As part of the Unilever case, the Court of Justice of the European Union ruled on the abuse of a dominant position (under Article 102 TFEU) in the context of a producer/distributor contractual relationship. The Italian Council of State referred the following two questions to the CJEU for a preliminary ruling:
- The imputation to the producer in a dominant position of its distributors’ anti-competitive conduct
Unilever, an ice cream producer, has built a distribution network in which its distributors impose exclusive supply to sales outlets in exchange for discounts. In 2017, the Italian competition authority imposed on Unilever a penalty for abuse of a dominant position for the purposes of Article 102 TFEU. However, the latter highlights the fact that the exclusivity clauses at issue are contained in the contracts between distributors and sales outlet operators, and not in the contracts concluded directly by it. The Italian authority then explains that Unilever can be held liable for the actions of its distributors on the grounds that there is an “economic unit” between them. This concept of “economic unit” is well known in European competition law, as it serves as a compass to establish whether two entities are part of the same “undertaking” within the meaning of Articles 101 and 102 TFEU. Indeed, the above-mentioned provisions prohibit “undertakings” from participating in an anti-competitive agreements or abusing their dominant position. Yet, the term of “undertaking” is an autonomous concept specific to European competition law, shaped by the Court’s case law. In this context, an “undertaking” designates an “economic unit”, regardless of legal considerations. In other words, an “economic unit” can consist of several natural or legal persons. The most obvious example is probably that of groups of companies, especially when the parent company holds all or virtually all of its subsidiary’s capital. However, not every group of companies necessarily constitutes an “economic unit”: it is indeed necessary to analyze whether the subsidiary determines independently its own conduct on the market, or whether, on the contrary, it merely carries out the instructions given by its parent company, which would reveal an “economic unit” between the two. This concept of “economic unit” is very useful and was developed and a twofold aim. On the one hand, it allows to impute the anti-competitive conduct (cartel or abuse of a dominant position) of a company to another one belonging to the same “undertaking”, under joint and several liability. On the other hand, the existence of an “economic unit” excludes from the scope of Article 101 TFEU agreements between two companies belonging to the same “undertaking”, in so far as it is aimed at “agreements between undertakings”, and not agreements within the same undertaking.
The qualification of an “economic unit” between two companies belonging to the same group is easier, especially because of the capital links they share. However, the absence of capital links does not necessarily exclude the possibility of an “economic unit”, as demonstrated by the Court in Suiker Uniee (ECJ, 16 December 1975, relating to a principal and his agent) and Remonts (CJEU, 21 July 2016, C-542/14, relating to an independent service provider and an undertaking). Nevertheless, it is the first time that the Court has ruled on the case of the relationship between a producer and its distributor. The question referred to the Court for a preliminary ruling is therefore the following: what are the criteria for establishing whether a contractual relationship (in this case, the coordination among producer and distributor) “results in the creation of a single economic entity for the purposes of Articles 101 and 102 TFEU”?
While the Advocate General offers an analysis of the relevant factors to establish such an “economic unit” (with regard to the economic, organizational and legal links), and to impute the anti-competitive conduct to both the producer and the distributor, the Court does not even mention the term “economic unit”. Indeed, the judges prefer a different approach, which was also addressed but not ultimately chosen by the Advocate General in point 48 of his opinion. In this respect, Mr. Athanasios Rantos explains that the recourse to the concept of “economic unit”, which is very common for cartel cases, is much less so in the context of the application of Article 102 TFEU. However, even without using such a concept, it would still be possible, within the scope of Article 102 TFEU, to impute to the dominant undertaking the actions of its distributor, if the latter did not act “independently” but “as part of the implementation of a policy that was decided unilaterally by that undertaking” (see Unilever judgment). This is the case, in particular, when the contracts in question are, as is the case here, standard contracts drawn up entirely by the producer in a dominant position, which the distributor is required to have signed by the sales outlet operators, without being able to amend them freely. In this case, the producer in a dominant position would be solely liable for the anti-competitive conduct adopted by its distributor, not because they form together an “economic unit” (which would allow to impute the behavior to both the distributor and the producer), but because the producer is regarded as being the perpetrator of that conduct. In fact, the Court refers to the Advocate General’s point 48, and considers that the dominant undertaking must not “undermine, by its conduct, effective and undistorted competition within the internal market, whether directly […] or indirectly, by means of conduct which it has delegated to independent operators required to carry out its instructions”.
In any event, both the Advocate General and the Court find that the existence of a hierarchical link resulting from a systemic and consistent range of guidelines is not necessary to impute the distributor’s actions to the producer.
It seems appropriate to hold the producer in a dominant position responsible for anti-competitive practices committed indirectly through its distributors, in order to prevent him from circumventing Article 102 TFEU. However, by choosing not to use the concept of “economic unit”, the Court adopts an unfavorable position for the victims of an abuse of a dominant position. Such a victim may only bring an action against the producer, and not against the producer and/or its distributors, as would have been the case in the presence of an “economic unit”. Moreover, even if the European judges answer the main underlying issue, which was to know under which conditions an anti-competitive behavior adopted by a distributor may be imputed to the producer in a dominant position, they do not address the question as it was posed. Indeed, the Italian Council of State specifically referred to the concept of “economic unit”, and wondered about the “relevant criteria” for establishing such a unit between a producer and its distributors, a question the Court did not answer.
- The competition authority’s obligation to analyze the evidence presented in the administrative procedure by the dominant undertaking
The burden of proving the existence of an abuse of a dominant position within the meaning of Article 102 TFEU is borne by the competent competition authority, which has to, “in the light of all the relevant circumstances” (quote from the judgment), to establish whether the conduct at issue is capable of distorting competition. In this respect, two points should be emphasized:
Firstly, as previously indicated in its so-called “SEN” judgment (Servizio Elettrico Nazionale, CJEU, C-377/20, 2022), the Court reiterates that the competent competition authority does not have to show that the conduct of the dominant undertaking actually produced anti-competitive effects in order to establish the abusive nature of the conduct. In fact, it is sufficient to establish the harmful potential of the conduct, i.e. its capacity to produce such effects.
Secondly, the Court also recalls that Article 102 TFEU does not seek to ensure that competitors less efficient should remain on the market (see 2017 Intel judgment in Case C-413/14). This is precisely the purpose of competition on the merits, which can legitimately lead to the departure from the market of less efficient competitors, i.e., less attractive to consumers. Consequently, an abuse of a dominant position is characterized when the undertaking’s behavior is capable of foreclosing from the market competitors that are at least as efficient.
Taking this into account, Unilever provided the Italian competition authority with economic studies, aimed at demonstrating that the practices at issue were not capable of excluding from the market competitors who were at least as efficient. This is known as the “as efficient competitor test”, defined by the Court as a reference to “the ability of a hypothetical competitor of the undertaking in a dominant position, which is as efficient as the dominant undertaking in terms of cost structure, to offer customers a rate that is sufficiently advantageous to encourage them to switch supplier” without “causing that competitor to incur losses”.
The Court recalls that such a test is only one of a number of methods, and that the competition authority has no legal obligation to use it in order to find that a practice is abusive (see CJEU, Post Danmark judgment, Case C-23/14, 2015). Conversely when, during the administrative procedure, the undertaking itself provides the competent authority with an analysis based on an “as efficient competitor test”, the authority is required to analyze these documents. Indeed, it is the presentation of evidence (whether or not based on an “as efficient competitor test”) demonstrating the absence of restrictive effects that gives rise to the obligation for the competition authority to examine them. This is what the Court ruled in the Intel case regarding exclusivity rebates. But should the Intel case law also apply to exclusivity clauses, at issue in the Unilever case? Both the Court and the Advocate General respond positively, in order to respect the rights of the defense and to be heard, which is a general principle of EU law. Consequently, the competition authority cannot exclude outright the evidence provided by the dominant undertaking without examining its probative value and, where appropriate, setting out the reasons why such data is irrelevant in its view.
This judgment raises the question of whether the Intel case law should apply generally, independently of the type of restriction, as Mr. Athanasios Rantos argues in point 71 of his opinion. This also seems to be the case in the Unilever judgment, where the Court mentions “an undertaking in a dominant position suspected of abuse” without specifying which practice is involved; it then adds that the Intel case law “is not called into question by the existence of a number of practices at issue”, again without specifying the practices.
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