Unilever Italia: EU Court of Justice further raises the burden of proof in abuse cases

ECJ 19 January 2023, Case C-680/20, Unilever Italia v AGCM

With the Unilever-Italia judgment of 19 January 2023, the EU Court of Justice (“ECJ” or “the Court”) creates a new chapter in relation to the application of the ‘as efficient competitor’ test (“AEC test”) as well as the attribution of abusive conduct.

In its Unilever Italia ruling, the ECJ found, for the first time, that abusive behaviour carried out by distributors can be imputed to the producer in a dominant position if the distributors are part of the distribution network of the dominant producer and the conduct implements a distribution policy that was decided unilaterally by that undertaking and with which the relevant distributors were required to comply.

Another novelty in this ruling is that the Court confirmed that exclusivity clauses can have exclusionary effects that are capable of restricting competition. The Court elaborated on what the burden of proof is for competition authorities, concluding that the use of the AEC test is not mandatory for a competition authority to establish abuse of dominance. Nevertheless, a competition authority must demonstrate with reference to tangible evidence that the conduct was actually capable of restricting competition on the basis of merit, particularly when the dominant undertaking challenges whether its behaviour is abusive.

In this article we provide a summary of the judgment and an overview of the Court’s analysis, ending with a comment.

Summary of the judgment

The judgment was delivered in response to preliminary questions from Italy's highest administrative court regarding a fine imposed by the Italian competition authority, the Autorità Garante della Concorrenza e del Mercato (“AGCM”), on Unilever Italia.

In October 2017, the AGCM fined Unilever Italia over EUR 60 million for abusing its dominant position in the Italian market for the distribution of individually packaged ice cream. The peculiarity of that decision was that the conduct, which the AGCM found to be abusive, had not been carried out by Unilever Italia itself but by its distributors. Based on exclusivity clauses, the distributors obliged their retail customers to purchase (almost) exclusively Unilever ice creams. The AGCM argued that the distributors’ conduct was imputable to Unilever.

The Italian court had two referring questions to the ECJ. First, the Italian court sought to confirm whether the actions of distributors may be imputed to the producer of the products distributed by those distributors. The second referral question concerned the AGCMs method of assessing exclusivity clauses. In particular, whether the competition authority is obliged to consider whether the clauses have the effect of excluding equally efficient competitors from the market, and whether it must thoroughly assess the economic analysis submitted by the (allegedly dominant) undertaking on that point.

Question 1 - Abuse through distributors

The ECJ answered the first question in the affirmative but took a different approach to that suggested by the referring court. Instead of further stretching the concept of an economic unit, the Court held that the conduct of distributors can be attributed to the producer who has a dominant position.

Where the conduct attributed to the dominant undertaking was actually carried out by an intermediary forming part of its distribution network, the conduct may be imputed to that undertaking if the conduct was carried out in accordance with specific instructions from the dominant undertaking. And therefore took place in the context of implementing a unilaterally established distribution policy to which the distributors were required to adhere.[1]

The Court based its answer primarily on the special responsibility of an undertaking in a dominant position to refrain from conduct likely to impair effective and undistorted competition in the market.[2]

If the dominant undertaking unilaterally determines the distribution policy and imposes it on its distributors from which the abuse (in this case exclusive purchasing obligations) derives, the distributors are merely an instrument for implementing the commercial policy of the dominant undertaking. Further, the fact that the distribution agreements and contractual coordination also fall within the scope of Article 101 TFEU, does not affect the application of Article 102 TFEU. In those circumstances, the abusive exclusionary practice can be imputed to the dominant undertaking.[3]

Question 2 – Burden of proof: abuse through exclusivity clauses

The Court was unequivocal that the use of exclusivity clauses can be abusive. Indeed, exclusivity clauses, like loyalty rebates, inherently constitute an abuse of dominant position.[4]

This seems a closed matter in the case of Unilever. However, establishing abuse appears to require more because there is scope for rebuttal evidence by the dominant undertaking. The dominant undertaking must have the opportunity to challenge the assertion that its conduct was capable of restricting competition and, in particular, to prove that the alleged exclusionary effects could not occur.

Before turning to the possibility of the dominant undertaking to challenge the competition authority’s accusation, the Court first noted that Article 102 TFEU does not have the objective of preventing an (dominant) undertaking from competing on its own merits such as price, choice, quality or innovation ('competition on the merits'), nor does it have the duty to keep less efficient competitors in the market.[5] Thus, not every foreclosure effect necessarily affects competition.

It is for the competition authority to prove that conduct is abusive.[6] To do so, the authority does not need to prove that the conduct actually had anti-competitive effects.[7] It is sufficient to establish that the conduct was capable of restricting competition on the basis of merit, but that finding must be based on tangible evidence and thus not on mere hypothesis.[8] Moreover, the conduct must have taken place and therefore a practice that remains “at the draft stage" and was never executed cannot be considered abusive.[9]

In respect to evidence, the competition authority cannot suffice with economic studies, but must consider specific market conditions.[10] Nor can the intention of the dominant undertaking be decisive in establishing abuse.[11] The existence of exclusionary intent is not a requirement for establishing abuse.

The Court then drew a comparison between the assessment of exclusivity clauses and the assessment of rebate schemes from the recent Intel judgment, as both behaviours may objectively be justified or the adverse (exclusionary) effects may be outweighed - or exceeded - by efficiencies that benefit the user.[12] While exclusivity clauses by their nature give rise to 'legitimate competition concerns', their ability to exclude competitors that are at least as efficient as the dominant undertaking from the market cannot be automatically assumed.[13] Like rebate schemes, it is necessary to analyse the ability of the conduct to exclude 'at least equally efficient' competitors and demonstrate the existence of objective justifications of the exclusivity clause.

This led the Court to formulate a burden of proof for the competition authority to ascertain whether, in the circumstances of the case, the exclusivity clauses were actually capable of excluding competitors that are at least as efficient as the dominant undertaking from the market.[14] If the dominant undertaking argues that there are justifications for its conduct, the competition authority must concretely assess whether the clauses could restrict competition. In any case, evidence put forward by the dominant undertaking must be examined by the competition authority before it can be set aside (with reasons).[15]

In respect to the Italian court's question of whether the competition authority must always apply the AEC test, the Court found that it is particularly appropriate for price-related conduct so that there can be no legal obligation to apply it in abuse cases.[16] However, the Court did not rule out the use of the AEC test in assessing non-price-related conduct either, for example to quantify the effects of the conduct in question.[17] The Court ultimately concluded that the application of the AEC test is optional for competition authorities.[18] However, if the test is invoked by the dominant undertaking, the competition authority must examine the probative value of the dominant undertaking’s evidence.[19]

Comment

The Court’s judgment is significant for several reasons. In particular, because the abusive conduct in this case was not materially committed by the dominant undertaking itself, but by its distributors. Nevertheless, the Court ruled for the first time that the conduct of distributors can be imputed to a producer in a dominant position where:

1. the distributors are part of the distribution network of the dominant producer
2. the conduct of the distributors was not carried out independently by those distributors,
3. but was part of a policy, unilaterally adopted by the dominant producer and implemented through its distributors.

Second, the ECJ has continued the line of reasoning it started in 2017 with Intel.[20] In the Intel judgement the ECJ dealt with the question the which extent the 'as efficient competitor' test is a relevant factor in assessing abusive behaviour by undertakings who are dominant.

The ECJ has confirmed that the Intel ruling applies not only to rebate schemes but also to exclusivity clauses – this case dealt with exclusive purchasing obligations – applied by dominant undertakings. The Court concludes that the use of the AEC test is not mandatory for a competition authority to establish abuse of dominance.[21] However, if the undertaking in a dominant position suspected of abuse invokes the test to challenge the alleged abusive behaviour, then the competition authority cannot disregard that evidence without examining its probative value.[22]

The starting point is that exclusivity clauses imposed (indirectly) by a dominant undertaking "by reason of their nature give rise to legitimate concerns of competition".[23] Yet, not every exclusionary effect is necessarily detrimental to competition. The Court emphasized that this cannot be automatically assumed. In particular, where the dominant undertaking relies on an objective justification or presents counter-evidence to challenge exclusion of equally effective competitors, a competition authority must demonstrate on the basis of all relevant circumstances of the case that the exclusivity clause in question is capable of restricting competition.[24]

This The Unilever Italia judgment underlines that there is no per se exclusionary abuse. There should always be room for contesting exclusionary effects or to present objective justifications of the conduct by the dominant undertaking. While it is true that the competition authority's burden of proof does not go so far as to prove that the conduct actually did have anti-competitive effects, a competition authority must demonstrate on the basis of tangible evidence that the conduct was actually capable of restricting competition on the basis of merit.[25]

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[1] Ibid, paras. 29 – 33.

[2] Ibid, para. 28.

[3] Ibid, paras 29 – 33.

[4] Ibid, paras. 46 and 50.

[5] Ibid, para. 37.

[6] Ibid, para. 40.

[7] Ibid, para. 41.

[8] Ibid, para. 42.

[9] Ibid, para. 43.

[10] Ibid, para. 44.

[11] Ibid, para. 45.

[12] Ibid, para. 46.

[13] Ibid, para. 51.

[14] Ibid, para. 48.

[15] Ibid, para. 53.

[16] Ibid, para. 56.

[17] Ibid, para. 57.

[18] Ibid, para. 58.

[19] Ibid, paras 59 –60.

[20] ECJ, 6 September 2017, C-413/14P, Intel v Commission, EU:C:2017:632.

[21] ECJ, 19 January 2023, C-680/20, Unilever, ECLI:EU:C:2023:33, para. 41.

[22] Ibid, para. 60.

[23] Ibid, para. 42.

[24] Ibid, para. 42.

[25] Ibid, para. 42.