With reference to specific cases, outline the effectiveness of Article 82 in preventing the abuse of a dominant position.

Defining the relevant product market is the first stage in considering what amounts to a dominant market position. The second stage is determining if the undertaking has the ability to behave independently within its relevant product market and 3 criteria are used to determine this, these being: market share, structure of the market and market behaviour.

Having considered what constitutes a dominant position, it is now appropriate to look at what is considered by the Commission, as abuse of a dominant position and relate this to specific cases. The main abuses outlined in case law are refusal to supply, price discrimination, predatory pricing and joint dominance.

Looking firstly at refusal to supply, the leading case within this concept is that of Commercial Solvents. Commercial Solvents Corporation (CSC) made the raw materials for a drug, which was used to treat Tuberculosis. CSC then acquired 51% of Istituto, an Italian company which bought the raw material from CSC and sold it to a third company, Zoja. Zoja was in direct competition with CSC and Istituto. Istituto had tried unsuccessfully to take over Zoja and after this unsuccessful attempt, Istituto raised the price of the raw materials when selling to Zoja. Refusing to pay the increased prices, Zoja found an alternative source of supply from other customers of CSC. CSC found out about this practice and instructed the suppliers, supplying the raw materials to Zoja to desist from doing so. Finally, CSC discontinued supplying the raw materials altogether and only used them in their own products. Zoja tried to reorder the raw materials on numerous occasions but each time CSC refused to supply. The European Court of Justice (ECJ) found CSC guilty under Article 82 because “it specifically addresses the situation where the refusal to supply is based on a desire by the dominant firm to integrate down into the finished product market.” Commercial Solvents was fined 62 500 000 Lire.

Regarding abuse and price discrimination, the leading case is that of Hoffmann La Roche. This case is concerned with the domination of Hoffmann in the vitamin market is seven separate vitamin markets. It was the largest pharmaceutical company in the world and the alleged abuses against were varied but the one most relevant to price discrimination was the use of tying in clause in its contracts with its customers. In the contracts, the customers agreed to only purchase from Hofmann and in return for doing so were entitled to discounts. The contract also contained ‘English Clauses’, which provided that if the customer found other similar products from different suppliers at cheaper prices than offered by Hoffmann, then they should inform Hofmann in writing and ask them to ‘adjust’ their prices to match or be cheaper than their competitors. The Commission saw this to be anti-competitive because it was making Hoffmann aware of the competition and allowing them to lower prices as and when it suited them to do so. Hoffmann was fined DM 1, 098, 000 and all contracts with customers had to be terminated.

Along the same lines as price discrimination is predatory pricing which in effect is the dominant company lowering its prices by so much that it is impossible for other companies to compete and they then have to withdraw from the market. Leading case law in this area is illustrated in Akzo Chemie v Commission. Akzo was based in Holland and ECS was a small firm based in the UK. Both companies made organic peroxides (Benzoyl peroxide) which could be used in both the flour and plastics market. Originally ECS concentrated in making products within the flour market but then decided to diversify into the plastics market and in doing so solicited some of Akzo’s customers. Akzo organised negotiations with ECS and when ECS refused to withdraw from the plastics market, Akzo took aggressive action by lowering its prices in order to drive ECS out of the market. Akzo was found to be in breach of Article 82 as it had purposefully approached ECS’s customers with offers of prices significantly lower than they would normally charge to remove ECS from the market and the Commission found documentary evidence to prove that this was exactly what Akzo was doing. Akzo was fined ECU 7 500 000 and ordered to pay costs of the proceedings.

While so far the above cases have involved only one firm in a dominant market position, Article 82 states abuse of  “one or more undertakings” which amounts to joint dominance. This was illustrated in the famous Italian Flat Glass case. Corbelli was an independent wholesaler of glass and alleged that three producers of glass were breaching Article 82 by agreeing with each other to offer identical terms of sale and prices approved between themselves. Also alleged was the fact that 2 of these companies had worked together to establish full control of both the production as well as the distribution of the glass. The Commission believed there to be a breach or Article 82 due to the fact that the companies were almost showing themselves to the general public as one company because of the identical prices and conditions of sale. The case was annulled and taken to the Court of First Instance where they stated that the Commission had wrongly defined the relevant product market and could not effectively prove there was collective dominance, whereas had they done this correctly then the case would have proved infringement of Article 82. As with the United Brands case this highlights the difficulty, which the Commission faces in defining the relevant product market. This could make them wary of bringing cases to court if they are not absolutely convinced that they have defined the market correctly as it causes embarrassment to them.

Having looked at the main cases breaching Article 82, it is now important to assess the effectiveness in more detail. This is difficult to do as it is dependent on which view is taken as to what exactly competition is. Effectively Article 82 discriminates against companies in a dominant position because it is stopping them from being the best in their industry, which is, in theory, what competition is all about and therefore restricts them from doing so. Hence it has been the subject of great discussion as to whether the Commissions view of competition needs to be updated to fit in with the major players of today. However the counterargument to this is that European Union law is based upon 4 fundamental freedoms, these being: free movement of goods, free movement of workers, free movement of capital and finally, free movement of services. To ensure that all of these freedoms are achieved, and thus create a strong market, Article 82 does indeed play an important part in ensuring competition by allowing not just one company to hold such a dominant position and behave in such a way, which can deter new competitors from entering the market.

When looking at this Article, which has not been changed for over 4 decades, the question needs to be considered if Article 82 is out of date? The Commission seems to have taken the view that is out of date by reforming certain aspects of the original policy, but not the actual Article itself, as it does not seem that the efficiency of prosecuting companies in breach of Article 82 is as high as it could be. In order to increase efficiency and reduce the time involved in deciding cases, Regulation No. 1/2003 will allow for national courts and national competition authorities to take a more involved role in dealing with cases breaching Article 82. It is hoped that this will lessen the burden placed on the Commission and ultimately on the European Court of Justice, as they will have less cases to deal with each year. This new regulation replaces Regulation No 17, which had been in place since 1962 and therefore is the most substantial reform in the area of competition for over 40 years.  However, the allowance of more involvement for national courts and competition authorities in cases could prove to be detrimental to the already questionable effectiveness of Article 82. The main concerns with allowing national courts more control in deciding cases is that the consistency which the Commission previously had, will be lost due to decisions being made by courts with limited experience in dealing with these type of cases. Also, with the imminent enlargement of the European Union from 15 to 25 Member States, more and more courts will be making decisions, which could come to differing conclusions. Another concern related to enlargement and Competition Policy is that countries such as Lithuania and Turkey will have limited if any experience in dealing with such cases, and as with all European law being translated into a particular foreign language, there is always the risk that the original meaning of Article 82 will not be understood or lose some of its essence.

Looking at the number of cases in 2002, there were 321 antitrust cases (involving Articles 81, 82 and 86EC) compared to only 284 cases in 2001, which could either suggest that the Commission is being more effective at uncovering abuses of dominant positions which would explain the increase in cases or they could be being too lenient in previous cases and allowing companies to form the opinion that taking the risk of infringing Article 82EC would be worth it as the fines imposed have never rose above 3-4% of annual turnover, thus the potential increase in the profits the make through being in a dominant position would cover the fine and still have made them a profit. It is thought that making abuse of a dominant position a criminal offence would be a considerably better deterrent to Chief Executive Officers of large firms than simply fining them a percentage of annual turnover as a loss of freedom is far more disturbing to a person than a fine. And after all, the establishment of European law is all about ensuring freedom.

Bibliography

Books

Craig P & De Burca G (2003) EU Law: Text, Cases and Materials. 3rd Ed. Oxford University Press.

Frazer T & Waterson M (1994) Competition Law and Policy: Cases, Materials and Commentary. Harvester Wheatsheaf.

Steiner J & Woods L (2000) Textbook on EC Law. 7th Ed. Blackstone Press Limited

Websites

Reports

European Union Competition Policy XXX11nd Report on Competition Policy. European Commission.

Comments:

As you know his writing isnt the easiest in the world to read but here goes! Basically he said the cases were explained well, need to analyse them a bit more in terms of effectiveness. Consider the objectives of it. Do the sanctions available under Art 82 deter abuse? What constitutes abuse of dominant position and what can be seen as legitimate competitve behaviour. Use the cases to explore the issues.

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