The AG Opinion in DT & ST v Commission - A Differing View on the Legal Test for Abusive Margin Squeeze

I share below a quick analysis of the Opinion of Advocate General ("AG") Saugmandsgaardoe in Deutsche Telekom and Slovak Telekom (DT & ST) v Commission (C-152 and 165/19 P). This is an extended version of a Twitter thread that was quite substantially liked last week, so I thought it would make sense to share on LinkedIn too.

The legal issue at the heart of the case giving rise to the Opinion is the following: can a firm without an indispensable infrastructure nonetheless abuse a dominant position by way of margin squeeze? To this normative question, the AG answers positively. I beg to differ. To be clear, my disagreement is with the AG’s reasoning. It is not about the outcome in this case or others.  

So here’s the issue. Under the Bronner case law, an antitrust duty to deal arises when a dominant firm controls an indispensable input. The indispensability requirement is quite demanding on complainants. It sets a high bar. Should we apply the demanding Bronner indispensability filter in all margin squeeze cases? Yes? No? 

In their ongoing appeal, defendants DT & ST found guilty of unlawful margin squeeze a century ago by the European Commission say Yes. A margin squeeze is an “implicit” refusal to deal. Upshot? The Commission must also establish indispensability, as in an explicit refusal to deal case.

But the AG Opinion says no. To that end, the Opinion draws a line between two categories of conduct. On one hand, there are “refusals to make available”. On the other, there are abusive “terms” of an agreement. Different tests apply. The Bronner test only applies only to the first category. A margin squeeze is in the second category. 

The Opinion is not in innovation mode here. The case law in TeliaSonera had already presented margin squeeze as a “pricing practice”, falling under Article 102 a)TFEU, that is "terms". But the Opinion is in logical contradiction mode. By way of illustration, and to paraphrase the AG’s own words, does contractual tying – A cannot be purchased without B – not constitute both unfair terms (under article 102 d) TFEU) and a refusal to make available product A alone? 

The problem is the following: the Opinion does not subject the distinction between “terms” and “refusals to make available” to the same stress test of consistency than the one to which it subjects the defendants’ distinction between “implicit” and “explicit” refusal to deal. Yet, the Opinion concludes that the defendant's distinction is “spurious”. This is not convincing reasoning. There should be no double standards in the legal methodology deployed to interpret Treaty law and case-law.

Bottom line? The more convincing - because more logical - answer, to the initial question, is yes. As I wrote in the past if a dominant firm can lawfully exclude rivals by refusing to deal, how can it be guilty of abuse when it accepts to deal with them?  Or put differently, if a dominant firm has a choice between lawful and unlawful exclusion, it will go for the first one. 

In addition to this, there is also cause for discussion about the antitrust norms that underpin the Opinion. The AG considers that the effectiveness of competition is key. So far so good. But then, the AG says an extension of the Bronner indispensability condition “entails a reduction of the effectiveness of Article 102 TFEU”. With much respect for the AG's analysis, I beg to differ again. Having a clear, consistent, and logical test in the case-law upon does contributes effectiveness by focusing the discussion on issues of evidence. Having an additional test that covers conduct that falls within the amorphous category of “terms” is a recipe for endless preliminary discussions about the legal standard, cluttering enforcement initiatives from the outset. Besides, as I have said elsewhere again, indispensability is high, but not so high.

To close, one last remark. An attentive reader might sense some implicit priors in the Opinion, and in particular in para 64 that states:

"It follows logically that any extension of the scope of the Bronner case-law entails a reduction in the effectiveness of Article 102 TFEU and, at the same time, a weakening of the Commission’s power to combat abusive practices. In practice, the Commission will be required to adduce significantly stronger evidence to establish the existence of abusive practices. Correlatively, undertakings in a dominant position will enjoy an increased margin for manoeuvre, inasmuch as their conduct will henceforth be punishable only if all of the conditions laid down in Bronner are satisfied".

A more neutral formulation would have been “a weakening of the commission’s power to combat practices”, not “abusive practices”. The paragraph's use of "abusive" gives the unfortunate impression that the Opinion has predetermined that the “terms” set by a dominant firm are abusive. This is not, and cannot be, the law.