ECJ provides further guidance on when the use of customer data by a former legal monopolist is abusive

On 12 May 2022, the European Court of Justice (the Court) issued its ruling in Servizio Elettrico Nazionale and Others (C-377/20), in response to a preliminary reference by the Italian Council of State in a dispute between the ENEL Group (ENEL) and the Italian competition authority (the AGCM).

The ruling provides guidance for establishing an abuse of dominance (within the meaning of Article 102 TFEU) by former legal monopolies operating in partially liberalised markets, in particular as regards their use of customer databases.

The Court also engaged in a broader analysis of exclusionary practices, including in respect of whether a dominant undertaking has competed "on the merits" where the exclusionary conduct in question does not relate to pricing.

Background

The dispute relates to the conduct of ENEL, a former legal monopolist in the production of electricity in Italy, in the context of the liberalisation of the Italian electricity market. The AGCM found that ENEL’s subsidiary on the protected market (Servizio Elettrico Nazionale (SEN)) obtained the consent of its customers in the protected market to receive commercial offers relating to the liberalised market in a discriminatory manner, in that SEN requested such consent 'separately' for: (i) its subsidiary on the liberalised market (Enel Energia (EE)) and (ii) third parties.

The AGCM concluded that ENEL, SEN and EE thereby abused their dominance by limiting the number of consents given by customers in the protected market to receive commercial offers from competing operators. It imposed a fine of approx. €93m on a joint and several basis.

Is it necessary to prove an impact on consumer welfare?

The Italian Council of State asks the Court for guidance on the much-debated question as to whether, in order to establish an abuse of dominance under Article 102 TFEU, it is necessary for a competition authority to prove that the practice of a dominant undertaking is likely to have an impact on consumer welfare (para. 40).

The Court confirms that this is not the case, i.e. it is not necessary to demonstrate that the practice in question has the capacity to cause direct harm to consumers. Instead, it is sufficient for a competition authority to prove that the practice is likely to harm the structure of effective competition on the relevant market (para. 47).

However, the Court nevertheless acknowledged that the welfare of consumers, both intermediate and final, must be regarded as constituting the ultimate objective justifying the intervention of competition law to prevent abuse of a dominant position (paras. 46-48). The Court appears to consider that consumer welfare is "incorporated" into the abuse of dominance framework, on the basis that a dominant undertaking can rebut a finding of such an abuse by demonstrating that the exclusionary effect which may result from the practice in question is counterbalanced, or even exceeded, by positive effects for consumers, in particular in terms of price, choice, quality or innovation.

When has a dominant undertaking departed from "competition on the merits"?

The Court noted that the conduct of a dominant undertaking will be "abusive" (i) where it is capable of producing exclusionary effects and (ii) when engaging in such conduct results in a departure from competition on the merits (i.e. where it arises from the use of means or resources different from those which govern "normal" competition) (paras. 73-75).

Therefore, the Court reiterates that conduct which has an exclusionary effect will not, in itself, be sufficient to lead to a breach of Article 102 TFEU – as the Court previously held in Intel (C‑413/14 P), "not every exclusionary effect is necessarily detrimental to competition. Competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation."

It follows that to establish an abuse of dominance, there must also be a departure from competition on the merits (paras. 73-75). As a starting point, the Court noted that any practice in respect of which a dominant undertaking has no economic interest other than that of eliminating its competitors must be regarded as departing from competition on the merits. In this case, the Court accepted that the possibility of contacting customers in the protected market was of definite economic interest to any undertaking (such as the ENEL group) wishing to operate on the liberalised market (para. 94).

However, the Court found that there will also be a departure from "normal" competition where a dominant undertaking engages in conduct which is unlikely to be adopted by a hypothetical competitor that, although as efficient, does not have a dominant position on the relevant market, since that practice is based on the exploitation of resources or means specific to the possession of such a position (para. 78).

Further, the Court confirms that the inability of a competitor to replicate the practice in question is relevant to both pricing and non-pricing cases (paras. 79-86):

• Pricing cases: cases relating to pricing (e.g. loyalty discounts, anti-competitive low pricing practices) are generally assessed using the "as efficient competitor" (AEC) test, which aims to assess the ability of such a competitor to replicate the conduct of the dominant undertaking. While the Court acknowledged that this test is only one of the ways of establishing that a dominant undertaking has used means other than those relating to “normal” competition, it notes that the importance generally accorded to the AEC test where it is feasible indicates that the ability of a hypothetical AEC to replicate the conduct in question constitutes one of the criteria for making such a determination.
• Non-pricing cases: as regards non-pricing practices such as refusals to supply goods or services, the choice of a dominant undertaking to reserve its own distribution network for itself does not constitute an abusive refusal to supply where it is possible for a competitor to create a similar network for the distribution of its own products (i.e. to replicate the conduct).

While the Court noted that it is for the Italian referring court to assess whether the AGCM had established that the strategy implemented by ENEL was capable of harming competition in this case, it provided guidance in this regard (paras. 87-102):

• The conduct in question does not constitute a refusal by SEN to allow competitors of EE access to an essential facility, namely the contact data of customers in the protected market. Instead, the AGCM contested SEN's decision to transfer customer data to EE in a manner which discriminates against competitors of the latter on the liberalised market, even though SEN was dominant in the protected market.
• The submissions that the Court received did not clearly explain the exact nature of the discriminatory treatment identified by the AGCM, i.e. how exactly SEN sought the consent of its customers in the protected market to receive commercial offers from companies in the ENEL group and from third parties "separately". However, the Court emphasised that the burden of proof of the capacity of SEN's conduct to produce actual or potential foreclosure effects lies with the AGCM. In order to satisfy that burden, the AGCM had to establish in the contested decision, on the basis of evidence such as behavioural studies, that the procedure used by SEN to obtain the consent of its customers did in fact favour the customer lists intended to be transferred to EE.
• In such a case, the transfer by SEN to EE of a resource capable of conferring a comparative advantage on the liberalised market would naturally be unavailable to a hypothetical AEC, given that, owing to the position occupied by SEN on the protected market following the abolition of the legal monopoly formerly held by ENEL, no competing undertaking could have had a structure capable of supplying the contact data of customers on the protected market in such large numbers.
• Therefore, if it were to be established that SEN sought its customers' consent to receive offers respectively, from companies in the ENEL group and from its competitors, in a discriminatory manner, that alone would be sufficient to establish that the conduct was liable to impair effective and undistorted competition.

What is the evidentiary value of the actual effects of the conduct and the intention of the dominant undertaking?

The Court confirmed that while it is not necessary for a competition authority to show that the practice in question produced actual anticompetitive effects or that the dominant undertaking had an anticompetitive intention, it clarified that these elements may nevertheless be taken into account as evidence:

Actual effects of the conduct:

• For an exclusionary practice to be deemed abusive, it is sufficient for a competition authority to demonstrate that the practice is capable of restricting competition, as Article 102 TFEU aims to penalise undertakings for abusively exploiting a dominant position, regardless of whether such exploitation proved successful or not (para. 53).
• As such, in order to establish a breach of Article 102 TFEU, it is not necessary to demonstrate actual anti-competitive effects (para. 55). Therefore, the Court held that the fact that EE obtained, by using the customer data provided by SEN, barely 478 customers, or 0.002 per cent of customers in the protected market, cannot be considered as being, in itself, sufficient to demonstrate that the practice in question did not have the capacity to produce a foreclosure effect (para. 57).
• Nevertheless, the Court confirmed that a competition authority must examine all evidence provided by the dominant undertaking to support the argument that its behaviour did not have the capacity to restrict competition (i.e. including ex post evidence that no actual anti-competitive effects occurred) (paras. 56-57). This obligation stems from the undertaking’s right to be heard. However, the undertaking will also need to supplement such evidence with additional elements establishing that the absence of actual effects is the consequence of the inability of the conduct in question to produce effects, and not due to other factors (e.g. such as changes that have occurred on the relevant market since that conduct began or to the inability of the undertaking in a dominant position to carry out the strategy in question) (paras. 56-57).

Intention of the dominant undertaking:

• While a competition authority is not required to establish the existence of an anti-competitive intention on the part of the dominant undertaking, proof of such an intention can nevertheless be taken into account for the purposes of determining an abuse of dominant position (paras. 62-63). As a practice point, the case law in this regard highlights the need for dominant undertakings to exercise caution when drafting and circulating internal strategy documents.

Conclusion

The ruling in ENEL provides greater clarity on the treatment of incumbents in regulated industries, with the Court stressing the importance of ensuring that all entities in a liberalised market operate on an equal footing. Therefore, when an undertaking loses the legal monopoly that it previously held on a protected market, it cannot utilise resources obtained through its former monopoly (including customer data) to preserve its position post-liberalisation (para. 92).

As regards whether this case applies more broadly to abuse of dominance cases not involving a prior legal monopolist, it remains to be seen how the Commission and EU Courts will interpret this case going forward. For now, it appears that the Court ultimately confined its ruling to the particular circumstances of the case, i.e. "where an undertaking loses the legal monopoly which it previously held on a market" (paras. 91-92).

While the Court appears to identify a "common thread" in the abuse of dominance case law based on whether an AEC could replicate the conduct of the dominant undertaking, certain commentators have argued that the Court does not intend to substitute the distinct legal analysis required for each category of abuse with an overarching test solely based on this consideration.

As mentioned above, the Court is careful to note that the AEC test is only one of the ways of establishing that a dominant undertaking has used means other than those relating to "normal" competition. Further, by way of example, the Court appears to endorse the Bronner (Case C-7/97) case, which provides for a higher standard than "replicability" to establish a refusal to deal (i.e. a refusal to deal may only be established where the input was indispensable for a competitor to carry out a service because there were no actual or potential substitutes to the input – therefore the standard is whether the input is indispensable to a competitor rather than whether they are able to replicate the exact same input). On that basis, it appears to remain open to the Court in future cases to find that if a dominant undertaking which was not a prior legal monopoly refused to grant access to its customer data, the Bronner standard would apply (noting of course that in the digital sector, Article 6 of the final text of the DMA provides for certain data-sharing obligations that will be imposed on undertakings which fall within the definition of "gatekeeper").

Further, following the Court’s more general analysis, this case was arguably decided on the basis that no competitor, (i.e. "as efficient" as ENEL or not) could "replicate" ENEL's practice because, due to the legal monopoly of the ENEL group, by definition, other competitors could not have access to as much data on customers in the protected market (para. 101). This is not only very case specific, but also places the case squarely in the line of case-law on abuse through leveraging exclusive/special rights, including DCI (Case C-553/12P) (cited at para. 91) and Slovak Telekom (C-165/19 P).

As a result, the importance which the Court attaches to the fact that ENEL used "resources" (i.e. data) which no other competitor had access to is potentially not determinative for other data related abuse cases, as the "resources" involved are so clearly linked to ENEL's former exclusive rights. In future cases, the Commission and EU Courts will no doubt keep in mind the important distinction between data obtained via a legal monopoly versus that obtained as a result of the dominant undertaking’s investment and innovation.

For businesses considering the impact of this ruling, please get in touch with one of the authors or our wider team and we will be happy to discuss this with you.