The Dominant Position and The Concept of PDF
The Dominant Position and The Concept of PDF
82
265 Bishop/Walker, supra n 204, para 6(6). For the early definition of dominance, Case C27/76, United Brands, 1978 ECR 207, para 65, Case C-322/81, Michelin, 1983 ECR
3461, para 78.
266 Supra n 5, paras 10, 11.
267 R. Bechtold, EG-Kartellrecht, Beck, 2005, para 17.
268 See Langen/Bunte, supra n 58, para 87, where the abusive exploitation is advanced as a
division of two concepts, namely, exploitative abuse and impediment-abuse in the sense
of Article 102. The division is not workable as some practices may exploit customers and
exclude competitors at the same time.
269 Gtting, supra n 192, para 59. Gtting argued that the introduction of Section 19(1)s
general prohibition by the enactment of the Sixth Amendment to the ARC (ex Section
22(4) 1st sentence) aimed to harmonise the German abuse of dominance with that of ex
Article 86 EC (now Article 102 TFEU).
83
84
85
undistorted competition.281 Furthermore, the court held that the public interest
in maintaining effective competition in the market permitted interference with
the exclusive right of the owner of the intellectual property right and was not
objective justification.282
Under both competition law regimes, positive or negative-based value
judgements must be taken as merely statements that are unable to constitute a
normative definition from which different types of abuse derive and which could
be applied to a particular case. The definition of abuse is, indeed, the most
difficult, as all possible anti-competitive practices may not be included when
defining an abuse of dominance by reference only to such general principles.
Therefore, allowing for the possibility of an undertakings defence by an
objective evaluation of its own commercial interests is crucial.
However, due to practical reasons, even the German concept of abusive
exploitation itself has been unable to offer a general definition that could
include all types of anti-competitive or abusive conduct engaged in by dominant
undertakings. Nonetheless, the paradox is that Section 19(1)s general
prohibition of abusive exploitation focuses particularly on the exclusionary
conduct of a dominant undertaking as a supplier or purchaser of a certain kind
of goods or commercial services under Section 19(4). This may also respond to
the general criticism that, under EU competition law, the abuse of dominance has
enforced merely exclusionary and not exploitative abuse. The definition of
abuse of dominance in Hoffmann-LaRoche related abuse especially to
exclusionary conduct. This has been repeatedly reiterated, but interpreted as
disregarding merely exploitative practices, especially charging excessively high
prices, as they do not hinder competition.283 In such a situation, the concept
of impairment of the ability of undertakings to compete in a manner affecting
competition is more appropriate than hindrance or prevention-based competition.
This distinction is justified by Article 102, which does not include non-dominant
undertakings as Section 20 does.
Despite recognition of the practical inability to offer a comprehensive
definition of the abuse of dominance, which would make it possible to include
under Article 102 a list of potentially anti-competitive practices that were found
to be abusive, the overall criticism is that the courts have taken rather a
86
284 Ibid. See J. Drexl, Is there a more economic approach to intellectual property and
competition law?, in: Drexl (ed.) Research Handbook on Intellectual Property and Competition Law, Elgar, 2008, 30.
285 O. Odudu, The Role of Specific Intent in Section 1 of the Sherman Act, 25(2002)4 World
Comp., 478.
286 Ibid, 489. However, under the ARC, the recoupment of losses is not required, save for the
subjective predation under the AUC; see Mschel, in: Immenga/Mestmcker (eds.), supra n 7, para 122.
287 Khler/Bornkamm, supra n 71, paras 10189-92, 435; see Federal Court of Justice, (FCJ),
Anzeigenpreis I, GRUR 1990, 685, 686; FCJ, Anzeigenpreis II, GRUR 1990, 687, 688.
288 Ibid, para 10191; FCJ, Preiskampf, GRUR 1990, 371.
87
88
policy objectives of free and fair competition come into play. The responsibility
of dominant undertakings to compete on their own merits is, however, greater
under Section 20 where even non-dominant undertakings are prohibited from
using their position in an unfair manner.
293 Mschel, in: Mestmcker/Immenga, supra n 7, para 107. Accordingly, the theory of the
two barriers explains that the practice of Section 20(1) and (2) ensures that the balancing of interests is weighted against free competition; in the same vein, Lange/Bunte, supra n 58, paras 106 and 138; FCJ, Case KVR 9/81, Gemeinsamer Anzeigenteil, 1982
WuW/E, 1965-6; FCJ, Flugpreisspaltung, 22 July 1999, WuW/E DE-R, 375, 377; FCJ,
Strom and Telefon I & II, 4 November 2003, WuW/E DE-R, 1206.
294 Case T-203/01, Michelin II, 2003 ECR II-4017, paras 107, 110.
295 Case C-62/86, AKZO, 1991 ECR I-3359, para 81.
296 Khler/Bornkamm, supra n 71, para 36, 116; J. Glckner, The Law Against Unfair
Competition and the EC Treaty, in: Hilti/Henning-Bodewig (eds.) Law Against Unfair
Competition, Max Planck Institute Studies on Intellectual Property, Competition and Tax
Law, vol. 1, Springer, 2007, 77.
89
90
behaviour that leads to an increasing performance and to a better service for the
consumer is allowed irrespective of whether it hinders smaller competitors.305
In Intel, the Commission recognised that it cannot make absolute judgements
on the technical performance of the products at stake, or relative judgements on
the competitive performance of AMD and Intel products. Despite recognising
that it could not assess their performance under free and effective competition, it
enforced the prevention-concept of the competition on the merits.306 The latter
approach would come into play for non-dominant undertakings relative to
smaller competitors. Therefore, the Commissions approach is inconsistently
applied to a dominant undertaking that is not assessed based on its economic
performance, but rather the evaluation is based on the customers or purchasers
free choice as an economic variable of the unfair competition.307 It concludes
that end-customers were prevented from choosing other products on the merits
and that Intels conditional rebates and payments diminished competitors
ability to compete on the merits of their x 26 CPUs, which reduced consumers
choice and lowered incentives to innovate.308
However, the ability to compete of all competitors falls outside the scope of
prevention of the German unfair hindrance of smaller competitors by nondominant undertakings. Furthermore, the emphasis should be upon impairmentcompetition, as it relates to all competitors ability to compete and thereby affect
competition in the market. The Commission focuses more upon free choice,
consumer harm, and further innovation incentives that are insufficiently
quantified in the long run. The intervention, however, is granted by relying on
the as-efficient competitor test for rebates by showing that the rebates Intel
granted to Dell, HP, NEC and Lenovo are capable of causing or likely to cause
anticompetitive foreclosure (which is likely to lead to consumer harm).309
Consequently, an equally efficient competitor would be prevented from
entering the market, which does not appear to be the case. The Commission
itself suggested that this analysis is in principle independent of whether or not
305
306
307
308
309
February 2001, WuW/E DE-R, 880-3. In recent practice, the criterion of performancecompetition is paramount, see FCJ, Strom and Telefon I & II, 4 November 2003, WuW/E
DE-R, 1206-12.
KG, Sonntag Aktuell I, 30 May 1979, WuW/E, 2148/9; KG, Fertigfutter, 12 November
1980, WuW/E, 2403, 2407.
Intel, supra n 279, paras 1689. As Intels competitor, Dell believed that the superior
technical performance of AMDs Opteron microprocessor would give the EEMs that had
adopted AMD a significant competitive advantage, para 184.
Ibid, paras 915, 938, 959.
Ibid, paras 1603, 1616.
Ibid, para 923. The concept requires extensive analysis in Ch.V.
91
AMD was actually able to enter.310 As will be examined further, in the second
section, it makes a real difference whether the as-efficient competitor is unable to
enter the market, is already in the market and needs to remain viable or, in
exceptional circumstances, whether, although in the market, it must survive
the competitive pressure in the market.311 This premise is also questioned from a
US perspective of unfair methods of competition to the extent that it does not
prevent a competitor from entering the market.312
As has already been suggested, Intel is the first case where the Commission
endorsed its newly introduced concept of anticompetitive foreclosure leading to
consumer harm.313 The outcome of such an intervention is not beyond any
arbitrariness where the appraisal extends the market structure focus to include
market participants by attempting to prove the subjective intent as part of a
single continuous strategy aimed at foreclosing Intels competitor AMD.314
Intels manoeuvres are naked restrictions aimed at restricting the
commercialisation of specific AMD products. Single continuous strategies are
also in a similar vein to those marketing strategies under Section 20 that are
continuous and systematic measures.
In conclusion, the Commission exceeded its appraisal of Intels performance
and defended the public interest. For example, it afforded market participants
protection in a broad sense. Under EU competition law, it would be restricted
solely to the competitors freedom of action to bring products or services on to
the market without being hindered. Under the Commissions fair and effectsbased approach, all the other economic variables, such as consumers free choice
or innovation, are considered.315
The most conclusive evidence of the misleading interpretation of unfair
competition with a paramount focus upon competition on the merits is where the
Commission held that Intels conduct had detrimental effect on competition on
the merits.316 Accordingly, ensuring free competition based on the undertakings economic performance is subordinated to that of fair and undistorted
310 See Intel, summary, 13 May 2009, decision relating to a proceeding under Article 82 EC
and Article 54 EEA Agreement, para 29.
311 See Ch.VII; Monti, below n 313. Monti argued that the probability of non-intervention is
when a dominant undertaking is able to show that an as efficient competitor could survive the dominant firms defensive strategies.
312 See Crane, supra n 225, 6.
313 G. Monti, Article 82 EC, 1(2010)1 J.Eur.Comp.L&Prac., 10.
314 Intel, paras 917; 1681; 1737-48.
315 See below n 302; Crane, supra n 225, 6-7. Commissioner Rosch argued that Section 5 on
unfair methods of competition would have applied in the US Intel case if Intel reduced
the variety of choices facing consumers, even if it did not raise prices because of the acquisition or maintainance of monopoly power.
316 Ibid, para 1670.
92
93
patent ambush.325 The Commission concluded that Rambus might have abused
its dominant position in the DRAM interface technology market by claiming
royalties for the use of such patents, which is incompatible with Article 102 in
the light of the specific circumstances of this case.
In particular, the Commissions focus is upon Rambuss
Intentional breach of JEDEC policy and the underlying duty of good faith in the context
of standard-setting, which resulted in a deliberate frustration of the legitimate expectations
of the other participants
in the process. There is no better evidence elsewhere in any case of both the
subjective intent and the protection of other market participants or of the
general public. Any arbitrariness of such an intervention occurs when the shift
from the objective capability to materially deceive competitors is requiring the
cumulative intention of a dominant undertaking. Rambus is not abusing its
position, but its alleged intentional conduct affects competitors, such as the
capture of the JEDEC industry standards as an industry lock in effect as a
whole.326 Thus, particularly the lock-in effect is left unsubstantiated as
evidence of any attempts to demand or persuade customers according to the
definition of unfair competition, for which reasons Rambus has been offered
commitments.327
In fact, the assessment of market dominance is even unnecessary if the pleas
against Rambus could be substantiated as unfair competition practices. As will
be examined further, apart from secondary legislation, Article 102 does not
include provisions that could include unfair deceptive commercial practices as
Section 5 Federal Trade Commission (FTC) Act or Section 5 AUC on deceptive
advertisement do.328 However, such provisions exist in the harmonisation
directives of national unfair competition rules. Therefore, the examination of an
allegedly exploitative abuse by charging unfair or excessive royalties should
harm the economic interest of consumers or competitors and be analysed further
as a potentially deceptive conduct engaged in by any trader, including dominant
undertakings.
325
326
327
328
94
Even under the US antitrust laws, recent cases such as Intel and Rambus have
highlighted particularly the monopolists deception.329 In particular in the US
case, it was unclear whether Rambus had a tendency to deceive or was likely to
influence the standard-setting organization. Thus, uncertainty exists about
whether Section 2 Sherman Act, therefore, can be directly applied or whether it
falls under Section 5 FTC, whilst some presume that deceptive advertising has
only a de minimis effect on competition.330
Following this line of developments in the US, it appears that there is, indeed,
a risk of not punishing a monopolists anti-competitive deception as a
dishonest or unfair business method of competition. So far, it is solely Article 2
(2) Directive 84/450/EEC on misleading advertising that refers to any
advertising that [d]eceives or is likely to deceive the persons to whom it is
addressed or whom it reaches and which is likely to affect their economic
behaviour or which, for those reasons, injures or is likely to injure a
competitor.331 However, advertising is only one particular marketing strategy
that, in certain circumstances, may deceive the general public. Since its
implementation in the Member States and upon the harmonisation of the Unions
unfair commercial practices, the Commission does not have any regulation on
EU unfair competition. Therefore, the legal background of unfair or dishonest
business strategies is fragmented and demands creativity from the competition
authority in relying on specific directives.
Article 1 of the above directive states that its purpose is to protect consumers
and the interests of the public in general against misleading advertising and the
unfair consequences thereof. Notwithstanding whether the provisions of this
directive are sufficiently clear and precise, unfair commercial practices are not
recognised as EU unfair competition law, which raises the same question as
under US antitrust statute laws regarding which rules come into play. The EU
case law recognition of abuse as having recourse to methods different from
those which condition normal competition332 or of not allowing undertakings
conduct to impair undistorted competition within the internal market may not
329 M.E. Stucke, How Do (And Should) Competition Authorities Treat a Dominant Firms
Deception, (2010) SMU L.Rev., 57(2009) University of Tennessee College of Law Research Paper, 51. Stucke explained that Section 5 FTC only requires evidence that the
misrepresentation would likely deceive consumers acting reasonably under the circumstances in a material respect.
330 Ibid, 48.
331 Directive 84/450/EEC, OJ L150/1984.
332 Case C-85/76, Hoffmann-LaRoche, 1979 ECR 461, paras 6 and 91; Case 322/81, Michelin I, 1983 ECR 3461, para 70; Case C-62/86, AKZO, 1991 ECR I-3359, para 69; Case
C-95/04, British Airways, 2007 ECR I-2332, 66; Case C-202/07 P, France Tlcom, ECR
I-02369, para 105.
95
suffice. If it does not remedy their inclusion, this questions whether there should
also be another mandate for prohibiting unfair methods of competition, such
as unfair or deceptive practices. Should the courts rely on this and develop the
practice based on the existent harmonising directives or should it be for the
Commission to intervene directly? In such an exceptional circumstance, the
objective concept of abuse is partially shifted to a subjective concept that is
complementary to the material capability and the likelihood of effects. Normally,
it should then be for the European courts to double-check the Commission and
establish the actual effects of the dishonest or unfair business method of
competition. In practice, it means that the anti-competitive unfair practice should
cumulatively include a subjective intent. It remains unclear why the US approach
tends not to require actual effects whilst the German unfair competition practice
does.
If the Commission were to have a regulation on EU unfair competition to
cover the exploitative use of intellectual or industrial property rights such as
patents, trade-marks, business secrets and so on and to address specific
commercial practices of undertakings, where both material capability and
subjective intent are relevant, the outcome of cases could be different and the
intervention more predictable for undertakings. Therefore, in the situation where
the unfair or dishonest practices of dominant undertakings, through misleading
representations or fraud in the process of granting property rights, distort
effective competition in a substantial part of the internal market, the Commission
should be able to intervene. The fines could be even higher in the light of the
monopolists deception. However, the Commission should be aware that
intervention bears another risk of conflicting goals and interests with regard to
the primary protected property right such as patents and compulsory licensing
particularly due to their lack of European harmonisation.
96
97
As has already been noted, the analysis of the policy objectives acknowledged
that the German concept of undistorted competition is based on fair
competition.341 Under unfair competition, the special responsibility not to distort
competition is not assessed objectively based upon the conduct of the market
participants or upon their economic performance. Unfair competition assumes
that economic freedom is already created in the market and should be maintained
unaltered. Therefore, the rules on unfair competition come into play to ensure
that free and effective competition remains undistorted and fair.
In conclusion, the special responsibility not to distort competition on the
merits, therefore, cannot be based only on an exclusive objective assessment of
the economic performance. Thus, under unfair competition law, the intentional
or aggressive, harmful conduct is relevant because it directly harms customers,
producers or competitors.
The German abuse of dominance concept is, however, no empty theoretical
concept insofar as its underlying principle of free competition filled the vacuum
of having only unfair competition. Economic freedom as embedded in the
German constitution is part of the economic rights and is crucial to the extent
that it allows the creation of a system of free competition. After its
establishment, maintaining free competition unaltered or undistorted is ensured
by a more severe mechanism of unfair competition law. The Intel and Rambus
decisions are, therefore, a paradigmatic shifting towards incipient key elements
of EU unfair competition.
98
343 For the analysis of a recent application of public interest, see B.Ch.VIII.
344 See Ch.VI.
345 UCPD 2005/29/EC stated its purpose in Article 1to contribute to the proper functioning
of the internal market and achieve a high level of consumer protection by approximating
the laws, regulations and administrative provisions of the Member States in unfair commercial practices harming consumers economic interests.
346 Chiri, supra n 297.
99
practice, the danger of using such vague concepts of abuse of dominance may
not be obvious immediately and therefore, the understanding of distortion
related to the policy objective plays a key role.347
The abuse of dominance policy, insofar as the general underlying principle of
undistorted competition is not itself restricted to Article 116 or 117s
understanding of distortion, limits the right to exceed the boundaries of any
administrative action of Member States. Then, undistorted competition serves an
overall public policy goal of ensuring that competition is not distorted either by
unfair competition practices or by legislation enacted by Member States as a
different provision by law, regulation or administrative action. In the latter
situation, the resultant distortion needs to be eliminated as it distorts the
conditions of competition in the internal market. However, other than
administrative legislation that disrupts normal competition in the internal market,
broad distortions may affect inter-Member States trade and should be afforded
consideration with regard to public policy goals.
347 Ibid.
348 Microsoft, paras 460 and 407; Intel, para 288, where the Commission held that the transformation of a rebate awarded only to Dell into a lower price applicable identically to all
its competitors was a net lost competitive disadvantage. See also Crane, supra n 225, 15
where in the US Intel some elements of deceptive conduct of unfair competition consisted in deception by failure to disclose information about the effects of its redesigned
compiler on non-Intel CPUs and the denial of interoperability between competitive GPUs
and Intels CPUs, which deceived about interoperability.
349 Chiri, supra n 297.
100
350 FCJ, KVR 10/94, Importarzneimittel, 1995, WuW/E, 2990; FCO, B 9-199/97; B 9-16/98,
Puttgarden (Scandlines) 1999; FCJ, 2002, WuW/E DE-R, 977.
351 FCJ, KVR 15/01, Puttgarden, 2002, WuW/E DE-R, 977.
352 Crane, supra 225.
101
enforcing Article 102.353 This creates a less predictable business environment for
both dominant and non-dominant undertakings.
Therefore, there is a need for a clear re-consideration of exactly what amounts
to an abuse of dominance that distorts competition. Consideration should also be
given to how this makes it possible to establish a distinction between
undertakings pro-competitive, neutral and any anti-competitive conduct that
affects competition, and between normal competition and unfair commercial
practices by recourse to any methods different from those that arise under
competition law. In particular, the Microsoft judgment is an example where the
concept of abuse of dominance exceeds the traditional understanding of a
distortion, by considering the overall public interest in maintaining effective
competition whilst opening the Windows Media Player market for more
competition.354 In casu, the public interest benefits consumers, but mostly the
dominant undertakings competitors. This is also the case in Intel, where the
Commissions recent interpretation is that not all competition on price can be
regarded as legitimate, when it is a recourse to means other than those within
the scope of competition on the merits.355 This interpretation reflects a different
level of understanding of the competition on the merits, where its scope remains
unclear.
g) Conclusions
The dynamic interpretation of competition and unfair competition rules has
proved that both competition and unfair competition are teleologically
interpreted in light of the same underlying principle of undistorted competition
as is subordinated to the internal market. Thus, the EUs free and fair
competition does not have the same primary objective as unfair competition and,
therefore, a further enforcement of the EU unfair competitions public interest
goals would run counter to the EU competition rules if the courts were to fail to
perform a balancing of the overall policy objectives under both areas.
Therefore, regarding anti-competitive practices, during balancing, fair
competition should be subordinated to free competition and undertakings
freedom of action. Other unfair methods of competition, such as EU unfair
competition, should aim to achieve fair, honest, and undistorted competition. For
unfair competition, the Commissions competence as DG COMP would exceed
the power confined to a national competition authority and, therefore, a proper
353 Chiri, supra n 297.
354 Case T-201/04, Microsoft, 2007 5 CMLR 11, ECR II-3601, para 646. See B.Ch.VII.
355 Intel, supra n 278, paras 915.
102
103