Introduction
This essay aims to advise Michael, a director of Your Health Inc, on whether the conduct of its German subsidiary, Your Health Germany GmbH (Your Health Germany), breaches European Union (EU) competition law. Specifically, it examines the exclusivity agreements made with major Swedish purchasers of antiviral herbal medicines, which include a 30% refund conditional on 90% of purchases coming from Your Health Germany. Using the IRAC (Issue, Rule, Application, Conclusion) method, this analysis will assess these actions under the framework of EU law, particularly Article 102 of the Treaty on the Functioning of the European Union (TFEU), which addresses abuse of dominant position. The essay will outline the legal principles, apply them to the facts, and provide a reasoned conclusion on potential breaches and their implications for Michael and the company.
Issue
The primary issue is whether Your Health Germany’s exclusive agreements with Swedish purchasers constitute an abuse of a dominant position under EU competition law. Given that Your Health Germany holds a 39% share of the EU market for antiviral herbal medicines, and its parent company controls 70% globally, there is a need to determine if this market power, combined with the restrictive agreements, violates Article 102 TFEU by limiting competition in the Swedish market.
Rule
Under EU law, Article 102 TFEU prohibits the abuse of a dominant position within the internal market or a substantial part of it, insofar as it may affect trade between Member States. Dominance is typically assessed by market share, with a presumption of dominance often arising at 50% or above, though lower shares (such as 40%) can indicate dominance if supported by other factors like barriers to entry or market structure (Hoffmann-La Roche v Commission, 1979). Abuse can include exclusionary practices, such as exclusivity agreements or loyalty rebates, which foreclose competitors from the market (Intel v Commission, 2017). For conduct to breach Article 102, it must not only demonstrate dominance and abuse but also show an effect on trade between Member States.
Application
Applying these principles, we first assess dominance. Your Health Germany holds a 39% market share in the EU for antiviral herbal medicines, falling below the 50% threshold. However, dominance can still be inferred due to the significant disparity with competitors (e.g., No Virus Ltd at 30%) and the potential barriers to entry created by Your Health Inc’s global 70% market control, which may afford economies of scale and brand strength. Furthermore, the EU market, including Sweden, likely constitutes a substantial part of the internal market, satisfying this criterion.
Next, we consider if the exclusivity agreements constitute abuse. The promise of a 30% refund contingent on purchasing 90% from Your Health Germany resembles a loyalty rebate, which can be exclusionary by incentivising purchasers to avoid competitors. Such practices have been deemed abusive in cases like Intel v Commission (2017), where rebates conditional on exclusivity were found to restrict competition. Here, the agreements arguably foreclose competitors like No Virus Ltd from accessing key Swedish purchasers, potentially harming consumer choice and innovation in antiviral medicines. Moreover, as Your Health Germany operates across the EU and hosts an online platform (Your Health Online), its conduct is likely to affect trade between Member States.
However, Your Health Germany might argue that the agreements are justified by efficiencies, such as ensuring supply chain stability or passing savings to consumers via refunds. Under EU law, such objective justifications are possible, but the burden lies with the company to demonstrate that the pro-competitive effects outweigh the anti-competitive harm—a high threshold to meet (Post Danmark v Konkurrencerådet, 2012).
Conclusion
In conclusion, Your Health Germany’s conduct likely breaches Article 102 TFEU. Although its 39% market share does not definitively establish dominance, the broader context of market power and barriers to entry supports this finding. The exclusivity agreements with Swedish purchasers appear to constitute an abuse by foreclosing competitors, and the cross-border nature of operations suggests an effect on trade between Member States. For Michael, as a director, this raises significant risks, including potential fines for the company by the European Commission and reputational damage. It is advisable to seek legal counsel to review these agreements and consider restructuring them to align with EU competition law, perhaps by removing exclusivity clauses or ensuring rebates are not conditional on near-total purchases. This situation underscores the importance of compliance with EU regulations, even for subsidiaries of multinational corporations.
References
- Case 85/76 Hoffmann-La Roche & Co. AG v Commission of the European Communities (1979) ECR 461.
- Case C-413/14 P Intel Corporation Inc. v European Commission (2017) ECLI:EU:C:2017:632.
- Case C-209/10 Post Danmark A/S v Konkurrencerådet (2012) ECLI:EU:C:2012:172.
- Whish, R. and Bailey, D. (2021) Competition Law. 10th edn. Oxford University Press.
