Konstantinos Sidiropoulos

DPhil Candidate at University of Oxford – Prof Steve Weatherill

Foundation for Education and European culture scholar

Introduction

The best way to regulate abuse of dominance in the EU has been a subject of much discussion. In the early 2000s, aiming to address criticisms of its approach to unilateral conduct control, the European Commission started reviewing the relevant law, including how it was being applied (see the EAGCP Report and the Discussion Paper). The Commission’s stated goal was to make the enforcement of Article 102 TFEU more economically grounded (see e.g. here and here). This meant shifting away from the EU Courts’ “traditional form-based analysis” and towards what was presented as a superior, “more economic approach” to abuse of dominance.

December 2008 saw the Commission adopt a guidance paper outlining its enforcement priorities for exclusionary abuses under Article 102 TFEU (‘Enforcement Priorities Paper’). This marked the culmination of the debate and cemented the Commission’s modern approach to abuse of dominance control.

Legal Status

The Enforcement Priorities Paper is a unique soft law instrument positioned as a statement of prosecutorial discretion. It is unconventional in both form and content.

Formally, it deviates from the typical Notice or Guidelines format, appearing as a Communication offering ‘guidance on enforcement priorities’. This format doesn’t align with the legal acts outlined in Article 288 TFEU, nor is it recognized in case law as containing ‘rules of practice’ (see e.g. Dansk Rørindustri at para 209). This raises questions about whether the Priorities Paper can even be considered under the Grimaldi judgment (para 18).

The content of the Priorities Paper is also unusual. It claims to address enforcement priorities rather than providing substantive guidelines. In other words, it aims to clarify where the Commission will direct its resources instead of interpreting the law (paras 2-3). This framing arises from the EU Courts’ jurisprudence, which constrained the Commission’s attempts to advance its Article 102 TFEU policy. Issuing substantive guidelines would merely reiterate existing law (see the European Parliament’s report at points K, L and N), clashing with the Commission’s economics-based approach. Therefore, presenting a document on enforcement priorities was a strategic way for the Commission to imply dissatisfaction with existing law without directly challenging its judicial interpretation.

On the surface, the question of whether the Commission can preemptively indicate which practices it will prioritize when enforcing Article 102 TFEU was settled in Automec. Here, the GC held that ‘setting priorities within the limits prescribed by the law […]  is an inherent feature’ of the Commission’s administrative activity (para 77). However, Automec doesn’t fully endorse the Enforcement Priorities Paper for two reasons. Firstly, the paper’s title is misleading: it doesn’t actually prioritize anything. It reads like substantive guidelines, covering all categories of exclusionary conduct deemed abusive in jurisprudence. Secondly, the EU Courts’ acknowledgment of the Commission’s discretion to prioritize cases isn’t absolute. The Commission must operate within the bounds of the law. This includes respecting the CJEU’s interpretation of Article 102 TFEU, given that the CJEU holds the monopoly on interpreting EU law according to Article 19(1) TEU in conjunction with Articles 267(3) and 344 TFEU. Notably, the Priorities Paper contradicts case law in several aspects.

Therefore, the Priorities Paper doesn’t set priorities in the way Automec envisions; it provides substantive guidelines. Neither the disclaimer in para 3 stating it ‘is not intended to constitute a statement of the law’ nor the document’s title can change this. Moreover, attempts by some Commission lawyers to redefine the review’s objective, arguing that case law and the Priorities Paper occupy different spheres (see e.g. here at p. 7), are unconvincing.

Even so, the Priorities Paper lacks legally binding force. One could argue that as a soft law instrument, it establishes ‘rules of conduct which are designed to produce external effects’ as per the Archer Daniels Midland judgment (para 91). These effects have two interconnected implications: they function as instructions for the Commission’s administrative practice, and the Commission must justify any departure from these soft rules in specific cases. However, two factors prevent the Priorities Paper from having the legal impact of other soft law instruments. Firstly, it deviates from case law. For a non-binding text to have legal effects, it must not only comply with primary and secondary EU law (see e.g. Dansk Rørindustri at para 252) but also be consistent with established jurisprudence (see e.g. Dansk Rørindustri at para 261).

Secondly, the CJEU only recognizes legal effects for soft law instruments when it promotes legitimate expectations, equal treatment, and legal certainty (see e.g. Dansk Rørindustri at para 211). The Priorities Paper, however, fails to meet these criteria. It doesn’t create legitimate expectations because it doesn’t definitively guarantee that conduct falling outside its scope will go unpunished (para 3). Reliance on legitimate expectations is unacceptable without clear assurances from authorities about their actions (see e.g. the GC’s judgment in Intel at paras 161-166). Additionally, a dominant firm can’t claim unequal treatment if the Commission doesn’t pursue another firm’s exclusionary conduct. Stating that certain practices are enforcement priorities doesn’t imply that other behaviors deemed to infringe Article 102 TFEU under case law are lawful. Finally, the Priorities Paper doesn’t enhance legal certainty; it arguably creates more confusion than clarity.

In conclusion, the Priorities Paper has an ambiguous legal standing. It lacks binding legal force and can’t produce legal effects because it doesn’t effectively uphold any general principles of EU law. Consequently, neither Automec nor Grimaldi provide grounds for considering the Priorities Paper, as it doesn’t meet their requirements.

Practical Significance

The Priorities Paper, despite its lack of legal status, might still carry practical weight. The discrepancy between its content and case law might not deter companies and their legal counsel from consulting it. It signals the Commission’s threshold for intervention, and practically speaking, if the Commission chooses to pursue cases based on specific criteria, businesses and their advisors will try to decipher and adapt to those criteria.

However, several factors hinder the Priorities Paper’s practical usefulness. First, it lacks clear-cut rules. Its principles are subject to significant, poorly explained exceptions. Second, it offers no safe harbors, diminishing its guidance value. Third, guidelines should enhance transparency, accountability, clarify the law, ensure consistent enforcement, and increase legal certainty (see e.g. Tréfilunion SA v Commission at para 142). The Priorities Paper disregards these objectives, relying on theoretical economics with little regard for the practical implications for businesses. Lastly, the Commission itself doesn’t always adhere to its own ‘guidance’ (see the Intel decision).

Compatibility with the Principle of Loyal Cooperation

The principle of loyal cooperation is central to European integration, and the CJEU has long recognized it as a fundamental principle of EU law (see e.g. the ERTA judgment at para 87). This principle governs all areas of EU competence, including competition policy (see e.g. Case C-344/98 Masterfoods at para 56). As emphasized in its post-Lisbon Treaty form, loyal cooperation is reciprocal (Article 4(3)(a) TEU) and governs relations between Member States and EU institutions and among the EU institutions themselves (Article 13 TEU).

Both the adoption and content of the Priorities Paper contradict these aspects of the loyal cooperation principle.

Loyalty Between the EU Institutions

The Commission’s approach to abusive exclusionary conduct in the Priorities Paper contradicts case law, demonstrating a lack of loyalty towards the CJEU. By using guidelines to deviate from established jurisprudence, the Commission overstepped its authority under the Treaties. This undermines the mutual cooperation required by Article 13(2) TEU. Furthermore, calling the document ‘enforcement priorities’ appears to be a deliberate tactic to downplay the tension between its approach and established case law, further compounding the infringement.

The Commission also disregards the principle of sincere cooperation with the Council. The Priorities Paper effectively modifies the framework of Article 102 TFEU in several ways, thereby circumventing the Council’s legislative responsibility for competition law (Articles 103(1) in conjunction with 289(2) and (3) and 290(1)(b) TFEU). The Commission needs delegated authority to enact measures in this area, limited to non-essential issues (Article 290(2) TFEU). Acting otherwise would be ultra vires, violating Article 17 TEU, which outlines its responsibilities. In doing so, the Commission also breaches the principle of institutional balance.

Loyalty Between EU Institutions and Member States

Despite stating in the accompanying Frequently Asked Questions that the Priorities Paper was extensively discussed with National Competition Authorities (NCAs) (question 9), the Commission violated its duty of sincere cooperation with Member States.

This is due to the shared competence of the Commission, NCAs, and national courts in applying Article 102 TFEU (Articles 4-6 of Regulation No 1/2003). This necessitates close collaboration to avoid conflicting decisions (Articles 11(1) and 15 of Regulation No 1/2003). Ideally, NCAs and national courts should consider the Priorities Paper (see Grimaldi at paras 18-19; Commission Notice at para 8). However, they must also uphold EU Court case law in line with the principle of EU law supremacy. This means NCAs and national courts can only consider the Priorities Paper insofar as it aligns with CJEU jurisprudence. Adding further complexity, the Commission’s inconsistent approach in decisions post-Priorities Paper makes it difficult for NCAs and national courts to deviate from Commission decisions (see Article 16 and recital 22 of Regulation No 1/2003). This uncertainty jeopardizes the uniform application of Article 102 TFEU at the national level.

Compliance with Fundamental Rule-of-Law Principles: Analysis of Rebates as an Example

More concerning is the content of the Enforcement Priorities Paper, which sometimes fails to integrate economic and legal analyses in a way that ensures compliance with fundamental rule-of-law principles, such as legal certainty and the nullum crimen, nulla poena sine lege principles (Article 49 CFREU; Article 7 ECHR). Upholding these principles is crucial when enforcing Article 102 TFEU, given that penalties, like the substantial fines in the Intel case, can be levied.

The Priorities Paper’s approach to rebates offered by dominant firms exemplifies this issue (see paras 37-45). The ‘as-efficient competitor’ test (‘AECT’) advocated for evaluating rebates is a prime example of a purely theoretical economic tool. While it’s a sophisticated test based on solid economic principles, it lacks practical applicability (for a list of objections against this test, see here). It’s a perfect test in theory, working seamlessly with perfect data. The problem is, perfect data doesn’t exist.

For instance, this test requires dominant firms to predict the number of units their clients might buy from competitors. The only way to do this is to ask the client, who has a strong incentive to mislead the dominant firm. Similarly, the Priorities Paper’s test requires a dominant firm to preemptively assess a competitor’s potential pricing and product range. This relies on information about rivals’ costs and sales, which the dominant firm is unlikely to have. Additionally, the AECT works on the assumption of a single competitor and a single customer. What if there are thirty competitors? Should the dominant firm perform this intricate analysis thirty times for each client? This would be an insurmountable task, making the test only usable in retrospect and with access to confidential information. It’s unworkable for a company trying to self-assess its practices.

It seems the Commission, in its eagerness to infuse economic analysis into the enforcement of Article 102 TFEU, overlooked the impracticality of giving economics a standalone role in interpreting this provision. Any argument for a more economic approach to abuse of dominance falters if it isn’t effectively integrated with legal reasoning. Legal reasoning, by its nature, is categorical and therefore formal. Only formal rules can ensure the proper enforcement of Article 102 TFEU in achieving its goal: maintaining effective competition in the internal market. Effective competition relies on market players operating in an environment where they can reasonably assess in advance whether their conduct violates Article 102 TFEU.

Despite the theoretical soundness of the economic arguments supporting the AECT, it’s not suitable for assessing rebates under Article 102 TFEU. One key reason is that it fails to guarantee the observance of fundamental legal principles.

Conclusion

The Enforcement Priorities Paper is fundamentally flawed, both constitutionally and in substance. Constitutionally, the Commission doesn’t have free rein in interpreting Article 102 TFEU; it cannot overrule the CJEU’s interpretation of the law. Therefore, adopting the Priorities Paper was overreaching, breaching several general principles of EU law. Furthermore, the Priorities Paper’s approach to rebates shows that its substantive analysis clashes with basic rule-of-law principles. Choosing a certain title can’t mask or fix these shortcomings. Continuing to use the Priorities Paper would be disrespectful to the CJEU and unnecessarily confusing.

Barnard & Peers: chapter 17

Photo credit: http://ec.europa.eu/competition/court/antitrust.html