On December 19, the European Commission (“Commission”) published a Staff Discussion Paper on the application of Article 82 of EC Treaty. Article 82 of the EC Treaty prohibits the abuse of a dominant position, and is the EU’s equivalent of Section 2 of the Sherman Act. The Paper is designed to promote a debate as to how European consumers are best protected from dominant companies’ exclusionary conduct which risks weakening competition on the EU markets. The proposals are not meant to represent a potential radical change in policy. The Commission “simply wants to develop, and explain its theories of competitive harm on the basis of sound economic assessment for the most frequent types of abusive behavior to make it easier to understand its policy.”

The Paper provides a framework for the rigorous enforcement of Article 82, building on the economic analysis carried out in recent Commission cases, and sets out a possible methodology for the assessment of some of the most common anticompetitive practices, such as tying, rebates, and discounts. The Commission had drawn a line between exclusionary abuses which exclude competitors from the market, and exploitative abuses, where the dominant company exploits its market power by, for example, excessive prices. It has stated that exploitative anticompetitive behavior such as discriminatory and exploitative conduct will be separately reviewed later this year.

European Competition Commissioner, Ms. Neelie Kroes, said, “I will rigorously enforce the Treaty’s prohibition on abusive conduct. Dominant companies should be allowed to compete effectively. Putting this policy objective into a consistent legal and economic framework is an ambitious project, but it is worthwhile for the clarity it will give to companies and their advisers. Our fundamental aim is to ensure that the EU’s powers to intervene against monopoly abuses are applied consistently and effectively, not only by the Commission but also by national competition agencies and courts throughout the EU which also now apply EU competition law. This discussion paper is the first step, and I want a wide discussion before taking a firm view on the proposals in the paper and before deciding how best to apply the results of these discussions.”

The Paper sets out a general framework for analyzing abusive exclusionary conduct by a dominant company. The Discussion Paper proposes an approach focusing on “economic effects” which aims to distinguish “those kinds of behavior that are likely to harm competition, and thereby consumers, and the circumstances in which such harm is likely to occur.” It assumes that where a dominant company is present on a market, competition on that market is already weak. The Commission believes that the competition rules should be used to prevent conduct by that dominant company which risks weakening competition still further, and harming consumers, whether that harm is likely to occur in the short, medium or long term.

For price based conduct, such as rebates, the Paper sets out arguments as to whether only that conduct which would risk the exclusion of equally efficient competitors should be considered as abusive. The Paper also considers whether efficiencies should be taken into account under Article 82, and, if so, how. If efficiencies are taken into account, they must outweigh the restrictive effect of the conduct in question.

Over the past year or so, the Commission has concentrated its resources on investigating only the most serious antitrust abuses in the European Union. As a result it has recently increased its enforcement activities against cartels. In a similar way, the proposals made in the Discussion Paper on Article 82 imply that the Commission will strongly crack down on those abuses of dominant positions which are most likely to harm European consumers.

The Commission is consulting widely on the discussion paper. It has already discussed the Paper with representatives of the EU Member States, and is now opening the consultation to the public. As part of this consultation process, the Commission is expected to hold a public hearing in Spring 2006 on abuse of dominance, and, in particular, the suggested framework set out in the Discussion Paper. Interested parties have been invited to submit their comments on the Discussion Paper before March 31.