1. Introduction
Under EU competition law, Article 102 of the Treaty on the Functioning of the European Union (TFEU) places a special responsibility on undertakings not to abuse their dominant position in the relevant market. As there has long been a debate as to what constitutes freedom for the purpose of competition law, this essay will critically analyse the correlation between the republican concept of ‘freedom as non-dominance’ and the Court’s analysis of the notion of ‘abuse of dominance’ within the meaning of Article 102, and then demonstrate that the republican policies are most applicable and realistic for competition law.
2. The Republican Notion of ‘Freedom as Non-Dominance’
The republican notion of freedom, revived by commentator Pettit (1997), is a standalone form of freedom, propounding that an agent is free when he or she is not subject to any form of dominance. While this theory seems to resemble the notion of ‘negative freedom’ which places emphasis on the absence of obstacles or constraints, (Rohmer, 2014) it focuses more on the absence of mastery by others. Particularly, the republican policies have three salient features that deserve special attention.
Firstly, it places undue emphasis on the notion of ‘social freedom’ instead of ‘outright freedom’ (Pettit, 2014). In general, dominance in this context could be understood as the imposition of one’s will on another, which can either be stemming from the state and its institutions or other individuals and non-governmental agencies in the community (Alexander, 2010, p. 6). In other words, under this line of reasoning, freedom concerns not only the absence of unnecessary interference from the government and any other individuals, but also the existence of suitable conditions for the realisation of citizens’ capabilities (Alexander, 2010). Accordingly, an agent can only be described as ‘free’ if the non-interference that he or she enjoys is robust (Carter and Shnayderman, 2018).
Secondly, a closer reading of the republican understanding of freedom as non-dominance reveals that a finding of dominance requires the showing of an ‘arbitrary’ impediment to one’s choice (Pettit, 2014). An act of interference will be deemed as arbitrary if it is chosen ‘at the agent’s pleasure’ and without due regard to the interests or opinions of those affected (Pettit, 1997). Notably, the above two criteria, dubbed by commentators as the ‘robustness’ and ‘arbitrariness’ requirements, represent the salient features of the republican notion of freedom as non-dominance (Carter and Shnayderman, 2018).
Thirdly, and most importantly, the republican version of freedom should be distinguished from the Hobbesian notion of ‘freedom as non-interference’ (that is, the liberal conception of freedom) in two important senses. To begin with, the latter concept mirrors Berlin’s notion of ‘negative liberty’, which delineates that a person will be considered free in the negative sense, if he or she is not prevented by human act or omission, from what he or she wants to do (Crowder, 2004). It follows that coercion should be seen as the biggest obstacle to freedom in a competitive market (Crowder, 2004). Yet, one potential criticism for this is that the liberal notion of freedom focuses purely on the actual interferences regardless of other possible interferences with the market (Carter and Shnayderman, 2018).
In contrast, according to the republican term, the absence of interference by itself will not be sufficient for the existence of freedom in the market if other firms or market players may possess the capacity to exercise arbitrary interference that is not presently in existence (Alexander, 2010). In other words, the fact that, in the context of Article 102, a dominant firm enjoys freedoms at the pleasure of a power that can take them away at will may indicate an absence of genuine freedom (Baum and Nichols, 2012).
Hence, at a theoretical level, an undertaking can enjoy non-interference without enjoying non-dominance. For instance, a slave cannot be properly regarded as free merely because his or her master decides not to interfere with their choice. Following this analysis, a firm may be dominated by another market player even without suffering any interference. Further, where a firm is placed in a position of dependency, it is ‘subject to the will of another [firm]’, and this may have debilitating effects on its ability to choose and pursue its own goals (Skinner, 2006). In other words, the republican policies suggest that the extent to which a firm is negatively free is also dependent upon the probability with which it will be constrained from performing future acts (Rohmer, 2014). According to Kramer (2008), the eventuality of a particular firm acquiring the means that would enable it to possess the arbitrary power to interfere is invariably a matter of greater and lesser probability.
Moreover, it is noteworthy that the republican concept of freedom, being distinct from Hobbes’ hostile attitude towards laws (Skinner, 1998), accords a much more crucial role to laws: they are considered effective in enhancing market freedom through the elimination of potential dominators (Alexander, 2010). Indeed, even though the law necessarily dictates interference and is in essence coercive, such interference will not be considered as arbitrary, given that it is exercised in pursuit of the common interests of citizens (Pettit, 1997).
3. Republican Concept of Freedom and Article 102
Under Article 102 TFEU, three cumulative conditions must be met in order to reach an infringement finding: first, the undertaking(s) in question must hold a dominant position in the relevant market; second, it must be shown that there is an abuse of such a dominant position; and third, the abuse must be capable of affecting the trade between Member States (Østerud, 2010). This section will go further to examine the frequent appearance of the republican notion of freedom as non-dominance in the Court’s analysis of Article 102. In particular, the fact that on many occasions, the CJEU’s interpretation of the notion of ‘abuse of a dominant position’ within the meaning of Article 102 can be seen as reflecting the republican policies deserves special attention.
4. Judicial Definition of ‘Dominance’
Under EU competition law, an undertaking will infringe on Article 102 only if it satisfies the definition of dominance laid down in the case of United Brands v Commission, a ‘position of economic strength’ enjoyed by an undertaking which enables it to distort effective competition in a relevant market. As Coscelli and Edwards (2013) later summarised, the Court’s judgment effectively laid down a ‘two-tiered’ test that must be met for a finding of dominance:
a. the ability to hinder the maintenance of effective competition in the relevant market (implying the power to exclude other competitors) and
b. the power to behave to an appreciable extent independently of competitors, customers, and consumers.
Commentators, such as Eilsmansberger (2006), have doubted whether these two criteria, in theory, constitute two separate elements. But in practice, it is noteworthy that the courts tend not to draw any distinction between these two requirements and the satisfaction of one condition will normally suffice to constitute ‘dominance’ under Article 102 (Coscelli and Edwards, 2013). In fact, this definition was later reaffirmed in the case of Hoffmann-La Roche v Commission where the standard of dominance seeks to relate ‘independence’ to the level of competitive constraints exerted on the undertaking in question; a dominant position entails that these competitive constraints are insufficiently effective so that the undertaking concerned has possessed substantial market power over a long period of time.
Hence, in order to satisfy the definition of dominance, it must be shown that the alleged dominant firm is able to unilaterally restrict competition by taking advantage of its economic strength (Østerud, 2010). Within this test, the capacity to interfere is the one that really matters. Thus, in the United Brands case, the company was held to occupy a dominant position because it was capable of behaving in the market in a ‘strategically independent way’ (Joelson, 2017). This requirement reflects, and is largely compatible with the republican notion of freedom, since it deals with the scenario where other market players are subject to the ‘alien control’ (without interference) of a dominant firm, which will likely materialise if those small undertakings refuse to comply with a desired pattern of behaviour, or if the dominant firm subsequently changes its mind (the ability to exercise arbitrary interference). This explains why the mere fact that a firm holds a ‘super-dominant’ position approaching a monopoly may in some instances justify a finding of abuse (Whish, 2008).
In fact, the Court’s main concern in cases of abuse of dominance is that although a dominant firm may, to a small extent be subject to some degree of competition, it is still in a position to exercise ‘an appreciable influence on the conditions under which that competition will develop’ and to ‘act largely in disregard of it’, if it does not operate to its detriment. Accordingly, a dominant firm still possesses the capacity to exercise arbitrary interference in the sense of republicanism.
As the General Court explained in the General Electric v Commission case, the presence of lively competition on a specific market does not rule out the possibility of a dominant position. The reason for this is that the salient feature of a dominant position is an entity’s ability to make strategic market decisions without due regard to this competition and without incurring any detrimental effects that arise from such behaviour. This reflects the ‘robustness’ and ‘arbitrariness’ requirements of republican freedom which highlight the possibility of randomly interfering with one’s choice of action.
5. Is republican freedom a preferable approach for finding a dominant position?
However, the judicial formulation of dominance (or the republican understanding of freedom) has attracted some criticisms. Particularly, Jones and Sufrin (2010, p. 300) argued that the judicial test refers to the vague concept of ‘independence’, a notion that is much more ‘nebulous’ than power over price, thereby bringing inherent uncertainty to the operation of Article 102. Indeed, Azevedo and Walker (2002) pointed out that actually no successful company anywhere is capable of acting to an appreciable extent independently of its customers due to the basic economic theory of demand and supply - if a firm increases the price of its goods, it is inevitable that it will sell fewer units of its products. This conclusion applies to both dominant and non-dominant firms. Following this line of reasoning, applying the United Brands/Hoffmann-La Roche definition of dominance may not be effective in distinguishing adequately between the two groups.
Thus, it is submitted that the legalistic definition laid down by the courts in United Brands and Hoffmann-La Roche is more preferable than a purely economic analysis of dominance that focuses merely on a firm’s ability to increase the price and restrict output with a view to extracting excessive profits (Schmidt, 2010). The reason is that the latter approach can be proven ineffective when the market shares held by the alleged firm (albeit lower than 40%) may still be excessive in comparison with a small undertaking with very low market shares. But, in most cases, the European Commission will not normally make a finding of dominance-based purely on market shares. The courts will engage in a wide-ranging analysis of whether the alleged dominant firm in fact possesses the capacity to exercise arbitrary interference, by taking into account factors such as the technological lead of the undertaking over its competitors and the presence of a highly developed sales network (Piszcz, 2011). This non-exhaustive list of factors has enabled the Court to determine whether other market players will be constrained from performing future acts and are thus not negatively free in the sense of republican freedom. Accordingly, it is submitted that the court’s interpretation of a ‘dominant position’ demonstrates the concepts of republicanism, which highlight the need for the presence of suitable conditions for the realisation of citizens’ capabilities – the importance of social freedom.
6. Correlation between republican freedom and a finding of ‘abuses’
Aside from the above, the court’s approach to establishing anti-competitive abuses is also indicative of the republican policies. Notably, the Court in the case of Hoffmann-La Roche, where the customers undertook to buy all or most of their requirements from La Roche as part of a tying-in agreement in return for the grant of fidelity rebates, adopted an effect-oriented standard in interpreting the notion of ‘abuse’ (Rohmer, 2014). In particular, the court clarified that ‘abuse’ is an ‘objective concept’ regarding the conduct of a dominant undertaking which ‘has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition’.
For example, in the case of Van den Bergh Foods v Commission, the ice cream retailers were supplied with freezer cabinets free of charge, provided that they were used exclusively for HB ice cream. While the retailers were in theory free to exercise their legal right to terminate an agreement, they would be effectively bound by the agreement to stock the HB ice cream due to its popularity and the limited space in outlets. The behaviour of Van den Bergh was held to constitute an abuse because the freezer exclusivity was transformed into outlet exclusivity which may have the effect of eliminating competition. This conclusion is reasonable as, following the ‘robustness’ requirement of the republicanism, the ice cream retailers were effectively deterred from stocking a second range of ice cream and the freedom of choice enjoyed by them was clearly not robust. Hence, Van den Bergh violated Article 102 by depriving the retailers of the republican notion of ‘freedom as non-interference’.
In any event, the recent debate regarding the ‘modernization’ of Article 102 further illustrates that the courts are more than willing to adopt an ‘effects-based’ analysis in reaching an infringement decision based on an abuse of dominant position. Under this approach, the courts are expected to conduct an integrated examination in order to determine whether the undertaking in question has the ability to exercise arbitrary interference and whether the freedom enjoyed by other competitors is genuinely robust (Jones and Sufrin, 2010). Therefore, it suggests that the courts will likely decide future cases in line with the republican notion of ‘freedom as non-interference’.
7. Conclusion
In short, the foregoing analysis discloses that the judicial interpretation of ‘abuse of dominance’ under Article 102 TFEU largely resembles the republican notion of freedom as non-dominance. This observation is not surprising as the republican theories of freedom have already achieved a remarkable degree of success among contemporary political theorists. It follows that republicanism serves as best for, and is mostly applicable to, competition law.
By Jochelle Greaves Siew
This material was published in Lawyr.it Vol. 6, September 2020, available only online.
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