Chillin'Competition

Some people like to see controversies around Article 102 TFEU as an epic battle between conflicting worldviews. Alas, everyday life is more pedestrian and less exciting. Fortunately, we are constantly reminded of it. These were my thoughts after reading AG Kokott’s opinion in Post Danmark II. It shows that the scope of disagreements about the appropriate legal treatment of unilateral practices tends to be greatly exaggerated.

AG Kokott’s opinion is indeed remarkable, first and foremost, because it reveals that there is much common ground. The points of contention exist and are undoubtedly important, but are technical in nature. They do not relate to a fundamental disagreement about the objectives of EU competition law, but to the way in which the principles underpinning the existing case law are to be interpreted and applied to specific factual scenarios.

On issues of principle, I am ready to guess that the vast majority of commentators will agree with AG Kokott’s understanding of the case law. What is more, I am convinced that they will praise the opinion insofar as it sheds light on certain crucial issues. On the test applying specifically to quantity rebates, my impression is that not everybody will agree. Certain aspects of the opinion are objectively difficult to reconcile with the relevant case law – in particular Hoffmann-La Roche, Michelin I and AKZO. It will not take long before commentators pinpoint these aspects. I will be discussing issues of principle in this first post and will leave the second question for another one.

Quantity rebates as an ‘abuse by effect’

It has become clear in recent years that there are two broad categories of potentially abusive practices. Some conduct is deemed abusive by its very nature (this category comprises, inter alia, exclusive dealing, loyalty rebates and tying). Other practices are only abusive where they have, or are likely to have, an anticompetitive effect. These include ‘margin squeezes’ and selective price cuts, in addition to refusals to deal. Unsurprisingly, AG Kokott comes to the conclusion that quantity rebates fall under the second category. The Court has consistently held since Hoffmann-La Roche that such rebates are an expression of competition on the merits.

AG Kokott proposes a true analysis of effects for quantity rebates

I have written elsewhere that the case-by-case analysis of rebates differs from the analysis of exclusionary effects in ‘margin squeeze’ and selective price cuts cases. The analysis of ‘all the circumstances’ in target rebate cases (think of Michelin I and British Airways) has so far focused on whether the scheme in question amounts in practice to a formal exclusivity obligation. This assessment differs from that sketched in Deutsche Telekom, TeliaSonera or Post Danmark I.

AG Kokott proposes a test for quantity rebates that is closer in nature to that underlying the latter three rulings. According to the opinion, the features of the relevant market would be an integral aspect of the analysis. Interestingly, AG Kokott cites Post Danmark I in support of this conclusion. There is every reason to welcome this clarification. Practices that are not abusive ‘by object’ are subject to an analysis of effects that is comparable to that found in the context of Article 101(1) TFEU and merger control. Only if the features of the relevant market reveal that exclusionary effects are likely will an abuse be established.

Substantive standard: ‘likelihood’ of exclusionary effects, not ‘risk’ or ‘capability’

As I said above, it has been clear for a while that some practices are only abusive if an anticompetitive effect can be shown. The substantive standard applying to the assessment of effects has remained elusive, however. In cases like TeliaSonera, the expressions ‘capable’ and ‘likely’ are seemingly used interchangeably by the Court, even though they do not have the same meaning (I remember Bill Allan making this point in a great lecture he delivered a while ago). AG Kokott puts an end to this confusion. The opinion argues that the relevant substantive standard is one of likelihood. More precisely, AG Kokott considers that a claimant would have to show that the exclusionary effects are ‘more likely than not’ to arise in the context in which the practice is implemented (para 81; Post Danmark I is cited, again, in support of the conclusion).

I welcome this point, which is a very sensible interpretation of Article 102 TFEU case law. Arguably, and more importantly, it is broadly in line with the substantive standards applying in the context of Article 101 TFEU (to ‘by effect’ restrictions) and merger control (think for instance of Tetra Laval). Across the board consistency in the interpretation of EU competition law is of the outmost importance and the opinion is a crucial step in this direction. It would be difficult to justify why restrictive effects on competition would be subject to a different substantive standard under Article 102 TFEU.

Is the ‘capability’ standard entirely irrelevant in Article 102 TFEU case law? I do not think so. Concerning practices that are deemed abusive ‘by object’, it is sufficient to show that they are capable of restricting competition. This is exactly the point made by the GC in Michelin II. The capability standard also applies to agreements that are shown to restrict competition by object within the meaning of Article 101(1) TFEU, as clarified by the ECJ in T-Mobile and again in Bananas.

Generalities on rebates and exclusive dealing

I am sure it has not escaped you that AG Kokott seems to suggest that target discounts are abusive by their very nature (para 28). This is not entirely uncontroversial. One could argue that it is at odds with what is formally stated in the relevant rulings. It is difficult to deny, on the other hand, that AG Kokott’s statement is an accurate depiction of the practical consequences of the case law.

The opinion also reiterates the fundamental reason why exclusive dealing and loyalty rebates are deemed abusive by their very nature. Paragraphs 28 and 29 insist on the presumption that such practices lack an economic justification and that they necessarily serve an exclusionary purpose. I have already explained at length why this presumption is difficult to reconcile with Delimitis, which is grounded on different premises. As I have so many other interesting things to say about Post Danmark II, I will not insist on that point!