Injunction in an abuse of dominance case discharged after dominance claim proves untenable

Packet Media Limited v Telefonica UK Limited (2015 EWHC 3873 (CH)), judgment of 14 December 2015

In brief

The initial success of Packet Media Limited (PML), the claimant in an abuse of dominance claim in securing an injunction against Telefonica (O2) to prevent services to SIM cards used in GSM Gateways being discontinued has now been reversed. The abuse injunction was granted on the basis that there was an arguable case that O2 was dominant in the wholesale market for call origination in the UK. O2 was permitted to challenge the injunction on the basis of further evidence as it had not had an opportunity to do so before the injunction was granted. Evidence from the Office of Communications supported its claim that the relevant market was competitive and that it did not hold a dominant position. The judge therefore discharged the interim injunction and granted summary dismissal of PML’s claim.

In detail

The alleged abuse of dominance

PML is a telecommunication services provider that sells or leases and maintains global systems for mobile telecommunications (GSM) gateway equipment. It resells air time on the O2 mobile network via SIM cards that are installed in the equipment. The GSM gateway then diverts landline-to-mobile calls and text messages through the SIM with the result that they register as mobile-to-mobile communications and are charged at a lower rate. PML obtains the O2 SIM cards from two authorised resellers, 2 Circles Communications Limited and Fidelity Group, and maintains that it has consent from both resellers for its customers to install and use the SIM cards in this way.

O2 gave notice to PML that it would disconnect the services that it was providing to the SIM cards supplied to its customers because either PML or its customers, or both, had not applied or been authorised to use the Gateways on its network in accordance with O2’s Gateway policy for private use.

PML alleged that the proposal to disconnect services to the disputed SIMs was an abuse of dominance under Chapter II of the Competition Act 1998. O2 was alleged to be dominant on the markets for the termination of mobile telephone calls and of SMS messages on the O2 network. The alleged abuses consisted in imposing three unfair trading conditions:

• refusing to continue to supply to an existing customer or customers who have abided by regular commercial practice
• refusing to supply an essential facility to PML, specifically access to the Termination Markets for the purpose of enabling its customers to operate GSM Gateways, and 
• operating a policy that restricted or prohibited the lawful "self-use" of GSM Gateways and refused connection to CE-certified equipment.

PML claimed that these abuses would result in competition being distorted on the downstream market for the retail provision of fixed-to-mobile calls and text messages to end users, and that this distortion would favour the defendant's own services and disadvantage or exclude PML's in those downstream markets. O2 argued that the Gateway Policy was objectively justified on the basis of commercial and technical considerations as a means of protecting its retail offering. The tariff offered was designed for individual mobile phone users, not for commercial business users despatching text messages in bulk.

The test for granting an injunction

During the initial hearing, the Judge applied the test in American Cyanamid v Ethicon to determine whether an injunction was appropriate. First, there must be a serious issue to be tried. If so, would damages be an adequate remedy instead of an injunction, and if not, where does the “balance of convenience” lie - in other words, which course seems likely to cause the least irremediable harm to one or other party? The Court should not attempt to resolve difficult issues of fact or law at the preliminary stage. The judge decided that there was a serious issue to be tried on two points: first, whether either PML had obtained written consent from 2 Circles and Fidelity for the O2 SIM cards to be used in PML’s GSM Gateways, or the two re-sellers had waived the need for prior written consent, and secondly, whether use of the GSM Gateways by PML’s customers was in fact causing congestion to O2’s network and undermining the basis of its consumer offering.

However, the Judge agreed with O2 that the market in which it was alleged to be dominant was that for termination services, but that PML was in fact seeking access to a network through which it could send texts in bulk to mobile users through a mobile network - that is, the market for access and call origination services. As pleaded, the issue of dominance did not raise an arguable case.

However, the hearing was adjourned over the weekend, and the claimants seized the opportunity to draft amended particulars of claim in which an abuse of dominance in the call origination markets was alleged. O2 had clearly had no opportunity to defend itself against the allegations, but the judge recognised that the abuse allegation raised a serious issue to be tried, and decided that taking the amended particulars into account would fulfil the overriding objective of enabling the court to deal with cases justly and at proportionate cost. On the balance of convenience, the greater harm would be caused to PML by not granting the injunction than to O2 if he did grant it. The injunction was therefore granted subject to O2 being able to apply to discharge it if it could prove that it was not in fact dominant in that market.

O2 in due course put forward additional evidence referring to Ofcom documents confirming that since 2003, Ofcom had considered both the wholesale access and originating markets to be competitive and that none of the operators had significant power. In the Court’s view, it was “inconceivable” that Ofcom would have concluded this if O2 was in fact dominant as PML alleged. The various documents provided compelling evidence that none of the operatives had significant power in the market and that O2 in particular was not dominant in the relevant market.

PML had additionally argued in its revised pleadings for a narrower market, namely that for the provision of call and text origination services by O2 to customers on the O2 network wishing to use a GSM Gateway, on which O2 would be “plainly dominant”. The Court concluded that PML appeared to have no idea whether this narrower market was in fact a relevant market and that speculation or hope that it was so was insufficient to establish a serious issue to be tried.

The interim injunction was therefore discharged, and PML’s claim summarily dismissed. Interim costs of £37,500 were awarded to O2, and permission to appeal was not granted.

Comment

The case emphasises the importance of raising an arguable case of dominance on the relevant market. Where an arguable case can be made, the issue of abuse and its objective justification raise triable issues of fact and of law that cannot be resolved in the context of an interim injunction application. In addition, the weighing of the balance of convenience in any abuse of dominance case is likely, as here, to throw up issues of the asymmetrical impact of the measure on the smaller party. Defendants can take heart following this judgment from the fact that the High Court proved willing to reconsider its decision where compelling evidence to the contrary undermined the case for dominance. In particular, the Court deferred to a body of findings by the specialist regulator and dismissed out of hand the evidence of an economist supporting PML. Without regulatory commentary, and where the company has, or arguably has, market power and is dependent on economic arguments, the defence may find it an uphill struggle to defeat an injunction, as it proved in Dahabshiil Transfer Services Limited v. Barclays Bank plc [2013] WEHC 3379 (Ch), a financial services case. In such cases, the bar to a claimant obtaining a preliminary injunction may continue to be relatively low.

How would this case have proceeded under the revised competition litigation regime that took effect on 01 October 2015? Under revisions introduced by the Consumer Rights Act 2015, and the coming into effect of transfer provisions of the Competition Act 1998, the Competition Appeal Tribunal gained significant new powers. It is now entitled to hear standalone competition law claims, to grant injunctions, and to fast track suitable cases. A case raising issues of competition law can be transferred from the High Court to the UK’s specialist tribunal with expertise in law and competition economics, either at the request of one of the parties, or of the court’s own volition (though it must take the parties’ views into account). The case might therefore either have been brought before an expert panel in the first instance, or else transferred to it by the judge. Members of the judiciary sitting on a CAT panel are likely to be more confident in assessing whether an abuse of dominance is arguable in a given case, and more familiar with economic arguments either for or against. Defendants that dispute an imputation of dominance on reasonable grounds may therefore find it strategically helpful to seek a transfer into the CAT if faced with injunction proceedings in the High Court.