Abuse of a Dominant Position

What is abuse of a dominant position?

Abuse of a dominant position occurs whereby a company which holds a dominant position on a certain market uses that position to act in a way and enforce certain conditions which can severely affect those companies below them in the marketplace.

UK Law and EU Law

Under UK law we see two sets of laws working together simultaneously. If a UK company holds a dominant position on the UK market then the provisions contained within Section II of the Competition Act 1998 (amended by the Enterprise Act 2002) apply whereas if the UK company holds a dominant position on a market which extends out of the UK and imposes onto other European Union Member States then the provisions within Article 82 of the EU Treaty will be applied. 

The EU law in this case has been adopted into the UK law so both systems require the same requirements to be established.

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. If this is the case they will usually accepted to be 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 was dominant in a market which only encompassed a small part of the UK you could still fall within Chapter II.

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. In order for a breach to happen there has to be an abuse of the dominant position.

What is abuse?

The following actions will constitute abuse:

  • Directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions
  • Limiting production, markets or technical development to the prejudice of consumers
  • Applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage
  • Making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature of according to commercial usage, have no connection with the subject of such contracts.

Are there any exemptions?

There are no specific exemptions in the case of Article 82 or Chapter II as is the case with Article 81 or Chapter 1. Cases will be judged on their own merits and in some cases a dominant company will not fall foul of Article 82 or Chapter 2 if they can prove that they had an objective reason to justify acting in the manner by which 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 was necessary then 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 at the hands of an abuse committed by a company in a dominant position.