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United Brands (ECJ)

United Brands v Commission of the European Communities
Court of Justice of the European Communities, Case 27/76
[1978] ECR 207, judgment of 14 February 1978 (309 paragraphs, about 40 pages)
Available online (HTML in capital letters) from EUR-Lex or from BAILII

Article 82: dominant position; restrictive abuses; discriminatory abuse; exploitative abuse
Article numbers refer to the 1997 consolidated version of the EC Treaty.

United Brands is a frequently cited precedent in EC competition law.

It covers, amongst other things, issues of market definition, the concept of a dominant position, and several types of abuse under Article 82.

The case relates to alleged abuses a dominant position by United Brands Company, the importer of the Chiquita brand of Latin American bananas. United Brands supplied these bananas unripe and in bulk to distributor/ripeners operating in various EC countries. The distributors would buy them while still green, ripen them using their own facilities and distribute them to retailers across their national markets.

The European Commission found in 1975 that United Brands had infringed Article 82 (then known as Article 86; references below have been amended to reflect the new numbering).

United Brands challenged the decision, arguing that it did not have a dominant position and (in the alternative) disputing the basis of the findings of abuse.

The Court of Justice (there was no Court of First Instance at the time) upheld the Commission decision on dominant position, on the restrictive conditions abuse, the refusal to supply abuse and the discriminatory pricing abuse. It quashed the Commission decision on exploitative abuse for lack of reasoning and analysis.

Dominant position

The Court confirmed the Commission's definition of a relevant market as the retail market for the sale of fresh bananas to consumers. It also confirmed that United Brands had a dominant position in respect of its trade with distributors, and it is the terms of supply to distributors rather than any activity in the retail market as such that were considered abusive.

Paragraph 65 of the judgment is often quoted as a characterisation of a dominant position:

65. The dominant position referred to in Article 82 relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition in being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers.

The following paragraph warns against using this soundbite on its own as a definition or test for a dominant position:

66. In general a dominant position derives from a combination of several factors which, taken separately, are not necessarily determinative.

The main points of law used by the Court to reach its decision on dominant position were as follows:

The main facts relied on to confirm United Brands' dominant position were:

Restrictive conditions abuse

The first abuse identified by the Commission was United Brands' restriction on its distributors from reselling its bananas while still green. Since ripe bananas have short shelf lives, the effect of this restriction was to prevent distributors from selling in other countries.

The Court confirmed that the imposition of a restriction on competition which affects cross-border trade within the Community is an abuse under Article 82, unless the restriction is justified and proportionate to its objectives.

United Brands argued that this restriction was imposed to ensure the quality of the final product sold to the consumers. The court dismissed this defence on proportionality grounds: the restrictions went beyond what was necessary to ensure quality.

The reasoning in the judgment focuses on rejecting the quality justification — presumably all parties accepted that an unjustified restriction tending to partition the common market was abusive, irrespective of whether it had any exclusionary effect:

157. To impose on the ripener the obligation not to resell bananas so long as he has not had them ripened and to cut down the operations of such a ripener to contacts only with retailers is a restriction of competition.

158. Although it is commendable and lawful to pursue a policy of quality, especially by choosing sellers according to objective criteria relating to the qualifications of the seller, his staff and his facilities, such a practice can only be justified if it does not raise obstacles, the effect of which goes beyond the objective to be attained.

159. In this case, although these conditions for selection have been laid down in a way which is objective and non-discriminatory, the prohibition on resale imposed upon duly appointed Chiquita ripeners and the prohibition of the resale of unbranded bananas — even if the perishable nature of the banana in practice restricted the opportunities of reselling to the duration of a specific period of time — when [sic] without any doubt an abuse of the dominant position since they limit the markets to the prejudice of consumers and affects trade between member states, in particular by partitioning national markets.

160. Thus UBC's organisation of the market confined the ripeners to the role of suppliers of the local market and prevented them from developing their capacity to trade vis--vis UBC, which moreover tightened its economic hold on them by supplying less goods than they ordered.

161. It follows from all these considerations that the clause at issue forbidding the sale of green bananas infringes Article 82 of the Treaty.

Refusal to supply abuse

The second abuse identified by the Commission was the refusal of United Brands to supply bananas to Olesen, a long-standing distributor in Denmark. United Brands argued that this refusal was justified by Olesen's decision to promote a rival brand (Dole) to the detriment of sales of Chiquita bananas, and also alleged quality shortcomings on Olesen's part.

The Court found that refusal to supply in these circumstances was an abuse, unless it could be justified:

182. It is advisable to assert positively from the outset that an undertaking in a dominant position for the purpose of marketing a product — which cashes in on the reputation of a brand name known to and valued by the consumers — cannot stop supplying a long standing customer who abides by regular commercial practice, if the orders placed by that customer are in no way out of the ordinary.

183. Such conduct is inconsistent with the objectives laid down in Article 3(1)(g) of the treaty, which are set out in detail in Article 82, especially in paragraphs (b) and (c), since the refusal to sell would limit markets to the prejudice of consumers and would amount to discrimination which might in the end eliminate a trading party from the relevant market.

Thus, the abuse stems from the restriction of competition and/or discrimination arising directly from the refusal to supply, and there is no need to demonstrate any exclusionary effect. In particular, the judgment concludes on abuse without a need to consider whether Olesen was able to stay in the market (defined at the retail market as being for all bananas) by obtaining another brand of bananas.

The Court acknowledges the right of any firm, even those in a dominant position, to take action in protecting its commercial interests, but says that in the case of dominant firms, such action should be strictly proportionate to the legitimate commercial objectives pursued.

Within reaching a conclusion on whether the quality issues raised by United Brands were genuine, the Court rejected United Brands' attempt at justification on the grounds that a complete cessation of supplies would in any event have been disproportionate:

189. Although it is true, as the applicant points out, that the fact that an undertaking is in a dominant position cannot disentitle it from protecting its own commercial interests if they are attacked, and that such an undertaking must be conceded the right to take such reasonable steps as it deems appropriate to protect its said interests, such behaviour cannot be countenanced if its actual purpose is to strengthen this dominant position and abuse it.

190. Even if the possibility of a counter-attack is acceptable, that attack must still be proportionate to the threat taking into account the economic strength of the undertakings confronting each other.

191. The sanction consisting of a refusal to supply by an undertaking in a dominant position was in excess of what might, if such a situation were to arise, reasonably contemplated as a sanction for conduct similar to that for which UBC blamed Olesen.

Discriminatory pricing abuse

The third abuse identified by the Commission was the differential pricing charged by United Brands to distributors in different member states. Bananas were generally supplied by United Brands to distributors in Rotterdam so the transactions were directly comparable.

United Brands argued that the differences were justified because the prices applied to distributors were directly linked to the final market price for bananas in each country.

The Court found that this argument provided no justification for discriminatory prices, which were imposed by United Brands, and affected cross-border trade, thus amounting to abuse irrespective of any commercial logic underpinning them.

228. Once it can be grasped that differences in transport costs, taxation, customs duties, wages of the labour force, the conditions of marketing, the differences in parities of currencies and the density of competition may eventually culminate in different retail selling price levels according to the member states, then it follows those differences are factors which UBC only has to take into account to a limited extent since it sells a product which is always the same and at the same place to ripener/distributors who — alone — bear the risks of the consumer market. ...

231. Thus, by reason of its dominant position UBC, fed with information by its local representatives, was in fact able to impose its selling price on the intermediate purchaser. ...

232. These discriminatory prices, which varied according to the circumstances of the member states, were just so many obstacles to the free movement of goods and their effect was intensified by the clause forbidding the resale of bananas while still green and by reducing the deliveries of the quantities ordered. ...

234. Consequently the policy of differing prices enabling UBC to apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage, was an abuse of a dominant position.

(Nobody appears to have raised an argument that United Brands' restrictions on cross-border resale meant that there was no material competition between distributors in different countries, and therefore arguably no competitive disadvantage.)

Exploitative abuse

The fourth abuse identified by the Commission was that United Brands charged unfairly high prices to customers in certain member states. The Commission claimed that these prices were "excessive in relation to the economic value of the product supplied".

United Brands argued that the prices were driven by market conditions prevailing in those countries, and that the higher prices charged by United Brands as compared to other branded and unbranded bananas were justified by the superior quality of its Chiquita bananas.

The Court quashed the Commission's decision in respect of this abuse. The judgment confirms that the burden of proof is on the Commission and finds that, in this case, the Commission could not discharge that burden without analysing cost data to assess whether prices charged by United Brands were abusive:

248. The imposition by an undertaking in a dominant position directly or indirectly of unfair purchase of selling prices is an abuse to which exception can be taken under Article 82 of the Treaty.

249. It is advisable therefore to ascertain whether the dominant undertaking has made use of the opportunities arising out of its dominant position in such a way as to reap trading benefits which it would not have reaped if there had been normal and sufficiently effective competition.

250. In this case charging a price which is excessive because it has no reasonable relation to the economic value of the product supplied would be such an abuse.

251. This excess could, inter alia, be determined objectively if it were possible for it to be calculated by making a comparison between the selling price of the product in question and its cost of production, which would disclose the amount of the profit margin; however the Commission has not done this since it has not analysed UBC's costs structure.

The judgment does not provide guidance on what result from a cost analysis would have discharged the burden of proof beyond the reference at paragraph 249 (quoted above) to a comparison with a hypothetical situation of "normal and sufficiently effective competition". This concept has been developed in subsequent cases, particularly Napp in the UK. See this Reckon article for a review of the concept of exploitative abuse arising from these developments.

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Last changed by Franck at 10:52 PM on Wednesday 21 May 2008.

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Reckon Open "United Brands" 2008-05-21T22:52:57
Link within Reckon Open: [[United Brands]]