C-322/81

JUDGMENT OF 9. 11. 1983 — CASE 322/81

created by the discount system in 16. In assessing the gravity of the question, is not therefore based on infringement of the Community any countervailing advantage which competition rules, regard must be may be economically justified. had, according to the circumstances, to a large number of factors which may include in particular the size 15. When the holder of a dominant and economic strength of the under- position obstructs access to the taking, which may be indicated by market by competitors, it makes no the total turnover of the undertaking difference whether such conduct is and the proportion of that turnover confined to a single Member State as accounted for by the goods in long as it is capable of affecting respect of which the infringement patterns of trade and competition on was committed. the common market. It is for the Court, exercising its Moreover, Article 86 of the Treaty powers of unlimited jurisdiction on does not require it to be proved that this subject, to assess for itself the the abusive conduct has in fact circumstances of the case and the appreciably affected trade between nature of the infringement in Member States but that it is capable question in order to determine the of having that effect. amount of the fine.

In C a s e 3 2 2 / 8 1

N V N E D E R L A N D S C H E BANDEN-INDUSTRIE M I C H E L I N , having its registered office at ' s - H e r t o g e n b o s c h , represented by Ivo v a n Bael a n d Jean-François Bellis, of t h e Brussels Bar, a n d by Simeon M o q u e t Borde a n d Associates, acting t h r o u g h D o m i n i q u e B o r d e , of t h e Paris Bar, with an address for service in L u x e m b o u r g at t h e Chambers of Elvinger a n d H o s s , 15 C ô t e d'Eich, applicant,

THE COURT

composed of: J. Mertens de Wilmars, President, T. Koopmans, K. Bahlmann and Y. Galmot (Presidents of Chambers), P. Pescatore, Lord Mackenzie Stuart, A. O'Keeffe, O. Due and U. Everling, Judges,

Advocate General : P. VerLoren van Themaat Registrar: P. Heim

gives the following

JUDGMENT

Facts and Issues

based at Alkmaar. In that complaint the purchases of heavy and light tyres Commission was asked to adopt conditional upon the attainment of measures against Michelin N V pursuant a special "target" in respect of to Article 86 of the EEC Treaty and purchases of light tyres. Article 3 of Regulation N o 17 for abuse of a dominant position. The reasons for the complaint were first Michelin NV's The Commission also informed Michelin take-over of the company Actor NV, a N V of its intention to prohibit it from tyre-retailing company based at Bussum, granting discounts not directly linked to and secondly certain of Michelin NV's a genuine lowering of costs and to policies towards tyre dealers, especially impose a fine in respect of those regarding the discounts and bonuses practices to be determined in the light of granted to them. the duration and gravity of the infringement, which was of a serious By a letter dated 10 October 1978 the nature. Commission informed Michelin NV that the complaint had not been accepted as far as the take-over of Actor NV was On 20 June 1980 the Commission concerned but that the Commission was notified Michelin NV of further continuing its investigation into Michelin objections concerning discriminatory NV's practices regarding discounts and practices relating to the grant of bonuses. different payment periods to customers, to stock on consignment to certain dealers and to the grant of loans at O n 5 March 1980 the Commission sent reduced rates of interest to certain Michelin N V a statement of objections dealers. informing it that it considered that for the time being that Michelin NV held a dominant position in the Netherlands on Michelin N V submitted its written obser- the market for new replacement tyres for vations to the Commission on those lorries, buses and similar vehicles and objections. On 1 September 1980 the intended to adopt a decision declaring Commission held a hearing at which it that Michelin N V was intentionally or at heard oral argument from Michelin N V least negligently in breach of Article 86 and statements from several consumers by pursuing the following practices: and dealers acting as experts or appearing as witnesses.

In the case of tyre casings a distinction (a) binding tyre dealers in the must be made between light tyres for Netherlands to itself through the cars, tyres for delivery vans and light grant of selective discounts on an commercial vehicles, heavy tyres for individual basis conditional upon lorries and buses and tyres for agri- sales "targets" and discount percent- cultural tractors, road-building and ages, which were not clearly earth-moving machinery, aircraft and so confirmed in writing, and by apply- forth. Each of those types of tyre ing to them dissimilar conditions in includes a wide range of differing respect of equivalent transactions; qualities, treads and sizes. Manufacturers and and retailers always make a clear distinction in their gross prices and discount terms between those types of tyre. Since this case does not concern the (b) granting an extra annual bonus in relationship between Michelin N V and 1977 on purchases of tyres for the final consumer, it is not possible to lorries, buses and the like and on distinguish several sub-markets within purchases of car tyres, which was the lorry and bus tyre category. conditional upon the attainment of a "target" in respect of car tyre purchases. The tyre market consists of two distinct sectors: the original equipment market and the replacement market. Original equipment tyres are sold by the tyre manufacturer direct to the vehicle manu- In Article 2 the Commission imposed facturer whilst 85 to 87% of all a fine of 680 000 ECU or HFL replacement tyres for lorries and buses 1 833 184.80 on Michelin N V to be paid are sold through a large number of in guilders within three months of specialized dealers. notification of the decision.

and then sell the retreads or carry out themselves between their various manu- retreading to order for transport under- facturing and sales establishments. takings. Parallel imports and exports involve only relatively small quantities and are too random to be regarded as significant in the present state of the market. Retreads are not included in the relevant Netherlands dealers are accordingly market. New tyres and retreads are not dependent on Michelin NV for their regarded as wholly interchangeable as supplies of Michelin tyres. Furthermore, many consumers consider that the use of for the purposes of the discounts granted retreads entails a safety risk. Therefore to dealers, Michelin N V takes into limits are frequently imposed on the use account only the quantities of Michelin of such tyres. The way in which tyres purchased through the intermediary transport undertakings regard retreads is of Michelin NV. The Netherlands reflected in their price, which, even market would therefore appear to be the though they yield comparable mileage is relevant market in the case of Michelin 4 0 % or more below the price of a new NV. tyre. Moreover the possibility of offering retreads at attractive prices is obviously limited by the number of worn tyres in sufficiently good condition to undergo (b) The dominant position of Michelin retreading. Furthermore, transporters NV regard carcasses in good condition which they have bought new and have in their opinion used competently as belonging to them and wish to receive back their The Michelin group holds the principal own tyres after retreading. Tyre re- position amongst tyre manufacturers in treaders appear thus to be suppliers of the Community; on the world market, services. In the Netherlands more than only Goodyear is larger. Michelin half of all retreads are produced to order introduced the radial tyre and is still the for transporters. world's leading manufacturer of radial tyres, possessing a special degree of "know-how". Owing to its large-scale financial resources it has a clear lead in (ii) The geographical market specialized investment in this field. The range of tyres offered by Michelin in the Netherlands is larger than that of any other manufacturer. Even though several The relevant geographical market is the of its competitors have managed to catch Netherlands market, which forms a sub- up with Michelin to some extent, users stantial part of the common market. continue to show some preference for Michelin products. The fact that an exact idea may be gained of a tyre's reliability and cost price only after several years' Tyre manufacturers carry out their experience with it allows well-established activities on the various domestic mar- makes to maintain a strong position in kets primarily through the intermediary the long term. of subsidiaries established to supply the markets concerned. Trade in tyres between Member States and with a number of non-member countries mainly Michelin N V holds by far the largest consists of supplies by the manufacturers share of the Netherlands market in new

Michelin NV's share of the market in Consequently Michelin NV enjoys a retreads grew from 6% in 1975 to 18% dominant position on the relevant in 1979. At the end of 1977 Michelin market. NV acquired the major retreading undertaking Tyresoles (which it disposed of again in April 1980). This acquisition allowed Michelin to obtain a further (c) The conduct in question share of 20% of retreads fitted in the Netherlands and to control virtually one third of the Netherlands market in (i) The discount system heavy-duty retreads at that time. The pricing and discount policy pursued by Michelin NV with regard to dealers Michelin N V holds the principal position between 1975 and 1980 was char- on the Netherlands market in new acterized by the following features : replacement tyres for cars, with a market share of about one third. Its main competitors have market shares ranging A basic price which was published in between 5 and 13%. price lists;

An immediate and general discount on Michelin NV operates a substantial the invoice; commercial and technical service. On their own initiative its representatives regularly visit all the tyre dealers and Other discounts which in part were without informing the dealers also visit determined individually and selectively the users of heavy-vehicle tyres in order for each dealer;

JUDGMENT OF 9. 11. 1983 — CASE 322/81

MICHELIN v COMMISSION

Until 1978 a graduated series of three The criteria for determining the bonuses targets was established in most cases, were not known to the dealers. The with corresponding bonus figures in scales used for determining the level of similar graduated order. In general, the the annual bonuses, which were highest target was higher than the discontinued after 1978, were intended amount of purchases made in the only for internal use. Furthermore, until previous year while the bonus did not 1980 the dealers received only very show any increase. The retailer was thus sporadic written confirmation of the oral kept under pressure to try to sell more agreement concluded with the Michelin Michelin tyres every year. After 1978 representatives regarding the bonuses. Michelin N V set only one target and in The lack of written confirmation 1979 it also introduced a four-monthly regularly caused difficulties of interpret- target with a corresponding bonus ation and this together with the amounting to roughly one third of the complexity of the bonus system made it annual target which was again very difficult, or practically impossible consistently higher than the number of for the smaller dealer, to work out purchases made in the previous year. precisely how much he was earning on sales of Michelin tyres in a given year. Frequently the smaller dealers did not discover what their final bonuses were A comparison of the customer files until they opened the envelopes handed shows that dealers purchasing very to them at the end of the year by a different quantities often received the Michelin N V representative. Many same bonuses and vice versa. Further- dealers hesitated to complain about this more, Michelin N V did not stringently lack of written confirmation because apply the conditions on which the Michelin N V could easily change to a bonuses were granted. In some cases the competing dealer who was more bonus was unilaterally reduced when the cooperative. target was not reached. The way in which the bonus schemes were applied The changes in the discount system for was entirely at the discretion of Michelin lorry tyres from 1975 to 1980 are set out N V in each individual case. in the following table:

During the same period the invoice The bonuses were not quantity discounts discount automatically granted by the because comparable amounts purchased other tyre manufacturers amounted to 40 never resulted in the payment of the to 6 0 % , sometimes supplemented at the same or comparable discounts and end of the year by an annual bonus represented .Michelin NV's individual amounting to a few per cent. This annual assessment of a given dealer's per- rebate granted by other manufacturers formance and its forecasts. Even if the was known beforehand and was not used difference in discounts granted to dealers as an individualized sales target. amounted to no more than 2.55% in the years 1975 to 1978, it cannot be described as marginal or negligible. Since the discount system to a great extent deterred dealers from taking advantage The system of bonuses fixed on an of offers made by competitors during the individual and selective basis was aimed course of the year, it must be regarded at tying the dealers closely to Michelin as a variant of loyalty rebates although it N V by putting them under increasing was not linked to an exclusive pur- pressure to exceed each year their figures chasing requirement. for the previous year or to maintain them in a poor year. That pressure was increased still further by the regular visits made by Michelin NV's representatives. The structure of the discount system strengthened the organizational links The anti-competitive and discriminatory binding independent dealers to Michelin effects of the discount system were N V The advance bonus, the remainder further reinforced by the absence of of the annual bonus, the automatic written notification and confirmation of monthly bonus and the four-monthly targets. Until. 1980 representatives gave bonus were regularly used by Michelin only oral notification of the targets and N V as a means of pressure even though associated rebates at the beginning of the the system was progressively simplified in year. They were not confirmed in 1979, particularly as regards the advance writing. The resulting uncertainty bonus. increased the dependence of dealers. A purely oral notification used by an undertaking in a dominant position to communicate complicated terms of sale amounts, by reason of the misunder- The discount system was not only standings and difficulties which may incompatible with the concept of arise for the dealer, to abusive conduct. undistorted competition within the meaning of Article 3 (f) of the Treaty; it also involved discrimination within the terms of Article 86 (c) since the discounts did not correspond to services objectively provided and ascertainable but the criteria applied were clearly subjective The aim of this commercial policy of and essentially based on the loyalty Michelin NV was to bind dealers to it as shown to Michelin NV. Dissimilar closely as possible. The discount system conditions were therefore applied to was of such a nature that it could only equivalent transactions. In any event this be practised by an undertaking in a policy gave Michelin N V the opportunity dominant position. Michelin's competi- to practise discrimination. tors do not use a similar system.

(it) The extra bonus in 1977 By making the grant of an extra annual bonus for heavy- and light-vehicle tyres dependent on the attainment of a specific In addition to the normal bonuses target for light-vehicle tyres Michelin described above Michelin NV from time NV put its competitors at a disadvantage to time granted extra bonuses. For as regards their scope for selling light- instance, when it could not meet demand vehicle tyres and for a time thereby for heavy-vehicle tyres in 1977, Michelin impeded sales of light-vehicle tyres N V took advantage of the situation to intended for the Netherlands market and grant an extra annual bonus of 0.5% for originating mainly in other countries of purchases of heavy- and light-vehicle the Community. tyres and made it conditional upon a set "target" being reached in respect of the latter. The purpose of that target was to stimulate sales of light-vehicle tyres. (e) Applicability of Article 15 (2) of Regulation No 17

T h e infringement must be regarded as 2. By an application lodged on 5 April serious because the commercial policy 1982 the Government of the French pursued by Michelin N V significantly Republic sought leave to intervene in distorted competition on the Netherlands support of the applicant. Leave to market over a long period by leaving intervene was granted by order dated 5 dealers no freedom of decision as May 1982. regards purchasing, creating discrimi- nation and strengthening its dominant The Government of the French Republic position. On the other hand credit confines its observations to the question should be given to Michelin NV for the whether trade between Member States is changes and relaxation of its policy affected and whether the conduct in effected in 1978 and 1979. The question must be classified as an abuse. It Commission also regards the grant of the claims that the Court should : extra bonus in 1977 as a serious infringement. Declare the Commission's decision of 7 October 1981 void on the grounds of The Commission concludes that in view lack of competence and infringement of of Michelin NV's total turnover, which the Treaty; amounted to some HFL 455 million in 1980, as well as the gravity of the Order the defendant to pay the costs, infringement at issue and the intensity including those of the intervener. with which the discount system was applied, a total fine of 680 000 ECU should be imposed on Michelin N V in 3. The Commission contends that the respect of the two infringements Court should: established. Dismiss the action as unfounded;

After that meeting and upon hearing the report of the Judge-Rapporteur and the In assessing whether an undertaking views of the Advocate General, the occupies a dominant position on the Court decided to open the oral market for a given product, only the procedure without any preparatory choices open to the person using the inquiry. product should be considered and not those of the intermediaries marketing it. A dealer's views on the interchange- ability of a product are irrelevant. From the dealer's point of view — the level III — The submissions and which the Commission took as its basis a r g u m e n t s a d v a n c e d by t h e — there are no grounds for separating parties during the written the market in tyres for lorries, buses and procedure similar vehicles from the tyre market in general. At that level all products are by definition interchangeable with certain limits and heavy-vehicle tyres are simply 1. The relevant market one of the products in the product range.

respects to that of new tyres and that cannot refute the existence of a there are no limits on their use, for dominant position. example, on the front axles of vehicles or on passenger vehicles. The prejudices still shown by some users and dealers towards the use of retreads are not sufficient for them to be classified in a market of their own. In this connection regard must be had to objective The applicant seeks to distinguish characteristics and not to subjective markets corresponding to micro-cate- perceptions. As a matter of fact the use gories of tyres. For this purpose it of retreads is on the increase and not all considers only elasticity of demand, users are prejudiced against them. entirely ignoring elasticity of supply relating in particular to the special char- acteristics of production and the extent to which various products are technically complementary at manufacturing level. It is necessary to have regard to a number of criteria in order to define the relevant market. Besides elasticity of supply and demand the perceptions of traders should also be considered. The alleged incoher- ence of the Commission's definition of Every retread that is in use takes the the market merely reflects a necessarily place of a new tyre and is sold in the complex approach without which same way as a new tyre through the economically and legally correct intermediary of dealers. It is not possible conclusions would not be possible. to distinguish between the "product" and the "service". There is no difference between retread tyres sold in exchange for a carcass and tyres that are retreaded "carcass included". In their statistics the trade organizations make no such distinction. The limitations on the The extent to which products are inter- production of retreads are not a ground changeable makes it possible to for excluding them from the relevant determine the external limits of a market market, especially since those limitations — that in tyres — within which are not very great, as any new tyre may "submarkets" must be distinguished be retreaded two or three times. depending on the structure of demand. This is characterized by the fact that unlike buyers of car tyres buyers of heavy-vehicle tyres are most frequently trade purchasers. Lorry and bus tyres are bought by undertakings which require them regularly and in large quantities, that is to say by experienced buyers. This affects the dealer's role: a dealer in heavy-vehicle tyres is expected to give The Commission contends first of all that technical advice and provide a it is paradoxical for the undertaking specialized after-sales service not only concerned to claim that the relevant for the tyres themselves but also for the market is too wide since such a claim wheels.

To this Michelin NV replies that the criterion of interchangeability or the capacity to serve as a substitute is the key concept in defining the market and that As regards the exclusion of retreads from the argument relating to elasticity of the relevant market, the Commission supply, for which in fact the Commission stresses that 80 to 9 5 % of retread tyres adduces no. evidence and which it did are retreaded to the order of haulage not use in its decision, is untenable. The undertakings and remain their property. method of manufacture is basically the The market in question is therefore a same, regardless of tyre size, so that this service market. Furthermore, users idea does not allow lorry and bus tyres consider retreads less safe and in practice to be classified in a market separate from they are used only on rear axles. the tyre market in general. Irrespective of the "objective" facts, retreads are not a genuine alternative as far as dealers are concerned. This opinion of users is reflected in the lower price of retreads. Even if mileage is taken into account, the price of retreads tends to be lower than the price of new tyres. As regards the role which the dealer has In a price economy in which the true to play, Michelin N V stresses that users state of affairs is determined by the of van tyres are to a considerable extent market or in other words by supply and also trade users and that users of car demand, it is pointless to take tyres, particularly commercial travellers "objective" characteristics into account. and taxi-drivers, are quite capable of making an informed and expert choice of tyre and are just as demanding as customers for heavy-vehicle tyres.

The Commission is relying on a number 2. The dominant position of factors, such as technological advance, large financial resources and active research and development policies, which are far beyond the capacity of Michelin Michelin NV maintains that the N V and apply only to the Michelin Commission has distorted the relative group as a whole. Such factors, relating positions of strength of Michelin N V to the whole group, may not be taken and its competitors by using an artificial into account unless the Commission and arbitrary definition of the market, takes a much wider market, even the namely a general market in heavy-vehicle :. world market, as its basis. tyres. In its submission retreads must also be included in that market. Its share of the market in tyres — including retreads — for lorries, buses and similar vehicles The manufacturers with whom Michelin is on average about 37%, which is not of competes in the Netherlands are under- such an order as to establish the takings on a world-wide scale. To existence of a dominant position. consider only the Netherlands market and to take into account considerations not specific to that market gives a false picture of competition in the The other factors relied on by the Netherlands. Commission as proof of Michelin NV's dominant position are irrelevant. Michelin NV is not the only undertaking to employ commercial representatives; its The Commission points out that this major competitors employ more represen- complaint concerns not so much the tatives in relative terms than Michelin definition of the market as the finding N V whose number of representatives has that Michelin N V dominates the market. remained stable since 1970. The more or Once the geographical market has been less wide range of products offered by a defined it is quite normal to assess the manufacturer cannot amount to a position of an undertaking active on that competitive advantage since the various market by reference to the advantages types of tyre are not interchangeable and which it derives from belonging to a Michelin N V does not require its dealers larger group. to buy its whole range of products.

The Commission points out that Michelin NV does not deny that its share of the In deducing from an examination of the market in new tyres for heavy vehicles is market position at the level of the user 57 to 6 5 % . Even if retreads were to be instead of the relative strengths of •included in that market, only retreads competitors at the level of dealers that a actually put on the market would have to dominant position exists vis-à-vis dealers be taken into account; retreads done to the Commission's argument is highly order would have to be disregarded. This illogical. Sales of new heavy-vehicle would not make Michelin NV's market Michelin tyres represent on average only share much lower than that stated in the 12 to 18% of dealers' total turnover decision. Nor does Michelin NV deny which precludes any dominant position. that its market share is greater than its competitors' by a considerable margin.

Account should also be taken of the fact that users of heavy-vehicle tyres are The importance of Michelin NV's experienced trade buyers and this fact commercial representatives is clear in considerably diminshes the importance of particular from their work at the

JUDGMENT OF 9. 11. 1983 — CASE 322/81

question they must always approach the commercial and technical level, as undertaking with the dominant position. described in the decision. The fact that Michelin NV's representatives can approach tyre users without having regard to the dealers, who are compelled to accept their suppliers' encroaching on The counter-influence arising from the their province, is evidence of Michelin fact that users of heavy-vehicle tyres are NV's dominant position. Michelin NV's experienced trade buyers cannot cancel wide range of products makes each out the dominant position but can at the dealer dependent on Michelin NV which most only diminish some of its effects. thus has the means of pressurizing dealers and influencing their purchasing policy.

MICHELIN v COMMISSION

JUDGMENT OF 9. 11. 1983 — CASE 322/81

unfounded as they were agreed by the occupying a dominant position. Such a dealers and Michelin NV's commercial penalty would be all the more unjust in representatives at the beginning of the this case because the undertaking year. The cases cited by the Commission concerned owes its market position to to prove that this was not the case were the quality of its products. Since of dealers whose sales had suddenly Michelin N V constantly has to face very fallen and who claimed that they had not keen competition throughout the world, properly understood the terms on which any fetters on its ability to react and the discounts were granted although adapt itself to competition would be such these had never caused them any as to put its very existence in jeopardy. problems in the past. The discounts had to be notified to the dealer otherwise they would have been pointless. Each dealer who asked for written confir­ mation always received it.

MICHELIN v COMMISSION

from being negligible. What is more, if been sufficient. However, Michelin N V the dealer did not attain the lowest sought by means of its system artificially target, or after 1978 the single target, he to encourage the dealer to adhere to his could not be sure of not losing all his own estimates and took an active part in annual discount because Michelin preparing those estimates for the reserved the right to impose that drastic purposes of fixing the targets. penalty. In at least one case Michelin threatened to withdraw the advance already paid on a dealer's annual bonus if he did not achieve his target for the year in question. In seeking to prove that its system amounted to a quantitative-discount system Michelin NV ignores the fact that its discounts were not based on a scale applying to all its trade customers, were The contention that Michelin NV's linked to individualized targets and were discount was purely quantitative is applied in a way which was totally contradicted by the customer records. obscure as far as the dealers were For instance, in one case a dealer with a concerned. Even if the customer records considerably lower total turnover than do not show that the proposed annual another dealer still received a higher bonus was directly linked to the pro- maximum discount than the other for portion of Michelin tyres in a dealer's attaining a much lower maximum target total purchases, which Michelin NV than that set for that other dealer. This representatives were required to express individual character of the discount by the equivalent of what used to be system is borne out by Michelin NV's termed the "temperature Michelin", statements regarding the difficulty of Michelin NV can hardly deny that this reducing the discounts in the event of a factor was one of the most important decline in turnover. considerations in the individual fixing of both the discount and the target.

annual bonus. In absolute figures, this to cost savings and whose object is to represents thousands or tens of limit the advantage for the buyer in thousands of guilders, which are choosing another supplier's product may considerable sums for the undertakings not be used by an undertaking in a involved. dominant position. With the exception of bargain prices, an undertaking in a dominant position may lower its prices ony for all buyers in general, which means that that restriction on the Prior to a statement made at the hearing dominant undertaking amounts to an in this case in 1980, Michelin NV's obligation not to discriminate. policy was not to confirm officially agreed discounts; such confirmation could be obtained only by way of exception and after much insistence. That prohibition may even apply to certain kinds of quantitative rebates not linked to cost savings. In this regard the Commission refers to a decision of the Since the targets and discounts were not Bundeskartellamt of 22 October 1979 confirmed in writing the dealer was left (Wirtschaft und Wettbewerb, 2/1980, p. in doubt and uncertainty — not from the 145) which was upheld by the Kammer- legal point of view but as regards the gericht on 28 November 1980 facts — because he has great problems in (Wirtschaft und Wettbewerb, 1/1981, p. calculating his discount. This increased 15). The discounts in this case however Michelin NV's freedom of action. are, in addition, individualized and secret.

The market in replacement tyres for order to offset the adverse effects of the heavy vehicles is an open and shortage on dealers' remuneration, competitive market. Michelin N V allows Michelin N V announced, and not until its dealers complete commercial freedom. September, the grant of an extra end-of- There is nothing reprehensible in an year bonus of 0.5% for all dealers who undertaking's creating strong ties with its attained the purchase target for light dealers. They choose to buy Michelin tyres agreed at the beginning of 1977, tyres for a variety of reasons connected which was the same as for the previous with the quality, prestige and price of the year. The bonus in question was an extra product. discount on purchases of car tyres, consisting of an increase in the usual discount on purchases of car tyres for 1977, and was no different from the usual discount on purchases of car tyres Michelin did not seek to strengthen its to which the Commission had never dominant position but expanded entirely objected. by means of internal growth and by a commercial policy conforming with the law, suited to commercial tyre-users and fully in line with its long-term strategy. The Commission is therefore making two errors in claiming that the sales target for light tyres was a "special" target and that the bonus of 0.5% was (b) The extra bonus in 1977 calculated on purchases of light and heavy tyres when it was calculated on the basis of total purchases of all current categories of tyres.

shortage with extra remuneration cannot consequences of that shortage. The be termed an abuse. The extra bonus had dealers had no choice but to accept that no anti-competitive purpose or effect. conduct on the part of the dominant undertaking if they wished to maintain their competitive position on the market. Even if that commercial practice does not come within the letter of Article 86 (d), it is conduct which distorts competition on the market in light tyres In reply the Commission, relying on the and comes within the spirit of that customer records, denies that dealers provision. In any event the practice is were not offered the extra bonus until caught by the general prohibition of September. In any case, even if it was abuse of a dominant position contained not offered until September 1977, it in Article 86. It is not a normal means of would still have made it possible to competition for an undertaking to influence purchases in the last quarter, maintain the limited degree of compe- which commercially is the most tition on the market in replacement tyres important part of the year in the tyre for heavy vehicles by attempting to trade. The bonus was linked to a special strengthen its position in respect of car target, at any rate to a target expressly tyres, which constitute a different fixed for car tyres. It was the same as, or market. even higher than, the annual maximum target ·— and in a year in which demand for car tyres was falling. Michelin NV introduced the bonus because it had foreseen a shortage of heavy-vehicle tyres on the Netherlands market due to an increase in its exports to the United States. It was therefore an addition to 4. Effect on trade between Member States the discounts on heavy-vehicle tyres and was meant to compensate lower sales of such tyres.

that parallel imports took place; it foresee with a sufficient degree of accepts too that the tyre market is probability that it may have an influence, competitive. No evidence or fact has direct or indirect, actual or potential, on been adduced to prove that owing to trade between Member States. The Michelin NV's discount system a single question whether one of Michelin NV's dealer on a single occasion placed an competitors complained of an adverse order with Michelin NV rather than with effect on trade is immaterial. The another manufacturer. The Commission's Commission does not necessarily have to assertion that Michelin NV's competitors adduce factual evidence that trade were affected by the practices in question between Member States is affected if it is is not based on a shred of evidence. convinced of the probability that it is actually or even potentially affected. If its analysis of the discount system is correct, there is no doubt that it made it more difficult for Michelin NV's competitors to gain access to the In taking this case up the Commission network of independent dealers and that has interfered in a purely local dispute as a result their imports into the between Michelin NV and a few dealers Netherlands were incapable of growth or in the Netherlands which has no were able to grow only very slightly. Community dimension at áll.

JUDGMENT OF 9. 11. 1983 — CASE 322/81

assertions are abstract and subjective; dealers. Michelin NV thus weakened its they are barely supported by the facts European competitors on the Nether- and leave a number of considerations out lands market and made access by of account. Japanese manufacturers easier.

The market in question is an open market on which 25 to 28°/o of the 5. Infringement of the rights of the defence heavy-vehicle tyres competing with Michelin tyres originate in other Member States and on which parallel imports of Michelin tyres also take place. Michelin TVK contends that the adminis- Michelin N V has not sought to seal off trative procedure of the Commission was the Netherlands domestic market nor has irregular in so far as it infringed the it obstructed parallel imports. Neither rights of the defence. Michelin N V nor the Michelin group can be penalized for deciding at the right time upon an astute industrial strategy in building a factory in the Netherlands, on Despite two requests from Michelin N V the ground that trade is adversely the Commission has not provided it with affected because Michelin NV's a single document from its file apart competitors have not pursued the same from the complaint lodged by Frie- policy. It must be stated that Japanese schebrug BV. In particular it has not manufacturers seized their opportunity disclosed various statements obtained by to penetrate the market whereas the Commission from various dealers, Michelin's other competitors did not. users and competitors of Michelin NV. The reason why its competitors are not The results of such inquiries ought to so aggressive on the market is in fact have been communicated to Michelin that their products are of inferior quality. N V ; as they were not, the applicant was Dealers choose Michelin tyres for the prevented from effectively expressing its quality and reputation of the product views on the accuracy and scope of the and also because of the favourable terms information on which the Commission of supply due to the discounts. relied.

network and even knew the questions decision was not based upon the findings being asked. The inquiries verified what of the investigation. The Commission has the Commission already knew from the no right to decide for itself what is information it had obtained from necessary for the defence of the under- Michelin and confirmed that the dis- taking concerned. count systems of Michelin's competitors were different from the applicant's. The investigation results which Michelin N V requested the Commission to disclose mainly concerned its competitors' In reply the Commission states that it discount practices. The Commission may either obtain authority to disclose decided however that Article 20 of Regu- facts protected by Article 20 and use lation No 17 gave no justification for them in the statement of objections and disclosing the results of the investigation decision or decide not to use such facts; to Michelin NV since it had not used in this case it chose the latter course. them either to determine Michelin NV's Even if Michelin NV could prove that its and its competitors' market shares or to competitors' practices were the same as define the abuse. The findings of the its own, this would not assist it since the investigation were not therefore vitally principle underlying Article 86 is that important for Michelin NV's defence what is lawful for an undertaking having and the Commission was entitled to put no dominant position is not necessarily in the forefront its duty not to disclose lawful for a dominant undertaking. business secrets.

The criteria for fixing the amount of the fine, as set out in the last subparagraph The procedure took so long because the of Article 15 (2) of Regulation No 17, Commission first concentrated on the make no reference to turnover and are complaint lodged about the take-over of confined to the gravity and duration the sales network of Actor N V before it of the infringement. The Commission thoroughly investigated the discount should not therefore have taken turnover system. Because the system was so into account. The most basic rules of complicated the Commission had to fairness also require that only turnover make many inquiries before it had all the on the market concerned by the decision facts available. In the course of those should be taken into account and not the investigations Michelin NV realized that total turnover of the undertaking in its system was likely to be regarded as a question. variant of a loyalty rebate system. It cannot therefore hold the Commission responsible for the fact that it did not change its system until 1981. Furthermore the Commission took no account of the exemplary cooperation shown by Michelin N V throughout the administrative procedure. The fine Turnover is expressly referred to in should therefore be considerably reduced Article 15(2) of Regulation No 17 and in any case. for the purpose of that provision means an undertaking's total turnover and not turnover on a specific market. However, the reason for the reference to turnover in the contested decision was that in an Finally, the imposition of the fine earlier draft the fine envisaged exceeded amounts to a breach of the rights of the one million ECU. By virtue of Article defence inasmuch as during the adminis- 15 (2) of Regulation No 17 the reduction trative procedure the Commission did in the amount of the fine ought to have not disclose the criteria on which it led to the omission of that reference, but planned to fix any fine. inadvertently this was not done.

At the informal meeting with the Judge- As regards retreads, Michelin NV Rapporteur and the Advocate General explained by way of example that if the on 20 January 1983 the parties gave the reference price level for new Michelin following further explanations regarding their previous statements: tyres is taken to be 1 000, they are in fact sold at a 2 5 % discount for a price of 750 which makes the price of the "first life" of a new Michelin tyre 600 taking into account a residual value of 150 for the 1. The relevant product market tyre carcass. That price is more or less the same as the purchase price of a retread — for which the cost of re- treading may be reckoned at 450 — or The Commission stated that in order to as that of a new tyre of poorer quality. It define the market there is no need in its cannot therefore be said that there is a view to make any distinction between big difference between the prices of new marketing stages. As regards the types of tyres and retreads. The performance of a tyre included in the relevant product retread of good quality, particularly in market, the main point to be borne in mileage terms, is practically the same as mind is that the structure of demand is with a new tyre; however, from the point different on the market in replacement of view of safety and reliability, the value tyres for heavy vehicles from that on the of a retread is not so great. Even where

JUDGMENT OF 9. 11. 1983 — CASE 322/81

retreading is done to order, Michelin "neutral" retreading. According to the N V maintains that in 80 to 8 5 % of cases Tecmar reports on the retread market in it is done on behalf of the dealer and not the Netherlands, "neutral" retreads of the user. represent at present only 5 to 20% of the market. The Commission contested the figures put forward by Michelin N V which it Those figures were, however, contested was unable to verify and argued that the by Michelin NV. poorer reputation of retreads was in any case justification for regarding the 2. The discount system market in retreads as a separate one. What is more, users prefer to have their The operation and trend of the discount own carcasses retreated despite extensive system were explained by Michelin NV efforts by Michelin to stimulate with the help of the following table:

asked at the end of the year to pay back The Commission did not challenge that the difference. description of the discount system. However, it pointed out that a dealer was unable to consider the monthly advance definitively earned in the event of his, not reaching his minimum target. The difference betwen the monthly Michelin NV retained absolute freedom advance and the percentage adjustment to fix the advance just as it did to fix the resulting from the scale was paid target. Moreover, the discount system according to the extent to which the was never published and remained sales targets fixed by, or rather agreed unknown to dealers. Even the targets with, the Michelin NV representative at fixed by the Michelin N V representative the beginning of the year were reached. at the beginnning of the year were not For that purpose three targets, a confirmed in writing. The system minimum, maximum and intermediate therefore enabled Michelin to decide target, were fixed for car tyres on the unilaterally the total amount of the one hand and for heavy-vehicle and van discounts granted. tyres on the other. Thus the discount percentage eventually granted at the end of the year depended on the number of tyres sold in each of those categories. In reply to that point Michelin A/V stated that the discount system was sufficiently clear and known to its customers because it had been applied for many years and In 1978 the monthly advance bonus was its representatives gave oral explanations . reduced by Michelin NV for adminis- on which written notes were taken. trative reasons and the invoice discount increased by the same amount. As from 1979 the monthly advance bonus was abolished entirely and the invoice 3. The extra bonus in 1977 discount increased accordingly.

2 Michelin N V is the Netherlands subsidiary of the Michelin group. It is responsible for the production and sale of Michelin tyres in the Netherlands, where it has a factory for the production of new tyres for vans and lorries.

3 In Article 1 of the Decision in question the Commission declared that during the period between 1975 and 1980 Michelin NV infringed Article 86 of the EEC Treaty on the market in new replacement tyres for lorries, buses and similar vehicles by:

(a) tying tyre dealers in the Netherlands to itself through the granting of selective discounts on an individual basis conditional upon sales "targets" and discount percentages, which were not clearly confirmed in writing, and by applying to them dissimilar conditions in respect of equivalent transactions; and

MICHELIN v COMMISSION

(b) granting an extra annual bonus in 1977 on purchases of tyres for lorries, buses and the like and on purchases of car tyres, which was conditional upon attainment of a "target" in respect of car tyre purchases.

In Article 2 the Commission fined Michelin NV 680 000 ECU or HFL 1 833 184.80.

(1) An incorrect definition of the substantial part of the common market at issue; and

(2) An incorrect assessment of Michelin NV's position in relation to its competitors as regards:

(a) Michelin NV's share of the relevant product market, particularly the definition of that market; and

(b) other evidence tending to prove or disprove the existence of a dominant position.

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III. The Commission wrongly decided that (1) Michelin NV's discount system; and (2) The grant of an extra discount in 1977 amounted to an abuse within the meaning of Article 86 of the Treaty.

7 In this regard it should be recalled that the necessity to have regard to the rights of the defence is a fundamental principle of Community law which the Commission must observe in administrative procedures which may lead to the imposition of penalties under the rules of competition laid down in the Treaty. Its observance requires inter alia that the undertaking concerned must have been enabled to express its views effectively on the documents used by the Commission to support its allegation of an infringement.

MICHELIN v COMMISSION

s Once the Commission had decided that the information obtained during the investigation was covered by the principle of the non-disclosure of business secrets, it was under the duty, by virtue of Article 20 of Regulation N o 17, not to disclose it to Michelin NV. Consequently it could not use that infor- mation to support its decision in this case if the refusal to disclose it reduced Michelin NV's opportunity to express its views on the accuracy or scope of the information or on the conclusions drawn from it by the Commission.

9 However, at no point in the statement of the reasons on which the decision at issue is based is express reference made to the investigation in question. Nor does it appear that the Commission relied by implication on this part of the file. In so far as the Commission does refer in its decision to the discount policy of Michelin NV's competitors, it does so in general statements which Michelin NV has not challenged at any stage and which moreover are irrelevant for the purposes of assessing Michelin NV's conduct. The investigation in question was not taken into consideration in the procedure before the Court either.

H In this.regard it should be recalled that although Article 190 of the Treaty requires the Commission to mention the facts forming the basis of the decision and the considerations which led it to adopt the decision, it does not require the Commission to discuss all the points of fact and law dealt with during the administrative procedure.

is In its statement of the reasons on which the decision in question was based the Commission sets out the factual and legal considerations on which its decision was founded. Moreover, at various places it expressly refers to statements made by witnesses at the hearing and replies to arguments advanced by Michelin N V during the procedure.

i6 The submission alleging that the statement of reasons is inadequate cannot therefore be upheld.

(3) Failure to disclose during the administrative procedure the criteria on the hasis of which the Commission intended to fix the fine

i7 The applicant maintains that the Commission infringed the rights of the defence by not disclosing during the administrative procedure the criteria on the basis of which it planned to fix any fine.

is The Commission's reply to that submission is that the precise considerations leading to the fixing of the amount of the fine depend on the course of the administrative procedure and that it cannot therefore prejudge this issue before hearing the undertaking.

22 By a first set of submissions concerning the content of the decision at issue the applicant denies that it holds a dominant position on the market in new replacement tyres for heavy vehicles in the Netherlands. In substance it contends that the Commission's assessment of its market position is vitiated by error first because the Commission confined its analysis to the Netherlands market alone and relied on an incorrect definition of the relevant product market and secondly because in finding the existence of a dominant position it took account of immaterial factors and disregarded criteria excluding the existence of such a position.

(1) The substantial part of the common market at issue

23 The applicant's first submission under this head challenges the Commission's finding that the substantial part of the common market on which it holds a dominant position is the Netherlands. Michelin NV maintains that this geo- graphical definition of the market is too narrow. It is contradicted by the fact that the Commission itself based its decision on factors concerning the Michelin group as a whole, such as its technological lead and financial

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strength which, in the applicant's view, relate to- a much wider market or even the world market. The activities of Michelin NV's main competitors are world-wide too.

24 The Commission maintains that this objection concerns less the definition of the market than the criteria used to establish the existence of a dominant position. Since tyre manufacturers have on the whole chosen to sell their products on the various national markets through the intermediary of national subsidiaries, the competition faced by Michelin NV is on the Netherlands market.

MICHELIN v COMMISSION

(2) Assessment of Michelin NVs position in relation to its competitors

29 Before the submissions and arguments regarding the assessment of Michelin N V ' s position in relation t o its competitors are examined m o r e closely it should be recalled, as the C o u r t has repeatedly held, most recently in its j u d g m e n t of 13 F e b r u a r y 1979 in Case 8 5 / 7 6 Hoffmann-La Roche v Commission [1979] E C R 4 6 1 , that Article 86 of the T r e a t y is an application of the general aim of the activities of the C o m m u n i t y laid d o w n by Article 3 (f) of the T r e a t y , n a m e l y the institution of a system ensuring t h a t competition in the c o m m o n m a r k e t is n o t distorted.

30 Consequently Article 86 prohibits any abuse by an undertaking of a dominant position on the common market or a substantial part thereof in so far as it may affect trade between Member States, that is to say in so far as it prohibits any abuse of a position of economic strength enjoyed by an under- taking which enables it to hinder the maintenance of effective competition on the relevant market by allowing it to behave to an appreciable extent independently of its competitors and customers and ultimately of consumers.

3i The various criteria and evidence relied upon by the parties regarding the existence of a dominant position must be examined in that light. They concern first Michelin NV's share of the relevant product market and secondly the other factors which must be taken into consideration in the assessment of Michelin NV's position in relation to its competitors, customers and consumers.

35 T h e applicant claims that the definition of the relevant market on which the Commission based its decision is too wide, inasmuch as in the eyes of the consumer different types and sizes of tyres for heavy vehicles are not inter­ changeable, and at the same time too narrow inasmuch as car and van tyres are excluded from it although they occupy similar positions on the market. It further argues that the Commission's reasoning in its decision is con­ tradictory in so far as it puts itself alternately in the shoes of the ultimate consumer and in those of the dealer. However, at the level of dealers' total sales, the average proportion of sales of Michelin heavy-vehicle tyres represents only 12 to 18%, which rules out the existence of any dominant position.

36 The Commission defends the definition of the relevant product market used in its decision by pointing out that with a technically homogeneous product it is not possible to distinguish different markets depending on the dimensions, size or specific types of products: in that connection the elasticity of supply between different types and dimensions of tyre must be taken into account. On the other hand the criteria of interchangeability and elasticity of demand allow a distinction to be drawn between the market in tyres for heavy vehicles and the market in car tyres owing to the particular structure of demand, which, in the case of tyres for heavy vehicles, is characterized by the presence above all of experienced trade buyers.

37 As the Court has repeatedly emphasized, most recently in its judgment of 11 December 1980 in Case 31/80 NV ĽOréal and SA L'Oréal v PVBA

40 Furthermore, the structure of demand for each of those groups of products is different. Most buyers of heavy-vehicle tyres are trade users, particularly haulage undertakings, for whom, as the Commission explained, the purchase of replacement tyres represents an item of considerable expenditure and who constantly ask their tyre dealers for advice and long-term specialized services adapted to their specific needs. On the other hand, for the average buyer of car or van tyres the purchase of tyres is an occasional event and even if the buyer operates a business he does not expect such specialized advice and

JUDGMENT OF 9. 11. 1983 — CASE 322/81

service adapted to specific needs. Hence the sale of heavy-vehicle tyres requires a particularly specialized distribution network which is not the case with the distribution of car and van tyres.

4i The final point which must be made is that there is no elasticity of supply between tyres for heavy vehicles and car tyres owing to significant differences in production techniques and in the plant and tools needed tor their manufacture. The fact that time and considerable investment are required in order to modify production plant for the manufacture of light- vehicle tyres instead of heavy-vehicle tyres or vice versa means that there is no discernible relationship between the two categories of tyre enabling production to be adapted to demand on the market. Moreover, that was why in 1977, when the supply of tyres for heavy vehicles was insufficient, Michelin N V decided to grant an extra bonus instead of using surplus production capacity for car tyres to meet demand.

44 On the other hand, in deciding whether a dominant position exists, neither the absence of elasticity of supply between different types and dimensions of tyres for heavy vehicles, which is due to differences in the conditions of production, nor the absence of interchangeability and elasticity of demand between those types and dimensions of tyre from the point of view of the specific needs of the user allow a number of smaller markets, reflecting those types and dimensions, to be distinguished, as Michelin NV suggests. Those differences between different types and dimensions of tyre are not vitally important for dealers, who must meet demand from customers for the whole range of heavy-vehicle tyres. Furthermore, in the absence of any specializ- ation on the part of the undertakings concerned, such differences in the type and dimensions of a product are not a crucial factor in the assessment of an undertaking's market position because in view of their similarity and the manner in which they complement one another at the technical level, the conditions of competition on the market are the same for all the types and dimensions of the product.

45 In establishing that Michelin NV has a dominant position the Commission was therefore right to assess its market share with reference to replacement tyres for lorries, buses and similar vehicles and to exclude consideration of car and van tyres.

(bb) The taking into consideration of competition from retreads

46 In order to prove that its market share is less than the Commission claims the applicant also contends that the Commission arbitrarily excluded retreads from the relevant market; in the applicant's view these offer consumers a genuine alternative as regards both quality and price. To support that argument Michelin NV produces a number of calculations intended to show the competitiveness of retreads compared with new tyres.

49 It is clear from the facts, as established from the parties' statements and those made by the witnesses examined at the hearing during the administrative procedure, that it cannot be denied that new tyres and retreads are inter- changeable to some degree but only to a limited extent and not for all purposes. Although Michelin N V has produced calculations to show that the price and quality of retreads are comparable to those of new tyres and that a number of users do in fact consider the two groups of products inter- changeable for their purposes, it has nevertheless admitted that in. terms of safety and reliability a retread's value may be less than that of a new tyre and, what is more, the Commission has shown that a number of users have certain reservations, which may or may not be justified, regarding the use of a retread, particularly on a vehicle's front axle.

so In order to assess the effect of this limited competition from retreads on Michelin NV's market position it must be borne in mind that at least some

MICHELIN v COMMISSION

retreads are not put on sale but are produced to order for the user as some transport undertakings attach importance to having their own tyre carcasses retreaded in order to be sure of not receiving damaged carcasses. It must be acknowledged that there has been no agreement between the parties as regards the percentage of tyres retreaded in this way as a form of service; the Commission has estimated it at 80 to 9 5 % of retreads whereas Michelin N V maintains that it is only 15 to 20% and that in most cases the order is placed in the name of the dealer and not that of the user. Despite that disagreement between the parties it may be said that a proportion of retreads reaching the consumer stage are not in competition with new tyres because they involve a service provided directly by the retreading firms to the users.

relation to its competitors, even when allowance is made for some competition from retreads.

(b) The other criteria and evidence proving or disproving the existence of a dominant position

53 The applicant challenges next the relevance of the other criteria and evidence used by the Commission to prove that a dominant position exists. It claims that it is not the only undertaking to have commercial representatives, that the numbers employed by its main competitors are even larger in relative terms and that its wide range of products is not a competitive advantage because the different types of tyre are not interchangeable and it does not require dealers to purchase its whole range of tyres.

54 It also claims t h a t the Commission t o o k n o account of a n u m b e r of evidential factors w h i c h were incompatible with the existence of a d o m i n a n t position. F o r instance, dealers' n e t margins on Michelin tyres and competing tyres are c o m p a r a b l e a n d the cost p e r mile of Michelin tyres is the most favourable for users. Since 1979 Michelin N V has m a d e a loss. As its p r o d u c t i o n capacity is insufficient, its competitors, which are also financially stronger and more diversified than the Michelin group, can at any moment replace the quantities which it supplies. Lastly, because users of heavy-vehicle tyres are experienced trade buyers they have the ability to act as a counter- poise to the tyre manufacturers.

55 In reply to those arguments it should first be observed that in order to assess the relative economic strength of Michelin NV and its competitors on the Netherlands market the advantages which those undertakings may derive from belonging to groups of undertakings operating throughout Europe or even the world must be taken into consideration. Amongst those advantages, the lead which the Michelin group has over its competitors in the matters of investment and research and the special extent of its range of products, to which the Commission referred in its decision, have not been denied. In fact in the case of certain types of tyre the Michelin group is the only supplier on the market to offer them in its range.

59 As regards the additional criteria and evidence to which Michelin NV refers in order to disprove the existence of a dominant position, it must be observed that temporary unprofitability or even losses are not inconsistent with the existence of a dominant position. By the same token, the fact that the prices charged by Michelin N V do not constitute an abuse and are not even par- ticularly high does not justify the conclusion that a dominant position does not exist. Finally, neither the size, financial strength and degree of diversi- fication of Michelin NV's competitors at the world level nor the counter-

JUDGMENT OF 9. 11. 1983 — CASE 322/81

poise arising from the fact that buyers of heavy-vehicle tyres are experienced trade users are such as to deprive Michelin N V of its privileged position on the Netherlands market.

60 It must therefore be concluded that the other criteria and evidence relevant in this case in determining whether a dominant position exists confirm that Michelin N V has such a position.

ei Michelin NV's submissions disputing that it has a dominant position on a substantial part of the common market are therefore unfounded.

H I — T h e a b u s e of t h e d o m i n a n t p o s i t i o n

65 Michelin NV's position is supported by the French Government which contends that a discount system based on sales targets cannot be considered an abuse per se. Only the existence of other circumstances, which it claims are not present in this case, could make the system incompatible with Article 86.

(a) The operation of the discount system

66 The oral argument before the Court revealed that apart from the fixed invoice discount and the cash discount for payment before the due dates which were the same for all dealers and are not at issue in this case, thè discount system in question involved an annual variable discount a pro- portion of which was paid initially every month and then every four months in the form of.an advance on the annual discount. The percentage of this v a r i a b l e ann ualdiscountwasdetermined according to the dealer's turnover in Michelin heavy-vehicle, van and car tyres in the previous year, with no distinction of category, on the basis of a progressive discount scale which was, however, abandoned in 1978. The advance on the annual discount was ess generally by 4 % but sometimes by more, than the percentage laid down by the scale.

67 The annual variable discount, or at any rate the full rate thereof, was not obtained until the dealer achieved during the year in question a sales target which was expressed as a number of heavy-vehicle tyres sold and was fixed or agreed at the beginning of the year. Until 1978 there were three targets a minimum, intermediate and maximum, on which the final discount depended. After 1979 a single target was fixed for the purposes of the grant ot the annual variable discount.

69 N e i t h e r t h e discount system as a w h o l e n o r t h e scale of discounts w a s published b y Michelin N V . It is n o t denied that t h e criteria on t h e basis of w h i c h t h e sales targets w e r e fixed or agreed w e r e n o t k n o w n in advance. T h e targets w e r e discussed a t t h e beginning of each y e a r between t h e dealer a n d Michelin N V ' s c o m m e r c i a l representative. In practice n o written confir- m a t i o n w a s p r o v i d e d b y Michelin N V after t h e discussions, although w h e r e a p p r o p r i a t e written n o t e s were t a k e n o r e x c h a n g e d during them. C o n t r a r y , h o w e v e r , t o t h e assertion in t h e fourth p a r a g r a p h of point 28 of t h e C o m m i s s i o n ' s decision, it has n o t been d e m o n s t r a t e d that dealers hesitated t o c o m p l a i n a b o u t the lack of written confirmation. This point must therefore be disregarded.

(b) T h e application of Article 86 to a system of target discounts

70 As r e g a r d s t h e application of Article 86 t o a system of discounts conditional u p o n t h e a t t a i n m e n t of sales targets, such as described above, it must be stated first of all t h a t in prohibiting a n y abuse of a d o m i n a n t position on the m a r k e t in so far as it m a y affect t r a d e b e t w e e n M e m b e r States Article 86 covers practices w h i c h a r e likely to affect t h e structure of a m a r k e t w h e r e , as a direct result of t h e presence of t h e u n d e r t a k i n g in question, competition has already been weakened and w h i c h , t h r o u g h recourse t o methods different from those governing normal competition in products o r services based o n t r a d e r s ' performance, have the effect of hindering t h e maintenance or d e v e l o p m e n t of t h e level of competition still existing o n the market.

73 In deciding w h e t h e r Michelin N V abused its d o m i n a n t position in applying its discount system it is therefore necessary to consider all the circumstances, particularly the criteria and rules for the grant of the discount, a n d to investigate w h e t h e r , in providing an advantage n o t based on any e c o n o m i c service justifying it, the discount tends to remove or restrict the buyer's freedom to choose his sources of supply, t o bar competitors from access to the market, to apply dissimilar conditions to equivalent transactions with other trading parties or to strengthen the dominant position by distorting competition.

74 It is in the light of those considerations that the submissions put forward by the applicant in answer to the two objections raised in the contested decision to the discount system in general, namely that Michelin NV bound tyre dealers in the Netherlands to itself and that it applied to them dissimilar conditions in respect of equivalent transactions, must be examined.

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(c) The binding of dealers to Michelin N V

75 The applicant's first submission in this regard is directed against the finding reached by the Commission in its decision that all the circumstances showed that Michelin N V by its discount system closely bound tyre dealers to itself.

76 T o substantiate that objection the Commission stated in the preamble to its decision that the aim of the discount system was to put strong pressure on dealers to sell each year more Michelin tyres than in the previous year and to increase the proportion of Michelin tyres in their total sales as shown by the regular calculations made by the applicant's commercial representatives of its position with each dealer in relation to its competitors (the "temperature Michelin"). According to the Commission, such conduct constituted a distinct abuse of its dominant position.

so In this regard it must first be stated that the variation of 0.2 to 0.4%, as established during the procedure before the Court, in the discounts based upon the attainment of the sales target is indeed slight. Nevertheless the effects of the discount under discussion can by no means be assessed solely on the basis of the percentage variation in the discounts linked to the targets.

si The discount system in question was based on an annual reference period. However, any system under which discounts are granted according to the quantities sold during a relatively long reference period has the inherent effect, at the end of that period, of increasing pressure on the buyer to reach the purchase figure needed to obtain the discount or to avoid suffering the expected loss for the entire period. In this case the variations in the rate of discount over a year as a result of one last order, even a small one, affected the dealer's margin of profit on the whole year's sales of Michelin heavy- vehicle tyres. In such circumstances, even quite slight variations might put dealers under appreciable pressure.

82 That effect was accentuated still further by the wide divergence between Michelin NV's market share and those of its main competitors. If a competitor wished to offer a dealer a competitive inducement for placing an order, especially at the end of the year, it had to take into account the absolute value of Michelin NV's annual target discount and fix its own discount at a percentage which, when related to the dealer's lesser quantity

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86 It must therefore be concluded that by binding dealers in the Netherlands to itself by means of the discount system described above Michelin NV committed an abuse, within the meaning of Article 86 of the Treaty, of its dominant position in the market for new replacement tyres for heavy

MICHELIN v COMMISSION

vehicles. The submission put forward by the applicant to refute that finding in the contested decision must therefore be rejected.

(d) Discrimination against certain dealers

87 In a second submission, concerning the discount system in general, the applicant challenges the Commission's finding that its discount system involved the application of dissimilar conditions to equivalent transactions with dealers within the meaning of Article 86 (c) inasmuch as different discounts were granted to dealers in comparable situations. Michelin NV maintains that the discounts are not discriminatory and that the differences between the rates of discount received by different dealers are due to the application of a discount scale based on the dealer's total purchases from Michelin N V in the previous year.

ss To justify its finding, the Commission in the procedure before the Court relied upon a comparison of the discounts received by various dealers with the annual quantities of heavy-vehicle tyres purchased by them and upon a table showing the number of tyres sold in the various tyre categories in respect of which different rates of discount were granted in 1976 and pointed out a number of inconsistencies and anomalies which in its view emerged from them and demonstrated the existence of discrimination.

(2) The extra bonus in 1977

92 The applicant next challenges the finding reached by the Commission in the decision at issue that Michelin NV abused its dominant position by granting in 1977 on purchases of tyres for lorries, buses and similar vehicles an extra bonus of 0.5% conditional upon the attainment of a target for purchases of car tyres.

93 In the Commission's view, the extra bonus was intended to compel dealers to make a special effort on the market in car tyres so that they might receive a bonus on sales of heavy-vehicle tyres. That, it claims, is a commercial practice similar to that covered by Article 86 (d).

MICHELIN v COMMISSION

94 Michelin NV contends that the Commission relied upon an incorrect in- terpretation of the facts. In its submission the extra bonus granted in 1977 cannot be regarded as a discount on heavy-vehicle tyres since it was linked to the attainment of a target for car tyres. It also denies that the grant of the extra bonus was linked to a special target other that that normally fixed for sales of car tyres.

95 In this connection it should be observed first of all that, as is clear from the explanations provided by the parties in the procedure before the Court, the system of discounts applied by Michelin N V to car tyres was similar to that applied to sales of heavy-vehicle tyres. Under that system the proposed rate of each dealer's variable annual discount on sales of car tyres was increased by 0.5% by Michelin NV during 1977.

IV — Effect on trade between Member States

100 The applicant denies that its discount system was capable of affecting trade within the meaning of Article 86 of the Treaty.

101 In its decision the Commission stated that other manufacturers, whose chances of penetrating the Netherlands market were reduced owing to the fact that dealers' freedom to purchase was restricted, mostly had their production plant in other Member States and that 25 to 2 8 % of heavy- vehicle tyres competing with Michelin tyres on the Netherlands market came from other Member States of the Community.

102 Michelin NV, supported by the French Government, contended that conduct confined to the territory of one Member State cannot affect trade between Member States. In its view the Commission's arguments amount to a presumption that trade is affected and are based on a purely abstract and theoretical analysis; the Commission has not specifically established that the applicant's conduct affects competition and seals off the Netherlands market.

ios In this connection it must be stated that when the holder of a dominant position obstructs access to the market by competitors it makes no difference whether such conduct is confined to a single Member State as long as it is capable of affecting patterns of trade and competition on the common market.

104 It has not been denied in this case that important patterns of trade exist as a result of the establishment of competitors of significant size in other Member

ios It follows that the Commission was right to decide that it was entitled to impose a fine on Michelin NV under Article 15 (2) of Regulation N o 17.

109 The fines which the Commission may impose under Article 15 (2) are from 1 000 to 1 000 000 units of account or a sum in excess thereof but not exceeding 10% of the turnover in the preceding business year of the under-

JUDGMENT OF 9. 11. 1983 — CASE 322/81

taking concerned. The article provides that in fixing the amount of the fine within those limits the gravity and the duration of the infringement are to be taken into consideration.

„o As far as the duration of the infringement is concerned, it is common ground that the system at issue was applied during a period from no later than 1975 to 1980. As regards Michelin NV's argument that the Commission itseli could have shortened the duration of the infringment by acting more quickly, it is necessary to take into account the difficulties of investigating a discount system which was not laid down in writing and whose terms lacked transparency. In those circumstances the Commission was justified in taking the whole period into consideration in order to determine the duration of the infringement.

m' In assessing the gravity of the infringement regard must be had, according to the circumstances, to a large number of factors which may include in particular the size and economic strength of the undertaking, which may be indicated by the total turnover of the undertaking and the proportion of that turnover accounted for by the goods in respect of which the infringement was committed. Therefore Michelin NV's arguments challenging the permissibility of taking turnover into account are in any case unfounded. Moreover, it is for the Court, exercising its powers of unlimited jurisdiction on this subject, to assess for itself the circumstances of the case and the nature of the infringement in question in order to determine the amount of the fine.

VI — Costs

us Under the terms of Article 69 (2) of the Rules of Procedure the unsuccessful party is to be ordered to pay the costs if they have been asked for in the successful party's pleading. Under paragraph (3) of that article the Court may order the parties to bear their own costs in whole or in part where each party succeeds on some and fails on other heads.

116 In this case each party, including the intervener, has failed on certain heads. Each must therefore bear its own costs.

JUDGMENT OF 9. 11. 1983 — CASE 322/81

O n those grounds,

THE COURT

Pescatore Mackenzie Stuart O'Keeffe Due Everling

Delivered in open court in Luxembourg on 9 November 1983.

For the Registrar H. A. Rühi J. Mertens de Wilmars President Principal Administrator

MICHELIN v COMMISSION

TABLE OF C O N T E N T S

Facts and Issues

IV — Explanations given at the informal meeting 3493 1. The relevant product market 3493 2. The discount system 3494 3. The extra bonus in 1977 3495

3496 V — Oral procedure

Decision

I — The regularity of the administrative procedure 3498 (1) Non-disclosure of documents in the file 3498 (2) Failure to discuss the results of the hearing and the statements of the witnesses and experts 3499 (3) Failure to disclose during the administrative procedure the criteria on the basis of which the Commission intended to fix the fine 3500

II — The dominant position of Michelin NV 3501 (1) The substantial part of the common market at issue 3501 (2) Assessment of Michelin NV's position in relation to its competitors 3503 (a) Michelin NV's share of the relevant product market 3503 (aa) The market in replacement tyres for heavy vehicles 3504 (bb) The taking into consideration of competition from retreads 3507 (b) The other criteria and evidence proving or disproving the existence of a dominant position 3510

MICHELIN v COMMISSION

OPINION OF MR ADVOCATE GENERAL VERLOREN VAN THEMAAT DELIVERED ON 21 JUNE 1983 ' Mr President, replacement tyres for lorries, buses and Members of the Court, similar vehicles by: (a) binding tyre dealers in the 1. I n t r o d u c t i o n Netherlands to itself through the grant of selective discounts on an 1.1. All the relevant facts in Case individual basis conditional upon 322/81 are clearly summarized in the sales "targets" and discount percen­ Report for the Hearing. In the intro­ tages, which were not clearly duction to my Opinion in this case I can confirmed in writing, and by therefore simply draw attention to one applying to them dissimilar con­ or two main points and for the many ditions in respect of equivalent complicated details refer to the Report transactions; and for the Hearing. (b) granting an extra annual bonus in The application lodged by N V Neder- 1977 on purchases of tyres for landsche Banden-Industrie Michelin lorries, buses and the like and on (hereinafter referred to as "Michelin purchases of car tyres, which was NV"), supported by the French conditional upon attainment of a Republic, is for a declaration that a "target" in respect of car tyre Commission decision of 7 October 1981 purchases. is void. Article 1 of that decision declares that during the period 1975 to 1980 Article 2 of the decision imposes on Michelin N V infringed Article 86 of the Michelin N V a fine of 680 000 ECU or EEC Treaty on the market in new HFL 1 833 184.80. I — Translated from the Dutch.