Abuse of economic dependence: abuse, but not as we know it

Last November, the General Court in Luxembourg confirmed the fine of € 2.42 bn imposed on Google for abusing its dominant position in the market for online general search services. In particular, Google was found to have engaged in ‘self-preferencing’ in relation to its comparison shopping service. Last month, in January 2022, that same court quashed a € 1.06 bn fine imposed on Intel for having granted exclusivity rebates in the computer processor market. These and other high-profile cases, involving for example Google’s mobile operating system Android (leading to a fine of € 4.34 bn), dominate the press and public debate.

And yet, such cases about the giants of industry tell only half the story on abuse of dominance in competition law. In relative silence, but with a potential impact on many more firms, another discourse on abuse of dominance is on the rise. This development concerns not the giants which are dominant in absolute terms, in the sense that they would dominate entire product and geographic markets, but involves the abuse of relative dominance vis-à-vis one or more individual trading partners.

A well-known example of the latter abuse consists of farmers pressured by supermarkets to accept excessively low prices or unfair trading conditions. An individual farmer may not dare to react, fearing the loss of a much-needed buyer that may be near-impossible to replace. Private enforcement of traditional unfair trade practices law may be unfit to deal with this ‘fear factor’ as it requires the farmer to step forward. However, public (or private) enforcement of classic competition law will be of no avail either as no individual supermarket normally holds a market share high enough to qualify as ‘dominant’ under these traditional provisions (Art. 102 TFEU; Art. IV.2 of the Belgian Code of Economic Law).

Precisely at this junction, the rules against abuse of relative dominance or ‘economic dependence’ come into play. These rules include, on the EU level, Directive 2019/633 which bans certain unfair B2B trading practices in the agricultural and food supply chain and which Member States were to implement with effect as from November 2021. On the national level, Belgium amended its Code of Economic Law with effect as from June 2020 to include new provisions on abuse of a position of economic dependence in national competition law. Belgium does so under a mandate granted to Member States by EU competition law (Art. 3(2) of Regulation 1/2003).

A new commercial and legal reality

Problem solved, case closed? Far from it. As always, reality is much richer than legislation can predict.

Unsurprisingly, the economic dependency issues of brick-and-mortar commerce have rapidly expanded to the digital world. For example, relations between online platforms such as Amazon or Booking.com and third-party sellers operating on those platforms are under increased scrutiny. Certainly, platforms have greatly benefited third-party sellers. However, many of these sellers have gradually become economically dependent on the platform, very similarly to how individual farmers may be dependent on supermarkets.

The above relationship is further complicated by the dual role played by some of these platforms as a provider of a marketplace for independent sellers and, simultaneously, as a seller in itself in competition with those independent sellers. Competition authorities continue to raise various questions in this respect, including about the use by platform operators of sensitive information about competitors which operators gathered through the platform, about the platform’s control of seller accounts or performance indicators, as well as about one-sided contract clauses pertaining, for instance, to the modification and termination of seller contracts without warning.

Market players react to the above trends using different approaches and legal bases. For example, to counter allegedly abusive practices by Amazon, relevant initiatives include:

• an ongoing investigation by the European Commission into a possible infringement of the prohibition of abuse of ‘absolute’ dominance (Art. 102 TFEU);
• the acceptance by the German competition authority of commitments by Amazon on the basis of EU and national competition law, after which the authority terminated its dominance probe without a formal decision regarding any abuse of ‘absolute’ or ‘relative’ dominance (Section 19 of the German Act against Restraints of Competition);
• the adoption of Regulation 2019/1150 by EU institutions, in effect as from 12 July 2020, to enhance fair and transparent treatment of business users by online platforms, by giving such users more effective options for redress; and
• the order of the Paris Court of Commerce requiring Amazon to implement contract changes and imposing a EUR 4 mio fine on the basis of national unfair trade practices law, targeting a ‘significant imbalance between the rights and obligations of the parties’.

It is impressive how one set of facts can give rise to such a staggering variety of legal responses:

• on the EU level as well as on the national level;
• under EU law (applied by both EU and national institutions), as well as under national law;
• by administrative authorities (including national competition authorities) as well as by courts;
• under traditional competition law, as well as under unfair trade practices law;
• by reference to absolute dominance, to relative dominance, or without the establishment of any form of dominance; and
• with remedies ranging from injunctions to commitments and fines as public enforcement tools, to be complemented by private enforcement instruments.

Needless to say, this variety in legal instruments offers opportunities in terms of litigation strategies but also increases the overall complexity of the strategic exercise.

Take-aways and forecasts: dealing with relative dominance

Considering the shifting commercial and legal reality, undertakings may find themselves puzzled on how to best deal with the growing interest of regulators, supervisors and competitors for abuses of relative dominance. We have a few indicators in this respect.

First, ‘abuse’ does not require any intent – it is an objective concept. A company may not even be aware of its own position of relative dominance, let alone of its ‘abuse’ of that position. Proactive screening of contractual and business positions are crucial to identify important risks.

Second, specific legislation against abuse of relative dominance is usually contained in national law but not in EU law – if national legislation even provides for any such provisions at all. A majority of EU Member States have now adopted such specific legislation, but undertakings should be aware of the ‘dual regulatory burden’: in-house legal counsel of undertakings active in multiple Member States will have to familiarize with several partly-overlapping national legal regimes.

Third, the ever-closer link between unfair trade practices law and traditional competition legislation has important consequences as enforcement of the latter is traditionally much stricter. By rendering competition law judges and authorities competent to enforce abuse of relative dominance, legal scrutiny and fines are likely to increase. Strict enforcement, especially public enforcement, may be of great help in dealing with the ‘fear factor’ but raises the stakes for the companies involved.

Fourth, at the moment, legal certainty in relation to abuse of economic dependence is lacking. The relevant law is still ‘under construction’ and some of the first Belgian judgments appear to overly stretch the scope of the prohibition, effectively ignoring the legislation’s requirement that the structure of the market be affected. This uncertainty adds to a general feeling of ‘guidance by fining’: companies risk to find out what is or is not allowed only when a fine is imposed. At least in this regard, the treatment of absolute and relative dominance is strikingly similar.

Finally, rather than being limited to only one recourse or legislative act, market operators should note that there exists a multitude of legal strategies and options for both the undertaking in a dependent position as well as for the company alleged to have abused its position of relative dominance. Relevant strategies are complex as they combine insights from industrial economics and a cluster of legal standards, but are ultimately necessary to successfully navigate the shifting legal and commercial landscape.

Contacts

If you have any questions concerning the items in this newsflash, please get in touch with your usual Deloitte Legal - Lawyers contact at our office in Belgium or:

Wouter Devroe, wdevroe@deloitte.com, +32 2 800 70 47, Richard Steppe, rsteppe@deloitte.com, +32 2 800 70 12

For general inquiries, please contact:

bedeloittelegal@deloitte.com, + 32 2 800 70 00

Be sure to visit us at our website: http://www.deloittelegal.be