The Court of Justice of the European Union clarifies by way of preliminary ruling the assessment of “competitive disadvantage” for finding abusive discrimination
- Prior to CJEU’s recent clarification, legal doctrine criticized the approach of competition authorities and courts, which often tended to limit themselves to assuming the existence of a competitive disadvantage (which is a requirement for finding abusive discrimination) from the mere existence of dissimilar conditions applied to equivalent transactions, or performed only a scarce analysis.
- The CJEU preliminary ruling of 19 April 2018 in C-525/16 (MEO) clarifies that discriminatory pricing is not sufficient for finding an abuse, the authority being required to show that the conduct tends to distort competition, taking into account all the relevant circumstances of the case in order to assess the “competitive disadvantage”.
- Following the lines drawn by the Advocate General Wahl in its Opinion, the Court states that “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”, providing useful guidance as to the frequent question on how likely charging different prices would in itself be likely to amount to an abuse of dominant position.
The Facts of the Case in the Main Proceedings
The request for preliminary ruling was made in the course of proceedings between MEO, an entity which provides paid television signal transmission service and television content, and the competition authority in Portugal concerning the latter’s decision to take no further action on MEO’s complaint against GDA, a non-profit-making collecting cooperative which manages the rights of artists and performers, concerning an alleged abuse of a dominant position.
The alleged breach consisted in principle in a discrimination in the amount of the royalty which GDA charged MEO. During the investigation, the competition authority found that, between 2009 and 2013, GDA applied different tariffs to MEO as compared to its competitor, NOS. Relying on the costs, income and profitability structures of the retail offerings of the television signal transmission service and television content, the authority considered that that tariff differentiation had no restrictive effect on MEO’s competitive position.
The main view of the authority was that in order to establish an infringement of paragraph (c) of Article 102 TFEU, any price discrimination must actually be capable of distorting competition on the market by putting one or more competing undertakings at a competitive disadvantage compared to the others. Such a position was challenged in court by MEO, which argued that the competition authority should have examined whether the conduct at issue was capable of distorting competition rather than examining whether there had been any significant and quantifiable distortion of competition.
The Request for a Preliminary Ruling
In this context, the Court was called to assess:
- whether the concept of ‘competitive disadvantage’ requires an analysis of the specific effects of differentiated prices being applied by an undertaking in a dominant position on the competitive situation of the undertaking affected and
- whether the seriousness of those effects should be taken into account (so-called de minimis threshold).
The Court’s Preliminary Ruling
The Court’s preliminary ruling restates some of its already existing case law and also clarifies the path in further understanding Article 102:
- discriminatory pricing is not sufficient for finding an abuse, the authority being required to show that the conduct tends to distort competition;
- “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” (as Advocate General Wahl also pointed out in its Opinion);
- in order to show that the conduct tends to distort competition, it is necessary to examine “all the relevant circumstances” in order to determine whether price discrimination produces or is capable of producing a competitive disadvantage (as Advocate General Wahl also pointed out in its Opinion);
- thus, one should assess the undertaking’s dominant position, the negotiating power as regards the tariffs, the conditions and arrangements for charging those tariffs, their duration and their amount, and the possible existence of a strategy aiming to exclude from the downstream market one of its trade partners which is at least as efficient as its competitors (criteria also put forth in Intel case);
- as to fixing an appreciability (de minimis) threshold for the purposes of determining whether there is an abuse of a dominant position, the Court stated this “is not justified” (restating previous case-law – Post Danmark).
Additional Guidance from the Court Given the Specific Facts in the Main Proceedings
- where the effect of a tariff differentiation on the costs borne by the operator, or on the profitability and profits of that operator, is not significant, it may, in some circumstances, be deduced that that tariff differentiation is not capable of having any effect on the competitive position of that operator;
- in a situation where the application of differentiated tariffs concerns only the downstream market, the undertaking in a dominant position, in principle, has no interest in excluding one of its trade partners from the downstream market.
In conclusion, the CJEU preliminary ruling in MEO case clarified the interpretation of Article 102, shedding more light on how dominant companies should design their pricing policy and on how competition authorities and courts should tackle abuse of dominance cases in the form of discrimination.