Abuse of a dominant position occurs when a dominant

Abuse of a dominant position occurs when a dominant firm in a market, or a dominant group of firms, engages in conduct that is intended to eliminate or discipline a competitor or to deter future entry by new competitors, with the result that competition is prevented or lessened substantially. Abuse of a dominant position occurs when a dominant firm in a market, or a dominant group of firms, engages in conduct that is intended to eliminate or discipline a competitor or to deter future entry by new competitors, with the result that competition is prevented or lessened substantially. These provisions, contained in sections 78 and 79 of the Competition Act, establish the bounds of legitimate competitive behaviour and provide for corrective action when firms engage in anti‑competitive activities that damage or eliminate competitors and that maintain, entrench or enhance their market power.
Where appropriate, the Commissioner will open discussions to try to obtain voluntary compliance with the law; sometimes this is all the action needed to correct the situation. A more formal solution would involve the registration of a consent agreement with the Competition Tribunal when all parties agree on a solution that will restore competition to the marketplace.
The Competition Tribunal is like a court, chaired by a judge and independent of any government department.
If voluntary compliance cannot be achieved, the Commissioner may file an application for an order before the Competition Tribunal to remedy the situation.
Subsection 79(1) sets out three essential elements that must be found to exist for the Competition Tribunal to grant an order. The Tribunal must find that:

1. 
   one or more persons substantially or completely control, throughout Canada or any area thereof, a class or species of business;
   
2. 
   that person or these persons have engaged or are engaging in a practice of anti‑competitive acts; and
   
3. 
   the practice has had, is having or is likely to have the effect of preventing or lessening competition substantially in a market.
   

The Tribunal has a number of remedies at its disposal to overcome the effects of anti‑competitive acts and restore competition. The most common remedy is an order that requires the anti‑competitive conduct to stop. The Tribunal may also impose an administrative monetary penalty on the company that was found to have abused its dominant position. This penalty can be for any amount up to $10,000,000 for the first order and $15,000,000 for any subsequent order made by the Tribunal against the same company.
Generally speaking, based on freedom of contract, business undertakings are free to choose their contracting partners and to use their property freely. In practice, this may also imply the possibility not to engage in business relations with some actors. The threshold for imposing a supply obligation is high, because imposing the obligation may weaken the incentives of both the dominant undertaking and competitors to invest and innovate, which causes harm to consumers.
In the case of a dominant undertaking, refusal to supply products may take the form of abuse of dominant position. Refusal to supply typically restricts competition in situations in which a dominant undertaking competes with the buyer in the aftermarket from whom it denies supply.
The criteria for a prohibited refusal to supply may be fulfilled when a dominant undertaking ceases deliveries to a customer or refuses an agreement with a potential customer. Refusal to supply may take the form of a direct refusal or an indirect refusal when such demands are set regarding pricing or other terms that is already known that the opposing side cannot accept them.
Discontinuing deliveries to old customers is more easily considered abuse than refusing to supply a new customer. Further, the right to refuse to supply a new customer is usually limited if the company sells the same product to other actors in the same position.
Examples:
For example, a medical company called Commercial Solvents refused to deliver aminobutanol, an essential ingredient of a drug used in the treatment of tuberculosis, to an Italian medical manufacturer called Zoja. Commercial Solvents occupied a dominant position in the production of aminobutanol and had its own subsidiary ICI which competed in the same downstream markets as Zoja. The ECJ held that the conduct of Commercial Solvents was particularly harmful for competition because it would have eliminated the only serious competition which the subsidiary ICI would have faced in the downstream market. After the ECJ’s decision, it has been found in case-law that the refusal of a dominant undertaking to supply products to a competitor operating in a downstream market constitutes an abuse of dominant position if the activities would result in theelimination of competition on the market.
An example of domestic case-law is case Suomen Numeropalvelu (SNOY), in which the Market Court found SNOY guilty of abuse of dominance by refusing to submit telephone subscriber information for the electronic telephone catalogue service by Eniro Oy (Dnro 281/05/KR and 293/05/KR).
The same question has often come up in a slightly different form in cases involving so-called key position or so-called essential facilities. These may include ports, air fields, and electricity and telecom networks. It is typical of such fields that the dominant incumbent may prevent competition by refusing to supply a resource to competitors that is extremely difficult or uneconomical to reproduce and that is essential for supplying a specific product or service. In such cases, the authorities have found it justified to force undertakings in a dominant position to offer to the competitors a bottleneck resource classified as a key commodity.
Examples:
In practice, this has resulted in similar claims in many other fields. For example, in the well-known Oscar Bronner case (C-7/97), the publisher of a daily newspaper, Oscar Bronner, demanded access into the home delivery system of a competitor called Mediaprint which was considerably bigger than Bronner. However, the ECJ held that such a home delivery system was not a bottleneck product in the same way as a port, for example. The Court held that there were other ways already exploited by Oscar Bronner to have products delivered. The Court also held that Oscar Bronner was unable to show that building a competing distribution system was impossible or uneconomical. The Court hence held that the activities of Mediaprint would not have led to the elimination of competition.
In the more recent Microsoft case, the conditions for imposing a supply obligation have been further specified. In order to consider an input objectively necessary, it is not required that refusal to supply is liable to eliminate all competitive factors from the market. What is significant is that the refusal may eliminate or is liable to eliminate all effective competition from the market. It should be specified in this regard that it is not sufficient to find for the existence of such competition that the competitors of a dominant undertaking remain marginally in the market in certain narrow market segments. (Case T-201/04, para 428 and 560-563)
In the light of the aforementioned cases, the essential question is: what is the effect of the dominating company’s conduct on competition, not on an individual competitor or competitors. In some cases it may be justifiable to demand that the dominating party offer its competitors a production input or resource that clearly plays a key role, if competition on the market were otherwise prevented.In some cases, however, undertakings in a dominant position may also have objectively justifiable grounds for refusing to supply which are also acceptable from a competition law viewpoint. In the case-law, justifiable grounds include the customer’s insolvency and capacity problems.
Tying
Tying is defined as a dominant undertaking selling one product only on the condition that the buyer also purchases a different product from the supplier or another seller appointed by the supplier. The first product is called a tying product and the second one a tied product. If tying is not objectively justified from the point of view of the product’s characteristics or commercial purpose, an abuse of dominant position may be involved.
If the buyers normally obtain the product from separate markets, the products are different from the buyer’s perspective. Whereas the buying of shoes and shoe-laces or a new car and tyres is a commonly prevailing and acceptable practice, which is also backed up by technical expediency reasons. Tying is hence not involved.
The tying effect can be achieved in many ways. The most obvious way is the contract clause where the supplier requires the buyer to purchase the tied product as well, as a condition to the delivery of the tying product. However, tying may be implemented in other ways. For example, a supplier may refuse to deliver the tying product without the tied product. Further, the claim to use the supplier’s components as a condition of guarantee may have a tying nature. Different pricing practices may also have a tying effect: prices and rebates may be determined so that the buyer will be left with no other rational choice than to obtain both or all the products needed from the supplier.
The major negative impact resulting from tying to competition is that it may result in the foreclosure of the market for the tied product from competitors. Sometimes, however, there may be objectively justifiable grounds for tying. For example, some technical equipment may only function in the best possible way if it uses parts which are optimized for the particular purpose. Furthermore, in some cases economies-of-scale and thereby cost-savings may be obtained by tying two products together. As a rule, tying is more to the detriment than benefit of competition.
Examples:
A classic example of tying is case Hilti. Hilti AG is a tool manufacturer who had demanded that customers who purchase its patented nail guns also purchase their nails exclusively from Hilti. The European Commission considered this abuse of dominant position and imposed a fine of 6 million euros on Hilti. In its appeal, Hilti found that the Commission was wrong in its view according to which nail guns and nails formed their own distinct markets instead of one undivided entity. The Court of First Instance held, however, that the markets were separate and that independent manufacturers of consumables should in normal circumstances be able to manufacture products for the equipment manufactured by others. Like the Commission, the Court of First Instance also held the arguments relating to product safety as artificial (Case T-30/89).
Another know example of tying is related to the multifaceted case Tetra Pak II. Tetra Pak had demanded that customers to whom it supplied equipment used for the packaging of liquid or semi-liquid food products also purchase from it the cartons which were required for manufacturing the liquid-packages. The Commission found that it is not usual to tie the products in question to each other and no technological considerations can be found for it either. The Court of First Instance confirmed the Commission’s finding about the separate markets and about Tetra Pak being guilty not only of tying but also of predatory pricing to eliminate competition. Noteworthy in the Court’s judgement is the finding that although there may exist a natural connection between the products or they would appear together in commercial usage, their tied selling still may, depending on the context, imply an abuse of dominant position (Case C-333/94 P).
Exclusive sales or exclusive purchasing agreements
An exclusionary sales agreement refers to an arrangement whereby the manufacturer grants a certain dealer the sole right to sell a product on a certain area. In an exclusive purchasing agreement, the buyer commits to buying a specific product from a one particular dealer only.
The common idea in the different exclusive agreements is to create an obligation or an incentive, as a result of which the buyer makes all its purchases on a specific market from one dealer alone. For an undertaking in a dominant position, such arrangements often have impacts which are harmful to competition, particularly in situations in which de facto and potential competitors cannot compete impartially for the entire demand of an individual customer. The necessity of a dominant undertaking as an obligatory trading partner may be due to for example the end-users' preferences or capacity restraints of other suppliers.
The exclusive agreements of a dominant undertaking are not prohibited automatically and in all circumstances but it is often highly likely that they have the nature of abuse of dominant position depending on the context in which they are applied.