ESSENTIAL FACILTIES DOCTRINE

legal doctrine which describes a particular type of claim of monopolization made

under competition laws. In general, it refers to a type of anti-competitive
behavior in which a firm with market power uses a "bottleneck" in a market to deny
competitors entry into the market. It is closely related to a claim for refusal to deal.

An essential facilities doctrine specifies when the owner(s) of an “essential” or

“bottleneck” facility must provide access to that facility, at a reasonable price. For
example, it might specify when a railroad must be made available on reasonable
terms to a rival rail company or an electricity transmission grid to a rival electricity
generator.

The concept of "essential facilities" requires there to be two markets, often

expressed as an upstream market and a downstream market. (The case of two
complementary products is logically the same, but confusing in exposition.)
Typically, one firm is active in both markets and other firms are active or wish to
become active in the downstream market.

The doctrine has its origins in United States law, but it has been adopted (often with
some modification) into the legal systems of the United Kingdom, Australia, South
Africa, and the European Union.

Under the essential facilities doctrine, a monopolist found to own "a facility essential
to other competitors" is required to provide reasonable use of that facility, unless
some aspect of it precludes shared access. [1] The basic elements of a legal
claim under this doctrine under United States antitrust law, which a plaintiff is
required to show to establish liability, are:

1. control of the essential facility by a monopolist

2. a competitor’s inability to practically or reasonably duplicate the essential
facility
3. the denial of the use of the facility to a competitor; and
4. the feasibility of providing the facility to competitors
The U.S. Supreme Court's ruling in Verizon v. Trinko, 540 U.S. 398 (2004), in effect
added a fifth element: absence of regulatory oversight from an agency (the Federal
Communications Commission, in that case) with power to compel access.

These elements are difficult for potential plaintiffs to establish for several reasons. It
is quite difficult for a plaintiff to demonstrate that a particular facility is "essential"
to entry into and/or competition within the relevant market. The plaintiff must
demonstrate that the "facility" must be something so indispensable to entry or
competition that it would be impossible for smaller firms to compete with the
market leader. Likewise, the plaintiff must show that compelling the dominant
firm to permit others to use the facility would not interfere with the ability of the
dominant firm to serve its own customers.

The first notable case to address the anti-competitive implications of an essential

facility was the Supreme Court's judgment in United States v. Terminal Railroad
Association, 224 U.S. 383 (1912).[2] A group of railroads controlling all railway
bridges and switching yards into and out of St. Louis prevented competing railway
companies from offering transportation to and through that destination. The court
held it to be an illegal restraint of trade. [3]

Similar decisions include,

 Associated Press v. United States , 326 U.S. 1 (1945), in which the Supreme
Court found that the Associated Press bylaws which limited membership and
therefore access to copyrighted news services violated the Sherman Act.
 In Lorain Journal Co. v. United States, 342 U.S. 143, 146-49 (1951), The Lorain
Journal was the only local business doing news and advertisements in town. The
case was that refusing to place an ad for the customers of a small radio station
was a Sherman Act violation. In the end, the court accepted an offer to simply
accept the advertisements.
 Otter Tail Power Co. v. United States , 410 U.S. 366, 377-79 (1973), in which the
Supreme Court found that Otter Tail, an electrical utility which sold electricity at
both directly to consumers and to municipalities who resold to consumers,
 violated the Sherman Act by refusing to supply electricity at wholesale, instead
serving customers directly itself.
 Aspen Skiing Co. v. Aspen Highlands Skiing Corp. , 472 U.S. 585 (1985),
upholding the Lorain Journal decision in holding that Aspen Skiing violated § 2 of
the Sherman Act by refusing to honor vouchers and ski lift tickets after it had
previously done so.
 Hecht v. Pro Football where potential American Football League franchise did not
show they needed Washington's RFK Stadium, the essential facilities doctrine
was not met.

Essential facilities doctrines vary significantly among legal regimes. They may vary
according to the types of "facilities," ownership and market structures to which they
may apply, and according to who makes the determination that a facility is
"essential."

European Union

There appears to be no clear statement on essential facilities in the jurisprudence of

the European Union. Three sources of possible enlightenment exist: two European
Court of Justice (ECJ) decisions on refusals to deal by a dominant firm (which were
not essential facilities cases), the first published Commission decision to use the
term, and a recent statement by a senior DG IV official. The two ECJ decisions --
Commercial Solvents and United Brands -- can be interpreted as providing a broad
duty to supply by firms in a dominant position.6 Whish writes (p. 619), "Dominant
firms must therefore be aware that they may have to justify any refusal to supply. It
is not enough that the refusal was in the firms' best commercial interests; it must
be objectively justified it if is to escape condemnation under Article 86."

The first published Commission decision to use the term "essential facility" is Sea
Containers v. Stena Sealink. (OJ L 15/8 (1993)) The Commission ruled that an
undertaking which occupies a dominant position in the provision of an essential
facility and itself uses that facility (i.e., a facility or infrastructure, without access to
which competitors cannot provide services to their customers), and which refuses
other companies access to that facility without objective justification or grants
access to competitors only on 9 terms less favourable than those which it gives to
its own services, infringes Article 86 if the other conditions of that Article are met.

Under the Competition Act, 2002 (hereinafter ‘the Act, 2002’ or ‘Competition Act’),
the essential facilities doctrine has been applied in cases relating to the denial of
market access by a dominant enterprise.[i] It is relevant to understand the concept
of the doctrine through its evolution in key jurisdictions around the globe.

Oscar Bronner GmbH & Co. KG v. Mediaprint Zeitungs-Case C-7/97, 1998 E.C.R. I-
7791, [1999] 4 C.M.L.R.

The most important case concerning ‘essential facilities’ is the Oscar Bronner
case[vi]. In this case, Oscar Bronner published a newspaper with a market share of
less than 4% of the Austrian newspaper market, while Mediaprint published two
newspapers with a combined market share of almost 50%. Mediaprint had
established a nationwide system for the distribution of newspapers early in the
morning, with deliveries to the subscribers’ homes. This system, the only one of its
kind, provided distribution services also to a newspaper published by a third
publisher. Oscar Bronner argued that the distribution system should be regarded as
an essential facility, as it lacked the ability to establish a competing system, and
that Mediaprint’s refusal to distribute Bronner’s newspaper should be regarded as
an abuse of a dominant position.

The ECJ when asked for a preliminary ruling in [para41] stated four factors which
should exist for a refusal to be an abuse. First, the refusal would have to be likely to
eliminate all competition in the downstream market from the person requesting
access [para38]. Second, the refusal must be incapable of objective justification
[para41]. Third, the access to the facility must be indispensable to carrying on the
other person’s business and finally, there must be no actual or potential substitute
for it. In this case the criteria were not fulfilled. The Court emphasized especially on
the fact that access must be indispensable and not desirable or convenient. In
[para45-46] the Court said that it would only be indispensable if it was not
economically viable to create a substitute for the facility. In his opinion A-G Jacobs
said in [para57-58] that there would be a “reduction of the incentive to invest to
essential facilities” if they were required to share them with all competitors and that
the interest of Article [82] is to protect the interests of consumers rather that the
interest of competitors.

In the Court’s view, use of Mediaprint’s home delivery service was not indispensable
since there were other means of distributing daily newspaper e.g. through shops or
post [para44] and so the behaviour of Mediaprint did not amount to an abuse.
However, the Court also mentioned that sometimes duplication can be physically
impossible such as in the case of a port or an airport or a second rail network.

This doctrine was examined by the CCI in the case of Arshiya Rail Infrastructure
Limited (ARIL).[xi] The CCI held that Container Corporation of India (CONCOR) was
not dominant in the relevant market but as an obiter on the issue of access of
terminals of CONCOR held that essential facilities doctrine can be only be invoked in
certain circumstances © technical feasibility ton provide access; (b) possibility of
replicating the facility in a reasonable period of time, distinct possibility of lack of
effective competition if such access is denied and possibility of providing access on
reasonable terms. Although the parameters are much wider that the parameter that
have been provided in Europe, in the case at hand in CONCOR it was held that since
there were no technical, legal or economic reasons why the other Container Train
Operators should not invest. It will be interesting to see of the same parameters
would be adopted for future cases or it would only be seen as an obiter.

In the landmark judgement of Shamsher Kataria v. Honda Siel Cars India Ltd.[xii],
the DG concluded that spare parts, diagnostic tools, manuals, etc., of each OEM
would constitute essential facilities for the independent repairers to be able to
provide consumers with effective after-sale repair and maintenance work. This
would be essential for independent repairers to be able to effectively compete with
the authorized dealers of the OEMs. The Commission pointed out that the essential
factors to be taken into account in determining whether spare parts of each OEM
would constitute essential facilities for independent repairers are: (a) control of the
essential facility by the monopolist; (b) the inability to duplicate the facility; (c) the
denial of the use of the facility; and (d) the feasibility of providing the facility.

This doctrine was examined by the CCI in the case of Arshiya Rail Infrastructure
Limited (ARIL).[xi] The CCI held that Container Corporation of India (CONCOR) was
not dominant in the relevant market but as an obiter on the issue of access of
terminals of CONCOR held that essential facilities doctrine can be only be invoked in
certain circumstances © technical feasibility ton provide access; (b) possibility of
replicating the facility in a reasonable period of time, distinct possibility of lack of
effective competition if such access is denied and possibility of providing access on
reasonable terms. Although the parameters are much wider that the parameter that
have been provided in Europe, in the case at hand in CONCOR it was held that since
there were no technical, legal or economic reasons why the other Container Train
Operators should not invest. It will be interesting to see of the same parameters
would be adopted for future cases or it would only be seen as an obiter.

In the landmark judgement of Shamsher Kataria v. Honda Siel Cars India Ltd.[xii],
the DG concluded that spare parts, diagnostic tools, manuals, etc., of each OEM
would constitute essential facilities for the independent repairers to be able to
provide consumers with effective after-sale repair and maintenance work. This
would be essential for independent repairers to be able to effectively compete with
the authorized dealers of the OEMs. The Commission pointed out that the essential
factors to be taken into account in determining whether spare parts of each OEM
would constitute essential facilities for independent repairers are: (a) control of the
essential facility by the monopolist; (b) the inability to duplicate the facility; (c) the
denial of the use of the facility; and (d) the feasibility of providing the facility.

Therefore, access to such technology was critical for any entity undertaking after-
sale services to be able to compete effectively on the market.