Is there now increased scope for dominant firms to use exclusivity clauses?

In January, the Court of Justice of the European Union (CJEU) found that exclusivity clauses imposed by a dominant company do not automatically amount to an abuse of dominance under EU law.

Instead, a competition authority must:

• apply the criteria established in Intel v Commission (Case C-413/14 P) (Intel) to assess exclusionary effects; and
• examine the economic evidence advanced in defence of the dominant company. Arguably, the judgment further narrows the scope for findings of per se infringements of Article 102.

The Background. Through its network of distributors, Unilever financially incentivised ice-cream sellers in Italy to exclusively buy its individually packed impulse ice-cream. Following a complaint, the Italian Autorità Garante della Concorrenza e del Mercato (AGCM) investigated this behaviour and fined Unilever ~€60m for abusing its dominant position, in a decision published on October 31, 2017. The AGCM did not impute any liability on the distributors who implemented Unilever’s abusive instructions.

The Italian Court’s Reference to the CJEU. A regional Tribunal in Italy then confirmed the AGCM’s decision, and Unilever in turn appealed to Italy’s Council of State. In particular, Unilever argued that the AGCM had wrongfully imputed the distributors’ conduct to Unilever and had wrongfully ignored Unilever’s economic analysis demonstrating that the exclusivity clauses had no restrictive effects on the market. Prior to ruling on the case, the Italian Consiglio di Stato referred the following questions to the CJEU:

• Whether Unilever and its network of distributors (who enforced the exclusivity clause on behalf of Unilever) could be viewed as one single economic entity, absent any form of corporate control, so that their conduct could be imputed to Unilever; and
  
  
• Whether the competition agency’s standard of proof in an abuse of dominance case, implemented through exclusivity clauses, requires it to (i) carry out an “As Efficient Competitor” (AEC) test or (ii) assess economic studies provided by the dominant company relating to whether the clauses had restrictive effects. 

Takeaway’s from the CJEU’s Judgment:

1.  A distributor’s conduct may be imputed to a dominant supplier. In principle, contractual coordination would fall under Article 101(1) TFEU. However, the CJEU found that the actions of a distributor may be imputed to the conduct of the dominant company, if such actions formed part of the dominant company’s unilateral policy, and were not independently adopted by the distributor. In particular, where the conduct includes standard contracts with exclusivity clauses that distributors are required to execute with the resellers, without the possibility of making any modification. In adopting this approach of attributing the conduct to the dominant company, it was not necessary for the CJEU to examine the single economic entity doctrine put forward by the AGCM.

2.  Exclusivity clauses must be subject to an effects-based analysis. The CJEU clarified that Intel applies not only to cases involving rebates, but also to exclusivity provisions. As such, where a dominant company submits evidence during an investigation which supports its claims that its conduct was not capable of restricting competition and, in particular, of producing the alleged exclusionary effects, the competition agency must analyse:

• the extent of the company’s dominant position;
• the share of the market covered by the exclusivity; as well as
• the potential existence of a strategy designed to keep any of the dominant company’s competitors that are as efficient from entering the market. It may be relevant here that Intel was published merely weeks before the AGCM’s decision, and so did not yet appreciate the full impact of that judgment.

3.  Exclusivity clauses may be objectively justified. The CJEU also clarified that, just as for rebate schemes, exclusivity clauses which are potentially abusive under Article 102, may be objectively justified. As such, it is incumbent on competition agencies to assess any justifications put forward by the dominant company.

4.  It is incumbent on competition agencies to assess any justifications put forward by the dominant company. The right to be heard is a fundamental principle of EU law and requires competition agencies to pay due attention to the observations submitted by the dominant company. The AGCM was therefore wrong to disregard reports submitted by Unilever’s economists in this case. The AGCM was therefore incorrect to characterise the conduct as a per se infringement. However, agencies are under no legal obligation to use the AEC test to find a practice abuse.

Post-Intel, there may be few European competition agencies taking the AGCM’s approach. For example, the Irish competition agency’s (the CCPC) investigation of Ticketmaster’s contracts with concert promoters and venues in Ireland, examined the dominant company’s arguments that its multi-year exclusive agreements had no anticompetitive effect, but allowed for the upfront financing of events and investments in infrastructure and technology by customers. The CCPC disagreed with Ticketmaster and preliminarily viewed that, in the context of a potential market foreclosure of between 70 and 90%, the exclusivity clauses had anti-competitive foreclosure effects and were likely to cause consumer harm, particularly when the agreements containing those exclusivity clauses were of a long duration. (The investigation was concluded on the basis of commitments by Ticketmaster to remove exclusive clauses from its contracts and to limit duration to 5 years. See the CCPC’s investigation report from November 2021 here).

So while there may be increased scope for a dominant firm to use exclusivity clauses now, such clauses must be capable of being defended on the merits.