Author: Atharva Kulkarni
Third year law student at Maharashtra National Law University, Mumbai
I. What is a Refusal To Supply?
On 27th March 2023 the European Commission ("EC") notified amendments to its Guidance on Enforcement Priorities of Article 102 (The Guidance). It updated the enforcement priorities of multiple abusive practices under Article 102 (Art. 102) of The Treaty on The Functioning Of The European Union ("TFEU") and aligned them with the prevailing law.
In this context, a refusal to supply occurs when a vertically integrated dominant company refuses to supply its inputs to a downstream rival. Paragraph 76 of The Guidance defines a ‘downstream market’ as the market where a refused input is required for further manufacturing. Typically, while dominant firms can legitimately suspend supply contracts with another party owing to commercial interests, it can sometimes lead to an abuse of dominance.
The amendments distinguished constructive refusal to supply from ordinary refusal to supply and declared it an independent form of abuse with lower standards of proof. Such a decision treads on an uncharted territory in the European antitrust jurisprudence and can have drastic legal implications. The following article analyses this development.
Instances of abusive refusals can lead to the imposition of a ‘duty to deal’ by the European Commission and the Court of Justice of the European Union ("CJEU") via Art. 102. Thus, dominant firms, in rare circumstances, can be compelled to trade with a party against their will.
Refusals can be explicit or implicit. Implicit refusals are referred to as constructive refusals. These occur when a dominant firm makes supply of inputs subject to untenable trade conditions. Orange Polska V. EC, Deutsche Telekom V. EC dealt with refusals where a dominant vertically integrated firm gradually degraded the quality of its supply through dilatory practices, subpar supply conditions and other untenable trading conditions. These abuses were termed non price based constructive refusals to supply. In contrast, outright refusals are more direct and explicit.
Art. 102(a) also recognizes that direct or indirect imposition of trading conditions by a dominant firm on a rival may be unreasonable. Deterioration in the quality of product or, the overall supply by a dominant undertaking constitutes such an unreasonable condition. Therefore, non-price based constructive refusals could in principle be abusive.
II. The Bronner Criteria & Its Decline
A duty to deal is not absolute nor is it uniformly applied. As pointed out by the CJEU in Oscar Bronner V. Mediaprint Zeitungs (Bronner), a refusal to deal can be considered abusive only in ‘exceptional circumstances’.
To carve out situations in which a refusal would be considered abusive, CJEU, inspired by the American regime, introduced the ‘essential facilities’ doctrine in Commercial Solvents V. Commission On European Communities (Commercial Solvents). It held that if the refusal by a dominant undertaking concerned an input which is an essential facility for the existence and operation of the downstream market, it can be forced to resume its supply.
The court provided further guidance and held that a dominant undertaking would be forced into a duty to deal only if it could be established that:
1. the input is indispensable to the downstream market,
2. the refusal is likely to eliminate the competition in the market and,
3. the refusal has no objective justification.
These conditions are called the ‘Bronner Criteria’. As pointed out by CJEU in IMS Health V. NDC Health, indispensability, means that the input requested by the downstream firm must be non-duplicable and no alternatives should exist. Even though alternatives might not be economically viable, if they exist, no claim of indispensability can be made.
The amendments radically changed this position by distinguishing constructive refusals from outright ones and applying a differential treatment, devoid of indispensability and the broader Bronner criteria, upon them.
The EC rationale is primarily based off recent cases. In Konkurrensverket v TeliaSonera Sverige AB (TeliaSonera), CJEU stated that the Bronner criteria won’t be required in abusive cases where the conditions of supply become disadvantageous over time. This interpretation was used by the General Court (GC) in Slovak Telekom a.s. v European Commission (Slovak), where the GC expanded it and held that non-price based constructive refusals are distinct from outright refusals and the Bronner criteria does not apply to them. Later, in 2021, this judgement was appealed against in the CJEU, where the court reaffirmed the contested decision.
In Slovak and Lietuvos geležinkeliai AB v European Commission, CJEU has stated that situations where access to inputs was already given and then later withheld are starkly different from those of outright refusals, and that indispensability only applies to the second. This was also reaffirmed by the commission in its recent policy brief. The Guidance in Paragraph 84 endorses this and treats termination of supply agreements as likely to be more abusive.
The reasoning seems to be that when a rival firm has entered a trade relationship with an upstream dominant undertaking and has made specific investments for its supply, it creates ‘legitimate expectations’ of consistent future supply. Such a prior course of dealing also establishes whether a duty to deal is appropriate or not, relaxing the need of an overarching indispensability requirement. Therefore, on the basis of these rulings, the EC has exempted constructive refusals from the Bronner criteria.
III. Critiques
Freeing constructive refusals from the indispensability standard is an unprecedented move and has drawn substantial critique from the legal fraternity of the EU. Niamh Dunne in her article states that this decision by the GC in Slovak goes beyond competition policy and is unprincipled. She argues that considering constructive refusals to be an independent abuse is not practical as the distinction of both refusals is not a strict binary and often is intertwined.
In the Commission decision of ARA Foreclosure, and Clearstream International V. Commission on European Communities, the authorities dealt with constructive refusals, and, regardless of its nature, applied indispensability, extending it uniformly to all refusals, concluding that for the commission and the GC in Slovak to ignore these precedents is patently irresponsible. Dunne argues that dissociating from the indispensability standard is a mistake, as it implies that constructive refusals are subject to a less strict scrutiny than outright refusals. However, this contradicts the GC decision in Slovak, which held that the form of a refusal is not contingent on the seriousness of antitrust scrutiny.
United Brands V. Commission of European Communities and the Commission decision in Boosey & Hawkes have established that a dominant undertaking is also entitled to protect its commercial interests and is not liable to supply if a reasonable notice was given to the refused party.
EU Competition Law is in tandem with the Charter of Fundamental Rights of the EU which entitles every undertaking (even dominant ones) to fundamental property rights, which extends to choosing its trade partners as well.
O’Donoghue states that a trigger-happy application of duty to deal would restrict this fundamental right to property of dominant firms and can hinder innovation. AG Jacobs also made a similar argument in his opinion in Bronner. He warned that imposing an aggressive enforcement of a duty to deal on dominant firms would, in the long term, deter competition. By allowing competing firms to become reliant on the dominant firm’s compelled supply of inputs, he concludes that this would make dominant firms hesitant to innovate due to the fear of being subject to a duty to supply their competitors, which would negate the short-term gain in competition.
Further, a dissonance in treatment merely based on whether the refusal is de novo or in a course of dealing has been observed to be irrational. A diminution of the threshold, by suspending indispensability in particular cases, can lead to an overzealous antitrust scrutiny ultimately hindering the property and business rights embedded in the Charter.
Pablo Colomo Ibanez pointed out that the existence of indispensability should be determined in the nature of remedies imposed by an authority for resolving an antitrust infringement. These remedies are of two types: behavioural and structural. Behavioural remedies simply impose a negative obligation on the dominant undertaking to cease an abusive trade practice whereas structural remedies are complex and resource intensive. Structural remedies typically enforce positive duties (to do something) on a dominant undertaking to rectify its abusive conduct.
Ibanez argues that the Bronner criteria & the indispensability standard should be restricted to cases of structural remedies where its imposition leads to the regulation of supply arrangements to an input. Therefore, the establishment of the Bronner criteria and the trailing indispensability standard is necessary prior to enforcing a duty to deal.
IV. Conclusion
The amendments to the Guidance attempted to reinvent the enforcement of constructive refusals by relieving them of the Bronner criteria. However, this move has received massive censure for its meddling with the fundamental freedoms of property and trade of dominant undertakings by imparting a less strict scrutiny in constructive refusal cases. This in turn could lead to an inflexible duty to deal enforcement, which could undermine the growth of the EU markets. The EC is set to promulgate guidelines on abusive conduct in Art. 102 in 2025 and has sought suggestions for its guidelines. It is expected an overhaul will indeed be made and that the present almost authoritarian position will be rectified.
Note: This article has been reviewed by Mr. Steven Levitsky ( Merger Clearance and Antitrust Counseling, Manhattan, New York, United States ) at the Tier II Stage.