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On April 19, 2018, the Court of Justice of the European Union (“CJEU”) issued its judgment in the framework of the request for a preliminary ruling brought by the Portuguese Competition, Regulation and Supervision Court regarding the interpretation of the concept of competitive advantage or abusive price discrimination under article 102(c) of the Treaty on the Functioning of the European Union (“TFEU”).
The main dispute arose from the complaint Serviços de Comunicações e Multimédia SA (“MEO”) filed with the Autoridade de la Competencia against Cooperativa de Gestão dos Direitos dos Artistas Intérpretes ou Executantes (“GDA”), as it considered that the royalty rate GDA had charged to use musical works was higher than the rate charged to MEO’s competitors, which placed it at a competitive disadvantage in the market.
Article 102 TFEU prohibits “any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it.” Section (c) of this article refers to the application of “dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage” as an alleged abusive practice. Therefore, to apply article 102(c), (i) a company in a dominant position must have resorted to discriminatory behavior, and (ii) this behavior could place other trading parties at a competitive disadvantage.
The CJEU’s answer to the question regarding the concept of “competitive disadvantage” was clear: it interpreted that not all discrimination can be considered anti-competitive, making it necessary to examine how that behavior could restrict a company from operating in the competitive market. Therefore, “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, however, mean that competition is distorted or is capable of being distorted.”
Competitive disadvantage must be proved by conducting a circumstantial assessment of each case and, instead of requiring quantifiable proof, should be based on parameters such as the company’s dominant position; customers’ negotiating power as regards the tariffs; the conditions and arrangements for charging those tariffs; and the possible existence of a strategy aiming to exclude from the market one of its trade partners that is at least as efficient as its competitors.
In view of this, and following the conclusions of Advocate General Nils Wahl (see our post of January 9, 2018, accessible here), the CJEU’s preliminary ruling states as follows:
- With regard to GDA’s dominant position and its clients’ capacity to negotiate tariffs, both MEO and NOS clearly had some negotiating power over the contractual conditions set out by GDA.
- The tariffs applied by GDA are subject to domestic law under which, in default of an agreement being reached, the parties are required to proceed to arbitration. GDA applied to MEO the tariff set by a previous arbitration decision.
- The differentiated tariffs were applied between 2010 and 2013.
- The amounts GDA charged represented a relatively low percentage of the total costs borne by MEO in its service for retail offerings for subscription television access. Therefore, the differentiation in tariffs had a limited effect on MEO’s profits.
- Where the application of differentiated tariffs affects only the downstream market, the company in a dominant position, in principle, has no interest in excluding one of its trade partners. In this case, the CJEU considers that there is no evidence that this was GDA’s intention.
In view of the circumstances, the CJEU considered that the tariff system applied by GDA was not capable of placing MEO at a competitive disadvantage. Instead, it established that it falls to the referring court to settle this issue.
This follows the same line of interpretation the CJEU has adopted in recent rulings on article 102 TFEU, such as the Intel case (involving loyalty rebates), in which it moves away from the concept of infringement by object, endorsing an effects-based analysis.
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