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Brussels, 3rd December 2008

Antitrust: Guidance on Commission enforcement priorities in applying Article 82 to exclusionary conduct by dominant firms – frequently asked questions

(see also IP/08/1877)

1. Why this Guidance Paper?

The Guidance Paper is intended to contribute to the process of introducing a more economics based approach in European competition law enforcement. Such an approach has already been formulated and implemented in the area of Article 81 and mergers since the late 1990s. Also in recent Article 82 cases, such as Microsoft and Télefonica, the Commission has already been applying an effects-based approach, but what was lacking thus far was a document that provided guidance to stakeholders, in particular the business community and competition law enforcers at national level, on how the Commission articulates such an effects-based approach to exclusionary conduct under Article 82. This Guidance Paper fills this void.

2. What is in Guidance Paper?

The Paper outlines an effects-based approach for the application of Article 82 to exclusionary conduct by dominant firms. Such conduct aims to deliberately exclude actual competitors from expanding or would-be competitors from entering a market, thereby potentially depriving customers of more choice, more innovative goods or services and/or lower prices. The guidance sets out the Commission's determination to prioritise those cases where the exclusionary conduct of a dominant undertaking is liable to have harmful effects on consumers. It starts by providing the general approach to assessing whether or not a company is in a dominant position. It then describes the general framework that the Commission will apply to assess whether to pursue a particular conduct as a priority. The first step is for the Commission to explain how the allegedly abusive conduct is likely to restrict competition and thereby harm consumers. The second step is for the firm to rebut this finding of a likely negative effect by showing that it likely creates efficiencies which leave the consumers overall better off. This framework is subsequently applied in the Paper to the most common types of exclusionary conduct: exclusive dealing, tying and bundling, predatory practices and refusal to supply.

3. What does the Guidance Paper say about finding dominance?

The Paper provides the general approach to assessing whether or not a company is in a dominant position. To establish dominance the Commission investigates whether the firm holds substantial market power over a significant period of time, allowing it to behave to an appreciable extent independently of its competitors and customers. It investigates whether or not there are sufficient constraints on the firm's conduct by existing competitors and their output, by expansion or entry of rivals and/or by countervailing buying power. A soft safe harbour is created by stating that dominance is not likely if the market share of the firm is below 40%.

4. What is the framework that the Commission will apply to assess a case?

The Paper outlines the general framework that the Commission will apply to assess whether to pursue a particular conduct. The first step is for the Commission to explain how the allegedly abusive conduct is likely to restrict competition and thereby harm consumers. It looks at issues such as the conditions on the market, including the relevance of entry barriers, the position of and counterstrategies available to competitors, the part of the market affected by the conduct, and possible evidence of actual foreclosure and implementation of an exclusionary strategy. In the case of pricing conduct the Commission will, as part of its general assessment, investigate whether the conduct is capable of excluding also equally efficient competitors, in which case the conduct can restrict effective competition and harm consumer welfare. The second step is for the firm to rebut this finding of a likely negative effect by showing that it is likely to create efficiencies which leave consumers better off overall.

This framework is applied in the Paper to the most common types of exclusionary conduct: exclusive dealing, tying and bundling, predatory practices and refusal to supply. For instance, in case of alleged tying, the Commission will investigate whether the dominant firm is indeed tying two distinct products and how this practice is leading to anticompetitive foreclosure on the tied and/or tying market, for instance by making entry on these markets more difficult. The dominant firm can subsequently explain whether and how its conduct is allowing it to provide customers with a better product in a more cost effective way, thereby benefiting overall the customers.

5. Will the Commission pursue Article 82 infringements less vigorously?

No. The Guidance Paper develops and explains theories of harm on the basis of a sound economic assessment for the most frequent types of abusive exclusionary behaviour, and thereby provides greater clarity and predictability as to the circumstances that are liable to prompt an intervention by the Commission.

The Commission will continue to pursue vigorously exclusionary conduct by dominant companies which is likely to harm competition and thereby consumers. By establishing its enforcement priorities, it seeks to make its intervention as effective as possible. Also, the Guidance Paper should help dominant undertakings to refrain from engaging in abusive conduct in the first place, because it sets out the framework of assessment for the most common types of exclusionary conduct.

6. What do you mean by "an effects-based approach"?

The Commission wants to make sure that it is protecting competition and consumer welfare, not (individual) competitors who do not deliver to consumers. Also dominant companies should be free to compete aggressively as long as this competition is ultimately for the benefit of consumers. The effects-based approach thus means that the Commission will carefully discern competition on the merits, which has beneficial effects for consumers and should therefore be promoted, from competition that is liable to lead to anticompetitive foreclosure, i.e. foreclosure that is likely to harm consumers. The Commission will base itself on convincing evidence and sound economic analysis on how and whether the reduction in competition is likely to lead to consumer harm.

Finally, since the focus of the Commission's policy is on the effects on consumers, it should be prepared to examine claims put forward by a dominant firm that its conduct is justified on efficiency grounds. There is no reason why the Commission's approach to efficiency defences under Article 82 should be different from that applicable to restrictive business practices and mergers.

7. With this shift to a more effects-based approach, is the Commission admitting that some of its decisions adopted in the past were flawed?

No. The Commission should always work to improve its decisions and its policies, if only to adapt them to changes in market realities, such as those caused by innovation and technological development.

As mentioned above, the Commission has effectively already applied an effects-based approach in its latest Article 82 cases. Like in these cases, and in application of the Guidance Paper, the Commission will certainly argue its cases by resorting to more refined economic analysis than it did in the past. However, this does not mean that the decisions it has taken in the past were wrong, only that the argumentation would be different if it dealt with those cases today.

The approach set out in the Guidance Paper will be fully applied to future cases, i.e. to those cases where the Commission has not yet initiated proceedings for the application of a decision to find and terminate an infringement, to order interim measures or to agree on binding commitments.

8. Will the Guidance Paper lead to increased legal uncertainty because of the need for complicated economic analysis?

The use of an effects-based approach does not imply that it is necessary to apply very complex economic or econometric analysis. Actual or likely negative effects can in general be shown by carefully analysing the conduct and the factual developments in the relevant markets and the ways in which the conduct is likely to affect the market. Economic and econometric modelling can be a tool, and sometimes a very useful tool, in such an analysis.

As evidenced by the application of an effects-based approach in other areas of antitrust and in recent Article 82 decisions, it is not leading to less legal certainty. Microsoft (see IP/04/382 and MEMO/04/70) and Telefónica (see IP/07/1011 and MEMO/07/274) are cases in point, and show how the effects-based approach works in relation to tying and refusal to supply.

9. How will the Commission make sure that the national competition agencies and national courts follow the Guidance Paper?

The Commission cannot require national competition agencies and national courts to follow Commission guidelines. However, the Guidance Paper has been discussed extensively with the national competition authorities and there is a good deal of agreement on the content of the Paper.

10. The Commission is promoting private damage claims in national courts. Will the Guidance Paper not make the application of Article 82 by national courts more difficult in view of the increased emphasis on economic analysis?

The Guidance Paper proposes an approach focusing on the economic effects of the dominant undertaking's conduct. It describes types of conduct which may harm competition and thereby consumers and the circumstances in which such harm is likely to occur. There is no contradiction between economic analysis and private damage claims; and there is no evidence that jurisdictions which argue their decisions on the basis of more economic analysis have fewer private damage claims.

11. Is the purpose of the review to align Community competition policy with the policy of other jurisdictions, such as the US?

The Guidance Paper reflects the Commission's thinking as to the most effective application of Article 82 in the EU context, to keep pace with the teachings of modern economics, the constantly evolving dynamics of markets and the industrial development of Europe. While convergence with other jurisdictions is positive in itself, the purpose of the Guidance Paper is not to seek further convergence with other jurisdictions, but to seek, through the prioritisation of cases with harmful effects on consumers, convergence with the Commission's own policy instruments, in particular those governing the assessment of restrictive business practices and mergers. This being said, the approach embedded in the Guidance Paper is a step towards more convergence with the approach to unilateral conduct followed thus far by some other jurisdictions, such as the US.

However, many of these jurisdictions are also currently reviewing or re-formulating their approaches in this area, in the light of their own legal culture and jurisprudence. For instance, the US Department of Justice recently published a report on the assessment of single-firm conduct under Section 2 of the Sherman Act. This report, which is not supported by the US Federal Trade Commission, differs from the Article 82 Guidance Paper on a number of issues – such as the way to balance the pro- and anti-competitive effects of a conduct, the role of market shares in assessing dominance and the assessment of pricing conduct.

12. The Guidance Paper only addresses exclusionary abuses. Does that mean that the review does not cover exploitative abuses?

The Commission, during its internal review, has discussed exclusionary conduct as well as exploitative conduct, such as charging excessively high prices or price discriminating between customers. However, the focus of its work thus far has been on exclusionary conduct. This is because it is better to prevent than to cure – i.e. if markets are not functioning properly, it makes more sense to prioritise the tackling of unilateral conduct which undermines the structure and functioning of the market itself than to address the symptoms. Therefore, for the time being the Guidance Paper only covers exclusionary conduct.

13. Why has it taken so long for the Commission to issue this Guidance Paper (the Article 82 Discussion Paper was published in December 2005)?

Unilateral abuse of dominant position is a very complex area. After the very comprehensive public consultation the Commission services engaged in further public debate and internal reflection, which took quite some time. However, the end result is entirely in line with the effects-based philosophy which has underpinned its thinking since the launching of the policy review and that were expressed before in the Discussion Paper.

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