Dominance abusers to get stiffer treatment in EU’s new guidelines

1 August 2024
By Lewis Crofts and Nicholas Hirst

Dominant companies engaging in exclusive dealing, aggressive pricing and certain forms of tying will face a stiffer test to fend off EU competition enforcers, now the European Commission has unveiled draft guidelines designed to draw clearer categories of harmful conduct.

The 55-page overview of dominance law will be contentious among large companies, which have pushed the EU regulator to prove — and not just presume — their behavior hurts competition. The onus will now be on them in certain cases to show their conduct doesn’t hurt rivals.

The current review is an attempt to plot a path through two decades of court judgments, where judges have dented some EU cases and demanded a high level of proof. Ultimately, the new approach unveiled today will still be down to the EU courts to confirm or contradict. 

The commission’s big move today was to put swaths of corporate conduct into a pot marked “presumptively harmful,” making it easier to convict and harder to justify. This goes for exclusivity deals, rebates that are conditional on exclusivity, predatory pricing, margin squeezes and some instances where products are bundled together.  

Here, companies can try to justify their behavior by submitting evidence to show the presumption doesn’t hold water. But the commission today is signaling: don’t get your hopes up. 

One level further down the ladder of corporate sin is another pot reserved for even worse conduct. Here, the commission reckons rebutting the presumption is nigh on impossible. 

Here dwell corporate strategies that have no justification other than to harm competitors. This could be destroying infrastructure or paying a customer to drop a rival’s products. 

Today’s guidelines, which relate to conduct excluding rivals, try to sweep up all that conduct and say: try it at your peril.

On the merits

In the commission’s telling, there are two analytical steps to determine an abuse. First, does conduct depart from competition on the merits; second, could it push rivals out of the market?

The idea that an abuse involves a dominant company going beyond what would be normal competitive behavior to fend off rivals has been prominent in recent case law, but rarely been codified. The draft guidelines represent the watchdog’s first attempt to really break down what that means. 

It says that conduct falling foul of specific tests down by judges — for example, on predatory pricing — is by definition not “on the merits.” The same goes for behavior that lacks “economic interest” for the dominant company, such as naked restrictions. 

Examples of dominant companies deviating from competition “on the merits” include providing “misleading information to administrative or judicial authorities or other bodies,” or violating other bodies of law to gain a competitive advantage. 

The first is a nod to a 2005 commission case against AstraZeneca, which was upheld by the EU’s top judges, and the second references a court ruling in a case opposing Germany’s antitrust watchdog and Meta Platforms. 

In 2021, the commission’s sanction against Google Shopping was upheld by the EU’s lower court. That case provides two examples of merit-less competition: Self-preferencing and “changes [from] prior behavior in a way that is considered as abnormal or unreasonable.”

As-efficient competitors

The enforcer can also run an economic test, looking at whether the dominant company’s behavior would exclude a strong rival, or an as-efficient competitor (AEC). If confirmed, that would not be competition on the merits. 

But the AEC test has been problematic for the commission. It has underpinned court losses, and, in the new guidelines, officials try to curtail its place in their assessment. They say the AEC principle is a principle like any other, with no preferential standing, and it plays a role only in limited circumstances. 

As regards the test — economic number-crunching that looks at costs and prices — the commission will steer clear of such mathematical jousting. Instead, it will prefer to rely on other factors. 

For example, in 2009 the regulator used the test in its prosecution of Intel over exclusivity rebates, but now it believes that such a test isn’t needed. For other probes, such as predatory pricing, the commission gives guidance on what such a test should look like. 

While companies can still submit their own test, the commission’s message is clear: we think the AEC test plays a very limited role. 

Objective justifications

Of course, it is possible — at least theoretically — to justify the behavior. 

One way is to show that the harm is outweighed by “advantages in efficiency that also benefit consumers.”

But the guidelines make it clear that the stronger the presumption against the behavior, the more skeptical it will be of any attempt to show efficiencies. 

The second way involves showing that the behavior in question was necessary to achieve another goal, whether it’s protecting a legitimate commercial interest, a technical requirement, or public health or safety. 

“It is not the dominant undertaking’s task ... to eliminate products which, rightly or wrongly, it regards as dangerous or as inferior in quality to its own products, nor more generally to enforce other undertakings’ compliance with the law,” the commission warns.

In what may be a surprise to antitrust purists, the commission says that “resilience” can qualify as a public interest that a dominant company can cite when making an “objective necessity defense.” 

It would need to show “that the conduct contributes to the Union’s resilience as it is necessary to reduce dependencies and mitigate shortages and disruptions in supply chains,” the draft guidelines say. 

That footnote seems to be a nod to the wider European priorities and concerns of recent years relating to economic security. How easy it is for companies to invoke in practice remains to be seen.

General principles

The draft guidelines will be read closely because they amount to the first time the commission has tried to fully establish and explain its view of the law for one of its most powerful tools. Its previous incarnation — the Guidance Paper of 2009 — was a lesser document and one that generated contention at the courts and companies, and inside the regulator itself. 

Today’s document crystallizes some key principles that may have been the commission’s long-voiced policy, but hadn’t yet been put down in black and white in an official document open for interpretation by judges.

The regulator explains that it believes the key test is whether conduct is “capable” of excluding competitors, and that it doesn’t have to link those potential effects just to a specific behavior. So long as the company’s conduct is one plausible scenario, then that is enough. 

It also explains that any potential effect is enough. It doesn’t have to clear a certain threshold of how serious it may be. 

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