What is abuse of a dominant position?
Abuse of a dominant position occurs whereby a company which holds a position of strength in a certain marketplace uses that position to adversely affect companies below them in the same market.
UK Law and EU Law
In the UK, two sets of laws work together simultaneously. If a UK company holds a dominant position on the UK market, the provisions contained within s 18 of the Competition Act 1998 (CA 1998 – as amended by the Enterprise Act 2002) apply; whereas if the UK company holds a dominant position on a market which extends to other EU member states, the provisions within Art 82 of the EU Treaty apply.
The EU law has been adopted into the UK law so the requirements that need to be established for both are broadly the same.
How do I know if my company is in a dominant position?
A variety of factors need to be taken into account to establish whether a company holds a dominant position on the market, starting firstly with a full definition of the particular market in which the company is operating.
A good indicator is whether the company has a 50% market share or more. If this is the case, they will usually be deemed dominant. This is not a concrete indicator however, as in some cases companies holding a market share of 40% have been found to be dominant.
Does my company have to have dominance over a substantial geographical area?
According to EU law, the dominance must be across a substantial part of the EU; however, this exact wording has not been adopted into the UK legislation meaning that if you’re company is dominant in a market which only encompassed a small part of the UK you could still fall foul of CA 1998 (referred to in the Act as ‘the Chapter II prohibition’).
Does having a dominant position mean my company will fall foul of the legislation?
Simply having a dominant position on a certain market does not immediately infer a breach of the legislation. For a breach to happen there has to be an abuse of the dominant position.
What is abuse?
Under CA 1998, conduct may amount to abuse if it:
- directly or indirectly imposes unfair purchase or selling prices or other unfair trading conditions;
- limits production, markets or technical development to the prejudice of consumers;
- applies dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
- makes the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of the contracts.
Are there any exemptions?
There are no specific exemptions to Art 82 or Chapter II. Cases will be judged on their own merits and in some cases a dominant company will not fall foul of Art 82 or Chapter II if they can prove they had an objective reason to justify acting in the manner they did. An example of this is where a company holding a dominant position on the market refuses to supply a particular customer due to the poor credit rating of that customer. The objective justification in this case would be on the grounds of protecting their legitimate business interest.
Companies can only use a defence such as this when the behaviour is protecting their legitimate business interests. If they were to take it further than necessary, that behaviour would be considered an abuse of their dominant position.
I own a small company; do I need to be aware of these provisions?
All companies should be aware of these provisions. Even if you operate a small company you can still hold a dominant position on a certain market and will need to examine in detail all the practices that your company undertakes. Even if your company does not hold a dominant position on the market you should be fully aware of this legislation in case you’re company suffers abuse at the hands of a company in a dominant position.