Are You Squeezing or Being Squeezed?
On Oct. 14, 2010, the EU’s highest court (the European Court of Justice (ECJ))
considered margin squeeze issues in a case involving Deutsche Telekom. Margin
squeeze can arise where the price charged for an upstream input by a dominant
company, which is also active downstream using that input, does not allow its
downstream competitors sufficient scope to run a profitable business. The case
is of importance to companies which compete downstream from dominant companies,
as well as companies which themselves may have a dominant position in the EU.
In this case, the upstream input in which DT was dominant was local loop
telecommunications access. The downstream businesses in which it faced
competition were various end-user telecommunications services. The court looked
at DT’s charges and costs, and concluded that if DT’s downstream businesses had
been required to pay its normal charges for local loop access, then they would
not have been profitable. Therefore, a margin squeeze arose.
This judgment follows a Sept. 2, 2010, advisory opinion of an advocate
general (AG) at the ECJ in a separate margin squeeze case involving TeliaSonera
(see the Sept./Oct. 2010 EU/UK competition law newsletter).
European Commission Stops Apple Dividing Up EU
On Sept. 25, 2010, the European Commission announced it had closed its latest
investigations into Apple’s iPhone sales policies in the EU. One case concerned
market partitioning, which is an issue of interest to any company selling EU-wide.
The other case concerned foreclosure of competing products through licensing
The partitioning investigation arose out of Apple’s "country of purchase"
rule, whereby repair services were only available in the EU country in which an
iPhone was bought. The allegation was that this territorial restriction
partitioned the EU, contrary to EU law, by making the exercise of warranty
rights difficult for a consumer who had purchased an iPhone outside his home
country. Apple agreed to drop this rule within the EU. This followed another
partitioning case against Apple dropped in January 2008, after the company
agreed to equalize prices for iTunes downloads across the EU.
The other investigation concerned Apple's decision to change its licence
agreement with independent developers so that only its native programming tools
and approved languages could be used when writing “apps” for its iPhone
operating system. The European Commission’s concern was that this could
ultimately have resulted in shutting out competition from devices running other
platforms. In response, Apple removed these restrictions.
It Can Be an Abuse to Withdraw a Product
On Oct. 15, 2010, the UK Office of Fair Trading (OFT) announced that Reckitt
Benckiser (RB) had agreed to pay GBP10.2 million as a fine for abuse of
dominance under EU and UK competition law. The abuse arose out of the withdrawal
of a pharmaceutical product about to lose its patent protection, which RB had
done in order to benefit another of its products.
The behaviour concerned Gaviscon Original Liquid (a heartburn remedy). The
OFT's allegation was that RB withdrew UK National Health Service (NHS) packs of
Gaviscon Original Liquid after the product's patent had expired, but before the
publication of the generic name for it. This meant that a doctor searching using
prescribing software for Gaviscon would not find it (or its cheaper generic
alternatives), but would only find RB’s alternative product, Gaviscon Advance
Liquid. Pharmacies that receive prescriptions for Gaviscon Advance Liquid must
dispense it, as it is patent protected and there are no generic equivalents. The
withdrawal of Gaviscon Original Liquid was therefore abusive.
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