Relaxing whilst doing Competition Law is not an Oxymoron

De minimis and Article 102 TFEU: how to make sense of Post Danmark II (and Tomra, and Expedia)

with 3 comments

De minimis

There is a fundamental aspect of Post Danmark II that, I realise, is still poorly understood. I know I have already written quite a bit about the judgment, but it makes sense to say a word about it before the discussion loses topicality.

In paras 70-73 of Post Danmark II, the Court refused to set a de minimis threshold in the context of Article 102 TFEU. This is sensible and, may I add, wholly uncontroversial. When a firm holds a dominant position, anything that it does is potentially exclusionary (in the sense that it ‘is liable’ to have anticompetitive effects).

By the same token, when it is shown that a practice implemented by a dominant firm is likely to have exclusionary effects, it is by definition the case that these effects will be appreciable. Again, I fail to see anything controversial in this regard. Suffice it to think, by analogy, of an exclusive distribution agreement implemented by a supplier with a 35% market share. If this agreement is found to have restrictive effects on competition within the meaning of Article 101(1) TFEU, these effects will be appreciable.

Where does the misunderstanding come from?

The Court refuses to set a de minimis threshold, true, but this fact does not mean that dominant firms’ practices are always abusive. This key aspect of the judgment is not very well understood. As I explained during my talk, Post Danmark II is clear in saying that the exclusionary effects of standardised rebate schemes need to be established. It is simply not enough to assume that this practice can have exclusionary effects.

What is the practical consequence? Standardised rebate schemes may fall outside the scope of Article 102 TFEU if, for instance, the dominant firm is not an unavoidable trading partner, or if the relevant market is not conducive to foreclosure. If the practice is unlikely to have exclusionary effects, it will not be caught by Article 102 TFEU. The fact that the Court refused to set a de minimis threshold is entirely compatible with a finding that the practice is not abusive.

The analogy with Article 101 TFEU.

Allow me to go back to the example I used above to illustrate my point. An exclusive distribution agreement where the supplier has 35% of the market falls outside the scope of the de minimis Notice (the market share is above 15%). It also falls outside the scope of the Block Exemption Regulation (the market share is above 30%). Does this mean that the agreement is necessarily caught by Article 101(1) TFEU? No. Provided that it is not ‘by object’, its likely restrictive effects on competition will have to be established (and not simply assumed) under Article 101(1) TFEU. This point is eloquently explained by the Commission in the Guidelines on vertical restraints (para 96, if you are curious). Well, the same is true in the context of Article 102 TFEU (as far as ‘by effect’ practices, like standardised rebate schemes, are concerned).

Expedia and Tomra: two provisions, a single logic.

As I pointed out in my first reaction on the ruling, the statements about de minimis found in Post Danmark II are only truly relevant for ‘by object’ practices, that is, for those practices that are deemed abusive irrespective of their impact on competition. This category includes, as the law stands, exclusive dealing and loyalty rebates.

The authority or the claimant would not have to show that exclusive dealing is likely to have exclusionary effects on competition to establish an abuse. In this sense, it is different from the standardised rebate schemes examined in Post Danmark II. If evidence of the likely exclusionary effects is not necessary in the case of exclusive dealing, it would not be a valid defence to argue that the practice is de minimis. This is the point made by the Court in Tomra, which from a positive perspective seems uncontroversial too.

One may dislike this outcome, but is it any different from what we observe in the context of Article 101(1) TFEU? Remember Expedia, where the Court held that agreements between undertakings that (i) restrict competition by object and (ii) have an effect on trade between Member States are never de minimis. Expedia and Tomra can be said to follow the same logic. Where a practice is deemed anticompetitive ‘by object’, the appreciability of the effects becomes irrelevant.

Written by Pablo Ibanez Colomo

9 November 2015 at 8:30 am

Posted in Uncategorized

3 Responses

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  1. Thanks for clarifying this point. Indeed, as a matter of positive analysis, the treatment of appreciability under art. 101 and 102 TFEU seems symmetric. One has to acknowledge the Court’s desire to avoid any discussion of effects for practices which it deems serious enough not to warrant a proof of effects. The introduction of a de minimis clause would open the back door to a discussion about effects since one would have to assess the prevalence of the practice and its likely or actual impact on the market in order to decide about it. However, why would the Court not avail itself such a possibility? The trade-off is between the clarity of the prohibition and the ability of the Court to tailor enforcement to the specifics of the case (why prohibit something harmless?). It seems to me that the answer to such a dilemma depends on the nature of the legal environment. In a system dominated by investigations by public authorities, it is very unlikely that cases falling below a given impact threshold will be taken up, given the scarcity of resources. In that case, the current case law comes almost for free: legal rules are particularly clear, and the Court will not have to rule on cases that are, for all practical purposes, insignificant. By contrast, in a system where private litigation is sizeable, the risk is high that many lawsuits reaching the Court’s docket (driven by the desire of frustrated competitors to focus their rivals’ mind on something else than market competition or otherwise) lack any significance, in that they would not affect market outcomes and would not pass a de minimis threshold, if such existed. Thus, the normative appeal of the current case law may change in the future, as a function of private litigation developments.

    Cedric Argenton

    9 November 2015 at 10:43 am

  2. Thanks for your thoughtful comment, Cedric!

    The first point that you discuss is appropriately summarised in the question that you raise: why prohibit something harmless? It seems clear from the case law that the ‘by object’ label is not based on a presumptions of anticompetitive effects. Practices are not prohibited by object where they are very likely to have anticompetitive effects. This is another persistent misunderstanding. The ‘by object’ category applies to practices that, in the view of the Court, are unlikely to have a pro-competitive justification. Once the absence of a pro-competitive justification is presumed or established, the issue of effects becomes irrelevant.

    The institutional issue that you raise is equally interesting. I discussed it in my piece on Post Danmark II and in some previous blog posts. My impression is that the Court is aware that tests need to be accurate and administrable so that the decentralised enforcement of EU competition law is possible (and sensible). The Post Danmark saga is clear evidence of this awareness. In the 2012 ruling, for instance, the Court held that selective price cuts are not abusive by object and that they will typically infringe Article 102 TFEU where they are predatory within the meaning of AKZO. This position put an end to some controversy about the legal status of the practice and devised a test that is sound and practicable. In Post Danmark II, it clarified that standardised rebate schemes are only abusive insofar as they are likely to have exclusionary effects. In doing so, it moved away from the ambiguity of prior case law.

    Pablo Ibanez Colomo

    9 November 2015 at 2:03 pm

  3. […] effect in the context of Article 102 TFEU. This position is not correct, as I explained elsewhere. What the Court held in Post Danmark II is that, where an anticompetitive effect is shown, this […]

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