Will the CJEU’s Decision in MEO Change FRAND Disputes Globally?


Guest post By Urška Petrovčič*

In April 2018, the Court of Justice of the European Union (CJEU) issued a decision in MEO v. Autoridade da Concorrência that clarified the circumstances in which price discrimination would trigger liability under Article 102(c) TFEU.

The dispute arose after MEO—a Portuguese telecommunications company that provides paid television signal transmission service and television content—appealed a decision of the Portuguese competition authority to terminate its investigation of an allegedly anticompetitive licensing practice of the Cooperativa de Gestão dos Direitos dos Artistas Intérpretes ou Executantes (GDA).

As of April 2018 (when the CJEU issued its decision in MEO), the GDA was the only organization managing and licensing the copyrights of artists and performers in Portugal. MEO alleged that, between 2010 and 2013, the GDA charged three different royalties—or “tariffs”— to providers of paid television signal service and television content. The royalty that the GDA charged MEO exceeded the royalty that the GDA charged a competing provider of paid television signal service and television content—NOS Comunicações SA (NOS)—thereby putting MEO, in its estimation, at a competitive disadvantage. MEO argued that the GDA’s licensing practices violated Article 102(c) TFEU.

The case ultimately reached the CJEU, which ruled on the type of evidence that one must present to prove that a discriminatory pricing practice violates Article 102(c) TFEU. The CJEU emphasized that Article 102(c) TFEU does not categorically prohibit a dominant firm from engaging in price discrimination, but instead prohibits only price discrimination that “tends to distort competition on the downstream market” (para 26). The CJEU also said that not every instance of discriminatory pricing is capable of having such an effect: “the mere presence of an immediate disadvantage . . . does not . . . mean that competition is distorted or is capable of being distorted” (para 26). Rather, one must examine the facts of each case to determine whether the price differential is capable of having a prohibited effect and thus violates Article 102(c) TFEU (para 28).

The CJEU identified a non-exhaustive list of factors that the finder of fact could analyse in assessing the possible effects of price discrimination, including “the undertaking’s dominant position, the [customer’s] negotiating power . . . , the conditions and arrangements for charging those tariffs, their duration and their amount, and the possible existence of a strategy aiming to exclude from the downstream market one of [the dominant firm’s] trade partners which is at least as efficient as its competitors“ (para 31). Unfortunately, the CJEU did not explain how each of these factors informs the analysis of proof of the effects of the discriminatory practice. Nonetheless, it emphasized that the relevant inquiry is whether the discriminatory practice “has an effect on the costs, profits or any other relevant interest” of the dominant firm’s customers, such that the discriminatory practice is capable of distorting competition in the downstream market (para 37).

The decision in MEO has so far received sparse attention from lawyers, academics, and competition‑law commentators. However, it represents an important addition to the analysis of price discrimination under EU competition law. Economic theory has long acknowledged that price discrimination can increase economic welfare. As a matter of public policy, it would thus be undesirable to adopt a categorical rule prohibiting firms with significant market power from engaging in price discrimination, because doing so could discourage welfare-enhancing practices. The CJEU’s decision in MEO thus rightly circumscribed the conditions under which price discrimination would trigger liability under Article 102(c) TFEU.

Although MEO concerned the licensing of copyrights, for two reasons it has important implications for disputes concerning standard-essential patents (SEPs) that are subject to the owner’s commitment to offer to license them on fair, reasonable, and non-discriminatory (FRAND) terms.

First, MEO clarifies that an SEP holder’s differential offers to its licensees are discriminatory within the meaning of Article 102(c) TFEU only when that differential treatment is so substantial as to be capable of distorting competition in the market in which the licensees compete. Thus, after MEO, scrutiny of an SEP holder’s licensing practices under Article 102(c) TFEU turns on the potential effects of the differential treatment.

Second, to the extent that the prohibition against discrimination in the FRAND contract is equivalent to the prohibition against discrimination contained in Article 102(c) TFEU, MEO will require an effects-based analysis in cases alleging a breach of the FRAND contract. In those cases, MEO provides guidance for scrutinizing an SEP holder’s discharge of its duties under the FRAND contract, not only in the European Union, but also in foreign jurisdictions where a court must construe and enforce the non-discrimination requirement of an SEP holder’s FRAND contract.

In sum, the CJEU confirmed in MEO that Article 102(c) TFEU does not categorically prohibit price discrimination by a dominant firm (including dominant SEP holders) but prohibits only that subset of price discrimination that “tends to distort competition” (para 26). Whether a price differential could have such an effect in the relevant market is a question of fact to be assessed on a case-by-case basis. Put differently, MEO reiterates that a challenged instance of price discrimination by a dominant firm must have more than “purely hypothetical” anti-competitive effects to trigger liability under Article 102(c) TFEU.

For a more detailed analysis of the CJEU’s decision in MEO and the implications it might have for the licensing of SEPs, see J. Gregory Sidak & Urška Petrovčič, Will the CJEU’s Decision in MEO Change FRAND Disputes Globally?, 3 Criterion Journal on Innovation 301 (2018), https://www.criterioneconomics.com/sidak-petrovcic-meo-and-frand-disputes.html.

 

*Urška Petrovčič is a Director at Criterion Economics, where her work focuses on antitrust and intellectual property. She holds a B.A. in law from the University of Ljubljana, a Master of Law and Economics from Erasmus University Rotterdam, and an LL.M. and a Ph.D. in law from the European University Institute. Her publications on the enforcement of standard‑essential patents (SEPs) include a book, Competition Law and Standard Essential Patents: A Transatlantic Perspective (Wolters Kluwer 2014), and articles in the Common Market Law Review and other journals. Since 2017, Dr. Petrovčič has acted as the European Commission’s Non-Governmental Adviser for the Unilateral Conduct Working Group of the International Competition Network. She has been a visiting scholar at the University of California, Berkeley and the University of Oslo. She was chosen as the inaugural scholar of the American Bar Association’s International Scholar-in-Residence Program, which enabled her to conduct research with the Office of Policy Planning of the U.S. Federal Trade Commission on antitrust enforcement concerning SEPs. Dr. Petrovčič previously worked in the Brussels office of the law firm Skadden, Arps, Slate, Meagher & Flom LLP and was a stagiaire at the Directorate-General for Competition of the European Commission.

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