On the right track? GC sends mixed messages with Lithuanian Railways
The essential facilities doctrine imposes on holders of indispensable facilities a duty to deal with their competitors. While a railway track may seem essential, a track’s removal does not fall under this doctrine if carried out by a monopolist manager of a state-developed facility bearing a statutory obligation to grant third parties access to its facilities. According to the General Court, the Commission was therefore correct to use the general framework for abuse of a dominant position to assess the Lithuanian railway operator’s removal of a railway track.
For dominant companies controlling facilities which may be qualified as essential to their potential competitors, this judgment helpfully recognises the protection granted to investment incentives, but also seems to limit the scope of application of the essential facilities doctrine. The decision may have future relevance for tech industry’s ‘gatekeepers’ and the potential qualification of data as an essential facility.
In 2017, the Commission imposed a EUR 27 million fine for abuse of dominance on Lietuvos Gelezinkeliai (LG), the Lithuanian national railway company. The abuse concerns a 19km railway track, stretching from an oil refinery in Lithuania to the Latvian border. The owner of the refinery, an LG customer, was in negotiations to switch services to the Latvian national railway company (LDZ). LDZ needed the track if it was to make a competitive offer. Coincidentally, in the same period, the track was damaged, leading LG to quickly remove it. The removal meant that a longer alternative route through Lithuania had to be used, making LDZ’s offer uncompetitive.
LG appealed to the General Court, which rejected the appeal on substantive points, but reduced the fine in the exercise of its unlimited jurisdiction.
The essential facilities doctrine imposes on holders of indispensable facilities a duty to deal with a competitor if a strict standard is met: the refusal to deal will likely eliminate competition, there is no objective justification and the facility is indispensable. The General Court rejected LG’s claim that the track removal should have been reviewed under this framework, which balances the protection of competition with that of companies’ incentive to invest in the creation of essential facilities. LG’s dominant position derived from a state monopoly, therefore there was no investment to protect. Further, the legislator had carried out this balancing exercise when it imposed a regulatory obligation on LG to supply access to the railway.
The track removal had to be assessed under the general framework for abuse, and was found to be capable of hindering LDZ’s market entry by making its access to the market more difficult. LG had a special responsibility not to impair genuine, undistorted competition on the market and had failed to meet this responsibility.
Even though the General Court disagreed on substance with LG, it reduced the fine by a third as the conduct concerned a limited geographical space and affected only one of various rail routes between Latvia and Lithuania.
This ruling underlines the narrow scope of application of the essential facilities doctrine that, according to the General Court, only comes into play where the dominant undertaking’s investment incentives need protecting. The essential facilities doctrine was recently revamped in the context of tech industry ‘gatekeepers’ and the potential qualification of data as an essential facility. The Commission’s Digital Markets Act – due to be published on 15 December 2020 – is likely to further clarify how this doctrine fits into the plans to further regulate gatekeepers.
This article was published in the Competition Newsletter of December 2020. Other articles in this newsletter: