A company in a dominant position has the economic power to act independently of its competitors and customers. While this position is not prohibited per se, competition law punishes its abusive exploitation, particularly when it leads to the imposition of unfair trading conditions. These practices, which receive less media coverage than exclusionary abuses aimed at eliminating competitors, are no less harmful to the market and consumers.
What is exploitation abuse?
Dominant companies enjoy market power that gives them a structural advantage. Competition law ensures that this power is not used to impose unfair conditions on trading partners.
Definition: obtaining undue advantages from a dominant position
Exploitative abuse is characterised by the use of a dominant position to obtain commercial advantages which an undertaking would not have been able to impose in a context of effective competition. As defined by the Court of Justice of the European Union in the United Brands judgment of 14 February 1978, this is where an undertaking in a dominant position "uses the opportunities afforded by that position to obtain trading advantages which it would not have obtained in a situation of practicable and sufficiently effective competition".
Unlike exclusion abuses which are designed to drive competitors out of the market, exploitative abuses directly affect the dominant undertaking's customers, suppliers or end consumers.
The reference to "unfair trading conditions" (Art. 102 TFEU)
Article 102 of the Treaty on the Functioning of the European Union (TFEU) expressly prohibits "the direct or indirect imposition of unfair purchase or selling prices or other unfair trading conditions". This broad wording encompasses a variety of abusive commercial practices.
In French law, Article L. 420-2 of the Commercial Code, although not explicitly using this wording, is interpreted in a similar way. The Autorité de la Concurrence considers that the concept of abuse of a dominant position is identical in national and EU law.
Conditions for qualifying as abuse of exploitation
Two cumulative conditions are necessary to characterise an abuse of exploitation:
- Causal link: the company's dominant position enabled it to obtain the disputed commercial advantages.
- Unfairness: these advantages are "unreasonable in relation to the economic value of the service provided", according to the formula established by case law.
These conditions ensure that any commercial conditions that are advantageous to a dominant company are not automatically deemed to be abusive. It must be shown that the company has genuinely exploited its position to impose manifestly unbalanced conditions.
Excessively high prices
The most emblematic example of exploitation abuse is the imposition of abnormally high prices on customers who, because of the supplier's dominant position, have no credible alternative.
How do you prove that a price is excessive?
Demonstrating that a price is excessive is not easy. The competition authorities do not wish to become price regulators and recognise that companies, even dominant ones, have a degree of pricing freedom. The French competition authority has reiterated that it will only intervene "if, and only if, the terms of the transaction can, in the light of all the circumstances of the case, be objectively described as unfair".
Two complementary methods can be used to establish whether a price is excessive.
The comparison method (equivalent markets)
The first approach consists of comparing the prices charged by the dominant undertaking with those observed on comparable markets where there is effective competition. This comparative method was illustrated in particular in the AKKA/LAA case decided by the Court of Justice in 2017, concerning copyright royalties.
The Court specified that a price differential can be qualified as "appreciable" if it is "significant and persistent", without however setting a minimum threshold. This is a case-by-case analysis, taking into account the specific features of the market in question.
Analysis of costs and margins (manifest disproportion)
The second method is based on an analysis of the cost structure of the dominant undertaking. This involves assessing whether there is a "manifest disproportion" between the price charged and the cost of producing the good or service. This approach was used by the Autorité de la concurrence in its decision 09-D-24 concerning internet links between Réunion and mainland France.
The authorities examine the difference between the costs incurred by the company (variable, fixed, avoidable or incremental costs as appropriate) and the price charged to customers. If this margin appears objectively excessive in relation to the economic value of the product or service, the abuse may be characterised.
Possible justifications (or lack thereof)
A dominant undertaking may try to justify high prices on objective grounds. Among the justifications sometimes invoked are :
- Exceptional or specific costs (R&D, special investments)
- The need to make innovations profitable
- Specific regulatory constraints
However, these justifications are strictly assessed. In the case of telecommunications in La Réunion (decision 09-D-24), the Autorité de la concurrence rejected the justifications put forward by France Télécom concerning its tariffs for submarine links. It considered that the manifest disproportion between the price and the value of the service constituted an abuse that had the effect of "imposing unreasonably high prices on consumers" and "hindering the development of the market".
Practices similar to excessive pricing
In addition to direct price gouging, a number of pricing and contractual practices can be classified as operating abuses.
Resale price taxation
A company in a dominant position can abuse its position by imposing minimum resale prices on its distributors. In the competitive pétanque boules case (decision 17-D-02), the French Competition Authority sanctioned Obut for imposing resale prices on distributors of its products.
This practice had "the effect of preventing its sales outlets from competing on price with these other retailers" and deprived consumers of the price competition that should have existed between distributors. The Autorité emphasised that these practices "impeded the free play of competition in setting final prices for consumers".
Free pricing: a case-by-case analysis
The practice of free pricing consists of including the cost of transport in the selling price of goods on a flat-rate basis, irrespective of the actual distance between the place of production and the place of delivery. This practice is not in itself anti-competitive, but can become so in certain circumstances.
According to the concept of a dominant position and its operation, the French authorities take a nuanced approach. While the European Commission generally considers that the imposition of a "franco" pricing system by a dominant undertaking constitutes an abuse, the Autorité de la concurrence considers that "the impact of such a pricing system depends largely on the circumstances and methods of its adoption".
In the Coca-Cola Beverages case (decision 03-D-20), the French Competition Council considered that the introduction of free-of-charge prices had neither an anti-competitive purpose nor an anti-competitive effect, as it was simply intended to accompany a logistical reorganisation of the company.
Undertaking to maintain a maximum price (guarantee clause)
Certain price guarantee clauses may constitute abuses of exploitation. These include commitments by a dominant undertaking that its price will never exceed that of a competing product.
Although they appear to be favourable to the customer, these clauses can have the effect of freezing market positions by dissuading competitors from lowering their prices. None of them can hope to gain significant market share because the dominant company will systematically align itself.
The Conseil de la Concurrence has described as abusive the guarantee given by GDF that the price of natural gas would never exceed that of competing energy sources such as steam or fuel oil (decisions 99-D-51 and 03-D-26).
Priority clauses or "English clauses
The so-called "priority clauses" or "English clauses" oblige a co-contractor to offer the dominant company a preferential right at the end of a contractual period, on terms equivalent to those offered by competitors.
This practice creates asymmetry in negotiations by allowing the dominant company to know its competitors' bids without having to outbid them. The Paris Court of Appeal ruled that such a clause "imposed by a company in a dominant position which obliges its contracting partners to give it preference on equal terms is reprehensible [...] since it makes it possible to hinder the development of existing or potential competitors".
Discriminatory contractual and commercial conditions
Discriminatory practices may constitute an abuse of exploitation when they emanate from a dominant undertaking and create a disadvantage for certain trading partners.
Unjustified price discrimination
Article 102 TFEU expressly refers to "applying dissimilar conditions to equivalent transactions with trading partners, thereby placing them at a competitive disadvantage".
Differential treatment may be justified by objective reasons (purchase volumes, specific costs), but in the absence of such justification, it may constitute an abuse of exploitation. This discrimination may concern prices (selective discounts) or other commercial conditions.
The Autorité de la concurrence distinguishes between two levels of harm:
- First-level" infringement when discrimination is aimed at eliminating a competitor
- Second-tier" infringement where customers of the dominant undertaking are put at a competitive disadvantage in their own market
Non-objective or non-transparent application of rules (e.g. digital platforms)
Dominant digital platforms are coming under increasing scrutiny from the competition authorities. In its decision 19-D-26 concerning Google, the French competition authority condemned the application of rules that were "unfair and applied in a non-objective, non-transparent and discriminatory manner".
Google defined and published rules for advertisers wishing to display advertising on its network, but these rules left so much room for manoeuvre that the company could apply "differentiated and inconsistent" treatment to advertisers.
This practice was likely to disrupt the operation of the online advertising market and related markets in which Google Ads customers operated. The Authority sanctioned these commercial conditions as constituting an abuse of exploitation.
The new economic approach and exploitative abuse
The analysis of exploitative abuses has evolved under the influence of a more economic approach to competition law, sometimes referred to as the "new approach".
Concrete effects on the market taken into account
Rather than condemning certain practices per se, competition authorities now focus more on analysing their actual effects on the market. This development was set out by the European Commission in its 2009 Communication on priorities for the application of Article 102 of the TFEU.
This approach requires a more detailed and contextualised analysis of the practices of dominant undertakings. It is not enough to establish a clear disproportion between a price and a cost; it must also be shown that this disproportion "has had an object and/or has produced real or potential disruptive effects on competition and, ultimately, on consumer welfare".
The possible justification of efficiency gains
The "new approach" also accepts that certain practices, even potentially abusive ones, can be justified by the efficiency gains they generate. Two types of justification are possible:
- The objective necessity of behaviour
- Substantial efficiency gains outweigh anti-competitive effects
For this second justification to be accepted, the dominant undertaking must demonstrate that :
- Efficiency gains have been or are likely to be achieved through the behaviour of
- Behaviour is key to achieving efficiency gains
- These gains outweigh the detrimental effects
- Behaviour does not eliminate effective competition
In France, Article L. 420-4, III of the French Commercial Code now expressly states that the provisions of Article L. 420-2 do not apply to practices "the perpetrators of which can show that they are based on objective grounds of economic efficiency and which allow consumers a fair share of the resulting benefit".
Defending yourself against abuse
If you are a victim of exploitation abuse, you can take several steps to assert your rights. If you feel that you are being subjected to unfair trading conditions imposed by a company in a dominant position, there are several options open to you.
You can refer your case to the Autorité de la concurrence, which has extensive powers of investigation and sanction. It can issue injunctions and impose fines of up to 10% of the worldwide sales of the group to which the sanctioned company belongs.
Cases may also be brought before the commercial courts, either to have unfair terms declared null and void, or to claim damages for any loss suffered. The Hamon Act of 2014 also introduced the possibility of group actions in respect of anti-competitive practices.
The complexity of cases involving abuse of a dominant position, particularly exploitative abuse, requires solid legal expertise. Qualifying an abuse of an exploitative position requires an in-depth analysis of the market, the position of the company in question and the commercial conditions applied.
If you are faced with commercial conditions that you consider unfair from a partner in a dominant position, do not hesitate to contact our firm for an analysis of your situation and advice tailored to protect your interests.
Sources
- Treaty on the Functioning of the European Union (TFEU), Article 102
- French Commercial Code, Articles L. 420-2 and L. 420-4
- European Commission Notice of 24 February 2009 on the priorities for the application of Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings
- ECJ, 14 February 1978, United Brands, case 27/76
- CJEU, 14 September 2017, AKKA/LAA, aff. C-177/16
EN 
FR