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Identifying an Unlawful Margin Squeeze: The Recent Judgments of the Court of Justice in Deutsche Telekom and TeliaSonera
Published online by Cambridge University Press: 27 October 2017
Abstract
The chapter will consider what a margin squeeze is, whether it is appropriate for a competition authority to try and prevent margin squeezes using competition law rules and, if so, what tests can be used to identify an unlawful margin squeeze and to distinguish it from legitimate competition on the merits.
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- Research Article
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- Copyright © Centre for European Legal Studies, Faculty of Law, University of Cambridge 2011
References
1 Consolidated version of the TFEU [2010] OJ C83.
2 Pacific Bell Telephone Co v linkLine Communications, Inc 555 US 438 (2009), 129 SCt 1109, 1114.
3 See s III.B below.
4 Guidance on the Commission’s Enforcement Priorities in Applying Art [102 TFEU] to Abusive Exclusionary Conduct by Dominant Undertakings (the ‘Guidance Paper’) C (2009) 864 final, [2009] OJ C45/7.
5 Case C-280/08P, Deutsche Telekom v Commission 14 October 2010 (affirming the judgment of the General Court, Case T-271/03 [2008] ECR II-477).
6 Case C-52/09, Konkurrensverket v TeliaSonera Sverige AB 17 February 2011.
7 See further below. In the context of pricing abuses the concept of the ‘equally efficient competitor’ has become of some importance—pricing practices which have an exclusionary effect on equally efficient competitors of a dominant firm will generally be condemned as abusive conduct contrary to Art 102. See eg, Case C-62/86 AKZO v Commission [1991] ECR I-3359 and Case C-280/08P Deutsche Telekom v Commission 14 October 2010.
8 See eg, OECD Policy Roundtables, Margin Squeeze DAF/COMP (2009)36, 11: (‘Where competition is just being introduced into these sectors there may be a justification for applying the reasonably efficient entry rather than equally efficient test. Firms may need to gain efficiency through experience and potential investors may be more readily scared away if early entrants fail due to aggressive competitive responses’).
9 Predatory pricing occurs when a firm with market power (or hope of acquiring market power) prices below cost to eliminate or discipline a rival. If the firm is pricing below cost, a predatory pricing claim may be possible, see, eg C-202/07P, France Télécom SA v Commission [2009] ECR I-2369 and Case C-333/94 P, Tetra Pak International SA v Commission (Tetra Pak II) [1996] ECR I-5951.
10 In its decision in Telefónica 4 July 2007, para 558, the Commission noted that margin squeezes could differ significantly from a predatory pricing case as consumers did not benefit in the short run from low prices—rather margin squeezes might involve high retail prices in the short run as well as in the long run because of the high charge set for the wholesale service.
11 If the firm sells the broadband service at €19 per month and the network input to broadband rivals at €15 per month there is still a margin squeeze, but the firm is also selling below cost overall (taking account of both upstream and downstream costs), see, eg Wanadoo 16 July 2003 (on appeal C-202/07P, France Télécom SA above n 9) where the Commission found that Wanadoo had engaged in predatory pricing by setting retail prices below cost, taking into account the wholesale charges it paid to its parent company, France Télécom.
12 ie the internal access price is imputed to be equal to the external access price, see OECD Policy Roundtables, above n 8, 36–37.
13 But see eg, Case C-333/94 P, Tetra Pak, above n 9.
14 Whether or not there is an incentive to do so will vary depending upon the market circumstances, see further s IV.
15 In the EU the existence of a prior course of dealing between the dominant firm and the ‘excluded’ competitor could impact on the assessment of the case. The CJEU has made it clear that dominant firms should tread carefully when dealing with long-standing customers that abide by regular commercial practices, see eg, Case C-27/76 United Brands v Commission [1978] ECR 207, paras 182–83.
16 Policy Roundtables, above n 8, 29. See also s IV.B. The margin squeeze could be analysed, alternatively, as excessive pricing or price discrimination, see n 81 below.
17 See eg, Policy Roundtables, ibid, 21 (‘[T]his paper argues that, with one possible exception, nearly all the behaviour that can be characterised as a margin squeeze can be equivalently characterised as one of the other forms of abuse of dominance. This observation suggests that when margin squeeze is recognised as a distinct form of abuse, the principles and standards applied in prosecuting margin squeeze cases should be identical to the principles and standards applied if the case were prosecuted as the equivalent alternative form of abuse of dominance. For example, if the margin squeeze case could be characterised as a case of, say, refusal-todeal or predatory pricing, the margin squeeze case should be prosecuted using the established principles and evidentiary standards of refusal-to-deal or predatory pricing cases, respectively’) and further s IV.
18 Napier Brown-British Sugar [1988] OJ L284/41. See also National Carbonising [1976] OJ L35/6 and Case T-5/97, Industrie des poudres sphériques SA v Commission [2000] ECR II-3755, para 178 (‘Price squeezing may be said to take place when an undertaking which is in a dominant position on the market for an unprocessed product and itself uses part of its production for the manufacture of a more processed product, while at the same time selling off surplus unprocessed product on the market, sets the price at which it sells the unprocessed product at such a level that those who purchase it do not have a sufficient profit margin on the processing to remain competitive on the market for the processed product’).
19 Ibid, para 65.
20 Deutsche Telekom [2003] OJ L263/9.
21 But see now also Telefónica, 4 July 2007. The Commission is also investigating possible abusive behaviour (including margin squeezes) by the Polish and Slovak telecommunications operators, see n 145 below.
22 See Communication from the Commission of July 30, 1987, Towards a dynamic European economy: Green Paper on the development of the common market for telecommunications services and equipment, COM (87) 290. The objective of liberalisation was to develop the market to provide users with a greater variety of services, of better quality and at lower cost.
23 Commission’s Telecommunications Terminal Equipment Directive, Directive 88/301/EEC [1988] OJ L131/73.
24 Commission’s Telecommunications Services Directive, Directive 90/388/ EC [1990] OJ L192/10.
25 It was extended to cover satellite networks, cable television networks, mobile services and networks and alternative infrastructures, public voice telephony services and public networks used for the provision of voice telephony.
26 Dir 90/387 of 28 June 1990 on the establishment of the internal market for telecommunications services through the implementation of open network provision, [1990] OJ L192/1.
27 Independent of entities offering goods and/or services in the telecommunications sector and of government that might have an interest in the performance of a part owned or recently privatised entity.
28 Telecommunications Equipment Directive, Art 6.
29 See especially Dir 2002/21 on a common regulatory framework for electronic communications networks and services (the Framework Directive) [2002] OJ L108/33, Dir 2002/20 on the authorisation of electronic communications networks and services [2002] OJ L108/21, Dir 2002/22 on universal service and users’ rights relating to electronic communications networks and services, [2002] OJ L108/51, Dir 2002/58 concerning the processing of personal data and the protection of privacy in the electronic communications sector, [2002] OJ L201/37.
30 Dir 2002/19 [2002] OJ L108/7.
31 See especially, Directive on universal services and user’s rights relating to electronic communications networks and services, Dir 2009/136 [2009] OJ L 337/11, the Better Regulation Directive, Dir 2009/140 [2009] OJ L337/37 and the BEREC Regulation, Reg 1211/2009 [2009] OJ L337/1.
32 Framework Dir, Art 8. They also have an obligation to act impartially and transparently, Framework Directive, Art 3.
33 In certain circumstances they may also impose obligations on undertakings without significant market power, eg where necessary to ensure access and interconnection, see Access Directive, Art 5.
34 See, Access Dir, Arts 8–13.
35 See, eg, P Alexiadis and A Shortall, ‘Diverging but Increasingly Converging: The US Supreme Court in linkLine— A European Perspective’ Global Competition Policy, April 2009(1). See also below n 69. As they work in a ‘forward looking’ context they may be powerless to control price squeezes under the regulatory framework (although some NRAs, eg in the UK, also have power under national rules to apply competition laws). In contrast, the Commission has, when considering the application of Art 102 to the conduct of firms, been able to rely on ex post conduct data, see further s IV.A below.
36 In particular, it will allow the Commission to oversee NRAs’ regulatory remedies (for example, on conditions of access to a dominant operator’s network) and, ultimately, to veto proposed remedies where a draft remedy would create a barrier to the single market. Further, the Commission will able to adopt harmonisation measures to prevent divergences in regulatory approaches.
37 Prior to liberalisation of the telecommunications market in the EU, DT had the legal monopoly of fixed line services in Germany.
38 In the EU, NRAs administer the EU communications regulatory framework at the national level.
39 [2003] OJ L263/9 (imposing a fine of €12.6 million), aff’d Case T-271/03 and Case C-280/08P, above n 5.
40 Ibid, para 107.
41 Ibid, para 180.
42 Ibid, paras 181–83.
43 Ibid, paras 163–65. For the purpose of the proceedings before the EU courts it was assumed that DT did not have the power to change its wholesale prices. The lawfulness of the wholesale prices (and the question of whether they might be excessive and so contrary to Art 102) was not pleaded in the first instance appeal and therefore was not admissible in the proceedings before the CJEU, see Case 280/08P, above n 5, para 49.
44 See, eg O’Donoghue, R and Padilla, J, The Law and Economics of Article 82 EC (Oxford, Hart Publishing, 2006) 337 Google Scholar and more generally, Carlton, D, ‘Should “Price Squeeze” be a Recognized Form of Anticompetitive Conduct’ (2008) 4 Journal of Competition Law and Economics 271 CrossRefGoogle Scholar.
45 See further 165–66 above, s IV.C below and also eg Sidak, JG, ‘Abolishing the Price Squeeze as a Theory of Antitrust Liability’ (2008) 4 Journal of Competition Law and Economics 279 CrossRefGoogle Scholar, 281–82 (‘The [price squeeze] theory is incompatible with contemporary anti trust jurisprudence, and on economic grounds the threat of such liability discourages investment, retail price competition, and the voluntary provision of inputs on negotiated terms by vertically integrated monopolists to current and potential rivals otherwise unable to obtain or self-provide them’).
46 See, eg V Korah, ‘The Paucity of Economic Analysis in EEC Decisions on Competition: Tetra Pak II’ [1993] Current Legal Problems 150, Spector, D, ‘From Harm to Competitors to Harm to Competition: One More Effort, Please!’ (2006) 2 European Competition Journal 145 CrossRefGoogle Scholar, Andreangelli, A, ‘Interoperability as an “Essential Facility” in the Microsoft Case-Encouraging Competition or Stifling Innovation’ (2009) 34 EL Rev 854 Google Scholar, Gormsen, L Lovdahl, ‘The Conflict between Economic Freedom and Consumer Welfare in the Modernisation of Article 82 EC’ (2007) 3(2) European Competition Journal 329 CrossRefGoogle Scholar and Akman, P, ‘Searching for the Long-Lost Soul of Article 82EC’ 29 Oxford Journal of Legal Studies 267 CrossRefGoogle Scholar.
47 See Case C-85/76, Hoffmann-La Roche v Commission [1979] ECR 461, especially paras 9 and 91.
48 See, eg Case C-95/04P, British Airways plc v Commission [2007] ECR I-2331, paras 106–07 and Case T-203/1, Michelin v Commission [2003] ECR II-4071, paras 241–44.
49 J Vickers, ‘Abuse of market power’ speech to the 31st Annual Conference for the European Association of Research in Industrial Economics, Berlin, 3 September 2004, available at www.oft.gov.uk.
50 The Commission has ‘slowly but surely come to think that the “competition” that competition policy is supposed to protect is best viewed as a process, the outcome of which is welfare, with welfare being the aim’, P Lowe, ‘Consumer welfare and efficiency—new guiding principles of competition policy?’ 13th International Conference on Competition and 14th European Competition Day, 27 March 2007.
51 ‘Aggressive, competitive conduct by any firm, even one with market power, is beneficial to consumers. Courts should prize and encourage it. Aggressive, exclusionary conduct is deleterious to consumers, and courts should condemn it. The big problem lies in this: competitive and exclusionary conduct look alike’, see Judge Easterbrook ‘When Is It Worthwhile to Use Courts to Search for Exclusionary Conduct?’ (2003) Columbia Business Law Review 345, 346.
52 December 2005, available at ec.europa.eu/competition/antitrust/art82/index.html.
53 Matsushita Electric Industrial Co v Zenith Radio Corp 475 US 574 (1986), 594.
54 Above n 4. The Commission is thus determined to focus only on cases where the exclusionary conduct of the dominant firm impairs effective competition by ‘foreclosing their competitors in an anticompetitive way, thus having an adverse impact on consumer welfare’, para 19.
55 Guidance Paper, above n 4, para 19. It sets out specific criteria for identifying when certain types of conduct will foreclose competitors in an anticompetitive way. See, eg, n 107 below and accompanying text.
56 Ibid, para 3.
57 See further s IV.C and eg, L Lovdahl Gormsen, ‘Why the European Commission’s Enforcement Priorities on Article 82 EC should be Withdrawn’ (2010) European Review of Contract Law 45.
58 It does not support this approach in the Guidance Paper, above n 4, see n 107 below and accompanying text.
59 But this was what the Commission did in Deutsche Telekom ordering DT to bring its infringement to an end and to refrain from engaging in conduct prohibited by the decision (see Arts 1–2). See further s IV.D below.
60 For the view that the control of price squeezes is essentially a regulatory matter which makes best sense as an aspect of price regulation in an industry already subject to duties to deal and to control by institutionally competent regulators, see eg, Sidak above n 45.
61 Town of Concord v Boston Edison Co 915 F2d 17 (1st Cir 1990).
62 The Court first discussed ‘the ordinary price squeeze case, the case of an unregulated monopolist whose prices (at, say, the wholesale and retail levels) leave inadequate room for an independent competitor (at, say, the retail level) to survive. Only if the reader understands the major antitrust harms, benefits, and administrative considerations in that ordinary case, and sees how they are rather evenly balanced, will he understand why price regulation tips that balance so significantly towards legality’, ibid, 23.
63 Ibid.
64 Verizon Communications v Law Offices of Curtis V Trinko LLP 540 US 398 (2004), 414.
65 Above n 2.
66 See eg Brief of Amici Curiae Professors and Scholars in Law and Economics in Support of the Petitioners in linkLine (16 November 2007), 6 (‘In the American setting, the requisite analysis more resembles the work of a public utilities commission than that of a federal judge presiding over an antitrust case.’)
67 Above n 64, 411–13.
68 See, eg F Rizzuto on ‘Reforming the “Constitutional Fundamentals” of the EU Telecommunications Regulatory Framework’ (2010) Computer and Telecommunications Law Review 44.
69 Sometimes regulators have the power to apply both regulatory and competition law rules. This is currently the case in the UK, for example, although the Government is concerned that the sector regulators have not used their competition law powers frequently enough, despite a presumption that they should take responsibility for competition cases in their sectors and that the sectors contain many dominant companies, uncompetitive market structures and involve services of considerable consumer interest, see Department for Business Innovation and Skills, Consultation Document, ‘A Competition Regime for Growth: A Consultation on Options for Reform’ 16 March 2011, ch 7.
70 For example, the German State holds 30.92% of shares directly and 12.13% indirectly in the capital of Deutsche Telekom AG, the incumbent telecommunications operator in Germany, see Case T-271/03, Deutsche Telekom v Commission [2008] ECR II-477, para 1.
71 Notwithstanding the intervention of the NRA, DT had the scope to raise its retail prices and so avoid the margin squeeze, Case C 280/08 P, above n 5, para 85.
72 The fact that RegTP might have violated EU law did not affect DT’s liability, ibid, para 91.
73 ibid, para 80. Where the restriction of competition originates solely in the national law, the restriction of competition is not attributable to the autonomous conduct of the firms, see Cases T-191, 212–4/98, Atlantic Container Line v Commission [2003] ECR II-3275, para 1130.
74 Ibid, paras 82–3. If national law merely encourages or makes it easier for undertakings to engage in autonomous anti-competitive conduct, those undertakings remain subject to Arts 101–102, see eg, Case C-198/01, Consorzio Industrie Fiammiferi (CIF) v Autorità Garante della Concorrenza e del Mercato [2003] ECR I-8055, para 56. See also Case C-52/08, TeliaSonera, above n 6, para 52 (‘where an undertaking has complete autonomy in its choice of conduct on the market, Article 102 TFEU is applicable to it’).
75 Case C-280/08P, above n 5, para 92.
76 Carlton, above n 44, 278 (‘because the gains from deterring an anticompetitive price squeeze seem quite modest but the costs are likely to be high, a sensible weighing of the gains and losses from adopting a price squeeze theory could lead one to reject that theory’). See also Sidak, above n 45, 281–82 (‘[t]he price squeeze theory of antitrust liability should be abolished’).
77 Above n 2.
78 Ibid, 1119.
79 Ibid, 1120.
80 Ibid, 1120–21.
81 In the EU the claim might also be couched as either ‘excessive’ pricing or, possibly, price discrimination, see the Opinion of AG Mazák in Case C-52/09 TeliaSonera above n 6, para 32 (‘[It should certainly not be inferred from my analysis in all the foregoing paragraphs that the prices of a vertically integrated dominant undertaking cannot be abusive unless the input in question is indispensable or there is a regulatory obligation to supply that input. The upstream price may be excessive under Article 102(a) TFEU. The downstream price may be predatory. Moreover, the dominant undertaking may be foreclosing its downstream competitors in breach of Article 102(b) TFEU. In addition, the dominant undertaking may be discriminating between competitors and its own downstream operations under Article 102(c) TFEU’).
82 Case C-62/82, AKZO Chemie BV v Commission [1991] ECR I-3359.
83 Tetra Pak II, above n 9.
84 See, eg Tetra Pak II, above n 9, para 44 (‘it would not be appropriate, in the circumstances of the present case, to require … proof that Tetra Pak had a realistic chance of recouping its losses’) and C-202/07P France Télécom SA v Commission [2009] ECR I-2369, para 113 (the ECJ confirmed the General Court’s understanding that ‘demonstrating that it is possible to recoup losses is not a necessary precondition for a finding of predatory pricing’). The EU courts thus assume that prices are designed to exclude rivals and to allow the predator to raise prices and hurt consumers at the end of the predatory siege where (i) the dominant firm is not covering its marginal costs or (ii) it is covering marginal cost but not total costs and that pricing was clearly adopted as part of a predatory strategy. Actual proof that the predatory strategy is likely to be successful and, consequently, that consumers will be harmed is not required.
85 Many take the view, however, that ‘feasibility’ should be an element of, or at least a more important consideration in, any EU test and that an assumption that recoupment can occur simply because of the finding of dominance is not adequate. Rather, as without a possibility of recoupment, the dominant undertaking is probably engaged in normal competition, concern has been expressed that entangling the notions of recoupment and dominance will lead to a degree of circularity in argument, too expansive a notion of abuse, a distortion of the proof needed to assess dominance and abuse respectively and ultimately leave an accused firm with few defences other than proving that it is not dominant, see eg, O’Donoghue and Padilla, above n 44, 254; Bishop, S and Walker, M, The Economics of EC Competition Law: Concepts, Application and Measurement 3rd edn (London, Sweet & Maxwell, 2010) 236 Google Scholar; OECD Policy Roundtable on Predatory Foreclosure DAF/COMP(2005)14, from 8.
86 See Discussion Paper (2005) para 122. In Wanadoo for example, the Commission indicated that it intended to ‘examine the entry barriers and entry costs which characterise the relevant market and which render plausible a recoupment of the losses by the dominant firm in the long run’, COMP/38.233, Wanadoo Interactive 16 July 2003, para 338.
87 See eg, Jones, A, ‘Distinguishing Predatory Prices from Competitive ones: Tetra Pak II’ [1995] 5 European Intellectual Property Review 252 Google Scholar.
88 See especially Cases C-241 and 2/91P RTE & ITP v Commission [1995] ECR 1-743, Case 7/97 Oscar Bronner v Mediaprint Zeitungsund Zeitschriftenverlag GmbH & Co KG [1998] ECR I-7791.
89 The EU courts have been willing to assume that such conduct will harm the competitive structure and, possibly, consumers through the elimination or rivals on the downstream market.
90 Case C-280/08P, above n 5, paras 163–78. See also Case C-52/08, TeliaSonera, above n 6, para 32.
91 Or which made it impossible for co-contractors to choose between various sources of supply thereby strengthening dominance by using methods other than those which come within the scope of competition on the merits, Case C-280/08P, above n 5, paras 175–77.
92 Case C-280/08P, above n 5, paras 167 and 183, Case C-52/08, TeliaSonera, above n 6, para 34 (‘since the unfairness … of such a pricing practice is linked to the very existence of the margin squeeze and not to its precise spread it is in no way necessary to establish that the wholesale prices for ADSL input services to operators or the retail prices for broadband connection services to end users are in themselves abusive on account of their excessive or predatory nature, as the case may be’).
93 Case C-280/08P, above n 5, paras 180–81.
94 Above n 2, 1120.
95 Case C-7/97 Bronner v Mediaprint [1998] ECR I-7791.
96 Case C-52/09, above n 6, paras 58 and 56. See also discussion below at n 112 and accompanying text.
97 Case C-280/08P, above n 5, paras 195–204. See also Guidance Paper, above n 4, para 80, a margin squeeze arises where a dominant firm charges a price for a product on the upstream market which, compared to the price it charges on the downstream market, does not allow even an equally efficient competitor (based on the long run average incremental costs of the downstream division of the integrated dominant firm) to trade profitably in the downstream market).
98 Ibid, para 202. Its conclusion was not affected by the fact that competitors might be subject to less onerous legal and material conditions in the provision of services to end-users.
99 Case C-52/09, above n 6, para 45.
100 Case T-271/03, Deutsche Telekom v Commission [2008] ECR II-477, para 192. This view was cited with approval by the CJEU, Case C-280/08P, above n 5, para 202.
101 Case C-52/09, above n 6, paras 46 and 113.
102 The integrated firm can already extract the monopoly profit from the upstream market and gains nothing further by destroying its rival (the Chicago School’s ‘one monopoly profit theory’) 915 F.2d 17, 23 (1st Cir 1990).
103 Carlton, above n 44, 13 and HJ Hovenkamp and EN Hovenkamp, ‘The Viability of Antitrust Price Squeeze Claims’ University of Iowa Legal Studies Research Paper, Number 08-33 (2009), available at papers.ssrn.com/sol3/papers.cfm?abstract_id=1156974, 28.
104 ‘Even if one were persuaded that the existence of a price squeeze might harm consumers in certain circumstances, the risk of deterrence of pro-competitive conduct is great. There is no dispute that the mere existence of circumstances where the margin between a defendant’s upstream and downstream prices discomfits a downstream rival often reflects the integrated defendant’s desirable efficiencies or pro-competitive responses to demand conditions. If all such squeezes are subject to scrutiny, a potential defendant will know that a reduction in the margin between upstream and downstream prices may lead to litigation, with guaranteed expense and no guarantee of a correct outcome.’ AM Panner, ‘Are Price Squeezes Anticompetitive?’ ABA Antitrust Law Section Spring Meeting 2009.
105 The Commission has stated that this new approach in its margin squeeze decision in Telefónica, 4 July 2007, Case T-337/07 (judgment pending).
106 The Discussion Paper defines a margin squeeze as a situation where a dominant firm charges a price for a product on the upstream market which, compared to the price it charges on the downstream market, does not allow even an equally efficient competitor to trade profitably in the downstream market on a lasting basis. The benchmark which the Commission relies on to determine the costs of an equally efficient competitor are the long-run average incremental costs of the downstream division of the integrated dominant firm, Guidance Paper, above n 4, para 80.
107 The margin squeeze might also be designed to exclude rivals downstream so as to protect market power in an upstream market.
108 Telefónica 4 July 2007, on appeal Case T-336/07 (judgment pending).
109 In that decision, having determined that there was a margin squeeze, the Commission, examined whether or not the conduct had caused prejudice to consumers, went on to examine the impact of Telefónica’s conduct and established that it ‘had an actual impact on the competitive structure of the relevant market and a detrimental impact for end users’, ibid, paras 543–44. It concluded that rivals could not compete, consumers were harmed and insufficient competitive constraint was exercised by eg, cable or satellite operators. Further, it found no objective justification for the conduct (in particular, it was not necessary for infrastructure investments and the network had been funded by monopoly rents prior to liberalisation) or efficiencies to offset the long-lasting consumer harm identified.
110 This could also be the case where the upstream market position of the dominant undertaking has been developed under the protection of special or exclusive rights or has been financed by state resources, Guidance Paper, above n 4, para 82. The incentive for a firm to engage in a margin squeeze may be clearest when the industry is subject to regulation at the upstream level, while being subject to little or no regulation downstream.
111 Ibid.
112 See also above n 96 and accompanying text. There is a danger, therefore, that the Guidance may create expectations that conduct does not violate Art 102 when it does (or could), and that this inconsistency will create both uncertainty for business (which may still feel obliged to comply with the law) and difficulties for the national courts of the Member States and national competition authorities (and some NRAs) which are obliged to interpret Art 102 consistently with EU jurisprudence, not to take decisions counter to those adopted by the Commission or to ‘prejudice the full and uniform application of Community law or the effects of measures taken or to be taken to implement it’, Case 14/68, Walt Wilhelm v Bundeskartellamt [1969] ECR 1, para 9. See, eg, L Lovedahl Gormsen, ‘Why the European Commission’s Enforcement Priorities on Article 82 EC should be Withdrawn’ (2010) European Competition Law Review 45. The General Court will have another opportunity to rule on margin squeeze in the Telefónica judgment, see n 108.
113 Case C-280/08P, above n 5, para 250.
114 Ibid, para 252. ‘Admittedly, where a dominant undertaking actually implements a pricing practice resulting in a margin squeeze of its equally efficient competitors, with the purpose of driving them from the relevant market, the fact that the desired result is not ultimately achieved does not alter its categorisation as abuse within the meaning of Article [102 TFEU]. However, in the absence of any effect on the competitive situation of competitors, a pricing practice such as that at issue cannot be classified as exclusionary if it does not make their market penetration any more difficult’, para 254.
115 OECD Policy Roundtables, above n 8, 22 and 29.
116 In Case C-52/08, AG Mazák took the view that margin squeezes constitutes a form of refusal to deal, 2 September 2010 (but see also above n 81). The CJEU did not agree on this issue, however.
117 Case C-52/08, above n 6, para 60.
118 Ibid, paras 60–114.
119 Ibid, paras 61–63, relying on Case C-280/08P, above n 5, paras 250–53.
120 Ibid, para 64.
121 Ibid, para 65.
122 See n 95 above and accompanying text.
123 Case C-52/08, above n 6, paras 69–72.
124 The Court also considered that account should be taken of investment made in the dominated market. The Court considered that the costs of establishment and investment of the undertaking which has a dominant position in that market, must be taken into consideration as part of the analysis of that undertaking’s costs in order to establish whether a margin squeeze exists, ibid, para 110.
125 Ibid, paras 73–74.
126 Although the degree of dominance ‘is, as a general rule, significant in relation to the extent of the effects of the conduct of the undertaking concerned rather than in relation to the question of whether the abuse as such exists’, ibid, para 81.
127 Relying on Case C-333/94P, Tetra Pak, above n 9, para 25.
128 Ibid, paras 96–102, relying on Case C-202/07P, France Télécom, above n 9.
129 Ibid, para 108.
130 Ibid, para 109.
131 Reg 1/2003 [2003] OJ L1/1, Art 23.
132 Ibid, Art 7. For a discussion of the Commission’s power to impose remedies in Art 102 cases, see Hellström, P, Maier-Rigaud, F, Bulst, F Wenzel, ‘Remedies in European Antitrust Law’ (2009) 76 Antitrust Law Journal 43 Google Scholar.
133 Ibid, Art 7(1).
134 See above n 80 and accompanying text.
135 But see the ongoing dispute following the Microsoft decision, (24 March 2004) relating to the terms of supply of the interoperability information, see eg IP/06/979 (Commission imposes penalty payment of €280.5m on Microsoft for continued non-compliance with March 2004 decision).
136 Where a vertically integrated firm is divided into smaller separate firms so that, eg the bottleneck assets are not owned by a firm which also operates in the downstream market see, eg Walden, I (ed), Telecommunications and Regulation (Oxford, Oxford University Press, 2009) 63–64 Google Scholar.
137 Where no divestitures are required but separation between the upstream and downstream divisions is ‘simulated’ through accounting practices, ibid.
138 Where the upstream and downstream activities are placed in separate ‘ring fenced’ divisions of an entity with separate managers of the ‘functionally’ separated operations, ibid.
139 See eg, Single-Firm Conduct Report, 157, Posner, RA, Antitrust Law 2nd edn (Chicago, Chicago University Press, 2001) 106 Google Scholar.
140 See, eg United States v Microsoft Corp 253 F3d 34 (DC Cir), cert denied, 534 US 952 (2001). ‘One apparent reason why courts have not ordered the dissolution of unitary companies is logistical difficulty. As the court explained in United States v Aloca … a “corporation, designed to operate effectively as a single entity, cannot readily be dismembered of parts of its various operations without a marked loss of efficiency.” A corporation that has expanded by acquiring its competitors often has pre-existing internal lines of division along which it may more easily be split than a corporation that has expanded from natural growth. Although time and corporate modifications and developments may eventually fade those lines, at least the identifiable entities pre-existed to create a template for such division as the court might later decree. With reference to those corporations that are not acquired by merger and acquisition, Judge Wyzanski accurately opined in United Shoe: United conducts all machine manufacture at one plant in Beverly, with one set of jigs and tolls, one foundry, one laboratory for machinery problems, one managerial staff, and one labor force. It takes no Solomon to see that this organism cannot be cut into three equal and viable parts. United States v United Shoe Machinery Corp, 110 F.Supp 295, 348 (D Mass 1953). Depending upon the evidence, the District Court may find in a remedies proceeding that it would be no easier to split Microsoft in two than United Shoe in three.’
141 Hellström, P, Maier-Rigaud, F, Bulst, F Wenzel, ‘Remedies in European Antitrust Law’ (2009) 76 Antitrust Law Journal 43, 53, but see Raso [1997] OJ L301/17.Google Scholar
142 Reg 1/2003, Art 7(1) and recital 12.
143 See, eg RW E IP/09/41 (Commission decision rendering legally binding commitments offered by RWE to divest its Western German high-pressure gas transmission network. The Commission had been investigating possible abuse of RWE’s dominant position on the gas transmission network in Germany through refusal to supply gas transmission services and margin squeeze), GDF MEMO/09/536 (agreement to release a large share of its longterm reservations of gas import capacity into France) and ENI 29 September 2010 (commitments to divest interests in international transport pipelines to open access into Italy’s natural gas market following a Commission investigation to capacity hoarding and strategic underinvestment in the gas transmission system—’Access to infrastructure is key for the integration of gas markets, price competition and overall security of supply in the European Union. The legally-binding commitments will ensure that capacity hoarding and degradation will no longer take place on the transport pipelines into Italy and that the proper investment incentives will prevail’, IP/10/1997). In the Commission’s Inquiry into the European gas and electricity sectors (Final Report) (COM (2006) 851 final) the Commission had stated that insufficient unbundling of networks from the competitive parts of the gas sector (downstream supply) was leading to systemic conflict of interest.
144 See Commission summary of the decision, [2010] OJ C352/08, paras 9–10.
145 Interestingly, in the Slovak Telekom case (see MEMO/09/223; the Commission has opened an investigation into a possible refusal to supply and margin squeeze on broadband markets), the Commission has decided to extend its investigation to Slovak Telkom’s parent company, Deutsche Telekom, see announcement of 17 December 2010, IP/10/1741. It will be interesting to see if a violation of Art 102 is found by both entities, whether the Commission will consider such a case of ‘recidivism’, to be cause for a structural remedy.
146 Hellström, P, Maier-Rigaud, F, Bulst, F Wenzel, ‘Remedies in European Antitrust Law’ (2009) 76 Antitrust Law Journal 43, 53–57Google Scholar.
147 The undertakings were agreed in lieu of a reference of the case by OFCOM to the Competition Commission under the market investigation provisions of the Enterprise Act 2002.
148 The General Court’s judgment in Telefónica is also pending, CaseT-336/07.
149 See above n 49 and accompanying text. Further in neither case did the CJEU rule on the question of whether an excessive pricing or discriminatory pricing claim could, alternatively or additionally have been made out, but see above n 81.
150 See above n 115 and accompanying text.
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