Chillin'Competition

I mentioned earlier this week that the legal test proposed by AG Kokott is likely to prove more controversial than the broad principles discussed in the opinion. I can think of at least two reasons for this. The test is, first, difficult to reconcile with some aspects of the relevant case law. In addition, it is based on an unstructured set of indicators that might prove difficult to apply by a national court. For the same reasons, it may not allow for the effective judicial review of administrative action.

The test proposed is difficult to reconcile with Hoffmann-La Roche and Michelin I

Are categories relevant in rebate cases?

AG Kokott states in paragraph 29 of the opinion that categories are ‘ultimately immaterial’ when determining whether a rebate scheme is abusive. This is a sensible argument – the Commission Guidance is based on a similar idea – but it is a normative claim, not a positive one. Formal categories (neatly presented by the GC in Intel) were relied upon in Hoffmann-La Roche, and the Court derived clear legal consequences from them.

I have the impression, moreover, that paragraphs 28 and 29 of the opinion are somewhat contradictory. AG Kokott relies upon formal categories to claim that loyalty rebates and target discounts are abusive by their very nature. If categories are deemed relevant to conclude that some practices are prima facie abusive, it is not easy to understand why they would be ‘ultimately immaterial’ when determining whether prima facie lawful conduct is in breach of Article 102 TFEU. The legal test should adapt to the categories crafted in the case law, not vice versa.

Quantity rebates in Hoffmann-La Roche

Since Hoffmann-La Roche, quantity rebates are deemed to have a valid economic justification. The underlying presumption is that they reflect the cost savings made by the dominant firm. Against this background, a legal test for quantity rebates should probably start by ascertaining whether the scheme under consideration is inconsistent with a cost saving rationale and thus abusive by its very nature. It would be for the competition authority or the private claimant to show that the scheme does not have a valid economic justification (the opposite is required from dominant firms once a prima facie abuse is established).

That a quantity rebate scheme is abusive by object could be established, for instance, when it is shown to be predatory within the meaning of AKZO (pricing below average variable cost can be safely presumed to be an irrational strategy for a firm to pursue). On the other hand, I fail to see why the factors identified by AG Kokott are inconsistent with a cost saving story. Why would the award of retroactive quantity rebates over a period of one year not be credible in an industry with high fixed costs?

The assessment of ‘all the circumstances’ in Michelin I

AG Kokott proposes to assess the lawfulness of quantity rebates in light of ‘all the circumstances’ relating to the scheme in question. This test is drawn from Michelin I, but it was not conceived for quantity rebates. The Court examined in that case the legal status of schemes that are not formally conditional upon exclusivity but that are not quantity rebates either. As a result, one cannot conclude, without more, that this test can or should be extended to other categories of rebates. Michelin II, which was not appealed before the ECJ, seems to be the only quantity rebates case to which reference is made in the opinion (at least in relation to this question; Portugal v Commission, also cited, was about exploitative discrimination).  Read the rest of this entry »