Relaxing whilst doing Competition Law is not an Oxymoron

Post Danmark – More than just One Case

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Our friend Christian Bergqvist has offered us a most interesting post on the national sequel of the CJEU judgment in Post Danmark. Christian is an associated professor at the University of Copenhagen/Faculty of Law. He holds a PhD in competition law and has specialized in  particular on dominant firm conduct and the interplay of Article 102 TFEU and sector specific regulation. For more, see here.

PS: for a good reminder of the ruling and of its implications for future competition policy, I advise the reading of the excellent piece of E. Rousseva and M. Marquis (which suggests (in my view rightly) that the Court eventually embraced the Commission’s approach set forth in the Guidance paper).   

About a week ago, on Friday 15 February, the Danish Supreme Court delivered its ruling in Post Danmark vs Konkurrenceraadet. This judgment settles the national case behind the (fabulous) 2012 CJEU ruling Post Danmark (C-209/10). Given the strong pronouncements made by the CJEU it does not come as a surprise that the Danish Supreme Court eventually decided to quash the challenged (national) decision on grounds of an incorrect material test. Rather than concluding that discriminatory conduct was per se able to exclude a competitor, the Danish Competition and Consumer Authority, should  have conducted an “equally efficient competitor test”, or something close (the latter being my interpretation). Absent this, nothing conclusive could be decided on the existence of an abuse.

The ruling of the Supreme Court leaves little space for ambiguity. Yet, the final word might not have been said on the matter. First, the Danish Competition and Consumer Authority can at least theoretically reopen the case and conduct a proper analysis. This, however, looks quite unlikely. Second, back in 2009, the alleged “victim” of the exclusionary behavior (Forbruger-Kontakt) had successfully filed an action for damages, and was subsequentely awarded DKK 75 million (app. EUR 10 million). Unsurprisingly, Post Danmark has appealed this decision to the Danish Supreme Court, which is yet to decide on the matter.

This short post seeks to offer some thoughts on this issue. Prior to this, I provide some background information on the initial EU case.

Background of the case and ongoing developments

The facts of this case are quite simple: Forbruger-Kontakt and Post Danmark were rivals on the market for the distribution of unaddressed mail (advertisements etc.). Besides this, Post Danmark was the incumbent of the market for addressed letters and parcels, a neighboring market partly liberalized in 2003.

In 2003, Post Danmark lured three customers away from Forbruger-Kontakt by offering them attractive selective price cuts. According to Forbruger-Kontakt this was done with the specific purpose of undermining its ability to remain a viable competitor on the market, thereby (i) reserving the market for unaddressed mail; and (ii) defending the market for addressed mail. Forbruger-Kontakt thus complained before the Danish Competition and Consumer Authority on grounds of the price cuts being (i) discriminatory and loyalty enhancing and (ii) predatory under the predatory pricing doctrine. For practical reasons the case handler team at the Danish Competition and Consumer Authority decided to split the complaint in two separate cases. To keep things simple in the remainder, I refer to the first case as Post Danmark I (i.e. the discriminatory and loyalty enhancing prices and discounts) and to the second case as Post Danmark II (i.e. the predatory pricing). Moreover, given that Post Danmark I, concerns two separate infringements, I will talk of Post Danmark IA for the discrimination and Post Danmark IB for the loyalty enhancing practices.

In September 2004, the Danish Competition and Consumer Authority decided that the price cuts had been discriminatory as they discriminated between customers (Post Danmark IA) and excluded competitors (Post Danmark IB). In those cases, the agency considered that this was constitutive of both secondary line injury discrimination and primary line injury discrimination, respectively. These conclusions where largely based upon a rigid application of traditional case law requiring the dominant firm to justify any differentiation of terms and condition offered to customers. Absent the latter abusive behavior was found to be present and the submissions from Post Danmark that there was no material anticompetitive effect (and that this should be a requirement )  was held irrelevant

In contrast, the agency found no predatory pricing abuse in Post Danmark II (the decision in Post Danmark II was adopted in November the same year). The agency based its findings on the absence of (i) predatory intent and (ii) below average incremental costs (AIC) pricing (save from a single (and insignificant) situation). The application of AIC as a surrogate for the traditional AVC standard followed the European Commission’s 2001 decision in Deutsche Post (case COMP/35.141).

The initial plaintiff (Forbruger-Kontakt) appealed Post Danmark II to the Competition Appeals Tribunal (an administrative body presided by a Supreme Court Justice) and, subsequently challenged the administrative decision before the courts. While the first complaint was unsuccessful (2005) the latter where withdrawn (2006).

Besides this, Post Danmark appealed the decision in Post Danmark I. The Competition Appeals Tribunal (2005) and the High Court (2007) rejected the appeal. Before the High Court, Post Danmark and its advisors had decided to narrow the case by merely challenging the claim that the selective price cuts were exclusionary (Post Danmark IB).

Following the 2007 High Court ruling upholding the Post Danmark IB decision and the subsequent award (in a separate case) of damages to the Forbruger-Kontakt, both cases (Post Danmark IB and the damages case) were appealed to the Danish Supreme Court, which in 2010 referred a number of questions to the CJEU in relation to the first case (Post Danmark IB) on the issue of discriminatory exclusions.

Unpacking the CJEU ruling requires a good grasp of the underlying cases

When it comes to unwrapping the CJEU May 2012 ruling, one should keep in mind that it comes in the context of not one, but of three national infringement decisions plus a pending action for damages. But the fact remains that the CJEU preliminary ruling only relates to the issue of exclusionary discrimination and thus does not offer any comments or considerations on “real discrimination”.

The second clue to understanding the case and its long term implications would be to note that the price cuts were neither part of any predatory strategy (cf Post Danmark II) nor of a conditional rebates scheme. Hence, the discounts lacked the loyalty enhancing and suction effect found in the traditional EU case law.

Moreover, Post Danmark market share amounted to “merely” 44-47%. The case can thus be distinguished from the “super dominance” selective price cuts line of case-law encountered in oddities like Compagnie Maritime Belge Transports (C-395/96P and C-396/96P).

In the proceedings, Post Danmark used those arguments to resist allegations of abuse. Initially, those defenses did not work successfully. Things, seemed however to change, when the case was lodged before the Supreme Court (January 2008). Concomitantly, the Commission had indeed unveiled its Article 102 discussion paper and its guidance paper which requested the application of the equally efficient competitor analysis. One cannot thus not resist to the conclusion that DG COMP’s efforts had a key influence on national proceedings

A final observation on Post Danmark is that the 2004 decision offers a kind of mini-guide on the concept of discrimination in economic theory. The decision talks of the condemned discriminatory conduct as second line discrimination and primary line discrimination. Those two concepts, which arefamiliar to most economists, are less clearly rooted in legal theory. With the danger of oversimplifying, the first notion covers, in essence, “real discrimination” where some customers are put at a disadvantage compared to others while the last would be exclusionary discrimination where specific competitors are excluded by foreclosure. And the second (i.e. primary line discrimination) is a synonym to exclusion by foreclosure. In turn, this type of discrimination ought to be analysed under the rigid tests set in Hoffmann-La Roche, Michelin I, and Michelin II, which (by the way) is exactly what the Danish Competition and Consumer Authority did in its 2004 decision (Post Danmark I).

Written by Nicolas Petit

28 February 2013 at 1:02 pm

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