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As announced by Alfonso, here I am to share some thoughts on today’s ruling in Post Danmark II. It is impossible to do full justice to it in a blog post. It is incredibly rich and some of the points can only be meaningfully developed in independent posts that I will try to publish in the coming weeks.
I would mention for the time being that the ruling is valuable, first and foremost, for the many issues that it clarifies. The effort in this sense is apparent (and very successful). There is also a clear attempt to bring together different strands of the case law and to achieve overall consistency (both within Article 102 TFEU and across provisions). I find it much easier to explain Article 102 TFEU case law to my students after the ruling.
It is useful to distinguish, as I have done in past entries, between issues of principle (relating to Article 102 TFEU as a whole) and issues that are specific to rebate schemes.
Issues of principle
Abuses by object and by effect: The ruling further confirms that the object/effect divide exists in the context of Article 102 TFEU. As the law stands, some practices are prima facie prohibited as abusive irrespective of the context and effects they produce (this category includes exclusive dealing and loyalty rebates). Other practices are only prohibited insofar as they have exclusionary effects (such as ‘margin squeeze’ practices and standardised rebate schemes).
Threshold of effects: While it has been clear for a while that some practices are only abusive where they have exclusionary effects, the relevant threshold has remained elusive. In line with the Advocate General, the Court seems to hold that the relevant threshold is one of likelihood. Post Danmark I is paraphrased in the ruling to state that the relevant question is ‘whether the conduct of the dominant undertaking produces an actual or likely exclusionary effect, to the detriment of competition and, thereby, of consumers’ interests’ (para 69). Para 67 (‘only dominant undertakings whose conduct is likely to have an anti-competitive effect on the market fall within the scope of Article 82 EC‘) is equally eloquent.
Effects on what?: The case law was not entirely clear as to the effects to consider when examining the lawfulness of potentially abusive practices. Some rulings gave the impression that the impact of a practice on the contractual freedom of the customers of a dominant firm was sufficient for Article 102 TFEU to come into play. Post Danmark II suggests that this is not enough. The impact of the practice on the competitive process needs to be considered. The assessment of all the circumstances relates to whether the practice ‘makes market entry very difficult or impossible for competitors of the undertaking in a dominant position’ (para 31). It is now credible to claim that the notion of ‘effects’ has a single meaning across competition law provisions (I will develop this thought further in a separate post).
Issues specific to rebate schemes
Scope of the prima facie legality rule: As I explained in my paper, the rebate scheme applied by Post Danmark was based on the volume supplied. It was therefore reasonable to infer from Hoffmann-La Roche and Michelin I that it was presumptively lawful under Article 102 TFEU. The ruling (para 28) clarifies that the prima facie legality rule only applies to rebate schemes that are (i) based on volume and (ii) that relate to individual orders. Only this category of rebate schemes is presumed to be justified by the cost savings made by the firm. The Court seems to attach importance to categories but redefines them.
Assessment of ‘all the circumstances’: According to the Court, it is necessary to consider all the circumstances to determine whether a system of standardised rebates has exclusionary effects. Such factors include the position of the dominant supplier and the conditions prevailing on the relevant market (para 30); the rules and criteria governing the grant of the rebate (para 32), and in particular the retroactive nature of the scheme and the length of the reference period. Beyond the specific issues, the judgment proposes a true effects-based analysis. The regulatory context and the features of the relevant market seem to play a crucial role in the assessment (as they should).
More on the analysis of effects:
- The expressions ‘fidelity-building’ and ‘loyalty-inducing’ seem to be absent from the judgment. These expressions were used in rulings that suggested that a restriction in the commercial freedom of the customers of the dominant firm is sufficient to establish an abuse. This conspicuous absence suggests, in line with what I pointed out above, an attempt to bring together different strands of the case law and to propose a true analysis of effects.
- Precisely because the Court engages in a careful analysis of the impact of the practice on the competitive process, the references to de minimis and the appreciability of the practice seem to be of little theoretical or practical relevance.
Relevance of the ‘as efficient competitor’ test: Unsurprisingly, the Court holds that the relevant case law does not mandate the ‘as efficient competitor test’ (para 57). Equally unsurprisingly, it holds that the purpose of the Guidance is merely to set the priorities of the Commission as a competition authority (para 52). More interesting is para 58, where it states that the above ‘ought not to have the effect of excluding, on principle, recourse to the as-efficient-competitor test in cases involving a rebate scheme for the purposes of examining its compatibility with Article [102 TFEU]’. In the specific context of the case, the test is not deemed to be relevant. I am inclined to agree with the Court. You may remember that I said ‘never say never’ in a previous post. Well, Post Danmark II is a good example showing that sometimes even rebate schemes that do not amount to below cost pricing can be exclusionary (the regulatory context is crucial in this regard and supports this conclusion, in my view).
Objective justification: In line with Post Danmark I, the Court confirms that an objective justification is available to dominant firms, and that it may relate to the efficiency gains made through the award of the rebate scheme (para 48). This is the aspect of the ruling that is likely to prove more controversial. Because the scope of the legality rule is defined so narrowly, it is not obvious to see how an efficiency defence will succeed (but I may be wrong). In this regard, the ruling seems to be in line with Michelin II (which helps explain, in turn, why an objective justification has not been put forward by dominant firms in some recent cases). I will develop this point elsewhere.
This seems enough for today. As usual, I would love to read your views on the ruling!
Before this blog is flooded with the zeitgeist debates on the Post Denmark II Judgment issued this morning (the good news for Pablo is that all his previous posts on the subject remain valid…), here are the slides (in Spanish, sorry) that I used this morning for my intervention at the Spanish Competition Authority, as announced in my previous post:
(Many thanks to Paloma Lantero for the help in preparing them)
I’m in a train preparing the slides for my intervention next Tuesday at the Spanish Competition Authority´s and USP CEU’s conference on the fight against cartels in the Iberoamerican Community (EU, Spain, Portugal, Brasil, Mexico, Argentina, Chile and Colombia).
The conference will also be an opportunity to present a hot-off-the-press book on cartels (pictured above) to which I have contributed with a quite significant number of pages, taking care of the chapters on cartel procedure (together with JL Buendía) and on cartel evidence (together with Ana Balcells). The book is part of a project directed by Jerónimo Maillo and coordinated by Javier Porras.
My intervention on Tuesday will focus on one of the sub-topics discussed in one of the two chapters: the interpretation of the notion of “single and continuous infringement” in EU and Spanish competition law. Despite being the essence of the “cartel offence” and a feature of practically every single cartel decision, there are still perplexing divergences in how the notion is interpreted throughout the EU. I also see some divergent trends: whereas the concept keeps on expanding at the national level, EU Courts seem to be adopting a more restrictive interpretation, particularly when it comes to establishing individual liability for the whole infringement (the trend was made evident with Coppens and Aalbers and again only a few weeks ago in the Toshiba Judgment). If any of you has thoughts on the matter, I would appreciate if you would send them my way (I can offer a beer in reward).
And since I’m asking for favours, if anyone from Colombia reads this (I’ve just checked the blog’s stats and it seems we have a good number of Colombian readers), I’ll be happy to return there to speak about anything. It doesn’t have to be competition law: I only need a excuse to visit my brother living in Bogota pretending it’s a work-related trip :)
And since I’m mixing famly and cartels: I recently told my mum that I had worked in a case where cartel meetings had taken place in a hotel we know well. She thought there could be a niche there, and has asked me to please advertise to any potential cartellists that I know that my parent’s hotel has very suitable facilities for cartel meetings, is quite hard to get to (undoubtedly an advantage for this purposes) and can offer a tie/ discount in legal services. Special prices would apply to continuous infringements.
Finally, those interested in cartels should know that our friends at ERA are holding a workshop on cartel enforcement in the EU in Brussels on 29 October. For more info, click here.
As recently announced, the Chillin’Competition Conference will be taking place in Brussels on November 19th.
The programme is practically finished and we hope to publish here next week. In the meantime (and since work has precluded me from writing anything more substantive today) we can give you some additional details:
-Where? The conference will take place at the premises of the Federation of Belgian Enterprises, in Rue Ravenstein 4, Brussels.
-When? On Thursday, November 19th, 2015, from 9.30 a.m. to 19 p.m, although there will be drinks afterwards [actually, not only afterwards, you’ll see ;) ]
-What? We will be holding 5 panels, each with 5 panelists, one touching on object/effect issues in Arts. 101 and 102; one on competition in the online world, one on competition and IP, one on institutional and procedural issues, and one on State Aid.
-Who? We have managed to have a quite impressive line-up of speakers, including a member of the CJEU, several Commission officials, national judges, academics and quite a few top-notch practitioners (I’m sure my firm will appreciate that I organize an event to showcase competitors). Quite impressively, only two of the many people invited have said they unfortunately could not make it [a clue: one is Danish :)]. Pablo and I will not be speaking, since –as you might have noticed- we’ve already depleted our stock of ideas.
-How much? Nothing, but if you ever see us around, you can invite us to a couple of beers.
We can also safely announce that we will be breaking a good number of the 10 commandments for Brussels conference organizers.
-Sponsors. We are immensely grateful to those who have so far agreed to contribute to the conference via sponsorships, so far (for the sake of clarity, the bold in “so far” means that others can still join; but hey, no pressure…): Cleary Gottlieb, CCIA, Covington, Garrigues, Gibson Dunn, Hart Publishing, Herbert Smith Freehills, Inbev, Linklaters and White & Case.
The successive editions Paul Samuelson’s legendary textbook accurately capture the evolution of economic thinking over the second half of the 20th Century. It is the most obvious starting point to get a sense of the shift in consensus positions on many issues, including the viability of central-planning or the role of monetary policy.
It is probably appropriate to say that Whish & Bailey’s Competition Law is our discipline’s Samuelson. It has been widely (and rightly) praised for its clarity and has long set (and still does) the standard for other textbooks in (EU) Competition Law (also when it comes to the jokes). As much as Samuelson’s Economics, it also reflects consensus positions. This is the reason why I open with excitement every new edition of Competition Law to spot changes in the text (and this in spite of the fact that it is each time a painful reminder of one’s old age).
I received the 8th edition a few weeks ago (I have all editions from the 5th, with which I studied in Bruges). As I expected, there is a relatively lengthy discussion of Cartes Bancaires (pp. 125-127) and its impact on the textbook’s trademark framework, which revolves around the famous ‘object box’. The analysis of the Court in that case (and in previous ones, such as Allianz Hungaria) shows that the ‘object box’ approach is not always reliable. The discussion of this question in the new edition is in any event interesting and valuable. And there is no doubt that the ‘object box’ will help thousands of students to make sense of the underlying legal concept!
Another key change comes in the treatment of exclusive dealing and loyalty rebates. The book used to take a marked normative stance on the question. In the past two editions, the author(s) expressed a preference for an effects-based approach to exclusive dealing. Similarly, they considered that the application of the ‘as efficient competitor’ test to loyalty rebates by the Commission could have a positive impact on the substance of the law.
The 8th edition is remarkable in that it adopts a positive stance on these matters. The authors no longer dispute the current state of the law. They simply explain that exclusive dealing and loyalty rebates are prima facie prohibited and that it is for dominant firms to put forward an objective justification for their behaviour. The new edition is also a good reminder for students that there is no such thing as a per se prohibition in EU competition law.
It is not difficult to guess what might be behind these changes. Wouter Wils’s article on Intel (announced in this blog) has had an enormous impact in the competition law community – it is probably the most read article of the past 12 months. Regular readers of the blog will remember that Richard Whish wrote an editorial defending the prima facie prohibition of exclusive dealing shortly after that article was published.
The changes introduced to the new edition show, above all, that ours is a discipline in a constant state of flux. Some of my colleagues regret that the law in some areas has become so stable that there are hardly any interesting theoretical or practical questions. For better or worse, EU competition law is really far from reaching that stage.
I genuinely thought – and I do not think I was the only one – that the Commission Guidance on Article 102 TFEU captured reasonably well the consensus around the appropriate treatment of exclusive dealing and loyalty rebates. It is now clear that such consensus does not exist, and may never have existed. From this perspective, Wils’s article played a valuable role, in the sense that it has prompted a vigorous (and necessary) debate on issues of principle. It is not a secret that I hold different views. But as a firm believer in competition, even (or rather, especially) when it comes to ideas, I am convinced that a more robust, consistent and sensible competition law system will emerge from this debate!
To sighs of relief among the audience I have just finished my intervention at ERA’s conference “Competition Rebooted: Enforcement and personal data in digital markets”.
My slides are available here: Competition Big Data_Lamadrid
The contributions from the EDPS himself, Jorge Padilla, Orla Lynskey, Maurice Stucke, Patrick Van Eecke, Cyril Ritter, Amal Taleb, Cecilia Parker and Christian D’Cunha were all much more interesting. If interested in their slides, then you should have registered ;)
Joshua Wright has left a mark during his tenure as an FTC Commissioner. The reason is not a secret to anyone. I do not always agree with his positions, but his contributions are invariably relevant and thoughtful. If he has written on a topic on which I am working, I always end up reading his stuff, and I always get something out of it. My favourite pieces are probably his speech on incomplete contracts, standard-setting organisations and FRAND and his article (co-authored with Douglas Ginsburg) on dynamic analysis and the limits of antitrust.
When I think of Joshua Wright, the first image that comes to mind is not that of the FTC Commissioner, however. I tend to think instead of a young Assistant Professor presenting a paper. Back in January 2009, I was at Stanford Law School. It was the last of the six wonderful months I spent in Palo Alto as a visiting PhD student. Mitchell Polinsky was kind enough to allow me to attend the Law and Economics Workshop, where Joshua Wright presented ‘Is Antitrust too Complicated for Generalist Judges’, which was eventually published in the Journal of Law and Economics.
There was the Assistant Professor defending his findings in front of the mighty Stanford Law Faculty. That seminar made a strong impression on me. The substance of the paper matters less than the atmosphere and the attitude of the participants. It was a really intense seminar. I remember the probing questions, which revealed that everybody in the room took very seriously the task of advancing knowledge. To this day, I still think about the seminar as the ideal academic environment, in which nothing is personal and there is no room for pettiness. What matters is to get things right. No matter how demanding, I am sure Joshua Wright felt grateful for the session.
With these vivid memories fresh in my mind, you can imagine how impressed I was when I learnt that, a mere four years later, Joshua Wright had been sworn in as a Commissioner. This amazing career is testimony to his talents and energy, which have become even more apparent during his time at the FTC. If it was not clear enough from the above, I will finish by saying that I am delighted that he is returning to a full-time academic position.