Intellectual Property Law

Internet Services & Abuse of Dominant Position and Predatory Pricing in the European Union

By Martha L. Arias

It started long time ago when the liberalization of the economy movement, gradually adopted by most countries, brought private investment to the telecommunication sector. Then, those concerns proper of a free market, such monopoly, abuse of dominant position, predatory practice, etc., emerged.  Finally, the Internet came, and the dominant position of Internet service companies became a searing topic in many countries. In the European Union, article 82 EC prohibits the abuse of dominant position in all industries.  This article has been extensively applied against telecommunication companies offering Internet services in the EU.   Following, there is a brief explanation of how the European Court of Justice has interpreted article 82EC when applied to Internet service providers.

Article 82EC expressly prohibits the abuse of dominant position within the common market or in substantial part of it insofar as it may affect trade between Member States.  The article even provides examples of abusing practices, e.i., (a) direct or indirect imposition of unfair purchase or selling prices or other unfair trading conditions; (b) limitation of production, market or technical development in prejudice of consumers; (c) application of different conditions to equivalent transactions to trading parties, thereby placing them in competitive disadvantage; and (d)  conclusion of contracts requiring the acceptance of third parties that have no connection with the subject of the contracts.  Telecommunication giants such as Microsoft, Skype, Google, have been sued for violation of article 82EC.   

Just a monopoly case, evidence supporting allegations of abuse of dominant position is complex and it may become the core of a legal process.  Precedent decisions by the European Court of Justice (ECJ) enlighten litigants on how article 82EC has been interpreted, especially in regard to evidentiary requirements. For instance, in case 322/81 Michelin v. Commission [1983] ECR 3461, paragraph 37; case T-65/96 Kish Glass v. Commission [2000] ECR II-1885, paragraph 62; and case T-219/99 British Airways v. Commission [2003] ECR II-5917, paragraph 91, the ECJ held that when investigating whether a dominant position exists in a given market, "the possibilities of competition must be judged in the context of the market comprising the totality of the products or services which, with respect to their characteristics, are particularly suitable for satisfying constant needs and are only to a limited extent interchangeable with other products or services." 

In France Télécom SA v. Commission of the European Communities, [2007] Case T-340/03, the ECJ applied the above competition standard to an Internet company accused of abusing its dominant position. In this case, the ECJ held that determination of the relevant market is important to assess whether the company's actions are really preventing effecting competition.  Additionally, the court said, this examination cannot be limited to objective characteristics of the relevant services but the competitive conditions and the structure of supply and demand on the market must also be taken into consideration."  Wanadoo Interactive SA ('WIN') offered high-speed residential Internet service in France. WIN was part of the France Télécom Group, and France Télécom interest in WIN fluctuated between 70% and 72.2%. In 1999, the EU Commission initiated an investigation that concluded with a complaint against France Télécom for abuse of dominant position and predatory pricing in France. The complaint requested that France Télécom stop its practice and imposed a fine of EUR 10.35 million.   The Commission has jurisdiction to investigate violations of article 82EC under the mandates of article 12(1) of Regulation No 17 of the Council of Feb. 6, 1962. 

The Commission alleged that France Télécom occupied a dominant position on the relevant market, and that its below-cost pricing was a predatory practice aimed at pre-empting others from participating in the Internet market and thereby it constituted an abuse of dominant position within article 82EC.  The record showed that customers had to pay a monthly subscription to France Télécom for the service, the renting of the ADSL modem, and subscription to WIN as Internet service provider. France Télécom challenged this decision.  The ECJ ruled for the Commission and France Télécom was ordered to cease its practice and pay the fine.   

The EU Commission is the regulatory body charged with enforcement of article 82EC.  It has filed numerous complaints against Internet service providers offering services within Member States.  The Commission has been successful in the majority of these complaints because despite the complex evidentiary requirement, they do not need to prove that competitors were taken, or are about to be taken, out of the market due to the abusive dominant position.      

Full post as published by IBLS Internet Law Blog on September 18, 2008 (boomark / email).