Electronic copy available at: http://ssrn.com/abstract=1623784Electronic copy available at: http://ssrn.com/abstract=1623784

Refusal to Deal within EU Competition Law Liyang Hou*

[Abstract] Refusal to deal is in principle not prohibited under the EU competition law. Only in exceptional circumstances dominant undertaking would be charged with an obligation to deal with a client. In order to approach the analytical framework for refusal to deal in the EU, this article investigates in total 21 cases of refusal to deal taking place at the European level, from the earliest Case Commercial Solvents to the latest Case Microsoft. Those cases are first divided into five groups: (1) refusal to deal with non-competitors while serving others; (2) refusal to deal with competitors while serving others; (3) discontinuing the supply to all third parties; (4) refusal to deal a product/service that is always reserved for own use; and (4) refusal to grant IP licenses. With the examination of every cases in each group, it is found that, first, the approaches remain the same for the first and the second group of cases; secondly, the analyses are also equivalent for the third and fourth group of cases, though a difference may exist as to defining the requested product as a separate market; and thirdly, the last group cases are dealt with under a different framework which nevertheless contains many inconsistencies. In the end, a general approach to analysing refusal-to-deal cases is provided.

[Keywords] Refusal to Deal, Essential Facilities, Abuse of a Dominance Position, EU Competition Law

1. Introduction

This article defines refusal to deal as one undertaking denies supplying another undertaking with its product or service. It includes not only blatant refusal, but also subtle refusal which conditions the supply on unreasonable conditions, such as unacceptably high prices. Moreover, it comprises both discriminatory refusal to deal (some undertakings are supplied and some are not to deal) and non-discriminatory refusal to deal (no third parties are supplied). Consequently, this definition is slightly broader than refusal to deal in relation to essential facilities discussed in other literatures.1

Since competition law enshrines free competition that is then nourished significantly under two principles, i.e. freedom of contract and exclusivity of ownership, refusal to deal, even if it is an act of a dominant undertaking, is in general compatible with competition law. Nevertheless, it is undeniable that refusal to deal may be misused by dominant undertakings to pursue unjustified competitive advantages. Therefore, in all jurisdictions a certain extent of exception is always given to competition authorities to oblige dominant undertakings to satisfy denied requests. This article attempts to examine the related practice in the field of EU competition law, more specifically Article 102.

* Legal researcher and PhD candidate at the Interdisciplinary Centre for Law and ICT, Katholieke Universiteit Leuven, Belgium. ICRI is part of the Interdisciplinary Institute for Broadband Technology. 1 See, for example, Temple Lang, J. (2000). "The Principle of Essential Facilities in European Community Competition Law – The Position Since Bronner." Journal of Network Industries 1: 375-405.

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Before exploring the EU experience, a preliminary analysis is carried out in order to speculate the possible approach concerning refusal to deal. Two possible thoughts are presumed. First, it is likely more difficult to require a dominant undertaking to supply others with a product/service reserved for own use than one already available on the market. Requiring a dominant undertaking to externalise a reserved product alters not only that undertaking’s commercial policy but also the current market structure (by generating a new market), and thus may cause unexpected regulatory failure. By contrast, the same decision would affect to a lesser extent markets where the refused product is already provided to others. Consequently, it is likely that obliging to supply a product/service that is intended for internal use should be subject to stricter rules than compulsory provision of a product/service that is already on the market. Secondly, it is also likely more burdensome for an undertaking to be obliged to serve a competitor than a non-competitor. Competition means to diminish competitors, and there accordingly should be no obligation to subsidise competitors. In comparison, supplying a non-competitor normally does not affect the market position of dominant undertakings. Therefore, the rules to oblige an undertaking to supply its competitors are anticipated stricter than those related to non-competitors.

Base on the first speculation, cases of refusal to deal can be broken up into two general groups: (i) refusal to supply a product/service available on the market, (ii) refusal to supply a product/service unavailable on the market. When the second speculation is taken into account, the first group can be further divided into (1) refusal to supply non-competitors with a product/service available on the market and (2) refusal to supply competitors with a product/service available on the market. The second speculation does not really apply to the second group of cases since externalising a product/service reserved for internal use would usually turn the requestor into an actual or potential competitor. However, it can be conceived that the unavailability may be caused by two reasons: first, a dominant undertaking decides to discontinue the supply of a product in order to reserve it for own use; and secondly, a dominant undertaking has never externalised a product/service. Consequently, the second group may include two sub-groups: (1) discontinue the supply to third parties, and (2) refusal to supply a product/service that has never been available on the market. In addition, an additional sub-group can also be separated when intellectual properties (IP) license becomes the subject matter due to a fact the European authorities treat intellectual property different from tangible properties. Consequently, there are in total five groups of refusal to deal:

(1) refusal to supply non-competitors with a product/service available on the market;

(2) refusal to supply competitors with a product/service available on the market;

(3) discontinue to supply third parties;

(4) refusal to supply a product/service that has never been available on the market; and

(5) refusal to grant IP license.

The article examines in total twenty-one cases, including judgements of the European court and/or decisions of the Commission, of refusal to deal. All of those cases are classified into the above five groups. The subsequent five parts are dedicated to the five groups of cases respectively. Cases will be discussed first individually, and then collectively with others in the same group, with a purpose to identify the common practice for that group as a whole. There are in average four cases elaborated in every category. With the discussion progressing from one group to another, comparison with practice in previous group(s) will be made at the end

of every part. If no difference will be discovered between those groups, the groups concerned will be merged. The last part first revisits those newly merged categories, and then proposes a generic analytical framework for all cases of refusal to deal.

2. The first group: refusal to supply non-competitors with a product/service available on the market

In this scenario, the refused undertaking and the requested dominant undertaking have a simple client/seller relationship. It usually happens to wholesalers and retailers. Since there is in general no conflict of interest with a simple client/seller model, a dominant supplier usually has no incentive to decline the request of some clients in this case. An obvious deterrent is the decrease of sales. Nevertheless, the dominant undertakings in certain circumstances may be reluctant to supply its clients. Sometimes the refusal may be based on legitimate reasons, for example excluding unqualified distributors. Nevertheless, in other cases it can be used to abuse a dominant position, for example to exclude a client that has a connection with its competitors. While the former may generate consumer welfare, the latter can stifle competition and thus raise competition concerns.

Since the dominant undertaking in this scenario is still supplying others at the same time, the refuse is a prima facie case of discrimination. Article 102 explicitly prohibits dominant undertakings from applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing the latter at a competitive disadvantage. Nevertheless, that provision is not lack of ambiguities. Two of them are of particularly relevance here. First, it is not very clear what is meant by “placing the latter at a competitive disadvantage”. It may be interpreted as resulting into damages. However, a further question is the extent of those damages. Secondly, although the wording of Article 102 does not equip the defendant with the right to provide justification, it is widely recognised that Article 102 is not per se but rule of reason. Accordingly, what are the legitimate justifications that can be provided by that dominant undertaking? Hereinafter three cases will be explored in order to seek for answers from the European authorities.

2.1 Case United Brands

The first case here confronted by the ECJ is United Brands2 in 1978. It concerned a dominant banana wholesaler, United Brands Continentaal (UBC), which decided to discontinue the supply to a long-standing retailer, Olesen, in Denmark. One of the reasons was that Olesen was also an exclusive distributor of UBC’s competitor and took part in an advertising campaign for the latter in Denmark. This refusal resulted into substantial damage on Olesen that, for example, lost one significant customer that accounted for 50% of its sales.3 In view of this, the ECJ established its seminal statement to qualify this type of refusal to deal that

“an undertaking in a dominant position for the purpose of marketing a product […] cannot stop supplying a long-standing customer who abides by regular commercial practice, if the orders placed by that customer are in no way out of the ordinary”4 […] “since the refusal to sell would limit markets to the prejudice of consumers and would

2 Case C-27/76, United Brands vs Commission [1978] ECR 207, [1978] 1 CMLR 429. 3 Ibid, para.166. 4 Ibid, para.182.

amount to discrimination which might in the end eliminate a trading party from the relevant market”.5

According to this statement, it is obvious that UBC’s refusal was an abuse of a dominant position.

Subsequently, the ECJ went directly to examine whether there was justification for the refusal. UBC claimed that the refusal was to protect its commercial interests. Nevertheless, the ECJ held that that although a refusal to deal may be justified as a response to protect its commercial interests if they are under attack, such behaviour could not be countenanced if its actual purpose was to strengthen the dominant position and abuse it;6 and that it must be proportionate to the threat taking into account the economic strength of the undertakings confronting each other.7 In this case the discontinuance of supply was not appropriate since it could discourage other downstream operators from supporting the advertising of other brand names and that the deterrent effect of the sanction imposed upon one of them would effectively strengthen its market position on the relevant market.8

2.2 Case GSK AEVE

In Case United Brands the ECJ implied that a dominant supplier could refuse to meet the orders placed by its long-standing customer that were out of the ordinary.9 Nevertheless, it did not define the “out of ordinary” orders. In a more recent setting in 2008 the ECJ revisited that term in Case GSK AEVE.10

The defendant, GSK AEVE, held the exclusive rights to market several medicinal products in Greece. The refused undertakings were all contractual retailers of GSK AEVE for a number of years. In 2000, GSK AEVE decided to significantly reduce the amount supplied to those clients. One of the main reasons was that the defendant believed that a substantial part of the orders of its clients were in fact used for parallel trade to Member States where there were higher prices than those in Greece; and this cutting off of orders was intended to prevent parallel exporting. Although the judgement does not mention how much damage received by each of those clients, the significant reduction in meeting orders must have resulted into considerable damage. With regard to the question whether the reduction is abusive, the ECJ repeated its statement in Case United Brands that a dominant undertaking could not stop supplying a long-standing customer, unless the orders placed by that customer are out of the ordinary. Most importantly, it suggested that “out of ordinary orders” could be the cases where

5 Ibid, para.183. 6 Ibid, para.189 7 Ibid, para.190. 8 Ibid, para.192. 9 Ibid, para.182. 10 Jointed Cases C-468-478/06, Sot. Lelos kai Sia EE and others vs. GSK AEVE, 16 September 2008, ECR [2008] I-7139. As a matter of fact, this case was already reviewed by the ECJ earlier in 2005 in Case Syfait and other. In that case, the ECJ nevertheless did not admit its jurisdiction because it was a preliminary ruling raised by Greek competition authority and the ECJ maintained that a preliminary ruling can only be relied upon by national judicial systems and therefore did not judge on the merits. However, it may be interesting to see that in this case Advocate General Jacobs gave a favourite opinion to GSK AEVE, which is exactly opposite to the ECJ’s judgement in the case discussed in the main text. See, Case C-53/03, Syfait and others vs. GSK AEVE, 31 May 2005, Rec.2005,p.I-4609.

“in a given Member State, if certain wholesalers order from that producer medicines in quantities which are out of all proportion to those previously sold by the same wholesalers to meet the needs of the market in that Member State”.11

Subsequently, the court rejected the prevention of parallel trade as an objective justification for the refusal.12 Since GSK AEVE could not justify the refusal to deal, its behaviour was considered abusive.

2.3 Case BP

The two cases in the above only comment on the interest of long-standing customers, and envisage that a dominant undertaking is not allowed to stop supplying its long-standing customers without justification. Then, a question can be raised on the situation of an occasional customer in similar cases. This question had to be decided by the court in Case BP.13

This case took place between an oil wholesaler and a retailer in the oil crisis in 1970s. Due to shortage of oil, BP (Benzine en Petroleum handelsmaatschappij, British Petroleum Raffinaderij Nederland and British Petroleum Maatschappij Nederland) substantially reduced the supply to one of its clients, ABG (Aardolie Belangen Gemeenschap), while other clients’ supplies were guaranteed. It should be noted that although ABG suffered considerable damage by this refusal it did overcome the crisis by obtaining supplies, though limited, from other suppliers.14 Accordingly, the subject matter of this case is whether an undertaking can refuse to supply part of its clients in order to guarantee the supply of others in a period of shortage. This case was first investigated by the Commission and then appealed to the ECJ.

The Commission in its decision alleged that it was an abuse of dominant position since “within the meaning of article 86 (now Article 102) of the treaty an (dominant) undertaking in such a position must distribute ‘fairly’ the quantities available amongst all its customers.”15 However, in the appeal the ECJ held that a distinction could be made between occasional customers and contractual customers, and a preferential treatment over the latter in such a shortage may be justified.16 As ABG was an occasional customer, it could not accuse BP of applying during the crisis less favourable treatment than what were reserved for long-standing customers.

2.4 Review

All the aforementioned cases indicate a clear attitude of the European authorities that, unless it is justified, a dominant undertaking should not refuse to supply part of its existing clients who are not competitors. In particular, dominant undertakings should particularly protect the interest of long-standing customers. A prime facie case of abusing dominant position can be demonstrated once a refusal to deal of this kind results into substantial damage to those clients. It should be noted that there is no need of eliminating all competition from refused undertakings. For example, in Case United Brands the refused client, though suffering

11 Ibid, para.76. 12 Case GSK AEVE, ibid, para.57. 13 Case 77/77, Benzine en Petroleum Handelsmaatschappij BV and others v Commission of the European Communities, 29 June 1978, ECR 1513. 14 Ibid, para.42. 15 Ibid, para.21. 16 Ibid, para.32.

considerably from the refusal, could indeed get supply from the competitor of United Brands. It is the case in BP.

Subsequently, with regard to the justifications the ECJ made three implications. First, a dominant undertaking may refuse an order that is out of ordinary. Secondly, it may also refuse to deal with an occasional customer in order to secure the supply for its long-standing customers in case of a shortage. Last but not least, the ECJ also implies that a refusal to deal may be justified as a response to protect its commercial interests under attack, which nevertheless must be proportionate. This point has not been fully developed by the European authority. However, it has been held that it is not appropriate for a dominant operator to cut off the supply to its long-standing customers simply because the latter have a connection with a competitor, or for the reason of preventing parallel trade.

In addition, all those three cases concerned only refusal to deal with existing customers, with no regard to new customers. Can new customers obtain similar treatment as existing customers? The answer in principle should be affirmative because Article 102 does not make a distinction between new customers and existing customers.17 Nevertheless, since the ECJ has established that a preferential treatment could be given to long-standing customers in case of shortage, it may be argued that a dominant undertaking can refuse to supply new customers in order to guarantee the interests of existing customers, including both land-standing customer and occasional ones, if their interest will be harmed by fulfilling the request of new customers, for example in case of shortage.

3. The second group: refusal to supply competitors with a product/service available on the market

While it is easy to conclude that a dominant undertaking should not, without justification, disrupt the supply for a long-standing customer that is not a competitor, it seems difficult to reach the same conclusion when a customer is at the same time a competitor on the other market(s). It is difficult to imagine that a reasonable dominant undertaking would reverse its hostile attitude to an opponent on a competing market when the two sit together on another non-competing market. Cases of this group share such a common fact that the dominant undertaking refuses to supply a competitor while it is still serving others. Since there are still other clients being served, it is also a prima facie case of discrimination. The following paragraphs examine four cases. Since this scenario involves a prima facie case of discrimination, the discussion of those cases also pinpoints two issues: (i) the extent of damage and (ii) justifications. At the end of discussion, a comparison will be made with the first group of cases.

3.1 Case BBI/B&H

This case was an order of interim measure taken by the Commission in 1987.18 B&H (Boosey & Hawkes) was a dominant undertaking to manufacture and sell British-style brass band instruments. BBI was a new competitor of B&H on that market, and was co-founded by two other companies, GHH and RCN. The former was a major retailer of B&H (70% sales were B&H’s products) and the latter was a repairer of brass band instruments, including B&H’s products. Both were clients of B&H. After having been aware of the fact that GHH and RCN 17 This view is held by other scholars. See, Romano Subiotto, Defining the scope of the duty of dominant firms to deal with existing customers under Article 82 EC, E.C.L.R. 2003, 24(12), 683-694. 18 87/500/EEC: Commission Decision of 29 July 1987 relating to a proceeding under Article 86 of the EEC Treaty (IV/32.279 - BBI/Boosey & Hawkes: Interim measures), OJ L 286/36, 09/10/1987.

were the parent companies of BBI, B&H disrupted the supply of its products and spare parts to the two clients. Furthermore, B&H apparently had no intention to reserve the resale and repairing service to itself. The Commission referred to the statement of the ECJ in Case United Brands that refusal of supplies by a dominant producer to an established customer without objective justification may constitute an abuse under Article 102. After finding “there was a substantial likelihood of their (GHH and RCN) going out of business as a result of the withholding of supplies”,19 the Commission came to a conclusion that the disruption was an abuse of dominant position.

With regard to justifications, the Commission acknowledged that a dominant undertaking may take reasonable steps to protect its commercial interests under threat. In particular, in cases where a customer transfers its central activity to the promotion of a competing brand, a dominant producer is entitled to review its commercial relations with that customer and on giving adequate notice terminate any special relationship. Nevertheless, the Commission maintained that

“[t]he fact that a customer of a dominant producer becomes associated with a competitor or a potential competitor of that manufacturer does not normally entitle the dominant producer to withdraw all supplies immediately or to take reprisals against that customer.”20

Since an immediate disruption of supply is not proportionate, the Commission required B&H to meet any reasonable order placed by GHH and RCN.

3.2 Case London European/Sabena

The second case, Case London European/Sabena, was also decided by the Commission.21 Sabena was the former Belgian flag carrier, and at the same time it owned the Saphir system which streamlined the procedure of travel agents to consult flight schedules, fares and seat availability of airlines included in the system, and to make reservations. 22 Sabena was dominant on the market related to the Saphir system. 23 London European, a company operating flights between Luton and Brussels and Luton and Amsterdam, requested to have access to the Saphir system. London European was a potential competitor of Sabena that operated flights between Brussels and London. As a matter of fact, Sabena’s London airports were only about 50 kilometres away from Luton, and London European’s fares ex Belgium were half those of Sabena. Being concerned with the competition exerted by London European on traffic ex Belgium,24 Sabena proposed not to grant access to London European, unless the latter would fix a higher level of fares or delegate the ground handling contract for aircraft to Sabena.25 It is not very clear the extent of damages received by London European after this refusal because, on the one hand, it was a new customer, and on the other hand, there were five other equivalent systems on the relevant market that in total accounted for 55% market shares.26 In addition, similar as the first case, Sabena still served other clients.

19 Ibid, para.19. 20 Ibid. 21 88/589/EEC: Commission Decision of 4 November 1988 relating to a proceeding under Article 86 of the EEC Treaty (IV/32.318, London European - Sabena), OJ L 317/47, 24/11/1988. 22 Ibid, para 6. 23 Ibid, para 24. 24 Ibid, para 9. 25 Ibid, para.29-31. 26 Ibid, para.24.

The analysis of the Commission focused on those two additional conditions added by Sabena. Neither was considered by the Commission as justifiable.27 The refusal to deal was thus an abuse of dominant position and the Commission ordered Sabena to grant London European access to the Saphir system.

3.3 Case British Midland

Four year later Case British Midland, also taking place in the airline sector, was sent to the Commission.28 British Midland was a newcomer in the airline sector and operated flights between within the United Kingdom and to the neighbouring Member States. The opposite party, Aer Lingus, was the national airline of Ireland. The two companies were competitors on the London-Dublin route where Aer Lingus was dominant. The service requested by British Midland and refused by Aer Lingus was interlinking, which was a reciprocal agreement concluded between airline companies and allowed clients of one airline company to enjoy the service of partner airline companies.

It is also difficult to determine the damage suffered by British Midland since on the one hand it was a new client and on the other hand it even obtained a significant market share after the refusal. However, the Commission suggested that if Aer Lingus had continued to accept interlining British Midland would have done better.29

The Commission found that interlinking had become accepted industry practice between all airline companies, and that it hardly refused requests of interlinking, with the exception where currency convertibility or the financial stability of the requester could not be assured.30 Aer Lingus held interlinking agreements with other airline companies. In view of all the benefits of interlinking, the Commission considered that this refusal to deal was an unusual move, and thus constituted a prima facie case of abusing dominant position. 31 With regard to justifications, it is of surprise to notice that the Commission did not accept the argument of Aer Lingus that interlining with British Midland would make itself losing market shares. Furthermore, the Commission affirmed that the only purpose of this refusal to deal was to restrict competition on the relevant market, and therefore it was an abuse of dominant position.32 Aer Lingus was in the end required to grant British Midland interlinking for two years.

3.4 Case Clearstream

The fourth case, Case Clearstream appearing in the security sector, was first brought before the Commission33 in 2004 and then reviewed by the General Court (GC, formerly Court of First Instance) in 200934. This case involved two company groups, the Clearstream Group and the Euroclear Group. Both of them provided clearing, settlement and custody services in relation to securities. One subsidiary of the Clearstream Group, Clearstream Banking AG (CBF), was super-dominant in Germany in providing clearing and settlement services. 27 Ibid, para.34 28 92/213/EEC: Commission Decision of 26 February 1992 relating to a procedure pursuant to Articles 85 and 86 of the EEC Treaty (IV/33.544, British Midland v. Aer Lingus), OJ L 096/34, 10/04/1992. 29 Ibid, para.29. 30 Ibid, para.3. 31 Ibid, para.25. 32 Ibid, para.32. 33 Commission Decision relating to a proceeding under Article 82 of the EC Treaty (Case COMP/38.096 – Clearstream), 2 June 2004. 34 Case T-301/04, Clearstream vs. Commission, Judgment of 09/09/2009, not yet reported.

Euroclear Bank (EB), a subsidiary of Euroclear Group, sent several requests to CBF for obtaining those services, which were either refused, or substantially delayed compared with other comparable customers in equivalent situations. One of the main reasons for the refusal and the delay disclosed in the judgement was that Euroclear France, another subsidiary of the Euroclear Group, rejected CBF’s request for similar services, and CBF now took revenge.35

The damage caused by this refusal was not particularly analysed. Nevertheless, it must be substantial as EB could not enter the market without obtaining the requested service. However, it should be noted that there was no absolute elimination of competition from EB. As a matter of fact, there were alternatives to CBF’s services that accounted for 10% of all transactions.36 Furthermore, at the same time CBF was still accepting new clients.

In the judgment, the GC referred to the ECJ’s argument in Case United Brands that a dominant undertaking was allowed to take reasonable step to protect their interests when under attack, so long as the purpose was not to strengthen the dominant position and thereby abuse it.37 Subsequently, it added that

“in specific circumstances, undertakings in a dominant position may be deprived of the right to adopt a course of conduct or take measures which are not in themselves abuses and which would even be unobjectionable if adopted or taken by non-dominant undertakings.”38

Consequently, the GC held that CBF, as a dominant undertaking, could not justify the refusal to deal with EB by invoking the rejection of its request to Euroclear France, and accordingly it abused its dominant position.

3.5 Comparison with the first group cases

In conclusion, the examination of the four cases suggests that the analysis of refusal to supply competitors with products/services already available to others is comparable to the refusal to deal with non-competitors.

The most direct evidence is that United Brand, a case in the first group, was frequently quoted in the second group of cases. Moreover, similarity also exists in three other aspects. First, the cases of the second group cover both new customs and existing customers. Preferential treatment is not found to give to any of them. It corresponds to the conclusion made in the second part that Article 102 does not differentiate existing customers from new customers. Secondly, there is no requirement to eliminate all competition from the refused undertakings in order for the refusal to be abusive, albeit that the refusal indeed places those undertakings under competitive disadvantages. For example, in Case B&H the two refused client could get supply from their co-founded undertaking, BBI, or from other competitors. In Case Sabena, there were five other alternative products that in total had 55% market shares. In Case British Midland, the refused undertaking even won significant market shares after being refused to deal. In Case Clearstream, there were alternative sources for the requested undertaking’s service. This does not either present any difference from the conclusion in the last part. Thirdly, the judgements in the first group, in particular United Brands, were frequent quoted

35 Ibid, para.84. 36 Ibid, para.18. 37 Ibid, para.132. 38 Ibid, para.134.

and relied upon in cases of this part. Since no heterogeneity is observed, the two groups of cases can be merged.

Consequently, the European authorities deal with all cases of refusal to supply a product/service that is provided to others at the same time under the non-discrimination provision of Article 102. Apart from identifying the existence of equivalent transactions on the relevant market, two conditions are particularly relevant. First, the refusal to deal has resulted into substantial damage to the refused party. Nevertheless, there is no requirement of eliminating all competition. Secondly, there are no objective justifications for the refusal. The authorities in principle do not differentiate new customers from existing customers, though a refusal to deal with new customers or occasional customers may be justified to protect the interests of long-standing customers in case of shortage of supply. Neither do they make a distinction between pure customers and customers that may compete on another market (competitors).

4. The third group: discontinuing supply to all third parties

In this group of cases, a dominant undertaking withdraws all the external supply in order to reserve the downstream market to itself. Those cases are not comparable with previous cases in that disrupting the supply to all external clients implies no discrimination among third parties. Moreover, this move represents a vertical integration of dominant undertakings. An absolute prohibition against dominant undertakings from making a vertical integration seems at odds with free competition. Nevertheless, it may also be abused to foreclose markets. This part explores four cases in order to examine how the European authorities have weighed the balance and obliged that dominant undertaking to resume disrupted supply.

4.1 Case Commercial Solvents

The groundbreaking case was Case Commercial Solvents. 39 Commercial Solvents was a quasi-monopoly in the market for aminobutanol that was purchased by Zoja as a raw material for the manufacture of ethambutol. At the beginning of 1970, Commercial Solvents decided to restructure itself as a manufacturer of finished products. In order to facilitate its own access to the markets for derivatives, it immediately disrupted almost all the previous supply to third parties.

Based on those facts, the ECJ delivered its seminal interpretation concerning Article 102 that

“an undertaking which has a dominant position in the market in raw materials and which, with the object of reserving such raw material for manufacturing its own derivatives, refuses to supply a customer, which is itself a manufacturer of these derivatives, and therefore risks eliminating all competition on the part of this customer, is abusing its dominant position”.40

Accordingly, two conditions may be fulfilled in order to panelise abusive discontinuance of supply: (1) the requested product is raw material and (2) the refusal risks eliminating all competition from the request parties. In addition, a third condition can also be observed that, as a general principle of Article 102, the dominant undertaking in question should be allowed

39 Jointed Cases C-6-7/73, Istituto Chemioterapico Italiano S.p.A. and Commercial Solvents Corporation v Commission of the European Communities, [1974] ECR 223. 40 ibid, para.25.

to justify its refusal. Since Commercial Solvents could not provide any valid justification, its refusal to deal was considered abusive.

4.2 Case Telemarketing

The second and also equally important case was Case Telemarketing. 41 This was a preliminary ruling case asked by a Belgian court to the ECJ. The main proceeding took place between Compagnie Luxembourgeoise and Centre Belge. The former run the RTL television station and was a statute monopoly for TV advertisement. Centre Belge bought advertising minutes to provide the then pioneer telemarketing service. After maintaining contracts for about two years, Compagnie Luxembourgeoise decided to reserve all TV advertisement for its own. Therefore, it was reluctant to renew the contract unless Centre Belge accepted to put into its telemarketing the telephone number of Information Publicite, RTL’s exclusive advertising agent. Here comes out the core of the dispute whether it constituted an abuse of a dominant position if a dominant undertaking reserved to itself or for a subsidiary under its control, in order to exclude any other undertakings, an ancillary activity which could be carried out by a third undertaking.

The ECJ first referred to the three conditions established in Case Commercial Solvents, i.e. (i) raw material, (ii) eliminating all competition and (iii) objective justification. More importantly, “raw material” was for the first time developed into a product/service “which is indispensible for the activities of another undertaking on another market”. It is worth noting that in this case the court explicitly required to define two separate markets for the indispensability test: one market for the requested product/service (hereinafter: primary market) and the other market for the business of the refused undertaking (derivative, or secondary, market). The primary product is indispensible to the derivative product. In fact Case Commercial Solvents already implied the concept of two markets, i.e. raw material and its derivatives. Nevertheless, that court did not make it clear that the raw material and its derivatives must be on two separate markets.

Subsequently, the ECJ observed that telemarketing activities constituted a separate market from TV broadcasting, and the latter was indispensible to the former. Moreover, since the telemarketing activities mainly consisted in making available telephone lines, it amounted in practice to a refusal to supply to subject to the sale of broadcasting time to the condition of using the telephone line of an exclusive subsidiary. There was no other substitute due to the monopoly held by the requested undertaking.42 It was therefore of little doubt that that refusal could eliminate all the competition from the requested undertaking. With regard to justification, the ECJ admitted that a refusal to deal could be justified by technical or commercial requirements relating to the nature of the service provided. However, that did not appear in the present case. Since the purpose of that refusal could only be to exclude the refused undertaking,43 it was an abuse of a dominant position.

4.3 Case Filtrona /Tabacalera

41 Case 311/84, Centre belge d'études de marché - Télémarketing (CBEM) v SA Compagnie luxembourgeoise de télédiffusion (CLT) and Information publicité Benelux (IPB), [1985] ECR 3261. 42 Although there are several French channels that could be received in Belgium, their aimed rarely or not at all at the Belgian public. ibid, para.6. 43 ibid, para.26.

In Case Filtrona/Tabacalera, 44 Tabacalera was the tobacco monopoly in Spain. The derivative product in this case was ordinary cigarette filters. Tabacalera used to outsource 56% of its needs on ordinary cigarette filters to third parties, such as Filtrona. The dispute was raised after Tabacalera decided to increase its own production to 100% of its own requirements, thus stopping the outsourcing. Filtrona brought the case before the Commission and accused Tabacalera of abusing its dominant position. The Commission pointed out that “a company’s production of its own requirements is not in itself an abnormal act of competition”. Accordingly, only under exceptional circumstances a company could be obliged to outsource its requirements. Although the Commission did not explicitly refer to Case Commercial Solvents or Case Telemarketing, it examined whether Tabacalera was indispensible to Filtrona. The conclusion was negative because Filtrona also exported its filters to other markets and could also change its production from ordinary filters to special filters. Consequently, the Commission rejected the complaint.

4.4 Case Liptons/Hugin

Case Liptons/Hugin45 concerned a manufacturer of cash registers, Hugin, which refused to supply spare parts (the primary product) to all clients, including Liptons, on the market for maintaining and repairing its cash registers (the secondary product) in order to foreclose the latter market. The Commission considered Hugin’s leveraging behaviour as an abuse of its dominant position because, first, Hugin was a monopoly in supplying spare parts for its cash registers; secondly, spare parts were indispensible for the maintenance and repair services as spare parts between different brands were not compatible; thirdly, it would eliminate all competition from Liptons; and fourthly, there were no justifications. The ECJ agreed with the Commission on the monopoly position of Hugin over its spare parts due to the indispensability between cash registers and the spare part, despite that the primary market for cash registers was competitive. However, the ECJ finally overruled the Commission decision due to lack of Community jurisdiction. 46 Thus, it did not judge on the Commission’s qualification of abusive refusal to deal.

4.5 Conclusions

The above cases manifest the different approaches between cases of discontinuing supply to all third parties and cases of refusal to supply part of clients. In the latter scenario, there is no requirement of indispensability; neither is the requirement of eliminating all competition from the refused undertakings. Nevertheless, in the current type of refusal to deal, two products/services should be first differentiated: one is the requested product/service (the primary product) and the other is the product/service provided by the refused undertaking (the derivative product). The requested undertaking must be dominant on the primary products/services. In order for the refusal to be abusive, the primary product/service must be indispensible to the secondary or derivative product/service. Furthermore, the refusal to deal must be able to eliminate all the competition from the requesting company.47 In addition, once the two conditions have been fulfilled, the dominant undertaking in question should bear the

44 Commission 19th Report on Competition Policy, 1990, pp.77. 45 Case 22/78, Hugin Kassaregister AB and Hugin Cash Registers Ltd v Commission of the European Communities, [1979] ECR 1869. 46 Ibid, para.19. The main reason was that the centre of Liptions’ activities was in London region, which did not suffice the behaviour of Hugin to affect trade between Member States. 47 In practice, it is very difficult to differentiate the indispensability test from the test of eliminating all competition. Therefore, some scholar claimed that they are the same analysis. However, this argument is never confirmed by any European authorities. See, …

burden of proof to justify the discontinuance of supply. The European authorities have elaborated little on possible justifications. Only Case Telemarketing implies that the reservation could be justified by technical or commercial requirements relating to the nature of the primary service provided. However, it may be in practice difficult, if not possible, to prove the existence of technical or commercial obstacles when the products/services have been provided to others for long time, unless the dominant undertaking lately dramatically changed the technology to deliver the service concerned.

5. The fourth group: refusal to supply a product/service that has never been available on the market

The requested products/services, or the primary product, in this scenario is different from those in previous cases. In this scenario, the requested undertaking has always reserved the requested market to itself. Since the European authorities differentiate tangible properties from intellectual properties, abusive refusal to supply (more accurately, license) IP rights is subject to different rules. The distinction will be deliberated on in the next part. This part only focuses on tangible products/services.

A product/service that has never been provided for external use simply means there has been no separate market for that product/service. Obliging to supply that product/service is nothing more than to create a new market. It is the very difference between this group of cases and the previous groups of cases where markets for the requested products/services have already existed for some time, even in cases where a dominant undertaking discontinues supply to all its clients. A decision of obliging dominant undertakings to externalise a product affects not only the commercial strategies of the requested dominant undertakings, but also the current market structure. A perceivable regulatory risk could be that an obligation to deal may create an intermediate market with no genuine consumer demand. It is accordingly expectable that all competition authorities would not easily grant permission to every refusal to deal as such. The following paragraphs observe the European authorities’ practice in four cases.

5.1 Case Bronner

The milestone case of this type was Case Bronner48, which was a preliminary ruling case referred to by an Austrian court. Bronner was a marginal competitor on Austrian daily newspaper market together with the requested company, Mediaprint. Mediaprint owned a nationwide home-delivery scheme which could deliver newspaper directly to subscribers in early morning. This advantage was desired by Bronner, and thus was requested by the latter. Mediaprint denied Bronner’s request for access as it always reserved its delivery scheme for its own newspaper and for an affiliated newspaper.49 The ECJ was asked whether it was an abuse of a dominant position.

In all cases of refusal to deal, only a dominant undertaking may be obliged to deal under exceptional circumstances. Therefore, the first question needs to be answered was whether Mediaprint was dominant on the primary market where the requested home-delivery system stood. Nevertheless, the ECJ replied that it was for the national court to determine whether the

48 Case C-7/97, Oscar Bronner vs. Mediaprint, [1998] ECR I-7791. 49 Mediaprint claimed that it was entrusted by the publisher of the newspaper with printing and the whole of distribution, including sale in kiosks, so that home-delivery constituted only part of a package of services. Since it was different from the single request to access the home-delivery system from Bronner, both Mediaprint and the Commission, as a third party in this proceeding, submitted that it was not discrimination. The ECJ did not rule on this point, which may suggest it accepted this argument.

requested home-delivery system constituted a separate market and whether Mediaprint was dominant there. It advanced directly to examine whether there was an abuse of a dominant position. However, it should be noted that the subsequent analysis of the ECJ was based on an assumption that Mediaprint was dominant on the primary market.

With regard to the question whether the refusal to deal constituted abusing a dominant position, the ECJ established three conditions (i) the refusal should be likely to eliminate all competition from Bronner in the daily newspaper market; (ii) the service of the home-delivery system should be indispensable to carrying on the business on the daily newspaper market. Furthermore, the indispensability test requires no actual or potential substitute in existence for that home-delivery scheme; and (iii) such refusal cannot be objectively justified.50

After defining the three conditions, the subsequent analysis of the court focused on the indispensability test. The ECJ considered that the indispensability test was not met in this case for two reasons: (1) there were other methods of distributing daily newspapers, such as by post or though sale in shops and at kiosks, though they may be less advantageous;51 (2) there were no technical, legal or even economic obstacles to make it impossible, or even unreasonably difficult, to establish, along or in cooperation with other publishers, another nationwide home-delivery scheme. 52 Concerning the economic difficulties to establish a potential alternative, it should be noted that the ECJ referred not to the possibility as to a small company, such as Bronner, but a hypothetical company with a comparable size of the company being requested.53 The ECJ held that the indispensability test was not met, and thus the refusal was not an abuse of a dominant position, should Mediaprint have.

In this case, the Court not only solidly established three conditions for analysing whether a refusal to deal with a product/service that has never been externalised constitutes an abuse of a dominant position, but also developed further the indispensability test. However, the Court left open the question how an intermediate product/service that has never been externally provided could constitute a market separated from the market for the “finished” derivative product/service. The question is without doubt related to the general principles of defining relevant product market.54 However, there are still uncertainties as to the application of those principles to a product/service that in fact does not exist. The European courts, after Case Bronner, have never been given another opportunity to clear that doubt. Despite no answer from the European courts, the Commission was confronted by that question under similar situations in the subsequent three cases. The following will focus its attention, on the one hand, on the analysis of the three conditions, and on the other hand, on the definition of a separate product that never existed.

5.2 Case FAG and Case GVG/FS

The first case that challenged the Commission was a refusal to open airport facilities in Case FAG.55 FAG (Flughafen Frankfurt/Main AG) owned and operated Frankfurt airport. At the time when the case was raised, FAG reserved to itself all the services within the Frankfurt

50 ibid, para.41. 51 ibid, para.43. 52 ibid, para.44. 53 ibid, para.45-46. 54 Commission Notice on the definition of relevant market of the purpose of Community competition law, 97/C 372/03, OJ C 372/5, 09 December 1997. 55 Commission Decision of 14 January 1998 relating to a proceeding under Article 86 of the EC Treaty (IV/34.801 FAG/Flughafen Frankfurt/Main AG), OJ L 72/30, 11/03/1998.

airport. This case was filed as abusing a dominant position by third parties that were denied to provide ground-handling services on the ramp56 in the Frankfurt airport by FAG. The ground-handling services on the ramp was always provided by FAG itself and bundled with the provision of airport facilities for the landing and take-off of aircraft.

Based on Bronner, the first question that must be answered by the Commission was whether those requested services, ground-handling services, constituted a separated market from the bundled service of providing airport facilities for the landing and take-off of aircraft as a whole. FAG claimed that the two types of services were complementary and should not be provided separately. However, the Commission considered that they constituted separate markets mainly for three reasons: (1) from demand side, airport customers were usually charged two separate charges for the two bundled services, which implied that it was not necessary for customers to purchase the two services, though complementary, from the same supplier; (2) from supply side, that ground-handling services could be provided by third parties, despite that the provision of airport facilities for the landing and take-off of aircraft

was natural monopoly and could not be provided by third parties; 57 and (3) ground-handling services had been provided by independent third parties in other airports. 58 Then the Commission reached the conclusion that FAG was a monopoly on both markets.59

Subsequently, since the duplication of another airport in Frankfurt was not possible, the indispensability was clear to the extent to which third parties could not provide ground-handling service without FAG’s permission to access the Frankfurt airport. It is also logic that FAG would eliminate all competition from third parties by reserving ground-handling services to itself based on its monopolistic position.60 Lastly, the Commission denied all the justifications claimed by FAG, such as capacity limits, exclusivity of property right, freedom of business strategy, and historical rights that resulted into the reservation.61 Consequently, FAG was obliged to allow third parties to access its airport facilities and to provide ground-handling services there.

Another case of refusal to deal, Case GVG/FS,62 also happened in the transportation industry. GVG (Georg Verkehrsorganisation GmbH) was a new Germany railway undertaking and FS (Ferrovie dello Stato SpA) was the Italian national railway carrier. FS was complained by GVG of refusing the latter to access the Italian railway infrastructure to provide an international rail passenger service from various points in Germany via Basle to Milan. FS had not granted such an access to any independent third parties.

First, in the transportation sector it had been established to define relevant products based on the point-of-origin/point-of-destination pairs approach. According to this special feature the Commission immediately reached a conclusion that the railway routes requested by GVG to

56 They consisted of provision and operation of equipment for the embarkation and disembarkation of passengers, transport of passengers between the terminal and the aircraft position and vice versa, crew transport, loading and unloading of baggage, cargo and mail, transport, sorting and transfer of baggage, transport of cargo and mail on the ramp, cabin cleaning, toilet and water services, push-back/towing of aircraft, provision and operation of equipment to carry out the above activities, fuelling of aircraft, and the transport of catering supplies to and from the aircraft. Ibid, para.20. 57 ibid, para.65. 58 ibid, para.66. 59 ibid, para.69. 60 ibid, para.72. 61 ibid, para.74-98 62 Commission Decision of 27 August 2003 relating to a proceeding pursuant to Article 82 of the EC Treaty of (COMP/37.685 GVG/FS), OJ L 11/17, 16.1.2004.

access constituted separate markets from the railway services in general provided by FS. 63 Since the Italian railway industry had not been liberalised, it is of no surprise that FS was a monopoly on all markets.

Then the Commission analysed whether the refusal was abusive. At that time, an undertaking, in order to provide rail passenger services in another Member State, must form an international group with a railway undertaking established in the hosting Member State.64 FS was the only choice for GVG in Italy, and thus the infrastructures owned and services provided by FS were undoubtedly indispensible to the request of GVG. Furthermore, because of such indispensability a refusal would result into elimination of all competition from GVG.65 At last, the Commission found no justification from FS with respect of lack of spare capacity, safety reasons, no adequate remuneration, and public service obligations. 66 Therefore, the Commission concluded that the refusal of FS was abusive.

As a matter of fact, in the above two cases both airport infrastructures and railway infrastructures present strong features of natural monopoly, thus being called by the Commission as “essential facilities”, a word that the European court has never really put into own use. This fact may reduce the difficulties to fulfil the criteria established by Case Bronner. Furthermore, both types of infrastructures were invested from governmental budget and inherited by the previous statute monopolies long before liberalisation. In addition, the separation of the requested service into a new market within Case FAG and Case GVG/FS may be, to some extent, affected by the liberalisation policy promoted on those markets at that time. In Case FAG, Council Directive 96/67/EC of 15 October 1996 promoted access to the ground-handling market at Community airports 67 ; in Case GVG/FS, Council Directive 91/440/EEC of 29 July 1991 was adopted to push forward international railway cooperation.68 Although those directives did not impose an open-access obligation upon the former-monopolists to all third parties, it may influence the Commission’s analysis of refusal to deal in those cases.

This point became clearer in later Case Telefónica69 where Telefónica, the Spanish Telecom incumbent, was involved in a price squeeze. Telefónica claimed that the price squeeze could amount to a refusal to deal, and thus should be dealt with under the criteria established by Case Bronner. However, the Commission alleged that Telefónica was under an obligation to serve all the other electronic communications operators under the regulatory framework concerning electronic communications, which could be relied upon under EU competition law. Accordingly, the mechanism established by Case Bronner was not applicable to that case.70 In addition, some literature also considered that the incentive to liberalise those markets may account for the difference between those cases and Case Bronner where the home-delivery mechanism was established and reserved for own use by a private company.71

63 ibid, para.59. 64 ibid, para.69-70 65 ibid, para.120, 145, and 149. 66 ibid, para.135-138. 67 OJ L 272, 25. 10. 1996, p. 36. 68 OJ L 237, 24.8.1991, p. 25. Directive as last amended by Directive 2001/12/EC (OJ L 75, 15.3.2001, p. 1), which had to be implemented by 15 March 2003. 69 Commission Decision of 04.07.2007 relating to a proceedings under Article 82 of the EC Treaty (Case COMP/38.784 – Wanadoo España vs. Telefónica), not yet published??? 70 ibid, para.300-303. 71 Paul Nihoul and Peter Rodford, EU Electronic communications Law: competition and regulation in the European telecommunications market, Oxford University Press: Oxford, 2004, pp.482-483.

5.3 Case Info-Lab/Ricoh

In Case Info-Lab/Ricoh72 the Commission was confronted with a refusal to deal with a product manufactured by a private company. Info-Lad, a manufacturer of toner for photocopiers, filed a complaint against Ricoh, a photocopier manufacturer, of abusing the dominant position by refusing to supply empty toner cartridges. It claimed that the supply would enable it to compete with Ricoh in the sale of filled toner cartridges. Moreover, the complainant also explained that it was not possible to duplicate Ricoh’s toner cartridge which was protected under IP rights. Nevertheless, Info-Lad did not ask to access those IP rights, which is different from the cases discussed in the next part.

According to Case Bronner, there must be a separate market for the requested product/service. Since Ricoh only sold filled cartridges and never provided empty ones, the Commission first examined whether there could be a separate market for Ricoh’s empty cartridges. It concluded that there was no such a separate market for empty cartridges because there was no consumer demand, and that a matter of fact all manufactures only sold filled cartridges. Consequently, all consumables for Ricoh’s products constituted a single product. The Commission furthermore examined whether Ricoh had a dominance position on the market for its consumables. It observed that although those consumables were not interchangeable between different brands of photocopiers no dominance could be held by Ricoh because the market was transparent and consumer faced no difficulties to switch to other providers of photocopiers. The refusal thus could not be abusive because no dominance could be established.

It is noteworthy to compare this case with case Liptons/Hugin73 discussed in the above. These two cases share some features. First, Ricoh was not dominant on the upstream market for photocopiers; and neither was Hugin dominant on the upstream market for cash registers. Secondly, the requested products in both cases were consumables for the main products: empty cartridges in Case Info-Lab/Ricoh, and spare parts for maintenance and repair in Case Liptons/Hugin, both of which were not interchangeable with other brands. In addition, both cases involved no natural monopolies, different from Case FAG and GVG/FS.

Nevertheless, the conclusions in the two cases were different: Ricoh was not dominant in the market for its cartridges whereas Hugin was dominant for its spare parts. In Case Liptons/Hugin, the Court’s conclusion was based on two facts: on the one hand there was demand from end-users for those spare parts; and on the other hand, there was also demand from independent undertakings which had specialised in the maintenance and repair of Hugin’s cash registers. By comparison, in Case Info-Lab/Ricoh the Commission discovered no separate market for empty cartridges since there was no consumer demand, no other undertakings ever provided empty cartridges, and it remained only Info-Lad’s interest to request empty cartridges.

However, one of the explanations for this difference may be that Hugin initially did not reserve to itself the market for maintenance and repair of its products and thus sold spare parts to third parties, while Ricoh had always reserved the market for consumables and hence provided no empty cartridges to others. Since there were already third party undertakings that purchased only spare parts for some time, it would be difficult to deny that there was no separate market for spare parts. By contrast, in Case Info-Lab/Ricoh Ricoh never provided

72 Competition Policy Newsletter 1999, Number 1, February, pp.35-37 73 See, note 45, above.

empty cartridges for others to produce third-party consumables for its products. As having been proved by the Commission decision, it was difficult to establish that empty cartridges could be a separate product. The Commission concluded that there was no consumer demand for empty cartridges. Nevertheless, it did not analyse whether this was in fact the result of Ricoh’s reservation. Furthermore, the Commission asserted that the provision of filled cartridges satisfied a recognised consumer need and reduces costs. However, it did not investigate further whether Info-Lab could more efficiently offer the consumables when obtaining empty cartridges. More importantly, when the requested product/service cannot be proved to be a separate market, it must be in the same market with other products. The broader market definition may result into difficulties to establish the dominance of the requested undertaking, which was observed in Case Info-Lab/Ricoh. In that regard, it could be argued that it is more difficult to oblige a dominant undertaking to supply a product always reserved for self use than a product suddenly discontinued to supply.

5.4 Summing-up: similarity and difference between the third and fourth groups

To wrap up, with regard to cases of refusing to supply a product/service that has never been provided to others, the ECJ established a framework in Case Bronner. This framework comprises the following steps: first, it must be analysed whether the requested product/service could constitute a separate market; second, the requested undertaking must be dominant on that market; thirdly, a refusal to deal with the requested product/service could be abusive only when (i) the requested product/service is indispensible to the business of the requesting undertaking, (ii) a refusal to deal would risk of eliminating all the competition from the requesting undertaking, and (iii) the requested undertaking cannot provide justification for the denial.

Compared with the previous group of cases of discontinuing supply to all third parties, it is worth noting that the three conditions to qualify an abusive refusal to deal within the two groups are analogous from three perspectives. Firstly, they are presented in principle in the same way. Secondly, the analysis on the elimination of all competition is aligned with the indispensability test in the current group of cases, which is also witnessed in cases of discontinuance supply to all third parties. Thirdly, the indispensability test in both groups of cases is attached to a rather high standard of proof. Although it is not clear whether the burden of proof for the indispensability test is same for the two groups, so far all cases of the previous group, for example Case Commercial Solvents and Telemarketing, can also fulfil the indispensability test established by Case Bronner. Since there is evidence to the contrary, it is believed that they are based on the same extent of standard of proof. Consequently, it is argued that the two groups of cases share the same set of conditions to qualify an abusive refusal to deal.

However, it does not mean that there is no difference at all between the two groups. As discussed earlier, it is more difficult to prove that the requested product/service that is always reserved for own use could constitute a separate market. A separate market comprising only the requested product/service means that product/service can be provided separately. If the requested product is considered not as a separate product from the current bundle, it is difficult to prove the indispensability test. On the other hand, a separate market for the requested product/service can lead to a narrower market definition and hence a greater opportunity to find a dominant position of the requested undertaking. In some cases the effect may be not significant. For example, in Case FAG and Case GVG/FS, any market definition may impossibly affect the requested undertakings’ market position as monopoly. However, in other cases, such as Case Info-Lab/Ricoh, the result could be completely different if it could

have been proved that there could be a separate market for the requested service/product. It seems that the Commission relied to some extent on the common practice on the market in question. In Case FAG one of the Commission’s justifications was that the requested service had been separately provided in other airports. In comparison, in Case Info-Lab/Ricoh the Commission noticed that no printing companies ever provided empty cartages. Furthermore, in cases of discontinuing external supply it is relatively easier to prove that the product/service that is discontinued to supply can constitute a separate market. As a matter of fact, in most of those cases that question was never raised simply because of the existence of complaint against the discontinuance, or in other words previous demand, which makes it meaningless to deny the existence of such a separate market. This may represent a difference between the approach to deal with this type of refusal to deal and that with regard to disruption of all supplies to all third parties. However, this difference does not affect the similarity with respect of the three conditions.

6. The fifth group: refusal to grant IP license

A debate has always been raised whether intellectual properties should receive more protection than tangible property. However, the European courts have closed the discussion in relation to cases of refusal to deal and maintained that IP rights should obtain more care. One of the reasons may be found in Advocate General Jacobs’ opinion in Case Bronner:

“[i]n assessing such conflicting interests particular care is required where the goods or services or facilities to which access is demanded represent the fruit of substantial investment. That may be true in particular in relation to refusal to license intellectual property rights. Where such exclusive rights are granted for a limited period, that in itself involves a balancing of the interest in free competition with that of providing an incentive for research and development and for creativity. It is therefore with good reason that the Court has held that the refusal to license does not of itself, in the absence of other factors, constitute an abuse.”74

This part examines six cases of refusal to grant IP license. Before exploring each of those cases, it should be pointed out at the outset that although consistency largely remains in the approaches to solve previous groups of cases, inconsistency is frequently found in cases of refusal to grant IP license. In some cases, the European authorities even suggested contradictory implications. Consequently, the following analysis is more to describe the evolution of those inconsistencies than to search for answers.

6.1 Case CICRA/Renault and Case Volvo/Veng

Although the analytical framework to approach abusive refusal to grant IP license was not established until 1990s, the European courts had formed the fundamental attitude to this group of cases several years earlier.

In Case CICRA/Renault75 the ECJ held that the authority of an owner of IP rights to oppose the manufacture by third parties without its consent constituted the substance of that exclusive right,76 and therefore the mere fact of obtaining IP rights did not constitute an abuse of a

74 Opinion of Case Bronner, para.62, supra note 48. 75 Case 53/87, Consorzio italiano della componentistica di ricambio per autoveicoli and Maxicar v Régie nationale des usines Renault, [1988] ECR 6039. 76 ibid, para.11.

dominant position. 77 Nonetheless, the Court also suggested that the exercise of such an exclusive right may be prohibited by Article 102 if it involved certain abusive conduct, such as the arbitrary refusal to supply spare parts to independent repairers.

In Case Volvo/Veng,78 the ECJ was asked a question whether it was abusive if a dominant proprietor of registered design refused to license others those rights, even where the latter were willing to pay a reasonable royalty. The ECJ maintained the refusal by that proprietor to grant to third parties, even in return for reasonable royalties, a licence for the supply of parts incorporating the design could not in itself be regarded as an abuse of a dominant position,79 unless it involved certain abusive conduct, such as the arbitrary refusal to supply spare parts to independent repairers.80

6.2 Case Magill

Within the above two cases, the ECJ did not specify the situations where a refusal to licence IP rights can constitute abusive conduct. This question was kept unanswered until the seminal case Magill.81

This case concerned the copyright protection in North Ireland granted upon TV guides. Due to those copyrights each TV station traditionally only published a weekly television guide covering its own programmes. They allowed third-party publishing mediums to publish in principle only their daily or two-day TV guides so that there was no comprehensive weekly TV guide including programmes of all channels in North Ireland in the substantial time of the case. This was different from other Member States. Magill attempted to publish a comprehensive weekly TV guide covering all major TV channels in North Ireland, but was refused to obtain the license of copyrights by the then three major TV stations. This cases was first brought before the Commission, later appealed to the then CFI, and finally reviewed by the ECJ. Since only part of CFI’s argument was appealed and were all accepted by the ECJ without reservation, the discussion of Case Magill here is based on the judgment of CFI in order for a comprehensive view.

First of all, relevant markets must be defined in order to process Article 102 cases. The TV stations claimed that the product market in question should be information on television programmes in general, including daily TV guides and weekly TV guides. Given the considerable number of third-party medium publishing daily TV guides, this argument could have led to no dominance of any TV stations.82 Nevertheless, the CFI did not accept this argument. It defined a new and separate market for TV magazines publishing comprehensive weekly programme listings. The CFI’s reasons were mainly two: first, daily TV guides were only to a limited extent substitutable for weekly TV guides since only weekly television guides could enable users to decide in advance which programmes they wished to follow and arrange any leisure activities for the week accordingly; secondly, weekly TV guides successfully existed in the United Kingdom and Ireland, as well as in continental Europe.83

77 ibid, para.18 78 Case C-238/87, AB Volvo v Erik Veng (UK) Ltd, [1988] ECR-6211. 79 ibid, para.11. 80 ibid, para.9. 81 Joined cases C-241/91 P and C-242/91 P, Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission of the European Communities, [1995] ECR I-00743. It was an appeal to Case T-69/89, Radio Telefis Eireann v Commission of the European Communities, [1991] ECR II-00485. 82 Case T-69/89, para.30, ibid. 83 Ibid, para.62; see also, Joined cases C-241/91 P and C-242/91 P, para.47, supra note 81.

This new market is the derivative market of this case, and the primary product was information on weekly programmes. As a matter of fact, a third product was also defined, i.e. TV magazines publishing individual weekly programme listing, where each TV station enjoyed monopoly. To conclude, the CFI held that each TV station was monopoly on the primary market, as well as on the market for publishing individual listing.

Then the CFI went to the question whether the refusal to license in this case could be abusive. Four conditions were discussed for that analysis: (i) the primary product, weekly TV guides, was indispensible with the derivative product, television magazines, and was moreover not substitutable for daily TV guides; (ii) the refusal could eliminate all the competition and secured a monopoly in the derivative market of comprehensive weekly TV guides; (iii) the refusal also prevented the production and marketing of a new product/market, i.e. comprehensive weekly TV guides; and (iv) there was no objective justification.84 Finally, the court concluded that the refusal to license the copyrights in question was abusive.

Compared with cases of refusal to deal with tangible facilities that are always reserved for self use, for example Case Bronner, it is observed that three conditions are shared between the two scenarios: (i) the indispensability test, (ii) elimination of all competition, and (iii) no objective justification. However, one more condition was inserted in Case Magill that the refusal must be able to stifle the emergence of a new market, which was in that case comprehensive weekly TV guides. By contrast, there was no such requirement in Case Bronner. However, Case Magill did not clarify whether “the prevention of emergence a new product” was additional to the criteria of Case Bronner, or whether it was alternative to the indispensability test. This question will be answered by subsequently cases. Nevertheless, it should be kept into mind that this is the first controversial area in relation to refusal to license.

Apart from that uncertainty, Case Magill also presented a problematic analysis of the dominance in the primary market. The primary market was defined as information for weekly TV programmes while the derivative market covered TV magazines publishing comprehensively weekly TV guides. A second consideration would result into an impression that the primary market did not correspond to the derivative market. The primary products included only the weekly TV programme information provided by each of the three TV station. By contrast, the derivative market comprised the TV guides of all the three TV stations. In other words, Magill needed three sources of “raw material” in order to produce the derivative product. This represents a difference from any of the previous cases where there was always one source of “raw material”. Although every TV station held monopoly over its own TV programmes, it is untenable to argue that information of TV programmes of a single TV station was indispensible to a comprehensive TV guide.85 This may be comparable to an argument that a book of collective work is dependent on the contribution of a certain author.

6.3 Case Ladbroke

The next case that appeared before the European courts was Case Ladbroke86. Ladbroke, the refused undertaking in this case, was a Belgian company making a book on betting horse races abroad. The Pari Mutuel group, the requested company, included several French companies that owned the rights on televised pictures of and information on horse races organized in France. The Pari Mutuel group already sold this right to a Germany company in 84 Ibid, para.73-74; see also, Joined cases C-241/91 P and C-242/91 P, para.52-56, supra note 81. 85 Despite no individual dominance, the courts may prove that it was a case of collective dominance. Nevertheless, it is beyond the discussion here. 86 Case T-504/93, Tiercé Ladbroke SA v Commission of the European Communities, [1997] ECR II-923.

Germany, but no one in Belgium before the dispute of this case. Ladbroke requested the Pari Mutuel group to grant the right to broadcast those horse races in Belgium, which was refused by the latter.

Two product markets were defined: the broadcasting horse races and the taking of bets. In view of the national limitations on gambles and on broadcasting, the court defined the geographic market as Belgium where the Pari Mutuel group run no business. The effect of this geographic market definition was significant. Since the requested undertakings was present in neither markets, the court immediately held that the Pari Mutuel group had no intention to exclude Ladbroke, and accordingly the approaches in Case London European/Sabena could not apply. 87

Moreover, when considering whether it could be a case similar to Case Magill, the court concluded that the indispensability test was not fulfilled in this case, as the televised broadcasting of horse races, although constituting an additional, and indeed suitable, service for bettors, was not in itself indispensable to the exercise of Ladbroke’s main activity, namely the taking of bets.88 Consequently, the court did not examine other conditions established by Case Magill and came to the conclusion that the refusal was not an abuse of a dominant position.

Nevertheless, the interest of this case lies not in the analysis of indispensability, but in the answer to the question left by Case Magill, i.e. whether the prevention of emergence of a new product is additional or alternative to the indispensability test. It was the first answer provided by the European justice. The then CFI interpreted that

“[t]he refusal to supply the applicant could not fall within the prohibition laid down by Article 86 (now Article 102) unless it concerned a product or service which was either essential for the exercise of the activity in question, in that there was no real or potential substitute, or was a new product whose introduction might be prevented, despite specific, constant and regular potential demand on the part of consumers.”89 (emphasis added)

The CFI in this case apparently suggested that the prevention of introduction of a new product was not an additional condition, but an alternative to the indispensability test. Nevertheless, as will be observed in later cases, this argument will not be supported by other judgements.

6.4 Case IMS Health

The third case reviewed by the European authorities was Case IMS Health. IMS was the world’s number one supplier of information to the pharmaceutical and healthcare industry. In order to facilitate the provision of information about medicine sales in Germany, it developed a so called “1860 brick structure” to represent the geographical model of analysis of the German market, which was under the protection of German copyright rules. Since IMS faced no competition for a long time, the “1860 brick structure” was accepted by all pharmaceutical companies and became a de facto industry standard. About one year before the substantial dispute witnessed the entrance of the complainer, NDC, as well as another newcomer, AzyX. At the beginning, both alternative companies experienced difficulties to persuade their clients to use other standards than the “1860 brick structure”. Therefore, each of them developed a 87 Ibid, para.133. 88 Ibid, para.132. 89 Ibid, para.131.

similar structure as the “1860 brick structure”, which was nevertheless suspended by a Germany court for possibly infringing IMS’s copyright. After the preliminary injunction, NDC requested IMS for a license, but was refused. The compliant of refusing to license was sent to the Commission and the Commission granted an interim measure to require IMS to license its copyright.90 IMS appealed to the CFI and the CFI ordered to suspend that interim measure, not because there were obvious errors in the analysis of refusal to licence, but because it was not urgent to impose an interim measure.91 NDC sought to set aside the CFI order before the ECJ, but was not successful.92 Afterwards the Commission withdrew the interim measure,93 and finally the CFI withdrew its jurisdiction over that case.94

A quick reading of the Commission decision would give an impression that the Commission made some controversial interpretations to previous cases.95 However, it should be noted that this was only a case of interim measure that aimed to establish a prima facie case of abusive refusal to deal. The standard of proof presented in this case was certainly lower than judgements or decisions. Therefore, a comparison of this case with others generates little academic value, though both the CFI and the ECJ held that a prima facie case of an abusive refusal to license had been successfully established. Nevertheless, special attention may be paid to two comments made by the CFI.

First, the CFI observed that there was no exclusion of emergence of a new market in this case. It anticipated that at first sight NDC and AzyX, once obtaining the license, would operate on the same market, serve the same potential clients, and differ only as to detail from the service offered by IMS. Therefore, the court maintained that new variations of the same service on the same market as the dominant undertaking cannot be considered as “a new product” in the sense of Case Magill.96 This interpretation is still consistent with Magill. However, it should be kept into mind that this represents the second controversy with regard to refusal to license, as that interpretation will be opposed by the later Microsoft.

90 Commission Decision of 3 July 2001 relating to a proceeding pursuant to Article 82 of the EC Treaty (Case COMP D3/38.044 – NDC Health/IMS HEALTH: Interim measures), not yet published. 91 T-184/01, IMS Health vs Commission, order of 26 October 2001, ECR [2001] II-3193. 92 Case C-481/01 P(R), IMS Healthy vs Commission,[2002] ECR, I-3401 93 Commission Decision of 13 August 2003 relating to a proceeding under Article 82 of the EC Treaty (Case COMP D3/38.044 — NDC Health/IMS Health: Interim measures), 18.10.2003, L 268/69. In this decision, the Commission indicated that A German high court made a new interpretation to its copyright rules over this case that NDC and AzyX could develop a brick structure that was similarly based on a breakdown by district, urban district and post-code district and for that reason comprise more or less the same number of bricks. After that national judgement, NDC established its own structure and successfully competed against IMS. See, recital 10 and 14 of that decision. 94 Case T-184/01, IMS Health vs. Commission, Order of 10/03/2005, ECR [2005] II-817. 95 For example, with regard to the relevant market, the Commission defined only one market, i.e. pharmacies regional sales data in Germany where IMS was a quasi-monopoly: Case COMP D3/38.044, para.51, 55, 58, supra note 90. This represents a deviation from Case Magill where TV stations were obliged to license its copyrights to Magill, a TV magazine publishing weekly TV guides (the derivative product), because they were monopoly on providing information about weekly TV programmes (the primary product). In the current decision, the Commission did not define a primary market that included the 1860 brick structure. The only product market defined in that case, pharmacies regional sales data in Germany, is in effect the derivative product from the 1860 brick structure, as it requires the input of the latter. However, the Commission required IMS to license the 1860 brick structure (the primary product) to undertakings proving regional sales data (the derivative product) without analysing whether IMS’s dominance on the primary market, though IMS may indisputably enjoy dominance or even monopoly there. It seems that the Commission relied on IMS’s dominance on the derivative market to require it to supply a product on the primary market. 96 T-184/01, para.101, supra note 91.

Secondly, since there was no emergence of a new market it would not be an abusive refusal to license if the prevention of the emergence of a new product is a cumulative condition. In its decision the Commission referred to the interpretation of Case Ladbroke, and contended that there was no requirement for a refusal to supply to prevent the emergence of a new product in order to be abusive.97 Nevertheless, the CFI cast doubt on that interpretation (though it did not immediately reject it either), but it considered that this doubt was nevertheless sufficient to establish a prima facie case for an interim measure.98 Although IMS did not directly reject the interpretation of Ladbroke, the smell of gunpowder can already be sensed. The trigger will be pulled in the next case Microsoft.

6.5 Case Microsoft

Then it comes to the last case of refusal to deal to date, Case Microsoft.99 The CFI judgement presents the most deviations from the precedents from many aspects. Those deviations not only touch upon the two controversies indicated in the above, but also extend the uncertainties around refusal to license to other areas.

Microsoft was a well-known company in providing operating systems (OS) for personal computers. It also offered OS for work group servers in competition with Sun, the complainant in this case. For many reasons OS for work group servers needs to be interoperable with OS for personal computers. Sun requested such interoperability from Microsoft but was refused, and thus brought this case to the Commission. The Commission gave Sun a favourable decision. Subsequently, Microsoft appealed to the CFI that supported the Commission. Since Microsoft did not refer the case to the ECJ, the CFI judgement has been final.

First, the CFI for the first time systematically summarised the practices implied in previous cases with regard the definition of the primary and secondary markets. It stated that:

“in order that a refusal to give access to a product or service indispensable to the exercise of a particular activity may be considered abusive, it is necessary to distinguish two markets, namely, a market constituted by that product or service and on which the undertaking refusing to supply holds a dominant position and a neighbouring market on which the product or service is used in the manufacture of another product or for the supply of another service. […] it was sufficient that a potential market or even a hypothetical market could be identified and that such was the case where the products or services were indispensable to the conduct of a particular business activity and where there was an actual demand for them on the part of undertakings which sought to carry on that business. […] it was decisive that two different stages of production were identified and that they were interconnected in that the upstream product was indispensable for supply of the downstream product.”100

Consequently, two relevant products markets were defined in this case: OS for personal computers (the primary product) and OS for work group servers (the derivative product).

97 Case COMP D3/38.044, para.101, supra note 90. 98 T-184/01, para.104, supra note 91. 99 Case T-201/04, Microsoft vs. Commission, Judgment of 17/09/2007, ECR [2007] II-3601. see also, Commission Decision of 24.03.2004 relating to a proceeding under Article 82 of the EC Treaty (Case COMP/C-3/37.792 Microsoft), not yet published. 100 Case T-201/04, para.335, ibid.

Microsoft was almost a monopoly (stably over 90% market shares) in the first market and was dominant (about 60% market shares) and confronted with competition on the second market. It should be noticed that no separate market was defined for the requested service, i.e. the information of interoperability with personal computer OS for work group, which suggests that the CFI included it into the market for client PC OS. This broader market definition did not affect Microsoft’s dominant position on the primary market. However, as it will be pointed out later this broader definition may be considered as the source of all the controversies raised by Microsoft.

Subsequently, with regard to refusal to license IP rights the CFI re-summarised the conditions in Case Magill: (i) the refusal relates to a product or service indispensable to the exercise of a particular activity on a neighbouring market; (ii) the refusal is of such a kind as to exclude any effective competition on that neighbouring market; (iii) the refusal prevents the appearance of a new product for which there is potential consumer demand; and (iv) the refusal cannot be objectively justified.101 As aforementioned, it is the first controversy that the interpretation of Ladbroke that the condition of “prevention of a new product” established by Magill was alternative to the indispensability test was questioned and nevertheless not rejected by IMS. In Microsoft the CFI firmly maintained that the four conditions must be cumulative. Therefore, the first controversy seems to be resolved if the rule that later decisions are controlling is applicable.

Next, the CFI went to examine whether those conditions were fulfilled. However, if it can still be argued that the CFI in Microsoft made commendable progress with regard to market definition and the function of the condition of preventing the mergence of a new product, and kept its interpretation relatively consistent with previous case law, its analysis on the application of those conditions certainly suggests otherwise. A summary and evaluation of the CFI’s application of the four conditions is provided in the following.

First, the CFI held that the first condition was met in this case. In other words, the interoperability with Microsoft Windows for client PC was indeed indispensable for producing OS for work group servers. Nevertheless, the interpretation on the fulfilment of the indispensability test varied considerably from the precedents. The previous case law indicates at least two implications to the indispensability test. First, the assessment of the indispensability test was always objective to the extent that the requested undertaking(s) could in no way operate on the derivative market once being refused to supply the primary product/service, for example raw material vs. finished products in Case Commercial Solvents, TV advertising minutes vs. telemarketing in Case Telemarketing, Spare parts vs. maintenance and repair services in Case Lipton/Hugin, airport facilities vs. ground-handling in Case FAG, railway faculties vs. international passenger service in Case GVG/FS, and weekly TV programmes vs. TV magazine publishing weekly TV guides in Case Magill. Secondly, other products, even less advantageous, must be considered as substitutes with the primary product. For example, in Bronner the court even considered other methods, such as by post and through sale in shops and at kiosks, as substitutes with the home-delivery scheme of Mediaprint.102 By contrast, the fulfilment of the indispensability test in Microsoft was based on facts such as (i) there were still several work group OS present on the derivative market;103 (ii) some work group OS had constantly increased market share without having access to the

101 ibid, para.332-333. 102 Case Bronner, supra n. 48, para.43. 103 ibid, para.343.

information of interoperability with Microsoft;104 and (iii) there were five other methods to achieve the interoperability between non-Microsoft OS and Windows for client PC.105 These facts may not arguably fulfil the standard established by other cases.

Furthermore, as having been pointed out earlier the source of that controversy could be the broader market definition. It should be noted that the requested service in this case, the interoperability with client Windows, was a matter of degree. 106 The evaluation of the indispensability could be completely different when referring to different degrees of interoperability. Given the fact that a certain degree of interoperability had already been realised by some competitors,107 it went beyond doubt that not every piece of information related to interoperability was indispensible to every producer of OS for work group servers. Nevertheless, the derivative market was defined to cover all OS for work group servers, which included not only OS provided above the required interoperability, but also below and/or equal to that requirement. Therefore, it is not flawless to argue that all the information related to interoperability with Windows for client PC was indispensible to the provision of all OS for work group servers, in particular to those undertakings that have achieved a certain degree of interoperability,108 unless the derivative market was defined as OS for work group servers based on the level of interoperability required by the Commission. In addition, it seems that the CFI indeed recognised the existence of such a level of interoperability required by the Commission, which was embraced within its reasons to reject Microsoft’s claims: (i) other work group OS could not achieve the interoperability required by the Commission, though a certain degree of interoperability had been achieved;109 (ii) none of other methods or solutions recommended by Microsoft made it possible to achieve the high degree of interoperability required the Commission,110 and (iii) the success of some work group OS were based on interoperability with non-Windows products. 111 Should the level of interoperability required by the Commission be added into the definition of the secondary market, competition from other operators could have been excluded from the relevant market and the indispensability could have been more clearly established.

Secondly, the analysis of the second condition, the elimination of competition, in previous cases was interwoven with the indispensability test. The elimination of other competition by the refusal to supply in previous cases is always immediate, complete and explicit. Thus, the indispensability between the primary product/service and the derivative product/service in previous cases left no room for any competition from other operators on the derivative market. Nevertheless, in the current case the assessment of the second condition was challenged because it was undeniable that other operators on the derivative markets were still present and as mentioned earlier some even grew up. There were apparent no elimination of all competition according to the standard established in other cases. In the current case the CFI first alleged that that there was no need of imminent elimination of competition, 112 which is

104 ibid, para.347. 105 ibid, para.345-346. 106 Case T-201/04, para.158, note 99. 107 Case COMP/C-3/37.792 Microsoft, para.295-297, supra note 99. 108 A discussion whether the required level of interoperability is appropriate is not possible when lack of technical knowledge. Accordingly, the CFI forbore from judge on this issue, given that no manifest error was committed by the Commission. See, ibid, para.379-381. 109 Case T-201/04, para.432, and 421, note 99. 110 Ibid, para.435. 111 Ibid, para.433. 112 ibid, para.561.

still consistent with other cases. However, it then adopted a new interpretation, which is the third controversy related to refusal to license,

“[n]or is it necessary to demonstrate that all competition on the market would be eliminated. What matters, for the purpose of establishing an infringement of Article 82 EC, is that the refusal at issue is liable to, or is likely to, eliminate all effective competition on the market. It must be made clear that the fact that the competitors of the dominant undertaking retain a marginal presence in certain niches on the market cannot suffice to substantiate the existence of such competition.”113

In other words, while the previous cases required the dominant undertakings to become monopoly in the derivative market, Microsoft accepted a super dominance and allowed a marginal presence of other competitors.

However, same as the argument within the discussion of the first condition, this extension may be not necessary if the relevant markets had been more accurately defined. As pointed out earlier, the CFI should have defined a derivative market of work group OS based on the interoperability required by the Commission. It is observed that the competitors of a marginal presence in the derivative markets established by the CFI mainly referred to Linux products that were either designed for special use, or based on interoperability lower than that required by the Commission, or grew to no detriment of Microsoft’s products,114 or only served clients using previous version of Microsoft’ operating systems and other operating systems, such as Linux.115 Moreover, corresponding to the shrinking size of other competitors in general, there was a clear trend that customers started to switch to Windows products.116 Therefore, it should have been proved that no other competitors were found to produce OS based on the Commission’s requirement interoperability. It may again be argued that if a market for work group OS had been defined by taking into account the level of interoperability required by the Commission there should have been no need to extend “the elimination of all competition” to “the elimination of all effective competition”.

Thirdly, the third condition requires that an abusive to license must be able to prevent the emergence of a new product. As discussion before, this condition was first established in Case Magill where the judgment did not make it clear whether this was an additional condition or an alternative to the indispensability test. Subsequently, in Case Ladbroke, as quoted above, that condition was considered not cumulative but an alternative to the indispensability test.117 Nevertheless, in the following Case IMS the CFI seemed reluctant to accept that interpretation, though they did not reject it either. In the current case, the CFI articulated for the first time that the prevention of the emergence of a new product was not alternative but additional to the indispensability test. This is the evolution of the first controversy.

Nevertheless, Microsoft raised the second controversy in relation to refusal to license. With regard to the term “a new product” it was not generalised in Case Magill that the new product must constitute a new market, though the new product in that case indeed constituted a new market. This question was clarified in Case IMS where that court alleged that the new product

113 ibid, para.563. 114 ibid, para.580-590. 115 As a matter of fact, the problem of interoperability appeared in a particularly acute manner only after the release of Windows 2000, and not in the previous versions of Windows. Windows is a trademark used by Microsoft for its operating systems. See, Case T-201/04, para.429, note 99. 116 ibid, para.579. 117 Supra, note 89.

must be a new market; and furthermore that new variations of the same service on the same market as the dominant undertaking cannot be considered as “a new product”.118 Applying that interpretation to Microsoft, it is conceivable that it would be unlikely for Microsoft’s competitors to generate a new market based on the information of interoperability, and they would probably compete still on the same market for OS for work group servers. Consequently, the third condition should have been not met based on Case IMS. However, the Microsoft court disagreed with that interpretation, and held that

“[t]he circumstance relating to the appearance of a new product, as envisaged in Magill and IMS Health […] cannot be the only parameter which determines whether a refusal to license an intellectual property right is capable of causing prejudice to consumers within the meaning of Article 82(b) EC (now Article 102). As that provision states, such prejudice may arise where there is a limitation not only of production or markets, but also of technical development.”119

Thus, Microsoft extended the concept of “new products/markets” to “new technical development”, though this court did not go further to define “technical development”. Based on the new extension, the CFI concluded that Microsoft’s refusal to disclose information about interoperability could indeed limit technical development from other competitors from two aspects: (i) according to a survey non-Microsoft work group OS were better with regard to a series features such as reliability/availability and security;120 and (ii) other operators would differentiate their products from Microsoft’s products after being able to use the information of interoperability.121 Hence the third condition was met.

The last condition requires the infringer to provide justification. According to the past experience, the room for manoeuvre by the infringer is limited once other conditions have been fulfilled. In particular, given the characteristics of IP rights, lack of capacity, probably the most powerful weapon for the infringers in other sectors, loses its grounds here. Microsoft would like to justify its refusal by reference to the exclusivity of its IP rights and the great value behind the license.122 However, the Court did not accept it since the previous three conditions already represented a good balance against the essence of IP rights.123

6.6 Reflection

To sum up, the approach to dealing with cases of refusal to license in general resembles that for the fourth group of cases. It includes all the three conditions established in the previous group: (i) indispensability, (2) elimination of competition, and (3) objective justifications. Nonetheless, difference still exists. Possibly in order to protect IP rights, there is one more condition is included in the current group of case: prevention of the emergence of a new product. Furthermore, as having been implied, three controversies exist in the judgements related to refusal to license IP rights.

(i) The first controversy concerns the function of the inserted condition, in particular whether it is additional or alternative to the indispensability test. The answer was ambiguous when that condition was first established in Case Magill. It was then

118 T-184/01, para.101, supra note 91. 119 See, Case T-201/04, para.647, note 99 120 ibid, para.652. 121 ibid, para.658. 122 ibid, para.691-692. 123 ibid, para.693-695.

clarified in Case Ladbroke as an alternative to substitute the indispensability test. Nevertheless, this interpretation was questioned, though not rejected, by Case IMS. Finally, the more recent Microsoft maintained that the four conditions were cumulative.

(ii) The second controversy, also related to the inserted condition, involves the question whether the prevented new product must necessarily constitute a new market. Before Microsoft, all the other three cases (Magill, Ladbroke and IMS) implied that that new product must constitute a new product. In particular, IMS held that new variations of the same service on the same market as the dominant undertaking cannot be considered as “a new product”. However, Microsoft broke that limit by alleging that it was sufficient to prevent technical development. Moreover, no definition of technical development was provided.

(iii)The third controversy is related to the condition of eliminating competition from the requested undertaking. In all the previous cases, it has been observed that the refusals could indeed disallow the requested undertaking to even enter the derivative markets. Hence that condition was established as eliminating all the competition from the requested undertaking. However, Microsoft stressed that there was no need of eliminating all competition, but all effective competition. Consequently, it allowed marginal existence from the requested undertakings.

Although it usually prevails that later decisions are controlling, such amount of deviations in Microsoft from previous cases may cast doubt on its authenticity as a new precedent. Furthermore, there is a factual difference between Microsoft and other case. In other cases all the requested undertakings always reserved their IP rights for own use whereas Microsoft may be seen as a case of discontinuing granting a license. As a matter of fact, in most time of 1990s Microsoft actually granted a license relating to the disclosure of portions of the Windows (versions before Windows 2000) source code to AT&T that developed a product capable of enabling interpretability with Windows. AT&T then licensed its product to eleven companies, including Sun. At the end of 1998, Microsoft decided not to license its new OS, Windows 2000, technologies to AT&T. It was found by the Commission that precisely with the release of Windows 2000 interoperability problems arose in a particularly acute manner for Microsoft’s competitors.124 In this regard, Microsoft concerned a case where the refusal to deal would substantially affect a long-standing market structure (in the CFI’s words competitors would be driven to a marginal presence) while in other cases the refused undertakings did not actually enter the existing market structure. Therefore, it may be argued that Microsoft is a new interpretation of the analytical framework for cases of refusing to grant a license that has always been reserved for own use, but as a first precedent for cases of refusing to continue granting a license.

7. Conclusions: a proposed framework for the analyse of abusive refusal to deal

The whole article discussed 21 cases of refusal to deal. Those cases are initially divided into five groups, which are in turn: (1) refusal to supply a non-competitor client while serving others, (2) refusal to supply a competitor while serving others, (3) refusal to continue supply all third parties, (4) refusal to supply a product/service that is always reserved for own use, and (5) refusal to grant a license related to IP rights. Based on the previous discussion, this part aims to provide an analytical framework to deal with all cases of refusal to deal.

124 Ibid, para.429. See also, Case COMP/C-3/37.792 Microsoft, para.211-215, supra note 99.

7.1 Synthesis

Before concluding an analytical framework for all cases of refusal to deal, it is first to synthesise the conclusions reached in examining each group of cases.

First of all, one common feature is shared by all cases of refusal to deal: (i) there are always two markets involved in the dispute, though the relationship between the two markets vary depending on particular groups. This common feature may be less visible with regard to the first group where the requested undertaking and the refused undertaking have simply relationship of seller and client. However, the hidden market is the retail market where the refused undertaking operates. As showed in the all three cases in the first group, the requested undertaking was all wholesalers while the refused undertakings were all retailers. Although the behaviour of refusal to deal took place on the wholesale market, its effect spilled over on the retail market to the extent to which the refused undertakings could not provide products/services on the retail market as before. The two-market feature is clearer in other groups of cases. In the second group of cases, refusal to deal on the first market was always caused the competition on a second market. With regard to the third group of cases, the disruption of supply in this first market was used a strategy to enter the second market. In respect of the fourth and fifth groups, it must be first established that the second product/market is dependant on the first product/market.

Secondly, it has been found that the analytical framework for the first and the second group of cases are similar. They are dealt with under the non-discrimination provision of Article 102. Moreover, both groups suggest no difference between non-competing clients and competitors. The approach to solving this type of cases comprises three conditions:

(i) there are other equivalent clients that are served or supplied by the requested undertaking, which indicates a prima facie case of discrimination;

(ii) the refusal to deal causes substantial damage to the refused undertaking. There is no requirement of elimination of all competition from the refused undertaking, and substitutes with the dominant undertaking’ supply are allowed to exist on the relevant market, which represent the two main differences from other groups of cases; and

(iii) there are no objective justifications for the refusal from the requested undertaking. General justifications, such as capacity limitation or technical limitation, may be accepted. Attention should be paid to a special justification established by the ECJ that refusal to supply an occasional customer may be justified in order to guarantee the supply of long-standing customers in case of shortage of supply.

Thirdly, the methods to analyse whether a refusal to deal is abusive in the third and the fourth group of cases do not present too much variance either. They both require the fulfilment of three conditions:

(i) the primary product/service (the requested product/service) must be indispensible to the derivative, or secondary, product/service;

(ii) the refusal to supply the primary product/service is likely to eliminate all competition from the refused undertaking on the market for the derivative product/service; and

(iii) the refusal to deal cannot be objectively justified.

With regard to the application of the three conditions, attention should be paid to three implications. First, although the European authorities have constantly announced the separation between the first and the second condition, it is not observed that the evaluation on the first condition is substantially different from the second. The analyses of the two conditions are usually related to the extent to which that the primary product/service is indispensible to the derivative product/service so that without the primary product/service the refused undertaking cannot supply the derivative product/service. Subsequently, the standard of proof to prove the three conditions remains rather high. The indispensability test requires no other substitutes on the primary market. Furthermore, other products/services must be considered as substitutes, even if they place the refused undertaking at a less advantageous position. Successful examples were only found with raw material vs. finished products in Case Commercial Solvents, TV advertising minutes vs. telemarketing in Case Telemarketing, Spare parts vs. maintenance and repair services in Case Lipton/Hugin, airport facilities vs. ground-handling in Case FAG, and railway faculties vs. international passenger service in Case GVG/FS. Moreover, when the first two conditions have been fulfilled, it is difficult for the requested undertaking to provide objective justifications. As a matter of fact no undertaking has ever succeeded in justifying itself until now.

Although no difference was discovered between the third and the fourth group with regard to the analysis of whether the refusal to deal was abusive, there might be a difference in defining the requested product/service as a separate market. In the third group of cases where the requested undertaking suddenly disrupts the supply to third parties, the existence of the primary product/service and the derivative product/service is rather clear as both markets have been existed for a while. Nevertheless, in the fourth group of cases the requested undertaking has never provided the primary product to any third parties. This may increase the difficulty, in comparison with the third group of cases, to prove that the requested product/service can in fact constitute a separate market. This has been proved as a clear obstacle for the refused undertaking in Case Info-Lab/Ricoh. In that case, Info-Lad could not prove that the requested product, i.e. empty toner cartridges for Ricoh’s products, could be a separate market; thus the requested product was included into the market for the consumables for Ricoh’s products. The unfavourable effect appeared in the stage of analysing dominance that the broader definition resulted into no dominance of Ricoh on the primary market, hence no abusive refusal. Nevertheless, in some cases this difference may cause less problem as both a narrower and a broader market definition cannot affect market position of requested undertakings, for example, in case FAG and GVG/FS.

Lastly, cases of refusing to grant IP license were handled differently from the third and fourth groups. Instead of requiring the fulfilment of three conditions, the approach for cases of refusal to licence comprises four conditions by inserting one new condition:

(i) that the requested license must be indispensible to the derivative, or secondary, product/service;

(ii) the refusal to license the primary product/service is likely to eliminate competition from the refused undertaking on the market for the derivative product/service;

(iii) the refusal risk of preventing the emergence of a new product; and

(iv) the refusal to deal cannot be objectively justified.

However, different from previous groups of cases where consensus can be frequently observed, this group of cases delivers three controversies. A borderline can be made by Case Microsoft. Before Microsoft consistency largely existed. The first two conditions were evaluated in the same way as their counterparts within the third and the fourth group of cases. In principle there was no way for the refused undertaking to operate on the derivative market without obtaining the request product/service. With regard to the new condition, preventing the emergence of a new product, an agreement was also reached that that new product must be able to constitute a new market. Nevertheless, there was still a controversy between Case Ladbroke and Case IMS with regard to the function of the new condition whether it was additional or alternative to the indispensability test, though it was replied in Microsoft that the new condition is additional to the indispensability test. Furthermore, Microsoft created two other new controversies for its lowering down the standard of proof of some conditions. With regard to the indispensability test and elimination of competition, it alleged that there was no requirement of eliminating all competition and a marginal presence of other competitors was allowed. Concerning the new condition, it insisted that the “new product” may also include products with new technical development.

7.2 A proposed analytical framework

Based on the above synthesis, cases of refusal to deal may be examined based on the following steps. When receiving a complaint of refusal to deal, competition authorities should investigate whether the requested product/service is provided to other equivalent third parties at the same time. Based on different answers to this question, refusal to deal can be dealt with under the following three situations.

First, if affirmative, the applicable conditions are then two: (i) the refusal to deal cause substantial damage to the refused undertaking; and (ii) there are no justifications for the refusal from the requested undertaking.

Second, if negative, then the applicable conditions are thus three: (i) the primary product/service (the requested product/service) must be indispensible to the derivative, or secondary, product/service; (ii) the refusal to supply the primary product/service is likely to eliminate all competition from the refused undertaking on the market for the derivative product/service; and (iii) the refusal to deal cannot be objectively justified. It should be noted that when the requested product has always been reserved for own use, competition authorities should carefully examine whether the requested product/service can constitute a separate market. This may possibly affect the result of dominance of the refused undertaking.

Third, if negative and IP rights are involved, a different approach will apply, which contains four conditions (i) that the requested license must be indispensible to the derivative, or secondary, product/service; (ii) the refusal to license the primary product/service is likely to eliminate competition from the refused undertaking on the market for the derivative product/service; (iii) the refusal to license prevents the emergence of a new product, and (iii) the refusal to deal cannot be objectively justified. However, it should be kept into mind that three controversies exist with regard to the application of the first three conditions.