Antimonopoly & Unilateral Conduct: Introduction
This guide provides an overview of the competition law principles that govern unilateral conduct in prominent antitrust jurisdictions, including the EU, the United States, China, India, Canada, Russia, Korea and Japan, among others. It covers fundamental concepts, rules on specific categories of abuse and procedural issues. Each chapter is organised as a series of questions to allow readers to compare the practice in different jurisdictions and assess similarities and differences with ease.
Unilateral conduct is perhaps the least stable of the three pillars of competition law. Compared to the prohibition of cartels and prospective merger assessment, unilateral conduct rules attract considerably more controversy. Assessments of “dominance” or “market power” are often challenging (particularly in online markets), competition authorities are willing to push the boundaries of the law by developing novel theories of harm, and there is considerable divergence across jurisdictions. And yet, enforcement is becoming more frequent, with severe financial sanctions.
This guide seeks to help practitioners and companies to navigate these challenges.
The concept of abuse
There is consensus that competition rules should not hinder companies with market power from competing vigorously “on the merits”. Rather, they should be limited to preventing only the anticompetitive exercise of market power. As former EU Commissioner for Competition, Mario Monti, put it, “in competition the best should win on the merits, but only on the merits” (2004). Similarly, former FTC Commissioner Joshua Wright, observed that, “[t]o reach the conclusion that unilateral conduct is exclusionary and therefore a potential violation of section 2 of the Sherman Act, a trier of fact must undertake the difficult task of separating bona fide anti-competitive conduct from competition on the merits” (Dissenting Statement in the matter of McWane, Inc (2014)).
This principle, however, does not translate into an easily justiciable set of criteria that can guide companies’ conduct. As the Court of Appeal in the UK observed, the concept of “competition on the merits” is far from being a legal definition or the expression of a sufficiently hard-edged concept to enable factual situations to be included within it or excluded from it as a matter of law” (National Grid v GEMA (2010)).
A particular point of contention is to what extent unilateral conduct analysis should follow an “effects-based” or “form-based” approach. To some extent, this is a false dichotomy.
On the one hand, effects alone are not necessarily determinative because competition on the merits may have the effect of excluding competitors. As the EU courts have noted, “Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient” (Post Danmark I (2012)).
On the other hand, a form-based approach also relies on economic theories and assumptions about competitive effects of the conduct at issue. If these assumptions are not tested in individual cases, the assessment risks being dissociated from economic reality. As the UK courts noted, it would be “difficult in practical terms to reconcile a finding that conduct had no anticompetitive effect at all with a conclusion that it was nonetheless reasonably likely to have such an effect” (Streetmap v Google (2016)). Nor can a form-based approach offer legal certainty because the categories of abuse are typically not closed.
Therefore, to avoid the risk of "false positives” (Type I errors), competition authorities need to identify both (i) forms of behaviour that are anticompetitive from the perspective of economic theory and (ii) evidence that these behaviours foreclose competitors in practice.
Novel theories of harm
The issue of legal certainty is a concern in unilateral conduct cases, since competition agencies seek to identify new types of abusive conduct. In the EU, for example, the Commission (often followed by national competition authorities) has taken enforcement action in respect of novel forms of abuse, especially at the intersection of antitrust and intellectual property.
The European Commission has challenged conduct involving making incorrect representations to a patent office (AstraZeneca (2010), seeking injunctions based on standard essential patents against willing licensees (Motorola and Samsung (2014), also addressed by the EU courts in Huawei v ZTE (2015) and the UK courts in Unwired Planet v Huawei (2017)), and making reverse payments in settling patent disputes (Perindopril (2014), also addressed by the UK Competition and Markets Authority in GlaxoSmithKline(2017)). And US courts have addressed the issue of “product hopping” whereby companies seek to obtain a patent on a modified version of a drug that will soon lose patent protection (New York v Actavis (2015) and Mylan v Warner Chilcott (2016)).
There also continues to be much debate on the application of long-standing unilateral conduct rules to digital sectors that may not have existed even a few years ago. Germany’s Federal Court of Justice recently reversed the suspension by a lower court of the Bundeskartellamt’s decision on Facebook’s data policy. The Bundesgerichtshof based its judgment on a theory focused on consumer choice that had not been at the centre of the reasoning of either the original decision or the lower court judgment. The European Commission, in turn, has opened investigations into Apple and Amazon related to their relations with businesses using their platforms. The European Commission is also active on the legislative side. It is conducting a review of new and emerging digital markets, such as artificial intelligence, and is consulting on new regulatory instruments to create ‘ex ante’ rules for ‘gatekeeper’ digital platforms, as well as a ‘new competition tool’ that would facilitate intervention even without a finding of abuse.
The focus on digital sectors and technology is therefore likely to continue. The President of the Bundeskartellamt recently confirmed that the “ICN will keep its focus on all areas of competition law enforcement including mergers, cartels, unilateral conduct and investigative process. Digital topics will remain on top of the agenda” (18th Annual Conference of the International Competition Network).
Globalisation of enforcement…
The emergence of a new group of antitrust agencies that actively enforce rules of unilateral conduct has resulted in companies facing parallel investigations in several jurisdictions at once. Compared with international cartel and merger investigations, the multilateral review of anticompetitive conduct is a more recent phenomenon, but looks likely to continue.
Younger antitrust agencies have shown themselves increasingly willing to challenge conduct in complex cases. In January 2018, South Korea’s KFTC imposed a fine of KT$6.2 million on Siemens, for abusing its dominant position in an aftermarket for CT and MRI medical imaging equipment; and most recently, investigated Naver, a prominent search engine, for allegedly giving preferential treatment to its own services in search results. In June 2018, following a class action lawsuit in the US, China’s State Administration for Market Regulation (SAMR) launched a probe into potential abuses of dominance and price-fixing violations of three dynamic random-access memory makers, Samsung, SK Hynix and Micron Technology.
The Competition Commission of India (CCI) had a clear focus on digital markets and imposed a fine on Google for abusing its dominant position in general search services and online advertising, in a decision that reflects a more global enforcement trend.
…But divergence of approach
In a global and increasingly interconnected economy, the likelihood of facing multiple parallel investigations is becoming greater. Given the lack of clear and well-established principles for analysing unilateral conduct, this increases legal uncertainty. It invites complainants to forum shop and exploit antitrust proceedings for self-serving ends. And it creates temptations for governments to rely on unilateral conduct rules as a protectionist instrument. Such developments risk turning competition rules against their own objectives. They do not promote competition, but risk chilling healthy competition.
Even between the relatively mature antitrust regimes of the EU and the US, some considerable differences remain in unilateral conduct rules. One example is the duty to supply under competition rules, where the US Supreme Court with its Trinko (2004) judgment set the bar considerably higher. The question under what conditions a company with market power has a duty to assist its rivals and share its assets with them impacts incentives to invest and innovate. The European Commission’s prohibition decision in ARA (2017) shows that “failure to supply” is still an active part of EU enforcement practice.
Another critical area is pricing. The judgments of the EU courts in Tomra (2010 and 2012) and the judgment of the General Court in Intel (2014) suggested a relatively formalistic approach, at least for certain types of pricing practices. The Court of Justice in Intel, though, has changed course, requiring the Commission to analyse all the relevant circumstances where the addressee argues that the conduct was not capable of restricting competition even for cases that are seen as by nature abusive. To some extent, the Commission’s latest decision infringement decision against Qualcomm’s exclusivity payments in favour of Apple complies with that guidance, but it mostly reveals the Commission’s reluctance to rely on economic models as evidence of the illegality. In the US, greater emphasis is placed on the analysis of effects and implications for consumers. A good example is the recent judgment of the District Court of New Jersey in Eisai v Sanofi (2014) where the court held that the mere possibility that a retroactive discount could force a rival to forgo some of its profit margin “does not translate into an injury for antitrust purposes”.
Finally, the concept of “excessive pricing” is an anathema to US antitrust lawyers, but it has become an active area of enforcement in Europe – at least in the pharmaceutical sector. In May 2017, the Commission opened an investigation in alleged excessive pricing by Aspen in relation to cancer drugs, following a finding of infringement by the Italian competition authority. In Pfizer (2016), the UK Competition and Markets Authority imposed a record fine of approximately US$109 million following a finding of excessive pricing, although that judgment was struck down in 2018 by the Competition Appeal Tribunal (the Court of Appeal upheld the CAT’s finding in March 2020). Several national agencies in Europe have also expressed interest in pursuing excessive pricing practices in the e-commerce sector. In February 2020, the Italian competition authority launched investigations into suspected price increases from Amazon and eBay. Similarly, the Netherlands competition authority committed to monitor closely pricing practices and suspected misleading statements of large online platforms, such as Bol.com and Amazon.