The European Single Market seeks to guarantee the free flow of goods and services within the EU. In order to promote fair competition, European competition law regulates anti-competitive conduct, spanning from predatory pricing to tying and bundling techniques which may be exploited to create cartels and monopolies. Emma Grech, Partner, and Celine Abela, Legal Trainee at City Legal, analyse the traditional notion of tying practices under Article 102 TFEU, and shed light on the current legal framework’s suitability to assess tying practices on online platforms, particularly in the context of the recent Statement of Objections issued by the Commission against the multinational technology giant, Meta.

15 February 2023

Introduction

In a Statement of Objections sent in December 2022 by the European Commission to Meta, the Commission flagged the interaction of Facebook and ‘Facebook Marketplace’ services as a potential antitrust practice under EU law.[1] In this Statement, the Commission expressed its view that Meta is tying its social network Facebook to its online classified ads service Facebook Marketplace, consequently distorting competition in the market for online classified ads.[2]

A short note on Article 102 TFEU

Before delving into the merits of this matter further, a closer look at antitrust rules under Article 102 of the Treaty on the Functioning of the European Union (the ‘TFEU’) is warranted.

Article 102 TFEU expressly prohibits any abuse by an undertaking of a dominant position within the internal market or in a substantial part of it. It essentially regulates monopolies which restrict competition in a particular industry and produce worse outcomes for consumers and society in general. It is important to note that this Article governs a dominant undertaking’s conduct rather than its dominance since dominance in a particular industry by an undertaking is not prohibited. Therefore, Article 102 TFEU is triggered once there is the abuse of said dominance. In order to establish the application of Article 102 TFEU, the following elements must be cumulatively proven:

1. The undertaking must hold a dominant position in the relevant market;
2. The undertaking is prima facie adopting restrictive unilateral conduct; and
3. The restrictive unilateral conduct adopted cannot be objectively justified, and hence considered as abusive.[3]

The concept of ‘dominant position’ was defined in the landmark judgment of Hoffman-La-Roche, wherein the Court of Justice held that dominance is measured in terms of an undertaking’s economic strength, its ability to act independently on the market and its ability to influence the conditions of competition occurring on the market.[4] The assessment of dominance should be carried out on a case-by-case basis by firstly identifying the relevant market, and subsequently the undertaking’s position on and within that market.[5]

As regards abusive conduct under Article 102, it may range from exclusionary, exploitative, acts of reprisal, to acts aimed at dividing the Single Market.[6] For the purposes of this article, however, attention shall be given to the exclusionary type of abuse. Exclusionary abuse is conduct which is engaged in by the dominant undertaking and which is able to prevent competitors, either in whole or in part, from profitably entering or remaining active in a relevant market.[7] This is deemed to be the most harmful type of abuse as exclusionary practices make it easier to undermine the competitive process by preventing or blocking competitors, particularly new and small ones, from being able to compete on the same platform as their dominant counterparts. Tying practices provide an example of exclusionary abuse.

What constitutes tying, and why is it considered an anti-competitive practice?

Jones and Sufrin define tying and bundling as practices whereby: (i) the undertaking supplies a product or service (which constitutes the tying product) on condition that the customer obtains something else (i.e. the tied product) from the supplier as well; or (ii) the undertaking only supplies two things together; or (iii) the undertaking ensures that the two things only work properly together and do not work at all or as well with competitors’ products.[8] As a practice, tying is not necessarily anti-competitive. In reality, it can be commercially and economically advantageous to both suppliers and consumers. However, when adopted by dominant undertakings in a relevant market, tying increases the risks of ‘monopoly leveraging’, in the sense that a dominant undertaking uses its dominant position to restrict or bar competition in the relevant market, as a result of which the undertaking acquires significant market power. Article 102(d) TFEU specifically prohibits tying as a type of abuse;

Making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

One should bear in mind, however, that tying practices do not necessarily have to be pigeonholed into this provision of the law to constitute abusive practice, but must be considered on a case-by-case basis.

Completing the checklist for Meta’s alleged abusive tying practices

Under Article 102 TFEU, a tying practice is deemed abusive if the following are cumulatively proven:

1. The undertaking enjoys a dominant position in the market of the tying product;
2. The alleged tying must concern at least two separate products or, in this case, services;
3. The undertaking coerces customers into obtaining the tied products/services together;
4. The tying practice has an exclusionary effect over competitors; and
5. There is no objective justification for the tying practice.

In its Statement, the Commission deemed Meta to constitute a dominant undertaking in both the market for personal social networks and the national markets for online display advertising on social media. It argued that Meta has abused its dominant position as it has tied Facebook Marketplace (offering online classified ads) with its dominant social network platform Facebook. Upon logging into the platform, users may automatically access the Marketplace, consequently excluding competitors of Facebook Marketplace from competing on a level playing field since the tying gives Facebook Marketplace an unmatched substantial advantage over its competitors.

Facebook is a multi-sided digital platform, meaning that it acts as an intermediary by enabling interactions between and facilitates various services. This, the Commission is alleging in its Statement, could give rise to a new type of tying which may be caught under Article 102 TFEU based on the premise that the services being offered by Facebook as a multisided platform are tied to one another. This situation is different from the one already tackled in the Google Android case,[9] wherein the tying abuse by Google of the Google Search app with the Play Store, and the tying of Google Chrome with the Play Store and Google Search app, were considered.[10] In this case, all the products were platforms which interconnected two or more customer groups and hence constituted the tying of two or more multisided platforms. The Facebook Marketplace situation, however, concerns the tying of two or more services on the same multisided platform.

Proving the enjoyment of a dominant position in a relevant market may give rise to a problem with the definition of ‘a relevant market’. With the increased integration of services on online platforms, identifying a clear market is becoming all the more difficult, and one might not know whether to define a particular market by identifying the individual services offered or else by looking at the platform offering these services as a whole. In the case of Facebook, this seems to be a straightforward point given that social media and marketplace services offered are provided separately. This also makes the second criterion of identifying two separate services relatively ‘easy’ to prove.

The coercion criterion, however, will certainly give rise to challenges in practice. It will be difficult to prove how Meta is coercing its consumers to use both the Facebook service and the Facebook Marketplace service together. Anyone familiar with the Facebook interface is cognizant of the fact that using the social network service does not coerce you into using Facebook Marketplace. The mere ‘tile’ on top of the Facebook interface may only be clicked on a voluntary basis by the consumer/user to access the online ads service offered by Facebook Marketplace. Therefore, whilst the services may be deemed separate, there does not seem to be prima facie coercion of consumers to make use of both services and hence, the third criterion will most likely not be satisfied.

Having analysed the criteria for Meta’s conduct, it could be argued that the alleged abusive conduct does not fall within the definition of a tying practice for the purposes of Article 102 TFEU. It is to be appreciated however, that to date, the Commission has only issued a Statement of Objections, and Meta is yet to reply to said Statement and request a hearing to present their defense arguments. Only after Meta’s right of defense is exercised can the Commission arrive at a conclusion as to whether there is sufficient evidence of an infringement, consequently (and potentially) leading to a decision prohibiting said conduct and resulting in the imposition of the applicable fines.

For additional information and assistance with respect to your competition law needs, please contact us on:

Dr Emma Grech, Partner –

emma.grech@thecitylegal.com

Av. Celine Abela, Legal Trainee –

celine.abela@thecitylegal.com

DISCLAIMER: The information contained in this document does not constitute legal advice or advice of any nature whatsoever. Although we have carried out research to ensure, as far as is possible, the accuracy and completeness of the information contained in this article, we assume no responsibility for errors or other inconsistencies herein.

[1] European Commission, ‘Antitrust: Commission sends Statement of Objections to Meta over abusive practices benefiting Facebook Marketplace’ (19 December 2022) <https://ec.europa.eu/commission/presscorner/detail/en/ip_22_7728> Accessed 08/02/2023.

[2] Another concern, which for the purposes of this article will not be considered, and which has been raised by the Commission in the same Statement, relates to Meta’s imposition of unfair trading conditions on Facebook Marketplace’s competitors for its own benefit.

[3] TFEU, Article 102.

[4] Case 85/76, Hoffmann-La-Roche & Co AG v Commission [1979] ECR 461, 38/39.

[5] Jones Alison and Sufrin Brenda, EU Competition Law Texts, Cases and Materials (Oxford 5^th edn) 297-305.

[6] Lexis PSL, ‘Article 102 TFEU – abusing a dominant position – overview’ <https://www.lexisnexis.com/uk/lexispsl/competition/document/391329/55KB-7MM1-F187-5110-00000-00/Article_102_TFEU_abusing_a_dominant_position_overview> Accessed 08/02/2023.

[7] Ibid.

[8] Alison and Sufrin (n 4) 485,486.

[9] Case T-604/18, Google and Alphabet v Commission (Google Android).

[10]  Mandrescu Daniel, Lessons and questions from Google Android- Part 2- Tying two-sided markets, anti-competitive effects and extra-territorial remedies (27 November 2019) <https://www.lexxion.eu/en/coreblogpost/lessons-and-questions-from-google-android-part-2-tying-in-two-sided-markets-anti-competitive-effects-and-extra-territorial-remedies/> Accessed 08/02/2023.