Compagnie Maritime and Other Criteria

In the Article 102 case of Compagnie Maritime, where the case before the CJEU was also known as CEWAL II, the CJEU suggested a broader interpretation of economic links, beyond the need for links in law. ‘The existence of an agreement or of other links in law is not indispensable to the finding of a collective dominant position; such a finding may be based

549 T-102/96 Gencor v Commission[1999] ECR II-753, [1999] 4 C.M.L.R. 971, paras 273 - 276,

550 Ibid paras 273 to 276; Valentive Korah, ‘Gencor v Commission: collective dominance’ (1999) 20 ECLR 337

551 Albertina Albors-Llorens, ‘Collective Dominance: a mechanism for the control of oligopolistic markets?’

(2000) 59 Cambridge Law Journal 253, 257

552 Steven Preece, ‘Compagnie Maritime Belge: missing the boat?’ (2000) 21 ECLR 388, 389 the CJEU did not explicitly refer to the CFI's judgement in Gencor,

553 C-395/96 Compaigne Maritime Belge Transports SA v Commission [2000] ECR I-1365 (CEWAL II); Albors-Llorens, ‘Collective Dominance: a mechanism for the control of oligopolistic markets?’ (2000) 59 Cambridge Law Journal 253

554 T-193/02 Laurent Piau v Commission[2005] ECR II-209, para 111

555 Craig Callery ‘Considering the oligopoly problem’ (2011) 32 ECLR 142, 147

172 on other connecting factors and would depend on an economic assessment and, in

particular, on an assessment of the structure of the market in question.’⁵⁵⁶ This has been interpreted as amounting to tacit collusion by independent actions and without

communicating with each other.⁵⁵⁷ Tacit collusion exists where the market enables firms to coordinate their behaviour without entering an agreement or concerted practice in the sense of Article 101(1). Such behaviour advantages them at the expense of their customers and consumers. It is not defined by the conduct itself, which could take various forms. It is defined by the structure of the market which allows the behaviour to have a particular relevance and consequence.

An alternative interpretation is of parallel conduct but without tacit collusion necessarily explaining the parallelism.⁵⁵⁸ Another label placed on the conduct is ‘oligopolistic

interdependence’. They both amount to analogous conduct of undertakings but without communication. Any attempt to distinguish interdependence behaviour which included communication would probably bring us into the realm of Article 101(1), rather than collective dominance.

In Compagnie the Court having introduced the possibility that links in law are indispensable spoke of an economic assessment and that a dominant position may be held by two or more economic entities legally independent of each other, ‘provided that from an economic point of view they present themselves or act together on a particular market as a collective entity’⁵⁵⁹… ‘vis-a-vis their competitors, their trading partners and consumers’⁵⁶⁰ This concept of presentation on the market as a single collective entity is arguably now the most

556 CEWAL II, para 45

557 Felix Mezzanotte, ‘Tacit collusion as economic links in article 82 EC revisited’ (2009) 30 ECLR 137, 139

558 Steven Preece, ‘Compagnie Maritime Belge: missing the boat?’ (2000) 21 ECLR 388

559 CEWAL II, para 36

560 CEWAL II, para 39

173 predominant criterion or approach to establish a collective dominance, rather than the more troublesome concept of links.⁵⁶¹

The CJEU spoke of a three stage test as it is only where the first question of collective entity is answered in the affirmative that it is appropriate to consider whether that collective entity actually holds a dominant position and whether its conduct constitutes abuse.⁵⁶² The economic links or factors are examined for the purpose of establishing the existence of the collective entity as defined above. Do the economic links between the undertakings enable them to act together independently of their competitors, customers and consumers?⁵⁶³ This looks at the results of, rather than the nature of the links, an approach taken by Advocate General Fennelly in Compagnie ⁵⁶⁴ which is an effects based approach to collective dominance.⁵⁶⁵

In Compagnie the Court did not clarify the extent to which competition in any form could exist within collective dominance. Advocate General Fennelly considered that competition could exist based on parameters such as quality of service⁵⁶⁶ and the Commission

considered that the existence of a “possible degree of competition between the parties”⁵⁶⁷ does not rule out the finding of a collective dominance.⁵⁶⁸ Undertakings may, for example, act as a single unit on price while competing on other factors, such as quality. While some

561 Barry Hawk and Giorgio Motta, ‘Oligopolies and Collective Dominance: A Solution in Search of a Problem’

Treviso Conference on Antitrust Between EC Law and National Law, Eighth Edition; Fordham Law Legal Studies Research Paper No. 1301693. Available at SSRN: http://ssrn.com/abstract=1301693, 76

562 Ibid 39

563 Ibid 42

564AG Fennelly opinion para 28

565 Giorgio Monti, ‘The Scope of Collective Dominance under Articles 82 EC’ (2001) 38 Common Market Law Review 131, 131 - 133

566 CEWAL II, 34

567 Transatlantic Conference Agreement Decision (TACA) OJ 1999, L 95/93, point 522

568Steven Preece, ‘Compagnie Maritime Belge: missing the boat?’ (2000) 21 ECLR 388, 390

174 competition may not be fatal to the test it is unclear whether tacit collusion such as

withholding of interface information could satisfy the test, even if its impact was

aggravated by lock-in or network effects, if there was a degree of competition on price.

There is no one model of an oligopolistic market. Undertakings in an oligopoly may have different cost levels, their products will have some differentiation, there may be some customer loyalty and market shares may not be exactly equal.⁵⁶⁹ The ruling in Compagnie did not clarify the position for oligopolies falling short of the model oligopoly.⁵⁷⁰

The following catalogue of market factors which contribute to conscious parallelism were adapted from the CJEU ruling in Compagnie and the writings of Patrick Ryan.⁵⁷¹ The general factors are set out in bold followed by the specific relevance to the 3D CAD industry:

Limited Competition - few competitors control the market for a given product. There are four main suppliers of 3D CAD and only two or arguably three in the high-end market.

Similar Products - products are homogenous or readily interchangeable. The 3D CAD products are homogeneous. One commentator suggested there was only a 10% difference in the systems.⁵⁷² They are not however interchangeable. The nature of interoperability is that even similar products are not interchangeable. There is ambiguity as to whether the suggested criteria requires products to be homogenous or readily interchangeable, or and interchangeable. Interchangeable may be used in the sense of substitutable i.e. similar or substitutable. In any event a lack of interoperability in the 3D CAD market means that products which are similar cannot be interchanged or substituted. It would be ironic if this feature which is central to any conscious parallelism prevents them from being considered collectively dominant.

569 Richard Whish, Competition Law (8th edn, Butterworth 2015), 595-6

570 Lorna McGregor ‘The future for the control of oligopolies following Compagnie Maritime Belge’ (2001) 22 ECLR 434, 436

571 Patrick Ryan, ‘European Competition Law, Joint Dominance, and the Wireless Oligopoly Problem’ (2004-2005) 11 Columbia Journal of European Law 355

572 Interview with senior industry executive #4 (July 2013)

175 Competitive Price Structures – due to the pricing structure of the market, competing companies are almost immediately sensitive to price changes. Pricing in the industry is very complex and particularly in the high-end market will be tailored to the customers’

requirements using “value pricing”.⁵⁷³ Although suppliers have similar 3D CAD products there is a distinction in marketing approach and other products and value they can supply.

Pricing is not transparent and there will be a delay in responding to a price change. In any event lack of interoperability will hinder customers changing unless there was a drastic price cut.

Comparable Production Costs - the production costs of the participants are similar as there are few raw materials or other tangibles involved. The main costs are wages, marketing and establishment costs. All the suppliers are based in America or Europe with international offices. They certainly have the opportunity to have similar costs.

Long- Standing Associations – The lack of interoperability means customers are locked-in to suppliers and the market is characterised by long-term relationships between user and supplier. There have also been long standing associations within the industry such as the cross-licensing of the kernels and the marketing arrangement between Dassault Systemes and IBM.

Sufficient Market Share – the market is well established and firms are satisfied with their current market share. This is difficult to assess. The suppliers have an obligation to their shareholders to maximise profits which normally is an incentive to increase market share unless higher profits can be achieved by coordination. The technical challenges of

interoperability may however make it difficult to gain new customers even in the absence of coordination. Switching to new suppliers is uncommon in the industry.⁵⁷⁴ Suppliers may accept the current market share in 3D CAD and look to other products in the PLM range where there is more interoperability and they can compete more easily for market share.

Lack of interoperability in the 3D CAD products means there are high barriers to entry so

573 Interview with senior industry executive #3 (May 2014) The high-end 3D CAD market does not have transparent pricing. It would be easier to follow the pricing in the mid-range which uses price lists but discounts would obscure the picture, see Airtours.

574 Case COMP/M.4608, Siemens AG and UGS Capital Corp. Celex No 307M4608, para 28

176 entry to the market is difficult. There have recently been some changes in major OEMs switching providers including Daimler.⁵⁷⁵

The 3D CAD market meets all but two of the criteria namely transparent pricing and interchangeable products. The failure to offer interchangeable products is caused by the lack of interoperability which could be caused by conscious parallelism.