Abuse of dominance – a more refined test for excessive pricing by comparing prices between Member States

PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Non-contractual liabilityAutortiesību un komunicēšanās konsultāciju aģentūra / Latvijas Autoru apvienība v. Konkurences padomeCourt of JusticeSecond ChamberMme A. PrechalM. N. WahlAbuse of dominant position - Unfair pricing
KeywordsArticle 102 TFEU — Abuse of a dominant position — Concept of ‘unfair price’ — Fees collected by a copyright management organisation — Comparison with rates charged in other Member States — Choice of reference Member States — Assessment criteria for prices — Calculation of the fine
Significant pointsThe AKKA/LAA (Consulting agency on copyright and communications / Latvians authors’ association) is a collective management organization handling copyright for musical works. It is the only entity in Latvia to issue, against payment, licences for the public performance of musical copyrighted works. It collects the fees from which Latvian copyright holders are remunerated, also through contract concluded with foreign collecting societies, those from which foreign copyright holders are remunerated.

The Competition Council found that the rates applied in Latvia were two to three times higher than those charged in the other two Baltic States. It also compared the fees in force in approximately 20 other Member States by having recourse to the purchasing power parity index (“PPP index”). It found therefrom that the rates payable in Latvia exceeded the average level of those charged in those other Member States by 50 to 100%.

The Competition Council took the view that the fees in force in Latvia were unfair and therefore fined the AKKA/LAA for abuse of dominant position, which brought an action for annulment before the Regional Administrative Court of Latvia.

The first question addressed to the Court by the Supreme Court of Latvia was to know whether or not trade between Member States is capable of being affected by the level of rates set by a copyright management organisation such that the conduct falls within the scope of Article 102 TFEU. The Court answered in the affirmative. It noted that the latter had a monopoly in its Member State and, in addition to managing the rights of Latvian rights’ holders, also managed in that State the rights of foreign rights’ holders, leading to the potential application of Article 102 TFEU.

The Court chose to consider the second, third and fourth questions together. By these questions, the referring court asked whether or not it was appropriate to compare the rates of the copyright management organisation with those applicable in the neighbouring States as well as those applicable in other Member States, adjusted in accordance with the PPP index, and whether or not the comparison must be made for each segment of users or for the average level of rates.

By way of introduction, the Court recalled the previous case law according to which the prices charged by a dominant undertaking may be abusive where they are excessive in relation to the economic value or costs of the products or when compared with competing products. The Court went on to stress that there are other methods of comparison which may be suitable for determining whether prices are excessive. It stated that an abuse of a dominant position may arise where a dominant undertaking imposes scales of fees in a Member State that are appreciably higher than those charged by other Member States.

The Court ruled that it is appropriate to compare the rates with those applicable in neighbouring Member States as well as with those applicable in other Member States adjusted in accordance with the PPP index provided that the reference Member States have been selected in accordance with objective, appropriate and verifiable criteria and that the comparison is made on a consistent basis. In addition, the Court affirmed that it is permissible to compare the rates charged in one or several specific user segments if there are indications that the excessive nature of the fees affects those segments. Those criteria may include consumer habits and sociocultural and economic factors (GDP, cultural, historical heritage). The Court emphasized that the competition authority has a certain margin of discretion and that there is no single adequate method. However, the comparison, for an identical service, of the rates in force in several Member States in which living standards differ necessarily implies that the PPP index must be taken into account. The referring court will therefore have to verify whether in the reference Member States selected, the method of calculating rates, based on the surface area of the shop or service centre concerned, is analogous to the method of calculation applicable in Latvia.

Concerning the fifth and sixth questions, the Court was asked to determine above what threshold the difference between the rates compared is to be regarded as appreciable (and therefore indicative of a dominant position) and what evidence the copyright management organisation can adduce in order to demonstrate that those rates are not excessive. The Court judged that an appreciably higher price imposed by an undertaking holding a dominant position must be regarded as an indicative of an abuse of dominant position if it is significant and persists in time. In this respect, it took the view that there was no need for a rate to be many times higher than that charged in other Member States to be considered excessive. It referred notably to rates which were between 50 and 100 % higher than the average level of EU rates. It emphasized that there is in fact no minimum threshold above which a rate must be regarded as ‘appreciably higher’, given that the circumstances specific to each case are decisive in that regard. A significant and persistent difference in price is merely indicative of an abuse of a dominant position. It may be possible, therefore, for the copyright management organisation to justify the difference by reference to objective factors that have an impact on management expenses or the remuneration of rights’ holders.

Finally, on the seventh question, the Court was asked whether or not the remuneration by rights’ holders should be included for the purposes of calculation of the turnover of the copyright management organisation for the purpose of determining the amount of the fine. The remuneration of rights’ holders, being a part of the value of the services provided by the copyright management organisation, the Court judged that it must be included for the purposes of calculating the fines. The Court recalled also that it is relevant to take into consideration the length and repetitive nature of the infringement to establish the amount of fine imposed. Indeed, consistent with fining practices for competition law infringement, the referring court must ensure that the penalty imposed is effective, proportionate and dissuasive.
NoteworthyCases involving excessive pricing have been relatively rare so far. This case expands on the previous case law, such as the United Brands judgment (Case 27/76). Combined with the quite sophisticated tools and methods of comparison between prices which are now available, it probably facilitates challenging some pricing policies of undertakings in a dominant position in a more aggressive and efficient way.

In this respect, it does not matter that the competition authorities enjoy some room for manoeuvre when making the comparison and defining its framework provided that, on the one hand, the methodology chosen is coherent and, on the other hand, the PPP index is taken into account. The latter condition constitutes an improvement on the previous case law to the extent that it gives an objective criterion to the undertakings as well as competition authorities. In this case, the comparison with the prices applicable in neighbouring markets has been found valid as long as it has been compared in accordance with appropriate, objective and verifiable criteria, adjusted in light of the PPP index, on a consistent basis, and over a specific segment. The choice of the appropriate analogue markets will likely depend on the circumstances of each specific case.

For prices to be abusive on this basis, there must be an appreciable difference in price which persists over time and cannot be justified by objective factors.

It is noteworthy too that, in a similar way as the EU Commission when investigating alleged cases of exclusionary abuses, the Court admits that an undertaking in a dominant position is allowed to justify differences in prices by relying on objective dissimilarities (between the situation of the Member State concerned and that of the other Member States included in the comparison).