Abuse of a dominant Market Position and Claim for Damages under Estonian Law

published on 22 February 2023 | reading time approx. 8 minutes

In 2020, the Estonian Supreme Court ruled in a case (No. 2-15-505) where the legality of the sales price charged by an undertaking in dominant position under a sales contract was in dispute. The claimant brought an action for damages and, in the alternative, an action for unjust enrichment against the defendant. According to the claim, the seller had abused its dominant market position.

• Undertaking holding a dominant position on market »

• Abuse of a dominant position »

• Legality of the sale price »

• Identifying an unfairly high price »

• Identifying a price discrimination »

• Protective purpose of the provision in the case of a claim for damages »

• Claim for damages or unjust enrichment »

• Conclusion »

Undertaking holding a dominant position on market

An undertaking in a dominant position under Estonian law is an undertaking or several undertakings operating in the same market whose position enables it/them to operate in the market to an appreciable extent indepen­dently of competitors, suppliers, and buyers. A dominant position is presumed if an undertaking accounts for at least 40 per cent of the turnover in the market or several undertakings operating in the same market account for at least 40 per cent of the turnover in the market.

An undertaking in control of essential facilities is also an undertaking in a dominant position, i.e., if it owns, possesses, or operates a network, infrastructure or any other essential facility which other persons cannot duplicate or for whom it is economically inexpedient to duplicate but without access to which or the existence of which it is impossible to operate in the goods market.

Abuse of a dominant position

§ 16 points (1) to (6) of the Estonian Competition Act (hereinafter “KonkS”) contains an open list of cases of abuse of a dominant position by an undertaking on a goods market.

 
Direct or indirect abuse of a dominant position in a goods market by one or more undertakings is prohibited, including:

• directly or indirectly establishing or applying unfair purchase or selling prices or other unfair trading conditions (point 1);
• limits on production, service, goods markets, technical development or investment (point 2);
• offering or applying dissimilar conditions to equivalent agreements with other trading parties, thereby placing some of them at a competitive disadvantage (point 3);
• making the entry into agreements subject to acceptance by the other parties of supplementary obligations which have no connection with the subject of such agreements (point 4);
• forcing an undertaking to concentrate, enter into an agreement which restricts competition, engage in concerted practices or adopt a decision together with the undertaking or another undertaking (point 5);
• unjustified refusal to sell or buy goods (point 6).

To assess the unlawfulness of the defendant’s act, it is necessary to determine whether the defendant has infringed any of the prohibitions listed in § 16 points (1) to (6) KonkS or any other prohibition of abuse of a dominant market position.

Legality of the sale price

The Supreme Court pointed out that the sale price is not legitimate when there is:

• unfair price within the meaning of § 16(1) KonkS,
• price discrimination within the meaning of § 16(3) KonkS; and/or
• unjustified refusal to sell goods within the meaning of § 16(6) KonkS.

In the case of unfair pricing (KonkS § 16(1), it is necessary to establish that:

• the seller (defendant) is the dominant undertaking on the relevant goods market (KonkS § 13);
• the seller has directly or indirectly applied unfair terms to the buyer;
• the seller, as the dominant undertaking on the goods market, was likely to distort competition.

Identifying an unfairly high price

As § 16 KonkS on abuse of dominant position is largely based on Article 102 of the Treaty on the Functioning of the European Union, the Estonian court also based its interpretation on the relevant case law of the Court of Justice of the European Union. If the defendant is an undertaking holding a dominant position on the relevant goods market, it must be established whether it has applied unfair terms to the claimant (buyer).

The court indicatedthat in order to determine whether a dominant undertaking has set an unfairly high sales price, it is necessary to establish whether the price is excessive at all.

• One way of determining whether a price is excessive is to compare the price charged for the product with its cost of production (see, for example, the judgment of the Court of 14 February 1978 in case C-27/76 – United Brands v Commission, p. 251, 252).
  
• In some cases, it may also make sense to combine different methods. Where a comparison with prices applied in other countries is used, each benchmark should be chosen on the basis of objective, appropriate and verifiable criteria and prices should be compared on a consistent basis (see judgment of the Court of 14 September 2017 in case C-177/16 Biedrība “Autortiesību un komunicēšanās konsultāciju aģentūra – Latvijas Autoru apvienība” v Konkurences padome, p. 38, 41, 44, 51).
  
• There is no minimum threshold above which a rate must be regarded as “appreciably higher”. The circumstances specific to each case are decisive. A difference between rates may be qualified as ”appreciable” if it is both significant and persistent on the facts (see, for example, the judgment of the Court of Justice of 14 September 2017 in Case C-177/16 Biedrība “Autortiesību un komunicēšanās konsultāciju aģentūra - Latvijas Autoru apvienība” v Konkurences padome, p. 55).
• There is a violation of § 16(1) of KonkS if, inter alia, the price is excessive because it has no reasonable relation to the economic value of the product (see, for example, the judgment of the Court of Justice of 14 February 1978 in Case C-27/76 United Brands v Commission, p. 250).

Identifying a price discrimination

In the case of price discrimination (KonkS § 16(3)), it must be established that:

• the seller is a dominant undertaking on the relevant goods market (KonkS § 13);
• the dominant undertaking has entered into equivalent agreements/transactions with other market players;
• the dominant undertaking has applied different conditions to equivalent agreements;
• different treatment may put the other contracting parties (the buyer) in a situation that harms competition (may put the buyer at a competitive disadvantage);
• there is no objective justification for different treatment.

In the case of price discrimination, it is therefore necessary to determine whether the dominant undertaking has entered into any equivalent agreements in addition to the agreement with the claimant. For this purpose, account must be taken, inter alia, of the nature of the product sold and the cost of supply.

In the case of equivalent agreements, an assessment must be made of whether different conditions have been applied to the agreements. In this respect, too, the Estonian court refers to the case-law of the Court of Justice: e.g., judgment of the Court of 9 November 1983 in Case C-322/81 Michelin v Commission, pp. 87-91; judgment of 15 March 2007 in Case C-95/04 P British Airways v Commission, pp. 133-141; judgment of the Court of 29 March 2001 in Case C-163/99 Portugal v Commission, p. 50).

If it is established that different conditions apply to equivalent agreements, it is also necessary to assess, among others, whether the different treatment may put the claimant (the buyer) at a competitive disadvantage.

The Estonian court highlighted that according to the case-law of the European Court of Justice, a finding of a competitive disadvantage “does not require proof of actual quantifiable deterioration in the competitive situation, but must be based on an analysis of all the relevant circumstances of the case leading to the conclusion that that behaviour has an effect on the costs, profits or any other relevant interest of one or more of those partners, so that that conduct is such as to affect that situation” (see the judgment of the Court of Justice of 19 April 2018 in Case C-525/16 – Meo – Serviços de Comunicações e Multimédia, p. 37.)

However, an undertaking in a dominant position may, in turn, put forward evidence that there is an objective justification for the difference in treatment.

Protective purpose of the provision in the case of a claim for damages

For each of the protective provisions (listed in § 16 (1) to (6) Konks), the purpose of the specific protective provision must be assessed in order to determine whether the act is unlawful.

Damage caused by breach of a statutory obligation is unlawful only if the purpose of the provision breached by the injuring party (within the meaning of subsection 1045 (3), Law of Obligations Act, hereinafter” LOA”) is to protect the aggrieved party from such damage. Accordingly, it is necessary to ascertain whether the purpose of § 16(1) KonkS (prohibition of unfair terms) is to protect a person who has entered into a transaction with an undertaking holding a dominant market position against an unreasonably high sale price as a loss.

The Estonian court explains:

• § 16 points (1) to (6) KonkS are separate tort law defences within the meaning of § 1045(1)(7) LOA (according to which the damage was caused by conduct in breach of a legal obligation). It is sufficient if the defendant has breached a single protective provision, i.e., it is not possible to derive a protective provision which includes two or more of the elements contained in § 16 points (1) to (6) KonkS.
• For each provision in § 16 (1) to (6) KonkS, the specific purpose of protection must be assessed separately. If the damage for which compensation is claimed is not covered by the protection purpose of a provision, the act is not unlawful within the meaning of section 1045(1)(7) LOA, notwithstanding the existence of other preconditions for the breach of the protective provision.
• The purpose of the prohibition under § 16(1) (prohibition of unfair terms) is to protect the party who has entered into a transaction with a dominant undertaking from, inter alia, the damage resulting from the difference between a fair and an unfair price. This price difference can be regarded as direct pecuniary loss, which is covered by the protection purpose under § 16(1) KonkS.
• Compensation for other damages (e.g., lost profit) is not excluded, if these have occurred.

The distinction between the protective provisions (§ 16 points 1-6 KonkS) is also important because in deciding on culpability it must be assessed whether the defendant is guilty of a breach of a particular protective pro­vision. Thus, a person can claim the recovery of an overcharge within the meaning of § 16(1) KonkS based on §§ 1043, 1045(1)(7), 1045(3) and 1050 LOA if the dominant undertaking is guilty of a breach of § 16(1) KonkS.

Claim for damages or unjust enrichment

The claimant asked the Supreme Court to assess the claim for damages as a primary claim and the claim for unjust enrichment as an alternative claim. The claimant considered that the defendant's conduct was unlawful and had caused the claimant damage in the form of a difference between the excessively high sale price and the fair sale price.

Important clarifications from the Court:

• The overpaid purchase price can be considered both damages from unlawful act and unjust enrichment – the claimant can choose on what basis and in what order to seek recovery. In both cases, the statutory default interest (§ 113 LOA) can also be claimed.
• A contract where the dominant undertaking has set a selling price to the other party which is unfair within the meaning of the prohibition under § 16 (1) KonkS is void to the extent that it exceeds the fair price. The remaining part of the contract is valid.
• If the other party to the contract has already paid the dominant undertaking the unfair price under the sales contract, it is entitled to recover the excess under the unjust enrichment provisions.
• In the event of application of the provisions on unjust enrichment, the defendant may (according to § 1035(3)(2) and (3) LOA) also be obliged to pay to the claimant interest on the unjustly received money in the amount provided for by law or to compensate for the loss of profit from the unjustly received money, which the recipient could have received by following the rules of regular management.
• Unlike a claim for compensation for unlawful act, recovery of overpayments under the unjust enrichment provisions does not require a finding of fault on the part of the defendant (the seller).

Conclusion

The other party to the contract can rely on the fact that the undertaking holding a dominant position has set an unfairly high sales price under the contract and thereby infringed the prohibition of unfair terms, causing the other party to suffer damage.

The damages claimed by the other party must fall within the scope of the specific protection purpose of the protective provision. It is sufficient if the defendant has infringed one of the protective provisions. The purpose of the prohibition of unfair terms is also to protect the party who has entered into a transaction with a domi­nant undertaking against the harm resulting from the difference between a fair and an unfair price. The other party to the contract can choose whether to bring a claim for recovery under the provisions on unjust enrich­ment or compensation for unlawful damage.