This month’s CLIP is the opinion delivered by Advocate General Rantos (AG Rantos) in Servizio Elettrico Nazionale (Case C‑377/20).
The case concerns the liberalisation of the Italian electricity market and more specifically, the fact that ENEL (the incumbent operator) had transferred customers to its liberalised market operator using data it had acquired from its monopoly position prior to liberalisation of the market. In doing so, it is alleged that ENEL was able to prevent the loss of customers to other liberalised market operators.
The opinion is delivered in response to the request for a preliminary ruling from Italy’s Consiglio di Stato on the interpretation of abuse of dominance under Article 102 TFEU.
While the context is rather specialised, the opinion is highly significant for its discussion of the difficult concept of ‘competition on the merits’ (deviation from which by dominant undertakings is liable to result in a finding of abuse).
AG Rantos’ opinion addresses three main questions. Of these, the first yields the most ground-breaking response:
- Can conduct that is lawful under other branches of law still be deemed ‘abusive’ under competition law and can conduct be considered abusive solely on the basis of an exclusionary effect in the relevant market?
The basic answer (‘yes’, in case you were wondering), is no surprise. Those familiar with competition law cases relating to the use of intellectual property rights will be familiar with the way that competition law can apply to conduct which is otherwise lawful when carried out by non-dominant companies.
In this instance, ENEL may have acquired the data lawfully, but this would not preclude the acquisition being deemed abusive if it did not amount to competition on the merits, given ENEL’s dominant position. As AG Rantos points out, it would be extremely difficult to establish abuses of dominance if practices considered lawful under other branches of law could not be found to be anticompetitive. This would compromise the objective of Article 102 itself.
This introduces the most critical point of AG Rantos’s opinion, which deals with the vexed question of distinguishing between lawful competitiveness and unlawful conduct. As AG Rantos observes, the plethora of abstract expressions that are used in seeking to make that distinction – including “competition on the merits”, “normal competition” and “fair competition” – is indicative of the difficulties.
These broad concepts have long been fundamental to the flexibility of Article 102 as a legal instrument for controlling multifarious conduct by dominant undertakings. However, their flexibility is also a source of uncertainty, and in some cases may result in an unduly risk-averse approach by companies that may have market power. Against that background, AG Rantos’ attempt to provide some more colour to these critical issues is very welcome.
AG Rantos links the concept of “competition on the merits” (his preferred term) to the “special responsibility” to which dominant companies are subject, and which requires them not to act in a way that impairs genuine undistorted competition. At the same time, such companies are also entitled to take their own commercial interests into account. Any assessment of their conduct must take account of the factual, legal and economic context and is not a merely formal exercise. So far, so familiar.
However, AG Rantos seeks to develop the concept by reference to examples of conduct which will amount to competition on the merits (such as conduct leading to better prices, quality and innovation for consumers) and those which do not (those which are not based on ‘obvious economic or objective reasons’). Even dominant companies are entitled to act to maximise profits and retain or win customers. Generally, where exclusionary practices can be recreated by competitors in a “economically viable way”, the conduct will not cause anticompetitive foreclosure and is therefore likely to be classified as competition on the merits.
AG Rantos’s discussion of the principles is tremendously helpful. However, challenges in applying those principles remain. Paradoxically, this emerges from AG Rantos’s own assessment of the conduct at issue in this case. The Advocate General notes that ENEL’s collection of data from existing customers (with the aim of winning their continued loyalty when the market was liberalised) is ‘in principle’ normal conduct. Acting to retain a customer base is a competitive act, so a ‘strategy’ to do so therefore cannot be an abuse for the purposes of Article 102. That suggests that the analysis should end there. However, AG Rantos goes on to suggest that practices which exploit advantages stemming from a position on the market (as a former statutory monopolist, ENEL of course held a very privileged position) can be abusive where they have exclusionary effects on new competitors which are as efficient as the dominant undertaking. AG Rantos makes clear that considerations of the scope for ‘as-efficient competitors’ to compete apply equally in the context of non-price abuses as to price-related exclusionary conduct. The concept is more commonly referred to in the context of pricing abuses, but the Advocate General’s analysis makes clear that it also underlies previous non-pricing cases, such as where access is sought to an asset such as a distribution network (the exemplar case being Oscar Bronner). A key consideration is whether such competitors are able to replicate the practice in question, if not to duplicate it exactly. And from the perspective of legal certainty, it is also relevant that a legal test of this kind is something that the dominant undertaking may be better able to assess from an ex ante viewpoint.
The opinion goes on to deal with two further questions:
- Is Article 102 TFEU aimed at prohibiting anticompetitive effects on the structure of the market or harm to consumers?
- In order to establish an abuse of dominance, is it necessary to establish an undertaking’s subjective intention to exclude competition?
AG Rantos is able to draw on existing case law for the responses to these questions. Regarding the goals of Article 102 TFEU, AG Rantos refers to Post Danmark I and stresses that protecting the goals of both the competitive market structure and consumer welfare are not mutually exclusive but are closely linked. Whilst consumers may be harmed directly through certain exploitative abusive practices, consumer welfare is the “ultimate purpose that justifies the intervention of competition law” where exclusionary practices are concerned.
Regarding intent, AG Rantos reiterates the general position of the Court that an abuse of dominance is an objective concept and that under Article 102 TFEU, there is no requirement to establish any anticompetitive intent. The considerations elaborated in response to the first question relate to how to distinguish between aggressive but legitimate competitive conduct, and conduct which harms normal competition. However, any clear proof of intent will of course be a relevant factor in assessing an exclusionary strategy.
Although not legally binding, some Advocate General Opinions can be as far-reaching as any CJEU judgment. Many would include in such a list AG Jacobs’ influential opinion in Oscar Bronner which, in the words of competition law scholar Valentine Korah, “stemmed the tide” of obligations on dominant companies to supply their competitors (see here). This opinion is also likely to be a touchstone for future assessments of whether dominant undertakings are competing on the merits, in particular for non-price related abusive conduct. The aspiration that companies should be able properly to self-assess before they act has been neglected for too long, and it is to be hoped that the Court will appreciate the significance of this element of AG Rantos’s opinion for legal certainty.