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10 June 2021
On 27 April 2021 the Competition Appeals Tribunal (CAT) upheld the Competition Council's 2020 finding that FK Distribution used its power on the Danish market for the distribution of unaddressed mail (print circulars) to gain a competitive advantage, which was not based on its own merits, on the Danish market for the distribution of digital circulars.
In January 2018 FK Distribution's main competitor, PostNord, withdrew from the print circular distribution market. Since then, FK Distribution has been the largest and only nationwide distributor of print circulars in Denmark.
For many retailers, print circulars remain an important marketing tool. In Denmark, supermarket chains in particular use print circulars to distribute advertising material to consumers. However, many retailers, including supermarket chains, also advertise via digital circulars. FK Distribution also owns a digital platform, MineTilbud ('my offers' in English). This is offered as both a web-based service and an app, which allows consumers in Denmark to view circulars from a wide range of retailers in digital format.
Over the past decade, the print circular distribution market has been declining, while the digital circular market has been growing. In response, in 2017 FK Distribution introduced a contractual obligation for print circular distribution customers to pay for digital distribution on the MineTilbud platform. In other words, FK Distribution tied the sale of print and digital distribution together. As FK Distribution obtained a considerable market position in 2018, an investigation was opened into this practice.
In its 2020 decision, the Competition Council found that FK Distribution abused its dominant position in the print circular market from January 2018 to October 2019. The abuse consisted of tying its sale of print circular distribution to its sale of digital circular distribution.
The Competition Council estimated that FK Distribution had a share of at least 85% in the print circular distribution market. FK Distribution therefore had a dominant position, of which it was found guilty of abusing to obtain an advantage on the growing digital circular distribution market.
In accordance with the Competition Council's decision, the CAT found that FK Distribution's conduct constituted illegal contractual tying, and that FK Distribution had thus abused its dominant position on the print circular distribution market in violation of Section 11 of the Act on Competition and Article 102 of the Treaty on the Functioning of the European Union.
In reaching this conclusion, the CAT initially reviewed the Competition Council's market definition. In particular, the CAT addressed the claim that the digital circular distribution market cannot be delimited as a separate product market. The CAT noted the specific characteristics and attributes of digital platforms, including the fact that, unlike other marketing channels, they are a 'pull medium' that relies on consumers actively seeking out the content. The CAT also referred to the indirect network effects generated by platforms which connect separate user groups (here, readers and advertisers) and their ability to limit supply substitution.
Based on these grounds and, among other things, the Competition Council's investigation into advertisers' actual behaviour, the CAT ruled against the claims of a single market definition (comprising the distribution of both print and digital circulars). Instead, it found that FK Distribution operated on two separate markets – namely, the print circular distribution market and the digital circular distribution market.
The CAT went on to consider whether the contractual tying was capable of restricting competition on the digital circular distribution market. In line with established European Court of Justice case law, the CAT asserted that actual negative effects are not required. Instead, likely anti-competitive effects will suffice. However, the effects cannot be purely hypothetical.
In the present case, the CAT found that the contractual tying was capable of restricting competition by providing FK Distribution with a certainty that the circulars of a large part of its print circular customers were shown on its MineTilbud platform. According to the CAT, FK Distribution had thereby secured more customers for its online platform and, at the same time, reduced the customers' incentive to use other digital circular platforms.
Hence, FK Distribution had gained an unfair competitive advantage, which was not based on its own merits, on the digital circular distribution market. The CAT supplemented this finding with a statement that FK Distribution had in any instance failed to demonstrate that its conduct had been objectively necessary or given rise to notable efficiencies.
Competition authorities are increasingly concerned with the enforcement of competition rules on digital markets (for further details please see "Digital companies under increased scrutiny"), and the present case is yet another example of this.
The CAT's decision shows the importance of market definition in abuse of dominance cases and provides guidance on approaching the market definition process in tying cases that involve digital platforms.
It is notable that the CAT emphasised the indirect network effects generated by digital platforms and its ability to limit supply substitution, leading to a narrower market definition than what might have been the case on traditional markets. Further, in relation to the standard of effects that applies in the context of Article 102 of the Treaty of the Functioning of the European Union, this decision endorses the European Court of Justice's approach that likely anti-competitive effects will suffice. The combination of narrow market definitions and a lenient standard of proof for anti-competitive effects will certainly benefit the national competition authority in its digital markets enforcement.
For further information on this topic please contact Martin André Dittmer or Frederik Jakobsen at Gorrissen Federspiel by telephone (+45 33 41 41 41) or email (email@example.com or firstname.lastname@example.org). The Gorrissen Federspiel website can be accessed at www.gorrissenfederspiel.com.
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