Art 82, which is the key legislation in this essay, says:
‘Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States.
The Europemballage Corporation and Continental Can Co v Commission Case 6/72 [1973] ECR 215 sought to define what a dominant position is in the following way:
“Undertakings are in a dominant position when they have the power to behave independently, which puts them in a position to act without taking into account their competitors, purchasers or suppliers. That is a position when, because of their share of the market, or of their share of the market combined with the availability of technical knowledge, raw materials or capital, they have power to determine prices or to control production or distribution for a significant part of the products in question.”
This definition of a dominant position incorporates both where one company acts and also even where more than one company acts, as seen in Societa Italiana Vetro v Commission (Re Italian Flat Glass Suppliers) Cases T-68,77 and 78/89 [1992] 5 CMLR 302. Most importantly one must establish what the market refered to is. Hoffmann – La Roche v Commission Case 85/76 [1979] ECR 461 held that Art 82 dominant position did not apply to oligopolisitic markets where there are a number of undertakings holding market power and who react to each other conduct in a parallel way. This case also provided a definition for dominance.
“Such a position does not preclude some competition … but enables the undertaking which profits by it, if not to determine, at least to have an appreciable effect on the conditions under which that competition will develop, and in any case to act largely in disregard of it so long as such conduct does not operate to its detriment”
The position has changed minimally and in Societa Italiana Vetro v Commission Cases T-68, and 78/89 [1992] 5 CMLR 302 is was held that where the three Italian glass makers had a collective dominant position as they presented themselves to the market as one unilateral commercial entity. Here we see that this is one definition of a type of a dominant position. On a side note the Court of the First instance said:
“There is nothing, in principle, to prevent two or more independent economic entities from being, on a specific market, united by such economic links that, by virtue of that fact, together they hold a dominant position vis-a-vis the same market.”
This is a very helpful statement from the Court of the First Instance and it shows that the courts take a creative approach to defining what a dominant position is. Even if a company tries to disassociate itself from compatriots with whom they indeed have links this does not prevent a finding of a dominant position provided, the court establishes that there is a specific market and both companies have economic ties with each other.
In Municipality of Amelo v NV Energiebedriff Ijsselmij Case C-393/92 [1994] ECR I -1477 the European Court held on a preliminary reference, that where an undertaking has a non-exclusive concession in a single area of a member state will not be in a dominant position. In this case the undertaking was IJM who held a non-exclusive concession given by the Dutch Government, which allowed it to distribute electricity in country areas directly in a specific part. IJM also provided electricity for local distributors in inner city areas. The local distributors had to purchase their electricity from IJM because of an exclusive possession clause and had to pay a charge to cater for differences in supplying in both inner city and country areas. The challenge from the local distributors was brought as they felt Art 82 had been breached.
The definition of dominance cannot be broached competently without looking at what the relevant market actually is. The Commission’s 1997 Notice on Relevant Product Markets defined it as
‘… All those products and/or services which are regarded as interchangeable or substitutable by the consumer, by reason of the product’s characteristics, their price and their intended use’.
Case law has elaborated on this definition. With reference to the ‘interchangeability or substitutability’ the European court in Michelin v Commission Case 322/81 [1983] ECR 3461 said:
‘… For the purposes of investigating the possibly dominant position of an undertaking on a given market, the possibilities of competition must be judged in the context of the market compromising the totality of the products which, with respect to their characteristics, are particularly suitable for satisfying constant needs and are only to a limited extent interchangeable with other products.’
The European Court felt that the original-equipment tyres concerned were not part of the Relevant Product Market because the demand came from car manufacturers who were governed by different rules and factors. The court also held that car and van tyres were not interchangeable. In addition the court held that there was no elasticity of supply in the midst of tyres for heavy vehicles and car tyres due to the significant differences in production techniques and manufacture. Court went on to agree with the definition of a Relevant Product Market the Commission gave. Here the Commission had pursued Michelin for breaching Art 82 by giving discounts on tyre sales, which were not related to the objective differences in the costs. The Commission felt Michelin was attempting to tie customers to them. We can see the courts take a very in depth approach to defining a dominant position.
In the Hilti AG v Commission Case T-30/89 [1991] ECR II-1439 the Court of the First Instance upheld the argument of the Commission by stating that nail cartridge ships for nail guns, nail guns and the actual nails were part of different markets and therefore their interchangeability was restricted. The conclusion was that they could not be interchanged. An interpretation of this ratio is that, one can be seen to holding a dominant market position if they held a dominant position in the separate markets for nails, nail guns and nail cartridge strips. The European court upheld this decision on appeal (see Hilti v Commission Case 53/92P [1994] ECR I-667).
Hugin Kassaregister AB and Hugin Cash Registers Ltd v Commission Case 22/78 [1979] ECR 1869 was a case that held that spare parts for cash registers were in a different relevant product market to cash registers. AZKO Chemie BV v Commission Case C-62/86 [1991] ECR I-3359 was case that concerned chemical products and it was held in this case that the way products were used defined what relevant product market they were in. Here although the relevant market was organic peroxide, the breach of Art 82 was only in relation to bleaching agent use.
Another aspect that must be taking into account when defining the dominant position is the extent to which a customer would choose one product over another. The Relevant Product Market Notice of 1997 in relation to this says that:
“The question to be answered is whether the parties’ customers would switch to readily available substitutes or to suppliers located elsewhere in response to a hypothetical small (in the range of 5 per cent to 10 per cent) but permanent relative price increase in the products and the areas considered.”
This appears to be quite a specific test, however this useful as one would be able to precisely determine whether a party is in a dominant position or not. The United Brands Co & United Brands Continental BV v Commission Case 27/76 [1978] ECR 207 held in spite of the argument put that bananas had cross elasticity with other fresh fruit that Bananas were in fact the Relevant Product Market.
Hoffman-La Roche also indicated that the Commission and the court should look at the market share the undertaking possesses and other factors, which might contribute to its ability to be dominant in the market. A large market share held over a significant period of time could suffice. The AZKO case suggested a figure of 50% as being indicative of a large market share whereas in United Brands between 41% and 45% was seen as sufficient. Hoffmann in the following extract listed what other factors could indicate dominance these could be:
“…the relationship between the market share of the undertaking concerned and of its competitors, especially those of the next largest, the technological lead of an undertaking over its competitors, the existence of a highly developed sales network and the absence of potential competition.”
With regard to Market share of competitors in the United Brand case the market was fragmented and United Brands held 10-16 % of the market share. The court considered commercial and technological advantages to be very relevant in Hoffman and in particular in the Continental Can case immediate access to the international capital market was a deciding point. Regarding the control of production and distribution this fact was determining in United Brands and the company owned the plantations where the bananas grew. In the cash register case Hugin was in a dominant position, as it owned the means of producing the spare parts. In terms of conduct and performance, Michelin’s actions were seen by the court to be discriminatory pricing.
(a) Consten and Grundig v Commission Case 56 and 58/64 [1966] ECR 299 held that it is only
“to the extent to which agreements may affect trade between Member States that the deteriation in competion falls under the prohibition … contained in Art 81; otherwise it escapes the prohibition”
Watts with reference to this ratio, can argue that the agreement it has with Forte would not and does indirectly or directly, affect trade between the Member States and it is merely a way to make their production systems more efficient. The case of Societe Technique Minere v Maschinenbau Ulm GMBH Case 56/65 [1966] ECR 235 and also Consten suggest that this defence can be weakened if it proven that Watts are seeking to prevent restrict or distort competition. Watts could also argue that the agreement comes under the exceptions under Art 81(3) in that it contributes to improving the production or distribution of goods and also helps to promote technical and economic progress. Arguably if their agreement is put into place it would save money and therefore these savings could be passed on to consumers. Watts would also have to prove, to fall under the exceptions that the agreement does not impose any restrictions that go beyond the positive aims of the agreement. In addition Watts would have to prove that the agreement does not create the possibility of eliminating competition in respect of a substantial part of “new MP3 systems. The test is an objective one as outlined by Re Bayer and Gist-Brocades [1976] 1 CMLR D98. As the agreement covers a distributor network Watts could argue that it is covered by the block exemption on distribution agreements provided for by Commission Regulation 1983/83.
(b) The collaboration amounts to a 40% market share of the music player relevant product market. As seem above a collection of companies can be seen to have a dominant position however the figure of 40% falls just under the smallest figure of 41% in United Brands, so to this extent they could not be accused of abusing a dominant position. However the court as prescribed by Hoffmann above can look at other factors, to determine a dominant position and to see whether there has been an abuse of it contrary to Art 82.
Bibliography
- Amelo v NV Energiebedriff Ijsselmij Case C-393/92 [1994] ECR I –1477
- AZKO Chemie BV v Commission Case C-62/86 [1991] ECR I-3359
- Europemballage Corporation and Continental Can Co v Commission Case 6/72 [1973] ECR 215
- Societa Italiana Vetro v Commission (Re Italian Flat Glass Suppliers) Cases T-68,77 and 78/89 [1992] 5 CMLR 302.
- Commission Regulation 1983/83
- Commission’s 1997 Notice on Relevant Product Markets
- Consten and Grundig v Commission Case 56 and 58/64 [1966] ECR 299
- Hilti AG v Commission Case T-30/89 [1991] ECR II-1439
- Hugin Kassaregister AB and Hugin Cash Registers Ltd v Commission Case 22/78 [1979] ECR 1869
- Hoffmann – La Roche v Commission Case 85/76 [1979] ECR 461
- Michelin v Commission Case 322/81 [1983] ECR 3461
- Re Bayer and Gist-Brocades [1976] 1 CMLR D98
- Societe Technique Minere v Maschinenbau Ulm GMBH Case 56/65 [1966] ECR 235
- United Brands Co & United Brands Continental BV v Commission Case 27/76 [1978] ECR 207