Some months ago, in a public speech, the EU Competition Commissioner Margrethe Vestager set the antitrust radar against exploitative conducts and, particularly, against “excessive pricing” in the pharmaceutical, energy and hi-tech markets. Her words had a lot of echo in the antitrust community, since the Commission is traditionally reluctant to step against high prices, for many different reasons (essentially, it lacks of resources and expertise to define “fair” prices, if this concept really exists).
In the past days, Advocate General Wahl came back to that topic and, in response to a request for a preliminary ruling, delivered to the CJEU an opinion on the issue of “excessive pricing”. AG Wahl’s reasoning mainly relates to the market concerned by the request for a preliminary ruling, namely the licensing business of collecting societies. However, it shreds some light on one of the most economic issues of competition law, and, if the opinion is confirmed by the Court, it will provide guidance for future investigations.
The referred case
The request for a preliminary ruling was referred by the Latvian Supreme Court in relation to an antitrust case involving the Latvian collecting society (AKKA/LAA), which in its capacity as a legal monopolist in charge of granting licences for the public performance of musical works in commercial premises and service centres had been fined by the local Competition Authority for having charged excessive rates. The Latvian Competition Authority had come to the conclusion that the rates charged by AKKA/LAA to its customers (i.e.: shops, restaurants, pub) were excessively high after having compared them: (i) with the rates charged by the collecting societies of neighbouring countries and (ii) with the rates charged in other Member States taking account of a “purchasing power parity” (PPP) index based on the gross domestic product.
The legal test
AG Wahl initially recalls that the legal test developed in United Brands by the CJEU to assess whether a price is unfair imposes to determine whether there is a significant and persistent difference between the effective price charged by the dominant undertaking and the price that would have been charged in an hypothetic competitive market (“benchmark price”).
What benchmark has to be used?
AG Wahl points out that there is not a single method to define the benchmark price. For example, a comparison can be made between the sale price and the cost of production, or the price charged in the same market by the dominant undertaking and the non-dominant ones (§ 18-19). Much depends on the type of market at issue.
Having said that, AG Wahl confirms that comparing rates charged in neighbouring countries is an acceptable method if the Member States taken into account present similar features (i.e.: consumption habits, economy and citizen welfare). This was the method used in the case referred by the Latvian Supreme Court
Furthermore, AG Wahl also confirmed that it is good to combine the above described “geographic comparison” among neighbouring countries with another method which helps to enlarge the basis of countries used as a benchmark. To this end, the Advocate General writes that the use of a PPP index seems an appropriate instrument to compare the rates charged in countries with heterogeneous economic conditions (§ 92). More specifically, the application of this index equalises the purchasing power of different national currencies and permits the adjustment of data that is to be compared, according to the different price levels existing in the various countries.
When is the difference between the effective price and the benchmark appreciable?
To answer this crucial question, AG Wahl starts by saying that investigations against excessive pricing should be pursued only when the competition authority has no doubt on the existence of the infringement. Indeed, the calculation of a benchmark price is a complex and uncertain calculation and the risk of judicial errors, which are considered more difficult to correct than monopolies, is very high (§ 103). Furthermore, as AG Wahl writes, competition authorities are not regulators and have no resources and expertise to define the correct price (§ 105).
That said, the difference between the effective price and the benchmark is considered appreciable by the Advocate General when there is an important deviation and the price is above the benchmark for a substantial period of time (§ 107-108). Moreover, it is also made clear that a difference in price may be more or less significant depending on the product and on the characteristics of the market (§ 111).
Further to having cleared the use of geographic comparisons and of the “PPP Index”, AG Wahl says something more: first, excessive prices are more unlikely to occur in markets where there is a sectoral regulator which controls prices charged by the undertakings active in that sector. Second, excessive pricing may occur only in regulated markets with high barriers to entry (§ 48), since in a free and competitive market high prices attract new entrants and do not give rise to competitive issues.
This last AG Wahl’s remark on legal barriers is likely to refer to those markets strongly influenced by IP rights, (i.e.: pharmaceutical and SEPs). To this end, however, it has to be noted that recently the Italian Competition Authority found liable a pharmaceutical company, Aspen, which had allegedly charged excessive prices despite not owning any patent (already expired for years), with any third party free to access that market.
In spite of the good suggestions raised by AG Wahl’s Opinion, a lot remains to be clarified (see paragraph “How much is too much?” in this article). It will be interesting to see what the CJEU will finally decide, but the sensation is that excessive pricing continues to be a slippery area for competition authorities, although it seems to be a policy target for the European Commission.