European Court of Justice dismisses France Télécom’s appeal in predatory pricing case

06 May 2009

Katharine Annesley, Greg Laing

On 2 April 2009, the European Court of Justice (ECJ) dismissed an appeal brought by France Télécom against the judgment of the Court of First Instance (CFI) in the Wanadoo predatory pricing case. The ECJ’s judgment is significant in confirming that, for a finding that a dominant undertaking has breached Article 82 EC by pursuing predatory pricing: (i) it does not need to be demonstrated that the undertaking could recoup its losses; and (ii) a dominant undertaking does not have an absolute right to align its prices with those of its competitors.

Background

On 16 July 2003, the European Commission found that Wanadoo Interactive SA (Wanadoo) had pursued a predatory pricing policy in relation to its Pack eXtense and Wanadoo ADSL services, as part of a plan to exclude competitors in the high speed internet access market, and had thereby infringed Article 82 EC. At the time, Wanadoo was part of the France Télécom group.  The Commission found that, from the end of 1999 until October 2002, Wanadoo’s services were marketed at prices below average costs (until August 2001, prices were considerably below average variable costs and from August 2001 until October 2002, prices were approximately equal to variable costs, but below total costs). The Commission imposed a fine on Wanadoo of EUR 10.35 million.  

Wanadoo appealed to the CFI. When Wanadoo and France Télécom merged in September 2004, France Télécom became the appellant.  In January 2007, the CFI dismissed the appeal in its entirety, and France Télécom then appealed to the ECJ.  

The ECJ’s judgment

The ECJ considered whether it is a necessary precondition, for a finding of predatory pricing, to demonstrate that it was possible for the dominant undertaking involved to recoup its losses. France Télécom argued that recoupment was a necessary precondition, and that the CFI had erred in deciding otherwise. The Advocate General, in his Opinion of 25 September 2008, agreed with France Télécom that the possibility of recoupment was a necessary precondition.  

The ECJ held that demonstration of the possibility of recoupment is not required in order for there to be a finding of abusive conduct. The ECJ noted that on previous occasions, such as the Tetra Pak case, such proof had not been necessary “in circumstances where the eliminatory intent of the undertaking at issue could be presumed in view of that undertaking’s application of prices lower than average variable costs”.

The ECJ also reiterated the following principles stated in the Akzo and Tetra Pak II cases: (1) prices below average variable costs must be considered prima facie abusive inasmuch as, in applying such prices, a dominant undertaking is presumed to pursue no other economic objective except that of eliminating a competitor or competitors; and (2) prices below average total costs but above average variable costs are to be considered abusive only if they are fixed in the context of a plan having the purpose of eliminating a competitor or competitors.

The ECJ went on to say that, although it is not necessary to demonstrate the possibility of recoupment of losses, such a demonstration can be a relevant factor in assessing whether a dominant undertaking’s behaviour has been abusive, especially in showing whether the undertaking was, on the facts of the case, pursuing an exclusionary intent or strategy.

The France Télécom case also concerned the issue of whether an undertaking in a dominant position is always entitled to align its prices to those of its competitors.  The issue was only dealt with indirectly by the ECJ, as the question which it had to consider was whether the CFI had failed to give adequate reasons for stating that there was no absolute right to align prices in this manner. The ECJ held that the CFI had “responded amply” to the arguments put forward by the appellant on this point and the CFI had not failed in its duty to state reasons for its decision. The CFI had considered the case law and held that Wanadoo could not rely on any right to align its prices to those of competitors in order to justify conduct which constituted an abuse of a dominant position.

Significance of the case

The Commission has welcomed the ECJ’s judgment, stating that it confirms the Commission’s policy of acting forcefully against pricing abuses by dominant telecoms companies, and that it also provides clarity for further action in this area by national competition authorities. The core finding of the ECJ, that the possibility of recoupment of losses is not a precondition for a finding of predatory pricing, but may be a relevant factor in assessing the abusive nature of a dominant undertaking’s conduct, confirms the principles set out in the previous Article 82 EC case law, in particular Akzo and Tetra Pak II.

The Commission also contends that – largely due to its original decision in the Wanadoo case – broadband access prices in France are the lowest in Europe.

Source: ECJ judgment, 2 April 2009