Sale under Costs in German Competition law Den Haag, Sept. 28, 2005 Jochen Glöckner Prof. Dr....

Sale under Costs Sale under Costs in German Competition lawin German Competition law

Den Haag, Sept. 28, 2005Den Haag, Sept. 28, 2005

Jochen GlöcknerJochen Glöckner

Prof. Dr. Jochen Glöckner, LL.M. (USA)Chair of German and European Private and Business lawUniversität Konstanz<[email protected]>

Den Haag, NMa 2005Glöckner

The Seminal Case: The Seminal Case: Gas Gas Stations in BenrathStations in Benrath


The Seminal Case: Gas The Seminal Case: Gas Stations in BenrathStations in Benrath

• Facts of the CaseFacts of the Case– In the late 1920s the owner of a gas In the late 1920s the owner of a gas

station refused to either join the „Fuel station refused to either join the „Fuel Convention“ or raise his prices to the Convention“ or raise his prices to the level fixed by the convention. Decision level fixed by the convention. Decision of the convention to undercut his prices of the convention to undercut his prices by only one convention member in by only one convention member in Benrath at each time.Benrath at each time.



• The Legal StandardThe Legal Standard– No prohibition of cartels, but mere No prohibition of cartels, but mere

formal controls: cartel agreements must formal controls: cartel agreements must be in writing and notified, Cartel decree be in writing and notified, Cartel decree of 1923of 1923

• As a consequence more than 2.500 As a consequence more than 2.500 industrial cartels were registered in 1925industrial cartels were registered in 1925



• The Legal StandardThe Legal Standard– No prohibition of cartels, but mere formal controls: cartel No prohibition of cartels, but mere formal controls: cartel

agreements must be in writing and notified, Cartel agreements must be in writing and notified, Cartel decree of 1923decree of 1923

– „„§ 826 Civil Code: Wilful damage contrary to public policy § 826 Civil Code: Wilful damage contrary to public policy A person who wilfully causes damage to another in a manner A person who wilfully causes damage to another in a manner contrary to public policycontrary to public policy is bound to compensate the other for is bound to compensate the other for the damage“ the damage“

– „„§ 1 Act against Unfair Competition (1909): § 1 Act against Unfair Competition (1909): General ClauseAny person who, in the course of business activity and for purposes of competition, commits acts contrary to honest practices may be enjoined from these acts and held liable for damages.“



• The Legal StandardThe Legal Standard– No prohibition of cartels, but mere formal controls: cartel No prohibition of cartels, but mere formal controls: cartel

agreements must be in writing and notified, Cartel agreements must be in writing and notified, Cartel decree of 1923decree of 1923

– „„§ 826 Civil Code: Wilful damage contrary to public policy § 826 Civil Code: Wilful damage contrary to public policy A person who wilfully causes damage to another in a manner A person who wilfully causes damage to another in a manner contrary to public policycontrary to public policy is bound to compensate the other for is bound to compensate the other for the damage“ the damage“

– „„§ 1 Act against Unfair Competition (1909): § 1 Act against Unfair Competition (1909): General ClauseAny person who, in the course of business activity and for purposes of competition, commits acts contrary to honest practices may be enjoined from these acts and held liable for damages.“

…„gegen die guten Sitten verstoßenden Weise“ …



• The Solution of the Reichsgericht (1931)The Solution of the Reichsgericht (1931)– Based on §§ 1 AUC, 826 CCBased on §§ 1 AUC, 826 CC

• Distinction between „competition on the merits“ and „exclusionary Distinction between „competition on the merits“ and „exclusionary competition“ adopted from an expert opinion written by competition“ adopted from an expert opinion written by Nipperdey:Nipperdey:

• Damage to competitors has to be accepted as a consequence of Damage to competitors has to be accepted as a consequence of competition on the merits, unlike the improvement of one‘s position competition on the merits, unlike the improvement of one‘s position on the market as a consequence of exclusionary practiceson the market as a consequence of exclusionary practices

• Price competition is generally competition on the merits, yet Price competition is generally competition on the merits, yet becomes exclusionary, if part of a price policy that is limited to only becomes exclusionary, if part of a price policy that is limited to only one local market. one local market.

• Ratio decidendiRatio decidendi is not the bad intent of the act, but the effect on the is not the bad intent of the act, but the effect on the market: Court makes clear that even the cheapest price may turn market: Court makes clear that even the cheapest price may turn out to be an illusion for the public, if, after displacing the out to be an illusion for the public, if, after displacing the competitors, the survivor of the predatory pricing scheme returns to competitors, the survivor of the predatory pricing scheme returns to monopolistic pricing.monopolistic pricing.

• Defendants were enjoined to sell their fuels in Benrath under price Defendants were enjoined to sell their fuels in Benrath under price of Plaintiff as long as this price remained underneath the price fixed of Plaintiff as long as this price remained underneath the price fixed by the conventionby the convention


Consequences for Consequences for Competition and Unfair Competition and Unfair

Competition lawCompetition law• The purpose of Unfair Competition lawThe purpose of Unfair Competition law

– Act against Unfair Competition (AUC; 1896)Act against Unfair Competition (AUC; 1896)• protection of competitors (since late 19th century)protection of competitors (since late 19th century)

– Act against Unfair Competition (1909) Act against Unfair Competition (1909) • protection of „the public“ (?; since 1920s)protection of „the public“ (?; since 1920s)• protection of consumers (since 1960/70s)protection of consumers (since 1960/70s)• protection of competition:protection of competition:

– always assumed, made very clearly since 1970s by always assumed, made very clearly since 1970s by some scholarssome scholars

– Act against Unfair Competition (2004)Act against Unfair Competition (2004)• protection of competition now laid down in § 1 s. 2 protection of competition now laid down in § 1 s. 2

AUC 2004AUC 2004



Competition lawCompetition law• The purpose of Competition lawThe purpose of Competition law

– since 1958 Act against Restraints of since 1958 Act against Restraints of Competition (ARC)Competition (ARC)

• protection of competitionprotection of competition• somewhat reluctantly of competitors (cf. § 33 somewhat reluctantly of competitors (cf. § 33

ARC)ARC)



Competition lawCompetition law• RelationshipRelationship

– in 1950‘s doctrine of separationin 1950‘s doctrine of separation– later: identity of purposes with regard to later: identity of purposes with regard to

protection of competition, yet protection of competition, yet differentiation as for thrustdifferentiation as for thrust

• freedom: ARCfreedom: ARC• fairness: AUCfairness: AUC




– in 1950‘s doctrine of separationin 1950‘s doctrine of separation– later: identity of purpose with regard to protection of later: identity of purpose with regard to protection of

competition, yet differentiation as for thrustcompetition, yet differentiation as for thrust– various business practices with a monopolistic „touch“ various business practices with a monopolistic „touch“

have been dealt with under Unfair Competition lawhave been dealt with under Unfair Competition law• predatory pricingpredatory pricing• boycotboycot• refusal to deal (mostly under § 826 CC)refusal to deal (mostly under § 826 CC)• abuse of purchasing power in specific cases („tapping“): abuse of purchasing power in specific cases („tapping“):

asking of „entrance fees“, „shelf renting“, demand for asking of „entrance fees“, „shelf renting“, demand for advertising support)advertising support)

• sale under costssale under costs




– in 1950‘s doctrine of separationin 1950‘s doctrine of separation– later: identity of purpose with regard to protection of later: identity of purpose with regard to protection of

competition, yet differentiation as for thrustcompetition, yet differentiation as for thrust– various business practices with a monopolistic „touch“ various business practices with a monopolistic „touch“

have been dealt with under Unfair Competition lawhave been dealt with under Unfair Competition law– discussion under new AUC: still governed although not discussion under new AUC: still governed although not

reflected in the special provisions of §§ 4 ff. AUC?reflected in the special provisions of §§ 4 ff. AUC?– No case law yet, but most scholars think nothing has No case law yet, but most scholars think nothing has

changed, because the legislator didn‘t want to change changed, because the legislator didn‘t want to change anythinganything

– Yet rising awareness with regard to compatibility with Yet rising awareness with regard to compatibility with Competition lawCompetition law


Sale under Costs under Sale under Costs under Unfair Competition lawUnfair Competition law

• Sale under Costs as a part of a Sale under Costs as a part of a predatory pricing schemepredatory pricing scheme

– covered by § 4 no. 10 AUCcovered by § 4 no. 10 AUC

„„Unfair in the meaning of § 3 acts, whoeverUnfair in the meaning of § 3 acts, whoever

……

No. 10: directly hinders competitors.“No. 10: directly hinders competitors.“



• Sale under Costs as a part of a predatory pricing Sale under Costs as a part of a predatory pricing schemescheme

– covered by § 4 no. 10 AUCcovered by § 4 no. 10 AUC– price under costs per unit (evidence!)price under costs per unit (evidence!)– intention to displace: evidentiary problems usually lead intention to displace: evidentiary problems usually lead

to an assessment on objective grounds: sustained sale to an assessment on objective grounds: sustained sale under costs without good business reasons; under costs without good business reasons;

– apt to displace individual competitors (wishful thinking apt to displace individual competitors (wishful thinking not sufficient)not sufficient)

– (cf. BGH, GRUR 1990, 371 –(cf. BGH, GRUR 1990, 371 – Preiskampf Preiskampf; GRUR 1990, ; GRUR 1990, 685 – 685 – Anzeigenpreis IAnzeigenpreis I; GRUR 1990, 687 – ; GRUR 1990, 687 – Anzeigenpreis IIAnzeigenpreis II))



• Sale under Costs without predation, i.e. Sale under Costs without predation, i.e. without intention to displacewithout intention to displace

– governed by § 3 AUC (general clause), governed by § 3 AUC (general clause), because there is not individual hindrancebecause there is not individual hindrance

– price under costs per unit (evidence!)price under costs per unit (evidence!)– no business justificationno business justification

• e.g. market entry; sales promotion; out-stocking e.g. market entry; sales promotion; out-stocking outmoded goodsoutmoded goods

– apt to displace competitors (wishful thinking not apt to displace competitors (wishful thinking not sufficient) andsufficient) and

– *apt to do away with competition on the *apt to do away with competition on the relevant market almost completely (jeopardy to relevant market almost completely (jeopardy to the mere existence of competition)*the mere existence of competition)*



– BGH, GRUR 1990, 685 – BGH, GRUR 1990, 685 – Anzeigenpreis Anzeigenpreis II: Identity of standards of unfairness : Identity of standards of unfairness under § 3 AUC and abuse under § 20 under § 3 AUC and abuse under § 20 ARC; market power needs to be ARC; market power needs to be assessed also when judging unfairnessassessed also when judging unfairness

– BGHZ 129, 203 (1995) – BGHZ 129, 203 (1995) – Hitlisten-Hitlisten-PlattenPlatten: Different standards of : Different standards of unfairness and abuse, yet tests seem to unfairness and abuse, yet tests seem to be identicalbe identical



– BGH, GRUR 1990, 371 – BGH, GRUR 1990, 371 – PreiskampfPreiskampf: : • Price war between two large electronics discount Price war between two large electronics discount

stores in the field of LP records (1984), in the course stores in the field of LP records (1984), in the course of which prices fell from a typical 9,95 DM to 4,80 DMof which prices fell from a typical 9,95 DM to 4,80 DM

• The fact finding court had assessed that smaller The fact finding court had assessed that smaller record stores were unable to cope with these prices record stores were unable to cope with these prices and would be driven out of the marketand would be driven out of the market

• The Bundesgerichtshof was bound by this The Bundesgerichtshof was bound by this assessment of facts and applied the test described assessment of facts and applied the test described supra, thus holding the price war anti-competitivesupra, thus holding the price war anti-competitive



– BGH, GRUR 1990, 685 – BGH, GRUR 1990, 685 – Anzeigenpreis IAnzeigenpreis I: : • Market access of an editor with a new newspaper Market access of an editor with a new newspaper

giving away advertising space in this newspaper giving away advertising space in this newspaper when combined with (paid) ad space in a pre-existent when combined with (paid) ad space in a pre-existent newspapernewspaper

• The Bundesgerichtshof upheld its judicature with The Bundesgerichtshof upheld its judicature with regard to the jeopardizing of competition on the whole regard to the jeopardizing of competition on the whole market,market,

• but remanded for further fact finding, pointing out that but remanded for further fact finding, pointing out that a mixed calculation is a perfectly legal conduct. a mixed calculation is a perfectly legal conduct. Therefore it was necessary to take into consideration Therefore it was necessary to take into consideration the price of the full packagethe price of the full package



– BGH, WRP 1991, 484 – BGH, WRP 1991, 484 – Motorboot-Motorboot-FachzeitschriftFachzeitschrift: :

• one editor of a (monthly) yachting magazine one editor of a (monthly) yachting magazine gives away advertising space for private gives away advertising space for private classifiedsclassifieds

• The Bundesgerichtshof upheld its judicature The Bundesgerichtshof upheld its judicature with regard to the jeopardizing of competition with regard to the jeopardizing of competition on the whole market,on the whole market,

• and found such jeopardy, because it was a and found such jeopardy, because it was a closed market of few magazinesclosed market of few magazines

• „„network effects“network effects“



– BGHZ 129, 203 – BGHZ 129, 203 – Hitlisten-PlattenHitlisten-Platten (1995): (1995):

• sale under costs of CDs that were partly in sale under costs of CDs that were partly in the chartsthe charts

• The Cartel Senate of the Bundesgerichtshof The Cartel Senate of the Bundesgerichtshof rejected a jeopardy for competition on the rejected a jeopardy for competition on the whole market under § 1 AUC 1909whole market under § 1 AUC 1909



– BGH, WRP 2003, 1101 – BGH, WRP 2003, 1101 – Foto-AktionFoto-Aktion• Foto processing was offered by a drugstore at DM Foto processing was offered by a drugstore at DM

0,01 per exposure0,01 per exposure• BGH rejected „excessive enticement“, because there BGH rejected „excessive enticement“, because there

was no other sale tied to the foto processingwas no other sale tied to the foto processing• fact that customers enter drug store to bring in films fact that customers enter drug store to bring in films

and pick up processed films doesn‘t make it illegal to and pick up processed films doesn‘t make it illegal to bait with almost free productsbait with almost free products

• anticompetitive sale under costs, jeopardizing anticompetitive sale under costs, jeopardizing competition on the market as a whole, had not been competition on the market as a whole, had not been pleaded by the plaintiffpleaded by the plaintiff


Sale under Costs under Sale under Costs under Competition lawCompetition law

• Sale under Costs as a part of a Sale under Costs as a part of a predatory pricing schemepredatory pricing scheme

– covered by § 19 para. 1 ARC: Abuse of covered by § 19 para. 1 ARC: Abuse of a dominant position:a dominant position:

„„§ 19 ARC: Abuse of a Dominant Position§ 19 ARC: Abuse of a Dominant Position

(1) The abusive exploitation of a dominant (1) The abusive exploitation of a dominant position by one or several undertakings shall position by one or several undertakings shall be prohibited.be prohibited.



• Sale under Costs as a part of a predatory pricing schemeSale under Costs as a part of a predatory pricing scheme– covered by § 19 para. 1 ARC: Abuse of a dominant positioncovered by § 19 para. 1 ARC: Abuse of a dominant position

• requires a dominant position as defined in § 19 para. 2, 3 ARC:requires a dominant position as defined in § 19 para. 2, 3 ARC:„„(2) An undertaking is dominant where, as a supplier or purchaser of certain (2) An undertaking is dominant where, as a supplier or purchaser of certain

kinds of goods or commercial services, itkinds of goods or commercial services, it1. 1. has no competitors or is not exposed to any substantial competition, orhas no competitors or is not exposed to any substantial competition, or2. 2. has a paramount market position in relation to its competitors; for this has a paramount market position in relation to its competitors; for this

purpose, account shall be taken in particular of its market share, its purpose, account shall be taken in particular of its market share, its financial power, its access to supplies or markets, its links with other financial power, its access to supplies or markets, its links with other undertakings, legal or factual barriers to market entry by other undertakings, legal or factual barriers to market entry by other undertakings, actual or potential competition by undertakings established undertakings, actual or potential competition by undertakings established within or outside the area of application of this Act, its ability to shift its within or outside the area of application of this Act, its ability to shift its supply or demand to other goods or commercial services, as well as the supply or demand to other goods or commercial services, as well as the ability of the opposite market side to resort to other undertakings. Two or ability of the opposite market side to resort to other undertakings. Two or more undertakings are dominant insofar as no substantial competition more undertakings are dominant insofar as no substantial competition exists between them with respect to certain kinds of goods or commercial exists between them with respect to certain kinds of goods or commercial services and they jointly satisfy the conditions of sentence 1. services and they jointly satisfy the conditions of sentence 1.

(3) (3) An undertaking is presumed to be dominant if it has a market share of at An undertaking is presumed to be dominant if it has a market share of at least one third. …“least one third. …“



• Sale under Costs as a part of a predatory pricing Sale under Costs as a part of a predatory pricing schemescheme

– covered by § 19 para. 1 ARC: Abuse of a dominant covered by § 19 para. 1 ARC: Abuse of a dominant positionposition

• requires a dominant position as defined in § 19 para. 2, 3 requires a dominant position as defined in § 19 para. 2, 3 ARCARC

– covered by § 20 para. 1 ARC: unjustified hindrance covered by § 20 para. 1 ARC: unjustified hindrance (unbillige Behinderung):(unbillige Behinderung):„„Dominant undertakingsDominant undertakings, associations of undertakings within , associations of undertakings within the meaning of Sections 2 to 8, 28 (1) as well as Section 29, the meaning of Sections 2 to 8, 28 (1) as well as Section 29, and undertakings which set retail prices pursuant to Sections and undertakings which set retail prices pursuant to Sections 15, 28 (2), 29 (2) and Section 30 (1), 15, 28 (2), 29 (2) and Section 30 (1), shall not directly or shall not directly or indirectly hinder in an unfair mannerindirectly hinder in an unfair manner another undertaking in another undertaking in business activities which are usually open to similar business activities which are usually open to similar undertakings, nor directly or indirectly treat it differently from undertakings, nor directly or indirectly treat it differently from similar undertakings without any objective justification.“similar undertakings without any objective justification.“



• Sale under Costs as a part of a predatory Sale under Costs as a part of a predatory pricing schemepricing scheme

– covered by § 19 para. 1 ARC: Abuse of a covered by § 19 para. 1 ARC: Abuse of a dominant positiondominant position

• requires a dominant position as defined in § 19 para. requires a dominant position as defined in § 19 para. 2, 3 ARC2, 3 ARC

– covered by § 20 para. 1 ARC: unjustified covered by § 20 para. 1 ARC: unjustified hindrance (unbillige Behinderung)hindrance (unbillige Behinderung)

• still requires a dominant position; still requires a dominant position; • existence of provision has historic reasons: before existence of provision has historic reasons: before

the 6th amendment of the ARC (1999) it was the 6th amendment of the ARC (1999) it was necessary to have a provision directly applicable for necessary to have a provision directly applicable for competitors, as the predecessor of § 19 ARC was competitors, as the predecessor of § 19 ARC was only armed with administrative sanctions of the cartel only armed with administrative sanctions of the cartel authorities authorities




• requires a dominant position as defined in § 19 para. 2, 3 ARCrequires a dominant position as defined in § 19 para. 2, 3 ARC– covered by § 20 para. 1 ARC: unjustified hindrance (unbillige covered by § 20 para. 1 ARC: unjustified hindrance (unbillige

Behinderung)Behinderung)• still requires a dominant position; still requires a dominant position;

– covered by § 20 para. 2 ARC (since 1989)covered by § 20 para. 2 ARC (since 1989)„„Subsection (1) shall apply also to undertakings and associations of Subsection (1) shall apply also to undertakings and associations of undertakings undertakings insofar as small or medium-sized enterprises as insofar as small or medium-sized enterprises as suppliers or purchaserssuppliers or purchasers of certain kinds of goods or commercial of certain kinds of goods or commercial services services depend on them in such a way that sufficient or reasonable depend on them in such a way that sufficient or reasonable possibilities of resorting to other undertakings do not existpossibilities of resorting to other undertakings do not exist .“.“

• so-called relative market powerso-called relative market power




• requires a dominant position as defined in § 19 para. 2, 3 ARCrequires a dominant position as defined in § 19 para. 2, 3 ARC– covered by § 20 para. 1 ARC: unjustified hindrance (unbillige covered by § 20 para. 1 ARC: unjustified hindrance (unbillige

Behinderung)Behinderung)• still requires a dominant position; still requires a dominant position; • existence of provision has historic reasons: before the 6th amendment of the existence of provision has historic reasons: before the 6th amendment of the

ARC (1999) it was necessary to have a provision directly applicable for ARC (1999) it was necessary to have a provision directly applicable for competitors, as the predecessor of § 19 ARC was only armed with competitors, as the predecessor of § 19 ARC was only armed with administrative sanctions of the cartel authorities administrative sanctions of the cartel authorities

– covered by § 20 para. 2 ARCcovered by § 20 para. 2 ARC• doesn‘t require dominant position, but only that other SME depend upon doesn‘t require dominant position, but only that other SME depend upon

addressee (relative market power)addressee (relative market power)– price under costs per unit (evidence!)price under costs per unit (evidence!)– intention to displace individual competitorsintention to displace individual competitors

• usually based on objective evidence: no business justification (e.g. market usually based on objective evidence: no business justification (e.g. market entry; sales promotion; out-stocking outmoded goods)entry; sales promotion; out-stocking outmoded goods)

– apt to displace competitors (wishful thinking not sufficient)apt to displace competitors (wishful thinking not sufficient)



• Sale under Costs without predatory pricing Sale under Costs without predatory pricing – covered by § 19 para. 1 ARC: Abuse of a dominant covered by § 19 para. 1 ARC: Abuse of a dominant

positionposition– covered by § 20 para. 1 ARC: unjustified hindrance covered by § 20 para. 1 ARC: unjustified hindrance

(unbillige Behinderung)(unbillige Behinderung)– covered by § 20 para. 2 ARCcovered by § 20 para. 2 ARC– price under costs per unit (evidence!)price under costs per unit (evidence!)– no business justificationno business justification

• market entry; sales promotion; out-stocking outmoded market entry; sales promotion; out-stocking outmoded goodsgoods

– apt to do away with competition on the relevant market apt to do away with competition on the relevant market almost completely (jeopardy to the mere existence of almost completely (jeopardy to the mere existence of competition)competition)



• BGHZ 129, 203 – BGHZ 129, 203 – Hitlisten-PlattenHitlisten-Platten (1995) (1995)– standard of unjust exclusion under § 20 para. 2 ARC standard of unjust exclusion under § 20 para. 2 ARC

(ex-§ 26 para. 4 ARC) requires balancing of interests(ex-§ 26 para. 4 ARC) requires balancing of interests• ARC doesn‘t tolerate intentional displacementARC doesn‘t tolerate intentional displacement• ARC doesn‘t tolerate the creation of impediments to SME‘s ARC doesn‘t tolerate the creation of impediments to SME‘s

business conduct to an extent that the structural business conduct to an extent that the structural preconditions for effective competition are essentially preconditions for effective competition are essentially jeopardizedjeopardized

• the latter requiresthe latter requires– sale under costs not only occasional, but systematicsale under costs not only occasional, but systematic– advertisement with sales under costs frequent and intensive advertisement with sales under costs frequent and intensive

enough to give rise to the jeopardy to competitionenough to give rise to the jeopardy to competition

• action rejected, because chart-breaking records were action rejected, because chart-breaking records were advertised at prices under costs only on nine days within advertised at prices under costs only on nine days within one half yearone half year



• Sale under Costs without predatory pricing Sale under Costs without predatory pricing – covered by § 19 para. 1 ARC: Abuse of a dominant covered by § 19 para. 1 ARC: Abuse of a dominant

positionposition– covered by § 20 para. 1 ARC: unjustified exclusion covered by § 20 para. 1 ARC: unjustified exclusion

(unbillige Behinderung)(unbillige Behinderung)– covered by § 20 para. 2 ARCcovered by § 20 para. 2 ARC– covered by § 20 para. 4 s. 2 ARC (since 1999)covered by § 20 para. 4 s. 2 ARC (since 1999)

„„(4) Undertakings with superior market power in relation to (4) Undertakings with superior market power in relation to small and medium-sized competitors shall not use their market small and medium-sized competitors shall not use their market power directly or indirectly to hinder such competitors in an power directly or indirectly to hinder such competitors in an unfair manner. An unfair hindrance within the meaning of unfair manner. An unfair hindrance within the meaning of sentence 1 exists in particular if an undertaking offers goods sentence 1 exists in particular if an undertaking offers goods or services or services not merely occasionallynot merely occasionally below its below its cost pricecost price, unless , unless there is an there is an objective justificationobjective justification for this. for this.



• Sale under Costs without predatory pricing Sale under Costs without predatory pricing – covered by § 19 para. 1 ARC: abuse of a covered by § 19 para. 1 ARC: abuse of a

dominant positiondominant position– covered by § 20 para. 1 ARC: unjustified covered by § 20 para. 1 ARC: unjustified

exclusion (unbillige Behinderung)exclusion (unbillige Behinderung)– covered by § 20 para. 2 ARCcovered by § 20 para. 2 ARC– covered by § 20 para. 4 s. 2 ARC (since 1999)covered by § 20 para. 4 s. 2 ARC (since 1999)

• reaction to the Bundesgerichtshof‘s judgment reaction to the Bundesgerichtshof‘s judgment Hitlisten-PlattenHitlisten-Platten

• „„double analogy“ double analogy“ – extension of the concept of relative market power (§ 20 extension of the concept of relative market power (§ 20

para. 2 ARC) from vertical to horizontal relationspara. 2 ARC) from vertical to horizontal relations– assessment of resources, cf. § 19 para. 2 no. 2 ARCassessment of resources, cf. § 19 para. 2 no. 2 ARC



• Sale under Costs without predatory pricing Sale under Costs without predatory pricing – covered by § 19 para. 1 ARC: Abuse of a covered by § 19 para. 1 ARC: Abuse of a

dominant positiondominant position– covered by § 20 para. 1 ARC: unjustified covered by § 20 para. 1 ARC: unjustified

exclusion (unbillige Behinderung)exclusion (unbillige Behinderung)– covered by § 20 para. 2 ARCcovered by § 20 para. 2 ARC– covered by § 20 para. 4 s. 2 ARC (since 1999)covered by § 20 para. 4 s. 2 ARC (since 1999)

• reaction to the Bundesgerichtshof‘s judgment reaction to the Bundesgerichtshof‘s judgment Hitlisten-PlattenHitlisten-Platten

• „„double analogy“ double analogy“ • closing an apparent gap of protection:closing an apparent gap of protection:

– doing away with requirement of jeopardy to competitiondoing away with requirement of jeopardy to competition– shift of burden of proofshift of burden of proof



• Sale under Costs without predatory Sale under Costs without predatory pricing pricing

– § 20 para. 4 ARC in action§ 20 para. 4 ARC in action• first cases: first cases: Aldi-Nord, Wal*Mart, LidlAldi-Nord, Wal*Mart, Lidl, ,

BKartA, 1.9.2000, WuW/E DE-V 314, 316: BKartA, 1.9.2000, WuW/E DE-V 314, 316: prohibition to sell under costs; on appeal prohibition to sell under costs; on appeal OLG Düsseldorf, 19.12.2001, WuW/DE-R OLG Düsseldorf, 19.12.2001, WuW/DE-R 781 - 781 - Wal*MartWal*Mart: decision of the BKartA : decision of the BKartA quashed; on appeal on law BGH, quashed; on appeal on law BGH, 12.11.2002 – 12.11.2002 – Wal*MartWal*Mart: partly remanded: partly remanded



• Sale under Costs without predatory pricing Sale under Costs without predatory pricing – § 20 para. 4 ARC in action§ 20 para. 4 ARC in action

• The results of The results of Wal*MartWal*Mart::– addressees of the provision:addressees of the provision:

» it is immaterial whether or not there are other it is immaterial whether or not there are other powerful competitorspowerful competitors

» the provision wants to avoid a concentrative the provision wants to avoid a concentrative process at an early stageprocess at an early stage

» if competitor needs to react to (anti-)competitive if competitor needs to react to (anti-)competitive conduct of other powerful competitors, this relates conduct of other powerful competitors, this relates to a possible justification, but doesn‘t save him from to a possible justification, but doesn‘t save him from being an addressee of § 20 para. 4 ARCbeing an addressee of § 20 para. 4 ARC




– § 20 para. 4 ARC in action§ 20 para. 4 ARC in action• The results of The results of Wal*MartWal*Mart::

– addressees of the provisionaddressees of the provision– sale under costssale under costs

» it is not necessary for the provision to be it is not necessary for the provision to be applied that the addressee drops his sale applied that the addressee drops his sale prices below costsprices below costs

» it is sufficient, if the costs rise above the it is sufficient, if the costs rise above the continued sale pricecontinued sale price





– addressees of the provisionaddressees of the provision– sale under costssale under costs– „„not just occasionally“: more than two months not just occasionally“: more than two months

sufficientsufficient





– addressees of the provisionaddressees of the provision– sale under costssale under costs– „„not just occasionally“: more than two months not just occasionally“: more than two months

sufficientsufficient– no additional requirement of appreciability of no additional requirement of appreciability of

detriment to competitiondetriment to competition




• The results of The results of Wal*MartWal*Mart::– addressees of the provisionaddressees of the provision

– sale under costssale under costs

– „„not just occasionally“: more than two months sufficientnot just occasionally“: more than two months sufficient

– no additional requirement of appreciability of detriment no additional requirement of appreciability of detriment to competition or jeopardy to competitionto competition or jeopardy to competition

– no need to show a causal link between market position no need to show a causal link between market position and sale under costs; legislator has created an and sale under costs; legislator has created an assumption that such link exists. Objective justification is assumption that such link exists. Objective justification is only way out of liabilityonly way out of liability





– (cont‘d) objective justification, because (cont‘d) objective justification, because competitors started price war and were first to sell competitors started price war and were first to sell under costs?under costs?» No! § 20 para. 4 ARC requires look at the No! § 20 para. 4 ARC requires look at the

market as a whole. Conduct of individual market as a whole. Conduct of individual competitors as a rule cannot give rise to competitors as a rule cannot give rise to justificationjustification




• The results of The results of Wal*MartWal*Mart::– (cont‘d) objective justification, because competitors (cont‘d) objective justification, because competitors

started price war and were first to sell under costs?started price war and were first to sell under costs?» No! § 20 para. 4 ARC requires look at the market as No! § 20 para. 4 ARC requires look at the market as

a whole. Conduct of individual competitors as a rule a whole. Conduct of individual competitors as a rule cannot give rise to justificationcannot give rise to justification

» Exception: Irreparable damage + no means to Exception: Irreparable damage + no means to defend against anticompetitive conduct of defend against anticompetitive conduct of competitors (e.g. injunctive relief)competitors (e.g. injunctive relief)

» Exception granted, when cost prices rose in a „hold-Exception granted, when cost prices rose in a „hold-up“ like manner, competitor seeks for other up“ like manner, competitor seeks for other (cheaper) sources, which he finds subsequently (cheaper) sources, which he finds subsequently and bridges only a short period of time without and bridges only a short period of time without actively promoting price waractively promoting price war




• KG, 12.7.2001, WuW/E DE-R 727 - KG, 12.7.2001, WuW/E DE-R 727 - DienstagspreiseDienstagspreise::– the concept of cost price („Einstandspreis“):the concept of cost price („Einstandspreis“):

» case dealt with ticket prices for movie theaterscase dealt with ticket prices for movie theaters

» term „cost price“ relates not to the calculated price term „cost price“ relates not to the calculated price per unit (Selbstkosten), but to the price that was per unit (Selbstkosten), but to the price that was paid to a supplier (Einstandspreis)paid to a supplier (Einstandspreis)

» provision not applicable to goods that are produced provision not applicable to goods that are produced or services that are createdor services that are created




• BKartA, 17.12.2003, WuW/E DE-V 911 – BKartA, 17.12.2003, WuW/E DE-V 911 – FotoarbeitstascheFotoarbeitstasche

– the scope of § 20 para. 4 ARC exceeds the scope of § 1 the scope of § 20 para. 4 ARC exceeds the scope of § 1 AUC 1909 (now § 3 AUC), because jeopardy to AUC 1909 (now § 3 AUC), because jeopardy to competition on the market as a whole is not requiredcompetition on the market as a whole is not required

– the concept of cost price (Einstandspreise)the concept of cost price (Einstandspreise)» service prices can be cost prices under § 20 para. 4 service prices can be cost prices under § 20 para. 4

ARC: Laboratory services for foto processing are ARC: Laboratory services for foto processing are bought by drugstores and resold to end consumersbought by drugstores and resold to end consumers

» all rebates have to be included to calculate cost all rebates have to be included to calculate cost priceprice

– not only occasionally: more than three weeks sufficientnot only occasionally: more than three weeks sufficient– no justification by competitors‘ conduct under recourse no justification by competitors‘ conduct under recourse

to BGH – to BGH – Wal*MartWal*Mart




– § 20 para. 4 ARC in action§ 20 para. 4 ARC in action• VG Köln, 18.2.2005, CR 2005, 269VG Köln, 18.2.2005, CR 2005, 269

– the scope of § 20 para. 4 ARC is limited by the the scope of § 20 para. 4 ARC is limited by the special provision in § 24 para. 2 no. 2 Act on special provision in § 24 para. 2 no. 2 Act on Telecommunikation 1996Telecommunikation 1996




• OLG Hamburg, 20.11.2003, 3 W 127/03 – OLG Hamburg, 20.11.2003, 3 W 127/03 – Verkäufe unter Verkäufe unter EinstandspreisEinstandspreis

– § 20 para. 4 ARC – an instrument for resale price § 20 para. 4 ARC – an instrument for resale price maintenance?maintenance?

» The producer tried to enjoin a distributor from selling his The producer tried to enjoin a distributor from selling his goods under pricegoods under price

» no standing to sue under § 33 ARC 1998no standing to sue under § 33 ARC 1998» help from § 1 AUC 1909 (now §§ 4 no. 11, 8 para. 3 no. 1 help from § 1 AUC 1909 (now §§ 4 no. 11, 8 para. 3 no. 1

AUC? anticompetitive advantage through an infringementAUC? anticompetitive advantage through an infringement» court rejects: system of limited standing to sue under § 33 court rejects: system of limited standing to sue under § 33

ARC would be frustrated, if violation of § 22 para. 4 s. 2 ARC would be frustrated, if violation of § 22 para. 4 s. 2 ARC was considered a violation giving rise to a ARC was considered a violation giving rise to a competitive advantage under § 4 Nr. 11 AUCcompetitive advantage under § 4 Nr. 11 AUC


Sale under Costs -Sale under Costs -Some ConclusionsSome Conclusions

• Sale under Costs under a predatory pricing scheme („in Sale under Costs under a predatory pricing scheme („in Verdrängungsabsicht“)Verdrängungsabsicht“)

– prohibition based on competition law is economically soundprohibition based on competition law is economically sound• the grounds for prohibition, however, cannot be the bad intention, the grounds for prohibition, however, cannot be the bad intention,

but only the negative effect on competitionbut only the negative effect on competition• market participants will enter into „real“ predatory pricing only, if market participants will enter into „real“ predatory pricing only, if

they are sufficiently secure (1) to succeed, (2) to recoup their they are sufficiently secure (1) to succeed, (2) to recoup their investmentinvestment

• the latter is only possible, if the predatory pricing leads to the latter is only possible, if the predatory pricing leads to monopolistic market structuresmonopolistic market structures

• it is only fair to hold them by their conductit is only fair to hold them by their conduct• the problem is to identify „real“ predatory pricingthe problem is to identify „real“ predatory pricing• seldom do we find direct evidence (blackmailing letters; board seldom do we find direct evidence (blackmailing letters; board

minutes)minutes)• when relying on indirect evidence it is essential to exclude good when relying on indirect evidence it is essential to exclude good

business reasonsbusiness reasons• (cf. Art. 7 para. 2 let. d Swiss Cartel Act)(cf. Art. 7 para. 2 let. d Swiss Cartel Act)



• Sale under Costs under a predatory Sale under Costs under a predatory pricing scheme („in Verdrängungsabsicht“)pricing scheme („in Verdrängungsabsicht“)

– prohibition based on competition law is prohibition based on competition law is economically soundeconomically sound

• Sale under Costs without predatory pricing Sale under Costs without predatory pricing schemescheme

– prohibition based on jeopardy to competition on prohibition based on jeopardy to competition on the market as a whole is theoretically plausible, the market as a whole is theoretically plausible, but …but …

• … … very hard to prove for plaintiff in an individual casevery hard to prove for plaintiff in an individual case



• Sale under Costs under a predatory Sale under Costs under a predatory pricing scheme („in Verdrängungsabsicht“)pricing scheme („in Verdrängungsabsicht“)

– prohibition based on competition law is prohibition based on competition law is economically soundeconomically sound

• Sale under Costs without predatory pricing Sale under Costs without predatory pricing schemescheme

– prohibition based on jeopardy to competition on prohibition based on jeopardy to competition on the market as a whole is theoretically plausible, the market as a whole is theoretically plausible, but …but …

• … … very hard to prove for plaintiff in an individual casevery hard to prove for plaintiff in an individual case• … … legal assumption not very plausible: will pricing legal assumption not very plausible: will pricing

practice really ultimately lead to a weakening of practice really ultimately lead to a weakening of competition? competition?




– prohibition based on competition law is economically soundprohibition based on competition law is economically sound• Sale under Costs without predatory pricing schemeSale under Costs without predatory pricing scheme

– prohibition based on jeopardy to competition on the market as prohibition based on jeopardy to competition on the market as a whole is theoretically plausible, but …a whole is theoretically plausible, but …

• … … very hard to prove for plaintiff in an individual casevery hard to prove for plaintiff in an individual case• … … legal assumption not very plausible: will pricing practice really legal assumption not very plausible: will pricing practice really

ultimately lead to a weakening of competition? ultimately lead to a weakening of competition? • … … somewhat old-fashioned with regard to Industrial Economics: somewhat old-fashioned with regard to Industrial Economics:

the state‘s role as a kind of preserver of endangered species is no the state‘s role as a kind of preserver of endangered species is no longer acceptable. This holds particularly true, where there is fierce longer acceptable. This holds particularly true, where there is fierce competition between big competitors (LP records case)competition between big competitors (LP records case)






• … … very hard to prove for plaintiff in individual casesvery hard to prove for plaintiff in individual cases• … … legal assumption not very plausible: will pricing practice really legal assumption not very plausible: will pricing practice really

ultimately lead to a weakening of competition? ultimately lead to a weakening of competition? • … … somewhat old-fashioned with regard to Industrial Economics: somewhat old-fashioned with regard to Industrial Economics:

the state‘s role as a kind of preserver of endangered species is no the state‘s role as a kind of preserver of endangered species is no longer acceptable. This holds particularly true, where there is fierce longer acceptable. This holds particularly true, where there is fierce competition between big competitors (LP records case)competition between big competitors (LP records case)

– prohibition independent of any prohibition independent of any appreciableappreciable detriment to detriment to competition competition

• is even harder to justifyis even harder to justify• „„Mittelstandsschutz“ at its worstMittelstandsschutz“ at its worst






• … … very hard to prove for plaintiff in individual casesvery hard to prove for plaintiff in individual cases• … … legal assumption not very plausiblelegal assumption not very plausible• … … somewhat old-fashioned with regard to Industrial Economicssomewhat old-fashioned with regard to Industrial Economics

– prohibition independent of any prohibition independent of any appreciableappreciable detriment to detriment to competition competition

• is even harder to justifyis even harder to justify• „„Mittelstandsschutz“ at its worstMittelstandsschutz“ at its worst

– alternative solutionsalternative solutions• Art. 3 let. f Swiss AUC: assumption of misleading effect with regard Art. 3 let. f Swiss AUC: assumption of misleading effect with regard

to overall price levelto overall price level• increased control of purchasing powerincreased control of purchasing power

Sale under Costs in German Competition law Den Haag, Sept. 28, 2005 Jochen Glöckner Prof. Dr....

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Transcript of Sale under Costs in German Competition law Den Haag, Sept. 28, 2005 Jochen Glöckner Prof. Dr....