This article, written by partner Richard Eccles, was originally published on Competition Law Insight on 14 April 2015.
Two English High Court cases appear to signal a new approach in abuse of dominance cases involving a refusal to provide access to a facility.
Refusals by dominant undertakings to grant access to their facilities have often been assessed by reference to the essential facilities case law, especially where the party seeking access is, or would be, a new customer. The European Commission applied so-called “essential facility” principles in cases concerning access to ports and airport infrastructure in the 1990s, and article 102 of the treaty on the functioning of the EU has also been applied so as to mandate access under article 102 TFEU to other facilities (such as rail networks and the gas pipelines) in certain subsequent cases.
The Commission applied the essential facilities principle on the basis that an undertaking that is dominant in the provision of an essential facility which it uses in a downstream market will abuse that dominance where it refuses other companies access to that facility or grants them access only on terms less favourable than those which it provides to its own services or affiliates (without objective justification). The 1998 judgment of the European Court of Justice (ECJ) in Bronner v Mediaprint emphasised the need for the facility to be indispensable for competition in the downstream market in order for access to be mandated. Essential facilities principles also underlay the Commission’s decisions and ECJ judgments on refusal to license intellectual property rights in the Magill and IMS Health cases and the subsequent Commission’s decision and the European General Court judgment in Microsoft (withholding of interoperability information). However, those cases are outside the scope of this article.
Two cases in the High Court on the grant of access to airport-based facilities have helped clarify the application of article 102 or Chapter II, Competition Act 1998 to the withholding of access to a facility or of equivalent access to that granted to the dominant undertaking’s airport facilities. These cases are Purple Parking Ltd v Heathrow Airport Ltd (decided in 2011) and Arriva The Shires Ltd v London Luton Airport Operations Ltd (decided in 2014). In each case, the dominant entity was not itself active in the relevant downstream market, the facility in question was not categorised in the judgment as an “essential facility”, and there was held to be an abuse of dominance using the concept of discrimination between competing operators in the downstream market. The effect appears to be to broaden the basis for finding an abuse of dominance in cases of a refusal to provide access to a facility.
Commission decisions on essential facilities
Essential facilities principles were first applied by the Commission in its interim measures decision in 1992 in Sealink / B&I – Holyhead. Based on a narrow construction of the upstream market as the provision of port facilities for a specific transport route to Ireland, as opposed to a broader definition of sea crossings between Great Britain and Ireland, Sealink as operator of the Holyhead port was considered to have abused its dominant position by refusing access to the competing ferry operator, B&I, to operate a ferry service between Holyhead and Ireland. This service would have competed with the ferry service that Sealink operated on the route. Sealink was ordered to change its ferry schedules at Holyhead port to allow B&I’s services to be accommodated there. Such principles were also applied in further decisions in 1993 in Sea Containers/Stena Sealink and in the Port of Rodby case. In its Flughafen Frankfurt/Main AG decision in 1998, the Commission found Frankfurt airport to have abused a dominant position by denying third-party ground handlers access to ramp facilities, thereby reserving for itself the market for the provision of ramp-handling services at Frankfurt airport. Frankfurt airport was found to have extended its dominant position on the market for the provision of airport landing and take-off facilities to the neighbouring but separate market for ramp-handling services.
In its interim measures decision in the Irish Continental Group/ CCI Morlaix case, the Commission went further and required CCI Morlaix, as owner of the port of Roscoff, to take the necessary steps to allow Irish Continental to use the port for its ferry services, even though CCI Morlaix was not itself active in the relevant downstream transport market. The decision was again based on a narrow market definition, concerning ferry services between Brittany and Ireland, Roscoff being considered the only port capable of providing adequate port facilities in France for such ferry services. CCI Morlaix’s position had in effect resulted in a monopoly for Brittany Ferries. The Commission stated it was a factor that CCI Morlaix was largely responsible for Irish Continental being led to believe that it could begin operations at Roscoff. Nonetheless, the fact that CCI Morlaix was not itself active on the downstream market was a factor in the Luton Airport judgment, to which we shall return.
The Oscar Bronner case and indispensability
The Oscar Bronner case was referred to the ECJ by an Austrian court to determine whether the publisher of a daily newspaper could compel access to the nationwide home-delivery distribution system of its larger competitor, Mediaprint, under the Austrian equivalent of article 102. Advocate General Jacobs emphasised the general long-term procompetition benefits of not allowing access to a production or distribution facility too easily, because this would both remove an incentive for a competitor to develop competing facilities and reduce the incentive for a dominant undertaking to invest in efficient facilities. He further considered that a facility owner should be able to obtain payment from a permitted user of the facility, comprising an appropriate proportion of its investment costs and an appropriate return on that investment, having regard to the level of risk involved.
The ECJ held that, in order for there to be an abuse of dominance, it would have to be shown that a refusal to grant access to the dominant entity’s home-delivery service would eliminate all competition in the downstream market, the daily newspaper market, and that the home-delivery service was indispensable to carrying on business in the downstream market. The European Court of Justice decided that this indispensability requirement was not satisfied because there were other means of distributing newspapers – for example, through shops, kiosks and by post – and because the existing home-delivery system could not be considered indispensable unless it would not be economically viable to create a second home-delivery system for newspapers with a daily circulation comparable to those of the newspapers distributed by the existing scheme, as opposed to the question of economic viability of a home-delivery system for a smaller circulation of the actual daily newspaper or newspapers to be distributed.
The Oscar Bronner judgment sets a high standard of indispensability for compelling access to a dominant company’s facilities under article 102. Accordingly, the Commission refers to the requirement of objective necessity in its Guidance on the Commission’s enforcement priorities for applying article 102, in determining whether access to a facility should be compelled. The Commission will consider a refusal to grant access to an essential facility or network to be an enforcement priority where the refusal relates to a product or service that is objectively necessary to be able to compete effectively on a downstream market, and the refusal is likely to lead to elimination of effective competition on the downstream market and to result in consumer harm (paras 78 and 81). The Commission further states that it will apply these criteria both to cases of disruption of previous supply and to refusals to commence new supplies (para 84).
The Purple Parking case
The Purple Parking case concerned the grant of preferential treatment by Heathrow airport to its downstream service Heathrow Valet Parking (HVP) with regard to the location of “meet and greet” functions for valet parking services at Terminals 1, 3 and 5 of Heathrow airport. Under new arrangements, Heathrow sought to move the competing operators, Purple Parking and Meteor Parking, from the terminal forecourts to the car parks, so that only HVP would operate from the terminal forecourts (or adjacent to the forecourt in the case of Terminal 1). The case proceeded on the footing that Heathrow airport was dominant in the facilities market – ie the market for provision of access to Heathrow’s facilities, including its roads and forecourts.
Mr Justice Mann concluded that Heathrow airport abused its dominance by materially discriminating between its own service and the competing services, in that the difference between operating from the forecourts and from the car parks affected the nature of this service, both in real terms and in terms of customer perception. Purple Parking and Meteor Parking succeeded on this basis, but they also ran an essential facilities argument. The judge said that this is “an area of analysis which is not without its difficulties” but one on which it was not necessary to reach a decision in this case. However, he expressed clear doubts that the location issue of the “meet and greet” service was indispensable to the provision of the valet parking service, for the purposes of the essential facilities case law.
Mr Justice Mann also concluded that it was no defence to Heathrow airport that it was exercising a right to choose how to use its own facilities and to choose its own trading partners. He stated that the “own facilities” point may not be a good defence where the facility owner is not being required to share the results of actual investment in the particular property. The use of the airport forecourts for valet parking purposes was ancillary to the use for which the forecourts were provided – ie for aircraft to take off and land (with passengers and cargo). Heathrow airport could not say that it was being forced to share an investment made in the forecourts.
Heathrow’s argument (based on the essential facilities case law) that it could only be forced to share its facilities if competition would otherwise be eliminated, was rejected as being too rigid, though it was stated that this factor would have greater weight if the claim had related to the central airport facilities themselves. Mr Justice Mann said that the case against Heathrow airport did not have to fit into the category of essential facilities or fail. He added (see para 105) that even if the relevant facilities were essential facilities, the claimants were entitled to put their case differently and also that even if they relied on the “essential facilities” type of abuse, he doubted that elimination of competition, as opposed to a significant enough distortion, was required.
Arriva v Luton Airport
Arriva successfully challenged a concession agreement between London Luton Airport Operations (Luton airport) and National Express granting National Express a seven-year exclusive rights concession for the operation of coach services from Luton airport’s bus terminal to London Victoria coach station. This contract was awarded pursuant to a tender process. (Arriva failed in its challenge to the tender process itself.) The exclusivity was subject to a right for easyBus to operate a minibus service on the same route. The grant of exclusivity was held to create serious barriers to entry on the downstream coach services market by preventing any operator other than National Express, and to an extent easyBus, from providing direct services to London.
The High Court (Mrs Justice Rose) rejected various arguments that were put forward by Luton airport by which it sought to show that the exclusive grant of rights did not distort competition.
- First, Mrs Justice Rose held that competition from rail services between Luton airport and central London did not affect the conclusion on the distortive effects of the grant of exclusivity. She stated (see para 109) that “the competitive constraint imposed by rail services is not sufficient to push coach ticket prices down towards cost, even if rail services do form part of the same downstream market”.
- Second, the fact that Arriva had continued, since the award of the new concession to National Express, to operate a coach service from Luton railway station to central London did not prevent the grant of exclusivity to National Express distorting competition in the downstream market. Arriva’s service from Luton railway station involved passengers travelling on a local bus service to the railway station before transferring to the London coach service. The judge accepted evidence that access to the Luton airport bus station was key for coach operators in order to provide a competitive and attractive service to passengers.
- Third, the fact that the exclusivity had been proposed by the bidders and not required by Luton airport did not affect the conclusion. (The ECJ has previously held that it is irrelevant that a contractual obligation under challenge as an abuse of dominance was willingly accepted or even requested by the customer.)
- Fourth, Mrs Justice Rose did not accept, on the evidence, that the only counterfactual to the grant of the exclusivity was a single provider on the route.
- Fifth, in response to an argument that bus companies tend to amortise their coaches over a seven-year period, Mrs Justice Rose concluded that all the bidders in the auction were large companies operating many routes other than the Luton airport-London Victoria route and that the vehicles could simply be used on other routes if the operator were no longer able to run coaches on this particular route. She added that none of the other bus routes operates on an exclusive basis.
The distortive effects of the concession agreement were aggravated by three factors: first, the extension of the exclusivity to a planned new bus station at the airport which was under development and which would provide substantially expanded capacity after September 2017; second, a right of first refusal granted to National Express for any new bus service routes to be established between the airport and central London; and third, the carve-out from the exclusivity in favour of easyBus, which involved further anticompetitive discrimination (in favour of easyBus).
Mrs Justice Rose rejected claims of objective justification for the grant of exclusivity which were made by reference to congestion at the airport bus station. She concluded that Arriva’s service could be accommodated at the bus station without disruption to other coach services, without requiring adjustments to be made to the facilities and without increasing health or safety risks of passengers. She concluded that exclusivity was granted (together with the right of first refusal) with the intention of protecting National Express from competition in the downstream market.
Luton airport argued that the award of the exclusive concession could not be abusive of dominance because it was not competing on the downstream market (the relevant coach services market). Mrs Justice Rose rejected this argument for two reasons.
First, she did not accept that a foreclosure of the downstream market to competitors could only be an abuse if it generated an economic gain on the part of the dominant undertaking. She referred to the European Commission’s interim measures decision in Irish Continental Group/ CCI Morlaix (mentioned above) in which CCI Morlaix did not itself operate in the downstream ferry services market.
Second, it was not necessary for the dominant undertaking to be active itself on the downstream market in order to benefit economically from downstream market activities. Luton airport derived substantial commercial and economic benefits from the terms of the concession agreement, through the fees based on a percentage of the revenue earned by the exclusive rights holder (and its minimum guaranteed sum related to the expected revenue to be generated for the concessionaire). Luton airport would therefore share in the revenue generated in the downstream market. It would also benefit insofar as the exclusivity would enable National Express to charge higher prices. Thus Luton airport was not a neutral provider of facilities, but had a commercial interest in the state of competition on the downstream market.
It might have been possible to categorise both the Purple Parking and Arriva v Luton Airport cases as a withdrawal of service from an existing customer. Purple Parking and Meteor Parking previously operated from the airport forecourts but were being relocated through Heathrow airport’s reorganisation, and Arriva previously operated the bus service concession from Luton airport to London Victoria coach station but lost the right to do so in the tender process which was itself the subject of the proceedings. However, the reasoning in both judgments referred to the principles of the essential facilities cases. Also, by reference to the Guidance on the Commission’s enforcement priorities, a distinction between disruption of previous supply and refusal to commence new supplies may not be crucial.
Both cases were focused on the uniqueness of the specific facilities to which access was in issue. In Arriva v Luton Airport, neither rail services from the airport nor coach services from Luton railway station were considered to affect the competitive position concerning the use of the facility in issue, Luton airport bus station, to operate coach services from the airport to central London. However, the two judgments involved to some extent a recharacterisation of the key issues in cases concerning refusals to provide access to a facility.These judgments appear, as a result, to enable a more flexible approach to abuse of dominance cases of this type, by reference to the concept of anticompetitive discrimination as between competing operators in the downstream market. This includes situations where the competing operators include the dominant entity’s own services, as in Purple Parking, or comprise independent operators, as in Arriva v Luton Airport.
Arriva v Luton Airport makes clear that where the dominant entity has an economic or commercial interest in the downstream market activities through a share in the revenue generated from those activities, this is equivalent for the purposes of such cases to the dominant entity participating directly in the downstream market. These cases also show, or at least imply, that a dominant entity will generally not be able to resist a requirement under Chapter II of the 1998 Act to grant access to its facilities by reference to the fact that it owns those facilities, where it has not specifically invested in the particular property or where the facility in question is ancillary to the main purpose of the property or facility of which it is part.