Essential Facilities Today: Revisiting a Doctrine
Recent years have seen explosive growth in online platforms, from e-commerce to professional networking to app stores. This has raised questions about the balance between access to platforms and the right of a competitor to choose its business partners. While its application to digital firms is still in its nascency, for in-house counsel, establishing familiarity with the Essential Facilities Doctrine (EFD) will be critical for risk assessment and compliance with competition laws.
The EFD is a competition law concept that may have gotten its start in the US but now plays a greater role in the EU. Where it applies, it prevents firms in dominant positions from withholding access to an integral facility or platform necessary to the business operations of others, where that denial of access diminishes competition in a downstream market. Generally, businesses in both jurisdictions have the freedom to contract with customers or suppliers that they choose—and, conversely, the freedom not to contract. The EFD is an exception to this rule.
Historically, the EFD has applied in situations where physical resources, such as infrastructure, were scarce or limited. US courts have cabined the doctrine to narrow factual scenarios. In contrast, the EFD has become a fixture of competition law in the EU, and has been applied in a range of industries, including intellectual property and transportation.
To guide risk assessment for in-house counsel, we explore the EFD's history in the US and its later development and body of case law in the EU, which may be informative for future application in the US. Finally, we provide a set of key considerations for framing compliance initiatives—evaluating whether to allow or refuse access (especially to competitors) will be vital.
Development & Current Status
Two Supreme Court cases illustrate the rise and fall of the EFD in the US—Aspen Skiing and Trinko.
In Aspen Highlands Skiing Corp. v. Aspen Skiing Co., 472 U.S. 585 (1985), four downhill skiing facilities—three owned by a single company—operated an all-facility pass and shared revenue. The owner of the three facilities, tired of the pass, conditioned continuing the pass on changing the revenue sharing agreement so that the owner of the fourth facility would get less revenue. That owner refused the lower revenue and the pass was discontinued, leading the owner of the fourth facility to sue the three-facility operator.
The Supreme Court narrowly applied the EFD. Since then, the essential facilities doctrine in the US has sometimes been said to impose a duty to deal on a competitor (1) who terminates a profitable prior course of dealing; and (2) whose only conceivable reason for the termination is to sacrifice short-term benefits for the long-term benefit of excluding competition.
No major case since has broadened this doctrine. Nearly two decades later, in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004), the Supreme Court rejected the argument that a telecommunications carrier was required to share telecommunications infrastructure with competitors. The Court stated that Aspen Skiing was "at or near the outer boundary" of liability under Section 2 of the Sherman Act, and emphasized that "[n]o court should impose a duty to deal that it cannot explain or adequately and reasonably supervise."
Recent claims raising essential-facility claims in the US over the past six years have been unsuccessful. For example, in 2017, the Federal Trade Commission in Federal Trade Commission v. Qualcomm Inc, 411 F. Supp. 3d 658 (N.D. Cal. 2019) alleged that a supplier of wireless communications chips and licensor of wireless communications standards essential patents violated its duty to license rival wireless communications chip suppliers. The trial court concluded that Qualcomm had violated its duty to deal because:
- It had previously licensed its rivals profitably and then stopped doing so;
- The refusal to license rivals was motivated by its desire to preserve "unreasonably high royalty rates"; and
- Qualcomm itself had chip-level licenses from other standards essential patent holders.
The appeals court disagreed and concluded that the trial court "ignores critical differences between Qualcomm's business practices and the conduct at issue in Aspen Skiing, and it ignores the Supreme Court's subsequent warning in Trinko that the Aspen Skiing exception should be applied only in rare circumstances."
In another example, a federal trial court considered plaintiff's EFD claim under California's Unfair Competition Law against an online social media platform. In hiQ Labs, Inc. v. LinkedIn, Corp., 273 F. Supp. 3d 1099 (N.D. Cal. 2017), hiQ Labs, a third-party developer, alleged that LinkedIn had prevented it from accessing publicly available information on user profiles, with the purpose of preventing competition, and that it had developed a monopoly in the market of professional networking. In granting hiQ Lab's motion for a preliminary injunction, the court declined to rule on the EFD claim but held that hiQ Labs had "raised serious questions with respect to its claim that LinkedIn is unfairly leveraging its power in the professional networking market for an anticompetitive purpose," supporting an injunction.
Given these and other recent discussions of EFD within the US legal community, EU developments are instructive and may form the basis of future claims.
Adoption & Development in the EU
In contrast to US courts, the European Commission (EC) and the Courts of the European Union have considered and applied the EFD in various cases and situations, though without explicitly naming the EFD terminology in all instances. Refusals to deal or to grant access to infrastructure are a central theme of EU enforcement efforts.
The EFD was first applied in Commercial Solvents v. Commission. The Court of Justice of the EU (ECJ) found that Commercial Solvents had abused its dominant position by refusing to supply an existing customer when that refusal would result in the customer being eliminated from the downstream market. See Cases 6 and 7/73 ECLI: EU: C: 1974: 18.
The EFD criteria were further defined in RTE & ITP v. Commission and Oscar Bronner GmbH Co KG v Mediaprint. See Court of Justice, [1995] ECR-I-743, [1995] 4 CMLR 718; and Court of Justice, [1998] ECR I-7791, [1999] 4 CMLR 112. The ECJ established four conditions for a refusal to supply to constitute an abuse of a dominant position:
- The critical infrastructure is indispensable;
- There is no objective justification for the refusal;
- The refusal of access to the critical infrastructure prevents the creation of a new product; and
- The refusal is likely to eliminate all competition in the downstream market.
The ECJ also introduced a narrow exception: the EFD will not apply if downstream market activity can still be carried out "economically" or the infrastructure can be duplicated (in an "economical" way). These flexible criteria have been redesigned through the subsequent case law to be adapted to the facts of each of the cases.
Refusal to deal principles have been widely applied in the technology space. In Microsoft v. Commission, for instance, the Commission accused Microsoft of abusing its dominant position when it prevented another company's operating system from communicating with its operating system or software. The General Court agreed and held that the protection of the technology by intellectual property rights cannot constitute an objective justification. See T-201/04; ECLI:EU:2007:289.
In practice, the flexibility of the EFD criteria interpretation combined with the use of mandatory fair, reasonable, and non-discriminatory (FRAND) conditions as a remedy to the refusal of access (in for example, the Microsoft and Huawei (C-170/13; ECLI:EU:C:2015:477) cases) embodies a form of "right of access" that reflects the strong influence of the EFD in the EU, which is ultimately codified in the Digital Markets Act (DMA).
More specifically, the DMA will impose an EFD-like framework to data access but notably without the need to establish dominance and examine behavior. Draft guidelines on Article 102 of the Treaty on the Functioning of the European Union (TFEU) are forthcoming and expected to be published by 2025. The guidelines are likely to distinguish between outright refusals to supply and "constructive refusals to supply" in line with recent case law (where the dominant company makes access, such as through a license, subject to unfair conditions). The indispensability criterion does not apply to constructive refusals to supply (i.e., where access has already been given). See also Slovak Telekom as v Commission; Cases T-851/14 and T-827/14 ECLI:EU:T:2018:929. These guidelines may clarify the EC's position towards the EFD, as well as the interaction between the TFEU and the DMA in Europe, which will inform digital firms' approach to compliance policies.
Framing an EFD Compliance Initiative
Where firms subject to EU law are dominant in specific functions or services, in-house counsel may wish to carefully consider whether to allow access to other firms active in downstream markets (especially competitors, whether actual or potential). Where such dominant firms already allow access, a risk-assessment will need to be performed when making decisions to restrict or change the terms of access. Regularly scanning the business portfolio for increments in share in niche services is advised.
These assessments will be especially critical for a firm active in digital markets, regardless of whether or not the firm is already classified as one of the "gatekeepers" under the DMA.
In Europe, the potential remedies available to the antitrust authorities include both fines and access or licensing requirements. In Microsoft, the Commission imposed a structural remedy and a series of penalties, including EUR860 million for charging unreasonable prices for interoperability information.
In the US, the essential facilities doctrine plays a smaller role. As a general matter, of course, both the government and private plaintiffs can seek an injunction requiring certain conduct and treble damages plus costs, and the government can additionally seek criminal penalties, though criminal antitrust prosecutions are rare. It is advised that compliance programs take the relevant cost of remedies into consideration.
Looking Ahead
Policy developments in the EU are still ongoing and provide insight into areas for doctrine development. It remains to be seen whether these developments will gain momentum, if and how US courts will apply the EFD in a changing economy, and whether they adopt any of the nuanced tests used in EU jurisprudence.
Originally published by Bloomberg Law on the 24 of April, 2024.
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