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New powers for the Competition Authority

The Digital Markets Act and the Regulation on foreign subsidies distorting the international market enter into force during this year 2023 and provide to the Luxembourg Competition Authority new powers (I).

CJEU judgment on Unilever

In its judgment of 19 January 2023, the European Court of Justice, answering two questions for preliminary rulings, extends its Intel case law to exclusivity clauses and specifies the conditions for imputing an abuse of a dominant position in a distribution network (II).

I. New powers for the Competition Authority

The Bill No. 8164 (hereinafter “the Bill”) submitted on 27 February 2023 intends to implement two European regulations : Regulation 2022/1925 known as the “Digital Markets Act” (hereinafter “the DMA”) and the Regulation on foreign subsidies distorting the international market (hereinafter “Regulation 2022/2560”). The Bill will introduce necessary legislative measures for the application of these two regulations, which have similar objectives regarding national authorities supporting the European Commission.

The DMA intends to ensure, for all businesses, contestable and fair markets in the digital sector across the Union. This regulation targets very important digital actors: the Gatekeepers. The DMA establishes a set of rules and obligations aimed at fighting unfair practices and conditions of these Gatekeepers. The DMA will enter into force on 2 May 2023.

The Regulation 2022/2560 on foreign subsidies introduced a European coordination system for treatment of disparities caused by foreign subsidies from non-European countries. The purpose is to ensure a level playing field for all undertakings in the EU. This regulation will enter into force on 12 July 2023. Measures such as those transposed by the Bill will only come into force on 12 January 2024.

The Bill appoints the Luxembourg Competition Authority (hereinafter “the Authority”) as the relevant national authority and provides the framework for this cooperation. An amendment to the Competition Law of 30 November 2022 (hereinafter “the Competition Law” or “the Law”) is necessary to grant to the Authority new powers resulting from these two regulations.

To implement these regulations, the Bill introduces amendments especially to articles 8 and 73 of the Competition Law concerning the competences of the Authority. Article 8 of the Law providing a list of the Authority’s competences will be amended to include references to national competition rules and to the obligations of the competent Authority.

Specifically, the Authority’s obligations are to assist the European Commission, to use law enforcement to allow the inspection mission to be carried out in the event of opposition by an undertaking and to conduct inspections to identify the presence of foreign subsidies.

The amendment to article 73 includes references to article 14 of Regulation 2022/2560 and article 23 of the DMA, each providing the Authority’s powers to inspect undertakings :

  • enter any premises, land and means of transport of undertakings;

  • examine books and other business records, access any information which is accessible to the entity subject to the inspection;

  • ask any representative or member of staff of the undertaking or association of undertakings for explanations of facts or documents relating to the subject-matter and purpose of the inspection;

  • seal any business premises for the period of time of the inspection;

  • take or obtain in any form copies of or extracts from such books or records;

  • require the undertaking to provide access to and explanations on its organisation, functioning, IT system, data-handling and business practices and to record or document the explanations given by any technical means.

The Authority, through these two European regulations, is conferred new powers to assist the European Commission in its role of monitoring the good application of the rules.

II. CJEU judgment on Unilever extends the Intel judgment to exclusivity clauses in distribution agreements

By decision of 31 October 2017, the Italian Competition Authority (AGCM) found that Unilever Italia Mkt. Operation Sarl had abused of its dominant position within the Italian market for the sale of individually packaged ice cream intended for consumption away from consumers’ home through a network of 150 distributors. Consequently, the AGCM imposed a fine of EUR 60.7 million, in breach of Article 102 TFUE. Unilever appealed the AGCM decision that was dismissed. Hearing an appeal, the Italian Council of State referred questions to the European Court of Justice (“the Court’”) for a preliminary ruling.

  • Actions of Distributors within a Distribution network imputable to the Producer

First, the referring court seeked to ascertain under which circumstances the actions of formally autonomous and independent economic operators, namely distributors, may be imputed to another autonomous and independent economic operator i.e. the producer of the product distributed by the producers.

The Court considered that abusive conduct by distributors forming part of the distribution network of a producer in a dominant position, such as Unilever, may be imputed to the producer under Article 102 TFEU if it is established that this conduct was not adopted independently by its distributors, but forms part of a policy decided unilaterally by that producer and implemented through his distributors.

Furthermore, the Court noted that, in such situation, the distributor and the distribution network must be regarded as merely instruments of territorial implementation of the commercial policy of the undertaking, in that case Unilever. This situation occurred when the distributors of a producer in a dominant position are required to have operators of sales outlets sign standard contracts, which are supplied by the producer and contain exclusivity clauses for the benefit of its products. Therefore, the distributors should be seen as solely being the vehicle for the abuse, leaving the full liability of the conduct to the dominant undertaking giving them the instruction.

  • Exclusivity Clauses are not per se anticompetitive

Second, the Court answered the question as to whether the competition authority is required to establish that exclusivity clauses in distribution agreements have the effect of excluding from the market competitors that are as efficient as the undertaking in a dominant position. The Court also had to rule on the question as to whether the authority is required to assess economic analysis produced by the alleged undertaking when the latter are based on ‘as efficient competitor test’.

The Court rules that in order to establish the abusive nature of a conduct, competition authorities are not obliged to demonstrate the anticompetitive effects of such conduct. However, when assessing whether an undertaking’s conduct is capable of restricting competition on a market, the determination must rely on ‘tangible evidence’, beyond mere hypotheses, that the conduct can actually result in anti-competitive effects. The competition authority may demonstrate that the conduct may foreclose competitors that are as efficient as the dominant undertaking in terms of cost, structure, capacity to innovate, quality or where that conduct is based on the use of means other than those of normal competition based on the merits. In this extent, the Court uses its reasoning of the case-law Intel v. Commission to exclusivity clauses considering that competition authorities must follow an effect-based approach not only in case of rebates but also regarding exclusivity clauses. The Court considered that a certrain conduct cannot be considered abusive if it has not gone beyond the planning stage. Besides, anti-competitive effects and intent of such practice cannot be deduced from their sole nature as their ability to foreclose competitors is not automatic.

  • The obligation for competition Authorities to accept economic analysis issued by undertaking based on an ‘As-efficient Competitor” Test

Finally, the Court reminds that the ‘as efficient competitor test’ is only one amongst possible methods for assessing whether a practice is capable of producing exclusionary effects. Thereby, the competition authority is, per se, not obliged to use this test in order to find the abusive practice. However, the submission in the course of the procedure of evidence capable of demonstrating the inability to produce restrictive effects gives rise to an obligation for the competition authority to examine the evidence. In other words, if the results of such test are submitted by the alleged undertaking during the procedure, the competition authority cannot exclude the relevance of such evidence without setting out the reasons for refusal.

To conclude, this judgment provides important clarifications on the interpretation of article 102 of the Treaty on the Functioning of the European Union. The Court provides clarity on the imputability of distributors’ actions to the producer within the framework of exclusivity clauses and urged competition authorities to assess all circumstances of the case, including economic analysis provided by the undertakings based on the ‘as efficient competitor test’. While the competition authorities are not per se bound to use this test, the Court highlighted the significance of such test to enforce competition law within the Union. Finally, in this judgment, the Court took the opportunity to endorse the Commission’s 2009 guidelines on the application of Article 102 TFEU to abusive exclusionary conduct by dominant undertaking, which introduced the effect-based approach. In this regard, the Court fixed what it failed to achieve with the Intel Judgment.

Our team specialised in European law, competition law and market regulation is available in case you need advice and/or assistance.

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