Années Académiques 2006-2008
Mémoire MBL
Prof. C. Bovet
Refusal to Supply Customers
under Article 82 EC
Marjolein TAPKING
Août 2008
www.unige.ch/droit/mbl/
www.unil.ch/droit
The European Commission and Courts in several instances have held to constitute an abuse
of dominance under article 82 a dominant company’s refusal to supply an input to a
company with which the dominant company competes in a secondary market, not
dominated by the refusing firm. In order to find that a such behaviour constitutes an abuse
it must be established that (i) the behaviour under scrutiny should be qualified as a refusal
to supply; (ii) the refusing company is dominant in the input-market; (iii) there is
leveraging of this dominance; (iv) the conduct has a foreclosure effect in the secondary
market; (v) the input is indispensable in the secondary market; and (vi) the behaviour is not
objectively justified.
Companies having significant market strength in practice may be regularly confronted with
allegations of abusive refusal to supply by both competitors and customers. This may also
concern situations where supply relations are terminated or not entered into for valid
business reasons or in accordance with contractual provisions. The threat of reporting
behaviour to competition authorities offers companies that fail to secure input from a
dominant supplier a powerful method of applying pressure, particularly when they have no
valid cause for action under contract or tort law.
Even if the claim is unfounded and the dominant company prevails there are important
costs associated with dealing with such claims, even if only internally. Such costs escalate
if competition authorities launch an investigation and even more so if a company is found
– rightly or wrongly – to have abused its position. With the increased application of
competition law by national authorities this risk becomes ever more important. The
purpose of this paper is to provide dominant companies with a decision making model for
cases where they are confronted with such allegations or the threat thereof. The assumption
that forms the background of the proposed model is that the perception of that threat in
many cases is unfounded. It is submitted that, in the absence of vertical integration, a
refusal to supply can only constitute an abuse if all the regular conditions for an abuse are
present and in addition there is some specific aggravating anti-competitive objective.
2
INTRODUCTION ................................................................................................... 4
I.
II. REFUSAL TO SUPPLY COMPETITORS............................................................ 7
A.
SCOPE .................................................................................................................... 7
B.
ABUSE OF DOMINANCE .......................................................................................... 7
C.
EXCLUSIONARY ABUSE ........................................................................................ 11
D.
REFUSAL TO SUPPLY - CONCEPT ......................................................................... 14
E.
REFUSAL TO SUPPLY COMPETITORS .................................................................... 15
III. REFUSAL TO SUPPLY CUSTOMERS .............................................................. 22
A.
INTRODUCTION.................................................................................................... 22
B.
CAPABILITY OF CONSTITUTING AN ABUSE .......................................................... 22
C.
DECISIONAL PRACTICE AND CASE LAW ............................................................... 25
D.
PROPOSED FRAMEWORK ..................................................................................... 28
IV. CONCLUSION ...................................................................................................... 42
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EC Competition Law
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Abuse of Dominance
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Article 82 EC
-
Exclusionary Abuses
-
Refusal to Supply
-
Refusal to Supply Product
-
Refusal to Supply Customers
-
Refusal to Supply Customers in the Absence of Vertical Integration
3
1.
Refusal to supply is a controversial subject in competition law1. The general proposition in
countries having a market economy is that all undertakings are free to choose their trade
partners and, consequently, also free to refuse a company as a trade partner. The key
underlying principles include the need for protection of property rights in respect of
intellectual property or physical property 2 . To impose on a company an obligation to
supply a product, license or access to a facility constitutes a direct limitation of that
company’s right to freely to decide whether and how to dispose of its property. Though a
limitation of property rights in particular cases may engender short term societal benefits,
to structurally impose such limitations is perceived to have a negative effect on long term
innovation and future investment incentives3.
2.
In European decisional practice and case law (hereafter: case law) it has nevertheless been
decided that under certain circumstances a refusal to supply by a dominant company may
constitute an abuse of dominance in the sense of Article 82. Criteria have been developed
that may allow to impose a duty to supply physical product, to license intellectual property
rights or to grant access to facilities4.
3.
Cases decided by the European Commission and the Courts generally evolve around
vertically integrated dominant firms 5 . Typically a vertically integrated firm that is
dominant in an upstream market refuses to supply the relevant input to a competitor in a
downstream market in which the dominant firm is also active. This refusal is found to have
the effect of foreclosing the downstream competitor from the downstream market. Refusal
to supply is correspondingly considered an exclusionary abuse as opposed to exploitative
and other types of abuses6. What characterises such typical refusal to supply cases is the
interest that the dominant firm has in foreclosing a competitor from the downstream
market which it does not (or not yet) dominate7. Under certain circumstances such a refusal
1
WHISH 2003, p. 663; BROUWER, p. 1; HUMPE & RITTER, p. 134.
BELLAMY & CHILD, § 9–092; BROUWER, p. 1. FAULL & NIKPAY, §3.141 – 3.142. DISCUSSION PAPER, §
207. Bronner per AG Jacobs, § 56.
3
BELLAMY & CHILD, § 9–092; FAULL & NIKPAY, § 3.143; WHISH 2003, p. 663; BROUWER, p. 1; HUMPE &
RITTER, p. 136-137. DISCUSSION PAPER, § 213-214; EAGCP REPORT 2005, p. 44. BAKER & MCKENZIE DPSubmission, § 8.6. Bronner per AG Jacobs, § 58.
4
HUMPE & RITTER, p. 135.
5
O’DONOGHUE & PADILLA, p. 410. EAGCP REPORT 2005, p. 43.
6
BOSCHECK, p. 468. DISCUSSION PAPER, § 210.
7
DISCUSSION PAPER, § 210, 212.
2
4
could effectively allow the dominant firm to leverage its dominant position in one market
in order to extend that position into to the downstream market8. A necessary condition for
obtaining that effect is that the downstream competitor is unable to otherwise obtain the
input at a cost that would allow it to continue competing in the downstream market9.
4.
Companies holding a significant position in one or several markets may often face or
perceive the risk of facing allegations of acting in breach of Article 82 when refusing to
supply their products, to license their IP rights or to grant access to facilities. Customers
confronted with a refusal to supply may invoke Article 82 in order to put pressure on the
refusing company to reconsider their refusal10. The doctrine of refusal to supply might
even offer such customers a forum with competition authorities whereas on the basis of
contract or tort law no valid claim would exist. Even if in the end such claims often are
unfounded, they come at a considerable cost to dominant companies, both financially and
in terms of their freedom to conduct their business in the manner they deem appropriate11.
Allegations of abuse may relate to refusals directed to (potential) competitors or ‘pure’
customers, or simply refusals that have been decided to on the basis of valid business
considerations. Particularly where the refusal is directed at a customer that is not also a
competitor the case law gives little guidance on the conditions under which, if at all, a
refusal to supply may constitute an abuse. This lack of clarity enhances the uncertainty felt
by the dominant company and therefore the effectiveness of the threat12.
5.
The purpose of this paper is to provide practical guidance to companies occupying a
position of dominance that either consider a refusal to supply and fear allegations in
relation thereto, or that are already confronted with litigation or the threat thereof following
a refusal to supply. The structure of this paper is to first provide an overview of some basic
concepts insofar as they are relevant for the purposes of this paper. These concepts are that
of abuse of dominance, exclusionary abuse and abusive refusal to supply in the presence of
vertical integration. Subsequently on the basis of this overview a practical framework will
be proposed that will allow a dominant company to determine whether its refusal to supply
its customer is capable of constituting an abuse.
8
DISCUSSION PAPER, § 212; EAGCP REPORT 2005, p. 43. BROUWER, p. 2, 13; HUMPE & RITTER, p. 138.
See section II.E.iii.c below.
10
EAGCP REPORT 2005, p. 45.
11
FAULL & NIKPAY, § 3.143; HUMPE & RITTER, p. 135. EAGCP REPORT 2005, p. 45.
12
HUMPE & RITTER, p. 135. EAGCP REPORT 2005, p. 45.
9
5
6.
The scope of this paper will be limited to the question of refusal to supply product,
including raw material. References will be made to cases of refusal to license intellectual
property rights and the refusal to grant access to facilities where relevant when discussing
the basis for our analysis, but the final framework will not focus on questions relating to
such refusals. The question of the refusal to share interoperability information falls
completely outside of the scope of this paper. Finally it is important to note that this paper
exclusively deals with unilateral behaviour. Concerted action to deny an actor in the
market access to an input is likely to be considered under Article 81 rather than under
Article 82 and to engage in such behaviour would expose the companies involved to a
considerable risk of infringing competition law, even in the absence of dominance13. The
approach to the question of the refusal to supply customers adopted by the Commission’s
DG Competition (hereafter: Commission) in its December 2005 Discussion Paper shall not
form the basis for the framework proposed in this paper, although it will be referred to in
some instances. The reason is that the Commission, faced with considerable criticism,
appears to have dropped altogether the idea of issuing guidelines on the application of
Article 82.
13
HUMPE & RITTER, p. 139.
6
7.
The present Part II is intended to serve as a reminder of the relevant case law and the
criteria evolved therein around the concepts of abuse of dominance in general, the
particular category of exclusionary abuse and finally abusive refusal to supply in the
presence of vertical integration. Because of the vast amount of literature and case law on
these subjects the present Part II does not pretend to be exhaustive. The above-mentioned
subjects are only discussed to the extent that they are relevant for the development of the
proposed framework of Part III of this paper.
8.
Article 82 prohibits the abuse of a position of dominance by one or several undertakings in
the common market, insofar as the trade between Member States is likely to be thereby
affected. The article continues to offer a non-exhaustive list of types of conduct that may
constitute an abuse. It should be kept in mind that the purpose of Article 82 is not to
counteract or prohibit dominance as such14. Dominance is merely one of several conditions
in order for a certain line of behaviour to be found abusive 15 . In order to establish
dominance it is necessary to define the relevant market and to determine the position of the
company in question in that market 16 . Once dominance is established, the behaviour
adopted by the dominant company may or may not be found abusive in character, on the
basis of the characteristics of and the circumstances surrounding the conduct.
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In order for any behaviour to be found abusive in the sense of Article 82 it must be
assessed whether it is capable of falling within the general scope of Article 82. In order for
14
LOEWENTHAL, p. 458; BELLAMY & CHILD, § 9–065; TEMPLE LANG & O’DONOGHUE, p. 39. Michelin I, §
57.
15
O’DONOGHUE & PADILLA, p. 174
16
O’DONOGHUE & PADILLA, p. 63-64.
7
that to be the case the behaviour must be capable of affecting the trade between Member
States. This criterion serves to limit the scope of application of EC competition law and the
sphere of competence of the Community institutions17. It does not go to the core of any
investigation and it should not be confused with the question whether the behaviour under
investigation is potentially harmful to competition which will only come into play at a later
stage. Behaviour may for example be found to be incapable of affecting trade between
Member States if it produces its effects exclusively within one Member State (although in
that case it is likely to infringe a national competition law) or more frequently if the effects
are felt fully outside of the territory of the EU18.
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a.
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Two steps
Though it lies outside the scope of this paper to enter into detail on what constitutes
dominance, it is useful to recall the key principles established by the Commission and the
European Courts regarding the two steps in assessing dominance. The first step is to define
the relevant market and the second is to determine the position that the undertaking under
scrutiny holds in that market19.
b.
11.
Relevant Market
The Commission’s Market Definition Notice20 sets out principles on the definition of the
relevant market. It identifies a product dimension and a geographical dimension to the
relevant market. The Notice defines the relevant product market as comprising “all those
products and/or services which are regarded as interchangeable or substitutable by the
consumer, by reason of the products’ characteristics, their price and their intended use”21.
The key objective of the market definition is to determine the extent to which an allegedly
dominant firm is subject to competitive constraints. The answer to this question is largely
determined by the extent of demand-side substitutability of the product in question 22 .
Generally the principles of market definition are applied in the same manner in all three
17
WHISH 2001, p. 111.
WHISH 2001, p. 111, 118-119.
19
O’DONOGHUE & PADILLA, p. 63-64; FAULL & NIKPAY, § 3.34; WHISH 2001, p. 152.
20
Commission Notice on the definition of the relevant market for the purposes of Community competition
law (97/C 372/03). Hereafter: “Market Definition Notice”.
21
Market Definition Notice, § 1, 7-9.
22
BELLAMY & CHILD, § 9–012, 9–013. Market Definition Notice, § 13.
18
8
branches of EC competition law23. One distinctive feature of dominance cases has been
identified, however, with regard to the so-called SSNIP test24. This test seeks to identify
the products to which customers will switch readily in case of a small but significant nontransitory increase in price applied to a given product. Only those products for which the
demand increases are considered to form part of same market as the product that is being
tested – the relevant market. This test is particularly relevant in merger cases.
12.
It has been argued that this test is inappropriate in cases of abuse of dominance25. In US v
DuPont the SSNIP test was applied in order to determine DuPont’s position in the market
for flexible wrapping materials, in which it was active with its product Cellophane. Its
definition of the relevant market in this case was criticised as it had not taken into account
the shortcoming of the SSNIP test. This was later referred to as the Cellophane Fallacy. If
the final purpose of applying the SSNIP test is to determine dominance, logically there is a
possibility that the prices charged by the potentially dominant company are above the
competitive level. The SSNIP test however presupposes that the price on which the
increase is applied is a competitive price26. The method of the SSNIP test is to observe
what consumers would consider substitutes by observing what they would switch to if the
product in question is increased in price. The concern was that in this case DuPont was
perceived as offering its product at a supra-competitive price. As a result consumers may
have perceived as substitutes products that they would never have considered buying had
Cellophane been priced competitively. The final result was that more expensive products
could have been considered substitutes for Cellophane whereas in reality the market was
much narrower if Cellophane was priced competitively27.
c.
13.
Dominance
Once the relevant market has been defined, the position of the undertaking under
investigation in that market must be determined. Under the definition generally applied, a
position of dominance equals “a position of economic strength enjoyed by an undertaking
which enables it to prevent effective competition being maintained on the relevant market
by affording it the power to behave to an appreciable extent independently of its
23
Agreements and Concerted Practices, Abuse of Dominance and Merger Control.
Small but Significant Non-transitory Increase in Price. See Market Definition Notice, § 15-18.
25
E.g. GERADIN, HOFER ET AL., p. 13-15.
26
Market Definition Notice, § 19.
27
BELLAMY & CHILD, § 9–016; O’DONOGHUE & PADILLA, p. 81-82. DISCUSSION PAPER, § 13-15
24
9
competitors, its customers and ultimately of the consumers”28. In applying this definition in
practice the dominant firm’s market share and the barriers to entry and expansion in the
relevant market are of key importance29. Companies holding a market share over 50% of
the market are highly likely to be considered dominant30, whereas with a market share
below 25% this is highly unlikely. Market shares exceeding 40% but not 50% have quite
often been considered sufficient for a dominant position, whereas market shares between
25% and 40% are capable of yielding such a position but only under exceptional
circumstances31. Barriers to entry and expansion are of significance. In a market in which
very low barriers prevail an abuse of dominance is likely to immediately entail the entry of
competitors in the market, leading to a restoration of competition in the market. Abusive
behaviour, in other words, is more likely to be sustainable where barriers to entry and
expansion are high32.
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14.
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Once dominance in the relevant market has been established then the question of abusive
behaviour becomes critical. Abusiveness of conduct is an objective concept, which means
that the Commission does not need to prove the subjective intent of the dominant company
to infringe on Article 82 33 . Several often overlapping categories of abuse have been
identified. The most common distinction is made between exclusionary and exploitative
abuses34 . Refusal to supply cases typically have been assessed from the perspective of
exclusionary abuse.
15.
In relation to the categories of abuse, the Commission and European Courts have given
several different definitions of what constitutes an abuse. Most commonly abusive
behaviour is be defined as conduct involving “recourse to methods different from those
28
Hoffmann-La Roche, §38; United Brands, § 65. This definition has been subsequently applied in many
cases under Article 82.
29
BELLAMY & CHILD, § 9–039 – 9–046. Hoffmann-La Roche, § 41. In addition, the market position of the
competitors and customers of the allegedly dominant company are of importance (BELLAMY & CHILD, § 9–
42. N. KROES Fordham Speech 2005, p. 2-3).
30
AKZO, § 60.
31
E.g. British Airways. In this case the CFI upheld the Commission’s decision that British Airways with a
market share of 39,7% under the circumstances was dominant.
32
BELLAMY & CHILD, § 9–047, 9–048; GERADIN, HOFER ET AL., p. 19-20.
33
BELLAMY & CHILD, § 9–067; FAULL & NIKPAY, § 3.120 – 3.122; WHISH 2001, p. 167; LOEWENTHAL, p.
455; VICKERS, p. F246. Hoffmann-La Roche, § 91.
34
BELLAMY & CHILD, § 9–072; WHISH 2001, p. 167-180. Several other distinctions are made, such as
between (i) exploitative abuses; (ii) exclusionary (anti-competitive) abuses; and (iii) abuses that are harmful
to the single market. Other categories include most notably discriminatory and reprisal abuses. (E.g. TEMPLE
LANG & O’DONOGHUE, p. 38).
10
governing normal competition”35. This coincides with the US approach, which emphasizes
the need to distinguish with respect to companies having monopoly power between the
wilful acquisition and maintenance of that market power and the development thereof as a
result of superior product, business acumen, or historic accident 36 . Other common
approaches refer to abusive behaviour as conduct involving competition that is not
competition on the merits 37 or forbearance by the dominant firm of some temporary
disadvantage, in order to be able to recoup a larger advantage once the anticompetitive
effect has been realized38. Finally, the ECJ has found a dominant undertaking to be under
“a special responsibility not to allow its conduct to impair genuine undistorted competition
on the common market”39. Whatever approach is taken to define the abusive nature of the
conduct in order for conduct to constitute an abuse, it must in all instances have or be
capable of having an adverse effect on competition40 and, moreover, it must lack objective
justification41. Finally and as with any type of abusive conduct, in order for it to fall in the
scope of Article 82 it must be committed by a company enjoying a position of dominance
and the trade between Member States must be (capable of being) affected by the abuse.
16.
As mentioned above an abuse typically involves out of the ordinary behaviour that does
not constitute competition on the merits. In addition for it to be capable of being an abuse it
must be harmful to competition and lack objective justification. An exclusionary abuse
may be defined as conduct that excludes one or more competitors of a dominant
undertaking and as such is harmful to competition42. Exclusionary abuses are generally
caught under Article 82(b), which prohibits the practice of “limiting production, markets or
technical development to the prejudice of consumers”. The formulation “to the prejudice of
35
O’DONOGHUE & PADILLA, p. 175-176; LOEWENTHAL, p. 458; VICKERS, p. F247. Hoffmann-La Roche, § 6.
US v Grinnell. See also: Aspen Skiing.
37
AKZO, § 81.
38
See profit sacrifice test – Part III below.
39
Michelin I, § 57. This formulation may be interpreted to suggest a positive obligation on the dominant
company to prevent distortion of competition in the market. It is submitted, however, that such interpretation
is not correct and that such an obligation would be too burdensome (see: LOEWENTHAL, p. 458).
40
E.g. N. KROES Fordham Speech 2005, p.3.
41
LOEWENTHAL, p. 457-458
42
Note that in case typical Refusal to supply cases related to vertically integrated dominant firms the
exclusion takes place in the secondary market, as opposed to the dominated market.
36
11
consumers” shows that the fact that one or several competitors are excluded is not
necessarily sufficient to conclude that there is an abuse.
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As set out above, an abuse involves some improper and anticompetitive behaviour adopted
by a dominant undertaking which – in the case of exclusionary abuse – forecloses
competitors from the market. There need not necessarily be a causal link between the
position of dominance and the conduct in question43. The several definitions and criteria
for assessing abusive behaviour are vague and have many inherent difficulties44. To qualify
behaviour as improper or abnormal supposes that there is an understanding of what then
constitutes ‘normal competition’. In addition there may in practice be a fine line between
abusive behaviour and fierce but legitimate competition, which competition law seeks to
protect. Finally the open-ended provision of Article 82 results in uncertainty as to which
types of behaviours may be caught under it45. Several tests have been proposed in literature
to facilitate the distinction between abusive and genuinely competitive behaviour. These
include the profit sacrifice-test, the “but for” test, the equally efficient competitor test and
the consumer welfare test. Each of these tests may be appropriate in relation to some
specific types of behaviour and all at the same time have important limitations46. To the
extent relevant these tests will be discussed in some detail in Part III below.
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18.
Once it has been established that a line of behaviour constitutes improper behaviour the
next question to answer is whether such improper behaviour is capable of harming
competition47. It should be noted that the ECJ defined as abusive conduct that has the effect
of hindering the maintenance of the level of competition which means that the subjective
intent to exclude does not need to be demonstrated48. The question of what constitutes
harm to competition has been answered in different manners. On the two extremes are the
views that (i) the exclusion of one single competitor constitutes a sufficient exclusionary
effect and (ii) all competition needs to be likely to be eliminated in order to find an
43
BELLAMY & CHILD, § 9–070; WHISH 2001, p. 170-171. Hoffmann-La Roche, § 91.
TEMPLE LANG & O’DONOGHUE, p. 40-43.
45
O’DONOGHUE & PADILLA, p. 176-177; WHISH 2001, p. 169-170; TEMPLE LANG & O’DONOGHUE, p. 38;
VICKERS, p. F247. N. KROES Fordham Speech 2005, p. 4-5.
46
O’DONOGHUE & PADILLA, p. 184-194; TEMPLE LANG & O’DONOGHUE, p. 43-49.
47
N. KROES Fordham Speech 2005, p.3-4.
48
BELLAMY & CHILD, § 9–067; WHISH 2001, p. 167; LOEWENTHAL, p. 455. Hoffmann-La Roche, § 91.
44
12
abuse 49 . The prevailing approach is however that behaviour that leads to a substantial
elimination of competition should be considered as harmful to competition and therefore as
a potential exclusionary abuse50. This definition requires a case by case approach and may
be perceived as subjective. If a large number of competitors is active in the market and one
or two are excluded as a result of a dominant firm’s conduct such exclusion typically
would not constitute harm to competition. If however these one or two competitors would
be the only meaningful competitors of the dominant firm, the conclusion might be
different51.
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Once a line of behaviour has been qualified as improper behaviour capable of harming
competition in the market it finally needs to be established that such behaviour – despite its
improper character and the harm it may cause to competition – is not objectively
justified 52 . Unlike agreements and concerted practices, which are illegal under Article
81(1) unless exempted under Article 81(3), there is no prima facie presumption of
illegality (or at least there should not be) with respect to conduct that might be caught
under Article 8253. The starting point is that dominant companies should have the freedom
to decide how to conduct their business. This freedom should be limited only under
specific circumstances and, notwithstanding any special responsibility a dominant
undertaking might be perceived to have, any company is entitled to conduct its business
and to take proportional measures to protect its interests against competitive threats 54 .
Therefore the absence of an objective justification is a condition for the qualification of
conduct as an abuse rather than a ground on the basis of which otherwise abusive
behaviour may be excused55.
20.
Even though case law around abusive behaviour often refers to the possibility of objective
justifications of otherwise abusive behaviour, there is little clarity as to which
circumstances may actually be argued successfully as such 56 . In addition, even though
49
See e.g. Bronner. The language here is ambiguous: it refers to the elimination of all competition on the
part of the person requesting the service (§ 38).
50
O’DONOGHUE & PADILLA, p. 442-445; BROUWER, p. 4.
51
N. KROES Fordham Speech 2005, p. 3-4.
52
LOEWENTHAL, p. 463.
53
LOEWENTHAL, p. 459-460. Tetra Pak I per AG Kirschner, §21; Syfait per AG Jacobs, § 72.
54
BELLAMY & CHILD, § 9–097; BOSCHECK, p. 468-469. United Brands, § 189; Syfait per AG Jacobs, § 53.
55
FAULL & NIKPAY, § 3.156 – 3.160; LOEWENTHAL, p. 459-460 & 462. Syfait per AG Jacobs, § 72.
56
LOEWENTHAL, p. 456.
13
theoretically the absence of such justifications should be established by the Commission in
order to find an abuse, the burden of proof for both the presence and the sufficiency of
objective justifications in practice often lies with the dominant company defending its
case57. Measures taken by a dominant company to protect itself from competitive threats
must in any event be fair and proportional to the threat58. Through its Discussion Paper the
Commission opened the discussion on how efficiencies resulting from behaviour might be
argued to prevent such behaviour from being considered abusive. It fails however to render
clear how such a defence would work in practice59.
21.
Prior to going into the conditions under which a refusal to supply may be found an abuse
of dominance in the sense of Article 82 the question of what exactly constitutes a refusal to
supply needs to be addressed. In some cases this will be fairly clear, for example in cases
where a dominant undertaking expressly refuses to deliver product for which it has
received a purchase order. This is, however, by no means the sole situation that should be
considered under this heading. The termination of an existing supply relation with a
customer can constitute an abusive refusal to supply as much as refusal to supply on first
time order60. In addition a refusal to meet an order in full or a temporary refusal to supply
may also constitute an abuse. Finally it is important to note that practices intended to
indirectly dissuade a customer from pursuing the request for supply (instead of a flat-out
refusing) can also amount to an abusive refusal to supply. Such practices, referred to as
constructive refusal to supply, could be to impose objectively unreasonable terms such as
unreasonably high prices or other unfair conditions, as well as to engage in bad faith
negotiating or delaying tactics in order to get an order withdrawn61.
57
LOEWENTHAL, p. 462. See e.g. Syfait per AG Jacobs, § 49.
BELLAMY & CHILD, § 9–097. United Brands, § 190; Boosey & Hawkes, § 19.
59
JWP DP-Submission, § 2.24-2.29, 5.20; WHITE & CASE DP-Submission, p. 4-5.
60
HUMPE & RITTER, p. 140-142. The Commission argued in its Discussion Paper that a termination of a
supply relation is more likely to constitute an abuse than a first time refusal to supply (DISCUSSION PAPER §
217, compare 218 to 9.2.2.).
61
FAULL & NIKPAY, § 3.146 – 3.148; HUMPE & RITTER, p. 134. DISCUSSION PAPER, § 209.
58
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Commercial Solvents was the first case in which a refusal to supply was found to constitute
an abuse under Article 82 62 . The ECJ considered that “an undertaking which has a
dominant position in the market in raw materials 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 within the
meaning of Article 8[2]”63. In line with Commercial Solvents the ECJ found an abuse in
Télémarketing, where the competing undertaking seeking supply was active in a
neighbouring rather than downstream market. In subsequent cases the Commercial
Solvents Doctrine has also been applied to cases where the refused input was a license to
intellectual property rights rather than the supply of product, though the criteria applied
with respect to a refusal to license are stricter than where the supply of product is
concerned 64 . More specifically, as an additional criterion for a refusal to license to
constitute an abuse it is required that the refusal to license prevents the introduction of a
new product that the dominant company could, but does not (yet) offer and for which there
is potential consumer demand65.
23.
A special case that should be kept in mind when considering the relevant market relates to
cases where the refused input is an aftermarket product 66 . In Hugin the Commission
applied the Commercial Solvents principle in quite the same manner as it had in previous
cases. By defining the relevant market as the market for Hugin spare parts, however, it
rendered Hugin a monopolist in that relevant market
67
. The ECJ annulled the
Commission’s decision on the ground that trade between Member States had not been
affected without, however, either confirming or departing from the Commission’s
62
WHISH 2001, p. 611. Syfait per AG Jacobs, § 54.
Commercial Solvents §25.
64
In Volvo the court decided that due to the specific objective of IP rights to grant exclusivity to its holder,
“some exceptional harm to competition must be shown” in order for a refusal to license to constitute an
abuse. In Magill and in IMS Health this condition was considered fulfilled. In Bronner (after Magill but prior
to IMS Health) the ECJ emphasized that Magill had been decided on very specific grounds and therefore its
outcome was exceptional. (See also: WHISH 2003, p. 665-666; BROUWER, p. 9; RITTER, p. 281, 285, 287.
EAGCP REPORT 2005, p. 44. Bronner, § 40-41; Syfait per AG Jacobs, § 61.)
65
O’DONOGHUE & PADILLA, p. 445-450; BROUWER, p. 10-11. Magill, § 54.
66
BELLAMY & CHILD, § 9–025. Relevant Market Notice, §36, 56.
67
Hugin (Commission) under II-A. A similar decision was taken in Hilti.
63
15
definition of the relevant market. In both Volvo and Renault the ECJ did confirm that the
refusal to supply spare parts, on the part of a company holding an exclusive right to the
production of such spare parts, may constitute an abuse. Contrary to what it had decided in
Hugin, in Pelikan v Kyocera the Commission considered that Kyocera was not dominant in
the market for printer consumables (notably cartridges) due to the vigorous competition in
the primary market for printers. The Commission deviated from Hugin considering that
consumers are well informed and take into account prices of the relevant aftermarket
products when purchasing a printer and that the price of a new printer would not prevent
consumers from buying a new one if the prices of cartridges were to be considered too
high68. A similar reasoning was applied in Info-Lab v Ricoh.
&&
24.
"( " ( &
The Essential Facilities doctrine should be considered a specific species of the Commercial
Solvents doctrine rather than as a separate doctrine69. It was first applied in EC competition
law in Sealink and originates from US Antitrust Law70. It is particular in that the ‘pure’
essential facilities doctrine applies to access to physical infrastructures such as ports,
airports and pipelines. Such facilities are ‘essential’ in that, by nature, they cannot be
replicated in an economically viable manner and therefore are subject to a natural
monopoly71. In Sealink the Commission considered that the owner of an essential facility
that at the same time exploits and uses that essential facility commits an abuse in the sense
of Article 82 if it grants access to competitors using that facility on less favourable terms
and as such puts that competitor at a competitive disadvantage. In its preliminary
judgement in Bronner the ECJ refused to impose on a large publisher a duty to grant access
rights to its extensive distribution system to a much smaller publisher (Bronner). It
considered that Bronner had failed to demonstrate that access to the existing distribution
system for daily newspapers was indispensable for market entry and, therefore, that the
owner of the system by refusing access was likely to eliminate all competition in the
68
See also: DISCUSSION PAPER, § 243-265.
BELLAMY & CHILD, § 9–099; O’DONOGHUE & PADILLA, p. 408; WHISH 2003, p. 667; HUMPE & RITTER, p.
140; RITTER, p. 281, 285.
70
BELLAMY & CHILD, § 9–098; WHISH 2003, p. 667.
71
WHISH 2003, p. 668.
69
16
relevant market72. This decision illustrates that the essential facilities doctrine should be
applied restrictively.
# &)
a.
25.
&"(
,,(/"
%,
+
"
Introduction
Once it has been established that a conduct (i) is capable of affecting the trade between
Member States, (ii) is adopted by a dominant firm and (iii) constitutes a refusal to supply,
three additional criteria may allow to conclude that the refusal is abusive. These criteria are
the following: (i) the dominant company leverages its dominance in one market to benefit
from it in the secondary market (ii) this leveraging has an effect of foreclosure in the
secondary market, and (iii) the behaviour of the dominant firm is not objectively justified.
For the reasons set out below the criterion of indispensability of the product (which is
sometimes mentioned as a separate criterion) will be treated here as part of the foreclosure
criterion73.
b.
26.
Leveraging – the “Two Markets” requirement
The typical refusal to supply case decided under EC Competition Law contains an element
of leveraging, or extending a position of dominance in one market, which allows the firm
to benefit of its dominance in a secondary market74. Key in all the relevant cases is that the
dominant firm, because of its position of dominance in the dominated market, has the
possibility to reserve another market, the downstream or ancillary market, completely or to
a large extent to itself or to one of its subsidiaries. It possesses this option because of the
position of dominance it has in the input market 75 . As emphasized above the fact of
occupying a dominant position in a market is not considered as such to be abusive. Such a
position may have been obtained through fierce competition and striving for optimal
efficiency and may therefore have been and continue to be beneficial to consumers. The
impropriety in refusal to supply cases results from extending the dominance acquired in the
primary market into the secondary market in such a manner that dominance in that
72
Bronner, § 41. The ECJ also considered that the fact that creation of a parallel distribution system not
being economically viable with regard to the expected volume did not suffice. In order to justify a duty to
share it would have to be demonstrated that the creation of such a system would not be economically viable
for an expected volume similar to that of the existing system (Bronner, § 45-46).
73
See e.g. BROUWER, p. 3. DISCUSSION PAPER.
74
Also referred to as the “two markets criterion”. O’DONOGHUE & PADILLA p. 435-440; BROUWER, p. 1;
HUMPE & RITTER, p. 151.
75
BROUWER, p. 2, 4; HUMPE & RITTER, p. 151-153
17
secondary market is not achieved by competition on the merits in that market but rather by
taking advantage of dominance in the first market76.
27.
In order for the two-markets criterion to be fulfilled it is not necessary that the dominant
firm is already active in the secondary market. It suffices if the dominant firm intends to
enter into that market and facilitates its entry by refusing to sell77. Similarly the secondary
market may also be a mere potential market at the time when the refusal occurs78. In IMS
Health this reasoning was taken a step further when the ECJ considered that in order for
there to be leveraging it was enough that there was a potential market that was dominated
by the refusing firm. In this case IMS’ competitors alleged that IMS had committed an
abuse by refusing to share a system it had developed to optimize its business. This system
had been developed by IMS for its own internal use and it was never intended to be offered
to any outside company, so that in fact there was no actual market for this product79. This
reasoning could in theory be extended to the situation where a firm is the sole producer of
an intermediate product which is only produced for its own internal use. Applying IMS
Health could then result in the conclusion that there is an abusive refusal to supply even
though there is no actual market. It is doubtful, however, that this much criticised theory
would ever by applied to other refusal to supply cases80.
c.
28.
Foreclosure & Indispensability
It is important to note here once again that Article 82 is not designed to protect competitors
from competitive threats. Its purpose is rather to enhance consumer welfare through the
protection of competition in the market81. Therefore, behaviour can only be abusive if it
has an actual or potential anticompetitive effect82. In cases of exclusionary abuse this effect
is to substantially foreclose or eliminate competition in the market. In case law different
approaches have been taken as to what level of elimination of competition would justify
imposing a duty to supply. The exclusion of one competitor from the market does as a
general rule not constitute an anticompetitive effect or harm to competition. On the other
hand it is not required that all competition is (likely to be) eliminated as a result of the
76
BROUWER, p. 4
As was the case in Commercial Solvents.
78
As was the case in Magill. HUMPE & RITTER, p. 153.
79
It was held here that the fact that there was a separate stage of production would suffice. BROUWER, p. 5.
80
HUMPE & RITTER, p. 151-152. The DG Competition in its DISCUSSION PAPER suggests that it could (§227).
81
N. KROES Fordham Speech 2005, p. 3, 4.
82
DISCUSSION PAPER, § 4, 54, 88, 231. N. KROES Fordham Speech 2005, p. 2, 3.
77
18
behaviour83. As set out above, the proper standard to be applied is that of a substantial
elimination of competition, which in the particular case of refusal to supply would be
linked with an extension of dominance into a secondary market84. In order to assess a
substantial elimination of dominance the situation ex ante as well as the situation ex post
will need to be considered85.
29.
As mentioned above, indispensability of the refused input is sometimes referred to as a
separate condition for a refusal to supply to be abusive 86 . In its Discussion Paper, the
Commission argues that the criterion of indispensability is only of relevance with regard to
a refusal to start supplying as opposed to a termination of supply87. This approach implies
that refusal to continue supply is in some way more serious than a refusal to start supply.
This view seems however to be more often contradicted than confirmed88. Rather than a
separate criterion in relation to all or some types of refusal to supply, it has also been
argued that indispensability is a sub-condition of the foreclosure condition or a sine qua
non in order for foreclosure to occur. The basis for the argument is the assumption that, if
the requested input is not indispensable, it is unlikely that refusal of access to that input
will have an exclusionary effect, or at least an exclusionary effect sufficiently important to
justify imposing a duty to deal89. For the purposes of this paper it is therefore submitted
that the indispensability criterion applies equally to first time refusals as to refusals to
continue supply relations, as a sub-condition of the condition of foreclosure90.
30.
When considering whether an input is indispensable three key questions need to be
answered: firstly, whether the input is essential to the commercial activity of the refused
firm; secondly whether the input can reasonably be obtained from a source other than the
dominant firm and finally whether the requesting party can produce the input itself, in a
83
Under particular circumstances (e.g. duopoly) the elimination of one competitor could of course constitute
elimination of all competition. HUMPE & RITTER, p. 154. DISCUSSION PAPER, § 222-223, 231.
84
HUMPE & RITTER, p. 154.
85
EAGCP REPORT 2005, p. 43
86
E.g. O’DONOGHUE & PADILLA, p. 440-442.
87
DISCUSSION PAPER, § 228-230.
88
E.g. FAULL & NIKPAY, § 3.145; WHISH 2003, p. 667; BOSCHECK, p. 475; HUMPE & RITTER, P. 140-142;
RITTER, p. 283-284. BAKER & MCKENZIE DP-Submission, § 8.3, 8.4; CROWELL & MORING DP-Submission;
p. 10; IBA DP-Submission, p. 32; ICC DP-submission, p. 25; JWP DP-Submission, § 5.12-5.16; WHITE &
CASE DP-Submission, p. 12-13.
89
O’DONOGHUE & PADILLA, p. 440-445. HUMPE & RITTER, p. 154. Moreover, if the purpose of competition
policy is to protect consumer welfare, there is no ground for distinguishing between first time refusals and
termination of supply (BROUWER, p. 2). The Commission in its discussion paper, however, suggests that once
a supply relation has been entered into, it may be presumed that the continuance of this relation is procompetitive (DISCUSSION PAPER, § 217).
90
See also: HUMPE & RITTER, p. 140-142, 154.
19
legal and economically viable manner 91 . Essentiality is an objective standard in that
convenience for the requesting party or preference of consumers for products incorporating
the requested input do not in themselves allow to conclude that the input is essential. What
is important in respect of the second and third question is that the lack of scale or the lack
of efficiency of the requesting party should not be taken into account. The threshold for the
input to be non-replaceable, with either another product or a self-produced product, is that
an equally efficient competitor of a similar size would not be able to source the product
from another supplier, or produce the input for itself92.
d.
31.
Absence of Objective Justification
As a last condition and as outlined above the absence of objective justification of the
conduct is a condition for there to be an abuse in the sense of Article 82. Unfortunately
little clarity exists as to what might in practice constitute an objective justification for a
refusal to supply a competitor93 . Concerns as to the creditworthiness of the requesting
company and more general qualification of the requesting company as an unsuitable or
unreliable trading partner may constitute objective justification 94 . In addition it is
recognized that a refusal to supply, as the case may be partial or temporary, may be
justified in the event of inability to meet all demand, for example due to short supply of
raw material or capacity constraints95. Besides these examples there are other justifications
that should be capable of being successfully argued. A refusal to supply those distributors
or customers that cannot offer the proper precautions, safeguards and technical expertise
with regard to potentially harmful products should for example be considered objectively
justified. With a view to limiting its exposure to third party liability claims a company
should similarly be allowed to refuse to sell its products into applications that it considers
high risk, such as medical or even consumer applications. It can also be argued that
specific needs of certain customers may justify the refusal to sell the same product to other
customers. An example of such a situation is provided by the DuPont Holographic
91
O’DONOGHUE & PADILLA, p. 440; HUMPE & RITTER, p. 154-157. DISCUSSION PAPER, § 228-230. Bronner,
§ 43-44; IMS Health, § 28; Bronner per AG Jacobs, § 65-68.
92
Bronner, § 45-46; Bronner per AG Jacobs, § 68.
93
O’DONOGHUE & PADILLA, p. 450; BOSCHECK, p. 468; LOEWENTHAL, p. 456.
94
O’DONOGHUE & PADILLA, p. 450-451; FAULL & NIKPAY, § 3.158. British Midland v Aer Lingus; § 25.
95
BP v Commission. The allocation should however be non-discriminatory (see Part III).
20
Materials case around DuPont’s decision to limit the supply of its holographic material to
certain customers using it either for security or anti-counterfeit applications96.
32.
In addition to the validity of the ground of the refusal as such competition authorities may
be tempted to consider whether the refusal is an appropriate step in relation to the interest
that is served by the refusal. Such an assessment should be limited to the objective
proportionality of the refusal to supply to, for example, avoid overdue invoices, limit
exposure to liability, or ensure the quality of the distribution network97. A more in depth
assessment would require the relevant authority to enter into a question of appreciation of
business risks and interests that should be left to the consideration of the dominant firm.
96
97
This case was decided by the Office of Fair Trading and will be discussed in some detail below in Part III.
FAULL & NIKPAY, § 3.156 - 3.160.
21
33.
The key purpose of the present Part III is to propose a framework that will offer practical
guidance to companies that might occupy a dominant position in a market and that face a
situation where they either (i) consider refusing to meet demand and wish to assess the
risks associated with such a refusal or (ii) are confronted with allegations from a customer
or competition authorities that a refusal to supply falls under Article 82. In the framework
proposed under heading D. below each section will be followed by a short question to be
answered, the answer to which will guide the user to the next step in the decision model.
34.
The proposed framework may thus be used to, on the one hand, take an informed and
defensible decision when considering refusing to supply a given order and, on the other
hand, defend its decision to refuse supply when such decision is challenged by the
requesting firm or competition authorities. Under heading B. we will determine whether a
refusal to supply a customer that is not a competitor is capable of constituting an abuse.
Then, under heading C., the available key decisions and cases of refusal to supply in the
absence of vertical integration will be discussed. Here, a distinction will be made between
the refusal to supply product as an input for further production and the refusal to supply
product for resale or distribution. Finally and on the basis of what precedes a set of criteria
for assessing whether a refusal to supply a customer is abusive will be proposed under D.
along with practical guidance as to how to apply these criteria. The criteria that are applied
to assess a refusal to supply competitors as described above in Part II will form the starting
point but it will be argued that they are to an important extent unsuitable to be simply
transposed to the assessment of a refusal to supply customers. Parallel criteria will
therefore be proposed on the basis of general principles of abuse of dominance cases under
Article 82.
35.
An important first question around the subject of the refusal to supply customers is whether
such a refusal is capable of constituting an abuse in the sense of Article 82 and thus
22
whether it should be caught under Article 82 at all. It has been argued that this should not
be the case precisely because of the absence of a competitive relation between the involved
firms. This competitive relation between the dominant firm and the firm that is refused
access is key in the reasoning underlying cases such as Commercial Solvents98. It is this
relation that allows the dominant firm to benefit from its refusal – which impedes the
competitor’s ability to compete. In cases where the refusal to supply is directed to a
customer which is not at the same time a competitor such direct competitive benefit
accruing to the dominant firm is far less evident. That is not to say that in that last category
of cases the requesting firm may not be put at a competitive disadvantage in the market in
which it is active as a result of the refusal; this could evidently be the case. The difference
with cases of refusal to supply competitors, however, is that this decreased ability to
compete of the requesting firm is not directly beneficial to the dominant undertaking99.
36.
In addition to the above it should be kept in mind that typically a profit-driven company
would not be expected to refuse supply to a customer – in other words refuse the
opportunity to generate revenue – except if it has business reasons that motivate such a
decision. In traditional refusal to supply cases that business reason could be the benefit of
excluding a competitor100. It can be argued that the dominant firm accepts a short term
disadvantage (not to generate revenue) in order to achieve a longer term objective (to
exclude the competitor)101. As discussed above the direct long term benefit is typically
absent if the customer that is refused access is not a competitor102. The consideration above
creates a strong assumption that a company refusing to supply a non-competing customer
must have good business reasons to do so. Therefore, a refusal to supply a customer should
be abusive only if there is a clear indicator that the effect sought by the dominant firm is
anticompetitive 103 . Absent such indicators there should be an assumption of objective
justification of the behaviour of the dominant firm.
37.
This theory is confirmed when this question is looked upon from the angle of whether
harm to competition is capable of resulting from a refusal to supply a customer. As
outlined above such harm, if any, would most likely be indirect, i.e. suffered at a level
98
BROUWER, p. 2; HUMPE & RITTER, p. 153. Bronner per AG Jacobs, § 65.
O’DONOGHUE & PADILLA, p. 464; HUMPE & RITTER, p. 153.
100
BROUWER, p. 2.
101
O’DONOGHUE & PADILLA, p. 464. This profit sacrifice theory will be discussed below.
102
HUMPE & RITTER, p. 153.
103
O’DONOGHUE & PADILLA, p. 464.
99
23
other than that in which the customer is active104. This will be discussed in further detail
below. It should be kept in mind that the potential competitive disadvantage suffered by
the requesting firm, however inconvenient, does not in itself constitute harm to
competition105. As in the case of refusals to supply competitors, harm to competition is
likely to result from a dominant firm’s refusal to supply a customer only if the requested
input is indispensable to the customer.
38.
The CFI decision in Ladbroke seems to support the views expressed above: it considered
that the refusal to license by the French sociétés de courses was not abusive based on,
among other things, the fact that the sociétés de courses were not active in the market of
the requesting company, the Belgian Ladbroke. It decided that “[i]n the absence of direct
or indirect exploitation by the sociétés de courses of their intellectual property rights on
the Belgian market, their refusal to supply cannot be regarded as involving any restriction
of competition on the Belgian market.” 106 . The Commission in its Discussion Paper
confirms this view expressly: “in the typical refusal to supply case the aim is to exclude a
participant in the downstream market […] (vertical foreclosure). From a competition
policy point of view, this is mostly only a worry if the dominant company […] is itself
active downstream.” 107 . The leading US case law adopts an approach in line with the
positions of the CFI in Ladbroke and the Commission, as set forth above108.
39.
The position described above, however, is not yet a closed subject under EC competition
law, the crucial word in the Commission’s quote above being ‘mostly’. Therefore, under
EC competition law it cannot be excluded that a refusal to supply a customer may be found
to constitute an abuse109. A distinction needs to be made between a refusal to supply a
customer that transforms the product and a refusal to supply a distributor / reseller.
104
O’DONOGHUE & PADILLA, p. 464. DISCUSSION PAPER, § 222. HUMPE & RITTER, p. 153.
. DISCUSSION PAPER, § 222. Ladbroke, § 133. Bronner per AG Jacobs , § 58.
106
Ladbroke, § 130.
107
O’DONOGHUE & PADILLA, p. 464. DISCUSSION PAPER , § 72 & 222.
108
O’DONOGHUE & PADILLA, p. 464.
109
O’DONOGHUE & PADILLA, p. 465.
105
24
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40.
,,(/
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& ,
In BP v Commission the ECJ on appeal did not find abusive BP’s decision to reduce the
supply to ABG to a larger extent than it had with regard to contractual customers, when it
was unable to fully honour all the orders due to an oil crisis. In the appealed decision the
Commission considered the rate of reduction of supply to customers in times of shortage
should not be based on the question whether a contract for supply was in place or not, but
rather on “the extent, regularity and continuity of commercial relationships” of the
supplier with its customers. The Commission decided that BP ought to have treated ABG –
not a contractual customer – as it had treated its contractual customers, qualifying it as an
abuse to treat “a regular, long-standing and substantial customer in a way which is clearly
discriminatory by comparison with other customers”. The ECJ rejected the Commission’s
reasoning considering that the fact of applying a different rate of reduction to occasional
customers as opposed to contractual customers cannot amount to an abuse110. It clarifies
that the EC Treaty does not impose a duty to apply the same rate of reduction to all
customers 111 . The importance of this decision lies therein that it shows that dominant
companies as a principle are free to determine the criteria for allocation.
41.
Subsequent cases show that such freedom does however have boundaries. In British
Gypsum the CFI clarified that “whilst […] it is open to an undertaking in a dominant
position and is also a matter of normal commercial policy, in times of shortage, to lay
down criteria for according priority in meeting orders, those criteria must be objective and
must not be discriminatory in any way”. British Gypsum (BG) was found to have acted
abusively as it had made a distinction between customers who also marketed plasterboard
imported and produced by BG’s competitors and "loyal" customers who obtained all their
supplies from BG112. In GVL v Commission the ECJ found that a distinction based on
nationality is contrary to Article 12 EC113. Finally behaviour that is harmful to the single
market, for example through the prevention of parallel imports, may constitute an abuse114.
110
BP v Commission, §32
BP v Commission, §34
112
British Gypsum, § 94.
113
This is independent of the question of dominance. For more cases see BELLAMY & CHILD, § 9–120 (n. 75)
114
E.g. BL v Commission. See however also Syfait per AG Jacobs.
111
25
&"(
42.
,,(/
& %
&
& #
&"(
In Boosey & Hawkes the abrupt termination of the supply relation by Boosey & Hawkes
with its customers RCN and GHH was found abusive. The termination coincided with the
creation of a new entity (BBI) by the principals of the two customers, which entity was
intended to enter into the upstream market dominated by Boosey & Hawkes. The two
customers in their activities were to a large extent dependent of Boosey & Hawkes and
claimed that the termination of the supply was meant to discourage their principals from
competing in the upstream market through BBI. The Commission recognized that a
dominant company is entitled to take reasonable measures to protect its commercial
interests insofar as such measures are fair and proportional to the threat, but found that in
this case the abrupt termination of the commercial relation with the customers was not
justified. It found that “the documentary evidence indicates that B&H embarked on a
course of conduct intended to remove the competitive threat from BBI, and that withdrawal
of supplies from GHH and RCN was part of that plan”115.
43.
Similarly in United Brands the ECJ found that United Brands’ decision to terminate supply
to a distributor that was not subject to an exclusivity obligation on the ground that it had
participated in a marketing campaign of United Brands’ competitor constituted an abuse.
The ECJ decided that United Brands had gone beyond the reasonable measures that a
dominant firm is entitled to take to protect its interest, in that had acted in a manner that
was not proportional to its competitors’ attacks116. It was found to have sought to bind its
distributors exclusively to it and thereby denying its competitor access to market, with the
final objective of limiting competition from that competitor in the upstream market117. The
effects sought through the refusal were therefore similar to those typically obtained
through single branding, or exclusive dealing arrangements.
44.
The two cases discussed above differ from cases like Commercial Solvents in that the
infringing companies sought to strengthen or maintain a position in the already dominated
market, rather than to foreclose a competitor from a secondary market118. In both cases it
was acknowledged that a dominant company may reasonably defend its interests119 and is
115
Boosey &Hawkes, § 19.
United Brands, § 182.
117
WHISH 2003, p. 677.
118
O’DONOGHUE & PADILLA, p. 470; WHISH 2003, p. 677-678; HUMPE & RITTER, p. 138-139.
119
United Brands, §189-190; Boosey & Hawkes, § 19.
116
26
not under an obligation to assist its competitors120. What was reproached to the dominant
companies was that reprisals were taken against customers that were operating their
business in a habitual manner, with the intention of affecting competitors’ ability to
compete121.
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45.
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A preliminary conclusion from the available case law is that a refusal to supply a customer
that is not also a competitor can be considered an abuse only if there is an additional
circumstance or “plus-factor” that renders it abusive. Such an additional harmful
circumstance could lie in the discriminatory manner in which available supply is allocated
to customers rather than in the (partial) refusal to supply resulting from the need to allocate
scarce product as such. In this case the behaviour, though it can be looked at from a refusal
to supply perspective, could more appropriately be considered abusive under Article 82(c)
that qualifies as an abuse the practice of applying dissimilar conditions to similar
customers122.
46.
Alternatively the plus factor could be that the refusal is intended to drive a certain
behaviour or penalize non-compliance therewith by customers, with the intent of limiting
the activities of a (potential) competitor in the dominated market. Such abuses are
sometimes referred to as reprisal abuses, or as a conditional refusal to supply123. This type
of case can occur equally with respect to distributors/ resellers or customers requiring input
for their production. Through reprisal practices a dominant supplier could for example seek
to ensure that the customer sources its full requirements from it, so that effectively it will
achieve single branding or exclusive dealing124. Alternatively it could condition the supply
of a product to the purchase of another unrelated product that the customer otherwise might
have obtained from a competing supplier. Such a practice would effectively amount to
tying or bundling of such products125. Finally a dominant company could, primarily with
120
HUMPE & RITTER, p. 138.
O’DONOGHUE & PADILLA, p. 470; WHISH 2003, p. 677-678; BROUWER, p. 6; HUMPE & RITTER, p. 138139. United Brands, § 192-194; Boosey & Hawkes, § 19.
122
BROUWER, p. 6-7; HUMPE & RITTER, p. 139, 162.
123
HUMPE & RITTER, p. 139.
124
Such as in United Brands. HUMPE & RITTER, p. 139
125
HUMPE & RITTER, p. 139. Incidentally it may be noted that the abuses of tying and bundling invariably
bear in them an aspect of refusal to supply, vis-à-vis customers that would do wish to purchase the tied or
bundled product. In such cases however a claim directly under Article 82 (d) would be expected rather than
under the header of refusal to supply. See e.g. Hilti. The same applies to cases of exclusive dealing (FAULL &
NIKPAY, § 3.184 – 3.215).
121
27
regard to distributors and resellers effectively achieve resale price maintenance or prevent
parallel imports by refusing to supply certain types of customers (e.g. price cutters, parallel
traders)126.
47.
In each of the examples the refusal to supply is an instrument in the hands of the dominant
company allowing it to achieve a behaviour on the part of its customers that if imposed
directly would (at least potentially) constitute an abuse127. In such cases it could therefore
be argued the refusal to supply in itself should not be capable of being abusive unless the
practice that it seeks to enforce is abusive under the circumstances128. In addition in order
for the refusal to supply as such to be found abusive, the relevant criteria that will be listed
below will need to be met. The “plus-factor”, in other words, provides for an additional
rather than alternative criterion for the behaviour to constitute an abuse. For discriminatory
allocation to constitute an abuse under Article 82(c), does not automatically mean that is
also contrary to Article 82(b). In order for there to be an abusive refusal to supply the
conditions specific to that type of abuse need to be fulfilled. The refusal as such is, in other
words, not abusive merely because it is discriminatory 129 . This distinction may appear
purely academic, but it has its importance with regard to corrective measures. Whereas an
abusive refusal to supply could be sanctioned by a duty to supply, a finding of
discrimination as such could not.
48.
The conditions under which a refusal to supply a rival can be found an abuse cannot be
fully transposed as such to cases involving a refusal to supply a customer130. The general
prerequisites that there is actually a refusal to supply and that the refusing firm is dominant
in the market for the refused input apply equally to both cases. The remaining three
criteria, i.e. leveraging, foreclosure (including indispensability) and absence of objective
justification cannot be applied in the same manner. A proposal as to how these criteria
could be applied to these cases will follow in the present section. It should be noted that,
126
On parallel trade, see Syfait per AG Jacobs.
DISCUSSION PAPER, § 208.
128
BROUWER, p. 6; HUMPE & RITTER, p. 162.
129
O’DONOGHUE & PADILLA, p. 466-467.
130
O’DONOGHUE & PADILLA, p. 467-468; BROUWER, p. 6-7; HUMPE & RITTER, p. 138-139.
127
28
unlike in cases of refusals to supply rivals, the dominant firm in principle does not directly
benefit from any anticompetitive effects of its refusal to supply a customer 131 . The
conditions under which a duty to supply a customer can be imposed could therefore be
argued to be stricter than those with respect to the duty to supply a competitor. A refusal to
supply a customer typically should not be considered as a question of competition law.
This should only be different insofar as harm to competition can clearly be identified as a
potential result of the refusal to supply. In all other cases competition authorities should
not interfere and allow competition law to be misused by customers seeking protection that
is not available under contract or tort law.
49.
This framework is intended to provide guidance on the considerations to be taken into
account when refusing to supply a customer and the accompanying lines of defence that a
company may adopt when facing allegations of having committed an abuse. Before going
into such detail it should be recalled here once more that each finding of abusive conduct
implies a limitation of a dominant firm’s freedom to conduct its business in the manner it
deems appropriate. Cases of abusive refusal to supply in particular involve in addition to
that a limitation of the property rights of the dominant company. Taking that into account,
the point of departure of any case should be a presumption that a company, dominant or
not, acts in its own economical interest and should be allowed to do so. Despite the
somewhat unfortunate formulation of the Court regarding the dominant firms’ “special
obligation” the rule should remain that dominant companies are free to operate their
business and to engage in fierce competition. A dominant company should in no event be
expected to refrain from legitimate competitive behaviour, to the benefit of competition in
general or its competitors132.
131
132
HUMPE & RITTER, p. 153.
See also: HUMPE & RITTER, p. 147-149. United Brands, §189-190; Boosey & Hawkes, § 19.
29
0
50.
"(
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As discussed in Part II of this paper, in order for any behaviour to be found abusive in the
sense of Article 82 it must be assessed whether the behaviour is capable of falling within
the general scope of Article 82. The behaviour must be capable of affecting trade between
Member States and it must be committed by a company in a dominant position. A
dominant position is established on the basis of the relevant geographical and product
market and the position of the company under scrutiny in that market. Although these
factors may be of critical importance in defending a refusal to supply they are by no means
specific to refusal to supply cases in that they apply to all abuse of dominance cases. For
the purposes of this paper it suffices to acknowledge that a solid defence argument may lie
in the fact that either the trade between Member States is incapable of being affected or
that the company refusing the supply in effect is not in a dominant position.
2 "( "
51.
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Before going into the criteria relevant to determine whether a refusal to supply is capable
of constituting an abuse, it must be established that the behaviour in question actually
constitutes a refusal to supply. In some cases this may be clear whereas in other cases this
may be a point of interpretation. It should be remembered that practices that circumvent
flat-out refusing to supply but which are intended to avoid supplying a customer are not
necessarily effective in preventing refusal to supply claims. A constructive refusal to
supply can be considered an abuse as much as a straightforward refusal provided the
relevant criteria are met. For example to impose, without justification, a significant price
30
increase to a customer might be considered a constructive refusal to supply. The same
could apply if a dominant company only agrees to start or continue supply under
unreasonable conditions such as price, delivery deadlines, guarantees to be posted by the
customers, etc. Finally unreasonably delaying negotiations, acknowledgement of orders or
shipments, etc., or acting in bad faith when negotiating terms and conditions of supply may
be qualified as a constructive refusal133.
52.
In some cases a first line of defence may lie in disputing whether a behaviour effectively
constitutes a constructive refusal to supply. The motivation underlying the behaviour under
scrutiny, as well as the manner in which it is applied may play an important role in that
respect. A price increase for example should typically not be considered a constructive
refusal if it is applied across the board as a result of a cost increase or increased demand, or
because of capacity constraints. The same applies to terms and conditions of sales that are
applied on the basis of valid business considerations however inconvenient to the
requesting party. Examples thereof may include a strict limitation of liability as well as
(insofar justifiable) restrictions on allowed end-uses of the product, or security guarantees
to be offered by the customer in respect of the processing of the product. Regarding
distributors a minimum level of technical expertise and ability to provide the proper
services may be required. Insofar such requirements are reasonable a constructive refusal
should not be deducted from their enforcement.
)
a.
53.
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Appropriate Criterion
As discussed in Part II above the first criterion proper to cases concerned with refusals to
supply competitors is that of leveraging. Leveraging refers to the use or misuse that a
133
FAULL & NIKPAY, § 3.146 – 3.148; HUMPE & RITTER, p. 134. DISCUSSION PAPER, § 209. On the subject of
constructive refusal to supply see also the pertinent section in Part II above.
31
company holding a dominant position in a particular market makes of that dominance in
relation to its activity in another unrelated market, which it typically does not dominate134.
Leveraging or the two markets-criterion is therefore particular to types of abuses where the
dominant company is active in two markets and the effects of the conduct are felt in the
non-dominated market 135 . This is the case in classical refusal to supply cases that are
concerned with vertically integrated firms foreclosing competitors from secondary
markets136. In cases where the firm that is refused an input is a ‘pure’ customer, however,
the refusing firm by definition is not active in the customer’s market. The leveraging
criterion is therefore inappropriate in this type of cases. In the absence of leveraging as a
criterion the only alternative is to fall back on the criterion of improper or out of the
ordinary behaviour, as defined with regard to exclusionary abuses in general.
b.
54.
Application
As was outlined above the definition of abusive conduct as ‘conduct not governed by
normal competition’ or ‘competition other than on the merits’ has inherent difficulties.
Most importantly the qualification of an abuse as abnormal competition begs the question
of what then constitutes ‘normal competition’137. As a general rule measures taken by any
dominant company that are in line with what other actors in the industry do should be less
likely to be found abusive 138 . Where a (constructive) refusal to supply is concerned
measures that are applied across the board rather than with respect to one or few actors
may also be less likely to be found abusive139. Neither of these two generalities however
offers much help when assessing a specific case. In this respect several tests have been
developed in practice or proposed in academic writing which try to facilitate the
qualification of conduct adopted by dominant companies as either abusive or not abusive.
Those that are of relevance with respect to cases of refusal to supply to customers will be
discussed below. Where appropriate we will make a distinction between the distributor /
reseller and the customer that requires an input for its own production.
134
O’DONOGHUE & PADILLA, p. 207.
O’DONOGHUE & PADILLA p. 435-440; BROUWER, p. 1; HUMPE & RITTER, p. 151.
136
Other examples of an abuses where leveraging is a typical criterion include tying and bundling. In such
cases a product the market for which a firm does not dominate is tied to or bundled with a product of the
same supplier the market for which it does dominate.
137
N. KROES Fordham Speech 2005, p.4-5
138
In British Midland v Aer Lingus the Commission expressly considered the extent to which the practice of
interlining was a general industry practice. It should be kept in mind though that behaviour that is acceptable
when adopted by a non-dominant company; may be abusive when adopted by a dominant firm.
139
This could also be a criterion in discrimination cases, but typically not in cases of, for example, tying,
bundling, rebates or predatory pricing.
135
32
55.
(ii) Profit Sacrifice Test – Under the profit sacrifice test the fact that a dominant firm
accepts some sort of short term disadvantage (a profit loss) in order to recoup a larger
advantage at a later stage when the anticompetitive effects of the conduct in question have
kicked in is considered an indicator of abuse. It is primarily applied in practice in cases of
predatory pricing140. In these cases the profit loss exists in the sale of product under cost
price during a certain period of time. The long term benefit is the foreclosure from the
market of competitors that are unable to sustain loss-making sales during the same period
as the dominant firm and therefore to continue competing141. The profit sacrifice test is
sometimes criticized on the grounds that it both fails to identify abusive practices that to
not involve profit sacrifice142 and (contrarily) may create a misperception that ‘normal’
behaviour that does involve some short term profit sacrifice143 is anticompetitive144.
56.
The profit sacrifice test could also be used to show some strategic anticompetitive intent
behind a refusal to supply. The short term disadvantage in this case would be the fact of
missing out on the revenue that the dominant supplier could have realized if it had supplied
the requested product. In order for the conduct to be capable of being an abuse the long
term benefit sought by the dominant company through this conduct should be
anticompetitive. In classical refusal to supply cases this long term benefit to the dominant
firm would exist in the foreclosure of the competitor in the secondary market. In cases
along the lines of United Brands and Boosey & Hawkes the anticompetitive benefit would
be to enforce a certain behaviour on the part of its customers (e.g. single branding,
exclusive supply, purchase of bundled or tied products) and thus to limit the ability of its
existing competitors or new entrants to compete in the dominated market. To take a
decision to refuse supply in order to achieve a benefit as described above (i.e. an
anticompetitive benefit) would pose significant risk to a dominant undertaking whereas the
absence of such anticompetitive benefit should lead to a negative finding on abuse. When a
refusal to supply was decided upon without such intent results in such anticompetitive
benefit, the conduct could be qualified in practice as abusive. In this respect the so-called
but for-test could provide assistance in order to further assess such conduct145.
140
O’DONOGHUE & PADILLA, p. 184.
VICKERS, p. F253.
142
E.g. Abusive rebate schemes, tying, bundling, exclusive dealing arrangements, etc.
143
E.g. Virtually any investment decision.
144
O’DONOGHUE & PADILLA. TEMPLE LANG & O’DONOGHUE, p. 44.
145
Vickers considers the profit sacrifice test and the buts-for test as one and the same (VICKERS, p. F253-256)
141
33
57.
(iii) But-for test – As set out above, the fact for a company to accept some short term
disadvantage with a view to recoup a more important benefit in the longer term is not
unusual and does not create in itself a presumption that the behaviour is improper146. The
so-called “but-for” test can give a further indication as to the qualification of a behaviour.
This test consists of the following question: would the behaviour in question have been
adopted in the absence of (or ‘but for’) its exclusionary effect? It seeks to identify the
grounds for adopting the behaviour in question. A more objective variation on this test is
referred to as the “no economic sense test”, which asks whether it economically make
sense to adopt the behaviour except for its exclusionary effect147. When contemplating a
refusal to supply, going through the but-for test can be useful as a risk assessment tool. The
answering of the “but-for” question in practice is closely linked to the question of the
objective justification of the behaviour.
)
a.
58.
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Appropriate Criterion
As in the case of a refusal to supply a competitor a refusal to supply a customer should not
be found to constitute an abuse unless it is capable of substantially eliminating
competition148. This is also recognized in the text of Article 82(b) which qualifies as a
potential abuse the fact of limiting production, markets or technology to the detriment of
consumers. A refusal to supply that is directed at a customer rather than a competitor is
likely to have, if any, only indirect anticompetitive effects149. Although a refusal to supply
a competitor in a downstream market will directly affect the capacity of that competitor to
compete with the refusing firm, it is generally not the “pure” customer’s ability to compete
that competition law will seek to protect. The harm that the customer may suffer as a result
146
Consider for example any investment decision. O’DONOGHUE & PADILLA, p. 186-187.
O’DONOGHUE & PADILLA, p. 187-188.
148
HUMPE & RITTER, p. 154. See also Part II above.
149
HUMPE & RITTER, p. 153.
147
34
of the refusal should not be confused with harm to competition. An illustration of how
these two issues might be confused is provided by the case decided by the OFT in respect
of DuPont’s refusal to continue to supply holographic material to a customer (DuPont
Holographic System). In this case the customer was minuscule in the relevant hologram
market. Its purchases form DuPont in the preceding years amounted to a few thousand US
dollars. The proper question for the OFT would have been whether (i) the trade within the
UK or a part of it could be affected by the termination of supply150 and, even if that were to
be the case, (ii) competition was capable of being harmed by the termination of supply. As
the obvious answer in this case would have been ‘no’ the authority should have stopped its
analysis at this point 151 . Even if the company in question had been prevented from
continuing its business the exclusion of one niche player from a market should not
normally be found to cause harm to competition.
59.
Indispensability as a sub-condition has a slightly different practical meaning when a
customer as opposed to a competitor is concerned. Refusing an indispensable input to a
competitor directly affects that competitor’s ability to compete. A refusal to supply a
customer with an input can be harmful to that customer but typically it is not the interests
of that customer that competition law seeks to protect. Indispensability should therefore be
seen as an integral part of the question of harm to competition. As such the appropriate
question with regard to a refusal to supply a customer should be whether the control over
the market that the dominant company enjoys as a result of its position is sufficient in order
for the refusal to have an impact on competition. With regard to a customer it could suffice
to show that the product is sufficiently crucial to the customer that the supplier is in a
position to drive behaviour by threatening to no longer supply the input.
60.
Specifically where the customer is a distributor it could be argued that the reputation of the
brand supplied by the dominant supplier could play a role. If a product because of such a
reputation is a ‘must-stock’ product, the pressure exercised by the supplier of such product
could be considerable152. In United Brands the ECJ seems to have taken such an approach
when determining whether United Brands was dominant in the relevant market. It
considered that “[A]n undertaking in a dominant position for the purpose of marketing a
150
As required in order for any behaviour to be contrary to Section 18 of the Competition Act 1998.
The OFT ultimately decided the case in favour of DuPont because of the objective justification that the
security and anti-counterfeit applications of its product by its key customers obliged the supplier to terminate
supplies to all “non-security” customers.
152
HUMPE & RITTER, p. 139.
151
35
product – which cashes in on the reputation of a brand name known to and valued by the
consumers – cannot stop supplying a long standing customer who abides by regular
commercial practice, if the orders placed by that customer are in no way out of the
ordinary” 153 . Though it could be argued that the reasoning in this particular case was
questionable there is a risk that it will be followed in other cases154.
b.
61.
Application – Refusal to supply a Distributor or Reseller
The question of elimination of competition should be looked at in a different manner
depending on the type of customer to which access to an input is refused. In the event that
the customer is a distributor or reseller there is no room for meaningful competition
between the dominant company and the reseller of its product because the reseller does not
add any value to the product155. Its ability to compete is fully dependent on the input price
charged by the supplier of the product. Therefore harm to competition typically does not
occur as a result of such a refusal to supply.
62.
An important exception to the above is the situation where the refusal to supply effectively
results in resale price maintenance by the dominant supplier. Resale price maintenance
could be achieved by the dominant supplier by simply refusing to supply those customers
that do not comply with its price strategy, such as price cutters. This could be done under a
pretext of quality control or selective distribution. Although any resale price maintenance
can seriously harm competition in the resellers’ market, the effects could be even more
important if the relevant product market is dominated. Behaviour of this type would
however be likely to be looked upon under Article 81 rather than Article 82. It should be
noted that to engage is such behaviour would involve considerable risk, whether the
company applying such a policy is dominant or not.
63.
Harm to competition when refusing to supply distributors or resellers may also occur in the
market in which the dominant supplier is active. This can be the case if the ability to
compete of the upstream competitor is (indirectly) affected by the refusal to supply a
customer, such as in United Brands and Boosey & Hawkes. In the first of these cases the
refusal to supply a customer that dealt also with the dominant supplier’s competitor
153
United Brands, § 93.
See also : KËLLEZI, p. 27.
155
O’DONOGHUE & PADILLA, p. 468.
154
36
indirectly limited this competitor’s access to the downstream distribution market156. In the
second the refusal was found to have been intended to discourage the principals behind the
customers to engage in developing a new business in competition with the dominant
supplier157. A refusal to supply of this particular type by a dominant undertaking entails
considerable risk of infringing EC Competition Law. It is submitted however that a refusal
to supply in this type of cases should only be capable of being found an abuse if the
behaviour that it seeks to enforce in itself is abusive. In these cases therefore the refusal to
supply will only be component of the abusive behaviour rather than the abuse in itself158.
64.
The potential for competitive harm resulting from a refusal to supply a distributor or
reseller must therefore be assessed on the basis of the individual circumstances. In most
cases involving normal business decisions that do not have apparent anticompetitive
objectives harm to competition will be unlikely to occur as a result of such a refusal. Such
cases should not be the subject of review under competition law. In the cases where harm
to competition is likely to occur from this type of refusal to supply the conclusion will be
often quite obvious. Typically the refusal will be conditional on the distributor agreeing to
some form of anticompetitive arrangement. Such arrangements may include resale price
maintenance, most likely to be caught under Article 81, or the decision to conform to
abusive behaviour other than a refusal to supply, such as tying, bundling, single branding
or exclusive dealing159.
c.
65.
Application – Refusal to supply a Derivative Producer or OEM
Where the requesting customer requires the input for further production a refusal to supply
may equally be considered abusive if it is conditional on the customer agreeing to some
anticompetitive condition. The circumstances to be considered in such a case are the same
as those described above for distributors / resellers. In the absence of such aggravating
circumstances, a harmful effect on competition is as a general rule unlikely to occur. As
with distributors, the extent to which the customer is dependent on the input supplied by
the dominant company is an important factor. A high level of dependence could allow the
supplier to through the conditions or restrictions it imposes on its customer limit the access
to market of its competitors. It should be noted here again that the purpose of competition
156
United Brands, § 192-194.
Boosey & Hawkes, § 19.
158
HUMPE & RITTER, p. 162. See also above sections III.C.iii.
159
HUMPE & RITTER, p. 139. DISCUSSION PAPER, § 208-209.
157
37
law is to protect competition in the market and therefore the mere fact that one particular
actor in a competitive market may be excluded as a result of a refusal to supply does not in
itself justify the conclusion that such a refusal is harmful to competition160.
)
66.
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Finally a potential objective justification should be given due consideration with respect to
a refusal to supply a customer. It can be argued that this applies even more so here than in
cases of refusal to supply competitors because of the absence of direct anticompetitive
effects to the benefit of the refusing firm161. The absence of such direct effects may be
considered to justify a higher level of presumption of good faith on the side of the
dominant firm. Potential grounds of objective justification of a refusal to supply were
partly set out in section II. E, under (iii) and include shortage of raw materials, capacity or
inventory constraints162, regulatory or internal policy constraints, the decision to limit or
cease the production of the input, the decision to switch from distribution to direct sales,
security issues
163
, special requirements imposed by customer applications
164
,
dissatisfaction with the customer, or concerns as to its creditworthiness165. All such reasons
may clearly be of relevance where the refusal is directed to a customer, whereas some are
more relevant when the customer is a reseller or distributor and others if the product is
required for further production.
67.
As a general rule, restrictions that lead to refusals to supply that are applied across the
board to all (potential) customers, including internal customers, should entail a lower level
of risk than refusals based on circumstances specific to a certain customer. Decisions that
160
HUMPE & RITTER, p. 157-160
HUMPE & RITTER, p. 151, 161-162.
162
HUMPE & RITTER, p. 161.
163
E.g. Hilti.
164
E.g. DuPont Holographic System.
165
O’DONOGHUE & PADILLA, p. 450-451; FAULL & NIKPAY, § 3.158. British Midland v Aer Lingus; § 25.
161
38
are specific to a particular group of customers or even one single customer may be harder
to defend. The maintenance of good documentary evidence as to the background that has
led to the refusal may prove of importance in practice. Where supply is (partly) refused on
the basis of inability to meet all orders in full, for example because of capacity or inventory
constraint or shortage of raw material, care should be taken to allocate available product in
a non-discriminatory manner. This is particularly important if internal customers are
involved as the case then becomes closer to that of refusal to supply a competitor.
68.
It is our view that competition authorities should exercise restraint when refusing to
validate objective justifications. It should suffice for a dominant supplier to be able to
demonstrate that a ground for the refusal existed at the time of the refusal and that the
refusal is proportionate to the interest served thereby.
)
69.
& %
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Article 82, under (c) also qualifies as abusive behaviour the fact of treating similar
customers in a discriminatory manner. A question that may arise from this provision is
whether the fact that a supply relation exists with one customer means that the supplier
would be under an obligation to enter into subsequent supply relations with new customers
if these are companies similar to the first. In addition, it could play a role with respect to
the question of discrimination between existing customers should supply be refused to one
and not to the other166.
70.
Whether the existence of a relationship between a first customer and a dominant supplier
entitles subsequent similar customers to receive supplies as well should be answered
having regard to both the discrimination provision of Article 82 and the conditions
surrounding refusal to supply. A customer cannot require to be supplied by a dominant
company solely on the basis of the argument that another company has been supplied even
166
O’DONOGHUE & PADILLA, p. 465-466; HUMPE & RITTER, p. 162-164.
39
if the customer were able to demonstrate that the two customers and the conditions under
which they require supply are similar167. To allow for such a line of reasoning would in
effect result in imposing a duty to supply without regard to the conditions developed in that
respect, via the back door of discrimination 168 . In order for a company to argue
successfully that it is entitled to receive supply, it should demonstrate that the conditions
for imposing a duty to supply, i.e. the criteria rendering a refusal to supply abusive, are
met. Only if that is the case should a duty to supply be imposed169. Evidently the more
there are comparable companies that are already being supplied by the dominant supplier,
the more it becomes difficult to argue that the refusal (discriminative or not) to supply one
additional customer is capable of substantially eliminating competition. Therefore, except
in very particular circumstances, a refusal to supply should not be considered to be abusive
on the basis that it is discriminatory.
71.
Whether existing customers are entitled to be treated in a manner equal to similar existing
customers should be answered positively, insofar as the failure to do so would put a
customer in a position of competitive disadvantage 170 . Disputable is the case where a
supply relationship is terminated or limited for a reason proper to a specific customer. In
such a case, however, it could be argued that because of the existence of such specific
circumstances, that customer is no longer similar to other customers. The principal rule is
that a dominant company is not at liberty to discriminate between similar customers. This
means that when a dominant supplier decides or is forced to limit its supplies, it should
design its allocation programme in such a manner that similar customers are treated
equally. Companies are in principle free too decide the criteria on the basis of which they
allocate the available products insofar as these criteria are non-discriminatory and
objective 171 . Several types of criteria may be defensible, as long as they meet these
boundary conditions.
72.
Most notably different treatment may be applied to contractual customers as opposed to
spot-trade customers. The allocation of scarce product may also be based on volume of
product purchased by each customer over a certain reasonable reference period preceding
167
O’DONOGHUE & PADILLA, p. 455-456.
Which would have a distorting effect because, contrary to Article 82 (b), Article 82(c) does not require
harm to consumers.
169
HUMPE & RITTER, p. 163-164. O’DONOGHUE & PADILLA, p. 456.
170
On the basis of Article 82(c).
171
BP v Commission.
168
40
the allocation, so that product is allocated pro rata the customers’ normal requirements. A
distinction that is based on strategic importance of customers (for example customer that
buys many other products in addition to the scarce product) generally will be harder to
defend under Article 82(c). A decision to supply customers that have a larger degree of
dependence of the input might be defensible but, in any event, needs be applied with great
care. Finally a decision to allocate resources predominantly or exclusively to customers
that source their needs fully from the dominant supplier, as opposed to those customer that
source part of their requirements elsewhere, will typically be found to be contrary to
Article 82172.
172
British Gypsum.
41
73.
The objective of this paper was to provide dominant companies with a framework to assess
whether a refusal to supply a customer that is not a competitor could be found an abuse in
the sense of Article 82. The background to that question is formed by the allegations that
dominant firms regularly face in that respect and the considerable cost related thereto. A
lack of clear principles creates uncertainty as to the legal position of a dominant firm
refusing to supply and offers customers an effective instrument to apply pressure. A
preliminary conclusion is that in many cases a refusal to supply a customer should not be
an issue of competition law at all. The absence of a competitive relation between the
dominant company and the customer allows for a presumption that typically such a refusal
does not have an anticompetitive object. Case law shows however that under certain
circumstances a refusal to supply a customer may constitute an abuse. The criteria for
assessing such a refusal should not be the same as those applied with respect to a refusal to
supply competitors. More precisely, it is argued that some specific aggravating anticompetitive aspect needs to be demonstrated in order to find an abuse.
74.
For any behaviour to be caught under Article 82 it must be capable of affecting the trade
between Member States and committed by a company in a dominant position. In order for
a refusal to supply a customer to constitute an abuse the refusal must in addition (i) be
properly qualified as a refusal to supply, (ii) constitute improper or out of the ordinary
behaviour, (iii) be harmful to competition, and (iv) lack objective justification. A refusal to
supply can exist in a first-time refusal or in a termination, can be permanent or temporary,
partial or full and express or constructive. Particularly qualification as a constructive
refusal to supply can be the subject of disputes. Whether a conduct is out of the ordinary or
improper behaviour should be assessed on a case by case basis. Practical tests such as the
profits sacrifice test and the ‘but-for’ test may provide help in qualifying behaviour. In
order for harm to competition, or more precisely a substantial elimination of competition,
to occur the supplier would typically need to enjoy a certain level of power resulting from
the need that its customers have for its product. Finally potential objective justifications to
the refusal must be taken into account prior to finding an abuse. Particularly the last two of
these criteria might need to be looked at differently depending on whether the customer is
a distributor or a downstream producer.
42
75.
The aggravating anti-competitive aspect that could render a refusal to supply a customer
abusive typically lies either in the discriminative manner in which supply is allocated over
customers or in the abusive or illegal behaviour that is achieved using the refusal as an
instrument. It is argued that a company that is not yet a customer should not be able to
force a firm to supply on the basis of the discrimination provision of Article 82. Existing
customers should, however, be treated in a non-discriminatory manner compared to similar
customers. This is of relevance particularly in the event of allocation of product. Within
certain restrictions the dominant supplier is free to determine the criteria underlying the
allocation. Alternatively refusal to supply could be used as an instrument to achieve resale
price maintenance, single branding, exclusive dealing, tying, bundling or to prevent
parallel trade. It is argued that such cases should be assessed from the angle of those
respective illegal practices or abuses and consequently that the refusal to supply in such
cases should not be found to constitute the abuse as such.
76.
The decision tree model on the following page is proposed as a tool for dominant firms to
run an initial assessment of the potential validity of a claim of abusive refusal to supply.
43
44
4
EXECUTIVE SUMMARY ............................................................................................. 2
SUMMARY PLAN.......................................................................................................... 3
KEY WORDS .................................................................................................................. 3
I.
INTRODUCTION ................................................................................................... 4
II. REFUSAL TO SUPPLY COMPETITORS............................................................ 7
A.
SCOPE .................................................................................................................... 7
B.
ABUSE OF DOMINANCE .......................................................................................... 7
i.
Introduction ..............................................................................................................................7
ii.
Affecting trade between Member States ..........................................................................7
iii. Dominance in the Relevant Market ...................................................................................8
a. Two steps.................................................................................................................................8
b. Relevant Market ....................................................................................................................8
c. Dominance..............................................................................................................................9
iv. Abuse ........................................................................................................................................10
C.
EXCLUSIONARY ABUSE ........................................................................................ 11
Introduction ............................................................................................................................11
i.
ii.
Limiting Production – Competition other than on the Merits..................................12
iii. Foreclosure .............................................................................................................................12
iv. Lacking Objective Justification ........................................................................................13
D.
REFUSAL TO SUPPLY - CONCEPT ......................................................................... 14
E.
REFUSAL TO SUPPLY COMPETITORS .................................................................... 15
i.
Refusal to Supply – Vertical Integration........................................................................15
ii.
Essential Facilities Doctrine ..............................................................................................16
iii. Abusive Refusal to Supply a Competitor – Criteria ...................................................17
a. Introduction ..........................................................................................................................17
b. Leveraging – the “Two Markets” requirement .........................................................17
c. Foreclosure & Indispensability ......................................................................................18
d. Absence of Objective Justification.................................................................................20
III. REFUSAL TO SUPPLY CUSTOMERS .............................................................. 22
A.
INTRODUCTION.................................................................................................... 22
B.
CAPABILITY OF CONSTITUTING AN ABUSE .......................................................... 22
45
C.
DECISIONAL PRACTICE AND CASE LAW ............................................................... 25
i.
Refusal to Supply Customers Input for Production ....................................................25
ii.
Refusal to Supply Customers for Distribution or Resale ..........................................26
iii. Preliminary Conclusion from Decisional Practice and Case Law ..........................27
D.
PROPOSED FRAMEWORK ..................................................................................... 28
i.
Introduction ............................................................................................................................28
ii.
General Prerequisites for Abuse .......................................................................................30
iii. Qualification as a Refusal to Supply ...............................................................................30
iv. Leveraging / Out of the ordinary conduct / Limiting Production ...........................31
a. Appropriate Criterion .......................................................................................................31
b. Application ...........................................................................................................................32
v.
Substantial Elimination of Competition and Indispensability .................................34
a. Appropriate Criterion .......................................................................................................34
b. Application – Refusal to supply a Distributor or Reseller .....................................36
c. Application – Refusal to supply a Derivative Producer or OEM .........................37
vi. Absence of Objective Justification ..................................................................................38
vii. Discriminating between customers ..................................................................................39
IV. CONCLUSION ...................................................................................................... 42
LITERATURE, DOCUMENTS & CASES.................................................................. 47
46
5
6
PUBLICATIONS
BOOKS
SIR CHRISTOPHER BELLAMY QC AND GRAHAM CHILD; European Community Law of
Competition; fifth edition edited by P.M. Roth QC; London, Sweet & Maxwell 2001
– BELLAMY & CHILD
ROBERT O’DONOGHUE AND A. JORGE PADILLA; The Law and Economics of Article 82 EC;
Hart Publishing 2006
– O’DONOGHUE & PADILLA
JONATHAN FAULL AND ALI NIKPAY (eds.); the EC Law of Competition; Oxford University
Press 1999
– FAULL & NIKPAY
RICHARD WHISH; Competition Law; fourth edition; LexisNexis Butterworths 2001
– WHISH 2001
RICHARD WHISH; Competition Law; fifth edition; Oxford University Press 2003
– WHISH 2003
OTHER
RALF BOSCHECK; Competitive Advantage and the Regulation of Dominant forms; World
Competition 30(3): 463-477, 2007
– BOSCHECK
ONNO W. BROUWER; An Improved Framework for Refusal to Supply Cases; Global
Competition Law Centre, Second Annual Conference, 16-17 June 2005
– BROUWER
DAMIEN GERADIN, PAUL HOFER, FRÉDÉRIC LOUIS, NICOLAS PETIT AND MIKE WALKER; The
concept of Dominance; Global Competition Law Centre (GCLC) Research Papers on
Article 82 EC, July 2005, p. 6-37
– GERADIN, HOFER ET AL.
CRISTOPHE HUMPE AND CYRIL RITTER; Refusal to Deal; Global Competition Law Centre
(GCLC) Research Papers on Article 82 EC, July 2005, p. 134-165
– HUMPE & RITTER
PRANVERA KËLLEZI; Abuse below the threshold of dominance? Market power, market
dominance, and abuse of economic dependence; Contribution to the Max Planck Forum on
Competition Law held on October 13th, 2006, at the Max Planck Institute for Intellectual
Property, Competition Law and Tax Law, Munich, Germany; February 2007.
– KËLLEZI
47
PAUL-JOHN LOEWENTHAL; The Defence of “Objective Justification” in the Application of
Article 82 EC; World Competition 28(4): 455-477, 2005
– LOEWENTHAL
CYRIL RITTER; Refusal to Deal and “Essential Facilities”: Does Intellectual Property
Require Special Deference Compared to Tangible Property; World Competition 28(3):
281-298, 2005
– RITTER
JOHN VICKERS; Abuse of Market Power; The Economic Journal, 115 (June), F244-F261,
2005
– VICKERS
CASE-LAW
EUROPEAN COURT OF JUSTICE
Joined Cases 6, 7/73; Istituto Chemioterapico Italiano SpA and Commercial Solvents
Corpn v EC Commission [1974] ECR 223, [1974] 1 CMLR 309.
– Commercial Solvents
Case 27/76; United Brands Co v EC Commission [1978] ECR 207, [1978] 1 CMLR 429
– United Brands
Case 85/76; Hoffmann-La Roche & Co AG v EC Commission [1979] ECR 461, [1979] 3
CMLR 211
– Hoffmann-La Roche
Case 77/77; British Petroleum Maatschappij Nederland BV v EC Commission [1978] ECR
1513, [1978] 3 CMLR 174
– BP v Commission
Case 22/78; Hugin Kassaregister AB v EC Commission [1979] ECR 1869, [1979] 3 CMLR
345
– Hugin
Case C-7/79; Bronner (Oscar) GmbH & Co KG v Mediaprint Zeitungs- und
Zeitschriftenverlag GmbH & Co KG [1998] ECR I-7791, [1999] 4 CMLR 112
– Bronner
Case 322/81; Nederlandsche Banden-Industrie Michelin NV v EC Commission [1983] ECR
3461, [1983] 1 CMLR 282
– Michelin I
Case 7/82; GVL v EC Commission [1983] ECR 483, [1983] 3 CMLR 645
– GVL v Commission
48
Case 226/84; British Leyland plc v EC Commission [1986] ECR 3263, [1987] 1 CMLR 185
– British Leyland
Case 311/84; Centre Belge d’Etudes de Marché Télémarketing (CBEM) SA v Compagnie
Luxembourgeoise de Télédiffusion SA and Information Publicité Benelux SA [1985] ECR
3261, [1986] 2 CMLR 558
– Télémarkting
Case C-62/86; AKZO Chemie BV v EC Commission [1991] ECR I-3359, [1993] 5 CMLR
215
– AKZO
Case 53/87; CICRA v Regie National des Usines Renault [1988] ECR 6039, [1990] 4
CMLR 265
– Renault
Case 238/87; AB Volvo v Eric Veng [1988] ECR 6211, [1989] 4 CMLR 122
– Volvo
Joined Cases C-241, 242/91 P; Radio Telefis Eirann and Independent Television
Publications Ltd (RTE & ITP) v EC Commission (Magill) [1995] ECR I-743 [1995] 4
CMLR 718
– Magill
Case C-418/01; IMS Health GmbH & Co OHG v NDC Health GmbH & Co KG [2004]
ECR I-5039, [2004]
– IMS Health
COURT OF FIRST INSTANCE
Case T-65/89; BPB Industries plc. and British Gypsum v Commission [1993] ECR II-389,
[1993] 5 CMLR 32
– British Gypsum
Case T-504/93; Tiercé Ladbroke v EC Commission [1997] ECR II-923, [1997] 5 CMLR
309
– Ladbroke
Case T-219/99; British Airways plc v EC Commission [2003] ECR II-5917
– British Airways
COMMISSION
Hugin v Liptons, OJ [1978] L 284/41, [1978] 1 CMLR D19
– Hugin (Commission)
Brass Band Instruments Ltd. and others v Boosey & Hawkes plc – Interim Measures OJ
[1987] L 286/36, [1988] 4 CMLR 67
– Boosey & Hawkes
49
Eurofix-Bauco v Hilti, OJ [1988] L 65/19, [1989] 4 CMLR 677
– Hilti
British Midland v Aer Lingus OJ [1992] L96/34, [1993] 4 CMLR 596
– British Midland v Aer Lingus
Sea Containers v Stena Sealink – Interim Measures OJ [1994] L 15/8, [1995] 4 CMLR 84
– Sealink
Pelikan v Kyocera; Commission decision of 26 September 1995 (unpublished). See:
European Commission; XXVth report on Competition policy (1995), p. 140
– Pelikan v Kyocera
Info-Lab v Ricoh; Commission decision of 7 January 1999 (unpublished). See: European
Commission; XXIXth report on Competition policy (1999), p. 169-170
– Info-Lab v Ricoh
OPINIONS
Opinion of AG Kirschner in Tetra Pak Rausing SA v EC Commission (Case T-51/89)
[1990] ECR II-309
– Tetra Pak I per AG Kirschner
Opinion of AG Jacobs in Bronner (Oscar) GmbH & Co KG v Mediaprint Zeitungs- und
Zeitschriftenverlag GmbH & Co KG (Case C-7/97) [1998] ECR I-7791
– Bronner per AG Jacobs
Opinion of AG Jacobs in Synetairismos Farmakopoion Aitolias & Akarnanias (Syfait) and
Others v GlaxoSmithKline AEVE (Case C-53/03) delivered on 28 October 2004
– Syfait per AG Jacobs
OTHER
Case CP/1761/02, E.I. du Pont de Nemours & Company and Op. Graphics (Holography)
Limited, Decision of the Office of Fair Trading on September 9, 2003
– DuPont Holographic System
United States v E.I. du Pont de Nemours & Co, 351 US 377 (1956)
– US v DuPont
United States v Grinnell Corp., 384 US 563 (1966).
– US v Grinnell
Aspen Skiing Co. v Aspen Highlands Skiing Corp., 472 US 585 (1985).
– Aspen Skiing
50
EC DOCUMENTS
European Commission; DG Competition discussion paper on the application of Article 82
of the Treaty to exclusionary abuses; Brussels, December 2005
– DISCUSSION PAPER
Report by the European Advisory Group on Competition Policy (EAGCP); An economic
Approach to Article 82; Jordi Gual, Martin Hellwig, Anne Perot, Michele Polo, Patrick
Rey (Coordinator), Klaus Schmidt, Rune Stenbacka; July 2005
– EAGCP REPORT 2005
Speech 05/537 of Neelie Kroes, member of the European Commission in charge of
Competition Policy, at the Fordham Corporate Law Institute, New York, 23rd September
2005, “Preliminary thoughts on policy review of article 82”.
– N. KROES Fordham Speech 2005
SUBMISSIONS ON THE DISCUSSION PAPER
Baker & McKenzie; Response to DG Competition’s Article 82 Consultation
– BAKER & MCKENZIE DP-Submission
Crowell & Moring; Comments on the DG Competition Discussion Paper on the application
of Article 82 of the Treaty to exclusionary abuses, 31 March 2006
– CROWELL & MORING DP-Submission
International Bar Association (IBA); Comments of the International Bar Association
Antitrust Committee Working Group on article 82 enforcement on the DG Competition
discussion paper on the application of Article 82 of the Treaty to exclusionary abuses
– IBA DP-Submission
International Chamber of Commerce; ICC comment on the European Commission
discussion paper on the application of Article 82 of the Treaty to exclusionary abuses
– ICC DP-Submission
Joint Working Party of the Bars and Law Societies of the United Kingdom (“JWP”);
Response to DG Competition Discussion Paper on the Application of Article 82 to
Exclusionary Abuses, March 2006.
– JWP DP-Submission
White & Case LLP; Comments DG-Comp Discussion Paper on the Application of Article
82 EC
– WHITE & CASE DP-Submission
51