11/18/96 HyperLaw, Inc.®

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The following are excerpts prepared by HyperLaw from an article written by John Temple Lang. This was written prior to the High Court's Opinion in the Magill case. The complete text of the article may be found on the EEC server.

  • Lang, John Temple, Defining Legitimate Competition: Companies' Duties To Supply Competitors, And Access To Essential Facilities




    by John Temple Lang*



    This paper considers the European Community antitrust law rules on duty to supply competitors with important goods or services.

    In general competition law discourages competitors from cooperating with one another. But if one competitor owns something access to which is essential to enable other competitors to do business, and which they cannot be expected to provide for themselves, European Union competition law obliges the owner of the essential facility to give equal access to its competitors, because of the effect of a refusal of access on competition. This principle has to be treated with caution, because the law normally allows a company to retain for its own exclusive use all advantages which it has legitimately acquired. Also, companies are normally free to improve the bargains which they offer to customers, by offering related goods or services as part of the bargain, even if that makes it difficult or even impossible for their competitors to offer comparable bargains. All the same, the principle that companies in dominant positions have a legal duty to provide access to genuinely essential facilities on a nondiscriminatory basis is one of great and increasing importance in telecommunications, in transmission of energy, in transport, and in many other industries. It is often the principal or the most crucial legal problem which arises after an industry is deregulated, but it can arise in any industry.

    These rules apply both to State-owned and to private enterprises. They may be specially important if a company has been given a privileged position by a State, such as control over an essential facility such as an airport or a harbour.

    A dominant company which discriminates selectively against a particular competitor e.g. to discourage it from too-vigorous competition, by denying access to an important facility on the same terms as it gives to other companies, is likely to break the law, even if the facility is not necessarily "essential".

    Where the parent companies of a joint venture have considerable market power, they may be required under Article 85(3) not to discriminate in favour of their joint venture and to deal with its competitors on the same basis, even if it is not strictly essential for competitors to contract with them, and even if neither are dominant.

    If a dominant company owns intellectual property rights which enable it to prevent competitors from producing directly competing products, it is not necessarily an abuse for it to refuse to grant licences to its competitors. Licences may be necessary to give access to an essential facility, but this is so only if unlicensed competitors cannot enter the market. Otherwise, refusal to licence infringes Art. 86 only if there is some related behaviour which constitutes an abuse, whether exploitative or exclusionary, in addition to the refusal to licence. In some cases at least, compulsory licensing of the intellectual property rights is the appropriate remedy.

    It is convenient to begin (Part I) by summarising the Treaty provisions, then caselaw of the Court and the Commission on essential facilities, beginning with the less specialised cases, and outlining the Court and Commission cases on telecommunications and performing rights societies, and some relevant Community legislation, separately. This provides the basis for a discussion of the general principles and problems, in Part II of this paper.

    What are essentially issues about access to essential facilities have arisen frequently in Europe in connection with the liberalisation of the gas, electricity and telecommunications industries. However, the Commission has considered that these industries could not be satisfactorily liberalised using only Community antitrust law, and that it was necessary to adopt general measures of which access to networks and grids would be only one aspect.

    The caselaw briefly summarised below makes it clear that there is a duty to supply both competitors and customers in a variety of circumstances. The caselaw uses several legal principles or theories, more or less explicitly:

    These principles are not, of course, mutually exclusive.

    This paper deliberately disregards formal legal categories such as refusal to deal, discrimination etc., and calls attention to the economic aspects of the cases and situations described.

    Part I

    Treaty Provisions

    Article 86 EEC Treaty says that an abuse of a dominant position may consist in, among other things,

    "applying dissimilar conditions to equivalent transactions with other trading parties thereby placing them at a competitive disadvantage."

    This prohibits second line discrimination, between competitors downstream from the market in which the dominant position exists, placing one or more of the competitors at a disadvantage vis-à-vis the others. It applies whether the favoured competitors are associated with the dominant company or not, but it does not impose a duty to supply on a non-discriminatory basis regardless of the effect on competition.

    An unjustified refusal to deal is of course an extreme form of illegal discrimination.

    The Court has confirmed that Article 86 also prohibits discrimination between customers of the dominant company based on whether or not they deal exclusively with it. This behaviour creates a competitive disadvantage for competitors of the dominant company at the same level in the market. It is not within the narrow phrase just quoted ("placing them at a competitive disadvantage").

    The Court has not yet had an opportunity to consider the duties of a dominant company which has never supplied the goods or services in question to anyone outside its own group.

    Article 66(7) of the European Coal and Steel Community Treaty prohibits, in effect, abuses of a dominant position by dominant coal and steel companies, but in general terms. Article 63 ECSC Treaty allows the Commission to take action if "discrimination is being systematically practised by purchasers, in particular under provisions governing contracts entered into by bodies dependent on a public authority". This was primarily intended to allow the Commission to prevent non-ECSC companies from discriminating in favour of coal and steel producers of their own nationality - in effect, a special case of what later became Article 90 EEC Treaty.

    Under Article 63 it is not necessary to prove dominance or an effect on trade between Member States.

    Article 86 also prohibits dominant companies from tying-in, defined as

    "making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts".

    Tying-in is normally practised by horizontally integrated companies selling different products to customers at the same level of industry or distribution. It is, in essence, an attempt by a company dominant in the market for one type of goods to use its position in that market to strengthen its position in the market for other goods. * * *

    Another complex case involving intellectual property issues and supply to downstream competitors was McGill - RTE/BBC. BBC and RTE (the Irish television authority) each published their own weekly guide to their own television and radio programmes, but both refused to give details of their programmes more than a day in advance to other magazines, making it impossible for anyone to publish a single independent weekly magazine giving all the week's BBC and RTE programmes. The Court of First Instance held that the BBC and RTE held dominant positions in the markets for the supply of their weekly programme lists and for the magazines in which these were published. The refusal of both television companies to provide details of their programmes to a competing weekly magazine was an abuse contrary to Article 86. Only restrictions on competition which are inherent in the protection of the actual substance of intellectual property rights are permitted in Community law. A dominant company is not free to exercise such rights so as to pursue an aim contrary to Article 86. Citing Volvo v. Veng, the Court said that by reserving to itself the exclusive right to publish their weekly programme lists the BBC and RTE were preventing the emergence of a new product, a general TV magazine. They were using copyright in the listing derived from broadcasting to secure a monopoly in the derivative market for weekly TV guides. This went beyond what was necessary to fulfil the essential function of copyright. The refusal was comparable to the arbitrary refusal of a car manufacturer to supply spare parts to an independent repairer in the derivative market of car maintenance and repair. Also, like a car manufacturer's decision to stop production of spare parts for a model still in use, the BBC's refusal failed to take consumers' needs into consideration.

    There are several points to note about the RTE-BBC case:

    In the appeal in the RTE case to the Court (not yet decided at the time of writing) the Advocate General disagreed with the Court of First Instance. In a long careful opinion, he said that the central issue was whether, and if so when, a refusal to licence may be contrary to Article 86 depends on whether there are

    "such special circumstances in connection with a refusal to licence that it can no longer be regarded as a refusal to licence in itself. If Article 86 can apply where the dominant enterprise has done no more than refuse to grant licences, but where there were special circumstances in connection with the refusal to licence, the position will be that the infringement of Article 86 can be terminated only by granting licences' (para. 40, emphasis in the original).

    He went on to point out that in some situations the owner of the right can terminate the violation of Article 86 without licensing the right, either by resuming supplies to people improperly denied supplies or by lowering prices. In these situations Article 86 does not lead to interference with the specific subject matter of the right. He said later (para. 61):

    "I consider that in fact, as the Commission has argued, unreasonable royalties and a discriminatory licensing policy are examples showing that it is possible pursuant to Article 86 to interfere with rights within the specific subject-matter where those rights are exercised in special circumstances. The dominant undertaking does not do anything more than exercise rights within the specific subject-matter, namely impose royalties and refuse to grant licences. But the exercise of those rights takes place under special circumstances since the undertaking demands royalties which are considerably higher than in other Member States or refuses a licence at the same time as licences are in fact given to others. Application of Article 86 to the two situations would signify interference with rights falling within the specific subject-matter since the possibility for the owner of the registered design to freely determine his remuneration would be restricted and since the owner would be required to grant a licence to the person against whom he had discriminated. There is no reason to define the charging of unreasonable royalties to operation of a discriminatory licensing policy as conduct which in general is outside the specific subject-matter of copyright ......"

    Later he went on to consider the Commission's argument that by refusing a licence RTE was preventing the emergence of a new kind of product.

    "The Commission contends that in classifying a product as new it is not relevant whether it will compete with the copyright owner's own products.

    I do not believe that the Commission's view is tenable.

    I consider it appropriate to find that there is an abuse of a dominant position if a copyright owner by means of his copyright prevents the emergence of a product which does not compete with his product since it meets other consumer needs than those that are met by his product.

    The contrary is true, in my view, if copyright is used in order to prevent the emergence of a product which is produced by means of the work protected by the copyright and which competes with the products produced by the copyright owner himself. Even if that product is new and better, the interests of consumers should not in such circumstances justify interference in the specific subject-matter of the copyright. Where the product is one that largely meets the same needs of consumers as the protected product, the interests of the copyright owner carry great weight. Even if the market is limited to the prejudice of consumers, the right to refuse licences in that situation must be regarded as necessary in order to guarantee the copyright owner and the reward for his creative effort."

    Still later he said:

    "The Commission has further claimed that the example from the judgments of the Court of Justice in Volvo v Veng and Cicra v Renault cited by the Court of First Instance are relevant to a decision in the present cases. According to the Commission the situation of Magill corresponds to that of an independent repairer in so far as both are dependent on the supply of products from an upstream market (in programme listings and car parts respectively) in order to carry on an activity on a derivative market (the market for television guides and the market for servicing Volvo and Renault cars respectively) where they compete with their suppliers (RTE's and ITP's own weekly television guides and Volvo's and Renault's authorized repairers respectively). The Commission concedes however that the analogy is not complete since Magill's situation differs in so far as the supply of a product was not sufficient for Magill to be able to carry out its activity as Magill needed to obtain a licence in order to produce copies of the protected work itself.

    The difference is precisely crucial. As RTE and ITP point out, a distinction must be drawn between a refusal to supply a product to customers who wish to use that product on a derivative market and a refusal to grant a licence to a competitor who wishes to produce and sell products incorporating the protected work. In the first case the existence of any infringement of Article 86 does not depend on whether the products concerned are protected by an intellectual property right....

    ... it is appropriate to draw an analogy with the situations at issue in Volvo v Veng and CICRA v Renault, namely that Volvo and Renault were entitled to refuse a licence to market spare parts that had been produced without Volvo's and Renault's approval. It should be noted that the Court of Justice did not see fit in that connection to distinguish between licences for the purpose of competing on the market for the sale of spare parts and licences for the purpose of competing on the market for repairing Volvo and Renault cars.

    There is therefore no basis for treating the exercise by a copyright owner of his copyright in order to prevent competitors from using the protected work differently according to the market on which such use takes place..... the possibility of exploiting the copyright on what is described as a derivative market must be regarded as necessary in order to obtain sufficient reward for creative effort."

    The Hilti case concerned the Commission's finding that a manufacturer of nail guns and the nails and cartridge strips which are used with them had abused its dominant position in the nail gun market, by practices preventing competitors from supplying nails for use with Hilti guns. The Court of First Instance upheld the Commission's decision, saying that nail guns, cartridge strips and nails constitute three separate markets, and that there is a separate market for Hilti-compatible nails. Hilti had abused its dominant position by demanding excessive fees and so needlessly prolonging proceedings for the grant of compulsory licences to competitors, and by selective and discriminatory policies. These included reducing discounts to its customers, when Hilti cartridge strips were bought without Hilti nails, and refusing to fulfil orders or to honour guarantees when non-Hilti products were used. Hilti had failed to ask the UK authorities to confirm its claim that non-Hilti nails were dangerous, and so had no right to eliminate their use itself. On appeal, the Court of Justice also found against Hilti. The Commission had found that Hilti had tied the sale of nails to sales of strips, refused to supply cartridges to competing producers of nails, and refused to supply cartridges for resale. Hilti also gave more favourable discounts to customers which agreed to buy only its products. Hilti's practices therefore, though intended to exclude downstream competitors, involved both its customers and its competitors. As in Commercial Solvents, therefore, there was no question of the dominant company having difficulty in supplying sufficient quantities, there was little competition downstream, and no real justification for the refusal to supply was suggested.

    In the Greek Television case the Greek television transmission monopoly had a subsidiary company which produced programmes. The Court said that a television monopoly can be created for non-economic reasons concerned with the public interest (this repeated the ruling in Sacchi). However, its operation must respect the rules on competition and free movement of goods. A television monopoly must not discriminate against foreign broadcasts unless this is justified under Article 59. Article 90 prohibits exclusive rights to transmit and retransmit programmes when these rights are likely to create a situation in which the monopoly is led to infringe Article 86 by discriminating in favour of its own programmes. In other words, a television monopoly must give non-discriminatory access to suppliers of programmes even if they are competing with its own programme producing activities. * * * xxx

    The Importance of the essential facility concept in Europe

    This paper suggests that the essential facility concept is more important in European Union law than in U.S. antitrust law. Is this true, and why should it be so? Several points:

    * * *

    As mentioned above, the Commission considered in Sea Containers that the duty to provide access applies to a new entrant, and in the McGill-RTE-BBC case that the duty to provide access applies to new entrants in new markets. In addition, the EC measures on airport slots specifically benefit new entrants. Both in the Hoffmann La Roche and Michelin cases, the Court spoke of the maintenance or "development" of competition.

    If the duty to provide access were limited to companies already in the market, it would unjustifiably create a privileged category of competitors without any legal or economic rationale, and deprive consumers of whatever new entrants have to offer. A distinction between a new entrant and an existing competitor increasing its capacity would not make sense. Nor would it make sense to protect entrants into new markets and not new entrants into existing markets. Where there is spare capacity (or where the nature of the essential facility is such that new entrants can always be supplied), new entrants must be given access. Where there is no or insufficient spare capacity, the legal position will depend on existing contractual commitments. Provided that these are of reasonable duration (a question discussed below), the new entrant must be given an opportunity to compete with other users or potential users for access when the contracts expire, at least when this is necessary to ensure effective competition. Where, as in the case of airports or harbours, access may require the allocation of arrival and departure times and periods in berths, the owner of the essential facility is (subject to specific measures e.g. on railways or airport slots) obliged to behave as an independent company would behave and to allocate or arrange slots without any discrimination in favour of its own activities or those of the existing users.

    The dominant company is obliged to provide goods, services or information only for the new entrant's own use. A company cannot claim the rights of a new entrant user to sell them to others. A proposed dealer is not fulfilling the same function as a buyer who buys essential raw materials or components for its own use. A new entrant dealer or middleman is entitled to buy only if there are other companies similar placed to whom the dominant company sells. In any case, access to even a dominant company's products is rarely essential for a distributor or dealer, and a distributor has not got the same rights to be supplied as a competitor. Nor is a dealer usually as important a competitive force as a producer.

    Any new entrant, and any user of a facility which wishes to change its arrangements, must give whatever notice is reasonable in all the circumstances in order to give time for discussion and negotiations of the new or revised arrangements.

    A new entrant who only wishes to provide the most profitable services at peak periods could not claim equal rights with already established companies willing to operate throughout the year. If the practice of the industry is, for sound reasons, to provide a single service which includes highly profitable and less profitable times, there is no justification for allowing a new entrant to insist on that practice being changed. Of course the owner of the facility could choose to auction the right to provide the service at the most profitable times separately from the right to provide it at other times, but it could not be compelled to do so.

    The owner of an essential facility cannot be obliged to invest in new capacity to provide facilities for more competitors. If extra capital investment is made to provide access to a new entrant, after whatever period of amortisation and notice is appropriate, the cost of the new investment should be charged in a non-discriminatory way to all the users. After a specially constructed new facility is amortised, it would be discrimination to make the new entrant bear a disproportionate share of the cost merely because of the time at which it obtained access. But it seems reasonable that a user should have to pay, directly or indirectly, the cost of a new facility constructed for its use even if this means that it has initially higher costs than its competitors: the different treatment is justified.

    New entrants can of course be required to accept all reasonable technical requirements to ensure the safe and efficient use of the facility by all users, and to provide reasonable creditworthiness guarantees. However they cannot be required to provide e.g. bank guarantees for sums clearly greater than any that they might be obliged to pay, or other onerous or unjustifiable conditions. * * *

    Compulsory licensing of intellectual property rights

    An economics-based approach is also appropriate to the question when a dominant company is obliged to grant licences of intellectual property rights to competitors.

    A dominant company is normally free to acquire and retain for its own exclusive use intellectual property rights which give it advantages. However, if the rights in question give control of something without which competitors are not able to compete at all, there can be a duty to licence: the right is an essential facility. But this is true only if the licence is essential to produce any goods to compete in a whole market. An intellectual property right does not normally or necessarily create a monopoly in a whole product market. Licences in general need not be given merely to produce specific design of goods such as components which would otherwise infringe the dominant company's designs, copymark or trademark rights: if licences are needed only for such purposes, there is a duty to licence only if there is some related exploitative or exclusionary behaviour in addition to the refusal to licence, and for which the granting of a licence is an appropriate competition law remedy.

    In fact the law will be unclear until the Court gives judgment in RTE-Magill, and the following comments can only be tentative. No doubt the final result of the RTE-Magill case will considerably clarify the law. A detailed analysis of the long opinion of the Advocate General in RTE would not be appropriate here. But some points can be made:

  • A duty to give access to an asset of any kind which constitutes an essential facility is always an interference with the ownership of that facility which needs to be, but which of course sometimes can be, justified under antitrust law.
  • The only question is therefore whether the circumstances of the RTE Magill case made it appropriate to order licensing;
    • if Magill had claimed a right to obtain only RTE's programmes in advance for a week at a time, so as to set up a magazine merely in competition with RTE's magazine, it would not have been offering a wholly new product, and its case would have been much weaker. The stronger argument was that Magill, by combining the programmes of BBC and RTE, was offering a new product. But the new product to be offered by Magill was essentially programme lists of several TV stations put together: it was apparently not a market distinct from the separate programme guides which already existed;
    • if Magill had a right to obtain programme lists from either BBC or RTE, it would follow that BBC could have obliged RTE to disclose its programmes to enable the BBC to produce a comprehensive TV guide, and that RTE could have obtained BBC's programmes for the same purpose. But if either had done so, Magill's product would not have been a new product;
    • the Advocate General accepted that if the copyright owner refuses a licence for a product which does not compete with his product, i.e. which is in another market, that is an abuse, but gave no reasons. This is essentially the third kind of situation visualised in Veng v. Volvo;
    • there are thus several situations: the plaintiff's product would compete with the owner's product in that product's own market (which may be the Mcgill situation): the plaintiff's product is in a separate market where the owner has no product (in which case refusal to licence is unjustifiable and an abuse if there is a sufficient effect on competition): and thirdly, the situation in which the plaintiff's product would compete with the owner's product, but in a downstream or related market and not in the primary market in which the copyright or other protected goods are sold. So for example if a company sought to preserve a monopoly in the market for servicing and maintenance of its product, by refusing to supply spare parts for use by competing service companies, this would be an abuse, if the effect on competition was sufficiently great;
    • on this view therefore the main question is not primarily whether the plaintiff's product or service is new, it is whether it is in a product or service market distinct from (though related to) the market in which the intellectual right primarily operates. More precisely, the plaintiff needs to show that it wishes to launch a product or a service for which a supply of the owner's goods or services are necessary, but that its product or service is not merely the kind of product or service protected by the right. If the plaintiff is in a position to show that, it can rely on the principle that a dominant company cannot use its position in one market to restrict competition or give itself advantages in another. This principle applies if the goods or services offered in the second market are not covered by the intellectual property rights of the company which is dominant in the first market;
    • What if the products in the second market are partly covered by the intellectual property right? The Advocate General considered (para. 110) that the crucial test is whether the plaintiff needs a licence of the intellectual property right to enter the second market. If it does, then the Advocate General said that the existence of a separate market is irrelevant. In effect, on this view the owner of an intellectual property right is free to use all the leverage which it can exercise, irrespective of the effects of its refusal to licence on competition in the second market. On this point the conclusions of the Advocate General are open to question. If Article 86, as it clearly does, allows compulsory licensing of intellectual property rights on non-discriminatory terms in order to end discrimination between licensees (an anticompetitive or exclusionary abuse), it is hard to see why compulsory licensing would never be justified when refusal to licence means that all competitors are excluded from the downstream market, so that the effect on competition is even greater;
    • Analysis of the third situation envisaged in the Veng v. Volvo judgment leads to the same conclusion. It is an abuse if a dominant company refuses both to make and to licence production of goods or services which are needed. This is an abuse because it denies consumers access to something which they could usefully be offered. But there is always some reason why a company refuses to grant a licence which would generate royalties. If a licensee would not be competing with the existing products of the owner of the intellectual property right, the reason will usually be that the owner either wishes to force users to abandon its old product and buy its new one (and so ceases to produce spare parts for the old product), or that it is thinking about producing a new product and does not wish to complicate the product launch. If compulsory licensing is justified under Article 86 in such circumstances, as the Court has said and as the Advocate General accepts, it is hard to see why compulsory licensing could never be justified when the plaintiff's product competes with the owners, if the effect on competition if the refusal to licence is serious enough;
    • if the Advocate General is right, it looks as if there would be scope for manipulation of the two markets by a dominant company, if it was able to introduce any device subject to intellectual property rights into an essential facility. The IBM and Decca cases are probably situations in which, if a dominant company had no duty to licence intellectual property rights, the companies could have made use of that fact to monopolise the related markets. Other cases can be imagined;
  • - if the Advocate General is right, it would follow that the legal result would be radically different depending on whether Article 85 or Article 86 applies. Nothing that the Advocate General has said would suggest that compulsory licensing could not be ordered in the case of a patent pool or any other arrangement under Article 85, in cases such as IGR-Stereo Television. But the Court in Continental Can said that Articles 85 and 86 should be applied consistently with one another.

    When is ordering a compulsory licence an appropriate remedy? At first sight, a remedy ought to fit the abuse as well as possible: if refusing a licence is not an abuse, a compulsory licence is prima facie not the right remedy. On this basis, the remedy should be to order the dominant company to end the additional exploitative or exclusionary behaviour which makes the refusal to licence unlawful.

    This theory is not necessarily correct, for the following reasons:

  • 1. It treats the two kinds of behaviour as if they were unconnected, which is wrong. There are situations in which the refusal to licence either increases the seriousness of the other behaviour, or makes it possible.
  • 2. The theory is an inadequate solution because often only granting a compulsory licence will create competition and ensure that the abuse is less likely to be committed again.
  • 3. Limiting the remedy to the precise abuse committed means that the competition authorities must be ready to prohibit other or repeated abuses if they occur: ordering the granting of a licence is a market solution, not a bureaucratic one. Remedies ought to provide long term and effective solutions, not merely short term and partial ones.
  • 4. At least in many cases, the combination of the abuse and refusal to licence unlawfully strengthen the position of the dominant company in a way that will not be corrected merely by ordering an end to the current abuse and by paying the competitors damages. A dominant company should not be allowed to keep an advantage which it has unlawfully obtained, as the Commission ruled in the Irish Distillers case. In some circumstances, only a compulsory licence will take away this advantage: the number of licences, and their terms, could if necessary be adjusted to achieve this as precisely as circumstances would permit.
  • 5. Compulsory licences would be especially likely to be appropriate when the dominant company was trying to use the intellectual property right to restrict competition in a second, related market, separate from that in which it is dominant, which would be the market in which (in most cases) the abuse would have been committed. If the intellectual property right was not inherently intended to create a monopoly in the second market (e.g. when copyright in TV programmes was used to restrict competition in the market for TV magazines), a compulsory licence would be likely to be appropriate.
  • 6. It seems to be generally accepted that compulsory licensing is appropriate under Article 85 if a patent pool or other restrictive arrangement otherwise would create "second class citizens". But as far as possible the economic result should be the same under Article 85 and 86.
  • Of course, competition law does not authorise the authorities to put an end to dominance, but only to abuses. But the licence should not seek to end the dominance, but merely to create some competition in the market other than that in respect of which the intellectual property right originated.

    The dominance may not be (and in most cases is not) due to the intellectual property right, (even if the dominance exists in the market to which that right primarily relates) and so a licence will not put an end to the dominance.

    It may also be objected that compulsory licences effectively put an end to the monopoly conferred by the intellectual property right. However, that is the reason why licences are ordered only if there is some related abuse other than mere refusal to licence. Also, licences would not be ordered generally to all competitors: they would be given only as far as the circumstances made them necessary, e.g. only insofar as was needed to create competition in the second market.

    US law and the views of Professor Areeda

    It would be an impossibly long task to compare fully the Community law discussed here with the US law, but it is worthwhile to look at the Community law in the light of the views of Professor Areeda. In a recent paper he made several points which are relevant to this paper:

  • a) He said about multi-company cases under US law:
  • "(1) whenever competitors jointly create a useful facility (2) that is essential to the competitive vitality of rivals (3) and (perhaps) essential to the competitive vitality of the market (4) and the admission of rivals is consistent with the legitimate purposes of the venture, then (5) the collaborators must admit rivals on relatively equal terms."
  • Areeda points out that the words in italics are imprecise. Making allowance for this fact, there is no obvious reason to see a difference between US law and Community law in multi firm cases.
  • b) He rightly points out that some US unilateral refusal cases have gone much further than genuine monopoly situations. The Community unilateral refusal cases have certainly not gone so far, and seem unlikely to do so.
  • c) He suggests that in US law under section 2 "there is no general duty to share. Compulsory access, if it exists at all, is and should be exceptional".
  • This is not the approach of the Court under Community law. The Court clearly considers that there is often a duty to supply. This is no doubt very important in theory: it remains to be seen how much difference it makes in practice.
  • d) Areeda suggests that "a single firm's facility, as distinct from that of a combination, is "essential" only when it is both critical to the plaintiff's competitive vitality and the plaintiff is essential for competition in the marketplace".
  • The Community law definition of what is "essential" is narrower, if it is correctly stated above ("if without access there is, in practice, an insuperable barrier to entry for competitors... or if without access competitors would be subject to a serious permanent and inescapable competitive handicap which would make their activities uneconomic").
  • Community law has not explicitly said that the plaintiff must be essential for competition. However, much the same result has probably been reached by saying that access to a facility may be required only if the effects described above would otherwise result not for the plaintiff in particular but for competitors in general, and that access will not be ordered if there is already effective competition in the market.
  • e) Areeda says that even when all the other conditions are satisfied, legitimate business purpose always saves the defendant.
  • This is certainly true in Community law, although there is relatively little caselaw on what constitutes legitimate business justification.
  • f) The defendant's intention is seldom illuminating, Areeda says: it is always to avoid helping a competitor.
  • The Community law is the same on this point. Abuse under Article 86 is normally objective and intention is irrelevant.
  • g) A duty to deal that cannot be adequately and reasonably supervised, Areeda says, should not be imposed.
  • The Commission is aware of this requirement, but has so far not had to deal with an acutely difficult case.
  • h) Areeda also said:
  • "No one should be forced to deal unless doing so is likely substantially to improve competition in the marketplace by reducing price or by increasing output or innovation. Such an improvement is unlikely (a) when it would chill desirable activity; (b) the plaintiff is not an actual or potential competitor; © when the plaintiff merely substitutes itself for the monopolist or shares the monopolist's gains; or (d) when the monopolist already has the usual privilege of charging the monopoly price for its resources."
  • By way of explanation for the last point, he said that a monopoly newspaper in town can charge the monopoly price whether or not another distributes it.
  • These points all require discussion. Obliging any owner of any facility to grant access to it against its will always runs some risk of reducing the value of legitimately acquired assets, and ability to retain such assets is procompetitive. Areeda's test is therefore too vague, and as stated goes too far. His second case, under Community law, would not normally give rise to any duty on the dominant company to supply. In the third case there is no benefit to competition, and Community law would probably not require access to be given, although no such case seems to have arisen. The fourth case seems over-simplified, at least in service markets. A port owner which used the port for ferry operations could, if the port was a monopoly, charge monopoly price harbour dues, which would have to be passed on by ferry operators. But there would still be more competition in the ferry business if another ferry company was allowed to use the port. The key issue seems to be one not raised by Areeda, except implicitly: how important is competition in the downstream market for the price or the bargain obtained by consumers? If the downstream market is the local distribution of newspapers and distributors are paid out of the price shown on the newspaper, cost savings at the distribution level, which would probably be small anyway, will not be passed on to consumers. But it would be quite different if the profit margins of the downstream competitors were a sufficiently large proportion of the total price paid by consumers to make it worthwhile to promote competition in the downstream market.
  • xxxx


    The conclusions to be drawn from all this seem to be:

  • 1. In Community law there is a broad general principle that companies in dominant positions must not refuse to supply their goods or services if refusal to supply would have a significant effect on competition. This principle applies to both customers and competitors. Though neither the scope or the exceptions to this principle have yet been fully clarified, it initially made it unnecessary to develop a special category for essential facilities cases.
  • 2. In situations in which access to a facility is essential the Commission has now recognised that a strict rule is necessary requiring supply on non-discriminatory terms to competitors. To this rule, where it applies, there will be few exceptions. Because this rule requires close relations between competitors, because of its administrative costs and due to the risk of discouraging legitimate competition, the terms of this rule and the exceptions to it need to be clarified as far as possible. This can be done only by caselaw, and by analysis. There is a duty to provide access to essential facilities, if the effect of refusal to supply on competition is serious enough, notably where there is little competition in the downstream market.
  • 3. Prohibitions on discriminatory behaviour in day-to-day operations, under either Article 85 or Article 86, are likely to be troublesome to supervise and the Commission is already taking steps to try to ensure that controversies are dealt with by arbitration or otherwise without formal Commission action.
  • 4. Key questions in determining whether there is a duty to give access to facilities in single firm refusal cases therefore are: