Monopolies and Market Dominance

Alexander Böhlke

Kemmler Rapp Böhlke

Cartel fines, leniency-induced or otherwise, continue to feature regularly on the enforcement scene. No fewer than seven cartel decisions have been taken under the latest 2006 Guidelines on fines, that is, cases where statements of objections were notified after 1 September 2006, their date of publication in the Official Journal. These decisions include Professional Videotape, Flat Glass, and Chloroprene Rubber in 2007, and Synthetic Rubber, International Removal Services, Sodium Chlorate Paper Bleach, and Aluminium Fluoride so far this year.
The decisions drew a mixed response. The first two were more or less uncontested, resulting in one appeal.¹ Professional Videotape, in particular, was seen as a comparatively moderate start. While the Guidelines foresee the proportion of the value of sales generally to be set at the higher end of the scale (up to 30 per cent) in the case of horizontal price-fixing, the Commission contented itself with a mere 18 per cent. As regards the entry fee of between 15 per cent and 25 per cent, it likewise stayed with 17 per cent at the lower end, in spite of the allegedly very serious nature of the infringement, an affected share of the market of more than 85 per cent, EEA-wide scope and implementation.
In contrast, International Removal Services, which also applied a percentage of no more than 17 per cent of the value of sales, has all by itself prompted some seven appeals challenging, inter alia, that percentage as excessively high and the entry fee per se.² Needless to say, this shows that the acceptability of the Guideline’s mechanism depends to a very large degree on the size of the given perpetrator.
Aluminium Fluoride, last of the 17 per cent fines, raises the separate question as to whether the Commission is entitled, for the purpose of setting the basic amount of the fine, to construe a value of sales within the EEA for an alleged cartelist who had no such sales at the relevant time. Point 18 of the 2006 Guidelines refers. Because the Commission’s powers are confined to finding an infringement of article 81 of the Treaty and article 53 of the EEA Agreement, it lacks the power to find a cartel of worldwide scope and, so it would appear, to rely on the said finding in order to reallocate the relevant sales actually made within the EEA so as to bring them into line with world market shares. In the circumstances, transforming a real world market share into a virtual EEA market share is nothing but conjecture. Rather than to impute to the participant of a cartel meeting €6.5 million of EEA sales, when undisputedly he made none at all, the Commission should have asked itself whether due to lack of EEA sales he failed to be full-fledged cartelist after all within the meaning and for the purpose of article 81 of the EC Treaty and article 53 of the EEA Agreement.
In the area covered by article 82, the Commission’s activities appear less tangible. The Commission opened two formal antitrust investigations against Microsoft, one relating to interoperability, one relating to tying of separate software products, including Internet Explorer, to the Windows PC operating system.³ It also initiated proceedings against Gaz de France over a combination of long-term reservation of transport capacity, a network of import agreements and underinvestment in import infrastructure capacity, all practices it believes prevent or reduce competition on supply markets for natural gas in France.⁴
On 22 February 2008, the Commission sent a statement of objections to Alcan for tying its dominant aluminium smelting technology with handling equipment sold by Alcan’s subsidiary ECL.⁵ On 17 July 2008, it sent a second statement of objections, supplementary to last year’s, to Intel concerning additional elements of what the Commission considers a single overall anti-competitive strategy aimed at excluding Intel’s main rival AMD from the PC microprocessor market, or at least limiting the latter’s access thereto.⁶ Based on dawn raids carried out earlier this year, the objections extend to substantial rebates given to a leading PC retailer conditional on it selling only Intel-based PCs. The Commission also alleges that Intel made payments to encourage a PC manufacturer to delay the planned launch of a product line using an AMD-based processor.
Decision C(2008)824 final of 5 March 2008, on the granting or maintaining in force by the Hellenic Republic of rights in favour of Public Power Corporation SA (PPC) for extraction of lignite, found a number of Greek provisions to be in breach of article 86(1) read in conjunction with article 82 of the EC Treaty, to the extent that these provisions grant and maintain in force privileged rights to the public company PPC for the exploitation of lignite in Greece, thereby creating inequality of opportunity between economic operators as regards access to primary fuels for the production of electricity, and enabling PPC to maintain or reinforce its dominant position on the Greek wholesale electricity market by excluding or hindering market entry for newcomers.⁷
Undoubtedly the Commission’s most spectacular achievements are the structural remedies offered by E.ON⁸ and RWE⁹ on the German electricity and gas markets. Threatened with high fines – the media mentioned more than €7 billion in the case of E.ON and many hundreds of millions in the case of RWE¹⁰ – the companies have proposed to commit to sell respectively their electricity and gas transmission system network in return for the Commission not pursuing the antitrust cases it has assessed. In the case of RWE, the proceedings in question are those relating to suspected foreclosure of the regional markets for the transport and wholesale supply of gas in North Rhine-Westphalia,¹¹ whereas in E.ON’s case two proceedings are concerned. The first relates to a possible abuse of a collective dominant position on the German electricity wholesale market by withdrawing available capacity with a view to raising prices to the detriment of consumers and by deterring third parties from making new investments in electricity generation. The second relates to a possible abuse as monopsonist on the market for secondary balancing energy in the E.ON network area by increasing its own costs with a view to favouring its production affiliate and passing the costs on the final consumer, and by preventing power producers from other member states from selling balancing energy into the E.ON balancing markets.¹²

Community courts

The European Court of Justice (ECJ) has once again been faced with the concept of ‘an undertaking’ in European competition law, in connection with motor sports events and certain Eurocontrol activities.

Motoe

In Motoe,¹³ this question arose in relation to the dual role exercised by the Automobile and Touring Club of Greece ELPA, a non-profit association representing the International Motorcycling Federation, which, while participating in administrative decisions on state authorisation of motorcycling events in Greece, itself organises and markets such events through sponsorship, advertising and insurance agreements.
The organisation and commercial exploitation of motorcycling events being economic activities, the court considered ELPA an undertaking in that respect, thereby stressing the functional feature of the concept of an undertaking. When performing activities that fall within the exercise of public powers and are not of an economic nature justifying the application of the Treaty rules of competition, the organisation in question may operate in part as a public body and in part as an economic agent. To that effect, the fact that ELPA does not seek to make a profit is said to be no hindrance given that it is in competition with other operators seeking to make a profit or otherwise. As Advocate General Kokott pointed out in her Opinion of 6 March 2008,¹⁴ the status of an undertaking is not dependent on the size of an organisation or on the extent of its economic success.
As regards the compatibility of ELPA’s dual role with article 86(1) in conjunction with article 82 of the EC Treaty, the court found against ELPA’s exclusive right of co-decision in state authorisation of motorcycling events, the more so as ELPA’s right is not subject to any restrictions, obligations or controls in relation to the grant or refusal of its consent. According to the court, a system of undistorted competition, such as that provided for by the Treaty, can be guaranteed only if equality of opportunity is secured as between the various economic operators. To entrust a legal person such as ELPA, which itself organises and commercially exploits motorcycling events, the task of giving the competent administration its consent to applications for authorisation to organise such events, is tantamount de facto to conferring upon it the power to designate the persons authorised to organise these events and to set the conditions in which those events are organised, thereby placing that entity at an obvious advantage over its competitors. Such a right may therefore lead the undertaking that possesses it to deny other operators access to the relevant market, thus it invites abuse.

SELEX Sistemi Integrati v Commission

In these appeal proceedings against the Court of First Instance (CFI) judgment of 12 December 2006,¹⁵ the concept of an undertaking is likewise prominent. At issue is whether or not Eurocontrol activities in the area of technical standardisation, research and development and assistance to national administrations can be separated from its public remit of supervision and control of air space, and, as the case may be, considered economic in nature. Whereas the CFI in its contested judgment had given an affirmative answer as regards the assistance to national administrations and, accordingly, treated Eurocontrol as an undertaking in that respect, Advocate General Trstenjak, in her Opinion of 3 July 2008, disagreed. From a procedural point of view, it is to be noted that she voiced her disagreement following a Commission suggestion to replace the CFI’s erroneous reasoning, without that suggestion amounting to a cross appeal.¹⁶
The assistance provided by Eurocontrol, on request, covers technical specifications in the implementation of tendering procedures for air traffic management equipment. Unlike the CFI, which deemed the assistance to be linked only very indirectly to the public interest tasks of air space management and development of air safety, the advocate general considered that it forms an essential part thereof.

SOT.LÉLOS KAI SIA ea

On 16 September 2008, the ECJ sitting in Grand Chamber will give judgment in the matter of whether a pharmaceutical undertaking holding a dominant position abuses that position by refusing to meet in full the orders sent to it by pharmaceutical wholesalers by reason of the fact that it aims thereby to limit parallel trade.
When first confronted with the matter submitted for its preliminary ruling in Syfait v Glaxosmithkline,¹⁷ the court sidestepped the issue by finding that it lacked jurisdiction to answer the question referred by the Greek Competition Commission. Now that the very same question has been brought up again by the Athens Court of Appeal,¹⁸ the court must choose between the position by Advocate General Jacobs on 28 October 2004 and the one proposed by Advocate General Ruiz-Jarabo on 1 April 2008. While both concur that there is no abuse per se, they differ as to their conclusions on the possibility of objective justification. The former considered a refusal to supply to limit parallel trade defensible in the highly specific context of the pharmaceutical industry at the current stage of its development. The latter holds otherwise.

Compagnie Maritime Belge v Commission

The CFI has encountered no difficulties when dismissing, on 1 July 2008, the action brought against the Commission’s re-adoption decision in Compagnie Maritime Belge of 30 April 2004.¹⁹
The retaking of earlier decisions upon their annulment for procedural defects is a common phenomenon by now. What distinguished the present retaking from earlier ones was that the procedural irregularity to be remedied concerned the imposition of fine. Whereas in previous cases it was sufficient to resume the administrative procedure at the stage where the defect occurred, for example in PVC II lack of authentication before notifying the decision to its addressees, Compagnie Maritime Belge necessitated re-opening the entire procedure, albeit limited to the question of the fine. Following a statement of objections and a formal hearing, the substantive findings of the original Commission decision of 23 December 1992, as upheld save for the fine by the ECJ in its judgment on appeal of 16 March 2003,²⁰ were re-assessed in light of the 1998 Guidelines on Fines.
With respect in particular to the alleged breach of the Commission’s duty to exercise its power to impose fines within a reasonable period, the CFI could rely on its consistent case law following which Regulation No. 2988/74, which establishes a statutory limitation period for that purpose, established a complete system of rules covering in detail the periods within which the Commission is entitled, without undermining the fundamental requirement of legal certainty, to impose fines on undertakings that are the subject of procedures under the Community competition rules.²¹ Thus, while the fact that a reasonable period is exceeded may, in certain circumstances, justify annulment of a decision finding an infringement of the competition rules, that does not apply when solely the fine imposed is contested.
However, the CFI acknowledged, if only in connection with costs, that the lapse of time of more than three years between the ECJ’s partial annulment on 16 March 2000 and the Commission’s reopening of the administrative procedure was unjustified and awarded the unsuccessful applicant one-third of costs.

Deutsche Telekom v Commission

The CFI has also dismissed Deutsche Telekom’s action against the €12.6 million fine for margin squeezing.²²
To do so, it had to bring the operative part of the Commission decision of 21 May 2003 into line with the grounds that did not appear to support it. In fact, the operative part found Deutsche Telekom’s abuse to consist of ‘charging its competitors and end-users unfair monthly and one-off charges for access to the local network, thus significantly impeding competition on the market for access to the local network’. Accordingly, the applicant’s wholesale charges and retail prices were considered unfair. The grounds, to the contrary, stated the abuse to take the ‘form of a margin squeeze generated by a disproportion between wholesale charges and retail charges for access to the local network’. Following the judgment, therefore, the operative part, read in the light of the grounds, must be interpreted as meaning that where the Commission describes the charges for opening a new connection and the monthly charge for access to the local network as unfair, it is referring to the relationship between the applicant’s wholesale charges and retail charges.
The notable aspect of the case was that both the wholesale charges and retail charges were regulated and approved by the German telecoms regulator. Deutsche Telekom’s pricing practices were thus subject to double regulation, without regulatory compliance with price controls absolving the company from its responsibility under article 82 of the EC Treaty.
Nor were the regulatory approvals apt to create, in the CFI’s view, any legitimate expectation for Deutsche Telekom that its pricing practices were compatible with the said article. The approval decisions did not include any reference to article 82 of the EC Treaty, and the administrative examination procedure did not preclude the possibility in practice of an undertaking submitting a charge by which it abused its dominant position, and obtaining an authorisation for it because the abuse was not revealed during the examination procedure.
In fact, the CFI confirmed the Commission’s finding that Deutsche Telekom had sufficient scope to end the margin squeeze in the period from 1 January 1998 to 31 December 2001 by increasing the retail charges for access to analogue and ISDN lines and to reduce the margin squeeze by increasing its ADSL retail access charges from 1 January 2002.
As regards the methodology to be used for calculating the margin squeeze, the court agreed with the Commission that the abusive nature of a dominant undertaking’s pricing practices was to be determined in principle on the basis of its own situation, and therefore on the basis of its own charges and costs, rather than on the basis of the situation of actual and potential competitors.

Notes

1 Case T-82/08, Guardian Industries and Guardian Europe/Commission.
2 Case T-199/08, Ziegler; Cases T-204/08, Team Relocations and T-212/08 Amertranseuro International Holdings and Others; Case T-209/08, Stichting Administratiekantoor Portielje; Case T-210/08; Verhuizingen Coppens and Case T-211/08, Putters International/Commission.
3 MEMO/08/106 of 21 February 2008.
4 MEMO/08/328 of 22 May 2008.
5 MEMO/08/111 of 22 February 2008.
6 MEMO/08/517 of 17 July 2008.
7 Under appeal Case T-169/08.
8 MEMO/08/132 of 28 February 2008.
9 MEMO/08/355 of 31 May 2008.
10 FAZ, 2 June 2008: Es ist eine Illusion, daß Netzentgelte weiter sinken werden.
11 MEMO/07/186 of 11 May 2007.
12 Market test notice in OJ C-146 of 12.6.2008.
13 Motosykletistiki Omospondia Ellados NPID Case C-49/07 of 1 July 2008.
14 Ibid at paragraph 45.
15 Case C-113/07 P.
16 NB. The Commission does not use the term ‘cross appeal’ nor does it, in line with article 117 (2) of the Rules of Procedure, seek to have the judgment under appeal set aside, in whole or in part.
17 Judgment of 31 May 2005 in Case C-53/03.
18 Joined Cases C-468/06 to C-478/06.
19 Case T-276/04.
20 Case C-395/96 P.
21 Judgment of 19 March 2003 in Case T-213/00 CMA CGM e.a./Commission, paragraph 324; see also judgment of 18 June 2008 in Case T-410/03 Hoechst/Commission, paragraph 223.
22 Judgment of 10 April 2008 in Case T-271/03.

An extract from The European Antitrust Review 2009