Abuse of Dominant Position Attributed to the Network Head - Criteria

The CJEU specifies the conditions under which a head end may be sanctioned under Article 102 TFEU for acts physically committed by its distributors and rules on the competitor’s test as effective in the presence of exclusivity clauses.

Referral of a question by the Italian Council of State, the Court of Justice of the European Union (hereinafter ” The ECJ “) issued a decision on 19 January 2023 in which it ruled on the allocation to a network manager in dominant position of abuse committed by its reseller distributors, and on the implementation of the competitor test as effective within the framework of exclusivity clauses.

Unilever manufactures and markets consumer products, including ice cream in individual packages for outdoor consumption (bars, cafes, sports clubs, swimming pools and other recreational areas, hereinafter “Points of Sale”). It operates in particular through a network of 150 distributors.

On 31 October 2017, the Italian Competition and Market Authority (hereinafter ” AGCM “) issued a decision considering that Unilever had abused its dominant position on the market for ice cream in individual packaging intended for outdoor consumption in violation of Article 102 TFEU.

The AGM noted that Unilever had implemented an exclusion strategy that could hinder the growth of its competitors. This strategy was based on the imposition of exclusivity clauses on distributors to operators of points of sale requiring them to source exclusively from Unilever for all of their ice cream needs in individual packaging in return for the profit for operators of discounts and commissions.

The AGM has:

(i) Considered that the acts were attributable solely to Unilever even though they were physically committed by its distributors on the grounds that it interfered with their commercial policy and that they did not act independently;

(ii) Discarded the economic studies produced by Unilever, considering that it was not obliged to analyze them because they would be irrelevant in the presence of exclusivity clauses, the use of such clauses being sufficient to characterize an abuse of a dominant position.

The Italian Council of State, on appeal, stayed the proceedings in order to refer two questions to the CJEU for a preliminary ruling. The first on the criteria of the imputability of an anti-competitive infringement to the head of the network (1), the second on the obligation for the competent authority to apply the competitor test as effectively in the presence of exclusivity clauses (2).

1. Attribution of abuse of a dominant position to the head of the network

The first question concerned the characterization of the conditions under which the actions of autonomous and independent economic operators could be attributed to another autonomous and independent economic operator.

In particular, the Italian Council of State asked whether the fact that there is contractual coordination between a producer and its legally autonomous distributors was sufficient to attribute the infringement to the producer, or whether it was necessary to establish the producer’s ability to exercise a decisive influence on the commercial, financial and industrial decisions likely to be taken by the distributors.

The CJEU recalls that any company in a dominant position has a special responsibility not to undermine by its behaviour effective and undistorted competition in the internal market. This obligation aims to prevent not only infringements of competition committed directly by the conduct of the company in a dominant position, but also those resulting from conduct “the implementation of which has been delegated by this company to independent legal entities, required to execute its instructions”.

Behaviour physically implemented by an intermediary of its network can therefore be attributed to the head of the network in a dominant position as soon as it has acted in accordance with specific instructions given by the head of the network under a policy unilaterally decided by the latter. It can, in fact, be considered in this case that the company in a dominant position unilaterally decided on the impugned behaviour.

The CJEU specifies that this behaviour can take the form of standard contracts, entirely drafted by a producer and containing exclusivity clauses for the benefit of its products that distributors are required to have point-of-sale operators sign without being able to amend them.

In such a case, it is not necessary to demonstrate either that the distributors concerned are part of the company within the meaning of Article 102 TFEU, or the existence of a “hierarchical” link.

It is therefore possible to attribute to a producer in a dominant position the actions of its distributors if it is established that they have not been adopted independently and are part of a policy unilaterally decided by this producer.

2. Competitor test equally effective in the presence of an exclusivity clause

The second question was whether in the presence of exclusivity clause in distribution contracts, the competent authority was required to characterize abuse of dominant position to establish that they have the effect of excluding equally effective competitors from the market, and if in the presence of a plurality of disputed practices, it was required to examine in detail the economic analyses produced by the company concerned.

In an Intel judgment (CJEU, C-413/14 P, September 6, 2017), the Court had accepted the application of the competitor test as effective to loyalty rebates granted by an undertaking in a dominant position.

In this judgment, the Court extends the application of this test to exclusivity clauses. In particular, it considers that, in accordance with the right to be heard, the competent authority is required to examine the evidence likely to demonstrate the lack of capacity to produce restrictive effects presented by the company in question.

Therefore, by exclusivity clauses in a distribution contract, the competent authority is required to take into account all the relevant circumstances, and in particular the economic analyses produced if necessary by the company in question, it cannot therefore rule out the competitor’s test as effective without assessing its probative value.

CJEU, NoC-680/20, Univers Italiea Mkt. Operations Srl c. Autorità Garante della Concorrenza e del Mercato, January 19, 2023