The CJEU guidance in MEO on price discrimination in licensing may also impact FRAND / SEP licences

Introduction

AG Wahl began his Opinion in MEO v Autoridade da Concorrência by noting that it presented the CJEU with an opportunity to clarify the law on differential pricing. Under Article 102(c) TFEU it can be an abuse for a dominant undertaking to apply “dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage”. Discrimination has always been a tricky issue under Article 102 (it is one of relatively few competition issues to have received a thorough discussion by the English Court of Appeal - see British Horseracing Board, paragraphs 265-278)  and it has never been entirely clear to what extent the EU authorities consider that the practice of price differentiation necessarily results in a finding of competitive disadvantage, or how much disadvantage is required to infringe Article 102. 

Price differentiation is a topical issue. The increasing use of pricing algorithms offers the potential for companies to engage in ‘personalised’ pricing on a mass scale, offering different prices to different consumers based on an algorithmic assessment of the highest price each individual is likely to pay. But they may also facilitate anti-competitive price coordination and so could give rise to concerns (see here and here).

Similarly, as the Internet of Things and 5G lead to new market entrants requiring SEP licences, it will be important for licensors to consider how to charge different licensees different prices without infringing the non-discrimination limb of FRAND.

Can it be assumed that price differentiation is likely to distort competition? Should a competition authority have to demonstrate that the competitiveness of any business placed at a disadvantage by differential pricing has suffered? The CJEU decision in MEO offers some useful guidance on these questions.

Facts

MEO is a mobile / telecoms service offered by Portugal Telecom. As part of this service MEO provides television content, and therefore pays royalties to the Portuguese collecting society that manages the rights of artists and performers, GDA.  In 2014 MEO made a complaint to the Portuguese Competition Authority that GDA had abused its dominant position by (amongst other things) applying different terms and conditions (including price) to MEO compared to another entity also providing television content, NOS. The Portuguese Competition Authority found that GDA had applied different tariffs to different customers between 2009 and 2013. However, it concluded that this price differentiation had no restrictive effects on MEO, and so took no action against GDA. MEO appealed this decision to the Portuguese Regulation and Supervision Court, which referred a number of questions regarding differential pricing to the CJEU.

CJEU decision

The CJEU referred to its previous decisions in Intel and Post Danmark II in setting out three key principles that applied:

  1. Proof of actual, quantifiable deterioration of a particular customer’s competitive position is not required for a finding of competitive disadvantage.

  2. All the relevant circumstances must be examined to determine whether price discrimination produces or is capable of producing a competitive disadvantage

  3. The mere presence of an immediate disadvantage affecting operators who are charged more does not mean that competition is distorted or capable of being distorted.

The CJEU also noted that when assessing particular prices charged by a dominant undertaking, the authorities may assess the undertaking’s negotiating power, the conditions and arrangements for charging any tariffs, their duration and amount, and the existence of any strategy aimed at excluding companies from a downstream market. The CJEU also reaffirmed that there is no de minimis threshold for the purposes of determining whether there is an abuse of a dominant position, albeit this will feed into the analysis of potential effect (paragraph 29). 

Impact

This decision offers helpful clarifications on how Article 102(c) should be interpreted. Although relatively narrow in scope, it has broad implications, particularly in the FRAND context; price discrimination between licensees is a controversial topic that has received relatively little judicial or regulator attention to date.  

As we describe in this article, in its Communication on SEPs, the Commission appeared to endorse a specific non-discrimination obligation in FRAND, stating that SEP holders cannot discriminate between implementers that are ‘similarly situated’. However, it did not specifically say that there is a requirement for distortion of competition between those similarly situated licensees (as for example the High Court had held in Unwired Planet, though this issue is being appealed), or whether harm to an individual firm rather than harm to competition might be sufficient (as a US court recently decided in TCL v Ericsson).

The CJEU’s MEO decision suggests that price discrimination will only be abusive if it leads to a distortion of competition (paragraph 27). So it seems there is scope for licensors to charge similarly situated licensees different royalty rates without breaching their FRAND obligations, as long as they do not distort competition by doing so.

Advertising in the digital age – the future role for competition law

The House of Lords Select Committee on Communications has published its final report following a wide-ranging investigation into the UK digital ad market.  Its headline finding is that a lack of transparency hinders the ability of advertisers to ascertain whether they receive value for money for ads.

Of particular note for those who follow competition law is the Committee’s recommendation that the CMA conduct a market study into digital advertising to investigate whether the market is working fairly.  The Government has also been encouraged to undertake a review of whether current competition law is adequate to regulate the 21st century digital economy, potentially as part of its work on the UK’s Digital Charter (see here). 

Context for the review 

At its origin, the House of Lords’ inquiry had something of a Brexit flavour, focussing on the competitiveness of the UK advertising industry in the global economy.  The role of digital advertising was seen as signalling a potential need for the analogue industry to adapt to change.  The high value of advertising in the UK economy was also noted.

What were the Committee’s findings? 

The final report unsurprisingly notes the increasing role played by online advertising, the complexity of the business models involved and the increasing possibilities for individually targeted ads.  Concerns are expressed that online advertising is not held to the same standards as print advertising, which may lead to a decline in trust and thus value.  At the same time, the proportion of overall spend is rapidly switching to online ads.

Turning to the part of the report focussing on digital advertising, the Committee found that despite the proliferation of adtech models, the digital ad market in the UK is currently dominated by a small number of tech firms. 

Acknowledging that dominance is not illegal in itself, the Committee nevertheless noted the evidence given by Prof. Barwise on the economic impacts of increased market concentration and network effects: “once you achieve a dominant market share in this kind of market, it is almost impossible to be displaced … The most you can hope for is that they get eclipsed by someone dominating a new market that becomes bigger,” and “Most of the new technology is being developed by startups and the big tech players. When a startup is looking successful, it tends to get bought by one of the big tech players.

What are the prospects of regulatory intervention? 

Investigations into digital markets by competition authorities is something of a global trend, and the French authorities in particular have already carried out a specific study on digital ad markets (here).  The prevalence of these studies reflect wider political and public concerns about the perceived power and reach of some online players, as well as the concern to ensure the continuation of an open internet (the alternative to extensive advertising may be increasing use of paywalls). 

The Committee specifically calls upon the CMA to undertake a market study into the online ad industry “to investigate whether the market is working fairly for businesses and consumers”.  

However, it remains to be seen whether the CMA will pick up the Committee’s gauntlet.  Michael Grenfell (Executive Director for Enforcement, CMA) told the Committee that “the CMA had already been asked to conduct a market study into online advertising but declined to do so because they had not found any detriment to consumers on preliminary consideration”.  

Mr Grenfell appears to be referring to the CMA’s report on "The commercial use of consumer data", June 2015, which did not identify a specific competition issue in relation to online advertising and concluded that “we see no reason, at present, why our existing competition and markets tools would not be effective at tackling conduct that gave rise to competition concerns in these markets”. 

The CMA also pointed to its limited resources.  While it has received a cash boost since that date, the demands of Brexit may make such wide-ranging studies unlikely for now.

Nevertheless, the current Department of Business and Industry Strategy’s consultation on ‘modernising consumer markets’ (see here – the consultation is intended to review the effectiveness of the UK’s competition and consumer protection laws in digital markets) may lead to further intervention.

What next for digital advertising?

The Committee’s report illustrates that the digital ad market remains a focus of attention and concern.  Despite the CMA’s stated position in the report, discussion of increased ex ante regulation, and ex post competition based investigations cannot be ruled out. But for all the focus on British competitiveness, and even though localisation of ads is important, many aspects of this debate transcend national boundaries.  The British government and the CMA are not the only players who will define the evolution of online ad markets.