Clifford Chance

In its January 2023 Unilever Italia judgment, the European Court of Justice ("ECJ") ruled on two important practical aspects of the application of the EU prohibition on abuse of dominance under Article 102 TFEU.

Background

In December 2020, the Italian Consiglio di Stato made a request for a preliminary ruling to the ECJ seeking clarification on two points: (i) the criteria for when contractual relationships between formally autonomous and independent economic operators result in the creation of a single economic entity – specifically in the context of producer/distributor relationships; and (ii) to what extent economic evidence provided by the undertaking in a dominant position must be considered by a competition authority in demonstrating that exclusivity clauses can have anticompetitive effects.

The request was made after an antitrust decision by the Italian competition authority Autorità Garante della Concorrenza e del Mercato ("AGCM") against Unilever. The AGCM found that Unilever had abused its dominant position by employing exclusivity clauses as well as conditional rebates and payments to virtually all sales outlets that sold its ice-creams in Italy. Unilever implemented and enforced these clauses to a large extent indirectly through its network of distributors, with whom Unilever had no corporate ties.

According to the AGCM, the exclusivity clauses made it difficult for competitors to display their products at sale outlets and, therefore, limited their ability to compete on the merits. The AGCM also found that it was irrelevant that the exclusivity clauses were imposed 'indirectly' by Unilever, as Unilever constituted a single economic unit with its distributors and should, therefore, be liable for their conduct. Although Unilever presented economic analyses on the basis of the 'as efficient competitor test' ("AEC Test") to demonstrate that the clauses at issue were not capable of having an exclusionary effect, the AGCM found that it did not have to consider such evidence. It argued that the exclusivity clauses as such were sufficient to establish an abuse of dominance under Art 102 TFEU. After Unilever had unsuccessfully appealed the decision, the case reached the Consiglio di Stato which referred the two questions to the ECJ for a preliminary ruling (Unilever Italia Mkt. Operations, Case C-680/20, 19 January 2023).

The ECJ's preliminary ruling

Regarding the first question the ECJ stated that abusive behaviour of third parties can under certain circumstances be imputed to a dominant undertaking even if those third parties do not have any corporate links with the former. In particular, this is the case where dominant producers employ unilaterally an anti-competitive strategy through their distributors. In such circumstances, the dominant producer can be found solely liable for the conduct of its distributors.

As regards the second question, the ECJ reiterated that in the past Court practice exclusivity clauses and loyalty rebates were seen by their very nature as an exploitation of a dominant position. However, on the back of its landmark Intel judgement, the ECJ clarified that, while "exclusivity clauses give rise to legitimate concerns of competition, their ability to exclude competitors is not automatic". In particular, where a dominant undertaking puts forward evidence to support its claim that its exclusivity clauses were not capable of restricting competition, the authority in question must, inter alia, consider that evidence, including where such evidence is based on an AEC Test. As such, the ECJ expanded its reasoning from the Intel judgement on rebates to exclusivity clauses.

What next…

As regards the imputation of liability, the ruling should not be understood as a presumption for an automatic imputation of third parties' behaviour to dominant undertakings. Instead, a case-by-case analysis is required to establish to what extent third parties did not act independently and merely implemented the commercial policy of dominant undertakings.

However, even if dominant undertakings succeed in providing sufficient evidence which excludes their liability under Art 102 TFEU, market dominant undertakings and distributors may still be found liable under the prohibition on anticompetitive agreements contained in Art 101(1) TFEU. In fact, the ECJ noted obiter dicta that in principle, where there is tacit agreement between undertakings to implement an anti-competitive strategy, this should, in principle, be caught by Art 101(1) TFEU.

Regarding the exclusivity clauses, it remains to be seen which impact this ruling will have on the practice of competition authorities in the EU for their investigations under Art 102 TFEU. While it generally provides dominant undertakings with more room for manoeuvre to prove that any exclusivity clauses that they have entered in to do not have exclusionary effects, it remains the case that it will often be difficult to do so, particularly if the financial consequences of a breach of the exclusivity clauses are hard to predict or quantify. Consequently, dominant companies should continue to treat exclusivity clauses that require buyers not to purchase or distribute rivals' products as a significant compliance risk in the EU.