On 10 July 2014, the Court of Justice of the European Union (the "ECJ") issued its judgment on an appeal by Telefónica and Telefónica de España (collectively "Telefónica") against the judgment of the General Court affirming the finding that the companies had abused their dominant position on the Spanish broadband market by engaging in a margin squeeze. The ECJ largely upheld the General Court's judgment.
In the underlying decision of 4 July 2007, the Commission concluded that the companies had abused their dominant position on the Spanish broadband market from September 2001 to December 2006 by engaging in a margin squeeze with regard to the spread of its prices for retail broadband access on the Spanish market and the prices on the regional and national wholesale markets (see VBB on Competition Law, Volume 2007, No. 8, available at www.vbb.com).
The Commission imposed a fine of € 151.875 million, considering the infringement to be "very serious". In contrast, the Commission had previously imposed a fine of € 12.6 million against Deutsche Telekom for a similar practice, which reflected in part its finding that a margin squeeze had not been the subject of a formal Commission decision at the time of that case. As pointed out in a previous edition of this newsletter (see VBB on Competition Law, Volume 2012, No. 4, available at www.vbb.com), however, the classification of Telefónica's conduct as "very serious" in and of itself covered a period of more than 18 months before the adoption of a formal Commission decision finding a margin squeeze. In fact, the fine imposed on Telefónica was so large that it was the second largest for an abuse of dominance, behind Microsoft.
The Commission's decision was also notable insofar as the Commission emphasised that its position was in line with the then-current Discussion Paper on Article 82 EC (later adopted as the Guidance on the Commission's Enforcement Priorities in Applying Article 82), as the decision referred to the "as-efficient competitor test". In subsequent court proceedings involving the Intel decision, however, the Commission expressly distanced itself from the need to apply the methodology set out in these statements in assessing abuse of dominance cases, a point on which the General Court agreed (see VBB on Competition Law, Volume 2014, No. 6, available at www.vbb.com).
On appeal by Telefónica, the General Court upheld the decision in its entirety on 29 March 2012 (see VBB on Competition Law, Volume 2012, No. 4, available at www.vbb.com).
The ECJ essentially upheld the General Court's judgment in its entirety. In this respect, the ECJ disagreed with the Opinion of the Advocate General that concluded that the General Court did not carry out the necessary in-depth examination of the calculation of the fine (see VBB on Competition Law, Volume 2013, No. 9, available at www.vbb.com). According to the Advocate General, the 12 short points in the General Court's judgment were particularly insufficient in light of the exceptional amount of the fine imposed, both when considered on its own and in relation to previous cases such as Deutsche Telekom. Although the ECJ found fault with several omissions in the reasoning of the Commission and General Court as regards the imposition of the fine (the only elements of its judgment that were critical of the Commission or General Court), it nevertheless concluded that such reasoning was sufficient for purposes of EU competition law.
The judgment of the ECJ is also interesting insofar as it indicates that, in order to establish that any practice is abusive, it must be shown that it has potential anti-competitive effects "which may exclude competitors who are at least as efficient as the dominant undertaking". This indicates that, in all abuse of dominance cases, the as-efficient competitor test should be applied, which contradicts the reasoning of the General Court in its recent Intel judgment.
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