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Archive for July 7th, 2016

Some thoughts after the Intel hearing: the Court will choose between legal consistency and continuity

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I have read with great interest the report on the Intel hearing that Trevor Soames shared via Chillin’ Competition. I now feel I have a good sense of what went on and, more importantly, of what is at stake.

Above all, the hearing has revealed the Court of Justice will be making a choice between legal consistency and continuity. It is not a secret that courts typically lean towards stability, and thus tend to favour the latter. More often than not, it is sensible to do so, primarily because it preserves legal certainty.

Sometimes, however, continuity can be the very source of legal uncertainty. Where the case law is plagued with inconsistencies, it may not be possible to tell in advance whether a practice is lawful or unlawful. In such circumstances, favouring continuity becomes counterproductive. It may indeed provide stability, but at the price of making the case law impenetrable. If legal certainty is to be achieved, it may be necessary to refine it.

As the law stands, exclusive dealing and loyalty rebates are prohibited as abusive by object under Article 102 TFEU. These practices are only acceptable where the dominant firm is in a position to provide an objective justification. I see the attraction of continuity, and I certainly understand the reluctance to depart from a line of case law that dates back to the 1970s. Thus, I would not be surprised if the Court of Justice went for stability in Intel.

The hearing has made apparent, on the other hand, that the prohibition by object of exclusivity and loyalty rebates is a source of legal inconsistencies. It is simply not possible to reconcile this line of case law with other rulings. This is the reason why rebate cases remain controversial almost 40 years after Hoffmann-La Roche, and the reason why the Commission reviewed its enforcement priorities a decade ago.

The existing legal inconsistencies have become, if anything, more apparent after Post Danmark II. This idea is clearly illustrated by comparing the legal treatment of standardised rebates schemes (at stake in Post Danmark II) with the legal treatment of exclusive dealing and loyalty rebates (at stake in Intel).

Consider the example of a standardised rebate scheme that only covers 1% of the market. Is this practice prohibited under Article 102 TFEU? Almost certainly not. The Court explained in Post Danmark II that a standardised rebate scheme is only abusive if it is likely to have exclusionary effects. The Court also mentioned the coverage of the practice as one of the factors that determines the likelihood of such effects. And it is very unlikely that a rebate scheme that covers 1% of the market will be exclusionary.

How about an exclusive dealing agreement that only covers 1% of the market? If the supplier is dominant, this agreement would be prima facie prohibited by object. It would be very unlikely to have exclusionary effects. As the case law stands, however, this fact is irrelevant. It would still be unlawful.

I gather from the reports of the hearing that many of the questions asked by the Advocate General and the judges focused on this inconsistency. This is not surprising. It is difficult to think of a reason why loyalty rebates, on the one hand, and standardised schemes, on the other, should be treated differently under Article 102 TFEU (most probably because there is not a single one). The case law (Michelin II, British Airways, Tomra) shows that loyalty and standardised rebates are similar in their nature, purpose and (pro- and anticompetitive) effects (so much so, in fact, that it is sometimes difficult to distinguish between them in practice).

Against this background, I feel that, in this particular instance, continuity appears to do clearly more harm than good, and that, accordingly, consistency should be favoured instead. What I do not know, alas, is whether the Court will come to the same conclusion.

Written by Pablo Ibanez Colomo

7 July 2016 at 11:25 pm

Posted in Uncategorized