The legal status of rebates after Post Danmark II: my presentation
I was delighted to give a presentation on Post Danmark II in the Lunch Talk organised by the GCLC in Brussels earlier today. My slides can be found here. I am really grateful to the organisers and to Denis Waelbroeck, who chaired the session, for the invitation. The discussion with Nicholas Khan (European Commission) was really interesting.
Several participants in the Lunch Talk were of the view that some passages in Post Danmark II are not clear. In my presentation, I chose to avoid discussing individual paragraphs and focused instead on the aspects of the ruling that I find to be clearer and less subject to interpretation. The key points I made can be summarised as follows:
- The days of Michelin II and British Airways are over:
- A two-step test: The single most important contribution of Post Danmark II relates to the factors to consider when establishing the abusive nature of rebate schemes that are not conditional upon exclusivity. In Michelin II and British Airways, the assessment of ‘all the circumstances’ revolved around whether the practices had a ‘loyalty-inducing’ (or ‘fidelity-building’) effect. In the world of Post Danmark II, this is no longer enough (at least as far as standardised rebate schemes are concerned). The ruling sets out a two-step test that makes it necessary to consider both (i) the nature and the operation of the rebate scheme and (ii) the features of the relevant market, the regulatory context and the extent of the dominant position (paras 29-30).
- ‘Loyalty-inducing’ rebates are not abusive by object: In Michelin II, the GC took the view that ‘loyalty-inducing’ rebates are abusive by object (para 241). Similarly, in British Airways, the GC held that the scheme at stake in the case served an exclusionary purpose (para 288). After Post Danmark II it is clear that these schemes are only caught by Article 102 TFEU insofar as they are likely to have an exclusionary effect on competition. Thus, they do not fall within the ‘by object’ category.
- Towards the analysis of effects: Michelin II and British Airways were controversial cases because the impact of the practices on competition was not considered in the analysis. The exclusionary effects of the schemes were simply assumed to derive from their ‘loyalty-inducing’ nature. By contrast, the analysis of effects is an integral element of the legal test set out in Post Danmark II. The factors considered by the Court include the (i) extent of the dominant position; (ii) the coverage of the practice; (iii) the regulatory context and (iv) whether the dominant firm is an unavoidable trading partner. I pointed out that there are clear similarities between these factors and those sketched by the Commission in its Guidance. The threshold of effects (i.e. likelihood) is also the same.
- Open questions: The most obvious question raised by Post Danmark II is whether the same analytical framework applies to target rebate schemes. It is difficult for me to think of a reason why it should not. The second question is whether the ‘by object’ category is appropriate for exclusive dealing and loyalty rebates. The exclusionary potential of these practices, when implemented by dominant firms, is undeniable. The issue is instead whether it is appropriate to simply assume the exclusionary effects of these practices if this is not sufficient under the test set out in Post Danmark II. After all, rebates (including standardised schemes) are problematic from a competition law perspective when they come close in their nature and operation to exclusivity obligations. Why, then, should they be treated differently?