Konstantinos
Sidiropoulos
DPhil
Candidate at University of Oxford – Prof Steve Weatherill
Foundation
for Education and European culture scholar
Introduction
There
has been an intense debate around the optimal standard regarding abuse of
dominance control in the EU. In an attempt to address the multiple complaints
against the approach adopted to unilateral conduct control, in the early 2000s,
the European Commission initiated a review of the law and practice of the
relevant provision (see the EAGCP
Report and the Discussion
Paper). The recurring objective of the
review was to inject more economic thinking into the enforcement of what is now
Article 102 TFEU (see e.g. here
and here).
In this context, the ‘traditional form-based analysis’ of the EU Courts was
contrasted to a allegedly superior ‘more economic approach’ to abuse of
dominance.
In December 2008, the Commission adopted a guidance
paper declaring its enforcement priorities when dealing with exclusionary
abuses under Article 102 TFEU (‘Enforcement
Priorities Paper’). This represents the
culmination of the debate that crystalised the Commission’s modern approach to
abuse of dominance control.
Legal Status
The
Enforcement Priorities Paper is a soft law instrument of sui generis nature which is said to operate as a statement of
prosecutorial discretion. The said paper is of sui generis nature with regard to both its form and its substance.
From a formal perspective, it is a ‘novel
instrument’ in that it has not been adopted in the form of a Notice or of
Guidelines, but as a Communication containing ‘guidance on enforcement
priorities’. This is neither a legal act envisaged in Article 288 TFEU nor an
instrument recognised by the case-law as containing ‘rules of practice’ (see
e.g. Dansk
Rørindustri at para 209).
Inevitably, this raises doubts as to whether the Priorities Paper may be taken
into consideration pursuant to the Grimaldi
judgment (para 18).
The Priorities Paper is also a
novelty from a substantive perspective. Its content is said to be about
enforcement priorities, and not about substantive guidelines, i.e. it allegedly
explains where the Commission will focus its resources rather than interpreting
the law (paras 2-3). This label is due to the fact that the Commission was
restricted by the EU Courts’ jurisprudence in its attempt to evolve its policy
with regard to Article 102 TFEU. Producing substantive guidelines was not an
attractive option, because this would mean that it could do no more than
describe the current state of the law (see the European Parliament’s report
at points K, L and N), and this would stand at odds with the Commission’s economics-based
agenda. Under these circumstances, the adoption of a document that would claim
to set enforcement priorities was seen as a wise way for the Commission to
suggest that the existing law is unsatisfactory, while not directly challenging
the interpretation of the jurisprudence.
At a superficial level, the constitutional question
of whether the Commission has the authority to indicate ex ante which categories of practices it will prioritise when
enforcing Article 102 TFEU was answered in the affirmative, by virtue of the
judgment in Automec,
where the GC held that ‘setting priorities within the limits prescribed by the
law […] is an inherent feature’ of the
Commission’s administrative activity (para 77). Nevertheless, Automec cannot be regarded as an
authority for the adoption of the Enforcement Priorities Paper for two reasons.
To start with, its title is misleading because nothing is really prioritised.
The Priorities Paper is drafted as substantive guidelines and mentions all the
categories of exclusionary conduct that have been found to be abusive in the
jurisprudence. Additionally, the recognition by the EU Courts of the
Commission’s discretion to prioritise cases is not unlimited. Above all, the Commission must act within the
limits prescribed by the law; it must respect, inter alia, the interpretation given to Article 102 TFEU by the
CJEU, since the latter is entrusted with the monopoly in the interpretation of
EU law by virtue of Article 19(1) TEU in conjunction with Articles 267(3) and
344 TFEU. In this connection, the Priorities Paper is inconsistent with the
case-law in several respects.
Consequently, the Priorities Paper is not about
setting priorities in the way that it is understood in Automec; it is about providing substantive guidelines. Neither the
caveat in para 3 of the Priorities Paper which states that it ‘is not intended
to constitute a statement of the law’ nor the title of the document may affect
this conclusion. Moreover, the attempt by certain distinguished lawyers in the
Commission to reshape the objective of the Commission’s review, arguing that
the case-law and the Priorities Paper do not overlap (see e.g. here
at p. 7), is not persuasive.
Even so, the Priorities Paper is deprived of legally
binding force. Nonetheless, it could be argued that, being a soft law
instrument, it stipulates ‘rules of conduct which are designed to produce
external effects’ according to the Archer Daniels Midland judgment (para
91). These effects comprise two interrelated aspects, namely that they operate
as instructions on the Commission’s administrative practice, and that the
Commission cannot depart from these soft rules in an individual case without
giving reasons for doing so. However, two aspects of the Priorities Paper
prevent it from producing the legal effects of all other soft law instruments.
First of all, it departs from the case-law. For such a non-binding text to
produce legal effects, not only must it be in conformity with primary and
secondary EU law (see e.g. Dansk
Rørindustri at para 252),
but it must also be consistent with established jurisprudence (see e.g. Dansk
Rørindustri at para 261).
Secondly, the CJEU recognises legal effects to soft
law instruments only to the extent that this serves the promotion of the
protection of legitimate expectation and the principles of equal treatment and
legal certainty (see e.g. Dansk
Rørindustri at para 211). The Priorities Paper however does not produce
legitimate expectations and is unable to serve the principles of equality and
legal certainty. To start with, it cannot give rise to legitimate expectations,
since it does not give precise assurances that a firm’s conduct will go
unpunished if it does not fall within the scope of its provisions (para 3).
Reliance on the principle of the protection of legitimate expectations is
unacceptable if no precise assurances are given by the authorities that they
will act in a particular way (see e.g. the GC’s judgment
in Intel
at paras 161-166). In addition, a dominant firm cannot invoke the right of
equal treatment to protest that the Commission did not focus its resources on
pursuing another’s firm exclusionary behaviour, because the announcement that
intervention against certain practices will be an enforcement priority does not
imply the lawfulness of other behaviours that have been found to infringe
Article 102 TFEU according to the case-law. Finally, the Priorities Paper fails
to serve the principle of legal certainty; if anything, it has led to more
confusion than clarity.
All in all, the Priorities Paper has
no particular legal status. It has no binding legal force, and cannot produce
any legal effects either, because it does not serve the enforcement of any of
the general principles of EU law. Therefore, neither the Automec judgment nor the Grimaldi
judgment may act as authorities for the Priorities Paper to be taken into
consideration, since it does not meet the requirements laid down in either of
them.
Practical Significance
Despite
the fact that the Priorities Paper lacks legal status, it may still be of
decisive practical significance. In fact, the tension between its content and
the case-law may be irrelevant for the undertakings and their legal advisers
when deciding to consult it. This is because it indicates the Commission’s
threshold for intervention. From a practical standpoint, if the Commission
decides to pursue cases on the basis of a particular test, companies and their
legal advisers would immediately attempt to understand it and bring themselves
into line with it.
Nevertheless, the practical
significance of the Priorities Paper is obscured for several reasons. First,
there are few bright-line rules. The principles are subject to significant
exceptions, which are not sufficiently explained. Second, the paper provides no
safe-harbours, which in turn reduces the overall level of guidance that it
provides. Third, the purpose of guidelines is to enhance transparency and
accountability, provide a clarification of the law, ensure consistency of
enforcement and increase legal certainty (see e.g. Tréfilunion
SA v Commission at para 142). This purpose was disregarded by
the Priorities Paper, which is couched in terms of theoretical economics with
minimal awareness of the practical consequences for companies. Finally, the
Commission itself does not comply with its ‘guidance’ (see the Intel
decision).
Compatibility with the
Principle of Loyal Cooperation
The
principle of loyal cooperation lies at the heart of the European integration
process, and the CJEU has from an early stage recognised it as being a general
principle of Union law (see e.g. the ERTA
judgment at para 87). The principle governs
the entire Union competence, including competition policy (see e.g. Case C-344/98 Masterfoods at para 56).
Moreover, as the post-Lisbon Treaty formulation emphasises, the principle of
loyal cooperation has a mutual nature (Article 4(3)(a) TEU), and governs both
the relations of the Member States with the EU institutions, and the relations
between the various EU institutions (Article 13 TEU).
The adoption of the Priorities Paper, as well as its
content, run counter to both these manifestations of the principle of loyal cooperation.
Loyalty
Between the EU Institutions
To
the extent that the Commission’s new approach to abusive exclusionary conduct
is incompatible with the case-law, the Commission disregarded its duty of
loyalty toward the CJEU. By derogating from established jurisprudence by means
of guidelines, the Commission exceeded the limits of the powers conferred on it
by the Treaties. Thus, it did not practise mutual sincere cooperation as
required by Article 13(2) TEU. Additionally, the choice of the Commission to
name the document ‘enforcement priorities’ aggravates its infringement, in the
sense that it was a manœuvre aiming
at relaxing the tension between the approach adopted in the Priorities Paper and
the one followed in the case-law.
Likewise, the Commission disregarded the principle
of sincere cooperation as regards its relations with the Council. Specifically,
the Commission’s Priorities Paper functionally amended the framework of Article
102 TFEU in several respects, thus circumventing the Council’s legislative
responsibility in the area of competition law (Articles 103(1) in conjunction
with 289(2) and (3) and 290(1)(b) TFEU). The Commission requires delegated authority
to adopt acts in this area, which may only concern non-essential issues
(Article 290(2) TFEU). Otherwise, the Commission acts ultra vires, contrary to Article 17 TEU, which sets out its
responsibilities. In this context, the Commission also breached the principle
of institutional balance.
Loyalty
Between EU Institutions and Member States
The
Commission also violated the duty of sincere cooperation in the context of its
relations with the Member States. This is so, despite the fact that the
Commission states in the Frequently
Asked Questions accompanying the
initial adoption of the Priorities Paper that the said paper has been discussed
extensively with the NCAs (question 9).
This is because of the parallel competence that the
Commission, the NCAs and the national courts share as regards the application
of Article 102 TFEU (Articles 4-6 of Regulation
No 1/2003), which entails that they must
apply the relevant rule in close cooperation in order to avoid inconsistent
and/or contradictory decisions (Articles 11(1) and 15 of Regulation No 1/2003).
As such, in principle, NCAs and national courts must take the Priorities Paper
into account (see Grimaldi at paras
18-19; Commission
Notice at para 8). Yet, they must respect
the EU Courts’ case-law pursuant to the principle of supremacy of EU law. Therefore,
NCAs and national courts may take into account the Priorities Paper exclusively
to the extent that its approach is in conformity with the CJEU’s jurisprudence.
As if that situation were not complicated enough, the hybrid approach that the
Commission follows in its post-Priorities Paper decisional practice further
perplexes things, since NCAs and national courts cannot take decisions running
counter to Commission decisions (see Article 16 and recital 22 of Regulation No
1/2003). This state of
uncertainty endangers the uniform application of Article 102 TFEU at the
national level.
Compliance with Fundamental Rule-of-Law Principles: Analysis of
Rebates as an Example
Even
more disturbing is the content of the Enforcement Priorities Paper, which at
times does not integrate economic and legal analyses in a manner that would
ensure compliance with fundamental rule-of-law principles, such as the legal
certainty and the nullum crimen, nulla
poena sine lege principles (Article 49 CFREU; Article 7 ECHR). The
observance of these principles is of utmost importance in the context of the
enforcement of Article 102 TFEU, which is performed through fines that may be
skyrocketing, as was the case in Intel.
The Priorities Paper’s approach to
rebates granted by dominant firms offers a prime example of this (see paras
37-45). The ‘as-efficient competitor’ test (‘AECT’) advocated in that paper for
the assessment of rebates is the epitome of a purely theoretical economic tool;
although it is a sophisticated test which is grounded on robust economics, it
cannot have any practical functionality (for a list of objections against this
test, see here).
In other words, it is a perfect test on paper that makes perfect sense with
perfect numbers. The problem, however, is that there is no such thing as
perfect numbers.
For instance, this test requires a
dominant firm to estimate ex ante the
units that its client would potentially purchase from its competitors. The only
possible way to do this is to ask its client, who is very likely to mislead the
dominant firm. Similarly, under the test proposed by the Priorities Paper, a
dominant firm must evaluate ex ante
the pricing and range of products that a competitor has the capacity to
produce. This depends on information on rivals’ costs and sales, which the
dominant firm cannot be expected to possess. Furthermore, the AECT is assuming
a single competitor and a single customer. But what if the dominant firm has,
for example, thirty competitors; is the dominant firm required to conduct this
complex analysis thirty times for each of its clients? This would be an
impossible task. Hence, this test can only operate in retrospect and with
access to confidential information. It is an unworkable test for a company that
attempts to self-assess its practices.
It appears that the Commission, in
its zeal for injecting more economic analysis into the enforcement of Article
102 TFEU, was oblivious to the absurdity of bestowing a self-standing role for
economics in the interpretation of this provision. Indeed, any argument in
favour of a more economic approach to abuse of dominance is vulnerable insofar
as it is not properly integrated with legal reasoning. In this connection,
legal reasoning is, by definition, about categorical thinking, and hence,
formal. Only formal rules can ensure that Article 102 TFEU will be enforced properly
in light of its goal, namely the maintenance of effective competition within
the internal market. Indeed, effective competition can only exist if the
players in the market act in an environment where they can assess in advance
and at reasonable cost whether their conduct violates Article 102 TFEU.
All in all, no matter how
theoretically sound the economic arguments for using the AECT may be, this test
is not appropriate for the assessment of rebates under Article 102 TFEU. This
is, inter alia, because the test fails
to guarantee the observance of fundamental legal principles.
Conclusion
Overall,
the Enforcement Priorities Paper is flawed, both constitutionally and as a
matter of substance. Constitutionally, the Commission does not have carte blanche as regards the
interpretation of Article 102 TFEU; that is, the Commission is constitutionally
incompetent to alter the interpretation given to the law by the CJEU. Thus, the
Commission, by adopting the Priorities Paper, acted outside its remit and
breached a plethora of general principles of EU law. Moreover, the Priorities
Paper’s approach to rebates illustrates that its substantive analysis is
incompatible with fundamental rule-of-law principles. In this connection, the
selected title cannot remedy or conceal these deficiencies. It seems to me that
keeping the Priorities Paper alive would be akin to contempt of the CJEU and would
cause unnecessary confusion.
Barnard & Peers: chapter 17
