Notable is the creation of a presumption that several types of conduct amount to exclusionary abuse, shifting the burden of proof onto dominant companies in a bid to tighten enforcement. While these guidelines will not be binding, they will guide the EC in its decision-making and will have a considerable influence on the practice of national competition authorities and national courts, affecting companies operating in EU and national markets.
Context
On August 1, 2024, the EC published its draft guidelines on abusive exclusionary conduct by dominant undertakings (Draft Guidelines). The Draft Guidelines contain the EC’s reading of the existing case law of the EU Courts on exclusionary abuse under Article 102 TFEU and consolidate that case law with the aim of increasing legal certainty and transparency for companies operating within the EU.
The Draft Guidelines delineate principles for assessing dominance, exclusionary abuse, and justifications for such abuse. A particularly noteworthy aspect is the creation of a legal test that includes various presumptions of exclusionary abuse.
Although guidelines are not binding under EU law, the final version of the Draft Guidelines is expected to significantly influence business practices within the EU. They will not only shape the EC’s enforcement of Article 102 TFEU, but as experience has shown, are also likely to serve as a reference framework for national competition authorities and courts.
While the Draft Guidelines do not address exploitative abuses of dominance, it is anticipated that they will inform the EC’s and national authorities’ enforcement of exploitative abuse, which is becoming more prevalent (see our latest Global trends in antitrust enforcement report here).
Two-step text for determining exclusionary abuse
The EU Courts have defined exclusionary abuse as conduct departing from competition on the merits and being capable of having exclusionary effects. The Draft Guidelines structure this case law as a general two-step test to determine whether conduct by dominant undertakings is liable to constitute an exclusionary abuse.
Next to this general test, the Draft Guidelines contain specific legal tests for five categories of conduct for which the EU Courts have developed a specific analytical framework to determine whether these conducts by dominant undertakings violate Article 102 TFEU: exclusive dealing, tying and bundling, refusal to supply, predatory pricing and margin squeeze. When conduct satisfies one of these five specific legal tests, such conduct is deemed to have met the requirements of exclusionary abuse under the general test.
Step 1: Conduct departing from competition on the merits
Dominant undertakings may defend their commercial interests against competitors. It is only where their behavior deviates from normal competition based on the performance of economic operators that abuse of dominance concerns may arise.
Normal competition or competition on the merits relates to competition based on price, choice, quality or innovation. The Draft Guidelines do not establish a definitive test to determine what is competition on the merits. Instead, they provide a non-exhaustive list of factors that the EU Courts have considered relevant to assess whether conduct by a dominant undertaking departs from such competition. This includes preventing consumers from exercising their choice based on the merits of products, providing misleading information to administrative or judicial authorities or other bodies, or unjustifiably terminating an existing business relationship. Apart from these examples, the Draft Guidelines fail to provide concrete guidance on what entails competition on the merits.
Further to this, conduct satisfying one of the five specific legal tests or conduct that holds no economic interest for a dominant undertaking (so-called “naked restrictions”) also falls outside the scope of competition on the merits.
Step 2: Conduct capable of having exclusionary effects
When it is established that a dominant undertaking’s conduct falls outside competition on the merits, the next step is to assess whether that conduct is capable of having exclusionary effects.
The Draft Guidelines identify three classes of exclusionary conduct and associate each of them with a different burden of proof: (i) naked restrictions; (ii) five types of conduct having a high potential to lead to exclusionary effects; and (iii) conduct for which it is necessary for the EC to demonstrate the capability of producing exclusionary effects.
(i) Naked restrictions
Naked restrictions are certain types of conduct that have no economic interest for the dominant undertaking other than restricting competition. Examples include payments to customers to delay or cancel the launch of products based on products offered by the dominant undertaking’s competitor or the dominant undertaking actively dismantling infrastructure that is used by a competitor.
If the conduct falls within the category of naked restrictions, that conduct is presumed to have exclusionary effects. The EC does not need to prove exclusionary effects and the burden shifts to the dominant undertaking to show that its conduct does not have an exclusionary effect, which the EC only deems possible in very exceptional circumstances. This approach thus closely resembles a return to a formalistic assessment of abuse, where demonstrating actual effects is not necessary.
(ii) Five types of conduct with a high potential for producing exclusionary effects
The Draft Guidelines create a presumption that certain types of conduct create exclusionary effects. These are exclusive supply or purchasing agreements, rebates conditional upon exclusivity, predatory pricing, margin squeeze in the presence of negative spreads, and certain forms of tying and bundling.
Once the factual existence of the relevant conduct is established, exclusionary effects can be presumed and the burden of proof shifts to the dominant undertaking to either rebut the presumption by proving that the conduct is not capable of having exclusionary effects, or to demonstrate that objective justifications exist. Where the dominant undertaking offers evidence to rebut the presumption, it will be for the EC to either demonstrate that this evidence does not call the presumption into question or to provide evidence that the conduct does have exclusionary effects.
These five types of conduct all belong to one of the five categories for which the Draft Guidelines have set out a specific legal test, as mentioned earlier. Importantly, while the presumption applies to all conduct falling within the categories of exclusive dealing and predatory pricing, this is not the case for other categories for which the Draft Guidelines establish a specific legal test. For example, while the specific legal test for margin squeeze in the Draft Guidelines applies to all forms of such conduct, the presumption created by the Draft Guidelines only covers margin squeeze in the presence of negative spreads. Similarly, the presumption proposed in the Draft Guidelines in respect of tying and bundling only covers certain forms of tying and bundling and not all forms of such conduct. Therefore, it is important to bear in mind that conduct is not automatically presumed to be exclusionary simply because it falls within one of the five categories for which the Draft Guidelines provide a specific legal test.
This distinction matters. For conduct to which a specific legal test applies but which is not covered by a presumption, the burden of proof remains with the EC, as with any other conduct not covered by these presumptions.
(iii) Any other conduct
For the types of conduct not falling within the categories of naked restrictions or to which no presumption applies, the EC recognizes that it must demonstrate that the conduct is at least capable of producing exclusionary effects.
This requires a fully-fledged effects-based analysis, where the evidentiary burden lies with the EC. The Draft Guidelines contain various elements that are relevant for assessing whether other conduct has exclusionary effects;
however, these elements remain very general. For certain types of conducts (i.e., conditional rebates that are not subject to exclusive purchase or supply requirements, multi-product rebates, self-preferencing, access restrictions), the Draft Guidelines provide a more structured test. Nevertheless, these tests are original creations by the EC and do not reflect any specific analytical framework akin to those developed by the EU Courts in respect of exclusive dealing, tying and bundling, refusal to supply, predatory pricing and margin squeeze (i.e., those in section (ii) above). More case law is needed for these tests to evolve into a recognized and clear legal test, which raises the question of the extent to which companies can fully rely on them for self-assessment purposes.
Furthermore, the Draft Guidelines seem to consider price-cost tests, such as the As Efficient Competitor (AEC) tests, only useful to establish an abuse in relation to pricing practices and generally inappropriate for non-pricing practices. It remains to be seen whether this stance will conclude the debate on whether the AEC-test is also useful for assessing non-pricing conduct.
Objective justifications and efficiencies
The Draft Guidelines conclude with a framework for assessing objective justifications. They set out what is required to prove either objective necessity or efficiencies.
However, the Draft Guidelines suggest that it is unlikely that a dominant undertaking will be able to successfully invoke an objective justification once exclusionary abuse has been established. This is particularly so for naked restrictions and conduct that is presumed to be exclusionary.
Any defense to allegations of a breach of Article 102 TFEU should therefore focus on rebutting presumptions rather than arguing objective justifications.
Preliminary assessment
The Draft Guidelines signal (again) the EC’s desire to move away from an effect-based approach towards a more formal or categorical approach. This contrasts with the current trend in the case law of the EU Courts, which has decidedly moved away from a form-based approach to Article 102 TFEU.
In particular, the creation of a set of presumptions under Article 102 TFEU is remarkable. These presumptions relieve the EC of the initial burden of proving exclusionary effects, which is at odds with the case law that mandates that such exclusionary effects must be proven. While the EC asserts “that the case law has developed tools which can be broadly described and conceptualized […] as ‘presumptions’”, it remains to be seen whether the EU Courts will subscribe to the EC’s reading of the case law.
Also potentially problematic is that EC guidelines in the field of antitrust law are often treated by national competition authorities and national courts as definitive restatements of the law rather than as non-binding guidelines. These presumptions could be adopted in national enforcement practice or national court rooms, imposing a higher burden on companies defending against abuse of dominance claims and increasing their potential exposure to sanctions. The EC should consider this “Brussels effect” before finalizing the Draft Guidelines.
The Draft Guidelines arguably do not achieve the intended legal certainty and transparency. The legal tests provided are somewhat vague and leave a lot of room for interpretation. This lack of clarity does not aid dominant companies to self-assess whether their conduct amounts to exclusionary abuse. This is particularly evident in the specific legal test for tying and bundling, where the EC fails to clarify the circumstances under which such conduct is presumed to be exclusionary, leaving companies uncertain about where the burden of proof lies.
Next steps
All interested parties can comment on the Guidelines until October 31, 2024. The EC aims to finalize them in the course of 2025.
A&O Shearman is currently in the process of drafting a submission for the public consultation. Should you wish to engage in a discussion regarding any elements of the Draft Guidelines, or if you are considering making a personal submission, do not hesitate to reach out to the authors of this alert or your usual A&O Shearman contact.
