The European Commission has published its eagerly anticipated draft guidelines on the application of Article 102 of the Treaty on the Functioning of the European Union (TFEU) to exclusionary conduct by dominant firms (the draft Guidelines).

 According to the Commission, the draft Guidelines codify the case law of the Court of Justice of the EU on exclusionary abuses and set out the principles which guide the Commission’s application of Article 102 TFEU, with a view to increasing legal certainty for consumers, businesses, and national competition authorities and courts. However, the Guidelines are also an attempt to articulate a set of principles and an analytical framework aimed at facilitating a more effective enforcement of Article 102 TFEU in today's ever-more dynamic and fast moving markets.

Background

More than 15 years ago, the European Commission faced accusations of being overly formalistic in its enforcement of Article 102 TFEU, particularly as regards exclusionary conduct– i.e. behaviour by dominant companies that hinders the maintenance or growth of effective competition. It was criticised for protecting inefficient competitors rather than the competitive process, and for attaching too much importance to which form of conduct the behaviour of the dominant firm belonged to and not enough to the effects of that behaviour on consumer welfare. 

These criticisms prompted a review of the Commission’s enforcement policy, which led to the adoption of the “Guidance on the Commission's enforcement priorities in applying Article (102 TFEU) to abusive exclusionary conduct by dominant undertakings” (the 2009 Guidance).  The 2009 Guidance was not a codification of the law on the application of Article 102 TFEU, but a statement of the Commission’s new enforcement policy, signalling a move away from a form-based approach to the enforcement of Article 102 TFEU to an effects-based one. In particular, the 2009 Guidance emphasised that enforcement priorities would be determined based on the potential effects of allegedly abusive conduct on the market, and that enforcement action would focus on conduct that could lead to the exclusion of competitors that are as efficient as the dominant undertaking (the so-called “as-efficient competitor” (AEC) test).

This policy has come under increasing challenge in recent years, as a result of the growing levels of concentration being observed across many sectors of the economy, including in fast moving digital markets where large and powerful digital platforms have become increasingly important gateways for supplying goods and services to consumers. These developments provoked concerns about the effective enforcement of Article 102, given the length and complexity of recent Commission Article 102 TFEU investigations¹. Such concerns were reinforced when the Commission lost several important cases before the EU Courts involving exclusivity rebates and payments in the technology industry².  

The Commission therefore decided to rethink and re-invigorate its enforcement policy, announcing on 27 March 2023 that it would adopt a more “dynamic and workable effects-based approach to abuse of dominance” and that the 2009 Guidance no longer reflected its current enforcement priorities, such that certain immediate revisions to the Guidance were necessary. The principal purpose of those revisions was to downplay the role of the AEC test when assessing price-based exclusionary conduct, and to indicate that, in light of the recent case law of the EU Courts, constructive refusals to supply and margin squeeze cases should not be assessed through the lens of the “essential facility” doctrine (thereby lowering the bar for taking enforcement action against such conduct)³. In addition, the Commission announced that it would next year withdraw and replace the 2009 Guidance with guidelines setting out the relevant legal principles that should be applied to the assessment of exclusionary conduct.  According to the Commission, the aim of these Guidelines would be to provide businesses with greater legal certainty and facilitate the consistent application and enforcement of Article 102 TFEU by national courts and competition authorities in the EU. 

The draft Guidelines and the Commission’s approach to identifying abusive conduct

The draft Guidelines are ostensibly presented as codifying the existing case law of the EU Courts and decisional practice of the Commission on how to assess if a firm is dominant (including collective dominance) and has engaged in exclusionary conduct, and if so whether such conduct can be justified based on an objective necessity or countervailing efficiencies. The key focus of the Guidelines, however, is on the legal analysis of exclusionary conduct, with the Commission seeking to distil a set of principles from various statements in the case law of the EU Courts and weave them into an analytical framework facilitating the assessment of, and the taking of enforcement action against, exclusionary conduct. 

A general test applicable to all exclusionary conduct 

According to the draft Guidelines, for conduct of a dominant firm to be characterised as an exclusionary abuse, such conduct must depart from competition on the merits and be capable of having exclusionary effects.

i. Competition on the merits

Although dominant firms can defend themselves against their competitors, they must do so using means which fall within the scope of competition on the merits. The draft Guidelines explain this concept as covering “conduct within the scope of normal competition on the basis of the performance of economic operators and which, in principle, relates to a competitive situation in which consumers benefit from lower prices, better quality and a wider choice of new or improved goods or services”. The draft Guidelines also note that “Article 102 TFEU does not preclude the departure from the market or the marginalisation, as a result of competition on the merits, of competitors that are less efficient than the dominant undertaking”, but that “a dominant undertaking may have to refrain from engaging in certain practices that are unobjectionable for undertakings that do not hold a dominant position” because it has a “special responsibility” not to impair effective competition.

Unless a presumption applies (as discussed below), departure from competition on the merits must be assessed and established based on the specific circumstances of the case.  The draft Guidelines give some examples of factors that may be relevant to that assessment, including: whether the dominant firm is taking measures preventing consumers from exercising their choice based on the merits of the relevant products; discriminatory treatment that favours the dominant firm’s own products; and the inability of an as-efficient competitor to adopt the same conduct as the dominant firm because the conduct relies upon resources inherent to the holding of a dominant position.

ii. Capability to produce exclusionary effects

According to the Commission, an exclusionary abuse presupposes that that the relevant conduct is capable of having exclusionary effects. This does not require proof of actual exclusionary effects (since an absence of actual effects does not disprove a capability to produce exclusionary effects).  It does, however, require a comparison of the situation in which the conduct was implemented with that absent the conduct. This may be done by comparing the market situation before the implementation of the conduct with that which prevailed afterward and/or by hypothesising a “counterfactual” scenario in which the conduct was not implemented.

The draft Guidelines also make clear that the Commission need not establish actual consumer harm (i.e. through a negative impact on parameters of competition such as price, innovation etc.), or that the competitors affected by the conduct are as efficient as the dominant undertaking. Nor is the Commission required to demonstrate that the conduct was enabled by the dominant position. There is also no de minimis threshold below which effects will be insufficient to ground a finding of abuse. 

The application of the general test to different types of conduct – analytical shortcuts and presumptions 

While the general test articulated in the draft Guidelines may not be particularly controversial, the actual application of that test in concrete cases is not always straightforward. In particular, there is no generally applicable bright line test to distinguish conduct which can be characterised as competition on the merits from conduct which cannot.  Similarly, while it is possible to refer to a number of principles which may have bearing on the assessment of exclusionary effects, it is more difficult to determine (and agree on) the factual and economic evidence needed to establish such effects to the requisite legal standard in any given case. The draft Guidelines seek to shortcut these difficulties by extrapolating from the case law of the EU Courts certain principles that can be applied to recognised categories of conduct, and from which certain conclusions and/or presumptions may be derived, with a view to truncating the evidential analysis needed to establish the existence of an abuse. 

Naked restrictions 

The first category of conduct identified by the Commission is what the draft Guidelines define as “naked restrictions”, namely conduct which has no bona fide benefit for the dominant undertaking other than restricting competition.  According to the Guidelines, such conduct is by its very nature incapable of being regarded as competition on the merits, without the need to engage in any further analysis.  Additionally, such conduct can by its very nature also be presumed to be capable of producing exclusionary effects, a presumption which should only be rebuttable in the most exceptional circumstances. 

The draft Guidelines list the following conduct by way of example of such “naked restrictions” (drawing such examples from the case law of the EU Courts): 

• payments to customers that are conditional upon them cancelling or postponing the launch of products that incorporate a competitor’s inputs⁴;
• threatening the withdrawal of discounts unless a distributor agrees to swap a competitor’s product for that of the dominant firm⁵; and
• actively dismantling infrastructure used by a competitor⁶.

Conduct subject to specific legal tests

In addition to naked restrictions, the draft Guidelines purport to derive from the case law specific legal tests for the following five categories of conduct.

• Exclusive dealing – i.e. various forms of obligation or incentive schemes which are conditional on purchasing or selling all or most of a customer or a supplier’s requirements. from/to the dominant company, and obligations which in practice lead to the same effect (e.g. stocking requirements). 
• Tying and bundling – excluding mixed bundling, which is treated as a multi-product rebate.
• Refusal to supply – explicitly recognising that it is only in exceptional circumstances and subject to strict conditions that a dominant company is required to give access to an input which it has developed exclusively or mainly for its own use, given the risk of an adverse impact on investment incentives.
• Predatory pricing – explaining the different cost/price metrics that may be used to detect below-cost pricing.
• Margin squeeze – again with clarification of the appropriate cost/pricing test. 

Where the requirements of those specific legal tests are met, the conduct in question will be deemed to fall outside the scope of competition on the merits.  Additionally, according to the draft Guidelines, such conduct will also be presumed to be capable of producing exclusionary effects. Two points are worth noting here, however.

First, a close look at some of the specific legal tests (in particular, those for tying, predatory pricing and margin squeeze) reveals that they incorporate a requirement to establish the conduct’s capability to have exclusionary effects. Therefore, it is not clear whether a presumption of effects will actually arise in respect of such conduct.

Second, unlike the “hard” presumption naked restrictions give rise to, the presumption of exclusionary effects here operates more as an allocation/shifting of the evidentiary burden – by assuming that the burden of proof imposed on the Commission has been discharged, unless evidence is adduced by the dominant company demonstrating that the conduct is not capable of having exclusionary effects, which evidence the Commission must assess. The Commission can then seek to show that the dominant company’s arguments and evidence are insufficient to call into question the presumption, and/or can provide its own evidence demonstrating the conduct’s capability to exclude. 

Other forms of conduct 

Whilst only the above-specified forms of conduct give rise to evidentiary presumptions, the draft Guidelines additionally note that the EU Courts have provided guidance on how to apply the general test to certain other types of conduct. In particular, the draft guidelines address and provide guidance on the following heads of abuse.

• Conditional rebates that are not subject to exclusive purchase or supply requirements – these rebates are subject to a price-cost test to assess whether they can be regarded as falling within the scope of competition on the merits.
• Multi-product rebates – where these are not subject to exclusive purchasing obligations, they should be analysed in the same way as other conditional rebates.
• Self preferencing – for example in relation to the positioning or display of the dominant company’s  products, and the manipulation of auctions or consumer behaviour.
• Access restrictions – encompassing restrictions on access to an input that do not amount to a refusal to supply, e.g. because the input was not developed for the dominant undertaking’s own use.

Commentary

The draft Guidelines are not simply a codification of the existing case law, but also an attempt to distil from that case law a coherent analytical framework, and in the process re-introduce a dose of formalism to the application of Article 102 TFEU.

The Commission’s underlying objective in this regard is to make it easier to take effective enforcement action against exclusionary conduct. It is the reason why the draft Guidelines endorse “capable of producing” exclusionary effects as the threshold for establishing anti-competitive effects which engage the application of Article 102 TFEU, as opposed to “potential”, “probable”, or “likely” effects, as referred to in some judgments. It is also the reason why the draft Guidelines seek to extrapolate from the case law a series of analytical tools and legal presumptions which can be used to truncate the assessment of exclusionary conduct and reduce the evidentiary burden which must be discharged by the Commission. This is most evident in the promotion of the concept of naked restrictions, which the Guidelines treat as akin to “object restrictions” under Article 101 TFEU – i.e. as inherently anti-competitive, requiring no effects analysis, and highly unlikely to be capable of objective justification.  While a number of judgments in recent years have hinted at or supported the idea of a “by object” infringement of Article 102 (including the recent Court of Justice decision in the Superleague⁷ case), that concept has so far not been unpacked by the EU Courts – so it is unclear how far it could aid the Commission in streamlining and simplifying the prosecution of certain forms of exclusionary conduct.  Finally, the underlying objective pursued by the draft Guidelines is also illustrated by the Commission’s attempts to further distance itself from the AEC test, following its revisions to the 2009 Guidance. Very little mention is made in the Guidelines of “as efficient” or “equally efficient” competitors (though the Guidelines do refer to price-cost tests, which ultimately are forms of AEC test as they are based on the dominant company’s own costs), instead placing greater emphasis on the possibility of AEC tests not being relevant in certain cases where the impact of the conduct on less efficient competitors is likely to be a relevant consideration. 

It remains to be seen whether the Courts will be prepared to validate the analytical framework propounded by the draft Guidelines, and whether the Commission will succeed in alleviating the evidentiary burden of establishing exclusionary abuses under Article 102 TFEU. While the Commission states in the draft Guidelines that “the case law has developed tools which can be broadly described and conceptualised… as presumptions”, there are likely to be inherent limits to the Commission’s ability to make use of presumptions to cut through all the complexities that can arise in Article 102 TFEU investigations.  Even where some form of “presumption” could be said to be relevant to the analysis, the weight that can be attached to that presumption will not be the same in each case. Indeed, there is always a danger in trying to extrapolate general principles from statements contained in judgments of the EU Courts without considering the relevant factual background against which such statements were made. In addition, even if the analytical framework posited in the draft Guidelines (or aspects thereof) is endorsed by the Courts, some of the “specific legal tests” codified therein involve establishing the conduct’s ability to exclude competitors, which inevitably presupposes that some effects analysis will be necessary. Furthermore, under the case law of the Courts, the Commission has a duty to properly assess any arguments and evidence put forward by the dominant firm to rebut any presumption of exclusionary conduct and/or effects (which any well-advised company which disputes the characterisation of its conduct as abusive is sure to do). And in cases related to pricing conduct, this will often involve (detailed) economic expert reports and analysis based on an AEC test and/or related econometric models, which the Commission will have to evaluate and will not be able to dismiss out of hand. 

Nevertheless, the draft Guidelines represent a bold attempt by the Commission to address what it perceives as the inadequacies of the status quo. The Commission clearly considers that a step change in antitrust enforcement is necessary and has set out its stall, with interested parties having until the end of this month to provide their views. After that, it will be up to the EU Courts to determine whether a more workable effects-based approach to abuse of dominance is, in fact, achievable. 

¹ See, for example, How to Fix a Failing Art. 102 TFEU: Substantive Interpretation, Evidentiary Requirements, and the Commission’s Future Guidelines on Exclusionary Abuses 
Heike Schweitzer, Simon de Ridder (Journal of European Competition Law & Practice)
² In particular: Case C‑413/14, Intel v Commission; Case T-604/18, Google v Commission; and Case T-235/18, Qualcomm v Commission. Notably, in partially overturning the Commission’s findings of infringement in Google Android, the General Court cited statements made by the Commission in the Guidance as regards its approach to the AEC test.
³ DG COMP Competition Policy Brief: A dynamic and workable effects-based approach to abuse of dominance – March 2023
⁴ Intel v Commission, T-286/09
⁵ Irish Sugar v Commission, T-228/97
⁶ Lietuvos geležinkeliai v Commission, C-42/21
⁷ Case C-333/21 European Super League Company, S.L. v Union of European Football Associations (UEFA) and Fédération Internationale de Football Association