European antitrust push targets market dominance
Since April, three potentially significant cases in the sphere of market dominance have been investigated by the European Commission (EC), each against foreign firms. Interest in these cases is high because of the far-reaching business impact, and the potential for fines of up to ten percent of global revenue.
The United States search-engine company Google has had a number of recent run-ins with the EU, notably relating to its privacy policies. The EC’s current investigation into Google focuses not on the popularity of the search engine itself (which is also dominant), but on how Google uses its ownership of the search algorithm to promote its price-comparison service. A separate investigation is also looking at the dominance of the Google-developed Android operating system.
In part, the EC’s decision will be based on how dominant Google is in those areas, and whether it has abused that supremacy to the detriment of customers. One of the first areas of debate with most market-abuse cases is how to define the market – in this case whether the market includes just comparison sites (that don’t sell products and instead make their money from advertising) or all online marketplaces. Google has stated that it is not dominant in the market, as the online-sales space includes large competitors such as Amazon and eBay, but whether this is considered relevant by the EC is debatable.
There might also be an argument that the whole investigation is political. In a recent interview, United States President Barack Obama voiced his opinion that European service providers who can’t compete with United States providers are ‘essentially trying to set up some roadblocks’ to United States companies operating effectively in the EU.
With competition law, however, the EC’s role will be to judge what is in the best interests of the European consumer, regardless of which companies are involved.
There is also some irony in that much of the dominant position that Google finds itself in can be traced to the EC’s actions against Microsoft in the 1990s that opened up competition in the web-browser market, eventually allowing Google’s Chrome browser to be a major player.
More recently has been the EC’s announcement of an investigation into e-commerce company Amazon’s contracts with publishers of e-books.
The EC is particularly looking at how Amazon uses its dominance to require book publishers to match the terms that they provide Amazon’s competitors, as well as how Amazon is informed about such terms. The EC stated that it had no issue with Amazon’s practices when selling to customers; its primary issue is how these contractual terms affect the ability of Amazon’s competitors to join the market, thus reducing the purchasing options for end customers.
An interesting point to this investigation is that the last time the EC investigated the e-books sector for antitrust breaches (in 2011), it was the publishing houses that were found to have colluded to limit retail price competition rather than an intermediary such as Amazon.
Probably the most interesting of the EC’s investigations is that into the allegations against Gazprom, a Russian entity that was created from the former Soviet Ministry of Gas Industry in 1989. The company was later partly privatised, with the Russian Government retaining a majority stake. Gazprom is the leading gas supplier in a number of Central and Eastern European countries, with well above 50 percent of market share (and in some countries up to 100 percent).
The case that the EC makes alleges that Gazprom is using a number of techniques to hinder competition in the gas-supply markets in eight Central and Eastern Member States (Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia). These techniques include prohibiting the export of gas from one country to another, using unfair pricing schemes, and linking the sale of gas to investments in infrastructure markets.
The EC has previously acted when dominant players have attempted to partition the energy market through their contracts with distributors. In 2004, the EC banned territorial-restriction contract clauses after Gaz De France (GDF) was found to have signed contracts with two Italian companies, ENI and ENEL. These prohibited ENI and ENEL from selling GDF-transported natural gas in France, therefore preventing French consumers from obtaining their gas supplies from the two Italian operators and hindering competition in the market. Similarly in 2009, the EC fined GDF Suez and German gas company E.ON €553 million (US$619 million) each for not selling gas transported over the MEGAL pipeline in each other’s home markets.
From the Statement of Objections made to Gazprom, it seems clear that the EC has a strong case that Gazprom is not providing the best pricing to European customers. Assuming this is the outcome, there are still significant hurdles in place before any real enforcement can be carried out.
Firstly, enforcing judgments against Gazprom or the Russian state is not simple. In 2014, the Permanent Court of Arbitration ordered the Russian Federation to pay US$50 billion in compensation to shareholders of oil company Yukos (which also involved Gazprom). This judgment is still being litigated, with various parties currently bringing cases attempting to freeze Russian assets in Europe.
Secondly, there is a significant political aspect to the action. While there might be a genuine grievance involved, it is possible that it is to some degree part of a wider dispute with Russia, especially given that Europe currently has an active sanctions regime against Russian entities and individuals for Russia’s activities in Ukraine.
And lastly, many EU members have no choice but to purchase gas from Russia.
So, regardless of the immediate decision made by the EC, this case is likely to run for some time.
What does this mean for compliance?
Compliance officers must carefully consider these cases to understand how they may concern their businesses.
Those at companies that hold dominant or monopoly positions in a market, if competition lies within their remit, must:
- conduct reviews of how significant new transactions or changes in the business’s focus affect the company’s dominance
- employ good-quality legal advice when there are questions about the market or activities within the market
- train all staff who may be involved in transactions or changes to market positions, ensuring that staff are aware of the potential consequences of abusing market dominance and can communicate it to the legal or compliance function when it occurs
Even if not directly involved in dominant market positions, compliance officers should still consider the implications for their network of third parties, both within the supply chain and distribution network. They should think about:
- what impact politics might have on the ability of their partners to do business
- whether their partners may be bound by terms that are unfavourable to them and that they are not aware of
- if they can find an alternate supplier if a partner they work with is unable to trade
The current activities within the EC show that it is taking its power and duty to ensure free competition within the EU seriously, to the benefit of its citizens and Member States. Whether the moves are political or not, it is clear that abuse of market dominance is one of the major risk areas that compliance officers need to be aware of, both for their own companies and for the third parties for whom they are responsible.