EC Competition Law - The Essential Facilities Doctrine
To what extent is the Essential Facilities Doctrine established in Community law and how has its application under Article 82 EC evolved over time?
Wissenschaftlicher Aufsatz 2009 29 Seiten
Table of contents
Part I: The Essential Facilities Doctrine and EC Law – Origins and Trends in Refusal to Supply Cases
1.1 EFD Lies Within the Refusal to Supply Framework under Article 82 EC
1.2. Evolution of the Application of the EFD in Refusals to Supply Case Law
Part II: The Essential Facilities Doctrine and Intellectual Property Rights – Evolution in Refusal to Licence Cases
2.1. The Interface Between Competition Law and Intellectual Property Law and the Need for Stricter Standards
2.2. Evolution of the Application of the EFD in Refusals to Licence Case Law
The first aim of this paper is to establish the Essential Facilities Doctrine’s (EFD) undeniable existence in EC law and to determine how its application has evolved over time by analysing the relevant case law. By outlining the legal theory of the EFD, Part I shows that the Doctrine is a well-established competition law remedy within the refusal to supply framework of Article 82 EC. This paper argues that the EFD should be an exceptional measure, only applied after careful balancing of the dominant undertaking’s freedom of contract and right to property against the potential benefits to consumer welfare. By investigating how the EFD has been applied practically in refusal to supply case law, the second half of Part I identifies the different criteria under which refusal to grant access to an essential facility was deemed to constitute an abuse, and concludes that the circumstances in which the EFD was initially applied were not consistent. It is submitted that it was not until the Bronner Judgment that the EU institutions began applying the EFD to refusal to supply cases within a coherent and sufficiently strict legal framework.
Part II will deal with the second aim of this essay, namely to evaluate the legal evolution of the Doctrine’s controversial application to Intellectual Property Rights (IPRs). Because compulsory licensing of IPRs can have grave negative repercussions on innovation and consumer welfare, this paper maintains that the EFD’s application to IPRs should be exceptional and subject to the strictest of conditions. It accordingly supports the notion that IPRs require special deference in comparison to physical property rights, and notes that the EFD is applied to IPRs under stricter legal standards than when applied to other property rights. The second half of Part II investigates the Doctrine’s application to refusal to licence cases. This paper identifies that there has recently been a significant and regrettable attenuation of the abovementioned stricter standards since the criteria of the exceptional circumstances test under which the EFD results in compulsory licensing have been indefensibly widened following the landmark Microsoft Judgment.
Part I: The Essential Facilities Doctrine and EC Law –
Origins and Trends in Refusal to Supply Cases
1.1 EFD Lies Within the Refusal to Supply Framework under Article 82 EC
The EFD is a tool used to specify when a dominant undertaking that is in control of an essential facility is required to grant access to this facility. The Doctrine hinges on the premise that where access to a facility is essential in order for other actors to operate on the market, the refusal to grant access by the dominant owner of the facility can be considered an abuse of dominant position under Article 82 EC. The EFD thus applies to facilities whose indispensable nature allows them to impede other actors, either by limiting market entry or by hindering their continued operation on the market. An essential facility has been defined by the Commission as “a facility or infrastructure without access to which competitors cannot provide services to their customers”. The application of the EFD always involves an assessment of what other actors could do; if they were able to construct a second facility, mandatory access would not be ordered since the facility would not be essential. Thus a refusal to grant access can only be abusive when the crucial input cannot possibly be obtained elsewhere. Unlike the Commission, the Courts have never expressly referred to the EFD, but although the term is not mentioned outright the EFD undoubtedly exists indirectly within Article 82. The EFD is “a variation of the principle of refusal to deal” which form part of exclusionary abuses under EC competition law and which are the main forms of abuses of a dominant position that exist under Article 82. Many of the cases that deal with these refusals “implicitly rely on the Essential Facilities Doctrine”. Accordingly, the EFD should be considered a well-established part of EC law within the framework of Article 82 refusal abuses, and it is evident from EC case law that the application of the EFD as basis for imposing competition law liability has steadily increased.
While the EFD has been accredited with having helped to open up and further the integration of the single market, it has also been met with academic hostility. The application of the EFD should be an exceptional measure, subject to careful consideration and strict conditions as it is apparent that the EFD and mandatory access represent clear encroachments on the freedom of contract and right to property of dominant undertakings. This can be seen as an extension of the entrenched notion that dominant undertakings carry a ‘special responsibility’ that limits their freedom to take certain decisions that would otherwise be considered normal competitive conduct. However, there are several reasons why the EFD should be restricted in scope: First, imposing mandatory access can have anti-competitive effects that may even harm consumer welfare since it is generally pro-competitive in the long-term to allow undertakings to retain the exclusive use of their own legitimately acquired facilities. Second, there is a significant risk that an overzealous application of the EFD can lead to competitors abusing the special responsibility by free riding on dominant undertakings’ duty to grant access to essential facilities. The ultimate aim of competition law is to ensure consumer welfare and effective competition, yet competition law interventions have been criticised for aiding competitors rather than focusing on consumer interests. Since a refusal by a dominant undertaking is only abusive when it harms consumers or effective competition, it is therefore important that the EFD is only applied when consumers stand to gain. Third, a too liberal application of the EFD can seriously threaten innovation by undermining the rewards for investment in essential facilities; dominant undertakings will be reluctant to invest because of the likelihood of mandatory access, and competitors will not have an incentive to innovate since they can free ride. For these reasons the application of the EFD must be subject to careful balancing of the freedom of contract – which is a recognised rule even under Article 82 – and property rights of the dominant undertaking against the benefit to consumers, and mandatory access should only be imposed under limited the circumstances when the latter outweighs the former.
1.2. Evolution of the Application of the EFD in Refusals to Supply Case Law
The EFD has been applied to a wide array of situations under Article 82, ranging from classical leveraging of market power to ancillary markets, to vertical cessation abuses. By investigating key EFD cases this essay identifies that there was originally no coherent nor consistent test for when refusals were considered abusive. In fact, although the general principle of the EFD is clear, the evolution of the EFD has been far from linear and the conditions under which a dominant undertaking was forced to grant mandatory access were initially best described as nebulous.
Commercial Solvents is crucial for the evolution of the EFD as it was the first case in which the EFD was applied. It involved the decision of the dominant undertaking Commercial Solvents – which had a dominant position on the market for raw materials used for the production of ethambutol – to cease its supply of raw material to the company Zoja since it had decided to produce ethambutol itself. Commercial Solvents accordingly entered into competition with its former customer and its decision represented a classical competitive leveraging of dominant market power in the upstream market in order to reserve the downstream market to itself. In Commercial Solvents the Commission made its first explicit statement regarding the epithet of an ‘essential facility’, stating that the owner of such a facility cannot refuse competitors access when it is essential for them to operate on the market, and that to do so constitutes an abuse of EC law. Both the Court and the Commission thus concluded that Commercial Solvents had abused its dominant position by refusing to supply to Zoja “with the object of reserving such raw materials for manufacturing its own derivatives […] and therefore risks eliminating all competition”. Commercial Solvents thus established that a refusal to grant access to an essential facility that risks eliminating competition constitutes an abuse of dominant position and accordingly imposes a duty to deal on the dominant undertaking.
The Court upheld this line of reasoning in the Télémarketing case, which also concerned competitive leveraging of market power. The dominant undertaking CLT, a TV broadcaster with a monopoly on television advertising, refused to allow advertisements containing the telephone number of competitors to be aired on its television station. Referring to its ruling in Commercial Solvents, the ECJ concluded that the conditional refusal constituted an abuse of dominant position since a dominant undertaking may not without an objective justification “reserve to itself an ancillary activity which might be carried out by another undertaking as part of its activities upon a neighbouring but separate market with a view to eliminating all competition from such undertaking.”
United Brands did in many respects take the EFD further than the two cases on market leveraging did. United Brands (UBC) held a dominant position in the banana market and it refused to supply its Danish customer Olesen, because Olesen had participated in an advertising campaign with one of UBC’s key direct competitors, Standard Fruit. Olesen was Standard Fruit‘s exclusive representative in Denmark and UBC listed this fact as one of the main reasons for its refusal to supply. United Brands thus concerned a vertical cessation of supply between a dominant supplier and dependent consumer in a non-competitive relationship on the downstream market. The Court held that although even dominant undertakings are allowed to take reasonable steps to protect their commercial interests, these must remain proportional, thus echoing the liabilities found under the special responsibility of dominant undertakings since they cannot therefore refuse requests from dependent customers when these demand nothing out of the ordinary. The ECJ concluded that UBC’s refusal constituted an infringement of Article 82 as it was neither proportional nor objectively justified. The Court further held that a dominant undertaking must take the potential damaging effects that its actions might have on customers into consideration; in this case UCB’s actions were likely to discourage other customers from engaging in advertising campaigns for other suppliers. It is submitted that United Brands represents a significant widening of the EFD’s application for two reasons: First, since Olesen was Standard Fruit’s exclusive distributor, these “should be considered as an integrated company”. As a result, the EFD was taken to the extreme extent, whereby the dominant undertaking was placed under a duty to supply a direct competitor on the same upstream market. Second, there were several other banana suppliers available to Olesen on the Danish market, so UCB did not represent an essential facility as it was defined in Commercial Solvents (‘essential to operate on the market’).
BP represents a different application of the EFD. Following the 1970s oil crisis the dominant undertaking BP reduced its supplies to all customers. One of its customers, ABG, filed a complaint that BP was abusing its dominant position because BP had reduced its supply disproportionally amongst its customers. Unlike United Brands where the disproportionate nature of the refusal was part of the reason why the refusal was deemed abusive, the Court concluded that BP’s disproportionate refusal was objectively justified both as a result of the oil shortage and due to the fact that ABG was only an occasional customer to BP. Moreover, the Court held that ABG had been able to access oil supplies elsewhere, which meant that access to BP’s oil was not indispensable for its continued operation, and consequently that BP’s facilities were not essential because there were alternatives. This entails a second inconsistency with previous case law since the fact that there were several other banana suppliers available to Olesen did not prevent the Court from imposing legal liabilities in United Brands.
As shown, there was initially no coherent test for the application of the EFD and there were undisputable inconsistencies in case law, especially regarding the impact of alternatives to the facilities that the dominant undertakings refused to grant access to. This paper holds that it was not until Bronner that the EFD began to be applied to refusal to supply cases within a sufficiently coherent and strict legal framework. Bronner relied heavily on the Opinion of Advocate General Jacobs, which contained an in-depth analysis of the boundaries of the EFD and advocated a restrictive application. The Bronner newspaper “invoked the EFD” since the dominant undertaking in the Austrian newspaper market, Mediaprint, had refused to grant access to its nationwide delivery network. The ECJ applied the so-called exceptional circumstances test which stated that Mediaprint was abusing its dominant position if its refusal was: first, likely to eliminate all competition in the relevant market; second, incapable of being justified objectively; and third, applied to a service which is “indispensable to carrying on that person's business, inasmuch as there is no actual or potential substitute in existence”. The Court ruled that Mediaprint’s refusal was not abusive as these conditions were far from met in Bronner both because there were other, albeit less advantageous, alternatives of distributing newspapers, and because there were no technical, legal or economic obstacles that made it impossible for Bronner to create its own nationwide delivery scheme. The most important feature of Bronner is arguably the unquestionable introduction of the independent indispensability criterion, which had the effect significantly restricting the application of the EFD. In fact, if the indispensability criterion had been applied to previous case law, such as United Brands, the ruling of the Court would undoubtedly have been different. Furthermore, the indispensability test restricts the EFD because it is objectively applied to all competitors as opposed to being tailored to any individual competitor. For these reasons Bronner is a turning point in the application of the EFD in EC law since it established a sound and coherent legal test under which the EFD can be applied to refusal to supply cases, thereby creating more legal certainty as to when a refusal to supply constitutes an abuse.
 Case C-7/97, Oscar Bronner GmbH & Co KG v. Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co KG,  ECR 1-7791.
 Ahlborn and Denicolò and Geradin and Padilla “DG Comp’s Dicsussion Paper on Article 82: Implications of the Proposed Framework and Antitrust Rules for Dynamically Competitive Industries”, 2006, pp.1-55, p.42, available at http://ec.europa.eu/competition/antitrust/art82/contributions.html.
 Ritter “Refusal to Deal and ‘Essential Facilities’: Does Intellectual Property Require Special Deference Compared to Tangible Property? World Competition, September 2005, pp.1-22, p.9.
 Case T-201/04, Microsoft Corp. v Commission of the European Communities  ECR II-3601.
 Grassi “Refusal to Supply and Abuse of Dominant Position in European Antitrust Law: an Analysis of the Case Law of the Court of Justice” Derra, Mayer and Partner Law Firm, 2008, pp.411-425, p.416, available at http://www.derra.de/media/public/publikationen/publikation160.pdf.
 Fine “NDC/IMS: A Logical Application of Essential Facilities Doctrine” European Competition Law Review, Vol. 23, 2002, pp.1-39, p.1, available at http://www.ftc.gov/os/comments/intelpropertycomments/finefrank.pdf. It is important to realise that a refusal is only abusive if coupled with another anti-competitive conduct, or if – as in this case – applied to facilities that are indispensable.
 Gerber “Rethinking the Monopolist’s Duty to Deal: A Legal and Economic Critique of the Doctrine of ‘Essential Facilities’” Virginia La Review, Vol. 74, No. 6, 1988, pp.1069-1113, p.1072.
 B&I/Sealink, Commission Decision, 1992, CMLR 255, para 41.
 Temple Lang “Compulsory Licensing of Intellectual Property in European Community Antitrust Law, presented for the Department of Justice, Federal Trade Commission Hearings, Washington DC, 2002, pp.1-30, p.10, available at http://www.ftc.gov/opp/intellect/020522langdoc.pdf.
 Langlois “Technological Standards, Innovation and Essential Facilities: Toward a Schumpeterian Post-Chicago Approach” Paper for the George Mason University conference on Dynamic Competition and Antitrust, 1999, p.1-55, p.4 available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=204069.
 Evrard “Essential Facilities in the European Union: Bronner and Beyond” Colombia Journal of European Law, Vol. 10, 2004, pp.1-35, p.2.
 Opi “The Application of the Essential Facilities Doctrine to Intellectual Property Licensing in the European Union and the United States: Are Intellectual Property Rights Still Sacrosanct?” Fordham Intellectual Property and Media Law Journal, Vol. 11, 2001, pp. 409-507, p.427.
 Öhlin “Contractual Aspects of the Essential Facilities Doctrine” Mater Thesis in European Competition Law, Lund University, 2001, p.1 and p.16, available at www.jur.lu.se/Internet/Biblioteket/Examensarbeten.nsf/0/4396C9BF040CC925C1256BC1004DA341/$File/xsmall.pdf?. See also Grundlach and Bloom “The ‘Essential Facility’ Doctrine: Legal Issues and Antitrust Considerations” Journal of Public Policy & Marketing, Vol. 12, No. 2, 1993, pp.156-169, p.156 and p.159.
 Op. Cit. Evrard (2004): p.15 for the positive remark and see Op. Cit. Langlois (1999): p.2 for criticism.
 See Michelin vs. Commission, 322/81, 1983 ECR 3461, para 10. See also Brinker and Loest “Essential Facility Doctrine and Intellectual Property Law: Where Does Europe Stand in the Aftermath of the IMS Health Case?” Gleiss Lutz Publications, 2004, pp.1-12, p. 4, available at http://www.gleisslutz.com/media.php/Ver%C3
 Op. Cit. Öhlin (2004): p.4.
 Ibid. p.106. See also Katsoulacos “Refusals to License IP: Are We Closer to an Optimal Legal Standard After Microsoft vs. Commission ? 2008, pp.1-33 p.18, available at http://www.intertic.org/Policy/Policy1.html.
 Faull and Nikpay The EC Law of Competition, 2nd Edition, United States, 2007, p.355. See also Op. Cit. Temple Lang (2002): p.15.
 Op. Cit. Lao (2009): p.60.
 Lane EC Competition Law, Great Britain, 2000, p.157.
 Castaldo and Nicita “Essential Facility Access in Europe: Building a Test for Antitrust Policy” Review of Law and Economics pp.83-110, Vol. 3 No. 1 2007, p.84 and p.90.
 Cases C-6-7/73 Istituto Chemioterapico Italiano Spa and Commercial Solvents Corp. v. Commission  ECR 223, 1 CMLR 309.
 Op. Cit. Castaldo and Nicita (2007): p.89.
 Commercial Solvents, C-6-7/73  ECR 223, paras 18 and 24.
 Ibid . paras 23 and 24.
 Commercial Solvents, Commission Decision of 14 December 1972, OJ L299/51 (1973) CMLP D56. See also Op. Cit. Castaldo and Nicita (2007): p.89.
 Commercial Solvents, C-6-7/73  ECR 223, para 3.
 Case 311/84, Centre belge d ́études de marché – Télémarketing (CBEM) SA v. Compagnie luxembourgeoise de télédiffusion SA and Information publicité Benelux SA, 3 October 1985,  ECR 3261.
 Ibid. para 6.
 Ibid. para 5.
 Op. Cit. Brinker and Loest (2004): p.5. Télémarketing, Case 311/84  ECR 3261, para 26. See also Op. Cit. Evrard (2004): p.6.
 Case C-27/76, United Brands Company and United Brands Continental BV v. Commission,  ECR 207.
 Op. Cit. Evrard (2004): p.4.
 United Brands, C-27/76,  ECR 207, paras 108 (dominance) 164 (refusal) and 185 (advertising campaign).
 Ibid., paras 173 and 186.
 Op. Cit. Fine (2002): p.5.
 United Brands, C-27/76,  ECR 207, paras 189 and 190.
 Ibid. 207, paras 191.
 Ibid. paras 191-193.
 Op. Cit. Evrard (2004): p.4..
 Ibid. p.4.
 Case C-77/77, Benzine en Petroleum Handelsmaatschappij BV v. Commission,  E.C.R. 1513, 3 C.M.L.R 174.
 Op. Cit. Öhlin (2001): p.15.
 BP, Case C-77/77  E.C.R. 1513, 3 C.M.L.R 174, para 43.
 Ibid. para 42.
 Oscar Bronner, Case C-7/97  ECR 1-7791.
 Opinion of Advocate General Jacobs, Case C-7/97, Oscar Bronner GmbH & Co KG v. Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co KG,  ECR 1-7791. Most importantly, Jacobs recognised that mandatory access can have negative effects both on innovation and on consumer welfare, and that long-run competition is better served by allowing dominant undertakings to retain their facilities for their own use (§57). Jacobs also stressed that access shall not be ordered on the insufficient grounds that it yields a competitive advantage, but “only in cases in which the dominant undertaking has a genuine stranglehold on the related market” (§65).
 Op. Cit. Grassi (2008): p.417.
 The exceptional circumstances test was introduced in the Magill Judgment (Cases C-241-242/91 Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v. EC Commission  ECR I-743). More in-depth analysis of both the exceptional circumstances test and Magill will follow in Part II.
 Oscar Bronner, Case C-7/97  ECR 1-7791, para 41.
 Ibid. para 42-44.
 As this essay has shown, both the ‘elimination of competition’ and the ‘objective justification’ criteria existed in previous case law. The indispensability criterion was indirectly part of the Magill (C-241-242/91,  ECR I-743) case as well, which preceded Bronner and which will be dealt with in Part II.
 Opinion of Advocate General Jacobs, Bronner, Case C-7/97, para 66. See also Oscar Bronner, Case C-7/97  ECR 1-7791, para 46. See also Op. Cit. Evrard (2004): p.23.
 Albors-Llorens EC Competition Law and Policy, Great Britain, 2002, p.103.