DG COMP Article 82 EC review

1. DG COMP Article 82 EC review Rita Wezenbeek DG Competition European Commission

2. Discussion paper • Published on 19th December 2005 • Public consultation untill end of March • DG COMP hopes for serious and wide debate on paper • Paper concerns exclusionary abuses only; exploitative abuses and discrimination follow at later stage.

3. Review of Article 82 • More systematic and transparent approach will clarify policy and facilitate consistent approach throughout EU • Continuation of work done in other areas • Vertical restraints BER + Guidelines • Horizontal Guidelines; • Article 81 (3) Guidelines; • Technology transfer BER+ Guidelines; • Horizontal Merger Guidelines

4. Making it operational • In economic law, a trade-off between different objectives is generally required: • Identifying the effects of individual case; • Establishing clear-cut and predictable rules and • Delivering results within reasonable time limits.

5. Art. 82: ‘Form based approach’vs ‘effects based approach’ • Form based approach: risk of certainty at too high a cost of false positives and false negatives • ‘Pure’ effects case by case approach: may provide correct outcome in each case but risk of uncertainty and too (s)low enforcement Conclusion: • Need a combination- elements of form and effect and a fair division of the burden of proof to ensure operational rules • Rules anchored in economic principles to help consistency and predictability

6. Central framework exclusionary abuses • Essential objective of 82 is to protect competition as a means to protect consumer welfare • Central concern is foreclosure that hinders competition and thereby harms consumers • Protection of competition, not protection of competitors against competition • Equal right of dominant firms and of residual competitors to compete on the merits

7. Structure of proposed appraoch • General framework • Individual categories of abuse • More specific concerns and criteria • Operational crfiteria justifying presumptions Possibility to rebut presumptions • Defences

8. General analysis • Does conduct have capability to foreclose? • Investigate form and nature • Does it have a likely or actual market distorting foreclosure effect? • Incidence; • Degree of dominance • Networkeffects? • Economies of scale/ scope? ‘Sliding scale approach’ • Exception for conduct which creates no other benefit than that it raises obstacles to residual competition.

9. Application to price based abuses Predation, loyalty rebates, mixed bundling • Inefficient competitors should normally not be protected by competition law • Only exclusion of “as efficient” competitors abusive • Normally costs of dominant company benchmark for competition on the merits • More dynamic approach to also include “potentially efficient” firms? (i.e. new entrants, still expanding firms, economies of scale, learning curve, incumbent advantages, etc.)

10. Defences • Objective necessity • constraint that applies to all undertakings in the market • is the prima facie abusive conduct actually necessary on the basis of objective factors external to the dominant company? • ‘Meeting competition’ • dominant company may defend its own commercial and economic interests in the face of action taken by certain competitors • conduct that may seem abuse is actually a loss minimising reaction to competition from others • suitable, indispensable and proportionate • ‘Efficiencies’

11. Efficiency defence • Efficiency defense needed since same conduct can be both efficiency-enhancing and restrictive (all effects approach) • No exemption possible: Successful efficiency defense must lead to conclusion that conduct is not abusive • Consistency required with analytical framework of Art. 81(3) and merger control

12. How does it work? • Single branding • Form and nature: capability to foreclose, unless rivals can curb and counter loyalty effect; • Incidence: • Percentage of ty • Tied market share • Selective buyers • Right to terminate at short notice?

13. Tying and bundling • In general: approach developed in case law and decision practice • Mixed bundling: price based behaviour • Can as efficient competitor compete?

14. Refusal to supply/license • De novo requests for supply • Bronner and IMS framework • Terminations of existing relationships • Likely market distorting foreclosure effect • Both situations • Negative impact on incentive to innovate as possible objective justification

15. Consequences for Nat. Courts? • No radical shift in policy→ Discussion paper presents analysis of harm to competition and consumers on basis of sound economic assessment; • Aim is not to end enforcement of Article 82; • New policy will invite Courts to ask the right questions and consider arguments/evidence based on economic effects; • Identifies circumstances which justify assumption of abuse and which may rebut assumption; • Identifies general assessment criteria for specific categories of conduct in case assumptions cannot be made.

16. Conclusion Do participate in the consultation!