Dominance Article 102 TFEU Elements ①an abuse; ②by one or more undertakings; ③of a dominant position; ④within the internal market or a substantial part thereof; ⑤insofar as it may affect trade between Member States. Dominance & Abuse (Cumulative) ‘A finding that an undertaking has a dominant position is not in itself a recrimination but simply means that, irrespective of the reasons for which it has such a dominant position, the undertaking concerned has a special responsibility not to allow its conduct to impair genuine undistorted competition on the [internal] market.’ (Michelin v Commission) Dominance ‘… a position of economic strength enjoyed by an undertaking which enables it to hinder the maintenance of effective competition on the relevant market by allowing it to behave to an appreciable extent independently of its competitors and customers and ultimately of consumers.’(Hoffmann-La Roche v Commission) Establishing Dominance Determining whether an undertaking holds a dominant position essentially involves two stages: o market definition: dominance cannot be assessed in a vacuum; it must be assessed within the relevant product and geographic market(s) (which must constitute a substantial part of the internal market); o market power: assessing the degree of market power (or economic strength) enjoyed by the undertaking on the relevant market. This stage involves consideration of various factors, such as market share, barriers to entry, and competitive constraints. Market Definition ‘The concept of the relevant market in fact implies that there can be effective competition between the products which form part of it and this presupposes that there is a sufficient degree of interchangeability between all the products forming part of the same market in so far as a specific use of such products is concerned. (Hoffmann-La Roche v Commission) Tools of Evaluation (Courts) The overall effect of the case law was summarised in the judgment of the General Court in TiercéLadbroke: o ‘the relevant product or service market includes products or services which are substitutable or sufficiently interchangeable with the product or service in question, not only in terms of their objective characteristics, by virtue of which they are particularly suitable for satisfying the constant needs of consumers, but also in terms of the conditions of competition and/or the structure of supply and demand on the market in question’. The relevant geographic market is defined as comprising: o ‘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, in particular, the conditions of competition are appreciably different in those areas.’ Market Definition Notice o The publication of the Market Definition Notice in December 1997 was significant as it marked the adoption by the Commission of a more systematic and conceptually rigorous approach to market definition. o the Notice incorporates the methodology of assessment known as the ‘hypothetical monopolist’ or ‘Small but Significant Nontransitory Increase in Price’ (commonly known as the ‘SSNIP’) test. o The Notice states that it is important to distinguish between demand-side substitution, supply-side substitution and potential competition as competitive constraints facing suppliers Market Power o In the Commission’s Article 102 Enforcement Priorities Guidance, the Commission states that market shares ‘provide a useful first indication’ of the market structure and the relative importance of the different undertakings on the market. o However, market shares should be interpreted in the light of the dynamics of the market and the extent to which products are differentiated. Market Shares ① in ICI, an ‘historic market share of more than 90% … over the whole period under consideration’ = dominant position on the relevant market; ② in Intel the market shares between 70 and 80 per cent were a clear indication of dominance; ③ in Michelin I, the market share of 57 per cent to 65 per cent on the market in new replacement tyres for heavy vehicles (compared with the market shares of Michelin NV’s main competitors of between 4 per cent and 8 per cent) ‘constitutes a valid indication of Michelin NV’s preponderant strength in relation to its competitors …’; ④ in AKZO, a stable market share of 50 per cent over at least three years was held to be evidence of the existence of a dominant position; ⑤ in Metro, a 5–10 per cent market share of a market for highly technical products which appear to the majority of consumers to be readily interchangeable rules out the existence of a dominant position. Case Study Case 27/76 United Brands United Brands The Court of Justice held that a market share of between 40 per cent and nearly 45 per cent ‘does not permit the conclusion that UBC automatically controls the market. [The dominance] must be determined having regard to the strength and number of the competitors’. However, the Court went on to find that that percentage represented a share several times greater than that of UBC’s competitors, the rest of whom were far behind. This, together with other factors, afforded ‘evidence of UBC’s preponderant strength’. Dynamic Markets o The Commission has investigated a number of markets with a high rate of innovation and a significant importance of R&D. The dynamics of these industries were taken into account in the market definition exercise and even more in the competitive assessment. o As these markets are more apt to change due to technological developments, the relevant market definition can vary in such markets depending on the time horizon which is in the focus of the investigation. Also market shares might be less indicative depending on the individual case and the technological development stage. However, these factors can all be taken into account in the market share interpretation. Related Markets This is of considerable importance in the application of Article 102: an undertaking may possess market power on one market but exercise that power in a way that influences conditions of competition on a related market. For example: o Separate markets for raw materials; o Control over other essential inputs and facilities; o Separate market for spare parts and ancillary services. Case Study Case 333/94 Tetra Pak II Tetra Pak II The Commission, upheld by the General Court and the Court of Justice, condemned clauses whereby Tetra Pak had tied the sale of carton packaging materials to the sale of its filling machines by requiring the purchasers of the machines to agree to purchase from Tetra Pak all their supplies of cartons. The Court of Justice stated that even where tied sales of two products are in accordance with commercial usage or there is a natural link between those products, such sales may still constitute an abuse within the meaning of Article 102 unless they are objectively justified. Collective or Joint Dominance 102 refers to any ‘abuse by one or more undertakings of a dominant position’ and thereby envisages that two or more undertakings may jointly hold a dominant position. Although it is well established that Article 102 is capable of applying to situations in which several undertakings together hold a dominant position, without each being dominant individually. Factors Connecting factors which have been found to be capable of establishing a situation where a group of independent undertakings act as a collective entity include: o an agreement concerned; between the undertakings o the use of model conditions of supply drawn up by a common trade association; o the pursuit of a common market strategy or sales policy; o the fact that the undertakings operate in an oligopolistic market which is conducive to parallel behaviour. Affecting Trade o The same principle outlined in relation to Article 101 applies to Article 102. The effect on trade criterion is a jurisdictional standard, confining the scope of application of Article 102 to abuses of a dominant position appreciably influencing, either directly or indirectly, actually or potentially the patterns of trade of goods or services or other crossborder economic activity between Member States. o In the case of Article 102 the abuse must have an effect on trade between Member States, but this does not mean that each element of the behaviour must be assessed in isolation to determine its effect: the conduct must be assessed in terms of its overall impact. Case Study 139/98 AAMS AAMS In Amminstrazione Autonoma dei Monopoli dello Stato v Commission the General Court confirmed the Commission's conclusion that AAMS, which had a dominant position on the Italian market for the wholesale distribution of cigarettes, had abused its dominant position by imposing distribution agreements on foreign producers which contained terms limiting the access of foreign cigarettes to the Italian market; a fine of €6 million was imposed.