European Court of Justice Case of Europemballage & Continental Can v Commission - Coursework Example

The definition of the relevant market is of essential significance, for the possibilities of competition can only be judged in relation to those characteristics of the products in question by virtue of which those products are particularly apt to satisfy an inelastic need and are only to a limited extent interchangeable with other products”. Discuss. Word Count: 1,993 words. EC competition law is one of the fundamental policies of the Community and is mentioned in general terms in the preambles and Article 2 and 3 of the EC Treaty1. The principal provisions of EC competition policy are enshrined in Articles 81 and 82 of the EC Treaty2. The issue of market share is vital to the applicability of both Articles and the focus of this analysis is to critically evaluate the judicial approach to the definition of “product” when considering relevant market. In particular, I shall consider the statement in the European Court of Justice Case of Europemballage & Continental Can v. Commission3 (Continental Can case) where it was asserted that the definition of relevant market is essential to competition policy and the consideration of product hinges on “interchangeability”4. Firstly, it is important to mention Article 81 is applicable to prohibited agreements and practices and prohibits “agreements between undertakings, decisions by associations if undertakings, and concerted practices which have as their object or effect the prevention, restriction or distortion of competition with the Common market”. The practical effect of the Article 81 is that there is a presumption of legality, for agreements involving firms whose combined transaction counts for less than 30% of the relevant market5. Most significant in the consideration of the relevant market for the purposes of EC competition law is Article 82 of the EC Treaty6. Article 82 provides that 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 insofar as it may affect trade between Member States7. Individual Member States and substantial parts of larger Member States are likely to constitute a substantial part of the common market for this purpose. Although the prohibition only applies to firms with a dominant position in a relevant market, the relevant product market and geographic market for this purpose is often narrowly defined in practice8. Accordingly, the definition of “relevant market” is vital to determining the legality of conduct under Article 82. For example, Article 82 does not actually define dominant position however established case law has defined dominance as the position of economic strength that one undertaking may have, enabling it to prevent effective competition being maintained on the relevant market by giving it the power to behave to a significant extent independently of its competitors9. It is also important to bear in mind that if an undertaking is found to be dominant, this is not in itself a breach of Article 82. However, established case law highlights that where an undertaking has a dominant position, “the undertaking has a special responsibility not to allow its conduct to impair genuine undistorted competition on the common market”.10 Additionally, the Commission Notice on the Definition of Relevant Market for the Purpose of Community Competition Law11highlights the following factors as relevant to determining dominant position in the market: a) Entry barriers- The barriers to expansion must be seen as cumulative.12 b) Market shares – there is a presumption of dominance if the market share of the relevant undertaking is 50% or more of the relevant market.13 c) Advertising, d) Conduct. e) Financial strength. In addition to the list of non-exhaustive factors set out in Article 82, established EC case law has highlighted the following factors as fundamental to the consideration of dominance: a) Technology, intellectual property rights;14 b) Wide product range, brand loyalty, advertising;15 c) Conduct;16 It is not necessary to establish that all competition has been eliminated in order for an undertaking to have a dominant position. 17 Additionally, intellectual property rights do not in themselves automatically lead to a finding of dominance.18 They are considered in light of competitor products. Nevertheless, Anderman argues that the interchangeable approach in context of intellectual property based products has potentially created a form of “double jeopardy.19” With regard to the issue of dominant position, the European Court of Justice (“ECJ”) has defined this as a position of economic strength, “which enables an undertaking to hinder effective competition on a market by allowing it to behave to an appreciable extent independently of its competitors and customers and ultimately consumers”.20 Accordingly, the structure of the market will be relevant. It will be easier to restrict or distort competition in an oligopolistic market where the products are homogeneous. The greater the degree of product differentiation, the more difficult and expensive it will be to fix prices. Moreover, with regard to the definition of the issue of the relevant market, ECJ case law has highlighted that the relevant market is whether or not the degree of differentiation between the products is so small such that in a sufficiently large number of cases the two products will be regarded as interchangeable or substitutable21. When considering substitutability, an important factor is substitution on the supply side.22 Furthermore, in See Continental Can case, it was emphasised that a dominant position in a particular market would not be proved if it could be shown that competitors could by a simple adaptation or slight increase in production costs enter the same product market. Moreover, in the United Brands case23it was asserted that the “product” must be a unique product, which is interchangeable. In the case itself, the share of 45%was considered sufficient but the next competitor only had 16%. Additionally, the Mergers Regulation asserts that concentrations whose market share does not exceed 25% would not be considered to impede competition. Additionally, the European Commission has set out guidelines in the Commission Notice on the Definition of Relevant Market for the Purpose of the Community in order to help determine what the relevant market is.24 The guidelines highlight the following as relevant factors when considering the relevant market: 1) Demand substitution; or 2) Small but significant non-transitory increase in price test. With regard to the latter, the Commission highlights that the test is whether customers would switch to readily available substitutes or to suppliers elsewhere in response to a permanent small price increase in the products and the areas being considered25. If substitution is enough to make the price increase unprofitable because of resulting loss of sales, additional substitutes and areas are included in the relevant market26. As mentioned earlier, the ECJ has often applied very narrow definitions to markets when considering products27. For example, in considering the Continental Can case proposition with regard to the interchangeability of products, in United Brands28, the ECJ asserted that bananas were separate from fruit for the purpose of defining the relevant market. The ECJ further commented that “for the banana to be regarded as forming a market which is sufficiently differentiated from other fruit markets, it must be possible for it to be singled out by such special features distinguishing it from other fruits that it is only to a limited extent interchangeable with them and is only exposed to their competition in a way that is hardly perceptible”29. A narrow definition of the relevant market will generally suggest a higher market share for a particular firm, and an appearance of greater dominance. On the other hand, a broader definition of the market will suggest lower market shares and therefore the definition of the relevant market is often crucial to an assessment of dominance.30 Under the Commission Notice, another relevant factor is whether suppliers can switch production to relevant products and market them short term without additional cost or risk in response to small change in price. The additional production that is put on the market will have a disciplinary effect on the competitive behaviour of the companies involved. Such an impact in terms of effectiveness is equivalent to the demand substitution effect31. Whilst the nature of the product itself is vital, the geographical nature of the market is further imperative to the consideration of relevant market under the EC Treaty. The Commission notice32 provides that the relevant geographical market is where undertakings are involved in the supply and demand of the products and services in which the conditions of competition are sufficiently homogenous and which can be distinguished from conditions of competition are appreciably different in those areas33. In considering the product, Swann comments that “it may be that a firm is deemed to be in a position of absolute dominance because it controls the whole supply of a particular product. But it may be that there are close substitutes to which consumers can turn if the price of the product in question is raised. In other words, to be absolutely dominant at any moment in time, a firm must have total control over all the products which are substantially interchangeable34”. On this basis, it is submitted that the test extrapolated in the Continental Can case highlights the essence of the definition of relevant market, which is ultimately dependent on the nature of the product involved and possible substitutes. To this end, “questions must be answered as regards the territorial scope of the relevant market; interchangeable products may only be available in a specific geographical area”35. Nevertheless, in practice the identification of the product market remains inherently difficult when considering whether goods are interchangeable and substitutability. Indeed, Whish comments that the consideration of the relevant product market “should be simply the beginning of the inquiry, having identified it, is then necessary to consider the extent of the competitive measures upon the firms in that market”36. Indeed, Shah further makes the point that the difficulty lies in the fact that the term product and product market “may not always refer to the same thing37” and that the definition of product market for the purposes of competition law can risk going beyond the boundaries of the actual product itself, which may encompass other goods. As such, this arguably underlines the judicial rationale for the interchangeable test. Moreover, in the Notice on Relevant Market, the Commission have defined the relevant market as follows: “comprises all those products and/or services which are regarded as interchangeable or substitutable by the consumer, by reason of the products’ characteristics, their prices and their intended use.38” This test was further adopted in the case of Tierce Ladbroke SA v. EC Commission39, which was addressing copyright licensing. In considering the meaning of “relevant product market” the ECJ held that “the relevant product…. Market includes proiducts or services which are substitutable or sufficiently interchangeable with the product…. Not only in terms of their objective characteristics, but also in terms of the conditions of competition and/or structure of supply and demand of the market in question40. Accordingly, it is evident that the interchangeable and substitutable test in the Continental Can case has played a vital role in shaping judicial approach to the product market when considering “relevant market” under Article 82. On the one hand, the inherently complex nature of competition law arguably requires such a flexible approach to the consideration of “product” on the individual facts of each case. However, on the other hand, it has been argued that the flexibility of the interchangeable approach has lent itself to “substantial leeway to the Commission and the Courts to flex the meaning of “product market” based on the facts of each case”41. For example, in the case of Hugin v. Commission42the ECJ implemented a restrictive approach to the definition of product market and on grounds that there was a special demand for spare parts. Moreover, in the case of Hilti v European Commission43 narrow view was taken of product market in considering Hilti’s patented cartridges to tie in nails. To this end, the precedence of the interchangeable test clearly walks a fine line between free commerce and competition law protection, with the judicial flexibility in practice. In turn, clearly begs the question as to whether an objective and clear test would be more desirable in serving the overriding purpose of EC competition law. Bibliography Anderman (1998). EC Competition Law and Intellectual Property Rights: The Regulation of Innovation. 1st edition Oxford University Press. Maher M. Dabbah (2004). “Cases and Materials and Commentary on EC and UK Competition Law”. Cambridge University Press Christopher Kerse and Nicholas Khan (2004). “EC Antitrust Procedure”, 5th Edition Sweet & Maxwell C. Jones and Marc Van Der Wonde “EC Law Competition Handbook” 2003/2004 Sweet & Maxwell. Nick Lockett (2005). “Competition Law”, 1st Edition Financial World Publishing Shah (2003). The Abuse of Dominant Position under Article 82 of the Treaty of the European Community: Impact on Licensing of Intellectual Property Rights. Available at www.jip.kentlaw.edu/art/volume3 Tilotson, J. & Foster, N. (2003). Text, Cases and Materials. Routledge Cavendish Whish, (2003) “Competition Law”, 5th Edition Butterworths Read More