The Court of Justice of the EU confirms the abuse of a dominant position by the Lithuanian national railway company

On 12 January 2023, the Court of Justice of the EU confirmed the judgment of the General Court condemning Lithuanian State Railways for abuse of a dominant position following the dismantling of a section of railway track.

This judgment put an end to a 15-year saga involving Lietuvos gelezinkeliai AB (hereinafter "LG"), Lithuanian State Railways, a railway infrastructure manager and provider of rail transport services in Lithuania, and Orlen Lietuva AB, a company specializing in the refining of crude oil and the distribution of refined oil products (hereinafter "Orlen").

The facts of the case

In 2008, Orlen, which transported 90% of its production of refined oil products by rail to the Estonian and Latvian markets, was one of LG's most important customers. For the Lithuanian part of the route, Orlen used the services of LG, which subcontracted the transport to Latvijas dzelzcels, a national railway company of Latvia (hereinafter "LDZ"), which did not have the necessary regulatory authorizations to operate independently on Lithuanian territory.  

Once the border was crossed, LDZ continued the transportation in Latvian territory.

At the beginning of 2008, a commercial dispute arose between LG and Orlen regarding the tariffs paid by the latter for the transportation of its oil products.

On 12 June 2008, Orlen unilaterally decided to apply a lower rate than that requested by LG and to withhold payment of the difference. 

As a result of this dispute, Orlen wanted to contract directly with LDZ for rail transport services in Lithuania, and LG terminated their agreement as of 1 September 2008.

Later, due to deformation of the track over a few dozen metres, LG suspended traffic on the short route to Latvia.

Afterwards, LG decided to completely dismantle this section of the track, over a length of 19km.

Following negotiations between Orlen and LDZ, the latter applied for a licence to transport products on the Lithuanian part of the route.

However, upon learning of the dismantling, all discussions between the two potential co-contractors were halted.

On 14 July 2010, Orlen lodged a formal complaint with the Commission against LG for abuse of a dominant position.

The European Commission's decision

On 6 March 2013, the Commission decided to initiate proceedings against LG under Article 102 TFEU.

In its final decision of 17 October 2017, the Commission found that LG held, on the one hand, a legal monopoly on the market for the management of railway infrastructure in Lithuania and, on the other hand, downstream, a dominant position on the market for the provision of rail transport services for oil products.

Furthermore, according to the Commission, LG's dismantling of the railway track blocked LDZ's entry into the Lithuanian rail freight market, or at least made its entry much more difficult.                                                                                                                                    

In fact, due to the removal of this section, the only alternative was a much longer route, exposing LDZ to significant commercial risks.

The Commission also noted that LG had removed the track in haste, that it had worked to convince the Lithuanian Government not to rebuild the track, that it had not taken any normal preparatory measures for its reconstruction and that it was aware of Orlen's plan to enter into a contract with LDZ.

Such a removal is contrary to standard industry practice and LG was aware of the risk of losing Orlen's business as a result of the dismantling.

For all these reasons, the Commission concluded in its 2 October 2017 decision that LG had abused its dominant position by raising barriers to market entry without objective and convincing justification.

In view of the gravity and duration of the infringement, the Commission imposed a fine on LG in the amount of EUR 27,873,000, ordered it to terminate the infringement and to communicate a proposal for measures to that end within three months.

LG brought an action before the General Court of the EU seeking the annulment of that decision and, in the alternative, the reduction of the amount of the fine imposed.

By a judgment of 18 November 2020, the General Court of the EU rejected LG’s claim of abuse but reduced the fine to EUR 20,068,650 after making a fair assessment of the gravity and duration of the infringement.

LG then appealed to the Court of Justice of the EU.

The ruling of the CJEU

In its judgment of 12 January 2023, the Court of Justice of the EU confirmed the judgment of the General Court condemning the Lithuanian national railway company for abuse of a dominant position.

In its first plea, LG argued that the established test of the Bronner case law should be applied to determine the existence or not of the alleged abusive practice.

The Bronner case law concerned a press company holding a dominant position in the territory of a Member State that refused to integrate the distribution of a daily newspaper competing with another company in the same Member State into its own home delivery system for newspapers.

The hypothesis of the destruction of infrastructure by a dominant undertaking, as in this case, must be distinguished from that of a refusal of access in the Bronner case.

The destruction of infrastructure makes it unusable not only for competitors but also for the dominant undertaking itself. The present case does not raise an access problem within the meaning of the Bronner case, so this case law is not applicable to the present case.

In another plea, LG argued that the removal of the track did not make any difference to the situation that existed after the earlier suspension of traffic and that, even without the removal, there would have been no possibility of the track being put back into service in the short term.

According to LG, the removal did not therefore produce any anti-competitive effects of crowding out competition.

The Court noted in this respect that by challenging the consideration that the railway track could have been restored to service "in the short term" with initial repairs, LG sought to challenge the factual assessments of the General Court and did not argue that the General Court had misinterpreted any of these elements, and its argument is therefore inadmissible, as the appeal must be limited to questions of law and not to the General Court's factual assessment.

Furthermore, the General Court also noted that a letter sent on 18 September 2008 by LG's rail infrastructure management to the strategic planning board indicated that only 1.6 km of track had to be rebuilt immediately and that the defects found on the 19 km of track required full repair within five years. Based on this information, a complete and immediate removal was not justified.

The Court then recalled that, as a railway infrastructure manager, LG had, in addition to its regulatory obligation to guarantee the safety of traffic, a regulatory obligation to minimize disruptions and improve the performance of the railway network.

Due to its dominant position on the relevant market, LG also had a particular responsibility not to undermine through its conduct an effective and undistorted competition. 

In fact, LG should have taken this into account and avoided taking the track out of service completely in the short term by means of a phased reconstruction.

According to the Court, the removal of the track was likely to produce anti-competitive foreclosure effects, in particular because the traffic on this track was notably worse following the suspension. 

Finally, LG argued that the General Court had contradicted itself by reducing the amount of the fine imposed on it based on anti-competitive intent.

The Court points out that it is not for it to substitute its assessment of the amount of fines imposed on undertakings for that of the General Court on grounds of equity, except in so far as the Court considers that the level of the fine is not only inappropriate but also excessive and disproportionate, which is not the case in this instance.

In accordance with Article 23(3) of Regulation No. 1/2003, the assessment of the amount of the fine by the General Court was guided by the gravity of the infringement committed and its duration, without taking into account any anti-competitive intent. Even if the General Court had contradicted itself as to whether or not there was anti-competitive intent, such a contradiction would in any event have had no impact on the General Court’s reassessment of the amount of the fine.

Because of all these considerations, the Court dismissed LG's appeal in its entirety.

Conclusion

This judgment completes the existing case law on access to essential infrastructure, which will now impose a significant burden on railway infrastructure managers, who may therefore be forced to renovate and rebuild sections if their removal affects actual or potential competitors. The motivation for such decisions, whether strategic or financial, is therefore fundamental.

It should be noted, like the Advocate General, that several arguments put forward by LG were raised late in the reply and at the oral hearing. They were therefore not considered by the Court.

It should also be noted that, in its decision of 18 November 2020, the General Court gave extremely vague reasons for the significant reduction in the amount of the fine imposed, namely EUR 7,804,350.

In the absence of a statement of reasons, it is therefore complicated to identify the reasons that justify such a reduction in the amount of the fine, especially when the General Court confirms the contested decision, rejecting all arguments raised by LG.

It is very surprising that LG did not mention this lack of reasoning in its numerous pleas before the CJEU.

The Commission, which would also have a legitimate interest in asserting a violation of the duty to state reasons, did not seem to want to react either by lodging a cross-appeal limited to the challenge of the fine.