Abuse of a dominant position: basic concepts and legal framework

Holding a dominant position in a market is not illegal. But taking advantage of it to engage in anti-competitive behaviour is punishable under French and European law. These practices are known as abuse of a dominant position, and can result in colossal fines - up to 10% of the worldwide turnover of the companies concerned. For any company director, understanding this legal framework is a prerequisite for ensuring the security of your business. comprehensive legal protection for your business.

Article L. 420-2 of the French Commercial Code and Article 102 of the Treaty on the Functioning of the European Union (TFEU) prohibit these abusive practices for a period of three years. a comprehensive understanding of competition law. But how do you know if your company is in a dominant position? What types of behaviour are considered abusive? There are three key stages in the competition authorities' analysis, which we will explain in more detail below: determining the relevant market, characterising the dominant position, and then qualifying the abuse. the various manifestations of abuse of a dominant position.

Determining the relevant market is an essential prerequisite

The concept of the relevant market in competition law

The relevant market (or relevant market) is the framework within which competition between companies takes place. The Autorité de la concurrence defines it as "the place where supply and demand for a specific product or service meet".

This preliminary stage is crucial. As the Paris Court of Appeal has confirmed, "the application of Article L. 420-2 of the French Commercial Code presupposes defining the relevant market in order to determine whether the undertaking in question holds a dominant position on it" (Paris, 12 May 2016, RG no. 2015/00301).

In practice, the delimitation of a market makes it possible to identify the perimeter within which competition takes place and to assess the market power of companies. Without this delimitation, it is impossible to establish the existence of a dominant position.

The product or service market: the substitutability criterion

To determine whether products or services belong to the same market, the competition authorities apply the substitutability criterion. The Autorité defines this as "the interchangeability of products or services by virtue of their characteristics, price and intended use".

In other words, there are products on the same market that consumers consider to be alternatives between which they can choose. For example, in the pharmaceutical sector, the Autorité has considered that generic medicines composed of the same active ingredient are substitutable for originator medicines.

The analysis can be based on several criteria:

• The nature and function of the productProducts that are different but have the same function may be substitutable. For example, in the broadband Internet access sector, the French Competition Council has ruled that cable and ADSL belong to the same market because they offer identical functionalities.
• Conditions of useDifferent technical conditions of use can make products that meet identical needs non-substitutable. Competition petanque boules thus have specific characteristics compared with leisure boules.
• The structure of demandMarkets are also analysed taking into account the identity and behaviour of customers. In the pharmaceutical sector, the AMF distinguishes between the city market (pharmacies) and the hospital market because of the lack of demand substitutability.

In some cases, quantitative criteria complete the analysis, such as price comparisons. A substantial and lasting price difference between different products is an indication of non-substitutability.

The geographic market: delimitation factors

The geographic market comprises the territory in which companies offer their goods or services, and where the conditions of competition are sufficiently homogeneous. Its delimitation is based on several criteria:

• The cost of transportIn the case of heavy products, the impact of transport costs may limit the scope of the geographic market. For example, the French Supreme Court confirmed that tiles and bricks manufactured in Alsace were not substitutable for other products because of "the restrictive impact of transport costs" (Cass. com., 29 June 1993).
• Consumer preferencesSubjective considerations such as regional preferences or brand loyalty can limit the geographical substitutability of products.
• The regulatory frameworkSome markets are geographically limited by legal or regulatory constraints. For example, the Authority has taken the view that the rail passenger transport market is national in scope because of the legal provisions entrusting SNCF with this task on the national rail network.

Depending on the case, the geographic market may be local (the catchment area of a supermarket), national, European or global. For example, in the food retail sector, the catchment area is determined by customer travel time and the attractiveness of sales outlets.

Defining a dominant position

Definition of a dominant position

A dominant position is defined as "a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of consumers".

This definition focuses on three elements:

• The company's economic power
• Its ability to hinder effective competition
• Its behavioural independence

A company in a dominant position has a particular responsibility on the market. As the Autorité points out, "the less the customers of a dominant undertaking have the possibility of obtaining equivalent alternative services, the more that undertaking has the capacity to abuse its position".

Criteria for assessing dominance

Dominance is assessed on the basis of a set of indicators:

• Market shareThis is the main criterion. According to case law, a market share in excess of 50% constitutes in itself, save in exceptional circumstances, proof of a dominant position. In some cases, smaller market shares may be sufficient, depending on the structure of the market.
• Comparison with competitors' market sharesthe gap between the shares of the company concerned and those of its competitors is particularly significant. A high degree of asymmetry reinforces the likelihood of a dominant position.
• Barriers to entryThe existence of strong barriers to entry reinforces the presumption of a dominant position. These barriers may be regulatory, technical or due to "network effects" (particularly important in the digital economy).
• Competitive advantageOther factors can confer a dominant position, such as belonging to a powerful group, holding a technological lead, being well known or controlling prices.
• The counterweight of buyersIt may in some cases call into question the existence of a dominant position if customers have sufficient bargaining power.

Dominant position is assessed at the time of the practices concerned. An undertaking may gradually lose its dominant position without this affecting the classification of past behaviour as an abuse.

Individual versus collective dominance

A dominant position may be held by a single undertaking (individual dominance) or by several distinct undertakings (collective dominance).

An individual dominant position may be the result of a legal monopoly (as EDF held for a long time in the electricity market), a de facto monopoly, or simply a significant market share. The company is then considered as an "economic unit", even if it is legally made up of several legal entities (parent company and subsidiaries).

Collective dominance exists when "several undertakings have, together, in particular as a result of correlating factors existing between them, the power to adopt a single course of action on the market and to act to an appreciable extent independently of other competitors, of their customers and ultimately of consumers".

It can result:

• Structural links between companies (shareholdings, formal agreements)
• Adopting a common line of action on the market
• The very structure of the market (transparent oligopoly, possibility of retaliation, non-contestability of the market)

Case law makes a clear distinction between cartels and collective dominance. The same practice may be simultaneously prohibited as a cartel and as an abuse of a dominant position, but each of the two qualifications is subject to its own conditions.

The fundamental principles of abuse

The essential distinction between dominance and abuse

Fundamental point: a dominant position is not condemned per se. It is only the abusive exploitation of this position that is prohibited by Article L. 420-2 of the French Commercial Code, with the following consequences sanctions and specific defence mechanisms.

A dominant position may result from a company's superior performance, which is perfectly legitimate. Competition law does not penalise success, but rather the abusive use of the resulting market power.

Abuse of a dominant position is an "objective concept which refers to conduct by an undertaking in a dominant position which is likely to influence the structure of a market where, precisely as a result of the presence of the undertaking in question, the degree of competition is already weakened and which has the effect of hindering, by recourse to means different from those governing normal competition in products or services on the basis of the services provided by economic operators, the maintenance of the degree of competition still existing on the market or the development of that competition".

This definition underlines the objective nature of the abuse: neither the intention to defraud nor the intention to harm competition are required. It is the anti-competitive behaviour itself that is penalised.

The approach of the competition authorities

To classify an abuse of a dominant position, the competition authorities look at..:

• The link between dominance and behaviourThe abuse must have a causal link with the dominant position. The undertaking must use the power conferred on it by its dominant position to engage in conduct that would not be possible in a context of normal competition.
• Effects on competitionAbuse is characterised by actual or potential anti-competitive effects. It is not necessary to demonstrate a concrete effect if the practice is likely to restrict competition.
• The means usedAbuse implies the use of means other than those governing "competition on the merits". A dominant undertaking may defend its commercial interests, but not resort to practices aimed at eliminating its competitors.

The competition authorities' approach has evolved towards a more economic analysis of behaviour. Rather than applying a catalogue of practices that are prohibited "by nature", they now tend to examine the actual effects of practices on a case-by-case basis, and may accept certain objective justifications.

If you run a company with a strong position in its market, you need to be particularly vigilant. Normal commercial practices can become problematic when implemented by a dominant company. Our firm can help you, with dedicated legal expertise in this area, to assess your practices and prevent the risk of sanctions. Do not hesitate to contact us for a personalised analysis of your situation.

Sources

• Article L. 420-2 of the French Commercial Code
• Article 102 of the Treaty on the Functioning of the European Union
• Decisions of the French Competition Authority and case law of the Paris Court of Appeal