1.           Introduction

This paper is the Czech Republic’s contribution to the roundtable discussion on refusal to deal
held as part of the OECD Competition Committee meeting in October 2007. In this paper the Czech
Office for the Protection of Competition (hereinafter “the Office”) will discuss the refusal to
deal (hereinafter “RTD”) doctrine on an example of three cases addressed during its operation in
the recent years. In the Office’s experience, the refusal to deal is not a very frequent form of
abuse of dominant position and, as will be perceptible in the examples, it is a form that is
difficult to identify and is serious in terms of impacts on subsequent productions or on consumers.
In the following cases the Office succeeded in revealing and sanctioning the anti-competitive
behaviour or in preventing it on time, as the case may be, with its decisions being confirmed in
appellate proceedings.

2.           Refusal to deal with customer dependent on delivery

In the recent years the Office dealt with a case of refusal to deal in the area of petrochemical
material production. An original gigantic company mostly built in the second half of the 20^th
century was divided into two independent companies through privatisation. Oil cracking and
production of basic refinery material became the task of ČESKÁ RAFINÉRSKÁ, a. s., while the
production of further inputs for the petrochemical industry (such as rubber production,
agro-chemistry, production of building and coating materials, synthetic fibre, etc.) became the
main activity of CHEMOPETROL, a.s. Agreements were signed between both companies on the mutual
delivery of material while the production of the CHEMOPETROL competitor was fully dependent on
deliveries from the refinery. In such a situation of mutual interconnection of operations even a
brief delivery breakdown may have a grave impact on further production and the client’s equipment
condition. The material provider’s negotiating position was strengthened by the possibility to
threat with the suspension or stopping of deliveries.

Subsequently, both companies failed to reach an agreement on the prices of deliveries. The period
when deliveries were based on temporary contractual arrangements had lasted many months and the
supplier, ČESKÁ RAFINÉRSKÁ, elected to use a negotiation tool – prohibited to a dominant player on
the market – the threat and execution of RTD.

For this reason the Office was forced to initiate an administrative procedure on the basis of a
suspected abuse of dominant position by the refinery. In its decision the Office stated that the
party to the proceeding, ČESKÁ RAFINÉRSKÁ, abused its dominant position on the petrochemical
materials market by stopping the delivery of materials to its long-term client, CHEMOPETROL, for
approximately 39 hours on 31 May 2002 at 24 hrs, during the talks on conditions for the delivery of
petrochemical materials for the period starting on 1 June 2002, without any objectively justifiable
reason. By this it violated the provision of Section 11 paragraph 1 of the Act on the Protection of
Competition[1] to the detriment of CHEMOPETROL and other competitors purchasing petrochemical
products from this company.

Among other things the Office proved that in case of this refusal to deal it was almost impossible,
out of technical as well as economic reasons, for CHEMOPETROL to find a substitute supplier of the
required amount of raw materials to be able to continue the production within a reasonable time. In
order to respond in this way the company would have had to invest considerable amounts and would
have needed more time to adjust the production technology and local conditions to this situation
(the railway siding capacity, etc.). ČESKÁ RAFINÉRSKÁ communicated the first information on
realising its threat only about three months previously. Under the circumstances CHEMOPETROL was
unable to secure such amount of material for production from other sources under comparable
conditions to be able to fulfil its own contractual obligations toward its customers. This
dependence was then reflected in many subsequent production operations in the petrochemical and
agro-chemical industries and other competitors whose production depends on the delivery of products
from CHEMOPETROL (provided that some of these competitors are connected to CHEMOPETROL with their
pipe lines).

In the situation where there was no written agreement stipulating the conditions of delivery in
line with the supplier’s articles of association, nothing prevented the execution of deliveries on
the basis of mutual agreements expressing the will to deliver and purchase the raw material. In
order to overcome the basic disagreement – failure to agree on the material delivery price formulas
– both parties adopted short-term agreements temporarily covering certain periods. Such agreement
was not achieved for the period starting on 1 June 2002 by the expiration of the last valid
agreement (at 31 May 2002). The Office stated that both the supplier and the purchaser did not
exhaust all possibilities in their effort to reach such an agreement. Proposals by both parties
were gradually converging during the talks in May 2002 and the possibility to agree on a mutually
acceptable compromise solution was confirmed in an agreement at last. The refusal to deal, however,
caused damage as a result of a dominant player’s conduct on the market and it should not have been
used as a negotiation argument. The Office classified the delivery suspension notice – in months –
as too short for the fully dependent purchaser to find an alternative source of deliveries.

In the first instance decision the Office imposed a fine for violating the Act on the Protection of
Competition and, subsequently, the decision in the first instance was materially confirmed by the
Chairman of the Office and the imposed fine amounted to CZK 6 million (ca. EUR 210 thousand).

3.           Influence of the essential facilities doctrine

In another case the Office had to deal with the question whether it was legally possible to abuse
the dominant position of a competitor in the form of refusal to deal (RTD) without denying the
access to essential facilities (EF) at the same time, i. e. whether RTD and EF are two separate
concepts.

In 2005 the Office issued a decision declaring the abuse of dominant position by ČSAD Liberec, a.
s. on the market of services provided by the bus station in Liberec. These services are rendered to
entities operating public bus transport. After applying a legal appeal this decision was materially
confirmed by the Chairman of the Office and, subsequently, the administrative court.

In the first half of 2005, ČSAD Liberec abused its dominant position on the market specified above
by refusing to talk about the use and, subsequently, disabling a proper use of the bus station
operated by this company to STUDENT AGENCY s. r. o. for the purpose of operating domestic public
transport service on the Prague – Liberec line in both directions, even though it enabled other
competitors operating on the same bus line to use the station.

By such conduct the party to the proceeding violated the provision of Section 11 paragraph 1 of the
Act on the Protection of Competition to the detriment of STUDENT AGENCY which was discriminated in
the competition on the market of services provided by carriers operating domestic public transport
service on the Prague – Liberec line and also to the detriment of end consumers – passengers who
demanded services of domestic public transport on the Prague – Liberec line in the period in
question. The Office prohibited ČSAD Liberec to behave in this manner and a fine of CZK 2 million
was imposed (ca. EUR 69 thousand).

During the investigation the Office was identifying, among other things, whether there was any
other bus station or similar facility in the Liberec territory, which also determined the
geographic relevant market in this case, that could have competed with the bus station operated by
the party to the proceeding, i. e. a station that would facilitate the party’s objection that it
did not occupy a dominant position on the market. The party referred to many sites where the Prague
– Liberec bus line operator, STUDENT AGENCY, could park the vehicles, where passengers could get on
and off and where luggage could be handled. The Office’s task was to find out whether a similar
site was in existence in Liberec and, at the same time, whether the capacity of the bus station
operated by the party was really fully occupied, so that it was impossible to receive STUDENT
AGENCY buses in it (which was another objection raised by ČSAD Liberec). It was identified in a
local investigation that in Liberec there were several places where buses could be parked, that
they were more or less accessible by public transport and that they provided room for the waiting
of passengers. None of these places, however, was an adequate substitute for the bus station
operated by ČSAD Liberec.

For the passengers the bus station is important since it enables the changing of buses, as the bus
station concentrates a large number of public transport lines and thus the bus station is an
irreplaceable public transport hub for passengers. Furthermore, the bus station offers a number of
additional services to the passengers, on a smaller or larger scale, such as information boards and
counters, waiting room, left-luggage, toilets, tickets sale and seat reservation office, roofed
platforms, fast food stands, cash dispenser, telephone, news stand, exchange office, barrier-free
access to the station, local radio, parking area, etc. The services listed above together with the
possibility of changing buses mean that from the passengers’ point of view the bus stations are not
fully interchangeable with other places – facilities that serve or can serve as bus stops, etc.
This fact, in consequence, affects the perception of substitutability of bus stations with other
places by companies operating public bus transport services.

For carriers the most significant service provided by a bus station is the possibility to use
arrival and departure platforms for the purpose of getting on, getting off and changing of
passengers using the domestic or international lines or occasional lines (with a minimum parking
time guarantee) or the possibility to park on the bus station premises. The carrier information
publishing is another important service. For carriers and their drivers the bus stations usually
feature a dispatch service, cleaning at the station, relaxation room, toilets, canteen, car wash
and other services, filling station, etc. The Office stated that from the carrier’s point of view
the bus station is not adequately replaceable with other sites that do not provide services
connected with a bus station operation.

Further, it was identified that the capacity of the bus station in question was not fully utilised
and it enabled the use by other Prague – Liberec bus line operators, one of such carriers being the
station operator, i. e. the party to the proceeding, ČSAD Liberec. In this context the Office
carried out a detailed analysis of the timetables of all carriers using the bus station and the
Office staff members spent one full day at the station monitoring the capacity utilisation.

The Office’s conclusions concerning the party’s abuse of its position on the market of services
provided by its station while attempting to harm its competitor on the market of bus transport
services on the Prague – Liberec line were confronted with the allegation by ČSAD Liberec that
abuse of dominant position is achieved only by the fulfilment of facts in issue of denying access
to essential facilities (EF) without which other competitors cannot operate on the market. The
party pointed out the fact that the allegedly harmed competitor continued to provide its services
and operate its line, even though passengers are served on the road close to the bus station. The
bus station therefore cannot be a facility satisfying the EF definition.

The Office was of the same opinion as the party to the proceeding, yet it stated an abuse of its
position. After gathering all materials relevant for the decision the Office reached the conclusion
that companies operating public bus transport services do not need to use a particular stop as an
essential facility (even if it is a bus station at the terminal point of the line) in order to
compete on the market of services provided by public bus transport operators. On the other hand,
however, it was identified that the possibility to use the previously described terminal point of
the line represents a significant part of the carriers’ activity and also part of services offered
to consumers – passengers. Without this quality the particular carrier, STUDENT AGENCY, can compete
with its competitors and offer services to customers – passengers but with difficulty[2], which
fact discriminates this company in the competition on the market and, at the same time, it damages
this competitor as well as consumers – passengers for whom the bus station represents unique
comfort during their travel. The party to the proceeding had a dominant position, as in relation to
the carrier it was in the position of the sole operator of the bus station in Liberec. This bus
station does not have an adequate substitute on the defined geographic (local) market that STUDENT
AGENCY could possibly use.

The Office and, at a later stage, the court concluded that the party to the proceeding did not
operate a facility in the sense of essential facility, because even without access to this facility
STUDENT AGENCY (or any other carrier) could compete on the market, i. e. could offer its services
to customers. On the other hand, on the market of services provided by the bus station in Liberec
to entities operating public bus transportation the party to the proceeding was in a dominant
position which it was not allowed to abuse – if there were no objectively justifiable reasons for
doing so. Such reasons were not identified.

This case gave an answer to the question whether an abuse of dominant position by denying access to
a facility or refusing to deal must always take the form of denying access to an essential facility
(EF) or whether the subject facility does not necessarily have to meet the conditions in the EF
definition and still, by an unjustified denial of access to it, the competitor can abuse its
position. Both the Office and the administrative court drew the conclusion that the answer is
affirmative. Even though the bus station does not meet the EF definition conditions and carriers
can provide their services without access to the station, at the same time, it represents an
obvious quality that affects the transportation service standard. The dominant competitor
apparently did not face competition by fair means and in order to eliminate its competitor it took
advantage of the fact that it was the sole provider of services connected with the Liberec bus
station operation. So as to qualify its behaviour as a refusal to deal (RTD) it is sufficient to
use the general clause prohibiting the abuse of the dominant position to the detriment of another
competitor provided that the subject facility does not necessarily have to meet the conditions of
the essential facility (EF) definition.

The conclusion may be that RTD and EF are closely related and frequently connected competition
doctrines (where EF is in the position of a special fact in issue of dominance abuse), however,
these doctrines are not fully identical and the existence of EF is not a necessary condition for
the declaration of RTD, even if the subject behaviour of the dominant entity takes the form of
denying access to a facility.

4.           Dominant firm´s right to refuse one customer

The Office also addressed the issue of refusal to deal in an administrative proceeding with a
mobile operator, Eurotel Praha – currently Telefónica O2 Czech Republic (hereinafter “Eurotel“).
This proceeding was initiated on the basis of a complaint by Eurotel filed to the Office, trying to
establish whether its potential behaviour consisting in refusing a direct trade relationship in the
area of Go products distribution[3] with the company FINOS (Go products seller) is an abuse of its
dominant position under the Czech Act on the Protection of Competition. Eurotel refused to
establish this direct co-operation without stating any reason and in the absence of objective
reasons. After reviewing the case the Office stated that such behaviour would be an abuse of
dominant position on the relevant market of prepaid Go services to the detriment of FINOS. The
Office’s view was later on fully confirmed by the Regional Court in Brno.

Eurotel refused to supply one customer – FINOS – with Go prepaid cards. Prepaid cards as a payment
tool used in order to pay for telephone calls in prepaid services are issued by all mobile
operators in the Czech Republic provided that one mobile operator’s prepaid card cannot be used to
prepay services from another mobile operator. If customers wish to increase the Go service credit,
they have to obtain a credit voucher (prepaid card) issued exclusively by Eurotel.

The subject of administrative proceeding was to assess the behaviour of Eurotel in entering an
agreement on business co-operation with the distributor of prepaid cards and not in respect of the
end customers. The Office assessed whether the distributor had a possibility to enter a contractual
relationship with an entity issuing prepaid cards in order to be able to continue selling these to
its customers. When selling prepaid cards the distributors and retailers are allowed to compete
among themselves in setting the final retail price of the card.

Eurotel refused to specify any reasons for terminating the co-operation; on the contrary, it
insisted that it could refuse to establish a contractual relationship with FINOS without giving any
reason. However, with regard to the market share on the relevant market of Go prepaid cards (they
are not replaceable by any other cards or telecommunication services); the Office was forced to
state that such behaviour on this market would be an abuse of dominant position. Especially in a
situation where Eurotel, according to its information, assessed every offer of co-operation on an
individual basis, evaluated them ad hoc and no candidate was disqualified from the assessment in
advance. Eurotel further stated that it had set no criteria and conditions for entering its
distribution system, it was supposed to be an open distribution system and entering it was not
conditioned by any criteria or conditions that the candidates for distribution would have to meet;
the access was free. For this reason the Office stated that in terms of access to open distribution
systems the producer enjoying the dominant position is generally obliged to treat the candidates
interested in entering the system on a non-discriminatory basis, i. e. behave identically in
similar cases. The behaviour of a producer that does not respect such a requirement could
potentially bear the signs of the fact in issue of an abuse of dominant position as defined by law,
to the detriment of the distribution candidate.

Eurotel’s objection that the competition in distributing Go products cannot be affected by refusing
one candidate for the distribution of Go products, as there are great many distributors and a
rejected candidate was not excluded from the distribution of Go products absolutely because it had
a chance to enter a business relationship with one of the existing contractual partners of Eurotel,
does not change the above. The extent of the distribution network in terms of distributor numbers
or level as well as the openness of the system do not absolve the competitor in the dominant
position from the obligation to treat other competitors and consumers under similar conditions in a
similar way, so that unjustified discrimination or preference of competitors or consumers were
avoided.


5.           Conclusion

The Office’s decision-making practice should send a clear message to dominant companies that they
cannot abuse their dominant position toward customers and competitors, not even by refusing to
supply them with their products and services. The fact that the cases of refusal to deal were not
justifiable and did not represent healthy competitive behaviour can be proved by the fact that the
first-instance decisions by the Office were confirmed by appellate bodies in further instances. The
Office intends to continue this established trend and to carefully assess on case-by-case basis
whether the refusal to deal does or does not cause a detriment to competition and customers.
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[1]                  This provision is a so-called general clause prohibiting the abuse of the
dominant position to the detriment of other competitors or consumers; it provides some specific
cases of abuse as examples.

[2]                  Similar decision was issued by the Commission in the case Sea Containers v.
Stena Sealink, case 97/19/EC – essential facility is such facility or infrastructure without the
use of which competitors cannot provide services to their customers. See also the judgement by the
European Court of Justice in the case Oscar Bronner GmbH & Co. v. Mediaprint Zeitungs- und
Zeitschriftenverlag GmbH & Co. KG, Mediaprint Zeitungsvertriebsgesellschaft mbH & Co. KG and
Mediaprint Anzeigengesellschaft mbH & Co. KG., case C 7/97. It was decided repeatedly that this was
not an abuse of the dominant position in the form of “denying access to essential facilities“ (EF)
in case that there are real or potential substitutes, even though they are less advantageous. This
is why the particular “facility” does not have the character of being essential.

[3]                  Go products – prepaid mobile operator services. The customer does not pay
monthly fees to an operator, does not sign a written agreement, does not pay any activation fee and
pays only for the actual calls and text messages.