You know those stories that remain open-ended, leaving you wondering about how they might have concluded? But you are lucky, that does not is not supposed to happen on antitrustpolitics.com, as we also report on how cases continue every now and then. Therefore we take the recent EU court decision in AdC/EDP as an opportunity to revisit “potential competition” (see our previous post here).
Please remind me again – what was the case about?
If you read this part of the post, it indicates you neither clicked on the link above nor read my previous post. But you are welcome, here is a short recap of what the case is about: EDP, an electricity supplier, and Sonae, a food retailer, entered into an association agreement which provided price reductions to customers holding a discount card issued by Sonae. The association agreement included an “exclusivity” clause. In this clause, EDP and Sonae committed not to enter their respective markets for the duration of the association agreement and one year thereafter.
In May 2017, the Portuguese competition authority (AdC) imposed a fine of EUR 38.3 million on the companies. The regulator found that the non-competition clause in the association agreement could be qualified as a market sharing agreement between potential competitors. However, EDP and Sonae did not view themselves as competitors and appealed the decision until the question of potential competition eventually reached the European Court of Justice (ECJ).
In May this year, Advocate General (AG) Athanasios Rantos issued an opinion dealing with the assessment of potential competition. Such an opinion is not binding, and the ECJ has now handed down its ruling.
First a rebuke for the referring court
Before dealing with the actual questions, the ECJ rebuked the referring court. According to the ECJ, it would have been “desirable for the referring court to have set out more succinctly and clearly its own understanding of the dispute before it and the questions of law giving rise to its request for a preliminary ruling, rather than reproducing, in an excessively long form, numerous extracts from the file which had been submitted to it” (very similar to the wording the ECJ used in the Super Bock case).
Since it is the referring court who actually has to ask the questions, the ECJ emphasized the need for the referring court to rephrase and summarize the questions proposed by the parties to avoid overlaps. Essentially, the ECJ would have preferred fewer but more precisely phrased questions. Consequently, some questions were declared (at least partially) inadmissible. The ECJ’s rebuke can be understood as a request to the national courts to formulate questions clearly and unambiguously, limiting them to the essentials.
Turning to the concept of potential competition
Disclaimer: The conclusion reached after AG Rantos’ opinion remains valid: Assessing potential competition is challenging. However, the ECJ emphasized three key points that can serve as guidance in future cases:
- The existence of potential competition must be substantiated by consistent facts. Subjective criteria like the mere wish or desire to enter a certain market or how the undertakings already active on a market estimate the probability of a market entry are not sufficient. However, as already noted by AG Rantos, such subjective criteria can be taken into account. Stating the obvious, the court also emphasizes that a non-competition agreement is a strong indicator that companies already active on a market perceive another company a competitor because “if the parties to a non-compete agreement did not perceive themselves as potential competitors, they would, in principle, have no reason to conclude such an agreement”.
- With regard to factors which should be taken into account when assessing potential competition, the judgement includes a helpful clarification regarding the relevant point in time for the assessment. The court states that the possibilities of a market entry must be assessed at the date when the agreement (or concerted practice) in question was concluded. Subsequent activities cannot be taken into account. It could be taken from this that even the actual market entry at a later point in time cannot play a role when assessing potential competition. However, economic activities of the undertaking concerned and the group of entities it belongs to can be considered. As the court stated: “Such activities may, inter alia, prove to be relevant for determining possible barriers to entry or the structure of the market, or even constitute evidence of a potential viable economic strategy for entry to the market concerned.”
- The ECJ also clarifies that preparatory steps to enter a market are no autonomous requirement for establishing potential competition. The court states that “such steps are relevant only in so far as they may be appropriate for demonstrating that the undertaking concerned had real and concrete possibilities of entering the market concerned”.
And now?
The decision does not deviate from the opinion of AG Rantos in the essential points. However, it delves into the concept of potential competition in great detail. The ECJ’s thorough explanations, along with the difficulties faced by the referring court in formulating the right questions, highlight the complexity of assessing potential competition. We have discussed why this is a large problem in our last blog post on the subject (here is the link again, in case you don’t want to scroll to the top). It is now up to the referring court in Portugal to take the ECJ’s decision into account in its ruling on the merits.
In my previous post, I had hoped for clear guidance from the ECJ. Although that wish was perhaps overly optimistic, the decision contains some important clarifications on the topic of potential competition, and from the detailed discussion of the facts in question, important points can also be derived for one’s own assessment in future cases. Nevertheless, “potential competition” remains a challenge for antitrust practitioners as well as for companies.
Photo by Karolina Bobek on Unsplash
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