Essential facility

 

Author Definition

 

Definition

An essential facility is an asset or infrastructure to which a third party needs access to offer its own product or service on a market. A facility is essential if no reasonable alternatives are available and duplication of the facility is not feasible due to legal, economic or technical obstacles. Different assets have been qualified as essential facilities: physical infrastructures like bridges or ports, intellectual property rights and sets of information. Denying access to an essential facility may amount to illegal monopolization (Section 2 of the Sherman Act) or abuse of dominance (Article 102 TFEU) by the undertaking controlling it.

 

Commentary

The essential facilities doctrine is said to have originated in the judgment of the US Supreme Court in the Terminal Railroad case (1912). The US Supreme Court imposed a duty on an association of railroad companies to give competitors access to certain railroad bridges and terminal facilities they had acquired (Terminal Railroad, paragraphs 409-411). Without this from of shared access, competitors would not have been able to offer their own railroad service beyond the Mississippi River into and out of Saint Louis. This would have harmed the interests of consumers due to the lack of choice for competing services outside of the control of the owners of the railroad bridges and terminal facilities.

The competition intervention by the Supreme Court in Terminal Railroad later became known as the ‘essential facilities doctrine’. The essential facilities doctrine attacks a form of exclusionary conduct by which an undertaking controls the conditions of access to an asset forming a ‘bottleneck’ for rivals to compete. Since its inception in US antitrust law, the essential facilities doctrine has been applied in various jurisdictions around the world to assess the legality of refusals to deal under competition law. The finding of a violation of the competition rules in an essential facilities case results into the imposition of a duty to deal as a remedy to address the competitive harm. This is a far-reaching intervention, because it interferes with the generally recognized principles of freedom to contract and freedom of property. The imposition of a duty to deal under competition law is therefore seen as an exception to the rule and requires a careful balancing exercise carrying a high burden of proof.

In its Trinko judgment (2004), the US Supreme Court took a restrictive approach towards the essential facilities doctrine by referring to Areeda’s seminal article criticizing the doctrine (Trinko, paragraph 411). In particular, the Supreme Court stated that the circumstances in which antitrust liability was found for refusals to deal in its 1985 Aspen Skiing judgment are ‘at or near the outer boundary’ of liability under Section 2 of the Sherman Act (Trinko, paragraph 409). According to the Trinko judgment, the Aspen Skiing case constitutes a limited exception to the principle of freedom to contract, which only applies in situations where a monopolist terminates a voluntary and profitable prior course of dealing (Trinko, paragraph 409). Following Trinko, liability for refusals to deal can be established under US antitrust law if two cumulative conditions are met: (1) the monopolist entered into a pre-existing voluntary course of dealing; and (2) the monopolist is willing to sacrifice short-term profits by refusing to deal in order to achieve an anticompetitive end.

The EU Courts have developed four conditions for the application of the essential facilities doctrine under Article 102 TFEU in cases such as Magill (1995), Bronner (1998), IMS Health (2005) and Microsoft (2007). Abuse of dominance only exists in exceptional circumstances, namely if a refusal to deal by a dominant undertaking: (1) relates to an indispensable asset; (2) prevents the emergence of a new product (this condition is only mentioned in cases concerning access to intellectual property-protected assets); (3) excludes effective competition on a downstream market; and (4) has no objective justification.

The standards for applying these conditions vary across cases. On the one hand, the General Court explained in its Microsoft judgment regarding the indispensability of access to Microsoft’s interoperability information that competitors needed to be able to interoperate with the Windows operating system on an equal footing (Microsoft, paragraph 421). On the other hand, the Court of Justice argued in its Bronner judgment that access to Mediaprint’s nationwide newspaper home-delivery scheme would not be indispensable where alternatives were available to Bronner for distributing its daily newspapers, such as delivery by post and sales in shops, even though these alternatives would be less advantageous (Bronner, paragraph 43). Because the essential facilities doctrine balances the interest in protecting competition with the interest in protecting the incentives of the dominant firm to invest in innovation, the applicable standards may vary depending on the particular circumstances of the case. Calls have been made to lower the standards for applying the essential facilities doctrine in data-driven markets where data is generated as a by-product of providing a service and incentives to produce such data would not be affected by duties to share data.

There is discussion in EU competition law about the role of the requirement of indispensability. In its 2017 Google Shopping decision, the European Commission did not apply the indispensability requirement to hold Google’s self-preferencing in its general search results abusive. The Commission justified this choice by qualifying the conduct of Google as active behaviour to provide its own comparison shopping service a more favourable position, instead of a passive refusal by Google to give competing comparison shopping services access to a proportion of its general search results pages (Google Shopping, paragraph 650). In addition, the Commission considered that Google would not be required to transfer an asset or enter into agreements with competing comparison shopping services to cease its abusive conduct – as is typical for essential facilities cases (Google Shopping, paragraph 651).

In its Slovak Telekom judgment (2008), the General Court stated that the indispensability of access to Slovak Telekom’s local loop did not have to be demonstrated because the case did not concern an outright refusal to deal but instead related to the conditions of access imposed by Slovak Telekom (Slovak Telekom, paragraph 128). The General Court thereby applied the reasoning of the Court of Justice in the TeliaSonera judgment (2011) regarding the legal test of price squeezes to non-price based conduct of dominant undertakings. In TeliaSonera, the Court of Justice argued that the effectiveness of Article 102 TFEU would be unduly reduced if indispensability had to be established before any conduct of a dominant undertaking in relation to its terms of trade could be regarded as abusive (TeliaSonera, paragraph 58). According to the General Court in Slovak Telekom, the reference in TeliaSonera does not solely concern price squeezes but also other business practices relating to the terms of trade of a dominant undertaking (Slovak Telekom, paragraph 126). In its Lithuanian Railways judgment (2020), the General Court similarly found that the indispensability requirement was not applicable because sector-specific regulation already imposed a duty to deal on Lithuanian Railways (a factor also considered in Slovak Telekom) (Lithuanian Railways, paragraph 91). As a result, the necessary balancing of economic incentives, which is normally conducted by applying the conditions of the essential facilities doctrine, had already been carried out by the legislator (Lithuanian Railways, paragraph 92).

 

Bibliography

Phillip Areeda, ‘Essential Facilities: An Epithet in Need of Limiting Principles’ (1989) 58 Antitrust Law Journal 841.

Inge Graef, EU Competition Law, Data Protection and Online Platforms: Data as Essential Facility (Kluwer Law International 2016).

Pablo Ibáñez Colomo, ‘Indispensability and Abuse of Dominance: From Commercial Solvents to Slovak Telekom and Google Shopping’ (2019) 10 Journal of European Competition Law & Practice 532.

OECD Competition Committee, ‘Refusals to Deal’ (DAF/COMP(2007)46, September 2009)

Richard Whish and David Bailey, Competition Law (9th ed., Oxford University Press 2018), Section 4 of Chapter 17.

Author

  • University of Tilburg - Center for Law and Economics (TILEC)

Quotation

Inge Graef, Essential facility, Global Dictionary of Competition Law, Art. N° 12256

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Institution Definition

Facility or infrastructure which is necessary for reaching customers and/or enabling competitors to carry on their business. A facility is essential if its duplication is impossible or extremely difficult due to physical, geographical, legal or economic constraints. Take for example a national electricity power grid used by various electricity producers to reach the final consumers: Since it would not be viable for these producers to build their own distribution network, they depend on access to the existing infrastructure. Denying access to an essential facility may be considered an abuse of a dominant position by the entity controlling it, in particular where it prevents competition in a downstream market. European Commission

On this topic, see the following e-Competitions special issues:

"Transport & Access to facilities: An overview of EU and national case law"

"Access to facilities in the energy sector: An overview of EU and national case law"

"Access to facilities in the telecommunication sector: An overview of EU and national case law"

See also Access to essential facility

 
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