How much? AKKA/LAA Clarifies Excessive Pricing Rules
In AKKA/LAA (Case C-177/16) the European Court of Justice (ECJ) clarified a number of thorny issues regarding excessive pricing, which had been otherwise unaddressed by previous case law. The ECJ offered answers to the following questions:
- When seeking to demonstrate excess through cross-border comparisons, how many countries must be surveyed?
- How should relative purchasing power (high prices in low-income countries) be taken into account?
- Can a defendant claim that average prices are fair even if specific customer rates are not?
At a glance
Issues regarding excessive pricing include the following:
- Lower prices in other member states may indicate excess. There is no minimum number of countries that must be surveyed.
- International prices must be adjusted by purchasing power parity (PPP), making it more likely that high rates in low-income countries will be excessive.
- Price comparison can be selective (e.g., the parts of a rate card that target specific groups of customers with high rates rather than applying an average). It is therefore not possible to defend an excessive price for some customers by arguing that others get a better deal and that the average is fair.
- Persistently and significantly higher prices may be abusive. There is no minimum threshold above which a price must be regarded as 'appreciably higher' to qualify as indicative of abuse.
- The ECJ shifts the burden to the dominant company once an appreciably higher price is identified. The dominant undertaking must provide an objective justification of that difference.
The ECJ's AKKA/LAA decision is timely and will be keenly reviewed by practitioners and authorities mindful of EU and national authority investigations into pharmaceutical pricing, and ahead of further fair, reasonable and non-discriminatory spats regarding royalty rates relating to the Internet of Things (for further details please see "Excessive pricing enforcement action on the rise: a new enforcement trend?").
The Latvian collecting society, AKKA/LAA, was fined for imposing excessive pricing on shops and service centres (of an 81 square metre and 201 to 300 square metre surface area). The rates were two to three times higher than those applied in Lithuania and Estonia. Using the PPP index to compare fees in 20 other EU member states, the Latvian Competition Authority found the rates to be 50% to 100% higher. AKKA/LAA challenged these conclusions, which led to the referral of questions to the ECJ.
The ECJ began by confirming its case law that the imposition of a price which is excessive in relation to the economic value of the service provided can constitute abuse of dominance under Article 102 of the Treaty on the Functioning of the European Union.
The questions to be answered by the ECJ included:
- whether the difference between the cost actually incurred and the price actually charged was excessive; and
- if so, whether a price had been imposed which was either unfair in itself or unfair when compared with competing products.
The ECJ added that there are other methods for determining whether a price is excessive – in particular, a method based on a comparison of prices applied in the member state concerned with those applied in other member states. The ECJ clarified the standards with which such a comparison between member states must comply in order to be considered a valid method of establishing excessive pricing. The ECJ stated that:
- there is no minimum number of member states that must be included;
- the referenced member states must be selected in accordance with objective, appropriate and verifiable criteria (e.g., consumption habits) and other economic and sociocultural factors (e.g., gross domestic product per capita and cultural and historical heritage);
- the comparison of prices must be conducted on a consistent basis, which includes taking into account the PPP index for member states in which the economic conditions differ from those in the member state concerned; and
- it is permissible to make a comparison within one or several specific segments of the market if there are indications that the possibly excessive nature of the fees affects those segments.
The ECJ confirmed that when a dominant undertaking charges fees which are appreciably higher than those charged in other member states, the difference should be considered an indication of an abuse of dominance. With regard to what should be considered as an 'appreciable' difference, the ECJ clarified the following:
- There is no minimum threshold above which a rate must be regarded as 'appreciably higher', as this depends on the specific circumstances of the case. In this regard, past case law (notably Tournier and Lucazeau) should not be considered as setting the definitive standard in what can be considered 'appreciable' differences.
- In order for a difference to be considered 'appreciable', that difference must be significant for the rates concerned and it must persist for a certain length of time and not be temporary or episodic.
Finally, the ECJ recalled that the existence of appreciably higher prices is an indication of abusive pricing. However, the dominant undertaking can rebut this indication by putting forward evidence which objectively justifies the difference in prices (e.g., objective dissimilarities between the member states involved in the comparison). In the present case, the ECJ held that objective factors affecting costs (eg, specific regulation creating a heavier administrative burden) might be considered objective justifications. In addition, the existence of a national law on fair remuneration which obliges the collecting society to pay higher remunerations to the rights holders might provide an objective justification for charging higher fees.
The ECJ's judgment provides further guidance on which tests may be applied to determine whether there is excessive pricing, but it does not definitively settle the question in respect of exactly when a price becomes excessive when compared to other prices (e.g., in other member states, in other markets or charged by competitors). In essence, the ECJ grants national competition authorities (and the European Commission) an appreciable margin of maneuver in determining both the basis for comparison and the level of difference between rates that leads to the finding of excessive pricing and thus abuse of dominance.