April 2009 / Issue 38
A legal update from Dechert’s Antitrust/Competition Group
Predatory Pricing in the EU: The French
Broadband Case
Key Points
„
Europe’s highest court confirms that
Wanadoo should be fined €10.35 million
for abusing its dominant position by
engaging in predatory pricing.
„
Dominant undertakings do not have an
absolute right to “meet competition” by
aligning their prices to those of their competitors.
„
Proof of recoupment of losses is not
required to determine predation.
„
There are differences between the EU and
the U.S. approach towards recoupment of
losses.
„
It is still too soon to determine if the ECJ
will use consistently an effects-based enforcement approach.
pricing refers to conduct where a dominant
undertaking incurs losses or foregoes profits in
the short term with the aim of foreclosing one
or more of its competitors.
This is one of the very few cases on predatory
pricing that has been brought before the ECJ.
The leading European cases on predation are
AKZO 2 and Tetra Pak II. 3 In these two cases, the
ECJ established that a detailed cost/price
analysis is necessary to determine predation:
prices below average variable costs must be
regarded as abusive, while prices below average
total costs, but above average variable costs,
may be abusive if it is proven that the dominant
undertaking’s intention was to eliminate a
competitor. In Tetra Pak II, the ECJ confirmed
that recoupment of losses is not necessary to
establish predatory behavior. The ECJ’s
reasoning in AKZO and Tetra Pak II was confirmed in this case.
Highlights of the ECJ’s Decision
Introduction
The European Court of Justice (“ECJ”),
Europe’s highest court, confirmed on 2 April
2009 a decision by the European Commission
(“Commission”) sanctioning Wanadoo with a
fine of €10.35 million (around U.S.$13.7
million) for an abuse of its dominant position in
the form of predatory pricing. 1 Predatory
1
d
Case C-202/07 France Télécom, S.A. v Commission [2009], not yet reported.
Between 1999 and 2001, Wanadoo, a subsidiary in the France Telecom Group, was a
dominant company in the provision of highspeed internet access services in France. In
September 2001, the Commission started
investigating Wanadoo as part of its 1999
2
Case C-62/86 AKZO v Commission [1991] ECR I3359.
3
Case C-333/94P Tetra Pak v Commission (Tetra
Pak II) [1996] ECR I-5951.
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Telecom Sector Inquiry. In 2003, the Commission held
that Wanadoo was guilty of charging consumers
predatory retail prices in order to eliminate competition
in the internet access market. Wanadoo was fined
€10.35 million by the Commission for abusing its
dominant position.
In October 2003, Wanadoo challenged the Commission’s decision before the Court of First Instance
(“CFI”), but the CFI rejected all its pleas. Wanadoo
appealed the CFI’s decision, and this appeal has now
been dismissed by the ECJ. The ECJ confirmed both the
Commission’s decision and the CFI’s judgment.
The main points decided by the ECJ can be summarized
as follows:
„
„
„
4
Predatory pricing test: (i) Prices charged above
average total costs will not be considered predatory; (ii) prices below average total costs, but
above average variable costs, will be considered
abusive if intent to eliminate competition can be
shown; and (iii) prices below average variable
costs will always be considered predatory. This is
in line with the previous case law on predatory
pricing.
The ECJ confirmed that the Commission has
broad discretion in carrying out the complex
economic assessment to determine whether a
price is predatory or not.
Dominant undertakings do not have an absolute
right to align their prices to those of their competitors. Wanadoo argued that it was allowed to
align its prices to those of its competitors even if
the prices charged were below cost. While the ECJ
recognized that a dominant undertaking is entitled to protect its commercial interests, it refused
to accept that dominant undertakings have an absolute right to align their prices to those of their
competitors. If the alignment of prices is aimed at
excluding a competitor from the market by charging predatory prices, the conduct will be considered anti-competitive. The ECJ holding on this
point is consistent with the position of the U.S.
Department of Justice that the “meeting competition” defense should not apply in predatory pricing cases involving dominant firms, although the
U.S. courts have not reached consensus on this
question. 4
U.S. Department of Justice, Competition and Monopoly:
Single-Firm Conduct Under Section 2 of the Sherman Act,
70-72, available at: www.usdoj.gov/atr/public/
reports/236681.htm (“DOJ Section 2 Report”).
„
Recoupment of losses is not a precondition to
determining the existence of predatory pricing.
Although the ECJ confirmed that recoupment is
not required to prove predation, it also held that
the Commission can consider the possibility of
recoupment, if necessary, when assessing if the
practice concerned is abusive or not.
„
The ECJ’s decision appears to be in line with the
Commission’s recent Guidance Paper of 2008 on
abusive exclusionary conduct by dominant undertakings (“Guidance Paper”) (see DechertOnPoint
“EU Commission’s Article 82 Guidelines Adopt Effects-Based Approach,” December 2008). In the
Guidance Paper, the Commission confirmed the
shift from its traditional per se analysis of abuse
of dominance cases towards an effects-based enforcement approach, where the effects of the
dominant undertaking’s behavior on consumers
are the main focus. In this case, the ECJ has confirmed that all the possible effects of the conduct
should be analyzed to see if the conduct in question caused harm to consumers.
EU vs. U.S.: Differing Tests of Predation
The EU and U.S. authorities appear to take different
approaches when assessing predatory pricing.
One major difference is related to the cost benchmarks
that are used to determine predation. In the EU,
according to the ECJ, prices must exceed average total
costs to avoid claims of predation. Although the U.S.
courts have not settled on the relevant benchmark, the
U.S. Department of Justice will apply a lower threshold
than the ECJ—companies can benefit from a safe harbor
if their prices are above average avoidable costs.
Recoupment of losses is also treated differently in the
EU and the U.S.. The U.S. Supreme Court stated in the
Brooke Group case 5 that in order to establish predatory
pricing, there must be evidence of the likelihood of an
increase of the company’s prices following a predatory
price cut. More recently, the U.S. Department of Justice,
while not viewing recoupment as necessary, regarded it
as a useful component of the predatory pricing analysis. 6 In the EU, additional proof of recoupment is not
necessary, although it is recognized as a helpful factor
to be taken into account in order to show predatory
intent.
5
Brook Group v. Brown & Williamson Tobacco Corp., 509 U.S.
209, 224 (1993).
6
DOJ Section 2 Report, 67-69.
April 2009 / Issue 38
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In practice, recoupment may be very difficult to prove,
as it can take different forms which are hard to evaluate.
For instance, companies may increase their prices and
recoup losses in a market other than the one in which
the predation occurred. Such behavior is not easy to
detect. It is noteworthy that in the U.S., since 1993,
when the recoupment requirement was established,
there have been no judgments confirming predatory
behavior. This may perhaps be explained by the burden
of proving recoupment.
Is Europe Heading Towards a More EffectsBased Enforcement Approach?
effects-based enforcement approach by suggesting that
all the likely effects of the conduct should be analyzed.
While the ECJ may have implicitly backed the Commission’s effects-based enforcement approach, it is still too
early to tell whether the ECJ will be prepared to endorse
this approach in future cases. In some areas, such as
loyalty rebates, the ECJ has consistently followed a per
se enforcement approach. In these areas, the ECJ might
be tempted to avoid the possible legal uncertainty
resulting from a shift in enforcement policy from the
traditional conduct-focused approach to an analysis of
presumed economic effects.
This case was decided in conformity with traditional
case law on predatory pricing. At the same time, it
implicitly endorses the Commission’s newly announced
Practice group contacts
If you have questions regarding the information in this legal update, please contact the Dechert attorney with whom
you regularly work, or any of the attorneys listed. Visit us at www.dechert.com/antitrust.
Jeffrey W. Brennan
Washington, D.C.
James A. Fishkin
Washington, D.C.
Matthew L. Larrabee
San Francisco
+1 202 261 3326
+1 202 261 3421
+1 415 262 4579
[email protected]
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[email protected]
Stephen D. Brown
Philadelphia
Paul H. Friedman
Washington, D.C.
Christine C. Levin
Philadelphia
+1 215 994 2240
+1 202 261 3398
+1 215 994 2421
[email protected]
[email protected]
[email protected]
Peter R. Crockford
London
George G. Gordon
Philadelphia
Pierre-Manuel Louis
Brussels
+44 20 7775 7506
+1 215 994 2382
+32 2 535 5479
[email protected]
[email protected]
[email protected]
Paul T. Denis
Washington, D.C.
Robert C. Heim
Philadelphia
Isabelle M. Rahman
Brussels
+1 202 261 3430
+1 215 994 2570
+32 2 535 5445
[email protected]
[email protected]
[email protected]
Michael D. Farber
Washington, D.C.
Kevin T. Kerns
Philadelphia
Will Sachse
Philadelphia
+1 202 261 3438
+1 215 994 2729
+1 215 994 2496
[email protected]
[email protected]
[email protected]
Carolyn H. Feeney
Philadelphia
Edward L. Kling
London
Stephen A. Stack, Jr.
Philadelphia
+1 215 994 2247
+44 20 7184 7612
+1 215 994 2660
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[email protected]
April 2009 / Issue 38
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Joseph A. Tate
Philadelphia
Liang Tsui
Hong Kong
+1 215 994 2350
+852 3518 4768
[email protected]
[email protected]
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© 2009 Dechert LLP. All rights reserved. Materials have been abridged from laws, court decisions, and
administrative rulings and should not be considered as legal opinions on specific facts or as a substitute
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April 2009 / Issue 38
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