How to assess whether a practice of differential pricing by a dominant undertaking is capable of distorting competition on a downstream market and amounts to an abuse of dominance: some further guidance from the CJEU but not the end of the road of the effects-based approach under Article 102 TFEU

Judgment
C-525/16
19.04.2018
PartiesJurisdictionFormationJudge RapporteurAdvocate GeneralSubject-matter
Preliminary rulingMEO – Serviços de Comunicações e Multimédia / Autoridade da ConcorrênciaCourt of Justice Second ChamberA. PrechalN. WahlCompetition law – Abuse of dominance – Discriminatory prices
KeywordsReference for a preliminary ruling — Competition — Abuse of dominant position — Article 102, second paragraph, point (c), TFEU — Concept of ‘competitive disadvantage’ — Discriminatory prices on a downstream market — Cooperative for the management of rights relating to copyright — Royalty payable by domestic entities which provide a paid television signal transmission service and television content
Significant pointsFacts

This preliminary ruling arose following a complaint lodged with the Portuguese Competition Authority by Serviços de Comunicações e Multimédia SA (“MEO”) alleging that GDA, a non-profit-making collecting cooperative which manages the rights of artists and performers, had abused its dominant position on the market. The alleged abuse concerned, notably, discriminating in the amount of royalty which GDA charged MEO for its television broadcasting services compared to another customer.

Legal issue

The CJ was asked whether or not the concept of discriminatory pricing placing a trading partner at a ‘competitive disadvantage’, for the purposes of subparagraph (c) of the second paragraph of Article 102 TFEU, must be interpreted as requiring an analysis of the specific effects of the differentiated prices on the competitive situation of the undertaking affected and, as the case may be, whether or not the seriousness of those effects should be taken into account.

Court’s position

- First, the Court stated the mere presence of an immediate disadvantage affecting operators who were charged more, compared with the tariffs applied to their competitors for an equivalent service, does not mean that competition is distorted or is capable of being distorted within the meaning of Article 102 TFEU (paragraph 26). It is only if the behavior of the undertaking in a dominant position tends to lead to a distortion of competition between those business partners, having regard to all the circumstances of the case, that the discrimination between partners which are in a competitive relationship may be regarded as abusive (paragraph 27).

- Secondly, the CJ noted that fixing an appreciability (de minimis) threshold for the purpose of determining whether or not there is an abuse of a dominant position is however not justified (paragraph 29).

- Thirdly, the Court judged that, in order for the differential pricing to be capable of creating a competitive disadvantage, the price discrimination must affect or be capable of affecting the interests of the operator which was charged higher tariffs compared with its competitors (paragraph 30).

This potential or actual effect must be analysed by looking at all the relevant circumstances of the case (such as the negotiating power of the customers, the duration and amount of the discrimination and whether there is a strategy to exclude as-efficient trading partners from the downstream market) to decide whether or not that behaviour has an effect on the costs, profits or any other relevant interests of one or more of the trading partners. In this case, the CJ noted that MEO had a certain amount of negotiating power vis-à-vis GDA, that the prices offered had been set following arbitration proceedings, that the prices represented a “relatively low” percentage of MEO’s costs and that GDA had no interest in trying to exclude MEO from the downstream market.
NoteworthyArt 102, paragraph 2 c), TFEU states that discriminatory pricing by a dominant undertaking constitutes an abuse of dominance. Its wording implies that as soon as a dominant company applies “dissimilar conditions to equivalent transactions with other trading parties”, there is an abuse as that conduct places the trading party(ies) at a competitive disadvantage.

However, previous case law has in effect extended the wording of that provision in Article 102 by establishing that differential pricing does not automatically constitute an abuse: it must be shown also that trading parties are in fact placed at a competitive disadvantage (C-95/04 British Airways and T-301/04 Clearstream).

This judgment repeats this principle but in our opinion tries to push the analysis of a “competitive disadvantage” further by imposing a comprehensive effects-based analysis looking at all the relevant circumstances of the practice in order to determine whether there is substantial disadvantage created. This approach follows the CJ’s recent case law in abuse of dominance cases where it has strived to move away from “per se” abuses and placed the focus on the potential or actual effects that the conduct may have, as recently exemplified by the Intel judgment last September (C-413/14).

In this case, which concerned the prices charged by a supplier to downstream service providers, the Court stated that an effect on the competitive situation of one or more undertakings (a so-called competitive disadvantage) must be proven by looking at the effect on costs, profits or any other relevant interest of the trading partner. This is of course confusing since charging different prices to customers is bound by nature to impact the costs of undertakings placing the undertaking(s) paying higher prices against those paying lower prices thereby putting them in a competitive disadvantage. However, what the CJ tried to allude to (in less than clear reasoning) is the need, in order for differential pricing to be abusive, for a significant effect on a trading partner’s competitive position. This statement was made by the CJ despite recalling its previous case law according to which there is no quantitative threshold for determining what amounts to a (potential or actual) anticompetitive effect. In applying the principles to the case at hand, it observed that the costs involved for the complainant were not significant in proportion to its total costs, thus implying that the differential pricing involved did not amount to an abuse.

In addition, the CJ stated that establishing the anticompetitive effect involves looking at all of the relevant circumstances of the case. This is a principle taken from the recent Intel judgment, which concerned rebates. Although in line with the CJ’s previous case law and the practice of competition authorities focusing more and more on the effects of unilateral conduct, this creates very vague guidance on assessing when differential pricing is in fact discriminatory and therefore abusive. The judgment will trigger problems, therefore, for dominant undertakings offering different pricing to its customers to know what price differences may be considered as significant such that they cause a competitive disadvantage within the meaning of Article 102, second paragraph c), and are thereby abusive.

The CJ did correctly reaffirm that the restriction of competition only needs to be potential in order to amount to an abuse and no actual anticompetitive effect needs to be proven.