The European Commission ("Commission") has recently announced an important programme to revise and update information explaining how it applies EU competition rules on the abuse of a dominant position, namely Article 102 TFEU, to exclusionary behaviour1. The Commission's programme of work is being carried out in two stages:
- Amendments to its existing Guidance from 2008 on its enforcement priorities regarding the application of Article 102 TFEU to abusive exclusionary conduct by dominant undertakings2. These are set out in a Communication and Annex, which have immediate effect; and
- A call for evidence, seeking feedback on the adoption of new Guidelines on exclusionary abuses of dominance, which will then supersede the 2008 Guidance as amended.3
These developments are hardly surprising, given the time which has lapsed since the 2008 Guidance was adopted and the development of the caselaw, especially the evolving concept of exclusion, over that time4. Updating the Guidance and producing new guidelines allows the Commission to capture and codify that caselaw.
Moreover, Article 102 is a bit of an outlier, being the only major area of EU competition law for which the Commission has not so far adopted guidelines, which amongst other points, would help transparency and legal certainty for businesses to facilitate compliance, including through concrete examples and more efficient enforcement by the Commission and National Competition Authorities (NCAs). However, whilst there is an element of a much needed update about this work5, a delve into the detail shows that in so doing, on the one hand, the Commission is seeking to better equip itself in the face of dominance in the digital age and safeguard for itself a generous margin of discretion, yet on the other hand, seems to be missing the chance to comprehensively deal with relevant behaviour of the largest firms which risk producing anticompetitive outcomes.
Amendments to existing guidance
The thrust of the 2008 Guidance was a strong shift to a ‘more economic approach’ for analysis under Article 102 compared to a formal legalistic approach notion of per se abuses. Key to this evolution, was a focus on the effects of the potentially abusive conduct on the competitive process and thereby consumers. Its goal was to orientate case selection by the Commission, to those cases where there was significant anticompetitive foreclosure by a dominant company. Interestingly, in its recently published Policy Brief, the Commission refers to objectives other than consumer welfare “including fairness and level-playing field, market integration, preserving competitive processes, consumer welfare, efficiency and innovation, and ultimately plurality and democracy”.
While the 2008 Guidance 'only' set out the Commission's enforcement priorities and was not intended to be a statement of the law in this area nor bind EU Courts, national courts or NCAs, it has in practice proved to be a persuasive point of reference and is therefore of a sui generis nature. Indeed, the Court of Justice has confirmed the expansion of the "effects-based" approach to Article 102 as supported by the 2008 Guidance, most notably in high profile cases stressing the importance of the as-efficient competitor test as an analytical tool to assess abuse in this area. Ironically though, the expansion of the effects-based economic approach by the EU Courts has ended up limiting the Commission's discretion to modify its approach, and it has been criticised on appeal in a number of cases, for not properly conducting a correct assessment especially in terms of the application of the as efficient competitor test.
The new Annex to the amended Communication sets out some of the key changes to note which, aim to provide stakeholders with increased transparency on the Commission's priority setting in this area until the adoption of the new guidelines (see further below):
- the Commission will no longer consider the profitability of the dominant undertaking's abuse as relevant for its enforcement priorities. Rather, the key factor going forward will be whether the dominant undertaking's conduct adversely impacts an effective competitive structure, allowing it to negatively influence "prices, production, innovation, variety or quality of goods and services" to its own advantage and to the detriment of consumers;
- the Commission considers that the price-cost "as-efficient competitor test" is optional, and "may" (not "will") examine economic data relating to cost and sales prices. Whilst it is evidently right that applying a test in all cases in a robotic style is not appropriate, recent caselaw from the Court of Justice has made clear that when this test is applied by an authority / invoked by a party, the Commission is bound to conduct a proper assessment including consideration of all the relevant evidence;
- the Commission will “generally” (not “normally”) intervene where the dominant undertaking threatens an as-efficient undertaking, deeming that “genuine competition may also come from undertakings that are less efficient than the dominant firm, in terms of their cost structure.” The Commission believes that this is the case in markets where barriers to entry and expansion are “significant,” including where there are network effects and economies of scale, highlighting digital markets as key in this regard. The 2008 Guidance already referred to the potential relevance of less efficient competitors, but we might see them being given more significance going forward; and in line with the more recent caselaw, the Commission has also updated its assessment of input foreclosure, with an input no longer needing to be indispensable in cases of “constructive refusal to supply” and margin squeezes.
Whilst all the above make the 2008 Guidance read more in line with caselaw and wider market developments in this area, the fact that the Commission sees these changes as a stopgap whilst broader reforms are put in place, reflects the need for both swift and significant changes in this area.
The Commission’s call for evidence “aims at providing greater legal certainty for the application of Article 102. The guidelines will be based on the body of EU case law on exclusionary abuses, thereby fostering the harmonised application of Article 102 by the Commission, national competition authorities and national courts.” 6
Even though the draft guidelines are not due to be published for another year, there will be important discussions whilst the Commission is developing its proposals not least because any future guidelines, will be binding on the Commission and NCAs unlike the Guidance (at least formally speaking). It will certainly be interesting to see how the Commission both updates its approach to classic exclusionary behaviour such as such as fidelity-inducing loyalty rebates, tying and bundling, predation, refusal to supply and margin squeeze, as well as more modern exclusionary practices which the current Guidance does not address, for example self-preferencing, data leveraging and what are known as ‘naked restrictions’, when a dominant company engages in conduct with the sole purpose of excluding its rivals.
Moreover, yet, the Commission has produced little guidance in the area of exploitative abuses, notably excessive pricing and disparagement, notwithstanding important developments in the caselaw particularly at the national level on these topics. If the Commission does not take this chance to do so, it feels like something of a missed opportunity to clarify the relevant framework for businesses and their advisors.
The fact that the Commission does not expect a final version of the new guidelines to be adopted until the end of 2025, is telling of the time and effort this area requires. Simultaneously, we will begin to see the new EU Digital Markets Act ("DMA") being applied, which will be the Commission’s default tool in the digital sphere.7 It will be important to stay on top of these two regimes, the DMA supposedly focusing on regulation and Article 102 to competition law. Query whether this distinction will be meaningful to modern businesses in practice.
Business practices and needs are complex, with technology developing apace. The law is struggling to keep up, and businesses and their advisors must consider carefully, the ever-changing rules and regulatory framework in which they operate. The Mayer Brown team offers distinctive in-depth experience of the Commission's dominance regime and procedures, including complex risk assessment and compliance audits at EU and national levels. With the benefit of our established relationships with key stakeholders at EU and Member State levels, we are well-placed to assist multinational corporations in navigating the field of ever-increasing EU regulations.
1 Practices of a dominant undertaking towards actual / potential competitors to reduce / eliminate their access to supplies or markets, and include predatory pricing, exclusive purchasing obligations, certain rebates, refusal to deal, margin squeeze and price discrimination
5 Note also the Commission’s ongoing reform of its Market Definition Notice: Market Definition Notice (europa.eu)