Article 102 of the Treaty on the Functioning of the European Union (TFEU) (formerly Article 82 of the Treaty establishing the European Community) is a provision in the European Union competition law that prohibits abusive behaviours by a powerful business. The article applies to a business that holds a in a specific market, which is interpreted as the possession of a market power that allows a business to act independently of its competitors to some extent. A behaviour is considered an if it weakens competition by excluding competitors from the market, or it imposes unfair conditions to the trading partners.
Text of Article 102 The text of Article 102 provides the following,
Application The wording of the provision gives rise to several issues to consider in the application of Article 102; namely, the concept of 'one or more undertaking', 'Relevant market', 'Dominant position' and 'Effect on trade between member states'.
One or more undertaking
Undertaking An entity must be an 'undertaking' to be subject to Community competition law and therefore Article 102. The European Court of Justice (ECJ) in Hofner v Elser states that "The concept of an undertaking encompasses every entity engaged in economic activity regardless of the legal status of the entity and the way in which it is financed". The European courts have ruled that Acts of, solidarity (such as the provision of public health care), public interest (such as the improvement of air navigation safety), and the protection of the environment are not economic in nature and therefore fall outside the application of European Community competition rules. Article 102 is not confined to actions of single undertakings as the inclusion of the phrase 'one or more undertaking' leads to the inclusion of collective dominance.
Collective dominance
Definition Collective dominance occurs when two or more businesses with some degree of connection influence the structure of a market through their conduct or through concerted strategic decisions.
Threshold The necessary degree of connection or relationship between the entities that would be sufficient for a finding of collective dominance would depend on whether a broad or narrow interpretation is adopted. As illustrated through case law, businesses within the same corporate group, such as a business conglomerate, or within a single economic entity, such as a multi-national company with subsidiaries, can be regarded as having an adequate connection to establish the presence of collective dominance. This reflects a narrow interpretation of what would constitute collective dominance for the purpose of Article 102.
An alternative approach to establishing a relationship between two or more entities for the purposes of determining collective dominance could include a broad interpretation. This would encapsulate legally and economically independent firms within a specific market with some type of economic link such as an agreement or a licence.
In Almelo, the court explicitly stated that a relationship can be found between two or more entities by the presence of identical conduct on the market.
Establishing collective dominance Dominance, be it by a single entity or collectively by a group of firms, is not illegal or prohibited in EU competition law or under Article 102 TFEU. However, abuse of a dominant position is prohibited and illegal because, dominant firms have a special responsibility to prevent their conduct distorting competition.
Consequently, where concerted strategic decisions or the conduct of two or more entities holding a dominant position within a specific market results in a negative impact on the market to the detriment of other businesses, this will trigger the application of Article 102.
Collective dominance, as demonstrated through case law, is often associated with an oligopoly although collective dominance could also arise in the context of or in relation to mergers. This association of collective dominance with oligopolies is confirmed in Airtours v Commission, which sets out an evidential and cumulative criterion that must be satisfied for collective dominance to be established.
Firstly, each member of the collectively dominant group must have the capability of being aware of how fellow collectively dominant members are behaving. There must a significant level of transparency between the dominant firms so that members are precisely and quickly aware of developments or changes in the conduct of members. Secondly, tacit coordination must be sustained over a period of time. There must be a threat of potential retaliation for any deviation from the common conduct or policy by members of the group. Lastly, it must be proven that the potential reaction of consumers and competitors (present or future) of the dominant entities, will not affect the competition the dominant entities will encounter.
These three cumulative conditions for establishing collective dominance has been confirmed subsequently by the General court in the case of Laurent Piau v Commission. The above criterion has been established as being applicable in the context of abuse of dominance by a single entity. Nevertheless, statements by the court in Irish sugar indicates the court's acknowledgement that the criterion applicable for abuse of dominance by a single undertaking will apply in situations of collective dominance.
Defences Not all collectively dominant conduct will violate Article 102 TFEU. As established and confirmed in several cases before EU courts and the commission, prima facie abusive conduct by dominant firms will be acceptable for one of three reasons:
Objective Justification Efficiencies Abuse in relation to proprietary rights
Defence Requirement to invoke the defence Objective justificationThe conduct of a business participating in collective dominant practices will be justified, if it is shown that: i. The conduct was objectively necessary (i.e. indispensable)
ii. The conduct produces significant benefits which outweigh any anti-competitive effects on the market
iii. The anti-competitive conduct is proportionate to the alleged goal being sought by the dominant firm
Examples of objectively necessary conduct that might be sought by a dominant entity include protection for health and safety reasons, protection of the environment.Efficiencies (i.e. Benefits)A dominant firm seeking to rely on this defence will be expected to show that: i. There is or is likely to be a benefit from the conduct.
ii. The conduct must be necessary with no alternatives that could produce less anti-competitive effects
iii. The benefits outweigh any anti-competitive effects
iv. The conduct must not eliminate all competition Abuse in relation to proprietary rightsThis defence usually applies in the context of a dominant firm refusing access to its property or proprietary rights. This could involve access to intellectual property rights or access to physical property. A dominant firm can rely on this defence if it can show that: i. The restrictions are necessary to protect competition.
In practice, neither the Commission nor the Court have ever accepted .
Burden of proof As asserted in Microsoft v Commission the burden of proof rests on the defendants/alleged firm(s) to provide objective justification – which cannot be vague or theoretical arguments – to disprove a claim of collective dominance brought before the court. Where such a justification is raised, it rests on the commission to disprove the arguments and evidence relied on by the dominant firms.
Consequences of breach If it is established that there is an abuse of a dominant position by an entity, the commission has the authority and discretion to impose behavioural and structural remedies against collectively dominant firms.
Behavioural remedies include:
Requesting that the dominant firm(s) cease their abusive conduct and may involve requiring the adoption of positive action by the dominant firms. Imposing a fine on the collectively dominant entities involved in the abusive behaviour.
Structural remedies include:
Divesting a business of its assets. Mandating the fragmentation of a business.
Relevant market Defining the relevant market is a vital precondition to assessing dominance. Market definition can be used to establish the boundaries of competition between undertakings, with the purpose of identifying the competitive constraints faced by the firms.
The commission measures these competitive constrains in both the Market and Geographical dimension. With the relevant market within which to assess competition being a combination of both approaches. With the competitive constraints assessed via demand substitution, supply substitution and potential competition.
The product market The Commission defines the relative product market as, a market that comprises all "products and/or services which are regarded as interchangeable or substitutable by the consumer, by reason of the products' characteristics, their prices and their intended use".
Two common tests used to assess the interchangeability of product market are:
The 'hypothetical monopolist' test which is whether a small but significant increase in price is likely be allowed by the hypothetical monopolist company to profit from this. If consumers can and would move away from the hypothetical monopolist's product and onto other products then their market is more widely defined. The 'intuitive approach', which focuses on brand loyalty and the use of the products
The geographical market
The Commission defines Geographical market as a "market comprises the area in which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different in those area."
Cellophane fallacy The existence of the cellophane fallacy implies that market definition in Article 102 cases needs to be particularly carefully considered and that any single method of market definition, including in particular the SSNIP-test, is likely to be inadequate. It is necessary to rely on a variety of methods for checking the robustness of possible alternative market definitions.
Dominance
A finding of dominance requires a two-stage process., chapter 5 First, consideration must be had to the relevant market to which the undertaking operates upon: both the relevant product market and the relevant geographic market.Continental Can v Commission 54 Case 6/72 EU:C:1973:22, para 32; subsequent judgments have regularly repeated this point: see eg Case T-321/05 AstraZeneca AB v Commission EU: T:2010:266 Commission EU:T:2010:266, para 30. Second, one the market has been established, the Commission must decipher whether the undertaking enjoys a dominant position upon the given market. A finding of dominance derives from a combination of several factors, Paragraph 12 of the commission's guidance highlights three factors that the commission will consider:
"(1) constraints imposed by the existing suppliers from, and the position on the market of, actual competitors.
(2) constraints imposed by the credible threat of future expansion by actual competitors or entry by potential competitors."Communication from the Commission – Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (2009/C45/022): paragraph 12.
(3) constraints imposed by the bargaining strength of the undertakings customers."
Actual competitors