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Concurrences
Revue des dRoits de la concuRRence | Competition Law JournaL

“ Ceci n’est pas un marché ” :
  Gratuity and competition law
 Doctrines                   l Concurrences N° 1-2015
 www.concurrences.com

 Miguel Sousa Ferro
 miguelferro@fd.ul.pt
 Guest Professor, University of Lisbon Law School, Lisbon

Doctrines

“Ceci n’est pas
AbstrACt

constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
Une analyse globale de la pratique judiciaire et

un marché” :
de secteurs, montre qu’il y a des positions
très divergentes sur le traitement de la
gratuité au sein du droit de la concurrence.
Cet article suggère que le droit de la
concurrence ne s’applique pas à des

Gratuity and
exchanges véritablement gratuites (de gratis
non curat lex), mais des produits gratuits
peuvent être pris en compte dans l’application
du droit de la concurrence à des produits
payés (e.g. pour la détermination du pouvoir

competition law
de marché). Il est aussi suggéré que le droit
européen de la concurrence ne permet pas la
définition de marchés gratuits, et qu’il est très
improbable que des produits/services gratuits
puissent être inclus dans des marchés de
produits/services payés.

An overall analysis of judicial and
administrative practice, focused Miguel Sousa Ferro*
predominantly on EU legal orders, relating to miguelferro@fd.ul.pt
a wide range of sectors, shows highly Guest Professor, University of Lisbon Law School, Lisbon
divergent and contradictory positions
concerning the treatment of gratuity under
competition law. This paper argues that
competition law does not apply to truly
gratuitous exchanges (de gratis non curat
lex), but free products may be taken into
account in the enforcement of competition law
to paid products (e.g. when assessing market

I. Introduction
power). It is also argued that European
competition law does not allow for the
definition of gratuitous markets, and it is
highly unlikely that free products/services can
be included in markets with paid products/ 1. The offer of products and services free of charge precedes competition law.
services. Be it with commercial intent, or to fulfill a public mission, or with an altruistic or
charitable goal, a myriad of economically useful goods have been and continue to
be offered in a variety of circumstances.
* This is an abbreviated and revised version of
the working paper M. Sousa Ferro, “Ceci n’est pas 2. European competition authorities and courts have, since long, had to tackle
un marché”: Gratuity and competition law, 2014,
available at http://ssrn.com/abstract=2493236,
the possibility of enforcing competition law in the context of free products/
which includes further details on the underlying services. However, nowhere can we find a unified position on the treatment of
research. The author thanks Professors João Gata,
John Newman, Laurence Idot, Michal Gal,
gratuity under competition law. No authority has yet approached this issue in a
Rolf Weber and Spencer Weber Waller for their global manner. Piecemeal approaches have led to contradictory results. Solutions
helpful comments to that earlier draft of this paper. have varied between authorities and, within the practice of the same authority,
The opinions presented herein are the author’s
alone, as is the responsibility for any errors. between economic sectors and even between cases in the same sector. And yet,
this is a horizontal issue of principle, which must receive a homogenous reply.

3. Looking at the worldwide practice of market definition in the context of
gratuitous products and services, Prof. Evans justly noted: “(…) there is a tendency
on part of companies, authorities, and courts to do more hand waving than serious
analysis when they encounter products and services offered for free.”1

4. Only recently has doctrine begun to discuss gratuity in antitrust
comprehensively.2 Even those who have paid closer attention to this issue have
approached it from a fundamentally economic perspective, most working on the
assumption that competition law should and can apply to “free markets,” and

1 D. Evans, Antitrust Economics of Free, (2011) 7(1) CPI 71, at p. 73.
2 See, e.g.: D. Evans, cit.; F. Polverino, Hunting the Wild Geese: Competition Analysis in a World of
“Free”, (2012) Concorrenza e mercato 545; J. D. Newman, Antitrust in Zero-Price Markets, July 2014,
available at http://ssrn.com/abstract=2474874.

Concurrences N° 1-2015 I Doctrines I Miguel Sousa Ferro I “Ceci n’est pas un marché” : Gratuity and competition law I 1

that gratuitous exchanges can be defined as a relevant 8. The fact that discussions tend to arise exclusively in

II. General 12. Second, it may be argued that variations of gratuity/
non-gratuity in time must be taken into account. The case

framework for
may be that a product: (a) was previously paid; (b) will or
is likely to be paid in the future; or (c) will (presumably)
always be free. However, for the purposes of this
analysis discussion, this dynamic dimension may be disregarded,
and we should focus on scenarios of unchanged gratuity.5
7. Arguably, the greatest obstacle to the development
of a unified theoretical position on the relationship 13. As for the variations which are relevant, the first is the
between gratuity and competition law, in what concerns means of financing gratuity.
its applicability and market definition, has been the lack
of differentiation between fully gratuitous situations and 14. Economically, nothing can be supplied for free.
situations of gratuitous supply with an impact on paid The costs of providing the goods or services in question
products, as well as the distinction between different (even if limited to time expended in their creation and
degrees of impact. maintenance) can be subsidized by non-commercial
activities (charity, public funding, user-built platforms…),
or by commercial activities. The source of subsidization
is crucial because asking where the money comes from is
the same as asking which activities are being benefited by
3 See, e.g.: P. J. Harbour and T. I. Koslov, Section 2 in a Web 2.0 World: the free offers and how.
An Expanded Vision of Relevant Product Markets, (2010) 76 ALJ 769;
R. I. McEwin and C. Chew, China—the Baidu Decision, (2010) 6(2)
CPI 223; T. Vecchi, J. Vidal and V. Fallenius, The Microsoft/Yahoo! 15. There may be commercial subsidization which is
Search Business Case, (2010-2) CPN 41; G. A. Manne and J. D. Wright, very remote and unclear, but nonetheless clearly present.
Google and the Limits of Antitrust: The Case against the Case against
Google, (2011) 34 HJLPP 171; A. H. Zhang, Using a Sledgehammer Supplying a free service/product may provide a company
to Crack A Nut: Why China’s Anti-Monopoly Law was Inappropriate with competitive advantages thanks to brand recognition
for Renren v. Baidu, (2011) 7(1) CPI; Polverino, cit.; S. Weber or good will. A company may provide a range of
Waller, Antitrust and Social Networking, (2011-2012) 90 NCLR 1771;
M. S. GAL, Viral Open Source: Competition vs. Synergy, (2012) 8(3) free products/services (through charitable endeavors,
JCLE 469; H. A. Shelanski, Information, Innovation, and Competition scientific patronage, etc.), and yet it is expectable that
Policy for the Internet, (2012) 161 UPLR 1663; A. Daly, Free Software
and the Law: Out of the Frying Pan and into the fire: How Shaking Up
the shareholders believe that, overall, the company has
Intellectual Property Suits Competition Just Fine, (2013) 3 Journal of something to gain from this activity.
Peer Production; F Thépot, Market Power in Online Search and Social-
Networking: A Matter of Two-Sided Markets, (2013) 36(2) WC 195;
R. H. Weber, Competition Law Issues in the Online World, (2013)
20th St.GICLF ICF, available at http://ssrn.com/abstract=2341978;
N. Zingales, Product Market Definition in Online Search and
Advertising, (2013) 9(1) CLR 29; C. J. Hoofnagle and J. Whittington,
Free: Accounting for the Costs of the Internet’s Most Popular Price, 4 See, e.g.: Case C-437/09 etc., AG2R Prévoyance [2011] ECR I-973,
(2014) 61 UCLALR 606. As notable exceptions to this state of affairs, § 40-41; and L. Idot, Entreprise sociale et concurrence, Concurrences
see: J. D. Ratliff and D. L. Rubinfeld, Is there a Market for Organic no 1-2013.
Search Engine Results and can their Manipulation Give Rise to Antitrust
Liability?, (2014) 10(3) JCLE 1; and Newman, cit., at p. 21 et seq. 5 See Evans, cit., footnote 21; and Sousa Ferro, cit., at pp. 5-6.

2 I Concurrences N° 1-2015 I Doctrines I Miguel Sousa Ferro I “Ceci n’est pas un marché” : Gratuity and competition law

16. But, often, one can identify (based on economic reality (and despite some general affirmations by administrative

24. In the UK, the definition of a “business” for the
Means of subsidizing gratuity*
purposes of applying competition law refers, inter alia,
Interchan-
geability Close Remote Non-commercial to “an undertaking in the course of which goods or services
with paid commercial commercial subsidization
products subsidization subsidization are supplied otherwise than free of charge.”10 The same
(Type 3)
(Type 2) must be true, we argue, in EU law and in the competition
(Type 1)
law of other EU Member States.
Yes
1A 2A 3A
(Type A) 25. One author has noted that new non-corporate free
approach, “may still confound competition law or at least
No
1B 2B 3B the tenets on which it is based,” as they challenge “the
(Type B)

6 Case T-201/04, Microsoft v. Commission [2007] ECR II-3601, § 960 and

III. Gratuity and 7
968-969; See Polverino, cit., section 2.3.
Renren v. Baidu, Opinion by Beijing No. 1 Intermediate People’s Court,

the applicability
Civil Case no. 845/2009 (“[t]he free search service provided by search
engine providers to internet users is not equivalent to a free service
for charity, and may obtain actual or potential commercial benefits
by attracting internet users and employing advertisement or other

of competition law marketing services”). See: Evans, cit.; McEwin and Chew, cit.; Zhang,
cit.
8 KinderStart.com v. Google, 2007 WL 831806 (N. D. Cal.). As quoted
21. It is remarkable that competition law has so often been in Evans, cit., the federal court stated: “KinderStart cites no authority
applied to free products/services without any significant indicating that antitrust law concerns itself with competition in the
discussion of its applicability to gratuitous exchanges provision of free services. (…) KinderStart has not alleged that anyone
pays Google to search. Thus, the Search Market is not a “market” for
purposes of antitrust law.”
9 Evans, cit. Even jurists who argue for the applicability of competition
* Different means of subsidizing gratuity may coexist for any single law to free goods/services are forced to admit that it is difficult to
free product/service. But, for the purposes of identifying competitive imagine a private enforcement case aimed at protecting consumers
concerns, the presence of close commercial subsidization is more from anticompetitive practices associated to free products, since
important than of remote commercial subsidization, and even more so current case law does not allow for a finding of damage to property in
than of non-commercial subsidization. Therefore, for the purposes of such situations—see: Newman, cit., pp. 22-25, concluding that “such
qualifying offers of free products/services within the types indicated in consumers would likely lack standing.”
this table: if a given situation can simultaneously be qualified as type 1A
and type 2A, we shall refer to it merely as type 1A, etc. 10 Enterprise Act 2002, Section 129(1).

Concurrences N° 1-2015 I Doctrines I Miguel Sousa Ferro I “Ceci n’est pas un marché” : Gratuity and competition law I 3

very existence of capitalist production and markets.”11 dominant position, depending on the delineation of the

Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
that competition law should apply to entirely gratuitous same activity (e.g. market for the supply of free meals in
contexts, with no impact on the exchange of paid products. Brussels), since none of the exceptions to the existence of
an economic activity, explicitly mentioned in the case law
26. As noted above, EU competition law applies to any of the Court, are applicable to such organizations.
entity engaged in an economic activity, irrespective of its
legal status and the way in which it is financed. According 31. One cannot argue that the demand for charitable
to settled case law, an economic activity is “any activity supplies is not, and would not, be present on any market.
consisting in offering goods or services on a given market.”12
The natural tendency to exclude such situations from the
The concepts of economic activity and relevant market
scope of competition law does not rest on an absolute lack
have thus become inextricably linked: An offer of goods
of (actual or potential) impact on commercial activities.
or services can only be qualified as an economic activity
if it happens in a market, and you cannot conceive of a It also cannot rest on the lack of a profit motive,14 nor,
market without an economic activity. by itself, on the goal being pursued,15 as the Court has
clearly stated that these are not relevant. They may be
excluded on the basis of a de minimis approach,16 but that
One cannot argue that the demand for requires defining relevant markets, assessing effects on
charitable supplies is not, and would not, the market and starting from the assumption that such
be present on any market charitable activities could be subject to competition law,
if their impact were significant.
27. Thus, if one concludes (as will be argued in
section IV.3.) that there is no such thing as a gratuitous 32. The key for the exclusion of such activities is,
market in competition law, this may actually render I believe, the fully non-commercial origin of the funding
competition law inapplicable to certain gratuitous offers of the free product or service. Such situations are
of goods or services, to the extent that, in themselves, non-economic in nature. And there is no reason why
they do not constitute an economic activity.13
this assessment should change if the non-commercially
funded free product competes with paid products, i.e. in
28. But we can also arrive at the same result through a
type 3A situations.
different approach, which does not rely on the arguments
regarding market definition.
33. If a Member State decides to gratuitously provide a
29. We have been unable to identify any example of service, and over 50% of the consumers of the preexisting
enforcement of competition law to type 3B situations. (paid) services stop purchasing them and become users of
It is instinctively clear that competition law does not the free service, does this mean that the State has become
apply to these situations. Competition law aims to protect a competitor on the relevant market for this service and
the competitive process, ultimately so as to increase can be found to be in abuse of its dominant position by
consumer welfare. If a product/service is neither sold nor charging below cost prices? Is this not what frequently
purchased, and if is not interchangeable with products happens in the socialized health sector (which can be dealt
that are sold and purchased, nor does it have an effect on with, under the case law, in a different way)?17 Or does
markets that subsidize its gratuity, there are no consumers it mean that a new autonomous gratuitous market was
(only users or beneficiaries) and no competitive process formed, and that competition law can be used to force the
to protect. State to extend the benefit of that free service to all those
who believe their needs are sufficiently satisfied by it?
30. To argue otherwise implies accepting, for example, that Of course not. The activity is not commercially subsidized
charitable NGOs supplying meals to the indigent would and is not economic in nature. Competition law has no
be subject to competition law, and might indeed be in a
right to prevent a State from pursuing its public goals by
providing free products or services, nor can it interfere in
the setting of criteria for the scope of beneficiaries.
11 Daly, cit. See also: Gal, cit.
12 See, e.g.: Case 118/85, Commission v. Italy [1987], ECR 2599, § 7;
Case C-35/96, Commission v. Italy [1998] ECR I-3851, § 36; Case
34. Similarly, it is not the role of competition law to impose
C-180/98 etc., Pavlov [2000] ECR I-6451, § 75; Case T-155/04, restrictions on the supply of free goods and services by
SELEX v. Commission [2006] ECR II-4797, § 50 and 61-62; Case NGOs who sell nothing on any market, even if those
C-1/12, OTOC [2013] (not yet reported), § 36. Only in exceptional
circumstances, of facilitation of anticompetitive agreements by others,
has the Court allowed for the application of art. 101 TFEU (never 102)
to “undertakings which do not compete on any product market”—see:
Case T-99/04, AC-Treuhand v. Commission [2008] II-1501, § 122 and 14 See: Case C-49/07, MOTOE [2008] ECR I-4863, § 23 et seq.; Case
127; Case T-379/10 etc., Keramag et al v. Commission [2013] (not C-1/12, cit., § 57.
yet reported), § 91. Even in these cases, the undertakings in question 15 See: Case C-309/99, cit., § 58; Case C-437/09, § 45 (“the social aim of
were active on some service markets and had a turnover generated by an insurance scheme is not in itself sufficient to preclude the activity in
commercial sales, just not on the markets affected by the anticompetitive question from being classified as an economic activity”).
practices.
16 See, by analogy: Case C-180/98 etc., cit., § 97.
13 Additionally, the scope of a market may affect whether a practice is
considered de minimis, also affecting the applicability of prohibitions. 17 See Case T-319/99, FENIN [2003] ECR II-357, § 39-44.

4 I Concurrences N° 1-2015 I Doctrines I Miguel Sousa Ferro I “Ceci n’est pas un marché” : Gratuity and competition law

goods or services are interchangeable with paid ones.18 39. In such cases, the effects of gratuitous offers on

Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
time and effort by users who jointly develop contents for a gratuitous offer, in itself, does not. If it were not for its
web portal or software that is made freely available to all.19 impact on a paid market, we would be all too happy
to see consumer welfare improved by donations from a
35. It is one thing to take into account the competitive company (we would be in a type 2 situation).
pressure exercised by these free products/services when
analyzing paid markets (without including them in the 40. Even in type 1 situations, the offer of a free product/
relevant market). It is something entirely different to hold service does not, by itself, constitute an economic
that a law aimed at preventing distortions of competition activity. As a rule, that product is not a good being
and increasing consumer welfare can be used to impose offered on a “market,” as defined in competition law
restrictions on public or private entirely non-commercial (see section IV.3.).
initiatives.
41. There are goods (paid ones) being offered on markets
36. We have also not found any example of purely type 2 that are affected by those free offers. But the economic
situations being the target of competition law enforcement nature of one activity cannot generally be extended, by
by European authorities. The reason, we believe, is that we contagion, to another. The criterion for what constitutes
also instinctively exclude the relevance of a link between an economic activity, as clarified in the case law, is a
the offer of a free product and commercial interests functional one: in “competition law, the term ‘undertaking’
associated to the offer of paid products, if that link is must be understood as designating an economic unit for the
remote. In such cases, there is commercial subsidization, purpose of the subject matter of the agreement [practice]
but the link with paid products is not significant enough in question.”20 Thus, in principle, classification “as an
to raise competitive concerns. It is certainly possible economic activity must be carried out separately for each
for a company’s competitive success on (paid) markets activity exercised by a given entity.”21
to be affected by patronage activities. But in order for
competition law to be concerned with those effects, they 42. This raises the crucial issue of whether competition
would have to be significant enough and, if so, there law may legitimately be used to impose restrictions on a
would probably be a close relation of subsidization by a non-economic (free) activity because of its impact on an
paid product (i.e., a type 1 situation). economic (paid) activity. The answer to this question may
be provided by two ideas.
37. Additionally, in these situations, we believe the
altruistic nature of the activity and its positive social The need to ensure the effet utile
(and welfare) impact still outweigh any concerns raised
by potential and rather indeterminate positive effects
of competition law
on commercial interests. To believe otherwise would 44. First, the need to ensure the effet utile of competition
mean that any form of patronage by businesses would law. There may be cases where, if obligations are not
be included in a relevant market and be fully subject to imposed on the free product with an impact on a paid
competition law. one, the goals of competition law cannot be achieved
38. Differently, in type 1A and type 1B situations, the in relation to the latter. In such cases, there is a need to
gratuitous supply of a free product or service may have a intervene in a type 1 free product to achieve the law’s goal,
(at least potential) significant impact on the remunerated and the restriction of the non-economic activity may be
commercial activity that subsidizes it. Success on the justified by a judgment of proportionality, given that this
free side of a multilateral platform funded by advertising activity is, in fact, closely associated to the promotion of
affects success on the advertising market. The fact that an economic activity.
potential customers are accustomed to the free version of
a software program may make it easier to sell them the Exceptions to the functional approach
upgraded paid version of it. Offering a product for free may to the concept of economic activity
give a company an advantage when competing in a market
for products used in combination with it. And so on. 45. Second, this may be seen as one of the exceptions to
the above quoted functional approach to the concept of
economic activity. Indeed, the Court has noted that the
non-economic nature of an activity carried out by public
authorities renders also non-economic the associated
18 Imagine that an NGO fighting for privacy decides to promote its goals by activity of purchase of necessary inputs, which would
distributing free antivirus and anti-spyware software. This NGO has no
commercial activity whatsoever. Is this activity subject to competition otherwise have an economic nature.22 In these cases,
law? Its program can become quite successful and drastically reduce the the conduct on the (upstream) market occurs with no
volume of the market for such software. But that does not change the
fact that its activity is inherently uncommercial. Ceteris paribus, could
it ever be found guilty of an infringement of competition law? Even if it
were, such a finding could never lead to fines, as the maximum limit of 20 Case 170/83, Hydrotherm [1984], ECR 271, § 11.
10% of sales in the preceding year would, in this case, be zero.
21 Case C-49/07, cit., § 25. See also: Case T-155/04, cit., § 54-55, 87 and
19 For an example of such situations that demonstrates the specificities 92; Case 118/85, cit. § 7; and Idot, cit., §29-31.
of an American antitrust approach, see: US 7th Circ. Court Appeals,
Wallace v. IBM (06-2454). 22 Case T-319/99, cit., § 37. See also Case T-155/04, cit., § 61.

Concurrences N° 1-2015 I Doctrines I Miguel Sousa Ferro I “Ceci n’est pas un marché” : Gratuity and competition law I 5

commercial intent or application. By analogy, it may                                         – it refused to apply competition law to free

                                                                                                                                                                            constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
    be argued that the economic nature of a paid activity                                          public health services, while not excluding

                                                                                                                                                                            Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art.
                                                                                                                                                                            L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
    may extend to an associated (free) activity, which would                                       its possible applicability to paid health care
    otherwise not be economic, since the gratuitous activity                                       provided by public hospitals;29
    is being carried out to achieve (or at least has the result
                                                                                                 – it confirmed that the conditions imposed
    of achieving) an advantage in competition on the market
                                                                                                   on the free supply of freezers could violate
    (it occurs with a commercial intent and/or application).
                                                                                                   competition law, because of their impact on
    Some support for this approach may also be found in
                                                                                                   the market for impulse ice cream;30
    the OTOC case, which demonstrated that an activity
    which in itself is not economic, such as the setting of                                      – it rejected Germany’s argument that the Bundesanstalt
    rules by a chartered accountants association, may violate                                      “cannot be classified as an undertaking within the
    competition law (it becomes economic) because of its                                           meaning of article [102] of the Treaty, in so far as
    association to and impact on markets for paid services.23                                      the employment procurement services are provided free
                                                                                                   of charge,” in a context where the beneficiaries
    46. As further support for these conclusions, we point                                         financed the office’s activities through mandatory
    out that the ECJ has, on several occasions, justified the                                      contributions (regardless of whether they used
    identification of an economic activity on the basis that the                                   the services) and where these activities were
    services in question were offered “for payment” (or “for                                       provided in actual (if not legal) competition
    remuneration”), sometimes adding that the entities                                             with paid services by private companies.31
    carrying out these activities had assumed the respective
    financial risks.24
                                                                                            Competition law is not applicable to type 2
    47. More importantly, the Court has applied competition                                 or type 3 situations of gratuity, but it can be
    law to free products only in the presence of actual or                                  applicable to type 1 situations
    potential effects over paid products, precisely in type 1
    situations. Thus, for example:                                                          48. In short, we believe that competition law is not
                                                                                            applicable to type 2 or type 3 situations of gratuity, but
         – it accepted that competition law applies to                                      that it can be applicable to type 1 situations, and even
           all of Skype’s activities in the market for                                      lead to the imposition of obligations upon free products,
           “consumer communications services,” where a                                      whenever this is necessary to protect competition on the
           minority of these services are paid;25                                           markets for the associated paid products which subsidize
                                                                                            the gratuity of the products in question.32
         – it seemed to consider that all offers on the
           “operating system market” and “work group
                                                                                            49. However, this does not mean that a competition
           server operating system market” were an
                                                                                            authority may legitimately impose measures aimed at
           economic activity, even though some were free;26
                                                                                            increasing or preventing a reduction of output or quality
         – it rejected Microsoft’s argument that                                            of the free product, or take such effects into account in
           article 102 TFEU could not apply to Windows                                      merger assessment,33 if those effects or measures are not
           Media Player because it was provided for free.                                   related to anticompetitive effects over a paid product.
           This was justified, not only with the idea that
           the price was hidden in the bundle’s price, but
           also that the practice in question affected paid
           products (the tied product and the paid media
           players);27
                                                                                            IV. Gratuity and
         – it qualified Eurocontrol’s assistance to                                         market definition
           national administrations as an economic
           activity, on the basis that it was not actually                                  50. Now that we have clarified the conditions under
           free (its price was included in the States’                                      which competition law may (and may not) be applied
           financing of its overall expenditures) and that                                  to free products/services, it is necessary to turn to the
           it could potentially be provided by private
           companies (for payment);28
                                                                                            29    Case T-319/99, cit., § 39 et seq.
                                                                                            30    Case T-65/98, Van den Bergh Foods [2003] ECR II-4653; Case
                                                                                                  C-552/03 P, Unilever Bestfoods [2006] ECR I-9091.
    23    Case C-1/12, cit., § 41 et seq.
                                                                                            31    See: Case C-41/90, Höfner [1991] ECR I-1979, § 19-23; Case T-155/04,
    24    See, e.g.: Case C-35/96, cit., § 37; Case C-180/98 etc., cit., § 76; Case               cit., § 90; Case C-55/96, Job Centre [1997] ECR I- 7119, § 24-25. For
          C-475/99, Ambulanz Glöckner [2001] ECR I-8089, § 20; Case C-1/12,                       an analysis, from this perspective, of the case law relating to social
          cit., § 37.                                                                             protection schemes, see Sousa Ferro, cit., pp. 14-15.
    25    Case T-79/12, Cisco and Messagenet v. Commission [2013] (not yet                  32    Therefore, we do not agree with the finding that a “tying arrangement
          reported).                                                                              cannot exist when the tying product is not sold to the consumer, but is
    26    Case T-167/08, Microsoft v. Commission [2012] (not yet reported).                       provided free of charge”—Stephen Jay Photography, Ltd. v. Olan Mills,
                                                                                                  Inc., 713 F. Supp. 937 (E.D. Va. 1989); and 903 F.2nd 988 (4th Cir.
    27    Case T-201/04, cit., § 960 and 968-969.                                                 1990).
    28    Case T-155/04, cit., § 83-90.                                                     33    As the EC has done, e.g., in M.5727, § 119.

6   I Concurrences N° 1-2015 I Doctrines I Miguel Sousa Ferro I “Ceci n’est pas un marché” : Gratuity and competition law

crucial issue of how to define markets in the presence of but a very high share in the readers market (if the free

2. EU and Member State law
1. Practical relevance and practice
52. For the purposes of assessing market power, it 56. EU law, soft law and case law has not yet explicitly
does not matter whether one includes the competitive and decisively clarified whether it is acceptable to identify
constraints posed by gratuitous products/services at a free relevant market, or to include free products/services
the stage of market definition, or at a later stage, where in relevant markets.
extra-market constraints (such as potential competition)
are taken into account. Perhaps because of this, 57. ECN practice is contradictory and incoherent34.
specialized doctrine has, until recently, tended to focus European competition authorities’ conclusions have
on how to appropriately take into account free products been contradictory: (i) from one authority to the other;
in competitive analysis, without paying much or any (ii) from one type of products/services to others; and even
attention to market definition. (iii) within the practice of the same authority relating
to the same products/services. Such a state of affairs is
53. However, it is neither superfluous nor academic to hardly reconcilable with the rule of law.
discuss whether, as a matter of law, gratuitous markets
exist, or whether gratuitous products/services should be
included in relevant markets. The position one takes will 2.1 TV
often have decisive legal consequences:
58. For TV (type 1A), no clear position can be found in
the case law of the Court. The position of the European
– it may have an impact on the applicability of
Commission (EC) seems to be that there is no such thing
competition law (III.);
as viewer markets for free-to-air or free access TV (FTA).
– although a market share does not Even though it has never had to decisively tackle this
automatically lead to the identification of issue, and although the manner in which these markets
market power, it is often the case that market have been addressed has left much to be desired,35 it
shares have specific legal consequences, which has never accepted the frequent arguments in favor of
may therefore vary depending on whether one including pay-TV and FTA in the same market, and has
defines gratuitous markets or whether one never given any indication that it was inclined to define
includes gratuitous products or services in the an FTA viewers market.
relevant market. Such may be the case with
a presumption of dominance, an obligation 59. Indeed, whenever confronted with mergers relating
to notify concentrations (in some Member exclusively to FTA, the Commission does not even
States), de minimis thresholds, benefit of block
exemptions, etc.;
34 For a more detailed analysis of this practice, see Sousa Ferro, cit., at pp. 18-26.
– it may affect the granting of individual
35 Since these are two-sided markets, a rigorous market definition should
exemptions to anticompetitive agreements; distinguish between: (i) a viewers’ market for pay-TV (possibly further
segmented); and (ii) a TV advertising market (possibly broader or
– it may affect the scope of supervisory and narrower). Many of the EC’s decisions in this area have, unfortunately,
investigative powers of the competition tended to be misleading, by simplifying and referring broadly to a
authorities; etc. “television broadcast market,” or, simultaneously, to a “market for free
access TV” and to a “market for pay-TV.” In doing so, the Commission is,
firstly, including two different markets in one. Pay-TV must be assessed
54. A company that publishes a free newspaper may not on the basis of its impact on a viewers’ market and on an advertising
market. Secondly, it may lead, and has indeed led, to the erroneous belief
know whether it is obliged to notify a merger to an NCA, that a relevant market has been defined where the demand is made up of
because it has a very low market share in advertising, viewers of FTA.

Concurrences N° 1-2015 I Doctrines I Miguel Sousa Ferro I “Ceci n’est pas un marché” : Gratuity and competition law I 7

discuss a viewers’ market, simply stating: “(…) the                                     les éditeurs pour pouvoir distribuer leurs chaînes.’”44 “(…) the

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    relevant product market to be defined is the market for                                 PCA considers that, in principle, one should not define an

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    advertising in television broadcasting.”36 It has repeatedly                            autonomous viewers’ market, given that, in what concerns free
    stressed that “in the case of free-to-air TV there is a                                 access TV, there is no direct commercial relation between
    commercial relationship only between the program supplier                               TV operators and their viewers, but only between the first
    and the advertising industry.”37 It envisages the “FTA                                  and advertisers. In this sense, it is unlikely for the so-called
    TV market” as one where “broadcasters compete for                                       viewers’ market to be a market in the strict economic sense
    advertising revenues,”38 and it measured market shares                                  of the term, since FTA TV operators only compete for a
    in function of advertising revenue. The fact that it has                                larger audience share given the strict relation between this
    also used audience to measure market power is explained                                 indicator and access to advertising income.”45
    by the fact that this is a decisive criterion for attracting
    advertisers.39
                                                                                            2.2 Radio
    60. However, this line of cases also shows that the EC                                  63. For radio (type 1B), the EC’s position has evolved
    has not taken a definitive position on the underlying                                   significantly. In a first case, where these markets were not
    theoretical issue, as shown by the fact that, after defining                            the focus of the analysis, it referred in passage to “the
    an advertising market, the Commission added: “(…) it                                    markets for radio broadcasting and radio advertising.”46
    can be left open if there is, in the strict economic sense of                           Shortly thereafter, it identified “a relevant market for radio
    this notion, a market for viewers where the TV broadcasters                             advertising,” adding that, in the specific case, it was “not
    compete against each other for audience shares.”40                                      necessary to decide whether there is a relevant market for radio
                                                                                            broadcasting.”47 More recently, it has seemed to settle on
    61. Member State NCAs, while all trying to follow EU                                    the idea that radio markets are limited to advertising, and
    Commission practice, have taken radically different                                     do not include a (free) broadcasting market.48
    stands, with no clearly predominant position emerging.
    Some countries (e.g., Germany and Italy) have rejected                                  64. The position of the Member States is equally
    the existence of FTA TV broadcasting markets, even if                                   varied. There are both definitions of free markets (radio
    not discussing the issue in the clearest of terms. Others                               broadcasting markets) alongside advertising markets49
    seem to have defined free markets or markets including                                  and definitions limited to advertising markets, which
    free services, either by identifying FTA TV broadcasting                                (at least implicitly) reject the existence of a broadcasting
    markets alongside TV advertising markets (Ireland and                                   market.50 Although rare, one finds statements such as
    Romania), or by including FTA TV and pay-TV in a                                        the following: “(…) the radio broadcasting market is not
    single TV broadcasting market (Bulgaria and Poland).                                    a services market in itself, since the consumer does not
                                                                                            pay for the supply of the service, there being no economic
    62. Some NCAs have changed position from case to case,                                  relation between the listener and the radio broadcaster.”51
    even during overlapping periods. Such is the case, for
    example, of Spain41 and the United Kingdom.42 Within
    these, there are those who reproduce the Commission’s
    position on this issue, treating the FTA TV market as being
                                                                                            2.3 Print media
    limited to advertising (France and Portugal), but incur                                 65. In the print media sector (type 1B), when looking at
    in the same problem of lack of clarity which eventually                                 professional publications provided for free, and despite
    leads to a misinterpretation and a finding that the TV                                  calling it a publishing market, the Commission actually
    viewers’ market is divided into an FTA TV market and                                    delineated only a market for advertising and calculated
    a pay-TV market.43 This interpretation is then rectified in                             market shares accordingly.52 However two cases seemed
    subsequent decisions, leading even to general statements of                             to admit the existence of a readers market for free
    principle concerning the treatment of gratuity in the context                           press, by adhering to French precedents.53 In another
    of market definition: “L’Autorité de la concurrence a déjà                              case, where the notifying parties argued that the readers
    eu l’occasion de constater que ‘contrairement à l’édition
    de chaînes payantes, l’édition de chaînes gratuites n’est
    pas à proprement parler un marché dans la mesure où les
    distributeurs de bouquets de télévision ne rémunèrent pas                               44   France: 12-DCC-101, § 15; 10-DCC-11, § 33.
                                                                                            45   Portugal: Ccent. 54/2006, § 20-21 (our translation).
                                                                                            46   M.553, § 17.

    36   M.1889, § 12.                                                                      47   M.779, § 19.

    37   M.2876, § 41.                                                                      48   M.5533, § 46-47.

    38   M.2996, § 10-14.                                                                   49   Czech Republic: S732/2012; Portugal: Ccent. 17/2005; Romania:
                                                                                                 201/02; 221/06.
    39   See, e.g., M.810, § 9; and M.6547, § 35-38.
                                                                                            50   France: 07-A-09; Germany: B6-56-03; Portugal: Ccent. 54/2006;
    40   M.779, § 15; M.1574, § 11; M.553, § 17 and 20.                                          Ireland: M/13/033; Italy: C7046; Spain: N/07021; United Kingdom:
                                                                                                 ME/1550/02.
    41   Compare SNC/0024/12 and N/07021 to C/0230/10 (§ 130).
                                                                                            51   Portugal: Ccent. 54/206, § 31 (our translation).
    42   Compare CC Report of 2010/05/12; ME/4682/10 (§ 7-10); and
         ME/2811/06 (§ 123) (see also CA98/20/2002).                                        52   M.3197, § 24-27 and 50-51.
    43   France: C2006/83, pp. 3-4; Portugal: Ccent. 1/2005, § 21-36.                       53   M.665, § 9-10 and 14; M.3420, § 9 and 11.

8   I Concurrences N° 1-2015 I Doctrines I Miguel Sousa Ferro I “Ceci n’est pas un marché” : Gratuity and competition law

market included free newspapers, the Commission stated:
2.4 Internet

66. Several NCAs seem to have firmly decided that there 71. In one group of cases relating to Internet contents
is a market for readers of free newspapers (alongside and portals, the EC repeatedly defined markets for the
the advertising market).56 These positions were taken “provision of paid for content” and for the “provision of
without a single discussion of the problem of gratuity, Internet advertising space.”65 Even though the impact
and they are affirmed even in decisions that implicitly of gratuity on market definition was not discussed as
reject the existence of gratuitous markets in other sectors such, one finds statements such as: the “parties, as well
(such as TV and radio broadcasting).57 as the joint venture are providing free Internet content,
and are therefore on the Internet advertising market.”66
67. But there are also national decisions that specifically The Commission refused to identify a market for “gateway
addressed free press and (at least implicitly) rejected its services,” mostly based on the fact that these services were
inclusion in a readers market.58 And several NCAs have supplied free of charge and that their impact could be taken
adopted positions that have changed from case to case.59 into account in the examination of other markets.67

68. In the UK, the tendency seems to be to refer 72. In another group of cases, the Commission has defined
broadly to press markets, but to focus exclusively on the Internet content and services markets which included paid
advertising side (without ignoring the two-sided nature and free services. All the while, it continued to identify a
of the market). In one such case, the OFT stated: “As the separate market for Internet advertising, and has presented
OFT’s competitive analysis is restricted to the consideration such delineations even when the portal in question was
of free newspapers, the following assessment is focused exclusively financed by advertising.68 It accepted a possible
on advertisers and readership impact is not considered market for “Internet search,” alongside a market for “search
further.”60 But, without any justification for the slightly advertising and other forms of online advertising”—a situation
different approach, there was also at least one case where described as “two-sided platforms serving both search users
the OFT included an essentially free newspaper in the (for ‘free’) and advertisers (for remuneration).”69
readers market.61
73. We find a very similar split in NCAs’ market definition
69. In Portugal, most decisions have not included free practice: avoiding taking a stand;70 identifying only
press in the readers market. However, recently, in a Internet advertising markets;71 identifying markets for
merger involving free newspapers, where the contours Internet contents which seemingly include demand for free
of the readers market could be decisive, the PCA contents;72 identifying Internet markets that include free
clarified that it believes there can be such a thing as a services;73 identifying free Internet search markets;74 etc.
“free market.” The notifying party argued that there
could not be a market where products were given away
for free. The NCA replied that it needed to define a
readers market to take into account the impact on the
63 Weber, cit., at p. 1.
advertising market, adding that gratuity was irrelevant:
64 M.973, § 8.
“(…) it only matters that, in this market, publications
compete by adopting different strategies to obtain readers 65 See, e.g., M.5676 and M.5779.
and different forms of financing.”62 66 JV.5, § 26
67 JV.1, § 14.
68 See, e.g., M.2222 and M.2463.
54 M.3817, § 12-15 and 19-20. 69 M.5727, § 47, 85-87 and 112-119. A similar approach can be seen in the
LiveUniverse v. Myspace case (CV 06-6994 AHM, 2007 WL 6865852
55 M.5273, § 13-16 and 24; M.5932, § 203 and 215. (C.D. Cal. Jun. 4, 2007)). A number of authors seem to agree with the
56 France: 09-DCC-72; Netherlands: 6689, §15; Romania: 221/2006. identification of (free) Internet search markets—see, e.g.: Polverino, cit.,
section 2.1; Thépot, cit., at pp. 205 et seq.; Weber, cit., at pp. 9 and
57 See, e.g., France: 05-A-18; 07-A-09. 15. For a different view, see: Manne and Wright, cit., at pp. 19 et seq.
Some authors have suggested defining “data markets,” where also no
58 Austria: Supreme Court Judgment in case 16Ok15/08; Poland: RWR remuneration would be exchanged (see, e.g., Harbour and Koslov, cit.).
7/2004.
70 France: 13-D-07; Spain: S/0346/11.
59 In Italy, compare C7839 and C6549 to I651. In Ireland, compare
M/07/064 to M/09/013. 71 France: 10-D-30; Portugal: Ccent. 41/2008; Spain: N/07021.
60 UK: ME/2880/07, § 7. 72 Portugal: Ccent. 5/2013; UK: ME/5882-12.
61 UK: ME/3315/07. 73 UK: ME/5233/11.
62 Portugal: Ccent. 21/2011, § 47-49. 74 UK: ME/4912/11; France: Trib. Com. Paris, 31/01/2012.

Concurrences N° 1-2015 I Doctrines I Miguel Sousa Ferro I “Ceci n’est pas un marché” : Gratuity and competition law I 9

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