iTomra judgment: EU’s top court rules that actual effects do not need to be examined in exclusionary practice cases involving dominant firms.
On 19 April 2012, the European Court of Justice (ECJ) confirmed that Tomra—a supplier of reverse vending machines (which collect used drink containers)—infringed European competition law by abusing its dominant position through various “exclusionary” practices. Upholding the decision of the EU General Court, the ECJ held specifically that Tomra infringed Article 102 of the Treaty on the Functioning of the European Union (TFEU) on several national EU markets as a result of several exclusionary practices that included rebate mechanisms and exclusive customer agreements.
In reaching its decision, the ECJ did not require actual anti-competitive effects to have arisen from Tomra’s conduct. Instead, the ECJ confirmed that it is sufficient to show that abusive conduct by a company in a dominant position tends to restrict competition or that the conduct is capable of having that effect. In other words, if a dominant firm’s conduct is capable of restricting competition, it is not necessary to analyse the actual effects of such conduct. This judgment reinforces the tension between the ECJ’s well-established legal precedent concerning unilateral conduct and the more economic, effects-based approach advocated by the European Commission in its 2009 Guidance Paper on Exclusionary Conduct. As a result, while the Commission may prioritise enforcement in line with its 2009 Guidance Paper, dominant firms should be aware that judicial challenges against infringement decisions are likely to be analysed under more formalistic rules.
Background
The Commission’s Decision in Prokent/Tomra COMP/E-1/38.113
The European Commission held on 29 March 2006 that Tomra had violated the EU abuse of dominance rules (Article 102 TFEU) between 1998 and 2002 by operating an exclusionary strategy in the national reverse vending machine markets in Austria, Germany, the Netherlands, Norway and Sweden. Concluding that Tomra held a dominant position, the Commission then found that several practices underpinned its exclusionary strategy, including exclusivity agreements; individualised quantity commitments; andindividualised retroactive rebate schemes.
A corollary of these practices was that competition on the markets was deemed to have been foreclosed and in some instances the Commission found that these practices had even led to the market exit of competitors. The Commission levied a fine of €24 million on Tomra.
In reaching its conclusion, the Commission analysed the actual economic effects. This is significant because, as held by the ECJ in previous judgments (Michelin II and British Airways), to establish an abuse under Article 102 TFEU, it is sufficient to show only that the abusive conduct of a company in a dominant position tends to restrict competition. In other words, although ECJ precedent indicates that Article 102 TFEU can be infringed by conduct capable of having an exclusionary effect, the Commission ventured to analyse—using basic economic models—an analysis of the likely and, indeed, actual effects of Tomra’s practices.
The General Court's Ruling on Tomra’s Appeal
The General Court, on 9 September 2010, handed down its judgment dismissing the appeal brought by Tomra against the Commission’s finding of infringement.
The General Court’s ruling followed the issuance of the Commission’s 2009 Guidance Paper on exclusionary abuses, which espouses an effects-based approach towards exclusionary abuses. The General Court, however, largely brushed this aside and instead opted to follow a long line of cases that have held exclusionary practices, such as fidelity rebates, to be effectively per se illegal. The General Court held that it was unnecessary to look at actual effects on relevant markets when examining exclusive agreements and loyalty rebates by dominant firms. The General Court concluded that it is necessary to ascertain whether, following an assessment of “all the circumstances” and of the context in which those agreements operate, those practices are intended to restrict or foreclose competition on the relevant market, or are capable of doing so.
The General Court’s reference to “all the circumstances,” however, begs the question of whether conduct by a single, dominant firm are illegal per se, or must be assessed more holistically.
The ECJ's Ruling
The ECJ reiterated that the notion of abuse is an objective one and that the Commission can, but is not obliged to, establish the existence of intent on the part of the dominant undertaking. The Court confirmed that it is sufficient to show that abusive conduct by a company in a dominant position tends to restrict competition or that the conduct is capable of having that effect. Such finding obviates the need to perform an analysis of actual effects. In this regard, it was found that there is no obligation to examine the question of whether the prices charged by a dominant company are lower than its long-run. average incremental costs.
Implications of Tomra
The Tomra judgment is a reminder that the economic approach advocated by the Commission’s 2009 Guidance Paper on exclusionary abuses is only soft law. In contrast, EU law concerning abuse of a dominant position suggests a more formalistic approach that is suggestive of per se condemnation of exclusionary business practices of a dominant firm.
This judgment indicates that the divide remains between the Commission’s enforcement priorities in the field of abusive practices by dominant firms and, ultimately, the EU courts interpreting Article 102 TFEU. This creates uncertainty for firms at risk of being deemed dominant when they engage in business practices. In this context, it is of note that the consequences of infringing Article 102 TFEU can be severe. Not only can fines be high, but a party to a contract entered into with a dominant company may claim that it is void and unenforceable and bring proceedings before a national court seeking an injunction or damages for harm caused.
While this apparent divide between case law and enforcement practices is troubling, it may not be significant in practice. As the top enforcer of EU competition law, including Article 102 TFEU, the Commission has a certain discretion in choosing the cases it brings. In Tomra, the Commission opened its investigation years before the 2009 Guidance Paper. Now, three years after the issuance of the Guidance Paper, it follows that the Commission may, in the future, bring cases in line with its own enforcement priorities and analytic approach, as set out in the Guidance Paper.
Potentially dominant companies can take comfort that—at the enforcement stage—the Commission is likely to follow its own Guidance Paper, which indicates an approach informed by economic discipline. However, subsequent challenges to Commission decisions will, at least in the near term, be governed by a more legal, formalistic approach. The same will be true for disputes before national judges on possible infringements of Article 102 TFEU. Thus, while the Commission’s approach indicates an increasingly economic approach to single firm conduct in the European Union, Tomra reminds that this process is one step forward, two steps back.
