ABSTRACT
The paper explores the complex legal environment that surrounds refusal to deal under EU law, focusing on the differences between constructive and outright refusal. While constructive refusal builds restrictions that effectively prevent competitors from operating downstream, outright refusal indicates a company’s unilateral refusal to engage in transactions. The EU makes clear that margin squeeze and tying are two different types of abuses. Self-preferencing, or favoring one’s own products above competitors’, is defended by claims of property protection and contractual freedom. The indispensability requirement, which is crucial in evaluating outright rejections, is contested; the EU court has determined that it is not always necessary in specific situations involving access restrictions. This strategy is criticized, meanwhile, for being inconsistent and having the ability to discourage investment incentives.
INTRODUCTION
Situations, where a firm discriminates in favour of its products to the detriment of its rivals, must be defined as self-preferencing and is a form of refusal to supply and should be treated the same way. The EU commission must consider that the guidance paper on Article 82 of the treaty is not meant to be a legal declaration and does not affect how the European Communities Court of Justice or Court of First Instance would interpret Article 82. Furthermore, the broad structure outlined in the text does not affect the Commission’s ability to reject a complaint if it determines that it is not in the best interests of the community and that the matter is not prioritized.
In order to assess whether situations, where the dominant company is self-preferencing, can be treated equally to an outright refusal, the EU courts must take into consideration the forms of self-preferencing taking place. The comission must also consider the benefit of consistency derived from the non-application of differential principles in cases of refusal to deal. RCA must also take into consideration the end idea of balancing competition and promoting innovation and incentives. This comes from the criterion of indispensability which guarantees the dominant firm the freedom of innovation and such freedom should not be restricted in case of self-preferencing or constructive refusals. Lastly, RCA must rely upon the fact that it is the indispensability criterion that provides dominant firms an incentive to innovate and invest and it remains essential for the indispensability criteria to be proven even in cases of constructive refusal to supply in order to preserve the incentive to innovate.
MAIN ARTICLE
The term outright refusal to deal has been understood as direct and complete denial to deal by a firm. On the contrary, a situation of constructive refusal to deal/supply would mean that a firm makes it practically impossible for its rival to operate downstream. In situations where a dominant firm consistently delays its deliveries, and degrades the quality of its inputs, differential and increased price for inputs to its rivals would constitute a constructive refusal to deal. The EU law has clarified that situations of margin squeeze and tying be treated as a separate form of abuse and not be categorized under any of the refusals as mentioned earlier.
However, situations, where a firm discriminates in favor of its products to the detriment of its rivals, defined as self-preferencing may also be backed by reason of (i) Freedom to Contract and, (ii) protection of private property.
The Union Courts have ruled that the indispensability criterion is not necessary in cases where the dominant firm has agreed to, or is required by regulatory obligations, to grant access to its input, as in the cases of margin squeeze (Telefónica, TeliaSonera)[1] , or it degrades the supply of the input and sets unfair terms and conditions (Slovak Telecom)[2] , or it otherwise unfairly restricts access (Google Shopping)[3] . According to the Court of Justice, the Bronner case’s indispensable criteria only applies to outright denials of supply—it does not apply to other abusive actions involving access requirements once access has already been granted[4].
Economic perspective on the application of indispensability: Numerous situations where a dominating corporation has an incentive to participate in vertical foreclosure have been recognized by economic research. These theories typically concentrate on situations in which a vertically integrated company has the exclusive right to the input, presuming that the input is necessary. However, this assumption is made for simplicity, because there are models where alternate input providers exist, even if they may be less effective. Furthermore, the existence of an upstream oligopoly is a fundamental component of the theory of harm in the “raising rivals’ costs” theory.4 12. Thus, from an economic point of view, a dominant firm can participate in vertical foreclosure, which has an anti-competitive effect, without the input having to be indispensable.
However, not only does the differential treatment of constructive refusal from an outright refusal to supply lacks consistency and run the risk of producing perverse incentives for enterprises, but it also has the potential to jeopardize investment incentives. Moreover, such differential treatment may also incentivize the firm to outrightly refuse access to the inputs as it is treated more leniently than a less exclusionary practice even though it is more restrictive.
The amended guidelines reflect that indispensability need not be proven in cases of constructive refusal to supply[5], self-preferencing, and margin squeeze. However, such an approach creates disbalance and inconsistency in the application of principles. The main rationale behind the application of the criterion of indispensability is the freedom to contract and the right to dispose of its property. The economic rationale behind the same is the preservation of incentive to invest and innovate which in most cases lies with the dominant firms, given the strong financial backbone. In such a case removal of criteria of indispensability from constructive refusal not only makes the firm obliged to share its inputs with its rivals but also gives a free–rider advantage to the rival firms to not invest in any innovations. This discourages the firm from sharing its inputs to not develop them in the first place[6].
There must be Homogenous protection to firms in all types of refusal as there lies no substantial valid justification that a firm not outrightly refusing to deal should not be given the same protection of criterion of indispensability as provided in cases of outright refusal. An effect-based approach should not treat differently any conduct that differs only in form but not in substance.
Since self-preferencing is a form of refusal to supply, it ought to be treated the same way as Similar to other forms of refusal, self-preferencing also has objective and efficiency justifications such as a delay may be backed by the reason of ensuring quality control or protection against a market negatively reputed due to the introduction of a product of any player or rival. (ii) In many situations, self-preferencing may not even have appreciable effects. Situations of delay in supply may be for a short duration time and be resolved later.
To summarize, the following conclusions can be drawn from the literature on exclusionary practices that were previously discussed: (a) the input in question for a vertical foreclosure action should be an important asset, but not necessarily indispensable in the sense of Bronner; (b) all vertical foreclosure cases, including cases involving both outright and constructive refusals to supply, should be governed by this principle.
Author : Jeevanaa .N. Rathor, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at IIPRD
REFERENCES
- Telefónica SA v European Commission, Case C-274/12 P and Konkurrensverket v TeliaSonera Sverige AB, Case C-52/09.
- Slovak Telekom, a.s. v European Commission, Case C-165/19 P, para 39
- Google and Alphabet v Commission, T-612/17
- Judgment of 25 March 2021, Slovak Telekom v Commission (Slovak Telekom), Case C-165/19 P, EU:C:2021:239, paragraphs 50-51 and judgment of 12 February 2023, Lietuvos geležinkeliai AB v European Commission, Case C-42/21 P, EU:C:2023:12, paragraphs 81-84 and 91.
- Official journal of the European union, INFORMATION AND NOTICES, Amendments to the Communication from the Commission – Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, C116 VOLUME 66, 2023, (2023/C 116/01), PG 4, PARA 4.
- Motta (2023) formalizes a model inspired by the Google Shopping case. There, the input is not essential, in the sense that a part of the user population needs access to the input, while the remaining part does not. Still, vertical foreclosure takes place and it is anti-competitive
- Communication from the Commission COMMISSION NOTICE Guidelines on vertical restraints 2022/C 248/01C/2022/4238
[1] Telefónica SA v European Commission, Case C-274/12 P and Konkurrensverket v TeliaSonera Sverige AB, Case C-52/09.
[2] Slovak Telekom, a.s. v European Commission, Case C-165/19 P, para 39
[3] Google and Alphabet v Commission, T-612/17
[4] Judgment of 25 March 2021, Slovak Telekom v Commission (Slovak Telekom), Case C-165/19 P, EU:C:2021:239, paragraphs 50-51 and judgment of 12 February 2023, Lietuvos geležinkeliai AB v European Commission, Case C-42/21 P, EU:C:2023:12, paragraphs 81-84 and 91.
[5] Official journal of the European union, INFORMATION AND NOTICES, Amendments to the Communication from the Commission – Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, C116 VOLUME 66, 2023, (2023/C 116/01), PG 4, PARA 4.
[6] Motta (2023) formalizes a model inspired by the Google Shopping case. There, the input is not essential, in the sense that a part of the user population needs access to the input, while the remaining part does not. Still, vertical foreclosure takes place and it is anti-competitive
