Link to original article:

https://www.twobirds.com/en/insights/2022/italy/from-abuse-of-dominance-to-abuse-of-rights

THE ABUSE OF RIGHT AS A NEW ATYPICAL “ABUSE” OF DOMINANT POSITION

Among the distinguishing features of EU competition law certainly figures the fact that, contrary to US antitrust law, monopolies and dominant undertakings are not per se prohibited under the EU Treaties. Indeed, article 102 TFEU “only” prohibits and fines the abuse of dominant positions.

As a direct consequence, undertakings operating in the EU market, even when holding a dominant position, are free to compete on their merits. Merit-based competition is thus the principle guiding the logic of Article 102 TFEU, which does not preclude the possibility for dominant undertakings to exclude competitors from the market by fairly competing on their merits.

However, if on the one side, dominant undertakings are free to compete on the merits, on the other side, given their force in the market, they are at the same time limited by their “special responsibility” not to abuse their dominant position by acting in such a way not to distort competition in the internal market.

Considering the open nature of Article 102 TFEU, which does provide an exhaustive list of abusive behaviours, the borderline between the limits and the freedoms of a dominant undertaking is therefore often blurred in the practice.

And this especially when it comes to behaviours, such as the “abuse of right”, meaning such conduct that, although in theory lawful and permitted by law, are directed towards purposes that are not worthy of protection.

In other words, an abuse of rights may occur when a series of “lawful behaviours” are bent to the pursuit of an anti-competitive purpose. The relevance of an abuse of right under EU competition law thus emerges when a set of otherwise lawful conducts, if taken together in the light of their alleged instrumental nature, would be such as to constitute an abuse of dominant position. This conclusion leads us to admitting a new atypical kind of abuse under Article 102 TFEU.

ASSESSMENT CRITERIA OF THE “ABUSE OF RIGHT” UNDER ARTICLE 102 TFEU

In recent years, “abuse of right” allegations have increasingly emerged in both EU and national competition law cases.

Therefore, the first question that competition and jurisdictional authorities had to address has been how to assess (under Article 102 TFEU) such atypical behaviours which, when taken individually, are per se lawful.

The retained instrument has once again been the “test of the rational permissible alternative”: under this test, the abuse would occur in the absence of any alternative rational explanation of the exercise made of its rights by the dominant undertaking.

In other words, the authorities had to primarily assess that the alleged abuse of rights was not directed towards the mere defence of the legitimate business activity of the undertaking but that, on the contrary, it was the expression of an articulated strategy going beyond the mere protection of business activities and/or investments.

It follows that the assessment criteria must be based on objective parameters in order to demonstrate that the exercise of rights complies with the “competition on the merits” principle. Among such objective parameters figure, the level of remuneration of the investments made and the objective existence of conduct of an exclusionary nature, without limiting itself to the intention behind the behaviour.

ABUSE OF RIGHT IN RECENT CASE-LAW: A MULTI-FACETED NOTION

In recent case-law, the “abuse of right” notion under competition law assessment has been separated into multiple distinct conducts, which reflect the difficulties for practitioners to delineate the contours of an intrinsically atypical notion under Article 102 TFEU.

● Abuse of right and abuse of regulation

As a first direct consequence of the special responsibility of dominant undertakings, they are subject to constraints in the ways in which they make use of both their rights and the available regulatory options. In particular, the legitimate exercise of rights or of regulations cannot be turned into instruments functional to cause disproportionate damage to a competitor.

This first expression of the abuse of right may take several forms in practice:

● by providing “objectively misleading” information to the authorities (e.g.: to pharma regulatory authorities in order to obtain an extension of a patent protection with a view to exclude generic competitors like in Astrazeneca);

● by hindering calls to tender (e.g. by refusing to provide to the competent authorities the information necessary to prepare invitations to tender (Italian Competition Authority “ICA” decision in Comuni vari – Espletamento gare affidamento della distribuzione del gas)) or by changing investment plans which may be deemed to affect the allocation of public funding to potential competitors (ICA decision in Condotte Fibra Telecom Italia).

● Sham litigation

Sham litigation represents a second form of abuse of right. Of course, the right to take legal action is not contested, but rather the instrumental use made of this right by the dominant undertaking in violation of its special responsibility not to alter the competitive conditions on the market. According to consolidated EU case-law, a legal action is abusive when two cumulative conditions are met: the legal challenge is manifestly unfounded and it is part of an overall plan aimed at restricting competition in the market (ITT Promedia case-law).

The EU courts have always stressed the exceptional nature of acknowledging an abuse of a dominant position in such situation (Agria Polska). However, there are some examples, even very recently, where national competition authorities have contested such behaviour (See., e.g., ICA decision in Condotte Fibra Telecom Italia).

● Patent ambush

This third category of “abuse of right” has recently become widely known to the general public as the “smartphone war”. Indeed, the majority of patent ambush cases in the practice relates to Standard Essential Patents (“SEPs”).

SEPs holders usually commit to grant SEPs on Fair Reasonable and Non-Discriminatory (“FRAND”) conditions. Therefore, as stressed by the European Commission in the above-mentioned “smartphones war” cases (Motorola and Samsung), the refusal of the SEPs holder to grant a standard patent to a competitor, who is willing to accept such FRAND conditions, does constitute an abuse under Article 102 TFEU.

ABUSE OF RIGHT: THE RISKS OF A LAST-RESORT ARGUMENT TO APPLY ARTICLE 102 TFEU

The non-exhaustive list of examples of the various declinations that the “abuse of right” can take in practice prompts us to ask ourselves how far the scope of application of Article 102 TFEU can be stretched.

Indeed, even though Article 102 TFEU is widely recognised as providing practitioners only with an open list of abusive behaviours, a tangible risk that the borders of such list are being stressed beyond what is objectively anti-competitive is starting to emerge from recent case-law, if the “test of the rational permissible alternative” is not fully observed.

If, on the one side, “the abusive character of conduct under Article 102 TFEU bears no relation to its compliance with other legislation, since abuses of a dominant position consist, for the most part, precisely in conduct which is lawful in the light of legislation other than competition law” (as stressed in the above mentioned Astrazeneca and Pfizer decisions), on the other side, an excessive and not objectively-based application of such conclusion may lead to a risk of violation of the principle of legal uncertainty for the dominant undertakings, which may not be able to verify the compliance with Article 102 TFEU of their analytically legitimate (yet globally abusive) exercise of rights.

As stressed by the Lazio Regional Administrative Tribunal in the appeal judgment of the above-mentioned ICA decision in “Condotte Fibra Telecom Italia”, by stating that the exercise of a right compliant with other legislation cannot constitute an abuse under EU competition law, then “the abuse of a dominant position would be almost unconceivable, due to the simple fact that it most often consists of a conduct that is analytically lawful if viewed only in the light of sectors of the legal system other than that of competition”.

Yet, in conclusion, if we assume that the exercises of rights by dominant undertakings, that are compliant with other legislation, are abstractly capable of producing anti-competitive offences, at least by judging them only from the intention surrounding the business strategy of which they form part, and not by proving the concrete anticompetitive effects on the market, the risk is that an “abuse of right” behaviour may end up being the last-resort tool to save the application of Article 102 TFEU when other typical abusive behaviours are lacking.

In other words, we see a significant risk that, by challenging abuses of rights, competition watchdogs could bypass the need for an effect-based objective analysis to just rely on the subjective intention of the dominant company (which, in theory is immaterial as the abuse of dominant position is an objective illicit) and then, de facto, to challenge a dominant position in itself.

On the contrary, we believe that, especially when they challenge novel kinds of abuses, competition watchdogs should engage in a detailed effect-based analysis. To this extent it could not be completely immaterial that, when a dominant company exercises a right granted by law, at least prima facie, it is pursuing a legitimate purpose.

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