Intro
In a historic ruling, the General Court (GC) has upended a significant European Commission (Commission) Decision, accusing the BEH Group of leveraging its dominant position in Bulgaria’s gas supply market. This landmark case represents an unprecedented event as it stands as the full annulment of Article 102 TFEU decision, underscoring the meticulous scrutiny applied by the GC in its assessment of competition law matters.
At the heart of this legal saga is the Bulgarian Energy Holding (BEH), a state-owned entity boasting key subsidiaries like Bulgargaz and Bulgartransgaz, which play pivotal roles in Bulgaria’s energy sector. Bulgargaz, acting as the public gas supplier, and Bulgartransgaz, overseeing the gas transmission network and the country’s lone natural gas storage facility, were the central figures in this complex dispute.
Background
This case (T‑136/19) starts with a complaint from Overgas, a gas company formerly jointly controlled by Gazprom, against a Bulgarian public service entity during Gazprom’s dominance. Acting upon this complaint, the Commission, in its Decision dated December 17, 2018, accused #BEH of abusing its dominant position by impeding access to critical gas infrastructures. The focal point of contention was Bulgargaz’s exclusive use of the Romanian Pipeline 1, despite not being its outright owner, thereby establishing a dominant market position.
The GC recognized BEH’s exclusionary practices, and confirmed their dominant position, but ruled that the Commission failed to convincingly demonstrate that Bulgargaz‘s conduct, specifically regarding the Romanian Pipeline 1, was the root cause of the difficulties faced by third parties seeking access. Underlining the pipeline’s status as an essential facility with no available alternatives, the court emphasized that any irregularity by Bulgartransgaz could not breach competition rules, given that entry into the Bulgarian gas market hinged on access to the Romanian Pipeline 1.
Essential facilities
Whenever it comes to essential facilities, the Bronner (C-7/97) conditions are always considered. According to Bronner conditions, the refusal by an undertaking in a dominant position will constitute an infringement of Article 102 TFEU, only if the following three cumulative conditions are met (See paras 254-256 of the Judgement):
Since there were no viable alternatives to the pipeline available, the GC confirmed that the pipeline (and storage facilities) were essential facilities (See RTE and ITP v Commission, C-241/91 P, and AstraZeneca v Commission, C-457/10 P). However, regarding the elimination of competition criteria, the GC had different findings, which will be discussed below.
The GC also highlighted that it is necessary to show restraint when imposing the obligation to conclude a contract with a competitor on dominant undertakings in abuse cases, since it is “especially detrimental to the freedom of contract and the right to property of the dominant undertaking, since an undertaking, even if dominant, remains, in principle, free to refuse to conclude contracts and to use the infrastructure it has developed for its own needs” (See para 257 of the Judgement) relying on Slovak Telekom v Commission (C-165/19 P).
Refusal to provide access
The GC also gave insight into what constitutes a refusal of access prohibited by Article 102, distinguishing between absence of access with a refusal, stating that Overgas’s letter of complaint about the restrictions does not prove a refusal.
The GC further elaborated on what constitutes a refusal, stating that “the Commission must also prove that the request for access reflects that project sufficiently precisely for the dominant undertaking to be in a position to assess whether it is required to respond to it, failing which it might be exposed to the risk of an abusive refusal of access” and that “a purely exploratory approach on the part of a third party to the dominant undertaking controlling access to the infrastructure in question cannot constitute a request for access, to which the dominant undertaking would be required to respond” (See para 282 of the Judgement). Not only has the Commission failed to prove this, but the GC also found that Bulgargaz had a constructive attitude in its communication with Overgas (See para 359 of the Judgement).
Causality / Attributability
While the issue of causality / attributability is generally marginal, in abuse cases it becomes a core issue since it is necessary to prove a causal link between the conduct of the undertaking and their anticompetitive effects on the market. In other words, the anticompetitive effects (eliminating competition according to Bronner criteria) must be attributable to the conduct of an undertaking.
In order for an undertaking’s conduct to be able to eliminate all competition in a neighboring market, there needs to be “proof that the potential competitor has, at the very least, a sufficiently advanced project to enter the market in question within such a period of time as would impose competitive pressure on the operators already present“ (See para 281 of the Judgement) GC found, relying on Generics (C‑307/18), and Lundbeck v Commission (C‑591/16 P).
The GC went further and stated that the Commission was required to determine the competitor’s “sufficiently precise and serious request”, “tangible project”, “capacity”, “preparatory steps”, and “firm determination”, which the Commission didn’t do (See paras 445-456 of the Judgement). Note that the issue of what is sufficient, tangible, and enough, will have to be determined on a case-by-case basis.
If the competitor didn’t plan to enter the market, then the effective competition couldn’t have been eliminated. Even when BEH acted anticompetitively and restricted competitors’ access to the pipeline, there was no restriction of competition, since their competitors lacked access to the essential facilities due to “reasons which are not attributable to proven abusive conduct”. Purely hypothetical restrictions of competition cannot have exclusionary effects, and therefore cannot constitute an abuse of dominant position (See para 953 of the Judgement).
It is also important to keep in mind that, due to barriers in the gas industry, it is generally more difficult to prove one’s status as a competitor, as “tangible project”, “capacity”, and “preparatory steps” require expensive investments in the gas industry.
State action defense
Another interesting and rare occurrence in this case is the application of state action defense. State action defense is a defense that companies invoke when they engaged in anticompetitive conduct, due to the conditions from national legislation, or irresistible pressure from national authorities.
State action defense will succeed if an undertaking was not autonomous to act in accordance with competition rules, due to it being forced to act anticompetitively because of the national legislation or irresistible pressure from national authorities (See Polskie Górnictwo Naftowe i Gazownictwo v Commission, T‑399/19, and Commission and France v Ladbroke Racing, Cases C-359/95 P and C-379/95 P). Interestingly, state action defense may even apply to actions from a third state (See Polskie Górnictwo Naftowe i Gazownictwo v Commission, T‑399/19). However, even if the state action defense is successful it will generally result in a fine reduction, and not annulment.
In this case, the GC found that it was legitimate “for Bulgargaz to seek to protect its commercial interests and to take such reasonable steps as it deemed appropriate to protect its commercial interests”, and that “since it was bound by public supply obligations under Bulgarian law, Bulgargaz was also obliged to continue to assume its public supply obligations, which allowed it to obtain reserved capacity on that pipeline corresponding to the forecasts of the needs of the customers which it was required to supply”. Here, the GC made two important observations, that dominant undertakings have the right to reasonably protect their commercial interests, and that state action can in fact exclude anticompetitive behavior (See paras 616, and 625 of the Judgement).
Conclusion
Due to all mentioned above, the judgment (See paras 1259, and 1260 of the Judgement) unequivocally stated:
“Since both the fourth plea, alleging an incorrect finding of abuse of a dominant position, and the first plea, alleging infringement of the rights of the defence, have been upheld, the contested decision must be annulled in its entirety, without it being necessary to rule on the other pleas in law relied on. It follows, consequently, that there is no need to grant the applicants’ applications for measures of organisation of procedure or measures of enquiry.”
This judgment is a great example of the interplay between national regulations and competition. Even though the specifics, and the outcome, of this case were affected by the geopolitical situation, and the nature of the gas industry similarly to Ruhrgas (T‑360/09) which was annulled on similar grounds, it is still an important decision due to its standards relevant for the assessment of causality, refusal of access, and state action defense.
