Chillin'Competition

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:

Infracción única y continuada- Alfonso Lamadrid

(Many thanks to Paloma Lantero for the help in preparing them)