On 12 May, the Court of Justice delivered its eagerly anticipated judgment in Servizio (C-377/20), a preliminary ruling concerning the interpretation of Article 102 TFEU.
This is a very interesting ruling for a variety of reasons:
First, the conduct in question involved the (allegedly) abusive use of a database, and in particular the discriminatory use of data (customer lists acquired during statutory monopoly). As Advocate General Rantos noted in his Opinion delivered late last year, “[t]he guidance provided may therefore prove to be useful in the future for assessing, under Article 102 TFEU, conduct relating to the use of data.” Apple’s App Tracking Transparency framework (whereby Apple has allegedly discriminated in the manner it seeks consent for its own advertising activities) is a case that immediately springs to mind.
Second, the conduct in question has been aptly described as “atypical”, in that it does not fit neatly within a recognized competition law box such as margin squeeze or refusal to deal. This is important, since competition authorities are generally reluctant to investigate practices they cannot easily pigeonhole in a known category, even though the list of abusive practices in Article 102 TFEU is not exhaustive. In that regard, providing general guidance on the concept of abusive conduct can be very helpful, particularly in digital cases where the conduct may not easily fit into a recognized box.
Third, the case presented the Court with the opportunity to address some fundamental issues relating to the application of Article 102 TFEU, such as the concept of competition on the merits and the relevance of actual effects (or lack thereof) in establishing a breach of Article 102 TFEU. The case has some interesting analogies with Google Shopping, where competition on the merits and the role of effects feature prominently in the General Court’s judgment. This in turn may shed some light on the approach the Court may adopt when examining Google’s appeal of the General Court’s ruling.
Unsurprisingly, the judgment has already sparked some controversy (and the fact that the judgment is not always easy to follow at some places is not very helpful). For instance, Ibanez Colomo is of the view that, unlike the Opinion of AG Rantos (which he considers as a clean framework capturing the essence of the case law), the judgment of the Court seems to be tailored to the specifics of the case (and in particular the fact that the undertaking in question was a former statutory monopoly), to the effect it will not (or should not) apply to other cases. It is likely that we will have to wait for another ruling to see how the Court will treat Servizio, although my initial reaction is different from that of Ibanez Colomo for reasons I will discuss later.
Given the complexity of the topic, this blog post will limit itself to discussing some of the issues addressed by the Court, namely (1) the role of consumer welfare; and (2) the relevance of actual effects (or lack thereof) in establishing a breach of Article 102 TFEU. This will be followed by a second post, which will discuss the issue of competition on the merits and will lay down some general remarks on the scope of the judgment and whether it should be limited to cases of former statutory monopoly.
Facts
The dispute in the main proceedings arose in the context of the gradual liberalization of the market for the retail supply of electricity in Italy. The conduct in question took the form of a complex strategy implemented by companies in the Enel Group, the incumbent operator, to make it harder for competitors to enter the liberalized market.
In an initial phase of liberalization of the market, so called “captive” customers (individuals and small businesses) benefitted from a regulated regime in a protected market. The operator in the protected market was Servizio Elettrico Nazionale SpA (“SEN”), a company in the Enel Group, the incumbent operator. In a subsequent phase, these captive customers were gradually allowed access to the free market, where Enel Energia SpA (“EE”), another company in the Enel Group, competed with third party electricity suppliers.
Following a complaint, the Italian AGCM launched an investigation and eventually adopted an infringement decision on 20 December 2018 finding that the companies of the Enel Group had implemented an exclusionary strategy to “transfer” SEN’s customer base (from the protected market) to EE (active on the free market). This conduct consisted of (i) SEN obtaining the consent of its customers in the protected market to receive commercial offers in the free market using “discriminatory” methods, which resulted in customers tending to provide consent for companies of the Enel Group and refusing consent for other operators, and (ii) SEN transferring the names of the customers that had consented (“SEN lists”) to EE, which EE used to issue commercial offers to bring them to the free market.
The companies of the Enel Group brought actions challenging the contested decision but lost on first instance. On appeal, the Consiglio di Stato decided to stay proceedings and refer to the Court several questions relating to the interpretation of Article 102 TFEU. Among others, the referring court asked for guidance on (1) the role of consumer welfare in establishing an infringement of Article 102 TFEU; (2) the relevance of actual effects, or lack thereof, in establishing a breach of Article 102 TFEU; and (3) the concept of competition on the merits (additional issues concerned (4) the relevance of intention of the dominant undertaking and (5) the parental liability presumption).
The role of consumer welfare under Article 102 TFEU
The first question to which the Court responded concerned the role of consumer welfare under Article 102 TFEU. This issue has always been the subject of some controversy and one where the EU Courts and the European Commission have not been fully aligned. As part of its move towards a more economics-based approach in the application of Article 102 TFEU back in mid-2000s, the Commission elevated consumer welfare/harm to a central part of its analysis, stating that it will generally only intervene where a dominant undertaking’s conduct is liable to cause anticompetitive foreclosure, namely foreclose rivals in a manner that causes harm to consumers (e.g., in the form of higher prices, lower quality, or less innovation).
The EU Courts, however, have fallen short of requiring the Commission to demonstrate consumer harm for the purposes of establishing a breach of Article 102 TFEU (and in that sense, the standard set by the case-law seems to be lower than the one applied by the Commission itself – at least at the stage of case selection). The Court’s judgment in Servizio did not break any new ground in this respect: on the one hand, in paragraph 46 the Court agreed with AG Rantos that the ultimate objective of Article 102 TFEU is to protect the welfare of consumers – understood as both final and intermediate consumers, which technically speaking are not “consumers”. On the other hand, the Court disagreed with AG Rantos, holding that a competition authority is not required to show that a practice has the capacity to harm consumers; a competition authority satisfies its burden of proof by demonstrating that a practice is likely to undermine, by using resources or means other than those governing normal competition, an effective competitive structure (para. 47). Even so, the dominant undertaking may escape the prohibition laid down in Article 102 TFEU by showing that any anticompetitive effects were counterbalanced by efficiencies that also benefitted consumers.
The relevance of actual effects (or lack thereof) and Intel
The referring court had sought guidance on whether evidence submitted by the investigated undertaking to show that its conduct did not produce actual anticompetitive effects (despite its abstract capability to do so) should be regarded as relevant, and if yes, whether the competition authority should examine that evidence in detail.
One may approach this matter on two levels. At a first level, there is the question as to the relevance to be attached by the competition authority to evidence adduced by the dominant undertaking during the administrative procedure to show that its conduct did not produce actual effects. This goes to procedure and aims at observing the undertaking’s right to be heard before the adoption of an infringement decision. At first sight this is a requirement of due process, although its implications affect also the substantive analysis, as discussed below. At a second level, there is the question whether proof of absence of actual effects suffices to exonerate the dominant undertaking to the effect it escapes liability under Article 102 TFEU. This goes to the substance of an Article 102 TFEU analysis.
Procedure: the Intel requirements
The Court recalled that under settled-case law, the abusive nature of exclusionary conduct presupposes that such conduct has the capacity to restrict competition, and in particular, produce the alleged exclusionary effect (para. 50, citing Generics). The Court then went on to apply paragraphs 138 and 140 of its landmark 2017 Intel ruling. In para. 51 the Court thus held that
“…where a dominant undertaking submits, during the administrative procedure, on the basis of supporting evidence, that its conduct did not have the capacity to restrict competition, the competition authority concerned must examine whether, in the circumstances of the case, the conduct in question did have such capacity (see, to that effect, judgment of 6 September 2017 in Case C-413/14 P, Intel v Commission, EU:C:2017:632, paragraphs 138 and 140).”
In Servizio the Court went even further and specified that the competition authority “must pay due attention to the observations submitted by the undertaking concerned and examine, with care and impartiality, all the relevant elements of the case and, in particular, the evidence submitted by that undertaking” (para. 52). This is in accordance with the right to be heard, which is a general principle of EU law (para. 52).
The above quotation of Intel (2017) is quite significant. As some readers of this blog may know, the Commission has adopted a fairly narrow approach to interpreting Intel, essentially limiting it to cases of loyalty rebates (exclusivity payments) and rejecting its application to other practices, including exclusive dealing. This is for example the approach the Commission adopted in its 2019 Google AdSense decision.
This approach of the Commission is problematic and hard to support as a matter of law. The Servizio judgment makes it even harder for the Commission to stick to that approach, in that the Court explicitly extended paragraphs 138 and 140 of Intel (2017) to all exclusionary practices. This has two implications, one procedural and one substantive:
- First, the procedural guarantees of Intel (2017) apply to all exclusionary practices and are not limited to loyalty rebates.
- Second, where the dominant undertaking submits, on the basis of evidence, that its conduct was not capable of restricting competition, the Commission cannot rely on a formalistic analysis to condemn conduct under Article 102 TFEU. In such case, the competition authority must examine – the burden being on it – whether, in the circumstances of the case, the conduct in question did have a capacity to restrict competition.
Substance: absence of actual effects as prima facie evidence
The Court recalled that a competition authority is not required to establish actual effects; it suffices to show that the conduct in question was capable of restricting competition (para. 53). As AG Rantos noted, this in line with the fact that the analysis under Article 102 TFEU is prospective in nature (it does not wait for anticompetitive effects to materialize) and the fact that the anticompetitive nature of conduct is to be assessed ex ante, at the time that conduct took place, which conforms to the general principle of legal certainty (paras. 110 and 114 of the Opinion).
Along the same lines, the Court noted that when the conduct in question has been in place for a sufficiently long time, the fact that it did not produce concrete anti-competitive effects does not automatically mean that such conduct did not have such capacity (para. 54). As a result, evidence of the absence of concrete foreclosure effects is not sufficient, in itself, to preclude the application of Article 102 TFEU (para. 55).
However, the absence of actual effects may be an indication that the conduct in question was not capable of restricting competition (para. 56), and therefore did not breach Article 102 TFEU. But it is up to the dominant undertaking to supplement this prima facie evidence with evidence showing that the lack of concrete effects was indeed the consequence of the inability of the conduct to have such effects (para. 56). In the circumstances of the case, the fact that EE had obtained through the use of SEN lists a tiny percentage of customers (0,002%) in the protected market was not considered sufficient for the undertaking in question to escape liability under Article 102 TFEU.
Now, the Court did not specify what exactly the dominant undertaking should demonstrate to supplement the “prima facie” evidence, but paragraph 54 offers some clues. There the Court held that the absence of actual effects is in itself not sufficient for precluding the application of Article 102 TFEU, in that “such a lack of effects could result from other causes and be due, inter alia, to changes in the relevant market since the conduct was initiated or the inability of the dominant undertaking to carry out the strategy which gave rise to the conduct”. Combined with para. 56, this suggests that a dominant undertaking would have to demonstrate that the lack of actual effects could not be attributed to external factors such as subsequent changes in the relevant market. This places the investigated company in a rather awkward position, in that it bears the burden of proving a negative fact (the infamous probatio diabolica).
Overall, I think the approach in Servizio should be seen as an effort of the Court to strike a balance. On the one hand, a dominant undertaking cannot escape liability merely by pointing to the absence of concrete effects in the market. On the other hand, the competition authority cannot on its part disregard such evidence; it has to carefully examine it, and in any event bears the burden of showing that the conduct was capable of restricting competition, in line with Intel (2017).
Interestingly, an attempt to strike a similar kind of balance can be found in the General Court’s judgment in Google Shopping, delivered last year (see here for our analysis). Among others, Google had relied on the General Court’s ruling in Servier (an Article 101 TFEU case) to argue that when the conduct has spanned many years, the Commission cannot merely demonstrate potential anticompetitive effects, but has to show actual effects. The General Court dismissed Google’s arguments, holding that the categorisation of practice as abusive cannot be altered by the fact it ultimately did not achieve the desired result (para. 442, citing TeliaSonera, and as regards the duration of the conduct, Telefonica Espana). Even so, the General Court considered that the lack of actual effects may indicate that the conduct in question was not capable to restrict competition in the first place. Therefore, if the undertaking in question relies on the absence of actual effects to contest the conduct’s ability to harm competition, Intel (2017) is triggered, and the competition authority “must analyse all the relevant circumstances in order to decide what the position is” (para. 439).
Stay tuned for Part II of this post!
Photo by Anthony Indraus on Unsplash
