Excessive Pricing As Abuse of Dominance: “It is clear that it is unclear”

The Court of Justice of the EU (CJEU) on 14 September 2017 delivered its ruling in Case C‑177/16 AKKA/LAA[1] on excessive (unfair) pricing. While shedding some light on the issue and referring to its earlier judgements, i.e. the 1978 United Brands “excessive pricing” test, the CJEU’s judgement in this case may be summarized in the following words – “it is clear that it is unclear.” By invoking such concepts as “appreciable”, “significant and persistent,” “objective”, “consistent”, admitting that there is no single adequate assessment method and that the national courts as well as the  Competition Authorities have a “certain margin of manoeuvre” etc., the CJEU once again confirmed that excessive pricing cases are particularly complicated. Let us focus on the main points of the CJEU’s recent ruling for the purposes of examining whether an undertaking applies excessive (unfair) prices:

  • It is appropriate to compare its rates with those applicable in neighboring Member States/markets as well as with those applicable in other Member States/markets adjusted in accordance with the purchasing power parity (PPP) index, provided that the reference Member States/markets have been selected in accordance with objective, appropriate and verifiable criteria and that the comparisons are made on a consistent basis; and
  • The difference between the rates compared must be regarded as appreciable if that difference is significant and persistent. Such a difference is indicative of abuse of a dominant position and it is for the undertaking concerned holding a dominant position to show that its prices are fair by reference to objective factors that have an impact on management expenses.

Background info

The case was referred to the CJEU by the Latvian (Regional Administrative) court for the preliminary ruling in the course of the appeal in cassation proceedings, which were brought by AKKA/LAA against the first instance court’s judgement not fully satisfying the AKKA/LAA claims. In particular, AKKA/LAA requested the first instance court to annul the decision of the Latvian Competition Authority (LCA) in full as opposed to simply ordering the review of the amount of fine.  AKKA/LAA was fined for abusing its dominant position via excessive pricing for its services of issuing for consideration licenses for the public performance of musical Works and collecting fees for remunerating the copyright holders. In fact the company was fined twice – initially in 2008 and subsequently in 2013 following the LCA’s examination of the new amended rates.

For the purposes of investigating whether the excessive pricing took place, the LCA mostly relied on comparison of rates applied in Latvia for the use of musical works in shops and service centers with those applied in Lithuania and Estonia as neighboring Member States and markets. The rates applied in Latvia were 2-3 times higher than those applied in the other two Baltic States. The LCA also applied PPP index and compared the rates in force in approx. 20 other Member states, which also confirmed that the rates exceeded the average level in other Member states.

Comparison method to determine the (un)fair nature of the prices

The main question here is comparison with how many Member States/markets is sufficient, and moreover, what rate is to be considered as ‘appreciably higher’ within the meaning of Lucazeau and Others judgement and Article 102 TFEU, as well as what reasoning can the company use to prove the fair nature of the rates. In that respect, the CJEU ruled:

  • United Brands test is still valid. The CJEU in the current case still refers[1] to its United Brands test to determine the excessive pricing by verifying whether (i) the difference between cost incurred and price charged is excessive, and (ii) if yes, whether the price imposed is either unfair in itself or when compared with competing products.[2]
  • No minimum markets to compare. The CJEU admits that there may be other methods by which the excessive pricing may be determined[3], including the one based on a comparison of prices applied in various Member States/markets, even if such comparison is based on a limited number of Member States/markets (which may be a proof that the Member States are selected according to the objective, appropriate and verifiable criteria).[4]
  • The choice of analogue markets depends on circumstances specific to the case. [5]Those may include: consumption habits, other economic and socio-cultural factors (GDP per capita, cultural and historic heritage). The CJEU left it to the national court to assess and decide on this depending on the circumstances of the case.
  • Consistent basis of the price comparison. This is another rather vague concept referred to by the CJEU both in its earlier judgements in Tournier, and Lucazeau and Others, as well as this ruling[6]. In essence, it is consistent where the method of calculating rates in various markets is analogous and takes into account the PPP index in the comparison with the rates charged in Member States/markets in which the economic conditions/living standards differ. Again, the CJEU emphasized that it is up to the Competition Authority concerned to make the comparison and to define its framework, considering that there is no single adequate method and the Competition Authority has a “certain margin of manoeuvre” here.
  • “Appreciable difference” threshold. As such, there is not such threshold above which the difference between the rates compared is to be considered as appreciable, and hence serve as an indication of an abuse of a dominant position. The CJEU stresses that when an undertaking holding a dominant position imposes scales of fees for its services which are appreciably higher than those charged in the other Member States, that difference must be regarded as indicative of an abuse of a dominant position. The CJEU in the current case stated that the difference (between 50% and 100% higher in Latvia) is not as large as the difference observed between the fees in the cases that led to its earlier judgments in Tournier, or Lucazeau and Other. At the same time it admits that such difference may also be qualified as “appreciable”, since there is “no minimum threshold above which a rate must be regarded as “appreciably higher” given the circumstances specific to each case.[7] As long as the difference is both significant and persistent for a certain period of time (as opposed to be temporary and periodic), it may be considered as appreciable. And again it is up to the national court to verify this. In any case, those factors are only indicative of a possible abuse of dominant position.
  • Justification/Defence to prove that difference in rates is not excessive. The CJEU states that the company concerned may rely on objective dissimilarities between the situations in various markets/Member States included in the comparison. In case of the company concerned, this may be the relationship between the level of the fee and the amount actually paid to the copyright holders, the collection, administration and distribution expenses, other objective factors affecting costs, such as specific regulation that places a heavier burden on the administration or other features specific to the market concerned. The CJEU emphasized that it is for the company holding a dominant position to show that its prices are fair by reference to objective factors that have an impact on management expenses.

In conclusion

Determining whether the price is excessive (unfair) has always been a challenge for the competition authorities in various jurisdictions, which also explains the reluctance of the latter to deal with and investigate such cases. The landmark judgement in United Brands case, which dates back 1978, outlining the test for determining the excessive pricing is still valid and the recent CJEU’s judgement in AKKA/LAA case confirms this. Additionally, the CJEU thereby emphasizes that the difference in rates following the price comparison must be significant and not temporary in order to be considered as appreciable and hence abusive. The concept of significant is rather vague and subjective depending on the circumstances of each specific case. Even so, these factors are “merely indicative” of abuse of a dominant position. In such situations, it is for the undertaking holding a dominant position to show that its prices are fair by reference to objective factors that may have an impact on management expenses; and it is up to the national court/competition authority to assess the circumstances of each specific case.

 

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[1] Para 36.

[2] Judgment of 14 February 1978, United Brands and United Brands Continentaal Commission, 27/76, EU:C:1978:22, paragraph 252

[3] Para 37.

[4] Para 40, para 41.

[5] Para 42

[6] Para 44

[7] Para 55

[1] http://curia.europa.eu/juris/document/document.jsf?text=&docid=194436&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=495725

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