News Update Competition
Enel - The Curious Case of Non-Replicable Conduct by Former State Monopolies
24 May 2022
On 12 May 2022, the European Court of Justice ("ECJ") answered questions from the Consiglio di Stato (the highest Italian administrative court) in a preliminary reference procedure concerning abuse of dominance by the Italian energy supplier Enel.The preliminary reference is part of the appeal procedure against the Italian Competition Authority ("ICA") imposed fine of EUR 93 million in 2018. After a partially successful appeal which reduced the fine to EUR 27.5 million, Enel brought the case before the Consiglio di Stato. Subsequently, the Consiglio di Stato submitted five preliminary questions to the ECJ, which have now been answered. In this News Update we discuss the main takeaways.
FactsIn Italy, in certain earlier non-liberalised markets, Enel held an energy distribution concession and an exclusive position as the entrusted retail supplier of energy under the regulated regime for domestic clients and small businesses (through its subsidiary Servizio Elettrico Nazionale, or "SEN"). Enel is also active as an energy supplier in the free market (through its subsidiary Enel Energia, or "EE"). With the liberalisation of the retail energy market, SEN's privileged position was about to end. Enel shared SEN's information with EE to retain SEN customers. According to the ICA, Enel's sharing of information was positively discriminating its own subsidiary against competitors, allowing it to exclude competitors from the customers that SEN previously exclusively served.
The ECJ – three key takeaways
- Goals of competition law. The ECJ first answers the fundamental question whether it is sufficient to prove that certain conduct is capable of impairing the competitive structure of the market or additionally, consumer welfare. The ECJ reiterates that protecting consumer welfare (i.e. welfare of direct consumers and end consumers) is the ultimate objective of competition law. However, to establish an infringement of Article 102 TFEU, it is sufficient for a competition authority to focus on adverse effects on the structure of the market as this already has consequences for consumer welfare. In turn, the defendant can claim the inapplicability of Article 102 TFEU to its exclusionary conduct if it is able to prove efficiencies compensating or neutralising harmful effects for consumers.
- Capability is key. To establish an infringement of Article 102 TFEU, it is sufficient to prove that the conduct in question was capable of having anti-competitive effects; it is irrelevant whether the effects materialised in practice. This is also key for the defendant – the ECJ rules that substantiating that the claimed effects have not materialised is insufficient as the lack of effects may have been caused by other factors. Defendants must also prove that the actual conduct in question was incapable of having the claimed effects. Similarly, the ECJ reconfirmed that the competition authority may consider if the conduct was intended as a restriction of competition, but it is not obligated to do so.
- Former state monopoly privileges are not replicable. The ECJ reiterates that while Article 102 TFEU does not aim to (a) prevent the acquisition of a dominant position on its own merits or (b) protect less efficient competitors, dominant undertakings have a special responsibility to not impair genuine, undistorted competition. Thus, otherwise lawful conduct may be infringing Article 102 TFEU if (i) it was capable of producing the exclusionary effects and (ii) the conduct was not competition on the merits. Regarding the second point, the ECJ states that exclusionary practices that cannot be replicated by competitors (whether or not as efficient), particularly those stemming from a former state monopoly in a liberalised market, are not competition on the merits. Transferring customer data from the former monopoly business to EE in a way that discriminates competitors cannot be replicated by competitors, and thus, is not competition on the merits.
Discussion and conclusionWhile commentators hoped that this judgment would provide general guidance on exclusionary abuse due to the preliminary questions posed, in practice, this judgment is not of additional value to the existing Bronner and TeliaSonera case law on the indispensability test or other case law such as Intel on the as-efficient competitor test.
First of all, the ECJ acknowledged that the theory of harm is using the data for discriminatory purposes. It is not the refusal to supply certain essential data. Second, it also does not hold value for the as-efficient competitor test as the judgment specifically assesses the case of a former state monopoly. No competitor – even not an as-efficient competitor – would under normal market circumstances have been able to replicate such a monopoly. For former state monopolies trying to leverage their previous legal monopoly in the liberalised market, the judgment clarifies that any conduct that is (a) not replicable for competitors and (b) capable of excluding competitors may be abuse of dominance.