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 practices.
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.
Additional EU/UK competition law news coverage can be found in our news section.