Key takeaway #1<\/strong><\/p>\n\n\n\n If adopted, the new draft Guidelines on exclusionary abuses would be the first major update in over 15 years of the Commission\u02bcs guidance on the enforcement of the prohibition of abuse of dominance.<\/p>\n\n\n\n Key takeaway #2<\/strong><\/p>\n\n\n\n Whereas the Commission\u02bcs previous 2008 Guidance marked a shift from a form-based approach to a more effects-based approach informed by economics, the increased reliance on presumptions in the draft Guidelines seems to signal a return to a more legalistic approach.<\/p>\n\n\n\n Key takeaway #3<\/strong><\/p>\n\n\n\n The Guidelines may increase legal certainty for undertakings when they self-assess their conduct, but by shifting the burden of proof more onto the dominant undertaking, they may also lead to stricter enforcement.<\/p>\n\n\n\n On August 1, 2024, the European Commission published<\/strong><\/a> its draft Guidelines on abusive exclusionary conduct by dominant undertakings. Their adoption would mark the first major update in over 15 years of the Commission\u02bcs guidance on the application of the prohibition of abuse of dominance laid down in Article 102 of the Treaty on the Functioning of the European Union (TFEU). The Commission\u02bcs 2008 Guidance on enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings<\/strong>, which received only a limited<\/a> update<\/strong><\/a> in 2023, were once hailed as a welcom<\/a>e move away from a legalistic, form-based approach to an effects-based approached informed by economics. Is the pendulum now swinging back to a more formalistic approach based on presumptions, shifting the burden of proof onto dominant undertakings and heralding an era of stricter enforcement?<\/p>\n\n\n\n Like the 2008 Guidance, the draft Guidelines only cover exclusionary abuses and leave aside exploitative abuses. The change of the title of the document from \u201cguidance on enforcement priorities\u201d to \u201cguidelines\u201d is not trivial, however: by formally issuing Guidelines, the Commission aims to enhance legal certainty for undertakings when they self-assess whether their conduct constitutes an exclusionary abuse under Article 102 TFEU.<\/p>\n\n\n\n The first step is of course to assess whether an undertaking is dominant on a relevant market. This involves defining the relevant product and geographic market(s)and assessing whether the undertaking concerned is able to behave to an appreciable extent independently of its competitors, its customers and ultimately of consumers on the relevant market(s). In a previous client alert<\/strong><\/a> , we discussed the Commission\u02bcs most recent guidance concerning the definition of the relevant markets. As regards assessing whether an undertaking is able to act independently, the main factors to consider in this analysis are the respective market positions of the undertaking and its competitors (as reflected in particular in their market shares), the existence of barriers to entry or expansion, and whether customers have countervailing buyer power.<\/p>\n\n\n\n Once it has been established that an undertaking is dominant on one or more markets, the draft Guidelines propose a two-step approach to assessing whether a particular conduct is abusive:<\/p>\n\n\n\n Finally, the draft Guidelines discuss how conduct that is liable to be abusive may nevertheless escape the prohibition of Article 102 TFEU by demonstrating that it is objectively justified.<\/p>\n\n\n\n A dominant undertaking has a special responsibility not to allow its conduct to impair effective competition and may therefore have to refrain from practices that are unobjectionable for non-dominant undertakings.<\/p>\n\n\n\n However, it is not unlawful for a dominant undertaking to protect its own commercial interests by means that fall with the scope of competition on the merits. Therefore, the first step in the analysis is to determine whether the conduct in question deviates from competition on the merits. Although this concept is derived from case-law, the draft Guidelines clarify that a finding of abuse always requires that the behavior does not constitute competition on the merits.<\/p>\n\n\n\n The concept of competition on the merits covers conduct within the scope of \u201cnormal\u201d, i.e. performance-based competition, and refers to a competitive situation in which consumers benefit from lower prices, higher quality, and a broader choice of new or improved goods or services. Competition law is there to protect competition, not competitors. Therefore, Article 102 TFEU does not preclude the departure from the market or marginalization of competitors that are less efficient than the dominant undertaking and so less attractive to consumers. The Guidelines list a number of criteria to establish that conduct departs from competition on the merits.<\/p>\n\n\n\n Once it has been determined that conduct departs form competition on the merits, it must be established whether the conduct is capable of producing exclusionary effects. The draft Guidelines distinguish three types of exclusionary abuses, associating each of them with a different level of burden of proof \u2013 shifting the burden in most of the cases to the dominant company.<\/p>\n\n\n\n Naked restrictions<\/strong>: This category encompasses types of conduct that have no economic interest for the dominant undertaking other than to restrict competition. The draft Guidelines mention the following examples: actively dismantling infrastructure used by a competitor (referring to the Lithuanian railway <\/em>case<\/strong>); payments by the dominant undertaking to customers that are conditional on those customers<\/a> postponing or cancelling the launch of products based on inputs offered by the dominant undertaking\u02bcs competitors (referring to the Intel <\/em>case<\/strong><\/a>); or agreeing with distributors to replace a competing product with its own under the threat of withdrawing rebates benefiting the distributors (referring to the Irish Sugar<\/em><\/strong> case<\/strong>). This type of conduct is presumed to infringe competition law. The dominant undertaking<\/a> can try to rebut the presumption by providing evidence to the contrary, but the draft Guidelines indicate that for naked restrictions such rebuttal will only be accepted in exceptional circumstances.<\/p>\n\n\n\n Conduct presumed to lead to exclusionary effects<\/strong>: The draft Guidelines identify five types of conduct that, because of their high potential to lead to exclusionary effects, are also subject to a presumption regarding their capability to produce such effects, namely:<\/p>\n\n\n\n Exclusive supply or purchasing agreements,<\/p>\n\n\n\n Rebates conditional upon exclusivity, Predatory pricing,<\/p>\n\n\n\n Margin squeeze in the presence of negative spreads, and<\/p>\n\n\n\n Certain forms of tying.<\/p>\n\n\n\n Once the Commission has established that the conduct at issue falls within one of these categories, if need be under the conditions established in the relevant legal test (see below), the burden of proof shifts to the dominant undertaking to try to rebut the presumption. The Commission will then have to assess the evidence submitted and either show that it is insufficient to rebut the presumption or provide itself evidence that the conduct was nevertheless capable of having exclusionary effects. Regarding the second possibility, the Commission notes that \u201cthe evidentiary assessment must give due weight to the probative value of a presumption, reflecting the fact that the conduct at stake has a high potential to produce exclusionary effects<\/em>\u201d, thereby effectively raising the bar for the rebuttal by the dominant undertaking.<\/p>\n\n\n\n Other conduct <\/strong>: For other types of conduct, it is for the Commission to demonstrate that the conduct is at least capable <\/em>of producing exclusionary effects. While the effects in question must not be merely hypothetical, this demonstration does not require proof that the conduct has produced actual <\/em>exclusionary effects. Conversely, the fact that a conduct has failed to produce actual exclusionary effects does not in itself disprove its capability to produce such effects. The analysis of the capability to produce exclusionary effects requires a comparison of the situation where the conduct was implemented with the situation absent the conduct. This can be done by comparing the market situation before and after the conduct was implemented. In some cases, it may however be necessary to use a hypothetical scenario as a basis for the comparison. According to the Commission, it is in such cases not necessary to account for all possible outcomes and circumstances that could have arisen absent the conduct, but sufficient to establish a plausible <\/em>outcome amongst various possible outcomes.<\/p>\n\n\n\n The draft Guidelines then list a number of factors that may be relevant to the assessment of the capability to produce exclusionary effects, such as the extent of the dominant position held by an undertaking, the conditions of market entry and expansion (including economies of scale and network effects), the importance of actual or potential competitors for maintaining effective competition, the position of customers and input suppliers, evidence of an exclusionary strategy, etc. The Guidelines also list elements that are not <\/em>necessary to demonstrate the capability to produce exclusionary effects, such as evidence of direct consumer harm, proof that the conduct is enabled by the dominant position, or proof that the actual or potential effect was serious or appreciable.<\/p>\n\n\n\n Chapter 4 of the draft Guidelines provides guidance on certain specific categories of conduct:<\/p>\n\n\n\n Exclusive dealing: <\/strong>encompasses exclusive purchasing obligations, exclusive supply obligations and exclusivity rebates (i.e., incentive schemes conditional on the customer purchasing or the supplier supplying all or most of their requirements from or to the dominant undertaking). As mentioned, exclusive dealing is presumed to be capable of having exclusionary effects. In cases where the Commission nevertheless has to carry out an assessment of the capability to produce exclusionary effects, relevant elements to be considered include the extent of the undertaking\u02bcs dominant position on the market, the share of the market affected by the conduct, the duration of the exclusivity conditions, the value of the incentives granted in return for the exclusivity, and the possible existence of an exclusionary strategy.<\/p>\n\n\n\n Tying<\/strong>: Tying consists of offering a specific product (\u201ctying product\u201d) only together with another product (\u201ctied product\u201d). Tying is liable to be abusive where (a) the tying and tied product are two separate products;<\/p>\n\n\n\n (b) the undertaking concerned is dominant in the market for the tying product; (c) customers are not given a choice to obtain the tying product without the tied product (\u201ccoercion\u201d); (d) the tying product is capable of having exclusionary effects. The Commission considers that in certain circumstances, due to the specific characteristics of the markets and products concerned, tying has a high potential to produce exclusionary effects and those effects can be presumed.<\/p>\n\n\n\n Refusal to supply<\/strong>: The draft Guidelines stress that refusal to supply is a type of abuse which differs from the access restrictions discussed below. A refusal to supply refers to situations where the dominant undertaking has developed an input exclusively or mainly for its own use and, when requested access by a third party, refuses to give access. According to the case law (i.e. the Bronner <\/em><\/strong>case<\/strong><\/a> and its ilk), the conditions for finding that a refusal to supply is abusive and that an access obligation can therefore be imposed, are strict: it must be shown that (a) the input is indispensable for the undertaking requesting access to compete in a downstream market (often referred to as an \u201cessential facility\u201d) and (b) the refusal is capable of eliminating all competition on the part of the requesting undertaking. An input is considered \u201cindispensable\u201d if there is no real or potential substitute for it \u2013 it is not sufficient that the substitutes are less advantageous for the requesting undertaking.<\/p>\n\n\n\n Access restrictions: <\/strong>This refers to restrictions on access to inputs that are different than a refusal to supply, i.e. where the dominant undertaking has not developed the input exclusively or mainly for its own use. This can for instance take the form of disruptions of supply to existing customers (in particular customers that compete with the dominant undertaking on a downstream market), failure to comply with a regulatory obligation to give access, degradation or delaying of the existing supply of an input, or imposing unfair access conditions. Where the dominant undertaking charges excessive access prices, the margin squeeze test may be applied. In line with recent case law (e.g., the Slovak Telekom <\/em><\/strong>case<\/strong><\/a>), the Guidelines identify \u201caccess restrictions\u201d as a separate category of abuse from \u201crefusals to supply\u201d, which do not have to satisfy the legal test for refusal to supply to be found to be abusive. Thus, access restrictions can be liable to be abusive even if the input is not \u201cindispensable\u201d. The justification for the distinction is that, where the dominant undertaking has developed the input for itself with its own means, the need to protect the undertaking\u02bcs freedom of contract and investments is not so strong as in a refusal to supply situation.<\/p>\n\n\n\n However, this leads to the paradoxical result that dominant firms that provide access to their inputs at least to some extent, are judged more harshly than dominant firms that do not provide access at all.<\/p>\n\n\n\n Predatory Pricing<\/strong>: This refers to below-cost pricing strategies of a dominant undertaking. The assessment is based on a comparison of prices with relevant cost benchmarks (price-cost test): average variable cost (AVC), average avoidable cost (AAC), long-run incremental cost (LRAIC), average total cost (ATC). If prices are below AVC (or AAC), the dominant undertaking can be presumed to pursue no economic objective other than eliminating competitors. If prices are below ATC (or LRAIC) but above AVC (or AAC), the conduct can be regarded as predatory if it is part of a plan to eliminate or reduce competition in the relevant market.<\/p>\n\n\n\n Predatory pricing falls in the category of \u201cconduct which has a high potential to produce exclusionary effects\u201d and is as such subject to a (rebuttable) presumption.<\/p>\n\n\n\n Margin squeeze<\/strong>: Margin squeeze is liable to be abusive where the undertaking concerned is vertically integrated and dominant on an upstream market, and the spread between the prices applied by that undertaking on the upstream and downstream markets prevents equally efficient competitors that rely on the dominant undertaking\u02bcs upstream inputs from operating profitably on a lasting basis on the downstream market. If the spread is negative, it is not necessary to consider the downstream costs in detail, and the conduct is presumed to have exclusionary effects. If the spread is positive, it must be assessed whether it is sufficient to cover the relevant downstream costs. As a general rule, this price-cost test is based on the dominant undertaking\u02bcs own prices and costs, although in some circumstances, the prices and costs of competitors may be taken into account. The (downstream) costs of the dominant undertaking are a proxy for the costs of an as-efficient downstream competitor.<\/p>\n\n\n\n Conditional rebates not subject to exclusivity<\/strong>: This refers to (monetary or non-monetary) incentives to reward customers for a particular purchasing behavior, but which are not conditional on them purchasing all or most of their requirements from the dominant undertaking. The assessment should take into account factors such as the type of threshold triggering the rebate (volume, value, market share, growth compared to a previous contract period), whether the rebate is granted on all purchases in the reference period (\u201cretroactive rebates\u201d) or only on those in excess of the threshold (\u201cincremental rebates\u201d), and whether the rebates are individualized or standardized. Standardized volume-based incremental rebates are in principle considered not to depart from competition on the merits, unless they lead to pricing below cost (see <\/p>\n\n\n\n predatory pricing). However, retroactive rebates have a higher capability of producing exclusionary effects (especially if combined with longer reference periods), and the same applies to individualized rebates.<\/p>\n\n\n\n Multi-product rebates<\/strong>: This refers to a practice whereby the dominant undertaking markets two or more separate products together with a rebate or other inducement, compared to the case in which the buyer purchases the products separately. This is also referred to as \u201cmixed bundling\u201d (N.B. \u201cpure bundling\u201d, where the products are not offered for sale separately but only together, is assessed in the same way as tying).<\/p>\n\n\n\n Multi-product rebates that are conditional on customers buying all or most of their requirements of at least one of the products form the dominant undertaking, are assessed in the same way as exclusive dealing.<\/p>\n\n\n\n Otherwise, multi-product rebates are liable to be abusive where they enable the dominant undertaking to leverage a dominant position from one market into one or more other markets. A price-cost test (see predatory pricing) can be applied to determine whether the incremental price that customers pay for each product in the bundle covers the cost incurred by the dominant undertaking for adding that product to the bundle.<\/p>\n\n\n\n Self-preferencing<\/strong>: For the first time, the Commission\u02bcs guidance recognizes self-preferencing as a self- standing type of abuse. It consists of a dominant undertaking giving preferential treatment to its own products or services compared to those of competitors, mainly by means of non-pricing behavior (e.g., demotion of rival products or services in the ranking of search results). This is another type of conduct that aims to leverage market power from one market to another. Relevant factors in the assessment of whether self-preferencing deviates from competition on the merits include (a) the importance of the product provided by the dominant undertaking on the leveraging market for competitors (although this should not be understood as indispensability in the strict sense of the Bronner <\/em>case law, see refusal to supply); (b) whether the preferential treatment is likely to influence the behavior of users of the leveraged product, irrespective of the intrinsic qualities of that product; and (c) whether the preferential treatment is likely to be contrary to the underlying business rationale of the dominant undertaking\u02bcs business activities in the leveraging market, for instance because they are contrary to its interests of those of its customers in that market (N.B. these elements are mainly drawn from the General Court\u02bcs judgment in the Google<\/em><\/strong> Shopping <\/em><\/strong>case<\/strong>, recently<\/a> upheld<\/strong><\/a> by the Court of Justice).<\/a><\/p>\n\n\n\n Where the dominant undertaking has not been able to rebut the presumption that its conduct is capable of leading to exclusionary effects, or where the Commission itself has shown that such capability exists, the dominant undertaking may still be able to put forward an objective justification for its conduct. This will be possible only if the dominant undertaking can show that its conduct was objectively necessary and proportionate or that it led to efficiencies that outweighed the restrictive effects. In line with the Commission\u02bcs broader political agenda, the draft Guidelines also mention the possibility of a public interest defense, for example where \u201cthe conduct contributes to the Union\u02bcs resilience as it is necessary to reduce dependencies and mitigate shortages and disruptions in supply chains<\/em>\u201d. The draft Guidelines note that the Commission will take into account whether the conduct is a naked restriction or has a high potential to produce exclusionary effects, suggesting that the threshold for justifying such conduct will be quite high.<\/p>\n\n\n\n The new draft Guidelines have been prepared against the background of increasing market concentration in various industries and the digitization of the EU economy, where network effects and \u201cwinner-takes-all\u201d dynamics are increasingly widespread. Taking stock of the developments in the case law since 2009, they describe the principles and methodology that the Commission will apply in assessing such cases, including guidance on the determination of dominance, the relevant categories of exclusionary abusive conduct and their assessment, and possible defenses.<\/p>\n\n\n\n The draft Guidelines generally provide a useful summary of the case law and welcome clarifications on the Commission\u02bcs conceptual approach to the analysis and treatment of exclusionary abuses. Thus, they contribute to legal certainty for dominant companies when they self-assess whether their conduct is liable to be abusive.<\/p>\n\n\n\n However, the greater reliance on presumptions \u2013 reversing the burden of proof with respect to \u201cnaked restrictions\u201d and conduct \u201cwith a high potential to produce exclusionary effects\u201d \u2013 appears to mark a clear shift away from a more effects-based legal analysis as provided for in the 2008 Guidance towards a more formalistic approach. This shift in the Commission\u02bcs approach clearly stems from a desire for greater efficiency in the handling of its cases, but may undermine the rights of defense. While the draft Guidelines suggest that the presumptions will only apply in a limited number of circumstances, in practice the Commission may be inclined to interpret the categories of conduct subject to the presumptions \u2013 which are not clearly defined \u2013 broadly. This may lead to stricter enforcement.<\/p>\n\n\n\n The Commission has invited comments on the draft Guidelines by October 31, 2024 and, after reviewing this stakeholder feedback, aims to adopt the final guidelines towards the end of 2025.<\/p>\n\n\n\n We would like to thank Ruben Debuf for his assistance in preparing this alert.<\/em><\/p>\n\n\n\n Contacts<\/strong><\/p>\n\n\n\n <\/p>\n","protected":false},"excerpt":{"rendered":" On August 1, 2024, the European Commission published its draft Guidelines on abusive exclusionary conduct by dominant undertakings. <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[62],"tags":[],"class_list":["post-6043","post","type-post","status-publish","format-standard","hentry","category-partnerblog-fr"],"blocksy_meta":[],"acf":[],"yoast_head":"\nIntroduction<\/h4>\n\n\n\n
Overview of the Commission\u02bcs Approach<\/h4>\n\n\n\n
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No competition on the merits<\/h4>\n\n\n\n
The three types of exclusionary conduct and the relevant burden of proof<\/h4>\n\n\n\n
Possible justifications: the necessity and efficiency defenses<\/h4>\n\n\n\n
Conclusion<\/h4>\n\n\n\n
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