to which competitors cannot provide services to their customers, and which refuses competitors access to that facility or grants access to competitors only on terms less favorable than those which it gives its own services, thereby placing the competition at a competitive disadvantage, infringes Article [82], if the other conditions of the Article are met…” [12] .

The earliest example in this area is Telemarketing (CBEM v CLT & IPB) [13] however, in Sealink/ B&I Holyhead: Interim Measures [14] there was the first expressed reference to essential facilities as in [para41] they said that it is a basic principle that an owner of an ‘essential facility’ may have to provide non-discriminatory access to it to a competitor. Yet, the most important case concerning ‘essential facilities’ is the Oscar Bronner case.

The Oscar Bronner GmbH & Co KG v Mediaprint [15] case

In Oscar Bronner the court set out the limited circumstances in which access to a facility will be ordered. The facts were that Oscar Bronner published a newspaper with a market share of less than 4% of the Austrian newspaper market, while Mediaprint published two newspapers with a combined market share of almost 50%. Mediaprint had established a nationwide system for the distribution of newspapers early in the morning, with deliveries to the subscribers’ homes. This system, the only one of its kind, provided distribution services also to a newspaper published by a third publisher. Oscar Bronner argued that the distribution system should be regarded as an essential facility, as it lacked the ability to establish a competing system, and that Mediaprint’s refusal to distribute Bronner’s newspaper should be regarded as an abuse of a dominant position [16] .

The ECJ when asked for a preliminary ruling in [para41] stated four factors which should exist in order for a refusal to be an abuse. First, the refusal would have to be likely to eliminate all competition in the downstream market from the person requesting access [para38]. Second, the refusal must be incapable of objective justification [para41]. Third, the access to the facility must be indispensable to carrying on the other person’s business and finally, there must be no actual or potential substitute for it. In this case the criteria were not fulfilled. The Court emphasized especially on the fact that access must be indispensable and not desirable or convenient. In [para45-46] the Court said that it would only be indispensable if it was not economically viable to create a substitute for the facility. In his opinion A-G Jacobs said in [para57-58] that there would be a “reduction of the incentive to invest to essential facilities” if they were required to share them with all competitors and that the interest of Article [82] is to protect the interests of consumers rather that the interest of competitors. [17]

In the Court’s view, use of Mediaprint’s home delivery service was not indispensable since there where other means of distributing daily newspaper e.g. through shops or post [para44] and so the behavior of Mediaprint did not amount to an abuse. However, the Court also mentioned that sometimes duplication can be physically impossible such as in the case of a port or an airport or a second rail network [18] .

C) Intellectual property rights and refusal to supply

The Magill case

In Oscar Bronner both the Attorney-General and the Court in their decisions referred to the Magill [19] case which was related to Intellectual Property Rights. In Magill there was the issue whether I.P.R could come under the ‘essential facilities’ doctrine. In previous cases the court had already decided that compulsory licensing of I.P.R. can be a “dangerous disincentive to innovation” however, there are some ‘exceptional circumstances’ where the position can be changed. Even though the Community law does not cover copyright law to protect listings of programs to be broadcast, the court in Magill considered the English law covering it.

In Magill the ECJ was required to hear joined appeals by broadcasters and publishers against judgments of the CFI. No comprehensive weekly TV guide was available in Ireland, so TV stations produced their own guides and claimed copyright protection for them under Irish and UK legislation. Magill TV Guide Ltd tried to publish a full weekly listing but was prevented from doing so by injunctions. Magill lodged a complaint to the Commission who found that the TV stations had breached Art.86 of the Treaty of Rome 1957. Appeals were dismissed. TV stations were the only sources of information on their TV programming which were available to Magill [20] . After expressly stating that the mere ownership of intellectual property does not confer a dominant position, the Court confirmed the findings of both the Commission and the CFI that the undertakings concerned enjoyed a ‘factual monopoly’ over basic information not available from any other source and required by a third party. The court also explained the ‘exceptional circumstances’ under which the refusal would amount to an abuse, which are similar to the one’s used in Oscar Bronner but it should be noticed that there was no mentioning of the doctrine of ‘essential facilities’.

The first case which reached the Court regarding intellectual property rights was Parke, Davis v Probel [21] under an Article 234 reference, and concerned the rights of an individual patent owner. Here it was confirmed that the right of the owner of a patent, or other intellectual property right, to exercise it simply by excluding goods that infringed his territorial monopoly did not constitute an abuse. In IMS Health GmbH & Co OHG v NDC Health GmbH & Co KG [22] the ECJ laid down that three cumulative conditions must be fulfilled to render a refusal to licence a copyright abusive. Firstly, there must be a new product involved. Secondly, access to the product material must be ‘indispensable’ so that the refusal will exclude any or all competition on a secondary market. Thirdly, refusal must be unjustified.

The Tetrapak’s (No.1) [23] decision, which deals with abuse of power provided by intellectual property rights, is a landmark in the development of case law on abuse. It should be noticed that the Court here, laid down broad principles of the relationship between Article 81-2 rather than deciding the case on relatively narrow, technical grounds. The issue raised by the actions of Tetrapak was whether the acquisition of the exclusive licence previously owned by its main competitor could constitute an abuse. The Court found that the mere fact that an undertaking in a dominant position acquired an exclusive licence did not per se constitute abuse; however in the specific circumstances of the acquisition, the exclusivity of the licence acquired had not only strengthened Tetrapak’s already considerable domination of the market but also had the effect of preventing, or at the very least considerably delaying, the entry of new competitors into the market [24] .

D) Interoperability

There is a particular kind of refusal to supply which arises in the information technology sector in respect of ‘interface information’. Providers of software need to be able to make products which operate with other programs and systems. This is known as ‘interoperability’. To do this they need information about the systems and programs of other producers which may be protected by I.P.R (copyright) [25] . The Commission first addressed the issue in 1984 regarding IBM’s practices. They settled the issue when IBM agreed to give the relevant information to EEC competitors.

The Microsoft [26] case

In Microsoft according to the Commission, Microsoft infringed Article 82 by: ‘refusing to supply interoperability information and allow its use for the purpose of developing and distributing work group server operating system products; making the availability of the Windows Client PC Operating System conditional on the simultaneous acquisition of Windows Media Player’. Microsoft had refused to provide Sun with information enabling it to design work group server operating systems. Microsoft’s refusal risked eliminating competition in the relevant market for work group server operating systems because the refused input was indispensable for competitors operating in that market [27] .

The CFI said that refusal alone could not constitute an abuse and it would only be abusive if it gave rise to exceptional circumstances. Those were first, that the refusal was concerning a product or service which was indispensable, second, the refusal would exclude any effective competition on that market and finally, the refusal prevents the appearance of a new product for which there is potential consumer demand. If those were established then the refusal would be abusive unless there was an objective justification for it. The Commission rejected Microsoft’s argument that refusal was needed for incentives to innovate.

E) Refusal to supply spare parts

In Hugin v Commission [28] it was discussed whether there should be a different product market for spare parts or should it be included in the original equipment market. Here, a small firm sought spare parts for repairing Hugin cash machines. There was no evidence that the refusal by Hugin to supply had effect on the trade between Member States so the action under Article 82 failed.

Normally the refusal to supply spare parts by a maker of original equipment will be considered to be an abuse unless too long time has passed since their creation for the spare parts to be available as it was emphasized in Volvo AB v Erik Veng [29] . In CICRA v Regie Nationale des Usines Renault [30] it was held that refusal to supply spare parts will be an abuse if it gave rise to “certain abusive conduct…such as the arbitrary refusal to deliver spare parts to independent repairers [para16]”.

Horizontal foreclosure

Even though vertical foreclosure is more often there are types of refusal in horizontal arrangements which may be considered to be an abuse.

A refusal to supply may be abusive where a dominant firm does so as a disciplinary measure against a distributor who handles competitor’s products. In United Brands v Commission, the ECJ held that stop supplying a long-standing customer can be abusive when the objective is to prevent the distributor from selling the competitors products. This aims to single branding and not to eliminate competition in the downstream market [31] . Regarding refusal to supply a potential competitor in the supplier’s market, refusal to supply as an exclusionary tactic against a customer trying to enter an upstream market in competition with the supplier is abusive as in BBI Boosey & Hawkes: Interim Measure.


It may be an abuse for a dominant undertaking to refuse to supply a purchaser. The position regarding refusal may be different between existing and new competitors. Also the extent to which the owner of an essential facility is required to supply purchasers is particularly controversial and has been the subject of considerable debate over recent years [32] .

Despite the fact that the law may sometimes require from a dominant firm to supply its competitors there are many reasonable explanations why the undertaking is refusing to do so. Possible explanations may be that the customer is a bad debtor or that there is shortage of stocks or maybe that production has been disrupted. There is also the argument that economic welfare may suffer by forcing a dominant undertaking to supply because that would mean that any firm will be able to take advantage of investments that other firms have made in the market.

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