The Swedish Market Court Rules in an Important Margin Squeezing Case Involving TeliaSonera

Lars Henriksson
In April, the Swedish Market Court ruled that telecom operator TeliaSonera engaged in margin squeeze in the broadband market during the period April 2000–January 2003. The judgement upheld a previous judgement by the Stockholm District Court made in December 2011 and was widely expected to. However, the Market Court’s decision substantially reduced the severity of the imposed fines due to the competition authority failing to satisfy the burden of proof. As professor Lars Henriksson (CELEC’s Vice Chairman) explains, this raises a number interesting legal questions and precedents related to the standard of proof in Swedish competition law cases.

The Swedish Market Court finally delivered the long awaited ruling in the TeliaSonera-case in April 2013. At the outset, it is inevitable to remark that the final ruling of case has delayed so long and that the cases has been open almost nine years. The case concerned margin squeezing by the telecom operator TeliaSonera during the period April 2000–January 2003. The Stockholm District Court delivered a ruling in the case as late as December 2, 2011, in which the court found that TeliaSonera had abused its dominant position on the relevant market and was ordered to pay administrative fines amounting to SEK 144 million. The ruling was based upon a preliminary ruling by the European Court of Justice (case C-52/09, Konkurrensverket v. TeliaSonera Sverige AB, ECR [2011], p. I-527. [link to judgement]) The ruling by the ECJ clarified more in detail the legal questions related to criteria for establishing abuse of dominance by margin squeezing. In the preliminary ruling reference was made to already established practice regarding price squeezing in Deutsche Telekom (case C-280/08 P, Deutsche Telekom AG v. EU Commission, ECR [2010], p. I-9555. [link to judgement]). In this short article I will not comment on the legal criteria for price squeezing under competition law, however the judgment was well in line with the expectations and came as no surprise to most readers – at least not regarding the question whether TeliaSonera had infringed the competition rules as such.

Nonetheless, the judgement of the Market Court entailed substantial reduction of the fines and the reasons thereto naturally give rise to many questions. Already in the heading of case some guidance is provided, as the Market Court underlines that one of the key legal questions in this case are the standard of proof in the competition law cases.

As a general rule, the Market Court, held that administrative fines are public sanctions that can be viewed as particularly severe and underlines that in several circumstances it has been held that the process should be regarded as an allegation of a crime according to Art. 6.2 of the European Convention of Human Rights and the presumption of innocence is very important to address. Against that background and the fact that this is a case in which settlement is not allowed the standard of proof is indeed high. Furthermore, it is a requirement, the Market Court held, that effective means are in place in order to safeguard a sustainable inquiry in cases concerning administrative fines.

A result of these basic demands is, according to the Market Court, that the competition authority has an obligation to present an inquiry that is “robust” in the sense that it is, as far as possible, not possible to find any other additional evidence that may influence the value of the evidence. Also, it is incumbent upon the authority to “reliably” prove both the circumstances that constitute the abuse itself and those circumstances that are relevant to be able to calculate the level of the fine. Consequently, the Market Court expresses a demand for a high standard of proof in general in cases concerning administrative fines.

On the issue of abuse, the Stockholm district court held that the LRAIC-method (long run average incremental cost) appeared as an acceptable method on which to base a finding of illegal price squeezing. The Swedish translation did, however, contain a misinterpretation as it mentioned marginal instead of incremental cost, however in general the Courts appears to have favoured a cost calculation method that entails product specific cost. The Market Court agreed with the court of first instance and held the LRAIC-method to be suitable for assessing price squeezing as abuse of dominance. The evidence presented especially by the witnesses did, however, express that that particular method does not correspond a real world accounting setting and actual price-cost calculation and that TeliaSonera had in fact never used that method in its pricing decision and that it was impossible to use it in practice. Based upon this assertion, the Market Court held that it was not possible to use the LRAIC-method, but it should nevertheless be possible to ascertain the product specific costs in another way, even if that meant resorting to another method than the established one. In doing so, the Market Court held that the inquiry – despite its vastness – was inadequate especially regarding what circumstances actually prevailed during the time of the infringement of competition law. As a result, it was not possible to find such a violation in the cases when the margin was positive. Therefore, it can be held that the Market Court placed a greater burden upon the competition authority to show actual circumstances that formed the basis for the pricing scheme under scrutiny and not just to follow out the standard LRAIC-method. This must be viewed as tougher standards of proof.

Regarding the evidence related to the circumstances relevant to the calculation of administrative fines, the Market Court held that the competition authority had not invoked any support that made it possible to reliably determine the level of turnover on the relevant market during the time the infringement was in place. Despite these shortcomings the Market Court ruled that the infringement was indeed a serious one. Oddly, the Market Court remarked that the case involved wrongdoings ten years ago and that this should be taken into consideration, however; in what way more specifically remains unclear. Perhaps this was a reference to the fact the oral evidence becomes less trustworthy over time as witnesses tend to forget crucial facts and that afterthought may occur.

The Market Court did find an infringement of competition law, but the court eventually reduced the fines from SEK 144 million to SEK 35 million, seemingly as a result of the competition authority failing to meet the high standard of proof established by the Market Court.

A press release by the Swedish Competition Authority
Judgement by the Swedish Market Court (Swedish)

– Lars Henriksson
Professor of Law, competition & antitrust law,
LL.D., M. Sc. Econ. BA SSE

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